[Federal Register Volume 80, Number 29 (Thursday, February 12, 2015)]
[Rules and Regulations]
[Pages 7911-7966]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-02671]



[[Page 7911]]

Vol. 80

Thursday,

No. 29

February 12, 2015

Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Parts 417, 422, and 423





Medicare Program; Contract Year 2016 Policy and Technical Changes to 
the Medicare Advantage and the Medicare Prescription Drug Benefit 
Programs; Final Rule

Federal Register / Vol. 80 , No. 29 / Thursday, February 12, 2015 / 
Rules and Regulations

[[Page 7912]]


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Department of Health and Human Services

Centers for Medicare & Medicaid Services

42 CFR Parts 417, 422, and 423

[CMS-4159-F2]
RIN 0938-AS20


Medicare Program; Contract Year 2016 Policy and Technical Changes 
to the Medicare Advantage and the Medicare Prescription Drug Benefit 
Programs

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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

SUMMARY: This final rule amends the Medicare Advantage (MA) program 
(Part C) regulations and Medicare Prescription Drug Benefit Program 
(Part D) regulations to implement statutory requirements; improve 
program efficiencies; strengthen beneficiary protections; clarify 
program requirements; improve payment accuracy; and make various 
technical changes. Additionally, this rule finalizes two technical 
changes that reinstate previously approved but erroneously removed 
regulation text sections.

DATES: This rule is effective March 16, 2015, except amendments to 
Sec.  423.154, which are effective January 1, 2016.
    Applicability Dates: Except as specified in Table 1, the 
applicability date of these provisions is January 1, 2016. In the 
Supplemental section of this final rule, we provide a table (Table 1) 
that lists changes in this final rule that have either an effective 
date other than March 16, 2015 or an applicability date other than 
January 1, 2016, for Contract Year 2016.

FOR FURTHER INFORMATION CONTACT: Christopher McClintick, (410) 786-
4682, Part C issues. Marie Manteuffel, (410) 786-3447, Part D issues. 
Kristy Nishimoto, (206) 615-2367, Part C and D enrollment and appeals 
issues. Whitney Johnson, (410) 786-0490, Part C and D payment issues. 
Joscelyn Lissone, (410) 786-5116, Part C and D compliance issues.

SUPPLEMENTARY INFORMATION: The majority of the provisions listed in 
this rule are intended for implementation for contract year 2016. 
Changes in the Code of Federal Regulations (CFR) will be consistent 
with the effective date of the applicable provision. Table 1 lists 
those provisions with effective dates other than 30 days after the date 
of publication of this final rule or applicability dates other than 
January 1, 2016 for contract year 2016. The applicability and effective 
dates are discussed in the preamble for each of these items.

                Table 1--Applicability and Effective Dates of Select Provisions of the Final Rule
----------------------------------------------------------------------------------------------------------------
      Preamble  section                 Section title                Effective date         Applicability date
----------------------------------------------------------------------------------------------------------------
II.A.2.......................  Enrollment Eligibility for       .......................  June 1, 2015.
                                Individuals Not Lawfully
                                Present in the United States
                                (Sec.  Sec.   417.2, 417.420,
                                417.422, 417.460, 422.1,
                                422.50, 422.74, 423.1, 423.30,
                                and 423.44).
II.A.5.......................  Efficient Dispensing in          January 1, 2016........
                                Long[dash]Term Care Facilities
                                and Other Changes (Sec.
                                423.154).
----------------------------------------------------------------------------------------------------------------

Table of Contents

I. Executive Summary and Background
    A. Executive Summary
    1. Purpose
    2. Summary of the Major Provisions
    a. Changes To Audit and Inspection Authority (Sec. Sec.  
422.503(d)(2), 423.504(d)(2))
    b. Enrollment Eligibility for Individuals Not Lawfully Present 
in the United States (Sec. Sec.  417.2, 417.420, 417.422, 417.460, 
422.1, 422.50, 422.74, 423.1, 423.30, 423.44)
    c. Business Continuity for MA Organizations & PDP Sponsors 
(Sec. Sec.  422.504(o) and 423.505(p))
    d. Efficient Dispensing in Long Term Care Facilities and Other 
Changes (Sec.  423.154)
    3. Summary of Costs and Benefits
    B. Background
    1. General Overview and Regulatory History
    2. Issuance of the Proposed Rule
    3. Public Comments Received in Response to the Contract Year 
2015 Policy and Technical Changes to the Medicare Advantage and the 
Medicare Prescription Drug Benefit Programs Proposed Rule
II. Provisions of the Proposed Regulations
    A. Clarifying Various Program Participation Requirements
    1. Changes to Audit & Inspection Authority (Sec. Sec.  
422.503(d)(2), 423.504(d)(2))
    2. Enrollment Eligibility for Individuals Not Lawfully Present 
in the United States (Sec. Sec.  417.2, 417.420, 417.422, 417.460, 
422.1, 422.50, 422.74, 423.1, 423.30, 423.44)
    3. Part D Notice of Changes (Sec.  423.128(g))
    4. Business Continuity for MA Organizations & PDP Sponsors 
(Sec. Sec.  422.504(o), 423.505(p))
    5. Efficient Dispensing in Long Term Care Facilities and Other 
Changes (Sec.  423.154)
    6. Medicare Coverage Gap Discount Program and Employer Group 
Waiver Plans (Sec.  423.2325)
    7. Transfer of TrOOP Between PDP Sponsors Due To Enrollment 
Changes During the Coverage Year (Sec.  423.464)
    8. Expand Quality Improvement Program Regulations (Sec.  
422.152)
    B. Improving Payment Accuracy
    1. Determination of Payments (Sec.  423.329)
    2. Reopening (Sec.  423.346)
    3. Payment Appeals (Sec.  423.350)
    4. Payment Processes for Part D Sponsors (Sec.  423.2320)
    5. Risk Adjustment Data Requirements--Proposal Regarding Annual 
Deadline for MAO Submission of Final Risk Adjustment Data (Sec.  
422.310 (g)(2)(ii))
    C. Strengthening Beneficiary Protections
    1. MA-PD Coordination Requirements for Drugs Covered Under Parts 
A, B, and D (Sec.  422.112)
    2. Good Cause Processes (Sec. Sec.  417.460, 422.74, 423.44)
    3. MA Organizations' Extension of Adjudication Timeframes for 
Organization Determinations and Reconsiderations (Sec. Sec.  
422.568, 422.572, 422.590, 422.618, 422.619)
    D. Strengthening Our Ability To Distinguish Stronger Applicants 
for Part C and D Program Participation and To Remove Consistently 
Poor Performers
    1. Two-Year Prohibition When Organizations Terminate Their 
Contracts (Sec.  422.502, Sec.  422.503, Sec.  422.506, Sec.  
422.508, Sec.  422.512)
    2. Withdrawal of Stand-Alone Prescription Drug Plan Bid Prior to 
Contract Execution (Sec.  423.503)
    3. Essential Operations Test Requirement for Part D (Sec.  
423.503(a) and (c), Sec.  423.504(b)(10), Sec.  423.505(b)(28), 
Sec.  423.509)
    E. Implementing Other Technical Changes
    1. Requirements for Urgently Needed Services (Sec.  422.113)
    2. Agent and Broker Training and Testing Requirements 
(Sec. Sec.  422.2274, 423.2274)
    3. Deemed Approval of Marketing Materials (Sec. Sec.  422.2262, 
422.2266, 423.2262, 423.2266)
    4. Cross-Reference Change in the Part C Disclosure Requirements 
(Sec.  422.111)
    5. Managing Disclosure and Recusal in P&T Conflicts of Interest 
(Sec.  423.120(b)(1))
    6. Thirty-Six Month Coordination of Benefits (COB) Limit (Sec.  
423.466(b))
    7. Application and Calculation of Daily Cost-Sharing Rates 
(Sec.  423.153)
    8. Technical Change To Align Regulatory Requirements for 
Delivery of Standardized Pharmacy Notice (Sec.  423.562)

[[Page 7913]]

    9. MA Organization Responsibilities in Disasters and Emergencies 
(Sec.  422.100)
    10. Technical Changes To Align Part C and Part D Contract 
Determination Appeal Provisions (Sec. Sec.  422.641, 422.644)
    11. Technical Changes To Align Parts C and D Appeal Provisions 
(Sec. Sec.  422.660, 423.650)
    12. Technical Change to the Restrictions on Use of Information 
Under Part D (Sec.  423.322)
    13. Technical Changes to Regulation Text at Sec.  423.104--
Requirements Related to Qualified Prescription Drug Coverage
    14. Technical Changes to Regulation Text at Sec.  423.100--
Definition of Supplemental Benefits
III. Collection of Information Requirements
    A. ICRs Related to Eligibility of Enrollment for Individuals Not 
Lawfully Present in the United States (Sec. Sec.  417.2, 417.420, 
417.422, 417.460, 422.1, 422.50, 422.74, 423.1, 423.30, and 423.44)
    B. ICRs Related to Good Cause Processes (Sec. Sec.  417.460, 
422.74, 423.44)
    C. ICRs Related To Expanding Quality Improvement Program 
Regulations (Sec.  422.152)
    D. ICRs Related To Changes to Audit and Inspection Authority 
(Sec. Sec.  422.503(d)(2) and 423.504(d)(2))
    E. ICRs Related to Business Continuity for MA Organizations and 
PDP Sponsors (Sec. Sec.  422.504(o) and 423.505(p))
    F. Submission of PRA-Related Comments
IV. Regulatory Impact Statement

Regulations Text

Acronyms

    ADS Automatic Dispensing System
    AHFS American Hospital Formulary Service
    AHFS-DI American Hospital Formulary Service-Drug Information
    AHRQ Agency for Health Care Research and Quality
    ANOC Annual Notice of Change
    AO Accrediting Organization
    ALR Assisted Living Residence
    BBA Balanced Budget Act of 1997 (Pub. L. 105-33)
BBRA [Medicare, Medicaid and State Child Health Insurance Program] 
Balanced Budget Refinement Act of 1999 (Pub. L. 106-113)
BIPA [Medicare, Medicaid, and SCHIP] Benefits Improvement Protection 
Act of 2000 (Pub. L. 106-554)
BLA Biologics License Application
BLS Bureau of Labor Statistics
CAHPS Consumer Assessment Health Providers Survey
CAP Corrective Action Plan
CCIP Chronic Care Improvement Program
CC/MCC Complication/Comorbidity and Major Complication/Comorbidity
CCS Certified Coding Specialist
CDC Centers for Disease Control
CGDP Coverage Gap Discount Program
CHIP Children's Health Insurance Programs
CMP Civil Money Penalty
CMR Comprehensive Medical Review
CMS Centers for Medicare & Medicaid Services
CMS-HCC CMS Hierarchal Condition Category
CTM Complaints Tracking Module
COB Coordination of Benefits
CORF Comprehensive Outpatient Rehabilitation Facility
CPC Certified Professional Coder
CY Calendar Year
DEA Drug Enforcement Administration
DIR Direct and Indirect Remuneration
DHS Department of Homeland Security
DME Durable Medical Equipment
DMEPOS Durable Medical Equipment, Prosthetic, Orthotics, and 
Supplies
D-SNPs Dual Eligible SNPs
DOL U.S. Department of Labor
DUR Drug Utilization Review
EAJR Expedited Access to Judicial Review
EGWP Employer Group/Union-Sponsored Waiver Plan
EOB Explanation of Benefits
EOC Evidence of Coverage
ESRD End-Stage Renal Disease
FACA Federal Advisory Committee Act
FDA Food and Drug Administration
FDR First-tier, Downstream, and Related Entities
FEHBP Federal Employees Health Benefits Plan
FFS Fee-For-Service
FIDE Fully-integrated Dual Eligible
FIDE SNPs Fully-integrated Dual Eligible Special Needs Plans
FMV Fair Market Value
FY Fiscal Year
GAO Government Accountability Office
HAC Hospital-Acquired Conditions
HCPP Health Care Prepayment Plans
HEDIS HealthCare Effectiveness Data and Information Set
HHS [U.S. Department of] Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996 
(Pub. L. 104-191)
HMO Health Maintenance Organization
HOS Health Outcome Survey
HPMS Health Plan Management System
ICFs/IID Intermediate care facilities for the mentally retarded
ICL Initial Coverage Limit
ICR Information Collection Requirement
ID Identification
IMD Institutes for mental disease
IT Information Technology
I/T/U Pharmacies Indian Health Service, Tribes and Tribal 
organizations, and urban Indian organizations (collectively referred 
to as ``I/T/U'').
IVC Initial Validation Contractor
LCD Local Coverage Determination
LEP Late Enrollment Penalty
LIS Low-Income Subsidy
LPPO Local Preferred Provider Organization
LTC Long Term Care
MA Medicare Advantage
MAAA Member of the American Academy of Actuaries
MA-PD Medicare Advantage-Prescription Drug Plan
MCO Managed Care Organization
MIPPA Medicare Improvements for Patients and Providers Act of 2008 
(Pub. L. 110-275)
MOC Medicare Options Compare
MOOP Maximum Out-of-Pocket
MPDPF Medicare Prescription Drug Plan Finder
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (Pub. L. 108-173)
MS-DRG Medicare Severity Diagnosis Related Group
MSA Metropolitan Statistical Area
MSAs Medical Savings Accounts
MSP Medicare Secondary Payer
MTM Medication Therapy Management
MTMP Medication Therapy Management Program
NAIC National Association of Insurance Commissioners
NCPDP National Council for Prescription Drug Programs
NCQA National Committee for Quality Assurance
NDA New Drug Application
NDC National Drug Code
NGC National Guideline Clearinghouse
NIH National Institutes of Health
NOMNC Notice of Medicare Non-Coverage
NPI National Provider Identifier
OES Occupational Employment Statistics
OIG Office of Inspector General
OMB Office of Management and Budget
OPM Office of Personnel Management
OTC Over the Counter
PACE Programs of the All-Inclusive Care for the Elderly
Part C Medicare Advantage
Part D Medicare Prescription Drug Benefit Program
Part D IRMAA Part D Income Related Monthly Adjustment Amount
PBM Pharmacy Benefit Manager
PDE Prescription Drug Event
PDP Prescription Drug Plan
PFFS Private Fee For Service Plan
POA Present on Admission (Indicator)
POS Point-of-Sale
PPO Preferred Provider Organization
PPS Prospective Payment System
P&T Pharmacy & Therapeutics
QRS Quality Review Study
PACE Programs of All Inclusive Care for the Elderly
PRWORA Personal Responsibility and Work Opportunity Reconciliation 
Act of 1996
RADV Risk Adjustment Data Validation
RAC Recovery Audit Contractor
RAPS Risk Adjustment Payment System
RPPO Regional Preferred Provider Organization
RTO Return to Operations/Recovery Time Objective
SBA Small Business Association
SCORM Sharable Content Object Reference Model
SEP Special Enrollment Period
SHIP State Health Insurance Assistance Programs
SNF Skilled Nursing Facility
SNP Special Needs Plan
SNP MOC Special Needs Plan Model of Care
SPAP State Pharmaceutical Assistance Programs
SSA Social Security Administration
SSI Supplemental Security Income
T&C Terms and Conditions
TPA Third Party Administrator
TrOOP True Out-Of-Pocket
U&C Usual and Customary
UPIN Uniform Provider Identification Number

[[Page 7914]]

USP U.S. Pharmacopoeia
ZPIC Zone Program Integrity Contractor

I. Executive Summary and Background

A. Executive Summary

1. Purpose
    The purpose of this final rule is to revise the Medicare Advantage 
(MA) program (Part C) regulations and Medicare Prescription Drug 
Benefit Program (Part D) regulations to implement statutory 
requirements, improve program efficiencies, strengthen beneficiary 
protections, clarify program requirements, improve payment accuracy, 
and make various technical changes for contract year 2016.
2. Summary of the Major Provisions
a. Changes to Audit and Inspection Authority (Sec. Sec.  422.503(d)(2), 
423.504(d)(2))
    We proposed three changes to our audit and inspection authority. 
Due to significant concerns raised during the public comment period, we 
are finalizing only two of those three proposals. First, under section 
6408 of the Affordable Care Act, new authority was provided to the 
Secretary that now requires that each contract provide the right to 
``timely'' inspection and audit.
    We are revising both Sec. Sec.  422.503(d)(2) and 423.504(d)(2) to 
insert the word ``timely'' at the end of both of the introductory 
paragraphs.
    We are also adding language to Sec. Sec.  422.503(d)(2) and 
423.504(d)(2) that will allow us to require that a sponsoring 
organization hire an independent auditor, working in accordance with 
CMS specifications, to validate if the deficiencies that were found 
during a CMS full or partial program audit have been corrected and 
provide CMS with a copy of the audit findings.
    The proposal to require MA organizations and Part D plan sponsors 
to hire an independent auditor to conduct full or partial program 
audits will not be finalized.
b. Enrollment Eligibility for Individuals Not Lawfully Present in the 
United States (Sec. Sec.  417.2, 417.420, 417.422, 417.460, 422.1, 
422.50, 422.74, 423.1, 423.30, 423.44)
    After consideration of the public comments, we are finalizing the 
policies mostly as proposed, with the exception of changes to the 
regulation text at Sec. Sec.  417.422, 417.460, 422.50, 423.1, 423.3 
and 423.44 to clarify that any individual not lawfully present is no 
longer eligible to remain enrolled in a cost, MA, or Part D plan, to 
establish the disenrollment effective date to be the first of the month 
following notice by CMS of ineligibility, and to delete the term 
``qualified alien.'' Further, we are redesignating the current text at 
Sec.  417.460(b)(2)(iv) as paragraph (b)(2)(v) and finalizing the 
provision establishing a lack of lawful presence as a basis for 
disenrollment from a cost plan at paragraph (b)(2)(iv). This provision 
is consistent with the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (PRWORA) and with recommendations made by 
the Office of the Inspector General (OIG) in its January 2013 and 
October 2013 reports.
c. Business Continuity for MA Organizations & PDP Sponsors (Sec. Sec.  
422.504(o) and 423.505(p))
    To respond to concerns raised during the comment period, we revised 
the regulation text by providing a 72, rather than 24 hour, restoration 
time period for MA organizations and Part D sponsors after a systems 
failure. We also revised text as necessary to make clear that we 
require MA organizations and sponsors to ``plan to'' restore essential 
functions within the 72-hour time period, rather than guarantee 
complete restoration within the timeframe. Some commenters thought our 
intent was to require continuous operations under all conditions, and 
we revised language from the proposed regulation to make clear that 
that was not the case in our final rule. Lastly commenters 
distinguished between Part C and D operations and noted, for instance, 
that provider payments are not a 24-hour critical function for MA plans 
since payment is allowed to be made within 30 days and that health and 
safety would not be put at risk by failure of Part C claims processing 
and appeals processing. We removed language related to that requirement 
for MA plans.
d. Efficient Dispensing in Long Term Care Facilities and Other Changes 
(Sec.  423.154)
    We are finalizing changes to the rule requiring efficient 
dispensing to Medicare Part D enrollees in long term care (LTC) 
facilities. Some Part D sponsors (or their pharmacy benefit managers) 
implemented the short-cycle dispensing requirement by pro-rating 
monthly dispensing fees, which penalize the offering and adoption of 
more efficient LTC dispensing techniques compared to less efficient LTC 
dispensing techniques. This is because when a medication is 
discontinued before a month's supply has been dispensed, a pharmacy 
that dispenses the maximum amount of the medication at a time permitted 
under Sec.  423.154 (which is 14 days' supplies), collects more in 
dispensing fees than a pharmacy that utilizes dispensing techniques 
that result in less than maximum quantities being dispensed at a time. 
In other words, a less efficient pharmacy collects more in dispensing 
fees than a more efficient pharmacy. This is contrary to the Congress' 
intent in enacting section 3310 of the Affordable Care Act, which is to 
reduce medication waste. Therefore, we have finalized a prohibition on 
payment arrangements that penalize the offering and adoption of more 
efficient LTC dispensing techniques by prorating dispensing fees based 
on days' supply or quantity dispensed. We have also finalized a 
requirement to ensure that any difference in payment methodology among 
LTC pharmacies incentivizes more efficient dispensing techniques. Other 
changes to the rule requiring efficient dispensing to Medicare Part D 
enrollees in LTC facilities are eliminating language that has been 
misinterpreted as requiring the proration of dispensing fees and making 
a technical change to the requirement that Part D sponsors report on 
the nature and quantity of unused brand and generic drugs. We are not 
finalizing an additional waiver for LTC pharmacies using restock and 
reuse dispensing methodologies under certain conditions at this time.
3. Summary of Costs and Benefits

[[Page 7915]]



                 Table 2--Summary of Costs and Benefits
------------------------------------------------------------------------
          Provision                Total costs            Transfers
------------------------------------------------------------------------
Changes to Audit and          We estimate that
 Inspection.                   this change would
                               require an annual
                               cost of $2 million
                               for the time and
                               effort for all MA
                               organizations or
                               Part D sponsors
                               with audit results
                               that reveal
                               noncompliance with
                               CMS requirements to
                               hire independent
                               auditors to
                               validate that
                               correction has
                               occurred. The total
                               cost for 2015-2019
                               is estimated to be
                               $10 million.
Eligibility of enrollment     N/A.................  We estimate that
 for individuals not                                 this change could
 lawfully present in the U.S.                        save the MA program
                                                     up to $5 million in
                                                     2015, increasing to
                                                     $8 million in 2019
                                                     (total of $32
                                                     million over this
                                                     period), and could
                                                     save the Part D
                                                     program (includes
                                                     the Part D portion
                                                     of MA-PD plans) up
                                                     to $5 million in
                                                     2015, increasing to
                                                     $9 million in 2019
                                                     (total of $35
                                                     million over this
                                                     period).
Business Continuity           We estimate that
 Operations.                   this change would
                               require a first
                               year cost of $8
                               million in 2015,
                               for the time and
                               effort for affected
                               organizations to
                               comply with the
                               business continuity
                               requirements. In
                               subsequent years,
                               2016-2019, the cost
                               for maintaining the
                               business continuity
                               is estimated to be
                               $4 million. The
                               total cost over the
                               period 2015-2019 is
                               estimated to be $24
                               million.
------------------------------------------------------------------------

B. Background

1. General Overview and Regulatory History
    The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) created a 
new ``Part C'' in the Medicare statute (sections 1851 through 1859 of 
the Social Security Act (the Act)) which established what is now known 
as the MA program. The Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) (Pub. L. 108-173), enacted on December 
8, 2003, added a new ``Part D'' to the Medicare statute (sections 
1860D-1 through 42 of the Act) entitled the Medicare Prescription Drug 
Benefit Program (Part D), and made significant changes to the existing 
Part C program, which it named the Medicare Advantage (MA) Program. The 
MMA directed that important aspects of the Part D program be similar 
to, and coordinated with, regulations for the MA program. Generally, 
the provisions enacted in the MMA took effect January 1, 2006. The 
final rules implementing the MMA for the MA and Part D prescription 
drug programs appeared in the Federal Register on January 28, 2005 (70 
FR 4588 through 4741 and 70 FR 4194 through 4585, respectively).
    Since the inception of both Parts C and D, we have periodically 
revised our regulations either to implement statutory directives or to 
incorporate knowledge obtained through experience with both programs. 
For instance, in the September 18, 2008 and January 12, 2009 Federal 
Register (73 FR 54226 and 74 FR 1494, respectively), we issued Part C 
and D regulations to implement provisions in the Medicare Improvement 
for Patients and Providers Act (MIPPA) (Pub. L. 110-275). We 
promulgated a separate interim final rule on January 16, 2009 (74 FR 
2881) to address MIPPA provisions related to Part D plan formularies. 
In the final rule that appeared in the April 15, 2010 Federal Register 
(75 FR 19678), we made changes to the Part C and D regulations which 
strengthened various program participation and exit requirements; 
strengthened beneficiary protections; ensured that plan offerings to 
beneficiaries included meaningful differences; improved plan payment 
rules and processes; improved data collection for oversight and quality 
assessment; implemented new policies; and clarified existing program 
policy.
    In a final rule that appeared in the April 15, 2011 Federal 
Register (76 FR 21432), we continued our process of implementing 
improvements in policy consistent with those included in the April 2010 
final rule, and also implemented changes to the Part C and Part D 
programs made by recent legislative changes. The Patient Protection and 
Affordable Care Act (Pub. L. 111-148), as amended by the Health Care 
and Education Reconciliation Act (Pub. L. 111-152) (collectively the 
Affordable Care Act or ACA) added a number of new Medicare provisions 
and modified many existing provisions. The Affordable Care Act included 
significant reforms to both the private health insurance industry and 
the Medicare and Medicaid programs. Provisions in the Affordable Care 
Act concerning the Part C and D programs largely focused on beneficiary 
protections, MA payments, and simplification of MA and Part D program 
processes. These provisions affected implementation of our policies 
regarding beneficiary cost-sharing, assessing bids for meaningful 
differences, and ensuring that cost-sharing structures in a plan are 
transparent to beneficiaries and not excessive. In the April 2011 final 
rule, we revised regulations on a variety of issues based on the 
Affordable Care Act and our experience in administering the MA and Part 
D programs. The rule covered areas such as marketing, including agent/
broker training; payments to MA organizations based on quality ratings; 
standards for determining if organizations are fiscally sound; low 
income subsidy policy under the Part D program; payment rules for non-
contract health care providers; extending current network adequacy 
standards to Medicare medical savings account (MSA) plans that employ a 
network of providers; establishing limits on out-of-pocket expenses for 
MA enrollees; and several revisions to the special needs plan 
requirements, including changes concerning SNP approvals.
    In a final rule that appeared in the April 12, 2012 Federal 
Register (77 FR 22072 through 22175), we made several changes to the 
Part C and Part D

[[Page 7916]]

programs required by statute, including the Affordable Care Act, and 
made improvements to both programs through modifications reflecting 
experience we have obtained administering the Part C and Part D 
programs. Key provisions of that final rule implemented changes closing 
the Part D coverage gap, or ``donut hole,'' for Medicare beneficiaries 
who do not already receive low-income subsidies from us by establishing 
the Medicare Coverage Gap Discount Program. We also included provisions 
providing new benefit flexibility for fully-integrated dual eligible 
special needs plans, clarifying coverage of durable medical equipment, 
and combatting possible fraudulent activity by requiring Part D 
sponsors to include an active and valid prescriber National Provider 
Identifier on prescription drug event records.
2. Issuance of the Proposed Rule
    In the proposed rule titled ``Contract Year 2015 Policy and 
Technical Changes to the Medicare Advantage and the Medicare 
Prescription Drug Benefit Programs,'' which appeared in the January 10, 
2014 Federal Register (79 FR 1918), we proposed to revise the MA 
program (Part C) regulations and Medicare Prescription Drug Benefit 
Program (Part D) regulations to implement statutory requirements; 
strengthen beneficiary protections; improve program efficiencies; and 
clarify program requirements. The proposed rule also included several 
provisions designed to improve payment accuracy.
3. Public Comments Received in Response to the Contract Year 2015 
Policy and Technical Changes to the Medicare Advantage and the Medicare 
Prescription Drug Benefit Programs Proposed Rule
    We received approximately 7,600 timely pieces of correspondence 
containing multiple comments on the CY 2015 proposed rule. The majority 
of correspondence received was in reference to provisions that were 
either finalized in the final rule that appeared in the Federal 
Register on May 23, 2014 (79 FR 29844) (May 2014 final rule) or that 
will not be finalized. While we are finalizing in whole or in part 
approximately 30 of the provisions from the proposed rule in this final 
rule, there remain a small number of provisions from the proposed rule 
that were not finalized in the May 2014 final rule and that we are not 
finalizing in this rule. These provisions are listed later in this 
section in Table 2.
    Public comments on the provisions finalized in this rule were 
submitted between January 10, 2014 and March 7, 2014. We note that some 
of the public comments were outside of the scope of the proposed rule 
provisions that we are finalizing here. These out-of-scope public 
comments are not addressed in this final rule. Summaries of the public 
comments that are within the scope of the proposed rule and our 
responses to those public comments are set forth in the various 
sections of this final rule under the appropriate heading. However, we 
note that in this final rule we are not addressing comments received 
with respect to the provisions of the proposed rule that we are not 
finalizing.

                 Table 2--Provisions Not Being Finalized
------------------------------------------------------------------------
  Proposed Rule January 10, 2014
  Federal Register (79 FR 1918),                    Topic
              section
------------------------------------------------------------------------
          Clarifying Various Program Participation Requirements
------------------------------------------------------------------------
III.A.2...........................  Two[dash]year Limitation on
                                     Submitting a New Bid in an Area
                                     Where an MA has been Required to
                                     Terminate a Low[dash]enrollment MA
                                     Plan (Sec.   422.504(a)(19)).
III.A.9...........................  Collections of Premiums and Cost
                                     Sharing (Sec.   423.294).
III.A.12..........................  Separating the Annual Notice of
                                     Change (ANOC) from the Evidence of
                                     Coverage (EOC) (Sec.
                                     422.111(a)(3) and 423.128(a)(3)).
III.A.14..........................  Exceptions to Drug Categories or
                                     Classes of Clinical Concern (Sec.
                                     423.120(b)(2)(vi)).
III.A.15..........................  Medication Therapy Management
                                     Program (MTMP) under Part D (Sec.
                                     423.153(d)(1)(v)(A))--outreach
                                     strategies.
III.A.23..........................  Medicare Coverage Gap Discount
                                     Program and Employer Group Waiver
                                     Plans (Sec.   423.2325)--disclosure
                                     requirement for Part D sponsors.
III.A.26..........................  Payments to PDP Plan Sponsors For
                                     Qualified Prescription Drug
                                     Coverage (Sec.   423.308) and
                                     Payments to Sponsors of Retiree
                                     Prescription Drug Plans (Sec.
                                     423.882).
III.A.38..........................  Authorization of Expansion of
                                     Automatic or Passive Enrollment
                                     Non[dash]Renewing Dual Eligible
                                     SNPs (D[dash]SNPs) to another
                                     D[dash]SNP to Support Alignment
                                     Procedures (Sec.   422.60).
------------------------------------------------------------------------
                  Strengthening Beneficiary Protections
------------------------------------------------------------------------
III.C.1...........................  Providing High Quality Health Care
                                     (Sec.   422.504(a)(3) and Sec.
                                     423.505(b)(27)).
III.C.4...........................  Definition of Organization
                                     Determination (Sec.   422.566).
------------------------------------------------------------------------
 Strengthening our Ability To Distinguish Stronger Applicants for Part C
 and D Program Participation and To Remove Consistently Poor Performers
------------------------------------------------------------------------
III.D.4...........................  Termination of the Contracts of
                                     Medicare Advantage Organizations
                                     Offering PDP for Failure for 3
                                     Consecutive Years to Achieve 3
                                     Stars on Both Part C and Part D
                                     Summary Star Ratings in the Same
                                     Contract Year (Sec.   422.510).
------------------------------------------------------------------------
                  Implementing Other Technical Changes
------------------------------------------------------------------------
III.E.2...........................  Skilled Nursing Facility Stays (Sec.
                                      Sec.   422.101 and 422.102).
------------------------------------------------------------------------


[[Page 7917]]

II. Provisions of the Proposed Regulations and Analysis of and 
Responses to Public Comments

A. Clarifying Various Program Participation Requirements

1. Changes to Audit and Inspection Authority (Sec. Sec.  422.503(d)(2), 
423.504(d)(2))
    Sections 1857(d)(2)(A) and 1860D-12(b)(3)(C) of the Act specify 
that each contract under these sections must state that CMS has the 
right to audit and inspect the facilities and records of each 
organization. We proposed three changes to our audit and inspection 
authority. First, under section 6408 of the Affordable Care Act, new 
authority was provided to the Secretary that now requires that each 
contract provide the right to ``timely'' inspection and audit.
    We proposed to revise both Sec. Sec.  422.503(d)(2) and 
423.504(d)(2) to reflect this change. Specifically, we proposed to 
insert the word ``timely'' at the end of both of the introductory 
paragraphs for Sec. Sec.  422.503(d)(2) and 423.504(d)(2).
    We also proposed to add language to Sec. Sec.  422.503(d)(2) and 
423.504(d)(2) that will allow us to require an MA organization or Part 
D plan sponsor to hire an independent auditor, working in accordance 
with CMS specifications, to perform full or partial program audits to 
determine compliance with CMS requirements and provide to CMS an 
attestation affirming that the audit has been completed as required.
    Lastly, we proposed to add language to Sec. Sec.  422.503(d)(2) and 
423.504(d)(2) that would allow us to require that a sponsoring 
organization hire an independent auditor, working in accordance with 
CMS specifications, to validate if the deficiencies that were found 
during a CMS full or partial program audit have been corrected and 
provide CMS with a copy of the audit findings.
    We received the following comments and our responses follow:
    Comment: Some commenters requested that CMS define ``timely'' as it 
is being added to Sec.  422.503(d)(2) and Sec.  423.504(d)(2) and that 
CMS define the existing language from paragraph (2) in that same 
section, specifically: ``when there is reasonable evidence for some 
need for such inspection.''
    Response: We are following the exact working of the statute in 
adding the word ``timely'' to our current audit and inspection 
authority. We believe that the Congress recognized that what would be 
considered ``timely'' is based on a reasonableness standard that may 
change based on the specific circumstances leading up to the audit. For 
example, we currently give sponsors 4-weeks notice prior to the start 
of a routine program audit and we do not envision this change altering 
that practice. However, if we were to become aware of a situation where 
beneficiaries' health or safety may be at risk based on a plan's poor 
performance, we will reserve the right to request records or any needed 
documentation in an expedited fashion. Therefore, we will not put 
restrictions on the broadly stated statutory language and believe that 
this is in line with the spirit and intent of the statutory change. 
Similarly, the language in paragraph (2) in that same section is not a 
change, but existing language from our regulations. Again, we believe 
that the wording is appropriate and does not require additional 
definition or explanation.
    Comment: One commenter suggested we utilize the NCPDP audit 
standard as a means of standardizing audit communications.
    Response: We appreciate the commenter's suggestion and believe this 
would be a more appropriate approach if our audits largely focused on 
claim level audits between MA and Part D organizations and the 
providers or entities they pay. However, program audits cover a wide 
range of our program areas and corresponding programmatic requirements, 
many of which go well beyond claim determinations. We have received 
positive feedback from MA and Part D organizations in the past 
regarding the level of detail and useful information and feedback in 
our audit reports, which sponsors rely upon as they work towards 
implementing any necessary corrective actions. By limiting the 
communication to the codes and auditing standards used by NCPDP, we 
believe that--(1) many of our findings would not be adequately covered 
by these standards; and (2) they would not provide enough detail in 
many cases to allow for an organization to undertake meaningful 
correction.
    Comment: A commenter suggested that CMS specify that the same 
organization that performed the audit also perform the validation in 
order to ensure consistency in interpretation and try to keep costs 
down, or at the very least require at least one member from the 
original audit team be a member of the validation team.
    Response: We will not be finalizing the proposal requiring 
organizations to hire an independent auditor to conduct full or partial 
program audits, but we are finalizing the proposal that we may require 
an organization to hire an independent auditor to validate correction 
of audit deficiencies. We will consider the recommendation to include a 
member from the original audit team in any validation activities 
whether they be performed by CMS internally or by an independent 
auditor hired by the MA or Part D organization at CMS' request.
    Comment: Some commenters' requested if CMS would set a time limit 
in which audits must be completed or conducted.
    Response: We will not be finalizing the proposal requiring 
organizations to hire an independent auditor to conduct full or partial 
program audits, but we are finalizing our proposal that we may require 
an organization to hire an independent auditor to validate correction 
of audit deficiencies. We will establish a timeframe in subregulatory 
guidance based on our current internal validation audit timeline. 
However, we recognize that some correction activities require more time 
than others, we will reserve the right to alter those timelines for 
deficiencies that we believe--(1) a more immediate correction is 
warranted due to the potential for beneficiary harm; or (2) require a 
longer correction timeline due to the technical or difficult nature of 
correction (for example, rebuilding or completely restructuring systems 
infrastructure).
    Comment: A commenter requested if CMS would pay for the cost to 
hire an independent auditor.
    Response: Our proposal was that an MA or Part D organization would 
retain the independent auditing firm to conduct the audit, but that the 
plan could account for the costs in their bid. However, we will not be 
finalizing the proposal requiring organizations to hire an independent 
auditor to conduct full or partial program audits, but we are 
finalizing our proposal that we may require an organization to hire an 
independent auditor to validate correction of audit deficiencies.
    Comment: Some commenters requested that CMS cap fees that 
independent audit firms would charge MA and Part D organizations to 
perform program audits.
    Response: If we decide to pursue this proposal in the future, we 
will explore our ability to cap the costs of performing these audit 
activities.
    Comment: Many commenters suggested that instead of requiring MA and 
Part D organizations to hire independent auditors to expand the number 
of audits conducted each year that we look to the various other 
compliance and monitoring activities the Agency engages in, which could 
be used to better target audits or results could be utilized in lieu of 
audit activities.

[[Page 7918]]

    Response: We do utilize the data and information obtained about 
sponsor performance to target our audit efforts as part of the overall 
risk assessment used to select sponsors for audit. We have also 
utilized data and information from our various monitoring efforts to 
assist in determining if certain deficiencies discovered during an 
audit may have been corrected (for example, if a sponsor had multiple 
deficiencies in a program area that will at a later date be the subject 
of a monitoring activity, we may use passing results from that 
monitoring activity as proof of correction).
    Comment: A commenter requested that CMS release the data driven 
elements of the risk assessment and define a sponsor who is high risk.
    Response: We believe that this comment is outside the scope of this 
final rule. However, we use a variety of existing data points from 
Medicare Star ratings, past performance and plan reported data, as a 
few examples, to develop our risk assessment. We focus on metrics that 
have the potential to affect beneficiary access to medications and 
services, and also look for operational metrics that program experience 
has demonstrated can cause contracting organizations to develop 
performance problems in core program areas (that is, large increases in 
enrollment over a short period of time). We do not release our risk 
assessment in its entirety, but these are the areas we focus on when 
conducting the analysis. Organizations should note that it is our goal 
to audit all organizations in the MA and Part D program, and the risk 
assessment is one way plans are selected for audit.
    Comment: Some commenters raised concerns over their available 
recourse if they disagreed with an independent auditor's findings, 
given the impact on Medicare Star ratings and past performance.
    Response: We will not be finalizing the proposal requiring 
organizations to hire an independent auditor to conduct full or partial 
program audits, but we are finalizing the proposal that we may require 
an organization to hire an independent auditor to validate correction 
of audit deficiencies. Validation results have no impact on Medicare 
Star ratings or past performance. However, we stated in the proposal 
that organizations would have an opportunity to rebut audit findings, 
this would include during validation efforts, and CMS would be 
reviewing both draft and final reports from the independent auditor. 
Therefore, we would give organizations an avenue to dispute findings or 
policy interpretations that organizations believed to be erroneous, 
even in the more limited use of an independent auditor to validate 
correction of deficiencies.
    Comment: A commenter stated that our proposal did not clarify how 
organizations hiring an independent auditor to conduct full or partial 
program audits would affect or involve the Zone Program Integrity 
Contractors (ZPICs) or the Recovery Audit Contractors (RACs).
    Response: The proposal to utilize an independent auditor to conduct 
full or partial program audits or validations has no impact on ZPICs or 
RACs, which is why they are not mentioned in our proposal.
    Comment: Several commenters suggested that CMS develop a core set 
of SNP auditors regardless of whether or not we implement our 
independent auditor proposal, given what the industry perceives as 
inexperienced or inconsistent SNP findings amongst auditors, which many 
SNPs believed would be aggravated if organizations were required to 
retain an independent audit firm. Some suggested that SNP auditors 
should be accredited by NCQA prior to being allowed to conduct SNP 
audits.
    Response: We believe that this is outside the scope of this 
proposal, but we thank the commenter for their suggestion to continue 
to strengthen the CMS MA and Part D audit program. We have conducted 
additional training and continue to welcome feedback on all of our 
audit processes and protocols. After the piloting of the SNP MOC 
protocols in 2013, we conducted specialized feedback sessions with 
organizations subject to SNP MOC audits and made changes to our 
protocols, methods of evaluation and training of auditors based on the 
industry's feedback. We welcome additional feedback and hope that 
organizations will see continual improvements in our audit processes in 
2014 and future years.
    Comment: A commenter inquired if the independent auditor proposals 
applied to PACE organizations.
    Response: No, these proposals do not apply to PACE organizations. 
These regulatory provisions do not apply to PACE plans because we are 
only proposing changes to Parts 422 and 423 which govern MA, other 
Managed care plans, and Part D organizations. PACE plans are governed 
by the regulations in part 460. With respect to this change applying to 
cost plans, we select sponsors for audit at their parent organization 
level, and if they have an 1876 cost plan, that contract would be 
included in our audit. Therefore, the parent organization may be 
requested to hire an independent auditor to validate the correction of 
their audit deficiencies. However, if an organization was a standalone 
cost plan, with no MA or Part D contracts under parts 422 or 423, this 
requirement would not apply to those organizations, as cost plans are 
governed by part 417.
    Comment: A commenter suggested that CMS develop and implement a 
robust annual or biannual training program for independent auditors to 
ensure that they were competent to perform program audits properly.
    Response: We will not be finalizing the proposal requiring 
organizations to hire an independent auditor to conduct full or partial 
program audits, but we are finalizing the proposal that CMS may require 
an organization to hire an independent auditor to validate correction 
of audit deficiencies. We will consider this suggestion if we repropose 
the larger full scale use of independent auditors to conduct full or 
partial program audits in the future. We will also share whatever 
materials we have developed and can provide technical assistance if we 
request an organization to retain an independent auditor to validate 
correction of audit deficiencies.
    Comment: A commenter suggested that instead of requiring plans to 
hire an independent auditor we require plans to conduct a robust 
internal audit and share the results with CMS.
    Response: We will not be finalizing the proposal requiring 
organizations to hire an independent auditor to conduct full or partial 
program audits, but we are finalizing the proposal that CMS may require 
an organization to hire an independent auditor to validate correction 
of audit deficiencies. We currently require organizations to conduct 
internal auditing and monitoring as part of having an effective 
compliance program, which we believe for purposes of a healthy and 
robust compliance program, such activities are appropriate.
    Comment: A commenter recommended that much like CMS' use of 
independent auditors to conduct data validation audits, CMS should set 
criteria regarding who can conduct program audits. For example, the 
commenter suggested CMS clarify that organizations that currently 
assist plans with operations, compliance or consulting are disqualified 
from performing as independent auditors.
    Response: We will not be finalizing the proposal requiring 
organizations to hire an independent auditor to conduct full or partial 
program audits, but we are finalizing the proposal that CMS may require 
an organization to hire an independent auditor to validate

[[Page 7919]]

correction of audit deficiencies. We thank the commenter for their 
suggestion with respect to whom a contracting organization may retain 
to perform validation of correction of audit deficiencies. We will 
consider including any key criteria regarding who can perform these 
validations in subsequent subregulatory guidance.
    Comment: A few commenters questioned whether CMS has the statutory 
authority to require contracting organizations to retain an independent 
auditor to conduct full or partial program audits. These commenters 
raised many related issues, such as CMS trying to inappropriately 
expand their appropriation by requiring contracting organizations to 
bear the cost of hiring an audit firm to perform a function that the 
Congress has tasked CMS with performing. Other commenters stated that 
to the extent these funds expended by plans were later reimbursed by 
CMS through the bid process, it could implicate the Anti-Deficiency 
Act.
    Response: We will not finalize the proposal requiring organizations 
to hire an independent auditor to conduct full or partial program 
audits, but we are finalizing the proposal that we may require an 
organization to hire an independent auditor to validate correction of 
audit deficiencies. We do not agree that our proposal allowing us the 
option to request a plan sponsor to retain an independent auditor to 
verify that deficiencies that we determined existed during our audit 
have been corrected implicates the concerns that organizations 
previously raised regarding our current appropriation or statutory 
authority. The proposal simply mirrors our current authority where we 
may require organizations under sanction to retain an independent 
auditor to perform an independent review to validate that the 
deficiencies upon which the sanction was based have been corrected and 
are not likely to recur.
    After consideration of all of the comments received, we are 
finalizing our proposal to revise both Sec. Sec.  422.503(d)(2) and 
423.504(d)(2) to insert the word ``timely'' at the end of both of the 
introductory paragraphs for Sec. Sec.  422.503(d)(2) and 423.504(d)(2), 
and our proposal to have the option to require contracting 
organizations who were found to have deficiencies during a CMS program 
audit to hire an independent auditor to validate correction of those 
deficiencies.
    However, based on the strong opposition and valid concerns raised 
by contracting organizations, we have decided at this time not to 
finalize our proposal to require plan sponsors to hire an independent 
auditor no less than every 3 years to conduct full or partial program 
audits.
2. Enrollment Eligibility for Individuals Not Lawfully Present in the 
United States (Sec. Sec.  417.2, 417.420, 417.422, 417.460, 422.1, 
422.50, 422.74, 423.1, 423.30, and 423.44)
a. Basic Enrollment Requirements
    Sections 226 and 226A of the Act establish the conditions for 
Medicare Part A entitlement for individuals who have attained age 65, 
are disabled or have end stage renal disease (ESRD), and are entitled 
to monthly Social Security benefits under section 202 of the Act; 
individuals entitled to Part A under these sections do not have to pay 
premiums for such coverage, and they may, but are not required to, 
enroll in Medicare Part B. Section 1818 of the Act establishes the 
conditions for Medicare enrollment for individuals who are not entitled 
to Medicare Part A without a premium under sections 226 or 226A of the 
Act. Individuals must have Part B (under section 1836 of the Act) and 
must also meet citizenship or alien status requirements in order to 
purchase Part A hospital insurance under section 1818 of the Act; 
individuals covered under section 1836 of the Act must meet citizenship 
or alien status requirements, in addition to other requirements, in 
order to enroll in Part B if they are not entitled to premium-free 
Medicare under sections 226 or 226A.
    Sections 1851(a)(3)(B), 1860D 1(a)(3)(A), and 1876(a)(1)(A) of the 
Act outline the eligibility requirements to enroll in MA (Part C), 
Medicare prescription drug coverage (Part D), and Medicare cost plans. 
To be eligible for MA, Part D, or cost plan coverage, individuals must 
have active Medicare coverage. Specifically, to enroll in MA, an 
individual must be entitled to benefits under Part A and be enrolled in 
Part B; to enroll in Part D, an individual must be entitled to Part A 
and/or enrolled in Part B; to enroll in a Medicare cost plan, an 
individual must be enrolled in Part B (Part A entitlement is not 
required).
b. Medicare Eligibility and Lawful Presence
    Section 401 of the PRWORA, amended by section 5561 of the Balanced 
Budget Act, limits the eligibility of individuals who are not qualified 
aliens to receive benefits under certain federal programs, including 
benefits under Title XVIII of the Act (Medicare); these provisions are 
codified at 8 U.S.C. 1611 and 1641. In general pursuant to 8 U.S.C. 
1611(a), an alien who is not a qualified alien is not eligible to 
receive any federal public benefit. The Congress has established some 
exceptions to this general rule. One exception, at 8 U.S.C. 1611(b)(3), 
permits certain aliens to obtain Medicare benefits and applies to an 
alien who is: (1) Lawfully present in the United States, as determined 
by the Attorney General and (2) was authorized to be employed with 
respect to wages attributable to employment, which were counted for the 
purpose of determining Medicare entitlement under Part A \1\. An alien 
who is eligible under this exception is able to receive any benefit 
payable under Medicare. In contrast, an alien that is not lawfully 
present in the United States is not eligible to receive benefits under 
Medicare.
---------------------------------------------------------------------------

    \1\ This includes qualified aliens.
---------------------------------------------------------------------------

    As a result, individuals meeting certain criteria are able to earn 
qualified credits towards Social Security retirement benefits as 
outlined in 8 U.S.C. 1631 (federal attribution of sponsor's income and 
resources to alien) and 8 U.S.C. 1645 (Qualifying quarters). Such 
individuals may earn the total number of qualified credits to be 
eligible under the Act to receive retirement benefits under sections 
226 and 226A of the Act. However, should such individuals be unlawfully 
present in the United States, under PRWORA they are not eligible to 
receive the Social Security benefits they have earned for as long as 
they remain unlawfully present. When they are again lawfully present in 
the United States, or live outside the United States, they would regain 
eligibility to receive Social Security payments.
    Similarly, when those not lawfully present become eligible for 
Medicare based on age or disability under the Act, they would also 
automatically be entitled under the Act to premium free Part A benefits 
and be eligible under the Act to enroll in Part B during a valid 
enrollment period. Furthermore, if these same individuals were 
receiving Social Security retirement benefits 4 months prior to turning 
65, or are in their 21st month of receiving Social Security disability 
benefits, they would also automatically be enrolled into both Part A 
and Part B, consistent with section 1837 of the Act and the enrollment 
process outlined in Sec.  407.17. However, again under the PRWORA 
limitations previously discussed, payments for Medicare benefits cannot 
be made on behalf of these individuals as long as they are not lawfully 
present in the United States. Only upon becoming lawfully present would 
they become

[[Page 7920]]

eligible to receive the Medicare benefits to which they would otherwise 
be entitled by paying into Social Security for the requisite number of 
quarters or paying premiums.
    We note that current regulations at Sec. Sec.  406.28 and 407.27 
outline the reasons for loss of premium Part A and Part B enrollment, 
and do not include the absence of lawful presence or citizenship as a 
reason for loss of entitlement. Similarly, individuals who are entitled 
to Part A and enrolled in Part B based on eligibility for Social 
Security benefits currently may be enrolled in Medicare even if they 
are not lawfully present in the United States. However, as previously 
outlined, Medicare benefits are not payable for individuals who are not 
lawfully present even if such individuals are enrolled in Medicare. 
Thus, there is a distinction between being ``entitled to Part A'' or 
``enrolled in Part B'' as provided for in the Act and being eligible to 
receive the Part A and Part B benefits that ordinarily flow from such 
entitlement and enrollment.
c. Alignment of MA, Part D, and Cost Plan Eligibility With Fee for 
Service (FFS) Payment Exclusion Policy
    In order to implement 8 U.S.C. 1611 and ensure that benefits are 
not incorrectly paid for individuals who are present in the United 
States unlawfully, the Social Security Administration (SSA) established 
internal policies and procedures to suspend Social Security benefits 
during periods in which individuals are not lawfully present in the 
United States. Because Medicare entitlement flows from entitlement to 
Social Security retirement and disability benefits, Medicare has also 
implemented this provision through its own payment exclusion process.
    Under Medicare's payment exclusion process, data on lawful presence 
are transmitted to CMS from the Department of Homeland Security (DHS) 
via regular data exchanges with SSA. Once the data are received by CMS, 
lawful presence status is noted on an individual's record and is 
retained in the FFS claims processing systems. As a result, payment of 
Part A and Part B claims for non-citizens is denied where lawful 
presence is not established on their record, and continues to be denied 
until these individuals regain lawful presence status. Although payment 
is being denied for claims, individuals who are entitled to Medicare 
per section 226 of the Act, maintain Part A entitlement and remain 
enrolled in Part B on Medicare's records as long as Part B premiums are 
paid. Similarly, individuals who are enrolled in premium Part A or Part 
B or both under sections 1818 and 1836 of the Act, maintain their 
enrollment status as long as premiums are paid.
    We proposed to align eligibility for enrollment in MA, Part D, and 
cost plans (and resulting Medicare payments to plans and by plans that 
would violate PRWORA) with the FFS payment exclusion policy to ensure 
that Medicare is only paying for benefits and services rendered to 
individuals who are eligible to receive them. These steps align with 
the recommendations made by the Office of Inspector General (OIG) in 
its January 2013 report (A-07-12-01116) \2\ regarding the need for CMS 
to maintain adequate controls to detect and prevent improper payments 
for Medicare services rendered to beneficiaries who are not lawfully 
present. Accordingly, we proposed to revise the regulations to 
establish U.S. citizenship and lawful presence as eligibility 
requirements for enrollment in MA, Part D, and cost plans. Further, we 
proposed that individuals who are not lawfully present in the United 
States would be involuntarily disenrolled from MA, Part D, and cost 
plans, based on the date on which they lose their lawful presence 
status. Under our proposal, disenrollments would have been effective 
the first of the month following the loss of lawful presence status, 
and the disenrollment process would follow the process currently set 
forth in the regulations for an individual who is no longer eligible to 
be enrolled in a plan. Such disenrolled individuals would continue to 
be considered entitled to Medicare Part A and (if enrolled) enrolled in 
Part B coverage, provided they continue to pay premiums, as applicable, 
but as noted payment of FFS claims would be denied based on unlawfully 
present status.
---------------------------------------------------------------------------

    \2\ Medicare Improperly Paid Providers Millions of Dollars for 
Unlawfully Present Beneficiaries Who Received Services During 2009 
Through 2011 (A-07-12-01116), available at http://oig.hhs.gov/oas/reports/region7/71201116.asp.
---------------------------------------------------------------------------

    These proposed regulatory changes were intended to prevent an 
individual known not to be lawfully present in the United States from 
enrolling in a Part C, Part D, or cost plan and/or remaining enrolled 
in such a plan, meaning that payments would not be made to plans or by 
plans with respect to such individuals during that period. This policy 
was intended to facilitate compliance with 8 U.S.C. 1611. We proposed 
the following changes in the regulations to refine the eligibility 
requirements for the MA and Part D programs and give MA and Part D 
plans the ability to disenroll individuals who are not lawfully present 
in the United States:
     Sections 417.420, 417.422, 422.50, and 423.30 would be 
amended to add lawful presence or United States citizenship as 
eligibility criteria for enrollment in a cost, MA, or Part D plan.
     Sections 417.460, 422.74, and 423.44 would be amended to 
require the involuntary disenrollment of individuals from cost, MA or 
Part D plans if they lose lawful presence status.
     Conforming changes would be made to Sec. Sec.  417.2, 
422.1, and 423.1 to outline the authority for the aforementioned 
requirements, from 8 U.S.C. 1611 (Aliens who are not qualified aliens 
ineligible for federal public benefits).
    We received the following comments on our proposals:
    Comment: Overall we received general support for our proposal. Many 
commenters requested clarification about who would be responsible for 
verifying eligibility based on lawful presence. A few of these 
commenters stated specifically that CMS should verify this aspect of 
eligibility and that plans should not be expected or permitted to 
request proof of lawful presence from individuals. A commenter, who did 
not agree with the proposed change, expressed concern that plans do not 
have access to data to validate residency/lawful status for Medicare 
beneficiaries and requested what source would be used for status 
changes.
    Response: We appreciate the support expressed by most commenters. 
We agree that CMS would have to provide lawful presence information to 
plans. In most cases, the DHS determines citizenship and lawful 
presence status and that information is passed to SSA. SSA also has 
mechanisms to address changes in lawful presence status reported by 
beneficiaries themselves or other third parties. CMS receives the 
lawful presence information from SSA after it completes its processes 
related to such changes in status. Then, we will notify the plan if an 
individual is not eligible for MA, Part D or cost plan enrollment based 
on lawful presence and the plan must either deny the enrollment request 
or process the involuntary disenrollment. Plans are not expected to 
independently determine lawful presence when processing the enrollment 
request, nor should they request proof of citizenship from the 
beneficiary or include lawful presence as an element on the enrollment 
form. We will notify plans of ineligibility due to unlawful presence, 
through the same administrative mechanisms currently utilized to notify 
plans about other

[[Page 7921]]

involuntary disenrollments. Additionally, we will be providing more 
detailed information about the necessary processes and procedures in 
subregulatory guidance.
    Comment: A few commenters suggested that we amend the regulations 
to require a notice for the beneficiaries if they are disenrolled for 
absence or loss of lawful presence status. Other commenters suggested 
revisions for the content of a disenrollment notice, specifically 
suggesting that it contain pertinent information regarding loss of 
eligibility for enrollment and related impacts to unlawfully present 
individuals.
    Response: Under existing processes at SSA, individuals are notified 
of their potential change to lawful presence status and are provided an 
opportunity to be heard in advance of any final changes in status in 
SSA records (that is, before the information is transmitted to us \3\). 
We believe that this process by SSA provides adequate notification to 
the beneficiary and, at this time, CMS will not require an additional 
notice from the plan at the time of disenrollment. This policy on 
notification from the plan is similar to CMS processes and regulations 
for other involuntary disenrollments based on information from CMS,\4\ 
but we will take into consideration the possibility of requiring notice 
in future rulemaking.
---------------------------------------------------------------------------

    \3\ Social Security Administration Program Operations Manual 
System (POMS) RS 00204.010 Lawful Presence Payment Provisions and RS 
00204.080 Postentitlement Suspension--Alien is no Longer Lawfully 
Present.
    \4\ Notices are required from the plans in cases of certain 
disenrollments. See 42 CFR.417.430, 422.74(c), and 423.44(c).
---------------------------------------------------------------------------

    In our existing subregulatory guidance, MA, Part D and cost plans 
are strongly encouraged to send confirmation of disenrollment to 
members even when it is not required. We agree that a notice regarding 
the reason for involuntary disenrollment and the impact unlawful 
presence status has on the payment of Medicare services would reinforce 
the messages already provided by SSA, and CMS encourages plans to send 
such notices in this situation. Sending a confirmation of disenrollment 
would ensure that these beneficiaries understand the restrictions of 
their Medicare coverage as they transfer to the FFS program. We 
appreciate the suggested notice language provided by the commenters and 
will consider it as we establish a model notice in Chapter 2 and 
Chapter 17-Subchapter D of the Medicare Managed Care Manual and Chapter 
3 of the Medicare Prescription Drug Benefit Manual.
    Further, for instances where an unlawfully present individual is 
denied enrollment into a MA, Part D, or cost plan due to ineligibility, 
we currently require that the plan provide written notice of the 
denial.\5\ We will consider the suggested language as we modify the 
existing model denial notices in these subregulatory chapters.
---------------------------------------------------------------------------

    \5\ Notices are required from the plans in cases of enrollment 
denials. See 42 CFR 417.430(b)(3), 422.50(e)(3), and 423.32(d).
---------------------------------------------------------------------------

    Comment: Several commenters expressed concern about the effective 
date of disenrollment if it is based on the date of loss of lawful 
presence status. Specifically, commenters suggested that involuntary 
disenrollments be prospective because the plan provides coverage on the 
reasonable assumption of eligibility to receive services. Further, 
commenters were concerned about the recoupment of capitation payments 
as a result of these retroactive disenrollments.
    Response: In the proposed rule, we proposed that disenrollments 
would be effective the first of the month following the loss of 
eligibility to receive federal benefits because this is in line with 
the statutory requirement that individuals not receive federal benefits 
when they are not lawfully present in the United States. Operationally, 
we did not believe it was feasible to maintain enrollment in a Part C, 
Part D or cost plan for a period for which we would be required to 
recoup capitations retroactively. Therefore, we proposed a procedural 
mechanism to default enrollment for such individuals to Original 
Medicare, where the FFS payment exclusion policy would be applied. Any 
retroactive disenrollments would under our proposed approach result in 
recoupment of payments, as supported by existing regulations in 
Sec. Sec.  417.464(a)(1), 422.308(f)(1), 423.315(f) and 423.343(a), 
which require CMS to retroactively adjust plan payments due to changes 
in enrollment status. At the time we made this proposal, it was 
consistent with the approach adopted under FFS Medicare, which also 
made retroactive recoupments in cases in which someone receiving 
Medicare benefits is determined not to have been eligible for them.
    While we believed that this approach was the best way to implement 
our obligation to comply with PRWORA, in considering comments received 
on the proposal, we are reconsidering the issue of retroactive 
disenrollment. First, while our proposal was consistent at the time it 
was made with FFS policy on retroactive recoupments, we have revised 
that policy, based on section 1870 of the Act, and are now denying 
payments only prospectively. We are also aware of due process arguments 
that may apply to retroactive recoupment. Because, under our systems, 
retroactive disenrollment would automatically result in retroactive 
recoupment, and we are reconsidering the issue of whether such 
retroactive recoupment in the case of Part C, Part D and cost plans is 
appropriate, we are not finalizing the retroactive aspect of our 
proposal on disenrollment, and at this time are finalizing only the 
prospective period of disenrollment provided for in the proposed rule. 
We are moving forward with finalizing prospective disenrollment while 
reconsidering the issue of retroactive enrollment because we believe 
that prospective disenrollment should be put in place as soon as 
possible, both to implement the prohibition on benefit payments to 
individuals who are unlawfully present in the United States, and 
minimize the period of any potential retroactive recoupment in the 
event we decide at a future point to proceed with our original proposal 
to disenroll individuals retroactively.
    Therefore, we are finalizing text different from our original 
proposal to make all disenrollments effective the first of the month 
following the loss of eligibility to receive federal benefits (that is, 
retroactively), and instead at this time will revise Sec. Sec.  
417.460(j), 422.74(d)(8), and 423.44(d)(8) to provide that 
disenrollments are effective the first of the month following notice by 
CMS that the individual is ineligible. This adjustment will ensure that 
CMS establishes the required mechanisms to permit prospective 
enrollment into MA, Part D and cost plans only for individuals eligible 
to receive Medicare benefits, and prospectively disenroll beneficiaries 
currently enrolled in plans as of this provision's applicability date.
    As discussed in the proposed rule, the OIG noted in a January 2013 
report that CMS needed to increase efforts to detect and prevent 
improper payments for Medicare services rendered to unlawfully present 
beneficiaries. In a subsequent report published in October 2013 \6\, 
the OIG specifically recommended that CMS develop and implement 
controls to ensure that Medicare does not pay for prescription drugs 
for unlawfully present beneficiaries and that CMS do so by

[[Page 7922]]

preventing enrollment of unlawfully present beneficiaries, disenrolling 
any currently enrolled unlawfully present beneficiaries, and 
automatically rejecting PDE records submitted by sponsors for 
prescription drugs provided to this population. We believe that 
prospective disenrollments address these recommendations, and serve as 
an initial step in ensuring that payment is made for only individuals 
eligible to receive services. As we move forward with implementation, 
we will carefully consider enrollment retroactivity and resulting 
recoupments, and if determined appropriate, propose changes or 
additional regulations through future rulemaking.
---------------------------------------------------------------------------

    \6\ Medicare Improperly Paid Providers Millions of Dollars for 
Prescription Drugs Provided to Unlawfully Present Beneficiaries 
During 2009 Through 2011 (A-07-12-006038) (http://oig.hhs.gov/oas/reports/region7/71206038.pdf).
---------------------------------------------------------------------------

    Lastly, we believe it is important to note while CMS is dependent 
upon the data received by the DHS through SSA, we ensure that the data 
are passed to the plans within 24 hours of receipt via the Daily 
Transaction Reply Report. In addition, we will work with these agencies 
to explore options for receiving these data in the most efficient and 
timely means possible.
    Comment: A few commenters suggested that beneficiaries who are 
involuntarily disenrolled due to unlawful presence should be entitled 
to appeal their disenrollment.
    Response: We thank these commenters for their suggestion to ensure 
that affected individuals have the opportunity to appeal the reason for 
their disenrollment from their plan. Currently, there is no right of 
appeal associated with MA, Part D or cost plans eligibility or 
enrollment, because enrollment in such plans is voluntary and 
involuntary disenrollments are not considered initial determinations as 
outlined in Sec.  405.924(a). We reiterate that individuals disenrolled 
from MA, cost or Part D plans are defaulted to coverage under FFS 
Medicare unless Parts A and B entitlement and enrollment ends under 42 
CFR part 406, subpart B and Sec. Sec.  406.28 and 407.27. However, 
individuals who are subject to involuntary disenrollment from these 
plans due to lawful presence status are provided with due process prior 
to any change in their status by SSA and exchange of any data to CMS 
and loss of MA, Part D, or cost coverage (or denial of claims for an 
individual enrolled in the FFS program).
    These individuals are provided with advance notification in writing 
of the possible status change and an opportunity to respond or submit 
the necessary documentation to maintain a lawful presence status under 
existing SSA processes.\7\ Following a status change to lawful presence 
status by SSA, individuals are also provided an opportunity to appeal 
the determination as outlined in 20 CFR 404.902. SSA has existing 
processes to accept and review evidence from individuals who believe 
that they are lawfully present and to update SSA's records. These 
individuals, based on the date of regaining lawful presence status, 
would then have the opportunity to re-enroll and, in certain cases of 
government error, be reinstated into their former plans. As we prepare 
for implementation of this rule, we intend to consider these issues 
carefully to ensure beneficiaries are notified of the consequences to 
Medicare coverage that flow from changes in lawful presence status.
---------------------------------------------------------------------------

    \7\ Social Security Administration, Policy and Operations Manual 
System (POMS): RS 00204.010. Lawful Presence Payment Provisions, GN 
03001.005 Notice Requirements for Title II Due Process Actions, and 
GN 03001.015 Notices Required Before And After Taking a Title II 
Adverse Action.
---------------------------------------------------------------------------

    Comment: A few commenters requested that CMS put in place a special 
enrollment period (SEP) for individuals who are disenrolled from their 
MA or Part D plan based on unlawful presence and then later regain 
lawful presence status and wish to re-enroll in a Part D or MA plan. In 
addition, commenters requested that if an individual is involuntarily 
disenrolled from a Part D plan due to unlawful presence, and that 
individual later regains lawful presence status, the individual should 
not be subject to a late enrollment penalty (LEP) for the period of 
time they did not have Part D (or other creditable) coverage.
    Response: We appreciate the concern expressed by the commenters 
about ensuring access to Medicare coverage and limiting financial 
consequences after a beneficiary gains, or regains, lawful presence 
status. Medicare beneficiaries may incur an LEP for Part D if there is 
a continuous period of 63 days or more at any time after the end of the 
individual's Part D initial enrollment period (IEP) during which they 
were eligible for, but did not enroll in, a Medicare Part D plan and 
were not covered under any creditable prescription drug coverage. If an 
individual is disenrolled from a Part D plan because of loss of lawful 
presence status, this is not considered a break in creditable 
prescription drug coverage because the individual is not eligible for 
Part D benefits during this time. Therefore, an LEP would not apply for 
that period of time. If an individual regains lawful presence status 
and, as a result, also regains Part C and/or Part D eligibility, the 
individual does not get a new IEP, but we acknowledge that an SEP is 
warranted to allow these individuals to enroll in an MA or Part D plan, 
including a cost plan's optional supplemental Part D benefit, under 
Sec. Sec.  422.62(b)(4) and 423.36(c)(8)(ii) if the individual is not 
otherwise eligible for an SEP. The change in lawful presence status of 
an individual necessary to trigger a change in eligibility under these 
rules is extraordinary enough to justify the provision of a SEP under 
the existing authority of Sec. Sec.  422.62(b)(4) and 423.36(c)(8)(ii), 
even without the additional concern that late enrollment penalties 
could be incurred by beneficiaries who are not able to enroll following 
their regained eligibility for Part D coverage. The parameters of this 
SEP will be outlined in subregulatory guidance. However, we note that 
in this scenario if the newly eligible individual does not take 
advantage of the SEP to enroll in a plan providing Part D coverage and 
has no other creditable prescription drug coverage, the individual may 
be subject to an LEP for any future Part D enrollment.
    Comment: A few commenters provided feedback regarding the proposed 
use of the term ``qualified alien'' in the proposed text at Sec. Sec.  
417.422, 417.460, 422.50, 423.1, 423.3, and 423.44. Commenters 
suggested changing it to more accurately reflect the lawful presence 
eligibility requirements for Medicare benefits outlined in 8 CFR 1.3 so 
that we are not restricting eligibility to only qualified noncitizens 
to enroll in or maintain their benefits. The broader term ``lawfully 
present'' for this purpose includes ``qualified aliens'' as well as 
several other categories of non-citizens, whereas the proposed 
terminology only included ``qualified aliens'' which is one of the 
subcategories included in those lawfully present.
    Response: We agree with the concern raised by commenters and are 
finalizing the regulatory language at Sec. Sec.  417.422(h), 
417.460(b)(2)(iv), 417.460(j), 422.50(a)(7), 422.74(b)(2)(v), 
422.74(d)(8), 423.1(a)(3), 423.30(a)(1)(iii), 423.44(b)(2)(iv), and 
423.44(d)(8) without references to qualified aliens; the final 
regulatory language encompasses all individuals who are lawfully 
present consistent with 8 CFR 1.3.
    After consideration of the public comments received, we are 
finalizing the policies and regulations text as proposed, with the 
following exceptions:
     At Sec. Sec.  417.422, 417.460, 422.50, 423.1, 423.3 and 
423.44, we are deleting the term ``qualified alien.''

[[Page 7923]]

     At Sec. Sec.  417.460(j), 422.74(d)(8), and 423.44(d)(8), 
we are modifying the effective date of the involuntary disenrollment to 
be the first of the month following notification by CMS.
     At Sec.  417.460, we are redesignating paragraph 
(b)(2)(iv) as paragraph (b)(2)(v) and finalizing the provision 
establishing a lack of lawful presence as a basis for disenrollment 
from a cost plan at paragraph (b)(2)(iv).
3. Part D Notice of Changes (Sec.  423.128(g))
    Section 1860D-4(a) of the Act requires Part D sponsors to disclose 
to beneficiaries information about their Part D drug plans in 
standardized form. The Act further directs Part D sponsors to include, 
as appropriate, information that MA organizations must disclose under 
section 1852(c)(1) of the Act, which includes a detailed description of 
benefits. (In guidance, we refer to the document containing this 
information and delivered to beneficiaries as the Evidence of Coverage 
(EOC).) To make informed decisions, enrollees need to understand how 
their benefits, including premiums and cost sharing, would change from 
one year to the next, should they reenroll in the same plan. (In 
guidance, we refer to the documents containing this information and 
delivered to beneficiaries as the Annual Notice of Change (ANOC).) 
Enrollees also need to be aware of changes that may take place during 
the course of the year as well. Part D regulations currently do not 
include language found in the Part C regulations at Sec.  422.111(d) 
requiring notice of changes to the plan to be provided to CMS for 
review pursuant to procedures for marketing material review and to all 
enrollees at least 15 days prior to the annual coordinated election 
period. Given that guidance applicable to both programs discusses 
notice of changes, we proposed to require, for Part D, delivery of an 
ANOC.
    Specifically, we proposed to adopt in Part D, with modifications, 
the language contained in Sec.  422.111(d). As is the case with the MA 
regulation, proposed Sec.  423.128(g) would require that Part D 
sponsors submit their changes to us under the procedures contained in 
subpart V of part 423, and, for those changes taking effect on January 
1, provide a notice of changes to all enrollees 15 days before the 
beginning of the annual election period. While part 422 requires a 
minimum of 30 days notice before the effective date for all other 
changes, we proposed at Sec.  423.128(g)(3) that Part D sponsors remain 
subject to all other notice requirements specified elsewhere in the 
Part D regulations. Our proposal reflected a programmatic difference 
between Parts C and D: Under Part D it is not unusual for access to 
drugs listed on a plan's formulary to change during the course of a 
year. Changes can include changes to formulary status, tier placement, 
and utilization management or other restrictions. It is vital that 
beneficiaries currently taking a drug receive timely notice before such 
changes take place in order that they can decide whether to, for 
instance, change drugs or request an exception to cover the drug. 
Accordingly, our regulations currently specify when sponsors must 
provide notice of these kinds of changes. Our proposal to require the 
delivery of an ANOC was not intended to disrupt or change those 
existing notice requirements.
    In the proposed rule, we also took the opportunity to comment on 
the particular importance for Part D sponsors to provide notice in the 
ANOC of any changes they are making that will affect the amount of cost 
sharing that enrollees must pay for each drug belonging to a specific 
tier. As has been articulated in guidance for several years, we expect 
that sponsors will provide notice of such changes to all enrollees, 
including enrollees moved to a consolidated plan. Generally, sponsors 
compare information such as cost sharing for the same plan from one 
year to the next in the ANOC. However, comparing information for the 
same plan would not benefit individuals moved from one plan to another. 
For instance, when a sponsor crosswalks members from a non-renewing 
plan to a consolidated renewal plan from one year to the next, cost 
sharing may change at the drug-tier level. An enrollee who previously 
had zero cost sharing for all covered Part D drugs within the preferred 
generic tier may find that the consolidated plan now requires copays 
for drugs in that tier depending on how many months' supplies he or she 
orders, and whether he or she obtains those drugs at a retail level 
pharmacy or through mail order. We expect that enrollees will receive 
ANOCs that clearly compare the non-renewed and consolidated plans' 
copayments or coinsurance for all drugs within each tier.
    We received the following comments on this proposal and our 
response follows:
    Comment: Commenters supported this proposal for informing 
beneficiaries about their coverage options. Several pointed out that it 
was important and appropriate for CMS to communicate cost-sharing 
changes through the Part D ANOC in addition to formulary information. 
One commenter urged us to perform ongoing monitoring of formulary 
changes including cost sharing to ensure they are justified and 
appropriately communicated to beneficiaries.
    Response: We thank the commenters for the support. While we 
appreciate the concerns about monitoring, we did not propose any 
changes with respect to monitoring of formulary changes, and we decline 
to address that issue in this final rule.
    Comment: Several commenters observed that, while many Part D 
sponsors already provide this annual notice under CMS guidance, they 
thought it important that this requirement be made explicit through 
rulemaking. In contrast, a commenter noted that developing a Part D 
ANOC was not necessary because of information provided through other 
material. Another commenter suggested that, if possible, Part D 
information should be incorporated into the Part C ANOC to avoid the 
potential for confusion, missing information, and duplicate costs.
    Response: We thank the commenters for the support and can confirm 
that our goal in revising Sec.  423.128(g) is to codify existing 
guidance. Our existing model ANOC includes sections on both Parts C and 
D, and CMS produces nine standardized model ANOCs and EOCs for all plan 
types.
    Comment: A commenter requested that CMS confirm that this provision 
would merely codify existing guidance and would not necessitate any 
changes in practice for Part D sponsors that already deliver ANOCs that 
address plan changes consistent with existing CMS guidance.
    Response: Section 423.128(g) will not affect current practice for 
Part D sponsors that that already deliver ANOCs consistent with our 
model notices.
    Comment: A few commenters pointed out that finalizing this revision 
would add costs due to increased printing and administration 
requirements, with one commenter noting premiums could possibly 
increase.
    Response: We disagree. Because we did not propose here to change 
existing practices, but rather only to codify existing guidance, we do 
not believe the revision to Sec.  423.128(g) will increase costs.
    Comment: A commenter suggested that MA organizations and Part D 
sponsors be required to share ANOCs with LTC providers in plan networks 
to enable them to better coordinate and support the beneficiaries in 
making informed decisions when their health

[[Page 7924]]

conditions limit their ability to effectively communicate about their 
coverage. Another commenter suggested that we add language to the Part 
D ANOC advising beneficiaries for the future that it was important to 
review the new contract year formulary.
    Response: We appreciate these suggestions and will take them into 
consideration for the future for our guidance on the model notices. 
However we decline to accept the commenter's suggestion to add this to 
the regulation text because, as previously noted, our proposal was 
intended to codify existing guidance.
    After review of the public comments received, we are finalizing 
this provision as proposed without modification.
4. Business Continuity for MA Organizations and Part D Sponsors (Sec.  
422.504(o) and Sec.  423.505(p))
    A variety of events ranging from power outages to disasters and 
warnings of disasters can disrupt normal business operations, and when 
these events occur it is important that MA organizations and Part D 
sponsors have a plan to ensure beneficiary access to health care 
services and drugs. Sections 1852(d) and 1860D-4(b) of the Act, 
respectively applicable to Parts C and D, establish access to services 
and covered Part D drugs as a core beneficiary protection. After 
Hurricane Sandy it became apparent that a few entities, particularly 
those with operational centers and/or information technology (IT) 
resources physically located in the affected areas, did not have 
consistent continuity plans or back-up systems and processes to ensure 
ongoing coordinated deployment of critical staff to alternate 
locations.
    Sections 1857(e)(1) and 1860D-12(b)(3)(D) of the Act authorize the 
Secretary to adopt additional contract terms for, respectively, MA 
organizations and Part D sponsors, including section 1876 cost 
contracts and Programs of the All-Inclusive Care for the Elderly (PACE) 
organizations that provide qualified prescription drug coverage, that 
are not inconsistent with Parts C and D, respectively, of Title XVIII 
of the Act, when the Secretary finds it necessary and appropriate. 
While a limited number of beneficiaries were affected by problems on 
the part of a small number of entities as a result of Hurricane Sandy, 
we have a goal of consistent disaster response for plans within the 
scope of our proposal. Therefore, we proposed that all MA organizations 
and Part D sponsors limit the impact on beneficiaries of unavoidable 
disruptions and establish a plan to ensure rapid restoration of 
operations. The scope of our proposal included section 1876 cost 
contract and PACE organizations that provide qualified prescription 
drug coverage under Part D. We also proposed to add contract provisions 
to require that MA organizations and Part D sponsors develop and 
maintain business continuity plans in order to better anticipate the 
types of disruptions that could occur and implement policies and 
procedures to reduce interference with business operations. Our 
proposal was based on a belief that such planning is appropriate and 
necessary to better ensure that Medicare beneficiaries have access to 
the care and coverage contemplated by the statute.
    The proposed provisions, in Sec. Sec.  422.504(o)(1) and 
423.505(p)(1), would require that every MA organization and Part D 
sponsor develop, maintain, and implement a business continuity plan 
that meets certain minimum standards. In Sec. Sec.  422.504(o)(1)(i) 
and 423.505(p)(1)(i), we proposed that the business continuity plan 
assess risks posed to critical business operations by disasters and 
other disruptions to business as usual; in the preamble, we clarified 
that our proposal would apply regardless whether the risks, disasters 
or disruptions be natural, human, or environmental. In paragraph 
(1)(ii) of Sec. Sec.  422.504(o) and 423.505(p), we proposed to require 
MA organizations and Part D sponsors to mitigate those risks through a 
variety of strategies, at a minimum by: (1) Identifying events 
(triggers) that would activate the business continuity plan; (2) 
developing contingency plans to maintain the availability and, as 
applicable, the confidentiality of hard copy and electronic essential 
records, including a disaster recovery plan for IT and beneficiary 
communication systems; (3) establishing a chain of command, which would 
better ensure that employees know the rules of succession; (4) creating 
a communications plan that includes emergency capabilities and means to 
communicate with employees and third parties; (5) establishing 
procedures to address management of space and transfer of employee 
functions; and (6) establishing a restoration plan with procedures to 
transition back to normal operations. Finally, we also proposed, in 
Sec. Sec.  422.504(o)(1)(ii)(G) and 423.505(p)(1)(ii)(G), that the 
business continuity plan comply with all applicable federal, state, and 
local laws. In light of the nature of the records an MA organization or 
Part D sponsor would have in its possession, we proposed to emphasize 
continuing compliance with the contingency plan requirements of the 
Health Insurance Portability and Accountability Act of 1996 (HIPAA) 
Security Rule (45 CFR parts 160 and 164, subparts A and C) by including 
a cross-reference to those requirements in paragraph (1)(ii)(B)(2) of 
each proposed regulation. These areas of responsibility are essential 
to continuing the business operations that allow beneficiaries to 
access health care services and covered Part D drugs.
    To better ensure that a business continuity plan works as a 
practical matter, we next proposed in Sec. Sec.  422.504(o)(1)(iii) and 
(iv) and 423.505(p)(1)(iii) and (iv) to require that on an annual 
basis, each MA organization and Part D sponsor test and revise the plan 
as necessary, and train employees on their responsibilities under the 
plan. Proposed Sec. Sec.  422.504(o)(1)(v) and 423.505(p)(1)(v) would 
require that MA organizations and Part D sponsors keep records of their 
business continuity plans that would be available to CMS upon request.
    We stated our belief that the broad list of areas that we proposed 
to cover as part of business continuity plans were not new to MA 
organizations and Part D sponsors. We stated these topics typically 
appear in standard business continuity plans and that we also were 
building on some requirements that already existed under federal and 
state laws. For instance, with respect to electronic protected health 
information, health plans have long had to comply with the contingency 
plan requirements found in the HIPAA Security Rule. We indicated our 
goal was to provide a list broad enough to align with the business 
contingency plans that we believed most, if not the vast majority, of 
MA organizations and Part D sponsors already had in place.
    In contrast to the aforementioned list of broad content 
requirements, we stated that the need to protect beneficiary access 
required a prescriptive approach for some functions. In proposed 
Sec. Sec.  422.504(o)(2) and 423.505(p)(2), as part of the proposal 
that essential functions must be restored within 24 hours of failure 
(whether due to disaster, emergency, or other disruption), we 
identified what we believed to be the minimum essential functions for 
both MA and Part D plans: Benefit authorization, if authorization 
requirements have not been waived, and claims adjudication and 
processing; an exceptions and appeals process; and call center 
operations. We stated that given the mandate of the Act to ensure 
beneficiary access to health care and

[[Page 7925]]

covered Part D drugs and the inability of many beneficiaries to pay for 
services or drugs without the Medicare benefit, we believed that the 
operations listed in the proposed regulations were the most essential 
operations because they directly supported the provision of Part C and 
D benefits. We stated that they ensured immediate electronic 
communication on the availability and extent of Part C and D benefits 
and also provided support that makes it more likely that Medicare 
benefits will be appropriately and timely provided (for example, by 
providing telephone assistance to beneficiaries with questions on how 
to obtain benefits and maintaining a forum in which beneficiaries can 
challenge benefit denials). We observed that without real time 
provision of Medicare benefits, beneficiaries might not pay for the 
entire cost of the services or drugs and therefore go without necessary 
treatment.
    We also proposed a list of the operations that we believed were 
essential operations that had to be restored in a rapid time frame. We 
intended our proposed deadline of the proposed 24 hours to be the 
outside limit and at that time articulated an expectation that MA 
organizations and Part D sponsors restore operation of essential 
functions as soon as possible but not later than 24 hours after they 
fail or otherwise stop functioning as usual. We stated the clock would 
begin running in cases of total failure (for example, a computer or 
telecommunications system crashes or stops working after disruption of 
the power supply) and also when significant problems occur (for 
example, a central database is corrupted).
    We stated that the need to ensure correct claims adjudication and 
benefit administration of health care services and drugs is no less 
acute during disasters or other emergencies, and that such disruptions 
in one part of the country might disable MA organization and Part D 
sponsor systems that affect enrollees in other regions. We noted that 
beneficiaries in those unaffected areas who are denied health care or 
drug benefits (that is, access to drugs or reimbursement for claims 
paid out of pocket) before the disruption took place should not be 
denied the right to immediately challenge those denials or to learn 
timely the resolution of earlier challenges. As proposed, Sec. Sec.  
422.504(o)(2)(i) and 423.505(p)(2)(i) identified benefit authorization 
(if not waived) and claim adjudication and processing as essential 
functions which had to be operational within 24 hours. Our proposal 
required restoration of those operations for services rendered at a 
hospital, clinic, provider office, or at the point of sale for Part D 
covered drugs. We also stated in the proposed rule that this function 
was essential for both MA and Part D plans.
    In addition, we proposed standards specific to Part D sponsors in 
Sec.  423.505(p)(2)(ii) and (iii) to ensure that a beneficiary who 
presents at a pharmacy with an appropriate prescription for a covered 
Part D drug during a disruption would be more likely to receive the 
drug at the point of sale. The first three prongs under proposed Sec.  
423.505(p)(2) classified as essential the following functions: (i) 
Authorization, adjudication, and processing of pharmacy claims at the 
point of sale; (ii) administration and tracking of enrollee's drug 
benefits in real time, including automated coordination of benefits 
with other payers; and (iii) provision of pharmacy technical 
assistance. We noted these essential tasks entail numerous 
subfunctions. For instance, we stated that Part D sponsors would need 
to restore within the 24 hour return to operations (RTO) all computer 
and other systems that meet all privacy and security requirements in 
order to communicate to pharmacies information about topics including: 
coverage under Part D and the specific plan; cost-sharing and 
deductibles; any restrictions such as prior authorization, step 
therapy, or quantity limit edits; and coordination of benefits from 
other insurers and any low income subsidies. Additionally, we noted 
that the sponsor would need to undertake a concurrent drug utilization 
review (DUR) to address, for instance, safety issues, as well as 
restore its pharmacy help desk to provide prompt answers to any 
questions pharmacies might have. (For more detail on some of these 
functions and sub-functions, as related to Part D, please see section 
III. A.10, ``Requirement for Applicants or their Contracted First Tier, 
Downstream, or Related Entities to Have Experience in the Part D 
Program Providing Key Part D Functions'' of the May 23, 2014 final rule 
(79 FR 29867)).
    Proposed Sec. Sec.  422.504(o)(2)(ii) and 423.505(p)(2)(iv) each 
classified as an essential operation an enrollee exceptions and appeals 
process including coverage determinations. Under these proposed rules 
we specified that, within 24 hours of failure, MA organizations and 
Part D sponsors would need to restore all IT and workforce support 
necessary to maintain the ``safety net'' that ensures beneficiaries the 
rights to appeal or to seek a formulary exception.
    Finally, for both MA organizations and Part D sponsors, we proposed 
that the operation of the call center be an essential function which 
must be restored within 24 hours. We stated that by classifying 
operation of the call center as essential, proposed Sec. Sec.  
422.504(o)(2)(iii) and 423.505(p)(2)(v) would ensure that beneficiaries 
could receive the information necessary to find out where they need to 
go to access benefits and learn about any special rules that might 
apply (for example, whether pre-authorization requirements are waived 
or beneficiaries can obtain benefits at out-of-network providers or 
pharmacies). We stated that enabling a beneficiary who has just been 
denied Part D coverage at his or her usual pharmacy to call immediately 
and speak to a customer service representative while still standing in 
that pharmacy could ensure that he or she obtained drugs appropriately 
covered by his or her Part D plan before returning home or moving to a 
safer area.
    Furthermore, in the proposed rule we stated that because it might 
be difficult during a disaster to get to a provider's office or a 
pharmacy, we believed it was important that benefit authorization, 
claims adjudication, and call center operations be restored within 24 
hours after failure. While our proposed provisions required both MA 
organizations and Part D sponsors to coordinate their workforce, 
facilities, and IT and other systems support to meet a 24 hour RTO, in 
the preamble to the proposed rule we noted our belief that the vast 
majority of MA organizations and Part D sponsors already met, or would 
be able to meet, this requirement with their current resources, based 
on our knowledge of the industry and as evidenced by the lack of 
widespread problems with MA organization and Part D operations after 
recent natural disasters in different parts of the country. We observed 
that MA organizations and Part D sponsors would not be required to take 
any prescribed specific actions (for example, there was no requirement 
for redundant systems located at certain distances apart) to meet these 
standards. Rather, we stated that the proposed 24-hour RTO would allow 
MA organizations and Part D sponsors the flexibility to continue to 
seek their own disaster preparedness solutions (for instance, vendor 
sites or functions spread across facilities).
    We stated that our goal in proposing a contractual requirement for 
business continuity plans was to better ensure beneficiary access to 
health care services and Part D drugs during disasters and other 
interruptions to

[[Page 7926]]

regular business operations, and we viewed prior planning as essential 
to achieving this goal. We specifically solicited comments regarding 
which functions should be identified as essential operations and the 
24-hour timeframe for RTO and stated that we would appreciate any 
information unique to the role of MA organizations and Part D sponsors.
    We received the following comments on these proposals and our 
response follows:
    Comment: Some commenters strongly supported the proposed provision 
and noted that it was absolutely critical that MA organizations develop 
and test business continuity plans to ensure that beneficiary needs are 
met and commended CMS for its commitment to ensure beneficiary access 
to Medicare benefits. A number of commenters specifically approved that 
part of the proposed regulation that set forth minimum standards. 
Additionally, several commenters, including some who did not support 
the specific requirements of the proposed provision, agreed that there 
was a need for ``robust'' business continuity plans.
    Response: We thank those commenters who support the proposal in its 
entirety or approved the general outline of minimum requirements, as 
well as those who recognized there is a need for MA organizations and 
Part D sponsors to have business continuity plans.
    Comment: Noting that CMS acknowledged in the preamble there were 
relatively few problems in the past, some commenters stated that 
industry practices were adequate and questioned the need for detailed 
provisions that classified certain functions as essential which had to 
be restored within a 24-hour RTO deadline. A few commenters pointed to 
the fact, also acknowledged by CMS in the preamble, that the 
requirements overlapped with other existing federal, state, and local 
requirements such as the HIPAA Security Rule and stated that they saw 
no need for an additional layer of regulation. In contrast, another 
commenter stated that developing a business continuity plan should not 
be overly burdensome because the HIPAA Security Rule already requires 
development of such a plan.
    Response: We appreciate the fact that, as far as we are aware, only 
a limited number of beneficiaries experienced problems as the result of 
inadequate continuity planning in the wake of Hurricane Sandy. However, 
there were some beneficiaries who were unable to access benefits, and 
contingency planning might have prevented some of those problems. 
Having a business continuity plan to prepare for business disruptions 
is an established business practice; the fact that most MA 
organizations and Part D sponsors successfully handled the disaster 
does not excuse those entities that did not.
    We do not believe that requiring a business continuity plan is 
imposing an unnecessary level of regulation. However, we would like to 
clarify that HIPAA requirements are distinct from our business 
continuity provision. As we noted previously, with respect to 
electronic protected health information, health plans have long had to 
comply with the contingency plan requirements found in the HIPAA 
Security Rule. Referencing this rule created no additional burden.
    Comment: Commenters stated that the regulation was significantly 
more detailed than necessary. While some commenters pointed to concerns 
regarding paragraph (1) of Sec. Sec.  422.504(o) and 423.505(p) which 
lists basic minimum requirements (addressed later in this section), 
most commenters noted concern with paragraph (2) of Sec. Sec.  
422.504(o) and 423.505(p) which identified as essential specific 
functions and required that MA organizations and Part D sponsors 
restore them within 24 hours of failure or loss of function.
     The majority of commenters opposed the requirement that MA 
organizations and Part D sponsors restore essential functions within 24 
hours, with several stating this was not feasible. Many commenters 
noted that because catastrophes are by their nature hard to predict, 
out of the control of MA organizations and Part D sponsors, and result 
in major disruptions that have the potential to last for weeks (for 
instance, power outages), a 24-hour RTO deadline would hamper the 
flexibility of MA organizations and Part D sponsors to prioritize. A 
commenter suggested that we institute a ``force majeure'' clause to 
provide relief for causes beyond the control of MA organizations and 
Part D.
     Commenters indicated that they generally agreed with CMS 
that the emphasis should be on quickly getting care to those 
beneficiaries who need it, and there was some consensus that providing 
drugs and services at point-of-sale (POS) should remain an essential 
function. Several commenters observed that, consistent with industry 
standards, Part D sponsors were generally able to restore the systems 
necessary to allow beneficiaries to obtain drugs within approximately 
24 hours. For instance, a commenter identified benefit authorization, 
claims adjudication, and pharmacy services as higher priorities. Some 
commenters specifically identified call center services as time-
sensitive functions requiring a 24-hour recovery.
     However, there was no clear consensus on the specific 
functions that should be considered essential or even how to prioritize 
among all of them. For instance, a commenter noted normal appeals would 
fall into a longer category than 24 hours recovery, but that expedited 
appeals might possibly fall within the 24 hour time line. Several 
commenters suggested that different functions would require different 
RTO time frames. Several commenters mentioned a 72-hour timeframe, with 
one noting it restored functions less critical for health and safety 
within 72, rather than 24, hours.
     In evaluating essential functions, a number of commenters 
distinguished between the Part C and D programs. Commenters observed, 
for instance, that provider payments are not a 24-hour critical 
function for MA plans since payment is allowed to be made within 30 
days and that in a disaster or emergency MA organizations should not be 
required to prioritize claims processing for services already rendered. 
In contrast, a few commenters agreed that the 24-hour restoration 
requirement could be applied to Part D point-of-sale claims that 
require immediate adjudication.
    Response: These commenters persuaded us that we need to build more 
flexibility into our business continuity plan requirements for RTO for 
essential functions and we are accordingly finalizing the regulation 
with changes from our proposal. In paragraph (2) of Sec. Sec.  
422.504(o) and 423.505(p), we are providing that MA organizations and 
Part D sponsors must plan to restore essential functions within 72, 
rather than 24, hours after any one of the essential functions fail or 
otherwise stop functioning as usual. As discussed in more detail later 
in this section, we also finalize regulation text to clarify that we 
require MA organizations and sponsors to ``plan to'' restore essential 
functions within the 72-hour time period, rather than guarantee 
complete restoration within the time frame. Given the lack of a clear 
consensus on how to prioritize all essential functions, we believe that 
this will provide MA organizations and Part D sponsors with the 
flexibility the commenters advocated, and still address our concerns 
about planning to better ensure beneficiary access to the Medicare 
benefit.
    However, we underscore that although we are finalizing a more 
flexible regulatory mandate, we expect that Part D sponsors will plan 
for a 24-

[[Page 7927]]

hour RTO deadline for POS transactions. We are concerned that 
beneficiaries who are not able to access their Part D drug coverage may 
in fact suffer adverse health effects. Our decision not to explicitly 
require a plan for a 24-hour restoration for POS drug transactions is 
informed by the fact that commenters suggested that a 24-hour RTO for 
POS transactions is an industry standard already generally met, and 
that relatively few problems were reported in the aftermath of recent 
disasters. We want to ensure that that track record not only continues 
but improves. We will continue to closely monitor the timing of POS 
transaction in the aftermath of disasters, emergencies, and other 
disruptions and take any necessary actions. We also will revisit the 
regulation if necessary.
    We also agreed with commenters that there are distinctions between 
the Part C and D programs relative to identifying what services are of 
the highest priority for speedy restoration. For instance, 
beneficiaries need to know whether they have Part D Medicare coverage 
at the POS because usually they rely on the benefit to obtain 
prescription drugs. For most beneficiaries, such claim denials may mean 
they leave pharmacies without medications or pay out-of-pocket for 
costs that are their plans' responsibility. In contrast, this is often 
not the case for Part C health care services. Provision of Part C 
services is not so closely tied to plan authorizations and a provider 
may not bill the MA organization for services until days or weeks after 
the service is furnished. Thus, because beneficiary health and safety 
would not be put at risk by failure of Part C claims processing and 
appeals processes, we agree with the commenters that those systems are 
not essential functions to which the 72-hour timeframe would apply. 
Furthermore, as finalized in section II.E.9. of this final rule (MA 
Organization Responsibilities in Disasters and Emergencies (Sec.  
422.100)), beneficiary access to health care services is protected in 
the more limited circumstances of disasters and public health 
emergencies and we believe that provision, in conjunction with Sec.  
422.504(o)(2), ensures, to the extent possible, that beneficiaries 
enrolled in MA organizations will have continued access to needed 
health care services when there are disruptions to normal business 
operations.
    Accordingly we are finalizing Sec.  422.504(o)(2) to define as 
essential services, for Part C purposes, benefit authorization (if not 
waived) for services to be immediately furnished at a hospital, clinic, 
provider office, or other place of service instead of the broader 
requirement that was proposed. This final rule text would include 
benefit authorization to the extent that members and providers contact 
the MA organization to request such authorizations even when the MA 
organization has waived that requirement.
    Similarly, we agree that restoration of Part C claims processing 
and appeals processes are not essential functions in that beneficiary 
health and safety is not put at risk by a failure of those systems that 
lasts for longer than 72 hours. We agree with the commenters that in a 
disaster or emergency, MA organizations should not be required to 
prioritize claims for services already rendered, but we do not want 
beneficiaries to lose access to necessary treatment at provider 
offices. Accordingly, for Part C, we are no longer characterizing 
``Operation of an enrollee exceptions and appeals process including 
coverage determinations'' as an essential function and are not 
finalizing that part of our proposal for Sec.  422.504(o)(2).
    Lastly, we agree with the commenters that characterized call center 
services as high priorities for both Part C and Part D plans. In a 
disaster or other emergency, normal procedures may be disrupted and 
beneficiaries need to be able to find out how and where they can obtain 
health care services and drugs by having contact with the plan.
    In contrast, for Part D we plan to finalize Sec.  423.505(p)(2) as 
proposed. We discussed the importance of the elements in more detail in 
the preamble to the proposed rule, but would like to note here that a 
beneficiary cannot obtain Part D coverage without benefits 
authorization, adjudication, and processing of drug claims at the point 
of sale. A pharmacy's inability to obtain, for instance, coordination 
of benefits information may affect the beneficiary's ability to obtain 
the drug as well; and pharmacy technical assistance is critical in case 
the dispensing pharmacy has questions. We also believe the operation of 
the enrollee exceptions and appeals process is essential--a beneficiary 
who has been denied Part D coverage will want to resolve quickly any 
issues so he or she can obtain the drug timely. Lastly, as previously 
noted, we believe call center operations are essential.
    Comment: A commenter suggested there was a need for more detail in 
addition to that provided in the regulation as to exactly when the 24-
hour clock would start and that CMS would, for instance, need to 
clarify if the clock would begin running when the disaster was declared 
or when it occurred. Another commenter suggested the proposed 24-hour 
RTO should begin running when the incident management team made the 
determination of action or after a specified amount of time after the 
disruption was reported.
    Response: We believe that the language we proposed, namely that the 
clock will start running ``after any of the essential functions fail or 
otherwise stop functioning as usual,'' provides adequate direction to 
MA organizations and Part D sponsors. We are finalizing a clearly 
defined time period--72 hours (rather than the 24-hour time period 
proposed)--in which MA organizations and Part D sponsors must plan to 
restore essential operations. In contrast, we deliberately chose to 
provide more flexibility to MA organizations and Part D sponsors to 
determine the precise point at which the 72-hour clock starts running. 
Essential functions could fail in an infinite variety of ways depending 
on the circumstances and the systems and supports in place (for 
instance, claims processing systems might fail in different ways than 
operation of the exceptions and appeals process). We believe that MA 
organizations and Part D sponsors are in the best position to both 
learn about failures or disruptions in usual functions or the facts 
that might potentially cause them and, in the aftermath of such 
occurrences, gather as much information as possible internally and from 
outside sources (such as first-tier, downstream and related entities 
(FDRs) and local authorities and utilities). We will revisit this 
regulation if problems arise in the future.
    Comment: A couple of commenters expressed concern that the 
requirement that MA organizations and Part D sponsors return functions 
to ``normal'' operations would not permit them to utilize temporary 
alternative workflows that could be more effective than normal business 
operations in preserving member access to care.
    Response: We disagree with this conclusion. Our proposal does not 
require MA organizations and Part D sponsors to return immediately to 
normal operations but rather, views that as an ultimate goal in an 
ongoing transition process. Paragraph (1)(ii) of Sec. Sec.  422.504(o) 
and 423.505(p) requires MA organizations and Part D sponsors to create 
a mitigation strategy to ``prioritize the order in which to restore 
[essential and] other functions to normal operations'', while paragraph 
(1)(ii)(F) of Sec. Sec.  422.504(o) and 423.505(p) requires MA 
organizations and Part D sponsors to ``[e]stablish a restoration plan 
including procedures to transition to normal operations.'' 
Additionally, we do not define ``normal operations.'' In

[[Page 7928]]

fact, depending on the severity of a disaster or emergency, ``normal 
operations'' certainly might not be operations performed exactly the 
same as they were before the event. We do not prescribe when or how 
normal functions are performed; an MA organization or Part D sponsor 
may achieve a comparable level of performance (for example, in terms of 
appeals being heard on a timely basis at the same rate as before the 
disaster) and consider normal operations achieved even if different 
personnel or offices now perform those functions. We view ``normal 
operations'' as an operational level at which MA organizations and Part 
D sponsors are able to administer the benefit correctly and fulfill 
contract requirements.
    Comment: A commenter stated that the proposed provisions were 
inconsistent with Executive Order 13563 which requires that proposed 
rules specify performance objectives rather than the behavior or manner 
of compliance that regulated entities must adopt.
    Response: We disagree with this commenter. The first part of our 
proposed provisions simply lists basic areas that business continuity 
plans must cover. We also view as performance objectives the list of 
essential functions for which we require MA organizations and Part D 
sponsors to plan a 72-hour RTO. As revised, the regulation requires 
that each entity plan to restore those functions that directly support 
the timely provision of Part C and D Medicare benefits to 
beneficiaries. We leave it to the MA organizations and Part D sponsors 
to determine the manner by which they plan to meet these requirements 
timely after a failure occurs.
    Comment: Commenters took issue with the costs associated with the 
proposal. A number of commenters expressed concerns that we were 
requiring continuous service which would give rise to enormous costs to 
create systems redundancy, while several commenters were concerned 
about the cost of testing IT systems on an annual basis.
    Response: Although we believe the proposed regulation was clear in 
paragraphs (1)(ii)(B)(1) of Sec. Sec.  422.504(o) and 423.505(p) that 
we do not expect plans to be able to maintain continuous service under 
all circumstances, we are revising both of these regulation paragraphs 
in this final rule to clarify the language that we believe caused this 
confusion. We are revising the language in the proposed paragraph (1) 
of Sec. Sec.  422.504(o) and 423.505(p) to require MA organizations and 
Part D sponsors to plan to restore business operations following 
disruptions, rather than plan to continue business operations during 
disruptions.
    To clarify, we do not expect MA organizations and Part D sponsors 
to prevent any disruptions on an absolute basis but rather to plan to 
ensure operations are restored as best they can when business 
operations fail. It is understood that disasters, emergencies, and 
other events may cause severe disruptions outside of the control of MA 
organizations and Part D sponsors; the reason we are requiring business 
continuity plans is to ensure that MA organizations and Part D sponsors 
are better equipped to handle those problems when they occur.
    Additionally, proposed Sec. Sec.  422.504(o)(2) and 423.505(p)(2) 
required that MA organizations and Part D sponsors ``restore'' 
essential functions within the specified timeframe, which we believe 
raises the same concerns expressed by the commenter. We want to make it 
clear that the actual restoration of essential functions within 72 
hours is the goal of the business continuity plan, not a requirement 
that is to be met in all circumstances. Accordingly, the regulation is 
being finalized to require that MA organizations and Part D sponsors 
plan to restore essential functions within the 72-hour time period. The 
business continuity plan must be designed with this 72-hour period as a 
deadline.
    As to the commenters' concern about the cost of annual IT training, 
paragraph (1)(iii) of Sec. Sec.  422.504(o) and 423.505(p) requires MA 
organizations and Part D sponsors to test and update the business 
operations continuity plan on at least an annual basis. This broad 
description does not detail specific kinds of testing but relies upon 
MA organizations and Part D sponsor discretion to adequately test and 
update the business continuity plan. This would include determining 
exactly what must be tested and how such testing must occur.
    Comment: A commenter expressed concern that the rule would require 
annual training for ``all'' employees, which might not be necessary 
under all conditions.
    Response: We agree that it is best left to MA organizations and 
Part D sponsors to determine which employees would most appropriately 
require annual training on the business continuity plan. We are 
finalizing the regulations to require annual training of appropriate 
employees rather than all employees, as well as making changes to make 
the language applying to both Parts C and D consistent. Specifically, 
we are removing the phrase ``all employees, including contract staff'' 
from Sec.  422.504(o)(1)(iv) and ``all new and existing employees'' 
from Sec.  423.505(p)(1)(iv), and replacing them both with 
``appropriate employees''.
    Comment: Several commenters suggested that our regulatory impact 
analysis (RIA) significantly underestimated costs. Concerns were raised 
about the high cost of creating systems' redundancy to avoid any 
disruption of processing of claims; one commenter mentioned that the 
requirement would necessitate spending millions of dollars. Another 
commenter mentioned that many business continuity plans currently in 
place for MA organizations and Part D sponsors would not meet 
requirements such as the restoration of essential functions within 24 
hours. A commenter was concerned that the estimate did not take into 
account resources needed to ascertain the extent of damage and evaluate 
options.
    Response: We believe that the modifications, clarifications, and 
comments discussed previously about this final rule address the vast 
majority of concerns raised about the RIA. We are also well aware of 
the major expense of creating redundant computer systems to ensure 
there is no interruption in claims processing--and repeat that we are 
not requiring MA organizations and Part D sponsors to absolutely ensure 
that systems never fail or to build redundant systems to avoid any 
potential failure. We are requiring that MA organizations and Part D 
sponsors plan to avoid such system and other failures and, in the event 
they do occur, to be prepared to recover essential functions within a 
certain timeframe. We appreciate that while contracting organizations 
may plan--even plan well--to avoid such disruptions and to recover from 
them within 72 hours, there may be scenarios in which a return of 
functionality for essential operations within the timeframe of 
paragraph (2) of Sec. Sec.  422.504(o) and 423.505(p) is impossible . 
We also believe that providing the greater flexibility to plan for a 
72-hour, rather than 24-hour, RTO for MA organizations and Part D 
sponsors should further alleviate concerns about high costs.
    In this final rule, we also are revising the regulations to clarify 
that we require annual training of ``appropriate'' rather than ``all'' 
employees. As noted earlier, our requirement for annual testing of the 
business continuity plan does not specify exactly what must be tested 
or how such testing must be conducted. As to the last comment, MA 
organizations and Part D sponsors need to assess damages and evaluate 
alternatives

[[Page 7929]]

regardless of whether they have business continuity plans.
    Additionally, we have revised our cost estimates to account for 
costs of what we believe will be, at most, minimal changes to existing 
business continuity plans. We base this on: (1) The fact that we 
believe most MA organizations and Part D sponsors with existing 
business continuity plans already cover the same broad list of areas we 
require in this rule; and (2) revisions to our rule that provide 
flexibility that enables most MA organizations and Part D sponsors to 
follow the same industry standards commenters suggested they currently 
follow. (See section IV. Regulatory Impact Statement of this final 
rule.)
    Comment: A commenter stated that MA organizations and Part D 
sponsors could incur potentially very large additional costs to come 
into compliance with the new requirements which would amount to 
unexpected expenses that would unfairly count against a plan's 
administrative expenses on its medical loss ratio (MLR) calculation.
    Response: Items that count as MLR are outside of the scope of this 
final rule. However, we note that this final rule will apply to all MA 
organizations and Part D sponsors and that we believe strongly that 
planning for the least disruption to operations and better provision of 
health care and drug benefits during disasters is an important function 
for insurance companies, and that such work will also benefit the MA 
organizations and Part D sponsors themselves.
    Comment: Noting that they are confidential and contain blueprint 
information on processes and supporting resources, a commenter 
requested that rather than make business continuity plans available to 
CMS upon request, that CMS require an in-camera review of certain 
elements. In contrast, another commenter recommended that CMS review 
such plans as part of the Medicare Part D application process as well 
as via regular CMS compliance audits. A third requested whether there 
would be an audit element that focuses on business continuity plans.
    Response: We appreciate the commenter's concerns about 
confidentiality. First, we would like to note that we are not requiring 
MA organizations and Part D sponsors to submit these business 
continuity plans and materials as a matter of course or to make such 
plans publicly available. Furthermore, if we do request these 
documents, we do not intend to voluntarily disclose them to any parties 
outside of the government. Under the Freedom of Information Act (FOIA), 
members of the public may request government records, which may include 
documents submitted to us. MA organizations and Part D sponsors may 
seek to protect their information from disclosure under FOIA by 
claiming FOIA exemption 4 and taking the appropriate steps--including 
labelling the information in question as ``confidential'' or 
``proprietary.'' Furthermore, redaction of especially sensitive 
information is sometimes an option, depending on what information CMS 
needs and the nature of the information the organization seeks to 
redact. We will consider both compliance and confidentiality needs as 
we develop application and audit requirements related to this 
provision.
    Comment: A commenter requested that CMS require PACE and long term 
care services and support providers (such as skilled nursing facilities 
(SNFs) and assisted living residences (ALRs)) to create plans that deal 
with natural and other disasters.
    Response: As discussed in this final rule, the requirements in this 
regulation that are applicable to Part D sponsors also apply to 1876 
cost contracts and PACE organizations that provide qualified 
prescription drug coverage. On December 27, 2013, we proposed 
regulations on emergency preparedness requirements for Medicare and 
Medicaid participating providers and suppliers (78 FR 79082). The 
emergency preparedness requirements of that regulation would apply to 
PACE organizations in their capacity as providers and, as we noted 
earlier, the Part D proposed requirements apply to PACE organizations 
to the extent they function as Part D sponsors.
    Both that proposed rule and this finalized Part C and D rule have 
the same goal of ensuring the least interruption to beneficiary health 
care and drugs as a result of disasters and emergencies by requiring 
entities to assess possible risks and lessen their impact through 
planning. However, this final rule applies to the entities providing 
coverage of the benefits (MA organizations and Part D sponsors), while 
the other rule, ``Medicare and Medicaid Programs; Emergency 
Preparedness Requirements for Medicare and Medicaid Participating 
Providers and Suppliers'' would apply to entities directly providing 
the services. Specifically, this Part C and D rule applies to MA 
organizations and Part D sponsors to better ensure that beneficiaries 
enrolled in their plans have access in a timely manner to the Medicare 
covered items and services, supplemental benefits and prescription 
drugs. In contrast, the emergency preparedness rule would apply to both 
the Medicare and Medicaid programs and would require providers and 
suppliers to be adequately prepared to meet the direct health care 
needs of patients, residents, clients, and participants during 
disasters and emergencies.
    Comment: Commenters expressed concerns that the proposed regulation 
did not take into account disparate circumstances. A commenter noted 
that MA organizations and Part D sponsors typically were located in the 
same area where members experiencing disasters or emergencies were 
living, while other commenters suggested the requirement would 
particularly burden smaller entities or entities with less experience 
that might, for example, need to contract with third parties to meet 
RTO obligations.
    Response: We appreciate that different MA organizations and Part D 
sponsors will face different challenges during disasters and 
emergencies. However, we drafted broad areas of coverage to provide as 
much flexibility as possible to different entities. Given that 
emergencies and disasters are varied and unpredictable, we believe it 
would not be prudent for CMS to try and create different requirements 
based on different circumstances. We also believe that most of these 
concerns about costs and sufficient flexibility have been addressed 
through revisions or clarification of this proposed regulatory change.
    Comment: A commenter stated that it was not aware of any reason 
that there should be different standards for the protection of Medicare 
beneficiaries during disasters than those generally applicable to the 
rest of the population.
    Response: The treatment of individuals who are not Medicare 
beneficiaries is outside the scope of this regulation. However, we note 
that we are the steward of the Federal Trust Fund with direct authority 
over the Medicare program. Disasters, emergencies, and disruptions not 
only can limit beneficiary access to Medicare benefits, but they pose 
direct threats to the health of beneficiaries which in turn could 
create greater needs for health care services and drugs. Our core 
function is to ensure as best we can that beneficiaries are able to 
access their Medicare benefits; we believe the requirement that MA 
organizations and Part D sponsors establish business continuity plans 
that better enable them to deal with disasters is central to achieving 
this goal.

[[Page 7930]]

    After consideration of the public comments received, we are 
finalizing our business continuity proposal with the following 
modifications as discussed and as follows:
     In Sec. Sec.  422.504(o)(1) and 423.505(p)(1) we are 
replacing the phrase ``ensure the continuation of business operations 
during disruptions'' with the phrase ``ensure the restoration of 
business operations following disruptions''.
     In Sec.  422.504(o)(1)(iv) we are replacing the phrase 
``all employees, including contract staff'' with the phrase 
``appropriate employees''.
     In Sec.  423.505(p)(1)(iv), we are replacing the phrase 
``all new and existing employees'' with the phrase ``appropriate 
employees''.
     In Sec. Sec.  422.504(o)(2) andSec.  423.505(p)(2), we are 
inserting the words ``plan to'' before the phrase ``restore essential 
functions'' in order that it reads ``plan to restore essential 
functions.'' We are also replacing the number ``24'' with ``72''.
     In Sec.  422.504(o)(2)(i), we are replacing the phrase 
``Benefit authorization (if not waived), adjudication, and processing 
of health care claims for services furnished at a hospital, clinic, 
provider office or other place of service'' with ``Benefit 
authorization (if not waived) for services to be immediately furnished 
at a hospital, clinic, provider office, or other place of service.''
     We are removing proposed paragraph (ii) of Sec.  
422.504(o)(2) (``Operation of an enrollee exceptions and appeals 
process including coverage determinations.'') and renumbering proposed 
paragraph (iii).
5. Efficient Dispensing in Long Term Care Facilities and Other Changes 
(Sec.  423.154)
    We proposed changes to the rule requiring efficient dispensing to 
Medicare Part D enrollees in long term care (LTC) facilities. For 
background, section 3310 of the Affordable Care Act amended the Act to 
add a new paragraph (3) to section 1860D-4(c) of the Act. Section 
1860D-4(c)(3) of the Act provides that the Secretary shall require 
Medicare Part D sponsors of prescription drug plans to utilize 
specific, uniform dispensing techniques, such as weekly, daily or 
automated dose dispensing, when dispensing covered Part D drugs to 
enrollees who reside in an LTC facility in order to reduce waste 
associated with 30-day fills. The section states that the techniques 
shall be determined by the Secretary in consultation with relevant 
stakeholders.
    After extensive consultation with stakeholders, in the April 15, 
2011 Federal Register, we published a final rule entitled ``Medicare 
Program; Changes to the Medicare Advantage and the Medicare 
Prescription Drug Benefit Programs for Contract Year 2012 and Other 
Changes'' (``April 15, 2011 final rule''), which governs the dispensing 
of prescription drugs in LTC facilities under Part D plans. In 
accordance with Sec.  423.154, Part D sponsors generally must require 
their network pharmacies to dispense certain solid oral brand covered 
Part D drugs in quantities of 14 days or less, unless an exemption 
applies. As a clarification to the April 15, 2011 final rule, we 
proposed in the January 2014 proposed rule the following specific 
changes to the LTC short cycle dispensing requirements:
     Add a prohibition on payment arrangements that penalize 
the offering and adoption of more efficient LTC dispensing techniques 
by prorating dispensing fees based on days' supply or quantity 
dispensed, and a requirement to ensure that any difference in payment 
methodology among LTC pharmacies incentivizes more efficient dispensing 
techniques.
     Eliminate language that has been misinterpreted as 
requiring the proration of dispensing fees.
     Incorporate an additional waiver for LTC pharmacies using 
restock and reuse dispensing methodologies under certain conditions.
     Make a technical change to eliminate the requirement that 
Part D sponsors report on the nature and quantity of unused brand and 
generic drugs.
    After providing a summary of the current LTC short cycle dispensing 
rule in the proposed rule, we addressed each proposed change in more 
detail.
a. Prohibition on Payment Arrangements That Penalize the Offering and 
Adoption of More Efficient LTC Dispensing Techniques (Sec.  423.154)
    Our first proposed change was to add a paragraph to Sec.  423.154 
prohibiting payment arrangements that penalize the offering and 
adoption of more efficient LTC dispensing techniques by prorating 
dispensing fees based on days' supply or quantity dispensed, and a 
requirement to ensure that any difference in payment methodology among 
long-term care pharmacies incentivizes more efficient dispensing 
techniques. Certain dispensing fee payment arrangements, for example, 
some proration arrangements, penalize the offering and adoption of more 
efficient LTC dispensing. For instance, if a medication is discontinued 
before a month's supply has been dispensed, a pharmacy that dispenses 
the maximum amount of the medication at a time permitted under Sec.  
423.154 (for example, 14 days), collects more in dispensing fees than a 
pharmacy that utilizes dispensing techniques that result in less than 
maximum quantities being dispensed at a time. In other words, the least 
efficient pharmacy collects more in dispensing fees than a more 
efficient pharmacy.
    In the proposed rule, we provided the following example of two 
pharmacies--one more efficient at dispensing than the other--to 
illustrate our concern: A monthly $4.00 dispensing fee for a 30-days' 
supply is prorated, and a medication is discontinued after 21 days. The 
first pharmacy dispenses 14-days' supply at a time and receives 
approximately $3.73 in total dispensing fees for a 28-days' supply 
($0.1333 x 28), which results in 7 days' worth of medication waste. The 
second pharmacy dispenses 3-days' supply at a time and receives 
approximately $2.80 in dispensing fees for a 21-days' supply in total 
($0.1333 x 21), which results in no medication waste.
    We believe this example is contrary to the Congress' intent in 
enacting section 3310 of the Affordable Care Act, which was to reduce 
medication waste. In this example, the second pharmacy's more efficient 
dispensing techniques results in less medication waste, but the 
pharmacy itself receives less in dispensing fees than it would if it 
had dispensed in 14-day increments, which result in more medication 
waste. This approach creates a perverse incentive for LTC pharmacies to 
adopt the least efficient dispensing technique, if available, which is 
to dispense drugs in 14 days supplies. This encourages wasteful 
dispensing to the Part D program.
    Given the clear intent of the Affordable Care Act to reduce 
wasteful dispensing in the LTC setting, we proposed to prohibit payment 
arrangements that penalize the offering and adoption of more efficient 
LTC dispensing techniques by adding a new requirement that would state 
a Part D sponsor must not, or must require its intermediary contracting 
organizations not to, penalize long term care facilities' choice of 
more efficient uniform dispensing techniques by prorating dispensing 
fees based on days' supply or quantity dispensed. We proposed that this 
requirement would also state that a sponsor or its intermediary 
contracting organizations must ensure that any difference in payment 
methodology among LTC pharmacies incentivizes more efficient dispensing 
techniques.

[[Page 7931]]

b. Misinterpretation of Language as Requiring the Proration of 
Dispensing Fees (Sec.  423.154)
    Our second proposed change to Sec.  423.154 was to eliminate 
paragraph (e), which we believe has caused confusion. Section 
423.154(e) currently states that regardless of the number of 
incremental dispensing events, the total cost sharing for a Part D drug 
to which the dispensing requirements under this paragraph (a) apply 
must be no greater than the total cost sharing that would be imposed 
for such Part D drug if the requirements under paragraph (a) of this 
section did not apply. The purpose of this language was to ensure that 
sponsors did not assess multiple monthly copayments for each 
incremental dispensing event in LTCs. We believe misinterpretation of 
paragraph (e) may have prompted some sponsors to prorate dispensing 
fees in a way that penalizes the offering and adoption of more 
efficient LTC dispensing techniques, even though the current regulation 
does not address dispensing fees.
    Moreover, effective January 1, 2014, the daily cost-sharing rate 
requirement in Sec.  423.153(b)(4)(i) applies whenever a prescription 
is dispensed by a network pharmacy for less than a month's supply, 
unless the drug is excepted, regardless of the setting in which the 
drug is dispensed. In other words, the daily cost-sharing rate 
requirement applies to brand drugs dispensed in LTC facilities to the 
extent they must be dispensed in supplies less than 30 days under Sec.  
423.154, and to generic drugs, to the extent a sponsor voluntarily 
dispenses generic drugs in LTC facilities in supplies less than a 
month's supply. Consequently, the requirement of Sec.  423.153(b)(4)(i) 
makes Sec.  423.154(e) unnecessary, and we believe retaining both 
provisions could cause further confusion. For these reasons, we 
proposed to delete Sec.  423.154(e).
c. Additional Waiver for LTC Pharmacies Using Restock and Reuse 
Dispensing Methodologies Under Certain Conditions (Sec.  423.154)
    Our third proposed change to Sec.  423.154 was to waive the short-
cycle dispensing requirements for LTC pharmacies meeting certain 
conditions. Currently, Sec.  423.154(c) waives the requirements for 
pharmacies when they dispense brand name Part D drugs to enrollees 
residing in intermediate care facilities for the mentally retarded and 
institutes for mental disease, as well as for I/T/U pharmacies. We have 
learned that some institutional pharmacies maintain custody of 
medications within the LTC facilities through operating a closed 
pharmacy within the facility, and as a result can ensure sufficient 
quality control over these medications to return all unused medications 
to stock for reuse that are eligible for return and reuse under 
applicable law. This has led us to believe there is another category of 
pharmacies, such as some on site pharmacies in veterans' homes, for 
which a waiver from the LTC short-cycle dispensing requirement may be 
appropriate, if they meet certain conditions that demonstrate that 
applying the 14-day dispensing requirements in these instances would 
not serve to reduce waste.
    In light of this, we proposed to waive the requirements of Sec.  
423.154(a) for an LTC pharmacy that exclusively uses the dispensing 
technique of returning all unused medications to stock that can be 
restocked under applicable law for reuse and rebating full credit for 
the ingredient costs of the unused medication to the PDP sponsor. The 
proposed waiver also would require that for those drugs that cannot be 
returned for full credit and reuse under applicable law, such as 
controlled substances, the pharmacy uses a dispensing methodology that 
results in the delivery of no more than 14 days of a drug at a time. We 
proposed that the waiver would apply on a uniform basis to all 
similarly situated LTC pharmacies, but not to a pharmacy organization 
that is contracted to use this technique at some, but not all, of its 
pharmacies. Rather, the waiver would apply only to the qualifying 
pharmacies themselves. We proposed that we would not require the 
pharmacies to credit back any amount of the dispensing fee when the 
pharmacies return a drug to stock for reuse, since the level of effort 
for the pharmacies would not be expected to decrease. We stated that, 
if anything, the level of effort would be increased, since the 
pharmacies have to implement the appropriate internal controls for 
inspection and return to inventory of the unused medication.
    We further solicited comments on our proposal that to qualify for 
the waiver, a pharmacy would have to dispense any drugs that cannot be 
restocked under applicable law, such as controlled substances, in no 
greater than 14-day supply increments. Our rationale in proposing this 
condition to the waiver is that we do not want the waiver to 
inadvertently result in large quantities of medications being dispensed 
to Part D enrollees serviced by the pharmacies that would qualify for 
the waiver because they cannot be restocked under applicable law.
d. Technical Change To Eliminate the Requirement That PDP Sponsors 
Report on the Nature and Quantity of Unused Brand and Generic Drugs 
(Sec.  423.154)
    Finally, we proposed to make a technical change to Sec.  
423.154(a)(2), which requires Part D sponsors to collect and report 
information, in a form and manner specified by CMS, on the dispensing 
methodology used for each dispensing event described by paragraph 
(a)(1) of this section, as well as on the nature and quantity of unused 
brand and generic drugs dispensed by the pharmacy to enrollees residing 
in an LTC facility. This latter reporting requirement is waived for 
sponsors for drugs dispensed by pharmacies that dispense both brand and 
generic drugs in no greater than 7-day increments.
    In a memorandum titled, ``Modifications to the Drug Data Processing 
System (DDPS) in Relation to Appropriate Dispensing of Prescription 
Drugs in Long Term Care Facilities,'' issued by CMS on August 3, 2012, 
we explained that we planned to use the PDE data in conjunction with 
other CMS data (such as MDS) to determine the extent to which 14 day or 
less dispensing to enrollees in LTC facilities reduces the amount of 
unused drugs in LTC. We did this to lessen the burden on sponsors that 
would be created by a separate reporting requirement. Therefore, it is 
no longer necessary to waive the reporting requirement for any Part D 
sponsor, because Part D sponsors comply with the requirement (in the 
form and manner we specified in the previously-referenced memorandum) 
via PDE submission. Thus, we proposed deleting the language in in Sec.  
423.154(a)(2) that appeared to require separate reporting, to eliminate 
any confusion.
    We received the following comments on this proposal and our 
responses follow:
    Comment: Numerous commenters support the proposal to add a 
prohibition on payment arrangements that penalize the offering and 
adoption of more efficient LTC dispensing techniques by prorating 
dispensing fees based on days' supply or quantity dispensed, and a 
requirement to ensure that any difference in payment methodology among 
long term care pharmacies incentivizes more efficient dispensing. Many 
of these comments in particular supported CMS' view that there is not a 
justifiable reason for proration of monthly dispensing fees since the 
cost of dispensing is not directly related to the quantity dispensed. 
These commenters asserted that proration of dispensing fees ignored

[[Page 7932]]

the clinical oversight and fixed costs for pharmacy professional 
services for each dispense. These commenters acknowledged that prorated 
professional fees have resulted in a perverse economic model that 
encourages pharmacies to dispense the maximum allowable quantity of 
drugs (for example, 14 days supplies) in each prescription drug event 
transaction.
    Other commenters opposed this proposal, stating that it would 
increase costs by requiring a full dispensing fee with each dispensing 
event in an LTC facility, and that since the LTC pharmacies determine 
dispensing increments, this will incentivize them to select the system 
that provides the highest number of dispensing fees. These commenters 
also noted that the Affordable Care Act did not specify a new LTC 
dispensing fee structure.
    A commenter provided an illustrative example of prorated monthly 
dispensing fees that may not penalize the offering and adoption of more 
efficient LTC dispensing techniques. Specifically, the example 
demonstrates how an increased dispensing fee with proration can create 
appropriate incentives to reduce waste and cost in LTC facilities. The 
example provided for a $10 base dispensing fee for a 30-day supply for 
a pharmacy with technology that dispenses in 7-day increments and a 
$4.00 base dispensing fee for a pharmacy that dispenses in 14-day 
increments. Under this scenario, the more efficient pharmacy would 
receive $2.31 for dispensing 7 days of medication ($10/30 = $0.33 x 7) 
and the less efficient pharmacy would receive $1.82 ($4/30 = $0.13 x 
14) for dispensing 14 days of medication. This commenter urged us to 
allow for any dispensing structure where the daily dispensing fee 
encourages all pharmacies, regardless of their size or negotiation 
capabilities, to use the most efficient dispensing technologies.
    Response: We thank the supportive commenters for their comments. 
With respect to the commenters that opposed the proposal, we note that 
the proposal did not require a full monthly dispensing fee with each 
dispensing event, or any specific dispensing fee or methodology for 
that matter. The intent of this rule is to prohibit dispensing fees 
that penalize the offering and adoption of more efficient LTC 
dispensing techniques by prorating dispensing fees based on days' 
supply or quantity dispensed. This rule also adds a requirement to 
ensure that any difference in payment methodology among long-term care 
pharmacies incentivizes more efficient dispensing techniques.
    With respect to the one commenter that pointed out that certain 
prorated dispensing fees may not penalize the offering and adoption of 
more efficient LTC dispensing techniques in certain instances, we take 
no position at this time on whether specific dispensing fee 
arrangements would be compliant with this rule. We reiterate that this 
rule does not require a specific dispensing fee or methodology, but 
rather, prohibits payment arrangements that penalize the offering and 
adoption of more efficient LTC dispensing techniques by prorating 
dispensing fees based on days' supply or quantity dispensed. In 
addition, this rule requires that any difference in payment methodology 
among LTC pharmacies incentivizes more efficient dispensing techniques.
    Comment: A commenter stated that because its data shows 80 percent 
of all LTC dispense claims are for generic medications, modifying 
dispensing fees will not truly affect the use of short-cycle 
methodology. This commenter requested that CMS provide any research 
demonstrating the increased utilization of short-cycle fill in 
dispensing in pharmacies whose dispensing fees did not change to a 
prorated fee. Alternatively, this commenter requested CMS' observations 
and supporting data demonstrating that a daily dispensing fee actively 
discourages pharmacies from short-cycle filling medications.
    Response: We do not believe the research and data requested are 
necessary to finalizing this proposal. We believe it is self-evident 
that proration of the same monthly dispensing fee based on days' supply 
or quantity dispensed (which results in a type of daily dispensing fee 
or rate) penalizes more efficient pharmacies relative to less efficient 
ones--the more efficient pharmacy is reimbursed less per dispense 
because it dispenses in smaller increments. Moreover, that prorated 
dispensing fee decreases per dispense the more efficiently the pharmacy 
dispenses.
    Comment: A commenter stated that CMS confuses prorated dispensing 
fees with daily dispensing fees that are not necessarily pro rata 
adjustments of otherwise applicable dispensing fees.
    Response: Our prohibition of proration that penalizes more 
efficient dispensing would apply both to proration of a monthly 
dispensing fee amount and proration determined by setting a daily rate 
that is applied to the number of days dispensed. The intent is of our 
rule is to prohibit payment arrangements that penalize the offering and 
adoption of more efficient LTC dispensing techniques by prorating 
dispensing fees based on days' supply or quantity dispensed, and to 
require that any difference in payment methodology among LTC pharmacies 
incentivizes more efficient dispensing techniques.
    Comment: A commenter stated that PBMs have very little leverage in 
negotiating cost effective strategies with LTC pharmacies on behalf of 
Part D sponsors, as the LTC landscape is controlled by three very large 
LTC pharmacy organizations that make up an estimated 80 percent of the 
market share, and that in many cases, only one of them is the provider 
of prescription medications in LTC facilities. This commenter further 
stated that these LTC pharmacy organizations dictated the contractual 
requirement to prorate dispensing fees, asserting that their member LTC 
pharmacies needed compensation for every prescription fill.
    Response: This rule prohibits payment arrangements that penalize 
the offering and adoption of more efficient LTC dispensing techniques 
by prorating dispensing fees based on days' supply or quantity 
dispensed. For example, this rule prohibits payment arrangements that 
penalize LTC dispensing techniques of less than 14 days supplies of 
drugs at a time. This rule also requires that any difference in payment 
methodology among LTC pharmacies incentivizes more efficient dispensing 
techniques. For example, this rule requires that differences in payment 
methodologies among LTC pharmacies incentivize dispensing techniques of 
less than 14 days supplies of drugs at a time. If the prorated 
dispensing fees by days' supply or quantity dispensed do not penalize 
the offering of more efficient dispensing techniques by these LTC 
pharmacies, and any difference in payment methodology relative to other 
LTC pharmacies incentivizes more efficient dispensing techniques, then 
this regulatory provision is not implicated.
    Comment: Some commenters asserted that our proposal was a violation 
of the non-interference clause and exceeded our delegated authority.
    Response: We disagree. Section 1860D-4(c)(3) of the Act provides 
that the Secretary shall require Medicare Part D sponsors of 
prescription drug plans to utilize specific, uniform dispensing 
techniques, such as weekly, daily, or automated dose dispensing, when 
dispensing covered Part D drugs to enrollees who reside in a LTC 
facility in order to reduce waste associated with 30-day fills. Thus, 
the Congress gave the Secretary authority to regulate with respect to 
reducing waste of covered Part D drugs in LTC facilities. Moreover,

[[Page 7933]]

this requirement does not dictate any specific dispensing fee amounts 
or methodologies, but rather prohibits only those dispensing fees that 
penalize more efficient dispensing and requires that any difference in 
payment methodology among LTC pharmacies incentivizes more efficient 
dispensing techniques. For the reasons stated previously, we believe 
this is consistent with the statutory directive to reduce waste 
associated with 30-day fills in LTC facilities.
    Comment: A commenter stated the regulatory text was vague.
    Response: We disagree. The policy reflected in the preamble and 
regulatory text is clear--to prohibit the prorated LTC dispensing fees 
in the Part D market today that are financially penalizing more 
efficient LTC pharmacies. In addition, we believe the discussion in 
this preamble, with examples provided, makes clear how sponsors must 
not penalize more efficient dispensing techniques in LTC facilities by 
prorating dispensing fees based on days' supply or quantity dispensed 
and that any difference in payment methodologies among LTC pharmacies 
must incentivize more efficient dispensing techniques. We have 
deliberately struck a balance in drafting the regulatory text to be 
specific enough to accomplish the policy goal without being so specific 
as to dictate the particular dispensing fee arrangements that are 
permissible.
    Comment: A commenter requested whether this new requirement applies 
to all payments to LTC pharmacies; whether it applies to all 
prescriptions in LTC facilities or only to those subject to the short-
cycle dispensing methodology; and whether a Part D sponsor must prove 
to each LTC pharmacy how its payment methodology incentivizes more 
efficient dispensing techniques.
    Response: The requirement in this final rule applies to payments to 
pharmacies related to the dispensing of Part D drugs to residents in 
LTC facilities, including those Part D drugs that are not subject to 
the short-cycle dispensing requirement. As noted previously, this rule 
does not address specific negotiations between Part D sponsors and 
pharmacies.
    Comment: One commenter stated that the regulatory text was 
confusing and contained three negatives.
    Response: We are moving the proposed language to Sec.  
423.154(a)(2) and (3) and revising the regulation text. We believe this 
will make the regulatory text less confusing. However, because we did 
not propose to waive this requirement with respect to pharmacies when 
they dispense Part D drugs to residents of intermediate care facilities 
for the mentally retarded (ICFs/IID) and institutes for mental disease 
(IMDs) and for I/T/U pharmacies, we are making conforming changes to 
Sec.  423.154(c) to make clear that the requirements of paragraph 
(a)(2) and (3) are not waived for with respect to these pharmacies.
    Comment: A commenter stated that it was unnecessary for CMS to 
memorialize the fact that the rule applies to contracting 
intermediaries in addition to Part D sponsors in the regulatory text.
    Response: We agree. The reference to ``intermediary contracting 
organizations'' in the regulatory text is now unnecessary because we 
are moving the requirement to Sec.  423.154(a)(2) and (3), as noted 
just previously.
    Based on all the comments received, we are finalizing our proposal 
with the changes previously described in this section.
    Comment: Some commenters supported the removal of the language in 
Sec.  423,154(e) that CMS believes may have been misinterpreted as 
requiring the proration of dispensing fee. A few commenters opposed 
this proposal. One of these commenters that opposed this proposal 
stated that plans did not interpret the provision as requiring the 
proration of dispensing fees, but rather as permitting it.
    Response: Based on the comments received, we are finalizing the 
removal of this language from the current regulatory text. As noted 
previously, this provision was intended to address cost sharing for 
short-cycle dispensing in LTC facilities, but the daily cost-sharing 
rate rule at Sec.  423.153(b)(iv)(i) now addresses cost-sharing when 
less than a month's supply of a Part D drug is dispensed. Thus, this 
regulatory text is no longer necessary. Moreover, we believe the 
comments support our view that the language was confusing.
    Comment: Several commenters supported CMS' proposal in principle 
for an additional waiver from the short-cycle dispensing requirements 
for certain LTC pharmacies that maintain custody of medications by 
operating a closed pharmacy within the facility, but these commenters 
expressed concerns about how the waiver would be implemented. 
Specifically, these commenters pointed out that there is no current 
transaction standard that accommodates transmitting a net quantity for 
payment following the acceptance of a returned medication applied 
against a quantity dispensed for ingredient cost credit, and that use 
of an existing transaction to accomplish this would violate HIPAA. 
These commenters stated that a new HIPAA standard transaction would be 
required to support a waiver based on return and reuse billing.
    Response: In the proposed regulation, while we used an industry 
term of art ``restock and reuse,'' we did not intend to implicate a 
billing standard that does not exist. This term, as used in the 
industry, encompasses a billing system that modifies pharmacy claims as 
unused medications are returned to stock. We are aware of the current 
limitations of this particular system.
    The type of pharmacy that would qualify for the waiver, as we 
described in the proposed rule, is an institutional, on-site, closed 
pharmacy, such as a pharmacy in a veteran's home, which maintains 
custody of medications within the LTC facility, such that all unused 
medications that are eligible under applicable law are restocked and 
reused. In other words, such a pharmacy has such quality control over 
medications in the LTC facility that it does not have to dispense in 
14-day supplies or less in order to reduce waste. Such pharmacies may 
use post-consumption billing, a reverse and rebill system, or some 
other billing method to only charge a Part D sponsor for the 
medications that are actually used.
    Given the misunderstanding of our proposed additional waiver from 
the LTC short-cycle dispensing rule, we are not finalizing it as this 
time. We will consider proposing the waiver again in future rulemaking.
    Comment: We received no comment on our proposal to delete language 
in Sec.  423.154(a)(2) to eliminate any confusion about that there is a 
separate reporting requirement.
    Response: We are finalizing this deletion, except that we are 
redesignating the remaining language in (a)(2) as (a)(4) in light of 
the other changes previously described.
    Comment: Some commenters requested a delay in the effective date of 
this requirement until 2016, asserting that the requirement will 
necessitate significant changes in adjudication and network contracting 
logic to accommodate the replacement of prorated dispensing fees with 
standard dispensing fees. One commenter requested clarification of the 
effective date of this requirement.
    Response: The effective date of this requirement is January 1, 
2016.
6. Medicare Coverage Gap Discount Program and Employer Group Waiver 
Plans (Sec.  423.2325)
    Section 3301 of the Affordable Care Act, codified in section 1860D-
43 and 1860D-14A of the Act, established the

[[Page 7934]]

Medicare Coverage Gap Discount Program (Discount Program), beginning in 
2011. Under the Discount Program, manufacturer discounts are made 
available to applicable Medicare beneficiaries receiving applicable 
covered Part D drugs while in the coverage gap. Section 1860D-
14A(c)(1)(A)(ii) of the Act requires the manufacturer discount to be 
provided to beneficiaries at the point-of-sale. Employer Group Waiver 
Plans (EGWPs) are customized employer-offered plans available 
exclusively to employer/union health plan Part D eligible retirees and/
or their Part D eligible spouse and dependents. Section 423.458(c)(4) 
requires sponsors offering EGWPs to comply with all Part D requirements 
unless those requirements have been specifically waived or modified by 
CMS using our authority under section 1860D-22(b) of the Act. The 
Affordable Care Act did not exclude EGWP enrollees that otherwise meet 
the definition of an applicable beneficiary (as defined in Sec.  
423.100) from the Discount Program. Therefore, in order for an 
applicable drug to be covered by EGWPs, it must be covered under a 
manufacturer agreement, and the manufacturer must pay applicable 
discounts for applicable beneficiaries as invoiced.
    Beginning in 2014, all EGWP benefits beyond the parameters of the 
defined standard benefit will be treated as non-Medicare Other Health 
Insurance (OHI) that wraps around Part D. We excluded supplemental 
coverage offered through EGWPs from the definition of Part D 
supplemental benefits in Sec.  423.100 in our 2012 rulemaking. However, 
as discussed in section II.E.14. of this final rule, the change was 
erroneously not included in the CFR. Therefore, we are making a 
technical change to rectify that problem. The change with respect to 
EGWPs was made so that the discount amount could be consistently and 
reliably determined. This was necessary to ensure that we can determine 
that the discount is always calculated accurately since we do not 
collect information on all EGWP retiree benefit arrangements to 
determine actual supplemental benefits. Not only would collecting such 
information be impractical, but we also believe instituting a 
requirement to collect the specific information on all such benefits 
would be so burdensome as to hinder the design of, the offering of, or 
the enrollment in employer plans. Consequently, the discount 
calculation is based upon the Part D Defined Standard benefit for all 
EGWPs beginning in 2014. While we believed that our justification for 
excluding any supplemental benefits offered through EGWPs from Part D 
benefits clearly indicated that the basic EGWP Part D benefits would be 
limited to Defined Standard benefit because that is the only way we can 
determine that the discount is calculated accurately, we took the 
opportunity to propose this specific requirement in Sec.  
423.2325(h)(1) to remove any ambiguity.
    Comment: Some commenters strongly urged CMS to revise the policy 
established in our April 2012 rule that considers EGWP plan 
supplemental benefits to be outside of Part D, and therefore OHI. These 
commenters stated that treating EGWP benefits as OHI is inconsistent 
with the statute as it does not, on its face appear to result in direct 
reductions in beneficiary cost sharing. They state that since many EGWP 
enrollees do not experience a coverage gap the discounts are not used 
to offset beneficiary spending in the gap which is the original 
statutory intent. A few commenters stated that the current policy has 
led employer groups to migrate from Retiree Drug Subsidy plans to EGWPs 
which is costly to the taxpayer.
    Response: We did not propose any changes to our existing policy 
with respect to EGWP supplemental benefits, and we decline to do so 
now. For the reasons set forth in our April 2012 rulemaking, we believe 
our current regulation is consistent with the statute. The purpose of 
this final rule is solely to clarify that basic EGWP benefits are to be 
based upon the Defined Standard benefit.
    After considering the comments received, we are finalizing the 
portion of the provision which proposed that Part D sponsors offering 
employer group waiver plans must provide applicable discounts to EGWP 
plans as determined consistent with the Defined Standard benefit, 
except we are making a technical change to clarify that applicable 
discounts are available only to applicable beneficiaries enrolled in 
the EGWPs. We are not finalizing the proposed requirement that Part D 
sponsors of EGWPs disclose to each employer group the projected and 
actual manufacturer discount payments under the Discount Program 
attributable to the employer group's enrollees, at least annually or 
upon request.
7. Transfer of TrOOP Between PDP Sponsors Due to Enrollment Changes 
During the Coverage Year (Sec.  423.464)
    Sections 1860D-23 and 1860D-24 of the Act specify that requirements 
for Part D sponsor coordination of benefits with State Pharmaceutical 
Assistance Programs and other plans providing prescription drug 
coverage, including treatment of expenses incurred by these payers 
toward a beneficiary's out-of-pocket (TrOOP) threshold. Part D 
coordination of benefit requirements are codified at Sec.  423.464, 
which defines ``other prescription drug coverage'' for COB purposes to 
include, among other entities, other Part D plans, and specifies Part D 
plan requirements for determining when an enrollee has satisfied the 
out-of-pocket threshold.
    Related regulations at Sec.  423.104(d), codifying the requirements 
in section 1860D-2(b) of the Act, require sponsors to track beneficiary 
TrOOP and gross covered drug costs and correctly apply these costs to 
the benefit limits to correctly position the beneficiary in the benefit 
and provide the catastrophic level of coverage at the appropriate time. 
When a beneficiary transfers enrollment between Part D plans during the 
coverage year, the enrollee's gross covered drug costs and TrOOP must 
be transferred between plans and applied by the subsequent plan in its 
administration of the Part D benefit. The process for a prior plan to 
report these TrOOP-related data and for the new plan of record to 
receive, upload, and use the data position the beneficiary in the 
correct phase of the benefit was initially manual.
    In 2009, this process was replaced by an automated process for 
TrOOP-related data transfer. Our guidance released in 2008 (HPMS 
memorandum dated October 21, 2008 titled, ``Updated Part D Sponsor 
Automated TrOOP Balance Transfer Operational Guidance'') described 
sponsor implementation of the automated TrOOP balance transfer process 
and reiterated sponsor requirements for data reporting by the prior 
plan and use of the data for proper positioning of the beneficiary in 
the benefit by the current plan. We have continued to specify these 
requirements in subsequent updated versions of the guidance.
    To ensure Part D benefits are correctly administered when a 
beneficiary transfers enrollment during the coverage year, we proposed 
to codify these requirements in federal regulations. Specifically, we 
proposed to amend Sec.  423.464(f)(2) by adding a new paragraph (C) 
requiring Part D sponsors to--
     Report benefit accumulator data in real time in accordance 
with the procedures established by CMS;
     Accept in real-time data reported in accordance with CMS-
established procedures by any prior plans in which the beneficiary was 
enrolled, or that paid claims on the beneficiary's behalf, during the 
coverage year; and

[[Page 7935]]

     Apply these costs promptly.
    In our guidance on automated TrOOP balance transfer, we express our 
expectation that sponsors successfully transfer accumulator data for 
beneficiaries making enrollment changes during the coverage year in a 
timely manner 100 percent of the time. Although sponsors may be 
reporting and accepting these data in accordance with our expectations, 
we have been informed that some sponsors may not be promptly loading 
the data received into their systems so it is available for claims 
processing. As a result, the beneficiary's previously incurred costs 
and gross covered drug costs are not considered in the processing of 
claims received by the new plan sponsor soon after the enrollment 
change.
    Comment: One commenter objected to the provision claiming it was 
vague and ill-defined and requested we include additional detail in 
lieu of deferring to sub-regulatory guidance.
    Response: We disagree. The proposed regulatory text specifies the 
requirements for sponsors to report, accept and apply accumulator data. 
We believe the details of the transfer process are more appropriately 
addressed in guidance because they are procedural, and retaining them 
in guidance will preserve flexibility to adapt these procedures as the 
need arises. CMS and the industry developed the automated data transfer 
process in collaboration with National Council for Prescription Drug 
Programs (NCPDP) and have continued to work collaboratively to refine 
and improve the process. When a change in the transfer process is 
agreed upon and substantive requirements are unaffected, use of 
guidance permits us to issue updated instructions in a timely manner.
    Comment: Three commenters expressed support for the provision.
    Response: We appreciate the support for this provision and are 
adopting this provision as proposed with a minor change. That is, we 
are redesignating the current paragraph (B) in Sec.  
423.464(f)(2)(i)(B) as (C) and adding this provision as paragraph (B) 
to more logically sequence the requirements.
8. Expand Quality Improvement Program Regulations (Sec.  422.152)
    Section 1852(e) of the Act requires MA organizations to have an 
ongoing quality improvement program for the purpose of improving the 
quality of care provided to enrollees.
    We proposed revising paragraph (a) of Sec.  422.152 in order to 
codify our recent expansion of the quality improvement program policies 
and revising paragraph (c) of Sec.  422.152 to codify our recently 
expanded chronic care improvement program policies. The proposed 
revisions to these paragraphs more accurately reflect current quality 
care improvement program policies and requirements.
    Additionally, paragraph (g) of Sec.  422.152 lists quality 
improvement program requirements that are specific to special needs 
plans (SNPs). We proposed revising paragraph (g) to clarify that the 
requirements listed there are in addition to program requirements 
listed in paragraphs (a) and (f) of Sec.  422.152 and are not instead 
of the regular quality improvement program requirements.
    Finally, we proposed to delete paragraph (h)(2) of Sec.  422.152 as 
it pertains to contract year 2010 and is no longer relevant.
    We received the following comments and our responses are as 
follows:
    Comment: We received several comments that supported Sec.  422.152 
overall and CMS efforts to implement policies that ensure high quality 
health care for enrollees.
    Response: We thank the commenters for their support.
    Comment: One commenter requested clarification as to what exactly 
has changed under Sec.  422.152(c), ``Chronic care improvement program 
requirements,'' as it appears to expand only one requirement and 
reorder the others.
    Response: Our proposal, and the finalized rule here, revises 
paragraphs (c)(1)(ii) to add a requirement for the MA organization to 
evaluate participant outcomes (such as changes in health status), and 
add paragraphs (c)(1)(iii), (c)(1)(iv), and (c)(2). Paragraph 
(c)(1)(iii) requires performance assessments that use quality 
indicators that are objective, clearly and unambiguously defined, and 
based on current clinical knowledge or research, and (c)(1)(iv) 
requires systematic and ongoing follow-up on the effects of the chronic 
care improvement program. Finally, new paragraph (c)(2) requires that 
the organization report to CMS on the results of each chronic care 
program. The proposed changes also included reorganization of the 
section to parallel requirements in paragraph (d), ``Quality 
improvement projects.''
    Comment: One commenter requested whether recent changes to the SNP 
Model of Care (MOC) requirements would be the vehicle for evaluating 
compliance in relation to the effectiveness of a plan's Model of Care.
    Response: This comment is outside the scope of the proposed changes 
to this provision because we did not propose, and are not finalizing in 
this rule, any changes to the SNP MOC requirements. Information about 
the MOC and associated requirements can be found in Chapter 5 of the 
Medicare Managed Care Manual.
    Comment: One commenter requested clarification on the additional 
quality improvement program requirements for SNP plans.
    Comment: The changes made to this provision do not create any new 
quality improvement program requirements for SNPs. The changes are to 
clarify the requirement that SNPs must comply with the requirements 
under paragraph (g) as well as those in paragraphs (a) through (f). The 
SNP-specific requirements in paragraph (g) do not replace the 
requirements in paragraphs (a) through (f), which apply to all plans, 
including SNPs.
    Comment: A commenter requested whether Quality Improvement Project 
and Chronic Care Improvement Program results will be included in Star 
Rating measurements in the near future.
    Response: This comment is outside the scope of the proposed changes 
to this provision as we did not propose, and are not finalizing in this 
rule, any Star Rating measures in connection with the quality 
improvement program requirement.
    Comment: A commenter expressed opposition to expanded quality 
improvement requirements as a whole because MA organizations respond to 
such requirements by setting unrealistic targets for physicians. The 
commenter added that compliance must often be at 100 percent for a 
physician to qualify for a payment incentive.
    Response: Our proposal codifies our recent expansion of the quality 
improvement program policies and revises paragraph (c) of Sec.  422.152 
to codify our recently expanded chronic care improvement program 
policies. The proposed revisions to these paragraphs more accurately 
reflect current quality care improvement program policies and 
requirements that are already in practice. While we understand the 
commenter's concern, we do not agree that codifying requirements that 
are already in practice will place any further burden on MA 
organizations and thus tangentially increase the burden on physicians. 
Additionally, while we understand that our recent expansion of our 
quality improvement program policies may have impacted MA organizations 
and, in turn, providers, the requirements do not specify any provider 
requirements or address payment incentives of any type. MA 
organizations and providers remain free to contract and make agreements 
on

[[Page 7936]]

these topics without CMS interference, thus MA organizations have 
flexibility when shaping their provider processes, policies, and 
overall framework.
    Comment: A commenter stated that CMS's guidance with respect to 
Quality Improvement Projects and Chronic Care Improvement Programs for 
SNP plans has been unclear.
    Response: Our proposal, and this final rule, revises paragraph (g) 
to clarify that the requirements listed there are in addition to 
program requirements listed in paragraphs (a) and (f) of Sec.  422.152 
and are not in lieu of the quality improvement program requirements 
presented in paragraphs (a) and (f). We believe the revisions to the 
regulation clarify that Quality Improvement Project and Chronic Care 
Improvement Program requirements are the same for SNP and non-SNP 
plans.
    After consideration of the public comments received, we are 
finalizing the proposed codification and clarification of our Quality 
Improvement Program regulation at Sec.  422.152 without modification.

B. Improving Payment Accuracy

1. Determination of Payments (Sec.  423.329)
    In the January 2014 proposed rule, we proposed a technical change 
to Sec.  423.329(d) to correctly describe the low-income cost-sharing 
subsidy payment amount as it is intended by statute and has been 
implemented and described in interpretive guidance by CMS. That amount 
had been defined in the regulation as the amount described in Sec.  
423.782. However, Sec.  423.782 refers to the cost sharing paid by the 
beneficiary, not the cost-sharing subsidy paid on behalf of the low-
income subsidy-eligible individual. The low-income cost-sharing subsidy 
amount is correctly described in Chapter 13 of our Medicare 
Prescription Drug Benefit Manual, Premium and Cost Sharing Subsidies 
for Low Income Individuals ((Rev. 13, 07-29-11), at http://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/Downloads/Chapter13.pdf). As we stated in the proposed rule, under the basic 
benefit defined at Sec.  423.100, the low-income cost-sharing subsidy 
payment amount is the difference between the Part D cost sharing for a 
non-LIS beneficiary under the Part D plan and the statutory cost-
sharing for the LIS-eligible beneficiary. Under an enhanced alternative 
plan described at Sec.  423.104(f), the cost-sharing subsidy applies to 
the beneficiary liability after the plan's supplemental benefit is 
applied. We proposed to amend Sec.  423.329(d) consistent with this 
guidance.
    We also explained in our proposed rule that pursuant to Sec.  
423.2305, any coverage or financial assistance other than basic 
prescription drug coverage, as defined in Sec.  423.100, offered by an 
employer group health or waiver plan is considered ``other health or 
prescription drug coverage.'' This definition applied to all of 
Medicare Part D. (See the April 12, 2012 final rule titled ``Medicare 
Program; Changes to the Medicare Advantage and the Medicare 
Prescription Drug Benefit Programs for Contract Year 2013 and Other 
Changes'' (77 FR 22082)). Therefore, the subsidy amount received by an 
employer group health or waiver plan is the subsidy amount received by 
a Part D plan offering defined standard coverage, as defined in Sec.  
423.100.
    Based on the preceding, we proposed to amend Sec.  423.329(d) by 
deleting the reference to Sec. Sec.  423.782 and amending 423.329(d) to 
define the low-income cost-sharing subsidy payment amount on behalf of 
a low-income subsidy-eligible individual enrolled in a Part D plan for 
a coverage year as the difference between the cost sharing for a non 
low-income subsidy eligible beneficiary under the Part D plan and the 
statutory cost sharing for a low-income subsidy-eligible beneficiary.
    In order to clarify that enhanced alternative benefits apply prior 
to determining the low-income cost-sharing subsidy payment amount, we 
clarify in this preamble and in the final regulation text that the low-
income cost-sharing subsidy payment amount is the difference between 
the cost sharing (not the ``Part D cost sharing,'' as proposed) for a 
non-LIS beneficiary under the Part D plan and the statutory cost 
sharing for the LIS-eligible beneficiary.
    We received no comments on this proposal and are finalizing with a 
minor modification, as discussed previously.
2. Reopening (Sec.  423.346)
    We proposed to amend the reopening provisions such that we may 
perform one reopening within 5 years after the date of the notice of 
the initial payment determination to the Part D sponsors. We also 
proposed to amend the provision to accommodate reopening the Coverage 
Gap Discount Reconciliation described at Sec.  423.2320(b).
    As we stated in the proposed rule, we had originally patterned the 
reopening provisions after the Medicare claims reopening regulations 
found in part 405, but now with a better understanding of the need for 
reopening a payment determination, we proposed to modify our regulation 
at Sec.  423.346 to align with our experience. We stated that our 
experience indicates to us that we will likely have to perform a 
reopening of the initial payment determination for every contract year, 
and we proposed to remove the current timeframes for a reopening 
described in Sec.  423.346(a)(1) through (a)(3), remove paragraph (b) 
describing ``good cause'' referred to in paragraph (a)(2), modify 
paragraph (c) to eliminate the reference to ``good cause,'' and amend 
paragraph (a) such that CMS may reopen one time within 5-years of 
notice of the initial payment determination.
    As stated in the proposed rule, we believe that data stability will 
occur within 5 years of the notice of the initial payment 
determination. Within 5-years of the notice of the initial payment 
determination, additional prescription drug event (PDE) data or PDE 
adjustments associated with coordination of benefits will be submitted 
by Part D sponsors consistent with the timeframe described at Sec.  
423.466(b). We know that audits and other post reconciliation oversight 
activity often take place more than 5-years from notice of the initial 
payment determination. However, in light of the overpayment provision 
at section 6402(a) of the Affordable Care Act, which established 
section 1128J(d) of the Act and that we proposed to codify at Sec.  
423.360, we stated that we do not believe that it is necessary to 
reopen a payment reconciliation after that 5-year period, and that we 
believe it is not necessary to reopen a reconsidered payment 
determination. Therefore, we proposed to amend Sec.  423.346(a) such 
that we will only reopen the initial payment determination and will not 
reopen a reconsidered payment determination.
    With respect to determining whether to reopen a contract year, we 
stated that we will consider a number of issues, including, but not 
limited to, whether the contract has terminated and received a final 
settlement. We stated that we will not approve a request to reopen for 
a contract that has terminated and received a final settlement. We also 
stated that when we performed a reopening on our own initiative, 
contracts that have been terminated and settled will not be included in 
the reopening.
    In addition, we proposed to establish a reopening provision for the 
Coverage Gap Discount Reconciliation for the same reasons and under the 
same authority that we established a reopening provision for the Part D 
payment reconciliation process described in our January 28, 2005 final

[[Page 7937]]

rule titled, ``Medicare Program; Medicare Prescription Drug Benefit'' 
(70 FR 4316). We noted that in a Health Plan Management System (HPMS) 
memorandum dated April 30, 2010, we stated that the final reconciled 
discount program payments are subject to the reopening provision in 
Sec.  423.346. Due to the invoicing process that continues to occur 
after the reconciliation process, we do not anticipate the need to 
reopen the Coverage Gap Discount Reconciliation. However, we want to 
leave open the option to reopen if unforeseen events result in 
underpayments or overpayments to Part D sponsors. Therefore, we 
proposed to amend Sec.  423.346 to accommodate reopening a Coverage Gap 
Discount Reconciliation.
    Based on the preceding, we proposed to revise Sec.  423.346 by 
removing the phrase ``or reconsidered'' from paragraph (a), amending 
paragraph (a) to account for the proposed timing of the Part D 
reopening, removing paragraphs (a)(1) through (3) and (b)(1) through 
(3); adding a new paragraph (b) to accommodate a Coverage Gap Discount 
Reconciliation reopening; and revising paragraph (c) to eliminate the 
reference to ``good cause.''
    We received the following comments and our responses follow:
    Comment: A commenter stated that the past 6 years indicate that 
unforeseen issues arise and require multiple reopenings to address them 
properly. A commenter recommended that CMS relax the proposed 
regulation and not unnecessarily restrict CMS's ability to conduct more 
than one reopening. A commenter supported the goal of one reopening per 
contract year, but recommended that CMS set a threshold, such as a 
dollar amount, to restrict reopenings while preserving an appropriate 
amount of flexibility in the regulation to accommodate circumstances 
with a degree of materiality.
    Response: We agree with the commenter that multiple reopenings may 
be necessary. We know from experience that there are unforeseen 
circumstances that require us to do multiple global or targeted 
reopenings for a contract year. Target reopenings include reopening for 
a specific plan type (for example, PACE organizations) or for specific 
contracts or parent organizations. For this reason and also due to 
potential conflicts between the 5-year time frame of this proposed 
provision and the 6-year look-back period associated with the 
overpayment provision recently codified at Sec.  423.360 (see 79 FR 
29847), we are not finalizing the proposal to reopen one time within 5 
years after the date of the notice of the initial determination to the 
Part D sponsors.
    Our proposal to do one reopening within 5 years after the date of 
the notice of the initial determination may create difficulties for 
Part D sponsors to return overpayments that they identify and are 
required to report and return under Sec.  423.360. Section 423.360 
creates a 6-year look-back period at Sec.  423.360(f). In accordance 
with Sec.  423.360(f), a Part D sponsor must report and return any 
overpayment identified within the 6 most recent completed payment 
years. In our May 23, 2014 final rule, (79 FR 29843), we stated that 
CMS would recover plan-identified overpayment amounts through routine 
processing. For Part D, that means that if an overpayment is 
discovered, the Part D sponsor may fulfill its obligation to return the 
overpayment by requesting a reopening and submitting corrected data 
prior to CMS conducting the reopening. (For more information, see 79 FR 
29923). To the extent possible, we want to allow for overpayments to be 
recovered through routine payment processes through the entire 6-year 
look-back period. The decision not to finalize our proposal to conduct 
one reopening within a 5-year period gives the Part D sponsor more 
flexibility to return overpayments and CMS more flexibility to collect 
overpayments through routine payment processes. Therefore, we are not 
finalizing the proposed provision that CMS will reopen one time within 
5 years after the date of the notice of the initial determination to 
the Part D sponsors.
    We note that we agree with the commenter that making the decision 
whether to reopen could be based on a dollar amount threshold. We 
currently consider several factors, including dollar amount, to 
determine whether to do a reopening. However, the decision of whether 
or not to do a reopening beyond the initial global reopening will be 
decided based on factors specific to the circumstance. For that reason, 
we will not codify a threshold or any other list of factors that would 
give rise to multiple reopenings.
    Comment: A few commenters disagreed with our approach to do one 
global reopening. A commenter stated that unfocused reopenings would 
place a great burden on Part D sponsors, particularly when looking back 
as much as 5 years, and recommended that the current rule, requiring 
``good cause'' for a reopening after 1 year after the final payment 
determination, remain in place. A commenter also considered the 
possibility of extending the timeframe beyond the current 4 years to 5 
years for reopening with cause.
    Response: Although we are not finalizing the proposed provision 
that we will reopen one time within 5 years after the date of the 
notice of the initial determination to the Part D sponsors, we disagree 
with the commenter's statement that unfocused reopenings will place a 
great burden on Part D sponsors. We conduct reopenings after we see 
stability in the PDE and DIR data. We track the number of PDEs that we 
receive for each contract year on a weekly basis. We know that the Part 
D sponsors and their contracted pharmacy benefit managers (PBMs) submit 
significant amounts of data after the Part D payment reconciliation 
cut-off date. The data continues to be submitted well after 1 year of 
the notice of the initial payment determination. Given the volume of 
new data that we receive after the notice of the initial payment 
determination, we believe that it is necessary to conduct at least 1 
global reopening for every contract year in order to accurately 
reconcile the prospective payment made to Part D sponsors with the 
corresponding actual costs reported by the Part D sponsor on the PDEs.
    In addition, and subsequent to our decision not to finalize the 
proposal that CMS perform one reopening within 5 year of the notice of 
the initial payment determination, we are not finalizing our proposal 
to remove the current timeframes for a reopening described in Sec.  
423.346 (a)(1) through (a)(3), remove paragraph (b) describing good 
cause referred to in paragraph (a)(2), or modify paragraph (c) to 
eliminate the reference to ``good cause.'' In other words, Part D plan 
payment reopenings will continue to be conducted as described at the 
current regulation at Sec.  423.346.
    Comment: A commenter stated that experience would suggest that over 
the years since the Part D program's inception, we have all improved in 
our efforts at the reconciliation and reopening of the Part D financial 
books, and therefore, encouraged CMS to enforce a shorter reopening 
timeframe after plan year initial closure. Specifically, the commenter 
recommended that CMS decrease the amount of time that plan years remain 
not finally reconciled to 4 years, not 5 years. This commenter 
encouraged a shorter time frame than 5 years, because from financial 
and compliance perspectives, this commenter thought that it would be 
beneficial to have a true final ``closure'' of the plan year earlier 
rather than later, to reduce uncertainty and risk.

[[Page 7938]]

    Response: We agree with the commenter that experience suggests that 
we have all improved our efforts at reconciliations and reopenings. We 
are also sympathetic to the Part D sponsors' desires to ``close'' a 
plan year. However, we are not finalizing the proposal that CMS will 
reopen one time within 5 years after the date of the notice of the 
initial determination to the Part D sponsors. As previously stated, we 
believe that the proposal, if finalized, may create difficulties for 
Part D sponsors to return overpayments that they identify and are 
required to report and return under Sec.  423.360.
    Comment: A commenter requested that CMS consider setting a time 
period for when global reopenings occur, so that the industry has some 
clarity and predictability around timing of the reopenings. This 
commenter thought that knowing when a reopening is expected would make 
planning for Part D sponsors and CMS much easier and more efficient.
    Response: Although we are not finalizing the proposal to reopen one 
time within 5 years after the date of the notice of the initial payment 
determination to the Part D sponsors, we agree with the commenter that 
setting a time period for when global reopenings occur would provide 
clarity and predictability around timing of the reopenings. As our 
experience and efficiencies improve, we expect that the reopenings will 
fall into a predictable, yearly schedule. Based upon recent historical 
experience, we anticipate beginning the global reopening process for a 
benefit year 4 years after releasing the initial reconciliation 
reports. We, at our discretion, may conduct reopenings after this time 
to rectify overpayments or unexpected issues resulting from the initial 
reopening.
    After consideration of the public comments we received, we are not 
finalizing the proposal that we will reopen one time within 5 years 
after the date of the notice of the initial payment determination to 
the Part D sponsors. Consequently, we are not finalizing our proposal 
to remove the current timeframes for a reopening described in Sec.  
423.346 (a)(1) through (a)(3), remove paragraphs (b) describing good 
cause referred to in paragraph (a)(2), or modify paragraph (c) to 
eliminate the reference to ``good cause.''
    We did not receive specific comments on our proposal to modify 
Sec.  423.346 to accommodate the Coverage Gap Discount Reconciliation. 
We proposed that, similar to the Part D plan payment reopening, the 
reopening for the Coverage Gap Discount would be conducted one time in 
a 5-year period. For the same reasons previously stated for the Part D 
plan payment reopening, we are not finalizing that the Coverage Gap 
Discount reopening be conducted once in a 5-year period. However, 
consistent with that proposal, we are incorporating the Coverage Gap 
Discount reopening into the reopening process described at Sec.  
423.346. Therefore, we finalize the Coverage Gap Discount 
Reconciliation reopening by modifying Sec.  423.346(a) by adding the 
phrase ``or the Coverage Gap Discount Reconciliation (as described at 
Sec.  423.2320(b))'' to the end of the introductory paragraph.
3. Payment Appeals (Sec.  423.350)
    In our proposed rule, we proposed to revise Sec.  423.350 to 
accommodate a Coverage Gap Discount Reconciliation appeals process 
under the same authority with which we established the Part D payment 
appeals process under section 1860D-15(d)(1) of the Act. Consistent 
with the Part D payment appeals process currently described at Sec.  
423.350, the proposed changes establish an appeals process where the 
final reconciliation of the interim Coverage Gap Discount Program 
(CGDP) payments may be subject to appeal. Consistent with the Part D 
payment appeals process, we also proposed to amend Sec.  423.350(a)(2) 
to include information that is submitted and reconciled under Sec.  
423.2320(b) is final and may not be appealed nor may the appeals 
process be used to submit new information after the submission of 
information necessary to determine retroactive adjustments and 
reconciliations. Also consistent with the Part D payment appeals 
process, we proposed that the request for a reconsideration of the 
Coverage Gap Discount Reconciliation must be filed within 15 days from 
the date of the final payment, which is the date of the final 
reconciled payment made under Sec.  423.2320(b).
    Based on the preceding, we proposed to revise Sec.  423.350 by 
adding a new paragraph (a)(1)(v) to allow for an appeal of a reconciled 
coverage gap payment under Sec.  423.2320(b), by revising paragraph 
(a)(2) to indicate that the payment information submitted to CMS and 
reconciled under Sec.  423.2320(b) is final and may not be appealed, 
and by adding a new paragraph (b)(1)(iv) to define the timeframe for 
appealing the final reconciled payment under Sec.  423.2320(b).
    We received the following comment and our response follows:
    Comment: A few commenters requested that CMS extend the proposed 
15-day deadline to file a request for reconsideration to 30 days due to 
the complexity of the CGDP. A commenter noted that 30 days would be 
more consistent with the existing plan-to-plan process. Another 
commenter stated that the15-day deadline would result in more 
``defensive'' appeal from plans attempting to protect their interest in 
payments prior to the expiration of the appeal period, even where the 
subject plan may not yet, at this time of appeal, conclude that any 
payment discrepancies were in fact the result of methodological errors. 
A commenter believed that the proposed 15-day deadline would increase 
the administrative burden for CMS in processing unnecessary appeals and 
impair the efficient use of plan resources, which raises overall plan 
administrative costs.
    Response: We decline to modify Sec.  423.350(b)(1) to extend the 
proposed 15-day deadline to file a request for reconsideration to 30 
days for the CGDP. We believe that some commenters may think that the 
appeals process under Sec.  423.350 is broader than it actually is. 
Section 423.350 describes the appeals process for the Part D payment 
reconciliation and, as we proposed, the Coverage Gap Discount 
Reconciliation. An appeal can be filed if a Part D sponsor believes 
that CMS did not correctly apply its stated payment methodology. An 
appeal for any other reason will be dismissed. If a sponsor identifies 
a data discrepancy, the sponsor would not file an appeal but would file 
a reopening request under Sec.  423.346.
    The Part D sponsors are in possession of the same data CMS uses to 
determine the Coverage Gap Discount Reconciliation. The Part D sponsors 
will have the data in advance of the reconciliation and can validate 
the data prior to the reconciliation. Therefore, we believe that the 
proposed 15-day deadline is an adequate time for a Part D sponsor to 
determine whether CMS has correctly applied its stated payment 
methodology and, if necessary, file a request for reconsideration.
    After consideration of the public comments we received, we are 
finalizing Sec.  423.350 as proposed.
4. Payment Processes for Part D Sponsors (Sec.  423.2320)
    In our proposed rule, we proposed to amend Sec.  423.2320 such that 
we will assume financial liability for the applicable discount by 
covering the costs of the quarterly invoices that go unpaid by a 
bankrupt manufacturer at the time of the Coverage Gap Discount 
Reconciliation described at

[[Page 7939]]

Sec.  423.2320(b). This will ensure that the Part D sponsors have the 
funds available to advance the gap discounts at the point of sale, as 
required under section 1860D-14A(c)(1)(A)(ii) of the Act. We also 
stated that we would file a proof of claim with the bankruptcy court to 
recover costs from the bankrupt manufacturer. We proposed that we would 
implement our policy by adjusting the Coverage Gap Discount 
Reconciliation for manufacturer discount amounts as they are reported 
on PDEs submitted by the submission deadline for the Part D 
reconciliation.
    Based on the preceding, we proposed to add a new paragraph (c) to 
Sec.  423.2320 to describe a process for accounting for quarterly 
invoiced amounts that go unpaid by a bankrupt manufacturer.
    We received the following comment and our response follows:
    Comment: Commenters strongly supported our proposal. One commenter 
requested that CMS expand upon the section to include scenarios other 
than bankruptcy.
    Response: We appreciate the support expressed for our proposal. 
However, we will not be expanding Sec.  423.2320(c) to include 
scenarios other than bankruptcy. We will cover the costs of unpaid 
quarterly invoices only in the event that a manufacturer becomes 
bankrupt and fails to pay the invoices. As stated in the proposed rule, 
if a manufacturer becomes bankrupt, we are concerned that a court will 
modify or reduce the amount of the civil money penalties (CMPs), 
rendering the CMPs ineffective for covering the cost of the invoices 
and leaving the Part D sponsor in the position of having to cover the 
costs of the gap discount. In all other scenarios, CMPs, described at 
Sec.  423.2340, will cover the cost of the unpaid invoices.
    In light of the comment that we received recommending that we 
expand our proposal to include scenarios other than bankruptcy, we 
clarify that this provision will apply only to adjust for quarterly 
invoices that go unpaid after the manufacturer has declared bankruptcy. 
As previously stated, in all other cases, CMPs will cover the costs of 
unpaid quarterly invoices.
    Also, consistent with our proposal to adjust the Coverage Gap 
Discount Reconciliation amount of each of the affected Part D sponsors 
to account for the total unpaid quarterly invoiced amount owed to each 
of the Part D sponsors in the contract year being reconciled, we 
clarify in the regulation that we will only adjust the Coverage Gap 
Discount Reconciliation amount for unpaid quarterly invoices used for 
that particular Coverage Gap Reconciliation. Use of a particular set of 
quarterly invoices in a Coverage Gap Discount Reconciliation is 
consistent with our current process, and we are not modifying that 
process for the purposes of this provision. Therefore, we clarify that 
we will not adjust the Coverage Gap Reconciliation amount for unpaid 
quarterly invoices that are not specifically used in that contract 
year's Coverage Gap Reconciliation.
    After consideration of the public comments we received, we are 
finalizing Sec.  423.2320(c) as proposed, with the minor clarifications 
discussed.
5. Risk Adjustment Data Requirements (Sec.  422.310)
    In addition to the provisions addressed in the May 23, 2014 final 
rule (79 FR 29847),\8\ we proposed to align Sec.  422.310 regarding 
submission of risk adjustment data with Sec.  422.326 by making a 
change in paragraph (g); specifically, we proposed the deletion of the 
January 31 deadline in paragraph (g)(2)(ii) and replacing it with the 
statement that CMS will announce the deadline by which final risk 
adjustment data must be submitted to CMS or its contractor. This would 
allow the risk adjustment data submission deadline to also function as 
the Part C applicable reconciliation date for purposes of Sec.  422.326 
on overpayment rules because Sec.  422.326(a) refers to the annual 
final deadline for risk adjustment data submission as a date 
``announced by CMS each year.''
---------------------------------------------------------------------------

    \8\ We proposed three amendments to Sec.  422.310 in our January 
10, 2014 proposed rule. In the May 23, 2014 final rule, we finalized 
one proposal, stated that we would not finalize the second proposal, 
and would finalize the third proposal at a later time. (See the May 
23, 2014 final rule (79 FR 29848, 29925, and 29926). The third 
proposal is addressed in this final rule.
---------------------------------------------------------------------------

    In response to the January 10, 2014 proposed rule, we received 
approximately six pieces of correspondence from organizations and 
individuals regarding this specific proposal to replace the January 31 
deadline with a date announced annually by CMS. We received the 
following public comments and our responses follow.
    Comment: A few commenters supported CMS' proposal to remove the 
current date of January 31 as the annual final risk adjustment data 
submission deadline and replace it with the provision that CMS will 
announce the deadline annually, with the proviso that CMS' timing of 
this annual deadline always allow sufficient opportunity for 
organizations to make final data submissions. Several other commenters 
stated their concern about this proposed change in deadline, including 
a concern that CMS might announce a deadline earlier than January 31 in 
some years. These commenters requested that CMS clarify that the annual 
deadline would never be before January 31, and a few commenters 
suggested that the regulation state that the deadline is January 31 but 
may be extended. Finally, a few commenters requested that CMS not 
change the January 31 date to a floating date, in order to allow 
operational stability.
    Response: Our goal for eliminating January 31 as the final risk 
adjustment data submission deadline was to align this deadline at Sec.  
422.310(g)(2)(ii) with the overpayment provisions in Sec.  422.326, so 
that the final risk adjustment data submission deadline would also 
function as the Part C applicable reconciliation date set forth in the 
overpayment provisions. As noted in the proposed rule, in order to 
align with the overpayment provisions, each year we expect to announce 
a date that would accommodate the current subregulatory guidance that 
MA organizations review the monthly enrollment and payment reports they 
receive from CMS within 45 days of the availability of the reports. We 
make these reports available to MA organizations each month according 
to an operational schedule that we release each year. Therefore, we 
expect to announce a final risk adjustment data submission deadline 
that falls on or just after the conclusion of this 45-day period for 
the January payment, which would be about 6 weeks after the end of the 
payment year, and no earlier than the current January 31 deadline.
    We do not expect the date of the annual final risk adjustment data 
submission deadline to vary much from year to year but we believe that 
providing flexibility in the regulation text is necessary to 
accommodate the operational routines of our systems.
    In response to comments, we are finalizing our provision at Sec.  
422.310(g)(ii) with modification, stating that the final risk 
adjustment data submission deadline will be announced by CMS each year 
and will be no earlier than January 31.

C. Strengthening Beneficiary Protections

1. MA-PD Coordination Requirements for Drugs Covered Under Parts A, B, 
and D (Sec.  422.112)
    Under Sec.  422.112(b) of the MA program regulations, coordinated 
care plans must ensure continuity of care and integration of services 
through arrangements with contracted providers. We believe that an 
important aspect of

[[Page 7940]]

this coordination is ensuring that all needed services, including drug 
therapies, are provided in a timely manner. Certain drug classes, 
including certain infusion agents, oral anticancer therapies, oral 
anti-emetics, immunosuppressants, and injectables, may be covered by 
Part D only when coverage under Parts A or B is not available. Because 
coverage of these drugs cannot generally be determined based solely on 
the drug, plan formularies often apply prior authorization criteria 
before claims can be paid at the point-of-sale (POS). Additionally, 
when an MA-PD plan issues an adverse Part D coverage determination 
because they have determined the drug is covered under Parts A or B, we 
expect MA-PD plans to ensure the drug is provided under the Parts A and 
B basic benefit.
    In the January 2014 proposed rule, we proposed to add a new 
paragraph (b)(7)(i) to Sec.  422.112 to require MA-PDs to establish and 
maintain a process to ensure that appropriate payment is assigned at 
the POS. In the preamble, we characterized this as a proposal to 
require MA-PDs to establish adequate messaging and processing standards 
with network pharmacies to achieve this goal.
    We also proposed to add a new paragraph (b)(7)(ii) to Sec.  422.112 
to require that MA-PD plans issue the determination and authorize or 
provide the benefit under the applicable part (A, B or D)--which would 
require the MA-PD plan to proactively coordinate their enrollees' 
prescription drug coverage under Parts A, B and D--in order to ensure 
that enrollees receive Medicare covered prescription drugs as 
expeditiously as the enrollee's health condition requires. We stated in 
the preamble that if a denial under Part D is based on the existence of 
coverage under Parts A or B, the MA-PD plan should authorize or provide 
the drug under that other benefit without requiring the enrollee to 
make a subsequent request for coverage under that other benefit. Such 
determinations about the coverage of the drug would have to be provided 
in accordance with part 422, subpart M and part 423, subpart M, when a 
party requests a coverage determination.
    We received the following comments on this proposal and our 
responses follow:
    Comment: Beneficiary advocacy groups, some health plans, and 
pharmacy groups expressed their support for our proposal to strengthen 
coordination of benefit requirements applicable to MA-PD plans. Those 
commenters believe that requiring more appropriate messaging at the POS 
would decrease enrollees' confusion and serve to improve coordination 
of benefits.
    One commenter urged CMS to adopt a policy to treat presentation of 
a prescription at the pharmacy counter by an enrollee as a request for 
a Part D coverage determination and the response from the plan as an 
initial coverage determination, giving the enrollee access to the 
appeals process. The commenter stated it is especially important for 
claims rejected at the POS under Part D because coverage may be 
available under Part A or Part B from the same MA entity, to be treated 
as a request for a coverage determination to avoid delays in access.
    Another commenter stated that CMS' longstanding policy that 
presentation of a prescription at the pharmacy counter is not 
considered a request for a coverage determination may seem like CMS is 
requiring the enrollee to request an initial coverage determination 
twice, contrary to our statement in the proposed rule that enrollees 
should not have to make an initial request more than once. Furthermore, 
the comment states that many, if not most, plans do not choose to treat 
presentation of a prescription as a request for a coverage 
determination because the pharmacy is not a representative of the plan 
trained to accept such requests on the plan's behalf, including 
collecting all the necessary information from the enrollee, conveying 
it to the plan within the required timeframe, and documenting its 
activities in this regard.
    Response: We appreciate the commenters' support for our proposal, 
but would like to clarify that we are not requiring MA-PDs to pay at 
the POS for all drugs that might be covered under Parts A, B or D in 
all circumstances, nor are we requiring plans to treat a POS claim 
transaction as a request for a coverage determination. As we have 
stated since the inception of the Part D program, neither the 
presentation of a prescription at the pharmacy, nor a POS claim 
transaction constitutes a coverage determination or a request for a 
coverage determination by the plan. If a rejected claim cannot be 
resolved at the POS, the Part D plan is required to transmit a code to 
the network pharmacy instructing the pharmacy to provide the enrollee 
with the standardized pharmacy notice that advises the enrollee of the 
right to request a coverage determination from the plan. A coverage 
determination request must be made directly to the Part D plan by the 
enrollee, the enrollee's representative, or the prescriber. Pharmacy 
staff does not have all of the information necessary to make a coverage 
determination on behalf of the plan.
    Comment: A commenter requested that CMS clarify that it does not 
prevent pharmacies from accessing readily available information to 
assist with appropriate payment determinations at the POS.
    Response: We would like to clarify that we do not prohibit 
pharmacies from using or transmitting to the MA-PD plan readily 
available information for purposes of determining appropriate payment 
at POS. This final rule does not change the guidance contained at 
section 20.2.2 of Chapter 6 of the Medicare Prescription Drug Benefit 
Manual, (Rev 10, 2-19-10), with respect to readily available 
information accessed by the pharmacy. The MA-PD plan will have met 
appropriate due diligence standards under Part D and the regulations 
implemented via this final rule without further contacting a physician 
if necessary and sufficient information is provided on the 
prescription, and the contracted pharmacy is able to communicate this 
information to the sponsor to assist in assigning appropriate payment 
at the POS.
    Comment: A few commenters requested that CMS extend this proposal 
to out-of-network pharmacies.
    Response: We disagree with these commenters. Plans do not have an 
established relationship with out of network pharmacies and, therefore, 
applying this proposal to them would be impractical.
    Comment: Most commenters expressed strong support regarding CMS' 
proposal to coordinate Parts A, B, and D drug coverage during the 
coverage determination process.
    Response: We thank commenters for their support. We will continue 
to work with stakeholders to explore program enhancements that may be 
more uniquely suited for plans that offer both Parts A, B and D 
benefits. We are exploring the possibility for future subregulatory 
guidance on this topic.
    Comment: Several commenters suggested that CMS work with the 
Congress to simplify Medicare drug coverage by establishing clearer and 
simpler rules such as covering all prescription drugs under Part D 
instead of having coverage also under Parts A and B. Furthermore, a 
commenter urged CMS to consider using its regulatory authority to 
achieve some simplification by, for example, covering exclusively under 
Part D all drugs that are currently covered under Part D in the vast 
majority of cases.
    Response: We appreciate commenters' desire for simpler coverage 
policies for

[[Page 7941]]

Medicare-covered prescription drugs. However, as recognized in the 
comments, statutory changes would be needed to simplify coverage and 
payment rules, which is outside the scope of this rulemaking. We will 
evaluate what appropriate simplifications we may be able to make using 
current regulatory authority.
    Comment: Many commenters stated that although they are supportive 
of CMS' intention to ensure that beneficiaries are able to obtain their 
prescriptions without the inconvenience and delays that are due to 
differences in the coverage rules for drugs under Parts A, B, and D, 
there are going to be circumstances that require the enrollee or 
someone on the enrollee's behalf to request a coverage determination 
from the MA-PD. They suggested that CMS revise the proposed rule 
language to recognize that ``timely'' adjudication might not, and often 
cannot, occur at the POS because information that is essential to 
determining whether a drug is covered under Parts A or B often is not 
available at the POS and must be obtained from the prescriber and 
sometimes an organization determination also is required from the MA-
PD. Pharmacy groups say they follow up with prescribers and MA-PDs, but 
delays are inevitable when those steps have to be taken.
    Response: As indicated in the proposed rule, our intention is to 
add proposed Sec.  422.112(b)(7)(i) to our regulatory provisions in an 
effort to improve at the POS the care continuity and coordination 
between Part D drug benefits and Parts A and B drug benefits 
administered by the MA-PD, not to establish a requirement that 
pharmacies be responsible for making coverage determinations. Although 
plans have the discretion to treat POS transactions as coverage 
determinations, it is our understanding that network pharmacies do not 
receive all of the information needed to act on behalf of hundreds of 
Part D sponsors in making robust coverage determinations and generating 
the required denial notice with detailed formulary information and 
appeal rights. Additionally, the current HIPAA transaction standards do 
not support the type and volume of information that would be necessary 
to treat POS rejections as adverse coverage determinations.
    We realize that there will be circumstances in which the 
information necessary to determine whether a drug that is not covered 
under Part D would be covered under Parts A or B will not be available 
at the POS. In those cases, enrollees will receive the standardized 
pharmacy notice that explains the right to contact the plan for a 
coverage determination. However, we do believe that MA-PDs, by working 
with their network pharmacies and prescribers, are capable of a high 
degree of coordination and continuity. Through those collaborative 
efforts, the network pharmacy can often acquire information needed to 
obtain an edit override from the plan or otherwise ensure that the 
claim can be processed and paid at the POS.
    Comment: Some commenters suggested that CMS adopt use of specific 
prior authorization codes, increased interoperability across electronic 
systems, and changes to Medicare's Common Working File (CWF) in order 
to make drug coverage determinations possible at the POS and decrease 
billing errors.
    Response: We appreciate those suggestions and expect that MA-PDs 
and their network pharmacies will explore enhancements to their systems 
to improve communications and otherwise streamline their processes in 
order to ensure timely and accurate processing of POS transactions. We 
welcome suggestions for appropriate approaches that would support such 
improvements but decline to adopt rules to that effect at this time.
    Comment: A few commenters stated that CMS' proposal to have plans 
pay for a drug and subsequently chase the responsible party for 
reimbursement would be inefficient and costly.
    Response: We clarify for those commenters that neither our proposed 
nor this final rule include any provision that will require MA-PDs to 
pay for or cover a drug for an enrollee when another payor is 
responsible for that payment, or when a payment determination cannot be 
made at the POS. We agree that a ``pay and chase'' policy would not be 
efficient, and is not always in the best interest of the enrollee. As 
we discussed in the proposed rule, implementing a requirement to 
authorize all claims at the POS may interfere with medically 
appropriate pre-authorization requirements and may trigger 
retrospective enrollee liability depending on the difference in 
enrollee cost-sharing for coverage under Parts A, B, and D, 
retrospective TROOP adjustments and Part D reconciliation (79 FR 2009). 
We are finalizing the proposal to require MA-PDs to coordinate with 
their network pharmacies and prescribers to improve existing processes 
and develop new ones in order to ensure that enrollees receive their 
Medicare-covered prescribed medications, without delay, when they 
present at the network pharmacy.
    After considering the comments, we are revising Sec.  
422.112(b)(7)(i) by deleting the reference to ``claims adjudication'' 
so there is a clearer distinction between the POS requirements 
addressed in paragraph (b)(7)(i) from the coverage determination 
requirements referenced in paragraph (b)(7)(ii). We are finalizing 
paragraph (b)(7)(i) to state that MA-PD plans must establish and 
maintain a process to ensure timely and accurate POS transactions. 
Compliance with this requirement may be achieved using adequate 
messaging and other procedures with network pharmacies to ensure care 
continuity and coordination at the POS between Part D drug benefits and 
Parts A or B drug benefits administered by the MA-PD.
    When processing a coverage determination for a prescription drug 
that may be covered under Parts A, B or D, if the MA-PD determines, as 
part of the coverage determination process, that the requested drug is 
not covered under Part D, it must then evaluate whether the drug in 
question is covered under Parts A or B. The MA-PD is responsible for 
providing a clear explanation of its decision, including the decision 
to cover the requested drug under a different benefit and how to obtain 
the drug (for example, instructions to take the plan decision notice to 
the pharmacy to obtain the requested drug) in the Part D standardized 
denial notice. We expect to work with stakeholders to explore program 
enhancements that may be more uniquely suited for plans that offer both 
Parts A, B, and D benefits. We are finalizing, as proposed, Sec.  
422.112(b)(7)(ii) and are exploring possibilities for future 
subregulatory guidance on this topic.
2. Good Cause Processes (Sec. Sec.  417.460, 422.74 and 423.44)
    Section 1851(g)(3)(B)(i) of the Act provides that MA organizations 
may terminate the enrollment of individuals who fail to pay basic and 
supplemental premiums after a grace period established by the plan. 
Section 1860D-1(b)(1)(B) of the Act generally directs us to establish 
regulations related to enrollment, disenrollment, and termination for 
Part D plan sponsors that are similar to those established for MA 
organizations under section 1851 of the Act. In addition, section 
1860D-13(a)(7) of the Act mandates that the premiums paid by 
individuals with higher incomes be increased by the applicable Part D 
income related monthly adjustment amount (Part D IRMAA), for the months 
in which they

[[Page 7942]]

are enrolled in Part D coverage. Consistent with these sections of the 
Act, subpart B in both the Part C and Part D regulations sets forth 
requirements with respect to involuntary disenrollment procedures at 
Sec.  422.74 and Sec.  423.44, respectively. An MA or Part D plan that 
chooses to disenroll beneficiaries for failure to pay premiums must be 
able to demonstrate that it made a reasonable effort to collect the 
unpaid amounts by notifying the beneficiary of the delinquency, 
providing the beneficiary a period of no less than 2 months in which to 
resolve the delinquency, and advising the beneficiary of the 
termination of coverage if the amounts owed are not paid by the end of 
the grace period.
    In addition, current regulations at Sec.  417.460(c) specify that a 
cost plan, specifically a health maintenance organization (HMO) or 
competitive medical plan may disenroll a member who fails to pay 
premiums or other charges imposed by the plan for deductible and 
coinsurance amounts. With the exception of the grace period, the 
procedural requirements for cost plans to disenroll a member for 
failure to pay premiums are similar to those for MA and Part D plans. 
The cost plan must demonstrate that it made reasonable efforts to 
collect the unpaid amount and sent the enrollee written notice of the 
pending disenrollment at least 20 days before the disenrollment 
effective date.
    In the April 2011 final rule (76 FR 21432), we amended both the 
Parts C and D regulations at Sec.  422.74(d)(1)(v), Sec.  423.44(d)(1), 
and Sec.  423.44(e)(3) regarding involuntary disenrollment for 
nonpayment of premiums or Part D IRMAA to allow for reinstatement of 
the beneficiary's enrollment into the plan for good cause. In the April 
2012 final rule (77 FR 22071), we extended the policy of reinstatement 
for good cause to include beneficiaries enrolled in cost plans in Sec.  
417.460(c)(3), thus aligning the cost plan reinstatement provision with 
the MA and PDP provisions. These good cause provisions authorize us to 
reinstate a disenrolled individual's enrollment without an interruption 
in coverage in certain circumstances where the non-payment was due to 
circumstances that the individual could not reasonably foresee or could 
not control, such as an unexpected hospitalization. Since its 
inception, the process of accepting, reviewing, and processing 
beneficiary requests for reinstatement for good cause has been carried 
out exclusively by CMS. However, we have received feedback from plans 
on ways to improve the good cause process and make it more efficient 
for both the plans and CMS. Based on this feedback, we updated Chapter 
2 of the Medicare Managed Care Manual and Chapter 3 of the Medicare 
Prescription Drug Benefit Manual to clarify the language of the notice 
provided to beneficiaries, and the process and timing of receiving 
payments during the extended grace period in connection with Sec.  
417.460(c)(3), Sec.  422.74(d)(1)(v), and Sec.  423.44(d)(1)(vi). In 
addition, we updated the Complaints Tracking Module (CTM) Standard 
Operating Procedures (SOP) to permit plans to transfer requests for 
reinstatement for good cause to CMS.
    In light of ongoing feedback, in the January 2014 proposed rule we 
proposed to amend Sec.  417.460(c)(3), Sec.  422.74(d)(1)(v), and Sec.  
423.44(d)(1)(vi) to permit an entity acting on behalf of CMS to 
effectuate reinstatements when good cause criteria are met. This 
proposal would allow us to designate another entity, including a plan 
(MA organization, Part D sponsor, or entity offering a cost plan) to 
carry out portions or all of the good cause process. While we 
envisioned an expanded role for plans to accept incoming requests for 
reinstatement directly from former enrollees, which would allow them to 
be more responsive to their current and former members, we stated that 
ensuring objectivity in the review of these cases and equity among 
beneficiaries regarding the determination of good cause was critically 
important. Accordingly, we indicated that we would establish 
operational policy and processes in subregulatory guidance to set 
parameters for the application of the good cause standard, including 
the submission to us of certain cases for review to ensure that plans 
remain impartial and equitable in their assessment and treatment of 
former members who have been disenrolled for nonpayment of premiums. 
These changes would be accompanied by the development of an oversight 
protocol for any activities assigned to a designee that are currently 
carried out by CMS.
    In addition, we proposed a technical change to the language in 
Sec.  417.460 to clarify that good cause protections for enrollees in 
cost plans apply to instances where there was a failure to pay either 
plan premiums or other charges.
    We received the following comments and our responses follow:
    Comment: Commenters expressed both support for and opposition to 
our proposal to allow an entity acting on behalf of CMS to effectuate 
reinstatements when it is determined that good cause criteria are met. 
Several commenters agreed that plans or an independent contractor could 
perform this function if provided appropriate guidance and that this 
new process could produce efficiencies that would be advantageous to 
beneficiaries, plans and CMS. Other commenters believed that only CMS 
or an independent contractor would have the knowledge and impartiality 
to consider these cases appropriately. In addition, a few commenters 
expressed concerns with the quality of work currently performed by 
plans and CMS contractors and did not believe that their current 
performance warranted an increase in responsibility.
    Response: We thank commenters for their feedback in response to 
this proposal. We continue to believe that with proper guidelines, 
instructions and oversight, entities to which we assign this activity 
could review and process good cause requests in an appropriate manner. 
Given the feedback we have received since establishing the good cause 
review process handled exclusively by us, we have learned that some 
good cause reinstatement requests could be resolved more efficiently by 
plans since they can readily access a former enrollee's premium billing 
and payment history, and as such, are well positioned to more easily 
resolve disenrollment disputes that are erroneously being treated, at 
least initially, as good cause requests.
    We fully understand that impartiality would be a key concern if 
this function is performed by plans. That is why we noted in the 
January 2014 proposed rule that if we were to exercise the authority we 
proposed to include in these regulations, an oversight protocol would 
be developed and CMS would retain the right to review cases to ensure 
that determinations made by a CMS designee are in line with our 
guidance.
    Comment: Under the assumption that plans would be given the 
responsibility to perform good cause reviews, a few commenters had 
questions about the plans' scope of responsibility. Specifically, a 
commenter questioned whether plans would be permitted to refer a case 
to CMS for review and decision. Another commenter questioned whether 
plans would be able to opt out of this work if they did not want to 
take on the burden or costs related to this activity. Lastly, a 
commenter questioned whether or not beneficiaries would be able to 
appeal the plan's decision.
    Response: In the event we assign the good cause process to plans, 
the expectation would be that they perform the work from start to 
finish (that is, intake, research, decision, notification,

[[Page 7943]]

and effectuation). We would provide guidance regarding these activities 
in our enrollment manuals (Chapter 2 and Chapter 17, Subchapter D, of 
the Medicare Managed Care Manual and Chapter 3 of the Medicare 
Prescription Drug Benefit Manual) and, as part of the designation, we 
would retain the authority to review both favorable and unfavorable 
decisions to ensure that results are fair and sound. In addition, as 
mentioned previously, we would develop an oversight protocol to ensure 
that plans are compliant with our guidelines. As with other MA and Part 
D policies, we realize that sometimes plans need feedback or guidance 
from us to address certain unique issues. That would continue to be the 
case for good cause reviews, but the expectation would be that once we 
assign this process to plans, they would develop their own internal 
processes for reviews, based on our guidance, and carry out the 
majority of this workload without involving us.
    Beneficiaries do not currently have the right to appeal good cause 
determinations. Ultimately our goal is to streamline the good cause 
review process and make it easier for all parties (beneficiaries, 
plans, and CMS) to navigate. As such, we believe that the key to any 
successful delegation of this work to the plans would be providing 
clear and complete guidance to plans, but not adding another layer of 
review to the process.
    Finally, should we conclude that plans are appropriate entities to 
perform good cause reviews, we would assign this function to all plans, 
and under the revisions to the regulations being finalized here, we 
would require plans to accept this additional responsibility. 
Specifically, we are finalizing the revisions to the applicable 
regulations to provide that a third party to which CMS has assigned 
this responsibility, such as an entity offering a cost plan, a MA 
organization, or a Part D plan sponsor, may reinstate an enrollee based 
upon the good cause showing. We believe it would be more complicated 
operationally, and confusing to beneficiaries, if we did not implement 
a uniform process for handling requests for reinstatement.
    Comment: A commenter expressed support for the proposed revision to 
include language regarding a cost plan enrollee's ability to request 
reinstatement for good cause not only for failure to pay premiums, but 
also for nonpayment of ``other charges'' including deductibles and 
cost-sharing.
    Response: We thank the commenter for their support for this 
regulatory change and for confirmation of the need to expand this 
beneficiary protection to cost plan enrollees.
    After careful consideration of these comments, we are finalizing 
the proposed amendments to the regulations with modifications to 
clarify that the third party to which CMS may assign this 
responsibility may be an MA organization, a Part D sponsor or an entity 
offering a cost plan.
3. MA Organizations' Extension of Adjudication Timeframes for 
Organization Determinations and Reconsiderations (Sec.  422.568, Sec.  
422.572, Sec.  422.590, Sec.  422.618, Sec.  422.619)
    Sections 1852(g)(1)(A) and 1852(g)(2) of the Act respectively 
require MA organizations to make all organization determinations on a 
timely basis, and to provide for reconsideration, or review, of 
organization determinations within a timeframe specified by the 
Secretary, but no later than 60 days from the date of receipt of the 
request for reconsideration. Section 1852(g)(3)(B) of the Act requires 
MA organizations to maintain procedures for expediting organization 
determinations and reconsiderations when a physician's request 
indicates that applying the standard timeframe could seriously 
jeopardize the life or health of the enrollee or the enrollee's ability 
to regain maximum function or when, in the case of an enrollee's 
request, the MA organization makes such a determination on its own. In 
expedited cases, the MA organization generally must issue its decision 
no later than 72 hours from receipt of the request. Section 
1852(g)(3)(B)(iii) of the Act permits the Secretary to extend this 72-
hour decision-making timeframe in certain cases.
    Our existing regulations at 42 CFR part 422, subpart M, codify the 
procedures MA organizations must follow in issuing standard and 
expedited organization determinations and reconsiderations, including 
setting forth the required adjudication timeframes and the 
circumstances under which plans are permitted to extend those 
timeframes.
    As we stated in the proposed rule (79 FR 2011), we believe the 
current language that permits extension of the adjudication timeframes 
set forth in Sec.  422.568(b), Sec.  422.572(b), Sec.  422.590(a)(1), 
and Sec.  422.590(d)(2) is being interpreted more broadly than we 
intended and that MA organizations are regularly invoking extensions of 
the adjudication timeframes for organization determinations and 
reconsiderations. Based on information ascertained during recent MA 
program audits, we have seen circumstances in which MA organizations 
are routinely and inappropriately invoking the 14-day extension in 
cases where the plan: (1) Lacks adequate internal controls to ensure 
coverage requests are reviewed and adjudicated within the required 
regulatory timeframe; and (2) is awaiting receipt of supporting 
clinical documentation from one of its contract providers.
    Routinely invoking an extension of the applicable adjudication 
timeframe is counter to the intent of the statutory and regulatory 
requirements for timely determinations that emphasize the health needs 
of the beneficiary in determining the appropriate adjudication 
timeframe. Extensions that are not affirmatively requested by the 
enrollee should be permitted only in limited circumstances, and only if 
the extension is in the enrollee's interest. MA organizations are 
required by regulation to render all coverage decisions as 
expeditiously as the enrollee's health condition requires. When plans 
choose to subject an item or service to a prior authorization 
requirement, we expect them to have the resources to process those 
requests in a timely manner.
    In the proposed rule, we suggested revising these regulatory 
provisions to clarify our intended standard for when it is appropriate 
for an MA organization to extend an adjudication timeframe. 
Specifically, we proposed the following changes:
     At Sec.  422.568(b), Sec.  422.572(b), and Sec.  
422.590(e), to add new text and to restructure the regulation 
paragraphs for clarity.
     At Sec.  422.568(b)(1)(ii), Sec.  422.572(b)(1)(ii), and 
Sec.  422.590(e)(1)(ii), to clarify that an extension may be justified 
and in the enrollee's interest due to the need to obtain additional 
medical information, which may result in changing the MA organization's 
denial of coverage of an item or service only from a non-contract 
provider.
     At new Sec.  422.568(b)(1)(iii), Sec.  422.572(b)(1)(iii), 
and Sec.  422.590(e)(1)(iii), to clarify that an extension of the 
adjudication timeframe may be permitted when the extension is justified 
due to extraordinary, exigent or other non-routine circumstances, and 
it is in the enrollee's interest.
     To make corresponding technical edits to subpart M to 
improve clarity in our guidance related to extensions and to remove 
duplicative language (that is, to remove Sec.  422.590(d)(2) and add a 
new Sec.  422.590(e), to update cross references in Sec.  422.618(a)(1) 
and Sec.  422.619(a), to make changes within Sec.  422.568(b), Sec.  
422.572(b), and Sec.  422.590(d) to ensure

[[Page 7944]]

consistency in the structure and language of these provisions).
    We received the following comments on this proposal and our 
responses follow:
    Comment: Several commenters expressed general agreement that 
extensions to adjudication timeframes for organization determinations 
and reconsiderations should not be invoked routinely. Some commenters 
expressed strong support for this proposal and stated that it would 
reduce inappropriate delays in coverage decision-making and, therefore, 
reduce current delays in access to needed care that result from more 
routine use of extensions.
    Response: We appreciate the support expressed by these commenters. 
The clarifications we proposed reinforce longstanding statutory and 
regulatory program requirements for timely decision-making that 
emphasize the beneficiary's health condition and the urgency of the 
requested item or service.
    Comment: A few commenters who did not support the proposal stated 
that both contract and noncontract providers are not always responsive 
to plan requests for clinical information. A commenter further stated 
that MA organizations should not be penalized for delays resulting from 
third parties' failure to provide documentation necessary for a timely 
coverage decision. Another commenter added that it is not realistic to 
expect contract providers to produce complete medical documentation in 
response to every coverage request, and that it is not reasonable to 
expect provider contracting to ensure that full documentation is 
produced without the need for extensions. Because of those concerns, 
these commenters did not believe MA organizations should be restricted 
from using extensions on the basis of the provider's contracting 
status.
    Response: We have considered contract providers as agents of the MA 
organization offering the plan, and we believe it is reasonable to 
expect MA organizations to use provider contracting to establish a wide 
range of expectations for network providers to ensure compliance with 
program rules, including timely receipt of relevant clinical 
documentation. MA organizations remain responsible for compliance with 
MA rules and requirements, even when using contractors or other 
entities to fulfill those responsibilities. (For more detailed 
information, see Sec.  422.504(i)). We expect the contract terms 
between MA organizations and their contract providers to properly 
incentivize contract providers, as necessary, to produce requested 
clinical records in a timely manner.
    We appreciate that health care providers working with managed care 
plans must navigate a complex and changing health care environment and 
routinely contract with multiple plans. However, we do not agree that 
these challenges should prevent MA organizations from rendering 
coverage decisions that are completed as expeditiously as the 
enrollee's health condition requires. The contractual arrangement with 
network providers is an important tool plans can use to ensure 
compliance with these beneficiary protections.
    We expect plans to promptly solicit and obtain contract providers' 
clinical documentation when an enrollee requests coverage of an item or 
service. When the case file contains incomplete information, we expect 
plans to work diligently with contract providers to cure the defect 
while adhering to the requirement to issue all decisions as 
expeditiously as the enrollee's health condition requires. As stated 
previously and described in more detail later in this final rule, the 
new regulation text at Sec.  422.568(b)(1)(iii), Sec.  
422.572(b)(1)(iii) and Sec.  422.590(e)(1)(iii) clarifies that 
extensions are permitted--regardless of provider contracting status--if 
necessary clinical documentation is not readily available due to 
extraordinary, exigent or other non-routine circumstances.
    We believe that plans can mitigate overuse of extensions by 
correcting other common compliance problems. For example, plans often 
receive audit findings for failure to conduct timely or sufficient 
outreach to providers to obtain necessary clinical information during 
the coverage determination process. Ensuring reasonable and diligent 
provider outreach will improve the plan's ability to issue timely 
decisions based on consideration of complete clinical information.
    We expect plans to make reasonable, timely, and diligent efforts to 
obtain medical records from both contract and non-contract providers 
without having to extend the adjudication timeframe. However, we agree 
with the commenters that MA organizations have little control over a 
non-contract provider who does not respond to the plan's requests for 
documentation. For this reason, we are clarifying at Sec.  
422.568(b)(1)(ii), Sec.  422.572(b)(1)(ii) and Sec.  422.590(e)(1)(ii) 
that extensions are permitted when the plan is seeking clinical 
information from a noncontract provider, as long as the extension is in 
the enrollee's best interest. While we acknowledge this limitation, we 
nevertheless expect plans to make reasonable efforts to obtain 
necessary information from noncontract providers in a manner which 
affords the enrollee a timely decision.
    We believe our proposed changes strike the appropriate balance 
between minimizing the burden on MA plans and providers (both contract 
and non-contract) and protecting enrollees' statutory right to timely 
decisions and to timely access to the appeals process.
    Comment: A few commenters disagreed with our proposal because they 
believed that CMS was eliminating all extensions.
    Response: It appears that these commenters misunderstood our 
proposed change. This change will not eliminate extensions. Extensions 
of up to 14 days will continue to exist for both standard and expedited 
requests for organization determinations and reconsiderations. As we 
stated in the proposed rule, we proposed these changes to clarify our 
existing intent that extensions at the MA organization's behest should 
only be taken on a limited basis and only when they are in the 
enrollee's interest.
    Comment: Several commenters--both supportive and not supportive of 
CMS' proposal--noted that consideration of complete clinical 
documentation during the coverage decision process is in the best 
interest of the enrollee. Some of those commenters who disagreed with 
our proposal also stated that use of extensions to obtain missing 
clinical information when the plan is seeking that information is, 
therefore, also in the best interest of the enrollee. Likewise, some of 
these commenters expressed a belief that not taking an extension would 
be detrimental to enrollees by resulting in increased denials and 
delays in access to care.
    Response: While we agree that it is in the best interest of an 
enrollee that the MA organization reviews complete clinical information 
when adjudicating a coverage request, we disagree with the commenters 
that use of extensions is in the best interest of the enrollee when 
such extensions are taken in the absence of extraordinary, exigent, or 
other non-routine circumstances. Section 1852(d) of the Act requires 
reasonably prompt access to medically necessary services--including 
compliance with provider network adequacy requirements established at 
Sec.  422.112 of the regulations--and section 1852(g) of the Act 
requires timely coverage decisions that emphasize the health needs of 
the beneficiary in determining the appropriate adjudication timeframe. 
We do not believe that complete consideration of clinical documentation

[[Page 7945]]

and adjudication within the established timeframes are mutually 
exclusive activities. We established MA adjudication timeframes with 
strong support from stakeholders, including the managed care industry, 
and physician groups. (For a more detailed discussion, see the June 29, 
2000 Federal Register (65 FR 40278)). Therefore, we do not believe that 
our proposed changes will cause a delay in access to care since MA 
organizations should be able to obtain the necessary information and 
render a decision within the established timeframes.
    The new regulatory provisions at Sec.  422.568(b)(1)(iii), Sec.  
422.572(b)(1)(iii) and Sec.  422.590(e)(1)(iii) permits MA plans to 
invoke an extension in limited circumstances where timely receipt of 
necessary clinical information is not possible, for example, if a 
provider's office is flooded and additional time is needed to reach the 
provider and/or to obtain off-site or electronic records that would 
support a favorable coverage decision. We recognize that these 
extraordinary, exigent or other non-routine circumstances may arise 
regardless of whether the provider(s) involved has a contract with the 
plan; therefore, these extensions are not restricted to noncontract 
providers.
    Comment: A commenter recommended that, instead of finalizing this 
proposal, CMS should use its existing oversight authority to take 
compliance or enforcement action against the MA organizations that over 
utilize extensions of adjudication timeframes.
    Response: We agree with this commenter that imposing corrective 
action on MA organizations that are routinely noncompliant with 
required decision-making timeframes is an appropriate use of CMS' 
oversight authority, but we disagree that this should be done in lieu 
of our proposed changes. Based on recent program experience, we believe 
our intended restrictions from the original adoption of these rules on 
the use of extensions are broadly misinterpreted and that our proposed 
changes to clarify our policy will enhance beneficiary protections by 
reducing inappropriate delays in access to care and access to the 
appeals process.
    Relying on compliance and enforcement authority alone is not a 
sufficient response to identification of a broadly misinterpreted 
policy. By clarifying our intent that extensions are appropriate only 
in a limited set of circumstances, we aim to assist MA plans in their 
development of operational policies and procedures related to 
processing coverage decisions and, ultimately, to meet our goal of 
overall program compliance in the absence of corrective action and the 
beneficiary risks that may come with it.
    After consideration of the comments received on this proposal, and 
for the reasons noted in our January 2014 proposed rule, we are 
finalizing without modification the proposal to clarify that an 
extension to an adjudication timeframe for organization determinations 
and reconsiderations should be permitted only in limited circumstances.

D. Strengthening Our Ability To Distinguish Stronger Applicants for 
Part C and D Program Participation and To Remove Consistently Poor 
Performers

1. Two-Year Prohibition When Organizations Terminate Their Contracts 
(Sec. Sec.  422.502, 422.503, 422.506, 422.508, and 422.512)
    Section 1857(c)(4)(A) of the Act prohibits organizations from re-
entering the MA program in the event that a previous contract with the 
organization was terminated at the request of the organization within 
the preceding 2-year period, except in circumstances that warrant 
special consideration.
    We proposed to amend the text of the regulations implementing these 
provisions to maintain consistency in their application and harmony 
with our policy. Specifically, we proposed to amend the regulations at 
Sec. Sec.  422.502(b)(3), 422.506(a)(4), and 422.512(e)(1) to 
explicitly apply the 2-year prohibition to applications for service 
area expansions in addition to applications for new contracts. These 
changes to Sec. Sec.  422.502(b)(3), 422.506(a)(4), and 422.512(e)(1) 
would make the text of these regulations consistent with the text at 
Sec. Sec.  422.503(b)(7) and 422.508(c) with regard to the 2-year 
prohibition imposed as a condition of a mutual termination of an MA 
contract.
    We also proposed to amend our policy on the current application of 
regulations implementing the 2-year prohibition to avoid unnecessarily 
narrowing the scope of the 2-year prohibition or precluding us from 
preventing poor performing MA organizations from reentering the MA 
program. We proposed to interpret Sec. Sec.  422.503(b)(6) and 
422.503(b)(7) as authorizing denials of new contracts and service area 
expansions, consistent with the proposed text for Sec. Sec.  422.502, 
422.506 and 422.512, regardless of the contract type, product type, or 
service area of the previous nonrenewal. We further proposed adding a 
sentence to paragraphs (c) and (d) of Sec.  422.508 to make it clear 
that a mutual termination of a MA contract would result in a ban on all 
contract types and service area expansions.
    We received the following comments on this proposal and our 
responses follow:
    Comment: A commenter supported the proposal, stating that it will 
prevent poor performing organizations from re-entering the program 
through another product type of extension of an existing service area.
    Response: We thank the commenter for this support.
    Comment: A commenter supported CMS's interpretation of the 2-year 
prohibition rule to voluntary nonrenewals and mutual terminations and 
CMS's efforts to ensure poor performing MA organizations do not re-
enter the marketplace.
    Response: We thank the commenter for this support.
    Comment: A commenter requested that CMS consider only applying the 
2-year prohibition to the legal entity level, rather than applying the 
2-year prohibition to the parent organization level, as this would be 
an overly broad application which could affect multiple legal entities 
and numerous contracts.
    Response: We currently apply the 2-year prohibition at the legal 
entity level and will continue to do so.
    We are finalizing the amendments to Sec. Sec.  422.502(b)(3), 
422.506(a)(4), 422.508(c) and 422.512(e) as proposed. Although we 
discussed the amendments to Sec.  422.508(c) and Sec.  422.508(d) in 
the preamble to the January 6, 2014 proposed rule, we inadvertently 
omitted the proposed amendments to Sec. Sec.  422.508(c) and 422.508(d) 
from the proposed regulation text. We are including the revision to 
Sec.  422.508(c) in this final rule. We are not finalizing the proposed 
amendment to Sec.  422.508(d) as upon further consideration we believe 
that this amendment is not appropriate. We are also amending Sec.  
422.506(a)(4) by removing the word ``special'' before ``circumstances 
warranting special consideration'' in order to maintain consistency 
with the regulation text at Sec.  422.503(b)(6), Sec.  422.508(c) and 
Sec.  422.512(e), as we do not differentiate between circumstances 
warranting special consideration and special circumstances warranting 
special consideration in our administration of these regulations. We 
believe the use of ``special'' in Sec.  422.506(a)(4) is redundant and 
its removal does not affect our interpretation of the provision and its 
inclusion potentially leads to ambiguity in Sec.  422.506(a)(4). We are 
also finalizing, without modification, our proposal regarding the 
interpretation of

[[Page 7946]]

related regulations that implement the 2-year prohibition. We clarify 
here that the 2-year prohibition, for purposes of Sec. Sec.  422.502, 
422.506, 422.508, and 422.512, is applied at the legal entity level. We 
are further clarifying that the 2-year ban is applicable for the 2 
contract years following the year in which the non-renewal or 
termination of an organization's contract is effective. For example, if 
an organization does not renew its contract for an effective date of 
December 31, 2015 then we would not enter into a contract with the 
organization for contract years 2016 and 2017 unless there are 
circumstances that warrant special consideration. The organization can 
apply to contract with us in contract year 2017 to operate in contract 
year 2018. Likewise, if an organization enters a mutual termination for 
a contract with CMS midyear during 2015, then we will not enter into a 
contract with the organization for contract years 2016 and 2017 absent 
circumstances warranting special consideration, but the organization 
can apply to contract with us in 2017 to operate in contract year 2018. 
We understand there are a variety of reasons that an organization may 
decide to terminate or to renew a contract, and subsequently want to 
re-enter the program. We will consider these circumstances on a case-
by-case basis.
2. Withdrawal of Stand-Alone Prescription Drug Plan Bid Prior to 
Contract Execution (Sec.  423.503)
    Occasionally, organizations new to Part D that have qualified for a 
Medicare PDP sponsor contract withdraw their bids after we have 
announced the low-income subsidy (LIS) benchmark but prior to executing 
the contract for the coming plan year. These withdrawals interfere with 
our administration of the Part D program, in particular the auto-
assignment of LIS beneficiaries. To address this problem, we proposed 
to adopt regulatory provisions that would impose a 2-year application 
ban on organizations not yet under contract with us as PDP sponsors 
that withdraw their applications and bids after we have issued our 
approvals. We made this proposal under our authority at section 1860D-
12(b)(3)(D) of the Act to adopt additional contract terms, including 
the conditions under which we would enter into contracts, not 
inconsistent with the Part D statute.
    In February of each year, we solicit applications from 
organizations seeking to qualify to enter into a contract to offer 
stand-alone PDPs in the upcoming plan year. These organizations, along 
with current PDP sponsors who wish to continue participating in the 
Part D program, submit bids in June for our review and approval. We 
review these applications and bids with the expectation that, upon 
approval, the organizations would enter into PDP sponsor contracts with 
us in September to provide the Part D benefit for the plan year 
starting the following January.
    As part of the annual bid review, we calculate the LIS benchmark 
for each PDP Region based on the bids for basic PDPs submitted annually 
by current PDP sponsors that will operate in that region in the coming 
year. Sponsors whose monthly premiums fall at or below the benchmark in 
a region receive auto enrollments from us of LIS eligible beneficiaries 
in those regions. We normally announce the LIS benchmark in late July 
or early August.
    In recent years, some organizations have withdrawn their 
applications and bids following the announcement of the LIS benchmark. 
Because these organizations withdrew prior to executing a contract, and 
we cannot compel them to sign the contract, they are not subject to our 
compliance or oversight authority, and nothing in our current 
regulations prevents these applicants from withdrawing their 
applications late enough in the process to cause significant 
disruption. In contrast, when an existing PDP sponsor withdraws its 
bid, we treat such an action as an election by the PDP sponsor to non-
renew its contract in that PDP Region, which renders the sponsor 
ineligible to submit another application for 2 years, under our 
regulations at Sec.  423.507(a)(3). We proposed to make a regulatory 
change to ensure equal treatment between new applicants and existing 
PDP plan sponsors, which would allow us to maintain an accurate 
depiction of the contracting landscape. Specifically, we proposed to 
amend Sec.  423.503 by adding paragraph (d) which would impose a 2-year 
Part D application ban on organizations approved by CMS as qualified to 
enter into stand-alone PDP sponsor contracts but which elect, after our 
announcement of the LIS benchmark, not to enter into such contract and 
withdraw their PDP bids. This proposed regulatory change, in effect, 
would subject a withdrawing applicant to the same penalty we may apply 
to an organization already under contract that elects to terminate or 
not renew its PDP contract.
    It is critical that we have an accurate portrayal of the number and 
type of plan benefit packages that would be available to beneficiaries 
in every PDP Region, especially during the end of the summer when much 
of the bid review, both the formulary and actuarial components, has 
been completed. During this period, we need to confirm that there is 
the required minimum number of plans available in each PDP region. We 
also need accurate plan information at the end of the summer so that we 
can meet the production deadlines associated with the annual election 
period, including publication of the Medicare & You handbook as well as 
updating the Medicare Plan Finder Web site and our payment and 
enrollment systems. An applicant that withdraws its application late in 
the process alters the contracting landscape, potentially disrupting 
preparations we have already made, including those related to the auto 
assignment of LIS beneficiaries, for the upcoming plan year. In 
adopting the proposed regulatory authority, we would place a reasonable 
limit on prospective PDP sponsors' option to withdraw bids and 
applications without penalty. By imposing consequences on applicants 
that withdraw their bids following the announcement of the LIS 
benchmark, we also would discourage any ``gaming'' of the bid review 
and auto assignment processes (for example, by participating in the bid 
review process until it learns that it will not qualify for auto-
assignments) that can occur when applicants opt out of participation in 
the PDP at the last minute.
    We received the following comments and our response follows:
    Comment: A number of commenters expressed support for CMS' 
proposal.
    Response: We appreciate the commenters' support of our proposal.
    We received only supportive comments for this proposal; therefore, 
we are finalizing this provision without modification.
3. Essential Operations Test Requirement for Part D (Sec. Sec.  
423.503(a) and (c), 423.504(b)(10), 423.505(b)(28), and 423.509)
    We proposed to create, through regulation, an essential operations 
test, which will be a new step in the application and contracting 
process with newly contracted entities operating as stand-alone PDP 
sponsors or MA organizations offering Part D plans (MA-PDs). This step 
will be administered to ``newly contracted entities.'' We used the term 
``newly contracted entity'' in the proposed rule and in this final rule 
to describe an organization that has entered or applied to enter into a 
Part D contract with us for the first time for the upcoming plan year, 
and neither it, nor another subsidiary of the organization's parent 
organization, is offering Part D benefits during the current benefit 
year. This

[[Page 7947]]

would include organizations that are offering EGWPs for the first time. 
Existing plan sponsors or new sponsors that are subsidiaries of a 
parent company that currently operates a Part D plan through another 
subsidiary would not be subject to the proposed essential operations 
test.
    The essential operations test will allow us to test whether an 
organization's arrangements appear likely to allow the organization to 
effectively administer its contract. We proposed to require 
organizations to pass an essential operations test either-- (1) as a 
qualification to contract, with failure to pass the test nullifying our 
approval of the application; or (2) after contract execution as a 
contract requirement but prior to the start of the benefit year, with a 
failure to pass the test triggering an immediate contract termination 
under Sec.  423.509.
    Pursuant to section 1860D-12(b)(3)(D) of the Act, which 
incorporates by reference section 1857(e)(1) of the Act, we have the 
authority to add contract provisions that are necessary and appropriate 
to carry out the Part D program; section 1860D-11(b) of the Act 
provides authority for the collection of additional information as part 
of the bid as we may require to carry out the Part D program. Based on 
this authority we proposed adding Sec.  423.504(b)(10) and Sec.  
423.505(b)(28) to include passing an ``essential operations test'' as a 
condition to enter into and a term of the Part D contract. 
Additionally, pursuant to our authority at section 1860D-12(b)(3)(B) 
and (b)(3)(F) of the Act (which incorporate by reference section 
1857(c)(2) and (h) of the Act, respectively, to apply to the Part D 
program), the current regulations at Sec.  423.509(a) and (b)(2)(i), 
authorize immediate termination of contracts with Medicare Part D plan 
sponsors in certain circumstances. We believe that immediate 
termination would be authorized under the standard of section 
1857(h)(2) of the Act because the inability of a plan sponsor to ensure 
future members' access their drug benefit, as evidenced by failure to 
pass the essential operations test, would constitute an imminent and 
serious risk to beneficiary health and safety. We proposed adding Sec.  
423.509(a)(4)(xii) and revising Sec.  423.509(b)(2)(i)(C) to subpart K 
to reflect this new cause for immediate termination. Additionally, we 
proposed to explicitly include the essential operations test as a means 
to evaluate Part D applicants in Sec.  423.503(a)(1) and to add Sec.  
423.503(c)(4) to subpart K to establish failure of an essential 
operations test as grounds for nullifying our approval of the 
application notice.
    Given that the heart of the Part D benefit is the sponsor's ability 
to process claims for prescription drugs in real time, we proposed the 
essential operations test and associated regulatory changes because of 
our experience with certain newly contracted entities in the Part D 
program that experienced significant operational difficulties at the 
start of the benefit year as a result of their inexperience 
administering Part D benefits. To prevent the recurrence of this 
problem and ensure that new sponsors are prepared to and actually can 
deliver Part D benefits at an acceptable level, starting with the 2015 
contract year application cycle, we proposed that we may require newly 
contracted entities to pass an essential operations test conducted by 
us beginning in the fall of 2014. In response to the later anticipated 
date of the finalization of this provision, we expect to adjust our 
proposed timing and begin requiring newly contracted entities to pass 
an essential operations test with the 2016 contract year application 
cycle.
    The essential operations test for newly contracted entities will 
entail testing of sponsors' command of Part D benefit administration 
rules and systems related to these areas. Initially, the testing will 
consist of scenario testing with sponsors' key staff to show us that 
they have a firm grasp of the Part D policies and essential operations. 
The test will be able to verify whether an applicant's administrative 
and management arrangements, as attested to in its application, are 
sufficient for the applicant to carry out functions listed in Sec.  
423.504(b)(4)(ii) such as furnishing prescription drug services and 
implementing utilization management programs.
    Provided we have the resources, in the future, the test will likely 
become significantly more sophisticated and involve live testing of 
sponsors' systems with test data. The more involved test would also 
likely include testing the processes related to enrollment such as MARx 
communication and processing; LIS processing and determinations; 
coverage determinations, appeals, and grievances (CDAG) processing; and 
real-time coordination of benefits data exchange and processing. For 
instance, the sponsor would need to demonstrate the ability to pay test 
claims correctly in real-time consistent with its CMS-approved benefit 
packages (including formulary) and the Part D transition fill policy.
a. Failing Essential Operations Test as Cause for Immediate Termination
    Once a sponsor signs its contract, it is obligated to perform all 
of the required functions to support the benefits described in the 
contract even though the sponsor does not start offering benefits until 
January 1. If we find that, based on the results of the essential 
operations test, a sponsor does not have the requisite systems and 
processes in place to offer Part D benefits in real time, our proposal 
was to consider this cause for immediate termination of the sponsor's 
Part D contract in order to protect beneficiaries from harm at the 
start of the contract year.
    In accordance with section 1857(h)(2) of the Act (incorporated by 
reference into PDP by section 1860D-12(b)(3)(F) of the Act), we have 
the authority to immediately terminate a contract with a sponsor 
(without notice and opportunity for a hearing) when a delay in 
termination would pose an imminent and serious risk to the health of 
beneficiaries enrolled in the sponsor's plans. Also, under Sec. Sec.  
423.509(b)(2)(i) and 423.652(b)(2), unlike standard CMS terminations, 
the effective date of an immediate termination is not stayed when the 
sponsor requests a hearing under Sec.  423.650(a)(2). Because 
enrollment and accurate benefit administration through real time claims 
processing are so fundamental to the delivery of the Part D benefit, if 
a sponsor fails to demonstrate to us that it can perform these 
essential operations, we would view this as a substantial failure to 
meet the Part D contract requirements on the following grounds: (1) 
Evidence that the sponsor was carrying out the contract in a manner 
that was inconsistent with the effective and efficient administration 
of the plan; and (2) evidence that the sponsor did not substantially 
meet the applicable conditions set out in the Part D regulations which 
would ultimately justify, depending upon timing of the test, our 
termination of a contract consistent with Sec.  423.509(a)(1) through 
(3) based on the sponsor's failure to meet our proposed contract terms 
at Sec.  423.504(b)(10) and Sec.  423.505(b)(28). We believe that a 
newly contracted entity's failure to demonstrate certain critical 
capabilities and failing the essential operations test represents a 
substantial failure to carry out its Part D contract. Such a failure 
poses an unacceptable risk to the new sponsor's future members' access 
to Part D drugs, which would constitute an imminent and serious risk to 
beneficiary health and safety, justifying our immediate termination of 
the sponsor's contract.

[[Page 7948]]

For MA organizations that must offer Part D benefits pursuant to Sec.  
423.104(f)(3)(i), failing the test would support the termination of the 
organization's Part D addendum as well as its MA contract under Sec.  
422.510(a)(3) because the inability to offer Part D benefits means that 
the organization no longer meets the applicable conditions associated 
with offering Part C benefits.
b. Failing Essential Operations Test as Failure of a Qualification to 
Contract and Grounds for Nullification of Approval
    If an organization fails an essential operations test we conducted 
prior to contract signature, we proposed that no termination would be 
necessary and that we would nullify our previous conditional approval 
of the organization's Part D contract qualification application. We 
proposed to explicitly include the essential operations test as a 
qualification to contract at Sec.  423.503(a)(1) to authorize our use 
of the test and any information learned in the course of the essential 
operations test in making the contract determination.
    We would view failure of the essential operations test as evidence 
that the applicant is not qualified to contract with us. As a result, 
we would nullify our approval based on determining the entity is not 
qualified. Successful applicants receive a conditional approval at the 
end of May of their Part D application in accordance with Sec.  
423.503(c)(1). The letter informs applicants that the conditional 
approval is based on the information contained in their application, 
and if we subsequently determined that any of the information was 
inaccurate or that qualification requirements are not met, we would 
withdraw the approval of the application. Through that notice, we 
preserve the right to nullify our approval. If that occurs, we would 
not provide the appeal rights described in part 423, subpart N to 
applicants that have their approval nullified based on failing the 
essential operations test because an appeals process started at that 
point could not be completed by the September 1 deadline imposed by 
Sec.  423.650(c) for contracts to be effective on January 1 of the 
following year.
    We received the following comments and our response follows:
    Comment: Most commenters strongly supported CMS' proposals.
    Response: We appreciate the support for these proposals.
    Comment: Several commenters requested that CMS elaborate on the 
content of the essential operations test.
    Response: Our plan is to initially offer the essential operations 
test in scenario format rather than in real time. Scenario format means 
that we will provide the applicant or newly contracted sponsor with 
written scenarios or stories about fictional beneficiaries. The 
scenarios will describe the characteristics of the beneficiary such as 
plan enrollment, LIS level, prior drug claims data, prior authorization 
criteria information, application date, and any other details necessary 
for answering our questions. The questions would pertain to topics such 
as determining the correct effective date of coverage; the appropriate 
timeframes for specific notifications; drug dispensing formats and 
requirements; drug coverage and costs; coverage determination process; 
coordination of benefits; and demonstrating knowledge of new 
requirements for the upcoming year. The real time test, which may also 
be combined with scenario tests, would involve electronic data 
exchanges between CMS and the new organization and/or its PBM, claims 
processor, enrollment processor, and any other entity contracted with 
the new organization to carry out key Part D functions.
    Comment: Several commenters expressed concern that CMS would expect 
the new organization to demonstrate full system readiness in September. 
Other commenters provided information about the development schedule 
that their organizations follow for the upcoming benefit year.
    Response: It is not our expectation that a new organization would 
have all systems ready to implement the Part D benefit in September. We 
appreciated the information regarding the development schedule, and we 
will use the information to inform, in part, our expectations of system 
readiness when we administer a real time test.
    Comment: Several commenters requested that CMS provide new 
organizations with information about the system requirements of the 
essential operations test no later than May of each year.
    Response: We are aware that new organizations would need time to 
ensure that the proper infrastructure is in place for real time 
communication and electronic data exchange with CMS (and our 
contractors). Therefore, within sufficient time to allow it to make 
necessary arrangements prior to the test, we will inform the new 
organization of the types of data files that we will send or exchange. 
We are unlikely to provide this information before the end of May 
because, at that time, new organizations will have not yet submitted 
bids. The essential operations test criteria may be developed based 
upon areas of concern we identify during the application, bid, and 
formulary review processes; therefore, in May we may not be certain of 
the test contents and parameters.
    Comment: Several commenters suggested that CMS complete the 
essential operations test before November 1 due to the heavy workload 
in the last quarter of the year.
    Response: We are aware of the heavy workload at the end of the year 
created by the annual election period and preparations for the start of 
the new benefit year. We will try to complete essential operations 
tests prior to November 1.
    Comment: A commenter, a current Part D sponsor, was concerned that 
this provision would apply to existing or experienced sponsors.
    Response: We clarify that this provision would not apply to 
existing sponsors. Rather, as stated at Sec.  423.503(c)(4)(ii), the 
essential operations test will only be required of new organizations 
that do not have any Part D experience or a subsidiary/parent 
relationship with an experienced organization. If the new 
organization's parent company currently has other subsidiary 
organizations that are already offering Part D plans, then the new 
organization would not be subject to the essential operations test.
    We note that the proposed provisions of Sec. Sec.  423.504(b)(10) 
and 423.505(b)(28) each began with the phrase, ``Effective contract 
year 2015,''. This language, originally published in January 2014 as 
part of a proposal that at the time was expected to be made final in 
the middle of 2014, has since become outdated and therefore has been 
deleted from the final version of the rule. The proposed language was 
intended to make clear that even though the rule was expected to be 
finalized during the CY 2015 application review cycle we would apply 
the essential operations test to eligible applicants during that cycle. 
These provisions are now being made final after the period during which 
CY 2015 essential operations tests would have been conducted (that is, 
the fall of 2014). They will also be finalized well in advance of the 
start of the CY 2016 application cycle in late February 2015, so there 
is no need to provide a special signal to CY 2016 applicants that they 
may be subject to the essential operations test other than through the 
publication of this final rule.
    We also note that we are finalizing with modification the proposed 
provision of Sec.  423.505(b)(28). We are finalizing this provision as

[[Page 7949]]

Sec.  423.505(b)(27), instead of Sec.  423.505(b)(28).
    In summary, given the support for this proposal, we are finalizing 
these provisions with only the technical modifications described 
previously.

E. Implementing Other Technical Changes

1. Requirements for Urgently Needed Services (Sec.  422.113)

    Many MA plans have responded to the need to provide urgently needed 
services outside of the network's business hours, for example, during 
the weekend or at night, by contracting with clinics that have hours of 
operation well beyond those of traditional physicians' offices to 
furnish services to their enrollees when the plan network is not 
available.
    To better align the regulations with current practices regarding 
access to urgently needed care services, we proposed to revise the 
regulation by removing the phrase ``under extraordinary and unusual 
circumstances'' from the definition of ``urgently needed services'' at 
Sec.  422.113(b)(1)(iii). The revised regulatory language would ensure 
that enrollees have access to out-of-network facilities in non-
extraordinary circumstances.
    We received the following comments on this proposal and our 
response follows:
    Comment: Several commenters supported the policy because it 
provides improved access to enrollees.
    Response: We thank these commenters for their support.
    Comment: A commenter stated that CMS' proposed revision would be 
burdensome on plans and would not improve health care to enrollees.
    Response: In the January 10, 2014 proposed rule, we noted that many 
plans already contract with clinics that operate 24 hours/day, 7 days/
week (24/7) to address the needs of enrollees who need care on weekends 
or after normal business hours (79 FR 2018). We also noted that there 
are a small number of appeals each year from enrollees who sought care 
out-of-network on weekends or after normal business hours and were 
denied coverage.
    We do not believe our proposal adds any burden to health plans. Our 
proposed revision to the regulation aligns it with current practices 
for provision of urgently needed services and our intent that enrollees 
have access to needed care. In fact, we believe that plans could 
realize savings by making urgently needed services available in 
settings that are more appropriate to the enrollees' needs than more 
costly hospital emergency departments.
    Comment: A commenter expressed concern that the proposed regulatory 
language does not specify the circumstances under which the 
organization's provider network is temporarily unavailable or 
inaccessible and that, as a result, enrollees might frequently leave 
the network to obtain care.
    Response: Circumstances under which the organization's provider 
network is temporarily unavailable or inaccessible would largely 
include weekends or after normal business hours, which we believe is 
clearly understood from the discussion in the notice of proposed 
rulemaking. If more extreme situations, such as a natural disaster, 
result in the network being temporarily unavailable, this rule would 
apply in those situations as well.
    Comment: A commenter requested greater clarification of the 
definition of urgently needed services.
    Response: The definition of urgently needed services, provided at 
Sec.  422.113(b)(1)(iii), presents several specific requirements for a 
service to be classified as urgently needed. Additional clarification 
of the definition of urgently needed services may be found in the 
preamble to the June 29, 2000 final rule establishing the 
Medicare+Choice program (65 FR 40198 and 40199). We believe this 
definition, as modified by the removal of the phrase ``extraordinary 
and unusual circumstances,'' is sufficient.
    After review of the public comments received, we are finalizing the 
proposed revision to Sec.  422.113 without modification.
2. Agent and Broker Training and Testing Requirements (Sec. Sec.  
422.2274 and 423.2274)
    We proposed to revise Sec. Sec.  422.2274(b) and (c) and 423.2274 
(b) and (c) to accomplish the following: (i) Remove CMS-endorsed or 
approved training and testing as an option; (ii) require that agents 
and brokers be trained annually on Medicare rules and regulations and 
details specific to the plan products they intend to sell; and (iii) 
require annual training to ensure appropriate knowledge and 
understanding of Medicare rules and specific plan products. Pursuant to 
our authority under sections 1851(h)(2), 1860D-1(b)(1)(B)(vi), 
1851(j)(2)(E), and 1860D-4(l)(2) of the Act, we previously codified 
agent and broker training and testing requirements at Sec. Sec.  
422.2274 (b) and (c) and 423.2274 (b) and (c) to require all agents and 
brokers selling Medicare products be trained and tested annually 
through a CMS-endorsed or approved training program, or as specified by 
us, on Medicare rules and regulations specific to the plan products 
they intend to sell.
    As we noted in the preamble to the proposed rule, since the 
training and testing requirements were implemented, we have embarked on 
various activities to improve and ensure the efficacy of training and 
testing. We also noted that, through our monitoring efforts, plans are 
complying with the annual guidance and providing an adequate level of 
detailed information. Furthermore, our ability to nationally 
accommodate agents and brokers through various training and testing 
modules creates a significant burden. We also noted in the preamble to 
the proposed rule that our ability to maintain consistency with 
endorsing other entities that would facilitate the training and testing 
and oversee these entities is limited.
    We also proposed that the provisions for ``Reducing the Burden of 
the Compliance Program Training Requirements'' (Sec. Sec.  
422.503(b)(4)(vi)(C) and 423.504(b)(4)(vi)(C)) require a standardized 
compliance training program and that, under those provisions, MA 
organizations and Part D sponsors would not be permitted to develop and 
implement plan specific training materials or supplemental materials. 
The requirement in this section is exclusive for agent and broker 
marketing activities under the MA and Part D program.
    We received the following comments and our response follows:
    Comment: A commenter supported the provision. However, the 
commenter requested clarification as to whether CMS will continue to 
provide annual guidance on training and testing requirements for agents 
and brokers.
    Response: We appreciate the commenter's support and will continue 
to provide annual guidance on the training and testing requirements.
    Comment: A commenter stated that the provision assigns 
responsibility for the annual agent/broker training to the MA 
organization, which is an operational burden and additional cost.
    Response: We disagree. Since MA organizations and Part D sponsors 
currently facilitate the agent broker training and testing or contract 
with a third party, our proposal would not create an operational burden 
or cost.
    Comment: A few commenters stated that this provision potentially 
conflicts with the proposed requirement under Sec.  422.503 that MA 
organizations and Part D sponsors use only CMS training for general 
compliance. A commenter requested clarification on how the first

[[Page 7950]]

tier, downstream, and related entities' standardized training applies 
to agents and brokers.
    Response: We believe that this provision does not conflict with the 
proposed provision in Sec.  422.503. The provision in this section is 
specific to marketing activities for MA organizations and Part D 
sponsors.
    After review of the public comment received on this proposed 
provision, we are finalizing this provision without modification.
3. Deemed Approval of Marketing Materials (Sec. Sec.  422.2262, 
422.2266, 423.2262, and 423.2266)
    In the January 10, 2014 proposed rule, we proposed to move the 
substance of the current requirements in Sec. Sec.  422.2266 and 
423.2266 to 422.2262(a)(2) and 423.2262(a)(2), respectively. As 
previously noted, Sec. Sec.  422.2266 and 423.2266 provide the 
regulatory requirements for materials that are deemed approved. These 
requirements are part of the review and distribution process of 
marketing materials. Therefore, the provisions were moved to align with 
the requirements in Sec. Sec.  422.2262 and 423.2262. Additionally, we 
proposed reserving Sec. Sec.  422.2266 and 423.2266 to further clarify 
the requirements for deemed materials by revising them to state that, 
if CMS does not approve or disapprove marketing materials within the 
specified review timeframe, the materials will be deemed approved. 
Deemed approved means that an MA organization or Part D sponsor may use 
the material. We believe that this change clarifies the present 
regulatory requirement for deemed marketing materials.
    We received several comments regarding this provision, and our 
responses follow.
    Comment: Several commenters supported this provision. However, a 
few commenters did request clarification, while others emphasized the 
importance of streamlining the review and approval process for FIDE 
SNPs. A commenter also stated that CMS, Medicaid, and the plans should 
work closer to benefit enrollees.
    Response: We thank the commenters for supporting our proposal to 
revise this provision. In response to the request for further 
clarification, we will consider including additional guidance in the 
Medicare Marketing Guidelines as that is the appropriate vehicle for 
providing detail on the requirements. We also appreciate the concerns 
with streamlining the review and approval process for FIDE SNPs; 
however, the comment is outside the scope of this rule.
    Comment: A commenter opposed this provision on the grounds that MA 
organizations are expanding and offering more plan offerings with 
higher penetration rates in certain counties and regions. The commenter 
also stated that CMS is responsible for ensuring that marketing 
practices and materials are carefully monitored.
    Response: While we appreciate the commenter's concern, we do not 
believe that the expansion of plan offerings will have an impact on 
this provision. Since this provision has been in existence, our 
analysis of deemed materials has shown that very few marketing 
materials have been approved through this process. Furthermore, we have 
protocols in place to monitor marketing materials, including materials 
that are deemed approved. We note in the Medicare Marketing Guidelines 
that we may require an MA organization or Part D sponsor to change any 
previously approved marketing materials if found to be inaccurate, 
altered or otherwise noncompliant.
    After review of the public comments received on this proposal, we 
are finalizing this proposed provision without modification.
4. Cross-Reference Change in the Part C Disclosure Requirements (Sec.  
422.111)
    In the January 10, 2014 proposed rule, we proposed a technical 
correction to Sec.  422.111(d)(1) to reflect the correct cross 
reference for procedures that MA organizations must follow when 
submitting changes to their rules for review. Section 422.111(d)(1) 
currently references Sec.  422.80, which was removed when the marketing 
requirements were moved to subpart V, Medicare Marketing Requirements. 
We noted previously that subpart V, Medicare Marketing Requirements, 
was published in the September 18, 2008, final rule (73 FR 54208).
    We received no comments on our proposal and therefore are 
finalizing this provision without modification.
5. Managing Disclosure and Recusal in P&T Conflicts of Interest: 
Formulary Development and Revision by a Pharmacy and Therapeutics 
Committee Under Part D (Sec.  423.120(b)(1))
    Section 1860D-4(b)(3)(A)(ii) of the Act requires Part D sponsors 
who use formularies to include on their P&T committees at least one 
practicing physician and at least one practicing pharmacist, each of 
whom is independent and free of conflict with respect to the sponsor 
and the plan and who has expertise in the care of elderly or disabled 
persons. In our August 3, 2004 proposed rule (69 FR 46659), we proposed 
to interpret ``independent and free of conflict'' to mean that such P&T 
committee members could have no stake, financial or otherwise, in 
formulary determinations. In our January 28, 2005 final rule (70 FR 
4256), we adopted this interpretation, and clarified that we would 
consider a P&T committee member not to be free of conflict of interest 
if he or she had any direct or indirect financial interest in any 
entity--including Part D plans and pharmaceutical manufacturers--that 
would benefit from decisions regarding plan formularies.
    In a recent report (``Gaps in Oversight of Conflicts Of Interest in 
Medicare Prescription Drug Decisions,'' OEI-05-10-00450), the HHS OIG 
recommended improvements in our requirements for Part D plan P&T 
committees. Specifically, the OIG report recommended that we establish 
minimum standards to ensure that these committees have clearly 
articulated and objective processes to determine whether disclosed 
financial interests are conflicts and to manage recusals due to 
conflicts of interests. The OIG report also suggested that we tell 
sponsors that they need to designate an objective party, such as a 
compliance officer, to flag and enforce the necessary recusals. In 
other words, the identification and evaluation of whether a disclosed 
financial interest represents a conflict of interest should be made by 
a knowledgeable and accountable representative of the sponsor's 
organization, such as the compliance officer, and not solely by the P&T 
committee members themselves. We concurred that P&T committees should 
have clearly articulated and objective processes to determine whether 
disclosed financial interests are conflicts, and to manage recusals 
arising from any such conflicts. Therefore, we proposed to revise our 
regulations at Sec.  423.120(b)(1) to renumber the existing provisions 
and add a new paragraph (b)(1)(iv) to require that the sponsor's P&T 
committee clearly articulates and documents processes to determine that 
the requirements under paragraphs (b)(1)(i) through (iii) have been 
met, including the determination by an objective party of whether 
disclosed financial interests are conflicts of interest and the 
management of any recusals due to such conflicts.
    We also solicited comment on the pros and cons of defining PBMs as 
entities that could benefit from formulary decisions from which one 
practicing physician and one practicing pharmacist on the P&T committee 
must be free of conflict of interest.

[[Page 7951]]

    We received the following comments and our response follows:
    Comment: A commenter noted that the current CMS formulary review 
process provides the necessary protections to beneficiaries and ensures 
that formularies are developed and managed in accordance with best 
practices. This commenter also pointed out that since the P&T committee 
members do not generally provide their services for free, it is 
standard practice that the PBM compensates the committee members for 
their committee-related activities; thereby, providing a financial 
conflict of interest. The commenter believes that without this 
financial compensation it would be difficult to engage qualified 
clinicians for the committee.
    Response: While the compensation that P & T committee members 
receive from PBMs for performing committee-related activities could be 
seen as a potential conflict of interest, this practice is widely known 
and generally accepted as necessary to engage the most qualified 
clinicians. Moreover, we agree with the commenter that the current CMS 
formulary review process provides the necessary protections to 
beneficiaries and ensures that formularies are developed and managed in 
accordance with best practices. We have devoted extensive resources to 
the oversight of plan formularies and the audit of P&T committee 
proceedings to ensure that they comply with industry best practices and 
ensure beneficiaries' access to clinically appropriate therapies. As 
discussed more fully in the January 10, 2014 proposed rule (79 FR 
2019), we believe that our current formulary review process confers 
appropriate protections to beneficiaries from any potential adverse 
effects of conflicts of interest.
    The OIG report recommended that the P & T committee should have 
clearly articulated and objective processes to determine if disclosed 
financial interests are conflicts, and to manage any recusals if 
conflicts are found. We concur with this recommendation and proposed to 
revise our formulary requirements pertaining to the development and 
revision by a P & T committee at Sec.  423.120(b)(1) to make it clear 
that the Part D sponsor must establish these processes. In our response 
to the OIG report, we noted that statutory and regulatory provisions 
(section 1860D-4(b)(3) of the Act and 42 CFR 423.120(b)) indicate that 
it is the plan's responsibility to meet the formulary requirements; 
which include the development of these processes.
    Comment: Several commenters supported CMS' proposal that P&T 
committee processes must be clearly articulated, documented, and 
enforced by an objective party. However, a commenter requested that CMS 
better define the term ``objective party'' to include a knowledgeable 
and accountable person at the PBM.
    Response: We agree with the commenter and clarify that the 
objective party may be a representative of the PBM, as long as that 
representative is not also a member of the sponsor's P&T committee. The 
objective party should be someone not on the P & T committee, and may 
include a representative from the PBM that is not on the P & T 
committee.
    Comment: A commenter pointed out that while the proposed recusal 
process is logical, it is duplicative and the current P&T policy is 
sufficient for dealing with conflicts of interest.
    Response: We disagree with the commenter and concurred with the OIG 
report's recommendation (as discussed in the January 2014 proposed 
rule) that P&T committees should have clearly articulated and objective 
processes to determine conflicts of interest and manage any recusals. 
We are implementing these requirements on the recommendation of OIG. 
These requirements are supplemental to the beneficiary protections 
outlined in existing P&T policy, which does not address recusal and 
only provides that committee members should sign a conflict of interest 
statement revealing economic or other relationships with entities 
affected by drug coverage decisions that could influence committee 
decisions.
    After review of the comments received, we are finalizing this 
provision without modification.
6. Thirty-Six Month Coordination of Benefits (COB) Limit (Sec.  
423.466(b))
    In our April 15, 2010 final rule (75 FR 19819), we exercised our 
authority under sections 1860D-23 and 1860D-24 of the Act to impose a 
timeframe on the coordination of benefits between Part D sponsors and 
other payers including State Pharmaceutical Assistance Programs 
(SPAPs), other providers of prescription drug coverage, or other 
payers. In the April 15, 2010 final rule, we explained our approach to 
determining the 3-year timeframe, including the benefits derived from 
its establishment.
    We stated in our regulation at Sec.  423.466(b) that, Part D 
sponsors must coordinate benefits with SPAPs, other entities providing 
prescription drug coverage, beneficiaries, and others paying on the 
beneficiaries' behalf for a period not to exceed 3 years from the date 
on which the prescription for a covered Part D drug was filled. The 
phrase ``a period not to exceed 3 years'' has caused confusion among 
some sponsors, who interpreted this to mean that the coordination of 
benefits period could be shorter than 3 years and have consequently 
imposed tighter timeframes for coordination of benefits.
    To clarify the requirement and avoid further confusion, we proposed 
to remove from the regulation the phrase ``not to exceed,'' and add the 
word ``of.'' This would clarify that sponsors must employ a 
coordination of benefits period of 3 years, and would remove any 
uncertainty about whether they may impose a shorter coordination of 
benefits period.
    We also proposed to revise the heading of Sec.  423.466 to 
reference claims adjustments, which are addressed in Sec.  423.466(a).
    Comment: A commenter indicated the proposed change was an 
appropriate modification.
    Response: We appreciate the support for this provision.
    Comment: A few commenters suggested we define the date on which the 
3-year COB limit begins as the date the drug is dispensed or the first 
date of service.
    Response: The regulation already specifies the 36-month period 
begins on the date the prescription for a covered Part D drug was 
filled. However, we note the date of fill as referenced in the 
regulation is synonymous with the NCPDP date of service (Field # 401-
D1) included in HIPAA standard transactions, such as the billing 
transaction, and required on the Part D prescription drug event record.
    After review of the public comments received in response to this 
proposal, we are finalizing the provision as proposed.
7. Application and Calculation of Daily Cost-Sharing Rates (Sec.  
423.153)
    We proposed technical changes to the daily cost-sharing rate 
regulation to clarify the application and calculation of daily cost-
sharing rates and cost sharing under the regulations. Section 
423.153(b)(4)(i) requires sponsors to establish and apply a daily cost-
sharing rate whenever a prescription is dispensed by a network pharmacy 
for less than a 30-days' supply, unless the drug is excepted in the 
regulation. Currently, under Sec.  423.100, in cases when a copayment 
is applicable, ``daily cost-sharing rate'' is defined as the monthly 
copayment under the enrollee's Part D plan, divided by 30 or 31 and 
rounded to the nearest lower dollar amount, if any, or to another 
amount,

[[Page 7952]]

but in no event to an amount that would require the enrollee to pay 
more for a month's supply of the prescription than would otherwise be 
the case. We proposed to replace the numbers with the phrase ``the 
number of days in the approved month's supply for the drug dispensed'' 
to address how Part D sponsors that have other days' supplies as their 
month's supplies are to calculate daily cost-sharing rates.
    Also, under our existing definition of ``daily cost-sharing rate'' 
in Sec.  423.100, as noted previously, and with respect to copayments, 
the daily copayment cannot be an amount that would require the enrollee 
to pay more for a month's supply of the prescription than would 
otherwise be the case. In other words, rounding up is not permitted 
under the current definition of ``daily cost-sharing rate'' and this 
has been another cause of confusion for some Part D sponsors. While our 
original intention was to prohibit significant increases in cost 
sharing, such as charging the full 30-day copay for both the trial 
supply and any subsequent refill of a medication, the current 
limitation on any increase in cost sharing over the 30-day supply 
amount has reportedly led to unnecessarily complicated programming, as 
well as proration of other amounts on the claim, such as the dispensing 
fees. Therefore, we proposed to replace the language ``lower dollar 
amount, if any, or to another amount,'' with ``the nearest cent.'' We 
believe this language better conveys the concept of rounding, while 
realizing this language allows Part D sponsors to round daily cost-
sharing rates up or down to the nearest 2 decimal places.
    We also proposed other technical changes to the daily cost-sharing 
rate regulation at Sec.  423.153(b)(4)(i) to improve the regulation's 
clarity. First, we proposed to consolidate the language of Sec.  
423.153(b)(4)(i)(A) into Sec.  423.153(b)(4)(i) and to consolidate 
Sec.  423.153(b)(4)(i)(B)(1) and (2) into a new paragraph Sec.  
423.153(b)(4)(ii). Second, we proposed that the language in Sec.  
423.153(b)(4)(i) that addresses the application of the daily cost-
sharing rate in the case of a monthly copayment be revised for clarity, 
and moved to a new paragraph (b)(4)(iii)(A). This paragraph states that 
in the case of a drug that would incur a copayment, the Part D sponsor 
must apply cost-sharing as calculated by multiplying the applicable 
daily cost sharing rate by the days' supply actually dispensed when the 
beneficiary receives less than a 30-days' supply. Third, we proposed 
that Sec.  423.153(b)(4)(iii)(B) states that, in the case of a drug 
that would incur a coinsurance percentage, the Part D sponsor must 
apply the coinsurance percentage for the drug to the days' supply 
actually dispensed. We note that this means, with respect to dispensing 
fees, that the enrollee's portion of additional dispensing fees for the 
incremental supply is calculated by application of this percentage. 
These technical clarifications should assist sponsors in correctly 
setting, calculating, and applying daily cost-sharing rates in the 
retail and LTC settings whenever a prescription is dispensed by a 
network pharmacy for less than a 30-days' supply, unless the drug is 
excepted in the regulation. The proposal solicited comments on whether 
sponsors needed additional guidance surrounding the rounding 
methodology.
    We received the following comments and our responses follow:
    Comment: We received several comments in support of our proposal to 
clarify the daily cost sharing rule.
    Response: We thank the commenters for their supportive comments on 
our proposal.
    Comment: A commenter requesting that the application of the daily 
cost-sharing rule should be consistent with the changes CMS proposed to 
the definition of the ``daily cost-sharing rate.'' In other words, the 
commenter recommended that the daily cost-sharing rule apply whenever 
less than the approved month's supply is dispensed; rather than, 
whenever less than a 30-day supply is dispensed. The commenter 
highlighted that this change would ensure beneficiaries are not 
required to pay more than they otherwise would have. This is consistent 
with CMS' intent that even when the member does receive the remainder 
of a month's supply, the total payment not exceed the 1-month's cost 
sharing, except by a nominal rounding amount. This commenter provided 
the following example: A plan's approved month's supply is 34 days, and 
the applicable copayment is $30. If a member first obtains a 30-day 
supply and then a 4-day supply, under the current regulatory language, 
which provides that the daily cost-sharing rule applies when a covered 
Part D drug is dispensed for a supply less than 30 days, the member 
would pay $30 for the first supply since it is not for ``less than 30 
days'' and then $3.52 (4 x $0.88) for the second supply, for a total of 
$33.52. However, if the daily cost-sharing rule applied whenever less 
than the approved month's supply is dispensed, the member would pay 
$26.40 (30 x $0.88) for the first supply and $3.52 (4 x $0.88) for the 
second, for a total of $29.92.
    Response: We were persuaded by the comments that this suggested 
change is necessary to avoid confusion with the technical change that 
we proposed, by making the terminology consistent with the regulatory 
text. Therefore, we are making the following change to the final 
regulatory text: Replace ``30 days'' with ``approved month's supply'' 
in Sec.  423.153(b)(4)(i) and (iii).
    Comment: Several commenters indicated that CMS guidance is needed 
regarding the rounding methodology.
    Response: We will provide additional rounding guidance, if needed, 
after publication of this final rule.
    Based on comments received, we are finalizing this proposal as 
proposed and with the following modification: replacing ``30 days'' 
with ``approved month's supply'' where applicable in Sec.  
423.153(b)(4)(i) and (iii).
8. Technical Change To Align Regulatory Requirements for Delivery of 
the Standardized Pharmacy Notice (Sec.  423.562)
    The current regulations at Sec.  423.562(a)(3) require Part D plan 
sponsors to make arrangements with their network pharmacies to 
distribute notices instructing enrollees how to contact their plans to 
obtain a coverage determination or request an exception. This is 
accomplished through delivery of a standardized notice, CMS-10147--
``Medicare Prescription Drug Coverage and Your Rights'' (``pharmacy 
notice''). Section 423.562(a)(3) cross-references Sec.  
423.128(b)(7)(iii), added in our April 2011 final rule (76 FR 21432), 
which requires plans to have a system in place that transmits codes to 
network pharmacies so the pharmacy is notified to deliver the pharmacy 
notice at the POS in designated circumstances where the prescription 
cannot be filled as written.
    Pursuant to the 2011 regulatory change, we issued subsequent 
guidance (HPMS memoranda dated October 14, 2011 (``Revised Standardized 
Pharmacy Notice'') and December 27, 2012 (``Revised Guidance for 
Distribution of Standardized Pharmacy Notice'')) which clarifies that 
distribution of the pharmacy notice is required upon receipt of certain 
transaction responses indicating that the claim is not covered by Part 
D, as well as revised manual guidance in Chapter 18, section 40.3.1 of 
the Medicare Prescription Drug Benefit Manual related to 
operationalization of this requirement specific to a variety of 
specialty pharmacy settings.
    In practice, we have never based distribution of or referral to the 
pharmacy notice on whether or not the

[[Page 7953]]

enrollee disagrees with information provided by the pharmacist, but 
rather on whether the drug in question can be provided under Part D and 
whether the enrollee is able to obtain coverage for the drug at the 
pharmacy counter. Because the existing regulation text at Sec.  
423.562(a)(3) ties delivery of the pharmacy notice to the enrollee's 
disagreement with information provided by the pharmacist, we proposed 
to remove this reference.
    This proposed technical change would not alter the circumstances 
under which the pharmacy notice must be delivered to an enrollee and 
will align the regulation and the operational requirements for 
distribution of the pharmacy notice. In addition, this proposed change 
would be consistent with both the current OMB-approved instructions 
regarding the pharmacy notice and current CMS manual guidance.
    We do not prohibit distribution of the pharmacy notice in any 
circumstance, so pharmacies may choose to also provide a copy of the 
notice in circumstances where the enrollee disagrees with the 
information provided (for example, if the enrollee believes they are 
being charged an incorrect cost-sharing amount), but the notice is not 
required under the standards established in Sec.  423.128(b)(7)(iii). 
Provision of the pharmacy notice is not a prerequisite for an enrollee 
to request a coverage determination or access the appeals process. 
Similarly, a plan sponsor's failure to comply with the requirements of 
Sec.  423.128(b)(7)(iii) or Sec.  423.562(a)(3) does not in any way 
limit an enrollee's right to request a coverage determination or 
appeal.
    We received no comments on this proposal and therefore are 
finalizing the proposed revision to this provision without 
modification.
9. MA Organization Responsibilities in Disasters and Emergencies (Sec.  
422.100)
    We proposed to add paragraph (m) to Sec.  422.100 to codify and 
further clarify an MA organization's responsibilities when health plan 
services are affected by public health emergencies or disasters in 
order to ensure that beneficiaries continue to have access to care in 
situations in which normal business operations are disrupted due to 
public health emergencies or disasters and enable out-of-network 
providers to be informed of the terms of payment for furnishing 
services to affected enrollees during public health emergencies or 
disasters.
    The proposed new paragraph would require MA organizations to ensure 
access, at in-network cost sharing, to covered services even when 
furnished by noncontracted providers when disruption in the service 
area impedes enrollees' ability to access contracted providers and/or 
contracted providers' ability to provide needed services. The new 
paragraph also provides the basis for determining the beginning and end 
of a disaster or emergency, and requires that the organization annually 
post on its Web site and notify enrollees and contracted providers of 
its disaster and emergency policies.
    We received the following comments on this proposal and our 
response follows:
    Comment: A commenter requested clarification of whether this 
proposed requirement applies if plan service delivery is not affected 
even though in a declared disaster area.
    Response: Generally, a disaster creates multiple disruptions. For 
example, although provider offices may be operating as usual, 
transportation, electricity and phone service may be disrupted. 
Consequently, the proposed requirements would apply to all MA plans 
from the time the disaster is declared and continue to apply until the 
end of the disaster, as described in the proposed paragraph (m)(3).
    Comment: Several commenters stated that the proposed revision 
should only apply to emergency and urgently needed services that are 
sought during a public health emergency or disaster.
    Response: To the extent possible, we expect MA plans to provide 
continued and uninterrupted access to all health care services covered 
by the plan, whether routine or unforeseen. Disruption to a plan's 
network does not relieve an MA plan from fulfilling its contractual 
obligation to furnish all covered services to enrollees, even if it 
must do so by covering services furnished to its enrollees by 
noncontracted providers.
    Comment: A commenter suggested that reduced out-of-network cost 
sharing be required only if contracted providers are unavailable or not 
accessible.
    Response: Availability of networks depends on several factors--the 
status of provider offices, transportation, phone service, electric 
service, etc.--which may be impacted to varying degrees during a 
disaster. The primary goal during a disaster is the provision of 
continued and uninterrupted access of health care to all enrollees. To 
achieve this goal, enrollees must be allowed to obtain medically 
necessary plan-covered services without prior approval, at in-network 
cost sharing, from qualified providers, even if those providers are 
out-of-network.
    Comment: A commenter stated that CMS should reconsider how this 
proposed regulation may manipulate enrollee incentives, reduce access 
for enrollees that need services more urgently and increase costs to MA 
organizations and the MA program.
    Response: We recognize that disasters can create unavoidable 
disruptions and increased costs for MA organizations. Our primary goal 
during a disaster is the provision of continued and uninterrupted 
access to medically necessary plan-covered services for all enrollees. 
Our intention is to facilitate achievement of this goal by ensuring 
that plans facilitate increased access to providers from whom enrollees 
in the disaster area may seek high quality services at in-network cost 
sharing. We do not believe that these temporary and unusual episodes of 
increased access will incentivize enrollees in a negative way or result 
in significant cost increases for affected MA organizations.
    After review of the public comments received on this proposal, we 
are finalizing the proposed provisions with modification. To provide 
for greater readability, we are finalizing paragraph (m)(1)(iii) with 
slight revisions to the text from the proposed version.
10. Technical Changes To Align Part C and Part D Contract Determination 
Appeal Provisions (Sec. Sec.  422.641 and 422.644)
    Sections 1857(h) and 1860D-12(b)(3)(F) of the Act describe the 
procedures for termination for both MA organizations and Part D Plan 
sponsors, respectively. These statutory provisions provide a 
contracting organization with an opportunity for a hearing before its 
contract is terminated. Appeal procedures were established under 
sections 1856(b)(2) and 1860D-12(b)(3) of the Act for both Part C and 
Part D sponsors, respectively. Sections 422.641 and 423.641 list the 
types of Part C and Part D contract determinations that may be 
appealed.
a. Technical Change (Sec.  422.641)
    Currently in Sec.  422.641, the contract termination is discussed 
in paragraph (b) and contract non-renewal is discussed in (c). 
Conversely, in Sec.  423.641 the contract terminations are discussed in 
paragraph (c) and contract non-renewal is discussed in (b). Therefore, 
we proposed to align Sec.  423.641 with the current list order for (b) 
and (c) in the contract determinations section at Sec.  422.641.

[[Page 7954]]

b. Technical Changes (Sec.  422.644(a) and (b))
    Sections 1857(h)(1)(B) and 1860D-12(b)(3)(F) of the Act describe 
the procedures for contract terminations for both MA organizations and 
Part D sponsors, respectively. In Sec.  423.642(a) we specify that the 
notice is based upon a contract determination made ``under Sec.  
423.641.'' Therefore, since Part C and Part D language should be 
consistent, the same reference should be made in the corresponding Part 
C Sec.  422.644(a). To remedy this, we proposed to insert ``under Sec.  
422.641'' into Sec.  422.644(a) for Part C contract determinations.
    In addition, the Part D plan sponsor language in Sec.  423.642(b) 
states ``(b) The notice specifies the--(1) Reasons for the 
determination; and''. The corresponding Part C language in Sec.  
422.644(b) states that ``(b) The notice specifies--(1) The reasons for 
the determination; and''. We proposed to change Sec.  422.644(b) by 
moving the word ``the'' and revising it to read ``(b) The notice 
specifies the--(1) Reasons for the determination; and''.
    We received no comments on this proposal and therefore are 
finalizing these changes without modification.
11. Technical Changes To Align Parts C and D Appeal Provisions 
(Sec. Sec.  422.660 and 423.650)
    Sections 1857(h)(1)(B) and 1860D-12(b)(3)(F) of the Act provide 
organizations with an opportunity for a hearing before its contract is 
terminated in the Part C and Part D programs, respectively. Appeal 
procedures were established under section 1856(b)(2) of the Act for 
both MA organizations and Part D plan sponsors.
    We proposed to replace the term ``under'' with the phrase ``in 
accordance with'' in Sec.  422.660(a)(2), Sec.  422.660(a)(3), and 
Sec.  423.650(a)(2). We proposed to replace the word ``and'' with 
``through'' in Sec.  423.560(a)(4) to ensure consistency between Sec.  
422.660(a)(4) and Sec.  423.650(a)(4). In addition, we proposed to 
modify Sec.  422.660(b)(4) and Sec.  423.650(b)(4) to add the language 
``Sec.  422.752(a) through (b)'' and ``Sec.  423.752(a) through (b)'', 
respectively, to refer the reader to the applicable regulations for 
intermediate sanctions.
    We received no comments on this proposal and therefore are 
finalizing this provision without modification.
12. Technical Change to the Restrictions on Use of Information Under 
Part D (Sec.  423.322)
    We proposed a technical change to Sec.  423.322 due to section 
6402(b)(1) of the Affordable Care Act which amended section 1860D-
15(f)(2) of the Act. For background, most of the payment provisions for 
the Part D program are found in section 1860D-15 of the Act, and as 
originally enacted, both subsections (d) and (f) authorized the 
Secretary to collect any information needed to carry out this section 
but also stated that information disclosed or obtained pursuant to 
section 1860D-15 of the Act may be used by officers, employees, and 
contractors of HHS only for the purposes of, and to the extent 
necessary in, carrying out section 1860D-15 of the Act.
    Section 6402(b)(1) of the Affordable Care Act amended section 
1860D-15(f)(2) of the Act to relax the limitation on the use of 
information that is disclosed or obtained under section 1860D-15 of the 
Act. Specifically, the Affordable Care Act removed the word ``only'' 
from subsection (f)(2)(A) and added a new subsection (ii) which states 
that information disclosed or obtained under section 1860D-15 of the 
Act may be used by officers, employees, and contractors of HHS for the 
purposes of, and to the extent necessary, in conducting oversight, 
evaluation, and enforcement under this title. Section 6402(b)(1) of the 
Affordable Care Act also added a new subsection (B) which states that 
information disclosed or obtained pursuant to section 1860D-15 of the 
Act may be used by the Attorney General and the Comptroller General of 
the United States for the purposes of, and to the extent necessary in, 
carrying out health oversight activities. Thus, the Affordable Care Act 
considerably broadened the purposes for which HHS, its contractors, and 
the Attorney General and Comptroller General may use such information. 
However, we note, that the Affordable Care Act did not change the 
existing restriction on the use of information under subsection (d).
    In light of the Affordable Care Act amendment to section 1860D-
15(f) of the Act, we proposed to make conforming changes to Sec.  
423.322.
    We received no comments regarding this proposal and are finalizing 
the proposed amendments to this provision without modification.
13. Technical Changes to Requirements Related to Qualified Prescription 
Drug Coverage (Sec.  423.104)
    In the April 15, 2010 Federal Register (75 FR 19711), we finalized 
new requirements at Sec.  423.104 related to qualified prescription 
drug coverage. At that time, we codified a new paragraph, Sec.  
423.104(d)(2)(iii) stating that tiered cost sharing under (d)(2)(ii) of 
the same paragraph may not exceed levels annually determined by CMS to 
be discriminatory. In the April 15, 2011 Federal Register (76 FR 
21432), the language at (d)(2)(iii) was inadvertently removed when 
making other revisions to Sec.  423.104.
    To reinstate the language that was removed, we are including a 
technical change to add this language back to Sec.  423.104. This 
technical correction does not represent a change in policy.
14. Technical Changes to the Definition of Supplemental Benefits (Sec.  
423.100)
    In the April 12, 2012 Federal Register (77 FR 22169), we revised 
the definition of supplemental benefits at Sec.  423.100 by defining 
supplemental benefits as benefits offered by Part D plans, other than 
employer group health or waiver plans, that meet the requirements of 
Sec.  423.104(f)(1)(ii). We subsequently issued a correction notice in 
the June 1 2012 Federal Register (77 FR 32407) with unrelated changes 
that inadvertently resulted in the revised definition not being 
included in the CFR.
    To address this omission, we are issuing a technical change at this 
time to include the definition of supplemental benefits finalized in 
the April 12, 2012 Federal Register (77 FR 22169). This technical 
correction does not represent a change in policy.

III. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (hereafter, ``PRA''), we 
are required to provide 30-day notice in the Federal Register and 
solicit public comment before a collection of information requirement 
is submitted to the Office of Management and Budget (OMB) for review 
and approval. To fairly evaluate whether an information collection 
should be approved by OMB, section 3506(c)(2)(A) of the PRA requires 
that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    In the January 10, 2014, proposed rule (79 FR 1917) we solicited 
public comment on each of the following provisions that contained 
information collection requirements (ICRs).

[[Page 7955]]

A. ICRs Related to Eligibility of Enrollment for Individuals Not 
Lawfully Present in the United States (Sec. Sec.  417.2, 417.420, 
417.422, 417.460, 422.1, 422.50, 422.74, 423.1, 423.30, and 423.44)

    As amended here sections 417.2, 417.420, 417.422, 417.460, 422.1, 
422.50, 422.74, 423.1, 423.30, and 423.44 set out the eligibility 
requirement of citizenship or lawful presence to enroll in MA, Part D, 
and cost plans. To implement these provisions, we will: (1) Relay data 
regarding an individual's lawful presence status to plans through the 
MARx system so that the plans will be aware of an individual's 
eligibility when requesting enrollment; and (2) notify plans of loss of 
eligibility for current members based on unlawful presence status. In 
this final rule, we explicitly direct MA organizations, Part D 
sponsors, and entities offering cost plans not to request or solicit 
information about lawful presence from Medicare beneficiaries in 
connection with this rule as CMS will provide the necessary 
information. This data is already available to us; thus no new data 
will be collected.
    We received no comments on the proposed ICR assessment. 
Consequently, we are finalizing that assessment without modification.

B. ICRs Related to Good Cause Processes (Sec.  Sec.  417.460, 422.74, 
and 423.44)

    Sections 417.460, 422.74, and 423.44 establish the ability for us 
to designate an entity other than CMS to implement the good cause 
process. If we assign the good cause process to entities operating a 
cost plan, MA organization, or a Part D sponsor, the plan would already 
have the enrollment data necessary to make the determinations required 
by the process. In addition, the former enrollee is already required by 
the applicable regulations to provide a credible statement to establish 
good cause for the failure to make timely payments. Thus no additional 
data will be collected by the plan. However, if we designate plans to 
implement good cause processes, there would be additional burden to 
each plan. The burden would consist of completing the operational 
process, such as--(1) responding to requests for reinstatement from 
former members; (2) gathering the attestation from the individual 
regarding his or her reason for not paying the plan premiums within the 
grace period; (3) making the determination as to whether the individual 
meets the good cause criteria; and (4) maintaining the case notes and 
documentation to support its determination should it need to be 
reviewed. As plans already provide customer service to their current 
and past members, we estimate 30 minutes for each reinstatement 
request. According to the most recent wage data provided by the Bureau 
of Labor Statistics (BLS) for May 2013, the mean hourly wage for the 
category of ``Customer Service Representatives''--which we believe, 
considering the common point of entry for all issues at the plan, is 
the most appropriate category is $16.04/hr. With fringe benefits and 
overhead, the rate is $23.74/hr. It is calculated that the cost for 30 
minutes would be $11.87. Not all plans disenroll for nonpayment of 
premiums. However, for those who do implement this voluntary policy, it 
results in an average of 20,000 disenrollments each month. In response, 
we receive an average of 698 requests for reinstatement per month. The 
plan representative cost of $11.87 for each case is multiplied by 698 
cases. Therefore, under the revised regulations, handling of these 
requests would result in a total monthly cost of $8,285 (or $99,423 and 
4,188 hours, annually) for all plans in the MA, Part D, and cost plan 
programs. The requirements and burden will be submitted to OMB under 
control number 0938--New (CMS-10544).
    We received no comments on the proposed ICR assessment. 
Consequently, we are finalizing this assessment with only a minor 
modification in order to reflect the updated 2013 wage data.

C. ICRs Related To Expanding Quality Improvement Program Regulations 
(Sec.  422.152)

    We explained in the proposed rule that we do not believe this 
provision would impose any new or revised collection requirements or 
burden because it codifies a submission process that currently applies 
for quality improvement program information. PRA approval is current 
under OMB control number 0938-1023 (CMS-10209).
    We received no comments on the ICRs for this proposal and are 
finalizing these provisions without modification.

D. ICRs Related To Changes to Audit and Inspection Authority 
(Sec. Sec.  422.503(d)(2) and 423.504(d)(2))

    In Sec. Sec.  422.503(d)(2) and 423.504(d)(2), MA organizations and 
Part D sponsors are required to hire an independent auditor to perform 
validation exercises to confirm correction of deficiencies found during 
an audit. We currently conduct these validation exercises and collect 
data associated with these activities under OMB control number 0938-
1000 (CMS-10191). We believe the provision will not impose any 
additional burden on MA organizations or Part D sponsors.

E. ICRs Related to Business Continuity for MA Organizations and PDP 
Sponsors (Sec. Sec.  422.504(o) and 423.505(p))

    This provision requires MA organizations and Part D sponsors to 
develop, maintain, and implement business continuity plans that meet 
certain minimum standards. The proposed provision was modified due to 
public comment. Specifically, in this final rule MA organizations and 
Part D sponsors plan to restore essential operations within 72, rather 
than 24, hours of a failure. While the cost estimates are set out under 
this rule's Regulatory Impact Analysis, the PRA-related burden will be 
made available for public comment through a separate Federal Register 
notice under OMB control number 0938-0964 (CMS-10141).

F. Submission of PRA-Related Comments

    We have submitted a copy of this rule to OMB for its review of the 
rule's information collection and recordkeeping requirements. These 
requirements are not effective until they have been approved by OMB.
    To obtain copies of the supporting statement and any related forms 
for the paperwork collections referenced above, access CMS' Web site at 
http://www.cms.hhs.gov/PaperworkReductionActof1995; email your request, 
including your address, phone number, OMB number, and CMS document 
identifier, to [email protected]; or call the Reports Clearance 
Office at 410-786-1326.
    When commenting on the stated information collections, please 
reference the document identifier or OMB control number. To be assured 
consideration, comments and recommendations must be received by the OMB 
desk officer via one of the following transmissions: Mail: OMB, Office 
of Information and Regulatory Affairs, Attention: CMS Desk Officer, 
Fax: (202) 395-5806, OR Email: [email protected].
    PRA-related comments must be received on/by March 16, 2015.

IV. Regulatory Impact Statement

    We examined the impact of this final rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act

[[Page 7956]]

(RFA) (September 19, 1980, Pub. L. 96-354), Section 1102(b) of the 
Social Security Act, Section 202 of the Unfunded Mandates Reform Act of 
1995 (March 22, 1995; Pub. L. 104-4), Executive Order 13132 on 
Federalism (August 4, 1999) and the Congressional Review Act (5 U.S.C. 
804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year).
    We determined that this final rule does not reach the threshold for 
being considered economically significant, and thus, is not considered 
a major rule. There are five provisions with non-measurable impact: 
Efficient dispensing, requirements for drugs covered under Part D, two-
year prohibition when organizations terminate their contract, 
requirements for urgently needed services, and MA organization 
responsibilities in disasters and emergencies.
    Some of these provisions do not impose new requirements or costs 
but rather, clarify the necessary actions to meet existing regulatory 
requirements, and therefore, are expected to have no impact. Other 
provisions reflect widespread industry practices or would only impact a 
few plans and therefore are expected to have no, or minimal, impact.
    There are three provisions with measurable impacts: Citizenship or 
lawful presence; audit and inspection authority; and business 
continuity operations. We discuss these three provisions as follows.
    Citizenship or Lawful Presence. This final rule adds ``citizenship 
or lawful presence'' as an eligibility requirement to enroll and remain 
enrolled in MA, Part D, and section 1876 cost contracts to comply with 
section 401 of the Personal Responsibility and Work Opportunity Act, 
which mandates that aliens who are not lawfully present in the United 
States are not eligible to receive any federal benefit, including 
Medicare.
    As indicated in the proposed rule of January 10, 2014 (79 FR 1918), 
based on estimates reflecting scoring by the CMS Office of the Actuary 
and 2012 lawful presence data provided by the SSA, this provision has 
an anticipated savings of $67 million over 5 years.
    We estimate 10 million dollars expected savings for 2015 consisting 
of $5 million savings for Medicare Advantage (MA) and $5 million 
savings for Part D. These savings increase annually and by 2019, we 
estimate $17 million savings consisting of $8 million for MA and $9 
million for Part D.
    Audit and Inspection Authority. This rule finalizes some, but not 
all, proposed changes to the audit and inspection authority included in 
the proposed rule. We proposed two changes to Sec. Sec.  422.503(d)(2) 
and 423.504(d)(2) that would allow CMS to require sponsors (MA 
organizations and Part D sponsors) to hire an independent auditor to 
conduct full or partial program audits of the sponsors' operational 
areas and/or correction validation exercises. Under the first proposal, 
each MA organization and/or Part D sponsor would have been required to 
hire an independent auditor to perform a full or partial program audit 
at least every 3 years. However, due to public comment, we are not 
finalizing this proposal.
    We also proposed to revise our regulations to permit CMS to require 
MA organizations or Part D sponsors with audit results that reveal 
noncompliance with CMS requirements to hire an independent auditor to 
validate that correction has occurred. With our existing resources we 
currently conduct approximately 30 audits per year.
    We received numerous comments indicating that our initial estimate 
was not accurate and considerably lower than the sponsors' actual 
costs. Based on the public comments, we revaluated our methods of 
estimating the sponsor costs associated with procuring an independent 
auditor to conduct validations and as a result we decreased: (1) The 
number of organizations that may be subject to a validation each year; 
and (2) the number of team members likely required to perform the 
validation exercise; and increased: (3) The estimated total cost per 
hour for the audit team. The estimate for 23 sponsors is closer to the 
maximum number of sponsors that would be expected to hire an 
independent auditor to validate correction of audit deficiencies that 
we identified. As additional organizations are subject to a CMS program 
audit or utilize CMS' audit protocols to perform their own internal 
auditing, we expect that the performance of these organizations and the 
industry in general will improve; this in turn will reduce the 
likelihood that an organization would need to hire an independent 
auditor to validate correction of audit deficiencies. Therefore, we 
expect the total number of organizations that may be required to hire 
an independent auditor to validate correction of audit deficiencies 
will decline over time.
    While some sponsor audit findings can be validated through means 
other than a full-scale validation audit, we have found several 
organizations with significant performance deficiencies. We estimate 
that approximately 75 percent of the 30 organizations we audit per year 
(23 organizations) may be requested to retain an independent auditor to 
validate correction of their audit deficiencies.
    Under these circumstances we estimated that the independent auditor 
hired would need to have a team consisting of the following 
professionals:
     Formulary and Benefits Administration--pharmacist, a 
senior claims analyst, and a senior auditor.
     Coverage Determinations, Part D Appeals, Part D 
Grievances--physician, pharmacist and senior auditor.
     Organization Determinations, Part C Appeals, Part C 
Grievances--physician, nurse practitioner, and senior auditor.
     Compliance Program effectiveness--two senior auditors.
     Special Needs Plan Model of Care (SNP MOC) 
implementation--nurse practitioner and senior auditor.
    We used 2013 wage statistics supplied by the Bureau of Labor and 
Statistics, along with benefit and overhead included to develop 
estimates of direct wages. The estimated total cost per hour for each 
audit team is $1,202.00. A team of 13 professionals (listed previously) 
is necessary for the performance of each validation effort. The 
estimated total number of hours the team will need to perform the 
validation per sponsor is 80. The total cost per sponsor to procure and 
support the independent audit team is therefore: 80 (hours) x $1,202.00 
= $96,160.00. The validation costs will be allowable costs in the 
plan's bid. Under existing regulations, the estimated total annual 
burden related to the time and effort for sponsors to perform the 
validation is $2,211,680.00 (23 sponsors x $96,160.00 per sponsor).
    Since only 30 sponsors are audited per year and only those with the 
most serious findings would likely be subjected to hiring an 
independent auditor to conduct validation, the cost per sponsor per 
year is $2,211,680 / 193 (unique parent organizations) = $11,459 per 
year. The number 193 represents the 193 unique parent organizations as 
of June 2014. This figure includes all coordinated care plans (CCPs), 
private fee for service (PFFS) plans, section

[[Page 7957]]

1876 Medicare cost plans whose parent organizations also have an MA or 
Part D plan, stand-alone prescription drug plans (PDPs), and employer 
group waiver plans (800 series). Sponsors will be allowed to account 
for this cost in their bid.
    Business Continuity. Commenters in general took issue with the 
costs associated with the proposal for Business Continuity for MA 
organizations and Part D Sponsors (Sec. Sec.  422.504(o) and 
423.505(p)). Several commenters suggested that our RIA significantly 
underestimated costs because requiring MA organizations and Part D 
sponsors to restore essential functions within 24 hours would 
necessitate systems redundancy. Other commenters were concerned about 
the cost of testing IT systems on an annual basis; another commenter 
questioned the need to train ``all'' employees.
    As detailed in section II.A.4. of this final rule (Business 
Continuity for MA organizations and Part D Sponsors (Sec. Sec.  
422.504(o) and 423.505(p)), we believe that the modifications to 
regulatory text that we are finalizing in this final rule, as well as 
clarifications provided in our responses (for instance, we are not 
requiring systems redundancy), address the vast majority of concerns 
raised about the RIA.
    Business continuity plans are well established in the business 
community, and we believe that most MA organizations and Part D 
sponsors already have business continuity plans in place which cover 
the basic proposed subject areas. We still estimate that 5 percent of 
MA organizations and Part D sponsors do not have business continuity 
plans, but are updating our estimates from our proposed rule to reflect 
the most recent data available. For 2015, there are 568 MA 
organizations and Part D sponsors, resulting in an estimated 28 (5 
percent x 568) affected entities. More recent May 2013 wage data from 
the BLS OES sets the hourly rate for an emergency management director, 
General Medical and Surgical Hospitals, at $36.90. We now estimate the 
first year burden of a full time emergency management director to help 
design the plan to be 58,240 hours (28 entities x 2,080 hours). The 
estimated cost associated with such an expert is the estimated number 
of hours multiplied by the estimated hourly rate of $36.90, plus 100 
percent for fringe benefits and overhead, which equals a first year 
estimated cost of $4,298,112.
    In subsequent years, the estimated burden associated with this 
requirement will be the cost of an emergency management director 
working on a part time basis for an ongoing burden of 29,120 hours (28 
entities x 1,040 hours). The estimated cost associated with such an 
expert would be the estimated number of hours multiplied by the 
estimated hourly rate of $36.90 plus 100 percent for fringe benefits 
and overhead, which equals an estimated annual cost of $2,149,056 for 
subsequent years.
    Additionally, as discussed in section II.A.4. of this final rule, 
we agree with the commenters that the regulation may require some 
changes, which we believe are minimal, to existing business continuity 
plans and are adding estimates to cover those costs. We estimate that 
an additional 10 percent of the 568 contracting entities, or about 57 
entities, will be affected by this requirement. This means the 
estimated first year burden of a part time emergency management 
director to conform the existing business continuity plans will be 
59,280 hours (57 entities x 1,040 hours). The estimated cost associated 
with such an expert is the estimated number of hours multiplied by the 
estimated hourly rate of $36.90 plus 100 percent for fringe benefits 
and overhead, which equals a first year estimated cost of $4,373,864.
    In subsequent years, we estimate the burden associated with this 
requirement for MA organizations and Part D sponsors that are 
continuing to conform their business continuity plans with our 
regulation will decrease, for an ongoing burden of 29,640 hours (57 
entities x 520 hours). The estimated cost associated with such an 
expert is the estimated number of hours multiplied by the estimated 
hourly rate of $36.90 plus 100 percent for fringe benefits and 
overhead, which equals a first year cost of $2,187,432.
    Lastly, as previously discussed in our summary of the proposed 
effects, we believe that savings that we cannot capture will be 
realized by this regulation, especially for those MA organizations and 
Part D sponsors that do not currently have business continuity plans in 
place. Business continuity planning helps to protect resources and 
minimize losses. If as a consequence, MA organizations and Part D 
sponsors, that currently do not have these plans in place, provide 
Medicare benefits more efficiently after disasters and disruptions, 
this could result in fewer risks to beneficiary health.
    Our analyses of the three provisions with measurable impact--
unlawful presence, audit and inspection authority and business 
continuity operations--show that aggregate savings over 5 years is $33 
million. Estimated savings for 2015 is $0 million and the savings 
increase annually to $11 million for 2019. Consequently, the savings do 
not reach the $100 million threshold and therefore this final rule is 
not a major rule.
    The Regulatory Flexibility Analysis (RFA), as amended, requires 
agencies to analyze options for regulatory relief of small businesses, 
if a rule has a significant impact on a substantial number of small 
entities. For purposes of the RFA, small entities include small 
businesses, nonprofit organizations, and small governmental 
jurisdictions.
    The health insurance industry was examined in depth in the RIA 
prepared for the proposed rule on establishment of the MA program (69 
FR 46866, August 3, 2004). It was determined, in that analysis, that 
there were few, if any, ``insurance firms,'' including HMOs that fell 
below the size thresholds for ``small'' business established by the 
Small Business Administration (SBA). We assume that the ``insurance 
firms'' are synonymous with health plans that conduct standard 
transactions with other covered entities and are, therefore, the 
entities that will have costs associated with the new requirements 
finalized in this rule. At the time the analysis for the MA program was 
conducted, the market for health insurance was and remains, dominated 
by a handful of firms with substantial market share.
    However, we estimate that the costs of this rule on ``small'' 
health plans do not approach the amounts necessary to be a 
``significant economic impact'' on firms with revenues of tens of 
millions of dollars. Therefore, this rule would not have a significant 
economic impact on a substantial number of small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory analysis for any rule or regulation proposed under Title 
XVIII, Title XIX, or Part B of the Act that may have significant impact 
on the operations of a substantial number of small rural hospitals. We 
are not preparing an analysis for section 1102(b) of the Act because 
the Secretary certifies that this rule will not have a significant 
impact on the operations of a substantial number of small rural 
hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year by 
state, local, or tribal governments, in the aggregate, or by the 
private sector of $100 million in 1995 dollars, updated annually for 
inflation. In 2014, that threshold is approximately $141

[[Page 7958]]

million. This final rule is not expected to reach this spending 
threshold.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on state 
and local governments, preempts state law, or otherwise has federalism 
implications. Since this rule does not impose any substantial costs on 
state or local governments, the requirements of Executive Order 13132 
are not applicable.
    In accordance with the provisions of Executive Order 12866, this 
rule was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 417

    Administrative practice and procedure, Grant programs-health, 
Health care, Health insurance, Health maintenance organizations (HMO), 
Loan programs-health, Medicare, Reporting and recordkeeping 
requirements.

42 CFR Part 422

    Administrative practice and procedure, Health facilities, Health 
maintenance organizations (HMO), Medicare, Penalties, Privacy, 
Reporting and recordkeeping requirements.

42 CFR Part 423

    Administrative practice and procedure, Emergency medical services, 
Health facilities, Health maintenance organizations (HMO), Health 
professionals, Medicare, Penalties, Privacy, Reporting and 
recordkeeping requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services amends 42 CFR Chapter IV as follows:

PART 417--HEALTH MAINTENANCE ORGANIZATION, COMPETITIVE MEDICAL 
PLANS, AND HEALTH CARE PREPAYMENT PLANS

0
1. The authority citation for part 417 continues to read as follows:

    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.


0
2. Amend Sec.  417.2 by revising paragraph (b) to read as follows:


Sec.  417.2  Basis and scope.

* * * * *
    (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 and 8 U.S.C. 1611.
* * * * *


Sec.  417.420  [Amended]

0
3. Amend Sec.  417.420, paragraph (a) by removing the phrase 
``Individuals who are entitled to'' and adding in its place the phrase 
``Eligible individuals who are entitled to''.

0
4. Amend Sec.  417.422 as follows:
0
a. In the introductory text, by removing the phrase ``any individual 
who--'' and adding in its place the phrase ``any individual who meets 
all of the following:''
0
b. In paragraphs (a) through (e), by removing the ``;'' and adding in 
its place ``.''.
0
c. In paragraph (f), by removing the ``; and'' and adding in its place 
``.''.
0
d. Adding paragraph (h).
    The addition reads as follows:


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

* * * * *
    (h) Is a United States citizen or an individual who is lawfully 
present in the United States as determined in 8 CFR 1.3.

0
5. Amend Sec.  417.460 as follows:
0
a. In paragraph (b)(2)(i) by removing ``.'' and adding in its place 
``;''.
0
b. In paragraph (b)(2)(iii) by removing ``; or'' and adding in its 
place ``;''.
0
c. Redesignating paragraph (b)(2)(iv) as paragraph (b)(2)(v).
0
d. Adding a new paragraph (b)(2)(iv).
0
e. In paragraph (b)(3), by removing the cross-reference ``paragraphs 
(c) through (i)'' and adding in its place the cross-reference 
``paragraphs (c) through (j)''.
0
f. By revising paragraph (c)(3).
0
g. In paragraph (c)(4), by removing the phrase ``non-payment of 
premiums.'' and adding in its place the phrase ``non-payment of 
premiums or other charges.''
0
h. By adding paragraph (j).
    The revisions and the additions read as follows:


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

* * * * *
    (b) * * *
    (2) * * *
    (iv) Is not lawfully present in the United States; or
* * * * *
    (c) * * *
    (3) Good cause and reinstatement. When an individual is disenrolled 
for failure to pay premiums or other charges imposed by the HMO or CMP 
for deductible and coinsurance amounts for which the enrollee is 
liable, CMS (or a third party to which CMS has assigned this 
responsibility, such as an HMO or CMP) may reinstate enrollment in the 
plan, without interruption of coverage, if the individual shows good 
cause for failure to pay and pays all overdue premiums or other charges 
within 3 calendar months after the disenrollment date. The individual 
must establish by a credible statement that failure to pay premiums or 
other charges was due to circumstances for which the individual had no 
control, or which the individual could not reasonably have been 
expected to foresee.
* * * * *
    (j) Enrollee is not lawfully present in the United States. 
Disenrollment is effective the first day of the month following notice 
by CMS that the individual is ineligible in accordance with Sec.  
417.422(h).

PART 422--MEDICARE ADVANTAGE PROGRAM

0
6. The authority citation for part 422 continues to read as follows:

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


0
7. Amend Sec.  422.1 by revising paragraph (a) to read as follows:


Sec.  422.1  Basis and scope.

    (a) Basis. This part is based on the indicated provisions of the 
following:
    (1) The following provisions of the Act:
    (i) 1128J(d)--Reporting and Returning of Overpayments.
    (ii) 1851--Eligibility, election, and enrollment.
    (iii) 1852--Benefits and beneficiary protections.
    (iv) 1853--Payments to Medicare Advantage (MA) organizations.
    (v) 1854--Premiums.
    (vi) 1855--Organization, licensure, and solvency of MA 
organizations.
    (vii) 1856--Standards.
    (viii) 1857--Contract requirements.
    (ix) 1858--Special rules for MA Regional Plans.
    (x) 1859--Definitions; enrollment restriction for certain MA plans.
    (2) 8 U.S.C. 1611--Aliens who are not qualified aliens ineligible 
for Federal public benefits.
* * * * *

0
8. Amend Sec.  422.50 as follows:
0
a. In paragraph (a) introductory text, by removing the phrase '' if he 
or she--'' and adding in its place the phrase ``if he or she meets all 
of the following:''
0
b. In paragraphs (a)(1) and (4), by removing ``;'' and adding in its 
place ``.''.

[[Page 7959]]

0
c. In paragraph (a)(5), by removing ``; and'' and adding in its place 
``.''.
0
d. By adding paragraph (a)(7).
    The addition reads as follows:


Sec.  422.50  Eligibility to elect an MA plan.

* * * * *
    (a) * * *
    (7) Is a United States citizen or is lawfully present in the United 
States as determined in 8 CFR 1.3.
* * * * *

0
9. Amend Sec.  422.74 as follows:
0
a. By adding paragraph (b)(2)(v).
0
b. By revising paragraph (d)(1)(v).
0
c. By adding paragraph (d)(8).
    The additions and revision read as follows:


Sec.  422.74  Disenrollment by the MA organization.

* * * * *
    (b) * * *
    (2) * * *
    (v) The individual is not lawfully present in the United States.
* * * * *
    (d) * * *
    (1) * * *
    (v) Extension of grace period for good cause and reinstatement. 
When an individual is disenrolled for failure to pay the plan premium, 
CMS (or a third party to which CMS has assigned this responsibility, 
such as an MA organization) may reinstate enrollment in the MA plan, 
without interruption of coverage, if the individual--
    (A) Shows good cause for failure to pay within the initial grace 
period; and
    (B) Pays all overdue premiums within 3 calendar months after the 
disenrollment date; and
    (C) Establishes by a credible statement that failure to pay 
premiums within the initial grace period was due to circumstances for 
which the individual had no control, or which the individual could not 
reasonably have been expected to foresee.
* * * * *
    (8) Enrollee is not lawfully present in the United States. 
Disenrollment is effective the first day of the month following notice 
by CMS that the individual is ineligible in accordance with Sec.  
417.422(h) of this chapter.
* * * * *


0
10. Amend Sec.  422.100 by adding paragraph (m) to read as follows:


Sec.  422.100  General requirements.

* * * * *
    (m) Special requirements during a disaster or emergency. (1) When a 
state of disaster is declared as described in paragraph (m)(2) of this 
section, an MA organization offering an MA plan must, until one of the 
conditions described in paragraph (m)(3) of this section occurs, ensure 
access to benefits in the following manner:
    (i) Cover Medicare Parts A and B services and supplemental Part C 
plan benefits furnished at non-contracted facilities subject to Sec.  
422.204(b)(3).
    (ii) Waive, in full, requirements for gatekeeper referrals where 
applicable.
    (iii) Provide the same cost-sharing for the enrollee as if the 
service or benefit had been furnished at a plan-contracted facility.
    (iv) Make changes that benefit the enrollee effective immediately 
without the 30-day notification requirement at Sec.  422.111(d)(3).
    (2) Declarations of disasters. A declaration of disaster will 
identify the geographic area affected by the event and may be made as 
one of the following:
    (i) Presidential declaration of a disaster or emergency under the 
either of the following:
    (A) Stafford Act.
    (B) National Emergencies Act.
    (ii)(A) Secretarial declaration of a public health emergency under 
section 319 of the Public Health Service Act.
    (B) If the President has declared a disaster as described in 
paragraph (m)(2)(i) or (ii) of this section, then the Secretary may 
also authorize waivers or modifications under section 1135 of the Act.
    (iii) Declaration by the Governor of a State or Protectorate.
    (3) End of the disaster. The public health emergency or state of 
disaster ends when any of the following occur:
    (i) The source that declared the public health emergency or state 
of disaster declares an end.
    (ii) The CMS declares an end of the public health emergency or 
state of disaster.
    (iii) Thirty days have elapsed since the declaration of the public 
health emergency or state of disaster and no end date was identified in 
paragraph (m)(3)(i) or (ii) of this section.
    (4) MA plans unable to operate. An MA plan that cannot resume 
normal operations by the end of the public health emergency or state of 
disaster must notify CMS.
    (5) Disclosure. In addition to other requirements of annual 
disclosure under Sec.  422.111, an organization must do all of the 
following:
    (i) Indicate the terms and conditions of payment during the public 
health emergency or disaster for non-contracted providers furnishing 
benefits to plan enrollees residing in the state-of-disaster area.
    (ii) Annually notify enrollees of the information listed in 
paragraphs (m)(1) through (3) and (m)(5) of this section.
    (iii) Provide the information described in paragraphs (m)(1), (2), 
(3), and (4)(i) of this section on its Web site.


0
11. Amend Sec.  422.111 by revising paragraph (d)(1) to read as 
follows:


Sec.  422.111  Disclosure requirements.

* * * * *
    (d) * * *
    (1) Submit the changes for CMS review under procedures of subpart V 
of this part.
* * * * *

0
12. Amend Sec.  422.112 by adding paragraph (b)(7) to read as follows:


Sec.  422.112  Access to services.

* * * * *
    (b) * * *
    (7) With respect to drugs for which payment as so prescribed and 
dispensed or administered to an individual may be available under Part 
A or Part B, or under Part D, MA-PD plans must coordinate all benefits 
administered by the plan and--
    (i) Establish and maintain a process to ensure timely and accurate 
point-of-sale transactions; and
    (ii) Issue the determination and authorize or provide the benefit 
under Part A or Part B or as a benefit under Part D as expeditiously as 
the enrollee's health condition requires, in accordance with the 
requirements of subpart M of this part and subpart M of part 423 of 
this chapter, as appropriate, when a party requests a coverage 
determination.
* * * * *
0
13. Amend Sec.  422.113 by revising paragraph (b)(1)(iii) introductory 
text to read as follows:


Sec.  422.113  Special rules for ambulance services, emergency and 
urgently needed services, and maintenance and post-stabilization care 
services.

* * * * *
    (b) * * *
    (1) * * *
    (iii) Urgently needed services means covered services that are not 
emergency services as defined in this section, provided when an 
enrollee is temporarily absent from the MA plan's service (or, if 
applicable, continuation) area (or provided when the enrollee is in the 
service or continuation area but the organization's provider network is 
temporarily unavailable or inaccessible) when the services are 
medically necessary and immediately required--
* * * * *

0
14. Amend Sec.  422.152 as follows:
0
a. Revising paragraph (a) introductory text.

[[Page 7960]]

0
b. Redesignating paragraphs (a)(1) through (3) as paragraphs (a)(2) 
through (4), respectively.
0
c. Adding new paragraph (a)(1).
0
d. In newly redesignated (a)(2), by removing the ``;'' and adding a 
``.''.
0
e. In newly redesignated (a)(3), by removing the ``; and'' and adding a 
``.''.
0
f. Revising paragraph (c).
0
g. Revising paragraph (g) introductory text.
0
h. Revising paragraph (h).
    The revisions and addition read as follows:


Sec.  422.152  Quality improvement program.

    (a) General rule. Each MA organization that offers one or more MA 
plan must have, for each plan, an ongoing quality improvement program 
that meets applicable requirements of this section for the service it 
furnishes to its MA enrollees. As part of its ongoing quality 
improvement program, a plan must do all of the following:
    (1) Create a quality improvement program plan that sufficiently 
outlines the elements of the plan's quality improvement program.
* * * * *
    (c) Chronic care improvement program requirements. (1) Develop 
criteria for a chronic care improvement program. These criteria must 
include the following:
    (i) Methods for identifying MA enrollees with multiple or 
sufficiently severe chronic conditions that would benefit from 
participating in a chronic care improvement program.
    (ii) Mechanisms for monitoring MA enrollees that are participating 
in the chronic improvement program and evaluating participant outcomes 
such as changes in health status.
    (iii) Performance assessments that use quality indicators that are 
objective, clearly and unambiguously defined, and based on current 
clinical knowledge or research.
    (iv) Systematic and ongoing follow-up on the effect of the program.
    (2) The organization must report the status and results of each 
program to CMS as requested.
* * * * *
    (g) Special requirements for specialized MA plans for special needs 
individuals. All special needs plans (SNPs) must be approved by the 
National Committee for Quality Assurance (NCQA) effective January 1, 
2012 and subsequent years. SNPs must submit their model of care (MOC), 
as defined under Sec.  422.101(f), to CMS for NCQA evaluation and 
approval, in accordance with CMS guidance. In addition to the 
requirements under paragraphs (a) and (f) of this section, a SNP must 
conduct a quality improvement program that does the following:
* * * * *
    (h) Requirements for MA private-fee-for-service plans and Medicare 
medical savings account plans. MA PFFS and MSA plans are subject to the 
requirement that may not exceed the requirement specified in Sec.  
422.152(e).

0
15. Amend Sec.  422.310 by revising paragraph (g)(2)(ii) to read as 
follows:


Sec.  422.310  Risk adjustment data.

* * * * *
    (g) * * *
    (2) * * *
    (ii) After the final risk adjustment data submission deadline, 
which is a date announced by CMS that is no earlier than January 31 of 
the year following the payment year, an MA organization can submit data 
to correct overpayments but cannot submit diagnoses for additional 
payment.
* * * * *


Sec.  422.502  [Amended]

0
16. Amend Sec.  422.502(b)(3) by removing the phrase ``CMS may deny an 
application based on the applicant's'' and adding in its place the 
phrase ``CMS may deny an application for a new contract or service area 
expansion based on the applicant's''.

0
17. Amend Sec.  422.503 by adding paragraph (d)(2)(iv) to read as 
follows:


Sec.  422.503  General provisions.

* * * * *
    (d) * * *
    (2) * * *
    (iv) CMS may require that the MA organization hire an independent 
auditor to provide CMS with additional information to determine if 
deficiencies found during an audit or inspection have been corrected 
and are not likely to recur. The independent auditor must work in 
accordance with CMS specifications and must be willing to attest that a 
complete and full independent review has been performed.
* * * * *

0
18. Amend Sec.  422.504 by adding paragraph (o) to read as follows:


Sec.  422.504  Contract provisions.

* * * * *
    (o) Business continuity. (1) The MA organization agrees to develop, 
maintain, and implement a business continuity plan containing policies 
and procedures to ensure the restoration of business operations 
following disruptions to business operations which would include 
natural or man-made disasters, system failures, emergencies, and other 
similar circumstances and the threat of such occurrences. To meet the 
requirement, the business continuity plan must, at a minimum, include 
the following:
    (i) Risk assessment. Identify threats and vulnerabilities that 
might affect business operations.
    (ii) Mitigation strategy. Design strategies to mitigate hazards. 
Identify essential functions in addition to those specified in 
paragraph (o)(2) of this section and prioritize the order in which to 
restore all other functions to normal operations. At a minimum, each MA 
organization must do the following:
    (A) Identify specific events that will activate the business 
continuity plan.
    (B) Develop a contingency plan to maintain, during any business 
disruption, the availability and, as applicable, confidentiality of 
communication systems and essential records in all forms (including 
electronic and paper copies). The contingency plan must do the 
following:
    (1) Ensure that during any business disruption the following 
systems will operate continuously or, should they fail, be restored to 
operational capacity on a timely basis:
    (i) Information technology (IT) systems including those supporting 
claims processing at point of service.
    (ii) Provider and enrollee communication systems including 
telephone, Web site, and email.
    (2) With respect to electronic protected health information, comply 
with the contingency plan requirements of the Health Insurance 
Portability and Accountability Act of 1996 Security Regulations at 45 
CFR parts 160 and 164, subparts A and C.
    (C) Establish a chain of command.
    (D) Establish a business communication plan that includes emergency 
capabilities and procedures to contact and communicate with the 
following:
    (1) Employees.
    (2) First tier, downstream, and related entities.
    (3) Other third parties (including pharmacies, providers, 
suppliers, and government and emergency management officials).
    (E) Establish employee and facility management plans to ensure that 
essential operations and job responsibilities can be assumed by other 
employees or moved to alternate sites as necessary.
    (F) Establish a restoration plan including procedures to transition 
to normal operations.
    (G) Comply with all applicable Federal, State, and local laws.

[[Page 7961]]

    (iii) Testing and revision. On at least an annual basis, test and 
update the business operations continuity plan to ensure the following:
    (A) That it can be implemented in emergency situations.
    (B) That employees understand how it is to be executed.
    (iv) Training. On at least an annual basis, educate appropriate 
employees about the business continuity plan and their own respective 
roles.
    (v) Records. (A) Develop and maintain records documenting the 
elements of the business continuity plan described in paragraphs 
(o)(1)(i) through (iv) of this section.
    (B) Make the information specified in paragraph (o)(1)(v)(A) of 
this section available to CMS upon request.
    (2) Restoration of essential functions. Every MA organization must 
plan to restore essential functions within 72 hours after any of the 
essential functions fail or otherwise stop functioning as usual. In 
addition to any essential functions that the MA organization identifies 
under paragraph (o)(1)(ii) of this section, for purposes of this 
paragraph (o)(2) of the section essential functions include, at a 
minimum, the following:
    (i) Benefit authorization (if not waived) for services to be 
immediately furnished at a hospital, clinic, provider office, or other 
place of service.
    (ii) Operation of call center customer services.

0
19. Amend Sec.  422.506 by revising paragraph (a)(4) to read as 
follows:


Sec.  422.506  Nonrenewal of contract.

    (a) * * *
    (4) If an MA organization does not renew a contract under paragraph 
(a) of this section, CMS may deny an application for a new contract or 
a service area expansion from the MA organization for 2 years unless 
there are circumstances that warrant special consideration, as 
determined by CMS. This prohibition may apply regardless of the product 
type, contract type or service area of the previous contract.
* * * * *

0
20. Amend Sec.  422.508 by revising paragraph (c) to read as follows:


Sec.  422.508  Modification or termination of contract by mutual 
consent.

* * * * *
    (c) Agreement to limit new MA applications. As a condition of the 
consent to a mutual termination CMS will require, as a provision of the 
termination agreement language prohibiting the MA organization from 
applying for new contracts or service area expansions for a period of 2 
years, absent circumstances warranting special consideration. This 
prohibition may apply regardless of the product type, contract type or 
service area of the previous contract.
* * * * *

0
21. Amend Sec.  422.512 by revising paragraph (e)(1) to read as 
follows:


Sec.  422.512  Termination of contract by the MA organization.

* * * * *
    (e) * * *
    (1) CMS may deny an application for a new contract or a service 
area expansion from an MA organization that has terminated its contract 
within the preceding 2 years unless there are circumstances that 
warrant special consideration, as determined by CMS. This prohibition 
may apply regardless of the contract type, product type, or service 
area of the previous contract.
* * * * *

0
22. Amend Sec.  422.568 by revising paragraph (b) to read as follows:


Sec.  422.568  Standard timeframes and notice requirements for 
organization determinations.

* * * * *
    (b) Timeframe for requests for service. Except as provided in 
paragraph (b)(1) of this section, when a party has made a request for a 
service, the MA organization must notify the enrollee of its 
determination as expeditiously as the enrollee's health condition 
requires, but no later than 14 calendar days after the date the 
organization receives the request for a standard organization 
determination.
    (1) Extensions. The MA organization may extend the timeframe by up 
to 14 calendar days if--
    (i) The enrollee requests the extension;
    (ii) The extension is justified and in the enrollee's interest due 
to the need for additional medical evidence from a noncontract provider 
that may change an MA organization's decision to deny an item or 
service; or
    (iii) The extension is justified due to extraordinary, exigent, or 
other non-routine circumstances and is in the enrollee's interest.
    (2) Notice of extension. When the MA organization extends the 
timeframe, it must notify the enrollee in writing of the reasons for 
the delay, and inform the enrollee of the right to file an expedited 
grievance if he or she disagrees with the MA organization's decision to 
grant an extension. The MA organization must notify the enrollee of its 
determination as expeditiously as the enrollee's health condition 
requires, but no later than upon expiration of the extension.
* * * * *

0
23. Amend Sec.  422.572 by revising paragraph (b) to read as follows:


Sec.  422.572  Timeframes and notice requirements for expedited 
organization determinations.

* * * * *
    (b) Extensions. (1) The MA organization may extend the 72-hour 
deadline by up to 14 calendar days if--
    (i) The enrollee requests the extension;
    (ii) The extension is justified and in the enrollee's interest due 
to the need for additional medical evidence from a noncontract provider 
that may change an MA organization's decision to deny an item or 
service; or
    (iii) The extension is justified due to extraordinary, exigent, or 
other nonroutine circumstances and is in the enrollee's interest.
    (2) Notice of extension. When the MA organization extends the 
deadline, it must notify the enrollee in writing of the reasons for the 
delay and inform the enrollee of the right to file an expedited 
grievance if he or she disagrees with the MA organization's decision to 
grant an extension. The MA organization must notify the enrollee of its 
determination as expeditiously as the enrollee's health condition 
requires, but no later than upon expiration of the extension.
* * * * *

0
24. Amend Sec.  422.590 as follows:
0
a. By revising paragraph (a)(1).
0
b. In paragraph (d)(1), by removing the cross reference ``paragraph 
(d)(2) of this section'' and adding in its place the cross-reference 
``paragraph (e) of this section''.
0
c. By removing paragraph (d)(2).
0
d. By redesignating paragraphs (d)(3) through (5) as paragraphs (d)(2) 
through (4), respectively.
0
e. By redesignating paragraphs (e) through (g) as paragraphs (f) 
through (h), respectively;
0
f. By adding paragraph (e).
    The addition and revision read as follows:


Sec.  422.590  Timeframes and responsibility for reconsiderations.

    (a) * * *
    (1) Except as provided in paragraph (e) of this section, if the MA 
organization makes a reconsidered determination that is completely 
favorable to the enrollee, the MA organization must issue the 
determination (and effectuate it in accordance with Sec.  422.618(a)) 
as expeditiously as the enrollee's health condition requires, but no 
later than 30

[[Page 7962]]

calendar days from the date it receives the request for a standard 
reconsideration.
* * * * *
    (e) Extensions. (1) As described in paragraphs (e)(1)(i) through 
(iii) of this section, the MA organization may extend the standard or 
expedited reconsideration deadline by up to 14 calendar days if--
    (i) The enrollee requests the extension; or
    (ii) The extension is justified and in the enrollee's interest due 
to the need for additional medical evidence from a noncontract provider 
that may change an MA organization's decision to deny an item or 
service; or
    (iii) The extension is justified due to extraordinary, exigent or 
other non-routine circumstances and is in the enrollee's interest.
    (2) Notice of extension. When the MA organization extends the 
deadline, it must notify the enrollee in writing of the reasons for the 
delay and inform the enrollee of the right to file an expedited 
grievance if he or she disagrees with the MA organization's decision to 
grant an extension. The MA organization must notify the enrollee of its 
determination as expeditiously as the enrollee's health condition 
requires, but no later than upon expiration of the extension.
* * * * *


Sec.  422.618  [Amended]

0
25. In Sec.  422.618, amend paragraph (a)(1) by removing the cross-
reference ``Sec.  422.590(a)(1)'' and adding in its place the cross-
reference ``Sec.  422.590(e)''.


Sec.  422.619  [Amended]

0
26. In Sec.  422.619, amend paragraph (a) by removing the cross-
reference ``Sec.  422.590(d)(2)'' and adding in its place the cross-
reference ``Sec.  422.590(e)''.

0
27. Amend Sec.  422.641 by revising paragraphs (b) and (c) to read as 
follows:


Sec.  422.641  Contract determinations.

* * * * *
    (b) A determination not to authorize a renewal of a contract with 
an MA organization in accordance with Sec.  422.506(b).
    (c) A determination to terminate a contract with an MA organization 
in accordance with Sec.  422.510(a).
* * * * *

0
28. Amend Sec.  422.644 by revising paragraphs (a), (b)(1), and (c)(1) 
to read as follows:


Sec.  422.644  Notice of contract determination.

* * * * *
    (a) When CMS makes a contract determination under Sec.  422.641, it 
gives the MA organization written notice.
    (b) * * *
    (1) Reasons for the determination; and
* * * * *
    (c) * * *
    (1) General rule. Except as provided in paragraph (c)(2) of this 
section, CMS mails notice to the MA organization 45 calendar days 
before the anticipated effective date of the termination.
* * * * *

0
29. Amend Sec.  422.660 by revising paragraphs (a)(2) and (3) and 
(b)(4) to read as follows:


Sec.  422.660  Right to a hearing, burden of proof, standard of proof, 
and standards of review.

    (a) * * *
    (2) An MA organization whose contract has been terminated in 
accordance with Sec.  422.510.
    (3) An MA organization whose contract has not been renewed in 
accordance with Sec.  422.506.
* * * * *
    (b) * * *
    (4) During a hearing to review the imposition of an intermediate 
sanction as described at Sec.  422.750, the MA organization has the 
burden of proving by a preponderance of the evidence that CMS' 
determination was inconsistent with the requirements of Sec.  
422.752(a) and (b).
* * * * *

0
30. Amend Sec.  422.2262 by adding paragraph (a)(2) to read as follows:


Sec.  422.2262  Review and distribution of marketing materials.

    (a) * * *
    (2) If CMS does not approve or disapprove marketing materials 
within the specified review timeframe, the materials will be deemed 
approved. Deemed approved means that the MA organization may use the 
material.
* * * * *


Sec.  422.2266  [Removed and Reserved]

0
31. Section 422.2266 is removed and reserved.

0
32. Amend Sec.  422.2274 by revising paragraphs (c) and (d) to read as 
follows:


Sec.  422.2274  Broker and agent requirements.

* * * * *
    (c) Annual training. The MA organization must ensure that all 
agents and brokers selling Medicare products are trained annually on 
the following:
    (1) Medicare rules and regulations.
    (2) Details specific to the plan products they intend to sell.
    (d) Annual testing. It must ensure that all agents and brokers 
selling Medicare products are tested annually, to ensure the following:
    (1) Appropriate knowledge and understanding of Medicare rules and 
regulations.
    (2) Details specific to the plan products they intend to sell.
* * * * *

PART 423--VOLUNTARY MEDICARE PRESCRIPTION DRUG BENEFIT

0
33. The authority citation for part 423 continues to read as follows:

    Authority:  Sections 1102, 1106, 1860D-1 through 1860D-42, and 
1871 of the Social Security Act (42 U.S.C. 1302, 1306, 1395w-101 
through 1395w-152, and 1395hh).

0
34. Amend Sec.  423.1 by adding paragraph (a)(3) to read as follows:


Sec.  423.1  Basis and scope.

    (a) * * *
    (3) Section 1611 of Title 8 of the United States Code regarding 
individuals who are not lawfully present and ineligible for Federal 
public benefits.
* * * * *

0
35. Amend Sec.  423.30 as follows:
0
a. In paragraph (a)(1) introductory text, by removing the phrase ``if 
he or she:'' and adding in its place the phrase ``if he or she does all 
of the following:''.
0
b. In paragraph (a)(1)(i), by removing ``; and'' and adding in its 
place ``.''.
0
c. By adding paragraph (a)(1)(iii).
    The addition reads as follows:


Sec.  423.30  Eligibility and enrollment.

    (a) * * *
    (1) * * *
    (iii) Is a United States citizen or is lawfully present in the 
United States as determined in 8 CFR 1.3.
* * * * *

0
36. Amend Sec.  423.44 as follows:
0
a. Adding paragraph (b)(2)(vi).
0
b. Revising paragraph (d)(1)(vi).
0
c. Adding paragraph (d)(8).
    The additions and revision read as follows:


Sec.  423.44  Involuntary disenrollment from Part D coverage.

* * * * *
    (b) * * *
    (2) * * *
    (vi) The individual is not lawfully present in the United States.
* * * * *
    (d) * * *
    (1) * * *
    (vi) Extension of grace period for good cause and reinstatement. 
When an individual is disenrolled for failure to pay the plan premium, 
CMS (or a third party to which CMS has assigned this responsibility, 
such as a Part D sponsor) may reinstate enrollment in the PDP,

[[Page 7963]]

without interruption of coverage, if the individual shows good cause 
for failure to pay within the initial grace period, and pays all 
overdue premiums within 3 calendar months after the disenrollment date. 
The individual must establish by a credible statement that failure to 
pay premiums within the initial grace period was due to circumstances 
for which the individual had no control, or which the individual could 
not reasonably have been expected to foresee.
* * * * *
    (8) Individual is not lawfully present in the United States. 
Disenrollment is effective the first day of the month following notice 
by CMS that the individual is ineligible in accordance with Sec.  
423.30(a)(1)(iii).
* * * * *

0
37. Amend Sec.  423.100 by revising the definitions of ``Daily cost-
sharing rate'' and ``Supplemental benefits'' to read as follows:


Sec.  423.100  Definitions.

* * * * *
    Daily cost-sharing rate means, as applicable, the established--
    (1) Monthly copayment under the enrollee's Part D plan, divided by 
the number of days in the approved month's supply for the drug 
dispensed and rounded to the nearest cent; or
    (2) Coinsurance percentage under the enrollee's Part D plan.
* * * * *
    Supplemental benefits means benefits offered by Part D plans, other 
than employer group health or waiver plans, that meet the requirements 
of Sec.  423.104(f)(1)(ii).
* * * * *

0
38. Amend Sec.  423.104 by adding paragraph (d)(2)(iii) to read as 
follows:


Sec.  423.104  Requirements related to qualified prescription drug 
coverage.

* * * * *
    (d) * * *
    (2) * * *
    (iii) Tiered cost sharing under paragraph (d)(2)(ii) of this 
section may not exceed levels annually determined by CMS to be 
discriminatory.
* * * * *
0
39. Amend Sec.  423.120 by redesignating paragraphs (b)(1)(iv) through 
(x) as paragraphs (b)(1)(v) through (xi), respectively, and adding 
paragraph (b)(1)(iv) to read as follows:


Sec.  423.120  Access to covered Part D drugs.

* * * * *
    (b) * * *
    (1) * * *
    (iv) Clearly articulates and documents processes to determine that 
the requirements under paragraphs (b)(1)(i) through (iii) of this 
section have been met, including the determination by an objective 
party of whether disclosed financial interests are conflicts of 
interest and the management of any recusals due to such conflicts.
* * * * *
0
40. Amend Sec.  423.128 by adding paragraph (g) to read as follows:


Sec.  423.128  Dissemination of Part D information.

* * * * *
    (g) Changes in rules. If a Part D sponsor intends to change its 
rules for a Part D plan, it must do all of the following:
    (1) Submit the changes for CMS review under the procedures of 
Subpart V of this part.
    (2) For changes that take effect on January 1, notify all enrollees 
at least 15 days before the beginning of the Annual Coordinated 
Election Period as defined in section 1860D-1(b)(1)(B) of the Act.
    (3) Provide notice of all other changes in accordance with notice 
requirements as specified in this part.
0
41. Amend Sec.  423.153 by revising paragraph (b)(4) to read as 
follows:


Sec.  423.153  Drug utilization management, quality assurance, and 
medication therapy management programs (MTMPs).

* * * * *
    (b) * * *
    (4)(i) Daily cost sharing rate. Subject to paragraph (b)(4)(ii) of 
this section, establishes a daily cost-sharing rate (as defined in 
Sec.  423.100) and applies it to a prescription presented to a network 
pharmacy for a covered Part D drug that is dispensed for a supply less 
than the approved month's supply, if the drug is in the form of a solid 
oral dose and may be dispensed for less than the approved month's 
supply under applicable law.
    (ii) Exceptions. The requirements of paragraph (b)(4)(i) of this 
section do not apply to either of the following:
    (A) Solid oral doses of antibiotics.
    (B) Solid oral doses that are dispensed in their original container 
as indicated in the Food and Drug Administration Prescribing 
Information or are customarily dispensed in their original packaging to 
assist patients with compliance.
    (iii) Cost-sharing--(A) Copayments. In the case of a drug that 
would incur a copayment, the Part D sponsor must apply cost-sharing as 
calculated by multiplying the applicable daily cost-sharing rate by the 
days' supply actually dispensed when the beneficiary receives less than 
the approved month's supply.
    (B) Coinsurance. In the case of a drug that would incur a 
coinsurance percentage, the Part D sponsor must apply the coinsurance 
percentage for the drug to the days' supply actually dispensed.
* * * * *

0
42. Amend Sec.  423.154 as follows:
0
a. By redesignating paragraph (a)(2) as paragraph (a)(4).
0
b. By adding paragraphs (a)(2) and (3).
0
c. By revising newly designated paragraph (a)(4).
0
d. By revising paragraph (c).
0
e. By removing paragraph (e).
0
f. By redesignating paragraph (f) as paragraph (e).
    The revisions and addition read as follows:


Sec.  423.154  Appropriate dispensing of prescription drugs in long-
term care facilities under PDPs and MA-PD plans.

    (a) * * *
    (2) Not penalize long-term care facilities' choice of more 
efficient uniform dispensing techniques described in paragraph 
(a)(1)(ii) of this section by prorating dispensing fees based on days' 
supply or quantity dispensed.
    (3) Ensure that any difference in payment methodology among long-
term care pharmacies incentivizes more efficient dispensing techniques.
    (4) Collect and report information, in a form and manner specified 
by CMS, on the dispensing methodology used for each dispensing event 
described by paragraph (a)(1) of this section.
* * * * *
    (c) Waivers. CMS waives the requirements under paragraph (a) of 
this section, except paragraphs (a)(2) and (3), for pharmacies when 
they service intermediate care facilities for the mentally retarded 
(ICFs/IID) and institutes for mental disease (IMDs) as defined in Sec.  
435.1010 and for I/T/U pharmacies (as defined in Sec.  423.100).
* * * * *

0
43. Amend Sec.  423.322 by revising paragraph (b) to read as follows:


Sec.  423.322  Requirement for disclosure of information.

* * * * *
    (b) Restrictions on use of information. (1) Officers, employees, 
and contractors of the Department of Health and Human Services may use 
the information disclosed or obtained in accordance with the provisions 
of this subpart for the purposes of, and to the extent necessary--
    (i) In carrying out this subpart, including, but not limited to, 
determination of payments, and payment-related oversight and program 
integrity activities.

[[Page 7964]]

    (ii) In conducting oversight, evaluation, and enforcement under 
Title XVIII of the Act.
    (2) The United States Attorney General and the Comptroller General 
of the United States may use the information disclosed or obtained in 
accordance with the provisions of this subpart for purposes of, and to 
the extent necessary in, carrying out health oversight activities.
    (3) The restrictions described in paragraphs (b)(1) and (2) of this 
section do not limit either of the following:
    (i) OIG's authority to fulfill the Inspector General's 
responsibilities in accordance with applicable Federal law.
    (ii) CMS' ability to use data regarding drug claims in accordance 
with section 1848(m) of the Act.


Sec.  423.329  [Amended]

0
44. Amend Sec.  423.329(d)(1), by removing the phrase ``the amount 
described in Sec.  423.782.'' and adding in its place the phrase ``the 
difference between the cost sharing for a non-low-income subsidy 
eligible beneficiary under the Part D plan and the statutory cost 
sharing for a low-income subsidy eligible beneficiary.''


Sec.  423.346  [Amended]

0
45. Amend Sec.  423.346(a) introductory text by removing the phrase 
``as described in Sec.  423.336)--'' and adding in its place the phrase 
``as described in Sec.  423.336) or the Coverage Gap Discount 
Reconciliation (as described at Sec.  423.2320(b))--'' .

0
46. Amend Sec.  423.350 as follows:
0
a. In paragraph (a)(1)(iii), by removing ``; or'' and adding in its 
place ``.''.
0
b. In paragraph (a)(1)(iv), by removing '').'' adding in its place 
``.''.
0
c. By adding paragraph (a)(1)(v).
0
d. By revising paragraph (a)(2).
0
e. By adding paragraph (b)(1)(iv).
    The additions and revision read as follows:


Sec.  423.350  Payment appeals.

    (a) * * *
    (1) * * *
    (v) The reconciled coverage gap discount payment under Sec.  
423.2320(b).
    (2) Payment information not subject to appeal. Payment information 
submitted to CMS under Sec.  423.322 and reconciled under Sec.  423.343 
or submitted and reconciled under Sec.  423.2320(b) is final and may 
not be appealed nor may the appeals process be used to submit new 
information after the submission of information necessary to determine 
retroactive adjustments and reconciliations.
    (b) * * *
    (1) * * *
    (iv) For the Coverage Gap Discount Program, the date of the final 
reconciled payment under Sec.  423.2320(b).
* * * * *

0
47. Amend Sec.  423.464 by redesignating paragraph (f)(2)(i)(B) as 
paragraph (f)(2)(i)(C) and adding paragraph (f)(2)(i)(B) to read as 
follows:


Sec.  423.464  Coordination of benefits with other providers of 
prescription drug coverage.

* * * * *
    (f) * * *
    (2) * * *
    (i) * * *
    (B) Report, accept and apply benefit accumulator data in a 
timeframe and manner determined by CMS.
* * * * *

0
48. Amend Sec.  423.466 by revising the section heading and, in 
paragraph (b), removing the phrase ``a period not to exceed 3 years'' 
and adding in its place the phrase ``a period of 3 years'' to read as 
follows:


Sec.  423.466  Timeframes for coordination of benefits and claims 
adjustments.

* * * * *

0
49. Amend Sec.  423.503 by revising paragraph (a)(1) and adding 
paragraphs (c)(4) and (d) to read as follows:


Sec.  423.503  Evaluation and determination procedures for applications 
to be determined qualified to act as a sponsor.

    (a) * * *
    (1) With the exception of evaluations conducted under paragraph (b) 
of this section, CMS evaluates an entity's application solely on the 
basis of information contained in the application itself and any 
additional information that CMS obtains through on-site visits and any 
essential operations test.
* * * * *
    (c) * * *
    (4) Nullification of approval of application. If CMS discovers 
through any means that an applicant is not qualified to contract based 
on information gained subsequent to application approval (for example, 
failure of an essential operations test, absence of required employees, 
etc.), CMS gives the applicant written notice indicating that the 
approval issued under paragraph (c)(1) of this section is nullified and 
the applicant no longer qualifies to contract as a Part D plan sponsor.
    (i) This determination is not subject to the appeals provisions in 
subpart N of this part.
    (ii) This provision only applies to applicants that have not 
previously entered into a Part D contract with CMS and neither it, nor 
another subsidiary of the applicant's parent organization, is offering 
Part D benefits during the current year.
    (d) Withdrawal of application and bid in a previous year. An 
applicant that withdraws its application and corresponding bid after 
the release of the low-income subsidy benchmark is not eligible to be 
approved as a Part D plan sponsor for the 2 succeeding annual 
contracting cycles.

0
50. Amend Sec.  423.504 by adding paragraphs (b)(10) and (d)(2)(iv) to 
read as follows:


Sec.  423.504  General provisions.

* * * * *
    (b) * * *
    (10) Pass an essential operations test prior to the start of the 
benefit year. This provision only applies to new sponsors that have not 
previously entered into a Part D contract with CMS when neither it, nor 
another subsidiary of the applicant's parent organization, is offering 
Part D benefits during the current year.
* * * * *
    (d) * * *
    (2) * * *
    (iv) CMS may require that the Part D Plan sponsor hire an 
independent auditor to provide CMS with additional information to 
determine if deficiencies found during an audit or inspection have been 
corrected and are not likely to recur. The independent auditor must 
work in accordance with CMS specifications and must be willing to 
attest that a complete and full independent review has been performed.
* * * * *

0
51. Amend Sec.  423.505 by adding paragraphs (b)(27) and (p) to read as 
follows:


Sec.  423.505  Contact provisions.

* * * * *
    (b) * * *
    (27) Pass an essential operations test prior to the start of the 
benefit year. This provision only applies to new sponsors that have not 
previously entered into a Part D contract with CMS and neither it, nor 
another subsidiary of the applicant's parent organization, is offering 
Part D benefits during the current year.
* * * * *
    (p) Business continuity. (1) The Part D sponsor agrees to develop, 
maintain, and implement a business continuity plan containing policies 
and procedures to ensure the restoration of business operations 
following disruptions to business operations during disruptions to 
business operations which would

[[Page 7965]]

include natural or man-made disasters, system failures, emergencies, 
and other similar circumstances and the threat of such occurrences. To 
meet the requirement, the business continuity plan must, at a minimum, 
include the following:
    (i) Risk assessment. Identify threats and vulnerabilities that 
might affect business operations.
    (ii) Mitigation strategy. Design strategies to mitigate hazards. 
Identify essential functions in addition to those specified in 
paragraph (p)(2) of this section and prioritize the order in which to 
restore all other functions to normal operations. At a minimum, each 
Part D sponsor must do the following:
    (A) Identify specific events that will activate the business 
continuity plan.
    (B) Develop a contingency plan to maintain, during any business 
disruption, the availability and, as applicable, confidentiality of 
communication systems and essential records in all forms (including 
electronic and paper copies). The contingency plan must do the 
following:
    (1) Ensure that during any business disruption the following 
systems will operate continuously or, should they fail, be restored to 
operational capacity on a timely basis:
    (i) Information technology (IT) systems including those supporting 
claims processing at point of service.
    (ii) Provider and enrollee communication systems including 
telephone, Web site, and email.
    (2) With respect to electronic protected health information, comply 
with the contingency plan requirements of the Health Insurance 
Portability and Accountability Act of 1996 Security Regulations at 45 
CFR parts 160 and 164, subparts A and C.
    (C) Establish a chain of command.
    (D) Establish a business communication plan that includes emergency 
capabilities and procedures to contact and communicate with the 
following:
    (1) Employees.
    (2) First tier, downstream, and related entities.
    (3) Other third parties (including pharmacies, providers, 
suppliers, and government and emergency management officials).
    (E) Establish employee and facility management plans to ensure that 
essential operations and job responsibilities can be assumed by other 
employees or moved to alternate sites as necessary or both.
    (F) Establish a restoration plan including procedures to transition 
to normal operations.
    (G) Comply with all applicable Federal, State, and local laws.
    (iii) Testing and revision. On at least an annual basis, test and 
update the business operations continuity plan to ensure the following:
    (A) That it can be implemented in emergency situations.
    (B) That employees understand how it is to be executed.
    (iv) Training. On at least an annual basis, educate appropriate 
employees about the business continuity plan and their own respective 
roles.
    (v) Records. (A) Develop and maintain records documenting the 
elements of the business continuity plan described in paragraph 
(p)(1)(i) through (iv) of this section.
    (B) Make the information specified in paragraph (p)(1)(v)(A) of 
this section available to CMS upon request.
    (2) Restoration of essential functions. Every Part D sponsor must 
plan to restore essential functions within 72 hours after any of the 
essential functions fail or otherwise stop functioning as usual. In 
addition to any essential functions that the Part D sponsor identifies 
under paragraph (p)(1)(ii) of this section, for purposes of this 
paragraph (p)(2) of this section essential functions include at a 
minimum, the following:
    (i) Benefit authorization (if not waived), adjudication, and 
processing of prescription drug claims at the point of sale.
    (ii) Administration and tracking of enrollees' drug benefits in 
real time, including automated coordination of benefits with other 
payers.
    (iii) Provision of pharmacy technical assistance.
    (iv) Operation of an enrollee exceptions and appeals process 
including coverage determinations.
    (v) Operation of call center customer services.

0
52. Amend Sec.  423.509 by adding paragraph (a)(4)(xii) and revising 
paragraph (b)(2)(i)(C) to read as follows:


Sec.  423.509  Termination of a contract by CMS.

    (a) * * *
    (4) * * *
    (xii) Failure of an essential operations test before the start of 
the benefit year by an organization that has entered into a Part D 
contract with CMS when neither it, nor another subsidiary of the 
organization's parent organization, is offering Part D benefits during 
the current year.
    (b) * * *
    (2) * * *
    (i) * * *
    (C) The contract is being terminated based on the grounds specified 
in paragraphs (a)(4)(i) and (xii) of this section.
* * * * *


Sec.  423.562  [Amended]

0
53. Amend Sec.  423.562(a)(3) by removing the phrase ``request an 
exception if they disagree with the information provided by the 
pharmacist.'' and adding in its place the phrase ``request an 
exception.''.


Sec.  423.650  [Amended]

0
54. Amend Sec.  423.650 as follows:
0
a. In paragraph (a)(2), by removing the term ``under'' and adding in 
its place the phrase ``in accordance with''.
0
b. In paragraph (a)(4), by removing the cross-reference ``Sec.  
423.752(a) and (b) of this part'' and adding in its place the cross-
reference ``Sec.  423.752(a) through (b)''.
0
55. Amend Sec.  423.2262 by adding paragraph (a)(2) to read as follows:


Sec.  423.2262  Review and distribution of marketing materials.

    (a) * * *
    (2) If CMS does not approve or does not disapprove marketing 
materials within the specified review timeframe, the materials are 
deemed approved and the Part D sponsor may use the material.
* * * * *


Sec.  423.2266  [Removed and Reserved]

0
56. Section 423.2266 is removed and reserved.

0
57. Amend Sec.  423.2274 by revising paragraphs (c) and (d) to read as 
follows:


Sec.  423.2274  Broker and agent requirements.

* * * * *
    (c) Annual training. The Part D sponsor must ensure that all agents 
and brokers selling Medicare products are trained annually on the 
following:
    (1) Medicare rules and regulations.
    (2) Details specific to the plan products they intend to sell.
    (d) Annual testing. The Part D sponsor must ensure that all agents 
and brokers selling Medicare products are tested annually, to ensure 
the following:
    (1) Appropriate knowledge and understanding of Medicare rules and 
regulations.
    (2) Details specific to the plan products they intend to sell.
* * * * *

0
58. Amend Sec.  423.2320 by adding paragraph (c) to read as follows:


Sec.  423.2320  Payment processes for Part D sponsors.

* * * * *
    (c) Manufacturer bankruptcy. In the event that a manufacturer 
declares

[[Page 7966]]

bankruptcy, as described in Title 11 of the United States Code, and as 
a result of the bankruptcy, does not pay the quarterly invoices 
described in Sec.  423.2315(b)(10) used for a particular contract 
year's Coverage Gap Discount Reconciliation described in paragraph (b) 
of this section, CMS adjusts the Coverage Gap Discount Reconciliation 
amount of each of the affected Part D sponsors to account for the total 
unpaid quarterly invoiced amount owed to each of the Part D sponsors 
for that particular contract year being reconciled.

0
59. Amend Sec.  423.2325 by adding paragraph (h) to read as follows:


Sec.  423.2325  Provision of applicable discounts.

* * * * *
    (h) Treatment of employer group waiver plans. As of 2014, Part D 
sponsors offering employer group waiver plans must provide applicable 
discounts to applicable beneficiaries who are employer group waiver 
plan enrollees as determined consistent with the defined standard 
benefit.

    Dated: December 18, 2014.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: February 4, 2015.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2015-02671 Filed 2-6-15; 4:15 pm]
BILLING CODE 4120-01-P