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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Other changes/clarifications proposed by CMS include:

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

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

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

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

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

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

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

CMS does not believe a formal discovery process is necessary or appropriate in proceedings to terminate a sponsoring organization's con