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CMS Proposes 'Not So Technical' Technical Changes to the Medicare Advantage and Medicare Part D Programs


The Centers for Medicare and Medicaid Services (CMS) issued a proposed rule that would make significant changes to the Medicare Advantage (MA) and Medicare Part D programs (the "Proposed Rule"). The Proposed Rule was published in the January 10, 2014 Federal Register. The Proposed Rule has five primary aims:

  1. To implement statutory requirements to establish U.S. citizenship and lawful presence as eligibility requirements for enrollment in an MA plan, Part D plan (PDP), or MA with prescription drugs (MA-PD) plan;
  2. Modification and simplification of the agent and broker compensation structure by preserving MA organization (MAO) and PDP sponsor discretion as to whether to pay initial or renewal compensation, but altering the compensation structure to a two-tier model by which initial payment to an agent or broker is no greater than a fair market value (FMV) amount annually established by CMS guidance and limiting renewal compensation to no more than 35 percent of the FMV amount for the second year and subsequent years;
  3. Provide guidance interpreting Affordable Care Act (ACA) Section 3307 in the Part D context to permit CMS to identify efficient formulary requirements or other beneficiary protections instead of requiring access to all drugs in a protected class or drug category;
  4. To implement ACA Section 6402 requiring MAOs and PDP sponsors to report and return identified Medicare overpayments; and
  5. To strengthen MAOs and PDP sponsors' accountability for valid risk adjustment data prior to submission.

Comments on the proposed rule are due by no later than 5 p.m. on March 7, 2014. Summaries of the proposed regulations follow.

Table of Contents [79 Fed. Reg. 1918 – 21]

I. - Executive Summary [79 Fed. Reg. 1922 – 23]

A. Purpose [79 Fed. Reg. 1922]

B. Summary of the Major Provisions [79 Fed. Reg. 1922]

1. Eligibility of Enrollment for Individuals Not Lawfully Present in the United States [79 Fed. Reg. 1922]
2. Modifying the Agent/Broker Requirements, Specifically Agent/Broker Compensation [79 Fed. Reg. 1922]
3. Drug Categories or Classes of Clinical Concern [79 Fed. Reg. 1922]
4. Improving Payment Accuracy [79 Fed. Reg. 1922]
5. Risk Adjustment Data Requirements (§422.310) [79 Fed. Reg. 1922]

C. Summary of Costs and Benefits [79 Fed. Reg. 1922 – 23]

II. - Background [79 Fed. Reg. 1923 – 24]

III. - Provisions of the Proposed Regulations [79 Fed. Reg. 1924 – 2073]

A. Clarifying Various Program Participation Requirements [79 Fed. Reg. 1924 – 95]

1. Closing Cost Contract Plans to New Enrollment (§422.2 and §422.503) [79 Fed. Reg. 1924]

Current CMS regulations prohibit an entity seeking to contract as an MAO from accepting new enrollees under a section 1876 reasonable cost contract in the same area that it wishes to offer an MA plan. Since this requirement only precludes "the entity" contracting as an MAO from having a cost contract open to new enrollment, the prohibition does not apply to another separate legal entity owned by the same parent organization, thereby creating the potential for two legal entities owned by the same parent organization to offer competing cost contract and MA plans. To eliminate the potential for organizations to move enrollees from one of their plans to another based on financial or some other interest, CMS proposes to revise § 422.503(b)(5) so that an entity seeking to contract as an MAO must not accept, or share a corporate parent organization with an entity that accepts new enrollees under a section 1876 reasonable cost contract in any area in which it seeks to offer an MA plan.

CMS also proposes to add the following definition of "parent organization" to § 422.2: "Parent organization means a legal entity that owns one or more other subsidiary legal entities." CMS requests comments on whether a parent organization with less than a 100 percent interest in a subsidiary legal entity should trigger the prohibition.

2. Two-year Limitation on Submitting a New Bid in an Area Where an MAO has been Required to Terminate a Low-enrollment MA Plan (§422.504(a)(19)) [79 Fed. Reg. 1924 – 25]

Current section 422.506(b)(1)(iv) provides for the non-renewal of an MA plan that does not have a sufficient number of enrollees to establish that it is a viable independent plan option. CMS interprets this standard as meaning that the MA plan has fewer than 500 enrollees for non-Special Needs Plans (SNPs) and fewer than 100 enrollees for SNPs over a specified time period of 3 years. Since it would defeat the intent and purpose of this rule if an MAO could simply submit a new bid for the next year in the same area for the same type of plan that failed to attract enrollment over a number of years, CMS proposes to revise § 422.504(a) to require MAOs not to submit a new bid of the same type of plan that has been non-renewed under § 422.506(b)(1)(iv) in the same service area as the non-renewed plan for 2 years after such a non-renewal.

3. Authority to Impose Intermediate Sanctions and Civil Money Penalties (§422.752, §423.752, §422.760 and §423.760) [79 Fed. Reg. 1925]

CMS proposes two changes to its intermediate sanctions and civil monetary penalties (CMPs) authority. First, pursuant to section 6408 of ACA, CMS proposes to provide for sanctions or CMPs if an MAO or Part D sponsor (collectively, "sponsor") (i) enrolls an individual without prior consent (except in certain limited circumstances) or transfers an individual to a new plan without prior consent, or (ii) violates the Part C and D marketing requirements. CMS also clarifies that it is a contract violation to employ or contract with any individual or entity who engages in conduct for which intermediate sanctions are authorized under section 1857(g)(1)(A) through (J).

Second, existing regulations designate the Department of Health and Human Services (HHS) Office of the Inspector General (OIG) as the sole government agency with the authority to impose CMPs for the violations contained in § 422.752 and § 423.752. CMS proposes revisions to clarify that either CMS or the OIG may impose CMPs for the violations listed at § 422.752(a) and § 423.752(a), except that only the OIG may impose CMPs for violations under § 422.752(a)(5) regarding misrepresentation and/or falsification of information furnished to CMS, an individual, or other entity.

4. Contract Termination Notification Requirements and Contract Termination Basis (§422.510 and §423.509) [79 Fed. Reg. 1925 – 26]

CMS proposes several revisions to existing regulations that relate to contract termination. One change would decrease the prior notice requirement for terminating an MA or Part D contract from 90 to 45 days. According to CMS, the 90-day timeframe is not in the best interest of Medicare beneficiaries since CMS terminates contracts in circumstances where a sponsor is significantly out of compliance with Part C or Part D requirements. Also, CMS believes the 90-day timeframe is unnecessarily long given the existing procedural protections and appeal rights afforded sponsors. CMS also proposes to revise the public notification of contract termination requirement to require sponsors to release a press statement to news media serving the affected community or county and posting the press statement prominently on the sponsor's website instead of publishing the notice in applicable newspapers.

5. Reducing the Burden of the Compliance Program Training Requirements (§422.503(b)(4)(vi)(C) and §423.504(b)(4)(vi)(C)) [79 Fed. Reg. 1926 – 27]

Currently, sponsors' compliance plans must include training and education and effective lines of communication between the compliance officer and the sponsor's employees, managers, and directors as well as their first-tier, downstream and related entities (FDRs). In its October 22, 2009 proposed rule,1 CMS requested public comments on how best to ensure that the training requirement continues to be met while not overly burdening the sponsor or its FDRs that may have their own training programs and contract with multiple MA and/or Part D sponsors. CMS proposes to require all sponsors to accept a certificate of completion of the CMS Standardized General Compliance Program Training and Education Module as satisfaction of the general compliance program training requirement. Sponsors would not be permitted to develop or implement sponsor specific training or provide supplemental training materials to fulfill the general compliance program training requirement; only CMS training would suffice.

Sponsors could develop a one page information sheet containing sponsor specific information (such as compliance officer's contact information, compliance reporting processes and expectations, hotline number or email address for compliance questions, website information for accessing the sponsor's compliance policies and procedures), to be distributed by the sponsor to each of its FDRs.  Alternatively, sponsors could choose to include such information in the contract with the FDR.

6. Changes to Audit and Inspection Authority (§ 422.503(d)(2) and § 423.504(d)(2)) [79 Fed. Reg. 1927 – 28]

CMS proposes several changes to the regulations regarding its right to audit and inspect the facilities and records of each organization. One change is to add authority that will allow CMS to require sponsors to hire an independent auditor to perform full or partial program audits to determine compliance with CMS requirements. CMS would notify the sponsor that it has been selected to perform a full or partial program audit. The sponsor would then be required to engage an independent auditor to perform the audit as directed by CMS using the CMS published protocols, methodologies, and methods of evaluation. At the conclusion of the audit, the independent auditor would provide a copy of its draft findings to CMS and the sponsor. Once the sponsor had an opportunity to rebut any findings, the independent auditor would issue its final audit report to CMS and sponsor.

Each sponsor would be required to undergo an independent program audit at least every three years, but the addition of audits by independent auditors would allow for more sponsors to be audited each year, which, according to CMS, would provide it with more data to evaluate program-wide performance, improve industry performance and protect beneficiaries. CMS also believes that the change would enhance CMS' oversight and provide it with information that would enable the agency to focus time and resources in the areas most needed to ensure compliance with Part C and Part D program requirements.

CMS would continue to perform program audits in limited scenarios, such as when indicated by a risk analysis; and would perform limited "look back" audits to ensure the integrity of the proposed independent audit process.

Finally, CMS proposes to require sponsors with audit results that reveal non-compliance with CMS requirements to hire an independent auditor to validate that correction has occurred. The authority could be invoked for audits conducted by CMS or an independent auditor.

7. Procedures for Imposing Intermediate Sanctions and Civil Money Penalties Under Parts C and D (§422.756 and §423.756) [79 Fed. Reg. 1928 – 29]

Under existing regulations, CMS may require a plan under a marketing and/or enrollment sanction to engage in a test period of marketing or accepting enrollments or both. The purpose of the test period is to assist CMS in making a determination as to whether the deficiencies that are the bases for the intermediate sanctions have been corrected and are not likely to recur. CMS proposes to expand the potential applicability of the test period requirement to all types of intermediate sanctions – enrollment, marketing and payment. CMS also seeks to clarify that the test period is not limited to sanctions stemming from marketing or enrollment violations and may relate to any operational area.

Second, CMS proposes to clarify the enrollment parameters for Part D sponsors that are under the benchmark and would normally participate in the annual and monthly auto enrollment process for beneficiaries who receive a low income subsidy (LIS) during a test period. Specifically, CMS proposes to make clear that it may determine that a sanctioned plan may not receive automatically assigned beneficiaries for the entire duration or a portion of the testing period.

8. Timely Access to Mail Order Services (§423.120) [79 Fed. Reg. 1929 – 30]

CMS proposes to amend § 423.120(a)(3) to specify the following mail order fulfillment requirements: 5 business days (from when the pharmacy receives the prescription order to when it is shipped) for those prescriptions requiring intervention beyond filling (such as clarifying illegible orders, resolving third party rejections, and coordinating with multiple providers as part of drug utilization management); and 3 business days (from when the pharmacy receives the prescription order to when it is shipped) for those prescriptions not requiring intervention. CMS indicated its anticipation that more than 99 percent of all mail order prescriptions processed could be filled within the 3- or 5-day standard. CMS believes that the proposed standards are in alignment with existing fulfillment requirements in the market and therefore would not create a new burden or new standard for mail order pharmacies to meet.

Comments as sought on (i) the proposed 3- and 5- day time frames, (ii) whether there are other instances in which the proposed 5-day time frame should apply, (iii) whether CMS should establish additional requirements for beneficiary materials relating to mail order services (e.g., clear definitions of processing time and delivery time; how to access customer support; how to submit a complaint via 1 800 MEDICARE; and beneficiary options for accessing medications when a delivery is lost or delayed), and (iv) any other requirements that CMS should consider for mail order or other home delivery options. 

CMS makes clear in the Proposed Rule its belief that filling initial prescriptions or routine 30-day supplies at mail order is not good practice. Due to the difficulties reported to CMS with consistently and effectively filling short time frame supplies through mail order, CMS does not believe that Medicare beneficiaries in general should be incentivized through lower cost sharing to utilize mail order pharmacies for initial prescriptions or 30-day supplies. CMS recognizes that a small number of beneficiaries depend on mail order due to geographic or mobility issues.

9. Collections of Premiums and Cost Sharing (§423.294) [79 Fed. Reg. 1930 – 31]

CMS proposes to specify that Part D sponsors either directly, or indirectly through related party pharmacies, as defined at § 423.501, are prohibited from reducing or waiving collection of premiums and cost sharing. In contrast, a pharmacy affiliated with one Part D sponsor may waive Part D cost sharing for beneficiaries enrolled in Part D plans offered by other sponsors without violating the Part D uniform benefit requirements.

CMS explains that a sponsor's failure to collect or attempt to collect cost-sharing at the time the service is provided or to bill cost-sharing to the appropriate party (either a beneficiary or another payer) after the fact, is a violation of the uniform benefit requirements at § 423.104(b). The fact that cost sharing is waived by a pharmacy that is related to a Part D sponsor by common ownership, rather than the Part D sponsor itself, and that it may qualify for safe harbor protection under the anti-kickback statute, does not relieve the Part D sponsor of responsibility for the violation of the uniform benefit provisions. According to CMS, the sponsor is not indifferent because the cost-sharing waiver is more likely to be a strategic decision by the sponsor to move market share to the related-party pharmacy and increase profits to the sponsor. Thus, the sponsor is altering the level of cost sharing in the approved bid in violation of § 423.104(b). By contrast, if an unrelated pharmacy waives cost-sharing, the pharmacy is making an independent business decision to which the Part D sponsor is indifferent. 

In addition, CMS proposes to fill a gap in the Part D regulations which do not address Part D sponsors' requirements for refunding incorrect collections of premiums and cost sharing or for retroactively collecting underpayments of cost sharing. Under proposed § 423.294, whenever a sponsor receives information that necessitates a retroactive refund of incorrect collections of premiums and/or cost sharing or collection of underpayments of cost sharing, the sponsor would have 45 days to issue refunds or recovery notices. CMS proposes that, for incorrect collections, Part D sponsors may receive compliance notices from CMS or, depending on the significance of the non-compliance, be the subject of an intermediate sanction.

10. Enrollment Eligibility for Individuals Not Lawfully Present in the United States (§§ 417.2, 417.420, 417.422, 417.460, 422.1, 422.50, 422.74, 423.1, 423.30, and 423.44) [79 Fed. Reg. 1931 – 32]

a. Basic Enrollment Requirements [79 Fed. Reg. 1931]
b. Medicare Eligibility and Lawful Presence [79 Fed. Reg. 1931 – 32]
c. Alignment of MA, PDP, and cost plan eligibility with FFS payment exclusion policy [79 Fed. Reg. 1932]

The Proposed Rule would align MA, Part D, and § 1876 cost plan eligibility with the statutory prohibition to pay federal benefits to individuals who are unlawfully present in the United States. Under 8 U.S.C. § 1611, qualified aliens not lawfully present in the United States, are not eligible to receive any federal benefit, including Social Security Administration (SSA) benefits and Medicare benefits. While aliens not lawfully present in the United States may still be entitled to enroll in Medicare, payment to the beneficiaries is still prohibited under the Medicare Fee-For-Service payment exclusion authority. Yet, currently the MA, Part D, and Medicare cost plan rules have not adopted the same payment exclusion policy. Therefore, aliens not lawfully present in the United States were able to enroll in MA, Part D, and Medicare cost plans and receive benefits in violation of federal law. To remedy this problem, CMS proposes to establish U.S. citizenship and lawful presence requirements for enrollment in all MA, Part D, and Medicare cost plans and for those individuals not lawfully present to disenroll them from these plans based on the date that they lose their lawful presence status.

11. Part D Notice of Changes (§423.128(g)) [79 Fed. Reg. 1932 – 33]

The Proposed Rule provides that if a PDP sponsor intends to change its rules for a PDP, it must do all of the following: (1) submit the changes for CMS review; (2) notify all enrollees at least 15 days before the beginning of the Annual Coordinated Election Period for changes that take effect on January 1; and (3) provide notice of all other changes in accordance with notice requirements specified in the Part D regulations. This proposal is intended to ensure that Medicare Part D beneficiaries currently taking a drug receive timely notice before changes (i.e., modifications to a PDP's formulary) are implemented in order that they have the opportunity to make informed decisions regarding whether to change drugs or request an exception to cover the drug.

12. Separating the Annual Notice of Change (ANOC) from the Evidence of Coverage (EOC) (§ 422.111(a)(3) and §423.128(a)(3)) [79 Fed. Reg. 1933 – 34]

The Proposed Rule would require MAOs to disclose a detailed plan description to each enrollee "at the time of enrollment and at least annually thereafter, 15 days before the annual coordinated election period." In addition, all MAOs and PDP sponsors would have to ensure that their current members receive the annual notice of change (ANOC) 15 days prior to the annual enrollment period (AEP), and receive the evidence of coverage (EOC) no later than December 31, for the contract year taking effect January 1 of the next year.

13. Agent/Broker Requirements, Particularly Compensation (§422.2274 and §423.2274) [79 Fed. Reg. 1934 – 36]

Under the current six-year compensation structure for independent agents and brokers, sponsors pay an initial rate for the first year, and then a renewal payment of 50 percent of the initial compensation paid to the agent for years 2 through 6. The initial rate cannot exceed the FMV as published annually by CMS. The initial six year period ended December 31, 2013. In the 2014 Call Letter, CMS notified sponsors that renewal payments could be paid beyond year 6. CMS notes that the compensation structure has proven to be complicated to implement and monitor as it requires MAOs or PDP sponsors to track the compensation paid for every enrollee's initial enrollment, and calculate the renewal rate based on that initial payment. In addition to its complexity, CMS expressed concern that the structure creates an incentive for agents and brokers to move enrollees from a plan of one parent organization to a plan of another parent organization, even for like plan type changes. Currently, in these cases, the new parent organization would pay the agent 50 percent of the current initial rate of the new parent organization, not 50 percent of the original initial rate paid by the other parent organization. Thus, in cases where the FMV has increased, or the other parent organization pays a higher commission, the incentive exists for the agent to move beneficiaries from one parent organization to another. CMS also noted that confusion among sponsors as well as noncompliance has created an unlevel playing field for sponsors in the same geographic area.

As a result, CMS proposes to revise the existing compensation structure for agents and brokers so that, for renewals in Year 2 and beyond, the MAO or PDP sponsor could pay up to 35 percent of current FMV amount for that year, resulting in the renewal year payment changing each year if the sponsor chooses to pay 35 percent of the current FMV. CMS would continue to interpret the FMV threshold in annual guidance to sponsors.

Other proposed changes include: (i) removal of the 6-year cap on the compensation cycle, and (ii) more clearly defining a plan year for compensation and recovery purposes. Under existing regulations, compensation may only be paid for the beneficiary's months of enrollment during the year (January through December). However, according to CMS, some plans have been paying compensation based on an annual cycle, rather than a calendar year cycle.  CMS proposes to clarify that the payment made to an agent must be for January 1 through December 31 of the year and may not cross calendar years.

In addition, CMS proposes to change the timing of payments to require that payments may not be made until January 1 of the compensation year, and must be paid in full by December 31 of the compensation year. CMS believes this proposal is appropriate given the ability of beneficiaries to change plans during AEP, which runs from October 15 through December 7. Under the Proposed Rule, sponsors would not be allowed to pay compensation until the beginning of the calendar year, when the final AEP enrollment becomes effective, simplifying sponsors' compensation processes and enabling them to make more accurate payments.

Existing regulations require sponsors to recover compensation in rapid disenrollment situation (i.e., the beneficiary disenrolls from a plan within the first three months of enrollment). Sub-regulatory guidance identifies several circumstances (e.g., death of the beneficiary, the beneficiary moves out of the service area, the beneficiary becomes eligible to receive LIS, or the beneficiary loses Medicaid benefits) for which plans should not recover compensation even though the beneficiary was enrolled in the plan for less than 3 months. Recovery is not required in these circumstances because the disenrollment decision could not be based on agent or broker behavior.  Recovery would be required for compensation associated with the months after the beneficiary disenrolled. CMS proposes regulatory changes that codify the agency's current policy.

Finally, CMS proposes to codify its existing sub-regulatory guidance regarding referral or finder's fees. Specifically, CMS proposes to limit the amount that can be paid as a referral fee to independent, captive, and employed agents and brokers, regardless of who completes the enrollment, to a reasonable amount specified by CMS. For contract year 2014, that amount is $100. Furthermore, note that, under § 422.2274(a) and § 423.2274(a), CMS requires that referral fees paid to independent agents and brokers must be part of total compensation not to exceed the FMV for that calendar year.

14. Drug Categories or Classes of Clinical Concern and Exceptions (§423.120(b)(2)(v) and (vi)) [79 Fed. Reg. 1936 – 47]

The Proposed Rule would implement ACA's requirements set forth at 42 U.S.C. § 1395w-4(b)(3)(G) by revising § 423.120(b)(2)(v) and (vi) as follows: (1) establishing the criteria the Secretary will use to identify drug categories or classes of clinical concern; and (2) defining the exceptions that permit Part D sponsors to exclude certain Part D drugs from within an identified drug category or class from their formularies (or otherwise limit access to such drugs, including through utilization management or prior authorization restrictions). It also would specify the drug categories or classes that would meet the proposed criteria.

Specifically, the Proposed Rule would modify § 423.120(b)(2)(v) to require that (unless an exception applies) all Part D drugs within a drug category or class be included on the formulary if the drug category or class of drugs for a "typical beneficiary"2 with a disease or condition treated by the drugs in the category or class meets both of the following criteria (as determined by CMS):

a. Categories or Classes of Clinical Concern [79 Fed. Reg. 1937 – 41]

Hospitalization, persistent or significant disability or incapacity, or death likely will result if initial administration (including self-administration) of a drug in the category or class does not occur within 7 days of the date the prescription for the drug was presented to the pharmacy to be filled; and

b. Criteria Necessary to Identify Categories and Classes of Clinical Concern [79 Fed. Reg. 1941 – 42]

More specific CMS formulary requirements will not suffice to meet the universe of clinical drug-and-disease-specific applications due to the diversity of disease or condition manifestations and associated specificity or variability of drug therapies necessary to treat such manifestations.

c. Exceptions [79 Fed. Reg. 1942 – 44]

CMS believes it is necessary to identify exceptions to the requirement that a Part D sponsor must include all Part D drugs on its formulary in the drug categories or classes identified by CMS as drug categories or classes of clinical concern to help ensure Part D coverage is limited to Part D drugs, minimize duplicative protections within a drug category or class of clinical concern, and assure beneficiary safety while curbing potential abuse and misuse as a result of the added protection. CMS proposes to retain the existing exception for drug products that are rated as therapeutically equivalent under the Food and Drug Administration's (FDA) Orange Book. In addition, CMS proposes to make the new exceptions: (i) for point-of-sale utilization management safety edits that are based on maximum daily doses and black-box warnings specified on the FDA-approved label, potential drug interactions, or duplication of therapy; (ii) for drug products that are almost always covered under Medicare Parts A or B; (iii) to permit prior authorization for purposes of determining whether a drug is a Part D drug being used for a medically-accepted indication as defined in § 1395w-2(e)(4) or to verify a drug is not covered under Medicare Parts A or B as prescribed and dispensed or administered; (iv) for Part D compounds, although CMS proposes to carve out fixed dose combinations and co-packaged antiretrovirals as discussed in FDA guidance;3 and (v) for certain types of Part D drugs, including multi-source brands of the identical molecular structure, extended-release products when the immediate-release product is included, products that have the same active ingredient or moiety, and dosage forms that do not provide a unique route of administration (for example, tablets and capsules versus tablets and transdermal products).

CMS solicits comments on whether to add an exception to allow Part D sponsors to implement prior authorization, including that used to implement step therapy requirements, to convert beneficiaries to preferred alternatives within these drug categories or classes for enrollees who are initiating therapy (new starts).

d. Analysis and Identification of the Categories or Classes of Clinical Concern [79 Fed. Reg. 1944 – 47]

For coverage year 2015, anticonvulsants, antiretrovirals, and antineoplastics satisfy the Proposed Rule's criteria. The antipsychotic drug class will continue to be treated as a class of clinical concern in 2015 and until CMS determines that it is appropriate to apply the criteria with respect to antipsychotics. These categories and classes will be read narrowly, and do not include every related drug product that an individual who has a disease treated by one of these categories or classes of drugs would need to take. CMS will provide more detailed guidance on the specific formulary checks that will be in place relative to antidepressant and immunosuppressant categories and classes of drugs at a later date.

15. Medication Therapy Management Program (MTMP) under Part D (§423.153(d)) [79 Fed. Reg. 1947 – 53]

a. Multiple Chronic Diseases [79 Fed. Reg. 1949]

CMS proposes to revise its interpretation of "multiple chronic diseases," lowering its previous interpretation of the threshold eligibility criteria such that sponsors must target enrollees having two (instead of three) or more chronic diseases for MTMP services. In addition, at least one of the chronic diseases that a beneficiary has in order to satisfy the eligibility criteria must be one of the list of core chronic diseases. CMS also proposes to redefine the core diseases by combining hypertension and congestive heart failure under the umbrella of "cardiovascular disease," which would also encompass congestive heart failure, acute myocardial infarction, cerebral hemorrhage and effects of stroke, vascular disease, specified heart arrhythmias, and hypertensive heart disease.4

b. Multiple Part D Drugs [79 Fed. Reg. 1949 – 50]

CMS proposes to revise its interpretation of "multiple Part D drugs" to require that sponsors target enrollees taking two or more Part D covered drugs for MTMP services. This interpretation would also be construed to mean two or more Part D drugs in order to ensure that beneficiaries who are at risk of drug therapy problems, including problems associated with taking multiple prescription medications in conjunction with over-the-counter medications, are appropriately targeted for MTMP services.

c. Annual Cost Threshold [79 Fed. Reg. 1950 – 53]

CMS proposes to amend the minimum annual amount in Part D drug costs to one that represents the intersection of multiple conditions and multiple drugs. Thus, the minimum threshold would be set to $620, to be revised periodically to reflect more up-to-date information regarding the drug spending of beneficiaries who have two or more chronic conditions and use two or more covered Part D drugs.

Finally, to address the nuances of MTM-eligible populations and the ineffectiveness of generalized, "one-size fits all" MTM sponsor outreach, CMS has proposed a revision of § 423.153(d)(1)(v) to require that Part D sponsors "have an outreach strategy designed to effectively engage all at-risk beneficiaries enrolled in the plan." CMS purposefully avoided prescribing particular strategies to meet this requirement.

16. Business Continuity for MA Organizations and PDP Sponsors (§422.504(o) and §423.505(p)) [79 Fed. Reg. 1953 – 55]

The Proposed Rule would add contract provisions to require MAOs, PDP sponsors, Cost Plans, and PACE Organizations to develop and maintain business continuity plans to minimize the impact of unavoidable disruptions—such as natural disasters—on beneficiaries. The business continuity plans would be required to satisfy certain minimum requirements specified by CMS in regulation. MAOs and PDP sponsors would be required to train their employees and test their plans annually and to provide records of their plans to CMS upon request. CMS' goal is to ensure that beneficiaries maintain access to health care services and prescriptions, especially during difficult circumstances.

17. Requirement for Applicants or their Contracted First Tier, Downstream, or Related Entities to Have Experience in the Part D Program Providing Key Part D Functions [79 Fed. Reg. 1955 – 58]

While acknowledging that the Part D program has "largely entered a mature stage," CMS notes that it spends a disproportionate amount of resources and attention on the operations of new Part D sponsors where neither the new sponsor nor their supporting FDRs have experience with Part D. To address this problem, CMS proposes to require any entity seeking to contract as a Part D plan sponsor (as a stand alone prescription drug plan sponsor or as a Medicare Advantage organization offering Part D benefits) to have arrangements in place such that either the applicant or one of its contracted FDRs has one full benefit year serving as a Part D plan sponsor, or at least one full benefit year of experience performing key Part D functions for another Part D plan sponsor. The applicant or a contracted FDR will be required to have obtained that experience within the two years preceding the Part D sponsor application submission. Under this proposal, an entity could satisfy the qualification requirement if its parent or another subsidiary of that parent already holds a Part D sponsor contract that has been in effect for at least one year at the time of the application submission.

Given the wealth of available Part D expertise that exists with current contractors, CMS indicates that ‘it is justifiable" for it to require that new applicants to the program bring with them Part D experience so that CMS can better protect Part D enrollees and minimize unnecessary expenditures of resources by CMS in correcting avoidable problems. Noting that the Medicare drug benefit is fundamentally different from other drug benefits, CMS wrote that prior experience offering drug benefits in the commercial insurance or Medicaid markets is no longer a sufficient substitute for experience operating the Part D benefit. 

CMS is proposing to require prior Part D experience in three critical areas: (1) Authorization, adjudication and processing of pharmacy claims at the point of sale; (2) Administration and tracking of enrollees' drug benefits in real time, including automated coordination of benefits with other payers; and (3) Operation of an enrollee appeals and grievance process. Under the Proposed Rule, multiple separate organizations could together combine their experience to meet the prior qualification requirements for the three key Part D functions. The CMS requirement would be for the Part D applicant in combination with its FDRs, if any, to have Part D experience covering the three key functions.

18. Requirement for Applicants for Stand Alone Part D Plan Sponsor Contracts to Be Actively Engaged in the Business of the Administration of Health Insurance Benefits (§423.504(b)(9)) [79 Fed. Reg. 1958 – 60]

CMS proposes to require any entity seeking to contract as a stand-alone PDP sponsor to have either actively provided health insurance or health benefits coverage for two continuous years immediately prior to submitting a contract qualification application, or provided certain prescription drug benefit management services to a company providing health insurance or health benefits coverage for five continuous years immediately prior to submitting an application. The prior experience requirement would not apply to an entity whose parent or affiliate has the requisite experience. The proposed requirement is different from that discussed above in that this requirement applies only to entities applying to offer stand-alone PDPs and not to MA-PD applicants. According to CMS, "[t]o entrust inexperienced applicants with responsibility for correctly operating a program for which even experienced health insurers have had to develop new expertise has proven to be unacceptably risky" and requiring two years of experience providing health insurance or health benefits coverage ensures that new sponsors of stand-alone PDPs have minimal experience operating a health benefits program without unduly limiting new entrants to the marketplace.

19. Limit Parent Organizations to One Prescription Drug Plan (PDP) Sponsor Contract Per PDP Region [79 Fed. Reg. 1960 – 61]

CMS proposes to add as a basis for denial of a PDP sponsor application that the applicant is applying for qualification in a PDP Region where another subsidiary of the applicant's parent organization already holds a PDP sponsor contract. "Parent organization" refers to an entity that controls a subsidiary through ownership of more than 50 percent of the subsidiary's shares. CMS believes that this change is consistent with its efforts to date to ensure that the numbers of PDP sponsors, PDP sponsor contracts, and plan offerings are kept at a level that allows sponsors to fully exercise their rights as PDP sponsors but avoids the duplication and confusion that can result when reasonable limits are not placed on sponsors' requests for contracting arrangements that serve only "their internal business operations." CMS notes the purposes of prior requests for duplicate PDP sponsor contracts included: (i) segregating low income beneficiaries into a CMS contract, or (ii) corralling the experience of a particular low-performing plan into a CMS contract so as not to taint the performance rating of the better performing plan offering since performance ratings are calculated at the contract level. CMS seeks comments from the industry, advocates, and others as to circumstances under which duplicate contracts may be beneficial.

20. Limit Stand-Alone Prescription Drug Plan Sponsors to Offering No More Than Two Plans Per PDP Region [79 Fed. Reg. 1961 – 64]

CMS proposes to limit the number of plans from a single PDP sponsor in the same PDP region to one basic bid and one enhanced bid for a coverage year.  Where a parent organization owns a controlling interest in more than one subsidiary that operates as a PDP sponsor in a single PDP region, CMS would apply the requirement at the parent organization level. That is, a parent organization with two subsidiary PDP sponsors could offer no more than one plan under each sponsor's contract.  If finalized, this change would be adopted for the 2016 contracting cycle.

According to CMS, as a result of CMS' "meaningful difference" requirement5 and the closure of the coverage gap pursuant to ACA, it will become increasingly difficult for a PDP sponsor to qualify to offer more than two plans in the same service area and comply with the meaningful differences test. CMS believes that plan sponsors, beneficiaries and taxpayers would be better served by a more streamlined bid submission process that limited sponsors to submitting two PDP bids (one basic and one enhanced) per PDP region each year. This limitation would provide a consistent bidding framework for all sponsors that focuses on quality rather than quantity, and would reduce sponsors' administrative costs. CMS seeks comments on whether there is any real need for more than two standalone plan options per PDP sponsor.

CMS is also considering several regulatory proposals for limiting the type of coverage offered in the two plans to reduce or eliminate the risk segmentation. The first option would allow for separate basic and enhanced plans, but require that enhanced plans offer a substantial minimum level of supplemental coverage to be defined in regulation. For example, CMS might require that the enhanced plan cover a minimum of 50 percent (or another higher percentage) of the remaining actuarial value of the Part D benefit not included in the standard benefit for any coverage year. Under the second option, CMS would deny any enhanced plan bid with a premium equal to or lower than the sponsor's basic plan premium or require that the enhanced premium be no less than a specified multiple of the basic premium, such as 115 percent or another multiple.

The third option would entail redefining enhanced alternative coverage to consist of supplemental coverage added to the sponsor's one basic benefits offering (for an additional premium). This could be thought of as basic benefits plus a supplemental benefit rider. Under this option, all Part D enrollees in a sponsor's Part D plans would be enrolled in the sponsor's one basic plan with the same formulary and pharmacy network, and some portion of those enrollees would also elect the optional supplemental coverage in the form of the second plan that would be the combination of the basic plan and the supplemental benefits. The risk of the basic benefits would be estimated at the PDP Regional level and the risk of the supplemental benefits would be estimated in accordance with that of the projected enrollees in the second plans. The supplemental benefits would have to constitute actual enhancements to the basic benefit and actuarial equivalence would not apply to the combination of the basic and supplemental benefits. CMS believes this change would bring standalone PDP coverage more in line with both commercial coverage designs and with the offering of Part C optional supplemental benefits.

CMS solicits comments on all three proposals and on whether each proposal represents an effective strategy for eliminating risk segmentation and providing the best value for the government and taxpayers.

21. Efficient Dispensing in Long Term Care Facilities and Other Changes (§423.154) [79 Fed. Reg. 1964 – 67]

a. Prohibition on Payment Arrangements that Penalize the Offering and Adoption of More Efficient LTC Dispensing Techniques (§423.154) [79 Fed. Reg. 1964 – 65]

Pursuant to 42 U.S.C. § 1395w-4(c)(3) as amended by ACA, CMS previously adopted a regulation that mandates that Part D sponsors require their network pharmacies to dispense certain solid oral brand covered Part D drugs in quantities of 14 days or less, unless an exemption applies. See § 423.154. CMS now proposes four changes to this regulation. First, CMS proposes the addition of a prohibition on payment arrangements that penalize the offering and adoption of more efficient LTC dispensing techniques. This would be accomplished by inserting a new clause (f) to § 423.154, which would prohibit a Part D sponsor (or its intermediary contracting organization) from prorating dispensing fees based on days' supply or quantity dispensed, thereby eliminating the essential penalty on an LTC's choice to employ more efficient uniform dispensing techniques. The clause would also require that Part D sponsors ensure that any difference in payment methodology among LTC pharmacies incentivize more efficient dispensing techniques.

b. Misinterpretation of Language as Requiring the Proration of Dispensing Fees (§423.154) [79 Fed. Reg. 1965]

CMS proposes to delete § 423.154(e), which it believes includes confusing language that has been misinterpreted as requiring the proration of dispensing fees.

c. Additional Waiver for LTC Pharmacies using Restock and Reuse Dispensing Methodologies under Certain Conditions (§423.154) [79 Fed. Reg. 1966]

CMS proposes to waive the short-cycle dispensing requirements of § 423.154(a) for LTC pharmacies that exclusively use the dispensing technique of returning all unused medications to stock that can be restocked under applicable law for reuse and rebating full credit for the ingredient costs of the unused medication to the PDP sponsor. For drugs that could not be returned for full credit and reuse (i.e. controlled substances), the pharmacy would be required to use a dispensing methodology that results in the delivery of no more than 14 days of a drug at a time. This waiver would apply on a uniform basis to similarly-situated pharmacies, but not to a pharmacy organization contracted to use this technique at some, but not all, of its pharmacies.  Pharmacies would also be required to credit back any amount of the dispensing fee when drugs are returned for reuse.

d. Technical Change to Eliminate Requirement that PDP Sponsors Report on the Nature and Quantity of Unused Brand and Generic Drugs (§423.154) [79 Fed. Reg. 1966 – 67]

CMS proposes to eliminate the requirement at § 423.154(a)(2) that Part D sponsors report on the nature and quantity of unused brand and generic drugs dispensed by a pharmacy to enrollees residing in a LTC facility.

22. Applicable Cost-Sharing for Transition Supplies: Transition Process Under Part D §423.120(b)(3) [79 Fed. Reg.  1967 – 68]

CMS proposes the following cost-sharing requirements for transition supplies: For LIS enrollees, a sponsor must not charge higher cost sharing for transition supplies than the statutory maximum copayment amounts. For non-LIS enrollees, a sponsor must charge: (i) the same cost sharing for non-formulary Part D drugs provided during the transition that would apply for non-formulary drugs approved through a formulary exception under § 423.578(b); and (ii) the same cost sharing for formulary drugs subject to utilization management edits provided during the transition that would apply once the utilization management criteria are met.

23. Medicare Coverage Gap Discount Program and Employer Group Waiver Plans (§423.2325) [79 Fed. Reg. 1968 – 69]

CMS proposes to clarify the applicability of the Medicare coverage gap discount program, pursuant to which manufacturer discounts are provided to certain Medicare beneficiaries while in the coverage gap, to employer group waiver plans (EGWPs). While EGWP benefits are generally structured to provide additional coverage so that enrollees do not actually experience a coverage gap, EGWP enrollees are not excluded from the discount program. Beginning in 2014, all EGWP benefits beyond the Part D defined standard benefit will be treated as non-Medicare Other Health Insurance (OHI) that wraps around Part D. Treating EGWP supplemental benefits as OHI and always calculating the manufacturer discount based on the defined standard benefit means that discount payments likely will increase for some applicable beneficiaries enrolled in EGWPs over the amounts that would have been calculated when these benefits were considered as supplemental benefits for purposes of the coverage gap discount program since the coverage gap discount pays before OHI. CMS believes it is important that it is clear to employer and union group clients of Part D sponsors that the manufacturer discounts are calculated and paid prior to the application of OHI so that plan administrators can take the additional funds into account when negotiating and designing retiree prescription drug benefits.

To ensure that discount program payments are communicated to employer groups in a uniform fashion, CMS proposes a new § 423.2325(h) that would require Part D sponsors of EGWPs to disclose to each employer group the projected and actual manufacturer discount payments under the discount program attributable to the employer group's enrollees. Disclosures would be made at least annually or upon request.

24. Interpreting Non Interference Provision (§423.10) [79 Fed. Reg. 1969 – 72]

CMS has never formally interpreted the noninterference provision of § 1395w-11(i), which provides that: "In order to promote competition under this part and in carrying out this part, the Secretary: (1) may not interfere with the negotiations between drug manufacturers and pharmacies and PDP sponsors; and (2) may not require a particular formulary or institute a price structure for the reimbursement of covered Part D drugs." In accordance with this requirement, the Proposed Rule would establish four separate provisions:

  • § 423.10(a), a general rule that CMS must promote fair market competition in the market for Part Drugs.
  • § 423.10(b), which would provide that CMS: (1) may not be a party to discussions between prescription drug manufacturers and pharmacies, or between drug manufacturers and Part D sponsors; and (2) may not arbitrate the meaning of or compliance with the terms and conditions of agreements reached between these parties, except as necessary to enforce CMS requirements applicable to those agreements. Thus, CMS would only be involved in such discussions in order to explain CMS requirements and to ensure compliance with Part D rules and regulations. However, nothing in this provision would limit CMS' authority to require documentation of and access to all such agreements, or to require the inclusion of terms and conditions in agreements when necessary to implement requirements under the Act.
  • § 423.10(c), stating that CMS may not determine the specific drug products to be included on Part D sponsor formularies or any tier placement of such products, except as required to comply with § 423.120(b)(1)(v) or § 423.272(b)(2).
  • § 423.10(d), stating that CMS may not establish drug product pricing standards or the dollar level of price concessions at any stage in the drug distribution channel for Part D drugs. The prohibition would not, however, limit CMS' authority to require full disclosure or uniform treatment and reporting of drug costs and prices.

25. Pharmacy Price Concessions in Negotiated Prices (§423.100) [79 Fed. Reg. 1972 – 74]

Since 2010, § 423.100 has defined "negotiated prices" as "prices for covered Part D drugs that: (1) The Part D sponsor (or other intermediary contracting organization) and the network dispensing pharmacy or other network dispensing provider have negotiated as the amount such network entity will receive, in total, for a particular drug; (2) Are reduced by those discounts, direct or indirect subsidies, rebates, other price concessions, and DIR [direct or indirect remuneration] that the Part D sponsor has elected to pass through to Part D enrollees at the point of sale; and (3) Include any dispensing fees." Clause two has, however, resulted in significant confusion whether certain administrative costs qualify as price concessions, and whether those costs must be included in a plan bid as part of the negotiated price.

As a result, CMS proposes to revise the § 423.100 definition of "negotiated prices," as prices for covered Part D drugs that:

  • the Part D sponsor (or other intermediary contracting organization) and the network dispensing pharmacy or other network dispensing provider have negotiated as the amount such network entity will receive, in total, for a particular drug; and
  • are inclusive of all price concessions and any other fees charged to network pharmacies; and
  • include any dispensing fees; but
  • exclude additional contingent amounts, such as incentive fees, only if these amounts increase prices and cannot be predicted in advance; and
  • may not be rebated back to the Part D sponsor (or other intermediary organization) in whole or in part.

26. Payments to PDP Plan Sponsors For Qualified Prescription Drug Coverage (§423.308) and Payments to Sponsors of Retiree Prescription Drug Plans (§423.882) [79 Fed. Reg. 1974]

CMS proposes to revise the definition of the term "actually paid" for both the Part D program and the Retiree Drug Subsidy program in order to reconcile this definition with the changes proposed in the definition of "negotiated prices" in the regulation. Since the proposal would require that all price concessions from network pharmacies must be reflected in the negotiated price, it would no longer be correct to include pharmacies in the list of sources from which price concessions could be received without qualification. Therefore, CMS proposes to revise the definition of actually paid to include references to incentive payments, and to clarify that direct and indirect remuneration (DIR) may include additional payments to pharmacies, such as incentive payments, but may not include any other price concessions from pharmacies. The Proposed Rule also would change the reference to "from any source" in the definition of "actually paid" in the Retiree Drug Subsidy regulation to "from any manufacturer or similar entity" to align these definitions.  Furthermore, it would remove any reference to coupons in the list of price concessions because coupons would not affect costs incurred by Part D sponsors.

27. Preferred Cost Sharing (§423.100 and §423.120) [79 Fed. Reg. 1974 – 77]

Existing Part D regulations permit Part D sponsors to offer lower cost sharing at a subset of network pharmacies, i.e., "preferred pharmacies," than at other in-network pharmacies. A plan's ability to reduce cost sharing is contingent upon one condition: "In no case shall such a reduction result in an increase in payments made by the Secretary under section 1860D-15 of the Act to a plan." CMS never issued a regulation or guidance interpreting this language, but comments in the Proposed Rule that the agency "implied [in the original Part D proposed rulemaking] that any assessment of whether the condition was met would be a matter of actuarial equivalence analysis." CMS notes that it failed to sufficiently explain in the 2005 Part D final rule that, if cost sharing cannot rise beyond a certain level, then in return for lower cost sharing, preferred networks must reduce drug costs (i.e., negotiated prices) paid by the plan in order to prevent an increase in CMS payments to the plan.

CMS analyzed the 2011 Part D drug costs in standalone PDPs with preferred networks, and compared those to costs in their non-preferred networks, as well as to costs in other PDPs without preferred networks.6 CMS found that aggregate unit costs weighted by utilization (for the top 25 brand and top 25 generic drugs) were slightly higher in a few preferred networks than in non-preferred networks in some plans. Also, the range of cost savings in preferred networks ranged from a high of 24.2 percent to as little as 0.1 percent when measured in this particular way. The most significant driver of excess costs in the outlier sponsor preferred networks appeared in mail-order claims. CMS therefore proposes to clarify that preferred cost sharing should signal consistently lower costs. Specifically, CMS would amend § 423.120(a)(9) to provide that "[a] Part D sponsor offering a Part D plan that provides coverage other than defined standard coverage may reduce copayments or coinsurance for covered Part D drugs obtained through a subset of network pharmacies, as long as such preferred cost sharing is offered in accordance with the requirements of § 423.120(a)(8) and for Part D drugs with consistently lower negotiated prices than the same drugs when obtained in the rest of the pharmacy network." The phrase "consistently lower" would mean that sponsors must offer beneficiaries and the Part D program better (lower) negotiated prices on all drugs in return for the lower cost sharing.

CMS solicits comments on alternative approaches to ensuring that the offering of preferred cost sharing does not increase government payments. CMS also seeks comments on whether Medicare should require a minimum level of savings, such as 10 percent or 15 percent, over the costs available at retail cost-sharing rates. In addition, CMS seeks comments on how broadly preferred cost sharing should be applied to drugs on a sponsor's formulary. For instance, is it reasonable to offer cost sharing as low as $0 for only the least expensive generics on formulary? Or should preferred cost sharing have to apply to a minimum percentage of formulary products to be a meaningful benefit instead? Or should preferred cost sharing have to apply to all drugs available at pharmacies offering preferred cost sharing?

Finally, CMS proposes to delete the definitions of "preferred pharmacy" and non-preferred pharmacy" from § 423.100 and to add a new definition of preferred cost sharing. "Preferred cost sharing" would mean lower cost sharing for certain covered Part D drugs at certain network pharmacies offered in accordance with the requirements of § 423.120(a)(9). CMS would require Part D sponsors to revise any marketing materials to reflect the revised nomenclature, and eliminate any references to preferred or non-preferred network pharmacies. CMS seeks comments on whether any further clarifications of terminology are needed for this policy proposal.

28. Prescription Drug Pricing Standards and Maximum Allowable Cost (§423.505(b)(21)) [79 Fed. Reg. 1977 – 78]

CMS proposes a change to the Part D regulations governing the disclosure and updating of prescription drug pricing standards used by Part D sponsors to reimburse network pharmacies to make clear that drug pricing based on maximum allowable cost (MAC) is subject to these regulations. Existing §423.505(i)(3)(viii)(A) requires that sponsors' pharmacy contracts include a provision establishing regular updates of any "prescription drug pricing standard" used by the Part D sponsor, consistent with § 423.505(b)(21), and § 423.505(i)(3)(viii)(B) requires that a Part D sponsor's pharmacy contract indicate the source used by the Part D sponsor for making any such pricing updates. CMS did not define "prescription drug pricing standard," but included only  examples - ones that are based on "wholesale average cost, average manufacturer price, and average sales price." CMS has since determined that this language is too restrictive and, importantly, has been interpreted to excluded MAC pricing. CMS therefore proposes to define "prescription drug pricing standard" means "any methodology or formula for varying the pricing of a drug or drugs during the term of a pharmacy reimbursement contract that is based on the cost of a drug, which includes, but is not limited to, drug pricing references and amounts that are based upon average wholesale price, wholesale average cost, average manufacturer price, average sales price, maximum allowable cost (MAC), or other cost, whether publicly available or not." The phrase, "includes, but is not limited to," is intended by CMS to signify that the examples specified in the regulation text are not exhaustive.

In anticipation of comments on what pharmacy reimbursement method would not be considered a "prescription drug pricing standard," since the regulations apply only "if" a Part D sponsor uses a standard for reimbursement that is based on the cost of the drug, CMS indicates that a fixed fee drug price schedule that is not expected by the parties to vary during the term of the contract between the Part D sponsor/PBM would be not be a "prescription drug pricing standard,". According to CMS, under such an arrangement, there would be no reason to update the list at least every 7 days. 

29. Any Willing Pharmacy Standard Terms & Conditions (§423.120(a)(8)) [79 Fed. Reg. 1978 – 82]

a. Preferred Cost Sharing [79 Fed. Reg. 1979]
b. Extended Days' Supply [79 Fed. Reg. 1979]
c. Mail Order Cost Sharing [79 Fed. Reg. 1979 – 82]

Since the beginning of the Part D program, CMS has required sponsors to offer standard terms and conditions (T&Cs) to any willing pharmacy in order to achieve broad network access, but has permitted sponsors to offer different T&Cs in return for preferred cost sharing to a smaller subset of its network. CMS is proposing that in place of sponsors having one contract with standard terms for any willing pharmacy and a second preferred cost sharing contract for a limited subset of pharmacies, that sponsors have standard T&Cs for network participation that list all combinations of cost sharing and negotiated prices possible for retail settings under the plan, allowing any willing pharmacy the opportunity to offer preferred cost sharing (currently referred to as preferred pharmacies) if the pharmacy can offer the requisite level of negotiated prices. The negotiated prices charged by pharmacies offering preferred cost sharing would have to be at or below the agreed upon "ceiling price" (determined by using the defined preferred cost sharing T&C pricing), which must be less than the "floor price," or lowest negotiated price, charged at network pharmacies offering standard cost sharing.  

Retail pharmacies would elect to participate according to one set of terms or the other, but not both. CMS believes that opening up these limited networks to any pharmacy willing to charge no more than the contract's ceiling price to qualify for offering the lower preferred cost sharing is necessary to restore price competition in these networks. Sponsors could not offer preferred cost sharing for higher negotiated prices than the ceiling price listed in the T&Cs, but would be free to negotiate even deeper discounts from individual pharmacies in the limited network.

CMS proposes to revise § 423.120(a)(8) to require that, in establishing its contracted pharmacy network, a Part D sponsor offering qualified prescription drug coverage must comply with all of the following requirements:

  • Must offer and publicly post standard terms and conditions for network participation for each type of pharmacy in the network subject to the following: (i) May not require a pharmacy to accept insurance risk as a condition of participation in the PDP sponsor's contracted pharmacy network. (ii) Must offer payment terms for every level of cost sharing offered under the sponsor's plans consistent with CMS limitations on the number and type of cost sharing levels, and for every type of similarly situated pharmacy.
  • Must contract with any willing pharmacy able to meet one set of the terms and conditions offered by that plan for that type of pharmacy.

30. Enrollment Requirements for the Prescribers of Part D Covered Drugs (§423.120(c)(5) and (6)) [79 Fed. Reg. 1982 – 84]

The Proposed Rule seeks to implement section 6405(c) of ACA. This section gives the Secretary the authority to require that prescriptions for covered Part D drugs must be prescribed by a physician enrolled in Medicare or an eligible professional as defined at 42 U.S.C. § 1395w-4(k)(3)(B). CMS is proposing to require that a prescriber of Part D drugs must have: (1) an approved enrollment record in the FFS Medicare program or (2) a valid opt-out affidavit on file with a Part A / Part B Medicare Administrative Contractor (MAC) for a prescription to be eligible for coverage under the Part D program. The proposed requirement would become effective on January 1, 2015. By requiring the enrollment in the Medicare enrollment system or the submission of an opt-out affidavit, CMS will verify the prescriber's status as a practitioner entitled to prescribe medication, including a screen for OIG exclusion and verification with the state's licensing board. If a drug claim does not contain the NPI of an active and valid physician or eligible professional that prescribed the drug, a Part D sponsor must deny that claim.

CMS believes that these measures will promote quality health care and prevent fraud by ensuring that prescribers of Part D drugs are physicians and eligible professionals who have a valid state license. CMS also notes that this proposed rule would prohibit foreign prescribers from prescribing Part D drugs because they cannot enroll in Medicare. Under this proposal, CMS would furnish or make available a list of physicians and eligible professionals that have an approved enrollment record or opt-out affidavit. Since most physicians in the country are enrolled in Medicare (or have submitted an opt-out affidavit), CMS does not believe that this requirement will impose significantly new burdens on physicians. CMS is also soliciting comments on whether pharmacies should also be enrolled to dispense Part D drugs, and whether dentists must also enroll to prescribe Part D drugs.

31. Improper Prescribing Practices and Patterns [79 Fed. Reg. 1984 – 87]

a. Background and Program Integrity Concerns [79 Fed. Reg. 1984 – 85]
b. Drug Enforcement Administration (DEA) Certification of Registration [79 Fed. Reg. 1985 – 86]
c. Proposed Provisions [79 Fed. Reg. 1986 – 87]

(1) DEA Certificate and State Authority [79 Fed. Reg. 1986]
(2) Patterns or Practices of Prescribing [79 Fed. Reg. 1986 – 87]
(a) Grounds for Revocation [79 Fed. Reg. 1986]
(b) Criteria to Be Considered [79 Fed. Reg. 1986 – 87]

The Proposed Rule adds new safeguards to protect Medicare from prescription drug fraud. First, CMS would add the authority to deny a provider's Medicare enrollment application, or revoke his or her existing Medicare enrollment, if their DEA certification or applicable licensing body's prescription capabilities have been suspended or revoked. CMS would also revoke a provider's Medicare enrollment if it finds that he or she has an abusive pattern of Part D drug prescriptions or otherwise fails to meet Medicare requirements. Such revocations would only occur after a detailed investigation by CMS that evaluates specified factors.

32. Transfer of TrOOP Between PDP Sponsors Due to Enrollment Changes during the Coverage Year (§423.464) [79 Fed. Reg. 1987 – 88]

a. Exclusion from TrOOP of Increased Cost Sharing Amounts Incurred due to Secondary COB (§423.100)
b. Transfer of TrOOP between PDP Sponsors Due to Enrollment Changes During the Coverage Year (§423.464)

To ensure Part D benefits are correctly administered when a beneficiary transfers enrollment during the coverage year, CMS proposes to codify its existing subregulatory guidance. CMS proposes to amend § 423.464(f)(2) by adding a new paragraph (C) requiring Part D sponsors to (i) Report benefit accumulator data in real-time in accordance with the procedures established by CMS; (ii) Accept in real-time data reported in accordance with CMS-established procedures by any prior plans in which the beneficiary was enrolled, or that paid claims on the beneficiary's behalf, during the coverage year; and (iii) Apply these costs promptly.

33. Broadening the Release of Part D Data [79 Fed. Reg. 1988 – 91]

CMS proposes to revise its regulations governing the release of Part D data to expand the release of unencrypted prescriber, pharmacy, and plan identifiers contained in prescription drug event (PDE) records, and to make other changes to CMS policies regarding release of Part D PDE data. CMS proposes to permit the release of unencrypted prescriber, pharmacy, and plan identifiers contained in PDE records to all current categories of requestors (including, other HHS entities and the Congressional oversight agencies, non-HHS executive branch agencies and states, and external entities).

34. Establish Authority to Directly Request Information From First Tier, Downstream, and Related Entities (§422.504(i)(2)(i) and §423.505(i)(2)(i)) [79 Fed. Reg. 1991 – 92]

Section 423.505(i)(3)(iv) of the Part D regulations provides that the contracts between the Part D sponsor and its FDRs must indicate whether records held by the FDR pertaining to the Part D contract will be provided to the sponsor to provide to CMS (upon request), or will be provided directly to CMS or its designees by the FDR. There is no comparable regulation under Medicare Advantage. CMS points to two OIG reports7 that highlight the "barriers" encountered by CMS' Medicare Drug Integrity Contractor (MEDIC) in obtaining requested information in an expeditious manner, including CMS' (and therefore the MEDIC's) lack of authority to directly obtain information from pharmacies, PBMs, and physicians has hindered the MEDIC's ability to investigate potential fraud and abuse.

CMS therefore proposes to specify at § 422.504(i)(2)(ii) and § 423.505(i)(2)(ii) that HHS, the Comptroller General, or their designees have the right to audit, evaluate, collect, and inspect any records by obtaining them directly from any FDR. According to CMS, the proposed change would not grant CMS any investigative or audit authority that it does not already possess, but would guarantee CMS a direct and expeditious route to information needed for program oversight.

35. Eligibility of Enrollment for Incarcerated Individuals (§417.422, §417.460, §422.74, and §423.44) [79 Fed. Reg. 1992 – 93]

a. Changes in Definition of Service Area for Cost Plans (§417.422(b)) [79 Fed. Reg. 1992 – 93]
b. Involuntary Disenrollment for Incarcerated Individuals Enrolled in MA, PDP and Cost Plans (§417.460, §422.74, and §423.44) [79 Fed. Reg. 1993]

Medicare payment is excluded for services that are paid for directly or indirectly by another government entity, including federal, state, and local prisons, and penal facilities. CMS denies payment for both Part A & B claims for individuals with Social Security Administration records on which incarceration is denoted.  In order for individuals to enroll in MA, Part D, and Cost Plans, individuals must have active Medicare coverage. Further, they must reside in a plan's service area to be covered by that particular plan. 

In order to implement this incarcerated individual payment exclusion, CMS had excluded from the MA and Part D definition of "service area" those facilities in which individuals are incarcerated. To make their regulations consistent, CMS also proposed in this rule to make the service area exclusion apply to cost plans. If an individual was enrolled in a plan and then became incarcerated, they are required to be disenrolled from that plan. 

Yet, previously, the data that the plans received from CMS was not reliable enough for purposes of involuntary disenrollment. CMS is now proposing that plans need to disenroll individuals incarcerated for 30 days or more upon notification of such status from CMS. CMS believes that this change will prevent months of improper payments to MA, Part D and Cost Plans and lessen the burden on plans to verify incarcerated status.

36. Rewards and Incentives Program Regulations for Part C Enrollees (§422.134) [79 Fed. Reg. 1993 – 94]

CMS proposes changes to establish parameters for rewards and incentives programs offered to enrollees of MA plans and to include specific requirements regarding rewards and incentives so as to ensure that such programs do not discriminate against beneficiaries, including those who are sick or disabled. Specifically, CMS proposes to allow MAOs to offer reward and incentive programs to their current Medicare enrollees to encourage their participation in activities that focus on promoting improved health, preventing injuries and illness, and promoting efficient use of health care resources. These reward-eligible activities must be designed so that all enrollees are able to earn rewards without discrimination based on race, gender, chronic disease, institutionalization, frailty, health status, and other impairments. Any rewards and incentives program implemented by an MAO would have to accommodate enrollees who are institutionalized or who need a modified approach to enable effective participation.

Other features of the proposed change include: (i) the reward or incentive would have to be earned by completing the entire health-related service or activity and could not be offered for completing less than all required components of the eligible service or activity; (ii) rewards and incentives would be subject to a monetary cap in an amount CMS determines could reasonably be expected to affect enrollee behavior while not exceeding the value of the health-related service or activity itself; (iii) MAOs that offer rewards and incentives programs would be required to provide to CMS information about the effectiveness of such programs to upon request.

37. Expand Quality Improvement Program Regulations (§422.152) [79 Fed. Reg. 1994]

The Proposed Rule would clarify recent guidance expanding the quality improvement program that each MAO must have. The quality improvement program must enable the MAO to measure, record, and report on the quality of care it provides to enrollees and develop criteria for a chronic care improvement program. The criteria must include specific and structured chronic care improvement requirements that are outcomes based and health driven. This includes: (i) methods for identifying MA enrollees with multiple or sufficiently severe chronic conditions who would benefit from participating in a chronic care improvement program; (ii) mechanisms for monitoring MA enrollees participating in the chronic improvement program and evaluating participant outcomes such as changes in health; (iii) performance assessments that use quality indicators that are objective, clearly and unambiguously defined, and based on current knowledge or research; and (iv) systematic and ongoing follow-up on the effect of the program. 

Note that for SNPs, these requirements add to the program requirements that the statute presently provides; they do not replace them. As such, in addition to  meeting the quality improvement program criteria, SNPs must also be approved by the National Committee for Quality Assurance; submit their model of care (MOC), as defined under §422.101(f), to CMS for NCQA evaluation and approval. Lastly, MA private-fee-for-service plans and Medicare medical savings account plans are subject to the requirement that they may not exceed the requirement specified in §422.152(e).

38. Authorization of Expansion of Automatic or Passive Enrollment Non-Renewing Dual Eligible SNPs (D-SNPs) to another D-SNP to Support Alignment Procedures (§422.60) [79 Fed. Reg. 1994 – 95]

The Proposed Rule would enable CMS to implement passive enrollment procedures in immediate terminations as provided in § 422.510(a)(5); or where remaining enrolled in a plan poses potential harm to the members, as determined by CMS. CMS may also implement such procedures in certain cases involving special needs individuals, provided they meet three requirements: 

  1. The individual is enrolled in a specialized MA plan that will not be offered following the end of the current calendar year.
  2. The individual is a special needs individual entitled to medical assistance under a Medicaid State plan (as defined in section 1895(b)(6)(B)(ii) of the Act and under § 422.2); and a full-benefit dual eligible beneficiary, as defined in section 1935(c) of the Act. 
  3. Lastly, the passive enrollment must be into a specialized MA plan for special needs individuals with a network and benefits that are substantially similar to the non-renewing plan (as determined by CMS), and where the sponsoring organization also offers the Medicaid managed care organization in which the individual is also enrolled.

B. Improving Payment Accuracy [79 Fed. Reg. 1995 – 2007]

1. Implementing Overpayment Provisions of Section 1128J(d) of the Social Security Act (§422.326 and §423.360) [79 Fed. Reg. 1905 – 98]

a. Terminology (§422.326(a) and §423.360(a)) [79 Fed. Reg. 1996 – 97]
b. General Rules for Overpayments (§ 422.326(a) through (c)and §423.360(a) through (c)) [79 Fed. Reg. 1997 – 98]
c. Look-back Period for Reporting and Returning Overpayments [79 Fed. Reg. 1998]

This section of the Proposed Rule would implement section 6402 of ACA requiring a person who has received an overpayment to report and return the overpayment to the Secretary within 60 days after the date in which the overpayment was identified or the date any corresponding cost report is due. Any overpayment retained after the deadline is a knowing violation of the law, subjecting the person to False Claims Act liability. CMS is proposing to implement this requirement for the Part C and D programs requiring MAOs and Part D sponsors to report and return identified overpayments. 

CMS proposes to adopt the statutory definition of overpayment such that an overpayment exists when, after "applicable reconciliation" an MAO and Part D sponsor is not entitled to "funds" it has received or retained. For purposes of this proposed rule, CMS proposes to define "applicable reconciliation" and "funds." First, CMS proposes to define "funds" as payments an MAO or Part D sponsor has received that are based on data that these organizations submitted to CMS for payment purposes and for which they are responsible for. Therefore, if CMS recoups incorrect payment from an MAO or a Part D sponsor based on data corrections associated with Social Security Administration data, CMS would not consider those "funds" that would trigger the overpayment report and return obligation. Second, CMS proposes to define "applicable reconciliation" as the event or events after which an overpayment can exist. For Part C, applicable reconciliation occurs after the final deadline for risk adjustment data submission. For Part D sponsors applicable reconciliation is the later of: the annual deadline for submitting PDE data for annual Part D payment reconciliation, or the annual deadline for submitting DIR data. CMS explains that the different deadlines for the Part C and D program take into account the differences in these two programs. 

CMS proposes that the MAO or Part D sponsor report and return an overpayment when it identified an overpayment. Identification of an overpayment is defined as having actual knowledge of the existence of the overpayment or acting in reckless disregard or deliberate ignorance of the existence of the overpayment. The actual process for reporting and returning the overpayment is not explained in the Proposed Rule, but will be set forth in later guidance to be specified by CMS. 

CMS proposes that the look-back period for reporting and returning overpayments is six years. Therefore, MAOs and Part D sponsors would be required to report and return overpayments that they identify within the 6 most recent completed payment years.

2. Determination of Payments (§423.329) [79 Fed. Reg. 1998]

CMS proposes a technical change to § 423.329(d) to correctly describe the low-income cost-sharing subsidy payment amount that is located in Chapter 13 of the Medicare Prescription Drug Benefit Manual, Premium and Cost-Sharing Subsidies for Low-Income Individuals (Rev. 13, July 29, 2011).  Under the basic benefit defined at § 423.100, the low-income cost-sharing subsidy payment amount is the difference between the cost sharing for a non-LIS beneficiary under the Part D plan and the statutory cost-sharing for the LIS eligible beneficiary. Under an enhanced alternative plan described at § 423.104(f), the cost-sharing subsidy applies to the beneficiary liability after the plan's supplemental benefit is applied.

3.   Reopening (§423.346) [79 Fed. Reg. 1998 – 99]

a. Part D Plan Payments Reopening [79 Fed. Reg. 1998 – 99]

Existing regulations provide for the reopening of final determinations made on payment for any reason within one year of the final determination of payment, within four years for good cause, or at any time when there is fraud or similar fault. CMS proposes to revise the regulations so that it may perform one reopening within five years after the date of the notice of the initial determination to the Part D sponsors. CMS also proposes a change to accommodate reopening the coverage gap discount reconciliation described at § 423.2320(b). CMS explains that, based on its experience with Part D, it better understands the need for reopening a payment determination and proposes the change to change to align with CMS' experience. In determining whether to reopen, CMS will consider a number of issues including, but not limited to, whether the contract has terminated and received a final settlement. CMS will not approve a request to reopen for a contract that has terminated and received a final settlement. Also, when CMS reopens on its own initiative, contracts that have been terminated and settled will not be included in the reopening.

b. Coverage Gap Discount Reconciliation Reopening [79 Fed. Reg. 1999]

CMS proposes to establish a reopening provision for the coverage gap discount reconciliation. Under the coverage gap discount program, Part D sponsors receive interim discount payments that are estimates, and which are reconciled with invoiced manufacturer discount amounts. Reopening is warranted since manufacturer discount amounts reported on PDE records submitted after the PDE submission deadline for reconciliation continue to be invoiced to manufacturers within a maximum of 3 years of the date of dispensing, and manufacturers remit payments for invoiced coverage gap discount amounts to Part D sponsors.

4. Payment Appeals (§423.350) [79 Fed. Reg. 1999]

CMS proposes to establish an appeals process for the coverage gap discount reconciliation. Consistent with the Part D payment appeal process, Part D sponsors will be expected to submit payment information correctly and within the established timelines. Information submitted and reconciled under the cover gap discount reconciliation will be final and may not be appealed nor may the appeals process be used to submit new information after the submission of information necessary to determine retroactive adjustments and reconciliations. In addition, a reconsideration of the coverage gap discount reconciliation must be filed within 15 days from the date of the final payment, which is the date of the final reconciled payment.

5. Payment Processes for Part D Sponsors (§423.2320) [79 Fed. Reg. 1999 – 2000]

CMS' final rule implementing the coverage gap discount program8 did not contemplate a payment process in the event that a manufacturer becomes bankrupt and does not pay the Part D sponsors for quarterly invoiced amounts under the manufacturer's program agreement. CMS proposes to amend § 423.2320 to provide for CMS' assumption of financial liability for the applicable discount by covering the costs of the quarterly invoices that go unpaid by a bankrupt manufacturer at the time of the coverage gap discount reconciliation.  CMS would not cover the cost of unpaid quarterly invoices for any other reason.

6. Risk Adjustment Data Requirements (§422.310) [79 Fed. Reg. 2000]

CMS proposes to amend existing risk adjustment data regulations to require that any medical record reviews conducted by an MAO must be designed to determine the accuracy of diagnoses submitted under § 422.308(c)(1) and § 422.310(g)(2), and cannot be designed only to identify diagnoses that would trigger additional payments by CMS to the MAO. Also, medical record review methodologies must be designed to identify errors in diagnoses submitted to CMS as risk adjustment data, regardless of whether the data errors would result in positive or negative payment adjustments.

Another proposed change would revise the deadline for risk adjustment data submissions to explicitly permit late submissions only to correct overpayments; not to submit diagnoses for additional payment.

Finally, CMS proposes two changes to align the risk adjustment regulation with proposed § 422.326 (discussed above). The first change would delete the January 31 risk adjustment data submission deadline and replace it with the statement that CMS will announce the deadline. This change would result in the risk adjustment data submission deadline also functioning as the Part C applicable reconciliation date for purposes of proposed § 422.326 on overpayment rules. The second change would add subparagraph (3) to § 422.310(g) and cite § 422.326 as the source of rules for submission of corrected risk adjustment data after the final risk adjustment data submission deadline.

7. RADV Appeals [79 Fed. Reg. 2000 – 05]

CMS proposes changes to its risk adjustment data validation (RADV) appeals rules to clarify program requirements and simplify the RADV appeals process. These proposed RADV provisions will apply to any RADV determinations issued on or after the effective date of the regulation.

Currently there are two types of RADV-related appeals processes: a two stage medical record review-determination appeal and a three-stage RADV payment error calculation appeal. CMS proposes to combine the two RADV appeal policies and procedures into one set of requirements and one process that is comprised of three administrative steps: reconsideration, hearing officer review, and CMS Administrator-level review. Under the proposed changes, MAOs can request to appeal their RADV audit findings one time and specify whether they want to appeal either their medical record review determination(s), payment error calculation, or both.

a. Background [79 Fed. Reg. 2000 – 01]
b. RADV Definitions [79 Fed. Reg. 2001]
c. Publication of RADV Methodology [79 Fed. Reg. 2001 – 02]
d. Proposal to Update RADV Appeals Terminology (§ 422.311) [79 Fed. Reg. 2002]
e. Proposal to Simplify the RADV Appeals Process [79 Fed. Reg. 2002 – 05]

(1) Issues Eligible for RADV Appeal [79 Fed. Reg. 2002 – 03]

The RADV appeal regulations currently specify the RADV-related medical record review and payment error calculation documents and issues eligible for the medical record review determination and payment error calculation appeal processes. CMS proposes that "as a general rule," MAOs may appeal RADV medical record review determinations and RADV payment error calculation. However, in order to be eligible to pursue these appeals, MAOs must adhere to established RADV audit procedures and requirements and adhere to RADV appeals procedures and requirements. The failure to follow RADV audit procedures and requirements and RADV appeals procedures and requirements will render the MAO's request for RADV appeal invalid. Also, the MAO's written request for a medical record review determination appeal must specify the audited HCC(s) that have been identified pursuant to the RADV audit as being in error. MAOs must provide a justification in support of the audited HCC(s) that the MAO elects to appeal. For each audited HCC, MAOs may appeal one medical record that has undergone RADV medical record review and if an attestation was submitted to cure a signature or credential issue, that attestation may likewise be included in the HCC appeal.

Under the RADV audit methodology changes that CMS announced in February 2012, CMS allows MAOs to submit more than one medical record during the RADV audit process to validate an audited CMS-HCC, although the audited HCC must be validated by one of the submitted records (i.e., the one best medical record). For purposes of appealing a CMS medical record review determination, CMS we will not permit organizations to appeal multiple medical records but will require MAOs to identify a record from amongst those records submitted and to submit that record for appeal.

Finally, a written request for RADV payment error calculation appeal must clearly specify the MAO's own RADV payment error calculation and must also specify where the payment error calculation was erroneous.

(2) Issues Not Eligible for RADV Appeals [79 Fed. Reg. 2003]

CMS proposes a new section 422.311(c)(3) that identifies documents and issues that are ineligible for RADV appeals. Specifically, an MAO's request for appeal could not include HCCs, medical records or other documents beyond the audited HCC, selected medical record and any accompanying attestation that the MAO chooses to appeal. MAOs could not appeal CMS' medical record review determination methodology or CMS' payment error calculation methodology. In addition, MAOs could not appeal RADV medical record review-related errors when appealing RADV error-calculation issues since medical record review determination issues must be resolved before CMS can calculate RADV payment errors. Finally, RADV errors that result from an MAO's failure to submit a medical record would not be eligible for appeal.

(3) Manner and Timing of a Request for RADV Appeal [79 Fed. Reg. 2003]

CMS proposes that at the time the Secretary issues the RADV audit report, the Secretary notifies audited MAOs that they may appeal RADV HCC errors that are eligible for medical record review determination appeal and may appeal the Secretary's RADV payment error calculation. MAOs would have 30 days from the date of CMS' issuance of the RADV audit report to file a written request with CMS for RADV appeal. This request for RADV appeal must specify whether the MAO requests medical record review determination appeal, whether the MAO requests RADV payment error calculation appeal, or whether the MAO requests both medical record review determination appeal and RADV payment error calculation appeal—and in each instance—the issues with which the MAO disagrees, and the reasons for the disagreements. For MAOs that elect both medical record review determination appeal and RADV payment error calculation appeal, the Secretary will adjudicate the request for RADV payment error calculation following conclusion of reconsideration of the MAO's request for medical record review determination appeal.

(4) Reconsideration Stage [79 Fed. Reg. 2003 – 04]

CMS proposes a new reconsideration stage for RADV appeals that will apply to both medical record review determinations and error calculation issues being appealed. For medical record review determination reconsideration, a medical record review professional who was not involved in the initial medical record review determination of the disputed HCC would review the medical record and accompanying dispute justification and reconsider the initial audited HCC medical record review determination. For payment error calculation reconsideration, CMS would ensure that a third party not involved in the initial RADV payment error calculation would review the RADV payment error calculation, would review the MAO's own RADV payment error calculation, and would recalculate the payment error in accordance with CMS' RADV payment error calculation procedures. The reconsideration official would issue a written reconsideration decision to the MAO, which would be final unless the MAO requests a hearing. The Hearing Officer's decision may be appealed to the CMS Administrator. The Proposed Rule would establish the policies and procedures for review by the Hearing Officer and the CMS Administrator.

(5) Hearing Stage [79 Fed. Reg. 2004 – 05]
(6) CMS Administrator Review Stage [79 Fed. Reg. 2005]

f. Proposal to Expand Scope of RADV Audits [79 Fed. Reg. 2005]
g. Proposal to Clarify the RADV Medical Record Review Determination Appeal Burden of Proof Standard [79 Fed. Reg. 2005]
h. Proposal to Change RADV Audit Compliance Date [79 Fed. Reg. 2005]

Other RADV-related proposals include: (i) specifying that the Secretary of the Department of Health and Human Services, along with CMS, may conduct RADV audits; and (ii) specifying that that the MAO has the burden for RADV payment error calculations or RADV medical record review determinations to prove, based on a preponderance of the evidence, that CMS' determination was erroneous.

8. Recovery Audit Contractor (RAC) Determination Appeals (Proposed Part 422 Subpart Z and Part 423 Subpart Z) [79 Fed. Reg. 2005 – 07]

a. Background [79 Fed. Reg. 2005 – 06]
b. Proposed RAC Appeals Process [79 Fed. Reg. 2006 – 07]

(1) Reconsiderations (§422.2605 and §423.2605) [79 Fed. Reg. 2006]
(2) Hearing Official Determinations (§422.2610 and §423.2610) [79 Fed. Reg. 2006 – 07]
(3) Administrator Review (§422.2615 and §423.2615) [79 Fed. Reg. 2007]

Due to the creation of a Recovery Audit Contractor (RAC) program under Parts C & D, CMS determined it was necessary to create a formal appeal process to allow for sponsors to challenge the overpayment findings of the RACs. CMS based the appeal process on the existing appeal mechanisms set forth in 42 C.F.R. § 422.311 (RADV audit dispute and appeal process) and 42 C.F.R. § 423.350 (Payment appeals under Part D). 

CMS sets forth a three level appeal process. After receiving a demand letter, the plan could go to the first level of appeal, the reconsideration, in which an independent reviewer would review the matter. While the CMS payment methodology cannot be appealed, plans can appeal issues including: a determination of provider/pharmacy exclusion, duplicate payments, and miscalculation of an overpayment. 

The second level of appeal is the hearing officer determination. At this level an independent CMS hearing official would review the matter. They may only consider limited evidence, and neither CMS nor the plan can submit new evidence at the phase. The hearing official's decision is final and binding unless the decision is reversed or modified by the Administrator. 

At the third level, Administrator review, the plan can request that the Administrator review the prior decision. The Administrator can decline to review the hearing official's decision. If that is the case, the hearing official's decision is final and binding. If the Administrator does review the prior level decision, the Administrator decision is final and binding.

C. Strengthening Beneficiary Protections [79 Fed. Reg. 2007 – 12]

1. Providing High Quality Health Care (§422.504(a)(3) and §423.505(b)(27)) [79 Fed. Reg. 2007 – 08]

The Proposed Rule would require MAOs and PDP sponsors to affirmatively demonstrate that they are providing good quality care or improving scores on CMS performance standards for outcomes, patient experience, and access to care. Under the Proposed Rule, MAOs and PDP sponsors must develop ways to improve or enhance the health of their enrollees. CMS would evaluate whether an MAO or PDP sponsor has provided good quality health care based on the five categories of care used in the Star Ratings program. Specifically, an MAO or PDP sponsor may establish that it has provided good quality health care with a Star Rating of 3 or higher on CMS performance standards for patient outcomes, intermediate outcomes, process, patient experience, and patient access to care.

2. MA-PD Coordination Requirements for Drugs Covered Under Parts A, B, and D (§422.112) [79 Fed. Reg. 2008 – 09]

The Proposed Rule would require MA-PD sponsors to ensure that their claims processing and adjudication systems provide sufficient information to ensure that the appropriate payment is assigned at the point of service and that, in the event of a denial based on the availability of Part A or Part B coverage, that the coverage is provided in a manner consistent with the enrollee's health condition. It also would require Part D sponsors to properly coordinate their drug benefits by ensuring that a denial of Part D benefits based on the availability of Part A or Part B coverage results in the authorization or provision of the drug consistent with regulatory requirements.

3. Good Cause Processes (§417.460, §422.74 and §423.44) [79 Fed. Reg. 2009 – 10]

Based on feedback received after the Draft 2014 Call Letter, the Proposed Rule would allow an entity acting on behalf of CMS—whether a plan or an independent contractor—to administer some or all of the good cause process, including effectuating reenrollment for good cause. The Proposed Rule also would authorize plans to accept requests for reinstatement from former enrollees and to make good cause determinations. Additionally, the Proposed Rule would make a technical correction to indicate that good cause protections apply to enrollees of cost plans where there has been a failure to pay either premiums or cost sharing.

4. Definition of Organization Determination (§422.566) [79 Fed. Reg. 2010 – 11]

The Proposed Rule revises the definition of "organization determination" to clarify that any coverage decision—fully favorable, partially favorable, and unfavorable—includes any determination to pay for or not to pay for any items or services made by an MAO. The rule also notes that decisions by providers under contract with an MAO to furnish an item or service to an enrollee or to refer an enrollee to a non-participating provider constitute favorable organization determinations on behalf of the MAO. Finally, the Proposed Rule explains that a favorable organization determination by an MAO, or a contract provider, also includes decisions to continue providing or paying for an item or service.

5. MA Organizations May Extend Adjudication Timeframes for Organization Determinations and Reconsiderations (§422.568, §422.572, §422.590, §422.618, and §422.619) [79 Fed. Reg. 2011 – 12]

In response to perceived abuses of the 14-day extension for adjudication of an organization determination or reconsideration, CMS has proposed stricter limitations on the use of the 14-day extension period. The Proposed Rule would clarify that extensions should not be used routinely or for all categories of coverage requests; rather, extensions should be rare and should not be used to obtain additional medical evidence from contract providers. Under the Proposed Rule, an MAO may invoke an extension to obtain additional medical evidence only when seeking it from a non-contract provider and only when doing so is in the enrollee's interest, i.e., such evidence may result in changing the MAO's denial of coverage. Moreover, CMS articulated that it does not expect extensions routinely to consume the full 14 days. Finally, the Proposed Rule does acknowledge that, in rare circumstances, an extension of a determination involving a contract provider may be warranted as a result of extraordinary events—such as a natural disaster—and where the extension would be in the enrollee's interest.

D. Strengthening CMS' Ability to Distinguish Stronger Applicants for Part C and D Program Participation and to Remove Consistently Poor Performers [79 Fed. Reg. 2012 – 17]

1. Two-Year Prohibition When Organizations Terminate Their Contracts (§422.502, §422.503, §422.506, §422.508, and §422.512) [79 Fed. Reg. 2012 – 13]

The Proposed Rule would extend the two-year prohibition on re-entering the MA program because of non-renewals and mutual terminations to any product type or service area regardless of the type of non-renewed or terminated contract or service area. But CMS would retain discretion as to whether to apply the two-year ban in light of special circumstances, as provided in 42 C.F.R. §§  422.503(b)(6)(ii), 422.506(a)(4), and 422.512(e). Unlike the April 15, 2010 final rule (75 Fed. Reg. 19678), the Proposed Rule expressly would apply to both service area expansions and applications for new contracts.

2. Withdrawal of Stand-Alone Prescription Drug Plan Bid Prior to Contract Execution (§423.503) [79 Fed. Reg. 2013]

Based on CMS' frustration with withdrawals by new PDP sponsor contractors after the announcement of the LIS benchmark, the Proposed Rule would permit CMS to impose a two-year Part D application ban on organizations that newly had been approved by CMS for a PDP sponsor contract but elected to withdraw after the LIS benchmark had been announced. At present, new PDP sponsor applicants are not subject to CMS regulation and oversight, and so evade any sanction for withdrawing after announcement of the LIS benchmark, despite the administrative challenges posed by such exists. The Proposed Rule would enable CMS to penalize such entities similarly to how it may address non-renewals by existing PDP sponsors. The Proposed Rule ostensibly would eliminate "gaming" of the bid review and auto assignment process.

3. Essential Operations Test Requirement for Part D (§ 423.503(a) and (c), §423.504(b)(10), §423.505(b)(28), and §423.509) [79 Fed. Reg. 2013 – 16]

"Newly contracted entities," defined as, "an organization that has entered or applied to enter into a Part D contract with [CMS] for the first time for the upcoming plan year, and neither it, nor another subsidiary of the organization's parent organization is offering Part D benefits during the current benefit year"—including entities offering EGWPs for the first time—must submit to an essential operations test as part of the contracting process. The proposed essential operations test would occur between late September and January, most likely before November 15. The test would gauge an organization's capabilities to administer core Part D services such as enrollment, benefit administration, and claims adjudication seamlessly at POS. Testing would examine the PDP sponsor organization's key staff and its administrative and management arrangements.

a. Failing Essential Operations Test as Cause for Immediate Termination [79 Fed. Reg. 2015]

Should CMS determine that a PDP sponsor has failed the essential operations test, the Proposed Rule would enable CMS to deem the failed test a substantial failure to meet Part D contract requirements subject to immediate termination that is not subject to a stay pending a request for a hearing under 42 C.F.R. 423.650(a)(2). CMS may determine that a PDP sponsor has substantially failed to meet Part D requirements because: (1) the PDP sponsor failed to carry out the Part D contract in a manner consistent with the effective and efficient administration of the plan; and (2) the sponsor did not substantially meet the Part D contract requirements. CMS explains that, given the risk of harm to enrollees' health and safety, immediate termination of the contract is warranted before the start of the plan year to ensure successful administration of the Part D program.

b. Failing Essential Operations Test as Failure of a Qualification to Contract and Grounds for Nullification of Approval [79 Fed. Reg. 2015 – 16]

Under the Proposed Rule, should a PDP sponsor fail an essential operations test administered prior to contract execution, then CMS will nullify its conditional approval of the organization's Part D qualifications. The Proposed Rule would include the essential operations test as a qualification to contract and would enable CMS to use performance on the essential operations test as a basis for determining whether to execute a contract. Moreover, in the event of a failed essential operations test, the proposed rule would not permit a PDP sponsor appeal rights because CMS expects that it would not have time to conduct the appeals process within the timeframe prescribed by regulation.

4. Termination of the Contracts of Medicare Advantage Organizations Offering Part D for Failure for Three Consecutive Years to Achieve Three Stars on Both Part C and Part D Summary Star Ratings in the Same Contract Year (§422.510) [79 Fed. Reg. 2016 – 17]

The Proposed Rule would enable CMS to terminate an MA-PD sponsor for failing to obtain at least a three-star Star Rating on both the Part C and Part D ratings in the same year for three consecutive years. Having revised the low performing income (LPI) methodology in the 2014 Call Letter, released in April 2013, CMS proposes revisions to the regulations consistent with the new LPI methodology. That is, if an MA-PD sponsor is unable to attain an "average" star rating across the Part C and Part D Star Ratings for three consecutive years, it shall be subject to termination. Likewise, the Proposed Rule would clarify that an MA-only contract that fails to meet three consecutive years of three-star Part C Star Ratings would be subject to termination.

E. Implementing Other Technical Changes [79 Fed. Reg. 2018 – 2027]

1. Requirements for Urgently Needed Services (§422.113) [79 Fed. Reg. 2018]

Section 422.113(b) currently requires MAOs to cover urgently needed services furnished outside a plan's service area or contracted network of providers when an enrollee is in need of such services but is outside of the service area, or is in the service area but the plan network is temporarily unavailable due to "extraordinary and unusual circumstances." The proposed revisions to the regulation remove the requirement of "extraordinary and unusual" for in-service-area, out-of-network coverage for urgently needed medical services. In essence, the Proposed Rule would enable enrollees with non-emergent weekend medical problems to be covered for services furnished out-of-network.

2. Skilled Nursing Facility Stays (§422.101 and §422.102) [79 Fed. Reg. 2018 – 19]

The Proposed Rule would relocate the MA regulatory provisions describing an MAO's authority to furnish covered SNF stays without the qualifying inpatient hospital stay required under original Medicare from § 422.101, "Requirements Related to Basic Benefits," to § 422.102, "Supplemental Benefits." This proposal is made in response to MAOs' longstanding practice of offering to waive the 3-day inpatient hospital stay as a supplemental benefit. 

3. Agent and Broker Training and Testing Requirements (§422.2274 and §423.2274) [79 Fed. Reg. 2019]

Under the Proposed Rule, both § 422.2274(b) and (c) and § 423.2274(b) and (c) will be revised to remove the requirement that agents and brokers receive training pursuant to a CMS endorsed or approved training and testing system. Instead, the Proposed Rule would require that agents and brokers are trained and tested annually on Medicare rules and regulations, as specified by CMS. This proposed change, exclusive to the requirements for conducting marketing activities under the MA and Part D program, is intended to ensure that all agents and brokers selling Medicare products have a comprehensive understanding of Medicare program rules. 

4. Deemed Approval of Marketing Materials (§422.2266 and §423.2266) [79 Fed. Reg. 2019]

The regulations currently governing MAOs and PDP sponsors do not clearly state when and to what extent marketing materials are "deemed approved." Accordingly, the Proposed Rule modifies the language in § 422.2266 and § 423.2266 to provide that if CMS does not approve or disapprove of marketing materials within the specified review timeframe, the materials will be deemed approved. "Deemed approved" means that an MAO or PDP sponsor may use the material. 

5. Cross-Reference Change in the Part C Disclosure Requirements (§422.111) [79 Fed. Reg. 2019]

This change was proposed only to correct cross reference errors and in no way changes the meaning or policy encompassed in the provision.

6. Managing Disclosure and Recusal in P&T Conflicts of Interest: Formulary Development and Revision by a Pharmacy and Therapeutics Committee under PDP (§423.120(b)(1)) [79 Fed. Reg. 2019 – 20]

The Proposed Rule would require a Part D sponsor's P&T committee to clearly articulate and document processes to determine that the requirements under paragraphs (b)(1)(i) through (iii) have been met—including the determination by an objective party of whether disclosed financial interests are conflicts of interest and the management of any recusals due to such conflicts.

7. Definition of a Part D Drug (§423.100) [79 Fed. Reg. 2020 – 21]

a. Combination Products [79 Fed. Reg. 2021]
b. Barbiturates and Benzodiazepines [79 Fed. Reg. 2021]
c. Medical Foods [79 Fed. Reg. 2021]

The Proposed Rule clarifies that, unless excluded under paragraph (2) of this definition, any of the following, or any FDA-approved combination of the following, if used for a medically accepted inclination (as defined in §1395w-2(e)(4)) is eligible for Part D coverage. To constitute an "FDA-approved combination," the product must be approved and regulated in its combination form by the FDA as a drug, vaccine, insulin, or biologic, as described in paragraph (i), (ii), (iii), or (v) of the Part D drug definition. Pursuant to section 2502 of ACA, barbiturates constitute a Part D drug for all medically accepted indications and are not subject to exclusion from coverage, effective for services provided on or after January 1, 2014.  Part D drugs do not, however, include medical foods. Medical foods are defined as a food that is formulated to be consumed or administered enterally under the supervision of a physician and which is intended for the specific dietary management of a disease or condition for which distinctive nutritional requirements, based on recognized scientific principles, are established by medical evaluation, and that are not regulated as drugs under section 505 of the Federal Food, Drug, and Cosmetic Act.

8. Thirty-six-Month Coordination of Benefits (COB) Limit (§423.466(b)) [79 Fed. Reg. 2021 – 22]

The Proposed Rule would clarify that Part D sponsors must "coordinate benefits . . . for a period of 3 years." This will avoid confusion caused by the previous "not to exceed" language and will remove any uncertainty about whether a lesser timeframe may be imposed by PDP sponsors. CMS has also proposed to revise the heading of § 423.466 to reference the claims adjustments addressed in § 423.466(a).

9. Application and Calculation of Daily Cost-Sharing Rates (§423.153) [79 Fed. Reg. 2022 -23]

Section 423.153 currently requires that Part D sponsors establish and apply a daily cost-sharing rate whenever a prescription is dispensed by a network pharmacy for less than a 30 days' supply, unless the drug is excepted in the regulation. Under § 423.100, "daily cost-sharing rate" is defined as the "monthly copayment under the enrollee's Part D plan, divided by 30 or 31 and rounded to the nearest lower dollar amount, if any, or to another amount, but in no event to an amount that would require the enrollee to pay more for a month's supply of the prescription than would otherwise be the case." The Proposed Rule would:

  • replace the "divided by 30 or 31" language with the phrase, "divided by the number of days in the approved month's supply for the drug dispensed"; and
  • replace the "lower dollar amount, if any, or to another amount" with the phrase, "the nearest cent."

Thus, the "daily cost-sharing rate" definition would read as follows: "[A]s applicable, the established monthly copayment under the enrollee's Part D plan, divided by the number of days in the approved month's supply for the drug dispensed and rounded to the nearest cent."

The Proposed Rule would also make additional technical changes to the daily cost-sharing rate rule at § 423.153(b)(4)(i) to improve the regulation's clarity:

  • consolidate the language of § 423.153(b)(4)(i)(A) into § 423.153(b)(4)(i);
  • consolidate § 423.153(b)(4)(i)(B)(1) and (2) into a new paragraph § 423.153(b)(4)(ii);
  • revise (for clarity) the language in § 423.153(b)(4)(i) that addresses the application of the daily cost-sharing rate in the case of a monthly copayment and move that section to a new paragraph (b)(4)(iii)(A); and
  • revise § 423.153(b)(4)(iii)(B) to state that, in the case of a drug that would incur a coinsurance percentage, the Part D sponsor shall apply the coinsurance percentage for the drug to the days' supply actually dispensed.

10. Technical Change to Align Regulatory Requirements for Delivery of the Standardized Pharmacy Notice (§423.562) [79 Fed. Reg. 2023]

The current regulations at § 423.562(a)(3) require Part D sponsors to make arrangements with their network pharmacies to distribute certain standardized notices (CMS-10147) at the point of sale to an enrollee when the prescription cannot be filled as written. Such notices instruct enrollees on how to contact their plans to obtain a coverage determination or request an exception. The Proposed Rule would remove any reference in § 423.562(a)(3) that ties delivery of the pharmacy notice to the enrollee's disagreement with information provided by the pharmacist.

11. Special Part D Access Rules During Disasters or Emergencies (§423.126) [79 Fed. Reg. 2023 – 24]

The Proposed Rule would codify previous guidance in the new § 423.126(a)(1)(i), which would require Part D sponsors to relax "refill-too-soon" (RTS) edits in the event of any imminent or occurring disaster or emergency that would hinder an enrollee's access to covered Part D drugs. Under the Proposed Rule:

  • there must be an anticipated or actual disaster or emergency, as evidenced by a declaration of a disaster or emergency issued by an appropriate federal, state, or local official; and
  • it must be reasonable to conclude that such disaster or emergency or preparation therefore would make it difficult for beneficiaries to obtain refills of their medications because the disaster or emergency or anticipation thereof has affected, or will affect, their ability to have timely access to their usual pharmacies.

The Proposed Rule would apply to one refill for each drug the beneficiary is taking for refills sought within 30 days of the date the plan sponsor began relaxing RTS edits.

12. MA Organization Responsibilities in Disasters and Emergencies (§422.100) [79 Fed. Reg. 2024 – 25]

If a state of disaster is declared, MAOs must temporarily change policies to ensure additional access to benefits. These changes would include provision of coverage for Medicare Parts A, B, and C benefits at non-contracted facilities with no greater cost sharing than beneficiaries would have received in-network, full waiver of applicable requirements for gatekeeper referrals, and enactment of changes that benefit enrollees immediately without the 30-day requirement in 42 C.F.R. § 422.11(d)(3). MA plans also must, at least annually, post their disaster and emergency policies on their websites. Additionally, the proposed regulation codifies the bases for determining the start and end of a disaster or emergency.

13. Termination of a Contract Under Parts C and D (§422.510 and §423.509) [79 Fed. Reg. 2025]

a. Cross-reference Change (§423.509(d)) [79 Fed. Reg. 2025]
b. Terminology Changes (§422.510 and §423.509) [79 Fed. Reg. 2025]
c. Technical Change to Align Paragraph Headings (§422.510(b)(2)) [79 Fed. Reg. 2025]
d. Terminology Change (§423.509(b)(2)(C)(ii)) [79 Fed. Reg. 2025]

CMS may terminate its contract with an MAO if the MAO fails to meet certain ratings and reporting requirements. CMS has revised the language in 42 C.F.R. § 422.510 and § 423.509 to clarify its contract termination authority by separating out the statutory bases for termination from the examples. In addition, CMS has shortened its pre-termination notification period from 90 to 45 days. CMS also added a requirement that MAOs that are to be terminated notify the general public at least 30 days prior via both a news release and website posting. 

14. Technical Changes to Align Part C and Part D Contract Determination Appeal Provisions (§422.641 and §422.644) [79 Fed. Reg. 2025 – 26]

a. Technical Changes (§422.641) [79 Fed. Reg. 2025]
b. Technical Changes (§422.644(a) and (b)) [79 Fed. Reg. 2025 – 26]

The Proposed Rule would make technical changes to these provisions to ensure consistent wording and do not change either the provisions' meaning or the policy expressed in those provisions.

15. Technical Changes to Align Parts C and D Appeal Provisions (§422.660 and §423.650) [79 Fed. Reg. 2026]

The changes were proposed only to correct technical errors and in no way changes the meaning or policy encompassed in either provision.

16. Technical Changes Regarding Intermediate Sanctions and Civil Money Penalties (§422.756 and §423.756) [79 Fed. Reg. 2026 – 27]

a. Technical Changes to Intermediate Sanctions Notice Receipt Provisions (§422.756(a)(2) and §423.756(a)(2)) [79 Fed. Reg. 2026]
b. Cross-reference Changes (§422.756(b)(4) and §423.756(b)(4)) [79 Fed. Reg. 2026]
c. Technical Changes (§422.756(d) and §423.756(d)) [79 Fed. Reg. 2026 – 27]
d. Technical Changes to Align the Civil Money Penalty Provision with the Authorizing Statute (§422.760(a)(3) and §423.760(a)(3)) [79 Fed. Reg. 2027]
e. Technical Changes to Align the Civil Money Penalty Notice Receipt Provisions (§422.1020(a)(2), §423.1020(a)(2), §422.1016(b)(1), and §423.1016(b)(1)) [79 Fed. Reg. 2027]

These changes were proposed only to correct cross-reference or technical errors and in no way changes the meaning or policy encompassed in these provisions.

17. Technical Change to the Restrictions on use of Information under Part D (§423.322) [79 Fed. Reg. 2027]

The Proposed Rule clarifies that officers, employees, and contractors of HHS may use the information disclosed or obtained in accordance with the provisions of subpart G (Payments to Part D Plan Sponsors for Qualified Prescription Drug Coverage) for the purpose of, and to the extent necessary in: (1) carrying out the subpart, including, but not limited to, determination of payments, and payment-related oversight and program integrity activities; or (2) to the extent necessary in conducting oversight, evaluation, and enforcement under Medicare. The United States Attorney General and the Comptroller General of the United States may use the information disclosed or obtained in accordance with the provision of the subpart for the purposes of, and to the extent necessary in, carrying out health oversight activities. These restrictions do not limit the OIG's authority to fulfill the Inspector General's responsibilities in accordance with applicable federal law; nor does it restrict CMS' ability to use data regarding drug claims in accordance with §1395w-4.


This summary was prepared by Crowell & Moring attorneys Christine Clements, Troy Barsky, Xavier Baker, Marisa Adelson, Jennifer Williams, Ashley Southerland and Joseph Bui.


1  74 Fed. Reg. 53634.

2 A "typical beneficiary" is defined as an individual who has the average clinical presentation of the relevant disease or condition.


4 The list of eight core chronic diseases would thus become: cardiovascular disease, diabetes, dyslipidemia, respiratory disease, bone disease – arthritis, mental health, Alzheimer's disease, and end stage renal disease.

5 Pursuant to 42 C.F.R. § 423.265(b)(2), CMS may deny bids that are not meaningfully different from other bids submitted by the same organization in the same service area.

6 "Negotiated Pricing between Preferred and Non-Preferred Pharmacy Networks", is posted at:

7 OEI-03-08-00420, dated October 2009 and OEI 03-11-00310, dated January 2013.

8 77 Fed. Reg. 22071 (April 12, 2012).

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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

Troy A. Barsky
Partner – Washington, D.C.
Phone: +1 202.624.2890

A. Xavier Baker
Partner – Washington, D.C.
Phone: +1 202.624.2842

Ashley N. Southerland
Associate – Washington, D.C.
Phone: +1 202.624.2515