[Federal Register: January 28, 2005 (Volume 70, Number 18)]
[Rules and Regulations]
[Page 4587-4741]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28ja05-29]
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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 and 422
Medicare Program; Establishment of the Medicare Advantage Program;
Final Rule
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 417 and 422
CMS-4069-F
RIN 0938-AN06
Medicare Program; Establishment of the Medicare Advantage Program
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule.
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SUMMARY: This final rule implements provisions of the Social Security
Act (the Act) establishing and regulating the Medicare Advantage (MA)
program. The MA program was enacted in Title II of The Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA)
(Pub. L. 108-173) on December 8, 2003. The MA program replaces the
Medicare+Choice (M+C) program established under Part C of title XVIII
of the Act, while retaining most key features of the M+C program.
The MA program attempts to broadly reform and expand the
availability of private health plan options to Medicare beneficiaries.
This final rule responds to public comments on a proposed rule
published on August 3, 2004 (FR 69 46866).
EFFECTIVE DATE: These regulations are effective March 22, 2005 except
for the following changes which will become effective on January 1,
2006: amendment of Sec. 417.600(b); removal of Sec. 417.602 through
Sec. 417.638; and amendments to Sec. 417.832(d); and Sec. 417.840.
FOR FURTHER INFORMATION CONTACT: Eligibility, Election, and
Enrollment--Lynn Orlosky, 410-786-9064 or Randy Brauer, (410) 786-1618.
Benefits and Beneficiary Protections--Frank Szeflinski, 303-844-
7119.
Quality Improvement Program--Tony Hausner, 410-786-1093.
Submission of Bids, Premiums, and Plan Approval--Anne Hornsby, 410-
786-1181.
Payments to MA Organizations--Anne Hornsby, 410-786-1181.
Special Rules for MA Regional Plans--Marty Abeln, 410-786-1032.
Contracts with MA Organizations--Mark Smith, 410-786 8015.
Beneficiary Appeals--Chris Gayhead, 410-786-6429.
General Information--410-786-1296.
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Table of Contents
I. Background
A. Medicare Prescription Drug, Improvement, and Modernization Act
of 2003
B. Relevant Legislation
1. Balanced Budget Act of 1997
2. Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of
1999 and the Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000
3. Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (MMA)
C. Codification of Regulations
D. Organizational Overview of Part 422
II. Analysis of and Responses to Public Comments
A. Overview
1. Comments on the August 3, 2004 Proposed Rule
2. Organization of the Final Rule
B. General Comments
1. Administrative Procedure Act (APA) Issues
2. Other General Comments
III. Provisions of the Proposed Rule, Analysis of and Responses to
Comments on the Proposed Rule, and Final Decisions
IV. Provisions of the Final Rule
V. Collection of Information Requirements
VI. Regulatory Impact Analysis
Regulations Text
Acronyms
Because of the many terms to which we refer by acronym in this
final rule, we are listing the acronyms used and their corresponding
terms in alphabetical order below:
ABN Advance beneficiary notice
ACR Adjusted Community Rate
ACRP Adjusted Community Rate Proposal
ADL Activities of Daily Living
AHRQ Agency for Healthcare Research and
Quality
AI/AN American Indian and Alaska Native
ALJ Administrative law judge
APA Administrative Procedure Act
BBA Balanced Budget Act of 1997
BBRA Medicare, Medicaid and SCHIP [State
Children's Health Insurance
Program] Balanced Budget Refinement
Act of 1999, (Pub. L. 106-113)
BIPA Medicare, Medicaid, and SCHIP
Benefits Improvement and Protection
Act of 2000 (Pub L. 105-33)
CAH Critical Access Hospitals
CCPs Coordinated Care Plans
CMPs Competitive Medical Plans
CORF Comprehensive outpatient
rehabilitation facility
DSH Disproportionate Share Hospital
EGPH Employer and Union Group Health
Plans
EOC Evidence of coverage
ESRD End-Sage Renal Disease
FEHB Federal Employees Health Benefits
FFS Fee-for-Service plans
FI Fiscal Intermediaries
HCPP Health care prepayment plan
HHA Home health agency
HMO Health Maintenance Organizations
HOS Health Outcomes Survey
ICF/MR Intermediate Care Facilities for
Mentally Retarded
IHS Indian Health Service
IPA Independent Physician Association
ISAR Intra-Service Area Rate
I/T/U Indian Health Service, Tribal and
Urban Health Program
LEP Limited English Proficiency
LMRP Local Medical Review Policy
M+C Medicare+Choice
MA Medicare Advantage
MA-PD Medicare Advantage Prescription Drug
MAC Medicare Appeals Council
MCOs Managed Care Organizations
MMA Medicare Prescription Drug,
Improvement, and Modernization Act
of 2003
MSA Medical Savings Account
MYBE Mid-year Benefit Enhancement
OACT Office of the Actuary
OPM Office of Personnel Management
PACE Program All-Inclusive Care for the
Elderly
P4P Pay for Performance
PCP Primary Care Physician
PDP Prescription Drug Plan
PFFS Private Fee-For-Service
POS Point of Service
PPOs Preferred Provider Organizations
PSOs Provider Sponsored Organizations
QI Quality Improvement
QIO Quality Improvement Organization
RFB Religious Fraternal Benefit
SAE Service Area Expansion
SEP Special Election Period
SHIP State Health Insurance Programs
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SNF Skilled Nursing Facility
SNPs Special Needs Plans
I. Background
A. 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. Title
II of the MMA makes important changes to the current Medicare+Choice
(M+C) program by replacing it with a new Medicare Advantage (MA)
program under Part C of Medicare. On August 3, 2004, we published a
proposed rule in the Federal Register (69 FR 46866) that set forth the
provisions that would implement Title II of the MMA. Beginning in 2006,
the MA program is designed to:
Provide for regional plans that may make private plan
options available to many more beneficiaries, especially those in rural
areas.
Expand the number and type of plans provided for, so that
beneficiaries can choose from Health Maintenance Organizations (HMOs),
Preferred Provider Organization (PPO) plans (the most popular type of
employer-sponsored plan), Fee-for-Service (FFS) plans, and Medical
Savings Account (MSA) plans, if available where the beneficiary lives.
Enrich the range of benefit choices available to enrollees
including improved prescription drug benefits, other benefits not
covered by original Medicare, and the opportunity to share in savings
where MA plans can deliver benefits at lower costs.
Provide incentives to plans, and add specialized plans to
coordinate and manage care in ways that comprehensively serve those
with complex and disabling diseases and conditions.
Use open season competition among MA plans to
improve service, improve benefits, invest in preventive care, and
hold costs down in ways that attract enrollees.
Enhance and stabilize payments to organizations, improve
program design, introduce new flexibility for plans, and reduce
impediments to plan participation.
Advance the goal of improving quality and increasing
efficiency in the overall health care system. Medicare is the
largest payer of health care in the world. Medicare can drive changes
in the entire health care system.
With these new and improved choices, Medicare beneficiaries, like
Federal employees and retirees in the Federal Employees Health Benefits
(FEHB) Program, will have the opportunity to obtain improved benefits,
improved services, and reduced costs. However, beneficiaries will still
be able to remain in traditional Medicare (referred to throughout as
``original'' Medicare), enhanced by the new Part D drug benefit. All
will have the opportunity to switch among plans, or to or from original
Medicare, during the annual election period (or ``open season'') in
November and December.
Over time, participating plans will be under continued competitive
pressure to improve their benefits, reduce their premiums and cost
sharing, and improve their networks and services, in order to gain or
retain enrollees. In addition, we expect plans to use integrated health
plan approaches such as disease prevention, disease management, and
other care coordination techniques. In doing so, integrated plans that
combine the original Parts A and B of Medicare and the new Part D drug
benefit and apply these innovative techniques must pass on savings that
may result from these care coordination techniques to the enrollee
through reduced premiums or additional benefits.
Beginning in 2006, payments for local and regional MA plans will be
based on competitive bids rather than administered pricing. MA
organizations will submit an annual aggregate bid amount for each MA
plan. An aggregate plan bid is based upon the MA organization's
determination of expected costs in the plan's service area for the
national average beneficiary for providing non-drug benefits (that is,
original Medicare (Part A and Part B) benefits), Part D basic
prescription drugs, and supplemental benefits if any (including
reductions in cost sharing). Our payment to an MA organization for an
MA plan's coverage of original Medicare benefits depends on the
relationship of the plan's basic A/B bid to the plan benchmark. For a
plan with a basic A/B bid below its benchmark, we will pay the MA
organization the basic A/B bid amount, adjusted by the individual
enrollee's risk factor, plus the rebate amount. (The rebate is 75
percent of the difference between the plan bid and benchmark, and is
used to provide mandatory supplemental benefits or reductions in Part B
or Part D premiums. The government retains the other 25 percent.) For a
plan with a bid equal to or above its benchmark, we will pay the MA
organization the plan benchmark, adjusted by the individual enrollee's
risk factor. In addition, we would pay the bid amount, if any, for Part
D basic coverage. The MMA also requires other adjustments to payments.
See the subpart G preamble for a discussion of the geographic Intra-
Service Area Rate (ISAR) adjustment and the government premium
adjustment (referred to in the MMA as the ``adjustment relating to risk
adjustment'').
We will be able to negotiate bid amounts with plans in a manner
similar to negotiations conducted by the Office of Personnel
Management(OPM) with FEHB plans. We will work with plans to ensure
benefit packages meet the needs of our population and that information
is made available to beneficiaries so that they can make decisions
about which plans best meet their needs.
Finally, in conjunction with the new drug benefit required under
Title I of MMA, which is addressed in separate rulemaking found in part
423, changes made in the MMA to the M+C program (now called the MA
program) are intended to bring about broad-based improvements to the
Medicare program's benefit structure, including improved prescription
drug coverage under the MA program. Organizations offering local and
regional coordinated care MA plans must offer at least one plan with
the Medicare prescription drug benefit or an actuarially equivalent
drug benefit.
In addition to the changes because of the MMA, we identified many
areas in the proposed rule where we believed we could prevent or reduce
unnecessary burden, duplication, or complexity either in interpreting
the new MMA provisions or in modifying existing rules to accommodate MA
reforms.
B. Relevant Legislation
1. Balanced Budget Act of 1997
Section 4001 of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-
33) added sections 1851 through 1859 to the Social Security Act (the
Act) establishing a new Part C of the Medicare program, known as 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 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 through which
to obtain their Medicare benefits. The BBA authorized
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us to contract with private organizations offering a variety of private
health plan options for beneficiaries, including both traditional
managed care plans (such as those offered by HMOs that had been offered
under section 1876 of the Act), and new options that were not
previously authorized. Four types of M+C plans were authorized under
the new Part C, as follows:
M+C coordinated care plans, including HMOs (with or
without point-of-service options (POS)), provider sponsored
organizations (PSOs), and PPOs.
M+C MSA plans (combinations of a high deductible M+C
health insurance plan and a contribution to an M+C MSA).
M+C private fee-for-service (PFFS) plans.
M+C religious and fraternal benefit (RFBs)plans.
The BBA changed the payment methodology to Medicare health plans
and initially afforded beneficiaries more choice of plans nationally.
However, payment rates grew modestly in relation to the costs health
plans incurred, resulting in fewer health plans participating in the
M+C program, decreased choice of plans available to beneficiaries, and
fewer extra benefits available to enrollees. Although there were large
payment increases in rural areas as a result of the BBA provisions,
access to Medicare coordinated care plans declined significantly in
rural areas after 1997.
To implement these changes, we published an interim final rule in
the Federal Register on June 26, 1998 (63 FR 34968); a final rule on
February 17, 1999 (64 FR 7968); and a final rule with comment on June
29, 2000 (65 FR 40170).
2. Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999
and the Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000
The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of
1999, Pub. L. 106-113 (BBRA) amended the M+C provisions of the BBA.
Many of these amendments were reflected in the June 29, 2000 final rule
with comment period. In addition, the Medicare, Medicaid, and SCHIP
Benefits Improvement and Protection Act of 2000, Pub. L. 106-554
(BIPA), enacted December 21, 2000, further amended the M+C provisions
of the BBA and BBRA. A final rule containing BIPA provisions was
published in the Federal Register on March 22, 2002 (67 FR 13278), as
well as on August 22, 2003 (68 FR 50855).
These laws enacted subsequent to the BBA made incremental changes
to M+C payments and provided financial incentives to plans to
participate in the M+C program. While these efforts helped stabilize
the M+C program, they did not generally improve plan participation in
the M+C program nor did they increase overall beneficiary enrollment or
access to plans in rural areas.
3. Medicare Prescription Drug, Improvement, and Modernization Act of
2003 (MMA)
The specific sections of Part C of the Social Security Act that
were impacted by the MMA are as follows:
Section 1851--Eligibility, election and enrollment.
Section 1852--Benefits and beneficiary protections.
Section 1853--Payments to MA organizations.
Section 1854--Premiums.
Section 1855--Organizational and financial requirements for MA
organizations.
Section 1856--Establishment of standards.
Section 1857--Application procedures and contracts with MA
organizations.
Section 1858--Special rules for MA regional plans [added by the
MMA].
Section 1859--Definitions; Miscellaneous provisions.
This final rule addresses the new MA provisions in Title II of MMA.
The requirement in 1858(a)(2)(D) of the Act to conduct a market survey
and analysis before establishing MA regions took place concurrent with
the publication of the MA proposed rules. The announcement of the
establishment of the MA and Prescription Drug Plan (PDP) regions
occurred on December 6, 2004. The regions may be found at http://cms.hhs.gov/medicarereform/mmaregions
.
Provisions of the MMA addressed in this final rule outside of Title
II of the MMA include Section 722--Medicare Advantage Quality
Improvement Program, of Title VII. Quality improvement provisions in
this final rule may be found under Subpart D--Quality Assurance.
C. Codification of Regulations
The final provisions set forth here are codified in 42 CFR Part
422, The Medicare Advantage Program.
The regulations for managed care organizations (MCOs) that contract
with CMS under cost contracts will continue to be located in 42 CFR
part 417, Health Maintenance Organizations, Competitive Medical Plans,
and Health Care Prepayment Plans.
D. Organizational Overview of Part 422
The MMA amended the existing provisions of the Medicare statute
found in Part C of Title XVIII, sections 1851 through 1859 of the Act,
and added a new section 1858 to the Act. This final rule covers a wide
range of topics included in the existing part 422, including
eligibility and enrollment, benefits and beneficiary protections,
payment, contracting requirements, and grievances and appeals. We have
generally retained the organization of the sections from part 422,
except for reordering subparts F and G to place the bidding and payment
provisions in sequential order.
Where the MMA did not amend existing statute, this final rule does
not set forth unchanged regulations text from the previous part 422.
Thus, this final rule contains only the necessary revisions to existing
part 422. In some subparts of part 422, the only changes are in
nomenclature, that is, the replacement of M+C references with MA
references. The regulations in that subpart H are not set forth in this
final rule. The subparts with substantive changes are as follows:
Subpart A--General provisions, establishment of the Medicare
Advantage Program, definitions, types of MA plans, and cost-sharing in
enrollment-related costs (user fees).
Subpart B--Requirements concerning beneficiary eligibility,
election, and enrollment and disenrollment procedures.
Subpart C--Requirements concerning benefits, access to services,
coverage determinations, and application of special benefit rules to
PPOs and regional plans.
Subpart D--Quality improvement program, chronic care improvement
program requirements, and quality improvement projects.
Subpart E--Relationships with providers.
Subpart F--Submission of bids, premiums, and related information
and plan approval.
Subpart G--Payments for MA organizations.
Subpart I--Organization compliance with State law and preemption by
Federal law.
Subpart J--Special rules for MA regional plans, including the
establishment of MA regions, stabilization fund, and risk sharing.
Subpart K--Application and contract requirements for MA
organizations.
Subpart L--Effect of change of ownership or leasing of facilities
during term of contract.
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Subpart M--Beneficiary grievances, organization determinations, and
appeals.
Subpart N--Medicare contract determinations and appeals.
Subpart O--Intermediate sanctions.
Each of these subparts is discussed below in section II of this
preamble.
II. Analysis of and Responses to Public Comments
A. Overview
1. Comments on the August 3, 2004 Proposed Rule
We received 186 items of correspondence containing more than a
thousand specific comments on the August 3, 2004 proposed rule.
Commenters included MCOs and other industry representatives,
representatives of physicians and other health care professionals,
beneficiary advocacy groups, representatives of hospital and other
providers, insurance companies, employers, States, accrediting and peer
review organizations, members of the Congress, Indian Health Service
(HIS), Indian Health Service, Tribal and Urban Health Programs (I/T/U),
American Indians and Alaska Natives (AI/AN), and others. Consistent
with the scope of the August 3, 2004 proposed rule, most of the
comments addressed multiple issues, often in great detail. We received
many comments expressing concerns unrelated to the proposed rule. Some
commenters expressed concerns about Medicare unrelated to the MA
program, while others addressed concerns about health care and health
insurance coverage unrelated to Medicare. Because of the volume of
comments we received in response to the August 3, 2004 proposed rule we
will be unable to address comments and concerns that are unrelated to
the proposed rule. Listed below are the six areas of the proposed
regulation that generated the most concern:
Bidding and Payment.
Access issues, including network adequacy and access
providers, including rural providers.
Specialized Medicare Advantage Plans.
Establishment of MA Regions.
Eligibility and enrollment issues, including disenrollment
for failure to pay cost sharing and lock in.
In addition, we received many comments on the proposed rule
relating to Part 417 for Health Maintenance Organizations; Competitive
Medical Plans, and Health Care Prepayment Plans that contract with CMS
under cost contracts. A discussion of those comments may be found
separately at that Part.
2. Organization of the Final Rule
In this final rule, we address all comments received on the
proposed rule. We are addressing issues according to the numerical
order of the relative regulation sections.
B. General Comments
1. Administrative Procedure Act (APA) Issues
We received several comments on various aspects of the rulemaking
process, as discussed below:
Comment: One commenter suggested that we waive the APA provision
that requires at least 30 days notice prior to a final regulation
becoming effective in order to allow applicants applying to become
specialized MA plans for special needs individuals, or ``SNPs,'' to
have the new requirements apply as soon as possible. The commenter made
this recommendation in the event that this final regulation was not
issued prior to the MMA statutory deadline for issuing a final
regulation for SNPs that was 1 year following the date of enactment, or
December 8, 2004.
Response: The first two categories of special needs individuals,
institutionalized persons and dual eligibles, were specified in the
statute, and we have already begun working with plans wishing to become
specialized MA plans for these categories of special needs individuals.
We discuss in subpart A below our approach to allowing for the
additional category of special needs individuals--those with severe or
disabling chronic conditions. This final rule will take effect March
22, 2005, except where otherwise noted. We do not believe it is
necessary to waive the 30-day notice period because it likely will take
longer than the 30-day period for a plan's application and approval
process to occur. However, we intend to work with applicants who wish
to offer specialized MA plans to ensure that the approval process is as
efficient and timely as possible.
Comment: We received a number of comments on the timing of the
regulation and the short timeframe between issuance of the final
regulation and preparation of applications and bids early in 2005 for
contract year 2006. One commenter stated that the time required to re-
contract with its commercial provider networks to ensure that the PPO
contracts contain the Medicare required language and rate structure
that are reflective of CMS reimbursements, is substantial. The
commenter indicated that it needed more time to build the system
infrastructure to support a new systems platform than would be required
for commercial enrollees. The commenters suggested that plans may have
to limit the number of regions in which they participate because of the
short timeframes between issuance of the regulation and the application
filing deadline.
Response: We agree that working within the statutory constraints of
the MMA, including the relatively short period of about 13 months
between enactment of the legislation and issuance of final regulations,
there is little time between issuance of the regulation and the
preparation of applications and bids in 2005 for contract year 2006.
With respect to the short time frame in applications and submission of
bids, please refer to the comments and responses related to bidding at
Sec. 422.254 and Sec. 422.502 related to application requirements.
Our goal beginning on the date of enactment of the MMA was to issue
final regulations as soon as possible so that prospective MA plans
would have the necessary information to be able to make business
decisions before bids are due mid 2005.
Comment: Several commenters recommended that CMS issue a final rule
with comment period prior to implementation of the final rules. The
commenters expressed concern that certain aspects of the proposed rule
that would impact rural providers have not been specified in sufficient
detail. One commenter recommended that CMS conduct a second notice of
proposed rulemaking incorporating changes from the first round of
comments and allowing for public comment on the additional details that
are currently under development, or issue the regulations on an interim
basis with a second comment period on the additional, important details
that are currently under development or that reflect decisions made
following this round of comments.
Response: Under the APA, we are required to provide the public with
the opportunity to review and comment upon proposed regulations. We
have done this through the publication of the August 3, 2004 proposed
rule and its corresponding comment period. We believe that allowing for
a second round of comments or publishing interim regulations would make
it difficult for MA organizations wishing to offer MA plans in 2006 to
prepare to meet the new requirements imposed by the MMA and implemented
by this final rule.
2. Other General Comments
Comment: A number of commenters stated that the final regulation
must
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address the unique state of AI/AN people and the Indian health program.
In particular, these comments raise concerns about the implications of
the proposed rules on the Indian health care delivery system. For
example, there is concern that the proposed rules will jeopardize
significant revenues the Indian health system now collects from
Medicaid for ``dual eligibles,'' that is, those individuals who are
eligible for both Medicare and Medicaid. They ask for substantial
modifications to the proposed rules to enable voluntary enrollment by
AI/AN populations in MA plans. Some of the suggested modifications
include: (1) encouraging MA enrollment by AI/AN by removing financial
barriers, such as waiving AI/AN cost sharing for all plans; (2)
ensuring that I/T/U Health Programs are held harmless financially, and
are fully reimbursed for covered services provided to AI/AN who enroll
in a MA plan.
Response: We appreciate the numerous comments that provided
information on unique health needs for the AI/AN populations. As noted
elsewhere, we are implementing the MMA statute through this rulemaking.
We do not have the flexibility to include language that would carve out
a subset of Medicare beneficiaries, such as AI/AN populations, if it is
not provided for in statutory language. Specific comments raised by the
AI/AN and I/T/U organizations will be addressed in the respective
subparts under which the comments were submitted. In general, however,
we believe that the newly created regional plans will create new
choices for the AI/AN populations, and that access to MA plans will be
improved. Similarly, because MA regional plans must reimburse for all
covered benefits in and out of network, IHS facilities may receive
reimbursement for out of network care provided to a regional MA plan
AI/AN beneficiary by that MA regional plan. Under provisions designed
to protect the Medicare program from fraud and abuse, a broad waiver of
beneficiary cost sharing of the type the commenter requests would not
be permitted. However, we make no statement regarding the applicability
of existing statutory and regulatory provisions that may allow for the
waiver of cost sharing in certain cases.
Comment: One commenter recommended that CMS develop and conduct
educational and informational activities on the differences in the
various MA options, particularly in areas where there are choices of
original Medicare, managed care plans, PPOs, MSAs and PPFs plans. The
commenter believes that there is a potential for confusion and error
for beneficiaries with so many choices.
Response: We agree that strong outreach to beneficiaries about
their new choices of MA plans, as well as the drug benefit, is critical
to the success of these new programs. We will be devoting more
resources to providing new information and education on the new plan
choices and drug benefit.
Comment: We received a number of general comments on specialized MA
plans for special needs individuals, sometimes referred to as ``SNPs''
or ``special needs plans''. Comments relating to definitions of SNPs
may be found in subpart A and comments on enrollment may be found in
subpart B below. Among the general comments was a suggestion to
disseminate a set of guiding principles for SNPs and further refine
them as experience increases. We also received a comment that network
adequacy for SNPs should be evaluated to ensure timely, accessible, and
appropriate care and that all necessary specialists are represented.
Further, it was suggested that the provider network should be broad
enough to ensure that vulnerable populations served have timely access
to all necessary specialists required to address special needs.
Additionally, several commenters stated that CMS should incorporate
into regulation the authority to waive or modify MA requirements that
conflict with the intent of the SNP provision. Finally, some commenters
requested that CMS provide guidance with regard to the States' role in
developing and approving SNPs for dual eligibles. It was recommended
that CMS give states maximum flexibility in using waiver authority to
integrate Medicare and Medicaid benefits for dual eligibles under SNP
programs. A commenter suggested that CMS consult with State Medicaid
agencies where Home and Community-based waivers are operating before
allowing these populations to be enrolled in SNPs because this could
add to the cost and complexity of providing services.
Response: We provided Interim Guidance for SNPs in the 2005 Call
Letter in June 2004 and will provide additional operational guidance
for SNPs after publication of the final rule. Interim guidance may be
obtained at http://www.cms.hhs.gov/healthplans/specialneedsplans/qaspecneeds06-23.pdf.
Consistent with current policy for network
adequacy for MA plans as found at Sec. 422.112, we will require that
MA organizations submit information about their provider network and
will review this information as part of the application and approval
process to ensure that timely, accessible, and appropriate care is
provided. We will be particularly interested in the availability of
care designed to address the needs of the enrolled special needs
population. While the MMA allows SNPs to limit enrollment to a defined
population, as described in Sec. 422.52, the law does not provide for
waiver of other MA requirements for SNPs. We encourage States and MA
plans to work cooperatively in developing programs to serve dual
eligibles and will help to coordinate these efforts where appropriate.
We believe that SNPs can be appropriate for care and services to those
in the community and lead to the coordination of the complex services
they need.
Finally, we note that program oversight is an essential government
function that is an integral component of implementing the MA program.
Throughout this rulemaking, we refer to government activity necessary
to implement this section, which includes program oversight authority.
III. Provisions of the Proposed Rule, Analysis of and Responses to
Comments on the Proposed Rule, and Final Decisions
Part 417--Health Maintenance Organizations, Competitive Medical
Plans, and Health Care Prepayment Plans
Subpart J-Qualifying Conditions for Medicare Contracts Extension of
Reasonable Cost Contracts (Sec. 417.402)
Authority for cost HMOs/CMPs (cost plans) was due to expire on
December 31, 2004. Section 234 of the MMA provides an initial extension
of cost plans through December 31, 2007. It also provides for a
continued extension of cost plans beyond December 31, 2007, under
specific conditions.
Effective for contract years beginning on or after January 1, 2008,
cost plans may be extended where there are fewer than two coordinated
care plan-model MA plans of the same type available to Medicare
beneficiaries in the same service area. Both of the ``competing'' MA
plans of the same type must meet minimum enrollment requirements for
the entire previous year in order to trigger mandatory cost plan non-
renewal or service area reduction. We interpreted the statute to
require cost plan service area reduction where there are two or more MA
plans of the same type meeting minimum enrollment requirements
competing for Medicare members in a portion of the cost plan's service
area. We asked for comment on our interpretation in the proposed rule
related to mandatory service area reductions, saying that an
alternative
[[Page 4593]]
reading of section 234 of the MMA might permit renewal of a cost plan
in all parts of its service area until there was competition from two
(or more) MA coordinated care plans throughout the cost plan's service
area. After reviewing comments and responding (below), we are adopting
the proposed policy as final.
At Sec. 417.402, we proposed to permit existing cost plans to
expand their service areas through September 1, 2006. Thereafter,
service area expansion applications by cost HMOs/CMPs will be initially
evaluated and accepted only when there are not two or more MA plans of
the same type meeting minimum enrollment requirements in the area in
which the cost plan proposes to expand. After reviewing comments and
responding (below), we are adopting the proposed policy as final.
We received the following comments on the proposed provisions for
subpart J of part 417 and have provided our responses:
Comment: Many commenters supported the non-renewal of cost HMOs/
CMPs as proposed in the proposed rule. These commenters made reference
to the statutory and Conference Committee Report language that
indicated the Congressional intent that cost plans are to be required
to operate under the same provisions as other private plans to the
extent other private plans are willing to enter the cost plan's service
area. Many other commenters objected to the partial non-renewal
proposal made in the proposed rule. Many stated that competition from
MA coordinated care plans was more likely in urban areas, where most
cost plan enrollment is concentrated. These commenters stated that even
where there is no MA coordinated care plan competition in rural areas,
the viability of a cost plan without an urban ``core'' would likely be
threatened. To the extent CMS non-renewed cost plans in urban areas,
the financial viability of the organization offering the cost plan
would be undermined in rural areas as well because of the loss of
economies of scale. Such a result would be contrary, these commenters
said, to an underlying concept of the MMA, which is to increase choices
for Medicare beneficiaries in rural areas. Finally, many of these
commenters stated that continuity of care would be needlessly lost for
members in urban areas enrolled in cost plans that were partly non-
renewed, because the members would be forced to change Medicare plans
and providers.
Response: We generally support the notion of continuity of care.
However, we believe that when competing MA coordinated care plans are
available in an area that will be non-renewed for a cost plan, non-
renewed cost members are able to continue to receive services from
current providers through either enrollment in one of the competing MA
coordinated care plans or by returning to FFS Medicare. We recognize
that when a cost plan is non-renewed in an urban area with MA
coordinated care plan competition, the financial viability of the cost
plan in rural areas without MA coordinated care plan competition may be
undermined. However, we believe that allowing a cost plan to continue
to compete for members in areas of MA competition would unfairly
undermine the financial viability of the competing MA coordinated care
plans. Therefore, we have not modified our regulation. We believe that
this interpretation is consistent with the statutory intent that cost
plans will not be permitted to compete for new members under different
provisions from those applicable to other private plans that have
entered the cost plan's service area.
Comment: Some commenters stated that the proposed regulation text
at Sec. 417.402(c)(1) and (2) did not specify what kind of ``year''
was meant--calendar year, 12 month period, or something else. All of
these commenters also recommended that CMS specify in regulation text
that the ``year'' referred to is a calendar year.
Response: We agree with this comment and have modified the
regulation text to specify that the ``year'' in question is a calendar
year. This is consistent with the statute, in that MA and cost plan
offerings are for calendar years. To the extent that competition has
been present for the entire previous calendar year, it should mean the
calendar year immediately prior to the year in which the cost plan will
be required to non-renew in a portion of its service area or have its
contract non-renewed.
Comment: Many commenters recommended that CMS distinguish between
the meaning of ``plan'' within the section 1876 cost program and the
meaning of ``plan'' within the MA program. Under the section 1876 cost
program, each CMS-contracting HMO/CMP is allowed to offer a single
Medicare cost ``plan''--see section 1876(c)(2)(A)(I) of the Act. On the
other hand, under the MA program, each CMS-contracting MA organization
is permitted to offer many MA ``plans''--see Sec. 422.4(b).
Response: We disagree with the commenters. Section 234 of the MMA
expressly provides that a cost contract may not be extended or renewed
for a service area if such service area during the previous year was
within the service area of two or more coordinated care plans of the
same type (that is, regional or local) that meet the relevant
enrollment requirements. Because a single MA organization may offer two
different MA coordinated care plans within a cost plan's service area,
a single MA organization can trigger the non-renewal of the cost
contract, if the other requirements of Section 1876(h)(5)(C)(ii) of the
Act are met.
Comment: Several commenters submitted comments stating that
specialized MA plans for special needs individuals (special needs plans
or SNPs) (defined at Sec. 422.2) should not count in the MA
coordinated care plan competition tests in Sec. 417.402(c)(1) through
(3), because they are not available to the general public and therefore
not a true test of the availability of MA coordinated care plans in the
service area of a cost plan.
Response: We agree with the commenter that the Congress intended to
permit cost plans to remain in place in an area until the enrollees in
that cost plan have at least two local or two regional MA plan options
to choose from in the area. Because in many cases cost enrollees would
not be eligible to enroll in a SNP, we do not believe that the
existence of a SNP in a service area should automatically count as an
option available in that service area. We note that the statute refers
to a cost plan's service area being within the ``service area'' of two
local or regional MA plans. The MA regulations at Sec. 422.2 define a
plan's service area as an area within which an MA-eligible individual
may enroll in a particular MA plan offered by an MA organization.
Although a SNP's service area is open to all individuals in the service
area who are in the special needs category served by the plan, it may
not be open generally to MA-eligible individuals (for example, if it is
a SNP that exclusively, rather than disproportionately, enrolls special
needs individuals). For this reason, we believe that a cost plan may
not be ``within the service area'' of a SNP, as this term is used in
the competition test, in some cases. We will therefore apply the
competition test on a case-by-case basis with respect to SNPs. If the
SNP is an option available to the cost plan's enrollees, and the SNP
meets the requirements of section 1876(h)(5)(C)(ii) of the Act and
Sec. 417.402(c), it will be taken into account in determining whether
the cost plan may be renewed. Similar considerations apply to MA plans
that exclusively enroll employer/labor group members under authority
provided in section 1857(i) of the Act
[[Page 4594]]
and Sec. 422.106(c) and (d). To the extent the employer/labor group MA
plan is available to the cost plan's enrollees, and the MA plan meets
the requirements of section 1876(h)(C)(ii) of the Act and Sec.
417.402(c), it will be taken into account in determining whether the
cost plan may be renewed. Thus, we will also apply the competition test
on a case-by-case basis with respect to employer/labor group MA plans.
Comment: One commenter suggested that implicit in the
``competition'' tests was the fact that the MA coordinated care plans
that caused the non-renewal in a portion of the service area, or that
caused the non-renewal of the cost plan in its entire service area,
would be available in the coming year. The commenter was concerned that
CMS might enforce this section of the cost regulations, even if one of
the MA plans used in establishing the ``competition'' threshold were
non-renewing or withdrawing from the service area in the year in which
enforcement would occur.
Response: Because such a result would be contrary to statutory
intent, CMS will not proceed with enforcement when fewer than two MA
coordinated care plans will be offered to Medicare beneficiaries in the
affected area at the time of enforcement.
Comment: One commenter asked CMS to state its clear intent in
regulatory text that we will allow cost plans to expand service areas
after September 1, 2006.
Response: As we said in the preamble of the proposed rule and
repeated in this preamble: ``We will permit existing cost plans to
expand their service areas through September 1, 2006. Thereafter,
service area expansion applications by cost HMOs/CMPs will be initially
evaluated and accepted only when there are not two or more MA plans of
the same type meeting minimum enrollment requirements in the area in
which the cost plan proposes to expand.'' We specifically included the
first sentence in regulation text at Sec. 417.402(b). However, service
area expansions are not guaranteed after that date. Please note that
the regulation text at Sec. 417.402(b) specifically authorizing
service area expansions through September 1, 2006, does not preclude
them thereafter. Additionally, the new language replaces identical
language in this section of the regulation (and which language first
appeared in section 634 of the Medicare, Medicaid, and SCHIP Benefits
Improvement and Protection Act of 2000 (BIPA)) which provided service
area expansion authority for cost plans through September 1, 2003. The
commenter should note that we have previously interpreted the language
in BIPA and in our regulations to be permissive in this area, rather
than proscriptive. We will continue to apply it permissively in this
area to the extent that the conditions for non-renewal under Section
1876(h)(5)(C) and Sec. 417.402(c) are not present.
Subpart Q--Beneficiary Appeals
Changes to subpart Q are addressed in the preamble discussion for
subpart M, which deals with appeals policy for MA plans, cost plans and
HCPPs.
A. Subpart A--General Provisions (Sec. 422.1)
1. Conforming Changes
Subpart A of the August 3, 2004 proposed rule set forth several
general and conforming changes dictated by MMA. Below is a summary of
the provisions in subpart A. (For a broader discussion of the
provisions, please refer to our proposed rule.) The provisions are as
follows:
Section Sec. 422.1 lists the statutory authority that is
implemented in part 422. In Sec. 422.1, we have added the new section
1858 of the Act that pertains to ``Special rule for MA Regional
Plans.''
We removed provisions relating to application requirements
and evaluation and determination procedures in Sec. 422.6 and Sec.
422.8 and added them to Sec. 422.501 and Sec. 422.502 of subpart K,
so that all application and contracting information is in one place.
We redesignated and amended Sec. 422.10 as Sec. 422.6
and amended newly redesignated Sec. 422.6. Section 422.6 (formerly
Sec. 422.10) described the user fees associated with the Medicare
Beneficiary Education and Information Campaign, required under section
1857(e)(2) of the Act.
2. Definitions (Sec. 422.2)
The majority of the proposed changes in subpart A concerned new,
revised, and obsolete definitions for the new MA Program in Sec.
422.2. The MMA required several new and broad definitions; ``MA
regional plans,'' ``specialized MA plans,'' ``ACR,'' ``Additional
benefits,'' ``Adjusted community rate,'' and ``M+C'' obsolete after
2006.
In proposed Sec. 422.2, we also revised several existing
definitions to make them consistent with the MMA statute. For example,
Mandatory supplemental benefits are redefined to incorporate language
reflecting that these benefits may be paid for through premiums and
cost sharing or through the application of a rebate, or both.
Therefore, mandatory supplemental benefits are defined as health care
services not covered by Medicare that an MA enrollee must purchase as
part of an MA plan. Benefits may include reductions in cost sharing for
benefits under the original Medicare FFS program, and are paid for in
the form of premiums and cost sharing, or by an application of the
beneficiary rebate rule in section 1854(b)(1)(C)(ii)(I) of the Act, or
both.
However, optional supplemental benefits retained the same
definition as under the M+C program as health services not covered by
Medicare that are purchased at the option of the MA enrollee and paid
for in full, directly by (or on behalf of) the Medicare enrollee, in
the form of premiums or cost-sharing. (Throughout the regulation, the
phrase ``supplemental benefits'' refers to both mandatory and optional
supplemental benefits.) The terms ``mandatory supplemental'' and
``optional supplemental'' are used when referring specifically to one
of the types of supplemental benefits.
We removed ``additional benefits'' from the definition of ``basic
benefits'' because MA plans will no longer offer additional benefits.
In addition, we replaced the word ``ACR'' process with the words
``annual bidding'' process in the definition of ``benefits'' to reflect
the new bidding process for submission and approval of benefits.
Finally, we revised the definition of ``service area'' to incorporate
the concept of the new MA regional plan's service area that consists of
an entire region.
Under section 1851(a)(2)(A) of the Act, two new types of
coordinated care plans were established; MA Regional plans, which are
regional PPO plans, and specialized MA plans for special needs
individuals, or SNPs. We defined an ``MA local area'' as a county or
other area specified by us because it is important to distinguish an MA
local area from an MA region. We defined an ``MA regional plan''
because it is a new type of coordinated care plan choice for
beneficiaries. While PPOs first became a choice for beneficiaries under
the BBA, they operated as ``local'' plans on a county (including multi-
county) or partial county basis. The MA regional plan functions like a
local PPO but must serve an entire region.
A regional MA plan's service area is one or more entire MA regions;
thus, we defined an ``MA regional plan'' as a private health plan that
operates as a PPO, but serves an entire CMS-designated region. Local
PPOs that may offer MA plans under the MA program, the regional PPOs
must have a network of contracting providers that have agreed to a
specific reimbursement for covered benefits that are offered by the MA
regional plan, and must also provide for reimbursement for all
[[Page 4595]]
covered benefits regardless of whether the covered benefits are
provided through the network providers or outside of the network.
We defined an ``MA local plan'' as one that is not an MA regional
plan. Also defined under part 422 are the ``Prescription Drug
Sponsor,'' ``PDP,'' and a ``MA Prescription Drug (MA-PD) plan.'' A
sponsor must be a private entity that meets our requirements and
standards. PDP sponsors may offer multiple plans throughout the country
or in a region, but sponsors must submit an individual bid for each
plan.
An MA-PD plan is an MA plan that also provides qualified
prescription drug coverage as found in Part D of the Act. An
organization offering a coordinated care MA plan must have an MA-PD
plan in each of the service areas in which it operates, as required
under section 1860D 21(a)(1) and (2) of Part D of the Act.
In section 1859(b)(6)(A) of the Act, specialized MA plans for
special needs individuals or SNPs are defined to be MA plans that
exclusively serve special needs individuals defined in section
1859(b)(6)(B) of the Act. The establishment of specialized MA plans
allows MA plans to exclusively enroll special needs individuals in MA
plans that have targeted clinical programs for these individuals.
Section 1859(b)(6)(B) of the Act identifies three types of special
needs individual as: (1) institutionalized individuals; (2) individuals
entitled to medical assistance under a State plan under Title XIX; and
(3) other individuals with severe or disabling chronic conditions as
the Secretary determines would benefit from enrollment in a SNP plan.
Comment: One commenter supported a broad definition that tracks
section 1859(b)(6) of the Act in order to provide CMS with the
flexibility needed to approve a wide range of proposals to meet the
unique needs of special populations and expand their choices.
Response: We agree with the commenter. We are providing general
guidelines in our regulations in order to maintain the flexibility to
approve a wide range of proposals, while also protecting the interests
of special needs beneficiaries.
The Secretary may also designate an MA plan as a specialized MA
plan for special needs individuals, ``SNP,'' if the plan
``disproportionately'' serves special needs individuals.
Comment: Several commenters responded to the question in the
proposed rule as to whether CMS should allow specialized MA plans that
disproportionately enroll special needs individuals, or
``disproportionate percentage'' plans and how they should be defined.
Most commenters supported including ``disproportionate percentage''
plans in the definition of SNPs. One of the reasons given was to allow
married beneficiaries, or children of special needs individuals, to
enroll in the same plan as the spouse or parent, even if only one
individual meets the definition of a special needs individual.
Many commenters suggested that CMS not establish detailed criteria
to define disproportionate percentage, particularly at the outset. It
was felt that enrollment thresholds might act as a barrier to plan
participation and limit choices available to Medicare beneficiaries.
Some commenters suggested that CMS identify ``exclusive'' and
``disproportionate'' plans at the time of each application. Some
commenters recommended that the criteria be national, not regional or
local.
Several commenters agreed that the criteria should be quantitative,
for example, an MA plan risk score in the upper quintile of all MA
plans, or a frailty score in the upper quintile of all MA plans as
measured by Activities of Daily Living (ADL) scores on the Health
Outcomes Survey (HOS).
Some commenters recommended that a ``disproportionate percentage''
SNP enroll fifty (50) percent or more special needs individuals.
Another commenter suggested that SNPs remain exclusive, but if plans
were able to enroll those without special needs, at least eighty-five
(85) percent of the plan's enrollees should be individuals with special
needs. Another commenter stated that requiring an upper limit of more
than seventy-five (75) percent of special needs individuals would be
problematic. One commenter believes that ``redesignated'' SNPs, that
is, regular MA plans that become SNPs, be allowed to continue enrolling
non-special needs individuals as long as overall enrollment contains a
higher proportion of special needs individuals than exist in the plan's
service area. One commenter suggested that--(1) an annual certification
and compliance process; (2) that new plans have a 3-year startup period
to attain the threshold, and (3) that CMS annually publish risk score
distributions. Another commenter recommended that non-exclusive plans
be defined as having a higher than average enrollment of one or more of
the special needs individuals groups as estimated for MA plans and/or
the FFS population.
Response: We agree that a special needs individual's family members
may want to join the same plan. We acknowledge that MA plans do not
have to be exclusive to provide quality specialized programs for
special needs individuals. We received a wide range of recommendations
for defining a ``disproportionate percentage'' SNP. We acknowledge that
there are numerous ways to define and identify disproportionate
percentage SNPs and agree with those commenters who felt the parameters
should not be overly restrictive, particularly at the outset. SNPs are
a new type of coordinated care plan and we believe that plans and CMS
might not anticipate all factors that should be considered in
determining an acceptable percentage. We also want to encourage plans
to develop programs to more effectively care for special needs
individuals. In order to ensure flexibility, and take into
consideration the experience gained by plans and CMS as SNPs mature, we
will define a ``disproportionate percentage'' SNP as one that enrolls a
greater proportion of the target group (dually eligible,
institutionalized, or those with a specified chronic illness or
disability) of special needs individuals than occur nationally in the
Medicare population based on data acceptable to CMS. We will provide
further guidance as to what data sources may be used to determine a
national percentage for a special needs group being targeted by the
disproportionate percentage plan. Under our authority as provided in
section 231(d) of the MMA, we are revising the definition of
specialized MA plan to include ``disproportionate percentage'' plans.
Comment: Several comments were received regarding how CMS should
identify those with severe or disabling chronic conditions that would
make them eligible for enrollment in a SNP. Several commenters
suggested using broad flexibility, reflecting the language in section
1858(b)(6) of the Act. Other commenters recommended that SNPs should
serve as laboratories for developing population-based management
protocols, not single-disease State management protocols for diagnoses
that could be well-served by a standard MA plan. Another commenter
recommended limiting enrollment to those with late-stage chronic
conditions, those with co-morbidities, adult disabled, and frail
elderly. Some commenters suggested basing the definition on conditions
for which alternate care delivery models, such as disease management
and evidence-based medicine, exist, and also take into consideration
conditions that are expensive and prevalent for
[[Page 4596]]
there to be savings and risk-management potential.
Commenters also recommended that conditions should be those
associated with recognized quality measures, so that CMS may carefully
monitor specialized MA plans. None of the commenters objected to
including those individuals who are not institutionalized but require
an equivalent level of care. ESRD, diabetes, congestive heart failure,
Alzheimer's and other dementias along with one or more other serious
conditions, HIV/AIDs, and frail elderly and adult disabled with
multiple chronic conditions requiring complex medical management were
among the specific conditions suggested for specialized MA plans.
Another commenter suggested that on an interim basis CMS restrict
the definition to those who are nursing home certifiable, as defined by
each State; ESRD patients; and those diagnosed with AIDs, and, in the
meantime, collect ADL data through the Health Outcomes Survey (HOS) and
use this measure in conjunction with Activities of Daily Living (ADL)
measures to identify high-risk groups. Other commenters suggested
additional detailed formulas for identifying groups eligible for
specialized MA plans.
Response: Because this is a new ``untested'' type of MA plan, we
are not setting forth in regulation a detailed definition of severe and
disabling chronic condition that might limit plan flexibility. We will
review and evaluate proposals for specialized MA plans that serve
severe or disabling chronic disease categories, including HIV/AIDs, on
a case-by-case basis. Among the criteria to be considered will be the
appropriateness of the target population, the existence of clinical
programs or special expertise to serve the target population, and
whether the proposal discriminates against ``sicker'' members of the
target population.
Other Comments on Sec. 422.2
We requested comments on Sec. 422.2 on the development of an HIV/
AIDS special needs plan that would address the special health needs,
including prescription drugs, of the Medicare-eligible population
living with HIV/AIDS.
We received several comments supportive of the development of an
HIV/AIDS special needs plan. Therefore, we will consider this type of
plan application to become a special needs plan for Medicare-eligible
individuals living with HIV/AIDs.
For purposes of specialized MA plans, we proposed to define
``institutionalized'' in the proposed rule as residing in a long-term
care facility for more than 90 days as determined by the presence of a
90-day assessment in the Minimum Data Set (MDS).
Comment: Several commenters suggested that the 90-day residence
requirement (as determined by a 90-day assessment in the minimum data
set) be modified. One commenter suggested determining institutional
status based on the discharge potential at admission. Another commenter
suggested changing the requirement to 30 days. One commenter did not
object to 90 days, but recommended changing the language to allow CMS
to approve exceptions in case the institution failed to perform the
assessment. In addition, one commenter suggested that
``institutionalized'' also include those residing in Intermediate Care
Facilities for the Mentally Retarded (ICF/MR). Several commenters
recommended that those living in the community while requiring an
institutional level of care be considered institutionalized.
Response: In response to comments, we are clarifying and broadening
the definition of institutionalized for purposes of defining a special
needs individual to take into consideration those with chronic mental
conditions and other chronic conditions. For purposes of defining a
special needs individual, ``institutionalized'' means residing in or
expected to reside in a long-term care facility which is a skilled
nursing facility (SNF) as defined in section 1819(a) of the Act; a
nursing facility (NF) as defined in section 1919(a) of the Act; a SNF/
NF; an intermediate care facility for the mentally retarded (ICF/MR) as
defined in section 1905(d) of the Act; or an inpatient psychiatric
facility as defined in section 1861(f) of the Act for 90 days or
longer.
A SNP may enroll special needs individuals prior to a 90-day stay
based on an assessment of the potential for a stay of that length as
long as the assessment is of a type approved by CMS.. For example, a
SNP for individuals with serious mental conditions may show us that the
State requires a plan of care or similar assessment prepared by a
health professional upon admission. We recognize that this definition
is not the same as the definition of ``institutionalized individual''
in 42 CFR Sec. 423.772. That provision is an income and resource-based
definition for the purpose of determining Part D premiums and cost-
sharing subsidies for low-income individuals. The term
``institutionalized'' as used for purposes of defining a special needs
individual under this Part is for the purpose of identifying a
vulnerable population that might benefit from enrollment into a SNP. We
also wish to clarify that our definition of institutionalized for
purposes of defining a special needs individual does not relate to the
MA payment methodology.
For purposes of SNPs, we may also consider as institutionalized
those individuals living in the community but requiring a level-of-care
equivalent to that of those individuals in the aforementioned long term
care facilities. We believe that 90 days is the most appropriate and
accurate timeframe for determining long-term residence in an
institution. We base this on information we collected showing that,
once a beneficiary is institutionalized for 90 or more days, it is less
likely that that individual will return to a community setting.
However, SNPs may enroll institutionalized beneficiaries based on a
CMS-approved assessment (as described in further operational guidance
following publication of this rule) showing the beneficiary is expected
to reside in the institution for 90 days or more. Given the latitude
provided under the disproportionate percentage criteria, we do not
think that the 90-day definition for institutionalized will adversely
affect specialized MA plans' ability to enroll eligible beneficiaries.
Comment: Several commenters supported the proposed approach to
require all specialized MA plans to provide Part D coverage.
Response: We agree with the commenters, especially in light of the
fact that special needs individuals in particular need access to
prescription drugs to manage and control their severe or disabling
chronic conditions. Therefore, we are including the Part D coverage
requirement for all specialized MA plans at Sec. 422.2 in the
definition of a specialized MA Plan.
Comment: One commenter recommended that CMS change the definition
of PDP as it is incorrect and not consistent with the Medicare
Prescription Drug Benefit Program proposed rule.
Response: We agree with the recommended change to the definitions
of PDP and PDP sponsor found at Sec. 422.2. To avoid any confusion, we
are revising the definitions in Title II to cross-reference the
definitions of PDP and PDP sponsor found in part 423, the Medicare
Prescription Drug Benefit.
Comment: Several commenters recommended that CMS make a revision to
the basic benefits definition found at Sec. 422.2 to add ``including
covered services received through an IHS
[[Page 4597]]
program.'' Other commenters recommended that CMS add to the special
needs individual definition ``AI/IN are exempt from mandatory
enrollment in Title XIX plans but would qualify for optional enrollment
in an AI/AN specialized need plan.''
Response: We do not believe there is a statutory basis in the MMA
to include non-covered Medicare services received through an IHS
program in the definition of basic benefits. We also do not believe it
is necessary to include a specific reference to Medicare covered
services provided through an IHS program in the definition of basic
benefits. If a service is a covered service, it is already included in
the definition. Therefore, we are not making the requested change.
Similarly, the MMA does not authorize us to revise the definition of
special needs individual as suggested. The statute defines special
needs individuals who are defined as those who are Medicaid,
institutionalized or those with severe or disabling chronic conditions.
Clearly, AI/AN individuals who fit any of those definitions could
choose to enroll in a specialized MA plan if one were offered in their
area. The suggested change to the definition of special needs
individuals to add optional enrollment in an AI/AN specialized MA plan
suggests that some AI/AN organizations may be interested in offering a
specialized MA plan. Under the statute, a specialized MA plan must be
open to all eligible Medicare beneficiaries who are within the class of
special needs individuals the plan serves. We see no statutory basis
for allowing a plan to limit enrollment only to AI/AN Medicare
beneficiaries. Conceptually, supplemental benefits could be offered in
the specialized MA plan to assist chronically ill enrollees to prevent
or treat illnesses that affect AI/AN populations and others enrolled in
the plan. As described at Sec. 422.501, a prospective SNP would need
to submit an application to CMS detailing its plan for treating those
with severe or disabling chronic conditions. Finally, we would note
that we are not adding language exempting AI/AN from mandatory
enrollment in Title XIX plans as it is not within the scope of this
rulemaking. We note however, that under sections 1115 and 1915(b) of
the Act, mandatory enrollment under Medicaid for such populations is
permitted.
Comment: Several commenters suggested that CMS add a new definition
to Sec. 422.2 to afford specialized MA plans the status of regional MA
plans for most purposes (including special rules and incentives
applicable to regional MA plans), without having to cover multiple
States. The commenters suggested that plans may be reluctant to take on
multiple State regions with enrollment limited to Medicaid eligibles in
the region.
Response: As described in section 1858(a)(1) of the Act and as
reflected in Sec. 422.455(a), a MA plan must cover an entire region,
including offering enrollment to all eligible Medicare beneficiaries
within that region whether the region is a single State or multiple
State area. Therefore, a special needs plan may receive the
stabilization fund payments and other incentives for its participation
as a regional plan only if the plan would comply with all requirements
in section 1858 of the Act applicable to Regional MA plans. This means,
that it would have to be open to enrollment for every member of the
special needs category in the entire region in question, meet access
standards for the individuals in all areas of the region, market to all
areas of the region, and offer uniform benefits and cost-sharing in all
areas of the region.
Comment: A commenter recommended that CMS revise the definition of
service area as found in Sec. 422.2. The commenter indicated that as
proposed, the language of Sec. 422.2 appears to have established a
lower standard for approval of regional PPO service areas. The
commenter recommended that CMS separately define service area
requirements for HMOs and PPOs and that the requirements for approval
of a PPO apply to both local and regional PPO plans alike.
The commenter also recommended that CMS consider the more flexible
design of a PPO and in turn allow for more flexibility with respect to
service area approval. The commenter understands that local PPOs are
not required to cover an entire region, but also indicated that it is
difficult even in small States to meet the availability and
accessibility requirements by the time the service area application is
due.
Response: We appreciated the comment to clarify this definition as
we found it had been improperly numbered and created some confusion.
Therefore, we have renumbered the sub-definitions and included language
that makes clear that we may consider whether the contracting provider
network meets the access and availability standards set forth in Sec.
422.112, for all MA coordinated care plans and network MA MSA plans. We
also have made technical corrections because the distinction between
non-network and network MSA plans is no longer applicable, as discussed
in further detail below. We believe this change will further reduce
confusion.
3. Types of MA Plans (Sec. 422.4)
The MA program is intended to provide beneficiaries access to a
wider array of private health plan choices than under the M+C program
and to increase the number of areas in which private health care
options are available to Medicare beneficiaries. Entities can contract
with us to provide five general categories or types of plans: (1) local
MA coordinated care plans; (2) MA MSA plans; (3) MA PFFS plans; (4)
regional PPO coordinated care plans; and (5) specialized MA coordinated
care plans.
In the August 3, 2004 proposed rule, we proposed to clarify that
the PPO definition that was in existence before (defined by the BBRA)
was solely for purposes of the application of the more limited quality
assurance requirements. For PPO-type plans that are offered by MA
organizations that are licensed or organized under State law as HMOs,
the quality assurance requirements that apply to all other coordinated
care plans in section 1852(e) of the Act also apply to those PPO-type
plans.
Effective January 1, 2006, MA organizations that offer MA local
plans that are PPOs will need to provide only for the collection,
analysis, and reporting of data that permit the measurement of health
outcomes and other indices of quality insofar as services are furnished
by providers that have contracted with the MA organization under those
PPO plans. However, a local PPO offered by an MA organization that is
licensed or organized under State law as an HMO will be required to
meet the normal data collection, analysis, and reporting requirements.
We proposed to modify the definition of PPOs in Sec. 422.4 to account
for this more limited interpretation of State licensure requirements
and modified headings in Sec. 422.152(b) and (e).
Under section 233 of the MMA, MA organizations are authorized to
offer MSA plans as a permanent option. MMA also eliminated the limits
imposed on MSA plans by the BBA, including a time limit on enrollment
and a limit on the number of beneficiaries who could enroll in the
plans, and exempted MSA plans from certain quality assurance
requirements that the BBA applied to ``network'' MSA plans.
To conform with MMA's changes to MSAs, we proposed to delete the
descriptions of the M+C network MSA plan and M+C non-network MSA plan
as different types of plans at
[[Page 4598]]
Sec. 422.4(a)(2)(ii), since the distinction between network and non-
network MSAs for the purpose of quality assurance requirements was no
longer applicable. As noted above, we are making similar changes to the
definition of service area at Sec. 422.2.
We are making a technical correction to the final MA regulation.
Our current regulations at Sec. 422.2 read ``Religious and Fraternal
Benefit (RFB) Society.'' We are amending the definition of ``Religious
and Fraternal Benefit (RFB) Society'' by removing the words ``Religious
and fraternal'' and adding the words ``Religious fraternal'' in their
place. We are making this change to the definition as it is potentially
confusing and is not consistent with the statutory definition of
``Religious Fraternal Benefit Society'' at section 1859(e)(3) of the
Social Security Act. We are also making a technical change to Sec.
422.4(a) to clarify that RFB Society plans may be any type of MA plan,
and are not restricted to being a type of coordinated care plan only,
as implied by the inclusion of ``RFBs'' exclusively in Sec.
422.4(a)(1)(iii). Thus, we are removing the reference to RFBs from that
section. We also are deleting the word ``network'' from the
parenthetical at the end of Sec. 422.4(a)(1)(iii) because the
distinction between network and non-network MSAs no longer applies.
Comment: Many commenters suggested that CMS more clearly coordinate
between the Medicare Prescription Drug Benefit Rule at part 423 and the
MA Program Rule at part 422.
Response: In response to this comment, we are making several
changes to clarify the interaction between Part C and Part D.
Specifically, we are clarifying the language at Sec. 422.4 on types of
MA plans and Part D prescription drug coverage. We are adding a new
paragraph (c), Rule for MA Plans' Part D Coverage. This paragraph
clarifies the requirements for MA coordinated care plans, MA MSAs, and
MA PFFS plans by stating that a coordinated care plan must offer
qualified Part D coverage meeting the requirements in Sec. 423.104 in
that plan or in another MA plan in that area. We also added language
that MSAs cannot offer drug coverage, other than that required under
Parts A and B of Title XVIII of the Act. Finally, we added language
that MA organizations offering PFFS plans can choose to offer qualified
Part D coverage meeting the requirement in Sec. 423.104 in that plan.
Comment: One commenter recommended that CMS clarify the language at
Sec. 422.4(a)(1)(v). The commenter wants to ensure that an
organization that wants to apply as a local HMO, but does not have an
HMO license in its State, but is otherwise licensed as a risk-bearing
entity in its State, will not be considered a PPO and thus subject to
the 2-year moratorium on local PPOs as found at section 221(a)(2) of
the MMA and proposed at Sec. 422.451.
Response: We do not believe that a clarification of Sec.
422.4(a)(1)(v) is required as Sec. 422.400 already provides that an MA
organization must be licensed under State law, or otherwise authorized
to operate under State law, as a risk-bearing entity (as defined in
Sec. 422.2) eligible to offer health insurance or health benefits
coverage in each State in which it offers one or more MA plans.
Therefore, an organization that wishes to apply as a local MA plan HMO
and has a State-risk bearing license would be considered an HMO and not
be considered as a local MA plan PPO nor subject to the PPO moratorium
described at Sec. 422.451. However, a plan would have to market itself
as an HMO or an HMO with a POS option. A plan could not market itself
as a PPO because of the potential for confusion.
Comment: Several commenters recommended that CMS include new
language in the final regulation that ensures that the type of denial
of covered services as described in the Government Accountability
Office (GAO) report entitled ``Medicare Demonstration PPOs: Financial
and Other Advantages for Plans, Few Advantages for Beneficiaries (GAO-
04-960)'' never happens again. One commenter, also referring to the GAO
report, expressed concern that the Agency is not effectively enforcing
current law, based on the recent GAO findings.
Response: In response to the GAO evaluation, we agreed to implement
the GAO recommendation for us to instruct Medicare PPO Demonstration
plan participants to remove impermissible restrictions on an enrollee's
access to providers for all covered plan benefits. We are committed to
assuring that local and regional PPOs provide reimbursement for all
covered benefits regardless of whether the benefits are provided within
the network of providers as found in Sec. 422.4(a)(1)(v).
Comment: Several commenters recommended that CMS require non-
contracted providers to accept Medicare fees as payment in full with no
balance billing to the beneficiary. The commenters believe that this
approach will protect beneficiaries from excessive payment liability
for out of network services.
Response: As discussed in further detail in subpart C of the
preamble to this final rule, there are several existing limitations on
balance billing that apply to protect Medicare beneficiaries regardless
of whether they are enrolled in an MA plan. Further, under existing
rules, beneficiaries may not be held liable for more than the amount of
out-of-network cost sharing for the service specified in the plan. For
these reasons, we do not believe the changes requested by the commenter
are necessary.
Comment: Several commenters supported the amendment found in the
proposed rule that clarifies that a plan licensed as an HMO may still
become a PPO under its HMO license as long as the State allows the HMO
to offer a PPO under its HMO license. However, the commenters suggested
that CMS revise Sec. 422.4(a)(1)(v) in the following two ways: (1)
clarify that PPOs may establish before authorization requirements for
services obtained out-of-network that would allow for a review based on
medical appropriateness; and (2) modify the provision to indicate that
PPOs are not obligated to make available out of network certain types
of programs, like health and wellness programs, for which no non-
network counterpart is available.
The commenters also recommended that CMS clarify that only original
Medicare benefits must be covered both in and out of network and that
covered benefits that are not part of original Medicare need not be
covered out of network. The commenters opposed CMS' requirement that
for 2005, PPO plans must offer all benefits both in and out of network.
The commenters stated that many plans in the private sector and in the
FEHB program limit out-of-network coverage for some services. The
commenters believe that requiring coverage of all non-original Medicare
benefits in and out of network implies that there is a standard
allowance or price reference upon which to base payments for these
services. The commenters also suggest that there are no balance billing
protections for the beneficiary who seeks care out of network. The
commenter expressed similar concerns around the Medicare drug benefit
and the lack of specificity regarding coverage of non-original Medicare
benefits. The commenter also believe that covering certain benefits out
of network (for example, disease management, 24-hour advice nurse
lines, and wellness programs) will pose a significant challenge.
Response: To respond to the first recommended change to Sec.
422.4(a)(1)(v)requesting that MA plans be allowed to impose pre-
authorization
[[Page 4599]]
requirements on out-of-network care by PPOs, section
1852(e)(3)(A)(iv)(II) of the Act states that a PPO plan must provide
for reimbursement for all covered benefits, regardless of whether the
benefits are provided within the plan's network of providers.
Similarly, section 1859(b)(4)(B) of the Act, which defines MA regional
PPOs, includes the same requirement to provide for reimbursement for
all covered benefits regardless of whether the benefits are provided
within the network of providers. These provisions indicate the
Congress's clear intent to ensure that PPOs provide coverage for all
plan-covered benefits both in and out of network. Further, although
other coordinated care plans may include mechanisms to control
utilization, such as referrals from gatekeepers for an enrollee to
receive services within the plan, the definition of PPO contained in
sections 1852(e)(3)(A)(iv) and 1859(b)(4)(b) of the Act indicates that
local and regional PPOs may not use similar mechanisms, such as pre-
authorization, to restrict enrollee access to out-of-network services.
However, there are several ways PPOs can appropriately seek to promote
the use of in-network services. For example, PPOs may encourage
beneficiaries to notify them before seeking care out of network, so
that care is coordinated in and out of network. PPO plans may offer
incentives to beneficiaries to provide notice of their intent to seek
out-of-network services by discounting out-of-network cost sharing when
beneficiaries provide notice before receiving services. Further, MA
organizations are required to have procedures for making determinations
of whether an enrollee is entitled to receive a health service and the
amount that the enrollee will be required to pay for the service. Thus,
a PPO plan enrollee and provider may seek an advance determination of
coverage before receiving the service, and we encourage PPO enrollees
to avail themselves of this option.
On the commenters' request to clarify in Sec. 422.4(a)(1)(v) that
only original Medicare benefits must be covered in and out of network,
we believe that the clear language in the statute at section
1859(b)(4)(B) of the Act relating to regional MA plans and section
1852(e)(3)(A)(iv)(II) of the Act relating to local PPOs, does not
permit us to limit the requirement that PPOs provide for reimbursement
for all plan-covered benefits both in and out of network. Therefore, we
are not modifying the definition of PPOs at Sec. 422.4(a)(1)(v).
However, to respond to some of the concerns raised in the comment, we
again note that plans can reduce the regular cost sharing for out-of-
network benefits for beneficiaries who voluntarily seek pre-
authorization for those benefits. As described by another response to
comment above, we disagree with the commenter that there are no balance
billing protections for beneficiaries. There are limitations on balance
billing to protect beneficiaries regardless of whether they are
involved in an MA plan or not. Finally, on the issue of benefits, such
as nurse advice lines, which plans believe should not be made available
out of network, we believe that as a practical matter, most of these
types of benefits will be unattainable out of network because they are
designed to be provided exclusively to plan members. Additional
discussion of these types of out-of-network benefits can be found in
the subpart C preamble.
Comment: Comments were received on Sec. 422.4(a)(1)(v). Several
commenters suggested that CMS address perceived inconsistencies in
licensing requirements for PPOs as compared to HMOs by confirming the
scope of State licensure requirements that apply to entities offering
MA PPO plans, as State licensing laws may restrict an HMO's ability to
offer a PPO plan.
Response: We do not believe there are inconsistencies. All MA plans
must be licensed by the State as a risk-bearing entity. State law
controls whether the MA organization is licensed or authorized to offer
the type of MA plan it proposes to offer. As we explained in the
preamble discussion in subpart A of the proposed rule, the fact that MA
organizations offering local PPOs that are (or are not) licensed as
HMOs is pertinent to the MA program solely for purposes of the
application of quality improvement standards in section 1852(e) of the
Act, and has no specific bearing on whether an MA organization has
State authority under applicable State law to offer an HMO or PPO under
the MA program. Whether an MA organization (licensed either as an HMO
or otherwise) can offer a specific type of MA plan continues to rest
upon whether the organization has State licensure or authority to offer
such a type of MA plan.
Comment: One commenter requested that CMS consider enabling the
PFFS model as an option under the regional preferred provider
organization structure. The PFFS model in the MA program enables
broader geographic coverage without the specific provider contracting
requirements. This option could expand participation in the regional
program by enhancing participation and access in rural areas without
specific provider contracting access requirements as is currently
available under the existing MA PFFS plans.
Response: Since a PFFS plan is not defined as a type of coordinated
care plan under section 1851(a)(2)(A)(i) of the Act, it would not be
possible to allow an MA organization to offer a PFFS plan as an MA
regional plan. Additionally, MA PFFS plans are defined at section
1859(b)(2) of the Act, while MA regional plans are defined at section
1859(b)(4) of the Act. The definitions are mutually exclusive.
Comment: A few commenters asked whether SNPs could be any type of
coordinated care plan.
Response: We believe that section 1851(a)(2)(A)(ii) of the Act
clearly states that SNPs can be any type of coordinated care plan.
4. Expansion of the Beneficiary Education and Information Campaign
``User Fees'' (Sec. 422.6, formerly Sec. 422.10)
The last section of subpart A contained regulations implementing
the user fees provided for in section 1857(e)(2) of the Act. MMA
expanded the user fee to include PDP sponsors as well as MA plans as
contributors. The expansion of the user fee recognizes the increased
Medicare beneficiary education activities that we would require around
the new prescription drug benefit.
As before, the user fee would pay for the ongoing costs of the
national beneficiary education campaign that includes developing and
disseminating print materials, the 1-800 telephone line, community
based outreach to support SHIPs, and other enrollment and information
activities required under section 1851 of the Act and counseling
assistance under section 4360 of the Omnibus Budget Reconciliation Act
of 1990 (Pub. L. 103-66).
As indicated in the proposed rule and in this final rule (Sec.
422.6), in fiscal year 2006 and thereafter, the MMA authorizes up to
$200,000,000, reduced by the fees collected from MA organizations and
PDP sponsors in that fiscal year. (The total amount is not indexed in
any way.) In each year, the total amount of collected user fees may not
exceed the estimated costs in the fiscal year for carrying out the
enrollment and dissemination of information activities in the MA and
Part D prescription drug programs or the applicable portions of
$200,000,000, whichever is less.
These user fee provisions establish the applicable aggregate
contribution portions for MA organizations and PDP
[[Page 4600]]
sponsors. The applicable portion of the user fee for MA organizations
will be based on the total proportion of expenditures for Medicare Part
C as well as for payments under Part D that are made to MA
organizations as a percent of Title XVIII expenditures. The PDP
sponsor's applicable portion is the estimate of the total proportion of
expenditures under Title XVIII that are attributable to expenditures
made to PDP sponsors for prescription drugs under Part D. The fees
charged to individual MA plans and PDP sponsors would continue to be
determined by CMS. These fees are calculated by a percent of plan's
revenue to avoid over-burdening smaller plans.
Comment: One commenter supported CMS' efforts to increase user fees
to support beneficiary education. The commenter recommended that CMS
collect the entire amount authorized under the statute and work with
the Congress to either index it or otherwise lift the cap if needed to
adequately inform beneficiaries about the new complexities with private
plans.
Response: The changes the commenter requested are beyond the scope
of this rulemaking. We do not intend for the user fee to be exclusively
for education on MA plans. We anticipate that the user fee will also be
used on the new Part D drug benefit, which we believe will consume a
large portion of the user fees, due to the newness of the benefit.
Comment: Two commenters believe that there is insufficient funding
of the SHIP program and recommended that CMS use a portion of the MA
and PDP user fees to support SHIPs.
Response: Early in the implementation of the M+C program, SHIPs
received some funding from the user fee. However, for the last several
years, SHIP funding has been a specific line item appropriation by the
Congress. We have some discretion regarding how the user fees are spent
in terms of beneficiary education, so it is possible for SHIPs to get
some of their funding from the user fee. However, decisions on how to
spend user fees are internal management decisions relating to resource
allocation, and therefore will not be included in this regulation.
Comment: One commenter recommended that beneficiary educational
materials be shared with Congressional committees of jurisdiction prior
to releasing them.
Response: The timelines for providing education materials are
limited. Although we do not intend to seek Congressional authorization
before the release of the education materials, the materials will
comply with the provisions of the statute and regulations, and we will
make every effort to ensure that they are useful to beneficiaries in
making their choices. CMS' Office of Legislation works closely with the
Congressional offices to ensure that they are aware of and have open
access to copies of various educational materials either before or in
the same timeframe as their constituents to help with education and
outreach activities.
Comment: One commenter expressed concern that the funds used to
educate beneficiaries may be more focused on explaining the array of
choices and not focused enough on encouraging beneficiaries to actually
make a choice. The commenter encouraged CMS to work directly with
experienced plans to conduct information campaigns that result in
significant Part D uptake rates for PDPs and MA-PDs. The commenter was
concerned that beneficiaries may be confused by the changes beginning
in 2006.
Response: We appreciate the commenter's suggestion for us to work
with experienced plans to conduct information campaigns that could
expand enrollment in MA-PDs and PDPs beginning in 2006 (especially in
light of the new options that will be available at that time). We
expect to engage a strong network of experienced plans, providers, and
other stakeholders and partners to provide input and feedback on
beneficiary education plans and to provide specific suggestions on ways
to communicate the changes that will occur in the MA program in 2006.
Comment: One commenter believes that CMS will require the
resources, both financial and human, to help beneficiaries make choices
about benefit and plan options that appropriately reflect their needs
and preferences. The commenter recommended that CMS bolster programs
such as one-on-one counseling, which beneficiaries prefer, and to
design beneficiary materials in formats that make information easy to
interpret and understand. The commenter also recommended that CMS
create information resources, such as the 1-800 number, but also help
beneficiaries understand the information that is being presented.
Response: We agree that we will have to continue to educate
beneficiaries on MA program changes in a way that helps the beneficiary
to understand the program and understand what type of Medicare plan
would best suit his or her individual health and financial needs. We
routinely test education and outreach products with beneficiaries
during development to ensure that they are broadly accessible and
understandable to the appropriate target audiences.
Comment: A commenter indicated that there are high costs to I/T/U
for MMA implementation costs related to outreach, education and
enrollment of an AI/AN individual. The commenter encouraged CMS to
acknowledge the need for funding that is specifically directed to local
I/T/U to support these activities where the work is done and where
bearing the costs is the most difficult. The commenter believes that
unlike other Medicare populations, AI/AN beneficiaries are unlikely to
enroll in MA plans without specific information from their I/T/U.
Response: We agree that education and outreach efforts should be
tailored to the needs of specific populations interested in enrolling
in MA plans, to the greatest extent possible. We will continue our
collaboration with the IHS and other partners to identify the most
effective ways to reach beneficiaries in the AI/AN population.
Subpart B--Eligibility, Election and Enrollment
We proposed generally to retain the same eligibility, election and
enrollment rules that currently apply to the Medicare Advantage
program. We received numerous comments on this subpart in response to
the August 2004 proposed rule. These comments and our responses are
presented below.
1. Eligibility to Elect an MA Plan (Sec. 422.50)
In this section, we specified the following:
Reference to an ``MA plan'' includes both MA local and MA
regional plans, unless specifically noted otherwise in the text.
We reserve the authority to allow additional optional
mechanisms for elections (for example, website enrollment) to provide a
more efficient and simplified election process for beneficiaries and
partner organizations.
Comment: Several commenters supported the proposal to retain the
authority to allow additional optional MA election mechanisms, stating
that this change will promote the development of more efficient and
simplified processes for beneficiaries. One commenter requested
clarification that any such alternate election mechanism would be
optional for individual MA organizations to use. Another commenter
supported the change, but stated that CMS should not mandate that MA
organizations accept electronic elections.
Response: The revision made to this section is intended only to
permit us to
[[Page 4601]]
approve alternate optional election mechanisms (in addition to paper
election forms) in the future. We anticipate that such mechanisms will
be available at the option of each MA organization. Furthermore, we
believe it is important to clarify that, as other election mechanisms
are approved and implemented, we do not intend to permit MA
organizations to require beneficiaries to use any such election
mechanism. We will require all MA organizations to establish a minimum
standard process, which, at this time, will be a paper process, and
will be made available to prospective enrollees and plan members in
conjunction with any optional election mechanism. In the future, as
technology evolves, another process may be a more appropriate minimum
standard. To ensure that these points are clear, we are amending Sec.
422.50(a)(5) to provide that beneficiaries may make elections by
completing an enrollment form or by completing another CMS-approved
election mechanism offered by the MA organization.
Comment: One commenter requested that CMS clarify the use of
alternate election mechanisms with respect to employer or union group
MA plans.
Response: Section 422.50 applies equally to all beneficiaries
making MA elections and therefore applies to those individuals making
an election to or from an MA plan sponsored by an employer or union as
well. Current processes already established in our manual guidance for
MA plans offered by employer or union groups are not changed by this
revision.
Subpart B--Eligibility, Election and Enrollment
2. Eligibility to Elect a Special Needs MA Plan (Sec. 422.52)
Section 231 of the MMA authorized the creation of a new type of MA
coordinated care plan, called a ``Specialized MA Plan for Special Needs
Individuals.'' These plans will be referred to throughout as SNPs.
We believe the new requirements regarding SNPs are primarily
intended to encourage more choices for certain populations by allowing
organizations that specialize in the treatment of beneficiaries with
particular needs to have MA contracts. These organizations could
provide and coordinate services for these individuals and would be
permitted to limit plan enrollment to such individuals, or to a certain
proportion of such individuals. This provision could encourage
organizations to develop new products in the marketplace by giving them
the opportunity to develop expertise in efficiently serving special
needs populations. Our overall policy goal will be to allow MA
organizations as much flexibility as possible (within defined
parameters), while maintaining beneficiary protections.
SNPs may restrict enrollment solely to those who are entitled to
Medicaid (dually eligible), institutionalized individuals who meet the
definition in Sec. 422.2, and/or beneficiaries who have a severe or
disabling condition, as defined by the Secretary in regulations.
Section 231 of the MMA also gives the Secretary the authority by
regulation to designate certain MA plans as SNPs if they
``disproportionately serve(s) special needs individuals.'' Special
needs individuals are defined in Sec. 422.2.
In the proposed rule, we asked for comment as to whether SNPs
should be allowed to exclusively enroll certain subgroups of those
categories of special needs individuals described in Sec. 422.52(b)(1)
and Sec. 422.52(b)(2) (dual eligible or institutionalized
beneficiaries) and, if so, what categories would be appropriate.
The MMA gave us the authority to waive section 1851(a)(3)(B) of the
Act, which precludes beneficiaries with ESRD from enrolling in MA
plans. In the proposed rule, we solicited comments as to whether we
should waive this section of the Act and whether beneficiaries with
ESRD should be considered to meet the requirement for special needs
status.
We also have the authority to apply to SNPs a provision under
section 1894(c)(4) of the Act that applies to enrollees in the Program
of All-Inclusive Care for the Elderly (PACE). This section provides for
deemed continued eligibility in certain situations. Specifically, it
allows an beneficiary enrolled in a PACE plan who no longer meets the
eligibility criteria, but who can reasonably be expected to, in the
absence of continued coverage under the PACE plan, meet the criteria of
the plan within a period of time not to exceed 6 months. In the
proposed rule, we proposed applying this provision to individuals
enrolled in SNPs who longer meet a plan's unique eligibility criteria,
who can reasonably expected to meet the plans criteria within a period
of time not to exceed 6 months.
In the proposed rule, we provided in Sec. 422.52(e) that
individuals who are enrolled in MA plans that are subsequently
designated as SNPs would be ``grandfathered,'' that is, allowed to
continue to be enrolled or choose to elect another MA plan during
appropriate election periods provided to all MA eligible individuals.
We proposed this based on the belief that the Congress did not intend
for individuals already enrolled in an MA plan to be involuntarily
disenrolled. However, we also invited comment on an alternative
approach wherein any non-special needs individuals in an MA plan that
is subsequently designated as an SNP would have to be involuntarily
disenrolled. In this situation, we proposed to establish, through
further operational guidance, an SEP for these individuals. Statutory
language also provided that a newly designated MA plan may restrict
future enrollment of individuals to those specialized individuals it
intends to serve.
We also indicated in the proposed rule that, if we did allow
``grandfathered'' members to remain in the SNP, we would distinguish
them from those individuals who join a new SNP and then lose their
special needs status on other than a temporary basis. Those special
needs individuals would be involuntarily disenrolled after losing their
special needs status (and after any period of deemed continued
eligibility, if appropriate) and receiving proper notice. SNPs that
exclusively enroll special needs individuals would be required to
inform individuals before their initial enrollment that they could only
remain enrolled in the plan for as long as they were considered special
needs individuals as defined by CMS.
Comment: One commenter felt that CMS should not allow SNPs to
exclusively enroll certain subgroups of dual eligible or
institutionalized beneficiaries. The commenter's rationale was that
requiring MA organizations to accept all dual eligibles into its
specialized MA plan would maintain the integrity of the dual-eligible
risk pool and prevent the offering of an SNP plan to those who are the
least poor (and presumably, most healthy) segment of duals. On the
other hand, several commenters suggested that CMS allow SNPs that would
enroll subgroups of dual eligibles if supported by a State Medicaid
agency. The vast majority of commenters supported allowing SNPs to
serve subsets of both the dual eligible and institutionalized
populations.
The most prevalent rationale for allowing subsets of dual eligibles
was to allow States to develop specialized Medicaid programs to
compliment Medicare coverage by SNPs. Most commenters described the
difficulties and complexities of serving all dual eligibles as
impediments and disincentives to developing a program to coordinate
Medicaid managed care programs with Medicare. If required to serve all
dual eligible beneficiaries, MA organizations would have to offer
[[Page 4602]]
Medicaid-covered benefits, such as long-term care, to individuals who
are not eligible for full Medicaid benefits. One commenter stated that
allowing subsets of dual eligibles would also facilitate transitioning
full dual eligibles from Medicaid prescription coverage to Medicare
Part D coverage in 2006. Another commenter suggested that CMS clarify
that plans must uniformly offer the same set of benefits to all classes
of dual eligibles as provided under the State's Medicaid program.
Several commenters recommended that CMS let the MA organization propose
eligibility criteria and then evaluate its plan, delivery systems, and
related programs, possibly modifying them as part of the review and
approval process. Some commenters noted the significant investment of
time and resources required to develop targeted clinical programs for
different subgroups with different, complex conditions.
Commenters also suggested allowing specific subsets, including full
benefit dual eligibles, the frail elderly, those who are nursing home
certifiable, children or adults with physical disabilities,
developmental disabilities or mental impairments, and community-based
or institutional individuals.
Two commenters recommended that CMS not include subsets of duals in
the third category of specialized MA plan eligibles, those with severe
or disabling conditions. The rationale given was that the identifying
characteristics of subsets of duals are not appropriately described
within the third category and these individuals should remain in the
second category.
Once commenter recommended allowing organizations to serve other
subgroups of Medicaid eligible and institutionalized if there is a
pervasive justification based on common characteristics of the
subgroup, that is, institutionalized beneficiaries in a specified
network of nursing homes.
Several commenters stated that adverse selection would be mitigated
by phase-in of risk adjustment because payment would take into
consideration the individual's disease category.
Response: Consistent with the majority of these comments, we do not
intend to adopt a regulation that would preclude MA organizations from
offering SNPs to appropriate subsets of the population in a plan
service area, including subsets within the SNP populations identified
in the statute. Thus, in the interest of facilitating the coordinated
delivery of Medicare and Medicaid services, we will consider requests
for SNPs that serve certain subsets of dual eligibles and
institutionalized individuals on a case-by-case basis. Subsets of those
two categories will be included in category one and category two
respectively, rather than in the third category of special needs
individuals, those with chronic or disabling conditions. In addition,
because of the unique nature of some plans serving the
institutionalized and dual eligibles, we will also consider subsets
based on common characteristics, such as a specific network of
facilities and Medicaid eligibility. We will provide further
operational guidance following publication of this rule.
Comment: The MMA allows for the enrollment of ESRD beneficiaries in
SNPs designed for this population. One commenter said that CMS should
delay enrollment of ESRD beneficiaries in MA plans until results of
CMS' capitated ESRD Disease Management demonstration are available. The
commenter also objected to allowing ESRD patients to enroll in managed
care because, in the commenter's view, managed care plans disrupt
existing relationships between patients and health care providers. The
commenter expressed concerns that an ESRD patient who drops or declines
Medigap insurance to join a managed care plan would permanently be
locked into the managed care plan and could not switch to Original
Medicare, since ESRD would make him/her ineligible for Medigap
coverage. The remainder of those commenting on permitting ESRD SNPs
supported the proposal.
Response: Individuals with ESRD may choose to receive care under an
MA plan for a variety of reasons, including coordination of care and
lower out-of-pocket costs. Anecdotal experience with the MA program has
shown that MA enrollees with ESRD generally remain enrolled in their
plan, or join another existing plan if the one in which they are
enrolled terminates. We believe that these beneficiaries should have
the option of enrolling in an MA plan, if they so desire. Therefore, we
will amend Sec. 422.50(a)(2) by adding language to allow SNPs to serve
ESRD individuals.
In order to mitigate the commenter's concerns, we would require
that, prior to enrollment in an MA SNP, the organization notify
potential enrollees that enrollment is fully optional and of the
potential impact that their enrollment could have on their Medigap
rights. In addition, MA Organizations will be required to provide clear
and accurate provider information for potential enrollees so they may
determine whether their current providers are part of the specialized
MA plan's network.
Comment: Many commenters supported the proposed approach at Sec.
422.52(e) to allow individuals already enrolled in an MA plan that we
subsequently designate as an SNP to remain enrolled or be allowed to
elect another other MA plan. Most of these commenters also recommended
that CMS allow for a Special Election Period (SEP) to facilitate
selecting a new MA plan or Original Medicare. Several commenters
remarked on the need to maintain adequate enrollment levels once an SNP
gains a new designation. None of the commenters supported the
alternative proposal under which non-special needs individuals would
have to be involuntarily disenrolled if their MA plan became an SNP.
Response: We will allow members of MA plans that are subsequently
``redesignated'' as SNPs to be ``grandfathered,'' that is, remain
enrolled in that plan indefinitely. These individuals may not be
involuntarily disenrolled on the basis of not meeting the definition of
special needs individual. However, once a grandfathered individual
voluntarily disenrolls from the SNP, he or she would not be eligible to
reenroll in that SNP unless he or she meets the definition of special
need individual. We will establish an SEP for these individuals for
exceptional circumstances in further operational guidance. An SNP that
chooses to exclusively enroll special needs individuals will not be
considered a ``disproportionate share'' SNP, as defined in Sec. 422.2,
on the basis of serving ``grandfathered'' members.
Comment: Many commenters supported not requiring plans to
involuntarily disenroll beneficiaries who lose their special needs plan
eligibility if it is reasonable to assume that they would again meet
the special needs eligibility criteria within a certain period as
determined by CMS. Some commenters stated that it is not uncommon for
beneficiaries to have temporary lapses in eligibility, particularly in
situations where a dual eligible loses Medicaid eligibility due to a
temporary change in financial circumstances or failure to provide
information for recertification. The commenters generally believed that
continued eligibility leads to continuity of care and improved clinical
outcomes. Two commenters requested an additional 6-month ``grace
period'' (commenter's terminology) for individuals who lose their
eligibility as well as retroactive payments for their care in the event
that eligibility is established retroactively.
[[Page 4603]]
One commenter recommended that CMS continue funding Part D and
other benefits for the entire ``30-day notice period'' (commenter's
terminology) regardless of an individual's eligibility to enroll in a
SNP.
One commenter requested continued eligibility for ``exclusive'' as
well as ``non-exclusive'' plans (commenter's terminology), including MA
plans that may temporarily fall below the required threshold for the
special needs designation.
Response: We believe that the Congress' goal was to encourage
continuity of care for these at-risk individuals and that a period of
deemed continued eligibility for a minimum of 30 days but no longer
than 6 months is reasonable for beneficiaries who are likely to regain
eligibility. The 6-month period is consistent with the PACE language at
Sec. 460.160, which provides that a participant may be deemed to
continue to be eligible if, in the absence of continued coverage, the
participant reasonably would be expected to meet the requirement within
the next 6 months. However, we will not include ``in the absence of
continued coverage'' in Sec. 422.52(d).
Our rationale is that this appears to reference ineligibility due
to a health condition that could deteriorate without plan membership.
In the case of an SNP for dual eligibles, a lapse in SNP eligibility
could be due to a lapse of Medicaid eligibility, and such eligibility
may be based on the beneficiary's financial circumstances, not his or
her health condition.
The MA organization may choose any length of time from 30 days
through 6 months for deemed continued eligibility as long as it applies
this period consistently among all members in its plan and fully
informs its members of this time period. Further guidance on applying
deemed eligibility will be provided in operational instructions
following publication of this regulation.
We believe that the ``30-day notice period'' referred to by one
commenter is from our interim guidance for SNPs, issued as part of its
2005 Call Letter. This guidance established a 30-day minimum timeframe
for continued eligibility for an SNP enrollee who loses his or her
special needs status. This individual is a member during the period of
deemed continued eligibility and until his or her disenrollment becomes
effective. Payments will continue on the enrollee's behalf until the
period of deemed continued eligibility ends and the enrollee is
involuntarily disenrolled. Retroactive payment will not be necessary in
these instances.
All SNPs, including ``disproportionate percentage'' SNPs, as
defined in Sec. 422.2, may apply the deemed eligibility provision.
Deemed eligibles would be counted toward the number of special needs
individuals enrolled in the SNP rather than toward the number of non-
special needs individuals.
Comment: Several commenters supported allowing SNPs to disenroll
enrollees who no longer meet the special needs eligibility criteria.
Two commenters wanted SNPs to have the choice of whether to continue to
provide Medicare services to individuals who lose special needs status.
Another commenter supported involuntary disenrollment for exclusive MA
SNPs only, stating that this requirement would hinder disproportionate
SNPs' ability to maintain enrollment at or above the regulatory
threshold.
Response: In our interim guidance and our proposed rule, we
interpreted the statutory phrase ``exclusively serves special needs
individuals'' to mean that the plan is exclusively marketed to special
needs individuals and exclusively enrolls special needs individuals.
This interpretation allowed us to permit existing non-special needs
enrollees to remain enrolled in an MA plan that changed its status to
an SNP.
Thus, under this definition, existing enrollees who did not enroll
when the plan was an SNP would not be affected by the plan definition,
and we do not believe they should be disenrolled. Moreover, the
existence of such enrollees does not preclude the plan from remaining a
plan that ``exclusively serves(that is, markets to and
enrolls) special needs individuals. As noted above, however, an
individual who enrolls in an SNP as a special needs enrollee is
different, since he or she would have no expectation of being enrolled
in that plan if he or she were not in the special needs category. The
case of an SNP that has never had non-SNP enrollees is also different,
as any enrollee that it markets to or enrolls would have to be a
special needs enrollee, if it is an ``exclusive'' plan.
In order to address these latter situations, we will add a new part
(iv) to Sec. 422.74(b)(2) to show that in these cases loss of special
needs status (and of deemed continued eligibility, if applicable) is a
basis for required disenrollment from an SNP that enrolls only special
needs individuals.
We have the authority to waive minimum enrollment requirements as
necessary. Therefore, we do not envision the minimum enrollment
requirements adversely affecting disproportionate share SNPs.
Comment: One commenter recommended that CMS allow MA SNPs to
charge an enrollee for benefits no longer covered by the State or
Federal cost-sharing arrangements and to terminate coverage for
nonpayment of premiums or cost sharing.
Response: An SNP is the same as any other MA plan with respect to
rules governing the charges that may be imposed on enrollees. Enrollees
may be charged for benefits that would not otherwise be covered by
Medicare. Under Sec. 422.74(d)(1), coverage may be terminated for a
failure to pay premiums. As discussed below in connection with
disenrollment for disruptive behavior, a failure to pay cost sharing is
not in itself a basis for disenrollment.
Comment: Two commenters asked for clarification of whether the
regulation refers to Special Needs Health Plans or the Special Needs
Health Options.
Response: The regulation refers to a ``Specialized MA plan for
special needs individuals'' (SNPs), as created by Section 231 of the
MMA.
3. Continuation of Enrollment for MA Local Plans (Sec. 422.54)
The MMA limits the offering of MA plan continuation areas to MA
local plans only and we made this conforming change at Sec. 422.54. We
received no comments on this section and adopted the conforming changes
as proposed.
4. Enrollment in an MA MSA Plan (Sec. 422.56)
Section 233 amended the Act to eliminate the cap on the number of
individuals that may enroll in MA MSA plans removed the existing
deadline for enrolling in such a plan. Because this deadline had
already passed without anyone enrolling in an MSA plan, the original
MSA plan provisions had become a nullity. The effect of section 233 was
to make the authority to offer MSA plans permanent and unlimited. This
change is reflected at Sec. 422.56, along with new language allowing
the Secretary to permit enrollment in MSAs by enrollees of other
Federal. We included this language to reflect the fact that, under the
statute, such enrollment could be authorized contingent on the adoption
of new policies by the OPM.
Comment: Two commenters suggested deleting the language authorizing
the Secretary to permit enrollment in MSAs by enrollees of the Federal
programs specified. Both commenters contended that it was unlikely that
OPM would ever be able to certify that MSA enrollment would not raise
costs in the FEHB, Veterans' Administration, or
[[Page 4604]]
TRICARE programs and that, accordingly, the inclusion of this language
is unnecessary.
Response: The statute at section 1851(b)(2) provides for the
potential for such individuals to become eligible to enroll in an MSA
plan. Therefore, our clarification of Sec. 422.56(b) supporting this
provision is appropriate.
5. Election Process (Sec. 422.60)
In proposed Sec. 422.60, we set forth changes that would allow
other election and notice mechanisms other than paper forms or written
documents. We also clarified that MA organizations may submit requests
to restrict enrollment for capacity reasons to CMS at any time during
the year.
Comment: Two commenters supported the conforming revisions to Sec.
422.60 permitting us to approve alternate election mechanisms, as
discussed in the comments on proposed Sec. 422.50(a)(5). The
commenters also approved of the clarification to Sec. 422.60(b)
regarding requests for enrollment limits due to capacity reasons.
Response: We adopt these revisions as proposed.
Comment: One commenter suggested that CMS make further amendments
to the regulatory text to ensure that the current options we have
established for individuals to elect MA plans sponsored by employer or
union groups are retained, including the policy that documentation may
be retained by an employer or union group rather than the MA plan.
Response: As discussed above, we are confident that the proposed
revisions provide us with sufficient flexibility to foster innovative
election processes that use modern technology for all individuals, not
just employer or union groups. Therefore, it is not necessary to
reiterate that these alternative enrollment mechanisms are also
available to employers or union groups. We will continue to retain
current policy for employer or union group elections in our operational
guidance and as an option for MA organizations.
Comment: One commenter suggested that CMS require MA and MA-PD
plans to accept AI/AN enrollees even if a plan has received CMS
approval to close enrollment for capacity reasons.
Response: The ability to request a capacity limit is an important
element of the MA program that helps ensure that plan enrollees will
have sufficient access to needed providers and services. CMS' approval
of a capacity limit request indicates that we agree with the requesting
MA organization that its defined network of providers is sufficient to
deliver health care only to a limited number of plan members. Thus, we
do not permit the MA organization to enroll any individual beyond the
capacity limit of a given plan, and we do not believe it would be
appropriate to undermine this protection by waiving capacity limits for
the AI/AN population or any other group.
Comment: Two commenters requested that CMS modify the regulations
to more clearly allow for what the commenter referred to as ``passive
elections.''
Response: The elections to which the commenters are referring are
those in which an individual is informed that the process for making an
election of a particular plan is taking no action, while other options
are exercised by declaring an affirmative intent to elect that option.
CMS have limited such a process to situations when it can be reasonably
concluded that an individual will clearly want to enroll in the MA plan
offered by the same organization.
We do not believe that a regulatory change is needed to continue to
allow such elections. The revisions made to Sec. 422.50(a)(5) and the
conforming revisions to Sec. 422.60 provide us with appropriate
flexibility to define and approve MA election mechanisms, including
allowing such ``passive elections'' as described above in specific
limited circumstances.
6. Election of Coverage Under an MA Plan (Sec. 422.62)
Similar to the election periods in place in past years, the MA
Annual Coordinated Election Period will run from November 15 through
December 31 of each year. For 2006, the annual coordinated election
period is extended through May 15, 2006.
Based on our interpretation of the MMA, we proposed revising Sec.
422.62 to ensure that an individual who is newly eligible for MA has
the full opportunity to elect an MA plan as part of their Initial
Coverage Election Period. In developing the proposed rule, we
determined that the intent of the Congress was to provide for an
initial coverage election period for MA that ends on the later of the
day it would end under pre-MMA rules or the last day of the Medicare
Part B initial enrollment period. This approach extends an individual's
MA initial election period in some instances, and never reduces or
eliminates it.
Through 2005, the Open Enrollment Period extends throughout the
year, providing unlimited opportunities for MA eligible beneficiaries
to enroll in, disenroll from, and or change enrollment in an MA plan.
This change was reflected in Sec. 422.62(a)(3) of our proposed
regulations.
Section 1851(e)(2)(B)(1) of the Act was revised to establish that
the open enrollment period in 2006 will be the first 6 months of the
year. In addition, individuals who are newly eligible for MA in 2006
are provided an open enrollment period that consists of the first 6
months the individual is MA eligible, but cannot extend past December
31, 2006.
Under revised section 1851(e)(2)(C)(i) of the Act, the open
enrollment period for 2007 and subsequent years will be the first 3
months of each year. In addition, individuals who first become MA
eligible during 2007 and subsequent years will be provided an open
enrollment period that consists of the first 3 months the individual is
MA eligible, not to extend past December 31, 2006. Although this
specific period does not extend past December 31, 2006, it is important
to remember that all individuals will be provided a 3-month open
enrollment period from January through March 2007, as discussed in this
section.
Section 1851(e)(2)(C) of the Act limits a change of election made
during an open enrollment period in 2006 and later years to the same
type of plan in which the individual making the election is already
enrolled. Specifically, an individual in an MA plan that does not
provide drug coverage may change only to another similar MA plan, or to
original Medicare, but may not enroll in an MA plan that provides Part
D coverage, or enroll in a Part D plan. Similarly, an individual
enrolled in an MA plan that includes Part D coverage may enroll only in
another MA plan with Part D coverage, or change to original Medicare
coverage with an election of a Part D plan. As noted in the proposed
rule, we clarified a conflict between clause I and II of section
1851(e)(2)(C)(iii) of the Act. Clause (I) of section 1851(e)(2)(C)(iii)
states that an individual who is ``enrolled in an MA plan that does
provide qualified prescription drug coverage,'' may only elect a plan
that does not provide that coverage. A literal reading of this language
would be in direct conflict with clause (II) of that same section,
which says that an individual who is enrolled in an MA plan that
provides qualified prescription drug coverage may not enroll in an MA
plan that provides no Part D coverage.
This contradiction, plus (1) the fact that section
1851(e)(2)(C)(iii)(I) of the Act refers to a ``another'' MA plan that
``does not'' provide Part D coverage, (2) the fact that clause (I) is
contrasted with
[[Page 4605]]
clause (II) with the word ``or'', and (3) committee report language,
make it clear that the word ``not'' was inadvertently omitted from the
first clause of section 1851(e)(2)(C)(iii) of the Act.
Comment: Numerous commenters opposed the ``lock-in'', that is, the
statutory provisions that limit beneficiaries from choosing a different
type of coverage to certain times of the year. Several commenters
stated that these provisions severely limit the choice of
beneficiaries. Others commented that implementing lock-in under the MA
program at the initiation of the new Part D program would be confusing
to beneficiaries. Commenters also noted that such a provision would
have a negative impact on the MA organizations, by making it difficult
to maintain a dedicated sales staff and increasing the administrative
costs and burden of educating beneficiaries about both Part D and MA
changes.
Response: The provisions that limit the times in which an
individual may change his or her election were originally created by
the BBA, and were to become effective during 2002. However, because of
subsequent statutory changes, these provisions have never taken full
effect (except for a temporary period during 2002). These provisions
were modified by the MMA to incorporate the Part D prescription drug
benefit and the statute is clear on their applicability. Thus, we have
no authority to modify these requirements.
Comment: One commenter suggested that CMS develop appropriate
procedures to administer these election restrictions and inform
organizations as to what type of plan an individual is eligible to
elect (for example, an MA only or an MA-PD plan). Another commenter
recommended that the organization have access to information about
whether an individual is eligible to elect a certain plan, both in
advance of an enrollment application and upon receipt of an enrollment
application.
Response: We understand that we will need to maintain data history
of the number of times an individual has made an election during a
specific election period, as well as the type of plan an individual is
eligible to elect. Such information will be necessary in order to
determine whether an individual is eligible to elect an MA plan at a
given time. We will work with plans to establish a reliable process to
determine the eligibility of an individual based on these requirements.
Comment: Several commenters responded to the request for comments
on the provision that an enrollee may only change to the same type of
plan (either with drug coverage or without) during the open enrollment
period. Some commenters opposed the interpretation that restricts a
beneficiary from switching plans, even when life circumstances had
changed. Others supported the interpretation and indicated that such a
provision reinforced the overall integrity of the program. Others
believe that we need to maintain flexibility with employer-sponsored
plans.
Response: After review of the statutory provisions and the
comments, we believe that the Congress clearly intended that a
beneficiary may obtain or discontinue Part D coverage ONLY during the
annual coordinated election period that begins in November each year.
Notwithstanding SEPs established by the statute and in our regulations
and subsequent guidance, it is only during the Annual Coordinated
Election Period that all Medicare beneficiaries are free to elect among
all available options, whether original Medicare, MA plans, MA-PD plans
or PDPs. The statutory provisions governing Part D in 1860D-1 do not
provide for an open enrollment period that would allow beneficiaries to
elect the prescription drug benefit outside of the AEP. Permitting
beneficiaries to discontinue Part D coverage at any time during the
year, without a corresponding election period to enroll in such
coverage, could result in a gap in coverage that may result in a late
enrollment penalty. Therefore, we believe that it is appropriate to
interpret the statute to require that individuals may not make an
election that would result in adding or dropping prescription drug
coverage except during the annual election period.
Comment: One commenter recommended that CMS clarify how the annual
coordinated election period and the open enrollment period will be
administered in 2006, since these periods overlap from January 2006
through May 15, 2006.
Response: In 2006, we envision that the annual coordinated election
period will provide each individual with the ability to choose either
an MA plan or original Medicare, with or without drug coverage. The
open enrollment period will provide individuals the opportunity to
change their election from the MA program to original Medicare (or vice
versa), but not to obtain or discontinue drug coverage. We will provide
information about these election periods in beneficiary materials, such
as the Medicare & You Handbook.
Comment: A few commenters submitted comments regarding the special
election periods (SEPs), as described at Sec. 422.62(b). One commenter
asked if CMS expected to apply the SEPs established under the M+C
program to the MA program. Another commenter requested confirmation
that the current SEP for PACE enrollees (described in manual guidance)
would be applied to the MA program. One commenter suggested that CMS
consider an exception to the Open Enrollment Period for SNPs and for
individuals eligible for both Medicare and Medicaid.
In addition, a commenter asked CMS to consider the creation of an
SEP for beneficiaries in markets with MA market penetration rates below
20 percent; such an SEP would allow time for educating beneficiaries on
MA plans and how they operate. Many commenters submitted comments on
establishing SEPs for special needs plans. The commenters generally
approved of a permissive special election period policy to allow
special needs individuals to change plans at any time. Others believe
that the enrollment periods established in Sec. 422.62 do not provide
sufficient opportunity for beneficiaries to enroll in a special needs
plan.
Response: We have historically included in our regulations those
SEPs that have been specifically named in the statute, and established
SEPs for exceptional circumstances in our operational guidance. We will
review the SEPs in current MA guidance and consider their applicability
for the MA program in 2006, as well as consider new SEPs that may be
necessary to coordinate the new Part D program. We appreciate the
suggestions provided by the commenters and will consider these in
developing guidance following publication of the rule.
Comment: Several commenters addressed the AI/AN population and the
need to modify the regulations to allow AI/AN individuals to switch
between MA or MA-PD at various times rather than be limited to changing
only at certain times during the year.
Response: We recognize the need to coordinate between the IHS,
Tribe, or Tribal organization, or Urban Indian (I/T/U) programs. We
have the authority to recognize certain circumstances as exceptional
and provide special election periods. Providing such exceptions,
however, would not always benefit an individual, as we discussed in our
response to a previous comment under Sec. 422.50 regarding capacity
limits. Such limits are necessary to ensure that health plans have the
appropriate number of providers and are able to provide access to all
beneficiaries enrolled in their plan. As discussed in the previous
comment regarding
[[Page 4606]]
establishment of SEPs in operational guidance, we are not establishing
any non-statutory SEPs in the regulation, but retain the authority to
establish an SEP in the future under exceptional conditions. This same
policy applies to the AI/AN population.
7. Coordination of Enrollment and Disenrollment through MA
Organizations (Sec. 422.66)
In keeping with our proposed clarification at Sec. 422.50(a)(5)
regarding election mechanisms other than, and in addition to, paper
forms, we proposed conforming changes at Sec. 422.66. We also proposed
similar changes in Sec. 422.66(b) to provide for a more efficient
notice process, including eliminating the requirement for MA plans to
send a copy of the individual's disenrollment request back to the
individual.
Section 1860D-21(b) provides the Secretary with the authority to
implement default enrollment rules at 1851(c)(3)(A)(ii) for the MA-PD
program, which begins in 2006. This provision permits the establishment
of procedures whereby an individual currently enrolled in a health plan
offered by an MA organization at the time of his or her Initial
Coverage Election Period is deemed to have elected an MA-PD plan
offered by the organization if he or she does not elect to receive
coverage other than through that organization. In our proposed rule, we
discussed the requirement for individuals to make affirmative elections
upon becoming entitled to Medicare as provided under Sec. 422.66.
Affirmative elections may ensure that individuals have the ability to
remain with the organization that offers their health plan and protects
beneficiary choice by requiring an individual to make an affirmative
election. However, based upon comments received, we will revise the
regulatory language to retain the ability to allow for default
enrollment, as discussed in our responses below.
At Sec. 422.66(e) we also proposed to add language that
implemented new rules for continuing MA coverage for individuals
enrolled in MA plans as of December 31, 2005. Under section 1860D-
21(b)(2), individuals enrolled in an MA plan that, as of December 31,
2005, provides any prescription drug coverage would be deemed to be
enrolled in an MA-PD plan offered by that same organization as of
January 1, 2006. If an individual is enrolled with an MA organization
that offers more than one MA plan that includes drug coverage, and is
enrolled in one of those plans as of December 31, 2005, the individual
would be deemed to have elected to remain enrolled in that plan on
January 1, 2006 if it becomes an MA-PD plan on that date. An individual
enrolled in an MA-PD plan on December 31 of a year would be deemed to
elect to remain enrolled in that plan on January 1 of the following
year (that is, the next day).
Comment: Several comments were received regarding the revisions to
the disenrollment process described above. Several commenters supported
the change in language allowing optional mechanisms for disenrollment
elections. Several commenters also supported the elimination of the
requirement that organizations return a copy of the disenrollment
request to the individual.
Response: We received no opposing comments to these provisions and
adopt these provisions as proposed.
Comment: One commenter recommended that CMS clarify that MA plan
members who have selected prescription drug coverage as an optional
supplemental benefit, and are receiving such benefits as of December
31, 2005, will be deemed to have enrolled in an MA-PD plan.
Response: Individuals who are enrolled in an MA that offers any
prescription drug coverage, including coverage offered as an optional
supplemental benefit, as of December 31, 2005, will be deemed to have
enrolled into an MA-PD plan offered by that organization.
Comment: Several commenters stated that additional information is
needed to implement the deemed enrollment provision for MA enrollees
who do not make an affirmative election into an MA-PD plan. If the MA
organization offers more than one MA-PD plan, it is unclear into which
plan the individual will be deemed enrolled.
Response: We will provide further guidance to MA organizations on
this issue, as we do at the end of each contract year through our plan
``cross-walk'' guidance. Under this guidance, the existing policy,
under which the MA organization may designate the plan that is
``continuing'' into the next year, would apply to this situation.
Comment: Several commenters supported and opposed the
implementation of default enrollment rules as discussed at section
1851(c)(3)(A)(ii) of the Act for the MA-PD program.
Several commenters support implementing the default enrollment
provision and believe that it would simplify the enrollment process for
beneficiaries. They believe that such a process could be coupled with
advanced notice that would also give the member the opportunity to
``opt-out'' of the ``default'' enrollment. Other commenters stated that
the MA organization should have the option of applying ``default''
enrollment in certain situations, for example, with its employer group
members. Commenters stated that if the MA organization chose to
implement the option, each beneficiary would also be provided the
option to decline prior to enrollment.
Several commenters opposed default enrollment and supported
requiring an affirmative election by the beneficiary. These commenters
believe that a default enrollment process would be difficult and
confusing for beneficiaries. They do not believe that beneficiaries
should be ``defaulted'' into the same health plan that provided pre-
Medicare coverage. Many commenters recommended that MA plans obtain
accurate information from prospective enrollees through the affirmative
election process, and, without such a process, MA plans may not have
up-to-date information about the beneficiary. Finally, there are those
who neither support nor oppose the default enrollment process, but
instead suggest that we modify the regulatory language to allow us to
implement such a provision in the future.
Response: The commenters raise several good points regarding the
implications of default enrollment. The intent of default enrollment is
not to reduce beneficiary choice, but rather to ensure continuity of
care. At this time, we will retain the flexibility to implement this
provision through future instructions and guidance to MA organizations.
We do not envision mandating that organizations use default procedures,
but instead would give organizations the option of implementing such a
process for its enrollees. Any such process would require that advance
notice be provided to an individual, and that affected individuals have
the ability to ``opt out'' of such an enrollment. We believe that we
can achieve the same flexibility provided with respect to default
enrollment that exists at Sec. 422.60(b)(3)(c), which allows for
elections using alternative mechanisms. Thus, we have revised proposed
Sec. 422.66(d)(5) to allow us to offer default enrollment as an option
in the future, in a form and manner specified by CMS.
Comment: One commenter suggested that, rather than prohibit default
enrollment, CMS should develop a method to allow enrollees in an MA
plan with or without prescription drug coverage, who do not make an
election by December 31, 2005 to remain with their current MA
organization in an MA-PD plan. Another commenter assumed that CMS
intends that
[[Page 4607]]
individuals enrolled in an MA plan without drugs who do not make a plan
election into an MA-PD plan for January 1, 2006 will be defaulted into
original Medicare.
Response: The statute provides for an individual in an MA plan with
drug coverage on December 31, 2005, to be deemed enrolled in an MA-PD
plan as of January 1, 2006. However, the statute does not allow an
individual who is in an MA-only plan that continues in January 2006 to
be deemed to make an MA-PD election. The statute is clear that those
individuals will remain in an MA-only plan unless those individuals
take an action to elect an MA-PD plan. Pursuant to section 1861(b)(3)
of the Act, individuals may be deemed to have elected Original Medicare
only if the MA-only plan in which they are enrolled is terminated.
Thus, in general, we would not be defaulting MA plan members into
original Medicare.
Comment: Several commenters recommended that CMS coordinate the
enrollment of full benefit dual eligible individuals. A few commenters
suggested that CMS apply the default enrollment provisions for dual
eligible individuals who have not otherwise elected an MA-PD or PDP
into an MA-PD that is administered by an MA organization that operates
the Medicaid managed care organization in which the individual is
enrolled. Another commenter supports the inclusion of sufficient
flexibility in our regulations to enable us to develop solutions that
best meet the needs of beneficiaries and are coordinated with the MA
organizations.
Response: As discussed above, we will consider requests to adopt
such default enrollment processes only with respect to a newly-Medicare
eligible individual who is enrolled with an organization as a Medicaid
enrollee at the time he or she becomes eligible for Medicare. In such a
case, the individual could be considered by default to have elected
that organization for purposes of Medicare benefits upon the
individual's becoming eligible for Medicare. The default authority in
1851(c)(3)(A)(ii) of the Act would not, however, permit an individual
to be considered by default to have elected an MA-PD plan if he or she
was already a Medicare beneficiary and had elected not to receive
Medicare benefits through an MA organization. Therefore, we decline to
enroll by default existing full-benefit dual eligible individuals into
an MA-PD if they are currently in Original Medicare and only receive
Medicaid benefits through that organization. We will continue to
evaluate alternatives to facilitate enrollment in Part D for this
population.
Comment: Several commenters suggest that each MA plan that becomes
an MA-PD plan send a notice to their enrollees that the enrollees will
be automatically enrolled in the MA-PD plan unless they choose to
change plans. Further, it is suggested that CMS create a model letter
for this purpose.
Response: MA plans are required to send out notices in October of
every year to their members, also known as the annual notice of change
(ANOC). We will revise the language in the ANOC for MA plans to provide
to members in October 2005 in order to reflect this policy.
Comment: Several commenters recommend that CMS establish a default
enrollment process for AI/AN if a certain plan meets AI/AN needs.
Response: CMS recognizes the need to coordinate between the I/T/U
programs. Given the new regulatory language at Sec. 422.66(d)(5),
which allows us to offer default enrollment as an option to MA
organizations, we could consider requests by MA organizations to offer
default enrollment to the AI/AN population in the case of newly-
Medicare eligible individuals who are enrolled in a non-Medicare
product of an MA organization at the time they become Medicare
eligible.
8. Effective Dates of Coverage and Change of Coverage (Sec. 422.68)
To coordinate the effective date of elections with the 2006 special
annual coordinated election period (to be held November 15, 2005
through May 15, 2006), section 1851(f)(3) of the Act was amended by the
MMA to provide that the effective date of elections for the annual
coordinated election period does not apply during the 2006 special
annual election period, when enrollment will be effective on the first
day of the month following the month in which an election is made. We
proposed to revise Sec. 422.68(b) to provide for this coordination and
to make the effective date of elections in the annual coordinated
election period for 2006 that are made in 2006 (that is, from January 1
through May 15, 2006) the first day of the calendar month following the
month in which the election is made. We received no comments on this
section and adopted the proposed language as final.
9. Disenrollment by the MA Organization (Sec. 422.74)
Under the current regulations at Sec. 422.74(d)(1), MA plans are
required to provide, at a minimum, a 90-day grace period before
disenrolling individuals for failure to pay plan premiums. Thus, MA
plans must maintain enrollment for individuals who do not pay their
premiums for more than 90 days.
We proposed to provide greater flexibility to MA organizations by
replacing the 90-day grace period in Sec. 422.74(d)(1) with the long-
standing approach under Sec. 417.460(c)(1), which governs
disenrollment from HMOs with cost contracts under section 1876. Under
this proposal, we would instead specify that a disenrollment could be
effectuated no sooner than 1 month from the date the premium was due.
We have also proposed revisions to the regulations at Sec.
422.74(d)(2) regarding disenrollment of an individual for disruptive
behavior. Our goal was to create a more objective definition that is
based upon an individual's behavior, rather than upon the application
of such subjective terms as ``unruly,'' ``abusive,'' and
``uncooperative.'' We also recognized that, in revising this
definition, we needed to strike a balance that would ensure all
individuals are afforded protection from unwarranted disenrollment
actions while protecting the health and safety of all those concerned
including the individual. The best solution is to create a definition
of disruptive behavior based on objective criteria, ensure that MA
organizations make serious efforts to resolve problems with
beneficiaries who are disruptive, and to require MA organizations to
make ``reasonable accommodations'' for vulnerable beneficiaries,
including those with serious mental illness. Furthermore, we will
ensure that CMS staff with appropriate clinical or medical expertise
will be involved in the review of the MA organization's request before
we make a final decision. We will work with organizations that ask to
disenroll these individuals on a case-by-case basis to ensure that they
are not left without Part D coverage. We will also remove the provision
for an expedited disenrollment we had proposed and ensure that MA
organizations provide due process before disenrolling an individual.
Comment: Several commenters supported the proposed revisions to
Sec. 422.74(d)(1) regarding procedures for involuntary disenrollment
for failure to pay plan premiums. Other commenters opposed these
revisions as ``overly broad'' and felt the lack of a specific time
frame could be a disadvantage for plan enrollees.
Response: Our proposed changes to this section were intended to
provide flexibility for MA organizations in addressing the issue of
plan members who fail to pay required plan premiums. Under the existing
rule, MA organizations were obligated to provide
[[Page 4608]]
all plan benefits to an individual who has failed to pay required plan
premiums for a full 90-day period. This period often exceeded 90 days
because the notice requirements we imposed fell after the end of the
90-day period, but must still be met by the organization before the
individual could be disenrolled. Our experience and feedback from MA
organizations indicated that these requirements, while intended to
protect beneficiaries enrolled in MA plans, may instead artificially
inflate plan premiums because MA organizations are required to continue
to provide services to these beneficiaries for up to 4 months, even
though they have not paid the required plan premiums.
After reviewing the comments and feedback we received on the
proposed rule, we determined that it would be prudent to include a
minimum grace period in the revisions we are making to address this
issue. Therefore, we have revised this section to include a 1-month
grace period during which an enrollee who has failed to pay required
premiums must be notified of the impending disenrollment action and
afforded the opportunity to pay past due premiums in full or under
payment terms agreed upon by the beneficiary and the MA organization,
as the organization allows. This period will begin on the first day of
the month for which the premium was unpaid. For example, the grace
period for a March premium will begin March 1\st\ and, if the
organization does not receive payment by March 31\st\, the individual
will be disenrolled effective April 1\st\. We will provide specific
time frames for required notices in additional guidance to ensure
beneficiaries have adequate time to respond before disenrollment takes
effect. Since we are establishing this 1-month grace period as a
minimum requirement, MA organizations still have the option of
lengthening this period.
Comment: Three commenters suggested that CMS allow MA organizations
to ``move'' or ``default'' plan members who have failed to pay premiums
in one MA plan to another MA plan in the same organization that is
offered at a lower or no premium, so that beneficiaries do not suffer
an interruption in MA benefits.
Response: This suggestion is inconsistent with the statute. Section
1851(g)(3)(C)(i) of the Act clearly provides that individuals who are
disenrolled from an MA plan for failing to pay premiums are deemed to
have elected original Medicare.
Comment: Several commenters submitted comments on the proposed
revisions to Sec. 422.74(d)(2) concerning the disenrollment of
individuals who exhibit disruptive behavior. Some commenters supported
the proposed approach, noting that the inability to effectuate such
disenrollment has been an ongoing issue for MA plans. Other commenters
recommended that CMS further clarify the meaning of the term
``decision-making capacity,'' and one commenter in particular suggested
that CMS adopt a definition based on legal conservatorship.
Several commenters, on the other hand, expressed concern that the
expanded definition of disruptive behavior does not adequately protect
individuals whose behavior is induced by a mental illness, a medical
condition, or certain prescribed drugs. These commenters were concerned
about the loss of protection for individuals with diminished mental
capacity. Several commenters expressed concern that the definition of
disruptive behavior was overly subjective, particularly the use of
terms such as ``unruly'', ``abusive'' and ``uncooperative.''
Response: In the final rule, we aim to strike a balance between
allowing MA organizations to disenroll individuals who exhibit
disruptive behavior and creating adequate protections for individuals
who face involuntary disenrollment from a plan. Since the statute (at
section 1851(g)(3)(B)(ii) of the Act) permits an MA organization to
disenroll an individual who engages in disruptive behavior, we must
establish a process for allowing these types of disenrollments. At the
same time, we recognize that such a process must include adequate
safeguards for individuals whose disruptive behavior is due to mental
illness or a medical condition, especially in light of the crucial
importance of prescription drug therapy for these individuals. It is
also important to recognize that some prescription drug therapies may
well induce such behavior.
Therefore, we are revising our proposed definition of disruptive
behavior in Sec. 422.74(d)(2)(i) of the final rule to focus on the
behavior that substantially impairs the plan's ability to arrange or
provide care for the individual or other plan members. We recognized
that terms such as ``unruly'', ``abusive'', ``uncooperative'', as well
as an assessment of the enrollee's ``decision-making capacity'' are
subjective terms that make reviewing and approving such requests
difficult.
In addition, we agree with commenters that arranging or providing
care for individuals with mental illness, cognitive impairments such as
Alzheimer's disease or other dementias, and medical conditions and
treatments that may cause disruptive behavior warrants special
consideration. Therefore, we are revising Sec. 422.74(d)(2)(v) to also
require MA organizations to provide a ``reasonable accommodation'' to
individuals in such exceptional circumstances that we deem necessary.
Such accommodations could include providing the individual with a SEP
to choose another plan, or requiring the plan to maintain the
individual's enrollment until the end of the year, when the individual
could choose another plan. We will determine the type of accommodation
necessary after a case-by-case review of the needs of all parties
involved. This review will be conducted as part of CMS' existing review
and approval process required under Sec. 422.74(d)(2)(v). The
regulations (at Sec. 422.74(d)(2)(iii)), will continue to require that
that before an organization can request to disenroll a member for
disruptive behavior, it first must make a serious effort to resolve the
problems presented by the individual's behavior, including the use of
the organization's grievance procedures. The MA organization must then
document the individual's behavior, its own efforts to resolve the
problem, and the use or attempted use of its internal grievance
procedures.
We believe that these policies will achieve the twin goals of
permitting involuntary disenrollment when appropriate due to an
individual's disruptive behavior, while also establishing necessary
protections for beneficiaries in certain circumstances.
Comment: One commenter stated that the proposed rule denies
protection to individuals who comply with medical advice by trying an
on-formulary drug instead of the drug originally prescribed or by
seeing their primary care physician rather than a specialist and
subsequently experience an adverse reaction that triggered the
disruptive behavior. Another commenter believed that, in cases where an
individual is unstable, disruptive behavior could be related to
unsuccessful attempts to find the proper medication or due to a plan's
step therapy requirement.
Response: We agree with the commenter, and clarify in the final
rule at Sec. 422.74(d)(2)(i) that an individual's behavior cannot be
considered disruptive if such behavior is related to the use of medical
services or compliance (or non-compliance) with medical advice or
treatment. For example, an individual who chooses to disregard medical
advice, such as not heeding the advice to stop using tobacco products,
is not exhibiting disruptive behavior.
[[Page 4609]]
Comment: Several commenters supported the flexibility afforded by
allowing MA organizations to limit re-enrollment for individuals who
are disenrolled for disruptive behavior. One commenter however, opposed
the provision on the grounds that prohibiting an individual from re-
enrolling in a plan for a specified period could cause undue harm.
Response: In the proposed rule, we specified that, under Sec.
422.74(d)(2)(vi), an MA organization had the option to decline future
enrollment by an individual who had been disenrolled for disruptive
behavior. Although a prohibition on re-enrollment would still be
possible under this final rule, we are not leaving this matter to the
discretion of the MA organization. Instead, we are providing that an
organization must request any future conditions on re-enrollment with
their disenrollment request. We will then review each request on a
case-by-case basis, consistent with Sec. 422.75(d)(2)(v).
Comment: Several commenters submitted mix comments on the proposed
expedited disenrollment process. Some commenters felt that the
expedited process undermines the standards and requirements that are in
place to protect beneficiaries, while other commenters supported the
greater flexibility in cases where such behavior poses an immediate
threat of health or safety to others.
Response: We believe that all individuals facing involuntary
disenrollment for disruptive behavior must have sufficient opportunity,
as provided by the notice requirements, to change their behavior and/or
grieve the MA organization's decision to request involuntary
disenrollment from CMS. Although we recognize that threatening behavior
is a real, if rare, problem, we do not believe that expedited
disenrollment is the appropriate remedy. Rather, we would recommend
either a medical approach or, if warranted, a law enforcement solution
for truly threatening situations. Therefore we are removing this
provision from the final regulation.
Comment: One commenter recommended that the process for
disenrolling AI/AN from MA organizations that contract with the HIs, an
Indian Tribe or Tribal organization, or an I/T/U include direct
communication with the I/T/U entity with adequate documentation of and
steps taken to resolve the problem as well as adequate timelines.
Response: MA organizations have the statutory authority at Section
1851(g)(3)(B)(ii) of the Act to disenroll an individual from a plan if
the individual has engaged in disruptive behavior and are required to
provide sufficient notice to the individual in accordance with the
timeframes specified in manual instructions. Because an individual is
an enrollee of MA plan, the individual's relationship with the plan is
primary. The MA organization, not the health care provider, is
obligated to communicate with the individual or the individual's
authorized representative as defined under State law. We believe that a
provision requiring consultation with I/T/U entities would not be
within the scope of the authority in section 1851(g)(3)(B)(ii) of the
Act.
Comment: Several commenters submitted comments on whether
nonpayment of cost-sharing should constitute disruptive behavior. Many
commenters supported this interpretation, noting the negative impact
that non-payment of cost sharing has on an MA organization's ability to
provide or arrange for services for the individual. These commenters
generally recommended that CMS establish a clear and uniform process
for plans to follow. Another commenter suggested that such
disenrollments be permitted only for certain types of services that
represent significant portions of a member's overall cost-sharing
responsibility. One commenter suggested that CMS establish a threshold
of $2,000 of outstanding cost sharing, including two or more failures
to pay cost sharing.
Other commenters, however, opposed including nonpayment of cost
sharing as a basis for disenrollment. Some commenters stated that this
policy would be discriminatory, placing very ill patients with high
medical costs at a severe disadvantage and leading plans to cherry pick
healthier patients. Another commented that CMS needed to take into
account an individual who experiences a change in circumstances that
may affect his or her ability to pay cost sharing.
Several commenters raised questions about how CMS would treat low-
income individuals. Some commenters were supportive of a low-income
exception for such disenrollments, while other commenters noted the
administrative difficulty in applying the exception, since plans do not
have mechanisms in place to determine beneficiary income levels or
intervene on behalf on the enrollee with the provider.
Response: We appreciate the feedback provided on whether the
nonpayment of cost-sharing should constitute disruptive behavior. We
continue to believe that disenrollment for failure to pay cost-sharing
may be disruptive under certain circumstances. At the same time, we
believe that all the protections, such as notice requirements and case-
by-case CMS review, should apply in these situations. Thus, we are not
ruling out such disenrollment in certain cases, and we will consider
these comments in developing guidance for the disruptive behavior
provisions.
Comment: Other commenters recommended that CMS institute specific
protections for individuals facing involuntary disenrollment, including
an appeals process.
Response: Although we agree with the commenter that CMS should
establish a procedure for beneficiaries to dispute enrollment denials,
we do not believe that a formal appeals process is necessary. Instead,
we intend to address beneficiary complaints regarding enrollment in a
similar manner as we have done under the MA program. Under the MA
program, individuals are advised through their notice of denial of
enrollment that if they disagree with the decision, they may contact
the MA organization. We provide assistance to MA organizations to
handle beneficiary inquiries and complaints regarding enrollment
through staff assigned to each MA organization. We envision a similar
process being established under the PDP program.
10. Approval of Marketing Materials and Election Forms (Sec. 422.80)
We proposed to codify at Sec. 422.80(a)(3) the ``file-and- use''
program already in place. This provision recognizes an MA
organization's consistent compliance with marketing guidelines by
providing for streamlined approval of marketing materials submitted by
that organization. Organizations that have demonstrated to us that they
continually meet a specified standard of performance are allowed to
have certain types of marketing materials deemed to be approved by us
if they are not disapproved within 5 days of submission to us for prior
approval. In addition, the time frames under Sec. 422.80(e)(5) were
made consistent with those provided under Sec. 422.80(a)(1). Lastly,
we proposed clarifying changes to the discussion of prohibited
marketing activities for MA plans.
Comment: Several commenters submitted comments regarding the
``file-and-use'' provisions. Many commenters supported incorporating
this provision into the regulation and suggested that CMS consider even
further flexibility as plans transition to the new Part D benefit in
2006. One commenter in support of the provision did note,
[[Page 4610]]
however, that small plans are more affected by the process since these
plans submit fewer materials and a smaller number of errors impact
their ability to participate. This commenter recommended that CMS
consider this issue with regard to smaller organizations.
Many commenters opposed this provision and believe that the
provision weakens the marketing rules and that MA organizations have
not demonstrated that they deserve such a process. Given the new
upcoming options and diversity of plan benefits, many believe stronger
marketing requirements are needed. They were concerned that this
process would perpetuate the perceived inconsistency in the marketing
material approval process within CMS. Others were concerned that the
short timeframe for CMS to review and approve would result in
essentially CMS ``rubber stamping'' materials. One commenter suggested
that plans present all marketing materials at least 30 days before
proposed distribution.
Response: The ``file-and-use'' program streamlines the marketing
review process while assuring that beneficiaries marketing materials
are of a high quality and clarity. While we understand the concerns
raised by smaller organizations, this program was developed to be
available to those MA organizations that demonstrate they can
consistently achieve a high level of performance with respect to
producing accurate and clear marketing materials over a sustained
period of time, regardless of the size of the organization.
It is also important to note that there are marketing materials
that are not ``eligible'' to be considered under this program. Any
marketing materials that describe benefits, cost sharing or plan rules
are not eligible for the file-and-use status.
We retain the right to rescind file-and-use status from an MA
organization if the organization fails to meet the rigid standards of
compliance laid out in the file-and-use guidelines. We do not believe
that the beneficiary is at greater risk as a result of the file-and-use
program, but may actually benefit from being able to receive certain
educational and outreach materials in a timely manner.
In response to the commenters seeking greater marketing
flexibility, we also are providing in Sec. 422.80(a)(2) of this final
rule for organizations that are not currently eligible for the file-
and-use method to use this method with respect to materials that pose
the lowest risk of confusing or misleading beneficiaries. With respect
to these materials, any MA organization may follow the file-and-use
procedures if it certifies that it followed all applicable marketing
guidelines, or that it used, without modification, model language
specified by CMS.
Comment: One commenter expressed disappointment that CMS retained
the prohibition on door-to-door solicitation. The commenter did not
believe that retaining this ban was justified and the ban is outdated,
since it was added 20 years ago when this activity was more difficult
to monitor.
Response: We understand the need by MA plans to have additional
flexibility in developing their marketing strategies. The purpose of
this prohibition was to provide beneficiaries with appropriate
beneficiary protections. Some individuals may not welcome unsolicited
visits or may not be prepared to discuss their options, yet may feel
pressured to do so. Given the complexity of the new programs and the
upcoming limitations when individuals are able to make choices in their
coverage, as well as increased competition, we believe that prohibition
of door-to-door solicitation remains to be in the best interest of the
beneficiary.
Comment: One commenter did not believe the regulatory language
addressed the CMS timeline for review when materials are submitted
after CMS' initial 45-day review period. Current guidance allows for an
additional 45-day review period for CMS to review a document after it
has been resubmitted. The commenter recommends instituting a 10-day
review period for resubmitted materials.
Response: We appreciates this feedback and will take this under
further consideration.
Comment: One commenter supported the extension of file and use to
SNPs.
Response: Since SNPs are MA plans, all MA rules will apply to SNPs
unless otherwise provided by us. Therefore, SNPs will qualify to
participate in the file-and-use program provided the necessary
requirements are met.
Comment: Several comments requested clarification from CMS that
outreach workers employed by tribal and IHS facilities will continue to
be encouraged to provide information about Medicare alternatives to the
AI/AN elderly and this outreach would not fall under the prohibition
against door-to-door marketing.
Response: We appreciate these concerns and will work with Tribal
and IHS organizations to find solutions that both meet the needs of the
AI/AN population and satisfy the requirements of the MA program.
Subpart C--Benefits and Beneficiary Protections
In the areas of benefits and beneficiary protections, we proposed
regulatory reforms based on our program experience, as well as
provisions implementing new requirements in the MMA. We tried to
integrate new requirements in the MMA with existing regulations, while
at the same time removing impediments in the existing rules that have
tended to stifle innovation by M+C organizations. We believe our
proposals addressed the paramount task of ensuring that beneficiaries
continue to be fully informed and protected in their receipt of
essential health care services under the Medicare program.
The regulatory reforms we proposed included: (1) New beneficiary
protections related to receipt of covered health care services from
contracted providers; (2) revisions to the rules limiting beneficiary
cost sharing related to emergency episodes; (3) new rules affording
additional protections to MA regional plans enrollees; (4) incentives
for MA organizations to offer MA regional plans that would serve all
beneficiaries in all areas; (5) the elimination of administratively
burdensome requirements on MA organizations that are duplicative of
other activities already conducted by us; and (6) the elimination of a
number of unnecessary, duplicative, or overly burdensome access to care
provisions.
We received hundreds of comments on subpart C from approximately
150 commenters in response to our August 3, 2004 proposed rule. Below
we provide a brief summary of the proposed provisions and respond to
public comments. (For a broader discussion of the proposed provisions,
please refer to our proposed rule.)
1. General Requirements (Sec. 422.100)
MA MSAs are ``high deductible'' MA plans and are defined at section
1859(b)(3) of the Act. Until the deductible is met, the MA MSA enrollee
is generally responsible for payment for all covered services. Once the
MA MSA deductible is met, the MA organization offering the MSA plan is
responsible for payment of 100 percent of the expenses related to
covered services. In both cases, whether it is the enrollee or the MA
organization offering the MSA that assumes responsibility for payment,
providers and other entities are required to accept the amount that FFS
would have paid (including permitted beneficiary cost sharing) as
payment in full.
[[Page 4611]]
Section 233(c) of the MMA amended the Act to include enrollees in
MSA plans offered by an MA organization with MA coordinated care plans
as having protection from balance billing by noncontracting providers.
In our proposed rule, we stated that for covered services provided to
an MA MSA plan enrollee, a physician or other entity that does not have
a contract with an MA MSA plan must now accept as payment in full the
amount they could have collected had the individual not been enrolled
in the MA MSA plan.
In the proposed rule, we specified that:
The proposed provision applied to physicians and other
entities. (Note that ``providers of services,'' as defined in section
1861(u) of the Act, are similarly restricted from balance billing MA
MSA enrollees under section 1866(a)(1)(O) of the Act.)
In cases in which Medicare participating physicians do not
have an agreement with an MA organization in place governing the amount
of payment, they must accept the amount they would have received under
FFS Medicare as payment in full (including permitted beneficiary cost
sharing).
In cases in which Medicare non-participating physicians do
not have an agreement with an MA organization in place governing the
amount of payment, they also must accept the amount they would have
received under FFS Medicare as payment in full (including permitted
beneficiary cost sharing). (Medicare non-participating physicians are
permitted to accept assignment on a case by case basis. For non-
assigned claims, Medicare non-participating physicians are subject to
the ``limiting charge.'')
These FFS charge limits have always applied to the charges that
providers and other entities could impose when providing covered
services to enrollees in MA coordinated care plans and private FFS
plans, when there is no agreement with an MA organization in place
governing the payment amount. The MMA added the same protections for MA
MSA plan enrollees and we proposed conforming changes in subpart C and
at Sec. 422.214.
In addition to the new MA MSA ``charge'' protections, we proposed
amending Sec. 422.100 to provide for other changes for purposes of
administrative simplification and clarification:
We deleted the parenthetical ``(other than an M+C MSA
plan)'' from the first sentence of Sec. 422.100(b)(2) and replaced it
with ``(and an MA MSA plan, after the annual deductible in Sec.
422.103(d) has been met).''
We modified the reference to ``additional benefits'' in
Sec. 422.100(c), as those benefits are no longer applicable to MA
plans offered on or after January 1, 2006.
We removed Sec. 422.100(e) because it was duplicative,
and we made the necessary redesignation changes.
We removed the reference to operational policy letters in
Sec. 422.100(f).
We added ``or encourage disenrollment'' to Sec.
422.100(f)(2), after ``discourage enrollment,'' as one of the
prohibitions on the design of benefit packages.
Comment: One commenter recommended that CMS clarify whether the
proposed provider rules will now require providers accepting Medicare
assignment to limit their charges to 100 percent of Medicare allowable
costs for members of an MA MSA plan.
Response: The protections from physician balance billing that are
described in section 1848(g) of the Act apply to all Medicare
beneficiaries, including those enrolled in any type of MA plan. This
includes enrollees of MA MSA plans. This means that for a Medicare
participating physician, for instance, the billed charges cannot exceed
the Medicare participating fee schedule amount for a Medicare-covered
service. For Medicare non-participating physicians that do not accept
Medicare assignment in a specific case, the charges cannot exceed 115
percent of the Medicare non-participating fee schedule amount for a
Medicare-covered service.
Similarly, for providers of services, as defined at section 1861(u)
of the Act, the participation agreement with Medicare requires the
provider to accept the FFS payment amount as payment in full for
services provided to Medicare beneficiaries, including those enrolled
in any type of MA plan (see section 1866(a)(1)(O) of the Act).
Comment: A few commenters stated that CMS should clarify regulatory
language to require MA plans to include statutory add-on payments under
FFS Medicare to the noncontracting provider payments they are required
to make under Sec. 422.100(b)(2). Some commenters specifically
mentioned such add-on payments (for example, DSH, outliers, GME, and
IME payments) as part of the total payment amount that the provider
would have received under original Medicare, and also including the
balance billing permitted under Part A and Part B. Some commenters
specifically mentioned the ``special'' hospital category payments for
sole community hospitals, Medicare dependent hospitals, and critical
access hospitals. Another commenter recommended that CMS clarify this
``new'' provision and asked why CMS made a distinction between
providers of services, physicians, and other entities.
Response: This section of the regulation has been in place since
the original M+C interim final regulation was published on June 26,
1998. In our August3, 2004 proposed rule, we simply added the billing
protections for MA MSAs based on the amendment to section 1852(k)(1) of
the Act provided in section 233(c) of the MMA. Otherwise, the
distinction between providers of services, physicians, and other
entities is statutory and based on the fact that noncontracting
providers of services are required to accept Medicare payment rates
from MA organizations based on section 1866(a)(1)(O) of the Act, while
noncontracting physicians and other entities are required to accept
Medicare payment rates from MA organizations based on section 1852(k)
of the Act.
Additionally, we believe our regulation already requires FFS ``add-
on'' payments (including those to both providers of services,
physicians, and other entities), because they are generally considered
part of the FFS payment that an MA organization must make to
noncontracting providers, physicians, and other entities for covered
services. However, an MA organization is not required to include IME
and GME payments to noncontracting hospital providers to the extent the
hospital providers receive IME and GME payments for MA plan enrollees
directly from the fiscal intermediary (see Sec. 422.214(b)). The
fiscal intermediary's direct payments to hospitals of IME and GME
amounts for MA enrollees are based on sections 1886(d)(11) and
1886(h)(3)(D) of the Act, respectively. Finally, Sec. 422.100(b)(2)
references the balance billing permitted under Part A and Part B of
Medicare, which represents the maximum required payment due from the MA
organization, less applicable MA enrollee cost sharing.
Comment: Several commenters recommended that CMS adopt blanket
policies that would require MA and MA-PD plans to pay I/T/U facilities
that serve AI/AN in a special manner. Among other proposals, these
commenters suggested that CMS require MA organizations to waive cost
sharing for AI/AN and that CMS require MA organizations to pay the
``full IHS Medicaid'' rate to I/T/U facilities, or that we establish
other special payment methodologies related to MA reimbursement to I/T/
U facilities.
Response: We are implementing the MMA statute through this
rulemaking. The MMA did not provide for special
[[Page 4612]]
treatment under the MA program for AI/AN beneficiaries. For this
reason, we do not see a statutory basis to apply different rules to a
subset of Medicare beneficiaries, such as AI/AN populations. In
general, however, we believe that MA regional plans will create new
choices for beneficiaries, including AI/AN populations, and that access
to MA plans will be improved. Similarly, because MA regional plans must
reimburse for all covered benefits in and out of network, IHS
facilities may receive reimbursement for out-of-network care provided
to an MA regional plan AI/AN enrollee that they may otherwise not have
been entitled to under the M+C program. However, the rate of
reimbursement actually paid to an I/T/U facility for an AI/AN enrollee
will vary based on the type of plan, type of service, and the plan-
required level of enrollee cost sharing. For instance, for emergency
department services, an MA plan enrollee's cost sharing would be
limited to $50 and the MA organization (regardless of plan type) would
be responsible for payment of the rest of the billed amount, up to the
full Medicare rate. Similarly, an I/T/U, for an AI/AN MA PPO enrollee,
could expect MA organization reimbursement for routine covered services
provided to such an enrollee, although the amount of reimbursement
directly provided by the MA organization would be limited to the full
Medicare rate, less applicable enrollee cost sharing.
Finally, a broad waiver of beneficiary cost sharing of the type the
commenters requested would not be permitted under provisions designed
to protect the Medicare program from fraud and abuse. However, existing
statutory and regulatory provisions may allow for the waiver of cost
sharing in certain cases.
Comment: One commenter suggested that CMS require pre-approval
before permitting an MA organization to adopt a local coverage
determination for an MA regional plan under Sec. 422.101(b)(4). This
commenter also suggested that CMS require public comment on the choice
of local coverage determination by an MA organization for either a
local MA plan under Sec. 422.101(b)(3) or an MA regional plan under
Sec. 422.101(b)(4).
Response: We do not interpret the statute at section 1858(g) to
require CMS pre-approval of the local coverage determination an MA
organization sponsoring an MA regional plan selects to apply to all
enrollees of the MA regional plan. The statutory provision also does
not include a requirement for public notice, but rather allows the MA
organization to elect to have a local coverage determination apply to
all enrollees of the MA regional plan. The MA organization must comply
with applicable statutory and regulatory requirements in making such
election, including the requirement, discussed below, that all local
coverage determinations of the contractor selected by the MA
organization be applied to the MA regional plan's enrollees.
Comment: One commenter recommended that CMS clarify whether or not
MA organizations are required to provide all Medicare covered benefits
in the MA plans they offer to Medicare beneficiaries. This commenter
had specific concerns related to outpatient occupational therapy and
whether a home visit by an occupational therapist to evaluate for
safety and function post stroke, for instance, is a Medicare benefit
that MA organizations have to offer enrollees of MA plans.
Response: Occupational therapy is a Medicare-covered outpatient
benefit under section 1861(s)(2)(D) of the Act. Under section 1852(a)
of the Act, an MA organization must provide all benefits under the
original Medicare FFS program option. Therefore, MA plans must cover
all services covered under Medicare Parts A and B.
Comment: One commenter stated that CMS is directed to ``replace''
Medicare carriers and fiscal intermediaries with Medicare
Administrative Contractors (MACs) by section 911 of the MMA. The
commenter asked what impact such a ``replacement'' would have on MA
plans, which will likely cover larger areas than current FFS
contractors.
Response: Transition from Medicare carrier and fiscal intermediary
contractors to MACs is to occur between 2005 and 2011. We have modified
the regulatory language in Sec. 422.101(b)(3) to account for the
transition to MACs by removing specific reference to Medicare carriers
and fiscal intermediaries. We expect the impact this ``replacement''
will have on MA plans related to this section of the regulation will be
insignificant. To the extent MACs will cover larger geographic areas
than current FFS contractors, and to the extent MACs will apply local
coverage determinations across those larger geographic areas, the
opportunity for MA organizations to elect to apply uniform coverage
rules in Sec. 422.101(b)(3) or (b)(4) will also be likely to decline.
2. Requirements Relating to Basic Benefits (Sec. 422.101)
Section 221 of the MMA added a new section 1858(g) to the Act that
provided for a special rule related to the way local coverage
determinations (for example, ``local medical review policies,'' or
``LMRPs'') will be applied by MA regional plans. MA regional plans are
permitted to elect any one of the local coverage determinations that
applies to original Medicare FFS beneficiaries in any part of an MA
region to apply to its enrollees in all parts of the MA region. Based
on our interpretation of the statute, we proposed at Sec.
422.101(b)(4) that an MA regional plan, if it chooses this option, must
elect a single FFS contractor's local coverage determination that it
will apply to all members of an MA regional plan. The MA organization
would not be permitted to select local coverage policies from more than
one FFS contractor that it would apply to all members of an MA regional
plan.
Comment: A number of commenters recommended that CMS clarify the
proposed language in Sec. 422.101(b)(4). Some commenters recommended
that CMS ensure that the understanding comported with ``the common
understanding'' that regional plans can select coverage determinations
issued by different intermediaries and carriers within the region. Some
commenters also suggested that CMS extend the same flexibility to local
MA plans. Others suggested that CMS allow MA organizations that
sponsored multiple local MA plans to apply one FFS contractor's
coverage determinations to its entire MA population.
Response: We disagree with the commenters who have requested the
ability to select coverage determinations of multiple intermediaries or
carriers within a region. As we stated in the proposed rule, our
interpretation of section 1858(g) of the Act is that an MA regional
plan exercising this option must elect a single FFS contractor group of
local coverage determinations or policies that it will apply to all
members of an MA regional plan and that an MA regional plan may not
select local coverage policies from more than one FFS contractor. We
are adopting this interpretation in the final rule.
The reason for this interpretation is two-fold. First, to the
extent that local carrier and intermediary medical directors apply
uniform experience to a broad range of coverage policies, it would be
inappropriate to allow selection of a specific coverage policy from one
carrier medical director and a different coverage policy on a different
medical item or service from another carrier medical director. Second,
to the extent that local carrier and intermediary coverage policies are
generally statements of non-coverage, restricted coverage, or
conditions for receipt of a specific health care item or service, it
would be inappropriate to
[[Page 4613]]
allow an MA regional plan to adopt coverage policies issued by more
than one carrier or intermediary. This interpretation would permit MA
regional plans to deny coverage for what would otherwise be Medicare-
covered services at a frequency and under conditions that no individual
FFS beneficiary would ever face. For example, carrier ``X'' might have
decided that Medicare coverage was not available for ``A'' in a local
coverage area. Carrier ``Y'' might have decided that Medicare coverage
was not available for ``B'' in a local area. In such a situation, were
we to permit an MA regional plan to adopt the coverage policies of both
carrier X and carrier Y, an MA plan enrollee of that regional plan
would not have coverage for either A or B, while original FFS enrollees
residing in carrier X's service area would have coverage for B, and
those residing in carrier Y's service area would have coverage for A.
Therefore, to emphasize these points and to correct the apparently
common misunderstanding mentioned in the comment, we are modifying the
language in Sec. 422.101(b)(4). Further, the statutory language will
not permit an extension to local MA plans of the requirement we are
codifying in regulation at Sec. 422.101(b)(4). Local MA plans whose
service areas encompass more than one local coverage policy area will
continue to be required to follow rules previously established for them
in Sec. 422.101(b)(3) based on statutory authority at section
1852(a)(2)(C) of the Act.
Finally, we respond to the commenters that asked whether an MA
organization could apply a single FFS contractor's coverage
determinations to its entire MA population and across local MA plans.
Such a policy would not be in accord with the statute, which is
specific as to both local and MA regional plans. The selection of a
uniform coverage determination policy for both MA local and regional
plans is available only at the plan level.
Comment: A commenter recommended that CMS revise the regulation at
Sec. 422.101(b)(4) in order to permit MA organizations that offer MA
regional plans in more than one MA region to apply local coverage
policies across regional boundaries.
Response: We are interpreting section 1858(g) of the Act as
generally preventing such an interpretation or revision to the
regulation. The statute specifically allows MA regional plans to apply
coverage policies only from 'any part of such region.'' It would only
be where one FFS contractor had a uniform coverage policy that
straddled two regions, and where an MA organization offered MA regional
plans in both of those regions, that such a result would be possible.
Comment: A commenter recommended that CMS allow an MA organization
offering multiple local MA plans to apply the rule in Sec.
422.101(b)(3) across MA local plans, or if local MA plans could adopt
the new rule in Sec. 422.101(b)(4) related to MA regional plans.
Response: The specific language at section 1851(a)(2)(C) of the Act
is clear in not permitting such an interpretation or revision to the
regulation. The statute specifically allows an MA organization
sponsoring a local MA plan to apply the coverage determination most
beneficial to enrollees from the service area of that local MA plan to
all enrollees of that local MA plan, and subjects that to pre-CMS
review before implementation.
Comment: A number of commenters pointed out the difficulty
noncontracting providers will have ascertaining the local coverage
policy that will apply to a specific MA regional plan enrollee. Some
commenters suggested that CMS require MA regional plans to notify both
enrollees and potential noncontracting providers of the LMRP that will
apply to specific MA regional plan enrollees. Others stated that
providers are most familiar with LMRPs that apply in the area in which
they primarily practice medicine or provide services and that it will
be difficult, if not impossible, to know whether a specific service
will be covered for a specific MA regional plan enrollee when LMRPs are
applied from different, and possibly remote, geographic areas. Some
commenters pointed out the potential impact this would have on MA
regional plan enrollees who could incur financial liability for
services that are otherwise Medicare-covered in the geographic location
in which they are provided. Many commenters stated that the problems
related to knowing what LMRP applies to a specific MA regional plan
enrollee are compounded by the fact that MA regional plan enrollees, as
MA PPO enrollees, have the right to access all covered benefits (albeit
at potentially higher cost sharing) from out-of-network providers.
Response: We have added a new paragraph to the regulation at Sec.
422.101(b)(5) that will require MA organizations that elect to apply
local coverage policies uniformly across a local MA plan's service
area, or across an MA regional plan's service area, to inform enrollees
and potential providers, including through the Internet, of the
applicable local coverage policy that applies to the MA plan enrollees.
This means that MA organizations choosing to avail themselves of the
option of applying uniform LMRPs to a local or regional MA plan must
create a web site upon which to post links to or copies of the
applicable LMRPs. We believe that this requirement will not create a
significant burden on MA organizations and will provide convenient
access for both providers and enrollees to such information. We are
also making a conforming change to Sec. 422.111(f)(11) that requires
MA organizations to notify providers through the Internet that such an
election has occurred and what local coverage policy will apply to MA
plan members.
We proposed to add a new Sec. 422.101(d) to provide for new cost-
sharing requirements mandated by MMA related to MA regional plans.
There were three specific requirements:
1. MA regional plans, to the extent they apply deductibles, are
required to have only a single deductible related to combined Medicare
Part A and Part B services. Applicability of the single deductible may
be differential for specific in-network services and may also be waived
for preventative services or other items and services.
2. MA regional plans are required to have a catastrophic limit on
beneficiary out-of-pocket expenditures for in-network benefits under
the original Medicare FFS program.
3. MA regional plans are required to have a total catastrophic
limit on beneficiary out-of-pocket expenditures for in-network and out-
of-network benefits under the original Medicare FFS program. (This
total out-of-pocket catastrophic limit, which would apply to both in-
network and out-of-network benefits under original Medicare, could be
higher than the in-network catastrophic limit, but may not increase the
limit applicable to in network services.)
MA regional plans would be responsible for tracking these
beneficiary out-of-pocket limits and for notifying members when they
have been met. We also proposed to require MA regional plans to track
and limit incurred rather than paid out-of-pocket expenses.
Comment: Many commenters recommended that CMS explain the
significance of requiring MA regional plans to track ``incurred''
rather than paid expenses related to the deductible and caps on
beneficiary cost sharing.
Response: There are two reasons for requiring MA regional plans to
track incurred rather than paid beneficiary cost-sharing expenses. The
first is that
[[Page 4614]]
we foresee a potential for disputes arising between providers and MA
organizations related to the ``full'' reimbursement the MA organization
will owe, once a cap had been met. If ``full'' reimbursement were not
required until cost sharing had been paid (rather than incurred), then
disputes might arise over what amount a beneficiary had actually paid
in cost sharing, and when. Administratively, it is more feasible and
less burdensome for plans to track incurred cost-sharing amounts than
amounts actually paid, if for no other reason than the latter would
require a feedback mechanism to the MA organization whenever an
enrollee makes a payment of cost sharing. Second, it is possible that
in many instances a beneficiary will be unable to pay full cost sharing
for a service at the time of service. Many MA organizations, for
instance, require inpatient hospital copays of more than $100 per day,
even when in-network hospitals are used. Beneficiaries might need to
pay cost sharing to providers over a period of time. Such delays in the
actual payment of cost sharing should not affect the MA organization's
responsibility for timely payment of claims.
Comment: A number of commenters recommended that CMS require MA
organizations to make deductible and out-of-pocket information readily
available to providers to facilitate billing at the time of service.
Some commenters suggested requiring MA organizations to send notices of
additional financial liability to enrollees on a monthly basis. Others
suggested requiring that a standardized notice be used to ensure
consistent reporting across all plans. Commenters also suggested
requiring MA organizations to post enrollee deductible and catastrophic
cap information on the Internet, so providers could easily and quickly
determine enrollee liability at the time of service.
In addition, commenters suggested that CMS require MA organizations
offering MA regional plans to provide information on deductible and
out-of-pocket limits related to specific MA regional plan enrollees to
hospitals, similar to the method by which hospitals are notified of
Medicare beneficiary eligibility and Part A deductible status under the
original FFS system. Others suggested that we require MA organizations
offering MA regional plans to supply deductible and catastrophic cap
information when health care providers and/or hospitals notify the MA
organization that an MA plan member has presented for services.
Response: In response to these comments, we have modified Sec.
422.101(d)(4) to indicate that notification to providers of enrollee
status related to a deductible (if any) and catastrophic caps is also
required. To the extent an MA regional plan enrollee is not aware of
his or her deductible and/or cap status, the enrollee or a provider
should have reasonable access to such information at the time of
service.
Comment: A number of commenters recommended that CMS add a special
provision for AI/AN to Sec. 422.101(d) that would have the affect of
requiring all MA regional plans to provide ``full reimbursement'' to
all I/T/U facilities that treated enrollees of that MA regional plan.
Response: The MMA did not provide for special treatment under the
MA program for AI/AN beneficiaries. For this reason, we do not see a
statutory basis to apply different rules to a subset of Medicare
beneficiaries, such as AI/AN populations.
Comment: A commenter generally supported the requirement at Sec.
422.101(d)(4) that MA regional plans will be responsible for tracking
the incurred beneficiary cost sharing related to the deductible and the
catastrophic caps on beneficiary out-of-pocket expenses. The commenter
expressed disappointment that a specific dollar amount or limit had not
been set related to the caps on out-of-pocket expenses in Sec.
422.101(d)(2) and (d)(3). The commenter also asked that we provide a
definition of ``incurred'' costs that ensures that all cost sharing,
whether paid by the beneficiary, or on his or her behalf, is counted
and tracked.
Response: We did not establish maximum deductible or cap-levels in
regulation, since the statute does not set such limits. We interpret
the statute to allow for flexibility in plan design, within the
constraints of statutory language, to promote competition. However,
under our authority at section 1852(b) of the Act to disallow the
offering of an MA plan where we determine that the plan design or its
benefits are likely to substantially discourage enrollment by certain
MA eligible individuals, we will review deductible and cap-levels to
ensure that they do not substantially discourage enrollment.
Additionally, as required by section 1854(e)(4) of the Act, beginning
in 2006 (and for all MA plans other than MSA plans), the actuarial
value of the deductible, coinsurance, and copayments applicable on
average to individuals enrolled in an MA plan related to benefits under
the original Medicare program may not exceed the actuarial value of the
deductibles, coinsurance, and copayments that would be applicable on
average to FFS Medicare enrollees related to benefits under the
original Medicare program. As provided for in statute at section
1852(a)(1)(B)(ii) and in our regulation at Sec. 422.101(e)(2), while
the catastrophic limit on in-network receipt of benefits under the
original Medicare program applies to the overall cost-sharing limit
that an MA regional plan can impose per Sec. 422.256(b)(3), the out-
of-network catastrophic limit is not likewise constrained.
Finally and related to the tracking of incurred costs, we will
require MA regional plans to track incurred as opposed to paid enrollee
cost sharing. We will require MA regional plans to provide
reimbursement to providers for covered services once the deductible or
caps have been incurred regardless of who has actually paid the cost
sharing, or for that matter, regardless of whether the deductible or
other cost sharing has been paid at all. An MA organization with
financial liability to reimburse a provider for covered services may
not delay reimbursement until an enrollee first pays deductible or
cost-sharing amounts.
The MMA also added a new section 1859(b)(4) to the Act requiring MA
regional plans to provide reimbursement for all covered benefits,
regardless of whether the benefits are provided within or outside of
the network of contracted providers. As PPOs, MA regional plans are
permitted to impose differential cost sharing related to non-emergency
services received from non-network providers. To the extent
differential cost sharing is part of the benefit package, the MA
regional plan will generally be responsible for its portion of payment
to a non-network provider, and the enrollee will be responsible for the
remainder, up to the limits discussed above. We accommodated these
requirements in the proposed rule at Sec. 422.101(e).
MA PPO Benefits
We received many comments on Sec. 422.101(d) and (e) related to
the benefits and cost-sharing protections enrollees in MA regional
plans can expect to receive. We also received comments specifically
related to the definition of MA PPOs provided at Sec. 422.4(a)(1)(v),
which we responded to in the subpart A preamble above. Because of the
interaction of the statutory and regulatory definitions of PPO (for
both local MA plans and MA regional plans, which are offered as PPOs),
and the benefits they must provide, we address a number of comments
related to MA PPO benefits
[[Page 4615]]
in this section of the preamble that have a close bearing on the
definition of MA PPOs.
As we stated in the subpart A preamble of the August 3, 2004
proposed rule: ``Section 520(a)(3) of the Medicare, Medicaid and SCHIP
Balanced Budget Refinement Act of 1999 (BBRA) added section
1852(e)(2)(D) of the Act and defined PPO plans under the MA program for
purposes of quality assurance requirements. As we discussed in the
preamble to the final rule with comment period titled, ``Medicare
Program; Medicare+Choice,'' published on June 29, 2000 (65 FR 41070),
the definition of PPOs at section 1852(e)(2)(D) of the Act was
explicitly for purposes of applying quality assurance requirements in
1852(e)(2)(B) of the Act and was limited in its applicability to
paragraph (2) of section 1852(e) of the Act. Before the enactment of
the BBRA, PPOs had been treated under the M+C statute and regulations
in the same manner as all other M+C coordinated care plans for purposes
of applying quality assurance requirements. In the June 29, 2000 final
rule with comment period, we incorporated this new definition into the
M+C regulations at Sec. 422.4 and by revising Sec. 422.152.
The PPO plan definition added by section 520 of the BBRA included
three elements, they were as follows: (1) has a network of providers
that have agreed to a contractually specified reimbursement for covered
benefits with the organization offering the plan; (2) provides for
reimbursement for all covered benefits regardless of whether those
benefits are provided within the network of providers; and (3) is
offered by an organization that is not licensed or organized under
State law as a health maintenance organization.
Because the definition of PPO plan in section 1852(e)(2)(D) of the
Act only applies for the limited purpose of eligibility for PPO quality
improvement requirements, we do not believe that the limitations in
this definition should have been set forth in a generally applicable
definition of PPO plan in Sec. 422.4, as is currently the case. We
propose to clarify in regulation that it is solely for purposes of the
application of the more limited quality assurance requirements in
section 1852(e)(2)(B) of the Act that PPOs must be offered by MA
organizations that are not licensed or organized under State law as a
HMO. For PPO-type plans that are offered by MA organizations that are
licensed or organized under State law as HMOs, the quality assurance
requirements that apply to all other coordinated care plans in section
1852(e) of the Act also apply to those PPO type plans.''
Based on this better interpretation of section 520(a)(3) of the
BBRA, we proposed to modify the third element (related to State
licensure) of the definition of MA PPO plan at Sec. 422.4 to read as
follows: ``A PPO plan is a plan that has a network of providers that
have agreed to a contractually specified reimbursement for covered
benefits with the organization offering the plan; provides for
reimbursement for all covered benefits regardless of whether the
benefits are provided within the network of providers; and, only for
purposes of quality assurance requirements in Sec. 422.152(e), is
offered by an organization that is not licensed under State law as an
HMO.''
We also proposed to define MA regional plan at Sec. 422.2 based on
the definition in section 1859(b)(4) of the Act, which was added by
section 221(b) of the MMA. The first and second elements of the
definition of MA regional plan at section 1859(b)(4)(A) and (B) of the
Act are identical to the first two elements of the definition of MA PPO
plan at sections 1852(e)(3)(A)(iv)(I) and (II) of the Act , which was
added by section 722(a) of the MMA. Note that the definition of MA PPO
plan in section 1852(e)(3)(A)(iv)(I) of the Act is identical the
definition of MA PPO plan that had appeared at section 1852(e)(2)(D) of
the Act, as added by section 520(a)(3) of the BBRA. Therefore, the
statute requires that both local MA PPOs and MA regional plans (which
are offered as PPOs) must provide reimbursement for all covered
benefits regardless of whether such benefits are provided within the
network of providers.
Comment: Although some commenters supported, as a beneficiary
protection, the fact that MA regional plans are required to provide
reimbursement for all covered benefits, regardless of whether those
benefits are provided within or outside the network of contracted
providers. Many commenters suggested that statutory language requiring
PPOs to provide reimbursement for all covered benefits should simply
mean that PPOs need to provide out-of-network coverage for Medicare
Part A and Part B services. The commenters also stated that they
believe the statute never intended out-of-network coverage to apply to
supplemental benefits, which are not part of the original Medicare
benefit package.
Response: We disagree. The placement of the definition and other
requirements related to MA regional plans in the MMA is instructive in
this regard. As we noted earlier, section 221(b) of the MMA added the
definition of MA regional plan, which includes the second element of
the definition, ``that provides for reimbursement for all covered
benefits regardless of whether such benefits are provided within such
network of providers,'' at section 1859(b)(4)(B) of the Act. Section
221(c) of the MMA establishes ``Rules for MA Regional Plans'' by
inserting a new section 1858 into the Act. In both, section 1858(b)(1)
of the Act related to the single deductible that MA regional plans are
permitted to apply, and section 1858(b)(2) of the Act related to the
catastrophic limits that MA regional plans must apply, the statute is
clear in stating that only ``benefits under the original Medicare FFS
program'' are included. Where the intent is to limit application of MA
plan requirements to only benefits under the original Medicare program
(Parts A and B), the statute states such a limitation. Because no such
limitation appears in either section 1852(e)(3)(A)(iv) of the Act,
related to all PPOs, nor in section 1859(b)(4) of the Act, related to
MA regional plans, we cannot apply such a limitation in the
regulations.
Comment: Several commenters stated that benefits such as gym,
eyewear, dental discounts, discounts on hearing aids, massage,
acupuncture, weight control programs, or health-related magazines are
unavailable out-of-network because as a practical matter, such benefits
and discounts are negotiated and offered to MA organizations primarily
in consideration of the guaranteed volume the exclusive service
provider believes it will receive. Many commenters stated that, to the
extent such discounted benefits are available from out-of-network
service providers, the basis for the negotiated discount (guaranteed
volume) becomes null and void.
One commenter stated that discount arrangements such as these,
which secure a larger volume of business for the entity providing the
discount, provide financial profits and are a common business model not
limited to the world of health insurance. The commenter also stated
that in these arrangements, there is typically no payment by the plan,
and no cost sharing by the enrollee.
Response: Although we fully support discounts and volume purchasing
where appropriate, it is important to note that discounts are not
benefits under the MA program unless they meet the definition of
``benefits'' contained in the regulations. The definition of MA
benefits is found at Sec. 422.2 and reads as
[[Page 4616]]
follows: ``Benefits are health care services that are intended to
maintain or improve the health status of enrollees, for which the MA
organization incurs a cost or liability under an MA plan (not solely an
administrative processing cost). Benefits are submitted and approved
through the annual bidding process.'' Note that unless an MA
organization actually pays for a health care item or service, the item
or service is not a ``benefit'' of the MA plan. Therefore, negotiated
discounts for services for which the plan incurs no cost or liability
are not MA benefits, and are not subject to the requirement that PPOs
provide reimbursement for all benefits, whether or not they are
provided within the network of providers. That said, it is important to
note that we have termed these types of negotiated discounts ``value
added items and services,'' which are discussed in Chapter 3
(Marketing) of the CMS Medicare Managed Care Manual.
Comment: Some commenters stated that MA organizations frequently
subcapitate ancillary provider networks (such as dental providers) and
that such subcapitated arrangements make it difficult for the MA
organization to provide reimbursement for all benefits, in- and out-of-
network.
Response: The statute is clear that all MA organizations offering
PPOs (local and regional) must provide reimbursement for all plan
benefits in- and out-of-network. A number of MA organizations
subcapitate Independent Practice Associations (IPAs), Physician-
Hospital Organizations (PHOs), and similar subnetworks of providers,
for most (or all) original Medicare Part B and/or Part A services. Such
subcapitation arrangements are permitted within the MA program, subject
to Sec. 422.208 (the physician incentive plan requirements and
limitations) and other statutory and regulatory provisions. However, to
the extent an MA organization wants to offer a PPO (either local or
regional), it will also need to make arrangements for providing
reimbursement for all out-of-network benefits in such a subcapitated
environment, or it will need to make arrangements with its subcapitated
contractors for providing reimbursement for out-of-network benefits
directly. Two points need to be made. First, the cost sharing that an
enrollee will be required to pay when obtaining covered benefits out-
of-network can be higher than the cost sharing that applies when
services are obtained in-network. Second, to the extent that
subcapitated arrangements make the provision of reimbursement for all
benefits out-of-network impractical, an MA organization might consider
offering an HMOPOS product, where out-of-network coverage and
reimbursement can be limited in a number of ways.
Comment: Commenters stated that it would be impossible for plans to
provide reimbursement for out-of-network receipt of benefits such as
24-hour nurse hotline services or disease management services.
Response: These services are not likely to be available from out-
of-network providers because of the unique nature of the services and
the integration between the plan and the service provider necessary for
the delivery of such services. To illustrate, a provider of in-network
disease management services to a plan's enrollees is likely to need
access to plan and patient information in order to provide services to
enrollees. An out-of-network disease management services provider would
not have such access, and so would be unlikely to be able to provide
the service out-of-network. Finally, to the extent that such services
are available without cost sharing from in-network providers, the
imposition of cost sharing of any amount for their receipt out-of-
network should deter virtually all enrollees from seeking them out-of-
network.
Comment: Some commenters pointed out the difficulty inherent in
requiring MA-PDs that are offered as PPOs to provide reimbursement for
mail-order drugs or Part D (prescription drug) benefits received by
enrollees from out-of-network providers.
Response: As a practical matter, an MA PPO plan that offers Part D
coverage as an MA-PD will need to provide out-of-network coverage of
Part D drugs consistent with the requirements of the Part D program and
the regulations at part 423.
Comment: A commenter stated that further complications might arise
were CMS to interpret ancillary services (for example, dental and
eyewear) as being services subject to the catastrophic limit on out-of-
pocket expenses. The concern was that once an enrollee has met the out-
of-network cap, cost sharing would no longer act as a deterrent to the
unrestricted and ``free'' access by PPO enrollees to these benefits
from out-of-network providers.
Response: The statute and our implementing regulations at Sec.
422.101(d)(2) and (d)(3) are clear in limiting application of the
catastrophic caps to Part A and Part B benefits. To the extent dental
or eyewear benefits of an MA PPO plan are not also original Medicare
benefits, cost sharing can continue to apply, even after the out-of-
network additional catastrophic limit in Sec. 422.101(d)(3) has been
met.
Comment: A number of commenters recommended that we revise the
proposed rule to clarify that MA regional plans may establish prior
authorization requirements for services obtained out-of-network and
that both MA regional plans and local PPOs should be permitted to offer
certain services only through network providers, where, for instance,
the services have unique characteristics. The commenters stated that
private sector PPO benefits are commonly offered in this manner.
Therefore, the commenters believe that by providing this flexibility,
CMS would allow the offering of MA PPO plans and benefits in a
comparable manner to those generally available to consumers, and that
this will make it possible for them to continue to offer certain
services that add value for beneficiaries.
Response: Although we support the offering of added value to
beneficiaries where possible, as we have previously discussed, there is
a clear statutory requirement that all covered benefits of an MA PPO
plan (regional or local) must be available out-of-network. The statute
provides a definition of PPO that may not, in all respects, conform
with business models that might be present (or even prevalent) in the
commercial sector. Unlike plans serving commercial populations, the
Medicare program is primarily intended to serve aged and vulnerable
beneficiary populations. Therefore, the dynamics of the MA program may
not match those in the commercial market. Also, for all MA plans they
offer, MA organizations are required to follow FFS coverage rules
related to items and services covered under FFS Medicare. Although MA
organizations are permitted to adopt a single local coverage policy
that will apply to all enrollees in an MA plan, in accordance with
Sec. 422.101(b), MA organizations are not permitted to impose a more
stringent test related to medical necessity determinations for
Medicare-covered services than the one that applies under the FFS
program.
For items and services not covered by Medicare that the MA
organization provides under section 1852(a)(3) of the Act, similar
considerations apply. In other words, to the extent and under the
conditions that a non-Medicare supplemental benefit would be available
to a plan enrollee within the network of providers, such a service
would also need to be available to an MA PPO enrollee out-of-network.
That is not to say that differential cost sharing cannot be applied to
out-of-network receipt of covered services, nor does it mean that
[[Page 4617]]
out-of-network cost sharing cannot be differentially applied to
specific services or types of services. We believe that MA
organizations offering MA PPOs (both local and regional) can accomplish
their business strategies while still working within the statute.
For instance, an MA PPO can warn enrollees that to the extent that
an item or service is not a covered benefit of the plan, the enrollee
would be required to pay the full cost of the service. This warning
might have the desired effect of encouraging the enrollee to call the
MA plan before seeking care out-of-network, as a means of ensuring that
a specific item or service is actually a covered benefit of the plan.
Similarly, for specific services for which the plan has established
substantial out-of-network cost sharing, the enrollee can be encouraged
to contact the plan for pre-authorization that would reduce cost
sharing. For instance, for out-of-network receipt of a specific
inpatient hospital service the normal cost sharing might be 40 percent
of charges. To the extent an enrollee or provider calls and receives
plan pre-authorization for a specific out-of-network hospitalization of
this type, the MA plan might reduce enrollee liability to 20 percent
(or less) of charges. MA PPOs must be able to provide coverage and
medical necessity determinations to enrollees (and providers) before
the enrollee receives out-of-network services. This will act as a
beneficiary protection.
A prudent enrollee will have reason to ensure that such services
are medically necessary and covered by the plan before self-referring
to out-of-network providers. Similarly, a prudent provider will have a
means of ensuring that plan coverage will be provided. However, the
idea that a gatekeeper must provide a referral or that an MA plan must
pre-authorize a service before it will be covered at all, or that such
a referral or plan pre-authorization is a necessary condition for
receipt of any medically necessary out-of-network plan covered service
is not in accord with the statutory language pertaining to MA PPOs.
Our belief is that the statute precludes requiring a medical
necessity determination, a plan pre-certification or pre-authorization,
or a coverage decision before receiving a covered service out-of-
network. As long as an MA PPO enrollee is willing to pay the higher
cost sharing associated with out-of-network care, there can be no
additional barrier to receipt of plan covered benefits. If an MA
organization offering an MA PPO is particularly concerned with over-
utilization or inappropriate utilization of services (or of a
particular service) out-of-network, the organization has the authority
to impose relatively high out-of-network cost sharing overall, or
related to a specific service. Also note that to the extent a referral
or plan pre-authorization has been provided for in-network care, the
enrollee has the right to use the referral or plan pre-authorization
for receipt of the same care out-of-network (with applicable out-of-
network cost sharing).
Comment: A commenter recommended that CMS offer alternative
regional PPO product designs, which the commenter called ``Performance
Risk PPOs.'' The commenter included a proposal that would, offer plan
incentives for higher quality, better customer service and benefits,
improved outcomes and program savings, and penalize plans that do not
perform well on these measures. The commenter explained that such a
model would offer a range of out-of-network benefits, but not all
Medicare-covered services would be available out-of-network. In
addition, the commenter stated that although referrals would not be
required for accessing out-of-network care, pre-certification might be
required.
Response: Under the definitions of regional PPO contained in the
MMA, the MA regional plan must provide for reimbursement for all
covered benefits, regardless of whether such benefits are provided
within the plan's network of providers. Therefore, a plan of the type
that the commenter proposes would not meet the statutory definition of
MA regional plan. Further, as we have stated above, plan pre-
certification or pre-authorization may not be a necessary condition for
receipt of out-of-network covered services.
3. Supplemental Benefits (Sec. 422.102)
In the August 3, 2004 proposed rule, we stated that an MA plan
could reduce cost sharing below the actuarial value specified in
section 1854(e)(4)(B) of the Act as a mandatory supplemental benefit.
Beginning in 2006, an MA plan can reduce the cost sharing that applies
to plan members below the actuarial value of the cost sharing that
would apply to those members if they were enrolled in the original
Medicare program. This amount is not just the limit on the amount of
cost sharing that an enrollee can be charged in the plan's bid for
Medicare Part A and Part B services (and for which and when such plan
cost sharing exceeds FFS cost sharing, a supplemental premium is
necessary), but it also expresses the value of the bid-based cost
sharing when the bid is below the benchmark. When we reference section
1854(e)(2)(B) of the Act in Sec. 422.102(a)(4), we are referring to
the latter value, not the former. This reduction in cost sharing can be
included as a mandatory supplemental benefit and was proposed at Sec.
422.102(a)(4).
We also proposed the following conforming changes to Sec. 422.102:
We removed the reference to ``additional benefits,'' as
those benefits are no longer applicable to MA plans offered on or after
January 1, 2006.
We removed the reference to operational policy letters
(OPLs) in Sec. 422.102(a)(3), as guidelines related to benefits that
had been contained in OPLs have been incorporated into regulation, into
the Medicare Managed Care Manual, or into other instructions.
We received no comments on this section, so we finalize it as
proposed.
4. Benefits Under an MA MSA Plan (Sec. 422.103)
For clarification purposes, we proposed to remove the extraneous
word ``under'' from paragraph (a) of Sec. 422.103.
We received no comments on this section, so we finalize it as
proposed.
5. Special Rules for Self-Referral and Point of Service Option (Sec.
422.105)
``Point of Service'' (POS) is an option in some plans that allows
enrollees to obtain non-network services, with the plan providing some
limited level of reimbursement for such services. To clarify an issue
that has created confusion for both beneficiaries and MA organizations,
we proposed to clarify at Sec. 422.105 that if an MA organization does
not offer a POS benefit to members of a plan (or if it offers a POS
benefit as an optional supplemental benefit and the member has not
selected that benefit), the member cannot be financially liable for
more than the normal in-plan cost sharing for covered items or services
from contracted providers.
We stated that we believed that indemnifying the Medicare member in
such a situation conforms with normal industry practice and also
clarified our long-standing policy that members cannot be held
financially liable when contracting providers fail to follow or adhere
to plan referral or pre-authorization policies before providing covered
services. If a plan member insisted on receiving what would otherwise
be covered services from a contracted provider (but for the lack of a
referral or plan pre-authorization), then the contracted provider would
be required to inform the member that those services would not be
covered under the plan. We proposed to require
[[Page 4618]]
the provider to document the medical record as to why the services are
medically necessary but not available through the plan.
In addition, an MA regional plan might choose to provide for a POS-
LIKE benefit where beneficiary cost sharing would be less than it would
otherwise be for non-network provider services, but where it still
might be greater than it would be for in-network provider services, if
an enrollee follows pre-authorization, pre-certification, or pre-
notification rules before receiving out-of-network services. Note that
such pre-authorization, pre-certification, or pre-notification cannot
be a necessary condition for receipt of, or required MA plan
reimbursement for, out-of-network covered services by a PPO enrollee;
however, it can act as a financial incentive (by lowering the normal
out-of-network cost sharing that would otherwise apply) to an enrollee
to voluntarily participate.
In this final rule, the title of this section is being changed to
emphasize the fact that it contains not only rules related to POS
options or benefits, but that it also contains a rule related to
enrollee self-referral to plan contracted providers in all MA plans.
Comment: Many commenters recommended that we clarify the meaning of
the introductory statement proposed to Sec. 422.105(a). Other
commenters suggested that the statement was misplaced, because the
proposed regulation would apply to plans with and without POS
offerings. Others commenters stated that in plans in which a POS option
was provided as a mandatory supplemental benefit, the introductory
statement we proposed to add would have no effect and would therefore
be confusing.
Response: We agree with the comments regarding potential confusion
and have renamed the title of this section of the regulation and
reorganized it to indicate that it covers not only POS offerings, but
that it also applies to all situations in which an MA plan member self-
refers to a plan-contracting provider, whether or not a POS benefit is
involved.
Comment: One commenter stated that while some types of services may
not be covered under any circumstances, other services might not be
covered by an MA plan because they are not medically necessary or
appropriate for the enrollee. The commenter suggested that CMS clarify
the applicability of the introductory statement to circumstances in
which a service does not meet coverage criteria based on medical
necessity.
Response: Many commenters responded to our request for comment in
the subpart M preamble of the August 3, 2004 proposed rule related to
whether or not we should permit or require (and under what
circumstances) advance beneficiary notices (ABNs) to be issued by
network or non-network providers to MA plan enrollees. Many of the
commenters opposed such a requirement as being overly intrusive on the
patient and doctor relationship and other commenters supported it as
being a valid and necessary beneficiary protection. We address the
specific comments related to ABNs in the subpart M preamble of this
rule.
Although we decided not to incorporate an ABN requirement into the
MA program at this time, we believe that there is an important
beneficiary protection at stake, especially in light of the projected
growth in MA PPO enrollment due to the advent of the MA regional plan
program. MA organizations have a responsibility to ensure that
contracting physicians and providers know whether specific items and
services are covered in the MA plan in which their patients are
enrolled. If a network physician provides a service or directs an MA
beneficiary to another provider to receive a plan covered service
without following the plan's internal procedures (such as obtaining the
appropriate plan pre-authorization), then the beneficiary should not be
penalized to the extent the physician did not follow plan rules. MA
plan enrollees cannot be held to a higher standard than plan
contracting providers. To the extent a contracting provider performs a
service or refers a patient for health care services that an enrollee
reasonably believes would be covered services of the plan, then an MA
plan enrollee cannot be liable for more than applicable plan cost
sharing for those services. To the extent an MA organization does not
properly inform contracted providers, or to the extent an MA contracted
provider does not properly enforce referral procedures, then to that
same extent, an MA plan enrollee cannot be held financially liable for
the organization's or provider's failure. Under its contract with the
MA organization, a provider is contractually bound to look solely to
the MA organization for reimbursement for covered services (see Sec.
422.502(g)(1) and Sec. 422.502(i)(3)). Similarly, MA organizations are
required to communicate clear and consistent coverage guidelines and
medical management procedures to contracting physicians (see Sec.
422.202(b)).
Comment: Some commenters recommended that CMS be more flexible and
not require the network contracted physician or provider to document
the medical record as to why the items or services were medically
necessary but not available through the plan. These commenters
suggested that it was inflexible to require that such documentation
appear only in the medical record.
Response: We agree with this comment that it was overly
proscriptive to require that such documentation could only appear in
the medical record and will permit flexibility regarding where such
information is documented. We have added language at the end of Sec.
422.105(a) that does not specify where such documentation must reside.
Comment: A few commenters asked us to clarify the issue of the
provider's ability to bill the beneficiary, if all actions specified in
Sec. 422.105(a) have taken place. Commenters stated that the
clarification should specify the conditions under which they are
permitted to bill a beneficiary. One commenter asked whether the rules
established in this section of the regulation also apply to hospitals
and other types of contracted providers.
Response: The intent of our revision to Sec. 422.105 is to clarify
a beneficiary protection and not necessarily to clarify under what
conditions an MA-contracting provider may or may not bill an MA plan
enrollee. As mentioned above, all contracting providers are bound to
look solely to the MA organization for reimbursement for services
covered under the MA plan in which a Medicare beneficiary is enrolled.
To the extent an MA-contracting provider provides a non-covered service
to an MA enrollee, then payment for such a service is not generally
within the regulatory purview of the MA program.
However, where the enrollee is notified in advance by the
contracted provider that a service will not be covered unless the
beneficiary receives a referral or takes some other action, and that
notification is documented, and the beneficiary receives the service
without obtaining the referral or taking the necessary action, then the
enrollee can be billed and may be held financially liable for the
service. Additionally, even if a beneficiary is informed (either
verbally or in writing) that a specific service will not be covered by
the MA plan in which the beneficiary is enrolled, that beneficiary is
entitled to appeal such a determination, whether or not the service is
actually provided after such notification. Finally, Sec. 422.105(a)
applies to all contracted providers, including physicians, hospitals,
and other provider types.
[[Page 4619]]
Comment: One commenter suggested that CMS was proposing an odd and
fundamentally misguided rule governing members of MA plans who self-
refer. Another commenter stated that the requirement was unnecessary,
inflexible, and burdensome for contracted providers. The first
commenter stated that the proposed rule contradicted fundamental
managed care principles and that the proposed rule would shift payment
responsibility from the self-referring member to the contracted
provider and/or the MA organization.
The first commenter asserted that enrollees who self-refer should
be required to pay the entire cost of the service and should not be
rewarded by having to pay only the normal, in-network cost sharing. The
second commenter stated that both contracting providers and MA plan
enrollees are well aware when there is a requirement to secure a
referral from a PCP before receipt of specialty care. Finally, both
commenters stated that the proposed rule was flawed by not
contemplating, or providing exceptions for, situations in which the
service is not covered by the MA plan in which the individual is
enrolled, or situations in which the service is not medically
necessary.
Response: We do not agree. The language in Sec. 422.105 states
that only covered items and services are subject to the regulatory
provision. Covered plan services do not include services that are
inappropriate or not medically necessary for a specific individual in a
specific situation. The intent of the regulatory provision is to limit
patient liability in situations where a contracted provider provides a
covered service, but for which certain technical, non-medical
conditions of coverage have not been met.
Although we agree that the enrollee should not be ``rewarded'' for
failing to follow proper plan pre-authorization or referral procedures,
we also believe that the contracted provider and the MA organization
also should not be ``rewarded'' by shifting financial responsibility to
the enrollee for covered services that are actually the financial
responsibility of the MA organization. The contracting provider is, or
should be, aware of the MA plan's technical requirements for referral
and/or plan pre-authorization related to covered services. If the
contracted provider believes the covered service is medically
necessary, then the contracted provider needs to explain the plan
referral/pre-authorization process and should consider assisting the
enrollee in obtaining necessary plan pre-service documentation.
Finally, the contracted provider needs to inform the enrollee in
instances when a service will not be covered unless the enrollee
obtains a referral or plan pre-authorization and in which that enrollee
will have full financial liability absent such referral or pre-
authorization.
6. Coordination of Benefits With Employer Group Health Plans and
Medicaid (Sec. 422.106)
Section 222(j) of the MMA revised section 1857(i) of the Act in
order to facilitate employer sponsorship of MA plans. The MMA allowed
us to waive or modify requirements that hinder the design of, the
offering of, or the enrollment in an MA plan offered directly by an
employer, a labor organization, or the trustees of a fund established
by one or more employers or labor organizations to furnish benefits to
the entity's employees, former employees, or members or former members
of labor organizations. Section 222(j) of the MMA further stated that
such an employer-labor organization sponsored MA plan may restrict
enrollment to individuals who are beneficiaries and participants in
such a plan. We proposed a new Sec. 422.106(d) to account for this new
statutory authority. (The August 3, 2004 proposed rule also contained a
number of clarifying, conforming, and editorial changes to this
section.)
Comment: One commenter recommended that CMS use the authority
provided in section 1857(i)(2) of the Act to waive requirements related
to MA regional plans. The commenter wanted to know if CMS would permit
employer/labor sponsored MA plans that have been created for the sole
enrollment of the sponsors' own employees, retirees, or members to
participate in the MA regional plan stabilization fund or in risk-
sharing through risk corridors, both described in regulation at Sec.
422.458. The commenter was concerned that these special ``incentive''
payments for organizations sponsoring MA regional plans were primarily
intended to foster the growth of MA regional plans for the enrollment
of all eligible Medicare beneficiaries, and that it would be
inappropriate to make such special payments to organizations offering
plans that are only available for enrollment to employer/labor group
members.
Response: We agree and have exercised this discretion under section
1857(i) of the Act to waive program requirements that facilitate
employer/labor group enrollment. For instance, we have waived the
requirement that MA organizations offer MA plans for enrollment to all
Medicare Part A and Part B enrollees, and have allowed MA organizations
to create plans that exclusively enroll employer/labor group members.
We will continue to do so. However, we will not waive the ``general''
enrollment requirement that MA plans enroll all MA eligible individuals
(see section 1851(a)(1)(A) of the Act) for either MA organizations or
for employer/labor MA plan sponsors, if these entities seek to offer an
MA regional plan solely to employer/labor group members.
Comment: The same commenter asked whether specialized MA plans for
special needs individuals could be offered as MA regional plans.
Response: The statute is clear in saying that specialized MA plans
for special needs individuals can be offered as any type of MA
coordinated care plan (see section 1851(a)(2)(A)(ii) of the Act). MA
regional plans are a type of MA coordinated care plan (see section
1851(a)(2)(A)(i) of the Act).
Comment: One commenter asked whether CMS would exercise the waiver
authority under section 1857(i) of the Act in order to allow MA
organizations to offer non-actuarially equivalent prescription drug
coverage to MA plan enrollees who do not purchase Part D.
Response: We will not. Section 1860D-21(a)(1)(B)(ii) of the Act
states that MA organizations may not offer prescription drug coverage
(other than that required under Parts A and B of Medicare) to an MA
plan enrollee unless it is qualified Part D prescription drug coverage.
Comment: One commenter asked if CMS would use the waiver authority
to provide for special enrollment or conversion of enrollment rules for
Medicaid beneficiaries enrolled in special needs plans, similar to what
CMS have provided for employer/labor group members.
Response: As previously stated, we have waived the requirement that
MA organizations offer MA plans for enrollment to all Medicare Part A
and Part B enrollees, and have allowed MA organizations to create plans
that exclusively enroll employer/labor group members. The authority for
such waivers is contained in section 1857(i) of the Act and does not
apply to individuals entitled to Medicaid. Note that section 1857(i) of
the Act waiver authority is exclusive in its application to employees
or former employees of an employer, or members or former members of a
union, or a combination thereof. Waivers for individuals entitled to
Medicaid are not provided for under the waiver authority in section
1857(i) of the Act. SNPs for Medicaid eligibles are authorized in
section 231 of the
[[Page 4620]]
MMA. Finally, note that Sec. 422.106(a) and (b) do not discuss
employer/labor groups in the context of section 1857(i) waiver
authority. Regulations related to employer/labor group waiver authority
are exclusively discussed in Sec. 422.106(c) and (d).
Comment: A number of commenters asked whether CMS would apply the
new waiver authority in section 222(j)(2) of the MMA to AI/AN
beneficiaries. The commenters stated that such a waiver might permit I/
T/Us to sponsor MA plans exclusively designed for AI/AN beneficiaries.
Response: Section 222(j)(2) of the MMA added a new paragraph to the
Act at section 1857(i)(2). This new provision created the opportunity
for directly-sponsored employer/labor group MA plans. Section 1857(i)
of the Act waiver authority is exclusive in its application to
employees or former employees of an employer, or members or former
members of a union, or a combination thereof. Waivers for AI/AN
beneficiaries are not provided for under the waiver authority provided
in section 1857(i) of the Act.
Comment: One commenter, in relation to a comment on Sec.
422422.560 through Sec. 422.626 (subpart M), recommended that CMS
include benefits that are separately negotiated between the MA
organization and an employer/labor group in the benefits governed by
the MA regulations and therefore subject to the MA appeals and
grievance processes.
Response: This comment has been addressed at greater length in the
subpart M preamble. However, it is important to note that for purposes
of subpart C, separately negotiated benefits between MA organizations
and employer groups, labor organizations, and Medicaid (and as
discussed in Sec. 422.106(a)(a) and (b)) are not part of any MA plan.
Such employer/labor/Medicaid benefits are discussed only in terms of
the fact that they complement the benefits of an MA plan.
Comment: A commenter requested CMS to clarify that employer groups
or labor organizations that become MA organizations may retain the
services of entities to assist in the development and operation of the
employer-sponsored MA plan. The commenter asked CMS to implement the
waiver authority under Section 1857(i)(2) of the Act in a way that does
not inadvertently hinder the efficient operation of support services
for employer groups and labor organizations.
Response: We agree with the commenter that our waiver authority
under 1857(i)(2) of the Act should be applied to allow employers and
labor organizations to offer MA plans through arrangements with
entities (such as existing MA organizations) that will facilitate the
offering and efficient operation of such MA plans. We have revised
Sec. 422.106(d) to clarify this point and to clarify that, as provided
in section 1857(i)(2) of the Act, we may exercise this authority on our
own initiative as well as upon written request from an applicant. In
each case, as specified in Sec. 422.106(d)(3), our waivers and
modifications will apply to all similarly situated MA plans.
Comment: A few commenters asked for specific waivers. Some
commenters recommended waivers already provided, such as a waiver that
would allow MA organizations to create separate MA plans solely for
employer/labor group members.
Response: As we have done in the past, we will continue to provide
specifics on approved waivers in guidance and in direct communication
with waiver recipients, rather than in formal rulemaking.
7. Medicare Secondary Payer (MSP) Procedures (Sec. 422.108)
Section 232 of MMA amended section 1856(b)(3) of the Act to remove
all ambiguity related to State authority over the MA program. The
Congressional intent is now unambiguous in prohibiting States from
exercising authority over MA plans in any area other than State
licensing laws and State laws relating to plan solvency. We proposed to
amend Sec. 422.108(f) to remove language that suggests States can
limit the amount an MA organization can recover from liable third
parties under Medicare secondary payer procedures.
We received no comments on this section, so we finalize it as
proposed.
8. Effect of National Coverage Determinations (NCDs) (Sec. 422.109)
Section 1853(c)(7) of the Act requires us to ``adjust'' MA payments
when a national coverage determination (NCD) or legislative change in
benefits will result in a significant increase in costs to MA
organizations sponsoring MA plans. We historically interpreted what
constituted ``significant'' costs in regulation at Sec. 422.109, where
the costs of a coverage change are considered ``significant'' if either
the average cost of providing the service exceeds a specified
threshold, or the total cost for providing the service exceeds an
aggregate cost threshold.
In a final rule published in the Federal Register on August 22,
2003 (68 FR 50839), we amended Sec. 422.109 to refine the definition
of ``significant'' cost to include a new test. By adding a new
paragraph at the end of Sec. 422.109(a)(2), we provided that, for
purposes of determining whether to make an additional payment
adjustment under Sec. 422.256, the tests for reaching the
``significant'' cost threshold were to include the aggregate costs of
all NCDs and legislative changes in benefits made in the prior calendar
year.
Under that new test, the ``average cost'' of every NCD and
legislative change in benefits for the contract year would have been
added together. If the sum of these average amounts exceeded the
threshold under Sec. 422.109(a)(l), then an adjustment to payment
would have been made in the following contract year under Sec. 422.256
to reflect this ``significant'' cost. Alternatively, if the costs of
the NCDs and legislative changes in benefits, in the aggregate,
exceeded the level set forth in Sec. 422.109(a)(2), an adjustment to
payment would also have been made under Sec. 422.256 on that basis.
Among the reasons for the above change was that even when the
``significant'' cost threshold had been met under the existing
definition, the methodology then employed for making a payment
adjustment under section 1853(c)(7) of the Act did not result in an
adjustment in the capitation rate in those counties with the
``minimum'' update rate (the ``2 percent minimum update'' counties paid
under section 1853(c)(l)(C) of the Act.) In accordance with section
1853(c) of the Act, the CMS Office of the Actuary (OACT) used the
annual growth rate to update only the floor and blended rates, so the
``minimum'' 2 percent update rate, which was 102 percent of the prior
year's rate, did not reflect the costs of new benefits effective in the
middle of the previous payment year. Therefore, we decided that
payments in counties in which payment was based on the ``minimum'' 2
percent update rate were not appropriately adjusted to reflect new
coverage costs as required by section 1853(c)(7) of the Act.
The MMA changed the ``minimum'' percentage payment prong of the
former M+C payment methodology by adding a new basis for a minimum
update. The ``minimum'' percentage increase rate is changed, effective
January 2004, as follows: Instead of being set at 102 percent of the
prior year's rate, the minimum increase rate will now be the greater of
102 percent of the prior year's rate, or the annual MA growth
percentage. This means that under the MMA payment methodology, the
minimum percentage increase will now reflect the cost of mid-year NCDs
and legislative changes in benefits. These
[[Page 4621]]
costs are now automatically built into the annual MA growth percentage
and will no longer require an additional adjustment under Sec.
422.256.
As a result of these MMA changes to the MA payment methodology we
proposed in the August 3, 2004 proposed rule to remove the portion of
Sec. 422.109(a)(2) after Sec. 422.254(f).
We also proposed clarifying language in Sec. 422.254(f) and Sec.
422.109(c)(3).
We received no comments on this section, so we finalize it as
proposed.
9. Discrimination Against Beneficiaries Prohibited (Sec. 422.110)
We proposed to correct Sec. 422.110(b) to bring it into
conformance with Sec. 422.50(a)(3)(ii). Specifically, we proposed to
modify the language of Sec. 422.110(b) to state that if an MA
organization chose to apply the rule in Sec. 422.50(a)(3)(ii), and
allowed individuals who are enrolled in a health plan at the time of
first entitlement to Medicare, but residing outside the MA plan's
service area to remain enrolled, the MA plan must also allow this for
individuals with ESRD.
We also proposed to remove Sec. 422.110(c), since it is
duplicative of a requirement now appearing in Sec. 422.502(h).
We received no comments on this section, so we finalize it as
proposed.
10. Disclosure Requirements (Sec. 422.111)
Section 1851(d)(2)(A) of the Act and Sec. 422.111(d)(2) establish
disclosure requirements. MA plans must provide notice to plan members
of impending changes to plan benefits, premiums, and copays in the
coming year so that plan members will be in the best position to make
an informed choice on continued enrollment in or disenrollment from
that plan. We proposed to amend this section to reflect that notice
must be provided at least 2 weeks before the Annual Coordinated
Election Period commences, instead of listing a specific date in order
to provide flexibility in the event that the beginning date of the
Annual Coordinated Election Period changes in the future.
We also proposed to remove Sec. 422.111(f)(4), as the requirement
to provide information on Medigap and Medicare Select plans is a
Secretarial responsibility under section 1851(d)(2)(A)(i) and (d)(3)(D)
of the Act and is to occur as part of the ``open season notification''
required by section 1851(d)(2)(A) of the Act.
In addition to an ``open season'' notification, information on
Medigap and Medicare Select is available year-round from the Federally
funded SHIP and the 1-800 MEDICARE telephone number. Both the local
SHIP and the 1-800 MEDICARE telephone numbers are prominently displayed
in MA plan literature. In addition, we stated that we would continue to
require MA plans to publicize the availability of information on
Medigap, Medicare Select, and other MA plans through appropriate CMS
information channels (for example, http://www.Medicare.gov, 1-800-MEDICARE).
This not only would remove an unnecessary administrative burden, but
also would ensure that reliable, accurate, and complete information is
made available to those seeking it.
To accomplish the above proposed changes, we proposed conforming
organizational changes to Sec. 422.111. We also proposed the following
disclosure requirement changes:
We removed the requirement that MAs and MSAs provide
comparative information related to other MA plans.
To prevent what might otherwise be the unreasonable result
that MA regional or national plans would be required to provide
comprehensive lists of contracting providers to all enrollees, we
modified paragraph (b)(3). (We specifically proposed to require MA
organizations, however, to provide information on contracted providers
in other parts of the plan's service area upon request in Sec.
422.111(f)(10). Note that we changed the specific wording of this
paragraph to more plainly express our intent and in response to
comments, as described in further detail below.)
We modified paragraph (b)(3) to read: ``The number, mix,
and distribution (addresses) of providers from whom enrollees may
reasonably be expected to obtain services;
We added a new paragraph (f)(10), which reads: ``The
names, addresses, and phone numbers of contracted providers from whom
the enrollee may obtain in-network coverage in other parts of the
service area.''
At Sec. 422.111(b)(11), we proposed to require MA
regional plans to provide members an annual description (at the time of
enrollment and annually thereafter) of the catastrophic stop-loss
coverage and single deductible (if any) applicable under the plan.
We changed the existing paragraph (f)(11) (the new
paragraph (f)(9)) related to supplemental benefits.
We also said that we were considering a requirement that
all MA organizations sponsoring MA plans would be required to maintain
plan-specific information on Internet web sites. We discuss this in
more detail below.
In Sec. 422.112(a)(1)(ii), we provide an ``exception'' to the
requirement in Sec. 422.112(a)(1) related to contracted provider
networks in MA regional plans. We received a number of comments on this
``exception'' and address them later in this section of the preamble.
We also explain later in this preamble why we are establishing a new
beneficiary notification requirement related to enrollees of MA
regional plans in Sec. 422.111(b)(3)(ii). This new MA regional plan
notification requirement is intended to parallel a similar OPM
requirement imposed on the FEHB Blue Cross and Blue Shield Basic Option
plan, which addresses similar circumstances and situations encountered
by Federal employees and annuitants when seeking health care.
We have added a new paragraph to the regulation at Sec.
422.101(b)(5) that will require MA organizations that elect to apply
local coverage policies uniformly across a local MA plan's service
area, or across an MA regional plan's service area, to inform enrollees
and potential providers of the applicable local coverage policy that
applies to the MA plan enrollees. We make conforming changes to Sec.
422.111.
Comment: A commenter recommended that CMS explicitly state in the
disclosure requirements related to MA plans that there were additional
disclosure requirements under Part D with which MA-PD plans would also
need to comply.
Response: We accept this comment. Although such a requirement is
implicit in Sec. 422.111(a)(2), where we require MA plans to disclose
the ``benefits offered under the plan,'' we will explicitly state the
requirement at Sec. 422.111(a)(2). To the extent an MA plan offers
Part D to its MA enrollees as an MA-PD plan, it will also be required
to follow the disclosure requirements in Sec. 423.128 related to the
disclosure of its Part D offering.
Comment: A commenter recommended that CMS more directly address the
``free access'' MA enrollees have to Medicare hospice services and the
fact that MA enrollees have the right to continue to receive non-
hospice services, unrelated to the terminal illness, from the MA plan.
The commenter wanted to ensure that MA enrollees knew that they could
continue to receive from the MA plan non-hospice services unrelated to
the terminal illness, as long as enrollees remain members of the plan.
Response: We do not believe a specific disclosure requirement of
the type the commenter requests is necessary because our existing
regulations already require disclosure of Medicare hospice
availability, rules related to receipt of care, and financial
responsibility, in Sec. 422.111(b)(2)(iii) and
[[Page 4622]]
Sec. 422.320(a) (formerly codified at Sec. 422.266(a)). Otherwise,
because non-hospice benefits of an MA plan continue to be available
after hospice election and while an individual remains enrolled in an
MA plan, such availability must be disclosed under Sec. 422.111(b)(2).
Comment: Several commenters recommended that CMS require MA
organizations to inform beneficiaries about their benefits or
restrictions on those benefits. For example, one commenter suggested
providing information on the average number and type of home health
visits per episode that were covered by an MA plan during the prior
year and beneficiaries' average cost sharing; the names of home health
providers in the plan's network and the number of years the provider
has operated as a Medicare home health agency.
Response: We agree that disclosure of MA plan benefits continues to
be an important feature that permits beneficiaries to make informed
decisions on enrollment. As previously stated, MA plans are obligated
to disclose information on benefits, including applicable conditions
and limitations on their receipt, the plan premiums, and the cost
sharing related to specific benefits when obtained both in- and out-of-
network. We also require MA organizations to disclose information on
the number, mix, and distribution (including addresses) of providers
from whom enrollees may obtain services. These disclosure requirements
are described in regulation at Sec. 422.111 and have not materially
changed. Although MA plans are not required to specify the average
number of visits or types of visits per episode from the prior year, as
the comment suggests, the plans are required to provide all covered
home health services, which include, at a minimum, the Medicare FFS
level of benefits. We will not require MA plans to specify the number
of years a home health agency has operated, nor the other specifics
that the comment suggests because this would impose an additional
burden upon plans that we think in unnecessary in light of the existing
ways in which beneficiaries can obtain such information.
The requirement that a plan disclose the name(s) and address(es) of
the contracting home health agency or agencies is already set forth in
our regulations at Sec. 422.111(b)(3), redesignated as subparagraph
(i). The additional information about which the commenter suggests
requiring disclosure may be available, upon request, from either the MA
plan or through a direct request to the contracting home health agency
or agencies.
Comment: Several commenters noted the deletion of the word
``written'' from the first sentence of Sec. 422.111(e). One commenter
stated that removing the word might allow an MA organization to meet
this disclosure requirement by simply posting information on its web
site.
Response: The deletion of the word ``written'' was unintentional.
We have reinserted it in the regulations text at Sec. 422.111(e). We
will continue to require MA organizations to make a good faith effort
to notify members in writing of changes in provider networks.
Comment: A commenter recommended that we convey the language in
Sec. 422.111(f)(10). The commenter asked if the intent of paragraph
(f)(10) was to complement the requirement in Sec. 422.111(b)(3)(i)
that routine disclosure of contracting providers was limited to those
from whom an enrollee would ``reasonably be expected to obtain
services.'' The commenter suggested that the language in paragraph
(f)(10) was imprecise, if that was our intent, since it required
disclosure, upon request, of other providers ``in other areas,''
although we may have actually meant to convey the disclosure, upon
request, of contracted providers ``in other parts of the service
area.''
Response: We agree with this comment and have corrected the
language in Sec. 422.111(f)(10). Our intent was to make information on
the availability of other contracted providers in other parts of the
service area of the MA plan available to plan enrollees upon request,
to the extent such information was not provided at the time of
enrollment, because of the large geographic area encompassed within the
service area of the MA plan.
Comment: Some commenters opposed the deletion of Sec.
422.111(f)(7)(i) through (iv) that eliminates the requirement that MA
PFFS and MSAs plans provide comparative information related to other MA
plans that are available in the geographic area in which the PFFS and
MSAs plans are offered. These commenters stated that potential MA
enrollees should be able to easily see how these plans compare to other
MA plans and original FFS Medicare.
Response: We agree that individuals considering enrollment in an MA
MSA or PFFS plan should have comparative information regarding their
choices for receiving Medicare coverage. All MA plans, including MA MSA
and PFFS plans, must continue providing comparative information on FFS
Medicare through pre-enrollment materials including the Summary of
Benefits. The Summary of Benefits contains a matrix that provides a
comprehensive comparison of the benefits of an MA plan with the
benefits of original FFS Medicare. As we discussed in the August 3,
2004 proposed rule, we believe that the Medicare and You Handbook in
conjunction with other CMS information channels (such as the 1-800
MEDICARE call center and direct beneficiary counseling provided through
federal SHIP grants to the states) provides the best opportunity for
Medicare beneficiaries considering MA plan enrollment to receive clear,
impartial, and complete information on the choices available to them.
Therefore, we will delete these requirements, as they represent an
unnecessary administrative burden on MA MSA and PFFS plans.
Comment: Some commenters suggested including a provision in Sec.
422.111(e) that would allow AI/AN to switch to another MA plan whenever
there is a change to the provider network of the MA plan in which the
AI/AN is enrolled.
Response: We cannot accommodate this request because there is no
statutory basis for differentiating between AI/AN and non-AI/AN
beneficiaries. However, to the extent that conditions in Sec.
422.62(b), where special election periods are discussed, are present
for any MA plan enrollee, the opportunity to switch plans or to return
to original FFS Medicare is available.
Comment: One commenter recommended that CMS remove the annual
requirement for distribution of network provider directories. The
commenter stated that for a vast majority of enrollees, the provider
directory is not referenced and the information could more reasonably
be made available on an ``as requested'' basis after initial provision
upon enrollment.
Response: Under section 1852(c)(1)(C) of the Act, MA organizations
are required to provide annually, in clear, accurate and standardized
form, detailed information about the number, mix and distribution of
plan providers. We have interpreted this requirement in regulations to
include annual disclosure of plan providers' addresses.
Comment: Most commenters supported the new language in Sec.
422.111(b)(3)(i). A few commenters recommended that CMS define or
explain the statement, ``MA organizations would be responsible for
providing the number, mix and addresses ``of providers from whom
[[Page 4623]]
enrollees may reasonably be expected to obtain services.'' One
commenter suggested that the language was unclear, subject to broad
interpretation and would result in confusion and an inconsistent
application by MA organizations.
Response: We believe that the standard of ``reasonable'' disclosure
of network providers is both appropriate and sufficiently clear within
our current regulatory standards. We believe that MA organizations are
in the best position to determine what would be ``reasonable'' in this
context, based on service usage and community patterns of care. In
order to preserve flexibility for MA organizations to provide
information appropriate to the needs of their enrollees, we do not
intend to change the proposed language in Sec. 422.111.
Comment: A number of commenters recommended that CMS apply special
disclosure requirements to AI/AN beneficiaries, stating that such
special disclosure requirements should include a right by AI/AN
beneficiaries to select another MA plan at any time without penalty.
Response: We cannot accommodate this request because there is no
statutory basis for differentiating between AI/AN and non-AI/AN
beneficiaries.
Internet
In the August 3, 2004 proposed rule, we asked for comments on
whether or not we should require all MA organizations for all MA plans
they offer to set up an Internet web site that would make basic MA plan
information and materials available to interested Medicare
beneficiaries and other parties. The basic information and materials
could include the Evidence of Coverage, the Summary of Benefits, and
information (names, addresses, phone numbers, specialty) on the network
of contracted providers. Those Internet materials and information would
duplicate materials already produced in print format and made available
by MA organizations relative to the MA plans they offer.
Comment: Many commenters stated that it would be difficult for
providers to know whether an MA organization had chosen to adopt one of
the uniform coverage policies in Sec. 422.101(b)(3), related to local
MA plans, or Sec. 422.101(b)(4)--related to MA regional plans.
Response: As we discuss at more length earlier in this preamble
related to Sec. 422.101(b)(3) and (b)(4), we agree with this comment
and therefore have added a requirement at Sec. 422.111(f)(11) that MA
organizations must make uniform coverage policies related to an MA plan
readily available to members and providers, including through the
Internet.
Comment: Many commenters were supportive of the proposed
requirement that all MA organizations provide basic materials, such as
the Evidence of Coverage, Summary of Benefits, and information (names,
addresses, phone numbers, specialty) on the network of contracted
providers. Some commenters suggested that CMS not be overly
prescriptive in the requirements for what MA organizations post to a
web site. Some suggested that the provision of information over the
Internet should relieve MA organizations of their responsibility to
provide identical information to enrollees in hard-copy format. One
commenter suggested that CMS make plan enrollees ``opt-in,'' if they
want plan information sent to their homes.
Other commenters stated that most Medicare beneficiaries do not
have access to the Internet, and that regardless of whether an MA
organization provides plan information electronically, we should
continue to require MA organizations to send enrollees required
information through the mail. One commenter stated that it did not want
its member handbook or Evidence of Coverage to appear on the Internet.
The commenter stated that it would prefer to have the documents
available only to members. Other commenters stated that requiring an MA
organization to duplicate materials such as the Evidence of Coverage or
the Summary of Benefits on the Internet would be administratively
redundant, costly, and burdensome to maintain. One commenter suggested
leaving the decision on an Internet web site to the discretion of the
MA organization. This commenter stated that although it supports use of
the Internet, MA organizations should not be required to post specific
documents to the Internet, since they are already provided to enrollees
in hard copy.
Response: Based on these comments, we will be as flexible as
possible, while still ensuring that beneficiaries receive the
information necessary to make informed choices. We will require MA
organizations exercising options under Sec. 422.101(b)(3) or (b)(4) to
communicate, via the Internet and through other means, the fact that a
specific local coverage determination is in effect for its plan
members. We have placed this requirement at Sec. 422.111(f)(11). Use
of the Internet in this way will ensure that potential providers have
access to plan coverage information to the extent that it differs from
the Medicare coverage policy in the geographic area in which the
provider is actually treating an MA plan enrollee. Similarly, we will
require MA organizations that have Internet web sites to post the
Evidence of Coverage, the Summary of Benefits, and information on the
network of contracted providers at Sec. 422.111(f)(12). Because we
apply this requirement only to organizations that otherwise maintain
Internet web sites, we do not believe that such a requirement is overly
burdensome or that it will entail a significant administrative effort.
In addition, because the Evidence of Coverage and the Summary of
Benefits do not change during the course of a calendar year,
maintaining or updating the information in them will be a once-a-year
activity, which will coincide with the update of the hard copy version
of these documents. Updating of the provider directory might entail
additional administrative effort; however, to the extent that MA
organizations are already required to update provider information in
written materials, we do not believe that extending this requirement to
an electronic version of the same document would entail a great deal of
additional administrative effort.
In response to the commenters that asked if the use of Internet
versions of required documents would eliminate (or mitigate) the
requirement for hard copy documents, we have added a final sentence to
Sec. 422.111(f)(12) that states that we will maintain our current
requirement that MA organizations provide to enrollees written, hard
copy materials providing information at the time of enrollment and
annually thereafter as required by Sec. 422.112(a) and (b). Most
Medicare beneficiaries do not routinely use the Internet. To the extent
they do and do not wish to receive hard copy plan materials, they can
and will indicate such a preference. In response to commenters who did
not believe it appropriate to post plan materials to the Internet, we
respond that we believe it is an important feature of beneficiary
choice to be fully informed regarding the benefits and features of an
MA plan before enrollment. Plan materials, including the Evidence of
Coverage, the Summary of Benefits, and a list of contracting providers
are essential pre-enrollment materials that allow Medicare
beneficiaries an opportunity to compare MA plans and to make an
informed decision on enrollment.
11. Access to Services (Sec. 422.112)
There are no new access standards for MA regional plans, and
existing MA standards will generally apply. We
[[Page 4624]]
reviewed our existing regulatory requirements related to network
adequacy and proposed to remove some that are either duplicative or, in
our view, overly onerous. We stated we expected competition to be the
best method for ensuring network adequacy, as enrollees will favor and
enroll in plans with more extensive networks and tend to avoid those
without. Furthermore, Medicare beneficiaries can always choose to
remain enrolled in the original Medicare FFS program.
We proposed to remove or modify some the requirements from Sec.
422.112 of the regulation, none of which were required by statute, and
some of which became unnecessary as they were replaced or superseded by
requirements in the MMA:
We proposed to delete Sec. 422.112(a)(4), because we
believed it would be redundant to suggest a specific approach to
quality improvement activities in the context of, and as a means of
ensuring, enrollee access to care. After reviewing and responding to
comments (below), we will implement as proposed and delete Sec.
422.112(a)(4).
We proposed to remove the written standards requirements
in Sec. 422.112(a)(7) since they were duplicative of other provisions
in the regulation. Based on a comment we received, we will not delete
the requirement.
In the final rule we make editorial corrections to Sec. 422.112(a)
heading and introductory text to remove reference to ``network M+C MSA
plans'' and ``additional'' services, neither of which terms have
relevance in the MA program.
Comment: We received a few comments related to our proposal to
remove requirements in Sec. 422.112(a)(7). One commenter asked us to
articulate what tools, other than written standards, an MA plan should
use to ensure adequate access to medically necessary health care items
and services. Other commenters objected to removal of written
standards.
Response: Written standards are simply one aspect of an MA
coordinated care plan's guarantee of access to care. Such written
standards do not, in and of themselves, constitute a sufficient
guarantee of access to care. To the extent that written standards are
not enforced, they guarantee little. However, we agree with the
commenters and believe that the requirement for written standards will,
at the very least, prompt plans to affirmatively address and
memorialize how they intend to provide access to care. In light of the
comments we received and upon further consideration, we will retain the
requirement for written access standards in Sec. 422.112(a)(7).
Comment: One commenter recommended that CMS modify the rules to
create waivers that would allow ESRD patients to be referred to
nephrologists, dialysis centers, or vascular surgeons who are out-of-
network if the patient prefers another physician or center, or if the
referring nephrologist believes that the vascular access outcomes would
be better with the out-of-network surgeon. The commenter also suggested
allowing self-referrals to specialists, such as allowing ESRD patients
to self-refer to nephrologists, dialysis centers, or vascular surgeons
who were out-of-network. Another commenter suggested including certain
benefits in the MA benefit package, such as medical nutrition therapy
(MNT) benefits for diabetes and renal diseases.
Response: To respond to the first comment on the provision of
benefits to ESRD beneficiaries out-of-network, PPOs are a type of
coordinated care plan, as described in Sec. 422.4(a)(1)(iii), that are
required to provide reimbursement for all covered benefits regardless
of whether they are provided in- or out-of-network. Therefore, a
beneficiary with ESRD who is enrolled in an MA PPO plan may go out-of-
network for all covered services, albeit with a potentially higher
cost-sharing liability. Coordinated care plans are permitted to use
mechanisms to control utilization, such as requiring referrals from a
``gatekeeper'' PCP, before an enrollee can receive in-network specialty
services at in-network cost sharing levels, as codified in regulations
at Sec. 422.4(a)(1)(ii)and Sec. 422.112(a)(2). Therefore, access to a
specialist at in-network cost-sharing levels can generally be limited
to contracted providers in coordinated care plans. When an individual
beneficiary chooses a coordinated care plan, information is available
about the availability of providers, including specialists, and under
what conditions they are available in-network. Information on the
routine availability of out-of-network care (either because the plan is
an HMOPOS or a PPO, for instance) is also provided at the time of
enrollment and annually thereafter. On the second point related to
requiring MNT benefits for diabetes and renal diseases in MA plans, we
remind the commenter that all MA plans are required to include all
Medicare FFS benefits in their MA plan benefit packages.
Comment: One commenter recommended that CMS require all MA plans to
include podiatric physicians in their networks to ensure that the
necessary and vital services provided by these physicians continue to
be available to patients. The commenter stated that Sec. 422.205(a)
prohibits MA organizations from discriminating against providers on the
basis of license or certification.
Response: We do not see a basis for requiring MA organizations to
contract with a specific provider type. As the commenter stated, our
existing regulations prohibit discrimination on the basis of license or
certification. Further, our existing regulations, as amended in this
final rule, require MA organizations to ensure that covered services
are available and accessible within an MA plan's network consistent
with applicable access standards. However, Sec. 422.205(b), which is
not being amended in this rule, allows MA organizations to refuse to
grant participation to health care professionals in excess of the
number necessary to meet the needs of an MA plan's enrollees (with the
exception of PFFS plans).
Comment: One commenter agreed that the requirements in Sec.
422.112(a)(4) are duplicative of the proposed chronic care improvement
requirements in Sec. 422.152(c), and therefore generally agreed that
it should be deleted. However, the commenter also stated that deletion
of requirements at Sec. 422.112(a)(4) should be made contingent on our
addition of a requirement in Sec. 422.152(c) that chronic care
improvement programs be based on objective and evidence-based criteria,
such as clinical practice guidelines.
Response: We address comments related to Sec. 422.152(c) in the
subpart D section of the preamble (below). Because chronic care
improvement programs will be regulated under the provisions in subpart
D of the 42 CFR part 422, we believe it remains appropriate to delete
regulatory requirements concerning complex or serious medical
conditions from Sec. 422.112(a)(4).
Comment: One commenter asked whether access to covered MA plan
services can be denied, if the MA plan enrollee does not pay plan
required cost sharing at the time of service.
Response: The MA organization's responsibility for provision of
plan covered services supersedes the member's responsibility for
payment of cost sharing at the time of service. Therefore, the MA
organization cannot deny provision of a medically necessary covered
service for want of the payment of applicable cost sharing at the time
of service.
[[Page 4625]]
Comment: One commenter stated that CMS should add a provision in
the regulation that would apply section 1861(s)(2)(H) of the Act to MA
plans offered by MA organizations.
Response: We do not agree. Both section 1861(s)(2)(H)(i) and (ii)
of the Act are specific in their applicability to contracts under
section 1876 of the Act. Contracts with MA organizations for MA plans
are under section 1857 of the Act.
Continuity of Care
Section 422.112(b) requires all MA organizations for all MA plans
they offer to ensure continuity of care through integration of health
care services. Additional requirements in Sec. 422.112(b)(1) through
(b)(6) require specific methods by which MA organizations are to ensure
an effective continuity and integration of health care services.
Although all of the enumerated services and processes are clearly
desirable, it is not as clear that the responsibility for them is
appropriately or reasonably placed on organizations whose business is
primarily insurance coverage. Although it may be reasonable to expect
coordinated care plans to undertake these coordination, continuity, and
integration requirements, it is less clear that MA PFFS plans, MSAs,
and (to a lesser extent) local PPO plans and MA regional plans (which
will be offered as PPOs) should also be expected to. One might argue
that continuity of care rules cannot apply in the same manner to MA
plans in which the enrollee is free to choose his or her own providers
without restraint, such as MSAs and PFFS plans. We stated that we were
considering eliminating most of the requirements in Sec. 422.112(b)
for MSAs and PFFS plans. We also stated that we were considering
eliminating or modifying many of the requirements in Sec. 422.112(b)
for local PPOs and regional MA plans. Finally, we stated that we were
considering the continued appropriateness of these continuity of care
standards for all other coordinated care plans. We specifically
welcomed input on the extent to which requirements similar to those in
Sec. 422.112(b)(1) through (b)(6) are established for commercial
health insurers offering HMOs, PPOs or indemnity plans.
Based on comments we received, we will continue to apply existing
continuity of care requirements in Sec. 422.112(b)(1) through (b)(6),
but we will limit their scope of applicability to coordinated care
plans and then only to the services provided and coordinated by
contracted, network providers.
Comment: Many commenters provided input on this issue. A large
number of commenters stated that continuity of care and integration of
services is a key aspect of managed care. To the extent the original
FFS Medicare program has been perceived to be deficient in this aspect
of health care delivery, many commenters believe that CMS should ensure
that a similar ``failure'' in managed care is not allowed. A number of
commenters supported the removal of continuity of care requirements
related to MA MSA and PFFS plans in recognition of the fact that these
types of MA plans are primarily in the business of paying claims and
not in the business of coordinating health care through contracted
networks of health care providers. Other commenters stated that it was
especially for MA plans that did not have contracted provider networks,
such as PFFS plans or MSA plans, that continuity of care requirements
were most needed.
Some commenters agreed with CMS proposal to eliminate and/or reduce
continuity of care requirements for open network MA plans, such as PFFS
plans and PPO plans. Other commenters suggested removing all continuity
of care requirements for all MA plans, saying that such requirements
were duplicative of QI program activities required under section
1852(e) of the Act.
Response: Based on the comments, and because PPOs operate as both
coordinated care plans and ``open network'' plans at the same time, we
will modify this portion of the regulation. We will specify in Sec.
422.112(b) that the enumerated coordination of care requirements in
Sec. 422.112(b)(1) through (6) are applicable only to coordinated care
plans. We will also limit applicability of coordination of care
requirements to only contracting, in-network providers, thus limiting
applicability for MA PPOs to only those services provided by contracted
providers. We believe such an approach strikes the appropriate balance
between the need for coordination and continuity of care and the burden
associated with seeking to undertake such activities in the absence of
contractual relationships with providers.
Finally, we do not agree that continuity of care requirements are
duplicative of QI program activities required under section 1852(e) of
the Act. QI activities will generally and primarily be focused on
individuals with multiple or severe chronic conditions. Access to an
initial health assessment, on the other hand, as provided in Sec.
422.112(b)(4)(i), should include all enrollees of an MA coordinated
care plan, and not only those with multiple or severe chronic
conditions.
Comment: A few commenters stated that CMS appeared to be deleting a
paragraph (i) from paragraph (b)(4) in the regulations text at Sec.
422.112, but had no corresponding discussion in the preamble of the
proposed rule.
Response: We thank the commenters for identifying this oversight
and have corrected the regulations text related to Sec. 422.112(b)(4)
to show that none of the subparagraphs is to be deleted and that
renumbering is unnecessary.
Access ``Exception'' for MA Regional Plans
The MMA created a special access rule for MA regional plans in the
form of an ``essential hospital'' payment. Section 1858(h) of the Act
and implementing regulations related to ``essential hospitals'' are
discussed in greater detail later in this section of the preamble.
We noted that in attempting to create region-wide networks, MA
regional plans will be forced to bargain with hospitals that may be the
only hospital (or the only hospital with a particular service or
services) in a broad area. We believed that such a hospital would have
a ``monopoly power'' in negotiating with plans that are, in effect,
forced to contract with it in order to secure an adequate network of
contracted providers with which to serve anticipated Medicare
enrollees. The MMA attempted to partly address this situation through a
provision that would make limited funds available to supplement
payments to such ``essential hospitals.'' We proposed an additional
special access requirement that also would only apply to MA regional
plans at Sec. 422.112(a)(1)(ii).
In Sec. 422.112(a)(1)(ii), we proposed an ``exception'' to the
normal access requirements that would otherwise apply to MA regional
plans by adding language that provided for a relaxation of
comprehensive network adequacy requirements, but only to the extent
that beneficiaries were not put ``at risk'' for high cost sharing
related to services received from non network providers. We believed
that flexibility did not need to apply on a plan-wide basis, but rather
could be applied in a county or a portion of a region where, for
example, the MA regional plan was unable to secure contracts with an
adequate number of a specific type of provider or providers to satisfy
our comprehensive network adequacy requirements that
[[Page 4626]]
would otherwise apply to coordinated care plan models.
We considered two forms of beneficiary cost sharing. One was the
cost sharing related to a specific item or service--for instance, a
hospital coinsurance charge. Another was the ``catastrophic limits''
that MA regional plans must apply to original Medicare FFS benefits. MA
regional plans are required to provide reimbursement for all covered
benefits regardless of whether those benefits are received from network
providers (see section 1859(b)(4)(B) of the Act and the new Sec.
422.101(e)(1)). MA regional plans are also required to apply a
catastrophic out-of-pocket limit on beneficiary cost sharing for
covered in-network services and another on all covered services (in and
out-of-network). See section 1858(b)(2)(B) of the Act and the new Sec.
422.101(d)(2) and (d)(3).
We proposed to permit MA regional plans with lower out-of-network
cost sharing to have less robust networks of contracted providers and
to permit MA regional plans with more robust networks of contracted
providers to impose higher cost sharing charges for out-of-network
services. This was because to the extent the plans' networks were
robust, we would not expect beneficiary access to be unduly limited by
higher cost-sharing requirements when care was sought from non-network
providers. However, for plans with less robust networks, we proposed to
limit the plans' ability to impose higher cost-sharing requirements for
out-of-network care. We believed that higher cost-sharing requirements
imposed by plans with limited provider networks could unduly limit
access and that more equitable cost-sharing requirements would serve as
a safety valve to ensure that beneficiary access is not compromised. We
discussed various methods for testing the robustness of MA regional
plan provider networks. Along similar lines, we would require MA
regional plans with a less robust network of contracted providers to
have ``catastrophic limits'' on out-of-pocket expenditures for in-
network and for all services that are closer in value. For plans with
more robust contracted networks, we would allow the in-network and
total ``catastrophic limits'' to differ to a greater degree.
Based on the comments we received and which we respond to (below),
we will not be prescribing specific levels of cost sharing based on
robustness of contracted provider networks. Rather, we will require MA
organizations sponsoring MA regional plans to ensure enrollees have
access to in-network levels of cost sharing for covered services. We
will require MA organizations sponsoring MA regional plans to reduce
cost sharing to in-network levels for the receipt of out-of-network
services in cases in which covered services cannot be readily obtained
from contracted, network providers.
In this part of the preamble of the proposed rule we also discussed
the OPM requirement imposed on the FEHB Blue Cross and Blue Shield
Basic Option plan, which addresses similar circumstances and situations
encountered by Federal employees and annuitants when seeking health
care. We stated that the ``exception'' process related to access to
care requirements for MA regional plans might require the MA regional
plan enrollee to contact the sponsoring MA organization when seeking a
specific service that is not otherwise available from a contracted
provider. We are adopting that proposal. We will require MA
organizations sponsoring MA regional plans to designate a non-
contracted provider from whom (or from which) the enrollee can obtain
covered services at network cost-sharing levels, to the extent that
such services are not available and accessible from a contracted,
network provider. Alternatively, the MA organization can allow the
enrollee to seek the service from any qualified provider and guarantee
that in-network cost sharing limits will apply. We have established a
new beneficiary notification requirement related to enrollees of MA
regional plans in Sec. 422.111(b)(3)(ii). We add this requirement to
ensure that the access ``exception'' in Sec. 422.112(a)(1)(ii) does
not disadvantage beneficiaries seeking in-network care.
Comment: Several commenters were received on this proposed
provision. Many of the commenters suggested that the ``exception''
should also apply to all local MA coordinated care plans, or even all
local MA plans, while others suggested limiting it to local and MA
regional PPOs.
Response: Local MA plans of all types have discretion to limit
their service areas based on their network of contracted providers.
Unlike local MA plans, MA regional plans are required, as a condition
of offering an MA regional plan, to include the entire geographic area
of an MA region in the service area of the plan. In some ways, the
``exception'' we provide at Sec. 422.112(a)(1)(ii) for MA regional
plans is comparable to the ``partial county'' provision provided for
local MA plans in the service area definition at Sec. 422.2. Under
Sec. 422.2, we permit an MA organization to contract with CMS for a
local MA plan where the organization has a contracted network in only a
portion of a county and when such a ``partial county'' is necessary,
nondiscriminatory, in the best interests of the beneficiaries and where
other conditions are met. We will also permit MA organizations to
contract with CMS for an MA regional plan where beneficiaries are not
put ``at risk'' even though the MA organization does not have contracts
with robust networks of providers throughout the MA region. For these
reasons, it is both inappropriate and unnecessary to provide such an
``exception'' for local MA plans.
Comment: Other commenters were opposed to allowing an ``exception''
to the normal access to care requirements to any MA coordinated care
plan, including MA regional plans. One commenter suggested limiting the
``exception'' to only an initial start-up period, the first contract
year, for instance even for MA regional plans.
Response: As noted above, we believe the ``exception'' we proposed
for MA regional plan access to care requirements is essential to foster
the growth of the MA regional plan program, a goal consistent with the
Congressional intent in creating the program. We are concerned that in
the absence of this ``exception,'' the provisions we discuss below
related to beneficiary access to ``essential hospitals'' would not be
sufficient to allow MA regional plans to meet access to care
requirements for coordinated care plans.
The ``exception'' we provide at Sec. 422.112(a)(1)(ii) is
necessary because ``essential hospitals'' will not be contracting with
MA organizations for MA regional plan members, but will be a necessary
part of the MA regional plan's network in order for the MA regional
plan to meet the applicable provider access requirements under section
1852 of the Act. Section 422.112(a)(1)(ii) acknowledges that some
providers, such as ``essential hospitals,'' will not have a contract,
but will be considered part of the network because they will be
providers at which beneficiaries can seek care at in-network cost
sharing levels. We do not believe it is appropriate to limit the
``exception'' to an initial start-up period, particularly because the
``essential hospital'' provision is not so limited. On the other hand,
we agree that it would be appropriate to annually evaluate the
``subsection d'' hospitals that have been designated as ``essential
hospitals'' by MA regional plans to ensure that the
[[Page 4627]]
conditions that permitted such designation continue to exist.
Therefore, we have added a requirement at Sec. 422.112(c)(7) under
which we will evaluate the continued applicability of ``essential
hospital'' status on an annual basis at the time of annual contract
renewal. Please see below for a more extensive discussion of
``essential hospitals.''
Comment: A few commenters suggested that CMS subject MA
organizations offering MA regional plans to review by external entities
and the general public to ensure that MA regional plans meet community
access standards.
Response: We do not believe a mandatory external review of network
adequacy is appropriate because the delay and burden associated with
such a process could negate the competitive and market forces that the
Congress intended should apply in the regional MA program. Ultimately,
such a result could have the very effect the commenters are seeking to
avoid, an adverse impact on beneficiary access. Section 1852(e)(4) of
the Act provides for a private accreditation organization's external
review of MA organizations in specific areas, including access to
services. Nothing in section 1852(e)(4) can be construed as imposing
mandatory external review on an MA organization of the type the
commenters propose. Otherwise, the time frame between an organization's
submission of an application for an MA contract year and CMS' approval
or denial of that application would be too short to permit sufficient
time for a formal, public comment period.
Comment: Many commenters expressed concern that CMS seemed to be
relaxing the community access standards with the ``exception'' process
we provided for MA regional plans in Sec. 422.112(a)(1)(ii). Some
commenters stated that to the extent CMS will pay MA regional plans
more through various mechanisms, such as the ``stabilization'' fund,
risk corridors in 2006 and 2007, and the new MA payment formula,
therefore CMS also has reason to hold them to the same access standards
to which CMS holds local MA plans. Other commenters supported the
``exception'' process and suggested that it be extended to local MA
PPOs.
Response: As we have previously said, we will not permit local MA
coordinated care plans to take advantage of the ``exception'' process
in Sec. 422.112(a)(1)(ii). The exception process is necessary
precisely because we will require MA regional plans to meet community
access standards. We explained in the proposed rule that to the extent
an MA regional plan is unable to secure contracts with specific
providers in specific areas of an MA region, beneficiaries would
nonetheless be protected from excessive out-of-network cost sharing. In
other words, it is exactly because we will continue to enforce
community access standards that we will require MA regional plans to
reduce cost sharing to in-network levels where covered services cannot
be readily obtained from contracted, network providers. We establish a
new beneficiary notification requirement related to enrollees of MA
regional plans in Sec. 422.111(b)(3)(ii) to reinforce this concept.
Comment: Some commenters stated that CMS should require hospitals
to treat MA regional plan enrollees when they are offered the Medicare
FFS payment rate that is payable under section 1886 of the Act by an MA
regional plan, as long as in-network cost sharing levels are applied to
enrollees that seek care at such non-contracting hospitals. One
commenter stated that sole community hospitals, or hospitals serving
medically underserved areas or non-urban areas should be required to
treat MA regional plan enrollees if they refused to contract for FFS
rates. One commenter recommended that CMS reevaluate the non-
discrimination obligation of hospitals under the Medicare program and
suggested that CMS establish a policy that would promote access to
services at hospitals participating in the Medicare program on the same
basis for all Medicare beneficiaries, regardless of whether they are MA
enrollees or receiving coverage under the Medicare FFS program. One
commenter recommended that CMS develop further regulations that would
require providers to treat MA patients in all cases, even for elective
services.
Response: We do not necessarily agree that we should establish a
policy that would require Medicare participating hospitals to treat MA
enrollees or to contract with MA organizations under specific terms or
conditions. Were we to establish a specific price relative to FFS
inpatient hospital payment rates as a baseline that would compel a
hospital to treat MA plan enrollees, for instance, we would also be
administering inpatient hospital pricing. We do not believe that a
requirement to treat for an administered price is consistent with the
overall intent of the MMA to increase plan choices for Medicare
beneficiaries through competitive market forces. However, we
acknowledge that MA provider contracting, especially in areas where
there are few available providers, is a concern. We will continue to
evaluate our current authorities outside of the MMA as a means of
ensuring reasonable access at reasonable prices to medical services for
all Medicare enrollees, including those electing to receive their
coverage through an MA plan.
Comment: Some commenters stated that the ``exception'' CMS proposed
in Sec. 422.112(a)(1)(ii) would tend to put providers at a
disadvantage vis-[agrave]-vis MA regional plans. The commenters stated
that MA regional plans would offer reimbursement rates below FFS rates
and as such, unilaterally dictate the terms of the contract. The
commenters stated that this would be unfair to physicians and other
providers. The commenters also stated that this would create an unfair
playing field, especially because MA regional plan enrollees in such an
area would then be required to go out-of-network at higher cost sharing
levels, to receive covered medically necessary care.
Response: We disagree. MA regional plans will be required to make
all covered services available at in-network cost sharing levels, even
if an MA regional plan fails to reach mutually agreeable contracting
terms with a specific provider or group of providers. In other words,
MA regional plan enrollees will have access to medically necessary
covered health services at in-network cost sharing levels. The MA
regional plan must meet the access requirements either through
contracted providers or through the ``exception'' process discussed
above. Because section 1852(a)(2) of the Act requires MA organizations
that use a contracted network to pay non-contracting providers at the
Medicare FFS rate, once the MA regional plan enrollee pays in-network
cost sharing, the MA organization will be financially responsible for
the rest.
Comment: One commenter stated that CMS should adopt URAC, NCQA or
JACHO standards related to MA PPO network adequacy requirements and
privacy of beneficiary information requirements. The commenter stated
that for network adequacy requirements and privacy requirements, as for
all other federal regulatory requirements, to the extent that any
accreditation standard of any of the three accrediting bodies applies
to the same activity, compliance should be deemed for the PPO to be in
compliance with the federal requirement.
Response: We do not necessarily agree. Under section 1852(e)(4) of
the Act, when a private accrediting organization applies and enforces
certain enumerated requirements that meet or exceed CMS standards, CMS
can deem that an MA plan has met such
[[Page 4628]]
requirements. These enumerated requirements include access requirements
under section 1852(d) of the Act and confidentiality requirements under
section 1852(h) of the Act. To the extent the one of the three named
parties has applied to CMS and been approved in accordance with
statutory and regulatory requirements to be a private accrediting
organization for external review of PPO access and/or confidentiality
requirements, then deeming would be permissible. Note, however, that
this deeming mechanism applies only for the purposes of CMS'
enforcement of this regulation and neither CMS' enforcement of the
regulation nor accreditation by an accrediting body supersedes the
jurisdiction of the HHS Office for Civil Rights to enforce the HIPAA
privacy rule.
Comment: One commenter asked whether the access ``exception'' in
Sec. 422.112(a)(1)(ii) for MA regional plans would preempt State
licensing laws related to HMO access requirements.
Response: MA regional plans are offered as PPOs and not HMOs. We
responded to a similar inquiry in the June 2000 M+C final rule with
comment (65 FR 40257). An entity does not have to have a commercial
license of the same type of MA plan it seeks to offer under the MA
program. Rather, the entity must demonstrate that it is authorized by
the State to assume the risk involved in offering the type of plan it
wishes to offer. Thus, an entity that is licensed by the State to
assume risk commercially as an HMO would need to demonstrate that it is
authorized by the State to offer a PPO product. The access standards
that would apply to such an MA product would be the MA PPO access
standards.
Comment: Two commenters stated that CMS should rely on MA regional
plans to demonstrate access to covered services throughout their
service areas at in-network cost sharing amounts and that should CMS
continue to review cost sharing levels to ensure that they are not
discriminatory.
Response: We agree with this comment and will continue to review
cost sharing levels as a means of ensuring beneficiary access to care
and that cost sharing is not discriminatory. When we evaluate access to
care for an MA regional plan that relies, in part, on the ``exception''
in Sec. 422.112(a)(1)(ii), we will evaluate the means by which the MA
regional plan proposes to ensure that access requirements are met. Such
means might include the designation of ``essential hospitals'' in
accordance with Sec. 422.112(c), the designation of other
noncontracting providers from which an MA plan enrollee can obtain
covered plan services at in-network cost sharing levels (including the
catastrophic limit described in Sec. 422.101(d)(2)) in a timely
manner, and the manner in which MA regional plan enrollees will be
notified as to how they can secure in-network cost sharing when covered
services are not readily available from contracted providers, in
accordance with Sec. 422.111(b)(3)(ii).
Unlike local coordinated care plans, such as MA local HMOs and MA
local PPOs, where we have historically required comprehensive
contracted networks of providers as a condition for meeting our access
requirements, we will allow MA regional plans to contract with CMS with
less robust networks of contracted providers. As long as an entity
proposing to offer an MA regional plan pays noncontracted providers at
the Medicare FFS rate, and as long as they can guarantee access through
such payment to non-contracting providers, and as long as they limit
enrollee cost sharing liability to in-network levels, then we will
contract with such an entity for an MA regional plan as long as other
non-access requirements are met.
Comment: One commenter stated that the ``exception'' at Sec.
422.112(a)(1)(ii) is not in the best interest of beneficiaries and that
neither the preamble nor the regulation text in the proposed rule said
how promptly an MA regional plan would be required to respond to a
request for access to non-network sources of care, or the basis upon
which such a request could be denied, or the penalty to the MA regional
plan for not acting in a timely manner on such a request, or finally,
what recourse the member would have if a denial or non-response from
the MA regional plan occurred.
Response: An MA regional plan would be required to provide
assurances of reasonable response times, if it proposed to use the
``exception'' in Sec. 422.112(a)(1)(ii) in such a manner. Reasonable
response times proposed by the MA regional plan would need to be
consistent with community patterns of care. Where a routine or follow-
up specialist visit might ordinarily be available within 30 days, an MA
regional plan would be expected to respond in such a manner that the MA
regional plan enrollee could secure covered specialist services within
a similar time frame. Similarly, as part of the MA plan's disclosure to
both CMS and an MA regional plan enrollee, we would require a full
explanation of the denial process (where services are readily available
from contracting providers, for instance) and the appeal process the
enrollee should follow in cases of disagreement. The potential penalty
to the MA regional plan for not acting in a timely manner on such a
request is explained in our current regulation at Sec. 422.750 and
Sec. 422.758 for a violation of Sec. 422.752(a)(1) and Sec.
422.510(a)(10), respectively.
Essential Hospitals
We proposed at Sec. 422.112(c) that if an MA organization
certifies that it was unable to reach an agreement with an ``essential
hospital,'' under specific circumstances we are authorized to pay
additional amounts to that hospital from the Federal Hospital Insurance
Trust Fund. This additional payment to the ``essential hospital'' is in
addition to and does not affect the normal monthly MA payment that we
would make to the MA organization. The MA organization must provide
assurances that it will make payment to the hospital for inpatient
hospital services in an amount not less than the amount that would be
payable under section 1886 of the Act and the ``essential hospital''
must demonstrate to our satisfaction that the amounts normally payable
under section 1886 of the Act are less than the hospital's costs for
providing services to MA regional plan enrollees.
Comment: A number of general comments were received on potential
contracting difficulties between rural providers and health plans. On
the one hand, several commenters were concerned that MA organizations
offering MA regional plans would not make a ``good faith'' effort to
contract with hospitals, especially hospitals located in rural areas.
On the other hand, several commenters suggested that MA organizations
offering MA regional plans in areas with limited competition could be
``held up'' for non-competitive or predatory payment rates as a
condition of securing a contract with a specific provider. The
commenters on both sides recommended various solutions, such as
mandating the method by which MA organizations offering MA regional
plans could show they have made a ``good faith'' effort to contract
with providers.
Response: In response to comments that an MA regional plan should
be required to show that it made a ``good faith'' effort to contract
with an ``essential hospital,'' we added a requirement at Sec.
422.112(c)(3) that the MA regional plan will need to establish its
``good faith'' effort by showing that the designated hospital refused
to contract after it was offered a payment rate no less than the amount
the
[[Page 4629]]
hospital would receive under section 1886(d) of the Act.
We agree that in certain rural areas, difficulties may arise in
obtaining contracts that will satisfy the providers or the health
plans, or both. However, we do not have the statutory authority to
mandate contracts between MA plans or providers, or to intervene in
contract negotiations. Section 1854(a)(6)(B)(iii) of the Act prohibits
us from intruding in the contractual relationships between MA
organizations and health care providers. This prohibition is intended
to ensure that free market conditions continue to promote competition
and efficiency in the MA program. We believe that it is clear that the
Congress provided incentives for MA regional plans in the form of
additional payments through the stabilization fund and risk sharing in
2006 and 2007, neither of which is provided for local MA plans.
Additionally, the Congress also provided for payments for
noncontracting acute care hospitals that provide inpatient hospital
services to MA regional plan enrollees through the ``essential
hospitals'' authority. As stated previously, we believe competition
will be the best method of ensuring network adequacy because enrollees
will favor and enroll in plans with more extensive networks and tend to
avoid those without. Competition will also allow the more efficient
health care providers to offer discounted rates to MA organizations,
which will, in turn be able to pass these savings on to enrollees in
the form of additional health care items and services or reduced
premiums.
Finally, we believe enrollees will be attracted to MA organizations
that contract with efficient providers, because costs will be lower.
Clearly, the competitive forces are more complex than we can address in
this forum. We have been careful not to disturb the new competitive
balance created by the MMA related to MA regional plans.
Our access standards are found at Sec. 422.112, Sec. 422.114, and
in other sections of subpart C of the MA regulation. These standards
must be met before an MA organization will be allowed to offer an MA
plan in an area. Continuing compliance with these requirements is an
essential condition of maintaining an MA contract. For instance, CMS
has the authority, provided at Sec. 422.502(a)(3)(ii) and Sec.
422.512(a), to deny an application or to terminate a contract if an MA
organization fails to establish or maintain adequate access to care for
Medicare beneficiaries. In order to meet access standards, MA
organizations offering coordinated care plans will generally need to
secure contracts that they have negotiated with health care providers.
This will require an effort by both parties to ensure a choice of
health plans with strong provider networks that will be available to
all beneficiaries, including those residing in rural areas.
Comment: One commenter stated that in the State in which it
operates, the contracts it has with hospitals for all lines of business
(Medicare, Medicaid, and commercial) cause it to pay more on the
Medicare side, that cost-shifting occurs from its Medicare line of
business to its commercial line of business. The commenter expressed
concern that to the extent the ``essential hospital'' provision permits
an MA regional plan to ``deem'' a hospital into the MA regional plan's
network, that it provides an unfair competitive advantage to MA
regional plans. The commenter also suggested permitting hospitals to
select a single Medicare contractor (section 1876 cost, MA local or
regional plan) with which to contract, and through such a contract
``immunize'' itself from all other MA regional plans' attempts to
designate it as an ``essential hospital.''
Response: We do not believe it would be appropriate or reasonable
to so allow a hospital to ``immunize'' itself from designation as an
``essential hospital'' by any MA regional plan. To the extent we
accepted or adopted such an interpretation, we would also be nullifying
the very intent of the ``essential hospital'' statutory provision. The
intent of this provision is, simply put, to ensure access to hospital
care for regional MA plan enrollees. The opening clause of section
1858(h)(1) of the Act is instructive in this regard: ``For purposes of
enabling MA organizations that offer MA regional plans to meet
applicable provider access requirements under section 1852 with respect
to such plans.'' Additionally, as we provide for in regulation at Sec.
422.112(c), before a hospital can be designated as an ``essential
hospital'' by an MA regional plan, there must be a showing by
convincing evidence that such a hospital is uniquely able satisfy the
access requirements for the MA regional plan. If we were to limit
designation of a specific hospital as an ``essential hospital'' to the
first PPO in an MA region, we would also likely limit MA regional plan
competition in all MA regions with rural areas to a single MA regional
plan per region. Such a result clearly was not the intent of the
statute.
In addition, the ``essential hospital'' provision partly addresses
hospital financing issues, to the extent that we will pay additional
costs to ``essential hospitals,'' up to the amount provided in statute
at section 1858(h)(3) of the Act. Thus, the MA organization would not
bear these additional costs for MA regional plan enrollees.
Comment: One commenter asked for clarification on how payment will
work under the ``essential hospital'' provision. While the statute is
clear, the commenter stated, that the additional payment is limited to
inpatient services, it is unclear to the commenter whether add-ons such
as medical education or disproportionate share payments will also be
made to ``essential hospitals.'' The commenter recommended that CMS
encourage or even require plans to provide additional reimbursement to
include these amounts, which are available under inpatient PPS, to
qualifying hospitals because they would be available if the beneficiary
were enrolled in FFS Medicare.
Response: IME and GME payments will continue to be made by the
Medicare fiscal intermediaries (FIs) to all appropriate hospitals for
all Medicare beneficiaries (including MA plan enrollees).
Disproportionate Share Hospital (DSH) payments are part of the normal
FFS reimbursement amount and will be the responsibility of the MA
regional plan, to the extent it is making a payment under Sec.
422.100(d)(2), because, by definition, ``essential hospitals'' are
defined as noncontracting hospitals per section 1858(h)(1) of the Act.
In our regulation at Sec. 422.112(c), we clarify that ``essential
hospitals'' are always noncontracting with the specific MA regional
plan involved.
Comment: Some commenters suggested that to the extent an MA
regional plan offers to pay a hospital no less than the amount that
would be payable to the hospital under section 1886 of the Act, that
CMS consider this to be evidence that the MA regional plan has made a
``good faith'' effort to contract with the hospital.
Response: We agree with the commenters and have established the FFS
payment level as the baseline for MA regional MA plans in establishing
that they have made a ``good faith'' effort to contract with an
``essential hospital'' at Sec. 422.112(c)(3).
Comment: Many commenters recommended that CMS specify in regulation
exactly how the ``essential hospital'' provision will work and whether
or not (and how) it would apply to critical access hospitals (CAHs).
Other commenters cautioned CMS not to disrupt the competitive balance
between MA organizations and hospitals related to MA plan contracting.
Many commenters also recommended that CMS clearly explain
[[Page 4630]]
that CAHs are not ``essential hospitals'' as defined in the MMA. Other
commenters stated that CAHs are indeed essential providers and have
been designated as such under the FFS Medicare program. Some commenters
suggested requiring MA regional plans to pay CAHs the ``interim''
Medicare rate in effect at the time the service was furnished.
In addition, one commenter stated that such an ``interim'' payment
rate would put parties at risk that such a payment would be more (or
less) than actual costs. The commenter also suggested that CMS devise a
means of ensuring that MA regional plans are properly advised on the
``interim'' payment rate, should CMS accept the commenter's proposal.
Still other commenters stated that CMS should not permit MA
organizations to bargain in ``bad faith'' with hospitals. However,
other commenters stated that CMS should not permit hospitals to bargain
in ``bad faith'' with MA organizations. In general, all expressed
concern and cautioned CMS not to upset the delicate balance of
competition and pointed to the scarce resources and fragile financial
condition of health care delivery in rural areas.
Generally, CMS was asked not to undermine the already precarious
condition of rural providers, including rural health clinics, CAHs and
others, while at the same time we were encouraged to increase the
availability of MA plans in rural areas. One commenter recommended that
CMS put in a ``hold harmless'' or ``cost-reimbursement'' requirement
for insurers that contract with critical access hospitals. The
commenter was concerned that as more Medicare beneficiaries opt for
participation in private insurance plans, unless CAHs receive adequate
funding for the services they provide, their continued existence (and
consequently continued access to medical care for the beneficiaries
they serve) will be greatly jeopardized. Another commenter suggested
that CMS require MA plans to provide reimbursement to CAHs using a
cost-based methodology similar to that required under FFS Medicare.
Another commenter stated that as more Medicare beneficiaries enroll
in MA plans that do not contract with CAHs, the marginal costs (per
Medicare beneficiary) at CAHs will rise and so, consequently, will
Medicare payments per FFS beneficiary to CAHs. A few commenters
suggested extending the ``essential hospital'' payment to local MA
plans. Other commenters called on CMS to require MA plans to pay claims
from noncontracting providers in a ``timely'' manner and under the same
rules that apply to original FFS claims processors, the Medicare
carriers and intermediaries.
In addition, several commenters expressed confusion with the
following sentence from the subpart C preamble to the August 3, 2004
proposed rule: ``In a specific case, the actual payment to an
'essential hospital' from the Federal Hospital Insurance Trust Fund
would be the sum of the difference between the amount that would have
been paid to the hospital under section 1886 of the Act and the amount
of payment that would'' have been paid for those services had the
``essential hospital'' been a critical access hospital.''
Response: We will address the last comment first. We need to
clarify that the quoted sentence from the subpart C preamble of the
August 3, 2004 proposed rule simply echoes the statutory language at
section 1858(h)(2)(A) of the Act. The intent of the statutory
``essential hospital'' provision and the implementing regulation at
Sec. 422.112(c) is to provide an additional payment to the ``essential
hospital'' of up to 101 percent of its actual costs for providing
inpatient services to a specific MA regional plan enrollee. In other
words, there was never an intent to designate or allow a CAH to become
an ``essential hospital'' for purposes of the MA regional plan program.
The definition of ``essential hospital'' in the statute prevents such
an outcome. Section 1858(h)(4) of the Act is clear in defining an
``essential hospital'' as a ``subsection (d) hospital,'' as that term
is defined at section 1886(d)(1)(B) of the Act. CAHs are not included
in this definition and therefore can never be ``essential hospitals''
for purposes of an MA regional plan offered by an MA organization.
In Sec. 422.112(c)(1), we are clear in limiting the applicability
of the ``essential hospital'' provision in a similar manner to only
hospitals defined in section 1886(d) of the Act, and thus excluding
CAHs. We have addressed concerns related to maintaining a ``competitive
balance'' previously in our responses in this section of the preamble.
We cannot intrude in the contracting relationships between MA
organizations and providers because the statute prohibits us from doing
so at section 1854(a)(6)(B)(iii) of the Act. Additionally, to the
extent the statute provides the additional ``essential hospital''
payment only for inpatient hospital services provided by 1886(d)
hospitals to MA regional plan enrollees, we cannot extend its
applicability to local MA plans of any type.
Comment: One commenter suggested that CMS maintain a comprehensive
and accessible database of Medicare FFS reimbursement rates for all
providers and allow MA plans access to the database so they would be
better equipped to make the correct and full payment to out-of-network
providers. The commenter also stated that there should be penalties or
sanctions for plans that habitually under-pay out-of-network
noncontracting providers. The commenter also suggested that CMS require
MA organizations to follow FFS timely payment rules, including accrual
of interest when claims are not paid in a timely manner. Some
commenters stated that the additional difficulties inherent in paying
CAHs timely and correctly, explaining that CAHs are paid on a ``cost
plus'' basis.
Response: We provide public access to the FFS fee schedules and
reimbursement rates. We also assists MA organizations in pricing claims
for out-of-network providers by making ``Grouper/Pricer'' software and
other Medicare claims'' pricing tools available to them. However, with
payment rates and computations varying by provider type, locality,
provider ID, and service, and with the potential that an MA plan
enrollee might access covered emergency services in any part of the
United States, the task of correctly applying fee schedules that are
generally updated on a quarterly basis can be daunting. When one
considers the low volume of such claims that an MA organization would
expect to receive and the administrative effort involved in correctly
pricing them, one begins to understand that simply making such data and
systems available to MA organizations does not ensure that correct
payment calculations will always occur. We already have the authority
to apply penalties and sanctions to MA plans that habitually fail to
pay out-of-network noncontracting providers in a timely manner (see,
for instance, Sec. 422.520). MA organizations are required to follow
the same timely payment requirements related to con-contracting
provider claims, including interest penalties, that apply to FFS
carriers and intermediaries.
Although MA organizations are required to pay noncontracting
providers the amount that would otherwise be payable under original
Medicare (Sec. 422.100(b)(2), and although Medicare providers are
required to accept from noncontracting MA organizations the amount
original Medicare would have made (Sec. 422.214), the amount original
Medicare pays to CAHs is paid on a periodic interim
[[Page 4631]]
basis, is cost-based, and is subject to cost settlement. Additionally,
section 405(c) of the MMA provides for development of alternative
timing methods for the periodic interim payments already made to CAHs
for inpatient services. This provision will further complicate the
computation of amounts due CAHs under Medicare and will represent an
additional administrative burden on MA organizations offering MA
regional plans that will need to pay noncontracting CAHs based on a
number of unique and changing factors. Similarly, to the extent CAHs
are located in areas served by MA regional plans, they would
potentially suffer a disruption in the normal cash-flow provided for
them through periodic interim payments in the Act, even were MA
regional plans able to provide correct reimbursement amounts in a
timely manner. Although timely reimbursement for claims received from
noncontracting providers by MA organizations is already required (see
Sec. 422.520(a), the timely claims-payment standard (claims must be
paid within 30 or 60 days, depending on whether they are clean claims),
is not a substitute for the guaranteed cash-flow related to periodic
interim payments made by the Medicare FFS intermediary to CAHs.
Additionally, to the extent CAHs settle costs with CMS related to
services they provide to Medicare beneficiaries, MA organization
computation of payments due CAHs is further complicated, because of the
potential difference between the Medicare interim payment and the final
settlement.
In light of the special status provided to CAHs in section 1820 of
the Act and implementing regulations, and in recognition of the unique
status of CAHs related to access to care for FFS beneficiaries, we also
note a special concern for them related to the MA program and
specifically to MA regional plans. While we are constrained by the non-
interference clause in section 1854(a)(6)(B)(iii) of the Act from
requiring MA organizations to contract with CAHs, or from requiring
contracts voluntarily entered into with CAHs to specify the level or
manner of reimbursement, we will increase our level of monitoring of
CAHs. For instance, we might review MA regional plan payment to non-
contracting CAHs during our routine biennial monitoring visits. We will
use our authority in section 1857(f)(2) of the Act when needed to
ensure MA organization compliance with existing non-contractor timely
payment requirements. We do not interpret the statute to permit CMS
enforcement of contracts voluntarily entered in to by MA organizations
and health care providers. Although our regulations require that all MA
organization contracts with providers and suppliers contain a prompt
payment provision (see Sec. 422.520(b)), details of such prompt
payment provisions and enforcement thereof would be as specified in the
contract.
Comment: One commenter requested clarification regarding the
``essential hospital'' payment from the HI Trust Fund. The ``essential
hospital'' must demonstrate that the amount of the MA plan payment is
less than the cost of providing services to MA regional plan enrollees.
The commenter asked whether this additional payment is equivalent to
the full PPS rate, or to cost (which may be greater than the PPS rate),
or cost plus one percent (because of the reference to CAHs at section
1858(h)(2)(A)) of the Act. The commenter also recommended that CMS
provide guidance on how the hospital will demonstrate it is eligible
for an ``essential hospital'' payment. The commenter is concerned that
the procedures that we establish not be too cumbersome so that the
additional reimbursement is not sufficient to compensate for the
reporting effort.
Response: The ``essential hospital'' will need to establish that
its actual costs for providing inpatient care to a specific MA regional
plan enrollee actually exceeded the amount that is normally paid under
FFS Medicare. The amount normally paid under FFS Medicare is the PPS
payment normally made to the ``subsection d'' hospital under Part A of
the Act for similar inpatient hospital services provided to an original
FFS Medicare beneficiary. As we have already discussed in this part of
the preamble related to Sec. 422.100, the normal PPS payment (less the
amounts paid by the fiscal intermediary under sections 1886(d)(11) and
1886(h)(3)(D) of the Act) will be the responsibility of the MA
organization sponsoring the MA regional plan in which the beneficiary
is enrolled. Thus, after the normal FFS amount has been paid to the
``essential hospital,'' the ``essential hospital'' can seek additional
funding from CMS for up to 101 percent of the inpatient costs it
actually incurred in treating a specific MA regional plan enrollee. The
availability of funds to make such an additional payment to ``essential
hospitals'' is limited by section 1858(h)(3) of the Act. We have
clarified in the regulatory text in Sec. 422.112(c)(6) that we will
pay from funds appropriated in section 1858(h)(3) of the Act until such
funds are exhausted. In other words, we will pay based on the order in
which claims from ``essential hospitals'' are received. Finally, we
have prescribed in regulation the method through which an ``essential
hospital'' will establish that its costs for treating a specific MA
regional plan enrollee exceeded the normal PPS payment amount. We will
use the principles of reasonable cost reimbursement in part 412 of this
chapter to determine whether costs in a specific case exceed the normal
PPS payment amount in an individual case. To the extent an ``essential
hospital'' can show, using methods of reasonable cost reimbursement,
that the amount it reasonably expended in its treatment of an MA
regional plan enrollee exceeded the normal PPS reimbursement amount for
inpatient services, then CMS will make an additional payment to the
``essential hospital,'' limited by the statutorily appropriated amount
in section 1858(h)(3). The statute initially authorizes $25,000,000 in
2006 and increases the annual amount available for ``essential
hospital'' payments in subsequent years by the market basket percentage
increase as defined in section 1886(b)(3)(B)(iii) of the Act.
Comment: One commenter recommended that CMS eliminate ambiguity and
to clearly define which types of hospitals are eligible for ``essential
hospital'' designation.
Response: Our regulation indicates that any ``subsection (d)''
hospital can qualify as an ``essential hospital.'' The regulation
mirrors the statute in this respect. Note that ``subsection (d)''
hospitals are defined in statute at section 1886(d)(1)(B) of the Act
and refer to hospitals paid under a ``prospective'' (PPS) method. We
have added language to Sec. 422.112(c)(1) to clarify this issue. Also
note that we have further defined ``essential hospital'' in regulation
text at Sec. 422.112(a)(4) as one where there is no competing Medicare
participating hospital in the area to which MA regional plan enrollees
could reasonably be referred for inpatient hospital care. We believe MA
organizations are in the best position to determine what is
``reasonable'' in this context, based on service usage and community
patterns of care. However, we will evaluate such claims based on
standards that will include: an evaluation of the ownership and control
of other hospitals in the area; the normal patterns of community
access; the physical proximity of other inpatient facilities; the
referral patterns to inpatient facilities in the area; and other
factors pertinent to the analysis.
Comment: A number of commenters recommended that CMS apply special
rules to I/T/U hospitals so that all hospitals operated by I/T/U or the
[[Page 4632]]
Indian Health Service would be considered ``essential hospitals.''
Response: We cannot accommodate this request because there is no
statutory basis for including all hospitals operated by Tribes or the
Indian Health Service as ``essential hospitals.'' Section 1858(h) of
the Act is explicit in defining ``essential hospitals'' as subsection
(d) hospitals as defined in section 1886(d) of the Act. To the extent a
Tribal or IHS hospital is designated by an MA regional plan under
section 1858(h)(1) of the Act and to the extent all other conditions in
section 1858(h) of the Act are present, then such a hospital can be an
``essential hospital.''
Comment: Some commenters recommended that CMS establish rules for
``essential hospitals'' that would require them to participate in the
utilization management, discharge planning or quality improvement
programs of the MA plans of the enrollees they treat.
Response: We will not separately establish such requirements
related to ``essential hospitals.'' As ``subsection d'' hospitals,
``essential hospitals'' are already required to meet quality assurance,
discharge planning and utilization management standards applicable to
Medicare participating hospitals.
Comment: One commenter asked who would be responsible for the
``essential hospital'' payment, once the annual allocation specified in
section 1858(h)(3) of the Act has been exhausted.
Response: In response to this comment, we have clarified this
section of the regulation to say that once ``essential hospital''
payments exceed the limit prescribed in statute in a calendar year, no
additional ``essential hospital'' payment will be due from any party.
The statute is clear in allocating up to $25,000,000 for calendar year
2006 and a similar amount, adjusted for inflation, in subsequent years.
We will make appropriate payments from the Part A Trust Fund on a
``first come-first served'' basis. We have specified these requirements
in regulation at Sec. 422.112(c)(6). Once the amount authorized in
statute has been exhausted in a calendar year, no additional
``essential hospital'' payment is due nor can one be made by us for
inpatient hospital services received by an MA regional plan enrollee in
that calendar year.
Comment: One commenter asked if the in-network cost sharing
requirement would still apply to services received in an ``essential
hospital,'' even after the ``essential hospital'' allocation has been
exhausted.
Response: To the extent an ``essential hospital'' is needed to meet
the access requirements in Sec. 422.112, we have added a requirement
at Sec. 422.112(c)(7) that in-network cost sharing applies to covered
inpatient services received by an MA regional plan enrollee in an
``essential hospital.'' This is consistent with the ``exception'' in
Sec. 422.112(a)(1)(ii) and the beneficiary notification requirement in
Sec. 422.111(b)(3)(ii). The requirement for an MA regional plan to
provide, or reimburse for, medically necessary inpatient hospital care
(and to limit member liability to in-network cost sharing levels when
reimbursing an ``essential hospital'') is independent of the
``essential hospital'' payment provision. Section 422.112(c)(7), where
cost sharing is limited to in-network amounts for covered inpatient
care reimbursed to an ``essential hospital'' by an MA organization for
an MA regional plan member, applies even when Sec. 422.112(c)(6) does
not. Even if no ``essential hospital'' payment is due per Sec.
422.112(c)(6) because conditions in Sec. 422.112(c)(5) are not met
(rather than due to exhaustion of the ``essential hospital'' annual
allocation), in-network cost sharing for covered inpatient services at
an ``essential hospital'' is still required. In other words, once a
hospital is designated as an ``essential hospital'' by the plan, in-
network cost sharing applies regardless of whether an ``essential
hospital'' payment is due or paid.
Comment: One commenter said that to the extent the ``exception'' in
422.112(a)(1)(ii) is used, that not only normal per service in-network
cost sharing should apply to services so obtained, but also that the
in-network catastrophic limit on Medicare A/B services in Sec.
422.101(d)(2) should also apply.
Response: We agree and reference the in-network catastrophic cost
sharing limit in Sec. 422.101(d)(2) as an additional limit on MA
regional plan enrollee cost sharing liability in Sec. 422.112(c)(7)
when covered inpatient care is received at an ``essential hospital.''
Comment: One commenter asked whether we would permit or require MA
regional plans to list ``essential hospitals'' in their provider
directories. The commenter said that allowing an MA regional plan to so
list ``essential hospitals'' would be inappropriate because such
marketing would provide the hospitals with an advantage that should
only accrue to contracting providers. We received a number of comments
from other parties that objected to the listing of ``essential
hospitals'' in MA regional plan provider directories on the basis that
such a listing would provide the MA regional plan with an advantage
that should only accrue to MA regional plans that actually have the
``essential hospital'' under contract.
Response: While we generally concur with both commenters that
neither party is entitled to an undue advantage, MA regional plans are
required to provide enrolled members a provider directory on an annual
basis in accordance with Sec. 422.111(a)(3). Note that as part of that
requirement a description of any out-of-network coverage is also
required. So, while it would not be permitted to list ``essential
hospitals'' in an MA regional plan's provider directory as if they were
contracting providers, it is also true that a description of their
status as ``essential hospitals'' would be required.
12. Special Rules For Ambulance Services, Emergency Services, and
Urgently Needed Services, and Maintenance and Post-Stabilization Care
Services (Sec. 422.113)
We proposed to modify Sec. 422.113(b)(2)(v) to clarify that the
$50 limit for ``emergency services'' applies only to the emergency
department, and that while the limit on cost-sharing for ``post-
stabilization'' care at Sec. 422.113(c)(2)(iv) continues to apply, its
application would always begin upon inpatient admission. Thus,
emergency cost-sharing limits would shift from being tied to the type
of service (emergency services) to being tied to the site of service
(emergency department). We believe that making this clarification
retained cost-sharing limits for both emergency services and post-
stabilization care, while eliminating the unanticipated complexities
and administrative burden previously associated with this section of
the regulation.
Comment: A number of comments supported the clarification that the
$50 limit on cost sharing for emergency services applied only to
emergency department services. Commenters supported the notion that
once an MA enrollee is admitted to a hospital, normal hospital cost-
sharing levels apply, even if the inpatient admission originates from
the emergency department. On the other hand, many commenters
recommended that CMS reexamine the $50 limit itself. Some commenters
recommended that CMS set the limit higher (at $75, $100 or higher) and
other commenters recommended that CMS index the emergency department
cost-sharing limit for inflation.
Response: We believe that the $50 limit on cost sharing for
emergency
[[Page 4633]]
department services continues to provide the appropriate financial
disincentive to MA plan enrollees not to frivolously use emergency
rooms in non-emergency situations. For instance, there is no MA plan
currently imposing cost sharing for in-network physician office visits
that approach $50. Similarly, MA organizations are permitted to deny
emergency department services as medically unnecessary, to the extent
that the member can be shown to have acted in ``bad faith'' or not as a
``prudent layperson'' in presenting at an emergency room for non-
emergency services.
Finally, we do not set forth in regulation the maximum amount an MA
organization can impose in cost sharing for receipt of urgently needed
services. Because we have restricted the applicability of the $50 limit
on enrollee cost sharing to emergency department services, we believe
we have appropriately balanced the financial interests of MA
organizations and MA plan enrollees requiring emergency services.
13. Access to Services Under an MA Private Fee-For-Service Plan (Sec.
422.114)
Section 211(j) of the MMA allows MA PFFS plans to charge higher co-
pays to members who receive services outside of a PFFS plan's
contracted network. This provision does not apply to PFFS plans that
meet access requirements solely through ``deemed'' networks as defined
in Sec. 422.114(a)(2)(i). We proposed to add a new paragraph (c) to
account for section 211(j) of the MMA.
We received no comments on this section, so we finalize as
proposed.
14. Return to Home Skilled Nursing Facility (Sec. 422.133)
We proposed to extend the provisions in Sec. 422.133 (Return to
home skilled nursing facility) to SNF services provided in cases in
which an MA organization elects, as permitted under Sec. 422.101(c),
to provide Medicare covered SNF care in the absence of a prior
qualifying hospital stay. In such an instance, we proposed to require
that an individual who would be eligible under section 1852(l) of the
Act for admission to a ``home SNF'' upon discharge from a hospital
stay, would nonetheless retain his or her right to receive ``home SNF''
benefits in the absence of such a hospital stay.
We proposed to deem that a hospital discharge has always occurred
before an admission for SNF services, and therefore provide all MA
enrollees full rights to the ``home SNF'' benefit.
We received no comments on this section, so we finalize as
proposed.
Subpart D--Quality Improvement Program
1. Overview
The MMA amended section 1852(e) of the Act in a number of
significant ways that will affect how MA organizations pursue their
quality improvement activities. Below we summarize the proposed
provisions and respond to the public comments. (For a more in-depth
discussion of the provisions, please refer to the preamble to the
proposed rule.)
Quality Improvement Program (Sec. 422.152)
To reflect the Congressional intent to refocus the section on
quality improvement, rather than quality assurance, we changed the
heading of Sec. 422.152 to ``Quality improvement program.'' Proposed
Sec. 422.152 specified that each plan (except MA PFFS and MSA plans)
offered by an MA organization must have an ongoing quality improvement
program and that a chronic care program must be a part of this program.
We believe that the broad requirements in proposed Sec. 422.152(d)
for QI projects did not present an undue burden for MA organizations,
as these organizations have significant experience in carrying out such
projects under the current Sec. 422.152(d) requirements that we
believe are more prescriptive than those we proposed in the August 2004
proposed rule.
Our previous quality improvement requirements for M+C coordinated
care plans focused on attaining improvement in specific clinical topics
and included specific performance measures for improvement. As a result
of the MMA amendments, we proposed that MA organizations have the
flexibility to shape their QI efforts to the needs of their enrolled
population. In addition, we continue, based on our interpretation of
section 1852(e)(3)(B)(i) of the Act, to require MA coordinated care
plans to collect, analyze, and report their performance using
measurements outlined by us or to participate in surveys administered
by us (for example, HEDIS, HOS, and/or CAHPS).
Proposed Sec. 422.152(b)(4) would require MA local PPO plans that
are offered by an organization that is licensed or organized under
State law as a HMO, to follow the same quality improvement requirements
as other MA coordinated care plans.
A. General Comments
Comment: A number of commenters made a variety of general comments
about the proposed rule. These comments include: (1) require that plans
disseminate educational materials to beneficiaries; (2) require that
all plans review all problems that come to their attention; (3) CMS
should recommend that plans seek Quality Improvement Organization (QIO)
technical assistance; (4) require plans to have physician advisory
committees, and that these committees advise CMS on performance
measures; and (5) CMS should begin to provide information on MA quality
starting in 2006.
Response: MA plans are responsible for ensuring that beneficiaries
are fully informed of the benefits covered under the contract as part
of its marketing material, evidence of coverage, and summary of
benefits. We do not have any requirements that plans conduct
educational programs. While the dissemination of educational materials
may be worthwhile in improving health outcomes, we do not believe it
should be mandatory. Most plans already provide QI, for example, in
marketing materials. Furthermore, we post HEDIS and CAHPS data on the
http://www.Medicare.gov web site. To the extent an MA plan decides to furnish
educational materials to its enrollees, the plan is responsible for the
type of information it wishes to furnish, and it is in the best
position to determine which information is most appropriate for the
enrolled population.
We agree with the commenter that plans should review all problems
that are brought to their attention. Depending on the nature, extent,
and substance of the problems, an MA plan may implement immediate
corrective action, or may need to implement more systemic changes to
address the identified problem.
We agree with the commenters and encourage plans to seek technical
assistance from QIOs. Plans should review the current scope of work to
determine the areas for which the QIOs can provide assistance; a draft
outline of the 8th scope of work is available on our web site. Plans
that seek QIO assistance will receive it on both Part C and Part D
services.
We disagree with the commenters that propose that we require
physician advisory committees. We do not believe this is necessary
because most plans already have Medical Director committees that advise
plans on QI measures. Moreover, at the national level, we have a
physician advisory
[[Page 4634]]
committee. These bodies should ensure an appropriate level of physician
input.
We agree with the commenters with respect to our providing
information on quality measures. HEDIS and CAHPS data are already on
our website (http://www.Medicare.gov), and the data has been available for
several years
Comment: Several commenters stated that CMS should include PFFS and
MSAs in all of the QI requirements. However, there were also commenters
that supported the exclusion of these plans.
Response: Because section 722(a) of the MMA specifically exempts
these types of plans from the majority of QI requirements, we have
excluded them from the same requirements in the regulations. These
plans, however, must meet the following requirements: maintain health
information systems; ensure information from providers is reliable and
complete; make all collected information available to us' conduct
quality reviews; and take corrective action for all problems that come
to their attention.
Comment: Several commenters have recommended that we provide
payment incentives to MA plans for providing better quality care, also
known as pay for performance (P4P).
Response: We agree with the commenters concerning the merits of
P4P. We are very interested in this approach and believe that we should
pay not just for providing a service but for results. P4P should
stimulate care that is efficient and effective for every patient while
eliminating waste. We are currently working on four P4P demonstration
projects. These are as follows:
The Premier Hospital Quality Incentive Demonstration
The Premier Hospital Quality Incentive Demonstration is a 3-year
project that will recognize and provide financial rewards to hospitals
that demonstrate high quality performance in a number of areas of acute
care. The demonstration involves a CMS partnership with Premier Inc., a
nationwide organization of not-for-profit hospitals, and will reward
participating top performing hospitals by increasing their payment for
Medicare patients. Through the Premier Hospital Quality Incentive
Demonstration, we aim to see a significant improvement in the quality
of inpatient care by awarding bonus payments to hospitals for high
quality in several clinical areas, and by reporting extensive quality
data on our web site. Participation in the demonstration is voluntary
and open to hospitals in the Premier Perspective system as of March 31,
2003.
Section 646--Medicare Health Care Quality Demonstration Program.
The MMA mandates a 5-year demonstration program to examine factors
that encourage the delivery of improved patient care quality, including
financial incentives, appropriate use of best practice guidelines,
examination of service variation and outcomes measurement, shared
decision making between providers and patients, appropriate use of
culturally and ethnically sensitive care, and related financial effects
associated with these factors. In the demonstration, Medicare may
provide benefits not otherwise covered, but may not deny services that
are otherwise covered against the wishes of beneficiaries. The
demonstration is required to be budget neutral.
Section 649--Medicare Care Management Performance Demonstration.
The MMA mandates a 3-year demonstration program where physicians
will be paid to adopt and use health information technology and
evidence-based outcome measures to promote continuity of care,
stabilize medical conditions, prevent or minimize acute exacerbations
of chronic conditions, and reduce adverse health outcomes. The statute
limits the program to four sites meeting eligibility criteria. Payment
can vary based on performance; however total payments must be budget
neutral. QIOs could help enroll physicians, evaluate their performance,
and provide technical assistance.
The Physician Group Practice (PGP) Demonstration.
The PGP Demonstration rewards physicians for improving the quality
and efficiency of health care services delivered to Medicare FFS
beneficiaries. Mandated by Section 412 of the Benefits Improvement and
Protection Act of 2000, the PGP Demonstration seeks to encourage
coordination of Part A and Part B services, reward physicians for
improving health outcomes, and promote efficiency through investment in
administrative structure and process. Under the 3-year demonstration,
physician groups will be paid on a FFS basis and may earn a bonus from
savings derived from improvements in patient management. Annual
performance targets will be established for each participating
physician group equal to the average Part A and Part B expenditures of
beneficiaries assigned to the group during a base period, adjusted for
health status and expenditure growth.
We are also paying close attention to P4P for managed care plans.
We are aware that MEDPAC has developed proposals along these lines in
its June 2004 report. Furthermore, many private sector organizations
are sponsoring such projects. See, for example, a compendium developed
by The Leapfrog Group (http://www.leapfroggroup.org). In addition, the Agency
for Healthcare Research and Quality (AHRQ) has sponsored an evidence
based report entitled ``Strategies to Support Quality-based Purchasing:
A Review of the Evidence,'' published in fall 2004, which includes
managed care plans. Finally, we have a contract with the Institute of
Medicine to study P4P, which will also address managed care.
B. Measures
This portion of the discussion addresses measures for all MA plans.
A specific discussion of measures for PPOs appears below.
Comment: Several commenters stated that CMS should include measure
reporting requirements in regulations.
Response: Based on past experience, we disagree with the commenters
recommending that we include specific measure reporting systems in the
regulation. We believe it is a better approach to provide specific
guidance through the Medicare managed care manual rather than including
specific requirements in the regulation. In this way, we have the
flexibility to implement appropriate changes in the measure systems and
individual measures in a more timely manner. The industry and
accreditation organizations, are constantly making changes to these
reporting systems. Thus, having more flexibility to change measures as
well as add and delete measurements systems allows us to be more
responsive to the state of the art as to measurement systems.
Comment: A commenter stated that performance assessment data is
outdated and that CMS should not use HOS to rank plans because there is
no benchmark.
Response: We disagree with the commenter. HEDIS, CAHPS, and HOS are
updated on a regular basis. We recognize that there are no benchmarks
currently available and therefore use relative ranking in the
performance assessment data system. Benchmarks also refer to standards
or minimum performance levels.
Comment: A commenter stated that CMS should use a standardized core
set
[[Page 4635]]
of performance measures, clinical and non-clinical that are applied to
all MA plans. The commenter suggested that CMS not require MA plans to
demonstrate that QI program size and scope are proportionate to plan
size.
Response: In general, we agree with the commenter that a
standardized set of measures should be used across all plan types
because it allows the greatest comparison among plans. The one
exception as discussed later, is that we have decided to allow some
variation in the early stages of the PPO program as compared to the HMO
program. As also noted, MMA specifies a different set of requirements
for PFFS plans and MSAs.
Comment: One commenter stated that CMS should compare quality
measures of MA plans to those for the FFS Medicare program.
Response: On the http://www.Medicare.gov website, we provide consumer
assessment data from CAHPS on FFS Medicare and the MA plans, as well as
a comparison of an Original Medicare rate (on State and national
levels) compared to the MA health plan rates on the HEDIS measure--
Access to Ambulatory Health Services.
Comment: A commenter suggested that CMS reduce the burden on plans
by reducing the number of measures or by conducting HEDIS by telephone.
Response: We agree that it is important to minimize the MA plans'
reporting burden and do so by using data submission tools, systems, and
processes that are consistent with HEDIS reporting for the plan's
commercial lines of business.
We believe that it is not appropriate, however, to collect HEDIS
measures by phone because information collected by phone is less
reliable.
C. Special Needs Plans (SNPs)
Comment: Many commenters suggested that CMS develop special
measures for specialized MA plans for SNPs. Several commenters
suggested that CMS use the ACOVE measures developed by Rand. They
further suggested that quality oversight should take into account the
populations being served by the SNP. In addition, they suggested that
CMS should ensure that SNPs have comprehensive and coordinated care.
Response: We agree with the commenters and have already indicated
to several demonstration plans that have institutionalized populations
and are converting to SNPs that HEDIS and HOS will not be required.
Instead we will work with them to identify measures that are similar to
the national nursing home quality measures reported on the Nursing Home
Compare website at http://www.medicare.gov and the CHSRA quality indicators,
both of which are derived from the Minimum Data Set (MDS). SNPs for
dual eligibles will be required to meet the requirements of other MA
plans. We are also willing to explore special measures with other types
of SNPs.
We are certainly open to considering the ACOVE measures and will
explore their feasibility. As to other aspects of quality oversight, we
will apply the same basic types of quality requirements for all MA
plans but take into account beneficiary needs for SNPs. As to
comprehensive and coordinated care, SNPs will need to meet chronic care
improvement program (CCIP) requirements.
Comment: A commenter recommended that SNPs should not serve
dialysis patients. The commenter stated that CMS cannot monitor the
quality of care provided to dialysis patients in managed care plans
because dialysis providers do not bill Medicare for services to MA
beneficiaries, thus, the ESRD Clinical Performance Measures data, which
are extracted from billing information, are not available.
Response: We appreciate the concerns expressed by the commenter and
will definitely take them into consideration. We anticipate that will
be able to collect the data. However, at this time, we have not
determined with certainty that we can and share the commenter's concern
that we not approve the plans unless we can collect the data. In
Subpart A of this preamble, we indicate that we are not setting forth a
detailed definition of severe and disabling chronic condition for
purposes of the definition of special needs individuals, and we will
review and evaluate SNP proposals on a case-by-case basis. This
evaluation will take into consideration whether we can collect
sufficient quality of care monitoring data.
D. Report to the Congress
Comment: Some commenters expressed concern that CMS could not add
measures without issuing a Report to the Congress as required under
Section 1852(e)(3)(A). They suggested that because of several of the
unique populations that might be served in SNPs, that CMS extend the
Report to the Congress, and that CMS form an expert panel, enhance
clinical knowledge on high risk populations, disseminate best
practices, enhance coordination care, and refine payment to support
outcomes.
Response: As indicated in the proposed rule, we interpret that this
requirement does not prevent us from making changes within each of the
existing measurement systems, such as HEDIS. Further, although we need
to submit a Report to the Congress to add new systems, we do not
interpret this to mean that we need the Congressional approval before
we proceed to implement new systems.
E. Types of performance measures
Comment: A commenter suggested that CMS develop clearly defined,
nationally recognized quality measures based on objective criteria for
all facets of the Medicare program to truly achieve the MMA's goal of
offering Medicare beneficiaries a meaningful choice. It is feasible
that the measures be based on pharmaceutical information, medical
claims, and other routine administrative information already easily
accessible across the Medicare program.
Response: We will be pursuing the development of the measures and
will take into consideration the commenter's suggestion.
2. Chronic Care Improvement Program Requirements (Sec. 422.152(c))
At proposed Sec. 422.152(c), we would require that MA plans
develop criteria for a chronic care improvement program. The criteria
must-
Include methods for identifying MA enrollees with multiple
or sufficiently severe chronic conditions who would benefit from
participating in a chronic care improvement program; and
Provide mechanisms for monitoring MA enrollees that are
participating in the chronic care improvement program.
Comment: A commenter recommended that CMS use the standard
definition of disease management adopted by the Disease Management
Association of America (DMAA) for the CCIP. The commenter also
recommended that the CCIP be population based and that CMS focus on
congestive heart failure (CHF), diabetes, and chronic obstructive
pulmonary disease (COPD). They further suggested that CCIPs be
accredited, and be evaluated on clinical quality, beneficiary and
provider satisfaction, and impact on cost. Other commenters recommended
that CMS provide maximum flexibility for plans as to these
requirements. A commenter suggested that plans can identify patients
from claims, self-reports, by providers, socio-economic data primarily
using existing measures, for example, HEDIS to monitor plus other
evidence-based measures. A commenter also suggested plans should use
clinical variables, for example, weight, use of ACE inhibitors, health
and functional status, emergency room and hospital
[[Page 4636]]
use, satisfaction, total costs, as measures for CCIP.
Response: We certainly encourage plans to consider the definition
provided by Disease Management Association of America (DMAA), as well
as the other aspects of the programs developed by DMAA. However, we
believe it is premature to provide more prescriptive requirements. We
will look for information on the CCIP pilot under section 721 of the
MMA as well as the early stages of the MA plans' implementation of this
section 722 CCIP to shape guidance for this component of the program.
3. QI Projects (Sec. 422.152(d))
While we proposed to delete many of the prescriptive requirements
for QI projects that appeared in Sec. 422.152(d), we still retained
the basic requirements of the projects including the collection,
analysis, and reporting of data. We believed, though, that MA plans
should have the ability to select topic areas and proposed deleting the
requirements of including the entire relevant population and having to
do both national and statewide projects.
In proposed Sec. 422.152(d)(1), we would require that QI projects
be initiatives that include the entire organization and focus on
clinical and non clinical areas. The projects would need to follow the
current quality improvement process. We retained the provisions that QI
projects must measure performance, and the interventions must be
system-wide and include the establishment or alteration of practice
guidelines. In addition, we propose to require that the projects focus
on improving performance for the Medicare population and involve
systemic and periodic follow-up on the effect of the interventions. To
ensure that the measures (or quality indicators) used in QI projects
are reliable and relevant for improving the health care and services
furnished to MA enrollees, we proposed in Sec. 422.152(d)(2) to
require that the quality indicators be objective, clearly and
unambiguously defined, and based on current clinical knowledge or
health services research. The measures must also be capable of
measuring outcomes, such as changes in health status, functional
status, and enrollee satisfaction, or valid proxies of those outcomes.
Likewise, we proposed in Sec. 422.152(d)(3)to require that the data
used in an MA plan's QI projects be valid and reliable and based on
systemic ongoing collection and analysis of information. We also
proposed in Sec. 422.152(d)(4) that the interventions achieve
demonstrable improvement.
Finally, in Sec. 422.152(d)(5), we proposed to retain the
requirement that MA plans report the status and results of their
projects when requested by us. We believe that this reporting and
review burden would be much smaller than the process used in the M+C
program. We intend to provide further guidance on the reporting
requirements later.
Comment: A commenter stated that QI should involve more than
measure, intervene, and remeasure. The commenter also stated that it
should set performance expectations, collect and analyze data, identify
undesirable events, develop interventions, collect data to monitor
improvement, and require that all plans meet the same QI requirements.
Response: We agree that all HMOS and PPOs should have to meet the
same basic requirements as to QI projects, and the regulation requires
this. However, although we will encourage plans to adopt the
commenter's other recommended steps, we do not believe that it is
necessary to build them into mandatory requirements. The requirements
that we have already specified should be sufficient, and to add
additional requirements will create unnecessary burden.
A. National projects
Comment: A commenter requested that CMS provide guidance to plans
on the meaning of 'encouraging' physicians to participate in quality
improvement initiatives. The commenter also proposed that CMS provide
plans with the flexibility to design and conduct QI projects based on
topics relevant to the plan's population. However, the commenter stated
that CMS should continue to provide suggestions and examples of topics
for QI projects that are relevant to the Medicare population. The
commenter also suggested that CMS should provide guidance regarding
meaning of ``sustained improvement,'' and consider evaluating clinical
and non-clinical performance improvement using HEDIS and CAHPS 3.0H
results.
Response: As to encouraging physicians to participate in QI
projects, we recommend plans to coordinate their efforts with their
providers. Some possible options are that the plans will send letters
to their providers encouraging participation or pay them a bonus. This
will be up to the plans. As indicated, we will provide suggestions as
to topics for plan consideration and guidance on these topics. We will
give further consideration to the suggestion of using HEDIS and CAHPS
for evaluating QI projects.
Comment: Some commenters recommended that CMS require plans to
participate in national projects.
Response: The MMA specifically deleted the requirement for national
projects. We interpret the Congress's deletion of this requirement as
an indication of its intent that participation in national projects not
be required. Therefore, we are not requiring the projects, and we
believe the best alternative is to encourage plans to participate
voluntarily in our proposed national projects.
B. Racial-ethnic QI projects
Comment: Some commenters opposed elimination of the racial-ethnic
QI projects, while one commenter supported its removal.
Response: The MMA specifically eliminated this requirement. Again,
we interpret the Congress's deletion of this requirement as indicating
its intent that plans not be required to pursue these types of
projects. However, we encourage plans to consider pursuing such
projects voluntarily. We have a current racial-ethnic national project
that started in 2003 and will not be completed until 2005. We will
share results of this project when it is completed. Lovelace Clinic
Foundation was selected by us to develop two cultural competency guides
through an AHRQ Integrated Delivery System Network Funding task order.
The first manual, ``Providing Oral Linguistic Services: A Guide for
Managed Care Plans,'' provides a practical step-by-step process for the
improvement of oral language services to patients with limited English
proficiency (LEP). The second manual, ``Planning Culturally and
Linguistically Appropriate Services: A Guide for Managed Care Plans,''
assists health plans in assessing the ethnically diverse populations
they may serve, and assessing the cultural competency of the managed
care plan. Lovelace recently completed a report ``Evaluation of
Usefulness of CLAS Guides to M+CO Plans'' which is available from AHRQ.
C. Performance levels
Comment: A commenter suggested that CMS set guidelines on the
minimum percent of enrollees that are identified and managed. Others
opposed the removal of requirements as to minimum performance levels,
sustained improvement, and clinical-nonclinical requirements and
external review.
Response: We retain our view from the proposed rule that plans
should select topics areas that best meet their needs rather than being
required to select both clinical and nonclinical
[[Continued on page 4637]]
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]
[[pp. 4637-4686]] Medicare Program; Establishment of the Medicare Advantage Program
[[Continued from page 4636]]
[[Page 4637]]
topics. We do not believe that it is appropriate for us to specify
minimum percent identified and minimum performance level. In the
preamble discussion to Sec. 422.152(d), we proposed not to define
demonstrable improvement, but indicated that we would look for some
movement in the quality indicator in an upward or downward direction as
appropriate.
MMA eliminated the requirement that MA organizations contract with
QIOs (external review organizations) to review appeals. However, QIOs
are still involved in all appeals that they currently conduct such as
hospital and nursing home discharges. Elimination of this requirement
just means that the MA plans do not need to contract with the QIOs or
other external review organizations.
D. Project selection
Comment: A commenter suggested that CMS require all plans to
participate in QI projects, as long as the projects are based on data
to which the plan has reasonable access. When developing QI and data
collection requirements, the commenter suggested consideration of the
plan's experience in conducting the activities. Further, the commenter
recommended using a standardized core set of performance measures,
clinical and non-clinical that are applied to all Medicare Advantage
plans. Commenters also stated that CMS should not require MA plans to
demonstrate that QI program size and scope are proportionate to plan
size.
Response: We believe that plans should take these suggestions into
consideration, but we are not requiring them. We agree that we should
not require MA plans to demonstrate that QI program size and scope are
proportionate to plan size. To do so will place unnecessary
restrictions on plans and would be inconsistent with what we understand
to be the Congressional intent to allow for more flexibility in this
area.
4. Requirements for MA Regional Plans and MA Local Plans
Section 1852(e)(3)(A)(ii) of the Act provided for us 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. Section
1852(e)(3)(A)(ii) of the Act further provided that these requirements
for MA regional plans could not exceed the requirements established for
MA local plans that are PPO plans.
In Sec. 422.152(e)(1), we proposed a definition for the term
``local PPO plan'' as used in this section. The other requirements in
this paragraph were the requirements that apply to PPOs under current
regulations.
In Sec. 422.152(f), we retained the provisions that address health
information systems, QI program review, and remedial action. MA
organizations will be required, for all the MA plans they offer, to
maintain a health information system that collects, analyzes, and
integrates the data necessary to implement their QI program. The
organization will also be required to ensure that the information it
receives from providers of services is reliable and complete. In
addition, for each plan, there must be in effect a process for formal
evaluation, at least annually, of the impact and effectiveness of its
quality improvement program.
Finally, for each plan it offers, we proposed that an MA
organization will be required to correct all problems that come to its
attention through internal surveillance, complaints, or other
mechanisms. As noted above, as a result of MMA we also made conforming
changes to remove the provision that each MA organization's quality
assurance program include a separate focus on racial and ethnic
minorities and the requirement that for each plan it operated the MA
organization would have an agreement with an external quality review
and improvement organization.
The MMA provided that all the part D (Voluntary Prescription Drug
Benefit) requirements are to be included as among those that could be
deemed to be met through accreditation, and we accordingly proposed to
add this provision to the list of deemable requirements in Sec.
422.156(b).
Comment: Many commenters recommended that CMS use the same metrics
across plan types. Others commenters recommended that CMS develop
future plans to make PPOs comparable to HMOs. They suggested that CMS
convene key stakeholders to develop measures. They further suggested
that CMS set goals and timetables for implementing the same measures
across plan types.
Response: For the most part, we will have uniform reporting
requirements for HMOs and PPOs. For instance, we will require both
types of plans to submit HEDIS and HOS data. Further, we will
administer the CAHPS survey to both types of plans. The HEDIS measures
will differ between the two plan types, as PPOs will not be required to
submit HEDIS measures that require medical record review, because they
have difficulty obtaining medical records from out-of-network
providers. However, for PPOs, many of the HEDIS measures are available
from administrative records. We are working with NCQA and other
experts, MA organizations and other stakeholders to identify which
HEDIS measures are most appropriate for quality performance measurement
in PPO plans.
We held an open door forum on December 10, 2004, to receive input
from the public on the HEDIS measures for PPOs. We expect to publish a
final set of measures for field testing in January 2005. Materials from
the open door forum can be found at http://www.cms.hhs.gov/healthplans/performance/.
We expect to field test these measures in the Spring
2005, and we expect to finalize them in Fall 2005. In addition, we
expect to disseminate the final list of measures for reporting, with
detailed instructions, in the MA Manual in Fall 2005. In the near
future, we expect that additional HEDIS measures that require PPOs to
capture and submit data from medical records will also be required for
reporting. We desire to measure performance and compare plans on as
many dimensions of care as possible, so we plan to move progressively
toward having all relevant HEDIS measures reported while allowing PPOs
the opportunity to develop the capacity to collect information that
requires medical record review.
After we implement NCQA's recommendations on HEDIS measures for
PPOs, we will make an assessment of the possibility of making HEDIS
reporting even more comparable between HMOs and PPOs
5. Deeming Sec. 422.154
We did not have a discussion on deeming in the preamble nor
proposed changes to the regulation text. Nevertheless, we did receive
comments on this section and are responding to those comments.
Comment: Commenters suggested that CMS allow the American
Association of PPOs (AAPPO) to be an Accreditation Organization (AO)and
that CMS allow disease management associations to be AOs.
Response: Any organization that wants approval as an AO for PPOs
must meet our AO requirements for PPOs.
Subpart E--Relationships with Providers (Sec. 422.210)
The MMA made very limited changes to existing MA program
requirements concerning MA organization relationships with providers.
Since these aspects of the program have
[[Page 4638]]
worked well, we generally proposed to keep the existing provisions of
subpart E as they were. The only exceptions, are modifications to the
physician incentive plan requirements to reflect changes made by MMA to
section 1852(j)(4) of the Act.
Below is a summary of the proposed provisions in this subpart that
were proposed in the August 3, 2004 proposed rule:
We proposed to remove Sec. 422.208(h) that required that,
where a physician incentive plan places physicians at substantial
financial risk, M+C organizations conduct ``periodic surveys of both
individuals enrolled and individuals previously enrolled with the
organization to determine the degree of access of such individuals to
services provided by the organization and satisfaction with the quality
of such services.''
We proposed to revise Sec. 422.210 to eliminate the
requirement that information on physician incentive plans be disclosed
to CMS.
Comment: A commenter supported the changes made to the reporting
requirements in the August 22, 2003 final rule (68 FR 50855). Other
commenters requested that CMS require plans to submit assurances that
they are in compliance with the requirements.
Response: The MMA specifically requires that MA plans provide
assurances to us that they are in compliance with the physician
incentive plan requirements. We specified this requirement in the
regulation text of the proposed rule at Sec. 422.210 and have retained
it in this final rule. Further details on the assurances will be
provided in subsequent guidance. As noted in the preamble of the
proposed rule, the reporting requirement had already been eliminated in
a final rule published on August 22, 2003 (68 FR 50855). The assurances
required by MMA are a new requirement that helps to ensure that plans
are meeting the various regulatory requirements of the physician
incentive plan section. Plans must provide information on their
physician incentive plans when requested by us.
Subpart F--Submission of Bids, Premiums, and Related Information and
Plan Approval
Under the current MA regulations, subpart F addresses payments to
MA organizations, and subpart G discusses beneficiary premiums and cost
sharing. Given the substantial revisions that the MMA makes to pricing
and payment rules for MA organizations, we proposed to generally
replace these subparts in their entirety. Subpart F will cover
provisions addressing bid submissions and our review of bids and
subpart G will describe the methodology and process for CMS' payment to
MA organizations.
This subpart addresses provisions related not only to submission,
review, and approval of bids, but also ``bid-to-benchmark''
comparisons, including how local and regional benchmark amounts are
determined and how beneficiary premiums and savings are calculated; how
beneficiary savings are used for beneficiary rebates and Government
savings; the various premium payment options available to
beneficiaries; and the options for distributing the beneficiary portion
of the rebate.
We received 60 comments on subpart F in response to the August 2004
proposed rule. Below we provide a summary of the provisions of this
subpart and respond to comments. (For a broader discussion of the
provisions, please refer to the proposed rule.)
1. Basis and scope (Sec. 422.250)
Proposed Sec. 422.250 set forth the basis and scope of the revised
subpart F, noting that it was based largely on section 1854 of the Act,
but included provisions from sections 1853 and 1858 of the Act. Section
422.250 indicated that subpart F addressed the bidding methodology upon
which MA payments will be based beginning in 2006 and provisions for
CMS' negotiation and approval of organizations' bids.
2. Terminology (Sec. 422.252)
The proposed definitions throughout both subparts F and G were
intended to reflect the statutory definitions they implement in a
simplified manner. The following terms were defined in proposed Sec.
422.252:
The ``annual MA capitation rate'' is the county rate. As
set forth at section 1853(c)(1) of the Act, capitation rates are called
``MA local area'' rates, and references throughout the MMA to
capitation rates are to county rates (or in the case of end-stage renal
disease (ESRD) enrollees, to State rates).
``MA-PD plan,'' means an MA local or regional plan that
offers prescription drug coverage under Part D of Title XVIII of the
Act.
``Unadjusted MA statutory non-drug monthly bid amount'' is
defined as the plan's estimate of its monthly required revenue to
provide coverage of original Medicare Part A and Part B benefits.
``Monthly aggregate bid amount'' is defined as the total
monthly plan bid for coverage of an MA eligible beneficiary with a
nationally average risk profile. This bid is composed of: the
unadjusted MA statutory non-drug monthly bid amount (also called the
``basic A/B bid''); an amount for coverage of basic prescription drug
benefits under Part D (if applicable), and an amount for provision of
supplemental benefits, if any.
``Plan basic cost sharing'' means cost sharing that would
be charged by a plan for benefits under the original Medicare FFS
program option before any reductions resulting from mandatory
supplemental benefits.
``Unadjusted MA area-specific non-drug monthly benchmark
amount'' is defined, for local MA plans serving one county, as the
county capitation rate. For local MA plans serving multiple counties,
it is the weighted average of county rates in a plan's service area,
where the weights are the plan's projected enrollment per county.
``Unadjusted MA region-specific non-drug monthly benchmark
amount'' is the sum of two components: the statutory component and the
plan bid component.
``MA monthly basic beneficiary premium'' is the amount
that an MA plan (other than an MSA plan) charges an enrollee for
original Medicare benefits if its basic A/B bid is above the benchmark.
``MA monthly prescription drug beneficiary premium'' is
the base beneficiary premium, adjusted to reflect differences between
the plan bid and the national average bid, less the amount of rebate
the MA-PD plan elects to apply toward a reduction of the base
beneficiary premium, as described in proposed Sec. 422.266(b).
``MA monthly supplemental beneficiary premium'' is the
portion of the plan bid attributable to mandatory and/or optional
supplemental health care benefits described in Sec. 422.102, less any
rebate applied to a mandatory supplemental benefit under Sec.
422.266(b)(2).
``MA monthly MSA premium'' is the amount of the plan
premium for coverage of benefits under the original Medicare program
through an MSA plan, as described in proposed Sec. 422.254(e).
As a result of our policy decision on the geographic ISAR
adjustment, presented in the G preamble discussion of Sec. 422.308(d),
we are making a clarifying change to the definition of MA local area at
Sec. 422.252.
3. Submission of Bids (Sec. 422.254)
General rule. The MMA amended section 1854 of the Act to replace
the adjusted community rate (ACR) proposal system currently in effect
under the MA program with a bid
[[Page 4639]]
submission process. Proposed Sec. 422.254(a) implemented section
1854(a)(1)(A) by requiring that no later than the first Monday in June,
MA organizations must submit bids for each MA plan that they intend to
offer in the following year (other than MSA plans, which have separate
requirements), beginning for contract year 2006. Plan bids would be
required to meet the requirements specified at proposed Sec.
422.254(b), and bid submissions would be required to include the
information listed in proposed Sec. 422.254(c).
Under the previous M+C program, we permitted M+C organizations to
offer new plans mid-year and to offer mid-year benefit enhancements to
existing benefit packages. However, in order to maintain the integrity
of the annual bidding process mandated in statute, we proposed that it
is no longer appropriate to allow MA organizations to enter the program
with a new plan mid-year (including service area expansions) or to
offer mid-year enhancements to an existing plan (which essentially
represents a redefinition of revenue needs, that is, a new bid).
Program of All Inclusive-Care for the Elderly (PACE) organizations
and the MMA bidding methodology. We proposed to exempt PACE
organizations from the Title II bidding process, so payments for PACE
plans would be based on MA capitation rates. However, this exemption
does not apply to Part D drug coverage for PACE enrollees. PACE plans
will be required to submit bids for providing Part D drug benefits
(although PACE bids will not be included in the national average
monthly bid amount), as indicated in Sec. 423.279(a).
ESRD enrollees. Section 1853(a)(1)(H) of the Act gives us the
authority to determine if ESRD MA enrollees should be included in the
MMA bidding process. We proposed at Sec. 422.254(a)(2) that ESRD
enrollees be fully incorporated into the plan's aggregate bid for
contract year 2007 and succeeding years. For 2006, we proposed three
options for pricing Part C benefits for ESRD beneficiaries: exclude
ESRD costs from the basic A/B bid and the supplemental bid pertaining
to Parts A and B benefits; exclude ESRD costs from the basic A/B bid
but include them in the supplemental bid for A/B benefits; and fully
include End Stage Renal Disease (ESRD) costs in the plan bid. We
invited comments on specific proposed approaches. (We noted that ESRD
costs must be included in the Part D bid at the outset, including the
Part D supplemental bid amount.)
We noted that regardless of whether or not ESRD enrollee costs are
included in the plan bid, ESRD enrollees would be subject to the same
premium and cost sharing as other plan enrollees under the uniformity
of premiums provision in Sec. 422.262(c). That is, if ESRD enrollees
were excluded from the plan bid, the rebate (or basic beneficiary
premium, for a plan with the bid above the benchmark) would be
determined based on costs for non-ESRD enrollees. ESRD enrollees would
be subject to cost sharing and premium amounts based on estimated non-
ESRD enrollee costs. Finally, we stated in the proposed rule that if
the policy chosen were to exclude ESRD enrollees from the 2006 bids,
for any plan offering a Part B premium reduction to MA plan enrollees,
the amount of this reduction also would be subtracted from the payment
for each ESRD enrollee.
Comment: Two commenters disagreed with any limitation on mid-year
plan entry (including service area expansions) and mid-year benefit
enhancement (MYBEs). One of these commenters asked if CMS' proposal
were implementing statute. Another commenter stated that new mid-year
plans should be allowed in a market if no other competitors existed in
the market. One commenter acknowledged that an issue may exist with
offering Part D benefits in any mid-year plan due to the formula used
to calculate beneficiary premiums, but recommended that plans that do
not offer Part D benefits should be allowed to enter at any time. This
commenter added that nothing in the legislative history of the MMA
supports CMS' position to limit mid-year plan entry and enhancements.
Several commenters did not state an objection to the restriction on
new mid-year plan entry, but believed service area expansions (SAEs)
should be allowed, to expand the availability of MA plans to Medicare
beneficiaries. Finally, a number of commenters expressed concern that
any restriction on offering mid-year plans, including SAEs, would
undermine the ability of MA organizations to negotiate with employers
or unions.
Response: We believe that the MMA both supports and requires the
annual contracting methodology and the elimination of new mid-year
plans, mid-year service area expansions and mid-year benefit
enhancements (with exceptions that are listed below). We will require
that organizations make their MA bid submissions once a year in June.
We are retaining in regulation the language from the current MA
regulations at Sec. 422.306(a)(2), which states that if the submission
is not complete, timely, or accurate, CMS has the authority to impose
sanctions under subpart O of this part or may choose not to renew the
contract.
We are doing as much as possible to support a competitive bidding
process by removing uncertainty that would lead to inefficient bids,
through mechanisms such as the design of the Intra-Service Area Rate
(ISAR) adjustment, our models for risk adjustment of payments, and our
policy on what plan expenditures we will include in risk sharing with
regional plans, which by law must serve all of an MA region. (See the
discussion on rebatable integrated benefits in subpart J.)
We do not believe that we should reduce the kind of ``uncertainty''
that comes from not knowing what products competitors will offer. This
type of uncertainty should be a feature of a competitive bidding
system. An annual plan bidding and entry process supports competitive
bidding by ensuring an equal playing-field for all organizations. For
example, MA organizations should not be able to design new plan benefit
packages open to all beneficiaries in new service areas with post hoc
knowledge of the regional MA benchmarks and national average drug bid.
However, after consideration of the public comments, we have
identified certain exceptions to the end of flow contracting under the
bidding methodology. (Mid-year plan entry is discussed in this comment,
and MYBEs are discussed in the following comment.)
Mid-year plan entry. In general, we will not allow mid-year entry
of new MA organizations, and new contracts with MA organizations for MA
plans will be effective only on January 1 of each year beginning on
January 1, 2006. In general, current MA organizations may not offer new
plans mid-year, either in a current or new service area. We will still
allow for applications to be submitted throughout the year, and we will
make an eligibility determination in time for the next required bid
submittal date.
However, we do not wish to discourage new plan offerings in areas
where there are no MA options for beneficiaries. We also wish to
support a competitive bidding process, as explained above. Therefore we
will allow certain exceptions to the policy prohibiting new mid-year
plans.
MA plans. The Part D bid is based on a national average of plan
bids for the year, and the regional plan A/B benchmark is partly based
on the average of regional plan bids for the region for the year.
Accordingly, to
[[Page 4640]]
ensure an equal playing-field for all organizations and maintain the
integrity of the Part D and MA regional benchmarks, we cannot approve
mid-year regional MA plans because the regional benchmarks are
established during bid review. We can only make the following
exceptions for local plans. We may approve a local mid-year MA plan
whose Part D bid is not included in the national average bid (that is,
PFFS and cost plans offering Part D benefits, and special needs plans),
if the plan will be offered in counties where there are no other PDPs
(except fallback plans) or MA-PD plans. We could also approve a local
mid-year MA plan that does not offer Part D benefits, if the plan is
offered in an area with no other MA competitors. We believe that
allowing mid-year plans could reduce the incentive to bid
competitively, so we will carefully review applications.
PACE plans. New PACE organizations will be allowed to offer a PACE
plan mid-year. As noted elsewhere in this preamble, PACE plans are
governed by section 1894 of the Act. Under section 1894 of the Act,
PACE plans must serve individuals who are ``nursing home certifiable,''
that is, require the level of care required under the State Medicaid
plan for coverage of nursing facility services, and PACE plans have
coverage requirements that differ from the coverage requirements for MA
and MA-PD plans. Given the statutory requirements for defining the
PACE-eligible individual, the PACE review and approval process is an
extended process that requires intensive coordination with States and
CMS. For this reason, new PACE plans will be exempt from the
restriction on new-mid year plans, in order to promote coordination of
Part C and Part D benefits with the benefits PACE plans are required to
offer under section 1894 of the Act.
Employer/union group health plans. EGHPs not open to general
enrollment will be allowed to offer new mid-year plans. Group health
plans not open to general enrollment include both the ``800-series''
employer-only plan and group plans where we directly contract with the
employer/union offering an MA product. However, an MA plan that enrolls
both individual beneficiaries and employer/union members (in other
words, a plan open to general enrollment) will be subject to the rule
not allowing new mid-year plans (except under limited circumstances).
As we have done in the past, we will publish separate guidance on
employer/union group health plans.
Comment: Several commenters recommended that allowing mid-year
benefit enhancements (MYBEs) would not affect the integrity of the
bidding process, at least for original Medicare benefits. One commenter
stated that plans sometimes find during the year that their benefit
designs contain a problematic component, and seek to make mid-year
changes. For example, an organization could discover that a plan co-
payment for a preventive service was the source of widespread enrollee
dissatisfaction that the plan would like to address, or the
organization could learn mid-year that the cost assumptions for a
particular benefit may have been higher than actual costs proved to be,
and the plan would like to enrich the benefits to account for the lower
costs. The commenters believe that retaining the flexibility to make
mid-year changes to adjust for the circumstances could be quite
beneficial to enrollees and could be done in a way to protect the
integrity of the bidding process. This commenter recommended that we
not allow MYBEs during the first quarter of the calendar year to remove
the incentive to manipulate the process by bidding in June with the
intention of making later mid-year enhancements to improve the package.
Finally, several commenters requested that MYBEs be allowed for
employer group plans, because MA organizations need the flexibility to
enter into contracts with employer groups at any time during the year
because employer groups may have plan years that differ from Medicare's
calendar year cycle.
Response: We believe that in order to maintain the integrity of the
bidding process, it is no longer appropriate to allow MA organizations
to offer MYBEs at any time during the contract year, as they would be a
de facto adjustment to the benefit packages for which bids were
submitted earlier in the year. However, in response to public comments,
we have designed an MYBE policy that we believe allows beneficiaries to
receive the advantage of mid-year enhancements of non-drug benefits
while protecting the integrity of the bidding process by reducing the
incentive to overbid in June. The general rule is that we will allow
MYBEs to non-drug benefits only under the following circumstances: (1)
An MYBE can be effective no earlier than July 1 of the contract year,
and no later than September 1 of the contract year; (2) MA
organizations cannot submit MYBE applications later than July 31 of the
contract year; and (3) 25 percent of the value of the MYBE will be
retained by the government. The MA organization would submit, for each
plan or segment, a revised bid and any supporting documentation related
to the enhancement, including information on where the revenue
requirements were overstated in the annual June bid submission. We will
consider whether there is a current year MYBE request when analyzing a
plan's bid for the following year. Continuing current practice, we will
release guidance on the revised MYBE bid submission, including what
types of non-drug MYBEs will be allowed and what documentation is
required, in the annual Call Letter.
We consider this an interim policy for the initial years of the
competitive bidding system (when drug benefit and regional plan pricing
will be new terrain). We will review whether there is a continuing need
for this policy.
We will allow the following exceptions to this policy of restricted
MYBEs:
PACE plans will be allowed to offer MYBEs to non-drug benefits on a
flow basis (unrestricted MYBEs), given the special nature of these
plans and for the reasons specified above with respect to the ability
of these plans to contract on a flow basis. (Under sections
1894(b)(1)(A) and 1934(b)(1)(A) of the Act, PACE plans are required to
offer enrollees a package of benefits tailored to individual needs, as
determined by the PACE interdisciplinary team. Because PACE enrollees
may receive additional services at any point in the contract year, we
note that an enrollee's access to additional benefits mid-year is in
compliance with existing PACE statutory requirements and therefore in a
technical sense is not the same as a mid-year expansion of benefits for
MA plans.)
Employer and union group health plans. We recognize that employers
and unions offering group health plans through an MA organization may
operate on different bidding and negotiation timelines. Employer and
union group health plans not open to general enrollment will be allowed
to offer MYBEs on a flow basis. This includes both the ``800-series''
employer-only plan and the new type of employer and union plan, where
we directly contract with the employer and union offering an MA
product. As noted above, consistent with past practice, we will publish
separate guidance on employer/union group health plans.
However, an MA plan will be subject to the restricted MYBE rule if
it is a plan that enrolls both individuals and employer and union
members, that is, a plan open to general enrollment. (``Plan'' in this
context refers to the benefit offering of an MA organization
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under an MA contract. MA organizations may offer multiple ``plans'' in
a service area under one MA contract, including a mix of plans open to
any Medicare beneficiary and plans open only to Medicare beneficiaries
covered under an employer/union retiree plan.). Employers would still
be free to enhance benefits mid-year for the part of the package that
is a ``wrap-around'' to the MA plan and that is only available to
employer and union members. However, it should be noted that ``wrap-
around'' benefits are not technically part of the MA plan.
Comment: Several commenters were concerned that the MA bidding
process is inappropriate for Special Needs Plans (SNPs), given the
unique elements involved in managing the care of high risk and high
cost beneficiaries. They compared SNPs to PACE organizations, which we
are excluding from the Part A and B bidding process. They also
indicated that the MMA explicitly excludes SNPs from the calculation of
the Part D national average premium, and stated that this exclusion
should be extended to bidding for Part A and B benefits. These
commenters are concerned that including SNPs in the bidding process
could affect participation rates by plans, thereby limiting access for
beneficiaries to these types of plans. A few commenters also suggested
that we could use a separate Part A and B benchmark for SNPs in
recognition of the expanded benefits offered the enrollees in SNPs.
Response: First, the comparison of PACE plans to SNPs is not
accurate from a statutory perspective, because PACE plans are governed
by section 1894 of the Act, which is separate from the statute
governing the MA program. The fact that PACE plans are governed by a
separate statutory authority gives us the discretion to exempt PACE
plans from the MA bidding process. However, SNPs are created under the
MA statute, at section 1859(a)(6) of the Act. SNPs are coordinated care
plans, per section 1851(a)(2)(A)(ii) of the Act. SNPs are governed by
the payment provisions that apply to all coordinated care plans in the
MA program. Section 1854(a)(6) of the Act requires all MA plans (other
than MSA plans) to submit aggregate bids: a basic A/B bid, a
prescription drug bid if applicable, and a supplemental bid, if any.
Therefore, SNPs cannot be excluded from the bidding process. Moreover,
SNP are paid under section 1853 of the Act, the same provision as other
MA plans.
If the commenter is referring to Medicaid benefits when referring
to the expanded benefits offered by SNP plans, we would like to
emphasize that the basic A/B bid is only for coverage of original
Medicare benefits.
Comment: Several commenters stated that the actuarially equivalent
cost-sharing requirement will cause difficulty for SNPs serving dual
eligibles because the cost-sharing payments made by State Medicaid
agencies on behalf of dual eligibles are not required to equal the full
Medicare cost-sharing amount.
Response: SNPs serving dual eligibles must show in their bids a
level of cost sharing that is actuarially equivalent to the level of
cost sharing charged to these beneficiaries under the original Medicare
program option.
Comment: Several commenters asked whether and how the MA bidding
methodology would apply to demonstration plans, including but not
limited to those serving dual eligibles.
Response: The application of MA bidding rules to demonstration
plans depends on the specific demonstration authority. Decisions about
which demonstrations will be expected to submit bids will be announced
in the Advance Notice of Methodological Changes for 2006 MA Payment
Rates, which we expect to publish February 18, 2005 on our website at
http://www.cms.hhs.gov/healthplans/rates/default.asp.
Comment: Many commenters recommended that we exclude the costs for
MA enrollees with ESRD from the bidding methodology for 2006, both for
the Part A and B bids and the supplemental bids. Commenters stated that
MA organizations would have inadequate experience with the new ESRD
payment methodology to submit sound bids in June 2005. A delay in
including these services in the bid is also desirable to these
commenters because it removes an added degree of complexity from the
bidding process at a time when MA organizations are initially becoming
familiar with the new and otherwise complicated requirements. One
commenter also stated that ESRD enrollee costs should be omitted from
both the basic A/B bid and supplemental benefits bid because payment
for ESRD MA enrollees is based on a different risk adjustment
methodology such that the meaning of ``1.0'' is different for ESRD than
non-ESRD enrollees. The commenter added that MA plans are paid for ESRD
enrollees in accord with a different ``rate book'' that is based upon
state rates rather than county rates.
Response: The MMA amended section 1853(a)(1)(H) of the Act to state
that we ``may apply'' the competitive bidding methodology to MA
enrollees with ESRD, with appropriate adjustments made through
application of the ESRD risk adjustment methodology. Since publication
of the proposed rule, we have modeled bidding and payments under the
new system, and have developed a way to apply the bidding method to
ESRD enrollees. This ``merged bid'' method addresses commenters'
concern that the ``1.0'' national average beneficiary does not mean the
same under the non-ESRD and ESRD risk adjustment models. Our method
involves converting non-ESRD and ESRD beneficiary risk scores (which
are based on different risk adjustment models) into a common metric so
that all costs for projected enrollees can be combined into a weighted
average per capita benchmark and a weighted average basic A/B bid.
Therefore, beginning contract year 2007, we will require that MA
organizations include costs for ESRD enrollees in their plan bids. As
discussed above, ESRD enrollees must be subject to the same premium and
cost sharing as other plan enrollees under the uniformity of premiums
provision in Sec. 422.262(c), for both original Medicare benefits and
supplemental benefits. For this reason, we believe that the estimated
costs for all enrollees should be included in plan bids. We will
explain the ``merged bid'' method in the 2006 Call Letter for 2007
contracts and in the 2006 Instructions for Completing the 2007 MA Plan
Bid Form.
However, we have concluded that we will not implement the merged
bid method for incorporating ESRD beneficiary costs into plan bids for
the 2006 contract year, because of the transition blend requirement for
payments to aged and disabled MA enrollees. While 25 percent of aged/
disabled MA payments must be based on the demographic model and 75
percent of payments on the risk adjustment model, 100 percent of ESRD
payments must be based on the risk adjustment model. Under the bidding
methodology, the transition payment blend must be reflected in the bid,
since plans are paid either their bid (plus rebate) or part of their
bid (benchmark, with the remainder of the bid coming from beneficiary
basic premiums). We concluded, therefore, that exclusion of ESRD costs
from plan bids for 2006 would reduce complexity in what will be an
unfamiliar bidding process. Guidance on excluding ESRD costs from the
2006 bid will be provided in the 2005 Instructions for Completing the
2006 MA Plan Bid Form. See the subpart G preamble for information on
payments for ESRD enrollees.
Comment: Several commenters recommended that we consider further
delaying inclusion of costs for ESRD
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enrollees in the basic A/B bid and supplemental bids in years beyond
2006.
Response: We believe that, beginning in contract year 2007, it will
be feasible to implement a merged bid methodology for MA plans where
non-ESRD and ESRD costs are appropriately weighted together into a
single bid because 100 percent of MA bids and payments can be based on
the CMS-HCC risk adjustment models. Moreover, the uniformity
requirement means that it is to the MA organization's advantage to
include ESRD enrollees in its bid. ESRD enrollees would be subject to
the cost-sharing rules and premium amounts based on the plan's
estimated non-ESRD enrollee costs. For example, if plan bids are
calculated based only on lower-cost non-ESRD enrollees, MA
organizations would have their supplemental premium under-funded
because ESRD beneficiaries are likely to use more of certain
supplemental benefits such as cost-sharing reductions and drug
coverage. A significant financial impact may result from plan pricing
based only on unit costs for services and expected utilization for the
plan's non-ESRD enrollees.
Bid requirements
Proposed Sec. 422.254(a) and (b) implement sections 1854(a)(1)(A)
and 1854(a)(6)(A) of the Act, which set forth requirements for plan
bids. MA organizations must submit an aggregate monthly bid amount for
each MA plan the organization intends to offer. We proposed that each
bid submission for an MA plan represents the MA organization's estimate
of its average monthly estimated required revenue to provide coverage
in the service area of the plan for an MA eligible beneficiary with a
nationally average risk profile; that is, the aggregate bid is a
standardized bid. This aggregate bid is the sum of several amounts the
plan estimates are its revenue requirements: (1) the ``unadjusted MA
statutory non-drug monthly bid,'' to provide original Medicare benefits
(which we also call the ``basic A/B bid''); (2) the amount to provide
basic prescription drug coverage; and/or (3) the amount to provide
supplemental coverage, if any.
We proposed at Sec. 422.254(b)(2) that each bid would be for a
uniform benefit package for the service area (or service area segment,
if applicable, for local plans). Plan premiums and all applicable cost
sharing would also be uniform.
We stated in proposed Sec. 422.254(b)(3) that the bid submission
contain all estimated required revenue, including administrative costs
and return on investment (profit or retained earnings). We stated that
a determination that supplemental benefits are appropriately priced is
essential for the integrity of the bidding process. A plan could
overstate its revenue needs for covered services with the intention of
maximizing those payments while under-pricing supplemental benefits to
make the offering attractive to enrollees. To prevent this kind of
strategy, we indicated that the accurate pricing of Part A, Part B, and
Part D benefits and supplemental benefits will have equal importance in
the bid review process. We will verify the reasonableness of these
projections as part of the bid review process (in the same way that we
will verify the reasonableness of plans' projections of enrollment
numbers and enrollment mix for an optional supplemental product).
Supplemental benefits
We proposed at Sec. 422.254(b)(3) that when estimating required
revenue, a plan will include adjustments for the effect that providing
any non-Medicare benefit has on utilization. We proposed that this
requirement would apply to both mandatory and optional supplemental
benefits. In both the Title I and Title II proposed rules, we took the
position that the basic portion of the bid should represent basic
benefits only; it should not reflect the utilization impact on basic
benefits induced by the presence in the benefit package of supplemental
or enhanced benefits. We proposed that this utilization impact should
be included in the pricing of supplemental benefits (Title II) or the
enhanced portion of the bid (Title I). We took this position to ensure
the integrity of the bid. In other words, when a plan offers a benefit
package that includes reductions in cost sharing, the pricing of such a
mandatory supplemental benefit would include not only the cost of
``buying down'' the cost sharing (that is, the estimated revenue needed
to cover the amounts enrollees would have otherwise paid as cost
sharing), but also the cost of financing the expenditures associated
with the additional utilization resulting from offering the cost-
sharing benefits.
We also proposed to exercise our authority under section 1856(b) of
the Act to establish a rule prohibiting MA organizations from offering,
as optional supplemental benefits, reductions in Part A, Part B, and
Part D cost sharing, or enhancements to Medicare Parts A and B
benefits. Under the rule, MA organizations will still be permitted to
offer non-Medicare benefits, for example, dental and optical services
as optional supplemental benefits.
We stated in proposed Sec. 422.254(b)(4) that the bid amount is
for plan payments only but must be based on plan assumptions about the
amount of estimated revenue required from enrollee cost sharing. The
estimate of plan basic cost-sharing for plan basic benefits must
reflect the requirement that the level of cost sharing MA plans charge
to enrollees must be actuarially equivalent to the level of cost
sharing (deductible, copayments, or coinsurance) charged to
beneficiaries under the original Medicare program option.
Comment: A number of commenters disagreed with CMS' proposal that
MA organizations develop a supplemental bid reflecting the effects on
utilization of Part A and B services of providing non-Medicare covered
benefits. First, most commenters stated that the benchmark, which is
the maximum amount we will pay for coverage of Part A and B benefits,
reflects Medicare FFS costs. Medicare carriers and intermediaries make
payments for Medicare Part A and B services based on fee schedules
without regard to whether the beneficiaries have supplemental coverage.
According to the commenters, because most Medicare beneficiaries have
some form of private or governmental supplemental coverage that has an
impact on these costs, the MA benchmark also reflects this impact. The
commenters believe that because ``induced demand'' is already accounted
for in the benchmark, requiring plans to shift these costs to the
supplemental benefit package would result in a misalignment of the
relationship between the basic A/B bid and the benchmark.
Second, several commenters recommended that allocation of costs to
the supplemental bid may have a tangible effect on the MA organization
and on beneficiaries. To the extent that the MA plan's Part A and B bid
is below the benchmark, moving these costs from the basic A/B bid to
the supplemental bid increases the amount of savings, and increases the
supplemental premium by the same amount. However, because we retain 25
percent of the savings, the rebate dollars will not fund 100 percent of
the increase in the supplemental premium attributable to these costs.
Thus, the proposed policy is likely to produce an increase in the
aggregate beneficiary premium. In contrast, if utilization is included
in the basic portion of the bid, basic bids will be higher and bid and
premiums for supplemental benefits will be lower.
Third, commenters also were concerned that there are no existing
standards to evaluate the effect that
[[Page 4643]]
providing non-Medicare benefits has on utilization and therefore on
premiums and competition. For example, one commenter noted that
frequently there are multiple impacts from a single benefit change. For
example, lower primary care physician (PCP) copays may drive higher
utilization among primary care physicians; however, it may also help
result in lower specialist, hospital and prescription drug utilization.
Several commenters concluded that it would be impossible to apply this
requirement uniformly and therefore equitably.
One commenter noted another barrier to uniform application of this
requirement: a large portion of an MA plan's enrollment will have
supplemental coverage through a source other than the MA organization
(for example, Medicaid, other government programs, employee benefit
plans, Medigap plans), and these incremental, additional costs will
necessarily be reflected in the level of the basic A/B bid. Therefore,
this requirement would result in an uneven playing field among
competitors. Finally, another commenter asked where plans will obtain
data to make these adjustments and whether additional adjustments would
be needed for potential adverse selection.
Response: We believe that the pricing of the supplemental benefit
is critical to the integrity of the bidding process. For this reason,
we proposed that when a plan offers a benefit package that includes
reductions in A/B cost sharing, the price of the supplemental benefit
would include not only the cost of ``buying down'' the cost sharing
(that is, the estimated revenue needed to cover the amounts enrollees
would have otherwise paid as cost sharing), but also the cost of
financing the expenditures associated with the additional utilization
resulting from offering the cost sharing benefits. We believe it was
important to align pricing policies for medical benefits (in the MA
rule) and drug benefits (in the Part D rule).
We recognize, however, that it can be very difficult to disentangle
the effects of induced utilization from the effect of plan management
of utilization of medical benefits. For Parts A and B benefits, the
effect of induced demand may be insignificant. For example, it is
reasonable to recommend that there is no induced demand for hospital
services or skilled nursing facility (SNF) (additional hospital
admissions) because of plan utilization management of those services.
Thus, it is unlikely that a change in cost sharing (up or down) would
create or reduce utilization of hospital or SNF services. On the Part B
side, induced demand here may also be quite limited due to plan
utilization management. In contrast to Part A and B benefits, there is
likely to be induced demand for Part D benefits, especially for those
individuals who will be receiving new coverage. Also, there is likely
to be some induced demand if supplemental benefit options are provided
that reduce the initial deductible or fill in part of the what is
lacking in the standard Part D package. We further recognize that there
are no universal actuarial standards for separating these effects.
Therefore, after discussion of the public comments and further
analysis, at this time we will not require that the non-drug portion of
the supplemental bid be adjusted to include expenditures associated
with induced demand for Medicare-covered benefits resulting from
offering cost sharing reductions.
Therefore, in this final rule, we are deleting the sentence at
proposed Sec. 422.254(b)(3) that plan assumptions about revenue
requirements must include adjustments for the utilization effects of
non-drug cost sharing reductions. As we indicate in responses to
comments below, we will not implement this aspect of estimating revenue
requirements for the Part A and B benefits through rule making.
However, we have the authority to refine guidance in the future on how
MA organizations should estimate their revenue requirements under Sec.
422.254(b). For the Part D benefit, the bid amount must reflect an
adjustment for the effect that providing alternative prescription drug
coverage (rather than defined standard drug coverage) has on drug
utilization. Costs associated with any increased utilization must be
included in the price of the drug portion of the supplemental bid for
MA-PD plans. (See proposed Sec. 423.265(d)(2) and the discussion in
the F preamble of August 3, 2004 proposed rule for the Medicare
prescription drug benefit.
As discussed below, we intend to analyze the effects of induced
demand in the near future and will review this policy.
Comment: One commenter suggested that we delay implementation of
this requirement concerning pricing induced demand in the supplemental
package for a period of 2 years (until 2008) for both regional PPO and
local plans. Another commenter was concerned about the short timeframe
for a 2006 implementation of this proposal and made the following
suggestions for implementation: (1) we develop a standard data set or
set of utilization assumptions and distributions with which to quantify
the utilization impact; and (2) plans should have the option of using
those assumptions in their bid or plan-specific assumptions that are
actuarially justified.
Response: As indicated above, we are withdrawing our proposal.
However, we believe that improvements can be made in the accuracy of
pricing supplemental benefits. We intend to conduct analysis in the
near future using accumulated bidding and payment data, because we
believe that over time it is possible to develop factors for the MA
program that could be applied to estimate the cost of induced demand.
Comment: Some commenters stated that this requirement, coupled with
the actuarially equivalent cost sharing requirement at section
1852(a)(1)(A), would cause particular difficulty for Special Needs
plans (SNPs). Attribution of ``induced demand'' costs to the A/B
benefit package would increase the cost of the bid and reduce potential
savings, and shifting these costs to the supplemental benefit package
would result in increased premium costs for SNP beneficiaries, because
SNP cost structures may limit opportunities for rebates. Limited
rebates also could result in cost shifting to plans or, in the case of
duals, to States that cover cost-sharing amounts.
Response: As noted above, we are withdrawing this proposal. This
withdrawal applies to all MA plans, including SNPs.
Comment: Two commenters disagreed with our proposed rule
prohibiting MA organizations from offering, as optional supplemental
benefits, reductions in Part A, Part B, and Part D cost sharing, or
enhancements to Medicare Parts A and B benefits. One commenter
requested that we continue to permit the flexibility of offering
reductions of Parts A, B, and D cost sharing as optional supplemental
benefits, because offering separate plans requires separate bids,
system enhancement, and modification of enrollment and eligibility
procedures. The other commenter requested that we make an exception to
this rule for employer group plans.
Response: First, under Part D, optional supplemental benefits do
not exist. Under Sec. 423.265(c), we are requiring that enhanced
alternative coverage be a uniform package for all enrollees. Second, in
terms of Part A and Part B benefits, we would exclude from this
requirement employer and union group health plans that are not open to
general enrollment, which includes both the ``800-series'' employer-
only plan and the new type of employer and union plan, where we
directly contract with the employer and/or union offering an MA
product.
[[Page 4644]]
However, an MA plan that enrolls both individuals and employer and
union group health plan members (in other words, a plan open to general
enrollment) would be subject to the restricted optional supplemental
policy. Employers would still be free to fund ``wrap-around'' optional
supplemental benefits that would be only available to employer/union
members. The ``wrap-around'' benefits are not technically part of the
MA plan.
MA organizations would still be able to provide choice by offering
multiple plans within the same service area that have different
mandatory supplemental benefits. Many MA organizations take this route
today.
Comment: Several commenters support the proposed policy that MA
bidders submit a single bid amount in 2006 based on the blending of the
demographic and risk adjustment payments as required under Sec.
422.308(c)(2)(ii)(B). The reasons cited are the administrative and
analytic complexity of developing two bids to be compared against two
different benchmarks.
Response: We will provide instructions for determining a blended
bid, in the Instructions for Completing the MA Plan Bid Form.
Information regarding payments based on blended bids will be provided
in the Advance Notice of Methodological Changes for MA Payment Rates.
Actuarial equivalence
In the August 2004 proposed rule, we discussed at length how to
implement the requirement at Sec. 422.254(b)(4) to determine an
actuarially equivalent amount of cost sharing. MA plans must provide
Medicare-covered benefits to enrollees. The MMA amended section
1852(a)(1)(B) of the Act to include the term ``benefits under the
original Medicare FFS program option,'' which are defined as those
items and services (other than hospice care) for which benefits are
available under Parts A and B to individuals entitled to benefits under
Part A and enrolled under Part B, with cost-sharing for those services
as required under Parts A and B or an actuarially equivalent level of
cost-sharing as determined in this part.'' (Cost sharing refers to
service-specific cost sharing for Part A and Part B benefits; it does
not include a beneficiary premium.)
First, we discussed the current approach, the national uniform
dollar amount. The MMA provision on determining whether a rebate is
applicable is similar to a provision that continues to apply to MA
plans through 2005, dealing with the determination of ``excess
amounts'' used to fund extra benefits. Before 2006, when Medicare
payments (based on administratively-set amounts) exceed the revenue a
plan needs for providing the Medicare benefit, the plan must ``return''
the excess amount to enrollees in the form of extra benefits (or cost
sharing reductions). An excess amount exists if CMS' average capitation
payment for the plan exceeds the adjusted community rate, taking into
account cost sharing for Medicare services that is the responsibility
of the enrollees. Through 2005, all plans are required to use a uniform
national figure that we provide as the amount to be subtracted from
their computed revenue needs for the Medicare benefit package to
determine the excess amount. The uniform national dollar amount
represents our projection of the monthly actuarial value of Medicare
coinsurance and deductibles (that is, the amount, on average, of cost-
sharing expenses beneficiaries incur in receiving Medicare services
across the nation).
We recognized that this approach does not adequately recognize
geographic variations in cost sharing, cost differences among private
health plans, and utilization and price differences between private
plans and FFS Medicare. It distorts the statement of revenue needs of a
plan. If a plan operates in a high-cost area, the national actuarial
value of cost sharing may understate cost sharing in the area, while in
low cost areas, cost sharing is overstated.
We proposed several alternative approaches to defining an
actuarially equivalent amount of cost sharing for the basic A/B bid
amount: (1) localized uniform dollar amount; (2) plan-specific
approach; and (3) proportional approach. In this final rule, we also
make a clarifying change to Sec. 422.254(c)(5) to reflect the
statutory requirement.
Localized uniform dollar amount
We would publish localized (for example, county-level or MSA-level)
cost-sharing values, and an MA organizations would determine its basic
A/B bid for a plan by subtracting the appropriate geographically
weighted average of these cost sharing values for the plan's service
area from the plan's stated revenue needs. The local cost sharing
values would be based on actual per-beneficiary FFS cost sharing,
projected to the contract year and standardized to a 1.0 risk score.
Plan-specific approach
The MA organization would use its own pricing and utilization
assumptions to determine a basic A/B bid for its plan, as if the plan
were offering Medicare-only benefits under Medicare cost sharing rules
or an actuarially equivalent structure. A cost-sharing structure would
be actuarially equivalent if the projected average cost sharing as
percent of the sum of average cost sharing and projected average plan
payout equals the percentage using Medicare's cost-sharing rules, based
on the projected experience of the same group and using the same
pricing assumptions. The average amount of cost sharing and the average
plan revenue requirements for the assumed basic A/B package would then
be adjusted to reflect cost-sharing and plan requirements based on an
enrollee with a national average risk profile. The adjusted plan
revenue requirements would serve as the organization's basic A/B bid.
Proportional approach (including national, regional, or local
proportions)
Actuarial equivalence under this approach would be met if the ratio
of a plan's cost sharing amount for the basic A/B bid to the total cost
of plan benefits equals this proportion under original Medicare. For
example, if the national average actuarial value of cost sharing under
original Medicare in a year were 16.8 percent of the total (value of
cost sharing plus value of benefits, using the actual 1999 figure for
Medicare), then an MA plan would have to offer a basic A/B bid based
upon a plan basic cost-sharing amount that is 16.8 percent of total
costs. We would announce the projected percentage of total expenditures
that represent cost sharing in the same way that we currently announce
the national average actuarial value of Medicare cost sharing as part
of the rate announcement for private health plans. To address the issue
of geographic variation in cost sharing, we proposed regional or local
proportions over national proportions. While a fixed national
proportion recognizes variation in expenditures at the health plan
level, even within FFS Medicare there is significant variation by area
in the cost-sharing proportion, for example, for Part A ranging from 13
to 20 percent in 1999 (compared to the national average of 16.8
percent).
We further proposed breaking regional or local proportions into
service-specific proportions of cost sharing applied to the different
categories of expenditures health plans would have (for example, Part A
versus Part B, or further disaggregated into inpatient, SNF, home
health, physician, and/or outpatient).
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We received a number of comments on the issue of actuarial
equivalence, revealing a range of opinion. A few commenters recommended
the local uniform dollar amount method, several recommended the plan-
specific method, and some preferred the proportional method. Some
commenters did not specify a choice but recognized the importance of
accounting for regional variation in costs, with some expressing
concern about the plan-specific method.
Comment: One commenter stated that CMS should retain the current
uniform absolute dollar method. However, the commenter believes that
CMS should adjust from national to local dollar amounts. The commenter
believes that this aspect of the program, which is familiar to the
industry, should remain constant given substantial changes to plan
reimbursement under the MA program and the introduction of competitive
bidding. The commenter also recommended that the plan-specific approach
creates the possibility that the projections will be inaccurate and
result in unfair cost-sharing burdens on members and hospitals. Thus,
the proportional method may suffer from the same flaw, as it also
relies on plan pricing assumptions.
The plan-specific method drew the most commentary from those in
favor of and those opposed to this approach. Several commenters felt
the plan-specific method would be the most precise because it was based
on each plan's own utilization and pricing estimates, reflects the
different mix of services in managed care versus FFS Medicare, and
would be most administratively efficient since it is based on data
readily available.
Several commenters objected to the plan-specific method. One
commenter felt this approach would allow MA organizations to use
unreasonable assumptions, and another commenter objected because it
would disadvantage organizations that tightly manage care and/or have
more efficient provider networks. Commenters objecting to the plan-
specific approach supported beneficiary cost-sharing rules that require
the same dollar amount of cost sharing across all affected plans in a
local geographic area rather than any method that would allow variation
by plan.
Response: There are two basic principles behind Section
1852(a)(1)(B) of the Act. First, the MA program must reflect a feature
of the Medicare program, that a certain share of the cost of covered
care is to be borne by beneficiaries (or third parties paying on behalf
of beneficiaries), and not the government. Therefore the MA enrollee's
share of costs will not be financed by government funds in the bidding
system, unless rebate dollars are available. Second, for competitive
bidding, the determination of whether a rebate (bid below benchmark) or
a premium (bid above benchmark) is applicable to a plan must be based
on an ``apples-to-apples'' comparison of the same set of benefits (Part
A and Part B benefits) reflecting a specific cost-sharing structure.
Section 1852(a)(1)(B) of the Act affects how MA organizations
develop their basic A/B bids. It does not determine what a plan's
actual cost-sharing structure will be, because a plan can have an
actuarial value of cost sharing that is less than that under original
Medicare.
However, actual average per-member-per-month (PMPM) cost sharing
under any plan offered by an organization cannot exceed the actuarial
value of the FFS average. (This limit on actual in-plan cost sharing is
a continuation of the pre-existing M+C provision except that, unlike
the earlier M+C provision, the limit on the cost sharing does not
include the premium.) Also excluded from this limit, and excluded from
the Part A and Part B cost-sharing computation in the bid, is any cost
sharing for Part A and Part B benefits that enrollees of MA regional
plans obtain from non-network providers (because section
1852(a)(1)(B)(ii) of the Act specifically excludes out-of-network cost
sharing (section 1858(b)(2)) from the determination of the
``actuarially equivalent level of cost-sharing with respect to benefits
under the original Medicare fee-for-service program option''). We have
made a change to Sec. 422.254(b)(4) to conform the regulation to the
statutory provision.
After further analysis, we do not support the use of localized
dollar amounts. This approach shares a key problem with the national
uniform dollar amount. An average absolute dollar amount would be too
small for some plans in a local area or region (leading to shortfalls
in rebates that could otherwise be used to fund supplemental benefits),
yet too large for other plans (leading to bids lower than a plan's
estimated revenue requirements). In either case, the distortion we are
seeking to minimize would remain.
We believe the proportional approach is the best approach, based on
local proportions that are service-specific. This approach supports the
MMA goal of making ``apples to apples'' comparisons among basic A/B
bids, which creates a level playing field because all MA organizations
in a market area must apply the same standards.
This approach has the advantage over the local uniform dollar
amount because plan pricing assumptions are built into the total value
of the benefit package. Also, plans that efficiently manage care would
be disadvantaged by local uniform dollar amounts because these amounts
would overstate cost-sharing revenue, thus lowering the plan bid and
resulting in larger rebates than the plan could actually ``afford.''
We believe the proportional approach is more straightforward to
understand and implement than the plan-specific approach, which is
crucial in the context of a bidding methodology that must build in
several complex adjustments (for example, the geographic ISAR
adjustment). The plan specific method is more precise (in that it
reflects not only plan pricing but also plan utilization assumptions)
but it is the most complicated method because it requires organizations
to figure out the utilization effects of a cost-sharing structure they
likely will not use in order to determine how plan payout and member
cost sharing would change if the package were based on original
Medicare cost sharing.
Comment: Several commenters requested that we consider using, for
each local area or region, proportions by service category. The
commenters believe that this refinement would yield proportions more
closely reflecting the cost sharing associated with the mix of services
used in these areas and could, therefore, result in a more accurate
projection of the actuarially equivalent costs sharing in each
geographic area.
Response: We agree with the commenters and intend to incorporate
service-specific categories in the bid pricing tool. We are considering
the following approach. Each year the Office of Actuary (OACT) would
publish five proportions for each county representing average FFS cost-
sharing: Part A inpatient hospitalization; Part A SNF; Parts A & B home
health; Part B outpatient facility; Part B, all other. We will provide
guidance on the proportional method and details on the service
proportions in the Instructions for Completing the MA Plan Bid Form.
Comment: Two commenters also suggested that we allow MA
organizations to choose whether to use the plan-specific or
proportional method.
Response: We do not support the idea of allowing MA organizations
to choose which method to use when estimating their MA bids. This would
create further complexity in a complex bidding process. For example, it
could create
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confusion in bidding because each method could interact differently
with the other rate and payment adjustments required under the MMA. It
also would make it difficult for us to apply consistent standards in
our bid review process. We want to set a single standard that applies
to all MA organizations because we believe that is the intent of the
statute and it ensures everyone is subject to the same rules.
Comment: Several commenters recommended that if we select the
proportional method, the proportions should be established for each
local area or region and also disaggregated by service category (for
example, inpatient hospital cost sharing versus physician cost
sharing). This refinement would yield proportions that will more
closely reflect the cost sharing associated with the mix of services
used in these areas and could, therefore, result in a more accurate
projection of the actuarially equivalent costs sharing in each
geographic area. If we select the proportional method, one commenter
stated opposition to the development of proportions based on
assumptions of how health plan enrollees generally use services,
because it would be difficult for us to develop a distribution of
services that would be consistent with the experience and practices of
individual plans.
Response: We agree that further disaggregation of local or regional
proportions by service category would result in proportions that are
more accurate. See the discussion above for our proposed approach.
Details on the method and the proportions for 2006 will be published in
the Advance Notice of Methodological Changes for MA Payment Rates,
which we expect to be released on February 18, 2005 on the CMS website
at http://www.cms.hhs.gov/healthplans/rates/default.asp
Information required
Proposed Sec. Sec. 422.254(c) and (d) would implement section
1854(a)(6)(A) of the Act by setting out the information MA
organizations must submit for coordinated care plans and PFFS plans.
Proposed Sec. 422.254(e) specified information that must be submitted
for MSA plans.
Proposed Sec. 422.254(c) established that, in addition to
submitting an aggregate bid amount, MA organizations must submit the
proportions of the aggregate bid attributable to coverage of Part A and
Part B benefits, Part D basic benefits, and supplemental coverage. They
must also identify the plan type, projected enrollment, any capacity
limits, the actuarial bases for determining the bid amounts and
proportions, information on the plan's cost sharing, including the
actuarial value of deductibles, coinsurance, and co-payments, and
information required to calculate risk corridors for regional plans for
2006 and 2007. Additional information required on drug coverage was
proposed at Sec. 423.265, which implements section 1860D-11(b) of the
Act.
In the final rule, we added Sec. 422.254(c)(9) to address
information requirements for the geographic Intra-Service Area Rate
(ISAR) adjustment. See the G preamble discussion of Sec. 422.308(d)
regarding our policy decision on the geographic ISAR adjustment.
Under proposed Sec. 422.254(d), for MA organizations required to
provide a monthly rebate because the plan bid is less than the plan
benchmark, the organization must submit information to us about how
this rebate would be allocated across the statutorily mandated options
specified at Sec. 422.266(b). All rebate dollars must be applied to a
mandatory supplemental benefit.
Since MA regional plans may serve multiple regions, and each region
is a separate service area, section 1854(a)(1)(C) of the Act requires
us to encourage the offering of regional plans by developing procedures
to allow MA organizations to file consolidated information for multi-
region MA plans (including national plans). We believe our new bid
pricing tool will capture MA pricing information in an efficient manner
and reduce filing burden for all MA organizations, including those
offering national plans. Much of the supporting documentation required
for the Adjusted Community Rate Proposal (ACRP) will no longer be
required. Specifically, we will no longer collect commercial pricing
and corporate financial data, and the number of cost-sharing categories
has been reduced. In addition, the electronic bid form includes data
elements that were filed paper format for the ACRP process, for
example, actuarial utilization and cost data, trends in medical
expenses, and non-medical expense projections. We are committed to
working with organizations to reduce duplicative information in the
application, bidding, and contracting process. For example, we would
expect that a single legal organization offering an MA regional plan in
more than one region would submit much the same legal and
organizational information for all regions, with the main differences
being the provider networks. We expect the application process to be an
area where paperwork burden can be reduced. Ideas for consolidating
regional filings that are under development include a master contract,
a single actuarial certification covering multiple bids, and
consolidated supporting exhibits across regional bids where there are
common elements (for example, the development of manual rates). We will
continue to identify ways to consolidated filing as the program
develops.
In addition, we will apply the projected revenue and medical
expense values (including administrative expenses) captured by the MA
bid pricing tool to calculate the risk corridor amounts used to
determine risk-sharing payment adjustments for regional MA plans for
contract years 2006 and 2007. See the subpart J preamble for the
discussion of risk sharing on costs of providing original Medicare
benefits and rebatable integrated benefits. See the Advance Notice of
Methodological Changes for Medicare Advantage Payment Rates for
guidance on information to submit for determination of risk sharing
payments.
Finally, section 1854(a)(6)(A)(iii) of the Act gives us the
authority to require information in addition to that listed above to
allow us to verify the actuarial bases for plan bids. We expect to use
the authority given us under this provision in two ways. First, our
review of an organization's bid submissions may identify problems that
would trigger our request for additional, more detailed information
(for example, data the MA organization used on average utilization and
pricing to model the expected distribution of costs in the plan bid).
We would not want to require such detail for every plan bid in the
initial submission, and we are confident that forthcoming bid
submission guidance (in the annual Instructions for Completing the MA
Plan Bid Form) will limit the occurrences of our requests for
additional data. Second, as we did with the ACRP tool for the M+C
program, we expect to make annual updates to the bid pricing tool. The
updates may or may not involve changes to the information required to
verify actuarial bases of the bid. We will announce the updates in the
annual Call Letter.
Special rules for MSA plans
Proposed Sec. 422.254(e)(2) would implement sections 1854(a)(3)
and 1854(b)(2)(D) of the Act by indicating that bids are not required
for MA MSA plans. That is, MA organizations will not complete the bid
pricing tool developed for non-MSA plans. However, for MSA plans MA
organizations must file a bid submission with information on coverage,
the
[[Page 4647]]
enrollment capacity, the monthly MSA premium amount, which is the
amount of revenue the plan requires to offer original Medicare benefits
(analogous to the basic A/B bid for other MA plans). MA organizations
must also submit the amount of the MSA deductible, and the beneficiary
supplemental premium, if any. MSA plans are prohibited from offering
Part D coverage (although MSA enrollees may choose to enroll in a
prescription drug plan).
Comment: One commenter recommended that we consider allowing MA
organizations to subsidize the Part D premium for dual eligible
beneficiaries with revenue from the medical benefits part of the MA-PD
plan.
Response: We believe the commenter's phrase ``the medical benefits
part'' is referring to Part A and B benefits. MA organizations offering
the Part D benefit may fund a reduction in the Part D premium with
rebate dollars, pursuant to section 1854(b)(1)(C)(ii)(II) of the Act,
and as proposed at Sec. 422.266(b)(2). However, the resulting premium
amount must be uniform for all members of the plan, in accordance with
section 1854(c) of the Act. A plan may not offer an additional premium
reduction only to a subset of members (for example, dual eligible
beneficiaries).
Comment: One commenter asked that we clarify the ``enrollment
assumptions data requirement,'' that is, how these assumptions will be
used in computations and how errors in them will be corrected over
time. The commenter believes that our assumption about a plan's
enrollment mix will be a critical competitive factor in determining how
rebate dollars are used to buy mandatory supplemental benefits and/or
how beneficiary premiums for mandatory supplemental benefits are set.
Our oversight on this issue will be vital to ensure a level playing
field.
Response: See the discussion in the subpart G preamble on the
geographic Intra-Service Area Rate (ISAR) adjustment, which takes into
account the difference between the distribution of enrollment across
counties in the plan's service area assumed in the plan's bid and the
actual geographic mix of enrollment at the time payment is made. Also,
we will release detailed guidance on the bidding methodology in the
Instructions for Completing the MA Plan Bid Form and the Call Letter.
Information on the payment methodology, including the ISAR adjustment,
will be provided in the Advance Notice of Methodological Changes for
Medicare Advantage Payment Rates, published annually on our website at
http://www.cms.hhs.gov/healthplans/rates/default.asp.
Comment: Several commenters supported development of procedures for
MA organizations to file consolidated bid information for multi-
regional plans, including national plans, and believe that this will
facilitate the offering of regional plans.
Response: In light of the statutory mandate to allow consolidated
bids for multi-regional plans, we are committed to allowing bid
consolidation where appropriate. However, in order to maintain the
integrity of the bid submission and review process, section
1854(a)(1)(A) of the Act requires MA organizations to submit a bid for
each MA region. However, we believe our new bid pricing tool will
capture MA pricing information in an efficient manner and reduce filing
burden for all MA organizations, including those offering national
plans. See the discussion above for examples of burden reduction in the
new bid pricing tool.
Comment: A few commenters recommended that we establish streamlined
documentation requirements for MA organizations to follow in supporting
the actuarial basis of their bids. The commenter requested that these
requirements strike a balance between providing us with sufficient
information to review the bid and ensuring that MA organizations are
not burdened with onerous requirements.
Response: We support the commenters' position that the requirements
built into the new bid pricing tool and supporting documentation should
be thorough enough to allow a fair and accurate review of bids but
should avoid undue burden. See the discussion above regarding the new
bid pricing tool MA organizations will use for bid submission. Most of
the supporting documentation required for the ACRP will no longer be
required. For example, we will no longer collect commercial pricing and
corporate financial data, and the number of cost-sharing categories has
been reduced.
Comment: Several commenters are interested in having bid formats,
documentation requirements for submission and criteria for actuarial
substantiation as early as possible to assist in the bid preparation
and to minimize the uncertainty in dealing with employer retiree groups
and other contractors, including providers. One commenter stated that
our negotiation and approval process will be completed later than most
plans' rate quotes to employer retiree groups for the following
contract year. To the extent that MA organizations must negotiate
changes to retiree premiums, benefit packages and our payments after
these organizations have provided rate quotes to employer groups, this
destabilizes the MA organization's relationship with, and reduces its
appeal to, employer groups. The commenter indicated that early and
clear expectations of plans' documentation requirements for submission
would help to minimize this.
Response: We have been working hard to develop all aspects of the
new bidding methodology to ease the transition for all parties. In
December 2004, we released for public comment drafts of the drug and
non-drug bid pricing tools that will, with the plan benefit package,
constitute the annual June bid submission, with the intention of
developing the new program. We do recognize the special circumstances
surrounding the offering of employer and union group health plans
(EGHPs), and as noted above, we will release separate guidance
regarding EGHPs.
Comment: One commenter strongly objected to the proposed regulatory
requirement that MA organizations that have Part B-only enrollees
submit a separate bid for these enrollees. Some MA organizations have
only a handful of these members and the cost of preparing a separate
bid is very substantial. The commenter recommended that we identify a
means for bidding organizations to submit their Part B-only enrollee
bid in conjunction with another bid. The commenter recommended this
approach so that MA organizations are relieved of the administrative
burdens of submitting two bids for their enrollee population while the
underlying objectives of the bid process are still accomplished.
Response: The requirement at Sec. 422.254(f) is substantially the
same language as the previous Sec. 422.310(a)(3) for the M+C program.
Preparation of a separate adjusted community rate (ACR) for Part B-only
enrollees is a long-standing policy, and we do not see a basis for
changing the existing policy. We have made editorial changes to the
text at Sec. 422.254(f) to conform it to the previous Sec.
422.310(a)(3).
There are two types of Part B-only enrollees: current members of
employer or union group health plans and Part B-only enrollees
``grandfathered'' from pre-1999 risk contracts. Since 1998, only those
beneficiaries who are members of employer or union groups have been
allowed to elect a Part B-only plan. However, section 1876(k)(2) of the
Act created ``grandfathered'' Part B-only enrollees by permitting a
Part B-only beneficiary enrolled with an
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organization under a section 1876 risk contract on December 31, 1998 to
continue enrollment with that organization if that organization had
entered into an M+C contract effective January 1, 1999.
Our operational policy has recognized that the number of
``grandfathered'' beneficiaries has been decreasing over time, and in
the past we have provided guidance on grandfathered enrollees in the
annual Call Letter, including an option to simplify rate filing. Call
Letters from prior years with guidance on grandfathered Part B-only
enrollees can be found on our website at http://www.cms.hhs.gov/healthplans/acr/.
We will continue to provide guidance regarding this
policy in the Call Letter.
Comment: A number of commenters asked questions about the
procedures for bidding. For example, a few commenters asked how we will
define administrative expenses in the bid pricing tool, and whether the
definitions will be the same for Part C and Part D. Other examples are
whether we would allow rounding of premiums after adjustments to the
allocation of rebate dollars, and how MSA plans could provide risk
adjustment data for payment.
Response: As in the past, we will address questions on the
procedural details of bidding in the Instructions for Completing the MA
Plan Bid Form and the Call Letter.
4. Negotiation and Approval of Bids (Sec. 422.256)
Authority to review and negotiate bids
The provisions in proposed Sec. 422.256 would implement section
1854(a)(6)(B) of the Act, which provided us with the authority to
negotiate the monthly aggregate bid amount and the proportions of the
aggregate bid attributable to basic benefits, supplemental benefits,
and prescription drug benefits. The MMA grants us the authority to
negotiate bids that is ``similar to'' the statutory authority given the
Office of Personnel Management (OPM) to negotiate with respect to
health benefits plans under the FEHBP program.
Chapter 89 of Title 5 gives OPM broad discretion to negotiate
prices and levels of benefits. We believe that the Congress used
``similar to'' in the statute to recognize the differences between the
FEHBP and the MA program. For example, the OPM authority applies to
negotiating the level of plan benefits, while MA plans must offer, at a
minimum, benefits covered under the original Medicare program, which
are defined in law. Also, the authority to negotiate payment rates
would seem to be limited for the MA program by other provisions of the
MMA (for example, statutory formulas for determining benchmarks,
premium and rebate amounts, and payments to plans.)
However, MA plans are able to modify the cost sharing for Medicare
Parts A and B benefits via supplemental benefits. We have the authority
to negotiate the level of the supplemental benefits as part of ensuring
that the bid is not discriminatory, as described in section 1852(b)(1)
of the Act and implemented at proposed Sec. 422.100(f)(2) and Sec.
422.110. Further, in situations where we have questions about the
assumptions used for a plan bid, we have the authority to negotiate
with the MA organization regarding the appropriate assumptions and the
resulting rebate and/or supplemental premiums, to ensure that the
supplemental bid reasonably and equitably reflects revenue
requirements.
Noninterference
As proposed under Sec. 422.256(a)(2) and in accordance with
section 1854(a)(6)(B)(iii) of the Act, we do not have the authority to
require--(1) any MA organization to contract with a particular
hospital, physician, or other entity or individual to furnish items and
services under the Act; or (2) a particular price structure for payment
under a contract to the extent consistent with our authority. Also, as
under current law, we do not have the authority to review or negotiate
bids for PFFS plans or any amounts submitted by MSA plans.
Standards of bid review
Proposed Sec. 422.256(b) implements section 1854(a)(6)(B)(ii) and
(iii) and section 1854(e)(4) of the Act, which together established
three standards for our review of bids. First, the bid and proportions
must be supported by the actuarial bases, which we determine based on
information provided by the MA organization.
Second, the bid amount and proportions must reasonably and
equitably reflect the plan's revenue requirements for providing the
benefit package, as the term revenue requirements is used for purposes
of section 1302(8) of the Public Health Service Act. We interpreted
this reference to mean that the Congress intends for a plan bid to
reflect the plan's estimated required revenue in providing coverage
(including any profit or retained earnings), and not other factors such
as the relative lack of competition in the plan's market area or the
level of annual capitation rates and benchmarks in the service area.
Third, proposed Sec. 422.256(b)(3) implemented section 1854(e)(4)
of the Act by providing for a limitation on applicable cost-sharing for
coordinated care and PFFS plans: the actuarial value of plan cost
sharing ``applicable on average'' to plan enrollees cannot exceed the
actuarial value of cost sharing ``applicable...on average'' under
original Medicare. We interpreted ``applicable'' to mean the level of
cost-sharing in effect after any reductions to the level of cost
sharing that a plan can make by offering a mandatory supplemental
benefit, as specified under section 1852(a)(1)(B) of the Act. That is,
we apply this third standard of review, as specified under section
1854(e)(4) of the Act, in light of both the basic A/B bid and the
application of any rebate toward reduced cost sharing of Medicare Parts
A and B benefits included in the supplemental bid.
We clarified that proposed Sec. 422.254(b)(4), which implements
the requirement in section 1852(a)(1)(B)(i) of the Act), that the
actuarial value of MA plan cost sharing for Medicare Part A and Part B
benefits assumed in constructing the basic A/B bid must equal the
actuarial value of original Medicare cost sharing, would affect how MA
organizations develop their basic A/B bids. In contrast, the cap on
actual enrollee cost-sharing liability for Medicare Parts A and B
benefits is established at proposed Sec. 422.256(b)(3), which
implements the requirement in section 1854(e)(4) of the Act. Before
2006, the sum of applicable plan cost sharing for Part A and Part B
services, and any cost sharing for Part A and Part B services that was
collected as revenue in the form of a premium or portion of a premium,
could not exceed the actuarial value of cost sharing in fee-for-service
Medicare (section 1854(e)(1) of the Act). As of 2006, any Medicare cost
sharing included in a premium (as well as any cost sharing that is
``bought down'' through the use of rebate dollars) is not counted
towards the limit (section 1854(e)(4)of the Act).
We further clarified that, under the new bidding methodology, an MA
organization cannot substitute a basic beneficiary premium for some
portion of cost sharing under original Medicare. Section
1854(b)(2)(A)(i) of the Act (proposed at Sec. 422.262(a)(1)) mandated
that for plans with bids less than benchmarks, the premium for original
Medicare benefits must be zero. Our understanding is that Congressional
intent was to have the basic A/B bid be for a standardized package.
This means MA organizations able to offer plans
[[Page 4649]]
with Medicare-covered benefits at a lower cost to the beneficiary than
the benchmark will have a plan with zero premium for coverage of
benefits under original Medicare.
However, any MA organization can choose to structure the benefit
package with a mandatory supplemental benefit that includes a reduction
in Medicare Part A and B cost sharing. The premium for this
supplemental package, as well as the Part D or Part B premium, can be
offset by any rebates for which the plan is eligible. Thus, the
aggregate bid would consist of: (1) a basic A/B bid amount for benefits
available for either zero premium or a basic premium depending on
whether the plan's bid is above or below the benchmark; (2) a mandatory
supplemental bid amount for benefits available for a premium or no
premium depending on the plan's use of rebates (and an optional
supplemental benefit if offered); and (3) a drug bid amount for basic
benefits, also available at a premium or no premium depending on use of
rebates.
Finally, we clarified that, under the MMA, an MA organization is no
longer permitted to reduce the basic beneficiary premium amounts for
original Medicare benefits by taking a negative adjustment on
additional revenue, as was permitted under the M+C program in the ACRP
process. In accordance with section 1854(a)(6)(B)(ii) of the Act, plan
bids must reasonably and equitably reflect plan expected revenue
requirements. MA organizations cannot submit plan bids that understate
their revenue requirements for the basic A/B bid. When the basic A/B
bid amount exceeds the benchmark amount, the difference is required to
be charged as a basic beneficiary premium. If an MA organization were
able to waive the plan's basic beneficiary premium, this would suggest
that the MA organization had overstated the plan's expected revenue
requirements for basic benefits. In essence, we do not have the
authority under the statute to allow MA organizations to waive basic
beneficiary premiums for plans with basic A/B bids greater than
benchmarks.
Comment: Several commenters requested clarification on how we would
interpret the bid review standard that the bid amounts and proportions
must ``reasonably and equitably'' reflect the MA plan's revenue
requirements for providing the benefit package. Two commenters
suggested that we should ensure that adequate flexibility is maintained
throughout the bid review and approval process in order to allow MA
organizations to pursue legitimate business strategies that promote the
availability of viable choices for beneficiaries. One commenter
recommended that we consider in its bid review process whether an
organization is in a start-up phase and the intensity of the
marketplace competition facing the plan. Another commenter suggested
that in reviewing the revenue requirements of the plan, we should take
into account that a variety of factors may affect anticipated rates of
return for MA plans. For example, a new MA organization may reasonably
anticipate budget deficits during its early years of operation in order
to offer competitive plans while its fixed costs are high in relation
to the number of enrollees and its enrollment and revenues grow toward
break even. In addition, due to differing marketplace dynamics and
other factors, the rates of return may differ for different products.
The commenter acknowledged our concern about the integrity of bids from
plans lacking competition in their service area, but stated strong
opposition to any requirement we may consider that would force plans to
have similar ``rates of return'' on Medicare and non-Medicare products
as a way to measure bid accuracy. Also, the commenters cautioned
against having standards that would skew actual bid amounts in order to
avoid the appearance of not operating with maximum efficiency.
Response: In the August 2004 proposed rule, we stated that we
believe the Congress used the phrase ``similar to'' in section
1854(a)(6)(B)(i) of the Act (which states that our authority to
negotiate bids is similar to OPM's statutory authority to negotiate
concerning health plans) to signal an understanding that the FEHBP and
MA programs are not identical, but have some similarities. We gave two
examples of differences between the programs: (1) MA plans must offer
original Medicare benefits, which are defined in law; and (2) the
formulas for determining MA rates are established in law. We then gave
an example of an area where the OPM-like authority to negotiate bid
amounts would be relevant to the MA program: pricing of supplemental
bids. We then discussed the three proposed standards of bid review: (1)
bids and proportions must be supported by actuarial bases; (2) bids and
proportions must reasonably and equitably reflect the plan's revenue
requirements for providing the benefit package; and (3) the standard at
section 1854(e)(4) of the Act (implemented at proposed 422.256(b)(3))
has been met, which limits enrollees' liability for cost sharing.
In addition to review of bid amounts and proportions under these
three standards, we also are mandated to review other aspects of the
annual bid submission. We must ensure that all benefits are covered,
per the requirements at section 1852(a) of the Act. Section 1852(b)(1)
of the Act requires us to review the plan benefit design, particularly
the structure of premiums, deductibles, copayments, and coinsurance
charged to beneficiaries to ensure it is not discriminatory, as
implemented at Sec. 422.110.
With regard to review of bid amounts, we will respond to the
commenters' questions by discussing the statutory bases on which we
formulated the first two bid review requirements. The first bid review
standard, that bids be supported by actuarial bases, is mandated in two
places in section 1854(a)(6)(B) of the Act. The first phrase of section
1854(a)(6)(B)(i) of the Act states that subject to the noninterference
clause and the exception for PFFS plans, the Secretary has the
authority to negotiate bid amounts and proportions under subparagraph
(A), including supplemental benefits. Section 1854(a)(6)(A) of the Act
(the subparagraph (A) reference), which specifies what information MA
organizations should submit with their annual bid submission, includes
the requirement that MA organizations submit information demonstrating
the actuarial basis for determining the monthly aggregate bid amount.
In addition, section 1854(a)(6)(B)(ii) of the Act states that the
Secretary can only accept bids if they are supported by the actuarial
bases provided under subparagraph (A).
Therefore, under the first review standard we may negotiate whether
or not to accept a bid based on our determination that the MA
organization submitted sufficient actuarial bases and that the
actuarial bases support the submitted bid amounts and proportions. The
specific elements for which we will require actuarial bases are not
listed as part of the regulatory text, and are incorporated into the
bid pricing tool. However, we expect MA organizations to submit the
actuarial bases for medical costs and administrative costs (including
return on investment) for all components of a plan's aggregate bid (the
basic A/B bid, the bid for basic prescription drug coverage, and bids
for mandatory and optional supplemental benefits). We will examine the
actuarial analyses to ensure that bids have been prepared in accordance
with our actuarial guidelines, and properly certified.
[[Page 4650]]
The second bid review standard states that bids must reasonably and
equitably reflect plan costs. This is also mandated in two places in
section 1854(a)(6)(B) of the Act. The latter part of the sentence at
section 1854(a)(6)(B)(i) of the Act states that when exercising the
requirement to negotiate regarding bid amounts, the Secretary shall
have authority similar to the authority the Director of OPM has under
Chapter 89 of Title 5 to negotiate with respect to health benefits
under the FEHBP program. In addition, section 1854(a)(6)(B)(ii) of the
Act states that the Secretary can only accept bids if they reasonably
and equitably reflect the revenue requirements (as used for purposes of
section 1302(8) of the Public Health Service Act).
We look to the FEHBP standard in 5 USC 8902(i) to interpret our
authority to review bids in a manner similar to OPM's statutory
authority. Section 8902(i) gives OPM the authority to require that
rates should reasonably and equitably reflect the cost of the benefit
provided. We see this provision as imposing upon us the responsibility
to evaluate the appropriateness of the overall bid amount and each
portion of the aggregate bid. Specifically, we intend to evaluate the
reasonableness and appropriateness of the actuarial assumptions made
for the aggregate bid. We would examine bids to determine whether the
revenue requirements for coverage offered by the plan are reasonable,
including examination of administrative costs and return on investment
(profit) for reasonableness. (For a discussion of how we will evaluate
the reasonableness and accurateness of the prescription drug bid, see
subpart F of the preamble in the final rule for the Medicare
prescription drug benefit.)
There is no cap on administrative costs under Part C (or Part D)
that is similar to the cap in effect for FEHBP experience-rated plans.
We assume that competition among plans will generally assure reasonable
bids. The Congress, however, did not leave the determination of rates
entirely to market forces. We are required to determine that the
reasonable and equitable test is met and we are given negotiating
authority to assure this result. The initial review of MA bid
submissions will focus, in part, on low and high cost outliers, and on
bids in areas with little competition. It should be noted however, that
bid outliers are not necessarily inappropriate, nor are bids within the
measure of central tendency automatically correct. Indeed, an outlier
bid may be reasonable and appropriate after additional review and
explanation while an ``average'' bid could be based on incorrect
actuarial assumptions. In summary, all bids will be reviewed for their
reasonableness, whether the bids include outliers or not.
A plan bid submission may meet the first review standard (because
there is sufficient actuarial information and it supports the submitted
bid amounts), but not meet the second review standard because a bid
amount does not reasonably and accurately reflect plan costs.
Finally, the commenters requested that our interpretation of the
``reasonable and equitable'' standard allow enough flexibility for MA
organizations to pursue legitimate business strategies. ``Flexibility''
seems to have different meaning for different commenters. We want to
clarify that we do not intend to measure bid accuracy by forcing bids
for Medicare products to have the same rates of return as non-Medicare
products. We do not believe that cross-product line comparisons would
be appropriate at this time.
However, we do believe that it would be appropriate to develop
criteria for review among Medicare products, such as the following for
employer group health plans (EGHPs). We will release separate guidance
for EGHP plans.
Comment: Two commenters proposed that the standards of bid review
in proposed Sec. 422.256(b), which they see as focusing on the
statutory criteria, should be applied to review not only of the basic
A/B bid and non-drug portion of the supplemental bid (if any), but also
to the Part D basic bid and supplemental drug bid (if any). The
commenters' concern is that, although the statutory basis for review
and negotiation of bids is the same in Part C and Part D, the
discussion in the Part D proposed rule includes broader language
suggesting that we may challenge Part D bids with administrative costs
(including rates of return) that are higher than those of other
sponsors or MA-PD plans. In general, the commenters opposed standards
that could lead us to require that MA organizations reduce their bids
due to perceptions that their MA products could be operated more
efficiently.
Response: See subpart F preamble in the final rule for the Medicare
prescription drug benefit, which clarifies that we are not adopting any
of the OPM regulations at this time, and we will not apply the FEHBP
concept of a Similarly Sized Subscriber Group (SSSG) to review of Part
D bids. We believe the preamble discussions on bid review in the final
rules for Parts C and D are more clearly aligned.
Comment: One commenter recommended that we revise the language at
Sec. 422.256(b)(2) ``as the term revenue requirements is used in
section 1302(8) of the Public Health Service Act'' to read ``as the
term revenue requirements is used for purposes of section 1302(8) of
the Public Health Service Act.'' This tracks the statutory language. In
addition, the commenter recommended that we explain in the preamble
that the reference to ``revenue requirements'' does not indirectly
require that MA organizations need to use the adjusted community rate
methodology, which is found in that section of the Public Health
Service Act.
Response: We agree with the commenter and have revised the proposed
language at Sec. 422.256(b)(2).
Comment: One commenter asked us to clarify that under the MMA
bidding methodology, MA organizations will no longer need to include
information about commercial pricing.
Response: For the purpose of bid submission, organizations will not
be required to submit information about their commercial pricing
experiences for purposes of trending. However, it should be noted that
we are still statutorily mandated to audit a proportion of MA
organizations. Within the scope of an audit, we believe that it is
appropriate to request and review an MA organization's allocation of
costs between its Medicare and commercial products in order to ensure
that a disproportionate share of the expenses is not allocated to the
MA line of business.
Comment: One commenter recommended that we prevent MA plans from
``cherry picking'' healthier beneficiaries and to review bids and plan
benefit packages to ensure they are not discriminatory against sicker
beneficiaries. The commenter cited studies by The Commonwealth Fund and
Medpac that confirm that some MA plans have used co-payments and other
devices to discourage enrollment of beneficiaries who have high
utilization of services.
Response: We will be evaluating bids for their actuarial soundness
based on the documentation submitted by plans to support the submitted
bid amount and associated proportions. As mandated by the MMA (and
earlier statutory provisions), we will also be reviewing the benefit
packages of each plan to guard against discrimination. In addition, we
will continue to follow the standards described in the M+C final
regulation of June 2000 at Sec. 422.110, which prohibit an
organization from discriminating against beneficiaries by denying,
limiting or conditioning
[[Page 4651]]
coverage to beneficiaries or offering of benefits to individuals
eligible to enroll in a plan on the basis of any factor that is related
to health status (for example, medical history or medical condition,
with limited exceptions). We will be concerned about levels of cost
sharing for dialysis and chemotherapy drugs, and cost sharing for
medical categories (inpatient stays, outpatient facilities, and
ambulatory surgical centers).
Negotiation process
Proposed Sec. 422.256(a) would implement section 1854(a)(6)(B)(i)
of the Act, which provides us the authority to negotiate with MA
organizations. We have the authority to negotiate to ensure that the
bid is not discriminatory; and in situations where we have questions
about the assumptions used for a plan bid, we will negotiate with the
MA organization regarding the appropriate assumptions and the resulting
rebate and/or supplemental premiums. We expect that the process of bid
negotiation between CMS and an MA organization could result in an
agreement to adjust the bid's pricing, utilization, and/or enrollment
assumptions. The MA organization would resubmit the bid information for
the plan. The bid cannot be changed unless mutually agreed upon by the
MA organization's representatives and CMS as a result of our review and
negotiation process.
Comment: A few commenters are concerned that we have a uniform
process for conducting bid negotiations to ensure that there is
consistency across negotiating teams as well as firm deadlines for
ending negotiations.
Response: We understand the concerns about the uniformity and
timing of bid negotiations. We believe that the bid negotiations will
be governed by the specific actuarial review principles that will be
contained in the bid pricing tool. Bid negotiations will have to be
complete before September in order for plans to have sufficient time to
submit their plan benefit package materials for our website.
Comment: One commenter wanted to know how our deadlines for
negotiation compare with the deadlines established by OPM for its FEHBP
negotiations.
Response: OPM's rate filing and negotiation schedule is similar to
that proposed by CMS. Rate proposals are due by May 31 each year, and
by mid-August negotiations are generally complete. By law, the filing
deadline for the MA program is the first Monday in June, and we expect
to conclude negotiations by the end of August or early September.
Comment: Several commenters wanted to confirm that organizations
unable to reach agreement with us during the negotiation process will
be permitted to withdraw their bids without penalty. The ability to
withdraw a bid is significant to avoid an MA organization committing to
providing coverage for a year that is not sustainable financially,
potentially jeopardizing beneficiary coverage and the MA organization's
long term success and viability.
Response: This issue is still under consideration, and we will be
issuing subsequent guidance.
Comment: One commenter stated that in the past periodically MA
organizations have identified errors in their ACRP after submitting
them to us for the filing deadline. The commenter requested that we
retain the current policy where MA organizations are allowed to correct
these errors after the filing deadline and resubmit the ACRP provided
that: (1) the MA organization can demonstrate that the information in
fact was in error; (2) it is clear that the error was made
inadvertently; and (3) the correction is made within a relatively short
period of time following the submission.
Response: We intend to retain the current practice of allowing
corrections for inadvertent errors, for example, typographical errors
and certain other types of errors that caused the submission to fail
the initial front end edits. Guidance on this matter will be published
as part of the guidance on filing the new bid pricing tool and Plan
Benefit Package.
Comment: One commenter requested clarification of the timeline for
bid negotiations and finalizing benchmarks for negotiation with
providers.
Response: Regarding negotiations with other contractors, we believe
that bidders are developing their bids on what it will cost them to
provide the items and/or services in their plan benefit packages and
have had discussions and negotiations with potential contractors in
order to estimate properly in their bid submission. In most cases where
organizations have made good faith efforts to estimate their actual
revenue requirements with appropriate supporting documentation, we do
not anticipate significant modifications to bid amounts and proportions
during the negotiation phase of the process.
Rules for adjustment of rebate dollar allocations.
In addition to other negotiated changes, an MA organization may
need to adjust the allocation of rebate dollars in a plan bid, and
resubmit the bid. We described several circumstances under which we
expect reallocation of rebate dollars.
First, MA organizations must submit their plan bids in June
(including the estimated drug premium amount) for both local and
regional MA plans before knowing the national average monthly bid
amount for basic coverage. Given the preliminary nature of MA
organizations' Part D premium submission, we expect that some rebate
allocations to Part D premium reductions will be overestimated
(excessive allocation) or underestimated (insufficient allocation).
These misestimates will mean some portion of the beneficiary rebate has
been credited where it is not needed or not enough has been credited to
achieve the premium desired. For example, if a plan's monthly drug
premium is determined to be $34, which is less than the projected
premium of $35 in its initial bid submission, there was an excessive
allocation of $1 of the rebate to fund the Part D premium reduction. We
would require the MA organization to amend its bid submission to
reallocate the excessive $1 of rebate credit to other mandatory
supplemental benefits. On the other hand, if the plan monthly drug
premium is determined to be $36, which is greater than the projected
monthly premium of $35 in the initial bid submission, there is an
insufficient allocation of $1. We would give the MA organization the
option of reallocating $1 of rebate from another mandatory supplemental
benefit toward the Part D premium reduction in order to eliminate the
$1 Part D premium and return to the zero premium in the initial bid
submission.
For this reason, we anticipated that some MA organizations will
make minor technical adjustments to the benefit structures of their
non-drug bid amounts (that is, the basic A/B bid and supplemental bid).
The adjustments will consist of reallocation of beneficiary rebate
dollars among a subset of the categories allowed by law: (1) reduction
in the premium for the non-drug portion of the mandatory supplemental
package (that is, reduction in cost sharing for Parts A and B benefits
or reduction in the cost of additional non-Medicare covered benefits);
and (2) reduction in the Part D and Part B premiums. No modifications
would be allowed to the cost of the Part D supplemental benefit
(reduction in Part D cost sharing or reduction in the cost for coverage
of drugs not covered under Part D). Changing the reduction in Part D
cost sharing would have a domino effect. It would have implications for
projected
[[Page 4652]]
reinsurance dollars, which impacts the pricing of the bid for basic
Part D benefits, which in turn could affect the national average
monthly bid amount and, hence, the basic beneficiary premium, which we
would have just previously calculated and published for the year, as
required by section 1860D-13(a)(4) of the Act.
Second, we recognized that the June bid submission for regional MA
plans will be based on unknown benchmarks not only for the drug premium
but also for Medicare Parts A and B benefits. As discussed in Sec.
422.258(c), the region-specific benchmark amount is based, in part, on
a weighted average of the plan bids for Medicare Part A and Part B
benefits, which we cannot calculate until after the June bid
submission. This means that the exact amount of a plan's rebate is
unknown and will shift to the extent that the estimated benchmark a
plan uses to create its June basic A/B bid amount differs from the
region-specific non-drug benchmark we establish based on plan bids.
Therefore, regional MA plans will also be allowed to modify the
allocation of rebate dollars, other than for Part D benefits, to arrive
at the supplemental, Part B, and Part D premiums originally submitted.
We proposed the following rules for the negotiation process
concerning reallocation of rebate dollars due to excessive or
insufficient allocation.
MA plans with overestimated allocations to Part D premium
reduction must reallocate beneficiary rebate dollars to other mandatory
supplemental benefits and can do so only for the purpose of achieving
the original Part D premium in their initial bid submission.
Local MA plans with underestimated allocations to Part D
premium reduction have the option of reallocating beneficiary rebate
dollars from other mandatory supplemental benefits. However, the plan
could only reallocate rebate dollars for the purpose of achieving the
Part D premium in the initial bid submission. In this circumstance,
plans could choose not to adjust the new premium or reallocate the
appropriate amount to achieve the initial premium submitted.
We proposed the following rule for regional plans, which unlike
local plans will not know the exact amount of their rebate dollars at
the time of the June bid submission.
Regional MA plans may reallocate beneficiary rebate
dollars to achieve the supplemental, Part B, and Part D premiums in
their initial bid submission.
Local MA plans not offering Part D benefits (these would
only be PFFS plans who have elected this option) would have all the
necessary information upon which to estimate their bid amounts for
their initial June bid submission, and, therefore, the MA organizations
would not be allowed to modify their plan benefit structures.
Comment: A few commenters recommended that MA organizations be
permitted to reallocate rebate dollars to ensure that dual eligibles
would not need to pay a premium for Part D if they enroll or remain
enrolled in these MA plans. The commenter believed that the MA plans
that would likely use this discretion are MA Special Needs Plans
(SNPs). The success of SNPs would be seriously undermined if their Part
D premiums exceed the applicable low income Part D subsidy, because
their dual eligible enrollment would have an incentive to disenroll
from these plans. Because the Part D bids of MA special needs plans are
not factored into the national average monthly bid amount and the low-
income benchmark premium amount, this adjustment will have an
insignificant effect on the bid and payment process.
Response: The proposed requirement is that reallocation of rebate
dollars during the negotiation process must result in the supplemental,
Part B, and Part D premiums originally submitted in June. We believe
the commenter is requesting that this requirement be expanded to allow
a change in the Part D premium from that originally submitted in order
to allow an MA organization to change the plan premium to match the low
income premium subsidy level in effect for the plan's service area. We
would allow this. Therefore, when rebate reallocation results in a Part
D premium that differs from that originally submitted in June, the new
premium must match the low income premium subsidy level. The Part D
premium will have to be uniform for every member of the plan.
Comment: One commenter supported our proposal to limit changes to
bids to technical changes. The commenter also questioned why MA
regional plans would be permitted to make changes in cost sharing that
would not be allowed for MA local plans. The commenter believes that
allowing more than technical changes from regional plans would
destabilize the level playing field of the bidding process.
Response: Because the benchmark is calculated for regional plans
after bids are submitted, unlike local plans, regional plans do not
have the advantage of knowing the benchmark for estimating their
rebate, cost sharing and premium amounts. Therefore, it is necessary to
provide additional latitude for regional plans that is not necessary to
provide for local plans. Our intent is to allow appropriate
redistribution of the estimated amounts so that plans' benchmark
estimates can be reconciled with the actual benchmark estimates and the
necessary modifications.
5. Calculation of Benchmarks (Sec. 422.258)
Proposed Sec. 422.258(a) implemented the new section 1853(j) of
the Act by providing a description of how benchmarks for local MA plans
are calculated. For a service area that is entirely within an MA local
area (county), the MA area-specific non-drug monthly benchmark amount
is equal to the monthly MA capitation rate for the local area. For a
service area that is in more than one MA local area, the benchmark
amount is calculated as a weighted average of the local MA monthly
capitation rates, using as weights the projected enrollment in each
county used to calculate the bid.
Proposed Sec. Sec. 422.258(b) and (c) implemented section 1858(f)
of the Act by providing a description of how regional MA plan
benchmarks are calculated. Each MA region will have a benchmark amount
that consists of two components: (1) the statutory component (based on
a weighted average of local area capitation rates in the MA region);
and (2) the plan bid component (based on the weighted average of
regional plans bids in the MA region). The purpose of the blend will be
to be more responsive to market conditions in the region by allowing
plan bids to influence the final benchmark amount.
Finally, the statutory component will be multiplied by the
statutory national market share, which is the number of MA eligibles in
the Nation who were not enrolled in an MA plan during the reference
month (the month in the previous year for which the most recent data on
MA eligibles is available) divided by the total number of MA eligibles
in the nation in the reference month. The plan-bid component will be
multiplied by the non-statutory market share, which is the number of MA
eligible in the nation who were enrolled in an MA plan during the
reference month divided by the total number of MA eligible in the
nation. These components will be added to yield the MA regional
benchmark.
Comment: One commenter recommended that we revise the first
sentence of Sec. 422.258(c)(4) to replace the references to ``plan(s)
offered in the region'' with ``regional plans offered in the region''
to clarify the plan-bid component of the regional benchmark is
[[Page 4653]]
calculated based only the regional plan bids, not all of the MA plan
bids in the region.
Response: We agree and have made this correction. We also made
technical corrections in Sec. 422.258(c) along the same lines to
further clarify this point. Finally, we made another change to the
proposed rule language at Sec. 422.258(c)(5)(i) to clarify further how
the plan bid component of the regional benchmark will be calculated. In
the final rule at Sec. 422.258(c)(5)(i), we delete the following
sentence from the proposed regulatory text because it states a specific
calculation for determining a plan's share of enrollment that is not
mandated at section 1858(f)(5)(B)(iii) of the Act: ``In that case, each
plan's share will be the plan's projected enrollment divided by the
total projected enrollment among all plans being offered in the
region.'' We delete this sentence to clarify that the statute allows us
to apply a factor based on plans' projected enrollment but does not
mandate a particular calculation.
6. Beneficiary Premiums (Sec. 422.262)
Proposed Sec. 422.262(a) would implement section 1854(b)(2)(A) of
the Act, and described the new methodology for calculating the MA
monthly basic beneficiary premium. This premium will now be determined
by comparing the unadjusted statutory non-drug bid amount (basic A/B
bid) to unadjusted benchmark amount. For an MA plan with a basic A/B
bid that is less than the appropriate unadjusted non-drug benchmark
amount, the basic beneficiary premium is zero. For an MA plan with a
basic A/B bid that is equal to or greater than the unadjusted non-drug
benchmark amount, the basic beneficiary premium is the amount by which
the bid amount exceeds the benchmark amount. All approved premiums must
be charged; that is, plans are not allowed to waive basic beneficiary
premiums.
Proposed Sec. 422.262(b) would implement section 1854(d)(4) of the
Act, which specifies that MA enrollees must be charged consolidated
monthly premiums. As intended by the Congress and as a part of our
efforts to simplify the process for beneficiaries, an MA enrollee will
pay a single premium consisting of the sum of all premiums a particular
plan charges its enrollees, which will be one or more of the following:
(1) the monthly basic beneficiary premium; (2) the monthly supplemental
premium; and (3) the MA monthly prescription drug premium. This process
will be in addition to the Part B premium payment process already in
place.
We clarified that in the case of an Medical Savings Account (MSA)
plan, there are no basic beneficiary premiums because we instead make a
deposit to the enrollee's MSA. MSA plans are high deductible insurance
policies, not managed care plans. The only beneficiary premium for an
MSA plan will be a supplemental premium.
Uniformity of premiums and cost-sharing.
The MMA did not change current law regarding uniformity of
premiums. Proposed Sec. 422.262(c) would implement section 1854(c) of
the Act, which specifies that, with the exception permitted under Sec.
422.106(d), the MA bid amount and beneficiary premiums may not vary
among individuals enrolled in the plan. Proposed Sec. 422.262(c)
continues current regulations now in subpart G at Sec. 422.304(b) that
cost sharing for basic and supplemental benefits may not vary among
individuals enrolled in an MA plan.
MA organizations offering local MA plans within segments of service
areas must submit separate bids for those segments that may have
different premiums and cost sharing. Section 1858(a)(1) of the Act
which specifies that regional MA plans may not have segmented service
areas.
Proposed Sec. 422.262(f) would implement section 1854(d)(2) of the
Act on beneficiary payment options. This provision gives enrollees the
option, at their discretion, of paying their MA consolidated premium
by: (1) having it deducted directly from their Social Security benefit
amount of from their Railroad Retirement Board or the Office of
Personnel Management benefit amount in the same manner that Part B
premium reductions are handled; (2) setting up an electronic funds
transfer; or (3) through other appropriate means CMS may identify,
including payment by an employer or under employment-based retiree
coverage on behalf of an employee, a former employee, or a dependent.
The MA organization may not impose a charge for individuals electing to
pay their premiums through a deduction from their Social Security
payments. In this final rule, we have consolidated subparagraphs (3)
and (4) of Sec. 422.262(f) to clarify that the other methods we may
specify for payment of premiums include those listed in the regulation.
Comment: One commenter requested that we allow intra-regional
benefit plan adjustments (that is, waiver of the requirement that plan
have a uniform benefit package for a service area, including plan
premiums and all applicable cost sharing) to ensure that regional PPO
plans are not placed at a competitive advantage or disadvantage versus
local plans due to rate variations within a plan's regional service
area. The commenter stated that overall, the intra-regional benefit
waiver would lead to greater participation in the regional PPO program
and, at the same time, would ensure local plans can continue
participation in areas with traditionally low reimbursement rates,
resulting in competition and increased access to health plans for
beneficiaries.
Response: We do not have the authority to waive the requirement at
section 1854(c) of the Act, which states that plan bids and premiums be
uniform for all members of a plan. Moreover, section 1858(a)(1) of the
Act explicitly disallows the application of section 1854(h) of the Act
to regional plans, which signals Congressional intention that there not
be variation in premium and cost sharing across segments within a
region. Therefore, at this time, we cannot allow variations in the plan
benefit package within the service area of regional MA plan.
Comment: Two commenters recommended that we provide an option for
an MA organization to waive the amount of premium that is the
difference between the MA-PD premium and the low-income premium subsidy
under Part D provided for in Sec. 423.780. The commenter believes that
this waiver would fit well within a safe harbor provided for in the
federal anti-kick back statute. The ability to waive premium would: (1)
allow dual eligibles to be auto-enrolled into their current Medicare
Advantage plan without the burden of an added premium that many of
these beneficiaries could not afford; and (2) provide more flexibility
for dual eligible enrollees to self-enroll into an MA-PD plan of their
choosing.
Response: If the commenter's reference to the ``MA-PD premium'' is
to the combined basic Part A and Part B beneficiary premium and the
Part D beneficiary premium charged by an MA-PD plan, then we must
emphasize that these two premiums are determined separately and under
different rules. When a plan's basic A/B bid is equal to or below its
benchmark, by law the plan is not allowed to charge a basic premium for
basic Part A and Part B benefits. When a plan's basic A/B bid is above
its benchmark, section 1854(a)(2)(A) of the Act states that this
difference is the monthly basic beneficiary premium. The basic
beneficiary premium cannot be waived.
Section 1854 of the Act does not provide for waiver of the basic
Part A and Part B premium for dual eligibles.
[[Page 4654]]
Subsidies for dual eligibles for coverage of medical benefits are set
forth under Title XIX of the Act. Moreover, special needs plans are
subject to the same bidding rules as other MA plans, in accordance with
sections 1854(a)(1)(A) and 1854(a)(6) of the Act. Therefore, we do not
have the authority to waive the basic beneficiary premium for dual
eligibles.
The Part D premium determination is discussed at Sec. 423.286. We
do not have the authority to waive the Part D premium for beneficiaries
eligible for a premium subsidy. If those beneficiaries eligible for
this subsidy enroll in a Part D plan or MA-PD plan that has a Part D
premium higher than the subsidy, then they owe this difference.
Comment: A commenter recommended that during the negotiation
process, MA organizations be allowed to reallocate rebate dollars to
reduce the Part D premium to the level of the low-income premium
subsidy benchmark.
Response: See Sec. 422.256 and the above response to comment in
this subpart of the preamble for a discussion on this issue.
Comment: Several commenters recommended that CMS and the Social
Security Administration not implement the provision that beneficiaries
may opt to have their premiums deducted from their Social Security
benefit amounts until the systems are fully in place to ensure that
payments will be made to MA organizations correctly and on a timely
basis. The concern is that without sufficient operational planning for
the development and testing of a new payment system, organizations will
not be paid enrollee premiums accurately and timely.
Response: We do not intend to delay the implementation of a
statutorily mandated provision that gives beneficiaries the option of
paying MA premiums by deducting the amounts from their Social Security
benefit amounts. However, we are confident that the development and
testing of a new payment system for accurate and timely payment of
plans is feasible by January 2006.
Comment: One commenter requested that we make clear that the MMA
language at section 1854(d)(2)(C) of the Act only prohibits MA plans
from imposing charges pertaining to choice of the premium payment
option if beneficiaries choose to have their premiums deducted from
their Social Security benefit checks. That is, the commenter wishes
that we make clear to beneficiaries that the statute does not prohibit
MA plans from imposing charges related to premium payment under other
payment options. The commenter therefore requested that we require MA
organizations to convey clearly to beneficiaries, and in writing, what
are the precise charges that will apply to other premium payment
options before the beneficiary makes a choice of how to pay plans
premiums.
Response: MA plans may not charge fees for late payment of the plan
premium or other types of processing fees because this would violate
the uniformity of premiums provision at section 1854(c) of the Act. For
example, we interpret the uniform premium provision to mean that plans
may not provide incentives to members to pay premiums in a certain
manner by offering lower processing fees (per section 1854(d)). See
Subpart B for a discussion of administrative remedies for non-payment
of premiums.
Comment: One commenter wanted to verify that beneficiaries may
still opt to pay their MA plan premiums directly to the plan.
Response: Enrollees in the MA plans may still choose to pay their
MA plan premiums directly to the plan.
Comment: Several commenters request that we remove for American
Indian/Alaska Natives (AI/AN) Tribes the barriers to paying their Part
B premiums under our current group payer rules, specifically rules
concerning the size of the group and switching an individual from
automatic deduction to group pay. The commenters maintained that
without these changes, it is unlikely that AI/AN individuals, who are
entitled to health care without cost sharing, will enroll in MA plans.
Response: The issue of payment of Part B premiums under our current
group payer rules is beyond the scope of this rulemaking.
7. Calculation of Savings (Sec. 422.264)
Proposed Sec. Sec. 422.264(a), (c), and (e) would implement
sections 1854(b)(3)(A)and (B) of the Act (for local plans) and sections
1854(b)(4)(A) and (B) of the Act (for regional plans) concerning
calculation of risk-adjusted basic A/B bids and risk-adjusted
benchmarks, which is the first step in determining whether an MA plan
has savings. The MMA gave the Secretary flexibility to determine
whether the risk adjustment factors to be applied to the benchmarks and
bids are determined on a State-wide basis for local plans, a region-
wide basis for regional plans, a plan-specific basis, or on the basis
of another geographic area.
Proposed Sec. Sec. 422.264(b) and (d) implement sections
1854(b)(3)(C) and (b)(4)(C) of the Act, respectively, on how to
determine the amount of savings for each local and regional MA plan (if
any) by calculating the amount by which the risk-adjusted benchmark
amount exceeds the risk-adjusted bid amount.
Comment: All commenters from the industry agreed plan savings
should be related to the risk profile of the enrollees. One important
reason for this policy is that the rebate will likely take the form of
supplemental benefits or reduced cost sharing and/or premiums. MA plans
with enrollees whose average risk score is higher will typically need
more revenue to provide the same level of supplemental benefits as a
plan whose enrollees have a lower average risk score. To accomplish
this objective, the adjustment to the benchmark and the bid that is
used for calculating the savings should be based on the risk score of
the particular plan.
Response: We agree with the commenters. For both local and regional
MA plans, the calculation of savings will be determined by applying the
plan average risk adjustment factor to the basic A/B bid and benchmark.
We have revised Sec. Sec. 422.264(c) and (e) to reflect this policy,
although we have left in regulation our discretion, as provided in the
statute, to select a method for calculating savings.
8. Beneficiary Rebates (Sec. 422.266)
Section 1854 (b)(1)(C) of the Act states that an MA plan with
savings (because the basic A/B bid is less than the benchmark) must
provide to the enrollee a monthly rebate equal to 75 percent of the
savings amount for that plan for the year. The remaining 25 percent of
the savings would be retained by the Medicare Trust Funds. If the plan
basic A/B bid is equal to or greater than the benchmark, the plan has
no savings and, thus, no rebate.
Proposed Sec. 422.266(b) provided, as set forth in section
1854(b)(1)(C)(ii) of the Act, that the beneficiary rebate could be
provided in the following forms: (1) some part or all of the rebate can
be credited toward the provision of supplemental health care benefits
(including additional health benefits not covered under original
Medicare; (2) a reduction in cost sharing for Parts A, B, and D
benefits, and/or a reduction in the premium for the mandatory
supplemental benefits); or (3) credited toward the prescription drug
premium or Part B premium.
Proposed Sec. 422.266(b)(1) provided that all rebate dollars must
be applied to a mandatory supplemental benefit. We interpret the
provision at section 1854(b)(1)(C)(i) of the Act that an MA plan must
provide to enrollees a rebate equal to 75 percent of savings to mean
[[Page 4655]]
that rebate dollars must be provided to all enrollees in a plan.
Therefore, rebate dollars could not be used to fund optional
supplemental benefits because this would not guarantee that the plan is
providing every enrollee with the rebate dollars.
Although rebate dollars can only be used to fund a mandatory
supplemental benefit, a mandatory supplemental benefit may also be
funded by beneficiary premium dollars. That is, a plan with a rebate
may fund a mandatory supplemental benefit with rebate dollars only or
with a mixture of rebate and premium dollars.
The MA plan will be required to inform us about the form and amount
of the rebate and/or the actuarial value of the supplemental health
care benefits. Adjustments to the structure of the benefit package will
occur during the process of negotiating and approving bids detailed in
proposed Sec. 422.256.
If an MA organization elects to provide a rebate in the form of a
reduction in the beneficiary Part B premium for beneficiaries in a
particular plan, we will work with the Commissioner of Social Security
to provide the necessary information to the Commissioner to apply a
credit (as provided for under section 1840 of the Act) to reduce the
amount of the Part B premium to be charged under section 1839 of the
Act for each enrollee in that MA plan.
Comment: One commenter recommended that we revise proposed Sec.
422.266 to note that rebate dollars may be used both to pay for the
Part D premium and to provide supplemental drug coverage at no cost.
The commenter argued that this change is needed to clarify that MA
plans have the right to use rebate dollars to fund supplemental
prescription drug benefits at no cost to the beneficiary as part of the
basic Part D prescription drug benefit offered by the MA plan.
Response: We agree with the commenter, with one clarification. If
an MA-PD plan offers basic drug coverage under Part D, by definition at
Sec. 423.100, there is no supplemental drug benefit, and thus no
supplemental drug premium toward which to apply rebate dollars. If an
MA-PD plan offers enhanced alternative coverage under Part D, then the
plan must charge a premium for supplemental drug coverage. Per Sec.
422.266(b), supplemental drug coverage may consist of reductions in
Part D cost sharing and coverage of drugs not covered under Part D.
Section 1854(b)(2)(C) of the Act refers to the supplemental
beneficiary premium that is attributable to the provision of
supplemental health care benefits, less the amount of the rebate
applied to supplemental benefits. The supplemental beneficiary premium
is the estimated revenue required to offer the supplemental package,
which may include non-drug or drug supplemental benefits or both.
Therefore, when pricing a plan benefit package, MA organizations will
distinguish the cost of a Part D supplemental benefit from a non-drug
supplemental benefit.
We have changed the language at Sec. 422.266(b)(1) to clarify that
rebate dollars may be used to reduce the premium for either the non-
drug or drug portions of the supplemental benefit. We also have added
language clarifying that plans must distinguish the amount of rebate
applied to enhance original Medicare benefits from the rebate applied
to enhance Part D benefits. Rebate dollars may also be used to reduce
the basic Part D premium and the Part B premium.
Comment: One commenter requested that we allow MA organizations to
use rebate dollars to fund stabilization of their provider networks,
because recent improvements in provider compensation are not sufficient
to ensure stable provider networks.
Response: Proposed Sec. 422.266(b), which implements section
1854(b)(1)(C)(ii) of the Act establishes permissible uses of the
beneficiary rebate. The statute does not allow MA organizations to
apply rebate dollars to stabilize an MA plan's provider network.
9. Incorrect Collection of Premiums and Cost-Sharing for All Years
(Sec. 422.270)
Proposed Sec. 422.270, which is identical to the previous language
in the current MA regulations in subpart G at Sec. 422.309, sets out
procedures for situations in which an MA organization collects more
than the amount the plan is allowed to charge its enrollees.
Subpart G--Payments to Medicare Advantage Organizations
1. Basis and Scope (Sec. 422.300)
Proposed Sec. 422.300 set forth the basis and scope for the
revised subpart G, stating that it is based on sections 1853, 1854, and
1858 of the Act. It also indicated that the regulations in this subpart
set forth the requirements for making payments to MA organizations
offering local and regional MA plans, including calculation of MA
capitation rates and benchmarks, conditions under which payment is
based on plan bids, adjustments to capitation rates (including risk
adjustment), and other payment rules.
2. Monthly Payments (Sec. 422.304)
The MMA revised the payment methodology for MA plans beginning in
2006. We provided, in proposed Sec. 422.304(a), that, with the
exception of payments to MSA plans and payments for ESRD enrollees in
all other plans, we will make advance monthly payments to an MA
organization for each enrollee for coverage of original FFS benefits in
the plan payment area for a month, using a new bidding methodology
described in this subpart and subpart F.
The amount of our payment for an MA plan (except an MSA plan)
depends on the relationship of the plan basic A/B bid to the benchmark
amount. Section 422.304(a) described two payment tracks:
If the plan's risk-adjusted basic A/B bid is less than the
risk-adjusted benchmark, the plan's average per capita monthly savings
equals 100 percent of that difference, and the beneficiary is entitled
to a rebate of 75 percent of this plan savings amount.
If the plan's risk-adjusted plan basic A/B bid is equal to
the risk-adjusted benchmark, the plan has no savings and thus no
rebate, and we pay plans without rebates the benchmark for the
geographic service area.
If the plan's risk-adjusted basic A/B bid is greater than
the risk-adjusted benchmark, the plan has no rebate and to meet the
plan's revenue needs enrollees must pay a basic beneficiary premium
equal to the difference between the unadjusted basic A/B bid and the
unadjusted benchmark.
Under section 1853(a)(1)(D) of the Act, implemented in proposed
Sec. 422.304(b), MA plans offering qualified prescription drug
coverage also receive payments for the direct and reinsurance subsidy
payments for basic prescription drug coverage and reimbursement for
premium and cost sharing reductions for low-income individuals,
described at sections 1860D-14 and 1860D-15 of the Act.
Special rules for enrollees with end-stage renal disease. Proposed
Sec. 422.304(c)(1)(i) would implement section 1853(a)(1)(H) of the
Act, which instructs us to continue using the ESRD payments rates and
risk adjustment methodology in effect before the enactment of the MMA
as the basis upon which to determine ESRD payment amounts. We believed
the MMA provided us with flexibility for determining ESRD payments
because of Congressional recognition that the cost and utilization
patterns for ESRD beneficiaries are distinct from aged and disabled
beneficiaries.
One option proposed was to pay the State capitation rate for each
enrollee,
[[Page 4656]]
with the relevant adjustments under this part, including risk
adjustment. For plans offering the Part B premium reduction, the amount
of that reduction would be subtracted from the capitation payment for
ESRD enrollees, too. The second option proposed was to base payment on
State capitation rates, as adjusted under MMA adjustments such as the
geographic ISAR adjustment at section 1853(a)(1)(F). Accordingly, ESRD
enrollees would be fully incorporated into the bid process and payments
for all enrollees would reflect the plan's relative weights of ESRD
versus non-ESRD enrollee costs. We would consider this sufficient
implementation of section 1853(a)(1)(H) of the Act because State
capitation rates are the basis of payment. We invited comments on these
two approaches.
Special rules for payments to MSA plans. Proposed Sec.
422.304(c)(2) would implement section 1853(a)(1)(B)(iii) of the Act,
which contains the same rules for MSA plans that existed under the
previous M+C program. The only MMA change in the payment provision is
that MSA plans become local MA plans, and we will make payments to MA
organizations for MSA enrollees based on the non-drug benchmark amount,
less 1/12 of the annual lump sum amount (if any) we deposit to the
enrollee's MA MSA, as determined under Sec. 422.314(c). This payment
amount is adjusted for enrollee risk, as proposed at Sec. 422.308(c).
RFB plans. Proposed Sec. 422.304(c)(3) on special rules for
religious fraternal benefit (RFB) society plan enrollees is unchanged
from the current regulations, now in subpart F at Sec.
422.250(a)(2)(iii).
Payment areas. Proposed Sec. 422.304(d) would implement section
1853(d) of the Act, which changes the definition of payment area to
account for the new MA regional plan program. Under the previous M+C
program, a payment area was defined as a county or equivalent area
defined by the Secretary (with the exception of ESRD enrollees, for
whom the payment area was a State).
The MMA establishes two general types of payment areas: (1) for MA
local plans, the payment area is an MA local area (defined as a county
or equivalent specified by CMS); and (2) for MA regional plans, the
payment area is an MA region. The payment area for ESRD enrollees
continues to be a State.
Proposed Sec. 422.304(e) would implement section 1853(d)(4) of the
Act, which permits a State's chief executive to request that we use
alternative payment areas. This provision retains the same language as
the previous M+C provision, with the exception that the statute
specifies this option applies only to local MA plans. No State has
availed itself of this option since its enactment in 1998.
Comment: A number of commenters preferred that CMS pay the State
rate for each ESRD enrollee, risk adjusted, seeing this approach as
linked to their preference not to include ESRD enrollees in bidding.
Several commenters did not state a preference for payment, noting that
the concept of the second option was not clear, so they are continuing
to evaluate CMS's and other options that may merit our consideration.
Response: Beginning in 2007, MA-PD plans will implement a merged
bid method where ESRD and non-ESRD costs are combined. This means that
MA organizations will submit a single bid for all enrollees, and will
be paid according to the relationship of the basic A/B bid and the
benchmark.
However, as discussed in the F preamble, for 2006 MA organizations
will exclude ESRD costs from plan bids. Accordingly, for 2006 payments,
we will apply the ESRD payment method in effect for 2005. For ESRD
enrollees on dialysis or transplant status, we will pay the State-level
dialysis rate, adjusted by the appropriate individual risk score from
the ESRD CMS-HCC risk adjustment model. For functioning graft
beneficiaries, we will pay the county risk rate (from the aged/disabled
ratebook), adjusted by the appropriate individual risk factor from the
ESRD CMS-HCC model.
Finally, as proposed in the August 2004 proposed rule, for any plan
offering a Part B premium reduction to MA plan enrollees, the amount of
this reduction will be subtracted from the payment for each ESRD
enrollee. Future changes to how we make payments for ESRD MA enrollees
will be announced in the Advance Notice of Methodological Changes for
Calendar Year (CY) Medicare Advantage (MA) Payment Rates.
3. Annual MA Capitation Rates (Sec. 422.306)
For years before 2004, payments to MA organizations were based on
the highest of three amounts: a ``blended rate'' based on a blend of
national and local data on Medicare's costs for providing services to
beneficiaries not enrolled in an MA plan, a ``floor amount,'' based on
an amount specified in statute, subject to an update factor, and an
amount representing the previous year's rate updated by a minimum
percentage increase.
The MMA replaces the ``highest of three rates'' methodology in
several phases. For 2004, the MMA specified a transitional methodology,
where the county and State rates were the ``highest of four rates'':
the floor amount rate, blend rate, minimum percentage increase rate
(which was redefined to be the higher of 102 percent of the previous
year's rate or the previous year's rate increased by annual MA growth
percentage), or the 100 percent of FFS costs rate introduced by the
MMA.
For the next phase, the MMA specified that beginning with 2005,
annual capitation rates will be minimum percentage increase rates
except for years when we rebase the FFS rate; in rebasing years, the
rate is the higher of the minimum percentage increase rate and the FFS
rate. The MMA requires us to rebase the FFS rates no less than every 3
years; that is, at least every 3 years a ``higher of two rates''
methodology is in effect. Hence, proposed Sec. 422.306(a) would
implement the revised version of section 1853(c)(1)(C) of the Act,
which defines the minimum percentage increase rate.
The MMA also provides that no less than every three years, we must
assign 100 percent of local per capita FFS costs as the county rate in
those counties where this amount is higher than the minimum percentage
increase rate. The new FFS rate is defined as the adjusted average per
capita cost (AAPCC) for the MA local area, as determined under section
1876(a)(4) of the Act, based on 100 percent of FFS costs for
individuals who are not enrolled in an MA plan for the year, with the
following adjustments: (1) standardized for the county risk profile
relative to the nationally average beneficiary; (2) adjusted to exclude
costs of direct graduate medical education; and (3) adjusted to include
our estimate of costs for VA and DOD military facility services to
Medicare-eligible beneficiaries. We must recalculate the AAPCC rate
(which we also call the ``100 percent FFS rate'') no less than once
every 3 years. The statute gives us the authority to determine how
often to rebase the ratebook within this 3 year window. Rebasing the
FFS rates means that the Office of the Actuary retabulates the per
capita FFS expenditures for each county (and for ESRD beneficiaries,
for each State) so that the FFS rates reflect more recent county growth
trends in FFS expenditures.
We intend to announce our decision annually in the Advance Notice
of Methodological Changes for Medicare Advantage Payment Rates
regarding whether we will rebase the 100 percent FFS rates for the
upcoming year.
Comment: Many commenters supported annual rebasing in order to
adequately pay MA organizations in
[[Page 4657]]
areas where the FFS costs are increasing at a rate faster than the
national average. One commenter noted that CMS should rebase annually
because of the high degree of volatility in local FFS costs, and stated
that CMS recognizes this volatility by using a 5-year moving average
when forecasting county level Medicare FFS costs.
Response: As announced in the 2005 Advance Notice of Methodological
Changes, the CMS Office of the Actuary believes that it is appropriate
to evaluate on an annual basis whether or not it is necessary to
recalculate the basis for the 100 percent of FFS costs payment category
for MA organizations. By requiring rebasing only every 3 years, the
Congress determined there was no need to statutorily mandate an annual
retabulation of FFS per capita expenditures for each county. Therefore,
CMS will announce each year in the Advance Notice whether it intends to
rebase the FFS rate. Interested parties will have the opportunity to
comment each year on the announcement before it is finalized.
Comment: A few commenters noted that CMS has not implemented the
existing authority for inclusion in the 100 percent FFS rate the costs
associated with services provided to eligible Medicare beneficiaries at
VA and DOD facilities. Two commenters claimed that the result of taking
these costs into account would be a positive adjustment to MA plan
payments, and that currently plans serving areas with many VA and DOD
facilities were not being fully reimbursed. Commenters recommended that
CMS move forward as soon as possible with implementation based on the
best data available.
Response: As we previously stated in our Advance Notice of
Methodological Changes for 2005, in order to incorporate the costs of
services provided at VA/DOD facilities into the MA rates, it is
necessary to obtain reliable data on a county level to make the
adjustment. We have been unable to obtain these data, so to date the
adjustment has been zero. CMS's Office of the Actuary will make an
annual determination whether it has been able to obtain sufficient
reliable data on the costs of services provided at VA/DOD facilities to
make a non-zero adjustment to the 100 percent FFS rates.
4. Adjustments to Capitation Rates, Benchmarks, Bids, and Payments
(Sec. 422.308)
Language proposed in Sec. 422.308(a) remains the same as that
currently in subpart F of the current regulations governing payments.
Under section 1853(c)(1)(C) of the Act, the MMA makes only one change
to how we must apply the national growth percentage each year to
increase the minimum percentage increase rate. As we provided in
proposed Sec. 422.308(b), no adjustment can be made for changes in
prior years' estimates of the national growth percentage for years
before 2004.
Risk adjustment. Proposed Sec. 422.308(c) would implement section
1853(a)(1)(C) of the Act, which requires us to adjust the payment
amount for an MA plan to take into account the health status of the
plan's enrollees. In order to ensure that MA organizations are paid
appropriately for their plan enrollees (that is, less for healthier
enrollees and more for less healthy enrollees), we will apply these
adjustment factors to all types of plans (with the exception of MA RFB
plans, discussed at Sec. 422.304(c)(3)).
In 2006, 25 percent of our payment to MA organizations for aged and
disabled enrollees will be based on current demographic factors, and 75
percent based on the CMS-HCC risk adjustment model. In 2007 the
demographic-only payment method will be completely phased-out for MA
plans, and 100 percent of payment will be risk-adjusted in 2007 and
succeeding years. Note that for ESRD MA enrollees, payments to MA
organizations are 100 percent risk adjusted under the CMS-HCC ESRD risk
adjustment model, effective January 1, 2005. Also, for PACE
organizations and certain demonstrations, the transition payment blends
are one year behind that for MA organizations.
The demographic adjustment factors for aged and disabled enrollees
are age, sex, institutional status, Medicaid status, and working aged
status. The demographic adjustment factors for ESRD enrollees are age
and sex.
Under the CMS-Hierarchical Condition Category (HCC) risk adjustment
payment methodology, there are CMS-HCC models for three different
populations: community-based, long-term institutionalized, and ESRD
beneficiaries. Currently, the CMS-HCC factors in these models include
age, sex, original reason for entitlement, Medicaid status, and disease
factors. The ESRD risk adjustment model distinguishes between an
enrollee on dialysis, functioning graft, and transplant status.
The statute continues to provide us the authority to add to,
modify, or substitute for risk adjustment factors if the changes will
improve the determination of actuarial equivalence. Additional factors
would enable us to pay more accurately for different types of
beneficiaries, that is, the healthier and less healthy MA enrollees.
Comment: One commenter wanted clarification of how plans that are
currently paid under a risk/frailty adjustment model will be paid in
2006 and beyond.
Response: The MMA did not alter the payment methodology transition
schedule for MA organizations or other types of plans that are being
paid using the current risk/frailty adjustment models (PACE plans and
certain demonstrations). Thus, 2006 will be the last year that the
demographic method will be used to determine 25 percent of payments for
MA plans. In 2006, 75 percent of payment will be based on the risk
adjustment method, and from 2007 onward 100 percent of payment will be
determined with the risk adjustment method. Hence, PACE organizations
are on a transition schedule one year behind MA organizations and
certain demonstrations will be paid on the same lagged transition
schedule. In 2006, 50 percent of our payments to PACE organizations and
certain demonstrations will be based on the current demographic factors
and the remaining 50 percent will be based on the appropriate CMS-
Hierarchical Condition Category (HCC) risk adjustment model. In 2007,
75 percent of their payment will be based on the current demographic
factors and the remaining 25 percent will be based on the CMS-HCC
model. In 2008 and beyond, payments to PACE organizations and certain
demonstrations will be entirely based on the CMS-HCC model.
Regarding demonstration plans, the MMA did not alter the current
protocol for determining a particular demonstration's payment
methodology. Therefore, CMS will continue to make decisions on pricing
and payment methodology for its demonstrations specific to each
demonstration.
Comment: Regarding the current risk adjustment model, one commenter
suggested that there are certain conditions like diabetes and cancer
that have several different HCC risk adjusters of varying intensity.
The concern is that chronic obstructive pulmonary disease (COPD),
congestive heart failure (CHF), and other HCCs common among frail
elderly have only one risk score, when it may be more appropriate to
distinguish a late stage or advanced stage of illness for certain
conditions to trigger a higher score.
Response: CMS continues to work on improvements to the CMS-
Hierarchical Condition Category (HCC) risk adjustment model. For 2006,
more diagnoses and HCCs will be included in the CMS-HCC model. We will
announce the updates to the CMS-HCC model in
[[Page 4658]]
the Advance Notice of Methodological Changes for Medicare Advantage
Payment Rates. We believe that this risk adjustment model, on average,
accurately pays for Medicare enrollees.
Comment: Several commenters supported the implementation of a
frailty adjuster across the MA program, but encouraged CMS to delay
implementation of the adjuster for at least two years until the other
significant changes to the MA program have been implemented. In light
of the likely delayed implementation of a frailty adjuster for all MA
organizations, another commenter believed that CMS should pursue a
legislative change to pay special needs plans (SNPs) differently, in
order to implement a frailty adjuster, from the rest of the MA
organizations. In particular, several commenters were concerned about
SNPs being paid accurately for their dual eligible enrollees.
Response: We agree that implementation of a frailty adjuster across
the MA program would not be appropriate in the near future in the
advent of significant changes occurring in the MA program beginning in
2006. We believe that the current risk adjustment model that includes a
Medicaid eligibility adjuster pays on average correctly for dual
eligible enrollees. In addition, as a part of refining the CMS-HCC
model, we intend to recalibrate the current risk adjustment model so
that it accurately reflects more current treatment costs. As the MA
program continues to stabilize in its new form, we will be able to
apply a frailty adjuster across the entire MA program. We do not have
the statutory authority to apply a frailty adjuster only to special
needs plans because the MMA requires CMS to pay special needs plans
using the same methodology it uses for all other MA organizations.
Comment: One commenter requested that CMS encourage MA
organizations to include financial incentives in their contracts with
providers that are designed to encourage risk adjustment data
submission, rather than using financial penalties. The commenter noted
the success in California with a pay-for-performance program that
includes financial incentives to IPAs and medical groups to encourage
quality health care, including incentives for the submission of
encounter data.
Response: In principle, we do not object to plans using financial
incentives with their physicians to improve their risk adjustment data
submission volume to the extent that these financial incentives do not
result in MA organizations' encouraging physicians to provide
unnecessary or inappropriate services in order to increase diagnosis
reporting volumes. MA organizations proposing to offer providers
remuneration in exchange for collecting data must ensure that such
arrangements do not violate the anti-kickback statute. Parties who
desire an advisory opinion about a particular arrangement may request
an opinion from the HHS Office of the Inspector General (OIG). The OIG
has the authority to audit financial incentives offered to providers.
We believe that physicians who submit diagnoses for purposes of
risk adjustment data submission as if they were submitting claims to
FFS Medicare for reimbursement will be submitting the appropriate
volume.
Comment: One commenter suggested that CMS be less concerned about
the burden on MA organizations of submitting risk adjustment data and
more concerned about the accuracy of these data. Another commenter
echoed this concern by noting that CMS' implementation of an
abbreviated dataset might compromise the validity of the data
submitted. One commenter praised CMS for reducing the burden on plans
by implementing an abbreviated risk adjustment dataset.
Response: In 2000, we implemented a risk adjustment model based on
only principal inpatient hospital diagnosis data. The industry voiced
concerns that the inpatient hospital model draws on diagnoses from an
acute care setting only, and therefore, is less accurate. In 2004, we
implemented a more comprehensive model with a more complete list of
acute and chronic diagnoses. Diagnosis data are now being collected
from three settings: inpatient hospital, outpatient hospital and
physician office settings. At the same time as the more accurate,
comprehensive model was being implemented, we began requiring an
abbreviated set of data elements to be reported in order to reduce any
unnecessary administrative burden on the MA organizations. However,
this abbreviated dataset does not compromise the validity of the
current risk adjustment model because all relevant diagnoses affecting
payment still must be submitted. Rather, the fact that we no longer
collect a full set of encounters for each MA enrollee means only that
we do not have accurate utilization data for future recalibration of
risk adjustment models. The fact that we no longer collect a full set
of encounters does not affect the validity of the current model for
making payments.
Comment: One commenter asked for clarification of risk adjustment
data deadlines.
Response: We will provide updated information about risk adjustment
data deadlines in the MA organization training materials and other
formats such as MA organization user groups designed to provide
operational information including data submission deadlines. General
guidelines about risk adjustment data submission deadlines can be found
at Sec. 422.310(g).
Comment: One commenter stated that any risk adjustment system
should take into account the traditionally higher costs and utilization
of large employer group health plans.
Response: Regarding the commenter's concern about the accuracy of
the risk adjustment model for large employer group plans, data from the
Medicare Current Beneficiary Survey indicate that any beneficiaries
with supplemental coverage have higher costs. These data do not support
the commenter's assertion that the costs and utilization of Medicare
Part A and B benefits are higher for enrollees of large employer group
plans than for beneficiaries with other types of supplemental coverage.
Adjustment for intra-area variations. Proposed Sec. 422.308(d)(1)
would implement section 1853(a)(1)(F)(i) of the Act, which requires us
to adjust payments for regional MA plans to account for variations in
local payment rates within the region the plan is serving.
Proposed Sec. 422.308(d)(2) would implement section
1853(a)(1)(F)(ii) of the Act, which requires us to adjust payments for
a local MA plan serving more than one county to account for variations
in local payment rates within the plan's service area.
The proposed rule mentions four methods that could be used to
adjust for relative costs in a plan's service area. Each rate reflects
a different type of variation.
MA rates: reflect what Congress determined to be
appropriate variation in payment rates among counties. (The proposed
rule suggests that this option could be used for local plans.)
Local average fee-for-service (FFS) costs: reflect
relative price and utilization differences among counties. (MA county
rates that are 100% FFS rates also reflect price and utilization
differences.)
Input prices: reflect only price differences in certain
service categories, for example, physician services, , not variations
in practice patterns among counties.
Plan-provided (county-specific) factors showing relative
revenue needs
[[Page 4659]]
by county (which the MA organizations would provide in their annual bid
submission): reflect cost variations unique to each plan.
The proposed rule stated that we may choose to apply different
adjustments to local versus regional plans, because there may be
different reasons for rate variation. For example, regional MA plans
will be required to cover regions at least as large as a State, thereby
being compelled to offer the same benefit package to urban and rural
areas. This requirement could be the source of significant variation in
plan costs because of service area differences in provider practice and
beneficiary utilization patterns, wage indices, and other factors.
Comment: Most commenters recommended an adjustment based on the MA
rates. One commenter recommended an approach where the cost index would
be consistent with the costs MA plans face in their service areas.
Several commenters recommended that CMS use the MA rates for a
geographic adjustment at least in the initial years of the program,
because the industry is familiar with the MA county rates as a means of
payment. A number of commenters recommended that the method CMS selects
for regional MA plans should be consistent with that for local MA plans
so that the adjustment does not advantage one type of plan over the
other, thus contributing to a more level playing field for all MA
plans--local and regional. Another commenter remarked that the
adjustment back to the local county rates is the most consistent with
the constraints of the MMA, is the most feasible to implement, and
contributes to a level playing field for the different types of private
plans. The commenter reasoned that because the different benchmarks are
all built upon the county payment rates, and because the local plans
can always organize to be paid at the individual county level, payments
to all the types of plans should reflect the county payment rates;
otherwise, spending on MA plans would likely increase under any
geographic adjustment. Finally, one commenter preferred to use county
benchmarks as the basis for intra-area adjustments for local plans and
an index of county benchmarks for regional plans, but added that the
appropriateness of an index-type adjustment method will depend on the
basis of the experience underlying the index derivation calculations.
Response: To avoid confusion with the geographic adjustment we use
to calculate the 100 percent FFS rates, we will refer to this section
1853(a)(1)(F) adjustment as the geographic ISAR adjustment, reflecting
its purpose.
We have chosen to interpret the ISAR adjustment provision broadly.
A more narrow interpretation of ``variations in MA local payment
rates'' would be that variation refers only to the administratively-set
MA rates. A broader interpretation of variation is that the provision
denotes underlying variations in local prices. In this sense, ``local
payment rates'' means payment rates MA organizations negotiate with
providers. We have taken the latter approach because the MMA defines
the bid to be an amount that reflects a plan's estimated revenue
requirements--that is, the average underlying costs a plan faces in its
service area. This approach allows us to consider adjustment methods in
addition to those based on MA county rates.
By law, a plan's bid is based on its projected enrollment. The
purpose of the ISAR adjustment is to ensure that CMS pays an MA
organization what its plan basic A/B bid would have been if the
enrollment projections used to estimate the bid were identical to
actual plan enrollment. That is, the ISAR adjustment would take into
account the difference between the distribution of enrollment across
counties in the plan's service area assumed in the plan's bid and the
actual geographic mix of enrollment at the time payment is made. Since
plan costs are not uniform across the plan's service area, the fact
that the distribution of enrollment assumed in the bid is not the same
as the plan's actual enrollment distribution would impact on whether
the plan receives the revenue it indicated it needed in its bid to
provide Medicare Part A and Part B services. The ISAR adjustment uses
the distribution of actual enrollment and assumptions about relative
costs across counties in the plan's service area to provide a payment
amount that reflects actual enrollment.
Regardless of the specific method (whether plan-provided projected
costs per county or a relative cost or price index not specific to
plans), use of the ISAR adjustment to translate the plan's bid into
county-specific rates would mean that if a plan's enrollment
distribution turns about to be different than originally estimated in
their bid, their aggregate payments would be adjusted automatically to
reflect the actual mix of enrollees in of low-cost and high-cost
counties. Recall that for plans with bids below benchmarks, the average
payment amount is the basic A/B bid (plus the rebate); and for plans
with bids greater than or equal to the benchmark, the average payment
amount is the benchmark. Conceptually, converting the average payment
amount into plan-specific county rates means that the bid (or
benchmark)--which is an average for the whole service area--is
``disaggregated'' and allocated to each county in the service area.
For each local and regional plan, we will be using a geographic
ISAR adjustment based on the MA payment rates. This approach reflects
the method preferred by the majority of commenters. However, since it
is our goal to encourage regional bids, we will allow regional MA
plans, on a case-by-case basis, to request to have their payments
geographically adjusted at the county level using a plan-determined
statement of the relative costs the plan faces in different counties
for the provision of Medicare-covered services, in the event that the
variation in MA rates is not an accurate reflection of the variation in
a plan's projected costs in its service area. We would review the plan-
provided ISAR factors for reasonableness.
MA organizations would be required to provide support for their
factors (such as the projected utilization and cost by service category
for each county), with the understanding that we could ask for
additional detail (for example, fee schedules) during bid negotiation
or during an audit. We would base our determination of whether to use
MA rate ISAR factors or plan-provided ISAR factors for a particular
regional plan on the comprehensiveness and reasonableness of the MA
organization's cost and utilization assumptions and associated
documentation, and on an assessment of which approach would best
reflect the plan's likely costs throughout the service area.
The rebate, described at Sec. 422.304(a)(3), is for the provision
of non-Medicare-covered benefits and is paid separately from the basic
A/B bid. The rebate is not subject to geographic adjustment. Further
guidance on the calculation of the ISAR adjustment factor will be
provided in the Advance Notice of Methodological Changes for 2006
Medicare Advantage Payment Rates, which we expect to release February
18, 2005 on our website at http://www.cms.hhs.gov/healthplans/rates/default.asp
.
Comment: One commenter remarked that CMS did not clearly explain
its proposed method for the ISAR adjustment in the NPRM, and felt that
unless we publish a proposed method for establishing regional PPO
benchmark levels, participation in the regional PPO program may suffer.
Another commenter requested that CMS wait until Medpac releases its
report on payment rate variations before
[[Page 4660]]
determining how to apply the ISAR adjustment, and that CMS allow
industry to comment on the proposed adjustment before implementation.
Response: First, we would like to clarify that the geographic ISAR
adjustment does not establish regional benchmarks. The method for
calculating regional benchmarks is established by the MMA and
implemented at Sec. 422.258. The purpose of the ISAR adjustment is to
ensure that we pay an MA organization what its plan basic A/B bid would
have been if the enrollment projections used to estimate the bid were
identical to actual plan enrollment. Second, although we stated in the
August 3, 2004 proposed rule our intention to review Medpac's upcoming
study on variations in MA payment rates, we now do not believe we can
wait until the final Medpac report is released, because it likely will
be presented to the Congress in June 2005. We are required to announce
our proposed approach to the ISAR adjustment, and other payment
methodologies, in the Advance Notice of Methodological Changes for
Calendar Year 2006 MA Payment Rates, which we expect to be released
February 18, 2005 on the CMS website at http://www.cms.hhs.gov/healthplans/rates/default.asp
.
Comment: A few commenters recommended that the ISAR adjustment
should be considered by CMS as a tool to use in adjusting the local
payment rates in rural markets, where competing with a regional plan
would be cost prohibitive. One commenter suggested that the adjustment
should result in localized derivations of regional benchmarks, and
another commenter suggested that in counties where the local benchmark
is significantly lower than the regional benchmark, payment rates to
regional plans should be adjusted downward to reduce the significant
competitive advantage regional plans would have over local plans,
because the latter will have to charge a higher member premium for the
same benefit set and cost structure. Finally, a few commenters stated
their concern that it has taken many years to narrow the reimbursement
gap between rural and urban areas and now is not the time to reinvent
that disparity. These commenters felt this could happen under this ISAR
provision because it could allow health plans to segregate rural
providers within their region and offer them a substantially lower
payment rate.
Response: As noted above, the ISAR adjustment will not affect
regional or local benchmarks. In addition, the ISAR adjustment is not a
tool to increase payments to local versus regional plans or vice versa.
The ISAR adjustment is a mechanism to ensure that payments to plans
reflect the plans' bids and their actual enrollment distribution.
We have worked within the construct of the statute to provide a
level playing field for all plans. The MMA created incentives to
encourage participation in the new regional plan program, such as
possible funding from a stabilization fund and the use of risk
corridors that are only available to MA regional plans, as found at
Sec. 422.438 and Sec. 422.458 (and see subpart J). These incentives
are specified by statute, so we are unable to expand the types of
organization that are eligible for these incentives. It is important to
point out, however, that there are special provisions available only to
local plans that MA regional plans do not have available, such as the
ability to target specific counties and even partial county areas for
inclusion in a plan service area, and to have segmented service areas
within a local plan, where premiums and cost sharing can vary across
segments.
We are not clear exactly what link the commenters are positing
between the ISAR adjustment and contract negotiations with rural
providers where MA organizations offer payment arrangements that are
lower than previous years.
Adjustment relating to risk adjustment: the government premium
adjustment. Proposed Sec. 422.308(e) would implement section
1853(a)(1)(G) of the Act, which requires us to adjust payments to plans
with basic A/B bids above their benchmarks to ensure that plans are not
advantaged or disadvantaged by the method of paying based on bid-to-
benchmark comparisons. Under the bidding method, the beneficiary basic
premium is the difference between unadjusted (``1.0 beneficiary'') bid
and benchmark, yet the payment is the risk adjusted benchmark. If the
MA organization received this premium and its risk adjusted payment
from CMS, the combined payments would not match its revenue needs since
the basic premium is not risk adjusted. Therefore, the impact that risk
adjustment would have had on the basic premium will be incorporated
into our payment to the organization.
Proposed Sec. 422.308(e)(1) specified that for each regional plan,
payments are adjusted so the sum of the monthly payment and any basic
beneficiary premium equals the bid adjusted for enrollee risk factors
and the adjustment for intra-area variations in payments in proposed
Sec. 422.308(d)(1). Note that the formula as stated at section
1853(a)(1)(G)(ii) of the Act also references the adjustment discussed
in the previous paragraph--for intra-regional variations in local
payment rates.
Proposed Sec. 422.308(e)(2) specified that for each local plan,
payments are adjusted so the sum of the monthly payment and any basic
beneficiary premium equals the bid adjusted for enrollee risk factors.
We note that, in contrast to the language for regional plans at section
1853(a)(1)(G)(ii) of the Act, the formula for local plans does not
include a reference to the intra-area variation described in proposed
Sec. 422.308(d)(1). We believe this was an unintended omission for
local plans, because section 1853(a)(1)(F) of the Act mandates this
adjustment for both regional plans and local plans serving more than
one county.
The government premium adjustment must be applied after application
of the risk adjustment methodology and after taking into account
adjustments for intra-area variation in local payment rates under Sec.
422.304(d).
Comment: Two commenters supported CMS' proposal to adjust payment
upward or downward to account for the fact that the basic beneficiary
premium reflects the revenue needed for a beneficiary with a national
average risk profile rather than the MA plan's anticipated mix of
enrollees.
Response: We will refer to this adjustment as the ``government
premium adjustment,'' in order to distinguish it from other payment
adjustments under the MMA.
Section 1854(a)(1)(G) requires CMS to adjust payments to ensure
that an MA organization is paid the revenue needed to offer an MA plan
in a service area. The government premium adjustment applies to plans
that have basic A/B bids greater than their benchmarks, and thus must
charge a basic beneficiary premium. As described above, these plans
receive their estimated required revenue to offer original Medicare
benefits from two sources: capitation payments from CMS and premium
payments from enrollees. Because the MMA requires that the basic
beneficiary premium is the difference between the unadjusted
(standardized ``1.0'') benchmark and unadjusted bid, plans with sicker
than average risk profiles will not receive adequate premium payments
from enrollees. The government premium adjustment would be an upward
adjustment for these plans. Conversely, plans with healthier than
average risk profiles will receive more premium payments than required,
so they would receive a downward
[[Page 4661]]
adjustment. The government premium adjustment will be calculated, at
the individual beneficiary level. Details on the payment formula will
be provided in the Advance Notice of Methodological Changes for 2006 MA
Payment Rates, which we expect to publish February 18, 2005 on the CMS
website at http://www.cms.hhs.gov/healthplans/rates/default.asp.
Adjustment of payment to reflect the number of enrollees. Proposed
Sec. 422.308(f) implemented section 1853(a)(2)(A) of the Act, which is
unchanged by MMA. Therefore, we proposed to retain the existing
implementing regulatory language currently found in Subpart F. This
provision requires us to make retroactive payment adjustments to
account for any difference between the actual enrollees and the
enrollees upon which we based advanced monthly payment.
Adjustment for national coverage determination (NCD) services and
legislative changes in benefits. Section 1853(c)(7) of the Act requires
that when a national coverage determination (NCD) or legislative change
in benefits is established and we project this will result in a
significant increase in costs, we must appropriately adjust payments to
reflect these new significant costs. Because all capitation rates under
the MMA now automatically build in the annual national MA growth
percentage and therefore incorporate the effect of NCDs annually, we
proposed to amend Sec. 422.308(g) and remove the NCD adjustment
factor.
Section 1858(c) of the Act provides for temporary risk corridors
for adjusting payments to regional plans, and proposed Sec. 422.308(h)
specified data submission requirements to implement risk corridor
payments. At the end of contract year 2006 and/or 2007, and before a
date we specify, MA organizations offering regional plans must submit
sufficient information for us to calculate risk corridor amounts.
This information includes actual allowable costs for the relevant
contract year and the portion of allowable costs that are attributable
to administrative expenses incurred in providing these benefits. In
addition, the MA organization will be required to provide the total
cost for providing rebatable integrated benefits, as well as the
portion of rebatable integrated benefits' costs that are attributable
to administrative expenses.
5. Risk Adjustment Data (Sec. 422.310)
Proposed Sec. 422.310 reflected changes we made in the methodology
for risk adjusting MA payments, under which we moved from collecting
extensive encounter data to collecting targeted risk-adjustment data.
The risk-adjustment data referenced in this section are data that are
used in the application of the current risk-adjustment model.
We have implemented a streamlined process for MA organizations to
submit risk adjustment data. MA organizations may submit risk
adjustment data that conform to the requirements for equivalent FFS
data. Alternatively, organizations may submit data according to an
abbreviated format as specified by us. The purpose of the abbreviated
format is to reduce the data submission burden on MA organizations.
In addition, our current practice is to collect data and a sample
of medical records, for conducting validation studies of the risk
adjustment data we receive. MA organizations will still be required to
submit a sample of their medical records in a manner specified by CMS
to support the validation studies. We have not and will continue not to
use medical records data for any other purpose.
The risk adjustment data must be submitted according to the
timeframes specified by CMS. (See the following website for information
on the risk adjustment processing system: http://www.mcoservice.com/.)
A reconciliation process will be allowed to account for late data
submissions. Data that we receive after the final deadline for a
payment year will not be accepted for purposes of the reconciliation.
We have modified Sec. 422.310(e) to indicate that there may be
penalties for submission of false data under the requirement for
validation of risk adjustment data.
6. Announcement of Annual Capitation Rates, Regional Benchmarks, and
Methodology Changes (Sec. 422.312)
Proposed Sec. 422.312 would implement section 1853(b) of the Act,
which was revised by the MMA to change the date for CMS' announcement
of annual capitation rates to no later than the first Monday in April
of each year. In addition, we must announce before September the non-
drug benchmark amounts for each MA region and MA regional plan for
which a bid is submitted. We must announce regional benchmarks after
the plan bids are submitted in June, since per the new section
1858(f)(5) of the Act, the regional benchmark calculation includes a
plan bid component based on regional plans that bid in June and also
participated in the MA program in the previous year.
The deadline for our release of the Advance Notice of
Methodological Changes for Medicare Advantage Payment Rates was
similarly changed by the MMA to no later than 45 days before the first
Monday in April.
Comment: Two commenters requested that CMS include in the Advance
Notice of Methodological Changes for Medicare Advantage Payment Rates
additional detail on the methodologies we use to develop and refine
payment rates. The commenters specifically requested detail on the
coding intensity adjustment, issues related to the data lag
elimination, and implementation of the frailty adjuster.
Response: The annual Advance Notice is designed to describe the
methodological changes we propose in sufficient detail to alert MA
organizations to new calculations, new deadlines, and so forth. If the
Advance Notice is unclear, the public is invited to request more
information during the public comment period, and we then publish
further detail in the annual Rate Announcement. We will be sensitive to
the commenters' request as we prepare future Advance Notices of
Methodological Changes.
7. Special Rules for Beneficiaries Enrolled in MA MSA Plans (Sec.
422.314)
Proposed Sec. 422.314 would implement section 1853(e)(2) and (3)
of the Act, which sets forth special rules for how we should make
payments to enrollees' medical savings accounts. The MMA did not amend
the payment provisions in section 1853(e) of the Act, so these
provisions are similar to the provisions at Sec. 422.262 in subpart F
of the current MA regulations. However, we have made a change to
conform Sec. 422.314(c) with the statute at section 1853(e)(1) of the
Act.
In general, we deposit into the individual's MA MSA account at the
beginning of a calendar year a lump sum equal to the annual difference
between the monthly MSA premium (analogous to a plan basic A/B bid) and
the monthly capitation rate applied under this section for the area.
The premium filed by the organization offering the MA MSA plan is
uniform for all enrollees enrolled in the MA MSA plan. This results in
a uniform amount being deposited into enrollees' MSAs in a given area,
because the uniform premium amount will be subtracted from the uniform
rate.
The advance monthly payments we make to an MA organization for each
enrollee in the plan are risk adjusted under Sec. 422.308(c), as
discussed in connection with proposed
[[Page 4662]]
Sec. 422.304(c)(2) on special rules for payments for MSA enrollees.
Comment: One commenter noted a deficiency in the proposed
regulations on how payment is made for enrollees in MSA plans, which
prevents an MSA plan from being viable option under the MA program. The
commenter summarized the problem as follows. Under the statute and
proposed regulations, the total CMS payment on behalf of a beneficiary
enrolled in an MSA (the sum of the deposit to the enrollee's MSA
account and payment to the MSA plan) is not equal to the risk adjusted
benchmark amount. Yet section 1853(a)(1)(B)(iii) requires CMS to pay
the risk adjusted benchmark amount for each MSA enrollee. This problem
arises because the payment to the MSA plan is risk-adjusted and the
deposit to the enrollee's MSA is not. The result is that the total
payment for an MSA plan enrollee could be substantially higher or lower
than the risk adjusted benchmark. Beneficiaries and insurance companies
cannot be reasonably sure that the Medicare payment will be adequate to
cover the cost of care.
The commenter recommended that the MSA requirements be written so
that: (1) the deposit to the MA MSA account is the difference between
the risk-adjusted benchmark amount (based on the annual capitation
rate) and the risk-adjusted MSA premium; and (2) the payment to the MSA
plan is equal to the risk-adjusted MSA premium. This requirement would
result in the total payment (deposit plus payment to MSA insurance
plan) being equal to the risk-adjusted benchmark. The commenter
recognized that this change may require legislation. Specifically,
subsection 1853(e) of the Act might need to be amended to provide for
risk adjustment to the contribution to the MSA account.
Response: In response to this comment, we have reviewed the
proposed regulations text for MSA plans and have made a change to
conform Sec. 422.314(c) with the statute at section 1853(e)(1) of the
Act. We are continuing to consider how this statutory language should
be applied, and this issue will be addressed in the Advance Notice of
Methodological Changes for MA Payment Rates, which we expect to release
February 18, 2005.
Comment: Several commenters expressed concern about CMS' ability to
risk adjust payments for MSA plan enrollees accurately. Given the
complexities of risk adjustment and the absence of enrollee incentives
to submit claims to their MSA plan, the commenters are concerned that
risk scores for many of these enrollees will be artificially low. One
commenter is concerned that in the absence of systems and incentives
that encourage members to submit medical expenses to be applied against
the deductible, it would not be possible to risk adjust accurately the
MSA benchmark for individual health status, which is CMS' payment
amount to the MSA plan sponsor. As a result, members will exceed
deductibles ``prematurely'' and the plan will be responsible for all
medical payments without the benefit of risk adjusted revenue.
Response: Section 1853(a)(3)(B) of the statute requires that all MA
organizations submit risk adjustment data for their plans, including
MSA plans. The MMA did not change this requirement. We are not sure
that we understand this comment, because MSA plans are required to
track each enrollee's health care expenses in order to track when the
deductible has been met and the plan becomes responsible for all
covered expenses. Therefore, as an integral part of managing an MSA
plan, an MA organization should have access to enrollee claims or
``encounter-like'' data, which should enable them to submit the
required data to CMS for risk adjustment payment purposes.
8. Special Payment Rule for Federally Qualified Health Centers (Sec.
422.316)
At proposed Sec. 422.316 we would implement section 1853(a)(4) of
the Act, which provides for a new payment methodology for FQHCs that
contract with MA organizations. Under this methodology, the FQHCs will
receive a ``wrap-around payment'' from us representing the difference
(if any) between what they are paid by an MA organization, including
beneficiary cost sharing, and 100 percent of their ``reasonable costs''
of providing care to patients served at the centers who are enrolled in
an MA plan.
Section 1857(e)(3) of the Act, also added by MMA, requires that MA
organizations that contract with FQHCs pay the FQHCs an amount that is
not less than the level and amount of payment they would make for the
services if furnished by an entity providing similar services that was
not an FQHC. This is designed to avoid an agreement between an MA
organization and an FQHC for payment of an artificially low rate, with
the knowledge that the FQHC would receive supplemental payments from us
resulting in a total of 100 percent cost reimbursement.
Comment: One commenter suggests that Sec. 422.316 be revised to
clarify that it applies to both written contracts and any deemed
contracts as they exist under the rules that govern PFFS plans. PFFS
plans would have to clearly disclose the payment rate in their written
terms and conditions of payment. This would avoid discrimination
against PFFS plans.
Response: PFFS plans that have ``deemed'' networks must pay what
the FFS Medicare program pays to the ``provider in question,'' per
Sec. 422.114(a)(2)(i). Therefore, there would be no wrap-around
payment for FQHCs treating PFFS patients under a ``deemed'' contract
because the FQHC would be receiving full payment from the plan.
9. Special Rules for Coverage That Begins or Ends During an Inpatient
Hospital Stay (Sec. 422.318)
The MMA amended section 1853(g) of the Act, which puts forth
special payment rules for situations where a beneficiary's coverage by
an MA plan begins or ends while the beneficiary is a hospital
inpatient. The MMA amendment expands the list of hospital facilities
covered under this provision to include those that have come under a
Medicare prospective payment system since the Balanced Budget Act. In
addition to ``subsection (d)'' hospitals, three other types of
facilities are now included: rehabilitation hospitals, distinct part
rehabilitation units, and long-term care hospitals. These changes were
proposed at Sec. 422.318, which otherwise retained existing language
from subpart F applicable only to subsection (d) hospitals.
Comment: One commenter proposed that CMS include Critical Access
Hospitals (CAHs) in the list of facilities to which this provision
applies.
Response: Under section 1853(g), this rule applies only to
``subsection (d)'' hospitals and the three types of facilities the MMA
specifically added. Because CAHs are not defined under section 1886(d)
of the Act, this provision at Sec. 422.318 does not apply to CAHs.
10. Special Rules for Hospice Care (Sec. 422.320)
Proposed Sec. 422.320 revised the existing MA special rules for
hospice care to reflect the new bidding and payment methodology in
sections 1853 and 1854 of the Act, and the creation of a prescription
drug benefit under Part D. Now the MA organization will be paid the
portion of the payment attributable to the beneficiary rebate (minus
the amount of the Part B premium reduction, if any) for the MA plan
plus the amount of the subsidies related to basic prescription drug
coverage for plans that offer prescription drug coverage.
[[Page 4663]]
Note that for PACE organizations, PACE enrollees must elect either
their PACE organization or the hospice benefit as their provider of
Medicare services. An enrollee who elects to enroll in hospice is
thereby disenrolled from the PACE benefit. However, PACE organizations
provide a service similar to hospice known as ``end-of-life-care.''
Comment: One commenter stated that beneficiaries who choose to
enroll in a Medicare hospice program should also assign their Medicare
Part D drug benefit to the hospice. The commenter argued that
prescription drugs are usually an integral component of hospice care
and should be managed by the provider. Once a health plan is not
involved in the care management of a patient, then it should not be
responsible for the patient's prescription drug management.
Response: When a beneficiary enrolled in an MA plan elects hospice,
that beneficiary is still an enrollee in the plan, is still liable for
any plan premiums and cost sharing for benefits not covered under
hospice. It is possible for an enrollee who has elected hospice to
require prescription drugs for conditions not related to hospice care,
which are the plan's responsibility. We believe that it is appropriate
for Medicare Advantage Prescription Drug (MA-PD) plans to manage the
prescription drug coverage of enrollees who have elected hospice, and
therefore we will pay MA-PD plans the Part D premium for all enrollees.
Comment: One commenter suggested that CMS conduct a demonstration
allowing beneficiaries to elect hospice while still receiving life
saving treatment as a means to overcoming the fear and perceived
finality of electing hospice. The commenter cites the low rate of
hospice election and short duration of services as reasons to develop
some innovative approaches to identifying how to better transition
beneficiaries with terminal or advanced illness into a care environment
that provides needed and appropriate care, while improving quality of
life.
Response: It is important to note that the current hospice benefit
began as a Medicare demonstration. It was considered successful, and
therefore, the Congress added hospice care as a benefit in the Medicare
program. In addition, Sec. 409 of the MMA requires CMS to conduct
another hospice demonstration. The statute requires CMS to test
delivery of hospice care in rural areas under which Medicare eligible
individuals, without a caregiver at home, may receive care in a
facility of 20 or fewer beds. Such facility will not have to offer
hospice services in the community or comply with the 20 percent limit
on inpatient days. In the future, we would be interested in considering
other innovative ideas for increasing enrollment in hospice care
throughout the country. We invite the commenter to submit a proposal on
the suggestion.
11. Source of Payment and Effect of MA Plan Election on Payment (Sec.
422.322)
With the exception of a new provision addressing payments for Part
D benefits, proposed Sec. 422.322 is identical to Sec. 422.268 in
subpart F of the current MA regulations. Section 422.322(a)(2) was
added to reflect the creation of subsidized prescription drug coverage
under Part D. As required by section 1853(f) of the Act, subsidy
payments to MA-PD organizations for basic drug coverage under this
title are included in the payments described in Sec. 422.322(a)(2).
Comment: Two commenters requested clarification on whether an MA
organization can authorize that CMS payment be made directly to an
agent of the MA organization.
Response: We believe that the commenters may be anticipating a
situation under the MA program where an employer directly contracting
with CMS to offer an MA plan would contract with an MA organization to
manage that plan. However, section 1857(a) of the statute, which was
not amended by the MMA, explicitly states that no payment shall be made
under section 1853 to an organization unless that organization is under
contract with the Secretary. Therefore, we do not have the authority to
make any payments from the Medicare Trust Funds under section 1853 to
an agent of an MA organization. The existing regulatory language in
Subpart F at Sec. 422.268(c) that implements section 1857(a) is found
in proposed Subpart G at Sec. 422.322(c).
Comment: One commenter was concerned that the proposed rules are
silent with respect to provider recovery of unpaid amounts due from MA
plan enrollees. The commenter recommended that CMS allow providers that
treat MA enrollees the same recourse for unpaid enrollment amounts that
currently exists in the regulations for the FFS program, that is, allow
a cost report recovery that follows the Medicare bad debt recovery
criteria. Without this recovery mechanism, providers will suffer
financial harm because beneficiaries change program status, not because
of any change in the service they provide.
Response: The issue of bad debt recovery criteria for providers who
submit cost reports is beyond the scope of this rulemaking. We refer
the commenter to 42 CFR part 413 for further information about bad debt
recovery rules.
12. Payments to MA Organizations for Graduate Medical Education Costs
(Sec. 422.324)
These provisions at proposed Sec. 422.324 were virtually identical
to the current MA provisions in subpart F at Sec. 422.270 (we proposed
some non-substantive editorial changes), and required us to make
payments to MA organizations for direct graduate medical education
costs that MA organizations incur in dealings with non-hospital
provider settings, under specified conditions.
Comment: One commenter requested that the final rule clarify
whether utilization data on MA enrollees should be considered when
making determinations about FFS payment adjustments and minimum
utilization standards (for example, direct and indirect medical
education payment formulas and the disproportionate share payment
formula). The commenter also noted that current FFS regulations apply
minimum Medicare utilization standards when assigning certain
designations such as rural health clinics, sole community provider or
rural referral center status, and requested that MA utilization data be
included when CMS makes such designations.
Response: The FFS rate determination and provider designation
processes are beyond the scope of this rule making. Such decisions
could be proposed and finalized in an upcoming rule-making for the
relevant prospective payment system.
Subpart I--Organization Compliance with State Law and Preemption by
Federal Law
The MMA amended section 1856(b)(3) of the Act and significantly
broadened the scope of Federal preemption of State law. We proposed to
revise Sec. 422.402 to clearly state that MA standards supersede State
law and regulation with the exception of licensing laws and laws
relating to plan solvency. In other words, with those exceptions, State
laws do not apply to MA plans offered by MA organizations.
We believe that the Conference Report was clear that the Congress
intended to broaden the scope of preemption in the MMA. We accordingly
believe that the exception for State laws that relate to ``State
licensing'' must be limited to State requirements for becoming State
licensed, and would not extend to any
[[Page 4664]]
requirement that the State might impose on licensed health plans that
absent Federal preemption must be met as a condition for keeping a
State license.
In addition to outlining the new scope of the preemption, we also
proposed the following technical changes:
We proposed to remove the current Sec. 422.402(c) because
we believed it was no longer relevant given the new MMA provision.
We clarified that States are expressly prohibited from
imposing a premium tax, or similar type of tax, on premiums paid by
beneficiaries or third parties on behalf of beneficiaries to MA
organizations.
Below we summarize and respond to the comments we received on
Subpart I:
Comment: A commenter expresses concern that the statutory and
regulatory language stating that Federal preemption does not extend to
State licensing or solvency requirements is vague and may allow States
to impose network access requirement on MA plans.
Response: We note that the Conference Report makes it clear that
the Congress intended to broaden the scope of Federal preemption with
the intention of ensuring that the MA program as a Federal program will
operate under Federal rules. We have also clarified (in the preamble to
the interim regulation) and we restate here that we believe that State
licensing laws under Federal preemption are limited to State
requirements for becoming State licensed, and cannot be extended to
other requirement that the State might impose on licensed health plans
that absent Federal preemption must be met as a condition for keeping a
State license. We believe that under current Federal preemption
authority States are limited in applying only those requirements that
are directly related to becoming State licensed. For example, State-
licensing requirements may include requirements such as filing articles
of incorporation with the appropriate State agency, or satisfying State
governance requirements. However, under Federal preemption, State
licensing laws may not be extended to include rules that apply to State
licensed health plans which we believe would include network adequacy
requirements for MA plans.
Comment: A commenter expresses concern that if all State regulation
of MA plans is broadly preempted by Federal law (with the limited
exception of licensing and solvency requirements), contracting
providers will not have adequate means to ensure prompt payment or
access to external review of inappropriate denials of coverage or
payment. The commenter recommended that CMS either narrow its
interpretation of how State law may be preempted or expand its own
Federal requirements for plan-provider contracting standards to include
basic provider protections, such as prompt payment.
Response: As previously stated, we believe that with the exceptions
of State licensing and solvency requirements the Congress clearly
intends and the MMA statute provides that the MA program is to be
solely under Federal and not State rules. However, we do recognize
concerns regarding the effectiveness of Federal regulation of the MA
program. In overseeing the MA Program, CMS will ensure appropriate
oversight of MA plans.
With respect to prompt pay requirements, providers and MA
organizations may enter into contracts the terms of which are
established by the parties. In general the terms of these contracts
including payment amounts and prompt payment standards are determined
by negotiation between the parties. We specifically require in our
regulations at Sec. 422.520(b) that contracts between MA organizations
and providers contain prompt payment standards which the parties have
both agreed to. In the event an MA organization fails to honor its
provider contract(s) in certain circumstances, we may impose
intermediate sanctions or even terminate its contract with the MA
organization.
Comment: A commenter asks that CMS clarify in its regulations that,
with the exception of State laws that relate to State licensing and
solvency, Federal preemption extends to any requirement that the State
might impose, including requirements imposed as a condition of
maintaining State licensure.
Response: We believe our regulations at Sec. 422.402 are clear in
regards to the broad extent of Federal preemption authority under the
MMA. We have discussed in previous responses that States may not use
licensure or solvency requirements as an indirect means to impose
health plan regulations on MA plans. Again, we reiterate our
understanding of the congressional intent that the MA program, as a
Federal program operate solely under Federal rules with the exception
of State licensure and solvency requirements.
Comment: A commenter acknowledges the preamble discussion in the
proposed rule clarifying that State licensing laws are limited to the
requirements for becoming State licensed (for example, filing of
articles of incorporation with the appropriate State agency or
satisfying State governance requirements) and do not extend to the
requirements that a State may impose on licensed health plans that
absent preemption must be met as a condition of keeping a State
license. The commenter recommended that CMS make this clarification in
Sec. 422.402 of the MA regulations.
Response: We believe State licensure requirements cannot be used as
an indirect way to regulate MA plans by imposing requirements not
generally associated with licensure. For example, we stated that
reasonable licensure requirements may include the filing of articles of
incorporation with the appropriate State agency or satisfying State
governance requirements. However, we chose not to establish the
parameters of State licensure in our regulations as there may be other
legitimate aspects of State licensure we have not noted.
Comment: A commenter stated that the proposed rule reiterates the
MMA and fails to clarify the extent to which State law is preempted.
The commenter maintains that the proposed regulation gives no guidance
to States in determining which laws they can require Medicare plans to
observe. According to the commenter, States do not know which standards
they can enforce to protect consumers. As an example, the commenter
cites the Knox-Keene Act in California which conditions health plan
licensure on several minimum requirements. The commenter maintains that
without explanation from CMS on what types of ``licensing'' laws States
may enforce, California has no way of determining which parts of the
State's broad statutory scheme may apply to Medicare plans and which
parts are preempted. The commenter believes that CMS has not provided
guidance to States on how financial solvency requirements can be
separated from other parts of State licensing law which are intricately
interwoven. Instead of clarifying underlying statute and policy, in the
commenter's view, the proposed rule injects further confusion regarding
the extent of Federal preemption of State law. The commenter requests
further explanation and practical guidance on the role of the States in
enforcing minimum licensure and financial solvency requirements.
Response: As we stated in the preamble to the proposed rule (69 FR
46904), we believe that under the MMA, States are preempted from
applying any regulatory requirements on MA plans with the sole
exception of State licensure and solvency requirements. We also believe
that licensure and solvency requirements cannot be used
[[Page 4665]]
as an indirect method of imposing State regulatory requirements that a
State might impose on non MA health plans. We recognize that there
still may be questions about the extent of allowable State regulation.
As in the case of the pre-MMA pre-emption provisions, we intend to
address these specific type of preemption questions in cooperation with
States.
Comment: A commenter stated that Federal preemption authority under
the MMA means that requirements concerning these matters as fair
business practices, plan and physician contracting and prompt payments
which have been traditionally under State law, will now be governed by
Federal law. The commenter recommended that CMS monitor the effect of
Federal preemption and establish strong Federal oversight to ensure
that plans are complying with Federal regulatory standards. The
commenter is concerned that without strong Federal oversight, patients
in MA plans may not have the same protections that apply to other
individuals enrolled in health plans, including those in traditional
Medicare or those enrolled in private plans governed by State law. The
commenter also recommended that since most State laws applicable to
health plans will be preempted by Federal law, CMS should ensure that
laws and regulatory standards that protect patients and physicians in
the traditional Medicare program also be applied by CMS to MA plans.
Response: We are aware of the need for strong consistent oversight
of MA plans. As we have done under the previous M+C program, we will
ensure that enrollees in MA plans receive the appropriate quality and
access to plan covered health care services.
Comment: A commenter stated that in the proposed rule (69 FR 46913
through 46914), CMS takes the position that State contract are
``generally applicable'' to MA organizations and are therefore not
preempted. The commenter also indicated that CMS explains (in the
preamble to the proposed rule) that State contract and tort law does
not specifically apply to health plans, and that the Congress only
intended to preempt State standards contained in State statutes and
regulations, and that State standards developed through case law (for
example, State contract and tort law) are not preempted. The commenter
expresses concern that while State contract and tort law principals may
have general application, State standards developed through case law
based on interpretations of State contract and tort law may be specific
to health plans, and may apply State standards that would otherwise be
preempted under Section 232(a) of the MMA.
The commenter concludes by stating that they believe that in
enacting section 232(a) of the MMA, the Congress intended to draft a
clear Federal preemption standard for the MA program, and that the
primary motivation for this new preemption standard was to ease the
administrative burden caused by the ambiguity in the old Sec. 422.402.
The commenter also recommended that CMS make clear that all State
standards, including those established through case law, are preempted
with respect to the MA program, with exceptions of State licensing and
solvency laws.
Response: In response to this comment, we would clarify that all
State standards, including those established through case law, are
preempted to the extent that they specifically would regulate MA plans,
with exceptions of State licensing and solvency laws. Other State
health and safety standards, or generally applicable standards, that do
not involve regulation of an MA plan are not preepmted.
Comment: A commenter expresses concern that under the rules
proposed by CMS, providers who contract with MA plans will be left with
virtually no protection because State prompt pay laws will be
preempted. The commenter stated that while CMS has proposed adding
Sec. 422.520(b)(2), which provides that an MA organization is
obligated to pay contracted providers according to the terms of the
contract with the MA organization, this language does not provide
sufficient protection for contracted providers. The commenter indicated
that nearly every State in the country has enacted prompt pay
legislation to protect providers who are often unable to negotiate
sufficient prompt pay provisions in their contracts with plans. The
commenter also suggested that if State prompt pay laws are preempted
then CMS should revise the proposed rule to add prompt pay protection
for contracted providers that is at least as strong as that given to
non-contract providers.
In addition, the commenter believes that preemption of State prompt
pay requirements for MA contracting providers will cause hospitals to
be less willing to contract with MA plans if they are uncertain whether
claims will be paid promptly and fairly.
Response: In our current MA regulations at Sec. 422.520(b), we
require that MA organizations include in its contracts with providers a
prompt pay provision. However, we allow the providers and MA
organization discretion to negotiate the terms of the prompt payment
provisions. Since these contracts typically include payment
arrangements, we believe it is appropriate and reasonable to leave the
parties to the contract discretion to work out mutually agreeable terms
of their contract. The contracts may include payment amounts greater
than what original Medicare will pay for some services and other
payment incentives for contracted providers. If an MA organization
fails to honor the terms of its provider contracts under certain
conditions, we have the authority to impose intermediate sanctions or
even terminate its contract with the MA organization.
Comment: One commenter recommended that CMS develop guidance that
builds on the preamble discussion of preemption in subpart I and
Subpart M. The Congress provided broad preemption authority to ensure
that the program is implemented in a uniform way for beneficiaries in
States across the country. The commenter also recommended that CMS
interpret the preemption authority, consistent with the Congressional
intent, to maximize the uniformity of program implementation
nationwide.
Response: We believe that in our previous responses, we have made
it clear that our understating of Federal preemption and the
Congressional intent is that the MA plans are only subject to Federal
regulation with the exception of State licensure and solvency
requirements.
Comment: A commenter encourages CMS to clearly communicate the
provisions of the new law and regulations relating to both preemption
of State law and restrictions on States imposing premium tax on funds
collected from enrollees to all States. The commenter states that they
have already received questions from States related to premium tax and
believe a communication from CMS would help clear up any confusion the
States may have.
Response: We believe the MA regulations at Sec. 422.404 are
absolutely clear that States cannot levy a premium tax, fee, or any
other fee on the payment CMS makes to MA organizations (on behalf of MA
enrollees) or payments made by MA enrollees to MA plans or by a third
party to a MA plan on a beneficiaries behalf.
Comment: One commenter stated that CMS has not established if its
expanded preemption authority applies to cost HMOs that are either: (1)
observing the same rules as MA organizations (with respect to grievance
and appeals for
[[Page 4666]]
example); or (2) offering qualifying Part D coverage. Both the Congress
and CMS have stated that cost HMOs offering qualifying Part D coverage
should be ``treated'' like local MA-PDs and subject to the same rules
as MA-PD plans offered by MA organizations. The commenter maintains
that CMS should apply the expanded preemption available to MA
organizations to cost HMOs when the latter are carrying out the same
programs and are subject to the same rules as the former. The commenter
also believes that doing so in the final rule would be consistent with
the intent of the Congress, and would ensure consistent application of
Medicare managed care rules when those rules are the same for both MA
members and cost HMO members. The commenter concludes by noting that
without preemption, cost HMOs may be mandated by State law to cover
certain drugs, or have certain cost sharing for covered drugs,
inconsistent with Part D.
Response: If a cost plan offers the Part D benefit, the Part D
provisions that apply under the MA program would apply to the Part D
product, including the Federal preemption standards. However, other
services offered by the cost plan are not subject to the new Federal
preemption authority in the MMA which otherwise only applies to MA
plans offered by MA organizations.
Subpart J--Special Rules for MA Regional Plans
Section 1858 of the Act, as amended by section 221 of the MMA, sets
forth special rules that apply to new MA regional plans. Although MA
regional plans will have many similarities with local MA plans, the
Congress provided for a number of unique financial and administrative
incentives designed to support the introduction of these types of
plans.
These incentives will assist plans as they enter this new line of
business and learn the market dynamics of serving beneficiaries across
larger geographic areas. In addition, to encourage the formation of
regional plans, we establish(at Sec. 422.451) a 2-year moratorium on
new local PPO plans from January 1, 2006 until December 31, 2007,
unless the plan was offered before the first day of the moratorium, to
implement section 221(a)(2) of the MMA.
In the August 3, 2004 rule, we proposed establishing a new subpart
J to address many of the special regional PPO requirements. (Bidding
and payment provisions for MA regional plans are implemented in
subparts F and G of part 422.) We received more than 125 sets of
comments on subpart J in response to the proposed rule; most related to
the establishment of MA regions. The Secretary of the Department of
Health and Human Services announced the establishment of the MA and PDP
regions on December 6, 2004. The website address where the MA and PDP
regions may be found is http://www.cms.hhs.gov/medicarereform/mmaregions/.
Below we summarize the proposed provisions and respond to
comments.
Sec. 422.451--2 year Moratorium on Expansion of local PPO plans
To encourage the formation of regional plans, we had proposed at
Sec. 422.451 to implement a 2-year moratorium on the offering of new
local PPO plans from January 1, 2006 until December 31, 2007. As
discussed below, in response to a comment on this final rule, we have
revised our interpretation of the moratorium. We now interpret the
moratorium as precluding an MA organization from offering a new PPO
plan in a service area if the organization did not offer a PPO plan in
that area in 2005. As discussed below, an organization that offers a
PPO plan in 2005 in a service area will, under our new interpretation,
be permitted to offer a different plan in the same area (for example,
it could offer both an MA plan and MA-PD plan in the area). Section
221(a)(2) of the MMA provides that we cannot permit the expansion of
local PPO plans during 2006 or 2007 unless the PPO was offered as of
December 31, 2005. We have determined that a PPO is ``offered'' as of
December 31, 2005, for purposes of the moratorium, only if it has
actually enrolled beneficiaries into its plan before January 1, 2006.
Comment: A commenter believes that the Congress intended the
moratorium to prohibit the expansion of local PPO service areas (for
2006 and 2007) but allow for the introduction of new local PPO plans
within those PPO service areas. In support of this view, the commenter
believes that the Act permits plans to ``expand enrollment'' during the
moratorium, and asserts that product innovation is necessary to do
that. The commenter also notes that in order to migrate existing
members to new products, MA organizations will need to have several
plan offerings, both with and without Part D coverage. In addition, MA
organizations may want to offer MA-PD PPO plans with both the standard
coverage package and enhanced packages that provide ``donut hole''
coverage. The commenter concluded that if the moratorium were
interpreted as freezing the number of plans that a local PPO can offer,
the effect would be to greatly restrict choices for current members of
local PPO plans. The commenter believes the Congress did not intend
such a result.
Response: We agree with the commenter. As noted above, we are now
construing the moratorium to apply at the MA Organization level, rather
than the plan level. Under this approach, an MA organization that has
not offered a local PPO plan in a service area prior to the effective
date of the moratorium will be prohibited from doing so, but an
organization that did offer a PPO plan in the area could continue to do
so, and could add other PPO plan options. We believe this change in
interpretation is warranted on several grounds. First, we interpret
section 221(a)(2) of the MMA as intended to prevent MA organizations
from entering a new service area with a local PPO product in 2006 and
2007, not to preclude an organization already offering a PPO plan in
the area from changing its benefit designs. We believe that even though
the text of section 221(a)(2) contains the word ``plan,'' Congress used
that word in its more colloquial sense--that is, meaning ``health
plan'' rather than ``MA plan.'' As the commenter stated, support for
this interpretation is found in the Conference Report, which states
that MMA section 221(a)(2) establishes the moratorium ``on new local
preferred provider organizations to encourage PPOs to operate at the
regional level.'' Further support for this interpretation arises from
the fact that were we to retain the more restrictive reading, MA
organizations would be precluded from offering their enrollees the
option of choosing whether to enroll in Part D. Because the
organization would be required to offer an MA-PD plan in the service
area, if it only offered one PPO plan in 2005, it would have to offer
Part D benefits in that plan, as only that plan would be exempted from
the moratorium. We believe that the Congress intended to give MA
organizations the right to offer a plan without Part D benefits as long
as they offered an MA-PD plan in the same area. This right would be
thwarted under our earlier interpretation of the moratorium provision.
We have revised the regulation accordingly. The effect of the 2006 and
2007 moratorium will be to prevent an MA organization from offering a
PPO plan in a service area in 2006 and 2007 if it did not already offer
one in the area, and to freeze any service area expansions of existing
local PPO plans. However, during the 2-year moratorium, MA
organizations offering local PPO plans, may offer additional PPO plans
(within the pre-moratorium PPO services areas) to afford beneficiaries
reasonable enrollment
[[Page 4667]]
options and to allow for the MA organization make changes in order to
offer Part D coverage in a local PPO plan.
Comment: A commenter recommended that CMS allow specialized MA
plans for special needs individuals or SNPs to offer new local PPO
plans and service area expansions (SAEs), even during the moratorium in
2006 and 2007. The commenter believes that this flexibility is
warranted because SNPs do not compete with MA regional plans.
Response: As we have discussed above, an MA organization may
introduce new local PPO plans within its 2005 service areas where it
has offered local PPO plans. However, an MA organization may not expand
its service area beyond the boundaries of the local PPO plans the
organization has established prior to the moratorium's taking effect.
This will allow an organization to offer a SNP (operating as a local
PPO) in its pre-moratorium PPO service areas. We think this is
consistent with the Congressional intent to allow organizations
offering local PPO type plans to expand enrollment within its pre-
moratorium service areas.
Comment: A commenter is interested in applying to us in 2006 as a
new local HMO that would become operational in 2007. The commenter
states that its operational model is as an HMO. However, the commenter
is licensed in its State of operation as a ``health care services
contractor'' and not as an HMO. The commenter is concerned that because
it is not State-licensed as an HMO, it may not fit the definition of a
local HMO and will be subject to the 2-year moratorium on local PPOs.
Response: Organizations contracting with us must meet applicable
State licensure requirements. Our basic regulatory requirement is that
an MA organization must be State licensed to bear risk as described in
the MA regulations at Sec. 422.400. Section 422.400 indicates that it
is the responsibility of the MA organization to demonstrate to us that
it is operating within the scope of its State license or the State
authority granted to it under Sec. 422.400(b) (if the entity is not
State-licensed as a commercial insurer) authorizes it to offer the type
of MA plan or plans it intends to offer in a State. Upon meeting State
licensure requirements, the organization offering an MA plan must meet
MA regulatory requirements governing the type of plan being offered. As
we have previously described, we will approve applications for new
local PPO plans for 2006 and 2007 offered by an MA organization within
the service area of local PPO plans offered by that MA organization and
established prior to January 1, 2006. In addition, MA organizations may
introduce other MA plan types without service area restriction (for
example, HMOs or PFFS plans) that meet State licensing requirements and
MA regulatory requirements.
Comment: The commenter opposes the local PPO 2-year moratorium but
recognizes that it is required under the MMA. The commenter states that
CMS must set an application deadline that allows for the review and
approval of a local PPO application in time for the bidding deadline.
Accordingly, the commenter recommends that we consider a plan as
``existing'' before 2006 even though the first effective date will not
be until January 1, 2006. An MA local PPO should be considered as
``existing'' when in 2005, has been awarded a contract, has submitted a
bid for 2006, and is being marketed during the annual election period
which begins in November, 2005.
Response: Under MMA section 221(a)(2), the 2006 and 2007 moratorium
prevents the offering of new local PPOs in a service area unless a
local PPO plan was offered by that MA organization in that service area
as of December 31, 2005. We have determined that this means that local
PPO plans must have actually enrolled beneficiaries before January 1,
2006 to be considered ``offered'' and thus in effect before the
moratorium begins. The local PPO plans that have enrolled beneficiaries
prior to January 1, 2006 will establish the limits of the service area
where the MA organization can introduce new local PPO plans during the
moratorium.
Establishment of the MA regions (Sec. 422.455)
At Sec. 422.455, we implement section 1858(a) of the Act, which
requires us to establish the regions that will constitute the service
areas for the MA regional plans. We were required to establish between
10 and 50 MA regions within the 50 States and the District of Columbia,
and an MA regional plan will be required to serve an entire region.
The statute specified that the MA regions should maximize the
availability of regional plans for Medicare beneficiaries, particularly
those residing in rural areas, regardless of their health status. To
assist us in developing the MA regions, we were required to conduct a
market survey and analysis, including an examination of current
insurance markets.
It is important to note that in accordance with section
1858(a)(2)(B)(ii) of the Act, we may periodically review MA regions and
revise as necessary. We implement this provision at Sec.
422.455(b)(2)(ii).
Combined with comments received on Prescription Drug Plan (PDP)
regions, we received more than 110 sets of comments on the
establishment of MA regions as found in Sec. 422.455(b). The first
sets of comments were received in follow-up to a public meeting held in
Chicago, Illinois on July 21, 2004 regarding the MA and PDP regions. We
also received numerous comments in response to our request for comments
in the proposed rule for part 422: Establishment of the MA Program. We
also received comments on PDP regions on the part 423 proposed rule:
Medicare Prescription Drug Benefit. Comments and responses that relate
to the establishment of PDP regions are found in Subpart C of the
preamble to the final rule for part 423. Finally, we received written
comments following a CMS Special Open Door Forum conference call on
``Factors for Determining MA and PDP Regions to Maximize Beneficiary
Choice,'' held on Friday, October 22, 2004.
The majority of MA region comments that specified the size of the
region generally favored establishing 50 State-based regions. However,
about one-third of all comments supported multistate regions, though
few provided the number of multistate regions they would prefer. Issues
identified in support of 50 State-based regions included the large
assumption of risk with the establishment of larger regions;
insufficient time for plans to negotiate and develop networks in larger
regions or to renegotiate provider contracts and form partnerships;
limitations in capacity and infrastructure issues in the initial years;
and potential difficulties in obtaining State licenses and meeting
State solvency requirements.
Comment: Some commenters suggested that fewer organizations will
participate as regional PPOs if larger regions are established.
Commenters who favored multistate regions indicated their belief that
larger regions would facilitate plan choices in areas traditionally
without a choice of plans. Further, several commenters noted that 50
State-based regions would perpetuate the status quo of not providing
choice of plans in certain areas, especially in rural areas. Commenters
in favor of multistate regions also cited Congressional intent to
provide rural beneficiaries with the same array of choices that
beneficiaries in non-rural areas often have. These commenters contend
that these choices would not occur with 50 State-based regions. From a
market perspective, supporters of multistate regions believe that there
[[Page 4668]]
would be a critical mass in larger regions that are necessary to
encourage new entrants into the MA market.
One commenter stated that the lack of specificity in the proposed
rule made it difficult to envision how the new regional PPO option
would work in practice. A number of commenters expressed concern about
the compressed timeframe between our announcement of the regions and
their deadline for making a decision about whether to apply as a
regional PPO. Finally, a number of commenters recommended that CMS make
Puerto Rico a freestanding MA region because of the unique cultural
factors of Medicare beneficiaries residing in Puerto Rico.
Response: We conducted a market survey and analysis, including an
examination of current insurance markets as required in the MMA. Key
factors in the survey and analysis included payment rates, eligible
population size per region, PPO market penetration, current existence
of PPOs, MA plans, or other commercial plans, presence of PPO providers
and primary care providers, and not splitting multistate Metropolitan
Statistical Areas (MSAs). Additional factors were also considered, for
example, solvency and licensing requirements and capacity issues. In
response to comments about the lack of specificity in the proposed
rule, we have taken several steps (for example, the market survey and
extensive public outreach) to ensure that the public could see options
for the regions, and factors used in determining these options. We also
have sought public input in several contexts before the publication of
the regions. The establishment of the MA PPO and PDP regions was
announced on December 6, 2004, and can be found at http://www.cms.hhs.gov/medicarereform/mmaregions/
. We understand the
commenters' concerns about Puerto Rico's unique circumstances. However,
the statute defines an MA region as one that is within the 50 States
and the District of Columbia. Therefore, we are not authorized to
include Puerto Rico or any of the other U.S. territories in an MA
region. However, pursuant to the requirement to establish PDPs under
section 1860D-11(a)(2) of the Act (as implemented at Sec. 423.112), we
have established PDP regions for the territories, separate from the 50
States and the District of Columbia. A separate PDP region has been
established for each territory.
Risk Sharing (Sec. 422.458)
Section 1858(c) of the Act provided that we will share risk with MA
regional plans for contract years 2006 and 2007, if plan costs are
above or below a specific risk corridor. Risk sharing is intended to
encourage plans to enter the regional market and to provide assistance
to these plans during the start-up phase of their business.
Section 422.258(a) will implement section 1858(c) of the Act by
defining the following terms:
Allowable costs were defined as the total amount of costs
incurred in a year in providing benefits covered under the original
Medicare FFS program option for all enrollees and in providing
rebatable integrated benefits, reduced by the portion of those costs
attributable to administrative expenses incurred in providing these
benefits.
Target amount for an MA regional plan was defined as the
total amount of payments made to the organization for enrollees in the
plan for the year, reduced by the amount of administrative expenses
assumed in the portion of the bid attributable to benefits under
original Medicare FFS program option and rebatable integrated benefits.
Rebatable integrated benefits were defined as those non-
drug supplemental benefits that are funded through beneficiary rebates
(described at Sec. 422.266(b)(1)) and that we determine are: (1)
additional health benefits not covered under the original Medicare
program option; and (2) benefits that require expenditures by the plan.
Section 422.258(b)(2) will implement section 1858(c)(1)(B) of the
Act by requiring that MA regional plans notify us, before that date in
the succeeding year as we specify, of each plan's total allowable
costs. As mentioned above, rebatable integrated benefits (RIBs) are the
only supplemental benefits that can be included in a plan's allowable
costs. We have discretion to evaluate whether certain rebatable
benefits should be included in allowable costs for risk corridor
calculations. We asked for comment whether reductions in cost sharing
for Parts A and B benefits should be considered RIBs.
Section 422.358(c) will implement section 1858(c)(2) of the Act
relating to payment adjustments. There will be no payment adjustment if
the allowable costs for the plan are at least 97 percent, but do not
exceed 103 percent, of the target amount for the plan. Section
422.358(c) also included the following:
If allowable costs for the plan are more than 103 percent
but not greater than 108 percent of the target amount for the plan for
the year, we will increase the total monthly payments made to the
organization by 50 percent of the difference between allowable costs
and 103 percent of the target amount.
If allowable costs for the plan are greater than 108
percent of the target amount, we will increase the total monthly
payments to the plan by an amount equal to the sum of: (1) 2.5 percent
of the target amount; and (2) 80 percent of the difference between
allowable costs and 108 percent of the target.
If the allowable costs for the plan are less than 97
percent, but greater than or equal to 92 percent of the target amount,
we will reduce the total monthly payment to the plan by 50 percent of
the different between 97 percent of the target amount and the allowable
cost.
If the allowable costs for the plan are below 92 percent
of the target, we will reduce the total monthly payments to the
organization by the sum of: (1) 2.5 percent of the target amount; and
(2) 80 percent of the difference between 92 percent of the target and
the allowable costs.
Section 422.358(d) will implement section 1858(c)(3) of the Act
relating to disclosure of information. Each contracting MA plan must
provide the information that we determine is necessary to carry out
this section. Although we have the right to inspect and audit all books
and records pertaining to information provided under this section, the
information disclosed or obtained for purposes of this section may only
be used to carry out this section.
Comment: Two commenters suggested that we clarify how MA regional
plans should determine their administrative costs for purposes of
determining their allowable costs and target amounts. Both commenters
recommended that we develop an administratively straightforward
methodology to identify administrative costs. One commenter suggested
that we clearly state that the determination of administrative costs
for purposes of the MA regional plan risk corridors may differ from the
calculation of administrative costs for purposes of the Part D program.
Response: As stated in Sec. 422.254 each bid submission must
contain all estimated revenue required by the plan, including
administrative costs and return on investment. We interpret the term
administrative costs to be the costs associated with administering the
program and the expected or retained earnings of health plans. For
purposes of this final rule, we use the terms administrative costs and
administrative expenses interchangeably. We intend to provide further
guidance on defining administrative costs in the instructions
[[Page 4669]]
on use of the bid pricing tool. We expect that the guidance will seek
to reconcile any differences in how administrative costs are calculated
for purposes of Title I and Title II.
Comment: Three commenters recommended that CMS consider cost
sharing reductions for Part A and B benefits as plan expenditures, and
thus included as rebatable integrated benefits, rather than as foregone
revenue that would be excluded from RIBs. One commenter suggested that
by doing so, more risk would be shared between a plan and Medicare,
thereby encouraging greater plan participation. The commenter believes
that this approach would be more intuitive and less likely to result in
variable cost estimations than the alternative approach. Another
commenter suggested that the MA plan actuary should demonstrate and
certify its estimate of the rebatable portion of the cost sharing.
Another comment was made recommending that the risk sharing calculation
should be modified to include full plan costs (that is, those beyond
the rebate funded portion).
Response: We considered several issues when determining which uses
of rebate dollars to define as RIBs. As we stated in the August 3, 2004
proposed rule, one approach could be to define RIBs as benefits that
will otherwise be covered under original Medicare were it not for the
imposition of deductibles, co-pays, coinsurance, and benefit coverage
limits. This will exclude, for example, non-Medicare covered benefits
from the category of RIBs. However, we concluded that it is difficult
to draw a non-arbitrary line between integrated and non-integrated
benefits. For this reason, in the proposed rule, we proposed to include
additional health benefits not covered by original Medicare in the
category of RIBs. In terms of cost sharing reductions for Part A and B
benefits, we agree with the commenters that cost sharing reductions for
Part A and Part B Benefits can be considered expenses to a plan because
when an enrollee pays less, the plan pays more. In other words, when a
plan uses the rebate to reduce Part A and B cost sharing, the amount
that otherwise would be paid to the provider by the beneficiary must be
paid by the plan. Therefore, for the purposes of determining risk-
sharing payments to regional plans for 2006 and 2007, cost sharing
reductions for Part A and Part B benefits will be considered plan
expenditures for purposes of Sec. 422.458(b)(2)(ii). In doing so, this
allows cost sharing reductions for Part A and Part B to be considered
rebatable integrated benefits provided that these reductions are funded
by plan rebate dollars and not by the beneficiary supplemental premium.
With regard to extending risk to full plan costs, section 1858(c) of
the Act limits the risk sharing arrangement between us and plans to
only allowable costs (that is, those incurred in providing Part A and
Part B benefits and rebatable integrated benefits). For mandatory
supplemental benefits that are non-Medicare benefits and require
expenditures by the plan though are partly funded by rebate dollars, we
will include only the rebate funded portion of the costs and revenues
in the risk corridor calculation.
We note that several applications of rebate dollars are not
considered RIBs: (1) reductions in Part D cost sharing since the
statute defines RIBS an non-drug supplemental benefits in section
1858(c)(1)(d) of the Act; (2) a Part B or Part D premium reduction does
not require expenditure by the plan.
State Licensing Waiver
Section 422.458(e) will implement section 1858(d), of the Act
setting forth organizational and financial requirements for regional
PPOs, including the provision for a temporary waiver of the MA State
licensing requirement. In order to facilitate the offering of MA plans
in regions encompassing multiple States, we may temporarily waive State
license requirements, for example, to allow sufficient time for the
processing of the application by the State or States where an
application is pending.
Comment: One commenter stated that under the MMA we have the
authority to temporarily waive State licensure requirements to
facilitate plans in regions encompassing multiple States when a plan is
licensed in at least one State. The commenter asks for clarification
whether we can use our authority to grant the same waiver to local
plans seeking service area expansion to bordering States. The commenter
believes that in providing this authority the Congress intended to
facilitate plan choices for beneficiaries. The commenter concludes by
noting that the licensure waiver should apply as well to local plans
seeking to become another enrollment option for enrollees in
neighboring States.
Response: As the commenter indicated, section 1858(d) of the Act
provides authority for us to temporarily waive State licensure
requirements to facilitate the introduction of regional PPO plans if a
region encompasses multiple states. However, under the statute this
authority is specific to regional PPO plans. We do not believe we have
the authority to extend the State licensure waiver to local plans with
a service area encompassing more than one State.
Comment: Another commenter recommended that CMS be as conservative
as possible in deciding how to waive State licensing requirements in
the States in which regional PPOs are operating. The commenter
recommended that CMS ensure regional plans serving beneficiaries in
multiple States are held accountable under the State laws under which
they are operating.
Response: As specified in the MMA, all MA organizations offering MA
plans including regional PPO plans must be organized and licensed under
State law as a risk-bearing entity eligible to offer health insurance
or health benefits coverage in each State in which they offer an MA
plan. We will temporarily waive the State licensure requirements only
in limited circumstances. Specifically, if an MA organization offering
an MA regional plan is organized and licensed under State law in at
least one State in the region but has not met the licensing
requirements in other States in the region, under section 1858(d) of
the Act, we may temporarily waive the State licensing requirement in
the other States. This waiver will only be extended to allow sufficient
time for the processing of the application by the State or States where
an application is pending. The statute allows for the waiver to extend
for a transition period after denial of a licensure application, but
does not permanently excuse a plan from compliance with state licensing
requirements. Therefore, if a State denied a regional PPO's application
for State licensure, we will not allow the plan to continue operating
in that region beyond the transition period, unless the plan obtains
licensure in all States in the region.
Comment: A commenter is concerned that organizations that lack
sufficient experience in operating a PPO plan or being a capitated
Medicare provider will apply to become regional PPO plans. The
commenter proposes that we establish minimum requirements (beyond the
filing of licensing applications) that an applicant must satisfy before
we would consider a temporary waiver of the State licensure
requirement. The commenter recommends that CMS impose the following
requirements:
The applicant or a sponsoring organization of the
applicant must have operational experience in offering insured PPO
plans;
The applicant or a sponsoring organization of the
applicant must have
[[Page 4670]]
operational experience with assuming risk under capitated programs;
CMS should limit the duration of the waiver to one year
from the date the waiver is granted.
Response: We anticipate that most State licensure waivers will be
for less than 1 year. The exact duration of the waiver will depend on
how long a State takes to process the application. In any event, as we
indicated in the previous response, all regional PPO plans must become
State licensed in each State in which they operate. We do not believe
it is necessary for us to impose additional requirements for new PPO
applicants. We have considerable experience in reviewing applications
from new organizations entering the MA program. New organizations
entering the program must meet the operational and regulatory
requirements that apply to current plans. If a new applicant has no
current experience we invest the necessary time and resources to ensure
that the organization offering the plan does in fact have the capacity
to offer the proposed plan and meet all regulatory requirements. We
expect that we will take the same approach with any new applicant to
the MA program.
Comment: A commenter recommends that if CMS do not designate
single-State regions, CMS should amend the proposed rules governing
preemption of State law to ease the burden of multistate licensure as
much as possible. The commenter recommended that CMS apply the Federal
waiver and uniform solvency standards applicable to provider sponsored
organizations to regional PPO plans to promote greater regional PPO
participation and access to potential beneficiaries. Alternatively, the
commenter recommends that CMS engage the National Association of
Insurance Commissioners and the State departments of Insurance in
discussions that will result in the creation of a single, uniform MA
PPO licensure application form, procedures, and solvency standards,
that maximize the availability of PPO assets for use in providing
direct services and care enhancement, and minimize the net worth,
reserve, deposit, surplus and related requirements applicable to PPOs.
Response: Under the MMA we do not have the authority to establish
regional licensure and solvency standards for regional PPO plans. Under
the law, regional PPO plans must meet State licensure and solvency
standards in each State in which they operate. We have added language
to Sec. 422.458(e)(1) to clarify that regional PPOs must be licensed
in each State of the region, except during the period of the temporary
waiver.
Comment: A commenter stated that even temporarily waiving State
licensure without requiring applicants to satisfy certain minimum
requirements could expose the MA program and beneficiaries to
insecurity. Waiver of State licensure requirements based on a filing of
an application for licensure does not constitute an assurance the
organization has the essential capability necessary to operate a
multistate PPO potentially serving thousands of beneficiaries. The
commenter recommended that CMS establish minimum requirements, such as
solvency standards, in addition to the filing of an application that a
regional PPO applicant must satisfy before we even evaluates, or
approves, a temporary wavier of State licensure. The commenter also
recommended that any waiver be limited to 1 year from the date the
waiver is granted. The commenter believes that a 1-year limit will
promote stability and confidence in the MA program by terminating an
unlicensed organization before their withdrawal causes disruption to
beneficiaries.
Response: As we have previously discussed, we will grant a
temporary State licensure waiver only in circumstances where the
organization is State licensed in a least one State in the region and
has submitted applications in the others. Under the waiver process, in
those State(s) where it has a waiver, the organization will select the
licensing rules of one State in the region and apply those rules to the
States in which the organization has not met State licensure until the
organization is licensed in all the States. We have made a technical
change to the regulations at Sec. 422.458(e)(2) to clarify this point.
We expect that in most cases the State licensure waiver will be for
less than a year. However, we will not specify the time limit, because
the length of the waiver will depend on how quickly the State processes
the PPO's licensure application. We note that all regional PPO plans
entering the MA program (including those with a temporary State
licensure waiver) must still be reviewed and approved by us and
determined to be capable of meeting all regulatory requirements. We
will not approve any MA plan that we have not confirmed through our
application review process has the capacity to offer the proposed plan.
Stabilization Fund
Section 422.458(f) will implement the provisions in section 1858(e)
of the Act providing for the creation of a Regional Stabilization Fund.
The Congress has authorized an MA Regional Plan Stabilization Fund in
order to promote greater stability in the regional program and provide
us with a tool to respond to market fluctuations.
The Fund can be used to provide incentives for plan entry in each
region, as well as for retaining plans that have already entered the
market in MA regions with below average MA penetration. Initially, $10
billion will be available for expenditures from the Fund beginning on
January 1, 2007, and these start-up funds will only be available until
December 31, 2013. The Fund is designed to allow us to respond to
market conditions on a temporary basis. If the Fund is used for either
plan entry or retention for 2 consecutive years, we will report to the
Congress on the underlying market conditions in the regions. These
reports will give the Congress time to respond to the market conditions
through changes to the regions or the underlying payment system.
The funds will be available in advance of appropriations to MA
regional plans in accordance with specified funding limitations. The
total amount projected to be expended may not exceed the amount
available in the Fund as of the first day of that year. We will only
obligate funds if our Chief Actuary, and the appropriate budget
officer, certify that there are sufficient funds at the beginning of
the year to cover all the obligations for that year. We will take steps
to ensure that sufficient funds are available to make the payments for
the entire year, which may include computing lower payment amounts or
limitations on enrollment in MA regional plans receiving the payments.
Expenditures from the Fund will first be made from amounts made
available from the initial funding. We have made a change to Sec.
422.458(f)(3)(ii) to conform the provision to our proposal as discussed
in the August 2004 proposed rule.
Comment: Several commenters had concerns over the financial
incentives made available to MA regional plans and asserted that these
would disadvantage local plans by compromising their ability to compete
with regional plans or the FFS Medicare program. To encourage the
offering of all plan options, commenters recommended that local plans
and others should also have access to these risk sharing arrangements.
Several commenters proposed that CMS should use the demonstration
authority to offer the same financial incentives to local plans as
those offered to regional MA plans. Other commenters expressed their
support for these incentives, and
[[Page 4671]]
asserted that these types of incentives would encourage MA regional
plans to enter or re-enter certain markets.
Response: Financial incentives, such as the application of risk
corridors and access to the stabilization fund, were designed to
encourage new regional plans to enter the MA program and stay in the
program over time. Section 1858 of the Act limits these incentives to
only MA regional plans. As stated previously, regional plans are
defined as those MA preferred provider organization plans available to
all MA eligible individuals without regard to health status and are
offered throughout the entire region. Because these incentives are
provided for in the statute, we are unable to change the types of
organizations that could receive them. It is important to note, that
there are special provisions available only to local plans that MA
regional plans do not have available, for example, the ability to
choose the areas they cover, including specific counties and even
partial counties, and they are not required to cover an entire region.
Further, the MMA contemplated competition between plans so that
beneficiaries will have greater choice of high-quality, low-cost
regional and local plans. The statute specified the payment methodology
for both local and regional plans. Additional responses to bidding and
payment comments may be found in the preamble for subparts F and G.
Comment: One commenter stated that the stabilization fund
discriminates against local plans because a portion of local plan
savings would subsidize the regional plans.
Response: The commenter is incorrect. Seventy-five percent of the
savings accrued when an MA plan bid falls below the benchmark, is
rebated to the beneficiary in the form of extra benefits. For local
plans, the remaining 25 percent of the difference between the bid and
the benchmark returns to the Medicare Trust Funds. For regional plans,
the remaining 25 percent of the difference is split: 12.5 percent of
the difference returns to the Medicare Trust Funds, and 12.5 percent of
the difference goes toward supplementing the stabilization fund.
6. Plan Entry Funding
At Sec. 422.458(f), we make available plan entry incentives for
either a 1-year national bonus payment or multi-year adjustments in
regional payments (but not both). Funding will only be available for a
single year, but more than one organization can receive the incentive
in the same year.
As found in Sec. 422.458(f)(4)(ii), the national bonus payment
will be: (1) available to an organization only if it offers plans in
every MA region; (2) available to all MA regional plans of the
organization regardless of whether any other MA regional plan is
offered in any region; and (3) equal to 3 percent of the benchmark
amount otherwise applicable for each MA regional plan offered by the
organization, subject to funding limitations.
If a national bonus payment is not made, a regional payment
adjustment can be made. The regional payment adjustment is an increased
payment for an MA regional plan offered in an MA region that did not
have any MA regional plans offered in the previous year. The adjusted
payment amount will be determined based solely on plans' bids in the
region and that the adjusted payment amount be available to all plans
offered in the region.
We did not receive any public comments on this section. We are
implementing this section as proposed.
7. Regional Payment Adjustment
Subject to funding limitations, we will determine the period of
time that funds are available for regional payment changes to encourage
plan entry. If funding is provided for a second consecutive year under
this provision, we will submit a report to the Congress describing the
underlying market dynamics in the region and recommend changes to the
payment methodology. Multi-year funding will be made available to all
MA plans offered in a region, but if this multi-year increased amount
is made available to MA plans in a region, funding will not be
available for plan retention in the region in the following year.
We did not receive any public comments on this section. We are
implementing this section as proposed.
8. Plan Retention Funding
In addition to using the Fund to encourage plans to enter regions
that might otherwise go unserved, we may also use the fund to encourage
plans to remain in regions if market conditions are causing plan
withdrawals. At Sec. 422.548(f)(5), incentives for plan retention
could take the form of an increased payment to plans in regions that
meet specific requirements.
We intend to use this provision to ensure that all MA organizations
offering regional plans in a region receive appropriate incentives to
remain in the region. As specified at Sec. 422.548(f)(5)(ii), the
payment will be an amount determined by the Secretary that does not
exceed the greater of: (1) 3 percent of the benchmark amount applicable
in the region; or (2) an amount that, when added to the benchmark,
results in a ratio such that the additional amount plus the benchmark
for the region divided by the adjusted average per capita cost (AAPCC)
equals the weighted average of benchmarks for all regions divided by
the AAPCC.
The payment would be available if: (1) one or more plans inform us
that they are going to discontinue service in the region in the
succeeding year; (2) we determine that if those plans were not offered,
fewer than two MA organizations will be offering MA regional plans in
the region in the year; (3) for the previous year, we determine that
the proportion of beneficiaries enrolled in MA regional plans in the
region is less than the national average of MA regional plan
enrollment; and (4) funds have not already been awarded for 2
consecutive years.
We did not receive any public comments on this section. We are
implementing this section as proposed.
Subpart K--Application Procedures and Contracts for Medicare Advantage
Organizations
1. Overview
Subpart K sets forth the provisions relating to the application
procedures and contract determinations that are entered into by MA
organizations including a description of terms that must be included in
the contract, the duration of the contract, provisions regarding the
nonrenewal or termination of a contract, and minimum enrollment,
reporting, and prompt payment requirements of the MMA.
In this final rule, in order to make more clear the requirements
for MA plans under part 422 and any additional requirements for MA
plans offering a prescription drug benefit under part 423, we have
amended section Sec. 422.500 by revising the section heading to read
``Scope and definitions; designating the undesignated
introductory text as paragraph (b) and adding the heading
``Definitions; and adding a new paragraph (a), ``Scope,''
which specifies the scope of the subpart K requirements.
We also incorporated the application requirements and evaluation
and determination procedures from subpart A (Sec. 422.6 and Sec.
422.8) into subpart K at newly redesignated Sec. 422.501 and Sec.
422.502, respectively. As a result we have revised the title of subpart
K in this final rule to read as follows ``Application Procedures and
Contracts for Medicare Advantage Organizations.''
In addition, we have eliminated the proposed Sec.
422.502(b)(3)(iv)(G), regarding self-reporting requirements.
[[Page 4672]]
However, we have specified at Sec. 422.503(b)(vi)(H), that MA-PDPs
must follow the requirements in part 423 (the requirements for the Part
D prescription drug benefit) concerning a comprehensive fraud and abuse
plan. Note that the fraud and abuse requirement in part 423 applies
only to the Part D prescription drug benefit offered by the MA
organization. Please see our discussion of this requirement at section
4 of this preamble.
The MMA added a new section 1857(e)(3)(A) of the Act, which applies
only to Federally Qualified Health Centers (FQHCs)and requires that the
contract between CMS and MA organizations include a provision that any
written arrangements between an MA organization and an FQHC include a
level of payment that would be equal to what the MA organization would
pay other providers for similar services. This requirement was codified
at proposed Sec. 422.527. We received two comments asking for some
clarifications on the reimbursement of FQHCs which we do address here.
We also responded to commenters expressing concern that they would
be unable to properly prepare for beneficiary enrollment if the
contract process and the bid process were consecutive. Other
commenters, for the same reason, asked that we streamline the
application and contracting process. We welcomed these suggestions and
have made changes accordingly, which we discuss below.
We made a number of technical and clarifying changes. In Sec.
422.502(b)(1), for example, we clarified that the completion of an
application is a condition necessary to contract as an MA organization,
clarified the distinction between the contract and process for purposes
of redeterminations at Sec. 422.501(c)(2), and, at Sec.
422.503(b)(4)(ii), Sec. 422.503(b)(4)(vi)(F), Sec. 422.503(b)(6) and
Sec. 422.503(b)(6)(i), made several terminology changes (for example,
we changed ``terminated'' to ``non-renew''). We received 25 comments on
subpart K. Below we summarize and respond to these comments. Please
refer to the proposed rule for additional discussion of the specific
provisions of the requirements we proposed for subpart K. Note that
public comments on the proposed MA rule and the proposed rule
establishing the prescription drug benefit under part 423 are often
related and we draw on comments from both proposed rules for our
responses here. These comments often lead to changes in both rules and
we identify the changes affecting both rules, as appropriate. Because
of the similarity of many aspects of both rules and the comments we
received related to both we refer interested readers to our final rule
establishing the prescription drug benefit.
2. Application Requirements (Sec. 422.501)
Comment: Several commenter submitted comments on the proposed
regulation for MA organizations as well as the proposed rule
establishing the Medicare prescription drug benefit asking CMS to make
every effort to produce the final regulations as early as possible in
January 2005, and to streamline our application process in a way that
that does not increase administrative burden for MA plan applicants as
well as, specifically, all Part D plan sponsors (which includes MA
organizations offering a prescription drug benefit). Several commenters
expressed concern that the contract and bid determination processes for
MA organizations, as well as, more generally, sponsors of Part D plans,
if occurring consecutively, would not leave enough time for plans to be
ready for business by January 2006. The commenters requested that CMS
permit the contract determination process to run concurrently with the
bid application process (subpart F).
Response: We will permit contract applicants to enter into the bid
determination process concurrently with the contracting process prior
to the execution of a contract. The contract will be pre-qualified and
left unsigned until a successful bid negotiation has been approved by
us. We are also clarifying at Sec. 422.501(c)(2) that these are
distinct processes and, further, that determinations concerning the
contract only are appealable under subpart N of part 422 (the bid
application requirements are in subpart F). We have made other changes
to streamline the contract application process including, for example,
the elimination, as a requirement, of a separate notice of incomplete
or missing application information which we had proposed in Sec.
422.502(e). Additional ways that we will streamline the contract
application process are included in Sec. 422.502(a)(2). We made
similar changes to the requirements of part 423. We discuss these and
other changes below.
Comment: A commenter recommended that CMS confirm the scope of
State licensure requirements that apply to entities offering MA PPO
plans, as State licensing laws may restrict an HMO's ability to offer a
PPO plan, and sought CMS' confirmation that a State licensed indemnity
insurer authorized under State law to provide PDP coverage meets the
definition of a Regional Plan provider.
Response: Section 422.400(c) is clear in saying that State law
controls whether the MA organization is licensed or authorized to offer
the type of MA plan it proposes to offer. As we explained in the
preamble discussion in subpart A of the proposed rule, the fact that MA
organizations offering local PPOs that are (or are not) licensed as
HMOs is pertinent to the MA program solely for purposes of the
application of quality improvement standards in section 1852(e) of the
Act, and has no specific bearing on whether an MA organization has
State authority to actually offer an HMO or PPO under the MA program.
Whether an MA organization (licensed either as an HMO or otherwise) can
offer a specific type of MA plan continues to rest upon State licensure
or authority to offer such a type of MA plan.
3. Evaluation and Determination Procedures (Sec. 422.502)
Comment: One comment pointed to the differing timelines for
evaluation and determination of applications set forth under the
Medicare+ Choice rules (and now under MA plans) from those proposed for
PDP Sponsors under Part D and requested clarification. Another
commenter asked that CMS streamline its application process in a way
that does not increase administrative burden for MA organizations
wishing to apply to offer MA-PD plans or for other Part D plan sponsor
applicants.
Response: We have modified the timeline for evaluation and
determination of applications for both applicants to be MA
organizations and PDP sponsors at Sec. 422.502 (and made similar
changes to the requirements of part 423 for other Part D plan
sponsors). We believe that maintaining a single application and
evaluation procedure and a single set of contract requirements for both
MA and PDP programs brings simplicity, consistency, and reduced
administrative burden for those entities that are managing both
programs. If an application is determined to be both incomplete, and
failing to meet requirements necessary to become an MA organization
resulting in an intent to deny issuance, we will notify the applicant
concurrently of both determinations. For a notice of intent to deny,
based on an incomplete (for example, applicant already received an
incompleteness notice and did not provide the required information) or
non-responsive application, we will allow applicants 10 days to cure
their application before issuing a denial notice, if still justified.
[[Page 4673]]
We remain committed to providing successful applicants a reasonable
time to begin operations by the first of the year in their selected
service area(s). We also want to ensure all potential applicants are
given every chance to contract with us. In the event we determine that
an application is incomplete, we afford a means for the applicant to
``cure'' the contract application. However, under the MMA with a
bidding process added, and the absence of a ``rolling application''
program used under the M+C process, we needed to modify these
determination timelines.
In order to respond to concerns that the determination application
process as it was set up could compromise a plan's ability to
effectively prepare for the beginning of a contract we are
consolidating the proposed Sec. 422.502 by removing paragraphs (e),
(f), and (g). The change eliminates, as a separate and distinct step in
the review process, notification that an application is incomplete. In
the final rule, Sec. 422.502 now provides that if an applicant's
contract is submitted and found to be both incomplete, as well as
unqualified (resulting in the issuance of an Intent to Deny Notice),
the period to remedy the application will be 10 days from the date of
the notice.
Also, in the final rule in Sec. 422.502(c)(2)(ii), we are changing
the amount of time that an applicant has to remedy an application after
receiving an intent to deny notice from 60 days suggested in the
proposed rule to 10 days. We believe this change is in accordance with
the comments we have received to on both rules to streamline the
process for each, bring the MA requirements under part 422 and the
prescription drug benefit requirements under part 423 in to line, and
to reduce confusion and administrative burden. Additionally, if after
the initial review of the applications, we determine that an
application is missing information necessary for us to make a
determination we will attempt to notify the applicant that this is the
case. This is not a requirement, however, and we are stating in the
preamble of this final rule that applicants receiving notification that
their application is incomplete but who have not yet received an intent
to deny notice respond back to us with a cured application within two
days of receiving the notice. The two days are thus a guide, but
ultimately we are constrained by the total amount of time to review
applications. As a result, an applicant that takes longer than two days
to remedy its incomplete application, risks our issuing a notice of
intent to deny before the applicant submits the requested information.
We believe that the amount of time given to applicants to furnish
information is a procedural rule that is not subject to notice and
comment. In addition, applicants will still receive the same 10 days
included in the proposed rule to revise their applications if they fail
to respond within 2 days, and then receive an intent to deny notice
from us.
As discussed above, we are making every effort to accommodate plans
in the contract application process. We believe that the availability
of choices will enhance opportunities to lower program costs. However,
we must balance this goal with the need to ensure that only qualified
plans are selected to contract with us.
With the exceptions noted, we are accepting the language from the
proposed rule for this section.
4. General Provisions (Sec. 422.503).
Comment: In the proposed rule at Sec. 422.503(b)(vi)(G)(2), CMS
suggested that MA organizations include provisions that would require a
MA organization to report misconduct it believes may violate various
criminal, civil or administrative authorities. Numerous comments, both
for and against, were received regarding these mandatory self-reporting
of misconduct requirements. Most of the comments, however, objected
that the rule as written was vague and overbroad, with no basis in
statute. Other comments directed CMS to eliminate the proposal, stating
that current compliance requirements were sufficient.
Response: In response to these comments, we are eliminating from
this regulation an explicit requirement that MA organizations report to
CMS violations of law, regulation, or other wrongdoing on the part of
the organization or its employees/officers. While we are not requiring
MA organizations to engage in mandatory self-reporting, we continue to
believe that self-reporting of fraud and abuse is a critical element to
an effective compliance plan; and we strongly encourage MA
organizations to alert CMS, the OIG, or law enforcement of any
potential fraud or misconduct relating to the Part D program. If after
reasonable inquiry, the MA organization has determined that the
misconduct has violated or may violate criminal, civil or
administrative law, the MA
organization should report the existence of the misconduct to the
appropriate Government authority within a reasonable period, that is,
within 60 days after the determination that a violation may have
occurred.
The failure to disclose such conduct may result in adverse
consequences to MA organizations, including criminal prosecution. For
example, Title 42 U.S.C. Section 1320a-7b(a)(3) punishes as a felony
the knowing failure to disclose an event affecting the initial or
continued right to a benefit or payment under the Medicare program. The
Federal civil False Claims Act, 31 U.S.C. Section 3729(a)(7) states
that any person who knowingly makes, uses, or causes to be made or
used, a false record or statement to conceal, avoid, or decrease an
obligation to pay or transmit money or property to the Government, is
liable to the United States for a civil penalty plus trebled
restitution for the damages sustained by the government. In addition,
both DOJ and the OIG have longstanding policies favoring self-
disclosure.
As discussed earlier, we believe that establishing procedures to
ensure prompt responses to potential fraud violations should be one of
the elements in an effective compliance plan. While we are eliminating
the mandatory self-reporting requirements, we expect all MA
organizations offering a Part D plan to comply with the requirement for
a comprehensive fraud and abuse plan as found under Sec.
422.503(b)(4)(vi)(H). (Note: we are not reproducing our discussion on
the fraud and abuse requirements here as this is a requirement
specifically for MA organizations offering a prescription drug benefit.
Please see our discussion in our final rule establishing the
prescription drug benefit.) In summary, we have elected to recommend
reporting fraud and abuse as part of the compliance plan as required as
a condition of contracting as an MA organization. Plans that self-
report violations will continue to receive the benefits of voluntary
self-reporting found in the False Claims Act and Federal sentencing
guidelines. In the future, we will examine mandatory self-reporting of
health care fraud and abuse across all Medicare providers and
contractors.
5. Sec. 422.504 Contract Provisions
Comment: A commenter questioned the need for proposed Sec.
422.504(h) which would require MA organizations to comply with certain
specific Federal laws and rules, other laws applicable to recipients of
Federal funds, and all other applicable laws and rules. The commenter
argued that these requirements were on their face seemingly
inconsistent with our regulatory provisions exempting Federal plans
from procurement standards and preempting State laws other than those
[[Page 4674]]
relating to licensure. Furthermore, nothing suggests a rationale for
naming some laws and not others. The same commenter also suggested that
the provisions might more appropriately be replace with one focused on
plans committing themselves to compliance with Federal standards aimed
at preventing or ameliorating waste, fraud, and abuse.
Response: We agree that our efforts are best focused on
requirements to prevent fraud, waste, and abuse and on issues that we
are responsible for enforcing such as the HIPAA Administrative
Simplification rules. We have, therefore, made the suggested changes to
reflect this focus at Sec. 422.504(h). These changes are in no way
meant to imply that MA organizations need not comply with other Federal
laws and regulations as applicable, only that the enforcement of these
Federal laws and regulations is the responsibility of Federal agencies
other than ours. We have made a similar change in the regulations
establishing the prescription drug benefit program under part 423.
Comment: A commenter responding to our proposed rule establishing
the prescription drug benefit under part 423 asked us to clarify
whether the retention periods all refer to MA organizations offering
Part D plans. Another commenter asked that our records retention policy
for Part D plan sponsors parallel the statute of limitations that
applies to the False Claims Act, that is, a maximum of 10 years from
the time of the violation.
Response: We agree with the commenter that our retention
requirements should more closely follow the statute of limitations that
apply to the False Claims Act. And, in response to the other commenter,
we are using this standard for retention requirements under both parts
422 and 423. As a result, in the final rule at Sec. 422.504(e)(4), we
are requiring that records be maintained for 10 years from the last
contracting period or audit, whichever is latest, to conform to the
statute of limitations for the discovery of violations under the False
Claims Act.
We recognize that 10 years is the upper limit under the False
Claims Act but we believe that this period will best enable us to have
access to pertinent records should this be necessary. Also, the 10-year
retention policy is in line with requirements concerning the
prescription drug rebates under the Medicaid program (see 42 CFR
447.534(h)). We believe, as is the case with the Medicaid rule, that in
order to ensure that we have the proper oversight for investigating the
complex payment and other relationships associated with the delivery of
prescription drugs under a program such as Part D, the 10-year
retention requirement is necessary. We are making the change to parts
422 and 423 in order to maintain uniformity between requirements for MA
organizations and other Part D sponsors. With the exception noted, we
are accepting the language from the proposed for this section.
6. Prompt Payment by MA organization (Sec. 422.520)
Comment: A commenter recommended that we remove the distinction
between contracted and non-contracted providers under Sec.
422.520(a)(3) referring to prompt payment terms for non-contractors,
fearing that we relinquish any authority to enforce prompt payment
control for contracted providers. A commenter asked that the 60-day
period for non-contracted providers to be paid be shortened to 30 days.
Response: In response to the first commenter, we do not believe it
is necessary to add language concerning contract and non-contract
providers. We believe that Sec. 422.520(b)(2) makes it clear that the
MA organization is obligated by the terms of its contract with the
provider and that such a contract is the proper vehicle for any prompt
payment terms.
In response to the second commenter, we believe that a limit of 60
calendar days strikes a reasonable balance by allowing time for the
processing of payment without causing providers hardship.
Comment: We received comments asking that we include Independent
Physicians Associations (IPAs) and Medical Groups under the prompt
payment standards. Other suggestions included establishing timely
payment requirement for capitations paid to IPAs and Medical groups;
standards for documentation that should be included with capitation
payments and/or deductions; establishment of a 90-day limit on an MA
plan's ability to retroactively assign or terminate beneficiaries to or
from a capitated IPA or Medical group; establishment of a time limit on
how far back an MA plan is allowed to make a capitation deduction (not
longer than 12 months; allow capitated IPA and medical groups to
renegotiate their capitation rate if new benefits are by law and/or
added by an MA plan; requiring MA plans to provide on a quarterly basis
a detailed accounting of the status of any risk arrangements or risk
pools(for example hospital, and pharmacy) in a mutually agreed to
electronic format.
Response: Non-contracted IPAs and Medical Groups are already
included in the prompt payment requirements in section 1857(f)(1) of
the Act and in Sec. 422.502. The billing ``agent'' or entity is
immaterial. We have not specifically regulated the content of contracts
between providers and MA organizations. We have long supported the
notion that allowing the ``free'' market to determine the contractual
terms, including payment amounts and timeliness, as well as related
matters was best left to the interested parties (MA organizations and
providers), who could best represent their own self-interest. While we
support many of the items suggested and would support their inclusion
in provider/MA organization contracts, we do not believe it is
appropriate to require that they appear there.
We have adopted the language of the proposed rule in this final
rule.
7. Agreements with Federally Qualified Health Centers (Sec. 422.527)
Comment: One commenter recommended that we add language clarifying
under Sec. 422.527(b) that payment in full to an FQHC does not
preclude the FQHC from receiving the wrap-around payment provided by
statute and in Sec. 422.316.
Response: We agree with the commenter that we are responsible for
the difference between what the MA plan pays to the FQHC and what its
fee for service cost are, described above as a wrap-around. Our
proposed language at Sec. 422.527 concerned primarily the contract
between CMS and the plan. However, in order to clarify how our payments
to FQHCs are determined when a beneficiary in an MA plan receives
treatment from an FQHC that has a written agreement with the MA
organization offering the plan, we have revised Sec. 422.527 of the
final rule by adding new paragraph (c) to specify that financial
incentives and withholds are not considered in determining the payments
made under Sec. 422.316(a).
Comment: The same commenter asked that we clarify that in the final
rule that we will not include a financial incentives, ``such as risk
pool payments, bonuses or withholds'' received by a FQHC from an MA--
when determining payments made by CMS.
Response: In response to the commenter, we are clarifying in Sec.
422.527(c) that financial incentives such as risk pool payments and
bonuses as well as financial withholds are not considered in
determining payments made to FQHCs by CMS. The language
[[Page 4675]]
at section 1833(a)(3)(B)(ii) of the Act, as added by section
237(a)(B)(ii) of the MMA, specifically excludes these financial
incentives or withholds when determining the base amount used to be
used in calculating payments by CMS.
With the exception of the changes noted, we are adopting the
language of the proposed rule for this section.
Subpart L--Effect of Change of Ownership or Leasing of Facilities
During Term of Contract
In the proposed rule, we indicated that we would study the
modification of existing change of ownership (CHOW) provisions in order
to reduce the administrative burden of these requirements and to
increase the effectiveness of these provisions. In particular, we
requested and received comments regarding situations which constitute a
CHOW and how the CHOW provisions should be applied to large companies
with multiple business units. These provisions are essentially the same
as those requirements found in Title I subpart L for Prescription Drug
Plan sponsors. Several commenters specifically requested that we
maintain consistency between the provisions for subpart L in Title I
and Title II.
After reviewing the comments that we received, we recognize that
given the infinite variety of business arrangements and transactions it
may be necessary to provide guidance via interpretive documents (for
example, FAQs,) and on a case by case basis as to whether a given
arrangement constitutes a CHOW and requires an entity to adhere to the
CHOW requirements. Contracting organizations should be aware that
although we are committed and sensitive to reducing the administrative
burden on businesses with multiple legally related entities, we will be
alert to situations where these organizations may be looking to avoid
compliance with the CHOW provisions so as to evade Medicare liabilities
and obligations.
In this final rule we note that contracted MA organizations must
adhere to the Privacy Rule on sharing patient health information in the
course of a CHOW and novation agreement. MA organizations are not
permitted to share protected enrollee health information with a new
owner that is not, or will not, become a covered entity absent
authorization from its enrollees.
General Provisions (Sec. 422.550)
Comments: Two commenters requested that CMS clarify that the
transfer of the MA line of business from one entity to another
constitutes an asset transfer for which CMS will permit a novation
agreement.
Response: We agree that the transfer of a MA line of business from
one entity to another would constitute a CHOW, such that a novation
agreement would be permitted and, in fact, required.
Comment: A commenter recommended that the change of ownership
requirements under Sec. 422.550 and Sec. 422.552 exempt change of
ownership transactions between two separate subsidiaries of the same
parent corporation from the financial information, financial impact and
novation agreement requirements of the CHOW provisions. Instead, the
commenter suggested that such entities provide written certification
detailing that a legally binding transfer of the MA obligations has
occurred.
Response: We asked specifically for comments with regard to
multiple business units so as to ensure that our rules reflect the
realities of today's business world and are not unduly burdensome.
While transactions between two subsidiaries of the same parent
corporation may not in all cases constitute a CHOW, and, therefore, the
business units would not need to adhere to the requirements of the CHOW
provisions, we decline to create a separate certification procedure for
such business units in the event that a CHOW does occur, as suggested
by the commenter. Our ultimate responsibility is to the beneficiaries
and objective is to ensure that an entity cannot under any circumstance
evade its responsibilities to the Medicare program. What is relevant is
whether the transaction leaves the same entity responsible for the MA
contract and all inherent responsibilities remain unchanged. Any
transfer of functions and/or assets that results in a change of the
responsible party or parties for the MA contract must comply with the
CHOW provisions under Subpart L.
Asset Sale (Sec. 422.550(a)(2))
Comment: Two commenters recommended that the title of the
subparagraph identified as ``Asset sale,'' be revised to read ``Asset
Transfer.''
Response: The suggestion has been adopted in the final regulation.
In the proposed rule we were looking for comment on how to best
characterize a CHOWs for those businesses with multiple business units,
recognizing that a business would not always be selling its assets, but
may sometimes simply be transferring a business asset.
Notice Period (Sec. 422.550(b))
Comments: Two commenters recommended that CMS consider extending
the 60 day Notice period that MA organizations are required to provide
before a change of ownership. The commenters stated that circumstances
may arise when it is not possible to give such notice, for example,
State approval pending, and a final determination date by the State is
indefinite. Additionally, they recommended adding a good clause
exception to the rule when such circumstances occur.
Response: The MMA was passed, in part, to encourage and ease MA
plans into the new Medicare market place. Towards that end we will, on
a case by case basis, have the flexibility to extend the 60 day notice
period if a situation arises that warrants such an exception. We do not
feel at this time we need to add a clause that specifies a good cause
exception.
Subpart M--Grievances, Organization Determinations, and Appeals
1. Introduction
The MMA did not make any revisions to the statutory requirements in
sections 1852(f) and (g) of the Act regarding MA grievances and
appeals. Thus, we generally proposed to maintain the existing
regulatory requirements in subpart M of part 422, with the inclusion of
minor changes needed to conform these subpart regulations to MMA
terminology and other provisions. We also reviewed the existing MA
grievance and appeal requirements to identify needed refinements.
Finally, we proposed changes to the part 417 regulations, which apply
only to section 1876 cost contractors and section 1833 health care pre-
payment plans (HCPPs) that would establish uniform grievance and appeal
procedures for all Medicare managed care plans.
We received 30 comments on subpart M in response to the proposed
rule. Below we summarize our proposals and respond to public comments.
(For a detailed discussion on our proposals, please refer to the August
3, 2004 proposed rule. (69 FR 46,866, 46,909).
2. Background
Section 1852(f) of the Act provides that an MA organization must
provide meaningful procedures for hearing and resolving grievances
between the organization (including any other entity or individual
through which the organization provides health care services) and
enrollees in its MA plans. Section 1852(g) of the Act addresses the
procedural requirements concerning coverage (``organization'')
determinations and reconsiderations and other appeals for MA
organizations. Only disputes concerning ``organization
[[Page 4676]]
determinations'' are subject to the reconsideration and other appeal
requirements under section 1852(g) of the Act.
In general, organization determinations involve whether an enrollee
is entitled to receive a health service or the amount the enrollee is
expected to pay for that service. All other disputes are subject to the
grievance requirements under section 1852(f) of the Act. For purposes
of this regulation, a reconsideration consists of a review of an
adverse organization determination by either the MA organization itself
or an independent review entity. We use the term ``appeal'' to denote
any of the procedures that deal with the review of organization
determinations, including reconsiderations, hearings before
administrative law judges (ALJs), reviews by the Medicare Appeals
Council (MAC) and judicial review.
For the grievance, organization determination, and appeal
requirements, an MA organization must establish procedures that satisfy
these requirements with respect to each MA plan that it offers. These
requirements generally are the same for all plan types --including
coordinated care plans such as HMOs and PPOs, non-network MSA plans,
and PFFS plans. However, note that for MA-PD plans, separate rules
apply for drug benefits, as set forth under part 423, subpart M.
Sections 1833(a)(1)(A) and 1876(a)(5)(B) of the Act reference
reasonable cost reimbursement contracts for HCPPs and HMO/CMPs. Section
1876(c)(5) of the Act sets forth the procedures HMO/CMP organizations
must follow with regard to grievances, organization determinations, and
appeals. Section 417.840 of our regulations requires HCPPs to apply the
administrative review procedures set forth for HMO/CMPs. Section 1869
of the Act provides the right to a hearing and to judicial review for
any individual dissatisfied with a determination regarding his or her
Medicare benefits.
3. General Provisions, Grievances, and Organization Determinations
(Sec. 422.560 through Sec. 422.576)
Section 940(b)(2)(A) of MMA amended section 1852(g)(5) of the Act
to incorporate the provisions of section 1869(b)(1)(E)(iii) of the Act,
which also was added by MMA. This new clause provides for inflation
adjustments to the ``amount in controversy'' required to pursue a
hearing and judicial review. It makes these provisions applicable in
determining the amount in controversy under section 1852(g)(5) of the
Act ``in the same manner as they apply to the dollar amounts specified
in section 1869(b)(1)(E)(i).'' Therefore, revisions to the provisions
in section 1869 of the Act governing the calculation of the amount in
controversy apply to MA appeals.
The existing MA regulations incorporate 42 CFR part 405, subparts G
and H, and 20 CFR part 404, subparts J and R. Note that in an interim
final rule we expect to publish shortly, we intend to create a new
subpart I of part 405 to implement significant revisions to section
1869 of the Act. To accommodate these changes, we proposed minor
changes to the cross-references for MA appeals at Sec. 422.560(a)(3),
Sec. 422.561, and Sec. 422.562 accordingly. We are finalizing these
changes in this final rule. We note that under Sec. 422.562(d), the
provisions of part 405 apply to the extent that they are appropriate.
This means, for example, that the provisions to implement the time and
place for a hearing before an ALJ under section 1869 of the Act, if and
when finalized, would apply to MA appeals. Thus, we have added a
reference to Sec. 422.602(b) that the time and place for a hearing
before an ALJ will be set in accordance with Sec. 405.1020. Although
that section has not yet been published in final form, we expect that
it will be published prior to the effective date of this rule. Readers
may refer to 67 FR 69311, 69331 (Nov. 15, 2002) for an explanation of
the proposals and a discussion of the possibility of using video-
teleconferencing in ALJ hearings. On the other hand, the provisions
that are dependent upon qualified independent contractors would not
apply since an independent review entity conducts reconsiderations for
MA appeals.
We also clarified the definitions of an authorized representative
and an enrollee under Sec. 422.561, which are consistent with part
405. We have removed ``authorized representative'' and replaced it with
``representative'' to clarify that a representative means an individual
appointed by an enrollee or other party, or authorized under State or
other applicable law, to act on behalf of an enrollee or other party
involved in the appeal. Unless otherwise stated in this subpart, the
representative will have all of the rights and responsibilities of an
enrollee or party in obtaining an organization determination or in
dealing with any of the levels of the appeals process, subject to the
applicable rules described in part 405 of this chapter.
In accordance with section 1852(g)(1) of the Act, Sec. 422.566
begins by specifying that an MA organization must have a procedure for
making timely organization determinations regarding the benefits an
enrollee is entitled to receive and the amount, if any, that an
enrollee must pay for a health service. We clarified at proposed Sec.
422.566(b)(4) that a reduction in services was an action that
constituted an organization determination that an enrollee may appeal.
Notice requirements would continue to apply whenever an enrollee
disputed the reduction, under Sec. 422.568(c).
Standard timeframes and notice requirements for organization
determinations (Sec. 422.568)
The only substantive change we proposed in Sec. 422.568 was the
elimination of the practitioner's notice requirement set forth in Sec.
422.568(c). This section required that at each patient encounter with
an MA enrollee, a practitioner must notify the enrollee of his or her
right to receive, upon request, a detailed written notice from the MA
organization regarding any decision to deny services to an enrollee.
Instead of requiring practitioners to provide general notices to
enrollees at each patient encounter, we proposed instead to require MA
organizations to provide specific written notice for MA organization
denials. We believed that MA organizations could provide general
information about enrollees' rights in physician office settings in the
plan's Evidence of Coverage (EOC). Requiring practitioners to issue
notices to enrollees has proven to be administratively burdensome and
impossible to monitor.
We also proposed conforming changes to Sec. 422.570(d)(2)(ii) and
Sec. 422.572(b) to require that an MA organization must inform an
enrollee of the right to file an ``expedited'' grievance, if the
enrollee disagrees with the MA organization's decision not to expedite
a request for an expedited organization determination.
Timeframe and notice requirements for expedited organization
determinations.
Under Sec. 422.572(c), we proposed to eliminate the requirement
that oral notice of an expedited determination be followed up with
written confirmation in cases of fully favorable determinations. Notice
would be required only for decisions that are fully or partly adverse
to the enrollee, and thus could engender an appeal.
Comment: Several commenters supported the elimination of the
practitioner's notice set forth in Sec. 422.568(c). Some commenters
agreed that the practitioner's notice was not a practical means of
notifying enrollees of their appeal rights; they supported use of the
EOC to provide information about enrollee rights in situations where
[[Page 4677]]
physicians make coverage determinations in their offices. One commenter
contended that the practitioner's notice was burdensome for providers
to deliver and in effect absolved plans of any accountability for their
utilization review decisions.
Two commenters stated that the EOC was not a viable substitute for
communicating appeals information to enrollees. The commenters believe
that the EOC would not be as effective as a notice provided in a
practitioner's office regarding how an enrollee could get a coverage
determination from the plan. These commenters thought our proposal
would disadvantage enrollees, because they do not routinely refer to
the EOC. In lieu of the requirement to provide a written notice to each
enrollee, one commenter recommended that CMS require practitioners to
display posters in their offices to inform enrollees about their
rights.
Response: In our view, the EOC is an appropriate alternative to
requiring practitioners to deliver notices regarding enrollees' rights
to receive coverage determinations from their plans. We believe that
enrollees have a responsibility to refer to their EOC to obtain general
information regarding coverage determinations. Furthermore, we believe
that enrollees have relationships with their physicians built on trust,
and enrollees often play an active role in the treatment decisions that
affect them. Therefore, in the absence of a delegated arrangement, we
are not placing the burden on practitioners to deliver notices to
enrollees on their right to receive detailed coverage notices at each
patient encounter.
We will work with MA organizations to ensure that the EOC contains
information on an enrollee's right to receive a detailed explanation if
he or she believes that a practitioner has denied care that the
enrollee believes he or she is entitled to receive, or care the
enrollee believes should continue. For these situations, the EOC will
direct the enrollee to request an organization determination. We will
also work with consumer advocates to determine other ways to educate
enrollees about their rights.
Comment: Four commenters supported CMS' proposal to explicitly
specify in Sec. 422.566(b) that a reduction of services constitutes an
organization determination that an enrollee may appeal.
Response: We believe that this approach essentially clarifies
existing policy, under which a reduction in service is an appealable
issue. Thus, if an enrollee disagrees with an MA organization's
decision to reduce a course of treatment, the MA organization must
consider the disputed reduction of service a new request for an
organization determination. A request for a new organization
determination allows the enrollee to receive notice, appeal rights, and
access to the MA appeals system under Sec. 422.570 and Sec. 422.584.
4. Requests for Reconsiderations (Sec. 422.582)
The only substantive change we proposed regarding standard
reconsiderations pertained to the manner in which a party to an
organization determination would request an appeal. Proposed Sec.
422.582(a)(1) and (a)(2) allowed a party to request a standard
reconsideration orally or in writing. In addition, proposed Sec.
422.584(e) required an MA organization to give notice in accordance
with the broader provision of Sec. 422.590, since there are notice
requirements other than those contained in Sec. 422.590(d).
As we proposed for expedited organization determinations under
Sec. 422.570(d)(2)(ii), proposed Sec. 422.590(a) and Sec.
422.590(d)(2) required an MA organization to inform an enrollee of the
right to file an ``expedited'' grievance if the enrollee disagreed with
the MA organization's decision not to expedite a request for an
expedited reconsideration. This is a right that already was established
under the grievance provision at Sec. 422.564(d)(2) (re-codified under
this final rule at Sec. 422.564(f)(2)); thus, we needed to make a
conforming change.
Comment: One commenter took exception to the expedited grievance
process currently in Sec. 422.564(d) (re-codified in this rule at
Sec. 422.564(f)), (and by extension, the conforming changes at
proposed Sec. Sec. 422.570(d)(2)(ii) and 422.572(b)), arguing that
this process was not beneficial because it allowed the same
organization determination to be considered along two separate tracks
simultaneously. The commenter stated that an MA enrollee has the right
to request an expedited review of a plan's organization determination,
and that the review is automatically granted if supported by a
physician's assertion that the life or health of an enrollee would be
adversely affected by a decision not to expedite the review. Thus, even
without the benefit of an expedited grievance process, a decision would
still be made by the plan (albeit in a longer period), and the enrollee
would not be in jeopardy while waiting for the plan's decision. The
commenter recommended that CMS delete this provision from the
regulation in its entirety because, in the commenter's view, it is
redundant and inefficient. It would also remove the need for conforming
changes.
Response: We agree with the commenter that we should not create
redundant processes. However, we do not believe that Sec. 422.564(d)
(now Sec. 422.564(f)) is duplicative of the appeal procedures. An
expedited grievance process provides important protections for
enrollees who are unable or prefer not to obtain a physician's
certification that applying the standard time frame would have adverse
consequences for the enrollee. In addition, an MA plan could determine
that it needs an extension to process a standard or expedited
organization determination or reconsideration request. By allowing an
expedited grievance to proceed under those circumstances, the decision
about the grievance would not be the organization determination, but
the plan's appropriate use of its discretion to extend the time frame.
Thus, we specified at Sec. 422.564(d) (now (f)) that an MA
organization must notify the enrollee within 24 hours of receiving a
grievance about the MA organization's refusal to expedite a review.
Similarly, if an enrollee believes an MA organization's decision to
invoke an extension to the organization determination or
reconsideration time frames is incorrect, an expedited review would
ensure that any inappropriate procedural actions under the appeals
process are resolved and that the appeal proceeds without delay.
Therefore, we are retaining the provision that in the current Sec.
422.564(d) (now Sec. 422.564(f)), and making the required conforming
changes at Sec. 422.570(d)(2)(ii) and Sec. 422.572(b) as previously
proposed.
Comment: A commenter supported CMS' decision to revise Sec.
422.572(c) to no longer require MA organizations to provide written
notice for fully favorable decisions. The commenter also recommended
that the MA organization should communicate fully or partially
favorable decisions to the provider, who would then notify the enrollee
of the organization's decision.
Response: While we agree that the revision at Sec. 422.572(c) will
eliminate the unnecessary burden to issue written notices in cases of
fully favorable decisions, we believe that written notifications remain
appropriate for partially favorable decisions, which may result in
appeals. Moreover, notwithstanding any arrangements an MA organization
negotiates with its providers, the MA organization is ultimately
responsible for ensuring that its decisions are communicated to
[[Page 4678]]
enrollees. We believe that decisions involving whether to initiate a
service constitute the majority of an MA organization's communication
with enrollees. Therefore, in the absence of a delegated arrangement,
we do not believe that it is appropriate or practical to require all
individuals or entities that provide health care services to give
routine notices to a plan's enrollees.
Comment: Two commenters opposed CMS' proposed revision at Sec.
422.582(a) that would allow a party to request a standard
reconsideration orally or in writing. One commenter recommended that
CMS delete the proposed provision because oral requests would increase
the number of meritless reconsiderations and overburden the
reconsideration process. The commenter believed that this provision
would lead to confusion and undocumented assertions in the process. The
commenter further believed that written requests ensure that MA
organizations effectively and efficiently focus on an enrollee's
ultimate issue. Additionally, the commenter noted that the MA
organization would be required to reduce oral requests to writing,
which would transfer the burden of generating a written request from
the enrollee to the MA organization. If the provision for oral appeal
requests is retained, the commenter recommended that they be allowed
only in person. Another commenter believed that MA organizations would
need guidance on how to process oral requests, particularly in the case
of a request from a purported authorized representative. Finally, a
commenter stated that CMS should not permit oral requests in order to
be consistent with private sector regulatory requirements.
Response: Based on our review of the comments, we agree with the
commenters that oral appeal requests could present problems for both MA
organizations and the appealing parties, particularly when one
individual attempts to translate an oral request into writing on behalf
of another. We believe that an unintended consequence of our proposed
change is the potential for essential information to get misconstrued.
Thus, rather than requiring MA organizations to accept oral requests,
we will continue to provide guidance on how an MA organization may
choose to accept an oral request for reconsideration, and the steps it
can take to validate the request. This will enable plans the
flexibility to create such a process if they choose to do so.
Therefore, we have revised the text at Sec. 422.582(a) to reflect that
an MA organization may adopt a policy under which it accepts oral
requests for standard reconsiderations. We would expect that MA
organizations would accept oral requests in instances where there is a
clear and compelling reason to do so. An example of a clear and
compelling reason to accept an oral request would be in the case of an
illiterate or an incapacitated enrollee on the basis that they would
not be able to request a reconsideration in writing.
5. Administrative Law Judge (ALJ) Hearings, Appeals to the Medicare
Appeals Council, Judicial Review, and Provisions Affected by Part 405
(Sec. 422.600 through Sec. 422.612)
Section 931 of the MMA requires that the ALJ hearing function now
conducted by the Social Security Administration (SSA) be transferred to
the Department of Health and Human Services by no later than October 1,
2005. In light of this impending change, we are revising Sec. 422.582
and Sec. 422.602 to eliminate any reference to SSA as a location for
enrollees to file appeals. If an enrollee inadvertently files an appeal
request with SSA after the transfer, its field offices will ensure that
the request is transferred to the appropriate appeals entity. We have
modified Sec. 422.602(a) to require that a party must file a written
request for an ALJ hearing with the entity specified in the independent
review entity's (IRE's) reconsideration notice.
6. Noncoverage of Inpatient Hospital Care--Notice and QIO Review (Sec.
422.620 and Sec. 422.622)
We proposed at Sec. 422.620(b) to specify that an MA organization
(or an entity delegated by the organization) must obtain the
concurrence of the physician responsible for the enrollee's in-patient
care before discharging an enrollee. This provision would clarify an
omission in our April 4, 2003 final rule where we inadvertently failed
to include a corresponding change that physician concurrence is
necessary for discharging the enrollee rather than for issuing the
notice. Therefore, an MA organization's obligation to provide a notice
of non-coverage when an enrollee objects to a discharge would not be
contingent upon a physician concurrence because the discharge decision
already would have been made.
We also proposed to revise Sec. 422.620(c) to require that if an
MA organization lowers the enrollee's level of care in an inpatient
hospital setting, for example, from acute to skilled, but the enrollee
is not discharged from the facility, the MA organization must specify
the enrollee's new level of care in the notice. This change would be
consistent with Sec. 422.620(a)(1)(ii), which requires the MA
organization to provide a notice to the enrollee when it no longer
intends to continue coverage of the inpatient hospital stay, but is not
``discharging'' the enrollee from the facility.
Comment: Several commenter recommended that CMS clarify that an
enrollee's right to receive a notice of non-coverage is linked to
physician concurrence to the extent that the physician must concur with
the MA organization's decision to discharge the enrollee or change the
enrollee's level of care. Several commenters continued to believe that
an MA organization could not issue a notice without the physician's
concurrence. One commenter thought that the propose rule suggested that
it is the MA organization rather than the physician that ultimately
discharges the enrollee. The commenter maintained that since a hospital
cannot discharge an enrollee without physician concurrence, CMS should
prohibit an MA organization from ending coverage without a physician's
concurrence. Another commenter stated that the final rule should
prevent MA organizations from shifting financial liability to hospitals
without securing the attending physician's concurrence to discharge the
enrollee.
One commenter stated that a benefit determination based on medical
necessity guidelines to discontinue unnecessary inpatient coverage does
not require physician concurrence. Another commenter thought that if
physician concurrence were required to issue the notice of non-
coverage, then enrollees would be unable to initiate the appeals
process in a timely manner. This commenter recommended that CMS delete
the entire provision and only require plans to issue a notice of non-
coverage to the enrollee when it decides to no longer pay for acute
care.
Another commenter, concerned about a hospitalized enrollee's
reaction to receiving a notice of non-coverage from the MA
organization, thought that CMS should withdraw the proposal, citing the
trauma, confusion and stress to the enrollee. Instead, the commenter
believed that the hospital staff familiar with the specific medical
circumstances related to the enrollee's confinement should provide the
notice.
Response: Medical guidelines alone cannot substitute for a
physician's judgment about the medical condition of the patient under
the physician's care. We agree with the commenters that physicians
ultimately have the authority to discharge enrollees or change the
level of care in hospital settings.
[[Page 4679]]
However, the MA organization is required to issue a notice of non-
coverage if an enrollee objects to the discharge decision, or when an
enrollee's level of care changes in an acute facility. Since the
attending physician must agree to the discharge or the change in level
of care, the MA organization can provide the notice without further
physician involvement. Thus, we are merely clarifying under Sec.
422.620(b) that a physician concurrence is required before discharging
an individual or changing the level of care in an inpatient setting.
We disagree with the commenter that argued if a physician
concurrence were required to issue the notice, then enrollees would be
unable to initiate timely appeals. The timeframe for filing does not
begin until the enrollee receives the notice. We further disagree that
we should delete the entire provision at Sec. 422.620 and only require
plans to issue notices when they decide to no longer pay for acute
care. If an enrollee disagrees with being discharged from the hospital,
then the enrollee is entitled to a notice explaining his or her appeal
rights under the law.
Finally, if an MA organization believes that its provision of the
notice to an enrollee in an acute facility would create stress, trauma
and confusion, then the MA organization has the option to delegate to
the hospital the responsibility to provide the notice of non-coverage
on behalf of the MA organization.
Advance Beneficiary Notices in the MA Program
In the August 3, 2004 proposed rule, we solicited comments on
whether to permit or require network and non-network providers to
furnish enrollees advance beneficiary notices (ABNs) when they access
non-Medicare covered services, or when they face potential liability
for out of network services that would be otherwise payable by the MA
plan if proper referral were obtained.
Comment: Several commenters vehemently opposed requiring providers
to furnish ABNs to enrollees who wish to obtain non-Medicare covered
services. They stated that CMS could not enforce any requirements on
non-network providers to advise enrollees of potential liability. The
commenters believed that ABNs would be burdensome for physicians,
providers and MA organizations, and could lead to delays in care for
enrollees. Another commenter stated that CMS, instead, should educate
providers about their responsibility to contact the MA organization
when enrollees seek out of network or non-Medicare covered services.
Several commenters stated that ABNs in original Medicare have
inherent problems, such as providers that issue blanket ABNs, which
then become meaningless to the enrollee. A commenter noted that
although the ABN was only a one-page document, there were 30 pages of
instructions for the provider to complete the form, thus the use of
ABNs would be confusing.
One commenter indicated that it was premature to propose the use of
ABNs in managed care. Instead, CMS should establish a database with
information, so that physicians could have access to coverage
information for each plan. Otherwise, it would be too burdensome for
physicians to know the different benefits and coverage of each plan.
The commenter further recommended that if CMS determined that ABNs were
necessary, then we should ensure that MA organizations provide clear
information to physicians' offices on the appropriate use of ABNs.
Another commenter recommended that CMS should allow providers to
issue ABNs only after they have requested and received an adverse
organization determination from the MA organization. If an enrollee
waived the right to have the provider request an organization
determination, nothing would preclude the enrollee from appealing the
MA organization's denial for the service.
Other commenters, however, were in favor of CMS allowing the use of
ABNs in managed care. One commenter reported that not all providers of
MA organizations have contracted networks, and even among those that
do, enrollees still utilize non-network providers. The commenter stated
that the MA organization could be unaware that the enrollee received
any services until he or she presents a claim. ABNs would inform
enrollees about potential costs at the time the enrollee seeks
services, thereby providing protection from unintended liability.
Another commenter thought ABNs should be required when enrollees access
non-Medicare covered services, and that an out of network provider
should be required to get an organization determination prior to
providing services.
Response: We will continue to study this issue and will pursue
subsequent notice and comment rulemaking before implementing any
standard use of ABNs under the MA program. In addition, we will work
with interested parties to determine how best to educate enrollees and
providers on financial liability matters, including the possibility of
permitting optional use of an ABN-like notice.
8. Appeal Procedures for Cost Plans and HCPPs.
We proposed under Sec. 417.600(b) that the same rights,
procedures, and requirements relating to beneficiary appeals and
grievances set forth in subpart M of part 422 of this chapter also
apply to organizations offering Medicare cost plans. In proposing this
change, we took into account that a key difference between cost plans
and MA plans is that virtually all organizations offering cost plans
employ a billing option available under Sec. 417.532(c)(1) that
reduces a cost plan's financial liability for certain Medicare-covered
services. Under this billing methodology, hospitals and SNFs that
furnish services to cost plan members can obtain direct reimbursement
from Medicare fiscal intermediaries for these services. For services
paid for under this methodology, the claims appeal procedures available
under original Medicare regulations in part 405 would be the
appropriate recourse when a Medicare fiscal intermediary denies a
claim. However, for other services, including any service or payment
denial resulting from an organization determination under a cost plan,
as defined in Sec. 417.606, enrollees would appeal through the cost
plan's appeals process. The plan's appeal procedures would also apply
in the rare situation when a fiscal intermediary approved a claim for
hospital or SNF services, but the cost plan refused to pay the covered
portion of the enrollee's cost sharing associated with the services.
As noted above, the cost plan appeals process would follow the same
rules that apply to MA organizations, as set forth in subpart M of part
422. Although the appeal procedures set forth in part 417 and part 422
are largely similar, it is important to note that the part 422
grievance provisions and recent changes to the notice and appeal
requirements for inpatient hospital, SNF, home health agency (HHA) and
comprehensive outpatient rehabilitation facility services would apply
to cost plans for the first time. These changes primarily involve Sec.
422.564, Sec. 422.620, Sec. 422.622, Sec. 422.624 and Sec. 422.626
which were set forth in the April 4, 2003 final rule, Improvements to
the Medicare+Choice Appeals and Grievance Procedures.'' (See 68 FR
16,652). The effect of those changes would be that plans would have
more specific guidelines for processing grievances, and enrollees would
be entitled to the same notice and appeal rights in cases of
terminations of Medicare services
[[Page 4680]]
furnished by hospitals, SNFs, HHAs and CORFs.
Comment: Commenters generally supported CMS' proposal to require
cost plans and HCPPs to follow the Medicare Advantage grievance and
appeal requirements, particularly in light of the unique billing
arrangement utilized by the majority of cost plans. One commenter
stated that CMS should reflect in its final rule that cost plans may
elect billing option one, a payment methodology where a fiscal
intermediary pays certain Part A services instead of the cost plan.
Another commenter wanted CMS to make sure that the cost plan's appeals
process would apply in the unusual circumstance where a fiscal
intermediary approved a claim, but the cost plan denied payment of the
enrollee's cost sharing portion. Other commenters wanted CMS to allow
sufficient time for cost plans that do not have MA experience to
transition to the MA rules. Some commenters recommended an effective
date of January 2006. Another commenter requested that the transition
to MA rules apply as of the first day of the contract year following
publication of the final rule.
Response: We did not receive any comments on the applicability of
the notice and appeal requirements to cost plans when Medicare services
end in SNFs, HHAs and CORFs, under Sec. 422.624 and Sec. 422.626.
Nevertheless, we agree with the commenters that there should be one
managed care appeals process for all plan types. As proposed, all part
422 rules now apply to cost plans and HCPPs. Thus, we have deleted all
part 417 grievance, organization determination, and appeal provisions,
and replaced them with Sec. 417.600(b) and Sec. 417.840 to require
cost plans and HCPPs to apply the MA procedures under part 422, subpart
M. Additionally, we have made a conforming change to Sec. 417.832(c)
dealing with representation of parties, and added a new provision at
Sec. 417.832(d) dealing with administrative law judge hearings,
Medicare Appeals Council review, and judicial review that references
part 405, as applicable to those provisions. However, for those cost
plans that elect to bill under original Medicare, any denied claim by
the fiscal intermediary or carrier must be subject to the appeals
process under original Medicare. We also agree that if a plan denies
payment of an enrollee's cost sharing amount, then the enrollee must
file an appeal under the MA appeal procedures.
As recommended by commenters, we will require that cost plans and
HCPPs must transition to the MA grievance and appeals processes under
part 422 no later than January 1, 2006. This should give plans,
providers and original Medicare contractors an ample opportunity to
make a seamless transition.
9. Federal Preemption of Grievances and Appeals
Section 232(a) of the MMA changes the presumption from one in which
State laws are not preempted unless they conflict with Federal laws or
fall into specified categories to one in which State standards are
presumed preempted unless they are licensing or solvency laws. In light
of the comprehensive nature of the appeals process already established,
we did not believe that the new preemption standard would have any
effect on coverage appeals provisions. Our regulations would continue
to defer to State law on the issue of authorized representatives of
enrollees in the organization determination, grievance and appeals
processes. We were concerned, however, with State grievance
requirements now preempted, and believed that we needed to reexamine
our Federal grievance requirements. Therefore, we solicited comments on
whether we should adopt the grievance provisions proposed in our
January 24, 2001 proposed rule that would require MA organizations to
establish notice and timeliness procedures. (See 66 FR 7593.)
Alternatively, we asked whether we should impose, as a Federal MA
requirement, that MA organizations meet State grievance requirements.
Comment: Most commenters, including both those representing MA
organizations and consumers, favored adopting the specific grievance
requirements first proposed in the January 2001 proposed rule. They
indicated that establishing national standards would eliminate
confusion for plans, particularly regional PPOs, and protect
beneficiary interests. They indicated that plans should not be subject
to multiple and conflicting State laws governing grievances. One
commenter generally supported the grievance rules but recommended that
CMS make two changes. The first modification would be that MA
organizations must process grievances ``as expeditiously as the
enrollee's health requires, but no later than 60 days.'' The second
change would prohibit plans from taking extensions to the timeframes.
Two commenters thought that CMS should not only require the
originally proposed standards for grievances, but also require plans to
adhere to individual State grievance processes as well. One of the
commenters believed that requiring plans to follow State processes
would restore the status quo before enactment of MMA, while the other
commenter thought that beneficiaries would have better protections by
having access to both Federal and State grievance procedures.
Response: We agree with the commenters that establishing a uniform
set of grievance standards would reduce confusion and burden for MA
organizations. We also believe that one set of rules will ensure
greater beneficiary understanding of their grievance rights and achieve
consistency among plan operations. Thus, we are implementing at Sec.
422.564 the specific Federal requirements for grievance procedures that
basically mirror those set forth in our January 2001 proposed rule. We
disagree with the commenter that MA organizations should be required to
follow both State and Federal grievance processes. We believe that such
an approach would be inconsistent with section 232(a) of the MMA, which
preempts State grievance requirements.
Under MA grievance requirements, organizations must notify
enrollees of decisions as expeditiously as the enrollee's case
requires, but no later than 30 calendar days after receiving a
complaint. MA organizations may extend the timeframe by up to 14
calendar days if the enrollee requests the extension, or if the
organization justifies a need for additional information and the delay
is in the interest of the enrollee. We believe that the timeframes
should be according to the enrollee's case as opposed to the enrollee's
health since not all grievances involve medical care. For example, an
enrollee may complain that a network physician does not offer
convenient hours for office visits. In addition, we believe that most
MA organizations will be able to respond to most grievances within 30
days. Even if an MA organization needs to extend the timeframe, we
believe that a 60-day standard is too long for an MA organization to
respond to an enrollee's grievance.
If an enrollee makes a grievance orally, the MA organization may
respond to it orally or in writing, unless the enrollee requests a
written response. If an enrollee files a written grievance, then the MA
organization must respond in writing. In addition, an MA organization
must provide information to enrollees on their right to request a
review by a Quality Improvement Organization (QIO) if the grievance
[[Page 4681]]
involves a quality of care issue. For any complaint involving a QIO,
the MA organization must comply with the requirement at Sec.
422.564(c), and cooperate with the QIO in resolving the complaint. MA
organizations must establish a 72-hour expedited grievance process for
complaints involving certain procedural matters in the appeals process.
Finally, MA organizations must create a system to track and maintain
records on all grievances.
We note that under MMA, enrollees would still have access to
various State remedies available in cases in which an issue is
unrelated to the MA organization's status as a health plan. As noted
above, cost plans and HCPPs must follow the grievance, organization
determination and appeal procedures under MA. However, general
preemption rules continue to apply to cost plans and HCPPs.
10. Employer Sponsored Benefits and Appeals
When an employer, by contracting with an MA plan, provides health
benefits in addition to those covered under Part C of Title XVIII of
the Social Security Act to their retirees, such employer may have
established a group health plan governed by both title I of the
Employee Retirement Income Security Act of 1974 (ERISA), as amended,
and State law (to the extent such State law is not preempted by ERISA).
In addition, when MA plans offer benefits covered under Part C, they
also fall under the requirements of part 422 with respect to Part C
benefits. Therefore, we solicited comments on whether, and to what
extent, the application of parallel appeal procedures in this context
might be a problem for plans, employers and/or eligible individuals.
Comment: Almost all commenters supported utilizing only the MA
procedures for claims involving integrated ERISA and MA benefits. One
commenter noted that enrollees probably do not distinguish between
ERISA and CMS approved benefits when they are integrated, and
therefore, a single appeals process would be less confusing. Another
commenter agreed, recommending that to the extent any benefits received
by an individual are part of an underlying MA, MA-PD, or PDP group
plan, including benefits separately negotiated between the MA, MA-PD or
PDP organization and an employer or labor organization, those benefits
should be governed by the MA or PDP regulations on grievances,
organization determinations, and appeals rather than subjecting the
beneficiary to two separate processes. Commenters also noted that
although the ERISA and MA rules contain some differences, they
generally provide similar enrollee protections.
Three commenters agreed that adopting and applying a single,
uniform MA appeals process for all benefits would be easier for the
enrollee to understand. Other commenters stated that parallel appeal
processes for enrollees with Medicare and ERISA benefits were costly,
redundant, and burdensome to administer, with the potential for
conflicting determinations. Only one commenter promoted a continuation
of parallel appeal procedures, but only to the extent that parallel
procedures afforded enrollees with more protection than would be
available in the absence of parallel procedures.
One commenter argued that the benefits under the two separate
programs must be adjudicated according to the rules for each program.
The commenter stated that it was not clear whether the outcome of a CMS
decision would preclude an enrollee from filing an ERISA appeal, and
that a decision made by CMS could affect the need for appeal under
ERISA when the ERISA plan had secondary payer status. The commenter
added that given that the benefits provided to the Medicare beneficiary
in this instance involve two different laws, there is no statutory
authority for us to adjudicate appeals relating to an ERISA plan, just
as there is no statutory authority for the DOL to adjudicate appeals
relating to Medicare benefits. This commenter recommended that DOL and
CMS work together to develop a process that would allow the plan
sponsor of a retiree health plan to delegate its authority for appeals
to the same entity considering Medicare appeals, provided that DOL is
satisfied that this process would satisfy ERISA claims and appeal
procedures.
Response: After reviewing the public comment and conferring with
representatives of DOL, we have concluded that changes (not only to the
CMS regulations but also to the DOL regulations) are needed to properly
address this issue. Accordingly, we have added Sec. 422.560(c), which
is intended to give ERISA plans the option, according to regulations of
the Secretary of Labor, of electing the MA process rather than the
procedures under 29 CFR Sec. 2560.503-1 for claims involving
supplemental benefits provided by contract with an MA organization. In
this regard, DOL has agreed to work with CMS to develop such
regulations. The language in Sec. 422.560 is intended to demonstrate
our commitment to make the entire MA process available in this context.
The provision in Sec. 422.560 would not take effect in the absence of
regulations by the Secretary of Labor.
Subpart N. Medicare Contract Determinations and Appeals
1. Overview
Subpart N ``Medicare Contract Determinations and Appeals'' went
into effect under Part C of Title XVIII, and as such was not part of
the proposals in the proposed rule of August 3, 2004. However, we found
that we needed to make a change to the requirements under Title II
subpart N.
Section 1860D-12(b)(3)(F) of the Act directs that the ``procedures
for termination'' in section 1857(h) of the Act be incorporated into
requirements for PDP sponsors. Therefore, we proposed under Title I
that a single set of procedures relating to contract determinations and
appeals would apply to both MA organizations and PDP sponsor
contractors and that the requirements in Sec. 423.641 through Sec.
423.669 (applicable to PDP sponsors) would mirror the requirements at
Sec. 422.641 through Sec. 422.698 for the MA program. We asked for
comments on this proposal and did not receive any negative comments.
Whenever practicable the regulations mirror each other. We assume that
commenters believed that it should be simpler to adhere to a uniform
set of contract requirements.
We found that in order to maintain one set of contract
requirements--and be responsive to commenters asking for a streamlined
application process and a single timeline--we needed to add a cutoff
date to the contract determination process under subpart N. This new
rule clarifies the timeline for valid contracts, in the event of a
redetermination, and we have added this provision at Sec. 422.654(c).
This provision specifies that in the case of a favorable
redetermination, including favorable decisions as the result of a
hearing or Administrative review, that such determinations be made by
July 15 for the contract in question to be effective on January of the
following year. We have made a corresponding change to the PDP sponsor
regulations by adding Sec. 423.647(c).
Subpart O--Intermediate Sanctions
In the proposed rule, we proposed a technical correction to Sec.
422.752(a)(8). The word ``entity'' was inadvertently left out of the
regulations text of that amendment. We proposed revising paragraph
(a)(8) to read ``[e]mploys or contracts with an individual or entity
who is excluded from participation in
[[Page 4682]]
Medicare under section 1128 or 1128A of the Act (or with an entity that
employs or contracts with such an individual or entity) for the
provision of any of the following.'' We did not receive any comments on
these clarifications and will adopt them in this final rule.
We note that while we did not propose other changes to the
requirements at Sec. 422.750 through Sec. 422.760, an interim final
rule with comment period was issued at the end of December, 2004 to
correct technical errors in the regulatory text made in a final rule
for MA plans that was issued on August 22, 2003 and that was entitled
``Modifications to Medicare Rules'' (68 FR 50840).
In addition, in the course of reviewing and responding to comments
that we received regarding the corresponding regulatory provisions for
Title I and the Part D program, we discovered that while we did not
need to propose changes to the substance of the regulatory provisions,
we needed to make certain revisions to the regulatory text at this
subpart in the interests of clarity and accuracy. We are, therefore,
making the following changes in this final rule:
At Sec. 422.752(b), we are deleting the references to Sec.
422.756(c)(1) and (c)(3) that are listed under procedures for imposing
sanctions. We are replacing them with references to Sec. 422.750(a)(2)
and (a)(4). The purpose of this correction is to include a reference to
the provision that details the kinds of sanctions that we may impose,
rather than the provision that details the procedures for imposing
sanctions.
At Sec. 422.752(a) we clarified our authority to impose more than
one sanction at a time by deleting the word ``any'' and replacing it
with the phrase ``one, or more''. Therefore, Sec. 422.752(a) will now
read as follows: ``All intermediate sanctions. For the violations
listed in this paragraph (a), we will impose one, or more, of the
sanctions. . .''
Also, at Sec. 422.752(a)(8) we have added the word ``excluded'' to
the parenthetical clause in the interest of clarity. The parenthetical
will now read, ``or with an entity that employs or contracts with an
excluded individual or entity.''
At Sec. 422.756(f)(2) a reference to ``part 1005 of this chapter''
was incorrect and we have replaced with a reference to ``part 1003 of
this chapter,'' since part 1003 is the correct reference to the OIG
procedures for imposing sanctions whereas part 1005 includes the appeal
procedures for sanctions.
At Sec. 422.756(f)(3) we have deleted the clause ``in accordance
with the provisions of part 1005 of this chapter'' of this chapter.
Since this subparagraph discusses our authority to impose CMPs, as
opposed to the OIG's authority, we realized that this reference was
incorrect.
At Sec. 422.758, in the introduction and at paragraph (c), we made
some editorial changes to better clarify the basis for civil money
penalties issued by CMS.
IV. Provisions of the Final Rule
For the most part, this final rule incorporates the provisions of
the proposed rule. Those provisions of this final rule that differ from
the proposed rule are as follows:
Effective Date of Initial Regulations (Sec. 417.402)
In paragraph (c)(2) we have added the word ``calendar'' prior to
``year'' to clarify our intent.
Applicability of Requirements and Procedures (Sec. 417.832)
We have made a conforming change to paragraph (c) of Sec. 417.832
to reflect that the provisions of subpart I of part 405 dealing with
the representation of parties apply to organization determinations and
appeals.
We have added a new paragraph (d) at Sec. 417.832 to indicate that
the provisions of subpart I of part 405 dealing with administrative law
judge hearings, Medicare Appeals Council review, and judicial review
are applicable, unless otherwise provided.
Definitions (Sec. 422.2)
We have amended the definitions of ``prescription drug plan (PDP)''
and ``Prescription drug plan (PDP) sponsor'' to make them consistent
with the Medicare Prescription Drug Benefit Program proposed rule.
We have revised the definition of ``service area'' to clarify that
CMS may consider whether a contracting provider network meets the
access and availability standards set forth in Sec. 422.112 for all MA
coordinated care plans and network MA MSA plans.
We have clarified the definition of ``institutionalized'' for the
purpose of SNPs to provide information on what is meant by a long term
care facility (SNFs, ICF, ICF/MR and Inpatient Psychiatric hospitals).
We have also expanded the definition to include a special needs
individual who is expected to reside in a long-term care facility for
90-days or longer based on as assessment of the potential for such a
stay as long as the assessment is of a type approved by CMS .
We have defined a SNP that enrolls a disproportionate percentage of
special needs individuals as one that enrolls a greater proportion of
the target group than occur nationally in the Medicare population.
We have included in its definition that a SNP is required to
provide Part D coverage.
We further clarified the definition of a SNP as a plan that has
been designated by CMS as meeting the requirements of a MA SNP for
institutionalized or dual eligible individuals or those individuals
with a severe or disabling chronic condition as determined on a case-
by-case basis using criteria that include the appropriateness of the
target population, the existence of clinical programs or special
expertise to serve the target population, and whether the proposal
discriminates against sicker members of the target population
Additionally, we have added a technical amendment to correct the
term ``Religious and Fraternal Benefit (RFB) Society'' to read
``Religious Fraternal Benefit (RFB) Society''.
Types of Plans (Sec. 422.4)
We have amended paragraph (a)(1)(iv) to clarify the types of MA
plans and Part D prescription drug coverage.
We have also added a new paragraph (c) regarding rules for MA
plans' Part D coverage. This paragraph clarifies the requirements for
MA coordinated care plans, MA MSAs, and MA PFFS plans. In addition, a
new paragraph (c)( 2) states the MSAs cannot offer drug coverage, other
than that required under Parts A and B of Title XVIII of the Act.
Finally, in paragraph (c)(3), we have added language that MA
organizations offering private fee for service plans can choose to
offer qualified Part D coverage meeting the requirements in Sec.
423.104.
Eligibility to Elect an MA Plan (Sec. 422.50)
In Sec. 422.50, we have added a new paragraph (a)(2)(iii) to allow
SNPs to serve ESRD individuals.
We have amended paragraph (a)(5) to provide that beneficiaries may
make elections by completing an enrollment form by completing another
CMS approved election mechanism offered by the MA organization.
Coordination of Enrollment and Disenrollment through MA Organizations
(Sec. 422.66)
We have revised Sec. 422.66(d)(5) to allow us to offer, as an
option in the future, the ability of an MA plan to process a
``seamless'' enrollment upon an individual's entitlement to Medicare.
Disenrollment by the MA Organization (Sec. 422.74)
We have added a new paragraph (b)(2)(iv) to show that in certain
cases, loss of special needs status is a basis for required
disenrollment from a SNP that enrolls only special needs individuals.
[[Page 4683]]
We have amended paragraph (d)(1)(i) by adding paragraphs
(d)(1)(i)(A), (B), and (C) to clarify what ``reasonable efforts'' to
collect unpaid premiums must be taken in prior to the disenrollment of
an individual from an MA plan.
We have revised the definition of ``disruptive behavior'' in
paragraph (d)(2)(i) to focus on the behavior that substantially impairs
the plan's ability to arrange or provide care for the individual or
other plan members.
We have added a new paragraph (d)(2)(ii) ``Basis of disenrollment
for disruptive behavior.
We have amended paragraph (d)(2)(iii) to require the MA
organization to provide reasonable accommodations for individuals with
mental or cognitive conditions.
We have amended paragraph (d)(2)(iv) ``Documentation'' to provide
an MA organization the option to decline future enrollment of an
individual who has been disenrolled for disruptive behavior.
We have revised proposed paragraph (d)(2)(v) ``CMS review of the
proposed disenrollment'' to also require MA organizations to provide a
``reasonable accommodation'' to individuals in exceptional
circumstances.
We have removed proposed paragraph (d)(2)(vi) ``Reenrollment in the
MA organization'' and paragraph (d)(2)(vii) ``Expedited process''.
Requirements Related to Basic Benefits (Sec. 422.101)
We have revised paragraph (b)(4) to clarify its intent.
We have added a new paragraph (b)(5) to require MA organizations
that elect to apply local coverage policies uniformly across a local MA
plan's service area, or across an MA regional plan's service area, to
inform enrollees and potential providers of the applicable local
coverage policy that applies to the MA plan enrollees.
We have modified Sec. 422.101(d)(4) to indicate that notification
to providers, as well as members, of enrollee status related to a
deductible (if any) and catastrophic caps is required.
Special Rules for Self-Referral and Point of Service Option (Sec.
422.105)
We have renamed the title of this section and reorganized the
section in order to clarify its scope and applicability.
Coordination of Benefits with Employer or Union Group Health Plans and
Medicaid (Sec. 422.106)
We have modified Sec. 422.106 to clarify the intent.
Disclosure Requirements (Sec. 422.111)
To be consistent with language elsewhere in this regulation, we
have added a conforming amendment, revising paragraph (b)(9) to change
references to ``Quality assurance program'' to ``Quality improvement
program.
We have amended paragraph (e) by reinserting the word ``written'',
as its removal was unintentional.
We have corrected the language in Sec. 422.111(f)(10) to clarify
our initial intent.
We have added a requirement at Sec. 422.111(f)(11) requiring all
MA organizations to make uniform coverage policies related to an MA
plan readily available to members and providers, including through the
Internet.
We have also added a new paragraph (f)(12) requiring MA
organizations that have Internet web-sites to post the Evidence of
Coverage, the Summary of Benefits, and information on the network of
contracted providers.
Access to Service (Sec. 422.112)
In paragraph (a) introductory text, we removed obsolete terminology
from both heading and introductory text.
We have revised paragraph (b) introductory text related to
``continuity of care.''
We have removed the instructions that would have removed paragraph
(b)(4)(i) and redesignated paragraphs (b)(4)(ii) and (b)(4)(iii). The
inclusion of this amendment in the proposed rule was an error.
We have amended paragraph (c) introductory text by adding
``noncontracting'' before ``hospital''.
We have amended paragraph (c)(1) to clarify the types of hospitals
that are eligible to be designated an ``essential hospital''.
We have amended paragraph (c)(3) to clarify ``good faith''.
We have added a new paragraph (c)(4) in order to include
``competition text'' in regulation, where no MA organization will be
permitted to designate a hospital as an ``essential hospital'' where
there is a ``competing hospital'' in the area.
We have added a new paragraph (c)(7), under which we will evaluate
the continued applicability of ``essential hospital'' status on an
annual basis at the time of annual contract renewal.
Compliance Deemed on the Basis of Accreditation (Sec. 422.156)
We revised paragraph (b)(1) to change the term ``Quality assurance
Program'' to ``Quality improvement program'', in order to be consistent
with changes elsewhere in this regulation.
Terminology (Sec. 422.252)
We have made a clarifying change to the definition of MA local area
to be consistent with the intent of Sec. 422.308.
Submission of Bids (Sec. 422.254)
We amended paragraph (a)(1) by adding ``and, for plans with rebates
as described at Sec. 422.266(a), the MA organization must provide the
information required in paragraph (d) of this section.''
We have added a new paragraph (a)(3), to retain language from the
current MA regulations at Sec. 422.306(a)(2), which says if the bid
submission is not complete, timely, or accurate, CMS has the authority
to impose sanctions under subpart O of this part or may choose not to
renew the contract.
We have revised paragraph revise (b)(2) to read ``as the term
revenue requirements is used for purposes of section 1302(8) of the
Public Health Service Act'' to track the statutory language.
We have amended paragraph (b)(3) by removing the proposed sentence
stating that plan assumptions about revenue requirements must include
adjustments for the utilization effects of cost sharing reductions.
We have revised paragraph (b)(4) to conform the regulation to the
statutory provision.
We have made a clarifying change to paragraph (c)(5) to reflect the
statutory requirement that in the bid submission, MA organizations
provide the actuarial bases for determining the amount of cost sharing
for a plan.
We have added a new paragraph (c)(9) to address information
requirements resulting from our policy decision on the geographic ISAR
adjustment, presented in the G preamble discussion of Sec. 422.308(d).
We have added paragraph (f) to clarify that separate bids must be
submitted for Part A and Part B enrollees and Part B-only enrollees for
each MA employer group health plan offered.
Review, Negotiation, and Approval of Bids (Sec. 422.256)
We have amended paragraph (b)(2) for clarity and to better reflect
the statutory language on standards of bid review.
Calculations of Benchmarks (Sec. 422.258)
We have corrected paragraph (c)(4) to clarify the plan-bid
component of the regional benchmark is calculated based only on
regional plan bids, not an all of the MA plan bids in the region.
We made an additional change to the proposed paragraph (c)(5)(i) to
clarify further how the plan bid component of the regional benchmark
will be calculated.
Calculation of Beneficiary Premiums (Sec. 422.262)
We have amended paragraph (f)(1) to add the Railroad Retirement
Board and the Office of Personnel Management.
[[Page 4684]]
We consolidate paragraphs (f)(3) and (f)(4) to clarify that the
other methods CMS may specify for payment of premiums include those
listed in the regulation.
Calculation of Savings (Sec. 422.264)
We have amended paragraphs (c) and (e) to more accurately reflect
the policy that for both local and regional MA plans, the calculation
of savings will be determined by applying the plan average risk
adjustment factor to the basic A/B bid and benchmark, although we have
left in regulation the statutorily mandated discretion for CMS to
select a method for calculating savings.
Beneficiary Rebates (Sec. 422.266)
We have changed the language in paragraph (b)(1) to clarify that
rebate dollars may be used to reduce the premium for either the non-
drug or drug portions of the supplemental benefit. We also add language
clarifying that plans must distinguish the amount of rebate applied to
enhance original Medicare benefits from the rebate applied to enhance
Part D benefits.
We have amended paragraph (c) by adding ``MA organizations must
distinguish, for each MA plan, the amount of rebate applied to enhance
original Medicare benefits fro the amount of rebate applies to enhance
Part D benefits.''
Adjustments to Capitation Rates, Benchmarks, Bids, and Payments (Sec.
422.308)
We have amended the language in paragraph (e) to refer to the
adjustment as the ``government premium adjustment,'' in order to
distinguish it from other payment adjustments under the MMA.
Risk Adjustment Data (Sec. 422.310)
We have modified Sec. 422.310(e) to indicate that there may be
penalties for submission of false data under the requirement for
validation of risk adjustment data.
Special Rules for Payments to Federally Qualified Health Centers (Sec.
422.316)
We have amended (a) to clarify what amount CMS will pay an FQHC by
adding ``less the amount the FQHC would receive for the MA enrollee
from the MA organization and taking into account the cost sharing
amount paid by the enrollee.''
Moratorium on New Local Preferred Provider Organization Plans (Sec.
442.451)
We have revised this section to better reflect Congressional intent
to give MA organizations the option of introducing new PPO plans in
those service areas where they have already established a local PPO
plan prior to the start of the local PPO moratorium of 2006 & 2007.
Risk Sharing with Regional MA Organizations for 2006 and 2007 (Sec.
422.458)
We have added language to Sec. 422.458(e)(1) to clarify that
regional PPOs must be licensed in each State of the region, except
during the period of the temporary waiver.
We have also made a technical change in paragraph (e)(2) to clarify
what State licensing rules an organization must apply until the
organization is licensed in all states, under the waiver process.
Scope (Sec. 422.500)
This section sets forth application requirements for entities
seeking a contract as a Medicare Organization offering, an MA plan. MA
organizations offering prescription drug plans must, in addition to the
requirements of this part, follow the requirements of 42 CFR part 423
specifically related to the prescription drug benefit.
Application Requirements (Sec. 422.501)
We have added a new Sec. 422.501(c)(2) to clarify that a CMS
determination that an entity is qualified to act as an MA sponsor is
distinct from the bid negotiation that occurs under subpart F of part
422.
Evaluation and Determination Procedures (Sec. 422.502)
In paragraph (c)(2)(ii), we are changing the amount of time that an
applicant has to remedy an application after receiving an Intent to
Deny Notice from 60 days to 10 days.
We have eliminated paragraphs (e), (f) and (g
General Provisions (Sec. 422.503)
In Sec. 422.503, we have eliminated the mandatory self reporting
requirements that we proposed, but we have added a new requirement at
Sec. 422.503(b)(4)(vi)(H) that MA-PDPs have a comprehensive fraud and
abuse plan.
Contract Provisions (Sec. 422.504)
We have made changes in paragraph (h) to reflect our focus on
requirements to prevent fraud, waste and abuse and on issues that we
are responsible for enforcing, such as the HIPAA administrative
simplification rules.
Agreements with Federally Qualified Health Centers (Sec. 422.527)
We have amended paragraph (c) to clarify that financial withholds
are not considered in determining payments made to FQHCs by CMS.
General Provisions (Sec. 422.550)
We have added an amendment to amend Sec. 422.550(a)(2) by revising
the heading to read, ``Asset Transfer'' instead of ``Asset Sale''.
Basis and Scope (Sec. 422.560)
In response to comments on whether and to what extent, the
application of parallel appeal procedures might be a problem for plans,
employers, and eligible individuals, we have added a new paragraph (c)
related to ERISA standards.
Definitions (Sec. 422.561)
We have clarified the definitions of ``Enrollee'' and ``Authorized
representative'' in this section. We have removed ``Authorized
representative'' and replaced it with ``Representative'' to clarify
that a representative means an individual appointed by an enrollee or
other party, or authorized under State or other applicable law, to act
on behalf of an enrollee or other party involved in an appeal.
Grievance Procedures (Sec. 422.564)
We have added new paragraphs (d) and (e) related to the method for
filing a grievance and the grievance disposition and notification
process and we have redesignated the existing sections.
Timeframes and notice requirements for expedited organization
determinations.
We have made a conforming change in paragraph (b) of Sec. 422.572
to reflect the enrollee's right to file an expedited grievance if he or
she disagrees with an MA organization's decision not to expedite an
organization determination.
Request for a Standard Reconsideration (Sec. 422.582)
We have revised the text in paragraph (a) to denote that an MA
organization may adopt a policy under which it accepts oral requests
for standard considerations. Additionally, in accordance with part 405,
subpart I, we have removed paragraph (a)(2) to eliminate the SSA as a
filing location for standard reconsideration requests.
Timeframes and Responsibility for Reconsideration (Sec. 422.5900)
We have made a conforming change in paragraph (a) of Sec. 422.590
to reflect the enrollee's right to file an expedited grievance if he or
she disagrees with an MA organization's decision not to expedite a
request for an expedited reconsideration.
We have revised paragraph (a) of Sec. 422.602 that previously read
that a party must file a written request with ``the appropriate ALJ
hearing office'' to read that a party must file a written request for a
hearing with ``the entity specified in the IRE's reconsideration
notice'' in accordance with part 405, subpart I that eliminates
alternate filing locations.
Reconsideration: Applicability (Sec. 422.648)
We have added a new paragraph (c) to Sec. 422.648. This provision
specifies that in the case of a favorable determination, including
favorable decisions as a result of a hearing or Administrative review,
that such
[[Page 4685]]
determinations be made by July 15 for the contract in question to be
effective in January of the following year.
Basis for Imposing Sanctions (Sec. 422.752)
We have amended paragraph (a) in Sec. 422.752 to clarify CMS'
authority to impose more than one sanction at a time.
We have also amended paragraph (b), by deleting references to Sec.
422.756 (c) (1) and (c) (3) and replacing them with references to Sec.
422.750(a)(2) and (a)(4). This clarifies that we are cross referencing
the basis for sanctions with the kind of sanctions that could result,
not the procedure for imposing sanctions.
Procedures for Imposing Sanctions (Sec. 422.756)
We have amended paragraph (f)(2) to corrected a reference to ``part
1005 of this chapter'' to correctly reference ``part 1003 of this
chapter,'' since 1003 includes the OIG procedures for imposing
sanctions whereas 1005 are appeal procedures.
Maximum Amount of Civil Money Penalties Imposed by CMS (Sec. 422.758)
At Sec. 422.758 we added some language that better clarifies the
basis for Civil monetary penalties (CMPS) issued by CMS. At Sec.
422.758(a) we added language that clarifies the existing basis for the
Office of the Inspector General to support the imposition of this CMP.
At Sec. 422.752(a)(8) we added the word ``excluded'' for
clarification.''
V. Collection of Information Requirements
Under the Paperwork Reduction Act of 1995 (PRA), we are required to
provide 30-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether OMB should approve an information
collection, section 3506(c)(2)(A) of the PRA requires that we solicit
comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
The collection requirements referenced in sections one and two
below are currently approved under OMB approval number 0938-0753 (CMS-
R-0267, Medicare Plus Choice Program Requirements Referenced in 42 CFR
422.000 through 422.700), with a current expiration date of October 31,
2005.
Section one below outlines the collection requirements referenced
in this regulation that have not been modified by the proposed
regulatory changes. Section number two references requirements in this
regulation that have been technically revised, but do not affect the
currently approved burden estimates. Table three below references new
collection requirements.
It should be noted that all of the collection requirements
summarized and discussed below are open for public comment and will be
submitted to OMB for approval.
1. Currently Approved Collection Requirements Not Affected By Proposed
Regulation:
Section 422.54 Continuation of enrollment for MA local plans
(b) The intent by an enrollee to no longer reside in an area and
permanently live in another area must be verified by the plan through
documentation that establishes residency, such as a driver's license,
voter registration.
(c)(2) The enrollee must make the choice of continuing enrollment
in a manner specified by CMS. If no choice is made, the enrollee must
be disenrolled from the plan.
Section 422.60 Election process
(b)(1) MA organizations may submit information on enrollment
capacity of plans.
(c)(1) The plan election must be completed by the MA eligible
individual (or the individual who will soon become eligible to elect an
MA plan) and include authorization for disclosure and exchange of
necessary information between the U.S. Department of Health and Human
Services and its designees and the MA organization. Persons who assist
beneficiaries in completing forms must sign the form, or through other
approved mechanisms, indicate their relationship to the beneficiary.
(e)(3) The MA organization must give the beneficiary prompt notice
of acceptance or denial in a format specified by CMS.
(e)(4) If the MA plan is enrolled to capacity, it must explain the
procedures that will be followed when vacancies occur to the potential
enrollee.
(e)(5) Upon receipt of the election, or for an individual who was
accepted for future enrollment from the date a vacancy occurs, the MA
organization transmits, within the timeframes specified by CMS, the
information necessary for CMS to add the beneficiary to its records as
an enrollee of the MA organization.
(f)(3) Upon receipt of the election from the employer, the MA
organization must submit the enrollment within timeframes specified by
CMS.
Section 422.66 Coordination of enrollment and disenrollment through MA
organizations
(f)(2) Upon receipt of the election from the employer, the MA
organization must submit a disenrollment notice to CMS within
timeframes specified by CMS.
Section 422.80 Approval of marketing materials and election forms
(a)(i) At least 45 days (or 10 days if using marketing materials
that use, without modification, proposed model language as specified by
CMS) before the date of distribution the MA organization has submitted
the material or form to CMS for review under the guidelines in
paragraph (c).
Section 422.506 Nonrenewal of contract
(a)(2)(ii) Each Medicare enrollee, at least 90 days before the date
on which the nonrenewal is effective. This notice must include a
written description of alternatives available for obtaining Medicare
services within the service area, including alternative MA plans,
Medigap options, and original Medicare and must receive CMS approval
prior to issuance.
Section 422.564 Standard timeframes and notice requirements for
organization determinations
(e)(3)(ii) All grievances related to quality of care, regardless of
how the grievance is filed, must be responded to in writing. The
response must include a description of the enrollee's right to file a
written complaint with the QIO.
Based on the results of prior sampling of managed care enrollees,
we extrapolate that approximately 17 percent of MA enrollees would
likely experience some dissatisfaction with their MA organizations.
Since we estimate that there would be approximately 6.7 million MA
enrollees in 450 plans, we estimate that approximately 1,139,000
enrollees likely would experience some dissatisfaction with their MA
organizations in a given year.
Based on previous grievance requirements analysis (See 66 FR 7593
through 7600), we estimate that approximately 455,600 enrollees, that
is,
[[Page 4686]]
40 percent of the total number of dissatisfied enrollees, will file an
oral or written grievance. We further estimate that another 60 percent
will request a grievance orally, that is, 273,360. Of those requests,
we believe that approximately 10 percent of enrollees will request a
follow-up written response, that is 27,336 enrollees.
We estimate that it will take MA organizations 15 minutes to
prepare and furnish each written response, and that MA organizations
will be required to provide an estimated 27,336 written notices
following oral requests. The total annual burden associated with this
requirement is 6,834 hours.
Section 422.568 Standard timeframes and notice requirements for
organization determinations
(a) When a party has made a request for a service, the MA
organization must notify the enrollee of its determination as
expeditiously as the enrollee's health condition requires, but no later
than 14 calendar days after the date the organization receives the
request for a standard organization determination.
(c) If an MA organization decides to deny service or payment in
whole or in part, or if an enrollee disagrees with an MA organization's
decision to discontinue or reduce the level of care for an ongoing
course of treatment, the organization must give the enrollee written
notice of the determination.
Section 422.590 Timeframes and responsibility for reconsiderations
(d)(2) When the MA organization extends the timeframe, it must
notify the enrollee in writing of the reasons for the delay, and inform
the enrollee of the right to file an expedited grievance if he or she
disagrees with the MA organization's decision to grant an extension.
The MA organization must notify the enrollee of its determination as
expeditiously as the enrollee's health condition requires but no later
than upon expiration of the extension.
Section 422.600 Right to a hearing
(a) If the amount remaining in controversy after reconsideration
meets the threshold requirement established annually by the Secretary,
any party to the reconsideration (except the MA organization) who is
dissatisfied with the reconsidered determination has a right to a
hearing before an ALJ.
Section 422.608 Medicare Appeals Council (MAC) review
Any party to the hearing, including the MA organization, who is
dissatisfied with the ALJ hearing decision, may request that the MAC
review the ALJ's decision or dismissal.
Section 422.612 Judicial review
(b) Any party, including the MA organization, may request judicial
review (upon notifying the other parties) of the MAC decision if it is
the final decision of CMS and the amount in controversy meets the
threshold established in paragraph (a)(2) of this section.
(c) In order to request judicial review, a party must file a civil
action in a district court of the United States in accordance with
section 205(g) of the Act. See part 405 of this chapter for a
description of the procedures to follow in requesting judicial review.
2. Currently Approved Collection Requirements Technically Modified By
Proposed Regulation: Not Affecting Burden:
Section 422.50 Eligibility to elect an MA plan
(a)(5) Completes and signs an election form or completes another
CMS approved election method offered by the MA organization and
provides information required for enrollment.
Section 422.66 Coordination of enrollment and disenrollment through MA
organizations
(b)(1)(i)Elect a different MA plan by filing the appropriate
election with the MA organization.
(b)(1)(ii) Submit a request for disenrollment to the MA
organization in the form and manner prescribed by CMS or file the
appropriate disenrollment request through other mechanisms as
determined by CMS.
(b) (3) (ii) Provide enrollee with notice of disenrollment in a
format specified by CMS.
(b) (3) (iii) In the case of a plan where lock-in applies, include
in the notice a statement.
(d) (5) The individual who is converting must complete an election
as described in Sec. 422.60(c)(1), unless otherwise provided in a form
and manner approved by CMS.
Section 422.74 Disenrollment by the Medicare Advantage Organization
(c)(1) A notice must be provided to the individual before
submission of the disenrollment transaction to CMS.
(d)(1)(i) The MA organization can demonstrate to CMS that it made
reasonable efforts to collect the unpaid premium amount that meets the
requirements of this section.
(d)(1)(ii)The MA organization provides the enrollee with notice of
disenrollment that meets the requirements set forth in paragraph (c) of
this section.
(d)(2)(ii)An organization may disenroll an individual whose
behavior is disruptive as defined in 422.74(d)(2)(1)(i)only after it
meets the requirements described in this section and CMS reviews and
approves the request.
(d)(2)(iii) The beneficiary has a right to submit any information
or explanation that he or she may wish to submit to the MA
organization.
(d)(2)(iv) The MA organization must document the enrollee's
behavior, its own efforts to resolve any problems, as described in
paragraphs (d)(2)(i) through (d)(2)(ii) of this section and any
extenuating circumstances. The MA organization may request from CMS the
ability to decline future enrollment by the individual if the
organization obtains approval from CMS.
Section 422.111 Disclosure requirements
(d)(2) For changes that take effect on January 1, the plan must
notify all enrollees 15 days before the beginning of the Annual
Coordinated Election Period defined in section 1851(e)(3)(B) of the
Act.
(e) The MA organization must make a good faith effort to provide
written notice of a termination of a contracted provider at least 30
calendar days before the termination effective date to all enrollees
who are patients seen on a regular basis by the provider whose contract
is terminating, irrespective of whether the termination was for cause
or without cause. When a contract termination involves a primary care
professional, all enrollees who are patients of that primary care
professional must be notified.
Section 422.112 Access to services
(a)(1)(i) Maintain and monitor a network of appropriate providers
that is supported by written agreements and is sufficient to provide
adequate access to covered services to meet the needs of the population
served. These providers are typically used in the network as primary
care providers (PCPs), specialists, hospitals, skilled nursing
facilities, home health agencies, ambulatory clinics, and other
providers.
(a)(1)(ii) MA regional plans, upon CMS pre-approval, can use
methods other than written agreements to establish that access
requirements are met.
Section 422.152 Quality improvement program
(b)(3)(i) Plans must measure performance using the measurement
tools required by CMS, and report its performance to CMS. The standard
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measures may be specified in uniform data collection and reporting
instruments required by CMS.
(b)(3)(ii) Make available to CMS information on quality and
outcomes measures that will enable beneficiaries to compare health
coverage options and select among them, as provided in Sec.
422.64(c)(10).
(d)(5) The organization must report the status and results of each
project to CMS as requested.
(e)(2)(i) MA organizations offering an MA regional plan or local
PPO plan as defined in this section must measure performance under the
plan using standard measures required by CMS and report its performance
to CMS. The standard measures may be specified in uniform data
collection and reporting instruments required by CMS.
(f)(i) and (iii) For all types of plans that it offers, an
organization must maintain a health information system that collects,
analyzes, and integrates the data necessary to implement its quality
improvement program and make all collected information available to
CMS.
Section 422.570 Expediting certain organization determinations
(d)(2)(ii) The plan must inform the enrollee of the right to file
an expedited grievance if he or she disagrees with the MA
organization's decision not to expedite.
Section 422.572 Timeframes and notice requirements for expedited
organization determinations
(c) If the MA organization first notifies an enrollee of an adverse
expedited determination orally, it must mail written confirmation to
the enrollee within 3 calendar days of the oral notification.
Section 422.582 Request for a standard reconsideration
(a) A party to an organization determination must ask for a
reconsideration of the determination by making an oral or written
request to the MA organization that made the organization determination
or to an SSA office.
(c)(2) If the 60-day period in which to file a request for
reconsideration has expired, a party to the organization determination
may file a request for reconsideration with the MA organization.
Section 422.602 Request for an ALJ hearing
A party must file a written request for a hearing with the
appropriate ALJ office, which meets the requirements of this section.
Section 422.620 How enrollees of MA organizations must be notified of
noncovered inpatient hospital care
(c) When appropriate, a written notice of non-coverage must be
issued no later than the day before hospital coverage ends. The written
notice must include the elements set forth in this section.
As noted above, while the requirements in this section have been
modified, the associated burden has not changed.
3. New/Revised Collection Requirements Proposed In This Regulation:
Affecting burden:
Section 422.80 Approval of marketing materials and election forms
(a)(3) The MA plan meets the performance requirements established
by CMS The MA plan may distribute the designated marketing materials 5
days following their submission to CMS with an certification that the
marketing materials meet the model language guidelines specified by
CMS.
The burden associated with this requirement is the time and effort
necessary for the plan to submit the designated marketing materials to
CMS five days prior to distribution.
We estimate it will take 350 plans approximately 12 hours to
provide the materials to CMS on an annual basis.
Section 422.101 Requirements relating to basic benefits
(b)(5) An MA organization an MA local plan or regional MA plan as
described in this section must make information on the selected local
coverage policy readily available to the enrollees and health care
providers.
The burden associated with this requirement is the time and effort
necessary for the plan to make information on the selected local
coverage policy readily available to the enrollees and health care
providers. We estimate that it will require 350 MA plans 1 hour each on
annual basis to make the necessary information available.
(d)(4) MA regional plans are required to track the deductible (if
any) and catastrophic limits in paragraphs (d)(1) through (d)(3) of
this section based on incurred out-of-pocket beneficiary costs for
original Medicare covered services, and are also required to notify
members and health care providers when the deductible (if any) or a
limit has been reached.
The burden associated with this requirement is the time and effort
necessary for the plan to notify members when the deductible (if any)
or a limit has been reached. While this requirement is subject to the
PRA, we believe this requirement meets the requirements of 5 CFR
1320.3(b)(2), and as such, the burden associated with this requirement
is exempt from the PRA.
Section 422.106 Coordination of benefits with employer group health
plans and Medicaid
(d)(1) To facilitate the offering of MA plans by employers, labor
organizations, or the trustees of a fund established by one or more
employers or labor organizations (or combination thereof) to furnish
benefits to the entity's employees, former employees (or combination
thereof) or members or former members (or combination thereof), of the
labor organizations, those MA plans may request, in writing, from CMS,
a waiver or modification of those requirements in this part that hinder
the design of, the offering of, or the enrollment in, those plans by
those individuals.
The burden associated with this requirement is the time and effort
necessary for the plan to submit a waiver to CMS. We estimate that on
an annual basis it will take plans 2 hours to submit the waiver to CMS.
However, we do not anticipate more then nine waiver requests on an
annual basis. As such, this requirement is not subject to the PRA as
stipulated under 5 CFR 1320.3(c).
Section 422.111 Disclosure requirements
(f)(10) The names, addresses, and phone numbers of providers from
whom the enrollee may obtain in-network coverage in other areas.
The burden associated with this requirement is the time and effort
necessary for the plan to notify member of the names, addresses, and
phone numbers of providers from whom the enrollee may obtain in-network
coverage in other areas. While this requirement is subject to the PRA,
we believe this requirement meets the requirements of 5 CFR
1320.3(b)(2), and as such, the burden associated with this requirement
is exempt from the PRA.
Section 422.112 Access to services
(c) An MA regional plan may seek, upon application to CMS, to
designate a noncontracting hospital as an essential hospital as defined
in section 1858(h) of the Act that meets the conditions set forth in
this section.
The burden associated with this requirement is the time and effort
necessary for the plan to submit the required materials to CMS. We
estimate
[[Page 4688]]
that on an annual basis it will take 100 plans 8 hours to submit the
materials to CMS.
Section 422.254 Submission of bids and rebate information
(a)(1) No later than the first Monday in June, each MA organization
must submit to CMS an aggregate monthly bid amount for each MA plan
(other than an MSA plan) the organization intends to offer in the
upcoming year in the service area (or segment of such an area if
permitted under Sec. 422.262(c)(2)) that meets the requirements in
paragraph (b) of this section. With each bid submitted, the MA
organization must provide the information required in paragraph (c) of
this section and, for plans with rebates as described at 422.266, the
MA organization must provide the information required in this section.
The burden associated with this requirement is the time and effort
necessary for the plan to submit the required bid materials and rebate
information to CMS. 350 MA organizations offering 400 plans 100 hours
per plan bid and rebate submission to CMS for a total annual burden of
40,000 hours.
(b) For MSA plans, MA organizations must submit the following
information: the monthly MSA premium, the plan deductible amount, and
the beneficiary supplemental premium, if any. Since CMS does not review
or approach MSA plan submissions, we estimate that the submission
burden is half that for other MA plans. Under the M+C program, no MSA
plans were offered. We estimate that under the MA program 5
organizations will offer an MSA plan and require 50 hours for
submission of the above information, for a total annual burden of 250
hours.
Section 422.270 Incorrect collections of premiums and cost-sharing
(b) An MA organization must agree to refund all amounts incorrectly
collected from its Medicare enrollees, or from others on behalf of the
enrollees, and to pay any other amounts due the enrollees or others on
their behalf.
The burden associated with this requirement is the time and effort
necessary for the MA organization to provide written assurance to CMS
that they will refund all amounts incorrectly collected from its
Medicare enrollees or representatives. We estimate that on an annual
basis it will take 350 MA organizations 30 minutes to submit a written
agreement to CMS.
Section 422.304 Monthly payments
(e)(2) A State's chief executive may request, no later than
February 1 of any year, a geographic adjustment of the State's payment
areas, as outlined in this section, for MA local plans for the
following calendar year.
The burden associated with this requirement is the time and effort
necessary for a State to provide a written request for geographic
adjustment to CMS. Under the M+C program, we received inquiries from 2
states and requests from none. Thus, we estimate that on an annual
basis we may receive 2 State submissions. As such, this requirement is
not subject to the PRA as stipulated under 5 CFR 1320.3(c).
Section 422.310 Risk adjustment data
(b) Each MA organization must submit to CMS (in accordance with CMS
instructions) all data necessary to characterize the context and
purposes of each service provided to a Medicare enrollee by a provider,
supplier, physician, or other practitioner. CMS may also collect data
necessary to characterize the functional limitations of enrollees of
each MA organization.
The burden associated with this requirement is the time and effort
necessary for a plan to submit the required risk adjustment data to
CMS. We estimate that on an annual basis it will take 350 MA
organizations 121 hours each to submit the required data to CMS.
(d)(1) MA organizations must electronically submit data that
conform to the requirements for equivalent data for Medicare FFS when
appropriate, and to all relevant national standards. Alternatively, MA
organizations may submit data according to an abbreviated format, as
specified by CMS and which meet the requirements of (d)(2) and (d)(3)
of this section.
The burden associated with this requirement is the time and effort
necessary for a plan to gather the required data and submit the
required risk adjustment data to CMS. The estimate for submission of
the abbreviated format data is included in the above estimate.
(e) MA organizations and their providers and practitioners will be
required to submit medical records for the validation of risk
adjustment data, as required by CMS.
The burden associated with this requirement is the time and effort
necessary for a plan to submit the required validation data to CMS. We
estimate that on average 350 MA organizations will each submit 29
medical records to CMS, requiring 1 hour per record, for a total annual
burden of 9800 hours.
Section 422.314 Special rules for beneficiaries enrolled in MA MSA
plans
(b) An entity that acts as a trustee for an MA MSA must Register
with CMS, certify that it is a licensed bank, insurance company, or
other entity qualified, under sections 408(a)(2) or 408(h) of the IRS
Code, agree to comply with the MA MSA provisions of section 138 of the
IRS Code of 1986; and provide any other information that CMS may
require.
The burden associated with this requirement is the time and effort
necessary for an entity to certify and submit the required materials to
CMS as outlined in this section. We estimate 5 MA organizations will
submit the required information on an annual basis. As such, this
requirement is not subject to the PRA as stipulated under 5 CFR
1320.3(c).
Section 422.320 Special rules for hospice care
(a) An MA organization that has a contract under subpart K of this
part must inform each Medicare enrollee eligible to select hospice care
under Sec. 418.24 about the availability of hospice care if a Medicare
hospice program is located within the plan's service area, or it is
common practice to refer patients to hospice programs outside that
area.
The burden associated with this requirement is the time and effort
necessary for a plan to disclose to each Medicare enrollee about the
availability of hospice care. We estimate that on an annual basis it
will take 350 plans 1.14 hours to distribute the required materials to
enrollees. While this estimate may appear low, we believe that this
disclosure requirement will be standardized and incorporated into the
plans marketing material routinely disseminated to enrollees.
Section 422.458 Risk sharing with regional MA organizations for 2006
and 2007
(d)(1) Each MA organization offering an MA regional plan must
provide CMS with information as CMS determines is necessary to
implement this section.
The burden associated with this requirement is the time and effort
necessary for a plan to submit the required information to CMS. We
estimate that on an annual basis it will take 30 to 100 plans, 40 hours
to submit the required information to CMS.
(d)(2) Pursuant to the existing Sec. 422.502(d)(1)(iii) (section
1857(d)(2)(B) of the Act), CMS has the right to inspect and audit any
books and records of the organization that pertain
[[Page 4689]]
to the information regarding costs provided to CMS under paragraph
(b)(2) of this section.
This requirement is exempt from the PRA as stipulated under 5 CFR
1320.4.
Section 422.501 Application requirements
(b)(1) In order to obtain a determination on whether it meets the
requirements to become an MA organization and is qualified to provide a
particular type of MA plan, an entity, or an individual authorized to
act for the entity (the applicant) must complete and submit a certified
application, in the form and manner required by CMS, that meets the
requirements set forth in this section.
The burden associated with this requirement is the time and effort
necessary for a plan to submit the required application to CMS. We
estimate that on an annual basis it will take 350 plans 40 hours to
submit the required application to CMS.
If you comment on these information collection and recordkeeping
requirements, please mail copies directly to the following:
Centers for Medicare and Medicaid Services
Office of Strategic Operations and Regulatory Affairs,
Attn: John Burke (CMS-4069-P)
Room C5-13-28, 7500 Security Boulevard,
Baltimore, MD 21244-1850;
and
Office of Information and Regulatory Affairs,
Office of Management and Budget,
Room 10235, New Executive Office Building,
Washington, DC 20503,
Attn: Christopher Martin, CMS Desk Officer,
[CMS-4069-F], Christopher_Martin@omb.eop.gov.
Fax (202) 395-6974.
VI. Regulatory Impact Analysis
We received comments on the proposed rule regulatory impact
analysis in six subject areas. The comments pertained to (1) our not
having examined the impact of the Comparative Cost Adjustment program
under section 241 of the MMA, set to begin in 2010; (2) an error in our
projection of the value of extra benefits that enrollees of MA plans
will receive; (3) a question regarding the number of insurers licensed
to operate nationally or in multiple states; (4) the manner in which we
classify entities as being either regional plans or local plans; (5)
concerns about the competitive advantages that regional plans may have
over local plans; and (6) our not having discussed the effect of these
rules on American Indian and Alaska Native populations. Our responses
to those comments are addressed in the appropriate sections below. None
of these comments suggested the need for major changes in our analysis,
and we have accordingly modified it primarily to reflect final
decisions and to use updated economic projections (in addition to
correcting the projection error pointed out in public comments).
A. Overall Impact
We have examined the impacts of this rule under Executive Order
12866 (September 1993, Regulatory Planning and Review), the Regulatory
Flexibility Act (RFA) (September 16, 1980, Pub. L. 96-354), section
1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of
1995 (Pub. L. 104-4) and Executive Order 13132 on Federalism.
Executive Order 12866 directs agencies to assess all costs and
benefits of available regulatory alternatives and if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impact and equity). A regulatory impact analysis
(RIA) must be prepared for any rule with an effect on the economy of
$100 million or more in any one year. Since this rule will be the most
significant step in implementing the MA program, we are classifying it
as an economically ``significant'' rule for purposes of E.O. 12866 and
as a ``major'' rule for purposes of the Congressional Review Act (5
U.S.C., section 804(2)). Accordingly, we have prepared this RIA in
accordance with OMB Circular A-4, combined with a Final Regulatory
Flexibility Analysis (FRFA), pursuant to the Regulatory Flexibility
Act), in which we analyze the overall effects of the Medicare Advantage
program, including effects not addressed in this rulemaking (for
example, rate increases that went into effect in March, 2004). Although
the MMA is a highly detailed statute that delineates most important
provisions of the MA program, there are alternatives available to us in
implementing several important provisions of the statute. We analyze in
detail those areas for which regulatory alternatives are available.
Although we have included or summarized most of the required
analysis in this section of the preamble, the explanation of the basis
for the rule and analysis of some regulatory options are presented
elsewhere in the preamble. We note that the preamble to the companion
rulemaking concerning the Part D drug benefit also contains an RIA and
a FRFA, and some effects of the legislation (for example, on Medigap
plans) are analyzed in more detail in that preamble.
The MMA provides for increasing the role of private plans in
providing Medicare benefits to beneficiaries. The statute made changes
to the payment system that increase Medicare payment rates to private
plans as of 2004, and for subsequent years. A new private plan option
is introduced, the regional Medicare Advantage plan, structured as a
PPO, which will be required to offer services over a wide geographic
area. To encourage the formation of such plans, the MMA provides
financial incentives above and beyond the payment rate increases
applicable to all plans. There are other financial incentives discussed
in what follows and elsewhere in the preamble. In addition to increased
payments to plans, the MMA will provide benefits to beneficiaries and
to entities (such as employers and States) that would otherwise be
financially responsible for the cost of beneficiaries' medical care.
The benefits to beneficiaries and plans are the result of transfer
payments from the Federal Government which we project will total $18.3
billion in the period 2004 to 2009 (as a result solely of the Title II
provisions of the MMA), as described in more detail in what follows.
The main purpose of this rule is to implement the statutory
provisions of Title II of the MMA, which deal with the Medicare
Advantage program. Insofar as the rule implements provisions of the
law, we are providing a general discussion of the impact of the law and
our basis for projections of the impact. These impact projections
reflect the statutory scheme in its entirety, not just the relatively
minor effects attributable to discretionary provisions in the
regulations. Although the statute prescribes Medicare Advantage rules
and procedures in considerable detail, it specifically affords CMS
discretion to make decisions on a number of issues regarding how the
law will be implemented. The preamble and this impact analysis discuss
these types of issues in greater detail. The rule also introduces
changes to Medicare private health plan requirements that, in most
cases, are intended to streamline the administration of the program and
make contracting less burdensome for health plans while not impinging
on the rights of enrollees. (Note that this analysis does not extend
beyond the year 2009; that is, the Comparative Cost Adjustment (CCA)
demonstration program of subtitle E of the MMA is not
[[Page 4690]]
discussed. The CCA regulations will be proposed at a later date.)
Comment: One commenter expressed disappointment in the approach of
dealing with the impact of the law and regulations only through 2009,
without discussing the Comparative Cost Adjustment (CCA) program set to
begin in 2010 (under section 241 of the MMA). The commenter is
interested in knowing what our thinking is with regard to the CCA
program.
Response: As discussed in the notice of proposed rule making, any
necessary regulations for the CCA program will appear sometime in the
future as proposed rules, at which time there will be opportunity for
public comment. We would also note that our experience with the bidding
system that begins in 2006 will help inform our thinking about the CCA
program when we begin active planning for it.
1. Objectives of the Final Rule
The primary goal of the MMA is to expand the health plan choices
available to Medicare beneficiaries, allowing beneficiaries to meet
their medical needs at a lower cost. There is also the expectation that
Medicare health plan enrollment will increase. The expansion of health
plan choice is envisioned as occurring at many levels: areas of the
country that previously did not have private plans available should see
new plans enter the market; areas where there are plans should see an
increase in the number of competing plans; and beneficiary choice
should be enhanced by the introduction of new types of plans, including
specialized plans, and, most importantly, regional plans that are
structured as preferred provider organizations. In keeping with the
overall objectives of the law, the rule seeks to implement the law in
ways that will promote plan participation (and, as a consequence, lead
to increased enrollment in private plans). The introduction of regional
plans and the choice of the PPO model for such plans are designed to
lead to greater plan participation. The rationale for the introduction
of regional plans and the use of the PPO model are discussed in the
impact analysis of the August 3, 2004 proposed rule (69 FR 46919).
General Impact. In general, the law and regulations will have a
positive impact on beneficiaries and private health plans. Transfer
payments from the Federal Government will go towards the provision of
additional health benefits to enrollees of health plans and reduced
out-of-pocket costs, including reduced Part B and Part D premiums for
these enrollees. The law will result in increased revenue for
participating private plans for the provision of the basic Medicare
benefit and the provision of additional health benefits. We also
anticipate a positive impact for employers and unions as sponsors of
retiree coverage, as discussed in more detail below.
There are revenue effects on States arising directly from the law
(the prohibition on premium taxes) and arising indirectly as a result
of beneficiary movement towards private plans and away from traditional
FFS Medicare with Medigap coverage. The latter effect is relevant to
Medigap insurers. The effects on States and insurers are discussed more
fully in what follows.
2. Provisions of the Law
The MMA introduces major changes in the payment rules for private
plans. These changes are discussed in detail in the preamble text for
subparts F and G of these regulations. For local plans, the MMA
increased MA payment rates beginning in 2004, by using county FFS rates
(minus direct medical education payments) as a minimum payment level
and rebasing the rates periodically, by removing a budget neutrality
limitation on payment at a national/local blended rate, and by
providing for higher yearly payment rate increases (while maintaining
minimum payment rate increases).
Payment to plans are risk adjusted for health status (in addition
to risk adjustment for demographic factors such as age), with 30
percent of payment being subject to health status risk adjustment in
2004, 50 percent in 2005, 75 percent in 2006, and 100 percent in 2007
and thereafter. When payments are risk-adjusted, a greater proportion
of such payments are directed to chronically ill and older
beneficiaries with predictably high costs. Note that CMS is currently
implementing health status risk adjustment in a ``budget-neutral''
manner, with savings re-invested in plan payments. That is, the
difference in payment between the total health status-adjusted payment
rates and the rates adjusted only by demographic factors is paid to the
health plan ``sector,'' in 2006, but the funds are distributed among
plans based on the relative health status of each plan's enrollees.
Through 2005, there is no change to the payment rules related to
how plans must use any excess funds (Medicare payments greater than the
amount a health plan requires to provide the Medicare benefit).
Currently such funds must be returned to enrollees in the form of
reduced cost sharing, or the provision of extra (non-Medicare)
benefits. Plans also have the option of using the excess funds to
reduce all or a portion of an enrollee's Part B premium, but in that
case, the Government retains 20 percent of the reduction in plan
payments while reducing the Part B premium that is usually collected
through a beneficiary's Social Security payment. Another option for the
disposition of excess funds is to make deposits to a ``stabilization
fund'' to be used in a subsequent contract year for reductions in cost
sharing or for financing of extra benefits-an option that the MMA
eliminates as of the end of the 2005 contract year.
Currently and through 2005, the determination of whether there are
excess funds is done through the ``adjusted community rate'' approval
process (a CMS review of proposed benefits and premiums and the revenue
required to provide the benefit package). The MMA does away with the
ACR review process and instead institutes a bidding process. As of
2006, plans will present bids that are to be compared against
benchmarks to determine whether enrollees will receive rebates or be
required to pay a premium to the health plan. For local plans, the
benchmark is based on what today are county payment rates. For regional
plans, the benchmark represents a weighting of these same county rates
and the actual plan bids. CMS will evaluate the bids for reasonableness
and actuarial soundness, and can negotiate over the bid amounts and
proposed supplemental benefits. In 2006 and thereafter, to the extent
that the bid is less than the benchmark, that difference (comparable to
the current ``excess funds'') determines plan rebates. The Government
retains 25 percent of this difference, and the remaining 75 percent is
to be used for beneficiary ``rebates,'' which can take the form of
extra benefits, reduced cost sharing, reduced health plan premiums for
mandatory supplemental benefits, or reduced Part B and/or Part D
premiums. To the extent that the plan bid is greater than the
benchmark, that difference becomes the premium the plan must charge
enrollees for ``basic'' benefits.
The limitation on cost sharing for Medicare services that
previously existed is modified in the MMA. Prior to the MMA, for
coordinated care plans, the combination of the actuarial value of cost
sharing for Medicare-covered services, plus any premium or portion of a
premium representing a charge in lieu of Medicare cost sharing, could
not exceed the average level of cost sharing that beneficiaries face in
FFS Medicare. As of 2006, premium amounts that are in lieu of cost
sharing are not counted
[[Page 4691]]
in determining whether the limit is exceeded (which is the rule as it
is currently applied to PFFS plans). In addition, the comparison is
made to local values of cost sharing in FFS Medicare rather than to the
current use of national values. (The cost sharing for Medicare Part A
and B services that enrollees of MA regional plans obtain from non-
network providers is not counted in determining whether the cost
sharing limit on Medicare services has been exceeded.)
The MMA also makes structural changes in the Medicare private plan
contracting program. The most important of these statutory changes is
the introduction of regional MA plans that will be structured as PPOs,
and which would first become available in 2006. While local plans may
choose the counties in which they wish to operate as MA plans, regional
plans must cover an entire region. On December 6, 2004, we designated
26 regions for MA regional plans and 34 regions for PDP plans.
Information on the regions and the basis for their selection can be
found at http://www.cms.hhs.gov/medicarereform/mmaregions. To facilitate the
ability of regional plans to operate in multiple States, plans that are
licensed in at least one State in the region can qualify for a waiver
of the licensing requirements in the other States in the region for a
period of time pending an organization's becoming licensed in each
State (see the preamble text for subpart J). In the first 2 years of
formation of regional plans, there is a moratorium imposed on the
formation or expansion of local PPOs.
Regional plans have various statutory incentives to participate,
including:
Sharing risk with the Government in 2006 and 2007,
Access, beginning in 2007 through the end of 2013, to a
``stabilization fund'' of $10 billion (plus half of the 25 percent of
regional plan rebate dollars that would otherwise go to the
Government). The stabilization fund will be used to encourage plan
entry (including a bonus for plans operating in the entire Nation) or
to prevent plans from discontinuing contracts; and
Access to additional funding payable to ``essential''
hospitals (as described in the subpart G preamble text).
As described elsewhere in this regulation, we are also taking other
regulatory steps to support regional plan participation, such as
allowing plan payments to be adjusted based on geographic variations in
a plan's costs within a region, and providing flexibility in network
adequacy standards (as outlined in the preamble discussion of subpart
G).
Other structural changes affecting Medicare health plans include
provisions for plans that can exclusively or disproportionately serve
special needs individuals, special treatment of enrollees with ESRD
(paid outside of the bidding system in 2006-see subpart G), authority
for direct contracting between CMS and employers or unions for coverage
of retirees (see Sec. 422.106), and removal of certain limitations
that had been imposed on medical savings account plans. There are also
provisions calling for the termination of cost-reimbursed contracts
with health plans if certain conditions are met (see discussion of
changes to part 417).
In the following section we list those areas in which we will
exercise discretion, either because the law entails a choice of options
or because we have elected to exercise regulatory discretion.
3. Discretion Resulting from Statutory Provisions
Designation of Regions. The most important feature of the MA
program that the statute leaves to the discretion of the Secretary is
to determine the boundaries for the regions in which regional MA plans
will operate. As permitted by the statute, the regions for MA are
different from the PDP regions, as explained in the announcement of the
regional configurations and as discussed in the impact analysis for
Title I of the MMA (concerning PDPs). The biggest difference between
the two sets of regions is that the size of the eligible population
necessary to support economic viability is somewhat larger for MA than
PDP plans. All PDP regions are ``nested'' within (included in) MA
regions to simplify planning and administration. Some of the issues
relating to the configuration of regions were discussed in the
alternatives considered section of the proposed rule (see 69 FR 46937).
The estimates contained in the analysis found in the proposed rule (see
69 FR 46928, Table 2, for example) were for illustrative purposes and
were based on an assumption that there would be 15 regions. The
projected numbers in this final rule are based on the MA regions
designated by CMS. The configuration of the regions affects the
projections because of the expected benchmark levels in each region and
the projected bids from health plans in the regions.
Statewide Versus Plan-Specific Risk Adjustment. CMS is given the
authority to use a statewide, area-wide, or a plan-specific, risk
adjustment methodology for determining rebates. The effects of each and
the factors to consider in choosing one or the other approach were
discussed in the alternatives considered section of the proposed rule
(see 69 FR 46942). The consequence of choosing the option of the plan-
specific approach is briefly discussed below, in the alternatives
considered section of this final rule.
4. Regulatory Discretion
The statute spells out in detail most major and many minor
parameters of Medicare reform. However, in certain matters, the statute
describes a structure or uses terminology that is open to
interpretation but which is a necessary component of the statutory
scheme. There are also other areas where we believe further
interpretation is needed, or where there appear to be internal
inconsistencies in the statute that need to be resolved. The following
issues are of this nature, and each is noted here briefly, with some of
the issues discussed in further detail in the section on alternatives
considered.
Actuarial Value of Medicare Cost Sharing. When plans present bids
for Medicare-covered services the bid may include only Medicare-covered
services and must reflect cost sharing at Medicare levels or with
``actuarially equivalent'' cost sharing. The options for defining
``actuarially equivalent'' in this context are discussed in detail in
the preamble text of subsection F in this final rule and in the
proposed rule (where the uniform, plan-specific, and proportional
amount methods of determining actuarial equivalence are discussed).
Treatment of Induced Demand as a Supplemental Cost. As was
discussed in the proposed rule, to the extent that we were to use the
``plan-specific'' approach to determining cost sharing that is
actuarially equivalent to that of traditional Medicare, an additional
issue arises, having to do with the additional expenditures arising
from ``induced demand'' (higher utilization because of lower cost
sharing). We have decided not to use the plan-specific approach,
relying instead on a proportional approach to determining cost sharing
as a component of the bid for Medicare A and B services. Therefore we
are unable to quantify any induced demand that may exist (that is, any
difference in A and B expenditures between the bid and actual
utilization under a plan's benefit design which is attributable to
reduced cost sharing). In the alternatives considered section, below,
we discuss the consequence of this choice.
Prohibiting Use of Rebate Dollars for the Purchase of Optional
Supplemental Benefits. This final rule prohibits rebate dollars from
being used for the purchase of optional supplemental benefits, as
[[Page 4692]]
explained in the preamble text for subpart F.
Intra-Area Geographic Adjustment to Payments. The statute specifies
that ``if applicable'' (1853(a)(1)(B)(i)), CMS ``shall adjust''
payments ``in a manner to take into account variations in MA local
payment rates'' (1853(a)(1)(F) for regional plans and for local plans
operating in more than one local payment area. This issue is discussed
in more detail in the ``alternatives considered'' section. We will be
using a geographic adjustment based on MA county payment rates, but in
exceptional situations, for regional plans, we will allow the use of a
plan-determined statement of the variation in the relative cost to the
plan of providing Medicare-covered services.
5. Provisions Of The Rule Not Based On Specific MMA Changes
As discussed throughout the preamble of this final rule and the
proposed rule, we have made a concerted effort to improve, and wherever
possible simplify and reduce the burden of, existing regulations. In
general, as previously noted, these provisions reduce the burden on
health plans while enhancing beneficiary protections or not adversely
affecting the rights of enrollees. Among the changes that are being
made that are not a result of the MMA statutory provisions are (a) new
beneficiary protections related to coverage of services when network
providers can see patients on a ``point-of-service'' basis (Sec.
422.105); (b) revisions to the rules limiting beneficiary cost sharing
related to emergency episodes (Sec. 422.113); (c) the elimination of
requirements on MA plans that are duplicative of activities already
conducted by CMS regarding information about beneficiary health care
coverage options (elimination of Sec. 422.111(f)(4) and (f)(6), and
portions of (f)(7)); (d) the elimination of certain access to care
provisions (changes made at Sec. 422.112); (e) use of alternative
election mechanisms other than forms (Sec. 422.50(a)(5)), and
alternative notice options (Sec. 422.60(e)); (f) allowing MA
organizations to submit requests to restrict enrollment for capacity
reasons at any time during the year (Sec. 422.60(b)); (g) providing
more flexibility in the procedures for disenrolling beneficiaries for
failure to pay premiums (Sec. 422.74(d)(1)) and rules related to
disenrollment due to disruptive behavior (Sec. 422.74(d)(2)); (h)
formal adoption of a ``file and use'' approach to approval of marketing
materials (Sec. 422.80) for contractors that have demonstrated a
record of compliance with marketing rules; (i) changes in requirements
regarding information plans provide to enrollees about participating
providers (Sec. 422.111(b)(3), for example); and, in Sec. 422.133 ,
extending the right under section 1852(l) of the Act for admission to a
``home skilled nursing facility'' in the event that a health plan
admits an enrollee to a skilled nursing facility without a prior
qualifying hospital stay. In addition, various changes are made in
subpart D that are consistent with a ``quality improvement'' approach
to quality standards.
B. Basis for Estimating Impacts
The extent of the impact of the MMA will depend on whether the
goals of the law are realized. We believe that the payment changes and
structural changes of the MMA will lead to higher levels of plan
participation, and, as a consequence, enrollment in coordinated care
plans will increase over the next several years and over the longer
term. We expect the absolute level of Medicare health plan enrollment
to increase because of the greater availability of plans, and we expect
the rate of enrollment in such plans (``penetration'') to increase
because plans will be able to offer plan designs that will allow
beneficiaries to meet their medical needs at a lower cost, and MA
organizations will be able to offer generous benefit packages that
Medicare beneficiaries will find attractive. However, there is a great
deal of uncertainty involved in making projections of plan
participation and beneficiary enrollment levels. The factors
contributing to uncertainty include uncertainty about market decisions
health plans might make, how changes in health care markets and costs
will affect plan participation and beneficiary enrollment, whether MA
plan offerings will satisfy the enrollment preferences of Medicare
beneficiaries, how MA plans will fare in competition with the new PDP
plans, and other factors. For the MMA, the designation of MA regions
and how the marketplace will react to the regional designations is also
a factor contributing to uncertainty.
We have revised the enrollment, expenditure, and distribution of
funds estimates contained in the proposed rule (summarized in the
proposed rule, in Tables 2, 4, and 12, found at 69 FR 46928, 46930, and
46951). The revisions reflect revised bid and benchmark estimates based
on the designation of regions; and revised enrollment estimates based
in part on the results of discussions with the Technical Review Panel
on the Medicare Trustees Reports (information about the panel and its
findings can be found at http://aspe.hhs.gov/health/medpanel/2004/, in
particular the minutes of the October 15, 2004 meeting). The enrollment
estimates (and associated expenditures for MA) were revised downward
for the 2004 to 2009 period that is the subject of the projections
contained in this final rule. While enrollment in MA had been projected
to reach 33 percent of the Medicare population by 2009 in our proposed
rule projections, we are revising the penetration projection to be
lower in 2009-it is now projected to be about 24 percent-but we
continue to expect enrollment to reach 33 percent by 2016, with
enrollment in 2016 being evenly divided between local MA plans and
regional plans.
The proposed rule contained a lengthy discussion of the history and
current state of the MA program (and its predecessor programs, such as
Medicare+Choice). The discussion contained data on beneficiary access
to MA plans over the years and penetration levels in the past, the
types of beneficiaries who currently enroll in such plans (for example,
lower-income individuals are more likely to enroll in MA), the
categories of beneficiaries less likely to enroll; and a discussion of
any conclusions that can be drawn from the history of the program in
terms of health plan decisions to participate in the program and
beneficiary decisions on enrollment in Medicare health plans (69 FR
46921 through 46925 of the proposed rule). The discussion was intended
to provide historical and anecdotal evidence to support the enrollment
projections found in the proposed rule. For this final rule, we are
providing an update of some of the data.
As of January 2005 there are 174 MA coordinated care plans (CCPs),
and such plans were available to 65 percent of the Medicare population
(compared to 61 percent of the population at the end of 2004, and
compared to a historical high of 74 percent). There are applications
pending for 19 additional CCPs. Including PFFS plans, if all pending
new contract applications and service area expansion requests are
approved, 86 percent of Medicare beneficiaries will have access to at
least one Medicare private plan.
The current data demonstrate a significant increase in plan
participation in MA, associated with an increase in enrollment in CCP
plans of about three percent between January and December of 2004 (to
4.7 million). (In addition, enrollment in PPO demonstration plans
increased 34 percent to 111,000; and enrollment in PFFS plans increased
93 percent, to 51,000.)
[[Page 4693]]
With regard to MSA plans, we remain uncertain, as noted in the
proposed rules, about participation and enrollment in MSAs. The MMA
changed the MSA provisions of the BBA with a view towards facilitating
the offering of such plans. However, we are unable to determine whether
the MMA provisions will result in such plans being introduced and the
extent to which beneficiaries might enroll in such plans.
Comment: Several commenters remarked that the impact analysis
showed that very little of the additional payments to health plans
resulting from the MMA would be used to fund extra benefits for plan
enrollees.
Response: The commenters have pointed out what is an error in the
impact analysis published in the notice of proposed rule making of
August 3, 2004. We are correcting the error in this final rule. While
the projections of Tables 2 and 4 of the proposed rule (69 FR 46928 and
46930, respectively) show that only about six percent of total new
expenditures arising from the MMA would be used to fund extra benefits,
the correct percentage, over the period 2004 through 2009, should be a
much higher figure-in the range of 50 percent, as explained below in
the section on effect on beneficiaries. The remainder of the payment
increases will support maintaining and enhancing provider networks and
stabilization of the plans' financial status in Medicare. (The
erroneous projected percentage was based on the percentage of total MA
payments in 2004 through 2009 that we project will be used for extra
benefits, not the percentage of only the incremental dollars that plans
will receive in 2004 through 2009 because of the MMA provisions.)
Comment: One comment questioned a statement in the impact analysis
of the proposed rule to the effect that there were a number of insurers
that are licensed as insurers in every State in the Nation, or which
are licensed in multiple States. The commenter noted that they were
aware of several national and multi-state insurers but inquired whether
CMS had in mind any other insurers beyond the ones named in the
comment.
Response: The CMS information on the number of insurers that are
multi-state or national insurers was based on information available at
the web site of the National Association of Insurance Commissioners
(http://www.naic.org), showing the licensure status, by State, of health
insurance companies. We have not done an exhaustive analysis to
determine the total number of such companies. Our purpose was merely to
point out, as the commenter noted, that there are a number of
organizations that are potential MA regional plan contractors.
Projections Provided in the Impact Analysis. The methodology used
to project the impact of the law and regulations is partly explained in
the section on effects on beneficiaries. The projections in this final
rule, which are different from those in the proposed rule, are based on
the CMS designation of 26 MA regions. For projection purposes, a model
is used that assumes three regional plans in each region, with each
plan at a different level of efficiency (though this is not to suggest
that this would be the number of regional/national plans in each
region). With regard to the number of MA local plans, the projections
of enrollment do not involve assumptions about any specific number of
local plans. Instead a certain level of enrollment is assumed for local
plans based on the benefits they are expected to offer. It was assumed
that there would be sufficient capacity among local plans to enroll all
beneficiaries that are expected to join such plans. The estimates of
plan bids are based on the proprietary information submitted to CMS by
current Medicare Advantage plans (coordinated care plans as well as
demonstration PPO plans). Beneficiary behavior is modeled with utility
functions that predict the choices they will make among available
health plan options. As previously mentioned, we recognize the high
degree of uncertainty entailed in such projections. The projections
represent our best estimate of the impact given the assumptions stated.
C. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies identify any Federal mandates resulting from
rules that may result in the expenditure by State, local, and tribal
governments of $100 million or more (adjusted for inflation and
currently about $110 million). If this threshold is met, a detailed
analysis is required. This rule does not contain any such mandate, and
other direct effects on State, local, and tribal governments will be
minimal. There will, however, be an indirect effect on State premium
tax revenues due to the increased enrollment in MA plans and reduced
enrollment in certain Medigap policies. These indirect effects,
however, are not the result of these rules, but of increased plan
payments and prohibitions on sale of those Medigap policies implemented
independently of these regulations.
Title II of the MMA contains several provisions that have a direct
impact on States. Section 232(a) of the MMA amends section 1856(b)(3)
to preempt all State standards other than licensure and solvency as
they apply to MA plans. Section 232(b) of MMA amends section 1854(g) to
expand a prohibition on State taxes for MA plans to apply to both CMS'
payments to MA plans and to enrollee premium payments to MA plans. In
addition, section 221(c) of MMA allows for temporary waiver of State
licensure in States covered by regional MA plans where those plans
cover a multi-State area.
Medicare law prohibiting State taxes on section 1853 payments to
M+C organizations, that is, payments made by CMS to health plans
contracting with Medicare, was established by the Balanced Budget Act
1997. That prohibition did not apply to enrollee premium payments made
to M+C plans.
Section 232(b) of the MMA has expanded the prohibition on State
taxes for MA plans, addressed in statute at section 1854(g), to apply
to both section 1853 payments to MA plans and to section 1854 enrollee
premium payments to MA plans. This provision was effective on the date
of enactment of the MMA and is, therefore, not subject to the
Regulatory Accountability provisions of the UMRA, which apply only to
effects resulting from promulgation of rules. Section 422.404(a) is
revised to reflect this change. We do not anticipate that the added
prohibition on taxation of enrollee premiums to have a significant cost
impact on States. Enrollee premiums to Medicare health plans are a
small proportion of total payments to health insurers. Thus, State loss
of tax revenue from Medicare enrollee premiums would also be small.
Therefore, even if it were subject to UMRA, the prohibition of taxation
by States of Medicare enrollee premiums would not approach the UMRA
threshold.
We also recognize, however, that there is an indirect effect of the
MMA law because of the expected enrollment shift from taxable Medigap
insurance, and employer-sponsored private supplemental coverage, to
non-taxable MA plans. This indirect effect would vary by State and
would be dependent on a variety of factors, including the State's tax
rate on health insurance premiums, the extent of Medigap enrollment in
a State, the extent that Medigap enrollees choose to shift to MA plans
in that State, as well as other resulting factors such as changes in
Medigap premiums that could result from enrollment shifts. Due to these
[[Page 4694]]
factors, estimates of the indirect effect of enrollment shifts away
from taxable Medigap and employer-sponsored supplemental plans combined
with the prohibition on State taxation of Medicare enrollee premiums
would involve great uncertainty and would necessarily be speculative.
D. Federalism
MMA provisions may have qualitative impacts on how States regulate
and interrelate with health insurers serving Medicare enrollees due to
the expanded preemption of State laws and possible temporary waiver of
State licensure for multi-State MA regional plans. Law relating to
Federal preemption of State standards for Medicare-contracting health
plans has undergone several revisions in recent years. While Federal
preemption of State standards was initially established into Medicare
law by the Balanced Budget Act of 1997, a general preemption authority
existed under Executive Order prior to that time. Federal preemption of
State standards for Medicare-contracting health plans was expanded by
Congress in 2000 and expanded again by Congress in 2003.
Prior to 1997, Federal law did not contain specific preemption
requirements for Medicare-contracting health plans. However, section
1876 Federal requirements could preempt a State law or standard if
State provisions were inconsistent with Federal standards based on
general constitutional Federal preemption principles, consistent with
the provisions of Executive Order 12612 on Federalism, since superseded
by Executive Order 13132. Section 1876 requirements did not preempt a
State law or standard unless the State law or standard was in direct
conflict with Federal law. See the June 26, 1998 Federal Register
notice (63 FR 35012) for further discussion on the history of general
Federal preemption of State law prior to the BBA.
The BBA established for the M+C program at section 1856(b)(3) of
the Act a general preemption authority in which State laws or standards
would be preempted when they were inconsistent with M+C standards in
the same manner that the previous Executive Order applied, and this law
also established a specific preemption of State laws and standards in
three areas: benefit requirements, requirements relating to inclusion
or treatment of providers, and coverage determinations (including
related appeals and grievance procedures). This meant that a general
preemption applied if State laws, regulations, or other standards were
inconsistent with Federal standards and, furthermore, in the
specifically preempted areas, meant that State standards were preempted
regardless of whether or not those standards were inconsistent with
Federal standards.
In 2000, section 614 of BIPA maintained the general preemption
authority and expanded specific preemption requirements by amending
benefit requirements to include cost-sharing requirements and by adding
a fourth specific preemption for requirements relating to marketing
materials and summaries and schedule of benefits regarding a M+C plan.
Thus, the list of areas of specific preemption effective since 2001
were: benefit requirements (including cost-sharing requirements),
requirements relating to inclusion or treatment of providers, coverage
determinations (including related appeals and grievance procedures),
and requirements relating to marketing materials and summaries and
schedule of benefits.
In 2003, section 232(a) of the MMA amended section 1856 for MA
plans by eliminating the general and specific preemption distinctions
from section 1856 and expanded Federal preemption of State standards to
broadly apply preemption to all State law or regulation (other than
State licensing laws or State laws relating to plan solvency). Section
422.402 of the regulation is thus revised. Note that State laws on
secondary payer are also preempted by Federal law and a change is made
in regulation at Sec. 422.108(f) to reflect that States are prohibited
from limiting the amount that MA organizations can recover from liable
third parties under Medicare Secondary Payer provisions. The Congress
indicated its intention to fully preempt State laws in the Conference
Report for the MMA emphasizing that Medicare is a Federal program and
that State laws should not apply. Section 232(a) of MMA was effective
on enactment.
We do not perceive that there will be a significant cost impact on
States from section 232(a) of MMA to broaden Federal preemption
authority to preempt all State law and regulation (other than State
licensing laws or State laws relating to plan solvency). The specific
preemptions already in effect were broad areas where States were most
likely to have enacted laws or developed other regulations or standards
for health insurance. Apart from those specific preemptions, general
preemption already applied where State provisions were inconsistent
with Federal standards such that other State standards in conflict with
Federal standards were also already preempted.
Areas of State law that will newly be preempted by full preemption
of State laws (other than licensing and solvency) do exist, however,
and will affect State residents who are Medicare beneficiaries. State
governments will be affected in that State governments will no longer
be responsible for enforcing preempted laws, which will likely reduce
costs to States. A discussion of the diverse types of State laws that
previously fell under general preemption is addressed in some detail in
the response to public comments in the preamble to a June 29, 2000
final rule implementing the BBA's preemption law. (See 65 FR 35012
through 35014 of the June 29, 2000 Federal Register for a further
discussion of the types of State laws that may be affected, which
includes grievances and quality complaint reviews conducted by State
governments.)
In reality, determinations of which State laws have been subject to
general preemption often has not been made unless specific questions or
disputes have arisen that resulted in a court review of applicability
of law to specific cases. The MMA revision relieves uncertainty of
which State laws are preempted by ``preempting the field'' of State
laws other than State laws on licensing and solvency.
As required by Executive Order 13132, because of the implications
for the States of the Federal preemption of State laws enacted in the
MMA, we will consult with the States regarding the effect of the
preemption provision on the role the States will play with respect to
the regulation of Medicare plans, and the effect the preemption will
have on State agencies and on beneficiaries enrolled in Medicare health
plans. As noted in the preamble discussion of subpart I, there are
issues to resolve with the States in order to clarify the breadth of
preemption provisions with respect to State licensure laws, and which
State statutory and regulatory provision may be considered licensing
standards which are not preempted by the MMA provision. The comments
and responses presented earlier in this preamble make clear that the
role of State regulation of these plans is severely circumscribed. Some
State-specific questions may subsequently arise, and some of these may
be common across several States. In such cases we will undertake
appropriate consultations with the States and, if necessary, issue
interpretive guidance.
E. Effect on Beneficiaries
The MMA increases the value of benefits that enrollees of MA plans
have and will increase the availability of such
[[Page 4695]]
benefits. When MA plans can bid at levels below the relevant benchmark,
they can offer Medicare enrollees coverage of benefits beyond what
Medicare covers (such as eyeglasses, hearing aids, or dental care),
reduction in out-of-pocket expenditures for covered services (either as
reduced cost sharing, on average, compared to FFS Medicare, or reduced
expenditures for supplemental premiums compared to Medigap, for
example), and reductions in expenditures for the Medicare Part B and
Part D premiums. As a result of the MMA provisions, we project that in
the period 2004 through 2009, Medicare beneficiaries enrolling in MA
plans will see benefits beyond basic Medicare Parts A and B coverage
which represent approximately 50 percent of the incremental dollars
that are the government transfers to plans listed in Table 1. We are
unable to provide a more precise figure because of the type of modeling
used to determine projected expenditures and enrollment. The 50 percent
estimate is based on the disposition of the incremental MMA dollars
that MA plans received in March of 2004, at which time plans were asked
to resubmit adjusted community rate proposals to CMS to account for the
extra money received mid-year. We analyzed the benefit changes
resulting from these mid-year filings and found that, for non-employer-
sponsored plans, 58 percent of the additional funds were used to
provide enrollees with extra benefits (or were deposited in a
stabilization fund to be used for that purpose in 2005). Remaining
funds were used to strengthen MA benefits in other ways, for example,
maintaining or enhancing provider networks or financial stability for
the MA plan. Expressed in dollars per enrollee, of the $38 per enrollee
per month that was added to plan payments by the MMA in March of 2004,
$22 was used to finance extra benefits or reduce out-of-pocket costs,
and most of the remainder was used for provider networks (which will be
particularly important to create attractive PPO plans). Employer group
plans, which represent a little under 20 percent of MA enrollment, had
a higher proportion of incremental dollars used for extra benefits-
about 80 percent of the incremental dollars were used for that purpose-
but, unlike non-group plans, a substantial proportion of the
incremental dollars (over three-fourths of the funds) were deposited
for use in 2005 (compared to five percent for non-group enrollees), and
are included in the 80 percent figure. On average, therefore, across
both types of coordinated care plans (employer group plans and plans
for individual Medicare enrollees), about 60 percent of the 2004 MMA
incremental dollars were used to finance extra benefits for MA
enrollees. We assume that in future years this percentage will decrease
slightly (a) because of the 2006 provision whereby the Government
retains 25 percent of savings generated by local plans, and (b) because
regional plans will incur relatively higher costs for the provision of
Medicare A and B services (for example, because of higher out-of-
network costs) and will consequently have less money available to
return to enrollees in the form of rebates.
Because of the MMA payment increases effective March 2004,
beneficiaries enrolled in private plans have already seen reduced out-
of-pocket expenditures and increased benefits. Our analysis of MA
benefit packages in 2004 after the MMA payment increases shows that
enrollees of MA plans had out-of-pocket costs (including Medigap
premiums) that were $700 less per year than for an individual in
traditional FFS. This corresponds to a 14 percent savings for MA
enrollees, relative to traditional Medicare. Individuals in poorer
health had estimated savings in out-of-pocket costs of up to $1,909 a
year in comparison to the alternative of traditional Medicare without
Medigap coverage. (Savings are also substantial for MA relative to
traditional Medicare with Medigap, average $1,647 per year).
F. Effect on Health Plans and Insurers
Health plans will see significant increases in transfer payments
from the Federal Government as a result of the MMA. Plan payments will
increase significantly, allowing plan revenues and profits to rise as
enrollment increases with the offering of better benefits, better
networks, and more stable plan availability. Organizations that
currently contract with Medicare will have new market opportunities as
regional plans and opportunities to expand their participation as local
plans (other than as PPOs at a local level, which are prohibited from
being newly formed, or expanding into a new service area, for an
interim transition period, 2006 and 2007). Organizations that are not
currently participating in Medicare will have a more favorable market
environment for participating as local or regional plans.
The Federal Government transfer payments to health plans over and
above what would have been paid in the absence of the law, as a result
of the Title II provisions of the MMA, are expected to total $18.3
billion. To determine the administrative costs associated with these
expenditures, we have relied on the adjusted community rate proposals
of current MA coordinated care plans and demonstration PPOs, which
report administrative cost figures as a percentage of Medicare
payments. On average, ten percent of total plan revenues-consisting of
Government payments and member premiums-will be used for plan
administration in each type of plan (local and regional). The benefits
to health plans will vary geographically, depending on benchmarks and
the cost of doing business for the plans. The administrative cost
figure cited here for the plans includes projected start-up costs for
new organizations becoming Medicare contractors. The estimates of
benefits related to MA plans for 2004 through 2009 are shown in Table
1. The data in the table reflect projections we have made about the
number of plans participating, their bids and (consequently) their
level of benefits, and the level of expected beneficiary enrollment.
These projections are based on (a) what we know about the expected
benchmarks in each of the 26 MA regions; (b) the current premium and
benefit packages of MA plans and PPO demonstration plans, and their
costs for the packages as submitted to CMS; and (c) the current
patterns of enrollment in health plans in Medicare and the commercial
sector. As noted previously, projections are based on a model that
assumes three regional plans in each region, and that there will be a
sufficient number of local plans to meet beneficiary demand for
enrollment in local plans. In general, in terms of the proportion of
funds used to provide extra benefits to enrollees, we expect local MA
plans to be able to have more revenue available than regional PPO plans
for the provision of extra benefits and reduced out-of-pocket
expenditures. This is due to the cost of doing business in the areas
where the regional PPOs will draw much of their enrollment (for
example, the higher costs in rural areas), and the PPO structure, which
involves the use of network providers as well as non-network providers.
However, we would also expect that in many areas, there will only be
regional plans available, and no local MA coordinated care plans. In
addition, some beneficiaries will prefer the availability of out-of-
network options in the regional PPOs, as is the case for many non-
elderly Americans who prefer PPOs. As noted elsewhere, areas where
there are only regional plan options and no coordinated care MA plans
are likely to have higher benchmarks that are a vestige of the
``floor'' payment status of
[[Page 4696]]
such counties. Although PPO plans may face higher costs in operating in
such areas, the higher benchmarks will enable them to offer enriched
benefit packages (compared to traditional FFS Medicare). The
projections of Table 1 show the distribution of dollars to all plans.
The distribution is subject to regional variation (as is currently the
case), so that in some areas, for example, beneficiaries will have more
offerings and better benefit packages available to them as a result of
plans having more funds to provide extra benefits, reduced cost
sharing, lower premiums, or more extensive networks. Some plans may
offer very few extra benefits but would still be attractive to
enrollees and would be viewed by beneficiaries as more advantageous
than FFS Medicare with Medigap coverage, for example.
The dollar figures shown in Table 1 reflect the projected
additional Medicare Part A and B expenditures incurred solely as a
result of the MMA provisions. That is, the expenditures are the
incremental program expenditures that are incurred because of the MMA
provisions, including any difference in expenditures that result when
beneficiaries enroll in a private plan rather than receiving care in
FFS Medicare.
Comment: Several commenters stated that the impact analysis
projections are misleading in how types of plans are classified-that
is, the basis for determining whether a plan is a regional plan or a
local plan, and what kinds of organizations will be receiving payments
as MA plans. The commenters noted that some local plans cannot become
regional plans because they are not able to provide services across an
entire region, while some local plans are sponsored by organizations
that would also be (or could become) regional plans. The commenters
believe that payments to local plans that are operated by organizations
that operate regional plans (or could operate such plans) should be
classified as payments to regional plans rather than payments to local
plans. Response: While we acknowledge that the commenters' observations
reflect the situation in the health care market-which is that not all
organizations can be regional plans-we have provided separate
projections for regional and local plans on the basis of the
statutorily defined differences between the two types of MA
contractors. In addition, we separated the two categories because we
believe there is a value to the public in knowing what our expectations
are with respect to the new types of plans-MA regional plans-introduced
by the MMA.
The Congress recognized that it is not feasible for some
organizations that are current MA contractors to become regional plans,
and Congress did not preclude regional plan sponsors from also
operating local plans. In various sections of the conference report it
is noted that regional plans were designed to be able to provide
services over a wide geographic area, and in particular to provide
choices in rural areas that historically have not had coordinated care
plans available to Medicare beneficiaries (see pages 96 through 98 of
the MMA Conference Agreement, for example). It is recognized that
regional plans would be larger-scale plans than some current local
plans. We would also note that the possibility envisioned in the
statute of a national plan eligible for stabilization fund payments
demonstrates that Congress was aware that there could be plans that
operate on a much larger scale than many local plans.
Table 1: Projected Payments to MA Plans Resulting from Title II Provisions of the MMA, Years 2004 to 2009, in
Millions (Incremental Amounts in Absence of MMA Title II Provisions); Projected Total Plan Enrollment, 2004 to
2009, in Thousands (Totals May Not Sum Due to Rounding)
----------------------------------------------------------------------------------------------------------------
TOTAL, Years
Year 2004 Year 2005 Year 2006 Year 2007 Year 2008 Year 2009 2004-2009
----------------------------------------------------------------------------------------------------------------
Enrollment 4,752 4,855 4,980 5,648 6,234 6,539 ............
Projection,
Local Plans
----------------------------------------------------------------------------------------------------------------
Enrollment ............ ............ 1,686 2,637 3,097 3,604 ............
Projection,
Regional
Plans
----------------------------------------------------------------------------------------------------------------
Total Value of 1,738 2,618 2,143 1,632 1,259 1,023 10,414
Transfer
Payments,
Local Plans
----------------------------------------------------------------------------------------------------------------
Total Value of ............ ............ 746 2,498 2,372 2,312 7,928
Transfer
Payments,
Regional
Plans
----------------------------------------------------------------------------------------------------------------
Total Value of 1,738 2,618 2,889 4,130 3,631 3,335 18,342
Transfer
Payments to
Plans, Both
Types of
Plans
----------------------------------------------------------------------------------------------------------------
As between regional and local plans, and the choice that an
organization can make, regional plans, as described elsewhere, have a
number of financial incentives. Local plans have the advantage of being
able to selectively market to Medicare beneficiaries in that they can
make decisions on a county basis. Local MA plans can choose whether or
not to serve a particular county, and they can also vary benefits and
premiums by county under one contract by segmenting larger service
areas to as small a unit as a single county. The uniform benefit
requirement applies to local plans at the service area or segment
level, while regional MA plans, as previously noted, must have a
uniform benefit in the entire region (for each of the plans that an MA
regional organization offers in a region, each of which must be offered
on a region-wide basis). One organization may offer both local and
regional plans.
Although we have emphasized the additional benefits that we expect
plans to be able to offer, the transition to a competitive bidding
process more similar to that used by FEHB and large employers to obtain
high-quality, stable plan participation should also help provide
broader plan participation. As part of this process, Medicare has
replaced the adjusted community rate process and its requirement that
plan profit levels must be the same as for a plan's commercial product,
and has
[[Page 4697]]
eliminated the limit on premiums related to reducing cost sharing for
Medicare-covered benefits, plans can potentially manage their profit
levels by developing more competitive benefit packages at a lower cost.
Plans with bids exceeding the benchmark can also be assured of having
adequate revenue to operate as Medicare plans (though they must offer
sufficient additional benefits or quality to attract beneficiaries
despite their higher premium). These provisions may also lend stability
to the program in allowing plans to make adjustments to revenue needs
from one year to the next without facing statutorily imposed limits on
their ability to generate needed revenue.
There are a number of statutory and regulatory provisions which
reduce burden on Medicare plans while maintaining and strengthening
beneficiary protections, including the statutory changes that
eliminated the reporting requirements relating to physician incentive
plans, and the major changes in the quality assurance standards for
plans. As discussed elsewhere, this rule also has several
administrative changes that will reduce plan burden, including
elimination of plan disclosure requirements that are redundant, and
provisions that streamline the appeals procedure as regards notices to
beneficiaries.
In terms of estimating the impact of these changes, the physician
incentive plan (PIP) burden reduction was previously codified in the
final rule entitled ``Medicare Program: Modifications to Managed Care
Rules'' on August 22, 2003 and effective September 22, 2003. In the
regulatory impact statement of that rule (68 FR 50853 and 50854) we
stated: ``We find that overall the economic impact of this final rule
is positive, due to...the reductions in regulatory burden due to...the
reduction of the physician incentive reporting requirements...The data
available do not allow us to determine the distributional effects...We
have not considered alternatives to lessen the economic impact or
regulatory burden of this final rule because the regulatory burden is
reduced...'' We have no new data at this time that would alter the
analysis and conclusions drawn in the prior rule.
With regard to the ``file and use'' policy, we are codifying in
regulation a previously existing program tolerance which has been
successful. The ``burden reduction'' actually associated with ``File
and Use'' is minimal for two reasons. The first is that it represents a
``tolerance'' already in use; so additional burden reduction is non-
existent. Second, File and Use is simply permission to publish (or use)
certain marketing materials prior to CMS review and approval. To the
extent that MA plans ``earn'' (or qualify for) File and Use status, the
advantage gained and the burden reduction available to them is that MA
plans qualifying for File and Use will not need to wait for CMS
approval prior to using specific marketing materials. Finally, CMS does
not currently collect data nor does it have information on the
distributional impact of the currently existing File and Use program,
so it is impossible to project the precise impact that File and Use
will have on organizations qualifying for it.
We remove certain plan disclosure requirements from Sec.
422.111(f). These disclosure requirements all are information that MA
organizations must provide ``upon request.'' We have no data that would
help us quantify the actual level of burden reduction. Therefore, the
level of administrative burden mitigation is likely negligible.
Other Effects. Although most Medicare health plans and
organizations that can participate as MA plans stand to benefit from
the MA provisions, Medigap insurers may face price pressures and see
declining enrollment if MA enrollment increases to the level that CMS
projects. It should be noted that many of the insurers that offer
Medigap coverage are companies that also operate health plans and are
already, or can become, local or regional MA plans.
Medicare Advantage PFFS plans are another class of insurer that may
see changes in the competitive environment. To date, such plans have
operated primarily in ``floor'' counties (counties in which, because of
the BBA and BIPA payment rules, health plan payment rates are higher
than estimated FFS Medicare costs). PFFS plans generally have not
competed directly against coordinated care plans. PFFS plans offer
generally less generous benefit packages than MA coordinated care plans
(involving higher levels of cost sharing and premiums), but they do
offer some level of supplemental coverage for individuals (including
drug coverage in many such plans), and they offer an advantage that
some beneficiaries prefer, which is that there is not a limited network
of providers that must be used to obtain covered care. As a consequence
of the MMA, where there are regional MA plans, regional plans are
likely to have a competitive advantage over Medicare PFFS plans that
had usually targeted areas in which there were no MA local plans. MA
regional plans must offer coverage for out-of-network care, and they
are likely to be able to offer a significant level of extra benefits
because of the financial incentives in the MMA. (As stated elsewhere in
the preamble, regional MA plans may not be PFFS plans; regional plans
must operate as a PPO model.)
G. Effects on States
States may see benefits from Title II of the MMA if more Medicaid
beneficiaries who are also entitled to Medicare A and B coverage (the
dual eligible population) enroll in private Medicare plans. Because MA
enrollees are likely to receive non-Medicare-covered benefits (such as
vision care) as well as lower copayments for Medicare-covered benefits,
dual eligible enrollees would receive benefits that the States would
otherwise have had to pay for. States may benefit from reduction of the
Part B premium which the State would otherwise pay for dual eligibles.
It should be noted that to date, the enrollment level of dual eligibles
in Medicare plans is not as high as it could be (see Edith G. Walsh and
William D. Clark, ``Managed Care and Dually Eligible Beneficiaries:
Challenges in Coordination,'' Health Care Financing Review, fall 2002,
volume 24, number 1). A number of factors could contribute to greater
enrollment of dual eligibles in MA plans: the extension of plan
availability across an entire State (as part of a regional plan), the
likelihood of Part B premium rebates (which the State would be entitled
to), and the designation in the law of dual eligibles as a category for
purposes of determining whether an MA plan is a specialized plan. Dual
eligible individuals do not have the same incentives to enroll in MA
plans as other low-income Medicare beneficiaries. In certain
circumstances, a State may require the enrollment of dual eligibles in
MA plans (if, for example, the plan is also a Medicaid health plan and
the State has a waiver permitting mandatory health plan enrollment for
Medicaid beneficiaries).
The direct effect on the States of the expansion of the premium tax
prohibition is discussed in the section on unfunded mandates. The MMA
changed the law to exempt from State premium taxes the premiums paid by
beneficiaries, as well as Federal payments to plans (which the law
already exempted). This provision by itself has a relatively minor
effect on State revenues, given the prevalence of zero-premium MA plans
and given the expected trend in MA benefit packages towards more zero-
premium products. However, an indirect effect of the premium tax
prohibition is that, to the
[[Page 4698]]
extent that there are reductions in the number of beneficiaries who
hold Medigap policies, States may lose premium tax revenue that would
have been derived from Medigap policies (the entire premium of which is
generally taxed). As previously discussed, it is unclear what the
impact will be if there is such an effect, given the trend of greater
numbers of beneficiaries with Medigap coverage and rising Medigap
premiums.
H. Effect on Employers and Unions as Sponsors of Retiree Coverage
Historically, Medicare-contracting health plans that contracted
with employer or union groups to provide benefits had to comply with
the same Medicare regulatory requirements that apply to all Medicare-
contacting health plans. In 2000, section 617 of the Medicare,
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000
(BIPA) added a new authority at section 1857(i) of the Act, effective
2001, that provided CMS broad authority to waive or modify requirements
that hinder the design of, the offering of, or the enrollment in M+C
plans under contracts between M+C organizations and employers, labor
organizations, or the trustees of a fund established to furnish
benefits to an employer's current or former employees or to a labor
organization's current or former members.
Three types of waivers have been approved under the BIPA authority
which are discussed in an August 22, 2003 Federal Register notice (68
FR 50845). The three types of waivers are: (1) M+C organizations are
allowed to offer employer-only plans that are not open to individuals
and plan marketing materials do not have to be submitted for CMS review
and approval; (2) M+C organizations are allowed to ``swap'' benefits
not covered by Medicare of approximately equal value when an employer
asks for a benefit package different from what is offered on the
individual market; and (3) M+C organizations are allowed to raise the
co-payments for certain benefits but to provide a higher benefit level
or a modification to the premium charged as long as projected
beneficiary liability is actuarially equivalent. These waiver
authorities also will continue for MA organizations.
Section 222(j) of the MMA adds another authority for employer or
union sponsored plans, effective 2006, at section 1857(i)(2) of the Act
CMS may waive or modify requirements that hinder the design of, the
offering of, or the enrollment in an MA plan offered directly by an
employer, a labor organization, or the trustees of a fund established
by employers or labor organizations to furnish benefits to current or
former employees or to current or former members of labor
organizations. This authority is added in the rule at Sec. 422.106(d).
We have received a number of inquiries from employers and labor
organizations expressing interest in this direct contracting option.
We believe that there is likely to be a significant increase in the
number of retirees whose employer or union provides retiree coverage
through an MA plan because of the additional payments MA plans will
receive (so that benefits that otherwise would have been financed by
the employer or union can be financed by Medicare payments), and
because regional plans will be available that can cover wider
geographic areas and meet the needs of employers with retirees residing
throughout a large geographic area, or dispersed across many geographic
areas.
As of January 2002, about 18 percent of enrollees in
Medicare+Choice plans were employer- or union-sponsored retirees (see
Geoffrey R. Hileman, Kerry E. Moroz, C. William Wrightson, and Suhn K.
Kim, ``Medicare+Choice Individual and Group Enrollment: 2001 and
2002,'' Health Care Financing Review, fall 2002, volume 24, number 1).
There are 1.1 million beneficiaries residing in counties in which only
employer-sponsored retirees or dependents may enroll in MA plans
operating in those counties. MA plans may find this particular market
segment attractive for a number of reasons, including: the efficiency
of marketing to a large group; the advantage of having a group will
have been previously insured; and the ability of offering enrollees a
seamless continuation of coverage between active worker status and
retiree status. The regional PPO model may also facilitate the ability
of plans to serve this population to the extent that retirees no longer
reside near their place of work.
According to a 2003 Hewitt-Kaiser Family Foundation survey of large
employers, 21 percent of employers with 1000 or more employees require
new Medicare-eligible retirees to pay 100 percent of the plan premium.
The survey also found that, with regard to future trends, ``Serious
consideration is also being given to only providing access to health
benefits and asking retirees to pay 100 percent of costs; 26 percent of
firms said that they are very or somewhat likely to make such a
change.'' (Frank B. McArdle, et al., ``Large Firms' Retiree Health
Benefits Before Medicare Reform: 2003 Survey Results.'' Health Affairs,
web exclusive, January 14, 2004.) MA plans are a likely vehicle for
employers to offer health plans under these circumstances. In fact, the
2004 Kaiser/Hewitt Survey on Retiree Health Benefits report indicates
the continuing trend of having retirees pay 100 percent of their
premiums and also shows that, among the changes large private sector
employers made in 2004, ten percent of such employers are offering MA
plans (the report is available at http://www.kff.org/medicare/loader.cfm?url=/commonspot/security/getfile.cfm&PageID=49652
; see in
particular exhibit 22, at page 53). These trends would suggest that we
will see an increase in MA enrollment of retirees with employer group
or union-sponsored coverage (for beneficiaries of both types, those for
whom the sponsor contributes to the cost of the coverage and those
whose coverage involves only an offering of coverage).
I. Effect on the Federal Government
The benefits to beneficiaries and private health plans are the
result of transfer payments from the Federal Government to plans, or,
in the case of reductions in the Part B and Part D premiums, transfer
payments to beneficiaries. For the period 2004 through 2009, the total
amount of such transferred funds is projected to be $18.3 billion above
what would otherwise have been incurred in the absence of the Title II
provisions of the law. The preceding figure assumes a private plan
penetration rate of 24 percent by 2009. The total expenditure figure
assumes that $5.1 billion of the stabilization fund dollars for
regional MA plans are used in the period 2004 through 2009. We have not
separately projected an administrative cost to the Government for the
administration of Title II of the MMA separate from administration of
all portions of the MMA taken together.
There were several issues with a potential budgetary impact that
were discussed in the notice of proposed rule making. The section on
alternatives considered in the proposed rule examined the impact on
expenditures in choosing between statewide and plan-specific risk
adjustment to determine rebate amounts (beginning at page 46942). The
conclusion of that analysis was that expenditures under either approach
(plan-specific or area-wide) depended on the risk profile of plan
enrollees, and that it was not possible to quantify the effect: ``Wide
swings in the level of rebate dollars are possible under either method,
but we cannot quantify the effect at this time without knowing the risk
distribution of enrollees for
[[Page 4699]]
2006 and the respective bids of the health plans.'' As discussed in the
preamble, in part as a reflection of comments received, CMS has chosen
the plan-specific option. (See the preamble of the final rule and the
alternatives considered section of the proposed rule, previously cited,
for a discussion of the considerations that led to this decision.)
Another issue that has an effect on expenditures is the payment
adjustment relating to risk adjustment for bids that exceed the
benchmark. The regulatory text at Sec. 422.308(e), discussed in
subpart G of the preamble, would implement section 1853(a)(1)(G) of the
Act, which requires CMS to make certain plan payment adjustments to
take into account the health status of a plan's enrollees. For plans
bidding above the benchmark, this provision would allow the total
revenue a plan receives for its actual enrollees to more closely match
the plan's required revenue. The 1853(a)(1)(G) provision requires CMS
to adjust plan payments in recognition of the amount that a health plan
receives as a basic premium from its enrollees. The basic member
premium that plans actually will charge is the premium for a ``1.0''
beneficiary-that is, it is determined based on the revenue needs for a
person with average health status. For a plan with a risk score above
1.0 (that is, the plan has enrollees that are sicker than average and
utilize more services), there would be an additional payment from
Medicare to provide the plan with revenue that covers the shortfall
between the basic premium determined for a 1.0 enrollee, and the actual
revenue necessary from member premiums. (Under the current system, but
not after 2005, in such a case enrollees would be charged a higher plan
premium to cover the needed revenue that matches their enrollees'
actual utilization patterns.)
A similar adjustment would be made for plans with risk scores below
1.0. A plan with a risk score below 1.0 would have determined its basic
premium for a 1.0 person, and enrollees will be charged that level of
premium. This provides the plan with more revenue than it needs.
Consequently, the section 1853(a)(1)(G) provision would call for a
reduction in Medicare's payment to the plan in recognition of the
additional revenue that comes from member premiums that are determined
for a 1.0 beneficiary.
The budgetary impact of this provision depends on the number of
plans that would have bids above the benchmark, and the health status
of enrollees in such plans. One would assume that the majority of
organizations deciding to enter the Medicare market would like to be
able to offer extra benefits at no cost, or at little cost, to
prospective enrollees. Therefore there may be few plans that bid above
the benchmark, and those that do so would try to limit the basic
premium to an amount that would attract a sufficient number of
beneficiaries. However, bids above the benchmark may arise (a) in
certain areas-for example, in areas where there may be only one or two
plans, or (b) in certain competitive situations-for example, when the
reason for a bid above the benchmark is that the plan offers coverage
that is expensive but has features that appeal to beneficiaries (such
as a wide network of providers, particular ``marquee'' providers in the
network, especially lower copayments, or generous out-of-network
coverage).
With respect to the risk profile of plans that may be bidding above
the benchmark, currently private plan enrollees are somewhat healthier
on average than Medicare beneficiaries in traditional FFS. If plans
bidding above the benchmark have healthier-than-average enrollees, the
budgetary impact of the 1853(a)(1)(G) provision would actually be net
program savings as beneficiaries bear some extra cost in their plan
premium. If today's patterns of enrollment continue, there may be such
program savings: looking at the subset of plans that currently charge a
premium for Medicare-covered services compared to plans that have no
premium charge for Medicare-covered services (a rough type of proxy for
determining whether a bid will be above the benchmark), the risk status
of enrollees of plans in which there is no premium is below 1.0 but
closer to 1.0 than among plans charging a premium. The latter group of
plans have risk scores that are also below 1.0, but the risk scores are
about 10 percent lower-that is, risk scores show that enrollees are
healthier-than the risk scores of plans that have no premium charge for
Medicare-covered services.
On the other hand, as Medicare increases the proportion of plan
payments that are risk-adjusted to 100 percent, plans will have even
greater financial incentives to offer benefit packages that appeal to
less healthy beneficiaries. Consequently, moving to full risk
adjustment would be expected to lead to a reduction of any differences
in health status in MA plans, including the higher-premium plan.
In summary, the 1853(a)(1)(G) risk adjustment provision, which may
have limited applicability if few plans bid above the benchmark, may
result in program savings.
J. Administrative Costs
The expenditures shown in Table 1 include administrative costs for
MA plans. For both local and regional plans, administrative costs are
assumed to comprise ten percent of the total incremental expenditures
shown in Table 1. This includes both costs to administer the program
and the profit or retained earnings of health plans. Administrative
costs for local plans and regional plans are considered to be roughly
the same based on the reported administrative costs of current MA plans
that are PPOs and HMOs.
K. Analysis of Effects on Small Entities
The Regulatory Flexibility Act (RFA) requires us to determine
whether a rule will have a ``significant economic impact on a
substantial number of small entities.'' If so, the RFA requires that a
Final Regulatory Flexibility Analysis (FRFA) be prepared. Under the
RFA, a ``small entity'' is defined as either a small business (as
defined by the size standards of the Small Business Administration, or
SBA), a non-profit entity of any size that is not dominant in its
field, or a small governmental jurisdiction. The SBA size standard for
``small entity'' health insurance plans is annual revenue of $6 million
or less.
The direct effects of Medicare Advantage fall primarily on
insurance firms and on individual enrollees. The competitive market
created by Medicare Advantage is likely to have long run indirect
effects on health care providers, such as hospitals, physicians, and
pharmacies, depending on the extent to which MA plans attract
enrollees. However, those effects will result from the workings of
market choices made by enrollees, plans, and providers, not from
specific provisions of this rule. (There is an MMA provision for paying
certain ``essential hospitals'' higher rates for participation in the
MA program, which we analyze below.) Therefore, we primarily analyze
effects on the insurance industry (including HMOs as insurers) in this
FRFA.
We do not believe that these rules will create a significant
economic impact on a substantial number of small entities. We have
prepared the following analysis in part to provide a factual basis for
our beliefs regarding the impact of this regulation on small entities;
we also consider this analysis a voluntary FRFA. Under longstanding HHS
policy we prepare a FRFA if significant impacts of a rule on small
entities are positive rather than negative. We also prepare a FRFA if
we cannot be certain of a conclusion of no ``significant impact'' on
less than a
[[Page 4700]]
``substantial number.'' In this case, the statutory reform is so major
and the number of regulatory changes so large that we cannot be certain
of our conclusion. Finally, we generally prepare a FRFA if there is
likely to be substantial interest on the part of small entities.
Essentially all of the insurance firms affected by the statute and this
final rule exceed size standards for ``small entities'' within the
meaning of the RFA and implementing SBA guidelines, which state that an
insurance firm is ``small'' only if its revenues are below $6 million
annually. We note that under prior law (continued unchanged for
Medicare Advantage), no health insurance plan is normally eligible to
participate in Medicare Advantage unless it already serves at least
5,000 enrollees, or 1,500 enrollees if it primarily serves rural areas.
At the 5,000-enrollee level, no plan would fall below the SBA revenue
cutoff assuming, very conservatively, yearly revenue of $2,000 per
enrollee. While a very small rural plan could fall below the threshold,
we do not believe that there are more than a handful of such plans. In
the InterStudy Competitive Edge HMO Directory for 2000, discussed
below, we found only one rural HMO with a continuing enrollment level
below 1,500. Therefore, the statutory limits generally prevent any
insurance firm defined as ``small'' pursuant to the RFA's size
standards from participating in the program. However, a substantial
fraction of the insurance firms affected by this final rule are ``small
entities'' by virtue of their non-profit status. The analysis in this
section, taken together with the other regulatory impact sections, and
the preamble as a whole, constitute our FRFA for the Medicare Advantage
provisions of Title II of the MMA. We note that there is a related FRFA
in the companion final rule on the Part D Drug Program of Title I of
the MMA.
1. The Health Insurance Industry
The 1997 Economic Census: Finance and Insurance (the latest
available edition when the proposed rule was being developed) states
that there were 944 firms classified as ``Health and Medical Insurance
Carriers'' under the North American Industry Classification System. Of
these, 851 firms operated the entire year. Using Census data, these
firms had total revenue of $203 billion, operated through about 3,200
establishments, and had about 328,000 employees. Of the 851 firms that
operated the entire year, 342 had revenues of less than $5 million.
Taking into account subsequent inflation, this corresponds closely to
the $6 million threshold established by the SBA as the current cutoff
for small businesses in this insurance category. Thus, approximately 40
percent of the industry as counted by the Census is ``small'' using the
SBA definition. These small firms had total revenue of about $440
million, rather less than one half of one percent of total health
insurance revenue. As discussed below, we do not believe that any of
these small firms underwrite comprehensive health insurance policies,
or are actual or potential participants in the Medicare Advantage
market.
In contrast, the Census found that the largest 50 firms, or 6
percent, accounted for 75 percent of all health insurance revenue.
While these data cannot be reconciled directly with other statistics on
numbers and size of health insurance companies, they clearly indicate
that the market for comprehensive health insurance policies, covering
the lives of about 200 million Americans, is dominated by several
hundred companies, few of which, and most likely none of which, are
``small'' by SBA revenue standards.
Another source of industry data, much richer in detail, is found in
the InterStudy Competitive Edge. This annual report covers only HMOs.
The discussion that follows uses the 2000 edition as reflecting most of
the changes of the 1990s, but still close enough in time to the Census
information to be roughly comparable. In 2000, there were 560 HMOs.
While these were all separately incorporated, many were subsidiaries of
larger corporations. For example, the report lists 40 United HealthCare
plans, 22 Aetna and 32 Prudential plans (all owned by Aetna), 31 Cigna
plans, 10 Humana plans, and 9 Kaiser plans. Ninety-seven of these HMOs
enrolled 200,000 or more people (enrollment is a standard industry
measure of size). The InterStudy data, using an enrollment cutoff of
3,000 to correspond roughly to the SBA $6 million threshold, shows that
only 5 HMOs were continually operating entities (not entering or
exiting the industry) with revenues below the SBA small entity
threshold.
Of the approximately 200 contracts under the current MA program
(this figure excludes demonstration contracts), only a handful have
enrollment of fewer than one thousand or annual Medicare revenue of
under $6 million assuming, conservatively, revenues of $6,000 per
enrollee (Medicare enrollees cost, and are reimbursed, more than double
working age persons). Of course, these plans have other revenues from
non-Medicare clients, and we are unaware of any current MA
organizations with revenues below the SBA threshold. (Note that the
number of current MA contracts includes separate Medicare contracts
held by a single firm in different parts of the country-as in the case
of PacifiCare, for example, which has ten contracts in eight States.)
These data show that few, if any, health insurance firms with
revenues of $6 million or less underwrite comprehensive insurance in
the national insurance market. Furthermore, discussions with Bureau of
the Census staff indicate many and probably most of the small firms
classified as insurers do not underwrite health care costs (that is,
provide comprehensive health insurance), but are firms offering dental
or medical discounts through small provider networks or offering
indemnity-type policies paying, for example, a few hundred dollars a
day for each day spent in a hospital. They would not even be licensed
by States to offer comprehensive or group insurance policies.
Therefore, we have no reason to believe that the changes to the
Medicare Advantage program that will take effect for the 2006 contract
year will have any positive or negative effect on ``small'' insurance
firms, with the possible exception of Medigap insurers.
Some of these small firms may be Medigap insurers. For this limited
group, the MMA has major consequences. Specifically, existing
categories of Medigap policy that cover prescription drugs will become
illegal to sell to new enrollees, and several new Medigap categories
will be created. (These changes, however, are specified in the statute
and are not subject to regulatory discretion.) Furthermore, Medigap
insurance is a unique type of product that does not involve accepting
insurance risk for the full cost of health benefits, since Medicare
itself remains the primary insurer. Therefore, it is unlikely that any
consequential number of firms operating solely in the Medigap market
would expect to operate in the Medicare Advantage market. Effects of
the MMA on Medigap are discussed in more detail the economic effects
analysis in the companion Title I rule.
The definition of small entities under the RFA also encompasses
not-for-profit organizations that are not ``dominant'' in their field.
(HHS interprets ``dominant'' to mean national dominance.) There are
many large HMO companies that are non-profit. As of 2000, about 37
percent of HMO enrollment was in non-profit firms, and 152 of 558 HMOs,
or 27 percent, were non-profit (InterStudy Competitive Edge HMO
Industry Report for 2000). None of these firms is nationally
``dominant'' in
[[Page 4701]]
the health insurance industry although many firms achieve large market
share in particular health care markets.
About half of these firms already compete in the Medicare MA
market, and most are potential entrants or re-entrants as Medicare
Advantage plans. According to the InterStudy data, about one third of
HMOs currently participating in MA are non-profit. Some HMOs, profit or
non-profit, may be potential entrants in the new regional MA markets.
This will partly depend on how rapidly the non-profit firms grow by
merger or make other market adaptations, such as adding PPO networks.
However, relatively few HMO plans (in contrast to parent company or
linked HMOs), operating through local HMO networks, are likely to be
able to compete in a region encompassing large areas or several States
and multiple health care markets.
2. The Local Medicare Advantage Market and Small Entities
Under MA, there are two distinct (though overlapping) markets:
local and regional. All existing MA HMO plans participate on a local
area basis, typically covering the several counties encompassed in a
metropolitan area. Because HMOs are most common in metropolitan areas,
and especially in the largest metropolitan areas, existing plan
availability and enrollment is concentrated in these areas. As
discussed previously in this analysis, only about one fifth of U.S.
counties, though over 60 percent of the eligible population, have an MA
coordinated care plan available. The MMA makes one major change for
local plans by significantly improving payment rates. This statutory
change is already in effect and is not addressed in these rules. These
rules will have beneficial effects on local plans, by reducing some
administrative burdens, but the changes in this final rule, singly and
collectively, do not rise to the level of ``significant economic
impact'' on local HMOs (though the payment increases in 2004, already
in effect as a result of the statute, did have an effect of that
magnitude).
The other major changes of Medicare Advantage include the creation
of a new regional plan structure to become operational in 2006,
designed for and limited to PPO plans. The regional structure is
intended to ensure that the entire beneficiary population, not just
those residing in major urban centers, has access to alternative plans.
As discussed elsewhere in this analysis, we assume that as a result of
these changes private plans may attract as much as one-third of all
Medicare enrollment by 2016.
Starting in 2006, local HMOs will face two new sources of
competition. First, they will find themselves seeking to attract
enrollees from a pool of eligible applicants who will now have Part D
drug benefits as enrollees in FFS Medicare. Second, they will be
competing against regional MA plans serving their areas. Regional plans
will have some advantages specified in the statute, including access to
the stabilization fund and, temporarily, to risk sharing with the
government. It is possible that some existing local plans will lose
some enrollment. The local HMOs will, however, have important assets
including integrated benefit packages (as compared to free-standing
PDPs), quite likely drug benefits at premiums lower than PDP premiums,
and extra benefits (including rebates of the Parts B and D premiums)
not available in FFS and possibly more generous than those available in
regional MA plans. The local plans will have an existing customer base
and pre-existing networks in the areas where most beneficiaries live.
Most compete in major metropolitan areas where Medicare payment rates
are higher than in other areas that a region would encompass. Finally,
many and perhaps most local plans are subsidiaries of large insurance
firms that offer multiple product lines. These firms retain the ability
to ``mix and match'' their product offerings to best advantage.
Regardless, whether and how much any given plan loses or gains will
primarily depend on its overall attractiveness (benefits, services,
provider panels, out of network benefits, and premiums) compared to its
competitors. Nothing in these rules, as such, either favors or
disfavors local plans when competing against regional plans.
While it is impossible to predict the precise situations that these
HMOs will face, or their responses, there are some lessons available
from the FEHB Program experience. In that program, about 200 local HMOs
co-exist in competition with about a dozen national PPO plans. Most
HMOs compete in big city markets against 15 or 20 plans, both PPO and
HMO. While HMO enrollment in the program has declined slightly in
recent years, and almost half of all HMOs have left the program since
their peak participation in the early 1990s (reflecting mainly industry
consolidations), HMOs currently enroll about 35 percent of all Federal
employees, and 9 percent of retirees, down only slightly from the peak
levels of 39 percent and 10 percent, respectively, a decade ago.
3. The Regional Medicare Advantage Market and Small Entities
Starting in 2006, health insurance firms both profit and non-profit
(and hence ``small entities'' under the RFA) will be able to compete as
regional plans. A firm may compete in as many regions as it chooses, up
to and including the entire nation. The chief constraint is that a plan
must demonstrate that it has a region-wide network of providers.
We know of one group of potential regional competitors who may be
affected by regional boundary decisions-insurance plans that operate on
a state-specific basis, notably Blue Cross/Blue Shield plans. In recent
years many Blue Cross/Blue Shield plans have merged within and across
State lines. However, there still remain several dozen of these plans
that operate on a state-delineated basis. The regional MA boundaries
established in December, 2004 attempt to accommodate these and other
plans that face significant practical constraints in operating across
state line. Of course, many considerations affected decisions on
regional boundaries, including beneficiary access, viable economic
size, and existing medical and PPO markets. Our primary objectives were
to give all Medicare beneficiaries the opportunity to enroll in an MA
plan, to give them the greatest amount of choice by encouraging
competition, and as a result to provide price competition and
affordable costs for enrollees. These considerations, and the resulting
boundary decisions, are described on the CMS Web site at
http://www.cms.hhs.gov/medicarereform/mmaregions.
A local plan may encompass all or most of a State, and/or operate
in more than one State if it so chooses. Of course, regional plans have
some advantages, but local plans have others. Since the statute
preempts State standards for benefits, coverage, and provider networks,
leaving effectively only licensure and solvency standards as State-
imposed requirements, we anticipate no important problems for plans
(though regional plans may have to seek licensure in States in which
they currently do not operate, or would have to seek a waiver as
permitted by the MMA). There is another problem that could be important
to a plan far larger than the SBA size standard but nonetheless smaller
than the plans serving hundreds of thousands or millions of enrollees.
Organizing the full resources needed to compete effectively in the
Medicare context will require substantial investments in acquiring and
maintaining actuarial expertise, legal expertise, effective marketing,
network
[[Page 4702]]
building, benefit design, cost-control, disease management, formulary
design, claims processing, financing, and so forth. There are economies
of scale in health insurance (like many other businesses), and these
presumably favor larger firms, all other things equal, up to some
point. We are not aware of any industry studies that seek to measure
the minimum size necessary for health insurance firms to compete
effectively in local, regional, or national markets and request
information on this question. However, to the best of our understanding
any such barriers to entry or cost competitiveness are likely to fall
well within the size of most firms competing today in such large
systems as M+C, the FEHB Program, or the private employer market. In
summary, the MA program, by having both a regional and local model,
provides opportunity for health insurance entities of all types and
most sizes (but probably not below the ``small'' insurance entity
cutoff level defined by the SBA, which is lower than appears viable for
a comprehensive, risk-bearing insurance plan), and offering many
different kinds of plans, to participate. That participation is more
likely to take the form of local plans in the case of smaller and non-
profit entities. However, the overriding objective of the regional plan
model is to give beneficiaries access to and choice among integrated
private plans that can offer comprehensive health insurance
encompassing Medicare parts A, B, and D. This model is dictated in
almost all its important details in the statute.
Comment: Several commenters felt that the impact analysis did not
discuss the negative impact on local MA plans of having to compete with
regional plans, which have various financial incentives to ensure
participation. For example, local plans operating in a rural area would
be at a disadvantage because their benchmarks could be lower than the
benchmarks applying to regional plans. The commenters also suggested
that CMS work with the Department of Justice and the Federal Trade
Commission to ensure that anti-competitive practices are not permitted,
given that the MMA creates new health insurance markets with
participating plans that, the commenters state, would have the market
power to unfairly limit competition.
Response: As we noted above in response to another comment
regarding how to classify plans as local or regional, in order to
address the issue of limited access to coordinated care plans in rural
areas, the MMA has created the MA regional plan option, which is likely
to be an option that is primarily offered by larger health plans or
insurers. In the year 2003, only about 13 percent of Medicare
beneficiaries residing in rural areas had access to a Medicare
coordinated care plan. That is, only 13 percent of the rural population
was served by a local coordinated care plan. If the MMA is successful
in the goal of expanding access to rural areas, ideally 100 percent of
rural enrollees will have access to a coordinated care plan because of
new regional MA option.
The manner in which the MMA seeks to expand access to coordinated
care plans in rural areas involves certain incentives for plans willing
to participate under the terms set out by the law, and it involves
certain ``trade-offs'' that were felt necessary to ensure
participation. One such trade-off is the willingness of the Congress to
increase payments through the use of the stabilization fund in order to
ensure maximum access to MA plans across a wide geographic area. Only
plans that are willing to serve a wide geographic area have access to
the stabilization fund. Local plans do not have access to the fund,
unless they are willing to participate as regional plans. Similarly,
regional benchmarks may be higher than local benchmarks in certain
areas. However, organizations for which a regional benchmark applies
are assuming risk for a large population across a wide geographic area,
must offer a uniform benefit package across the entire area, and cannot
selectively discontinue contracting on a county-by-county basis (or
even selectively drop portions of counties, as local plans are
permitted to do under certain circumstances). Regional plans are
required to operate as preferred provider organizations throughout a
large service area. Requiring plans to operate under such a model, as
opposed to a more tightly knit network model, would tend to raise costs
for the plan and would result in a lower level of extra benefits for
enrollees. The PPO model also adds to the level of risk assumed by the
health plans because of the uncertainty surrounding the utilization and
costs for out-of-network services that such plans must reimburse.
As we have stated above, we would hope that there is room for
competition to occur in all types of areas of the country between local
plans and regional plans. With regional and local plans each having
some advantages, and open competition among multiple plans of each type
expected in most areas, we cannot predict likely ``winners.'' Our
expectation is that plans of both types will succeed in most areas.
With respect to anti-competitive practices, CMS has worked with the
Department of Justice and Federal Trade Commission in the past on
competition issues in the provider and health plan markets, and we will
continue to work with those agencies in the future.
4. Hospitals
An additional program under Medicare Advantage directly affects
hospitals. HHS has long taken the approach of treating all hospitals as
presumptive ``small entities'' within the meaning of the RFA, mainly
because of the dominance of the non-profit model in the hospital
industry (about 80 percent) and also because most of the rest have
revenues under the $29 million SBA size threshold for hospitals.
The MMA facilitates the inclusion of hospitals in regional networks
in cases in which a plan and a hospital cannot reach agreement
regarding the hospital's provision of services under the plan. As
described in more detail under the Subpart C preamble section, if the
hospital's participation is ``essential'' to meeting a plan's network
adequacy requirement, and the hospital can demonstrate to us that its
costs are higher than the normal Part A payment it receives, then the
MA plan can pay the normal amount and the network adequacy fund will
pay the difference. The total amount available nationally for this
purpose is $25 million in 2006 (rising annually at the hospital market
basket rate).
This provision will most likely apply to small towns and rural
areas, particularly if such areas are served by only one hospital. It
is impossible at this time to predict the frequency with which this
situation will arise, since that depends on future bargaining among
plans and hospitals, and on hospitals' ability to demonstrate excess
costs. Since the hospitals benefiting would otherwise serve Medicare
enrollees at Medicare rates, the financial effects of this program on
hospitals should never be negative, and qualifying hospitals will
obtain higher payments. Likewise, by allowing regional plans to meet
their network requirements at a reasonable cost the effects on them are
positive. We note that over 700 rural hospitals are already paid at
rates somewhat higher than would otherwise be applicable under
Medicare's hospital payment rules. Some of these would be candidates
for ``essential'' hospital payments (although the eligibility criteria
are different). Although there are 700 such hospitals, they are small
hospitals in sparsely inhabited rural areas and account for only about
one
[[Page 4703]]
percent of Medicare hospital payments. The pattern under the essential
hospital program is likely to be similar.
5. Medical Savings Accounts
These regulations also change the rules for Medical Savings
Accounts (MSAs), which are high deductible plans. This provides new
opportunities for insurance firms to participate in Medicare Advantage.
High deductible plans are increasingly being offered in the under age
65 market by large insurance firms. As discussed previously in this
Preamble, we are implementing the statutorily defined changes (at
section 233 of the MMA), which are intended to make MSAs a viable
option for beneficiaries. We are also amending the existing rules in
several places to remove requirements that would be inappropriate if
applied to MSAs.
6. Employer Sponsored Plans
The MMA adds new authority for employers and unions to sponsor
plans for their employees and former employees, or members. Previously
they could sponsor plans through an M+C organization; the statute gives
them the flexibility to sponsor plans directly. The statute and the
regulation provide for waiver or modification of any requirement under
Part C or Part D that would hinder the design of, the offering of, or
the enrollment in employer or union-sponsored plans.
7. Other Requirements in the Regulatory Flexibility Act
The RFA lists five general requirements for a FRFA and four
categories of burden reducing alternative to be considered. It also
defines as a small entity a ``small governmental jurisdiction'' whose
area has a population of less than fifty thousand. We anticipate no
consequential effects of these regulations on small governmental
jurisdictions. We know of no relevant Federal rules that duplicate,
overlap, or conflict with the rule (which in any event amends an
existing rule that is not duplicated or overlapped by other rules). The
analysis above, taken together with the rest of this preamble,
addresses all these general requirements.
We have also sought both to avoid imposing new burdens, and to
ameliorate existing burdens, as discussed throughout this analysis.
Throughout this preamble we identify a number of changes that would
lessen the burden of the existing MA rules.
Comment: In response to our desire to know of any small businesses
or entities affected by these regulations whose concerns might not have
been addressed, a number of commenters stated that CMS failed to
address issues related to the health care needs of AI/AN.
Response: This concern is addressed in various sections of the
preamble language dealing with specific issues as they relate to AI/AN
(specifically in subparts A, B, C and F). As noted in those sections,
where the statute permits us to do so, we have taken into consideration
issues raised by commenters having to do with the special needs of AI/
AN populations, their use of IHS providers and the reimbursement rules
and cost sharing requirements for such providers, and outreach issues
related to such populations.
The preamble to subpart A addressed the comments asking (1) that
IHS services be included within the definition of basic services; (2)
that we include as SNPs those plans that would enroll only AI/AN
beneficiaries; and (3) that we recognize that IHS, I/T/U Programs will
face high costs related to outreach, education and enrollment because
of the MMA. As stated in the preamble, we are unable to accept the
commenters suggestions for the first two issues because there is no
statutory authority to expand the definition of basic services as
suggested, and there is no statutory authority for establishing AI/AN
special needs plans. With regard to the third issue, we recognize this
concern and state that we will continue to work with the IHS and other
partners in identifying effective outreach and education strategies
appropriate to AI/AN populations.
Comments on subpart B asked that (1) we make exceptions for AI/AN
beneficiaries when plans are closed for enrollment because of capacity
waivers; (2) allow AI/AN beneficiaries to switch among types of plans
outside of open enrollment periods; (3) have plans contact I/T/U if a
plan intends to involuntarily disenroll an AI/AN enrollee; and (4)
specify that outreach workers employed by IHS or tribal organizations
not be prohibited from going door-to-door to assist AI/AN individuals
in making health plan choices because of the prohibition on door-to-
door marketing. With regard to the first item, we do not believe it is
appropriate to have exceptions to capacity waivers for particular
categories of individuals because of the nature of capacity waivers,
which are granted when an organization establishes that its provider
network capacity is such that enrollment must be limited to a certain
number of individuals. With respect to SEPs, the subpart B preamble
language explains that specific SEPs are included in regulations if
they are based on statutory provisions. Periodically, we establish SEPs
based on special circumstances, and there may arise situations in which
AI/AN populations may be subject to SEPs. On the question of
involuntary disenrollment, the preamble states that the notification is
to the individual who is the subject of the proposed disenrollment, and
that to bring in other parties would be beyond the scope of the
statutory provision. With regard to the prohibition on door-to-door
marketing, the preamble notes that we understand this concern and will
work with the IHS and tribal organizations to address the concern.
Subpart C comments included requests that there be rules requiring
``full reimbursement'' of IHS facilities and that there be a blanket
waiver of cost sharing requirements for AI/AN enrollees of MA plans.
Neither of these requests is possible within the scope of the statute.
However, the rules that apply, for example, to non-network providers
and the amount that must be paid to such providers, apply to IHS
providers. With regard to cost sharing, although blanket waivers are
not permissible, under current law and regulations cost sharing can be
waived in individual cases under certain circumstances.
The subpart C preamble also discusses a comment asking that we use
the waiver authority of section 1857(i)(2) of the Act, as expanded by
section 222(j)(2) of the MMA, to permit direct contracting with I/T/Us
to sponsor MA plans exclusively designed for AI/AN beneficiaries. As
stated in the subpart C discussion, the waiver authority applies only
to employer- or union-sponsored health plans.
In the subpart F preamble we note that we are considering possible
options to facilitate the ability of AI/AN Tribes to use the option of
allowing groups to pay the part B premium for individuals, which is
suggested as a means of making it more likely that AI/AN beneficiaries
will enroll in MA plans.
L. Alternatives Considered
In this section we discuss the impact of several issues in which we
have made a choice among various policy options. We refer readers to
the Notice of Proposed Rule Making, and other documents available from
CMS, for a fuller discussion on the issue of the designation of
regions. Readers are referred to the NPRM for a discussion of the
effect of our decision to use a plan-specific versus statewide, area-
wide or region-wide risk adjustment to
[[Page 4704]]
determine plan rebates, and the effect of the payment adjustment
relating to risk adjustment for bids that exceed the benchmark. Below
is a discussion of the impact of our decision regarding the
determination of the actuarial value of Medicare cost sharing as part
of a health plan's bid, as well as a discussion of the potential impact
of different approaches to intra-area geographic adjustment of payments
when plans serve more than one county.
Designation of Regions
The impact analysis for the proposed rule of August 3, 2004, noted
that a major area in which CMS was given discretion was in the matter
of designating the configuration of MA and PDP regions. The proposed
rule impact analysis included a discussion of some of the issues
related to the designation of MA regions (69 FR 46937). On December 6,
2004, CMS announced the MA and PDP regions. The listing of the regions
and material discussing the rationale for choosing the regions can
found at http://www.cms.hhs.gov/medicarereform/mmaregions/. That site
also contains links to sites containing research findings related to
the designation of regions, and information concerning public meeting
that were held on the subject of the regions (for example, http://www.cms.hhs.gov/medicarereform/mmaregions/All_Info_Materials.pdf
).
The impact analysis of the companion Title I final regulations contain
an explanation of why there is a larger number of PDP regions than MA
regions.
As we have discussed in the explanation of projections, the
enrollment and expenditure figures of Table 1 represent our best
estimate of the effects of the law and regulations based on the regions
as they have now been designated. The proposed rule assumed 15 regions,
but with a greater number of MA regions, there is likely to be a
smaller level of enrollment in regional plans.
Plan-Specific Versus Statewide, Area-Wide or Region-Wide Risk
Adjustment to Determine Plan Rebates; Payment Adjustment Relating To
Risk Adjustment For Bids That Exceed The Benchmark
As noted previously in section I (Effect on the Federal
Government), these issues were discussed at length in the proposed
rule, with the conclusion being that the impact could not be quantified
without knowing the risk distribution among the plans and their bids.
Another issue that has an effect on expenditures is the payment
adjustment relating to risk adjustment for bids that exceed the
benchmark, previously discussed in section I, Effect on the Federal
Government.
Actuarial Value of Medicare Cost Sharing as Part of Bid
As explained in the preamble of this final rule in the discussion
of subpart F, a number of alternatives were considered in determining
how to compute an actuarially equivalent value of Medicare cost sharing
as a component of a plan's bid for the basic Medicare benefit package
(coverage of Medicare A and B services). Under the provisions of
section 1854(a)(6)(A)(ii)(I) of the Act, one component of the bid is
the proportion of ``such bid amount.attributable to.the provision of
benefits under the original Medicare fee-for-service program option (as
defined in section 1852(a)(1)(B)).'' Under section 1852(a)(1)(B),
``benefits under the original Medicare fee-for-service program'' are
defined as ``those items and services (other than hospice care) for
which benefits are available under parts A and B to individuals
entitled to benefits under part A and enrolled under part B, with cost-
sharing for those services as required under parts A and B or an
actuarially equivalent level of cost-sharing as determined in this
part.'' A number of alternatives are discussed in the preamble of the
final rule and the proposed rule under subpart F.
One alternative discussed would use a plan-specific determination
of cost sharing which would have included a computation of any induced
demand resulting from reduced cost sharing. That is, for purposes of
comparison to the benchmark, a bid would have been made based on the
cost sharing structure of FFS Medicare. To the extent that the Medicare
cost sharing structure acts as a limit on utilization, a plan would
require less revenue to provide Medicare A and B services as compared
to a benefit package with a cost sharing structure less restrictive
than that of FFS Medicare (the extreme case being, for example, a
benefit package with no cost sharing on Part A and B benefits). The
former, lower amount-the bid based on Medicare cost sharing-would be
the amount to be compared to the benchmark to determine whether there
were any savings that would be retained by the Government (25 percent
of the savings, for local plans) or which would have to be passed on to
the plan's enrollees (75 percent of the savings). If an organization
decided to offer a benefit package with, for example, no cost sharing
for Medicare-covered services, the proposed rule suggested that the
supplemental benefits associated with such a benefit package would
include not only the dollar value of reduced cost sharing (that is, the
charges that would otherwise be the responsibility of the beneficiary
are borne by the health plan), but also the dollar value of any
additional utilization of Part A and B services which would not have
arisen if there had been a Medicare-like cost sharing structure. In
other words, because the benefit package being offered is ``richer'' or
more costly than the benefit package that the Government asks plans to
bid on (the Medicare Part A and B package with a specified level of
cost sharing), one hundred percent of that cost must be borne by the
plan and/or its enrollees. The cost to the beneficiary of such a
package could be reduced by available rebate dollars, but the
computation of the total rebate dollars would be based on a comparison
between the benchmark and the plan-specific determination of the
presumably lower-cost ``benefits under part A and.part B, with cost-
sharing for those services as required under Parts A and B.''
The alternative chosen-which is to use a proportional method to
determine the actuarial value of cost sharing for Part A and B services
associated with a bid-does not involve a determination of induced
utilization. The proportional method assigns cost sharing values to a
bid in manner that is intended to closely approximate Medicare FFS cost
sharing with respect to the expenditures for services that would be
plan expenditures versus those (the cost sharing) that are beneficiary
expenditures. It is not entirely clear whether having chosen this
method rather than the plan-specific approach has the effect of
reducing the amount of savings the Government would have retained. And
if there is such a difference, we do not believe we are able to provide
a reasonable dollar estimate of the effect.
With regard to whether induced demand is an issue that would affect
the determination of Government savings as just described, a number of
commenters stated that induced demand does not arise in managed care
plans because utilization is limited to necessary and appropriate
services through the plan's utilization management practices. That is,
changes in cost sharing would neither reduce nor increase utilization;
they would only shift the source of provider revenue from the plan to
the enrollee. As discussed in the preamble, this argument may be
clearer for hospital services received through a plan, when
discretionary hospitalizations may be limited because physicians admit
patients, but for other service such as specialist physician services
in ``open access'' plans there
[[Page 4705]]
would presumably be a utilization effect if, for example, copayments
for specialist physician visits are far higher than copayments for
primary care providers and a beneficiary is making a choice between
visiting a specialist versus a primary care provider.
As we note in the preamble, CMS will continue to examine the issue
of the relationship between cost sharing and plan bids, and we may
refine our approach in the future.
Geographic Adjustment of Payments
Subpart G of the preamble contains a discussion of the manner in
which we will implement the geographic adjustment of payments called
for in section 1853(a)(1)(F) of the Act ``to take into account
variations in MA local payment rates under this part among the
different MA local areas.'' Under the bidding system effective in 2006,
variations in payment rates among counties have to be taken into
account through an adjustment process that is somewhat different from
what occurs today when Medicare Advantage plans operate in more than
one county. As previously noted, we will be using a geographic
adjustment based on county-level MA payment rates, but will allow
regional MA plans, on a case-by-case basis, to request to have their
payments geographically adjusted at the county level using a plan-
determined statement of the relative costs the plan faces in different
counties for the provision of Medicare-covered services. What follows
is a general discussion of the two methods and the possible budget
implications of one method versus another.
Under the system in use in 2005 (as in prior years), the
``geographic adjustment'' consists simply of paying the county MA rate
adjusted by the demographic and risk characteristics of the individual
beneficiary. To the extent that a plan's health care expenditures vary
by county, this method of ``geographic adjustment'' entails a certain
level of risk for a health plan with respect to any unanticipated costs
incurred for (a) the provision of Medicare A and B benefits, to the
extent that the plan's costs of providing A and B benefits vary from
county to county, and (b) the provision of required extra benefits to
the extent that the cost of such benefits vary by county, or-what is
more likely-to the extent that the Medicare A and B cost and revenue
projections, which form the basis of the determination of savings and
the valuation of extra benefits, vary from actual A and B costs and
revenues because of the actual enrollment distribution. The geographic
adjustment system of 2006 and thereafter will have a different
budgetary impact because of the manner in which rebates are paid for,
and the impact may differ from today's methodology depending on the
method used to accomplish the geographic adjustment.
Today's method of ``geographic adjustment'' is illustrated in Table
2. In this example, an organization is operating in three counties with
the same benefit package offered in all counties. The first section of
Table 2 shows the plan's projected enrollment, revenue needs, and
ability to provide extra benefits based on the projected enrollment
(the kind of information contained in the adjusted community rate
proposal the plan submits to CMS under today's system). Although in one
county, County A of the example, the plan's projected cost of providing
the Medicare A and B benefit package exceeds the Medicare payment level
($520 in costs versus a payment of $500), the ability of the plan to
provide the Medicare A/B benefit package in other counties at a
``cost'' below the level of the MA payment rate in the county enables
the organization to provide extra benefits to each of its expected
enrollees. That is, enrollees in one county are cross-subsidizing the
costs of enrollees in other counties. Had this organization only
contracted for County C, residents of that county would have received
$100 in extra benefits. However, because there are three counties
involved, and a certain enrollment distribution is assumed, County C
enrollees will receive less in extra benefits, but they will receive
the same amount as any other enrollee of the plan in the three-county
area. This geographic cross-subsidization enables residents of some
counties (in this case, the first two counties listed in Table 2) to
receive extra benefits financed by revenues generated in a different
county (County C, which enables County A residents to receive extra
benefits, and enables County B enrollee to receive better benefits than
they would otherwise receive under a single-county contract).
BILLING CODE 4120-01-S
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[GRAPHIC] [TIFF OMITTED] TR28JA05.003
BILLING CODE 4120-01-C
[[Page 4707]]
Table 2 serves to illustrate the ``risk'' to the Government, and
the risk to the plan, in the current system. If the actual enrollment
had turned out to be the distribution in section II.a. of Table 2, the
Government would have paid the plan more money because of the actual
enrollment distribution coming from each county. In this example, the
plan would have had excess revenue beyond that needed to provide the
Medicare A and B benefits and the promised level of extra benefits. Had
the plan predicted this enrollment distribution going into the contract
year in its ACR submission, beneficiaries would have been entitled to
extra benefits valued at $83 per month. (Under the current system,
there is a limit to the Goverment's ``risk exposure'' in the case just
described because county level payments for any enrollee cannot exceed
the MA payment rate in each county.)
Section II.b. of Table 2 shows a situation in which, because of the
actual enrollment distribution, the plan incurs a loss both in the
provision of A and B benefits and in providing the promised level of
extra benefits. Plans can seek to protect themselves from this kind of
risk by reducing their obligation to provide extra benefits. The plan
can have an adjusted community rate filing showing that its required
revenue matches the MA payment rates in each county, for example
(though the stated inability to provide extra benefits may dampen
enrollment, and the statement of revenue needs might be challenged in
the ACR audit process). However, even with that approach to minimizing
risk, if the figures in section II.b. of Table 2 accurately represent
the plan's costs in each county, the plan will incur a loss just in
providing Medicare A and B benefits, with the enrollment mix shown in
the example. To avoid that kind of risk, what the MA organization might
do is either not include the first county in its service area, or
segment that county. Segmenting the county-establishing a separate
``plan'' for the county-enables the organization to exclude the
county's enrollees from the computation of extra benefits for the other
counties and to have a separate determination of the Medicare benefit
package to be offered in the individual county. (Such service area
segmentation is not available to regional plans in the competitive
bidding system, but the approach can still be used by MA local plans in
2006 and thereafter.)
The examples of Table 2 show extreme cases in which the actual
enrollment ends up being significantly different from the projected
distribution of enrollment by county. Once a plan has at least one
year's experience as a contractor, there is a better basis for
reviewing the enrollment projections of a plan to ensure that the
projections are reasonable and that the plan is appropriately
determining the level of benefits it should be providing to its
enrollees. This will also be true in the new system as of 2006, when
one aspect of the bid review process will be an evaluation of the
reasonableness of a plan's projections. However, there is always likely
to be some level of uncertainty in predicting a plan's enrollment
distribution by county. The issue of geographic adjustment is
especially important for regional plans that will be required to have a
uniform benefit package and premium in a large region.
The purpose of the equivalent of a bid under the ``old'' system was
solely to determine whether there were any extra benefits available to
beneficiaries, and what their Medicare premium would be. A bid under
the new system serves that same purpose but it also can be thought of
as the primary basis of payment for the provision of Medicare A and B
services. Any rebate, for the provision of non-Medicare-covered
benefits, is paid separately from the bid, and is not subject to
geographic adjustment In the competitive bidding system of 2006 and
thereafter, the Government is ``at risk'' for the cost of the rebate to
the extent that the rebate amount would have been higher or lower
because a plan's projected enrollment mix does not match its actual
enrollment mix. Under the prior system, plans could be said to be at
risk for the promised value of extra benefits incorporated in their
bid: even though there might be significant changes in the county of
residence of their actual enrollment compared to their projected
enrollment, only the county-based Government payments could change.
When the Government payments changed in tandem with the relative change
in costs faced by the plan, the plan would remain whole with respect to
its revenue needs for the provision of Medicare A and B benefits and,
potentially, for the provision of any additional benefits. (Whether the
plan would remain whole would also depend on the types of additional
benefits being provided-for example, a fixed cost benefit such as a
dollar reduction of the Part B premium, or a benefit with variable
costs, such as the buy-down of cost sharing that can take the form of
reduced coinsurance. Under the new system, the Government also limits
its risk exposure by retaining 25 percent of plan savings.)
For geographic adjustment in 2006, one of the alternatives
considered, an adjustment based on the MA payment rates, is similar to
today's system. This method allows us to adjust the service area-wide
bid to arrive at the county MA rate, less the value of any rebate when
a rebate is required. The rebate value that reduces the MA rate is
``apportioned'' across all counties based on the plan's projected
enrollment and based on the overall expected revenue that enabled the
plan to offer a rebate (which is a function of the MA payment rate
totaled across all counties, based on the enrollment projected in each
county). When a plan provides a rebate, this method pays a percentage
(always less than 100 percent) of the county MA payment rate, even
though in a particular county the plan's costs of providing the Part A
and B benefit might exceed the county MA payment. In that respect, this
method is similar to the current method, which limits the Government's
risk exposure to the level of the MA payment, or benchmark, in a given
county.
This adjustment is illustrated in Table 3. The bid is adjusted by
the county-level, enrollment-weighted MA factors shown in Table 3. This
operation ``returns'' the bid to the appropriate MA rate for that
county, taking into account the level of rebate dollars determined on a
plan-wide basis. (Note that unless the plan projects the same level of
enrollment in each county of its service area, the MA factors for the
plan are not the same as the simple relationship among MA payment
levels in the plan's service area.)
Under this method of geographic adjustment based on MA payment
rates, the Government never pays more than the MA rate in a given
county for the provision of Medicare A and B benefits. However, it is
possible under the competitive bidding system for the Government to
have higher per capita expenditures for an MA enrollee in a given
county as compared to today's MA payment methodology, because of the
manner in which rebate dollars are paid. In the competitive system of
2006 and thereafter, the bid to benchmark comparison-a comparison based
on projected enrollment-determines the rebate dollars (in the same
manner that savings were determined in 2005, by comparing projected
payment rates to projected revenue needs for Medicare A and B
services). In 2006 and thereafter, regardless of the plan's actual
enrollment distribution by county, the Government is obligated to pay
the per capita amount of rebate dollars directly to the plans as a
separate payment stream (or the Government withholds the amount for
reduction of the Part B premium). That is, the rebate amount, as
determined based on projected
[[Page 4708]]
numbers, is a fixed amount and is not geographically adjusted. In 2005
and earlier years, there was no separate payment of savings dollars.
Savings were financed out of the county MA rate, with plans receiving
100 percent of the MA payment rate as the payment for the provision of
both A and B benefits. The MA payment also financed the provision of
any extra (non-Medicare) benefits the plan was obligated to provide if
its projected average MA payment rate exceeded its adjusted community
rate for the provision of Medicare A and B benefits. (For simplicity,
these examples represent the situation of a multi-county local plan
with enrollment of beneficiaries with a 1.0 risk score. A similar
methodology would also apply to regional plans.)
BILLING CODE 4120-01-P
[[Page 4709]]
[GRAPHIC] [TIFF OMITTED] TR28JA05.004
BILLING CODE 4120-01-C
[[Page 4710]]
A different alternative method for geographic adjustment that was
mentioned in the impact analysis of the NPRM, would emphasize the bid-
based nature of the new system (that is, plans are to be paid their
bids for the provision of Medicare A and B services) and would
recognize variation in plan costs among counties, as stated by the
plans, for the provision of Medicare A and B benefits. Under this
method, illustrated in Table 5, we would adjust the bid by a county-
level cost factor to arrive at the payment for each plan in each
county. Under either system, the MA-based system or the plan-determined
cost factor system, total payments to a plan in a given year would be
the same to the extent that the plan's actual enrollment distribution
across counties matched the projected enrollment distribution that
formed the basis of any rebate determination. When the actual
enrollment distribution differs from the projection, the Government
payment to a plan might exceed the MA rate in a given county if the
plan states that its costs in the county exceed the MA rate. However,
in at least one county, we would pay less than the MA rate (and less
than the MA-rate-based geographically adjusted amount of the
alternative previously described, given that there has to be at least
one county below the MA rate in order for the plan to have a rebate).
This bid-based method of payment based on plan-determined relative
costs makes plans whole with respect to their revenue needs for the
provision of Medicare A and B services, unlike the MA-based system
which can pay more or less than the plan needs for the provision of A
and B services. With regard to rebate dollars, either method results in
the plan being paid the stated cost of providing the required rebate,
which should make the plan whole with respect to these expenditures
unless there is geographic variation in the cost of providing the
rebate (for example, cost sharing reductions as a rebate).
[[Page 4711]]
[GRAPHIC] [TIFF OMITTED] TR28JA05.005
[[Page 4712]]
Table 5 below summarizes the examples of Tables 2, 3 and 4. The two
different possible methods of geographic adjustment for 2006 discussed
above have different results, but in each case there is a divergence
only when the actual enrollment differs from the projected enrollment
distribution, as previously noted. In certain cases, the plan-
determined index produces higher total Government expenditures than the
MA payment-based index, while in other cases the opposite is true. Only
the plan-determined index makes a plan whole with respect to its
reported cost of providing benefits on a county-by-county basis. As is
the case with today's payment system, enrollment distributions
different from those projected in advance result in either revenue
gains or revenue shortfalls. Compared to the current system of payment,
the plan-determined index would appear to be particularly advantageous
to plans in ensuring the avoidance of risk based on errors in
enrollment projections. As previously noted, however, the MA-based
index prevents Government payments in any county which would exceed the
benchmark-which is a possibility for the plan-specified approach.
Again, as previously noted, for there to be any projected rebate, there
has to be at least one county in which plans costs (whether revealed or
not) are below the benchmark, with such margins being used to cross-
subsidize other counties.
One concern with the plan-specified system is the issue of whether
it is more subject to gaming than the MA index approach. Either
approach is gameable based on misstatements of enrollment projections
in order to maximize profits. However, manipulation of the enrollment
distribution, if it occurs, would likely be an issue only in the first
year of contracting.
[GRAPHIC] [TIFF OMITTED] TR28JA05.006
BILLING CODE 4120-01-C
The public comments on the method of geographic adjustment almost
without exception favored the use of the MA rates as the basis for
adjustment. Commenters stated that they favored using the MA rates
because it promotes a level playing field among plans and because
current plans are familiar with adjustments made on this basis (which
is similar to today's method of adjustment). While we have accepted
these comments and have decided to use the MA rates for geographic
adjustment, we also believe that it is important to provide the option
to regional plans, on a case-by-case basis, of using a plan-determined
index for geographic adjustment. The purpose of allowing this is to
encourage regional bids. As we have noted, local plans can fashion
their own service areas and can pick and choose which counties they
want to serve. In most cases, local plans are operating as Medicare
plans in areas in which they have commercial operations and are
therefore familiar with the market conditions that they face. This
enables local plans to be able to project their costs (in relation to
MA rates) and to make more reliable projections of enrollment in a
given area. For regional plans, the law requires that they assume risk
over a wide geographic area, because a regional plan must serve an
entire MA region and not a subset of counties in the region. Regional
plans are likely to be entering areas in which they have not had any
Medicare involvement and may not have had any significant commercial
presence (for example, in rural areas, where fewer people have employer
group coverage).
M. Accounting Statement
As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf
), in Table 6 we have
prepared an accounting statement showing the classification of the
expenditures associated with the provisions of Title II of the MMA that
are the subject of this regulation. The table provides our best
estimate of the dollar amount of these transfers, expressed in 2001
dollars, at three percent and seven percent discount rates.
[[Page 4713]]
All expenditures are classified as transfers to health plans. As
previously explained, a large share of these expenditures would be used
for the provisions of extra
benefits and reduced cost sharing for beneficiaries enrolled in
private plans. (Note that this information, as it appeared in Table 12
of the August 3, 2004 proposed rule did not contain annualized figures.
The figures were total figures for the 2004 to 2009 period.)
Table 6. Accounting Statement: Classification of Expenditures, 2004
Through 2009 (2001 Dollars, in Millions)
Three Percent Annual Discount Rate
------------------------------------------------------------------------
TRANSFERS
------------------------------------------------------------------------
Annualized Monetized Transfers 2,742
------------------------------------------------------------------------
From Whom To Whom? Federal Government To Private Plans
------------------------------------------------------------------------
Seven Percent Annual Discount Rate
------------------------------------------------------------------------
TRANSFERS
------------------------------------------------------------------------
Annualized Monetized Transfers 2,711
------------------------------------------------------------------------
From Whom To Whom? Federal Government To Private Plans
------------------------------------------------------------------------
In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.
List of Subjects
42 CFR Part 417
Administrative practice and procedure, Grant programs-health,
Health care, Health insurance, Health maintenance organizations (HMO),
Loan programs-health, Medicare, Reporting and recordkeeping
requirements
42 CFR Part 422
Administrative practice and procedure, Health facilities, Health
maintenance organizations (HMO), Medicare, Penalties, Privacy,
Reporting and recordkeeping requirements
For the reasons set forth in the preamble, the Centers for Medicare
& Medicaid Services amends 42 CFR chapter IV as set forth below:
PART 417-HEALTH MAINTENANCE ORGANIZATIONS, COMPETITIVE MEDICAL
PLANS, AND HEALTH CARE PREPAYMENT PLANS
0
1. The authority citation for part 417 continues to read as follows:
Authority: Sec. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh), sec. 1301, 1306, and 1310 of the Public
Health Service Act (42 U.S.C. 300e, 300e-5, and 300e 9), and 31
U.S.C. 9701.
Subpart J--Qualifying Conditions for Medicare Contracts
0
2. Amend Sec. 417.402 by--
A. Revising paragraph (b).
B. Adding paragraph (c).
The revision and addition read as follows:
Sec. 417.402 Effective date of initial regulations.
* * * * *
(b) No new cost plan contracts are accepted by CMS. CMS will,
however, accept and approve applications to modify cost plan contracts
in order to expand service areas, provided they are submitted on or
before September 1, 2006, and CMS determines that the organization
continues to meet regulatory requirements and the requirements in its
cost plan contract. Section 1876 cost plan contracts will not be
extended or renewed beyond December 31, 2007, where conditions in
paragraph (c) of this section are present.
(c) Mandatory HMO or CMP and contract non-renewal or service area
reduction. CMS will non-renew all or a portion of an HMO's or CMP's
contracted service area using procedures in Sec. 417.492(b) and Sec.
417.494(a) for any period beginning on or after January 1, 2008, where-
(1) There were two or more coordinated care plan-model MA regional
plans in the same service area or portion of a service area for the
entire previous calendar year meeting the conditions in paragraph
(c)(3) of this section; or
(2) There were two or more coordinated care plan-model MA local
plans in the same service area or portion of a service area for the
entire previous calendar year meeting the conditions in paragraph
(c)(3) of this section.
(3) Minimum enrollment requirements. (i) With respect to any
service area or portion of a service area that is within a Metropolitan
Statistical Area with a population of more than 250,000 and counties
contiguous to the Metropolitan Statistical Area, 5,000 enrolled
individuals.
(ii) With respect to any service area or portion of a
service area that is not within a Metropolitan Statistical Area
described in paragraph (c)(3)(i) of this section, 1,500 individuals.
Subpart Q--Beneficiary Appeals
0
3. Section 417.600 is revised to read as follows:
Sec. 417.600 Basis and scope.
(a) Statutory basis. (1) Section 1869 of the Act provides the right
to a redetermination, reconsideration, hearing, and judicial review for
individuals dissatisfied with a determination regarding their Medicare
benefits.
(2) Section 1876 of the Act provides for Medicare payments to HMOs
and CMPs that contract with CMS to enroll Medicare beneficiaries and
furnish Medicare-covered health care services to them.
(3) Section 234 of the MMA requires section 1876 contractors to
operate under the same provisions as MA plans where two plans of the
same type enter the cost plan contract's service area.
(b) Applicability. (1) The rights, procedures, and requirements
relating to beneficiary appeals and grievances set forth in subpart M
of part 422 of this chapter also apply to Medicare contracts with HMOs
and CMPs under section 1876 of the Act.
(2) In applying those provisions, references to section 1852 of the
Act must be read as references to section 1876 of the Act, and
references to MA organizations as references to HMOs and CMPs.
Sec. 417.602 through Sec. 417.638 [Removed]
0
4. Sections 417.602 through 417.638 are removed.
Subpart U--Health Care Prepayment Plans
0
5. Amend Sec. 417.832 by-
A. Revising paragraph (c).
B. Adding paragraph (d).
The revision and addition read as follows:
Sec. 417.832 Applicability of requirements and procedures.
* * * * *
(c) The provisions of part 405 dealing with the representation of
parties apply to organization determinations and appeals.
(d) The provisions of part 405 dealing with administrative law
judge hearings, Medicare Appeals Council review, and judicial review
are applicable, unless otherwise provided.
0
6. Section 417.840 is revised to read as follows:
Sec. 417.840 Administrative review procedures.
The HCPP must apply Sec. 422.568 through Sec. 422.619 of this
chapter to
[[Page 4714]]
organization determinations that affect its Medicare enrollees, and to
reconsiderations, hearings, Medicare Appeals Council review, and
judicial review of those organization determinations.
PART 422--MEDICARE ADVANTAGE PROGRAM
0
7. The authority citation for part 422 continues to read as follows:
Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).
0
8. Revise the heading of part 422 to read as set forth above.
Subpart A--General Provisions
0
9. Amend Sec. 422.1(a) by adding the following statutory basis in
numerical order:
Sec. 422.1 Basis and scope.
(a) * * *
1858--Special rules for MA Regional Plans.
* * * * *
0
10. Amend Sec. 422.2 by-
A. Removing the definitions of ``ACR,'' ``Additional benefits,''
``Adjusted community rate,'' and ``M+C.''
B. Revising the definitions of ``Basic benefits,'' ``Benefits,''
``Mandatory supplemental benefits,'' and ``Service area.''
C. Adding the definitions of ``Institutionalized,''
``MA,'' ``MA local area,'' ``MA local plan,'' ``MA-Prescription
drug plan,'' ``MA regional plan,'' ``Prescription drug plan (PDP),''
``Prescription drug plan (PDP) sponsor,'' ``Special needs individual,''
and ``Specialized MA plans for special needs individuals.''
D. In the definitions of ``M+C eligible individual,'' ``M+C
organization,'' ``M+C plan,'' and ``M+C plan enrollee,'' ``M+C'' is
removed each place it appears and ``MA'' is added in its place.
E. Amending the definition of ``Religious and Fraternal Benefit
(RFB) Society'' by removing the words ``Religious and Fraternal'' and
by adding the words ``Religious Fraternal'' in their place.
0
The revisions and additions read as follows:
Sec. 422.2 Definitions.
* * * * *
Basic benefits means all Medicare-covered benefits (except hospice
services).
Benefits means health care services that are intended to maintain
or improve the health status of enrollees, for which the MA
organization incurs a cost or liability under an MA plan (not solely an
administrative processing cost). Benefits are submitted and approved
through the annual bidding process.
* * * * *
Institutionalized means for the purpose of defining a special needs
individual, an MA eligible individual who continuously resides or is
expected to continuously reside for 90 days or longer in a long-term
care facility which is a skilled nursing facility (SNF) nursing
facility (NF); SNF/NF; an intermediate care facility for the mentally
retarded (ICF/MR); or an inpatient psychiatric facility.
* * * * *
MA stands for Medicare Advantage.
MA local area is defined in Sec. 422.252.
MA local plan means an MA plan that is not an MA regional plan.
MA-Prescription drug (PD) plan means an MA plan that provides
qualified prescription drug coverage under Part D of the Social
Security Act.
MA regional plan means a coordinated care plan structured as a
preferred provider organization (PPO) that serves one or more entire
regions. An MA regional plan must have a network of contracting
providers that have agreed to a specific reimbursement for the plan's
covered services and must pay for all covered services whether provided
in or out of the network.
Mandatory supplemental benefits means health care services not
covered by Medicare that an MA enrollee must accept or purchase as part
of an MA plan. The benefits may include reductions in cost sharing for
benefits under the original Medicare fee for service program and are
paid for in the form of premiums and cost sharing, or by an application
of the beneficiary rebate rule in section 1854(b)(1)(C)(ii)(I) of the
Act, or both.
* * * * *
Prescription drug plan (PDP). PDP has the definition set forth in
Sec. 423.272 of this chapter.
Prescription drug plan (PDP) sponsor. A prescription drug plan
sponsor has the definition set forth in Sec. 423.2 of this chapter.
* * * * *
Service area means a geographic area that for local MA plans is a
county or multiple counties, and for MA regional plans is a region
approved by CMS within which an MA-eligible individual may enroll in a
particular MA plan offered by an MA organization. Each MA plan must be
available to all MA-eligible individuals within the plan's service
area. In deciding whether to approve an MA plan's proposed service
area, CMS considers the following criteria:
(1) For local MA plans:
(i) Whether the area meets the ``county integrity rule'' that a
service area generally consists of a full county or counties.
(ii) However, CMS may approve a service area that includes only a
portion of a county if it determines that the ``partial county'' area
is necessary, nondiscriminatory, and in the best interests of the
beneficiaries. CMS may also consider the extent to which the proposed
service area mirrors service areas of existing commercial health care
plans or MA plans offered by the organization.
(2) For all MA coordinated care plans, whether the contracting
provider network meets the access and availability standards set forth
in Sec. 422.112. Although not all contracting providers must be
located within the plan's service area, CMS must determine that all
services covered under the plan are accessible from the service area.
(3) For MA regional plans, whether the service area consists of the
entire region.
Special needs individual means an MA eligible individual who is
institutionalized, as defined above, is entitled to medical assistance
under a State plan under title XIX, or has a severe or disabling
chronic condition(s) and would benefit from enrollment in a specialized
MA plan.
Specialized MA Plans for Special Needs Individuals means a MA
coordinated care plan that exclusively enrolls or enrolls a
disproportionate percentage of special needs individuals as set forth
in Sec. 422.4(a)(1)(iv) and that, beginning January 1, 2006, provides
Part D benefits under part 423 of this chapter to all enrollees; and
which has been designated by CMS as meeting the requirements of a MA
SNP as determined on a case-by-case basis using criteria that include
the appropriateness of the target population, the existence of clinical
programs or special expertise to serve the target population, and
whether the proposal discriminates against sicker members of the target
population.
0
11. Amend Sec. 422.4 by-
A. Revising the section heading.
B. Revising paragraph (a)(1)(iii).
C. Redesignating paragraph (a)(1)(iv) as paragraph
(a)(1)(v).
D. Adding a new paragraph (a)(1)(iv).
E. Revising newly redesignated paragraph (a)(1)(v).
F. Removing paragraph (a)(2)(ii).
[[Page 4715]]
G. Redesignating paragraph (a)(2)(iii) as paragraph (a)(2)(ii).
H. Adding a new paragraph (c).
0
The revisions and additions read as follows:
Sec. 422.4 Types of MA plans.
(a) * * *
(1) * * *
(iii) Coordinated care plans include plans offered by health
maintenance organizations (HMOs), provider-sponsored organizations
(PSOs), regional or local preferred provider organizations (PPOs) as
specified in paragraph (a)(1)(v) of this section, and other network
plans (except MSA and PFFS plans).
(iv) A specialized MA plan for special needs individuals (SNP)
includes any type of coordinated care plan that meets CMS'SNP
requirements and either--
(A) Exclusively enrolls special needs individuals as defined in
Sec. 422.2; or
(B) Enrolls a greater proportion of special needs individuals than
occur nationally in the Medicare population as defined by CMS.
(v) A PPO plan is a plan that has a network of providers that have
agreed to a contractually specified reimbursement for covered benefits
with the organization offering the plan; provides for reimbursement for
all covered benefits regardless of whether the benefits are provided
within the network of providers; and, only for purposes of quality
assurance requirements in Sec. 422.152(e), is offered by an
organization that is not licensed or organized under State law as an
HMO.
* * * * *
(c) Rule for MA Plans' Part D coverage.
(1) Coordinated care plans. In order to offer an MA coordinated
care plan in an area, the MA organization offering the coordinated care
plan must offer qualified Part D coverage meeting the requirements in
Sec. 423.104 of this chapter in that plan or in another MA plan in the
same area.
(2) MSAs. MA organizations offering MSA plans are not permitted to
offer prescription drug coverage, other than that required under Parts
A and B of Title XVIII of the Act.
(3) Private Fee-For-Service. MA organizations offering private fee-
for-service plans can choose to offer qualified Part D coverage meeting
the requirements in Sec. 423.104 in that plan.
Sec. 422.6 [Removed]
0
12. Remove Sec. 422.6.
Sec. 422.8 [Removed]
0
13. Remove Sec. 422.8.
Sec. 422.10 [Redesignated as Sec. 422.6]
0
14. Redesignate Sec. 422.10 as Sec. 422.6 and amend newly
redesignated Sec. 422.6 by-
A. Revising the section heading.
B. Revising paragraph (a).
C. Revising paragraph (b).
D. Revising paragraph (d)(2)(ii).
E. Revising paragraph (e).
F. Revising paragraph (f)(1).
G. Revising paragraph (f)(2)
H. Revising paragraph (f)(3).
0
The revisions read as set forth below:
Sec. 422.6 Cost-sharing in enrollment-related costs (MA user fee).
(a) Basis and scope. This section implements that portion of
section 1857 of the Act that pertains to cost-sharing in enrollment-
related costs. It sets forth the procedures that CMS follows to
determine the aggregate annual ``user fee'' to be contributed by MA
organizations and PDP sponsors under Medicare Part D and to assess the
required user fees for each MA plan offered by MA organizations and PDP
sponsors.
(b) Purpose of assessment. Section 1857(e)(2) of the Act authorizes
CMS to charge and collect from each MA plan offered by an MA
organization its pro rata share of fees for administering section 1851
of the Act (relating to dissemination of enrollment information), and
section 4360 of the Omnibus Budget Reconciliation Act of 1990 (relating
to the health insurance counseling and assistance program) and section
1860D-1(c) of the Act (relating to dissemination of enrollment
information for the drug benefit).
* * * * *
(d) * * *
(2) * * *
(ii) For fiscal year 2006 and each succeeding year, $200 million,
the applicable portion (as defined in paragraph (e) of this section) of
$200 million.
(e) Applicable portion. In this section, the term ``applicable
portion'' with respect to an MA plan means, for a fiscal year, CMS's
estimate of Medicare Part C and D expenditures for those MA
organizations as a percentage of all expenditures under title XVIII and
with respect to PDP sponsors, the applicable portion is CMS's estimate
of Medicare Part D prescription drug expenditures for those PDP
sponsors PDP sponsors as a percentage of all expenditures under title
XVIII.
(f) Assessment methodology. (1) The amount of the applicable
portion of the user fee each MA organization and PDP sponsor must pay
is assessed as a percentage of the total Medicare payments to each
organization. CMS determines the annual assessment percentage rate
separately for MA organizations and for PDPs using the following
formula:
(i) The assessment formula for MA organizations (including MA-PD
plans):
C divided by A times B where--
A is the total estimated January payments to all MA organizations
subject to the assessment;
B is the 9-month (January through September) assessment period; and
C is the total fiscal year MA organization user fee assessment
amount determined in accordance with paragraph (d)(2) of this section.
(ii) The assessment formula for PDPs:
A is the total estimated January payments to all PDP sponsors
subject to the assessment;
B is the 9-month (January through September) assessment period; and
C is the total fiscal year PDP sponsor's user fee assessment amount
determined in accordance with paragraph (d)(2) of this section.
(2) CMS determines each MA organization's and PDP sponsor's pro
rata share of the annual fee on the basis of the organization's
calculated monthly payment amount during the 9 consecutive months
beginning with January. CMS calculates each organization's monthly pro
rata share by multiplying the established percentage rate by the total
monthly calculated Medicare payment amount to the organization as
recorded in CMS's payment system on the first day of the month.
(3) CMS deducts the organization's fee from the amount of Federal
funds otherwise payable to the MA organization or PDP sponsor for that
month.
* * * * *
Subpart B--Eligibility, Election, and Enrollment
0
15. Amend Sec. 422.50 by-
A. Revising the section heading.
B. Adding introductory text.
C. Amending paragraph (a)(2)(i) by removing the word ``and'' from
the end of the paragraph.
D. Amending paragraph (a)(2)(ii) by removing the period from the
end of the paragraph and by adding ``; and'' in its place.
E. Adding paragraph (a)(2)(iii).
F. Revising paragraph (a)(5).
0
The revisions and addition read as follows:
Sec. 422.50 Eligibility to elect an MA plan.
For this subpart, all references to an MA plan include MA-PD and
both MA local and MA regional plans, as defined
[[Page 4716]]
in Sec. 422.2 unless specifically noted otherwise.
(a) * * *
(2) * * *
(iii) An individual with end-stage renal disease may elect an MA
special needs plan as defined in Sec. 422.2, as long as that plan has
opted to enroll ESRD individuals.
* * * * *
(5) Completes and signs an election form or completes another CMS-
approved election method offered by the MA organization and provides
information required for enrollment; and
* * * * *
0
16. Add Sec. 422.52 to read as follows:
Sec. 422.52 Eligibility to elect an MA plan for special needs
individuals.
(a) General rule. In order to elect a specialized MA plan for a
special needs individual (Special Needs MA plan, or SNP), the
individual must meet the eligibility requirements specified in this
section.
(b) Basic eligibility requirements. Except as provided in paragraph
(c) of this section, to be eligible to elect an SNP, an individual
must:
(1) Meet the definition of a special needs individual, as defined
at Sec. 422.2;
(2) Meet the eligibility requirements for that specific SNP; and
(3) Be eligible to elect an MA plan under Sec. 422.50.
(c) Exception to Sec. 422.50. CMS may waive Sec. 422.50(a)(2)
concerning the exclusion of persons with ESRD.
(d) Deeming continued eligibility. If an SNP determines that the
enrollee no longer meets the eligibility criteria, but can reasonably
be expected to again meet that criteria within a 6-month period, the
enrollee is deemed to continue to be eligible for the MA plan for a
period of not less than 30 days but not to exceed 6 months.
(e) Restricting Enrollment. An SNP must restrict future enrollment
to only special needs individuals as established under Sec. 422.2.
(f) Exceptions. (1) As specified in Sec. 422.4, CMS may designate
certain MA plans that disproportionately serve special needs
individuals, as defined in Sec. 422.2 as SNPs.
(2) Individuals already enrolled in an MA plan that CMS
subsequently designates as an SNP may continue to be enrolled in the
plan and may not be involuntarily disenrolled because they do not meet
the definition of special needs individuals in Sec. 422.2.
0
17. Amend Sec. 422.54 by-
A. Revising the section heading.
B. Revising paragraph (a).
C. Revising paragraph (b).
D. Revising paragraph (c)(1)(ii).
E. Revising paragraph (c)(2).
F. Revising paragraph (d)(3).
0
The revisions read as follows:
Sec. 422.54 Continuation of enrollment for MA local plans.
(a) Definition. Continuation area means an additional area (outside
the service area) within which the MA organization offering a local
plan furnishes or arranges to furnish services to its continuation-of-
enrollment enrollees. Enrollees must reside in a continuation area on a
permanent basis. A continuation area does not expand the service area
of any MA local plan.
(b) Basic rule. An MA organization may offer a continuation of
enrollment option to MA local plan enrollees when they no longer reside
in the service area of a plan and permanently move into the geographic
area designated by the MA organization as a continuation area. The
intent to no longer reside in an area and permanently live in another
area is verified through documentation that establishes residency, such
as a driver's license or voter registration card.
(c) * * *
(1) * * *
(ii) Describe the option(s) in the member materials it offers and
make the option available to all MA local plan enrollees residing in
the continuation area.
(2) An enrollee who moves out of the service area and into the
geographic area designated as the continuation area has the choice of
continuing enrollment or disenrolling from the MA local plan. The
enrollee must make the choice of continuing enrollment in a manner
specified by CMS. If no choice is made, the enrollee must be
disenrolled from the plan.
(d) * * *
(3) Reasonable cost sharing. For services furnished in the
continuation area, an enrollee's cost-sharing liability is limited to
the cost-sharing amounts required in the MA local plan's service area
(in which the enrollee no longer resides).
* * * * *
0
18. Amend Sec. 422.56 by-
A. Revising the section heading.
B. Revising paragraph (a).
C. Revising paragraph (b).
0
The revisions read as follows:
Sec. 422.56 Enrollment in an MA MSA plan.
(a) General. An individual is not eligible to elect an MA MSA plan
unless the individual provides assurances that are satisfactory to CMS
that he or she will reside in the United States for at least 183 days
during the year for which the election is effective.
(b) Individuals eligible for or covered under other health benefits
program. Unless otherwise provided by the Secretary, an individual who
is enrolled in a Federal Employee Health Benefit plan under 5 U.S.C.
chapter 89, or is eligible for health care benefits through the
Veteran's Administration under 10 U.S.C. chapter 55 or the Department
of Defense under 38 U.S.C. chapter 17, may not enroll in an MA MSA
plan.
* * * * *
0
19. Amend Sec. 422.60 by-
A. Revising paragraph (b)(1).
B. Revising paragraph (b)(3).
C. Revising the heading of paragraph (c).
D. Revising paragraph (c)(1).
E. Revising paragraph (d).
F. Revising paragraph (e).
G. Revising paragraph (f)(1).
H. Revising paragraph (f)(3).
0
The revisions read as follows:
Sec. 422.60 Election process.
* * * * *
(b) Capacity to accept new enrollees. (1) MA organizations may
submit information on enrollment capacity of plans.
* * * * *
(3) CMS considers enrollment limit requests for an MA plan service
area, or a portion of the plan service area, only if the health and
safety of beneficiaries is at risk, such as if the provider network is
not available to serve the enrollees in all or a portion of the service
area.
(c) Election forms and other election mechanisms. (1) The election
must comply with CMS instructions regarding content and format and be
approved by CMS as described in Sec. 422.80. The election must be
completed by the MA eligible individual (or the individual who will
soon become eligible to elect an MA plan) and include authorization for
disclosure and exchange of necessary information between the U.S.
Department of Health and Human Services and its designees and the MA
organization. Persons who assist beneficiaries in completing forms must
sign the form, or through other approved mechanisms, indicate their
relationship to the beneficiary.
* * * * *
(d) When an election is considered to have been made. An election
in an MA plan is considered to have been made on the date the completed
election is received by the MA organization.
(e) Handling of elections. The MA organization must have an
effective system for receiving, controlling, and processing elections.
The system must
[[Page 4717]]
meet the following conditions and requirements:
(1) Each election is dated as of the day it is received in a manner
acceptable to CMS.
(2) Elections are processed in chronological order, by date of
receipt.
(3) The MA organization gives the beneficiary prompt notice of
acceptance or denial in a format specified by CMS.
(4) If the MA plan is enrolled to capacity, it explains the
procedures that will be followed when vacancies occur.
(5) Upon receipt of the election, or for an individual who was
accepted for future enrollment from the date a vacancy occurs, the MA
organization transmits, within the timeframes specified by CMS, the
information necessary for CMS to add the beneficiary to its records as
an enrollee of the MA organization.
(f) Exception for employer group health plans. (1) In cases in
which an MA organization has both a Medicare contract and a contract
with an employer group health plan, and in which the MA organization
arranges for the employer to process elections for Medicare-entitled
group members who wish to enroll under the Medicare contract, the
effective date of the election may be retroactive. Consistent with
Sec. 422.250(b), payment adjustments based on a retroactive effective
date may be made for up to a 90-day period.
* * * * *
(3) Upon receipt of the election from the employer, the MA
organization must submit the enrollment within timeframes specified by
CMS.
0
20. Amend Sec. 422.62 by-
A. Revising the section heading.
B. Revising paragraph (a).
C. Revising paragraph (b) introductory text.
D. Revising the heading of paragraph (d).
E. Revising paragraph (d)(1).
F. Removing paragraph (d)(2)(i)(A).
G. Redesignating paragraph (d)(2)(i)(B) as paragraph (d)(2)(i)(A).
H. Redesignating paragraph (d)(2)(i)(C) as paragraph (d)(2)(i)(B).
0
The revisions and addition read as follows:
Sec. 422.62 Election of coverage under an MA plan.
(a) General: Coverage election periods--(1) Initial coverage
election period for MA. The initial coverage election period is the
period during which a newly MA-eligible individual may make an initial
election. This period begins 3 months before the month the individual
is first entitled to both Part A and Part B and ends on the later of--
(i) The last day of the month preceding the month of entitlement;
or
(ii) If after May 15, 2006, the last day of the individual's Part B
initial enrollment period.
(2) Annual coordinated election period. (i) Beginning with 2002,
the annual coordinated election period for the following calendar year
is November 15th through December 31st, except for 2006.
(ii) For 2006, the annual coordinated election period
begins on November 15, 2005 and ends on May 15, 2006.
(iii) During the annual coordinated election period, an individual
eligible to enroll in an MA plan may change his or her election from an
MA plan to original Medicare or to a different MA plan, or from
original Medicare to an MA plan. If an individual changes his or her
election to original Medicare, he or she may also elect a PDP.
(3) Open enrollment and disenrollment opportunities through 2005.
Through 2005, the number of elections or changes that an MA eligible
individual may make is not limited (except as provided for in paragraph
(d) of this section for MA MSA plans). Subject to the MA plan being
open to enrollees as provided under Sec. 422.60(a)(2), an individual
eligible to elect an MA plan may change his or her election from an MA
plan to original Medicare or to a different MA plan, or from original
Medicare to an MA plan.
(4) Open enrollment and disenrollment during 2006. (i) Except as
provided in paragraphs (a)(4)(ii), (a)(4)(iii), and (a)(6) of this
section, an individual who is not enrolled in an MA plan, but who is
eligible to elect an MA plan in 2006, may elect an MA plan only once
during the first 6 months of the year.
(A) An individual who is enrolled in an MA-PD plan may elect
another MA-PD plan or original Medicare and coverage under a PDP. Such
an individual may not elect an MA plan that does not provide qualified
prescription drug coverage.
(B) An individual who is enrolled in an MA plan that does not
provide qualified prescription drug coverage may elect another MA plan
that does not provide that coverage or original Medicare. Such an
individual may not elect an MA-PD plan or coverage under a PDP.
(ii) Newly eligible MA individual. An individual who becomes MA
eligible during 2006 may elect an MA plan or change his or her election
once during the period that begins the month the individual is entitled
to both Part A and Part B and ends on the last day of the 6th month of
the entitlement, or on December 31, whichever is earlier, subject to
the limitations in paragraphs (a)(4)(i)(A) and (a)(4)(i)(B) of this
section.
(iii) The limitation to one election or change in paragraphs
(a)(4)(i) and (a)(4)(ii) of this section does not apply to elections or
changes made during the annual coordinated election period specified in
paragraph (a)(2) of this section or during a special election period
specified in paragraph (b) of this section.
(5) Open enrollment and disenrollment beginning in 2007. (i) For
2007 and subsequent years, except as provided in paragraphs (a)(5)(ii),
(a)(5)(iii), and (a)(6) of this section, an individual who is not
enrolled in an MA plan but is eligible to elect an MA plan may make an
election into an MA plan once during the first 3 months of the year.
(A) An individual who is enrolled in an MA-PD plan may elect
another MA-PD plan or original Medicare and coverage under a PDP. An
individual who is in original Medicare and has coverage under a PDP may
elect a MA-PD plan. Such an individual may not elect an MA plan that
does not provide qualified prescription drug coverage.
(B) An individual who is enrolled in an MA plan that does not
provide qualified prescription drug coverage may elect another MA plan
that does not provide that coverage or original Medicare. An individual
who is in original Medicare and does not have coverage under a PDP may
elect an MA plan that does not provide qualified prescription drug
coverage. Such an individual may not elect an MA-PD plan or coverage
under a PDP.
(ii) Newly eligible MA individual. An individual who becomes MA
eligible during 2007 or later may elect an MA plan or change his or her
election once during the period that begins the month the individual is
entitled to both Part A and Part B and ends on the last day of the 3rd
month of the entitlement, or on December 31, whichever is earlier
subject to the limitations in paragraphs (a)(5)(i)(A) and (a)(5)(i)(B)
of this section.
(iii) The limitation to one election or change in paragraph
(a)(5)(i) and (a)(5)(ii) of this section does not apply to elections
made or changes made during the annual coordinated election period
specified in paragraph (a)(2) of this section or during a special
election period specified in paragraph (b) of this section.
(6) Open enrollment period for institutionalized individuals. After
2005, an individual who is eligible to
[[Page 4718]]
elect an MA plan and who is institutionalized, as defined by CMS, is
not limited (except as provided for in paragraph (d) of this section
for MA MSA plans) in the number of elections or changes he or she may
make. Subject to the MA plan being open to enrollees as provided under
Sec. 422.60(a)(2), an MA eligible institutionalized individual may at
any time elect an MA plan or change his or her election from an MA plan
to original Medicare, to a different MA plan, or from original Medicare
to an MA plan.
(b) Special election periods. An individual may at any time (that
is, not limited to the annual coordinated election period) discontinue
the election of an MA plan offered by an MA organization and change his
or her election, in the form and manner specified by CMS, from an MA
plan to original Medicare or to a different MA plan under any of the
following circumstances:
* * * * *
(d) Special rules for MA MSA plans--(1) Enrollment. An individual
may enroll in an MA MSA plan only during an initial coverage election
period or annual coordinated election period described in paragraphs
(a)(1) and (a)(2) of this section.
* * * * *
0
21. Amend Sec. 422.66 by-
A. Revising the section heading.
B. Revising paragraph (b)(1)(i).
C. Revising paragraph (b)(1)(ii).
D. Revising paragraph (b)(3)(ii).
E. Revising paragraph (b)(3)(iii) introductory text.
F. Revising paragraph (d)(5).
G. Revising paragraph (e).
H. Revising paragraph (f)(2).
0
The revisions and additions read as follows:
Sec. 422.66 Coordination of enrollment and disenrollment through MA
organizations.
* * * * *
(b) * * *
(1) * * *
(i) Elect a different MA plan by filing the appropriate election
with the MA organization.
(ii) Submit a request for disenrollment to the MA organization in
the form and manner prescribed by CMS or file the appropriate
disenrollment request through other mechanisms as determined by CMS.
* * * * *
(3) * * *
(ii) Provide enrollee with notice of disenrollment in a format
specified by CMS; and
(iii) In the case of a plan where lock-in applies, include in the
notice a statement explaining that he or she--
* * * * *
(d) * * *
(5) Election. The individual who is converting must complete an
election as described in Sec. 422.60(c)(1) unless otherwise provided
in a form and manner approved by CMS.
* * * * *
(e) Maintenance of enrollment. (1) An individual who has made an
election under this section is considered to have continued to have
made that election until either of the following, which ever occurs
first:
(i)The individual changes the election under this section.
(ii)The elected MA plan is discontinued or no longer serves the
area in which the individual resides, as provided under Sec.
422.74(b)(3), or the organization does not offer or the individual does
not elect the option of continuing enrollment, as provided under Sec.
422.54.
(2) An individual enrolled in an MA plan that becomes an MA-PD plan
on January 1, 2006, will be deemed to have elected to enroll in that
MA-PD plan.
(3)An individual enrolled in an MA plan that, as of
December 31, 2005, offers any prescription drug coverage will be
deemed to have elected an MA-PD plan offered by the same organization
as of January 1, 2006.
(4) An individual who has elected an MA plan that does not provide
prescription drug coverage will not be deemed to have elected an MA-PD
plan and will remain enrolled in the MA plan as provided in paragraph
(e)(1) of this section.
(5) An individual enrolled in an MA-PD plan as of December 31 of a
year is deemed to have elected to remain enrolled in that plan on
January 1 of the following year.
(f) * * *
(2) Upon receipt of the election from the employer, the MA
organization must submit a disenrollment notice to CMS within
timeframes specified by CMS.
0
22. Amend Sec. 422.68 by revising paragraph (b) to read as follows:
Sec. 422.68 Effective dates of coverage and change of coverage.
* * * * *
(b) Annual coordinated election periods. For an election or change
of election made during the annual coordinated election period as
described in Sec. 422.62(a)(2)(i), coverage is effective as of the
first day of the following calendar year except that for the annual
coordinated election period described in Sec. 422.62(a)(2)(ii),
elections made after December 31, 2005 through May 15, 2006 are
effective as of the first day of the first calendar month following the
month in which the election is made.
* * * * *
0
23. Amend Sec. 422.74 by-
A. Revising the section heading.
B. Revising paragraph (b)(1)(ii).
C. Adding paragraph (b)(2)(iv).
D. Revising paragraph (c)(1).
E. Revising paragraph (d)(1).
F. Revising paragraph (d)(2).
0
The revisions and addition read as follows:
Sec. 422.74 Disenrollment by the MA Organization.
* * * * *
(b) * * *
(1) * * *
(ii) The individual has engaged in disruptive behavior specified at
paragraph (d)(2) of this section.
* * * * *
(2) * * *
(iv) Individuals enrolled in a specialized MA plan for special
needs individuals that exclusively serves and enrolls special needs
individuals who no longer meet the special needs status of that plan
(or deemed continued eligibility, if applicable).
(c) * * *
(1) Be provided to the individual before submission of the
disenrollment to CMS; and
* * * * *
(d) Process for disenrollment--(1) Monthly basic and supplementary
premiums are not paid timely. An MA organization may disenroll an
individual from the MA plan for failure to pay basic and supplementary
premiums under the following circumstances:
(i) The MA organization can demonstrate to CMS that it made
reasonable efforts to collect the unpaid premium amount, including:
(A) Alerting the individual that the premiums are delinquent;
(B) Providing the individual with a grace period, that is, an
opportunity to pay past due premiums in full. The length of the grace
period will be, at minimum, one month and will begin on the first day
of the month for which the premium is unpaid.
(C) Advising the individual that failure to pay the premiums by the
end of the grace period will result in termination of MA coverage.
(ii) The MA organization provides the enrollee with notice of
disenrollment that meets the requirements set forth in paragraph (c) of
this section.
[[Page 4719]]
(iii) If the enrollee fails to pay the premium for optional
supplemental benefits but pays the basic premium and any mandatory
supplemental premium, the MA organization has the option to discontinue
the optional supplemental benefits and retain the individual as an MA
enrollee.
(2) Disruptive Behavior. (i) Definition of disruptive behavior. An
MA plan enrollee is disruptive if his or her behavior substantially
impairs the plan's ability to arrange for or provide services to the
individual or other plan members. An individual cannot be considered
disruptive if such behavior is related to the use of medical services
or compliance (or noncompliance) with medical advice or treatment.
(ii) Basis of disenrollment for disruptive behavior. An
organization may disenroll an individual whose behavior is disruptive
as defined in 422.74(d)(2)(i) only after it meets the requirements
described in this section and CMS has reviewed and approved the
request.
(iii) Effort to resolve the problem. The MA organization must make
a serious effort to resolve the problems presented by the individual,
including providing reasonable accommodations, as determined by CMS,
for individuals with mental or cognitive conditions, including mental
illness and developmental disabilities. In addition, the MA
organization must inform the individual of the right to use the
organization's grievance procedures. The beneficiary has a right to
submit any information or explanation that he or she may wish to the MA
organization.
(iv) Documentation. The MA organization must document the
enrollee's behavior, its own efforts to resolve any problems, as
described in paragraph (iii), and any extenuating circumstances. The MA
organization may request from CMS the ability to decline future
enrollment by the individual. The MA organization must submit this
information and any documentation received by the beneficiary to CMS.
(v) CMS review of the proposed disenrollment. CMS will review the
information submitted by the MA organization and any information
submitted by the beneficiary (which the MA organization must forward to
CMS) to determine if the MA organization has fulfilled the requirements
to request disenrollment for disruptive behavior. If the organization
has fulfilled the necessary requirements, CMS will review the
information and make a decision to approve or deny the request for
disenrollment, including conditions on future enrollment, within 20
working days. During the review, CMS will ensure that staff with
appropriate clinical or medical expertise review the case before making
the final decision. The MA organization will be required to provide a
reasonable accommodation, as determined by CMS, for the individual in
such exceptional circumstances that CMS deems necessary. CMS will
notify the MA organization within 5 working days after making its
decision.
(vi) Effective date of disenrollment. If CMS permits an MA
organization to disenroll an individual for disruptive behavior, the
termination is effective the first day of the calendar month after the
month in which the MA organization gives the individual notice of the
disenrollment that meets the requirements set forth in paragraph (c) of
this section, unless otherwise determined by CMS.
* * * * *
0
24. Amend Sec. 422.80 by-
A. Revising paragraph (a).
B. Revising paragraph (e)(1)(ii).
C. Revising paragraph (e)(1)(iii).
D. Revising paragraph (e)(1)(iv).
E. Revising paragraph (e)(1)(v).
F. Adding paragraph (e)(1)(ix).
0
The revisions and additions read as follows:
Sec. 422.80 Approval of marketing materials and election forms.
(a) CMS review of marketing materials. (1) Except as provided in
paragraph (a)(2) of this section, an MA organization may not distribute
any marketing materials (as defined in paragraph (b) of this section ),
or election forms, or make such materials or forms available to
individuals eligible to elect an MA organization unless--
(i) At least 45 days (or 10 days if using marketing materials that
use, without modification, proposed model language as specified by CMS)
before the date of distribution the MA organization has submitted the
material or form to CMS for review under the guidelines in paragraph
(c); and
(ii) CMS does not disapprove the distribution of new material or
form.
(2) The MA organization may distribute the marketing materials 5
days following their submission to CMS if--
(i)The MA organization is deemed by CMS to meet certain performance
requirements established by CMS; or
(ii)The MA organization certifies that in the case of certain
marketing materials designated by CMS, it followed all applicable
marketing guidelines or used model language specified by CMS without
modification.
* * * * *
(e) * * *
(1) * * *
(ii) Engage in any discriminatory activity, including targeted
marketing to Medicare beneficiaries from higher income areas without
making comparable efforts to enroll Medicare beneficiaries from lower
income areas.
(iii) Solicit Medicare beneficiaries door-to-door.
(iv) Engage in activities that could mislead or confuse Medicare
beneficiaries, or misrepresent the MA organization. The MA organization
may not claim it is recommended or endorsed by CMS or Medicare or the
Department of Health and Human Services or that CMS or Medicare or the
Department of Health and Human Services recommends that the beneficiary
enroll in the MA plan. It may, however, explain that the organization
is approved for participation in Medicare.
(v) Distribute marketing materials for which, before expiration of
the 45-day period (or 10 days as provided in paragraph (a)(1) of this
section), the MA organization receives from CMS written notice of
disapproval because it is inaccurate or misleading, or misrepresents
the MA organization, its marketing representatives, or CMS.
* * * * *
(ix) Engage in any other marketing activity prohibited by CMS in
its marketing guidance.
* * * * *
Subpart C--Benefits and Beneficiary Protections
Sec. 422.100 [Amended]
0
25. Amend Sec. 422.100 by-
A. Revising paragraph (b)(2).
B. Revising paragraph (c)(1).
C. Removing paragraph (e).
D. Redesignating paragraph (f) as paragraph (e).
E. Redesignating paragraph (g) as paragraph (f).
F. Redesignating paragraph (h) as paragraph (g).
G. Redesignating paragraph (i) as paragraph (h).
H. Redesignating paragraph (j) as paragraph (i).
I. Revising newly redesignated paragraph (f) introductory text.
J. Revising newly redesignated paragraph (f)(2).
0
The revisions read as follows:
Subpart C--Benefits and Beneficiary Protections
Sec. 422.100 General requirements.
* * * * *
(b) * * *
[[Page 4720]]
(2) An MA plan (and an MA MSA plan, after the annual deductible in
Sec. 422.103(d) has been met) offered by an MA organization satisfies
paragraph (a) of this section with respect to benefits for services
furnished by a noncontracting provider if that MA plan provides payment
in an amount the provider would have received under original Medicare
(including balance billing permitted under Medicare Part A and Part B).
(c) ***
(1) Basic benefits are all Medicare-covered services, except
hospice services.
* * * * *
(f) CMS review and approval of MA benefits. CMS reviews and
approves MA benefits using written policy guidelines and requirements
in this part and other CMS instructions to ensure that--
* * * * *
(2) MA organizations are not designing benefits to discriminate
against beneficiaries, promote discrimination, discourage enrollment or
encourage disenrollment, steer subsets of Medicare beneficiaries to
particular MA plans, or inhibit access to services; and
* * * * *
0
26. Amend Sec. 422.101 by-
A. Revising paragraph (b)(2).
B. Revising paragraph (b)(3) introductory text.
C. Adding paragraph (b)(4).
D. Adding paragraph (b)(5).
E. Adding paragraph (d).
F. Adding paragraph (e).
0
The revision and additions read as follows:
Sec. 422.101 Requirements relating to basic benefits.
* * * * *
(b) * * *
(2) General coverage guidelines included in original Medicare
manuals and instructions unless superseded by regulations in this part
or related instructions; and
(3) Written coverage decisions of local Medicare contractors with
jurisdiction for claims in the geographic area in which services are
covered under the MA plan. If an MA plan covers geographic areas
encompassing more than one local coverage policy area, the MA
organization offering such an MA plan may elect to apply to plan
enrollees in all areas uniformly the coverage policy that is the most
beneficial to MA enrollees. MA organizations that elect this option
must notify CMS before selecting the area that has local coverage
policies that are most beneficial to enrollees as follows:
* * * * *
(4) Instead of applying rules in paragraph (b)(3) of this section,
and to the extent it exercises this option, an organization offering an
MA regional plan in an MA region that covers more than one local
coverage policy area must uniformly apply all of the local coverage
policy determinations that apply in the selected local coverage policy
area in that MA region to all parts of that same MA region. The
selection of the single local coverage policy area's local coverage
policy determinations to apply throughout the MA region is at the
discretion of the MA regional plan and is not subject to CMS pre-
approval.
(5) If an MA organization offering an MA local plan elects to
exercise the option in paragraph (b)(3) of this section related to a
local MA plan, or if an MA organization offering an MA regional plan
elects to exercise the option in paragraph (b)(4) of this section
related to an MA regional plan, then the MA organization must make
information on the selected local coverage policy readily available,
including through the Internet, to enrollees and health care providers.
* * * * *
(d) Special cost-sharing rules for MA regional plans. In addition
to the requirements in paragraph (a) through paragraph (c) of this
section, MA regional plans must provide for the following:
(1) Single deductible. MA regional plans, to the extent they apply
a deductible, are only permitted to have only a single deductible
related to combined Medicare Part A and Part B services (to the extent
they have a deductible). Applicability of the single deductible may be
differential for specific in-network services and may also be waived
for preventative services or other items and services.
(2) Catastrophic limit. MA regional plans are required to provide
for a catastrophic limit on beneficiary out-of-pocket expenditures for
in-network benefits under the original Medicare fee-for-service program
(Part A and Part B benefits).
(3) Total catastrophic limit. MA regional plans are required to
provide a total catastrophic limit on beneficiary out-of-pocket
expenditures for in-network and out-of-network benefits under the
original Medicare fee-for-service program. This total out-of-pocket
catastrophic limit, which would apply to both in-network and out-of-
network benefits under original Medicare, may be higher than the in-
network catastrophic limit in paragraph (d)(2) of this section, but may
not increase the limit described in paragraph (d)(2) of this section.
(4) Tracking of deductible and catastrophic limits and
notification. MA regional plans are required to track the deductible
(if any) and catastrophic limits in paragraphs (d)(1) through (d)(3) of
this section based on incurred out-of-pocket beneficiary costs for
original Medicare covered services, and are also required to notify
members and health care providers when the deductible (if any) or a
limit has been reached.
(e) Other rules for MA regional plans. (1) MA regional plans are
required to provide reimbursement for all covered benefits, regardless
of whether those benefits are provided within or outside of the network
of contracted providers.
(2) In applying the actuarially equivalent level of cost-sharing
with respect to MA bids related to benefits under the original Medicare
program option as set forth at Sec. 422.256(b)(3), only the
catastrophic limit on out-of-pocket expenses for in-network benefits in
paragraph (d)(2) of this section will be taken into account.
0
27. Amend Sec. 422.102 by-
A. Revising paragraph (a)(1).
B. Revising paragraph (a)(3).
C. Adding paragraph (a)(4).
0
The revisions and addition read as follows:
Sec. 422.102 Supplemental benefits.
(a) * * *
(1) Subject to CMS approval, an MA organization may require
Medicare enrollees of an MA plan (other than an MSA plan) to accept or
pay for services in addition to Medicare-covered services described in
Sec. 422.101.
* * * * *
(3) CMS approves mandatory supplemental benefits if the benefits
are designed in accordance with CMS' guidelines and requirements as
stated in this part and other written instructions.
(4) Beginning in 2006, an MA plan may reduce cost sharing below the
actuarial value specified in section 1854(e)(4)(A) of the Act only as a
mandatory supplemental benefit.
* * * * *
0
28. Amend Sec. 422.103 by--
A. Revising the section heading.
B. Revising paragraph (a).
0
The revisions read as follows:
Sec. 422.103 Benefits under an MA MSA plan.
(a) General rule. An MA organization offering an MA MSA plan must
make available to an enrollee, or provide reimbursement for, at least
the services described in Sec. 422.101 after the enrollee incurs
countable expenses equal to the amount of the plan's annual deductible.
* * * * *
0
29. Amend Sec. 422.105 by-
[[Page 4721]]
A. Revising the section heading.
B. Revising paragraph (a).
C. Revising paragraph (b).
0
The revisions read as follows:
Sec. 422.105 Special rules for self-referral and point of service
option.
(a) Self-referral. When an MA plan member receives an item or
service of the plan that is covered upon referral or pre-authorization
from a contracted provider of that plan, the member cannot be
financially liable for more than the normal in-plan cost sharing, if
the member correctly identified himself or herself as a member of that
plan to the contracted provider before receiving the covered item or
service, unless the contracted provider can show that the enrollee was
notified prior to receiving the item or service that the item or
service is covered only if further action is taken by the enrollee.
(b) Point of service option. As a general rule, a POS benefit is an
option that an MA organization may offer in an MA coordinated care plan
to provide enrollees with additional choice in obtaining specified
health care services. The organization may offer A POS option--
(1) Before January 1, 2006, under a coordinated care plan as an
additional benefit as described in section 1854(f)(1)(A) of the Act;
(2) Under a coordinated care plan as a mandatory supplemental
benefit as described in Sec. 422.102(a); or
(3) Under a coordinated care plan as an optional supplemental
benefit as described in Sec. 422.102(b).
(4) An MA regional plan or local MA PPO is permitted to offer a
POS-LIKE benefit as described in paragraphs (b)(2) or (b)(3) of this
section as a supplemental benefit. An MA regional plan or local MA PPO
may offer a POS-LIKE option as a supplemental benefit where cost
sharing for out-of-network services is reduced, in a limited manner,
for services obtained from out-of-network providers. Offering a POS-
LIKE supplemental benefit does not affect the MA regional plan's or
local MA PPO's responsibility to provide reimbursement for all covered
benefits, regardless of whether those benefits are provided within the
network of contracted providers.
* * * * *
0
30. Amend Sec. 422.106 by-
A. Revising the paragraph (c) heading.
B. Revising paragraph (c)(2).
C. Adding paragraph (d).
0
The revisions and addition read as follows:
Sec. 422.106 Coordination of benefits with employer or union group
health plans and Medicaid.
* * * * *
(c) Waiver or modification of contracts with MA organizations.
* * * * *
(2) Approved waivers or modifications under this paragraph granted
to any MA organization may be used by any other similarly situated MA
organization in developing its bid.
(d) Employer sponsored MA plans for plan years beginning on or
after January 1, 2006. (1) CMS may waive or modify any requirement in
this part or Part D that hinders the design of, the offering of, or the
enrollment in, an MA plan (including an MA-PD plan) offered by one or
more employers, labor organizations, or the trustees of a fund
established by one or more employers or labor organizations (or
combination thereof), or that is offered, sponsored or administered by
an entity on behalf of one or more employers or labor organizations, to
furnish benefits to the employers' employees, former employees (or
combination thereof) or members or former members (or combination
thereof) of the labor organizations. Any entity seeking to offer,
sponsor, or administer such an MA plan described in this paragraph may
request, in writing, from CMS, a waiver or modification of requirements
in this part that hinder the design of, the offering of, or the
enrollment in, such MA plan.
(2) An MA plan described in this paragraph may restrict the
enrollment of individuals in that plan to individuals who are
beneficiaries and participants in that plan.
(3) Approved waivers or modifications under this paragraph granted
to any MA plan may be used by any other similarly situated MA plan in
developing its bid.
0
31. Amend Sec. 422.108 by revising paragraph (f) to read as follows:
Sec. 422.108 Medicare secondary payer (MSP) procedures.
* * * * *
(f) MSP rules and State laws. Consistent with Sec. 422.402
concerning the Federal preemption of State law, the rules established
under this section supersede any State laws, regulations, contract
requirements, or other standards that would otherwise apply to MA
plans. A State cannot take away an MA organization's right under
Federal law and the MSP regulations to bill, or to authorize providers
and suppliers to bill, for services for which Medicare is not the
primary payer. The MA organization will exercise the same rights to
recover from a primary plan, entity, or individual that the Secretary
exercises under the MSP regulations in subparts B through D of part 411
of this chapter.
0
32. Amend Sec. 422.109 by-
A. Revising paragraph (a)(2).
B. Revising paragraph (c)(2)(iv).
C. Revising paragraph (c)(3).
0
The revisions read as follows:
Sec. 422.109 Effect of national coverage determinations (NCDs) and
legislative changes in benefits.
(a) * * *
(2) The estimated cost of Medicare services furnished as a result
of a particular NCD or legislative change in benefits represents at
least 0.1 percent of the national average per capita costs.
* * * * *
(c) * * *
(2) * * *
(iv) Any services, including the costs of the NCD service or
legislative change in benefits, to the extent the MA organization is
already obligated to cover it as a supplemental benefit under Sec.
422.102.
(3) Costs for significant cost NCD services or legislative changes
in benefits for which CMS fiscal intermediaries and carriers will make
payment are those Medicare costs not listed in paragraphs (c)(2)(i)
through (c)(2)(iv) of this section.
* * * * *
0
33. Amend Sec. 422.110 by-
A. Revising paragraph (b).
B. Removing paragraph (c).
0
The revision reads as follows:
Sec. 422.110 Discrimination against beneficiaries prohibited.
* * * * *
(b) Exception. An MA organization may not enroll an individual who
has been medically determined to have end-stage renal disease. However,
an enrollee who develops end-stage renal disease while enrolled in a
particular MA organization may not be disenrolled for that reason. An
individual who is an enrollee of a particular MA organization, and who
resides in the MA plan service area at the time he or she first becomes
MA eligible, or, an individual enrolled by an MA organization that
allows those who reside outside its MA service area to enroll in an MA
plan as set forth at Sec. 422.50(a)(3)(ii), then that individual is
considered to be ``enrolled'' in the MA organization for purposes of
the preceding sentence.
Sec. 422.111 [Amended]
0
34. Amend Sec. 422.111 by-
A. Revising paragraph (b)(2) introductory text.
[[Page 4722]]
B. Redesignating paragraph (b)(3) introductory text as paragraph
(b)(3)(i) and revising it.
C. Adding new paragraph (b)(3)(ii).
D. Revising paragraph (b)(9).
E. Adding paragraph (b)(11).
F. Revising paragraph (c)(1).
G. Revising paragraph (d)(2).
H. Revising paragraph (e).
I. Removing paragraph (f)(4).
J. Removing paragraph (f)(6).
K. Redesignating paragraph (f)(5) as paragraph (f)(4).
L. Redesignating paragraph (f)(7) as paragraph (f)(5).
M. Redesignating paragraph (f)(8) as paragraph (f)(6).
N. Redesignating paragraph (f)(9) as paragraph (f)(7).
O. Redesignating paragraph (f)(10) as paragraph (f)(8).
P. Redesignating paragraph (f)(11) as paragraph (f)(9).
Q. Revising newly redesignated paragraph (f)(5)(iv).
R. Removing newly redesignated paragraph (f)(5)(v).
S. Redesignating paragraph (f)(5)(vi) as paragraph (f)(5)(v).
T. Redesignating paragraph (f)(5)(vii) as paragraph (f)(5)(vi).
U. Redesignating paragraph (f)(5)(viii) as paragraph (f)(5)(vii).
V. Revising newly redesignated paragraph (f)(9).
W. Adding new paragraph (f)(10).
X. Adding new paragraph (f)(11)
Y. Adding new paragraph (f)(12)
0
The revisions and addition read as follows:
Sec. 422.111 Disclosure requirements.
* * * * *
(b) * * *
(2) Benefits. The benefits offered under a plan, including
applicable conditions and limitations, premiums and cost-sharing (such
as copayments, deductibles, and coinsurance) and any other conditions
associated with receipt or use of benefits; and to the extent it offers
Part D as an MD-PD plan, the information in Sec. 423.128 of this
chapter; and for purposes of comparison-
* * * * *
(3) Access. (i) The number, mix, and distribution (addresses) of
providers from whom enrollees may reasonably be expected to obtain
services; any out-of network coverage; any point-of-service option,
including the supplemental premium for that option; and how the MA
organization meets the requirements of Sec. 422.112 and Sec. 422.114
for access to services offered under the plan.
(ii) The process MA regional plan enrollees should follow to secure
in-network cost sharing when covered services are not readily available
from contracted network providers.
* * * * *
(9) Quality improvement program. A description of the quality
improvement program required under Sec. 422.152.
* * * * *
(11) Catastrophic caps and single deductible. MA organizations
sponsoring MA regional plans are required to provide enrollees a
description of the catastrophic stop-loss coverage and single
deductible (if any) applicable under the plan.
(c) * * *
(1) The information required in paragraph (f) of this section.
* * * * *
(d) * * *
(2) For changes that take effect on January 1, notify all enrollees
at least 15 days before the beginning of the Annual Coordinated
Election Period defined in section 1851(e)(3)(B) of the Act.
* * * * *
(e) Changes to provider network. The MA organization must make a
good faith effort to provide written notice of a termination of a
contracted provider at least 30 calendar days before the termination
effective date to all enrollees who are patients seen on a regular
basis by the provider whose contract is terminating, irrespective of
whether the termination was for cause or without cause. When a contract
termination involves a primary care professional, all enrollees who are
patients of that primary care professional must be notified.
(f) * * *
(5) * * *
(iv) In the case of an MA MSA plan, the amount of the annual MSA
deposit.
* * * * *
(9) Supplemental benefits. Whether the plan offers mandatory and
optional supplemental benefits, including any reductions in cost
sharing offered as a mandatory supplemental benefit as permitted under
section 1852(a)(3) of the Act (and implementing regulations at Sec.
422.102) and the terms, conditions, and premiums for those benefits.
(10) The names, addresses, and phone numbers of contracted
providers from whom the enrollee may obtain in-network coverage in
other parts of the service area.
(11) If an MA organization exercises the option in Sec.
422.101(b)(3) or (b)(4) related to an MA plan, then it must make the
local coverage determination that applies to members of that plan
readily available to providers, including through a web site on the
Internet.
(12) To the extent an MA organization has a web site or provides MA
plan information through the Internet, then it must also post copies of
its Evidence of Coverage, Summary of Benefits and information (names,
addresses, phone numbers, specialty) on the network of contracted
providers on an Internet web site. Such posting does not relieve the MA
organization of its responsibility under Sec. 422.111(a) to provide
hard copies to enrollees.
Sec. 422.112 [Amended]
0
35. Amend Sec. 422.112 by-
A. Revising the heading of paragraph (a) and paragraph (a)
introductory text.
B. Revising paragraph (a)(1).
C. Removing paragraph (a)(4).
D. Redesignating paragraph (a)(5) as paragraph (a)(4).
E. Redesignating paragraph (a)(6) as paragraph (a)(5).
F. Redesignating paragraph (a)(7) as paragraph (a)(6).
G. Redesignating paragraph (a)(8) as paragraph (a)(7).
H. Redesignating paragraph (a)(9) as paragraph (a)(8).
I. Redesignating paragraph (a)(10) as paragraph (a)(9).
J. Revising the heading of paragraph (b) and paragraph (b)
introductory text.
K. Adding paragraph (c).
0
The revisions and addition read as follows:
Sec. 422.112 Access to services.
(a) Rules for coordinated care plans. An MA organization that
offers an MA coordinated care plan may specify the networks of
providers from whom enrollees may obtain services if the MA
organization ensures that all covered services, including supplemental
services contracted for by (or on behalf of) the Medicare enrollee, are
available and accessible under the plan. To accomplish this, the MA
organization must meet the following requirements:
(1) Provider network. (i) Maintain and monitor a network of
appropriate providers that is supported by written agreements and is
sufficient to provide adequate access to covered services to meet the
needs of the population served. These providers are typically used in
the network as primary care providers (PCPs), specialists, hospitals,
skilled nursing facilities, home health agencies, ambulatory clinics,
and other providers.
(ii) Exception: MA regional plans, upon CMS pre-approval, can use
methods other than written agreements to establish that access
requirements are met.
* * * * *
(b) Continuity of care. MA organizations offering coordinated care
plans must ensure continuity of care and integration of services
through
[[Page 4723]]
arrangements with contracted providers that include-
* * * * *
(c) Essential hospital. An MA regional plan may seek, upon
application to CMS, to designate a noncontracting hospital as an
essential hospital as defined in section 1858(h) of the Act under the
following conditions:
(1) The hospital that the MA regional plan seeks to designate as
essential is a general acute care hospital identified as a
``subsection(d)'' hospital as defined in section 1886(d)(1)(B) of the
Act.
(2) The MA regional plan provides convincing evidence to CMS that
the MA regional plan needs to contract with the hospital as a condition
of meeting access requirements under this section.
(3) The MA regional plan must establish that it made a ``good
faith'' effort to contract with the hospital to be designated as an
essential hospital and that the hospital refused to contract with it
despite its ``good faith'' effort. A ``good faith'' effort to contract
will be established to the extent that the MA regional plan can show it
has offered the hospital a contract providing for the payment of rates
in an amount no less than the amount the hospital would have received
had payment been made under section 1886(d) of the Act.
(4) The MA regional plan must establish that there are no competing
Medicare participating hospitals in the area to which MA regional plan
enrollees could reasonably be referred for inpatient hospital services.
(5) The hospital that is to be designated as an essential hospital
provides convincing evidence to CMS that the amounts normally payable
under section 1886 of the Act (and which the MA regional plan has
agreed to pay) will be less than the hospital's actual costs of
providing care to the MA regional plan's enrollee.
(6) If CMS determines the requirements in paragraphs (c)(1) through
(c)(5) of this section have been met, it will make payment to the
essential hospital in accordance with section 1858(h)(2) of the Act
based on the order in which claims are received, as limited by the
amounts specified in section 1858(h)(3) of the Act.
(7) If CMS determines the requirements in paragraphs (c)(1) through
(c)(4) of this section have been met, (and if they continue to be met
upon annual renewal of the CMS contract with the MA organization
offering the MA regional plan), then the hospital designated by the MA
regional plan in paragraph (c)(1) of this section shall be ``deemed''
to be a network hospital to that MA regional plan based on the
exception in paragraph (a)(1)(ii) of this section and normal in-network
inpatient hospital cost sharing levels (including the catastrophic
limit described in Sec. 422.101(d)(2)) shall apply to all plan members
accessing covered inpatient hospital services in that hospital.
0
36. Amend Sec. 422.113 by-
A. Revising paragraph (b)(2)(v).
B. Revising paragraph (c)(2)(iv).
0
The revisions read as follows:
Sec. 422.113 Special rules for ambulance services, emergency and
urgently needed services, and maintenance and post-stabilization care
services.
* * * * *
(b) * * *
(2) * * *
(v) With a limit on charges to enrollees for emergency department
services of $50 or what it would charge the enrollee if he or she
obtained the services through the MA organization, whichever is less.
* * * * *
(c) * * *
(2) * * *
(iv) Must limit charges to enrollees for post-stabilization care
services to an amount no greater than what the organization would
charge the enrollee if he or she had obtained the services through the
MA organization. For purposes of cost sharing, post-stabilization care
services begin upon inpatient admission.
* * * * *
0
37. Amend Sec. 422.114 by--
A. Revising the section heading to read as set forth below.
B. Adding paragraph (c) to read as follows:
Sec. 422.114 Access to services under an MA private fee-for-service
plan.
* * * * *
(c) Contracted network. Private fee-for-service plans that meet
network adequacy requirements for a category of health care
professional or provider by meeting the requirements in paragraph
(a)(2)(ii) of this section may provide for a higher beneficiary
copayment in the case of health care professionals or providers of that
same category who do not have contracts or agreements to provide
covered services under the terms of the plan.
0
38. Amend Sec. 422.133 by adding paragraph (b)(4) to read as follows:
Sec. 422.133 Return to home skilled nursing facility.
* * * * *
(b) * * *
(4) If an MA organization elects to furnish SNF care in the absence
of a prior qualifying hospital stay under Sec. 422.101(c), then that
SNF care is also subject to the home skilled nursing facility rules in
this section. In applying the provisions of this section to coverage
under this paragraph, references to a hospitalization, or discharge
from a hospital, are deemed to refer to wherever the enrollee resides
immediately before admission for extended care services.
* * * * *
Subpart D--Quality Improvement
0
39. In subpart D, remove ``quality assurance'' wherever it appears and
add in its place ``quality improvement.''
0
40. Revise Sec. 422.152 to read as follows:
Sec. 422.152 Quality improvement program.
(a) General rule. Each MA organization (other than MA private-fee-
for-service and MSA plans) that offers one or more MA plans must have,
for each of those plans, an ongoing quality improvement program that
meets the applicable requirements of this section for the services it
furnishes to its MA enrollees. As part of its ongoing quality
improvement program, a plan must--
(1) Have a chronic care improvement program that meets the
requirements of paragraph (c) of this section concerning elements of a
chronic care program;
(2) Conduct quality improvement projects that can be expected to
have a favorable effect on health outcomes and enrollee satisfaction,
and meet the requirements of paragraph (d) of this section; and
(3) Encourage its providers to participate in CMS and HHS quality
improvement initiatives.
(b) Requirements for MA coordinated care plans (except for regional
MA plans) and including local PPO plans that are offered by
organizations that are licensed or organized under State law as HMOs.
An MA coordinated care plan's (except for regional PPO plans and local
PPO plans as defined in paragraph (e) of this section) quality
improvement program must--
(1) In processing requests for initial or continued authorization
of services, follow written policies and procedures that reflect
current standards of medical practice.
(2) Have in effect mechanisms to detect both underutilization and
overutilization of services.
(3) Measure and report performance. The organization offering the
plan must do the following:
(i) Measure performance under the plan, using the measurement tools
required by CMS, and report its performance to CMS. The standard
[[Page 4724]]
measures may be specified in uniform data collection and reporting
instruments required by CMS.
(ii) Make available to CMS information on quality and outcomes
measures that will enable beneficiaries to compare health coverage
options and select among them, as provided in Sec. 422.64(c)(10).
(4) Special rule for MA local PPO-type plans that are offered by an
organization that is licensed or organized under State law as a health
maintenance organization must meet the requirements specified in
paragraphs (b)(1) through (b)(3) of this section.
(c) Chronic care improvement program requirements. Develop criteria
for a chronic care improvement program. These criteria must include--
(1) Methods for identifying MA enrollees with multiple or
sufficiently severe chronic conditions that would benefit from
participating in a chronic care improvement program; and
(2) Mechanisms for monitoring MA enrollees that are participating
in the chronic care improvement program.
(d) Quality improvement projects. (1) Quality improvement projects
are an organization's initiatives that focus on specified clinical and
nonclinical areas and that involve the following:
(i) Measurement of performance.
(ii) System interventions, including the establishment or
alteration of practice guidelines.
(iii) Improving performance.
(iv) Systematic and periodic follow-up on the effect of the
interventions.
(2) For each project, the organization must assess performance
under the plan using quality indicators that are--
(i) Objective, clearly and unambiguously defined, and based on
current clinical knowledge or health services research; and
(ii) Capable of measuring outcomes such as changes in health
status, functional status and enrollee satisfaction, or valid proxies
of those outcomes.
(3) Performance assessment on the selected indicators must be based
on systematic ongoing collection and analysis of valid and reliable
data.
(4) Interventions must achieve demonstrable improvement.
(5) The organization must report the status and results of each
project to CMS as requested.
(e) Requirements for MA regional plans and MA local plans that are
PPO plans as defined in this section--(1) Definition of local preferred
provider organization plan. For purposes of this section, the term
local preferred provider organization (PPO) plan means an MA plan
that--
(i) Has a network of providers that have agreed to a contractually
specified reimbursement for covered benefits with the organization
offering the plan;
(ii) Provides for reimbursement for all covered benefits regardless
of whether the benefits are provided within the network of providers;
and
(iii) Is offered by an organization that is not licensed or
organized under State law as a health maintenance organization.
(2) MA organizations offering an MA regional plan or local PPO plan
as defined in this section must:
(i) Measure performance under the plan using standard measures
required by CMS and report its performance to CMS. The standard
measures may be specified in uniform data collection and reporting
instruments required by CMS.
(ii) Evaluate the continuity and coordination of care furnished to
enrollees.
(iii) If the organization uses written protocols for utilization
review, the organization must--
(A) Base those protocols on current standards of medical practice;
and
(B) Have mechanisms to evaluate utilization of services and to
inform enrollees and providers of services of the results of the
evaluation.
(f) Requirements for all types of plans--(1) Health information.
For all types of plans that it offers, an organization must--
(i) Maintain a health information system that collects, analyzes,
and integrates the data necessary to implement its quality improvement
program;
(ii) Ensure that the information it receives from providers of
services is reliable and complete; and
(iii) Make all collected information available to CMS.
(2) Program review. For each plan, there must be in effect a
process for formal evaluation, at least annually, of the impact and
effectiveness of its quality improvement program.
(3) Remedial action. For each plan, the organization must correct
all problems that come to its attention through internal surveillance,
complaints, or other mechanisms.
Sec. 422.154 [Removed]
0
41. Remove Sec. 422.154.
0
42. Amend Sec. 422.156 by-
A. Revising paragraph (b)(1).
B. Adding paragraph (b)(7).
0
The revision and addition read as follows:
Sec. 422.156 Compliance deemed on the basis of accreditation.
* * * * *
(b) * * *
(1) Quality improvement.
* * * * *
(7) Part D prescription drug benefit programs that are offered by
MA programs.
* * * * *
Subpart E--Relationships With Providers
Sec. 422.202 [Amended]
0
43. In Sec. 422.202, amend paragraph (b) introductory text by removing
``quality assurance'' and adding ``quality improvement'' in its place.
Sec. 422.204 [Amended]
0
44. In Sec. 422.204, amend paragraph (b)(2)(ii) by removing ``quality
assurance'' and adding ``quality improvement'' in its place.
0
45. In Sec. 422.208, the following changes are made:
A. Paragraph (c)(2) is revised.
B. Paragraph (h) is removed.
C. Paragraph (i) is redesignated as paragraph (h).
0
The revision reads as follows:
Sec. 422.208 Physician incentive plans: Requirements and
limitations.
* * * * *
(c) * * *
(2) If the physician incentive plan places a physician or physician
group at substantial financial risk (as determined under paragraph (d)
of this section) for services that the physician or physician group
does not furnish itself, the MA organization must assure that all
physicians and physician groups at substantial financial risk have
either aggregate or per-patient stop-loss protection in accordance with
paragraph (f) of this section and conduct periodic surveys in
accordance with paragraph (h) of this section.
* * * * *
0
46. Section 422.210 is revised to read as follows:
Sec. 422.210 Assurances to CMS.
Each organization will provide assurance satisfactory to the
Secretary that the requirements of Sec. 422.208 are met.
0
47. In 422.214, the following changes are made:
A. Paragraph (a)(1) is revised.
B. Paragraph (b) is revised.
0
The revisions read as follows:
Sec. 422.214 Special rules for services furnished by noncontract
providers.
(a) * * *
(1) Any provider (other than a provider of services as defined in
section 1861(u) of the Act) that does not
[[Page 4725]]
have in effect a contract establishing payment amounts for services
furnished to a beneficiary enrolled in an MA coordinated care plan, an
MSA plan, or an MA private fee-for-service plan must accept, as payment
in full, the amounts that the provider could collect if the beneficiary
were enrolled in original Medicare.
* * * * *
(b) Services furnished by section 1861(u) providers of service. Any
provider of services as defined in section 1861(u) of the Act that does
not have in effect a contract establishing payment amounts for services
furnished to a beneficiary enrolled in an MA coordinated care plan, an
MSA plan, or an MA private fee-for-service plan must accept, as payment
in full, the amounts (less any payments under Sec. 412.105(g) and
Sec. 413.86(d) of this chapter) that it could collect if the
beneficiary were enrolled in original Medicare. (Section 412.105(g)
concerns indirect medical education payment to hospitals for managed
care enrollees. Section 413.86(d) concerns calculating payment for
direct medical education costs.)
0
48--49. Subpart F is revised to read as follows:
Subpart F--Submission of Bids, Premiums, and Related Information and
Plan Approval
Secs.
422.250 Basis and scope.
422.252 Terminology.
422.254 Submission of bids.
422.256 Review, negotiation, and approval of bids.
422.258 Calculation of benchmarks.
422.262 Beneficiary premiums.
422.264 Calculation of savings.
422.266 Beneficiary rebates.
422.270 Incorrect collections of premiums and cost sharing.
Subpart F-Submission of Bids, Premiums, and Related Information and
Plan Approval
Sec. 422.250 Basis and scope.
This subpart is based largely on section 1854 of the Act, but also
includes provisions from section 1853 and section 1858 of the Act. It
sets forth the requirements for the Medicare Advantage bidding payment
methodology, including CMS' calculation of benchmarks, submission of
plan bids by Medicare Advantage (MA) organizations, establishment of
beneficiary premiums and rebates through comparison of plan bids and
benchmarks, and negotiation and approval of bids by CMS.
Sec. 422.252 Terminology.
Annual MA capitation rate means a county payment rate for an MA
local area (county) for a calendar year. The terms ``per capita rate''
and ``capitation rate'' are used interchangeably to refer to the annual
MA capitation rate.
MA local area means a payment area consisting of county or
equivalent area specified by CMS.
MA monthly basic beneficiary premium means the premium amount an MA
plan (except an MSA plan) charges an enrollee for benefits under the
original Medicare fee-for-service program option (if any), and is
calculated as described at Sec. 422.262.
MA monthly MSA premium means the amount of the plan premium for
coverage of benefits under the original Medicare program through an MSA
plan, as set forth at Sec. 422.254(e).
MA monthly prescription drug beneficiary premium is the MA-PD plan
base beneficiary premium, defined at section 1860D-13(a)(2) of the Act,
as adjusted to reflect the difference between the plan's bid and the
national average bid (as described in Sec. 422.256(c)) less the amount
of rebate the MA-PD plan elects to apply, as described at Sec.
422.266(b)(2).
MA monthly supplemental beneficiary premium is the portion of the
plan bid attributable to mandatory and/or optional supplemental health
care benefits described under Sec. 422.102, less the amount of
beneficiary rebate the plan elects to apply to a mandatory supplemental
benefit, as described at Sec. 422.266(b)(2)(i).
MA-PD plan means an MA local or regional plan that provides
prescription drug coverage under Part D of Title XVIII of the Social
Security Act.
Monthly aggregate bid amount means the total monthly plan bid
amount for coverage of an MA eligible beneficiary with a nationally
average risk profile for the factors described in Sec. 422.308(c), and
this amount is comprised of the following:
(1) The unadjusted MA statutory non-drug monthly bid amount for
coverage of original Medicare benefits;
(2) The amount for coverage of basic prescription drug benefits
under Part D (if any); and
(3) The amount for provision of supplemental health care benefits
(if any).
Plan basic cost sharing means cost sharing that would be charged by
a plan for benefits under the original Medicare FFS program option
before any reductions resulting from mandatory supplemental benefits.
Unadjusted MA area-specific non-drug monthly benchmark amount
means, for local MA plans serving one county, the county capitation
rate CMS publishes annually, and for local MA plans serving multiple
counties it is the weighted average of county rates in a plan's service
area, weighted by the plan's projected enrollment per county.
Unadjusted MA region-specific non-drug monthly benchmark amount
means, for MA regional plans, the amount described at Sec. 422.258(b).
Unadjusted MA statutory non-drug monthly bid amount means a plan's
estimate of its average monthly required revenue to provide coverage of
original Medicare benefits to an MA eligible beneficiary with a
nationally average risk profile for the risk factors CMS applies to
payment calculations as set forth at Sec. 422.308(c).
Sec. 422.254 Submission of bids.
(a) General rules. (1) Not later than the first Monday in June,
each MA organization must submit to CMS an aggregate monthly bid amount
for each MA plan (other than an MSA plan) the organization intends to
offer in the upcoming year in the service area (or segment of such an
area if permitted under Sec. 422.262(c)(2)) that meets the
requirements in paragraph (b) of this section. With each bid submitted,
the MA organization must provide the information required in paragraph
(c) of this section and, for plans with rebates as described at Sec.
422.266(a), the MA organization must provide the information required
in paragraph (d) of this section.
(2) CMS has the authority to determine whether and when it is
appropriate to apply the bidding methodology described in this section
to ESRD MA enrollees.
(3) If the bid submission described in paragraphs (a)(1) and (2) of
this section is not complete, timely, or accurate, CMS has the
authority to impose sanctions under subpart O of this part or may
choose not to renew the contract.
(b) Bid requirements. (1) The monthly aggregate bid amount
submitted by an MA organization for each plan is the organization's
estimate of the revenue required for the following categories for
providing coverage to an MA eligible beneficiary with a national
average risk profile for the factors described in Sec. 422.308(c):
(i) The statutory non-drug bid amount, which is the MA plan's
estimated average monthly required revenue for providing benefits under
the original Medicare fee-for-service program option (as defined in
Sec. 422.252).
(ii) The amount to provide basic prescription drug coverage, if any
(defined at section 1860D-2(a)(3) of the Act).
[[Page 4726]]
(iii) The amount to provide supplemental health care benefits, if
any.
(2) Each bid is for a uniform benefit package for the service area.
(3) Each bid submission must contain all estimated revenue required
by the plan, including administrative costs and return on investment.
(4) The bid amount is for plan payments only but must be based on
plan assumptions about the amount of revenue required from enrollee
cost-sharing. The estimate of plan cost-sharing for the unadjusted MA
statutory non-drug monthly bid amount for coverage of original Medicare
benefits must reflect the requirement that the level of cost sharing MA
plans charge to enrollees must be actuarially equivalent to the level
of cost sharing (deductible, copayments, or coinsurance) charged to
beneficiaries under the original Medicare program option. The
actuarially equivalent level of cost sharing reflected in a regional
plan's unadjusted MA statutory non-drug monthly bid amount does not
include cost sharing for out-of-network Medicare benefits, as described
at Sec. 422.101(d).
(c) Information required for coordinated care plans and MA private
fee-for-service plans. MA organizations' submission of bids for
coordinated care plans, including regional MA plans and specialized MA
plans for special needs beneficiaries (described at Sec.
422.4(a)(1)(iv)), and for MA private fee-for-service plans must include
the following information:
(1) The plan type for each plan.
(2) The monthly aggregate bid amount for the provision of all items
and services under the plan, as defined in Sec. 422.252 and discussed
in paragraph (a) of this section.
(3) The proportions of the bid amount attributable to-
(i) The provision of benefits under the original Medicare fee-for-
service program option (as defined at Sec. 422.100(c));
(ii) The provision of basic prescription drug coverage (as defined
at section 1860D-2(a)(3) of the Act; and
(iii) The provision of supplemental health care benefits (as
defined Sec. 422.102).
(4) The projected number of enrollees in each MA local area used in
calculation of the bid amount, and the enrollment capacity, if any, for
the plan.
(5) The actuarial basis for determining the amount under paragraph
(c)(2) of this section, the proportions under paragraph (c)(3) of this
section, the amount under paragraph (b)(4) of this section, and
additional information as CMS may require to verify actuarial bases and
the projected number of enrollees.
(6) A description of deductibles, coinsurance, and copayments
applicable under the plan and the actuarial value of the deductibles,
coinsurance, and copayments.
(7) For qualified prescription drug coverage, the information
required under section 1860D-11(b) of the Act with respect to coverage.
(8) For the purposes of calculation of risk corridors under Sec.
422.458, MA organizations offering regional MA plans in 2006 and/or
2007 must submit the following information developed using the
appropriate actuarial bases.
(i) Projected allowable costs (defined in Sec. 422.458(a)).
(ii) The portion of projected allowable costs attributable to
administrative expenses incurred in providing these benefits.
(iii) The total projected costs for providing rebatable integrated
benefits (as defined in Sec. 422.458(a)) and the portion of costs that
is attributable to administrative expenses.
(9) For regional plans, as determined by CMS, the relative cost
factors for the counties in a plan's service area, for the purposes of
adjusting payment under Sec. 422.308(d) for intra-area variations in
an MA organization's local payment rates.
(d) Beneficiary rebate information. In the case of a plan required
to provide a monthly rebate under Sec. 422.266 for a year, the MA
organization offering the plan must inform CMS how the plan will
distribute the beneficiary rebate among the options described at Sec.
422.266(b).
(e) Information required for MSA plans. MA organizations intending
to offer MA MSA plans must submit--
(1) The enrollment capacity (if any) for the plan;
(2) The amount of the MSA monthly premium for basic benefits under
the original Medicare fee-for-service program option;
(3) The amount of the plan deductible; and
(4) The amount of the beneficiary supplemental premium, if any.
(f) Separate bids must be submitted for Part A and Part B enrollees
and Part B-only enrollees for each MA plan offered.
Sec. 422.256 Review, negotiation, and approval of bids.
(a) Authority. Subject to paragraphs (a)(2), (d), and (e) of this
section, CMS has the authority to review the aggregate bid amounts
submitted under Sec. 422.252 and conduct negotiations with MA
organizations regarding these bids (including the supplemental
benefits) and the proportions of the aggregate bid attributable to
basic benefits, supplemental benefits, and prescription drug benefits.
(1) When negotiating bid amounts and proportions, CMS has authority
similar to that provided the Director of the Office of Personnel
Management for negotiating health benefits plans under 5 U.S.C. chapter
89.
(2) Noninterference. (i) In carrying out Parts C and D under this
title, CMS may not require any MA organization to contract with a
particular hospital, physician, or other entity or individual to
furnish items and services.
(ii) CMS may not require a particular price structure for payment
under such a contract, with the exception of payments to Federally
qualified health centers as set forth at Sec. 422.316.
(b) Standards of bid review. Subject to paragraphs (d) and (e) of
this section, CMS can only accept bid amounts or proportions described
in paragraph (a) of this section if CMS determines the following
standards have been met:
(1) The bid amount and proportions are supported by the actuarial
bases provided by MA organizations under Sec. 422.254.
(2) The bid amount and proportions reasonably and equitably
reflects the plan's estimated revenue requirements for providing the
benefits under that plan, as the term revenue requirements is used for
purposes of section 1302(8) of the Public Health Service Act.
(3) Limitation on enrollee cost sharing. For coordinated care plans
(including regional MA plans and specialized MA plans) and private fee-
for-service plans (other than MSA plans):
(i) The actuarial value of plan basic cost sharing, reduced by any
supplemental benefits, may not exceed--
(ii) The actuarial value of deductibles, coinsurance, and
copayments that would be applicable for the benefits to individuals
entitled to benefits under Part A and enrolled under Part B in the
plan's service area with a national average risk profile for the
factors described in Sec. 422.308(c) if they were not members of an MA
organization for the year, except that cost sharing for non-network
Medicare services in a regional MA plan is not counted under the amount
described in paragraph (b)(2)(i) of this section.
(c) Negotiation process. The negotiation process may include the
resubmission of information to allow MA organizations to modify their
initial bid submissions to account for the
[[Page 4727]]
outcome of CMS' regional benchmark calculations required under Sec.
422.258(b) and the outcome of CMS' calculation of the national average
monthly bid amount required under section 1860D-13(a)(4) of the Act.
(d) Exception for private fee-for-service plans. For private fee-
for-service plans defined at Sec. 422.4(a)(3), CMS will not review,
negotiate, or approve the bid amount, proportions of the bid, or the
amounts of the basic beneficiary premium and supplemental premium.
(e) Exception for MSA plans. CMS does not review, negotiate, or
approve amounts submitted with respect to MA MSA plans, except to
determine that the deductible does not exceed the statutory maximum,
defined at Sec. 422.103(d).
Sec. 422.258 Calculation of benchmarks.
(a) The term ``MA area-specific non-drug monthly benchmark amount''
means, for a month in a year:
(1) For MA local plans with service areas entirely within a single
MA local area, 1/12th of the annual MA capitation rate (described at
Sec. 422.306) for the area, adjusted as appropriate for the purpose of
risk adjustment.
(2) For MA local plans with service areas including more than one
MA local area, an amount equal to the weighted average of annual
capitation rates for each local area (county) in the plan's service
area, using as weights the projected number of enrollees in each MA
local area that the plan used to calculate the bid amount, and adjusted
as appropriate for the purpose of risk adjustment.
(b) For MA regional plans, the term ``MA region-specific non-drug
monthly benchmark amount'' is:
(1) The sum of two components: the statutory component (based on a
weighted average of local benchmarks in the region, as described in
paragraph (c)(3) of this section; and the plan bid component (based on
a weighted average of regional plan bids in the region as described in
paragraph (c)(4) of this section).
(2) Announced before November 15 of each year, but after CMS has
received the plan bids.
(c) Calculation of MA regional non-drug benchmark amount. CMS
calculates the monthly regional non-drug benchmark amount for each MA
region as follows:
(1) Reference month. For all calculations that follow, CMS will
determine the number of MA eligible individuals in each local area, in
each region, and nationally as of the reference month, which is a month
in the previous calendar year CMS identifies.
(2) Statutory market share. CMS will determine the statutory
national market share percentage as the proportion of the MA eligible
individuals nationally who were not enrolled in an MA plan.
(3) Statutory component of the region-specific benchmark. (i) CMS
calculates the unadjusted region-specific non-drug amount by
multiplying the county capitation rate by the county's share of the MA
eligible individuals residing in the region (the number of MA eligible
individuals in the county divided by the number of MA eligible
individuals in the region), and then adding all the enrollment-weighted
county rates to a sum for the region.
(ii) CMS then multiplies the unadjusted region-specific non-drug
amount from paragraph (c)(3)(i) of this section by the statutory market
share to determine the statutory component of the regional benchmark.
(4) Plan-bid component of the region-specific benchmark. For each
regional plan offered in a region, CMS will multiply the plan's
unadjusted region-specific non-drug bid amount by the plan's share of
enrollment (as determined under paragraph (c)(5) of this section) and
then sum these products across all plans offered in the region. CMS
then multiples this by 1 minus the statutory market share to determine
the plan-bid component of the regional benchmark.
(5) Plan's share of enrollment. CMS will calculate the plan's share
of MA enrollment in the region as follows:
(i) In the first year that any MA regional plan is being offered in
an MA region, and more than one MA regional plan is being offered, CMS
will determine each regional plan's share of enrollment based on one of
two possible approaches. CMS may base this factor on equal division
among plans, so that each plan's share will be 1 divided by the number
of plans offered. Alternatively, CMS may base this factor on each
regional plan's estimate of projected enrollment. Plan enrollment
projections are subject to review and adjustment by CMS to assure
reasonableness.
(ii) If two or more regional plans are offered in a region and were
offered in the reference month: The plan's share of enrollment will be
the number of MA eligible individuals enrolled in the plan divided by
the number of MA eligible individuals enrolled in all of the plans in
the region, as of the reference month.
(iii) If a single regional plan is being offered in the region: The
plan's share of enrollment is equal to 1.
Sec. 422.262 Beneficiary premiums.
(a) Determination of MA monthly basic beneficiary premium. (1) For
an MA plan with an unadjusted statutory non-drug bid amount that is
less than the relevant unadjusted non-drug benchmark amount, the basic
beneficiary premium is zero.
(2) For an MA plan with an unadjusted statutory non-drug bid amount
that is equal to or greater than the relevant unadjusted non-drug
benchmark amount, the basic beneficiary premium is the amount by which
(if any) the bid amount exceeds the benchmark amount. All approved
basic premiums must be charged; they cannot be waived.
(b) Consolidated monthly premiums. Except as specified in paragraph
(b)(2) of this section, MA organizations must charge enrollees a
consolidated monthly MA premium.
(1) The consolidated monthly premium for an MA plan (other than a
MSA plan) is the sum of the MA monthly basic beneficiary premium (if
any), the MA monthly supplementary beneficiary premium (if any), and
the MA monthly prescription drug beneficiary premium (if any).
(2) Special rule for MSA plans. For an individual enrolled in an
MSA plan offered by an MA organization, the monthly beneficiary premium
is the supplemental premium (if any).
(c) Uniformity of premiums--(1) General rule. Except as permitted
for supplemental premiums pursuant to Sec. 422.106(d), for MA
contracts with employers and labor organizations, the MA monthly bid
amount submitted under Sec. 422.254, the MA monthly basic beneficiary
premium, the MA monthly supplemental beneficiary premium, the MA
monthly prescription drug premium, and the monthly MSA premium of an MA
organization may not vary among individuals enrolled in an MA plan (or
segment of the plan as provided for local MA plans under paragraph
(c)(2) of this section). In addition, the MA organization cannot vary
the level of cost-sharing charged for basic benefits or supplemental
benefits (if any) among individuals enrolled in an MA plan (or segment
of the plan).
(2) Segmented service area option. An MA organization may apply the
uniformity requirements in paragraph (c)(1) of this section to segments
of an MA local plan service area (rather than to the entire service
area) as long as such a segment is composed of one or more MA payment
areas. The information specified under Sec. 422.254 is submitted
separately for each segment. This provision does not apply to MA
regional plans.
[[Page 4728]]
(d) Monetary inducement prohibited. An MA organization may not
provide for cash or other monetary rebates as an inducement for
enrollment or for any other reason or purpose.
(e) Timing of payments. The MA organization must permit payments of
MA monthly basic and supplemental beneficiary premiums and monthly
prescription drug beneficiary premiums on a monthly basis and may not
terminate coverage for failure to make timely payments except as
provided in Sec. 422.74(b).
(f) Beneficiary payment options. An MA organization must permit
each enrollee, at the enrollee's option, to make payment of premiums
(if any) under this part to the organization through-
(1) Withholding from the enrollee's Social Security benefit
payments, or benefit payments by the Railroad Retirement Board or the
Office of Personnel Management, in the manner that the Part B premium
is withheld;
(2) An electronic funds transfer mechanism (such as automatic
charges of an account at a financial institution or a credit or debit
card account);
(3) According to other means that CMS may specify, including
payment by an employer or under employment-based retiree health
coverage on behalf of an employee, former employee (or dependent), or
by other third parties such as a State.
(i) Regarding the option in paragraph (f)(1) of this section, MA
organizations may not impose a charge on beneficiaries for the election
of this option.
(ii) An enrollee may opt to make a direct payment of premium to the
plan.
Sec. 422.264 Calculation of savings.
(a) Computation of risk adjusted bids and benchmarks.
(1) The risk adjusted MA statutory non-drug monthly bid amount is
the unadjusted plan bid amount for coverage of original Medicare
benefits (defined at Sec. 422.254), adjusted using the factors
described in paragraph (c) of this section for local plans and
paragraph (e) of this section for regional plans.
(2) The risk adjusted MA area-specific non-drug monthly benchmark
amount is the unadjusted benchmark amount for coverage of original
Medicare benefits by a local MA plan (defined at Sec. 422.258),
adjusted using the factors described in paragraph (c) of this section.
(3) The risk adjusted MA region-specific non-drug monthly benchmark
amount is the unadjusted benchmark for coverage of original Medicare
benefits amount by a regional MA plan (defined at Sec. 422.258)
adjusted using the factors described in paragraph (e) of this section.
(b) Computation of savings for MA local plans. The average per
capita monthly savings for an MA local plan is 100 percent of the
difference between the plan's risk-adjusted statutory non-drug monthly
bid amount (described in paragraph (a)(1) of this section) and the
plan's risk-adjusted area-specific non-drug monthly benchmark amount
(described in paragraph (a)(2) of this section). Plans with bids equal
to or greater than plan benchmarks will have zero savings.
(c) Risk adjustment factors for determination of savings for local
plans. CMS will publish the first Monday in April before the upcoming
calendar year the risk adjustment factors described in paragraph (c)(1)
or (c)(2) of this section determined for the purpose of calculating
savings amounts for MA local plans.
(1) For the purpose of calculating savings for MA local plans CMS
has the authority to apply risk adjustment factors that are plan-
specific average risk adjustment factors, Statewide average risk
adjustment factors, or factors determined on a basis other than plan-
specific factors or Statewide average factors.
(2) In the event that CMS applies Statewide average risk adjustment
factors, the statewide factor for each State is the average of the risk
factors calculated under Sec. 422.308(c), based on all enrollees in MA
local plans in that State in the previous year. In the case of a State
in which no local MA plan was offered in the previous year, CMS will
estimate an average and may base this average on average risk
adjustment factors applied to comparable States or applied on a
national basis.
(d) Computation of savings for MA regional plans. The average per
capita monthly savings for an MA regional plan and year is 100 percent
of the difference between the plan's risk-adjusted statutory non-drug
monthly bid amount (described in paragraph (a)(1) of this section) and
the plan's risk-adjusted region-specific non-drug monthly benchmark
amount (described in paragraph (a)(3) of this section), using the risk
adjustment factors described in paragraph (e) of this section. Plans
with bids equal to or greater than plan benchmarks will have zero
savings.
(e) Risk adjustment factors for determination of savings for
regional plans. CMS will publish the first Monday in April before the
upcoming calendar year the risk adjustment factors described in
paragraph (e)(1)and (e)(2) of this section determined for the purpose
of calculating savings amounts for MA regional plans.
(1) For the purpose of calculating savings for MA regional plans,
CMS has the authority to apply risk adjustment factors that are plan-
specific average risk adjustment factors, Region-wide average risk
adjustment factors, or factors determined on a basis other than MA
regions.
(2) In the event that CMS applies region-wide average risk
adjustment factors, the region-wide factor for each MA region is the
average of the risk factors calculated under Sec. 422.308(c), based on
all enrollees in MA regional plans in that region in the previous year.
In the case of a region in which no regional plan was offered in the
previous year, CMS will estimate an average and may base this average
on average risk adjustment factors applied to comparable regions or
applied on a national basis.
Sec. 422.266 Beneficiary rebates.
(a) General rule. An MA organization must provide to the enrollee a
monthly rebate equal to 75 percent of the average per capita savings
(if any) described in Sec. 422.264(b) for MA local plans and Sec.
422.264(d) for MA regional plans.
(b) Form of rebate. The rebate required under this paragraph must
be provided by crediting the rebate amount to one or more of the
following:
(1) Supplemental health care benefits. MA organizations may apply
all or some portion of the rebate for a plan toward payment for non-
drug supplemental health care benefits for enrollees as described in
Sec. 422.102, which may include the reduction of cost sharing for
benefits under original Medicare and additional health care benefits
that are not benefits under original Medicare. MA organizations also
may apply all or some portion of the rebate for a plan toward payment
for supplemental drug coverage described at Sec. 423.104(f)(1)(ii),
which may include reduction in cost sharing and coverage of drugs not
covered under Part D. The rebate, or portion of rebate, applied toward
supplemental benefits may only be applied to a mandatory supplemental
benefit, and cannot be used to fund an optional supplemental benefit.
(2) Payment of premium for prescription drug coverage. MA
organizations that offer a prescription drug benefit may credit some or
all of the rebate toward reduction of the MA monthly prescription drug
beneficiary premium.
(3) Payment toward Part B premium. MA organizations may credit some
or all of the rebate toward reduction of the
[[Page 4729]]
Medicare Part B premium (determined without regard to the application
of subsections (b), (h), and (i) of section 1839 of the Act).
(c) Disclosure relating to rebates. MA organizations must disclose
to CMS information on the amount of the rebate provided, as required at
Sec. 422.254(d). MA organizations must distinguish, for each MA plan,
the amount of rebate applied to enhance original Medicare benefits from
the amount of rebate applied to enhance Part D benefits.
Sec. 422.270 Incorrect collections of premiums and cost-sharing.
(a) Definitions. As used in this section-
(1) Amounts incorrectly collected-
(i) Means amounts that-
(A) Exceed the limits approved under Sec. 422.262;
(B) In the case of an MA private fee-for-service plan, exceed the
MA monthly basic beneficiary premium or the MA monthly supplemental
premium submitted under Sec. 422.262; and
(C) In the case of an MA MSA plan, exceed the MA monthly
beneficiary supplemental premium submitted under Sec. 422.262, or
exceed permissible cost sharing amounts after the deductible has been
met per Sec. 422.103; and
(ii) Includes amounts collected from an enrollee who was believed
to be entitled to Medicare benefits but was later found not to be
entitled.
(2) Other amounts due are amounts due for services that were--
(i) Emergency, urgently needed services, or other services obtained
outside the MA plan; or
(ii) Initially denied but, upon appeal, found to be services the
enrollee was entitled to have furnished by the MA organization.
(b) Basic commitments. An MA organization must agree to refund all
amounts incorrectly collected from its Medicare enrollees, or from
others on behalf of the enrollees, and to pay any other amounts due the
enrollees or others on their behalf.
(c) Refund methods--(1) Lump-sum payment. The MA organization must
use lump-sum payments for the following:
(i) Amounts incorrectly collected that were not collected as
premiums.
(ii) Other amounts due.
(iii) All amounts due if the MA organization is going out of
business or terminating its MA contract for an MA plan(s).
(2) Premium adjustment or lump-sum payment, or both. If the amounts
incorrectly collected were in the form of premiums, or included
premiums as well as other charges, the MA organization may refund by
adjustment of future premiums or by a combination of premium adjustment
and lump-sum payments.
(3) Refund when enrollee has died or cannot be located. If an
enrollee has died or cannot be located after reasonable effort, the MA
organization must make the refund in accordance with State law.
(d) Reduction by CMS. If the MA organization does not make the
refund required under this section by the end of the contract period
following the contract period during which an amount was determined to
be due to an enrollee, CMS will reduce the premium the MA organization
is allowed to charge an MA plan enrollee by the amounts incorrectly
collected or otherwise due. In addition, the MA organization would be
subject to sanction under subpart O of this part for failure to refund
amounts incorrectly collected from MA plan enrollees.
0
50-51. Subpart G is revised to read as follows:
Subpart G--Payments to Medicare Advantage Organizations
Sec.
422.300 Basis and scope.
422.304 Monthly payments.
422.306 Annual MA capitation rates.
422.308 Adjustments to capitation rates, benchmarks, bids, and
payments.
422.310 Risk adjustment data.
422.311 Announcement of annual capitation rate, benchmarks, and
methodology changes.
422.314 Special rules for beneficiaries enrolled in MA MSA plans.
422.316 Special rules for payments to Federally qualified health
centers.
422.318 Special rules for coverage that begins or ends during an
inpatient hospital stay.
422.320 Special rules for hospice care.
422.322 Source of payment and effect of MA plan election on payment.
422.324 Payments to MA organizations for graduate medical education
costs.
Subpart G--Payments to Medicare Advantage Organizations
Sec. 422.300 Basis and scope.
This subpart is based on sections 1853, 1854, and 1858 of the Act.
It sets forth the rules for making payments to Medicare Advantage (MA)
organizations offering local and regional MA plans, including
calculation of MA capitation rates and benchmarks, conditions under
which payment is based on plan bids, adjustments to capitation rates
(including risk adjustment), and other payment rules.
See Sec. 422.458 in subpart J for rules on risk sharing payments
to MA regional organizations.
Sec. 422.304 Monthly payments.
(a) General rules. Except as provided in paragraph (b) of this
section, CMS makes advance monthly payments of the amounts determined
under paragraphs (a)(1) and (a)(2) of this section for coverage of
original fee-for-service benefits for an individual in an MA payment
area for a month.
(1) Payment of bid for plans with bids below benchmark. For MA
plans that have average per capita monthly savings (as described at
Sec. 422.264(b) for local plans and Sec. 422.264(d) for regional
plans), CMS pays:
(i) The unadjusted MA statutory non-drug monthly bid amount defined
in Sec. 422.252, risk-adjusted as described at Sec. 422.308(c) and
adjusted (if applicable) for variations in rates within the plan's
service area (described at Sec. 422.258(a)(2)) and for the effects of
risk adjustment on beneficiary premiums under Sec. 422.262; and
(ii) The amount (if any) of the rebate described in paragraph
(a)(3) of this section.
(2) Payment of benchmark for plans with bids at or above benchmark.
For MA plans that do not have average per capita monthly savings (as
described at Sec. 422.264(b) for local plans and Sec. 422.264(d) for
regional plans), CMS pays the unadjusted MA area-specific non-drug
monthly benchmark amount specified at Sec. 422.258, risk-adjusted as
described at Sec. 422.308(c) and adjusted (if applicable) for
variations in rates within the plan's service area (described at Sec.
422.258(a)(2)) and for the effects of risk adjustment on beneficiary
premiums under Sec. 422.262.
(3) Payment of rebate for plans with bids below benchmarks. The
rebate amount under paragraph (a)(1)(ii) of this section is the amount
of the monthly rebate computed under Sec. 422.266(a) for that plan,
less the amount (if any) applied to reduce the Part B premium, as
provided under Sec. 422.266(b)(3)).
(b) Separate payment for Federal drug subsidies. In the case of an
enrollee in an MA-PD plan, defined at Sec. 422.252, the MA
organization offering such a plan also receives-
(1) Direct and reinsurance subsidy payments for qualified
prescription drug coverage, described at section 1860D-15(a) and (b) of
the Act (other than payments for fallback prescription drug plans
described at section 1860D-11(g)(5) of the Act); and
(2) Reimbursement for premium and cost sharing reductions for low-
income individuals, described at section 1860D-14 of the Act.
(c) Special rules--(1) Enrollees with end-stage renal disease. (i)
For enrollees determined to have end-stage renal
[[Page 4730]]
disease (ESRD), CMS establishes special rates that are actuarially
equivalent to rates in effect before the enactment of the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003.
(ii) CMS publishes annual changes in these capitation rates no
later than the first Monday in April each year, as provided in Sec.
422.312.
(iii) CMS applies appropriate adjustments when establishing the
rates, including risk adjustment factors.
(iv) CMS reduces the payment rate for each renal dialysis treatment
by the same amount that CMS is authorized to reduce the amount of each
composite rate payment for each treatment as set forth in section
1881(b)(7) of the Act. These funds are to be used to help pay for the
ESRD network program in the same manner as similar reductions are used
in original Medicare.
(2) MSA enrollees. In the case of an MSA plan, CMS pays the
unadjusted MA area-specific non-drug monthly benchmark amount for the
service area, determined in accordance with Sec. 422.314(c) and
subject to risk adjustment as set forth at Sec. 422.308(c), less 1/12
of the annual lump sum amount (if any) CMS deposits to the enrollee's
MA MSA.
(3) RFB plan enrollees. For RFB plan enrollees, CMS adjusts the
capitation payments otherwise determined under this subpart to ensure
that the payment level is appropriate for the actuarial characteristics
and experience of these enrollees. That adjustment can be made on an
individual or organization basis.
(d) Payment areas--(1) General rule. Except as provided in
paragraph (e) of this section--
(i) An MA payment area for an MA local plan is an MA local area
defined at Sec. 422.252.
(ii) An MA payment area for an MA regional plan is an MA region,
defined at Sec. 422.455(b)(1).
(2) Special rule for ESRD enrollees. For ESRD enrollees, the MA
payment area is a State or other geographic area specified by CMS.
(e) Geographic adjustment of payment areas for MA local plans--(1)
Terminology. ``Metropolitan Statistical Area'' and ``Metropolitan
Division'' mean any areas so designated by the Office of Management and
Budget in the Executive Office of the President.
(2) State request. A State's chief executive may request, no later
than February 1 of any year, a geographic adjustment of the State's
payment areas for MA local plans for the following calendar year. The
chief executive may request any of the following adjustments to the
payment area specified in paragraph (c)(1)(i) of this section:
(i) A single statewide MA payment area.
(ii) A metropolitan-based system in which all non-metropolitan
areas within the State constitute a single payment area and any of the
following constitutes a separate MA payment area:
(A) All portions of each single Metropolitan Statistical Area
within the State.
(B) All portions of each Metropolitan Statistical Area within each
Metropolitan Division within the State.
(iii) A consolidation of noncontiguous counties.
(3) CMS response. In response to the request, CMS makes the payment
adjustment requested by the chief executive. This adjustment cannot be
requested or made for payments to regional MA plans.
(4) Budget neutrality adjustment for geographically adjusted
payment areas. If CMS adjusts a State's payment areas in accordance
with paragraph (d)(2) of this section, CMS at that time, and each year
thereafter, adjusts the capitation rates so that the aggregate Medicare
payments do not exceed the aggregate Medicare payments that would have
been made to all the State's payments areas, absent the geographic
adjustment.
Sec. 422.306 Annual MA capitation rates.
Subject to adjustments at Sec. 422.308(b) and Sec. 422.308(g),
the annual capitation rate for each MA local area is determined under
paragraph (a) of this section for 2005 and each succeeding year, except
for years when CMS announces under Sec. 422.312(b) that the annual
capitation rates will be determined under paragraph (b) of this
section.
(a) Minimum percentage increase rate. The annual capitation rate
for each MA local area is equal to the minimum percentage increase
rate, which is the greater of--
(1) 102 percent of the annual capitation rate for the preceding
year; or
(2) The annual capitation rate for the area for the preceding year
increased by the national per capita MA growth percentage (defined at
Sec. 422.308(a)) for the year, but not taking into account any
adjustment under Sec. 422.308(b) for a year before 2004.
(b) Greater of the minimum percentage increase rate or local area
fee-for-service costs. The annual capitation rate for each MA local
area is the greater of--
(1) The minimum percentage increase rate under paragraph (a) of
this section; or
(2) The amount determined, no less frequently than every 3 years,
to be the adjusted average per capita cost for the MA local area, as
determined under section 1876(a)(4) of the Act, based on 100 percent of
fee-for-service costs for individuals who are not enrolled in an MA
plan for the year, with the following adjustments:
(i) Adjusted as appropriate for the purpose of risk adjustment;
(ii) Adjusted to exclude costs attributable to payments under
section 1886(h) of the Act for the costs of direct graduate medical
education; and
(iii) Adjusted to include CMS' estimate of the amount of additional
per capita payments that would have been made in the MA local area if
individuals entitled to benefits under this title had not received
services from facilities of the Department of Defense or the Department
of Veterans Affairs.
Sec. 422.308 Adjustments to capitation rates, benchmarks, bids, and
payments.
CMS performs the following calculations and adjustments to
determine rates and payments:
(a) National per capita growth percentage. The national per capita
growth percentage for a year, applied under Sec. 422.306, is CMS'
estimate of the rate of growth in per capita expenditures under this
title for an individual entitled to benefits under Part A and enrolled
under Part B. CMS may make separate estimates for aged enrollees,
disabled enrollees, and enrollees who have ESRD.
(b) Adjustment for over or under projection of national per capita
growth percentages. CMS will adjust the minimum percentage increase
rate at Sec. 422.306(a)(2) and the adjusted average per capita cost
rate at Sec. 422.306(b)(2) for the previous year to reflect any
differences between the projected national per capita growth
percentages for that year and previous years, and the current estimates
of those percentages for those years. CMS will not make this adjustment
for years before 2004.
(c) Risk adjustment--(1) General rule. CMS will adjust the payment
amounts under Sec. 422.304(a)(1), (a)(2), and (a)(3) for age, gender,
disability status, institutional status, and other factors CMS
determines to be appropriate, including health status, in order to
ensure actuarial equivalence. CMS may add to, modify, or substitute for
risk adjustment factors if those changes will improve the determination
of actuarial equivalence.
(2) Risk adjustment: Health status--(i) Data collection. To adjust
for health status, CMS applies a risk factor based on data obtained in
accordance with Sec. 422.310.
[[Page 4731]]
(ii) Implementation. CMS applies a risk factor that incorporates
inpatient hospital and ambulatory risk adjustment data. This factor is
phased as follows:
(A) 100 percent of payments for ESRD MA enrollees in 2005 and
succeeding years.
(B) 75 percent of payments for aged and disabled enrollees in 2006.
(C) 100 percent of payments for aged and disabled enrollees in 2007
and succeeding years.
(3) Uniform application. Except as provided for MA RFB plans under
Sec. 422.304(c)(3), CMS applies this adjustment factor to all types of
plans.
(d) Adjustment for intra-area variations. CMS makes the following
adjustments to payments.
(1) Intra-regional variations. For payments for an MA regional plan
for an MA region, CMS will adjust the payment amount specified at Sec.
422.304(a)(1) and (a)(2) to take into account variations in local
payment rates among the different MA local areas included in the
region.
(2) Intra-service area variations. For payments to an MA local plan
with a service area covering more than one MA local area (county), CMS
will adjust the payment amount specified in Sec. 422.304(a)(1) and
(a)(2) to take into account variations in local payment rates among the
different MA local areas included in the plan's service area.
(e) Adjustment relating to risk adjustment: the government premium
adjustment. CMS will adjust payments to an MA plan as necessary to
ensure that the sum of CMS' monthly payment made under Sec. 422.304(a)
and the plan's monthly basic beneficiary premium equals the unadjusted
MA statutory non-drug bid amount, adjusted for risk and for intra-area
or intra-regional payment variation.
(f) Adjustment of payments to reflect number of Medicare
enrollees--(1) General rule. CMS adjusts payments retroactively to take
into account any difference between the actual number of Medicare
enrollees and the number on which it based an advance monthly payment.
(2) Special rules for certain enrollees. (i) Subject to paragraph
(f)(2)(ii) of this section, CMS may make adjustments, for a period (not
to exceed 90 days) that begins when a beneficiary elects a group health
plan (as defined in Sec. 411.1010) offered by an MA organization, and
ends when the beneficiary is enrolled in an MA plan offered by the MA
organization.
(ii) CMS does not make an adjustment unless the beneficiary
certifies that, at the time of enrollment under the MA plan, he or she
received from the organization the disclosure statement specified in
Sec. 422.111.
(g) Adjustment for national coverage determination (NCD) services
and legislative changes in benefits. If CMS determines that the cost of
furnishing an NCD service or legislative change in benefits is
significant, as defined in Sec. 422.109, CMS will adjust capitation
rates, or make other payment adjustments, to account for the cost of
the service or legislative change in benefits. Until the new capitation
rates are in effect, the MA organization will be paid for the
significant cost NCD service or legislative change in benefits on a
fee-for-service basis as provided under Sec. 422.109(b).
(h) Adjustments to payments to regional MA plans for purposes of
risk corridor payments. For the purpose of calculation of risk
corridors under Sec. 422.458, MA organizations offering regional MA
plans in 2006 and/or 2007 must submit, after the end of a contract year
and before a date CMS specifies, the following information:
(1) Actual allowable costs (defined in Sec. 422.458(a)) for the
previous contract year.
(2) The portion of the costs attributable to administrative
expenses incurred in providing these benefits.
(3) The total costs for providing rebatable integrated benefits (as
defined in Sec. 422.458(a)) and the portion of the costs that is
attributable to administrative expenses in addition to the
administrative expenses described in paragraph (h)(2) of this section.
Sec. 422.310 Risk adjustment data.
(a) Definition of risk adjustment data. Risk adjustment data are
all data that are used in the application of a risk adjustment payment
model.
(b) Data collection: Basic rule. Each MA organization must submit
to CMS (in accordance with CMS instructions) the data necessary to
characterize the context and purposes of each service provided to a
Medicare enrollee by a provider, supplier, physician, or other
practitioner. CMS may also collect data necessary to characterize the
functional limitations of enrollees of each MA organization.
(c) Sources and extent of data. (1) To the extent required by CMS,
risk adjustment data must account for the following:
(i) Services covered under the original Medicare program.
(ii) Medicare covered services for which Medicare is not the
primary payer.
(iii) Other additional or supplemental benefits that the MA
organization may provide.
(2) The data must account separately for each provider, supplier,
physician, or other practitioner that would be permitted to bill
separately under the original Medicare program, even if they
participate jointly in the same service.
(d) Other data requirements. (1) MA organizations must submit data
that conform to the requirements for equivalent data for Medicare fee-
for-service when appropriate, and to all relevant national standards.
Alternatively, MA organizations may submit data according to an
abbreviated format, as specified by CMS.
(2) The data must be submitted electronically to the appropriate
CMS contractor.
(3) MA organizations must obtain the risk adjustment data required
by CMS from the provider, supplier, physician, or other practitioner
that furnished the services.
(4) MA organizations may include in their contracts with providers,
suppliers, physicians, and other practitioners, provisions that require
submission of complete and accurate risk adjustment data as required by
CMS. These provisions may include financial penalties for failure to
submit complete data.
(e) Validation of risk adjustment data. MA organizations and their
providers and practitioners will be required to submit a sample of
medical records for the validation of risk adjustment data, as required
by CMS. There may be penalties for submission of false data.
(f) Use of data. CMS uses the data obtained under this section to
determine the risk adjustment factor used to adjust payments, as
required under Sec. 422.304(a)(1), (a)(2), and (a)(3). CMS may also
use the data for other purposes except for medical records data.
(g) Deadlines for submission of risk adjustment data. Risk
adjustment factors for each payment year are based on risk adjustment
data submitted for services furnished during the 12-month period before
the payment year that is specified by CMS. As determined by CMS, this
12-month period may include a 6-month data lag that may be changed or
eliminated as appropriate.
(1) The annual deadline for risk adjustment data submission is the
first Friday in September for risk adjustment data reflecting services
furnished during the 12-month period ending the prior June 30, and the
first Friday in March for data reflecting services furnished during the
12-month period ending the prior December 31.
(2) CMS allows a reconciliation process to account for late data
submissions. CMS continues to accept risk adjustment data submitted
after the
[[Page 4732]]
March deadline until December 31 of the payment year. After the payment
year is completed, CMS recalculates the risk factors for affected
individuals to determine if adjustments to payments are necessary. Risk
adjustment data that are received after the annual December 31 late
data submission deadline will not be accepted for the purposes of
reconciliation.
Sec. 422.312 Announcement of annual capitation rate, benchmarks, and
methodology changes.
(a) Capitation rates--(1) Initial announcement. Not later than the
first Monday in April each year, CMS announces to MA organizations and
other interested parties the following information for each MA payment
area for the following calendar year:
(i) The annual MA capitation rate.
(ii) The risk and other factors to be used in adjusting those rates
under Sec. 422.308 for payments for months in that year.
(2) CMS includes in the announcement an explanation of assumptions
used and a description of the risk and other factors.
(3) Regional benchmark announcement. Before the beginning of each
annual, coordinated election period under Sec. 422.62(a)(2), CMS will
announce to MA organizations and other interested parties the MA
region-specific non-drug monthly benchmark amount for the year involved
for each MA region and each MA regional plan for which a bid was
submitted under Sec. 422.256.
(b) Advance notice of changes in methodology. (1) No later than 45
days before making the announcement under paragraph (a)(1) of this
section, CMS notifies MA organizations of changes it proposes to make
in the factors and the methodology it used in the previous
determination of capitation rates.
(2) The MA organizations have 15 days to comment on the proposed
changes.
Sec. 422.314 Special rules for beneficiaries enrolled in MA MSA
plans.
(a) Establishment and designation of medical savings account (MSA).
A beneficiary who elects coverage under an MA MSA plan--
(1) Must establish an MA MSA with a trustee that meets the
requirements of paragraph (b) of this section; and
(2) If he or she has more than one MA MSA, designate the particular
account to which payments under the MA MSA plan are to be made.
(b) Requirements for MSA trustees. An entity that acts as a trustee
for an MA MSA must--
(1) Register with CMS;
(2) Certify that it is a licensed bank, insurance company, or other
entity qualified, under sections 408(a)(2) or 408(h) of the Internal
Revenue Code of 1986, to act as a trustee of individual retirement
accounts;
(3) Agree to comply with the MA MSA provisions of section 138 of
the Internal Revenue Code of 1986; and
(4) Provide any other information that CMS may require.
(c) Deposit in the MA MSA. (1) The payment is calculated as
follows:
(i) The monthly MA MSA premium is compared with 1/12 of the annual
capitation rate applied under this section for the area determined
under Sec. 422.306.
(ii) If the monthly MA MSA premium is less than 1/12 of the annual
capitation rate applied under this section for the area, the difference
is the amount to be deposited in the MA MSA for each month for which
the beneficiary is enrolled in the MSA plan.
(2) CMS deposits the full amount to which a beneficiary is entitled
under paragraph (c)(1)(ii) of this section for the calendar year,
beginning with the month in which MA MSA coverage begins.
(3) If the beneficiary's coverage under the MA MSA plan ends before
the end of the calendar year, CMS recovers the amount that corresponds
to the remaining months of that year.
Sec. 422.316 Special rules for payments to Federally qualified
health centers.
If an enrollee in an MA plan receives a service from a Federally
qualified health center (FQHC) that has a written agreement with the MA
organization offering the plan concerning the provision of this service
(including the agreement required under section 1857(e)(3) of the Act
and as codified in Sec. 422.527)--
(a) CMS will pay the amount determined under section 1833(a)(3)(B)
of the Act directly to the FQHC at a minimum on a quarterly basis, less
the amount the FQHC would receive for the MA enrollee from the MA
organization and taking into account the cost sharing amount paid by
the enrollee; and
(b) CMS will not reduce the amount of the monthly payments under
this section as a result of the application of paragraph (a) of this
section.
Sec. 422.318 Special rules for coverage that begins or ends during
an inpatient hospital stay.
(a) Applicability. This section applies to inpatient services in a
``subsection (d) hospital'' as defined in section 1886(d)(1)(B) of the
Act, a psychiatric hospital described in section 1886(d)(1)(B)(i) of
the act, a rehabilitation hospital described in section
1886(d)(1)(B)(ii) of the Act, a distinct part rehabilitation unit
described in the matter following clause (v) of section 1886(d)(1)(B)
of the Act, or a long-term care hospital (described in section
1886(d)(1)(B)(iv)).
(b) Coverage that begins during an inpatient stay. If coverage
under an MA plan offered by an MA organization begins while the
beneficiary is an inpatient in one of the facilities described in
paragraph (a) of this section--
(1) Payment for inpatient services until the date of the
beneficiary's discharge is made by the previous MA organization or
original Medicare, as appropriate;
(2) The MA organization offering the newly-elected MA plan is not
responsible for the inpatient services until the date after the
beneficiary's discharge; and
(3) The MA organization offering the newly-elected MA plan is paid
the full amount otherwise payable under this subpart.
(c) Coverage that ends during an inpatient stay. If coverage under
an MA plan offered by an MA organization ends while the beneficiary is
an inpatient in one of the facilities described in paragraph (a) of
this section--
(1) The MA organization is responsible for the inpatient services
until the date of the beneficiary's discharge;
(2) Payment for those services during the remainder of the stay is
not made by original Medicare or by any succeeding MA organization
offering a newly-elected MA plan; and
(3) The MA organization that no longer provides coverage receives
no payment for the beneficiary for the period after coverage ends.
Sec. 422.320 Special rules for hospice care.
(a) Information. An MA organization that has a contract under
subpart K of this part must inform each Medicare enrollee eligible to
select hospice care under Sec. 418.24 of this chapter about the
availability of hospice care (in a manner that objectively presents all
available hospice providers, including a statement of any ownership
interest in a hospice held by the MA organization or a related entity)
if--
(1) A Medicare hospice program is located within the plan's service
area; or
(2) It is common practice to refer patients to hospice programs
outside that area.
(b) Enrollment status. Unless the enrollee disenrolls from the MA
plan, a
[[Page 4733]]
beneficiary electing hospice continues his or her enrollment in the MA
plan and is entitled to receive, through the MA plan, any benefits
other than those that are the responsibility of the Medicare hospice.
(c) Payment. (1) No payment is made to an MA organization on behalf
of a Medicare enrollee who has elected hospice care under Sec. 418.24
of this chapter, except for the portion of the payment attributable to
the beneficiary rebate for the MA plan, described in Sec.
422.266(b)(1) plus the amount of the monthly prescription drug
beneficiary premium (described at Sec. 422.252). This no-payment rule
is effective from the first day of the month following the month of
election to receive hospice care, until the first day of the month
following the month in which the election is terminated.
(2) During the time the hospice election is in effect, CMS' monthly
capitation payment to the MA organization is reduced to the sum of--
(i) An amount equal to the beneficiary rebate for the MA plan, as
described in Sec. 422.304(a)(3) or to zero for plans with no
beneficiary rebate, described at Sec. 422.304(a)(2); and
(ii) The amount of the monthly prescription drug beneficiary
premium (if any).
(3) In addition, CMS pays through the original Medicare program
(subject to the usual rules of payment)--
(i) The hospice program for hospice care furnished to the Medicare
enrollee; and
(ii) The MA organization, provider, or supplier for other Medicare-
covered services to the enrollee.
Sec. 422.322 Source of payment and effect of MA plan election on
payment.
(a) Source of payments. (1) Payments under this subpart for
original fee-for-service benefits to MA organizations or MA MSAs are
made from the Federal Hospital Insurance Trust Fund or the
Supplementary Medical Insurance Trust Fund. CMS determines the
proportions to reflect the relative weight that benefits under Part A,
and benefits under Part B represents of the actuarial value of the
total benefits under title XVIII of the Act.
(2) Payments to MA-PD organizations for statutory drug benefits
provided under this title are made from the Medicare Prescription Drug
Account in the Federal Supplementary Medical Insurance Trust Fund.
(b) Payments to the MA organization. Subject to Sec. 412.105(g)
and Sec. 413.86(d) of this chapter and Sec. 422.109, Sec. 422.264,
and Sec. 422.266, CMS' payments under a contract with an MA
organization (described in Sec. 422.304) with respect to an individual
electing an MA plan offered by the organization are instead of the
amounts which (in the absence of the contract) would otherwise be
payable under original Medicare for items and services furnished to the
individual.
(c) Only the MA organization entitled to payment. Subject to Sec.
422.314, Sec. 422.318, Sec. 422.320, and Sec. 422.520 and sections
1886(d)(11) and 1886(h)(3)(D) of the Act, only the MA organization is
entitled to receive payment from CMS under title XVIII of the Act for
items and services furnished to the individual.
Sec. 422.324 Payments to MA organizations for graduate medical
education costs.
(a) MA organizations may receive direct graduate medical education
payments for the time that residents spend in non-hospital provider
settings such as freestanding clinics, nursing homes, and physicians'
offices in connection with approved programs.
(b) MA organizations may receive direct graduate medical education
payments if all of the following conditions are met:
(1) The resident spends his or her time assigned to patient care
activities.
(2) The MA organization incurs ``all or substantially all'' of the
costs for the training program in the non-hospital setting as defined
in Sec. 413.86(b) of this chapter.
(3) There is a written agreement between the MA organization and
the non-hospital site that indicates the MA organization will incur the
costs of the resident's salary and fringe benefits and provide
reasonable compensation to the non-hospital site for teaching
activities.
(c) An MA organization's allowable direct graduate medical
education costs, subject to the redistribution and community support
principles specified in Sec. 413.85(c) of this chapter, consist of--
(1) Residents' salaries and fringe benefits (including travel and
lodging where applicable); and
(2) Reasonable compensation to the non-hospital site for teaching
activities related to the training of medical residents.
(d) The direct graduate medical education payment is equal to the
product of--
(1) The lower of--
(i) The MA organization's allowable costs per resident as defined
in paragraph (c) of this section; or
(ii) The national average per resident amount; and
(2) Medicare's share, which is equal to the ratio of the number of
Medicare beneficiaries enrolled to the total number of individuals
enrolled in the MA organization.
(e) Direct graduate medical education payments made to MA
organizations under this section are made from the Federal
Supplementary Medical Insurance Trust Fund.
Subpart I--Organization Compliance With State Law and Preemption by
Federal Law
0
52. Section 422.402 is revised to read as follows:
Sec. 422.402 Federal preemption of State law.
The standards established under this part supersede any State law
or regulation (other than State licensing laws or State laws relating
to plan solvency) with respect to the MA plans that are offered by MA
organizations.
0
53. Amend Sec. 422.404 by revising paragraph (a) to read as follows:
Sec. 422.404 State premium taxes prohibited.
(a) Basic rule. No premium tax, fee, or other similar assessment
may be imposed by any State, the District of Columbia, the Commonwealth
of Puerto Rico, the Virgin Islands, Guam, and American Samoa, or any of
their political subdivisions or other governmental authorities with
respect to any payment CMS makes on behalf of MA enrollees under
subpart G of this part, or with respect to any payment made to MA plans
by beneficiaries, or payment to MA plans by a third party on a
beneficiary's behalf.
* * * * *
0
54. A new subpart J is added to read as follows:
Subpart J--Special Rules for MA Regional Plans
Sec.
422.451 Moratorium on new local preferred provider organization
plans.
422.455 Special rules for MA Regional plans.
422.458 Risk sharing with regional MA organizations for 2006 and
2007.
Subpart J--Special Rules for MA Regional Plans
Sec. 422.451 Moratorium on new local preferred provider organization
plans.
CMS will not approve the offering of a local preferred provider
organization plan during 2006 or 2007 in a service area unless the MA
organization seeking to offer the plan was offering a local preferred
provider organization plan in the service area before December 31,
2005.
Sec. 422.455 Special rules for MA Regional Plans.
(a) Coverage of entire MA region. The service area for an MA
regional plan
[[Page 4734]]
will consist of an entire MA region established under paragraph (b) of
this section, and an MA region may not be segmented as described in
Sec. 422.262(c)(2).
(b) Establishment of MA regions--(1) MA region. The term ``MA
region'' means a region within the 50 States and the District of
Columbia as established by CMS under this section.
(2) Establishment--(i) Initial establishment. By January 1, 2005,
CMS will establish and publish the MA regions.
(ii) Periodic review and revision of service areas. CMS may
periodically review MA regions and may revise the regions if it
determines the revision to be appropriate.
(3) Requirements for MA regions. CMS will establish, and may
revise, MA regions in a manner consistent with the following:
(i) Number of regions. There will be no fewer than 10 regions, and
no more than 50 regions.
(ii) Maximizing availability of plans. The main purpose of the
regions is to maximize the availability of MA regional plans to all MA
eligible individuals without regard to health status, or geographic
location, especially those residing in rural areas.
(4) Market survey and analysis. Before establishing MA regions, CMS
will conduct a market survey and analysis, including an examination of
current insurance markets, to assist CMS in determining how the regions
should be established.
(c) National plan. An MA regional plan can be offered in more than
one MA region (including all regions).
Sec. 422.458 Risk sharing with regional MA organizations for 2006
and 2007.
(a) Terminology. For purposes of this section--
Allowable costs means, with respect to an MA regional plan offered
by an organization for a year, the total amount of costs that the
organization incurred in providing benefits covered under the original
Medicare fee-for-service program option for all enrollees under the
plan in the region in the year and in providing rebatable integrated
benefits, as defined in this paragraph, reduced by the portion of those
costs attributable to administrative expenses incurred in providing
these benefits.
Rebatable integrated benefits means those non-drug supplemental
benefits that are funded through beneficiary rebates (described at
Sec. 422.266(b)(1)) and that CMS determines are additional health
benefits not covered under the original Medicare program option and
that require expenditures by the plan. For purposes of the calculation
of risk corridors, these are the only supplemental benefits that count
toward allowable costs.
Target amount means, with respect to an MA regional plan offered by
an organization in a year, the total amount of payments made to the
organization for enrollees in the plan for the year (which includes
payments attributable to benefits under the original Medicare fee-for-
service program option as defined in Sec. 422.100(c)(1), the total of
the MA monthly basic beneficiary premium collectable for those
enrollees for the year, and the total amount of rebatable integrated
benefits), reduced by the amount of administrative expenses assumed in
the portion of the bid attributable to benefits under original Medicare
fee-for-service program option or to rebatable integrated benefits.
(b) Application of risk corridors for benefits covered under
original fee-for-service Medicare--(1) General rule. This section will
only apply to MA regional plans offered during 2006 or 2007.
(2) Notification of allowable costs under the plan. In the case of
an MA organization that offers an MA regional plan in an MA region in
2006 or 2007, the organization must notify CMS, before that date in the
succeeding year as CMS specifies, of--
(i) Its total amount of costs that the organization
incurred in providing benefits covered under the original Medicare
fee-for-service program option for all enrollees under the plan (as
described in paragraph (a) of this section).
(ii) Its total amount of costs that the organization incurred in
providing rebatable integrated benefits for all enrollees under the
plan (as described in paragraph (a) of this section), and, with respect
to those benefits, the portion of those costs that is attributable to
administrative expenses that is in addition to the administrative
expense incurred in provision of benefits under the original Medicare
fee-for-service program option.
(c) Adjustment of payment--(1) No adjustment if allowable costs
within 3 percent of target amount. If the allowable costs for the plan
for the year are at least 97 percent, but do not exceed 103 percent, of
the target amount for the plan and year, there will be no payment
adjustment under this section for the plan and year.
(2) Increase in payment if allowable costs above 103 percent of
target amount--(i) Costs between 103 and 108 percent of target amount.
If the allowable costs for the plan for the year are greater than 103
percent, but not greater than 108 percent, of the target amount for the
plan and year, CMS will increase the total of the monthly payments made
to the organization offering the plan for the year under Sec.
422.302(a) (section 1853(a) of the Act) by an amount equal to 50
percent of the difference between those allowable costs and 103 percent
of that target amount.
(ii) Costs above 108 percent of target amount. If the allowable
costs for the plan for the year are greater than 108 percent of the
target amount for the plan and year, CMS will increase the total of the
monthly payments made to the organization offering the plan for the
year under section 1853(a) of the Act by an amount equal to the sum
of--
(A) 2.5 percent of that target amount; and
(B) 80 percent of the difference between those allowable costs and
108 percent of that target amount.
(3) Reduction in payment if allowable costs below 97 percent of
target amount--(i) Costs between 92 and 97 percent of target amount. If
the allowable costs for the plan for the year are less than 97 percent,
but greater than or equal to 92 percent, of the target amount for the
plan and year, CMS will reduce the total of the monthly payments made
to the organization offering the plan for the year under Sec.
422.302(a) (section 1853(a) of the Act) by an amount (or otherwise
recover from the plan an amount) equal to 50 percent of the difference
between 97 percent of the target amount and those allowable costs.
(ii) Costs below 92 percent of target amount. If the allowable
costs for the plan for the year are less than 92 percent of the target
amount for the plan and year, CMS will reduce the total of the monthly
payments made to the organization offering the plan for the year under
Sec. 422.302(a) (section 1853(a)of the Act) by an amount (or otherwise
recover from the plan an amount) equal to the sum of-
(A) 2.5 percent of that target amount; and
(B) 80 percent of the difference between 92 percent of that target
amount and those allowable costs.
(d) Disclosure of information--(1) General rule. Each MA
organization offering an MA regional plan must provide CMS with
information as CMS determines is necessary to implement this section;
and
(2) According to existing Sec. 422.502(d)(1)(iii) (section
1857(d)(2)(B) of the Act), CMS has the right to inspect and audit any
books and records of the organization that pertain to the information
regarding costs
[[Page 4735]]
provided to CMS under paragraph (b)(2) of this section.
(3) Restriction on use of information. Information disclosed or
obtained for the purposes of this section may be used by officers,
employees, and contractors of DHHS only for the purposes of, and to the
extent necessary in, implementing this section.
(e) Organizational and financial requirements--(1) General rule.
Regional MA plans offered by MA organizations must be licensed under
State law, or otherwise authorized under State law, as a risk-bearing
entity (as defined in Sec. 422.2) eligible to offer health insurance
or health benefits coverage in each State in which it offers one or
more plans. However, as provided for under this section, MA
organizations offering MA regional plans may obtain a temporary waiver
of State licensure. In the case of an MA organization that is offering
an MA regional plan in an MA region, and is not licensed in each State
in which it offers such an MA regional plan, the following rules apply:
(i) The MA organization must be licensed to bear risk in at least
one State of the region.
(ii) For the other States in a region in which the organization is
not licensed to bear risk, if it demonstrates to CMS that it has filed
the necessary application to meet those requirements, CMS may
temporarily waive the licensing requirement with respect to each State
for a period of time as CMS determines appropriate for the timely
processing of the application by the State or States.
(iii) If the State licensing application or applications are
denied, CMS may extend the licensing waiver through the end of the plan
year or as CMS determines appropriate to provide for a transition.
(2) Selection of appropriate State. In the case of an MA
organization to which CMS grants a waiver and that is licensed in more
than one State in a region, the MA organization will select one of the
States, the rules of which shall apply in States where the organization
is not licensed for the period of the waiver.
(f) Regional stabilization fund--(1) Establishment. The MA Regional
Plan Stabilization Fund (referred to in this paragraph (f) as the
``Fund'') is available beginning in 2007 for two purposes:
(i) Plan entry. To provide incentives to have MA regional plans
offered in each MA region under paragraph (f)(4) of this section.
(ii) Plan retention. To provide incentives to retain MA regional
plans in certain MA regions with below-national-average MA market
penetration under paragraph (f)(5) of this section.
(2) Availability of funding from savings. Funds made available
under section 1853(f) of the Act are transferred into a special account
in the Treasury from the Federal Hospital Insurance Trust Fund and the
Federal Supplementary Medical Insurance Trust Fund in the proportion
specified in section 1853(f) of the Act, ``payments From Trust Funds,''
on a monthly basis.
(3) Funding limitation--(i) General rule. The total amount expended
from the Fund as a result of the application of this section through
the end of a calendar year may not exceed the amount available to the
Fund as of the first day of that year. For purposes of this section,
amounts that are expended under this title insofar as those amounts
would not have been expended but for the application of this section
will be counted as amounts expended as a result of that application.
(ii) Application of limitation. CMS will obligate funds from the
Fund for a year only if the Chief Actuary of CMS and the appropriate
budget officer certify that there are available in the Fund at the
beginning of the year sufficient amounts to cover all of those
obligations incurred during the year consistent with paragraph
(f)(3)(i) of this section. CMS will take those steps, in connection
with computing additional payment amounts under paragraphs (f)(4) and
(f)(5) of this section and including limitations on enrollment in MA
regional plans receiving those payments or computing lower payment
amounts, to ensure that sufficient funds are available to make those
payments for the entire year.
(4) Plan entry funding--(i) General rule. Funding is available
under this paragraph for a year in the following situations:
(A) National plan. For a national bonus payment described in
paragraph (f)(4)(ii) of this section, when a single MA organization
offers an MA regional plan in each MA region in the year, but only if
there was not a national plan offered in each region in the previous
year. Funding under this paragraph is only available with respect to
any individual MA organization for a single year, but may be made
available to more than one such organization in the same year.
(B) MA Regional Plans. Subject to paragraph (f)(4)(i)(C) of this
section, for an increased amount under paragraph (f)(4)(iv) of this
section for an MA regional plan offered in an MA region that did not
have any MA regional plan offered in the prior year.
(C) Limitation on MA regional plan funding in case of national
plan. There will be no payment adjustment under paragraph (f)(4)(iii)
of this section for a year for which a national bonus payment is made
under paragraph (f)(4)(ii) of this section.
(ii) National bonus payment. The national bonus payment under this
paragraph will--
(A) Be available to an MA organization only if the organization
offers MA regional plans in every MA region;
(B) Be available for all MA regional plans of the organization
regardless of whether any other MA regional plan is offered in any
region; and
(C) Be subject to amounts available under paragraph (f)(3) of this
section for a year and be equal to 3 percent of the benchmark amount
otherwise applicable for each MA regional plan offered by the
organization.
(iii) Regional payment adjustment--(A) General rule. The increased
amount under this paragraph for an MA regional plan in an MA region for
a year must be an amount, determined by CMS, based on the bid submitted
for that plan (or plans) and will be available to all MA regional plans
offered in that region and year. That amount may be based on the mean,
mode, or median or other measure of those bids and may vary from region
to region. CMS will not limit the number of plans or bids in a region.
(B) Multi-year funding. Subject to amounts available under
paragraph (f)(3) of this section, funding will be available for a
period determined by CMS.
(C) Application to all plans in a region. Funding under this
paragraph for an MA region will be made available for all MA regional
plans offered in the region.
(D) Limitation on availability of plan retention funding in next
year. If plans receive plan entry funding in a year, plans in that
region are prohibited from receiving plan retention funding in the
following year.
(iv) Application. Any additional payment under this section
provided for an MA regional plan for a year will be treated as if it
were an addition to the benchmark amount otherwise applicable to that
plan and year, but will not be taken into account in the computation of
any benchmark amount for any subsequent year.
(5) Plan retention funding--(i) General rule. Funding is available
under this paragraph for a year with respect to MA regional plans
offered in an MA region for the increased amount specified in paragraph
(f)(5)(ii) of this
[[Page 4736]]
section but only if the region meets the requirements of paragraphs
(f)(5)(iii)(A), (f)(5)(iii)(B), (f)(5)(iii)(C) and (f)(5)(iii)(E) of
this section.
(ii) Payment increase. The increased amount under this paragraph
for an MA regional plan in an MA region for a year will be an amount,
determined by CMS, that does not exceed the greater of--
(A) 3 percent of the benchmark amount applicable in the region; or
(B) The amount as (when added to the benchmark amount applicable to
the region) will result in the ratio of-
(1) That additional amount plus the benchmark amount computed under
section 1854(b)(4)(B)(i)of the Act, ``the risk-adjusted benchmark
amount'' for the region and year, to the adjusted average per capita
cost for the region and year, as estimated by CMS under section
1876(a)(4) of the Act and adjusted as appropriate for the purpose of
risk adjustment; being equal to--
(2) The weighted average of those benchmark amounts for all the
regions and that year, to the average per capita cost for the United
States and that year, as estimated by CMS under section 1876(a)(4)of
the Act and adjusted as appropriate for the purpose of risk adjustment.
(iii) Regional requirements. The requirements of this paragraph for
an MA region for a year are as follows:
(A) Notification of plan exit. CMS has received notice (as
specified by CMS), before a new contract year, that one or more MA
regional plans that were offered in the region in the previous year
will not be offered in the succeeding year.
(B) Regional plans available from fewer than two MA organizations
in the region. CMS determines that if the plans referred to in
paragraph (f)(5)(iii)(A) of this section are not offered in the year,
fewer than two MA organizations will be offering MA regional plans in
the region in the year involved.
(C) Percentage enrollment in MA regional plans below national
average. For the previous year, CMS determines that the average
percentage of MA eligible individuals residing in the region who are
enrolled in MA regional plans is less than the average percentage of
those individuals in the United States enrolled in those plans.
(D) Application. Any additional payment under this paragraph
provided for an MA regional plan for a year will be treated as if it
were an addition to the benchmark amount otherwise applicable to that
plan and year, but will not be taken into account in the computation of
any benchmark amount for any subsequent year.
(E) 2-consecutive-year limitation. In no case will plan retention
funding be available under this paragraph in an MA region for more than
2 consecutive years.
Subpart K-Application Procedures and Contracts for Medicare
Advantage Organizations
0
55. Amend Sec. 422.500 by-
A. Revising the section heading.
B. Designating the undesignated introductory text as paragraph (b)
and adding the heading ``Definitions.
C. Adding new paragraph (a).
0
The revisions and addition read as follows:
Sec. 422.500 Scope and definitions.
(a) Scope. This subpart sets forth application requirements for
entities seeking a contract as a Medicare organization offering an MA
plan. MA organizations offering prescription drug plans must, in
addition to the requirements of this part, follow the requirements of
part 423 of this chapter specifically related to the prescription drug
benefit.
(b) Definitions. For purposes of this subpart, the following
definitions apply:
* * * * *
Sec. 422.501, Sec. 422.502, and Sec. 422.504 [Redesignated]
0
56. Redesignate Sec. 422.501, Sec. 422.502, and Sec. 422.504 as
Sec. 422.503, Sec. 422.504, and Sec. 422.505, respectively.
0
57. Add new Sec. 422.501 to read as follows:
Sec. 422.501 Application requirements.
(a) Scope. This section sets forth application requirements for
entities that seek a contract as an MA organization offering an MA
plan.
(b) Completion of an application. (1) In order to obtain a
determination on whether it meets the requirements to become an MA
organization and is qualified to provide a particular type of MA plan,
an entity, or an individual authorized to act for the entity (the
applicant) must complete a certified application, in the form and
manner required by CMS, including the following:
(i) Documentation of appropriate State licensure or State
certification that the entity is able to offer health insurance or
health benefits coverage that meets State-specified standards
applicable to MA plans, and is authorized by the State to accept
prepaid capitation for providing, arranging, or paying for the
comprehensive health care services to be offered under the MA contract;
or
(ii) For regional plans, documentation of application for State
licensure in any State in the region that the organization is not
already licensed.
(2) The authorized individual must thoroughly describe how the
entity and MA plan meet, or will meet, the requirements described in
this part.
(c) Responsibility for making determinations. (1) CMS is
responsible for determining whether an entity qualifies as an MA
organization and whether proposed MA plans meet the requirements of
this part.
(2) A CMS determination that an entity is qualified to act as an MA
organization is distinct from the bid negotiation that occurs under
subpart F of this part and such negotiation is not subject to the
appeals provisions included in subpart N of this part.
(d) Resubmittal of application. An application that has been denied
by CMS may not be resubmitted for 4 months after the date of the notice
from CMS denying the application.
(e) Disclosure of application information under the Freedom of
Information Act. An applicant submitting material that he or she
believes is protected from disclosure under 5 U.S.C. 552, the Freedom
of Information Act, or because of exemptions provided in 45 CFR part 5
(the Department's regulations providing exceptions to disclosure), must
label the material ``privileged'' and include an explanation of the
applicability of an exception described in 45 CFR part 5. Any final
decisions as to whether material is privileged is the final decision of
the Secretary.
0
58. Add new Sec. 422.502 to read as follows:
Sec. 422.502 Evaluation and determination procedures.
(a) Basis for evaluation and determination. (1) CMS evaluates an
application for an MA contract on the basis of information contained in
the application itself and any additional information that CMS obtains
through other means such as on-site visits, public hearings, and any
other appropriate procedures.
(2) After evaluating all relevant information, CMS determines
whether the applicant's application meets the applicable requirements
of Sec. 422.501.
(b) Use of information from a prior contracting period. If an MA
organization has failed to comply with the terms of a previous contract
with CMS under title XVIII of the Act, or has failed to complete a
corrective action plan during the term of the contract, CMS may deny an
application based on the applicant's failure to comply with that prior
contract with CMS even if the
[[Continued on page 4737]]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
]
[[pp. 4737-4741]] Medicare Program; Establishment of the Medicare Advantage Program
[[Continued from page 4736]]
[[Page 4737]]
contract applicant meets all of the current requirements.
(c) Notice of determination. Within timeframes determined by CMS,
it notifies each applicant that applies for an MA contract under this
part of its determination and the basis for the determination. The
determination is one of the following:
(1) Approval of application. If CMS approves the application, it
gives written notice to the applicant, indicating that it qualifies to
contract as an MA organization.
(2) Intent to deny. (i)If CMS finds that the applicant does not
appear to be able to meet the requirements for an MA organization and/
or has not provided enough information to evaluate the application, CMS
gives the contract applicant notice of intent to deny the application
for an MA contract and a summary of the basis for this preliminary
finding.
(ii) Within 10 days from the date of the intent to deny notice, the
contract applicant must respond in writing to the issues or other
matters that were the basis for CMS' preliminary finding and must
revise its application to remedy any defects CMS identified.
(3) Denial of application. If CMS denies the application, it gives
written notice to the contract applicant indicating --
(i) That the applicant is not qualified to contract as an MA
organization under Part C of title XVIII of the Act;
(ii) The reasons why the applicant is not qualified; and
(iii) The applicant's right to request reconsideration in
accordance with the procedures specified in subpart N of this part.
(d) Oversight of continuing compliance. (1) CMS oversees an MA
organization's continued compliance with the requirements for an MA
organization.
(2) If an MA organization no longer meets those requirements, CMS
terminates the contract in accordance with Sec. 422.510.
Sec. 422.503 [Amended]
0
59. Amend newly redesignated Sec. 422.503 by-
A. Redesignating paragraphs (b)(1) through (b)(5) as paragraphs
(b)(2) through (b)(6) respectively.
B. Adding new paragraph (b)(1).
C. Revising newly redesignated paragraph (b)(4)(ii).
D. Revising newly redesignated paragraph (b)(4)(vi)(F).
E. Adding new paragraphs (b)(4)(vi)(G)(1), and (2).
F. Adding new paragraph (b)(4)(vi)(H).
G. Revising newly redesignated paragraph (b)(6) introductory text.
H. Revising newly redesignated paragraph (b)(6)(i).
0
The revisions read as follows:
Sec. 422.503 General provisions.
* * * * *
(b) * * *
(1) Complete an application as described in Sec. 422.501.
* * * * *
(4) * * *
(ii) To operate a quality improvement program and have an agreement
for external quality review as required under this part.
* * * * *
(vi) * * *
(F) Procedures for internal monitoring and auditing.
(G) * * *
(1) If the MA organization discovers evidence of misconduct related
to payment or delivery of items or services under the contract, it must
conduct a timely, reasonable inquiry into that conduct.
(2) The MA organization must conduct appropriate corrective actions
(for example, repayment of overpayments, disciplinary actions against
responsible employees) in response to the potential violation
referenced in paragraph (b)(4)(vi)(G)(1) of this section.
(H) For MA-PDPs, A comprehensive fraud and abuse plan to detect and
prevent fraud, waste, and abuse as specified at Sec.
423.504(b)(4)(vi)(H) of this chapter.
* * * * *
(6) The MA organization's contract must not have been non-renewed
under Sec. 422.506 within the past 2 years unless--
(i) During the 6-month period beginning on the date the
organization notified CMS of the intention to non-renew the most recent
previous contract, there was a change in the statute or regulations
that had the effect of increasing MA payments in the payment area or
areas at issue; or
* * * * *
0
60. Amend newly redesignated Sec. 422.504 by-
A. Revising paragraph (e)(4) introductory text.
B. Revising paragraph (e)(4)(ii)
C. Revising paragraph (e)(4)(iii).
D. Removing paragraph (f)(2)(vii).
E. Redesignating paragraph (f)(2)(viii) as paragraph (f)(2)(vii).
F. Revising paragraph (h).
G. Revising paragraph (i)(3)(ii).
0
The revisions read as follows:
Sec. 422.504 Contract provisions.
* * * * *
(e) * * *
(4) HHS, the Comptroller General, or their designee's right to
inspect, evaluate, and audit extends through 10 years from the end of
the final contract period or completion of audit, whichever is later
unless-
* * * * *
(ii) There has been a termination, dispute, or allegation of fraud
or similar fault by the MA organization, in which case the retention
may be extended to 6 years from the date of any resulting final
resolution of the termination, dispute, fraud, or similar fault; or
(iii) CMS determines that there is a reasonable possibility of
fraud or similar fault, in which case CMS may inspect, evaluate, and
audit the MA organization at any time.
* * * * *
(h) Requirements of other laws and regulations. The MA organization
agrees to comply with-
(1) Federal laws and regulations designed to prevent or ameliorate
fraud, waste, and abuse, including, but not limited to, applicable
provisions of Federal criminal law, the False Claims Act (32 U.S.C.
3729 et. seq.), and the anti-kickback statute (section 1128B(b)) of the
Act); and
(2) HIPAA administrative simplification rules at 45 CFR parts 160,
162, and 164.
(i) * * *
(3) * * *
(ii) Accountability provisions that indicate that the MA
organization may only delegate activities or functions to a provider,
related entity, contractor, or subcontractor in a manner consistent
with the requirements set forth at paragraph (i)(4)of this section.
* * * * *
0
61. Amend newly redesignated Sec. 422.505 by adding paragraph (d).
Sec. 422.505 Effective date and term of contract.
* * * * *
(d) Renewal of contract contingent on reaching agreement on the
bid. Although an MA organization may be determined qualified to renew
its contract under this section, if the organization and CMS cannot
reach agreement on the bid under subpart F of this part, no renewal
will take place, and the failure to reach an agreement is not subject
to the appeals provisions in subpart N of this part.
0
62. Amend Sec. 422.506 by-
A. Revising paragraph (a)(2)(i).
B. Revising paragraph (a)(2)(ii).
C. Revising paragraph (a)(3) introductory text.
0
The revisions read as follows:
[[Page 4738]]
Sec. 422.506 Nonrenewal of contract.
(a) * * *
(2) * * *
(i) CMS in writing, by the first Monday in June of the year in
which the contract would end;
(ii) Each Medicare enrollee, at least 90 days before the date on
which the nonrenewal is effective. This notice must include a written
description of alternatives available for obtaining Medicare services
within the service area, including alternative MA plans, Medigap
options, and original Medicare and must receive CMS approval prior to
issuance.
* * * * *
(3) CMS may accept a nonrenewal notice submitted after the first
Monday in June if-
* * * * *
0
63. Amend Sec. 422.510 by revising paragraph (a)(4) to read as
follows:
Sec. 422.510 Termination of Contract by CMS.
(a) * * *
(4) There is credible evidence that the PDP sponsor committed or
participated in false, fraudulent, or abusive activities affecting the
Medicare program, including submission of false or fraudulent data.
* * * * *
0
64. Amend Sec. 422.520 by-
A. Revising the section heading.
B. Revising paragraph (a)(3).
C. Redesignating paragraph (b) introductory text as paragraph
(b)(1).
D. Adding new paragraph (b)(2).
E. Adding new paragraph (d).
0
The revisions and additions read as follows:
Sec. 422.520 Prompt payment by MA organization.
(a) * * *
(3) All other claims from non-contracted providers must be paid or
denied within 60 calendar days from the date of the request.
(b) * * *
(2) The MA organization is obligated to pay contracted providers
under the terms of the contract between the MA organization and the
provider.
* * * * *
(d) A CMS decision to not conduct a hearing under paragraph (c) of
this section does not disturb any potential remedy under State law for
1866(a)(1)(O) of the Act.
0
65. Add new Sec. 422.527 at the end of subpart K to read as follows:
Sec. 422.527 Agreements with Federally qualified health centers.
The contract between the MA organization and CMS must specify
that--
(a) The MA organization must pay a Federally qualified health
center (FQHC) a similar amount to what it pays other providers for
similar services.
(b) Under such a contract, the FQHC must accept this payment as
payment in full, except for allowable cost sharing which it may
collect.
(c) Financial incentives, such as risk pool payments or bonuses,
and financial withholdings are not considered in determining the
payments made by CMS under Sec. 422.316(a).
Subpart L-Effect of Change of Ownership or Leasing of Facilities
During Term of Contract
0
66. Amend Sec. 422.550 by revising paragraph (a)(2) to read as
follows:
Sec. 422.550 General provisions.
(a) * * *
(2) Asset transfer. Transfer of title and property to another party
constitutes change of ownership.
* * * * *
Subpart M--Grievances, Organization Determinations and Appeals
0
67. Amend Sec. 422.560 by-
A. Adding paragraph (a)(3).
B. Adding paragraph (c).
0
The additions read as follows:
Sec. 422.560 Basis and scope.
(a) * * *
(3) Section 1869 of the Act specifies the amount in controversy
needed to pursue a hearing and judicial review and authorizes
representatives to act on behalf of individuals that seek appeals.
These provisions are incorporated for MA appeals by section 1852(g)(5)
of the Act and part 405 of this chapter.
* * * * *
(c) Relation to ERISA requirements. Consistent with section
1857(i)(2) of the Act, provisions of this subpart may, to the extent
applicable under regulations adopted by the Secretary of Labor, apply
to claims for benefits under group health plans subject to the Employee
Retirement Income Security Act.
0
68. Amend Sec. 422.561 by-
A. Removing the definition of ``authorized representative''.
B. Revising the definition of ``Enrollee''.
C. Adding the definition of ``Representative''.
0
The revisions and addition read as follows:
Sec. 422.561 Definitions.
* * * * *
Enrollee means an MA eligible individual who has elected an MA plan
offered by an MA organization.
* * * * *
Representative means an individual appointed by an enrollee or
other party, or authorized under State or other applicable law, to act
on behalf of an enrollee or other party involved in the appeal. Unless
otherwise stated in this subpart, the representative will have all of
the rights and responsibilities of an enrollee or party in obtaining an
organization determination or in dealing with any of the levels of the
appeals process, subject to the applicable rules described in part 405
of this chapter.
0
68a. Amend Sec. 422.562 by--
A. Revising paragraph (b)(4)(iv).
B. Revising paragraph (b)(4)(vi).
C. Revising paragraph (c)(1)(ii).
D. Revising paragraph (d).
0
The revisions read as follows:
Sec. 422.562 General provisions.
* * * * *
(b) * * *
(4) * * *
(iv) The right to an ALJ hearing if the amount in controversy is
met, as provided in Sec. 422.600.
* * * * *
(vi) The right to judicial review of the hearing decision if the
amount in controversy is met, as provided in Sec. 422.612.
(c) * * *
(1) * * *
(ii) The QIO review decision is subject only to the appeal
procedures set forth in part 478 of this chapter.
* * * * *
(d) When other regulations apply. Unless this subpart provides
otherwise, the regulations in part 405 of this chapter (concerning the
administrative review and hearing processes and representation of
parties under titles II and XVIII of the Act), apply under this subpart
to the extent they are appropriate.
0
69. Amend Sec. 422.564 by--
A. Redesignating paragraphs (d) and (e) as paragraphs (f) and (g).
B. Adding a new paragraph (d).
C. Adding a new paragraph (e).
0
The additions read as follows:
Sec. 422.564 Grievance procedures.
* * * * *
(d) Method for filing a grievance. (1) An enrollee may file a
grievance with the MA organization either orally or in writing.
(2) An enrollee must file a grievance no later than 60 days after
the event or incident that precipitates the grievance.
(e) Grievance disposition and notification. (1) The MA organization
must notify the enrollee of its decision as expeditiously as the case
requires, based on the enrollee's health status, but no later than 30
days
[[Page 4739]]
after the date the organization receives the oral or written grievance.
(2) The MA organization may extend the 30-day timeframe by up to 14
days if the enrollee requests the extension or if the organization
justifies a need for additional information and documents how the delay
is in the interest of the enrollee. When the MA organization extends
the deadline, it must immediately notify the enrollee in writing of the
reasons for the delay.
(3) The MA organization must inform the enrollee of the disposition
of the grievance in accordance with the following procedures:
(i) All grievances submitted in writing must be responded to in
writing.
(ii) Grievances submitted orally may be responded to either orally
or in writing, unless the enrollee requests a written response.
(iii) All grievances related to quality of care, regardless of how
the grievance is filed, must be responded to in writing. The response
must include a description of the enrollee's right to file a written
complaint with the QIO. For any complaint submitted to a QIO, the MA
organization must cooperate with the QIO in resolving the complaint.
* * * * *
0
70. Amend Sec. 422.566 by revising paragraph (b)(4) to read as
follows:
Sec. 422.566 Organization determinations.
* * * * *
(b) * * *
(4) Discontinuation or reduction of a service if the enrollee
believes that continuation of the services is medically necessary.
* * * * *
0
71. Amend Sec. 422.568 by-
A. Revising paragraph (a).
B. Revising paragraph (c).
0
The revisions read as follows:
Sec. 422.568 Standard timeframes and notice requirements for
organization determinations.
(a) Timeframe for requests for service. When a party has made a
request for a service, the MA organization must notify the enrollee of
its determination as expeditiously as the enrollee's health condition
requires, but no later than 14 calendar days after the date the
organization receives the request for a standard organization
determination. The MA organization may extend the timeframe by up to 14
calendar days if the enrollee requests the extension or if the
organization justifies a need for additional information and how the
delay is in the interest of the enrollee (for example, the receipt of
additional medical evidence from noncontract providers may change an MA
organization's decision to deny). When the MA organization extends the
timeframe, it must notify the enrollee in writing of the reasons for
the delay, and inform the enrollee of the right to file an expedited
grievance if he or she disagrees with the MA organization's decision to
grant an extension.
* * * * *
(c) Written notice for MA organization denials. If an MA
organization decides to deny service or payment in whole or in part, or
if an enrollee disagrees with an MA organization's decision to
discontinue or reduce the level of care for an ongoing course of
treatment, the organization must give the enrollee written notice of
the determination.
* * * * *
0
72. Amend Sec. 422.570 by revising paragraph (d)(2)(ii) to read as
follows:
Sec. 422.570 Expediting certain organization determinations.
* * * * *
(d) * * *
(2) * * *
(ii) Informs the enrollee of the right to file an expedited
grievance if he or she disagrees with the MA organization's decision
not to expedite; and
* * * * *
0
73. Amend Sec. 422.572 by --
A. Revising paragraph (b).
B. Revising paragraph (c).
0
The revisions read as follows:
Sec. 422.572 Timeframes and notice requirements for expedited
organization determinations.
* * * * *
(b) Extensions. The MA organization may extend the 72-hour deadline
by up to 14 calendar days if the enrollee requests the extension or if
the organization justifies a need for additional information and how
the delay is in the interest of the enrollee (for example, the receipt
of additional medical evidence from noncontract providers may change an
MA organization's decision to deny). When the MA organization extends
the deadline, it must notify the enrollee in writing of the reasons for
the delay and inform the enrollee of the right to file an expedited
grievance if he or she disagrees with the MA organization's decision to
grant an extension. The MA organization must notify the enrollee of its
determination as expeditiously as the enrollee's health condition
requires, but no later than upon expiration of the extension.
(c) Confirmation of oral notice. If the MA organization first
notifies an enrollee of an adverse expedited determination orally, it
must mail written confirmation to the enrollee within 3 calendar days
of the oral notification.
* * * * *
0
74. Amend Sec. 422.582 by-
A. Revising paragraph (a).
B. Revising paragraph (b).
C. Revising paragraph (c)(2) introductory text.
0
The revisions read as follows:
Sec. 422.582 Request for a standard reconsideration.
(a) Method and place for filing a request. A party to an
organization determination must ask for a reconsideration of the
determination by making a written request to the MA organization that
made the organization determination. The MA organization may adopt a
policy for accepting oral requests.
(b) Timeframe for filing a request. Except as provided in paragraph
(c) of this section, a party must file a request for reconsideration
within 60 calendar days from the date of the notice of the organization
determination.
(c) * * *
(2) How to request an extension of timeframe. If the 60-day period
in which to file a request for reconsideration has expired, a party to
the organization determination may file a request for reconsideration
with the MA organization. The request for reconsideration and to extend
the timeframe must--
* * * * *
0
75. Amend Sec. 422.584 by revising paragraph (e) to read as follows:
Sec. 422.584 Expediting certain reconsiderations.
* * * * *
(e) Action following acceptance of a request. If an MA organization
grants a request for expedited reconsideration, it must conduct the
reconsideration and give notice in accordance with Sec. 422.590.
* * * * *
0
76. Amend Sec. 422.590 by --
A. Revising paragraph (a)(1).
B. Revising paragraph (d)(2).
0
The revisions read as follows:
Sec. 422.590 Timeframes and responsibility for reconsiderations.
(a) Standard reconsideration: Request for services. (1) If the MA
organization makes a reconsidered determination that is completely
favorable to the enrollee, the MA organization must issue the
determination (and effectuate it in accordance with Sec. 422.618(a))
as expeditiously as the enrollee's health condition requires, but no
later than 30 calendar days from the date it receives the request for a
standard
[[Page 4740]]
reconsideration. The MA organization may extend the timeframe by up to
14 calendar days if the enrollee requests the extension or if the
organization justifies a need for additional information and how the
delay is in the interest of the enrollee (for example, the receipt of
additional medical evidence from noncontract providers may change an MA
organization's decision to deny). When the MA organization extends the
timeframe, it must notify the enrollee in writing of the reasons for
the delay, and inform the enrollee of the right to file an expedited
grievance if he or she disagrees with the MA organization's decision to
grant an extension. For extensions, the MA organization must issue and
effectuate its determination as expeditiously as the enrollee's health
condition requires, but no later than upon expiration of the extension.
* * * * *
(d) * * *
(2) Extensions. The MA organization may extend the 72-hour deadline
by up to 14 calendar days if the enrollee requests the extension or if
the organization justifies a need for additional information and how
the delay is in the interest of the enrollee (for example, the receipt
of additional medical evidence from noncontract providers may change an
MA organization's decision to deny). When the MA organization extends
the timeframe, it must notify the enrollee in writing of the reasons
for the delay, and inform the enrollee of the right to file an
expedited grievance if he or she disagrees with the MA organization's
decision to grant an extension. The MA organization must notify the
enrollee of its determination as expeditiously as the enrollee's health
condition requires but no later than upon expiration of the extension.
* * * * *
0
77. Amend Sec. 422.600 by-
A. Revising paragraph (a).
B. Revising paragraph (b).
0
The revisions read as follows:
Sec. 422.600 Right to a hearing.
(a) If the amount remaining in controversy after reconsideration
meets the threshold requirement established annually by the Secretary,
any party to the reconsideration (except the MA organization) who is
dissatisfied with the reconsidered determination has a right to a
hearing before an ALJ.
(b) The amount remaining in controversy, which can include any
combination of Part A and Part B services, is computed in accordance
with part 405 of this chapter.
* * * * *
0
78. Amend Sec. 422.602 by--
A. Revising paragraph (a).
B. Revising paragraph (b).
C. Revising paragraph (d).
0
The revisions read as follows:
Sec. 422.602 Request for an ALJ hearing.
(a) How and where to file a request. A party must file a written
request for a hearing with the entity specified in the IRE's
reconsideration notice.
(b) When to file a request. Except when an ALJ extends the time
frame as provided in part 405 of this chapter, a party must file a
request for a hearing within 60 days of the date of the notice of a
reconsidered determination. The time and place for a hearing before an
ALJ will be set in accordance with Sec. 405.1020.
* * * * *
(d) Insufficient amount in controversy. (1) If a request for a
hearing clearly shows that the amount in controversy is less than that
required under Sec. 422.600, the ALJ dismisses the request.
(2) If, after a hearing is initiated, the ALJ finds that the amount
in controversy is less than the amount required under Sec. 422.600,
the ALJ discontinues the hearing and does not rule on the substantive
issues raised in the appeal.
0
79. Revise Sec. 422.608 to read as follows:
Sec. 422.608 Medicare Appeals Council (MAC) review.
Any party to the hearing, including the MA organization, who is
dissatisfied with the ALJ hearing decision, may request that the MAC
review the ALJ's decision or dismissal. The regulations under part 405
of this chapter regarding MAC review apply to matters addressed by this
subpart to the extent that they are appropriate.
0
80. Amend Sec. 422.612 by--
A. Revising paragraph (a)(2).
B. Revising paragraph (b).
C. Revising paragraph (c).
0
The revisions read as follows:
Sec. 422.612 Judicial review.
(a) * * *
(2) The amount in controversy meets the threshold requirement
established annually by the Secretary.
(b) Review of MAC decision. Any party, including the MA
organization, may request judicial review (upon notifying the other
parties) of the MAC decision if it is the final decision of CMS and the
amount in controversy meets the threshold established in paragraph
(a)(2) of this section.
(c) How to request judicial review. In order to request judicial
review, a party must file a civil action in a district court of the
United States in accordance with section 205(g) of the Act. See part
405 of this chapter for a description of the procedures to follow in
requesting judicial review.
0
81. Amend Sec. 422.616 by revising paragraph (a) to read as follows:
Sec. 422.616 Reopening and revising determinations and decisions.
(a) An organization or reconsidered determination made by an MA
organization, a reconsidered determination made by the independent
entity described in Sec. 422.592, or the decision of an ALJ or the MAC
that is otherwise final and binding may be reopened and revised by the
entity that made the determination or decision, under the rules in part
405 of this chapter.
* * * * *
0
82. Amend Sec. 422.620 by--
A. Revising the section heading.
B. Revising paragraph (b).
C. Revising paragraph (c).
0
The revisions read as follows:
Sec. 422.620 How enrollees of MA organizations must be notified of
noncovered inpatient hospital care.
* * * * *
(b) Physician concurrence required. Before discharging an
individual or changing the level of care in an inpatient hospital
setting, the MA organization must obtain the concurrence of the
physician who is responsible for the enrollee's inpatient care.
(c) Notice to the enrollee. When applicable, the written notice of
non-coverage must be issued no later than the day before hospital
coverage ends. The written notice must include the following elements:
(1) The reason why inpatient hospital care is no longer needed or
covered;
(2) The effective date and time of the enrollee's liability for
continued inpatient care;
(3) The enrollee's appeal rights;
(4) If applicable, the new lower level of care being covered in the
hospital setting; and
(5) Any additional information specified by CMS.
0
83. Amend Sec. 422.622 by revising paragraph (b)(1)(i) to read as
follows:
Sec. 422.622 Requesting immediate QIO review of noncoverage of
inpatient hospital care.
* * * * *
(b) * * *
(1) * * *
(i) To the QIO that has an agreement with the hospital under part
475, subpart C of this chapter;
* * * * *
[[Page 4741]]
Subpart N-Medicare Contract Determinations and Appeals
0
84. Amend Sec. 422.648 by adding paragraph (c) to read as follows:
Sec. 422.648 Reconsideration: Applicability.
* * * * *
(c) Notice of any redetermination favorable to the MA organization
applicant, including those resulting from a hearing or Administrator
review conducted under this subpart, must be issued by July 15 for the
contract in question to be effective on January 1 of the following
year.
Subpart O-Intermediate Sanctions
0
85. Amend Sec. 422.752 by--
A. Revising paragraph (a) introductory text.
B. Revising paragraph (a)(8) introductory text.
C. Revising paragraph (b)
0
The revisions read as follows:
Sec. 422.752 Basis for imposing sanctions.
(a) All intermediate sanctions. For the violations listed in this
paragraph (a), we may impose one, or more, of the sanctions specified
in Sec. 422.750(a)(2), (a)(3), or (a)(4) on any MA organization that
has a contract in effect. The MA organization may also be subject to
other applicable remedies available under law.
* * * * *
(8) Employs or contracts with an individual or entity who is
excluded from participation in Medicare under section 1128 or 1128A of
the Act (or with an entity that employs or contracts with such an
excluded individual or entity) for the provision of any of the
following:
* * * * *
(b) Suspension of enrollment and marketing. If CMS makes a
determination under Sec. 422.510(a), CMS may impose the intermediate
sanctions in Sec. 422.750(a)(2) and (a)(4).
0
86. Amend Sec. 422.756 by-
A. Revising paragraph (f)(2).
B. Revising paragraph (f)(3).
0
The revisions read as follows:
Sec. 422.756 Procedures for imposing sanctions.
* * * * *
(f) * * *
(2) In the case of a violation described in paragraph (a) of Sec.
422.752, or a determination under paragraph (b) of Sec. 422.752 based
upon a violation under Sec. 422.510(a)(4) (involving fraudulent or
abusive activities), in accordance with the provisions of part 1003 of
this chapter, the OIG may impose civil money penalties on the MA
organization in accordance with part 1003 of this chapter in addition
to, or in place of, the sanctions that CMS may impose under paragraph
(c) of this section.
(3) In the case of a determination under Sec. 422.752(b) other
than a determination based upon a violation under Sec. 422.510(a)(4),
CMS may impose civil money penalties on the MA organization in the
amounts specified in Sec. 422.758 in addition to, or in place of, the
sanctions that CMS may impose under paragraph (c) of this section.
0
87. Amend Sec. 422.758 by-
A. Revising the introductory text.
B. Revising paragraph (c).
0
The revisions read as follows:
Sec. 422.758 Maximum amount of civil money penalties imposed by CMS.
If CMS makes a determination under Sec. 422.510(a), as described
in Sec. 422.752(b) excepting those determinations under Sec.
422.510(a)(4), CMS may impose civil money penalties in addition to, or
in place of, the sanctions that CMS may impose under Sec. 422.756(c)
in the following amounts:
* * * * *
(c) If CMS makes a determination that a MA organization has
terminated its contract other than in a manner described under Sec.
422.512 and that the MA organization has therefore failed to
substantially carry out the terms of the contract--$250 per Medicare
enrollee from the terminated MA plan or plans at the time the MA
organization terminated its contract, or $100, 000, whichever is
greater.
Nomenclature Changes
0
88. In part 422, remove ``Departmental Appeals Board'' wherever it
appears and add in its place ``Medicare Appeals Council''.
0
89. In part 422, remove ``DAB'' wherever it appears and add in its
place ``MAC''.
0
90. In part 422, remove ``Medicare+Choice'' wherever it appears and add
in its place ``Medicare Advantage''.
0
91. In part 422, remove ``M+C'' wherever it appears and add in its
place ``MA''.
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare
Supplementary Medical Insurance Program)
Dated: January 10, 2005.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
Dated: January 14, 2005.
Tommy G. Thompson,
Secretary of Health and Human Services.
[FR Doc. 05-1322 Filed 1-21-05; 11:19 am]
BILLING CODE 4120-01-S