[Title 42 CFR IV]
[Code of Federal Regulations (annual edition) - October 1, 2007 Edition]
[Title 42 - PUBLIC HEALTH]
[Chapter IV - CENTERS FOR MEDICARE]
[From the U.S. Government Printing Office]


42PUBLIC HEALTH32007-10-012007-10-01falseCENTERS FOR MEDICAREIVCHAPTER IVPUBLIC HEALTH
                    CHAPTER IV--CENTERS FOR MEDICARE




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


  Editorial Note: Nomenclature changes to chapter IV appear at 62 FR 
46037, Aug. 29, 1997; 66 FR 39452, July 31, 2001; and 67 FR 36540, May 
24, 2002.

                    SUBCHAPTER A--GENERAL PROVISIONS
Part                                                                Page
414             Payment for Part B medical and other health 
                    services................................           5
415             Services furnished by physicians in 
                    providers, supervising physicians in 
                    teaching settings, and residents in 
                    certain settings........................          73
416             Ambulatory surgical services................          90
417             Health maintenance organizations, 
                    competitive medical plans, and health 
                    care prepayment plans...................         107
418             Hospice care................................         193
419             Prospective payment system for hospital 
                    outpatient department services..........         214
420             Program integrity: Medicare.................         228
421             Medicare contracting........................         238
422             Medicare advantage program..................         255
423             Voluntary medicare prescription drug benefit         374
424             Conditions for Medicare payment.............         480
426             Review of national coverage determinations 
                    and local coverage determinations.......         523

[[Page 5]]



                     SUBCHAPTER A_GENERAL PROVISIONS


PART 414_PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES--Table of Contents




                      Subpart A_General Provisions

Sec.
414.1 Basis and scope.
414.2 Definitions.
414.4 Fee schedule areas.

              Subpart B_Physicians and Other Practitioners

414.20 Formula for computing fee schedule amounts.
414.21 Medicare payment basis.
414.22 Relative value units (RVUs).
414.24 Review, revision, and addition of RVUs for physician services.
414.26 Determining the GAF.
414.28 Conversion factors.
414.30 Conversion factor update.
414.32 Determining payments for certain physicians' services furnished 
          in facility settings.
414.34 Payment for services and supplies incident to a physician's 
          service.
414.36 Payment for drugs incident to a physician's service.
414.39 Special rules for payment of care plan oversight.
414.40 Coding and ancillary policies.
414.42 Adjustment for first 4 years of practice.
414.44 Transition rules.
414.46 Additional rules for payment of anesthesia services.
414.48 Limits on actual charges of nonparticipating suppliers.
414.50 Physician billing for purchased diagnostic tests.
414.52 Payment for physician assistants' services.
414.54 Payment for certified nurse-midwives' services.
414.56 Payment for nurse practitioners' and clinical nurse specialists' 
          services.
414.58 Payment of charges for physician services to patients in 
          providers.
414.60 Payment for the services of CRNAs.
414.62 Fee schedule for clinical psychologist services.
414.63 Payment for outpatient diabetes self-management training.
414.64 Payment for medical nutrition therapy.
414.65 Payment for telehealth services.
414.66 Incentive payments for physician scarcity areas.
414.67 Incentive payments for Health Professional Shortage Areas.

   Subpart C_Fee Schedules for Parenteral and Enteral Nutrition (PEN) 
                    Nutrients, Equipment and Supplies

414.100 Purpose.
414.102 General payment rules.
414.104 PEN Items and Services.

   Subpart D_Payment for Durable Medical Equipment and Prosthetic and 
                            Orthotic Devices

414.200 Purpose.
414.202 Definitions.
414.210 General payment rules.
414.220 Inexpensive or routinely purchased items.
414.222 Items requiring frequent and substantial servicing.
414.224 Customized items.
414.226 Oxygen and oxygen equipment.
414.228 Prosthetic and orthotic devices.
414.229 Other durable medical equipment--capped rental items.
414.230 Determining a period of continuous use.
414.232 Special payment rules for transcutaneous electrical nerve 
          stimulators (TENS).

  Subpart E_Determination of Reasonable Charges Under the ESRD Program

414.300 Scope of subpart.
414.310 Determination of reasonable charges for physician services 
          furnished to renal dialysis patients.
414.313 Initial method of payment.
414.314 Monthly capitation payment method.
414.316 Payment for physician services to patients in training for self-
          dialysis and home dialysis.
414.320 Determination of reasonable charges for physician renal 
          transplantation services.
414.330 Payment for home dialysis equipment, supplies, and support 
          services.
414.335 Payment for EPO furnished to a home dialysis patient for use in 
          the home.

  Subpart F_Competitive Bidding for Certain Durable Medical Equipment, 
              Prosthetics, Orthotics, and Supplies (DMEPOS)

414.400 Purpose and basis.
414.402 Definitions.
414.404 Scope and applicability.
414.406 Implementation of programs.

[[Page 6]]

414.408 Payment rules.
414.410 Phased-in implementation of competitive bidding programs.
414.412 Submission of bids under a competitive bidding program.
414.414 Conditions for awarding contracts.
414.416 Determination of competitive bidding payment amounts.
414.418 Opportunity for networks.
414.420 Physician or treating practitioner authorization and 
          consideration of clinical efficiency and value of items.
414.422 Terms of contracts.
414.424 Administrative or judicial review.
414.426 Adjustments to competitively bid payment amounts to reflect 
          changes in the HCPCS.

     Subpart G_Payment for New Clinical Diagnostic Laboratory Tests

414.500 Basis and scope.
414.502 Definitions.
414.504 [Reserved]
414.506 Procedures for public consultation for payment for a new 
          clinical diagnostic laboratory test.
414.508 Payment for a new clinical diagnostic laboratory test.
414.510 Laboratory date of service for specimens.

              Subpart H_Fee Schedule for Ambulance Services

414.601 Purpose.
414.605 Definitions.
414.610 Basis of payment.
414.615 Transition to the ambulance fee schedule.
414.617 Transition from regional to national ambulance fee schedule.
414.620 Publication of the ambulance fee schedule.
414.625 Limitation on review.

               Subpart I_Payment for Drugs and Biologicals

414.701 Purpose.
414.704 Definitions.
414.707 Basis of payment.

     Subpart J_Submission of Manufacturer's Average Sales Price Data

414.800 Purpose.
414.802 Definitions.
414.804 Basis of payment.
414.806 Penalties associated with the failure to submit timely and 
          accurate ASP data.

        Subpart K_Payment for Drugs and Biologicals Under Part B

414.900 Basis and scope.
414.902 Definitions.
414.904 Average sales price as the basis for payment.
414.906 Competitive acquisition program as the basis for payment.
414.908 Competitive acquisition program.
414.910 Bidding process.
414.912 Conflicts of interest.
414.914 Terms of contract.
414.916 Dispute resolution for vendors and beneficiaries.
414.917 Dispute resolution and process for suspension or termination of 
          approved CAP contract.
414.918 Assignment.
414.920 Judicial review.

                 Subpart L_Supplying and Dispensing Fees

414.1000 Purpose.
414.1001 Basis of Payment.

    Authority: Secs. 1102, 1871, and 1881(b)(l) of the Social Security 
Act (42 U.S.C. 1302, 1395hh, and 1395rr(b)(l)).

    Source: 55 FR 23441, June 8, 1990, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 414 appear at 60 FR 
50442, Sept. 29, 1995, and 60 FR 53877, Oct. 18, 1995.



                      Subpart A_General Provisions



Sec. 414.1  Basis and scope.

    This part implements the following provisions of the Act:

    1802--Rules for private contracts by Medicare beneficiaries.
    1833--Rules for payment for most Part B services.
    1834(a) and (h)--Amounts and frequency of payments for durable 
medical equipment and for prosthetic devices and orthotics and 
prosthetics.
    1834(l)--Establishment of a fee schedule for ambulance services.
    1834(m)--Rules for Medicare reimbursement for telehealth services.
    1842(o)--Rules for payment of certain drugs and biologicals.
    1847(a) and (b)--Competitive bidding for certain durable medical 
equipment, prosthetics, orthotics, and supplies (DMEPOS).
    1848--Fee schedule for physician services.
    1881(b)--Rules for payment for services to ESRD beneficiaries.
    1887--Payment of charges for physician services to patients in 
providers.

[67 FR 9132, Feb. 27, 2002, as amended at 69 FR 1116, Jan. 7, 2004; 71 
FR 48409, Aug. 18, 2006]



Sec. 414.2  Definitions.

    As used in this part, unless the context indicates otherwise--

[[Page 7]]

    AA stands for anesthesiologist assistant.
    AHPB stands for adjusted historical payment basis.
    CF stands for conversion factor.
    CRNA stands for certified registered nurse anesthetist.
    CY stands for calendar year.
    FY stands for fiscal year.
    GAF stands for geographic adjustment factor.
    GPCI stands for geographic practice cost index.
    HCPCS stands for CMS Common Procedure Coding System.
    Physician services means the following services to the extent that 
they are covered by Medicare:
    (1) Professional services of doctors of medicine and osteopathy 
(including osteopathic practitioners), doctors of optometry, doctors of 
podiatry, doctors of dental surgery and dental medicine, and 
chiropractors.
    (2) Supplies and services covered ``incident to'' physician services 
(excluding drugs as specified in Sec. 414.36).
    (3) Outpatient physical and occupational therapy services if 
furnished by a person or an entity that is not a Medicare provider of 
services as defined in Sec. 400.202 of this chapter.
    (4) Diagnostic x-ray tests and other diagnostic tests (excluding 
diagnostic laboratory tests paid under the fee schedule established 
under section 1833(h) of the Act).
    (5) X-ray, radium, and radioactive isotope therapy, including 
materials and services of technicians.
    (6) Antigens, as described in section 1861(s)(2)(G) of the Act.
    (7) Bone mass measurement.
    RVU stands for relative value unit.
    (8) Screening mammography services.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42492, Sept. 15, 1992; 
58 FR 63686, Dec. 2, 1993; 59 FR 63463, Dec. 8, 1994; 60 FR 63177, Dec. 
8, 1995; 63 FR 34328, June 24, 1998; 66 FR 55322, Nov. 1, 2001]



Sec. 414.4  Fee schedule areas.

    (a) General. CMS establishes physician fee schedule areas that 
generally conform to the geographic localities in existence before 
January 1, 1992.
    (b) Changes. CMS announces proposed changes to fee schedule areas in 
the Federal Register and provides an opportunity for public comment. 
After considering public comments, CMS publishes the final changes in 
the Federal Register.

[59 FR 63463, Dec. 8, 1994]



              Subpart B_Physicians and Other Practitioners

    Source: 56 FR 59624, Nov. 25, 1991; 57 FR 42492, Sept. 15, 1992, 
unless otherwise noted.



Sec. 414.20  Formula for computing fee schedule amounts.

    (a) Participating supplier. The fee schedule amount for a 
participating supplier for a physician service as defined in Sec. 414.2 
is computed as the product of the following amounts:
    (1) The RVUs for the service.
    (2) The GAF for the fee schedule area.
    (3) The CF.
    (b) Nonparticipating supplier. The fee schedule amount for a 
nonparticipating supplier for a physician service as defined in Sec. 
414.2 is 95 percent of the fee schedule amount as calculated in 
paragraph (a) of this section.

[62 FR 59101, Oct. 31, 1997]



Sec. 414.21  Medicare payment basis.

    Medicare payment is based on the lesser of the actual charge or the 
applicable fee schedule amount.

[62 FR 59101, Oct. 31, 1997]



Sec. 414.22  Relative value units (RVUs).

    CMS establishes RVUs for physicians' work, practice expense, and 
malpractice insurance.
    (a) Physician work RVUs--(1) General rule. Physician work RVUs are 
established using a relative value scale in which the value of physician 
work for a particular service is rated relative to the value of work for 
other physician services.
    (2) Special RVUs for anesthesia and radiology services)--(i) 
Anesthesia services. The rules for determining RVUs for anesthesia 
services are set forth in Sec. 414.46.
    (ii) Radiology services. CMS bases the RVUs for all radiology 
services on the relative value scale developed under section 
1834(b)(1)(A) of the Act, with

[[Page 8]]

appropriate modifications to ensure that the RVUs established for 
radiology services that are similar or related to other physician 
services are consistent with the RVUs established for those similar or 
related services.
    (b) Practice expense RVUs. (1) Practice expense RVUs are computed 
for each service or class of service by applying average historical 
practice cost percentages to the estimated average allowed charge during 
the 1991 base period.
    (2) The average practice expense percentage for a service or class 
of services is computed as follows:
    (i) Multiply the average practice expense percentage for each 
specialty by the proportion of a particular service or class of service 
performed by that specialty.
    (ii) Add the products for all specialties.
    (3) For services furnished beginning calendar year (CY) 1994, for 
which 1994 practice expense RVUs exceed 1994 work RVUs and that are 
performed in office settings less than 75 percent of the time, the 1994, 
1995, and 1996 practice expense RVUs are reduced by 25 percent of the 
amount by which they exceed the number of 1994 work RVUs. Practice 
expense RVUs are not reduced to less than 128 percent of 1994 work RVUs.
    (4) For services furnished beginning January 1, 1998, practice 
expense RVUs for certain services are reduced to 110 percent of the work 
RVUs for those services. The following two categories of services are 
excluded from this limitation:
    (i) The service is provided more than 75 percent of the time in an 
office setting; or
    (ii) The service is one described in section 1848(c)(2)(G)(v) of the 
Act, codified at 42 U.S.C. 1395w-4(c)(2)(G). Section 1848(c)(2)(G)(v) of 
the Act refers to the 1998 proposed resource-based practice expense RVUs 
(as specified in the June 18, 1997 physician fee schedule proposed rule 
(62 FR 33158)) for the specific site, either in-office or out-of-office, 
increased from its 1997 practice expense RVUs.)
    (5) For services furnished beginning January 1, 1999, the practice 
expense RVUs are based on 75 percent of the practice expense RVUs 
applicable to services furnished in 1998 and 25 percent of the relative 
practice expense resources involved in furnishing the service. For 
services furnished in 2000, the practice expense RVUs are based on 50 
percent of the practice expense RVUs applicable to services furnished in 
1998 and 50 percent of the relative practice expense resources involved 
in furnishing the service. For services furnished in 2001, the practice 
expense RVUs are based on 25 percent of the practice expense RVUs 
applicable to services furnished in 1998 and 75 percent of the relative 
practice expense resources involved in furnishing the service. For 
services furnished in 2002 and subsequent years, the practice expense 
RVUs are based entirely on relative practice expense resources.
    (i) Usually there are two levels of practice expense RVUs that 
correspond to each code.
    (A) Facility practice expense RVUs. The lower facility practice 
expense RVUs apply to services furnished to patients in the hospital, 
skilled nursing facility, community mental health center, or in an 
ambulatory surgical center when the physician performs procedures on the 
ASC approved procedures list. (The facility practice expense RVUs for a 
particular code may not be greater than the non-facility RVUs for the 
code.)
    (B) Non-facility practice expense RVUs. The higher non-facility 
practice expense RVUs apply to services performed in a physician's 
office, a patient's home, an ASC if the physician is performing a 
procedure not on the ASC approved procedures list, a nursing facility, 
or a facility or institution other than a hospital or skilled nursing 
facility, community mental health center, or ASC performing an ASC 
approved procedure.
    (C) Outpatient therapy services. Outpatient therapy services billed 
under the physician fee schedule are paid using the non-facility 
practice expense RVU component.
    (ii) Only one practice expense RVU per code can be applied for each 
of the following services: services that have

[[Page 9]]

only technical component practice expense RVUs or only professional 
component practice expense RVUs; evaluation and management services, 
such as hospital or nursing facility visits, that are furnished 
exclusively in one setting; and major surgical services.
    (6)(i) CMS establishes criteria for supplemental surveys regarding 
specialty practice expenses submitted to CMS that may be used in 
determining practice expense RVUs.
    (ii) Any CMS-designated specialty group may submit a supplemental 
survey.
    (iii) CMS will consider for use in determining practice expense RVUs 
for the physician fee schedule survey data and related materials 
submitted to CMS by March 1, 2004 to determine CY 2005 practice expense 
RVUs and by March 1, 2005 to determine CY 2006 practice expense RVUs.
    (c) Malpractice insurance RVUs. (1) Malpractice insurance RVUs are 
computed for each service or class of services by applying average 
malpractice insurance historical practice cost percentages to the 
estimated average allowed charge during the 1991 base period.
    (2) The average historical malpractice insurance percentage for a 
service or class of services is computed as follows:
    (i) Multiply the average malpractice insurance percentage for each 
specialty by the proportion of a particular service or class of services 
performed by that specialty.
    (ii) Add all the products for all the specialties.
    (3) For services furnished in the year 2000 and subsequent years, 
the malpractice RVUs are based on the relative malpractice insurance 
resources.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42493, Sept. 15, 1992; 
58 FR 63687, Dec. 2, 1993; 62 FR 59102, Oct. 31, 1997; 63 FR 58910, Nov. 
2, 1998; 64 FR 59441, Nov. 2, 1999; 65 FR 25668, May 3, 2000; 65 FR 
65440, Nov. 1, 2000; 67 43558, June 28, 2002; 68 FR 63261, Nov. 7, 2003]



Sec. 414.24  Review, revision, and addition of RVUs for physician services.

    (a) Interim values for new and revised HCPCS level 1 and level 2 
codes. (1) CMS establishes interim RVUs for new services and for codes 
for which definitions have changed.
    (2) CMS publishes a notice in the Federal Register to announce 
interim RVUs and seek public comment on them. The RVUs are effective 
prospectively for services furnished beginning on the effective date 
specified in the notice.
    (3) After considering public comments, CMS revises, if necessary, 
the interim RVUs and announces those revisions in a final notice 
published in the Federal Register. Any revisions in the RVUs are 
effective prospectively for services furnished beginning on the 
effective date specified in the final notice.
    (b) Revision of RVUs for established HCPCS level 1 and level 2 
codes. (1) CMS publishes a proposed notice in the Federal Register to 
announce changes in RVUs for established codes and provides an 
opportunity for public comment no less often than every 5 years.
    (2) After considering public comments, CMS publishes a final notice 
in the Federal Register to announce revisions to RVUs.
    (3) The RVU revisions are effective prospectively for services 
furnished beginning on the effective date specified in the final notice.
    (c) Values for local codes (HCPCS Level 3). (1) Carriers establish 
relative values for local codes for services not included in HCPCS 
levels 1 or 2.
    (2) Carriers must obtain prior approval from CMS to establish local 
codes for services that meet the definition of ``physician services'' in 
Sec. 414.2.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42492, Sept. 15, 1992]



Sec. 414.26  Determining the GAF.

    CMS establishes a GAF for each service in each fee schedule area.
    (a) Geographic indices. CMS uses the following indices to establish 
the GAF:
    (1) An index that reflects one-fourth of the difference between the 
relative value of physicians' work effort in each of the different fee 
schedule areas as determined under Sec. 414.22(a) and the national 
average of that work effort.
    (2) An index that reflects the relative costs of the mix of goods 
and services comprising practice expenses (other than malpractice 
expenses) in each of

[[Page 10]]

the different fee schedule areas as determined under Sec. 414.22(b) 
compared to the national average of those costs.
    (3) An index that reflects the relative costs of malpractice 
expenses in each of the different fee schedule areas as determined under 
Sec. 414.22(c) compared to the national average of those costs.
    (b) Class-specific practice cost indices. If the application of a 
single index to different classes of services would be substantially 
inequitable because of differences in the mix of goods and services 
comprising practice expenses for the different classes of services, more 
than one index may be established under paragraph (a)(2) of this 
section.
    (c) Computation of GAF. The GAF for each fee schedule area is the 
sum of the physicians' work adjustment factor, the practice expense 
adjustment factor, and the malpractice cost adjustment factor, as 
defined in this section:
    (1) The geographic physicians' work adjustment factor for a service 
is the product of the proportion of the total relative value for the 
service that reflects the RVUs for the work component and the geographic 
physicians' work index value established under paragraph (a)(1) of this 
section.
    (2) The geographic practice expense adjustment factor for a service 
is the product of the proportion of the total relative value for the 
service that reflects the RVUs for the practice expense component, 
multiplied by the geographic practice cost index (GPCI) value 
established under paragraph (a)(2) of this section.
    (3) The geographic malpractice adjustment factor for a service is 
the product of the proportion of the total relative value for the 
service that reflects the RVUs for the malpractice component, multiplied 
by the GPCI value established under paragraph (a)(3) of this section.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42492, Sept. 15, 1992]



Sec. 414.28  Conversion factors.

    CMS establishes CFs in accordance with section 1848(d) of the Act.
    (a) Base-year CFs. CMS established the CF for 1992 so that had 
section 1848 of the Act applied during 1991, it would have resulted in 
the same aggregate amount of payments for physician services as the 
estimated aggregate amount of these payments in 1991, adjusted by the 
update for 1992 computed as specified in Sec. 414.30.
    (b) Subsequent CFs. For calendar years 1993 through 1995, the CF for 
each year is equal to the CF for the previous year, adjusted in 
accordance with Sec. 414.30. Beginning January 1, 1996, the CF for each 
calendar year may be further adjusted so that adjustments to the fee 
schedule in accordance with section 1848(c)(2)(B)(ii) of the Act do not 
cause total expenditures under the fee schedule to differ by more than 
$20 million from the amount that would have been spent if these 
adjustments had not been made.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42492, Sept. 15, 1992; 
60 FR 53877, Oct. 18, 1995; 60 FR 63177, Dec. 8, 1995]



Sec. 414.30  Conversion factor update.

    Unless Congress acts in accordance with section 1848(d)(3) of the 
Act--
    (a) General rule. The CF update for a CY equals the Medicare 
Economic Index increased or decreased by the number of percentage points 
by which the percentage increase in expenditures for physician services 
(or for a particular category of physician services, such as surgical 
services) in the second preceding FY over the third preceding FY exceeds 
the performance standard rate of increase established for the second 
preceding FY.
    (b) Downward adjustment. The downward adjustment may not exceed the 
following:
    (1) For CYs 1992 and 1993, 2 percentage points.
    (2) For CY 1994, 2.5 percentage points.
    (3) For CYs 1995 and thereafter, 5 percentage points.

[55 FR 23441, June 8, 1990, as amended at 60 FR 63177, Dec. 8, 1995; 61 
FR 42385, Aug. 15, 1996]



Sec. 414.32  Determining payments for certain physicians' services furnished in facility settings.

    (a) Definition. As used in this section, facility settings include 
the following facilities:
    (1) Hospital outpatient departments, including clinics and emergency 
rooms.
    (2) Hospital inpatient departments.

[[Page 11]]

    (3) Comprehensive outpatient rehabilitation facilities.
    (4) Comprehensive inpatient rehabilitation facilities.
    (5) Inpatient psychiatric facilities.
    (6) Skilled nursing facilities.
    (b) General rule. If physicians' services of the type routinely 
furnished in physicians' offices are furnished in facility settings 
before January 1, 1999, the physician fee schedule amount for those 
services is determined by reducing the practice expense RVUs for the 
services by 50 percent. For services furnished on or after January 1, 
1999, the practice expense RVUs are determined in accordance with Sec. 
414.22(b)(5).
    (c) Services covered by the reduction. CMS establishes a list of 
services routinely furnished in physicians' offices nationally. Services 
furnished at least 50 percent of the time in physicians' offices are 
subject to this reduction.
    (d) Services excluded from the reduction. The reduction established 
under this section does not apply to the following:
    (1) Rural health clinic services.
    (2) Surgical services not on the ambulatory surgical center covered 
list of procedures published under Sec. 416.65(c) of this chapter when 
furnished in an ambulatory surgical center.
    (3) Anesthesiology services and diagnostic and therapeutic radiology 
services.

[58 FR 63687, Dec. 2, 1993, as amended at 60 FR 63177, Dec. 8, 1995; 62 
FR 59102, Oct. 31, 1997; 63 FR 58911, Nov. 2, 1998; 64 FR 25457, May 12, 
1999]



Sec. 414.34  Payment for services and supplies incident to a physician's service.

    (a) Medical supplies. (1) Except as otherwise specified in this 
paragraph, office medical supplies are considered to be part of a 
physician's practice expense, and payment for them is included in the 
practice expense portion of the payment to the physician for the medical 
or surgical service to which they are incidental.
    (2) If physician services of the type routinely furnished in 
provider settings are furnished in a physician's office, separate 
payment may be made for certain supplies furnished incident to that 
physician service if the following requirements are met:
    (i) It is a procedure that can safely be furnished in the office 
setting in appropriate circumstances.
    (ii) It requires specialized supplies that are not routinely 
available in physicians' offices and that are generally disposable.
    (iii) It is furnished before January 1, 1999.
    (3) For the purpose of paragraph (a)(2) of this section, provider 
settings include only the following settings:
    (i) Hospital inpatient and outpatient departments.
    (ii) Ambulatory surgical centers.
    (4) For the purpose of paragraph (a)(2) of this section, ``routinely 
furnished in provider settings'' means furnished in inpatient or 
outpatient hospital settings or ambulatory surgical centers more than 50 
percent of the time.
    (5) CMS establishes a list of services for which a separate supply 
payment may be made under this section.
    (6) The fee schedule amount for supplies billed separately is not 
subject to a GPCI adjustment.
    (b) Services of nonphysicians that are incident to a physician's 
service. Services of nonphysicians that are covered as incident to a 
physician's service are paid as if the physician had personally 
furnished the service.

[56 FR 59624, Nov. 25, 1991; 57 FR 42492, Sept. 15, 1992, as amended at 
63 FR 58911, Nov. 2, 1998]



Sec. 414.36  Payment for drugs incident to a physician's service.

    Payment for drugs incident to a physician's service is made in 
accordance with Sec. 405.517 of this chapter.



Sec. 414.39  Special rules for payment of care plan oversight.

    (a) General. Except as specified in paragraphs (b) and (c) of this 
section, payment for care plan oversight is included in the payment for 
visits and other services under the physician fee schedule. For purposes 
of this section a nonphysician practitioner (NPP) is a nurse 
practitioner, clinical nurse specialist or physician assistant.
    (b) Exception. Separate payment is made under the following 
conditions

[[Page 12]]

for physician care plan oversight services furnished to beneficiaries 
who receive HHA and hospice services that are covered by Medicare:
    (1) The care plan oversight services require recurrent physician 
supervision of therapy involving 30 or more minutes of the physician's 
time per month.
    (2) Payment is made to only one physician per patient for services 
furnished during a calendar month period. The physician must have 
furnished a service requiring a face-to-face encounter with the patient 
at least once during the 6-month period before the month for which care 
plan oversight payment is first billed. The physician may not have a 
significant ownership interest in, or financial or contractual 
relationship with, the HHA in accordance with Sec. 424.22(d) of this 
chapter. The physician may not be the medical director or employee of 
the hospice and may not furnish services under an arrangement with the 
hospice.
    (3) If a physician furnishes care plan oversight services during a 
postoperative period, payment for care plan oversight services is made 
if the services are documented in the patient's medical record as 
unrelated to the surgery.
    (c) Special rules for payment of care plan oversight provided by 
nonphysician practitioners for beneficiaries who receive HHA services 
covered by Medicare. (1) An NPP can furnish physician care plan 
oversight (but may not certify a patient as needing home health 
services) only if the physician who signs the plan of care provides 
regular ongoing care under the same plan of care as does the NPP billing 
for care plan oversight and either--
    (i) The physician and NPP are part of the same group practice; or
    (ii) If the NPP is a nurse practitioner or clinical nurse 
specialist, the physician signing the plan of care also has a 
collaborative agreement with the NPP; or
    (iii) If the NPP is a physician assistant, the physician signing the 
plan of care is also the physician who provides general supervision of 
physician assistant services for the practice.
    (2) Payment may be made for care plan oversight services furnished 
by an NPP when:
    (i) The NPP providing the care plan oversight has seen and examined 
the patient;
    (ii) The NPP providing care plan oversight is not functioning as a 
consultant whose participation is limited to a single medical condition 
rather than multi-disciplinary coordination of care; and
    (iii) The NPP providing care plan oversight integrates his or her 
care with that of the physician who signed the plan of care.

[59 FR 63463, Dec. 8, 1994; 60 FR 49, Jan. 3, 1995; 60 FR 36733, July 
18, 1995 as amended at 69 FR 66423, Nov. 15, 2004; 70 FR 16722, Apr. 1, 
2005]



Sec. 414.40  Coding and ancillary policies.

    (a) General rule. CMS establishes uniform national definitions of 
services, codes to represent services, and payment modifiers to the 
codes.
    (b) Specific types of policies. CMS establishes uniform national 
ancillary policies necessary to implement the fee schedule for physician 
services. These include, but are not limited to, the following policies:
    (1) Global surgery policy (for example, post- and pre-operative 
periods and services, and intra-operative services).
    (2) Professional and technical components (for example, payment for 
services, such as an EEG, which typically comprise a technical component 
(the taking of the test) and a professional component (the 
interpretation)).
    (3) Payment modifiers (for example, assistant-at-surgery, multiple 
surgery, bilateral surgery, split surgical global services, team 
surgery, and unusual services).



Sec. 414.42  Adjustment for first 4 years of practice.

    (a) General rule. For services furnished during CYs 1992 and 1993, 
except as specified in paragraph (b) of this section, the fee schedule 
payment amount or prevailing charge must be phased in as specified in 
paragraph (d) of this section for physicians, physical therapists (PTs), 
occupational therapists (OTs), and all other health care practitioners 
who are in their first through fourth years of practice.
    (b) Exception. The reduction required in paragraph (d) of this 
section does

[[Page 13]]

not apply to primary care services or to services furnished in a rural 
area as defined in section 1886(d)(2)(D) of the Act that is designated 
under section 332(a)(1)(A) of the Public Health Service Act as a Health 
Professional Shortage Area.
    (c) Definition of years of practice. (1) The ``first year of 
practice`` is the first full CY during the first 6 months of which the 
physician, PT, OT, or other health care practitioner furnishes 
professional services for which payment may be made under Medicare Part 
B, plus any portion of the prior CY if that prior year does not meet the 
first 6 months test.
    (2) The ``second, third, and fourth years of practice`` are the 
first, second, and third CYs following the first year of practice, 
respectively.
    (d) Amounts of adjustment. The fee schedule payment for the service 
of a new physician, PT, OT, or other health care practitioner is limited 
to the following percentages for each of the indicated years:
    (1) First year--80 percent
    (2) Second year--85 percent
    (3) Third year--90 percent
    (4) Fourth year--95 percent

[57 FR 42493, Sept. 15, 1992, as amended at 58 FR 63687, Dec. 2, 1993]



Sec. 414.44  Transition rules.

    (a) Adjusted historical payment basis--(1) All services other than 
radiology and nuclear medicine services. For all physician services 
other than radiology services, furnished in a fee schedule area, the 
adjusted historical payment basis (AHPB) is the estimated weighted 
average prevailing charge applied in the fee schedule area for the 
service in CY 1991, as determined by CMS without regard to physician 
specialty and as adjusted to reflect payments for services below the 
prevailing charge, adjusted by the update established for CY 1992.
    (2) Radiology services. For radiology services, the AHPB is the 
amount paid for the service in the fee schedule area in CY 1991 under 
the fee schedule established under section 1834(b), adjusted by the 
update established for CY 1992.
    (3) Nuclear medicine services. For nuclear medicine services, the 
AHPB is the amount paid for the service in the fee schedule area in CY 
1991 under the fee schedule established under section 6105(b) of Public 
Law 101-239 and section 4102(g) of Public Law 101-508, adjusted by the 
update established for CY 1992.
    (4) Transition adjustment. CMS adjusts the AHPB for all services by 
5.5 percent to produce budget-neutral payments for 1992.
    (b) Adjustment of 1992 payments for physician services other than 
radiology services. For physician services furnished during CY 1992 the 
following rules apply:
    (1) If the AHPB determined under paragraph (a) of this section is 
from 85 percent to 115 percent of the fee schedule amount for the area 
for services furnished in 1992, payment is at the fee schedule amount.
    (2) If the AHPB determined under paragraph (a) of this section is 
less than 85 percent of the fee schedule amount for the area for 
services furnished in 1992, an amount equal to the AHPB plus 15 percent 
of the fee schedule amount is substituted for the fee schedule amount.
    (3) If the AHPB determined under paragraph (a) of this section is 
greater than 115 percent of the fee schedule amount for the area for 
services furnished in 1992, an amount equal to the AHPB minus 15 percent 
of the fee schedule amount is substituted for the fee schedule amount.
    (c) Adjustment of 1992 payments for radiology services. For 
radiology services furnished during CY 1992 the following rules apply:
    (1) If the AHPB determined under paragraph (a) of this section is 
from 85 percent to 109 percent of the fee schedule amount for the area 
for services furnished in 1992, payment is at the fee schedule amount.
    (2) If the AHPB determined under paragraph (a) of this section is 
less than 85 percent of the fee schedule amount for the area for 
services furnished in 1992, an amount equal to the AHPB plus 15 percent 
of the fee schedule amount is substituted for the fee schedule amount.
    (3) If the AHPB determined under paragraph (a) of this section is 
greater than 109 percent of the fee schedule amount for the area for 
services furnished in 1992, an amount equal to the

[[Page 14]]

AHPB minus 9 percent of the fee schedule amount is substituted for the 
fee schedule amount.
    (d) Computation of payments for CY 1993. For physician services 
subject to the transition rules in CY 1992 and furnished during CY 1993, 
the fee schedule is equal to 75 percent of the amount that would have 
been paid in the fee schedule area under the 1992 transition rules, 
adjusted by the amount of the 1993 update, plus 25 percent of the 1993 
fee schedule amount.
    (e) Computation of payments for CY 1994. For physician services 
subject to the transition rules in CY 1993, and furnished during CY 
1994, the fee schedule is equal to 67 percent of the amount that would 
have been paid in the fee schedule area under the 1993 transition rules, 
adjusted by the amount of the 1994 update, plus 33 percent of the 1994 
fee schedule amount.
    (f) Computation of payments for CY 1995. For physician services 
subject to the transition rules in CY 1994 and furnished during CY 1995, 
the fee schedule is equal to 50 percent of the amount that would have 
been paid in the fee schedule area under the 1994 transition rules, 
adjusted by the amount of the 1995 update, plus 50 percent of the 1995 
fee schedule amount.



Sec. 414.46  Additional rules for payment of anesthesia services.

    (a) Definitions. For purposes of this section, the following 
definitions apply:
    (1) Base unit means the value for each anesthesia code that reflects 
all activities other than anesthesia time. These activities include 
usual preoperative and postoperative visits, the administration of 
fluids and blood incident to anesthesia care, and monitoring services.
    (2) Anesthesia practitioner, for the purpose of anesthesia time, 
means a physician who performs the anesthesia service alone, a CRNA who 
is not medically directed who performs the anesthesia service alone, or 
a medically directed CRNA.
    (3) Anesthesia time means the time during which an anesthesia 
practitioner is present with the patient. It starts when the anesthesia 
practitioner begins to prepare the patient for anesthesia services and 
ends when the anesthesia practitioner is no longer furnishing anesthesia 
services to the beneficiary, that is, when the beneficiary may be placed 
safely under postoperative care. Anesthesia time is a continuous time 
period from the start of anesthesia to the end of an anesthesia service. 
In counting anesthesia time, the anesthesia practitioner can add blocks 
of anesthesia time around an interruption in anesthesia time as long as 
the anesthesia practitioner is furnishing continuous anesthesia care 
within the time periods around the interruption.
    (b) Determinations of payment amount--Basic rule. For anesthesia 
services performed, medically directed, or medically supervised by a 
physician, CMS pays the lesser of the actual charge or the anesthesia 
fee schedule amount.
    (1) The carrier bases the fee schedule amount for an anesthesia 
service on the product of the sum of allowable base and time units and 
an anesthesia-specific CF. The carrier calculates the time units from 
the anesthesia time reported by the anesthesia practitioner for the 
anesthesia procedure. The physician who fulfills the conditions for 
medical direction in Sec. 415.110 (Conditions for payment: 
Anesthesiology services) reports the same anesthesia time as the 
medically-directed CRNA.
    (2) CMS furnishes the carrier with the base units for each 
anesthesia procedure code. The base units are derived from the 1988 
American Society of Anesthesiologists' Relative Value Guide except that 
the number of base units recognized for anesthesia services furnished 
during cataract or iridectomy surgery is four units.
    (3) Modifier units are not allowed. Modifier units include 
additional units charged by a physician or a CRNA for patient health 
status, risk, age, or unusual circumstances.
    (c) Physician personally performs the anesthesia procedure. (1) CMS 
considers an anesthesia service to be personally performed under any of 
the following circumstances:
    (i) The physician performs the entire anesthesia service alone.
    (ii) The physician establishes an attending physician relationship 
in one

[[Page 15]]

or two concurrent cases involving an intern or resident and the service 
was furnished before January 1, 1994.
    (iii) The physician establishes an attending physician relationship 
in one case involving an intern or resident and the service was 
furnished on or after January 1, 1994 but prior to January 1, 1996. For 
services on or after January 1, 1996, the physician must be the teaching 
physician as defined in Sec. Sec. 415.170 through 415.184 of this 
chapter.
    (iv) The physician and the CRNA or AA are involved in a single case 
and the services of each are found to be medically necessary.
    (v) The physician is continuously involved in a single case 
involving a student nurse anesthetist.
    (vi) The physician is continuously involved in a single case 
involving a CRNA or AA and the service was furnished prior to January 1, 
1998.
    (2) CMS determines the fee schedule amount for an anesthesia service 
personally performed by a physician on the basis of an anesthesia-
specific fee schedule CF and unreduced base units and anesthesia time 
units. One anesthesia time unit is equivalent to 15 minutes of 
anesthesia time, and fractions of a 15-minute period are recognized as 
fractions of an anesthesia time unit.
    (d) Anesthesia services medically directed by a physician. (1) CMS 
considers an anesthesia service to be medically directed by a physician 
if:
    (i) The physician performs the activities described in Sec. 415.110 
of this chapter.
    (ii) The physician directs qualified individuals involved in two, 
three, or four concurrent cases.
    (iii) Medical direction can occur for a single case furnished on or 
after January 1, 1998 if the physician performs the activities described 
in Sec. 415.110 of this chapter and medically directs a single CRNA or 
AA.
    (2) The rules for medical direction differ for certain time periods 
depending on the nature of the qualified individual who is directed by 
the physician. If more than two procedures are directed on or after 
January 1, 1994, the qualified individuals could be AAs, CRNAs, interns, 
or residents. The medical direction rules apply to student nurse 
anesthetists only if the physician directs two concurrent cases, each of 
which involves a student nurse anesthetist or the physician directs one 
case involving a student nurse anesthetist and the other involving a 
CRNA, AA, intern, or resident.
    (3) Payment for medical direction is based on a specific percentage 
of the payment allowance recognized for the anesthesia service 
personally performed by a physician alone. The following percentages 
apply for the years specified:
    (i) CY 1994--60 percent of the payment allowance for personally 
performed procedures.
    (ii) CY 1995--57.5 percent of the payment allowance for personally 
performed services.
    (iii) CY 1996--55 percent of the payment allowance for personally 
performed services.
    (iv) CY 1997--52.5 percent of the payment allowance for personally 
performed services.
    (v) CY 1998 and thereafter--50 percent of the payment allowance for 
personally performed services.
    (e) Physicians involved with two concurrent cases with residents. 
The physician can bill base units and time units based on the amount of 
time the physician is actually present with the resident during each of 
two concurrent cases furnished on or after January 1, 2004.
    (1) To bill the base units, the physician must be present with the 
resident during the pre- and post-anesthesia care included in the base 
units.
    (2) If the physician is not present with the resident during pre- 
and post-anesthesia care, then the physician may bill the case as a 
medically directed case in accordance with paragraph (d) of this 
section.
    (f) Physician medically supervises anesthesia services. If the 
physician medically supervises more than four concurrent anesthesia 
services, CMS bases the fee schedule amount on an anesthesia-specific CF 
and three base units. This represents payment for the physician's 
involvement in the pre-surgical anesthesia services.
    (g) Payment for medical or surgical services furnished by a 
physician while

[[Page 16]]

furnishing anesthesia services. (1) CMS allows separate payment under 
the fee schedule for certain reasonable and medically necessary medical 
or surgical services furnished by a physician while furnishing 
anesthesia services to the patient. CMS makes payment for these services 
in accordance with the general physician fee schedule rules in Sec. 
414.20. These services are described in program operating instructions.
    (2) CMS makes no separate payment for other medical or surgical 
services, such as the pre-anesthetic examination of the patient, pre- or 
post-operative visits, or usual monitoring functions, that are 
ordinarily included in the anesthesia service.
    (h) Physician involved in multiple anesthesia services. If the 
physician is involved in multiple anesthesia services for the same 
patient during the same operative session, the carrier makes payment 
according to the base unit associated with the anesthesia service having 
the highest base unit value and anesthesia time that encompasses the 
multiple services. The carrier makes payment for add-on anesthesia codes 
according to program operating instructions.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42492, Sept. 15, 1992; 
58 FR 63687, Dec. 2, 1993; 60 FR 63177, Dec. 8, 1995; 64 FR 59441, Nov. 
2, 1999; 67 FR 80041, Dec. 31, 2002; 68 FR 63261, Nov. 7, 2003]



Sec. 414.48  Limits on actual charges of nonparticipating suppliers.

    (a) General rule. A supplier, as defined in Sec. 400.202 of this 
chapter, who is nonparticipating and does not accept assignment may 
charge a beneficiary an amount up to the limiting charge described in 
paragraph (b) of this section.
    (b) Specific limits. For items or services paid under the physician 
fee schedule, the limiting charge is 115 percent of the fee schedule 
amount for nonparticipating suppliers. For items or services CMS 
excludes from payment under the physician fee schedule (in accordance 
with section 1848 (j)(3) of the Act), the limiting charge is 115 percent 
of 95 percent of the payment basis applicable to participating suppliers 
as calculated in Sec. 414.20(b).

[58 FR 63687, Dec. 2, 1993, as amended at 62 FR 59102, Oct. 31, 1997]



Sec. 414.50  Physician billing for purchased diagnostic tests.

    (a) General rule. For services covered under section 1861(s)(3) of 
the Act and paid for under this part 414 subpart A, if a physician bills 
for a diagnostic test performed by an outside supplier, the payment to 
the physician less the applicable deductibles and coinsurance may not 
exceed the lowest of the following amounts:
    (1) The supplier's net charge to the physician.
    (2) The physician's actual charge.
    (3) The fee schedule amount for the test that would be allowed if 
the supplier billed directly.
    (b) Restriction on payment. The physician must identify the supplier 
and indicate the supplier's net charge for the test. If the physician 
fails to provide this information, CMS makes no payment to the physician 
and the physician may not bill the beneficiary.
    (1) Physicians who accept Medicare assignment may bill beneficiaries 
for only the applicable deductibles and coinsurance.
    (2) Physicians who do not accept Medicare assignment may not bill 
the beneficiary more than the payment amount described in paragraph (a) 
of this section.

[56 FR 59624, Nov. 25, 1991; 57 FR 42492, Sept. 15, 1992, as amended at 
63 FR 34328, June 24, 1998]



Sec. 414.52  Payment for physician assistants' services.

    Allowed amounts for the services of a physician assistant furnished 
beginning January 1, 1992 and ending December 31, 1997, may not exceed 
the limits specified in paragraphs (a) through (c) of this section. 
Allowed amounts for the services of a physician assistant furnished 
beginning January 1, 1998, may not exceed the limits specified in 
paragraph (d) of this section.
    (a) For assistant-at-surgery services, 65 percent of the amount that 
would be allowed under the physician fee schedule if the assistant-at-
surgery service was furnished by a physician.
    (b) For services (other than assistant-at-surgery services) 
furnished in a hospital, 75 percent of the physician fee schedule amount 
for the service.

[[Page 17]]

    (c) For all other services, 85 percent of the physician fee schedule 
amount for the service.
    (d) For services (other than assistant-at-surgery services) 
furnished beginning January 1, 1998, 85 percent of the physician fee 
schedule amount for the service. For assistant-at-surgery services, 85 
percent of the physician fee schedule amount that would be allowed under 
the physician fee schedule if the assistant-at-surgery service were 
furnished by a physician.

[56 FR 59624, Nov. 25, 1991; 57 FR 42492, Sept. 15, 1992, as amended at 
63 FR 58911, Nov. 2, 1998]



Sec. 414.54  Payment for certified nurse-midwives' services.

    For services furnished after December 31, 1991, allowed amounts 
under the fee schedule established under section 1833(a)(1)(K) of the 
Act for the payment of certified nurse-midwife services may not exceed 
65 percent of the physician fee schedule amount for the service.



Sec. 414.56  Payment for nurse practitioners' and clinical nurse specialists' services.

    (a) Rural areas. For services furnished beginning January 1, 1992 
and ending December 31, 1997, allowed amounts for the services of a 
nurse practitioner or a clinical nurse specialist in a rural area (as 
described in section 1861(s)(2)(K)(iii) of the Act) may not exceed the 
following limits:
    (1) For services furnished in a hospital (including assistant-at-
surgery services), 75 percent of the physician fee schedule amount for 
the service.
    (2) For all other services, 85 percent of the physician fee schedule 
amount for the service.
    (b) Non-rural areas. For services furnished beginning January 1, 
1992 and ending December 31, 1997, allowed amounts for the services of a 
nurse practitioner or a clinical nurse specialist in a nursing facility 
may not exceed 85 percent of the physician fee schedule amount for the 
service.
    (c) Beginning January 1, 1998. For services (other than assistant-
at-surgery services) furnished beginning January 1, 1998, allowed 
amounts for the services of a nurse practitioner or clinical nurse 
specialist may not exceed 85 percent of the physician fee schedule 
amount for the service. For assistant-at-surgery services, allowed 
amounts for the services of a nurse practitioner or clinical nurse 
specialist may not exceed 85 percent of the physician fee schedule 
amount that would be allowed under the physician fee schedule if the 
assistant-at-surgery service were furnished by a physician.

[63 FR 58911, Nov. 2, 1998]



Sec. 414.58  Payment of charges for physician services to patients in providers.

    (a) Payment under the physician fee schedule. In addition to the 
special conditions for payment in Sec. Sec. 415.100 through 415.130, 
and Sec. 415.190 of this chapter, CMS establishes payment for physician 
services to patients in providers under the physician fee schedule in 
accordance with Sec. Sec. 414.1 through 414.48.
    (b) Teaching hospitals. Services furnished by physicians in teaching 
hospitals may be made on a reasonable cost basis set forth in Sec. 
415.162 of this chapter if the hospital exercises the election described 
in Sec. 415.160 of this chapter.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42492, Sept. 15, 1992; 
60 FR 63189, Dec. 8, 1995]



Sec. 414.60  Payment for the services of CRNAs.

    (a) Basis for payment. The allowance for the anesthesia service 
furnished by a CRNA, medically directed or not medically directed, is 
based on allowable base and time units as defined in Sec. 414.46(a). 
Beginning with CY 1994--
    (1) The allowance for an anesthesia service furnished by a medically 
directed CRNA is based on a fixed percentage of the allowance recognized 
for the anesthesia service personally performed by the physician alone, 
as specified in Sec. 414.46(d)(3); and
    (2) The CF for an anesthesia service furnished by a CRNA not 
directed by a physician may not exceed the CF for a service personally 
performed by a physician.
    (b) To whom payment may be made. Payment for an anesthesia service 
furnished by a CRNA may be made to the CRNA or to any individual or 
entity

[[Page 18]]

(such as a hospital, critical access hospital, physician, group 
practice, or ambulatory surgical center) with which the CRNA has an 
employment or contract relationship that provides for payment to be made 
to the individual or entity.
    (c) Condition for payment. Payment for the services of a CRNA may be 
made only on an assignment related basis, and any assignment accepted by 
a CRNA is binding on any other person presenting a claim or request for 
payment for the service.

[60 FR 63178, Dec. 8, 1995, as amended at 62 FR 46037, Aug. 29, 1997; 64 
FR 59441, Nov. 2, 1999]



Sec. 414.62  Fee schedule for clinical psychologist services.

    The fee schedule for clinical psychologist services is set at 100 
percent of the amount determined for corresponding services under the 
physician fee schedule.

[62 FR 59102, Oct. 31, 1997]



Sec. 414.63  Payment for outpatient diabetes self-management training.

    (a) Payment under the physician fee schedule. Except as provided in 
paragraph (d) of this section, payment for outpatient diabetes self-
management training is made under the physician fee schedule in 
accordance with Sec. Sec. 414.1 through 414.48.
    (b) To whom payment may be made. Payment may be made to an entity 
approved by CMS to furnish outpatient diabetes self-management training 
in accordance with part 410, subpart H of this chapter.
    (c) Limitation on payment. Payment may be made for training sessions 
actually attended by the beneficiary and documented on attendance 
sheets.
    (d) Payments made to those not paid under the physician fee 
schedule. Payments may be made to other entities not routinely paid 
under the physician fee schedule, such as hospital outpatient 
departments, ESRD facilities, and DME suppliers. The payment equals the 
amounts paid under the physician fee schedule.
    (e) Other conditions for fee-for-service payment. The beneficiary 
must meet the following conditions:
    (1) Has not previously received initial training for which Medicare 
payment was made under this benefit.
    (2) Is not receiving services as an inpatient in a hospital, SNF, 
hospice, or nursing home.
    (3) Is not receiving services as an outpatient in an RHC or FQHC.

[65 FR 83153, Dec. 29, 2000]



Sec. 414.64  Payment for medical nutrition therapy.

    (a) Payment under the physician fee schedule. Medicare payment for 
medical nutrition therapy is made under the physician fee schedule in 
accordance with subpart B of this part. Payment to non-physician 
professionals, as specified in paragraph (b) of this section, is the 
lesser of the actual charges or 80 percent of 85 percent of the 
physician fee schedule amount.
    (b) To whom payment may be made. Payment may be made to a registered 
dietician or nutrition professional qualified to furnish medical 
nutrition therapy in accordance with part 410, subpart G of this 
chapter.
    (c) Effective date of payment. Medicare pays suppliers of medical 
nutrition therapy on or after the effective date of enrollment of the 
supplier at the carrier.
    (d) Limitation on payment. Payment is made only for documented 
nutritional therapy sessions actually attended by the beneficiary.
    (e) Other conditions for fee-for-service payment. Payment is made 
only if the beneficiary:
    (1) Is not an inpatient of a hospital, SNF, nursing home, or 
hospice.
    (2) Is not receiving services in an RHC, FQHC or ESRD dialysis 
facility.

[66 FR 55332, Nov. 1, 2001]



Sec. 414.65  Payment for telehealth services.

    (a) Professional service. Medicare payment for the professional 
service via an interactive telecommunications system is made according 
to the following limitations:
    (1) The Medicare payment amount for office or other outpatient 
visits, consultation, individual psychotherapy, psychiatric diagnostic 
interview examination, pharmacologic management,

[[Page 19]]

end stage renal disease related services included in the monthly 
capitation payment (except for one visit per month to examine the access 
site), and individual medical nutrition therapy furnished via an 
interactive telecommunications system is equal to the current fee 
schedule amount applicable for the service of the physician or 
practitioner.
    (2) Only the physician or practitioner at the distant site may bill 
and receive payment for the professional service via an interactive 
telecommunications system.
    (3) Payments made to the physician or practitioner at the distant 
site, including deductible and coinsurance, for the professional service 
may not be shared with the referring practitioner or telepresenter.
    (b) Originating site facility fee. For telehealth services furnished 
on or after October 1, 2001:
    (1) For services furnished on or after October 1, 2001 through 
December 31, 2002, the payment amount to the originating site is the 
lesser of the actual charge or the originating site facility fee of $20. 
For services furnished on or after January 1 of each subsequent year, 
the facility fee for the originating site will be updated by the 
Medicare Economic Index (MEI) as defined in section 1842(i)(3) of the 
Act.
    (2) Only the originating site may bill for the originating site 
facility fee and only on an assignment-related basis. The distant site 
physician or practitioner may not bill for or receive payment for 
facility fees associated with the professional service furnished via an 
interactive telecommunications system.
    (c) Deductible and coinsurance apply. The payment for the 
professional service and originating site facility fee is subject to the 
coinsurance and deductible requirements of sections 1833(a)(1) and (b) 
of the Act.
    (d) Assignment required for physicians, practitioners, and 
originating sites. Payment to physicians, practitioners, and originating 
sites is made only on an assignment-related basis.
    (e) Sanctions. A distant site practitioner or originating site 
facility may be subject to the applicable sanctions provided for in 
chapter IV, part 402 and chapter V, parts 1001, 1002, and 1003 of this 
title if he or she does any of the following:
    (1) Knowingly and willfully bills or collects for services in 
violation of the limitation of this section.
    (2) Fails to timely correct excess charges by reducing the actual 
charge billed for the service in an amount that does not exceed the 
limiting charge for the service or fails to timely refund excess 
collections.
    (3) Fails to submit a claim on a standard form for services provided 
for which payment is made on a fee schedule basis.
    (4) Imposes a charge for completing and submitting the standard 
claims form.

[66 FR 55332, Nov. 1, 2001, as amended at 67 FR 80041, Dec. 31, 2003; 69 
FR 66424, Nov. 15, 2004; 70 FR 70332, Nov. 21, 2005]



Sec. 414.66  Incentive payments for physician scarcity areas.

    (a) Definition. As used in this section, the following definitions 
apply.
    Physician scarcity area is defined as an area with a shortage of 
primary care physicians or specialty physicians to the Medicare 
population in that area.
    Primary care physician is defined as a general practitioner, family 
practice practitioner, general internist, obstetrician or gynecologist.
    (b) Physicians' services furnished to a beneficiary in a Physician 
Scarcity Area (PSA) for primary or specialist care are eligible for a 5 
percent incentive payment.
    (c) Primary care physicians furnishing services in primary care PSAs 
are entitled to an additional 5 percent incentive payment above the 
amount paid under the physician fee schedule for their professional 
services furnished on or after January 1, 2005 and before January 1, 
2008.
    (d) Physicians, as defined in section 1861(r)(1) of the Act, 
furnishing services in specialist care PSAs are entitled to an 
additional 5 percent payment above the amount paid under the physician 
fee schedule for their professional services furnished on or after 
January 1, 2005 and before January 1, 2008.

[69 FR 66424, Nov. 15, 2004]

[[Page 20]]



Sec. 414.67  Incentive payments for Health Professional Shortage Areas.

    (a) Physicians' services furnished to a beneficiary in a geographic-
based Health Professional Shortage Area (HPSA) are eligible for a 10 
percent incentive payment above the amount paid for their professional 
services under the physician fee schedule.
    (b) Physicians furnishing services in a geographic-based primary 
medical care HPSA are entitled to a 10 percent incentive payment above 
the amount paid for their professional services under the physician fee 
schedule.
    (c) Psychiatrists furnishing services in a mental health HPSA are 
entitled to a 10 percent incentive payment above the amount paid for 
their professional services under the physician fee schedule. (The only 
physicians eligible to receive the 10 percent incentive payment in 
mental health HPSAs that do not overlap with primary care HPSAs are 
psychiatrists.)

[69 FR 66424, Nov. 15, 2004]



   Subpart C_Fee Schedules for Parenteral and Enteral Nutrition (PEN) 
                    Nutrients, Equipment and Supplies

    Source: 66 FR 45176, Aug. 28, 2001, unless otherwise noted.



Sec. 414.100  Purpose.

    This subpart implements fee schedules for PEN items and services as 
authorized by section 1842(s) of the Act.



Sec. 414.102  General payment rules.

    (a) General rule. For items and services furnished on or after 
January 1, 2002, Medicare pays for the items and services as described 
in paragraph (b) of this section on the basis of 80 percent of the 
lesser of--
    (1) The actual charge for the item or service; or
    (2) The fee schedule amount for the item or service, as determined 
in accordance with Sec. Sec. 414.104.
    (b) Payment classification. (1) CMS or the carrier determines fee 
schedules for Parenteral and enteral nutrition (PEN) nutrients, 
equipment, and supplies, as specified in Sec. 414.104.
    (2) CMS designates the specific items and services in each category 
through program instructions.
    (c) Updating the fee schedule amounts. For each year subsequent to 
2002, the fee schedule amounts of the preceding year are updated by the 
percentage increase in the CPI-U for the 12-month period ending with 
June of the preceding year.



Sec. 414.104  PEN Items and Services.

    (a) Payment Rules. Payment for PEN items and services is made in a 
lump sum for nutrients and supplies that are purchased and on a monthly 
basis for equipment that is rented.
    (b) Fee schedule amount. The fee schedule amount for payment for an 
item or service furnished in 2002 is the lesser of--
    (i) The reasonable charge from 1995; or
    (ii) The reasonable charge that would have been used in determining 
payment for 2002.



   Subpart D_Payment for Durable Medical Equipment and Prosthetic and 
                            Orthotic Devices



Sec. 414.200  Purpose.

    This subpart implements sections 1834 (a) and (h) of the Act by 
specifying how payments are made for the purchase or rental of new and 
used durable medical equipment and prosthetic and orthotic devices for 
Medicare beneficiaries.

[57 FR 57689, Dec. 7, 1992]



Sec. 414.202  Definitions.

    For purposes of this subpart, the following definitions apply:
    Covered item update means the percentage increase in the consumer 
price index for all urban consumers (U.S. city average) (CPI-U) for the 
12-month period ending with June of the previous year.
    Durable medical equipment means equipment, furnished by a supplier 
or a home health agency that--
    (1) Can withstand repeated use;
    (2) Is primarily and customarily used to serve a medical purpose;

[[Page 21]]

    (3) Generally is not useful to an individual in the absence of an 
illness or injury; and
    (4) Is appropriate for use in the home. (See Sec. 410.38 of this 
chapter for a description of when an institution qualifies as a home.)
    Prosthetic and orthotic devices means--
    (1) Devices that replace all or part of an internal body organ, 
including ostomy bags and supplies directly related to ostomy care, and 
replacement of such devices and supplies;
    (2) One pair of conventional eyeglasses or contact lenses furnished 
subsequent to each cataract surgery with insertion of an intraocular 
lens; and
    (3) Leg, arm, back, and neck braces, and artificial legs, arms, and 
eyes, including replacements if required because of a change in the 
beneficiary's physical condition.

The following are neither prosthetic nor orthotic devices--
    (1) Parenteral and enteral nutrients, supplies, and equipment;
    (2) Intraocular lenses;
    (3) Medical supplies such as catheters, catheter supplies, ostomy 
bags, and supplies related to ostomy care that are furnished by an HHA 
as part of home health services under Sec. 409.40(e) of this chapter;
    (4) Dental prostheses.
    Region means those carrier service areas administered by CMS 
regional offices.

[57 FR 57689, Dec. 7, 1992]



Sec. 414.210  General payment rules.

    (a) General rule. For items furnished on or after January 1, 1989, 
except as provided in paragraphs (c) and (d) of this section, Medicare 
pays for durable medical equipment, prosthetics and orthotics, including 
a separate payment for maintenance and servicing of the items as 
described in paragraph (e) of this section, on the basis of 80 percent 
of the lesser of--
    (1) The actual charge for the item;
    (2) The fee schedule amount for the item, as determined in 
accordance with the provisions of Sec. Sec. 414.220 through 414.232.
    (b) Payment classification. (1) The carrier determines fee schedules 
for the following classes of equipment and devices:
    (i) Inexpensive or routinely purchased items, as specified in Sec. 
414.220.
    (ii) Items requiring frequent and substantial servicing, as 
specified in Sec. 414.222.
    (iii) Certain customized items, as specified in Sec. 414.224.
    (iv) Oxygen and oxygen equipment, as specified in Sec. 414.226.
    (v) Prosthetic and orthotic devices, as specified in Sec. 414.228.
    (vi) Other durable medical equipment (capped rental items), as 
specified in Sec. 414.229.
    (vii) Transcutaneous electrical nerve stimulators (TENS), as 
specified in Sec. 414.232.
    (2) CMS designates the items in each class of equipment or device 
through its program instructions.
    (c) Exception for certain HHAs. Public HHAs and HHAs that furnish 
services or items free-of-charge or at nominal prices to a significant 
number of low-income patients, as defined in Sec. 413.13(a) of this 
chapter, are paid on the basis of 80 percent of the fee schedule amount 
determined in accordance with the provision of Sec. Sec. 414.220 
through 414.230.
    (d) Prohibition on special limits. For items furnished on or after 
January 1, 1989 and before January 1, 1991, neither CMS nor a carrier 
may establish a special reasonable charge for items covered under this 
subpart on the basis of inherent reasonableness as described in Sec. 
405.502(g) of this chapter.
    (e) Maintenance and servicing--(1) General rule. Except as provided 
in paragraph (e)(2) of this section, the carrier pays the reasonable and 
necessary charges for maintenance and servicing of beneficiary-owned 
equipment. Reasonable and necessary charges are those made for parts and 
labor not otherwise covered under a manufacturer's or supplier's 
warranty. Payment is made for replacement parts in a lump sum based on 
the carrier's consideration of the item. The carrier establishes a 
reasonable fee for labor associated with repairing, maintaining, and 
servicing the item. Payment is not made for maintenance and servicing of 
a rented item other than the maintenance and servicing fee for other 
durable medical equipment as described in Sec. 414.229(e).

[[Page 22]]

    (2) Additional maintenance and servicing payment for certain 
beneficiary-owned oxygen equipment. In addition to the maintenance and 
servicing payments described in paragraph (e)(1) of this section, the 
carrier makes a maintenance and servicing payment for oxygen equipment 
other than liquid and gaseous equipment (stationary and portable) as 
follows:
    (i) For the first 6-month period following the date on which title 
to the equipment transfers to the beneficiary in accordance with Sec. 
414.226(f), no payments are to be made.
    (ii) During each succeeding 6-month period, payment may be made for 
30 minutes of labor for general maintenance and servicing of the 
equipment.
    (3) Additional payment for picking up oxygen tanks and cylinders. 
The carrier pays the reasonable and necessary charges for a supplier to 
pick up and store or dispose of beneficiary-owned oxygen tanks and 
cylinders that are no longer medically necessary.
    (4) Exception to Maintenance and Servicing Payments. For items 
purchased on or after June 1, 1989, no payment is made under the 
provisions of paragraph (e)(1) of this section for the maintenance and 
servicing of:
    (i) Items requiring frequent and substantial servicing, as defined 
in Sec. 414.222(a);
    (ii) Capped rental items, as defined in Sec. 414.229(a), that are 
not beneficiary-owned in accordance with Sec. 414.229(d), Sec. 
414.229(f)(2), or Sec. 414.229(h); and
    (iii) Oxygen equipment, as described in Sec. 414.226, that is not 
beneficiary-owned in accordance with Sec. 414.226(f).
    (5) Supplier replacement of beneficiary-owned equipment based on 
accumulated repair costs. A supplier that transfers title to oxygen 
equipment or a capped rental item to a beneficiary in accordance with 
Sec. 414.226(f) or Sec. 414.229(f)(2) is responsible for furnishing 
replacement equipment at no cost to the beneficiary or to the Medicare 
program if the carrier determines that the item furnished by the 
supplier will not last for the entire reasonable useful lifetime 
established for the equipment in accordance with Sec. 414.210(f)(1). In 
making this determination, the carrier may consider whether the 
accumulated costs of repair exceed 60 percent of the cost to replace the 
item.
    (f) Payment for replacement of equipment. If an item of DME or a 
prosthetic or orthotic device paid for under this subpart has been in 
continuous use by the patient for the equipment's reasonable useful 
lifetime or if the carrier determines that the item is lost, stolen, or 
irreparably damaged, the patient may elect to obtain a new piece of 
equipment.
    (1) The reasonable useful lifetime of DME or prosthetic and orthotic 
devices is determined through program instructions. In the absence of 
program instructions, carriers may determine the reasonable useful 
lifetime of equipment but in no case can it be less than 5 years. 
Computation is based on when the equipment is delivered to the 
beneficiary, not the age of the equipment.
    (2) If the beneficiary elects to obtain replacement oxygen 
equipment, payment is made in accordance with Sec. 414.226(a).
    (3) If the beneficiary elects to obtain a replacement capped rental 
item, payment is made in accordance with Sec. 414.229(a)(2) or (a)(3).
    (4) For all other beneficiary-owned items, if the beneficiary elects 
to obtain replacement equipment, payment is made on a purchase basis.

[57 FR 57689, Dec. 7, 1992, as amended at 71 FR 65932, Nov. 9, 2006]



Sec. 414.220  Inexpensive or routinely purchased items.

    (a) Definitions. (1) Inexpensive equipment means equipment the 
average purchase price of which did not exceed $150 during the period 
July 1986 through June 1987.
    (2) Routinely purchased equipment means equipment that was acquired 
by purchase on a national basis at least 75 percent of the time during 
the period July 1986 through June 1987.
    (3) Accessories. Effective January 1, 1994, accessories used in 
conjunction with a nebulizer, aspirator, or ventilator excluded from 
Sec. 414.222 meet the definitions of ``inexpensive equipment'' and 
``routinely purchased equipment'' in paragraphs (a)(1) and (a)(2) of 
this section, respectively.
    (b) Payment rules. (1) Subject to the limitation in paragraph (b)(3) 
of this

[[Page 23]]

section, payment for inexpensive and routinely purchased items is made 
on a rental basis or in a lump sum amount for purchase of the item based 
on the applicable fee schedule amount.
    (2) Effective January 1, 1994, payment for ostomy supplies, 
tracheostomy supplies, urologicals, and surgical dressings not furnished 
as incident to a physician's professional service or furnished by an HHA 
is made using the methodology for the inexpensive and routinely 
purchased class.
    (3) The total amount of payments made for an item may not exceed the 
fee schedule amount recognized for the purchase of that item.
    (c) Fee schedule amount for 1989 and 1990. The fee schedule amount 
for payment of purchase or rental of inexpensive or routinely purchased 
items furnished in 1989 and 1990 is the local payment amount determined 
as follows:
    (1) The carrier determines the average reasonable charge for 
inexpensive or routinely purchased items that were furnished during the 
period July 1, 1986 through June 30, 1987 based on the mean of the 
carrier's allowed charges for the item. A separate determination of an 
average reasonable charge is made for rental equipment, new purchased 
equipment, and used purchased equipment.
    (2) The carrier adjusts the amount determined under paragraph (c)(1) 
of this section by the change in the level of the CPI-U for the 6-month 
period ending December 1987.
    (d) Updating the local payment amounts for years after 1990. For 
each year subsequent to 1990, the local payment amounts of the preceding 
year are increased or decreased by the covered item update. For 1991 and 
1992, the covered item update is reduced by 1 percentage point.
    (e) Calculating the fee schedule amounts for years after 1990. For 
years after 1990, the fee schedule amounts are equal to the national 
limited payment amount.
    (f) Calculating the national limited payment amount. The national 
limited payment amount is computed as follows:
    (1) The 1991 national limited payment amount is equal to:
    (i) 100 percent of the local payment amount if the local payment 
amount is neither greater than the weighted average nor less than 85 
percent of the weighted average of all local payment amounts;
    (ii) The sum of 67 percent of the local payment amount plus 33 
percent of the weighted average of all local payment amounts if the 
local payment amount exceeds the weighted average of all local payment 
amounts; or
    (iii) The sum of 67 percent of the local payment amount plus 33 
percent of 85 percent of the weighted average of all local payment 
amounts if the local payment amount is less than 85 percent of the 
weighted average of all local payment amounts.
    (2) The 1992 national limited payment amount is equal to:
    (i) 100 percent of the local payment amount if the local payment 
amount is neither greater than the weighted average nor less than 85 
percent of the weighted average of all local payment amounts;
    (ii) The sum of 33 percent of the local payment amount plus 67 
percent of the weighted average of all local payment amounts if the 
local payment amount exceeds the weighted average; or
    (iii) The sum of 33 percent of the local payment amount plus 67 
percent of 85 percent of the weighted average of all local payment 
amounts if the local payment amount is less than 85 percent of the 
weighted average.
    (3) For 1993, the national limited payment amount is equal to one of 
the following:
    (i) 100 percent of the local payment amount if the local payment 
amount is neither greater than the weighted average nor less than 85 
percent of the weighted average of all local payment amounts.
    (ii) 100 percent of the weighted average of all local payment 
amounts if the local payment amount exceeds the weighted average of all 
local payment amounts.
    (iii) 85 percent of the weighted average of all local payment 
amounts if the local payment amount is less than 85 percent of the 
weighted average of all local payment amounts.
    (4) For 1994 and subsequent years, the national limited payment 
amount is equal to one of the following:

[[Page 24]]

    (i) If the local payment amount is not in excess of the median, nor 
less than 85 percent of the median, of all local payment amounts--100 
percent of the local payment amount.
    (ii) If the local payment amount exceeds the median--100 percent of 
the median of all local payment amounts.
    (iii) If the local payment amount is less than 85 percent of the 
median--85 percent of the median of all local payment amounts.
    (g) Payment for surgical dressings. For surgical dressings furnished 
after December 31, 1993, the national limited payment amount is computed 
based on local payment amounts using average reasonable charges for the 
12-month period ending December 31, 1992, increased by the covered item 
updates for 1993 and 1994.

[57 FR 57689, Dec. 7, 1992, as amended at 60 FR 35497, July 10, 1995]



Sec. 414.222  Items requiring frequent and substantial servicing.

    (a) Definition. Items requiring frequent and substantial servicing 
in order to avoid risk to the beneficiary's health are the following:
    (1) Ventilators (except those that are either continuous airway 
pressure devices or respiratory assist devices with bi-level pressure 
capability with or without a backup rate, previously referred to as 
``intermittent assist devices with continuous airway pressure 
devices'').
    (2) Continuous and intermittent positive pressure breathing 
machines.
    (3) Continuous passive motion machines.
    (4) Other items specified in CMS program instructions.
    (5) Other items identified by the carrier.
    (b) Payment rule. Rental payments for items requiring frequent and 
substantial servicing are made on a monthly basis, and continue until 
medical necessity ends.
    (c) Fee schedule amount for 1989 and 1990. The fee schedule amount 
for items requiring frequent and substantial servicing is the local 
payment amount determined as follows:
    (1) The carrier determines the average reasonable charge for rental 
of items requiring frequent and substantial servicing that were 
furnished during the period July 1, 1986 through June 30, 1987 based on 
the mean of the carrier's allowed charges for the item.
    (2) The carrier adjusts the amounts determined under paragraph 
(c)(1) of this section by the change in the level of the CPI-U for the 
6-month period ending December 1987.
    (d) Updating the fee schedule amounts for years after 1990. For 
years after 1990, the fee schedules are determined using the methodology 
contained in paragraphs (d), (e), and (f) of Sec. 414.220.
    (e) Transition to other payment classes. For purposes of calculating 
the 15-month rental period, beginning January 1, 1994, if an item has 
been paid for under the frequent and substantial servicing class and is 
subsequently paid for under another payment class, the rental period 
begins with the first month of continuous rental, even if that period 
began before January 1, 1994. For example, if the rental period began on 
July 1, 1993, the carrier must use this date as beginning the first 
month of rental. Likewise, for purposes of calculating the 10-month 
purchase option, the rental period begins with the first month of 
continuous rental without regard to when that period started. For 
example, if the rental period began in August 1993, the 10-month 
purchase option must be offered to the beneficiary in May 1994, the 
tenth month of continuous rental.

[57 FR 57690, Dec. 7, 1992, as amended at 60 FR 35497, July 10, 1995; 71 
FR 4525, Jan. 27, 2006]



Sec. 414.224  Customized items.

    (a) Criteria for a customized item. To be considered a customized 
item for payment purposes under paragraph (b) of this section, a covered 
item (including a wheelchair) must be uniquely constructed or 
substantially modified for a specific beneficiary according to the 
description and orders of a physician and be so different from another 
item used for the same purpose that the two items cannot be grouped 
together for pricing purposes.
    (b) Payment rule. Payment is made on a lump sum basis for the 
purchase of a customized item based on the carrier's individual 
consideration and judgment of a reasonable payment amount for

[[Page 25]]

each customized item. The carrier's individual consideration takes into 
account written documentation on the costs of the item including at 
least the cost of labor and materials used in customizing an item.

[56 FR 65998, Dec. 20, 1991, as amended at 58 FR 34919, June 30, 1993]



Sec. 414.226  Oxygen and oxygen equipment.

    (a) Payment rules--(1) Oxygen equipment. Payment for rental of 
oxygen equipment is made based on a monthly fee schedule amount during 
the period of medical need, but for no longer than a period of 
continuous use of 36 months. A period of continuous use is determined 
under the provisions in Sec. 414.230.
    (2) Oxygen contents. Payment for purchase of oxygen contents is made 
based on a monthly fee schedule amount until medical necessity ends.
    (b) Monthly fee schedule amount for items furnished prior to 2007. 
(1) Monthly fee schedule amounts are separately calculated for the 
following items:
    (i) Stationary oxygen equipment and oxygen contents (stationary and 
portable oxygen contents).
    (ii) Portable oxygen equipment only.
    (iii) Stationary and portable oxygen contents only.
    (iv) Portable oxygen contents only.
    (2) For 1989 and 1990, the monthly fee schedule amounts are the 
local payment amounts determined as follows:
    (i) The carrier determines the base local average monthly payment 
rate equal to the total reasonable charges for the item for the 12-month 
period ending December 1986 divided by the total number of months for 
all beneficiaries receiving the item for the same period. In determining 
the local average monthly payment rate, the following limitations apply:
    (A) Purchase charges for oxygen systems are not included as items 
classified under paragraph (b)(1)(i) of this section.
    (B) Purchase charges for portable equipment are not included as 
items classified under paragraph (b)(1)(ii) of this section.
    (ii) The carrier determines the local monthly payment amount equal 
to 0.95 times the base local average monthly payment amount adjusted by 
the change in the CPI-U for the six-month period ending December 1987.
    (3) For 1991 through 2006, the fee schedule amounts for items 
described in paragraphs (b)(1)(iii) and (iv) of this section are 
determined using the methodology contained in Sec. 414.220(d), (e), and 
(f).
    (4) For 1991 through 2006, the fee schedule amounts for items 
described in paragraphs (b)(1)(i) and (ii) of this section are 
determined using the methodology contained in Sec. 414.220(d), (e), and 
(f).
    (5) For 2005 and 2006, the fee schedule amounts determined under 
paragraph (b)(4) of this section are reduced using the methodology 
described in section 1834(a)(21)(A) of the Act.
    (c) Monthly fee schedule amount for items furnished for years after 
2006. (1) For 2007, national limited monthly payment rates are 
calculated and paid as the monthly fee schedule amounts for the 
following classes of items:
    (i) Stationary oxygen equipment (including stationary concentrators) 
and oxygen contents (stationary and portable).
    (ii) Portable equipment only (gaseous or liquid tanks).
    (iii) Oxygen generating portable equipment only.
    (iv) Stationary oxygen contents only.
    (v) Portable oxygen contents only.
    (2) The national limited monthly payment rate for items described in 
paragraph (c)(1)(i) of this section is equal to the weighted average fee 
schedule amount established under paragraph (b)(5) of this section 
reduced by $1.44.
    (3) The national limited monthly payment rate for items described in 
paragraph (c)(1)(ii) of this section is equal to the weighted average of 
the fee schedule amounts established under paragraph (b)(5) of this 
section.
    (4) The national limited monthly payment rate for items described in 
paragraph (c)(1)(iii) of this section is equal to the national limited 
monthly payment rate established under paragraph (c)(5) of this section, 
multiplied by 24, and divided by 36.
    (5) The national limited monthly payment rate for items described in 
paragraphs (c)(1)(iv) and (c)(1)(v) of this

[[Page 26]]

section is equal to 50 percent of the weighted average fee schedule 
amounts established under paragraph (b)(3) of this section for items 
described in paragraph (b)(1)(iii) of this section.
    (6) Beginning in 2008, CMS makes an annual adjustment to the 
national limited monthly payment rates for each class of items described 
in paragraph (c)(1) of this section to ensure that such payment rates do 
not result in expenditures for any year that are more or less than the 
expenditures that would have been made if such classes had not been 
established.
    (d) Application of monthly fee schedule amounts. (1) The fee 
schedule amount for items described in paragraph (c)(1)(i) of this 
section is paid when the beneficiary rents stationary oxygen equipment.
    (2) Subject to the limitation set forth in paragraph (e)(2) of this 
section, the fee schedule amount for items described in paragraphs 
(c)(1)(ii) and (c)(1)(iii) of this section is paid when the beneficiary 
rents portable oxygen equipment.
    (3) The fee schedule amount for items described in paragraph 
(c)(1)(iv) of this section is paid when the beneficiary owns stationary 
oxygen equipment that requires delivery of gaseous or liquid oxygen 
contents.
    (4) The fee schedule amount for items described in paragraph 
(c)(1)(v) of this section is paid when the beneficiary owns portable 
oxygen equipment described in paragraph (c)(1)(ii) of this section, or 
rents portable oxygen equipment described in paragraph (c)(1)(ii) of 
this section and does not rent stationary oxygen equipment.
    (e) Volume adjustments: (1) The fee schedule amount for an item 
described in paragraph (c)(1)(i) of this section is adjusted as follows:
    (i) If the attending physician prescribes an oxygen flow rate 
exceeding four liters per minute, the fee schedule amount is increased 
by 50 percent, subject to the limit in paragraph (e)(2) of this section.
    (ii) If the attending physician prescribes an oxygen flow rate of 
less than one liter per minute, the fee schedule amount is decreased by 
50 percent.
    (2) If portable oxygen equipment is used and the prescribed oxygen 
flow rate exceeds four liters per minute, the total fee schedule amount 
recognized for payment is limited to the higher of--
    (i) The sum of the monthly fee schedule amount for the items 
described in paragraphs (c)(1)(i) and (c)(1)(ii) or (c)(1)(iii) of this 
section; or
    (ii) The adjusted fee schedule amount described in paragraph 
(e)(1)(i) of this section.
    (3) In establishing the volume adjustment for those beneficiaries 
whose physicians prescribe varying flow rates, the following rules 
apply:
    (i) If the prescribed flow rate is different for stationary oxygen 
equipment than for portable oxygen equipment, the flow rate for the 
stationary equipment is used.
    (ii) If the prescribed flow rate is different for the patient at 
rest than for the patient at exercise, the flow rate for the patient at 
rest is used.
    (iii) If the prescribed flow rate is different for nighttime use and 
daytime use, the average of the two flow rates is used.
    (f) Ownership of equipment. On the first day that begins after the 
36th continuous month in which payment is made for oxygen equipment 
under paragraph (a)(1) of this section, the supplier must transfer title 
to the oxygen equipment to the beneficiary. At the time of title 
transfer, the supplier must provide information to the beneficiary on 
how to safely dispose of oxygen equipment that is no longer medically 
necessary and advise that the beneficiary must comply with all Federal, 
State, and local laws that apply to the disposal, transport, and resale 
of oxygen equipment.
    (g) Additional supplier requirements for rentals that begin on or 
after January 1, 2007. (1) The supplier that furnishes oxygen equipment 
for the first month during which payment is made under this section must 
continue to furnish the equipment until medical necessity ends, or the 
36-month period of continuous use ends, whichever is earlier, unless--
    (i) The item becomes subject to a competitive acquisition program 
implemented in accordance with section 1847(a) of the Act;

[[Page 27]]

    (ii) The beneficiary relocates to an area that is outside the normal 
service area of the supplier that initially furnished the equipment;
    (iii) The beneficiary elects to obtain oxygen equipment from a 
different supplier prior to the expiration of the 36-month rental 
period; or
    (iv) CMS or the carrier determines that an exception should apply in 
an individual case based on the circumstances.
    (2) Oxygen equipment furnished under this section may not be 
replaced by the supplier prior to the expiration of the 36-month rental 
period unless:
    (i) The supplier replaces an item with the same, or equivalent, make 
and model of equipment because the item initially furnished was lost, 
stolen, irreparably damaged, is being repaired, or no longer functions;
    (ii) A physician orders different equipment for the beneficiary. If 
the order is based on medical necessity, then the order must indicate 
why the equipment initially furnished is no longer medically necessary 
and the supplier must retain this order in the beneficiary's medical 
record;
    (iii) The beneficiary chooses to obtain a newer technology item or 
upgraded item and signs an advanced beneficiary notice (ABN); or
    (iv) CMS or the carrier determines that a change in equipment is 
warranted.
    (3) Before furnishing oxygen equipment, the supplier must disclose 
to the beneficiary its intentions regarding whether it will accept 
assignment of all monthly rental claims for the duration of the rental 
period. A supplier's intentions could be expressed in the form of a 
written agreement between the supplier and the beneficiary.
    (4) No later than two months before the date on which the supplier 
must transfer title to oxygen equipment to the beneficiary, the supplier 
must disclose to the beneficiary--
    (i) Whether it can maintain and service the equipment after the 
beneficiary acquires title to it; and
    (ii) Whether it can continue to deliver oxygen contents to the 
beneficiary after the beneficiary acquires title to the equipment.

[57 FR 57690, Dec. 7, 1992, as amended at 71 FR 65933, Nov. 9, 2006]



Sec. 414.228  Prosthetic and orthotic devices.

    (a) Payment rule. Payment is made on a lump-sum basis for prosthetic 
and orthotic devices subject to this subpart.
    (b) Fee schedule amounts. The fee schedule amount for prosthetic and 
orthotic devices is determined as follows:
    (1) The carrier determines a base local purchase price equal to the 
average reasonable charge for items purchased during the period July 1, 
1986 through June 30, 1987 based on the mean of the carrier's allowed 
charges for the item.
    (2) The carrier determines a local purchase price equal to the 
following:
    (i) For 1989 and 1990, the base local purchase price is adjusted by 
the change in the level of the CPI-U for the 6-month period ending 
December 1987.
    (ii) For 1991 through 1993, the local purchase price for the 
preceding year is adjusted by the applicable percentage increase for the 
year. The applicable percentage increase is equal to 0 percent for 1991. 
For 1992 and 1993, the applicable percentage increase is equal to the 
percentage increase in the CPI-U for the 12-month period ending with 
June of the previous year.
    (iii) For 1994 and 1995, the applicable percentage increase is 0 
percent.
    (iv) For all subsequent years the applicable percentage increase is 
equal to the percentage increase in the CPI-U for the 12-month period 
ending with June of the previous year.
    (3) CMS determines the regional purchase price equal to the 
following:
    (i) For 1992, the average (weighted by the relative volume of all 
claims among carriers) of the local purchase prices for the carriers in 
the region.
    (ii) For 1993 and subsequent years, the regional purchase price for 
the preceding year adjusted by the applicable percentage increase for 
the year.
    (4) CMS determines a purchase price equal to the following:
    (i) For 1989, 1990 and 1991, 100 percent of the local purchase 
price.

[[Page 28]]

    (ii) For 1992, 75 percent of the local purchase price plus 25 
percent of the regional purchase price.
    (iii) For 1993, 50 percent of the local purchase price plus 50 
percent of the regional purchase price.
    (iv) For 1994 and subsequent years, 100 percent of the regional 
purchase price.
    (5) For 1992 and subsequent years, CMS determines a national average 
purchase price equal to the unweighted average of the purchase prices 
determined under paragraph (b)(4) of this section for all carriers.
    (6) CMS determines the fee schedule amount equal to 100 percent of 
the purchase price determined under paragraph (b)(4) of this section, 
subject to the following limitations:
    (i) For 1992, the amount cannot be greater than 125 percent nor less 
than 85 percent of the national average purchase price determined under 
paragraph (b)(5) of this section.
    (ii) For 1993 and subsequent years, the amount cannot be greater 
than 120 percent of the national average nor less than 90 percent of the 
national average purchase price determined under paragraph (b)(5) of 
this section.

[57 FR 57691, Dec. 7, 1992, as amended at 60 FR 35498, July 10, 1995]



Sec. 414.229  Other durable medical equipment--capped rental items.

    (a) General payment rule. Payment is made for other durable medical 
equipment that is not subject to the payment provisions set forth in 
Sec. 414.220 through Sec. 414.228 as follows:
    (1) For items furnished prior to January 1, 2006, payment is made on 
a rental or purchase option basis in accordance with the rules set forth 
in paragraphs (b) through (e) of this section.
    (2) For items other than power-driven wheelchairs furnished on or 
after January 1, 2006, payment is made in accordance with the rules set 
forth in paragraph (f) of this section.
    (3) For power-driven wheelchairs furnished on or after January 1, 
2006, payment is made in accordance with the rules set forth in 
paragraphs (f) or (h) of this section.
    (b) Fee schedule amounts for rental. (1) For 1989 and 1990, the 
monthly fee schedule amount for rental of other covered durable medical 
equipment equals 10 percent of the purchase price recognized as 
determined under paragraph (c) of this section subject to the following 
limitation: For 1989 and 1990, the fee schedule amount cannot be greater 
than 115 percent nor less than 85 percent of the prevailing charge, as 
determined under Sec. 405.504 of this chapter, established for rental 
of the item in January 1987, as adjusted by the change in the level of 
the CPI-U for the 6-month period ending December 1987.
    (2) For 1991 and subsequent years, the monthly fee schedule amount 
for rental of other covered durable medical equipment equals 10 percent 
of the purchase price recognized as determined under paragraph (c) of 
this section for each of the first 3 months and 7.5 percent of the 
purchase price for each of the remaining months.
    (c) Determination of purchase price. The purchase price of other 
covered durable medical equipment is determined as follows:
    (1) For 1989 and 1990. (i) The carrier determines a base local 
purchase price amount equal to the average of the purchase prices 
submitted on an assignment-related basis of new items supplied during 
the 6-month period ending December 1986.
    (ii) The purchase price is equal to the base local purchase price 
adjusted by the change in the level of the CPI-U for the 6-month period 
ending December 1987.
    (2) For 1991. (i) The local payment amount is the purchase price for 
the preceding year adjusted by the covered item update for 1991 and 
decreased by the percentage by which the average of the reasonable 
charges for claims paid for all other items described in Sec. 414.229, 
is lower than the average of the purchase prices submitted for such 
items during the final 9 months of 1988.
    (ii) The purchase price for 1991 is the national limited payment 
amount as determined using the methodology contained in Sec. 
414.220(f).
    (3) For years after 1991. The purchase price is determined using the 
methodology contained in paragraphs (d) through (f) of Sec. 414.220.
    (d) Purchase option. Suppliers must offer a purchase option to 
beneficiaries during the 10th continuous rental

[[Page 29]]

month and, for power-driven wheelchairs, the purchase option must also 
be made available at the time the equipment is initially furnished.
    (1) Suppliers must offer beneficiaries the option of purchasing 
power-driven wheelchairs at the time the supplier first furnishes the 
item. Payment must be on a lump-sum fee schedule purchase basis if the 
beneficiary chooses the purchase option. The purchase fee is the amount 
established in Sec. 414.229(c).
    (2) Suppliers must offer beneficiaries the option of converting 
capped rental items (including power-driven wheelchairs not purchased 
when initially furnished) to purchased equipment during their 10th 
continuous rental month. Beneficiaries have one month from the date the 
supplier makes the offer to accept the purchase option.
    (i) If the beneficiary does not accept the purchase option, payment 
continues on a rental basis not to exceed a period of continuous use of 
longer than 15 months. After 15 months of rental payments have been 
paid, the supplier must continue to provide the item without charge, 
other than a charge for maintenance and servicing fees, until medical 
necessity ends or Medicare coverage ceases. A period of continuous use 
is determined under the provisions in Sec. 414.230.
    (ii) If the beneficiary accepts the purchase option, payment 
continues on a rental basis not to exceed a period of continuous use of 
longer than 13 months. On the first day after 13 continuous rental 
months during which payment is made, the supplier must transfer title to 
the equipment to the beneficiary.
    (e) Payment for maintenance and servicing. (1) The carrier 
establishes a reasonable fee for maintenance and servicing for each 
rented item of other durable medical equipment. The fee may not exceed 
10 percent of the purchase price recognized as determined under 
paragraph (c) of this section.
    (2) Payment of the fee for maintenance and servicing of other 
durable medical equipment that is rented is made only for equipment that 
continues to be used after 15 months of rental payments have been made 
and is limited to the following:
    (i) For the first 6-month period, no payments are to be made.
    (ii) For each succeeding 6-month period, payment may be made during 
the first month of that period.
    (3) Payment for maintenance and servicing DME purchased in 
accordance with paragraphs (d)(1) and (d)(2)(ii) of this section, is 
made on the basis of reasonable and necessary charges.
    (f) Rules for capped rental items furnished beginning on or after 
January 1, 2006. (1) For items furnished on or after January 1, 2006, 
payment is made based on a monthly rental fee schedule amount during the 
period of medical need, but for no longer than a period of continuous 
use of 13 months. A period of continuous use is determined under the 
provisions in Sec. 414.230.
    (2) The supplier must transfer title to the item to the beneficiary 
on the first day that begins after the 13th continuous month in which 
payments are made under paragraph (f)(1) of this section.
    (3) Payment for maintenance and servicing of beneficiary-owned 
equipment is made in accordance with Sec. 414.210(e).
    (g) Additional supplier requirements for capped rental items that 
are furnished beginning on or after January 1, 2007. (1) The supplier 
that furnishes an item for the first month during which payment is made 
using the methodology described in paragraph (f)(1) of this section must 
continue to furnish the equipment until medical necessity ends, or the 
13-month period of continuous use ends, whichever is earlier, unless--
    (i) The item becomes subject to a competitive acquisition program 
implemented in accordance with section 1847(a) of the Act;
    (ii) The beneficiary relocates to an area that is outside the normal 
service area of the supplier that initially furnished the equipment;
    (iii) The beneficiary elects to obtain the equipment from a 
different supplier prior to the expiration of the 13-month rental 
period; or
    (iv) CMS or the carrier determines that an exception should apply in 
an individual case based on the circumstances.

[[Page 30]]

    (2) A capped rental item furnished under this section may not be 
replaced by the supplier prior to the expiration of the 13-month rental 
period unless:
    (i) The supplier replaces an item with the same, or equivalent, make 
and model of equipment because the item initially furnished was lost, 
stolen, irreparably damaged, is being repaired, or no longer functions;
    (ii) A physician orders different equipment for the beneficiary. If 
the need for different equipment is based on medical necessity, then the 
order must indicate why the equipment initially furnished is no longer 
medically necessary and the supplier must retain this order in the 
beneficiary's medical record;
    (iii) The beneficiary chooses to obtain a newer technology item or 
upgraded item and signs an advanced beneficiary notice (ABN); or
    (iv) CMS or the carrier determines that a change in equipment is 
warranted.
    (3) Before furnishing a capped rental item, the supplier must 
disclose to the beneficiary its intentions regarding whether it will 
accept assignment of all monthly rental claims for the duration of the 
rental period. A supplier's intentions could be expressed in the form of 
a written agreement between the supplier and the beneficiary.
    (4) No later than two months before the date on which the supplier 
must transfer title to a capped rental item to the beneficiary, the 
supplier must disclose to the beneficiary whether it can maintain and 
service the item after the beneficiary acquires title to it. CMS or its 
carriers may make exceptions to this requirement on a case-by-case 
basis.
    (h) Purchase of power-driven wheelchairs furnished on or after 
January 1, 2006. Suppliers must offer beneficiaries the option to 
purchase power-driven wheelchairs at the time the equipment is initially 
furnished. Payment is made on a lump-sum purchase basis if the 
beneficiary chooses this option.

[57 FR 57691, Dec. 7, 1992, as amended at 60 FR 35498, July 10, 1995; 71 
FR 65934, Nov. 9, 2006]



Sec. 414.230  Determining a period of continuous use.

    (a) Scope. This section sets forth the rules that apply in 
determining a period of continuous use for rental of durable medical 
equipment.
    (b) Continuous use. (1) A period of continuous use begins with the 
first month of medical need and lasts until a beneficiary's medical need 
for a particular item of durable medical equipment ends.
    (2) In the case of a beneficiary receiving oxygen equipment on 
December 31, 2005, the period of continuous use for the equipment begins 
on January 1, 2006.
    (c) Temporary interruption. (1) A period of continuous use allows 
for temporary interruptions in the use of equipment.
    (2) An interruption of not longer than 60 consecutive days plus the 
days remaining in the rental month in which use ceases is temporary, 
regardless of the reason for the interruption.
    (3) Unless there is a break in medical necessity that lasts lnnger 
than 60 consecutive days plus the days remaining in the rental month in 
which use ceases, medical necessity is presumed to continue.
    (d) Criteria for a new rental period. If an interruption in the use 
of equipment continues for more than 60 consecutive days plus the days 
remaining in the rental month in which use ceases, a new rental period 
begins if the supplier submits all of the following information--
    (1) A new prescription.
    (2) New medical necessity documentation.
    (3) A statement describing the reason for the interruption and 
demonstrating that medical necessity in the prior episode ended.
    (e) Beneficiary moves. A permanent or temporary move made by a 
beneficiary does not constitute an interruption in the period of 
continuous use.
    (f) New equipment. (1) If a beneficiary changes equipment or 
requires additional equipment based on a physician's prescription, and 
the new or additional equipment is found to be necessary, a new period 
of continuous use begins for the new or additional equipment. A new 
period of continuous use

[[Page 31]]

does not begin for base equipment that is modified by an addition.
    (2) A new period of continuous use does not begin when a beneficiary 
changes from one stationary oxygen equipment modality to another or from 
one portable oxygen equipment modality to another.
    (g) New supplier. If a beneficiary changes suppliers, a new period 
of continuous use does not begin.

[56 FR 50823, Oct. 9, 1991, as amended at 57 FR 57111, Dec. 3, 1992; 71 
FR 65935, Nov. 9, 2006]



Sec. 414.232  Special payment rules for transcutaneous electrical nerve stimulators (TENS).

    (a) General payment rule. Except as provided in paragraph (b) of 
this section, payment for TENS is made on a purchase basis with the 
purchase price determined using the methodology for purchase of 
inexpensive or routinely purchased items as described in Sec. 414.220. 
The payment amount for TENS computed under Sec. 414.220(c)(2) is 
reduced according to the following formula:
    (1) Effective April 1, 1990--the original payment amount is reduced 
by 15 percent.
    (2) Effective January 1, 1991--the reduced payment amount in 
paragraph (a)(1) is reduced by 15 percent.
    (3) Effective January 1, 1994--the reduced payment amount in 
paragraph (a)(1) is reduced by 45 percent.
    (b) Exception. In order to permit an attending physician time to 
determine whether the purchase of the TENS is medically appropriate for 
a particular patient, two months of rental payments may be made in 
addition to the purchase price. The rental payments are equal to 10 
percent of the purchase price.

[57 FR 57692, Dec. 7, 1992, as amended at 60 FR 35498, July 10, 1995]



  Subpart E_Determination of Reasonable Charges Under the ESRD Program



Sec. 414.300  Scope of subpart.

    This subpart sets forth criteria and procedures for payment of the 
following services furnished to ESRD patients:
    (a) Physician services related to renal dialysis.
    (b) Physician services related to renal transplantation.
    (c) Home dialysis equipment, supplies, and support services.
    (d) Epoetin (EPO) furnished by a supplier of home dialysis equipment 
and supplies to a home dialysis patient for use in the home.

[55 FR 23441, June 8, 1990, as amended at 56 FR 43710, Sept. 4, 1991; 59 
FR 1285, Jan. 10, 1994]



Sec. 414.310  Determination of reasonable charges for physician services furnished to renal dialysis patients.

    (a) Principle. Physician services furnished to renal dialysis 
patients are subject to payment if the services are otherwise covered by 
the Medicare program and if they are considered reasonable and medically 
necessary in accordance with section 1862(a)(1)(A) of the Act.
    (b) Scope and applicability--(1) Scope. This section pertains to 
physician services furnished to the following patients:
    (i) Outpatient maintenance dialysis patients who dialyze--
    (A) In an independent or hospital-based ESRD facility, or
    (B) At home.
    (ii) Hospital inpatients for which the physician elects to continue 
payment under the monthly capitation payment (MCP) method described in 
Sec. 414.314.
    (2) Applicability. These provisions apply to routine professional 
services of physicians. They do not apply to administrative services 
performed by physicians, which are paid for as part of a prospective 
payment for dialysis services made to the facility under Sec. 413.170 
of this chapter.
    (c) Definitions. For purposes of this section, the following 
definitions apply:
    Administrative services are physician services that are 
differentiated from routine professional services and other physician 
services because they are supervision, as described in the definition of 
``supervision of staff'' of this section, or are not related directly to 
the care of an individual patient, but are supportive of the facility as 
a whole and of

[[Page 32]]

benefit to patients in general. Examples of administrative services 
include supervision of staff, staff training, participation in staff 
conferences and in the management of the facility, and advising staff on 
the procurement of supplies.
    Dialysis session is the period of time that begins when the patient 
arrives at the facility and ends when the patient departs from the 
facility. In the case of home dialysis, the period begins when the 
patient prepares for dialysis and generally ends when the patient is 
disconnected from the machine. In this context, a dialysis facility 
includes only those parts of the building used as a facility. It does 
not include any areas used as a physician's office.
    Medical direction, in contrast to supervision of staff, is a routine 
professional service that entails substantial direct involvement and the 
physical presence of the physician in the delivery of services directly 
to the patient.
    Routine professional services include all physicians' services 
furnished during a dialysis session and all services listed in paragraph 
(d) of this section that meet the following requirements:
    (1) They are personally furnished by a physician to an individual 
patient.
    (2) They contribute directly to the diagnosis or treatment of an 
individual patient.
    (3) They ordinarily must be performed by a physician.
    Supervision of staff, in contrast to medical direction, is an 
administrative service that does not necessarily require the physician 
to be present at the dialysis session. It is a general activity 
primarily concerned with monitoring performance of and giving guidance 
to other health care personnel (such as nurses and dialysis technicians) 
who deliver services to patients.
    (d) Types of routine professional services. Routine professional 
services include at least all of the following services when medically 
appropriate:
    (1) Visits to the patient during dialysis, and review of laboratory 
test results, nurses' notes and any other medical documentation, as a 
basis for--
    (i) Adjustment of the patient's medication or diet, or the dialysis 
procedure;
    (ii) Prescription of medical supplies; and
    (iii) Evaluation of the patient's psychosocial status and the 
appropriateness of the treatment modality.
    (2) Medical direction of staff in delivering services to a patient 
during a dialysis session.
    (3) Pre-dialysis and post-dialysis examinations, or examinations 
that could have been furnished on a pre-dialysis or post-dialysis basis.
    (4) Insertion of catheters for patients who are on peritoneal 
dialysis and do not have indwelling catheters.
    (e) Payment for routine professional services. Beginning August 7, 
1990, routine professional services furnished by physicians may be paid 
under either the ``initial method'' of payment described in Sec. 
414.313, (if all of the physicians at the facility elect the initial 
method) or under the ``physician MCP method'' described in Sec. 
414.314. Physician services furnished after July 31, 1983 and before 
August 6, 1990, are payable only under the MCP method described in Sec. 
414.314.



Sec. 414.313  Initial method of payment.

    (a) Basic rule. Under this method, the intermediary pays the 
facility for routine professional services furnished by physicians. 
Payment is in the form of an add-on to the facility's composite rate 
payment, which is described in part 413, subpart H of this subchapter.
    (b) Services for which payment is not included in the add-on 
payment. (1) Physician administrative services are considered to be 
facility services and are paid for as part of the facility's composite 
rate.
    (2) The carrier pays the physician or the beneficiary (as 
appropriate) under the reasonable charge criteria set forth in subpart E 
of part 405 of this chapter for the following services:
    (i) Physician services that must be furnished at a time other than 
during the dialysis session (excluding pre-dialysis and post-dialysis 
examinations and examinations that could have been furnished on a pre-
dialysis or post-dialysis basis), such as monthly and semi-annual 
examinations to review health status and treatment.
    (ii) Physician surgical services other than insertion of catheters 
for patients

[[Page 33]]

who are on peritoneal dialysis and do not have indwelling catheters.
    (iii) Physician services furnished to hospital inpatients who were 
not admitted solely to receive maintenance dialysis.
    (iv) Administration of hepatitis B vaccine.
    (c) Physician election of the initial method. (1) Each physician in 
a facility must submit to the appropriate carrier and intermediary that 
serve the facility a statement of election of the initial method of 
payment for all the ESRD facility patients that he or she attends.
    (2) The initial method of payment applies to dialysis services 
furnished beginning with the second calendar month after the month in 
which all physicians in the facility elect the initial method and 
continues until the effective date of a termination of the election 
described in paragraph (d) of this section.
    (d) Termination of the initial method. (1) Physicians may terminate 
the initial method of payment by written notice to the carrier(s) that 
serves each physician and to the intermediary that serves the facility.
    (2) If the notice terminating the initial method is received by the 
carrier(s) and intermediary--
    (i) On or before November 1, the effective date of the termination 
is January 1 of the year following the calendar year in which the 
termination notice is received by the carrier(s) and intermediary; or
    (ii) After November 1, the effective date of the termination is 
January 1 of the second year after the calendar year in which the notice 
is received by the carrier(s) and intermediary.
    (e) Determination of payment amount. The factors used in determining 
the add-on amount are related to program experience. They are re-
evaluated periodically and may be adjusted, as determined necessary by 
CMS, to maintain the payment at a level commensurate with the prevailing 
charges of other physicians for comparable services.
    (f) Publication of payment amount. Revisions to the add-on amounts 
are published in the Federal Register in accordance with the 
Department's established rulemaking procedures.

[55 FR 23441, June 8, 1990, as amended at 62 FR 43674, Aug. 15, 1997]



Sec. 414.314  Monthly capitation payment method.

    (a) Basic rules. (1) Under the monthly capitation payment (MCP) 
method, the carrier pays an MCP amount for each patient, to cover all 
professional services furnished by the physician, except those listed in 
paragraph (b) of this section.
    (2) The carrier pays the MCP amount, subject to the deductible and 
coinsurance provisions, either to the physician if the physician accepts 
assignment or to the beneficiary if the physician does not accept 
assignment.
    (3) The MCP method recognizes the need of maintenance dialysis 
patients for physician services furnished periodically over relatively 
long periods of time, and the capitation amounts are consistent with 
physicians' charging patterns in their localities.
    (4) Payment of the capitation amount for any particular month is 
contingent upon the physician furnishing to the patient all physician 
services required by the patient during the month, except those listed 
in paragraph (b) of this section.
    (5) Payment for physician administrative services (Sec. 414.310) is 
made to the dialysis facility as part of the facility's composite rate 
(part 413, subpart H of this subchapter) and not to the physician under 
the MCP.
    (b) Services not included in the MCP. (1) Services that are not 
included in the MCP and which may be paid in accordance with the 
reasonable charge rules set forth in subpart E of part 405 of this 
chapter are limited to the following:
    (i) Administration of hepatitis B vaccine.
    (ii) Covered physician services furnished by another physician when 
the patient is not available to receive, or the attending physician is 
not available to furnish, the outpatient services as usual (see 
paragraph (b)(3) of this section).
    (iii) Covered physician services furnished to hospital inpatients, 
including services related to inpatient dialysis,

[[Page 34]]

by a physician who elects not to continue to receive the MCP during the 
period of inpatient stay.
    (iv) Surgical services, including declotting of shunts, other than 
the insertion of catheters for patients on maintenance peritoneal 
dialysis who do not have indwelling catheters.
    (v) Needed physician services that are--
    (A) Furnished by the physician furnishing renal care or by another 
physician;
    (B) Not related to the treatment of the patient's renal condition; 
and
    (C) Not furnished during a dialysis session or an office visit 
required because of the patient's renal condition.
    (2) For the services described in paragraph (b)(1)(v) of this 
section, the following rules apply:
    (i) The physician must provide documentation to show that the 
services are not related to the treatment of the patient's renal 
condition and that additional visits are required.
    (ii) The carrier's medical staff, acting on the basis of the 
documentation and appropriate medical consultation obtained by the 
carrier, determines whether additional payment for the additional 
services is warranted.
    (3) The MCP is reduced in proportion to the number of days the 
patient is--
    (i) Hospitalized and the physician elects to bill separately for 
services furnished during hospitalization; or
    (ii) Not attended by the physician or his or her substitute for any 
reason, including when the physician is not available to furnish patient 
care or when the patient is not available to receive care.
    (c) Determination of payment amount. The amount of payment for the 
MCP is determined under the Medicare physician fee schedule described in 
this part 414.

[55 FR 23441, June 8, 1990, as amended at 59 FR 63463, Dec. 8, 1994; 62 
FR 43674, Aug. 15, 1997]



Sec. 414.316  Payment for physician services to patients in training for self-dialysis and home dialysis.

    (a) For each patient, the carrier pays a flat amount that covers all 
physician services required to create the capacity for self-dialysis and 
home dialysis.
    (b) CMS determines the amount on the basis of program experience and 
reviews it periodically.
    (c) The payment is made at the end of the training course, is 
subject to the deductible and coinsurance provisions, and is in addition 
to any amounts payable under the initial or MCP methods set forth in 
Sec. Sec. 414.313 and 414.314, respectively.
    (d) If the training is not completed, the payment amount is 
proportionate to the time spent in training.



Sec. 414.320  Determination of reasonable charges for physician renal transplantation services.

    (a) Comprehensive payment for services furnished during a 60-day 
period. (1) The comprehensive payment is subject to the deductible and 
coinsurance provisions and is for all surgeon services furnished during 
a period of 60 days in connection with a renal transplantation, 
including the usual preoperative and postoperative care, and for 
immunosuppressant therapy if supervised by the transplant surgeon.
    (2) Additional sums, in amounts established on the basis of program 
experience, may be included in the comprehensive payment for other 
surgery performed concurrently with the transplant operation.
    (3) The amount of the comprehensive payment may not exceed the lower 
of the following:
    (i) The actual charges made for the services.
    (ii) Overall national payment levels established under the ESRD 
program and adjusted to give effect to variations in physician's charges 
throughout the nation. (These adjusted amounts are the maximum 
allowances in a carrier's service area for renal transplantation surgery 
and related services by surgeons.)
    (4) Maximum allowances computed under these instructions are revised 
at the beginning of each calendar year to the extent permitted by the 
lesser of the following:
    (i) Changes in the economic index as described in Sec. 
405.504(a)(3)(i) of this chapter.

[[Page 35]]

    (ii) Percentage changes in the weighted average of the carrier's 
prevailing charges (before adjustment by the economic index) for--
    (A) A unilateral nephrectomy; or
    (B) Another medical or surgical service designated by CMS for this 
purpose.
    (b) Other payments. Payments for covered medical services furnished 
to the transplant recipient by other specialists, as well as for 
services by the transplant surgeon after the 60-day period covered by 
the comprehensive payment, are made under the reasonable charge criteria 
set forth in Sec. 405.502 (a) through (d) of this chapter. The payments 
for physicians' services in connection with renal transplantations are 
changed on the basis of program experience and the expected advances in 
the medical art for this operation.



Sec. 414.330  Payment for home dialysis equipment, supplies, and support services.

    (a) Equipment and supplies--(1) Basic rule. Except as provided in 
paragraph (a)(2) of this section, Medicare pays for home dialysis 
equipment and supplies only under the prospective payment rates 
established at Sec. 413.170.
    (2) Exception. If the conditions in subparagraphs (a)(2) (i) through 
(iv) of this section are met, Medicare pays for home analysis equipment 
and supplies on a reasonable charge basis in accordance with subpart E 
(Criteria for Determination of Reasonable Charges; Reimbursement for 
Services of Hospital Interns, Residents, and Supervising Physicians) of 
part 405, but the amount of payment may not exceed the limit for 
equipment and supplies in paragraph (c)(2) of this section.
    (i) The patient elects to obtain home dialysis equipment and 
supplies from a supplier that is not a Medicare approved dialysis 
facility.
    (ii) The patient certifies to CMS that he or she has only one 
supplier for all home dialysis equipment and supplies. This 
certification is made on CMS Form 382 (the ``ESRD Beneficiary 
Selection'' form).
    (iii) In writing, the supplier--
    (A) Agrees to receive Medicare payment for home dialysis supplies 
and equipment only on an assignment-related basis; and
    (B) Certifies to CMS that it has a written agreement with one 
Medicare approved dialysis facility or, if the beneficiary is also 
entitled to military or veteran's benefits, one military or Veterans 
Administration hospital, for each patient. (See subpart U of part 405 of 
this chapter for the requirements for a Medicare approved dialysis 
facility.) Under the agreement, the facility or military or VA hospital 
agrees to the following:
    (1) To furnish all home dialysis support services for each patient 
in accordance with subpart U (Conditions for Coverage of Suppliers of 
ESRD Services) of this chapter. (Sec. 410.52 sets forth the scope and 
conditions of Medicare Part B coverage of home dialysis services, 
supplies, and equipment.)
    (2) To furnish institutional dialysis services and supplies. (Sec. 
410.50 sets forth the scope and conditions for Medicare Part B coverage 
of institutional dialysis services and supplies.)
    (3) To furnish dialysis-related emergency services.
    (4) To arrange for a Medicare approved laboratory to perform 
dialysis-related laboratory tests that are covered under the composite 
rate established at Sec. 413.170 and to arrange for the laboratory to 
seek payment from the facility. The facility then includes these 
laboratory services in its claim for payment for home dialysis support 
services.
    (5) To arrange for a Medicare approved laboratory to perform 
dialysis-related laboratory tests that are not covered under the 
composite rate established at Sec. 413.170 and for which the laboratory 
files a Medicare claim directly.
    (6) To furnish all other necessary dialysis services and supplies 
(that is, those which are not home dialysis equipment and supplies).
    (7) To satisfy all documentation, recordkeeping and reporting 
requirements in subpart U (Conditions for Coverage of Suppliers of ESRD 
Services) of this chapter. This includes maintaining a complete medical 
record of ESRD related items and services furnished by other parties. 
The facility must report, on the forms required by CMS or the ESRD 
network, all data for each patient in accordance with subpart U.

[[Page 36]]

    (iv) The facility with which the agreement is made must be located 
within a reasonable distance from the patient's home (that is, located 
so that the facility can actually furnish the needed services in a 
practical and timely manner, taking into account variables like the 
terrain, whether the patient's home is located in an urban or rural 
area, the availability of transportation, and the usual distances 
traveled by patients in the area to obtain health care services).
    (b) Support services--(1) Basic rule. Except as provided in 
paragraph (b)(2) of this section, Medicare pays for support services 
only under the prospective payment rates established in Sec. 413.170 of 
this chapter.
    (2) Exceptions. If the patient elects to obtain home dialysis 
equipment and supplies from a supplier that is not an approved ESRD 
facility, Medicare pays for support services, other than support 
services furnished by military or VA hospitals referred to in paragraph 
(a)(2)(iii)(B) of this section, under paragraphs (b)(2) (i) and (ii) of 
this section but in no case may the amount of payment exceed the limit 
for support services in paragraph (c)(1) of this section:
    (i) For support services furnished by a hospital-based ESRD 
facility, Medicare pays on a reasonable cost basis in accordance with 
part 413 of this chapter.
    (ii) For support services furnished by an independent ESRD facility, 
Medicare pays on the basis of reasonable charges that are related to 
costs and allowances that are reasonable when the services are furnished 
in an effective and economical manner.
    (c) Payment limits--(1) Support services. The amount of payment for 
home dialysis support services is limited to the national average 
Medicare-allowed charge per patient per month for home dialysis support 
services, as determined by CMS, plus the median cost per treatment for 
all dialysis facilities for laboratory tests included under the 
composite rate, as determined by CMS, multiplied by the national average 
number of treatments per month.
    (2) Equipment and supplies. Payment for home dialysis equipment and 
supplies is limited to an amount equal to the result obtained by 
subtracting the support services payment limit in paragraph (c)(1) of 
this section from the amount (or, in the case of continuous cycling 
peritoneal dialysis, 130 percent) of the national median payment as 
determined by CMS that would have been made under the prospective 
payment rates established in Sec. 413.170 of this chapter for hospital-
based facilities.
    (3) Notification of changes to the payment limits. Updated data are 
incorporated into the payment limits when the prospective payment rates 
established at Sec. 413.170 of this chapter are updated, and changes 
are announced by notice in the Federal Register without a public comment 
period. Revisions of the methodology for determining the limits are 
published in the Federal Register in accordance with the Department's 
established rulemaking procedures.

[57 FR 54187, Nov. 17, 1992]



Sec. 414.335  Payment for EPO furnished to a home dialysis patient for use in the home.

    (a) Payment for EPO used at home by a home dialysis patient is made 
only to either a Medicare approved ESRD facility or a supplier of home 
dialysis equipment and supplies.
    (b) Payment is made in accordance with the rules set forth in Sec. 
413.170 of this chapter.

[56 FR 43710, Sept. 4, 1991]



  Subpart F_Competitive Bidding for Certain Durable Medical Equipment, 
              Prosthetics, Orthotics, and Supplies (DMEPOS)



Sec. 414.400  Purpose and basis.

    This subpart implements competitive bidding programs for certain 
DMEPOS items as required by sections 1847(a) and (b) of the Act.

[72 FR 18084, Apr. 10, 2007]



Sec. 414.402  Definitions.

    For purposes of this subpart, the following definitions apply:
    Bid means an offer to furnish an item for a particular price and 
time period that includes, where appropriate, any

[[Page 37]]

services that are directly related to the furnishing of the item.
    Competitive bidding area (CBA) means an area established by the 
Secretary under this subpart.
    Competitive bidding program means a program established under this 
subpart within a designated CBA.
    Composite bid means the sum of a supplier's weighted bids for all 
items within a product category for purposes of allowing a comparison 
across bidding suppliers.
    Contract supplier means an entity that is awarded a contract by CMS 
to furnish items under a competitive bidding program.
    DMEPOS stands for durable medical equipment, prosthetics, orthotics, 
and supplies.
    Grandfathered item means any one of the following items for which 
payment is made on a rental basis prior to the implementation of a 
competitive bidding program and for which payment is made after 
implementation of a competitive bidding program to a grandfathered 
supplier that continues to furnish the items in accordance with Sec. 
414.408(j):
    (1) An inexpensive or routinely purchased item described in Sec. 
414.220.
    (2) An item requiring frequent and substantial servicing, as 
described in Sec. 414.222.
    (3) Oxygen and oxygen equipment described in Sec. 414.226.
    (4) Other DME described in Sec. 414.229.
    Grandfathered supplier means a noncontract supplier that chooses to 
continue to furnish grandfathered items to a beneficiary in a CBA.
    Item means a product included in a competitive bidding program that 
is identified by a HCPCS code, which may be specified for competitive 
bidding (for example, a product when it is furnished through mail 
order), or a combination of codes and/or modifiers, and includes the 
services directly related to the furnishing of that product to the 
beneficiary. Items that may be included in a competitive bidding program 
are:
    (1) Durable medical equipment (DME) other than class III devices 
under the Federal Food, Drug, and Cosmetic Act, as defined in Sec. 
414.202 of this part and further classified into the following 
categories:
    (i) Inexpensive or routinely purchased items, as specified in Sec. 
414.220(a).
    (ii) Items requiring frequent and substantial servicing, as 
specified in Sec. 414.222(a).
    (iii) Oxygen and oxygen equipment, as specified in Sec. 
414.226(c)(1).
    (iv) Other DME (capped rental items), as specified in Sec. 414.229.
    (2) Supplies necessary for the effective use of DME other than 
inhalation drugs.
    (3) Enteral nutrients, equipment, and supplies.
    (4) Off-the-shelf orthotics, which are orthotics described in 
section 1861(s)(9) of the Act that require minimal self-adjustment for 
appropriate use and do not require expertise in trimming, bending, 
molding, assembling or customizing to fit a beneficiary.
    Item weight is a number assigned to an item based on its beneficiary 
utilization rate using national data when compared to other items in the 
same product category.
    Mail order contract supplier is a contract supplier that furnishes 
items through the mail to beneficiaries who maintain a permanent 
residence in a competitive bidding area.
    Metropolitan Statistical Area (MSA) has the same meaning as that 
given by the Office of Management and Budget.
    Minimal self-adjustment means an adjustment that the beneficiary, 
caretaker for the beneficiary, or supplier of the device can perform and 
does not require the services of a certified orthotist (that is, an 
individual certified by either the American Board for Certification in 
Orthotics and Prosthetics, Inc., or the Board for Orthotist/Prosthetist 
Certification) or an individual who has specialized training.
    Nationwide competitive bidding area means a CBA that includes the 
United States, its Territories, and the District of Columbia.
    Nationwide mail order contract supplier means a mail order contract 
supplier that furnishes items in a nationwide competitive bidding area.

[[Page 38]]

    Network means a group of small suppliers that form a legal entity to 
provide competitively bid items throughout the entire CBA.
    Noncontract supplier means a supplier that is not awarded a contract 
by CMS to furnish items included in a competitive bidding program.
    Physician has the same meaning as in section 1861(r) of the Act.
    Pivotal bid means the lowest composite bid based on bids submitted 
by suppliers for a product category that includes a sufficient number of 
suppliers to meet beneficiary demand for the items in that product 
category.
    Product category means a grouping of related items that are used to 
treat a similar medical condition.
    Regional competitive bidding area means a CBA that consists of a 
region of the United States, its Territories, and the District of 
Columbia.
    Regional mail order contract supplier means a mail order contract 
supplier that furnishes items in a regional competitive bidding area.
    Single payment amount means the allowed payment for an item 
furnished under a competitive bidding program.
    Small supplier means, a supplier that generates gross revenue of 
$3.5 million or less in annual receipts including Medicare and non-
Medicare revenue.
    Supplier means an entity with a valid Medicare supplier number, 
including an entity that furnishes an item through the mail.
    Treating practitioner means a physician assistant, nurse 
practitioner, or clinical nurse specialist, as those terms are defined 
in section 1861(aa)(5) of the Act.
    Weighted bid means the item weight multiplied by the bid price 
submitted for that item.

[72 FR 18084, Apr. 10, 2007]



Sec. 414.404  Scope and applicability.

    (a) Applicability. Except as specified in paragraph (b) of this 
section, this subpart applies to all suppliers that furnish the items 
defined in Sec. 414.402 to beneficiaries, including providers, 
physicians, treating practitioners, physical therapists, and 
occupational therapists that furnish such items under Medicare Part B.
    (b) Exceptions. (1) Physicians and treating practitioners may 
furnish certain types of competitively bid items without submitting a 
bid and being awarded a contract under this subpart, provided that all 
of the following conditions are satisfied:
    (i) The items furnished are limited to crutches, canes, walkers, 
folding manual wheelchairs, blood glucose monitors, and infusion pumps 
that are DME.
    (ii) The items are furnished by the physician or treating 
practitioner to his or her own patients as part of his or her 
professional service.
    (iii) The items are billed under a billing number assigned to the 
physician, the treating practitioner (if possible), or a group practice 
to which the physician or treating practitioner has reassigned the right 
to receive Medicare payment.
    (2) A physical therapist in private practice (as defined in Sec. 
410.60(c) of this chapter) or an occupational therapist in private 
practice (as defined in Sec. 410.59(c) of this chapter) may furnish 
competitively bid off-the-shelf orthotics without submitting a bid and 
being awarded a contract under this subpart, provided that the items are 
furnished only to the therapist's own patients as part of the physical 
or occupational therapy service.
    (3) Payment for items furnished in accordance with paragraphs (b)(1) 
and (b)(2) of this section will be paid in accordance with Sec. 
414.408(a).

[72 FR 18084, Apr. 10, 2007]



Sec. 414.406  Implementation of programs.

    (a) Implementation contractor. CMS designates one or more 
implementation contractors for the purpose of implementing this subpart.
    (b) Competitive bidding areas. CMS designates through program 
instructions or by other means, such as the request for bids, each CBA 
in which a competitive bidding program may be implemented under this 
subpart.
    (c) Revisions to competitive bidding areas. CMS may revise the CBAs 
designated under paragraph (b) of this section.
    (d) Competitively bid items. CMS designates the items that are 
included in a competitive bidding program through

[[Page 39]]

program instructions or by other means
    (e) Claims processing. The Durable Medical Equipment Medicare 
Administrative Contractor designated to process DMEPOS claims for a 
particular geographic region also processes claims for items furnished 
under a competitive bidding program in the same geographic region.

[71 FR 48409, Aug. 18, 2006, as amended at 72 FR 18085, Apr. 10, 2007]



Sec. 414.408  Payment rules.

    (a) Payment basis. (1) The payment basis for an item furnished under 
a competitive bidding program is 80 percent of the single payment amount 
calculated for the item under Sec. 414.416 for the CBA in which the 
beneficiary maintains a permanent residence.
    (2) If an item that is included in a competitive bidding program is 
furnished to a beneficiary who does not maintain a permanent residence 
in a CBA, the payment basis for the item is 80 percent of the lesser of 
the actual charge for the item, or the applicable fee schedule amount 
for the item, as determined under Subpart C or Subpart D.
    (b) No changes to the single payment amount. The single payment 
amount calculated for each item under each competitive bidding program 
is paid for the duration of the competitive bidding program and will not 
be adjusted by any update factor.
    (c) Payment on an assignment-related basis. Payment for an item 
furnished under this subpart is made on an assignment-related basis.
    (d) Applicability of advanced beneficiary notice. Implementation of 
a program in accordance with this subpart does not preclude the use of 
an advanced beneficiary notice.
    (e) Requirement to obtain competitively bid items from a contract 
supplier. (1) General rule. Except as provided in paragraph (e)(2) of 
this section, all items that are included in a competitive bidding 
program must be furnished by a contract supplier for that program.
    (2) Exceptions. (i) A grandfathered supplier may furnish a 
grandfathered item to a beneficiary in accordance with paragraph (j) of 
this section.
    (ii) Medicare may make a secondary payment for an item furnished by 
a noncontract supplier that the beneficiary is required to use under his 
or her primary insurance policy. The provisions of this paragraph do not 
supersede Medicare secondary payer statutory and regulatory provisions, 
including the Medicare secondary payment rules located in Sec. Sec. 
411.32 and 411.33 of this subchapter, and payment will be calculated in 
accordance with those rules.
    (iii) If a beneficiary is outside of the CBA in which he or she 
maintains a permanent residence, he or she may obtain an item from a--
    (A) Contract supplier, if the beneficiary obtains the item in 
another CBA and the item is included in the competitive bidding program 
for that CBA; or
    (B) Supplier with a valid Medicare billing number, if the 
beneficiary obtains the item in an area that is not a CBA, or if the 
beneficiary obtains the item in another CBA but the item is not included 
in the competitive bidding program for that CBA.
    (iv) A physician, treating practitioner, physical therapist in 
private practice, or occupational therapist in private practice may 
furnish an item in accordance with Sec. 414.404(b) of this subpart.
    (3) Unless paragraph (e)(2) of this section applies:
    (i) Medicare will not make payment for an item furnished in 
violation of paragraph (e)(1) of this section, and
    (ii) A beneficiary has no financial liability to a noncontract 
supplier that furnishes an item included in the competitive bidding 
program for a CBA in violation of paragraph (e)(1) of this section, 
unless the beneficiary has signed an advanced beneficiary notice.
    (4) CMS separately designates the Medicare billing number of all 
noncontract suppliers to monitor compliance with paragraphs (e)(1) and 
(e)(2) of this section.
    (f) Purchased equipment. (1) The single payment amounts for new 
purchased durable medical equipment, including power wheelchairs that 
are purchased when the equipment is initially furnished, and enteral 
nutrition equipment are calculated based on the bids

[[Page 40]]

submitted and accepted for these items.
    (2) Payment for used purchased durable medical equipment and enteral 
nutrition equipment is made in an amount equal to 75 percent of the 
single payment amounts calculated for new purchased equipment under 
paragraph (f)(1) of this section.
    (g) Purchased supplies and orthotics. The single payment amounts for 
the following purchased items are calculated based on the bids submitted 
and accepted for the following items:
    (1) Supplies used in conjunction with durable medical equipment.
    (2) Enteral nutrients.
    (3) Enteral nutrition supplies.
    (4) OTS orthotics.
    (h) Rented equipment. (1) Capped rental DME. Subject to the 
provisions of paragraph (h)(2) of this section, payment for capped 
rental durable medical equipment is made in an amount equal to 10 
percent of the single payment amounts calculated for new durable medical 
equipment under paragraph (f)(1) of this section for each of the first 3 
months, and 7.5 percent of the single payment amounts calculated for 
these items for each of the remaining months 4 through 13.
    (2) Additional payment to certain contract suppliers for capped 
rental DME. (i) Except as specified in paragraph (h)(2)(ii) of this 
section, Medicare makes 13 monthly payments to a contract supplier that 
furnishes capped rental durable medical equipment to a beneficiary who 
would otherwise be entitled to obtain the item from a grandfathered 
supplier under paragraph (j) of this section. Payment is made using the 
methodology described in paragraph (h)(1) of this section. The contract 
supplier must transfer title to the item to the beneficiary on the first 
day that begins after the 13th continuous month in which payments are 
made in accordance with this paragraph.
    (ii) Medicare does not make payment to a contract supplier under 
paragraph (h)(2)(i) of this section if the contract supplier furnishes 
capped rental durable medical equipment to a beneficiary who previously 
rented the equipment from another contract supplier.
    (3) Maintenance and servicing of rented DME. Separate maintenance 
and servicing payments are not made for any rented durable medical 
equipment.
    (4) Payment for rented enteral nutrition equipment. Payment for 
rented enteral nutrition equipment is made in an amount equal to 10 
percent of the single payment amounts calculated for new enteral 
nutrition equipment under paragraph (f)(1) of this section for each of 
the first 3 months, and 7.5 percent of the single payment amount 
calculated for these items under paragraph (f)(1) of this section for 
each of the remaining months 4 through 15. The contract supplier to 
which payment is made in month 15 for furnishing enteral nutrition 
equipment on a rental basis must continue to furnish, maintain and 
service the equipment until a determination is made by the beneficiary's 
physician or treating practitioner that the equipment is no longer 
medically necessary.
    (5) Maintenance and servicing of rented enteral nutrition equipment. 
Payment for the maintenance and servicing of rented enteral nutrition 
equipment beginning 6 months after 15 months of rental payments is made 
in an amount equal to 5 percent of the single payment amounts calculated 
for these items under paragraph (f)(1) of this section.
    (6) Payment for inexpensive or routinely purchased durable medical 
equipment. Payment for inexpensive or routinely purchased durable 
medical equipment furnished on a rental basis is made in an amount equal 
to 10 percent of the single payment amount calculated for new purchased 
equipment.
    (7) Payment amounts for rented DME requiring frequent and 
substantial servicing. (i) General rule. Except as provided in paragraph 
(h)(7)(ii) of this section, the single payment amounts for rented 
durable medical equipment requiring frequent and substantial servicing 
are calculated based on the rental bids submitted and accepted for the 
furnishing of these items on a monthly basis.
    (ii) Exception. The single payment amounts for continuous passive 
motion exercise devices are calculated based on the bids submitted and 
accepted for

[[Page 41]]

the furnishing of these items on a daily basis.
    (i) Monthly payment amounts for oxygen and oxygen equipment. (1) 
Basic payment amount. Subject to the provisions of paragraph (i)(2) of 
this section, the single payment amounts for oxygen and oxygen equipment 
are calculated based on the bids submitted and accepted for the 
furnishing on a monthly basis of each of the five classes of oxygen and 
oxygen equipment described in Sec. 414.226(c)(1).
    (2) Additional payment to certain contract suppliers. (i) Except as 
specified in paragraph (i)(2)(iii) of this section, Medicare makes 
monthly payments to a contract supplier that furnishes oxygen equipment 
to a beneficiary who would otherwise be entitled to obtain the item from 
a grandfathered supplier under paragraph (j) of this section as follows:
    (A) If Medicare made 26 or less monthly payments to the former 
supplier, Medicare makes a monthly payment to the contract supplier for 
up to the number of months equal to the difference between 36 and the 
number of months for which payment was made to the former supplier.
    (B) If Medicare made 27 or more monthly payments to the former 
supplier, Medicare makes 10 monthly payments to the contract supplier.
    (ii) Payment is made using the methodology described in paragraph 
(i)(1) of this section. On the first day after the month in which the 
final rental payment is made under paragraph (i)(2)(i) of this section, 
the contract supplier must transfer title of the oxygen equipment to the 
beneficiary.
    (iii) Medicare does not make payment to a contract supplier under 
paragraph (i)(2) of this section if the contract supplier furnishes 
oxygen equipment to a beneficiary who previously rented the equipment 
from another contract supplier.
    (j) Special rules for certain rented durable medical equipment and 
oxygen and oxygen equipment. (1) Supplier election. (i) A supplier that 
is furnishing durable medical equipment or is furnishing oxygen or 
oxygen equipment on a rental basis to a beneficiary prior to the 
implementation of a competitive bidding program in the CBA where the 
beneficiary maintains a permanent residence may elect to continue 
furnishing the item as a grandfathered supplier.
    (ii) A supplier that elects to be a grandfathered supplier must 
continue to furnish the grandfathered items to all beneficiaries who 
elect to continue receiving the grandfathered items from that supplier 
for the remainder of the rental period for that item.
    (2) Payment for grandfathered items furnished during the first 
competitive bidding program implemented in a CBA. Payment for 
grandfathered items furnished during the first competitive bidding 
program implemented in a CBA is made as follows:
    (i) For inexpensive and routinely purchased items described in Sec. 
414.220(a), payment is made in the amount determined under Sec. 
414.220(b).
    (ii) For other durable medical equipment or capped rental items 
described in Sec. 414.229, payment is made in the amount determined 
under Sec. 414.229(b).
    (iii) For items requiring frequent and substantial servicing 
described in Sec. 414.222, payment is made in accordance with paragraph 
(a)(1) of this section.
    (iv) For oxygen and oxygen equipment described in Sec. 
414.226(c)(1), payment is made in accordance with paragraph (a)(1) of 
this section.
    (3) Payment for grandfathered items furnished during all subsequent 
competitive bidding programs in a CBA. Beginning with the second 
competitive bidding program implemented in a CBA, payment is made for 
grandfathered items in accordance with paragraph (a)(1) of this section.
    (4) Choice of suppliers. (i) Beneficiaries who are renting an item 
that meets the definition of a grandfathered item in Sec. 414.402 of 
this subpart may elect to obtain the item from a grandfathered supplier.
    (ii) A beneficiary who is otherwise entitled to obtain a 
grandfathered item from a grandfathered supplier under paragraph (j) of 
this section may elect to obtain the same item from a contract supplier 
at any time after a competitive bidding program is implemented.

[[Page 42]]

    (iii) If a beneficiary elects to obtain the same item from a 
contract supplier, payment is made for the item accordance with 
paragraph (a)(1) of this section.
    (5) Payment for accessories and supplies for grandfathered items. 
Accessories and supplies that are used in conjunction with and are 
necessary for the effective use of a grandfathered item may be furnished 
by the same grandfathered supplier that furnishes the grandfathered 
item. Payment is made in accordance with paragraph (a)(1) of this 
section.
    (k) Payment for maintenance, servicing and replacement of 
beneficiary-owned items.
    (1) Payment is made for the maintenance and servicing of 
beneficiary-owned items, provided the maintenance and servicing is 
performed by a contract supplier or a noncontract supplier having a 
valid Medicare billing number, as follows:
    (i) Payment for labor is made in accordance with Sec. 414.210(e)(1) 
of Subpart D.
    (ii) Payment for parts that are not items (as defined in Sec. 
414.402) is made in accordance with Sec. 414.210(e)(1) of Subpart D.
    (iii) Payment for parts that are items (as defined in Sec. 414.402) 
is made in accordance with paragraph (a)(1) of this section.
    (2) Additional payments are made in accordance with Sec. Sec. 
414.210(e)(2) and (e)(3) of subpart D for the maintenance and servicing 
of oxygen equipment if performed by a contract supplier or a noncontract 
supplier having a valid Medicare billing number.
    (3) Beneficiaries must obtain a replacement of a beneficiary-owned 
item, other than parts needed for the repair of beneficiary-owned 
equipment from a contract supplier. Payment is made for the replacement 
item in accordance with paragraph (a)(1) of this section.

[72 FR 18085, Apr. 10, 2007]



Sec. 414.410  Phased-in implementation of competitive bidding programs.

    (a) Phase-in of competitive bidding programs. CMS phases in 
competitive bidding programs so that competition under the programs 
occurs in--
    (1) 10 of the largest MSAs in CY 2007;
    (2) 80 of the largest MSAs in CY 2009;
    (3) Additional CBAs after CY 2009.
    (b) Selection of MSAs for CY 2007 and CY 2009. CMS selects the MSAs 
for purposes of designating CBAs in CY 2007 and CY 2009 by considering 
the following variables:
    (1) The total population of an MSA.
    (2) The Medicare allowed charges for DMEPOS items per fee-for-
service beneficiary in an MSA.
    (3) The total number of DMEPOS suppliers per fee-for-service 
beneficiary who received DMEPOS items in an MSA.
    (4) An MSA's geographic location.
    (c) Exclusions from a CBA. CMS may exclude from a CBA a rural area 
(as defined in Sec. 412.64(b)(1)(ii)(C) of this subchapter), or an area 
with low population density based on one or more of the following 
factors--
    (1) Low utilization of DMEPOS items by Medicare beneficiaries 
receiving fee-for-service benefits relative to similar geographic areas;
    (2) Low number of DMEPOS suppliers relative to similar geographic 
areas; or
    (3) Low number of Medicare fee-for-service beneficiaries relative to 
similar geographic areas.
    (d) Selection of additional CBAs after CY 2009. (1) Beginning after 
CY 2009, CMS designates through program instructions or by other means 
additional CBAs based on CMS' determination that the implementation of a 
competitive bidding program in a particular area would be likely to 
result in significant savings to the Medicare program.
    (2) Beginning after CY 2009, CMS may designate through program 
instructions or by other means a nationwide CBA or one or more regional 
CBAs for purposes of implementing competitive bidding programs for items 
that are furnished through the mail by nationwide or regional mail order 
contract suppliers.

[72 FR 18085, Apr. 10, 2007]



Sec. 414.412  Submission of bids under a competitive bidding program.

    (a) Requirement to submit a bid. Except as provided under Sec. 
414.404(b), in order for a supplier to receive payment for items 
furnished to beneficiaries under a competitive bidding program, the 
supplier must submit a bid to furnish

[[Page 43]]

those items and be awarded a contract under this subpart.
    (b) Grouping of items into product categories. (1) Bids are 
submitted for items grouped into product categories.
    (2) The bids submitted for each item in a product category cannot 
exceed the payment amount that would otherwise apply to the item under 
Subpart C or Subpart D of this part.
    (c) Furnishing of items. A bid must include all costs related to 
furnishing an item, including all services directly related to the 
furnishing of the item.
    (d) Separate bids. For each product category that a supplier is 
seeking to furnish under a competitive bidding program, the supplier 
must submit a separate bid for each item in that product category.
    (e) Commonly-owned or controlled suppliers. (1) For purposes of this 
paragraph--
    (i) An ownership interest is the possession of equity in the 
capital, stock or profits of another supplier;
    (ii) A controlling interest exists if one or more of owners of a 
supplier is an officer, director or partner in another supplier; and
    (iii) Two or more suppliers are commonly-owned if one or more of 
them has an ownership interest totaling at least 5 percent in the 
other(s).
    (2) A supplier must disclose in its bid each supplier in which it 
has an ownership or controlling interest and each supplier which has an 
ownership or controlling interest in it.
    (3) Commonly-owned or controlled suppliers must submit a single bid 
to furnish a product category in a CBA. Each commonly-owned or 
controlled supplier that is located in the CBA for which the bid is 
being submitted must be included in the bid. The bid must also include 
any commonly-owned or controlled supplier that is located outside of the 
CBA but would furnish the product category to the beneficiaries who 
maintain a permanent residence in the CBA.
    (f) Mail order suppliers. (1) Suppliers that furnish items through 
the mail must submit a bid to furnish these items in a CBA in which a 
mail order competitive bidding program that includes the items is 
implemented.
    (2) Suppliers that submit one or more bids under paragraph (f)(1) of 
this section may submit the same bid amount for each item under each 
competitive bidding program for which it submits a bid.
    (g) Applicability of the mail order competitive bidding program. 
Suppliers that do not furnish items through the mail are not required to 
participate in a nationwide or regional mail order competitive bidding 
program that includes the same items. Suppliers may continue to furnish 
these items in--
    (1) A CBA, if the supplier is awarded a contract under this subpart; 
or
    (2) An area not designated as a CBA.

[72 FR 18085, Apr. 10, 2007]



Sec. 414.414  Conditions for awarding contracts.

    (a) General rule. The rules set forth in this section govern the 
evaluation and selection of suppliers for contract award purposes under 
a competitive bidding program.
    (b) Basic supplier eligibility. (1) Each supplier must meet the 
enrollment standards specified in Sec. 424.57(c) of this chapter.
    (2) Each supplier must disclose information about any prior or 
current legal actions, sanctions, revocations from the Medicare program, 
program-related convictions as defined in section 1128(a)(1) through 
(a)(4) of the Act, exclusions or debarments imposed against it, or 
against any members of the board of directors, chief corporate officers, 
high-level employees, affiliated companies, or subcontractors, by any 
Federal, State, or local agency. The supplier must certify in its bid 
that this information is completed and accurate.
    (3) Each supplier must have all State and local licenses required to 
perform the services identified in the request for bids.
    (4) Each supplier must submit a bona fide bid that complies with all 
the terms and conditions contained in the request for bids.
    (5) Each network must meet the requirements specified in Sec. 
414.418.
    (c) Quality standards and accreditation. Each supplier must meet 
applicable quality standards developed by CMS in accordance with section

[[Page 44]]

1834(a)(20) of the Act and be accredited by a CMS-approved accreditation 
organization that meets the requirements of Sec. 424.58 of this 
subchapter, unless a grace period is specified by CMS.
    (d) Financial standards. Each supplier must submit along with its 
bid the applicable financial documentation specified in the request for 
bids.
    (e) Evaluation of bids. CMS evaluates bids submitted for items 
within a product category by--
    (1) Calculating the expected beneficiary demand in the CBA for the 
items in the product category;
    (2) Calculating the total supplier capacity that would be sufficient 
to meet the expected beneficiary demand in the CBA for the items in the 
product category;
    (3) Establishing a composite bid for each supplier and network that 
submitted a bid for the product category.
    (4) Arraying the composite bids from the lowest composite bid price 
to the highest composite bid price;
    (5) Calculating the pivotal bid for the product category;
    (6) Selecting all suppliers and networks whose composite bids are 
less than or equal to the pivotal bid for that product category, and 
that meet the requirements in paragraphs (b) through (d) of this 
section.
    (f) Expected savings. A contract is not awarded under this subpart 
unless CMS determines that the amounts to be paid to contract suppliers 
for an item under a competitive bidding program are expected to be less 
than the amounts that would otherwise be paid for the same item under 
Subpart C or Subpart D.
    (g) Special rules for small suppliers. (1) Target for small supplier 
participation. CMS ensures that small suppliers have the opportunity to 
participate in a competitive bidding program by taking the following 
steps:
    (i) Setting a target number for small supplier participation by 
multiplying 30 percent by the number of suppliers that meet the 
requirements in paragraphs (b) through (d) of this section and whose 
composite bids are equal to or lower than the pivotal bid calculated for 
the product category;
    (ii) Identifying the number of qualified small suppliers whose 
composite bids are at or below the pivotal bid for the product category;
    (iii) Selecting additional small suppliers whose composite bids are 
above the pivotal bid for the product category in ascending order based 
on the proximity of each small supplier's composite bid to the pivotal 
bid, until the number calculated in paragraph (g)(1)(i) of this section 
is reached or there are no more composite bids submitted by small 
suppliers for the product category.
    (2) The bids by small suppliers that are selected under paragraph 
(g)(1)(iii) of this section are not used to calculate the single payment 
amounts for any items under Sec. 414.416 of this subpart.
    (h) Sufficient number of suppliers.
    (1) Except as provided in paragraph (h)(3) of this section. CMS will 
award at least five contracts, if there are five suppliers satisfying 
the requirements in paragraphs (b) through (f) of this section; or
    (2) CMS will award at least two contracts, if there are less than 
five suppliers meeting these requirements and the suppliers satisfying 
these requirements have sufficient capacity to satisfy beneficiary 
demand for the product category calculated under paragraph (e)(1) of 
this section.
    (3) The provisions of paragraph (h)(1) of this section do not apply 
to regional or nationwide mail order CBAs under Sec. 414.410(d)(2) of 
this subpart.
    (i) Selection of new suppliers after bidding. (1) Subsequent to the 
awarding of contracts under this subpart, CMS may award additional 
contracts if it determines that additional contract suppliers are needed 
to meet beneficiary demand for items under a competitive bidding 
program. CMS selects additional contract suppliers by--
    (i) Referring to the arrayed list of suppliers that submitted bids 
for the product category included in the competitive bidding program for 
which beneficiary demand is not being met; and
    (ii) Beginning with the supplier whose composite bid is the first 
composite bid above the pivotal bid for that product category, 
determining if that supplier is willing to become a contract supplier 
under the same terms

[[Page 45]]

and conditions that apply to other contract suppliers in the CBA.
    (2) Before CMS awards additional contracts under paragraph (i)(1) of 
this section, a supplier must submit updated information demonstrating 
that the supplier meets the requirements under paragraphs (b) through 
(d) of this section.

[72 FR 18085, Apr. 10, 2007]



Sec. 414.416  Determination of competitive bidding payment amounts.

    (a) General rule. CMS establishes a single payment amount for each 
item furnished under a competitive bidding program.
    (b) Methodology for setting payment amount. (1) The single payment 
amount for an item furnished under a competitive bidding program is 
equal to the median of the bids submitted for that item by suppliers 
whose composite bids for the product category that includes the item are 
equal to or below the pivotal bid for that product category. If there is 
an even number of bids, the single payment amount for the item is equal 
to the average of the two middle bids.
    (2) The single payment amount for an item must be less than or equal 
to the amount that would otherwise be paid for the same item under 
Subpart C or Subpart D.

[72 FR 18085, Apr. 10, 2007]



Sec. 414.418  Opportunity for networks.

    (a) A network may be comprised of at least 2 but not more than 20 
small suppliers.
    (b) The following rules apply to networks that seek contracts under 
this subpart:
    (1) Each network must form a single legal entity that acts as the 
bidder and submits the bid. Any agreement entered into for purposes of 
forming a network must be submitted to CMS. The network must identify 
itself as a network and identify all of its members.
    (2) Each member of the network must satisfy the requirements in 
Sec. 414.414(b) through (d).
    (3) A small supplier may join one or more networks but cannot submit 
an individual bid to furnish the same product category in the same CBA 
as any network in which it is a member. A small supplier may not be a 
member of more than one network if those networks submit bids to furnish 
the same product category in the same CBA.
    (4) The network cannot be anticompetitive, and this section does not 
supersede any Federal law or regulation that regulates anticompetitive 
behavior.
    (5) A bid submitted by a network must include a statement from each 
network member certifying that the network member joined the network 
because it is unable independently to furnish all of the items in the 
product category for which the network is submitting a bid to 
beneficiaries throughout the entire geographic area of the CBA.
    (6) At the time that a network submits a bid, the network's total 
market share for each product category that is the subject of the 
network's bid cannot exceed 20 percent of the Medicare demand for that 
product category in the CBA.
    (c) If the network is awarded a contract, each supplier must submit 
its own claims and will receive payment directly from Medicare for the 
items that it furnishes under the competitive bidding program.

[72 FR 18085, Apr. 10, 2007]



Sec. 414.420  Physician or treating practitioner authorization and consideration of clinical efficiency and value of items.

    (a) Prescription for a particular brand item or mode of delivery. 
(1) A physician or treating practitioner may prescribe, in writing, a 
particular brand of an item for which payment is made under a 
competitive bidding program, or a particular mode of delivery for an 
item, if he or she determines that the particular brand or mode of 
delivery would avoid an adverse medical outcome for the beneficiary.
    (2) When a physician or treating practitioner prescribes a 
particular brand or mode of delivery of an item under paragraph (a)(1) 
of this section, the physician or treating practitioner must document 
the reason in the beneficiary's medical record why the particular brand 
or mode of delivery is

[[Page 46]]

medically necessary to avoid an adverse medical outcome.
    (b) Furnishing of a prescribed particular brand item or mode of 
delivery. If a physician or treating practitioner prescribes a 
particular brand of an item or mode of delivery, the contract supplier 
must--
    (1) Furnish the particular brand or mode of delivery as prescribed 
by the physician or treating practitioner;
    (2) Consult with the physician or treating practitioner to find an 
appropriate alternative brand of item or mode of delivery for the 
beneficiary and obtain a revised written prescription from the physician 
or treating practitioner; or
    (3) Assist the beneficiary in locating a contract supplier that can 
furnish the particular brand of item or mode of delivery prescribed by 
the physician or treating practitioner.
    (c) Payment for a particular brand of item or mode of delivery. 
Medicare does not make an additional payment to a contract supplier that 
furnishes a particular brand or mode of delivery for an item, as 
directed by a prescription written by the beneficiary's physician or 
treating practitioner.
    (d) Prohibition on billing for an item different from the particular 
brand of item or mode of delivery prescribed. A contract supplier is 
prohibited from submitting a claim to Medicare if it furnishes an item 
different from that specified in the written prescription received from 
the beneficiary's physician or treating practitioner. Payment will not 
be made to a contract supplier that submits a claim prohibited by this 
paragraph.

[72 FR 18085, Apr. 10, 2007]



Sec. 414.422  Terms of contracts.

    (a) Basic rule. CMS specifies the terms and conditions of the 
contracts entered into with contract suppliers under this subpart. A 
contract supplier must comply with all terms of its contract, including 
any option exercised by CMS, for the full duration of the contract 
period.
    (b) Recompeting competitive bidding contracts. CMS recompetes 
competitive bidding contracts at least once every 3 years.
    (c) Nondiscrimination. The items furnished by a contract supplier 
under this subpart must be the same items that the contract supplier 
makes available to other customers.
    (d) Change of ownership. (1) A contract supplier must notify CMS if 
it is negotiating a change in ownership 60 days before the anticipated 
date of the change.
    (2) CMS may award a contract to an entity that merges with, or 
acquires, a contract supplier if--
    (i) The successor entity meets all requirements applicable to 
contract suppliers for the applicable competitive bidding program;
    (ii) The successor entity submits to CMS the documentation described 
under Sec. 414.414(b) through (d) if that documentation has not 
previously been submitted by the successor entity or the contract 
supplier that is being acquired, or is no longer current. This 
documentation must be submitted within 30 days prior to the anticipated 
effective date of the change of ownership. A successor entity is not 
required to duplicate previously submitted information if the previously 
submitted information is still current;
    (iii) The successor entity is acquiring the assets of the existing 
contract supplier, it submits to CMS, at least 30 days before the 
anticipated effective date of the change of ownership, a signed novation 
agreement acceptable to CMS stating that it will assume all obligations 
under the contract; or
    (iv) A new entity will be formed as a result of the merger or 
acquisition, the existing contract supplier submits to CMS, at least 30 
days before the anticipated effective date of the change of ownership, 
its final draft of a novation agreement as described in paragraph 
(d)(2)(iii) of this section for CMS review. The successor entity must 
submit to CMS, within 30 days after the effective date of the change of 
ownernship and executed novation agreement acceptable to CMS.
    (e) Furnishing of items. Except as otherwise prohibited under 
section 1877 of the Act, or any other applicable law or regulation:
    (1) A contract supplier must agree to furnish items under its 
contract to any

[[Page 47]]

beneficiary who maintains a permanent residence in, or who visits, the 
CBA and who requests those items from that contract supplier.
    (2) A skilled nursing facility defined under section 1819(a) of the 
Act or a nursing facility defined under section 1919(a) of the Act that 
has elected to furnish items only to its own residents and that is also 
a contract supplier may furnish items under a competitive bidding 
program to its own patients to whom it would otherwise furnish Part B 
services.
    (f) Breach of contract. (1) Any deviation from contract 
requirements, including a failure to comply with governmental agency or 
licensing organization requirements, constitutes a breach of contract.
    (2) In the event a contract supplier breaches its contract, CMS may 
take one or more of the following actions:
    (i) Require the contract supplier to submit a corrective action 
plan;
    (ii) Suspend the contract supplier's contract;
    (iii) Terminate the contract;
    (iv) Preclude the contract supplier from participating in the 
competitive bidding program;
    (v) Revoke the supplier number of the contract supplier; or
    (vi) Avail itself of other remedies allowed by law.

[72 FR 18085, Apr. 10, 2007]



Sec. 414.424  Administrative or judicial review.

    (a) There is no administrative or judicial review under this subpart 
of the following:
    (1) Establishment of payment amounts.
    (2) Awarding of contracts.
    (3) Designation of CBAs.
    (4) Phase-in of the competitive bidding programs.
    (5) Selection of items for competitive bidding.
    (6) Bidding structure and number of contract suppliers selected for 
a competitive bidding program.
    (b) A denied claim is not appealable if the denial is based on a 
determination by CMS that a competitively bid item was furnished in a 
CBA in a manner not authorized by this subpart.

[72 FR 18085, Apr. 10, 2007]



Sec. 414.426  Adjustments to competitively bid payment amounts to reflect changes in the HCPCS.

    If a HCPCS code for a competitively bid item is revised after the 
contract period for a competitive bidding program begins, CMS adjusts 
the single payment amount for that item as follows:
    (a) If a single HCPCS code for an item is divided into two or more 
HCPCS codes for the components of that item, the sum of single payment 
amounts for the new HCPCS codes equals the single payment amount for the 
original item. Contract suppliers must furnish the components of the 
item and submit claims using the new HCPCS codes.
    (b) If a single HCPCS code is divided into two or more separate 
HCPCS codes, the single payment amount for each of the new separate 
HCPCS codes is equal to the single payment amount applied to the single 
HCPCS code. Contract suppliers must furnish the items and submit claims 
using the new separate HCPCS codes.
    (c) If the HCPCS codes for components of an item are merged into a 
single HCPCS code for the item, the single payment amount for the new 
HCPCS code is equal to the total of the separate single payment amounts 
for the components. Contract suppliers must furnish the item and submit 
claims using the new HCPCS code.
    (d) If multiple HCPCS codes for similar items are merged into a 
single HCPCS code, the items to which the new HCPCS codes apply may be 
furnished by any supplier that has a valid Medicare billing number. 
Payment for these items will be made in accordance with Subpart C or 
Subpart D.

[72 FR 18085, Apr. 10, 2007]



     Subpart G_Payment for New Clinical Diagnostic Laboratory Tests

    Source: 71 FR 69786, Dec. 1, 2006, unless otherwise noted.

[[Page 48]]



Sec. 414.500  Basis and scope.

    This subpart implements provisions of 1833(h)(8) of the Act--
procedures for determining the basis for, and amount of, payment for a 
new clinical diagnostic laboratory test with respect to which a new or 
substantially revised Healthcare Common Procedure Coding System code is 
assigned on or after January 1, 2005.



Sec. 414.502  Definitions.

    For purposes of this subpart--
    Substantially Revised Healthcare Common Procedure Coding System Code 
means a code for which there has been a substantive change to the 
definition of the test or procedure to which the code applies (such as a 
new analyte or a new methodology for measuring an existing analyte 
specific test).



Sec. 414.504  [Reserved]



Sec. 414.506  Procedures for public consultation for payment for a new clinical diagnostic laboratory test.

    For a new clinical diagnostic laboratory test that is assigned a new 
or substantially revised code on or after January 1, 2005, CMS 
determines the payment after the performance of the following:
    (a) CMS makes available to the public (through CMS's Internet Web 
site) a list that includes codes for which establishment of a payment 
amount is being considered for the next calendar year.
    (b) CMS publishes a Federal Register notice of a meeting to receive 
public comments and recommendations (and data on which recommendations 
are based) on the appropriate basis, as specified in Sec. 414.508, for 
establishing payment amounts for the list of codes made available to the 
public.
    (c) Not fewer than 30 days after publication of the notice in the 
Federal Register, CMS convenes a meeting that includes representatives 
of CMS officials involved in determining payment amounts, to receive 
public comments and recommendations (and data on which the 
recommendations are based).
    (d) Considering the comments and recommendations (and accompanying 
data) received at the public meeting, CMS develops and makes available 
to the public (through an Internet Web site and other appropriate 
mechanisms) a list of--
    (1) Proposed determinations with respect to the appropriate basis 
for establishing a payment amount for each code, with an explanation of 
the reasons for each determination, the data on which the determinations 
are based, and a request for public written comments within a specified 
time period on the proposed determination; and
    (2) Final determinations of the payment amounts for tests, with the 
rationale for each determination, the data on which the determinations 
are based, and responses to comments and suggestions from the public.



Sec. 414.508  Payment for a new clinical diagnostic laboratory test.

    For a new clinical diagnostic laboratory test that is assigned a new 
or substantially revised code on or after January 1, 2005, CMS 
determines the payment amount based on either of the following:
    (a) Crosswalking. Crosswalking is used if it is determined that a 
new test is comparable to an existing test, multiple existing test 
codes, or a portion of an existing test code.
    (1) CMS assigns to the new test code, the local fee schedule amounts 
and national limitation amount of the existing test.
    (2) Payment for the new test code is made at the lesser of the local 
fee schedule amount or the national limitation amount.
    (b) Gapfilling. Gapfilling is used when no comparable existing test 
is available.
    (1) In the first year, carrier-specific amounts are established for 
the new test code using the following sources of information to 
determine gapfill amounts, if available:
    (i) Charges for the test and routine discounts to charges;
    (ii) Resources required to perform the test;
    (iii) Payment amounts determined by other payers; and
    (iv) Charges, payment amounts, and resources required for other 
tests that may be comparable or otherwise relevant.

[[Page 49]]

    (2) In the second year, the test code is paid at the national 
limitation amount, which is the median of the carrier-specific amounts.
    (3) After the first year of gapfilling, CMS determines whether the 
carrier-specific amounts will pay for the test appropriately. If CMS 
determines that the carrier-specific amounts will not pay for the test 
appropriately, CMS may crosswalk the test.



Sec. 414.510  Laboratory date of service for specimens.

    The date of service for a laboratory test is as follows:
    (a) Except as provided under paragraph (b) of this section, the date 
of service of the test must be the date the specimen was collected.
    (b)(1) If a specimen was collected over a period that spans 2 
calendar days, then the date of service must be the date the collection 
ended.
    (2) In the case of a test performed on a stored specimen, if a 
specimen was stored for--
    (i) Less than or equal to 30 calendar days from the date it was 
collected, the date of service of the test must be the date the test was 
performed only if--
    (A) The test is ordered by the patient's physician at least 14 days 
following the date of the patient's discharge from the hospital;
    (B) The specimen was collected while the patient was undergoing a 
hospital surgical procedure;
    (C) It would be medically inappropriate to have collected the sample 
other than during the hospital procedure for which the patient was 
admitted;
    (D) The results of the test do not guide treatment provided during 
the hospital stay; and
    (E) The test was reasonable and medically necessary for the 
treatment of an illness.
    (ii) More than 30 calendar days before testing, the specimen is 
considered to have been archived and the date of service of the test 
must be the date the specimen was obtained from storage.
    (3) In the case of a chemotherapy sensitivity test performed on live 
tissue, the date of service of the test must be the date the test was 
performed only if--
    (i) The decision regarding the specific chemotherapeutic agents to 
test is made at least 14 days after discharge;
    (ii) The specimen was collected while the patient was undergoing a 
hospital surgical procedure;
    (iii) It would be medically inappropriate to have collected the 
sample other than during the hospital procedure for which the patient 
was admitted;
    (iv) The results of the test do not guide treatment provided during 
the hospital stay; and,
    (v) The test was reasonable and medically necessary for the 
treatment of an illness.
    (4) For purposes of this section, ``chemotherapy sensitivity test'' 
means a test identified by the Secretary as a test that requires a fresh 
tissue sample to test the sensitivity of tumor cells to various 
chemotherapeutic agents. The Secretary identifies such tests through 
program instructions.



              Subpart H_Fee Schedule for Ambulance Services

    Source: 67 FR 9132, Feb. 27, 2002, unless otherwise noted.



Sec. 414.601  Purpose.

    This subpart implements section 1834(l) of the Act by establishing a 
fee schedule for the payment of ambulance services. Section 1834(l) of 
the Act requires that, except for services furnished by certain critical 
access hospitals (see Sec. 413.70(b)(5) of this chapter), payment for 
all ambulance services, otherwise previously payable on a reasonable 
charge basis or retrospective reasonable cost basis, be made under a fee 
schedule.



Sec. 414.605  Definitions.

    As used in this subpart, the following definitions apply to both 
land and water (hereafter collectively referred to as ``ground'') 
ambulance services and to air ambulance services unless otherwise 
specified:
    Advanced life support (ALS) assessment is an assessment performed by 
an ALS crew as part of an emergency response that was necessary because 
the patient's reported condition at the time of dispatch was such that 
only an ALS

[[Page 50]]

crew was qualified to perform the assessment. An ALS assessment does not 
necessarily result in a determination that the patient requires an ALS 
level of service.
    Advanced life support (ALS) intervention means a procedure that is, 
in accordance with State and local laws, required to be furnished by ALS 
personnel.
    Advanced life support, level 1 (ALS1) means transportation by ground 
ambulance vehicle, medically necessary supplies and services and either 
an ALS assessment by ALS personnel or the provision of at least one ALS 
intervention.
    Advanced life support, level 2 (ALS2) means either transportation by 
ground ambulance vehicle, medically necessary supplies and services, and 
the administration of at least three medications by intravenous push/
bolus or by continuous infusion, excluding crystalloid, hypotonic, 
isotonic, and hypertonic solutions (Dextrose, Normal Saline, Ringer's 
Lactate); or transportation, medically necessary supplies and services, 
and the provision of at least one of the following ALS procedures:
    (1) Manual defibrillation/cardioversion.
    (2) Endotracheal intubation.
    (3) Central venous line.
    (4) Cardiac pacing.
    (5) Chest decompression.
    (6) Surgical airway.
    (7) Intraosseous line.
    Advanced life support (ALS) personnel means an individual trained to 
the level of the emergency medical technician-intermediate (EMT-
Intermediate) or paramedic. The EMT-Intermediate is defined as an 
individual who is qualified, in accordance with State and local laws, as 
an EMT-Basic and who is also qualified in accordance with State and 
local laws to perform essential advanced techniques and to administer a 
limited number of medications. The EMT-Paramedic is defined as 
possessing the qualifications of the EMT-Intermediate and also, in 
accordance with State and local laws, as having enhanced skills that 
include being able to administer additional interventions and 
medications.
    Basic life support (BLS) means transportation by ground ambulance 
vehicle and medically necessary supplies and services, plus the 
provision of BLS ambulance services. The ambulance must be staffed by an 
individual who is qualified in accordance with State and local laws as 
an emergency medical technician-basic (EMT-Basic). These laws may vary 
from State to State. For example, only in some States is an EMT-Basic 
permitted to operate limited equipment on board the vehicle, assist more 
qualified personnel in performing assessments and interventions, and 
establish a peripheral intravenous (IV) line.
    Conversion factor (CF) is the dollar amount established by CMS that 
is multiplied by relative value units to produce ground ambulance 
service base rates.
    Emergency response means responding immediately at the BLS or ALS1 
level of service to a 911 call or the equivalent in areas without a 911 
call system. An immediate response is one in which the ambulance entity 
begins as quickly as possible to take the steps necessary to respond to 
the call.
    Fixed wing air ambulance (FW) means transportation by a fixed wing 
aircraft that is certified as a fixed wing air ambulance and such 
services and supplies as may be medically necessary.
    Geographic adjustment factor (GAF) means the practice expense (PE) 
portion of the geographic practice cost index (GPCI) from the physician 
fee schedule as applied to a percentage of the base rate. For ground 
ambulance services, the PE portion of the GPCI is applied to 70 percent 
of the base rate for each level of service. For air ambulance services, 
the PE portion of the GPCI is applied to 50 percent of the applicable 
base rate.
    Loaded mileage means the number of miles the Medicare beneficiary is 
transported in the ambulance vehicle.
    Paramedic ALS intercept (PI) means EMT-Paramedic services furnished 
by an entity that does not furnish the ground ambulance transport, 
provided the services meet the requirements specified in Sec. 410.40(c) 
of this chapter.
    Point of pick-up means the location of the beneficiary at the time 
he or she is placed on board the ambulance.

[[Page 51]]

    Relative value units (RVUs) means a value assigned to a ground 
ambulance service.
    Rotary wing air ambulance (RW) means transportation by a helicopter 
that is certified as an ambulance and such services and supplies as may 
be medically necessary.
    Rural adjustment factor (RAF) means an adjustment applied to the 
base payment rate when the point of pick-up is located in a rural area.
    Rural area means an area located outside an urban area, or a rural 
census tract within a Metropolitan Statistical Area as determined under 
the most recent version of the Goldsmith modification as determined by 
the Office of Rural Health Policy of the Health Resources and Services 
Administration.
    Specialty care transport (SCT) means interfacility transportation of 
a critically injured or ill beneficiary by a ground ambulance vehicle, 
including medically necessary supplies and services, at a level of 
service beyond the scope of the EMT-Paramedic. SCT is necessary when a 
beneficiary's condition requires ongoing care that must be furnished by 
one or more health professionals in an appropriate specialty area, for 
example, nursing, emergency medicine, respiratory care, cardiovascular 
care, or a paramedic with additional training.
    Urban area means a Metropolitan Statistical Area, as defined by the 
Executive Office of Management and Budget.

[67 FR 9132, Feb. 27, 2002, as amended at 68 FR 67693, Dec. 5, 2003; 71 
FR 69787, Dec. 1, 2006]



Sec. 414.610  Basis of payment.

    (a) Method of payment. Medicare payment for ambulance services is 
based on the lesser of the actual charge or the applicable fee schedule 
amount. The fee schedule payment for ambulance services equals a base 
rate for the level of service plus payment for mileage and applicable 
adjustment factors. Except for services furnished by certain critical 
access hospitals or entities owned and operated by them, as described in 
Sec. 413.70(b) of this chapter, all ambulance services are paid under 
the fee schedule specified in this subpart (regardless of the vehicle 
furnishing the service).
    (b) Mandatory assignment. Effective with implementation of the 
ambulance fee schedule described in Sec. 414.601 (that is, for services 
furnished on or after April 1, 2002), all payments made for ambulance 
services are made only on an assignment-related basis. Ambulance 
suppliers must accept the Medicare allowed charge as payment in full and 
may not bill or collect from the beneficiary any amount other than the 
unmet Part B deductible and Part B coinsurance amounts. Violations of 
this requirement may subject the provider or supplier to sanctions, as 
provided by law (part 402 of this chapter).
    (c) Formula for computation of payment amounts. The fee schedule 
payment amount for ambulance services is computed according to the 
following provisions:
    (1) Ground ambulance service levels. The CF is multiplied by the 
applicable RVUs for each level of service to produce a service-level 
base rate. For services furnished during the period July 1, 2004 through 
December 31, 2006, ambulance services originating in urban areas (both 
base rate and mileage) are paid based on a rate that is one percent 
higher than otherwise is applicable under this section, and ambulance 
services originating in rural areas (both base rate and mileage) are 
paid based on a rate that is two percent higher than otherwise is 
applicable under this section. The service-level base rate is then 
adjusted by the GAF. Compare this amount to the actual charge. The 
lesser of the actual charge or the GAF adjusted base rate amount is 
added to the lesser of the actual mileage charges or the payment rate 
per mile, multiplied by the number of miles that the beneficiary was 
transported. When applicable, the appropriate RAF is applied to the 
ground mileage rate to determine the appropriate payment rates. The RVU 
scale for the ambulance fee schedule is as follows:

------------------------------------------------------------------------
                                                               Relative
                                                                 value
                        Service level                            units
                                                                (RVUs)
------------------------------------------------------------------------
BLS.........................................................        1.00
BLS-Emergency...............................................        1.60
ALS1........................................................        1.20

[[Page 52]]

 
ALS1-Emergency..............................................        1.90
ALS2........................................................        2.75
SCT.........................................................        3.25
PI..........................................................        1.75
------------------------------------------------------------------------

    (2) Air ambulance service levels. The base payment rate for the 
applicable type of air ambulance service is adjusted by the GAF and, 
when applicable, by the appropriate RAF to determine the amount of 
payment. Air ambulance services have no CF or RVUs. This amount is 
compared to the actual charge. The lesser of the charge or the adjusted 
GAF rate amount is added to the payment rate per mile, multiplied by the 
number of miles that the beneficiary was transported. When applicable, 
the appropriate RAF is also applied to the air mileage rate.
    (3) Loaded mileage. Payment is based on loaded miles. Payment for 
air mileage is based on loaded miles flown as expressed in statute 
miles. There are three mileage payment rates: a rate for FW services, a 
rate for RW services, and a rate for all levels of ground 
transportation.
    (4) Geographic adjustment factor (GAF). For ground ambulance 
services, the PE portion of the GPCI from the physician fee schedule is 
applied to 70 percent of the base rate for ground ambulance services. 
For air ambulance services, the PE portion of the physician fee schedule 
GPCI is applied to 50 percent of the base rate for air ambulance 
services.
    (5) Rural adjustment factor (RAF). (i) For ground ambulance services 
where the point of pickup is in a rural area, the mileage rate is 
increased by 50 percent for each of the first 17 miles and by 25 percent 
for miles 18 through 50. The standard mileage rate applies to every mile 
over 50 miles. For air ambulance services where the point of pickup is 
in a rural area, the total payment is increased by 50 percent; that is, 
the rural adjustment factor applies to the sum of the base rate and the 
mileage rate.
    (ii) For services furnished during the period July 1, 2004 through 
December 31, 2009, the payment amount for the ground ambulance base rate 
is increased by 22.6 percent where the point of pickup is in a rural 
area determined to be in the lowest 25 percent of rural population 
arrayed by population density. The amount of this increase is based on 
CMS's estimate of the ratio of the average cost per trip for the rural 
areas in the lowest quartile of population compared to the average cost 
per trip for the rural areas in the highest quartile of population. In 
making this estimate, CMS may use data provided by the GAO.
    (6) Multiple patients. The allowable amount per beneficiary for a 
single ambulance transport when more than one patient is transported 
simultaneously is based on the total number of patients (both Medicare 
and non-Medicare) on board. If two patients are transported 
simultaneously, then the payment allowance for the beneficiary (or for 
each of them if both patients are beneficiaries) is equal to 75 percent 
of the service payment allowance applicable for the level of care 
furnished to the beneficiary, plus 50 percent of the applicable mileage 
payment allowance. If three or more patients are transported 
simultaneously, the payment allowance for the beneficiary (or each of 
them) is equal to 60 percent of the service payment allowance applicable 
for the level of care furnished to the beneficiary, plus the applicable 
mileage payment allowance divided by the number of patients on board.
    (7) Payment rate for mileage greater than 50 miles. For services 
furnished during the period July 1, 2004 through December 31, 2008, each 
loaded ambulance mile greater than 50 (that is, miles 51 and greater) 
for ambulance transports originating in either urban areas or in rural 
areas are paid based on a rate that is 25 percent higher than otherwise 
is applicable under this section.
    (d) Payment. Payment, in accordance with this subpart, represents 
payment in full (subject to applicable Medicare Part B deductible and 
coinsurance requirements as described in subpart G of part 409 of this 
chapter or in subpart I of part 410 of this chapter) for all services, 
supplies, and other costs for an ambulance service furnished to a 
Medicare beneficiary. No direct payment

[[Page 53]]

will be made under this subpart if billing for the ambulance service is 
required to be consolidated with billing for another benefit for which 
payment may be made under this chapter.
    (e) Point of pick-up. The zip code of the point of pick-up must be 
reported on each claim for ambulance services so that the correct GAF 
and RAF may be applied, as appropriate.
    (f) Updates. The CF, the air ambulance base rates, and the mileage 
rates are updated annually by an inflation factor established by law. 
The inflation factor is based on the consumer price index for all urban 
consumers (CPI-U) (U.S. city average) for the 12-month period ending 
with June of the previous year.
    (g) Adjustments. The Secretary monitors payment and billing data on 
an ongoing basis and adjusts the CF and air ambulance rates as 
appropriate to reflect actual practices under the fee schedule. These 
rates are not adjusted solely because of changes in the total number of 
ambulance transports.

[67 FR 9132, Feb. 27, 2002, as amended at 68 FR 67693, Dec. 5, 2003; 69 
FR 40292, July 1, 2004; 71 FR 69787, Dec. 1, 2006]



Sec. 414.615  Transition to the ambulance fee schedule.

    The fee schedule for ambulance services will be phased in over 5 
years beginning April 1, 2002. Subject to the first sentence in Sec. 
414.610(a), payment for services furnished during the transition period 
is made based on a combination of the fee schedule payment for ambulance 
services and the amount the program would have paid absent the fee 
schedule for ambulance services, as follows:
    (a) 2002 Payment. For services furnished in 2002, the payment for 
the service component, the mileage component and, if applicable, the 
supply component is based on 80 percent of the reasonable charge for 
independent suppliers or on 80 percent of reasonable cost for providers, 
plus 20 percent of the ambulance fee schedule amount for the service and 
mileage components. The reasonable charge or reasonable cost portion of 
payment in CY 2002 is equal to the supplier's reasonable charge 
allowance or provider's reasonable cost allowance for CY 2001, 
multiplied by the statutory inflation factor for ambulance services.
    (b) 2003 Payment. For services furnished in CY 2003, payment is 
based on 60 percent of the reasonable charge or reasonable cost, as 
applicable, plus 40 percent of the ambulance fee schedule amount. The 
reasonable charge and reasonable cost portion in CY 2003 is equal to the 
supplier's reasonable charge or provider's reasonable cost for CY 2002, 
multiplied by the statutory inflation factor for ambulance services.
    (c) 2004 Payment. For services furnished in CY 2004, payment is 
based on 40 percent of the reasonable charge or reasonable cost, as 
applicable, plus 60 percent of the ambulance fee schedule amount. The 
reasonable charge and reasonable cost portion in CY 2004 is equal to the 
supplier's reasonable charge or provider's reasonable cost for CY 2003, 
multiplied by the statutory inflation factor for ambulance services.
    (d) 2005 Payment. For services furnished in CY 2005, payment is 
based on 20 percent of the reasonable charge or reasonable cost, as 
applicable, plus 80 percent of the ambulance fee schedule amount. The 
reasonable charge and reasonable cost portion in CY 2005 is equal to the 
supplier's reasonable charge or provider's reasonable cost for CY 2004, 
multiplied by the statutory inflation factor for ambulance services.
    (e) 2006 and Beyond Payment. For services furnished in CY 2006 and 
thereafter, the payment is based solely on the ambulance fee schedule 
amount.
    (f) Updates. The portion of the transition payment that is based on 
the existing payment methodology (that is, the non-fee-schedule portion) 
is updated annually for inflation by a factor equal to the percentage 
increase in the CPI-U (U.S. city average) for the 12-month period ending 
with June of the previous year. The CY 2002 inflation update factor used 
to update the 2001 payment amounts is applied to the annualized 
(average) payment amounts for CY 2001. For the period January 1, 2001 
through June 30, 2001, the inflation update factor is 2.7 percent. For 
the period July 1, 2001 through December 31, 2001, the inflation update 
factor is 4.7 percent. The average for the year is 3.7 percent. Thus, 
the annualized (average)

[[Page 54]]

CY 2001 payment amounts used to derive the CY 2002 payment amounts are 
equivalent to the CY 2001 payment amounts that would have been 
determined had the inflation update factor for the entire CY 2001 been 
3.7 percent. Both portions of the transition payment (that is, the 
portion that is based on reasonable charge or reasonable cost and the 
portion that is based on the ambulance fee schedule) are updated 
annually for inflation by the inflation factor described in Sec. 
414.610(f).
    (g) Exception. There will be no blended payment allowance as 
described in paragraphs (a), (b), (c), and (d) of this section for 
ground mileage in those States where the Medicare carrier paid 
separately for all out-of-county ground ambulance mileage, but did not, 
before the implementation of the Medicare ambulance fee schedule, make a 
separate payment for any ground ambulance mileage within the county in 
which the beneficiary was transported. Payment for ground ambulance 
mileage in that State will be made based on the full ambulance fee 
schedule amount for ground mileage. This exception applies only to 
carrier-processed claims and only in those States in which the carrier 
paid separately for out-of-county ambulance mileage, but did not make 
separate payment for any in-county mileage throughout the entire State.



Sec. 414.617  Transition from regional to national ambulance fee schedule.

    For services furnished during the period July 1, 2004 through 
December 31, 2009, the amount for the ground ambulance base rate is 
subject to a floor amount determined by establishing nine fee schedules 
based on each of the nine census divisions using the same methodology as 
used to establish the national fee schedule. If the regional fee 
schedule methodology for a given census division results in an amount 
that is less than or equal to the national ground base rate, then it is 
not used, and the national FS amount applies. If the regional fee 
schedule methodology for a given census division results in an amount 
that is greater than the national ground base rate, then the FS portion 
of the base rate for that census division is equal to a blend of the 
national rate and the regional rate in accordance with the following 
schedule:

------------------------------------------------------------------------
                                                     Regional   National
                    Time period                      percent    percent
------------------------------------------------------------------------
7/1/04-12/31/04...................................         80         20
CY 2005...........................................         60         40
CY 2006...........................................         40         60
CY 2007-CY 2009...................................         20         80
CY 2010 and thereafter............................          0        100
------------------------------------------------------------------------


[69 FR 40292, July 1, 2004]



Sec. 414.620  Publication of the ambulance fee schedule.

    Changes in payment rates resulting from incorporation of the annual 
inflation factor described in Sec. 414.610(f) will be announced by 
notice in the Federal Register without opportunity for prior comment. 
CMS will follow applicable rulemaking procedures in publishing revisions 
to the fee schedule for ambulance services that result from any factors 
other than the inflation factor.



Sec. 414.625  Limitation on review.

    There will be no administrative or judicial review under section 
1869 of the Act or otherwise of the amounts established under the fee 
schedule for ambulance services, including the following:
    (a) Establishing mechanisms to control increases in expenditures for 
ambulance services.
    (b) Establishing definitions for ambulance services that link 
payments to the type of services provided.
    (c) Considering appropriate regional and operational differences.
    (d) Considering adjustments to payment rates to account for 
inflation and other relevant factors.
    (e) Phasing in the application of the payment rates under the fee 
schedule in an efficient and fair manner.



               Subpart I_Payment for Drugs and Biologicals

    Source: 69 FR 1116, Jan. 7, 2004, unless otherwise noted.



Sec. 414.701  Purpose.

    This subpart implements section 1842(o) of the Social Security Act 
by specifying the methodology for determining the payment allowance 
limit for drugs and biologicals covered under

[[Page 55]]

Part B of Title XVIII of the Act (hereafter in this subpart referred to 
as the ``program'') that are not paid on a cost or prospective payment 
system basis. Examples of drugs that are subject to the rules contained 
in this subpart are: drugs furnished incident to a physician's service; 
durable medical equipment (DME) drugs; separately billable drugs at 
independent dialysis facilities not under the ESRD composite rate; 
statutorily covered drugs, for example, influenza, pneumococcal and 
hepatitis vaccines, antigens, hemophilia blood clotting factor, 
immunosuppressive drugs and certain oral anti-cancer drugs.



Sec. 414.704  Definitions.

    As used in this subpart, the following definition applies. Drug 
refers to both drugs and biologicals.



Sec. 414.707  Basis of payment.

    (a) Method of payment. (1) Payment for a drug in calendar year 2004 
is based on the lesser of--
    (i) The actual charge on the claim for program benefits; or
    (ii) 85 percent of the average wholesale price determined as of 
April 1, 2003, subject to the exceptions as specified in paragraphs 
(a)(2) through (a)(8) of this section.
    (2) The payment limits for the following drugs are calculated using 
95 percent of the average wholesale price:
    (i) Blood clotting factors.
    (ii) A drug or biological furnished during 2004 that was not 
available for Medicare payment as of April 1, 2003.
    (iii) Pneumococcal and influenza vaccines as well as hepatitis B 
vaccine that is furnished to individuals at high or intermediate risk of 
contracting hepatitis B (as determined by the Secretary).
    (iv) A drug or biological furnished during 2004 in connection with 
the furnishing of renal dialysis services if separately billed by renal 
dialysis facilities.
    (3) The payment limits for infusion drugs furnished through a 
covered item of durable medical equipment are calculated using 95 
percent of the average wholesale price in effect on October 1, 2003.
    (4) The payments limits for drugs contained in the following table 
are calculated based on the percentages of the average wholesale price 
determined as of April 1, 2003 that are specified in the table.

------------------------------------------------------------------------
                                                              Percentage
                                                               used to
                                                              calculate
                            Drug                                 2004
                                                               payment
                                                                limit
------------------------------------------------------------------------
EPOETIN ALFA...............................................           87
LEUPROLIDE ACETATE.........................................           81
GOSERELIN ACETATE..........................................           80
RITUXIMAB..................................................           81
PACLITAXEL.................................................           81
DOCETAXEL..................................................           80
CARBOPLATIN................................................           81
IRINOTECAN.................................................           80
GEMCITABINE HCL............................................           80
PAMIDRONATE DISODIUM.......................................           85
DOLASETRON MESYLATE........................................           80
FILGRASTIM.................................................           81
HYLAN G-F 20...............................................           82
MYCOPHENOLATE MOFETIL......................................           86
GRANISETRON HCL............................................           80
ONDANSETRON................................................           87
VINORELBINE TARTATE........................................           81
SARGRAMOSTIM...............................................           80
TOPOTECAN..................................................           84
IPRATROPIUM BROMIDE........................................           80
ALBUTEROL SULFATE..........................................           80
IMMUNE GLOBULIN............................................           80
LEUCOVORIN CALCIUM.........................................           80
DOXORUBICIN HCL............................................           80
DEXAMETHOSONE SODIUM PHOSPHATE.............................           86
HEPARIN SODIUM LOCK-FLUSH..................................           80
CROMOLYN SODIUM............................................           80
ACETYLCYSTEINE.............................................           80
------------------------------------------------------------------------

    (5) The payment limits for imiglucerase and alglucerase are 
calculated using 94 percent of the average wholesale price determined as 
of April 1, 2003.
    (6) Exception. The payment limit for a drug otherwise subject to 
paragraph (a)(1)(ii) or paragraph (a)(4) of this section may be 
calculated using the percentage of the average wholesale price as the 
Secretary deems appropriate based on data and information submitted by 
the drug manufacturer.
    (i) The manufacturer must submit data after October 15, 2003 and 
before January 1, 2004.
    (ii) The percentage only applies for drugs furnished on or after 
April 1, 2004.

[[Page 56]]

    (7) In the case of blood and blood products (other than blood 
clotting factors), the payment limits shall be determined in the same 
manner as such payment limit was determined on October 1, 2003.
    (b) Mandatory assignment. Effective with services furnished on or 
after February 1, 2001, payment for any drug covered under Part B of 
Medicare may be made on an assignment-related basis only. All billers 
must accept the program allowed charge as payment in full and may not 
bill nor collect from the beneficiary any amount other than the unmet 
Part B deductible and Part B coinsurance amounts, if applicable. 
Violations of this requirement may subject the supplier to sanctions, as 
provided by the statute (See Sec. 402 of this chapter).



     Subpart J_Submission of Manufacturer's Average Sales Price Data

    Source: 69 FR 17938, Apr. 6, 2004, unless otherwise noted.



Sec. 414.800  Purpose.

    This subpart implements section 1847A of the Act by specifying the 
requirements for submission of a manufacturer's average sales price data 
for certain drugs and biologicals covered under Part B of Title XVIII of 
the Act that are paid under sections 1842(o)(1)(D), 1847A, and 
1881(b)(13)(A)(ii) of the Act.



Sec. 414.802  Definitions.

    As used in this subpart, unless the context indicates otherwise--
    Bona fide service fees means fees paid by a manufacturer to an 
entity, that represent fair market value for a bona fide, itemized 
service actually performed on behalf of the manufacturer that the 
manufacturer would otherwise perform (or contract for) in the absence of 
the service arrangement, and that are not passed on in whole or in part 
to a client or customer of an entity, whether or not the entity takes 
title to the drug.
    Drug means both drugs and biologicals.
    Manufacturer means any entity that is engaged in the following (This 
term does not include a wholesale distributor of drugs or a retail 
pharmacy licensed under State law):
    (1) Production, preparation, propagation, compounding, conversion or 
processing of prescription drug products, either directly or indirectly 
by extraction from substances of natural origin, or independently by 
means of chemical synthesis, or by a combination of extraction and 
chemical synthesis.
    (2) The packaging, repackaging, labeling, relabeling, or 
distribution of prescription drug products.
    Unit means the product represented by the 11-digit National Drug 
Code. During the first 3 years of the CAP (as defined in Sec. 414.902), 
the method of counting units excludes units of CAP drugs (as defined in 
Sec. 414.902) sold to an approved CAP vendor (as defined in Sec. 
414.902) for use under the CAP (as defined in Sec. 414.902).

[70 FR 69 FR 17938, Apr. 6, 2004, as amended at 71 FR 48143, Aug. 18, 
2006; 71 FR 69787, Dec. 1, 2006]



Sec. 414.804  Basis of payment.

    (a) Calculation of manufacturer's average sales price. (1) The 
manufacturer's average sales price for a quarter for a drug represented 
by a particular 11-digit National Drug Code must be calculated as the 
manufacturer's sales to all purchasers in the United States for that 
particular 11-digit National Drug Code (after excluding sales as 
specified in paragraph (a)(4) of this section and then deducting price 
concessions as specified in paragraphs (a)(2) and (a)(3) of this 
section) divided by the total number of units sold by the manufacturer 
in that quarter (after excluding units associated with sales as 
specified in paragraph (a)(4) of this section).
    (2) Price concessions. (i) In calculating the manufacturer's average 
sales price, a manufacturer must deduct price concessions. Price 
concessions include the following types of transactions and items:
    (A) Volume discounts.
    (B) Prompt pay discounts.
    (C) Cash discounts.
    (D) Free goods that are contingent on any purchase requirement.

[[Page 57]]

    (E) Chargebacks and rebates (other than rebates under the Medicaid 
program).
    (ii) For the purposes of paragraph (a)(2)(i), bona fide services 
fees are not considered price concessions.
    (3) To the extent that data on price concessions, as described in 
paragraph (a)(2) of this section, are available on a lagged basis, the 
manufacturer must estimate this amount in accordance with the 
methodology described in this paragraph.
    (i)(A) For each National Drug Code with at least 12 months of sales 
(including products for which the manufacturer has redesignated the 
National Drug Code for the specific product and package size and has 12 
months of sales across the prior and current National Drug Codes), after 
adjusting for exempted sales, the manufacturer calculates a percentage 
equal to the sum of the price concessions for the most recent 12-month 
period available associated with sales subject to the average sales 
price reporting requirement divided by the total in dollars for the 
sales subject to the average sales price reporting requirement for the 
same 12-month period.
    (B) For each National Drug Code with less than 12 months of sales, 
the calculation described in paragraph (i)(A) of this section is 
performed for the time period equaling the total number of months of 
sales.
    (ii) The manufacturer multiplies the applicable percentage described 
in paragraph (a)(3)(i)(A) or (a)(3)(i)(B) of this section by the total 
in dollars for the sales subject to the average sales price reporting 
requirement (after adjusting for exempted sales) for the quarter being 
submitted. (The manufacturer must carry a sufficient number of decimal 
places in the calculation of the price concessions percentage in order 
to round accurately the net total sales amount for the quarter to the 
nearest whole dollar.) The result of this multiplication is then 
subtracted from the total in dollars for the sales subject to the 
average sales price reporting requirement (after adjusting for exempted 
sales) for the quarter being submitted.
    (iii) The manufacturer uses the result of the calculation described 
in paragraph (a)(3)(ii) of this section as the numerator and the number 
of units sold in the quarter (after adjusting for exempted sales) as the 
denominator to calculate the manufacturer's average sales price for the 
National Drug Code for the quarter being submitted.
    (iv) Example. After adjusting for exempted sales, the total lagged 
price concessions (discounts, rebates, etc.) over the most recent 12-
month period available associated with sales for National Drug Code 
12345-6789-01 subject to the ASP reporting requirement equal $200,000, 
and the total in dollars for the sales subject to the average sales 
price reporting requirement for the same period equals $600,000. The 
lagged price concessions percentage for this period equals 200,000/
600,000 = 0.33333. The total in dollars for the sales subject to the 
average sales price reporting requirement for the quarter being 
reported, equals $50,000 for 10,000 units sold. The manufacturer's 
average sales price calculation for this National Drug Code for this 
quarter is: $50,000-(0.33333 x $50,000) = $33,334 (net total sales 
amount); $33,334/10,000 = $3.33 (average sales price).
    (4) Exempted sales. (i) In calculating the manufacturer's average 
sales price, a manufacturer must exclude sales that are exempt from 
inclusion in the determination of the best price under section 
1927(c)(1)(C)(i) of the Act and sales that are merely nominal in amount 
as applied for purposes of section 1927(c)(1)(C)(ii)(III) of the Act, as 
limited by section 1927(c)(1)(D) of the Act.
    (ii) In determining nominal sales exempted under section 
1927(c)(1)(C)(ii)(III) of the Act, the manufacturer calculates the 
average manufacturer price as defined in section 1927(k) of the Act and 
then identifies sales that are eligible to be considered a nominal sale 
under section 1927(c)(1)(D) of the Act and are at less than 10 percent 
of the average manufacturer price. To identify nominal sales, the 
manufacturer must use the average manufacturer price for the calendar 
quarter that is the same calendar quarter as the average sales price 
reporting period.

[[Page 58]]

    (5) The manufacturer's average sales price must be calculated by the 
manufacturer every calendar quarter and submitted to CMS within 30 days 
of the close of the quarter. The first quarter submission must be 
submitted by April 30, 2004. Subsequent reports are due not later than 
30 days after the last day of each calendar quarter.
    (6) Each report must be certified by one of the following:
    (i) The manufacturer's Chief Executive Officer (CEO).
    (ii) The manufacturer's Chief Financial Officer (CFO).
    (iii) An individual who has delegated authority to sign for, and who 
reports directly to, the manufacturer's CEO or CFO.

[69 FR 17938, Apr. 6, 2004, as amended at 69 FR 55764, Sept. 16, 2004; 
70 FR 70332, Nov. 21, 2005; 71 FR 69787, Dec. 1, 2006; 72 FR 18914, Apr. 
16, 2007]



Sec. 414.806  Penalties associated with the failure to submit timely and accurate ASP data.

    Section 1847A(d)(4) specifies the penalties associated with 
misrepresentations associated with ASP data. If the Secretary determines 
that a manufacturer has made a misrepresentation in the reporting of ASP 
data, a civil money penalty in an amount of up to $10,000 may be applied 
for each price misrepresentation and for each day in which the price 
misrepresentation was applied. Section 1927(b)(3)(C) of the Act, as 
amended by section 303(i)(4) of the MMA, specifies the penalties 
associated with a manufacturer's failure to submit timely information or 
the submission of false information.



        Subpart K_Payment for Drugs and Biologicals Under Part B

    Source: 69 FR 66424, Nov. 15, 2004, unless otherwise noted.



Sec. 414.900  Basis and scope.

    (a) This subpart implements sections 1842(o), 1847A, and 1847B of 
the Act and outlines two payment methodologies applicable to drugs and 
biologicals covered under Medicare Part B that are not paid on a cost or 
prospective payment system basis.
    (b) Examples of drugs that are subject to the requirements specified 
in this subpart are:
    (1) Drugs furnished incident to a physician's service; durable 
medical equipment (DME) drugs.
    (2) Separately billable drugs at independent dialysis facilities not 
under the ESRD composite rate.
    (3) Statutorily covered drugs, for example--
    (i) Influenza.
    (ii) Pneumococcal and Hepatitis B vaccines.
    (iii) Antigens.
    (iv) Hemophilia blood clotting factor.
    (v) Immunosuppressive drugs.
    (vi) Certain oral anti-cancer drugs.

[69 FR 66424, Nov. 15, 2004, as amended at 70 FR 39093, July 6, 2005]



Sec. 414.902  Definitions.

    As used in this subpart, unless the context indicates otherwise--
    Approved CAP vendor means an entity that has been awarded a contract 
by CMS to participate in the competitive acquisition program under 1847B 
of the Act.
    Bid means an offer to furnish a CAP drug within a category of CAP 
drugs in a competitive acquisition area for a particular price and time 
period.
    CAP drug means a physician-administered drug or biological furnished 
on or after January 1, 2006 described in section 1842(o)(1)(C) of the 
Act and supplied by an approved CAP vendor under the CAP as provided in 
this subpart.
    Competitive acquisition area means a geographic area established by 
the Secretary for purposes of implementing the CAP required by section 
1847B of the Act.
    Competitive acquisition program (CAP) means a program as defined 
under section 1847B of the Act.
    Designated carrier means an entity assigned by CMS to process and 
pay claims for drugs and biologicals under the CAP.
    Drug means both drugs and biologicals.
    Emergency delivery means delivery of a CAP drug within one business 
day in appropriate shipping and packaging, in all areas of the United 
States and its territories, with the exception of the

[[Page 59]]

Pacific Territories. In the Pacific Territories, emergency delivery 
means delivery of a CAP drug within 5 business days in appropriate 
shipping and packaging. In each case, this timeframe shall be reduced if 
product stability requires it, meaning that the manufacturer's labeling 
instructions, drug compendia, or specialized drug stability references 
indicate that a shorter delivery timeframe is necessary to avoid 
adversely affecting the product's integrity, safety, or efficacy.
    Emergency situation means, for the purposes of the CAP, an 
unforeseen occurrence or situation determined by the participating CAP 
physician, in his or her clinical judgment, to require prompt action or 
attention for purposes of permitting the participating CAP physician to 
use a drug from his or her own stock, if the other requirements of Sec. 
414.906(e) are met.
    Local carrier means an entity assigned by CMS to process and pay 
claims for administration of drugs and biologicals under the CAP.
    Manufacturer's average sales price means the price calculated and 
reported by a manufacturer under part 414, subpart J of this chapter.
    Multiple source drug means a drug described by section 
1847A(c)(6)(C) of the Act.
    Pacific Territories means, for purposes of the CAP, American Samoa, 
Guam, or the Northern Mariana Islands.
    Participating CAP physician means a physician electing to 
participate in the CAP, as described in this subpart. The participating 
CAP physician must complete and sign the participating CAP physician 
election agreement. Physicians who do not participate in Medicare but 
who elect to participate in the CAP must agree to accept assignment for 
CAP drug administration claims.
    Participating CAP physician election agreement means the agreement 
that the physician signs to notify CMS of the physician's election to 
participate in the CAP and to agree to the terms and conditions of CAP 
participation as set forth in this subpart.
    Prescription order means a written order submitted by the 
participating CAP physician to the approved CAP vendor that meets the 
requirements of this subpart.
    Routine delivery means delivery of a drug within 2 business days in 
appropriate shipping and packaging in all areas of the United States and 
its territories, with the exception of the Pacific Territories. In the 
Pacific Territories, routine delivery of drug means delivery of a CAP 
drug within 7 business days in appropriate shipping and packaging. In 
each case, this timeframe will be reduced if product stability requires 
it, meaning that the manufacturer's labeling instructions, drug 
compendia, or specialized drug stability references indicate that a 
shorter delivery timeframe is necessary to avoid adversely affecting the 
product's integrity, safety, or efficacy.
    Single source drug means a drug described by section 1847A(c)(6)(D) 
of the Act.
    Timely delivery means delivery of a CAP drug within the defined 
routine and emergency delivery timeframes. Compliance with timely 
delivery standards is also a factor for evaluation of potential and 
approved CAP vendors.
    Unit is defined as in part 414, subpart J of this chapter.
    Wholesale acquisition cost (WAC) means the price described by 
section 1847A(c)(6)(B) of the Act.

[69 FR 66424, Nov. 15, 2004, as amended at 70 FR 39093, July 6, 2005]



Sec. 414.904  Average sales price as the basis for payment.

    (a) Method of payment. Payment for a drug furnished on or after 
January 1, 2005 is based on the lesser of--
    (1) The actual charge on the claim for program benefits; or
    (2) 106 percent of the average sales price, subject to the 
applicable limitations specified in paragraph (d) of this section or 
subject to the exceptions described in paragraph (e) of this section.
    (b) Multiple source drugs--(1) Average sales prices. The average 
sales price for all drug products included within the same multiple 
source drug billing and payment code is the volume-weighted average of 
the manufacturers' average sales prices for those drug products.
    (2) Calculation of the average sales price. The average sales price 
is determined by--

[[Page 60]]

    (i) Computing the sum of the products (for each National Drug Code 
assigned to the drug products) of the manufacturer's average sales price 
and the total number of units sold; and
    (ii) Dividing that sum by the sum of the total number of units sold 
for all NDCs assigned to the drug products.
    (c) Single source drugs--(1) Average sales price. The average sales 
price is the volume-weighted average of the manufacturers' average sales 
prices for all National Drug Codes assigned to the drug or biological 
product.
    (2) Calculation of the average sales price. The average sales price 
is determined by computing--
    (i) The sum of the products (for each National Drug Code assigned to 
the drug product) of the manufacturer's average sales price and the 
total number of units sold; and
    (ii) Dividing that sum by the sum of the total number of units sold 
for all NDCs assigned to the drug product.
    (d) Limitations on the average sales price--(1) Wholesale 
acquisition cost for a single source drug. The payment limit for a 
single source drug product is the lesser of 106 percent of the average 
sales price for the product or 106 percent of the wholesale acquisition 
cost for the product.
    (2) Payment limit for a drug furnished to an end-stage renal disease 
patient. (i) Effective for drugs and biologicals furnished in 2005, the 
payment for such drugs and biologicals, including erythropoietin, 
furnished to an end-stage renal disease patient that is separately 
billed by an end-stage renal disease facility and not paid on a cost 
basis is acquisition cost as determined by the Inspector General report 
as required by section 623(c) of the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 inflated by the percentage 
increase in the Producer Price Index.
    (ii) Except as provided in paragraph (a) of this section, the 
payment for drugs and biologicals, furnished to an end-stage renal 
disease patient that is separately billed by an end-stage renal disease 
facility, is based on 106 percent of the average sales price.
    (iii) Effective for drugs and biologicals furnished in CY 2006 and 
subsequent calendar years, the payment for such drugs and biologicals 
furnished in connection with renal dialysis services and separately 
billed by freestanding and hospital-based renal dialysis facilities not 
paid on a cost basis is the amount determined under section 1847A of the 
Act.
    (3) Widely available market price and average manufacturer price. If 
the Inspector General finds that the average sales price exceeds the 
widely available market price or the average manufacturer price by 5 
percent or more in CYs 2005, 2006, and 2007, the payment limit in the 
quarter following the transmittal of this information to the Secretary 
is the lesser of the widely available market price or 103 percent of the 
average manufacturer price.
    (e) Exceptions to the average sales price--(1) Vaccines. The payment 
limits for hepatitis B vaccine furnished to individuals at high or 
intermediate risk of contracting hepatitis B (as determined by the 
Secretary), pneumococcal vaccine, and influenza vaccine and are 
calculated using 95 percent of the average wholesale price.
    (2) Infusion drugs furnished through a covered item of durable 
medical equipment. The payment limit for an infusion drug furnished 
through a covered item of durable medical equipment is calculated using 
95 percent of the average wholesale price in effect on October 1, 2003 
and is not updated in 2006.
    (3) Blood and blood products. In the case of blood and blood 
products (other than blood clotting factors), the payment limits are 
determined in the same manner as the payment limits were determined on 
October 1, 2003.
    (4) Payment limit in a case where the average sales price during the 
first quarter of sales is unavailable. In the case of a drug during an 
initial period (not to exceed a full calendar quarter) in which data on 
the prices for sales of the drug are not sufficiently available from the 
manufacturer to compute an average sales price for the drug, the payment 
limit is based on the wholesale acquisition cost or the applicable 
Medicare Part B drug payment methodology in effect on November 1, 2003.
    (f) Except as otherwise specified (see paragraph (e)(2) of this 
section) for infusion drugs, the payment limits are updated quarterly.

[[Page 61]]

    (g) The payment limit is computed without regard to any special 
packaging, labeling, or identifiers on the dosage form or product or 
package.
    (h) The payment amount is subject to applicable deductible and 
coinsurance.

[69 FR 66424, Nov. 15, 2004, as amended at 70 FR 70332, Nov. 21, 2005; 
71 FR 69788, Dec. 1, 2006]



Sec. 414.906  Competitive acquisition program as the basis for payment.

    (a) Program payment. Beginning in 2006, as an alternative to payment 
under Sec. 414.904, payment for a CAP drug may be made through the CAP 
if the following occurs:
    (1) The CAP drug is supplied under the CAP by an approved CAP vendor 
as specified in Sec. 414.908(b).
    (2) The claim for the prescribed drug is submitted by the approved 
CAP vendor that supplied the drug, and payment is made only to that 
vendor.
    (3) The approved CAP vendor collects applicable deductible and 
coinsurance with respect to the drug furnished under the CAP only after 
the drug is administered to the beneficiary.
    (4) The approved CAP vendor delivers CAP drugs directly to the 
participating CAP physician in unopened vials or other original 
containers as supplied by the manufacturer or from a distributor that 
has acquired the products directly from the manufacturer and includes 
language with the shipping material stating that the drug was acquired 
in a manner consistent with all statutory requirements. If the approved 
CAP vendor opts to split shipments, the participating CAP physician must 
be notified in writing which can be included with the initial shipment, 
and each incremental shipment must arrive at least 2 business days 
before the anticipated date of administration.
    (5) The approved CAP vendor bills Medicare only for the amount of 
the drug administered to the patient, and the beneficiary's coinsurance 
will be calculated from the quantity of drug that is administered.
    (b) Exceptions to competitive acquisition. Specific CAP drugs, 
including a category of these drugs, may be excluded from the CAP if the 
application of competitive bidding to these drugs--
    (1) Is not likely to result in significant savings; or
    (2) Is likely to have an adverse impact on access to those drugs.
    (c) Computation of payment amount. (1) Except as specified in 
paragraph (c)(2) of this section, payment for CAP drugs is based on bids 
submitted, as a result of the bidding process as described in Sec. 
414.910. Based on these bids, a single payment amount for each CAP drug 
in the competitive acquisition area is determined on the basis of the 
bids submitted and accepted and updated from the bidding period to the 
payment year. This single payment amount is then updated on an annual 
basis based on the approved CAP vendor's reasonable net acquisition 
costs for that category as determined by CMS, based, in part, on 
information disclosed to CMS and limited by the weighted payment amount 
established under section 1847A of the Act across all drugs for which a 
composite bid is required in the category, and limited by the payment 
amount established under section 1847A of the Act for each other drug 
for which the approved CAP vendor submits a bid in accordance with Sec. 
414.910. Adjustment to the payment amounts may be made more often than 
annually, but no more often than quarterly, in any of the following 
cases:
    (i) Introduction of new drugs.
    (ii) Expiration of a drug patent or availability of a generic drug.
    (iii) Material shortage that results in a significant price increase 
for the drug.
    (iv) Withdrawal of a drug from the market.
    (2) The alternative payment amount established under section 1847A 
of the Act may be used to establish payment for a CAP drug if--
    (i) The drug is properly assigned to a category established under 
the CAP; and
    (ii) It is a drug for which a HCPCS code must be established.
    (d) Adjustments. There is an established process for adjustments to 
payments to account for drugs that were billed, but which were not 
administered.
    (e) Resupply of participating CAP physician drug inventory. A 
participating CAP physician may acquire drugs

[[Page 62]]

under the CAP to resupply his or her private inventory if all of the 
following requirements are met:
    (1) The drugs were required immediately.
    (2) The participating CAP physician could not have anticipated the 
need for the drugs.
    (3) The approved CAP vendor could not have delivered the drugs in a 
timely manner. For purposes of this section, timely manner means 
delivery within the emergency delivery timeframe, as defined in Sec. 
414.902.
    (4) The participating CAP physician administered the drugs in an 
emergency situation, as defined in Sec. 414.902.
    (f) Substitution or addition of drugs on an approved CAP vendor's 
CAP drug list--(1) Short-term substitution of a CAP drug. On an 
occasional basis (for a period of time less than 2 weeks), an approved 
CAP vendor may agree to furnish a substitute NDC within a HCPCS code on 
the approved CAP vendor's CAP drug list if the approved CAP vendor--
    (i) Is willing to accept the payment amount that was established for 
the HCPCS code under this section; and
    (ii) Obtains the participating CAP physician's prior approval.
    (2) Long-term substitution or addition of a CAP drug. An approved 
CAP vendor may submit a request, as specified in paragraph (f)(3) of 
this section, for approval to substitute an NDC supplied by the approved 
CAP vendor for another NDC within the same HCPCS code or to add an NDC 
to the approved CAP vendor's drug list, if at least one of the following 
criteria is met:
    (i) Proposed substitution of an NDC for a period of 2 weeks or 
longer.
    (ii) Proposed addition of one or more NDCs within a HCPCS code 
included in the CAP drug category specified by CMS or on the approved 
CAP vendor's approved CAP drug list.
    (iii) Proposed addition of--
    (A) One or more newly issued HCPCS codes; or
    (B) One of the following single indication orphan drug J codes or 
their updates: J0205, J0256, J9300, J1785, J2355, J3240, J7513, J9010, 
J9015, J9017, J9160, J9216.
    (iv) Beginning January 1, 2007, the proposed addition of a drug(s) 
that has not yet been assigned a HCPCS code, but for which a HCPCS code 
must be established.
    (3) Requesting the addition or substitution of CAP drug. An approved 
CAP vendor that meets the one of the criteria specified in paragraph 
(f)(2) must submit a written request to CMS or its designee. The request 
must--
    (i) Specify the NDC(s) and the respective HCPCS code that is to be 
added or substituted.
    (ii) Address the rationale for the substitution or addition of the 
NDC(s) or the addition of the HCPCS code(s) as applicable; and
    (iii) Address the impact of the substitution of the NDC(s) or the 
addition of the NDC(s) or HCPCS code(s), or both on--
    (A) Patient and drug safety;
    (B) Drug waste; and
    (C) The potential for cost savings.
    (4) Approval of a request(s). CMS or its designee notifies the 
approved CAP vendor of its decision.
    (i) Except as specified in paragraph (f)(4)(ii) of this section, an 
approved request is effective at the beginning of the next calendar 
quarter.
    (ii) Approved substitutions for request based on a drug shortage or 
other exigent circumstance may become effective immediately provided 
that--
    (A) CMS approves the immediate substitution; and
    (B) The approved CAP vendor's notifies its CAP participating 
physicians of the substitution immediately following CMS approval.
    (5) Payment for an approved drug change(s). The payment for--
    (i) Substituted or added CAP drugs that are within a HCPCS code for 
which payment is computed under paragraph (c)(1) of this section is the 
single payment for that HCPCS code, as determined and updated in 
accordance with paragraph (c)(1) of this section; or
    (ii) Added CAP drugs that are not within a HCPCS code for which 
payment is computed under paragraph (c)(1) of this section is specified 
under paragraph (c)(2) of this section.

[70 FR 39094, July 6, 2005, as amended at 70 FR 70333, Nov. 21, 2005; 71 
FR 9460, Feb. 24, 2006]

[[Page 63]]



Sec. 414.908  Competitive acquisition program.

    (a) Participating CAP physician selection of an approved CAP vendor. 
(1) CMS provides the participating CAP physician with a process for the 
selection of an approved CAP vendor on an annual basis, with exceptions 
as specified in Sec. 414.908(a)(2). Participating CAP physicians will 
also receive information about the CAP in the enrollment process for 
Medicare participation set forth in section 1842(h) of the Act.
    (2) A participating CAP physician may select an approved CAP vendor 
outside the annual selection process or opt out of the CAP for the 
remainder of the annual selection period when--
    (i) The selected approved CAP vendor ceases participation in the 
CAP;
    (ii) The physician leaves a group practice participating in CAP;
    (iii) The participating CAP physician relocates to another 
competitive acquisition area; or
    (iv) For other exigent circumstances defined by CMS.
    (3) The physician participating in the CAP--
    (i) Elects to use an approved CAP vendor for the drug category and 
area as set forth in Sec. 414.908(b);
    (ii) Completes and signs the CAP election agreement;
    (iii) Submits a written prescription order to the approved CAP 
vendor with complete patient information for patients new to the 
approved CAP vendor or when information changes. Abbreviated information 
may be sent on all subsequent orders for a patient for which the 
approved CAP vendor has previously received complete information and 
that has no changes to the original information. Prescription orders may 
be initiated by telephone, with a follow-up written order provided 
within 8 hours for routine deliveries and immediately for emergency 
deliveries;
    (iv) Does not receive payment for the CAP drug;
    (v) Except where applicable State pharmacy law prohibits it, 
provides the following information to the approved CAP vendor to 
facilitate collection of applicable deductible and coinsurance as 
described in Sec. 414.906(a)(3):
    (A) Date of order.
    (B) Beneficiary name, address, and phone number.
    (C) Physician identifying information:
    Name, practice location/shipping address, group practice information 
(if applicable), PIN, and UPIN.
    (D) Drug name.
    (E) Strength.
    (F) Quantity ordered.
    (G) Dose.
    (H) Frequency/instructions.
    (I) Anticipated date of administration.
    (J) Beneficiary Medicare information/Health insurance (HIC) number.
    (K) Supplementary insurance information (if applicable).
    (L) Medicaid information (if applicable).
    (M) Additional patient information: date of birth, allergies, 
height/weight, ICD-9-CM (if necessary).
    (vi) Agrees to accept the particular National Drug Codes (NDCs) 
supplied by the approved CAP vendor for the duration of the 
participating CAP physician's enrollment with the approved CAP vendor, 
subject to paragraphs (a)(3)(vii) and (a)(3)(xiv) of this section. By 
electing to participate with an approved CAP vendor, the participating 
CAP physician also agrees to accept the changes to the approved CAP 
vendor's CAP drug list that have been approved in accordance with Sec. 
414.906(f).
    (vii) Agrees to place routine orders for CAP drugs at the HCPCs 
level, except when medical necessity requires a particular formulation 
on the approved CAP vendor's CAP drug list. Medical necessity must be 
documented. When the conditions of this paragraph are met, the 
participating CAP physician may submit a prescription order to the 
approved CAP vendor that specifies the NDC.
    (viii) Notifies the approved CAP vendor when a drug is not 
administered or a smaller amount was administered than was originally 
ordered. The participating CAP physician and the approved CAP vendor 
agree on how to handle the unused CAP drug. If it is agreed that the 
participating CAP physician will maintain the CAP drug in his inventory 
for administration at a later date, the participating CAP physician 
submits a new prescription order

[[Page 64]]

at that time. This prescription order specifies that the CAP drug is 
being obtained from the participating CAP physician's CAP inventory and 
shipment should not occur;
    (ix) Maintains a separate electronic or paper inventory for each CAP 
drug obtained;
    (x) Agrees to file the Medicare claim within 14 calendar days of the 
date of drug administration;
    (xi) Agrees to submit an appeal accompanied by all required 
documentation (such as medical records or a certification) necessary to 
support payment if the participating CAP physician's drug administration 
claim for a CAP drug is denied;
    (xii) Agrees not to transport CAP drugs from one practice location 
(place of service) to another location;
    (xiii) Agrees to provide the CMS-developed CAP fact sheet to 
beneficiaries; and
    (xiv) May receive payment under the ASP system when medical 
necessity requires a certain brand or formulation of a drug that the 
approved CAP vendor has not been contracted to furnish under the CAP.
    (4) Physician group practices. If a physician group practice using a 
group billing number(s) elects to participate in the CAP, all physicians 
in the group are considered to be participating CAP physicians when 
using the group's billing number(s).
    (5) Additional opt out provision. In addition to the circumstances 
listed in paragraph (a)(2) of this section, if the approved CAP vendor 
refuses to ship to the participating CAP physician because the 
conditions of Sec. 414.914(h) were met, the physician can withdraw from 
the CAP category for the remainder of the year immediately upon notice 
to CMS and the approved CAP vendor.
    (b) Program requirements. (1) CMS selects approved CAP vendors 
through a competition among entities based on the following:
    (i) Submission of the bid prices using the OMB-approved Vendor 
Application and Bid Form for CAP drugs within the category and 
competitive acquisition area that--
    (A) Places the vendor among the qualified bidders with the lowest 
five composite bids; and
    (B) Does not exceed the weighted payment amount established under 
section 1847A of the Act across all drugs in that category.
    (ii) Ability to ensure product integrity.
    (iii) Customer service/Grievance process.
    (iv) At least 3 years experience in furnishing Part B injectable 
drugs.
    (v) Financial performance and solvency.
    (vi) Record of integrity and the implementation of internal 
integrity measures.
    (vii) Internal financial controls.
    (viii) Acquisition of all CAP drugs directly from the manufacturer 
or from a distributor that has acquired the products directly from the 
manufacturer.
    (ix) Maintenance of appropriate licensure to supply CAP drugs in 
States in which they are supplying CAP drugs.
    (x) Cost-sharing assistance as described in Sec. 414.914(g).
    (xi) Other factors as determined by CMS.
    (2) Approved CAP vendors must also meet the contract requirements 
under Sec. 414.914.
    (c) Additional considerations. CMS may refuse to award a contract or 
terminate an approved CAP vendor contract based upon the following:
    (1) Suspension or revocation by the Federal or State government of 
the entity's license for distribution of drugs, including controlled 
substances.
    (2) Exclusion of the entity under section 1128 of the Act from 
participation in Medicare or other Federal health care programs. These 
considerations are in addition to CMS' ability to terminate the approved 
CAP vendor for cause as specified in Sec. 414.914(a).
    (3) Past violations or misconduct related to the pricing, marketing, 
distribution, or handling of drugs provided incident to a physician's 
service.
    (d) Multiple source drugs. In the case of multiple source drugs, 
there must be a competition among entities for the acquisition of at 
least one CAP drug within each billing and payment code within each 
category for each competitive acquisition area.

[[Page 65]]

    (e) Multiple contracts for a category and area. The number of 
bidding qualified entities that are awarded a contract for a given 
category and area may be limited to no fewer than two.

[70 FR 39094, July 6, 2005, as amended at 70 FR 70333, Nov. 21, 2005]



Sec. 414.910  Bidding process.

    (a) Entities may bid to furnish CAP drugs in all competitive 
acquisition areas of the United States, or one or more specific 
competitive acquisition areas.
    (b) The amount of the bid for any CAP drug for a specific 
competitive acquisition area must be uniform for all portions of that 
competitive acquisition area.
    (c) A submitted bid price must include the following:
    (1) All costs related to the delivery of the drug to the 
participating CAP physician.
    (2) The costs of dispensing (including shipping) of the drug and 
management fees. The costs related to the administration of the drug or 
wastage, spillage, or spoilage may not be included.

[70 FR 39095, July 6, 2005]



Sec. 414.912  Conflicts of interest

    (a) Approved CAP vendors and applicants that bid to participate in 
the CAP are subject to the following:
    (1) The conflict of interest standards and requirements of the 
Federal Acquisition Regulation (FAR) organizational conflict of interest 
guidance, found under FAR subpart 9.5.
    (2) Those requirements and standards contained in each individual 
contract awarded to perform functions under section 1847B of the Act.
    (b) Post-award conflicts of interest. Approved CAP vendors must have 
a code of conduct that establishes policies and procedures for 
recognizing and resolving conflicts of interest between the approved CAP 
vendor and any entity, including the Federal Government, with whom it 
does business. The code of conduct which is submitted as part of the 
application must--
    (1) State the need for management, employees, contractors, and 
agents to comply with the approved CAP vendor's code of conduct, and 
policies and procedures for conflicts of interest; and
    (2) State the approved CAP vendor's expectations for management, 
employees, contractors, and agents to comply with the approved CAP 
vendor's code of conduct, and policies and procedures for detecting, 
preventing, and resolving conflicts of interest.

[70 FR 39094, July 6, 2005]



Sec. 414.914  Terms of contract.

    (a) The contract between CMS and the approved CAP vendor will be for 
a term of 3 years, unless terminated or suspended earlier as provided in 
this section or provided in Sec. 414.917. The contract may be 
terminated--
    (1) By CMS for default if the approved CAP vendor violates any term 
of the contract; or
    (2) In the absence of a contract violation, by either CMS or the 
approved CAP vendor, if the terminating party notifies the other party 
by June 30 for an effective date of termination of December 31 of that 
year.
    (b) The contract will provide for a code of conduct for the approved 
CAP vendor that includes standards relating to conflicts of interest 
standards as set forth at Sec. 414.912.
    (c) The approved CAP vendor will have and implement a compliance 
plan that contains policies and procedures that control program fraud, 
waste, and abuse, and consists of the following minimum elements:
    (1) Written policies, procedures, and standards of conduct 
articulating the organization's commitment to comply with all applicable 
Federal and State laws, regulations, and guidance, including, but not 
limited to, the Prescription Drug Marketing Act (PDMA), the physician 
self-referral (``Stark'') prohibition, the Anti-Kickback statute and the 
False Claims Act.
    (2) The designation of a compliance officer and compliance committee 
accountable to senior management.
    (3) Effective training and education of the compliance officer and 
organization employees, contractors, agents, and directors.
    (4) Enforcement of standards through well publicized disciplinary 
guidelines.
    (5) Procedures for effective internal monitoring and auditing.

[[Page 66]]

    (6) Procedures for ensuring prompt responses to detected offenses 
and development of corrective action initiatives relating to the 
organization's contract as an approved CAP vendor.
    (i) If the approved CAP vendor discovers evidence of misconduct 
related to payment or delivery of drugs or biologicals under the 
contract, it will conduct a timely and reasonable inquiry into that 
conduct.
    (ii) The approved CAP vendor will conduct appropriate corrective 
actions including, but not limited to, repayment of overpayments and 
disciplinary actions against responsible individuals, in response to 
potential violations referenced at paragraph (c)(6)(i) of this section.
    (7) Procedures to voluntarily self-report potential fraud or 
misconduct related to the CAP to the appropriate government agency.
    (d) The contract must provide for disclosure of the approved CAP 
vendor's reasonable, net acquisition costs for a specified period of 
time, not to exceed quarterly.
    (e) The contract must provide for appropriate adjustments as 
described in Sec. 414.906(c)(1).
    (f) Under the terms of the contract, the approved CAP vendor must 
also--
    (1) Have sufficient arrangements to acquire and deliver CAP drugs 
within the category in the competitive acquisition area specified by the 
contract;
    (2) Have arrangements in effect for shipment at least 5 weekdays 
each week of CAP drugs under the contract, including the ability to 
comply with the routine and emergency delivery timeframes defined in 
Sec. 414.902;
    (3) Have procedures in place to address and resolve complaints of 
participating CAP physicians and individuals and inquiries regarding 
shipment of CAP drugs;
    (4) Have a grievance and appeals process for dispute resolution;
    (5) Respond within 2 business days to any inquiry, or sooner if the 
inquiry is related to drug quality;
    (6) Staff a toll-free telephone line from 8:30 a.m. or earlier and 
until 5 p.m. or later for all time zones served in the continental 
United States by the CAP vendor on business days (Monday through Friday 
excluding Federal holidays) to provide customer assistance, and 
establish reasonable hours of operation for Hawaii, Alaska, Puerto Rico, 
and the other U.S. territories;
    (7) Staff an emergency toll-free telephone line for weekend and 
evening access when the call center is closed, and determine what hours 
on Saturday and Sunday the call center is staffed and which hours a 
toll-free emergency line is activated; and
    (8) Include assistance for the disabled, the hearing impaired, and 
Spanish-speaking inquirers in all customer service operations.
    (9) Meet applicable licensure requirements in each State in which it 
supplies drugs under the CAP;
    (10) Be enrolled in Medicare as a participating supplier;
    (11) Comply with all applicable Federal and State laws, regulations 
and guidance related to the prevention of fraud and abuse;
    (12) Supply CAP drugs upon receipt of a prescription order to all 
participating CAP physicians who have selected the approved CAP vendor, 
except when the conditions of Sec. 414.914(h) are met;
    (13) Provide direct notification to participating CAP physicians 
enrolled with them of updates to the approved CAP vendor's CAP drug list 
on a quarterly basis. Changes must be disseminated at least 30 days 
before the approved changes are due to take effect, unless immediate 
notification as described in Sec. 414.906(f)(4) is required. The 
approved CAP vendor's entire CAP drug list must be disseminated at least 
once yearly; and approved CAP vendors must make a complete list that 
incorporates the most recent updates available to physicians on an 
ongoing basis. CMS posts on its web site the updated CAP drug lists for 
each approved CAP vendor.
    (14) Ensure that subcontractors who are involved in providing 
services under the approved CAP contractor's CAP contract meet all 
requirements and comply with all laws and regulations relating to the 
services they provide under the CAP program. Notwithstanding any 
relationship the CAP vendor may have with any subcontractor, the 
approved CAP vendor maintains ultimate responsibility for adhering to 
and otherwise fully complying with all

[[Page 67]]

terms and conditions of its contract with CMS;
    (15) Comply with product integrity and record keeping requirements 
including but not limited to drug acquisition, handling, storage, 
shipping, drug waste, and return processes; and
    (16) Comply with such other terms and conditions as CMS may specify 
in the CAP contract consistent with section 1847B of the Act.
    (g) Under the terms of the contract, the approved CAP vendor must 
provide assistance to beneficiaries experiencing financial difficulty in 
paying their cost-sharing amounts through any one or all of the 
following:
    (1) Referral to a bona fide and independent charitable organization.
    (2) Implementation of a reasonable payment plan.
    (3) A full or partial waiver of the cost-sharing amount after 
determining in good faith that the individual is in financial need or 
the failure of reasonable collection efforts, provided that the waiver 
meets all of the requirements of section 1128A(i)(6)(A) of the Act and 
the corresponding regulations at paragraph (1) of the definition of 
``Remuneration'' in Sec. 1003.101 of this title. The availability of 
waivers may not be advertised or be made as part of a solicitation. 
Approved CAP vendors must inform beneficiaries that they generally make 
available the categories of assistance described in paragraphs (g)(1), 
(g)(2), and (g)(3) of this section. In no event may the approved CAP 
vendor include or make any statements or representations that promise or 
guarantee that beneficiaries receive cost-sharing waivers.
    (h) The approved CAP vendor must comply with the following 
procedures before it may refuse to make further shipments of CAP drugs 
to a participating CAP physician on behalf of a beneficiary:
    (1) Subsequent to receipt of final payment by Medicare, or the 
verification of drug administration by the participating CAP physician, 
the approved CAP vendor must bill any applicable supplemental insurance 
policies.
    (2) If a balance remains, after the supplemental insurer pays their 
share of the bill, or if there is no supplemental insurance, the 
approved CAP vendor may bill the beneficiary.
    (3) At the time of billing the beneficiary, or the participating CAP 
physician's presentation of the bill on behalf of the approved CAP 
vendor, the approved CAP vendor must inform the beneficiary of any types 
of cost-sharing assistance that may be available consistent with the 
requirements of section 1128A(a)(5) of the Act and Sec. 414.914(g).
    (4) If the beneficiary demonstrates a financial need, the approved 
CAP vendor must follow the conditions outlined in paragraph (g) of this 
section.
    (5) For purposes of paragraph (h) delivery means postmark date, or 
the date the coinsurance bill or notice was presented to the beneficiary 
by the participating CAP physician on behalf of the approved CAP vendor.
    (i) Except as specified in paragraph (h)(5)(ii), if after 45 days 
from delivery of the approved CAP vendor's bill to the beneficiary, the 
beneficiary's cost-sharing obligation remains unpaid, the approved CAP 
vendor may refuse further shipments to the participating CAP physician 
for that beneficiary.
    (ii) If the beneficiary has requested cost-sharing assistance within 
45 days of receiving delivery of the approved CAP vendor's bill, 
provisions of paragraphs (h)(6), (h)(7), or (h)(8) of this section, 
apply.
    (6) If the approved CAP vendor implements a reasonable payment plan, 
as specified in Sec. 414.914(g)(2), the approved CAP vendor must 
continue to ship CAP drugs for the beneficiary, as long as the 
beneficiary remains in compliance with the payment plan and makes an 
initial payment under the plan within 15 days after the delivery of the 
approved CAP vendor's written notice to the beneficiary offering the 
payment plan.
    (7) If the approved CAP vendor has waived the cost-sharing 
obligations in accordance with section 1128A of the Act and Sec. 
414.914(g)(3), the approved CAP vendor may not refuse to ship drugs for 
that beneficiary.
    (8) If the approved CAP vendor refers the beneficiary to a bona fide 
and independent charity in accordance with Sec. 414.914(g)(1), the 
approved CAP vendor may refuse to ship drugs if the past due balance is 
not paid 15 days after the

[[Page 68]]

date of delivery of the approved CAP vendor's written notice to the 
beneficiary containing the referral for cost-sharing assistance.
    (9) The approved CAP vendor may refuse to make further shipments to 
that participating CAP physician on behalf of the beneficiary for the 
lesser of the end of the calendar year or until the beneficiary's 
balance is paid in full.

[70 FR 39096, July 6, 2005, as amended at 70 FR 70333, Nov. 21, 2005]



Sec. 414.916  Dispute resolution for vendors and beneficiaries.

    (a) General rule. Cases of an approved CAP vendor's dissatisfaction 
with denied drug claims are resolved through a voluntary alternative 
dispute resolution process delivered by the designated carrier, and a 
reconsideration process provided by CMS.
    (b) Dispute resolution. (1) When an approved CAP vendor is not paid 
on claims submitted to the designated carrier, the vendor may appeal to 
the designated carrier to counsel the responsible participating CAP 
physician on his or her agreement to file a clean claim and pursue an 
administrative appeal in accordance with subpart H of part 405 of this 
chapter. If problems persist, the approved CAP vendor may ask the 
designated carrier to--
    (i) Review the participating CAP physician's performance; and
    (ii) Potentially recommend to CMS that CMS suspend the participating 
CAP physician's CAP election agreement.
    (2) The designated carrier--
    (i) Gathers information from the local carrier, the participating 
CAP physician, the beneficiary, and the approved CAP vendor; and
    (ii) Makes a recommendation to CMS on whether the participating CAP 
physician has been filing his or her CAP drug administration claims in 
accordance with the requirements for physician participation in the CAP 
as set forth in Sec. 414.908(a)(3). The recommendation will include 
numbered findings of fact.
    (3) CMS will review the recommendation of the designated carrier and 
gather relevant additional information from the participating CAP 
physician before deciding whether to suspend the participating CAP 
physician's CAP election agreement. A suspension commencing before 
October 1 will conclude on December 31 of the same year. A suspension 
commencing on or after October 1 will conclude on December 31 of the 
next year.
    (4) The participating CAP physician may appeal that suspension by 
requesting a reconsideration of CMS' decision. The reconsideration will 
address whether the participating CAP physician's denied claims and 
appeals were the result of the participating CAP physician's failure to 
participate in accordance with the requirements of Sec. 414.908(a)(3).
    (c) Reconsideration--(1) Right to reconsideration. A participating 
CAP physician dissatisfied with a determination that his or her CAP 
election agreement has been suspended by CMS is entitled to a 
reconsideration as provided in this subpart.
    (2) Eligibility for reconsideration. CMS reconsiders any 
determination to suspend a participating CAP physician's election 
agreement if the participating CAP physician files a written request for 
reconsideration in accordance with paragraphs (c)(3) and (c)(4) of this 
section.
    (3) Manner and timing of request for reconsideration. A 
participating CAP physician who is dissatisfied with a CMS decision to 
suspend his or her CAP election agreement may request a reconsideration 
of the decision by filing a request with CMS. The request must be filed 
within 30 days of receipt of the CMS decision letter notifying the 
participating CAP physician of CMS' decision to suspend his or her CAP 
election agreement. From the date of receipt of the decision letter 
until the day the reconsideration determination is final, the ASP 
payment methodology under section 1847A of the Act applies to the 
physician.
    (4) Content of request. The request for reconsideration must 
specify--
    (i) The findings or issues with which the participating CAP 
physician disagrees;
    (ii) The reasons for the disagreement;
    (iii) A recital of the facts and law supporting the participating 
CAP physician's position;

[[Page 69]]

    (iv) Any supporting documentation; and
    (v) Any supporting statements from approved CAP vendors, local 
carriers, or beneficiaries.
    (5) Withdrawal of request for reconsideration. A participating CAP 
physician may withdraw his or her request for reconsideration at any 
time before the issuance of a reconsideration determination.
    (6) Discretionary informal hearing. In response to a request for 
reconsideration, CMS may, at its discretion, provide the participating 
CAP physician the opportunity for an informal hearing that--
    (i) Is conducted by a hearing officer appointed by the director of 
the CMS Center for Medicare Management or his or her designee; and
    (ii) Provides the participating CAP physician the opportunity to 
present, by telephone or in person, evidence to rebut CMS' decision to 
suspend or terminate a participating CAP physician's CAP election 
agreement.
    (7) Informal hearing procedures. (i) CMS provides written notice of 
the time and place of the informal hearing at least 10 days before the 
scheduled date.
    (ii) The informal reconsideration hearing will be conducted in 
accordance with the following procedures:
    (A) The hearing is open to CMS and the participating CAP physician 
requesting the reconsideration, including--
    (1) Authorized representatives;
    (2) Technical advisors (individuals with knowledge of the facts of 
the case or presenting interpretation of the facts);
    (3) Representatives from the local carrier;
    (4) Representatives from the approved CAP vendor; and
    (5) Legal counsel.
    (B) The hearing is conducted by the hearing officer who receives 
relevant testimony;
    (C) Testimony and other evidence may be accepted by the hearing 
officer even though it would be inadmissible under the rules of evidence 
applied in Federal courts;
    (D) Either party may call witnesses from among those individuals 
specified in paragraph (c)(7)(ii)(A) of this section; and
    (E) The hearing officer does not have the authority to compel by 
subpoena the production of witnesses, papers, or other evidence.
    (8) Hearing officer's findings. (i) Within 30 days of the hearing 
officer's receipt of the hearing request, the hearing officer presents 
the findings and recommendations to the participating CAP physician who 
requested the reconsideration. If the hearing officer decides to conduct 
an in-person or telephone hearing, the hearing officer will send a 
hearing notice to the participating CAP physician within 10 days of 
receipt of the hearing request, and the findings and recommendations are 
due to the participating CAP physician within 30 days of the hearing's 
conclusion.
    (ii) The written report of the hearing officer includes separate 
numbered findings of fact and the legal conclusions of the hearing 
officer.
    (9) Final reconsideration determination. (i) The hearing officer's 
decision is final unless the director of the CMS Center for Medicare 
Management or his or her designee chooses to review that decision within 
30 days. If the decision is favorable to the participating CAP 
physician, then the participating CAP physician may resume his or her 
participation in CAP. The hearing officer and the CMS official may 
review decisions that are favorable or unfavorable to the participating 
CAP physician.
    (ii) The CMS official may accept, reject, or modify the hearing 
officer's findings.
    (iii) If the CMS official reviews the hearing officer's decision, 
the CMS official issues a final reconsideration determination to the 
participating CAP physician on the basis of the hearing officer's 
findings and recommendations and other relevant information.
    (iv) The reconsideration determination of the CMS official is final. 
If the final decision is unfavorable to the participating CAP physician, 
then the participating CAP physician's CAP election agreement is 
terminated.
    (d) The approved CAP vendor may not charge the beneficiary for the 
full

[[Page 70]]

drug coinsurance amount if the designated contractor did not pay the 
approved CAP vendor in full, unless a properly executed advance 
beneficiary notice is in place. When a beneficiary receives an 
inappropriate coinsurance bill, the beneficiary may participate in the 
approved CAP vendor's grievance process to request correction of the 
approved CAP vendor's file. If the beneficiary is dissatisfied with the 
result of the approved CAP vendor's grievance process, the beneficiary 
may request intervention from the designated carrier. This is in 
addition to, rather than in place of, any other beneficiary appeal 
rights. The designated carrier will first investigate the facts and then 
facilitate correction to the appropriate claim record and beneficiary 
file.

[70 FR 39097, July 6, 2005]



Sec. 414.917  Dispute resolution and process for suspension or termination of approved CAP contract.

    (a) General rule. If a participating CAP physician finds an approved 
CAP vendor's service, or the quality of a CAP drug supplied by the 
approved CAP vendor to be unsatisfactory, then the physician may address 
the issue first through the approved CAP vendor's grievance process, and 
second through an alternative dispute resolution process administered by 
the designated carrier and CMS. If CMS suspends an approved CAP vendor's 
CAP contract for noncompliance or terminates the CAP contract in 
accordance with Sec. 414.914(a), the approved CAP vendor may request a 
reconsideration in accordance with paragraph (c) of this section.
    (b) Dispute resolution. (1) When a participating CAP physician is 
dissatisfied with an approved CAP vendor's service or the quality of a 
CAP drug supplied by the approved CAP vendor, then the participating CAP 
physician may use the approved CAP vendor's grievance process. If the 
service or quality issues are not resolved through the grievance process 
to the physician's satisfaction, then the participating CAP physician 
may ask the designated carrier to--
    (i) Review the approved CAP vendor's performance; and
    (ii) Potentially recommend termination of the approved CAP vendor's 
CAP contract.
    (2) Responsibility of the designated carrier. The designated 
carrier--
    (i) Gathers information from the local carrier, the participating 
CAP physician, the beneficiary, and the approved CAP vendor; and
    (ii) Makes a recommendation to CMS on whether the approved CAP 
vendor has been meeting the service and quality obligations of its CAP 
contract. This recommendation will include numbered findings of fact.
    (3) CMS will review the recommendation of the designated carrier 
and, gather relevant additional information from the approved CAP 
vendor, the participating CAP physician, the local carrier, and the 
beneficiary before deciding whether to terminate the approved CAP 
vendor's CAP contract.
    (4) The approved CAP vendor may appeal that termination by 
requesting a reconsideration. A determination must be made as to whether 
the approved CAP vendor has been meeting the service and quality 
obligations of its CAP contract.
    (c) Reconsideration--(1) Right to reconsideration. An approved CAP 
vendor dissatisfied with a determination that its CAP contract has been 
suspended or terminated by CMS is entitled to a reconsideration as 
provided in this subpart.
    (2) Eligibility for reconsideration. CMS will reconsider any 
determination to suspend or terminate an approved CAP vendor's contract 
if the approved CAP vendor files a written request for reconsideration 
in accordance with paragraphs (c)(3) and (c)(4) of this section.
    (3) Manner and timing of request for reconsideration. An approved 
CAP vendor that is dissatisfied with a CMS decision to suspend or 
terminate its CAP contract may request a reconsideration of the decision 
by filing a request with CMS. The request must be filed within 30 days 
of receipt of the CMS decision letter notifying the approved CAP vendor 
of the suspension or termination of its CAP contract.
    (4) Content of request. The request for reconsideration must 
specify--
    (i) The findings or issues with which the approved CAP vendor 
disagrees;

[[Page 71]]

    (ii) The reasons for the disagreement;
    (iii) A recital of the facts and law supporting the approved CAP 
vendor's position;
    (iv) Any supporting documentation; and
    (v) Any supporting statements from participating CAP physicians, the 
local carrier, or beneficiaries.
    (5) Withdrawal of request for reconsideration. An approved CAP 
vendor may withdraw its request for reconsideration at any time before 
the issuance of a reconsideration determination.
    (6) Discretionary informal hearing. In response to a request for 
reconsideration, CMS may, at its discretion, provide the approved CAP 
vendor the opportunity for an informal hearing that--
    (i) Is conducted by a hearing officer appointed by the Director of 
the CMS Center for Medicare Management or his or her designee; and
    (ii) Provides the approved CAP vendor the opportunity to present, by 
telephone or in person, evidence to rebut CMS' decision to suspend or 
terminate the approved CAP vendor's CAP contract.
    (7) Informal hearing procedures. (i) CMS will provide written notice 
of the time and place of the informal hearing at least 10 days before 
the scheduled date.
    (ii) The informal reconsideration hearing will be conducted in 
accordance with the following procedures:
    (A) The hearing is open to CMS and the approved CAP vendor 
requesting the reconsideration, including--
    (1) Authorized representatives;
    (2) Technical advisors (individuals with knowledge of the facts of 
the case or presenting interpretation of the facts);
    (3) Representatives from the local carriers and the designated 
carrier;
    (4) The participating CAP physician who requested the suspension, if 
any; and
    (5) Legal counsel.
    (B) The hearing will be conducted by the hearing officer, who will 
receive relevant testimony;
    (C) Testimony and other evidence may be accepted by the hearing 
officer even though it would be inadmissible under the rules of evidence 
applied in Federal courts;
    (D) Either party may call witnesses from among those individuals 
specified in the paragraph (c)(7)(ii)(A) of this section; and
    (E) The hearing officer does not have the authority to compel by 
subpoena the production of witnesses, papers, or other evidence.
    (8) Hearing officer's findings. (i) Within 30 days of the hearing 
officer's receipt of the hearing request, the hearing officer will 
present the findings and recommendations to the approved CAP vendor that 
requested the reconsideration. If the hearing officer conducts a hearing 
in person or by phone, the hearing officer will send a hearing notice to 
the approved CAP vendor within 10 days of receipt of the hearing 
request, and the findings and recommendations are due to the approved 
CAP vendor within 30 days from of the hearing's conclusion.
    (ii) The written report of the hearing officer will include separate 
numbered findings of fact and the legal conclusions of the hearing 
officer.
    (9) Final reconsideration determination. (i) The hearing officer's 
decision is final unless the Director of the CMS Center for Medicare 
Management or his or her designee (CMS official) chooses to review that 
decision within 30 days. If the decision is favorable to the approved 
CAP vendor, then the approved CAP vendor may resume participation in 
CAP. The hearing officer and the CMS official may review decisions that 
are favorable or unfavorable to the approved CAP vendor.
    (ii) The CMS official may accept, reject, or modify the hearing 
officer's findings.
    (iii) If the CMS official reviews the hearing officer's decision, 
the CMS official will issue a final reconsideration determination to the 
approved CAP vendor on the basis of the hearing officer's findings and 
recommendations and other relevant information.
    (iv) The reconsideration determination of the CMS official is final.

[70 FR 39098, July 6, 2005]

[[Page 72]]



Sec. 414.918  Assignment.

    Payment for a CAP drug may be made only on an assignment-related 
basis.

[70 FR 39099, July 6, 2005]



Sec. 414.920  Judicial review.

    The following areas under the CAP are not subject to administrative 
or judicial review:
    (a) The establishment of payment amounts.
    (b) The awarding of vendor contracts.
    (c) The establishment of competitive acquisition areas.
    (d) The selection of CAP drugs.
    (e) The bidding structure.
    (f) The number of vendors selected.

[70 FR 39099, July 6, 2005]



                 Subpart L_Supplying and Dispensing Fees



Sec. 414.1000  Purpose.

    This subpart implements section 1842(o)(2) and section 1842(o)(6) of 
the Act, as added by section 303(e)(2) of the MMA, by specifying a 
supplying fee for drugs and biologicals covered under Part B of Title 
XVIII of the Act that are described in sections 1861(s)(2)(J), 
1861(s)(2)(Q), and 1861(s)(2)(T) of the Act.

[69 FR 66425, Nov. 15, 2004]



Sec. 414.1001  Basis of payment.

    (a) Supplying fees. Beginning in CY 2006--
    (1) A supplying fee of $24 is paid to a pharmacy for the first 
prescription of drugs and biologicals described in sections 
1861(s)(2)(J), 1861(s)(2)(Q), and 1861(s)(2)(T) of the Act, that the 
pharmacy provided to a beneficiary during a 30-day period.
    (2) A supplying fee of $16 is paid to a pharmacy for each 
prescription following the first prescription (as specified in paragraph 
(a)(1) of this section) of drugs and biologicals described in sections 
1861(s)(2)(J), 1861(s)(2)(Q), and 1861(s)(2)(T) of the Act, that the 
pharmacy provided to a beneficiary during a 30-day period.
    (3) A separate supplying fee is paid to a pharmacy for each 
prescription of drugs and biologicals described in sections 
1861(s)(2)(J), 1861(s)(2)(Q), and 1861(s)(2)(T) of the Act.
    (b) Supplying fees following transplant. Beginning CY 2006--(1) A 
supplying fee of $50 is paid to pharmacy for the initial supplied 
prescription of drugs and biologicals described in section 1861(s)(2)(J) 
of the Act, that the pharmacy provided to a patient during the first 30-
day period following a transplant.
    (2) A supplying fee of $16 is paid to a pharmacy for each 
prescription following an initial prescription after a transplant (as 
specified in paragraph (b)(1) of this section) of drugs and biologicals 
describe in section 1861(s)(2)(J) of the Act, that the pharmacy provided 
to a beneficiary during a 30-day period.
    (c) 30-day dispensing fees. Beginning CY 2006--(1) A dispensing fee 
of $57 is paid to a supplier to the extent that the prescription is for 
the initial dispensed 30-day supply of inhalation drugs furnished 
through durable medical equipment covered under section 1861(n) of the 
Act, regardless of the number of partial shipments of that 30-day 
supply.
    (2) Except for supplied inhalation drugs that meet criteria 
described in paragraph (c)(1) of this section, a dispensing fee of $33 
is paid for each dispensed 30-day supply of inhalation drugs furnished 
through durable medical equipment covered under section 1861(n) of the 
Act, regardless of the number of partial shipments of that 30-day 
supply.
    (d) 90-day dispensing fee. Beginning CY 2006, a dispensing fee of 
$66 is paid to a supplier for each dispensed 90-day supply of inhalation 
drugs furnished through durable medical equipment covered under section 
1861(n) of the Act, regardless of the number of partial shipments of 
that 90-day supply.

[70 FR 70334, Nov. 21, 2005]

[[Page 73]]



PART 415_SERVICES FURNISHED BY PHYSICIANS IN PROVIDERS, SUPERVISING PHYSICIANS IN TEACHING SETTINGS, AND RESIDENTS IN CERTAIN SETTINGS--Table of Contents




                      Subpart A_General Provisions

Sec.
415.1 Basis and scope.

   Subpart B_Fiscal Intermediary Payments to Providers for Physician 
                                Services

415.50 Scope.
415.55 General payment rules.
415.60 Allocation of physician compensation costs.
415.70 Limits on compensation for physician services in providers.

      Subpart C_Part B Carrier Payments for Physician Services to 
                       Beneficiaries in Providers

415.100 Scope.
415.102 Conditions for fee schedule payment for physician services to 
          beneficiaries in providers.
415.105 Amounts of payment for physician services to beneficiaries in 
          providers.
415.110 Conditions for payment: Medically directed anesthesia services.
415.120 Conditions for payment: Radiology services.
415.130 Conditions for payment: Physician pathology services.

            Subpart D_Physician Services in Teaching Settings

415.150 Scope.
415.152 Definitions.
415.160 Election of reasonable cost payment for direct medical and 
          surgical services of physicians in teaching hospitals: General 
          provisions.
415.162 Determining payment for physician services furnished to 
          beneficiaries in teaching hospitals.
415.164 Payment to a fund.
415.170 Conditions for payment on a fee schedule basis for physician 
          services in a teaching setting.
415.172 Physician fee schedule payment for services of teaching 
          physicians.
415.174 Exception: Evaluation and management services furnished in 
          certain centers.
415.176 Renal dialysis services.
415.178 Anesthesia services.
415.180 Teaching setting requirements for the interpretation of 
          diagnostic radiology and other diagnostic tests.
415.184 Psychiatric services.
415.190 Conditions of payment: Assistants at surgery in teaching 
          hospitals.

                     Subpart E_Services of Residents

415.200 Services of residents in approved GME programs.
415.202 Services of residents not in approved GME programs.
415.204 Services of residents in skilled nursing facilities and home 
          health agencies.
415.206 Services of residents in nonprovider settings.
415.208 Services of moonlighting residents.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 60 FR 63178, Dec. 8, 1995, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 415.1  Basis and scope.

    (a) Basis. This part is based on the provisions of the following 
sections of the Act: Section 1848 establishes a fee schedule for payment 
for physician services. Section 1861(q) specifies what is included in 
the term ``physician services'' covered under Medicare. Section 
1862(a)(14) sets forth the exclusion of nonphysician services furnished 
to hospital patients under Part B of Medicare. Section 1886(d)(5)(B) 
provides for a payment adjustment under the prospective payment system 
for the operating costs of inpatient hospital services furnished to 
Medicare beneficiaries in cost reporting periods beginning on or after 
October 1, 1983, to account for the indirect costs of medical education. 
Section 1886(h) establishes the methodology for Medicare payment of the 
cost of direct GME activities.
    (b) Scope. This part sets forth rules for fiscal intermediary 
payments to providers for physician services, Part B carrier payments 
for physician services to beneficiaries in providers, physician services 
in teaching settings, and services of residents.



   Subpart B_Fiscal Intermediary Payments to Providers for Physician 
                                Services



Sec. 415.50  Scope.

    This subpart sets forth rules for payment by fiscal intermediaries 
to providers for services furnished by physicians. Payment for covered 
services is

[[Page 74]]

made either under the prospective payment system (PPS) to PPS-
participating providers in accordance with part 412 of this chapter or 
under the reasonable cost method to non-PPS participating providers in 
accordance with part 413 of this chapter.



Sec. 415.55  General payment rules.

    (a) Allowable costs. Except as specified otherwise in Sec. Sec. 
413.102 of this chapter (concerning compensation of owners), 415.60 
(concerning allocation of physician compensation costs), and 415.162 
(concerning payment for physician services furnished to beneficiaries in 
teaching hospitals), costs a provider incurs for services of physicians 
are allowable only if the following conditions are met:
    (1) The services do not meet the conditions in Sec. 415.102(a) 
regarding fee schedule payment for services of physicians to a 
beneficiary in a provider.
    (2) The services include a surgeon's supervision of services of a 
qualified anesthetist, but do not include physician availability 
services, except for reasonable availability services furnished for 
emergency rooms and the services of standby surgical team physicians.
    (3) The provider has incurred a cost for salary or other 
compensation it furnished the physician for the services.
    (4) The costs incurred by the provider for the services meet the 
requirements in Sec. 413.9 of this chapter regarding costs related to 
patient care.
    (5) The costs do not include supervision of interns and residents 
unless the provider elects reasonable cost payment as specified in Sec. 
415.160, or any other costs incurred in connection with an approved GME 
program that are payable under Sec. Sec. 413.75 through 413.83 of this 
chapter.
    (b) Allocation of allowable costs. The provider must follow the 
rules in Sec. 415.60 regarding allocation of physician compensation 
costs to determine its costs of services.
    (c) Limits on allowable costs. The intermediary must apply the 
limits on compensation set forth in Sec. 415.70 to determine its 
payments to a provider for the costs of services.

[60 FR 63178, Dec. 8, 1995, as amended at 70 FR 47490, Aug. 12, 2005]



Sec. 415.60  Allocation of physician compensation costs.

    (a) Definition. For purposes of this subpart, physician compensation 
costs means monetary payments, fringe benefits, deferred compensation, 
and any other items of value (excluding office space or billing and 
collection services) that a provider or other organization furnishes a 
physician in return for the physician services. Other organizations are 
entities related to the provider within the meaning of Sec. 413.17 of 
this chapter or entities that furnish services for the provider under 
arrangements within the meaning of the Act.
    (b) General rule. Except as provided in paragraph (d) of this 
section, each provider that incurs physician compensation costs must 
allocate those costs, in proportion to the percentage of total time that 
is spent in furnishing each category of services, among--
    (1) Physician services to the provider (as described in Sec. 
415.55);
    (2) Physician services to patients (as described in Sec. 415.102); 
and
    (3) Activities of the physician, such as funded research, that are 
not paid under either Part A or Part B of Medicare.
    (c) Allowable physician compensation costs. Only costs allocated to 
payable physician services to the provider (as described in Sec. 
415.55) are allowable costs to the provider under this subpart.
    (d) Allocation of all compensation to services to the provider. 
Generally, the total physician compensation received by a physician is 
allocated among all services furnished by the physician, unless--
    (1) The provider certifies that the compensation is attributable 
solely to the physician services furnished to the provider; and
    (2) The physician bills all patients for the physician services he 
or she furnishes to them and personally receives the payment from or on 
behalf of the patients. If returned directly or indirectly to the 
provider or an organization related to the provider within the meaning 
of Sec. 413.17 of this chapter, these payments are not compensation for 
physician services furnished to the provider.

[[Page 75]]

    (e) Assumed allocation of all compensation to beneficiary services. 
If the provider and physician agree to accept the assumed allocation of 
all the physician services to direct services to beneficiaries as 
described under Sec. 415.102(a), CMS does not require a written 
allocation agreement between the physician and the provider.
    (f) Determination and payment of allowable physician compensation 
costs. (1) Except as provided under paragraph (e) of this section, the 
intermediary pays the provider for these costs only if--
    (i) The provider submits to the intermediary a written allocation 
agreement between the provider and the physician that specifies the 
respective amounts of time the physician spends in furnishing physician 
services to the provider, physician services to patients, and services 
that are not payable under either Part A or Part B of Medicare; and
    (ii) The compensation is reasonable in terms of the time devoted to 
these services.
    (2) In the absence of a written allocation agreement, the 
intermediary assumes, for purposes of determining reasonable costs of 
the provider, that 100 percent of the physician compensation cost is 
allocated to services to beneficiaries as specified in paragraph (b)(2) 
of this section.
    (g) Recordkeeping requirements. Except for services furnished in 
accordance with the assumed allocation under paragraph (e) of this 
section, each provider that claims payment for services of physicians 
under this subpart must meet all of the following requirements:
    (1) Maintain the time records or other information it used to 
allocate physician compensation in a form that permits the information 
to be validated by the intermediary or the carrier.
    (2) Report the information on which the physician compensation 
allocation is based to the intermediary or the carrier on an annual 
basis and promptly notify the intermediary or carrier of any revisions 
to the compensation allocation.
    (3) Retain each physician compensation allocation, and the 
information on which it is based, for at least 4 years after the end of 
each cost reporting period to which the allocation applies.



Sec. 415.70  Limits on compensation for physician services in providers.

    (a) Principle and scope. (1) Except as provided in paragraphs (a)(2) 
and (a)(3) of this section, CMS establishes reasonable compensation 
equivalency limits on the amount of compensation paid to physicians by 
providers. These limits are applied to a provider's costs incurred in 
compensating physicians for services to the provider, as described in 
Sec. 415.55(a).
    (2) Limits established under this section do not apply to costs of 
physician compensation attributable to furnishing inpatient hospital 
services that are paid for under the prospective payment system 
implemented under part 412 of this chapter or to costs of physician 
compensation attributable to approved GME programs that are payable 
under Sec. Sec. 413.75 through 413.83 of this chapter.
    (3) Compensation that a physician receives for activities that may 
not be paid for under either Part A or Part B of Medicare is not 
considered in applying these limits.
    (b) Methodology for establishing limits. CMS establishes a 
methodology for determining annual reasonable compensation equivalency 
limits and, to the extent possible, considers average physician incomes 
by specialty and type of location using the best available data.
    (c) Application of limits. If the level of compensation exceeds the 
limits established under paragraph (b) of this section, Medicare payment 
is based on the level established by the limits.
    (d) Adjustment of the limits. The intermediary may adjust limits 
established under paragraph (b) of this section to account for costs 
incurred by the physician or the provider related to malpractice 
insurance, professional memberships, and continuing medical education.
    (1) For the costs of membership in professional societies and 
continuing medical education, the intermediary may adjust the limit by 
the lesser of--
    (i) The actual cost incurred by the provider or the physician for 
these activities; or

[[Page 76]]

    (ii) Five percent of the appropriate limit.
    (2) For the cost of malpractice expenses incurred by either the 
provider or the physician, the intermediary may adjust the reasonable 
compensation equivalency limit by the cost of the malpractice insurance 
expense related to the physician service furnished to patients in 
providers.
    (e) Exception to limits. An intermediary may grant a provider an 
exception to the limits established under paragraph (b) of this section 
only if the provider can demonstrate to the intermediary that it is 
unable to recruit or maintain an adequate number of physicians at a 
compensation level within these limits.
    (f) Notification of changes in methodologies and payment limits. (1) 
Before the start of a cost reporting period to which limits established 
under this section will be applied, CMS publishes a notice in the 
Federal Register that sets forth the amount of the limits and explains 
how it calculated the limits.
    (2) If CMS proposes to revise the methodology for establishing 
payment limits under this section, CMS publishes a notice, with 
opportunity for public comment, in the Federal Register. The notice 
explains the proposed basis and methodology for setting limits, 
specifies the limits that would result, and states the date of 
implementation of the limits.
    (3) If CMS updates limits by applying the most recent economic index 
data without revising the limit methodology, CMS publishes the revised 
limits in a notice in the Federal Register without prior publication of 
a proposal or public comment period.

[60 FR 63178, Dec. 8, 1995, as amended at 70 FR 47490, Aug. 12, 2005]



      Subpart C_Part B Carrier Payments for Physician Services to 
                       Beneficiaries in Providers



Sec. 415.100  Scope.

    This subpart implements section 1887(a)(1)(A) of the Act by 
providing general conditions that must be met in order for services 
furnished by physicians to beneficiaries in providers to be paid for on 
the basis of the physician fee schedule under part 414 of this chapter. 
Section 415.102 sets forth the conditions for fee schedule payment for 
physician services to beneficiaries in providers. Section 415.105 sets 
forth general requirements for determining the amounts of payment for 
services that meet the conditions of this section. Sections 415.120 and 
415.130 set forth additional conditions for payment for physician 
services in the specialties of radiology and pathology (laboratory 
services).



Sec. 415.102  Conditions for fee schedule payment for physician services to beneficiaries in providers.

    (a) General rule. If the physician furnishes services to 
beneficiaries in providers, the carrier pays on a fee schedule basis 
provided the following requirements are met:
    (1) The services are personally furnished for an individual 
beneficiary by a physician.
    (2) The services contribute directly to the diagnosis or treatment 
of an individual beneficiary.
    (3) The services ordinarily require performance by a physician.
    (4) In the case of radiology or laboratory services, the additional 
requirements in Sec. 415.120 or Sec. 415.130, respectively, are met.
    (b) Exception. If a physician furnishes services in a provider that 
do not meet the requirements in paragraph (a) of this section, but are 
related to beneficiary care furnished by the provider, the intermediary 
pays for those services, if otherwise covered. The intermediary follows 
the rules in Sec. Sec. 415.55 and 415.60 for payment on the basis of 
reasonable cost or PPS, as appropriate.
    (c) Effect of billing charges for physician services to a provider. 
(1) If a physician furnishes services that may be paid under the 
reasonable cost rules in Sec. 415.55 or Sec. 415.60, and paid by the 
intermediary, or would be paid under those rules except for the PPS 
rules in part 412 of this chapter, and under the payment rules for GME 
established by Sec. Sec. 413.75 through 413.83 of this chapter, neither 
the provider nor the physician may seek payment from the carrier, 
beneficiary, or another insurer.
    (2) If a physician furnishes services to an individual beneficiary 
that do not

[[Page 77]]

meet the applicable conditions in Sec. Sec. 415.120 (concerning 
conditions for payment for radiology services) and 415.130 (concerning 
conditions for payment for physician pathology services), the carrier 
does not pay on a fee schedule basis.
    (3) If the physician, the provider, or another entity bills the 
carrier or the beneficiary or another insurer for physician services 
furnished to the provider, as described in Sec. 415.55(a), CMS 
considers the provider to which the services are furnished to have 
violated its provider participation agreement, and may terminate that 
agreement. See part 489 of this chapter for rules governing provider 
agreements.
    (d) Effect of physician assumption of operating costs. If a 
physician or other entity enters into an agreement (such as a lease or 
concession) with a provider, and the physician (or entity) assumes some 
or all of the operating costs of the provider department in which the 
physician furnishes physician services, the following rules apply:
    (1) If the conditions set forth in paragraph (a) of this section are 
met, the carrier pays for the physician services under the physician fee 
schedule in part 414 of this chapter.
    (2) To the extent the provider incurs a cost payable on a reasonable 
cost basis under part 413 of this chapter, the intermediary pays the 
provider on a reasonable cost basis for the costs associated with 
producing these services, including overhead, supplies, equipment costs, 
and services furnished by nonphysician personnel.
    (3) The physician (or other entity) is treated as being related to 
the provider within the meaning of Sec. 413.17 of this chapter 
(concerning cost to related organizations).
    (4) The physician (or other entity) must make its books and records 
available to the provider and the intermediary as necessary to verify 
the nature and extent of the costs of the services furnished by the 
physician (or other entity).

[60 FR 63178, Dec. 8, 1995, as amended at 70 FR 47490, Aug. 12, 2005]



Sec. 415.105  Amounts of payment for physician services to beneficiaries in providers.

    (a) General rule. The carrier determines amounts of payment for 
physician services to beneficiaries in providers in accordance with the 
general rules governing the physician fee schedule payment in part 414 
of this chapter, except as provided in paragraph (b) of this section.
    (b) Application in certain settings--(1) Teaching hospitals. The 
carrier applies the rules in subpart D of this part (concerning 
physician services in teaching settings), in addition to those in this 
section, in determining whether fee schedule payment should be made for 
physician services to individual beneficiaries in a teaching hospital.
    (2) Hospital-based ESRD facilities. The carrier applies Sec. Sec. 
414.310 through 414.314 of this chapter, which set forth determination 
of reasonable charges under the ESRD program, to determine the amount of 
payment for physician services furnished to individual beneficiaries in 
a hospital-based ESRD facility approved under part 405 subpart U.



Sec. 415.110  Conditions for payment: Medically directed anesthesia services.

    (a) General payment rule. Medicare pays for the physician's medical 
direction of anesthesia services for one service or two through four 
concurrent anesthesia services furnished after December 31, 1998, only 
if each of the services meets the condition in Sec. 415.102(a) and the 
following additional conditions:
    (1) For each patient, the physician--
    (i) Performs a pre-anesthetic examination and evaluation;
    (ii) Prescribes the anesthesia plan;
    (iii) Personally participates in the most demanding aspects of the 
anesthesia plan including, if applicable, induction and emergence;
    (iv) Ensures that any procedures in the anesthesia plan that he or 
she does not perform are performed by a qualified individual as defined 
in operating instructions;
    (v) Monitors the course of anesthesia administration at frequent 
intervals;

[[Page 78]]

    (vi) Remains physically present and available for immediate 
diagnosis and treatment of emergencies; and
    (vii) Provides indicated post-anesthesia care.
    (2) The physician directs no more than four anesthesia services 
concurrently and does not perform any other services while he or she is 
directing the single or concurrent services so that one or more of the 
conditions in paragraph (a)(1) of this section are not violated.
    (3) If the physician personally performs the anesthesia service, the 
payment rules in Sec. 414.46(c) of this chapter apply (Physician 
personally performs the anesthesia procedure).
    (b) Medical documentation. The physician alone inclusively documents 
in the patient's medical record that the conditions set forth in 
paragraph (a)(1) of this section have been satisfied, specifically 
documenting that he or she performed the pre-anesthetic exam and 
evaluation, provided the indicated post-anesthesia care, and was present 
during the most demanding procedures, including induction and emergence 
where applicable.

[63 FR 58912, Nov. 2, 1998]



Sec. 415.120  Conditions for payment: Radiology services.

    (a) Services to beneficiaries. The carrier pays for radiology 
services furnished by a physician to a beneficiary on a fee schedule 
basis only if the services meet the conditions for fee schedule payment 
in Sec. 415.102(a) and are identifiable, direct, and discrete 
diagnostic or therapeutic services furnished to an individual 
beneficiary, such as interpretation of x-ray plates, angiograms, 
myelograms, pyelograms, or ultrasound procedures. The carrier pays for 
interpretations only if there is a written report prepared for inclusion 
in the patient's medical record maintained by the hospital.
    (b) Services to providers. The carrier does not pay on a fee 
schedule basis for physician services to the provider (for example, 
administrative or supervisory services) or for provider services needed 
to produce the x-ray films or other items that are interpreted by the 
radiologist. However, the intermediary pays the provider for these 
services in accordance with Sec. 415.55 for provider costs; Sec. 
415.102(d)(2) for costs incurred by a physician, such as under a lease 
or concession agreement; or part 412 of this chapter for payment under 
PPS.



Sec. 415.130  Conditions for payment: Physician pathology services.

    (a) Definitions. The following definitions are used in this section.
    (1) Covered hospital means, with respect to an inpatient or an 
outpatient, a hospital that had an arrangement with an independent 
laboratory that was in effect as of July 22, 1999, under which a 
laboratory furnished the technical component of physician pathology 
services to fee-for-service Medicare beneficiaries who were hospital 
inpatients or outpatients, and submitted claims for payment for this 
technical component directly to a Medicare carrier.
    (2) Fee-for-service Medicare beneficiaries means those beneficiaries 
who are entitled to benefits under Part A or are enrolled under Part B 
of Title XVIII of the Act or both and are not enrolled in any of the 
following:
    (i) A Medicare+Choice plan under Part C of Title XVIII of the Act.
    (ii) A plan offered by an eligible organization under section 1876 
of the Act;
    (iii) A program of all-inclusive care for the elderly (PACE) under 
1894 of the Act; or
    (iv) A social health maintenance organization (SHMO) demonstration 
project established under section 4018(b) of the Omnibus Budget 
Reconciliation Act of 1987.
    (b) Physician pathology services. The carrier pays for pathology 
services furnished by a physician to an individual beneficiary on a fee 
schedule basis only if the services meet the conditions for payment in 
Sec. 415.102(a) and are one of the following services:
    (1) Surgical pathology services.
    (2) Specific cytopathology, hematology, and blood banking services 
that have been identified to require performance by a physician and are 
listed in program operating instructions.
    (3) Clinical consultation services that meet the requirements in 
paragraph (c) of this section.
    (4) Clinical laboratory interpretative services that meet the 
requirements of

[[Page 79]]

paragraphs (c)(1), (c)(3), and (c)(4) of this section and that are 
specifically listed in program operating instructions.
    (c) Clinical consultation services. For purposes of this section, 
clinical consultation services must meet the following requirements:
    (1) Be requested by the beneficiary's attending physician.
    (2) Relate to a test result that lies outside the clinically 
significant normal or expected range in view of the condition of the 
beneficiary.
    (3) Result in a written narrative report included in the 
beneficiary's medical record.
    (4) Require the exercise of medical judgment by the consultant 
physician.
    (d) Physician pathology services furnished by an independent 
laboratory. The technical component of physician pathology services 
furnished by an independent laboratory to a hospital inpatient or 
outpatient on or before December 31, 2006 may be paid to the laboratory 
by the carrier under the physician fee schedule if the Medicare 
beneficiary is a patient of a covered hospital as defined in paragraph 
(a)(1) of this section. For services furnished after December 31, 2006, 
an independent laboratory may not bill the carrier for the technical 
component of physician pathology services furnished to a hospital 
inpatient or outpatient.

[60 FR 63178, Dec. 8, 1995, as amended at 64 FR 59442, Nov. 2, 1999; 66 
FR 55332, Nov. 1, 2001; 71 FR 69788, Dec. 1, 2006]



            Subpart D_Physician Services in Teaching Settings



Sec. 415.150  Scope.

    This subpart sets forth the rules governing payment for the services 
of physicians in teaching settings and the criteria for determining 
whether the payments are made as one of the following:
    (a) Services to the hospital under the reasonable cost election in 
Sec. Sec. 415.160 through 415.164.
    (b) Provider services through the direct GME payment mechanism in 
Sec. Sec. 413.75 through 413.83 of this chapter.
    (c) Physician services to beneficiaries under the physician fee 
schedule as set forth in part 414 of this chapter.

[60 FR 63178, Dec. 8, 1995, as amended at 70 FR 47490, Aug. 12, 2005]



Sec. 415.152  Definitions.

    As used in this subpart--
    Approved graduate medical education (GME) program means one of the 
following:
    (1) A residency program approved by the Accreditation Council for 
Graduate Medical Education of the American Medical Association, by the 
Committee on Hospitals of the Bureau of Professional Education of the 
American Osteopathic Association, by the Commission on Dental 
Accreditation of the American Dental Association, or by the Council on 
Podiatric Medicine Education of the American Podiatric Medical 
Association.
    (2) A program otherwise recognized as an ``approved medical 
residency program'' under Sec. 413.75(b) of this chapter.
    Direct medical and surgical services means services to individual 
beneficiaries that are either personally furnished by a physician or 
furnished by a resident under the supervision of a physician in a 
teaching hospital making the cost election described in Sec. Sec. 
415.160 through 415.162.
    Nonprovider setting means a setting other than a hospital, skilled 
nursing facility, home health agency, or comprehensive outpatient 
rehabilitation facility in which residents furnish services. These 
include, but are not limited to, family practice or multispecialty 
clinics and physician offices.
    Resident means one of the following:
    (1) An individual who participates in an approved GME program, 
including programs in osteopathy, dentistry, and podiatry.
    (2) A physician who is not in an approved GME program, but who is 
authorized to practice only in a hospital, for example, individuals with 
temporary or restricted licenses, or unlicensed graduates of foreign 
medical schools. For purposes of this subpart, the term resident is 
synonymous with the terms intern and fellow.
    Teaching hospital means a hospital engaged in an approved GME 
residency

[[Page 80]]

program in medicine, osteopathy, dentistry, or podiatry.
    Teaching physician means a physician (other than another resident) 
who involves residents in the care of his or her patients.
    Teaching setting means any provider, hospital-based provider, or 
nonprovider settings in which Medicare payment for the services of 
residents is made under the direct GME payment provisions of Sec. Sec. 
413.75 through 413.83, or on a reasonable-cost basis under the 
provisions of Sec. 409.26 or Sec. 409.40(f) for resident services 
furnished in skilled nursing facilities or home health agencies, 
respectively.

[60 FR 63178, Dec. 8, 1995, as amended at 61 FR 59554, Nov. 22, 1996; 63 
FR 26359, May 12, 1998; 70 FR 47490, Aug. 12, 2005]



Sec. 415.160  Election of reasonable cost payment for direct medical and surgical services of physicians in teaching hospitals: General provisions.

    (a) Scope. A teaching hospital may elect to receive payment on a 
reasonable cost basis for the direct medical and surgical services of 
its physicians in lieu of fee schedule payments that might otherwise be 
made for these services.
    (b) Conditions. A teaching hospital may elect to receive these 
payments only if--
    (1) The hospital notifies its intermediary in writing of the 
election and meets the conditions of either paragraph (b)(2) or 
paragraph (b)(3) of this section;
    (2) All physicians who furnish services to Medicare beneficiaries in 
the hospital agree not to bill charges for these services; or
    (3) All physicians who furnish services to Medicare beneficiaries in 
the hospital are employees of the hospital and, as a condition of 
employment, are precluded from billing for these services.
    (c) Effect of election. If a teaching hospital elects to receive 
reasonable cost payment for physician direct medical and surgical 
services furnished to beneficiaries--
    (1) Those services and the supervision of interns and residents 
furnishing care to individual beneficiaries are covered as hospital 
services, and
    (2) The intermediary pays the hospital for those services on a 
reasonable cost basis under the rules in Sec. 415.162. (Payment for 
other physician compensation costs related to approved GME programs is 
made as described in Sec. 413.78 of this chapter.)
    (d) Election declined. If the teaching hospital does not make this 
election, payment is made--
    (1) For physician services furnished to beneficiaries on a fee 
schedule basis as described in part 414 subject to the rules in this 
subpart, and
    (2) For the supervision of interns and residents as described in 
Sec. Sec. 413.75 through 413.83.

[60 FR 63178, Dec. 8, 1995, as amended at 70 FR 47490, Aug. 12, 2005]



Sec. 415.162  Determining payment for physician services furnished to beneficiaries in teaching hospitals.

    (a) General rule. Payments for direct medical and surgical services 
of physicians furnished to beneficiaries and supervision of interns and 
residents furnishing care to beneficiaries is made by Medicare on the 
basis of reasonable cost if the hospital exercises the election as 
provided for in Sec. 415.160. If this election is made, the following 
occurs:
    (1) Physician services furnished to beneficiaries and supervision of 
interns and residents furnishing care to beneficiaries are paid on a 
reasonable-cost basis, as provided for in paragraph (b) of this section.
    (2) Payment for certain medical school costs may be made as provided 
for in paragraph (c) of this section.
    (3) Payments for services donated by volunteer physicians to 
beneficiaries are made to a fund designated by the organized medical 
staff of the teaching hospital or medical school as provided for in 
paragraph (d) of this section.
    (b) Reasonable cost of physician services and supervision of interns 
and residents. (1) Physician services furnished to beneficiaries and 
supervision of interns and residents furnishing care to beneficiaries in 
a teaching hospital are payable as provider services on a reasonable-
cost basis.
    (2) For purposes of this paragraph, reasonable cost is defined as 
the direct

[[Page 81]]

salary paid to these physicians, plus applicable fringe benefits.
    (3) The costs must be allocated to the services as provided by 
paragraph (j) of this section and apportioned to program beneficiaries 
as provided by paragraph (g) of this section.
    (4) Other allowable costs incurred by the provider related to the 
services described in this paragraph are payable subject to the 
requirements applicable to all other provider services.
    (c) Reasonable costs for the services furnished by a medical school 
or related organization in a hospital. An amount is payable to the 
hospital by CMS under the Medicare program provided that the costs would 
be payable if incurred directly by the hospital rather than under the 
arrangement. The amount must not be in excess of the reasonable costs 
(as defined in paragraphs (c)(1) and (c)(2) of this section) incurred by 
a teaching hospital for services furnished by a medical school or 
organization as described in Sec. 413.17 of this chapter for certain 
costs to the medical school (or a related organization) in furnishing 
services in the hospital.
    (1) Reasonable costs of physician services. (i) When the medical 
school and the hospital are related organizations. If the medical school 
(or organization related to the medical school) and the hospital are 
related by common ownership or control as described in Sec. 413.17 of 
this chapter--
    (A) The costs of these services are allowable costs to the hospital 
under the provisions of Sec. 413.17 of this chapter; and
    (B) The reimbursable costs to the hospital are determined under the 
provisions of this section in the same manner as the costs incurred for 
physicians on the hospital staff and without regard to payments made to 
the medical school by the hospital.
    (ii) When the medical school and the hospital are not related 
organizations. (A) If the medical school and the hospital are not 
related organizations under the provisions of Sec. 413.17 of this 
chapter and the hospital makes payment to the medical school for the 
costs of those services furnished to all patients, payment is made by 
Medicare to the hospital for the reasonable cost incurred by the 
hospital for its payments to the medical school for services furnished 
to beneficiaries.
    (B) Costs incurred under an arrangement must be allocated to the 
full range of services furnished to the hospital by the medical school 
physicians on the same basis as provided for under paragraph (j) of this 
section, and costs allocated to direct medical and surgical services 
furnished to hospital patients must be apportioned to beneficiaries as 
provided for under paragraph (g) of this section.
    (C) If the medical school and the hospital are not related 
organizations under the provisions of Sec. 413.17 of this chapter and 
the hospital makes payment to the medical school only for the costs of 
those services furnished to beneficiaries, costs of the medical school 
not to exceed 105 percent of the sum of physician direct salaries, 
applicable fringe benefits, employer's portion of FICA taxes, Federal 
and State unemployment taxes, and workmen's compensation paid by the 
medical school or an organization related to the medical school may be 
recognized as allowable costs of the medical school.
    (D) These allowable medical school costs must be allocated to the 
full range of services furnished by the physicians of the medical school 
or organization related as provided by paragraph (j) of this section.
    (E) Costs allocated to direct medical and surgical services 
furnished to hospital patients must be apportioned to beneficiaries as 
provided by paragraph (g) of this section.
    (2) Reasonable costs of other than direct medical and surgical 
services. These costs are determined in accordance with paragraph (c)(1) 
of this section except that--
    (i) If the hospital makes payment to the medical school for other 
than direct medical and surgical services furnished to beneficiaries and 
supervision of interns and residents furnishing care to beneficiaries, 
these payments are subject to the required cost-finding and 
apportionment methods applicable to the cost of other hospital services 
(except for direct medical and surgical services furnished to 
beneficiaries); or

[[Page 82]]

    (ii) If the hospital makes payment to the medical school only for 
these services furnished to beneficiaries, the cost of these services is 
not subject to cost-finding and apportionment as otherwise provided by 
this subpart, and the reasonable cost paid by Medicare must be 
determined on the basis of the health insurance ratio(s) used in the 
apportionment of all other provider costs (excluding physician direct 
medical and surgical services furnished to beneficiaries) applied to the 
allowable medical school costs incurred by the medical school for the 
services furnished to all patients of the hospital.
    (d) ``Salary equivalent'' payments for direct medical and surgical 
services furnished by physicians on the voluntary staff of the hospital. 
(1) CMS makes payments under the Medicare program to a fund as defined 
in Sec. 415.164 for direct medical and surgical services furnished to 
beneficiaries on a regularly scheduled basis by physicians on the unpaid 
voluntary medical staff of the hospital (or medical school under 
arrangement with the hospital).
    (i) These payments represent compensation for contributed medical 
staff time which, if not contributed, would have to be obtained through 
employed staff on a payable basis.
    (ii) Payments for volunteer services are determined by applying to 
the regularly scheduled contributed time an hourly rate not to exceed 
the equivalent of the average direct salary (exclusive of fringe 
benefits) paid to all full-time, salaried physicians (other than interns 
and residents) on the hospital staff or, if the number of full-time 
salaried physicians is minimal in absolute terms or in relation to the 
number of physicians on the voluntary staff, to physicians at like 
institutions in the area.
    (iii) This ``salary equivalent'' is a single hourly rate covering 
all physicians regardless of specialty and is applied to the actual 
regularly scheduled time contributed by the physicians in furnishing 
direct medical and surgical services to beneficiaries including 
supervision of interns and residents in that care.
    (iv) A physician who receives any compensation from the hospital or 
a medical school related to the hospital by common ownership or control 
(within the meaning of Sec. 413.17 of this chapter) for direct medical 
and surgical services furnished to any patient in the hospital is not 
considered an unpaid voluntary physician for purposes of this paragraph.
    (v) If, however, a physician receives compensation from the hospital 
or related medical school or organization only for services that are 
other than direct medical and surgical services, a salary equivalent 
payment for the physician's regularly scheduled direct medical and 
surgical services to beneficiaries in the hospital may be imputed. 
However, the sum of the imputed value for volunteer services and the 
physician's actual compensation from the hospital and the related 
medical school (or organization) may not exceed the amount that would 
have been imputed if all of the physician's hospital and medical school 
services (compensated and volunteer) had been volunteer services, or 
paid at the rate of $30,000 per year, whichever is less.
    (2) The following examples illustrate how the allowable imputed 
value for volunteer services is determined. In each example, it has been 
assumed that the average salary equivalent hourly rate is equal to the 
hourly rate for the individual physician's compensated services.

    Example No: 1. Dr. Jones received $3,000 a year from Hospital X for 
services other than direct medical services to all patients, for 
example, utilization review and administrative services. Dr. Jones also 
voluntarily furnished direct medical services to beneficiaries. The 
imputed value of the volunteer services amounted to $10,000 for the cost 
reporting period. The full imputed value of Dr. Jones' volunteer direct 
medical services would be allowed since the total amount of the imputed 
value ($10,000) and the compensated services ($3,000) does not exceed 
$30,000.
    Example No: 2. Dr. Smith received $25,000 from Hospital X for 
services as a department head in a teaching hospital. Dr. Smith also 
voluntarily furnished direct medical services to beneficiaries. The 
imputed value of the volunteer services amounted to $10,000. Only $5,000 
of the imputed value of volunteer services would be allowed since the 
total amount of the imputed value ($10,000) and the compensated services 
($25,000) exceeds the $30,000 maximum amount allowable for all of Dr. 
Smith's services.

[[Page 83]]

                              Computation:

Maximum amount allowable for all services performed by Dr.       $30,000
 Smith for purposes of this computation......................
Less compensation received from Hospital X for other than        $25,000
 direct medical services to individual patients..............
Allowable amount of imputed value for the volunteer services      $5,000
 furnished by Dr. Smith......................................
 

    Example No. 3. Dr. Brown is not compensated by Hospital X for any 
services furnished in the hospital. Dr. Brown voluntarily furnished 
direct surgical services to beneficiaries for a period of 6 months, and 
the imputed value of these services amounted to $20,000. The allowable 
amount of the imputed value for volunteer services furnished by Dr. 
Brown would be limited to $15,000 ($30,000x6/12).

    (3) The amount of the imputed value for volunteer services 
applicable to beneficiaries and payable to a fund is determined in 
accordance with the aggregate per diem method described in paragraph (g) 
of this section.
    (4) Medicare payments to a fund must be used by the fund solely for 
improvement of care of hospital patients or for educational or 
charitable purposes (which may include but are not limited to medical 
and other scientific research).
    (i) No personal financial gain, either direct or indirect, from 
benefits of the fund may inure to any of the hospital staff physicians, 
medical school faculty, or physicians for whom Medicare imputes costs 
for purposes of payment into the fund.
    (ii) Expenses met from contributions made to the hospital from a 
fund are not included as a reimbursable cost when expended by the 
hospital, and depreciation expense is not allowed with respect to 
equipment or facilities donated to the hospital by a fund or purchased 
by the hospital from monies in a fund.
    (e) Requirements for payment--(1) Physicians on the hospital staff. 
The requirements under which the costs of physician direct medical and 
surgical services (including supervision of interns and residents) to 
beneficiaries are the same as those applicable to the cost of all other 
covered provider services except that the costs of these services are 
separately determined as provided by this section and are not subject to 
cost-finding as described in Sec. 413.24 of this chapter.
    (2) Physicians on the medical school faculty. Payment is made to a 
hospital for the costs of services of physicians on the medical school 
faculty, provided that if the medical school is not related to the 
hospital (within the meaning of Sec. 413.17 of this chapter, concerning 
cost to related organizations), the hospital does not make payment to 
the medical school for services furnished to all patients and the 
following requirements are met: If the hospital makes payment to the 
medical school for services furnished to all patients, these 
requirements do not apply. (See paragraph (c)(1)(ii) of this section.)
    (i) There is a written agreement between the hospital and the 
medical school or organization, specifying the types and extent of 
services to be furnished by the medical school and specifying that the 
hospital must pay to the medical school an amount at least equal to the 
reasonable cost (as defined in paragraph (c) of this section) of 
furnishing the services to beneficiaries.
    (ii) The costs are paid to the medical school by the hospital no 
later than the date on which the cost report covering the period in 
which the services were furnished is due to CMS.
    (iii) Payment for the services furnished under an arrangement would 
have been made to the hospital had the services been furnished directly 
by the hospital.
    (3) Physicians on the voluntary staff of the hospital (or medical 
school under arrangement with the hospital). If the conditions for 
payment to a fund outlined in Sec. 415.164 are met, payments are made 
on a ``salary equivalent'' basis (as defined in paragraph (d) of this 
section) to a fund.
    (f) Requirements for payment for medical school faculty services 
other than physician direct medical and surgical services. If the 
requirements for payment for physician direct medical and surgical 
services furnished to beneficiaries in a teaching hospital described in 
paragraph (e) of this section are met, payment is made to a hospital for 
the costs of medical school faculty services other than physician direct

[[Page 84]]

medical and surgical services furnished in a teaching hospital.
    (g) Aggregate per diem methods of apportionment--(1) For the costs 
of physician direct medical and surgical services. The cost of physician 
direct medical and surgical services furnished in a teaching hospital to 
beneficiaries is determined on the basis of an average cost per diem as 
defined in paragraph (h)(1) of this section for physician direct medical 
and surgical services to all patients (see Sec. Sec. 415.172 through 
415.184) for each of the following categories of physicians:
    (i) Physicians on the hospital staff.
    (ii) Physicians on the medical school faculty.
    (2) For the imputed value of physician volunteer direct medical and 
surgical services. The imputed value of physician direct medical and 
surgical services furnished to beneficiaries in a teaching hospital is 
determined on the basis of an average per diem, as defined in paragraph 
(h)(1) of this section, for physician direct medical and surgical 
services to all patients except that the average per diem is derived 
from the imputed value of the physician volunteer direct medical and 
surgical services furnished to all patients.
    (h) Definitions. (1) Average cost per diem for physician direct 
medical and surgical services (including supervision of interns and 
residents) furnished in a teaching hospital to patients in each category 
of physician services described in paragraph (g)(1) of this section 
means the amount computed by dividing total reasonable costs of these 
services in each category by the sum of--
    (i) Inpatient days (as defined in paragraph (h)(2) of this section); 
and
    (ii) Outpatient visit days (as defined in paragraph (h)(3) of this 
section).
    (2) Inpatient days are determined by counting the day of admission 
as 3.5 days and each day after a patient's day of admission, except the 
day of discharge, as 1 day.
    (3) Outpatient visit days are determined by counting only one visit 
day for each calendar day that a patient visits an outpatient department 
or multiple outpatient departments.
    (i) Application. (1) The following illustrates how apportionment 
based on the aggregate per diem method for costs of physician direct 
medical and surgical services furnished in a teaching hospital to 
patients is determined.

                           Teaching Hospital Y

                     Statistical and financial data:

Total inpatient days as defined in paragraph (h)(2) of this       75,000
 section and outpatient visit days as defined in paragraph
 (h)(3) of this section....................................
Total inpatient Part A days................................       20,000
Total inpatient Part B days where Part A coverage is not           1,000
 available.................................................
Total outpatient Part B visit days.........................        5,000
Total cost of direct medical and surgical services            $1,500,000
 furnished to all patients by physicians on the hospital
 staff as determined in accordance with paragraph (i) of
 this section..............................................
Total cost of direct medical and surgical services            $1,650,000
 furnished to all patients by physicians on the medical
 school faculty as determined in accordance with paragraph
 (i) of this section.......................................
 

    Computation of cost applicable to program for physicians on the 
hospital staff:
    Average cost per diem for direct medical and surgical services to 
patients by physicians on the hospital staff: $1,500,000 / 75,000 = $20 
per diem.

Cost of physician direct medical and surgical services          $400,000
 furnished to inpatient beneficiaries covered under Part A:
 $20 per diem x 20,000.....................................
Cost of physician direct medical and surgical services           $20,000
 furnished to inpatient beneficiaries covered under Part B:
 $20 per diem x 1,000......................................
Cost of physician direct medical and surgical services          $100,000
 furnished to outpatient beneficiaries covered under Part
 B: $20 per diem x 5,000...................................
 

    Computation of cost applicable to program for physicians on the 
medical school faculty:
    Average cost per diem for direct medical and surgical services to 
patients by physicians on the medical school faculty: $1,650,000 / 
75,000 = $22 per diem.

Cost of physician direct medical and surgical services          $440,000
 furnished to inpatient beneficiaries covered under Part A:
 $22 per diem x 20,000.....................................

[[Page 85]]

 
Cost of physician direct medical and surgical services           $22,000
 furnished to inpatient beneficiaries covered under Part B:
 $20 per diem x 1,000......................................
Cost of physician direct medical and surgical services          $110,000
 furnished to outpatient beneficiaries covered under Part
 B: $22 per diem x 5,000...................................
 

    (2) The following illustrates how the imputed value of physician 
volunteer direct medical and surgical services furnished in a teaching 
hospital to beneficiaries is determined.

    Example: The physicians on the medical staff of Teaching Hospital Y 
donated a total of 5,000 hours in furnishing direct medical and surgical 
services to patients of the hospital during a cost reporting period and 
did not receive any compensation from either the hospital or the medical 
school. Also, the imputed value for any physician volunteer services did 
not exceed the rate of $30,000 per year per physician.

                     Statistical and financial data:

Total salaries paid to the full-time salaried physicians by     $800,000
 the hospital (excluding interns and residents)............
Total physicians who were paid for an average of 40 hours             20
 per week or 2,080 (52 weeksx40 hours per week) hours per
 year......................................................
Average hourly rate equivalent: $800,000 / 41,600 (2,080 x        $19.23
 20).......................................................
 

    Computation of total imputed value of physician volunteer services 
applicable to all patients:

(Total donated hours x average hourly rate equivalent):          $96,150
 5,000 x $19.23............................................
Total inpatient days (as defined in paragraph (h)(2) of           75,000
 this section) and outpatient visit days (as defined in
 paragraph (h)(3) of this section).........................
Total inpatient Part A days................................       20,000
Total inpatient Part B days if Part A coverage is not              1,000
 available.................................................
Total outpatient Part B visit days.........................        5,000
 

    Computation of imputed value of physician volunteer direct medical 
and surgical services furnished to Medicare beneficiaries:
    Average per diem for physician direct medical and surgical services 
to all patients: $96,150 / 75,000 = $1.28 per diem

Imputed value of physician direct medical and surgical           $25,600
 services furnished to inpatient beneficiaries covered
 under Part A: $1.28 per diem x 20,000.....................
Imputed value of physician direct medical and surgical            $1,280
 services furnished to inpatient beneficiaries covered
 under Part B: $1.28 per diem x 1,000......................
Imputed value of physician direct medical and surgical            $6,400
 services furnished to outpatient beneficiaries covered
 under Part B: $1.28 per diem x 5,000......................
Total......................................................      $33,280
 

    (j) Allocation of compensation paid to physicians in a teaching 
hospital. (1) In determining reasonable cost under this section, the 
compensation paid by a teaching hospital, or a medical school or related 
organization under arrangement with the hospital, to physicians in a 
teaching hospital must be allocated to the full range of services 
implicit in the physician compensation arrangements. (However, see 
paragraph (d) of this section for the computation of the ``salary 
equivalent'' payments for volunteer services furnished to patients.)
    (2) This allocation must be made and must be capable of 
substantiation on the basis of the proportion of each physician's time 
spent in furnishing each type of service to the hospital or medical 
school.



Sec. 415.164  Payment to a fund.

    (a) General rules. Payment for certain voluntary services by 
physicians in teaching hospitals (as these services are described in 
Sec. 415.160) is made on a salary equivalent basis (as described in 
Sec. 415.162(d)) subject to the conditions and limitations contained in 
parts 405 and 413 of this chapter and this part 415, to a single fund 
(as defined in paragraph (b) of this section) designated by the 
organized medical staff of the hospital (or, if the services are 
furnished in the hospital by the faculty of a medical school, to a fund 
as may be designated by the faculty), if the following conditions are 
met:
    (1) The hospital (or medical school furnishing the services under 
arrangement with the hospital) incurs no actual cost in furnishing the 
services.

[[Page 86]]

    (2) The hospital has an agreement with CMS under part 489 of this 
chapter.
    (3) The intermediary, or CMS as appropriate, has received written 
assurances that--
    (i) The payment is used solely for the improvement of care of 
hospital patients or for educational or charitable purposes; and
    (ii) Neither the individuals who are furnished the services nor any 
other persons are charged for the services (and if charged, provision is 
made for the return of any monies incorrectly collected).
    (b) Definition of a fund. For purposes of paragraph (a) of this 
section, a fund is an organization that meets either of the following 
requirements:
    (1) The organization has and retains exemption, as a governmental 
entity or under section 501(c)(3) of the Internal Revenue Code 
(nonprofit educational, charitable, and similar organizations), from 
Federal taxation.
    (2) The organization is an organization of physicians who, under the 
terms of their employment by an entity that meets the requirements of 
paragraph (b)(1) of this section, are required to turn over to that 
entity all income that the physician organization derives from the 
physician services.
    (c) Status of a fund. A fund approved for payment under paragraph 
(a) of this section has all the rights and responsibilities of a 
provider under Medicare except that it does not enter into an agreement 
with CMS under part 489 of this chapter.



Sec. 415.170  Conditions for payment on a fee schedule basis for physician services in a teaching setting.

    Services meeting the conditions for payment in Sec. 415.102(a) 
furnished in teaching settings are payable under the physician fee 
schedule if--
    (a) The services are personally furnished by a physician who is not 
a resident; or
    (b) The services are furnished by a resident in the presence of a 
teaching physician except as provided in Sec. 415.172 (concerning 
physician fee schedule payment for services of teaching physicians), 
Sec. 415.174 (concerning an exception for services furnished in 
hospital outpatient and certain other ambulatory settings), Sec. 
415.176 (concerning renal dialysis services), and Sec. 415.184 
(concerning psychiatric services), as applicable.



Sec. 415.172  Physician fee schedule payment for services of teaching physicians.

    (a) General rule. If a resident participates in a service furnished 
in a teaching setting, physician fee schedule payment is made only if a 
teaching physician is present during the key portion of any service or 
procedure for which payment is sought.
    (1) In the case of surgical, high-risk, or other complex procedures, 
the teaching physician must be present during all critical portions of 
the procedure and immediately available to furnish services during the 
entire service or procedure.
    (i) In the case of surgery, the teaching physician's presence is not 
required during opening and closing of the surgical field.
    (ii) In the case of procedures performed through an endoscope, the 
teaching physician must be present during the entire viewing.
    (2) In the case of evaluation and management services, the teaching 
physician must be present during the portion of the service that 
determines the level of service billed. (However, in the case of 
evaluation and management services furnished in hospital outpatient 
departments and certain other ambulatory settings, the requirements of 
Sec. 415.174 apply.)
    (b) Documentation. Except for services furnished as set forth in 
Sec. Sec. 415.174 (concerning an exception for services furnished in 
hospital outpatient and certain other ambulatory settings), 415.176 
(concerning renal dialysis services), and 415.184 (concerning 
psychiatric services), the medical records must document the teaching 
physician was present at the time the service is furnished. The presence 
of the teaching physician during procedures may be demonstrated by the 
notes in the medical records made by a physician, resident, or nurse. In 
the case of evaluation and management procedures, the teaching physician 
must personally

[[Page 87]]

document his or her participation in the service in the medical records.
    (c) Payment level. In the case of services such as evaluation and 
management for which there are several levels of service codes available 
for reporting purposes, the appropriate payment level must reflect the 
extent and complexity of the service when fully furnished by the 
teaching physician.



Sec. 415.174  Exception: Evaluation and management services furnished in certain centers.

    (a) In the case of certain evaluation and management codes of lower 
and mid-level complexity (as specified by CMS in program instructions), 
carriers may make physician fee schedule payment for a service furnished 
by a resident without the presence of a teaching physician. For the 
exception to apply, all of the following conditions must be met:
    (1) The services must be furnished in a center that is located in an 
outpatient department of a hospital or another ambulatory care entity in 
which the time spent by residents in patient care activities is included 
in determining intermediary payments to a hospital under Sec. Sec. 
413.75 through 413.83.
    (2) Any resident furnishing the service without the presence of a 
teaching physician must have completed more than 6 months of an approved 
residency program.
    (3) The teaching physician must not direct the care of more than 
four residents at any given time and must direct the care from such 
proximity as to constitute immediate availability. The teaching 
physician must--
    (i) Have no other responsibilities at the time;
    (ii) Assume management responsibility for those beneficiaries seen 
by the residents;
    (iii) Ensure that the services furnished are appropriate;
    (iv) Review with each resident during or immediately after each 
visit, the beneficiary's medical history, physical examination, 
diagnosis, and record of tests and therapies; and
    (v) Document the extent of the teaching physician's participation in 
the review and direction of the services furnished to each beneficiary.
    (4) The range of services furnished by residents in the center 
includes all of the following:
    (i) Acute care for undifferentiated problems or chronic care for 
ongoing conditions.
    (ii) Coordination of care furnished by other physicians and 
providers.
    (iii) Comprehensive care not limited by organ system, or diagnosis.
    (5) The patients seen must be an identifiable group of individuals 
who consider the center to be the continuing source of their health care 
and in which services are furnished by residents under the medical 
direction of teaching physicians.
    (b) Nothing in paragraph (a) of this section may be construed as 
providing a basis for the coverage of services not determined to be 
covered under Medicare, such as routine physical checkups.

[60 FR 63178, Dec. 8, 1995, as amended at 61 FR 59554, Nov. 22, 1996; 70 
FR 47490, Aug. 12, 2005]



Sec. 415.176  Renal dialysis services.

    In the case of renal dialysis services, physicians who are not paid 
under the physician monthly capitation payment method (as described in 
Sec. 414.314 of this chapter) must meet the requirements of Sec. Sec. 
415.170 and 415.172 (concerning physician fee schedule payment for 
services of teaching physicians).



Sec. 415.178  Anesthesia services.

    (a) General rule. An unreduced physician fee schedule payment may be 
made if a physician is involved in a single anesthesia procedure 
involving an anesthesia resident. In the case of anesthesia services, 
the teaching physician must be present during all critical portions of 
the procedure and immediately available to furnish services during the 
entire service or procedure. The teaching physician cannot receive an 
unreduced fee if he or she performs services involving other patients 
during the period the anesthesia resident is furnishing services in a 
single case. For additional rules for payment of anesthesia services 
involving residents, see Sec. 414.46(c)(1)(iii)).
    (b) Documentation. Documentation must indicate the physician's 
presence

[[Page 88]]

or participation in the administration of the anesthesia.

[60 FR 63178, Dec. 8, 1995; 61 FR 42385, Aug. 15, 1996]



Sec. 415.180  Teaching setting requirements for the interpretation of diagnostic radiology and other diagnostic tests.

    (a) General rule. Physician fee schedule payment is made for the 
interpretation of diagnostic radiology and other diagnostic tests if the 
interpretation is performed or reviewed by a physician other than a 
resident.
    (b) Documentation. Documentation must indicate that the physician 
personally performed the interpretation or reviewed the resident's 
interpretation with the resident.



Sec. 415.184  Psychiatric services.

    To qualify for physician fee schedule payment for psychiatric 
services furnished under an approved GME program, the physician must 
meet the requirements of Sec. Sec. 415.170 and 415.172, including 
documentation, except that the requirement for the presence of the 
teaching physician during the service in which a resident is involved 
may be met by observation of the service by use of a one-way mirror, 
video equipment, or similar device.



Sec. 415.190  Conditions of payment: Assistants at surgery in teaching hospitals.

    (a) Basis, purpose, and scope. This section describes the conditions 
under which Medicare pays on a fee schedule basis for the services of an 
assistant at surgery in a teaching hospital. This section is based on 
section 1842(b)(7)(D)(I) of the Act and applies only to hospitals with 
an approved GME residency program. Except as specified in paragraph (c) 
of this section, fee schedule payment is not available for assistants at 
surgery in hospitals with--
    (1) A training program relating to the medical specialty required 
for the surgical procedure; and
    (2) A resident in a training program relating to the specialty 
required for the surgery available to serve as an assistant at surgery.
    (b) Definition. Assistant at surgery means a physician who actively 
assists the physician in charge of a case in performing a surgical 
procedure.
    (c) Conditions for payment for assistants at surgery. Payment on a 
fee schedule basis is made for the services of an assistant at surgery 
in a teaching hospital only if the services meet one of the following 
conditions:
    (1) Are required as a result of exceptional medical circumstances.
    (2) Are complex medical procedures performed by a team of 
physicians, each performing a discrete, unique function integral to the 
performance of a complex medical procedure that requires the special 
skills of more than one physician.
    (3) Constitute concurrent medical care relating to a medical 
condition that requires the presence of, and active care by, a physician 
of another specialty during surgery.
    (4) Are medically required and are furnished by a physician who is 
primarily engaged in the field of surgery, and the primary surgeon does 
not use interns and residents in the surgical procedures that the 
surgeon performs (including preoperative and postoperative care).
    (5) Are not related to a surgical procedure for which CMS determines 
that assistants are used less than 5 percent of the time.



                     Subpart E_Services of Residents



Sec. 415.200  Services of residents in approved GME programs.

    (a) General rules. Services furnished in hospitals by residents in 
approved GME programs are specifically excluded from being paid as 
``physician services'' defined in Sec. 414.2 of this chapter and are 
payable as hospital services. This exclusion applies whether or not the 
resident is licensed to practice under the laws of the State in which he 
or she performs the service. The payment methodology for services of 
residents in hospitals and hospital-based providers is set forth in 
Sec. Sec. 413.75 through 413.83 of this chapter.
    (b) Exception. For low and mid-level evaluation and management 
services furnished under certain conditions in centers located in 
hospital outpatient

[[Page 89]]

departments and other ambulatory settings, see Sec. 415.174.
    (c) Definitions. See Sec. 415.152 for definitions of terms used in 
this subpart E.

[60 FR 63178, Dec. 8, 1995, as amended at 70 FR 47490, Aug. 12, 2005]



Sec. 415.202  Services of residents not in approved GME programs.

    (a) General rules. For services of a physician employed by a 
hospital who is authorized to practice only in a hospital setting and 
for the services of a resident who is not in any approved GME program, 
payment is made to the hospital on a Part B reasonable cost basis 
regardless of whether the services are furnished to hospital inpatients 
or outpatients.
    (b) Payment. For services described in paragraph (a) of this 
section, payment is made under Part B by reducing the reasonable costs 
of furnishing the services by the beneficiary deductible and paying 80 
percent of the remaining amount. No payment is made for other costs of 
unapproved programs, such as administrative costs related to teaching 
activities of physicians.



Sec. 415.204  Services of residents in skilled nursing facilities and home health agencies.

    (a) Medicare Part A payment. Payment is made under Medicare Part A 
for interns' and residents' services furnished in the following settings 
that meet the specified requirements:
    (1) Skilled nursing facility. Payment to a participating skilled 
nursing facility may include the cost of services of an intern or 
resident who is in an approved GME program in a hospital with which the 
skilled nursing facility has a transfer agreement that provides, in 
part, for the transfer of patients and the interchange of medical 
records.
    (2) Home health agency. A participating home health agency may 
receive payment for the cost of the services of an intern or resident 
who is under an approved GME program of a hospital with which the home 
health agency is affiliated or under common control if these services 
are furnished as part of the home health visits for a Medicare 
beneficiary. (Nevertheless, see Sec. Sec. 413.75 through 413.83 of this 
chapter for the costs of approved GME programs in hospital-based 
providers.)
    (b) Medicare Part B payment. Medical services of a resident of a 
hospital that are furnished by a skilled nursing facility or home health 
agency are paid under Medicare Part B if payment is not provided under 
Medicare Part A. Payment is made under Part B for a resident's services 
by reducing the reasonable costs of furnishing the services by the 
beneficiary deductible and paying 80 percent of the remaining amount.

[60 FR 63178, Dec. 8, 1995, as amended at 70 FR 47490, Aug. 12, 2005]



Sec. 415.206  Services of residents in nonprovider settings.

    Patient care activities of residents in approved GME programs that 
are furnished in nonprovider settings are payable in one of the 
following two ways:
    (a) Direct GME payments. If the conditions in Sec. 413.78 regarding 
patient care activities and training of residents are met, the time 
residents spend in nonprovider settings such as clinics, nursing 
facilities, and physician offices in connection with approved GME 
programs is included in determining the number of full-time equivalency 
residents in the calculation of a teaching hospital's resident count. 
The teaching physician rules on carrier payments in Sec. Sec. 415.170 
through 415.184 apply in these teaching settings.
    (b) Physician fee schedule. (1) Services furnished by a resident in 
a nonprovider setting are covered as physician services and payable 
under the physician fee schedule if the following requirements are met:
    (i) The resident is fully licensed to practice medicine, osteopathy, 
dentistry, or podiatry in the State in which the service is performed.
    (ii) The time spent in patient care activities in the nonprovider 
setting is not included in a teaching hospital's full-time equivalency 
resident count for the purpose of direct GME payments.
    (2) Payment may be made regardless of whether a resident is 
functioning within the scope of his or her GME program in the 
nonprovider setting.

[[Page 90]]

    (3) If fee schedule payment is made for the resident's services in a 
nonprovider setting, payment must not be made for the services of a 
teaching physician.
    (4) The carrier must apply the physician fee schedule payment rules 
set forth in subpart A of part 414 of this chapter to payments for 
services furnished by a resident in a nonprovider setting.

[60 FR 63178, Dec. 8, 1995, as amended at 70 FR 47490, Aug. 12, 2005]



Sec. 415.208  Services of moonlighting residents.

    (a) Definition. For purposes of this section, the term services of 
moonlighting residents refers to services that licensed residents 
perform that are outside the scope of an approved GME program.
    (b) Services in GME program hospitals. (1) The services of residents 
to inpatients of hospitals in which the residents have their approved 
GME program are not covered as physician services and are payable under 
Sec. Sec. 413.75 through 413.83 regarding direct GME payments.
    (2) Services of residents that are not related to their approved GME 
programs and are performed in an outpatient department or emergency 
department of a hospital in which they have their training program are 
covered as physician services and payable under the physician fee 
schedule if all of the following criteria are met:
    (i) The services are identifiable physician services and meet the 
conditions for payment of physician services to beneficiaries in 
providers in Sec. 415.102(a).
    (ii) The resident is fully licensed to practice medicine, 
osteopathy, dentistry, or podiatry by the State in which the services 
are performed.
    (iii) The services performed can be separately identified from those 
services that are required as part of the approved GME program.
    (3) If the criteria specified in paragraph (b)(2) of this section 
are met, the services of the moonlighting resident are considered to 
have been furnished by the individual in his or her capacity as a 
physician, rather than in the capacity of a resident. The carrier must 
review the contracts and agreements for these services to ensure 
compliance with the criteria specified in paragraph (b)(2) of this 
section.
    (4) No payment is made for services of a ``teaching physician'' 
associated with moonlighting services, and the time spent furnishing 
these services is not included in the teaching hospital's full-time 
equivalency count for the indirect GME payment (Sec. 412.105 of this 
chapter) and for the direct GME payment (Sec. Sec. 413.75 through 
413.83 of this chapter).
    (c) Other settings. Moonlighting services of a licensed resident in 
an approved GME program furnished outside the scope of that program in a 
hospital or other setting that does not participate in the approved GME 
program are payable under the physician fee schedule as set forth in 
Sec. 415.206(b)(1).

[60 FR 63178, Dec. 8, 1995, as amended at 70 FR 47490, Aug. 12, 2005]



PART 416_AMBULATORY SURGICAL SERVICES--Table of Contents




              Subpart A_General Provisions and Definitions

Sec.
416.1 Basis and scope.
416.2 Definitions.

              Subpart B_General Conditions and Requirements

416.25 Basic requirements.
416.26 Qualifying for an agreement.
416.30 Terms of agreement with CMS.
416.35 Termination of agreement.

               Subpart C_Specific Conditions for Coverage

416.40 Condition for coverage--Compliance with State licensure law.
416.41 Condition for coverage--Governing body and management.
416.42 Condition for coverage--Surgical services.
416.43 Condition for coverage--Evaluation of quality.
416.44 Condition for coverage--Environment.
416.45 Condition for coverage--Medical staff.
416.46 Condition for coverage--Nursing services.
416.47 Condition for coverage--Medical records.
416.48 Condition for coverage--Pharmaceutical services.

[[Page 91]]

416.49 Condition for coverage--Laboratory and radiologic services.

  Subpart D_Scope of Benefits for Services Furnished Before January 1, 
                                  2008

416.60 General rules.
416.61 Scope of facility services.
416.65 Covered surgical procedures.
416.75 Performance of listed surgical procedures on an inpatient 
          hospital basis.
416.76 Applicability.

  Subpart E_Prospective Payment System for Facility Services Furnished 
                         Before January 1, 2008

416.120 Basis for payment.
416.121 Applicability.
416.125 ASC facility services payment rate.
416.130 Publication of revised payment methodologies.
416.140 Surveys.

   Subpart F_Coverage, Scope of ASC Services, and Prospective Payment 
      System for ASC Services Furnished on or After January 1, 2008

416.160 Basis and scope.
416.161 Applicability of this subpart.
416.163 General rules.
416.164 Scope of ASC services.
416.166 Covered surgical procedures.
416.167 Basis of payment.
416.171 Determination of payment rates for ASC services.
416.172 Adjustments to national payment rates.
416.173 Publication of revised payment methodologies and payment rates.
416.178 Limitations on administrative and judicial review.
416.179 Payment and coinsurance reduction for devices replaced without 
          cost or when full credit is received.

 Subpart G_Adjustment in Payment Amounts for New Technology Intraocular 
             Lenses Furnished by Ambulatory Service Centers

416.180 Basis and scope.
416.185 Process for establishing a new class of new technology IOLs.
416.190 Request for review of payment amount.
416.195 Determination of membership in new classes of new technology 
          IOLs.
416.200 Payment adjustment.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 47 FR 34094, Aug. 5, 1982, unless otherwise noted.



              Subpart A_General Provisions and Definitions



Sec. 416.1  Basis and scope.

    (a) Statutory basis. (1) Section 1832(a)(2)(F)(i) of the Act 
provides for Medicare Part B coverage of facility services furnished in 
connection with surgical procedures specified by the Secretary under 
section 1833(i)(1) of the Act.
    (2) Section 1833(i)(1)(A) of the Act requires the Secretary to 
specify the surgical procedures that can be performed safely on an 
ambulatory basis in an ambulatory surgical center.
    (3) Sections 1833(i)(2)(A) and (D) and 1833(a)(1)(G) of the Act 
specify the amounts to be paid for facility services furnished in 
connection with the specified surgical procedures when they are 
performed in an ASC.
    (4) Section 1833(i)(2)(C) of the Act provides that if the Secretary 
has not updated amounts for ASC facility services furnished during a 
fiscal year through 2005 or a calendar year beginning with 2006, the 
amounts shall be increased by the percentage increase in the Consumer 
Price Index for all urban consumers as estimated by the Secretary for 
the 12-month period ending with the midpoint of the year involved, 
except that, in fiscal year 2005, the last quarter of calendar year 
2005, and each of the calendar years 2006 through 2009, the increase 
shall be zero percent.
    (5) Section 1833(i)(2)(E) of the Act provides that, with respect to 
surgical procedures furnished on or after January 1, 2007, and before 
the effective date of the implementation of a revised payment system, 
the payment amount shall be the lesser of the ASC payment rate 
established under section 1833(i)(2)(A) of the Act or the prospective 
payment rate for hospital outpatient department services established 
under section 1833(t)(3)(D) of the Act. The lesser payment amount shall 
be determined prior to application of any geographic adjustment.
    (b) Scope. This part sets forth--
    (1) The conditions that an ASC must meet in order to participate in 
the Medicare program;
    (2) The scope of covered services; and

[[Page 92]]

    (3) The conditions for Medicare payment for facility services.

[56 FR 8843, Mar. 1, 1991; 56 FR 23022, May 20, 1991, as amended at 71 
FR 68226, Nov. 24, 2006]



Sec. 416.2  Definitions.

    As used in this part:
    Ambulatory surgical center or ASC means any distinct entity that 
operates exclusively for the purpose of providing surgical services to 
patients not requiring hospitalization, has an agreement with CMS to 
participate in Medicare as an ASC, and meets the conditions set forth in 
subparts B and C of this part.
    ASC services means facility services that are furnished in an ASC.
    Covered surgical procedures means those surgical procedures that 
meet the criteria specified in Sec. 416.65 and are published in the 
Federal Register.
    Facility services means services that are furnished in connection 
with covered surgical procedures performed in an ASC.

[56 FR 8843, Mar. 1, 1991; 56 FR 23022, May 20, 1991, as amended at 71 
FR 68226, Nov. 24, 2006]

    Effective Date Note: At 72 FR 42544, Aug. 2, 2007, Sec. 416.2 was 
amended by revising the definitions of ``ASC services,'' ``Covered 
surgical procedures,'' and ``Facility services,'' and adding a 
definition of ``Covered ancillary services,'' effective January 1, 2008. 
For the convenience of the user, the added and revised text is set forth 
as follows:



Sec. 416.2  Definitions.

                                * * * * *

    ASC services means, for the period before January 1, 2008, facility 
services that are furnished in an ASC, and beginning January 1, 2008, 
means the combined facility services and covered ancillary services that 
are furnished in an ASC in connection with covered surgical procedures.
    Covered ancillary services means items and services that are 
integral to a covered surgical procedure performed in an ASC as provided 
in Sec. 416.164(b), for which payment may be made under Sec. 416.171 
in addition to the payment for the facility services.
    Covered surgical procedures means those surgical procedures 
furnished before January 1, 2008, that meet the criteria specified in 
Sec. 416.65 and those surgical procedures furnished on or after January 
1, 2008, that meet the criteria specified in Sec. 416.166.
    Facility services means for the period before January 1, 2008, 
services that are furnished in connection with covered surgical 
procedures performed in an ASC, and beginning January 1, 2008, means 
services that are furnished in connection with covered surgical 
procedures performed in an ASC as provided in Sec. 416.164(a) for which 
payment is included in the ASC payment established under Sec. 416.171 
for the covered surgical procedure.



              Subpart B_General Conditions and Requirements



Sec. 416.25  Basic requirements.

    Participation as an ASC is limited to facilities that--
    (a) Meet the definition in Sec. 416.2; and
    (b) Have in effect an agreement obtained in accordance with this 
subpart.

[56 FR 8843, Mar. 1, 1991]



Sec. 416.26  Qualifying for an agreement.

    (a) Deemed compliance. CMS may deem an ASC to be in compliance with 
any or all of the conditions set forth in subpart C of this part if--
    (1) The ASC is accredited by a national accrediting body, or 
licensed by a State agency, that CMS determines provides reasonable 
assurance that the conditions are met;
    (2) In the case of deemed status through accreditation by a national 
accrediting body, where State law requires licensure, the ASC complies 
with State licensure requirements; and
    (3) The ASC authorizes the release to CMS, of the findings of the 
accreditation survey.
    (b) Survey of ASCs. (1) Unless CMS deems the ASC to be in compliance 
with the conditions set forth in subpart C of this part, the State 
survey agency must survey the facility to ascertain compliance with 
those conditions, and report its findings to CMS.
    (2) CMS surveys deemed ASCs on a sample basis as part of CMS's 
validation process.
    (c) Acceptance of the ASC as qualified to furnish ambulatory 
surgical services. If CMS determines, after reviewing the survey agency 
recommendation and other evidence relating to the qualification of the 
ASC, that the facility meets the requirements of this part, it sends to 
the ASC--
    (1) Written notice of the determination; and
    (2) Two copies of the ASC agreement.

[[Page 93]]

    (d) Filing of agreement by the ASC. If the ASC wishes to participate 
in the program, it must--
    (1) Have both copies of the ASC agreement signed by its authorized 
representative; and
    (2) File them with CMS.
    (e) Acceptance by CMS. If CMS accepts the agreement filed by the 
ASC, returns to the ASC one copy of the agreement, with a notice of 
acceptance specifying the effective date.
    (f) Appeal rights. If CMS refuses to enter into an agreement or if 
CMS terminates an agreement, the ASC is entitled to a hearing in 
accordance with part 498 of this chapter.

[56 FR 8843, Mar. 1, 1991]



Sec. 416.30  Terms of agreement with CMS.

    As part of the agreement under Sec. 416.26 the ASC must agree to 
the following:
    (a) Compliance with coverage conditions. The ASC agrees to meet the 
conditions for coverage specified in subpart C of this part and to 
report promptly to CMS any failure to do so.
    (b) Limitation on charges to beneficiaries. \1\ The ASC agrees to 
charge the beneficiary or any other person only the applicable 
deductible and coinsurance amounts for facility services for which the 
beneficiary--
---------------------------------------------------------------------------

    \1\ For facility services furnished before July 1987, the ASC had to 
agree to make no charge to the beneficiary, since those services were 
not subject to the part B deductible and coinsurance provisions.
---------------------------------------------------------------------------

    (1) Is entitled to have payment made on his or her behalf under this 
part; or
    (2) Would have been so entitled if the ASC had filed a request for 
payment in accordance with Sec. 410.165 of this chapter.
    (c) Refunds to beneficiaries. (1) The ASC agrees to refund as 
promptly as possible any money incorrectly collected from beneficiaries 
or from someone on their behalf.
    (2) As used in this section, money incorrectly collected means sums 
collected in excess of those specified in paragraph (b) of this section. 
It includes amounts collected for a period of time when the beneficiary 
was believed not to be entitled to Medicare benefits if--
    (i) The beneficiary is later determined to have been entitled to 
Medicare benefits; and
    (ii) The beneficiary's entitlement period falls within the time the 
ASC's agreement with CMS is in effect.
    (d) Furnishing information. The ASC agrees to furnish to CMS, if 
requested, information necessary to establish payment rates specified in 
Sec. Sec. 416.120-416.130 in the form and manner that CMS requires.
    (e) Acceptance of assignment. The ASC agrees to accept assignment 
for all facility services furnished in connection with covered surgical 
procedures. For purposes of this section, assignment means an assignment 
under Sec. 424.55 of this chapter of the right to receive payment under 
Medicare Part B and payment under Sec. 424.64 of this chapter (when an 
individual dies before assigning the claim).
    (f) ASCs operated by a hopsital. In an ASC operated by a hospital--
    (1) The agreement is made effective on the first day of the next 
Medicare cost reporting period of the hospital that operates the ASC; 
and
    (2) The ASC participates and is paid only as an ASC, without the 
option of converting to or being paid as a hospital outpatient 
department, unless CMS determines there is good cause to do otherwise.
    (3) Costs for the ASC are treated as a non-reimbursable cost center 
on the hopsital's cost report.
    (g) Additional provisions. The agreement may contain any additional 
provisions that CMS finds necessary or desirable for the efficient and 
effective administration of the Medicare program.

[47 FR 34094, Aug. 5, 1982, as amended at 51 FR 41351, Nov. 14, 1986; 56 
FR 8844, Mar. 1, 1991]



Sec. 416.35  Termination of agreement.

    (a) Termination by the ASC--(1) Notice to CMS. An ASC that wishes to 
terminate its agreement must send CMS written notice of its intent.
    (2) Date of termination. The notice may state the intended date of 
termination which must be the first day of a calendar month.
    (i) If the notice does not specify a date, or the date is not 
acceptable to

[[Page 94]]

CMS, CMS may set a date that will not be more than 6 months from the 
date on the ASC's notice of intent.
    (ii) CMS may accept a termination date that is less than 6 months 
after the date on the ASC's notice if it determines that to do so would 
not unduly disrupt services to the community or otherwise interfere with 
the effective and efficient administration of the Medicare program.
    (3) Voluntary termination. If an ASC ceases to furnish services to 
the community, that shall be deemed to be a voluntary termination of the 
agreement by the ASC, effective on the last day of business with 
Medicare beneficiaries.
    (b) Termination by CMS--(1) Cause for termination. CMS may terminate 
an agreement if it determines that the ASC--
    (i) No longer meets the conditions for coverage as specified under 
Sec. 416.26; or
    (ii) Is not in substantial compliance with the provisions of the 
agreement, the requirements of this subpart, and other applicable 
regulations of subchapter B of this chapter, or any applicable 
provisions of title XVIII of the Act.
    (2) Notice of termination. CMS sends notice of termination to the 
ASC at least 15 days before the effective date stated in the notice.
    (3) Appeal by the ASC. An ASC may appeal the termination of its 
agreement in accordance with the provisions set forth in part 498 of 
this chapter.
    (c) Effect of termination. Payment is not available for ASC services 
furnished on or after the effective date of termination.
    (d) Notice to the public. Prompt notice of the date and effect of 
termination is given to the public, through publication in local 
newspapers by--
    (1) The ASC, after CMS has approved or set a termination date; or
    (2) CMS, when it has terminated the agreement.
    (e) Conditions for reinstatement after termination of agreement by 
CMS. When an agreement with an ASC is terminated by CMS, the ASC may not 
file another agreement to participate in the Medicare program unless 
CMS--
    (1) Finds that the reason for the termination of the prior agreement 
has been removed; and
    (2) Is assured that the reason for the termination will not recur.

[47 FR 34094, Aug. 5, 1982, as amended at 52 FR 22454, June 12, 1987; 56 
FR 8844, Mar. 1, 1991; 61 FR 40347, Aug. 2, 1996]



               Subpart C_Specific Conditions for Coverage



Sec. 416.40  Condition for coverage--Compliance with State licensure law.

    The ASC must comply with State licensure requirements.



Sec. 416.41  Condition for coverage--Governing body and management.

    The ASC must have a governing body, that assumes full legal 
responsibility for determining, implementing, and monitoring policies 
governing the ASC's total operation and for ensuring that these policies 
are administered so as to provide quality health care in a safe 
environment. When services are provided through a contract with an 
outside resource, the ASC must assure that these services are provided 
in a safe and effective manner. Standard: Hospitalization. The ASC must 
have an effective procedure for the immediate transfer to a hospital, of 
patients requiring emergency medical care beyond the capabilities of the 
ASC. This hospital must be a local, Medicare participating hospital or a 
local, nonparticipating hospital that meets the requirements for payment 
for emergency services under Sec. 482.2 of this chapter. The ASC must 
have a written transfer agreement with such a hospital, or all 
physicians performing surgery in the ASC must have admitting privileges 
at such a hospital.

[47 FR 34094, Aug. 5, 1982, as amended at 51 FR 22041, June 17, 1986]



Sec. 416.42  Condition for coverage--Surgical services.

    Surgical procedures must be performed in a safe manner by qualified 
physicians who have been granted clinical privileges by the governing 
body of the ASC in accordance with approved policies and procedures of 
the ASC.

[[Page 95]]

    (a) Standard: Anesthetic risk and evaluation. A physician must 
examine the patient immediately before surgery to evaluate the risk of 
anesthesia and of the procedure to be performed. Before discharge from 
the ASC, each patient must be evaluated by a physician for proper 
anesthesia recovery.
    (b) Standard: Administration of anesthesia. Anesthetics must be 
administered by only--
    (1) A qualified anesthesiologist; or
    (2) A physician qualified to administer anesthesia, a certified 
registered nurse anesthetist (CRNA) or an anesthesiologist's assistant 
as defined in Sec. 410.69(b) of this chapter, or a supervised trainee 
in an approved educational program. In those cases in which a non-
physician administers the anesthesia, unless exempted in accordance with 
paragraph (d) of this section, the anesthetist must be under the 
supervision of the operating physician, and in the case of an 
anesthesiologist's assistant, under the supervision of an 
anesthesiologist.
    (c) Standard: Discharge. All patients are discharged in the company 
of a responsible adult, except those exempted by the attending 
physician.
    (d) Standard: State exemption. (1) An ASC may be exempted from the 
requirement for physician supervision of CRNAs as described in paragraph 
(b)(2) of this section, if the State in which the ASC is located submits 
a letter to CMS signed by the Governor, following consultation with the 
State's Boards of Medicine and Nursing, requesting exemption from 
physician supervision of CRNAs. The letter from the Governor must attest 
that he or she has consulted with State Boards of Medicine and Nursing 
about issues related to access to and the quality of anesthesia services 
in the State and has concluded that it is in the best interests of the 
State's citizens to opt-out of the current physician supervision 
requirement, and that the opt-out is consistent with State law.
    (2) The request for exemption and recognition of State laws, and the 
withdrawal of the request may be submitted at any time, and are 
effective upon submission.

[57 FR 33899, July 31, 1992, as amended at 66 FR 56768, Nov. 13, 2001.]



Sec. 416.43  Condition for coverage--Evaluation of quality.

    The ASC, with the active participation of the medical staff, must 
conduct an ongoing, comprehensive self-assessment of the quality of care 
provided, including medical necessity of procedures performed and 
appropriateness of care, and use findings, when appropriate, in the 
revision of center policies and consideration of clinical privileges.



Sec. 416.44  Condition for coverage--Environment.

    The ASC must have a safe and sanitary environment, properly 
constructed, equipped, and maintained to protect the health and safety 
of patients.
    (a) Standard: Physical environment. The ASC must provide a 
functional and sanitary environment for the provision of surgical 
services.
    (1) Each operating room must be designed and equipped so that the 
types of surgery conducted can be performed in a manner that protects 
the lives and assures the physical safety of all individuals in the 
area.
    (2) The ASC must have a separate recovery room and waiting area.
    (3) The ASC must establish a program for identifying and preventing 
infections, maintaining a sanitary environment, and reporting the 
results to appropriate authorities.
    (b) Standard: Safety from fire. (1) Except as otherwise provided in 
this section, the ASC must meet the provisions applicable to Ambulatory 
Health Care Centers of the 2000 edition of the Life Safety Code of the 
National Fire Protection Association, regardless of the number of 
patients served. The Director of the Office of the Federal Register has 
approved the NFPA 101 [reg] 2000 edition of the Life Safety 
Code, issued January 14, 2000, for incorporation by reference in 
accordance with 5 U.S.C. 552(a) and 1 CFR part 51. A copy of the Code is 
available for inspection at the CMS Information Resource Center, 7500 
Security Boulevard, Baltimore, MD and at the National Archives and 
Records Administration (NARA). For information on the availability of 
this material at NARA, call 202-741-6030, or go to: http://
www.archives.gov/federal--register/

[[Page 96]]

code--of--federal--regulations/ibr--locations.html. Copies may be 
obtained from the National Fire Protection Association, 1 Batterymarch 
Park, Quincy, MA 02269. If any changes in this edition of the Code are 
incorporated by reference, CMS will publish notice in the Federal 
Register to announce the changes.
    (2) In consideration of a recommendation by the State survey agency, 
CMS may waive, for periods deemed appropriate, specific provisions of 
the Life Safety Code which, if rigidly applied, would result in 
unreasonable hardship upon an ASC, but only if the waiver will not 
adversely affect the health and safety of the patients.
    (3) The provisions of the Life Safety Code do not apply in a State 
if CMS finds that a fire and safety code imposed by State law adequately 
protects patients in an ASC.
    (4) An ASC must be in compliance with Chapter 21.2.9.1, Emergency 
Lighting, beginning on March 13, 2006.
    (5) Notwithstanding any provisions of the 2000 edition of the Life 
Safety Code to the contrary, an ASC may place alcohol-based hand rub 
dispensers in its facility if--
    (i) Use of alcohol-based hand rub dispensers does not conflict with 
any State or local codes that prohibit or otherwise restrict the 
placement of alcohol-based hand rub dispensers in health care 
facilities;
    (ii) The dispensers are installed in a manner that minimizes leaks 
and spills that could lead to falls;
    (iii) The dispensers are installed in a manner that adequately 
protects against inappropriate access;
    (iv) The dispensers are installed in accordance with the following 
provisions:
    (A) Where dispensers are installed in a corridor, the corridor shall 
have a minimum width of 6 ft (1.8m);
    (B) The maximum individual dispenser fluid capacity shall be:
    (1) 0.3 gallons (1.2 liters) for dispensers in rooms, corridors, and 
areas open to corridors.
    (2) 0.5 gallons (2.0 liters) for dispensers in suites of rooms;
    (C) The dispensers shall have a minimum horizontal spacing of 4 ft 
(1.2m) from each other;
    (D) Not more than an aggregate 10 gallons (37.8 liters) of ABHR 
solution shall be in use in a single smoke compartment outside of a 
storage cabinet;
    (E) Storage of quantities greater than 5 gallons (18.9 liters) in a 
single smoke compartment shall meet the requirements of NFPA 30, 
Flammable and Combustible Liquids Code;
    (F) The dispensers shall not be installed over or directly adjacent 
to an ignition source;
    (G) In locations with carpeted floor coverings, dispensers installed 
directly over carpeted surfaces shall be permitted only in sprinklered 
smoke compartments; and
    (v) The dispensers are maintained in accordance with dispenser 
manufacturer guidelines.
    (c) Standard: Emergency equipment. Emergency equipment available to 
the operating rooms must include at least the following:
    (1) Emergency call system.
    (2) Oxygen.
    (3) Mechanical ventilatory assistance equipment including airways, 
manual breathing bag, and ventilator.
    (4) Cardiac defibrillator.
    (5) Cardiac monitoring equipment.
    (6) Tracheostomy set.
    (7) Laryngoscopes and endotracheal tubes.
    (8) Suction equipment.
    (9) Emergency medical equipment and supplies specified by the 
medical staff.
    (d) Standard: Emergency personnel. Personnel trained in the use of 
emergency equipment and in cardiopulmonary resuscitation must be 
available whenever there is a patient in the ASC.

[47 FR 34094, Aug. 5, 1982, amended at 53 FR 11508, Apr. 7, 1988; 54 FR 
4026, Jan. 27, 1989; 68 FR 1385, Jan. 10, 2003; 69 FR 18803, Apr. 9, 
2004; 70 FR 15237, Mar. 25, 2005; 71 FR 55339, Sept. 22, 2006]



Sec. 416.45  Condition for coverage--Medical staff.

    The medical staff of the ASC must be accountable to the governing 
body.
    (a) Standard: Membership and clinical privileges. Members of the 
medical staff must be legally and professionally qualified for the 
positions to which

[[Page 97]]

they are appointed and for the performance of privileges granted. The 
ASC grants privileges in accordance with recommendations from qualified 
medical personnel.
    (b) Standard: Reappraisals. Medical staff privileges must be 
periodically reappraised by the ASC. The scope of procedures performed 
in the ASC must be periodically reviewed and amended as appropriate.
    (c) Standard: Other practitioners. If the ASC assigns patient care 
responsibilities to practitioners other than physicians, it must have 
established policies and procedures, approved by the governing body, for 
overseeing and evaluating their clinical activities.



Sec. 416.46  Condition for coverage--Nursing services.

    The nursing services of the ASC must be directed and staffed to 
assure that the nursing needs of all patients are met.
    (a) Standard: Organization and staffing. Patient care 
responsibilities must be delineated for all nursing service personnel. 
Nursing services must be provided in accordance with recognized 
standards of practice. There must be a registered nurse available for 
emergency treatment whenever there is a patient in the ASC.
    (b) [Reserved]



Sec. 416.47  Condition for coverage--Medical records.

    The ASC must maintain complete, comprehensive, and accurate medical 
records to ensure adequate patient care.
    (a) Standard: Organization. The ASC must develop and maintain a 
system for the proper collection, storage, and use of patient records.
    (b) Standard: Form and content of record. The ASC must maintain a 
medical record for each patient. Every record must be accurate, legible, 
and promptly completed. Medical records must include at least the 
following:
    (1) Patient identification.
    (2) Significant medical history and results of physical examination.
    (3) Pre-operative diagnostic studies (entered before surgery), if 
performed.
    (4) Findings and techniques of the operation, including a 
pathologist's report on all tissues removed during surgery, except those 
exempted by the governing body.
    (5) Any allergies and abnormal drug reactions.
    (6) Entries related to anesthesia administration.
    (7) Documentation of properly executed informed patient consent.
    (8) Discharge diagnosis.



Sec. 416.48  Condition for coverage--Pharmaceutical services.

    The ASC must provide drugs and biologicals in a safe and effective 
manner, in accordance with accepted professional practice, and under the 
direction of an individual designated responsible for pharmaceutical 
services.
    (a) Standard: Administration of drugs. Drugs must be prepared and 
administered according to established policies and acceptable standards 
of practice.
    (1) Adverse reactions must be reported to the physician responsible 
for the patient and must be documented in the record.
    (2) Blood and blood products must be administered by only physicians 
or registered nurses.
    (3) Orders given orally for drugs and biologicals must be followed 
by a written order, signed by the prescribing physician.
    (b) [Reserved]



Sec. 416.49  Condition for coverage--Laboratory and radiologic services.

    If the ASC performs laboratory services, it must meet the 
requirements of part 493 of this chapter. If the ASC does not provide 
its own laboratory services, it must have procedures for obtaining 
routine and emergency laboratory services from a certified laboratory in 
accordance with part 493 of this chapter. The referral laboratory must 
be certified in the appropriate specialties and subspecialties of 
service to perform the referred tests in accordance with the 
requirements of part 493 of this chapter. The ASC must have procedures 
for obtaining radiologic services from a Medicare approved facility to 
meet the needs of patients.

[57 FR 7135, Feb. 28, 1992]

[[Page 98]]



  Subpart D_Scope of Benefits for Services Furnished Before January 1, 
                                  2008



Sec. 416.60  General rules.

    (a) The services payable under this part are facility services 
furnished to Medicare beneficiaries, by a participating facility, in 
connection with covered surgical procedures specified in Sec. 416.65.
    (b) The surgical procedures, including all preoperative and post-
operative services that are performed by a physician, are covered as 
physician services under part 410 of this chapter.

[56 FR 8844, Mar. 1, 1991]



Sec. 416.61  Scope of facility services.

    (a) Included services. Facility services include, but are not 
limited to--
    (1) Nursing, technician, and related services;
    (2) Use of the facilities where the surgical procedures are 
performed;
    (3) Drugs, biologicals, surgical dressings, supplies, splints, 
casts, and appliances and equipment directly related to the provision of 
surgical procedures;
    (4) Diagnostic or therapeutic services or items directly related to 
the provision of a surgical procedure;
    (5) Administrative, recordkeeping and housekeeping items and 
services; and
    (6) Materials for anesthesia.
    (7) Intra-ocular lenses (IOLs).
    (8) Supervision of the services of an anesthetist by the operating 
surgeon.
    (b) Excluded services. Facility services do not include items and 
services for which payment may be made under other provisions of part 
405 of this chapter, such as physicians' services, laboratory, X-ray or 
diagnostic procedures (other than those directly related to performance 
of the surgical procedure), prosthetic devices (except IOLs), ambulance 
services, leg, arm, back and neck braces, artificial limbs, and durable 
medical equipment for use in the patient's home. In addition, they do 
not include anesthetist services furnished on or after January 1, 1989.

[56 FR 8844, Mar. 1, 1991, as amended at 57 FR 33899, July 31, 1992]



Sec. 416.65  Covered surgical procedures.

    Effective for services furnished before January 1, 2008, covered 
surgical procedures are those procedures that meet the standards 
described in paragraphs (a) and (b) of this section and are included in 
the list published in accordance with paragraph (c) of this section.
    (a) General standards. Covered surgical procedures are those 
surgical and other medical procedures that--
    (1) Are commonly performed on an inpatient basis in hospitals, but 
may be safely performed in an ASC;
    (2) Are not of a type that are commonly performed, or that may be 
safely performed, in physicians' offices;
    (3) Are limited to those requiring a dedicated operating room (or 
suite), and generally requiring a post-operative recovery room or short-
term (not overnight) convalescent room; and
    (4) Are not otherwise excluded under Sec. 411.15 of this chapter.
    (b) Specific standards. (1) Covered surgical procedures are limited 
to those that do not generally exceed--
    (i) A total of 90 minutes operating time; and
    (ii) A total of 4 hours recovery or convalescent time.
    (2) If the covered surgical procedures require anesthesia, the 
anesthesia must be--
    (i) Local or regional anesthesia; or
    (ii) General anesthesia of 90 minutes or less duration.
    (3) Covered surgical procedures may not be of a type that--
    (i) Generally result in extensive blood loss;
    (ii) Require major or prolonged invasion of body cavities;
    (iii) Directly involve major blood vessels; or
    (iv) Are generally emergency or life-threatening in nature.
    (c) Publication of covered procedures. CMS will publish in the 
Federal Register a list of covered surgical procedures and revisions as 
appropriate.

[47 FR 34094, Aug. 5, 1982, as amended at 71 FR 68226, Nov. 24, 2006]

[[Page 99]]



Sec. 416.75  Performance of listed surgical procedures on an inpatient hospital basis.

    The inclusion of any procedure as a covered surgical procedure under 
Sec. 416.65 does not preclude its coverage in an inpatient hospital 
setting under Medicare.



Sec. 416.76  Applicability.

    The provisions of this subpart apply to facility services furnished 
before January 1, 2008.

[71 FR 68226, Nov. 24, 2006]



  Subpart E_Prospective Payment System for Facility Services Furnished 
                         Before January 1, 2008



Sec. 416.120  Basis for payment.

    The basis for payment depends on where the services are furnished.
    (a) Hospital outpatient department. Payment is in accordance with 
part 419 of this chapter.
    (b) [Reserved]
    (c) ASC--(1) General rule. Payment is based on a prospectively 
determined rate. This rate covers the cost of services such as supplies, 
nursing services, equipment, etc., as specified in Sec. 416.61. The 
rate does not cover physician services or other medical services covered 
under part 410 of this chapter (for example, X-ray services or 
laboratory services) which are not directly related to the performance 
of the surgical procedures. Those services may be billed separately and 
paid on a reasonable charge basis.
    (2) Single and multiple surgical procedures. (i) If one covered 
surgical procedure is furnished to a beneficiary in an operative 
session, payment is based on the prospectively determined rate for that 
procedure.
    (ii) If more than one surgical procedure is furnished in a single 
operative session, payment is based on--
    (A) The full rate for the procedure with the highest prospectively 
determined rate; and
    (B) One half of the prospectively determined rate for each of the 
other procedures.
    (3) Deductibles and coinsurance. Part B deductible and coinsurance 
amounts apply as specified in Sec. 410.152 (a) and (i) of this chapter.

[56 FR 8844, Mar. 1, 1991; 56 FR 23022, May 20, 1991, as amended at 71 
FR 68226, Nov. 24, 2006]



Sec. 416.121  Applicability.

    The provisions of this subpart apply to facility services furnished 
before January 1, 2008.

[71 FR 68226, Nov. 24, 2006]



Sec. 416.125  ASC facility services payment rate.

    (a) The payment rate is based on a prospectively determined standard 
overhead amount per procedure derived from an estimate of the costs 
incurred by ambulatory surgical centers generally in providing services 
furnished in connection with the performance of that procedure.
    (b) The payment must be substantially less than would have been paid 
under the program if the procedure had been performed on an inpatient 
basis in a hospital.
    (c) For services furnished on or after January 1, 2007, and before 
the effective date of implementation of a revised payment system, the 
ASC payment rate for a surgical procedure is the lesser of the ASC 
payment rate established under paragraph (a) of this section or the 
prospective payment rate for the procedure established under Sec. 
419.32 of this chapter. The lesser payment amount is determined prior to 
application of any geographic adjustment.

[56 FR 8844, Mar. 1, 1991, as amended at 71 FR 68226, Nov. 24, 2006]



Sec. 416.130  Publication of revised payment methodologies.

    Whenever CMS proposes to revise the payment rate for ASCs, CMS 
publishes a notice in the Federal Register describing the revision. The 
notice also explains the basis on which the rates were established. 
After reviewing public comments, CMS publishes a notice establishing the 
rates authorized by this section. In setting these rates, CMS may adopt 
reasonable classifications of facilities and may establish

[[Page 100]]

different rates for different types of surgical procedures.

[47 FR 34094, Aug. 5, 1982, as amended at 56 FR 8844, Mar. 1, 1991]



Sec. 416.140  Surveys.

    (a) Timing, purpose, and procedures. (1) No more often than once a 
year, CMS conducts a survey of a randomly selected sample of 
participating ASCs to collect data for analysis or reevaluation of 
payment rates.
    (2) CMS notifies the selected ASCs by mail of their selection and of 
the form and content of the report the ASCs are required to submit 
within 60 days of the notice.
    (3) If the facility does not submit an adequate report in response 
to CMS's survey request, CMS may terminate the agreement to participate 
in the Medicare program as an ASC.
    (4) CMS may grant a 30-day postponement of the due date for the 
survey report if it determines that the facility has demonstrated good 
cause for the delay.
    (b) Requirements for ASCs. ASCs must--
    (1) Maintain adequate financial records, in the form and containing 
the data required by CMS, to allow determination of the payment rates 
for covered surgical procedures furnished to Medicare beneficiaries 
under this subpart.
    (2) Within 60 days of a request from CMS submit, in the form and 
detail as may be required by CMS, a report of--
    (i) Their operations, including the allowable costs actually 
incurred for the period and the actual number and kinds of surgical 
procedures furnished during the period; and
    (ii) Their customary charges for each surgical procedure furnished 
for the period.

[47 FR 34094, Aug. 5, 1982, as amended at 56 FR 8845, Mar. 1, 1991]



   Subpart F_Coverage, Scope of ASC Services, and Prospective Payment 
      System for ASC Services Furnished on or After January 1, 2008

    Effective Date Note: At 72 FR 42545, Aug. 2, 2007, Sec. Sec. 
416.160--416.179 (Subpart F) was added, effective January 1, 2008.



Sec. 416.160  Basis and scope.

    (a) Statutory basis. (1) Section 1833(i)(2)(D) of the Act requires 
the Secretary to implement a revised payment system for payment of 
surgical services furnished in ASCs. The statute requires that, in the 
year such system is implemented, the system shall be designed to result 
in the same amount of aggregate expenditures for such services as would 
be made if there was no requirement for a revised payment system. The 
revised payment system shall be implemented no earlier than January 1, 
2006, and no later than January 1, 2008. There shall be no 
administrative or judicial review under section 1869 of the Act, section 
1878 of the Act, or otherwise of the classification system, the relative 
weights, payment amounts, and the geographic adjustment factor, if any, 
of the revised payment system.
    (2) Section 1833(a)(1)(G) of the Act provides that, beginning with 
the implementation date of a revised payment system for ASC facility 
services furnished in connection with a surgical procedure pursuant to 
section 1833(i)(1)(A) of the Act, the amount paid shall be 80 percent of 
the lesser of the actual charge for such services or the amount 
determined by the Secretary under the revised payment system.
    (3) Section 1833(i)(1)(A) of the Act requires the Secretary to 
specify the surgical procedures that can be performed safely on an 
ambulatory basis in an ASC.
    (4) Section 1834(d) of the Act specifies that, when screening 
colonoscopies or screening flexible sigmoidoscopies are performed in an 
ASC or hospital outpatient department, payment shall be based on the 
lesser of the amount under the fee schedule that would

[[Page 101]]

apply to such services if they were performed in a hospital outpatient 
department in an area or the amount under the fee schedule that would 
apply to such services if they were performed in an ambulatory surgical 
center in the same area. Section 1834(d) of the Act further specifies 
that the coinsurance for screening flexible sigmoidoscopy and screening 
colonoscopy procedures is 25 percent of the payment amount. Section 
1834(d) of the Act also specifies that, in the case of screening 
flexible sigmoidoscopy and screening colonoscopy services, their payment 
amounts must not exceed the payment rates established for the related 
diagnostic services. Section 1833(b)(8) of the Act specifies that the 
Part B deductible shall not apply with respect to colorectal screening 
tests as described in section 1861(pp)(1) of the Act, which include 
screening colonoscopies and screening flexible sigmoidoscopies.
    (b) Scope. This subpart sets forth--
    (1) The scope of ASC services and the criteria for determining the 
covered surgical procedures for which Medicare provides payment for the 
associated facility services and covered ancillary services;
    (2) The basis of payment for facility services and for covered 
ancillary services furnished in an ASC in connection with a covered 
surgical procedure;
    (3) The methodologies by which Medicare determines payment amounts 
for ASC services.



Sec. 416.161  Applicability of this subpart.

    The provisions of this subpart apply to ASC services furnished on or 
after January 1, 2008.



Sec. 416.163  General rules.

    (a) Payment is made under this subpart for ASC services specified in 
Sec. Sec. 416.164(a) and (b) furnished to Medicare beneficiaries by a 
participating ASC in connection with covered surgical procedures as 
determined by the Secretary in accordance with Sec. 416.166.
    (b) Payment for physicians' services and payment for anesthetists' 
services are made in accordance with Part 414 of this subchapter.
    (c) Payment for items and services other than physicians' and 
anesthetists' services, as specified in Sec. 416.164(c), is made in 
accordance with Sec. 410.152 of this subchapter.



Sec. 416.164  Scope of ASC services.

    (a) Included facility services. ASC services for which payment is 
packaged into the ASC payment for a covered surgical procedure under 
Sec. 416.166 include, but are not limited to--
    (1) Nursing, technician, and related services;
    (2) Use of the facility where the surgical procedures are performed;
    (3) Any laboratory testing performed under a Clinical Laboratory 
Improvement Amendments of 1988 (CLIA) certificate of waiver;
    (4) Drugs and biologicals for which separate payment is not allowed 
under the hospital outpatient prospective payment system (OPPS);
    (5) Medical and surgical supplies not on pass-through status under 
Subpart G of Part 419 of this subchapter;
    (6) Equipment;
    (7) Surgical dressings;
    (8) Implanted prosthetic devices, including intraocular lenses 
(IOLs), and related accessories and supplies not on pass-through status 
under Subpart G of Part 419 of this subchapter;
    (9) Implanted DME and related accessories and supplies not on pass-
through status under Subpart G of Part 419 of this subchapter;
    (10) Splints and casts and related devices;
    (11) Radiology services for which separate payment is not allowed 
under the OPPS, and other diagnostic tests or interpretive services that 
are integral to a surgical procedure;
    (12) Administrative, recordkeeping and housekeeping items and 
services;
    (13) Materials, including supplies and equipment for the 
administration and monitoring of anesthesia; and
    (14) Supervision of the services of an anesthetist by the operating 
surgeon.
    (b) Covered ancillary services. Ancillary items and services that 
are integral to a covered surgical procedure, as defined in Sec. 
416.166, and for which separate payment is allowed include:
    (1) Brachytherapy sources;
    (2) Certain implantable items that have pass-through status under 
the OPPS;

[[Page 102]]

    (3) Certain items and services that CMS designates as contractor-
priced, including, but not limited to, the procurement of corneal 
tissue;
    (4) Certain drugs and biologicals for which separate payment is 
allowed under the OPPS;
    (5) Certain radiology services for which separate payment is allowed 
under the OPPS.
    (c) Excluded services. ASC services do not include items and 
services outside the scope of ASC services for which payment may be made 
under Part 414 of this subchapter in accordance with Sec. 410.152, 
including, but not limited to--
    (1) Physicians' services (including surgical procedures and all 
preoperative and postoperative services that are performed by a 
physician);
    (2) Anesthetists' services;
    (3) Radiology services (other than those integral to performance of 
a covered surgical procedure);
    (4) Diagnostic procedures (other than those directly related to 
performance of a covered surgical procedure);
    (5) Ambulance services;
    (6) Leg, arm, back, and neck braces other than those that serve the 
function of a cast or splint;
    (7) Artificial limbs;
    (8) Nonimplantable prosthetic devices and DME.



Sec. 416.166  Covered surgical procedures.

    (a) Covered surgical procedures. Effective for services furnished on 
or after January 1, 2008, covered surgical procedures are those 
procedures that meet the general standards described in paragraph (b) of 
this section (whether commonly furnished in an ASC or a physician's 
office) and are not excluded under paragraph (c) of this section.
    (b) General standards. Subject to the exclusions in paragraph (c) of 
this section, covered surgical procedures are surgical procedures 
specified by the Secretary and published in the Federal Register that 
are separately paid under the OPPS, that would not be expected to pose a 
significant safety risk to a Medicare beneficiary when performed in an 
ASC, and for which standard medical practice dictates that the 
beneficiary would not typically be expected to require active medical 
monitoring and care at midnight following the procedure.
    (c) General exclusions. Notwithstanding paragraph (b) of this 
section, covered surgical procedures do not include those surgical 
procedures that--
    (1) Generally result in extensive blood loss;
    (2) Require major or prolonged invasion of body cavities;
    (3) Directly involve major blood vessels;
    (4) Are generally emergent or life-threatening in nature;
    (5) Commonly require systemic thrombolytic therapy;
    (6) Are designated as requiring inpatient care under Sec. 419.22(n) 
of this subchapter;
    (7) Can only be reported using a CPT unlisted surgical procedure 
code; or
    (8) Are otherwise excluded under Sec. 411.15 of this subchapter.



Sec. 416.167  Basis of payment.

    (a) Unit of payment. Under the ASC payment system, prospectively 
determined amounts are paid for ASC services furnished to Medicare 
beneficiaries in connection with covered surgical procedures. Covered 
surgical procedures and covered ancillary services are identified by 
codes established under the Healthcare Common Procedure Coding System 
(HCPCS). The unadjusted national payment rate is determined according to 
the methodology described in Sec. 416.171. The manner in which the 
Medicare payment amount and the beneficiary coinsurance amount for each 
ASC service is determined is described in Sec. 416.172.
    (b) Ambulatory payment classification (APC) groups and payment 
weights.
    (1) ASC covered surgical procedures are classified using the APC 
groups described in Sec. 419.31 of this subchapter.
    (2) For purposes of calculating ASC national payment rates under the 
methodology described in Sec. 416.171, except as specified in paragraph 
(b)(3) of this section, an ASC relative payment weight is determined 
based on the APC relative payment weight for each covered surgical 
procedure and covered ancillary service that has an applicable APC 
relative payment weight described in Sec. 419.31 of this subchapter.

[[Page 103]]

    (3) Notwithstanding paragraph (b)(2) of this section, the relative 
payment weights for services paid in accordance with Sec. 416.171(d) 
are determined so that the national ASC payment rate does not exceed the 
unadjusted nonfacility practice expense amount paid under the Medicare 
physician fee schedule for such procedures under Subpart B of Part 414 
of this subchapter.



Sec. 416.171  Determination of payment rates for ASC services.

    (a) Standard methodology. The standard methodology for determining 
the national unadjusted payment rate for ASC services is to calculate 
the product of the applicable conversion factor and the relative payment 
weight established under Sec. 416.167(b), unless otherwise indicated in 
this section.
    (1) Conversion factor for CY 2008. CMS calculates a conversion 
factor so that payment for ASC services furnished in CY 2008 would 
result in the same aggregate amount of expenditures as would be made if 
the provisions in this Subpart F did not apply, as estimated by CMS.
    (2) Conversion factor for CY 2009 and subsequent calendar years. The 
conversion factor for a calendar year is equal to the conversion factor 
calculated for the previous year, updated as follows:
    (i) For CY 2009, the update is equal to zero percent.
    (ii) For CY 2010 and subsequent calendar years, the update is the 
Consumer Price Index for All Urban Consumers (U.S. city average) as 
estimated by the Secretary for the 12-month period ending with the 
midpoint of the year involved.
    (b) Exception. The national ASC payment rates for the following 
items and services are not determined in accordance with paragraph (a) 
of this section but are paid an amount derived from the payment rate for 
the equivalent item or service set under the payment system established 
in Part 419 of this subchapter as updated annually in the Federal 
Register. If a payment rate is not available, the following items and 
services are designated as contractor-priced:
    (1) Covered ancillary services specified in Sec. 416.164(b), with 
the exception of radiology services as provided in Sec. 416.164(b)(5);
    (2) Device-intensive procedures assigned to device-dependent APCs 
under the OPPS with device costs greater than 50 percent of the APC 
cost;
    (3) Procedures using certain separately paid implantable devices 
that are approved for transitional pass-through payment in accordance 
with Sec. 419.66 of this subchapter.
    (c) Transitional payment rates. (1) ASC payment rates for CY 2008 
are a transitional blend of 75 percent of the CY 2007 ASC payment rate 
for a covered surgical procedure on the CY 2007 ASC list of surgical 
procedures and 25 percent of the payment rate for the procedure 
calculated under the methodology described in paragraph (a) of this 
section.
    (2) ASC payment rates for CY 2009 are a transitional blend of 50 
percent of the CY 2007 ASC payment rate for a covered surgical procedure 
on the CY 2007 ASC list of surgical procedures and 50 percent of the 
payment rate for the procedure calculated under the methodology 
described in paragraph (a) of this section.
    (3) ASC payment rates for CY 2010 are a transitional blend of 25 
percent of the CY 2007 ASC payment rate for a covered surgical procedure 
on the CY 2007 ASC list of surgical procedures and 75 percent of the 
payment rate for the procedure calculated under the methodology 
described in paragraph (a) of this section.
    (4) The national ASC payment rate for CY 2011 and subsequent 
calendar years for a covered surgical procedure designated in accordance 
with Sec. 416.166 is the payment rates for the procedure calculated 
under the methodology described in paragraph (a) of this section.
    (5) Covered ancillary services described in Sec. 416.164(b) and 
surgical procedures identified as covered when performed in an ASC under 
Sec. 416.166 for the first time beginning on or after January 1, 2008, 
are not subject to the transitional payment rates applicable in CYs 2008 
through 2010 for ASC facility services.
    (d) Limitation on payment rates for office-based surgical procedures 
and covered ancillary radiology services. Notwithstanding the provisions 
of paragraph

[[Page 104]]

(a) of this section, for any covered surgical procedure under Sec. 
416.166 that CMS determines is commonly performed in physicians' offices 
or for any covered ancillary radiology service, the national unadjusted 
ASC payment rates for these procedures and services will be the lesser 
of the amount determined under paragraph (a) of this section or the 
amount calculated at the nonfacility practice expense relative value 
units under Sec. 414.22(b)(5)(i)(B) of this subchapter multiplied by 
the conversion factor described in Sec. 414.20(a)(3) of this 
subchapter.
    (e) Budget neutrality. (1) For CY 2008, CMS establishes the 
conversion factor to result in budget neutrality as estimated by CMS in 
accordance with paragraph (a)(1) of this section.
    (2) For CY 2009 and subsequent calendar years, CMS adjusts the ASC 
relative payment weights under Sec. 416.167(b)(2) as needed so that any 
updates and adjustments made under Sec. 419.50(a) of this subchapter 
are budget neutral as estimated by CMS.



Sec. 416.172  Adjustments to national payment rates.

    (a) General rule. Contractors adjust the payment rates established 
for ASC services to determine Medicare program payment and beneficiary 
coinsurance amounts in accordance with paragraphs (b) through (g) of 
this section.
    (b) Lesser of actual charge or geographically adjusted payment rate. 
Payments to ASCs equal 80 percent of the lesser of--
    (1) The actual charge for the service; or
    (2) The geographically adjusted payment rate determined under this 
subpart.
    (c) Geographic adjustment.--(1) General rule. Except as provided in 
paragraph (c)(2) of this section, the national ASC payment rates 
established under Sec. 416.171 for covered surgical procedures are 
adjusted for variations in ASC labor costs across geographic areas using 
wage index values, labor and nonlabor percentages, and localities 
specified by the Secretary.
    (2) Exception. The geographic adjustment is not applied to the 
payment rates set for drugs, biologicals, devices with OPPS transitional 
pass-through payment status, and brachytherapy sources.
    (d) Deductibles and coinsurance. Part B deductible and coinsurance 
amounts apply as specified in Sec. Sec. 410.152(a) and (i)(2) of this 
subchapter.
    (e) Payment reductions for multiple surgical procedures.--(1) 
General rule. Except as provided in paragraph (e)(2) of this section, 
when more than one covered surgical procedure for which payment is made 
under the ASC payment system is performed during an operative session, 
the Medicare program payment amount and the beneficiary coinsurance 
amount are based on--
    (i) 100 percent of the applicable ASC payment amount for the 
procedure with the highest national unadjusted ASC payment rate; and
    (ii) 50 percent of the applicable ASC payment amount for all other 
covered surgical procedures.
    (2) Exception: Procedures not subject to multiple procedure 
discounting. CMS may apply any policies or procedures used with respect 
to multiple procedures under the prospective payment system for hospital 
outpatient department services under Part 419 of this subchapter as may 
be consistent with the equitable and efficient administration of this 
part.
    (f) Interrupted procedures. When a covered surgical procedure or 
covered ancillary service is terminated prior to completion due to 
extenuating circumstances or circumstances that threaten the well-being 
of the patient, the Medicare program payment amount and the beneficiary 
coinsurance amount are based on one of the following--
    (1) The full program and beneficiary coinsurance amounts if the 
procedure for which anesthesia is planned is discontinued after the 
induction of anesthesia or after the procedure is started;
    (2) One-half of the full program and beneficiary coinsurance amounts 
if the procedure for which anesthesia is planned is discontinued after 
the patient is prepared for surgery and taken to the room where the 
procedure is to be performed but before the anesthesia is induced; or
    (3) One-half of the full program and beneficiary coinsurance amounts 
if a covered surgical procedure or covered

[[Page 105]]

ancillary service for which anesthesia is not planned is discontinued 
after the patient is prepared and taken to the room where the service is 
to be provided.
    (g) Payment adjustment for new technology intraocular lenses 
(NTIOLs). A payment adjustment will be made for insertion of an IOL 
approved as belonging to a class of NTIOLs as defined in Subpart G.



Sec. 416.173  Publication of revised payment methodologies and payment rates.

    CMS publishes annually, through notice and comment rulemaking in the 
Federal Register, the payment methodologies and payment rates for ASC 
services and designates the covered surgical procedures and covered 
ancillary services for which CMS will make an ASC payment and other 
revisions as appropriate.



Sec. 416.178  Limitations on administrative and judicial review.

    There is no administrative or judicial review under section 1869 of 
the Act, section 1878 of the Act, or otherwise of the following:
    (a) The classification system;
    (b) Relative weights;
    (c) Payment amounts; and
    (d) Geographic adjustment factors.



Sec. 416.179  Payment and coinsurance reduction for devices replaced without cost or when full credit is received.

    (a) General rule. CMS reduces the amount of payment for a covered 
surgical procedure for which CMS determines that a significant portion 
of the payment is attributable to the cost of an implanted device not on 
pass-through status under Subpart G of Part 419 of this subchapter when 
one of the following situations occur:
    (1) The device is replaced without cost to the ASC or the 
beneficiary; or
    (2) The ASC receives full credit for the cost of a replaced device.
    (b) Amount of reduction to the ASC payment for the covered surgical 
procedure. The amount of the reduction to the ASC payment made under 
paragraph (a) of this section is calculated in the same manner as the 
device payment reduction that would be applied to the ASC payment for 
the covered surgical procedure in order to remove predecessor device 
costs so that the ASC payment amount for a device with pass-through 
status under Sec. 419.66 of this subchapter represents the full cost of 
the device, and no packaged device payment is provided through the ASC 
payment for the covered surgical procedure.
    (c) Amount of beneficiary coinsurance. The beneficiary coinsurance 
is calculated based on the ASC payment for the covered surgical 
procedure after application of the reduction under paragraph (b) of this 
section.



 Subpart G_Adjustment in Payment Amounts for New Technology Intraocular 
             Lenses Furnished by Ambulatory Service Centers

    Source: 71 FR 68226, Nov. 24, 2006, unless otherwise noted.



Sec. 416.180  Basis and scope.

    (a) Basis. This subpart implements section 141 of Public Law 103-
432, which provides for adjustments to payment amounts for new 
technology intraocular lenses (IOLs) furnished at ambulatory surgical 
centers (ASCs).
    (b) Scope. This subpart sets forth--
    (1) The process for interested parties to request that CMS review 
the appropriateness of the ASC facility fee for insertion of an IOL. 
This process includes a review of whether that payment is reasonable and 
related to the cost of acquiring a lens determined by CMS as belonging 
to a class of new technology IOLs;
    (2) Factors that CMS considers for determination of a new class of 
new technology IOLs; and
    (3) Application of the payment adjustment.



Sec. 416.185  Process for establishing a new class of new technology IOLs.

    (a) Announcement of deadline for requests for review. CMS announces 
the deadline for each year's requests for review of a new class of new 
technology IOLs in the final rule updating the ASC payment rates for 
that calendar year.

[[Page 106]]

    (b) Announcement of new classes of new technology IOLs for which 
review requests have been made and solicitation of public comments. CMS 
announces the requests for review received in a calendar year and the 
deadline for public comments regarding the requests in the proposed rule 
updating the ASC payment rates for the following calendar year. The 
deadline for submission of public comments is 30 days following the date 
of the publication of the proposed rule.
    (c) Announcement of determinations regarding requests for review. 
CMS announces its determinations for a calendar year in the final rule 
updating the ASC payment rates for the following calendar year. CMS 
publishes the codes and effective dates allowed for those lenses 
recognized by CMS as belonging to a class of new technology IOLs. New 
classes of new technology IOLs are effective 30 days following the date 
of publication of the final rule.



Sec. 416.190  Request for review of payment amount.

    (a) When requests can be submitted. A request for review of the 
appropriateness of ASC payment for insertion of an IOL that might 
qualify for a payment adjustment as belonging to a new class of new 
technology IOLs must be submitted to CMS in accordance with the annual 
published deadline.
    (b) Who may submit a request. Any individual, partnership, 
corporation, association, society, scientific or academic establishment, 
or professional or trade organization able to furnish the information 
required in paragraph (c) of this section may request that CMS review 
the appropriateness of the payment amount provided under section 
1833(i)(2)(A)(iii) of the Act with respect to an IOL that meets the 
criteria of a new technology IOL under Sec. 416.195.
    (c) Content of a request. In order to be accepted by CMS for review, 
a request for review of the ASC payment amount for insertion of an IOL 
must include all the information as specified by CMS.
    (d) Confidential information. In order for CMS to invoke the 
protection allowed under Exemption 4 of the Freedom of Information Act 
(5 U.S.C. 552(b)(4)) and, with respect to trade secrets, the Trade 
Secrets Act (18 U.S.C. 1905), the requestor must clearly identify all 
information that is to be characterized as confidential.



Sec. 416.195  Determination of membership in new classes of new technology IOLs.

    (a) Factors to be considered. CMS uses the following criteria to 
determine whether an IOL qualifies for a payment adjustment as a member 
of a new class of new technology IOLs when inserted at an ASC:
    (1) The IOL is approved by the FDA.
    (2) Claims of specific clinical benefits and/or lens characteristics 
with established clinical relevance in comparison to currently available 
IOLs are approved by the FDA for use in labeling and advertising.
    (3) The IOL is not described by an active or expired class of new 
technology IOLs; that is, it does not share a predominant, class-
defining characteristic associated with improved clinical outcomes with 
members of an active or expired class.
    (4) Evidence demonstrates that use of the IOL results in measurable, 
clinically meaningful, improved outcomes in comparison with use of 
currently available IOLs. Superior outcomes include:
    (i) Reduced risk of intraoperative or postoperative complication or 
trauma;
    (ii) Accelerated postoperative recovery;
    (iii) Reduced induced astigmatism;
    (iv) Improved postoperative visual acuity;
    (v) More stable postoperative vision;
    (vi) Other comparable clinical advantages.
    (b) CMS determination of eligibility for payment adjustment. CMS 
reviews the information submitted with a completed request for review, 
public comments submitted timely, and other pertinent information and 
makes a determination as follows:
    (1) The IOL is eligible for a payment adjustment as a member of a 
new class of new technology IOLs.
    (2) The IOL is a member of an active class of new technology IOLs 
and is eligible for a payment adjustment for the remainder of the period 
established for that class.

[[Page 107]]

    (3) The IOL does not meet the criteria for designation as a new 
technology IOL and a payment adjustment is not appropriate.



Sec. 416.200  Payment adjustment.

    (a) CMS establishes the amount of the payment adjustment for classes 
of new technology IOLs through proposed and final rulemaking in 
connection with ASC facility services.
    (b) CMS adjusts the payment for insertion of an IOL approved as 
belonging to a class of new technology IOLs for the 5-year period of 
time established for that class.
    (c) Upon expiration of the 5-year period of the payment adjustment, 
payment reverts to the standard rate for IOL insertion procedures 
performed in ASCs.
    (d) ASCs that furnish an IOL designated by CMS as belonging to a 
class of new technology IOLs must submit claims using billing codes 
specified by CMS to receive the new technology IOL payment adjustment.



PART 417_HEALTH MAINTENANCE ORGANIZATIONS, COMPETITIVE MEDICAL PLANS, AND HEALTH CARE PREPAYMENT PLANS--Table of Contents




                      Subpart A_General Provisions

Sec.
417.1 Definitions.
417.2 Basis and scope.

     Subpart B_Qualified Health Maintenance Organizations: Services

417.101 Health benefits plan: Basic health services.
417.102 Health benefits plan: Supplemental health services.
417.103 Providers of basic and supplemental health services.
417.104 Payment for basic health services.
417.105 Payment for supplemental health services.
417.106 Quality assurance program; Availability, accessibility, and 
          continuity of basic and supplemental health services.

 Subpart C_Qualified Health Maintenance Organizations: Organization and 
                                Operation

417.120 Fiscally sound operation and assumption of financial risk.
417.122 Protection of enrollees.
417.124 Administration and management.
417.126 Recordkeeping and reporting requirements.

             Subpart D_Application for Federal Qualification

417.140 Scope.
417.142 Requirements for qualification.
417.143 Application requirements.
417.144 Evaluation and determination procedures.

  Subpart E_Inclusion of Qualified Health Maintenance Organizations in 
                     Employee Health Benefits Plans

417.150 Definitions.
417.151 Applicability.
417.153 Offer of HMO alternative.
417.155 How the HMO option must be included in the health benefits plan.
417.156 When the HMO must be offered to employees.
417.157 Contributions for the HMO alternative.
417.158 Payroll deductions.
417.159 Relationship of section 1310 of the Public Health Service Act to 
          the National Labor Relations Act and the Railway Labor Act.

Subpart F_Continued Regulation of Federally Qualified Health Maintenance 
                              Organizations

417.160 Applicability.
417.161 Compliance with assurances.
417.162 Reporting requirements.
417.163 Enforcement procedures.
417.164 Effect of revocation of qualification on inclusion in employee's 
          health benefit plans.
417.165 Reapplication for qualification.
417.166 Waiver of assurances.

Subparts G-I [Reserved]

         Subpart J_Qualifying Conditions for Medicare Contracts

417.400 Basis and scope.
417.401 Definitions.
417.402 Effective date of initial regulations.
417.404 General requirements.
417.406 Application and determination.
417.407 Requirements for a Competitive Medical Plan (CMP).
417.408 Contract application process.
417.410 Qualifying conditions: General rules.
417.412 Qualifying condition: Administration and management.
417.413 Qualifying condition: Operating experience and enrollment.
417.414 Qualifying condition: Range of services.
417.416 Qualifying condition: Furnishing of services.

[[Page 108]]

417.418 Qualifying condition: Quality assurance program.

  Subpart K_Enrollment, Entitlement, and Disenrollment Under Medicare 
                                Contract

417.420 Basic rules on enrollment and entitlement.
417.422 Eligibility to enroll in an HMO or CMP.
417.423 Special rules: ESRD and hospice patients.
417.424 Denial of enrollment.
417.426 Open enrollment requirements.
417.428 Marketing activities.
417.430 Application procedures.
417.432 Conversion of enrollment.
417.434 Reenrollment.
417.436 Rules for enrollees.
417.440 Entitlement to health care services from an HMO or CMP.
417.442 Risk HMO's and CMP's: Conditions for provision of additional 
          benefits.
417.444 Special rules for certain enrollees of risk HMOs and CMPs.
417.446 [Reserved]
417.448 Restriction on payments for services received by Medicare 
          enrollees of risk HMOs or CMPs.
417.450 Effective date of coverage.
417.452 Liability of Medicare enrollees.
417.454 Charges to Medicare enrollees.
417.456 Refunds to Medicare enrollees.
417.458 Recoupment of uncollected deductible and coinsurance amounts.
417.460 Disenrollment of beneficiaries by an HMO or CMP.
417.461 Disenrollment by the enrollee.
417.464 End of CMS's liability for payment: Disenrollment of 
          beneficiaries and termination or default of contract.

                Subpart L_Medicare Contract Requirements

417.470 Basis and scope.
417.472 Basic contract requirements.
417.474 Effective date and term of contract.
417.476 Waived conditions.
417.478 Requirements of other laws and regulations.
417.479 Requirements for physician incentive plans.
417.480 Maintenance of records: Cost HMOs and CMPs.
417.481 Maintenance of records: Risk HMOs or CMPs.
417.482 Access to facilities and records.
417.484 Requirement applicable to related entities.
417.486 Disclosure of information and confidentiality.
417.488 Notice of termination and of available alternatives: Risk 
          contract.
417.490 Renewal of contract.
417.492 Nonrenewal of contract.
417.494 Modification or termination of contract.
417.500 Sanctions against HMOs and CMPs.

   Subpart M_Change of Ownership and Leasing of Facilities: Effect on 
                            Medicare Contract

417.520 Effect on HMO and CMP contracts.

       Subpart N_Medicare Payment to HMOs and CMPs: General Rules

417.524 Payment to HMOs or CMPs: General.
417.526 Payment for covered services.
417.528 Payment when Medicare is not primary payer.

                 Subpart O_Medicare Payment: Cost Basis

417.530 Basis and scope.
417.531 Hospice care services.
417.532 General considerations.
417.533 Part B carrier responsibilities.
417.534 Allowable costs.
417.536 Cost payment principles.
417.538 Enrollment and marketing costs.
417.540 Enrollment costs.
417.542 Reinsurance costs.
417.544 Physicians' services furnished directly by the HMO or CMP.
417.546 Physicians' services and other Part B supplier services 
          furnished under arrangements.
417.548 Provider services through arrangements.
417.550 Special Medicare program requirements.
417.552 Cost apportionment: General provisions.
417.554 Apportionment: Provider services furnished directly by the HMO 
          or CMP.
417.556 Apportionment: Provider services furnished by the HMO or CMP 
          through arrangements with others.
417.558 Emergency, urgently needed, and out-of-area services for which 
          the HMO or CMP accepts financial responsibility.
417.560 Apportionment: Part B physician and supplier services.
417.564 Apportionment and allocation of administrative and general 
          costs.
417.566 Other methods of allocation and apportionment.
417.568 Adequate financial records, statistical data, and cost finding.
417.570 Interim per capita payments.
417.572 Budget and enrollment forecast and interim reports.
417.574 Interim settlement.
417.576 Final settlement.

                 Subpart P_Medicare Payment: Risk Basis

417.580 Basis and scope.
417.582 Definitions.
417.584 Payment to HMOs or CMPs with risk contracts.

[[Page 109]]

417.585 Special rules: Hospice care.
417.588 Computation of adjusted average per capita cost (AAPCC).
417.590 Computation of the average of the per capita rates of payment.
417.592 Additional benefits requirement.
417.594 Computation of adjusted community rate (ACR).
417.596 Establishment of a benefit stabilization fund.
417.597 Withdrawal from a benefit stabilization fund.
417.598 Annual enrollment reconciliation.

                      Subpart Q_Beneficiary Appeals

417.600 Basis and scope.

                   Subpart R_Medicare Contract Appeals

417.640 Determinations subject to appeal.
417.642 Administrative actions that are not initial determinations.
417.644 Notice of initial determination.
417.646 Effect of initial determination.
417.648 Reconsideration: Applicability.
417.650 Request for reconsideration.
417.652 Opportunity to submit evidence.
417.654 Reconsidered determination.
417.656 Notice of reconsidered determination.
417.658 Effect of reconsidered determination.
417.660 Right to a hearing.
417.662 Request for hearing.
417.664 Postponement of effective date of initial determination.
417.666 Designation of hearing officer.
417.668 Disqualification of hearing officer.
417.670 Time and place of hearing.
417.672 Appointment of representatives.
417.674 Authority of representatives.
417.676 Conduct of hearing.
417.678 Evidence.
417.680 Witnesses.
417.682 Discovery.
417.684 Prehearing.
417.686 Record of hearing.
417.688 Authority of hearing officer.
417.690 Notice and effect of hearing decision.
417.692 Reopening of initial or reconsidered determination or decision 
          of a hearing officer.
417.694 Effect of revised determination.

Subparts S-T [Reserved]

                 Subpart U_Health Care Prepayment Plans

417.800 Payment to HCPPs: Definitions and basic rules.
417.801 Agreements between CMS and health care prepayment plans.
417.802 Allowable costs.
417.804 Cost apportionment.
417.806 Financial records, statistical data, and cost finding.
417.808 Interim per capita payments.
417.810 Final settlement.
417.830 Scope of regulations on beneficiary appeals.
417.832 Applicability of requirements and procedures.
417.834 Responsibility for establishing administrative review 
          procedures.
417.836 Written description of administrative review procedures.
417.838 Organization determinations.
417.840 Administrative review procedures.

    Subpart V_Administration of Outstanding Loans and Loan Guarantees

417.910 Applicability.
417.911 Definitions.
417.920 Planning and initial development.
417.930 Initial costs of operation.
417.931 [Reserved]
417.934 Reserve requirement.
417.937 Loan and loan guarantee provisions.
417.940 Civil action to enforce compliance with assurances.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh), secs. 1301, 1306, and 1310 of the Public Health 
Service Act (42 U.S.C. 300e, 300e-5, and 300e-9), and 31 U.S.C. 9701.



                      Subpart A_General Provisions



Sec. 417.1  Definitions.

    As used in this part, unless the context indicates otherwise--
    Basic health services means health services described in Sec. 
417.101(a).
    Community rating system means a system of fixing rates of payments 
for health services that meets the requirements of Sec. 417.104(a)(3).
    Comprehensive health services means as a minimum the following 
services which may be limited as to time and cost:
    (1) Physician services (Sec. 417.101(a)(1));
    (2) Outpatient services and inpatient hospital services (Sec. 
417.101(a)(2));
    (3) Medically necessary emergency health services (Sec. 
417.101(a)(3)); and
    (4) Diagnostic laboratory and diagnostic and therapeutic radiologic 
services (Sec. 417.101(a)(6)).
    Direct service contract means a contract for the provision of basic 
or supplemental health services or both between an HMO and (1) a health 
professional other than a member of the staff of the HMO, or (2) an 
entity other than a medical group or an IPA.
    Enrollee means an individual for whom an HMO, CMP, or HCPP assumes

[[Page 110]]

the responsibility, under a contract or agreement, for the furnishing of 
health care services on a prepaid basis.
    Full-time student means a student who is enrolled for a sufficient 
number of credit hours in a semester or other academic term to enable 
the student to complete the course of study within not more than the 
number of semesters or other academic terms normally required to 
complete that course of study on a full-time basis at the school in 
which the student is enrolled.
    Furnished, when used in connection with prepaid health care 
services, means services that are maid available to an enrollee either 
dierctly by, or under arrangements made by, the HMO, CMP, or HCPP.
    Health maintenance organization (HMO) means a legal entity that 
provides or arranges for the provision of basic and supplemental health 
services to its enrollees in the manner prescribed by, is organized and 
operated in the manner prescribed by, and otherwise meets the 
requirements of, section 1301 of the PHS Act and the regulations in 
subparts B and C of this part.
    Health professionals means physicians (doctors of medicine and 
doctors of osteopathy), dentists, nurses, podiatrists, optometrists, 
physicians' assistants, clinical psychologists, social workers, 
pharmacists, nutritionists, occupational therapists, physical 
therapists, and other professionals engaged in the delivery of health 
services who are licensed, practice under an institutional license, are 
certified, or practice under authority of the HMO, a medical group, 
individual practice association, or other authority consistent with 
State law.
    Individual practice association (IPA) means a partnership, 
association, corporation, or other legal entity that delivers or 
arranges for the delivery of health services and which has entered into 
written services arrangement or arrangements with health professionals, 
a majority of whom are licensed to practice medicine or osteopathy. The 
written services arrangement must provide:
    (1) That these health professionals will provide their professional 
services in accordance with a compensation arrangement established by 
the entity; and
    (2) To the extent feasible, for the sharing by these health 
professionals of health (including medical) and other records, 
equipment, and professional, technical, and administrative staff.
    Medical group means a partnership, association, corporation, or 
other group:
    (1) That is composed of health professionals licensed to practice 
medicine or osteopathy and of such other licensed health professionals 
(including dentists, optometrists, and podiatrists) as are necessary for 
the provision of health services for which the group is responsible;
    (2) A majority of the members of which are licensed to practice 
medicine or osteopathy; and
    (3) The members of which:
    (i) After the end of the 48 month period beginning after the month 
in which the HMO for which the group provides health services becomes a 
qualified HMO, as their principal professional activity (over 50 percent 
individually) engage in the coordinated practice of their profession and 
as a group responsibility have substantial responsibility (over 35 
percent in the aggregate of their professional activity) for the 
delivery of health services to enrollees of an HMO;
    (ii) Pool their income from practice as members of the group and 
distribute it among themselves according to a prearranged salary or 
drawing account or other similar plan unrelated to the provision of 
specific health services;
    (iii) Share health (including medical) records and substantial 
portions of major equipment and of professional, technical, and 
administrative staff;
    (iv) Establish an arrangement whereby an enrollee's enrollment 
status is not known to the health professional who provides health 
services to the enrollee.
    Medical group members means (1) a health professional engaged as a 
partner, associate, or shareholder in the medical group, or (2) any 
other health professional employed by the group who may be designated as 
a medical group member by the medical group.
    Medically underserved population means the population of an urban or

[[Page 111]]

rural area as described in Sec. 417.912(d).
    Nonmetropolitan area means an area no part of which is within a 
standard metropolitan statistical area as designated by the Office of 
Management and Budget and which does not contain a city whose population 
exceeds 50,000 individuals.
    Party in interest means: (1) Any director, officer, partner, or 
employee responsible for management or administration of an HMO, any 
person who is directly or indirectly the beneficial owner of more than 5 
percent of the equity of the HMO, any person who is the beneficial owner 
of a mortgage, deed of trust, note, or other interest secured by, and 
valuing more than 5 percent of the assets of the HMO, and, in the case 
of an HMO organized as a nonprofit corporation, an incorporator or 
member of the corporation under applicable State corporation law;
    (2) Any entity in which a person described in paragraph (1):
    (i) Is an officer or director;
    (ii) Is a partner (if the entity is organized as a partnership);
    (iii) Has directly or indirectly a beneficial interest of more than 
5 percent of the equity; or
    (iv) Has a mortgage, deed of trust, note, or other interest valuing 
more than 5 percent of the assets of such entity;
    (3) Any spouse, child, or parent of an individual described in 
paragraph (1).
    Policymaking body of an HMO means a board of directors, governing 
body, or other body of individuals that has the authority to establish 
policy for the HMO.
    Qualified HMO means an HMO found by CMS to be qualified within the 
meaning of section 1310 of the PHS Act and subpart D of this part.
    Rural area means any area not listed as a place having a population 
of 2,500 or more in Document PC(1)A, ``Number of Inhabitants,'' 
Table VI, ``Population of Places,'' and not listed as an urbanized area 
in Table XI, ``Population of Urbanized Areas'' of the same document 
(1970 Census or most recent update of this document, Bureau of Census, 
U.S. Department of Commerce).
    Secretary means the Secretary of Health and Human Services and any 
other officer or employee of the Department of Health and Human Services 
to whom the authority involved has been delegated.
    Service area means a geographic area, defined through zip codes, 
census tracts, or other geographic measurements, that is the area, as 
determined by CMS, within which the HMO furnishes basic and supplemental 
health services and makes them available and accessible to all its 
enrollees in accordance with Sec. 417.106(b).
    Significant business transaction means any business transaction or 
series of transactions during any one fiscal year of the HMO, the total 
value of which exceeds the lesser of $25,000 or 5 percent of the total 
operating expenses of the HMO.
    Staff of the HMO means health professionals who are employees of the 
HMO and who--
    (1) Provide services to HMO enrollees at an HMO facility subject to 
the staff policies and operational procedures of the HMO;
    (2) Engage in the coordinated practice of their profession and 
provide to enrollees of the HMO the health services that the HMO has 
contracted to provide;
    (3) Share medical and other records, equipment, and professional, 
technical, and administrative staff of the HMO; and
    (4) Provide their professional services in accordance with a 
compensation arrangement, other than fee-for-service, established by the 
HMO. This arrangement may include, but is not limited to, fee-for-time, 
retainer or salary.
    Subscriber means an enrollee who has entered into a contractual 
relationship with the HMO or who is responsible for making payments for 
basic health services (and contracted for supplemental health services) 
to the HMO or on whose behalf these payments are made.
    Supplemental health services means the health services described in 
Sec. 417.102(a).
    Unusual or infrequently used health services means:

[[Page 112]]

    (1) Those health services that are projected to involve fewer than 1 
percent of the encounters per year for the entire HMO enrollment, or,
    (2) Those health services the provision of which, given the 
enrollment projection of the HMO and generally accepted staffing 
patterns, is projected will require less than 0.25 full time equivalent 
health professionals.

[45 FR 72528, Oct. 31, 1980, as amended at 47 FR 19338, May 5, 1982; 52 
FR 22321, June 11, 1987. Redesignated at 52 FR 36746, Sept. 30, 1987. 
Redesignated and amended at 56 FR 51985, Oct. 17, 1991; 58 FR 38067, 
July 15, 1993; 60 FR 34887, July 5, 1995; 60 FR 45674, Sept. 1, 1995]



Sec. 417.2  Basis and scope.

    (a) Subparts B through F of this part pertain to the Federal 
qualification of HMOs under title XIII of the Public Health Service 
(PHS) Act.
    (b) Subparts G through R of this part set forth the rules for 
Medicare contracts with, and payment to, HMOs and competitive medical 
plans (CMPs) under section 1876 of the Act.
    (c) Subpart U of this part pertains to Medicare payment to health 
care prepayment plans under section 1833(a)(1)(A) of the Act.
    (d) Subpart V of this part applies to the administration of 
outstanding loans and loan guarantees previously granted under title 
XIII of the PHS Act.

[56 FR 51985, Oct. 17, 1991, as amended at 60 FR 45675, Sept. 1, 1995]



     Subpart B_Qualified Health Maintenance Organizations: Services



Sec. 417.101  Health benefits plan: Basic health services.

    (a) An HMO must provide or arrange for the provision of basic health 
services to its enrollees as needed and without limitations as to time 
and cost other than those prescribed in the PHS Act and these 
regulations, as follows:
    (1) Physician services (including consultant and referral services 
by a physician), which must be provided by a licensed physician, or if a 
service of a physician may also be provided under applicable State law 
by other health professionals, an HMO may provide the service through 
these other health professionals;
    (2)(i) Outpatient services, which must include diagnostic services, 
treatment services and x-ray services, for patients who are ambulatory 
and may be provided in a non-hospital based health care facility or at a 
hospital;
    (ii) Inpatient hospital services, which must include but not be 
limited to, room and board, general nursing care, meals and special 
diets when medically necessary, use of operating room and related 
facilities, use of intensive care unit and services, x-ray services, 
laboratory, and other diagnostic tests, drugs, medications, biologicals, 
anesthesia and oxygen services, special duty nursing when medically 
necessary, radiation therapy, inhalation therapy, and administration of 
whole blood and blood plasma;
    (iii) Outpatient services and inpatient hospital services must 
include short-term rehabilitation services and physical therapy, the 
provision of which the HMO determines can be expected to result in the 
significant improvement of a member's condition within a period of two 
months;
    (3) Instructions to its enrollees on procedures to be followed to 
secure medically necessary emergency health services both in the service 
area and out of the service area;
    (4) Twenty outpatient visits per enrollee per year, as may be 
necessary and appropriate for short-term evaluative or crisis 
intervention mental health services, or both;
    (5) Diagnosis, medical treatment and referral services (including 
referral services to appropriate ancillary services) for the abuse of or 
addiction to alcohol and drugs:
    (i) Diagnosis and medical treatment for the abuse of or addiction to 
alcohol and drugs must include detoxification for alcoholism or drug 
abuse on either an outpatient or inpatient basis, whichever is medically 
determined to be appropriate, in addition to the other required basic 
health services for the treatment of other medical conditions;
    (ii) Referral services may be either for medical or for nonmedical 
ancillary services. Medical services must be a

[[Page 113]]

part of basic health services; nonmedical ancillary services (such as 
vocational rehabilitation and employment counseling) and prolonged 
rehabilitation services in a specialized inpatient or residential 
facility need not be a part of basic health services;
    (6) Diagnostic laboratory and diagnostic and therapeutic radiologic 
services in support of basic health services;
    (7) Home health services provided at an enrollee's home by health 
care personnel, as prescribed or directed by the responsible physician 
or other authority designated by the HMO; and
    (8) Preventive health services, which must be made available to 
members and must include at least the following:
    (i) A broad range of voluntary family planning services;
    (ii) Services for infertility;
    (iii) Well-child care from birth;
    (iv) Periodic health evaluations for adults;
    (v) Eye and ear examinations for children through age 17, to 
determine the need for vision and hearing correction; and
    (vi) Pediatric and adult immunizations, in accord with accepted 
medical practice.
    (b) In addition, an HMO may include a health service described in 
Sec. 417.102 as a supplemental health service in the basic health 
services that it provides or arranges for its enrollees for a basic 
health services payment.
    (c) To the extent that a natural disaster, war, riot, civil 
insurrection, epidemic or any other emergency or similar event not 
within the control of an HMO results in the facilities, personnel, or 
financial resources of an HMO being unavailable to provide or arrange 
for the provision of a basic or supplemental health service in 
accordance with the requirements of Sec. Sec. 417.101 through 417.106 
and Sec. Sec. 417.168 and 417.169, the HMO is required only to make a 
good-faith effort to provide or arrange for the provision of the 
service, taking into account the impact of the event. For purposes of 
this paragraph, an event is not within the control of an HMO if the HMO 
cannot exercise influence or dominion over its occurrence.
    (d) The following are not required to be provided as basic health 
services:
    (1) Corrective appliances and artificial aids;
    (2) Mental health services, except as required under section 
1302(1)(D) of the PHS Act and paragraph (a)(4) of this section;
    (3) Cosmetic surgery, unless medically necessary;
    (4) Prescribed drugs and medicines incidental to outpatient care;
    (5) Ambulance services, unless medically necessary;
    (6) Care for military service connected disabilities for which the 
enrollee is legally entitled to services and for which facilities are 
reasonably available to this enrollee;
    (7) Care for conditions that State or local law requires be treated 
in a public facility;
    (8) Dental services;
    (9) Vision and hearing care except as required by sections 
1302(1)(A) and 1302(1)(H)(vi) of the PHS Act and paragraphs (a)(1) and 
(a)(8) of this section;
    (10) Custodial or domiciliary care;
    (11) Experimental medical, surgical, or other experimental health 
care procedures, unless approved as a basic health service by the 
policymaking body of the HMO;
    (12) Personal or comfort items and private rooms, unless medically 
necessary during inpatient hospitalization;
    (13) Whole blood and blood plasma;
    (14) Long-term physical therapy and rehabilitation;
    (15) Durable medical equipment for home use (such as wheel chairs, 
surgical beds, respirators, dialysis machines); and
    (16) Health services that are unusual and infrequently provided and 
not necessary for the protection of individual health, as approved by 
CMS upon application by the HMO.
    (e) An HMO may not offer to provide or arrange for the provision of 
basic health services on a prepayment basis that do not include all the 
basic health services set forth in paragraph (a) of this section or that 
are limited as to time and cost except in a manner prescribed by this 
subpart.

[45 FR 72528, Oct. 31, 1980. Redesignated at 52 FR 36746, Sept. 30, 
1987, and amended at 58 FR 38077, July 15, 1993]

[[Page 114]]



Sec. 417.102  Health benefits plan: Supplemental health services.

    (a) An HMO may provide to its enrollees any health service that is 
not included as a basic health service under Sec. 417.101(a). These 
health services may be limited as to time and cost.
    (b) An HMO must determine the level and scope of supplemental health 
services included with basic health services provided to its enrollees 
for a basic health services payment or those services offered to its 
enrollees as supplemental health services.

[45 FR 72528, Oct. 31, 1980, as amended at 47 FR 19339, May 5, 1982. 
Redesignated at 52 FR 36746, Sept. 30, 1987, as amended at 58 FR 38082, 
38083, July 15, 1993]



Sec. 417.103  Providers of basic and supplemental health services.

    (a)(1) The HMO must provide that the services of health 
professionals that are provided as basic health services will, except as 
provided in paragraph (c) of this section, be provided or arranged for 
through (i) health professionals who are staff of the HMO, (ii) a 
medical group or groups, (iii) an IPA or IPAs, (iv) physicians or other 
health professionals under direct service contracts with the HMO for the 
provision of these services, or (v) any combination of staff, medical 
group or groups, IPA or IPAs, or physicians or other health 
professionals under direct service contracts with the HMO.
    (2) A staff or medical group model HMO may have as providers of 
basic health services physicians who have also entered into written 
services arrangements with an IPA or IPAs, but only if either (i) these 
physicians number less than 50 percent of the physicians who have 
entered into arrangements with the IPA or IPAs, or (ii) if the sharing 
is 50 percent or greater, CMS approves the sharing as being consistent 
with the purposes of section 1310(b) of the PHS Act.
    (3) After the 4 year period beginning with the month following the 
month in that an HMO becomes a qualified HMO, an entity that meets the 
requirements of the definition of medical group in Sec. 417.100, except 
for subdivision (3)(i) of that definition, may be considered a medical 
group if CMS determines that the principal professional activity (over 
50 percent individually) of the entity's members is the coordinated 
practice of their profession, and if the HMO has demonstrated to the 
satisfaction of CMS that the entity is committed to the delivery of 
medical services on a prepaid group practice basis by either:
    (i) Presenting a reasonable time-phased plan for the entity to 
achieve compliance with the ``substantial responsibility'' requirement 
of subdivision (3)(i) of the definition of ``medical group'' in Sec. 
417.100. The HMO must update the plan annually and must demonstrate to 
the satisfaction of CMS that the entity is making continuous efforts and 
progress towards compliance with the requirements of the definition of 
``medical group,'' or
    (ii) Demonstrating that compliance by the entity with the 
``substantial responsibility'' requirement is unreasonable or 
impractical because (A) the HMO serves a non-metropolitan or rural area 
as defined in Sec. 417.100, or (B) the entity is a multi-speciality 
group that provides medical consultation upon referral on a regional or 
national basis, or (C) the majority of the residents of the HMO's 
service area are not eligible for employer-employee health benefits 
plans and the HMO has an insufficient number of enrollees to require 
utilization of at least 35 percent of the entity's services.
    (b) HMOs must have effective procedures to monitor utilization and 
to control cost of basic and supplemental health services and to achieve 
utilization goals, which may include mechanisms such as risk sharing, 
financial incentives, or other provisions agreed to by providers.
    (c) Paragraph (a) of this section does not apply to the provision of 
the services of a physician:
    (1) Which the HMO determines are unusual or infrequently used 
services; or
    (2) Which, because of an emergency, it was medically necessary to 
provide to the enrollee other than as required by paragraph (a) of this 
section; or
    (3) Which are provided as part of the inpatient hospital services by 
employees or staff of a hospital or provided by staff of other entities 
such as community mental health centers, home

[[Page 115]]

health agencies, visiting nurses' associations, independent 
laboratories, or family planning agencies.
    (d) Supplemental health services must be provided or arranged for by 
the HMO and need not be provided by providers of basic health services 
under contract with the HMO.
    (e) Each HMO must:
    (1) Pay the provider, or reimburse its enrollees for the payment of 
reasonable charges for basic health services (or supplemental health 
services that the HMO agreed to provide on a prepayment basis) for which 
its enrollees have contracted, which were medically necessary and 
immediately required to be obtained other than through the HMO because 
of an unforeseen illness, injury, or condition, as determined by the 
HMO;
    (2) Adopt procedures to review promptly all claims from enrollees 
for reimbursement for the provision of health services described in 
paragraph (e)(1) of this section, including a procedure for the 
determination of the medical necessity for obtaining the services other 
than through the HMO; and
    (3) Provide instructions to its enrollees on procedures to be 
followed to secure these health services.

(Sec. 215 of the Public Health Service Act, as amended, 58 Stat. 690, 67 
Stat. 631 (42 U.S.C. 216); secs. 1301-1318, as amended, Pub. L. 97-35, 
95 Stat. 572-578 (42 U.S.C. 300e-300e-17)

[45 FR 72528, Oct. 31, 1980; 45 FR 77031, Nov. 21, 1980, as amended at 
47 FR 19339, May 5, 1982; 50 FR 6174, Feb. 14, 1985. Redesignated at 52 
FR 36746, Sept. 30, 1987, as amended at 58 FR 38082, 38083, July 15, 
1993]



Sec. 417.104  Payment for basic health services.

    (a) Basic health services payment. Each HMO must provide or arrange 
for the provision of basic health services for a basic health services 
payment that:
    (1) Is to be paid on a periodic basis without regard to the dates 
these services are provided;
    (2) Is fixed without regard to the frequency, extent, or kind of 
basic health services actually furnished;
    (3) Except as provided in paragraph (c) of this section, is fixed 
under a community rating system, as described in paragraph (b) of this 
section; and
    (4) May be supplemented by nominal copayments which may be required 
for the provision of specific basic health services. Each HMO may 
establish one or more copayment options calculated on the basis of a 
community rating system.
    (i) An HMO may not impose copayment charges that exceed 50 percent 
of the total cost of providing any single service to its enrollees, nor 
in the aggregate more than 20 percent of the total cost of providing all 
basic health services.
    (ii) To insure that copayments are not a barrier to the utilization 
of health services or enrollment in the HMO, an HMO may not impose 
copayment charges on any subscriber (or enrollees covered by the 
subscriber's contract with the HMO) in any calendar year, when the 
copayments made by the subscriber (or enrollees) in that calendar year 
total 200 percent of the total annual premium cost which that subscriber 
(or enrollees) would be required to pay if he (or they) were enrolled 
under an option with no copayments. This limitation applies only if the 
subscriber (or enrollees) demonstrates that copayments in that amount 
have been paid in that year.
    (b) Community rating system. Under a community rating system, rates 
of payment for health services may be determined on a per person or per 
family basis, as described in paragraph (b)(1) of this section or on a 
per group basis as described in paragraph (b)(2) of this section. An HMO 
may fix its rates of payment under the system described in paragraph 
(b)(1) or (b)(2) of this section or under both such systems, but an HMO 
may use only one such system for fixing its rates of payment for any one 
group.
    (1) A system of fixing rates of payment for health services may 
provide that the rates will be fixed on a per person or per family basis 
and may vary with the number of persons in a family. Except as otherwise 
authorized in this paragraph, these rates must be equivalent for all 
individuals and for all families of similar composition. Rates of 
payment may be based on either a schedule of rates charged to each 
subscriber group or on a per-enrollee-per-month (or per-subscriber-

[[Page 116]]

per-month) revenue requirement for the HMO. In the former event, rates 
may vary from group to group if the projected total revenue from each 
group is substantially equivalent to the revenue that would be derived 
if the schedule of rates were uniform for all groups. In the latter 
event, the payments from each group of subscribers must be calculated to 
yield revenues substantially equivalent to the product of the total 
number of enrollees (or subscribers) expected to be enrolled from the 
group and the per-enrollee-per-month (or per-subscriber-per-month) 
revenue requirement for the HMO. Under the system described in this 
paragraph, rates of payment may not vary because of actual or 
anticipated utilization of services by individuals associated with any 
specific group of subscribers. These provisions do not preclude changes 
in the rates of payment that are established for new enrollments or re-
enrollments and that do not apply to existing contracts until the 
renewal of these contracts.
    (2) A system of fixing rates of payment for health services may 
provide that the rates will be fixed for individuals and families by 
groups. Except as otherwise authorized in this paragraph, such rates 
must be equivalent for all individuals in the same group and for all 
families of similar composition in the same group. If an HMO is to fix 
rates of payment for individuals and families by groups, it must:
    (i) Classify all of the enrollees of the organization into classes 
based on factors that the HMO determines predict the differences in the 
use of health services by the individuals or families in each class and 
which have not been disapproved by CMS,
    (ii) Determine its revenue requirements for providing services to 
the enrollees of each class established under paragraph (b)(2)(i) of 
this section, and
    (iii) Fix the rates of payment for the individuals and families of a 
group on the basis of a composite of the organization's revenue 
requirements determined under paragraph (b)(2)(ii) of this section for 
providing services to them as members of the classes established under 
paragraph (b)(2)(i) of this section. CMS will review the factors used by 
each HMO to establish classes under paragraph (b)(2)(i) of this section. 
If CMS determines that any such factor may not reasonably be used to 
predict the use of the health services by individuals and families, CMS 
will disapprove the factor for that purpose.
    (3)(i) Nominal differentials in rates may be established to reflect 
differences in marketing costs and the different administrative costs of 
collecting payments from the following categories of potential 
subscribers:
    (A) Individual (non-group) subscribers (including their families).
    (B) Small groups of subscribers (100 subscribers or fewer).
    (C) Large groups of subscribers (over 100 subscribers).
    (ii) Differentials in rates may be established for subscribers 
enrolled in an HMO: (A) Under a contract with a governmental authority 
under section 1079 (``Contracts for Medical Care for Spouses and 
Children: Plans'') or section 1086 (``Contracts for Health Benefits for 
Certain Members, Former Members and their Dependents'') of title 10 
(``Armed Forces''), United States Code; or (B) under any other 
governmental program (other than the health benefits program authorized 
by chapter 89 (``Health Insurance'') of title 5 (``Government 
Organization and Employees''), United States Code; or (C) under any 
health benefits program for employees of States, political subdivisions 
of states, and other public entities.
    (4) An HMO may establish a separate community rate for separate 
regional components of the organization upon satisfactory demonstration 
to CMS of the following:
    (i) Each regional component is geographically distinct and separate 
from any other regional component; and
    (ii) Each regional component provides substantially the full range 
of basic health services to its enrollees, without extensive referral 
between components of the organization for these services, and without 
substantial utilization by any two components of the same health care 
facilities. The separate community rate for each regional component of 
the HMO must be based on the different costs of providing health 
services in the respective regions.

[[Page 117]]

    (c) Exceptions to community rating requirement. (1) In the case of 
an HMO that provided comprehensive health services on a prepaid basis 
before it became a qualifed HMO, the requirement of community rating 
shall not apply to the HMO during the forty-eight month period beginning 
with the month following the month in which it became a qualifed HMO.
    (2) The requirement of community rating does not apply to the basic 
health services payment for basic health services provided an enrollee 
who is a full-time student at an accredited institution of higher 
education.
    (d) Late payment penalty. HMOs may charge a late payment penalty on 
accounts receivable that are in arrears.
    (e) Review procedures for evaluating the community rating by class 
system under paragraph (b)(2). \1\ An HMO may establish a community 
rating system under paragraph (b)(2) of this section or revised factors 
used to establish classes after it receives written approval of the 
factors from CMS. CMS will give approval if it concludes that the 
factors can reasonably be used to predict the use of health services by 
individuals and families.
---------------------------------------------------------------------------

    \1\ Further information entitled ``Guidelines for Rating by Class'' 
may be obtained from the Office of Prepaid Health Care, Division of 
Qualification Analysis, HHS Cohen Bldg., room 4360, 330 Independence 
Ave. SW., Washington, DC 20201.
---------------------------------------------------------------------------

    (1) An HMO must make a written request to CMS, listing the factors 
to be used in the community rating by class system under paragraph 
(b)(2) of this section.
    (2) CMS will notify each HMO within 30 days of receipt of the 
request and application of one of the following:
    (i) The application is approved;
    (ii) Additional information or data are required and CMS will notify 
the HMO of its decision within 30 days from the date of receipt of this 
information or data; or
    (iii) CMS needs additional time to review the written request and 
the HMO will be notified of CMS's decision within 90 days.

(Approved by the Office of Management and Budget under control number 
0915-0051)

(Sec. 215 of the Public Health Service Act, as amended, 58 Stat. 690, 67 
Stat. 631 (42 U.S.C. 216); secs. 1301-1318, as amended, Pub. L. 97-35, 
95 Stat. 572-578 (42 U.S.C. 300e-300e-17)

[45 FR 72528, Oct. 31, 1980, as amended at 47 FR 19339, May 5, 1982; 50 
FR 6175, Feb. 14, 1985. Redesignated at 52 FR 36746, Sept. 30, 1987, as 
amended at 56 FR 8853, Mar. 1, 1991; 58 FR 38082, 38083, July 15, 1993]



Sec. 417.105  Payment for supplemental health services.

    (a) An HMO may require supplemental health services payments, in 
addition to the basic health services payments, for the provision of 
each health service included in the supplemental health services set 
forth in Sec. 417.102 for which subscribers have contracted, or it may 
include supplemental health services in the basic health services 
provided its enrollees for a basic health services payment.
    (b) Supplemental health services payments may be made in any agreed 
upon manner, such as prepayment or fee-for-service. Supplemental health 
services payments that are fixed on a prepayment basis, however, must be 
fixed under a community rating system, unless the supplemental health 
services payment is for a supplemental health service provided an 
enrollee who is a full-time student at an accredited institution of 
higher education. In the case of an HMO that provided comprehensive 
health services on a prepaid basis before it became a qualifed HMO, the 
community rating requirement shall not apply to that HMO during the 
forty-eight month period beginning with the month following the month in 
which it became a qualifed HMO.

(Sec. 215 of the Public Health Service Act, as amended, 58 Stat. 690, 67 
Stat. 631 (42 U.S.C. 216); secs. 1301-1318, as amended, Pub. L. 97-35, 
95 Stat. 572-578 (42 U.S.C. 300e-300e-17)

[45 FR 72528, Oct. 31, 1980, as amended at 50 FR 6175, Feb. 14, 1985. 
Redesignated at 52 FR 36746, Sept. 30, 1987, as amended at 58 FR 38082, 
38083, July 15, 1993]

[[Page 118]]



Sec. 417.106  Quality assurance program; Availability, accessibility, and continuity of basic and supplemental health services.

    (a) Quality assurance program. Each HMO or CMP must have an ongoing 
quality assurance program for its health services that meets the 
following conditions:
    (1) Stresses health outcomes to the extent consistent with the state 
of the art.
    (2) Provides review by physicians and other health professionals of 
the process followed in the provision of health services.
    (3) Uses systematic data collection of performance and patient 
results, provides interpretation of these data to its practitioners, and 
institutes needed change.
    (4) Includes written procedures for taking appropriate remedial 
action whenever, as determined under the quality assurance program, 
inappropriate or substandard services have been provided or services 
that ought to have been furnished have not been provided.
    (b) Availability and accessibility of health care services. Basic 
health services and those supplemental health services for which 
enrollees have contracted must be provided or arranged for by the HMO in 
accordance with the following rules:
    (1) Except as provided in paragraph (b)(2) of this section, the 
services must be available to each enrollee within the HMO's service 
area.
    (2) Exception. If the HMO's service area is located wholly within a 
nonmetropolitan area, the HMO may make available outside its service 
area any basic health service that is not a primary care or emergency 
care service, if the number of providers of that basic health service 
who will provide the service to the HMO's enrollees is insufficient to 
meet the demand. As used in this paragraph, primary care includes 
general practice, family practice, general internal medicine, general 
pediatrics, and general obstetrics and gynecology. An HMO that provides 
the services covered by these fields through at least a general or 
family practitioner, or a pediatrician and a general internist, is 
considered to be providing primary care.
    (3) The services must be available and accessible with reasonable 
promptness to each of the HMO's enrollees as ensured through--
    (i) Staffing patterns within generally accepted norms for meeting 
the projected enrollment needs; and
    (ii) Geographic location, hours of operation, and arrangements for 
after-hours services. (Medically necessary emergency services must be 
available 24 hours a day, 7 days a week.)
    (c) Continuity of care. The HMO must ensure continuity or care 
through arrangements that include but are not limited to the following:
    (1) Use of a health professional who is primarily responsible for 
coordinating the enrollee's overall health care.
    (2) A system of health and medical records that accumulates 
pertinent information about the enrollee's health care and makes it 
available to appropriate professionals.
    (3) Arrangements made directly or through the HMO's providers to 
ensure that the HMO or the health professional who coordinates the 
enrollee's overall health care is kept informed about the services that 
the referral resources furnish to the enrollee.
    (d) Confidentiality of health records. Each HMO must establish 
adequate procedures to ensure the confidentiality of the health and 
medical records of its enrollees.

[58 FR 38068, July 15, 1993]



 Subpart C_Qualified Health Maintenance Organizations: Organization and 
                                Operation

    Source: 58 FR 38068, July 15, 1993, unless otherwise noted.



Sec. 417.120  Fiscally sound operation and assumption of financial risk.

    (a) Fiscally sound operation--(1) General requirements. Each HMO 
must have a fiscally sound operation, as demonstrated by the following:
    (i) Total assets greater than total unsubordinated liabilities. In 
evaluating assets and liabilities, loan funds awarded or guaranteed 
under section

[[Page 119]]

1306 of the PHS Act are not included as liabilities.
    (ii) Sufficient cash flow and adequate liquidity to meet obligations 
as they become due.
    (iii) A net operating surplus, or a financial plan that meets the 
requirements of paragraph (a)(2) of this section.
    (iv) An insolvency protection plan that meets the requirements of 
Sec. 417.122(b) for protection of enrollees.
    (v) A fidelity bond or bonds, procured and maintained by the HMO, in 
an amount fixed by its policymaking body but not less than $100,000 per 
individual, covering each officer and employee entrusted with the 
handling of its funds. The bond may have reasonable deductibles, based 
upon the financial strength of the HMO.
    (vi) Insurance policies or other arrangements, secured and 
maintained by the HMO and approved by CMS to insure the HMO against 
losses arising from professional liability claims, fire, theft, fraud, 
embezzlement, and other casualty risks.
    (2) Financial plan requirement. (i) If an HMO has not earned a 
cumulative net operating surplus during the three most recent fiscal 
years, did not earn a net operating surplus during the most recent 
fiscal year or does not have positive net worth, the HMO must submit a 
financial plan satisfactory to CMS to achieve net operating surplus 
within available fiscal resources.
    (ii) This plan must include--
    (A) A detailed marketing plan;
    (B) Statements of revenue and expense on an accrual basis;
    (C) Sources and uses of funds statements; and
    (D) Balance sheets.
    (b) Assumption of financial risk. Each HMO must assume full 
financial risk on a prospective basis for the provision of basic health 
services, except that it may obtain insurance or make other arrangements 
as follows:
    (1) For the cost of providing to any enrollee basic health services 
with an aggregate value of more than $5,000 in any year.
    (2) For the cost of basic health services obtained by its enrollees 
from sources other than the HMO because medical necessity required that 
they be furnished before they could be secured through the HMO.
    (3) For not more than 90 percent of the amount by which its costs 
for any of its fiscal years exceed 115 percent of its income for that 
fiscal year.
    (4) For physicians or other health professionals, health care 
institutions, or any other combination of such individuals or 
institutions to assume all or part of the financial risk on a 
prospective basis for their furnishing of basic health services to the 
HMO's enrollees.



Sec. 417.122  Protection of enrollees.

    (a) Liability protection. (1) Each HMO must adopt and maintain 
arrangements satisfactory to CMS to protect its enrollees from incurring 
liability for payment of any fees that are the legal obligation of the 
HMO. These arrangements may include any of the following:
    (i) Contractual arrangements that prohibit health care providers 
used by the enrollees from holding any enrollee liable for payment of 
any fees that are the legal obligation of the HMO.
    (ii) Insurance, acceptable to CMS.
    (iii) Financial reserves, acceptable to CMS, that are held for the 
HMO and restricted for use only in the event of insolvency.
    (iv) Any other arrangements acceptable to CMS.
    (2) The requirements of this paragraph do not apply to an HMO if CMS 
determines that State law protects the HMO enrollees from liability for 
payment of any fees that are the legal obligation of the HMO.
    (b) Protection against loss of benefits if the HMO becomes 
insolvent. The insolvency protection plan required under Sec. 
417.120(a) must provide for continuation of benefits as follows:
    (1) For all enrollees, for the duration of the contract period for 
which payment has been made.
    (2) For enrollees who are in an inpatient facility on the date of 
insolvency, until they are discharged from the facility.



Sec. 417.124  Administration and management.

    (a) General requirements. Each HMO must have administrative and 
managerial arrangements satisfactory to CMS,

[[Page 120]]

as demonstrated by at least the following:
    (1) A policymaking body that exercises oversight and control over 
the HMO's policies and personnel to ensure that management actions are 
in the best interest of the HMO and its enrollees.
    (2) Personnel and systems sufficient for the HMO to organize, plan, 
control and evaluate the financial, marketing, health services, quality 
assurance program, administrative and management aspects of the HMO.
    (3) At a minimum, management by an executive whose appointment and 
removal are under the control of the HMO's policymaking body.
    (b) Full and fair disclosure--(1) Basic rule. Each HMO must prepare 
a written description of the following:
    (i) Benefits (including limitations and exclusions).
    (ii) Coverage (including a statement of conditions on eligibility 
for benefits).
    (iii) Procedures to be followed in obtaining benefits and a 
description of circumstances under which benefits may be denied.
    (iv) Rates.
    (v) Grievance procedures.
    (vi) Service area.
    (vii) Participating providers.
    (viii) Financial condition including at least the following most 
recently audited information: Current assets, other assets, total 
assets; current liabilities, long term liabilities; and net worth.
    (2) Requirements for the description. (i) The description must be 
written in a way that can be easily understood by the average person who 
might enroll in the HMO.
    (ii) The description of benefits and coverage may be in general 
terms if reference is made to a detailed statement of benefits and 
coverage that is available without cost to any person who enrolls in the 
HMO or to whom the opportunity for enrollment is offered.
    (iii) The HMO must provide the description to any enrollee or person 
who is eligible to elect the HMO option and who requests the material 
from the HMO or the administrator of a health benefits plan. For 
purposes of this requirement, ``administrator'' (of a health benefits 
plan) has the meaning it is given in the Employment Retirement Income 
Security Act of 1974 (ERISA) at 29 U.S.C. 1002(16)(A).
    (iv) If the HMO provides health services through individual practice 
associations (IPAs), the HMO must specify the number of member 
physicians by specialty, and a listing of the hospitals where HMO 
enrollees will receive basic and supplemental health services.
    (v) If the HMO provides health services other than through IPAs, the 
HMO must specify, for each ambulatory care facility, the facility's 
address, days and hours of operation, and the number of physicians by 
specialty, and a listing of the hospitals where HMO enrollees will 
receive basic and supplemental health services.
    (c) Broadly representative enrollment. (1) Each HMO must offer 
enrollment to persons who are broadly representative of the various age, 
social, and income groups within its service area.
    (2) If an HMO has a medically underserved population located in its 
service area, not more than 75 percent of its enrollees may be from the 
medically underserved population unless the area in which that 
population resides is a rural area.
    (d) Health status and enrollment. (1) The HMO may not, on the basis 
of health status, health care needs, or age of the individual--
    (i) Expel or refuse to reenroll any enrollee; or
    (ii) Refuse to enroll individual members of a group.
    (2) For purposes of this paragraph, a ``group'' is composed of 
individuals who enroll in the HMO under a contract or other arrangement 
that covers two or more subscribers. Examples of groups are employees 
who enroll under a contract between their employer and the HMO, or 
members of an organization that arranges coverage for its membership.
    (3) Nothing in this subpart prohibits an HMO from requiring that, as 
a condition for continued eligibility for enrollment, enrolled dependent 
children, upon reaching a specified age, convert to individual 
enrollment, consistent with paragraph (e) of this section.

[[Page 121]]

    (e) Conversion of enrollment. (1) Each HMO must offer individual 
enrollment to the following:
    (i) Each enrollee (and his or her enrolled dependents) leaving a 
group.
    (ii) Each enrollee who would otherwise cease to be eligible for HMO 
enrollment because of his or her age, or the death or divorce of an 
enrollee.
    (2) The individual enrollment offered must meet the conditions of 
subpart B of this part and this subpart C.
    (3) The HMO is not required to offer individual enrollment except to 
the enrollees specified in this paragraph.
    (4) The HMO must offer the enrollment on the same terms and 
conditions that it makes available to other nongroup enrollees.
    (f) [Reserved]
    (g) Grievance procedures. Each HMO must have and use meaningful 
procedures for hearing and resolving grievances between the HMO's 
enrollees and the HMO, including the HMO staff and medical groups and 
IPAs that furnish services. These procedures must ensure that:
    (1) Grievances and complaints are transmitted in a timely manner to 
appropriate HMO decisionmaking levels that have authority to take 
corrective action; and
    (2) Appropriate action is taken promptly, including a full 
investigation if necessary and notification of concerned parties as to 
the results of the HMO's investigation.
    (h) Certification of institutional providers. Each HMO must ensure 
that its affiliated institutional providers meet one of the following 
conditions:
    (1) In the case of hospitals, are either accredited by the Joint 
Commission on Accreditation of Health Care Organizations, or certified 
by Medicare.
    (2) In the case of laboratories, are either CLIA-exempt, or have in 
effect a valid certificate of one of the following types, issued by CMS 
in accordance with section 353 of the PHS Act and part 493 of this 
chapter:
    (i) Registration certificate.
    (ii) Certificate.
    (iii) Certificate of waiver.
    (iv) Certificate of accreditation.
    (3) In the case of other affiliated institutional providers, are 
certified for participation in Medicare and Medicaid in accordance with 
part 405, 416, 418, 488, or 491 of this chapter, as appropriate.

[58 FR 38068, July 15, 1993, as amended at 59 FR 49843, Sept. 30, 1994]



Sec. 417.126  Recordkeeping and reporting requirements.

    (a) General reporting and disclosure requirements. Each HMO must 
have an effective procedure to develop, compile, evaluate, and report to 
CMS, to its enrollees, and to the general public, at the times and in 
the manner that CMS requires, and while safeguarding the confidentiality 
of the doctor-patient relationship, statistics and other information 
with respect to the following:
    (1) The cost of its operations.
    (2) The patterns of utilization of its services.
    (3) The availability, accessibility, and acceptability of its 
services.
    (4) To the extent practical, developments in the health status of 
its enrollees.
    (5) Information demonstrating that the HMO has a fiscally sound 
operation.
    (6) Other matters that CMS may require.
    (b) Significant business transactions. Each HMO must report to CMS 
annually, within 120 days of the end of its fiscal year (unless for good 
cause shown, CMS authorizes an extension of time), the following:
    (1) A description of significant business transactions (as defined 
in paragraph (c) of this section) between the HMO and a party in 
interest.
    (2) With respect to those transactions--
    (i) A showing that the costs of the transactions listed in paragraph 
(c) of this section do not exceed the costs that would be incurred if 
these transactions were with someone who is not a party in interest; or
    (ii) If they do exceed, a justification that the higher costs are 
consistent with prudent management and fiscal soundness requirements.
    (3) A combined financial statement for the HMO and a party in 
interest if either of the following conditions is met:

[[Page 122]]

    (i) Thirty-five percent or more of the costs of operation of the HMO 
go to a party in interest.
    (ii) Thirty-five percent or more of the revenue of a party in 
interest is from the HMO.
    (c) ``Significant business transaction'' defined. As used in 
paragraph (b) of this section--
    (1) Business transaction means any of the following kinds of 
transactions:
    (i) Sale, exchange or lease of property.
    (ii) Loan of money or extension of credit.
    (iii) Goods, services, or facilities furnished for a monetary 
consideration, including management services, but not including--
    (A) Salaries paid to employees for services performed in the normal 
course of their employment; or
    (B) Health services furnished to the HMO's enrollees by hospitals 
and other providers, and by HMO staff, medical groups, or IPAs, or by 
any combination of those entities.
    (2) Significant business transaction means any business transaction 
or series of transactions of the kind specified in paragraph (c)(1) of 
this section that, during any fiscal year of the HMO, have a total value 
that exceeds $25,000 or 5 percent of the HMO's total operating expenses, 
whichever is less.
    (d) Requirements for combined financial statements. (1) The combined 
financial statements required by paragraph (b)(3) of this section must 
display in separate columns the financial information for the HMO and 
each of these parties in interest.
    (2) Inter-entity transactions must be eliminated in the consolidated 
column.
    (3) These statements must have been examined by an independent 
auditor in accordance with generally accepted accounting principles, and 
must include appropriate opinions and notes.
    (4) Upon written request from an HMO showing good cause, CMS may 
waive the requirement that its combined financial statement include the 
financial information required in this paragraph (d) with respect to a 
particular entity.
    (e) Reporting and disclosure under ERISA. (1) For any employees' 
health benefits plan that includes an HMO in its offerings, the HMO must 
furnish, upon request, the information the plan needs to fulfill its 
reporting and disclosure obligations (with respect to the particular 
HMO) under the Employee Retirement Income Security Act of 1974 (ERISA).
    (i) The HMO must furnish the information to the employer or the 
employer's designee, or to the plan administrator, as the term 
``administrator'' is defined in ERISA.
    (ii) Loan of money or extension of credit.
    (iii) Goods, services, or facilities furnished for a monetary 
consideration, including management services, but not including--
    (A) Salaries paid to employees for services performed in the normal 
course of their employment; or
    (B) Health services furnished to the HMO's enrollees by hospitals 
and other providers, and by HMO staff, medical groups, or IPAs, or by 
any combination of those entities.
    (2) Significant business transaction means any business transaction 
or series of transactions of the kind specified in paragraph (c)(1) of 
this section that, during any fiscal year of the HMO, have a total value 
that exceeds $25,000 or 5 percent of the HMO's total operating expenses, 
whichever is less.
    (d) Requirements for combined financial statements. (1) The combined 
financial statements required by paragraph (b)(3) of this section must 
display in separate columns the financial information for the HMO and 
each of these parties in interest.
    (2) Inter-entity transactions must be eliminated in the consolidated 
column.
    (3) These statements must have been examined by an independent 
auditor in accordance with generally accepted accounting principles, and 
must include appropriate opinions and notes.
    (4) Upon written request from an HMO showing good cause, CMS may 
waive the requirement that its combined financial statement include the 
financial information required in this paragraph (d) with respect to a 
particular entity.
    (e) Reporting and disclosure under ERISA. (1) For any employees' 
health benefits plan that includes an HMO in its offerings, the HMO must 
furnish,

[[Page 123]]

upon request, the information the plan needs to fulfill its reporting 
and disclosure obligations (with respect to the particular HMO) under 
the Employee Retirement Income Security Act of 1974 (ERISA).
    (2) The HMO must furnish the information to the employer or the 
employer's designee, or to the plan administrator, as the term 
``administrator'' is defined in ERISA.



             Subpart D_Application for Federal Qualification



Sec. 417.140  Scope.

    This subpart sets forth--
    (a) The requirements for--
    (1) Entities that seek qualification as HMOs under title XIII of the 
PHS Act; and
    (2) HMOs that seek--
    (i) Qualification for their regional components; or
    (ii) Expansion of their service areas;
    (b) The procedures that CMS follows to make determinations; and
    (c) Other related provisions, including application fees.

[59 FR 49836, Sept. 30, 1994]



Sec. 417.142  Requirements for qualification.

    (a) General rules. (1) An entity seeking qualification as an HMO 
must meet the requirements and provide the assurances specified in 
paragraphs (b) through (f) of this section, as appropriate.
    (2) CMS determines whether the entity is an HMO on the basis of the 
entity's application and any additional information and investigation 
(including site visits) that CMS may require.
    (3) CMS may determine that an entity is any of the following:
    (i) An operational qualified HMO.
    (ii) A preoperational qualified HMO.
    (iii) A transitional qualified HMO.
    (b) Operational qualified HMO. CMS determines that an entity is an 
operational qualified HMO if--
    (1) CMS finds that the entity meets the requirements of subparts B 
and C of this part.
    (2) The entity, within 30 days of CMS's determination, provides 
written assurances, satisfactory to CMS, that it--
    (i) Provides and will provide basic health services (and any 
supplemental health services included in any contract) to its enrollees;
    (ii) Provides and will provide these services in the manner 
prescribed in sections 1301(b) and 1301(c) of the PHS Act and subpart B 
of this part;
    (iii) Is organized and operated and will continue to be organized 
and operated in the manner prescribed in section 1301(c) of the PHS Act 
and subpart C of this part;
    (iv) Under arrangements that safeguard the confidentiality of 
patient information and records, will provide access to CMS and the 
Comptroller General or any of their duly authorized representatives for 
the purpose of audit, examination or evaluation to any books, documents, 
papers, and records of the entity relating to its operation as an HMO, 
and to any facilities that it operates; and
    (v) Will continue to comply with any other assurances that it has 
given to CMS.
    (c) Preoperational qualified HMO. (1) CMS may determine that an 
entity is a preoperational qualified HMO if it provides, within 30 days 
of CMS's determination, satisfactory assurances that it will become 
operational within 60 days following that determination and will, when 
it becomes operational, meet the requirements of subparts B and C of 
this part.
    (2) Within 30 days after receiving notice that the entity has begun 
operation, CMS determines whether it is an operational qualified HMO. In 
the absence of this determination, the entity is not an operational 
qualified HMO even though it becomes operational.
    (d) Transitional qualified HMO: General rules--(1) Basic 
requirements. CMS may determine that an entity is a transitional 
qualified HMO if the entity--
    (i) Meets the requirements of paragraph (d)(2) through (d)(4) of 
this section; and
    (ii) Provides the assurances specified in paragraphs (d)(5) through 
(d)(7) of this section within 30 days of CMS's determination.

[[Page 124]]

    (2) Organization and operation. The entity is organized and operated 
in accordance with subpart C of this part, except that it need not--
    (i) Assume full financial risk for the provision of basic health 
services as required by Sec. 417.120(b); or
    (ii) Comply with the limitations that are imposed on insurance by 
Sec. 417.120(b)(1).
    (3) Range of services. The entity is currently providing the 
following services on a prepaid basis:
    (i) Physician services.
    (ii) Outpatient services and inpatient hospital services. (The 
entity need not provide or pay for hospital inpatient or outpatient 
services that it can show are being provided directly, through 
insurance, or under arrangements, by other entities.)
    (iii) Medically necessary emergency services.
    (iv) Diagnostic laboratory services and diagnostic and therapeutic 
radiologic services.

These services must meet the requirement of Sec. 417.101, but may be 
limited in time and cost without regard to the constraints imposed by 
Sec. 417.101(a).
    (4) Payment for services--(i) General rule. The entity pays for 
basic health services in accordance with Sec. 417.104, except that it 
need not comply with the copayments limitations imposed by Sec. 
417.104(a)(4).
    (ii) Determination of payment rates. In determining payment rates, 
the entity need not comply with the community rating requirements of 
Sec. Sec. 417.104(b) and 417.105(b).
    (5) Contracts in effect on the date of CMS's determination. The 
entity gives assurances that it will meet the following conditions with 
respect to its group and individual contracts that are in effect on the 
date of CMS's determination, and which are renewed or renegotiated 
during the period approved by CMS under paragraph (d)(6) of this 
section:
    (i) Continue to provide services in accordance with paragraph (d)(3) 
of this section.
    (ii) Continue to be organized and operated and to pay for basic 
health services in accordance with paragraphs (d)(2) and (d)(4) of this 
section, respectively.
    (6) Time-phased plan. The entity gives assurances as follows:
    (i) It will implement a time-phased plan acceptable to CMS that--
    (A) May not extend for more than 3 years from the date of CMS's 
determination; and
    (B) Specifies definite steps for meeting, at the time of renewal of 
each group or individual contract, all the requirements of subparts B 
and C of this part.
    (ii) Upon completion of this time-phased plan, it will--
    (A) Provide basic and supplemental services to all of its enrollees; 
and
    (B) Be organized and operated, and provide services, in accordance 
with subparts B and C of this part.
    (7) Contracts entered into after the date of CMS's determination. 
The entity gives assurances that, with respect to any group or 
individual contract entered into after the date of CMS's determination, 
it will--
    (i) Be organized and operated in accordance with subpart C of this 
part; and
    (ii) Provide basic health services and any supplemental health 
services included in the contract, in accordance with subpart B of this 
part.
    (e) Failure to sign assurances timely. If CMS determines that an 
entity meets the requirements for qualification and the entity fails to 
sign its assurances within 30 days following the date of the 
determination, CMS gives the entity written notice that its application 
is considered withdrawn and that it is not a qualified HMO.
    (f) Qualification of regional components. An HMO that has more than 
one regional component is considered qualified for those regional 
components for which assurances have been signed in accordance with this 
section.
    (g) Special rules: Enrollees entitled to Medicare or Medicaid. For 
an HMO that accepts enrollees entitled to Medicare or Medicaid, the 
following rules apply:
    (1) The requirements of titles XVIII and XIX of the Act, as 
appropriate, take precedence over conflicting requirements of sections 
1301(b) and 1301(c) of the PHS Act.

[[Page 125]]

    (2) The HMO must, with respect to its enrollees entitled to Medicare 
or Medicaid, comply with the applicable requirement of title XVIII or 
XIX, including those that pertain to--
    (i) Deductibles and coinsurance;
    (ii) Enrollment mix and enrollment practices;
    (iii) State plan rules on copayment options; and
    (iv) Grievance procedures.
    (3) An HMO that complies with paragraph (g)(2) of this section may 
obtain and retain Federal qualification if, for its other enrollees, the 
HMO meets the requirements of sections 1301(b) and 1301(c) of the PHS 
Act and implementing regulations in this subpart D and in subparts B and 
C of this part.
    (h) Special rules: Enrollees under the Federal employee health 
benefits program (FEHBP). An HMO that accepts enrollees under the FEHBP 
(Chapter 89 of title 5 of the U.S.C.) may obtain and retain Federal 
qualification if, for its other enrollees, it complies with the 
requirements of section 1301(b) and 1301(c) of the PHS Act and 
implementing regulations in this subpart D and subparts B and C of this 
part.

[59 FR 49836, Sept. 30, 1994]



Sec. 417.143  Application requirements.

    (a) General requirements. This section sets forth application 
requirements for entities that seek qualification as HMOs; HMOs that 
seek expansion of their service areas; and HMOs that seek qualification 
of their regional components as HMOs.
    (b) Completion of an application form. (1) In order to receive a 
determination concerning whether an entity is a qualified HMO, an 
individual authorized to act for the entity (the applicant) must 
complete an application form provided by CMS.
    (2) The authorized individual must describe thoroughly how the 
entity meets, or will meet, the requirements for qualified HMOs 
described in the PHS Act and in subparts B and C of this part, this 
subpart D, and 417.168 and 417.169 of subpart F.
    (c) Collection of an application fee. In accordance with the 
requirements of 31 U.S.C. 9701, Fees and charges for Government services 
and things of value, CMS determines the amount of the application fee 
that must be submitted with each type of application.
    (1) The fee is reasonably related to the Federal government's cost 
of qualifying an entity and may vary based on the type of application.
    (2) Each type of application has one set fee rather than a charge 
based on the specific cost of each determination. (For example, each 
Federally qualified HMO applicant seeking Federal qualification of one 
of its regional components as an HMO is charged the same amount, unless 
the amount of the fee has been changed under paragraph (f) of this 
section.)
    (d) Application fee amounts. The application fee amounts for 
applications completed on or after July 13, 1987 are as follows:
    (1) $18,400 for an entity seeking qualification as an HMO or 
qualification of a regional component of an HMO.

If, in the case of an HMO seeking qualification of a regional component, 
CMS determines that there is no need for a site visit, $8,000 will be 
returned to the applicant.
    (2) $6,900 for an HMO seeking expansion of its service area.
    (3) $3,100 for a CMP seeking qualification as an HMO.
    (e) Refund of an application fee. CMS refunds an application fee 
only if the entity withdraws its application within 10 working days 
after receipt by CMS. Application fees are not returned in any other 
circumstance, even if qualification or certification is denied.
    (f) Procedure for changing the amount of an application fee. If CMS 
determines that a change in the amount of a fee is appropriate, CMS 
issues a notice of proposed rulemaking in the Federal Register to 
announce the proposed new amount.
    (g) New application after denial. An entity may not submit another 
application under this subpart for the same type of determination for 
four full months after the date of the notice in which CMS denied the 
application.
    (h) Disclosure of application information under the Freedom of 
Information Act. An applicant submitting material that he or she 
believes is protected from disclosure under 5 U.S.C. 552, the Freedom of 
Information Act, or because of exceptions provided in 45 CFR

[[Page 126]]

part 5, the Department's regulations providing exceptions to disclosure, 
should label the material ``privileged'' and include an explanation of 
the applicability of an exception described in 45 CFR part 5.

[52 FR 22321, June 11, 1987. Redesignated at 52 FR 36746, Sept. 30, 
1987, as amended at 58 FR 38077, July 15, 1993]



Sec. 417.144  Evaluation and determination procedures.

    (a) Basis for evaluation and determination. (1) CMS evaluates an 
application for Federal qualification on the basis of information 
contained in the application itself and any additional information that 
CMS obtains through on-site visits, public hearings, and any other 
appropriate procedures.
    (2) If the application is incomplete, CMS notifies the entity and 
allows 60 days from the date of the notice for the entity to furnish the 
missing information.
    (3) After evaluating all relevant information, CMS determines 
whether the entity meets the applicable requirements of Sec. Sec. 
417.142 and 417.143.
    (b) Notice of determination. CMS notifies each entity that applies 
for qualification under this subpart of its determination and the basis 
for the determination. The determination may be granting of 
qualification, intent to deny, or denial.
    (c) Intent to deny. (1) If CMS finds that the entity does not appear 
to meet the requirements for qualification and appears to be able to 
meet those requirements within 60 days, CMS gives the entity notice of 
intent to deny qualification and a summary of the basis for this 
preliminary finding.
    (2) Within 60 days from the date of the notice, the entity may 
respond in writing to the issues or other matters that were the basis 
for CMS's preliminary finding, and may revise its application to remedy 
any defects identified by CMS.
    (d) Denial and reconsideration of denial. (1) If CMS denies an 
application for qualification under this subpart, CMS gives the entity 
written notice of the denial and an opportunity to request 
reconsideration of that determination.
    (2) A request for reconsideration must--
    (i) Be submitted in writing, within 60 days following the date of 
the notice of denial;
    (ii) Be addressed to the CMS officer or employee who denied the 
application; and
    (iii) Set forth the grounds upon which the entity requests 
reconsideration, specifying the material issues of fact and of law upon 
which the entity relies.
    (3) CMS bases its reconsideration upon the record compiled during 
the qualification review proceedings, materials submitted in support of 
the request for reconsideration, and other relevant materials available 
to CMS.
    (4) CMS gives the entity written notice of the reconsidered 
determination and the basis for the determination.
    (e) Information on qualified HMOs--(1) Federal Register notices. In 
quarterly Federal Register notices, CMS gives the names, addresses, and 
service areas of newly qualified HMOs and describes the expanded service 
areas of other qualified HMOs.
    (2) Listings. A cumulative list of qualified HMOs is available from 
the following office, which is open from 8:30 a.m. to 5 p.m., Monday 
through Friday: Office of Managed Care, room 4360, Cohen Building, 400 
Independence Avenue SW., Washington, DC 20201.

[59 FR 49837, Sept. 30, 1994]



  Subpart E_Inclusion of Qualified Health Maintenance Organizations in 
                     Employee Health Benefits Plans

    Source: 45 FR 72517, Oct. 31, 1980, unless otherwise noted. 
Redesignated at 52 FR 36746, Sept. 30, 1987.



Sec. 417.150  Definitions.

    As used in this subpart, unless the context indicates otherwise--
    Agreement means a collective bargaining agreement.
    Bargaining representative means an individual or entity designated 
or selected, under any applicable Federal, State, or local law, or 
public entity collective bargaining agreement, to

[[Page 127]]

represent employees in collective bargaining, or any other employee 
representative designated or selected under any law.
    Carrier means a voluntary association, corporation, partnership, or 
other organization that is engaged in providing, paying for, or 
reimbursing all or part of the cost of health benefits under group 
insurance policies or contracts, medical or hospital service agreements, 
enrollment or subscription contracts, or similar group arrangements, in 
consideration of premiums or other periodic charges payable to the 
carrier.
    Collective bargaining agreement means an agreement entered into 
between an employing entity and the bargaining representative of its 
employees.
    Contract means an employer-employee or public entity-employee 
contract, or a contract for health benefits.
    Designee means any person or entity authorized to act on behalf of 
an employing entity or a group of employing entities to offer the option 
of enrollment in a qualified health maintenance organization to their 
eligible employees.
    Eligible employee means an employee who meets the employer's 
requirements for participation in the health benefits plan.
    Employee means any individual employed by an employer or public 
entity on a full-time or part-time basis.
    Employer has the meaning given that term in section 3(d) of the Fair 
Labor Standards Act of 1938, except that it--
    (1) Includes non-appropriated fund instrumentalities of the United 
States Government; and
    (2) Excludes the following:
    (i) The governments of the United States, the District of Columbia 
and the territories and possessions of the United States, the 50 States 
and their political subdivisions, and any agencies or instrumentalities 
of any of the foregoing, including the United States Postal Service and 
Postal Rate Commission.
    (ii) Any church, or convention or association of churches, and any 
organization operated, supervised, or controlled by a church, or 
convention or association of churches that meets the following 
conditions:
    (A) Is an organization that is described in section 501(c)(3) of the 
Internal Revenue Code of 1954.
    (B) Does not discriminate, in the employment, compensation, 
promotion or termination of employment of any personnel, or in the 
granting of staff and other privileges to physicians or other health 
personnel, on the grounds that the individuals obtain health care 
through HMOs, or participate in furnishing health care through HMOs.
    Employing entity means an employer or public entity.
    Employing entity-employee contract means a legally enforceable 
agreement (other than a collective bargaining agreement) between an 
employing entity and its employees for the provision of, or payment for, 
health benefits for its employees, or for its employees and their 
eligible dependents.
    Group enrollment period means the period of at least 10 working days 
each calendar year during which each eligible employee is given the 
opportunity to select among the alternatives included in a health 
benefits plan.
    Health benefits means health benefits and services.
    Health benefits contract means a contract or other agreement between 
an employing entity or a designee and a carrier for the provision of, or 
payment for, health benefits to eligible employees or to eligible 
employees and their eligible dependents.
    Health benefits plan means any arrangement, to provide or pay for 
health services, that is offered to eligible employees, or to eligible 
employees and their eligible dependents, by or on behalf of an employing 
entity.
    Public entity means the 50 states, Puerto Rico, Guam, the Virgin 
Islands, the Northern Mariana Islands and American Samoa and their 
political subdivisions, the District of Columbia, and any agency or 
instrumentality of the foregoing, and political subdivisions include 
counties, parishes, townships, cities, municipalities, towns, villages, 
and incorporated villages.
    Qualified HMO means an HMO that has in effect a determination, made 
under subpart D of this part, that the HMO is an operational, 
preoperational, or transitional qualified HMO.

[[Page 128]]

    To offer a health benefits plan means to make participation in a 
health benefits plan available to eligible employees, or to eligible 
employees and their eligible dependents regardless of whether the 
employing entity makes a financial contribution to the plan on behalf of 
these employees, directly or indirectly, for example, through payments 
on any basis into a health and welfare trust fund.

[45 FR 72517, Oct. 31, 1980, as amended at 47 FR 19341, May 5, 1982. 
Redesignated at 52 FR 36746, Sept. 30, 1987, as amended at 58 FR 38077, 
July 15, 1993; 59 FR 49837, 49843, Sept. 30, 1994]



Sec. 417.151  Applicability.

    (a) Basic rule. Effective October 24, 1995, \1\ this subpart applies 
to any employing entity that offers a health benefits plan to its 
employees, meets the conditions specified in paragraphs (b) through (e) 
of this section, and elects to include one or more qualified HMOs in the 
health plan alternatives it offers its employees.
---------------------------------------------------------------------------

    \1\ Before October 24, 1995, an employing entity that met the 
conditions specified in Sec. 417.151 was required to include one or 
more qualified HMOs, if it received from at least one qualified HMO a 
written request for inclusion and that request met the timing, content, 
and procedural requirements specified in Sec. 417.152.
---------------------------------------------------------------------------

    (b) Number of employees. During any calendar quarter of the 
preceding calendar year, the employer or public entity employed an 
average of not less than 25 employees.
    (c) Minimum wage. During any calendar quarter of the preceding 
calendar year, the employer was required to pay the minimum wage 
specified in section 6 of the Fair Labor Standards Act of 1938, or would 
have been required to pay that wage but for section 13(a) of that Act.
    (d) Federal assistance under section 317 of the PHS Act. The public 
entity has a pending application for, or is receiving, assistance under 
section 317 of the PHS Act.
    (e) Employees in HMO's service area. At least 25 of the employing 
entity's employees reside within the HMO's service area.

[59 FR 49838, Sept. 30, 1994, as amended at 61 FR 27287, May 31, 1996]



Sec. 417.153  Offer of HMO alternative.

    (a) Basic rule. An employing entity that is subject to this subpart 
and that elects to include one or more qualified HMOs must offer the HMO 
alternative in accordance with this section.
    (b) Employees to whom the HMO option must be offered. Each employing 
entity must offer the option of enrollment in a qualified HMO to each 
eligible employee and his or her eligible dependents who reside in the 
HMO's service area.
    (c) Manner of offering the HMO option. (1) For employees who are 
represented by a bargaining representative, the option of enrollment in 
a qualified HMO--
    (i) Must first be presented to the bargaining representative; and
    (ii) If the representative accepts the option, must then be offered 
to each represented employee.
    (2) For employees not represented by a bargaining representative, 
the option must be offered directly to those employees.

[59 FR 49839, Sept. 30, 1994, as amended at 61 FR 27287, May 31, 1996]



Sec. 417.155  How the HMO option must be included in the health benefits plan.

    (a) HMO access to employees--(1) Purpose and timing--(i) Purpose. 
The employing entity must provide each HMO included in its health 
benefits plan fair and reasonable access to all employees specified in 
Sec. 417.153(b), so that the HMO can explain its program in accordance 
with Sec. 417.124(b).
    (ii) Timing. The employing entity must provide access beginning at 
least 30 days before, and continuing during, the group enrollment 
period.
    (2) Nature of access. (i) Access must include, at a minimum, 
opportunity to distribute educational literature, brochures, 
announcements of meetings, and other relevant printed materials that 
meet the requirements of Sec. 417.124(b).
    (ii) Access may not be more restrictive or less favorable than the 
access the employing entity provides to other

[[Page 129]]

offerors of options included in the health benefits plan, whether or not 
those offerors elect to avail themselves of that access.
    (b) Review of HMO offering materials. (1) The HMO must give the 
employing entity or designee opportunity to review, revise, and approve 
HMO educational and offering materials before distribution.
    (2) Revisions must be limited to correcting factual errors and 
misleading or ambiguous statements, unless--
    (i) The HMO and the employing entity agree otherwise; or
    (ii) Other revisions are required by law.
    (3) The employing entity or designee must complete revision of the 
materials promptly so as not to delay or otherwise interfere with their 
use during the group enrollment period.
    (c) Group enrollment period; prohibition of restrictions; effective 
date of HMO coverage--(1) Prohibition of restrictions. If an employing 
entity or designee includes the option of enrollment in a qualified HMO 
in the health benefits plan offered to its eligible employees, it must 
provide a group enrollment period before the effective date of HMO 
coverage. The employing entity may not impose waiting periods as a 
condition of enrollment in the HMO or of transfer from HMO to non-HMO 
coverage, or exclusions, or limitations based on health status.
    (2) Effective date of coverage. Unless otherwise agreed to by the 
employing entity, or designee, and the HMO, coverage under the HMO 
contract for employees selecting the HMO option begins on the day the 
non-HMO contract expires or is renewed without lapse.
    (3) Coordination of benefits. Nothing in this subpart precludes the 
uniform application of coordination of benefits agreements between the 
HMOs and the other carriers that are included in the health benefits 
plan.
    (d) Continued eligibility for ``free-standing'' health benefits--(1) 
Basic requirement. At the request of a qualified HMO, the employing 
entity or its designee must provide that employees selecting the option 
of HMO membership will not, because of this selection, lose their 
eligibility for free-standing dental, optical, or prescription drug 
benefits for which they were previously eligible or would be eligible if 
selecting a non-HMO option and that are not included in the services 
provided by the HMO to its enrollees as part of the HMO prepaid benefit 
package.
    (2) ``Free-standing'' defined. For purposes of this paragraph, the 
term ``free-standing'' refers to a benefit that--
    (i) Is not integrated or incorporated into a basic health benefits 
package or major medical plan, and
    (ii) Is--
    (A) Offered by a carrier other than the one offering the basic 
health benefits package or major medical plan; or
    (B) Subject to a premium separate from the premium for the basic 
health benefits package or major medical plan.
    (3) Examples of the employing entity's obligation with respect to 
the continued eligibility. (i) The health benefits plan includes a free-
standing dental benefit. The HMO does not offer any dental coverage as 
part of its health services provided to members on a prepaid basis. The 
employing entity must provide that employees who select the HMO option 
continue to be eligible for dental coverage. (If the dental coverage is 
not optional for employees selecting the non-HMO option, nothing in this 
regulation requires that the coverage be made optional for employees 
selecting the HMO option. Conversely, if this coverage is optional for 
employees selecting the non-HMO option, nothing in this regulation 
requires that the coverage be mandatory for employees selecting the non-
HMO option.) -
    (ii) The non-HMO option provides free-standing coverage for optical 
services (such as refraction and the provision of eyeglasses), and the 
HMO does not. The employing entity must provide that employees who 
select the HMO option continue to be eligible for optical coverage.
    (iii) The non-HMO option includes dental coverage in its major 
medical package, with a common deductible applied to dental as well as 
non-dental benefits. The HMO provides no dental coverage as part of its 
pre-paid health services. Because the dental coverage is not free-
standing, the employing entity is not required to provide that employees 
who select the HMO option

[[Page 130]]

continue to be eligible for dental coverage, but is free to do so.
    (e) Opportunity to select among coverage options: Requirement for 
affirmative written selection--(1) Opportunity other than during a group 
enrollment period. The employing entity or designee must provide 
opportunity (in addition to the group enrollment period) for selection 
among coverage options, by eligible employees who meet any of the 
following conditions:
    (i) Are new employees.
    (ii) Have been transferred or have changed their place of residence, 
resulting in--
    (A) Eligibility for enrollment in a qualified HMO for which they 
were not previously eligible by place of residence; or
    (B) Residence outside the service area of a qualified HMO in which 
they were previously enrolled.
    (iii) Are covered by any coverage option that ceases operation.
    (2) Prohibition of restrictions. When the employees specified in 
paragraph (e)(1) of this section are eligible to participate in the 
health benefits plan, the employing entity or designee must make 
available, without waiting periods or exclusions based on health status 
as a condition, the opportunity to enroll in an HMO, or transfer from 
HMO coverage to non-HMO coverage.
    (3) Affirmative written selection. The employing entity or designee 
must require that the eligible employee make an affirmative written 
selection in any of the following circumstances:
    (i) Enrollment in a particular qualified HMO is offered for the 
first time.
    (ii) The eligible employee elects to change from one option to 
another.
    (iii) The eligible employee is one of those specified in paragraph 
(e)(1) of this section.
    (f) Determination of copayment levels and supplemental health 
services. The selection of a copayment level and of supplemental health 
services to be contracted for must be made as follows:
    (1) For employees represented by a collective bargaining 
representative, the selection of copayment levels and supplemental 
health services is subject to the collective bargaining process.
    (2) For employees not represented by a bargaining representative, 
the selection of copayment levels and supplemental health services is 
subject to the same decisionmaking process used by the employing entity 
with respect to the non-HMO option in its health benefits plan.
    (3) In all cases, the HMO has the right to include, with the basic 
benefits package it provides to its enrollees for a basic health 
services payment, on a non-negotiable basis, those supplemental health 
services that meet the following conditions:
    (i) Are required to be offered under State law.
    (ii) Are included uniformly by the HMO in its prepaid benefit 
package.
    (iii) Are available to employees who select the non-HMO option but 
not available to those who select the HMO option.

[59 FR 49840, Sept. 30, 1994, as amended at 61 FR 27288, May 31, 1996]



Sec. 417.156  When the HMO must be offered to employees.

    (a) General rules. (1) The employing entity or designee must offer 
eligible employees the option of enrollment in a qualified HMO at the 
earliest date permitted under the terms of existing agreements or 
contracts.
    (2) If the HMO's request for inclusion in a health benefits plan is 
received at a time when existing contracts or agreements do not provide 
for inclusion, the employing entity must include the HMO option in the 
health benefits plan at the time that new agreements or contracts are 
offered or negotiated.
    (b) Specific requirements. Unless mutually agreed otherwise, the 
following rules apply:
    (1) Collective bargaining agreement. The employing entity or 
designee must raise the HMO's request during the collective bargaining 
process--
    (i) When a new agreement is negotiated;
    (ii) At the time prescribed, in an agreement with a fixed term of 
more than 1 year, for discussion of change in health benefits; or
    (iii) In accordance with a specific process for review of HMO 
offers.
    (2) Contracts. For employees not covered by a collective bargaining 
agreement, the employing entity or designee

[[Page 131]]

must include the HMO option in any health benefits plan offered to 
eligible employees when the existing contract is renewed or when a new 
health benefits contract or other arrangement is negotiated.
    (i) If a contract has no fixed term or has a term in excess of 1 
year, the contract must be treated as renewable on its earliest 
anniversary date.
    (ii) If the employing entity or designee is self-insured, the budget 
year must be treated as the term of the existing contract.
    (3) Multiple arrangements. In the case of a health benefits plan 
that includes multiple contracts or other arrangements with varying 
expiration or renewal dates, the employing entity must include the HMO 
option, in accordance with paragraphs (b)(1) and (b)(2) of this 
section,--
    (i) At the time each contract or arrangement is renewed or reissued; 
or
    (ii) The benefits provided under the contract or arrangement are 
offered to employees.

[59 FR 49841, Sept. 30, 1994]



Sec. 417.157  Contributions for the HMO alternative.

    (a) General principles--(1) Nondiscrimination. The employer 
contribution to an HMO must be in an amount that does not discriminate 
financially against an employee who enrolls in an HMO. A contribution 
does not discriminate financially if the method of determining the 
contribution is reasonable and is designed to ensure that employees have 
a fair choice among health benefits plan alternatives.
    (2) Effect of agreements or contracts. The employing entity or 
designee is not required to pay more for health benefits as a result of 
offering the HMO alternative than it would otherwise be required to pay 
under a collective bargaining agreement or contract that provides for 
health benefits and is in effect at the time the HMO alternative is 
included.
    (3) Examples of acceptable employer contributions. The following are 
methods that are considered nondiscriminatory:
    (i) The employer contribution to the HMO is the same, per employee, 
as the contribution to non-HMO alternatives.
    (ii) The employer contribution reflects the composition of the HMO's 
enrollment in terms of enrollee attributes that can reasonably be used 
to predict utilization, experience, costs, or risk. For each enrollee in 
a given class established on the basis of those attributes, the employer 
contributes an equal amount, regardless of the health benefits plan 
chosen by the employee.
    (iii) The employer contribution is a fixed percentage of the premium 
for each of the alternatives offered.
    (iv) The employer contribution is determined under a mutually 
acceptable arrangement negotiated by the HMO and the employer. In 
negotiating the arrangement, the employer may not insist on terms that 
would cause the HMO to violate any of the requirements of this part.
    (4) Adjustment of employer contribution. An employer contribution 
determined by an acceptable method may in some cases be adjusted if it 
would result in a nominal payment or no payment at all by HMO enrollees 
(because the HMO premium is lower than the premiums for the other 
alternatives offered). If, for example the employer has a policy of 
requiring all employees to contribute to their health benefits plan, the 
employer may require HMO enrollees who would otherwise pay little or 
nothing at all, to make a payment that does not exceed 50 percent of the 
employee contribution to the principal non-HMO alternative. The 
principal non-HMO alternative is the one that covers the largest number 
of enrollees from the particular employer.
    (b) Administrative expenses. (1) In determining the amount of its 
contribution to the HMO, the employing entity or designee may not 
consider administrative expenses incurred in connection with offering 
any alternative in the health benefits plan.
    (2) However, if the employing entity or designee has special 
requirements for other than standard solicitation brochures and 
enrollment literature, it must, in the case of the HMO alternative, 
determine and distribute any administrative costs attributable to those 
requirements in a manner consistent with its method of determining

[[Page 132]]

and distributing those costs for the non-HMO alternatives.
    (c) Exclusion for contribution for certain benefits. In determining 
the amount of the employing entity's contribution or the designee's cost 
for the HMO alternative, the employing entity or designee may exclude 
those portions of the contribution allocable to benefits (such as life 
insurance or insurance for supplemental health benefits)--
    (1) For which eligible employees and their eligible dependents are 
covered notwithstanding selection of the HMO alternative; and
    (2) That are not offered on a prepayment basis by the HMO to the 
employing entity's employees.
    (d) Contributions determined by agreements or contracts or by law. 
If the specific amount of the employing entity's contribution for health 
benefits is fixed by an agreement or contract, or by law, that amount 
constitutes the employing entity's obligation for contribution toward 
the HMO premiums.
    (e) Allocation of portion of a contribution determined by an 
agreement. In some cases, the employing entity's contribution for health 
benefits is determined by an agreement that also provides for benefits 
other than health benefits. In that case, the employing entity must 
determine, or instruct its designee to determine, what portion of its 
contribution is applicable to health benefits.
    (f) Retention and availability of data. Each employing entity or 
designee must retain the following data for three years and make it 
available to CMS upon request:
    (1) The data used to compute the level of contribution for each of 
the plans offered to employees.
    (2) Related data about the employees who are eligible to enroll in a 
plan.
    (3) A description of the methodology for computation.
    (g) CMS review of data. (1) CMS may request and review the data 
specified in paragraph (f) of this section on its own initiative or in 
response to requests from HMOs or employees.
    (2) The purpose of CMS's review is to determine whether the 
methodology and the level of contribution comply with the requirements 
of this subpart.
    (3) HMOs and employees that request CMS to review must set forth 
reasonable grounds for making the request.

[61 FR 27287, May 31, 1996]



Sec. 417.158  Payroll deductions.

    Each employing entity that provides payroll deductions as a means of 
paying employees' contributions for health benefits or provides a health 
benefits plan that does not require an employee contribution must, with 
the consent of an employee who selects the HMO option, arrange for the 
employee's contribution, if any, to be paid through payroll deductions.

[59 FR 49841, Sept. 30, 1994]



Sec. 417.159  Relationship of section 1310 of the Public Health Service Act to the National Labor Relations Act and the Railway Labor Act.

    The decision of an employing entity subject to this subpart to 
include the HMO alternative in any health benefits plan offered to its 
eligible employees must be carried out consistently with the obligations 
imposed on that employing entity under the National Labor Relations Act, 
the Railway Labor Act, and other laws of similar effect.

[59 FR 49841, Sept. 30, 1994, as amended at 61 FR 27288, May 31, 1996]



Subpart F_Continued Regulation of Federally Qualified Health Maintenance 
                              Organizations

    Source: 43 FR 32255, July 25, 1978, unless otherwise noted. 
Redesignated at 52 FR 36746, Sept. 30, 1987.



Sec. 417.160  Applicability.

    This subpart applies to any entity that has been determined to be a 
qualified HMO under subpart D of this part.

[59 FR 49841, Sept. 30, 1994]



Sec. 417.161  Compliance with assurances.

    Any entity subject to this subpart must comply with the assurances 
that it provided to CMS, unless compliance is waived under Sec. 
417.166.

[58 FR 38071, July 15, 1993]

[[Page 133]]



Sec. 417.162  Reporting requirements.

    Entities subject to this subpart must submit:
    (a) The reports that may be required by CMS under Sec. 417.126, and
    (b) Any additional reports CMS may reasonably require.

[58 FR 38071, July 15, 1993]



Sec. 417.163  Enforcement procedures.

    (a) Complaints. Any person, group, association, corporation, or 
other entity may file with CMS a written complaint with respect to an 
HMO's compliance with assurances it gave under subpart D of this part. A 
complaint must--
    (1) State the grounds and underlying facts of the complaint;
    (2) Give the names of all persons involved; and
    (3) Assure that all appropriate grievance and appeals procedures 
established by the HMO and available to the complainant have been 
exhausted.
    (b) Investigations. (1) CMS may initiate investigations when, based 
on a report, a complaint, or any other information, CMS has reason to 
believe that a Federally qualified HMO is not in compliance with any of 
the assurances it gave under subpart D of this part.
    (2) When CMS initiates an investigation, it gives the HMO written 
notice that includes a full statement of the pertinent facts and of the 
matters being investigated and indicates that the HMO may submit, within 
30 days of the date of the notice, a written report concerning these 
matters.
    (3) CMS obtains any information it considers necessary to resolve 
issues related to the assurances, and may use site visits, public 
hearings, or any other procedures that CMS considers appropriate in 
seeking this information.
    (c) Determination and notice by CMS--(1) Determination. (i) On the 
basis of the investigation, CMS determines whether the HMO has failed to 
comply with any of the assurances it gave under subpart D of this part.
    (ii) CMS publishes in the Federal Register a notice of each 
determination of non-compliance.
    (2) Notice of determination: Corrective action. (i) CMS gives the 
HMO written notice of the determination.
    (ii) The notice specifies the manner in which the HMO has not 
complied with its assurances and directs the HMO to initiate the 
corrective action that CMS considers necessary to bring the HMO into 
compliance.
    (iii) The HMO must initiate this corrective action within 30 days of 
the date of the notice from CMS, or within any longer period that CMS 
determines to be reasonable and specifies in the notice. The HMO must 
carry out the corrective action within the time period specified by CMS 
in the notice.
    (iv) The notice may provide the HMO an opportunity to submit, for 
CMS's approval, proposed methods for achieving compliance.
    (d) Remedy: Revocation of qualification. If CMS determines that a 
qualified HMO has failed to initiate or to carry out corrective action 
in accordance with paragraph (c)(2) of this section--(1) CMS revokes the 
HMO's qualification and notifies the HMO of this action.
    (2) In the notice, CMS provides the HMO with an opportunity for 
reconsideration of the revocation, including, at the HMO's election, a 
fair hearing.
    (3) The revocation of qualification is effective on the tenth 
calendar day after the day of the notice unless CMS receives a request 
for reconsideration by that date.
    (4) If after reconsideration CMS again determines to revoke the 
HMO's qualification, this revocation is effective on the tenth calendar 
day after the date of the notice of reconsidered determination.
    (5) CMS publishes in the Federal Register each determination it 
makes under this paragraph (d).
    (6) A revocation under this paragraph (d) has the effect described 
in Sec. 417.164.
    (e) Notice by the HMO. Within 15 days after the date CMS issues a 
notice of revocation, the HMO must prepare a notice that explains, in 
readily understandable language, the reasons for the determination that 
it is not a qualified HMO, and send the notice to the following:
    (1) The HMO's enrollees.
    (2) Each employer or public entity that has offered enrollment in 
the HMO in accordance with subpart E of this part.

[[Page 134]]

    (3) Each lawfully recognized collective bargaining representative or 
other representative of the employees of the employer or public entity.
    (f) Reimbursement of enrollees for services improperly denied, or 
for charges improperly imposed. (1) If CMS determines, under paragraph 
(c)(1) of this section, that an HMO is out of compliance, CMS may 
require the HMO to reimburse its enrollees for the following--
    (i) Expenses for basic or supplemental health services that the 
enrollee obtained from other sources because the HMO failed to provide 
or arrange for them in accordance with its assurances.
    (ii) Any amounts the HMO charged the enrollee that are inconsistent 
with its assurances. (Rules applicable to charges for all enrollees are 
set forth in Sec. Sec. 417.104 and 417.105. The additional rules 
applicable to Medicare enrollees are in Sec. 415.454.)
    (2) This paragraph applies regardless of when the HMO failed to 
comply with the appropriate assurances.
    (g) Remedy: Civil suit--(1) Applicability. This paragraph applies to 
any HMO or other entity to which a grant, loan, or loan guarantee was 
awarded, as set forth in subpart V of this part, on the basis of its 
assurances regarding the furnishing of basic and supplemental services 
or its operation and organization, as the case may be.
    (2) Basis for action. If CMS determines that the HMO or other entity 
has failed to initiate or refuses to carry out corrective action in 
accordance with paragraph (c)(2) of this section, CMS may bring civil 
action in the U.S. district court for the district in which the HMO or 
other entity is located, to enforce compliance with the assurances it 
gave in applying for the grant, loan, or loan guarantee.

[59 FR 49841, Sept. 30, 1994]



Sec. 417.164  Effect of revocation of qualification on inclusion in employee's health benefit plans.

    When an HMO's qualification is revoked under Sec. 417.163(d), the 
following rules apply:
    (a) The HMO may not seek inclusion in employees health benefits 
plans under subpart E of this part.
    (b) Inclusion of the HMO in an employer's health benefits plan--
    (1) Is disregarded in determining whether the employer is subject to 
the requirements of subpart E of this part; and
    (2) Does not constitute compliance with subpart E of this part by 
the employer.

[59 FR 49842, Sept. 30, 1994, as amended at 61 FR 27288, May 31, 1996]



Sec. 417.165  Reapplication for qualification.

    An entity whose qualification as an HMO has been revoked by CMS for 
purposes of section 1310 of the PHS Act may, after completing the 
corrective action required under Sec. 417.163(c)(2), reapply for a 
determination of qualification in accordance with the procedures 
specified in subpart D of this part.

[43 FR 32255, July 25, 1978. Redesignated at 52 FR 36746, Sept. 30, 
1987, and amended at 58 FR 38078, July 15, 1993]



Sec. 417.166  Waiver of assurances.

    (a) General rule. CMS may release an HMO from compliance with any 
assurances the HMO gives under subpart D of this part if--
    (1) The qualification requirements are changed by Federal law; or
    (2) The HMO shows good cause, consistent with the purposes of title 
XIII of the PHS Act.
    (b) Basis for finding of good cause. (1) Grounds upon which CMS may 
find good cause include but are not limited to the following:
    (i) The HMO has filed for reorganization under Federal bankruptcy 
provisions and the reorganization can only be approved with the waiver 
of the assurances.
    (ii) State laws governing the entity have been changed after it 
signed the assurances so as to prohibit the HMO from being organized and 
operated in a manner consistent with the signed assurances.
    (2) Changes in State laws do not constitute good cause to the extent 
that the changes are preempted by Federal law under section 1311 of the 
PHS Act.
    (c) Consequences of waiver. If CMS waives any assurances regarding 
compliance with section 1301 of the PHS Act, CMS concurrently revokes 
the

[[Page 135]]

HMO's qualification unless the waiver is based on paragraph (a)(1) of 
this section.

[59 FR 49842, Sept. 30, 1994, as amended at 61 FR 27288, May 31, 1996]

Subparts G-I [Reserved]



         Subpart J_Qualifying Conditions for Medicare Contracts

    Source: 50 FR 1346, Jan. 10, 1985, unless otherwise noted.



Sec. 417.400  Basis and scope.

    (a) Statutory basis. The regulations in this subpart implement 
section 1876 of the Act, which authorizes Medicare payment to HMOs and 
CMPs that contract with CMS to furnish covered services to Medicare 
beneficiaries.
    (b) Scope. (1) This subpart sets forth the requirements an HMO or 
CMP must meet in order to enter into a contract with CMS under section 
1876 of the Act. It also specifies the procedures that CMS follows to 
evaluate applications and make determinations.
    (2) The rules for payment to HMOs and CMPs are set forth in subparts 
N, O, and P of this part.
    (3) The rules for HCPP participation in Medicare under section 
1833(a)(1)(A) of the Act are set forth in subpart U of this part.

[60 FR 45675, Sept. 1, 1995]



Sec. 417.401  Definitions.

    As used in this subpart and subparts K through R of this part, 
unless the context indicates otherwise--
    Adjusted average per capita cost (AAPCC) means an actuarial estimate 
made by CMS in advance of an HMO's or CMP's contract period that 
represents what the average per capita cost to the Medicare program 
would be for each class of the HMO's or CMP's Medicare enrollees if they 
had received covered services other than through the HMO or CMP in the 
same geographic area or in a similar area.
    Adjusted community rate (ACR) is the equivalent of the premium that 
a risk HMO or CMP would charge Medicare enrollees independently of 
Medicare payments if the HMO or CMP used the same rates it charges non-
Medicare enrollees for a benefit package limited to covered Medicare 
services.
    Arrangement means a written agreement between an HMO or CMP and 
another entity, under which--
    (1) The other entity agrees to furnish specified services to the 
HMO's or CMP's Medicare enrollees;
    (2) The HMO or CMP retains responsibility for the services; and
    (3) Medicare payment to the HMO or CMP discharges the beneficiary's 
obligation to pay for the services.
    Benefit stabilization fund means a fund established by CMS, at the 
request of a risk HMO or CMP, to withhold a portion of the per capita 
payments available to the HMO or CMP and pay that portion in a 
subsequent contract period for the purpose of stabilizing fluctuations 
in the availability of the additional benefits the HMO or CMP provides 
to its Medicare enrollees.
    Cost contract means a Medicare contract under which CMS pays the HMO 
or CMP on a reasonable cost basis.
    Cost HMO or CMP means an HMO or CMP that has in effect a cost 
contract with CMS under section 1876 of the Act and subpart L of this 
part.
    Demonstration project means a demonstration project under section 
402 of the Social Security Amendments of 1967 (42 U.S.C. 1395b-1) or 
section 222(a) of the Social Security Amendments of 1972 (42 U.S.C. 
1395b-1 (note)), relating to the provision of services for which payment 
is made under Medicare on a prospectively determined basis.
    Emergency services means covered inpatient or outpatient services 
that are furnished by an appropriate source other than the HMO or CMP 
and that meet the following conditions:
    (1) Are needed immediately because of an injury or sudden illness.
    (2) Are such that the time required to reach the HMO's or CMP's 
providers or suppliers (or alternatives authorized by the HMO or CMP) 
would mean risk of permanent damage to the enrollee's health.

Once initiated, the services continue to be considered emergency 
services as long as transfer of the enrollee to the HMO's or CMP's 
source of health care or authorized alternative is precluded because of 
risk to the enrollee's health

[[Page 136]]

or because transfer would be unreasonable, given the distance and the 
nature of the medical condition.
    Geographic area means the area found by CMS to be the area within 
which the HMO or CMP furnishes, or arranges for furnishing, the full 
range of services that it offers to its Medicare enrollees.
    Medicare enrollee means a Medicare beneficiary who has been 
identified on CMS records as an enrollee of an HMO or CMP that has a 
contract with CMS under section 1876 of the Act and subpart L of this 
part.
    New Medicare enrollee means a Medicare beneficiary who--
    (1) Enrolls with an HMO or CMP after the date on which the HMO or 
CMP first enters into a risk contract under subpart L of this part; and
    (2) Was not enrolled with the HMO or CMP at the time he or she 
became entitled to benefits under Part A or eligible to enroll in Part B 
of Medicare.
    Risk contract means a Medicare contract under which CMS pays the HMO 
or CMP on a risk basis for Medicare covered services.
    Risk HMO or CMP means an HMO or CMP that has in effect a risk 
contract with CMS under section 1876 of the Act and subpart L of this 
part.
    Urgently needed services means covered services that are needed by 
an enrollee who is temporarily absent from the HMO's or CMP's geographic 
area and that--
    (1) Are required in order to prevent serious deterioration of the 
enrollee's health as a result of unforeseen injury or illness; and
    (2) Cannot be delayed until the enrollee returns to the HMO's or 
CMP's geographic area.

[50 FR 1346, Jan. 10, 1985, as amended at 56 FR 51986, Oct. 17, 1991; 58 
FR 38072, July 15, 1993; 60 FR 45675, Sept. 1, 1995]



Sec. 417.402  Effective date of initial regulations.

    (a) The changes made to section 1876 of the Act by section 114 of 
the Tax Equity and Fiscal Responsibility Act of 1982 became effective on 
February 1, 1985, the effective date of the initial implementing 
regulations.
    (b) No new cost plan contracts are accepted by CMS. CMS will, 
however, accept and approve applications to modify cost plan contracts 
in order to expand service areas, provided they are submitted on or 
before September 1, 2006, and CMS determines that the organization 
continues to meet regulatory requirements and the requirements in its 
cost plan contract. Section 1876 cost plan contracts will not be 
extended or renewed beyond December 31, 2007, where conditions in 
paragraph (c) of this section are present.
    (c) Mandatory HMO or CMP and contract non-renewal or service area 
reduction. CMS will non-renew all or a portion of an HMO's or CMP's 
contracted service area using procedures in Sec. 417.492(b) and Sec. 
417.494(a) for any period beginning on or after January 1, 2008, where-
    (1) There were two or more coordinated care plan-model MA regional 
plans in the same service area or portion of a service area for the 
entire previous calendar year meeting the conditions in paragraph (c)(3) 
of this section; or
    (2) There were two or more coordinated care plan-model MA local 
plans in the same service area or portion of a service area for the 
entire previous calendar year meeting the conditions in paragraph (c)(3) 
of this section.
    (3) Minimum enrollment requirements. (i) With respect to any service 
area or portion of a service area that is within a Metropolitan 
Statistical Area with a population of more than 250,000 and counties 
contiguous to the Metropolitan Statistical Area, 5,000 enrolled 
individuals.
    (ii) With respect to any service area or portion of a service area 
that is not within a Metropolitan Statistical Area described in 
paragraph (c)(3)(i) of this section, 1,500 individuals.

[63 FR 35066, June 26, 1998, as amended at 65 FR 40314, June 29, 2000; 
67 FR 13288, Mar. 22, 2002; 70 FR 4713, Jan. 28, 2005]



Sec. 417.404  General requirements.

    (a) In order to contract with CMS under the Medicare program, an 
entity must--
    (1) Be determined by CMS to be an HMO or CMP (in accordance with 
Sec. Sec. 117.142 and 417.407, respectively); and

[[Page 137]]

    (2) Comply with the contract requirements set forth in subpart L of 
this part.
    (b) CMS enters into or renews a contract only if it determines that 
action would be consistent with the effective and efficient 
implementation of section 1876 of the Act.

[60 FR 45675, Sept. 1, 1995]



Sec. 417.406  Application and determination.

    (a) Responsibility for making determinations. CMS is responsible for 
determining whether an entity meets the requirements to be an HMO or 
CMP.
    (b) Application requirements. (1) The application requirements for 
HMOs are set forth in Sec. 417.143.
    (2) The requirements of Sec. 417.143 also apply to CMPs except that 
there are no application fees.
    (c) Determination. CMS uses the procedures set forth in Sec. 
417.144(a) through (d) to determine whether an entity is an HMO or CMP.
    (d) Oversight of continuing compliance. (1) CMS oversees an entity's 
continued compliance with the requirements for an HMO as defined in 
Sec. 417.1 or for a CMP as set forth in Sec. 417.407.
    (2) If an entity no longer meets those requirements, CMS terminates 
the contract of that entity in accordance with Sec. 417.494.

[60 FR 45675, Sept. 1, 1995]



Sec. 417.407  Requirements for a Competitive Medical Plan (CMP).

    (a) General rule. To qualify as a CMP, an entity must be organized 
under the laws of a State and must meet the requirements of paragraphs 
(b) through (f) of this section.
    (b) Required services--(1) Basic rule. Except as provided in 
paragraph (b)(2) of this section, the entity furnishes to its enrollees 
at least the following services:
    (i) Physicians' services performed by physicians.
    (ii) Laboratory, x-ray, emergency, and preventive services.
    (iii) Out-of-area coverage.
    (iv) Inpatient hospital services.
    (2) Exception for Medicaid prepayment risk contracts. An entity that 
had, before 1970, a Medicaid prepayment risk contract that did not 
include provision of inpatient hospital services is not required to 
provide those services.
    (c) Compensation for services. The entity receives compensation 
(except for deductibles, coinsurance, and copayments) for the health 
care services it provides to enrollees on a periodic, prepaid capitation 
basis regardless of the frequency, extent, or kind of services provided 
to any enrollee.
    (d) Source of physicians' services. The entity provides physicians' 
services primarily through--
    (1) Physicians who are employees or partners of the entity; or
    (2) Physicians or groups of physicians (organized on a group or 
individual practice basis) under contract with the entity to provide 
physicians' services.
    (e) Assumption of financial risk. The rules set forth in Sec. 
417.120(b) for HMOs apply also to CMPs except that reference to ``basic 
services'' must be read as reference to the required services listed in 
paragraph (b) of this section.
    (f) Protection of enrollees. The entity provides adequately against 
the risk of insolvency by meeting the requirements of Sec. Sec. 
417.120(a) and 417.122 for protection of enrollees against loss of 
benefits and liability for payment of any fees that are the legal 
responsibility of the entity.

[60 FR 45675, Sept. 1, 1995]



Sec. 417.408  Contract application process.

    (a) Contents of application. (1) The application for a contract must 
include supporting information in the form and detail required by CMS. 
(2) Whenever feasible, CMS exempts the HMO or CMP from resubmittal of 
information it has already submitted to CMS in connection with a 
determination made under the provisions of Sec. 417.406.
    (b) Approval of application. (1) If CMS approves the application, it 
gives written notice to the HMO or CMP, indicating that it meets the 
requirements for either a risk or reasonable cost contract or only for a 
reasonable cost contract.
    (2) If the HMO or CMP is dissatisfied with a determination that it 
meets the requirements only for a reasonable cost

[[Page 138]]

contract, it may request reconsideration in accordance with the 
procedures specified in subpart R of this part.
    (c) Denial of application. If CMS denies the application, it gives 
written notice to the HMO or CMP indicating--
    (1) That it does not meet the contract requirements under section 
1876 of the Act;
    (2) The reasons why the HMO or CMP does not meet the contract 
requirements; and
    (3) The HMO's or CMP's right to request reconsideration in 
accordance with the procedures specified in subpart R of this part.

[50 FR 1346, Jan. 10, 1985, as amended at 56 FR 8853, Mar. 1, 1991; 58 
FR 38078, July 15, 1993; 60 FR 45676, Sept. 1, 1995]



Sec. 417.410  Qualifying conditions: General rules.

    (a) Basic requirement. In order to qualify for a contract with CMS 
under this subpart, an HMO or CMP must demonstrate its ability to enroll 
Medicare beneficiaries and other individuals and groups and to deliver a 
specified comprehensive range of high quality services efficiently, 
effectively, and economically to its Medicare enrollees.
    (b) Other qualifying conditions. An HMO or CMP must meet qualifying 
conditions that pertain to operating experience, enrollment, range of 
services, furnishing of services, and a quality assurance program.
    (c) Standards. Generally, each qualifying condition is interpreted 
by a series of standards that are used in surveying an HMO or CMP to 
determine its qualifications for a Medicare contract.
    (d) Application of standards. Application of the standards enables 
the surveyor to determine--
    (1) The HMO's or CMP's activities;
    (2) The extent to which the HMO or CMP complies with each condition;
    (3) The nature and extent of any deficiencies; and
    (4) The need for improvement if CMS should enter into a contract 
with the HMO or CMP.
    (e) Requirements for a risk contract. An HMO or CMP may enter into a 
risk contract with CMS if it--
    (1) Meets all the applicable requirements in the statute and 
regulations;
    (2) Has at least 5,000 enrollees or 1,500 enrollees if it serves a 
primarily rural area as defined in Sec. 417.413(b)(3);
    (3) Has at least 75 Medicare enrollees or has an acceptable plan to 
achieve this Medicare membership within 2 years;
    (4) Satisfies CMS that it can bear the potential losses of a risk 
contract; and
    (5) Has not previously terminated or failed to renew a risk contract 
within the preceding 5 years, unless CMS determines that circumstances 
warrant special consideration.
    (f) Requirements for a reasonable cost sontract. An HMO or CMP may 
enter into a reasonable cost contract if it meets one of the following:
    (1) The HMO or CMP qualifies for a risk contract, but chooses a 
reasonable cost contract.
    (2) The HMO or CMP meets the conditions for entering into a risk 
contract specified in paragraph (e) of this section except that CMS does 
not judge the HMO or CMP capable of bearing the potential losses of a 
risk contract.
    (g) Regulations on reasonable cost and risk reimbursement are set 
forth in subparts O and P of this part.

[50 FR 20570, May 17, 1985, as amended at 58 FR 38078, July 15, 1993; 60 
FR 45676, Sept. 1, 1995]



Sec. 417.412  Qualifying condition: Administration and management.

    The HMO or CMP must demonstrate that it--
    (a) Has sufficient administrative capability to carry out the 
requirements of the contract; and
    (b) Does not have any agents or management staff or persons with 
ownership or control interests who have been convicted of criminal 
offenses related to their involvement in Medicaid, Medicare, or social 
service programs under title XX of the Act.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45676, Sept. 1, 1995]



Sec. 417.413  Qualifying condition: Operating experience and enrollment.

    (a) Condition. The HMO or CMP must demonstrate that it has operating 
experience and an enrolled population

[[Page 139]]

sufficient to provide a reasonable basis for establishing a prospective 
per capita reimbursement rate or a reasonable cost reimbursement rate, 
as appropriate.
    (b) Standard: Enrollment and operating experience for HMOs or CMPs 
to contract on a risk basis. To be eligible to contract on a risk 
basis--
    (1) A nonrural HMO or CMP must currently have the following:
    (i) At least 5,000 enrollees; and
    (ii) At least 75 Medicare enrollees or a plan acceptable to CMS for 
achieving a Medicare enrollment of 75 within 2 years from the beginning 
of its initial contract period.
    (2) A rural HMO or CMP must currently have--
    (i) At least 1,500 enrollees; and
    (ii) At least 75 Medicare enrollees or a plan acceptable to CMS for 
achieving a Medicare enrollment of 75 within 2 years from the beginning 
of its initial contract period.
    (3) For purposes of this paragraph, an HMO or CMP is considered 
rural if at least 50 percent of its enrollees reside in nonmetropolitan 
areas. A nonmetropolitan area is an area--
    (i) No part of which is within a metropolitan statistical area (MSA) 
as designated by the Executive Office of Management and Budget; and
    (ii) That does not contain a city whose population exceeds 50,000 
individuals.
    (4) A subdivision or subsidiary of an HMO or CMP that meets the 
requirements of paragraph (b)(1) or (b)(2) of this section need not 
demonstrate that it meets those requirements as an independent unit if 
the HMO or CMP assumes responsibility for the financial risk, and 
adequate management and supervision of health care services furnished by 
its subdivision or subsidiary.
    (c) Standard: Enrollment and operating experience for HMOs or CMPs 
to contract on a cost basis. To be eligible to contract on a reasonable 
cost basis, an HMO or CMP must currently have enrollees sufficient in 
number to provide a reasonable basis for entering into a contract, as 
follows:
    (1) At least 1,500 enrollees.
    (2) At least 75 Medicare enrollees, or a plan acceptable to CMS for 
achieving--
    (i) A Medicare enrollment of 75 within 2 years from the beginning of 
its initial contract period; and
    (ii) At least 250 Medicare enrollees by the beginning of its fourth 
contract period.
    (d) Standard: Composition of enrollment--(1) Requirement. Except as 
specified in paragraphs (d)(2) and (e) of this section, not more than 50 
percent of an HMO's or CMP's enrollment may be Medicare beneficiaries.
    (2) Waiver of composition of enrollment standard. CMS may waive 
compliance with the requirements of paragraph (d)(1) of this section if 
the HMO or CMP has made and is making reasonable efforts to enroll 
individuals who are not Medicare beneficiaries and it meets one of the 
following requirements:
    (i) The HMO or CMP serves a geographic area in which Medicare 
beneficiaries and Medicaid recipients constitute more than 50 percent of 
the population. (CMS does not grant a waiver that would permit the 
percentage of Medicare and Medicaid enrollees to exceed the percentage 
of Medicare beneficiaries and Medicaid recipients in the population of 
the geographic area.)
    (ii) The HMO or CMP is owned and operated by a government entity. 
The waiver may be for a period up to three years after the date the HMO 
or CMP first enters into a contract under this subpart, and may not be 
extended.
    (iii) The HMO or CMP requests waiver of the composition rule because 
it is in the public interest. The organization provides documentation 
that supports one of the following:
    (A) The organization serves a medically underserved rural or urban 
area.
    (B) The organization demonstrates a long-term business and community 
service commitment to the area.
    (C) The organization believes that a waiver is necessary to promote 
managed care choices in an area with limited or no managed care choices.
    (3) Waiver granted on or before October 21, 1986. An HMO or CMP (or 
a successor HMO or CMP) that as of October 21, 1986, had been granted an 
exception, waiver, or modification of the requirements of paragraph 
(d)(1) of this section, but that does not meet the requirements of 
paragraph (d)(2) of this

[[Page 140]]

section, must make (and throughout the period of the exception, waiver, 
or modification continue to make) reasonable efforts to meet scheduled 
enrollment goals, consistent with a schedule of compliance approved by 
CMS.
    (i) If CMS determines that the HMO or CMP has complied, or made 
significant progress toward compliance, with the approved schedule, and 
that an extension is in the best interest of the Medicare program, CMS 
may extend the waiver of modification.
    (ii) If CMS determines that the HMO or CMP has not complied with the 
approved schedule, CMS may apply the sanctions described in paragraphs 
(d)(6) and (d)(7) of this section.
    (4) Basis for application of sanctions. CMS may, as an alternative 
to contract termination, apply the sanctions specified in paragraph 
(d)(6) of this section if CMS determines that the HMO or CMP is not 
complying with the requirements in paragraphs (d)(1), (d)(2), or (d)(3) 
of this section, as applicable.
    (5) Notice of sanction. Before applying the sanctions specified in 
paragraph (d)(6) of this section, CMS sends a written notice to the HMO 
or CMP stating the proposed action and its basis. CMS gives the HMO or 
CMP 15 days after the date of the notice to provide evidence 
establishing the HMO's or CMP's compliance with the requirements in 
paragraph (d)(1), (d)(2), or (d)(3) of this section, as applicable.
    (6) Sanctions. If, following review of the HMO's or CMP's timely 
response to CMS's notice, CMS determines that an HMO or CMP does not 
comply with the requirements of paragraphs (d)(1), (d)(2), or (d)(3) of 
this section, CMS may apply either of the following sanctions:
    (i) Require the HMO or CMP to stop accepting new enrollment 
applications after a date specified by CMS.
    (ii) Deny payment for individuals who are formally added or 
``accreted'' to CMS's records as Medicare enrollees after a date 
specified by CMS.
    (7) Termination by CMS. In addition to the sanctions described in 
paragraph (d)(6) of this section. CMS may decline to renew an HMO's or 
CMP's contract in accordance with Sec. 417.492(b), or terminate its 
contract in accordance with Sec. 417.494(b) if CMS determines that the 
HMO or CMP no longer substantially meets the requirements of paragraphs 
(d)(1), (d)(2), or (d)(3) of this section.
    (8) Termination of composition standard. The 50 percent composition 
of Medicare beneficiaries terminates for all managed care plans on 
December 31, 1998.
    (e) Standard: Open enrollment. (1) Except as specified in paragraph 
(e)(2) of this section, an HMO or CMP must enroll Medicare beneficiaries 
on a first-come, first-served basis to the limit of its capacity and 
provide annual open enrollment periods of at least 30 days duration for 
Medicare beneficiaries.
    (2) CMS may waive the requirement of paragraph (e)(1) of this 
section if compliance would prevent compliance with the limitation on 
enrollment of Medicare beneficiaries and Medicaid recipients (paragraph 
(d) of this section) or result in an enrollment substantially 
nonrepresentative of the population of the HMO's or CMP's geographic 
area. The enrollment would be ``substantially nonrepresentative'' if the 
proportion of a subgroup to the total enrollment exceeded, by 10 percent 
or more, its proportion of the population in the HMO's or CMP's 
geographic area, as shown by census data or other data acceptable to 
CMS. For purposes of this paragraph, a subgroup means a class of 
Medicare enrollees as defined in Sec. 417.582.

[50 FR 1346, Jan. 10, 1985, as amended at 56 FR 46570, Sept. 13, 1991; 
58 FR 38082, July 15, 1993; 60 FR 45676, Sept. 1, 1995; 63 FR 35066, 
June 26, 1998]



Sec. 417.414  Qualifying condition: Range of services.

    (a) Condition. The HMO or CMP must demonstrate that it is capable of 
delivering to Medicare enrollees the range of services required in 
accordance with this section.
    (b) Standard: Range of services furnished by eligible HMOs or CMPs--
(1) Basic requirement. Except as specified in paragraph (b)(3) of this 
section, an HMO or CMP must furnish to its Medicare enrollees (directly 
or through arrangements with others) all the Medicare services to which 
those enrollees are entitled to the extent that they are available to 
Medicare beneficiaries who

[[Page 141]]

reside in the HMO's or CMP's geographic area but are not enrolled in the 
HMO or CMP.
    (2) Criteria for availability. The services are considered available 
if--
    (i) The sources are located within the HMO's or CMP's geographic 
area; or
    (ii) It is common practice to refer patients to sources outside that 
geographic area.
    (3) Exception for hospice care. An HMO or CMP is not required to 
furnish hospice care as described in part 418 of this chapter. However, 
HMOs or CMPs must inform their Medicare enrollees about the availability 
of hospice care if--
    (i) A hospice participating in Medicare is located within the HMO's 
or CMP's geographic area; or
    (ii) It is common practice to refer patients to hospices outside the 
geographic area.
    (c) Standard: Financial responsibility for services furnished 
outside the HMO or CMP. (1) An HMO or CMP must assume financial 
responsibility and provide reasonable reimbursement for emergency 
services and urgently needed services (as defined in Sec. 417.401) that 
are obtained by its Medicare enrollees from providers and suppliers 
outside the HMO or CMP even in the absence of the HMO's or CMP's prior 
approval.
    (2) An HMO or CMP must assume financial responsibility for services 
that the Medicare enrollee attempted to obtain from the HMO or CMP, but 
that the HMO or CMP failed to furnish or unreasonably denied, and that 
are found, upon appeal by the enrollee under subpart Q of this part, to 
be services that the enrollee was entitled to have furnished to him or 
her by the HMO or CMP.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38078, July 15, 1993; 60 
FR 45677, Sept. 1, 1995]



Sec. 417.416  Qualifying condition: Furnishing of services.

    (a) Condition. The HMO or CMP must furnish the required services to 
its Medicare enrollees through providers and suppliers that meet 
applicable Medicare statutory definitions and implementing regulations. 
The HMO or CMP must also ensure that the required services, additional 
services, and any other supplemental services for which the Medicare 
enrollee has contracted are available and accessible and are furnished 
in a manner that ensures continuity.
    (b) Standard: Conformance with conditions of participation, 
conditions for coverage, and conditions for certification. (1) 
Hospitals, SNFs, HHAs, CORFs, and providers of outpatient physical 
therapy or speech-language pathology services must meet the applicable 
conditions of participation in Medicare, as set forth elsewhere in this 
chapter.
    (2) Suppliers must meet the conditions for coverage or conditions 
for certification of their services, as set forth elsewhere in this 
chapter.
    (3) If more than one type of practitioner is qualified to furnish a 
particular service, the HMO or CMP may select the type of practitioner 
to be used.
    (c) Standard: Physician supervision. The HMO or CMP must provide for 
supervision by a physician of other health care professionals who are 
directly involved in the provision of health care as generally 
authorized under section 1861 of the Act. Except as specified in 
paragraph (d) of this section, with respect to medical services 
furnished in an HMO's or CMP's clinic or the office of a physician with 
whom the HMO or CMP has a service agreement, the HMO or CMP must ensure 
that--
    (1) Services furnished by paramedical, ancillary, and other 
nonphysician personnel are furnished under the direct supervision of a 
physician;
    (2) A physician is present to perform medical (as opposed to 
administrative) services whenever the clinics or offices are open; and
    (3) Each patient is under the care of a physician.
    (d) Exceptions to physician supervision requirement. The following 
services may be furnished without the direct personal supervision of a 
physician:
    (1) Services of physician assistants and nurse practitioners (as 
defined in Sec. 491.2 of this chapter), and the services and supplies 
incident to their services. The conditions for payment, as set forth in 
Sec. Sec. 405.2414 and 405.2415 of this chapter for services furnished 
by rural health clinics and Federally qualified health centers, 
respectively, also apply

[[Page 142]]

when those services are furnished by an HMO or CMP.
    (2) When furnished by an HMO or CMP, services of clinical 
psychologists who meet the qualifications specified in Sec. 410.71(d) 
of this chapter, and the services and supplies incident to their 
professional services.
    (3) When an HMO or CMP contracts on--
    (i) A risk basis, the services of a clinical social worker (as 
defined at Sec. 410.73 of this chapter) and the services and supplies 
incident to their professional services; or
    (ii) A cost basis, the services of a clinical social worker (as 
defined in Sec. 410.73 of this chapter). Services incident to the 
professional services of a clinical social worker furnished by an HMO or 
CMP contracting on a cost basis are not covered by Medicare and payment 
will not be made for these services.
    (e) Standard: Accessibility and continuity. (1) The HMO or CMP must 
ensure that the required services and any other services for which 
Medicare enrollees have contracted are accessible, with reasonable 
promptness, to the enrollees with respect to geographic location, hours 
of operation, and provision of after hours service. Medically necessary 
emergency services must be available twenty-four hours a day, seven days 
a week.
    (2) The HMO or CMP must maintain a health (including medical) 
recordkeeping system through which pertinent information relating to the 
health care of its Medicare enrollees is accumulated and is readily 
available to appropriate professionals.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45677, Sept. 1, 1995; 63 FR 20130, Apr. 23, 1998]



Sec. 417.418  Qualifying condition: Quality assurance program.

    (a) Condition. The HMO or CMP must make arrangements for a quality 
assurance program that meets the requirements of this section.
    (b) Standard. An HMO or CMP must have an ongoing quality assurance 
program that meets the requirements set forth in Sec. 417.106(a).

[58 FR 38072, July 15, 1993]



  Subpart K_Enrollment, Entitlement, and Disenrollment under Medicare 
                                Contract

    Source: 50 FR 1346, Jan. 10, 1985, unless otherwise noted.



Sec. 417.420  Basic rules on enrollment and entitlement.

    (a) Enrollment. Individuals who are entitled to benefits under both 
Part A and Part B of Medicare or only Part B may elect to receive those 
benefits through an HMO or CMP that has in effect a contract with CMS 
under subpart L of this part.
    (b) Entitlement. If a Medicare beneficiary enrolls with an HMO or 
CMP, CMS pays the HMO or CMP on his or her behalf for the services to 
which he or she is entitled.
    (c) Beneficiary liability. (1) The HMO or CMP may require payment, 
in the form of premiums or otherwise, from individuals for services not 
covered under Medicare, as well as deductible and coinsurance amounts 
attributable to Medicare covered services.
    (2) As described in Sec. 417.448, Medicare enrollees of risk HMOs 
or CMPs are liable for services that they obtain from sources other than 
the HMO or CMP, unless the services are--
    (i) Emergency or urgently needed; or
    (ii) Determined, on appeal under subpart Q of this part, to be 
services that should have been furnished by the HMO or CMP.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38078, July 15, 1993; 60 
FR 45677, Sept. 1, 1995]



Sec. 417.422  Eligibility to enroll in an HMO or CMP.

    Except as specified in Sec. Sec. 417.423 and 417.424, an HMO or CMP 
must enroll, either for an indefinite period or for a specified period 
of at least 12 months, any individual who--
    (a) Is entitled to Medicare benefits under Parts A and B or under 
Part B only;
    (b) Lives within the geographic area served by the HMO or CMP;
    (c) Is not enrolled in any other HMO or CMP that has entered into a 
contract under subpart L of this part;
    (d) During an enrollment period of the HMO or CMP, completes and 
signs

[[Page 143]]

the HMO's or CMP's application form and gives whatever information is 
required for enrollment;
    (e) Agrees to abide by the HMO's or CMP's rules after they are 
disclosed to him or her in connection with the enrollment process;
    (f) Is not denied enrollment by the HMO or CMP under a selection 
policy, if any, that has been approved by CMS under Sec. 417.424(b); 
and
    (g) Is not denied enrollment by the HMO or CMP on the basis of any 
of the administrative criteria concerning denial of enrollment in Sec. 
417.424(a).

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38078, July 15, 1993; 60 
FR 45677, Sept. 1, 1995]



Sec. 417.423  Special rules: ESRD and hospice patients.

    (a) ESRD patients. (1) A Medicare beneficiary who has been medically 
determined to have end-stage renal disease is not eligible to enroll in 
an HMO or CMP.
    (2) However, if a beneficiary is already enrolled in an HMO or CMP 
when he or she is determined to have end-stage renal disease, the HMO or 
CMP--
    (i) Must reenroll the beneficiary as required by Sec. 417.434; and
    (ii) May not disenroll the beneficiary except as provided in Sec. 
417.460.
    (b) Hospice patients. A Medicare beneficiary who elects hospice care 
under Sec. 418.24 of this chapter is not eligible to enroll in an HMO 
or CMP as long as the hospice election remains in effect.

[60 FR 45677, Sept. 1, 1995]



Sec. 417.424  Denial of enrollment.

    (a) Basis for denial. An HMO or CMP may deny enrollment to an 
individual who meets the criteria of Sec. 417.422 if acceptance would--
    (1) Cause the number of enrollees who are Medicare or Medicaid 
beneficiaries to exceed 50 percent of the HMO's or CMP's total 
enrollment;
    (2) Prevent the HMO or CMP from complying with any of the other 
contract qualifying conditions set forth in subpart J of this part;
    (3) Require the HMO or CMP to exceed its enrollment capacity; or
    (4) Cause the enrollment to become substantially nonrepresentative 
of the general population in the HMO's or CMP's geographic area.
    (b) Selection policies. (1) Denial under paragraph (a)(4) of this 
section must be in accordance with written selection policies approved 
by CMS. (2) Enrollment of individuals will not be considered to make the 
enrollment of the HMO or CMP substantially nonrepresentative of the 
general population in the HMO's or CMP's geographic area unless, as a 
result of the enrollment, the proportion of the subgroup of enrollees to 
which the enrollee belongs as compared to the HMO's or CMP's total 
enrollment exceeds by at least ten percent the subgroup's proportion of 
the general population in the geographic area of the HMO or CMP. (A 
subgroup is a class of Medicare enrollees of an HMO or CMP that CMS 
constructs on the basis of actuarial factors.)

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 58 
FR 38078, July 15, 1993; 60 FR 45677, Sept. 1, 1995]



Sec. 417.426  Open enrollment requirements.

    (a) Basic requirements. (1) HMOs or CMPs must provide open 
enrollment for Medicare beneficiaries for at least 30 consecutive days 
during each contract year.
    (2) During open enrollment, the HMO or CMP must enroll eligible 
Medicare beneficiaries in the order in which their applications are 
received and until its enrollment capacity is reached.
    (3) The HMO or CMP may accept applications from Medicare 
beneficiaries after it has reached capacity if it places those 
individuals on a waiting list and enrolls them in chronological order as 
vacancies occur.
    (4) An HMO or CMP with a risk contract must accept applications from 
eligible Medicare beneficiaries during the month of November 1998.
    (b) Capacity to accept new enrollees. (1) If an HMO or CMP chooses 
to limit enrollments because of its capacity, it must notify CMS at 
least 90 days before the beginning of its open enrollment period and, at 
that time, provide CMS with its reasons for limiting enrollment.

[[Page 144]]

    (2) CMS evaluates the HMO's or CMP's submittal under paragraph 
(b)(1) of this section.
    (3) The HMO or CMP must promptly notify CMS if there is any change 
in its enrollment capacity.
    (c) Reserved vacancies. (1) Subject to CMS's approval, an HMO or CMP 
may set aside a reasonable number of vacancies for an anticipated new 
group contract or for anticipated new enrollees under an existing group 
contract that will have its enrollment period after the Medicare open 
enrollment period during the contract year.
    (2) Any set aside vacancies that are not filled within a reasonable 
time after the beginning of the group contract enrollment period must be 
made available to Medicare beneficiaries and other nongroup applicants 
under the requirements of this subpart.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38079, July 15, 1993; 60 
FR 45677, Sept. 1, 1995; 63 FR 35066, June 26, 1998]



Sec. 417.428  Marketing activities.

    (a) Required marketing activities. An HMO or CMP must meet the 
following requirements:
    (1) Offer its plan to Medicare beneficiaries and provide to those 
interested in enrolling, adequate written descriptions of the HMO's or 
CMP's rules, procedures, benefits, fees and other charges, services, and 
other information necessary for beneficiaries to make an informed 
decision about enrollment.
    (2) Notify the general public of its enrollment period (whether time 
limited or continuous) in an appropriate manner through appropriate 
media, throughout its enrollment area.
    (3) Submit all marketing materials to CMS at least 45 days before 
their planned distribution.
    (4) Include in the HMO's or CMP's written materials provided to 
prospective enrollees prior to enrollment, notice that the HMO or CMP is 
authorized by law to terminate or refuse to renew its contract with CMS, 
that CMS may also choose to terminate or refuse to renew its contact 
with the HMO or CMP and that termination or nonrenewal may result in 
termination of the individual's enrollment in the HMO or CMP.
    (b) Prohibited marketing activities--general. In offering its plan 
to Medicare beneficiaries, an HMO or CMP may not engage in any of the 
following practices or activities:
    (1) Practices that are discriminatory. For example, the HMO or CMP 
may not engage in any activity intended to recruit Medicare 
beneficiaries from higher income areas (usually an indicator of better 
health) without making a comparable effort to enroll Medicare 
beneficiaries from lower income areas.
    (2) Activities that could mislead or confuse Medicare beneficiaries, 
or misrepresent the HMO or CMP its marketing representatives, or CMS. 
For example, the HMO or CMP may not claim that it is recommended or 
endorsed by CMS or that CMS recommends that the beneficiary enroll in 
the HMO or CMP. It may, however, explain that the entity is approved as 
an HMO or CMP for purposes of participation in Medicare.
    (3) Offers of gifts or payment as an inducement to enroll in the HMO 
or CMP. This does not prohibit the explanation of any legitimate 
benefits the beneficiary might obtain as an enrollee of the HMO or CMP 
such as eligibility to enroll in a supplemental benefit plan that covers 
deductibles and coinsurance or preventive services.
    (4) Door-to-door solicitation of Medicare beneficiaries.
    (5) Distribution of marketing materials if, before the expiration of 
the 45-day period described in paragraph (a)(3) of this section, the HMO 
or CMP receives written notice from CMS that CMS has disapproved the 
material because it is inaccurate or misleading or it misrepresents the 
HMO or CMP, its marketing representatives or CMS.
    (c) Marketing activities of risk HMOs or CMPs In addition to the 
generally permitted or prohibited marketing activities described in 
paragraphs (a) and (b) of this section, a risk HMO or CMP must provide 
potential Medicare enrollees with adequate written descriptions of the 
additional benefits or services, or reductions in premiums, deductible 
or copayments that may pertain under payment on a risk basis.

[50 FR 1346, Jan. 10, 1985, as amended at 52 FR 8901, Mar. 20, 1987; 56 
FR 46570, Sept. 13, 1991; 58 FR 38082, July 15, 1993; 60 FR 45677, Sept. 
1, 1995]

[[Page 145]]



Sec. 417.430  Application procedures.

    (a) Application forms. (1) The application form must comply with CMS 
instructions regarding format and content and must include the 
beneficiary's signature and authorization for disclosure and exchange of 
necessary information between CMS and the HMO or CMP.
    (2) The HMO or CMP must file and retain application forms for the 
period specified in CMS instructions.
    (b) Handling of applications. An HMO or CMP must have an effective 
system for receiving, controlling, and processing applications from 
Medicare beneficiaries. The system must meet the following conditions 
and requirements:
    (1) Each application is dated as of the day it is received.
    (2) Applications are processed in chronological order by date of 
receipt.
    (3) The HMO or CMP gives the beneficiary prompt written notice of 
acceptance or rejection of the application.
    (4) The notice of acceptance--
    (i) Specifies the date on which the HMO or CMP will request CMS to 
make the enrollment effective; or
    (ii) If the HMO or CMP is currently enrolled to capacity, explains 
the procedures that will be followed when vacancies occur.
    (5) The notice of denial explains the reason for denial.
    (6) The HMO or CMP transmits the information necessary for CMS to 
add the beneficiary to its records of the HMO's or CMP's Medicare 
enrollees--
    (i) Within 30 days from the date of application or from the date a 
vacancy occurs for an applicant who was accepted (for future enrollment) 
while there were no vacancies; or
    (ii) Within an additional period of time approved by CMS on a 
showing by the HMO or CMP that it needs more time.
    (7) The HMO or CMP promptly notifies the beneficiary of the 
effective month of his or her enrollment as a Medicare enrollee, when it 
receives that information from CMS.
    (8) If the HMO or CMP accepts applications while it is enrolled to 
capacity, its procedures ensure that vacancies are filled in 
chronological order by date of application of beneficiaries who are 
still eligible to enroll, unless that would result in failure to comply 
with any of the qualifying conditions set forth in Sec. 417.413.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45677, Sept. 1, 1995]



Sec. 417.432  Conversion of enrollment.

    (a) Basic rule. An HMO or CMP must accept as a Medicare enrollee any 
individual who is enrolled in the HMO or CMP for the month immediately 
before the month in which he or she is entitled to both Medicare Parts A 
and B or Part B only.
    (b) Effective date of conversion. Unless the individual chooses to 
disenroll from the HMO or CMP the individual's conversion to a Medicare 
enrollee is effective the month in which he or she is entitled to both 
Medicare Parts A and B or Part B only.
    (c) Prohibition against disenrollment. An HMO or CMP may not 
disenroll an individual who is converting under the provisions of 
paragraph (a) of this section unless one of the conditions specified in 
Sec. 417.460 is met.
    (d) Application form. The individual who is converting must sign an 
application form as described in Sec. 417.430(a).
    (e) Expedited submittal of information to CMS. The HMO or CMP must 
notify CMS, within the following time frames, of the enrollee's 
authorization for disclosure and exchange of information and the 
information necessary for CMS to include the enrollee in its records as 
a Medicare enrollee of the HMO or CMP:
    (1) At least 30, but no earlier than 90, days before the enrollee--
    (i) Attains age 65; or
    (ii) Reaches his or her 25th month of entitlement to social security 
disability benefits under title II of the Act or railroad retirement 
disability benefits under section 7(d) of the Railroad Retirement Act of 
1974.
    (2) Within 30 days after the enrollee initiates a course of renal 
dialysis, or on or before the day he or she enters a hospital in 
anticipation of a kidney transplant.

[50 FR 1346, Jan. 10, 1985, as amended at 56 FR 46570, Sept. 13, 1991; 
58 FR 38082, July 15, 1993; 60 FR 45677, Sept. 1, 1995]

[[Page 146]]



Sec. 417.434  Reenrollment.

    If an HMO or CMP requires periodic reenrollment, it must reenroll 
Medicare enrollees unless there is a basis for disenrollment as set 
forth in Sec. 417.460.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.436  Rules for enrollees.

    (a) Maintaining rules. An HMO or CMP must maintain written rules 
that deal with, but need not be limited to the following:
    (1) All benefits provided under the contract, as described in Sec. 
417.440.
    (2) How and where to obtain services from or through the HMO or CMP.
    (3) The restrictions on coverage for services furnished from sources 
outside a risk HMO or CMP, other than emergency services and urgently 
needed services (as defined in Sec. 417.401).
    (4) The obligation of the HMO or CMP to assume financial 
responsibility and provide reasonable reimbursement for emergency 
services and urgently needed services as required by Sec. 417.414(c).
    (5) Any services other than the emergency or urgently needed 
services that the HMO or CMP chooses to provide as permitted by this 
part, from sources outside the HMO or CMP. A cost HMO or CMP must 
disclose that the enrollee may receive services through any Medicare 
providers and suppliers.
    (6) Premium information, including the amount (or if the amount 
cannot be included, the telephone number of the source from which this 
information may be obtained) and the procedures for paying premiums and 
other charges for which enrollees may be liable.
    (7) Grievance and appeal procedures.
    (8) Disenrollment rights.
    (9) The obligation of an enrollee who is leaving the HMO's or CMP's 
geographic area for more than 90 days to notify the HMO or CMP of the 
move or extended absence and the HMO's or CMP's policies concerning 
retention of enrollees who leave the geographic area for more than 90 
days, as described in Sec. 417.460(a)(2).
    (10) The expiration date of the Medicare contract with CMS and 
notice that both CMS and the HMO or CMP are authorized by law to 
terminate or refuse to renew the contract, and that termination or 
nonrenewal of the contract may result in termination of the individual's 
enrollment in the HMO or CMP.
    (11) Advance directives as specified in paragraph (d) of this 
section.
    (12) Any other matters that CMS may prescribe.
    (b) Availability of rules. The HMO or CMP must furnish a copy of the 
rules to each Medicare enrollee at the time of enrollment and at least 
annually thereafter.
    (c) Changes in rules. If an HMO or CMP changes its rules, it must 
submit the changes to CMS in accordance with Sec. 417.428(a)(3), and 
notify its Medicare enrollees of the changes at least 30 days before the 
effective date of the changes.
    (d) Advance directives. (1) An HMO or CMP must maintain written 
policies and procedures concerning advance directives, as defined in 
Sec. 489.100 of this chapter, with respect to all adult individuals 
receiving medical care by or through the HMO or CMP and are required to:
    (i) Provide written information to those individuals concerning--
    (A) Their rights under the law of the State in which the 
organization furnishes services (whether statutory or recognized by the 
courts of the State) to make decisions concerning such medical care, 
including the right to accept or refuse medical or surgical treatment 
and the right to formulate, at the individual's option, advance 
directives. Providers are permitted to contract with other entities to 
furnish this information but are still legally responsible for ensuring 
that the requirements of this section are met. Such information must 
reflect changes in State law as soon as possible, but no later than 90 
days after the effective date of the State law; and
    (B) The HMO's or CMP's written policies respecting the 
implementation of those rights, including a clear and precise statement 
of limitation if the HMO or CMP cannot implement an advance directive as 
a matter of conscience. At a minimum, this statement should:

[[Page 147]]

    (1) Clarify any differences between institution-wide conscience 
objections and those that may be raised by individual physicians;
    (2) Identify the state legal authority permitting such objection; 
and
    (3) Describe the range of medical conditions or procedures affected 
by the conscience objection.
    (ii) Provide the information specified in paragraphs (d)(1)(i) of 
this section to each enrollee at the time of initial enrollment. If an 
enrollee is incapacitated at the time of initial enrollment and is 
unable to receive information (due to the incapacitating condition or a 
mental disorder) or articulate whether or not he or she has executed an 
advance directive, the HMO or CMP may give advance directive information 
to the enrollee's family or surrogate in the same manner that it issues 
other materials about policies and procedures to the family of the 
incapacitated enrollee or to a surrogate or other concerned persons in 
accordance with State law. The HMO or CMP is not relieved of its 
obligation to provide this information to the enrollee once he or she is 
no longer incapacitated or unable to receive such information. Follow-up 
procedures must be in place to ensure that the information is given to 
the individual directly at the appropriate time.
    (iii) Document in the individual's medical record whether or not the 
individual has executed an advance directive;
    (iv) Not condition the provision of care or otherwise discriminate 
against an individual based on whether or not the individual has 
executed an advance directive;
    (v) Ensure compliance with requirements of State law (whether 
statutory or recognized by the courts of the State) regarding advance 
directives;
    (vi) Provide for education of staff concerning its policies and 
procedures on advance directives; and
    (vii) Provide for community education regarding advance directives 
that may include material required in paragraph (d)(1)(i)(A) of this 
section, either directly or in concert with other providers or entities. 
Separate community education materials may be developed and used, at the 
discretion of the HMO or CMP. The same written materials are not 
required for all settings, but the material should define what 
constitutes an advance directive, emphasizing that an advance directive 
is designed to enhance an incapacitated individual's control over 
medical treatment, and describe applicable State law concerning advance 
directives. An HMO or CMP must be able to document its community 
education efforts.
    (2) The HMO or CMP--(i) Is not required to provide care that 
conflicts with an advance directive.
    (ii) Is not required to implement an advance directive if, as a 
matter of conscience, the HMO or CMP cannot implement an advance 
directive and State law allows any health care provider or any agent of 
such provider to conscientiously object.
    (3) The HMO or CMP must inform individuals that complaints 
concerning non-compliance with the advance directive requirements may be 
filed with the State survey and certification agency.

[58 FR 38072, July 15, 1993, as amended at 59 FR 49843, Sept. 30, 1994; 
60 FR 33292, June 27, 1995]



Sec. 417.440  Entitlement to health care services from an HMO or CMP.

    (a) Basic rules. (1) Subject to the conditions and limitations set 
forth in this subpart, a Medicare enrollee of an HMO or CMP is entitled 
to receive health care services and supplies directly from, or through 
arrangements made by, the HMO or CMP as specified in this section and 
Sec. Sec. 417.442-417.446.
    (2) A Medicare enrollee is also entitled to receive timely and 
reasonable payment directly (or have payment made on his or her behalf) 
for services he or she obtained from a provider or supplier outside the 
HMO or CMP if those services are--
    (i) Emergency services or urgently needed services as defined Sec. 
417.401;
    (ii) Services denied by the HMO or CMP and found (upon appeal under 
subpart Q of this part) to be services the enrollee was entitled to have 
furnished by the HMO or CMP.
    (b) Scope of services--(1) Part A and Part B services. Except as 
specified in paragraphs (c), (d), and (e) of this section, a Medicare 
enrollee is entitled to

[[Page 148]]

receive from an HMO or CMP all the Medicare-covered services that are 
available to individuals residing in the HMO's or CMP's geographic area, 
as follows:
    (i) Medicare Part A and Part B services if the enrollee is entitled 
to benefits under both programs.
    (ii) Medicare Part B services if the enrollee is entitled only under 
that program.
    (2) Supplemental services elected by an enrollee. (i) Except as 
provided under paragraph (b)(2)(ii) of this section, a Medicare enrollee 
of an HMO or CMP may elect to pay for optional services that are offered 
by the HMO or CMP in addition to the covered Part A and Part B services.
    (ii) An HMO or CMP may elect to provide qualified prescription drug 
coverage (as defined at Sec. 423.104 of this chapter) as an optional 
supplemental service in accordance with the applicable requirements 
under part 423 of this chapter, including Sec. 423.104(f)(4) of this 
chapter.
    (iii) The HMO or CMP may not set health status standards for those 
enrollees whom it accepts for these optional supplemental services.
    (3) Supplemental services imposed by a risk HMO or CMP. (i) Subject 
to CMS's approval, a risk HMO or CMP may require Medicare enrollees to 
accept and pay for services in addition to those covered by Medicare. 
(ii) If the HMO or CMP elects this option, it must impose the 
requirement on all Medicare enrollees, without regard to health status. 
(iii) CMS approves supplemental benefits of this type if CMS determines 
that imposition of the requirements will not discourage other Medicare 
beneficiaries from enrolling in the risk HMO or CMP.
    (4) Additional benefits from risk HMOs or CMPs required by statute. 
Subject to the conditions stated in Sec. 417.442, a new Medicare 
enrollee or a current nonrisk Medicare enrollee who converts to risk 
reimbursement under Sec. 417.444 is eligible to receive, in addition to 
the covered Part A and Part B benefits for which he or she is eligible, 
benefits consisting of one or both of the following:
    (i) A reduction in the HMO's or CMP's premium rate or in other 
charges for services furnished to Medicare enrollees.
    (ii) Provision of health benefits or services beyond the required 
Part A and Part B coverage.
    (5) Special supplemental benefits. Under conditions described in 
Sec. 417.444(c), current nonrisk Medicare enrollees who are not 
converted to the risk portion of the contract, may enroll in a special 
supplemental plan, if offered by the HMO or CMP, for some or all of the 
additional benefits described in paragraph (b)(4) of this section.
    (c) Limitation on hospice care--(1) Extent of limitation. (i) Basic 
rule. Except as provided in paragraph (c)(1)(ii) of this section, a 
Medicare enrollee who elects to receive hospice care under Sec. 418.24 
of this chapter waives the right to receive from the HMO or CMP any 
Medicare services (including services equivalent to hospice care) that 
are related to the terminal condition for which the enrollee elected 
hospice care, or to a related condition.
    (ii) Exception. An enrollee who elects hospice care retains the 
right to services furnished by his or her attending physician if that 
physician--
    (A) Is an employee or contractor of the HMO or CMP; and
    (B) Is not an employee of the designated hospice and does not 
receive compensation from the hospice for those services.
    (2) Effective date of limitation. The limitation in paragraph (c)(1) 
of this section begins on the effective date of the beneficiary's 
election of hospice care and remains in effect until the earlier of the 
following:
    (i) The effective date of the enrollee's revocation of the election 
of hospice care as described in Sec. 418.28 of this chapter.
    (ii) The date the enrollee exhausts his or her hospice benefits.
    (3) Payment to HMO or CMP. For the period that the Medicare 
enrollee's election of hospice care is in effect, CMS pays a cost HMO or 
CMP only as described in Sec. 417.585.
    (d) Limitation on provision of inpatient hospital services. If a 
beneficiary's effective date of coverage, as specified in Sec. 417.450, 
in a risk HMO or CMP occurs during an inpatient stay in a hospital

[[Page 149]]

paid for under part 412 of this chapter, the HMO or CMP--
    (1) Is not responsible for the provision of any of the inpatient 
hospital services under Part A during the stay and is not required to 
pay for those services;
    (2) Must assume responsibility for payment for or provision of 
inpatient hospital services under Part A on the day after the day of 
discharge from the inpatient stay; and
    (3) Is responsible for the full scope of services under paragraph 
(b) of this section, other than inpatient hospital services under Part 
A, beginning on the effective date of enrollment.
    (e) Extension of provision of inpatient hospital services. If an 
enrollee's effective date of disenrollment, as defined by Sec. 417.460, 
occurs during an inpatient stay in a hospital paid for under part 412 of 
this chapter and the stay is provided or arranged for by the HMO or CMP, 
or the HMO or CMP is financially responsible for the hospitalization 
under paragraph (a)(2) of this section, the HMO or CMP--
    (1) Is financially responsible for payment of the inpatient services 
under Part A through the date the beneficiary is discharged from the 
inpatient stay; and
    (2) Is not responsible for the provision of services, furnished on 
or after the effective date of disenrollment, other than inpatient 
hospital services under Part A.
    (f) Notice of noncoverage of inpatient hospital care. (1) If an 
enrollee is an inpatient of a hospital, entitlement to inpatient 
hospital care continues until he or she receives notice of noncoverage 
of that care.
    (2) Before giving notice of noncoverage, the HMO or CMP must obtain 
the concurrence of its affiliated physician responsible for the hospital 
care of the enrollee, or other physician as authorized by the HMO or 
CMP.
    (3) The HMO or CMP must give the enrollee written notice that 
includes the following:
    (i) The reason why inpatient hospital care is no longer needed.
    (ii) The effective date of the enrollee's liability for continued 
inpatient care.
    (iii) The enrollee's appeal rights.
    (4) If the HMO or CMP delegates to the hospital the determination of 
noncoverage of inpatient care, the hospital obtains the concurrence of 
the HMO- or CMP-affiliated physician responsible for the hospital care 
of the enrollee, or other physician as authorized by the HMO or CMP, and 
sends notice, following the procedures set forth in Sec. 412.42(c)(3) 
of this chapter.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 52 
FR 8901, Mar. 20, 1987; 58 FR 38079, July 15, 1993; 59 FR 59941, Nov. 
21, 1994; 60 FR 45678, Sept. 1, 1995; 70 FR 4525, Jan. 28, 2005]



Sec. 417.442  Risk HMO's and CMP's: Conditions for provision of additional benefits.

    (a) General rule. Except as provided in paragraph (b) of this 
section, a risk HMO or CMP must, during any contract period, provide to 
its Medicare enrollees the additional benefits described in Sec. 
417.440(b)(4) if its ACRs (calculated in accordance with Sec. 417.594) 
are less than the average per capita rates that CMS pays for the 
Medicare enrollees during the contract period.
    (b) Exceptions--(1) Reduced payment election. An HMO or CMP is not 
obligated to furnish additional services under paragraph (a) of this 
section if it has requested a reduction in its monthly payment from CMS 
under Sec. 417.592(e), and it--
    (i) Elects to receive reduced payment so that there is no difference 
between the average of its per capita rates of payment and its ACR; or
    (ii) Elects to receive partially reduced payment and furnish 
Medicare enrollees with additional benefits described in Sec. 417.440 
(b)(4) so that the combined value of benefits and reduced payment is 
equivalent to the difference between the average of its per capita rates 
of payment and its ACR.
    (2) Benefit stabilization fund. An HMO or CMP may elect to have a 
part of the value of the additional benefits it must provide under 
paragraph (a) of this section withheld in a benefit stabilization fund 
as described in Sec. 417.596.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985; 58 FR 38082, July 
15, 1993; 60 FR 45678, Sept. 1, 1995]

[[Page 150]]



Sec. 417.444  Special rules for certain enrollees of risk HMOs and CMPs.

    (a) Applicability. This section applies to any Medicare enrollee of 
a risk HMO or CMP who meets the following conditions:
    (1) On February 1, 1985, was enrolled--
    (i) In an HMO or CMP that had in effect a cost contract entered into 
under section 1876 of the Act in accordance with regulations in effect 
before February 1, 1985; or
    (ii) In an HCPP that was being reimbursed on a reasonable cost basis 
under section 1833(a)(1)(A) of the Act.
    (2) Has continued enrollment in the same entity without interruption 
or disenrolled after February 1, 1985, and later reenrolled in the same 
entity.
    (b) Retention of nonrisk status--(1) A ``nonrisk'' enrollee is a 
Medicare beneficiary who meets the conditions of paragraph (a) of this 
section and is enrolled in an entity that enters into a risk contract as 
an HMO or CMP. A ``nonrisk'' enrollee may retain nonrisk status 
indefinitely unless CMS determines under paragraph (c)(1) of this 
section, that the enrollee's status must be changed, or the enrollee 
requests the change, as provided in paragraph (c)(2) of this section.
    (2) A nonrisk enrollee of a risk HMO or CMP is not entitled to 
additional benefits under Sec. 417.442.
    (c) Conversion to risk status--(1) Conversion based on CMS 
determination. If CMS determines that, for administrative reasons or 
because there are fewer than 75 current nonrisk Medicare enrollees 
remaining in the HMO or CMP, all of its nonrisk Medicare enrollees must 
be covered under the risk provisions of the contract, the conversion 
process is as follows:
    (i) CMS notifies each affected enrollee of the decision at least 90 
days prior to the effective date.
    (ii) The nonrisk Medicare enrollees complete and sign forms stating 
that they understand and accept the new rules and benefits that will be 
applicable to them.
    (iii) The HMO or CMP notifies each affected enrollee, in writing, at 
least 30 days in advance, of the date upon which his or her coverage 
under the risk portion of the contract takes effect.
    (2) Conversion based on enrollee's request. A nonrisk Medicare 
enrollee requests, using a form identical or similar to the form 
described in paragraph (c)(1) of this section, that he or she be covered 
under the risk portion of the contract.
    (d) Notification. An HMO or CMP converting from a cost contract to a 
risk contract must, within 60 days of signing the risk contract, inform 
nonrisk enrollees of their right to remain nonrisk Medicare enrollees or 
to convert to risk enrollment at any time in accordance with paragraph 
(c)(2) of this section.

[58 FR 38073, July 15, 1993]



Sec. 417.446  [Reserved]



Sec. 417.448  Restriction on payments for services received by Medicare enrollees of risk HMOs or CMPs.

    (a) Basic rule. Except for emergency and urgently needed services as 
defined in Sec. 417.401, risk HMOs or CMPs are not required to make 
payments to or on behalf of certain Medicare enrollees, for any services 
received by the enrollees that are not provided--
    (1) Directly by the HMO or CMP; or
    (2) Through arrangements made by the HMO or CMP.
    (b) Application. The restriction on payments for services imposed by 
paragraph (a) of this section applies to services received by--
    (1) New Medicare enrollees;
    (2) Nonrisk Medicare enrollees who convert to risk reimbursement; 
and
    (3) Nonrisk Medicare enrollees who elect special supplemental 
benefit plans.
    (c) End of restriction. The restriction of payments imposed by 
paragraph (a) of this section ends when a Medicare enrollee leaves the 
HMO's or CMP's geographic area for an extended period as defined in 
Sec. 471.460(a)(2) and the HMO or CMP and the enrollee make 
arrangements for enrollment to continue as provided in Sec. 
417.460(a)(2)(iv).
    (d) Timing. The effective date for the end of the restriction on 
payments, as discussed in paragraph (c) of this section is the first day 
of the first month

[[Page 151]]

following the month in which the enrollee notifies the HMO or CMP as 
required in Sec. 417.436(a)(9), that he or she has left the HMO's or 
CMP's geographic area for an extended period.

[51 FR 28573, Aug. 8, 1986, as amended at 56 FR 46571, Sept. 13, 1991; 
58 FR 38079, July 15, 1993]



Sec. 417.450  Effective date of coverage.

    (a) Basic rules. Except as specified in paragraph (b) of this 
section, and notwithstanding the provisions of Sec. 417.440(d).
    (1) CMS's liability for payments to an HMO or CMP on behalf of a 
Medicare beneficiary begins on the first day of the month in which he or 
she is--
    (i) Entitled to Medicare benefits; and
    (ii) Enrolled in an HMO or CMP; and
    (2) The effective month of coverage may not be earlier than the 
first month after, nor later than the third month after the month in 
which CMS receives the information necessary to include the beneficiary 
as a Medicare enrollee of the HMO or CMP in CMS records.
    (b) Exceptions. (1) CMS may approve a later month if it is requested 
by the HMO or CMP and the beneficiary.
    (2) If an individual becomes an HMO or CMP enrollee before becoming 
entitled to Medicare Part B benefits, the effective month of coverage is 
the first month for which he or she becomes entitled to Medicare Part B 
benefits.
    (c) Notice of effective date of coverage. For each beneficiary added 
to CMS's records as an enrollee of an HMO or CMP, CMS gives the HMO or 
CMP prompt written notice of the month with which CMS's liability 
begins.

[50 FR 1346, Jan. 10, 1985, as amended at 52 FR 8901, Mar. 20, 1987; 58 
FR 38079, July 15, 1993; 60 FR 45678, Sept. 1, 1995]



Sec. 417.452  Liability of Medicare enrollees.

    (a) Deductibles and coinsurance. (1) A Medicare enrollee of an HMO 
or CMP is responsible for applicable Medicare deductible and coinsurance 
amounts, unless the HMO's or CMP's charges for these amounts are reduced 
under the additional benefits provision of Sec. 417.442.
    (2) The deductible and coinsurance amounts may be paid by or on 
behalf of the enrollee in the form of a premium, membership fee, charge 
per unit, or other similar charge.
    (3) The sum of the amounts the HMO or CMP charges its Medicare 
enrollees for Medicare deductibles and coinsurance may not exceed, on 
the average, the actuarial value of the deductible and coinsurance the 
Medicare enrollees otherwise would have been liable for had they not 
enrolled in the HMO or CMP or in another HMO or CMP.
    (b) Services not covered under Medicare. Unless the services are 
provided as additional benefits under Sec. 417.442, a Medicare enrollee 
of an HMO or CMP is liable for payment for--
    (1) All services that are not covered under Medicare Part A or Part 
B; or
    (2) If entitled only to Medicare Part B benefits, all services that 
are not covered under Medicare Part B.
    (c) Services for which Medicare is not primary payer. A Medicare 
enrollee of an HMO or CMP is liable for payments made to the enrollee 
for all covered services for which Medicare is not the primary payer as 
provided in Sec. 417.528.
    (d) Optional supplemental benefits plan. (1) The HMO or CMP may 
offer its Medicare enrollees a supplemental benefit plan to cover 
deductible and coinsurance amounts, or services not covered under 
Medicare, or both.
    (2) If a supplemental benefit plan premium includes charges for both 
noncovered services and the deductible and coinsurance amounts 
applicable to covered services, the portion of the premium that is for 
deductibles and coinsurance must be computed separately and must be 
disclosed to the beneficiary during the enrollment process and before he 
or she elects coverage options.
    (3) The sum of the amounts an HMO or CMP charges its Medicare 
enrollees for services that are not covered under Part A or Part B may 
not exceed the ACR for these services.
    (e) Coverage of Part A services for Part B-only Medicare enrollees. 
If an HMO or CMP furnishes coverage of Medicare Part A services to a 
Medicare enrollee entitled to Part B only, the HMO's or CMP's premium 
(or other payment method) for these services may not exceed the ACR for 
these services. In addition, if a risk HMO or CMP furnishes

[[Page 152]]

these services and supplemental services, which are the same as the 
additional benefits furnished Medicare enrollees of the HMO or CMP who 
are entitled to benefits under both Parts A and B, the HMO's or CMP's 
combined premium for both these groups of services that the Part B 
enrollee must pay may not exceed 95 percent of the weighted average 
AAPCC for Part A services (or the Medicare payment for Part A services, 
if it is less) for the Medicare enrollee of the HMO or CMP.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38079, July 15, 1993; 60 
FR 45678, Sept. 1, 1995]



Sec. 417.454  Charges to Medicare enrollees.

    (a) Limits on charges. The HMO or CMP must agree to charge its 
Medicare enrollees only for the--
    (1) Deductible and coinsurance amounts applicable to furnished 
covered services;
    (2) Charges for noncovered services or services for which the 
enrollee is liable as described in Sec. 417.452; and
    (3) Services for which Medicare is not the primary payor as provided 
in Sec. 417.528.
    (b) Limit on charges for inpatient hospital care. If a Medicare 
enrollee who is an inpatient of a hospital requests immediate QIO review 
(as provided in Sec. 417.605) of any determination by the hospital 
furnishing services or the HMO or CMP that the inpatient hospital 
services will no longer be covered, the HMO or CMP may not charge the 
enrollee for any inpatient care costs incured before noon of the first 
working day after the QIO issues its review decision.
    (c) Reporting requirements. A risk HMO or CMP must report, within 90 
days after the end of the contract period, all premiums, enrollment 
fees, and other charges collected from its Medicare enrollees during 
that period.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 59 
FR 59941, Nov. 21, 1994; 60 FR 45678, Sept. 1, 1995]



Sec. 417.456  Refunds to Medicare enrollees.

    (a) Definitions. As used in this section--
    Amounts incorrectly collected means amounts collected that are in 
excess of those specified in Sec. 417.452. It includes amounts 
collected when the enrollee was believed not entitled to Medicare 
benefits if the enrollee is later determined to have been entitled to 
Medicare benefits and CMS is liable for payments as specified in Sec. 
417.450.
    Other amounts due means amounts due a Medicare enrollee for services 
obtained outside the HMO or CMP if they were--
    (1) Emergency services;
    (2) Urgently needed services for which the HMO or CMP has assumed 
financial responsibility; or
    (3) On appeal under subpart Q of this part, found to be services the 
enrollee was entitled to have furnished by the HMO or CMP.
    (b) Basic commitment. An HMO or CMP must agree to refund all amounts 
incorrectly collected from its Medicare enrollees, or from others on 
behalf of the enrollees, and any other amounts due the enrollees or 
others on their behalf.
    (c) Refund by lump sum payment. An HMO or CMP must make refunds to 
its current and former Medicare enrollees, or to others who have made 
payments on behalf of enrollees, by lump sum payment for the following:
    (1) Incorrectly collected amounts that were not collected as 
premiums.
    (2) Other amounts due.
    (3) All amounts due, if the HMO or CMP is going out of business.
    (d) Refund by premium adjustment or lump sum payment or both. An HMO 
or CMP may make refund by adjustment of future premiums, by lump sum 
payment, or by a combination of both methods, for amounts that were 
incorrectly collected in the form of premiums or through a combination 
of premium payments and other charges.
    (e) Refund when enrollee has died or cannot be located. If an 
enrollee has died or cannot be located after reasonable effort by the 
HMO or CMP, the HMO or CMP must make the refund in accordance with State 
law.
    (f) Reduction by CMS. If the HMO or CMP does not make refund in 
accordance with paragraphs (b) through (d) of this section by the end of 
the contract period following the contract period

[[Page 153]]

during which an amount was determined to be due an enrollee, CMS reduces 
its payment to the HMO or CMP by the amounts incorrectly collected or 
otherwise due, and arranges for those amounts to be paid to the Medicare 
enrollee.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38079, July 15, 1993; 60 
FR 45678, Sept. 1, 1995]



Sec. 417.458  Recoupment of uncollected deductible and coinsurance amounts.

    An HMO or CMP agrees not to recoup deductible and coinsurance 
amounts for which Medicare enrollees were liable in a previous contract 
period except in the following circumstances:
    (a) The HMO or CMP failed to collect the deductible and coinsurance 
amounts during the contract period in which they were due because of--
    (1) Underestimation of the actuarial value of the deductible and 
coinsurance amounts; or
    (2) A billing error.
    (b) The HMO or CMP has identified the amounts and obtained advance 
CMS approval of the recoupment and the method and timing of recoupment.
    (c) The HMO or CMP collects these amounts no later than the end of 
the contract period following the contract period during which they were 
found to be due.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45678, Sept. 1, 1995]



Sec. 417.460  Disenrollment of beneficiaries by an HMO or CMP.

    (a) General rule. Except as provided in paragraphs (b) through (i) 
of this section, an HMO or CMP may not--
    (1) Disenroll a Medicare beneficiary; or
    (2) Orally or in writing, or by any action or inaction, request or 
encourage a Medicare enrollee to disenroll.
    (b) Bases for disenrollment: Overview--(1) Optional disenrollment. 
Generally, an HMO or CMP may disenroll a Medicare enrollee if he or 
she--
    (i) Fails to pay the required premiums or other charges;
    (ii) Commits fraud or permits abuse of his or her enrollment card; 
or
    (iii) Behaves in a manner that seriously impairs the HMO's or CMP's 
ability to furnish health care services to the particular enrollee or to 
other enrollees.
    (2) Required disenrollment. Generally, an HMO or CMP must disenroll 
a Medicare enrollee if he or she--
    (i) Moves out of the HMO's or CMP's geographic area;
    (ii) Fails to convert to the risk provisions of the HMO's or CMP's 
Medicare contract;
    (iii) Loses entitlement to Medicare Part B benefits; or
    (iv) Dies.
    (3) Related provisions. Specific requirements, limitations, and 
exceptions are set forth in paragraphs (c) through (i) of this section.
    (c) Failure to pay premiums or other charges--(1) Basic rule. Except 
as specified in paragraph (c)(2) of this section, an HMO or CMP may 
disenroll a Medicare enrollee who fails to pay premiums or other charges 
imposed by the HMO or CMP for deductible and coinsurance amounts for 
which the enrollee is liable, if the HMO or CMP--
    (i) Can demonstrate to CMS that it made reasonable efforts to 
collect the unpaid amount;
    (ii) Gives the enrollee written notice of disenrollment, including 
an explanation of the enrollee's right to a hearing under the HMO's or 
CMP's grievance procedures; and
    (iii) Sends the notice of disenrollment to the enrollee before it 
notifies CMS.
    (2) Exception. If the enrollee fails to pay the premium for optional 
supplemental benefits (that is, a package of benefits that an enrollee 
is not required to accept), but pays the basic premium and other 
charges, the HMO or CMP may discontinue the optional benefits but may 
not disenroll the beneficiary.
    (d) Enrollee commits fraud or permits abuse of the enrollment card--
(1) Basis for disenrollment. An HMO or CMP may disenroll a Medicare 
beneficiary if the beneficiary--
    (i) Knowingly provides, on the application form, fraudulent 
information that materially affects the beneficiary's eligibility to 
enroll in the HMO or CMP; or

[[Page 154]]

    (ii) Intentionally permits others to use his or her enrollment card 
to obtain services from the HMO or CMP.
    (2) Notice requirement. If disenrollment is for either of the 
reasons specified in paragraph (d)(1) of this section, the HMO or CMP 
must give the beneficiary a written notice of termination of enrollment.
    (i) The notice must be mailed to the enrollee before submission of 
the disenrollment notice to CMS.
    (ii) The notice must include an explanation of the enrollee's right 
to have the disenrollment heard under the grievance procedures 
established in accordance with Sec. 417.436.
    (3) Report to the Inspector General. The HMO or CMP must report to 
the Office of the Inspector General of the Department any disenrollment 
based on fraud or abuse by the enrollee.
    (e) Disenrollment for cause--(1) Basis for disenrollment. An HMO or 
CMP may disenroll a Medicare enrollee for cause if the enrollee's 
behavior is disruptive, unruly, abusive, or uncooperative to the extent 
that his or her continuing enrollment in the HMO or CMP seriously 
impairs the HMO's or CMP's ability to furnish services to either the 
particular enrollee or other enrollees.
    (2) Effort to resolve the problem. The HMO or CMP must make a 
serious effort to resolve the problem presented by the enrollee, 
including the use (or attempted use) of internal grievance procedures.
    (3) Consideration of extenuating circumstances. The HMO or CMP must 
ascertain that the enrollee's behavior is not related to the use of 
medical services or to mental illness.
    (4) Documentation. The HMO or CMP must document the problems, 
efforts, and medical conditions as described in paragraphs (e)(1) 
through (e)(3) of this section.
    (5) CMS review of an HMO's or CMP's proposed disenrollment for 
cause. (i) CMS decides on the basis of review of the documentation 
submitted by the HMO or CMP, whether disenrollment requirements have 
been met.
    (ii) CMS makes this decision within 20 working days after receipt of 
the documentation material, and notifies the HMO or CMP within 5 working 
days after making its decision.
    (6) Effective date of disenrollment. If CMS permits an HMO or CMP to 
disenroll an enrollee for cause, the disenrollment takes effect on the 
first day of the calendar month after the month in which the HMO or CMP 
gives the enrollee a written notice of disenrollment that meets the 
requirements set forth in paragraphs (d)(2)(i) and (d)(2)(ii) of this 
section.
    (f) Enrollee moves out of the HMO's or CMP's geographic area--(1) 
Basic rules. (i) Disenrollment. Except as provided in paragraph (f)(2) 
of this section, an HMO or CMP must disenroll a Medicare enrollee who 
moves out of its geographic area if the HMO or CMP establishes, on the 
basis of a written statement from the enrollee, or other evidence 
acceptable to CMS, that the enrollee has permanently moved out of its 
geographic area.
    (ii) Notice requirement. The HMO or CMP must comply with the notice 
requirements set forth in paragraph (d)(2) of this section.
    (iii) Effect on geographic area. Failure to disenroll an enrollee 
who has moved out of the HMO's or CMP's geographic area does not expand 
that area to encompass the location of the enrollee's new residence.
    (2) Exception. An HMO or CMP may retain a Medicare enrollee who is 
absent from its geographic area for an extended period, but who remains 
within the United States as defined in Sec. 400.200 of this chapter if 
the enrollee agrees. For purposes of this exception, the following 
provisions apply:
    (i) An absence for an extended period means an uninterrupted absence 
from the HMO's or CMP's geographic area for more than 90 days but less 
than 1 year.
    (ii) The HMO or CMP and the enrollee may mutually agree upon 
restrictions for obtaining services while the enrollee is absent for an 
extended period from the HMO's or CMP's geographic area. However, 
restrictions may not be imposed on the scope of services described in 
Sec. 417.440.
    (iii) HMOs and CMPs that choose to exercise this exception must make 
the option available to all Medicare enrollees who are absent for an 
extended period from their geographic areas. However, HMOs and CMPs may 
limit this

[[Page 155]]

option to enrollees who go to a geographic area served by an affiliated 
HMO or CMP.
    (iv) As used in this paragraph, ``affiliated HMO or CMP'' means an 
HMO or CMP that--
    (A) Is under common ownership or control of the HMO or CMP that 
seeks to retain the absent enrollees; or
    (B) Has in effect an agreement to furnish services to enrollees who 
are on an extended absence from the geographic area of the HMO or CMP 
that seeks to retain them.
    (v) When the enrollee returns to the HMO's or CMP's geographic area 
(even temporarily), the restrictions of Sec. 417.448(a) (which limit 
payment for services not provided or arranged for by the HMO or CMP) 
apply again immediately.
    (vi) If the enrollee fails to return to the HMO's or CMP's 
geographic area within 1 year from the date he or she left that area, 
the HMO or CMP must disenroll the beneficiary on the first day of the 
month following the anniversary of the date the enrollee left that area 
in accordance with paragraph (f)(1) of this section.
    (g) Failure to convert to risk provisions of Medicare contract--(1) 
Basis for disenrollment. A risk HMO or CMP must disenroll a nonrisk 
Medicare enrollee who refuses to convert to the risk provisions of the 
Medicare contract after CMS determines that all of the HMO's or CMP's 
nonrisk Medicare enrollees must convert.
    (2) Advance notice requirement. At least 30 days before it gives CMS 
notice of disenrollment, the HMO or CMP must give the enrollee written 
notice of the fact that failure to convert will result in disenrollment.
    (h) Loss of entitlement to Medicare benefits--(1) Loss of 
entitlement to Part A benefits. If an enrollee loses entitlement to 
benefits under Part A of Medicare but remains entitled to benefits under 
Part B, the enrollee automatically continues as a Medicare enrollee of 
the HMO or CMP and is entitled to receive and have payment made for Part 
B services, beginning with the month immediately following the last 
month of his or her entitlement to Part A benefits.
    (2) Loss of entitlement to Part B benefits. If a Medicare enrollee 
loses entitlement to Part B benefits, the HMO or CMP must disenroll him 
or her as a Medicare enrollee effective with the month following the 
last month of entitlement to Part B benefits. However, the HMO or CMP 
may continue to enroll the individual under its regular plan if the 
individual so chooses.
    (i) Death of the enrollee. Disenrollment is effective with the month 
following the month of death.

[60 FR 45678, Sept. 1, 1995]



Sec. 417.461  Disenrollment by the enrollee.

    (a) Request for disenrollment. (1) A Medicare enrollee who wishes to 
disenroll may at any time give the HMO or CMP a signed, dated request in 
the form and manner prescribed by CMS.
    (2) The enrollee may request a certain disenrollment date but it may 
be no earlier than the first day of the month following the month in 
which the HMO or CMP receives the request.
    (b) Responsibilities of the HMO or CMP. The HMO or CMP must--
    (1) Submit a disenrollment notice to CMS promptly;
    (2) Provide the enrollee with a copy of the request for 
disenrollment; and
    (3) In the case of a risk HMO or CMP, also provide the enrollee with 
a statement explaining that he or she--
    (i) Remains enrolled until the effective date of disenrollment; and
    (ii) Until that date, is subject to the restrictions of Sec. 
417.448(a) under which neither the HMO or CMP nor CMS pays for services 
not provided or arranged for by the HMO or CMP.
    (c) Effect of failure to submit disenrollment notice to CMS 
promptly. If the HMO or CMP fails to submit timely the correct and 
complete notice required in paragraph (b)(1) of this section, the HMO or 
CMP must reimburse CMS for any capitation payments received after the 
month in which payments would have ceased if the requirement had been 
met timely.

[60 FR 45679, Sept. 1, 1995]

[[Page 156]]



Sec. 417.464  End of CMS's liability for payment: Disenrollment of beneficiaries and termination or default of contract.

    (a) Effect of disenrollment: General rule. (1) CMS's liability for 
monthly capitation payments to the HMO or CMP generally ends as of the 
first day of the month following the month in which disenrollment is 
effective, as shown on CMS's records.
    (2) Disenrollment is effective no earlier than the month immediately 
after, and no later than the third month after, the month in which CMS 
receives the disenrollment notice in acceptable form.
    (b) Effect of disenrollment: Special rules--(1) Fraud or abuse by 
the enrollee. If disenrollment is on the basis of fraud committed or 
abuse permitted by the enrollee, CMS's liability ends as of the first 
day of the month in which disenrollment is effective.
    (2) Loss of entitlement to Part B benefits. If disenrollment is on 
the basis of loss of entitlement to Part B benefits, CMS's liability 
ends as of the first day of the month following the last month of Part B 
entitlement.
    (3) Death of enrollee. If the enrollee dies, CMS's liability ends as 
of the first day of the month following the month of death.
    (4) Disenrollment at enrollee's request. If disenrollment is in 
response to the enrollee's request, CMS's liability ends as of the first 
day of the month following the month of termination requested by the 
enrollee.
    (c) Effect of termination or default of contract--(1) Termination of 
contract. If the contract between CMS and the HMO or CMP is terminated 
by mutual consent or by unilateral action of either party, CMS's 
liability for payments ends as of the first day of the month after the 
last month for which the contract is in effect.
    (2) Default of contract. If the HMO or CMP defaults on the contract 
before the end of the contract year because of bankruptcy or other 
reasons, CMS--
    (i) Determines the month in which its liability for payments ends; 
and
    (ii) Notifies the HMO or CMP and all affected Medicare enrollees as 
soon as practicable.

[60 FR 45680, Sept. 1, 1995]



                Subpart L_Medicare Contract Requirements

    Source: 50 FR 1346, Jan. 10, 1985, unless otherwise noted.



Sec. 417.470  Basis and scope.

    (a) Basis. This subpart implements those portions of section 
1857(e)(2) of the Act pertaining to cost sharing in enrollment-related 
costs and section 1876(c), (g), (h), and (i) of the Act that pertain to 
the contract between CMS and an HMO or CMP for participation in the 
Medicare program.
    (b) Scope. This subpart sets forth--
    (1) Specific contract requirements; and
    (2) Procedures for renewal, nonrenewal, or termination of a 
contract.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38079, July 15, 1993; 62 
FR 63673, Dec. 2, 1997]



Sec. 417.472  Basic contract requirements.

    (a) Submittal of contract. An HMO or CMP that wishes to contract 
with CMS to furnish services to Medicare beneficiaries must submit a 
signed contract that meets the requirements of this subpart and any 
other requirements established by CMS.
    (b) Agreement to comply with regulations and instructions. The 
contract must provide that the HMO or CMP agrees to comply with all the 
applicable requirements and conditions set forth in this subpart and in 
general instructions issued by CMS.
    (c) Other contract provisions. In addition to the requirements set 
forth in Sec. Sec. 417.474 through 417.488, the contract must contain 
any other terms and conditions that CMS requires to implement section 
1876 of the Act.
    (d) Exemption from Federal procurement regulations. The Federal 
Acquisition Regulations and HHS Acquisition Regulations contained in 
title 48 of the Code of Federal Regulations do not apply to Medicare 
contracts under section 1876 of the Act.
    (e) Compliance with civil rights laws. The HMO or CMP must comply 
with title VI of the Civil Rights Act of 1964 (regulations at 45 CFR 
part 80), section 504 of the Rehabilitation Act of 1973 (regulations at 
45 CFR part 84), and the

[[Page 157]]

Age Discrimination Act of 1975 (regulations at 45 CFR part 91).
    (f) Requirements for advance directives. The HMO or CMP must meet 
all the requirements for advance directives at Sec. 417.436(d).
    (g) Authority to waive conflicting contract requirements. Under 
section 1876(i)(5) of the Act, CMS is authorized to administer the terms 
of this subpart without regard to provisions of law or other regulations 
relating to the making, performance, amendment, or modification of 
contracts of the United States if it determines that those provisions 
are inconsistent with the efficient and effective administration of the 
Medicare program.
    (h) Collection of fees from risk HMOs and CMPs. (1) The rules set 
forth in Sec. 422.10 of this chapter for M+C plans also apply to 
collection of fees from risk HMOs and CMPs.
    (2) In applying the part 422 rules, references to ``M+C 
organizations'' or ``M+C plans'' must be read as references to ``risk 
HMOs and CMPs''.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 57 
FR 8202, Mar. 6, 1992; 58 FR 38079, July 15, 1993; 60 FR 45680, Sept. 1, 
1995; 63 FR 35067, June 26, 1998]



Sec. 417.474  Effective date and term of contract.

    (a) Effective date. The contract must specify its effective date, 
which may not be earlier than the date it is signed by both CMS and the 
HMO or CMP.
    (b) Term. The contract must specify the duration of its term as 
follows:
    (1) For the initial term, at least 12 months, but no more than 23 
months.
    (2) For any subsequent term, 12 months.

[60 FR 45680, Sept. 1, 1995]



Sec. 417.476  Waived conditions.

    If CMS waives any of the qualifying conditions required under 
subpart J of this part, the contract must specify the following 
information for each waived condition:
    (a) The specific terms of the waiver.
    (b) The expiration date of the waiver.
    (c) Any other information required by CMS.

[60 FR 45680, Sept. 1, 1995]



Sec. 417.478  Requirements of other laws and regulations.

    The contract must provide that the HMO or CMP agrees to comply 
with--
    (a) The requirements for QIO review of services furnished to 
Medicare enrollees as set forth in subchapter D of this chapter;
    (b) Sections 1318(a) and (c) of the PHS Act, which pertain to 
disclosure of certain financial information;
    (c) Section 1301(c)(8) of the PHS Act, which relates to liability 
arrangements to protect enrollees of the HMO or CMP; and
    (d) The reporting requirements in Sec. 417.126(a), which pertain to 
the monitoring of an HMO's or CMP's continued compliance.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 56 
FR 8853, Mar. 1, 1991; 58 FR 38079, 38082, July 15, 1993]



Sec. 417.479  Requirements for physician incentive plans.

    (a) The contract must specify that an HMO or CMP may operate a 
physician incentive plan only if--
    (1) No specific payment is made directly or indirectly under the 
plan to a physician or physician group as an inducement to reduce or 
limit medically necessary services furnished to an individual enrollee; 
and
    (2) The stop-loss protection, enrollee survey, and disclosure 
requirements of this section are met.
    (b) Applicability. The requirements in this section apply to 
physician incentive plans between HMOs and CMP and individual physicians 
or physician groups with which they contract to provide medical services 
to enrollees. The requirements in this section also apply to 
subcontracting arrangements as specified in Sec. 417.479(i). These 
requirements apply only to physician incentive plans that base 
compensation (in whole or in part) on the use or cost of services 
furnished to Medicare beneficiaries or Medicaid recipients.
    (c) Definitions. For purposes of this section:
    Bonus means a payment an HMO or CMP makes to a physician or 
physician group beyond any salary, fee-for-service payments, capitation, 
or returned withhold.

[[Page 158]]

    Capitation means a set dollar payment per patient per unit of time 
(usually per month) that an organization pays a physician or physician 
group to cover a specified set of services and administrative costs 
without regard to the actual number of services provided. The services 
covered may include the physician's own services, referral services, or 
all medical services.
    Payments means any amounts the HMO or CMP pays physicians or 
physician groups for services they furnish directly, plus amounts paid 
for administration and amounts paid (in whole or in part) based on use 
and costs of referral services (such as withhold amounts, bonuses based 
on referral levels, and any other compensation to the physician or 
physician group to influence the use of referral services). Bonuses and 
other compensation that are not based on referral levels (such as 
bonuses based solely on quality of care furnished, patient satisfaction, 
and participation on committees) are not considered payments for 
purposes of this section.
    Physician group means a partnership, association, corporation, 
individual practice association, or other group that distributes income 
from the practice among members. An individual practice association is a 
physician group only if it is composed of individual physicians and has 
no subcontracts with physician groups.
    Physician incentive plan means any compensation arrangement between 
an HMO or CMP and a physician or physician group that may directly or 
indirectly have the effect of reducing or limiting services furnished to 
Medicare beneficiaries or Medicaid recipients enrolled in the HMO or 
CMP.
    Referral services means any specialty, inpatient, outpatient, or 
laboratory services that a physician or physician group orders or 
arranges, but does not furnish directly.
    Risk threshold means the maximum risk, if the risk is based on 
referral services, to which a physician or physician group may be 
exposed under a physician incentive plan without being at substantial 
financial risk.
    Withhold means a percentage of payments or set dollar amounts that 
an HMO or CMP deducts from a physician's service fee, capitation, or 
salary payment, and that may or may not be returned to the physician, 
depending on specific predetermined factors.
    (d) Prohibited physician payments. No specific payment of any kind 
may be made directly or indirectly under the incentive plan to a 
physician or physician group as an inducement to reduce or limit covered 
medically necessary services covered under the HMO's or CMP's contract 
furnished to an individual enrollee. Indirect payments include offerings 
of monetary value (such as stock options or waivers of debt) measured in 
the present or future.
    (e) General rule: Determination of substantial financial risk. 
Substantial financial risk occurs when the incentive arrangements place 
the physician or physician group at risk for amounts beyond the risk 
threshold, if the risk is based on the use or costs of referral 
services. Amounts at risk based solely on factors other than a 
physician's or physician group's referral levels do not contribute to 
the determination of substantial financial risk. The risk threshold is 
25 percent.
    (f) Arrangements that cause substantial financial risk. For purposes 
of this paragraph, potential payments means the maximum anticipated 
total payments (based on the most recent year's utilization and 
experience and any current or anticipated factors that may affect 
payment amounts) that could be received if use or costs of referral 
services were low enough. The following physician incentive plans cause 
substantial financial risk if risk is based (in whole or in part) on use 
or costs of referral services and the patient panel size is not greater 
than 25,000 patients:
    (1) Withholds greater than 25 percent of potential payments.
    (2) Withholds less than 25 percent of potential payments if the 
physician or physician group is potentially liable for amounts exceeding 
25 percent of potential payments.
    (3) Bonuses that are greater than 33 percent of potential payments 
minus the bonus.
    (4) Withholds plus bonuses if the withholds plus bonuses equal more 
than 25 percent of potential payments. The threshold bonus percentage 
for a

[[Page 159]]

particular withhold percentage may be calculated using the formula--
Withhold = 0.75 (Bonus %) + 25%.
    (5) Capitation, arrangements, if--
    (i) The difference between the maximum potential payments and the 
minimum potential payments is more than 25 percent of the maximum 
potential payments; or
    (ii) The maximum and minimum potential payments are not clearly 
explained in the physician's or physician group's contract.
    (6) Any other incentive arrangements that have the potential to hold 
a physician or physician group liable for more than 25 percent of 
potential payments.
    (g) Requirements for physician incentive plans that place physicians 
at substantial financial risk. HMOs and CMPs that operate incentive 
plans that place physicians or physician groups at substantial financial 
risk must do the following:
    (1) Conduct enrollee surveys. These surveys must--
    (i) Include either all current Medicare/Medicaid enrollees in the 
HMO or CMP and those who have disenrolled (other than because of loss of 
eligibility in Medicaid or relocation outside the HMO's or CMP's service 
area) in the past 12 months, or a sample of these same enrollees and 
disenrollees;
    (ii) Be designed, implemented, and analyzed in accordance with 
commonly accepted principles of survey design and statistical analysis;
    (iii) Address enrollees/disenrollees satisfaction with the quality 
of the services provided and their degree of access to the services; and
    (iv) Be conducted no later than 1 year after the effective date of 
the Medicare contract and at least annually thereafter.
    (2) Ensure that all physicians and physician groups at substantial 
financial risk have either aggregate or per-patient stop-loss protection 
in accordance with the following requirements:
    (i) If aggregate stop-loss protection is provided, it must cover 90 
percent of the costs of referral services (beyond allocated amounts) 
that exceed 25 percent of potential payments.
    (ii) If the stop-loss protection provided is based on a per-patient 
limit, the stop-loss limit per patient must be determined based on the 
size of the patient panel and may be a single combined limit or consist 
of separate limits for professional services and institutional services. 
In determining patient panel size, the patients may be pooled in 
accordance with paragraph (h)(2) of this section. Stop-loss protection 
must cover 90 percent of the costs of referral services that exceed the 
per patient limit. The per-patient stop-loss limit is as follows:

------------------------------------------------------------------------
                                   Single       Separate      Separate
          Panel size              combined   institutional  professional
                                   limit         limit          limit
------------------------------------------------------------------------
1-1000........................       $6,000       $10,000         $3,000
1,001-5000....................       30,000        40,000         10,000
5,001-8,000...................       40,000        60,000         15,000
8,001-10,000..................       75,000       100,000         20,000
10,001-25,000.................      150,000       200,000         25,000
25,000.............         none          none           none
------------------------------------------------------------------------

    (h) Disclosure and other requirements for organizations with 
physician incentive plans.--(1) Disclosure to CMS. Each health 
maintenance organization or competitive medical plan must provide to CMS 
information concerning its physician incentive plans as requested.
    (2) Pooling of patients. Pooling of patients is permitted only if--
(i) It is otherwise consistent with the relevant contracts governing the 
compensation arrangements for the physician or physician group;
    (ii) The physician or physician group is at risk for referral 
services with respect to each of the categories of patients being 
pooled;
    (iii) The terms of the compensation arrangements permit the 
physician or physician group to spread the risk across the categories of 
patients being pooled;

[[Page 160]]

    (iv) The distribution of payments to physicians from the risk pool 
is not calculated separately by patient category; and
    (v) The terms of the risk borne by the physicians or physician group 
are comparable for all categories of patients being pooled.
    (3) Disclosure to Medicare beneficiaries. Each health maintenance 
organization or competitive medical plan must provide the following 
information to any Medicare beneficiary who requests it:
    (i) Whether the prepaid plan uses a physician incentive plan that 
affects the use of referral services.
    (ii) The type of incentive arrangement.
    (iii) Whether stop-loss protection is provided.
    (iv) If the prepaid plan was required to conduct a survey, a summary 
of the survey results.
    (i) Requirements related to subcontracting arrangements--(1) 
Physician groups. An HMO or CMP that contracts with a physician group 
that places the individual physician members at substantial financial 
risk for services they do not furnish must do the following:
    (i) Disclose to CMS any incentive plan between the physician group 
and its individual physicians that bases compensation to the physician 
on the use or cost of services furnished to Medicare beneficiaries or 
Medicaid recipients. The disclosure must include the information 
specified in paragraphs (h)(1)(i) through (h)(1)(vii) of this section 
and be made at the times specified in paragraph (h)(2) of this section.
    (ii) Provide adequate stop-loss protection to the individual 
physicians.
    (iii) Conduct enrollee surveys as specified in paragraph (g)(1) of 
this section.
    (2) Intermediate entities. An HMO or CMP that contracts with an 
entity (other than a physician group) for the provision of services to 
Medicare beneficiaries must do the following:
    (i) Disclose to CMS any incentive plan between the entity and a 
physician or physician group that bases compensation to the physician or 
physician group on the use or cost of services furnished to Medicare 
beneficiaries or Medicaid recipients. The disclosure must include the 
information required to be disclosed under paragraphs (h)(1)(i) through 
(h)(1)(vii) of this section and be made at the times specified in 
paragraph (h)(2) of this section.
    (ii) If the physician incentive plan puts a physician or physician 
group at substantial financial risk for the cost of services the 
physician or physician group does not furnish--
    (A) Meet the stop-loss protection requirements of this subpart; and
    (B) Conduct enrollee surveys as specified in paragraph (g)(1) of 
this section.
    (3) For purposes of paragraph (i)(2) of this section, an entity 
includes, but is not limited to, an individual practice association that 
contracts with one or more physician groups and a physician hospital 
organization.
    (j) Sanctions against the HMO or CMP. CMS may apply intermediate 
sanctions, or the Office of Inspector General may apply civil money 
penalties described at Sec. 417.500, if CMS determines that an HMO or 
CMP fails to comply with the requirements of this section.

[61 FR 13446, Mar. 27, 1996; 61 FR 46385, Sept. 3, 1996, as amended at 
61 FR 69049, Dec. 31, 1996; 68 FR 50855, Aug. 22, 2003]



Sec. 417.480  Maintenance of records: Cost HMOs and CMPs.

    A reasonable cost contract must provide that the HMO or CMP agrees 
to maintain books, records, documents, and other evidence of accounting 
procedures and practices that--
    (a) Are sufficient to--
    (1) Ensure an audit trail; and
    (2) Properly reflect all direct and indirect costs claimed to have 
been incurred under the contract; and
    (b) Include at least records of the following:
    (1) Ownership, HMO or CMP, and operation of the HMO's or CMP's 
financial, medical, and other recordkeeping systems.
    (2) Financial statements for the current contract period and three 
prior periods.
    (3) Federal income tax or information returns for the current 
contract period and three prior periods.
    (4) Asset acquisition, lease, sale, or other action.
    (5) Agreements, contracts, and subcontracts.

[[Page 161]]

    (6) Franchise, marketing, and management agreements.
    (7) Schedules of charges for the HMO's or CMP's fee-for-service 
patients.
    (8) Matters pertaining to costs of operations.
    (9) Amounts of income received by source and payment.
    (10) Cash flow statements.
    (11) Any financial reports filed with other Federal programs or 
State authorities.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45680, Sept. 1, 1995]



Sec. 417.481  Maintenance of records: Risk HMOs and CMPs.

    A risk contract must provide that the HMO or CMP agrees to maintain 
and make available to CMS upon request, books, records, documents, and 
other evidence of acounting procedures and practices that--
    (a) Are sufficient to--
    (1) Establish component rates of the ACR for determining additional 
and supplementary benefits; and
    (2) Determine the rates utilized in setting premiums for State 
insurance agency purposes; and
    (b) Include at least any records or financial reports filed with 
other Federal agencies or State authorities.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45680, Sept. 1, 1995]



Sec. 417.482  Access to facilities and records.

    The contract must provide that the HMO or CMP agrees to the 
following:
    (a) HHS may evaluate, through inspection or other means, the 
quality, appropriateness, and timeliness of services furnished under the 
contract to its Medicare enrollees.
    (b) HHS may evaluate, through inspection or other means, the 
facilities of the HMO or CMP when there is reasonable evidence of some 
need for that inspection.
    (c) HHS, the Comptroller General, or their designees may audit or 
inspect any books and records of the HMO or CMP or its transferee that 
pertain to any aspect of services performed, reconciliation of benefit 
liabilities, and determination of amounts payable under the contract.
    (d) HHS may evaluate, through inspection or other means, the 
enrollment and disenrollment records for the current contract period and 
three prior periods, when there is reasonable evidence of some need for 
that inspection.
    (e) In the case of a reasonable cost HMO or CMP to make available 
for the purposes specified in paragraphs (a), (b), (c), and (d) of this 
section, its premises, physical facilities, and equipment, its records 
relating to its Medicare enrollees, the records specified in Sec. 
417.480 and any additional relevant information that CMS may require.
    (f) That the right to inspect, evaluate, and audit, will extend 
through three years from the date of the final settlement for any 
contract period unless--
    (1) CMS determines there is a special need to retain a particular 
record or group of records for a longer period and notifies the HMO or 
CMP at least 30 days before the normal disposition date;
    (2) There has been a termination, dispute, fraud, or similar fault 
by the HMO or CMP, in which case the retention may be extended to three 
years from the date of any resulting final settlement; or
    (3) CMS determines that there is a reasonable possibility of fraud, 
in which case it may reopen a final settlement at any time.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.484  Requirement applicable to related entities.

    (a) Definition. As used in this section, related entity means any 
entity that is related to the HMO or CMP by common ownership or control 
and--
    (1) Performs some of the HMO's or CMP's management functions under 
contract or delegation;
    (2) Furnishes services to Medicare enrollees under an oral or 
written agreement; or
    (3) Leases real property or sells materials to the HMO or CMP at a 
cost of more than $2,500 during a contract period.
    (b) Requirement. The contract must provide that the HMO or CMP 
agrees to

[[Page 162]]

require all related entities to agree that--
    (1) HHS, the Comptroller General, or their designees have the right 
to inspect, evaluate, and audit any pertinent books, documents, papers, 
and records of the subcontractor involving transactions related to the 
subcontract; and
    (2) The right under paragraph (b)(1) of this section to information 
for any particular contract period will exist for a period equivalent to 
that specified in Sec. 417.482(f).

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.486  Disclosure of information and confidentiality.

    The contract must provide that the HMO or CMP agrees to the 
following:
    (a) To submit to CMS--
    (1) All financial information required under subpart O of this part 
and for final settlement; and
    (2) Any other information necessary for the administration or 
evaluation of the Medicare program.
    (b) To comply with the requirements set forth in part 420, subpart 
C, of this chapter pertaining to the disclosure of ownership and control 
information.
    (c) To comply with the requirements of the Privacy Act, as 
implemented by 45 CFR part 5b and subpart B of part 401 of this chapter, 
with respect to any system of records developed in performing carrier or 
intermediary functions under Sec. Sec. 417.532 and 417.533.
    (d) To meet the confidentiality requirements of Sec. 482.24(b)(3) 
of this chapter for medical records and for all other enrollee 
information that is--
    (1) Contained in its records or obtained from CMS or other sources; 
and
    (2) Not covered under paragraph (c) of this section.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45680, Sept. 1, 1995]



Sec. 417.488  Notice of termination and of available alternatives: Risk contract.

    A risk contract must provide that the HMO or CMP agrees to give 
notice as follows if the contract is terminated:
    (a) At least 60 days before the effective date of termination, to 
give its Medicare enrollees a written notice that--
    (1) Specifies the termination date; and
    (2) Describes the alternatives available for obtaining Medicare 
services after termination.
    (b) To pay the cost of the written notices.

[60 FR 45680, Sept. 1, 1995]



Sec. 417.490  Renewal of contract.

    A contract with an HMO or CMP is renewed automatically for the next 
12-month period unless CMS or the HMO or CMP decides not to renew, in 
accordance with Sec. 417.492.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.492  Nonrenewal of contract.

    (a) Nonrenewal by the HMO or CMP. (1) If an HMO or CMP does not 
intend to renew its contract, it must--
    (i) Give written notice to CMS at least 90 days before the end of 
the current contract period;
    (ii) Notify each Medicare enrollee by mail at least 60 days before 
the end of the contract period; and
    (iii) Notify the general public at least 30 days before the end of 
the contract period, by publishing a notice in one or more newspapers of 
general circulation in each community or county located in the HMO's or 
CMP's geographic area.
    (2) CMS may accept a nonrenewal notice submitted less than 90 days 
before the end of a contract period if--
    (i) The HMO or CMP notifies its Medicare enrollees and the public in 
accordance with paragraph (a)(1) of this section; and
    (ii) Acceptance would not otherwise jeopardize the effective and 
efficient administration of the Medicare program.
    (b) Nonrenewal by CMS--(1) Notice of nonrenewal. If CMS decides not 
to renew a contract, it gives written notice of nonrenewal as follows:
    (i) To the HMO or CMP at least 90 days before the end of the 
contract period.

[[Page 163]]

    (ii) To the HMO's or CMP's Medicare enrollees at least 60 days 
before the end of the contract period.
    (iii) To the general public at least 30 days before the end of the 
contract period.
    (2) Notice of appeal rights. CMS gives the HMO or CMP written notice 
of its right to appeal the nonrenewal decision, in accordance with 
subpart R of this part, if CMS's decision was based on any of the 
reasons specified in Sec. 417.494(b).

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38079, July 15, 1993; 60 
FR 45681, Sept. 1, 1995]



Sec. 417.494  Modification or termination of contract.

    (a) Modification or termination by mutual consent. (1) CMS and an 
HMO or CMP may modify or terminate a contract at any time by written 
mutual consent.
    (2) If the contract is modified, the HMO or CMP must notify its 
Medicare enrollees of any changes that CMS determines are appropriate 
for notification.
    (3) If the contract is terminated, the HMO or CMP must notify its 
Medicare enrollees, and CMS notifies the general public, at least 30 
days before the termination date.
    (b) Termination by CMS. (1) CMS may terminate a contract for any of 
the following reasons:
    (i) The HMO or CMP has failed substantially to carry out the terms 
of the contract.
    (ii) The HMO or CMP is carrying out the contract in a manner that is 
inconsistent with the effective and efficient implementation of section 
1876 of the Act.
    (iii) The HMO or CMP has failed substantially to comply with the 
composition of enrollment requirements specified in Sec. 417.413(d).
    (iv) CMS determines that the HMO or CMP no longer meets the 
requirements of section 1876 of the Act and this subpart for being an 
HMO or CMP.
    (2) If CMS decides to terminate a contract, it sends a written 
notice informing the HMO or CMP of its right to appeal the termination 
in accordance with subpart R of this part.
    (3) An HMO or CMP with a risk contract must notify its Medicare 
enrollees of the termination as described in Sec. 417.488.
    (4) CMS notifies the HMO's or CMP's Medicare enrollees and the 
general public of the termination at least 30 days before the effective 
date of termination.
    (c) Termination by the HMO or CMP. The HMO or CMP may terminate the 
contract if CMS has failed substantially to carry out the terms of the 
contract.
    (1) The HMO or CMP must notify CMS at least 90 days before the 
effective date of the termination and must include in its notice the 
reasons for the termination.
    (2) The HMO or CMP must notify its Medicare enrollees of the 
termination at least 60 days before the termination date. Risk HMOs or 
CMPs must also provide a written description of alternatives available 
for obtaining Medicare services after termination of the contract. The 
HMO or CMP is responsible for the cost of these notices.
    (3) The HMO or CMP must notify the general public of the termination 
at least 30 days before the termination date.
    (4) The contract is terminated effective 60 days after the HMO or 
CMP mails the notice to Medicare enrollees as required in paragraph 
(c)(2) of this section.
    (5) CMS's liability for payment ends as of the first day of the 
month after the last month for which the contract is in effect.

[50 FR 1346, Jan. 10, 1985, as amended at 52 FR 22322, June 11, 1987; 56 
FR 46571, Sept. 13, 1991; 58 FR 38079, 38082, July 15, 1993; 60 FR 
45681, Sept. 1, 1995]



Sec. 417.500  Sanctions against HMOs and CMPs.

    (a) Basis for imposition of sanctions. CMS may impose the 
intermediate sanctions specified in paragraph (d) of this section, as an 
alternative to termination of contract, if CMS determines that an HMO or 
CMP does one or more of the following:
    (1) Fails substantially to provide the medically necessary services 
required to be provided to a Medicare enrollee and the failure adversely 
affects (or has

[[Page 164]]

a substantial likelihood of adversely affecting) the enrollee.
    (2) Requires Medicare enrollees to pay amounts in excess of premiums 
permitted.
    (3) Acts, in violation of the provisions of subpart K of this part, 
to expel or to refuse to reenroll an individual.
    (4) Engages in any practice that could reasonably be expected to 
have the effect of denying or discouraging enrollment (except as 
permitted by subpart K of this part) by eligible individuals whose 
medical conditions or histories indicate a need for substantial future 
medical services.
    (5) Misrepresents or falsifies information that it furnishes under 
this part to CMS, an individual, or to any other entity.
    (6) Fails to comply with the requirements of section 1876(g)(6)(A) 
of the Act relating to the prompt payment of claims.
    (7) Fails to meet the requirement in section 1876(f)(1) of the Act 
that not more than 50 percent of the organization's enrollment be 
Medicare beneficiaries and Medicaid recipients.
    (8) Has a Medicare risk contract and--
    (i) Employs or contracts with individuals or entities excluded from 
participation in Medicare under section 1128 or section 1128A of the Act 
for the provision of health care, utilization review, medical social 
work, or administrative services; or
    (ii) Employs or contracts with any entity for the provision of those 
services (directly or indirectly) through an excluded individual or 
entity.
    (9) Fails to comply with the requirements of Sec. Sec. 417.479(d) 
through (i) relating to physician incentive plans.
    (b) Notice of sanction and opportunity to respond--(1) Notice of 
sanction. Before imposing the intermediate sanctions specified in 
paragraph (d) of this section, CMS--
    (i) Sends a written notice to the HMO or CMP stating the nature and 
basis of the proposed sanction; and
    (ii) Sends the OIG a copy of the notice (other than a notice 
regarding the restriction on Medicare and Medicaid enrollees as 
described in paragraph (a)(7) of this section), once the sanction has 
been confirmed following the notice period or the reconsideration.
    (2) Opportunity to respond. CMS allows the HMO or CMP 15 days from 
receipt of the notice to provide evidence that it has not committed an 
act or failed to comply with a requirement described in paragraph (a) of 
this section, as applicable. CMS may allow a 15-day addition to the 
original 15 days upon receipt of a written request from the HMO or CMP. 
To be approved, the request must provide a credible explanation of why 
additional time is necessary and be received by CMS before the end of 
the 15-day period following the date of receipt of the sanction notice. 
CMS does not grant an extension if it determines that the HMO's or CMP's 
conduct poses a threat to an enrollee's health and safety.
    (c) Informal reconsideration. If, consistent with paragraph (b)(2) 
of this section, the HMO or CMP submits a timely response to CMS's 
notice of sanction, CMS conducts an informal reconsideration that:
    (1) Consists of a review of the evidence by a CMS official who did 
not participate in the initial decision to impose a sanction; and
    (2) Gives the HMO or CMP a concise written decision setting forth 
the factual and legal basis for the decision that affirms or rescinds 
the original determination.
    (d) Specific sanctions. If CMS determines that an HMO or CMP has 
acted or failed to act as specified in paragraph (a) of this section and 
affirms this determination in accordance with paragraph (c) of this 
section, CMS may--
    (1) Require the HMO or CMP to suspend acceptance of applications for 
enrollment made by Medicare beneficiaries during the sanction period;
    (2) Suspend payments to the HMO or CMP for Medicare beneficiaries 
enrolled during the sanction period; and
    (3) Require the HMO or CMP to suspend all marketing activities to 
Medicare enrollees.
    (e) Effective date and duration of sanctions--(1) Effective date. 
Except as provided in paragraph (e)(2) of this section, a sanction is 
effective 15 days after the date that the organization is notified of 
the decision to impose the

[[Page 165]]

sanction or, if the HMO or CMP timely seeks reconsideration under 
paragraph (c) of this section, on the date specified in the notice of 
CMS's reconsidered determination.
    (2) Exception. If CMS determines that the HMO's or CMP's conduct 
poses a serious threat to an enrollee's health and safety, CMS may make 
the sanction effective on a date before issuance of CMS's reconsidered 
determination.
    (3) Duration of sanction. The sanction remains in effect until CMS 
notifies the HMO or CMP that CMS is satisfied that the basis for 
imposing the sanction has been corrected and is not likely to recur.
    (f) Termination by CMS. In addition to or as an alternative to the 
sanctions described in paragraph (d) of this section, CMS may decline to 
renew a HMO's or CMP's contract in accordance with Sec. 417.492(b), or 
terminate the contract in accordance with Sec. 417.494(b).
    (g) Civil money penalties. If CMS determines that a HMO or CMP has 
committed an act or failed to comply with a requirement described in 
paragraph (a) of this section (with the exception of the requirement to 
limit the percentage of Medicare and Medicaid enrollees described in 
paragraph (a)(7) of this section), CMS notifies the OIG of that 
determination. CMS also conveys to the OIG information when it reverses 
or terminates a sanction imposed under this subpart. In accordance with 
the provisions of 42 CFR part 1003, the OIG may impose civil money 
penalties on the HMO or CMP in addition to or in place of the sanctions 
that CMS may impose under paragraph (d) of this section.

[59 FR 36083, July 15, 1994, as amended at 60 FR 45681, Sept. 1, 1995; 
61 FR 13448, Mar. 27, 1996]



   Subpart M_Change of Ownership and Leasing of Facilities: Effect on 
                            Medicare Contract



Sec. 417.520  Effect on HMO and CMP contracts.

    (a) The provisions set forth in subpart L of part 422 of this 
chapter also apply to Medicare contracts with HMOs and CMPs under 
section 1876 of the Act.
    (b) In applying these provisions, references to ``M+C 
organizations'' must be read as references to ``HMOs and CMPs''.
    (c) In Sec. 422.550, reference to ``subpart K of this part'' must 
be read as reference to ``subpart L of part 417 of this chapter''.
    (d) In Sec. 422.553, reference to ``subpart K of this part'' must 
be read as reference to ``subpart J of part 417 of this chapter''.

[63 FR 35067, June 26, 1998]



       Subpart N_Medicare Payment to HMOs and CMPs: General Rules



Sec. 417.524  Payment to HMOs or CMPs: General.

    (a) Basic rule. The payments that CMS makes to an HMO or CMP under 
this subpart and subparts O and P of this part for furnishing covered 
Medicare services are in place of any payment that CMS would otherwise 
make to a beneficiary or the HMO or CMP under sections 1814(b) and 
1833(a) of the Act.
    (b) Basis of payment. (1) CMS pays the HMOs or CMPs on either a 
reasonable cost basis or a risk basis depending on the type of contract 
the HMO or CMP has with CMS.
    (2) In certain cases a risk HMO or CMP also receives payments on a 
reasonable cost basis for certain Medicare enrollees who retain nonrisk 
status, as provided in Sec. 417.444, after the HMO or CMP enters into a 
risk contract.

[60 FR 46229, Sept. 6, 1995]



Sec. 417.526  Payment for covered services.

    Subpart O of this part set forth the principles that CMS follows in 
determining Medicare payment to an HMO or CMP that has a reasonable cost 
contract. Subpart P of this part describes the per capita method of 
Medicare payment to HMOs or CMPs that contract on a risk basis.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985; as amended at 58 
FR 38080, July 15, 1993; 60 FR 46229, Sept. 6, 1995]

[[Page 166]]



Sec. 417.528  Payment when Medicare is not primary payer.

    (a) Limits on payments and charges. (1) CMS may not pay for services 
to the extent that Medicare is not the primary payer under section 
1862(b) of the Act and part 411 of this chapter.
    (2) The circumstances under which an HMO or CMP may charge, or 
authorize a provider to charge, for covered Medicare services for which 
Medicare is not the primary payer are stated in paragraphs (b) and (c) 
of this section.
    (b) Charge to other insurers or the enrollee. If a Medicare enrollee 
receives from an HMO or CMP covered services that are also covered under 
State or Federal worker's compensation, automobile medical, or any no-
fault insurance, or any liability insurance policy or plan, including a 
self-insured plan, the HMO or CMP may charge, or authorize a provider 
that furnished the service to charge--
    (1) The insurance carrier, employer, or other entity that is liable 
to pay for these services; or
    (2) The Medicare enrollee, to the extent that he or she has been 
paid by the carrier, employer, or other entity.
    (c) Charge to group health plans (GHPs) or large group health plans 
(LGHPs). An HMO or CMP may charge a GHP or LGHP for covered services it 
furnished to a Medicare enrollee and may charge the Medicare enrollee to 
the extent that he or she has been paid by the GHP or LGHP for these 
covered services if--
    (1) The Medicare enrollee is covered under the plan; and
    (2) Under section 1862(b) of the Act, CMS is precluded from paying 
for the covered services .
    (d) Responsibilities of HMO or CMP. An HMO or CMP must--
    (1) Identify payers that are primary to Medicare under section 
1862(b) of the Act;
    (2) Determine the amounts payable by these payers; and
    (3) Coordinate the benefits of its Medicare enrollees with these 
payers.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38080, July 15, 1993; 60 
FR 46229, Sept. 6, 1995]



                 Subpart O_Medicare Payment: Cost Basis

    Source: 50 FR 1346, Jan. 10, 1985, unless otherwise noted.



Sec. 417.530  Basis and scope.

    This subpart sets forth the principles that CMS follows to determine 
the amount it pays for services furnished by a cost HMO or CMP to its 
Medicare enrollees. These principles are based on sections 1861(v) and 
1876 of the Act and are, for the most part, the same as those set 
forth--
    (a) In part 412 of this chapter, for paying the costs of inpatient 
hospital services which, for cost HMOs and CMPs, are considered 
``reasonable'' only if they do not exceed the amounts allowed under the 
prospective payment system; and
    (b) In part 413 of this chapter, for the costs of all other covered 
services.

[60 FR 46230, Sept. 6, 1995]



Sec. 417.531  Hospice care services.

    (a) If a Medicare enrollee of an HMO or CMP with a reasonable cost 
contract makes an election under Sec. 418.24 of this chapter to receive 
hospice care services, payment for these services is made to the hospice 
that furnishes the services in accordance with part 418 of this chapter.
    (b) While the enrollee's hospice election is in effect, CMS pays the 
HMO or CMP on a reasonable cost basis for only the following covered 
Medicare services furnished to the Medicare enrollee:
    (1) Services of the enrollee's attending physician if the physician 
is an employee or contractor of the HMO or CMP and is not employed by or 
under contract to the enrollee's hospice.
    (2) Services not related to the treatment of the terminal condition 
for which hospice care was elected or a condition related to the 
terminal condition.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46230, Sept. 6, 1995]



Sec. 417.532  General considerations.

    (a) Conditions and criteria for payment. (1) The costs incurred by 
the HMO or

[[Page 167]]

CMP to furnish services covered by Medicare are reimbursable if they 
are--
    (i) Proper and necessary;
    (ii) Reasonable in amount; and
    (iii) Except as provided in Sec. 417.550, appropriately apportioned 
among the HMO's or CMP's Medicare enrollees, other enrollees, and 
nonenrolled patients.
    (2) In determining fair and equitable payment for the HMOs or CMPs, 
CMS generally applies the cost payment principles set forth in Sec. 
413.5 of this chapter.
    (3) In judging whether costs are reasonable, CMS applies the 
weighted average of the AAPCCs of each class of the HMO's or CMP's 
Medicare enrollees (as defined in Sec. 417.582) for the HMO's or CMP's 
geographic area as an absolute limitation on the total amount payable.
    (b) Method and amount of payment to the HMO or CMP. (1) CMS makes 
interim per capita payments each month for each Medicare enrollee, 
equivalent to the interim per capita cost rate determined in accordance 
with Sec. 417.570.
    (2) CMS adjusts the interim per capita rate as necessary during the 
contract period and makes final adjustments at the end of the contract 
period.
    (3) In determining the amount due the HMO or CMP, CMS deducts from 
the reasonable cost actually incurred by the HMO or CMP for covered 
services furnished to its Medicare enrollees, an amount equal to the 
actuarial value of the applicable Medicare Part A and Part B deductible 
and coinsurance amounts that would have applied to the covered services 
for which payment is being made if these enrollees had not enrolled in 
the HMO or CMP or another HMO or CMP.
    (c) Election by HMO or CMP. An HMO or CMP must elect, on an 
individual provider basis, one of the following methods for payment for 
hospital and SNF services it furnishes to Medicare enrollees:
    (1) Direct payment by CMS.
    (2) Direct payment by the HMO or CMP.
    (d) Notice of election. The election must be made in writing before 
the beginning of the contract period and is binding for that period.
    (e) Payment by HMO or CMP. If the HMO or CMP elects to pay providers 
directly, as provided in paragraph (c) of this section, it must--
    (1) Determine the eligibility of its Medicare enrollees to receive 
covered services through the HMO or CMP;
    (2) Make proper coverage decisions and appropriate payments, in 
accordance with Sec. Sec. 421.100 and 421.200 of this chapter, for the 
services furnished to its Medicare enrollees;
    (3) Ensure that providers maintain and furnish appropriate 
documentation of physician certification and recertification, to the 
extent required under subpart B of part 424 of this chapter; and
    (4) Carry out any other procedures required by CMS.
    (f) Review of HMO's or CMP's bill processing capabilities. If the 
HMO or CMP elects to pay providers directly, CMS determines whether the 
HMO or CMP has the experience and capability to carry out the 
responsibilities specified in paragraph (e) of this section in an 
efficient and effective manner.
    (g) Direct payment by CMS. (1) If the HMO or CMP elects to have CMS 
pay for provider services, CMS pays each provider on a reasonable cost 
basis or under the PPS system, whichever is appropriate for the 
particular provider under part 412 or part 413 of this chapter.
    (2) In computing the Medicare payment to the HMO or CMP, CMS deducts 
these payments and any other payments made by the Medicare intermediary 
or carrier on behalf of the HMO or CMP (such as payment for emergency or 
urgently needed services under Sec. 417.558).
    (h) Payment for services furnished to Medicare beneficiaries not 
enrolled in the HMO or CMP. CMS pays the HMO or CMP for services it 
furnishes to Medicare beneficiaries who are not its enrollees through 
the HMO's or CMP's Medicare intermediary or carrier, as appropriate.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 53 
FR 6648, Mar. 2, 1988; 58 FR 38082, July 15, 1993; 60 FR 46230, Sept. 6, 
1995]

[[Page 168]]



Sec. 417.533  Part B carrier responsibilities.

    In paying for Part B services furnished to its enrollees by 
suppliers, the HMO or CMP must--
    (a) Determine the eligibility of individuals to receive those 
services through the HMO or CMP;
    (b) Make proper coverage decisions and appropriate payment as 
authorized under Sec. 421.200 of this chapter for the services for 
which its Medicare enrollees are eligible; and
    (c) Carry out any other procedures that CMS may require.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46230, Sept. 6, 1995]



Sec. 417.534  Allowable costs.

    (a) Definition--Allowable costs means the direct and indirect costs, 
including normal standby costs incurred by the HMO or CMP, that are 
proper and necessary for efficient delivery of needed health care 
services. They include the costs of furnishing services to the HMO's or 
CMP's Medicare enrollees, other enrollees, and nonenrolled patients, 
which are typical ``provider'' costs, and costs (such as marketing, 
enrollment, membership, and operation of the HMO or CMP) that are 
peculiar to health care prepayment organizations.
    (b) Basic rules. (1) The allowability of an HMO's or CMP's costs for 
furnishing services is generally determined in accordance with 
principles applicable to provider costs, as set forth in Sec. 417.536.
    (2) The allowability of other costs is determined in accordance with 
principles set forth in Sec. Sec. 417.538 through 417.550.
    (3) Costs for covered services for which Medicare is not the primary 
payor, as described in Sec. 417.528, are not allowable.
    (c) Medicare Part D program costs. To the extent that an HMO or CMP 
provides qualified prescription drug coverage to enrollees under Part D, 
no costs related to the offering or provision of Part D benefits are 
reimbursed under this part. These costs are reimbursed solely under the 
applicable provisions of part 423 of this chapter.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 70 
FR 4525, Jan. 28, 2005]



Sec. 417.536  Cost payment principles.

    (a) Applicability. Unless otherwise specified in this subpart, the 
principles set forth in parts 412 and 413 of this chapter are applicable 
to the costs incurred by an HMO or CMP or by providers and other 
facilities owned or operated by the HMO or CMP or related to it by 
common ownership or control. The most common examples of these costs are 
set forth in this section.
    (b) Depreciation. An appropriate allowance for depreciation on 
buildings and equipment is an allowable cost, in accordance with 
Sec. Sec. 413.134, 413.144, and 413.149 of this chapter.
    (c) Interest expense. Necessary and proper interest on both current 
and capital indebtedness is an allowable cost, in accordance with Sec. 
413.153 of this chapter.
    (d) Cost of educational activities. An appropriate part of the net 
cost of approved educational activities of a provider or other health 
care facility owned or operated by an HMO or CMP is an allowable cost in 
accordance with Sec. 413.85 of this chapter.
    (e) Compensation of owners. An appropriate amount of compensation 
for services of owners is an allowable cost, if the services are 
actually performed and are necessary, as specified in Sec. 413.102 of 
this chapter.
    (f) Bad debts. (1) In accordance with Sec. 413.80 of this chapter, 
bad debts are deductions from revenue and may be included as allowable 
costs only if--
    (i) They are attributable to Medicare deductible and coinsurance 
amounts for which the Medicare enrollee is liable; and
    (ii) The HMO or CMP has made a reasonable, but unsuccessful, effort 
to collect those amounts.
    (2) If all or part of the deductible and coinsurance amounts is 
payable through a monthly premium or other periodic payment, the amount 
allowed as a bad debt may not exceed three times the monthly rate for 
the actuarial value of the deductible and coinsurance amounts, or its 
equivalent, if

[[Page 169]]

the periodic payment is on other than a monthly basis.
    (3) Any bad debt related to a service furnished to a Medicare 
enrollee of the HMO or CMP, and claimed on a cost report submitted for 
payment by a provider or other facility reimbursed on a cost basis, may 
not be claimed as a bad debt by the HMO or CMP.
    (g) Charity and courtesy allowances. As specified in Sec. 413.80 of 
this chapter, charity and courtesy allowances are deductions from 
revenue and may not be included as allowable costs.
    (h) Research costs. As specified in Sec. 413.90 of this chapter, 
costs incurred for research purposes, over and above patient care, are 
not allowable costs.
    (i) Value of services of nonpaid workers. The value of services of 
nonpaid workers of an organization is not an allowable cost, except as 
provided in Sec. 413.94 of this chapter.
    (j) Purchase discounts and allowances and refund of expenses. 
Discounts and allowances that an HMO or CMP receives on purchases of 
goods and services and refunds of previous expense payments must be 
deducted from the costs to which they relate, in accordance with Sec. 
413.98 of this chapter.
    (k) Cost to related entities. (1) The costs of services, facilities, 
or supplies furnished to an HMO or CMP by a related entity are allowable 
at the cost to the related entity in accordance with Sec. 413.17 of 
this chapter.
    (2) An entity is not considered related to the HMO or CMP merely 
because--
    (i) It has a risk or incentive agreement under which the HMO or CMP 
reimburses or compensates the entity for services it furnishes to the 
HMOs' or CMPs' enrollees; or
    (ii) Substantially all the services the entity furnishes are 
furnished to the HMO's or CMP's enrollees.
    (3) However, an entity described in paragraph (k)(2) of this section 
and an HMO or CMP are considered related if either of them is in a 
position to exercise significant management or ownership influence or 
control over the other.
    (l) Return on equity capital of proprietary providers owned by the 
HMO or CMP. An allowance for a reasonable return on equity capital 
invested and used in providing services is allowable in addition to the 
reasonable cost of services furnished by a proprietary provider owned by 
the HMO or CMP. The amount of the allowance is determined in accordance 
with Sec. 413.157 of this chapter.
    (m) Limitations on payment. Medicare payment for covered services 
furnished by entities owned by or operated by, or related to, an HMO or 
CMP paid on a reasonable cost basis is subject to certain provisions of 
parts 412 and 413 of this chapter that pertain to reasonable cost and 
reasonable charge. Those provisions include, but are not necessarily 
limited to, the following:
    (1) For ESRD treatment, the limitations authorized under Sec. 
413.170 of this chapter.
    (2) For services of physical, occupational, and speech therapists 
and other therapists and nonphysician health specialists, the 
limitations set forth in Sec. 413.106 of this chapter.
    (3) For drugs, the allowable cost as determined under Sec. Sec. 
405.517 and 410.29 of this chapter.
    (4) The overall cost limits established in accordance with Sec. 
413.30 of this chapter.
    (5) The limitation to the lesser of reasonable cost or customary 
charges, as set forth in Sec. 413.13 of this chapter.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 51 
FR 34832, Sept. 30, 1986; 51 FR 37398, Oct. 22, 1986; 58 FR 38080, July 
15, 1993; 60 FR 46230, Sept. 6, 1995]



Sec. 417.538  Enrollment and marketing costs.

    (a) Principle. Costs incurred by an HMO or CMP in performing the 
enrollment and marketing activities described in subpart k of this part 
are allowable.
    (b) Included costs. Allowable enrollment and marketing costs are 
those necessary and proper costs incurred in offering the HMO's or CMP's 
plan to potential enrollees in accordance with this part. Those costs 
include selling, advertising, promotional, and other marketing costs and 
may not exceed an amount that would be incurred by a prudent and cost-
conscious management.

[[Page 170]]

    (c) Application. Enrollment and marketing costs are allowable, 
whether incurred directly by HMO or CMP staff or under contract with 
marketing specialists or other outside consultants.
    (d) Limitation on payment. The relatively higher costs that an HMO 
or CMP is likely to incur in initially offering its plan to Medicare 
beneficiaries are taken into account in determining whether enrollment 
and marketing costs are reasonable in amount. However, if those costs 
exceed amounts that would be paid by prudent management, the excess is 
not allowable.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46230, Sept. 6, 1995]



Sec. 417.540  Enrollment costs.

    (a) Principle. Enrollment costs are allowable if incurred in 
maintaining and servicing subscriber contracts for prepayment enrollees.
    (b) Kind of costs included. Enrollment costs include, but are not 
limited to, reasonable costs incurred in connection with maintaining 
statistical, financial, and other data on enrollees.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.542  Reinsurance costs.

    Reinsurance costs are not allowable.



Sec. 417.544  Physicians' services furnished directly by the HMO or CMP.

    (a) Principles. (1) Compensation paid by an HMO or CMP to physicians 
is an allowable cost to the extent that it is commensurate with the 
compensation paid for similar services performed by similar physicians 
practicing in the same or a similar locality.
    (2) Physician compensation may take various forms, but the aggregate 
compensation allowable must be reasonable in relation to the services 
personally furnished.
    (3) If aggregate physician compensation costs exceed what is 
normally incurred, the excess is not a reasonable cost.
    (b) Application. (1) In determining the allowability of the costs of 
physicians' services, the cost of personal services (for example, 
expenses attributable to salaries, wages, incentive payments, fringe 
benefits) must be distinguished from the cost of nonpersonal services 
(for example, expenses attributable to facilities, equipment, support 
personnel, supplies).
    (2) To be allowable, compensation must be reasonable in relation to 
the personal services furnished.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46230, Sept. 6, 1995]



Sec. 417.546  Physicians' services and other Part B supplier services furnished under arrangements.

    General principle. The amount paid by an HMO or CMP for physicians' 
services and other Part B supplier services furnished under arrangements 
is an allowable cost to the extent it is reasonable. Costs are 
considered reasonable if they--
    (a) Do not exceed those that a prudent and cost-conscious buyer 
would incur to purchase those services; and
    (b) Are comparable to costs incurred for similar services furnished 
by similar physicians or other suppliers in the same or a similar 
geographic area.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 34887, July 5, 1995; 60 FR 45372, Aug. 31, 1995]



Sec. 417.548  Provider services through arrangements.

    (a) Principle. The cost incurred by an HMO or CMP for covered 
services furnished under arrangement with a provider is allowable to the 
extent that it would be allowable and payable under parts 412 and 413 of 
this chapter, unless the HMO or CMP petitions CMS and demonstrates to 
HFCA's satisfaction that payment in excess of the amount authorized 
under parts 412 and 413 of this chapter is justified on the basis of 
advantages gained by the HMO or CMP.
    (b) Application. An advantage gained must represent a real and 
tangible benefit received by the HMO or CMP for the excess cost 
incurred, and any excess payment is subject to other applicable 
requirements of parts 405, 412 and 413 of this chapter, including tests 
of reasonableness.
    (c) Example. In the case of an arrangement an HMO or CMP has with a 
provider that is located outside the

[[Page 171]]

HMO's or CMP's geographic area and that is not related to the HMO or CMP 
by common ownership or control, payment of the provider's charges to the 
HMO or CMP (rather than the payment amounts determined under part 412 or 
part 413 of this chapter) may be justified in exchange for the 
advantages of not having to incur the administrative costs of 
determining the provider's reasonable cost and of making a more timely 
final settlement with the HMO or CMP. However, repayment of the 
provider's charges would be acceptable only if--
    (1) The provider furnishes services to the HMO's or CMP's enrollees 
infrequently;
    (2) The charges represent an insignificant portion of total Medicare 
reimbursement to the HMO or CMP; and
    (3) The charges do not exceed the customary charges by the provider 
to its other patients for similar services.

[50 FR 1346, Jan. 10, 1985, as amended at 51 FR 34832, Sept. 30, 1986; 
58 FR 38080, July 15, 1993; 60 FR 46230, Sept. 6, 1995]



Sec. 417.550  Special Medicare program requirements.

    (a) Principle. CMS pays the full reasonable cost incurred by an HMO 
or CMP for activities that are solely for Medicare purposes and unique 
to Medicare contracts under section 1876 of the Act.
    (b) Application. CMS pays the full reasonable cost of the following 
activities:
    (1) Reporting increases and decreases in the number of Medicare 
enrollees.
    (2) Obtaining independent certification of the HMO's or CMP's cost 
report to the extent that it is for Medicare purposes.
    (3) Reporting special data that CMS requires solely for program 
planning and evaluation.
    (c) Prior approval requirement. The costs specified in paragraph (b) 
of this section must be separately budgeted and approved by CMS before 
the contract period begins.
    (d) Limit on full payment. Full payment is limited to the costs 
specified in paragraph (b) of this section. All other administrative 
costs must be apportioned in accordance with Sec. 417.552.

[60 FR 46230, Sept. 6, 1995]



Sec. 417.552  Cost apportionment: General provisions.

    (a) Basic rule. The HMO or CMP must apportion its total allowable 
direct and indirect costs among its Medicare enrollees, its other 
enrollees, and its nonenrolled patients--
    (1) In accordance with this subpart; and
    (2) Using methods approved by CMS.
    (b) Purpose of apportionment. The purpose of apportionment is to 
ensure that--
    (1) The cost of services furnished to Medicare enrollees is not 
borne by other enrollees and nonenrolled patients; and
    (2) The cost of the services furnished to other enrollees and 
nonenrolled patients is not borne by Medicare.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46230, Sept. 6, 1995]



Sec. 417.554  Apportionment: Provider services furnished directly by the HMO or CMP.

    The Medicare share of the cost of covered services furnished to 
Medicare enrollees by providers that are owned or operated by the HMO or 
CMP or are related to the HMO or CMP by common ownership or control must 
be determined in accordance with the apportionment methods set forth in 
part 412, Sec. Sec. 413.24, 413.55, and 415.55 of this chapter.

[51 FR 28574, Aug. 8, 1986, as amended at 51 FR 34832, Sept. 30, 1986; 
58 FR 38082, July 15, 1993; 60 FR 46231, Sept. 6, 1995; 60 FR 63189, 
Dec. 8, 1995]



Sec. 417.556  Apportionment: Provider services furnished by the HMO or CMP through arrangements with others.

    The Medicare share of the cost of covered services furnished to 
Medicare enrollees through arrangements with providers other than those 
specified in Sec. 417.554 must be determined as follows:
    (a) The Medicare share must be based on the cost the HMO or CMP pays 
the provider under their arrangement, to the extent that cost is 
reasonable and within the limits established by Sec. Sec. 417.534 
through 417.548.
    (b) Except as specified in paragraph (c) of this section, 
apportionment must

[[Page 172]]

be on the same approved basis that is used by the provider for Medicare 
beneficiaries who are not Medicare enrollees of the HMO or CMP, subject 
to the conditions and limitations set forth in Sec. 417.548.
    (c) If, because of the special nature or terms of the HMO's or CMP's 
arrangement with the provider, apportionment on the basis specified in 
paragraph (b) of this section would result in Medicare's bearing the 
costs of furnishing services to individuals other than the HMO's or 
CMP's Medicare enrollees, apportionment must be on another basis that is 
approved by CMS and that will ensure that Medicare does not pay any of 
the cost of furnishing services to individuals who are not Medicare 
enrollees of the HMO or CMP.
    (d) If the HMO or CMP elects to have providers reimbursed by the 
HMO's or CMP's Medicare intermediary, the Medicare share is the amount 
the intermediary paid the provider.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.558  Emergency, urgently needed, and out-of-area services for which the HMO or CMP accepts responsibility.

    (a) Source of payment. Either CMS or the HMO or CMP may pay a 
provider for emergency or urgently needed services or other covered out-
of-area services for which the HMO or CMP accepts responsibility.
    (b) Limits on payment. If the HMO or CMP pays, the payment amount 
may not exceed the amount that is allowable under part 412 or part 413 
of this chapter.
    (c) Exception to limit on payment. Payment in excess of the limit 
imposed by paragraph (b) of this section is allowable only if the HMO or 
CMP demonstrates to CMS's satisfaction that it is justified on the basis 
of advantages gained by the HMO or CMP, as set forth in Sec. 417.548.

[60 FR 46231, Sept. 6, 1995]



Sec. 417.560  Apportionment: Part B physician and supplier services.

    (a) Medical services furnished directly by the HMO or CMP. The total 
allowable cost of Part B physician and supplier services furnished by 
employees or partners of the HMO or CMP or by a related entity of the 
HMO or CMP must be apportioned on the basis of the ratio of covered Part 
B services furnished to Medicare enrollees to total services furnished 
to all the HMO's or CMP's enrollees and nonenrolled patients. The HMO or 
CMP must use a method for reporting costs that is approved by CMS. CMS 
bases its approval on a finding that the method--
    (1) Results in an accurate and equitable allocation of allowable 
costs; and
    (2) Is justifiable from an administrative and cost efficiency 
standpoint.
    (b) Medical services furnished under arrangements made by the HMO or 
CMP. When the HMO or CMP pays for Part B physician and supplier services 
on some basis other than fee-for-service, the reasonable cost the HMO or 
CMP pays under its financial arrangement with the physician or supplier 
must be apportioned between Medicare enrollees and others based on the 
ratio of covered services furnished to Medicare enrollees to the total 
services furnished to all enrollees and nonenrolled patients. If 
apportionment on this basis would result in Medicare bearing the cost of 
furnishing services to individuals who are not Medicare enrollees, the 
Medicare share must be determined on another basis (approved by CMS) to 
ensure that Medicare pays only for services furnished to Medicare 
enrollees.
    (c) Medical services furnished under an arrangement that provides 
for the HMO or CMP to pay on a fee-for-service basis. The Medicare share 
of the cost of Part B physician and supplier services furnished to 
Medicare enrollees under arrangements, and paid for by the HMO or CMP on 
a fee-for-service basis, is determined by multiplying the total amount 
for all such services by the ratio of charges for covered services 
furnished to Medicare enrollees to the total charges for all such 
services.
    (d) Emergency services, urgently needed services, and other covered 
medical services for which the HMO or CMP assumes financial 
responsibility. The Medicare share of the cost of Part B emergency or 
urgently needed services or other Part B services that are not furnished 
by a provider and for which the HMO or CMP accepts financial 
responsibility is

[[Page 173]]

determined in accordance with paragraphs (b) and (c) of this section.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 34888, July 5, 1995]



Sec. 417.564  Apportionment and allocation of administrative and general costs.

    (a) Costs not directly associated with providing medical care. 
Enrollment, marketing, and other administrative and general costs that 
benefit the total enrollment of the HMO or CMP and are not directly 
associated with furnishing medical care must be apportioned on the basis 
of a ratio of Medicare enrollees to the total HMO or CMP enrollment.
    (b) Costs significantly related to providing medical services. (1) 
The following administrative and general costs, which bear a significant 
relationship to the services furnished, are not apportioned to Medicare 
directly; they must be allocated or distributed to the HMO or CMP 
components and then apportioned to Medicare in accordance with 
Sec. Sec. 417.552 through 417.560:
    (i) Facility costs.
    (ii) Interest expense.
    (iii) Medical record costs.
    (iv) Centralized purchasing costs.
    (v) Accounting and data processing costs.
    (vi) Other administrative and general costs that are not included in 
paragraph (a) of this section.
    (2) The allocation or distribution process must be as follows:
    (i) If a separate entity or department of an HMO or CMP performs 
administrative functions the benefit of which can be quantitatively 
measured (such as centralized purchasing and data processing), the total 
allowable costs of this entity or department must be allocated or 
distributed to the components of the HMO or CMP in reasonable proportion 
to the benefits received by these components.
    (ii) If a separate entity or department of an HMO or CMP performs 
administrative functions the benefit of which cannot be quantitatively 
measured (such as facility costs), the total allowable costs of this 
entity or department must be allocated or distributed to the components 
of the HMO or CMP on the basis of a ratio of total incurred and 
distributed costs per component to the total incurred and distributed 
costs for all components.

[60 FR 46231, Sept. 6, 1995]



Sec. 417.566  Other methods of allocation and apportionment.

    (a) Justification. A method of apportionment or allocation of costs, 
other than the methods prescribed in this subpart may be used if it 
results in a more accurate and equitable apportionment of allowable 
costs and is justifiable from an administrative and cost standpoint.
    (b) Required approval. (1) An HMO or CMP that desires to use an 
alternative method must submit a written request for CMS approval at 
least 90 days before the beginning of the period for which the different 
method is to be used.
    (2) If CMS approves use of a different method, the HMO or CMP may 
not revert to another method without first obtaining CMS's approval.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.568  Adequate financial records, statistical data, and cost finding.

    (a) Maintenance of records. (1) An HMO or CMP must maintain 
sufficient financial records and statistical data for proper 
determination of costs payable by CMS for covered services the HMO or 
CMP furnished to its Medicare enrollees either directly or under 
arrangements with others. These include accurate and sufficient detail 
of incurred costs and enrollment data.
    (2) Unless otherwise provided for in this subpart, the HMO or CMP 
must follow standardized definitions and accounting, statistics, and 
reporting practices that are widely accepted in the health care 
industry.
    (b) Provision of data. (1) The HMO or CMP must provide adequate cost 
and statistical data, based on its financial and statistical records, 
that can be verified by qualified auditors.
    (2) The cost data must be based on an approved method of cost 
finding and, except as provided in paragraph (b)(3) of this section, on 
the accrual method of accounting.

[[Page 174]]

    (3) For governmental institutions that use a cash basis of 
accounting, cost data developed on this basis is acceptable. However, 
only depreciation on capital assets, rather than the expenditure for the 
capital asset, is allowable.
    (c) Provider services furnished directly by the HMO or CMP. If the 
HMO or CMP furnishes provider services directly, the provider is subject 
to the cost-finding and cost-reporting requirements set forth in parts 
412 and 413 of this chapter. The provider must use an approved cost-
finding method described in Sec. 413.24 of this chapter to determine 
the actual cost of these covered services.
    (d) Supplier services furnished directly by the HMO or CMP. If the 
HMO or CMP furnishes Part B physician and supplier services directly, it 
must furnish statistics that indicate the frequency and type of service 
provided, in the form and detail prescribed by CMS.
    (e) Part B physician and supplier services furnished through 
arrangement. If the HMO or CMP furnishes Part B physician and supplier 
services under arrangements with others, it must furnish to CMS 
statistical, financial, and other information with respect to those 
services in the form and detail prescribed by CMS.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46231, Sept. 6, 1995]



Sec. 417.570  Interim per capita payments.

    (a) Principle of payment. (1) CMS makes monthly advance payments 
equivalent to the HMO's or CMP's interim per capita rate for each 
beneficiary who is registered in CMS records as a Medicare enrollee of 
the HMO or CMP.
    (2) Additional lump-sum payments may be made at other times during 
the contract period, at CMS's discretion, to adjust the total amounts 
paid during the contract period to the level of incurred costs.
    (b) Determination of rate. The interim per capita rate of payment is 
equal to the estimated per capita cost of providing covered services to 
the HMO's or CMP's Medicare enrollees, based upon the types and 
components of costs that are reimbursable under this part. The interim 
per capita rate is determined annually by CMS on the basis of the HMO's 
or CMP's annual operating and enrollment forecast (as set forth in Sec. 
417.572) and may be revised during the contract period as explained in 
paragraphs (c) and (d) of this section.
    (c) Adjustments of payments. In order to maintain the interim 
payments at the level of current reasonable costs, CMS will adjust the 
interim per capita rate, to the extent necessary, on the basis of 
adequate data supplied by the HMO or CMP in its interim estimated cost 
and enrollment reports or on other evidence showing that the rate based 
on actual costs is more or less than the current rate. Adjustments may 
also be made if there is--
    (1) A change in the number of Medicare enrollees that affects the 
per capita rate;
    (2) A material variation from the costs estimated when the annual 
operating budget was prepared; or
    (3) A significant change in the use of covered services by the HMO's 
or CMP's Medicare enrollees.
    (d) Reduction of interim payments. If the HMO or CMP does not 
submit, on time, the reports and other data required to determine the 
proper amount of payment, CMS may reduce interim payments to the extent 
appropriate, or may take any other action authorized under this part. An 
interim payment reduction remains in effect until CMS can make a 
reasonable estimate of per capita costs.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.572  Budget and enrollment forecast and interim reports.

    (a) Annual submittal. The HMO or CMP must submit an annual operating 
budget and enrollment forecast, in the form and detail required by CMS, 
at least 90 days before the beginning of each contract period. The 
forecast must be based on financial and statistical data and records 
that can be verified if CMS requires a detailed review of supporting 
records. The data and records include, but are not limited to, all 
ledgers, books, records, and original evidence of costs, and statistical 
data used in the determination of reasonable cost.

[[Page 175]]

    (b) Effect of failure to submit on time. If the HMO or CMP does not 
submit the budget and enrollment forecast on time, CMS may--
    (1) Establish an interim per capita rate of payment on the basis of 
the best available data and adjust payments on the basis of that rate 
until the required reports are submitted and a new interim per capita 
rate can be established; or
    (2) If there is not enough data on which to base an interim per 
capita rate, inform the HMO or CMP that interim payments will not be 
made until the required reports are submitted.
    (c) Interim cost reports. (1) An HMO or CMP must submit interim cost 
reports on a quarterly basis in the form and detail prescribed by CMS. 
These interim cost reports must be submitted no later than 60 days after 
the close of each quarter of the contract period.
    (2) CMS may reduce the frequency of the reports required under 
paragraph (c)(1) of this section if CMS determines that, on the basis of 
the HMO's or CMP's reporting experience, there is good cause to do so.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.574  Interim settlement.

    (a) Determination. Within 30 days following the receipt of the HMO's 
or CMP's final interim cost and enrollment reports, CMS will make an 
interim determination of the estimated amount payable to the HMO or CMP 
for the reasonable cost of covered services furnished to its Medicare 
enrollees during the contract period. CMS will base the determination on 
the interim cost report and enrollment data submitted by the HMO or CMP, 
and any other relevant data CMS finds appropriate. For this purpose, CMS 
will accept costs as reported, subject to later review or audit, unless 
there are obvious errors or inconsistencies.
    (b) Payment. Any difference between the total amount of interim 
payments and the amount found payable on the basis of the interim 
determination under paragraph (a) of this section, must be paid by the 
HMO or CMP or will be paid by CMS, whichever is appropriate, no later 
than 30 days after CMS's determination.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.576  Final settlement.

    (a) General rule. Final settlement and payment of amounts due the 
HMO or CMP or the appropriate Medicare trust funds are made following 
the HMO's or CMP's submission and CMS's review of an independently 
certified cost report and supporting documents as described in paragraph 
(b) of this section.
    (b) Certified cost report as basis for final settlement--(1) Timing 
of cost report. The HMO or CMP must submit to CMS an independently 
certified cost report and supporting documents, in the form and detail 
required by CMS, no later than 180 days after the end of each contract 
period, unless CMS extends the period for good cause shown by the HMO or 
CMP.
    (2) Content of cost report. The cost report and supporting documents 
must include the following:
    (i) The per capita costs incurred in furnishing covered services to 
its Medicare enrollees, determined in accordance with subpart O of this 
part and including--
    (A) The costs incurred by entities related to the HMO or CMP by 
common ownership or control; and
    (B) For reports for cost-reporting periods that begin on or after 
January 1, 1996, the costs of hospital and SNF services paid by 
Medicare's intermediaries under the option provided by Sec. 417.532(d).
    (ii) The HMO's or CMP's methods of apportioning cost among Medicare 
enrollees, and nonenrolled patients, in accordance with the payment 
procedures specified in this subpart (as, applicable, in parts 412 and 
413 of this chapter); and
    (iii) Any other information required by CMS.
    (3) Failure to report required financial information. If the HMO or 
CMP fails to submit the required cost report and supporting documents 
within 180 days (or an extended period approved by CMS under paragraph 
(b)(1) of this section), CMS may--
    (i) Consider the failure to report as evidence of likely 
overpayment; and

[[Page 176]]

    (ii) Initiate recovery of amounts previously paid, or reduce interim 
payments, or both.
    (c) Final determination and adjustment. (1) After receipt of 
acceptable reports as specified in paragraph (b) of this section, CMS 
determines the total payment due the HMO or CMP for furnishing covered 
services to its Medicare enrollees (which is subject to the audit 
provisions of this subpart) and makes a retroactive adjustment to bring 
interim payments into agreement with the payable amount due the HMO or 
CMP.
    (2) A final settlement may be made with the HMO or CMP even though a 
provider that is not owned or operated by the HMO or CMP or related to 
the HMO or CMP by common ownership or control and that provides services 
to the HMO's or CMP's Medicare enrollees has not had a final settlement 
with CMS under parts 412 and 413 of this chapter for services furnished 
by the provider to Medicare beneficiaries who are not enrolled in the 
HMO or CMP. In this situation--
    (i) CMS must be satisfied that the costs of covered services 
furnished to the HMO's or CMP's Medicare enrollees, as shown in the 
reports specified in paragraph (b) of this section, are reasonable and 
that the interest of the Medicare program would best be served by not 
delaying final settlement with the HMO or CMP until there is a final 
settlement with the provider for services furnished to Medicare 
beneficiaries not enrolled in the HMO or CMP; and
    (ii) Prompt settlement with the HMO or CMP would be in the best 
interest of the Medicare program if, for instance, the provider's costs 
represent an insignificant portion of total payment due to the HMO or 
CMP; or if CMS is satisfied that the provider's costs, as shown in the 
reports specified in paragraph (b) of this section, will not be 
modified, to any significant extent, by the final settlement with the 
provider under parts 412 and 413 of this chapter.
    (d) Notice of amount of payment. The notice of amount of Medicare 
payment--
    (1) Explains CMS's determination regarding total Medicare payment 
due the HMO or CMP for the contract period covered by the financial 
information specified in paragraph (b) of this section;
    (2) Relates this determination to the HMO's or CMP's claimed total 
payable cost for that period;
    (3) Explains the amounts and reasons, by appropriate reference to 
law, regulations, and Medicare program policy and procedures, if the 
determined amounts differ from the HMO's or CMP's claim; and
    (4) Informs the HMO or CMP of its right to a hearing in accordance 
with subpart R of part 405 of this chapter.
    (e) Basis for retroactive adjustment. (1) CMS's determination (as 
contained in the notice of amount of Medicare payment) constitutes the 
basis for making retroactive adjustments to any Medicare payment made to 
the HMO or CMP during the period to which the determination applies.
    (2) Further payments to the HMO or CMP may be withheld or offset in 
order to recover, or to aid in the recovery of, any overpayment 
identified in the determination as having been made to the HMO or CMP, 
even if the HMO or CMP requests a hearing under subpart R of part 405 of 
this chapter.
    (3) Any withholding continues until the earliest of the following 
occurs:
    (i) The overpayment is liquidated.
    (ii) The HMO or CMP enters into an agreement with CMS to refund the 
overpaid amount.
    (iii) CMS, on the basis of subsequently acquired information, 
determines that there was no overpayment.
    (iv) The decision of a hearing specified in paragraph (d)(4) of this 
section is that there was no overpayment.

[50 FR 1346, Jan. 10, 1985, as amended at 51 FR 34833, Sept. 30, 1986; 
58 FR 38082, July 15, 1993; 60 FR 34888, July 5, 1995; 60 FR 46231, 
Sept. 6, 1995]



                 Subpart P_Medicare Payment: Risk Basis

    Source: 50 FR 1346, Jan. 10, 1985, unless otherwise noted.



Sec. 417.580  Basis and scope.

    (a) Basis. This subpart implements those portions of section 1876 
(a), (e), and (g) of the Act that pertain to the amount CMS pays an 
organization for

[[Page 177]]

its Medicare enrollees who are enrolled on a risk basis.
    (b) Scope. This subpart sets forth--
    (1) Method of payment;
    (2) Procedures for determining the HMO's or CMP's payment rate; and
    (3) Procedures for determining the additional benefits (and their 
value) the HMO or CMP must provide to its Medicare enrollees.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 58 
FR 38080, July 15, 1993; 60 FR 46231, Sept. 6, 1995]



Sec. 417.582  Definitions.

    As used in this subpart--
    AAPCC stands for adjusted average per capita cost.
    ACR stands for adjusted community rate.
    Actuarial factors means factors such as the age, sex, and disability 
level distribution of the population and any other relevant factors that 
CMS determines have a significant effect on the level of utilization and 
cost of health services.
    APCRP stands for average of per capita rates of payment.
    Class of Medicare enrollees means a group of Medicare enrollees of 
an HMO or CMP that CMS constructs on the basis of actuarial factors.
    Similar area means an area similar to the HMO's or CMP's geographic 
area but free from special characteristics that would distort the 
determination of the AAPCC.
    U.S. per capita incurred cost means the average per capita cost, 
including intermediary or carrier administrative costs, incurred by 
Medicare, as determined on an accrual basis, for covered services 
furnished to Medicare beneficiaries nationwide during the most recent 
period for which CMS has complete data.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 58 
FR 38080, July 15, 1993; 60 FR 46232, Sept. 6, 1995]



Sec. 417.584  Payment to HMOs or CMPs with risk contracts.

    Except in the circumstances specified in Sec. 417.440(d) for 
inpatient hospital care, and as provided in Sec. 417.585 for hospice 
care, CMS makes payment for covered services only to the HMO or CMP.
    (a) Principle of payment. CMS makes monthly advance payments 
equivalent to the HMO's or CMP's per capita rate of payment for each 
beneficiary who is registered in CMS records as a Medicare enrollee of 
the HMO or CMP.
    (b) Determination of rate. (1) The annual per capita rate of payment 
for each class of Medicare enrollees is equal to 95 percent of the AAPCC 
(as determined under the provisions of Sec. 417.588) for that class of 
Medicare enrollees.
    (2) CMS furnishes each HMO or CMP with its per capita rate of 
payment for each class of Medicare enrollees not later than 90 days 
before the beginning of the HMO's or CMP's contract period.
    (c) Adjustments to payments. If the actual number of Medicare 
enrollees differs from the estimated number on which the amount of 
advance monthly payment was based, CMS adjusts subsequent monthly 
payments to take account of the difference.
    (d) Reduction of payments. If an HMO or CMP requests a reduction in 
its monthly payment in accordance with Sec. 417.592(b)(2), CMS reduces 
the amount of payment by the appropriate amount.
    (e) Determination of rate for calendar year 1998. For calendar year 
1998, HMOs or CMPs with risk contracts will be paid in accordance with 
principles contained in subpart F of part 422 of this chapter.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 52 
FR 8901, Mar. 20, 1987; 58 FR 38082, July 15, 1993; 60 FR 46232, Sept. 
6, 1995; 63 FR 35067, June 26, 1998]



Sec. 417.585  Special rules: Hospice care.

    (a) No payment is made to an HMO or CMP on behalf of a Medicare 
enrollee who has elected hospice care under Sec. 418.24 of this chapter 
except for the portion of the payment applicable to the additional 
benefits described in Sec. 417.592. This no-payment rule is effective 
from the first day of the month following the month of election to 
receive hospice care, until the first day of the month following the 
month in which the enrollee resumes normal Medicare coverage.
    (b) During the time the election is in effect, the HMO or CMP may 
bill CMS on a fee-for-service basis (subject to the usual Medicare rules 
of payment)

[[Page 178]]

but only for the following covered Medicare services:
    (1) Services of the enrollee's attending physician if the physician 
is an employee or contractor of the HMO or CMP and is not employed by or 
under contract to the enrollee's hospice.
    (2) Services not related to the treatment of the terminal condition 
for which the enrollee elected hospice care or a condition related to 
the terminal condition.
    (3) Services furnished after the revocation or expiration of the 
enrollee's hospice election until the full monthly capitation payments 
begin again.
    (c) Payment for hospice care services furnished to Medicare 
enrollees of an HMO or CMP is made to the Medicare-participating hospice 
elected by the enrollee.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46232, Sept. 6, 1995]



Sec. 417.588  Computation of adjusted average per capita cost (AAPCC).

    (a) Basic data. In computing the AAPCC, CMS uses the U.S. per capita 
incurred cost and adjusts it by the factors specified in paragraph (c) 
of this section to establish an AAPCC for each class of Medicare 
enrollees.
    (b) Advance notice to the HMO or CMP. Before the beginning of a 
contract period, CMS informs the HMO or CMP of the specific adjustment 
factors it will use in computing the AAPCC.
    (c) Adjustment factors--(1) Geographic. CMS makes an adjustment to 
reflect the relative level of Medicare expenditures for beneficiaries 
who reside in the HMO's or CMP's geographic area (or a similar area). 
This adjustment is based on reimbursement for Medicare covered services 
and uses the most accurate and timely data that pertain to the HMO's or 
CMP's geographic area and that is available to CMS when it makes the 
determination.
    (2) Enrollment. CMS makes a further adjustment to remove the cost 
effect of all area Medicare beneficiaries who are enrolled in the HMO or 
CMP or another HMO or CMP.
    (3) Age, sex, and disability status. CMS makes adjustments to 
reflect the age and sex distribution and the disability status of the 
HMO's or CMP's enrollees based on Medicare program experience and 
available data that indicate cost differences that result from those 
factors.
    (4) Other relevant factors. If accurate data are available and 
appropriate, CMS makes adjustments to reflect welfare and institutional 
status and other relevant factors.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38083, July 15, 1993; 60 
FR 46232, Sept. 6, 1995]



Sec. 417.590  Computation of the average of the per capita rates of payment.

    (a) Computation by the HMO or CMP. As indicated in Sec. 417.584(b), 
before an HMO's or CMP's contract period begins, CMS determines a per 
capita rate of payment for each class of the HMO's or CMP's Medicare 
enrollees. In order to determine the additional benefits required under 
Sec. 417.592, weighted averages of those per capita rates must be 
computed separately for enrollees entitled to Part A and Part B, and for 
enrollees entitled only to Part B. Except as provided in paragraph (b) 
of this section, the HMO or CMP must make the computations.
    (b) Computation by CMS. If the HMO or CMP claims to have 
insufficient enrollment experience to make the computations required by 
paragraph (a) of this section, and CMS agrees with the claim, CMS makes 
the computations, using the best available information, which may 
include the enrollment experience of other risk HMOs and CMPs.

[58 FR 38075, July 15, 1993]



Sec. 417.592  Additional benefits requirement.

    (a) General rules. (1) An HMO or CMP that has an APCRP (as 
determined under Sec. 417.590) greater than its ACR (as determined 
under Sec. 417.594) must elect one of the options specified in 
paragraph (b) of this section.
    (2) The dollar value of the elected option must, over the course of 
a contract period, be at least equal to the difference between the APCRP 
and the proposed ACR.
    (b) Options--(1) Additional benefits. Provide its Medicare enrollees 
with additional benefits in accordance with paragraph (c) of this 
section.

[[Page 179]]

    (2) Payment reduction. Request CMS to reduce its monthly payments.
    (3) Combination of additional benefits and payment reduction. 
Provide fewer than the additional benefits required under paragraph 
(b)(1) of this section and request CMS to reduce the monthly payments by 
the remaining difference between the APCRP and the ACR.
    (4) Combination of additional benefits and withholding in a 
stabilization fund. Provide fewer than the additional benefits required 
under paragraph (b)(1) of this section, and request CMS to withhold in a 
stabilization fund (as provided in Sec. 417.596) the remaining 
difference between the APCRP and the ACR.
    (c) Special rules: Additional benefits option. (1) The HMO or CMP 
must determine additional benefits separately for enrollees entitled to 
both Part A and Part B benefits and those entitled only to Part B.
    (2) The HMO or CMP may elect to provide additional benefits in any 
of the following forms--
    (i) A reduction in the HMO's or CMP's premium or in other charges it 
imposes in the form of deductibles or coinsurance.
    (ii) Health benefits in addition to the required Part A and Part B 
covered services.
    (iii) A combination of reduced charges and additional benefits.
    (d) Notification to CMS. (1) The HMO or CMP must give CMS notice of 
its ACR and its weighted APCRP at least 45 days before its contract 
period begins.
    (2) An HMO or CMP that elects the option of providing additional 
benefits must include in its submittal--
    (i) A description of the additional benefits it will provide to its 
Medicare enrollees; and
    (ii) Supporting evidence to show that the selected benefits meet the 
requirements of paragraph (a)(2) of this section with respect to dollar 
value equivalence.

[60 FR 46232, Sept. 6, 1995]



Sec. 417.594  Computation of adjusted community rate (ACR).

    (a) Basic rule. Each HMO or CMP must compute its basic rate as 
follows:
    (1) Compute an initial rate in accordance with paragraph (b) of this 
section.
    (2) Adjust and reduce the initial rate in accordance with paragraphs 
(c) and (d) of this section.
    (b) Computation of initial rates. (1) The HMO or CMP must compute 
its initial rate using either of the following systems:
    (i) A community rating system as defined in Sec. 417.104(b); or
    (ii) A system, approved by CMS, under which the HMO or CMP develops 
an aggregate premium for all its enrollees and weights the aggregate by 
the size of the various enrolled groups that compose its enrollment.


(For purposes of this section, enrolled groups are defined as employee 
groups or other bodies of subscribers that enroll in the HMO or CMP 
through payment of premiums.)
    (2) Regardless of which method the HMO or CMP uses--
    (i) The initial rate must be equal to the premium it would charge 
its non-Medicare enrollees for the Medicare-covered services;
    (ii) The HMO or CMP must compute the rates separately for enrollees 
entitled to Medicare Part A and Part B and for those entitled only to 
Part B; and
    (iii) The HMO or CMP must identify and take into account anticipated 
revenue from health insurance payers for those services for which 
Medicare is not the primary payer as provided in Sec. 417.528.
    (3) Except as provided in paragraph (b)(4) of this section, the HMO 
or CMP must identify in its initial rate calculation, the following 
components whose rates must be consistent with rates used by the HMO or 
CMP in calculating premiums for non-Medicare enrollees:
    (i) Hospital services (services covered under Medicare Part A and 
Part B shown separately).
    (ii) Physicians' services.
    (iii) Other medical services (for example, X-ray and laboratory 
services).
    (iv) Home health services.
    (v) Out-of-plan claims for emergency services.
    (vi) Skilled nursing care services.
    (vii) Ambulance services.
    (viii) Other Medicare covered services.

[[Page 180]]

    (ix) General and administrative.
    (x) Noncovered Medicare services (for example, eyeglasses).
    (xi) Services for which Medicare is the secondary payer.
    (xii) Enrollee liabilities (for example, deductibles, coinsurance, 
or copayments) for covered services.
    (4) An HMO or CMP that does not usually separate its premium 
components as described in paragraph (b)(3) of this section may 
calculate its initial rate with the methods it uses for its other 
enrolled groups if the HMO or CMP provides CMS with the documentation 
necessary to support any adjustments the HMO or CMP makes to the initial 
rate in accordance with paragraph (e) of this section.
    (5) The initial rate calculation must not carry forward any losses 
experienced by the HMO or CMP during prior contract periods. The HMO or 
CMP must submit supporting documentation to assure CMS that rates do not 
include past losses but only premiums for the price of additional 
benefits and services of the upcoming contract period.
    (c) Adjustment of initial rates--(1) Purpose of adjustment. The 
purpose of adjustment is to reflect the utilization characteristics of 
Medicare enrollees.
    (2) Adjustment by the HMO or CMP. The HMO or CMP may adjust the rate 
for a particular service using more than one of the following factors if 
they do not duplicate each other:
    (i) Unit of service. If the HMO or CMP purchases or identifies 
services on a unit of service basis and the unit of service is defined 
the same for all enrollees, the HMO or CMP may make an adjustment in its 
initial rate to reflect the number of units of services furnished to its 
Medicare enrollees in comparison to those furnished to other enrollees.
    (ii) Complexity or intensity of services. The HMO or CMP may make an 
adjustment to reflect the differences in the complexity or intensity of 
services furnished to its Medicare enrollees if the calculation of its 
initial rate includes the elements of this adjustment.
    (3) Support documentation. All adjustments made by the HMO or CMP 
must be accompanied by adequate supporting data. If an HMO or CMP does 
not have sufficient enrollment experience to develop this data, it may, 
during its initial contract period, use documented statistics from a 
nationally recognized statistical source.
    (4) Adjustment by CMS. If the HMO or CMP does not have adequate data 
to adjust the initial rate calculated under paragraph (b) of this 
section to reflect the utilization characteristics of its Medicare 
enrollees, CMS will, at the HMO's or CMP's request, adjust the initial 
rate. CMS adjusts the rate on the basis of differences in the 
utilization characteristics of--
    (i) Medicare and non-Medicare enrollees in other HMOs or CMPs; or
    (ii) Medicare beneficiaries (in the HMO's or CMP's area, or State, 
or the United States) who are eligible to enroll in an HMO or CMP and 
other individuals in that same area, or State, or the United States.
    (d) Reduction of adjusted rates. The HMO or CMP or CMS further 
reduces the adjusted rates by the actuarial value of applicable Medicare 
deductibles and coinsurance.
    (e) CMS review--(1) Submission of data. The HMO or CMP must submit 
its ACR and the methodology used to compute it for CMS review and 
approval, and must include adequate supporting data.
    (2) Appeals procedures. (i) If CMS determines that an HMO's or CMP's 
ACR computation is not acceptable, the HMO or CMP may, within 30 days 
after receipt of notice of the determination, file with CMS a request 
for a hearing.
    (ii) The request must state why the HMO or CMP believes the 
determination is incorrect, and include any supporting evidence the HMO 
or CMP considers pertinent.
    (iii) A hearing officer designated by CMS conducts the hearing in 
accordance with the hearing procedures set forth in Sec. Sec. 405.1819 
through 405.1833 of this chapter.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38080, July 15, 1993; 60 
FR 46232, Sept. 6, 1995]



Sec. 417.596  Establishment of a benefit stabilization fund.

    (a) General. If an HMO or CMP is required to provide its Medicare 
enrollees with additional benefits as described in Sec. 417.592, the 
organization

[[Page 181]]

may request that CMS withhold a part of its monthly per capita payment 
in a benefit stabilization fund. The fund will be used to prevent 
excessive fluctuation in the provision of those additional benefits in 
subsequent contract periods.
    (b) Notification to CMS. An HMO's or CMP's request to have monies 
withheld in a benefit stabilization fund must be made when the HMO or 
CMP notifies CMS under Sec. 417.592(d) of its ACR and its APCRP in 
preparation for its next contract period.
    (c) Limitations on the amounts withheld--(1) Limit per contract 
period. Except as provided in paragraph (c)(3) of this section, CMS does 
not withhold in a benefit stabilization fund more than 15 percent of the 
difference between an HMO's or CMP's ACR and its ACPRP for a given 
contract period.
    (2) Cumulative limit. If CMS has established a benefit stabilization 
fund for an HMO or CMP, it does not approve a request for withholding 
made by that HMO or CMP for a subsequent contract period that would 
cause the total value of the benefit stabilization fund to exceed 25 
percent of the difference between the HMO's or CMP's ACR and the average 
of its per capita rates of payment for that subsequent contract period.
    (3) Exception. CMS may grant an exception to the limit described in 
paragraph (c)(1) of this section if an HMO or CMP can demonstrate to 
CMS's satisfaction that the value of the additional benefits it provides 
to its Medicare enrollees fluctuates substantially in excess of 15 
percent from one contract period to another.
    (d) Financial management of benefit stabilization funds. (1) The 
amounts withheld by CMS to establish and maintain a benefit 
stabilization fund are in the custody of the Federal Health Insurance 
Trust Fund and the Federal Supplementary Medical Insurance Trust Fund.
    (2) The amounts withheld in a benefit stabilization fund are 
accounted for by CMS in accounts in which interest does not accrue to 
the HMO or CMP.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended by 56 
FR 46571, Sept. 13, 1991; 58 FR 38083, July 15, 1993; 60 FR 46233, Sept. 
6, 1995]



Sec. 417.597  Withdrawal from a benefit stabilization fund.

    (a) Notification to CMS. An HMO's or CMP's request to make a 
withdrawal from its benefit stabilization fund for use during a contract 
period must be made when the HMO or CMP notifies CMS of its ACR and its 
ACPRP for that contract period. In making its request, the HMO or CMP 
must--
    (1) Indicate how it intends to use the withdrawn amounts;
    (2) Justify the need for the withdrawal in terms of stabilizing the 
additional benefits it provides to Medicare enrollees;
    (3) Document the HMO's or CMP's experience with fluctuations of 
revenue requirements relative to the additional benefits it provides to 
Medicare enrollees; and
    (4) Document its experience during the contract period previous to 
the one for which it requests withdrawal to ensure that the HMO or CMP 
will not be using the withdrawn amounts to refinance losses suffered 
during that previous contract period.
    (b) Criteria for CMS approval. CMS approves a request for a 
withdrawal from a benefit stabilization fund for use during the next 
contract period only if--
    (1) The HMO's or CMP's average of its per capita rates of payment 
for the next contract period is less than that of the previous contract 
period;
    (2) The HMO's or CMP's ACR for the next contract period is 
significantly higher than that of the previous contract period; or
    (3) The HMO's or CMP's revenue requirements for the next contract 
period for providing the additional benefits it provided during the 
previous contract period is significantly higher than the requirements 
for that previous period and the ACR for the next contract period 
results in an additional benefits package that is less in total value 
than that of the previous contract period.
    (c) Basis for denial. CMS does not approve a request for a 
withdrawal from a benefit stabilization fund if the withdrawal would 
allow the HMO or CMP to--

[[Page 182]]

    (1) Offer without charge the supplemental services it provides to 
its Medicare enrollees under the provisions of Sec. 417.440 (b)(2) or 
(b)(3); or
    (2) Refinance prior contract period losses or to avoid losses in the 
upcoming contract period.
    (d) Form of payment. Payment of monies withdrawn from a benefit 
stabilization fund is made, in equal parts, as an additional amount to 
the monthly advance payment made to the HMO or CMP under Sec. 417.584 
during the period of the contract.

[58 FR 38075, July 15, 1993, as amended at 60 FR 46233, Sept. 6, 1995]



Sec. 417.598  Annual enrollment reconciliation.

    CMS's payment to an HMO or CMP may be subject to an enrollment 
reconciliation at least annually. CMS conducts this reconciliation as 
necessary to ensure that the payments made do not exceed or fall short 
of the appropriate per capita rate of payment for each Medicare enrollee 
of the HMO or CMP during the contract period. The HMO or CMP must submit 
any information or reports required by CMS to conduct the 
reconciliation.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38080, July 15, 1993; 60 
FR 46233, Sept. 6, 1995]



                      Subpart Q_Beneficiary Appeals



Sec. 417.600  Basis and scope.

    (a) Statutory basis. (1) Section 1869 of the Act provides the right 
to a redetermination, reconsideration, hearing, and judicial review for 
individuals dissatisfied with a determination regarding their Medicare 
benefits.
    (2) Section 1876 of the Act provides for Medicare payments to HMOs 
and CMPs that contract with CMS to enroll Medicare beneficiaries and 
furnish Medicare-covered health care services to them.
    (3) Section 234 of the MMA requires section 1876 contractors to 
operate under the same provisions as MA plans where two plans of the 
same type enter the cost plan contract's service area.
    (b) Applicability. (1) The rights, procedures, and requirements 
relating to beneficiary appeals and grievances set forth in subpart M of 
part 422 of this chapter also apply to Medicare contracts with HMOs and 
CMPs under section 1876 of the Act.
    (2) In applying those provisions, references to section 1852 of the 
Act must be read as references to section 1876 of the Act, and 
references to MA organizations as references to HMOs and CMPs.

[60 FR 46233, Sept. 6, 1995, as amended at 62 FR 23374, Apr. 30, 1997; 
70 FR 4713, Jan. 28, 2005]



                   Subpart R_Medicare Contract Appeals

    Source: 50 FR 1346, Jan. 10, 1985, unless otherwise noted.



Sec. 417.640  Determinations subject to appeal.

    This subpart establishes the procedures for making and reviewing the 
following initial determinations:
    (a) A determination that an HMO or CMP is not qualified to enter 
into a contract with CMS under section 1876 of the Act.
    (b) A determination that an HMO or CMP is qualified only for a 
reasonable cost contract.
    (c) A determination to terminate, or to refuse to renew, a contract 
with an HMO or CMP because--
    (1) The HMO or CMP has failed substantially to carry out the terms 
of the contract;
    (2) The HMO or CMP is carrying out the contract in a manner that is 
inconsistent with the efficient and effective administration of section 
1876 of the Act;
    (3) The HMO or CMP no longer meets the applicable conditions 
necessary to qualify as an HMO or CMP under section 1876 of the Act and 
this subpart; or
    (4) The HMO or CMP has failed to comply with the composition of 
enrollment requirements specified in Sec. 417.413(d).

[50 FR 1346, Jan. 10, 1985, as amended at 56 FR 46572, Sept. 13, 1991; 
58 FR 38080, July 15, 1993]

[[Page 183]]



Sec. 417.642  Administrative actions that are not initial determinations.

    Administrative actions that are not initial determinations under 
this subpart include, but are not limited to, CMS's refusal to renew a 
contract with an HMO or CMP when the refusal is not based on the causes 
specifed in Sec. 417.640(c).

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38080, July 15, 1993]



Sec. 417.644  Notice of initial determination.

    (a) When CMS makes an initial determination, it gives the HMO or CMP 
written notice.
    (b) The notice specifies--
    (1) The reasons for the determination; and
    (2) The HMO's or CMP's right to request reconsideration.
    (c) CMS mails the notice to the HMO or CMP at least 90 days before 
the end of the contract period, or in the case of termination, at least 
90 days before the effective date of the termination.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38083, July 15, 1993; 60 
FR 46234, Sept. 6, 1995]



Sec. 417.646  Effect of initial determination.

    The initial determination is final and binding on all parties 
unless--
    (a) It is reconsidered in accordance with Sec. Sec. 417.648 through 
417.658;
    (b) In the case of an initial determination described in Sec. 
417.640(c), a request for a hearing is filed; or
    (c) It is revised as a result of a reopening under Sec. 417.692.



Sec. 417.648  Reconsideration: Applicability.

    (a) Reconsideration is the first step for appealing an organization 
determination specified in Sec. 417.640(a) or (b).
    (b) CMS reconsiders either of the specified determinations if the 
HMO or CMP files a written request in accordance with Sec. 417.650.

[60 FR 46234, Sept. 6, 1995]



Sec. 417.650  Request for reconsideration.

    (a) Method and place for filing a request. A request for 
reconsideration must be made in writing and filed with any CMS office.
    (b) Time for filing a request. Except as provided in paragraph (c) 
of this section, the request for reconsideration must be filed within 60 
days from the date of the notice of the initial determination.
    (c) Extension of time to file a request. CMS may, in response to a 
party's written petition showing good cause, accept a request for 
reconsideration after the expiration of the 60 day period.
    (d) Proper party to file a request. Only an authorized official of 
the entity that was a party to an initial determination may file the 
request for reconsideration.
    (e) Withdrawal of a request. A request for reconsideration may be 
withdrawn by the party who filed the request at any time before the 
notice of the reconsidered determination is mailed. The request for 
withdrawal must be in writing and filed with CMS. If CMS approves, the 
request for reconsideration is withdrawn.



Sec. 417.652  Opportunity to submit evidence.

    CMS provides the parties to the reconsideration reasonable 
opportunity to present as evidence any documents or written statements 
that are relevant and material to the matters at issue.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.654  Reconsidered determination.

    A reconsidered determination is a new determination that--
    (a) Is based on a review of the initial determination, the evidence 
and findings upon which that was based, and any other written evidence 
submitted before notice of the reconsidered determination is mailed, 
including facts relating to the status of the entity subsequent to the 
initial determination; and
    (b) Affirms, reverses, or modifies the initial determination.



Sec. 417.656  Notice of reconsidered determination.

    (a) CMS gives the parties written notice of the reconsidered 
determination.
    (b) The notice--

[[Page 184]]

    (1) Contains findings with respect to the HMO's or CMP's 
qualifications to enter into a contract with CMS under section 1876 of 
the Act;
    (2) States the specific reasons for the reconsidered determination; 
and
    (3) Informs the party of its right to a hearing if it is 
dissatisfied with the determination.

[60 FR 46234, Sept. 6, 1995]



Sec. 417.658  Effect of reconsidered determination.

    A reconsidered determination is final and binding on all parties 
unless a request for a hearing is filed in accordance with Sec. 417.662 
or it is revised in accordance with Sec. 417.692.



Sec. 417.660  Right to a hearing.

    The following parties are entitled to a hearing:
    (a) An entity that has been determined in a reconsidered 
determination to be unqualified to enter into a contract with CMS under 
section 1876 of the Act.
    (b) An HMO or CMP that has been determined in a reconsidered 
determination to be qualified only for a reasonable cost contract.
    (c) An HMO or CMP whose contract with CMS has been terminated or has 
not been renewed as a result of an initial determination as provided in 
Sec. 417.640(c).

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38083, July 15, 1993]



Sec. 417.662  Request for hearing.

    (a) Method and place for filing a request. A request for a hearing 
must be made in writing and filed by an authorized official of the 
entity or HMO or CMP that was the party to the determination under 
appeal. The request for a hearing must be filed with any CMS office.
    (b) Time for filing a request. Except as provided in paragraph (c) 
of this section, a request for a hearing must be filed within 60 days 
after the date of receipt of the notice of initial or reconsidered 
determination.
    (c) Extension of time to file a request. If good cause is shown, the 
60-day period to request a hearing may be extended by CMS.
    (d) Parties to a hearing. The parties to a hearing must be--
    (1) The parties described in Sec. 417.660;
    (2) At the discretion of the hearing officer, any interested parties 
who make a showing that their rights may be prejudiced by the decision 
to be rendered at the hearing; and
    (3) CMS.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38083, July 15, 1993]



Sec. 417.664  Postponement of effective date of initial determination.

    When a request for a hearing with respect to an initial 
determination is filed timely--
    (a) The effective date of the initial determination to terminate a 
contract with an HMO or CMP will be postponed until a hearing decision 
is reached; and
    (b) The current contract will be extended at the end of the contract 
period (in the case of a determination not to renew) only--
    (1) If CMS finds that an extension of the contract will be 
consistent with the purpose of section 1876 of the Act; and
    (2) For such period as CMS and the HMO or CMP agree.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38083, July 15, 1993]



Sec. 417.666  Designation of hearing officer.

    CMS designates a hearing officer to conduct the hearing. The hearing 
officer need not be an ALJ.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.668  Disqualification of hearing officer.

    (a) A hearing officer may not conduct a hearing in a case in which 
he or she is prejudiced or partial to any party or has any interest in 
the matter pending for decision.
    (b) A party to the hearing who objects to the designated hearing 
officer must notify that officer in writing at the earliest opportunity.
    (c) The hearing officer must consider the objections, and may, at 
his or her discretion, either proceed with the hearing or withdraw.

[[Page 185]]

    (1) If the hearing officer withdraws, CMS designates another hearing 
officer to conduct the hearing.
    (2) If the hearing officer does not withdraw, the objecting party 
may, after the hearing, present objections and request that the 
officer's decision be revised or a new hearing be held before another 
hearing officer. The objections must be submitted to CMS.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.670  Time and place of hearing.

    (a) The hearing officer fixes a time and place for the hearing and 
sends written notice to the parties. The notice also informs the parties 
of the general and specific issues to be resolved and information about 
the hearing procedure.
    (b) The hearing officer may, on his or her own motion, or at the 
request of a party, change the time and place for the hearing. The 
hearing officer may adjourn or postpone the hearing.
    (c) The hearing officer will give the parties reasonable notice of 
any change in the time or place of hearing, or of adjournment or 
postponement.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38081, July 15, 1993; 60 
FR 46234, Sept. 6, 1995]



Sec. 417.672  Appointment of representatives.

    A party may appoint as its representative at the hearing anyone not 
disqualified or suspended from acting as a representative before CMS or 
otherwise prohibited by law.



Sec. 417.674  Authority of representatives.

    (a) A representative appointed and qualified in accordance with 
Sec. 417.672 may, on behalf of the represented party--
    (1) Give or accept any notice or request pertinent to the 
proceedings set forth in this subpart;
    (2) Present evidence and allegations as to facts and law in any 
proceedings affecting that party; and
    (3) Obtain information to the same extent as the party.
    (b) A notice or request sent to the representative has the same 
force and effect as if it had been sent to the party.



Sec. 417.676  Conduct of hearing.

    (a) The hearing is open to the parties and to the public.
    (b) The hearing officer inquires fully into all the matters at issue 
and receives in evidence the testimony of witnesses and any documents 
that are relevant and material.
    (c) The hearing officer provides the parties an opportunity to enter 
any objection to the inclusion of any document.
    (d) The hearing officer decides the order in which the evidence and 
the arguments of the parties are presented and the conduct of the 
hearing.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.678  Evidence.

    The hearing officer rules on the admissibility of evidence and may 
admit evidence that would be inadmissible under rules applicable to 
court procedures.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.680  Witnesses.

    (a) The hearing officer may examine the witnesses.
    (b) The parties or their representatives are permitted to examine 
their witnesses and cross-examine witnesses of other parties.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.682  Discovery.

    (a) Prehearing discovery is permitted upon timely request of a 
party.
    (b) A request is timely if it is made before the beginning of the 
hearing.
    (c) A reasonable time for inspection and reproduction of documents 
is provided by order of the hearing officer.
    (d) The hearing officer's order on all discovery matters is final.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.684  Prehearing.

    The hearing officer may schedule a prehearing conference if he or 
she believes that a conference would more clearly define the issues.

[[Page 186]]



Sec. 417.686  Record of hearing.

    (a) A complete record of the proceedings at the hearing is made and 
transcribed and made available to all parties upon request.
    (b) The record may not be closed until a hearing decision has been 
issued.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.688  Authority of hearing officer.

    In exercising his or her authority, the hearing officer must comply 
with the provisions of title XVIII and related provisions of the Act, 
the regulations issued by CMS, and general instructions issued by CMS in 
implementing that Act.



Sec. 417.690  Notice and effect of hearing decision.

    (a) As soon as practical after the close of the hearing, the hearing 
officer issues a written decision that--
    (1) Is based upon the evidence of record; and
    (2) Contains separately numbered findings of fact and conclusions of 
law.
    (b) The hearing officer provides a copy of the hearing decision to 
each party.
    (c) The hearing decision is final and binding unless it is reopened 
and revised in accordance with Sec. 417.692.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.692  Reopening of initial or reconsidered determination or decision of a hearing officer.

    (a) Initial or reconsidered determination. An initial or 
reconsidered determination may be reopened and revised by CMS upon its 
own motion within one year of the date of the notice of determination.
    (b) Decision of hearing officer. A decision of a hearing officer 
that is unfavorable to any party and is otherwise final may be reopened 
and revised by the hearing officer upon the officer's own motion within 
one year of the notice of the hearing decision. It may be reopened and 
revised by another hearing officer designated by CMS if the hearing 
officer who issued the decision is unavailable.
    (c) Notices. (1) The notice of reopening and of any revisions 
following the reopening is mailed to the parties.
    (2) The notice of revision specifies the reasons for revisions.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.694  Effect of revised determination.

    The revision of an initial or reconsidered determination is binding 
unless a party files a written request for hearing of the revised 
determination in accordance with Sec. 417.662.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]

Subparts S-T [Reserved]



                 Subpart U_Health Care Prepayment Plans

    Source: 50 FR 1375, Jan. 10, 1985, unless otherwise noted.



Sec. 417.800  Payment to HCPPs: Definitions and basic rules.

    (a) Definitions. As used in this subpart, unless the context 
indicates otherwise--
    Covered Part B services means physicians' services, diagnostic X-ray 
tests, laboratory, other diagnostic tests, and any additional medical 
and other health services, that the HCPP furnishes to its Medicare 
enrollees.
    Health care prepayment plan (HCPP) means an organization that meets 
the following conditions:
    (1) Effective January 1, 1999, (or on the effective date of the HCPP 
agreement in the case of a 1998 applicant) either--
    (A) Is union or employer sponsored; or
    (B) Does not provide, or arrange for the provision of, any inpatient 
hospital services.
    (2) Is responsible for the organization, financing, and delivery of 
covered Part B services to a defined population on a prepayment basis.
    (3) Meets the conditions specified in paragraph (b) of this section.
    (4) Elects to be reimbursed on a reasonable cost basis.

[[Page 187]]

    Medicare enrollee means a beneficiary under Part B of Medicare who 
has been identified on CMS records as an enrollee of the HCPP. Reporting 
period means the period specified by CMS for which an HCPP must report 
its costs and utilization.
    (b) Qualifying conditions. (1) Except as provided in paragraph 
(b)(2) of this section, an organization wishing to participate as an 
HCPP must--
    (i) Enter into a written agreement with CMS as specified in Sec. 
417.801;
    (ii) Furnish physicians' services through its employees or under a 
formal arrangement with a medical group, independent practice 
association or individual physicians; and
    (iii) Furnish covered Part B services to its Medicare enrollees 
through institutions, entities, and persons that have qualified under 
the applicable requirements of title XVIII of the Social Security Act 
and section 353 of the PHS Act.
    (2) An organization that, as of January 31, 1983, was being 
reimbursed on a reasonable cost basis under section 1833(a)(1)(A) of the 
Act, and that would not otherwise meet the conditions specified in 
paragraph (b)(1) of this section, may receive reimbursement on a 
reasonable cost basis as an HCPP, provided it files an agreement with 
CMS as required by Sec. 417.801.
    (c) Payment of reasonable cost. (1) Except as otherwise provided in 
this subpart, CMS pays an HCPP on the basis of the reasonable cost it 
incurs, as specified in subpart O of this part, for the covered Part B 
services furnished to its Medicare enrollees.
    (2) Payment for Part B services: Basic rules. (i) Cost basis 
payment. Except as provided in paragraph (d) of this section, CMS pays 
an HCPP on the basis of the reasonable costs it incurs, as specified in 
subpart O of this part, for the covered Part B services furnished to its 
Medicare enrollees.
    (ii) Deductions. In determining the amount due an HCPP for covered 
Part B services furnished to its Medicare enrollees, CMS deducts, from 
the reasonable cost actually incurred by the HCPP, the following:
    (A) The actuarial value of the Part B deductible.
    (B) An amount equal to 20 percent of the cost incurred for any 
service that is subject to the Medicare coinsurance.
    (d) Covered services not reimbursed to an HCPP. (1) Services 
reimbursed under Part A are not reimbursable to an HCPP. CMS makes 
payment for these services directly to the hospital, or other provider 
of services, on a reasonable cost basis through the provider's Medicare 
fiscal intermediary (for more details, see parts 412 and 413 of this 
chapter).
    (2) Covered Part B services furnished by a provider of services to 
an HCPP's Medicare enrollees are not payable to the HCPP. CMS makes 
payment for these services to the provider on behalf of the Medicare 
enrollee through the provider's Medicare fiscal intermediary. This 
requirement does not affect Medicare payment to the HCPP for physicians' 
services furnished to its Medicare enrollees for which the physicians 
are compensated by the HCPP.
    (e) Payment for services to nonenrollees. CMS makes payment to an 
HCPP for covered Part B services furnished by the HCPP to a Medicare 
beneficiary who is not enrolled in the HCPP if the beneficiary assigns 
his rights to payment in accordance with Sec. 424.55 of this chapter. 
Payment is made on a reasonable charge basis through the HCPP's Medicare 
carrier.

[50 FR 1346, Jan. 10, 1985, as amended at 51 FR 34833, Sept. 30, 1986; 
53 FR 6648, Mar. 2, 1988; 57 FR 7135, Feb. 28, 1992; 58 FR 38081, July 
15, 1993; 60 FR 34888, July 5, 1995; 63 FR 35067, June 26, 1998; 63 FR 
52611, Oct. 1, 1998]



Sec. 417.801  Agreements between CMS and health care prepayment plans.

    (a) General requirement. (1) In order to participate and receive 
payment under the Medicare program as an HCPP as defined in Sec. 
417.800, an organization must enter into a written agreement with CMS.
    (2) An existing group practice prepayment plan (GPPP) that continues 
as an HCPP under this subpart U must have entered into a written 
agreement with CMS within 60 days of January 31, 1983.
    (b) Terms. The agreement must provide that the HCPP agrees to--

[[Page 188]]

    (1) Maintain compliance with the requirements for participation and 
reimbursement on a reasonable cost basis of HCPPs as specified in Sec. 
417.800;
    (2) Not charge the Medicare enrollee or any other person for items 
or services for which that enrollee is entitled to have payment made 
under the provisions of this part, except for any deductible or 
coinsurance amounts for which the enrollee is liable;
    (3) Refund, as promptly as possible, any money incorrectly collected 
as charges or premiums, or in any other way from Medicare enrollees in 
the HCPP in accordance with the requirements specified in Sec. 417.456;
    (4) Not impose any limitations on the acceptance of Medicare 
enrollees or beneficiaries for care and treatment that it does not 
impose on all other individuals;
    (5) Meet the advance directives requirements specified in Sec. 
417.436(d) of this part;
    (6) Establish administrative review procedures in accordance with 
Sec. Sec. 417.830 through 417.840 for Medicare enrollees who are 
dissatisfied with denied services or claims; and
    (7) Consider any additional requirements that CMS finds necessary or 
desirable for efficient and effective program administration.
    (c) Duration of agreement. Except for the term of the initial 
agreement, the agreement is for a term of one year and may be renewed 
annually by mutual consent. The term of the initial agreement is set by 
CMS.
    (d) Termination or nonrenewal of agreement by CMS. (1) CMS may 
terminate or not renew an agreement if it determines that--
    (i) The HCPP no longer meets the requirements for participation and 
reimbursement as an HCPP as specified in Sec. 417.800;
    (ii) The HCPP is not in substantial compliance with the provisions 
of the agreement, applicable CMS regulations, or applicable provisions 
of the Medicare law; or
    (iii) The HCPP undergoes a change in ownership as specified in 
subpart M of this part.
    (2) CMS will give notice of termination or nonrenewal to the HCPP at 
least 90 days before the effective date stated in the notice.
    (e) Termination or nonrenewal of agreement by HCPP. (1) If an HCPP 
does not wish to renew its agreement at the end of the term, it must 
give written notice to CMS at least 90 days before the end of the term 
of the agreement. If an HCPP wishes to terminate its agreement before 
the end of the term, it must file a written notice with CMS stating the 
intended effective date of termination.
    (2) CMS may approve the termination date proposed by the HCPP, or 
set a different date no later than 6 months after that date. CMS makes 
this decision based on a finding that termination on a specific date 
would not--
    (i) Unduly disrupt the furnishing of services to the community 
serviced by the HCPP; or
    (ii) Otherwise interfere with the efficient administration of the 
Medicare program.

[50 FR 1375, Jan. 10, 1985, as amended at 57 FR 8202, Mar. 6, 1992; 58 
FR 38081, July 15, 1993; 59 FR 49843, Sept. 30, 1994; 59 FR 59943, Nov. 
21, 1994]



Sec. 417.802  Allowable costs.

    (a) General rule. The costs that are considered allowable for HCPP 
reimbursement are the same as those for reasonable cost HMOs and CMPs 
specified in subpart O of this part, except those in Sec. Sec. 417.531, 
417.532 (a)(3) and (c) through (g), 417.536 (l) and (m), 417.546, 
417.548, and 417.550(b)(2).
    (b) Physicians' services and other Part B supplier services 
furnished under arrangements--(1) Principle. The amount paid by an HCPP 
for physicians' services and other Part B supplier services furnished 
under arrangements is an allowable cost to the extent it is reasonable.
    (2) Application: Payment on other than a fee-for-service basis. If 
the HCPP pays for physicians' services and other Part B supplier 
services on other than a fee-for-service basis--
    (i) Except as specified in paragraph (b)(2)(ii) of this section, the 
costs incurred by the HCPP may be considered reasonable if they--
    (A) Do not exceed those that a prudent and cost-conscious buyer 
would incur to purchase those services; and

[[Page 189]]

    (B) Are comparable to costs incurred for similar services furnished 
by similar physicians and other suppliers in the same or a similar 
locality.
    (ii)(A) If a physician group to whom the HCPP makes payment 
compensates its physicians on a fee-for-service basis, the HCPP's 
payment to the group may not exceed the reasonable charges for those 
services, as defined in subpart E of part 405 of this chapter.
    (B) Payment in excess of the limits specified in paragraph 
(b)(2)(ii)(A) of this section is allowable if the group has procedures 
under which members of the group accept effective incentives, such as 
risk-sharing, designed to avoid unnecessary or unduly costly utilization 
of health services. In such cases, the amount paid by the HCPP is 
considered reasonable if it meets the conditions specified in paragraph 
(b)(2)(i) of this section.
    (3) Application: Payment on a fee-for-service basis. If the HCPP 
pays for physicians' services and other Part B supplier services on a 
fee-for-service basis--
    (i) Except as specified in paragraph (b)(3)(ii) of this section, the 
costs incurred by the HCPP are considered reasonable if they do not 
exceed--
    (A) The reasonable charges for those services, as defined in subpart 
E of part 405 of this chapter; and
    (B) The amount that CMS would pay for those services if they were 
furnished to beneficiaries who are not enrolled in the HCPP and who 
receive the services from sources other than providers of services or 
other entities that are reimbursed on a reasonable cost basis.
    (ii) Payment to a physician group organized on an individual-
practice basis is not subject to the paragraph (b)(3)(i) of this section 
if the group pays its physicians on a fee-for-service basis and has 
procedures under which the members of the group accept effective 
incentives, such as risk-sharing, designed to avoid unnecessary or 
unduly costly utilization of health services. In these cases, the amount 
paid by an HCPP is considered reasonable if it meets the conditions 
specified in paragraph (b)(2)(i) of this section.

[50 FR 1375, Jan. 10, 1985, as amended at 58 FR 38081, July 15, 1993]



Sec. 417.804  Cost apportionment.

    (a) The HCPP follows the cost apportionment principles specified in 
Sec. Sec. 417.552 through 417.566, except for provisions on provider 
costs and provisions on departmental apportionment.
    (b) The HCPP may use a method for reporting costs that is approved 
by CMS. CMS bases its approval on a finding that the method--
    (1) Results in an accurate and equitable allocation of allowable 
costs; and
    (2) Is justifiable from an administrative and cost efficiency 
standpoint.



Sec. 417.806  Financial records, statistical data, and cost finding.

    (a) The principles specified in Sec. 417.568 apply to HCPPs, except 
those in paragraph (c) of that section.
    (b) The HCPP may use a method for reporting costs that is approved 
by CMS. CMS bases its approval on a finding that the method--
    (1) Results in an accurate and equitable allocation of allowable 
costs; and
    (2) Is justifiable from an administrative and cost efficiency 
standpoint.
    (c) An HCPP must permit the Department and the Comptroller General 
to audit or inspect any books and records of the HCPP and of any related 
organization that pertain to the determination of amounts payable for 
covered Part B services furnished its Medicare enrollees. For purposes 
of this requirement, the principles specified in Sec. 417.486 apply to 
HCPPs.

[50 FR 1375, Jan. 10, 1985, as amended at 58 FR 38081, July 15, 1993]



Sec. 417.808  Interim per capita payments.

    The HCPP follows the principles specified in Sec. Sec. 417.570 and 
417.572 on interim per capita payments, except for the following:
    (a) When applying these principles to HCPPs, the term ``reporting 
period'' should be used instead of the term ``contract period'' 
contained in that section.
    (b) An HCPP must submit to CMS an annual operating budget and 
enrollment forecast, in the form and detail specified by CMS, at least 
60 days before the beginning of each reporting period. A reporting 
period must be 12 consecutive months, except that the

[[Page 190]]

HCPP's initial reporting period for participating in Medicare may be as 
short as 6 months or as long as 18 months.
    (c) An HCPP must submit to CMS an interim cost report and enrollment 
data applicable to the first 6-month period of the HCPP's reporting 
period in the form and detail specified by CMS. The interim cost report 
must be submitted not later than 45 days after the close of the first 6-
month period of the HCPP's reporting period.
    (d) In lieu of an interim payment based on the actual monthly 
enrollment in an HCPP, CMS and the HCPP may agree to a uniform monthly 
interim reimbursement rate for a reporting period. This interim rate is 
based on the HCPP's budget and enrollment forecast, if CMS is satisfied 
that the rate is consistent with efficiency and economy, and will not 
result in excessive adjustment at the end of the reporting period.



Sec. 417.810  Final settlement.

    (a) General requirement. CMS and an HCPP must make a final 
settlement, and payment of amounts due either to the HCPP or to CMS, 
following the submission and review of the HCPP's annual cost report and 
the supporting documents specified in paragraph (b) of this section.
    (b) Annual cost report as basis for final settlement--(1) Form and 
due date. An HCPP must submit to CMS a cost report and supporting 
documents in the form and detail specified by CMS, no later than 120 
days following the close of a reporting period.
    (2) Contents. The report must include--
    (i) The HCPP's per capita incurred costs of providing covered Part B 
services to its Medicare enrollees during the reporting period, 
including any costs incurred by another organization related to the HCPP 
by common ownership or control;
    (ii) The HCPP's methods of apportioning costs among its Medicare 
enrollees, enrollees who are not Medicare beneficiaries, and other 
nonenrollees, including Medicare beneficiaries receiving health care 
services on a fee-for-service or other basis; and
    (iii) Information on enrollment and other data as specified by CMS.
    (3) Extension of time to submit cost report. CMS may grant an HCPP 
an extension of time to submit a cost report for good cause shown.
    (4) Failure to report required financial information. If an HCPP 
does not submit the required cost report and supporting documents within 
the time specified in paragraph (b)(1) of this section, and has not 
requested and received an extension of time for good cause shown, CMS 
may--
    (i) Regard the failure to report this information as evidence of 
likely overpayment and reduce or suspend interim payments to the HCPP; 
and
    (ii) Determine that amounts previously paid are overpayments, and 
make appropriate recovery.
    (c) Determination of final settlement. Following the HCPP's 
submission of the reports specified in paragraph (b) of this section in 
acceptable form, CMS makes a determination of the total reimbursement 
due the HCPP for the reporting period and the difference, if any, 
between this amount and the total interim payments made to the HCPP. CMS 
sends to the HCPP a notice of the amount of reimbursement by the 
Medicare program. This notice--
    (1) Explains CMS's determination of total reimbursement due the HCPP 
for the reporting period; and
    (2) Informs the HCPP of its right to have the determination reviewed 
at a hearing as provided in part 405, subpart R of this chapter.
    (d) Payment of amounts due. (1) Within 30 days of CMS's 
determination, CMS or the HCPP, as appropriate, will make payment of any 
difference between the total amount due and the total interim payments 
made to the HCPP by CMS.
    (2) If the HCPP does not pay CMS within 30 days of CMS's 
determination of any amounts the HCPP owes CMS, CMS may offset further 
payments to the HCPP to recover, or to aid in the recovery of, any 
overpayment identified in its determination.
    (3) Any offset of payments CMS makes under paragraph (d)(2) of this 
section will remain in effect even if the HCPP has requested a hearing 
on the determination under the provisions of part 405, subpart R of this 
chapter.
    (e) Tentative settlement. (1) If a final settlement cannot be made 
within 90

[[Page 191]]

days after the HCPP submits the report specified in paragraph (b) of 
this section, CMS will make an interim settlement by estimating the 
amount payable to the HCPP.
    (2) CMS or the HCPP will make payment within 30 days of CMS's 
determination under the tentative settlement of any estimated amounts 
due.
    (3) The tentative settlement is subject to adjustment at the time of 
a final settlement.

[50 FR 1375, Jan. 10, 1985, as amended at 58 FR 38081, July 15, 1993]



Sec. 417.830  Scope of regulations on beneficiary appeals.

    Sections 417.832 through 417.840 establish procedures for the 
presentation and resolution of organization determinations, 
reconsiderations, hearings, Departmental Appeals Board review, court 
reviews, and finality of decisions that are applicable to Medicare 
enrollees of an HCPP.

[59 FR 59943, Nov. 21, 1994, as amended at 61 FR 32348, June 24, 1996]



Sec. 417.832  Applicability of requirements and procedures.

    (a) The administrative review rights and procedures specified in 
Sec. Sec. 417.834 through 417.840 pertain to disputes involving an 
organization determination, as defined in Sec. 417.838, with which the 
enrollee is dissatisfied.
    (b) Physicians and other individuals who furnish items or services 
under arrangements with an HCPP have no right of administrative review 
under Sec. Sec. 417.834 through 417.840.
    (c) The provisions of part 405 dealing with the representation of 
parties apply to organization determinations and appeals.
    (d) The provisions of part 405 dealing with administrative law judge 
hearings, Medicare Appeals Council review, and judicial review are 
applicable, unless otherwise provided.

[59 FR 59943, Nov. 21, 1994, as amended at 70 FR 4713, Jan. 28, 2005]



Sec. 417.834  Responsibility for establishing administrative review procedures.

    The HCPP is responsible for establishing and maintaining the 
administrative review procedures that are specified in Sec. Sec. 
417.830 through 417.840.

[59 FR 59943, Nov. 21, 1994]



Sec. 417.836  Written description of administrative review procedures.

    Each HCPP is responsible for ensuring that all Medicare enrollees 
are informed in writing of the administrative review procedures that are 
available to them.

[59 FR 59943, Nov. 21, 1994]



Sec. 417.838  Organization determinations.

    (a) Actions that are organization determinations. For purposes of 
Sec. Sec. 417.830 through 417.840, an organization determination is a 
refusal to furnish or arrange for services, or reimburse the party for 
services provided to the beneficiary, on the grounds that the services 
are not covered by Medicare.
    (b) Actions that are not organization determinations. The following 
are not organization determinations for purposes of Sec. Sec. 417.830 
through 417.840:
    (1) A determination regarding services that were furnished by the 
HCPP, either directly or under arrangement, for which the enrollee has 
no further obligation for payment.
    (2) A determination regarding services that are not covered under 
the HCPP's agreement with CMS.

[59 FR 59943, Nov. 21, 1994]



Sec. 417.840  Administrative review procedures.

    The HCPP must apply Sec. 422.568 through Sec. 422.619 of this 
chapter to organization determinations that affect its Medicare 
enrollees, and to reconsiderations, hearings, Medicare Appeals Council 
review, and judicial review of those organization determinations.

[70 FR 4713, Jan. 28, 2005]



    Subpart V_Administration of Outstanding Loans and Loan Guarantees



Sec. 417.910  Applicability.

    The regulations in this subpart apply, as appropriate, to public and 
private entities that have loans or loan guarantees that--

[[Page 192]]

    (a) Were awarded to them before October 1986 under section 1304 or 
section 1305 of the PHS Act; and
    (b) Are still outstanding.

[59 FR 49842, Sept. 30, 1994]



Sec. 417.911  Definitions.

    As used in this subpart--
    Any 12-month period means the 12-month period beginning on the first 
day of any month.
    Expansion of services means--(1) The addition of any health service 
not previously provided by or through the HMO, that requires an increase 
in the facilities, equipment, or health professionals of the HMO; or
    (2) The improvement or upgrading of existing facilities or 
equipment, or an increase in the number of categories of health 
professionals, of the HMO so that the HMO could provide directly 
services that it previously provided through contract or referral or 
which it could not previously provide with its existing facilities or 
equipment.
    First 60 months of operation or expansion means the 60-month period 
beginning on the first day of the month during which the HMO first 
provided services to enrollees, or in the case of significant expansion, 
first provided services in accordance with its expansion plan.
    Health system agency means an entity that has been designated in 
accordance with section 1515 of the PHS Act; and the term State health 
planning and development agency means an agency that has been designated 
in accordance with section 1521 of the PHS Act.
    Initial costs of operation means any cost incurred in the first 60 
months of an operation or expansion that met any of the following 
requirements:
    (1) Under generally accepted accounting principles or under 
accounting practices prescribed or permitted by State regulatory 
authority, was not a capital cost.
    (2) Was required by State regulatory authority to meet reserves or 
tangible net equity requirements.
    (3) Was for a payment made to reduce balance sheet liabilities 
existing at the beginning of the 60-month period, but only if--(i) The 
payment had been approved in writing by the Secretary; and
    (ii) The total of these payments did not exceed 20 percent of the 
amount of the loan.
    (4) Was for a small capital expenditure, but only if--(i) The cost 
had been approved in writing by the Secretary; and
    (ii) The total of these costs did not exceed $200,000 in any 12-
month period, and $400,000 during the first 60 months of operation or 
expansion.
    Nonprofit as applied to a private entity, means a private agency, 
institution, or organization, no part of the net earnings of which 
inures, or may lawfully inure, to the benefit of any private shareholder 
or individual.
    Significant expansion means--(1) A planned substantial increase in 
the enrollment of the HMO, that requires an increase in the number of 
health professionals serving enrollees of the HMO or an expansion of the 
physical capacity of the HMO's total health facilities; or
    (2) A planned expansion of the service area beyond the current 
service area, that would be made possible by the addition of health 
service delivery facilities and health professionals to serve enrollees 
at a new site or sites in areas previously without service sites.
    Small capital expenditure means expenditures for--(1) Equipment as 
defined in 45 CFR 74.132; or
    (2) Alterations and renovations required to change the interior 
arrangements or other physical characteristics of an existing facility 
or installed equipment, so that it may be more effectively used for its 
currently designated purpose, or adapted to a changed use.

[58 FR 38076, July 15, 1993, as amended at 59 FR 49842, Sept. 30, 1994]



Sec. 417.920  Planning and initial development.

    (a) Under section 1304 of the PHS Act, grants and loan guarantees 
were awarded for projects for planning and initial development of HMOs.
    (b) Planning projects included projects for any of the following:
    (1) Establishment of an HMO.
    (2) Significant expansion of the HMO's enrollment or geographic 
area.

[[Page 193]]

    (c) Initial development projects included projects for any of the 
following:
    (1) Establishment of an HMO.
    (2) Significant expansion of the HMO's enrollment or geographic 
area.
    (3) Expansion of the range or amount of services furnished by the 
HMO.

[58 FR 38076, July 15, 1993]



Sec. 417.930  Initial costs of operation.

    Under section 1305 of the PHS, loans and loan guarantees were 
awarded for initial costs of operation of HMOs.

[58 FR 38077, July 15, 1993]



Sec. 417.931  [Reserved]



Sec. 417.934  Reserve requirement.

    (a) Timing. Unless the Secretary approved a longer period, an entity 
that received a loan or loan guarantee under section 1305 of the PHS Act 
was required to establish a restricted reserve account on the earlier of 
the following:
    (1) When the HMO's revenues and costs of operation reached the 
break-even point.
    (2) At the end of the 60-month period following the Secretary's 
endorsement of the loan or loan guarantee.
    (b) Purpose and amount of reserve. The reserve had to be constituted 
so as to accumulate, no later than 12 years after endorsement of the 
loan or loan guarantee, an amount equal to 1 year's principal and 
interest.

[59 FR 49842, Sept. 30, 1994]



Sec. 417.937  Loan and loan guarantee provisions.

    (a) Disbursement of loan proceeds. The principal amount of any loan 
made or guaranteed by the Secretary under this subpart was disbursed to 
the entity in accordance with an agreement entered into between the 
parties to the loan and approved by the Secretary.
    (b) Length and maturity of loans. The principal amount of each loan 
or loan guarantee, together with interest thereon, is repayable over a 
period of 22 years, beginning on the date of endorsement of the loan, or 
loan guarantee by the Secretary. The Secretary could approve a shorter 
repayment period if he or she determined that a repayment period of less 
than 22 years is more appropriate to an entity's total financial plan.
    (c) Repayment. The principal amount of each loan or loan guarantee, 
together with interest thereon is repayable in accordance with a 
repayment schedule that is agreed upon by the parties to the loan or 
loan guarantee and approved by the Secretary before or at the time of 
endorsement of the loan. Unless otherwise specifically authorized by the 
Secretary, each loan made or guaranteed by the Secretary is repayable in 
substantially level combined installments of principal and interest to 
be paid at intervals not less frequently than annually, sufficient in 
amount to amortize the loan through the final year of the life of the 
loan. Principal repayment during the first 60 months of operation could 
be deferred with payment of interest only during that period. The 
Secretary could set rates of interest for each disbursement at a rate 
comparable to the rate of interest prevailing on the date of 
disbursement for marketable obligations of the United States of 
comparable maturities, adjusted to provide for appropriate 
administrative charges.

[59 FR 49842, Sept. 30, 1994]



Sec. 417.940  Civil action to enforce compliance with assurances.

    The provisions of Sec. 417.163(g) apply to entities that have 
outstanding loans or loan guarantees administered under this subpart.

[59 FR 49843, Sept. 30, 1994]



PART 418_HOSPICE CARE--Table of Contents




               Subpart A_General Provision and Definitions

Sec.
418.1 Statutory basis.
418.2 Scope of part.
418.3 Definitions.

        Subpart B_Eligibility, Election and Duration of Benefits

418.20 Eligibility requirements.
418.21 Duration of hospice care coverage--Election periods.
418.22 Certification of terminal illness.
418.24 Election of hospice care.
418.25 Admission to hospice care.
418.26 Discharge from hospice care.

[[Page 194]]

418.28 Revoking the election of hospice care.
418.30 Change of the designated hospice.

      Subpart C_Conditions of Participation_General Provisions and 
                             Administration

418.50 Condition of participation--General provisions.
418.52 Condition of participation--Governing body.
418.54 Condition of participation--Medical director.
418.56 Condition of participation--Professional management.
418.58 Condition of participation--Plan of care.
418.60 Condition of participation--Continuation of care.
418.62 Condition of participation--Informed consent.
418.64 Condition of participation--Inservice training.
418.66 Condition of participation--Quality assurance.
418.68 Condition of participation--Interdisciplinary group.
418.70 Condition of participation--Volunteers.
418.72 Condition of participation--Licensure.
418.74 Condition of participation--Central clinical records.

          Subpart D_Conditions of Participation: Core Services

418.80 Condition of participation--Furnishing of core services.
418.82 Condition of participation--Nursing services.
418.83 Nursing services--Waiver of requirement that substantially all 
          nursing services be routinely provided directly by a hospice.
418.84 Condition of participation--Medical social services.
418.86 Condition of participation--Physician services.
418.88 Condition of participation--Counseling services.

          Subpart E_Conditions of Participation: Other Services

418.90 Condition of participation--Furnishing of other services.
418.92 Condition of participation--Physical therapy, occupational 
          therapy, and speech-language pathology.
418.94 Condition of participation--Home health aide and homemaker 
          services.
418.96 Condition of participation--Medical supplies.
418.98 Condition of participation--Short term inpatient care.
418.100 Condition of participation--Hospices that provide inpatient care 
          directly.

                       Subpart F_Covered Services

418.200 Requirements for coverage.
418.202 Covered services.
418.204 Special coverage requirements.
418.205 Special requirements for hospice pre-election evaluation and 
          counseling services.

                   Subpart G_Payment for Hospice Care

418.301 Basic rules.
418.302 Payment procedures for hospice care.
418.304 Payment for physician and nurse practitioner services.
418.306 Determination of payment rates.
418.307 Periodic interim payments.
418.308 Limitation on the amount of hospice payments.
418.309 Hospice cap amount.
418.310 Reporting and recordkeeping requirements.
418.311 Administrative appeals.

                          Subpart H_Coinsurance

418.400 Individual liability for coinsurance for hospice care.
418.402 Individual liability for services that are not considered 
          hospice care.
418.405 Effect of coinsurance liability on Medicare payment.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 48 FR 56026, Dec. 16, 1983, unless otherwise noted.



               Subpart A_General Provision and Definitions



Sec. 418.1  Statutory basis.

    This part implements section 1861(dd) of the Social Security Act. 
Section 1861(dd) specifies services covered as hospice care and the 
conditions that a hospice program must meet in order to participate in 
the Medicare program. The following sections of the Act are also 
pertinent:
    (a) Sections 1812(a) (4) and (d) of the Act specify eligibility 
requirements for the individual and the benefit periods.
    (b) Section 1813(a)(4) of the Act specifies coinsurance amounts.
    (c) Sections 1814(a)(7) and 1814(i) of the Act contain conditions 
and limitations on coverage of, and payment for, hospice care.

[[Page 195]]

    (d) Sections 1862(a) (1), (6) and (9) of the Act establish limits on 
hospice coverage.

[48 FR 56026, Dec. 16, 1983, as amended at 57 FR 36017, Aug. 12, 1992]



Sec. 418.2  Scope of part.

    Subpart A of this part sets forth the statutory basis and scope and 
defines terms used in this part. Subpart B specifies the eligibility 
requirements and the benefit periods. Subpart C specifies conditions of 
participation for hospices. Subpart D describes the covered services and 
specifies the limits on services covered as hospice care. Subpart E 
specifies the reimbursement methods and procedures. Subpart F specifies 
coinsurance amounts applicable to hospice care.



Sec. 418.3  Definitions.

    For purposes of this part--
    Attending physician means a--(1)(i) Doctor of medicine or osteopathy 
legally authorized to practice medicine and surgery by the State in 
which he or she performs that function or action; or
    (ii) Nurse practitioner who meets the training, education, and 
experience requirements as described in Sec. 410.75 (b) of this 
chapter.
    (2) Is identified by the individual, at the time he or she elects to 
receive hospice care, as having the most significant role in the 
determination and delivery of the individual's medical care.
    Bereavement counseling means counseling services provided to the 
individual's family after the individual's death.
    Cap period means the twelve-month period ending October 31 used in 
the application of the cap on overall hospice reimbursement specified in 
Sec. 418.309.
    Employee means an employee (defined by section 210(j) of the Act) of 
the hospice or, if the hospice is a subdivision of an agency or 
organization, an employee of the agency or organization who is 
appropriately trained and assigned to the hospice unit. ``Employee'' 
also refers to a volunteer under the jurisdiction of the hospice.
    Hospice means a public agency or private organization or subdivision 
of either of these that--is primarily engaged in providing care to 
terminally ill individuals.
    Physician means physician as defined in Sec. 410.20 of this 
chapter.
    Representative means an individual who has been authorized under 
State law to terminate medical care or to elect or revoke the election 
of hospice care on behalf of a terminally ill individual who is mentally 
or physically incapacitated.
    Social worker means a person who has at least a bachelor's degree 
from a school accredited or approved by the Council on Social Work 
Education.
    Terminally ill means that the individual has a medical prognosis 
that his or her life expectancy is 6 months or less if the illness runs 
its normal course.

[48 FR 56026, Dec. 16, 1983, as amended at 52 FR 4499, Feb. 12, 1987; 50 
FR 50834, Dec. 11, 1990; 70 FR 45144, Aug. 4, 2005; 72 FR 50227, Aug. 
31, 2007]



        Subpart B_Eligibility, Election and Duration of Benefits



Sec. 418.20  Eligibility requirements.

    In order to be eligible to elect hospice care under Medicare, an 
individual must be--
    (a) Entitled to Part A of Medicare; and
    (b) Certified as being terminally ill in accordance with Sec. 
418.22.



Sec. 418.21  Duration of hospice care coverage--Election periods.

    (a) Subject to the conditions set forth in this part, an individual 
may elect to receive hospice care during one or more of the following 
election periods:
    (1) An initial 90-day period;
    (2) A subsequent 90-day period; or
    (3) An unlimited number of subsequent 60-day periods.
    (b) The periods of care are available in the order listed and may be 
elected separately at different times.

[55 FR 50834, Dec. 11, 1990, as amended at 57 FR 36017, Aug. 12, 1992; 
70 FR 70546, Nov. 22, 2005]

[[Page 196]]



Sec. 418.22  Certification of terminal illness.

    (a) Timing of certification--(1) General rule. The hospice must 
obtain written certification of terminal illness for each of the periods 
listed in Sec. 418.21, even if a single election continues in effect 
for an unlimited number of periods, as provided in Sec. 418.24(c).
    (2) Basic requirement. Except as provided in paragraph (a)(3) of 
this section, the hospice must obtain the written certification before 
it submits a claim for payment.
    (3) Exception. If the hospice cannot obtain the written 
certification within 2 calendar days, after a period begins, it must 
obtain an oral certification within 2 calendar days and the written 
certification before it submits a claim for payment.
    (b) Content of certification. Certification will be based on the 
physician's or medical director's clinical judgment regarding the normal 
course of the individual's illness. The certification must conform to 
the following requirements:
    (1) The certification must specify that the individual's prognosis 
is for a life expectancy of 6 months or less if the terminal illness 
runs its normal course.
    (2) Clinical information and other documentation that support the 
medical prognosis must accompany the certification and must be filed in 
the medical record with the written certification as set forth in 
paragraph (d)(2) of this section. Initially, the clinical information 
may be provided verbally, and must be documented in the medical record 
and included as part of the hospice's eligibility assessment.
    (c) Sources of certification. (1) For the initial 90-day period, the 
hospice must obtain written certification statements (and oral 
certification statements if required under paragraph (a)(3) of this 
section) from--
    (i) The medical director of the hospice or the physician member of 
the hospice interdisciplinary group; and
    (ii) The individual's attending physician, if the individual has an 
attending physician. The attending physician must meet the definition of 
physician specified in Sec. 410.20 of this subchapter.
    (2) For subsequent periods, the only requirement is certification by 
one of the physicians listed in paragraph (c)(1)(i) of this section.
    (d) Maintenance of records. Hospice staff must--
    (1) Make an appropriate entry in the patient's medical record as 
soon as they receive an oral certification; and
    (2) File written certifications in the medical record.

[55 FR 50834, Dec. 11, 1990, as amended at 57 FR 36017, Aug. 12, 1992; 
70 FR 45144, Aug. 4, 2005; 70 FR 70547, Nov. 22, 2005]



Sec. 418.24  Election of hospice care.

    (a) Filing an election statement. An individual who meets the 
eligibility requirement of Sec. 418.20 may file an election statement 
with a particular hospice. If the individual is physically or mentally 
incapacitated, his or her representative (as defined in Sec. 418.3) may 
file the election statement.
    (b) Content of election statement. The election statement must 
include the following:
    (1) Identification of the particular hospice that will provide care 
to the individual.
    (2) The individual's or representative's acknowledgement that he or 
she has been given a full understanding of the palliative rather than 
curative nature of hospice care, as it relates to the individual's 
terminal illness.
    (3) Acknowledgement that certain Medicare services, as set forth in 
paragraph (d) of this section, are waived by the election.
    (4) The effective date of the election, which may be the first day 
of hospice care or a later date, but may be no earlier than the date of 
the election statement.
    (5) The signature of the individual or representative.
    (c) Duration of election. An election to receive hospice care will 
be considered to continue through the initial election period and 
through the subsequent election periods without a break in care as long 
as the individual--
    (1) Remains in the care of a hospice;
    (2) Does not revoke the election; and
    (3) Is not discharged from the hospice under the provisions of Sec. 
418.26.
    (d) Waiver of other benefits. For the duration of an election of 
hospice care,

[[Page 197]]

an individual waives all rights to Medicare payments for the following 
services:
    (1) Hospice care provided by a hospice other than the hospice 
designated by the individual (unless provided under arrangements made by 
the designated hospice).
    (2) Any Medicare services that are related to the treatment of the 
terminal condition for which hospice care was elected or a related 
condition or that are equivalent to hospice care except for services--
    (i) Provided by the designated hospice:
    (ii) Provided by another hospice under arrangements made by the 
designated hospice; and
    (iii) Provided by the individual's attending physician if that 
physician is not an employee of the designated hospice or receiving 
compensation from the hospice for those services.
    (e) Re-election of hospice benefits. If an election has been revoked 
in accordance with Sec. 418.28, the individual (or his or her 
representative if the individual is mentally or physically 
incapacitated) may at any time file an election, in accordance with this 
section, for any other election period that is still available to the 
individual.

[55 FR 50834, Dec. 11, 1990, as amended at 70 FR 70547, Nov. 22, 2005]



Sec. 418.25  Admission to hospice care.

    (a) The hospice admits a patient only on the recommendation of the 
medical director in consultation with, or with input from, the patient's 
attending physician (if any).
    (b) In reaching a decision to certify that the patient is terminally 
ill, the hospice medical director must consider at least the following 
information:
    (1) Diagnosis of the terminal condition of the patient.
    (2) Other health conditions, whether related or unrelated to the 
terminal condition.
    (3) Current clinically relevant information supporting all 
diagnoses.

[70 FR 70547, Nov. 22, 2005]



Sec. 418.26  Discharge from hospice care.

    (a) Reasons for discharge. A hospice may discharge a patient if--
    (1) The patient moves out of the hospice's service area or transfers 
to another hospice;
    (2) The hospice determines that the patient is no longer terminally 
ill; or
    (3) The hospice determines, under a policy set by the hospice for 
the purpose of addressing discharge for cause that meets the 
requirements of paragraphs (a)(3)(i) through (a)(3)(iv) of this section, 
that the patient's (or other persons in the patient's home) behavior is 
disruptive, abusive, or uncooperative to the extent that delivery of 
care to the patient or the ability of the hospice to operate effectively 
is seriously impaired. The hospice must do the following before it seeks 
to discharge a patient for cause:
    (i) Advise the patient that a discharge for cause is being 
considered;
    (ii) Make a serious effort to resolve the problem(s) presented by 
the patient's behavior or situation;
    (iii) Ascertain that the patient's proposed discharge is not due to 
the patient's use of necessary hospice services; and
    (iv) Document the problem(s) and efforts made to resolve the 
problem(s) and enter this documentation into its medical records.
    (b) Discharge order. Prior to discharging a patient for any reason 
listed in paragraph (a) of this section, the hospice must obtain a 
written physician's discharge order from the hospice medical director. 
If a patient has an attending physician involved in his or her care, 
this physician should be consulted before discharge and his or her 
review and decision included in the discharge note.
    (c) Effect of discharge. An individual, upon discharge from the 
hospice during a particular election period for reasons other than 
immediate transfer to another hospice--
    (1) Is no longer covered under Medicare for hospice care;
    (2) Resumes Medicare coverage of the benefits waived under Sec. 
418.24(d); and
    (3) May at any time elect to receive hospice care if he or she is 
again eligible to receive the benefit.
    (d) Discharge planning. (1) The hospice must have in place a 
discharge planning process that takes into account the prospect that a 
patient's condition

[[Page 198]]

might stabilize or otherwise change such that the patient cannot 
continue to be certified as terminally ill.
    (2) The discharge planning process must include planning for any 
necessary family counseling, patient education, or other services before 
the patient is discharged because he or she is no longer terminally ill.

[70 FR 70547, Nov. 22, 2005]



Sec. 418.28  Revoking the election of hospice care.

    (a) An individual or representative may revoke the individual's 
election of hospice care at any time during an election period.
    (b) To revoke the election of hospice care, the individual or 
representative must file a statement with the hospice that includes the 
following information:
    (1) A signed statement that the individual or representative revokes 
the individual's election for Medicare coverage of hospice care for the 
remainder of that election period.
    (2) The date that the revocation is to be effective. (An individual 
or representative may not designate an effective date earlier than the 
date that the revocation is made).
    (c) An individual, upon revocation of the election of Medicare 
coverage of hospice care for a particular election period--
    (1) Is no longer covered under Medicare for hospice care;
    (2) Resumes Medicare coverage of the benefits waived under Sec. 
418.24(e)(2); and
    (3) May at any time elect to receive hospice coverage for any other 
hospice election periods that he or she is eligible to receive.



Sec. 418.30  Change of the designated hospice.

    (a) An individual or representative may change, once in each 
election period, the designation of the particular hospice from which 
hospice care will be received.
    (b) The change of the designated hospice is not a revocation of the 
election for the period in which it is made.
    (c) To change the designation of hospice programs, the individual or 
representative must file, with the hospice from which care has been 
received and with the newly designated hospice, a statement that 
includes the following information:
    (1) The name of the hospice from which the individual has received 
care and the name of the hospice from which he or she plans to receive 
care.
    (2) The date the change is to be effective.



      Subpart C_Conditions of Participation_General Provisions and 
                             Administration



Sec. 418.50  Condition of participation--General provisions.

    (a) Standard: Compliance. A hospice must maintain compliance with 
the conditions of this subpart and subparts D and E of this part.
    (b) Standard: Required services. A hospice must be primarily engaged 
in providing the care and services described in Sec. 418.202, must 
provide bereavement counseling and must--
    (1) Make nursing services, physician services, and drugs and 
biologicals routinely available on a 24-hour basis;
    (2) Make all other covered services available on a 24-hour basis to 
the extent necessary to meet the needs of individuals for care that is 
reasonable and necessary for the palliation and management of terminal 
illness and related conditions; and
    (3) Provide these services in a manner consistent with accepted 
standards of practice.
    (c) Standard: Disclosure of information. The hospice must meet the 
disclosure of information requirements at Sec. 420.206 of this chapter.

[48 FR 56026, Dec. 16, 1983, as amended at 55 FR 50834, Dec. 11, 1990]



Sec. 418.52  Condition of participation--Governing body.

    A hospice must have a governing body that assumes full legal 
responsibility for determining, implementing and monitoring policies 
governing the hospice's total operation. The governing body must 
designate an individual who is responsible for the day to day management 
of the hospice program. The governing body must also ensure that all 
services provided are

[[Page 199]]

consistent with accepted standards of practice.



Sec. 418.54  Condition of participation--Medical director.

    The medical director must be a hospice employee who is a doctor of 
medicine or osteopathy who assumes overall responsibility for the 
medical component of the hospice's patient care program.



Sec. 418.56  Condition of participation--Professional management.

    Subject to the conditions of participation pertaining to services in 
Sec. Sec. 418.80 and 418.90, a hospice may arrange for another 
individual or entity to furnish services to the hospice's patients. If 
services are provided under arrangement, the hospice must meet the 
following standards:
    (a) Standard: Continuity of care. The hospice program assures the 
continuity of patient/family care in home, outpatient, and inpatient 
settings.
    (b) Standard: Written agreement. The hospice has a legally binding 
written agreement for the provision of arranged services. The agreement 
includes at least the following:
    (1) Identification of the services to be provided.
    (2) A stipulation that services may be provided only with the 
express authorization of the hospice.
    (3) The manner in which the contracted services are coordinated, 
supervised, and evaluated by the hospice.
    (4) The delineation of the role(s) of the hospice and the contractor 
in the admission process, patient/family assessment, and the 
interdisciplinary group care conferences.
    (5) Requirements for documenting that services are furnished in 
accordance with the agreement.
    (6) The qualifications of the personnel providing the services.
    (c) Standard: Professional management responsibility. The hospice 
retains professional management responsibility for those services and 
ensures that they are furnished in a safe and effective manner by 
persons meeting the qualifications of this part, and in accordance with 
the patient's plan of care and the other requirements of this part.
    (d) Standard: Financial responsibility. The hospice retains 
responsibility for payment for services.
    (e) Standard: Inpatient care. The hospice ensures that inpatient 
care is furnished only in a facility which meets the requirements in 
Sec. 418.98 and its arrangement for inpatient care is described in a 
legally binding written agreement that meets the requirements of 
paragraph (b) and that also specifies, at a minimum--
    (1) That the hospice furnishes to the inpatient provider a copy of 
the patient's plan of care and specifies the inpatient services to be 
furnished;
    (2) That the inpatient provider has established policies consistent 
with those of the hospice and agrees to abide by the patient care 
protocols established by the hospice for its patients;
    (3) That the medical record includes a record of all inpatient 
services and events and that a copy of the discharge summary and, if 
requested, a copy of the medical record are provided to the hospice;
    (4) The party responsible for the implementation of the provisions 
of the agreement; and
    (5) That the hospice retains responsibility for appropriate hospice 
care training of the personnel who provide the care under the agreement.

[48 FR 56026, Dec. 16, 1983; 48 FR 57282, Dec. 29, 1983]



Sec. 418.58  Condition of participation--Plan of care.

    A written plan of care must be established and maintained for each 
individual admitted to a hospice program, and the care provided to an 
individual must be in accordance with the plan.
    (a) Standard: Establishment of plan. The plan must be established by 
the attending physician, the medical director or physician designee and 
interdisciplinary group prior to providing care.
    (b) Standard: Review of plan. The plan must be reviewed and updated, 
at intervals specified in the plan, by the attending physician, the 
medical director or physician designee and interdisciplinary group. 
These reviews must be documented.
    (c) Standard: Content of plan. The plan must include an assessment 
of the individual's needs and identification of the

[[Page 200]]

services including the management of discomfort and symptom relief. It 
must state in detail the scope and frequency of services needed to meet 
the patient's and family's needs.



Sec. 418.60  Condition of participation--Continuation of care.

    A hospice may not discontinue or diminish care provided to a 
Medicare beneficiary because of the beneficiary's inability to pay for 
that care.



Sec. 418.62  Condition of participation--Informed consent.

    A hospice must demonstrate respect for an individual's rights by 
ensuring that an informed consent form that specifies the type of care 
and services that may be provided as hospice care during the course of 
the illness has been obtained for every individual, either from the 
individual or representative as defined in Sec. 418.3.



Sec. 418.64  Condition of participation--Inservice training.

    A hospice must provide an ongoing program for the training of its 
employees.



Sec. 418.66  Condition of participation--Quality assurance.

    A hospice must conduct an ongoing, comprehensive, integrated, self-
assessment of the quality and appropriateness of care provided, 
including inpatient care, home care and care provided under 
arrangements. The findings are used by the hospice to correct identified 
problems and to revise hospice policies if necessary. Those responsible 
for the quality assurance program must--
    (a) Implement and report on activities and mechanisms for monitoring 
the quality of patient care;
    (b) Identify and resolve problems; and
    (c) Make suggestions for improving patient care.



Sec. 418.68  Condition of participation--Interdisciplinary group.

    The hospice must designate an interdisciplinary group or groups 
composed of individuals who provide or supervise the care and services 
offered by the hospice.
    (a) Standard: Composition of group. The hospice must have an 
interdisciplinary group or groups that include at least the following 
individuals who are employees of the hospice:
    (1) A doctor of medicine or osteopathy.
    (2) A registered nurse.
    (3) A social worker.
    (4) A pastoral or other counselor.
    (b) Standard: Role of group. The interdisciplinary group is 
responsible for--
    (1) Participation in the establishment of the plan of care;
    (2) Provision or supervision of hospice care and services;
    (3) Periodic review and updating of the plan of care for each 
individual receiving hospice care; and
    (4) Establishment of policies governing the day-to-day provision of 
hospice care and services.
    (c) If a hospice has more than one interdisciplinary group, it must 
designate in advance the group it chooses to execute the functions 
described in paragraph (b)(4) of this section.
    (d) Standard: Coordinator. The hospice must designate a registered 
nurse to coordinate the implementation of the plan of care for each 
patient.



Sec. 418.70  Condition of participation--Volunteers.

    The hospice in accordance with the numerical standards, specified in 
paragraph (e) of this section, uses volunteers, in defined roles, under 
the supervision of a designated hospice employee.
    (a) Standard: Training. The hospice must provide appropriate 
orientation and training that is consistent with acceptable standards of 
hospice practice.
    (b) Standard: Role. Volunteers must be used in administrative or 
direct patient care roles.
    (c) Standard: Recruiting and retaining. The hospice must document 
active and ongoing efforts to recruit and retain volunteers.
    (d) Standard: Cost saving. The hospice must document the cost 
savings achieved through the use of volunteers. Documentation must 
include--
    (1) The identification of necessary positions which are occupied by 
volunteers;

[[Page 201]]

    (2) The work time spent by volunteers occupying those positions; and
    (3) Estimates of the dollar costs which the hospice would have 
incurred if paid employees occupied the positions identified in 
paragraph (d)(1) for the amount of time specified in paragraph (d)(2).
    (e) Standard: Level of activity. A hospice must document and 
maintain a volunteer staff sufficient to provide administrative or 
direct patient care in an amount that, at a minimum, equals 5 percent of 
the total patient care hours of all paid hospice employees and contract 
staff. The hospice must document a continuing level of volunteer 
activity. Expansion of care and services achieved through the use of 
volunteers, including the type of services and the time worked, must be 
recorded.
    (f) Standard: Availability of clergy. The hospice must make 
reasonable efforts to arrange for visits of clergy and other members of 
religious organizations in the community to patients who request such 
visits and must advise patients of this opportunity.



Sec. 418.72  Condition of participation--Licensure.

    The hospice and all hospice employees must be licensed in accordance 
with applicable Federal, State and local laws and regulations.
    (a) Standard: Licensure of program. If State or local law provides 
for licensing of hospices, the hospice must be licensed.
    (b) Standard: Licensure of employees. Employees who provide services 
must be licensed, certified or registered in accordance with applicable 
Federal or State laws.



Sec. 418.74  Condition of participation--Central clinical records.

    In accordance with accepted principles of practice, the hospice must 
establish and maintain a clinical record for every individual receiving 
care and services. The record must be complete, promptly and accurately 
documented, readily accessible and systematically organized to 
facilitate retrieval.
    (a) Standard: Content. Each clinical record is a comprehensive 
compilation of information. Entries are made for all services provided. 
Entries are made and signed by the person providing the services. The 
record includes all services whether furnished directly or under 
arrangements made by the hospice. Each individual's record contains--
    (1) The initial and subsequent assessments;
    (2) The plan of care;
    (3) Identification data;
    (4) Consent and authorization and election forms;
    (5) Pertinent medical history; and
    (6) Complete documentation of all services and events (including 
evaluations, treatments, progress notes, etc.).
    (b) Standard; Protection of information. The hospice must safeguard 
the clinical record against loss, destruction and unauthorized use.



          Subpart D_Conditions of Participation: Core Services



Sec. 418.80  Condition of participation--Furnishing of core services.

    Except as permitted in Sec. 418.83, a hospice must ensure that 
substantially all the core services described in this subpart are 
routinely provided directly by hospice employees. A hospice may use 
contracted staff if necessary to supplement hospice employees in order 
to meet the needs of patients during periods of peak patient loads or 
under extraordinary circumstances. If contracting is used, the hospice 
must maintain professional, financial, and administrative responsibility 
for the services and must assure that the qualifications of staff and 
services provided meet the requirements specified in this subpart.

[52 FR 7416, Mar. 11, 1987, as amended at 55 FR 50835, Dec. 11, 1990]



Sec. 418.82  Condition of participation--Nursing services.

    The hospice must provide nursing care and services by or under the 
supervision of a registered nurse.
    (a) Nursing services must be directed and staffed to assure that the 
nursing needs of patients are met.
    (b) Patient care responsibilities of nursing personnel must be 
specified.
    (c) Services must be provided in accordance with recognized 
standards of practice.

[[Page 202]]



Sec. 418.83  Nursing services--Waiver of requirement that substantially all nursing services be routinely provided directly by a hospice.

    (a) CMS may approve a waiver of the requirement in Sec. 418.80 for 
nursing services provided by a hospice which is located in a non-
urbanized area. The location of a hospice that operates in several areas 
is considered to be the location of its central office. The hospice must 
provide evidence that it was operational on or before January 1, 1983, 
and that it made a good faith effort to hire a sufficient number of 
nurses to provide services directly. CMS bases its decision as to 
whether to approve a waiver application on the following:
    (1) The current Bureau of the Census designations for determining 
non-urbanized areas.
    (2) Evidence that a hospice was operational on or before January 1, 
1983 including:
    (i) Proof that the organization was established to provide hospice 
services on or before January 1, 1983;
    (ii) Evidence that hospice-type services were furnished to patients 
on or before January 1, 1983; and
    (iii) Evidence that the hospice care was a discrete activity rather 
than an aspect of another type of provider's patient care program on or 
before January 1, 1983.
    (3) Evidence that a hospice made a good faith effort to hire nurses, 
including:
    (i) Copies of advertisements in local newspapers that demonstrate 
recruitment efforts;
    (ii) Job descriptions for nurse employees;
    (iii) Evidence that salary and benefits are competitive for the 
area; and
    (iv) Evidence of any other recruiting activities (e.g., recruiting 
efforts at health fairs and contacts with nurses at other providers in 
the area);
    (b) Any waiver request is deemed to be granted unless it is denied 
within 60 days after it is received.
    (c) Waivers will remain effective for one year at a time.
    (d) CMS may approve a maximum of two one-year extensions for each 
initial waiver. If a hospice wishes to receive a one-year extension, the 
hospice must submit a certification to CMS, prior to the expiration of 
the waiver period, that the employment market for nurses has not changed 
significantly since the time the initial waiver was granted.

[52 FR 7416, Mar. 11, 1987]



Sec. 418.84  Condition of participation--Medical social services.

    Medical social services must be provided by a qualified social 
worker, under the direction of a physician.



Sec. 418.86  Condition of participation--Physician services.

    In addition to palliation and management of terminal illness and 
related conditions, physician employees of the hospice, including the 
physician member(s) of the interdisciplinary group, must also meet the 
general medical needs of the patients to the extent that these needs are 
not met by the attending physician.



Sec. 418.88  Condition of participation--Counseling services.

    Counseling services must be available to both the individual and the 
family. Counseling includes bereavement counseling, provided after the 
patient's death as well as dietary, spiritual and any other counseling 
services for the individual and family provided while the individual is 
enrolled in the hospice.
    (a) Standard: Bereavement counseling. There must be an organized 
program for the provision of bereavement services under the supervision 
of a qualified professional. The plan of care for these services should 
reflect family needs, as well as a clear delineation of services to be 
provided and the frequency of service delivery (up to one year following 
the death of the patient). A special coverage provision for bereavement 
counseling is specified Sec. 418.204(c).
    (b) Standard: Dietary counseling. Dietary counseling, when required, 
must be provided by a qualified individual.
    (c) Standard: Spiritual counseling. Spiritual counseling must 
include notice to patients as to the availability of clergy as provided 
in Sec. 418.70(f).
    (d) Standard: Additional counseling. Counseling may be provided by 
other members of the interdisciplinary group

[[Page 203]]

as well as by other qualified professionals as determined by the 
hospice.



          Subpart E_Conditions of Participation: Other Services



Sec. 418.90  Condition of participation--Furnishing of other services.

    A hospice must ensure that the services described in this subpart 
are provided directly by hospice employees or under arrangements made by 
the hospice as specified in Sec. 418.56.

[48 FR 56026, Dec. 16, 1983, as amended at 55 FR 50835, Dec. 11, 1990]



Sec. 418.92  Condition of participation--Physical therapy, occupational therapy, and speech-language pathology.

    (a) Physical therapy services, occupational therapy services, and 
speech-language patholgy services must be available, and when provided, 
offered in a manner consistent with accepted standards of practice.
    (b)(1) If the hospice engages in laboratory testing outside of the 
context of assisting an individual in self-administering a test with an 
appliance that has been cleared for that purpose by the FDA, such 
testing must be in compliance with all applicable requirements of part 
493 of this chapter.
    (2) If the hospice chooses to refer specimens for laboratory testing 
to another laboratory, the referral laboratory must be certified in the 
appropriate specialties and subspecialties of services in accordance 
with the applicable requirements of part 493 of this chapter.

[57 FR 7135, Feb. 28, 1992]



Sec. 418.94  Condition of participation--Home health aide and homemaker services.

    Home health aide and homemaker services must be available and 
adequate in frequency to meet the needs of the patients. A home health 
aide is a person who meets the training, attitude and skill requirements 
specified in Sec. 484.36 of this chapter.
    (a) Standard: Supervision. A registered nurse must visit the home 
site at least every two weeks when aide services are being provided, and 
the visit must include an assessment of the aide services.
    (b) Standard: Duties. Written instructions for patient care are 
prepared by a registered nurse. Duties include, but may not be limited 
to, the duties specified in Sec. 484.36(c) of this chapter.

[48 FR 56026, Dec. 16, 1983, as amended at 55 FR 50835, Dec. 11, 1990]



Sec. 418.96  Condition of participation--Medical supplies.

    Medical supplies and appliances including drugs and biologicals, 
must be provided as needed for the palliation and management of the 
terminal illness and related conditions.
    (a) Standard: Administration. All drugs and biologicals must be 
administered in accordance with accepted standards of practice.
    (b) Standard: Controlled drugs in the patient's home. The hospice 
must have a policy for the disposal of controlled drugs maintained in 
the patient's home when those drugs are no longer needed by the patient.
    (c) Standard: Administration of drugs and biologicals. Drugs and 
biologicals are administered only by the following individuals:
    (1) A licensed nurse or physician.
    (2) An employee who has completed a State-approved training program 
in medication administration.
    (3) The patient if his or her attending physician has approved.
    (4) Any other individual in accordance with applicable State and 
local laws. The persons, and each drug and biological they are 
authorized to administer, must be specified in the patient's plan of 
care.



Sec. 418.98  Condition of participation--Short term inpatient care.

    Inpatient care must be available for pain control, symptom 
management and respite purposes, and must be provided in a participating 
Medicare or Medicaid facility.
    (a) Standard: Inpatient care for symptom control. Inpatient care for 
pain control and symptom management must be provided in one of the 
following:
    (1) A hospice that meets the condition of participation for 
providing inpatient care directly as specified in Sec. 418.100.

[[Page 204]]

    (2) A hospital or an SNF that also meets the standards specified in 
Sec. 418.100 (a) and (e) regarding 24-hour nursing service and patient 
areas.
    (b) Standard: Inpatient care for respite purposes. Inpatient care 
for respite purposes must be provided by one of the following:
    (1) A provider specified in paragraph (a) of this section.
    (2) An ICF that also meets the standards specified in Sec. 418.100 
(a) and (e) regarding 24-hour nursing service and patient areas.
    (c) Standard: Inpatient care limitation. The total number of 
inpatient days used by Medicare beneficiaries who elected hospice 
coverage in any 12-month period preceding a certification survey in a 
particular hospice may not exceed 20 percent of the total number of 
hospice days for this group of beneficiaries.
    (d) Standard: Exemption from limitation. Until October 1, 1986, any 
hospice that began operation before January 1, 1975 is not subject to 
the limitation specified in paragraph (c).

[48 FR 56026, Dec. 16, 1983, as amended at 55 FR 50835, Dec. 11, 1990]



Sec. 418.100  Condition of participation Hospices that provide inpatient care directly.

    A hospice that provides inpatient care directly must comply with all 
of the following standards.
    (a) Standard: Twenty-four-hour nursing services. (1) The facility 
provides 24-hour nursing services which are sufficient to meet total 
nursing needs and which are in accordance with the patient plan of care. 
Each patient receives treatments, medications, and diet as prescribed, 
and is kept comfortable, clean, well-groomed, and protected from 
accident, injury, and infection.
    (2) Each shift must include a registered nurse who provides direct 
patient care.
    (b) Standard: Disaster preparedness. The hospice has an acceptable 
written plan, periodically rehearsed with staff, with procedures to be 
followed in the event of an internal or external disaster and for the 
care of casualties (patients and personnel) arising from such disasters.
    (c) Standard: Health and safety laws. The hospice must meet all 
Federal, State, and local laws, regulations, and codes pertaining to 
health and safety, such as provisions regulating--
    (1) Construction, maintenance, and equipment for the hospice;
    (2) Sanitation;
    (3) Communicable and reportable diseases; and
    (4) Post mortem procedures.
    (d) Standard: Fire protection. (1) Except as otherwise provided in 
this section--
    (i) The hospice must meet the provisions applicable to nursing homes 
of the 2000 edition of the Life Safety Code of the National Fire 
Protection Association. The Director of the Office of the Federal 
Register has approved the NFPA 101 [reg] 2000 edition of the 
Life Safety Code, issued January 14, 2000, for incorporation by 
reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. A copy 
of the Code is available for inspection at the CMS Information Resource 
Center, 7500 Security Boulevard, Baltimore, MD or at the National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html. Copies may be obtained from the 
National Fire Protection Association, 1 Batterymarch Park, Quincy, MA 
02269. If any changes in this edition of the Code are incorporated by 
reference, CMS will publish notice in the Federal Register to announce 
the changes.
    (ii) Chapter 19.3.6.3.2, exception number 2 of the adopted edition 
of the LSC does not apply to a hospice.
    (2) In consideration of a recommendation by the State survey agency, 
CMS may waive, for periods deemed appropriate, specific provisions of 
the Life Safety Code which, if rigidly applied would result in 
unreasonable hardship for the hospice, but only if the waiver would not 
adversely affect the health and safety of the patients.
    (3) The provisions of the adopted edition of the Life Safety Code do 
not apply in a State if CMS finds that a fire and safety code imposed by 
State

[[Page 205]]

law adequately protects patients in hospices.
    (4) Beginning March 13, 2006, a hospice must be in compliance with 
Chapter 9.2.9, Emergency Lighting.
    (5) Beginning March 13, 2006, Chapter 19.3.6.3.2, exception number 2 
does not apply to hospices.
    (6) Notwithstanding any provisions of the 2000 edition of the Life 
Safety Code to the contrary, a hospice may place alcohol-based hand rub 
dispensers in its facility if--
    (i) Use of alcohol-based hand rub dispensers does not conflict with 
any State or local codes that prohibit or otherwise restrict the 
placement of alcohol-based hand rub dispensers in health care 
facilities;
    (ii) The dispensers are installed in a manner that minimizes leaks 
and spills that could lead to falls;
    (iii) The dispensers are installed in a manner that adequately 
protects against inappropriate access;
    (iv) The dispensers are installed in accordance with chapter 
18.3.2.7 or chapter 19.3.2.7 of the 2000 edition of the Life Safety 
Code, as amended by NFPA Temporary Interim Amendment 00-1(101), issued 
by the Standards Council of the National Fire Protection Association on 
April 15, 2004. The Director of the Office of the Federal Register has 
approved NFPA Temporary Interim Amendment 00-1(101) for incorporation by 
reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. A copy 
of the amendment is available for inspection at the CMS Information 
Resource Center, 7500 Security Boulevard, Baltimore, MD and at the 
Office of the Federal Register, 800 North Capitol Street NW., Suite 700, 
Washington, DC. Copies may be obtained from the National Fire Protection 
Association, 1 Batterymarch Park, Quincy, MA 02269; and
    (v) The dispensers are maintained in accordance with dispenser 
manufacturer guidelines.
    (e) Standard: Patient areas. (1) The hospice must design and equip 
areas for the comfort and privacy of each patient and family members.
    (2) The hospice must have--
    (i) Physical space for private patient/family visiting;
    (ii) Accommodations for family members to remain with the patient 
throughout the night;
    (iii) Accommodations for family privacy after a patient's death; and
    (iv) Decor which is homelike in design and function.
    (3) Patients must be permitted to receive visitors at any hour, 
including small children.
    (f) Standard: Patient rooms and toilet facilities. Patient rooms are 
designed and equipped for adequate nursing care and the comfort and 
privacy of patients.
    (1) Each patient's room must--
    (i) Be equipped with or conveniently located near toilet and bathing 
facilities;
    (ii) Be at or above grade level;
    (iii) Contain a suitable bed for each patient and other appropriate 
furniture;
    (iv) Have closet space that provides security and privacy for 
clothing and personal belongings;
    (v) Contain no more than four beds;
    (vi) Measure at least 100 square feet for a single patient room or 
80 square feet for each patient for a multipatient room; and
    (vii) Be equipped with a device for calling the staff member on 
duty.
    (2) For an existing building, CMS may waive the space and occupancy 
requirements of paragraphs (f)(1) (v) and (vi) of this section for as 
long as it is considered appropriate if it finds that--
    (i) The requirements would result in unreasonable hardship on the 
hospice if strictly enforced; and
    (ii) The waiver serves the particular needs of the patients and does 
not adversely affect their health and safety.
    (g) Standard: Bathroom facilities. The hospice must--
    (1) Provide an adequate supply of hot water at all times for patient 
use; and
    (2) Have plumbing fixtures with control valves that automatically 
regulate the temperature of the hot water used by patients.
    (h) Standard: Linen. The hospice has available at all times a 
quantity of linen essential for proper care and comfort of patients. 
Linens are handled, stored, processed, and transported in such a manner 
as to prevent the spread of infection.

[[Page 206]]

    (i) Standard: Isolation areas. The hospice must make provision for 
isolating patients with infectious diseases.
    (j) Standard: Meal service, menu planning, and supervision. The 
hospice must--
    (1) Serve at least three meals or their equivalent each day at 
regular times, with not more than 14 hours between a substantial evening 
meal and breakfast;
    (2) Procure, store, prepare, distribute, and serve all food under 
sanitary conditions;
    (3) Have a staff member trained or experienced in food management or 
nutrition who is responsible for--
    (i) Planning menus that meet the nutritional needs of each patient, 
following the orders of the patient's physician and, to the extent 
medically possible, the recommended dietary allowances of the Food and 
Nutrition Board of the National Research Council, National Academy of 
Sciences (Recommended Dietary Allowances (9th ed., 1981) is available 
from the Printing and Publications Office, National Academy of Sciences, 
Washington, DC 20418); and
    (ii) Supervising the meal preparation and service to ensure that the 
menu plan is followed; and
    (4) If the hospice has patients who require medically prescribed 
special diets, have the menus for those patients planned by a 
professionally qualified dietitian and supervise the preparation and 
serving of meals to ensure that the patient accepts the special diet.
    (k) Standard: Pharmaceutical services. The hospice provides 
appropriate methods and procedures for the dispensing and administering 
of drugs and biologicals. Whether drugs and biologicals are obtained 
from community or institutional pharmacists or stocked by the facility, 
the facility is responsible for drugs and biologicals for its patients, 
insofar as they are covered under the program and for ensuring that 
pharmaceutical services are provided in accordance with accepted 
professional principles and appropriate Federal, State, and local laws. 
(See Sec. 405.1124(g), (h), and (i) of this chapter.)
    (1) Licensed pharmacist. The hospice must--
    (i) Employ a licensed pharmacist; or
    (ii) Have a formal agreement with a licensed pharmacist to advise 
the hospice on ordering, storage, administration, disposal, and 
recordkeeping of drugs and biologicals.
    (2) Orders for medications. (i) A physician must order all 
medications for the patient.
    (ii) If the medication order is verbal--
    (A) The physician must give it only to a licensed nurse, pharmacist, 
or another physician; and
    (B) The individual receiving the order must record and sign it 
immediately and have the prescribing physician sign it in a manner 
consistent with good medical practice.
    (3) Administering medications. Medications are administered only by 
one of the following individuals:
    (i) A licensed nurse or physician.
    (ii) An employee who has completed a State-approved training program 
in medication administration.
    (iii) The patient if his or her attending physician has approved.
    (4) Control and accountability. The pharmaceutical service has 
procedures for control and accountability of all drugs and biologicals 
throughout the facility. Drugs are dispensed in compliance with Federal 
and State laws. Records of receipt and disposition of all controlled 
drugs are maintained in sufficient detail to enable an accurate 
reconciliation. The pharmacist determines that drug records are in order 
and that an account of all controlled drugs is maintained and 
reconciled.
    (5) Labeling of drugs and biologicals. The labeling of drugs and 
biologicals is based on currently accepted professional principles, and 
includes the appropriate accessory and cautionary instructions, as well 
as the expiration date when applicable.
    (6) Storage. In accordance with State and Federal laws, all drugs 
and biologicals are stored in locked compartments under proper 
temperature controls and only authorized personnel have access to the 
keys. Separately locked compartments are provided for storage of 
controlled drugs listed in Schedule II of the Comprehensive Drug Abuse 
Prevention & Control Act of 1970 and other drugs subject to abuse, 
except under single unit package drug

[[Page 207]]

distribution systems in which the quantity stored is minimal and a 
missing dose can be readily detected. An emergency medication kit is 
kept readily available.
    (7) Drug disposal. Controlled drugs no longer needed by the patient 
are disposed of in compliance with State requirements. In the absence of 
State requirements, the pharmacist and a registered nurse dispose of the 
drugs and prepare a record of the disposal.

[48 FR 56026, Dec. 16, 1983; 48 FR 57282, Dec. 29, 1983; 49 FR 23010, 
June 1, 1984, as amended at 53 FR 11509, Apr. 7, 1988; 55 FR 50835, Dec. 
11, 1990; 68 FR 1386, Jan. 10, 2003; 69 FR 18803, Apr. 9, 2004; 69 FR 
49266, Aug. 11, 2004; 70 FR 15237, Mar. 25, 2005; 71 FR 55339, Sept. 22, 
2006]



                       Subpart F_Covered Services



Sec. 418.200  Requirements for coverage.

    To be covered, hospice services must meet the following 
requirements. They must be reasonable and necessary for the palliation 
or management of the terminal illness as well as related conditions. The 
individual must elect hospice care in accordance with Sec. 418.24 and a 
plan of care must be established as set forth in Sec. 418.58 before 
services are provided. The services must be consistent with the plan of 
care. A certification that the individual is terminally ill must be 
completed as set forth in Sec. 418.22.



Sec. 418.202  Covered services.

    All services must be performed by appropriately qualified personnel, 
but it is the nature of the service, rather than the qualification of 
the person who provides it, that determines the coverage category of the 
service. The following services are covered hospice services:
    (a) Nursing care provided by or under the supervision of a 
registered nurse.
    (b) Medical social services provided by a social worker under the 
direction of a physician.
    (c) Physicians' services performed by a physician as defined in 
Sec. 410.20 of this chapter except that the services of the hospice 
medical director or the physician member of the interdisciplinary group 
must be performed by a doctor of medicine or osteopathy.
    (d) Counseling services provided to the terminally ill individual 
and the family members or other persons caring for the individual at 
home. Counseling, including dietary counseling, may be provided both for 
the purpose of training the individual's family or other caregiver to 
provide care, and for the purpose of helping the individual and those 
caring for him or her to adjust to the individual's approaching death.
    (e) Short-term inpatient care provided in a participating hospice 
inpatient unit, or a participating hospital or SNF, that additionally 
meets the standards in Sec. 418.202 (a) and (e) regarding staffing and 
patient areas. Services provided in an inpatient setting must conform to 
the written plan of care. Inpatient care may be required for procedures 
necessary for pain control or acute or chronic symptom management.

Inpatient care may also be furnished as a means of providing respite for 
the individual's family or other persons caring for the individual at 
home. Respite care must be furnished as specified in Sec. 418.98(b). 
Payment for inpatient care will be made at the rate appropriate to the 
level of care as specified in Sec. 418.302.
    (f) Medical appliances and supplies, including drugs and 
biologicals. Only drugs as defined in section 1861(t) of the Act and 
which are used primarily for the relief of pain and symptom control 
related to the individual's terminal illness are covered. Appliances may 
include covered durable medical equipment as described in Sec. 410.38 
of this chapter as well as other self-help and personal comfort items 
related to the palliation or management of the patient's terminal 
illness. Equipment is provided by the hospice for use in the patient's 
home while he or she is under hospice care. Medical supplies include 
those that are part of the written plan of care.
    (g) Home health aide services furnished by qualified aides as 
designated in Sec. 418.94 and homemaker services. Home health aides may 
provide personal care services as defined in Sec. 409.45(b) of this 
chapter. Aides may perform household services to maintain a safe and 
sanitary environment in areas of the home used by the patient, such as 
changing

[[Page 208]]

bed linens or light cleaning and laundering essential to the comfort and 
cleanliness of the patient. Aide services must be provided under the 
general supervision of a registered nurse. Homemaker services may 
include assistance in maintenance of a safe and healthy environment and 
services to enable the individual to carry out the treatment plan.
    (h) Physical therapy, occupational therapy and speech-language 
pathology services in addition to the services described in Sec. 409.33 
(b) and (c) of this chapter provided for purposes of symptom control or 
to enable the patient to maintain activities of daily living and basic 
functional skills.
    (i) Effective April 1, 1998, any other service that is specified in 
the patient's plan of care as reasonable and necessary for the 
palliation and management of the patient's terminal illness and related 
conditions and for which payment may otherwise be made under Medicare.

[48 FR 56026, Dec. 16, 1983, as amended at 51 FR 41351, Nov. 14, 1986; 
55 FR 50835, Dec. 11, 1990; 59 FR 65498, Dec. 20, 1994; 70 FR 70547, 
Nov. 22, 2005]



Sec. 418.204  Special coverage requirements.

    (a) Periods of crisis. Nursing care may be covered on a continuous 
basis for as much as 24 hours a day during periods of crisis as 
necessary to maintain an individual at home. Either homemaker or home 
health aide services or both may be covered on a 24-hour continuous 
basis during periods of crisis but care during these periods must be 
predominantly nursing care. A period of crisis is a period in which the 
individual requires continuous care to achieve palliation or management 
of acute medical symptoms.
    (b) Respite care. (1) Respite care is short-term inpatient care 
provided to the individual only when necessary to relieve the family 
members or other persons caring for the individual.
    (2) Respite care may be provided only on an occasional basis and may 
not be reimbursed for more than five consecutive days at a time.
    (c) Bereavement counseling. Bereavement counseling is a required 
hospice service but it is not reimbursable.

[48 FR 56026, Dec. 16, 1983, as amended at 55 FR 50835, Dec. 11, 1990]



Sec. 418.205  Special requirements for hospice pre-election evaluation and counseling services.

    (a) Definition. As used in this section the following definition 
applies.
    Terminal illness has the same meaning as defined in Sec. 418.3.
    (b) General. Effective January 1, 2005, payment for hospice pre-
election evaluation and counseling services as specified in Sec. 
418.304(d) may be made to a hospice on behalf of a Medicare beneficiary 
if the requirements of this section are met.
    (1) The beneficiary. The beneficiary:
    (i) Has been diagnosed as having a terminal illness as defined in 
Sec. 418.3.
    (ii) Has not made a hospice election.
    (iii) Has not previously received hospice pre-election evaluation 
and consultation services specified under this section.
    (2) Services provided. The hospice pre-election services include an 
evaluation of an individual's need for pain and symptom management and 
counseling regarding hospice and other care options. In addition, the 
services may include advising the individual regarding advanced care 
planning.
    (3) Provision of pre-election hospice services. (i) The services 
must be furnished by a physician.
    (ii) The physician furnishing these services must be an employee or 
medical director of the hospice billing for this service.
    (iii) The services cannot be furnished by hospice personnel other 
than employed physicians, such as but not limited to nurse 
practitioners, nurses, or social workers, physicians under contractual 
arrangements with the hospice or by the beneficiary's physician, if that 
physician is not an employee of the hospice.
    (iv) If the beneficiary's attending physician is also the medical 
director or a physician employee of the hospice, the attending physician 
may not provide nor may the hospice bill for this service because that 
physician already possesses the expertise necessary to

[[Page 209]]

furnish end-of-life evaluation and management, and counseling services.
    (4) Documentation. (i) If the individual's physician initiates the 
request for services of the hospice medical director or physician, 
appropriate documentation is required.
    (ii) The request or referral must be in writing, and the hospice 
medical director or physician employee is expected to provide a written 
note on the patient's medical record.
    (iii) The hospice agency employing the physician providing these 
services is required to maintain a written record of the services 
furnished.
    (iv) If the services are initiated by the beneficiary, the hospice 
agency is required to maintain a record of the services and 
documentation that communication between the hospice medical director or 
physician and the beneficiary's physician occurs, with the beneficiary's 
permission, to the extent necessary to ensure continuity of care.

[69 FR 66425, Nov. 15, 2004]



                   Subpart G_Payment for Hospice Care



Sec. 418.301  Basic rules.

    (a) Medicare payment for covered hospice care is made in accordance 
with the method set forth in Sec. 418.302.
    (b) Medicare reimbursement to a hospice in a cap period is limited 
to a cap amount specified in Sec. 418.309.
    (c) The hospice may not charge a patient for services for which the 
patient is entitled to have payment made under Medicare or for services 
for which the patient would be entitled to payment, as described in 
Sec. 489.21 of this chapter.

[48 FR 56026, Dec. 16, 1983, as amended at 56 FR 26919, June 12, 1991; 
70 FR 70547, Nov. 22, 2005]



Sec. 418.302  Payment procedures for hospice care.

    (a) CMS establishes payment amounts for specific categories of 
covered hospice care.
    (b) Payment amounts are determined within each of the following 
categories:
    (1) Routine home care day. A routine home care day is a day on which 
an individual who has elected to receive hospice care is at home and is 
not receiving continuous care as defined in paragraph (b)(2) of this 
section.
    (2) Continuous home care day. A continuous home care day is a day on 
which an individual who has elected to receive hospice care is not in an 
inpatient facility and receives hospice care consisting predominantly of 
nursing care on a continuous basis at home. Home health aide or 
homemaker services or both may also be provided on a continuous basis. 
Continuous home care is only furnished during brief periods of crisis as 
described in Sec. 418.204(a) and only as necessary to maintain the 
terminally ill patient at home.
    (3) Inpatient respite care day. An inpatient respite care day is a 
day on which the individual who has elected hospice care receives care 
in an approved facility on a short-term basis for respite.
    (4) General inpatient care day. A general inpatient care day is a 
day on which an individual who has elected hospice care receives general 
inpatient care in an inpatient facility for pain control or acute or 
chronic symptom management which cannot be managed in other settings.
    (c) The payment amounts for the categories of hospice care are fixed 
payment rates that are established by CMS in accordance with the 
procedures described in Sec. 418.306. Payment rates are determined for 
the following categories:
    (1) Routine home care.
    (2) Continuous home care.
    (3) Inpatient respite care.
    (4) General inpatient care.
    (d)(1) The intermediary reimburses the hospice its appropriate 
payment amount for each day for which an eligible Medicare beneficiary 
is under the hospice's care.
    (2) Effective December 8, 2003, if a hospice makes arrangements with 
another hospice to provide services under the circumstances specified in 
section 1861(dd)(5)(D) of the Act, the intermediary reimburses the 
hospice for which the beneficiary has made an election as described in 
paragraph (d)(1) of this section.
    (e) The intermediary makes payment according to the following 
procedures:

[[Page 210]]

    (1) Payment is made to the hospice for each day during which the 
beneficiary is eligible and under the care of the hospice, regardless of 
the amount of services furnished on any given day.
    (2) Payment is made for only one of the categories of hospice care 
described in Sec. 418.302(b) for any particular day.
    (3) On any day on which the beneficiary is not an inpatient, the 
hospice is paid the routine home care rate, unless the patient receives 
continuous care as defined in paragraph (b)(2) of this section for a 
period of at least 8 hours. In that case, a portion of the continuous 
care day rate is paid in accordance with paragraph (e)(4) of this 
section.
    (4) The hospice payment on a continuous care day varies depending on 
the number of hours of continuous services provided. The continuous home 
care rate is divided by 24 to yield an hourly rate. The number of hours 
of continuous care provided during a continuous home care day is then 
multiplied by the hourly rate to yield the continuous home care payment 
for that day. A minimum of 8 hours of care must be furnished on a 
particular day to qualify for the continuous home care rate.
    (5) Subject to the limitations described in paragraph (f) of this 
section, on any day on which the beneficiary is an inpatient in an 
approved facility for inpatient care, the appropriate inpatient rate 
(general or respite) is paid depending on the category of care 
furnished. The inpatient rate (general or respite) is paid for the date 
of admission and all subsequent inpatient days, except the day on which 
the patient is discharged. For the day of discharge, the appropriate 
home care rate is paid unless the patient dies as an inpatient. In the 
case where the beneficiary is discharged deceased, the inpatient rate 
(general or respite) is paid for the discharge day. Payment for 
inpatient respite care is subject to the requirement that it may not be 
provided consecutively for more than 5 days at a time. Payment for the 
sixth and any subsequent day of respite care is made at the routine home 
care rate.
    (f) Payment for inpatient care is limited as follows: (1) The total 
payment to the hospice for inpatient care (general or respite) is 
subject to a limitation that total inpatient care days for Medicare 
patients not exceed 20 percent of the total days for which these 
patients had elected hospice care.
    (2) At the end of a cap period, the intermediary calculates a 
limitation on payment for inpatient care to ensure that Medicare payment 
is not made for days of inpatient care in excess of 20 percent of the 
total number of days of hospice care furnished to Medicare patients.
    (3) If the number of days of inpatient care furnished to Medicare 
patients is equal to or less than 20 percent of the total days of 
hospice care to Medicare patients, no adjustment is necessary. Overall 
payments to a hospice are subject to the cap amount specified in Sec. 
418.309.
    (4) If the number of days of inpatient care furnished to Medicare 
patients exceeds 20 percent of the total days of hospice care to 
Medicare patients, the total payment for inpatient care is determined in 
accordance with the procedures specified in paragraph (f)(5) of this 
section. That amount is compared to actual payments for inpatient care, 
and any excess reimbursement must be refunded by the hospice. Overall 
payments to the hospice are subject to the cap amount specified in Sec. 
418.309.
    (5) If a hospice exceeds the number of inpatient care days described 
in paragraph (f)(4), the total payment for inpatient care is determined 
as follows:
    (i) Calculate the ratio of the maximum number of allowable inpatient 
days to the actual number of inpatient care days furnished by the 
hospice to Medicare patients.
    (ii) Multiply this ratio by the total reimbursement for inpatient 
care made by the intermediary.
    (iii) Multiply the number of actual inpatient days in excess of the 
limitation by the routine home care rate.
    (iv) Add the amounts calculated in paragraphs (f)(5)(ii) and (iii) 
of this section.
    (g) Payment for routine home care, continuous home care, general 
inpatient care and inpatient respite care is

[[Page 211]]

made on the basis of the geographic location where the services are 
provided.

[48 FR 56026, Dec. 16, 1983, as amended at 56 FR 26919, June 12, 1991; 
70 FR 45145, Aug. 4, 2005; 70 FR 70547, Nov. 22, 2005; 72 FR 50228, Aug. 
31, 2007]



Sec. 418.304  Payment for physician and nurse practitioner services.

    (a) The following services performed by hospice physicians and nurse 
practitioners are included in the rates described in Sec. 418.302:
    (1) General supervisory services of the medical director.
    (2) Participation in the establishment of plans of care, supervision 
of care and services, periodic review and updating of plans of care, and 
establishment of governing policies by the physician member of the 
interdisciplinary group.
    (b) For services not described in paragraph (a) of this section, a 
specified Medicare contractor pays the hospice an amount equivalent to 
100 percent of the physician fee schedule for those physician services 
furnished by hospice employees or under arrangements with the hospice. 
Reimbursement for these physician services is included in the amount 
subject to the hospice payment limit described in Sec. 418.309. 
Services furnished voluntarily by physicians are not reimbursable.
    (c) Services of the patient's attending physician, if he or she is 
not an employee of the hospice or providing services under arrangements 
with the hospice, are not considered hospice services and are not 
included in the amount subject to the hospice payment limit described in 
Sec. 418.309. These services are paid by the carrier under the 
procedures in subpart B, part 414 of this chapter.
    (d) Payment for hospice pre-election evaluation and counseling 
services. The intermediary makes payment to the hospice for the services 
established in Sec. 418.205. Payment for this service is set at an 
amount established under the physician fee schedule, for an office or 
other outpatient visit for evaluation and management associated with 
presenting problems of moderate severity and requiring medical decision-
making of low complexity other than the portion of the amount 
attributable to the practice expense component. Payment for this pre-
election service does not count towards the hospice cap amount.
    (e)(1) Effective December 8, 2003, Medicare pays for attending 
physician services provided by nurse practitioners to Medicare 
beneficiaries who have elected the hospice benefit and who have selected 
a nurse practitioner as their attending physician. This applies to nurse 
practitioners without regard to whether they are hospice employees.
    (2) Nurse practitioners may bill and receive payment for services 
only if the--
    (i) Nurse practitioner is the beneficiary's attending physician as 
defined in Sec. 418.3;
    (ii) Services are medically reasonable and necessary;
    (iii) Services are performed by a physician in the absence of the 
nurse practitioner; and
    (iv) Services are not related to the certification of terminal 
illness specified in Sec. 418.22.
    (3) Payment for nurse practitioner services are made at 85 percent 
of the physician fee schedule amount.

[48 FR 56026, Dec. 16, 1983, as amended at 69 FR 66426, Nov. 15, 2004; 
70 FR 45145, Aug. 4, 2005; 70 FR 70547, Nov. 22, 2005]



Sec. 418.306  Determination of payment rates.

    (a) Applicability. CMS establishes payment rates for each of the 
categories of hospice care described in Sec. 418.302(b). The rates are 
established using the methodology described in section 1814(i)(1)(C) of 
the Act.
    (b) Payment rates. The payment rates for routine home care and other 
services included in hospice care are as follows:
    (1) The following rates, which are 120 percent of the rates in 
effect on September 30, 1989, are effective January 1, 1990 through 
September 30, 1990 and October 21, 1990 through December 31, 1990:

Routine home care.............................................    $75.80
Continuous home care:
  Full rate for 24 hours......................................    442.40
  Hourly rate.................................................     18.43
Inpatient respite care........................................     78.40
General inpatient care........................................    337.20
 


[[Page 212]]

    (2) Except for the period beginning October 21, 1990, through 
December 31, 1990, the payment rates for routine home care and other 
services included in hospice care for Federal fiscal years 1991, 1992, 
and 1993 and those that begin on or after October 1, 1997, are the 
payment rates in effect under this paragraph during the previous fiscal 
year increased by the market basket percentage increase as defined in 
section 1886(b)(3)(B)(iii) of the Act, otherwise applicable to 
discharges occurring in the fiscal year. The payment rates for the 
period beginning October 21, 1990, through December 31, 1990, are the 
same as those shown in paragraph (b)(1) of this section.
    (3) For Federal fiscal years 1994 through 2002, the payment rate is 
the payment rate in effect during the previous fiscal year increased by 
a factor equal to the market basket percentage increase minus--
    (i) 2 percentage points in FY 1994;
    (ii) 1.5 percentage points in FYs 1995 and 1996;
    (iii) 0.5 percentage points in FY 1997; and
    (iv) 1 percentage point in FY 1998 through FY 2002.
    (4) For Federal fiscal year 2001, the payment rate is the payment 
rate in effect during the previous fiscal year increased by a factor 
equal to the market basket percentage increase plus 5 percentage points. 
However, this payment rate is effective only for the period April 1, 
2001 through September 30, 2001. For the period October 1, 2000 through 
March 31, 2001, the payment rate is based upon the rule under paragraph 
(b)(3)(iv) of this section. The payment rate in effect during the period 
April 1, 2001 through September 30, 2001 is considered the payment rate 
in effect during fiscal year 2001.
    (5) The payment rate for hospice services furnished during fiscal 
years 2001 and 2002 is increased by an additional 0.5 percent and 0.75 
percent, respectively. This additional amount is not included in 
updating the payment rate as described in paragraph (b)(3) of this 
section.
    (c) Adjustment for wage differences. CMS will issue annually, in the 
Federal Register, a hospice wage index based on the most current 
available CMS hospital wage data, including any changes to the 
definitions of Metropolitan Statistical Areas. The payment rates 
established by CMS are adjusted by the intermediary to reflect local 
differences in wages according to the revised wage index.
    (d) Federal Register notices. CMS publishes as a notice in the 
Federal Register any proposal to change the methodology for determining 
the payment rates.

[56 FR 26919, June 12, 1991, as amended at 59 FR 26960, May 25, 1994; 62 
FR 42882, Aug. 8, 1997; 70 FR 70548, Nov. 22, 2005]



Sec. 418.307  Periodic interim payments.

    Subject to the provisions of Sec. 413.64(h) of this chapter, a 
hospice may elect to receive periodic interim payments (PIP) effective 
with claims received on or after July 1, 1987. Payment is made biweekly 
under the PIP method unless the hospice requests a longer fixed interval 
(not to exceed one month) between payments. The biweekly interim payment 
amount is based on the total estimated Medicare payments for the 
reporting period (as described in Sec. Sec. 418.302-418.306). Each 
payment is made 2 weeks after the end of a biweekly period of service as 
described in Sec. 413.64(h)(5) of this chapter. Under certain 
circumstances that are described in Sec. 413.64(g) of this chapter, a 
hospice that is not receiving PIP may request an accelerated payment.

[59 FR 36713, July 19, 1994]



Sec. 418.308  Limitation on the amount of hospice payments.

    (a) Except as specified in paragraph (b) of this section, the total 
Medicare payment to a hospice for care furnished during a cap period is 
limited by the hospice cap amount specified in Sec. 418.309.
    (b) Until October 1, 1986, payment to a hospice that began operation 
before January 1, 1975 is not limited by the amount of the hospice cap 
specified in Sec. 418.309.
    (c) The intermediary notifies the hospice of the determination of 
program reimbursement at the end of the cap year in accordance with 
procedures similar to those described in Sec. 405.1803 of this chapter.

[[Page 213]]

    (d) Payments made to a hospice during a cap period that exceed the 
cap amount are overpayments and must be refunded.

[48 FR 56026, Dec. 16, 1983; 48 FR 57282, Dec. 29, 1983]



Sec. 418.309  Hospice cap amount.

    The hospice cap amount is calculated using the following procedures:
    (a) The cap amount is $6,500 per year and is adjusted for inflation 
or deflation for cap years that end after October 1, 1984, by using the 
percentage change in the medical care expenditure category of the 
Consumer Price Index (CPI) for urban consumers that is published by the 
Bureau of Labor Statistics. This adjustment is made using the change in 
the CPI from March 1984 to the fifth month of the cap year. The cap year 
runs from November 1 of each year until October 31 of the following 
year.
    (b) Each hospice's cap amount is calculated by the intermediary by 
multiplying the adjusted cap amount determined in paragraph (a) of this 
section by the number of Medicare beneficiaries who elected to receive 
hospice care from that hospice during the cap period. For purposes of 
this calculation, the number of Medicare beneficiaries includes--
    (1) Those Medicare beneficiaries who have not previously been 
included in the calculation of any hospice cap and who have filed an 
election to receive hospice care, in accordance with Sec. 418.24, from 
the hospice during the period beginning on September 28 (35 days before 
the beginning of the cap period) and ending on September 27 (35 days 
before the end of the cap period).
    (2) In the case in which a beneficiary has elected to receive care 
from more than one hospice, each hospice includes in its number of 
Medicare beneficiaries only that fraction which represents the portion 
of a patient's total stay in all hospices that was spent in that 
hospice. (The hospice can obtain this information by contacting the 
intermediary.)



Sec. 418.310  Reporting and recordkeeping requirements.

    Hospices must provide reports and keep records as the Secretary 
determines necessary to administer the program.



Sec. 418.311  Administrative appeals.

    A hospice that believes its payments have not been properly 
determined in accordance with these regulations may request a review 
from the intermediary or the Provider Reimbursement Review Board (PRRB) 
if the amount in controversy is at least $1,000 or $10,000, 
respectively. In such a case, the procedure in 42 CFR part 405, subpart 
R, will be followed to the extent that it is applicable. The PRRB, 
subject to review by the Secretary under Sec. 405.1874 of this chapter, 
shall have the authority to determine the issues raised. The methods and 
standards for the calculation of the payment rates by CMS are not 
subject to appeal.



                          Subpart H_Coinsurance



Sec. 418.400  Individual liability for coinsurance for hospice care.

    An individual who has filed an election for hospice care in 
accordance with Sec. 418.24 is liable for the following coinsurance 
payments. Hospices may charge individuals the applicable coinsurance 
amounts.
    (a) Drugs and biologicals. An individual is liable for a coinsurance 
payment for each palliative drug and biological prescription furnished 
by the hospice while the individual is not an inpatient. The amount of 
coinsurance for each prescription approximates 5 percent of the cost of 
the drug or biological to the hospice determined in accordance with the 
drug copayment schedule established by the hospice, except that the 
amount of coinsurance for each prescription may not exceed $5. The cost 
of the drug or biological may not exceed what a prudent buyer would pay 
in similar circumstances. The drug copayment schedule must be reviewed 
for reasonableness and approved by the intermediary before it is used.
    (b) Respite care. (1) The amount of coinsurance for each respite 
care day is equal to 5 percent of the payment made by CMS for a respite 
care day.
    (2) The amount of the individual's coinsurance liability for respite 
care during a hospice coinsurance period may

[[Page 214]]

not exceed the inpatient hospital deductible applicable for the year in 
which the hospice coinsurance period began.
    (3) The individual hospice coinsurance period--
    (i) Begins on the first day an election filed in accordance with 
Sec. 418.24 is in effect for the beneficiary; and
    (ii) Ends with the close of the first period of 14 consecutive days 
on each of which an election is not in effect for the beneficiary.



Sec. 418.402  Individual liability for services that are not considered hospice care.

    Medicare payment to the hospice discharges an individual's liability 
for payment for all services, other than the hospice coinsurance amounts 
described in Sec. 418.400, that are considered covered hospice care (as 
described in Sec. 418.202). The individual is liable for the Medicare 
deductibles and coinsurance payments and for the difference between the 
reasonable and actual charge on unassigned claims on other covered 
services that are not considered hospice care. Examples of services not 
considered hospice care include: Services furnished before or after a 
hospice election period; services of the individual's attending 
physician, if the attending physician is not an employee of or working 
under an arrangement with the hospice; or Medicare services received for 
the treatment of an illness or injury not related to the individual's 
terminal condition.



Sec. 418.405  Effect of coinsurance liability on Medicare payment.

    The Medicare payment rates established by CMS in accordance with 
Sec. 418.306 are not reduced when the individual is liable for 
coinsurance payments. Instead, when establishing the payment rates, CMS 
offsets the estimated cost of services by an estimate of average 
coinsurance amounts hospices collect.

[56 FR 26919, June 12, 1991]



PART 419_PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT DEPARTMENT SERVICES--Table of Contents




                      Subpart A_General Provisions

Sec.
419.1 Basis and scope.
419.2 Basis of payment.

 Subpart B_Categories of Hospitals and Services Subject to and Excluded 
         From the Hospital Outpatient Prospective Payment System

419.20 Hospitals subject to the hospital outpatient prospective payment 
          system.
419.21 Hospital outpatient services subject to the outpatient 
          prospective payment system.
419.22 Hospital outpatient services excluded from payment under the 
          hospital outpatient prospective payment system.

 Subpart C_Basic Methodology for Determining Prospective Payment Rates 
                    for Hospital Outpatient Services

419.30 Base expenditure target for calendar year 1999.
419.31 Ambulatory payment classification (APC) system and payment 
          weights.
419.32 Calculation of prospective payment rates for hospital outpatient 
          services.

                     Subpart D_Payments to Hospitals

419.40 Payment concepts.
419.41 Calculation of national beneficiary copayment amounts and 
          national Medicare program payment amounts.
419.42 Hospital election to reduce copayment.
419.43 Adjustments to national program payment and beneficiary copayment 
          amounts.
419.44 Payment reductions for surgical procedures.
419.45 Payment and copayment reduction for devices replaced without cost 
          or full credit is received.

                            Subpart E_Updates

419.50 Annual updates.

                     Subpart F_Limitations on Review

419.60 Limitations on administrative and judicial review.

              Subpart G_Transitional Pass-through Payments

419.62 Transitional pass-through payments: General rules.

[[Page 215]]

419.64 Transitional pass-through payments: Drugs and biologicals.
419.66 Transitional pass-through payments: Medical devices.

                    Subpart H_Transitional Corridors

419.70 Transitional adjustment to limit decline in payment.

    Authority: Secs. 1102, 1833(t), and 1871 of the Social Security Act 
(42 U.S.C. 1302, 1395l(t), and 1395hh).

    Source: 65 FR 18542, Apr. 7, 2000, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 419.1  Basis and scope.

    (a) Basis. This part implements section 1833(t) of the Act by 
establishing a prospective payment system for services furnished on or 
after July 1, 2000 by hospital outpatient departments to Medicare 
beneficiaries who are registered on hospital records as outpatients.
    (b) Scope. This subpart describes the basis of payment for 
outpatient hospital services under the prospective payment system. 
Subpart B sets forth the categories of hospitals and services that are 
subject to the outpatient hospital prospective payment system and those 
categories of hospitals and services that are excluded from the 
outpatient hospital prospective payment system. Subpart C sets forth the 
basic methodology by which prospective payment rates for hospital 
outpatient services are determined. Subpart D describes Medicare payment 
amounts, beneficiary copayment amounts, and methods of payment to 
hospitals under the hospital outpatient prospective payment system. 
Subpart E describes how the hospital outpatient prospective payment 
system may be updated. Subpart F describes limitations on administrative 
and judicial review. Subpart G describes the transitional payment 
adjustments that are made before 2004 to limit declines in payment for 
outpatient services.



Sec. 419.2  Basis of payment.

    (a) Unit of payment. Under the hospital outpatient prospective 
payment system, predetermined amounts are paid for designated services 
furnished to Medicare beneficiaries. These services are identified by 
codes established under the Centers for Medicare & Medicaid Services 
Common Procedure Coding System (HCPCS). The prospective payment rate for 
each service or procedure for which payment is allowed under the 
hospital outpatient prospective payment system is determined according 
to the methodology described in subpart C of this part. The manner in 
which the Medicare payment amount and the beneficiary copayment amount 
for each service or procedure are determined is described in subpart D 
of this part.
    (b) Determination of hospital outpatient prospective payment rates: 
Included costs. The prospective payment system establishes a national 
payment rate, standardized for geographic wage differences, that 
includes operating and capital-related costs that are directly related 
and integral to performing a procedure or furnishing a service on an 
outpatient basis. In general, these costs include, but are not limited 
to--
    (1) Use of an operating suite, procedure room, or treatment room;
    (2) Use of recovery room;
    (3) Use of an observation bed;
    (4) Anesthesia, certain drugs, biologicals, and other 
pharmaceuticals; medical and surgical supplies and equipment; surgical 
dressings; and devices used for external reduction of fractures and 
dislocations;
    (5) Supplies and equipment for administering and monitoring 
anesthesia or sedation;
    (6) Intraocular lenses (IOLs);
    (7) Incidental services such as venipuncture;
    (8) Capital-related costs;
    (9) Implantable items used in connection with diagnostic X-ray 
tests, diagnostic laboratory tests, and other diagnostic tests;
    (10) Durable medical equipment that is implantable;
    (11) Implantable prosthetic devices (other than dental) which 
replace all or part of an internal body organ (including colostomy bags 
and supplies directly related to colostomy care), including replacement 
of these devices; and
    (12) Costs incurred to procure donor tissue other than corneal 
tissue.

[[Page 216]]

    (c) Determination of hospital outpatient prospective payment rates: 
Excluded costs. The following costs are excluded from the hospital 
outpatient prospective payment system.
    (1) The costs of direct graduate medical education activities as 
described in Sec. Sec. 413.75 through 413.83 of this chapter.
    (2) The costs of nursing and allied health programs as described in 
Sec. 413.85 of this chapter.
    (3) The costs associated with interns and residents not in approved 
teaching programs as described in Sec. 415.202 of this chapter.
    (4) The costs of teaching physicians attributable to Part B services 
for hospitals that elect cost-based reimbursement for teaching 
physicians under Sec. 415.160.
    (5) The reasonable costs of anesthesia services furnished to 
hospital outpatients by qualified nonphysician anesthetists (certified 
registered nurse anesthetists and anesthesiologists' assistants) 
employed by the hospital or obtained under arrangements, for hospitals 
that meet the requirements under Sec. 412.113(c) of this chapter.
    (6) Bad debts for uncollectible deductibles and coinsurances as 
described in Sec. 413.89(b) of this chapter.
    (7) Organ acquisition costs paid under Part B.
    (8) Corneal tissue acquisition costs.

[65 FR 18542, Apr. 7, 2000, as amended at 66 FR 59922, Nov. 30, 2001; 70 
FR 47490, Aug. 12, 2005]



 Subpart B_Categories of Hospitals and Services Subject to and Excluded 
         From the Hospital Outpatient Prospective Payment System



Sec. 419.20  Hospitals subject to the hospital outpatient prospective payment system.

    (a) Applicability. The hospital outpatient prospective payment 
system is applicable to any hospital participating in the Medicare 
program, except those specified in paragraph (b) of this section, for 
services furnished on or after August 1, 2000.
    (b) Hospitals excluded from the outpatient prospective payment 
system. (1) Those services furnished by Maryland hospitals that are paid 
under a cost containment waiver in accordance with section 1814(b)(3) of 
the Act are excluded from the hospital outpatient prospective payment 
system.
    (2) Critical access hospitals (CAHs) are excluded from the hospital 
outpatient prospective payment system.
    (3) A hospital located outside one of the 50 States, the District of 
Columbia, and Puerto Rico is excluded from the hospital outpatient 
prospective payment system.
    (4) A hospital of the Indian Health Service.

[65 FR 18542, Apr. 7, 2000, as amended at 66 FR 59922, Nov. 30, 2001]



Sec. 419.21  Hospital outpatient services subject to the outpatient prospective payment system.

    Except for services described in Sec. 419.22, effective for 
services furnished on or after July 1, 2000, payment is made under the 
hospital outpatient prospective payment system for the following:
    (a) Medicare Part B services furnished to hospital outpatients 
designated by the Secretary under this part.
    (b) Services designated by the Secretary that are covered under 
Medicare Part B when furnished to hospital inpatients who are either not 
entitled to benefits under Part A or who have exhausted their Part A 
benefits but are entitled to benefits under Part B of the program.
    (c) Partial hospitalization services furnished by community mental 
health centers (CMHCs).
    (d) The following medical and other health services furnished by a 
home health agency (HHA) to patients who are not under an HHA plan or 
treatment or by a hospice program furnishing services to patients 
outside the hospice benefit:
    (1) Antigens.
    (2) Splints and casts.
    (3) Hepatitis B vaccine.
    (e) Effective January 1, 2005, an initial preventive physical 
examination, as defined in Sec. 410.16 of this chapter, if the 
examination is performed no later than 6 months after the individual's

[[Page 217]]

initial Part B coverage date that begins on or after January 1, 2005.

[65 FR 18542, Apr. 7, 2000, as amended at 67 FR 66813, Nov. 1, 2002; 69 
FR 65863, Nov. 15, 2004; 71 FR 68227, Nov. 24, 2006]



Sec. 419.22  Hospital outpatient services excluded from payment under the hospital outpatient prospective payment system.

    The following services are not paid for under the hospital 
outpatient prospective payment system:
    (a) Physician services that meet the requirements of Sec. 
415.102(a) of this chapter for payment on a fee schedule basis.
    (b) Nurse practitioner and clinical nurse specialist services, as 
defined in section 1861(s)(2)(K)(ii) of the Act.
    (c) Physician assistant services, as defined in section 
1861(s)(2)(K)(i) of the Act.
    (d) Certified nurse-midwife services, as defined in section 1861(gg) 
of the Act.
    (e) Services of qualified psychologists, as defined in section 
1861(ii) of the Act.
    (f) Services of an anesthetist as defined in Sec. 410.69 of this 
chapter.
    (g) Clinical social worker services as defined in section 
1861(hh)(2) of the Act.
    (h) Outpatient therapy services described in section 1833(a)(8) of 
the Act.
    (i) Ambulance services, as described in section 1861(v)(1)(U) of the 
Act, or, if applicable, the fee schedule established under section 
1834(l).
    (j) Except as provided in Sec. 419.22(b)(11), prosthetic devices, 
prosthetics, prosthetic supplies, and orthotic devices.
    (k) Except as provided in Sec. 419.2(b)(10), durable medical 
equipment supplied by the hospital for the patient to take home.
    (l) Clinical diagnostic laboratory services.
    (m) Services for patients with ESRD that are paid under the ESRD 
composite rate and drugs and supplies furnished during dialysis but not 
included in the composite rate.
    (n) Services and procedures that the Secretary designates as 
requiring inpatient care.
    (o) Hospital outpatient services furnished to SNF residents (as 
defined in Sec. 411.15(p) of this chapter) as part of the patient's 
resident assessment or comprehensive care plan (and thus included under 
the SNF PPS) that are furnished by the hospital ``under arrangements'' 
but billable only by the SNF, regardless of whether or not the patient 
is in a Part A SNF stay.
    (p) Services that are not covered by Medicare by statute.
    (q) Services that are not reasonable or necessary for the diagnosis 
or treatment of an illness or disease.
    (r) Services defined in Sec. 419.21(b) that are furnished to 
inpatients of hospitals that do not submit claims for outpatient 
services under Medicare Part B.
    (s) Effective December 8, 2003, screening mammography services and 
effective January 1, 2005, diagnostic mammography services.

[65 FR 18542, Apr. 7, 2000, as amended at 66 FR 59922, Nov. 30, 2001; 69 
FR 65863, Nov. 15, 2004]



 Subpart C_Basic Methodology for Determining Prospective Payment Rates 
                    for Hospital Outpatient Services



Sec. 419.30  Base expenditure target for calendar year 1999.

    (a) CMS estimates the aggregate amount that would be payable for 
hospital outpatient services in calendar year 1999 by summing--
    (1) The total amounts that would be payable from the Trust Fund for 
covered hospital outpatient services without regard to the outpatient 
prospective payment system described in this part; and
    (2) The total amounts of coinsurance that would be payable by 
beneficiaries to hospitals for covered hospital outpatient services 
without regard to the outpatient prospective payment system described in 
this part.
    (b) The estimated aggregate amount under paragraph (a) of this 
section is determined as though the deductible required under section 
1833(b) of the Act did not apply.

[[Page 218]]



Sec. 419.31  Ambulatory payment classification (APC) system and payment weights.

    (a) APC groups. (1) CMS classifies outpatient services and 
procedures that are comparable clinically and in terms of resource use 
into APC groups. Except as specified in paragraph (a)(2) of this 
section, items and services within a group are not comparable with 
respect to the use of resources if the highest median cost for an item 
or service within the group is more than 2 times greater than the lowest 
median cost for an item or service within the group.
    (2) CMS may make exceptions to the requirements set forth in 
paragraph (a)(1) in unusual cases, such as low volume items and 
services, but may not make such an exception in the case of a drug or 
biological that has been designated as an orphan drug under section 526 
of the Federal Food, Drug and Cosmetic Act.
    (3) The payment rate determined for an APC group in accordance with 
Sec. 419.32, and the copayment amount and program payment amount 
determined for an APC group in accordance with subpart D of this part, 
apply to every HCPCS code classified within an APC group.
    (b) APC weighting factors. (1) Using hospital outpatient claims data 
from calendar year 1996 and data from the most recent available hospital 
cost reports, CMS determines the median costs for the services and 
procedures within each APC group.
    (2) CMS assigns to each APC group an appropriate weighting factor to 
reflect the relative median costs for the services within the APC group 
compared to the median costs for the services in all APC groups.
    (c) Standardizing amounts. (1) CMS determines the portion of costs 
determined in paragraph (b)(1) of this section that is labor-related. 
This is known as the ``labor-related portion'' of hospital outpatient 
costs.
    (2) CMS standardizes the median costs determined in paragraph (b)(1) 
of this section by adjusting for variations in hospital labor costs 
across geographic areas.



Sec. 419.32  Calculation of prospective payment rates for hospital outpatient services.

    (a) Conversion factor for 1999. CMS calculates a conversion factor 
in such a manner that payment for hospital outpatient services furnished 
in 1999 would have equaled the base expenditure target calculated in 
Sec. 419.30, taking into account APC group weights and estimated 
service frequencies and reduced by the amounts that would be payable in 
1999 as outlier payments under Sec. 419.43(d) and transitional pass-
through payments under Sec. 419.43(e).
    (b) Conversion factor for calendar year 2000 and subsequent years. 
(1) Subject to paragraph (b)(2) of this section, the conversion factor 
for a calendar year is equal to the conversion factor calculated for the 
previous year adjusted as follows:
    (i) For calendar year 2000, by the hospital inpatient market basket 
percentage increase applicable under section 1886(b)(3)(B)(iii) of the 
Act reduced by one percentage point.
    (ii) For calendar year 2001--
    (A) For services furnished on or after January 1, 2001 and before 
April 1, 2001, by the hospital inpatient market basket percentage 
increase applicable under section 1886(b)(3)(B)(iii) of the Act reduced 
by one percentage point; and
    (B) For services furnished on or after April 1, 2001 and before 
January 1, 2002, by the hospital inpatient market basket percentage 
increase applicable under section 1886(b)(3)(B)(iii) of the Act, and 
increased by a transitional percentage allowance equal to 0.32 percent.
    (iii) For the portion of calendar year 2002 that is affected by 
these rules, by the hospital inpatient market basket percentage increase 
applicable under section 1886(b)(3)(B)(iii) of the Act reduced by one 
percentage point, without taking into account the transitional 
percentage allowance referenced in Sec. 419.32(b)(ii)(B).
    (iv) For calendar year 2003 and subsequent years, by the hospital 
inpatient market basket percentage increase applicable under section 
1886(b)(3)(B)(iii) of the Act.
    (2) Beginning in calendar year 2000, CMS may substitute for the 
hospital

[[Page 219]]

inpatient market basket percentage in paragraph (b) of this section a 
market basket percentage increase that is determined and applied to 
hospital outpatient services in the same manner that the hospital 
inpatient market basket percentage increase is determined and applied to 
inpatient hospital services.
    (c) Payment rates. The payment rate for services and procedures for 
which payment is made under the hospital outpatient prospective payment 
system is the product of the conversion factor calculated under 
paragraph (a) or paragraph (b) of this section and the relative weight 
determined under Sec. 419.31(b).
    (d) Budget neutrality. (1) CMS adjusts the conversion factor as 
needed to ensure that updates and adjustments under Sec. 419.50(a) are 
budget neutral.
    (2) In determining adjustments for 2004 and 2005, CMS will not take 
into account any additional expenditures per section 1833(t)(14) of the 
Act that would not have been made but for enactment of section 621 of 
the Medicare Prescription Drug, Improvement, and Modernization Act of 
2003.

[65 FR 18542, Apr. 7, 2000, as amended at 66 FR 59922, Nov. 30, 2001; 67 
FR 9568, Mar. 1, 2002; 69 FR 832, Jan. 6, 2004]

    Effective Date Note: At 66 FR 59922, Nov. 30, 2001, Sec. 41932 was 
amended by revising paragraph (b)(1), effective Jan. 1, 2002. At 66 FR 
67494, Dec. 31, 2001, paragraph (b)(1)(iii) was delayed indefinitely.



                     Subpart D_Payments to Hospitals



Sec. 419.40  Payment concepts.

    (a) In addition to the payment rate described in Sec. 419.32, for 
each APC group there is a predetermined beneficiary copayment amount as 
described in Sec. 419.41(a). The Medicare program payment amount for 
each APC group is calculated by applying the program payment percentage 
as described in Sec. 419.41(b).
    (b) For purposes of this section--
    (1) Coinsurance percentage is calculated as the difference between 
the program payment percentage and 100 percent. The coinsurance 
percentage in any year is thus defined for each APC group as the greater 
of the following: the ratio of the APC group unadjusted copayment amount 
to the annual APC group payment rate, or 20 percent.
    (2) Program payment percentage is calculated as the lower of the 
following: the ratio of the APC group payment rate minus the APC group 
unadjusted copayment amount, to the APC group payment rate, or 80 
percent.
    (3) Unadjusted copayment amount is calculated as 20 percent of the 
wage-adjusted national median of charges for services within an APC 
group furnished during 1996, updated to 1999 using an actuarial 
projection of charge increases for hospital outpatient department 
services during the period 1996 to 1999.
    (c) Limitation of copayment amount to inpatient hospital deductible 
amount. The copayment amount for a procedure performed in a year cannot 
exceed the amount of the inpatient hospital deductible established under 
section 1813(b) of the Act for that year.

[66 FR 59922, Nov. 30, 2001]



Sec. 419.41  Calculation of national beneficiary copayment amounts and national Medicare program payment amounts.

    (a) To calculate the unadjusted copayment amount for each APC group, 
CMS--
    (1) Standardizes 1996 hospital charges for the services within each 
APC group to offset variations in hospital labor costs across geographic 
areas;
    (2) Identifies the median of the wage-neutralized 1996 charges for 
each APC group; and
    (3) Determines the value equal to 20 percent of the wage-neutralized 
1996 median charge for each APC group and multiplies that value by an 
actuarial projection of increases in charges for hospital outpatient 
department services during the period 1996 to 1999. The result is the 
unadjusted beneficiary copayment amount for the APC group.
    (b) CMS calculates annually the program payment percentage for every 
APC group on the basis of each group's unadjusted copayment amount and 
its payment rate after the payment rate is adjusted in accordance with 
Sec. 419.32.
    (c) To determine payment amounts due for a service paid under the 
hospital outpatient prospective payment

[[Page 220]]

system, CMS makes the following calculations:
    (1) Makes the wage index adjustment in accordance with Sec. 419.43.
    (2) Subtracts the amount of the applicable Part B deductible 
provided under Sec. 410.160 of this chapter.
    (3) Multiplies the remainder by the program payment percentage for 
the group to determine the preliminary Medicare program payment amount.
    (4) Subtracts the program payment amount from the amount determined 
in paragraph (c)(2) of this section to determine the copayment amount.
    (i) The copayment amount for an APC cannot exceed the amount of the 
inpatient hospital deductible, established in accordance with Sec. 
409.82 of this chapter, for that year. For purposes of this paragraph 
(c)--
    (A) Effective for drugs and biologicals furnished on or after 
January 1, 2001, the copayment amount for multiple APCs for a single 
drug or biological furnished on the same day will be aggregated and 
treated as the copayment amount for one APC.
    (B) Effective for drugs and biologicals furnished on or after July 
1, 2001, the copayment amount for the APC or APCs for a drug or 
biological furnished on the same day will be aggregated with the 
copayment amount for the APC that reflects the administration of the 
drug or biological furnished on that day and treated as the copayment 
amount for one APC.
    (ii) Effective for services furnished from April 1, 2001 through 
December 31, 2001, the national unadjusted coinsurance rate for an APC 
cannot exceed 57 percent of the prospective payment rate for that APC.
    (iii) The national unadjusted coinsurance rate for an APC cannot 
exceed 55 percent in calendar years 2002 and 2003; 50 percent in 
calendar year 2004; 45 percent in calendar year 2005; and 40 percent in 
calendar year 2006 and thereafter.
    (iv) The copayment amount is computed as if the adjustments under 
Sec. 419.43(d) and (e) (and any adjustment made under Sec. 419.43(f) 
in relation to these adjustments) had not been paid.
    (5) Adds the amount by which the copayment amount would have 
exceeded the inpatient hospital deductible for that year to the 
preliminary Medicare program payment amount determined in paragraph 
(c)(3) of this section to determine the final Medicare program payment 
amount.

[65 FR 18542, Apr. 7, 2000, as amended at 65 FR 67829, Nov. 13, 2000; 66 
FR 59923, Nov. 30, 2001]



Sec. 419.42  Hospital election to reduce coinsurance.

    (a) A hospital may elect to reduce coinsurance for any or all APC 
groups on a calendar year basis. A hospital may not elect to reduce 
copayment amounts for some, but not all, services within the same group.
    (b) A hospital must notify its fiscal intermediary of its election 
to reduce coinsurance no later than--
    (1) June 1, 2000, for coinsurance elections for the period July 1, 
2000 through December 31, 2000; or
    (2) December 1 preceding the beginning of each subsequent calendar 
year.
    (c) The hospital's election must be properly documented. It must 
specifically identify the APCs to which it applies and the copayment 
amount (within the limits identified below) that the hospital has 
selected for each group.
    (d) The election of reduced coinsurance remains in effect unchanged 
during the year for which the election was made.
    (e) In electing reduced coinsurance, a hospital may elect a 
copayment amount that is less than that year's wage-adjusted copayment 
amount for the group but not less than 20 percent of the APC payment 
rate as determined in Sec. 419.32.
    (f) The hospital may advertise and otherwise disseminate information 
concerning the reduced level of coinsurance that it has elected. All 
advertisements and information furnished to Medicare beneficiaries must 
specify that the coinsurance reductions advertised apply only to the 
specified services of that hospital and that coinsurance reductions are 
available only for hospitals that choose to reduce coinsurance for 
hospital outpatient services and are not allowed in any other

[[Page 221]]

ambulatory settings or physician offices.

[65 FR 18542, Apr. 7, 2000, as amended at 65 FR 67829, Nov. 13, 2000; 66 
FR 59923, Nov. 30, 2001]



Sec. 419.43  Adjustments to national program payment and beneficiary copayment amounts.

    (a) General rule. CMS determines national prospective payment rates 
for hospital outpatient department services and determines a wage 
adjustment factor to adjust the portion of the APC payment and national 
beneficiary copayment amount attributable to labor-related costs for 
relative differences in labor and labor-related costs across geographic 
regions in a budget neutral manner.
    (b) Labor-related portion of payment and copayment rates for 
hospital outpatient services. CMS determines the portion of hospital 
outpatient costs attributable to labor and labor-related costs (known as 
the ``labor-related portion'' of hospital outpatient costs) in 
accordance with Sec. 419.31(c)(1).
    (c) Wage index factor. CMS uses the hospital inpatient prospective 
payment system wage index established in accordance with part 412 of 
this chapter to make the adjustment referred to in paragraph (a) of this 
section.
    (d) Outlier adjustment--(1) General rule. Subject to paragraph 
(d)(4) of this section, CMS provides for an additional payment for a 
hospital outpatient service (or group of services) not excluded under 
paragraph (f) of this section for which a hospital's charges, adjusted 
to cost, exceed the following:
    (i) A fixed multiple of the sum of--
    (A) The applicable Medicare hospital outpatient payment amount 
determined under Sec. 419.32(c), as adjusted under Sec. 419.43 (other 
than for adjustments under this paragraph (d) or paragraph (e) of this 
section); and
    (B) Any transitional pass-through payment under paragraph (e) of 
this section.
    (ii) At the option of CMS, a fixed dollar amount.
    (2) Amount of adjustment. The amount of the additional payment under 
paragraph (d)(1) of this section is determined by CMS and approximates 
the marginal cost of care beyond the applicable cutoff point under 
paragraph (d)(1) of this section.
    (3) Limit on aggregate outlier adjustments--(i) In general. The 
total of the additional payments made under this paragraph (d) for 
covered hospital outpatient department services furnished in a year (as 
estimated by CMS before the beginning of the year) may not exceed the 
applicable percentage specified in paragraph (d)(3)(ii) of this section 
of the total program payments (sum of both the Medicare and beneficiary 
payments to the hospital) estimated to be made under this part for all 
hospital outpatient services furnished in that year. If this paragraph 
is first applied to less than a full year, the limit applies only to the 
portion of the year.
    (ii) Applicable percentage. For purposes of paragraph (d)(3)(i) of 
this section, the term ``applicable percentage'' means a percentage 
specified by CMS up to (but not to exceed)--
    (A) For a year (or portion of a year) before 2004, 2.5 percent; and
    (B) For 2004 and thereafter, 3.0 percent.
    (4) Transitional authority. In applying paragraph (d)(1) of this 
section for hospital outpatient services furnished before January 1, 
2002, CMS may--
    (i) Apply paragraph (d)(1) of this section to a bill for these 
services related to an outpatient encounter (rather than for a specific 
service or group of services) using hospital outpatient payment amounts 
and transitional pass-through payments covered under the bill; and
    (ii) Use an appropriate cost-to-charge ratio for the hospital or 
CMHC (as determined by CMS), rather than for specific departments within 
the hospital.
    (e) Budget neutrality. CMS establishes payment under paragraph (d) 
of this section in a budget-neutral manner excluding services and groups 
specified in paragraph (f) of this section.
    (f) Excluded services and groups. Drugs and biologicals that are 
paid under a separate APC are excluded from qualification for outlier 
payments.
    (g) Payment adjustment for certain rural hospitals--(1) General 
rule. CMS provides for additional payment for covered hospital 
outpatient services not excluded under paragraph (g)(4) of

[[Page 222]]

this section, furnished on or after January 1, 2006, if the hospital--
    (i) Is a sole community hospital under Sec. 412.92 of this chapter 
or is an essential access community hospital under Sec. 412.109 of this 
chapter; and
    (ii) Is located in a rural area as defined in Sec. 412.64(b) of 
this chapter or is treated as being located in a rural area under Sec. 
412.103 of this chapter.
    (2) Amount of adjustment. The amount of the additional payment under 
paragraph (g)(1) of this section is determined by CMS and is based on 
the difference between costs incurred by hospitals that meet the 
criteria in paragraphs (g)(1)(i) and (g)(1)(ii) of this section and 
costs incurred by hospitals located in urban areas.
    (3) Budget neutrality. CMS establishes the payment adjustment under 
paragraph (g)(2) of this section in a budget neutral manner, excluding 
services and groups specified in paragraph (g)(4) of this section.
    (4) Excluded services and groups. Drugs and biologicals that are 
paid under a separate APC, devices of brachytheraphy consisting of a 
seed or seeds (including a radioactive source), and devices paid under 
Sec. 419.66 are excluded from qualification for the payment adjustment 
in paragraph (g)(2) of this section.
    (5) Copayment. The payment adjustment in paragraph (g)(2) of this 
section is applied before calculating copayment amounts.
    (6) Outliers. The payment adjustment in paragraph (g)(2) of this 
section is applied before calculating outlier payments.
    (h) Applicable adjustments to conversion factor for CY 2009 and for 
subsequent calendar years--(1) General rule. For CY 2009 and for 
subsequent calendar years, the applicable adjustment to the conversion 
factor specified in Sec. 419.32(b)(1)(iv) is reduced by 2.0 percentage 
points for any hospital that fails to meet the standards for reporting 
of hospital outpatient quality measures as established by the Secretary 
for the corresponding calendar year.
    (2) Limitation. Any reduction to a hospital's adjustment to its 
conversion factor specified in Sec. 419.32(b)(1)(iv) which occurs as a 
result of paragraph (h)(1) of this section will apply only to the 
calendar year involved and will not be taken into account in computing 
that hospital's applicable adjustment for a subsequent calendar year.
    (3) Budget neutrality. For CY 2009 and for each subsequent calendar 
year, CMS makes an adjustment to the conversion factor, so that 
estimated aggregate payments under the OPPS for such calendar year are 
not affected by any reductions to hospital adjustments which occur as a 
result of paragraph (h)(1) of this section.

[65 FR 18542, Apr. 7, 2000, as amended at 65 FR 47677, Aug. 3, 2000; 66 
FR 55856, Nov. 2, 2001; 69 FR 832, Jan. 6, 2004; 70 FR 68727, Nov. 10, 
2005; 70 FR 76178, Dec. 23, 2005; 71 FR 68227, Nov. 24, 2006]



Sec. 419.44  Payment reductions for surgical procedures.

    (a) Multiple surgical procedures. When more than one surgical 
procedure for which payment is made under the hospital outpatient 
prospective payment system is performed during a single surgical 
encounter, the Medicare program payment amount and the beneficiary 
copayment amount are based on--
    (1) The full amounts for the procedure with the highest APC payment 
rate; and
    (2) One-half of the full program and the beneficiary payment amounts 
for all other covered procedures.
    (b) Terminated procedures. When a surgical procedure is terminated 
prior to completion due to extenuating circumstances or circumstances 
that threaten the well-being of the patient, the Medicare program 
payment amount and the beneficiary copayment amount are based on--
    (1) The full amounts if the procedure is discontinued after the 
induction of anesthesia or after the procedure is started; or
    (2) One-half of the full program and the beneficiary coinsurance 
amounts if the procedure is discontinued after the patient is prepared 
for surgery and taken to the room where the procedure is to be performed 
but before anesthesia is induced.

[[Page 223]]



Sec. 419.45  Payment and copayment reduction for devices replaced without cost or full credit is received.

    (a) General rule. CMS reduces the amount of payment for an implanted 
device made under the hospital outpatient prospective payment system in 
accordance with Sec. 419.66 for which CMS determines that a significant 
portion of the payment is attributable to the cost of an implanted 
device, when one of the following situations occur:
    (1) The device is replaced without cost to the provider or the 
beneficiary; or
    (2) The provider receives full credit for the cost of a replaced 
device.
    (b) Amount of reduction to the APC payment. The amount of the 
reduction to the APC payment made under paragraph (a) of this section is 
calculated in the same manner as the offset amount that would be applied 
if the device implanted in a procedure assigned to the APC had 
transitional pass-through status under Sec. 419.66.
    (c) Amount of beneficiary copayment. The beneficiary copayment is 
calculated based on the APC payment after application of the reduction 
under paragraph (b) of this section.

[71 FR 68228, Nov. 24, 2006]



                            Subpart E_Updates



Sec. 419.50  Annual review.

    (a) General rule. Not less often than annually, CMS reviews and 
updates groups, relative payment weights, and the wage and other 
adjustments to take into account changes in medical practice, changes in 
technology, the addition of new services, new cost data, and other 
relevant information and factors.
    (b) Consultation requirement. CMS will consult with an expert 
outside advisory panel composed of an appropriate selection of 
representatives of providers to review (and advise CMS concerning) the 
clinical integrity of the groups and weights. The panel may use data 
collected or developed by entities and organizations (other than the 
Department of Health and Human Services) in conducting the review.
    (c) Effective dates. CMS conducts the first annual review under 
paragraph (a) of this section in 2001 for payments made in 2002.



                     Subpart F_Limitations on Review



Sec. 419.60  Limitations on administrative and judicial review.

    There can be no administrative or judicial review under sections 
1869 and 1878 of the Act or otherwise of the following:
    (a) The development of the APC system, including--
    (1) Establishment of the groups and relative payment weights;
    (2) Wage adjustment factors;
    (3) Other adjustments; and
    (4) Methods for controlling unnecessary increases in volume.
    (b) The calculation of base amounts described in section 1833(t)(3) 
of the Act.
    (c) Periodic adjustments described in section 1833(t)(9) of the Act.
    (d) The establishment of a separate conversion factor for hospitals 
described in section 1886(d)(1)(B)(v) of the Act.
    (e) The determination of the fixed multiple, or a fixed dollar 
cutoff amount, the marginal cost of care, or applicable percentage under 
Sec. 419.43(d) or the determination of insignificance of cost, the 
duration of the additional payments (consistent with subpart G of this 
part), the determination of initial and new categories under Sec. 
419.66, the portion of the Medicare hospital outpatient fee schedule 
amount associated with particular devices, drugs, or biologicals, and 
the application of any pro rata reduction under Sec. 419.62(c).

[65 FR 18542, Apr. 7, 2000, as amended at 66 FR 55856, Nov. 2, 2001]



              Subpart G_Transitional Pass-through Payments

    Source: 66 FR 55856, Nov. 2, 2001, unless otherwise noted.



Sec. 419.62  Transitional pass-through payments: General rules.

    (a) General. CMS provides for additional payments under Sec. Sec. 
419.64 and 419.66 for certain innovative medical devices, drugs, and 
biologicals.

[[Page 224]]

    (b) Budget neutrality. CMS establishes the additional payments under 
Sec. Sec. 419.64 and 419.66 in a budget neutral manner.
    (c) Uniform prospective reduction of pass-through payments. (1) If 
CMS estimates before the beginning of a calendar year that the total 
amount of pass-through payments under Sec. Sec. 419.64 and 419.66 for 
the year would exceed the applicable percentage (as described in 
paragraph (c)(2) of this section) of the total amount of Medicare 
payments under the outpatient prospective payment system. CMS will 
reduce, pro rata, the amount of each of the additional payments under 
Sec. Sec. 419.64 and 419.66 for that year to ensure that the applicable 
percentage is not exceeded.
    (2) The applicable percentages are as follows:
    (i) For a year before CY 2004, the applicable percentage is 2.5 
percent.
    (ii) For 2004 and subsequent years, the applicable percentage is a 
percentage specified by CMS up to (but not to exceed) 2.0 percent.
    (d) CY 2002 incorporated amount. For the portion of CY 2002 affected 
by these rules, CMS incorporated 75 percent of the estimated pass-
through costs (before the incorporation and any pro rata reduction) for 
devices into the procedure APCs associated with these devices.

[66 FR 55856, 55865, Nov. 2, 2001; 67 FR 9568, Mar. 1, 2002]

    Effective Date Note: At 66 FR 55865, Nov. 2, 2001, Sec. 419.62 was 
amended by adding paragraph (d), effective Jan. 1, 2002. At 66 FR 67494, 
Dec. 31, 2001, the amendment was delayed indefinitely.



Sec. 419.64  Transitional pass-through payments: Drugs and biologicals.

    (a) Eligibility for pass-through payment. CMS makes a transitional 
pass-through payment for the following drugs and biologicals that are 
furnished as part of an outpatient hospital service:
    (1) Orphan drugs. A drug or biological that is used for a rare 
disease or condition and has been designated as an orphan drug under 
section 526 of the Federal Food, Drug and Cosmetic Act if payment for 
the drug or biological as an outpatient hospital service was being made 
on August 1, 2000.
    (2) Cancer therapy drugs and biologicals. A drug or biological that 
is used in cancer therapy, including, but not limited to, a 
chemotherapeutic agent, an antiemetic, a hematopoietic growth factor, a 
colony stimulating factor, a biological response modifier, and a 
bisphosphonate if payment for the drug or biological as an outpatient 
hospital service was being made on August 1, 2000.
    (3) Radiopharmaceutical drugs and biological products. A 
radiopharmaceutical drug or biological product used in diagnostic, 
monitoring, and therapeutic nuclear medicine services if payment for the 
drug or biological as an outpatient hospital service was being made on 
August 1, 2000.
    (4) Other drugs and biologicals. A drug or biological that meets the 
following conditions:
    (i) It was first payable as an outpatient hospital service after 
December 31, 1996.
    (ii) CMS has determined the cost of the drug or biological is not 
insignificant in relation to the amount payable for the applicable APC 
(as calculated under Sec. 419.32(c)) as defined in paragraph (b) of 
this section.
    (b) Cost. CMS determines the cost of a drug or biological to be not 
insignificant if it meets the following requirements:
    (1) Services furnished before January 1, 2003. The expected 
reasonable cost of a drug or biological must exceed 10 percent of the 
applicable APC payment amount for the service related to the drug or 
biological.
    (2) Services furnished after December 31, 2002. CMS considers the 
average cost of a new drug or biological to be not insignificant if it 
meets the following conditions:
    (i) The estimated average reasonable cost of the drug or biological 
in the category exceeds 10 percent of the applicable APC payment amount 
for the service related to the drug or biological.
    (ii) The estimated average reasonable cost of the drug or biological 
exceeds the cost of the drug or biological portion of the APC payment 
amount for the related service by at least 25 percent.

[[Page 225]]

    (iii) The difference between the estimated reasonable cost of the 
drug or biological and the estimated portion of the APC payment amount 
for the drug or biological exceeds 10 percent of the APC payment amount 
for the related service.
    (c) Limited period of payment. CMS limits the eligibility for a 
pass-through payment under this section to a period of at least 2 years, 
but not more than 3 years, that begins as follows:
    (1) For a drug or biological described in paragraphs (a)(1) through 
(a)(3) of this section--August 1, 2000.
    (2) For a drug or biological described in paragraph (a)(4) of this 
section--the date that CMS makes its first pass-through payment for the 
drug or biological.
    (d) Amount of pass-through payment. Subject to any reduction 
determined under Sec. 419.62(b), the pass-through payment for a drug or 
biological equals the amount determined under section 1842(o) of the 
Social Security Act, minus the portion of the APC payment amount that 
CMS determines is associated with the drug or biological.

[65 FR 18542, Apr. 7, 2000, as amended at 69 FR 832, Jan. 6, 2004; 69 FR 
65863, Nov. 15, 2004]



Sec. 419.66  Transitional pass-through payments: Medical devices.

    (a) General rule. CMS makes a pass-through payment for a medical 
device that meets the requirements in paragraph (b) of this section and 
that is described by a category of devices established by CMS under the 
criteria in paragraph (c) of this section.
    (b) Eligibility. A medical device must meet the following 
requirements:
    (1) If required by the FDA, the device must have received FDA 
approval or clearance (except for a device that has received an FDA 
investigational device exemption (IDE) and has been classified as a 
Category B device by the FDA in accordance with Sec. Sec. 405.203 
through 405.207 and 405.211 through 405.215 of this chapter) or another 
appropriate FDA exemption.
    (2) The device is determined to be reasonable and necessary for the 
diagnosis or treatment of an illness or injury or to improve the 
functioning of a malformed body part (as required by section 
1862(a)(1)(A) of the Act).
    (3) The device is an integral and subordinate part of the service 
furnished, is used for one patient only, comes in contact with human 
tissue, and is surgically implanted or inserted whether or not it 
remains with the patient when the patient is released from the hospital.
    (4) The device is not any of the following:
    (i) Equipment, an instrument, apparatus, implement, or item of this 
type for which depreciation and financing expenses are recovered as 
depreciable assets as defined in Chapter 1 of the Medicare Provider 
Reimbursement Manual (CMS Pub. 15-1).
    (ii) A material or supply furnished incident to a service (for 
example, a suture, customized surgical kit, or clip, other than 
radiological site marker).
    (iii) A material that may be used to replace human skin (for 
example, a biological or synthetic material).
    (c) Criteria for establishing device categories. CMS uses the 
following criteria to establish a category of devices under this 
section:
    (1) CMS determines that a device to be included in the category is 
not appropriately described by any of the existing categories or by any 
category previously in effect, and was not being paid for as an 
outpatient service as of December 31, 1996.
    (2) CMS determines that a device to be included in the category has 
demonstrated that it will substantially improve the diagnosis or 
treatment of an illness or injury or improve the functioning of a 
malformed body part compared to the benefits of a device or devices in a 
previously established category or other available treatment.
    (3) Except for medical devices identified in paragraph (e) of this 
section, CMS determines the cost of the device is not insignificant as 
described in paragraph (d) of this section.
    (d) Cost criteria. CMS considers the average cost of a category of 
devices to be not insignificant if it meets the following conditions:
    (1) The estimated average reasonable cost of devices in the category 
exceeds 25 percent of the applicable APC payment amount for the service 
related to the category of devices.

[[Page 226]]

    (2) The estimated average reasonable cost of the devices in the 
category exceeds the cost of the device-related portion of the APC 
payment amount for the related service by at least 25 percent.
    (3) The difference between the estimated average reasonable cost of 
the devices in the category and the portion of the APC payment amount 
for the device exceeds 10 percent of the APC payment amount for the 
related service.
    (e) Devices exempt from cost criteria. The following medical devices 
are not subject to the cost requirements described in paragraph (d) of 
this section, if payment for the device was being made as an outpatient 
service on August 1, 2000:
    (1) A device of brachytherapy.
    (2) A device of temperature-monitored cryoablation.
    (f) Identifying a category for a device. A device is described by a 
category, if it meets the following conditions:
    (1) Matches the long descriptor of the category code established by 
CMS.
    (2) Conforms to guidance issued by CMS relating to the definition of 
terms and other information in conjunction with the category descriptors 
and codes.
    (g) Limited period of payment for devices. CMS limits the 
eligibility for a pass-through payment established under this section to 
a period of at least 2 years, but not more than 3 years beginning on the 
date that CMS establishes a category of devices.
    (h) Amount of pass-through payment. Subject to any reduction 
determined under Sec. 419.62(b), the pass-through payment for a device 
is the hospital's charge for the device, adjusted to the actual cost for 
the device, minus the amount included in the APC payment amount for the 
device.

[66 FR 55856, Nov. 2, 2001, as amended at 67 FR 66813, Nov. 1, 2002; 70 
FR 68728, Nov. 10, 2005]



                    Subpart H_Transitional Corridors

    Source: 65 FR 18542, Apr. 7, 2000, unless otherwise noted. 
Redesignated at 66 FR 55856, Nov. 2, 2001.



Sec. 419.70  Transitional adjustments to limit decline in payments.

    (a) Before 2002. Except as provided in paragraph (d) of this 
section, for covered hospital outpatient services furnished before 
January 1, 2002, for which the prospective payment system amount (as 
defined in paragraph (e) of this section) is--
    (1) At least 90 percent, but less than 100 percent, of the pre-BBA 
amount (as defined in paragraph (f) of this section), the amount of 
payment under this part is increased by 80 percent of the amount of this 
difference;
    (2) At least 80 percent, but less than 90 percent, of the pre-BBA 
amount, the amount of payment under this part is increased by the amount 
by which the product of 0.71 and the pre-BBA amount exceeds the product 
of 0.70 and the prospective payment system amount;
    (3) At least 70 percent, but less than 80 percent, of the pre-BBA 
amount, the amount of payment under this part is increased by the amount 
by which the product of 0.63 and the pre-BBA amount, exceeds the product 
of 0.60 and the PPS amount; or
    (4) Less than 70 percent of the pre-BBA amount, the amount of 
payment under this part shall be increased by 21 percent of the pre-BBA 
amount.
    (b) For 2002. Except as provided in paragraph (d) of this section, 
for covered hospital outpatient services furnished during 2002, for 
which the prospective payment system amount is--
    (1) At least 90 percent, but less than 100 percent, of the pre-BBA 
amount, the amount of payment under this part is increased by 70 percent 
of the amount of this difference;
    (2) At least 80 percent, but less than 90 percent, of the pre-BBA 
amount, the amount of payment under this part is increased by the amount 
by which the product of 0.61 and the pre-BBA amount exceeds the product 
of 0.60 and the prospective payment system amount; or
    (3) Less than 80 percent of the pre-BBA amount, the amount of 
payment under this part is increased by 13 percent of the pre-BBA 
amount.

[[Page 227]]

    (c) For 2003. Except as provided in paragraph (d) of this section, 
for covered hospital outpatient services furnished during 2003, for 
which the prospective payment system amount is--
    (1) At least 90 percent, but less than 100 percent, of the pre-BBA 
amount, the amount of payment under this part is increased by 60 percent 
of the amount of this difference; or
    (2) Less than 90 percent of the pre-BBA amount, the amount of 
payment under this part is increased by 6 percent of the pre-BBA amount.
    (d) Hold harmless provisions--(1) Temporary treatment for small 
rural hospitals before January 1, 2006. For covered hospital outpatient 
services furnished in a calendar year before January 1, 2006, for which 
the prospective payment system amount is less than the pre-BBA amount, 
the amount of payment under this part is increased by the amount of that 
difference if the hospital--
    (i) Is located in a rural area as defined in Sec. 412.63(b) of this 
chapter or is treated as being located in a rural area under section 
1886(d)(8)(E) of the Act; and
    (ii) Has 100 or fewer beds as defined in Sec. 412.105(b) of this 
chapter.
    (2) Temporary treatment for small rural hospitals on or after 
January 1, 2006. For covered hospital outpatient services furnished in a 
calendar year from January 1, 2006, through December 31, 2008, for which 
the prospective payment system amount is less than the pre-BBA amount, 
the amount of payment under this paragraph is increased by 95 percent of 
that difference for services furnished during 2006, 90 percent of that 
difference for services furnished during 2007, and 85 percent of that 
difference for services furnished during 2008 if the hospital--
    (i) Is located in a rural area as defined in Sec. 412.63(b) of this 
chapter or is treated as being located in a rural area under section 
1886(d)(8)(E) of the Act;
    (ii) Has 100 or fewer beds as defined in Sec. 412.105(b) of this 
chapter;
    (iii) Is not a sole community hospital as defined in Sec. 412.92 of 
this chapter; and
    (iv) Is not an essential access community hospital under Sec. 
412.109 of this chapter.
    (3) Permanent treatment for cancer hospitals and children's 
hospitals. In the case of a hospital described in Sec. 412.23(d) or 
Sec. 412.23(f) of this chapter for which the prospective payment system 
amount is less than the pre-BBA amount for covered hospital outpatient 
services, the amount of payment under this part is increased by the 
amount of this difference.
    (4) Temporary treatment for sole community hospitals located in 
rural areas. For covered hospital outpatient services furnished during 
cost reporting periods beginning on or after January 1, 2004, and 
continuing through December 31, 2005, for which the prospective payment 
system amount is less than the pre-BBA amount, the amount of payment 
under this part is increased by the amount of that difference if the 
hospital--
    (i) Is a sole community hospital, under Sec. 412.92 of this 
chapter; and
    (ii) Is located in a rural area as defined in Sec. 412.63(b) of 
this chapter or is treated as being located in a rural area under 
section 1886(d)(8)(E) of the Act.
    (e) Prospective payment system amount defined. In this paragraph, 
the term ``prospective payment system amount'' means, with respect to 
covered hospital outpatient services, the amount payable under this part 
for these services (determined without regard to this paragraph or any 
reduction in coinsurance elected under Sec. 419.42), including amounts 
payable as copayment under Sec. 419.41, coinsurance under section 
1866(a)(2)(A)(ii) of the Act, and the deductible under section 1833(b) 
of the Act.
    (f) Pre-BBA amount defined--(1) General rule. In this paragraph, the 
``pre-BBA amount'' means, with respect to covered hospital outpatient 
services furnished by a hospital or a community mental health center 
(CMHC) in a year, an amount equal to the product of the reasonable cost 
of the provider for these services for the portions of the provider's 
cost reporting period (or periods) occurring in the year and the base 
provider outpatient payment-to-cost ratio for the provider (as defined 
in paragraph (f)(2) of this section).
    (2) Base payment-to-cost-ratio defined. For purposes of this 
paragraph, CMS shall determine these ratios as if the

[[Page 228]]

amendments to sections 1833(i)(3)(B)(i)(II) and 1833(n)(1)(B)(i) of the 
Act made by section 4521 of the BBA, to require that the full amount 
beneficiaries paid as coinsurance under section 1862(a)(2)(A) of the Act 
are taken into account in determining Medicare Part B Trust Fund payment 
to the hospital, were in effect in 1996. The ``base payment-to-cost 
ratio'' for a hospital or CMHC means the ratio of--
    (i) The provider's payment under this part for covered outpatient 
services furnished during one of the following periods, including any 
payment for these services through cost-sharing described in paragraph 
(e) of this section:
    (A) The cost reporting period ending in 1996; or
    (B) If the provider does not have a cost reporting period ending in 
1996, the first cost reporting period ending on or after January 1, 
1997, and before January 1, 2001; and
    (ii) The reasonable costs of these services for the same cost 
reporting period.
    (g) Interim payments. CMS makes payments under this paragraph to 
hospitals and CMHCs on an interim basis, subject to retrospective 
adjustments based on settled cost reports.
    (h) No effect on coinsurance. No payment made under this section 
affects the unadjusted coinsurance amount or the coinsurance amount 
described in Sec. 419.41.
    (i) Application without regard to budget neutrality. The additional 
payments made under this paragraph--
    (1) Are not considered an adjustment under Sec. 419.43(f); and
    (2) Are not implemented in a budget neutral manner.

[65 FR 18542, Apr. 7, 2000, as amended at 65 FR 67829, Nov. 13, 2000; 66 
FR 59923, Nov. 30, 2001; 69 FR 832, Jan. 6, 2004; 69 FR 65863, Nov. 15, 
2004; 71 FR 68228, Nov. 24, 2006]



PART 420_PROGRAM INTEGRITY: MEDICARE--Table of Contents




                      Subpart A_General Provisions

Sec.
420.1 Scope and purpose.
420.3 Other related regulations.

Subpart B [Reserved]

        Subpart C_Disclosure of Ownership and Control Information

420.200 Purpose.
420.201 Definitions.
420.202 Determination of ownership or control percentages.
420.203 Disclosure of hiring of intermediary's former employees.
420.204 Principals convicted of a program-related crime.
420.205 Disclosure by providers and part B suppliers of business 
          transaction information.
420.206 Disclosure of persons having ownership, financial, or control 
          interest.

   Subpart D_Access to Books, Documents, and Records of Subcontractors

420.300 Basis, purpose, and scope.
420.301 Definitions.
420.302 Requirement for access clause in contracts.
420.303 HHS criteria for requesting books, documents, and records.
420.304 Procedures for obtaining access to books, documents, and 
          records.

Subpart E_Rewards for Information Relating to Medicare Fraud and Abuse, 
  and Establishment of a Program to Collect Suggestions for Improving 
   Medicare Program Efficiency and to Reward Suggesters for Monetary 
                                 Savings

420.400 Basis and scope.
420.405 Rewards for information relating to Medicare fraud and abuse.
420.410 Establishment of a program to collect suggestions for improving 
          Medicare program efficiency and to reward suggesters for 
          monetary savings.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 44 FR 31142, May 30, 1979, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 420.1  Scope and purpose.

    This part sets forth requirements for Medicare providers, 
intermediaries, and carriers to disclose ownership and control 
information. It also deals with access to records pertaining to certain 
contracts entered into by Medicare providers. These rules are aimed at 
protecting the integrity of the Medicare program. The statutory basis 
for these requirements is explained in each of the other subparts.

[51 FR 34787, Sept. 30, 1986]

[[Page 229]]



Sec. 420.3  Other related regulations.

    (a) Appeals procedures. Part 498 of this chapter sets forth the 
appeals procedures available to providers whose provider agreements CMS 
terminates for failure to comply with the disclosure of information 
requirements set forth in subpart C of this part.
    (b) Exclusion, termination, or suspension. Part 1001 of this title 
sets forth the rules applicable to exclusion, termination, or suspension 
from the Medicare program because of fraud or abuse or conviction of 
program-related crimes.

[51 FR 34787, Sept. 30, 1986, as amended at 52 FR 22454, June 12, 1987]

Subpart B [Reserved]



        Subpart C_Disclosure of Ownership and Control Information



Sec. 420.200  Purpose.

    This subpart implements sections 1124, 1124A, 1126, and 
1861(v)(1)(i) of the Social Security Act. It sets forth requirements for 
providers, Part B suppliers, intermediaries, and carriers to disclose 
ownership and control information and the identities of managing 
employees. It also sets forth requirements for disclosure of information 
about a provider's or Part B supplier's owners, those with a controlling 
interest, or managing employees convicted of criminal offenses against 
Medicare, Medicaid, or the title V (Maternal and Child Health Services) 
and title XX (Social Services) programs.

[57 FR 27306, June 18, 1992, as amended at 60 FR 50442, Sept. 29, 1995]



Sec. 420.201  Definitions.

    As used in this subpart unless the context indicates otherwise:
    Agent means any person who has been delegated the authority to 
obligate or act on behalf of a provider.
    Disclosing entity means:
    (1) A provider of services, an independent clinical laboratory, a 
renal disease facility, a rural health clinic, a Federally qualified 
health center, or a health maintenance organization (as defined in 
section 1301(a) of the Public Health Service Act);
    (2) A carrier or other agency or organization that is acting for one 
or more providers of services for purposes of part A and part B of 
Medicare; and
    (3) A part B supplier, as defined in Sec. 400.202 of this chapter.
    Group of practitioners means two or more health care practitioners 
who practice their profession at a common location (whether or not they 
share common facilities, common supporting staff, or common equipment).
    Indirect ownership interest means any ownership interest in an 
entity that has an ownership interest in the disclosing entity. The term 
includes an ownership interest in any entity that has an indirect 
ownership interest in the disclosing entity.
    Managing employee means a general manager, business manager, 
administrator, director, or other individual that exercises operational 
or managerial control over, or who directly or indirectly conducts, the 
day-to-day operation of the institution, organization, or agency, either 
under contract or through some other arrangement, whether or not the 
individual is a W-2 employee.
    Other disclosing entity means any other Medicare disclosing entity 
and any entity that does not participate in Medicare, but is required to 
disclose certain ownership and control information because of 
participation in any of the programs established under title V, XIX, or 
XX of the Act. This includes:
    (1) An entity (other than an individual practitioner or group of 
practitioners) that furnishes, or arranges for the furnishing of, items 
or services for which payment may be claimed by the entity under any 
plan or program established under title V of the Social Security Act or 
under an approved State Medicaid plan;
    (2) An entity (other than an individual practitioner or group of 
practitioners) that furnishes, or arranges for the furnishing of, 
health-related services for which payment may be claimed by the entity 
under an approved State plan and services program under title XX of the 
Act; or
    (3) A Medicaid fiscal agent.
    Ownership interest means the possession of equity in the capital, 
the stock, or the profits of the disclosing entity.

[[Page 230]]

    Person with an ownership or control interest means a person or 
corporation that--
    (1) Has an ownership interest totaling 5 percent or more in a 
disclosing entity;
    (2) Has an indirect ownership interest equal to 5 percent or more in 
a disclosing entity;
    (3) Has a combination of direct and indirect ownership interests 
equal to 5 percent or more in a disclosing entity;
    (4) Owns an interest of 5 percent or more in any mortgage, deed of 
trust, note, or other obligation secured by the disclosing entity if 
that interest equals at least 5 percent of the value of the property or 
assets of the disclosing entity;
    (5) Is an officer or director of a disclosing entity that is 
organized as a corporation; or
    (6) Is a partner in a disclosing entity that is organized as a 
partnership.
    Significant business transaction means any business transaction or 
series of transactions during any one fiscal year, the total of which 
exceeds the lesser of $25,000 and 5 percent of the total operating 
expenses of the provider.
    Subcontractor means--
    (1) An individual, agency, or organization to which a disclosing 
entity has contracted or delegated some of its management functions or 
responsibilities of providing medical care to its patients; or
    (2) An individual, agency, or organization with which an 
intermediary or carrier has entered into a contract, agreement, purchase 
order or lease (or leases of real property) to obtain space, supplies, 
equipment, or services provided under the Medicare agreement.
    Wholly owned supplier means a supplier whose total ownership 
interest is held by a provider or by a person, persons, or other entity 
with an ownership or control interest in a provider.

[44 FR 41642, July 17, 1979, as amended at 57 FR 24982, June 12, 1992; 
57 FR 27306, June 18, 1992; 57 FR 35760, Aug. 11, 1992; 71 FR 20775, 
Apr. 21, 2006]



Sec. 420.202  Determination of ownership or control percentages.

    (a) Indirect ownership interest. The amount of indirect ownership 
interest is determined by multiplying the percentages of ownership in 
each entity. For example, if A owns 10 percent of the stock in a 
corporation that owns 80 percent of the disclosing entity, A's interest 
equates to an 8 percent indirect ownership interest in the disclosing 
entity and must be reported. Conversely, if B owns 80 percent of the 
stock of a corporation that owns 5 percent of the stock of the 
disclosing entity, B's interest equates to a 4 percent indirect 
ownership interest in the disclosing entity and need not be reported.
    (b) Person with an ownership or control interest. In order to 
determine the percentage of ownership interest in any mortgage, deed of 
trust, note, or other obligation, the percentage of interest owned in 
obligation is multiplied by the percentage of the disclosing entity's 
assets used to secure the obligation. For example, if A owns 10 percent 
of a note secured by 60 percent of the provider's assets, A's interest 
in the provider's assets equates to 6 percent and must be reported. 
Conversely, if B owns 40 percent of a note secured by 10 percent of the 
provider's assets, B's interest in the provider's assets equates to 4 
percent and need not be reported.



Sec. 420.203  Disclosure of hiring of intermediary's former employees.

    A provider must notify the Secretary promptly if it, or its home 
office (in the case of a chain organization), employs or obtains the 
services of an individual who, at any time during the year preceding 
such employment, was employed in a managerial, accounting, auditing, or 
similar capacity by an agency or organization which currently serves, or 
at any time during the preceding year, served as a Medicare fiscal 
intermediary or carrier for the provider. Similar capacity means the 
performance of essentially the same work functions as those of a 
manager, accountant, or auditor even though the individual is not so 
designated by title.



Sec. 420.204  Principals convicted of a program-related crime.

    (a) Information required. Prior to CMS's acceptance of a provider 
agreement or issuance or reissuance of a supplier billing number, or at 
any time

[[Page 231]]

upon written request by CMS, the provider or part B supplier must 
furnish CMS with the identity of any person who:
    (1) Has an ownership or control interest in the provider or part B 
supplier;
    (2) Is an agent or managing employee of the provider or part B 
supplier; or
    (3) Is a person identified in paragraph (a)(1) or (a)(2) of this 
section and has been convicted of, or was an owner of, had a controlling 
interest in, or was a managing employee of a corporation that has been 
convicted of a criminal offense, subjected to any civil monetary 
penalty, or excluded from the programs for any activities related to 
involvement in the Medicare, Medicaid, title V or title XX social 
services program, since the inception of those programs.
    (b) Refusal to enter into or renew agreement or to issue or reissue 
billing numbers. CMS may refuse to enter into or renew an agreement with 
a provider of services, or to issue or reissue a billing number to a 
part B supplier, if any person who has an ownership or control interest 
in the provider or supplier, or who is an agent or managing employee, 
has been convicted of a criminal offense or subjected to any civil 
penalty or sanction related to the involvement of that person in 
Medicare, Medicaid, title V or title XX social services programs. In 
making this decision, CMS considers the facts and circumstances of the 
specific case, including the nature and severity of the crime, penalty 
or sanction and the extent to which it adversely affected beneficiaries 
and the programs involved. CMS also considers whether it has been given 
reasonable assurance that the person will not commit any further 
criminal or civil offense against the programs.
    (c) Notification of Inspector General. CMS promptly notifies the 
Inspector General of the Department of the receipt of any application or 
request for participation, certification, re-certification, or for a 
billing number that identifies any person described in paragraph (a)(3) 
of this section and the action taken on that application or request.

[57 FR 27306, June 18, 1992]



Sec. 420.205  Disclosure by providers and part B suppliers of business transaction information.

    A provider or part B supplier must submit to CMS, within 35 days 
after the date of a written request, full and complete information on--
    (a) The ownership of a subcontractor with which the provider or part 
B supplier has had, during the previous 12 months, business transactions 
in an aggregate amount in excess of $25,000;
    (b) Any significant business transactions between the provider or 
part B supplier and any wholly owned supplier or between the provider or 
part B supplier and any subcontractor, during the 5 year period ending 
on the date of the request;
    (c) The names of managing employees of the subcontractors;
    (d) The identity of any other entities to which payment may be made 
by Medicare, which a person with an ownership or control interest or a 
managing employee in the subcontractor has or has had an ownership or 
control interest in the 3-year period preceding disclosure; and
    (e) Any penalties, assessments, or exclusions under sections 1128, 
1128A and 1128B of the Act incurred by the subcontractor, its owners, 
managing employees or those with a controlling interest in the 
subcontract.

[57 FR 27306, June 18, 1992]



Sec. 420.206  Disclosure of persons having ownership, financial, or control interest.

    (a) Information that must be disclosed. A disclosing entity must 
submit the following information in the manner specified in paragraph 
(b) of this section:
    (1) The name and address of each person with an ownership or control 
interest in the entity or in any subcontractor in which the entity has 
direct or indirect ownership interest totaling 5 percent or more. In the 
case of a part B supplier that is a joint venture, ownership of 5 
percent or more of any company participating in the joint venture should 
be reported. Any physician who has been issued a Unique Physician 
Identification Number by the Medicare program must provide this number.

[[Page 232]]

    (2) Whether any of the persons named, in compliance with paragraph 
(a)(1) of this section, is related to another as spouse, parent, child, 
or sibling.
    (3) The name of any other disclosing entity in which any person with 
an ownership or control interest, or who is a managing employee in the 
reporting disclosing entity, has, or has had in the previous three-year 
period, an ownership or control interest or position as managing 
employee, and the nature of the relationship with the other disclosing 
entity. If any of these other disclosing entities has been convicted of 
a criminal offense or received a civil monetary or other administrative 
sanction related to participation in Medicare, Medicaid, title V 
(Maternal and Child Health) or title XX (Social Services) programs, such 
as penalties assessments and exclusions under sections 1128, 1128A or 
1128B of the Act, the disclosing entity must also provide that 
information.
    (b) Time and manner of disclosure. (1) Any disclosing entity that is 
subject to periodic survey and certification of its compliance with 
Medicare standards must supply the information specified in paragraph 
(a) of this section to the State survey agency at the time it is 
surveyed. The survey agency will promptly furnish the information to the 
Secretary.
    (2) Any disclosing entity that is not subject to periodic survey and 
certification must supply the information specified in paragraph (a) of 
this section to CMS before entering into a contract or agreement with 
Medicare or before being issued or reissued a billing number as a part B 
supplier.
    (3) A disclosing entity must furnish updated information to CMS at 
intervals between recertification, or re-enrollment, or contract 
renewals, within 35 days of a written request. In the case of a part B 
supplier, the supplier must report also within 35 days, on its own 
initiative, any changes in the information it previously supplied.
    (c) Consequences of failure to disclose. (1) CMS does not approve an 
agreement or contract with, or make a determination of eligibility for, 
or (in the case of a part B supplier) issue or reissue a billing number 
to, any disclosing entity that fails to comply with paragraph (b) of 
this section.
    (2) CMS terminates any existing agreement or contract with, or 
withdraws a determination of eligibility for or (in the case of a part B 
supplier) revokes the billing number of, any disclosing entity that 
fails to comply with paragraph (b) of this section.
    (d) Public disclosure. Information furnished to the Secretary under 
the provisions of this section shall be subject to public disclosure as 
specified in 20 CFR part 422.

[44 FR 41642, July 17, 1979, as amended at 57 FR 27306, June 18, 1992]



   Subpart D_Access to Books, Documents, and Records of Subcontractors

    Source: 47 FR 58267, Dec. 30, 1982, unless otherwise noted.



Sec. 420.300  Basis, purpose, and scope.

    This subpart implements section 1861(v)(1)(I) of the Act, which 
requires, for Medicare payment under certain provider contracts, access 
by the Secretary, upon written request, and the Comptroller General, and 
their duly authorized representatives, to certain contracts for services 
and to books, documents, and records necessary to verify the costs of 
the services. The contracts affected are those between providers and 
their subcontractors, and between the subcontractors and organizations 
related to the subcontractor by control or common ownership. It also 
specifies the criteria by which HHS will determine whether to request 
access to books, documents, and records.



Sec. 420.301  Definitions.

    For purposes of this subpart--
    Books, documents, and records means all writings, recordings, 
transcriptions and tapes of any description necessary to verify the 
nature and extent of the costs of the services provided by the 
subcontractor.
    Common ownership means that an individual or individuals possess 
significant ownership or equity in the subcontractor and the entity 
providing the services under the contract.

[[Page 233]]

    Contract for services means a contract through which a provider 
obtains the performance of an act or acts, as distinguished from 
supplies or equipment. It includes any contract for both goods and 
services to the extent the value or cost of the service component is 
$10,000 or more within a 12-month period.
    Control means that an individual or an organization has the power, 
directly or indirectly, significantly to influence or direct the actions 
of policies of an organization.
    Provider means a hospital, skilled nursing facility, home health 
agency, hospice or comprehensive outpatient rehabilitation facility, or 
a related organization (as defined in Sec. 413.17 of this chapter) of 
any of these providers.
    Related to the subcontractor means that the subcontractor is, to a 
significant extent, associated or affiliated with, owns, or is owned by, 
or has control of or is controlled by, the organization furnishing the 
services, facilities, or supplies.
    Subcontractor means any entity, including an individual or 
individuals, that contracts with a provider to supply a service, either 
to the provider or directly to a beneficiary, for which Medicare 
reimburses the provider the cost of the service. This includes 
organizations related to the subcontractor that have a contract with the 
subcontractor for which the cost or value is $10,000 or more in a 12-
month period.

[47 FR 58267, Dec. 30, 1982, as amended at 49 FR 13703, Apr. 6, 1984; 51 
FR 34833, Sept. 30, 1986]



Sec. 420.302  Requirement for access clause in contracts.

    (a) Applicability. This subpart applies to contracts--
    (1) Between a provider and a subcontractor and, where subject to 
section 1861(v)(l)(I)(ii) of the Act, between a subcontractor and an 
organization related to the subcontractor;
    (2) Entered into or renewed after December 5, 1980; and
    (3) For services the cost or value of which is $10,000 or more over 
a 12-month period, including contracts for both goods and services in 
which the service component is worth $10,000 or more over a 12-month 
period.
    (b) Requirement. Any contract meeting the conditions of paragraph 
(a) of this section must include a clause that allows the Comptroller 
General of the United States, HHS, and their duly authorized 
representatives access to the subcontractor's contract, books, 
documents, and records until the expiration of four years after the 
services are furnished under the contract or subcontract. The access 
must be provided for in accordance with the provisions of this subpart. 
The clause must also allow similar access by HHS, the Comptroller 
General, and their duly authorized representatives to contracts subject 
to section 1861(v)(l)(I)(ii) of the Act between a subcontractor and 
organizations related to the subcontractor and to books, documents, and 
records.
    (c) Prohibition against Medicare reimbursement. If a contract 
subject to the requirements of this subpart does not contain the clause 
required by paragraph (b) of this section, CMS will not reimburse the 
provider for the cost of the services furnished under the contract and 
will recoup any payments previously made for services under the 
contract. However, in order to avoid nonreimbursement or recoupment, 
providers will have until July 30, 1983, to amend those contracts 
entered into or renewed after December 5, 1980, and before January 31, 
1983, that do not conform to the requirements of paragraph (b) of this 
section.

[47 FR 58267, Dec. 30, 1982, as amended at 49 FR 13703, Apr. 6, 1984]



Sec. 420.303  HHS criteria for requesting books, documents, and records.

    HHS will generally request books, documents, and records from a 
subcontractor only if one of the following situations exists and the 
question cannot satisfactorily and efficiently be resolved without 
access to the books, documents, and records:
    (a) HHS has reason to believe that the costs claimed for services of 
the subcontractor are excessive or inappropriate.
    (b) There is insufficient information to judge the appropriateness 
of the costs.
    (c) There is a written accusation with suitable evidence against the 
provider

[[Page 234]]

or subcontractor of kickbacks, bribes, rebates, or other illegal 
activities.
    (d) There is evidence of a possible nondisclosure of the existence 
of a related organization.



Sec. 420.304  Procedures for obtaining access to books, documents, and records.

    (a) Contents of the request. Requests for access will be in writing 
and contain the following elements:
    (1) Reasonable identification of the books, documents, and records 
to which access is being requested.
    (2) Identification of the contract or subcontract in which costs are 
being questioned as excessive or inappropriate.
    (3) The reason that the appropriateness of the costs or value of the 
services of the subcontractor in question cannot be adequately or 
efficiently determined without access to the subcontractor's books and 
records.
    (4) The authority in the statute and regulations for the access 
requested.
    (5) To the extent possible, the identification of those individuals 
who will be visiting the subcontractor to obtain access to the books, 
documents, and records.
    (6) The time and date of the scheduled visit.
    (7) The name of the duly authorized representative of HHS to contact 
if there are any questions.
    (b) Subcontractor response to a request for access to books, 
documents, and records. (1) The subcontractor will have 30 days from the 
date of a written request for access to books, documents, and records to 
make them available in accordance with the request.
    (2) If the subcontractor believes the request is inadequate because 
it does not fully meet one or more of the required elements in paragraph 
(a) of this section, the subcontractor must advise the requesting 
organization of the additional information needed.
    (i) The subcontractor must notify the requesting organization within 
20 days of the date of the request that it was improperly completed.
    (ii) The subcontractor must make the books, documents, and records 
available within 20 days after the date of the requesting organization's 
response.
    (3) If the subcontractor believes, for good cause, that the 
requested books, documents, and records cannot be made available as 
requested with the 30-day period under paragraph (b)(1) of this section, 
the subcontractor may request an extension of time within which to 
comply with the request from the requesting organization. The requesting 
organization may, at its discretion, grant the request for an extension, 
in whole or in part, for good cause shown.
    (4) The subcontractor must make the books, documents, and records 
available during its regular business hours for inspection, audit, and 
reproduction.
    (5) If HHS asks the subcontractor to reproduce books, documents, and 
records, HHS will pay the reasonable cost of reproduction. However, if 
the subcontractor reproduces books, documents, and records as a means of 
making them available, the subcontractor must bear the cost of the 
reproduction and no Medicare reimbursement will be made for that 
purpose.
    (6) HHS reserves the right to examine the originals of any requested 
contracts, books, documents, and records, if they exist.
    (c) Refusal by subcontractor to furnish access to records. If CMS 
determines that the books, documents, and records are necessary for the 
reimbursement determination and the subcontractor refuses to make them 
available, HHS may initiate legal action against the subcontractor.



Subpart E_Rewards for Information Relating to Medicare Fraud and Abuse, 
  and Establishment of a Program to Collect Suggestions for Improving 
   Medicare Program Efficiency and to Reward Suggesters for Monetary 
                                 Savings

    Source: 63 FR 31128, June 8, 1998, unless otherwise noted.



Sec. 420.400  Basis and scope.

    This subpart implements sections 203(b) and (c) of Public Law 104-
191, which require the establishment of programs to encourage 
individuals to report suspected cases of fraud and abuse

[[Page 235]]

and submit suggestions on methods to improve the efficiency of the 
Medicare program. Sections 203(b) and (c) of Public Law 104-191 also 
provide the authority for CMS to reward individuals for reporting fraud 
and abuse and for submitting suggestions that could improve the 
efficiency of the Medicare program. This subpart sets forth procedures 
for rewarding individuals.

[64 FR 66401, Nov. 26, 1999]



Sec. 420.405  Rewards for information relating to Medicare fraud and abuse.

    (a) General rule. CMS pays a monetary reward for information that 
leads to the recovery of at least $100 of Medicare funds from 
individuals and entities that are engaging in, or have engaged in, acts 
or omissions that constitute grounds for the imposition of a sanction 
under section 1128, section 1128A, or section 1128B of the Act or that 
have otherwise engaged in sanctionable fraud and abuse against the 
Medicare program. The determination of whether an individual meets the 
criteria for an award, and the amount of the award, is at the discretion 
of CMS. CMS pays rewards only if a reward is not otherwise provided for 
by law. When CMS applies the criteria specified in paragraphs (b), (c), 
and (e) of this section to determine the eligibility and the amount of 
the reward, it notifies the recipient as specified in paragraph (d) of 
this section.
    (b) Information eligible for reward. (1) In order for an individual 
to be eligible to receive a reward, the information he or she supplied 
must relate to the activities of a specific individual or entity and 
must specify the time period of the alleged activities.
    (2) CMS does not give a reward for information relating to an 
individual or entity that, at the time the information is provided, is 
already the subject of a review or investigation by CMS or its 
contractors, or the OIG, the Department of Justice, the Federal Bureau 
of Investigation, or any other Federal, State, or local law enforcement 
agency.
    (c) Persons eligible to receive a reward--(1) General rule. Any 
person (other than one excluded under paragraph (c)(2) of this section) 
is eligible to receive a reward under this section if the person submits 
the information in the manner set forth in paragraph (f) of this 
section.
    (2) Excluded individuals. (i) An individual who was, or is an 
immediate family member of, an officer or employee of HHS or its 
contractors, the SSA, the OIG, a State Medicaid Agency, or the 
Department of Justice, the Federal Bureau of Investigation, or any other 
Federal, State, or local law enforcement agency at the time he or she 
came into possession of, or divulged, information leading to a recovery 
of Medicare funds is not eligible to receive a reward under this 
section.
    (ii) Any other Federal or State employee or contractor or an HHS 
grantee is not eligible for a reward under this section if the 
information submitted came to his or her knowledge in the course of his 
or her official duties.
    (iii) An individual who illegally obtained the information he or she 
submitted is excluded from receiving a reward under this section.
    (iv) An individual who participated in the sanctionable offense with 
respect to which payment would be made is excluded from receiving a 
reward under this section.
    (d) Notification of eligibility--(1) General rule. After all 
Medicare funds have been recovered and CMS has determined a participant 
eligible to receive a reward under the provisions of this section, it 
notifies the informant of his or her eligibility, by mail, at the most 
recent address supplied by the individual. It is the individual's 
responsibility to ensure that the reward program has been notified of 
any change in his or her address or other relevant personal information 
(for example, change of name, phone number).
    (2) Special circumstances. (i) If the individual has relocated to an 
unknown address, the individual or his or her legal representative may 
claim the reward by contacting CMS within 1 year from the date on which 
CMS first attempted to notify the individual about a reward. CMS does 
not consider the individual or his or her legal representative eligible 
for a reward more than 1 year after the date on which it first attempted 
to give notice. CMS does not pay interest on rewards that are not 
immediately claimed.

[[Page 236]]

    (ii) If the individual has become incapacitated or has died, an 
executor, administrator, or other legal representative may claim the 
reward on behalf of the individual or the individual's estate. The 
claimant must submit certified copies of the letters testamentary, 
letters of administration, or other similar evidence to show his or her 
authority to claim the reward. The claim must be filed within 1 year 
from the date on which CMS first gave or attempted to give notice of the 
reward.
    (e) Amount and payment of reward. (1) In determining whether it will 
pay a reward and, if so, the amount of the reward, CMS takes into 
account all relevant factors, including the significance of the 
information furnished in relation to the ultimate resolution of the case 
and the recovery of Medicare funds.
    (2) The amount of a reward represents what CMS considers to be 
adequate compensation in the particular case, not to exceed 10 percent 
of the overpayments recovered in the case or $1,000, whichever is less.
    (3) If more than one person is eligible to receive a reward in a 
particular case, CMS allocates the total reward amount (not to exceed 10 
percent of the overpayments recovered in that case or $1,000, whichever 
is less) among the participants.
    (4) CMS bases rewards only on recovered Medicare payments and not on 
amounts collected as penalties or fines.
    (5) CMS makes payments as promptly as the circumstances of the case 
permit, but not until it has collected all Medicare overpayments, fines, 
and penalties.
    (6) No person may make any offer or promise or otherwise bind CMS or 
HHS with respect to the payment of any reward under this section or the 
amount of the reward.
    (f) Submission of information. (1) An individual may submit 
information on persons or entities engaging in, or that have engaged in, 
fraud and abuse against the Medicare program to the Office of the 
Inspector General, or to the Medicare intermediary or carrier that has 
jurisdiction over the suspected fraudulent provider or supplier.
    (2) A participant interested in receiving a reward must provide his 
or her name, address, telephone number, and any other requested 
identifying information so that he or she may be contacted, if 
necessary, for additional information and, when applicable, for the 
payment of a reward upon resolution of the case.
    (g) Confidentiality. CMS does not reveal a participant's identity to 
any person, except as required by law.
    (h) Finding of ineligibility after reward is accepted. If, after a 
reward is accepted, CMS finds that the awardee was ineligible to receive 
the reward, the Government is not liable for the reward and the awardee 
must refund all monies received.



Sec. 420.410  Establishment of a program to collect suggestions for improving Medicare program efficiency and to reward suggesters for monetary savings.

    (a) Definitions. As used in this section, the following definitions 
apply:
    Payment means a monetary award given to a suggester in recognition 
of, and as a reward for, a suggestion adopted by CMS that improves the 
efficiency of, and results in monetary savings to, the Medicare program.
    Savings means the monetary value of the net benefits the Medicare 
program derives from implementing the suggestion.
    Suggester means an individual, a group of individuals, or a legal 
entity such as a corporation, partnership, or professional association, 
not otherwise excluded under Sec. 420.410(d), who submits a suggestion 
under this section.
    Suggestion means an original idea submitted in writing.
    Suggestion program means the specific procedures and requirements 
established by CMS for receiving suggestions from the suggester on 
methods to improve the efficiency of the Medicare program, evaluating 
the suggestions and, if appropriate, paying a reward to the suggester 
for adopted suggestions that result in improved efficiency and produce 
monetary savings to the Medicare program.
    (b) General rule. CMS may make payment for adopted suggestions that 
increase the efficiency of the Medicare program and result in monetary 
savings. CMS only makes payment for

[[Page 237]]

suggestions in instances in which a reward is not otherwise provided by 
law. The determination to adopt a suggestion, to reward the suggester, 
and the method of calculating a reward are at the sole discretion of 
CMS.
    (c) Eligibility. Except as specified in paragraph (d) of this 
section, any individual, group of individuals or legal entity, such as a 
corporation, partnership or professional association, is eligible to 
submit a suggestion and be considered for a reward under this suggestion 
program if the suggestion is submitted to CMS in the manner set forth in 
paragraph (e) of this section.
    (d) Exclusions. Medicare contractors, their officers and employees, 
individuals who work for Federal agencies under a contract, employees of 
Federally-sponsored research and demonstration projects, Federal 
officers and employees, and immediate family members of these 
individuals, are excluded from receiving payment under the suggestion 
program. If, after the suggester receives a reward payment, CMS 
determines that the suggester was ineligible to receive the reward, CMS 
is not liable for the reward payment and the suggester must refund all 
monies received.
    (e) Requirements for submitting suggestions--(1) To be considered, 
the suggestion must be in writing, mailed to CMS, and must include the 
following information:
    (i) A description of an existing problem or need;
    (ii) A suggested method for solving the problem or filling the need; 
and
    (iii) If known, an estimate of the savings potential that could 
result from implementing the suggestion.
    (2) Suggestions must be mailed to: Centers for Medicare & Medicaid 
Services Suggestion Program, 7500 Security Blvd., Baltimore, Maryland 
21244-1850.
    (3) Any suggesters interested in receiving a reward must provide CMS 
with the following information: An individual suggester must provide his 
or her name, a group of suggesters must provide the names of all the 
group members, and a legal entity must provide its name and the name of 
its representative. All suggesters must provide an address, telephone 
number, and any other identifying information that CMS needs to contact 
the suggester for additional information and, where applicable, to mail 
the reward.
    (f) Evaluation process--(1) Relevant factors. CMS evaluates all 
suggestions on the basis of the following factors:
    (i) Originality of suggestion.
    (ii) An estimate of potential monetary savings to the Medicare 
program.
    (iii) The extent to which Medicare program efficiency would be 
improved if CMS adopts the suggestion.
    (iv) Accuracy of the information reflected in the suggestion.
    (v) Feasibility of implementation.
    (vi) Nature and complexity of the suggestion.
    (vii) Any other factors that appear to be relevant.
    (2) Evaluation time limit. CMS concludes the evaluation process in a 
reasonable amount of time, not to exceed 2 years from the receipt date, 
taking into consideration the complexity of the suggestion, the number 
of possible implementation strategies, and CMS's current workload.
    (g) Basis for reward payment--(1) General rule. If CMS determines 
that it is appropriate to make a reward payment for a suggestion adopted 
in whole or in part, that results in improved efficiency and monetary 
savings to the Medicare program, the payment is based on--
    (i) The actual first-year net savings to the Medicare program, or
    (ii) The average annual net savings to the Medicare program expected 
to be realized over a period of not more than 3 years if--
    (A) An improvement is expected to yield monetary savings for more 
than 1 year and implementation involves substantial costs; or
    (B) Monetary savings are negligible in the first year but are 
expected to substantially increase in subsequent years.
    (2) Reward payment amount. CMS determines the amount of a reward 
payment using the following formula:
    (i) Net savings from $1,000 to $10,000--10 percent of the savings, 
with a minimum award amount of $100;
    (ii) Net savings of $10,001 to $100,000--$1,000 for the first 
$10,000 of savings, plus 3 percent of the net savings over $10,000;

[[Page 238]]

    (iii) Net savings of more than $100,000--$3,700 for the first 
$100,000 of savings, plus 0.5 percent of savings over $100,000, with a 
maximum award amount of $25,000.
    (h) Adoption of suggestion and issuance of reward payment--(1) 
Adoption. Upon completing its evaluation, CMS decides whether to adopt a 
suggestion. If CMS receives the same or an overlapping suggestion from 
two or more unrelated parties, CMS will consider a reward only for the 
suggestion CMS received first, if the suggestion or overlapping part of 
the suggestion are identical, and CMS has adopted that part. If the 
suggestions are not identical, CMS will consider rewarding the 
suggestion received first, if it is feasible and CMS is able to adopt 
and implement the suggestion. If the first suggestion cannot be 
implemented, CMS may consider rewarding the suggestion received next, 
even if it is similar, provided CMS can adopt and implement the 
suggestion.
    (2) Issuance of reward payment. After the reward payment amount is 
determined, as described in paragraph (g) of this section, CMS mails 
payment to the suggester (or to the legal representatives referenced in 
paragraph (k) of this section) only after the suggestion has been in 
operation for 1 year.
    (i) Group suggestions. When CMS deems that a reward payment is 
appropriate for a suggestion submitted by a group of individuals, CMS 
pays an equal share of the reward to each of the individuals identified 
in the group. If an organization such as a corporation, partnership, or 
professional association submits a suggestion, CMS makes a single reward 
payment to that organization.
    (j) Change in name or address. It is the suggester's responsibility 
to notify CMS of any change of address or other relevant information. If 
the suggester fails to update CMS on any change in this information, and 
the reward payment mailed to the suggester is returned to CMS, the 
suggester must claim the reward payment by contacting CMS within 1 year 
from the date CMS first mailed the reward payment to the suggester. CMS 
does not pay interest on rewards that, for any reason, are delayed or 
are not immediately claimed.
    (k) Incapacitated or deceased suggester. If the suggester is 
incapacitated or has died, an executor, administrator, or other legal 
representative may claim the reward on behalf of the suggester or the 
suggester's estate. The claimant must submit certified copies of the 
letters testamentary, letters of administration, or other similar 
evidence to CMS showing his or her authority to claim the reward. The 
claim must be filed within 1 year from the date on which CMS first 
attempted to pay the reward to the individual who submitted the 
suggestion.
    (l) Maintenance of records--(1) CMS retains records related to the 
administration of the suggestion program in accordance with 36 CFR part 
1228 (the regulations for the National Archives and Records 
Administration).
    (2) CMS does not disclose information submitted under the suggestion 
program, except as required by law.

[64 FR 66401, Nov. 26, 1999]



PART 421_MEDICARE CONTRACTING--Table of Contents




          Subpart A_Scope, Definitions, and General Provisions

Sec.
421.1 Basis and scope.
421.3 Definitions.
421.5 General provisions.

                        Subpart B_Intermediaries

421.100 Intermediary functions.
421.103 Payment to providers.
421.104 Assignment of providers of services to intermediaries during 
          transition to Medicare Administrative Contractors (MACs).
421.110 Requirements for approval of an agreement.
421.112 Considerations relating to the effective and efficient 
          administration of the program.
421.114 Assignment and reassignment of providers by CMS.
421.120 Performance criteria.
421.122 Performance standards.
421.124 Intermediary's failure to perform efficiently and effectively.
421.126 Termination of agreements.
421.128 Intermediary's opportunity for hearing and right to judicial 
          review.

[[Page 239]]

                           Subpart C_Carriers

421.200 Carrier functions.
421.201 Performance criteria and standards.
421.202 Requirements and conditions.
421.203 Carrier's failure to perform efficiently and effectively.
421.205 Termination by the Secretary.
421.210 Designations of regional carriers to process claims for durable 
          medical equipment, prosthetics, orthotics and supplies.
421.212 Railroad Retirement Board contracts.
421.214 Advance payments to suppliers furnishing items or services under 
          Part B.

            Subpart D_Medicare Integrity Program Contractors

421.300 Basis, applicability, and scope.
421.302 Eligibility requirements for Medicare integrity program 
          contractors.
421.304 Medicare integrity program contractor functions.
421.306 Awarding of a contract.
421.308 Renewal of a contract.
421.310 Conflict of interest requirements.
421.312 Conflict of interest resolution.
421.316 Limitation on Medicare integrity program contractor liability.

          Subpart E_Medicare Administrative Contractors (MACs)

421.400 Statutory basis and scope.
421.401 Definitions.
421.404 Assignment of providers and suppliers to MACs.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 45 FR 42179, June 23, 1980, unless otherwise noted.



          Subpart A_Scope, Definitions, and General Provisions



Sec. 421.1  Basis and scope.

    (a) This part is based on the indicated provisions of the following 
sections of the Act:

    1124--Requirements for disclosure of certain information.
    1816 and 1842--Use of organizations and agencies in making Medicare 
payments to providers and suppliers of services.

    (b) Section 421.118 is also based on 42 U.S.C.1395b-1(a)(1)(F), 
which authorizes demonstration projects involving intermediary 
agreements and carrier contracts.
    (c) The provisions of this part apply to agreements with Part A 
(Hospital Insurance) intermediaries and contracts with Part B 
(Supplementary Medical Insurance) carriers. They also state that CMS may 
perform certain functions directly or by contract. They specify criteria 
and standards to be used in selecting intermediaries and evaluating 
their performance, in assigning or reassigning a provider or providers 
to particular intermediaries, and in designating regional or national 
intermediaries for certain classes of providers. The provisions set 
forth the instances where there is the opportunity for a hearing for 
intermediaries and carriers affected by certain adverse actions. In some 
circumstances, the adversely affected intermediaries may request a 
judicial review of hearings decisions on--
    (1) Assignment or reassignment of a provider or providers; or
    (2) Designation of an intermediary or intermediaries to serve a 
class of providers.

[49 FR 3659, Jan. 30, 1984, as amended at 60 FR 50442, Sept. 29, 1995]

    Effective Date Note: At 72 FR 48886, Aug. 24, 2007, Sec. 421.1 was 
revised, effective October 23, 2007. For the convenience of the user, 
the revised text is set forth as follows:



Sec. 421.1  Basis, applicability, and scope.

    (a) Basis. This part is based on the provisions of the following 
sections of the Act:
    Section 1124--Requirements for disclosure of certain information.
    Sections 1816 and 1842--Provisions relating to the administration of 
Parts A and B.
    Section 1893--Requirements for protecting the integrity of the 
Medicare program.
    (b) Applicability. The provisions of this part apply to agreements 
with Part A (Hospital Insurance) fiscal intermediaries that received 
awards under sections 1816 or 1842 of the Act prior to October 1, 2005, 
contracts with Part B (Supplementary Medical Insurance) carriers that 
received awards under sections 1816 or 1842 of the Act prior to October 
1, 2005, and contracts with Medicare integrity program contractors that 
perform program integrity functions.
    (c) Scope. The scope of this part--
    (1) Specifies that CMS may perform certain functions directly or by 
contract.
    (2) Specifies criteria and standards CMS uses in evaluating the 
performance of fiscal intermediaries' successor entities and in 
assigning or reassigning a provider or providers to particular fiscal 
intermediaries.
    (3) Provides the opportunity for a hearing for fiscal intermediaries 
and carriers affected by certain adverse actions.

[[Page 240]]

    (4) Provides adversely affected fiscal intermediaries an opportunity 
for judicial review of certain hearing decisions.
    (5) Sets forth requirements related to contracts with Medicare 
integrity program contractors.



Sec. 421.3  Definitions.

    As used in this part--
    Intermediary means an entity that has a contract with CMS (under 
statutory provisions in effect prior to October 1, 2005) to determine 
and make Medicare payments for Part A or Part B benefits payable on a 
cost basis (or under the prospective payment system for hospitals) and 
to perform other related functions. For purposes of applying the 
performance criteria in Sec. 421.120 and the performance standards in 
Sec. 421.122 and any adverse action resulting from that application, 
the term ``intermediary'' also means a Blue Cross plan that has entered 
into a subcontract approved by CMS with the Blue Cross and Blue Shield 
Association to perform intermediary functions.

[71 FR 68228, Nov. 24, 2006]



Sec. 421.5  General provisions.

    (a) Competitive bidding not required for carriers. CMS may enter 
into contracts with carriers, or with intermediaries to act as carriers 
in certain circumstances, without regard to section 3709 of the U.S. 
Revised Statutes or any other provision of law that requires competitive 
bidding.
    (b) Indemnification of intermediaries and carriers. Intermediaries 
and carriers act on behalf of CMS in carrying out certain administrative 
responsibilities that the law imposes. Accordingly, their agreements and 
contracts contain clauses providing for indemnification with respect to 
actions taken on behalf of CMS and CMS is the real party of interest in 
any litigation involving the administration of the program.
    (c) Use of intermediaries to perform carrier functions. CMS may 
contract with an intermediary to perform carrier functions with respect 
to services for which Part B payment is made to a provider.
    (d) Nonrenewal of agreement or contract. Notwithstanding any of the 
provisions of this part, CMS has the authority not to renew an agreement 
or contract when its term expires.
    (e) Intermediary availability in an area. For more effective and 
efficient administration of the program, CMS retains the right to expand 
or diminish the geographical area in which an intermediary is available 
to serve providers.
    (f) Provision for automatic renewal. Agreements and contracts under 
this part may contain automatic renewal clauses for continuation from 
term to term unless either party gives notice, within timeframes 
specified in the agreement or contract, of its intention not to renew.

[45 FR 42179, June 23, 1980, as amended at 54 FR 4026, Jan. 27, 1989]



                        Subpart B_Intermediaries



Sec. 421.100  Intermediary functions.

    An agreement between CMS and an intermediary specifies the functions 
to be performed by the intermediary, which must include, but are not 
necessarily limited to, the following:
    (a) Coverage. (1) The intermediary ensures that it makes payments 
only for services that are:
    (i) Furnished to Medicare beneficiaries;
    (ii) Covered under Medicare; and
    (iii) In accordance with QIO determinations when they are services 
for which the QIO has assumed review responsibility under its contract 
with CMS.
    (2) The intermediary takes appropriate action to reject or adjust 
the claim if--
    (i) The intermediary or the QIO determines that the services 
furnished or proposed to be furnished were not reasonable, not medically 
necessary, or not furnished in the most appropriate setting; or
    (ii) The intermediary determines that the claim does not properly 
reflect the kind and amount of services furnished.
    (b) Fiscal management. The intermediary must receive, disburse, and 
account for funds in making Medicare payments.
    (c) Provider audits. The intermediary must audit the records of 
providers of services as necessary to assure proper payments.

[[Page 241]]

    (d) Utilization patterns. The intermediary must assist providers 
to--
    (1) Develop procedures relating to utilization practices;
    (2) Make studies of the effectiveness of those procedures and 
recommend methods to improve them;
    (3) Evaluate the results of utilization review activity; and
    (4) Assist in the application of safeguards against unnecessary 
utilization of services.
    (e) Resolution of cost report disputes. The intermediary must 
establish and maintain procedures approved by CMS to consider and 
resolve any disputes that may result from provider dissatisfaction with 
an intermediary's determinations concerning provider cost reports.
    (f) Reconsideration of determinations. The intermediary must 
establish and maintain procedures approved by CMS for the 
reconsideration of its determinations to deny payments to an individual 
or to the provider that furnished services to the individual. The QIO 
performs reconsideration of cases in which it made a determination 
subject to reconsideration.
    (g) Information and reports. The intermediary must furnish to CMS 
any information and reports that CMS requests in order to carry out its 
responsibilities in the administration of the Medicare program.
    (h) Other terms and conditions. The intermediary must comply with 
all applicable laws and regulations and with any other terms and 
conditions included in its agreement.
    (i) Dual intermediary responsibilities. Regarding the responsibility 
for service to provider-based HHAs and provider-based hospices, where 
the HHA or the hospice and its parent provider will be served by 
different intermediaries, the designated regional intermediary will 
process bills, make coverage determinations, and make payments to the 
HHAs and the hospices. The intermediary serving the parent provider will 
perform all fiscal functions, including audits and settlement of the 
Medicare cost reports and the HHA and hospice supplement worksheets.

[45 FR 42179, June 23, 1980, as amended at 48 FR 7178, Feb. 18, 1983; 49 
FR 3659, Jan. 30, 1984; 51 FR 43198, Dec. 1, 1986; 53 FR 17944, May 19, 
1988; 54 FR 4026, Jan. 27, 1989; 71 FR 68228, Nov. 24, 2006]

    Effective Date Note: At 72 FR 48886, Aug. 24, 2007, Sec. 421.100 
was revised, effective October 23, 2007. For the convenience of the 
user, the revised text is set forth as follows:



Sec. 421.100  Intermediary functions.

    An agreement between CMS and an intermediary specifies the functions 
to be performed by the intermediary.
    (a) Mandatory functions. The contract must include the following 
functions:
    (1) Determining the amount of payments to be made to providers for 
covered services furnished to Medicare beneficiaries.
    (2) Making the payments.
    (b) Additional functions. The contract may include any or all of the 
following functions:
    (1) Any or all of the program integrity functions described in Sec. 
421.304, provided the intermediary is continuing those functions under 
an agreement entered into under section 1816 of the Act that was in 
effect on August 21, 1996, and they do not duplicate work being 
performed under a Medicare integrity program contract.
    (2) Undertaking to adjust incorrect payments and recover 
overpayments when it is determined that an overpayment was made.
    (3) Furnishing to CMS timely information and reports that CMS 
requests in order to carry out its responsibilities in the 
administration of the Medicare program.
    (4) Establishing and maintaining procedures as approved by CMS for 
the redetermination of payment determinations.
    (5) Maintaining records and making available to CMS the records 
necessary for verification of payments and for other related purposes.
    (6) Upon inquiry, assisting individuals for matters pertaining to an 
intermediary agreement.
    (7) Serving as a channel of communication to and from CMS of 
information, instructions, and other material as necessary for the 
effective and efficient performance of an intermediary agreement.
    (8) Undertaking other functions as mutually agreed to by CMS and the 
intermediary.
    (c) Dual intermediary responsibilities. Regarding the responsibility 
for service to provider-based HHAs and provider-based hospices, where 
the HHA or the hospice and its parent provider will be served by 
different intermediaries, the designated regional intermediary will 
process bills, make coverage determinations, and make payments to

[[Page 242]]

the HHAs and the hospices. The intermediary or Medicare integrity 
program contractor serving the parent provider will perform all fiscal 
functions, including audits and settlement of the Medicare cost reports 
and the HHA and hospice supplement worksheets.



Sec. 421.103  Payment to providers.

    Providers are assigned to intermediaries in accordance with Sec. 
421.104. As the Medicare Administrative Contractors (MACs) are 
implemented, providers are reassigned from intermediaries to MACs in 
accordance with Sec. 412.404 of this chapter.

[71 FR 68228, Nov. 24, 2006]



Sec. 421.104  Assignment of providers of services to intermediaries during transition to Medicare Administrative Contractors (MACs).

    (a) Beginning October 1, 2005, CMS assigns providers of services and 
other entities that may bill Part A benefits to intermediaries in a 
manner that will best support the transition to Medicare Administrative 
Contractors (MACs) under section 1874A of the Act in accordance with 
Subpart E of this part.
    (b) These providers of services and other entities must continue to 
bill the intermediary that they were billing prior to October 1, 2005, 
until one of the following events occurs:
    (1) The intermediary's agreement with CMS ends, and the provider or 
entity is directed by CMS to bill another CMS contractor.
    (2) The provider or entity is assigned to a MAC that has begun to 
administer claims within the geographic locale of the provider or 
entity.
    (3) CMS directs the provider or entity to begin billing another CMS 
contractor in order to support the implementation of MACs under section 
1874A of the Act and Subpart E of this part.
    (c) New providers of services and new entities will be assigned to 
the intermediary serving their geographic locale if no MAC has begun to 
administer Medicare claims in the locale. These providers or entities 
must continue to bill the intermediary until one of the events in 
paragraph (b) of this section occurs.
    (d) Providers or entities will only be granted exceptions to the 
provisions of paragraphs (b) or (c) of this section if CMS deems the 
exception to be in the compelling interest of the Medicare program.
    (e) CMS will notify the provider or entity, the outgoing 
intermediary, and the newly assigned intermediary of assignment or 
reassignment decisions.

[71 FR 68228, Nov. 24, 2006]



Sec. 421.110  Requirements for approval of an agreement.

    Before entering into or renewing an intermediary agreement, CMS 
will--
    (a) Determine that to do so is consistent with the effective and 
efficient administration of the Medicare program;
    (b) Review the performance of the intermediary as measured by the 
criteria (Sec. 421.120) and standards (Sec. 421.122); and
    (c) Determine that the intermediary or prospective intermediary--
    (1) Is willing and able to assist providers in the application of 
safeguards against unnecessary utilization of services;
    (2) Meets all solvency and financial responsibility requirements 
imposed by the statutes and regulatory authorities of the State or 
States in which it, or any subcontractor performing some or all of its 
functions, would serve;
    (3) Has the overall resources and experience to administer its 
responsibilities under the Medicare program and has an existing 
operational, statistical, and recordkeeping capacity to carry out the 
additional program responsibilities it proposes to assume. CMS will 
presume that an intermediary or prospective intermediary meets this 
requirement if it has at least 5 years experience in paying for or 
reimbursing the cost of health services;
    (4) Will serve a sufficient number of providers to permit a finding 
of effective and efficient administration. Under this criterion no 
intermediary or prospective intermediary shall be found to be not 
efficient or effective solely on the grounds that it serves only 
providers located in a single State;
    (5) Has acted in good faith to achieve effective cooperation with 
the providers it will service and with the physicians and medical 
societies in the area;

[[Page 243]]

    (6) Has established a record of integrity and satisfactory service 
to the public; and
    (7) Has an affirmative equal employment opportunity program that 
complies with the fair employment provisions of the Civil Rights Act of 
1964 and Executive Order 11246, as amended.



Sec. 421.112  Considerations relating to the effective and efficient administration of the program.

    (a) In order to accomplish the most effective and efficient 
administration of the Medicare program, the Secretary may make 
determinations with respect to the termination of an intermediary 
agreement, and CMS may make determinations with respect to renewal of an 
intermediary agreement under Sec. 421.110.
    (b) When taking the actions specified in paragraph (a) of this 
section, the Secretary or CMS will consider the performance of the 
individual intermediary in its Medicare operations using the factors 
contained in the performance criteria specified in Sec. 421.120 and the 
performance standards specified in Sec. 421.122.
    (c) In addition, when taking the actions listed in paragraph (a) of 
this section, the Secretary or CMS may consider factors relating to--
    (1) Consistency in the administration of program policy;
    (2) Development of intermediary expertise in difficult areas of 
program administration;
    (3) Individual capacity of available intermediaries to serve 
providers as it is affected by such considerations as--
    (i) Program emphasis on the number or type of providers to be 
served; or
    (ii) Changes in data processing technology;
    (4) Overdependence of the program on the capacity of an intermediary 
to an extent that services could be interrupted;
    (5) Economy in the delivery of intermediary services;
    (6) Timeliness in the delivery of intermediary services;
    (7) Duplication in the availability of intermediaries;
    (8) Conflict of interest between an intermediary and provider; and
    (9) Any additional pertinent factors.

[45 FR 42179, June 23, 1980, as amended at 59 FR 682, Jan. 6, 1994; 71 
FR 68229, Nov. 24, 2006]



Sec. 421.114  Assignment and reassignment of providers by CMS.

    CMS may assign or reassign any provider to any intermediary if it 
determines that the assignment or reassignment will be in the best 
interests of the Medicare program.

[71 FR 68229, Nov. 24, 2006]



Sec. 421.120  Performance criteria.

    (a) Application of performance criteria. As part of the intermediary 
evaluations authorized by section 1816(f) of the Act, CMS periodically 
assesses the performance of intermediaries in their Medicare operations 
using performance criteria. The criteria measure and evaluate 
intermediary performance of functional responsibilities such as--
    (1) Correct coverage and payment determinations;
    (2) Responsiveness to beneficiary concerns; and
    (3) Proper management of administrative funds.
    (b) Basis for criteria. CMS will base the performance criteria on--
    (1) Nationwide intermediary experience;
    (2) Changes in intermediary operations due to fiscal constraints; 
and
    (3) HFCA's objectives in achieving better performance.
    (c) Publication of criteria. The development and revision of 
criteria for evaluating intermediary performance is a continuing 
process. Therefore, before the beginning of each evaluation period, CMS 
will publish the performance criteria as a notice in the Federal 
Register.

[48 FR 7178, Feb. 18, 1983]



Sec. 421.122  Performance standards.

    (a) Development of standards. In addition to the performance 
criteria (Sec. 421.120), CMS develops detailed performance standards 
for use in evaluating intermediary performance which may be based on 
historical performance, application of acceptable statistical measures 
of variation to nationwide intermediary experience during a

[[Page 244]]

base period, or changing program emphases or requirements. These 
standards are also developed considering intermediary experience and 
evaluate the specific requirements of each functional responsibility or 
criterion.
    (b) Factors beyond intermediary's control. To identify measurable 
factors that significantly affect an intermediary's performance, but 
that are not within the intermediary's control, CMS will--
    (1) Study the performance of intermediaries during the base period, 
and
    (2) Consider the noncontrollable factors in developing performance 
standards.
    (c) Publication of standards. The development and revision of 
standards for evaluating intermediary performance is a continuing 
process. Therefore, before the beginning of each evaluation period, 
which usually coincides with the Federal fiscal year period of October 
1-September 30, CMS publishes the performance standards as part of the 
Federal Register notice describing the performance criteria issued under 
Sec. 421.120(c). CMS may not necessarily publish the criteria and 
standards every year. CMS interprets the statutory phrase ``before the 
beginning of each evaluation period'' as allowing publication of the 
criteria and standards after the Federal fiscal year begins, as long as 
the evaluation period of the intermediaries for the new criteria and 
standards begins after the publication of the notice.

[59 FR 682, Jan. 6, 1994]



Sec. 421.124  Intermediary's failure to perform efficiently and effectively.

    (a) Failure by an intermediary to meet, or to demonstrate the 
capacity to meet, the criteria or standards specified in Sec. Sec. 
421.120 and 421.122 may be grounds for adverse action by the Secretary 
or by CMS, such as reassignment of providers, offer of a short-term 
agreement, termination of a contract, or non-renewal of a contract. If 
an intermediary meets all criteria and standards in its overall 
performance, but does not meet them with respect to a specific provider 
or class of providers, CMS may reassign that provider or class of 
providers to another intermediary in accordance with Sec. 421.114.
    (b) In addition, notwithstanding whether an intermediary meets the 
criteria and standards, if the cost incurred by the intermediary to meet 
its contractual requirements exceeds the amount which CMS finds to be 
reasonable and adequate to meet the cost which must be incurred by an 
efficiently and economically operated intermediary, those high costs may 
also be grounds for adverse action.

[59 FR 682, Jan. 6, 1994]



Sec. 421.126  Termination of agreements.

    (a) Termination by intermediary. An intermediary may terminate its 
agreement at any time by--
    (1) Giving written notice of its intention to CMS and to the 
providers it services at least 180 days before its intended termination 
date; and
    (2) Giving public notice of its intention by publishing a statement 
of the effective date of termination at least 60 days before that date. 
Publication must be in a newspaper of general circulation in each 
community served by the intermediary.
    (b) Termination by the Secretary, and right of appeal. (1) The 
Secretary may terminate an agreement if--
    (i) The intermediary fails to comply with the requirements of this 
subpart;
    (ii) The intermediary fails to meet the criteria or standards 
specified in Sec. Sec. 421.120 and 421.122; or
    (iii) CMS has reassigned, under Sec. 421.114 or Sec. 421.116, all 
of the providers assigned to the intermediary.
    (2) If the Secretary decides to terminate an agreement, he or she 
will offer the intermediary an opportunity for a hearing, in accordance 
with Sec. 421.128.
    (3) If the intermediary does not request a hearing, or if the 
hearing decision affirms the Secretary's decision, the Secretary will 
provide reasonable notice of the effective date of termination to--
    (i) The intermediary;
    (ii) The providers served by the intermediary; and
    (iii) The general public.
    (4) The providers served by the intermediary will be given the 
opportunity to nominate another intermediary, in accordance with Sec. 
421.104.

[[Page 245]]



Sec. 421.128  Intermediary's opportunity for hearing and right to judicial review.

    (a) Basis for appeal. An intermediary adversely affected by any of 
the following actions shall be granted an opportunity for a hearing:
    (1) Assignment or reassignment of providers to another intermediary.
    (2) Designation of a national or regional intermediary to serve a 
class of providers.
    (3) Termination of the agreement.
    (b) Request for hearing. The intermediary shall file the request 
with CMS within 20 days from the date on the notice of intended action.
    (c) Hearing procedures. The hearing officer shall be a 
representative of the Secretary and not otherwise a party to the initial 
administrative decision. The intermediary may be represented by counsel 
and may present evidence and examine witnesses. A complete recording of 
the proceedings at the hearing will be made and transcribed.
    (d) Judicial review. An adverse hearing decision concerning action 
under paragraph (a)(1) or (a)(2) of this section is subject to judicial 
review in accordance with 5 U.S.C. chapter 7.
    (e) As specified in Sec. 421.118, contracts awarded under the 
experimental authority of CMS are not subject to the provisions of this 
section.
    (f) Exception. An intermediary adversely affected by the designation 
of a regional intermediary or an alternative regional intermediary for 
HHAs, or an intermediary for hospices, under Sec. 421.117 of this 
subpart is not entitled to a hearing or judicial review concerning 
adverse effects caused by the designation of an intermediary.

[45 FR 42179, June 23, 1980, as amended at 47 FR 38540, Sept. 1, 1982; 
49 FR 3660, Jan. 30, 1984; 53 FR 17945, May 19, 1988]



                           Subpart C_Carriers



Sec. 421.200  Carrier functions.

    A contract between CMS and a carrier, other than a regional DMEPOS 
carrier, specifies the functions to be performed by the carrier which 
must include, but are not necessarily limited to, the following:
    (a) Coverage. (1) The carrier ensures that payment is made only for 
services that are:
    (i) Furnished to Medicare beneficiaries;
    (ii) Covered under Medicare; and
    (iii) In accordance with QIO determinations when they are services 
for which the QIO has assumed review responsibility under its contract 
with CMS.
    (2) The carrier takes appropriate action to reject or adjust the 
claim if--
    (i) The carrier or the QIO determines that the services furnished or 
proposed to be furnished were not reasonable, not medically necessary, 
or not furnished in the most appropriate setting;
    (ii) The carrier determines that the claim does not properly reflect 
the kind and amount of services furnished.
    (b) Payment on a cost basis. If payment is on a cost basis, the 
carrier must assure that payments are based on reasonable costs, as 
determined under part 413 of this chapter.
    (c) Payment on a charge basis. If payment is on a charge basis, 
under part 405, subpart E of this chapter, the carrier must ensure 
that--
    (1) Charges are reasonable and not higher than the charge for a 
comparable service furnished under comparable circumstances to the 
carrier's policy holders and subscribers; and
    (2) The payment is based on one of the following--
    (i) An itemized bill.
    (ii) An assignment under the terms of which the reasonable charge is 
the full charge for the service, as specified in Sec. 424.55 of this 
chapter.
    (iii) If the beneficiary has died, the procedures set forth in 
Sec. Sec. 424.62 and 424.64 of this chapter.
    (d) Fiscal management. The carrier must receive, disburse, and 
account for funds in making payments under Medicare.
    (e) Provider audits. The carrier must audit the records of providers 
to whom it makes Medicare Part B payments to assure that payments are 
made properly.
    (f) Utilization patterns. (1) The carrier must have methods and 
procedures for identifying utilization patterns that deviate from 
professionally established norms and bring the deviant patterns

[[Page 246]]

to the attention of appropriate professional groups.
    (2) The carrier must assist providers and other persons who furnish 
Medicare Part B services to--
    (i) Develop procedures relating to utilization practices;
    (ii) Make studies of the effectiveness of those procedures and 
devise methods to improve them;
    (iii) Apply safeguards against unnecessary utilization of services; 
and
    (iv) Develop procedures for utilization review, and establish groups 
to perform such reviews of providers to whom it makes Medicare Part B 
payments.
    (g) Information and reports. The carrier must furnish to CMS any 
information and reports that CMS requests in order to carry out CMS's 
responsibilities in the administration of the Medicare program. The 
carrier must be responsive to requests for information from the public.
    (h) Maintenance and availability of records. The carrier must 
maintain and make available to CMS the records necessary for 
verification of payments and for other related purposes.
    (i) Hearings to Part B beneficiaries. (1) The carrier must provide 
an opportunity for a fair hearing if it denies the beneficiary's request 
for payment, does not act upon the request with reasonable promptness, 
or pays less than the amount claimed.
    (2) The hearing procedures must be in accordance with part 405, 
subpart H, of this chapter (Review and Hearing Under the Supplementary 
Medical Insurance Program).
    (j) Other terms and conditions. The carrier must comply with any 
other terms and conditions included in its contract.

[45 FR 42183, June 23, 1980; 45 FR 64913, Oct. 1, 1980, as amended at 49 
FR 3660, Jan. 30, 1984; 49 FR 9174, Mar. 12, 1984; 51 FR 34833, Sept. 
30, 1986; 51 FR 41350, Nov. 14, 1986; 51 FR 43198, Dec. 1, 1986; 52 FR 
4499, Feb. 12, 1987; 53 FR 6648, Mar. 2, 1988; 54 FR 4027, Jan. 27, 
1989; 57 FR 27307, June 18, 1992]

    Effective Date Note: At 72 FR 48886, Aug. 24, 2007, Sec. 421.200 
was revised, effective October 23, 2007. For the convenience of the 
user, the revised text is set forth as follows:



Sec. 421.200  Carrier functions.

    A contract between CMS and a carrier specifies the functions to be 
performed by the carrier. The contract may include any or all of the 
following functions:
    (a) Any or all of the program integrity functions described in Sec. 
421.304 provided the following conditions are met:
    (1) The carrier is continuing those functions under a contract 
entered into under section 1842 of the Act that was in effect on August 
21, 1996.
    (2) The functions do not duplicate work being performed under a 
Medicare integrity program contract, except that the function related to 
developing and maintaining a list of DME may be performed under both a 
carrier contract and a Medicare integrity program contract.
    (b) Receiving, disbursing, and accounting for funds in making 
payments for services furnished to eligible individuals within the 
jurisdiction of the carrier.
    (c) Determining the amount of payment for services furnished to an 
eligible individual.
    (d) Undertaking to adjust incorrect payments and recover 
overpayments when it is determined that an overpayment was made.
    (e) Furnishing to CMS timely information and reports that CMS 
requests in order to carry out its responsibilities in the 
administration of the Medicare program.
    (f) Maintaining records and making available to CMS the records 
necessary for verification of payments and for other related purposes.
    (g) Establishing and maintaining procedures under which an 
individual enrolled under Part B is granted an opportunity for a 
redetermination.
    (h) Upon inquiry, assisting individuals with matters pertaining to a 
carrier contract.
    (i) Serving as a channel of communication to and from CMS of 
information, instructions, and other material as necessary for the 
effective and efficient performance of a carrier contract.
    (j) Undertaking other functions as mutually agreed to by CMS and the 
carrier.



Sec. 421.201  Performance criteria and standards.

    (a) Application of performance criteria and standards. As part of 
the carrier evaluations mandated by section 1842(b)(2) of the Act, CMS 
periodically assesses the performance of carriers in their Medicare 
operations using performance criteria and standards.
    (1) The criteria measure and evaluate carrier performance of 
functional responsibilities such as--
    (i) Accurate and timely payment determinations;

[[Page 247]]

    (ii) Responsiveness to beneficiary, physician, and supplier 
concerns; and
    (iii) Proper management of administrative funds.
    (2) The standards evaluate the specific requirements of each 
functional responsibility or criterion.
    (b) Basis for criteria and standards. CMS bases the performance 
criteria and standards on--
    (1) Nationwide carrier experience;
    (2) Changes in carrier operations due to fiscal constraints; and
    (3) CMS's objectives in achieving better performance.
    (c) Publication of criteria and standards. Before the beginning of 
each evaluation period, which usually coincides with the Federal fiscal 
year period of October 1-September 30, CMS publishes the performance 
criteria and standards as a notice in the Federal Register. CMS may not 
necessarily publish the criteria and standards every year. CMS 
interprets the statutory phrase ``before the beginning of each 
evaluation period'' as allowing publication of the criteria and 
standards after the Federal fiscal year begins, as long as the 
evaluation period of the carriers for the new criteria and standards 
begins after the publication of the notice.

[59 FR 682, Jan. 6, 1994]



Sec. 421.202  Requirements and conditions.

    Before entering into or renewing a carrier contract, CMS determines 
that the carrier--
    (a) Has the capacity to perform its contractual responsibilities 
effectively and efficiently;
    (b) Has the financial responsibility and legal authority necessary 
to carry out its responsibilities; and
    (c) Will be able to meet any other requirements CMS considers 
pertinent, and, if designated a regional DMEPOS carrier, any special 
requirements for regional carriers under Sec. 421.210 of this subpart.

[45 FR 42179, June 23, 1980, as amended at 57 FR 27307, June 18, 1992]



Sec. 421.203  Carrier's failure to perform efficiently and effectively.

    (a) Failure by a carrier to meet, or demonstrate the capacity to 
meet, the criteria and standards specified in Sec. 421.201 may be 
grounds for adverse action by the Secretary, such as contract 
termination or non-renewal.
    (b) Notwithstanding whether or not a carrier meets the criteria and 
standards specified in Sec. 421.201, if the cost incurred by the 
carrier to meet its contractual requirements exceeds the amount that CMS 
finds to be reasonable and adequate to meet the cost which must be 
incurred by an efficiently and economically operated carrier, those high 
costs may also be grounds for adverse action.

[59 FR 682, Jan. 6, 1994]



Sec. 421.205  Termination by the Secretary.

    (a) Cause for termination. The Secretary may terminate a contract 
with a carrier at any time if he or she determines that the carrier has 
failed substantially to carry out any material terms of the contract or 
has performed its function in a manner inconsistent with the effective 
and efficient administration of the Medicare Part B program.
    (b) Notice and opportunity for hearing. Upon notification of the 
Secretary's intent to terminate the contract, the carrier may request a 
hearing within 20 days after the date on the notice of intent to 
terminate.
    (c) Hearing procedures. The hearing procedures will be those 
specified in Sec. 421.128(c).



Sec. 421.210  Designations of regional carriers to process claims for durable medical equipment, prosthetics, orthotics and supplies.

    (a) Basis. This section is based on sections 1834(a)(12) and 1834(h) 
of the Act, which authorize the Secretary to designate one carrier for 
one or more entire regions to process claims for durable medical 
equipment, prosthetic devices, prosthetics, orthotics, and other 
supplies (DMEPOS). This authority has been delegated to CMS.
    (b) Types of claims. Claims for the following, except for items 
incident to a physician's professional service as defined in Sec. 
410.26, incident to a physician's service in a rural health clinic as 
defined in Sec. 405.2413, or bundled into payment to a provider, 
ambulatory surgical center, or other facility, are

[[Page 248]]

processed by the designated carrier for its designated region and not by 
other carriers--
    (1) Durable medical equipment (and related supplies) as defined in 
section 1861(n) of the Act;
    (2) Prosthetic devices (and related supplies) as described in 
section 1861(s)(8) of the Act, (including intraocular lenses and 
parenteral and enteral nutrients, supplies, and equipment, when 
furnished under the prosthetic device benefit);
    (3) Orthotics and prosthetics (and related supplies) as described in 
section 1861(s)(9);
    (4) Home dialysis supplies and equipment as described in section 
1861(s)(2)(F);
    (5) Surgical dressings and other devices as described in section 
1861(s)(5);
    (6) Immunosuppressive drugs as described in section 1861(s)(2)(J); 
and
    (7) Other items or services which are designated by CMS.
    (c) Region designation. (1) The boundaries of the initial four 
regions for processing claims described in paragraph (b) of this section 
contain the following States and territories:
    (i) Region A: Maine, New Hampshire, Vermont, Massachusetts, 
Connecticut, Rhode Island, New York, New Jersey, Pennsylvania, and 
Delaware.
    (ii) Region B: Maryland, the District of Columbia, Virginia, West 
Virginia, Ohio, Michigan, Indiana, Illinois, Wisconsin, and Minnesota.
    (iii) Region C: North Carolina, South Carolina, Kentucky, Tennessee, 
Georgia, Florida, Alabama, Mississippi, Louisiana, Texas, Arkansas, 
Oklahoma, New Mexico, Colorado, Puerto Rico, and the Virgin Islands.
    (iv) Region D: Alaska, Hawaii, American Samoa, Guam, the Northern 
Mariana Islands, California, Nevada, Arizona, Washington, Oregon, 
Montana, Idaho, Utah, Wyoming, North Dakota, South Dakota, Nebraska, 
Kansas, Iowa, and Missouri.
    (2) CMS has the option to modify the number and boundaries of the 
regions established in paragraph (c)(1) of this section based on 
appropriate criteria and considerations, including the effect of the 
change on beneficiaries and DMEPOS suppliers. To announce changes, CMS 
publishes a notice in the Federal Register that delineates the regional 
boundary or boundaries changed, the States and territories affected, and 
supporting criteria or considerations.
    (d) Criteria for designating regional carriers. CMS designates 
regional carriers to achieve a greater degree of effectiveness and 
efficiency in the administration of the Medicare program. In making this 
designation, CMS will award regional carrier contracts in accordance 
with applicable law and will consider some or all of the following 
criteria--
    (1) Timeliness of claim processing;
    (2) Cost per claim;
    (3) Claim processing quality;
    (4) Experience in claim processing, and in establishing local 
medical review policy; and
    (5) Other criteria that CMS believes to be pertinent.
    (e) Carrier designation. (1) Each carrier designated a regional 
carrier must process claims for items listed in paragraph (b) of this 
section for beneficiaries whose permanent residence is within that 
carrier's region as designated under paragraph (c) of this section. When 
processing the claims, the carrier must use the payment rates applicable 
for the State of residence of the beneficiary, including a qualified 
Railroad Retirement beneficiary. A beneficiary's permanent residence is 
the address at which he or she intends to spend 6 months or more of the 
calendar year.
    (2) CMS notifies affected Medicare beneficiaries and suppliers when 
it designates a regional carrier (in accordance with paragraph (d) of 
this section) to process DMEPOS claims (as defined in paragraph (b) of 
this section) for all Medicare beneficiaries residing in their 
respective regions (as designated under paragraph (c) of this section).
    (3) CMS may contract for the performance of National Supplier 
Clearinghouse functions through a contract amendment to one of the DME 
regional carrier contracts or through a contract amendment to any 
Medicare carrier contract under Sec. 421.200.

[[Page 249]]

    (4) CMS periodically recompetes the contracts for the DME regional 
carriers. CMS also periodically recompetes the National Supplier 
Clearinghouse function.
    (f) Collecting information of ownership. Carriers designated as 
regional claims processors must obtain from each supplier of items 
listed in paragraph (b) of this section information concerning ownership 
and control as required by section 1124A of the Act and part 420 of this 
chapter, and certifications that supplier standards are met as required 
by part 424 of this chapter.

[57 FR 27307, June 18, 1992, as amended at 58 FR 60796, Nov. 18, 1993; 
70 FR 9239, Feb. 25, 2005]



Sec. 421.212  Railroad Retirement Board contracts.

    In accordance with this subpart C, the Railroad Retirement Board 
contracts with DMEPOS regional carriers designated by CMS, as set forth 
in Sec. 421.210(e)(2), for processing claims for Medicare-eligible 
Railroad Retirement beneficiaries, for the same contract period as the 
contracts entered into between CMS and the DMEPOS regional carriers.

[58 FR 60797, Nov. 18, 1993]



Sec. 421.214  Advance payments to suppliers furnishing items or services under Part B.

    (a) Scope and applicability. This section provides for the 
following:
    (1) Sets forth requirements and procedures for the issuance and 
recovery of advance payments to suppliers of Part B services and the 
rights and responsibilities of suppliers under the payment and recovery 
process.
    (2) Does not limit CMS's right to recover unadjusted advance payment 
balances.
    (3) Does not affect suppliers' appeal rights under part 405, subpart 
H of this chapter relating to substantive determinations on suppliers' 
claims.
    (4) Does not apply to claims for Part B services furnished by 
suppliers that have in effect provider agreements under section 1866 of 
the Act and part 489 of this chapter, and are paid by intermediaries.
    (b) Definition. As used in this section, advance payment means a 
conditional partial payment made by the carrier in response to a claim 
that it is unable to process within established time limits.
    (c) When advance payments may be made. An advance payment may be 
made if all of the following conditions are met:
    (1) The carrier is unable to process the claim timely.
    (2) CMS determines that the prompt payment interest provision 
specified in section 1842(c) of the Act is insufficient to make a 
claimant whole.
    (3) CMS approves, in writing to the carrier, the making of an 
advance payment by the carrier.
    (d) When advance payments are not made. Advance payments are not 
made to any supplier that meets any of the following conditions:
    (1) Is delinquent in repaying a Medicare overpayment.
    (2) Has been advised of being under active medical review or program 
integrity investigation.
    (3) Has not submitted any claims.
    (4) Has not accepted claims' assignments within the most recent 180-
day period preceding the system malfunction.
    (e) Requirements for suppliers. (1) Except as provided for in 
paragraph (g)(1) of this section, a supplier must request, in writing to 
the carrier, an advance payment for Part B services it furnished.
    (2) A supplier must accept an advance payment as a conditional 
payment subject to adjustment, recoupment, or both, based on an eventual 
determination of the actual amount due on the claim and subject to the 
provisions of this section.
    (f) Requirements for carriers. (1) A carrier must notify a supplier 
as soon as it is determined that payment will not be made in a timely 
manner, and an advance payment option is to be offered to the supplier.
    (i) A carrier must calculate an advance payment for a particular 
claim at no more than 80 percent of the anticipated payment for that 
claim based upon the historical assigned claims payment data for claims 
paid the supplier.
    (ii) ``Historical data'' are defined as a representative 90-day 
assigned claims payment trend within the most recent

[[Page 250]]

180-day experience before the system malfunction.
    (iii) Based on this amount and the number of claims pending for the 
supplier, the carrier must determine and issue advance payments.
    (iv) If historical data are not available or if backlogged claims 
cannot be identified, the carrier must determine and issue advance 
payments based on some other methodology approved by CMS.
    (v) Advance payments can be made no more frequently than once every 
2 weeks to a supplier.
    (2) Generally, a supplier will not receive advance payments for more 
assigned claims than were paid, on a daily average, for the 90-day 
period before the system malfunction.
    (3) A carrier must recover an advance payment by applying it against 
the amount due on the claim on which the advance was made. If the 
advance payment exceeds the Medicare payment amount, the carrier must 
apply the unadjusted balance of the advance payment against future 
Medicare payments due the supplier.
    (4) In accordance with CMS instructions, a carrier must maintain a 
financial system of data in accordance with the Statement of Federal 
Financial Accounting Standards for tracking each advance payment and its 
recoupment.
    (g) Requirements for CMS. (1) In accordance with the provisions of 
this section, CMS may determine that circumstances warrant the issuance 
of advance payments to all affected suppliers furnishing Part B 
services. CMS may waive the requirement in paragraph (e)(1) of this 
section as part of that determination.
    (2) If adjusting Medicare payments fails to recover an advance 
payment, CMS may authorize the use of any other recoupment method 
available (for example, lump sum repayment or an extended repayment 
schedule) including, upon written notice from the carrier to the 
supplier, converting any unpaid balances of advance payments to 
overpayments. Overpayments are recovered in accordance with part 401, 
subpart F of this chapter concerning claims collection and compromise 
and part 405, subpart C of this chapter concerning recovery of 
overpayments.
    (h) Prompt payment interest. An advance payment is a ``payment'' 
under section 1842(c)(2)(C) of the Act for purposes of meeting the time 
limit for the payment of clean claims, to the extent of the advance 
payment.
    (i) Notice, review, and appeal rights. (1) The decision to advance 
payments and the determination of the amount of any advance payment are 
committed to CMS's discretion and are not subject to review or appeal.
    (2) The carrier must notify the supplier receiving an advance 
payment about the amounts advanced and recouped and how any Medicare 
payment amounts have been adjusted.
    (3) The supplier may request an administrative review from the 
carrier if it believes the carrier's reconciliation of the amounts 
advanced and recouped is incorrectly computed. If a review is requested, 
the carrier must provide a written explanation of the adjustments.
    (4) The review and explanation described in paragraph (i)(3) of this 
section is separate from a supplier's right to appeal the amount and 
computation of benefits paid on the claim, as provided at part 405, 
subpart H of this chapter. The carrier's reconciliation of amounts 
advanced and recouped is not an initial determination as defined at 
Sec. 405.803 of this chapter, and any written explanation of a 
reconciliation is not subject to further administrative review.

[61 FR 49275, Sept. 19, 1996]



            Subpart D_Medicare Integrity Program Contractors

    Effective Date Note: At 72 FR 48886, Aug. 24, 2007, Sec. Sec. 
421.300--421.316 was added, effective October 23, 2007.



Sec. 421.300  Basis, applicability, and scope.

    (a) Basis. This subpart implements section 1893 of the Act, which 
requires CMS to protect the integrity of the Medicare program by 
entering into contracts with eligible entities to carry out Medicare 
integrity program functions. The provisions of this subpart are based on 
section 1893 of the Act (and, where applicable, section

[[Page 251]]

1874A of the Act) and the acquisition regulations set forth at 48 CFR 
Chapters 1 and 3.
    (b) Applicability. This subpart applies to entities that seek to 
compete or receive award of a contract under section 1893 of the Act, 
including entities that perform functions under this subpart emanating 
from the processing of claims for individuals entitled to benefits as 
qualified railroad retirement beneficiaries.
    (c) Scope. The scope of this subpart follows:
    (1) Defines the types of entities eligible to become Medicare 
integrity program contractors.
    (2) Identifies the program integrity functions a Medicare integrity 
program contractor performs.
    (3) Describes procedures for awarding and renewing contracts.
    (4) Establishes procedures for identifying, evaluating, and 
resolving organizational conflicts of interest.
    (5) Prescribes responsibilities.
    (6) Sets forth limitations on contractor liability.



Sec. 421.302  Eligibility requirements for Medicare integrity program contractors.

    (a) CMS may enter into a contract with an entity to perform the 
functions described in Sec. 421.304 if the entity meets the following 
conditions:
    (1) Demonstrates the ability to perform the Medicare integrity 
program contractor functions described in Sec. 421.304. For purposes of 
developing and periodically updating a list of DME under Sec. 
421.304(e), an entity is deemed to be eligible to enter into a contract 
under the Medicare integrity program to perform the function if the 
entity is a carrier with a contract in effect under section 1842 of the 
Act.
    (2) Agrees to cooperate with the OIG, the DOJ, and other law 
enforcement agencies, as appropriate, including making referrals, in the 
investigation and deterrence of potential fraud and abuse of the 
Medicare program.
    (3) Complies with conflict of interest provisions in 48 CFR Chapters 
1 and 3, and is not excluded under the conflict of interest provision at 
Sec. 421.310.
    (4) Maintains an appropriate written code of conduct and compliance 
policies that include, but are not limited to, an enforced policy on 
employee conflicts of interest.
    (5) Meets other requirements that CMS establishes.
    (b) A MAC as described in section 1874A of the Act may perform any 
or all of the functions described in Sec. 421.304, except that the 
functions may not duplicate work being performed under a Medicare 
integrity program contract.
    (c) If a MAC performs any or all functions described in Sec. 
421.304, CMS may require the MAC to comply with any or all of the 
requirements of paragraph (a) of this section as a condition of its 
contract.



Sec. 421.304  Medicare integrity program contractor functions.

    The contract between CMS and a Medicare integrity program contractor 
specifies the functions the contractor performs. The contract may 
include any or all of the following functions:
    (a) Conducting medical reviews, utilization reviews, and reviews of 
potential fraud related to the activities of providers of services and 
other individuals and entities (including entities contracting with CMS 
under parts 417 and 422 of this chapter) furnishing services for which 
Medicare payment may be made either directly or indirectly.
    (b) Auditing, settling and determining cost report payments for 
providers of services, or other individuals or entities (including 
entities contracting with CMS under parts 417 and 422 of this chapter), 
as necessary to help ensure proper Medicare payment.
    (c) Determining whether a payment is authorized under title XVIII, 
as specified in section 1862(b) of the Act, and recovering mistaken and 
conditional payments under section 1862(b) of the Act.
    (d) Educating providers, suppliers, beneficiaries, and other persons 
regarding payment integrity and benefit quality assurance issues.
    (e) Developing, and periodically updating, a list of items of DME 
that are frequently subject to unnecessary utilization throughout the 
contractor's entire service area or a portion of the area, in accordance 
with section 1834(a)(15)(A) of the Act.

[[Page 252]]



Sec. 421.306  Awarding of a contract.

    (a) CMS awards and administers Medicare integrity program contracts 
in accordance with acquisition regulations set forth at 48 CFR chapters 
1 and 3, this subpart, all other applicable laws, and all applicable 
regulations. These requirements for awarding Medicare integrity program 
contracts are used as follows:
    (1) When entering into new contracts.
    (2) When entering into contracts that may result in the elimination 
of responsibilities of an individual fiscal intermediary or carrier 
under section 1816(l) or section 1842(c) of the Act, respectively.
    (3) At any other time CMS considers appropriate.
    (b) CMS may award an entity a Medicare integrity program contract by 
transfer if all of the following conditions apply:
    (1) Through approval of a novation agreement in accordance with the 
requirements of the Federal Acquisition Regulation (FAR), CMS recognizes 
the entity as the successor in interest to a fiscal intermediary 
agreement or carrier contract under which the fiscal intermediary or 
carrier was performing activities described in section 1893(b) of the 
Act on August 21, 1996.
    (2) The fiscal intermediary or carrier continued to perform Medicare 
integrity program activities until transferring the resources to the 
entity.
    (c) An entity is eligible to be awarded a Medicare integrity program 
contract only if it meets the eligibility requirements specified in 
Sec. 421.302; 48 CFR Chapters 1 and 3; and other applicable laws and 
regulations.



Sec. 421.308  Renewal of a contract.

    (a) General. (1) CMS specifies an initial contract term in the 
Medicare integrity program contract.
    (2) Contracts under this subpart may contain renewal clauses.
    (3) CMS may, but is not required to, renew the Medicare integrity 
program contract, without regard to any provision of law requiring 
competition, as it determines to be appropriate, by giving the 
contractor notice, within timeframes specified in the contract, of its 
intent to do so.
    (b) Conditions for renewal of contract. CMS may renew a Medicare 
integrity program contract if all of the following conditions are met:
    (1) The Medicare integrity program contractor continues to meet the 
requirements established in this subpart.
    (2) The Medicare integrity program contractor meets or exceeds the 
performance requirements established in its current contract.
    (3) It is in the best interest of the government.
    (c) Nonrenewal of a contract. If CMS does not renew a contract, the 
contract ends in accordance with its terms.



Sec. 421.310  Conflict of interest requirements.

    Offerors for MIP contracts and MIP contractors are subject to the 
following:
    (a) The conflict of interest standards and requirements of the 
Federal Acquisition Regulation (FAR) organizational conflict of interest 
guidance specified under 48 CFR subpart 9.5.
    (b) The standards and requirements as are contained in each 
individual contract awarded to perform section 1893 of the Act 
functions.



Sec. 421.312  Conflict of interest resolution.

    (a) Review Board. CMS may establish and convene a Conflicts of 
Interest Review Board to assist the contracting officer in resolving 
organizational conflicts of interest.
    (b) Resolution--(1) Pre-award conflicts. Resolution of an 
organizational conflict of interest is a determination by the 
contracting officer that one of the following has occurred:
    (i) The conflict is mitigated.
    (ii) The conflict precludes award of a contract to the offeror.
    (iii) It is in the best interest of the government to award a 
contract to the offeror (in accordance with 48 CFR subpart 9.503) even 
though a conflict of interest exists.
    (2) Post-award conflicts. Resolution of an organizational conflict 
of interest is a determination by the contracting officer that one of 
the following has occurred:
    (i) The conflict is mitigated.

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    (ii) The conflict requires that CMS modify an existing contract.
    (iii) The conflict requires that CMS terminate or not renew an 
existing contract.
    (iv) It is in the best interest of the government to continue the 
contract even though a conflict of interest exists.



Sec. 421.316  Limitation on Medicare integrity program contractor liability.

    (a) A MIP contractor, a person or an entity employed by, or having a 
fiduciary relationship with, or who furnishes professional services to a 
MIP contractor is not in violation of any criminal law or civilly liable 
under any law of the United States or of any State (or political 
subdivision thereof) by reason of the performance of any duty, function, 
or activity required or authorized under this subpart or under a valid 
contract entered into under this subpart, provided due care was 
exercised in that performance and the contractor has a contract with CMS 
under this subpart.
    (b) CMS pays a contractor, a person or an entity described in 
paragraph (a) of this section, or anyone who furnishes legal counsel or 
services to a contractor or person, a sum equal to the reasonable amount 
of the expenses, as determined by CMS, incurred in connection with the 
defense of a suit, action, or proceeding, if the following conditions 
are met:
    (1) The suit, action, or proceeding was brought against the 
contractor, such person or entity by a third party and relates to the 
contractor's, person's or entity's performance of any duty, function, or 
activity under a contract entered into with CMS under this subpart.
    (2) The funds are available.
    (3) The expenses are otherwise allowable under the terms of the 
contract.



          Subpart E_Medicare Administrative Contractors (MACs)

    Source: 71 FR 68229, Nov. 24, 2006, unless otherwise noted.



Sec. 421.400  Statutory basis and scope.

    (a) Statutory basis. This subpart implements section 1874A of the 
Act, which provides for the transition of the claims processing 
functions and operations for both Medicare Part A and Part B 
intermediaries and carriers to Medicare Administrative Contractors 
(MACs). The transition will occur between October 1, 2005, and October 
1, 2011. MACs will be fully operational in distinct, nonoverlapping 
geographic jurisdictions by October 1, 2011.
    (b) Scope. This subpart specifies the requirements under which 
providers and suppliers will be assigned to MACs.



Sec. 421.401  Definitions.

    For purposes of this subpart--
    Appropriate MAC means a MAC that has a contract under section 1874A 
of the Act to perform a particular Medicare administrative function in 
relation to:
    (1) A particular individual entitled to benefits under Part A or 
enrolled under Part B, or both;
    (2) A specific provider of services or supplier; or
    (3) A class of providers of services or suppliers.
    Medicare Administrative Contractor (MAC) means an agency, 
organization, or other person with a contract under section 1874A of the 
Act.



Sec. 421.404  Assignment of providers and suppliers to MACs.

    (a) Definitions. As used in this section--
    Chain provider means a group of two or more providers under common 
ownership or control.
    Common control exists when an individual, a group of individuals, or 
an organization has the power, directly or indirectly, to significantly 
influence or direct the actions or policies of the group of suppliers or 
eligible providers.
    Common ownership exists when an individual, a group of individuals, 
or an organization possesses significant equity in the group of 
suppliers or eligible providers.
    Durable medical equipment, prosthetics, orthotics, and supplies 
(DMEPOS) means the types of services specified in Sec. 421.210(b).
    Eligible provider means a hospital, skilled nursing facility, or 
critical access hospital that meets the definition

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of a provider under Sec. 400.202 of this chapter.
    Home office means the entity that provides centralized management 
and administrative services to the individual providers or suppliers 
under common ownership and common control, such as centralized 
accounting, purchasing, personnel services, management direction and 
control, and other similar services.
    Ineligible provider means a provider under Sec. 400.202 of this 
chapter that is not an eligible provider.
    Medicare benefit category means a category of covered benefits under 
Part A or Part B of the Medicare program (for example, inpatient 
hospital services, post-hospital extended care services, and 
physicians'services).
    Provider has the same meaning as specified under Sec. 400.202 of 
this chapter.
    Qualified chain provider means a chain provider comprised of--
    (1) 10 or more eligible providers collectively totaling 500 or more 
certified beds; or
    (2) 5 or more eligible providers collectively totaling 300 or more 
certified beds, with eligible providers in 3 or more contiguous States.
    Supplier has the same meaning as specified in Sec. 400.202 of this 
chapter.
    (b) Assignment of providers to MACs. (1) Providers enroll with and 
receive Medicare payment and other Medicare services from the MAC 
contracted by CMS to administer claims for the Medicare benefit category 
applicable to the provider's covered services for the geographic locale 
in which the provider is physically located.
    (2) Qualified chain providers may request and receive an exception 
from the requirement of paragraph (b)(1) of this section from CMS. Upon 
CMS'approval, a qualified chain provider may enroll with and bill on 
behalf of the eligible providers under its common ownership or common 
control to the MAC contracted by CMS to administer claims for the 
Medicare benefit category applicable to the eligible providers'covered 
services for the geographic locale in which the qualified chain 
provider's home office is physically located.
    (3) As MAC contractors become available, qualified chain providers, 
granted approval by CMS to enroll with and bill a single intermediary on 
behalf of their eligible member providers prior to October 1, 2005, will 
be assigned at an appropriate time to the MAC contracted by CMS to 
administer claims for the applicable Medicare benefit category for the 
geographic locale in which the chain provider's home office is 
physically located. The qualified chain provider will not need to 
request an exception to the requirement of paragraph (b)(1) of this 
section in order for this assignment to take effect.
    (4) CMS may grant an exception to the requirement of paragraph 
(b)(1) of this section to eligible providers that are not under the 
common ownership or common control of a qualified chain provider, as 
well as ineligible providers, only if CMS finds the exception will 
support the implementation of MACs or will serve some other compelling 
interest of the Medicare program.
    (c) Assignment of suppliers to MACs. (1) Suppliers, including 
physicians and other practitioners, but excluding suppliers of DMEPOS, 
enroll with and receive Medicare payment and other Medicare services 
from the MAC contracted by CMS to administer claims for the Medicare 
benefit category applicable to the supplier's covered services for the 
geographic locale in which the supplier furnished such services.
    (2) Suppliers of DMEPOS receive Medicare payment and other Medicare 
services from the MAC assigned to administer claims for DMEPOS for the 
regional area in which the beneficiary receiving the DMEPOS resides. The 
terms of Sec. Sec. 421.210 and 421.212 continue to apply to suppliers 
of DMEPOS.
    (3) CMS may allow a group of ESRD suppliers under common ownership 
and common control to enroll with the MAC contracted by CMS to 
administer ESRD claims for the geographic locale in which the group's 
home office is located only if--
    (i) The group of ESRD suppliers requests such privileges; and
    (ii) CMS finds the exception will support the implementation of MACs 
or will serve some other compelling interest of the Medicare program.

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PART 422_MEDICARE ADVANTAGE PROGRAM--Table of Contents




                      Subpart A_General Provisions

Sec.
422.1 Basis and scope.
422.2 Definitions.
422.4 Types of MA plans.
422.6 Cost-sharing in enrollment-related costs.

             Subpart B_Eligibility, Election, and Enrollment

422.50 Eligibility to elect an MA plan.
422.52 Eligibility to elect an MA plan for special needs individuals.
422.54 Continuation of enrollment for MA local plans.
422.56 Limitations on enrollment in an MA MSA plan.
422.57 Limited enrollment under MA RFB plans.
422.60 Election process
422.62 Election of coverage under an MA plan.
422.64 Information about the MA program.
422.66 Coordination of enrollment and disenrollment through MA 
          organizations.
422.68 Effective dates of coverage and change of coverage.
422.74 Disenrollment by the MA organization.
422.80 Approval of marketing materials and election forms.

             Subpart C_Benefits and Beneficiary Protections

422.100 General requirements.
422.101 Requirements relating to basic benefits.
422.102 Supplemental benefits.
422.103 Benefits under an MA MSA plan.
422.104 Special rules on supplemental benefits for MA MSA plans.
422.105 Special rules for self-referral and point of service option.
422.106 Coordination of benefits with employer or union group health 
          plans and Medicaid.
422.108 Medicare secondary payer (MSP) procedures.
422.109 Effect of national coverage determinations (NCDs) and 
          legislative changes in benefits.
422.110 Discrimination against beneficiaries prohibited.
422.111 Disclosure requirements.
422.112 Access to services.
422.113 Special rules for ambulance services, emergency and urgently 
          needed services, and maintenance and post-stabilization care 
          services.
422.114 Access to services under an MA private fee-for-service plan.
422.118 Confidentiality and accuracy of enrollee records.
422.128 Information on advance directives.
422.132 Protection against liability and loss of benefits.
422.133 Return to home skilled nursing facility.

                      Subpart D_Quality Improvement

422.152 Quality improvement program.
422.156 Compliance deemed on the basis of accreditation.
422.157 Accreditation organizations.
422.158 Procedures for approval of accreditation as a basis for deeming 
          compliance.

                 Subpart E_Relationships With Providers

422.200 Basis and scope.
422.202 Participation procedures.
422.204 Provider selection and credentialing.
422.205 Provider antidiscrimination rules.
422.206 Interference with health care professionals' advice to enrollees 
          prohibited.
422.208 Physician incentive plans: requirements and limitations.
422.210 Assurances to CMS.
422.212 Limitations on provider indemnification.
422.214 Special rules for services furnished by noncontract providers.
422.216 Special rules for MA private fee-for-service plans.
422.220 Exclusion of services furnished under a private contract.

Subpart F_Submission of Bids, Premiums, and Related Information and Plan 
                                Approval

422.250 Basis and scope.
422.252 Terminology.
422.254 Submission of bids.
422.256 Review, negotiation, and approval of bids.
422.258 Calculation of benchmarks.
422.262 Beneficiary premiums.
422.264 Calculation of savings.
422.266 Beneficiary rebates.
422.270 Incorrect collections of premiums and cost sharing.

         Subpart G_Payments to Medicare Advantage Organizations

422.300 Basis and scope.
422.304 Monthly payments.
422.306 Annual MA capitation rates.
422.308 Adjustments to capitation rates, benchmarks, bids, and payments.
422.310 Risk adjustment data.
422.311 Announcement of annual capitation rate, benchmarks, and 
          methodology changes.
422.314 Special rules for beneficiaries enrolled in MA MSA plans.

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422.316 Special rules for payments to Federally qualified health 
          centers.
422.318 Special rules for coverage that begins or ends during an 
          inpatient hospital stay.
422.320 Special rules for hospice care.
422.322 Source of payment and effect of MA plan election on payment.
422.324 Payments to MA organizations for graduate medical education 
          costs.

               Subpart H_Provider-Sponsored Organizations

422.350 Basis, scope, and definitions.
422.352 Basic requirements.
422.354 Requirements for affiliated providers.
422.356 Determining substantial financial risk and majority financial 
          interest.
422.370 Waiver of State licensure.
422.372 Basis for waiver of State licensure.
422.374 Waiver request and approval process.
422.376 Conditions of the waiver.
422.378 Relationship to State law.
422.380 Solvency standards.
422.382 Minimum net worth amount.
422.384 Financial plan requirement.
422.386 Liquidity.
422.388 Deposits.
422.390 Guarantees.

   Subpart I_Organization Compliance With State Law and Preemption by 
                               Federal Law

422.400 State licensure requirement.
422.402 Federal preemption of State law.
422.404 State premium taxes prohibited.

              Subpart J_Special Rules for MA Regional Plans

422.451 Moratorium on new local preferred provider organization plans.
422.455 Special rules for MA Regional plans.
422.458 Risk sharing with regional MA organizations for 2006 and 2007.

        Subpart K_Contracts With Medicare Advantage Organizations

422.500 Scope and definitions.
422.501 Application requirements.
422.502 Evaluation and determination procedures.
422.503 General provisions.
422.504 Contract provisions.
422.505 Effective date and term of contract.
422.506 Nonrenewal of contract.
422.508 Modification or termination of contract by mutual consent.
422.510 Termination of contract by CMS.
422.512 Termination of contract by the MA organization.
422.514 Minimum enrollment requirements.
422.516 Reporting requirements.
422.520 Prompt payment by MA organization.
422.521 Effective date of new significant regulatory requirements.
422.524 Special rules for RFB societies.
422.527 Agreements with Federally qualified health centers.

Subpart L_Effect of Change of Ownership or Leasing of Facilities During 
                            Term of Contract

422.550 General provisions.
422.552 Novation agreement requirements.
422.553 Effect of leasing of an MA organization's facilities.

      Subpart M_Grievances, Organization Determinations and Appeals

422.560 Basis and scope.
422.561 Definitions.
422.562 General provisions.
422.564 Grievance procedures.
422.566 Organization determinations.
422.568 Standard timeframes and notice requirements for organization 
          determinations.
422.570 Expediting certain organization determinations.
422.572 Timeframes and notice requirements for expedited organization 
          determinations.
422.574 Parties to the organization determination.
422.576 Effect of an organization determination.
422.578 Right to a reconsideration.
422.580 Reconsideration defined.
422.582 Request for a standard reconsideration.
422.584 Expediting certain reconsiderations.
422.586 Opportunity to submit evidence.
422.590 Timeframes and responsibility for reconsiderations.
422.592 Reconsideration by an independent entity.
422.594 Notice of reconsidered determination by the independent entity.
422.596 Effect of a reconsidered determination.
422.600 Right to a hearing.
422.602 Request for an ALJ hearing.
422.608 Medicare Appeals Council (MAC) review.
422.612 Judicial review.
422.616 Reopening and revising determinations and decisions.
422.618 How an MA organization must effectuate standard reconsidered 
          determinations or decisions.
422.619 How an MA organization must effectuate expedited reconsidered 
          determinations.
422.620 Notifying enrollees of hospital discharge appeal rights.
422.622 Requesting immediate QIO review of the decision to discharge 
          from the inpatient hospital.

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422.624 Notifying enrollees of termination of provider services.
422.626 Fast-track appeals of service terminations to independent review 
          entities (IREs).

         Subpart N_Medicare Contract Determinations and Appeals

422.641 Contract determinations.
422.644 Notice of contract determination.
422.646 Effect of contract determination.
422.648 Reconsideration: Applicability.
422.650 Request for reconsideration.
422.652 Opportunity to submit evidence.
422.654 Reconsidered determination.
422.656 Notice of reconsidered determination.
422.658 Effect of reconsidered determination.
422.660 Right to a hearing.
422.662 Request for hearing.
422.664 Postponement of effective date of a contract determination when 
          a request for a hearing with respect to a contract 
          determination is filed timely.
422.666 Designation of hearing officer.
422.668 Disqualification of hearing officer.
422.670 Time and place of hearing.
422.672 Appointment of representatives.
422.674 Authority of representatives.
422.676 Conduct of hearing.
422.678 Evidence.
422.680 Witnesses.
422.682 Discovery.
422.684 Prehearing.
422.686 Record of hearing.
422.688 Authority of hearing officer.
422.690 Notice and effect of hearing decision.
422.692 Review by the Administrator.
422.694 Effect of Administrator's decision.
422.696 Reopening of contract or reconsidered determination or decision 
          of a hearing officer or the Administrator.
422.698 Effect of revised determination.

                    Subpart O_Intermediate Sanctions

422.750 Kinds of sanctions.
422.752 Basis for imposing sanctions.
422.756 Procedures for imposing sanctions.
422.758 Maximum amount of civil money penalties imposed by CMS.
422.760 Other applicable provisions.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 63 FR 18134, Apr. 14, 1998, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 422 appear at 70 FR 
4741, Jan. 28, 2005.



                      Subpart A_General Provisions

    Source: 63 FR 35068, June 26, 1998, unless otherwise noted.



Sec. 422.1  Basis and scope.

    (a) Basis. This part is based on the indicated provisions of the 
following sections of the Act:

1851--Eligibility, election, and enrollment.
1852--Benefits and beneficiary protections.
1853--Payments to Medicare Advantage (MA) organizations.
1854--Premiums.
1855--Organization, licensure, and solvency of MA organizations.
1856--Standards.
1857--Contract requirements.
1858--Special rules for MA Regional Plans.
1859--Definitions; enrollment restriction for certain MA plans.

    (b) Scope. This part establishes standards and sets forth the 
requirements, limitations, and procedures for Medicare services 
furnished, or paid for, by Medicare Advantage organizations through 
Medicare Advantage plans.

[63 FR 35068, June 26, 1998, as amended at 70 FR 4714, Jan. 28, 2005]



Sec. 422.2  Definitions.

    As used in this part--
    Arrangement means a written agreement between an MA organization and 
a provider or provider network, under which--
    (1) The provider or provider network agrees to furnish for a 
specific MA plan(s) specified services to the organization's MA 
enrollees;
    (2) The organization retains responsibilities for the services; and
    (3) Medicare payment to the organization discharges the enrollee's 
obligation to pay for the services.
    Balance billing generally refers to an amount billed by a provider 
that represents the difference between the amount the provider charges 
an individual for a service and the sum of the amount the individual's 
health insurer (for example, the original Medicare program) will pay for 
the service plus any cost-sharing by the individual.
    Basic benefits means all Medicare-covered benefits (except hospice 
services).
    Benefits means health care services that are intended to maintain or 
improve the health status of enrollees, for which the MA organization 
incurs a cost or liability under an MA plan (not solely an 
administrative processing

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cost). Benefits are submitted and approved through the annual bidding 
process.
    Coinsurance is a fixed percentage of the total amount paid for a 
health care service that can be charged to an MA enrollee on a per-
service basis.
    Copayment is a fixed amount that can be charged to an MA plan 
enrollee on a per-service basis.
    Cost-sharing includes deductibles, coinsurance, and copayments.
    Institutionalized means for the purpose of defining a special needs 
individual, an MA eligible individual who continuously resides or is 
expected to continuously reside for 90 days or longer in a long-term 
care facility which is a skilled nursing facility (SNF) nursing facility 
(NF); SNF/NF; an intermediate care facility for the mentally retarded 
(ICF/MR); or an inpatient psychiatric facility.
    Licensed by the State as a risk-bearing entity means the entity is 
licensed or otherwise authorized by the State to assume risk for 
offering health insurance or health benefits coverage, such that the 
entity is authorized to accept prepaid capitation for providing, 
arranging, or paying for comprehensive health services under an MA 
contract.
    MA stands for Medicare Advantage.
    MA local area is defined in Sec. 422.252.
    MA local plan means an MA plan that is not an MA regional plan.
    MA-Prescription drug (PD) plan means an MA plan that provides 
qualified prescription drug coverage under Part D of the Social Security 
Act.
    MA regional plan means a coordinated care plan structured as a 
preferred provider organization (PPO) that serves one or more entire 
regions. An MA regional plan must have a network of contracting 
providers that have agreed to a specific reimbursement for the plan's 
covered services and must pay for all covered services whether provided 
in or out of the network.
    MA eligible individual means an individual who meets the 
requirements of Sec. 422.50.
    MA organization means a public or private entity organized and 
licensed by a State as a risk-bearing entity (with the exception of 
provider-sponsored organizations receiving waivers) that is certified by 
CMS as meeting the MA contract requirements.
    MA plan means health benefits coverage offered under a policy or 
contract by an MA organization that includes a specific set of health 
benefits offered at a uniform premium and uniform level of cost-sharing 
to all Medicare beneficiaries residing in the service area of the MA 
plan (or in individual segments of a service area, under Sec. 
422.304(b)(2)).
    MA plan enrollee is an MA eligible individual who has elected an MA 
plan offered by an MA organization.
    Mandatory supplemental benefits means health care services not 
covered by Medicare that an MA enrollee must accept or purchase as part 
of an MA plan. The benefits may include reductions in cost sharing for 
benefits under the original Medicare fee for service program and are 
paid for in the form of premiums and cost sharing, or by an application 
of the beneficiary rebate rule in section 1854(b)(1)(C)(ii)(I) of the 
Act, or both.
    MSA stands for medical savings account.
    MSA trustee means a person or business with which an enrollee 
establishes an MA MSA. A trustee may be a bank, an insurance company, or 
any other entity that--
    (1) Is approved by the Internal Revenue Service to be a trustee or 
custodian of an individual retirement account (IRA); and
    (2) Meets the requirements of Sec. 422.262(b).
    National coverage determination (NCD) means a national policy 
determination regarding the coverage status of a particular service that 
CMS makes under section 1862(a)(1) of the Act, and publishes as a 
Federal Register notice or CMS ruling. (The term does not include 
coverage changes mandated by statute.)
    Optional supplemental benefits are health services not covered by 
Medicare that are purchased at the option of the MA enrollee and paid 
for in full, directly by (or on behalf of) the Medicare enrollee, in the 
form of premiums or cost-sharing. These services may be grouped or 
offered individually.
    Original Medicare means health insurance available under Medicare 
Part A

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and Part B through the traditional fee-for service payment system.
    Point of service (POS) is a benefit option that an MA coordinated 
care plan can offer to its Medicare enrollees as an additional, 
mandatory supplemental, or optional supplemental benefit. Under the POS 
benefit option, the MA plan allows members the option of receiving 
specified services outside of the MA plan's provider network. In return 
for this flexibility, members typically have higher cost-sharing 
requirements for services received and, where offered as a mandatory or 
optional supplemental benefit, may also be charged a premium for the POS 
benefit option.
    Prescription drug plan (PDP). PDP has the definition set forth in 
Sec. 423.4 of this chapter.
    Prescription drug plan (PDP) sponsor. A prescription drug plan 
sponsor has the definition set forth in Sec. 423.4 of this chapter.
    Provider means--
    (1) Any individual who is engaged in the delivery of health care 
services in a State and