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CMS Proposed Rulemaking For The Medicare Advantage And Medicare Prescription Drug Programs


On October 22, 2009, the Centers for Medicare & Medicaid Services (CMS) issued a notice of proposed rulemaking that would make numerous regulatory changes relating to the Medicare Advantage and Medicare Prescription Drug Programs. (74 Fed. Reg. 54634) The proposed changes vary from clarifications of current CMS policy, updating regulations to reflect current CMS subregulatory guidance, and implementing altogether new regulations for these programs. Set forth below is summary of many of the proposed changes.

This section addresses a number of proposals designed to strengthen CMS' ability to approve strong applicants and remove poor performers in the Medicare Advantage and Medicare prescription drug programs. CMS proposes changes and clarifications to its regulations to "make certain that all current and potential MA organizations and PDP sponsors clearly understand and can reasonably anticipate how we measure sponsor performance, determine when there is noncompliance, and when enforcement actions are warranted." Organizations that have submitted applications including service area expansion applications will note that some of these proposals reflect how CMS has been conducting its review process for the last few years. Specifically, through the application instructions issued over the last three years, CMS has clarified that it will only provide three opportunities to submit an approvable contract qualification application to CMS: (1) the initial solicitation response; (2) one "courtesy opportunity" to correct any identified deficiencies, and (3) a final opportunity during the 10-day cure period provided for specifically in the regulations.

A. Require Notice of Intent to Apply under Parts C and D within the Application Requirements (Sections 422.501 and 423.502)

As a result of the fully electronic submission process and restrictions on access to CMS' health plan management system (HPMS), every applicant (including applicants for service area expansions) must complete a Notice of Intent to Apply as described in the HPMS memo dated October 10, 2008. The Notice of Intent to Apply provides us with critical information for generating a pending contract number and providing User ID connectivity. Submitting a Notice of Intent to Apply does not bind that organization to submit an application for the following year. However, without a pending contract number and completed CMS User ID connectivity, an organization will not be able to access the appropriate modules in HPMS to complete the application materials. The proposed rule would codify CMS' existing guidance that all applicants and contractors seeking to expand their service area complete a nonbinding Notice of Intent to Apply.

B. Application Requirements (Sections 422.501(c) and 423.502(c)) and Evaluation and Determination Procedures for Determining whether Applicants Are Qualified for a Contract under Parts C and D (Sections 422.502 and 423.503)

CMS proposes to revise Sections 422.502 and 423.503 to make it explicit that the agency will approve only those applications that demonstrate that the applicant meets all (not substantially all) Part C and D program requirements. Under the current regulations at Sections 422.502(a)(1) and 423.503(a)(1), CMS evaluates an entity's application on the basis of information contained in the application itself and any additional information that CMS obtains through onsite visits, publicly available information, and any other appropriate procedures. CMS proposes to modify Sections 422.502(a)(1) and 423.503(a)(1) to limit the evaluation of an entity's application to the information contained in the application and any additional information that obtained through onsite visits.

CMS also proposes to clarify its authority to decline to consider application materials submitted after the expiration of the 10-day period following issuance of a notice of intent to deny an organization's contract qualification application. The purpose of the proposed regulatory change is to clarify that information submitted after 10 days from the notice will under no circumstances be reviewed for the purpose of approving an application. Further, the applicant would not be permitted to submit additional revised application material to the Hearing Officer for review should the applicant elect to appeal the denial of its application. The proposed rule would further clarify that the standard for the disposition of applications for which either revisions are not provided within the 10 days or are inadequate. If CMS does not receive a revised application within 10 days from the date of the intent to deny notice, or if after timely submission of a revised application, the applicant still appears unqualified to contract as an MA organization or Part D sponsor and/or has not provided enough information to allow CMS to evaluate the application, CMS will deny the application.

C. Deny Contract Qualification Applications Based on Past Contract Performance (Sections 422.750 and 423.750)

Under Sections 422.502(b) and 423.503(b), CMS may deny an application based on the applicant's failure to comply with the terms of a prior contract with CMS even if the applicant currently meets all of the application requirements. Under the proposed rule, CMS would modify Sections 422.502(b) and 423.503(b) to provide that CMS will review past performance across all of the contracts held by the applicant and will consider performance problems identified by CMS during the 14 months prior to the due date of the application. Fourteen months covers the time period from the start of the previous contract year through the time that applications are received for the next contract year.

According to CMS, indicia of performance deficiencies that might lead it to conclude that an organization has failed to comply with a current or prior contract include, but are not limited to, poor performance ratings as displayed on the Medicare Options Compare and Medicare Prescription Drug Plan Finder's web sites; receipt of requests for corrective action plans (CAPs) unrelated to an audit (as these types of CAPs generally involve direct beneficiary harm); and receipt of one or more other types of noncompliance notices from CMS (for example, notices of noncompliance or warning letters). In addition, CMS will consider withdrawal of Part C or D operations from some or all of an organization's newly contracted service area prior to the start of a benefit year (through mutual termination or otherwise) an indication of poor performance.

D. Use of Data to Evaluate Continued Ability to Act as a Qualified Sponsoring Organization under Parts C and D (Sections 422.504 and 423.505)

CMS proposes to proposes to add paragraphs Sections 422.504(m)(1) and (2) and 423.505(n)(1) and (2) to make explicit the agency's existing authority to find organizations or sponsors out of compliance with MA and/or Part D requirements when the organization's or sponsor's performance fails to meet performance standards articulated in statutes, regulations, and guidance or when an organization's or sponsor's performance represents an outlier relative to the performance of other organizations or sponsors.

E. Compliance Programs under Parts C and D (Sections 422.503(b)(4)(vi) and 423.504(b)(4)(vi))

In the preamble to the proposed rule, CMS indicates that its recent experience is that some sponsoring organizations have instituted compliance plans that appear to meet the minimum requirements of CMS' regulations, but may not have an effective compliance program. In addition, other sponsoring organizations "seem to legitimately grapple with how best to implement the regulatory requirements within their organization and which particular actions on their part will meet our requirements." CMS proposes to modify 422.503(b)(4)(vi) and 423.504(b)(4)(vi) to clarify what will constitute an "effective" compliance program prior to contracting with CMS. CMS is also proposing to further clarify existing policy by modifying current language and/or adding language in support of each of the elements of an effective compliance plan in order to assist sponsoring organizations with implementing more effective compliance programs.

In the first element concerning the overall requirement to have written policies and procedures, CMS proposes to further clarify existing policy by adding that these policies must describe compliance expectations as embodied in the standards of conduct, implement the operations of the compliance program, provide guidance to others, identify how to communicate compliance issues to compliance personnel, describe how compliance issues are investigated and resolved and include a policy of non-intimidation and non-retaliation.

In the second element concerning the requirement to have a compliance officer and committee accountable to senior management, CMS proposes to clarify existing policy by adding that the compliance officer and committee must periodically report directly to the governing body (for example, Board of Directors) and that body must be knowledgeable about the compliance program and exercise reasonable oversight over the implementation and effectiveness of the program. According to CMS, the governing body's direct involvement with and oversight of the compliance program is instrumental in fulfilling this requirement and achieving an effective compliance program. In deciding how often the compliance officer and committee must directly report to the Board of Directors, sponsoring organizations must consider many factors, including but not limited to: the size of the organization, the number of compliance problems, whether there is an emergency that calls for the Board's attention, and whether the sponsoring organization is under an intermediate sanction. The proposed rule also clarifies existing CMS policy for senior management to be sufficiently engaged, informed, and to exercise appropriate governance over the organization's compliance program.

In the third element concerning the requirement to have effective training and education, CMS proposes to clarify existing policy by adding several key groups and individuals (the chief executive or other senior administrator, managers, and governing body members) among the sponsoring organization's employees who are required to have compliance training and education. CMS also proposes to clarify existing policy that this training must occur at a minimum annually and must be made a part of the orientation for a new employee, new first tier, downstream and related entities, and new appointment to a chief executive, manager or governing body member.

According to CMS, since publication of its December 5, 2007 final rule (72 Fed. Reg. 68700), it has become apparent that application of training about fraud, waste, and abuse to the MA organizations' first tier, downstream, and related entities may be redundant of the certification made when these entities submit enrollment applications to become Medicare physician and non-physician practitioners, institutional providers, and suppliers. Therefore, CMS proposes to modify its regulations to provide that providers who have met this requirement through enrollment into the Medicare program are deemed to have met this training and education requirement. CMS is not proposing similar deeming language in the Part D regulations at Section 423.504(b)(4)(vi)(C) since these certification requirements do not currently apply to Part D first tier, downstream, or related entities.

CMS proposes to address another problem created by its current requirement for training in fraud, waste, and abuse of first tier, downstream, and related entities. Under existing regulations and guidance, each MA organization and plan sponsor is required to provide training to its first tier, downstream, and related entities. However, CMS did not intend to require duplicative training. In the proposed rule, CMS seeks comments on whether or how best to rephrase the existing language to clarify this point, while still ensuring that its requirement is met with respect to each first tier, downstream, and related entity. One option identified by CMS might be that the plan sponsor "assures" or "obtain an assurance" that the first tier, downstream, and related entity has received such training. Another option might be to leave existing language unchanged, but issue interpretive guidance on this point.

In the fourth element concerning the requirement to have effective lines of communication, CMS proposes to clarify existing policy to require that these lines of communication are confidential and accessible to all and allow for compliance issues to be reported anonymously and in good faith as issues are identified.

In the fifth element concerning the requirement to have enforcement of standards through well-publicized disciplinary guidelines, CMS proposes to clarify existing policy to more specifically describe that these guidelines must be implemented to include policies that articulate expectations for reporting issues and their resolution, identify noncompliance or unethical behavior, and provide for timely, consistent and effective enforcement of the standards when noncompliance or unethical behavior is detected.

In the sixth element concerning the requirement to have procedures for internal monitoring and auditing, CMS proposes to clarify existing policy to more specifically describe that an effective system for routine monitoring and identification of compliance risks includes internal monitoring and audits and, as appropriate, external audits, in order to evaluate the organization's compliance with CMS' requirements and overall effectiveness of the compliance program. These audits should include the sponsoring organization's first tier entities.

In the seventh element concerning the requirement to have procedures for ensuring prompt response to detected offenses and development of CAPs, CMS proposes to clarify existing policy to more specifically describe the implementation of a system for promptly responding to compliance issues as they are raised, investigating potential compliance problems identified in the course of self-evaluations and audits, correcting such problems promptly and thoroughly to reduce the potential for recurrence and ensuring ongoing compliance with CMS requirements.

F. Network Adequacy of Coordinated Care and Network-Based Private Fee-for-Service Plans under Part C (Section 422.112)

CMS is in the process of developing an automated system for reviewing network adequacy on a continuing basis based on the elements that it determines define community patterns of health care delivery. In light of this automated system, CMS believes "it is appropriate to more explicitly define how we determine network adequacy." Thus, in the proposed rule, CMS includes more specific criteria that it will apply in defining community patterns of care in order to determine if a network offered by an MA plan meets Medicare access and availability requirements. These more specific criteria would be applied to the proposed provider networks of both coordinated care and PFFS plans that are intending to meet Medicare access to services requirements, in whole or in part, through a network of direct contracting providers.

The specific factors proposed include, but are not limited to:

  • The number and geographical distribution of eligible health care providers available to potentially contract with an MAO to furnish plan covered services within the proposed service area of the MA plans;
  • The prevailing market conditions in the service area of the MA plan. Specifically, the number and distribution of health care providers contracting with other health care plans (both commercial and Medicare) operating in the service area of the plan;
  • Whether the service area is comprised of rural or urban areas or some combination of the two;
  • Whether the MA plan's proposed provider network meets Medicare time and distance standards for member access to health care providers including specialties; and
  • Other factors that CMS determines to be relevant in setting a standard for an acceptable health care delivery network in a particular service area.

CMS indicates that it plans to further define through subregulatory guidance (for example the annual Call Letter) how it will operationalize these provisions.

G. Deemable Program Requirements under Parts C and D (Sections 422.156(b)(7), 422.156(f), 423.165(b), and 423.165(f))

CMS proposes several clarifications and changes to its deeming regulations. One proposed change would clarify which regulatory requirements are "deemable" for MA organizations that offer prescription drug benefit programs. Specifically, CMS proposes to modify Section 422.156(b)(7) to refer to the list of deemable requirements for Part D sponsors set out at Section 423.165(b)(1) through (b)(3). CMS also proposes to revise Sections 422.156(f) and 423.165(f) to more closely match the authority granted by the statute to provide that CMS retains authority to impose intermediate sanctions and civil money penalties (CMPs), initiate contract terminations, and perform evaluations and audits of an organization's records, facilities and operations, notwithstanding the deeming provisions. Finally, CMS proposes to delete the regulatory provision at Section 423.165(b) which provides a program to protect against fraud, waste, and abuse is a deemable program requirement.

H. Modify the Corrective Action Plan (CAP) Process as it Relates to Procedures for Termination and Nonrenewal of a Part C or D Contract by CMS (Sections 422.506(b)(3), 422.510(c)(1), 423.507(b)(3), and 423.509(c)(1))

According to CMS, since the implementation of the December 5, 2007 final rule, the agency has determined that some modification is required of its overall approach to compliance procedures, particularly in situations when serious and/or repeated compliance deficiencies are identified. Specifically, CMS indicated in the preamble to the proposed rule that it has concluded that the compliance procedures and timeframes set forth in Sections 422.506(b)(3), 422.510(c)(1), 423.507(b)(3), and 423.509(c)(1) related to notice and opportunity to develop and implement corrective actions could be improved to more effectively assist CMS and sponsoring organizations in achieving timely, efficient, and effective correction of identified underlying contract compliance deficiencies. According to CMS, its current compliance procedures require it to focus internal oversight resources and expertise on reviewing and approving "how" sponsoring organizations will correct their deficiencies rather than utilizing CMS resources and expertise more effectively and efficiently to review information submitted by sponsoring organizations to determine if the underlying deficiencies have actually been corrected. Therefore, CMS proposes to eliminate the existing language that requires CAPs to be submitted for its approval prior to CMS issuing a notice of intent to terminate or nonrenew a contract. Instead, CMS proposes to add a new "outcome-oriented approach." Under the proposed rule, before providing a notice of intent to terminate or nonrenew a contract, CMS will provide the sponsoring organization with a notice of its deficiencies and afford it the opportunity to develop and implement a CAP to correct these deficiencies. CMS is also proposing that the sponsoring organization is solely responsible for the identification, development, and implementation of its CAP and for demonstrating to CMS that the underlying deficiencies have been corrected within the time period afforded under the notice and opportunity for corrective action.

According to CMS, affording sponsoring organizations at least 30 calendar days to develop and implement a CAP prior to issuing the notice of intent to terminate or nonrenew is a sufficiently reasonable opportunity under the statutory authority afforded. However, CMS will consider the nature and extent of the particular compliance deficiencies and other relevant factors such as whether or not the deficiencies are isolated or repeated and longstanding, and whether or not the entity has been afforded a prior notice and opportunity to correct in reaching a decision whether it may be appropriate for the MAO or Part D Sponsor to be afforded more than 30 days to correct the identified deficiencies.

I. Procedures for Imposing Intermediate Sanctions and Civil Money Penalties under Parts C and D (Sections 422.756 and 423.756))

Existing regulations at Sections 422.756(d)(3) and 423.756(d)(3) provide that the sanction remains in effect until CMS notifies the sponsoring organization that CMS is satisfied that the basis for imposing the sanction has been corrected and is not likely to recur. According to CMS, "[b]ased on recent experience, it has been difficult at times for us to make the determination to lift a sanction." CMS proposes two changes to provide additional flexibility in making the determination to lift a sanction. First, CMS proposes that it may require the sponsoring organization to hire an independent auditor to provide CMS with additional information to determine if the deficiencies upon which the sanction was based have actually been corrected and are not likely to recur. The independent auditor would be hired by the sponsoring organization and work in accordance with CMS specifications.

CMS is also considering an alternative proposal whereby CMS would grant sponsoring organizations the discretion to hire an independent auditor to evaluate the organization's compliance with CMS requirements. However, the proposed rule is limited to allowing CMS to require that a sponsoring organization hire an independent auditor.

Next, CMS proposes that in instances where an enrollment and/or marketing suspension has been imposed, CMS may determine that it is appropriate to subject the sponsoring organization to a "test period" whereby the organization or sponsor will, for a limited time, engage in marketing activities and/or accept enrollments in order to assist CMS in making a determination as to whether the bases for the sanctions have been corrected and are not likely to recur. The specific requirements for the marketing and/or enrollment "test period" will be determined by considering numerous factors, including but not limited to: the size of the organization, the specific deficiencies, and the timeframe in which the "test period" is conducted.

J. Termination of Contracts under Parts C and D (Sections 422.510(a) and 423.509(a))

Existing regulations at Sections 422.510(a)(6) through (12) and 423.509(a)(6) through (11) provide a number of bases (in addition to the statutory bases) upon which a contract may be terminated. This list does not include every reason for which CMS has the authority to terminate a contract. CMS is concerned that by not specifically including each and every requirement on this enumerated list, organizations may be under the mistaken impression that CMS cannot take an action to terminate (or non-renew) a contract, or sanction an organization, for a failure to comply with a requirement(s) that is not enumerated. Therefore, CMS proposes to delete the enumerated bases for termination contained at Sections 422.510(a)(6) through (12) and 423.509(a)(6) through (11). In addition, CMS proposes to revise Sections 422.510(a) and 423.509(a) to separate the language into two paragraphs. The first paragraph, (a)(1), will list the statutory bases for termination under Sections 1857(c)(2) and 1860D-12(b)(3)(B) of the Act. Under these sections, CMS may at any time terminate a contract if CMS determines that the sponsoring organization has: (i) Failed substantially to carry out the contract; (ii) is carrying out the contract in a manner inconsistent with the efficient and effective administration of this part; or (iii) no longer substantially meets the applicable conditions of this part. The second paragraph, (a)(2), will clarify--(i) that a sponsoring organization's failure to comply with CMS regulations, (ii) failure to meet performance standards; and/or (iii) participation in false, fraudulent, or abusive activities, may constitute a basis for CMS to determine that the sponsoring organization meets the requirements for contract termination in accordance with paragraph (a)(1).

More specifically, CMS proposes to add new language that failure to comply with any of the regulatory requirements contained in Parts 422 or 423 may constitute a basis for CMS to determine that the sponsoring organization meets the requirements for contract termination in accordance with paragraph (a)(1).

In addition, CMS proposes language to include false, fraudulent, or abusive activities affecting Medicaid, or other State or Federal health care programs as bases for contract termination.

K. Request for Hearing under Parts C and D (Sections 422.662 and 423.651)

CMS proposes changes in its current regulations at Sections 422.662(a) and 423.651(a) to address perceived inefficiencies in its hearing procedures. Under the proposed regulations, the sponsoring organization must file the request for a hearing in accordance with the requirements specified in the notice of the contract determination or intermediate sanction, thus ensuring that the proper officials within CMS receive the request and can act upon the request in a timely manner.

CMS is also making a conforming change to provide that the request must be filed within 15 calendar days after receipt of the notice (versus the existing language which states 15 calendar days from the "date CMS notifies" the sponsoring organization of its determination). This change is to ensure consistency with the way deadlines are described in other regulatory provisions of Parts 422 and 423 governing contract determinations or the imposition of intermediate sanctions (including related appeals processes).

L. Burden of Proof, Standard of Proof, Standards of Review, and Conduct of Hearing (Sections 422.660, 423.650, 422.676 and 423.658)

Under existing regulations at Sections 422.660(b) and 423.650(b), when appealing a contract determination or an intermediate sanction, the sponsoring organization bears the burden of proof to demonstrate that it was in "substantial compliance" with CMS requirements on the "earliest of" the following three dates: (i) The date of the notice of contract determination or intermediate sanction; (ii) The date of the most recent onsite audit; or (iii) The date of the alleged breach of the current contract or past substantial noncompliance as determined by CMS.

According to CMS, the "substantial compliance" and "earliest of test" have led to confusion among parties to the hearing and have been difficult for the Hearing Officer to apply. Accordingly, CMS propose to delete "substantial compliance" as a standard of review. CMS is also proposing to delete the "earliest of" test.

Other changes/clarifications proposed by CMS include:

  • Clarifying that the burden of proof is the preponderance of evidence standard when weighing the evidence at a hearing for an appeal of a CMS contract determination or imposition of intermediate sanction.
  • Clarifying that the applicant or the sponsoring organization has the burden of proving by a preponderance of the evidence that CMS' determination was inconsistent with the requirements of the applicable part.
  • Changing the deadline by which by which the notice of any decision favorable to a Part C or D applicants appealing a determination that it is not qualified to enter into a contract with CMS must be issued from July 15th for the contract in question to be effective on January 1st of the following year.
  • Changing existing regulations governing the conduct of the hearing to provide that the sponsoring organization bears the burden of being the first to present its argument to the Hearing Officer according to any briefing schedule determined by the Hearing Officer.

M. Expedited Contract Terminations Procedures (Sections 422.510, 423.509, 422.664, 423.652, 422.644, and 423.642)) under Parts C and D

According to CMS, the current regulations do not adequately reflect the scope of the Secretary's authority under Sections 1857(h)(2) and 1860D-12(b)(3)(F) of the Act to terminate Part C or D contracts. Therefore, CMS proposes to amend its termination procedures to clarify that for terminations based on violations prescribed in Sections 422.510(a) and 423.509(a), if CMS determines that a delay in termination, resulting from compliance with CAP and hearing procedures prior to termination, would pose an imminent and serious risk to the health of the individuals enrolled with the sponsoring organization, the effective date of the termination will be specified, in writing by CMS. In addition, CMS proposes to amend the termination procedures language at Sections 422.510(c)(2) and 423.509(c)(2) to clarify that if CMS determines that a delay in termination, resulting from compliance with the CAP procedures, would pose an imminent and serious risk to the health of the individuals enrolled with the MA organization or Part D sponsor, the MA organization or Part D sponsor will not be provided with an opportunity to develop and implement a CAP prior to termination. Lastly, CMS proposes to amend the appeals procedures language at Sections 422.664(b)(2) and 423.652(b)(2) to provide that if CMS determines that a delay in termination, resulting from compliance with the notice and opportunity for hearing procedures, prior to termination, would pose an imminent and serious risk to the health of individuals enrolled with the MA organization or Part D sponsor, the date of termination will not be postponed if the MA organization or Part D sponsor requests a hearing.

N. Time and Place of Hearing under Parts C and D (Sections 422.670 and 423.655)

CMS proposes to add language to provide that the sponsoring organization or CMS may request that the hearing date be postponed by filing a written request no later than 5 calendar days prior to the scheduled hearing. When either the sponsoring organization or CMS requests an extension, the Hearing Officer will provide a one-time 15 calendar day postponement, and additional postponements may be granted at the discretion of the Hearing Officer.

In addition, current regulations at Sections 422.670(a) and 423.655(a) require that the CMS Hearing Officer schedule a hearing to review a contract determination or the imposition of an intermediate sanction within 30 calendar days from the "receipt of request for the hearing." CMS proposes to change the language to provide that the CMS Hearing Officer schedule a hearing to review a contract determination or the imposition of an intermediate sanction within 30 calendar days after the "receipt of the request for the hearing."

O. Discovery under Parts C and D (Sections 422.682 and 423.661)

CMS does not believe a formal discovery process is necessary or appropriate in proceedings to terminate a sponsoring organization's contract, and proposes to delete the formal discovery process.

P. Prohibition of MA and Part D Applications for Two Years After a Mutual Termination (Sections 422.503(b)(6) and 423.504(b)(5))

In the preamble, CMS indicates its belief that a termination by mutual consent, which involves a termination by an MA organization or a Part D sponsor as well as by CMS, should be considered a termination of a contract for purposes of the 2-year ban on entering into new contracts under Section 1857(c)(4)(A) of the Act, which is incorporated for Part D under Section 1860D-12(b)(3)(B) of the Act. Therefore, CMS proposes that as a condition of the consent to a mutual termination, CMS will prohibit the MA organization or Part D sponsor from applying for new contracts or service area expansions for a period of two years, absent circumstances that warrant special consideration as provided under Section 1857(c)(4)(A) of the Act. Such language would be incorporated into the mutual termination consent agreement to be signed by both parties.


A. Beneficiary Communications Materials under Parts C and D (Sections 422.2260, 422.2262, 423.2260, and 423.2262)

According to CMS, the regulatory definition of the term "marketing materials" is so broad as to encompass plan notification materials that are often either situational materials or beneficiary specific customized communications. As these materials are considered marketing materials, they are subject to CMS rules regarding review, distribution, and approval in Sections 422.2262 and 423.2262. However, CMS has found that CMS Regional Office review and approval procedures for situational marketing materials should follow a separate review process determined by CMS. Materials that are beneficiary specific letters are not considered to be marketing materials such as--

  • Part D explanations of benefits (EOBs);
  • Notifications about claims processing changes or errors; and
  • Other one-time or situational, beneficiary specific letters to current enrollees.

Therefore, CMS proposes to revise Sections 422.2260 and 423.2260 to exclude materials about claims processing activities from the definition of marketing materials. CMS also proposes to add a definition of current enrollee communications materials not to be considered marketing materials encompassing information targeted to situational or beneficiary-specific circumstances, including claims processing issues and other one-time communications about operations. In addition, CMS proposes to revise its regulations to specify that, while current enrollee communications are not subject to the statutory requirement that applies to marketing materials (that is, that they be submitted to CMS for review prior to use), CMS retains the right to review them, and their use could be disapproved by CMS, or disapproved unless modifications are made.

B. Required Use of Standardized Model Materials under Parts C and D (Sections 422.2262 and 423.2262)

In order to reduce variability of marketing materials and to ensure documents are more accurate and understandable to beneficiaries, CMS proposes to move toward greater standardization of the information provided in plan marketing materials. Specifically, CMS proposes to require that MA organizations and PDP sponsors use standardized marketing material language and format, without modification, in every instance in which CMS provides standardized language and formatting.

C. Involuntary Disenrollment for Failure to Pay Plan Premiums under Parts C and D (Sections 422.74 and 423.44)

CMS proposes to amend the regulations regarding disenrollment for nonpayment of premium to require a minimum grace period of 2 months before any involuntary disenrollment associated with failure to pay a premium.

D. Maximum Allowable Out-of-Pocket Cost Amount for Medicare Parts A and B Services (Section 422.100)

Under Section 1852(b)(1) of the Act, CMS may not approve MA plans if the agency determines that the design of the plan and its benefits would substantially discourage enrollment by certain MA eligible individuals. "Based on program experience and efforts to curb discriminatory benefit packages," CMS proposes that all local MA plans include an annual out-of-pocket cap on members' total cost-sharing liability for Part A and Part B services. This amount would be set annually by CMS.

The cap for local PPO plans will be inclusive of all in-network and out-of-network beneficiary cost sharing. The methodology for determining the out-of-pocket maximum for local MA plans would be similar to the methodology used to establish the voluntary out-of-pocket maximum amount for MA plans for contract year 2010. The out-of-pocket maximum would be set at a certain percentile of expected fee-for-serve spending, as estimated by the Office of the Actuary.

E. Maximum Allowable Cost Sharing Amount for Medicare Parts A and B Services and Prescription Drugs (Sections 422.100 and 423.104)

CMS proposes to amend its regulations on the general requirements related to MA benefits and qualified prescription drug coverage to expressly authorize CMS to establish cost sharing thresholds for individual services below which cost sharing will be considered non-discriminatory. CMS believes that requiring the inclusion of such cost sharing thresholds in plans' benefit designs affords greater predictability and protection against high out-of-pocket costs for beneficiaries with medical conditions that could result in exceptionally high out-of-pocket costs obligations, and further ensures that those beneficiaries are not discouraged from enrolling in an MA plan.

Under Part C, CMS proposes to annually review bid data to determine specific cost sharing levels for Medicare A and B services below which would not have a discriminatory effect, and therefore may be approved in an MA benefit package. Similarly, under Part D, CMS would annually review bid data to determine acceptable cost sharing tiers for non-defined standard benefit designs. CMS would furnish information to MA organizations and Part D sponsors on its methodology and the acceptable cost sharing amounts based on the prior year's bids on a timely basis either through the annual Call Letter or Health Plan Management System (HPMS) memoranda. The methodology for determining the cost-sharing thresholds for Part A and B services would involve reviewing the prior year's bid data, as well as actuarial equivalencies from original Medicare, to determine outliers. These amounts could be adjusted based on new bid submissions for the current year.

Organizations submitting MA plan or prescription drug plan bids found to have discriminatory cost sharing will have an opportunity to resubmit their bid and benefit package to comply with the non-discrimination requirements. CMS would annually evaluate its review process and the criteria it uses to determine cost sharing discrimination and may make changes to ensure that beneficiaries are protected from discriminatory cost sharing.

F. Prohibition on Prior Notification by PPO, PFFS and MSA Plans under Part C (Sections 422.2, 422.4, and 422.105(b))

CMS has become increasingly concerned about the use of prior notification by PPO and PFFS plans. According to CMS, prior notification is confusing to beneficiaries, misleading in terms of disclosure of cost-sharing, and, in some instances, used inappropriately as a form of prior authorization. Therefore, CMS proposes to revise its regulations to provide that PPO, PFFS and MSA plans will be prohibited from establishing prior notification rules under which an enrollee is charged lower cost sharing when either the enrollee or the provider notifies the plan before a service is furnished.

CMS also indicated that the complexity of cost sharing designs for PPO plans with a POS-like benefit makes it more difficult for both enrollees and providers to understand the enrollee's cost sharing obligation in advance of receiving services. In order to reduce the complexity of PPO plans' cost sharing designs and improve transparency for both enrollees and providers, CMS proposes to prohibit PPO plans from offering a POS-like benefit.

G. Requirements for LIS Eligibility under Part D (Section 423.773)

CMS proposes to amend the length of the period for which individuals are re-deemed eligible for the full low income subsidy. The change is intended to conform to guidance CMS issued in Chapter, 13, Section 40.2.2 of the Medicare Prescription Drug Benefit Manual. Section 423.773(c)(2) currently specifies that a full subsidy eligible individual is deemed eligible for the full subsidy for a period up to one year. However, in practice, the period of deemed eligibility varies from as little as seven months to as long as eighteen months, depending on when the individual attained deemed status). Therefore, CMS proposes to amend Section 423.773(c)(2) to indicate that the deeming will be, at a minimum, for the following periods: If deemed status is determined between January 1st and June 30th of a calendar year, the individual is deemed subsidy eligible for the remainder of the calendar year. If deemed status is determined between July 1st and December 31st of a calendar year, the individual is deemed subsidy eligible for the remainder of the calendar year and the next calendar year. This change is intended to streamline the deeming/redeeming process and decrease the administrative burden on agencies and subsidy eligible individuals.

H. Enrollment of Full Subsidy Eligible Individuals and Other Subsidy Eligible Individuals under Part D (Section 423.34)

CMS proposes to amend Section 423.34 to reflect its guidance in Chapter 3 of the Medicare Prescription Drug Benefit Program Manual to include information on how CMS enrolls all LIS-eligible individuals, including full-benefit dual eligible individuals.

I. Special Enrollment Periods under Part D (Section 423.380)

CMS proposes to expand the special enrollment period described in Section 423.38(c)(4), which currently applies to full-benefit dual eligible individuals, to all LIS-eligible individuals.

J. Transition Process Under Part D (Section 423.120(b)(3))

According to CMS, given the importance of its transition policy as an enrollee protection--particularly for auto-assigned and reassigned beneficiaries who did not affirmatively choose a Part D plan--CMS proposes to codify in regulation certain policies from its guidance on the necessary elements of a plan transition process. Specifically, CMS proposes that a Part D sponsor must provide for a transition for the following:

  • New enrollees into PDPs following the annual coordinated election period;
  • Newly eligible Medicare enrollees from other coverage;
  • Individuals who switch from one plan to another after the start of the contract year; and
  • Current enrollees remaining in the plan who are affected by formulary changes from one contract year to the next.

CMS also proposes, consistent with current guidance, that a Part D sponsor's transition process requirements be applicable to non-formulary drugs, meaning both: (1) Part D drugs that are not on a sponsor's formulary; and (2) Part D drugs that are on a sponsor's formulary but require prior authorization or step therapy under a plan's utilization management rules. The latter is included because a formulary drug to which access is restricted via utilization management requirements is essentially equivalent to a non-formulary Part D drug to the extent that the relevant utilization management requirements are not met for a particular enrollee.

Additionally, CMS proposes, consistent with current guidance, to codify the timeframes for the transition process and the days' supply limit for a transition fill of an enrollee's medication. CMS also proposes to codify the transition process timeframe to apply during the first 90 days of coverage under a new plan. This 90-day timeframe would apply to retail, home infusion, long-term care, and mail-order pharmacies.

CMS also proposes to require plans to provide a temporary supply of drugs under their transition process. Consistent with Chapter 6, CMS proposes that Part D plan sponsors must ensure that the one-time, temporary supply of non-formulary Part D drugs requested during the first 90 days of coverage in an outpatient setting must be for at least 30 days of medication, unless the prescription is written by a prescriber for less than 30 days, in which case the Part D sponsor must allow multiple fills to provide up to a total of 30 days of medication. For a new enrollee in a Long term Care (LTC) facility, the temporary supply may be for up to 31 days (unless the prescription is written for less than 31 days), consistent with the dispensing practices in the LTC industry. In addition, due to the often complex needs of LTC residents that often involve multiple drugs and necessitate longer periods in order to successfully transition to new drug regimens, sponsors must honor multiple fills of non-formulary Part D drugs, as necessary during the entire length of the 90-day transition period.

In addition to codifying the preceding requirements, CMS also proposes to clarify its expectations of sponsors with respect to providing transition notices. CMS proposes to require sponsors to provide enrollees with appropriate notice regarding their transition process within a reasonable amount of time after providing a temporary supply of non-formulary Part D drugs (including Part D drugs that are on a sponsor's formulary but require prior authorization or step therapy under a sponsor's utilization management rules).

CMS guidance specifies that Part D sponsors send a written notice, via U.S. First Class mail, to each enrollee who receives a transition fill. This standard is consistent with requirement that other enrollee communications, including formulary change notices and explanations of benefits, be sent via U.S. First Class mail. In addition, CMS guidance directs sponsors to send this notice to each affected enrollee within 3 business days of the temporary fill. Given the importance of enrollee access to medications, especially during a transition in coverage, or a transition in a level of care, CMS proposes to codify this portion of its guidance and require provision of transition notices. In addition, CMS also proposes to require plan sponsors to make reasonable efforts to notify prescribers, via mail, electronic or verbal communication, that the affected enrollees' prescription cannot be refilled, either because of utilization management requirements such as prior authorization or step therapy, or because the prescribed medication is not on the plan sponsor's formulary.

K. Part D Sponsor Responsibility for Retroactive Claims Adjustment Reimbursements and Recoveries under Part D (Section 423.464)

Since current regulations do not address retroactive adjustments and the complexities associated with coordination of benefit activities that cannot be accomplished between the Part D sponsor and the pharmacy through reversal and re-billing, CMS has issued general guidance to direct sponsor coordination of benefit activities. Specifically, Sections of the COB and LIS chapters of the Medicare Prescription Drug Benefit Manual specify standards for a PDP sponsor to: work with other providers of prescription drug coverage to resolve payment issues; have a process in place to handle the payment resolution that is not restricted by implementation of timely filing requirements; make retroactive adjustments and promptly refund monies owed to the correct party (including, but not limited to the beneficiary); and generally limit requests for pharmacy reprocessing to those situations involving a pricing error. CMS guidance also includes as part of coordination of benefits the transfer of true out-of-pocket (TrOOP) costs and gross covered drug cost data to a new Part D plan when a beneficiary changes enrollment during the coverage year. In its October 20, 2008 Part D sponsor implementation guidance on the automated process for the transfer of these TrOOP-related data, CMS established a 45-day maximum time limit from receipt of a post-adjudicative change in the reported data for the sponsor to take adjustment action, make a refund, and/or initiate recovery.

Under the proposed rule, CMS would codify its previous policy guidance to require that sponsors must both make retroactive claim adjustments and take other payer contributions into account as part of the coordination of benefits. CMS is also proposing to add a new timeliness standard at Section 423.466 to require adjustment and issuance of refunds or recovery notices within 45 days of the sponsor's receipt of the information necessitating the adjustment. While claims adjustments must be made and notices issued within the established timeframes, CMS indicated that it recognizes that calculating the precise amount of the adjustment and any resulting reimbursements or recoveries may not always be practicable due to limitations in the electronic transaction set and contractual terms and conditions for payment in use in the pharmacy industry. However, sponsors must exercise due diligence in fulfilling these requirements.

CMS proposes the following revisions to Section 423.464:

  • Clarifying that all Part D sponsors must comply with administrative processes and requirements established by CMS to ensure effective coordination between Part D plans and other providers of prescription drug coverage for retroactive claims adjustments, underpayment reimbursements and overpayment recoveries; and
  • Adding a paragraph (g)(7) to address the sponsors' responsibility to account for payments by SPAPs and other providers of prescription drug coverage in reconciling retroactive claims adjustments that create overpayments and/or underpayments, as well as to account for payments made, and for amounts being held for payment, by other individuals or entities. The new paragraph also specifies that Part D sponsors must have systems to track and report adjustment transactions and to demonstrate that--
    • Adjustments involving payments by other plans and programs providing prescription drug coverage have been made;
    • Reimbursements for excess cost-sharing and premiums for low-income subsidy eligible individuals have been processed in accordance with Section 423.800(c); and
    • Recoveries of erroneous payments for enrollees have been sought as specified in Section 423.464(f)(4).

L. Time Limits for Coordination of Benefits (Section 423.466)

Currently, there is no statutory or regulatory time limit for Part D sponsor coordination of benefits with SPAPs, other providers of prescription drug coverage, or other payers. CMS proposes a 3-year filing limit for Part D coordination of benefits with SPAPs, other entities providing prescription drug coverage, and all other payers, including beneficiaries or other individuals or entities paying, or holding amounts for payment, on the beneficiaries' behalf.

M. Use of Standardized Technology under Part D (Section 423.120)

Beginning with the COB requirements originally issued on July 1, 2005, as required by Section 1863D-23(a)(1) of the Act, and subsequently as Chapter 14 of the Medicare Prescription Drug Benefit Program Manual, CMS has instructed plan sponsors to process all claims online real-time. CMS proposes to codify this guidance in regulation at this time because CMS has been made aware of an increasing number of instances in which network pharmacies are not submitting pharmacy claims to Part D Sponsors on behalf of Part D enrollees. CMS indicated that it believes it is in the best interest of Part D enrollees to have their claims consistently processed through the Part D sponsor (or its intermediary). CMS also proposes to add a new paragraph (2) to Section 423.120(c) to codify its existing guidance that Part D sponsors utilize standard electronic transactions established by 45 CFR 162.1102 for processing Part D claims. CMS will issue guidance on the use of optional or conditional fields in the HIPAA standard transactions through the Call Letter and Prescription Drug Benefit Manual instructions.

N. Absence From Service Area for More than 12 Months under Part D (Section 423.44)

Under the current MA and PDP rules, individuals who are out of the service area for more than six months will be disenrolled. There is an exception for MA plans that offer visitor or traveler benefits, which allows a temporary absence from the service area for up to 12 months. According to CMS, given the inherent difference between PDPs and MA plans (in particular, the range of services each provides) it may not be appropriate or necessary to apply the disenrollment requirements established under the MA program in the same way for PDPs. Therefore, given the nature of the Part D benefit and the strong likelihood that a PDP enrollee can access the full range of PDP benefits while out of the service area, CMS proposes to amend Section 423.44 to allow a temporary absence from the PDP plan service area for up to 12 months before disenrollment would be mandatory.

O. Prohibition of Mid-Year Mass Enrollment Changes by SPAPs under Part D (Section 423.464(e))

In order to coordinate effectively with Part D sponsors, CMS permits SPAPs to conduct large volumes of enrollments (sometimes referred to as "mass enrollments") consistent with CMS nondiscrimination guidance (see Chapter 14 of the Medicare Prescription Drug Benefit Program Manual). Most SPAPs perform these mass enrollments on a calendar year basis for all their members who have not chosen a Part D plan. However, some SPAPs have chosen to perform these enrollments on a non-calendar year basis. In these situations, Part D sponsors have found that substantial disenrollment of large numbers of SPAP members from one plan, followed by mass enrollment into another during the calendar year significantly affects their financial operations. Given concerns regarding disruption of member continuity of care, the introduction of transition risks such as drugs not being covered by the member's new plan, and requiring the member to change his or her pharmacy, CMS proposes to add a requirement to Section 423.464(e) to prohibit mid-year mass enrollment changes by SPAPs.

P. Nonrenewal Beneficiary Notification Requirement Under Parts C and D (Sections 422.506 and 423.507)

CMS proposes to eliminate the current requirement for nonrenewing plans (in voluntary nonrenewal situations) and for us (in CMS-initiated nonrenewal situations) to provide notice to the general public by publishing a notice in one or more newspapers of general circulation concerning the impending nonrenewal.

Q. Notice of Alternative Medicare Plans Available To Replace Nonrenewing Plans under Parts C and D (Sections 422.506(a)(2)(ii) and 423.507(a)(2)(ii))

CMS proposes to change the requirement for PDP sponsors and MA organizations to provide written notification of the alternative Medicare plans available to replace the nonrenewing plan to include the option of either providing a written list of alternatives available, or placing outbound calls to all affected enrollees to ensure beneficiaries know whom to contact to learn about their enrollment options.

R. Timeframes and Responsibility for Making Redeterminations under Part D (Section 423.590)

CMS proposes several clarifications of and conforming changes to the current regulations regarding redeterminations. Some of these changes are summarizes below.

In accordance with Section 1860D-4(g) of the Act, the Part D redetermination notice provisions in Section 423.590 largely mirror the MA reconsideration notice provisions in Section 422.590 with one notable exception—Section 422.590(d)(3) allows MA plans to make the initial notice of a completely favorable expedited reconsideration orally, so long as a written confirmation is mailed to the enrollee within three calendar days of the oral notice. This requirement was not included in Section 423.590, although a parallel instruction is contained in Chapter 18 of the Medicare Prescription Drug Benefit Program Manual. Therefore, proposes to reconcile this discrepancy to allow Part D plan sponsors to make the initial notice of a completely favorable expedited redetermination orally, so long as a written confirmation of the fully favorable decision is mailed to the enrollee within three calendar days of the oral notice.

CMS also proposes in to allow Part D plan sponsors to make the initial notice of an adverse expedited reconsideration orally, so long as a written confirmation of the decision is mailed to the enrollee within three calendar days of the oral notice. In addition, CMS proposes to add a cross reference to paragraphs Section 422.590(d)(1) and (d)(2) in paragraph (g) in order to apply the written notice requirements in paragraph (g) to adverse expedited redetermination decisions.

S. Requirements for Requesting Organization Determinations under Part C (Section 422.568)

Section 1852(g)(3) of the Act allows an enrollee to request an expedited organization determination either orally or in writing. However, the method for requesting a standard determination is not addressed in either the Act or the implementing regulations at Section 422.568. To address this, CMS proposes to allow oral requests for organization determinations, except where the request is for payment.

T. Organization Determinations under Part C (Sections 422.566 and 422.568)

Section 1852(g)(1)(A) of the Act requires MA organizations to have a procedure for making determinations regarding whether an enrollee is entitled to receive health services or payment under the program. In accordance with Section 1852(g)(1)(A) of the Act, Sections 422.566 and 422.568 establish the requirements related to organization determinations and notices. Existing Section 422.566(b)(4) provides that an organization determination includes a determination resulting in "[d]iscontinuation or reduction of a service if the enrollee believes that continuation of the services is medically necessary. Similarly, under Section 422.568(c), the plan must give the enrollee a written notice of the determination "if an enrollee disagrees with the MA organization's decision to discontinue or reduce an ongoing course of treatment." According to CMS, both of these provisions have at times been read to imply that the existence of an organization determination, and the associated notice requirements, were tied to the enrollee's "belief" or "disagreement." To address this, CMS proposes to remove the phrases "if the enrollee believes that continuation of the services is medically necessary" and "if an enrollee disagrees with an MA organization's decision to". Regardless of an enrollee's decision whether to appeal as a result of this discontinuation or reduction, the key purpose of these provisions was to ensure that enrollees received an explanation of the plan's decision and their rights if they choose to appeal the determination.

U. Representatives (Sections 422.561, 422.574, and 422.624)

For various reasons, enrollees may choose or need to have someone represent them in the appeals process in order to protect their interests. Under Sections 1852(f) and (g) of the Act, a representative may act on behalf of an enrollee or other party when filing a grievance. However, existing Section 422.561 does not explicitly permit the filing of grievances by representatives unlike the corresponding Part D regulation. Therefore, CMS proposes to amend Section 422.561 to clarify that a representative may act on an enrollee's behalf with respect to the grievance process.

V. Disclosure Requirements under Parts C and D (Sections 422.111(g) and 423.128(f))

CMS proposes at Sections 422.111(g) and 423.128(f) to provide that the agency may require a sponsoring organization to disclose to its enrollees and potential enrollees information concerning the sponsoring organization's performance and contract compliance deficiencies in a manner specified by CMS. This disclosure may be required when a sponsoring organization is sanctioned, or when a sponsoring organization's compliance and/or performance deficiencies rise to a certain level, such that CMS determines it is necessary for the sponsoring organization to notify its existing and potential enrollees of these deficiencies. The vehicle by which the information is disclosed by the plan, such as through the organization's Web site, pre-enrollment materials, or separate letter to enrollees, and the timing and content of that disclosure, would be subject to CMS review and approval.

W. Definition of MA Plan Service Area (Section 422.2)

CMS proposes to amend the definition of an MA plan "service area" at Section 422.2 to exclude facilities in which individuals are incarcerated.


This section addresses proposed changes to CMS regulations designed to foster plan offerings with meaningful differences.

A. Bid Submissions--Ensuring Significant Differences (Sections 422.254 and 423.265)

CMS proposes to specify that, when submitting bids to contract as an MA organization or Part D plan sponsor for the following contract year, MA organizations and Part D sponsors must ensure that they submit bids for multiple plans in the same area only if those plans have significant differences from each other in terms of key benefit or plan characteristics such as premiums, cost-sharing, formulary structure, or benefits offered. According to CMS, the intent of this change is to "strengthen and build on our efforts to date to ensure a proper balance between affording beneficiaries a wide range of plan choices and avoiding undue beneficiary confusion in making coverage selections." CMS does not propose to specify in its regulations specific benefit package requirements or enrollment thresholds. Rather, according to CMS, its goal is to permit MA organizations and PDP sponsors maximum flexibility to create plans with meaningful differences and, where warranted, to permit low enrollment plans to continue to operate when it is in the best interest of the program and of Medicare beneficiaries. However, CMS would issue guidance about the overall process, including the criteria for meaningful plan offerings and assessment of such offerings, in the annual Part C and D Call Letter.

With respect to Part C, CMS would consider meaningful differences among plans offered by an MA organization in a service area, as determined by CMS, to include a mix of plan types (for example, HMO, PPO, private FFS, or MSA plan), significant differences in plan benefit packages (the offering of a Part D benefit or a significant Part B buy-down, for example), or significant differences in premiums or cost-sharing (for example, a low premium-high cost-sharing plan versus a high premium-low cost-sharing plan) or aggregate costs to beneficiaries. If the proposed new requirement is implemented, CMS would require that plans be dropped that do not offer meaningful choices for beneficiaries. In making determinations about what is a meaningful choice of plan type, CMS could view a PPO and an HMO with a POS benefit as being similar plan offering if the POS benefit covered all A and B services out of network. Similarly, a network private FFS plan and a PPO plan could also be viewed as similar plan offerings given the similarity in the access to services rules between these two MA plan types.

With respect to Part D plans, CMS would continue to focus its analysis on whether there are significant differences in proposed beneficiary out-of-pocket costs as a result of the deductible amounts (for example, $0 deductible versus a $310 deductible) and cost share or coinsurance (for example, a $20 cost share versus a $45 cost share for preferred brand drugs). CMS would also evaluate plan formularies (for example, a 25 percent difference in the number of unique generic entities offered on the plans' formularies).

In its review process, CMS would provide particular scrutiny in those market areas where multiple MA organizations or Part D sponsors offer multiple plans. CMS would target its review for "meaningful differences" in areas where the elimination of duplicative plans would still leave a large number of plan options. CMS would also particularly scrutinize Part D plan offerings from the same Part D sponsors for meaningful differences in regions where multiple plans with multiple benefit types (for example, enhanced alternative coverage, coverage in the gap) already exist.

B. Bid Review Process (Sections 422.256 and 423.272)

In order to further ensure that the benefit packages and plan cost structures offered by an MAO or Part D sponsor are meaningfully different, consistent with the preceding discussion, CMS proposes provide that it will only approve a bid submitted by an MA organization or Part D sponsor if CMS finds its plan benefit package to be substantially different from the plan benefit packages reflected in that sponsor's other submitted bids in terms of key plan characteristics such as premiums, cost-sharing, formulary structure, or benefits offered.

C. Transition Process in Cases of Acquisitions and Mergers (Sections 422.256 and 423.272)

CMS proposes, consistent with existing policy, to provide for a 2-year transition period in the case of a merger of Part D plan sponsors or the acquisition of a Part D plan by another Part D plan sponsor or parent organization. After a transition period of two years, CMS would only approve a bid submitted by a PDP sponsor, or a parent organization to that PDP sponsor, if the benefits or plan cost structure represented by that bid was substantially different from any other bid submitted by the same Part D sponsor (or parent organization to that Part D sponsor) in terms of key plan characteristics, such as premiums, cost-sharing, or formulary structure.

CMS proposes a similar change so that MA plans acquired through purchase or merger offered by same MAO or parent organization reflect meaningful differences after a 2-year transition period.

D. Non-Renewing Low-Enrollment Plans (Sections 422.506(b)(1)(iv) and 423.507(b)(1)(iii))

CMS proposes to revise the Part C and Part D nonrenewal regulations to include, as a specific ground for nonrenewal, a finding that a plan has failed to attract a significant number of enrollees over a sustained period of time. According to the preamble, although low enrollments often reflect lack of beneficiary interest in a plan, there are instances when low enrollment is a function of the type of beneficiaries served, geographic location, or other circumstance. Instances in which CMS would consider a waiver of the proposed requirements include, but are not limited to, a chronic care SNP offering health care services especially tailored to this category of beneficiaries not available elsewhere, or an employer group health plan offering benefits augmenting those of an MA plan to employees of a small business. If a case can be made that low enrollment is justified and the absence of such a plan would significantly limit beneficiary health care options in a service area, consistent with effective and efficient administration of the Part C or Part D benefit, CMS would not nonrenew that plan. Although CMS used an enrollment of 100 or fewer beneficiaries for two or more years as a threshold for scrutiny under its 2010 assessment of MA plan enrollments, this number could fluctuate and CMS does not propose to revise its regulations to specify a specific threshold.


This section addresses four payment issues under Part C. The first proposal outlines a new proposed dispute and appeal rights process for risk adjustment data validation audit findings that result in payment errors. The second proposal would require an actuarial certification for Part C bids. The third proposal relates to health care prepayment plans (HCPP) and cost plans, and is not summarized below. The last proposal would eliminate a 2% minimum update for all rate calculations, other than end-stage renal disease (ESRD).

A. Risk Adjustment Data Validation Appeals (Section 422.310)

CMS proposes to afford MA organizations undergoing RADV audits formal dispute and appeal rights as possible remedies for RADV audit findings that result in payment errors. Specifically, CMS proposes to allow MA organizations that have undergone RADV audit(s) to--(a) submit physician and other practitioner signed attestations for physician and other outpatient medical records with missing or illegible signature and/or credentials that could result in a payment error; (b) dispute certain other types of medical record review-related errors through the use of a documentation dispute process; and (c) appeal CMS RADV payment error calculation. By availing themselves of these RADV dispute and appeal processes, MA organizations may be able to reduce their RADV payment error and thereby, reduce their overall estimated MA payment error.

1. Attestations

According to CMS, analysis of data originating from medical records submitted by MA organizations that have undergone RADV audit indicates that a substantial percentage of medical record-related payment error determinations are due to missing or illegible signature or credentials on medical records. Therefore, CMS proposes to implement a process that would allow MA organizations to voluntarily submit attestations developed and pre-populated by CMS. These attestations would be signed by physicians/practitioners who would attest responsibility for conducting and documenting the health services in the physician and outpatient medical record(s) being submitted for RADV audit. Attestations would be permitted to address signature and/or credential-related discrepancies only from physician or outpatient medical records. Attestations would not be allowed to address signature and/or credential-related discrepancies found on inpatient medical records.

Under proposed Section 422.311(c)(1)(C)(iv), CMS would prospectively notify MA organizations that if their one best medical record necessary to validate an audited HCC was missing a physician/practitioner signature or credential, the MA organization would be permitted to submit a CMS RADV attestation along with the medical record, to fulfill the requirement that medical records contain physician/practitioner signatures and credentials. Only CMS-generated attestations that meet certain requirements would be eligible for consideration. Failure to meet these requirements would result in CMS not reviewing submitted attestations. MA organizations could not submit attestations before or after submission of their RADV medical records.

2. Documentation Dispute Process

CMS also proposes affording MA organizations the option of disputing other non-signature or credential-types of RADV-related medical record diagnosis coding discrepancies via a proposed documentation dispute process. The documentation dispute process would apply only to the errors that arise out of operational processing of medical records selected for RADV audit and submitted to CMS by established deadlines. In this context, errors that arise from operational processing mean errors that arise from the collection and processing of medical records for RADV audit. For example, if an MA organization submits a two-page medical record that inadvertently becomes separated into "two" medical records upon receipt by the CMS Medical Record Review Contractor, CMS would permit the MA organization to resubmit the two-page medical record so that the record can be reviewed in its intended two-page format. MA organizations would not be permitted to dispute any medical record coding discrepancies, nor would MA organizations be permitted to submit new medical records in place of previously submitted medical records. Payment errors that resulted from missing medical records would not be eligible for documentation dispute. A missing medical record means that no medical record documentation was submitted by the formal CMS-established deadline.

Under proposed Sections 422.311(c)(2)(iii) and (iv), CMS would prospectively notify MA organizations of RADV payment errors that would be eligible for documentation dispute, describe the documentation dispute process that CMS would undertake, along with the process that CMS would undertake to notify MA organizations of the results of documentation dispute reviews. CMS' documentation dispute review determination would be final and binding upon both parties and would not otherwise be eligible for further administrative appeal.

3. Appeal Process

CMS also proposes an appeals process for RADV payment error calculations. The RADV payment error calculation appeal process is intended to afford MA organizations the opportunity to appeal contract-level RADV payment error calculation. Under the proposed RADV payment error calculation appeal process, CMS is establishing a three-level appeal process whereby MA organizations may--

  • Seek reconsideration;
  • Appeal the reconsideration decision to an independent CMS
  • hearing officer; and
  • Appeal the decision of the independent CMS hearing officer to the CMS Administrator.

The proposed appeal process would not be available to appeal medical record review errors nor may MA organizations seek formal appeal of physician or practitioner signature or credential-related review errors. The RADV payment error calculation appeals process would only apply to errors identified in the RADV payment error calculation. In addition, MA organizations could not appeal the CMS payment error calculation methodology. According to the preamble, CMS intends to ensure that all MA organizations understand the RADV payment error calculation methodology by providing annual notice to all MA organizations of the methodology that will be employed for calculating Part C payment errors. MA organizations that object to CMS' RADV payment error calculation methodology will be given an opportunity to provide comments to CMS.

B. Payments to Medicare Advantage Organizations--Actuarial Valuation (Section 422.254)

CMS proposes to amend the regulation to expressly require an actuarial certification for Part C bids to bring the Part C regulation in line with current requirements and Part D and CMS operational requirements for both programs.


A. Requirements for Quality Improvement Programs under Part C (Sections 422.152, 422.153, and 480.140)

1. Quality Improvement Programs

The requirement for MA organizations to have ongoing quality improvement programs is codified at Section 422.152(a). Under that section, MA plans are required to include a chronic care improvement program (CCIP) as part of their quality improvement program that meets the requirements set forth in Section 422.152(c). Under current regulations at Sections 422.152(c) and 422.152(d), MA organizations have flexibility to develop criteria for CCIPs and initiate any quality improvement project that focuses on clinical and non-clinical areas based on the needs of their enrolled population.

CMS expressed concern that relying on MA organizations to establish their own CCIPs and quality improvement projects may not lend to effectively compare plans by beneficiaries and to manage and report projects. In addition, CMS has concerns that these projects are not addressing quality improvement areas that the agency believes reflect beneficiary needs. As a result, CMS proposes to require that MA organizations conduct CCIPs in patient populations and quality improvement projects in areas identified by CMS based on its review of data collected from MA organizations and the population served by the plans. CMS would determine what areas would most benefit from quality improvement and will provide guidance on specific quality improvement projects for MA organizations to implement, either based on that organization's specific quality improvement needs, or quality improvement needs for MA plans generally. CMS would also suggest methods and processes by which to manage a quality improvement project as appropriate.

2. Use of Quality Improvement Organization Review Information

CMS plans to use one particular type of information, quality review study (QRS) information, which is already collected by QIOs and retool the data elements to make them specific to beneficiaries enrolled in MA plans. A QRS is "an assessment, conducted by or for a QIO, of a patient care problem for the purpose of improving patient care through peer analysis, intervention, resolution of the problem and follow-up." QRS information means all documentation related to the QRS process. CMS intends to collect from the QIO only the data that relates to MA plan beneficiaries, providers, practitioners, and services. CMS could then aggregate the data to the applicable MA plan based on beneficiary enrollment. To implement this, CMS proposes to add a new Section 422.153 to indicate that it will collect from the QIOs and use quality review study information that is generated, collected, or acquired by QIOs under part 42 CFR 480. CMS intends to use these data for the following functions: Enabling beneficiaries to compare health coverage options and select among them, measuring performance under the plan, ensuring compliance with plan requirements under Part 422, and other purposes related specifically to MA plans, as specified by CMS.

B. CAHPS Survey Administration under Parts C and D (Sections 417.472, 422.152, and 423.156)

In the 2010 Call Letter to Part C and D sponsoring organizations, CMS indicated that all MA and Part D contracts with at least 600 enrollees as of July 1 of the prior calendar year would be required to pay for the data collection costs of the CAHPS survey starting with the administration of the 2011 annual CAHPS survey. The proposed rule would codify this requirement in the Part C and Part D regulations at Sections 423.156 and 422.152, and for cost contractors in Section 417.472. Under the proposed rule, sponsoring organizations would have the flexibility to add their own questions to the Medicare CAHPS survey.

The following types of contracts would be amended to include a requirement to administer the CAHPS survey--

  • All Coordinated Care contracts, including local and regional preferred provider organizations (PPOs) and contracts with exclusively Special Needs Plans (SNPs) benefit packages;
  • Cost contracts under section 1876 of the Act;
  • Private-Fee-For Service (PFFS) and Medical Savings Accounts (MSA) contracts; and
  • Prescription Drug Plans contracts (PDPs).

All plans under Programs of All Inclusive Care for the Elderly (PACE), HCPP--1833 cost plans, and employer/union only (PDP and PFFS) contracts would be excluded from this CAHPS administration.

The first survey using the new model of data collection would be conducted in early 2011. Contracts that were in effect on or before January 1, 2010, would use the number of enrollees in a plan as of July 1, 2010 to determine whether they are required to conduct the 2011 CAHPS survey. In late 2010, all MA and Part D contracts that are subject to the CAHPS survey requirement in 2011 would need to select an approved Medicare CAHPS survey vendor to administer the survey.

C. Validation of Part C and Part D Reporting Requirements (Sections 422.516 and 423.514)

Because CMS received data of questionable validity from some Part D sponsors, CMS provided in the 2010 Call letter that the agency "has received many inquiries from Congress, oversight agencies, and the public about costs, availability of services, beneficiary use of available services, patient safety, grievance rates, and other factors pertaining to MAOs and PDPs. However, to date, CMS has not been able to address many of these inquiries due to either an absence of data with respect to MAOs or, despite collecting over three years' worth of data, data of questionable validity submitted by Part D sponsors." To meet the goals of data validity reliability, and comparability, CMS indicated in the Call Letter that, "to better enable CMS to respond to inquiries and manage our programs, sponsoring organizations should undertake a data validation audit on reported Part C and Part D data effective for CY2010." Given the importance of the new Part C and Part D data reporting requirements, CMS proposes to require MA organizations and Part D sponsors to undertake an independent data validation audit in accordance with CMS specifications on reported Part C and Part D data that would be effective for CY2011.

D. Collection of Additional Part D Claims' Elements for Nonpayment-Related Purposes (Section 423.505)

Section 1860D-12(b)(3)(D) of the Act, which incorporates Section 1857(e) of the Act provides the Secretary with authority to include in Part D sponsor contracts any terms or conditions the Secretary deems necessary and appropriate, including requiring the organization to provide the Secretary with such information as the Secretary may find necessary and appropriate. Under this authority, on May 28, 2008, CMS published a final rule that allowed the Secretary to collect Part D "claims" data from the prescription drug event (PDE) record and use the information gathered for non-payment purposes. (73 Fed. Reg. 30664). However, this rule limited what data (hereinafter referred to as PDE elements) CMS may collect and use for non-payment purposes. The rule also described circumstances under which CMS may disclose the data to other government and external entities, and the limitations associated with any such release.

CMS is now proposing to collect all additional PDE elements beyond the original 37 elements under the same authority described in the May 28, 2008 final rule on Part D claims data (that is, Section 1860D-12(b)(3)(D) of the Act). As a result, CMS would be able to use these data for non-payment related purposes. Under this proposal, CMS could to release these elements to governmental and external entities, under the authority of section 1106 of the Act, using the same process that it uses to release the original 37 elements as described in the May 28, 2008 final rule, and as updated by the September 18, 2008 interim final rule that incorporated changes made as a result of section 181 of MIPPA. (73 Fed. Reg. 54226) Thus, in this proposed rule, CMS proposes that the release of any additional PDE data elements collected using its authority under Section 1860D-12(b)(3)(D) of the Act would continue to be subject to its minimum necessary data policy, its data sharing procedures, and the encryption of certain identifiers and aggregation of cost data to protect beneficiary confidentiality and commercially sensitive data of Part D sponsors. This proposal would allow CMS to collect and use for non-payment-related purposes any data obtained as a result of the addition of new elements to the PDE record without undertaking rulemaking for each additional element added in the future.


In this section, CMS proposes new regulatory requirements affecting the inclusion of protected drug categories and classes on Part D formularies, following the enactment of MIPPA.

A. Protected Classes of Concern under Part D (Section 423.120(b)(2)(v))

Section 176 of MIPPA added a new Section 1860D-4(b)(3)(G)(i) to the Act requiring, effective plan year 2010, that the Secretary establish certain categories or classes of drugs that meet two specific statutory specifications: (1) Restricted access to the drugs in the category or class would have major or life threatening clinical consequences for individuals who have a disease or disorder treated by drugs in such category or class; and (2) There is a significant need for such individuals to have access to multiple drugs within a category or class due to unique chemical actions and pharmacological effects of the drugs within a category or class. In addition, the MIPPA provides the Secretary with the discretion to establish exceptions permitting Part D sponsors to exclude from their formularies, or to otherwise limit access to (including utilization management restrictions or prior authorization), certain Part D drugs from the protected categories and classes.

In the January 16, 2009 Federal Register (74 Fed. Reg. 2881), CMS published the Medicare Advantage and Prescription Drug Programs MIPPA Drug Formulary and Protected Classes Policies interim final rule with comment period (IFC) that revised the regulations governing the Medicare Part D formularies as a result of MIPPA. CMS codified the MIPPA provision requiring the inclusion of all drugs from identified "protected categories and classes" on Part D sponsor formularies at Section 423.120(b)(2)(v). CMS also noted in the preamble of the January 16, 2009 IFC that the timing of Part D formulary submissions for 2010 would preclude CMS from identification in time for the 2010 contract year. CMS noted that Part D sponsors must continue to provide coverage of the six classes of clinical concern in contract year 2010, consistent with the policy already in place since 2005. For contract years 2011 and subsequent contract years, CMS indicated in the preamble that it planned to conduct a comprehensive analysis to—

  • Determine which categories and classes of drugs, including which existing six classes of clinical concern, meet the MIPPA requirements for protected categories and classes; and
  • Identify any potential exceptions to the requirement that all drugs from protected categories or classes be included on Part D sponsor formularies.

Based on the comments received on the January 16, 2009 IFC, CMS decided to revisit section 176 of MIPPA and the "protected classes" for further interpretation and review. While some commenters and a few outside parties have suggested that the Congress' intention behind section 176 of MIPPA was to codify CMS' preexisting "6 class" policy, CMS does not believe that the plain reading of the statute supports such an interpretation because the six classes are not expressly identified in the MIPPA. CMS continues to believe that various analyses are needed to determine which drug classes meet the MIPPA criteria. Furthermore, varied and conflicting public comments on the January 16, 2009 IFC persuaded CMS that the MIPPA criteria are not self implementing and, moreover, the process envisioned in the January 16, 2009 IFC may be unduly burdensome and too unwieldy to permit timely changes in reaction to medical and pharmacological advances. As a result, CMS is engaging in notice and comment rulemaking to further interpret section 176 of MIPPA.

As indicated in the preamble to the proposed rule, CMS believes that in light of existing beneficiary protections under Part D, "restricted access" should be construed to occur in the case of someone who, but for the protected classes provision, urgently requires a Part D drug but is waiting for an expedited redetermination by a Part D plan or an independent review entity with respect to coverage of that drug. It is during this period of time--where the beneficiary may urgently need the drug but does not yet have access to it--that a major or life threatening clinical consequence is most likely to occur for beneficiaries who require treatment of a chronic condition or disease and who are going without such medications while awaiting the redetermination. Accordingly, CMS believes that it must identify drug classes and categories to, in part, address this situation.

The second MIPPA criterion requires that "[t]here is a significant need for such individuals to have access to multiple drugs within a category or class due to unique chemical actions and pharmacological effects of the drugs within the category or class, such as drugs used in the treatment of cancer." To understand how this criterion intersects with the first criterion, one has to understand the meaning of the phrase "significant need for access to multiple drugs." CMS believes that this phrase can be interpreted in only two ways: (1) To infer that the statutory phrase means simultaneous use of multiple drugs; or (2) To infer that the phrase means the sequential use of drugs due to a significant likelihood of failure of a specific drug in a class leading to the substitution of another drug or drugs in the same class. To ensure beneficiary protection, CMS proposes to define the term "significant need for access to multiple drugs" to include both readings.

CMS proposes to define the term "multiple drugs" to mean two or more drugs, and proposes to define the phrase "category or class" for purposes of determining compliance with the rules for protected categories and classes of section 176 of MIPPA as the identification of a drug grouping that is reasonable to identify the applicable drug product.

Finally, based on the statutory authority for the Secretary to identify exceptions to the provision in section 176 of MIPPA, CMS proposes to specify some of the exceptions to the MIPPA provision to include on formulary "all" Part D drugs meeting the two conditions set forth in Section 1860D-4(b)(3)(G)(i) of the Act. Specifically, two drug products that are determined to be therapeutic equivalents by the FDA and identified as such in the FDA's Orange Book are considered to be the same Part D "drug" and would not be required on all formularies.

In order to minimize confusion about the scope of the protections under section 176 of MIPPA, CMS proposes to clarify that the formulary requirements set forth in Section 1860D-4(b)(3)(G)(ii) of the Act apply only to Part D drugs. Drugs that are not Part D drugs need not be included on a plan's formulary, even if a particular non-Part-D drug might otherwise be included in a protected class or category under section 176 of MIPPA. Further, CMS would not require under the authority of section 176 of MIPPA, the inclusion of drugs that have been historically paid for under Part B (for example, "incident to" drugs supplied and administered by physicians during patient visit and paid for under Part B) or whose regulatory status under the definition of a Part D drug at Section 423.100 is not known.


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

A. Ensuring the Security of Personal Health Information and Other Personally Identifiable Information (Sections 422.504 and 423.505)

CMS interprets the Secretary's right to audit or inspect compliance with MA and Part D program regulations to include evaluation of compliance with CMS requirements for maintaining the privacy and security of personal health information and other personally identifiable information of Medicare enrollees. In order to clarify CMS policy that beneficiaries' personal health information and other personally identifiable information must remain secure, CMS propose to revise Sections 422.504 and 423.505 to make this interpretation explicit. In a related change, CMS proposes to clarify that the term "facilities" (for inspection purposes) to include an MAO's or Part D sponsor's computer or other electronic systems.

B. Requirement for Sponsoring Organizations under Parts C and D to Report Other Payer Information to the Coordination of Benefits Contractor (Sections 422.108 and 423.464)

Given the importance of the other payer information to MA organization and PDP MSP procedures and for prescription drug program coordination of benefits, CMS proposes to require the reporting of other coverage information in Section 422.108 for MA organizations and Sections 423.462 and 423.464 for PDP sponsors. In light of concerns regarding the quality of the information, CMS proposes to limit the information reported to that which is reported to the sponsor as being inconsistent with existing information on the COB file. Specifically, CMS proposes to include in regulatory text the requirement that MA organizations and Part D sponsors, upon being notified of "credible new information" regarding other payers or changes to existing other payer information, report this information to the CMS COB Contractor in accordance with the processes and timeframes established by CMS. By "credible," CMS means information that is consistent with conventions for how group health insurance coverage is identified, for instance including the name and address of the insurance company and the policy identification number.

C. Visitor/Traveler Benefit under Part C for the Purpose of Extending Enrollment Up to 12 Months (Section 422.74)

CMS proposes to amend Section 422.74(d)(4)(iii) to specify that an MAO may offer an extended enrollment V/T option under an MA plan if that plan furnishes all plan covered services--that is, Medicare Parts A and B services and all mandatory and optional supplemental benefits--at in-network cost-sharing levels consistent with Medicare access and availability requirements at Section 422.112. An MAO offering a V/T benefit under an MA plan must make the option available to all plan enrollees who are temporarily in the areas where the V/T benefit is offered for the 6-12 months the member is in the area.

D. Medication Therapy Management Programs Under Part D (Section 423.153(d))

In the 2010 Call Letter, CMS included policy guidance regarding the implementation of MTMPs. According to CMS, its policy guidance "reflects common practices among Part D MTMPs that were derived from our extensive review of MTMP applications, plan-reported data, exploratory research on MTM, informal interviews with Part D sponsors, and other relevant literature and data." In the proposed rule, CMS proposes to codify this policy guidance in Section 423.153(d). Specifically, CMS proposes to add the following requirements:

  • Part D sponsors shall use only an opt-out method for MTMP enrollment;
  • Part D sponsors shall target beneficiaries for MTMP enrollment at least quarterly during each plan year; and
  • Part D sponsors shall offer a minimum level of MTM services for each beneficiary enrolled in the MTMP that includes interventions for both, beneficiaries and prescribers, annual comprehensive medication reviews, and quarterly targeted medication reviews.

In addition, CMS proposes to revise the requirements for targeting beneficiaries who have multiple chronic diseases and take multiple Part D drugs by specifying the maximum number of multiple chronic diseases and multiple Part D drugs that Part D sponsors may establish as a minimum threshold for satisfying their MTMP targeting criteria.

E. Formulary Requirements--Development and Revision by a Pharmacy and Therapeutics Committee (Section 423.120)

In the preamble, CMS states that it has gained a better understanding of the formulary development process since the beginning of the Part D program and now recognizes that the application of PA criteria, step therapy, and quantity limits are as important to the clinical soundness of a formulary as the drugs that are included. Therefore, CMS proposes to add new paragraph Section 423.120(b)(1)(ix) to require Part D P&T committees to review and approve all clinical PA criteria, step therapy protocols, and quantity limit restrictions applied to each covered Part D drug.

F. Generic Equivalent Disclosure Under Part D (Section 423.132)

CMS proposes to revise Section 423.132(c) to add long-term care network pharmacies to the list of entities for which the public disclosure requirement is waived, and revise Section 423.132(d) to remove the requirement that long-term care network pharmacies provide the pricing differential information in enrollees' EOBs.

G. Access to Covered Part D Drugs (Section 423.120)

The statute at Sections 1860D-4(b)(1)(C) and 1860D-21(c)(1) of the Act establishes the standards for convenient access for network pharmacies for PDP sponsors and other Part D sponsors. This section of the statute requires that the sponsor of a PDP shall secure the participation in its network of a sufficient number of pharmacies that dispense (other than by mail order) drugs directly to patients to ensure convenient access consistent with the rules established by the Secretary, and as long as they are no less favorable than the TRICARE pharmacy access standards.

CMS adopted the TRICARE standards into the Part D regulation, but instead of specifying them at the contract or PDP sponsor level, erroneously established them at the plan level. Specifically, in Section 423.120(a) of the regulation, which describes the requirements to assure pharmacy access, CMS inadvertently used the term "plans" instead of the correct terminology of PDP sponsor or other Part D sponsors. This error is problematic when considering the definitions outlined in Sections 422.2 (for MA) and 423.4 (for Part D) because the term "plan" is intended to mean a specific benefit package offered to beneficiaries living in a geographic area. For any given service area, Part D sponsors frequently offer multiple plans under one contract with CMS, and any given plan may be offered within a subset of the Part D sponsor's total service area.

CMS' intention has always been to ensure adequate access to Part D covered drugs at sponsor level, not at the plan level. The proposed rule would correct this error and align the regulations with the intent of the statute with regard to the level of analysis that should be conducted for access to Part D drugs, namely at the Part D sponsor level, rather than at the plan level.

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For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Christine M. Clements
Partner – Washington, D.C.
Phone: +1 202.624.2595

Arthur N. Lerner
Partner – Washington, D.C.
Phone: +1 202.624.2820