[Federal Register Volume 82, Number 227 (Tuesday, November 28, 2017)]
[Proposed Rules]
[Pages 56336-56527]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-25068]



[[Page 56335]]

Vol. 82

Tuesday,

No. 227

November 28, 2017

Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Parts 405, 417, 422, et al.





Medicare Program; Contract Year 2019 Policy and Technical Changes to 
the Medicare Advantage, Medicare Cost Plan, Medicare Fee-for-Service, 
the Medicare Prescription Drug Benefit Programs, and the PACE Program; 
Proposed Rule

Federal Register / Vol. 82 , No. 227 / Tuesday, November 28, 2017 / 
Proposed Rules

[[Page 56336]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 417, 422, 423, and 498

[CMS-4182-P]
RIN 0938-AT08


Medicare Program; Contract Year 2019 Policy and Technical Changes 
to the Medicare Advantage, Medicare Cost Plan, Medicare Fee-for-
Service, the Medicare Prescription Drug Benefit Programs, and the PACE 
Program

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would revise the Medicare Advantage program 
(Part C) regulations and Prescription Drug Benefit program (Part D) 
regulations to implement certain provisions of the Comprehensive 
Addiction and Recovery Act (CARA) and the 21st Century Cures Act; 
improve program quality, accessibility, and affordability; improve the 
CMS customer experience; address program integrity policies related to 
payments based on prescriber, provider and supplier status in Medicare 
Advantage, Medicare cost plan, Medicare Part D and the PACE programs; 
provide a proposed update to the official Medicare Part D electronic 
prescribing standards; and clarify program requirements and certain 
technical changes regarding treatment of Medicare Part A and Part B 
appeal rights related to premiums adjustments.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on January 16, 2018.

ADDRESSES: In commenting, please refer to file code CMS-4182-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-4182-P, P.O. Box 8013, 
Baltimore, MD 21244-8013.

Please allow sufficient time for mailed comments to be received before 
the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-4182-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. Alternatively, you may deliver (by hand or 
courier) your written comments ONLY to the following addresses prior to 
the close of the comment period:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 
20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments erroneously mailed to the addresses indicated as 
appropriate for hand or courier delivery may be delayed and received 
after the comment period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: 
    Theresa Wachter, (410) 786-1157, Part C Issues.
    Marie Manteuffel, (410) 786-3447, Part D Issues.
    Kristy Nishimoto, (206) 615-2367, Beneficiary Enrollment and 
Appeals Issues.
    Raghav Aggarwal, (410) 786-0097, Part C and D Payment Issues.
    Vernisha Robinson-Savoy, (267) 970-2395, Part C and D Compliance 
Issues.
    Frank Whelan, (410) 786-1302, Preclusion List Issues.
    Shelly Winston, (410) 786-3694, Part D E-Prescribing Program.

SUPPLEMENTARY INFORMATION: 
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

Table of Contents

I. Executive Summary
    A. Purpose
    B. Summary of the Major Provisions
    1. Implementation of the Comprehensive Addiction and Recovery 
Act of 2016 (CARA) Provisions
    2. Updating the Part D E-Prescribing Standards (Sec.  423.160)
    3. Revisions to Timing and Method of Disclosure Requirements
    4. Preclusion List
    a. Part D
    b. Part C
    C. Summary of Costs and Benefits
II. Provisions of the Proposed Regulations
    A. Supporting Innovative Approaches to Improving Quality, 
Accessibility, and Affordability
    1. Implementation of the Comprehensive Addiction and Recovery 
Act of 2016 (CARA) Provisions
    a. Medicare Part D Drug Management Programs
    b. Stakeholder Input Informing This Notice of Proposed 
Rulemaking
    c. Integration of CARA and the Current Part D Opioid DUR Policy 
and OMS
    (1) Current Part D Opioid DUR Policy and OMS
    (2) Proposed Requirements for Part D Drug Management Programs 
(Sec. Sec.  423.100, 423.153)
    (i) Definitions (Sec.  423.100)
    (A) Definition of ``Potential At-Risk Beneficiary'' and ``At-
Risk Beneficiary'' (Sec.  423.100)
    (B) Definition of ``Frequently Abused Drug'', ``Clinical 
Guidelines'', ``Program Size'', and ``Exempted Beneficiary'' (Sec.  
423.100)
    (ii) Requirements of Drug Management Programs (Sec. Sec.  
423.153, 423.153(f)))
    (iii) Written Policies and Procedures (Sec.  423.153(f)(1))
    (iv) Case Management/Clinical Contact/Prescriber Verification 
(Sec.  423.153(f)(2))

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    (v) Limitations on Access to Coverage for Frequently Abused 
Drugs (Sec.  423.153(f)(3))
    (vi) Requirements for Limiting Access to Coverage for Frequently 
Abused Drugs (Sec.  423.153(f)(4))
    (vii) Beneficiary Notices and Limitation of the Special 
Enrollment Period (Sec. Sec.  423.153(f)(5), 423.153(f)(6), 423.38)
    (A) Initial Notice to Beneficiary and Sponsor Intent To 
Implement Limitation on Access to Coverage for Frequently Abused 
Drugs (Sec.  423.153(f)(5))
    (B) Limitation on the Special Enrollment Period for LIS 
Beneficiaries With an At-Risk Status (Sec.  423.38)
    (C) Second Notice to Beneficiary and Sponsor Implementation of 
Limitation on Access to Coverage for Frequently Abused Drugs by 
Sponsor (Sec.  423.153(f)(6))
    (D) Alternate Second Notice When Limit To Access to Coverage for 
Frequently Abused Drugs by Sponsor Will Not Occur (Sec.  
423.153(f)(7))
    (E) Timing of Notices (Sec.  423.153(f)(8))
    (F) Exceptions to Timing of the Notices (Sec.  423.153(f)(8))
    (viii) Provisions Specific to Limitation on Access to Coverage 
of Frequently Abused Drugs to Selected Pharmacies and Prescribers 
(Sec.  423.153(f)(4) and (f)(9) Through (13))
    (A) Special Requirement To Limit Access to Coverage of 
Frequently Abused Drugs to Selected Prescriber(s) (Sec.  
423.153(f)(4))
    (B) Selection of Pharmacies and Prescribers (Sec.  423.153(f)(9) 
Through (13))
    (1) Beneficiary Preferences (Sec.  423.153(f)(9))
    (2) Exception to Beneficiary Preferences (Sec.  423.153(f)(10))
    (3) Reasonable Access (Sec. Sec.  423.100, 423.153(f)(11), 
423.153(f)(12))
    (4) Confirmation of Pharmacy and Prescriber Selection (Sec.  
423.153(f)(13))
    (ix) Drug Management Program Appeals (Sec. Sec.  423.558, 
423.560, 423.562, 423.564, 423.580, 423.582, 423.584, 423.590, 
423.602, 423.636, 423.638, 423.1970, 423.2018, 423.2020, 423.2022, 
423.2032, 423.2036, 423.2038, 423.2046, 423.2056, 423.2062, 
423.2122, and 423.2126)
    (x) Termination of a Beneficiary's Potential At-Risk or At-Risk 
Status (Sec.  423.153(f)(14))
    (xi) Data Disclosure and Sharing of Information for Subsequent 
Sponsor Enrollments (Sec.  423.153(f)(15))
    (xii) Summary
    2. Flexibility in the Medicare Advantage Uniformity Requirements
    3. Segment Benefits Flexibility
    4. Maximum Out-of-Pocket Limit for Medicare Parts A and B 
Services (Sec. Sec.  422.100 and 422.101)
    5. Cost Sharing Limits for Medicare Parts A and B Services 
(Sec. Sec.  417.454 and 422.100)
    6. Meaningful Differences in Medicare Advantage Bid Submissions 
and Bid Review (Sec. Sec.  422.254 and 422.256)
    7. Coordination of Enrollment and Disenrollment Through MA 
Organizations and Effective Dates of Coverage and Change of Coverage 
(Sec. Sec.  422.66 and 422.68)
    8. Passive Enrollment Flexibilities To Protect Continuity of 
Integrated Care for Dually Eligible Beneficiaries (Sec.  422.60(g))
    9. Part D Tiering Exceptions (Sec. Sec.  423.560, 423.578(a) and 
(c))
    a. Background
    b. General Rules
    c. Limitations on Tiering Exceptions
    d. Alternative Drugs for Treatment of the Enrollee's Condition
    e. Approval of Tiering Exception Requests
    f. Additional Technical Changes and Corrections
    10. Establishing Limitations for the Part D Special Election 
Period (SEP) for Dually Eligible Beneficiaries (Sec.  423.38)
    11. Medicare Advantage and Part D Prescription Drug Plan Quality 
Rating System
    a. Introduction
    b. Background
    c. Basis, Purpose and Applicability of the Quality Star Ratings 
System
    d. Definitions
    e. Contract Ratings
    f. Contract Consolidations
    g. Data Sources
    h. Adding, Updating, and Removing Measures
    i. Measure Set for Performance Periods Beginning on or After 
January 1, 2019
    j. Improvement Measures
    k. Data Integrity
    l. Measure-Level Star Ratings
    m. Hierarchical Structure of the Ratings
    n. Domain Star Ratings
    o. Part C and D Summary Ratings
    p. Overall Rating
    q. Measure Weights
    r. Application of the Improvement Measure Scores
    s. Reward Factor (Formerly Referred to as Integration Factor)
    t. Categorical Adjustment Index
    u. High and Low Performing Icons
    v. Plan Preview of Star Ratings
    w. Technical Changes
    12. Any Willing Pharmacy Standards Terms and Conditions and 
Better Define Pharmacy Types (Sec. Sec.  423.100, 423.505)
    a. Any Willing Pharmacy Required for All Pharmacy Business 
Models
    b. Revise the Definition of Retail Pharmacy and To Add a 
Definition of Mail-Order Pharmacy
    c. Treatment of Accreditation and Other Similar Any Willing 
Pharmacy Requirements in Standard Terms and Conditions
    d. Timing of Contracting Requirements
    13. Changes to the Days' Supply Required by the Part D 
Transition Process
    14. Expedited Substitutions of Certain Generics and Other 
Midyear Formulary Changes (Sec. Sec.  423.100, 423.120, and 423.128)
    15. Treatment of Follow-On Biological Products as Generics for 
Non-LIS Catastrophic and LIS Cost Sharing
    16. Eliminating the Requirement To Provide PDP Enhanced 
Alternative (EA) to EA Plan Offerings With Meaningful Differences 
(Sec.  423.265)
    17. Request for Information Regarding the Application of 
Manufacturer Rebates and Pharmacy Price Concessions to Drug Prices 
at the Point of Sale
    B. Improving the CMS Customer Experience
    1. Restoration of the Medicare Advantage Open Enrollment Period 
(Sec. Sec.  422.60, 422.62, 422.68, 423.38, and 423.40)
    2. Reducing the Burden of the Compliance Program Training 
Requirements (Sec. Sec.  422.503 and 423.504)
    3. Medicare Advantage Plan Minimum Enrollment Waiver (Sec.  
422.514(b))
    4. Revisions to Timing and Method of Disclosure Requirements 
(Sec. Sec.  422.111 and 423.128)
    5. Revisions to Parts 422 and 423, Subpart V, Communication/
Marketing Materials and Activities
    a. Revising the Scope of Subpart V To Include Communications and 
Communications Materials
    b. Amending the Regulatory Definition of Marketing and Marketing 
Materials
    c. Prohibition of Marketing During the Open Enrollment Period
    d. Technical Changes to Other Regulatory Provisions as a Result 
of the Changes to Subpart V
    6. Lengthening Adjudication Timeframes for Part D Payment 
Redeterminations and IRE Reconsiderations (Sec. Sec.  423.590 and 
423.636)
    7. Elimination of Medicare Advantage Plan Notice for Cases Sent 
to the IRE (Sec.  422.590)
    8. E-Prescribing and the Part D Prescription Drug Program; 
Updating Part D E-Prescribing Standards
    a. Legislative Background
    b. Regulatory History
    c. Proposed Adoption of NCPDP SCRIPT Version 2017071 as the 
Official Part D E-Prescribing Standard, Retirement of NCPDP SCRIPT 
10.6, Implementing Related Conforming Changes Elsewhere in Sec.  
423.160 and Correction of a Typographical Error Which Occurred When 
NCPDP SCRIPT 10.6 Was Initially Adopted
    9. Reduction of Past Performance Review Period for Applications 
Submitted by Current Medicare Contracting Organizations (Sec. Sec.  
422.502 and 423.503)
    10. Part D Prescriber Preclusion List
    a. Background
    (1) 2014 Final Rule
    (2) 2015 Interim Final Rule
    (3) Preparations for Enforcement of Prescriber Enrollment 
Requirement
    b. Proposed Provisions
    (1) Prescriber NPI Validation on Part D Claims
    (a) Provisions of Sec.  423.120(c)(5)
    (b) Medicare Access and CHIP Reauthorization Act of 2015 (MACRA)
    (i) Preclusion List
    (b) Replacement of Enrollment Requirement With Preclusion List 
Requirement
    (ii) Updates to Preclusion List
    (3) Provisional Coverage
    (4) Appeals
    c. Specific Regulatory Changes
    11. Part C/Medicare Advantage Cost Plan and PACE Preclusion List 
(Sec.  422.224)
    12. Removal of Quality Improvement Project for Medicare 
Advantage Organizations (Sec.  422.152)

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    13. Reducing Provider Burden--Comment Solicitation
    C. Implementing Other Changes
    1. Reducing the Burden of the Medicare Part C and Part D Medical 
Loss Ratio Requirements (Sec. Sec.  422.2420 and 423.2430)
    a. Background
    b. Proposed Regulatory Changes to the Calculation of the Medical 
Loss Ratio (Sec. Sec.  422.2420, 422.2430, 423.2420, and 423.2430)
    (1) Fraud Reduction Activities (Sec. Sec.  422.2420, 422.2430, 
423.2420, and 423.2430)
    (2) Medication Therapy Management (MTM) (Sec. Sec.  422.2430 and 
423.2430)
    (3) Additional Technical Changes to Calculation of the Medical 
Loss Ratio (Sec. Sec.  422.2420 and 423.2420)
    c. Proposed Regulatory Changes to Medicare MLR Reporting 
Requirements (Sec. Sec.  422.2460 and 423.2460)
    d. Proposed Technical Changes to Medicare MLR Review and Non-
Compliance and the Release of MLR Data (Sec. Sec.  422.2410, 
422.2480, 422.2490, 423.2410, 423.2480, and 423.2490)
    2. Medicare Advantage Contract Provisions (Sec.  422.504)
    3. Late Contract Non-Renewal Notifications (Sec. Sec.  422.506, 
422.508, and 423.508)
    4. Contract Request for a Hearing (Sec. Sec.  422.664(b) and 
423.652(b))
    5. Physician Incentive Plans--Update Stop-Loss Protection 
Requirements (Sec.  422.208)
    6. Changes to the Agent/Broker Compensation Requirements 
(Sec. Sec.  422.2274 and 423.2274)
    7. Changes to the Agent/Broker Requirements (Sec. Sec.  
422.2272(e) and 423.2272(e))
    8. Codification of Certain Medicare Premium Adjustments as 
Initial Determinations (Sec.  405.924)
    9. Eliminate Use of the Term ``Non-Renewal'' To Refer to a CMS-
Initiated Termination (Sec. Sec.  422.506, 422.510, 423.507, and 
423.509)
III. Collection of Information Requirements
    A. Wages
    B. Proposed Information Collection Requirements (ICRs)
    1. ICRs Regarding Passive Enrollment Flexibilities To Protect 
Continuity of Integrated Care for Dually Eligible Beneficiaries 
(Sec.  422.60(g))
    2. ICRs Regarding Restoration of the Medicare Advantage Open 
Enrollment Period (Sec. Sec.  422.60, 422.62, 422.68, 423.38, and 
423.40)
    3. ICRs Regarding Coordination of Enrollment and Disenrollment 
Through MA Organizations and Effective Dates of Coverage and Change 
of Coverage (Sec. Sec.  422.66 and 422.68)
    4. ICRs Regarding Revisions to Timing and Method of Disclosure 
Requirements (Sec. Sec.  422.111 and 423.128)
    5. ICRs Regarding the Removal of Quality Improvement Project for 
Medicare Advantage Organizations (Sec.  422.152)
    6. ICRs Regarding Medicare Advantage Quality Rating System 
(Sec. Sec.  422.162, 422.164, 422.166, 422.182, 422.184, and 
422.186)
    7. ICRs Regarding the Medicare Advantage Plan Minimum Enrollment 
Waiver (Sec.  422.514(b))
    8. ICRs Regarding Revisions to Parts 422 and 423, Subpart V, 
Communication/Marketing Materials and Activities
    9. ICRs Regarding Medical Loss Ratio Reporting Requirements 
(Sec. Sec.  422.2460 and 423.2460)
    10. ICRs Regarding Establishing Limitations for the Part D 
Special Enrollment Period for Dual Eligible Beneficiaries (Sec.  
423.38(c)(4))
    11. ICRs Regarding Expedited Substitutions of Certain Generics 
and Other Midyear Formulary Changes (Sec. Sec.  423.100, 423.120, 
and 423.128)
    12. ICRs Related to Preclusion List Requirements for Prescribers 
in Part D and Individuals and Entities in Medicare Advantage, Cost 
Plans and PACE
    13. ICRs Regarding the Part D Tiering Exceptions (Sec. Sec.  
423.560, 423.578(a), and (c))
    14. ICRs Regarding the Implementation of the Comprehensive 
Addiction and Recovery Act of 2016 (CARA) Provisions (Sec. Sec.  
423.38 and 423.153(f))
IV. Regulatory Impact Analysis
    A. Statement of Need
    B. Overall Impact
    C. Anticipated Effects
    1. CARA Provisions
    2. Reducing the Burden of the Compliance Program Training 
Requirements (Sec. Sec.  422.503 and 423.504)
    3. Meaningful Differences in Medicare Advantage Bid Submissions 
and Bid Review (Sec. Sec.  422.254 and 422.256)
    4. Physician Incentive Plans--Update Stop-Loss Protection 
Requirements (Sec.  422.208)
    5. Changes to the Agent/Broker Requirements (Sec. Sec.  
422.2272(e) and 423.2272(e))
    6. Coordination of Enrollment and Disenrollment Through MA 
Organizations and Effective Dates of Coverage and Change of Coverage
    7. Lengthening Adjudication Timeframes for Part D Payment 
Redeterminations and IRE Reconsiderations
    8. Elimination of Medicare Advantage Plan Notice for Cases Sent 
to the IRE
    9. Medicare Advantage and Prescription Drug Plan Quality Rating 
System
    10. Changes to the Days' Supply Required by the Part D 
Transition Process
    11. Treatment of Follow-On Biological Products as Generics for 
Non-LIS Catastrophic and LIS Catastrophic Cost Sharing
    12. Eliminating the Requirement To Provide PDP Enhanced 
Alternative (EA) to EA Plan Offerings With Meaningful Differences 
(Sec.  423.265)
    13. Removal of Quality Improvement Project for Medicare 
Advantage Organizations (Sec.  422.152)
    14. Preclusion List Requirements for Prescribers in Part D and 
Providers and Suppliers in Medicare Advantage, Cost Plans and PACE
    15. Any Willing Pharmacy Standard Terms and Conditions and 
Better Define Pharmacy Types
    16. Expedited Substitutions of Certain Generics and Other 
Midyear Formulary Changes (Sec. Sec.  423.100, 423.120, and 423.128)
    D. Expected Benefits
    E. Alternatives Considered
    F. Accounting Statement and Table
    G. Conclusion

Acronyms

ACA Affordable Care Act
ACS American Community Survey
AEP Annual Election Period
ANDA Abbreviated New Drug Application
ANOC Annual Notice of Change
AMA American Medical Association
AO Accrediting Organization
ASPE Office of the Assistant Secretary for Planning and Evaluation
AWP Any Willing Pharmacy
CAI Categorical Adjustment Index
CARA Comprehensive Addiction and Recovery Act
CCIP Chronic Care Improvement Program
CMS Centers for Medicare & Medicaid Services
CPT Current Procedural Terminology
DAB Departmental Appeals Board
DE Dual Eligible
DIR Direct or Indirect Remuneration
DME Durable Medical Equipment
DSMO Designated Standards Maintenance Organization
D-SNP Dual-Eligible Special Needs Plan
EDM Enhanced Disease Management
EHR Electronic Health Record
EOC Evidence of Coverage
EP Eligible Professionals
FFS Fee-for-Service
ePA Electronic Prior Authorization
eRx Electronic Prescription (e-prescribing)
FDA Food and Drug Administration
FIDE Fully Integrated Dual Eligible
FMV Fair Market Value
FPL Federal Poverty Level
HPMS Health Plan Management System
ICD-10 ICD-10-CM
IRE Independent Review Entity
LIS Low Income Subsidy
LPPO Local Preferred Provider Organization
LTC Long Term Care
MA Medicare Advantage
MADP Medicare Advantage Disenrollment Period
MA-PD Medicare Advantage Prescription Drug
MAO Medicare Advantage Organizations
MIPPA Medicare Improvements for Patients and Providers Act
MLR Medical Loss Ratio
MOOP Maximum Out-of-Pocket
NCPDP National Council of Prescription Drug Programs
NCQA National Committee for Quality Assurance
NDC National Drug Code
NSO National Standard Organization
OIG Office of Inspector General
OEP Open Enrollment Period
OMHA Office of Medicare Hearings and Appeals
OOPC Out-of-Pocket Cost
PA Prior Authorization
PBM Pharmacy Benefit Manager
PBP Plan Benefit Package
PDP Prescription Drug Plan
PHSA Public Health Service Act

[[Page 56339]]

PIP Physician Incentive Plan
PQA Pharmacy Quality Alliance
PSO Provider Sponsored Organization
PSP Provider Specific Plan
QBP Quality Bonus Payment
QI Quality Improvement
QIA Quality Improvement Activities
QIP Quality Improvement Project
REMS Risk Evaluation and Mitigation Strategies
RFI Request for Information
RHC Rural Health Center
RI Rewards and Incentives
RPPO Regional Preferred Provider Organization
RRB Railroad Retirement Board
SE Standard Error
SEP Special Enrollment/Election Period
SES Socio-Economic Status
SNP Special Needs Plan
SSA Social Security Administration
TMP Timeliness Monitoring Project

I. Executive Summary

A. Purpose

    The primary purpose of this proposed rule is to make revisions to 
the Medicare Advantage (MA) program (Part C) and Prescription Drug 
Benefit Program (Part D) regulations based on our continued experience 
in the administration of the Part C and Part D programs and to 
implement certain provisions of the Comprehensive Addiction and 
Recovery Act and the 21st Century Cures Act. The proposed changes are 
necessary to--(1) Support Innovative Approaches to Improving Quality, 
Accessibility, and Affordability; (2) Improve the CMS Customer 
Experience; and (3) Implement Other Changes. In addition, this rule 
proposes technical changes related to treatment of Part A and Part B 
premium adjustments and updates the Script standard used for Part D 
electronic prescribing. While the Part D program has high satisfaction 
among users, we continually evaluate program policies and regulations 
to remain responsive to current trends and newer technologies. 
Specifically, this regulation meets the Administration's priorities to 
reduce burden and provide the regulatory framework to develop MA and 
Part D products that better meet the individual beneficiary's 
healthcare needs. Additionally, this regulation includes a number of 
provisions that will help address the opioid epidemic and mitigate the 
impact of increasing drug prices in the Part D program.

B. Summary of the Major Provisions

1. Implementation of the Comprehensive Addiction and Recovery Act of 
2016 (CARA) Provisions
    This proposed regulatory provision would implement statutory 
provisions of the Comprehensive Addiction and Recovery Act of 2016 
(CARA), enacted into law on July 22, 2016, which amended the Social 
Security Act and includes new authority for Medicare Part D drug 
management programs, effective on or after January 1, 2019. Through 
this provision, CMS proposes a framework under which Part D plan 
sponsors may establish a drug management program for beneficiaries at 
risk for prescription drug abuse or misuse, or ``at-risk 
beneficiaries.'' CMS proposes that, under such programs, sponsors may 
limit at-risk beneficiaries' access to coverage of controlled 
substances that CMS determines are ``frequently abused drugs'' to a 
selected prescriber(s) and/or network pharmacy(ies). CMS also proposes 
to limit the use of the special enrollment period (SEP) for dually- or 
other low income subsidy (LIS)-eligible beneficiaries who are 
identified as at-risk or potentially at-risk for prescription drug 
abuse under such a drug management program. Finally, this provision 
proposes to codify the current Part D Opioid Drug Utilization Review 
(DUR) Policy and Overutilization Monitoring System (OMS) by integrating 
this current policy with our proposals for implementing the drug 
management program provisions. The current policy involves Part D 
prescription drug benefit plans engaging in case management with 
prescribers when an enrollee is found to be taking a very high dose of 
opioids and obtaining them from multiple prescribers and multiple 
pharmacies who may not know about each other. Through the adoption of 
this policy, from 2011 through 2016, there was a 61 percent decrease 
(over 17,800 beneficiaries) in the number of Part D beneficiaries 
identified as potential very high risk opioid overutilizers.\1\ Thus, 
this proposal expands upon an existing, innovative, successful approach 
to reduce opioid overutilization in the Part D program by improving 
quality of care through coordination while maintaining access to 
necessary pain medications.
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    \1\ CY 2018 Final Parts C&D Call Letter, April 3, 2017.
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2. Updating the Part D E-Prescribing Standards (Sec.  423.160)
    This provision proposes an update to the electronic standards to be 
used by Medicare Part D prescription drug plans. This includes the 
proposed adoption of the NDPDP SCRIPT Standard Version 2017071, and 
retirement of the current NCPDP SCRIPT Version 10.6, as the official 
electronic prescribing standard for transmitting prescriptions and 
prescription-related information using electronic media for covered 
Part D drugs for Part D eligible individuals. These changes would 
become effective January 1, 2019. The NCPDP SCRIPT standards are used 
to exchange information between prescribers, dispensers, intermediaries 
and Medicare prescription drug plans.
    Although e-prescribing is optional for physicians and pharmacies, 
the Medicare Part D statute and regulations require drug plans 
participating in the prescription benefit to support electronic 
prescribing, and physicians and pharmacies who elect to transmit e-
prescriptions and related communications electronically must utilize 
the adopted standards. The proposed updated NCPDP SCRIPT standards have 
been requested by the industry and could provide a number of 
efficiencies which the industry and CMS supports.
    In order to facilitate this change, we propose to update Sec.  
423.160, and also make a number of conforming technical changes to 
other sections of part 423. In addition, we are proposing to correct a 
typographical error that occurred in the regulatory text listing the 
applicability dates of the standards by changing the reference in Sec.  
423.160(b)(1)(iv) to reference (b)(2)(iii) instead of (b)(2)(ii) to 
correctly cite to the present use of the currently adopted NCPDP SCRIPT 
Standard Version 10.
3. Revisions to Timing and Method of Disclosure Requirements
    We are proposing to allow the electronic delivery of certain 
information normally provided in hard copy documents such as the 
Evidence of Coverage (EOC). Additionally, we are proposing to change 
the timeframe for delivery of the EOC in particular to the first day of 
the Annual Election Period (AEP) rather than fifteen days prior to that 
date. Allowing plans to provide the EOC electronically would alleviate 
plan burden related to printing and mailing, and simultaneously would 
reduce the number of paper documents that beneficiaries receive from 
plans. This would allow beneficiaries to focus on materials, like the 
Annual Notice of Change (ANOC), that drive decision making. Changing 
the date by which plans must provide the EOC to members would allow 
plans more time to finalize the formatting and ensure the accuracy of 
the information, as well as further distance it from the ANOC, which 
must still be delivered 15 days prior to the AEP. We see this proposed 
change as an overall reduction of impact that our regulations have on 
plans and beneficiaries. In aggregate, we estimate a savings (to plans 
for not producing

[[Page 56340]]

and mailing hard-copy EOCs) of approximately $51 million.
4. Preclusion List
a. Part D
    This proposed rule would rescind the current provisions in Sec.  
423.120(c)(6) that require physicians and eligible professionals (as 
defined in section 1848(k)(3)(B) of the Act) to enroll in or validly 
opt-out of Medicare in order for a Part D drug prescribed by the 
physician or eligible professional to be covered. As a replacement, we 
propose that a Part D plan sponsor must reject, or must require its 
pharmacy benefit manager to reject, a pharmacy claim for a Part D drug 
if the individual who prescribed the drug is included on the 
``preclusion list,'' which would be defined in Sec.  423.100 and would 
consist of certain prescribers who are currently revoked from the 
Medicare program under Sec.  424.535 and are under an active 
reenrollment bar, or have engaged in behavior for which CMS could have 
revoked the prescriber to the extent applicable if he or she had been 
enrolled in Medicare, and CMS determines that the underlying conduct 
that led, or would have led, to the revocation is detrimental to the 
best interests of the Medicare program. We recognize, however, the need 
to minimize interruptions to Part D beneficiaries' access to needed 
medications. Therefore, we also propose to prohibit plan sponsors from 
rejecting claims or denying beneficiary requests for reimbursement for 
a drug on the basis of the prescriber's inclusion on the preclusion 
list, unless the sponsor has first covered a 90-day provisional supply 
of the drug and provide individualized written notice to the 
beneficiary that the drug is being covered on a provisional basis.
b. Part C
    This proposed rule would rescind the current provisions in Sec.  
422.222 stating that providers or suppliers that are types of 
individuals or entities that can enroll in Medicare in accordance with 
section 1861 of the Act must be enrolled in Medicare in order to 
provide health care items or services to a Medicare enrollee who 
receives his or her Medicare benefit through an MA organization. As a 
replacement, we propose that an MA organization shall not make payment 
for an item or service furnished by an individual or entity that is on 
the ``preclusion list.'' The preclusion list, which would be defined in 
Sec.  422.2, would consist of certain individuals and entities that are 
currently revoked from the Medicare program under Sec.  424.535 and are 
under an active reenrollment bar, or have engaged in behavior for which 
CMS could have revoked the individual or entity to the extent 
applicable if he or she had been enrolled in Medicare, and CMS 
determines that the underlying conduct that led, or would have led, to 
the revocation is detrimental to the best interests of the Medicare 
program.

C. Summary of Costs and Benefits

------------------------------------------------------------------------
          Provision                             Savings
------------------------------------------------------------------------
Implementation of the          Besides the benefits of preventing opioid
 Comprehensive Addiction and    dependency in beneficiaries we estimate
 Recovery Act of 2016.          a net savings in 2019 of $13 million to
                                the Trust Fund because of reduced
                                scripts, modestly increasing to a
                                savings of $14 million in 2023. The cost
                                to industry is estimated at about $2.8
                                million per year.
Revisions to Timing and        We estimate 67% of the current 47.8
 Method of Disclosure           million beneficiaries will prefer use of
 Requirements.                  the internet vs. hard copies. This will
                                result in savings of $55 million in 2019
                                and growing due to inflation to $67
                                million in 2023.
------------------------------------------------------------------------

II. Provisions of the Proposed Regulations

A. Supporting Innovative Approaches to Improving Quality, 
Accessibility, and Affordability

1. Implementation of the Comprehensive Addiction and Recovery Act of 
2016 (CARA) Provisions
a. Medicare Part D Drug Management Programs
    The Comprehensive Addiction and Recovery Act of 2016 (CARA), 
enacted into law on July 22, 2016, amended the Social Security Act and 
includes new authority for the establishment of drug management 
programs in Medicare Part D, effective on or after January 1, 2019. In 
accordance with section 704(g)(3) of CARA and revised section 1860D-
4(c) of the Act, CMS must establish through notice and comment 
rulemaking a framework under which Part D plan sponsors may establish a 
drug management program for beneficiaries at-risk for prescription drug 
abuse, or ``at-risk beneficiaries.'' Under such a Part D drug 
management program, sponsors may limit at-risk beneficiaries' access to 
coverage of controlled substances that CMS determines are ``frequently 
abused drugs'' to a selected prescriber(s) and/or network 
pharmacy(ies). While such programs, commonly referred to as ``lock-in 
programs,'' have been a feature of many state Medicaid programs for 
some time, prior to the enactment of CARA, there was no statutory 
authority to allow Part D plan sponsors to require beneficiaries to 
obtain controlled substances from a certain pharmacy or prescriber in 
the Medicare Part D program.
    In summary, this proposed rule would implement the CARA Part D drug 
management program provisions by integrating them with the current Part 
D Opioid Drug Utilization Review (DUR) Policy and Overutilization 
Monitoring System (OMS) (``current policy''). As explained in more 
detail later in this section, this integration would mean that Part D 
sponsors implementing a drug management program could limit an at-risk 
beneficiary's access to coverage of opioids beginning 2019 through a 
point-of-sale (POS) claim edit and/or by requiring the beneficiary to 
obtain opioids from a selected pharmacy(ies) and/or prescriber(s) after 
case management and notice to the beneficiary. To do so, the 
beneficiary would have to meet clinical guidelines that factor in that 
the beneficiary is taking a high-risk dose of opioids over a sustained 
time period and that the beneficiary is obtaining them from multiple 
prescribers and multiple pharmacies. This proposed rule would also 
implement a limitation on the use of the special enrollment period 
(SEP) for low income subsidy (LIS)-eligible beneficiaries who are 
identified as potential at-risk beneficiaries.
b. Stakeholder Input Informing This Notice of Proposed Rulemaking
    Section 704(g)(2) of CARA required us to convene stakeholders to 
provide input on specific topics so that we could take such input into 
account in promulgating regulations governing Part D drug management 
programs. Stakeholders include Medicare beneficiaries with Part A or 
Part B, advocacy groups representing Medicare beneficiaries, 
physicians, pharmacists, and other clinicians (particularly other 
lawful prescribers of controlled

[[Page 56341]]

substances), retail pharmacies, Part D plan sponsors and their 
delegated entities (such as pharmacy benefit managers), and 
biopharmaceutical manufacturers.
    We hosted a Listening Session on the CARA drug management program 
provisions via a public conference call on November 14, 2016 that was 
announced in the October 26, 2016 Federal Register (81 FR 74388). We 
sought stakeholder input on specific topics enumerated in sections 
704(a)(1) and 704(g)(2)(B) of the CARA and other related topics of 
concern to the stakeholders.
    In developing this proposed rule, we considered the stakeholders' 
comments provided during the Listening Session, as well as written 
comments submitted afterward, including those submitted in response to 
the Request for Information associated with the publication of the Plan 
Year 2018 Medicare Parts C&D Final Call Letter. We refer to this input 
in this preamble using the terms ``stakeholders,'' ``commenters'' and 
``comments.''
c. Integration of CARA and the Current Part D Opioid DUR Policy and OMS
    As noted in section II.A.1. of this proposed rule previously, we 
are proposing to implement the CARA Part D drug management program 
provisions by integrating them with our current policy that is not 
currently codified, but would be under this proposal. In using the term 
``current policy'', we refer to the aspect of our current Part D opioid 
overutilization policy that is based on retrospective DUR.\2\ 
Specifically, we are proposing a regulatory framework for Part D plan 
sponsors to voluntarily adopt drug management programs through which 
they address potential overutilization of frequently abused drugs 
identified retrospectively through the application of clinical 
guidelines/criteria that identify potential at-risk beneficiaries and 
conduct case management which incorporates clinical contact and 
prescriber verification that a beneficiary is an at-risk beneficiary. 
If deemed necessary, a sponsor could limit at-risk beneficiaries' 
access to coverage for such drugs through pharmacy lock-in, prescriber 
lock-in, and/or a beneficiary-specific point-of-sale (POS) claim edit. 
Finally, sponsors would report to CMS the status and results of their 
case management to OMS and any beneficiary coverage limitations they 
have implemented to MARx, CMS' system for payment and enrollment 
transactions. While plan sponsors would have the option to implement a 
drug management program, our proposal codifies a framework that would 
place requirements upon such programs. We foresee that all plan 
sponsors will implement such drug management programs based on our 
experience that all plan sponsors' are complying with the current 
policy as laid out in guidance, the fact that our proposal largely 
incorporates the CARA drug management provisions into existing CMS and 
sponsor operations, and especially, in light of the national opioid 
epidemic and the declaration that the opioid crisis is a nationwide 
Public Health Emergency.
---------------------------------------------------------------------------

    \2\ Please refer to the CMS Web site, ``Improving Drug 
Utilization Review Controls in Part D'' at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/RxUtilization.html which contains CMS communications regarding the 
current policy.
---------------------------------------------------------------------------

    Because we propose to integrate the CARA Part D drug management 
program provisions with the current policy and codify them both, we 
describe the current policy in section II.A.1.c.(1) of this proposed 
rule, noting where our proposal incorporates changes to the current 
policy in order to comply with CARA and achieve operational 
consistency. Where we do not note a change, our intent is to codify the 
current policy, and we seek specific comment as to whether we have 
overlooked any feature of the current policy that should be codified. 
CMS communications regarding the current policy can be found at the CMS 
Web site, ``Improving Drug Utilization Review Controls in Part D'' at 
https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/RxUtilization.html.
    Then we set forth our proposal for codification of the regulatory 
framework for drug management programs in section II.A.1.c.(2) of this 
proposed rule, which includes provisions specific to lock-in, which is 
not a feature of the current policy.
(1) Current Part D Opioid DUR Policy and OMS
    CMS is actively engaged in addressing the opioid epidemic and 
committed to implementing effective tools in Medicare Part D. We will 
work across all stakeholder, beneficiary and advocacy groups, health 
plans, and other federal partners to help address this devastating 
epidemic. CMS has worked with plan sponsors and other stakeholders to 
implement Medicare Part D opioid overutilization policies with multiple 
initiatives to address opioid overutilization in Medicare Part D 
through a medication safety approach. These initiatives include better 
formulary and utilization management; real-time safety alerts at the 
pharmacy aimed at coordinated care; retrospective identification of 
high risk opioid overutilizers who may need case management; and 
regular actionable patient safety reports based on quality metrics to 
sponsors.
    The goal of the current policy and OMS is to reduce opioid 
overutilization in Part D. In conjunction with related Part D opioid 
overutilization policies that address prospective opioid use, the 
current policy has played a key role in reducing high risk opioid 
overutilization in the Part D program by 61 percent (representing over 
17,800 beneficiaries) from 2011 (pre-policy pilot) through 2016, even 
as the number of beneficiaries enrolled in Part D increased overall 
during this period from 31.5 million to 43.6 million enrollees, or a 38 
percent increase.\3\
---------------------------------------------------------------------------

    \3\ Final CY 2018 Parts C&D Call Letter, April 3, 2017.
---------------------------------------------------------------------------

    The purpose of the current policy is to provide Part D plan 
sponsors with specific guidance about compliance with Sec.  
423.153(b)(2) as to opioid overutilization, which requires a Part D 
plan sponsor to have a reasonable and appropriate drug utilization 
management program that maintains policies and systems to assist in 
preventing overutilization of prescribed medications. We adopted the 
current policy on January 1, 2013, and it has evolved over time in 
scope in several ways with stakeholder feedback and support, including 
through the addition of the OMS in July 2013, primarily via the annual 
Parts C&D Call Letter process.
    The current policy has two aspects. First, in the CY 2013 final 
Call Letter and subsequent supplemental guidance, we provided guidance 
about our expectations for Part D plan sponsors to retrospectively 
identify beneficiaries who are at high risk for potential opioid 
overutilization and provide appropriate case management aimed at 
coordinated care.\4\ More specifically, we currently expect Part D plan 
sponsors' Pharmacy and Therapeutics (P&T) committees to establish 
criteria consistent with CMS guidance to retrospectively identify 
potential opioid overutilizers at high risk for an adverse event 
enrolled in their plans who may warrant case management because they 
are receiving opioid prescriptions from multiple prescribers and 
pharmacies. Enrollees

[[Page 56342]]

with cancer or in hospice are excluded from the current policy, because 
the benefit of their high opioid use may outweigh the risk associated 
with such use. This exclusion was supported by stakeholder feedback on 
the current policy.
---------------------------------------------------------------------------

    \4\ An excerpt from the Final 2013 Call Letter, the supplemental 
guidance, and additional information about the policy and OMS are 
available on the CMS Web page, ``Improving Drug Utilization Controls 
in Part D'' at https://www.cms.gov/Medicare/Prescription-Drug/PrescriptionDrugCovContra/RxUtilization.html.
---------------------------------------------------------------------------

    Once such enrollees are identified through retrospective 
prescription drug claims review, we expect the Part D plan sponsors to 
diligently assess each case, and if warranted, have their clinical 
staff conduct case management with the beneficiary's opioid prescribers 
until the case is resolved. According to the supplemental guidance,\5\ 
case management entails:
---------------------------------------------------------------------------

    \5\ September 6, 2012 HPMS memo, ``Supplemental Guidance Related 
to Improving Drug Utilization Review Controls in Part D.''
---------------------------------------------------------------------------

     The personnel communicating with prescribers have 
appropriate credentials.
     Written inquiries to the prescribers of the opioid 
medications about the appropriateness, medical necessity and safety of 
the apparent high dosage for their patient.
     Attempts to schedule telephone conversations with the 
prescribers (separately or together) within a reasonable period from 
the issuance of the written inquiry notification, if necessary.
     The clinician-to-clinician communication includes 
information about the existence of multiple prescribers and the 
beneficiary's total opioid utilization, and the plan's clinician 
elicits the information necessary to identify any complicating factors 
in the beneficiary's treatment that are relevant to the case management 
effort.
     After discussion or communication about the appropriate 
level of opioid use, the consensus reached by the prescribers is 
implemented by the sponsor, with a beneficiary-specific opioid POS 
claim edit, as deemed appropriate by the prescribers, to prevent 
further Part D coverage of an unsafe level of drug.
     In cases of non-responsive prescribers, the sponsor may 
also implement a beneficiary-specific opioid POS claim edit to prevent 
further coverage of an unsafe level of drug and to encourage the 
prescribers to participate in case management.
    Thus, we expect case management to confirm that the beneficiary's 
opioid use is medically necessary or resolve an overutilization issue.
    As part of the current policy, and because the Food and Drug 
Administration (FDA)-approved labeling for opioids generally does not 
include maximum daily doses, CMS developed specific criteria to 
identify beneficiaries at high risk through retrospective review of 
their opioid use in order to assist Part D sponsors in identifying such 
beneficiaries. These criteria incorporate a morphine milligram 
equivalent (MME) \6\ approach, which is a method to uniformly calculate 
the total daily dosage of opioids across all of a patient's opioid 
prescription drug claims. Beginning with plan year 2018, we adjusted 
these criteria to align with the Centers for Disease Control (CDC) 
Guideline for Prescribing Opioids for Chronic Pain (CDC Guideline) \7\ 
issued in March 2016 in terms of using 90 MME as a threshold to 
identify beneficiaries who appear to be at high risk due to their 
opioid use. In its guideline, after considering information from 
relevant studies and experts, the CDC identifies 50 MME daily dose as a 
threshold for increased risk of opioid overdose, and to generally avoid 
increasing the daily dosage to 90 MME. Our criteria, which we will 
discuss more fully later in the preamble, also incorporate a multiple 
prescriber and pharmacy count to focus on beneficiaries who appear to 
be not only overutilizing opioids but who also are at increased risk 
due to potential coordination of care issues, such that the providers 
who are prescribing or dispensing opioids to these beneficiaries may 
not know that other providers are also doing so.
---------------------------------------------------------------------------

    \6\ Please note that CMS will use the term ``MME'' going forward 
instead of morphine equivalent dose (MED), which CMS has used to 
date. CMS used the term MED in a manner that was equivalent to MME. 
We will update CMS documents that currently refer to MED as soon as 
practicable.
    \7\ Please see https://www.cdc.gov/drugoverdose/prescribing/guideline.html.
---------------------------------------------------------------------------

    The second aspect of the current policy came into place in July 
2013, when CMS launched the OMS as a tool to monitor Part D plan 
sponsors' effectiveness in complying with Sec.  423.153(b)(2) to 
address opioid overutilization. Through the OMS, CMS sends sponsors 
quarterly reports about their Part D enrollees who meet the criteria 
for being at high risk of opioid overutilization. Then, we expect 
sponsors to address each case through the case management process 
previously described and respond to CMS through the OMS using 
standardized responses. In addition, we expect sponsors to provide 
information to their regional CMS representatives and the MARx system 
about beneficiary-specific opioid POS claim edits that they intend to 
or have implemented.\8\
---------------------------------------------------------------------------

    \8\ Please refer to the CMS Web site, ``Improving Drug 
Utilization Review Controls in Part D'' at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/RxUtilization.html which contains CMS communications regarding the 
current policy.
---------------------------------------------------------------------------

    Because case management is very resource intensive for sponsors and 
PBMs, we have limited the scope of the current policy in terms of the 
number of beneficiaries identified by OMS, and when expanding that 
number, we have made changes incrementally through annual Parts C&D 
Call Letter process.
(2) Proposed Requirements for Part D Drug Management Programs 
(Sec. Sec.  423.100 and 423.153)
    We first propose several definitions for terms we propose to use in 
establishing requirements for Part D drug management programs.
(i) Definitions (Sec.  423.100)
(A) Definition of ``Potential At-Risk Beneficiary'' and ``At-Risk 
Beneficiary'' (Sec.  423.100)
    Section 1860D-4(c)(5)(C) of the Act contains a definition for ``at-
risk beneficiary'' that we propose to codify at Sec.  423.100. In 
addition, although the section 1860D-4(c)(5) of the Act does not 
explicitly define a ``potential at-risk beneficiary,'' it contemplates 
a beneficiary who is potentially at-risk. Accordingly, we propose to 
define these two terms at Sec.  423.100 as follows: Potential at-risk 
beneficiary means a Part D eligible individual--(1) Who is identified 
using clinical guidelines (as defined in Sec.  423.100); or (2) With 
respect to whom a Part D plan sponsor receives a notice upon the 
beneficiary's enrollment in such sponsor's plan that the beneficiary 
was identified as a potential at-risk beneficiary (as defined in 
paragraph (1) of this definition) under the prescription drug plan in 
which the beneficiary was most recently enrolled, such identification 
had not been terminated upon disenrollment, and the new plan has 
adopted the identification. At-risk beneficiary means a Part D eligible 
individual--(1) who is--(i) Identified using clinical guidelines (as 
defined in Sec.  423.100); (ii) Not an exempted beneficiary; and (iii) 
Determined to be at-risk for misuse or abuse of such frequently abused 
drugs under a Part D plan sponsor's drug management program in 
accordance with the requirements of Sec.  423.153(f); or (2) With 
respect to whom a Part D plan sponsor receives a notice upon the 
beneficiary's enrollment in such sponsor's plan that the beneficiary 
was identified as an at-risk beneficiary (as defined in paragraph (1) 
of this definition) under the prescription drug plan in which the 
beneficiary was most

[[Page 56343]]

recently enrolled, such identification had not been terminated upon 
disenrollment, and the new plan has adopted the identification. The 
distinction between a ``potential at-risk beneficiary'' and an ``at-
risk beneficiary'' is important for a few reasons that we will explain 
later in this preamble. Also, we added the phrase, ``and the new plan 
has adopted the identification'' to both definitions for cases where a 
beneficiary has been identified as a potential at-risk or at-risk 
beneficiary by the immediately prior plan to indicate that the 
beneficiary's status in the subsequent plan is not automatic.
(B) Definition of ``Frequently Abused Drug'', ``Clinical Guidelines'', 
``Program Size'', and ``Exempted Beneficiary'' (Sec.  423.100)
    Because we use these terms in the proposed definitions of 
``potential at-risk beneficiary'' and ``at-risk beneficiary,'' we 
propose to define ``frequently abused drug,'' ``clinical guidelines'', 
``program size'', and ``exempted beneficiary'' at Sec.  423.100 as 
follows:
 Frequently Abused Drug
    Section 1860D-4(c)(5)(G) of the Act defines ``frequently abused 
drug'' as a drug that is a controlled substance that the Secretary 
determines to be frequently abused or diverted. Consistent with the 
statutory definition, we propose to define ``Frequently abused drug'' 
at Sec.  423.100 to mean a controlled substance under the federal 
Controlled Substances Act that the Secretary determines is frequently 
abused or diverted, taking into account the following factors: (1) The 
drug's schedule designation by the Drug Enforcement Administration; (2) 
Government or professional guidelines that address that a drug is 
frequently abused or misused; and (3) An analysis of Medicare or other 
drug utilization or scientific data. This definition is intended to 
provide enough specificity for stakeholders to know how the Secretary 
will determine a frequently abused drug, while preserving flexibility 
to update which drugs CMS considers to be frequently abused drugs based 
on relevant factors, such as actions by the Drug Enforcement 
Administration and/or trends observed in Medicare or scientific data.
    We plan to publish and update a list of frequently abused drugs for 
purposes of Part D drug management programs. We propose that future 
designations of frequently abused drugs by the Secretary primarily be 
included in the annual Parts C&D Call Letter or in similar guidance, 
which would be subject to public comment, if necessary to address 
midyear entries to the drug market or evolving government or 
professional guidelines. This approach would be consistent with our 
approach under the current policy and necessary for Part D drug 
management programs to be responsive to changing public health issues 
over time.
    While this is the approach we propose for future designations of 
frequently abused drugs, we are including a discussion of the 
designation for plan year 2019 in this preamble. For plan year 2019, 
consistent with current policy, we propose that opioids are frequently 
abused drugs. Our proposal to designate opioids as frequently abused 
drugs illustrates how the proposed definition could work in practice:
    First, the Secretary determines opioids are frequently abused or 
diverted, because they are controlled substances, and drugs and other 
substances that are considered controlled substances under the 
Controlled Substances Act (CSA) are so considered precisely because 
they have abuse potential. The Drug Enforcement Administration (DEA) 
divides controlled substances into five schedules based on whether they 
have a currently accepted medical use in treatment in the United 
States, their relative abuse potential, and their likelihood of causing 
dependence when abused. Most prescription opioids are Schedule II, 
where the DEA places substances with a high potential for abuse with 
use potentially leading to severe psychological or physical 
dependence.\9\ A few opioids are Schedule III or IV, where the DEA 
places substances that have a potential for abuse.
---------------------------------------------------------------------------

    \9\ The abuse rate is a determinate factor in the DEA's 
scheduling of the drug; for example, Schedule I drugs have a high 
potential for abuse and the potential to create severe psychological 
and/or physical dependence. As the drug schedule changes-- Schedule 
II, Schedule III, etc., so does the abuse potential-- Schedule V 
drugs represents the least potential for abuse. See DEA Web site 
about Drug Scheduling: https://www.dea.gov/druginfo/ds.shtml.
---------------------------------------------------------------------------

    Second, on October 26, 2017, the President directed that executive 
agencies use all appropriate emergency authorities and other relevant 
authorities to address drug addiction and opioid abuse, and the Acting 
Secretary of Health and Human Services declared a nationwide Public 
Health Emergency to address the opioid crisis.\10\ In addition, the CDC 
has declared opioid overuse a national epidemic, both of which are 
relevant factors.\11\ More than 33,000 people died from opioid overuse 
in 2015, which is the highest number per year on record. From 2000 to 
2015, more than half a million people died from drug overdoses, and 91 
Americans die every day from an opioid overdose. Nearly half of all 
opioid overdose deaths involve a prescription opioid. Given that 
opioids, including prescription opioids, are the main driver of drug 
overdose deaths in the U.S., it is reasonable for the Secretary to 
conclude that opioids are frequently abused and misused.
---------------------------------------------------------------------------

    \10\ See White House Web site https://www.whitehouse.gov/the-press-office/2017/10/26/presidential-memorandum-heads-executive-departments-and-agencies, and the HHS Web site https://www.hhs.gov/about/news/2017/10/26/hhs-acting-secretary-declares-public-health-emergency-address-national-opioid-crisis.html.
    \11\ See CDC Web site https://www.cdc.gov/drugoverdose/index.html for all statistics in this paragraph.
---------------------------------------------------------------------------

    Third, government or professional guidelines support determining 
that opioids are frequently abused or misused. Consistent with current 
policy, we propose to designate all opioids as frequently abused drugs 
except buprenorphine for medication-assisted treatment (MAT) and 
injectables. The CDC MME Conversion Factor file \12\ does not include 
all formulations of buprenorphine for MAT so that access is not 
limited, and injectables are not included due to low claim volume. 
Therefore, CMS cannot determine the MME. CMS will consider revisions to 
the CDC MME Conversion Factor file when updating the list of opioids 
designated as frequently abused drugs in future guidance.
---------------------------------------------------------------------------

    \12\ See https://www.cdc.gov/drugoverdose/resources/data.html.
---------------------------------------------------------------------------

    Fourth, an analysis of Medicare data supports designating opioids 
as ``frequently abused drugs,'' at least initially. Over 727,000 Part D 
beneficiaries had an average MME of at least 90 mg during the 6-month 
period from July 1, 2015 to December 31, 2015 (``90 mg MME + users''), 
a number which excludes beneficiaries with cancer or in hospice, whom 
we propose to exempt from drug management programs, as we discuss 
later. As noted earlier, the CDC recommends prescribers generally avoid 
increasing the daily opioid dosage to 90 MME. Given that so many 
beneficiaries have an average MME above this threshold, it is 
reasonable that the Secretary consider this data to be a relevant 
factor in determining that opioids are frequently abused or diverted.
    Most stakeholders recommended designating opioids as frequently 
abused drugs. In this regard, we note

[[Page 56344]]

that our current policy applies only to opioids and that we are 
integrating the drug management provisions of CARA with our current 
policy. Therefore, designating opioids as frequently abused drugs, at 
least in the initial implementation of drug management programs, would 
have the added benefit of allowing CMS and stakeholders to gain 
experience with the use of lock-in in the Part D program, before 
potentially designating other controlled substances as frequently 
abused drugs.
    Some commenters expressed support for including other or all 
controlled substances, such as benzodiazepines, sedatives, and certain 
muscle relaxants as frequently abused drugs; however, we are not 
persuaded. Opioids are unique in that there is generally no maximum 
dose for them in the FDA labeling. Also, in the proposed Contract Year 
2016 Parts C&D Call Letter, we solicited feedback on expanding the 
current policy to other drugs, and the comments were mixed. A few 
commenters suggested that we expand the current policy to 
benzodiazepines and muscle relaxants when used with opioids. In respond 
to the feedback, we did not expand the current policy beyond the opioid 
class but indicated that we would investigate. Subsequently, the CDC 
Guideline was published and it specifically recommends that clinicians 
avoid prescribing opioid pain medication and benzodiazepines 
concurrently whenever possible due to increased risk for overdose. 
Therefore, we added a concurrent benzodiazepine-opioid flag to OMS in 
October 2016 to alert Part D sponsors that concurrent use may be an 
issue that should be addressed during case management, and we will 
continue to do so.\13\
---------------------------------------------------------------------------

    \13\ Please refer to the memo, ``Medicare Part D Overutilization 
Monitoring System (OMS) Update: Addition of the Concurrent Opioid-
Benzodiazepine Use Flag'' dated October 21, 2016.
---------------------------------------------------------------------------

    Other than conveying the concurrent benzodiazepine use information 
to sponsors, we have not expanded the current policy to address non-
opioid medications. However, we have stated that if a sponsor chooses 
to implement the current policy for non-opioid medications, we would 
expect the sponsor to employ the same level of diligence and 
documentation with respect to non-opioid medications that we expect for 
opioid medications.\14\ We have taken this approach to the current 
policy so that we could focus on the opioid epidemic and also due to 
the difficulty in establishing overuse guidelines for non-opioid 
controlled substances. For this reason our proposal would not identify 
benzodiazepines as frequently abused drugs. However, we solicit 
additional comment on our proposed approach to frequently abused drugs. 
Also, we propose that, if finalized, this rule would supersede our 
current policy, and sponsors would no longer be allowed to implement 
the current policy for non-opioid medications. We seek feedback on 
allowing sponsors to continue to implement the current policy for non-
opioid medications with respect to beneficiary-specific claim edits.
---------------------------------------------------------------------------

    \14\ See ``Supplemental Guidance Related to Improving Drug 
Utilization Review Controls in Part D,'' dated September 6, 2012.
---------------------------------------------------------------------------

 Clinical Guidelines and Program Size
    Section 1860D-4(c)(5)(C)(i)(I) of the Act requires at-risk 
beneficiaries to be identified using clinical guidelines that indicate 
misuse or abuse of frequently abused drugs and that are developed in 
consultation with stakeholders. We propose to include a definition of 
``clinical guidelines'' that cross references standards that we are 
proposing at Sec.  423.153(f) for how the guidelines would be 
established and updated. Specifically, we propose to define clinical 
guidelines for purposes of a Part D drug management program as criteria 
to identify potential at-risk beneficiaries who may be determined to be 
at-risk beneficiaries under such programs, and that are developed in 
accordance with the proposed standards in Sec.  423.153(f)(16) and 
published in guidance annually.
    We also propose to add Sec.  423.153(f)(16) to state that potential 
at-risk beneficiaries and at-risk beneficiaries are identified by CMS 
or the Part D sponsor using clinical guidelines that: (1) Are developed 
with stakeholder consultation; (2) Are based on the acquisition of 
frequently abused drugs from multiple prescribers, multiple pharmacies, 
the level of frequently abused drugs, or any combination of these 
factors; (3) Are derived from expert opinion and an analysis of 
Medicare data; and (4) Include a program size estimate. This proposed 
approach to developing and updating the clinical guidelines is intended 
to provide enough specificity for stakeholders to know how CMS would 
determine the guidelines by identifying the standards we would apply in 
determining them.
    This proposed approach indicates that the program size would be 
determined as part of the process to develop the clinical guidelines--a 
process into which stakeholders would provide input. Section 1860D-
4(c)(5)(C)(iii) of the Act states that the Secretary shall establish 
policies, including the guidelines and exemptions, to ensure that the 
population of enrollees in drug management programs could be 
effectively managed by plans. We propose to define ``program size'' in 
Sec.  423.100 to mean the estimated population of potential at-risk 
beneficiaries in drug management programs (described in Sec.  
423.153(f)) operated by Part D plan sponsors that the Secretary 
determines can be effectively managed by such sponsors as part of the 
process to develop clinical guidelines.
    This proposed approach to developing and updating the clinical 
guidelines would also be flexible enough to allow for updates to the 
guidelines outside of the regulatory process to address trends in 
Medicare with respect to the misuse and/or diversion of frequently 
abused drugs. We have determined this approach is appropriate to enable 
CMS to assist Part D drug management programs in being responsive to 
public health issues over time. This approach would also be consistent 
with how the OMS criteria have been established over time through the 
annual Medicare Parts C&D Call Letter process, which we plan to 
continue except for 2019.
    For plan year 2019, we propose the clinical guidelines in this 
preamble to be the OMS criteria established for plan year 2018, which 
meet the proposed standards for the clinical guidelines for the 
following reasons: First, as described earlier, the OMS criteria 
incorporate a 90 MME threshold cited in a CDC Guideline, which was 
developed by experts as the level that prescribers should avoid 
reaching with their patients. This threshold does not function as a 
prescribing limit for the Part D program; rather, it identifies 
potentially risky and dangerous levels of opioid prescribing in terms 
of misuse or abuse. Second, the OMS criteria also incorporate a 
multiple prescriber and pharmacy count. A high MED level combined with 
multiple prescribers and/or pharmacies may also indicate the abuse or 
misuse of opioids due to the possible lack of care coordination among 
the providers for the patient. Third, the OMS criteria have been 
revised over time based on analysis of Medicare data and with 
stakeholder input via the annual Parts C&D Call Letter process. Indeed, 
many stakeholders recommended the use of the CDC Guideline as part of 
the clinical guidelines the Secretary must develop, with some noting 
that they would need to be used in a way that accounts for use of 
multiple providers, which the OMS criteria do. Fourth, these criteria 
are familiar to Part D sponsors--they will already have experience with 
them by

[[Page 56345]]

2019, and they were established with an estimate of program size.
    Several stakeholders in their comments referred to various criteria 
used in state Medicaid lock-in programs to identify beneficiaries 
appropriate for lock-in, without suggesting that any particular ones be 
adopted. Other commenters suggested CMS consider other guidelines, such 
as the American Society of Addiction Medicine (ASAM) National Practice 
Guideline for the Use of Medications in the Treatment of Addiction 
Involving Opioid Use and the Veterans Affairs/Department of Defense 
(VA/DoD) Clinical Practice Guideline on Opioid Therapy for Chronic 
Pain. However, these guidelines are similar to or moving toward an MME 
methodology which we currently use or address a more narrow population 
than persons who may be abusing or misusing frequently abused drugs, 
and they do not directly address situations involving multiple opioid 
providers. The VA/DoD Clinical Practice Guideline for Opioid Therapy 
for Chronic Pain is similar to the scope of the CDC Guideline. The ASAM 
Guideline for the Use of Medications in the Treatment of Addiction 
Involving Opioid Use was developed specifically for the evaluation and 
treatment of opioid use disorder and for the management of opioid 
overdose, which would not be applicable here because it serves a 
different purpose. Therefore, we do not see a reason to adopt these 
guidelines instead of the 2018 OMS criteria.
    The clinical guidelines for use in drug management programs we are 
proposing for 2019 are: Use of opioids with an average daily MME 
greater than or equal to 90 mg for any duration during the most recent 
6 months and either: 4 or more opioid prescribers and 4 or more opioid 
dispensing pharmacies OR 6 or more opioid prescribers, regardless of 
the number of opioid dispensing pharmacies. We note that we have 
described alternative clinical guidelines that we considered in the 
Regulatory Impact Analysis section of this rule. Stakeholders are 
invited to comment on those alternatives and any others which would 
involve identifying more or fewer potential at-risk beneficiaries.
    We propose that under the proposed clinical guidelines, prescribers 
associated with the same single Tax Identification Number (TIN) be 
counted as a single prescriber. This is consistent with the current 
policy under which we have found that such prescribers are typically in 
the same group practice that is coordinating the care of the patients 
served by it. Thus, it is appropriate to count such prescribers as one, 
so as not to identify beneficiaries who are not at-risk.
    In this regard, in applying the OMS criteria, CMS counts 
prescribers with the same TIN as one prescriber, unless any of the 
prescribers are associated with multiple TINs. For example, under the 
criteria we have proposed, a beneficiary who meets the 90 MME criterion 
and received opioid prescriptions from 4 prescribers in the same group 
practice and 3 independent opioid prescribers (1 group practice + 3 
prescribers = 4 prescribers) and filled the prescriptions at 4 opioid 
dispensing pharmacies, would still meet the criteria, which is 
appropriate. However, a beneficiary who meets that 90 MME criterion and 
received opioid prescriptions from 4 prescribers in the same group 
practice and 1 independent opioid prescriber (1 group practice + 1 
prescriber = 2 prescribers) and filled the prescriptions at 4 opioid 
dispensing pharmacies would not meet the criteria, which is also 
appropriate at this time given program size concerns.
    Section 1860D-4(c)(5)(D) of the Act specifies that for purposes of 
limiting access to coverage of frequently abused drugs to those 
obtained from a selected pharmacy, if the pharmacy has multiple 
locations that share real-time electronic data, all such locations of 
the pharmacy collectively are treated as one pharmacy. Given this 
provision, as well as our proposal to treat multiple prescribers from 
the same group practice as one prescriber under the clinical 
guidelines, we propose that where a pharmacy has multiple locations 
that share real-time electronic data, all locations of the pharmacy 
collectively be treated as one pharmacy under the clinical guidelines.
    Because not all Part D plans' data systems may be able to account 
for group practice prescribers as we described above, or chain 
pharmacies through data analysis alone, or may not be able to fully 
account for them, we request information on sponsors' systems 
capabilities in this regard. Also, if a plan sponsor does not have the 
systems capability to automatically determine when a prescriber is part 
of a group or a pharmacy is part of a chain, the plan sponsor would 
have to make these determinations during case management, as they do 
with respect to group practices under the current policy. If through 
such case management, the Part D plan finds that the multiple 
prescribers who prescribed frequently abused drugs for the beneficiary 
are members of the same group practice, the Part D plan would treat 
those prescribers as one prescriber for purposes of identification of 
the beneficiary as a potential at-risk beneficiary. Similarly, if 
through such case management, the Part D plan finds that multiple 
locations of a pharmacy used by the beneficiary share real-time 
electronic data, the Part D plan would treat those locations as one 
pharmacy for purposes of identification of the beneficiary as a 
potential at-risk beneficiary. Both of these scenarios may result in a 
Part D sponsor no longer conducting case management for a beneficiary 
because the beneficiary does not meet the clinical guidelines. We also 
note that group practices and chain pharmacies are important to 
consider for purposes of the selection of a prescriber(s) and 
pharmacy(ies) in cases when a Part D plan limits a beneficiary's access 
to coverage of frequently abused drugs to selected pharmacy(ies) and/or 
prescriber(s), which we discuss in more detail later in this preamble.
    Under the current policy, sponsors must use 90 MME as a ``floor'' 
for their own criteria to identify beneficiaries who may be 
overutilizing opioids, but they may vary the prescriber and pharmacy 
count. This means sponsors may review beneficiaries who do not meet the 
OMS criteria but meet the sponsors' internal criteria for review, or 
they may not review beneficiaries who meet the OMS criteria but do not 
meet the sponsors' internal criteria for review. However, under our 
proposal to adopt the 2018 OMS criteria as the 2019 clinical guidelines 
for Part D drug management programs, we also propose to mostly 
eliminate this feature of the current policy. Under our proposal, Part 
D plan sponsors would not be able to vary the criteria of the 
guidelines to include more or fewer beneficiaries in their drug 
management programs, except that we propose to continue to permit plan 
sponsors to apply the criteria more frequently than CMS would apply 
them through OMS in 2018, which can result in sponsors identifying 
beneficiaries earlier. This is because CMS evaluates enrollees 
quarterly using a 6-month look back period, whereas sponsors may 
evaluate enrollees more frequently (for example, monthly).
    While several commenters stated that Part D plan sponsors should 
have flexibility in developing their own criteria for identifying at-
risk beneficiaries in their plans, a more conservative and uniform 
approach is warranted for the initial implementation of Part D drug 
management programs. While we already have experience with how 
frequently Part D plan sponsors use beneficiary-specific opioid POS 
claim edits to prevent opioid overutilization, we wish to learn how 
sponsors will use

[[Page 56346]]

lock-in as a tool to address this issue before adopting clinical 
guidelines that might include parameters for permissible variations of 
the criteria. We plan to monitor compliance of drug management programs 
as we monitor compliance with the current policy through various CMS 
data sources, such as OMS, MARx, beneficiary complaints and appeals.
    Also, we note that despite sponsors' additional identification of 
some beneficiaries currently, in practice, we have found that CMS 
identifies the vast majority of beneficiaries who are reviewed by Part 
D sponsors through OMS. CMS identifies over 80 percent of the cases 
reviewed through OMS, and about 20 percent are identified by sponsors 
based on their internal criteria. We understand that most of the 
beneficiaries representing the 20 percent were reported to OMS due to 
the sponsors averaging the MME calculations across all opioid 
prescriptions, which has subsequently been changed in the 2018 OMS 
criteria. The 2018 OMS criteria also have a lower MME threshold and 
account for additional beneficiaries who receive their opioids from 
many prescribers regardless of the number of pharmacies, which will 
result in the identification of more beneficiaries through OMS. Thus, 
our proposal would not substantially change the current practice. 
Furthermore, in approximately 39 percent of current OMS cases, sponsors 
respond that the case does not meet the sponsor's internal criteria for 
review.\15\ We found that the original OMS criteria generated false 
positives that some sponsors' internal criteria did not because these 
sponsors used a shorter look back period or were able to group 
prescribers within the same practice or chain pharmacies. These best 
practices have also been incorporated into the revised 2018 OMS 
criteria, which are the basis of the proposed 2019 clinical guidelines. 
Thus, while our proposal will prevent sponsors from voluntarily 
reviewing more potential at-risk beneficiaries than CMS identifies 
through OMS, it will likely require sponsors to review more 
beneficiaries than they currently do.
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    \15\ We noted in the final CY Parts C&D Call Letter, for the 
January 2014 OMS reports, 67 percent of the potential opioid 
overutilization responses were that the beneficiary did not meet the 
sponsor's internal criteria. We explained the reasons for this 
figure and the actions we took to reduce it.
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    Table 1 shows that in 2015 approximately 33,000 beneficiaries would 
have met the proposed 2019 clinical guidelines, which is approximately 
0.08 percent of the 42 million beneficiaries enrolled in Part D in 
2015. We think this population would constitute a manageable program 
size because this is the estimated OMS population we finalized during 
the Plan Year 2018 Parts C&D Call Letter process. Moreover, we have no 
evidence to suggest that this program size will be problematic for 
sponsors.
    In addition, current Medicaid lock-in programs support the notion 
that this program size would be manageable by Part D plan sponsors. In 
2015, an average 0.37 percent of Medicaid recipients were locked-in and 
the percentage of recipient's locked-in by state programs ranged from 
0.01 percent to 1.8 percent.\16\
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    \16\ Medicaid Drug Utilization Review State Comparison/Summary 
Report FFY 2015 Annual Report: Prescription Drug-Fee-For-Service 
Programs (December 2016), pg. 26.
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    To derive this estimated population of potential at-risk 
beneficiaries, we analyzed prescription drug event data (PDE) from 
2015,\17\ using the CDC opioid drug list and MME conversion factors, 
and applying the criteria we proposed earlier as the clinical 
guidelines. This estimate is over-inclusive because we did not exclude 
beneficiaries in long-term care (LTC) facilities who would be exempted 
from drug management programs, as we discuss later in this section. 
However, based on similar analyses we have conducted, this exclusion 
would not result in a noteworthy reduction to our estimate. Also, we 
were unable to count all locations of a pharmacy that has multiple 
locations that share real-time electronic data as one, which is a topic 
we discussed earlier and will return to later. Thus, there likely are 
beneficiaries counted in our estimate who would not be identified as 
potential at-risk beneficiaries because they are in an LTC facility or 
only use multiple locations of a retail chain pharmacy that share real-
time electronic data.
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    \17\ Unique count of beneficiaries who met the criteria in any 6 
month measurement period (January 2015-June 2015; April 2015-
September 2015; or July 2015-December 2015).

      Table 1--Clinical Guidelines or Identifying Potential At-Risk
                              Beneficiaries
------------------------------------------------------------------------
            Criteria applied                 Impact to Part D program
------------------------------------------------------------------------
[gteqt]90 mg MED and either:             33,053 beneficiaries in 2015
                                          (76.3% were LIS).
    4+ opioid prescribers AND 4+ opioid  Represents 0.08% of 41,835,016
     dispensing pharmacies.               Part D beneficiaries in 2015.
OR                                       LTC beneficiaries included in
                                          estimate but are exempt.
    6+ opioid prescribers (regardless    Prescribers associated with the
     of the number of opioid dispensing   same single Tax Identification
     pharmacies).                         Numbers (TIN) are counted as a
                                          single prescriber.
------------------------------------------------------------------------

    We note that the alternatives for clinical guidelines that we 
considered, which are described in the Regulatory Impact Analysis (RIA) 
section of this rule, also include estimated population of potential 
at-risk beneficiaries for each alternative. Most of the options include 
a 90 MME threshold with varying prescriber and pharmacy counts and 
range from identifying 33,053 to 319,133 beneficiaries. Again, 
stakeholders are invited to comment on these alternatives. We are 
particularly interested in receiving comments on whether CMS should 
adjust the clinical guidelines so that more or fewer potential at-risk 
beneficiaries are identified, and if more are identified, whether the 
additional number would result in a manageable program size for plan 
sponsors (or too few beneficiaries to be meaningful).
 Exempted Beneficiary
    Section 1860D-4(c)(5)(C)(ii) of the Act defines an exempted 
individual as one who receives hospice care, who is a resident of a 
long-term care facility for which frequently abused drugs are dispensed 
for residents through a contract with a single pharmacy, or who the 
Secretary elects to treat as an exempted individual. Consistent with 
this, we propose that an exempted beneficiary, with respect to a drug 
management program, would mean an enrollee who: (1) Has elected to 
receive hospice care; (2) Is a resident of a long-term care facility, 
of a facility described in section 1905(d) of the Act, or of another 
facility for which frequently abused drugs are dispensed for residents

[[Page 56347]]

through a contract with a single pharmacy; or (3) Has a cancer 
diagnosis.
    While the first two exceptions are required under CARA, we propose 
to exercise the authority in section 1860D-4(c)(5)(C)(ii)(III) of the 
Act to treat a beneficiary who has a cancer diagnosis as an exempted 
individual for two reasons. First, many commenters recommended that the 
Secretary exempt beneficiaries who have a cancer diagnosis, because a 
Part D drug management program should not be able to interfere 
administratively with their pain control regimen in the form of 
additional notices from their prescription drug benefit plans and 
limitations on their access to coverage for frequently abused drugs. We 
agree with these commenters. Second, exempting beneficiaries with a 
cancer diagnosis would be consistent with current policy. Under the 
current policy, which has been developed through stakeholder feedback, 
beneficiaries with cancer are excluded because the benefit of their 
opioid use may outweigh the risk associated with their opioid use. 
Also, as noted previously, some commenters requested that 
implementation of the drug management program provisions of CARA be as 
consistent as possible with the current policy for operational ease. We 
also agree with these commenters.
    Some commenters recommended against exempting beneficiaries with 
cancer diagnoses, stating that there is no standard clinical reason why 
a beneficiary with cancer should be receiving opioids from multiple 
prescribers and/or multiple pharmacies, and that such situations 
warrant further review. While we understand the concern of these 
commenters, we maintain that beneficiaries who have a cancer diagnosis 
should be exempted for the reasons stated just above. Moreover, our 
experience with this exemption under the current policy suggests that 
the exemption is workable and appropriate. We understand beneficiaries 
with cancer diagnoses are identifiable by Part D plan sponsors either 
through recorded diagnoses, their drug regimens or case management, and 
no major concerns have been expressed about this exemption under our 
current policy, including from standalone Part D plan sponsors who may 
not have access to their enrollees' medical records.
    A few commenters suggested exempting beneficiaries who are 
receiving palliative and end-of-life care, since not all patients 
receiving this type of care are necessarily enrolled in hospice or 
reside in an LTC facility. Two commenters suggested exempting 
beneficiaries in assisted living. Other commenters suggested exempting 
beneficiaries in various other health care facilities, such as group 
homes and adult day care centers, where medication is supervised. Other 
commenters suggested exempting beneficiaries with debilitating 
disorders or receiving medication-assisted treatment for substance 
abuse disorders.
    We have not proposed to exempt these additional categories of 
beneficiaries but we seek specific comment on whether to do so and our 
rationale. First, we have not exempted these other beneficiaries under 
the current policy, and we thus do not think it is necessary to exempt 
them from drug management programs. Second, unlike with cancer 
diagnoses, we are not able to determine administratively through CMS 
data who these beneficiaries are to exempt them from OMS reporting. 
Consequently, it could be burdensome for Part D sponsors to attempt to 
exempt these beneficiaries, by definition, from their drug management 
programs. Third, it is important to remember that the proposed clinical 
guidelines would only identify potential at-risk beneficiaries in the 
Part D program who are receiving potentially unsafe doses of opioids 
from multiple prescribers and/or multiple pharmacies who typically do 
not know about each other in terms of providing services to the 
beneficiary. Thus, it is likely that a plan would discover during case 
management that a potential at-risk beneficiary is receiving palliative 
and end-of-life care during case management. Absent a compelling 
reason, we would expect the plan not to seek to implement a limit on 
such beneficiary's access to coverage of opioids under the current 
policy nor a drug management program, as it would seem to outweigh the 
medication risk in such circumstances. Moreover, in cases where a 
prescriber is cooperating with case management, we would not expect the 
prescriber to agree to such a limitation, again, absent a compelling 
reason. With respect to beneficiaries receiving medication-assisted 
treatment for substance abuse for opioid use disorder, we decline to 
propose to treat these individuals as exempted individuals. It is these 
beneficiaries who are among the most likely to benefit from a drug 
management program.
(ii) Requirements of Drug Management Programs (Sec. Sec.  423.153, 
423.153(f))
    As noted previously, we are proposing to codify a regulatory 
framework under which Part D plan sponsors may adopt drug management 
programs to address overutilization of frequently abused drugs. 
Therefore, we propose to amend Sec.  423.153(a) by adding this sentence 
at the end: ``A Part D plan sponsor may establish a drug management 
program for at-risk beneficiaries enrolled in their prescription drug 
benefit plans to address overutilization of frequently abused drugs, as 
described in paragraph (f) of this section,'' in accordance with our 
authority under revised section 1860D-4(c)(5)(A) of the Act.
    We also propose to revise Sec.  423.153 by adding a new paragraph 
(f) about drug management programs for which the introductory sentence 
would read: ``(f) Drug Management Programs. A drug management program 
must meet all the following requirements.'' Thus, the requirements that 
a Part D plan sponsor must meet to operate a drug management program 
would be codified in various provisions under subsection Sec.  
423.153(f).
(iii) Written Policies and Procedures (Sec.  423.153(f)(1))
    We propose to require Part D sponsors document their programs in 
written policies and procedures that are approved by the applicable P&T 
committee and reviewed and updated as appropriate, which is consistent 
with the current policy. Also consistent with the current policy, we 
would require these policies and procedures to address the appropriate 
credentials of the personnel conducting case management and the 
necessary and appropriate contents of files for case management. We 
additionally propose to require sponsors to monitor information about 
incoming enrollees who would meet the definition of a potential at-risk 
and an at-risk beneficiary in proposed Sec.  423.100 and respond to 
requests from other sponsors for information about potential at-risk 
and at-risk beneficiaries who recently disenrolled from the sponsor's 
prescription drug benefit plans. We discuss potential at-risk and at-
risk beneficiaries who are identified as such in their most recent Part 
D plan later in this preamble.
    To codify these requirements, we propose that section Sec.  
423.153(f)(1) read as follows: (1) Written policies and procedures. A 
sponsor must document its drug management program in written policies 
and procedures that are approved by the applicable P&T committee and 
reviewed and updated as appropriate. The policies and procedures must 
address all aspects of the sponsor's drug management program, including 
but not limited to the following: (i) The appropriate credentials of 
the personnel conducting case management required under

[[Page 56348]]

paragraph (f)(2); (ii) The necessary and appropriate contents of files 
for case management required under paragraph (f)(2); and (iii) 
Monitoring reports and notifications about incoming enrollees who meet 
the definition of an at-risk beneficiary and a potential at-risk 
beneficiary in Sec.  423.100 and responding to requests from other 
sponsors for information about at-risk beneficiaries and potential at-
risk beneficiaries who recently disenrolled from the sponsor's 
prescription drug benefit plans. Thus, Part D sponsors would have 
flexibility--as they do today under the current policy--to adopt 
specific policies and procedures for their drug management programs, as 
long as they are consistent with the requirements of Sec.  423.153, as 
finalized.
(iv) Case Management/Clinical Contact/Prescriber Verification (Sec.  
423.153(f)(2))
    As discussed earlier, case management is a key feature of the 
current policy, under which we currently expect Part D plan sponsors' 
clinical staff to diligently engage in case management with the 
relevant opioid prescribers to coordinate care with respect to each 
beneficiary reported by OMS until the case is resolved (unless the 
beneficiary does not meet the sponsor's internal criteria). We propose 
that the second requirement for drug management programs in a new Sec.  
423.153(f)(2) reflect the current policy with some adjustment to the 
current policy to require all beneficiaries reported by OMS to be 
reviewed by sponsors.
    Our proposal for a new Sec.  423.153(f)(2) also meets the 
requirements of section 1860D-4I(5)(C) of the Act. This section of the 
Act requires that, with respect to each at-risk beneficiary, the 
sponsor shall contact the beneficiary's providers who have prescribed 
frequently abused drugs regarding whether prescribed medications are 
appropriate for such beneficiary's medical conditions. Further, our 
proposal meets the requirements of Section 1860D-4(c)(5)(B)(i)(II) of 
the Act, which requires that a Part D sponsor first verify with the 
beneficiary's providers that the beneficiary is an at-risk beneficiary, 
if the sponsor intends to limit the beneficiary's access to coverage 
for frequently abused drugs.
    Specifically, we propose that a new Sec.  423.153(f)(2) read as 
follows: Case Management/Clinical Contact/Prescriber Verification. (i) 
General Rule. The sponsor's clinical staff must conduct case management 
for each potential at-risk beneficiary for the purpose of engaging in 
clinical contact with the prescribers of frequently abused drugs and 
verifying whether a potential at-risk beneficiary is an at-risk 
beneficiary. Proposed Sec.  423.153(f)(2)(i) would further state that, 
except as provided in paragraph (f)(2)(ii) of this section, the sponsor 
must do all of the following: (A) Send written information to the 
beneficiary's prescribers that the beneficiary meets the clinical 
guidelines and is a potential at-risk beneficiary; (B) Elicit 
information from the prescribers about any factors in the beneficiary's 
treatment that are relevant to a determination that the beneficiary is 
an at-risk beneficiary, including whether prescribed medications are 
appropriate for the beneficiary's medical conditions or the beneficiary 
is an exempted beneficiary; and (C) In cases where the prescribers have 
not responded to the inquiry described in (i)(B), make reasonable 
attempts to communicate telephonically with the prescribers within a 
reasonable period after sending the written information.
    Given the ``Except as provided in paragraph (f)(2)(ii) of this 
section'', we propose to add paragraph (ii) to Sec.  423.153(f)(2) that 
would read: (ii) Exception for identification by prior plan. If a 
beneficiary was identified as a potential at-risk or an at-risk 
beneficiary by his or her most recent prior plan, and such 
identification has not been terminated in accordance with paragraph 
(f)(14) of this section, the sponsor meets the requirements in 
paragraph (f)(2)(i) of this section, so long as the sponsor obtains 
case management information from the previous sponsor and such 
information is still clinically adequate and up to date. This proposal 
is to avoid unnecessary burden on health care providers when additional 
case management outreach is not necessary. This is consistent with the 
current policy under which sponsors are expected to enter information 
into MARx about pending, implemented and terminated beneficiary-
specific POS claim edits, which is transferred to the next sponsor, if 
applicable. Pending and implemented POS claim edits are actions that 
sponsors enter into MARx after case management. We discuss potential 
at-risk and at-risk beneficiaries who change plans again later in this 
preamble.
    The information that the plan sends to the prescribers and elicits 
from them is intended to assist a Part D sponsor to understand why the 
beneficiary meets the clinical guidelines and if a plan intervention is 
warranted for the safety of the beneficiary. Also, sponsors use this 
information to choose standardized responses in OMS and provide 
information to MARx about plan interventions that were referenced 
earlier. We will address required reporting to OMS and MARx by sponsors 
again later.
    We note that, currently, OMS standardized responses generally fall 
into four categories: First, in approximately 18 percent of cases, the 
enrollee's opioid use is medically necessary. Second, approximately 38 
percent of cases are resolved without a beneficiary-specific POS opioid 
claim edit, for example, when the sponsor takes a ``wait and see'' 
approach to observe if the prescribers adjust their management of, and 
the opioid prescriptions they are writing for, their patient due to the 
written information they received from the sponsor about their patient. 
Third, a small subset of cases--on average 1.3 percent--need a 
beneficiary-specific opioid POS claim edit to resolve the beneficiary's 
opioid overutilization issue. From 2013 through of July 4, 2017, CMS 
received 4,617 contract-beneficiary-level opioid POS claim edit 
notifications through MARx for 3,961 unique beneficiaries. Fourth, as 
previously mentioned, approximately 39 percent of cases do not meet the 
sponsor's internal criteria for review. We expect adjustment to these 
percentages under our proposal, particularly since we anticipate that 
plans will no longer be able to respond that a case does not meet its 
internal criteria for review. In addition, the revised 2018 OMS 
criteria which are the basis of the proposed 2019 clinical guidelines 
should reduce ``false positives'' which may have been reported through 
OMS but not identified through sponsors' internal criteria due to a 
shorter look back period and ability to group prescribers within the 
same practice.
    We also note that under the current policy, sponsors are expected 
to make ``at least three (3) attempts to schedule telephone 
conversations with the prescribers (separately or together) within a 
reasonable period (for example, a 10 business day period) from the 
issuance of the written inquiry notification.'' If the prescribers are 
unresponsive to case management, under our current policy, a sponsor 
may also implement a beneficiary-specific POS claim edit for opioids as 
a last resort to encourage prescriber engagement with case management.
    By contrast, our proposed Sec.  423.153(f)(2) uses the terms 
``reasonable attempts'' and ``reasonable period'' rather than a 
specific number of attempts or a specific timeframe for plan to call 
prescribers. The reason for this proposed adjustment to our policy is 
because our current policy also states that ``[s]ponsors are not 
required to

[[Page 56349]]

automatically contact prescribers telephonically,'' but those that 
``employ a wait-and-see approach'' should understand that ``we expect 
sponsors to address the most egregious cases of opioid overutilization 
without unreasonable delay, and that we do not believe that all such 
cases can be addressed through a prescriber letter campaign.'' Our 
guidance further states that, ``to the extent that some cases can be 
addressed through written communication to prescribers only, we would 
acknowledge the benefit of not aggravating prescribers with unnecessary 
telephonic communications.'' Finally, our guidance states that, 
``[s]ponsors must determine for themselves the usefulness of attempting 
to call or contact all opioid prescribers when there are many, 
particularly when they are emergency room physicians.'' \18\
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    \18\ See ``Supplemental Guidance Relating to Improving Drug 
Utilization Review Controls in Part D'', September 6, 2012 (pp. 5, 
19-20) at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/RxUtilization.html.
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    Given the competing priorities of sponsors' diligently addressing 
opioid overutilization in the Part D program through case management, 
which may necessitate telephone calls to the prescribers, while being 
cognizant of the need to be judicious in contacting prescribers 
telephonically in order to not unnecessarily disrupt their practices, 
we wish to leave flexibility in the regulation text for sponsors to 
balance these priorities on a case-by-case basis in their drug 
management programs, particularly since this flexibility exists under 
the current policy. We note however, that we propose a 3 attempts/10 
business days requirement for sponsors to conclude that a prescriber is 
unresponsive to case management in Sec.  423.153(f)(4) discussed later 
in this section.
(v) Limitations on Access to Coverage for Frequently Abused Drugs 
(Sec.  423.153(f)(3))
    As described earlier, under the current policy, Part D sponsors may 
implement a beneficiary-specific opioid POS claim edit to prevent 
continued overutilization of opioids, with prescriber agreement or in 
the case of an unresponsive prescriber during case management. If a 
sponsor implements a POS claim edit, the sponsor thereafter does not 
cover opioids for the beneficiary in excess of the edit, absent a 
subsequent determination, including a successful appeal.
    As noted earlier, revised section 1860D-4(c)(5)(A) of the Act 
provides additional tools commonly known as ``lock-in'', for Part D 
plans to limit an at-risk beneficiary's access to coverage for 
frequently abused drugs. Prescriber lock-in would limit an at-risk 
beneficiary's access to coverage for frequently abused drugs to those 
that are prescribed for the beneficiary by one or more prescribers, and 
pharmacy lock-in would restrict an at-risk beneficiary's access to 
coverage for frequently abused drugs to those that are dispensed to the 
beneficiary by one or more network pharmacies.
    If the sponsor uses a lock-in tool(s), the sponsor must generally 
cover frequently abused drugs for the beneficiary only when they are 
obtained from the selected pharmacy(ies) and/or prescriber(s), as 
applicable, absent a subsequent determination, including a successful 
appeal. Pursuant to section 1860D-4(c)(5)(D)(i)(II) of the Act, a 
sponsor would also have to cover frequently abused drugs from a non-
selected pharmacy or prescriber, if such coverage were necessary in 
order to provide reasonable access. We discuss selection of pharmacies 
and prescribers and reasonable access later.
    We propose to describe all the tools that would be available to 
sponsors to limit an at-risk beneficiary's access to coverage for 
frequently abused drugs through a drug management program in Sec.  
423.153(f)(3) as follows: Limitation on Access to Coverage for 
Frequently Abused Drugs. Subject to the requirements of paragraph 
(f)(4) of this section, a Part D plan sponsor may do all of the 
following: (i) Implement a point-of-sale claim edit for frequently 
abused drugs that is specific to an at-risk beneficiary; or (ii) In 
accordance with paragraphs (f)(10) and (f)(11) of this section, limit 
an at-risk beneficiary's access to coverage for frequently abused drugs 
to those that are (A) Prescribed for the beneficiary by one or more 
prescribers; (B) Dispensed to the beneficiary by one or more network 
pharmacies; or (C) Specified in both paragraphs (3)(ii)(B)(1) and (2) 
of this paragraph. Paragraph (iii)(A) would state that if the sponsor 
implements an edit as specified in paragraph (f)(3)(i) of this section, 
the sponsor must not cover frequently abused drugs for the beneficiary 
in excess of the edit, unless the edit is terminated or revised based 
on a subsequent determination, including a successful appeal. Paragraph 
(iii)(B) would state that if the sponsor limits the at-risk 
beneficiary's access to coverage as specified in paragraph (f)(3)(ii) 
of this section, the sponsor must cover frequently abused drugs for the 
beneficiary only when they are obtained from the selected pharmacy(ies) 
and/or prescriber(s), or both, as applicable, (1) in accordance with 
all other coverage requirements of the beneficiary's prescription drug 
benefit plan, unless the limit is terminated or revised based on a 
subsequent determination, including a successful appeal, and (2) except 
as necessary to provide reasonable access in accordance with paragraph 
(f)(12) of this section.
(vi) Requirements for Limiting Access to Coverage for Frequently Abused 
Drugs (Sec.  423.153(f)(4))
    We propose that before a Part D plan sponsor could limit the access 
of at-risk beneficiary to coverage for frequently abused drugs, the 
sponsor must first take certain actions, consistent with current 
policy. We propose that a sponsor must first conduct the case 
management discussed earlier, which includes clinical contact to 
determine whether prescribed medications are appropriate for the 
potential at-risk beneficiary's medical conditions and prescriber 
verification that the beneficiary is an at-risk beneficiary. We also 
propose that the sponsor must first obtain the agreement of the 
prescribers of frequently abused drugs with the limitation, unless the 
prescribers were not responsive to the required case management, in 
light of the risk to the beneficiary's health. We further propose that 
the sponsor must first provide notice to the beneficiary in accordance 
with section 1860D-4(c)(5)(B)(i)(I) of the Act.
    We propose to require the additional step of prescriber agreement, 
which is consistent with the current policy as discussed earlier, 
because a prescriber may verify that the beneficiary is an at-risk 
beneficiary but may not view a limitation on the beneficiary's access 
to coverage for frequently abused drugs as appropriate. Given the 
additional information the prescribers would have from the Part D 
sponsor through case management about the beneficiary's utilization of 
frequently abused drugs, the prescribers' professional opinion may be 
that an adjustment to their prescribing for, and care of, the 
beneficiary is all that is needed to safely manage the beneficiary's 
use of frequently abused drugs going forward. We invite stakeholders to 
comment on not requiring prescriber agreement to implement pharmacy 
lock-in. We could foresee a case in which the prescriber is responsive, 
but does not agree with pharmacy lock-in.
    We also propose language that would provide an exception to the 
case management requirement in Sec.  423.153(f)(2) when an at-risk

[[Page 56350]]

beneficiary was identified as an at-risk beneficiary by the 
beneficiary's most recent prior prescription drug benefit plan. We 
discuss such cases more later in this section. Given the foregoing, we 
propose to add a paragraph (f)(4) to Sec.  423.153 that reads: 
Requirements for Limiting Access to Coverage for Frequently Abused 
Drugs. (i) A sponsor may not limit the access of an at-risk beneficiary 
to coverage for frequently abused drugs under paragraph (f)(3) of this 
section, unless the sponsor has done all of the following: (A) 
Conducted the case management required by paragraph (f)(2) of this 
section and updated it, if necessary; (B) Obtained the agreement of the 
prescribers of frequently abused drugs for the beneficiary that the 
specific limitation is appropriate; and (C) Provided the notices to the 
beneficiary in compliance with paragraphs (f)(5) and (6) of this 
section. We would also state in subsection (ii) that if the sponsor 
complied with the requirement of paragraph (f)(2)(i)(C) of this 
section, and the prescribers were not responsive after 3 attempts by 
the sponsor to contact them by telephone within 10 business days, then 
the sponsor has met the requirement of paragraph (f)(4)(i)(B) of this 
section. Finally, we would state in a subsection (iii) that if the 
beneficiary meets paragraph (2) of the definition of a potential at-
risk beneficiary or an at-risk beneficiary, and the sponsor has 
obtained the applicable case management information from the sponsor of 
the beneficiary's most recent plan and updated it as appropriate, the 
sponsor has met the case management requirement in paragraph (f)(2)(i).
(vii) Beneficiary Notices and Limitation of Special Enrollment Period 
(Sec. Sec.  423.153(f)(5), 423.153(f)(6), 423.38)
(A) Initial Notice to Beneficiary and Sponsor Intent To Implement 
Limitation on Access to Coverage for Frequently Abused Drugs (Sec.  
423.153(f)(5))
    The notices referred to in proposed Sec.  423.153(f)(4)(i)(C) are 
the initial and second notice that section 1860D-4(c)(5)(B)(i)(I) of 
the Act requires Part D sponsors to send to potential at-risk and at-
risk beneficiaries regarding their drug management programs. We remind 
Part D sponsors that under Section 504 of the Rehabilitation Act of 
1973, effective communications requirements would apply to both these 
notices. We first discuss the initial notice.
    We propose in Sec.  423.153(f)(5) that if a Part D plan sponsor 
intends to limit the access of a potential at-risk beneficiary to 
coverage for frequently abused drugs, the sponsor would be required to 
provide an initial written notice to the potential at-risk beneficiary. 
We also propose that the language be approved by the Secretary and be 
in a readable and understandable form that contains the language 
required by section 1860D-4(c)(5)(B)(ii) of the Act to which we propose 
to add detail in the regulation text. Finally, we propose that the 
sponsor be required to make reasonable efforts to provide the 
prescriber(s) of frequently abused drugs with a copy of the notice.
    We propose that Sec.  423.153(f)(5)(i) read as follows: Initial 
Notice to Beneficiary. A Part D sponsor that intends to limit the 
access of a potential at-risk beneficiary to coverage for frequently 
abused drugs under paragraph (f)(3) of this section must provide an 
initial written notice to the beneficiary. Paragraph (f)(5)(ii) would 
require that the notice use language approved by the Secretary and be 
in a readable and understandable form that provides the following 
information: (1) An explanation that the beneficiary's current or 
immediately prior Part D plan sponsor has identified the beneficiary as 
a potential at-risk beneficiary; (2) A description of all State and 
Federal public health resources that are designed to address 
prescription drug abuse to which the beneficiary has access, including 
mental health and other counseling services and information on how to 
access such services, including any such services covered by the plan 
under its Medicare benefits, supplemental benefits, or Medicaid 
benefits (if the plan integrates coverage of Medicare and Medicaid 
benefits); (3) An explanation of the beneficiary's right to a 
redetermination if the sponsor issues a determination that the 
beneficiary is an at-risk beneficiary and the standard and expedited 
redetermination processes described at Sec.  423.580 et seq.; (4) A 
request that the beneficiary submit to the sponsor within 30 days of 
the date of this initial notice any information that the beneficiary 
believes is relevant to the sponsor's determination, including which 
prescribers and pharmacies the beneficiary would prefer the sponsor to 
select if the sponsor implements a limitation under Sec.  
423.153(f)(3)(ii); (5) An explanation of the meaning and consequences 
of being identified as an at-risk beneficiary, including an explanation 
of the sponsor's drug management program, the specific limitation the 
sponsor intends to place on the beneficiary's access to coverage for 
frequently abused drugs under the program, the timeframe for the 
sponsor's decision, and if applicable, any limitation on the 
availability of the special enrollment period described in Sec.  
423.38; (6) Clear instructions that explain how the beneficiary can 
contact the sponsor, including how the beneficiary may submit 
information to the sponsor in response to the request described in 
paragraph (f)(5)(ii)(C)(4); (7) Contact information for other 
organizations that can provide the beneficiary with assistance 
regarding the sponsor's drug management program; and (8) Other content 
that CMS determines is necessary for the beneficiary to understand the 
information required in this notice.
    We propose to require at Sec.  423.153(f)(5)(iii) that the Part D 
plan sponsor make reasonable efforts to provide the beneficiary's 
prescriber(s) of frequently abused drugs with a copy of the notice 
required under paragraph (f)(5)(i).
    The content of the initial notice we propose in Sec.  423.153(f)(5) 
closely follows the content required by section 1860D-4(c)(5)(B)(ii) of 
the Act, but as noted previously, we have proposed to add some detail 
to the regulation text. In proposed paragraph (f)(5)(ii)(C)(2)--which 
would require a description of public health resources that are 
designed to address prescription drug abuse--we propose to require that 
the notice contain information on how to access such services. We also 
included a reference in proposed paragraph (ii)(C)(4) to the fact that 
a beneficiary would have 30 days to provide information to the sponsor, 
which is a timeframe we discuss later in this preamble. We propose an 
additional requirement in paragraph (ii)(C)(5) that the sponsor include 
the limitation the sponsors intends to place on the beneficiary's 
access to coverage for frequently abused drugs, the timeframe for the 
sponsor's decision, and, if applicable, any limitation on the 
availability of the SEP. Finally, we proposed a requirement in 
paragraph (ii)(C)(8) that the notice contain other content that CMS 
determines is necessary for the beneficiary to understand the 
information required in the initial notice.
    We note that our proposed implementation of the statutory 
requirements for the initial notice would permit the notice also to be 
used when the sponsor intends to implement a beneficiary-specific POS 
claim edit for frequently abused drugs. This is consistent with our 
current policy and would streamline beneficiary notices about opioids 
since we propose frequently abused drugs to consist of opioids for 
2019.

[[Page 56351]]

    Although section 1860D-4(c)(5) is silent as to the sequence of the 
steps of clinical contact, prescriber verification, and the initial 
notice, we propose to implement these requirements such that they would 
occur in the following order: First, the plan sponsor would conduct the 
case management which encompasses clinical contact and prescriber 
verification required by Sec.  423.153(f)(2) and prescriber agreement 
required by Sec.  423.153(f)(4), and second would, as applicable, 
indicate the sponsor's intent to limit the beneficiary's access to 
frequently abused drugs by providing the initial notice. In our view, a 
sponsor cannot reasonably intend to limit the beneficiary's access 
unless it has first undertaken case management to make clinical contact 
and obtain prescriber verification and agreement. Further, under our 
proposal, although the proposed regulatory text of (f)(4)(i) states 
that the sponsor must verify with the prescriber(s) that the 
beneficiary is an at-risk beneficiary in accordance with the applicable 
statutory language, the beneficiary would still be a potential at-risk 
beneficiary from the sponsor's perspective when the sponsor provides 
the beneficiary the initial notice. This is because the sponsor has yet 
to solicit information from the beneficiary about his or her use of 
frequently abused drugs, and such information may have a bearing on 
whether a sponsor identifies a potential at-risk beneficiary as an at-
risk beneficiary.
    Moreover, we believe that in general, a sponsor should not send a 
potential at-risk beneficiary an initial notice until after the sponsor 
has been in contact with the beneficiary's prescribers of frequently 
abused drugs, so as to avoid unnecessarily alarming the beneficiary, 
considering that a sponsor may learn from the prescribers that the 
beneficiary's use of the drugs is medically necessary, or that the 
beneficiary is an exempted beneficiary. This proposed approach is also 
consistent with our current policy and stakeholder comments. Therefore, 
under this approach, a sponsor would provide an initial notice to a 
potential at-risk beneficiary if the sponsor intends to limit the 
beneficiary's access to coverage for frequently abused drugs, and the 
sponsor would provide a second notice to an at-risk beneficiary when it 
actually limits the beneficiary's access to coverage for frequently 
abused drugs. Alternatively, the sponsor would provide an alternate 
second notice if it decides not to limit the beneficiary's access to 
coverage for frequently abused drugs. We discuss the second notice and 
alternate second notice later in this preamble.
    We intend to develop language for the initial notice. Therefore, 
the proposed regulatory text states that the notice must use language 
approved by the Secretary.
(B) Limitation on the Special Enrollment Period for LIS Beneficiaries 
With an At-Risk Status (Sec.  423.38)
    In addition to providing relevant information to a potential at-
risk beneficiary, we propose that the initial notice will notify 
dually- and other low income subsidy (LIS)-eligible beneficiaries, that 
they will be unable to use the special enrollment period (SEP) for LIS 
beneficiaries due to their at-risk status. (Hereafter, this SEP is 
referred to as the ``duals' SEP''). Section 1860D-1(b)(3)(D) of the Act 
requires the Secretary to establish a Part D SEP for full-benefit 
dually eligible (FBDE) beneficiaries. This SEP, codified at Sec.  
423.38(c)(4), was later extended to all other subsidy-eligible 
beneficiaries (75 FR 19720) so that all LIS-eligible beneficiaries were 
treated uniformly. The duals' SEP currently allows such individuals to 
make Part D enrollment changes (that is, enroll in, disenroll from, or 
change Part D plans) throughout the year, unlike other Part D enrollees 
who generally may make enrollment changes only during the annual 
election period (AEP). Individuals using this SEP can enroll in either 
a stand-alone Part D prescription drug plan (PDP) or a Medicare 
Advantage plan with prescription drug coverage.
    Section 704(a)(3) of CARA gives the Secretary the discretion to 
limit the SEP for FBDE beneficiaries outlined in section 1860D-
1(b)(3)(D) of the Act. This limitation is related to, but distinct 
from, other changes to the duals' SEP proposed in section III.A.11 of 
this proposed rule (as discussed later). A limitation under a sponsor's 
drug management program can only be effective as long as the individual 
is enrolled in that plan or another plan that also has a drug 
management program. Therefore, this proposed SEP limitation would be an 
important tool to reduce the opportunities for LIS-eligible 
beneficiaries designated as at-risk to switch plans. If an individual 
is determined to be an at-risk beneficiary, and is permitted to change 
plans using the duals' SEP, he or she could avoid the drug management 
program by leaving the plan before the program can be started or by 
enrolling in a PDP that does not have a drug management program. This 
would allow the beneficiary to circumvent the lock-in program and not 
receive the care coordination such a program provides. Even if an-risk 
beneficiary joined another plan that had a drug management program in 
place, there would be challenges in terms of preventing a gap managing 
their potential or actual overutilization of frequently abused drugs 
due to timing of information sharing between the plans and possible 
difference in provider networks.
    Accordingly, we are proposing to revise Sec.  423.38(c)(4), so that 
it is not available to potential at-risk beneficiaries or at-risk 
beneficiaries. Once an individual is identified as a potential at-risk 
beneficiary and the sponsor intends to limit the beneficiary's access 
to coverage for frequently abused drugs, the sponsor would provide an 
initial notice to the beneficiary and the duals' SEP would no longer be 
available to the otherwise eligible individual. This means that he or 
she would be unable to use the duals' SEP to enroll in a different plan 
or disenroll from the current Part D plan. The limitation would be 
effective as of the date the Part D plan sponsor identifies an 
individual to be potentially at-risk. Limiting the duals' SEP 
concurrent with the plan's identification of a potential at-risk 
beneficiary would reduce the opportunities for such beneficiaries to 
use the interval between receipt of the initial notice and application 
of the limitation (for example, pharmacy or prescriber lock-in, 
beneficiary-specific POS claim edit) as an opportunity to change plans 
before the restriction takes effect.
    Based on the 2015 data in CMS' OMS, more than 76 percent of all 
beneficiaries estimated to be potential at-risk beneficiaries are LIS-
eligible individuals. Based on this data, without an SEP limitation at 
the initial point of identification, the notification of a potential 
drug management program may prompt these individuals to switch plans 
immediately after receiving the initial notice. In effect, under the 
current regulations, if unchanged, the dually- or other LIS-eligible 
individual, could keep changing plans and avoid being subject to any 
drug management program.
    We propose that, consistent with the timeframes discussed in 
proposed paragraph Sec.  423.153(f)(7), if the Part D plan sponsor 
takes no additional action to identify the individual as an at-risk 
beneficiary within 90 days from the initial notice, the ``potentially 
at-risk'' designation and the duals' SEP limitation would expire. If 
the sponsor determines that the potential at-risk beneficiary is an at-
risk beneficiary, the

[[Page 56352]]

duals' SEP would not be available to that beneficiary until the date 
the beneficiary's at-risk status is terminated based on a subsequent 
determination, including a successful appeal, or at the end of a 12-
month period calculated from the effective date the sponsor provided 
the beneficiary in the second notice as proposed at Sec.  423.153(f)(6) 
whichever is sooner.
    As discussed in section III.A.11 of this proposed rule, we are also 
proposing to revise Sec.  423.38(c)(4) to make the SEP for FBDE or 
other subsidy-eligible individuals available only in certain 
circumstances. As further explained in section III.A.11, we also are 
proposing to establish a new SEP at Sec.  423.38(c)(9) to permit any 
beneficiary to make an enrollment change when he or she has a gain, 
loss, or change in Medicaid or LIS eligibility.
    We propose not to limit the availability of this new SEP to 
potential at-risk and at-risk beneficiaries. In situations where an 
individual is designated as a potential at-risk beneficiary or an at-
risk beneficiary and later determined to be dually-eligible for 
Medicaid or otherwise eligible for LIS, that beneficiary should be 
afforded the ability to receive the subsidy benefit to the fullest 
extent for which he or she qualifies and therefore should be able to 
change to a plan that is more affordable, or that is within the premium 
benchmark amount if desired. Likewise, if an individual with an ``at-
risk'' designation loses dual-eligibility or LIS status, or has a 
change in the level of extra help, he or she would be afforded an 
opportunity to elect a different Part D plan, as discussed in section 
III.A.11 of this proposed rule. This is also a life changing event that 
may have a financial impact on the individual, and could necessitate an 
individual making a plan change in order to continue coverage.
    We note that auto- and facilitated enrollment of LIS eligible 
individuals and plan annual reassignment processes would still apply to 
dual- and other LIS-eligible individuals who were identified as an at-
risk beneficiary in their previous plan. This is consistent with CMS's 
obligation and general approach to ensure Part D coverage for LIS-
eligible beneficiaries and to protect the individual's access to 
prescription drugs. Furthermore, we note that the proposed enrollment 
limitations for Medicaid or other LIS-eligible individuals designated 
as at-risk beneficiaries would not apply to other Part D enrollment 
periods, including the AEP or other SEPs. As discussed previously, we 
propose that the ability to use the duals' SEP, as outlined in section 
III.A.11. of this proposed rule, would not be permissible once the 
individual is enrolled in a plan that has identified him or her as a 
potential at-risk beneficiary or at-risk beneficiary, for a dual or 
other LIS-eligible who meets the definition of at-risk beneficiary or 
potential at-risk beneficiary under proposed Sec.  423.100.
(C) Second Notice to Beneficiary and Sponsor Implementation of 
Limitation on Access to Coverage for Frequently Abused Drugs by Sponsor 
(Sec.  423.153(f)(6))
    As previously noted, section 1860D-4(c)(5)(B)(i)(I) of the Act 
requires Part D sponsors to provide a second written notice to at-risk 
beneficiaries when they limit their access to coverage for frequently 
abused drugs. Also, as with the initial notice, our proposed 
implementation of this statutory requirement for the second notice 
would permit the second notice to be used when the sponsor implements a 
beneficiary-specific POS claim edit for frequently abused drugs.
    We propose to codify this requirement in Sec.  423.153(f)(6)(i). 
Specifically, we propose to require the sponsor to provide the second 
notice when it determines that the beneficiary is an at-risk 
beneficiary and to limit the beneficiary's access to coverage for 
frequently abused drugs. We further propose to require the second 
notice to include the effective and end date of the limitation. Thus, 
this second notice would function as a written confirmation of the 
limitation the sponsor is implementing with respect to the beneficiary, 
and the timeframe of that limitation.
    We also propose that the second notice, like the initial notice, 
contain language required by section 1860D-4(c)(5)(B)(iii) of the Act 
to which we propose to add detail in the regulation text. We also 
propose that the second notice, like the initial notice, be approved by 
the Secretary and be in a readable and understandable form, as well as 
contain other content that CMS determines is necessary for the 
beneficiary to understand the information required in this notice. 
Finally, in Sec.  423.153(f)(6)(iii), we propose that the sponsor be 
required to make reasonable efforts to provide the beneficiary's 
prescriber(s) of frequently abused drugs with a copy of the notice, as 
we proposed with the initial notice.
    Proposed Sec.  423.153(f)(6)(i) would read as follows: Second 
notice. Upon making a determination that a beneficiary is an at-risk 
beneficiary and to limit the beneficiary's access to coverage for 
frequently abused drugs under paragraph (f)(3) of this section, a Part 
D sponsor must provide a second written notice to the beneficiary. 
Paragraph (f)(6)(ii) would require that the second notice use language 
approved by the Secretary and be in a readable and understandable form 
that contains the following information: (1) An explanation that the 
beneficiary's current or immediately prior Part D plan sponsor has 
identified the beneficiary as an at-risk beneficiary; (2) An 
explanation that the beneficiary is subject to the requirements of the 
sponsor's drug management program, including the limitation the sponsor 
is placing on the beneficiary's access to coverage for frequently 
abused drugs and the effective and end date of the limitation; and, if 
applicable, any limitation on the availability of the special 
enrollment period described in Sec.  423.38 et seq.; (3) The 
prescriber(s) and/or pharmacy(ies) or both, if and as applicable, from 
which the beneficiary must obtain frequently abused drugs in order for 
them to be covered by the sponsor; (4) An explanation of the 
beneficiary's right to a redetermination under Sec.  423.580 et seq., 
including a description of both the standard and expedited 
redetermination processes, with the beneficiary's right to, and 
conditions for, obtaining an expedited redetermination; (5) An 
explanation that the beneficiary may submit to the sponsor, if the 
beneficiary has not already done so, the prescriber(s) and 
pharmacy(ies), as applicable, from which the beneficiary would prefer 
to obtain frequently abused drugs; (6) Clear instructions that explain 
how the beneficiary may contact the sponsor, including how the 
beneficiary may submit information to the sponsor in response to the 
request described in paragraph (f)(6)(ii)(C)(5) of this section; and 
(7) Other content that CMS determines is necessary for the beneficiary 
to understand the information required in this notice.
    The content of the second notice we propose in Sec.  423.153(f)(6) 
closely follows the content required by section 1860D-4(c)(5)(B)(iii) 
of the Act, but as noted previously, we have proposed to add some 
detail to the regulation text. In proposed paragraph (2), we have 
proposed language that would require a sponsor to include the 
limitation the sponsors is placing on the beneficiary's access to 
coverage for frequently abused drugs, the effective and end date of the 
limitation, and if applicable, any limitation on the availability of 
the SEP. We propose an additional requirement in paragraph (6) that the 
sponsor include instructions how the beneficiary

[[Page 56353]]

may submit information to the sponsor in response to the request 
described in paragraph (4). Finally, we proposed a requirement in 
paragraph (7) that the notice contain other content that CMS determines 
is necessary for the beneficiary to understand the information required 
in the initial notice.
    We note that under our current policy, plan sponsors send only one 
notice to the beneficiary if they intend to implement a beneficiary-
specific POS opioid claim edit, which generally provides the 
beneficiary with a 30-day advance written notice and opportunity to 
provide additional information, as well as to request a coverage 
determination if the beneficiary disagrees with the edit. If our 
proposal is finalized, the implementation of a beneficiary-specific POS 
claim edit or a limitation on the at-risk beneficiary's coverage for 
frequently abused drugs to a selected pharmacy(ies) or prescriber(s) 
would be an at-risk determination (a type of initial determination that 
would confer appeal rights). Also, the sponsor would generally be 
required to send two notices--the first signaling the sponsor's intent 
to implement a POS claim edit or limitation (both referred to generally 
as a ``limitation''), and the second upon implementation of such 
limitation. Under our proposal, the requirement to send two notices 
would not apply in certain cases involving at-risk beneficiaries who 
are identified as such and provided a second notice by their 
immediately prior plan's drug management program.
(D) Alternate Second Notice When Limit on Access Coverage for 
Frequently Abused Drugs by Sponsor Will Not Occur (Sec.  423.153(f)(7))
    We propose that if a sponsor does not implement the limitation on 
the potential at-risk beneficiary's access to coverage of frequently 
abused drugs it described in the initial notice, then the sponsor would 
be required to provide the beneficiary with an alternate second notice. 
Although not explicitly required by the statute, we believe this notice 
is consistent with the intent of the statute and is necessary to avoid 
beneficiary confusion and minimize unnecessary appeals. We propose 
generally that in such an alternate notice, the sponsor must notify the 
beneficiary that the sponsor no longer considers the beneficiary to be 
a potential at-risk beneficiary upon making such determination; will 
not place the beneficiary in its drug management program; will not 
limit the beneficiary's access to coverage for frequently abused drugs; 
and if applicable, that the SEP limitation no longer applies.
    Specifically, we propose that Sec.  423.153(f)(7)(i) would read: 
Alternate second notice. (i) If, after providing an initial notice to a 
potential at-risk beneficiary under paragraph (f)(4) of this section, a 
Part D sponsor determines that the potential at-risk beneficiary is not 
an at-risk beneficiary, the sponsor must provide an alternate second 
written notice to the beneficiary. Paragraph (f)(7)(ii) would require 
that the notice use language approved by the Secretary in a readable 
and understandable form containing the following information: (1) The 
sponsor has determined that the beneficiary is not an at-risk 
beneficiary; (2) The sponsor will not limit the beneficiary's access to 
coverage for frequently abused drugs; (3) If applicable, the SEP 
limitation no longer applies; (4) Clear instructions that explain how 
the beneficiary may contact the sponsor; and (5) Other content that CMS 
determines is necessary for the beneficiary to understand the 
information required in this notice.
    Again, as with the initial and second notices, we propose in a 
paragraph (f)(7)(iii) that the Part D sponsor be required to make 
reasonable efforts to provide the beneficiary's prescriber(s) of 
frequently abused drugs with a copy of the notice required by paragraph 
(f)(7)(i). Also, as with the initial and second notices, we propose in 
paragraph (ii) that the notice use language approved by the Secretary 
and be in a readable and understandable form; in paragraph (ii)(C)(4) 
that the notice contain clear instructions that explain how the 
beneficiary may contact the sponsor; and in paragraph (ii)(C)(5), that 
the notice contain other content that CMS determines is necessary for 
the beneficiary to understand the information required in the notice.
(E) Timing of Notices (Sec.  423.153(f)(8))
    Section 1860D-4(c)(5)(B)(iv) of the Act requires a Part D sponsor 
to provide the second notice to the beneficiary on a date that is not 
less than 30 days after the sponsor provided the initial notice to the 
beneficiary. We interpret the purpose of this requirement to be that 
the beneficiary should have ample time to provide information to the 
sponsor that may alter the sponsor's intended action that is contained 
in the initial notice to the beneficiary, or to provide the sponsor 
with the beneficiary's pharmacy and/or prescriber preferences, if the 
sponsor's intent is to limit the beneficiary's access to coverage for 
frequently abused drugs from selected a pharmacy(ies) and/or 
prescriber(s).
    In addition, we propose to impose a deadline by when a sponsor must 
provide the second notice or alternate second notice to the 
beneficiary, although not specifically required by CARA. Such a 
requirement should provide the sponsor with sufficient time to complete 
the administrative steps necessary to execute the action the sponsor 
intends to take that was explained in the initial notice to the 
beneficiary, while acknowledging that the sponsor would have already 
met in the case management, clinical contact and prescriber 
verification requirement.
    In the case of an alternate second notice, the timeframe should 
provide the beneficiary with definitive notice that the sponsor has not 
identified the beneficiary as an at-risk beneficiary and that there 
will be no limitation on his/her access to coverage for frequently 
abused drugs. Accordingly, we propose that the sponsor would be 
required to send either the second notice or the alternate second 
notice, as applicable, when it makes its determination or no later than 
90 calendar days after the date on the initial notice, whichever comes 
sooner.
    Specifically, we propose to include at Sec.  423.153(f)(8) the 
following: Timing of Notices. (i) Subject to paragraph (ii) of this 
section, a Part D sponsor must provide the second notice described in 
paragraph (f)(6) of this section or the alternate second notice 
described in paragraph (f)(7) of this section, as applicable, on a date 
that is not less than 30 days and not more than the earlier of the date 
the sponsor makes the relevant determination or 90 days after the date 
of the initial notice described in paragraph (f)(5) of this section. We 
intend this proposed timeframe for the sponsor to provide either the 
second notice or the alternate second notice, as applicable, to be 
reasonable for both Part D sponsors and the relevant beneficiaries and 
important to ensuring clear, timely and reasonable communication 
between the parties.
    Section 1860D-4(c)(5)(B)(iv)(II) of the Act explicitly provides for 
an exception to the required timeframe for issuing a second notice. 
Specifically, the statute permits the Secretary to identify through 
rulemaking concerns regarding the health or safety of a beneficiary or 
significant drug diversion activities that would necessitate that a 
Part D sponsor provide the second written notice to the beneficiary 
before the 30 day time period normally required has elapsed. For this 
reason, we included the language, ``subject to paragraph (ii),'' at the 
beginning of proposed Sec.  423.153(f)(8)(i).

[[Page 56354]]

    We note that the proposed definition of at-risk beneficiary would 
include beneficiaries for whom a gaining Part D plan sponsor received a 
notice upon the beneficiary's enrollment that the beneficiary was 
identified as an at-risk beneficiary under the prescription drug plan 
in which the beneficiary was most recently enrolled and such 
identification had not been terminated upon enrollment. This proposed 
definition is based on the language in section 1860-D-4(c)(5)(C)(i)(II) 
of the Act.
    Given that this provision allows an at-risk identification to carry 
forward to the next plan, we believe it is appropriate to propose to 
permit a gaining plan to provide the second notice to an at-risk 
beneficiary so identified by the most recent prior plan sooner than 
would otherwise be required. For the same reasons, we believe that it 
would be appropriate to permit the gaining plan to even send the 
beneficiary a combined initial and second notice, under certain 
circumstances. However, because the content of the initial notice would 
not be appropriate for an at-risk beneficiary, and because such 
beneficiary would have already received an initial notice from his or 
her immediately prior plan sponsor, the content of this combined notice 
should only consist of the required content for the second notice so as 
not to confuse the beneficiary. Thus, our interpretation of section 
1860D-4(c)(5)(B)(iv)(II) of the Act in conjunction with section 1860D-
4(c)(5)(C)(i)(II) of the Act is that a gaining Part D sponsor may send 
the second notice immediately to a beneficiary for whom the sponsor 
received a notice upon the beneficiary's enrollment that the 
beneficiary was identified as an at-risk beneficiary under the 
prescription drug plan in which the beneficiary was most recently 
enrolled and such identification had not been terminated upon 
disenrollment. This is consistent with our current policy under which a 
gaining sponsor may immediately implement a beneficiary-specific opioid 
POS claim edit, if the gaining sponsor is notified that the beneficiary 
was subject to such an edit in the immediately prior plan and such edit 
had not been terminated.\19\
---------------------------------------------------------------------------

    \19\ See ``Beneficiary-Level Point-of-Sale Claim Edits and Other 
Overutilization Issues,'' August 25, 2014.
---------------------------------------------------------------------------

    We propose that sending a second notice to an at-risk beneficiary 
so identified in the most recent plan would be permissible only if the 
new sponsor is implementing a beneficiary-specific POS claim edit for a 
frequently abused drug, or if the sponsor is implementing a limitation 
on access to coverage for frequently abused drugs to a selected 
pharmacy(ies) or prescriber(s) and has the same location of 
pharmacy(ies) and/or the same prescriber(s) in its provider network, as 
applicable, that the beneficiary used to obtain frequently abused drugs 
in the most recent plan. Otherwise, we propose that the new sponsor 
would be required to provide the initial notice to the at-risk 
beneficiary, even though the initial notice is generally intended for 
potential at-risk beneficiaries, and could not provide the second 
notice until at least 30 days had passed. This is because even though 
there would also be a concern for the at-risk beneficiary's health and 
safety in this latter case as well, this concern would be outweighed by 
the fact that the beneficiary had not been afforded a chance to submit 
his or her preference for a pharmacy(ies) and/or prescriber(s), as 
applicable, from which he or she would have to obtain frequently abused 
drugs to obtain coverage under the new plan's drug management program.
    We propose to codify this policy by adding a paragraph (ii) to 
Sec.  423.153(f)(8), as noted earlier, to read as follows: Immediately 
upon the beneficiary's enrollment in the gaining plan, the gaining plan 
sponsor may provide a second notice described in paragraph (f)(6) to a 
beneficiary for whom the gaining sponsor received notice that the 
beneficiary was identified as an at-risk beneficiary by his or her most 
recent prior plan and such identification had not been terminated in 
accordance with Sec.  423.153(f)(14), if the sponsor is implementing 
either of the following: (A) A beneficiary-specific point-of-sale claim 
edit as described in paragraph (f)(3)(i); or (B) A limitation on access 
to coverage as described in paragraph(f)(3)(ii), if such limitation 
would require the beneficiary to obtain frequently abused drugs from 
the same location of pharmacy and/or the same prescriber, as 
applicable, that was selected under the immediately prior plan under 
(f)(9).
    Some stakeholders commented that sponsors should be allowed to 
expedite the second notice in cases of egregious and potentially 
dangerous overutilization or in cases involving an active criminal 
investigation when allowed by a court. However, given the importance of 
a beneficiary having advance notice of a pending limit on his or her 
access to coverage for frequently abused drugs and sufficient time to 
respond and/or prepare, we believe exceptions to the timing of the 
notices should be very narrow. Therefore, we have only included a 
proposal for an exception to shorten the 30 day timeframe between the 
initial and second notice that is based on a beneficiary's status as an 
at-risk beneficiary in an immediately preceding plan. We note that is a 
status the drug management provisions of CARA explicitly requires to be 
shared with the next plan sponsor, if a beneficiary changes plans, 
which means there would be a concrete data point for this proposed 
exception to the timing of the notices. We discuss such sharing of 
information later in the preamble.
(viii) Provisions Specific to Limitations on Access to Coverage of 
Frequently Abused Drugs to Selected Pharmacies and Prescribers 
(Sec. Sec.  423.153(f)(4), 423.153(f)(9), 423.153(f)(10), 
423.153(f)(11), 423.153(f)(12), 423,153(f)(13))
    Some of the drug management program provisions in CARA are only 
relevant to ``lock-in''. We propose several regulatory provisions to 
implement these provisions, as follows:
(A) Special Requirement To Limit Access to Coverage of Frequently 
Abused Drugs to Selected Prescriber(s) (Sec.  423.153(f)(4))
    We believe prescriber lock-in should be a tool of last resort to 
manage at-risk beneficiaries' use of frequently abused drugs, meaning 
when a different approach has not been successful, whether that was a 
``wait and see'' approach or the implementation of a beneficiary 
specific POS claim edit or a pharmacy lock-in. Limiting an at-risk 
beneficiary's access to coverage for frequently abused drugs from only 
selected prescribers impacts the beneficiary's relationship with his or 
her health care providers and may impose burden upon prescribers in 
terms of prescribing frequently abused drugs.
    As a result, we propose that a sponsor may not limit an at-risk 
beneficiary's access to coverage of frequently abused drugs to a 
selected prescriber(s) until at least 6 months has passed from the date 
the beneficiary is first identified as a potential at-risk beneficiary. 
We propose that this date be the date of the first OMS report that 
identified the beneficiary, so long as the beneficiary was also 
reported in the most recent OMS report that the sponsor received. This 
is because limiting the beneficiary's access to coverage of frequently 
abused drugs from a selected prescriber would only be necessary if the 
beneficiary continues to meet the clinical guidelines despite any 
existing

[[Page 56355]]

intervention or limitation. We discuss OMS reports in more detail 
later.
    We expect that the 6-month waiting period will provide the sponsor 
additional time to assess whether case management or another tool, such 
as a beneficiary-specific POS claim edit or pharmacy lock-in has failed 
to resolve the beneficiary's overutilization of frequently abused 
drugs. Sponsors have indicated in comments on the current policy that 
the case management process can take 3 to 6 months. Also, sponsors 
would need time to determine whether the beneficiary still meets the 
clinical guidelines and is thus continuing to be reported by OMS. 
Therefore, the time period we propose was chosen to account for time 
needed for the case management process and to align with the 6 month 
measurement period of the proposed clinical guidelines.
    We seek comment on whether this 6-month waiting period would reduce 
provider burden sufficiently to outweigh the additional case 
management, clinical contact and prescriber verification that providers 
may experience if a sponsor believes a beneficiary's access to coverage 
of frequently abused drugs should be limited to a selected 
prescriber(s). Comments should include the additional operational 
considerations for sponsors to implement this proposal.
    Given our proposal, we propose adding a paragraph (iv) to Sec.  
423.153(f)(4) that would state: (f)(4)(iv) A Part D sponsor must not 
limit an at-risk beneficiary's access to coverage for frequently abused 
drugs to those that are prescribed for the beneficiary by one or more 
prescribers under Sec.  423.153(f)(3)(ii)(A) unless--(A) At least 6 
months has passed from the date the beneficiary was first identified as 
a potential at-risk beneficiary from the date of the applicable CMS 
identification report; and (B) The beneficiary meets the clinical 
guidelines and was reported by the most recent CMS identification 
report.
    We note that in conducting the case management required under Sec.  
423.153(f)(4)(i)(A) in anticipation of implementing a prescriber lock-
in, the sponsor would be expected to update any case management it had 
already conducted. Also, even if a sponsor had already obtained the 
prescriber's agreement to implement a limitation on the beneficiary's 
coverage of frequently abused drugs to a selected pharmacy to comply 
with Sec.  423.153(f)(4)(i)(B), for example, the sponsor would have to 
obtain the agreement of the prescriber who would be selected to 
implement a limitation on a beneficiary's coverage of frequently abused 
drugs to a selected prescriber. Finally, we note that even if a sponsor 
had already provided the beneficiary with the required notices to 
comply with Sec.  423.153(f)(4)(i)(C), the sponsor would have to 
provide them again in order to remain compliant, because the 
beneficiary would not have been notified about the specific limitation 
on his or her access to coverage for frequently abused drugs to a 
selected prescriber(s) and has an opportunity to select the 
prescriber(s).
    We foresee a scenario in which a sponsor may wish to implement a 
limitation on a beneficiary's access to coverage of frequently abused 
drugs to a selected prescriber(s) when the sponsor's first round of 
case management, clinical contact and prescriber verification resulted 
only in sending the prescribers of frequently abused drugs a written 
report about the beneficiary's utilization of frequently abused drugs 
and taking a ``wait and see'' approach, which did not result in the 
prescribers' adjusting their prescriptions for frequently abused drugs 
for their patient. In such a scenario, assuming the patient still meets 
the clinical guidelines and continues to be reported by OMS, the 
sponsor would need to try another intervention to address the opioid 
overuse. Another scenario could be that the sponsor implemented a 
pharmacy lock-in, but after 6-months, the beneficiary still meets the 
clinical guidelines due to receiving frequently abused drugs from 
additional prescribers.
(B) Selection of Pharmacies and Prescribers (Sec. Sec.  423.153(f)(9), 
423.153(f)(10), 423.153(f)(11), 423.153(f)(12), 423.153(f)(13))
(1) Beneficiary Preferences (Sec.  423.153(f)(9))
    Section 1860D-4(c)(5)(D) of the Act provides that, if a sponsor 
intends to impose, or imposes, a limit on a beneficiary's access to 
coverage of frequently abused drugs to selected pharmacy(ies) or 
prescriber(s), and the potential at-risk beneficiary or at-risk 
beneficiary submits preferences for a pharmacy(ies) or prescriber(s), 
the sponsor must select the pharmacy(ies) and prescriber(s) for the 
beneficiary based on such preferences, unless an exception applies, 
which we will address later in the preamble. We further propose that 
such pharmacy(ies) or prescriber(s) must be in-network, except if the 
at-risk beneficiary's plan is a stand-alone prescription drug benefit 
plan and the beneficiary's preference involves a prescriber. Because 
stand-alone Part D plans (PDPs) do not have provider networks, and thus 
no prescriber would be in-network, the plan sponsor must generally 
select the prescriber that the beneficiary prefers, unless an exception 
applies. We discuss exceptions in the next section of this preamble. In 
our view, it is essential that an at-risk beneficiary must generally 
select in-network pharmacies and prescribers so that the plan is in the 
best possible position to coordinate the beneficiary's care going 
forward in light of the demonstrated concerns with the beneficiary's 
utilization of frequently abused drugs.
    Accordingly, we propose Sec.  423.153(f)(9) to read: Beneficiary 
preferences. Except as described in paragraph (f)(10) of this section, 
if a beneficiary submits preferences for prescribers or pharmacies or 
both from which the beneficiary prefers to obtain frequently abused 
drugs, the sponsor must do the following--(i) Review such preferences 
and (ii) If the beneficiary is--(A) Enrolled in a stand-alone 
prescription drug benefit plan and specifies a prescriber(s) or network 
pharmacy(ies) or both, select or change the selection of prescriber(s) 
or network pharmacy(ies) or both for the beneficiary based on 
beneficiary's preference(s) or (B) Enrolled in a Medicare Advantage 
prescription drug benefit plan and specifies a network prescriber(s) or 
network pharmacy(ies) or both, select or change the selection of 
prescriber(s) or pharmacy(ies) or both for the beneficiary based on the 
beneficiary's preference(s). If the beneficiary submits preferences for 
a non-network pharmacy(ies), or in the case of a Medicare Advantage 
prescription drug benefit plan a non-network prescriber(s), or both, 
the sponsor does not have to select or change the selection for the 
beneficiary to a non-network pharmacy or prescriber except if necessary 
to provide reasonable access.
    In a paragraph (iii), we propose that the sponsor must inform the 
beneficiary of the selection in the second notice, or if not feasible 
due to the timing of the beneficiary's submission, in a subsequent 
written notice, issued no later than 14 days after receipt of the 
submission. Thus, this section would require a Part D plan sponsor to 
honor an at-risk beneficiary's preferences for in-network prescribers 
and pharmacies from which to obtain frequently abused drugs, unless the 
plan was a stand-alone PDP and the selection involves a prescriber. In 
other words, a stand-alone PDP or MA-PD does not have to honor a 
beneficiary's selection of a non-network pharmacy, except as necessary

[[Page 56356]]

to provide reasonable access, which we discuss later in this section. 
Also, under our proposal, the beneficiary could submit preferences at 
any time. Finally, the sponsor would be required to confirm the 
selection in writing either in the second notice, if feasible, or 
within 14 days of receipt of the beneficiary's submission.
(2) Exception to Beneficiary Preferences (Sec.  423.153(f)(10))
    Section 1860D-4(c)(5)(D)(iv) of the Act, provides for an exception 
to an at-risk beneficiary's preference of prescriber or pharmacy from 
which the beneficiary must obtain frequently abused drugs, if the 
beneficiary's allowable preference of prescriber or pharmacy would 
contribute to prescription drug abuse or drug diversion by the at-risk 
beneficiary. Section 1860-D-4(c)(5)(D)(iv) of the Act requires the 
sponsor to provide the at-risk beneficiary with at least 30 days 
written notice and a rationale for not honoring his or her allowable 
preference for pharmacy or prescriber from which the beneficiary must 
obtain frequently abused drugs under the plan.
    A few commenters asserted there should be limits to how many times 
beneficiaries can submit their preferences. Other commenters stated 
there should be a strong evidence of inappropriate action before a 
sponsor can change a beneficiary's selection.
    We are not proposing to place a limit on how many times 
beneficiaries can submit their preferences, but we are open to 
additional comments on this topic. We agree with commenters who stated 
that there should be a strong evidence of inappropriate action before a 
sponsor can change a beneficiary's selection, but we note that because 
such a situation would often involve a network pharmacy or prescriber, 
we would expect that the sponsor would also take appropriate action 
with respect to the pharmacy or prescriber, such as termination from 
the network.
    Given the foregoing, we propose to add the following: Sec.  
423.153(f)(10) Exception to Beneficiary Preferences. (i) If the Part D 
sponsor determines that the selection or change of a prescriber or 
pharmacy under paragraph (f)(9) of this section would contribute to 
prescription drug abuse or drug diversion by the at-risk beneficiary, 
the sponsor may change the selection without regard to the 
beneficiary's preferences if there is strong evidence of inappropriate 
action by the prescriber, pharmacy or beneficiary. (ii) If the sponsor 
changes the selection, the sponsor must provide the beneficiary with 
(A) At least 30 days advance written notice of the change; and (B) A 
rationale for the change.
(3) Reasonable Access (Sec. Sec.  423.100, 423.153(f)(11), 
423.153(f)(12))
    If a potential at-risk beneficiary or at-risk beneficiary does not 
submit pharmacy or prescriber preferences, section 1860-D-4(c)(5)(D)(i) 
of the Act provides that the Part D sponsor shall make the selection. 
Section 1860-D-4(c)(5)(D)(ii) of the Act further provides that, in 
making the selection, the sponsor shall ensure that the beneficiary 
continues to have reasonable access to frequently abused drugs, taking 
into account geographic location, beneficiary preference, impact on 
cost-sharing, and reasonable travel time.
    We propose to add the following at Sec.  423.153(f)(11): Reasonable 
access. In making the selections under paragraph (f)(12) of this 
section, a Part D plan sponsor must ensure both of the following: (i) 
That the beneficiary continues to have reasonable access to frequently 
abused drugs, taking into account geographic location, beneficiary 
preference, the beneficiary's predominant usage of a prescriber or 
pharmacy or both, impact on cost-sharing, and reasonable travel time; 
and (ii) reasonable access to frequently abused drugs in the case of 
individuals with multiple residences, in the case of natural disasters 
and similar situations, and in the case of the provision of emergency 
services.
    Since the statute explicitly allows the beneficiary to submit 
preferences, we interpret the additional reference to beneficiary 
preference in the context of reasonable access to mean that a 
beneficiary allowable preference should prevail over a sponsor's 
evaluation of geographic location, the beneficiary's predominant usage 
of a prescriber and/or pharmacy impact on cost-sharing and reasonable 
travel time. In the absence of a beneficiary preference for pharmacy 
and/or prescriber, however, a Part D plan sponsor must take into 
account geographic location, the beneficiary's predominant usage of a 
prescriber and/or pharmacy, impact on cost-sharing and reasonable time 
travel in selecting a pharmacy and/or prescriber, as applicable, from 
which the at-risk beneficiary will have to obtain frequently abused 
drugs under the plan. Thus, absent a beneficiary's allowable 
preference, or the beneficiary's selection would contribute to 
prescription drug abuse or drug diversion, the sponsor must ensure 
reasonable access by choosing the network pharmacy or prescriber that 
the beneficiary uses most frequently to obtain frequently abused drugs, 
unless the plan is a stand-alone PDP and the selection involves a 
prescriber(s). In the latter case, the prescriber will not be a network 
provider, because such plans do not have provider networks. In urgent 
circumstances, we propose that reasonable access means the sponsor must 
have reasonable policies and procedures in place to ensure beneficiary 
access to coverage of frequently abused drugs without a delay that may 
seriously jeopardize the life or health of the beneficiary or the 
beneficiary's ability to regain maximum function.
    Determining reasonable access may be complicated when an enrollee 
has multiple addresses or his or her health care necessitates obtaining 
frequently abused drugs from more than one prescriber and/or more than 
one pharmacy. Section 1860D-4(c)(5) addresses this issue by requiring 
the Part D plan sponsor to select more than one prescriber to prescribe 
frequently abused drugs and more than one pharmacy to dispense them, as 
applicable, when it reasonably determines it is necessary to do so to 
provide the at-risk beneficiary with reasonable access.
    Given the foregoing, we propose the following at Sec.  
423.153(f)(12): Selection of Prescribers and Pharmacies. (i) A Part D 
plan sponsor must select, as applicable--(A) One, or, if the sponsor 
reasonably determines it necessary to provide the beneficiary with 
reasonable access, more than one, network prescriber who is authorized 
to prescribe frequently abused drugs for the beneficiary, unless the 
plan is a stand-alone PDP and the selection involves a prescriber(s), 
in which case, the prescriber need not be a network prescriber; and (B) 
One, or, if the sponsor reasonably determines it necessary to provide 
the beneficiary with reasonable access, more than one, network pharmacy 
that may dispense such drugs to such beneficiary.
    We also propose to address chain pharmacies and group practices by 
adding a paragraph (ii) that states: (ii) (A) For purposes of this 
subsection (f)(12) of this section, in the case of a pharmacy that has 
multiple locations that share real-time electronic data, all such 
locations of the pharmacy shall collectively be treated as one 
pharmacy; and (B) For purposes of this subsection (f)(12), in the case 
of a group practice, all prescribers of the group practice shall be 
treated as one prescriber.
    We would interpret these provisions to mean that a sponsor would be 
required to select more than one prescriber of frequently abused drugs, 
if more than one prescriber has asserted

[[Page 56357]]

during case management that multiple prescribers of frequently abused 
drugs are medically necessary for the at-risk beneficiary. We further 
propose that if no prescribers of frequently abused drugs were 
responsive during case management, and the beneficiary does not submit 
preferences, the sponsor would be required to select the pharmacy or 
prescriber that the beneficiary predominantly uses to obtain frequently 
abused drugs.
(4) Confirmation of Pharmacy and Prescriber Selection (Sec.  
423.153(f)(13))
    Section 1860D-4(c)(5)(D)(v) of the Act requires that, before 
selecting a prescriber or pharmacy, a Part D plan sponsor must notify 
the prescriber and/or pharmacy that the at-risk beneficiary has been 
identified for inclusion in the drug management program which will 
limit the beneficiary's access to coverage of frequently abused drugs 
to selected pharmacy(ies) and/or prescriber(s) and that the prescriber 
and/or pharmacy has been selected as a designated prescriber and/or 
pharmacy for the at-risk beneficiary.
    We propose that plan sponsors can obtain a network provider's 
confirmation in advance by including a provision in the network 
agreement specifying that the provider agrees to serve as at-risk 
beneficiaries' selected prescriber or pharmacy, as applicable. In these 
cases, the network provider would agree to forgo providing specific 
confirmation if selected under a drug management program to serve an 
at-risk beneficiary. However, the contract between the sponsor and the 
network provider would need to specify how the sponsor will notify the 
provider of its selection. Absent a provision in the network contract, 
however, the sponsor would be required to receive confirmation from the 
prescriber(s) and/or pharmacy(ies) that the selection is accepted 
before conveying this information to the at-risk beneficiary. 
Otherwise, the plan would need to make another selection and seek 
confirmation.
    We propose Sec.  423.153(f)(13) to read: Confirmation of 
Selections(s). (i) Before selecting a prescriber or pharmacy under this 
paragraph, a Part D plan sponsor must notify the prescriber or 
pharmacy, as applicable, that the beneficiary has been identified for 
inclusion in the drug management program for at-risk beneficiaries and 
that the prescriber or pharmacy or both is (are) being selected as the 
beneficiary's designated prescriber or pharmacy or both for frequently 
abused drugs. (ii) The sponsor must receive confirmation from the 
prescriber(s) or pharmacy(ies) or both that the selection is accepted 
before conveying this information to the at-risk beneficiary, unless 
the prescriber or pharmacy has agreed in advance in its network 
agreement with the sponsor to accept all such selections and the 
agreement specifies how the prescriber or pharmacy will be notified by 
the sponsor of its selection.
(ix) Drug Management Program Appeals (Sec. Sec.  423.558, 423.560, 
423.562, 423.564, 423.580, 423.582, 423.584, 423.590, 423.602, 423.636, 
423.638, 423.1970, 423.2018, 423.2020, 423.2022, 423.2032, 423.2036, 
423.2038, 423.2046, 423.2056, 423.2062, 423.2122, and 423.2126)
    Section 1860D-4(c)(5)(E) of the Act specifies that the 
identification of an individual as an at-risk beneficiary for 
prescription drug abuse under a Part D drug management program, a 
coverage determination made under such a program, the selection of a 
prescriber or pharmacy, and information sharing for subsequent plan 
enrollments shall be subject to reconsideration and appeal under 
section 1860D-4(h) of the Act. This provision also permits the option 
of an automatic escalation to external review to the extent provided by 
the Secretary.
    As discussed earlier in this preamble, we are proposing to 
integrate the lock-in provisions with existing Part D Opioid DUR 
Policy/OMS. Determinations made in accordance with any of those 
processes, proposed at Sec.  423.153(f), and discussed previously, are 
interrelated issues that we collectively refer to as an ``at-risk 
determination'' made under a drug management program. The at-risk 
determination includes prescriber and/or pharmacy selection for lock-
in, beneficiary-specific POS claim edits for frequently abused drugs, 
and information sharing for subsequent plan enrollments. Given the 
concomitant nature of the at-risk determination and associated aspects 
of the drug management program applicable to an at-risk beneficiary, we 
expect that any dispute under a plan's drug management program will be 
adjudicated as a single case involving a review of all aspects of the 
drug management program for the at-risk beneficiary. While a 
beneficiary who is subject to a Part D plan sponsor's drug management 
program always retains the right to request a coverage determination 
under existing Sec.  423.566 for any Part D drug that the beneficiary 
believes may be covered by their plan, we believe that appeals of an 
at-risk determination made under proposed Sec.  423.153(f) should 
involve consideration of all relevant elements of that at-risk 
determination. For example, if a Part D plan determines that a 
beneficiary is at-risk, implements a beneficiary-specific claim edit on 
2 drugs that beneficiary is taking and locks that beneficiary into a 
specific pharmacy, the affected beneficiary should not be expected to 
raise a dispute about the pharmacy selection and about one of the claim 
edits in distinct appeals.
    We note that, while section 1860D-4(c)(5)(B)(ii)(III) of the Act 
requires the initial written notice to the beneficiary, which 
identifies him or her as potentially being at-risk, to include ``notice 
of, and information about, the right of the beneficiary to appeal such 
identification under subsection (h),'' we interpret ``such 
identification'' to refer to any subsequent identification that the 
beneficiary is actually at-risk. Because CARA, at section 1860D-
4(c)(5)(E) of the Act, specifically provides for appeal rights under 
subsection (h) but does not refer to identification as a potential at-
risk beneficiary, we believe this interpretation is consistent with the 
statutory intent. Furthermore, when a beneficiary is identified as 
being potentially at-risk, but has not yet been identified as at-risk, 
the plan is not taking any action to limit such beneficiary's access to 
frequently abused drugs; therefore, the situation is not ripe for 
appeal. While an LIS SEP under Sec.  423.38 would be restricted at the 
time the beneficiary is identified as potentially at-risk under 
proposed Sec.  423.100, the loss of such SEP is not appealable under 
section 1860D-4(h) of the Act.
    As noted previously, section 1860D-4(c)(5)(E) of the Act 
specifically refers to the Part D benefit appeals provisions in section 
1860D-4(h) of the Act, which require Part D plan sponsors to meet the 
requirements of paragraphs (4) and (5) of section 1852(g) of the Act 
for benefits in a manner similar to the manner such requirements apply 
to MA organizations. Section 1852(g)(4) of the Act specifically 
provides for independent review of ``reconsiderations that affirm 
denial of coverage, in whole or in part (emphasis added).'' We believe 
section 1860D-4(c)(5)(E) of the Act broader reference to 
``reconsideration and appeal'' should be interpreted to mean that 
individuals have a right to a plan level appeal, consistent with the 
reconsideration provisions under section 1860D-4(g) of the Act, 
followed by the right to independent review if the plan level affirms 
the initial adverse decision. In other words, we believe the reference 
to ``reconsideration'' means that a Part D plan sponsor should conduct 
the initial

[[Page 56358]]

level of appeal following an at-risk determination under the plan 
sponsor's drug management program, consistent with the existing Part D 
drug benefit appeals process, despite the absence of a specific 
reference to section 1860D-4(g) of the Act.
    Part D enrollees, plan sponsors, and other stakeholders are already 
familiar with the Part D benefit appeals process. Resolving disputes 
that arise under a plan sponsor's drug management program within the 
existing Part D benefit appeals process would allow at-risk 
beneficiaries to be more familiar with, and more easily access, the 
appeals process instead of creating a new process specific to appeals 
related to a drug management program. Also, allowing a plan sponsor the 
opportunity to review information it used to make an at-risk 
determination under the drug management program (and any additional 
relevant information submitted as part of the appeal) would be 
efficient for both the individual and the Medicare program because it 
would potentially resolve the issues at a lower level of administrative 
review. Conversely, permitting review by the independent review entity 
(IRE) before a plan sponsor has an opportunity to review and resolve 
any errors or omissions that may have been made during the initial at-
risk determination would likely result in an unnecessary increase in 
costs for plan sponsors as well as CMS' Part D IRE contract costs.
    As noted previously, the Secretary has the discretion under CARA to 
provide for automatic escalation of drug management program appeals to 
external review. Under existing Part D benefit appeals procedures, 
there is no automatic escalation to external review for adverse appeal 
decisions; instead, the enrollee (or prescriber, on behalf of the 
enrollee) must request review by the Part D IRE. Under the existing 
Part D benefit appeals process, cases are auto-forwarded to the IRE 
only when the plan fails to issue a coverage determination within the 
applicable timeframe. During the stakeholder call and in subsequent 
written comments, most commenters opposed automatic escalation to the 
IRE, citing support for using the existing appeals process for reasons 
of administrative efficiency and better outcomes for at-risk 
beneficiaries. The majority of stakeholders supported following the 
existing Part D appeals process, and some commenters specifically 
supported permitting the plan to review its lock-in decision prior to 
the case being subject to IRE review. Stakeholders cited a variety of 
reasons for their opposition, including increased costs to plans, the 
IRE, and the Part D program. Stakeholders cited administrative 
efficiency in using the existing appeal process that is familiar to 
enrollees, plans, and the IRE, while other commenters expressed support 
for automatic escalation to the IRE as a beneficiary protection.
    We are proposing that at-risk determinations made under the 
processes at Sec.  423.153(f) be adjudicated under the existing Part D 
benefit appeals process and timeframes set forth in Subpart M. However, 
we are not proposing to revise the existing definition of a coverage 
determination. The types of decisions made under a drug management 
program align more closely with the regulatory provisions in Subpart D 
than with the provisions in Subpart M related to coverage or payment 
for a drug based on whether the drug is medically necessary for an 
enrollee. Therefore, we believe it is clearer to set forth the rules 
for at-risk determinations as part of Sec.  423.153 and cross reference 
Sec.  423.153(f) in relevant provisions in Subpart M and Subpart U. 
While a coverage determination made under a drug management program 
would be subject to the existing rules related to coverage 
determinations, the other types of initial determinations made under a 
drug management program (for example, a restriction on the at-risk 
beneficiary's access to coverage of frequently abused drugs to those 
that are prescribed for the beneficiary by one or more prescribers) 
would be subject to the processes set forth at proposed Sec.  
423.153(f). Consistent with existing rules for redeterminations at 
Sec.  423.582, an enrollee who wishes to dispute an at-risk 
determination would have 60 days from the date of the second written 
notice to make such request, unless the enrollee shows good cause for 
untimely filing under Sec.  423.582(c). As previously discussed for 
proposed Sec.  423.153(f)(6), the second written notice is sent to a 
beneficiary the plan has identified as an at-risk beneficiary and with 
respect to whom the sponsor limits his or her access to coverage of 
frequently abused drugs regarding the requirements of the sponsor's 
drug management programs.
    Also consistent with the existing Part D benefit appeals process, 
we are proposing that at-risk beneficiaries (or an at-risk 
beneficiary's prescriber, on behalf of the at-risk beneficiary) must 
affirmatively request IRE review of adverse plan level appeal decisions 
made under a plan sponsor's drug management program. In other words, 
under this proposal, an adverse redetermination would not be 
automatically escalated to the Part D IRE, unless the plan sponsor 
fails to meet the redetermination adjudication timeframe. We are also 
proposing to amend the existing Subpart M rules at Sec.  423.584 and 
Sec.  423.600 related to obtaining an expedited redetermination and IRE 
reconsideration, respectively, to apply them to appeals of a 
determination made under a drug management program. The right to an 
expedited appeal of such a determination, which must be adjudicated as 
expeditiously as the at-risk beneficiary's health condition requires, 
would ensure that the rights of at-risk beneficiaries are protected 
with respect to access to medically necessary drugs. While we are not 
proposing to adopt auto-escalation, we believe our proposed approach 
ensures that an at-risk beneficiary has the right to obtain IRE review 
and higher levels of appeal (ALJ/attorney adjudicator, Council, and 
judicial review). Accordingly, we also are proposing to add the 
reference to an ``at-risk determination'' to the following regulatory 
provisions that govern ALJ and Council processes: Sec. Sec.  423.2018, 
423.2020, 423.2022, 423.2032, 423.2036, 423.2038, 423.2046, 423.2056, 
423.2062, 423.2122, and 423.2126.
    Finally, we are also proposing a change to Sec.  423.1970(b) to 
address the calculation of the amount in controversy (AIC) for an ALJ 
hearing in cases involving at-risk determinations made under a drug 
management program in accordance with proposed Sec.  423.153(f). 
Specifically, we propose that the projected value of the drugs subject 
to the drug management program be used to calculate the amount 
remaining in controversy. For example, if the beneficiary is disputing 
the lock-in to a specific pharmacy for frequently abused drugs and the 
beneficiary takes 3 medications that are subject to the plan's drug 
management program, the projected value of those 3 drugs would be used 
to calculate the AIC, including the value of any refills prescribed for 
the drug(s) in dispute during the plan year.
    In addition to the proposed changes related to the implementation 
of drug management program appeals, we are also proposing to make 
technical changes to Sec.  423.562(a)(1)(ii) to remove the comma after 
``includes'' and replace the reference to ``Sec. Sec.  423.128(b)(7) 
and (d)(1)(iii)'' with a reference to ``Sec. Sec.  423.128(b)(7) and 
(d)(1)(iv).''
(x) Termination of a Beneficiary's Potential At-Risk or At-Risk Status 
(Sec.  423.153(f)(14))
    Section 1860-D-4(c)(5)(F) of the Act provides that the Secretary 
shall develop standards for the termination of the identification of an 
individual as an at-risk beneficiary, which shall be the

[[Page 56359]]

earlier of the date the individual demonstrates that he or she is no 
longer likely to be an at-risk beneficiary in the absence of 
limitations, or the end of such maximum period as the Secretary may 
specify.
    Most commenters recommended a maximum 12-month period for an at-
risk beneficiary to be locked-in. We also note that a 12-month lock-in 
period is common in Medicaid lock-in programs.\20\ A few commenters 
stated that a physician should be able to determine that a beneficiary 
is no longer an at-risk beneficiary. One commenter was opposed to an 
arbitrary termination based on a time period.
---------------------------------------------------------------------------

    \20\ Medicaid Drug Utilization Review State Comparison/Summary 
Report FFY 2015 Annual Report: Prescription Drug Fee-For Service 
Program (December 2016).
---------------------------------------------------------------------------

    Given that most commenters recommended a 12-month period and such a 
period is common in Medicaid ``lock-in'' program, we propose a maximum 
12-month period for both a lock-in period, and also for the duration of 
a beneficiary-specific POS claim edit for frequently abused drugs 
through the addition of the following language at Sec.  423.153(f)(14): 
Termination of Identification as an At-Risk Beneficiary. The 
identification of an at-risk beneficiary as such shall terminate as of 
the earlier of the following--
    (i) The date the beneficiary demonstrates through a subsequent 
determination, including but not limited to, a successful appeal, that 
the beneficiary is no longer likely, in the absence of the limitations 
under this paragraph, to be an at-risk beneficiary; or
    (ii) The end of a 12 calendar month period calculated from the 
effective date of the limitation, as specified in the notice provided 
under paragraph (f)(6) of this section.
    Thus, we note that if a beneficiary continues to meet the clinical 
guidelines and, if the sponsor implements an additional, overlapping 
limitation on the at-risk beneficiary's access to coverage for 
frequently abused drugs, the beneficiary may experience a coverage 
limitation beyond 12-months. The same is true for at-risk beneficiaries 
who were identified as such in the most recent prescription drug plan 
in which they were enrolled and the sponsor of his or her subsequent 
plan immediately implements a limitation on coverage of frequently 
abused drugs.
    Section 1860-D-4(c)(5)(F)(ii) of the Act states that nothing in 
CARA shall be construed as preventing a plan from identifying an 
individual as an at-risk beneficiary after such termination on the 
basis of additional information on drug use occurring after the date of 
notice of such termination. Accordingly, we note that our proposed 
approach to termination of an at-risk determination would not prevent 
an at-risk beneficiary from being subsequently identified as a 
potential at-risk beneficiary or at-risk beneficiary on the basis of 
new information on drug use occurring after the date of such 
termination that causes the beneficiary to once again meet the clinical 
guidelines.
(xi) Data Disclosure and Sharing of Information for Subsequent Sponsor 
Enrollments (Sec.  423.153(f)(15))
    In order for Part D sponsors to conduct the case management/
clinical contact/prescriber verification required by proposed Sec.  
423.153(f)(2), CMS must identify potential at-risk beneficiaries to 
sponsors who are in the sponsors' Part D prescription drug benefit 
plans. In addition, new sponsors must have information about potential 
at-risk beneficiaries and at-risk beneficiaries who were so identified 
by their immediately prior plan and enroll in the new sponsor's plan 
and such identification had not terminated before the beneficiary 
disenrolled from the immediately prior plan. Finally, as discussed 
earlier, sponsors may identify potential at-risk beneficiaries by their 
own application of the clinical guidelines on a more frequent basis. It 
is important that CMS be aware of which Part D beneficiaries sponsors 
identify on their own, as well as which ones have been subjected to 
limitations on their access to coverage for frequently abused drugs 
under sponsors' drug management programs for Part D program 
administration and other purposes. This data disclosure process would 
be consistent with current policy, as described earlier in this 
preamble.
    As we also discussed earlier, under the current policy, CMS 
provides quarterly reports to sponsors about beneficiaries enrolled in 
their plans who meet the OMS criteria. In turn, Part D sponsors are 
expected to provide responses to CMS through the OMS for each case 
identified within 30 days of receiving a report that reflects the 
status or outcome of their case management.\21\ At the same time, also 
within 30 days, sponsors are expected to report additional 
beneficiaries to OMS that they identify using their own opioid 
overutilization identification criteria.\22\
---------------------------------------------------------------------------

    \21\ See ``Medicare Part D Overutilization Monitoring System,'' 
July 5, 2013.
    \22\ See ``Medicare Part D Overutilization Monitoring System, 
January 17, 2014.
---------------------------------------------------------------------------

    Regarding data disclosures, section 1860D-4(c)(5)(H) of the Act 
provides that, in the case of potential at-risk beneficiaries and at-
risk beneficiaries, the Secretary shall establish rules and procedures 
to require the Part D plan sponsor to disclose data, including any 
necessary individually identifiable health information, in a form and 
manner specified by the Secretary, about the decision to impose such 
limitations and the limitations imposed by the sponsor under this part.
    Sponsors also report information to CMS' MARx system about pending, 
implemented and terminated beneficiary-specific POS claim edit for 
opioids within 7 business days of the date on the applicable 
beneficiary notice or of the termination.\23\ The MARx system transfers 
information about pending and implemented claim edits to the gaining 
sponsor with the beneficiary's enrollment record if the beneficiary 
disenrolls and enrolls in the gaining sponsor's plan. If a gaining 
sponsor requests case management information from the losing sponsor 
about the beneficiary, we expect the losing sponsor to transfer the 
information to the gaining sponsor as soon as possible, but no later 
than 2 weeks from the date of the gaining sponsor's request.\24\
---------------------------------------------------------------------------

    \23\ Final Parts C&D 2017 Call Letter, April 4, 2016.
    \24\ See ``Beneficiary-Level Point-of-Sale Claim Edits and Other 
Overutilization Issues,'' August 25, 2014.
---------------------------------------------------------------------------

    Section 1860-D-4(c)(5)(I) of the Act requires that the Secretary 
establish procedures under which Part D sponsors must share information 
when at-risk beneficiaries or potential at-risk beneficiaries enrolled 
in one prescription drug plan subsequently disenroll and enroll in 
another prescription drug plan offered by the next sponsor (gaining 
sponsor). We plan to expand the scope of the reporting to MARx under 
the current policy to include the ability for sponsors to report 
similar information to MARx about all pending, implemented and 
terminated limitations on access to coverage of frequently abused drugs 
associated with their plans' drug management programs.
    We propose to codify the data disclosure and information sharing 
process under the current policy, with the expansion just described, by 
adding the following requirement to Sec.  423.153: (f)(15) Data 
Disclosure. (i) CMS identifies each potential at-risk beneficiary to 
the sponsor of the prescription drug plan in which the beneficiary is 
enrolled. (ii) A Part D sponsor that operates a drug management program 
must disclose any

[[Page 56360]]

data and information to CMS and other Part D sponsors that CMS deems 
necessary to oversee Part D drug management programs at a time, and in 
a form and manner, specified by CMS. The data and information 
disclosures must do all of the following: (A) Respond to CMS within 30 
days of receiving a report about a potential at-risk beneficiary from 
CMS; (B) Provide information to CMS about any potential at-risk 
beneficiary that a sponsor identifies within 30 days from the date of 
the most recent CMS report identifying potential at-risk beneficiaries; 
(C) Provide information to CMS within 7 business days of the date of 
the initial notice or second notice that the sponsor provided to a 
beneficiary, or within 7 days of a termination date, as applicable, 
about a beneficiary-specific opioid claim edit or a limitation on 
access to coverage for frequently abused drugs; and (D) Transfer case 
management information upon request of a gaining sponsor as soon as 
possible but no later than 2 weeks from the gaining sponsor's request 
when: (1) An at-risk beneficiary or potential at-risk beneficiary 
disenrolls from the sponsor's plan and enrolls in another prescription 
drug plan offered by the gaining sponsor; and (2) The edit or 
limitation that the sponsor had implemented for the beneficiary had not 
terminated before disenrollment.
(xii) Summary
    Our proposal is intended to be responsive to stakeholder input that 
CMS focus on opioids; allow for flexibility to adjust the clinical 
guidelines and frequently abused drugs in the future; is reflective of 
the importance of the provider-patient relationship; protects 
beneficiary's rights and access, and allows for operational 
manageability and consistency with the current policy to the extent 
possible. This proposal, if finalized, should result in effective Part 
D drug management programs within a regulatory framework provided by 
CMS, and further reduce opioid overutilization in the Part D program.
2. Flexibility in the Medicare Advantage Uniformity Requirements
    We have determined that providing access to services (or specific 
cost sharing for services or items) that is tied to health status or 
disease state in a manner that ensures that similarly situated 
individuals are treated uniformly is consistent with the uniformity 
requirement in the Medicare Advantage (MA) regulations at Sec.  
422.100(d). This regulatory requirement is a means to implement both 
section 1852(d) of the Act, which requires that benefits under the MA 
plan be available and accessible to each enrollee in the plan, and 
section 1854(c) of the Act, which requires uniform premiums for each 
enrollee in the plan. Previously, we required MA plans to offer all 
enrollees access to the same benefits at the same level of cost 
sharing. We have determined that these statutory provisions and the 
regulation at Sec.  422.100(d) mean that we have the authority to 
permit MA organizations the ability to reduce cost sharing for certain 
covered benefits, offer specific tailored supplemental benefits, and 
offer lower deductibles for enrollees that meet specific medical 
criteria, provided that similarly situated enrollees (that is, all 
enrollees who meet the identified criteria) are treated the same. For 
example, reduced cost sharing flexibility would allow an MA plan to 
offer diabetic enrollees zero cost sharing for endocrinologist visits. 
Similarly, with this flexibility, a MA plan may offer diabetic 
enrollees more frequent foot exams as a tailored, supplemental benefit. 
In addition, with this flexibility, a MA plan may offer diabetic 
enrollees a lower deductible. Under this example, non-diabetic 
enrollees would not have access to these diabetic-specific tailored 
cost-sharing or supplemental benefits; however, any enrollee that 
develops diabetes would then have access to these benefits.
    Such flexibility under our new interpretation of the uniformity 
requirement is not without limits, however, as section 1852(b)(1)(A) of 
the Act prohibits an MA plan from denying, limiting, or conditioning 
the coverage or provision of a service or benefit based on health-
status related factors. MA regulations (for example, Sec. Sec.  
422.100(f)(2) and 422.110(a)) reiterate and implement this non-
discrimination requirement. In interpreting these obligations to 
protect against discrimination, we have historically indicated that the 
purpose of the requirements is to protect high-acuity enrollees from 
adverse treatment on the basis of their higher cost health conditions 
(79 FR 29843; 76 FR 21432; and 74 FR 54634). As MA plans consider this 
new flexibility in meeting the uniformity requirement, they must be 
mindful of ensuring compliance with non-discrimination responsibilities 
and obligations.\25\ MA plans that exercise this flexibility must 
ensure that the cost sharing reductions and targeted supplemental 
benefits are for health care services that are medically related to 
each disease condition. CMS will be concerned about potential 
discrimination if an MA plan is targeting cost sharing reductions and 
additional supplemental benefits for a large number of disease 
conditions, while excluding other higher-cost conditions. We will 
review benefit designs to make sure that the overall impact is non-
discriminatory and that higher acuity, higher cost enrollees are not 
being excluded in favor of healthier populations.
---------------------------------------------------------------------------

    \25\ Among these responsibilities and obligations are compliance 
with Title VI of the Civil Rights Act, section 504 of the 
Rehabilitation Act, the Age Discrimination Act, and section 1557 of 
the Affordable Care Act.
---------------------------------------------------------------------------

    For example, an MA plan could identify enrollees diagnosed with 
specific diseases, such as diabetes, chronic heart failure, and COPD, 
as medically vulnerable and in need of certain services, which could be 
offered to these enrollees in the form of tailored supplemental 
benefits. In identifying eligible enrollees, the MA plan must use 
medical criteria that are objective and measurable, and the enrollee 
must be diagnosed by a plan provider or have their existing diagnosis 
certified or affirmed by a plan provider to assure equal application of 
the objective criteria necessary to provide equal treatment of 
similarly situated individuals.
    For contract year 2019, we are considering issuing guidance 
clarifying the flexibility MA plans have to offer targeted supplemental 
benefits for their most medically vulnerable enrollees. A benefit 
package that offers differential access to enhanced services or 
benefits or reduced cost sharing or different deductibles based on 
objective criteria, and ensures equal treatment of similarly situated 
enrollees, for whom such services and benefits are useful, can be 
priced at a uniform premium consistent with the requirements for 
availability and accessibility throughout the service area for all 
enrollees in section 1852(d)(1)(A) of the Act and for uniform bids and 
premiums in section 1854(c) of the Act. We believe this flexibility 
will help MA plans better manage health care services for the most 
vulnerable enrollees. The benefit and cost sharing flexibility we have 
discussed here applies to Part C benefits but not Part D benefits. We 
are requesting comments and/or questions from stakeholders about the 
implementation of this flexibility. We note that CMS is currently 
testing value based insurance design (VBID) through the use of our 
demonstration authority under Section 1115A of the Act (42 U.S.C. 
1315a, added by Section 3021 of the Affordable Care Act), which will 
include some of the elements we have discussed

[[Page 56361]]

previously. However, there are also features of the VBID demonstration 
that are unique to the demonstration test. We expect the VBID 
demonstration to provide CMS with insights into future VBID innovations 
for the MA program.
3. Segment Benefits Flexibility
    In reviewing section 1854(h) of the Social Security Act and 
Medicare Advantage (MA) regulations governing plan segments, we have 
determined that the statute and existing regulations may be interpreted 
to allow MA plans to vary supplemental benefits, in addition to premium 
and cost sharing, by segment, as long as the benefits, premium, and 
cost sharing are uniform within each segment of an MA plan's service 
area. Plans segments are county-level portions of a plan's overall 
service area which, under current CMS policy, are permitted to have 
different premiums and cost sharing amounts as long as these premiums 
and cost sharing amounts are uniform throughout the segment. We are 
proposing to revise our interpretation of the existing statute and 
regulations to allow MA plan segments to vary by benefits in addition 
to premium and cost sharing, consistent with the MA regulatory 
requirements defining segments at Sec.  422.262(c)(2).
4. Maximum Out-of-Pocket Limit for Medicare Parts A and B Services 
(Sec. Sec.  422.100 and 422.101)
    As provided at Sec.  422.100(f)(4) and (5) and Sec.  422.101(d)(2) 
and (3), all Medicare Advantage (MA) plans (including employer group 
waiver plans (EGWPs) and special needs plans (SNPs)), must establish 
limits on enrollee out-of-pocket cost sharing for Parts A and B 
services that do not exceed the annual limits established by CMS. CMS 
added Sec. Sec.  422.100(f)(4) and (f)(5), effective for coverage in 
2011, under the authority of sections 1852(b)(1)(A), 1856(b)(1), and 
1857(e)(1) of the Act in order not to discourage enrollment by 
individuals who utilize higher than average levels of health care 
services (that is, in order for a plan not to be discriminatory) (75 FR 
19709-11). Section 1858(b)(2) of the Act requires a limit on in-network 
out-of-pocket expenses for enrollees in Regional MA Plans. In addition, 
Local Preferred Provider Organization (LPPO) plans, under Sec.  
422.100(f)(5), and Regional PPO (RPPO) plans, under section 1858(b)(2) 
of the Act and Sec.  422.101(d)(3), are required to have a 
``catastrophic'' limit inclusive of both in- and out-of-network cost 
sharing for all Parts A and B services, the annual limit which is also 
established by CMS. All cost sharing (that is, deductibles, 
coinsurance, and copayments) for Parts A and B services, excluding plan 
premium, must be included in each plan's Maximum Out-of-Pocket (MOOP) 
amount subject to these limits.
    As discussed in the 2010 rulemaking (75 FR 19709), CMS affords 
greater flexibility in establishing Parts A and B cost sharing to MA 
plans that adopt a lower, voluntary MOOP limit than is available to 
plans that adopt the higher, mandatory MOOP limit. The percentage of 
eligible Medicare beneficiaries with access to an MA plan (excluding 
employer and dual eligible special needs plans) offering a voluntary 
MOOP limit has decreased from 97.7 percent in CY 2011 to 68.1 percent 
in CY 2017. This has resulted in the percentage of total enrollees in a 
voluntary MOOP plan decreasing from 51 percent in CY 2011 to 21 percent 
in CY 2017.
    As stated in the CY 2018 final Call Letter \26\ and in the 2010 
final rule (75 FR 19710), CMS currently sets MOOP limits based on a 
beneficiary-level distribution of Parts A and B cost sharing for 
individuals enrolled in Medicare Fee-for-Service (FFS) for local and 
regional MA plans. The mandatory MOOP amount represents approximately 
the 95th percentile of projected beneficiary out-of-pocket spending. 
Stated differently, 5 percent of Medicare FFS beneficiaries are 
expected to incur approximately $6,700 or more in Parts A and B 
deductibles, copayments, and coinsurance. The voluntary MOOP amount of 
$3,400 represents approximately the 85th percentile of projected 
Medicare FFS out-of-pocket costs. The Office of the Actuary conducts an 
annual analysis to help CMS determine the MOOP limits. Since the MOOP 
requirements for local and regional MA plans were finalized in 
regulation, a strict application of the 95th and 85th percentile would 
have resulted in MOOP limits for local and regional MA plans 
fluctuating from year-to-year. Therefore, CMS has exercised discretion 
in order to maintain stable MOOP limits from year-to-year, when the 
beneficiary-level distribution of Parts A and B cost sharing for 
individuals enrolled in Medicare FFS is approximately equal to the 
appropriate percentile. This approach avoids enrollee confusion, allows 
plans to provide stable benefit packages year over year, and does not 
discourage the adoption of the lower voluntary MOOP amount because of 
fluctuations in the amount. CMS expects to change MOOP limits if a 
consistent pattern of increasing or decreasing costs emerges over time.
---------------------------------------------------------------------------

    \26\ The CY 2018 final Call Letter may be accessed at https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Announcements-and-Documents.html.
---------------------------------------------------------------------------

    As part of the annual Call Letter process, stakeholders have 
suggested changes to how CMS establishes MOOP limits. Some of the 
comments suggested CMS use Medicare FFS and MA encounter data to inform 
its decision-making. Other suggestions received have included 
increasing the voluntary MOOP limit, increasing the number of service 
categories that have higher cost sharing in return for a plan offering 
a lower MOOP limit, and considering three levels of MOOP and service 
category cost sharing to encourage plan offerings with lower MOOP 
limits.
    CMS's goal is to establish future MOOP limits based on the most 
relevant and available data, or combination of data, that reflects 
beneficiary health care costs in the MA program and maintains benefit 
stability over time. Medicare FFS data currently represents the most 
relevant and available data at this time. CMS may consider future 
rulemaking regarding the use of MA encounter cost data to understand 
program health care costs and compare to Medicare FFS data in 
establishing cost sharing limits. Under this current proposal to revise 
the regulations controlling MOOP limits, CMS might change its existing 
methodology of using the 85th and 95th percentiles of projected 
beneficiary out-of-pocket Medicare FFS spending in the future. CMS 
expects to establish future limits by striking the appropriate balance 
between limiting MOOP costs and potential changes in premium, benefits, 
and cost sharing with the goal of making sure beneficiaries can access 
affordable and sustainable benefit packages. While CMS intends to 
continue using the 85th and 95th percentiles of projected beneficiary 
out-of-pocket spending for the immediate future to set MA MOOP limits, 
CMS proposes to amend the regulation text in Sec. Sec.  422.100(f)(4) 
and (5) and 422.101(d)(2) and (d)(3) to incorporate authority to 
balance factors discussed previously. The flexibility provided by these 
proposed changes will permit CMS to annually adjust mandatory and 
voluntary MOOP limits based on changes in market conditions and to 
ensure the sustainability of the MA program and benefit options.
    The proposed new authority permitting changes in data and 
methodology related to establishing MOOP limits would be exercised by 
CMS in advance of each plan year; CMS would use the annual Call Letter 
and other guidance documents to explain its application of this 
proposed regulatory standard and the data used to identify MOOP limits 
in advance of bid

[[Page 56362]]

deadlines. This will provide MA organizations adequate time to comment 
and prepare for changes. In addition, CMS plans to transition any 
significant changes under this proposal over time to avoid disruption 
to benefit designs and minimize potential beneficiary confusion.
    CMS proposes to codify specific requirements because of the number 
of comments received in the past about MOOP changes. CMS proposes to 
amend Sec. Sec.  422.100(f)(4) and (f)(5) and 422.101(d)(2) and (d)(3) 
to clarify that CMS may use Medicare FFS data to establish annual MOOP 
limits. In addition, CMS would have authority to increase the voluntary 
MOOP limit to another percentile level of Medicare FFS, increase the 
number of service categories that have higher cost sharing in return 
for offering a lower MOOP amount, and implement more than two levels of 
MOOP and cost sharing limits to encourage plan offerings with lower 
MOOP limits. This proposal includes authority to increase the number of 
service categories that have higher cost sharing in return for offering 
a lower (voluntary) MOOP amount and considering more than two levels of 
MOOP (with associated cost sharing limits) to encourage plan offerings 
with lower MOOP limits. Consistent with past practice, CMS will 
continue to publish annual limits and a description of how the 
regulation standard was applied (that is, the methodology used) in the 
annual Call Letter prior to bid submission so that MA plans can submit 
bids consistent with parameters that CMS has determined to meet the 
cost sharing limits requirements. CMS seeks comments and suggestions on 
the topics discussed in this section.
5. Cost Sharing Limits for Medicare Parts A and B Services (Sec. Sec.  
417.454 and 422.100)
    As provided at Sec. Sec.  417.454(e), 422.100(f)(6), and 
422.100(j), MA plan cost sharing for Parts A and B services specified 
by CMS must not exceed certain levels. Section 422.100(f)(6) provides 
that cost sharing must not be discriminatory and CMS determines 
annually the level at which certain cost sharing becomes 
discriminatory. Sections 417.454(e) and 422.100(j), on the other hand, 
are based on how section 1852(a)(1)(B)(iii) and (iv) of the Act directs 
that cost sharing for certain services may not exceed cost sharing 
levels in Medicare Fee-for-Service (FFS); under the statute and the 
regulations, CMS may add to that list of services. CMS reviews cost 
sharing set by MA organizations using parameters based on Parts A and B 
services that are more likely to have a discriminatory impact on 
beneficiaries. The review parameters are currently based on Medicare 
FFS data and reflect a combination of patient utilization scenarios and 
length of stays or services used by average to sicker patients. CMS 
uses multiple utilization scenarios for some services (for example, 
inpatient care) to guard against MA organizations distributing benefit 
cost sharing amounts in a manner that is discriminatory. Review 
parameters are also established for frequently used professional 
services, such as primary and specialty care services.
    CMS proposes here to amend Sec.  422.100(f)(6) to clarify that it 
may use Medicare FFS data to establish appropriate cost sharing limits. 
In addition, CMS intends to use MA utilization encounter data to inform 
patient utilization scenarios used to help identify MA plan cost 
sharing standards and thresholds that are not discriminatory; we 
solicit comment on whether to codify that use of MA encounter data for 
this purpose in Sec.  422.100(f)(6). This proposal is not related to a 
statutory change.
    This proposal aims to allow CMS to use the most relevant and 
appropriate information in determining whether specific cost sharing is 
discriminatory and to set standards and thresholds above which CMS 
believes cost sharing is discriminatory. CMS intends to continue the 
practice of furnishing information to MA organizations about the 
methodology used to establish cost sharing limits and the thresholds 
CMS identifies as non-discriminatory through the annual Call Letter 
process or Health Plan Management System (HPMS) memoranda and solicit 
comments, as appropriate. This process allows MA organizations to 
prepare plan bids consistent with parameters that CMS have determined 
to be non-discriminatory.
    As specified in section 1852(a)(1)(B)(iv) of the Act, the cost 
sharing charged by MA plans for chemotherapy administration services, 
renal dialysis services, and skilled nursing care may not exceed the 
cost sharing for those services under Parts A and B. Although CMS has 
not established a specific service category cost sharing limit for all 
possible services, CMS has issued guidance that MA plans must pay at 
least 50 percent of the contracted (or Medicare allowable) rate and 
that cost sharing for services cannot exceed 50 percent of the total MA 
plan financial liability for the benefit in order for the cost sharing 
for such services to be considered non-discriminatory; CMS believes 
that cost sharing (service category deductibles, copayments or co-
insurance) that fails to cover at least half the cost of a particular 
service or item acts to discriminate against those for whom those 
services and items are medically necessary and discourages enrollment 
by beneficiaries who need those services and items. If a plan uses a 
copayment method of cost sharing, then the copayment for an in-network 
Medicare FFS service category cannot exceed 50 percent of the average 
contracted rate of that service under this guidance (Medicare Managed 
Care Manual, Chapter 4, Section 50.1). Some service categories may 
identify specific benefits for which a unique copayment would apply, 
while others include a variety of services with different levels of 
cost which may reasonably have a range of copayments based on groups of 
similar services, such as durable medical equipment or outpatient 
diagnostic and radiological services.
    CMS affords MA plans that adopt a lower, voluntary MOOP limit 
greater flexibility in establishing Parts A and B cost sharing than is 
available to plans that adopt the higher, mandatory MOOP limit. As 
discussed in section III.A.5, CMS intends to continue to establish more 
than one set of Parts A and B service cost sharing thresholds for plans 
choosing to offer benefit designs with either a lower, voluntary MOOP 
limit or the higher, mandatory MOOP limit set under Sec. Sec.  
422.100(f)(4) and (5) and 422.101(d)(2) and (3). Medicare FFS data 
currently represents the most relevant and available data at this time 
and is used to evaluate cost sharing for specific services as well in 
applying the standard currently at Sec.  422.100(f)(6) and in 
considering CMS's authority to add (by regulation) categories of 
services for which cost sharing may not exceed levels in Medicare FFS.
    As noted with regard to setting MOOP limits under Sec. Sec.  
422.100 and 422.101, CMS expects that MA encounter data will be more 
accurate and complete in the future and may consider future rulemaking 
regarding the use of MA encounter to understand program health care 
costs and compare to Medicare FFS data in establishing cost sharing 
limits. For reasons discussed in section III.A.5, CMS proposes to amend 
Sec.  422.100(f)(6) to permit use of Medicare FFS to evaluate whether 
cost sharing for Part A and B services is discriminatory to set the 
evaluation limits announced each year in the Call Letter: in addition, 
we propose to use MA utilization encounter data as part of that 
evaluation process. As with the proposal to authorize use of this data 
for setting MOOP limits, CMS intends to use the Advance Notice/Call 
Letter process to communicate its

[[Page 56363]]

application of the regulation and to transition any significant changes 
over time to avoid disruption to benefit designs and minimize potential 
beneficiary confusion.
    This proposal will allow CMS to use the most relevant and 
appropriate information in determining cost sharing standards and 
thresholds. For example, analyses of MA utilization encounter data can 
be used with Medicare FFS data to establish the appropriate utilization 
scenarios to determine MA plan cost sharing standards and thresholds. 
CMS seeks comments and suggestions on this proposal, particularly 
whether additional regulation text is needed to achieve CMS's goal of 
setting and announcing each year presumptively discriminatory levels of 
cost sharing.
6. Meaningful Differences in Medicare Advantage Bid Submissions and Bid 
Review (Sec. Sec.  422.254 and 422.256)
    As provided at Sec. Sec.  422.254(a)(4) and 422.256(b)(4), CMS will 
only approve a bid submitted by a Medicare Advantage (MA) organization 
if its plan benefit package is substantially different from those of 
other plans offered by the organization in the area with respect to key 
plan characteristics such as premiums, cost sharing, or benefits 
offered. MA organizations may submit bids for multiple plans in the 
same area under the same contract only if those plans are substantially 
different from one another based on CMS's annual meaningful difference 
evaluation standards. CMS proposes to eliminate this meaningful 
difference requirement beginning with MA bid submissions for contract 
year (CY) 2019. Separate meaningful difference rules were concurrently 
adopted for MA and stand-alone prescription drug plans (PDPs), but this 
specific proposal is limited to the meaningful difference provision 
related to the MA program. This proposal is not related to a statutory 
change.
    This proposal aims to improve competition, innovation, available 
benefit offerings, and provide beneficiaries with affordable plans that 
are tailored for their unique health care needs and financial 
situation. CMS will maintain requirements that prohibit plans from 
misleading beneficiaries in their communication materials, provide CMS 
the authority to disapprove a bid if a plan's proposed benefit design 
substantially discourages enrollment in that plan by certain Medicare-
eligible individuals, and allow CMS to non-renew a plan that fails to 
attract a sufficient number of enrollees over a sustained period of 
time (Sec. Sec.  422.100(f)(2), 422.510(a)(4)(xiv), 422.2264, and 
422.2260(e)). CMS expects organizations to continue designing plan 
benefit packages that, within a service area, are different from one 
another with respect to key benefit design characteristics, so that any 
potential beneficiary confusion is minimized when comparing multiple 
plans offered by the organization. For example, beneficiaries may 
consider the following factors when they make their health care 
decisions: plan type, Part D coverage, differences in provider network, 
Part B and plan premiums, and unique populations served (for example, 
special needs plans, or SNPs). In addition, CMS intends to continue the 
practice of furnishing information to MA organizations about their bid 
evaluation methodology through the annual Call Letter process and/or 
Health Plan Management System (HPMS) memoranda and solicit comments, as 
appropriate. This process allows CMS to articulate bid requirements and 
MA organizations to prepare bids that satisfy CMS requirements and 
standards prior to bid submission in June each year.
    Research studies indicate that consumers, especially elderly 
consumers, may be challenged by a large number of plan choices that 
may: (1) Result in not making a choice, (2) create a bias to not change 
plans, and (3) impact MA enrollment growth.\27\ Beneficiaries indicate 
they want to make informed and effective decisions, but do not feel 
qualified. As a result, they seek help from Medicare Plan Finder (MPF), 
brokers or plan representatives, providers, and family members. 
Although challenged by choices, beneficiaries do not want their plan 
choices to be limited and understand key decision factors such as 
premiums, out-of-pocket cost sharing, Part D coverage, familiar 
providers, and company offering the plan.\28\ CMS continues to explore 
enhancements to MPF that will improve the customer experience; some 
examples of recent updates are provided below.
---------------------------------------------------------------------------

    \27\ McWilliams JM, Afendulis CC, McGuire TG, Landon BE. Complex 
Medicare advantage choices may overwhelm seniors--especially those 
with impaired decision making. Health Aff (Millwood). 
2011;30(9):1786-94.
    \28\ Jacobson, G. Swoope, C., Perry, M. Slosar, M. How are 
seniors choosing and changing health insurance plans? Kaiser Family 
Foundation. 2014.
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    As discussed later in this section, CMS believes that it is 
challenging to apply the current standardized meaningful difference 
evaluation (which is applied consistently to all plans) in a manner 
that accommodates and evaluates important considerations objectively. 
CMS is concerned that the current evaluation may create unintended 
consequences related to innovative benefit designs. In addition, CMS's 
efforts in implementing more sophisticated approaches to consumer 
engagement and decision-making should help beneficiaries, caregivers, 
and family members make informed plan choices. For example, in MPF, 
plan details have been expanded to include MA and Part D benefits and a 
new consumer friendly tool for the CY 2018 Medicare open enrollment 
period which will assist beneficiaries in choosing a plan that meets 
their unique and financial needs based on a set of 10 quick questions.
    Prior to implementing the meaningful difference evaluation for CY 
2011 bid submissions, the beneficiary weighted average number of plans 
per county was about 30 in 2010 compared to 18 in 2017 (these numbers 
do not include SNPs or employer group plans which have additional 
criteria for enrollment). Private-fee-for-service (PFFS) plans 
represented 13 of the 30 plans in 2010 and less than 1 of the 18 plans 
in 2017. The Medicare Improvements for Patients and Providers Act of 
2008 required PFFS plans to establish contracted provider networks by 
2011 and many PFFS plans non-renewed. The weighted average number of 
plans has remained relatively stable since the decline of PFFS options. 
MA enrollment continued to grow from more than 11 million in July 2010 
to 18.7 million in July 2017, fueled by the continued overall 
acceptance of managed care, the baby boom generation aging into 
Medicare beginning in 2011, and decreases in average plan premium 
during the time period.
    As stated in the October 22, 2009, proposed rule (74 FR 54670 
through 73) and April 15, 2010, final rule (75 FR 19736 through 40), 
CMS's goal for the meaningful difference evaluation was to ensure a 
proper balance between affording beneficiaries a wide range of plan 
choices and avoiding undue beneficiary confusion in making coverage 
selections. The meaningful difference evaluation was initiated when 
cost sharing and benefits were relatively consistent within each plan 
and similar plans within the same contract could be readily compared by 
measuring estimated out-of-pocket costs and other factors currently 
integrated in the evaluation's methodology.
    The current meaningful difference evaluation uses estimated 
enrollee out-of-pocket costs based on the CMS Out-of-Pocket Cost (OOPC) 
model. This model uses a nationally representative cohort of 
beneficiaries from the Medicare Beneficiary Surveys (MCBS)

[[Page 56364]]

and is intended to be objective and applied in a standardized and 
consistent manner across plans. MCBS data collected by CMS from 
beneficiaries are used to create the cohort of beneficiaries whose 
medical and prescription data are used to estimate out-of-pocket costs. 
The OOPC model generates estimated out-of-pocket costs based on 
utilization from the cohort of beneficiaries and each plan's benefit 
design entered into the Plan Benefit Package submitted to CMS as part 
of the bidding process. Detailed information about the meaningful 
difference evaluation is available in the CY 2018 Final Call Letter 
issued April 3, 2017 (pages 115-118) and information about the CMS OOPC 
model is available at: https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovGenIn/OOPCResources.html. Estimated 
enrollee cost sharing is determined by the cost sharing amounts for 
Part A, B, and D services and most mandatory supplemental benefits (for 
example, dental services). Benefit service categories within a plan may 
have a range of multiple and varying cost sharing amounts. For example, 
the outpatient procedures, tests, labs, and radiology services benefit 
category includes many services that may have a wide range of cost 
sharing amounts. The OOPC model uses the minimum or lowest cost sharing 
value placed in the Plan Benefit Package (PBP) for each service 
category to estimate out-of-pocket costs in these situations. As 
discussed in the CY 2018 Final Call Letter, the differences between 
similar plans must have at least a $20 per member per month estimated 
beneficiary out-of-pocket cost difference. Differences in plan type 
(for example, HMO, LPPO), SNP sub-type, and inclusion of Part D 
coverage are considered meaningful differences which aligns with 
beneficiary decision-making. Premiums, risk scores, actual plan 
utilization and enrollment are not included in the evaluation because 
these factors would introduce risk selection, costs, and margin into 
the evaluation, resulting in a negation of the evaluation's 
objectivity.
    Based on CMS's efforts to revisit MA standards and the 
implementation of the governing law to find flexibility for MA 
beneficiaries and plans, MA organizations are able to: (1) Tier the 
cost sharing for contracted providers as an incentive to encourage 
enrollees to seek care from providers the plan identifies based on 
efficiency and quality data which was communicated in CY 2011 guidance; 
(2) establish Provider Specific Plans (PSPs) designed to offer 
enrollees benefits through a subset of the overall contracted network 
in a given service area, which are sometimes referred to as narrower 
networks, and which was collected in the PBP beginning in CY 2011; and 
(3) beginning in CY 2019, provide different cost sharing and/or 
additional supplemental benefits for enrollees based on defined health 
conditions within the same plan (Flexibility in the Medicare Advantage 
Uniformity Requirements). These flexibilities allow MA organizations to 
provide beneficiaries with access to health care benefits that are 
tailored to individual needs, but make it difficult for CMS to 
objectively measure meaningful differences between plans. Items 1 and 3 
provide greater cost sharing flexibility to address individual 
beneficiary needs, but result in a much broader range of cost sharing 
values being entered into PBP. As discussed in the previous paragraph, 
the CMS OOPC model uses the lowest cost sharing value for each service 
category to estimate out-of-pocket costs which may or may not be a 
relevant comparison between different plans for purposes of evaluating 
meaningful difference when variable cost sharing of this type is 
involved.
    CMS remains committed to ensuring transparency in plan offerings so 
that beneficiaries can make informed decisions about their health care 
plan choices. It is also important to encourage competition, 
innovation, and provide access to affordable health care approaches 
that address individual needs. The current meaningful difference 
methodology evaluates the entire plan and does not capture differences 
in benefits that are tied to specific health conditions. As a result, 
the meaningful difference evaluation would not fully represent benefit 
and cost sharing differences experienced by enrollees and could lead to 
MA organizations to focus on CMS standards, rather than beneficiary 
needs, when designing benefit packages.
    In order to capture differences in provider network, more tailored 
benefit and cost sharing designs, or other innovations, the evaluation 
process would have to use more varied and complex assumptions to 
identify plans that are not meaningfully different from one another. 
CMS believes that such an evaluation could result in more complicated 
and potentially confusing benefit designs to achieve differences 
between plans. This process may require greater administrative 
resources for MA organizations and CMS, while not producing results 
that are useful to beneficiaries.
    The current meaningful difference methodology may force MA 
organizations to design benefit packages to meet CMS standards rather 
than beneficiary needs. To satisfy current CMS meaningful difference 
standards, MA organizations may have to change benefit coverage or cost 
sharing in certain plans to establish the necessary benefit value 
difference, even if substantial difference exists based on factors CMS 
is currently unable to incorporate into the evaluation (such as tiered 
cost sharing, and unique benefit packages based on enrollee health 
conditions). Although these changes in benefits coverage may be 
positive or negative, CMS is concerned the meaningful difference 
requirement results in organizations potentially reducing the value of 
benefit offerings. On the basis of bid review activities performed over 
the past several years, CMS is concerned that benefits may be decreased 
or cost sharing increased to satisfy the meaningful difference 
evaluation. These are unintended consequences of the existing 
meaningful difference evaluation and may restrict innovative benefit 
designs that address individual beneficiary needs and affordability.
    Beneficiaries may also consider plan and Part B premiums when 
choosing among health plan options. Making changes to the existing 
meaningful difference evaluation to consider premiums differences as 
sufficient to distinguish among otherwise similar plans may limit the 
value of CMS's evaluation by introducing factors that plans can easily 
leverage, such as risk selection, costs, and margin, to satisfy the 
evaluation test without resulting in additional benefit value or choice 
for enrollees.
    Stakeholders have expressed concern that without the meaningful 
difference evaluation the number of bids and plan choices will likely 
increase and make beneficiary decisions more difficult. The number of 
plan bids may increase because of a variety of factors, such as 
payments, bidding and service area strategies, serving unique 
populations, and in response to other program constraints or 
flexibilities. CMS expects that eliminating the meaningful difference 
requirement will improve the plan options available for beneficiaries, 
but CMS does not believe the number of similar plan options offered by 
the same MA organization in each county will necessarily increase 
significantly or create confusion in beneficiary decision-making. New 
flexibilities in benefit design and more sophisticated approaches to 
consumer engagement and decision-making should help

[[Page 56365]]

beneficiaries, caregivers, and family members make informed plan 
choices among more individualized plan offerings. Based on the 
previously stated information, CMS does not expect a significant 
increase in time spent in bid review as a direct result of eliminating 
meaningful difference nor increased health care provider burden.
    In addition, new flexibilities in benefit design may allow MA 
organizations to address different beneficiary needs within existing 
plan options and reduce the need for new plan options to navigate 
existing CMS requirements. In addition, MA organizations may be able to 
offer a portfolio of plan options with clear differences between 
benefits, providers, and premiums which would allow beneficiaries to 
make more effective decisions if the MA organizations are not required 
to change benefit and cost sharing designs in order to satisfy 
Sec. Sec.  422.254 and 422.256. Currently, MA organizations must 
satisfy CMS meaningful difference standards (and other requirements), 
rather than solely focusing on beneficiary purchasing needs when 
establishing a range of plan options.
    CMS supports beneficiary decision-making by providing tools and 
materials that focus on key beneficiary purchasing criteria, such as 
eligibility to enroll in SNPs, need for Part D coverage, Part D 
formulary and benefit coverage, plan type preference (for example, HMO 
vs. PPO), network providers, medical benefit coverage, premiums, and 
the brand or organization offering the plan options. CMS is also taking 
steps to improve information available through MPF and 1-800-MEDICARE 
to help beneficiaries, caregivers, and family members make informed 
plan choices.
    CMS continually evaluates consumer engagement tools and outreach 
materials (including marketing, educational, and member materials) to 
ensure information is formatted consistently so beneficiaries can 
easily compare multiple plans. CMS also provides annual guidance and 
model materials to MA organizations to assist them in providing 
resources, such as the plan's Annual Notice of Change and Evidence of 
Coverage, which contain valuable information for the enrollee to 
evaluate and select the best plan for their needs. To reinforce 
informed decision making, CMS invests substantial resources in 
engagement strategies such as 1-800-MEDICARE, MPF, standard and 
electronic mail, and social media to continuously communicate with 
beneficiaries, caregivers, family members, providers, community 
resources, and other stakeholders.
    CMS will continue to furnish information to MA organizations and 
solicit comments on bid evaluation methodology through the annual Call 
Letter process or HPMS memoranda, as appropriate.
    In addition, CMS is maintaining requirements around plans not 
misleading beneficiaries in communication materials, disapproving a bid 
if CMS finds that a plan's proposed benefit design substantially 
discourages enrollment in that plan by certain Medicare-eligible 
individuals, and non-renewing plans that fail to attract a sufficient 
number of enrollees over a sustained period of time (Sec. Sec.  
422.100(f)(2), 422.510(a)(4)(xiv), 422.2264, and 422.2260(e)). CMS 
expects these measures will continue to protect beneficiaries from 
discriminatory plan benefit packages and health plans that demonstrate 
a lack of beneficiary interest if the meaningful difference requirement 
is eliminated. For all these reasons, CMS proposes to remove Sec. Sec.  
422.254(a)(4) and 422.256(b)(4) to eliminate the meaningful difference 
requirement for MA bid submissions. CMS seeks comments and suggestions 
on the topics discussed in this section about making sure beneficiaries 
have access to innovative plans that meet their unique needs.
7. Coordination of Enrollment and Disenrollment Through MA 
Organizations and Effective Dates of Coverage and Change of Coverage 
(Sec. Sec.  422.66 and 422.68)
    Section 1851(c)(3)(A)(ii) of the Act provides the Secretary with 
the authority to implement default enrollment rules for the Medicare 
Advantage (MA) program in addition to the statutory direction that 
beneficiaries who do not elect an MA plan are defaulted to original 
(fee-for-service) Medicare. This provision states that the Secretary 
may establish procedures whereby an individual currently enrolled in a 
non-MA health plan offered by an MA organization at the time of his or 
her Initial Coverage Election Period is deemed to have elected an MA 
plan offered by the organization if he or she does not elect to receive 
Medicare coverage in another way.
    We initially addressed default enrollment upon conversion to 
Medicare in rulemaking (70 FR 4606 through 4607) in 2005, indicating 
that we would retain the flexibility to implement this provision 
through future instructions and guidance to MA organizations. Such 
subregulatory guidance was established later that same year and was 
applicable to the 2006 contract year. As outlined in Chapter 2 of the 
Medicare Managed Care Manual, we established an optional enrollment 
mechanism, whereby MA organizations may develop processes and, with CMS 
approval, provide seamless continuation of coverage by way of 
enrollment in an MA plan for newly MA eligible individuals who are 
currently enrolled in other health plans offered by the MA organization 
(such as commercial or Medicaid plans) at the time of the individuals' 
initial eligibility for Medicare. The guidance emphasized that MA 
organizations not limit seamless continuation of coverage to situations 
in which an enrollee becomes eligible for Medicare by virtue of age, 
but includes all newly eligible Medicare beneficiaries, including those 
whose Medicare eligibility is based on disability. We did not mandate 
that organizations implement a process for seamless continuation of 
coverage but, instead, gave organizations the option of implementing 
such a process for its enrollees who are approaching Medicare 
eligibility. From its inception, the guidance has required that 
individuals receive advance notice of the proposed MA enrollment and 
have the ability to ``opt out'' of such an enrollment prior to the 
effective date of coverage. This guidance has been in practice for the 
past decade for MA organizations that requested to use this voluntary 
enrollment mechanism, but we have encountered complaints and heard 
concerns about the practice. We are proposing new regulation text to 
establish limits and requirements for these types of default 
enrollments to address these concerns and our administrative experience 
with seamless continuation of coverage, commonly referred to as 
seamless conversion.
    Based on our experience with the seamless conversion process thus 
far, we are proposing, to be codified at Sec.  422.66(c)(2), 
requirements for seamless default enrollments upon conversion to 
Medicare. As proposed in more detail later in this section, such 
default enrollments would be into dual eligible special needs plans (D-
SNPs) and be subject to five substantive conditions: (1) The individual 
is enrolled in an affiliated Medicaid managed care plan and is dually 
eligible for Medicare and Medicaid; (2) the state has approved use of 
this default enrollment process and provided Medicare eligibility 
information to the MA organization; (3) the individual does not opt out 
of the default enrollment; (4) the MA

[[Page 56366]]

organization provides a notice that meets CMS requirements to the 
individual; and (5) CMS has approved the MA organization to use the 
default enrollment process before any enrollments are processed. We are 
also proposing that coverage under these types of default enrollments 
begin on the first of the month that the individual's Part A and Part B 
eligibility is effective. We are also proposing changes to Sec. Sec.  
422.66(d)(1) and (d)(5) and 422.68 that coordinate with the proposal 
for Sec.  422.66.
    In the Advance Notice of Methodological Changes for Calendar Year 
(CY) 2016 for Medicare Advantage (MA) Capitation Rates, Part C and Part 
D Payment Policies and 2016 Call Letter, we explained how entities that 
sponsor Medicaid managed care organizations (MCOs) and affiliated D-
SNPs can promote coverage of an integrated Medicare and Medicaid 
benefit through existing authority for seamless continuation of 
coverage of Medicaid MCO members as they become eligible for Medicare. 
We received positive comments from state Medicaid agencies that 
supported this enrollment mechanism and requested that we clarify the 
process for approval of seamless continuation of coverage as a 
mechanism to promote enrollment in integrated D-SNPs that deliver both 
Medicare and Medicaid benefits. We also received comments from 
beneficiary advocates asking that additional consumer protections, 
including requiring written beneficiary confirmation and a special 
enrollment period for those individuals who transition from non-
Medicare products to Medicare Advantage. We believe that our proposal, 
described later in this section, adequately addresses the concerns on 
which these requests are based, given that the default enrollment 
process would be permissible only for individuals enrolled in a 
Medicaid managed care plan in states that support this process. This 
means that the Medicare plan into which individuals would be defaulted 
would be one that is offered by the same parent organization as their 
existing Medicaid plan, such that much of the information needed by the 
MA plan would already be in the possession of the MA organization to 
facilitate the default enrollment process. Also, default enrollment 
would not be permitted if the state does not actively support this 
process, ensuring an accurate source of data for use by MA 
organizations to appropriately identify and notify individuals eligible 
for default enrollment.
    On October 21, 2016,\29\ in response to inquiries regarding this 
enrollment mechanism, its use by MA organizations, and the beneficiary 
protections currently in place, we announced a temporary suspension of 
acceptance of new proposals for seamless continuation of coverage. 
Based on our subsequent discussions with beneficiary advocates and MA 
organizations approved for this enrollment mechanism, it is clear that 
organizations attempting to conduct seamless continuation of coverage 
from commercial coverage (that is, private coverage and Marketplace 
coverage) find it difficult to comply with our current guidance and 
approval parameters. This is especially true of the requirement to 
identify commercial members who are approaching Medicare eligibility 
based on disability. Also challenging for these organizations is the 
requirement that they have the means to obtain the individual's 
Medicare number and are able to confirm the individual's entitlement to 
Part A and enrollment in Part B no fewer than 60 days before the MA 
plan enrollment effective date.
---------------------------------------------------------------------------

    \29\ https://www.cms.gov/Medicare/Eligibility-and-Enrollment/MedicareMangCareEligEnrol/Downloads/HPMS_Memo_Seamless_Moratorium.pdf.
---------------------------------------------------------------------------

    In addition, the ability for organizations to conduct seamless 
enrollment of individuals converting to Medicare will be further 
limited due to the statutory requirement that CMS remove Social 
Security Numbers (SSNs) from all Medicare cards by April 2019. A new 
Medicare number will replace the SSN-based Health Insurance Claim 
Number (HICN) on the new Medicare cards for Medicare transactions. 
Beginning in April 2018, we'll start mailing the new Medicare cards 
with the new number to all people with Medicare. Given the random and 
unique nature of the new Medicare number, we believe MA organizations 
will be limited in their ability to automatically enroll newly eligible 
Medicare beneficiaries without having to contact them to obtain their 
Medicare numbers, as CMS does not share Medicare numbers with 
organizations for their commercial members who are approaching Medicare 
eligibility. We note that contacting the individual in order to obtain 
the information necessary to process the enrollment does not align with 
the intent of default enrollment, which is designed to process 
enrollments and have coverage automatically shift into the MA plan 
without an enrollment action required by the beneficiary.
    Organizations operating Medicaid managed care plans are better able 
to meet these requirements when states provide data, including the 
individual's Medicare number, on those about to become Medicare 
eligible. As part of coordination between the Medicare and Medicaid 
programs, CMS shares with states, via the State MMA file, data of 
individuals with Medicaid who are newly becoming entitled to Medicare; 
such data includes the Medicare number of newly eligible Medicare 
beneficiaries. MA organizations with state contracts to offer D-SNPs 
would be able to obtain (under their agreements with state Medicare 
agencies) the data necessary to process the MA enrollment submission to 
CMS. Therefore, we are proposing to revise Sec.  422.66 to permit 
default enrollment only for Medicaid managed care enrollees who are 
newly eligible for Medicare and who are enrolled into a D-SNP 
administered by an MA organization under the same parent organization 
as the organization that operates the Medicaid managed care plan in 
which the individual remains enrolled. These requirements would be 
codified at Sec.  422.66(c)(2)(i) (as a limit on the type of plan into 
which enrollment is defaulted) and (c)(2)(i)(A) (requiring existing 
enrollment in the affiliated Medicaid managed care plan as a condition 
of default MA enrollment). At paragraph (c)(2)(i)(B), we are also 
proposing to limit these default enrollments to situations where the 
state has actively facilitated and approved the MA organization's use 
of this enrollment process and articulates this in the agreement with 
the MA organization offering the D-SNP, as well as providing necessary 
identifying information to the MA organization.
    The option of default enrollment can be particularly beneficial for 
Medicaid managed care enrollees who are newly eligible for Medicare, 
because in the case that the parent organization of the Medicaid 
managed care plan also offers a D-SNP, default enrollment promotes 
enrollment in a plan that offers some level of integration of acute 
care, behavioral health and, for eligible beneficiaries, long-term care 
services and supports, including institutional care, and home and 
community-based services (HCBS). This is in line with CMS' support of 
state efforts to increase enrollment of dually eligible individuals in 
fully integrated systems of care and the evidence \30\ that such 
systems

[[Page 56367]]

improve health outcomes. Further this proposal will provide states with 
additional flexibility and control. States can decide if they wish to 
allow their contracted Medicaid managed care plans to use default 
enrollment of Medicaid enrollees into D-SNPs and can control which D-
SNPs receive default enrollments through two means: The contracts that 
states maintain with D-SNPs (Sec.  422.107(b)) and by providing the 
data necessary for MA organizations to successfully implement the 
process. Under our proposal, MA organizations can process default 
enrollments only for dual-eligible individuals in states where the 
contract with the state under Sec.  422.107 approves it and the state 
identifies eligibility and shares necessary data with the organization.
---------------------------------------------------------------------------

    \30\ There is a growing evidence that integrated care and 
financing models can improve beneficiary experience and quality of 
care, including:
     Health Management Associates, Value Assessment of the 
Senior Care Options (SCO) Program, July 21, 2015, available at: 
http://www.mahp.com/unify-files/HMAFinalSCOWhitePaper_2015_07_21.pdf;
     MedPAC chapter ``Care coordination programs for dual-
eligible beneficiaries,'' June 2012, available at: http://www.medpac.gov/docs/default-source/reports/chapter-3-appendixes-care-coordination-programs-for-dual-eligible-beneficiaries-june-2012-report-.pdf?sfvrsn=0;
     Anderson, Wayne L., Zhanlian Fen, and Sharon K. Long, 
RTI International and Urban Institute, Minnesota Managed Care 
Longitudinal Data Analysis, prepared for the U.S. Department of 
Health and Human Services Assistant Secretary for Planning and 
Evaluation (ASPE), March 2016, available at: https://aspe.hhs.gov/report/minnesota-managed-care-longitudinal-data-analysis.
---------------------------------------------------------------------------

    To ensure that Medicaid beneficiaries considered for default 
enrollment upon their conversion to Medicare are aware of the default 
MA enrollment and of the changes to their Medicare and Medicaid 
coverage, we also propose, at Sec.  422.66(c)(2)(i)(C) and (c)(2)(iv), 
that the MA organization must issue a notice no fewer than 60 days 
before the default enrollment effective date to the enrollee. The 
proposed revised notice \31\ must include clear information on the D-
SNP, as well as instructions to the individual on how to opt out (or 
decline) the default enrollment and how to enroll in Original Medicare 
or a different MA plan. This notice requirement aims to help ensure a 
smooth transition of eligible individuals into the D-SNP for those who 
choose not to opt out. All MA organizations currently approved to 
conduct seamless conversion enrollment issue at least one notice 60 
days prior to the MA enrollment effective date, so our proposal would 
not result in any additional burden to these MA organizations using 
this process. Recent discussions with MA organizations currently 
conducting seamless conversion enrollment have revealed that several of 
them already include in their process additional outreach, including 
reminder notices and outbound telephone calls to aid in the transition. 
We believe that these additional outreach efforts are helpful and we 
would encourage their use under our proposal.
---------------------------------------------------------------------------

    \31\ Enrollment requirements and burden are currently approved 
by OMB under control number 0938-0753 (CMS-R-267). Since this rule 
would not impose any new or revised requirements/burden, we are not 
making any changes to that control number.
---------------------------------------------------------------------------

    We also propose, in paragraph (c)(2)(i)(E) and (2)(ii), that MA 
organizations must obtain approval from CMS before implementing default 
enrollment. Under our proposal in paragraph (c)(2)(i)(B), CMS approval 
would be granted only if the applicable state approves the default 
enrollment through its agreement with the MA organization. MA 
organizations would be required to implement default enrollment in a 
non-discriminatory manner, consistent with their obligations under 
Sec.  422.110; that is, MA organizations could not select for default 
enrollment only certain of the members of the affiliated Medicaid plan 
who were identified as eligible for default enrollment. Lastly, we 
propose that CMS may suspend or rescind approval at any time if it is 
determined that the MA organization is not in compliance with the 
requirements. We request comment whether this authority to rescind 
approval should be broader; we have considered whether a time limit on 
the approval (such as 2 to 5 years) would be appropriate so that CMS 
would have to revisit the processes and procedures used by an MA 
organization under this proposed regulation in order to assure that the 
regulation requirements are still being followed. We are particularly 
interested in comment on this point in conjunction with our alternative 
(discussed later in this section) proposal to codify the existing 
parameters for this type of seamless conversion default enrollment such 
that all MA organizations would be able to use this default enrollment 
process for newly eligible and newly enrolled Medicare beneficiaries in 
the MA organization's non-Medicare coverage.
    Under our proposal, default enrollment of individuals at the time 
of their conversion to Medicare would be more limited than the default 
enrollments Congress authorized the Secretary to permit in section 
1851(c)(3)(A)(ii) of the Act. However, we are also proposing some 
flexibility for MA organizations that wish to offer seamless 
continuation of coverage to their non-Medicare members, commercial, 
Medicaid or otherwise, who are gaining Medicare eligibility. As 
discussed in more detail below, affirmative elections would be 
necessary for individuals not enrolled in a Medicaid managed care plan, 
consistent with Sec.  422.50. However, because individuals enrolled in 
an organization's commercial plan, for example would already be known 
to the parent organization offering both the non-Medicare plan and the 
MA plan and the statute acknowledges that this existing relationship is 
somewhat relevant to Part C coverage, we propose to amend Sec.  
422.66(d)(5) and to establish, through subregulatory guidance, a new 
and simplified positive (that is, ``opt in'') election process that 
would be available to all MA organizations for the MA enrollments of 
their commercial, Medicaid or other non-Medicare plan members. To 
reflect our change in policy with regard to a default enrollment 
process and this proposal to permit a simplified election process for 
individuals who are electing coverage in an MA plan offered by the same 
entity as the individual's non-Medicare coverage, we are also proposing 
to add text in Sec.  422.66(d)(5) authorizing a simplified election for 
purposes of converting existing non-Medicare coverage, commercial, 
Medicaid or otherwise, to MA coverage offered by the same organization. 
This new mechanism would allow for a less burdensome process for MA 
organizations to offer enrollment in their MA plans to their non-
Medicare health plan members who are newly eligible for Medicare. As 
the MA organization has a significant amount of the information from 
the member's non-Medicare enrollment, this new simplified election 
process aims to make enrollment easier for the newly-eligible 
beneficiary to complete and for the MA organization to process. It 
would align with the individual's Part A and Part B initial enrollment 
period (and initial coordinated election period for MA coverage), 
provided he or she enrolled in both Medicare Parts A and B when first 
eligible for Medicare. This new election process would provide a longer 
period of time for MA organizations to accept enrollment requests than 
the time period in which MA organizations would be required to 
effectuate default enrollments, as organizations would be able to 
accept enrollments throughout the individual's Initial Coverage 
Election Period (ICEP), which for an aged beneficiary is the 7-month 
period that begins 3 months before the month in which the individual 
turns 65 and ends 3 months after the month in which the individual 
turns 65. We would use existing authority to create this new enrollment

[[Page 56368]]

mechanism which, if implemented, would be available to MA organizations 
in the 2019 contract year. We solicit comments on the proposed changes 
to the regulation text as well as the form and manner in which such 
enrollments may occur.
    This optional simplified election process for the enrollment of 
non-Medicare plan members into MA upon their initial eligibility (or 
initial entitlement) for Medicare would provide individuals the option 
to remain with the organization that offers their non-Medicare 
coverage. A positive election in this circumstance provides an 
additional beneficiary protection for non-dually eligible individuals, 
so that they may actively choose a Medicare plan structure similar to 
that of their commercial, Medicaid or other non-Medicare health plans, 
as there may be significant differences between an organization's 
commercial plans, for example, and its MA plans in terms of provider 
networks, drug formularies, costs and benefit structures. While these 
differences may result in a more restrictive network, a mandated change 
in a primary care physician and increased out-of-pocket costs for 
converting enrollees, default enrollment of a dually eligible 
individual enrolled in a Medicaid plan into a D-SNP, triggers no 
premium liability or cost sharing for medical care or prescription 
drugs above levels that apply under Original Medicare. Further, the 
individual remains in the Medicaid managed care plan and is gaining 
additional Medicare coverage, which is not always the case in other 
contexts. We solicit comment on these coordinated proposals to 
implement section 1851(c)(3)(A)(ii) in general as discussed below and 
in two particular ways: (1) To permit default MA enrollments for 
dually-eligible beneficiaries who are newly eligible for Medicare under 
certain conditions and (2) to permit simplified elections for seamless 
continuations of coverage for other newly-eligible beneficiaries who 
are in non-Medicare health coverage offered by the same parent 
organization that offers the MA plan. We further invite comments 
regarding whether the CMS approval of an organization's request to 
conduct default enrollment should be limited to a specific time frame. 
In addition, we are proposing amendments to Sec. Sec.  422.66(d)(1) and 
422.68 that are also related to MA enrollment. Currently, as described 
in the 2005 final rule (70 FR 4606 through 4607), Sec.  422.66(d)(1) 
requires MA organizations to accept, during the month immediately 
preceding the month in which he or she is entitled to both Part A and 
Part B, enrollment requests from an individual who is enrolled in a 
non-Medicare health plan offered by the MA organization and who meets 
MA eligibility requirements. To better reflect section 
1851(c)(3)(A)(ii), we are proposing to amend Sec.  422.66(d)(1) to add 
text clarifying that seamless continuations of coverage are available 
to an individual who requests enrollment during his or her Initial 
Coverage Election Period. In light of our proposal to permit a 
simplified election process for individuals who are electing coverage 
in an MA plan offered by the same parent organization as the 
individual's non-Medicare coverage, we are also proposing a revision to 
Sec.  422.68(a) to ensure that ICEP elections made during or after the 
month of entitlement to both Part A and Part B are effective the first 
day of the calendar month following the month in which the election is 
made. This proposed revision would codify the subregulatory guidance 
that MA organizations have been following since 2006. This proposal is 
also consistent with the proposal at Sec.  422.66(c)(2)(iii) regarding 
the effective date of coverage for default enrollments into D-SNPs. We 
also solicit comment on these related proposals.
    In conclusion, we are proposing to add regulation text at Sec.  
422.66(c)(2)(i) through (iv) to set limits and requirements for a 
default enrollment of the type authorized under section 
1851(c)(3)(A)(ii). We are proposing a clarifying amendment to Sec.  
422.66(d)(1) regarding when seamless continuation coverage can be 
elected and revisions to Sec.  422.66(d)(5) to reflect our proposal for 
a new and simplified positive election process that would be available 
to all MA organizations. Lastly, we are proposing revisions to Sec.  
422.68(a) to ensure that ICEP elections made during or after the month 
of entitlement to both Part A and Part B are effective the first day of 
the calendar month following the month in which the election is made.
    We invite comments in general on our proposal, as well as on the 
alternatives presented. We recognize that our proposal narrows the 
scope of default enrollments compared to what CMS approved under 
section 1851(c)(3)(A) of the Act in the past. As we contemplated the 
future of the seamless conversion mechanism, we considered retaining 
processes similar to how the seamless conversion mechanism is outlined 
currently in section 40.1.4 of Chapter 2 of the Medicare Managed Care 
Manual and had been in practice through October 2016. We considered 
proposing regulations to codify that guidance as follows--
     Articulating the requirements for an MA organization's 
proposal to use the seamless conversion mechanism, including 
identifying eligible individuals in advance of Medicare eligibility;
     Establishing timeframes for processing and the effective 
date of the enrollment; and
     Requiring notification to individuals at least 60 days 
prior to the conversion of their right to opt-out or decline the 
enrollment.
    In considering this alternative, we contemplated adding additional 
beneficiary protections, including the issuance of an additional notice 
to ensure that individuals understood the implication of taking no 
action. While this alternative would have led to increased use of the 
seamless conversion enrollment mechanism than what had been used in the 
past, the operational challenges, particularly in relation to the new 
Medicare Beneficiary Identification number may be significant for MA 
organizations to overcome at this time.
    We also considered proposing regulations to limit the use of 
default enrollment to only the aged population. While this alternative 
would simplify a MA organization's ability to identify eligible 
individuals, we have concerns about disparate treatment among newly 
eligible individuals based on their reason for obtaining Medicare 
entitlement.
    We invite comments on our proposal and the alternate approaches, 
including the following:
     Codify the existing parameters for this type of seamless 
conversion default enrollment such that all MA organizations would be 
able to use this default enrollment process for newly eligible and 
newly enrolled Medicare beneficiaries in the MA organization's non-
Medicare coverage.
     Codify the existing parameters for this type of seamless 
conversion default enrollment, as described previously, but allow that 
use of default enrollment be limited to only the aged population.
    If commenters recommend one or more alternate approaches, we ask 
for suggested solutions that address the concerns noted in this 
discussion, particularly related to the requirement that plans identify 
commercial members who are approaching Medicare eligibility based on 
disability, as well as how plans could confirm MA eligibility and 
process enrollments without access to the individual's Medicare number.

[[Page 56369]]

8. Passive Enrollment Flexibilities To Protect Continuity of Integrated 
Care for Dually Eligible Beneficiaries (Sec.  422.60(g))
    Beneficiaries who are dually eligible for both Medicare and 
Medicaid typically face significant challenges in navigating the two 
programs, which include separate or overlapping benefits and 
administrative processes. Fragmentation between the two programs can 
result in a lack of coordination for care delivery, potentially 
resulting in unnecessary, duplicative, or missed services. One method 
for overcoming this challenge is through integrated care, which 
provides dually eligible beneficiaries with the full array of Medicaid 
and Medicare benefits for which they are eligible through a single 
delivery system, thereby improving quality of care, beneficiary 
satisfaction, care coordination, and reducing administrative burden.
    Integrated care options are increasingly available for dually 
eligible beneficiaries, which include a variety of integrated D-SNPs. 
D-SNPs can provide greater integrated care than enrollees would 
otherwise receive in other MA plans or Medicare Fee-For-Service (FFS), 
particularly when an individual is enrolled in both a D-SNP and 
Medicaid managed care organization offered by the same organization. D-
SNPs that meet higher standards of integration, quality, and 
performance benchmarks--known as highly integrated D-SNPs--are able to 
offer additional supplemental benefits to support integrated care 
pursuant to Sec.  422.102(e). D-SNPs that are fully integrated--known 
as Fully Integrated Dual-Eligible (FIDE) SNPs, as defined at Sec.  
422.2 provide for a much greater level of integration and coordination 
than non-integrated D-SNPs, providing all primary, acute, and long-term 
care services and supports under a single entity.
    While enrollment in integrated care options continues to grow, 
there are instances in which beneficiaries may face disruptions in 
coverage in integrated care plans. These disruptions can result from 
numerous factors, including market forces that impact the availability 
of integrated D-SNPs and state re-procurements of Medicaid managed care 
organizations. Such disruptions can result in beneficiaries being 
enrolled in two separate organizations for their Medicaid and Medicare 
benefits, thereby losing the benefits of integration achieved when the 
same entity offers both benefit packages. In an effort to protect the 
continuity of integrated care for dually eligible beneficiaries, we are 
proposing a limited expansion of our regulatory authority to initiate 
passive enrollment for certain dually eligible beneficiaries in 
instances where integrated care coverage would otherwise be disrupted.
    Section 1851(c)(1) of the Act authorizes us to develop mechanisms 
for beneficiaries to elect MA enrollment, and we have used this 
authority to create passive enrollment. The current regulation at Sec.  
422.60(g) limits the use of passive enrollment to two scenarios: (1) In 
instances where there is an immediate termination of an MA contract; or 
(2) in situations in which we determine that remaining enrolled in a 
plan poses potential harm to beneficiaries. The passive enrollment 
defined in Sec.  422.60(g) requires beneficiaries to be provided prior 
notification and a period of time prior to the effective date to opt 
out of enrollment from a plan. Current Sec.  422.60(g)(3) provides 
every passively enrolled beneficiary with a special election period to 
allow for election of different Medicare coverage: Selecting a 
different managed care plan or opting out of MA completely and, 
instead, receiving services through Original Medicare (a FFS delivery 
system). A beneficiary who is offered a passive enrollment is deemed to 
have elected enrollment in the designated plan if he or she does not 
elect to receive Medicare coverage in another way.
    Our proposal is a limited expansion of this regulatory authority to 
promote continued enrollment of dually eligible beneficiaries in 
integrated care plans to preserve and promote care integration under 
certain circumstances. The proposal includes use of these existing opt-
out procedures and special election period. Therefore, we are proposing 
to redesignate these requirements from (g)(1) through (3) to (g)(3) 
through (g)(5) respectively, with minor revisions in proposed paragraph 
(g)(5) to describe the application of special election period and in 
proposed paragraph (g)(4) to make minor grammatical changes to the text 
to improve its readability and clarity.
    Our proposal is to add authority to passively enroll full-benefit 
dually eligible beneficiaries who are currently enrolled in an 
integrated D-SNP into another integrated D-SNP under certain 
circumstances. We anticipate that these proposed regulations would 
permit passive enrollments only when all the following conditions are 
met:
     When necessary to promote integrated care and continuity 
of care;
     Where such action is taken in consultation with the state 
Medicaid agency;
     Where the D-SNP receiving passive enrollment contracts 
with the state Medicaid agency to provide Medicaid services; and
     Where certain other conditions are met to promote 
continuity and quality of care.
    We expect that these factors would all occur in situations when 
affected beneficiaries would otherwise be experiencing an involuntary 
disruption in either their Medicare or Medicaid coverage. We anticipate 
using this new proposed authority exclusively in such situations.
    All individuals would be provided with a special election period 
(which, as established in subregulatory guidance, lasts for 2 months), 
as described in Sec.  422.62(b)(4), provided they are not otherwise 
eligible for another SEP (for example, under proposed Sec.  
423.38(c)(4)(ii)).
    For illustrative purposes we have outlined two scenarios in which 
this proposed regulatory authority could be used to promote continued 
access to integrated care and maintain continuity of care for dually 
eligible individuals:
     State Re-Procurement of Medicaid Managed Care Contracts: 
In several states, dually eligible beneficiaries receive Medicaid 
services through managed care plans that the state selects through a 
competitive procurement process. Some states also require that the 
sponsors of Medicaid health plans also offer a D-SNP in the same 
service area to promote opportunities for integrated care. Dually 
eligible beneficiaries can face disruptions in coverage due to routine 
state re-procurements of Medicaid managed care contracts. Individuals 
enrolled in Medicaid managed care plans that are not renewed are 
typically transitioned to a separate Medicaid managed care plan. In 
such a scenario, dually eligible beneficiaries enrolled in the non-
renewing Medicaid managed care plan's corresponding D-SNP product would 
now be enrolled in two separate organizations for their Medicaid and 
Medicare services, resulting in non-integrated coverage. Under this 
proposed regulation, CMS would have the ability, in consultation with 
the state Medicaid agency that contracts with integrated D-SNPs, to 
passively enroll dually eligible beneficiaries facing such a disruption 
into an integrated D-SNP that corresponds with their new Medicaid 
managed care plan, thereby promoting continuous enrollment in 
integrated care.

[[Page 56370]]

     Non-Renewal of D-SNP Contracts: Beneficiaries enrolled in 
an integrated D-SNP that non-renews its MA contract at the end of the 
contract year can face disruptions in integrated care coverage, 
requiring them to actively select a new MA plan or default into 
Original Medicare and a standalone prescription drug plan. While states 
are permitted to passively enroll beneficiaries for Medicaid coverage 
as defined in Sec.  438.54(c), CMS is not permitted to do so for 
Medicare coverage when an MA plan non-renews at the end of the contract 
year, as current authority for passive enrollment is limited to midyear 
terminations. Rather, beneficiaries in the D-SNP that is non-renewing 
its contract would need to actively select and enroll in an MA plan 
that integrates their Medicare and Medicaid coverage in order to 
continue the same level of integrated care. Permitting CMS the ability 
to passively enroll D-SNP enrollees into other integrated D-SNP plans 
in consultation with the state Medicaid agency would support 
beneficiaries remaining in integrated care.
    With a limited expansion of our passive enrollment regulatory 
authority, we can better promote integrated care and continuity of care 
for dually eligible beneficiaries. Therefore, we are proposing to 
redesignate the introductory text in Sec.  422.60(g) as paragraph 
(g)(1), with a new heading, technical revisions to the existing text 
that specifies when passive enrollments may be implemented by CMS 
designated as (g)(1)(i) and (ii), and a new paragraph (iii). This new 
(g)(1)(iii) would authorize CMS to passively enroll certain dually 
eligible individuals currently enrolled in an integrated D-SNP into 
another integrated D-SNP, after consulting with the state Medicaid 
agency that contracts with the D-SNP or other integrated managed care 
plan, to promote continuity of care and integrated care.
    We also propose to add a new paragraph (g)(2) to include a number 
of requirements that an MA plan would have to meet in order to qualify 
to receive passive enrollments under paragraph (g)(1)(iii). We also 
propose to include in paragraph (g)(1)(iii) a reference to new 
paragraph (g)(2) to make it clear that a contract with the state is 
also necessary for a D-SNP to be eligible to receive these passive 
enrollments. Specifically, we propose that in order to receive passive 
enrollments under the new authority, MA plans must be highly 
integrated, thereby restricting passive enrollment to those MA plans 
that operate as a FIDE SNP or meet the integration standard for a 
highly-integrated D-SNP, as defined in Sec.  422.2 and described in 
Sec.  422.102(e) respectively. In an effort to ensure continuity of 
care, acquiring MA plans would also be required to have substantially 
similar provider and facility networks and Medicare- and Medicaid-
covered benefits as the integrated MA plan (or plans) from which 
beneficiaries are passively enrolled. MA plans receiving passive 
enrollment would also be required to not have any prohibition on new 
enrollment imposed by CMS and have appropriate limits on premium and 
cost-sharing for beneficiaries. If our proposed paragraphs (g)(1) and 
(g)(2) are finalized, we would describe in subregulatory guidance the 
procedure through which CMS would determine qualification for passive 
enrollment. We also propose that to receive these passive enrollments, 
that D-SNP must meet minimum quality standards based on MA Star 
Ratings; we direct the reader to the proposal at section III.A.12. of 
this rule regarding the MA Star Rating System. Our proposed regulation 
text refers to a requirement to have a minimum overall MA Star Rating 
of at least 3 stars, which represents average or above-average 
performance. The rating for the year prior to receipt of passive 
enrollment would be used in order to provide sufficient time for CMS, 
states, and MAOs to prepare for the passive enrollment process. Low-
enrollment contracts or new plans without MA Star Ratings as defined in 
Sec.  422.252 would also be eligible for passive enrollment under our 
proposal, as long as the plan meets all other proposed requirements.
    Our goal with this proposed requirement is to ensure that the D-SNP 
plans receiving these passive enrollments provide high-quality care, 
coverage and administration of benefits. As passive enrollments, in 
some sense, are a benefit to a plan, by providing an enrollee and 
associated payments without the plan having successfully marketed to 
the enrollee, we believe that it is important that these enrollments 
are limited to plans that have demonstrated commitment to quality. 
Further, it is important to ensure that when we are making an 
enrollment decision for a beneficiary who does not make an alternative 
coverage choice that we are guided by the beneficiary's best interests, 
which are likely served by a plan that is rated as having average or 
above-average performance on the MA Stars Rating System. However, we 
recognize that MA Star Ratings do not capture performance for those 
services that would be covered under Medicaid, including community 
behavioral health treatment and long-term services and supports. We 
welcome comments on the process for determining qualification for 
passive enrollment under this proposal and particularly on the minimum 
quality standards. We request that commenters identify specific 
measures and minimum ratings that would best serve our goals in this 
proposal and are specific or especially relevant to coverage for dually 
eligible beneficiaries.
    In addition to the proposed minimum quality standards and other 
requirements for a D-SNP to receive passive enrollments, we are 
considering limiting our exercise of this proposed new passive 
enrollment authority to those circumstances in which such exercise 
would not raise total cost to the Medicare and Medicaid programs. We 
seek comment on this potential further limitation on exercise of the 
proposed passive enrollment regulatory authority to better promote 
integrated care and continuity of care. In particular, we seek 
stakeholder feedback how to calculate the projected impact on Medicare 
and Medicaid costs from exercise of this authority.
    The intent of the proposed passive enrollment regulatory authority 
is to better promote integrated care and continuity of care--including 
with respect to Medicaid coverage--for dually eligible beneficiaries. 
As such, we would implement this authority in consultation with the 
state Medicaid agencies that are contracting with these plan sponsors 
for provision of Medicaid benefits.
    We considered proposing new beneficiary notification requirements 
for passive enrollments that occur under proposed paragraph 
(g)(1)(iii). We considered requiring MA organizations receiving the 
passive enrollment to provide two notifications to all potential 
enrollees prior to their enrollment effective date. We acknowledge that 
under the Financial Alignment Initiative demonstrations, states are 
required to provide two passive enrollment notices. Under the passive 
enrollment authority proposed here, we would continue to encourage, but 
not require, a second notice or additional outreach to impacted 
individuals. Given the existing beneficiary notifications that are 
currently required under Medicare regulations and concerns regarding 
the quantity of notifications sent to beneficiaries, we are not 
proposing to modify the existing notification requirements, so these 
existing standards would apply for existing passive enrollments and for 
the newly proposed passive enrollment authority.

[[Page 56371]]

However, we solicit comment on alternatives regarding beneficiary 
notices, including comments about the content and timing of such 
notices. Our proposal redesignates the notice requirements to paragraph 
(g)(4) with minor grammatical revisions.
    Finally, we propose a technical correction to a citation in Sec.  
422.60(g), which discusses situations involving an immediate 
termination of an MA plan as provided in Sec.  422.510(a)(5). This 
citation is outdated, as the regulatory language at Sec.  422.510(a)(5) 
has been moved to Sec.  422.510(b)(2)(i)(B). We propose to replace the 
current citation with a reference to Sec.  422.510(b)(2)(i)(B).
9. Part D Tiering Exceptions (Sec. Sec.  423.560, 423.578(a) and (c))
a. Background
    Section 1860D-4(g)(2) of the Act specifies that a beneficiary 
enrolled in a Part D plan offering prescription drug benefits for Part 
D drugs through the use of a tiered formulary may request an exception 
to the plan sponsor's tiered cost-sharing structure. The statute 
requires such plan sponsors to have a process in place for making 
determinations on such requests, consistent with guidelines established 
by the Secretary. At the start of the Part D program, we finalized 
regulations at Sec.  423.578(a) that require plan sponsors to establish 
and maintain reasonable and complete exceptions procedures. These 
procedures permit enrollees, under certain circumstances, to obtain a 
drug in a higher cost-sharing tier at the more favorable cost-sharing 
applicable to alternative drugs on a lower cost-sharing tier of the 
plan sponsor's formulary. Such an exception is granted when the plan 
sponsor determines that the non-preferred drug is medically necessary 
based on the prescriber's supporting statement. The tiering exceptions 
regulations establish the general scope of issues that must be 
addressed under the plan sponsor's tiering exceptions process. Our goal 
with the exceptions rules codified in the Part D final rule (70 FR 
4352) was to allow plan sponsors sufficient flexibility in benefit 
design to obtain pricing discounts necessary to offer optimal value to 
beneficiaries, while ensuring that beneficiaries with a medical need 
for a non-preferred drug are afforded the type of drug access and 
favorable cost-sharing called for under the law.
    At the start of the program, most Part D formularies included no 
more than four cost-sharing tiers, generally with only one generic 
tier. For the 2006 and 2007 plan years respectively, about 83 percent 
and 89 percent of plan benefit packages (PBPs) that offered drug 
benefits through use of a tiered formulary had 4 or fewer tiers. Since 
that time, there have been substantial changes in the prescription drug 
landscape, including increasing costs of some generic drugs, as well as 
the considerable impact of high-cost drugs on the Part D program. Plan 
sponsors have responded by modifying their formularies and PBPs, 
resulting in the increased use of two generic-labeled drug tiers and 
mixed drug tiers that include brand and generic products on the same 
tiers. The flexibilities CMS permits in benefit design enable plan 
sponsors to continue to offer comprehensive prescription drug coverage 
with reasonable controls on out of pocket costs for enrollees, but 
increasingly complex PBPs with more variation in type and level of 
cost-sharing. For the 2017 plan year, about 91 percent of all Part D 
PBPs offer drug benefits through use of a tiered formulary. Over 98 
percent of those tiered PBPs use a formulary containing 5 or 6 tiers; 
of those, about 98 percent contain two generic-labeled tiers.
    These changes and increased complexities, and more than a decade of 
program experience, lead us to believe that our current regulations are 
no longer sufficient to ensure that tiering exceptions are understood 
by beneficiaries and adjudicated by plan sponsors in the manner the 
statute contemplates. For this reason, we propose to amend Sec. Sec.  
423.560, 423.578(a) and 423.578(c) to revise and clarify requirements 
for how tiering exceptions are to be adjudicated and effectuated.
    While section 1860D-4(g)(2) of the Act uses the terms ``preferred'' 
and ``non-preferred'' drug, rather than ``brand'' and ``generic'', it 
also gives the Secretary authority to establish guidelines for making a 
determination with respect to a tiering exception request. The statute 
further specifies that ``a non-preferred drug could be covered under 
the terms applicable for preferred drugs'' (emphasis added) if the 
prescribing physician determines that the preferred drug would not be 
as effective or would have adverse effects for the individual. The 
statute therefore contemplates that tiering exceptions must allow for 
an enrollee with a medical need to obtain favorable cost-sharing for a 
non-preferred product, but that such access be subject to reasonable 
limitations. Establishing regulations that allow plans to impose 
certain limitations on tiering exceptions helps ensure that all 
enrollees have access to needed drugs at the most favorable cost-
sharing terms possible.
b. General Rules
    We are proposing to revise Sec.  423.578(a)(2) to read as follows: 
``Part D plan sponsors must establish criteria that provide for a 
tiering exception consistent with paragraphs Sec.  423.578(a)(3) 
through (a)(6) of this section.'' We believe that inserting a cross-
reference to paragraph (a)(6), which establishes allowable limitations 
on tiering exceptions, and which we are also proposing to revise, would 
streamline and clarify the requirements for such exceptions. The 
proposed revisions would establish rules that more definitively base 
eligibility for tiering exceptions on the lowest applicable cost 
sharing for the tier containing the preferred alternative drug(s) for 
treatment of the enrollee's health condition in relation to the cost 
sharing of the requested, higher-cost drug, and not based on tier 
labels.
c. Limitations on Tiering Exceptions
    We are also proposing to revise the regulations at Sec.  
423.578(a)(6) to specify when a Part D plan sponsor may limit tiering 
exceptions. We believe the current text, which permits a plan sponsor 
to exempt any dedicated generic tier from its tiering exceptions 
procedures, is being applied in a manner that restricts tiering 
exceptions more stringently than is appropriate. Specifically, Part D 
sponsors have been considering any tier that is labeled ``generic'' to 
be exempt from tiering exceptions even if the tier also contains brand 
name drugs. This has become even more problematic with the increase in 
the number of PBPs with more than one tier labeled ``generic''. Based 
on an analysis of 2017 plan data entered into the Health Plan 
Management System (HPMS), for all Part D plans using a tiered 
formulary, 62 percent have indicated at least two tiers that contain 
only generic drugs, and 7 percent have three such tiers. Combined with 
the allowable exemption of a specialty tier (used by 99.8 percent of 
tiered Part D plans in 2017), almost two-thirds of all tiered PBPs 
could exempt 3 of their 5 or 6 tiers from tiering exceptions without 
any consideration of medical need or placement of preferred alternative 
drugs. To ensure appropriate enrollee access to tiering exceptions, we 
are proposing to revise Sec.  423.578(a)(6) to specify that a Part D 
plan sponsor would not be required to offer a tiering exception for a 
brand name drug to a preferred cost-sharing level that applies only to 
generic alternatives. Under this proposal, however, plans would be 
required to approve tiering exceptions for non-preferred generic drugs 
when

[[Page 56372]]

the plan determines that the enrollee cannot take the preferred generic 
alternative(s), including when the preferred generic alternative(s) are 
on tier(s) that include only generic drugs or when the lower tier(s) 
contain a mix of brand and generic alternatives. In other words, plans 
would not be permitted to exclude a tier containing alternative drug(s) 
with more favorable cost-sharing from their tiering exceptions 
procedures altogether just because that lower-cost tier is dedicated to 
generic drugs. As described in the following paragraph, we are also 
proposing at Sec.  423.578(a)(6) to establish specific tiering 
exceptions policy for biological products.
    Proposed Sec.  423.578(a)(6)(iii) would specify that, ``If a Part D 
plan sponsor maintains a specialty tier, as defined in Sec.  423.560, 
the sponsor may design its exception process so that Part D drugs and 
biological products on the specialty tier are not eligible for a 
tiering exception.'' We also propose to add the following definition to 
Subpart M at Sec.  423.560:
    Specialty tier means a formulary cost-sharing tier dedicated to 
very high cost Part D drugs and biological products that exceed a cost 
threshold established by the Secretary. We note that, while the 
proposed definition of specialty tier does not refer to ``unique'' 
drugs as existing Sec.  423.578(a)(7) does, we do not intend to change 
the criteria for the specialty tier, which has always been based on the 
drug cost. This proposal would retain the current regulatory provision 
that permits Part D plan sponsors to disallow tiering exceptions for 
any drug that is on the plan's specialty tier. This policy is currently 
codified at Sec.  423.578(a)(7), which would be revised and 
redesignated as Sec.  423.578(a)(6)(iii). We believe that retaining the 
existing policy limiting the availability of tiering exceptions for 
drugs on the specialty tier is important because of the beneficiary 
protection that limits cost-sharing for the specialty tier to 25 
percent coinsurance (up to 33 percent for plans that have a reduced or 
$0 Part D deductible), ensuring that these very high cost drugs remain 
accessible to enrollees at cost sharing equivalent to the defined 
standard benefit.
    We also clarify that, if the specialty tier has cost sharing more 
preferable than another tier, then a drug placed on such other non-
preferred tier is eligible for a tiering exception down to the cost 
sharing applicable to the specialty tier if an applicable alternative 
drug is on the specialty tier and the other requirements of Sec.  
423.578(a) are met. In other words, while plans are not required to 
allow tiering exceptions for drugs on the specialty tier to a more 
preferable cost-sharing tier, the specialty tier is not exempt from 
being considered a preferred tier for purposes of tiering exceptions.
    We believe a shift in regulatory policy that establishes a 
distinction between non-preferred branded drugs, biological products, 
and non-preferred generic and authorized generic drugs, achieves needed 
balance between limitations in plans' exceptions criteria and 
beneficiary access, and aligns with how many plan sponsors already 
design their tiering exceptions criteria. Accordingly, we are proposing 
to revise Sec.  423.578(a)(6) to clarify and establish additional 
limitations plans would be permitted to place on tiering exception 
requests. First, we are proposing new paragraphs (i) and (ii), which 
would permit plans to limit the availability of tiering exceptions for 
the following drug types to a preferred tier that contains the same 
type of alternative drug(s) for treating the enrollee's condition:
     Brand name drugs for which an application is approved 
under section 505(c) of the Federal Food, Drug, and Cosmetic Act (21 
U.S.C. 355(c)), including an application referred to in section 
505(b)(2) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
355(b)(2)); and
     Biological products, including follow-on biologics, 
licensed under section 351 the Public Health Service Act.
    With the proposed revisions, that approved tiering exceptions for 
brand name drugs would generally be assigned to the lowest applicable 
cost-sharing associated with brand name alternatives, and approved 
tiering exceptions for biological products would generally be assigned 
to the lowest applicable cost-sharing associated with biological 
alternatives. Similarly, tiering exceptions for non-preferred generic 
drugs would be assigned to the lowest applicable cost-sharing 
associated with alternatives that are either brand or generic drugs 
(see further discussion later in this section related to assignment of 
cost-sharing for approved tiering exceptions to the lowest applicable 
tier). Given the widespread use of multiple generic tiers on Part D 
formularies, and the inclusion of generic drugs on mixed, higher-cost 
tiers, we believe these changes are needed to ensure that tiering 
exceptions for non-preferred generic drugs are available to enrollees 
with a demonstrated medical need. Procedures that allow for tiering 
exceptions for higher-cost generics when medically necessary promote 
the use of generic drugs among Part D enrollees and assist them in 
managing out of pocket costs.
    We are also proposing at Sec.  423.578(a)(6)(i) to codify that 
plans are not required to offer tiering exceptions for brand name drugs 
or biological products at the cost-sharing level of alternative drug(s) 
for treating the enrollee's condition, where the alternatives include 
only the following drug types:
     Generic drugs for which an application is approved under 
section 505(j) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
355(j)), or
     Authorized generic drugs as defined in section 505(t)(3) 
of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(t)(3)).
    As discussed in the Call Letter, CMS collects Part D plan formulary 
data based on the National Library of Medicare RxNorm concept unique 
identifier (RxCUI), and not at the manufacturer-specific National Drug 
Code (NDC) level. This process does not allow us to clearly identify 
whether a plan sponsor includes coverage of authorized generic NDCs or 
not. We believe this position is consistent with how plans currently 
administer their formularies. Under this regulatory proposal, a plan 
sponsor could not completely exclude a lower tier containing only 
generic and authorized generic drugs from its tiering exception 
procedures, but would be permitted to limit the cost sharing for a 
particular brand drug or biological product to the lowest tier 
containing the same drug type. Plans would be required to grant a 
tiering exception for a higher cost generic or authorized generic drug 
to the cost sharing associated with the lowest tier containing generic 
and/or authorized generic alternatives when the medical necessity 
criteria is met.
d. Alternative Drugs for Treatment of the Enrollee's Condition
    In response to the 2018 Call Letter and RFI, we received comments 
from plan sponsors and PBMs requesting that CMS provide additional 
guidance on how to determine what constitutes an alternative drug for 
purposes of tiering exceptions, including establishment of additional 
limitations on when such exceptions are approvable. The statutory 
language for tiering and formulary exceptions at sections 1860D-4(g)(2) 
and 1860D-4(h)(2) of the Act, respectively, specifically refers to a 
preferred or formulary drug ``for treatment of the same condition.'' We 
interpret this language to be referring to the condition as it affects 
the enrollee--that is, taking into consideration the individual's 
overall clinical condition,

[[Page 56373]]

including the presence of comorbidities and known relevant 
characteristics of the enrollee and/or the drug regimen, which can 
factor into which drugs are appropriate alternative therapies for that 
enrollee. The Part D statute at Sec.  1860D-4(g)(2) requires that 
coverage decisions subject to the exceptions process be based on the 
medical necessity of the requested drug for the individual for whom the 
exception is sought. We believe that requirement reasonably includes 
consideration of alternative therapies for treatment of the enrollee's 
condition, based on the facts and circumstances of the case.
e. Approval of Tiering Exception Requests
    We are proposing to revise Sec.  423.578(c)(3) by renumbering the 
provision and adding a new paragraph (ii) to codify our current policy 
that cost sharing for an approved tiering exception request is assigned 
at the lowest applicable tier when preferred alternatives sit on 
multiple lower tiers. Under this proposal, assignment of cost sharing 
for an approved tiering exception must be at the most favorable cost-
sharing tier containing alternative drugs, unless such alternative 
drugs are not applicable pursuant to limitations set forth under 
proposed Sec.  423.578(a)(6). We are also proposing to delete similar 
language from existing (c)(3) that proposed new paragraph (c)(3)(ii) 
would replace.
f. Additional Technical Changes and Corrections
    Finally, we are proposing various technical changes and corrections 
to improve the clarity of the tiering exceptions regulations and 
consistency with the regulations for formulary exceptions. 
Specifically, we are proposing the following:
     Revise the introductory text of Sec.  423.578(a) to 
clarify that a ``requested'' non-preferred drug for treatment of an 
enrollee's health condition may be eligible for an exception.
     Revise Sec.  423.578(a)(1) to include ``tiering'' when 
referring to the exceptions procedures described in this subparagraph.
     Revise Sec.  423.578(a)(4) by making ``conditions'' 
singular and by adding ``(s)'' to ``drug'' to account for situations 
when there are multiple alternative drugs.
     Revise Sec.  423.578(a)(5) by removing the text specifying 
that the prescriber's supporting statement ``demonstrate the medical 
necessity of the drug'' to align with the existing language for 
formulary exceptions at Sec.  423.578(b)(6). The requirement that the 
supporting statement address the enrollee's medical need for the 
requested drug is already explained in the introductory text of Sec.  
423.578(a).
     Redesignate paragraphs Sec.  423.578(c)(3)(i) through 
(iii) as paragraphs Sec.  423.578(c)(3)(i)(A) through (C), 
respectively. This proposed change would improve consistency between 
the regulation text for tiering and formulary exceptions.
    We anticipate that the proposed changes to the tiering exceptions 
regulations will make this process more accessible and transparent for 
enrollees and less cumbersome for plan sponsors to administer. We also 
believe that, by helping plan sponsors ensure their tiering exceptions 
processes comply with CMS requirements, IRE overturn rates for tiering 
exception requests will remain low.
10. Establishing Limitations for the Part D Special Election Period 
(SEP) for Dually Eligible Beneficiaries (Sec.  423.38)
    As discussed in section III.A.2 of this proposed rule, the MMA 
added section 1860D-1(b)(3)(D) to the Act to establish a special 
election period (SEP) for full-benefit dual eligible (FBDE) 
beneficiaries under Part D. This SEP, codified at Sec.  423.38(c)(4), 
was later extended to all other subsidy-eligible beneficiaries by 
regulation (75 FR 19720). The SEP allows eligible beneficiaries to make 
Part D enrollment changes (that is, enroll in, disenroll from, or 
change Part D plans, including Medicare Advantage Prescription Drug 
(MA-PD) plans) throughout the year, unlike other Part D enrollees who 
generally may switch plans only during the annual enrollment period 
(AEP) each fall.
    The MMA sought to strike a balance of promoting beneficiary plan 
choice, but also ensuring that FBDE beneficiaries who did not make an 
active election would still have Part D coverage. The statute directed 
the Secretary to enroll FBDE beneficiaries into a PDP if they did not 
enroll in a Part D plan on their own. (As noted previously, CMS 
extended the SEP through rulemaking to make it available to all other 
subsidy-eligible beneficiaries.) When the automatic enrollment of 
subsidy-eligible beneficiaries was originally proposed in rulemaking, 
we noted that beneficiaries would have the option to use the SEP if 
they determined there was a better plan option for them, and codified a 
continuous SEP (that is, that was available monthly).
    At the time, we did not know on what factors FBDE beneficiaries 
would rely to make their plan choice. Now, with over 10 years of 
programmatic experience, we have observed certain enrollment trends in 
terms of FBDE and other LIS beneficiaries:
     Most LIS beneficiaries do not make an active choice to 
join a PDP. For plan year 2015, over 71 percent of LIS individuals in 
PDPs were placed into that plan by CMS.
     Once in a plan, whether it was a CMS-initiated enrollment 
or a choice they made on their own, most LIS beneficiaries do not make 
changes during the year. Of all LIS beneficiaries who were eligible for 
the SEP in 2016, less than 10 percent utilized it. Overall, we have 
seen slight growth of SEP usage over the past 5 years (for example, 
less than 8 percent in 2012, approximately 9 percent in 2014).
     A small subset (0.8 percent) of LIS beneficiaries use the 
SEP to actively enroll in a plan of their choice and then disenroll 
within 2 months.
    While we know that the majority of LIS-eligible beneficiaries do 
not take advantage of the SEP, we have seen the Medicare and Medicaid 
environment evolve in such a way that it may be disadvantageous to 
beneficiaries if they changed plans during the year, let alone if they 
made multiple changes. States and plans have noted that they are best 
able to provide or coordinate care if there is continuity of 
enrollment, particularly if the beneficiary is enrolled in an 
integrated product (as discussed later in this section). We now know 
that in addition to choice, there are other critical issues that must 
be considered in determining when and how often beneficiaries should be 
able to change their Medicare coverage during the year, such as 
coordination of Medicare-Medicaid benefits, beneficiary care 
management, and public health concerns such as the national opioid 
epidemic (and the drug management programs discussed in section 
II.A.1). In addition, there are different care models available now 
such as dual eligible special needs plans (D-SNPs), Fully Integrated 
Dual Eligible (FIDE) SNPs, and Medicare-Medicaid Plans (MMPs) that are 
discussed later in this section and specifically designed to meet the 
needs of high risk, high needs beneficiaries.
    Current enrollment trends demonstrate that while a majority of 
subsidy-eligible beneficiaries still receive their Part D coverage 
through standalone PDPs, an increasing percentage of beneficiaries are 
enrolled in MA-PDs and other capitated managed care products, including 
over one in three dually eligible beneficiaries. A smaller but rapidly 
growing subset are enrolled in capitated

[[Page 56374]]

Medicare managed care products that also integrate Medicaid services. 
For example:
     The MMA established D-SNPs to provide coordinated care to 
dually eligible beneficiaries. Between 2007 and 2016, growth in D-SNPs 
has increased by almost 150 percent.
     FIDE SNPs are a type of SNP created by the Affordable Care 
Act (ACA) in 2010 designed to promote full integration and coordination 
of Medicare and Medicare benefits for dually eligible beneficiaries by 
a single managed care organization. In 2017, there are 39 FIDE SNPs 
providing coverage to approximately 155,000 beneficiaries.
     MMPs, which operate as part of a model test under Section 
1115(A) of the Act, are fully-capitated health plans that serve dually 
eligible beneficiaries though demonstrations under the Financial 
Alignment Initiative. The demonstrations are designed to promote full 
access to seamless, high quality integrated health care across both 
Medicare and Medicaid. In 2017, there are 58 MMPs providing coverage to 
nearly 400,000 beneficiaries.
    The current SEP, especially in the context of these products that 
integrate Medicare and Medicaid, highlights differences in Medicare and 
Medicaid managed care enrollment policies. Bringing Medicare and 
Medicaid enrollment policies into greater alignment, even partially, is 
a mechanism to reduce complexity in the health care system and better 
partner with states. Both are important priorities for CMS.
    In addition, the application of the continuous SEP carries 
different service delivery implications for enrollees of MA-PD plans 
and related products than for standalone enrollees of PDPs. At the 
outset of the Part D program, when drug coverage for dually eligible 
beneficiaries was transitioned from Medicaid to Medicare, there were 
concerns about how CMS would effectively identify, educate, and enroll 
dually eligible beneficiaries. While processes (for example, auto-
enrollment, reassignment) were established to facilitate coverage, the 
continuous SEP served as a fail-safe to ensure that the beneficiary was 
always in a position to make a choice that best served their healthcare 
needs. Unintended consequences have resulted from this flexibility, 
including, as noted by the Medicare Payment Advisory Commission (MedPAC 
\32\), opportunities for marketing abuses.
---------------------------------------------------------------------------

    \32\ Medicare Payment Advisory Commission, ``Report to Congress: 
Medicare Payment Policy,'' March 2008.
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    Among the key obstacles the SEP (and resulting plan movement) can 
present are--
     Interfering with the coordination of care among the 
providers, health plans, and states;
     Hindering the ability for beneficiaries to benefit from 
case management and disease management;
     Wasting the effort and resources needed to conduct 
enrollee needs assessments and developing plans of care for services 
covered by Medicare and Medicaid;
     Limiting a plan's opportunity for continuous treatment of 
chronic conditions; and
     Diminishing incentives for plans to innovate and invest in 
serving potentially high-cost members.
    While we still support in the underlying principle that LIS 
beneficiaries should have the ability to make an active choice, we find 
that plan sponsors are better able to administer benefits to 
beneficiaries, including coordination of Medicare and Medicaid 
benefits, and maximize care management and positive health outcomes, if 
dual and other LIS-eligible beneficiaries are held to the similar 
election period requirements as all other Part D-eligible 
beneficiaries. Therefore, we are proposing to amend Sec.  423.38(c)(4) 
to make the SEP for FBDE and other subsidy-eligible individuals 
available only in certain circumstances. These circumstances would be 
considered separate and unique from one another, so there could be 
situations where a beneficiary could still use the SEP multiple times 
if he or she meets more than one of the conditions proposed as follows. 
Specifically, we are proposing to revise to Sec.  423.38(c) to specify 
that the SEP is available only as follows:
     In new paragraph (c)(4)(i), eligible beneficiaries (that 
is, those who are dual or other LIS-eligible and meet the definition of 
at-risk beneficiary or potential at-risk beneficiary under proposed 
Sec.  423.100) would be able to use the SEP once per calendar year.
     In new paragraph (c)(4)(iii), eligible beneficiaries who 
have been assigned to a plan by CMS or a State would be able to use the 
SEP before that election becomes effective (that is, opt out and enroll 
in a different plan) or within 2 months of their enrollment in that 
plan.
     In new paragraph (c)(9), dual and other LIS-eligible 
beneficiaries who have a change in their Medicaid or LIS-eligible 
status would have an SEP to make an election within 2 months of the 
change, or of being notified of such change, whichever is later. This 
SEP would be available to beneficiaries who experience a change in 
Medicaid or LIS status regardless of whether they have been identified 
as potential at-risk beneficiaries or at-risk beneficiaries under 
proposed Sec.  423.100. In addition, we are also proposing to remove 
the phrase ``at any time'' in the introductory language of Sec.  
423.38(c) for the sake of clarity.
    The onetime annual SEP opportunity would be able to be used at any 
time of the year to enroll in a new plan or disenroll from the current 
plan, provided that their eligibility for the SEP has not been limited 
consistent with section 1860D-1(b)(3)(D) of the Act, as amended by CARA 
(as discussed in section III.A.2. of this proposed rule). We believe 
that the onetime annual SEP would still provide dually eligible 
beneficiaries adequate opportunity to change their coverage during the 
year if desired, but is also responsive to consistent feedback we have 
received from States and plans that have noted that the current SEP, 
which allows month-to-month movement, can disrupt continuity of care, 
especially in integrated care plans. They specifically noted that 
effective care management can best be achieved through continuous 
enrollment.
    Beneficiaries who have been enrolled in a plan by CMS or a state 
(that is, through processes such as auto enrollment, facilitated 
enrollment, passive enrollment, default enrollment (seamless 
conversion), or reassignment), would be allowed a separate, additional 
use of the SEP, provided that their eligibility for the SEP has not 
been limited consistent with section 1860D-1(b)(3)(D) of the Act, as 
amended by CARA. These beneficiaries would still have a period of time 
before the election takes effect to opt out and choose their own plan 
or they would be able to use the SEP to make an election within 2 
months of the assignment effective date. Once a beneficiary has made an 
election (either prior to or after the effective date) it would be 
considered ``used'' and no longer would be available. If a beneficiary 
wants to change plans after 2 months, he or she would have to use the 
onetime annual election opportunity discussed previously, provided that 
it has not been used yet. If that election has been used, the 
beneficiary would have to wait until they are eligible for another 
election period to make a change.

[[Page 56375]]

    Under a new proposed SEP, individuals who have a change in their 
Medicaid or LIS-eligible status would have an election opportunity that 
is separate from, and in addition to, the two scenarios discussed 
previously. (As discussed in section III.A.2. of this rule, and unlike 
the other two conditions discussed previously, individuals identified 
as ``at risk'' would be able to use this SEP.) This would apply to 
individuals who gain, lose, or change Medicaid or LIS eligibility. We 
believe that in these instances, it would be appropriate to give these 
beneficiaries an opportunity to re-evaluate their Part D coverage in 
light of their changing circumstances. Beneficiaries eligible for this 
SEP would need to use it within 2 months of the change or of being 
notified of the change, whichever is later.
    We considered multiple alternatives related to the SEP proposal. We 
describe two such alternatives in the following discussion:
    Limit of two or three uses of the SEP per year. In 2016, 1.2 
million beneficiaries used the SEP for FBDE or other subsidy-eligible 
individuals, including over 27,000 who used the SEP three or more 
times, and over 1,700 who used the SEP five or more times during the 
year. These SEP changes are in addition to changes made during the AEP 
and any other election periods for which a beneficiary may qualify. We 
believe that any overuse of the SEP creates significant inefficiencies 
and impedes meaningful continuity of care and care coordination. As 
such, we considered applying a simple numerical limit to the number of 
times the LIS SEP could be used by any beneficiary within each calendar 
year. We specifically considered limits of either two or three uses of 
the SEP per year.
    Compared to our proposal to limit the use of the SEP to one time 
per calendar year, this alternative would permit more opportunities for 
midyear changes. However, it could still allow for a high level of 
membership churning. Relative to our proposal, it would also be less 
effective in limiting the opportunities for aggressive marketing to LIS 
beneficiaries outside of the AEP. We welcome comments on this 
alternative.
    Limits on midyear MA-PD plan switching. We also considered a more 
complex option, drawing heavily on earlier MedPAC recommendations.\33\ 
Under this alternative we would:
---------------------------------------------------------------------------

    \33\ Medicare Payment Advisory Commission, ``Report to Congress: 
Medicare Payment Policy,'' March 2008.
---------------------------------------------------------------------------

     Modify the SEP to prohibit its use to elect a non-
integrated MA-PD plan. As such, the SEP would not be used for switching 
between MA-PD plans, movement from integrated products to a non-
integrated MA-PD plan, or movement from Medicare FFS to an MA-PD plan. 
Beneficiaries would still be able to select non-integrated MA-PD plans 
during other enrollment periods, such as the AEP, the open enrollment 
period (OEP) outlined in section III.C.2. of this proposed rule, and 
any other SEP for which they may be eligible; and
     Allow continuous use of the dual SEP to allow eligible 
beneficiaries to enroll into FIDE SNPs or comparably integrated 
products for dually eligible beneficiaries through model tests under 
section 1115(A) of the Act.
    This alternative would still permit continuous election of Medicare 
FFS with a standalone PDP throughout the year and a continuous option 
to change between standalone PDPs.
    We believe this alternative would create greater stability among 
plans and limit the opportunities for misleading and aggressive 
marketing to dually-eligible individuals. It would also maintain the 
opportunity for continuous enrollment into integrated products to 
reflect our ongoing partnership with states to promote integrated care. 
However, this alternative would be more complex to administer and 
explain to beneficiaries, and it encourages enrollment into a limited 
set of MA plans compared to all the plans available to the beneficiary 
under the MA program. We welcome comments on this alternative.
    We believe that our proposed approach to narrowing of the scope of 
the SEP preserves a dual or other LIS-eligible beneficiary's ability to 
make an active choice. As noted previously, less than 10 percent of the 
LIS population used the dual SEP in 2016. We acknowledge that even 
though this is a small percentage of the population, given the number 
of beneficiaries who receive Extra Help, this equates to over a million 
elections. We note, though, that of this group, the majority (74.5 
percent) used the SEP one time. Under our proposal, this population 
would still be able to make an election, thus, we believe that the 
majority of beneficiaries would not be negatively impacted by these 
changes. We opted for our proposed approach, as opposed to the 
alternatives, because we believe it encourages continuity of enrollment 
and care, without overcomplicating both beneficiary understanding of 
how the SEP is available to them, as well as plan sponsor operational 
responsibilities.
    If the proposal is finalized, we would revise our messaging and 
beneficiary education materials as necessary to ensure that dual and 
other LIS-eligible beneficiaries understand that the SEP is no longer 
an unlimited opportunity. We would also need to ensure that 
beneficiaries who are assigned to a plan by CMS or the State understand 
that they must use the SEP within 2 months after the new coverage 
begins if they wish to change from the plan to which they were 
assigned.
    We note that other election periods, including the AEP, the new 
OEP, or other SEPs (for example, when moving to a new service area), 
would still be available to individuals. In addition, the proposed 
limitations would also apply to the Part C SEP established in sub-
regulatory guidance for dual-eligible individuals or individuals who 
lose their dual-eligibility.
    We welcome public comment on this proposal and the considered 
alternatives. Specifically, we seek input on the following areas:
     Are there other limited circumstances where the dual SEP 
should be available?
     Are there special considerations CMS should keep in mind 
if we finalize this policy?
     Are there other alternative approaches we should consider 
in lieu of narrowing the scope of the SEP?
     In addition to CMS outreach materials, what are the best 
ways to educate the affected population and other stakeholders of the 
new proposed SEP parameters?
11. Medicare Advantage and Part D Prescription Drug Program Quality 
Rating System
a. Introduction
    We are committed to transforming the health care delivery system--
and the Medicare program--by putting a strong focus on person-centered 
care, in accordance with the CMS Quality Strategy, so each provider can 
direct their time and resources to each beneficiary and improve their 
outcomes. As part of this commitment, one of our most important 
strategic goals is to improve the quality of care for Medicare 
beneficiaries. The Part C and D Star Ratings support the efforts of CMS 
to improve the level of accountability for the care provided by health 
and drug plans, physicians, hospitals, and other Medicare providers. We 
currently publicly report the quality and performance of health and 
drug plans on the Medicare Plan Finder tool on www.medicare.gov in the 
form of summary and overall ratings for the contracts under which each 
MA plan (including MA-PD plans) and Part D plan is offered, with drill 
downs to

[[Page 56376]]

ratings for domains, ratings for individual measures, and underlying 
performance data. We also post additional measures on the display page 
\34\ at www.cms.gov for informational purposes. The goals of the Star 
Ratings are to display quality information on Medicare Plan Finder for 
public accountability and to help beneficiaries, families, and 
caregivers make informed choices by being able to consider a plan's 
quality, cost, and coverage; to incentivize quality improvement; to 
provide information to oversee and monitor quality; and to accurately 
measure and calculate scores and stars to reflect true performance. In 
addition, CMS has started to incorporate efforts to recognize the 
challenges of serving high risk, high needs populations while 
continuing the focus on improving health care for these important 
groups.
---------------------------------------------------------------------------

    \34\ http://go.cms.gov/partcanddstarratings (under the 
downloads).
---------------------------------------------------------------------------

    In this rule as part of the Administration's efforts to improve 
transparency, we propose to codify the existing Star Ratings System for 
the MA and Part D programs with some changes. As noted later in this 
section in more detail, the proposed changes include more clearly 
delineating the rules for adding, updating, and removing measures and 
modifying how we calculate Star Ratings for contracts that consolidate. 
Although the rulemaking process will create a longer lead time for 
changes, codifying the Star Ratings methodology will provide plans with 
more stability to plan multi-year initiatives, because they will know 
the measures several years in advance. We have received comments for 
the past several years from MA organizations and other stakeholders 
asking that CMS use Federal Register rulemaking for the Star Ratings 
System; we discuss in section III.12.c. (regarding plans for the 
transition period before the codified rules are used) how section 
1832(b) authorizes CMS to establish and annually modify the Star 
Ratings System using the Advance Notice and Rate Announcement process 
because the system is an integral part of the policies governing Part C 
payment. We think this is an appropriate time to codify the 
methodology, because the rating system has been used for several years 
now and is relatively mature so there is less need for extensive 
changes every year; the smaller degree of flexibility in having 
codified regulations rather than using the process for adopting payment 
methodology changes may be appropriate. Further, by adopting and 
codifying the rules that govern the Star Ratings System, we are 
demonstrating a commitment to transparency and predictability for the 
rules in the system so as to foster investment.
b. Background
    We originally acted upon our authority to disseminate information 
to beneficiaries as the basis for developing and publicly posting the 
5-star ratings system (sections 1851(d) and 1852(e) of the Act). The MA 
statute explicitly requires that information about plan quality and 
performance indicators be provided to beneficiaries in an easy to 
understand language to help them make informed plan choices. These data 
are to include disenrollment rates, enrollee satisfaction, health 
outcomes, and plan compliance with requirements.
    The Part D statute (at section 1860D-1(c)) imposes a parallel 
information dissemination requirement with respect to Part D plans, and 
refers specifically to comparative information on consumer satisfaction 
survey results as well as quality and plan performance indicators. Part 
D plans are also required by regulation (Sec.  423.156) to make 
Consumer Assessment of Healthcare Providers and Systems (CAHPS) survey 
data available to CMS and are required to submit pricing and 
prescription drug event data under statutes and regulations specific to 
those data. Regulations require plans to report on quality improvement 
and quality assurance and to provide data which CMS can use to help 
beneficiaries compare plans (Sec. Sec.  422.152 and 423.153). In 
addition we may require plans to report statistics and other 
information in specific categories (Sec. Sec.  422.516 and 423.514).
    Currently, for similar reasons of providing information to 
beneficiaries to assist them in plan enrollment decisions, we also 
review and rate section 1876 cost plans on many of the same measures 
and publish the results. We also propose to continue to include 1876 
cost contracts in the MA and Part D Star Rating system to provide 
comparative information to Medicare beneficiaries making plan choices. 
We propose specific text, to be codified at Sec.  417.472(k), noting 
that 1876 cost contracts must agree to be rated under the quality 
rating system specified at subpart D of part 422. Cost contracts are 
also required by regulation (Sec.  17.472(j)) to make CAHPS survey data 
available to CMS. As is the case today, no quality bonus payments (QBP) 
would be associated with the ratings for 1876 cost contracts.
    In line with Sec. Sec.  422.152 and 423.153, CMS uses the 
Healthcare Effectiveness Data and Information Set (HEDIS), Health 
Outcomes Survey (HOS), CAHPS data, Part C and D Reporting requirements 
and administrative data, and data from CMS contractors and oversight 
activities to measure quality and performance of contracts. We have 
been displaying plan quality information based on that and other data 
since 1998.
    Since 2007, we have published annual performance ratings for stand-
alone Medicare PDPs. In 2008, we introduced and displayed the Star 
Ratings for Medicare Advantage Organizations (MAOs) for both Part C 
only contracts (MA-only contracts) and Part C and D contracts (MA-PDs). 
Each year since 2008, we have released the MA Star Ratings. An overall 
rating combining health and drug plan measures was added in 2011, and 
differential weighting of measures (for example, outcomes being 
weighted 3 times the value of process measures) began in 2012. The 
measurement of year to year improvement began in 2013, and an 
adjustment (Categorical Adjustment Index) was introduced in 2017 to 
address the within-contract disparity in performance revealed in our 
research among beneficiaries that are dual eligible, receive a low 
income subsidy, and/or are disabled.
    The MA and Part D Star Ratings measure the quality of care and 
experiences of beneficiaries enrolled in MA and Part D contracts, with 
5 stars as the highest rating and 1 star as the lowest rating. The Star 
Ratings provide ratings at various levels of a hierarchical structure 
based on contract type, and all ratings are determined using the 
measure-level Star Ratings. Contingent on the contract type, ratings 
may be provided and include overall, summary (Part C and D), and domain 
Star Ratings. Information about the measures, the hierarchical 
structure of the ratings, and the methodology to generate the Star 
Ratings is detailed in the annually updated Medicare Part C and D Star 
Ratings Technical Notes, referred to as Technical Notes, available at 
http://go.cms.gov/partcanddstarratings.
    The MA and Part D Star Ratings System is designed to provide 
information to the beneficiary that is a true reflection of the plan's 
quality and encompasses multiple dimensions of high quality care. The 
information included in the ratings is selected based on its relevance 
and importance such that it can meet the data needs of beneficiaries 
using it to inform plan choice. While encouraging improved health 
outcomes of beneficiaries in an efficient, person centered, equitable, 
and high quality manner is one of the

[[Page 56377]]

primary goals of the ratings, they also provide feedback on specific 
aspects of care that directly impact outcomes, such as process measures 
and the beneficiary's perspective. The ratings focus on aspects of care 
that are within the control of the health plan and can spur quality 
improvement. The data used in the ratings must be complete, accurate, 
reliable, and valid. A delicate balance exists between measuring 
numerous aspects of quality and the need for a small data set that 
minimizes reporting burden for the industry. Also, the beneficiary or 
his or her representative must have enough information to make an 
informed decision without feeling overwhelmed by the volume of data.
    The Patient Protection and Affordable Care Act (Pub. L. 111-148), 
as amended by the Healthcare and Education Reconciliation Act (Pub. L. 
111-152), provides for quality ratings, based on a 5-star rating system 
and the information collected under section 1852(e) of the Act, to be 
used in calculating payment to MA organizations beginning in 2012. 
Specifically, sections 1853(o) and 1854(b)(1)(C) of the Act provide, 
respectively, for an increase in the benchmark against which MA 
organizations bid and in the portion of the savings between the bid and 
benchmark available to the MA organization to use as a rebate. Under 
the Act, Part D plan sponsors are not eligible for quality based 
payments or rebates. We finalized a rule on April 15, 2011 to implement 
these provisions and to use the existing Star Ratings System that had 
been in place since 2007 and 2008. (76 FR 21485-21490).\35\ In 
addition, the Star Ratings measures are tied in many ways to 
responsibilities and obligations of MA organizations and Part D 
sponsors under their contracts with CMS. We believe that continued poor 
performance on the measures and overall and summary ratings indicates 
systemic and wide-spread problems in an MA plan or Part D plan. In 
April 2012, we finalized a regulation to use consistently low summary 
Star Ratings--meaning 3 years of summary Star Ratings below 3 stars--as 
the basis for a contract termination for Part C and Part D plans. 
(Sec. Sec.  422.510(a)(14) and 423.509(a)(13)). Those regulations 
further reflect the role the Star Ratings have had in CMS' oversight, 
evaluation, and monitoring of MA and Part D plans to ensure compliance 
with the respective program requirements and the provision of quality 
care and health coverage to Medicare beneficiaries.
---------------------------------------------------------------------------

    \35\ The ratings were first used as part of the Quality Bonus 
Payment Demonstration for 2012 through 2014 and then used for 
payment purposes as specified in sections 1853(o) and 1854(b)(1)(C) 
and the regulation at 42 CFR 422.258(d)(7).
---------------------------------------------------------------------------

    The true potential of the use of the MA and Part D Star Ratings 
System to reach our goals and to serve as a catalyst for change can 
only be realized by working in tandem with our many stakeholders 
including beneficiaries, industry, and advocates. The following guiding 
principles have been used historically in making enhancements to the MA 
and Part D Star Ratings:
     Ratings align with the current CMS Quality Strategy.
     Measures developed by consensus-based organizations are 
used as much as possible.
     Ratings are a true reflection of plan quality and enrollee 
experience; the methodology minimizes risk of misclassification.
     Ratings are stable over time.
     Ratings treat contracts fairly and equally.
     Measures are selected to reflect the prevalence of 
conditions and the importance of health outcomes in the Medicare 
population.
     Data are complete, accurate, and reliable.
     Improvement on measures is under the control of the health 
or drug plan.
     Utility of ratings is considered for a wide range of 
purposes and goals.
    ++ Accountability to the public.
    ++ Enrollment choice for beneficiaries.
    ++ Driving quality improvement for plans and providers.
     Ratings minimize unintended consequences.
     Process of developing methodology is transparent and 
allows for multi-stakeholder input.
    We are using these goals to guide our proposal and how we interpret 
and apply the proposed regulations once finalized. For each provision 
we are proposing, we solicit comment on whether our specific proposed 
regulation text best serves these guiding principles. We also solicit 
comment on whether additional or other principles are better suited for 
these roles in measuring and communicating quality in the MA and Part D 
programs in a comparative manner.
    As we continue to consider making changes to the MA and Part D 
programs in order to increase plan participation and improve benefit 
offerings to enrollees, we would also like to solicit feedback from 
stakeholders on how well the existing stars measures create meaningful 
quality improvement incentives and differentiate plans based on 
quality. We welcome all comments on those topics, and will consider 
them for changes through this or future rulemaking or in connection 
with interpreting our regulations (once finalized) on the Star Rating 
system measures. However, we are particularly interested in receiving 
stakeholder feedback on the following topics:
     Additional opportunities to improve measures so that they 
further reflect the quality of health outcomes under the rated plans.
     Whether CMS' current process for establishing the cut 
points for Star Rating can be simplified, and if the relative 
performance as reflected by the existing cut points accurately reflects 
plan quality.
     How CMS should measure overall improvement across the Star 
Ratings measures. We are requesting input on additional improvement 
adjustments that could be implemented, and the effect that these 
adjustments could have on new entrants (that is, new MA organizations 
and/or new plans offered by existing MA organizations).
     Additional adjustments to the Star Ratings measures or 
methodology that could further account for unique geographic and 
provider market characteristics that affect performance (for example, 
rural geographies or monopolistic provider geographies), and the 
operational difficulties that plans could experience if such 
adjustments were adopted.
     In order to further encourage plan participation and new 
market entrants, whether CMS should consider implementing a 
demonstration to test alternative approaches for putting new entrants 
(that is, new MA organizations) on a level playing field with renewing 
plans from a Star Ratings perspective for a pre-determined period of 
time.
     Adding measures that evaluate quality from the perspective 
of adopting new technology (for example, the percent of beneficiaries 
enrolled through online brokers or the use of telemedicine) or 
improving the ease, simplicity, and satisfaction of the beneficiary 
experience in a plan.
     Including survey measures of physicians' experiences. 
(Currently, we measure beneficiaries' experiences with their health and 
drug plans through the CAHPS survey.) Physicians also interact with 
health and drug plans on a daily basis on behalf of their patients. We 
are considering developing a survey tool for collecting standardized 
information on physicians' experiences with health and drug plans and 
their services, and we would welcome comments.

[[Page 56378]]

c. Basis, Purpose and Applicability of the Quality Star Ratings System
    We propose to codify regulation text, at Sec. Sec.  422.160 and 
423.180, that identifies the statutory authority, purpose, and 
applicability of the Star Ratings System regulations we are proposing 
to add to part 422 subpart D and part 423 subpart D. Under our 
proposal, the existing purposes of the quality rating system--to 
provide comparative information to Medicare beneficiaries pursuant to 
sections 1851(d) and 1860D-1(c) of the Act, to identify and apply the 
payment consequences for MA plans under sections 1853(o) and 
1854(b)(1)(C) of the Act, and to evaluate and oversee overall and 
specific performance by plans--would continue. To reflect how the Part 
D ratings are used for MA-PD plan QBP status and rebate retention 
allowances, we also propose specific text, to be codified at Sec.  
423.180(b)(2), noting that the Part D Star Rating will be used for 
those purposes.
    We are proposing here, broadly stated, to codify the current 
quality Star Ratings System uses, methodology, measures, and data 
collection beginning with the measurement periods in calendar year 
2019. We are proposing some changes, such as how we handle 
consolidations from the current Star Ratings program, but overall the 
proposal is to continue the Star Ratings System as it has been 
developed and has stabilized. Data will be collected and performance 
will be measured using these proposed rules and regulations for the 
2019 measurement period; the associated quality Star Ratings will be 
used to assign QBP ratings for the 2022 payment year and released prior 
to the annual coordinated election period held in late 2020 for the 
2021 contract year. Application of the final regulations resulting from 
this proposal will determine whether the measures proposed in section 
III.A.12.i. of the proposed rule (Table 2) are updated, transitioned to 
or from the display page, and otherwise used in conjunction with the 
2019 performance period.
    Under our proposal, the current quality Star Ratings System and the 
procedures for revising it will remain in place for the 2019 and 2020 
quality Star Ratings. Section 1853(b) of the Act authorizes an advance 
notice and rate announcement to announce and seek comment for proposed 
changes to the MA payment methodology, which includes the Part C and D 
Star Ratings program. The statute identifies specific notice and 
comment timeframes, but that process does not require publication in 
the Federal Register. We have used the draft and final Call Letter, 
which are attachments to the Advance Notice and final Rate Announcement 
respectively,\36\ to propose for comment and finalize changes to the 
quality Star Ratings System since the ratings became a component of the 
payment methodology for MA and MA-PD plans. (76 FR 214878 through 89). 
Because the Star Ratings System has been integrated into the payment 
methodology since the 2012 contract year (as a mechanism used to 
determine how much a plan is paid, and not the mechanism by which (or a 
rule about when) a plan is paid), the Star Ratings are part of the 
process for setting benchmarks and capitation rates under section 1853, 
and the process for announcing changes to the Star Ratings System falls 
within the scope of section 1853(b). Although not expressly required by 
section 1853(b), CMS has historically solicited comment on significant 
changes to the ratings system using a Request for Comment process 
before the Advance Notice and draft Call Letter are released; this 
Request for Comment \37\ provides MAOs, Part D sponsors, and other 
stakeholders an opportunity to request changes to and raise concerns 
about the Star Ratings methodology and measures before CMS finalizes 
its proposal for the Advance Notice. We intend to continue the current 
process at least until the 2019 measurement period that we are 
proposing as the first measurement period under these new regulations, 
but we may discontinue that process at a later date as the rulemaking 
process may provide sufficient opportunity for public input. In 
addition, CMS issues annually the Technical Notes \38\ that describe in 
detail how the methodology is applied from the changes in policy 
adopted through the Advance Notice and Rate Announcement process. We 
intend to continue the practice of publishing the Technical Notes 
during the preview periods. Under our proposal, we would also continue 
to use the draft and final Call Letters as a means to provide 
subregulatory application), interpretation, and guidance of the final 
version of these proposed regulations where necessary. Our proposed 
regulation text does not detail these plans for continued use of the 
current process and future for subregulatory guidance because we 
believe such regulation text would be unnecessary. We propose to codify 
the first performance period (2019) and first payment year (2022) to 
which our proposed regulations would apply at Sec.  422.160(c) and 
Sec.  423.180(c).
---------------------------------------------------------------------------

    \36\ Advance Notices and Rate Announcements are posted each year 
on the CMS Web site at: https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Announcements-and-Documents.html.
    \37\ Requests for Comment are posted at http://go.cms.gov/partcanddstarratings under the downloads.
    \38\ http://go.cms.gov/partcanddstarratings (under the 
downloads) for the Technical Notes.
---------------------------------------------------------------------------

d. Definitions
    There are a number of technical and other terms relevant to our 
proposed regulations. Therefore, we propose the following definitions 
for the respective subparts in part 422 and part 423 in paragraph (a) 
of Sec. Sec.  422.162 and 423.182 respectively. Some proposed 
definitions are discussed in more detail later in this preamble in 
connection with other proposed regulation text related to the 
definition.
     CAHPS refers to a comprehensive and evolving family of 
surveys that ask consumers and patients to evaluate the interpersonal 
aspects of health care. CAHPS surveys probe those aspects of care for 
which consumers and patients are the best or only source of 
information, as well as those that consumers and patients have 
identified as being important. CAHPS initially stood for the Consumer 
Assessment of Health Plans Study, but as the products have evolved 
beyond health plans the acronym now stands for Consumer Assessment of 
Healthcare Providers and Systems.
     Case-mix adjustment means an adjustment to the measure 
score made prior to the score being converted into a Star Rating to 
take into account certain enrollee characteristics that are not under 
the control of the plan. For example age, education, chronic medical 
conditions, and functional health status that may be related to the 
enrollee's survey responses.
     Categorical Adjustment Index (CAI) means the factor that 
is added to or subtracted from an overall or summary Star Rating (or 
both) to adjust for the average within-contract (or within-plan as 
applicable) disparity in performance associated with the percentages of 
beneficiaries who are dually eligible for Medicare and enrolled in 
Medicaid, beneficiaries who receive a Low Income Subsidy or have 
disability status in that contract (or plan as applicable).
     Clustering refers to a variety of techniques used to 
partition data into distinct groups such that the observations within a 
group are as similar as possible to each other, and as dissimilar as 
possible to observations in any other group. Clustering of the measure-
specific scores means that gaps that exist within the distribution of 
the scores are identified to create groups (clusters) that are then 
used to identify

[[Page 56379]]

the four cut points resulting in the creation of five levels (one for 
each Star Rating), such that the scores in the same Star Rating level 
are as similar as possible and the scores in different Star Rating 
levels are as different as possible. Technically, the variance in 
measure scores is separated into within-cluster and between-cluster sum 
of squares components. The clusters reflect the groupings of numeric 
value scores that minimize the variance of scores within the clusters. 
The Star Ratings levels are assigned to the clusters that minimize the 
within-cluster sum of squares. The cut points for star assignments are 
derived from the range of measure scores per cluster, and the star 
levels associated with each cluster are determined by ordering the 
means of the clusters.
     Consolidation means when an MA organization/Part D sponsor 
that has at least two contracts for health and/or drug services of the 
same plan type under the same parent organization in a year combines 
multiple contracts into a single contract for the start of the 
subsequent contract year.
     Consumed contract means a contract that will no longer 
exist after a contract year's end as a result of a consolidation.
     Display page means the CMS Web site on which certain 
measures and scores are publicly available for informational purposes; 
the measures that are presented on the display page are not used in 
assigning Part C and D Star Ratings.
     Domain rating means the rating that groups measures 
together by dimensions of care.
     Dual Eligible (DE) means a beneficiary who is enrolled in 
both Medicare and Medicaid.
     HEDIS is the Healthcare Effectiveness Data and Information 
Set which is a widely used set of performance measures in the managed 
care industry, developed and maintained by the National Committee for 
Quality Assurance (NCQA). HEDIS data include clinical measures 
assessing the effectiveness of care, access/availability measures, and 
service use measures.
     Highest rating means the overall rating for MA-PDs, the 
Part C summary rating for MA-only contracts, and the Part D summary 
rating for PDPs.
     Highly-rated contract means a contract that has 4 or more 
stars for their highest rating when calculated without the improvement 
measures and with all applicable adjustments (CAI and the reward 
factor).
     HOS means the Medicare Health Outcomes Survey which is the 
first patient reported outcomes measure that was used in Medicare 
managed care. The goal of the Medicare HOS program is to gather valid, 
reliable, and clinically meaningful health status data in the Medicare 
Advantage (MA) program for use in quality improvement activities, pay 
for performance, program oversight, public reporting, and improving 
health. All managed care organizations with MA contracts must 
participate.
     Low Income Subsidy (LIS) means the subsidy that a 
beneficiary receives to help pay for prescription drug coverage (see 
Sec.  423.34 for definition of a low-income subsidy eligible 
individual).
     Measurement period means the period for which data are 
collected for a measure or the performance period that a measures 
covers.
     Measure score means the numeric value of the measure or an 
assigned `missing data' message.
     Measure star means the measure's numeric value is 
converted to a Star Rating. It is displayed to the nearest whole star, 
using a 1-5 star scale.
     Overall Rating means a global rating that summarizes the 
quality and performance for the types of services offered across all 
unique Part C and Part D measures.
     Part C Summary Rating means a global rating that 
summarizes the health plan quality and performance on Part C measures.
     Part D Summary Rating means a global rating of the 
prescription drug plan quality and performance on Part D measures.
     Plan Benefit Package (PBP) means a set of benefits for a 
defined MA or PDP service area. The PBP is submitted by PDP sponsors 
and MA organizations to CMS for benefit analysis, bidding, marketing, 
and beneficiary communication purposes.
     Reliability means a measure of the fraction of the 
variation among the observed measure values that is due to real 
differences in quality (``signal'') rather than random variation 
(``noise''); it is reflected on a scale from 0 (all differences in plan 
performance measure scores are due to measurement error) to 1 (the 
difference in plan performance scores is attributable to real 
differences in performance).
     Reward factor means a rating-specific factor added to the 
contract's summary or overall (or both) rating if a contract has both 
high and stable relative performance.
     Statistical significance assesses how likely differences 
observed in performance are due to random chance alone under the 
assumption that plans are actually performing the same. Although not 
part of the proposed regulatory definition, we clarify that CMS uses 
statistical tests (for example, t-test) to determine if a contract's 
measure value is statistically different (greater than or less than 
depending on the test) from the national mean for that measure, or 
whether conversely, the observed differences from the national mean 
could have arisen by chance.
     Surviving contract means the contact that will still exist 
under a consolidation, and all of the beneficiaries enrolled in the 
consumed contract(s) are moved to the surviving contracts.
     Traditional rounding rules mean that the last digit in a 
value will be rounded. If rounding to a whole number, look at the digit 
in the first decimal place. If the digit in the first decimal place is 
0, 1, 2, 3 or 4, then the value should be rounded down by deleting the 
digit in the first decimal place. If the digit in the first decimal 
place is 5 or greater, then the value should be rounded up by 1 and the 
digit in the first decimal place deleted.
e. Contract Ratings
    Star Ratings and data reporting are at the contract level for most 
measures. Currently, data for measures are collected at the contract 
level including data from all PBPs under the contract, except for the 
following Special Needs Plan (SNP)-specific measures which are 
collected at the PBP level: Care for Older Adults--Medication Review, 
Care for Older Adults--Functional Status Assessment, and Care for Older 
Adults--Pain Assessment. The SNP-specific measures are rolled up to the 
contract level by using an enrollment-weighted mean of the SNP PBP 
scores. Subject to the discussion later in this section about the 
feasibility and burden of collecting data at the PBP (plan) level and 
the reliability of ratings at the plan level, we propose to continue 
the practice of calculating the Star Ratings at the contract level and 
all PBPs under the contract would have the same overall and/or summary 
ratings.
    However, beneficiaries select a plan, rather than a contract, so we 
have considered whether data should be collected and measures scored at 
the plan level. We have explored the feasibility of separately 
reporting quality data for individual D-SNP PBPs, instead of the 
current reporting level. For example, in order for CAHPS measures to be 
reliably scored, the number of respondents must be at least 11 people 
and reliability must be at least 0.60. Our current analyses show that, 
at the PBP level, CAHPS measures could be reliably reported for only 
about one-third of D-SNP PBPs due to sample size

[[Page 56380]]

issues, and HEDIS measures could be reliably reported for only about 
one-quarter of D-SNP PBPs. If reporting were done at the plan level, a 
significant number of D-SNP plans would not be rated and in lieu of a 
Star Rating, Medicare Plan Finder would display that the plan is ``too 
small to be rated.'' However, when enough data are available, plan 
level quality reporting would better reflect the quality of care 
provided to enrollees in that plan. Plan-level quality reporting would 
also give states that contract with D-SNPs plan-specific information on 
their performance and provide the public with data specific to the 
quality of care for dual eligible (DE) beneficiaries enrolled in these 
plans. For all plans as well as D-SNPs, reporting at the plan level 
would significantly increase plan burden for data reporting and would 
have to be balanced against the availability of additional clinical 
information available at the plan level. Plan-level ratings would also 
potentially increase the ratings of higher-performing plans when they 
are in contracts that have a mix of high and low performing plans. 
Similarly, plan-level ratings would also potentially decrease the 
ratings of lower-performing plans that are currently in contracts with 
a mix of high and low performing plans. Measurement reliability issues 
due to small sample sizes would also decrease our ability to measure 
true performance at the plan level and add complexities to the rating 
system. We are soliciting comments on balancing the improved precision 
associated with plan level reporting (relative to contract level 
reporting) with the negative consequences associated with an increase 
in the number of plans without adequate sample sizes for at least some 
measures; we ask for comments about this for D-SNPs and for all plans 
as we continue to consider whether rating at the plan level is feasible 
or appropriate. In particular, we are interested in feedback on the 
best balance and whether changing the level at which ratings are 
calculated and reported better serves beneficiaries and our goals for 
the Star Ratings System.
    We are also exploring whether some measure data could be reported 
at a higher level (parent organization versus contract) to ease and 
simplify reporting and still remain useful (for example, call center 
measures as we anticipate that parent organizations use a consolidated 
call center to serve all contracts and plans) to incorporate into the 
Star Ratings. Further, we are exploring if contract market area 
reporting is feasible when a contract covers a large geographic area. 
For example, when HEDIS reporting began in 1997, there were contract-
specific market areas that evolved into reporting by market area for 
five states with large Medicare populations.\39\ We are planning to 
continue work in this area to determine the best reporting level for 
each measure that most accurately reflects performance and minimizes to 
the extent possible plan reporting burden. As we consider alternative 
reporting units, we welcome comments and suggestions about requiring 
reporting at different levels (for example, parent organization, 
contract, plan, or geographic area) by measure.
---------------------------------------------------------------------------

    \39\ The following states were divided into multiple market 
areas: CA, FL, NY, OH, and TX.
---------------------------------------------------------------------------

    We propose to continue at this time calculating the same overall 
and/or summary Star Ratings for all PBPs offered under an MA-only, MA-
PD, or PDP contract. We propose to codify this policy in regulation 
text at Sec. Sec.  422.162(b) and 423.182(b). We also propose a cost 
plan regulation at Sec.  417.472(k) to require cost contracts to be 
subject to the part 422 and part 423 Medicare Advantage and Part D 
Prescription Drug Program Quality Rating System as they are measured 
and rated like an MA plan. Specifically, we propose, at paragraph 
(b)(1) that CMS will calculate overall and summary ratings at the 
contract level and propose regulation text that cross-references other 
proposed regulations regarding the calculation of measure scoring and 
rating, and domain, summary and overall ratings. Further, we propose to 
codify, at (b)(2) of each section, that data from all PBPs offered 
under a contract will continue to be used to calculate the ratings for 
the contract. For SNP specific measures collected at the PBP level, we 
propose that the contract level score would be an enrollment-weighted 
mean of the PBP scores using enrollment in each PBP as reported as part 
of the measure specification, which is consistent with current 
practice. The proposed text is explicit that domain and measure 
ratings, other than the SNP-specific measures, are based on data from 
all PBPs under the contract.
f. Contract Consolidations
    We are proposing a change in how contract-level Star Ratings are 
assigned in the case of contract consolidations. We have historically 
permitted MAOs and Part D sponsors to consolidate contracts when a 
contract novation occurs or to better align business practices. As 
noted in MedPAC's March 2016 Report to Congress (https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs), there has been a continued 
increase in the number of enrollees being moved from lower Star Rating 
contracts that do not receive a QBP to higher Star Rating contracts 
that do receive a QBP as part of contract consolidations, which 
increases the size of the QBPs that are made to MAOs due to the large 
enrollment increase in the higher rated, surviving contract. We are 
worried that this practice results in masking low quality plans under 
higher rated surviving contracts. This does not provide beneficiaries 
with accurate and reliable information for enrollment decisions, and it 
does not truly reward higher quality contracts. We propose here to 
modify from the current policy the calculation of Star Ratings for 
surviving contracts that have consolidated. Instead of assigning the 
surviving contract the Star Rating that the contract would have earned 
without regard to whether a consolidation took place, we propose to 
assign and display on Medicare Plan Finder Star Ratings based on the 
enrollment-weighted mean of the measure scores of the surviving and 
consumed contract(s) so that the ratings reflect the performance of all 
contracts (surviving and consumed) involved in the consolidation. Under 
this proposal, the calculation of the measure, domain, summary, and 
overall ratings would be based on these enrollment-weighted mean 
scores. The number of contracts this would impact is small relative to 
all contracts that qualify for QBPs. During the period from 1/1/2015 
through 1/1/2017 annual consolidations for MA contracts ranged from a 
low of 7 in 2015 to a high of 19 in 2016 out of approximately 500 MA 
contracts. As proposed in Sec. Sec.  422.162(b)(3)(i)-(iii) and 
423.182(b)(3)(i)-(iii), CMS will use enrollment-weighted means of the 
measure scores of the consumed and surviving contracts to calculate 
ratings for the first and second plan years following the contract 
consolidations. We believe that use of enrollment-weighted means will 
provide a more accurate snapshot of the performance of the underlying 
plans in the new consolidated contract, such that both information to 
beneficiaries and QBPs are not somehow inaccurate or misleading. We 
also propose, however, that the process of weighting the enrollment of 
each contract and applying this general rule would vary depending on 
the specific types of measures involved in order to take into account 
the measurement period and

[[Page 56381]]

data collection processes of certain measures. Our proposal would also 
treat ratings for determining quality bonus payment (QBP) status for MA 
contracts differently than displayed Star Ratings for the first year 
following the consolidation for consolidations that involve the same 
parent organization and plans of the same plan type.
    We propose to codify our new policy at Sec. Sec.  422.162(b)(3) and 
423.182(b)(3). First, we propose generally, at paragraph (b)(3)(i) of 
each regulation, that CMS will assign Star Ratings for consolidated 
contracts using the provisions of paragraph (b)(3). We are proposing in 
Sec.  422.162(b)(3) both a specific rule to address the QBP rating 
following the first year after the consolidation and a rule for 
subsequent years. As Part D plan sponsors are not eligible for QBPs, 
the Part D regulation text is proposed without the QBP aspect. We 
propose in Sec.  422.162(b)(3)(iv) and Sec.  423.182(b)(3)(ii) the 
process for assigning Star Ratings for posting on the Medicare Plan 
Finder for the first 2 years following the consolidation.
    For the first contract year following a consolidation, as proposed 
at paragraphs Sec.  422.162(b)(3)(iv) and Sec.  423.182(b)(3)(ii), we 
propose to use the enrollment-weighted means as calculated below to set 
Star Ratings for publication (and, in Sec.  422.162(b)(3)(iii), use of 
certain enrollment-weighted means for establishing QBP status:
     The Star Ratings measure scores for the consolidated 
entity's first plan year would be based on enrollment-weighted measure 
scores using the July enrollment of the measurement period of the 
consumed and surviving contracts for all measures, except the survey-
based and call center measures.
     The survey-based measures (that is, CAHPS, HOS, and HEDIS 
measures collected through CAHPS or HOS) would use enrollment of the 
surviving and consumed contracts at the time the sample is pulled for 
the rating year. For example, for a contract consolidation that is 
effective January 1, 2021 the CAHPS sample for the 2021 Star Ratings 
would be pulled in January 2020 so enrollment in January 2020 would be 
used. The call center measures would use mean enrollment during the 
study period. We believe that these proposals for survey-based measures 
are more nuanced and account for how the data underlying those measures 
are gathered. By using the enrollment-weighted means we are reflecting 
the true underlying performance of both the surviving and consumed 
contracts.
    For the second year following the consolidation, for all MA and 
Part D Sponsors, the Star Ratings would be calculated as follows:
     The enrollment-weighted measure scores using the July 
enrollment of the measurement period of the consumed and surviving 
contracts would be used for all measures except HEDIS, CAHPS, and HOS.
     The current reporting requirements for HEDIS and HOS 
already combine data from the surviving and consumed contract(s) 
following the consolidation, so we are not proposing any modification 
or averaging of these measure scores. For example, for HEDIS if an 
organization consolidates one or more contracts during the change over 
from measurement to reporting year, then only the surviving contract is 
required to report audited summary contract-level data but it must 
include data on all members from all contracts involved. For this 
reason, we are proposing regulation text that HEDIS and HOS measure 
data will be used as reported in the second year after consolidation.
     The CAHPS survey sample that would be selected following 
the consolidation would be modified to include enrollees in the sample 
universe from which the sample is drawn from both the surviving and 
consumed contracts. If there are two contracts (that is, Contract A is 
the surviving contract and Contract B is the consumed contract) that 
consolidate, and Contract A has 5,000 enrollees eligible for the survey 
and Contract B has 1,000 eligible for the survey, the universe from 
which the sample would be selected would be 6,000.
    After applying these rules for calculating the measure scores in 
the first and second year after consolidation, CMS would use the other 
rules proposed in Sec. Sec.  422.166 and 423.186 to calculate the 
measure, domain, summary, and overall Star Ratings for the consolidated 
contract. In the third year after consolidation and subsequent years, 
the performance period for all the measures would be after the 
consolidation, so our proposal is limited to the Star Ratings issued 
the first 2 years after consolidation.
    When consolidations involve two or more contracts for health and/or 
drug services of the same plan type under the same parent organization 
combining into a single contract at the start of a contract year, we 
propose to calculate the QBP rating for that first year following the 
consolidation using the enrollment-weighted mean, using traditional 
rounding rules, of what would have been the QBP ratings of the 
surviving and consumed contracts using the contract enrollment in 
November of the year the Star Ratings were released. In November of 
each year following the release of the ratings on Medicare Plan Finder, 
the preliminary QBP ratings are displayed in the Health Plan Management 
System (HPMS) for the year following the Star Ratings year. For 
example, the first year the consolidated entity is in operation is plan 
year 2020; the 2020 QBP rating displayed in HPMS in November 2018 would 
be based on the 2019 Star Ratings (which are released in October 2018) 
and calculated using the weighted mean of the November 2018 enrollment 
of the surviving and consumed contracts. Because the same parent 
organization is involved in these situations, we believe that many 
administrative processes and procedures are identical in the Medicare 
health plans offered by the sponsoring organization, and using a 
weighted mean of what would have been their QBP ratings accurately 
reflects their performance for payment purposes. In subsequent years 
after the first year following the consolidation, QBPs status would be 
determined based on the consolidated entity's Star Rating posted on 
Medicare Plan Finder. Under our proposal, the measure, domain, summary, 
and in the case of MA-PD plans the overall Star Ratings posted on 
Medicare Plan Finder for the second year following consolidation would 
be based on the enrollment-weighted measure scores so would include 
data from all contracts involved. Consequently, the ratings used for 
QBP status determinations would reflect the care provided by both the 
surviving and consumed contracts.
    In conclusion, we are proposing a new set of rules regarding the 
calculation of Star Ratings for consolidated contracts to be codified 
at paragraphs (b)(3)(i) through (iv) of Sec. Sec.  422.162 and 423.182. 
In most cases, we propose that the Star Ratings for the first and 
second year following the consolidation to be an enrollment-weighted 
mean of the scores at the measure level for the consumed and surviving 
contracts. For the QBP rating for the first year following the 
consolidation, we propose to use the enrollment-weighted mean of the 
QBP rating of the surviving and consumed contracts (which would be the 
overall or summary rating depending on the plan type) rather than 
averaging measure scores. We solicit comment on this proposal and 
whether our separate treatment of different measure types during the 
first and second year adequately addresses the differences in how data 
are collected (and submitted) for those measures during the different

[[Page 56382]]

periods. We would also like to know whether sponsoring organizations 
believe that the special rule for consolidations involving the same 
parent organization and same plan types adequately addresses how those 
situations are different from cases where an MA organization buys or 
sells a plan or contract from or to a different entity and whether 
these rules should be extended to situations where there are different 
parent organizations involved. For commenters that support the latter, 
we also request comment on how CMS should determine that the same 
administrative processes are used and whether attestations from 
sponsoring organizations or evidence from prior audits should be 
required to support such determinations.
g. Data Sources
    Under 1852(e) of the Act, MA organizations are required to collect, 
analyze, and report data that permit measurement of health outcomes and 
other indices of quality. The Star Ratings System is based on 
information collected consistent with section 1852(e) of the Act. 
Section 1852(e)(3)(B) of the Act prohibits the collection of data on 
quality, outcomes, and beneficiary satisfaction other than the types of 
data that were collected by the Secretary as of November 1, 2003; there 
is a limited exception for SNPs to collect, analyze, and report data 
that permit the measurement of health outcomes and other indicia of 
quality. The statute does not require that only the same data be 
collected, but that we do not change or expand the type of data 
collected until after submission of a Report to Congress (prepared in 
consultation with MA organizations and accrediting bodies) that 
explains the reason for the change(s). We clarify here that the types 
of data included under the Star Ratings System are consistent with the 
types of data collected as of November 1, 2003. Since 1997, Medicare 
managed care organizations have been required to annually report 
quality of care performance measures through HEDIS. We have also been 
conducting the CAHPS survey since 1997 to measure beneficiaries' 
experiences with their health plans, and since 2007 we have been 
measuring experiences with drug plans with CAHPS. HOS began in 1998 to 
capture changes in the physical and mental health of MA enrollees. To 
some extent, these surveys have been revised and updated over time, but 
the same types of data--clinical measures, beneficiary experiences, and 
changes in physical and mental health, respectively--have remained the 
focus of these surveys. In addition, there are several measures in the 
Stars Ratings System that are based on performance that address 
telephone customer service, members' complaints, disenrollment rates, 
and appeals; however these additional measures are not collected 
directly from the sponsoring organizations for the primary purpose of 
quality measurement. These additional measures are calculated from 
information that CMS has gathered as part of the administration of the 
Medicare program, such as information on appeals forwarded to the 
Independent Review Entity under subparts M, enrollment, and compliance 
and enforcement actions.
    The Part D program was implemented in 2006, and while there is no 
parallel provision regarding applicable Part D sources of data, we have 
used similar datasets, for example CAHPS survey data, for 
beneficiaries' experiences with prescription drug plans. Section 1860D-
4(d) of the Act specifically directs the administration and collection 
of data from consumer surveys in a manner similar to those conducted in 
the MA program. All of these measures reflect structure, process, and 
outcome indices of quality that form the measurement set under Star 
Ratings. Since 2007, we have publicly reported a number of measures 
related to the drug benefit as part of the Star Ratings. For MA 
organizations that offer prescription drug coverage, we have developed 
a series of measures focusing on administration of the drug benefit. 
Similar to MA measures of quality relative to health services, the Part 
D measures focus on customer service and beneficiary experiences, 
effectiveness, and access to care relative to the drug benefit. We 
believe that the Part D Star Ratings are consistent with the limitation 
expressed in section 1852(e) of the Act even though the limitation does 
not apply to our collection of Part D quality data from Part D 
sponsors.
    We intend to continue to base the types of information collected in 
the Part C Star Ratings on section 1852(e) of the Act, and we propose 
at Sec.  422.162(c)(1) that the type of data used for Star Ratings will 
be data consistent with the section 1852(e) limits and data gathered 
from CMS administration of the MA program. In addition, we propose in 
Sec.  422.162(c)(1) and in Sec.  423.182(c)(1) to include measures that 
reflect structure, process, and outcome indices of quality, including 
Part C measures that reflect the clinical care provided, beneficiary 
experience, changes in physical and mental health, and benefit 
administration, and Part D measures that reflect beneficiary 
experiences and benefit administration. The measures encompass data 
submitted directly by MA organizations (MAOs) and Part D sponsors to 
CMS, surveys of MA and Part D enrollees, data collected by CMS 
contractors, and CMS administrative data. We also propose, primarily so 
that the regulation text is complete on this point, a regulatory 
provision at Sec. Sec.  422.162(c)(2) and 423.182(c)(2) that requires 
MA organizations and Part D plan sponsors to submit unbiased, accurate, 
and complete quality data as described in paragraph(c)(1) of each 
section. Our authority to collect quality data is clear under the 
statute and existing regulations, such as section 1852(e)(3)(A) and 
1860D-4(d) and Sec. Sec.  422.12(b)(2) and 423.156. We propose the 
paragraph (c)(2) regulation text to ensure that the quality ratings 
system regulations include a regulation on this point for readers and 
to avoid confusion in the future about the authority to collect this 
data. In addition, it is important that the data underlying the ratings 
are unbiased, accurate, and complete so that the ratings themselves are 
reliable. This proposed regulation text would clearly establish the 
sponsoring organization's responsibility to submit data that can be 
reliably used to calculate ratings and measure plan performance.
h. Adding, Updating, and Removing Measures
    We are committed to continuing to improve the Part C and D Star 
Ratings System by focusing on improving clinical and other outcomes. We 
anticipate that new measures will be developed and that existing 
measures will be updated over time. NCQA and the Pharmacy Quality 
Alliance (PQA) continually work to update measures as clinical 
guidelines change and develop new measures focused on health and drug 
plans. To address these anticipated changes, we propose in Sec. Sec.  
422.164 and 423.184 specific rules to govern the addition, update, and 
removal of measures. We also propose to apply these rules to the 
measure set proposed in this rulemaking, to the extent that there are 
changes between the final rule and the Star Ratings based on the 
performance periods beginning on or after January 2019.
    As discussed in more detail in the following paragraphs, we propose 
the following general rules to govern adding, updating, and removing 
measures:
     For data quality issues identified during the calculation 
of the Star Ratings for a given year, we propose to continue our 
current practice of

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removing the measure from the Star Ratings.
     That new measures and substantive updates to existing 
measures would be added to the Star Ratings System based on future 
rulemaking but that prior to such a rulemaking, CMS would announce new 
measures and substantive updates to existing measures and solicit 
feedback using the process described for changes in and adoption of 
payment and risk adjustment policies in section 1853(b) of the Act 
(that is the Call Letter attachment to the Advance Notice and Rate 
Announcement).
     That existing measures (currently existing or existing 
after a future rulemaking) used for Star Ratings would be updated with 
regular updates from the measure stewards through the process described 
for changes in and adoption of payment and risk adjustment policies in 
section 1853(b) of the Act when the changes are not substantive.
     That existing measures (currently existing or existing 
after a future rulemaking) used for Star Ratings would be removed from 
use in the Star Ratings when there has been a change in clinical 
guidelines associated with the measure or reliability issues identified 
in advance of the measurement period; CMS would announce the removal 
using the process described for changes in and adoption of payment and 
risk adjustment policies in section 1853(b) of the Act. Removal might 
be permanent or temporary, depending on the basis for the removal.
    We are proposing specific rules for updating and removal that would 
be implemented through subregulatory action, so that rulemaking will 
not be necessary for certain updates or removals. Under this proposal, 
CMS would announce application of the regulation standards in the Call 
Letter attachment to the Advance Notice and Rate Announcement process 
under section 1853(b) of the Act.
    First, we propose to codify, at Sec. Sec.  422.164(a) and 
423.184(a), regulation text stating the general rule that CMS would 
add, update, and remove measures used to calculate Star Ratings as 
provided in Sec. Sec.  422.164 and 423.184. In each paragraph regarding 
addition, updating, and removal of measures and the use of improvement 
measures, we also propose rules to identify when these types of changes 
would not involve rulemaking based on application of the standards and 
authority in the regulation text. Under our proposal, CMS would solicit 
feedback of its application of the rules using the draft and final Call 
Letter each year.
    Second, we propose, in paragraph (b) of these sections, that CMS 
would review the quality of the data on which performance, scoring, and 
rating of measures is done each year. We propose to continue our 
current practice of reviewing data quality across all measures, 
variation among organizations and sponsors, and measures' accuracy, 
reliability, and validity before making a final determination about 
inclusion of measures in the Star Ratings. The intent is to ensure that 
Star Ratings measures accurately measure true plan performance. If a 
systemic data quality issue is identified during the calculation of the 
Star Ratings, we would remove the measure from that year's rating under 
proposed paragraph (b).
    Third, we propose to address the addition of new measures in 
paragraph (c).
    In identifying whether to add a measure, we will be guided by the 
principles we listed in section III.A.12.b. of the proposed rule. 
Measures should be aligned with best practices among payers and the 
needs of the end users, including beneficiaries. Our strategy is to 
continue to adopt measures when they are available, nationally 
endorsed, and in alignment with the private sector, as we do today 
through the use of measures developed by NCQA and the PQA, and the use 
of measures that are endorsed by the National Quality Forum (NQF). We 
propose to codify this standard for adopting new measures at Sec. Sec.  
422.164(c)(1) and 423.184(c)(1). We do not intend this standard to 
require that a measure be adopted by an independent measure steward or 
endorsed by NQF in order for us to propose its use for the Star 
Ratings, but that these are considerations that will guide us as we 
develop such proposals. We also propose that CMS may develop its own 
measures as well when appropriate to measure and reflect performance in 
the Medicare program.
    For the 2021 Star Ratings, we propose (at section III.A.12.) of the 
proposed rule to have measures that encompass outcome, intermediate 
outcome, patient/consumer experience, access, process, and improvement 
measures. It is important to have a mix of different types of measures 
in the Star Ratings program to understand how all of the different 
facets of the provision of health and drug services interact. For 
example, process measures are evidence-based best practices that lead 
to clinical outcomes of interest. Process measures are generally easier 
to collect, while outcome measures are sometimes more challenging 
requiring in some cases medical record review and more sophisticated 
risk-adjustment methodologies.
    Over time new measures will be added and measures will be removed 
from the Star Ratings program to meet our policy goals. As new measures 
are added, our general guidelines for deciding whether to propose new 
measures through future rulemaking will use the following criteria:
     Importance: The extent to which the measure is important 
to making significant gains in health care processes and experiences, 
access to services and prescription medications, and improving health 
outcomes for MA and Part D enrollees.
     Performance Gap: The extent to which the measure 
demonstrates opportunities for performance improvement based on 
variation in current health and drug plan performance.
     Reliability and Validity: The extent to which the measure 
produces consistent (reliable) and credible (valid) results.
     Feasibility: The extent to which the data related to the 
measure are readily available or could be captured without undue burden 
and could be implemented by the majority of MA and Part D contracts.
     Alignment: The extent to which the measure or measure 
concept is included in one or more existing federal, State, and/or 
private sector quality reporting programs.
    We would balance these criteria as part of our decision making 
process so that each new measure proposed for addition to the Star 
Ratings meets each criteria in some fashion or to some extent. We 
intend to apply these criteria to identify and adopt new measures for 
the Star Ratings, which will be done through future rulemaking that 
includes explanations for how and why we propose to add new measures. 
When we identify a measure that meets these criteria, we propose to 
follow the process in our proposed paragraphs (c)(2) through (4) of 
Sec. Sec.  422.164 and 423.184. We would initially solicit feedback on 
any potential new measures through the Call Letter.
    As new performance measures are developed and adopted, we propose, 
at Sec. Sec.  422.164(c)(3) and (4) and 423.184(c)(3) and (4), that 
they would initially be incorporated into the display page for at least 
2 years but that we would keep a new measure on the display page for a 
longer period if CMS finds there are reliability or validity issues 
with the measure. As noted in the

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Introduction, the rulemaking process will create a longer lead time for 
changes, in particular to add a new measure to the Star Ratings or to 
make substantive changes to measures as discussed later in this 
section. Here is an example timeline for adding a new measure to the 
Star Ratings. In this scenario, the new measure has already been 
developed by the NCQA and the PQA, and endorsed by the NQF. Otherwise, 
that process may add an extra 3 to 5 years to the timeline.
     January 2019: Solicit feedback on whether to add the new 
measure in the draft 2020 Call Letter.
     April 2019: Summarize feedback on adding the new measure 
in the 2020 Call Letter.
     2020/2021: Propose adding the new measure to the 2024 Star 
Ratings (2022 measurement period) in a proposed rule; finalize through 
rulemaking (for 1/1/2022 effective date).
     2020: Performance period and collection of data for the 
new measure and collection of data for posting on the 2022 display 
page.
     2021: Performance period and collection of data for the 
new measure and collection of data for posting on the 2023 display 
page.
     Fall 2021: Publish new measure on the 2022 display page 
(2020 measurement period).
     January 1, 2022: Applicability date of new measure for 
Star Ratings.
     2022: Performance period and collection of data for the 
new measure and collection of data for inclusion in the 2024 Star 
Ratings.
     Fall 2022: Publish new measure on the 2023 display page 
(2021 measurement period).
     Fall 2023: Publish new measure in the 2024 Star Ratings 
(2022 measurement period).
     2025: QBP status and rebate retention allowances are 
determined for the 2025 payment year.
    Fourth, at Sec. Sec.  422.164(d) and 423.184(d) we propose to 
address updates to measures based on whether an update is substantive 
or non-substantive. Since quality measures are routinely updated (for 
example, when clinical codes are updated), we propose to adopt rules 
for the incorporation of non-substantive updates to measures that are 
part of the Star Ratings System without going through new rulemaking. 
As proposed in paragraphs (d)(1) of Sec. Sec.  422.164 and 423.184, we 
would only incorporate updates without rulemaking for measure 
specification changes that do not substantively change the nature of 
the measure.
    Substantive changes (for example, major changes to methodology) to 
existing measures would be proposed and finalized through rulemaking. 
In paragraphs (d)(2) of Sec. Sec.  422.164 and 423.184, we propose to 
initially solicit feedback on whether to make the substantive measure 
update through the Call Letter prior to the measurement period for 
which the update would be initially applicable. For example, if the 
change announced significantly expands the denominator or population 
covered by the measure (for example, the age group included in the 
measures is expanded), the measure would be moved to the display page 
for at least 2 years and proposed through rulemaking for inclusion in 
Star Ratings. We intend this process for substantive updates to be 
similar to the process we would use for adopting new measures under 
proposed paragraph (c). As appropriate, the legacy measure may remain 
in the Star Ratings while the updated measure is on the display page 
if, for example, the updated measure expands the population covered in 
the measure and the legacy measure would still be relevant and 
measuring a critical topic to continue including in the Star Ratings 
while the updated measure is on display. Adding the updated measure to 
the Star Ratings would be proposed through rulemaking.
    We propose to adopt rules to incorporate specification updates that 
are non-substantive in paragraph (d)(1). Non-substantive updates that 
occur (or are announced by the measure steward) during or in advance of 
the measurement period will be incorporated into the measure and 
announced using the Call Letter. We propose to use such updated 
measures to calculate and assign Star Ratings without the updated 
measure being placed on the display page. This is consistent with 
current practice.
    In paragraph (d)(1)(i-v) of Sec. Sec.  422.164 and paragraph 
(d)(1)(i-v) of 423.184, we propose to codify a non-exhaustive list for 
identifying non-substantive updates announced during or prior to the 
measurement period and how we would treat them under our proposal. The 
list includes updates in the following circumstances:
     If the change narrows the denominator or population 
covered by the measure with no other changes, the updated measure would 
be used in the Star Ratings program without interruption. For example, 
if an additional exclusion--such as excluding nursing home residents 
from the denominator--is added, the change would be considered non-
substantive and would be incorporated automatically. In our view, 
changes to narrow the denominator generally benefit Star Ratings of 
sponsoring organizations and should be treated as non-substantive for 
that reason.
     If the change does not meaningfully impact the numerator 
or denominator of the measure, the measure would continue to be 
included in the Star Ratings. For example, if additional codes are 
added that increase the number of numerator hits for a measure during 
or before the measurement period, such a change would not be considered 
substantive because the sponsoring organization would generally benefit 
from that change. This type of administrative (billing) change has no 
impact on the current clinical practices of the plan or its providers, 
and thus would not necessitate exclusion from the Star Ratings System 
of any measures updated in this way.
     The clinical codes for quality measures (such as HEDIS 
measures) are routinely revised as the code sets are updated. For 
updates to address revisions to the clinical codes without change in 
the intent of the measure and the target population, the measure would 
remain in the Star Ratings program and would not move to the display 
page. Examples of clinical codes that might be updated or revised 
without substantively changing the measure include:
    ++ ICD-10-CM (``ICD-10'') code sets. Annually, there are new ICD 10 
coding updates, which are effective from October 1 through September 
30th of any given year.
    ++ Current Procedural Terminology (CPT) codes. These codes are 
published and maintained by the American Medical Association (AMA) to 
describe tests, surgeries, evaluations, and any other medical procedure 
performed by a healthcare provider on a patient.
    ++ Healthcare Common Procedure Coding System (HCPCS) codes. These 
codes cover items, supplies, and non-physician services not covered by 
CPT codes.
    ++ National Drug Code (NDC). The PQA updates NDC lists biannually, 
usually in January and July.
     If the measure specification change is providing 
additional clarifications such as the following, the measure would also 
not move to the display page since this does not change the intent of 
the measure but provides more information about how to meet the measure 
specifications:
    ++ Adding additional tests that would meet the numerator 
requirements.
    ++ Clarifying documentation requirements (for example, medical 
record documentation).

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    ++ Adding additional instructions to identify services or 
procedures that meet (or do not meet) the specifications of the 
measure.
     If the measure specification change is adding additional 
data sources, the measure would also not move to the display page 
because we believe such changes are merely to add alternative ways to 
collect the data to meet the measure specifications without changing 
the intent of the measure.
    We solicit comment on our proposal to add non-substantive updates 
to measures and using the updated measure (replacing the legacy 
measure) to calculate Star Ratings. In particular, we are interested in 
stakeholders' views whether only non-substantive updates that have been 
adopted by a measure steward after a consensus-based or notice and 
comment process should be added to the Star Ratings under this proposed 
authority. Further, we solicit comment on whether there are other 
examples or situations involving non-substantive updates that should be 
explicitly addressed in the regulation text or if our proposal is 
sufficiently extensive.
    In addition to updates and additions of measures, we are proposing 
rules to address the removal of measures from the Star Ratings to be 
codified in Sec. Sec.  422.164(e) and 423.184(e). In paragraph (e)(1) 
of each section, we propose the two circumstances under which a measure 
would be removed entirely from the calculation of the Star Ratings. The 
first circumstance would be changes in clinical guidelines that mean 
that the measure specifications are no longer believed to align with or 
promote positive health outcomes. As clinical guidelines change, we 
would need the flexibility to remove measures from the Star Ratings 
that are not consistent with current guidelines. We are proposing to 
announce such subregulatory removals through the Call Letter so that 
removals for this reason are accomplished quickly and as soon as the 
disconnect with positive clinical outcomes is definitively identified. 
We note that this proposal is consistent with our current practice. For 
example, previously we retired the Glaucoma Screening measure for HEDIS 
2015 after the U.S. Preventive Services Task Force concluded that the 
clinical evidence is insufficient to assess the balance of benefits and 
harms of screening for glaucoma in adults.
    In addition to removal of measures because of changes in clinical 
guidelines, we currently review measures continually to ensure that the 
measure remains sufficiently reliable such that it is appropriate to 
continue use of the measure in the Star Ratings. We propose, at 
paragraph (e)(1)(ii), that we would also have authority to 
subregulatorily remove measures that show low statistical reliability 
so as to move swiftly to ensure the validity and reliability of the 
Star Ratings, even at the measure level. We will continue to analyze 
measures to determine if measure scores are ``topped out'' (that is, 
showing high performance across all contracts decreasing the 
variability across contracts and making the measure unreliable) so as 
to inform our approach to the measure, or if measures have low 
reliability. Although some measures may show uniform high performance 
across contracts and little variation between them, we seek evidence of 
the stability of such high performance, and we want to balance how 
critical the measures are to improving care, the importance of not 
creating incentives for a decline in performance after the measures 
transition out of the Star Ratings, and the availability of alternative 
related measures. If, for example, performance in a given measure has 
just improved across all contracts, or if no other measures capture a 
key focus in Star Ratings, a ``topped out'' measure which would have 
lower reliability may be retained in Star Ratings. Under our proposal 
to be codified at paragraph (e)(2), we would announce application of 
this rule through the Call Letter in advance of the measurement period.
    We request comment on these proposals regarding the processes to 
add, update, and remove Star Ratings measures.
i. Measure Set for Performance Periods Beginning on or After January 1, 
2019
    We are proposing the measures included in Table 2 to be collected 
for performance periods beginning on or after January 1, 2019 for the 
2021 Part C and D Star Ratings. The CAHPS measure specification, 
including case-mix adjustment, is described in the Technical Notes and 
at ma-pdpcahps.org. The HOS measure specification, including case-mix 
adjustment, is described at (http://hosonline.org/globalassets/hos-online/survey-results/hos_casemix_coefficient_tables_c17.pdf). These 
specifications are part of our proposal.
    We are not proposing to codify this list of measures and 
specifications in regulation text in light of the regular updates and 
revisions contemplated by our proposals at Sec. Sec.  422.164 and 
423.184. We intend, as proposed in paragraph (a) of these sections, 
that the Technical Notes for each year's Star Ratings would include the 
applicable full list of measures.
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j. Improvement Measures
    In the 2013 Part C and D Star Ratings, we implemented the Part C 
and D improvement measures (CY2013 Rate Announcement, https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/Announcement2013.pdf). The improvement measures address the overall 
improvement or decline in individual measure scores from the prior to 
the current year. We propose to continue the current methodology 
detailed in the Technical Notes for calculating the improvement 
measures and to codify it at Sec. Sec.  422.164(f) and 423.184(f). For 
a measure to be included in the improvement calculation, the measure 
must have numeric value scores in both the current and prior year and 
not have had a substantive specification change during those years. In 
addition, the improvement measure will not include any data on measures 
that are already focused on improvement (for example, HOS measures 
focused on improving or maintaining physical or mental health). The 
Part C improvement measure includes only Part C measure scores, and the 
Part D improvement measure includes only Part D measure scores. All 
measures meeting these criteria would be included in the improvement 
measures under our proposal at paragraph (f)(1)(i) through (iv) of 
Sec. Sec.  422.164 and 423.184.
    Annually, the subset of measures to be included in the improvement 
measures following these criteria would be announced through the Call 
Letter, similar to our proposal for regular updates and removal of 
measures. Under our proposal, once the measures to be used for the 
improvement measures are identified, CMS would determine which 
contracts have sufficient data for purposes of applying and scoring the 
improvement measure(s). Following current practices, the improvement 
measure score would be calculated only for contracts that have numeric 
measure scores for both years for at least half of the measures 
identified for use in the improvement measure. We propose this standard 
for determining contracts eligible for an improvement measure at 
paragraph (f)(2).
    We propose at part Sec. Sec.  422.164(f)(3) and (4) and 
423.184(f)(3) and (4) the process for calculating the improvement 
measure score(s) and a special rule for any identified improvement 
measure for a contract that received a measure-level Star Rating of 5 
in each of the 2 years examined, but whose associated measure score 
indicates a statistically significant decline in the time period. The 
improvement measure would be calculated in a series of distinct steps:
     The improvement change score (the difference in the 
measure scores in the 2-year period) would be determined for each 
measure that has been identified as part of an improvement measure and 
for which a contract has a numeric score for each of the 2 years 
examined.
     Each contract's improvement change score would be 
categorized as a significant change or not by employing a two tailed t-
test with a level of significance of 0.05.
     The net improvement per measure category (outcome, access, 
patient experience, process) would be calculated by finding the 
difference between the weighted number of significantly improved 
measures and significantly declined measures, using the measure weights 
associated with each measure category.
     The improvement measure score would then be determined by 
calculating the weighted sum of the net improvement per measure 
category divided by the weighted sum of the number of eligible 
measures.
     The improvement measure score would be converted to a 
measure-level Star Rating using the hierarchical clustering algorithm.
    The improvement measure score cut points would be determined using 
two separate clustering algorithms. Improvement measure scores of zero 
and above would use the clustering algorithm to determine the cut 
points for the Star Rating levels of 3 and above. Improvement measure 
scores below zero would be clustered to determine the cut points for 1 
and 2 stars. The Part D improvement measure thresholds for MA-PDs and 
PDPs would be reported separately.
    We propose a special rule in paragraph (f)(3) to hold harmless 
sponsoring organizations that have 5-star ratings for both years on a 
measure used for the improvement measure calculation. This hold 
harmless provision was added in 2014 to avoid the unintended 
consequence for contracts that score 5 stars on a subset of measures in 
each of the 2 years. For any identified improvement measure for which a 
contract received a rating of 5 stars in each of the years examined, 
but for which the measure score demonstrates a statistically 
significant decline based on the results of the significance testing 
(at a level of significance of 0.05) on the change score, the measure 
will be categorized as having no significant change. The measure will 
be included in the count of measures used to determine eligibility for 
the improvement measure and in the denominator of the improvement 
measure score. The intent of the hold harmless provision for a contract 
that receives a measure rating of 5 stars for each year is to prevent 
the measure from lowering a contract's improvement measure when the 
contract still demonstrates high performance. We propose in section 
III.A.12. of this proposed rule another hold harmless provision to be 
codified at Sec. Sec.  422.166(g)(1) and 423.186(g)(1).
    We request comment on the methodology for the improvement measures, 
including rules for determining which measures are included, the 
conversion to a Star Rating, and the hold harmless provision for 
individual measures that are used for the determination of the 
improvement measure score.
k. Data Integrity
    The data underlying a measure score and rating must be complete, 
accurate, and unbiased for it to be useful for the purposes we have 
proposed at Sec. Sec.  422.160(b) and 423.180(b). As part of the 
current Star Ratings methodology, all measures and the associated data 
have multiple levels of quality assurance checks. Our longstanding 
policy has been to reduce a contract's measure rating if we determine 
that a contract's measure data are incomplete, inaccurate, or biased. 
Data validation is a shared responsibility among CMS, CMS data 
providers, contractors, and Part C and D sponsors. When applicable (for 
example, data from the IRE, PDE, call center), CMS expects sponsoring 
organizations to routinely monitor their data and immediately alert CMS 
if errors or anomalies are identified so CMS can address these errors.
    We propose to codify at Sec. Sec.  422.164(g) and 423.184(g) 
specific rules for the reduction of measure ratings when CMS identifies 
incomplete, inaccurate, or biased data that have an impact on the 
accuracy, impartiality, or completeness of data used for the impacted 
measures. Data may be determined to be incomplete, inaccurate, or 
biased based on a number of reasons, including mishandling of data, 
inappropriate processing, or implementation of incorrect practices that 
impacted specific measure(s). One example of such situations that give 
rise to such determinations includes a contract's failure to adhere to 
HEDIS, HOS, or CAHPS reporting requirements. Our modifications to 
measure-specific ratings due to data integrity issues are separate from 
any CMS compliance or enforcement actions related to a sponsor's 
deficiencies. This policy and

[[Page 56395]]

these rating reductions are necessary to avoid falsely assigning a high 
star to a contract, especially when deficiencies have been identified 
that show we cannot objectively evaluate a sponsor's performance in an 
area.
    As a standard practice, we check for flags that indicate bias or 
non-reporting, check for completeness, check for outliers, and compare 
measures to the previous year to identify significant changes which 
could be indicative of data issues. CMS has developed and implemented 
Part C and Part D Reporting Requirements Data Validation standards to 
assure that data reported by sponsoring organizations pursuant to 
Sec. Sec.  422.516 and 423.514 satisfy the regulatory obligation. 
Sponsor organizations should refer to specific guidance and technical 
instructions related to requirements in each of these areas. For 
example, information about HEDIS measures and technical specifications 
is posted on: http://www.ncqa.org/HEDISQualityMeasurement/HEDISMeasures.aspx. Information about Data Validation of Reporting 
Requirements data is posted on: https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/PartCDDataValidation.html and https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/RxContracting_ReportingOversight.html.
    We propose, in paragraphs (g)(1)(i) through (iii), rules for 
specific circumstances where we believe a specific response is 
appropriate. First, we propose a continuation of a current policy: To 
reduce HEDIS measures to 1 star when audited data are submitted to NCQA 
with an audit designation of ``biased rate'' or BR based on an 
auditor's review of the data if a plan chooses to report; this proposal 
would also apply when a plan chooses not to submit and has an audit 
designation of ``non-report'' or NR. Second, we propose to continue to 
reduce Part C and D Reporting Requirements data, that is, data required 
pursuant to Sec. Sec.  422.514 and 423.516, to 1 star when a contract 
did not score at least 95 percent on data validation for the applicable 
reporting section or was not compliant with data validation standards/
sub-standards for data directly used to calculate the associated 
measure. In our view, data that do not reach at least 95 percent on the 
data validation standards are not sufficiently accurate, impartial, and 
complete for use in the Star Ratings. As the sponsoring organization is 
responsible for these data and submits them to CMS, we believe that a 
negative inference is appropriate to conclude that performance is 
likely poor. Third, we propose a new specific rule to authorize scaled 
reductions in Star Ratings for appeal measures in both Part C and Part 
D.
    The data downgrade policy was adopted to address instances when the 
data that would be used for specific measures are not reliable for 
measuring performance due to their incompleteness or biased/erroneous 
nature. For instances where the integrity of the data is compromised 
because of the action or inaction of the sponsoring organization (or 
its subcontractors or agents), this policy reflects the underlying 
fault of the sponsoring organization for the lack of data for the 
applicable measure. Without some policy for reduction in the rating for 
these measures, sponsoring organizations could ``game'' the Star 
Ratings and merely fail to submit data that illustrate poor 
performance. We believe that removal of the measure from the ratings 
calculation would unintentionally reward poor data compilation and 
submission activities such that our only recourse is to reduce the 
rating to 1 star for affected measures.
    For verification and validation of the Part C and D appeals 
measures, we propose to use statistical criteria to determine if a 
contract's appeals measure-level Star Ratings would be reduced for 
missing IRE data. The criteria would allow us to use scaled reductions 
for the appeals measures to account for the degree to which the data 
are missing. The completeness of the IRE data is critical to allow fair 
and accurate measurement of the appeals measures. All plans are 
responsible and held accountable for ensuring high quality and complete 
data to maintain the validity and reliability of the appeals measures.
    In response to stakeholder concerns about CMS' prior practice of 
reducing measure ratings to one star based on any finding of data 
inaccuracy, incompleteness, or bias, CMS initiated the Timeliness 
Monitoring Project (TMP) in CY 2017.\40\ The first submission for the 
TMP was for the measurement year 2016 related to Part C organization 
determinations and reconsiderations and Part D coverage determinations 
and redeterminations. The timeframe for the submitted data was 
dependent on the enrollment of the contract with smaller contracts 
submitting data from a three-month period, medium-sized contracts 
submitting data from a two-month period, and larger contracts 
submitting data from a one-month period.\41\
---------------------------------------------------------------------------

    \40\ This project was discussed in the November 28, 2016 HPMS 
memo, ``Industry-wide Appeals Timeliness Monitoring.'' https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovGenIn/Downloads/Industry-wide-Timeliness-Monitoring.pdf, https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovGenIn/Downloads/Industry-wide-Appeals-Timeliness-Monitoring-Memo-November-28-2016.pdf.
    \41\ Contracts with a mean annual enrollment of less than 50,000 
are required to submit data for a three-month time period. Contracts 
with a mean enrollment of at least 50,000 but at most 250,000 are 
required to submit data for a two-month time period. Contracts with 
a mean enrollment greater than 250,000 are required to submit data 
for a one-month period.
---------------------------------------------------------------------------

    We propose to use multiple data sources whenever possible, such as 
the TMP data or information from audits to determine whether the data 
at the Independent Review Entity (IRE) are complete. Given the 
financial and marketing incentives associated with higher performance 
in Star Ratings, safeguards are needed to protect the Star Ratings from 
actions that inflate performance or mask deficiencies.
    CMS is proposing to reduce a contract's Part C or Part D appeal 
measures Star Ratings for IRE data that are not complete or otherwise 
lack integrity based on the TMP or audit information. The reduction 
would be applied to the measure-level Star Ratings for the applicable 
appeals measures. There are varying degrees of data issues and as such, 
we are proposing a methodology for reductions that reflects the degree 
of the data accuracy issue for a contract instead of a one-size fits 
all approach. The methodology would employ scaled reductions, ranging 
from a 1-star reduction to a 4-star reduction; the most severe 
reduction for the degree of missing IRE data would be a 4-star 
reduction which would result in a measure-level Star Rating of 1 star 
for the associated appeals measures (Part C or Part D). The data source 
for the scaled reduction is the TMP or audit data, however the specific 
data used for the determination of a Part C IRE data completeness 
reduction are independent of the data used for the Part D IRE data 
completeness reduction. If a contract receives a reduction due to 
missing Part C IRE data, the reduction would be applied to both of the 
contract's Part C appeals measures. Likewise, if a contract receives a 
reduction due to missing Part D IRE data, the reduction would be 
applied to both of the contract's Part D appeals measures. We solicit 
comment on this proposal and its scope; we are looking in particular 
for comments related to how to use the process we are proposing

[[Page 56396]]

in this proposal to account for data integrity issues discovered 
through means other than the TMP and audits of sponsoring 
organizations.
    CMS' proposed scaled reduction methodology is a three-stage process 
using the TMP or audit information to determine: First, whether a 
contract may be subject to a potential reduction for the Part C or Part 
D appeals measures; second, the basis for the estimate of the error 
rate; and finally, whether the estimated error rate is significantly 
greater than the cut points for the scaled reductions of 1, 2, 3, or 4 
stars.
    Once the scaled reduction for a contract is determined using this 
methodology, the reduction would be applied to the contract's 
associated appeals measure-level Star Ratings. The minimum measure-
level Star Rating is 1 star. If the difference between the associated 
appeals measure-level Star Rating (before the application of the 
reduction) and the identified scaled reduction is less than one, the 
contract would receive a measure-level Star Rating of 1 star for the 
appeals measure.
    The error rate for the Part C and Part D appeals measures using the 
TMP or audit data and the projected number of cases not forwarded to 
the IRE for a 3-month period would be used to identify contracts that 
may be subject to an appeals-related IRE data completeness reduction. A 
minimum error rate is proposed to establish a threshold for the 
identification of contracts that may be subject to a reduction. The 
establishment of the threshold allows the focus of the possible 
reductions on contracts with error rates that have the greatest 
potential to distort the signal of the appeals measures. Since the 
timeframe for the TMP data is dependent on the enrollment of the 
contract, with smaller contracts submitting data from a three-month 
period, medium-sized contracts submitting data from a 2-month period, 
and larger contracts submitting data from a one-month period, the use 
of a projected number of cases allows a consistent time period for the 
application of the criteria proposed.
    The calculated error rate formula (Equation 1) for the Part C 
measures is proposed to be determined by the quotient of the number of 
cases not forwarded to the IRE and the total number of cases that 
should have been forwarded to the IRE. The number of cases that should 
have been forwarded to the IRE is the sum of the number of cases in the 
IRE during TMP or audit data collection period and the number of cases 
not forwarded to the IRE during the same period.
[GRAPHIC] [TIFF OMITTED] TP28NO17.008

    The calculated error rate formula (Equation 2) for the Part D 
measures is proposed to be determined by the quotient of the number of 
untimely cases not auto-forwarded to the IRE and the total number of 
untimely cases.
[GRAPHIC] [TIFF OMITTED] TP28NO17.009

    The projected number of cases not forwarded to the IRE in a 3-month 
period would be calculated by multiplying the number of cases found not 
to be forwarded to the IRE based on the TMP or audit data by a constant 
determined by the TMP time period. Contracts with mean annual 
enrollments greater than 250,000 that submitted data from 1-month 
period would have their number of cases found not to be forwarded to 
the IRE based on the TMP data multiplied by the constant 3.0. Contracts 
with mean enrollments of 50,000 but at most 250,000 that submitted data 
from a 2-month period would have their number of cases found not to be 
forwarded to the IRE based on the TMP data multiplied by the constant 
1.5. Small contracts with mean enrollments less than 50,000 that 
submitted data for a 3-month period would have their number of cases 
found not to be forwarded to the IRE based on the TMP data multiplied 
by the constant 1.0.
    Under this proposal, contract ratings would be subject to a 
possible reduction due to lack of IRE data completeness if both 
following conditions are met The calculated error rate is 20 
percent or more.
     The projected number of cases not forwarded to the IRE is 
at least 10 in a 3-month period.
    The requirement for a minimum number of cases is needed to address 
statistical concerns with precision and small numbers. If a contract 
meets only one of the conditions, the contract would not be subject to 
reductions for IRE data completeness issues.
    If a contract is subject to a possible reduction based on the 
aforementioned conditions, a confidence interval estimate for the true 
error rate for the contract would be calculated using a Score Interval 
(Wilson Score Interval) at a confidence level of 95 percent.
    The midpoint of the score interval would be determined using 
Equation 3.
[GRAPHIC] [TIFF OMITTED] TP28NO17.010

    The z score that corresponds to a level of statistical significance 
of 0.05, commonly denoted as z[alpha]/2 but for ease of presentation 
represented here as z. (The z value that will be used for the purpose 
of the calculation of the interval is 1.959964.).
    For the Part C appeals measures, the midpoint of the confidence 
interval would be calculated using Equation 3 along with the calculated 
error rate from the TMP, which is determined by Equation 1. The total 
number of cases in Equation 3 is the number of cases that should have 
been in the IRE for the Part C TMP data.
    For the Part D appeals measures, the midpoint of the confidence 
interval would be calculated using Equation 3 along with the calculated 
error rate from the TMP, which is determined by Equation 2. The total 
number of cases in

[[Page 56397]]

Equation 3 is the total number of untimely cases for the Part D appeals 
measures.
    Letting the calculated error rate be represented by and the total 
number of cases represented as n, Equation 3 can be streamlined as 
Equation 4:
[GRAPHIC] [TIFF OMITTED] TP28NO17.011

    The lower bound of the confidence interval estimate for the error 
rate is calculated using Equation 5 below:
[GRAPHIC] [TIFF OMITTED] TP28NO17.012

    For each contract subject to a possible reduction, the lower bound 
of the interval estimate of the error rate would be compared to each of 
the thresholds in Table 3. If the contract's calculated lower bound is 
higher than the threshold, the contract would receive the reduction 
that corresponds to the highest threshold that is less than the lower 
bound. In other words, the contract's lower bound is being employed to 
determine whether the contract's error rate is significantly greater 
than the thresholds of 20 percent, 40 percent, 60 percent, and 80 
percent. The proposed scaled reductions are in Table 3, and would be 
codified in narrative form at paragraph (g)(1)(iii)(D) of both 
regulations.
    The reductions due to IRE data completeness issues would be applied 
after the calculation of the measure-level Star Rating for the appeals 
measures. The reduction would be applied to the Part C appeals measures 
and/or the Part D appeals measures.
    It is important to note that a contract's lower bound could be 
statistically significantly greater than more than one threshold. The 
reduction would be determined by the highest threshold that the 
contract's lower bound exceeds. For example, if the lower bound for a 
contract is 64.560000 percent, the contract's estimated value is 
significantly greater than the thresholds of 20 percent, 40 percent, 
and 60 percent because the lower bound value 64.560000 percent is 
greater than each of these thresholds. The lower bound for the 
contract's confidence interval is not greater than 80 percent. The 
contract would be subject to the reduction that corresponds to the 60 
percent threshold, which is three stars.

 Table 3--Appeals Measure Star Ratings Reductions by the Incomplete Data
                               Error Rate
------------------------------------------------------------------------
                                                           Reduction for
Proposed thresholds using the lower bound of  confidence    incomplete
        interval  estimate of the error rate (%)             IRE data
                                                              (stars)
------------------------------------------------------------------------
20......................................................               1
40......................................................               2
60......................................................               3
80......................................................               4
------------------------------------------------------------------------

    We propose regulation text at Sec.  422.164(g)(1)(iii)(A) through 
(N) and Sec.  423.184(g)(1)(iii)(A) through (K) to codify these 
parameters and formulas for the scaled reductions. We note that the 
proposed text for the Part C regulation includes specific paragraphs 
related to MA and MA-PD plans that are not included in the proposed 
text for the Part D regulation but that the two are otherwise 
identical.
    In addition, we propose in Sec. Sec.  422.164(g)(2) and 
423.184(g)(2) to authorize reductions in a Star Rating for a measure 
when there are other data accuracy concerns (that is, those not 
specified in paragraph (g)(1)). We propose an example in paragraph 
(g)(2) of another circumstance where CMS would be authorized to reduce 
ratings based on a determination that performance data are incomplete, 
inaccurate, or biased. We also propose this other situation would 
result in a reduction of the measure rating to 1 star.
    We have taken several steps in past years to protect the integrity 
of the data we use to calculate Star Ratings. However, we welcome 
comments about alternative methods for identifying inaccurate or biased 
data and comments on the proposed policies for reducing stars for data 
accuracy and completeness issues. Further, we welcome comments on the 
proposed methodology for scaled reductions for the Part C and Part D 
appeals measures to address the degree of missing IRE data.
l. Measure-Level Star Ratings
    We propose in Sec. Sec.  422.166(a) and 423.186(a) the methods for 
calculating Star Ratings at the measure level. As part of the Part C 
and D Star Ratings System, Star Ratings are currently calculated at the 
measure level. To separate a distribution of scores into distinct 
groups or star categories, a set of values must be identified to 
separate one group from another group. The set of values that break the 
distribution of the scores into non-overlapping groups is a set of cut 
points. We propose to continue to determine cut points by applying 
either clustering or a relative distribution and significance testing 
methodology; we propose to codify this policy in paragraphs (a)(1) of 
each section. We propose in paragraphs (a)(2) and (a)(3) of each 
section that for non-CAHPS measures, we would use a clustering 
methodology and that for CAHPS measures, we would use relative 
distribution and significance testing. Measure scores would be 
converted to a 5-star scale ranging from 1 to 5, with whole star 
increments for the cut points. A rating of 5 stars would indicate the 
highest Star Rating possible, while a rating of 1 star would be the 
lowest rating on the scale. Consistent with current policy, we propose 
to use the two methodologies described as follows to convert measure 
scores to measure-level Star Ratings.
    The clustering method would be applied to all Star Ratings 
measures, except for the CAHPS measures. For each individual measure, 
we would determine the measure cut points using all measure scores for 
all contracts required to report that do not have missing, flagged as 
biased, or erroneous data. For the Part D measures, we propose to 
determine MA-PD and PDP cut points separately. The scores would

[[Page 56398]]

be grouped such that scores within the same rating (that is 1 star, 2 
stars, etc.) are as similar as possible, and scores in different 
ratings are as different as possible. The hierarchical clustering 
algorithm and the associated tree and cluster assignments using SAS (a 
statistical software package) are currently used to determine the cut 
points for the assignment of the measure-level Star Ratings. We intend 
to continue use of this software under this proposal, but improvements 
in statistical analysis will not result in rulemaking or changes in 
these proposed rules. Rather, we believe that the software used to 
apply the clustering methodology is generally irrelevant.
    Conceptually, the clustering algorithm identifies natural gaps 
within the distribution of the scores and creates groups (clusters) 
that are then used to identify the cut points that result in the 
creation of a pre-specified number of categories. The Euclidean 
distance between each pair of contracts' measure scores serves as the 
input for the clustering algorithm. The hierarchical clustering 
algorithm begins with each contract's measure score being assigned to 
its own cluster. Ward's minimum variance method is used to separate the 
variance of the measure scores into within-cluster and between-cluster 
sum of squares components in order to determine which pairs of clusters 
to merge. For the majority of measures, the final step in the algorithm 
is done a single time with five categories specified for the assignment 
of individual scores to cluster labels. The cluster labels are then 
ordered to create the 1 to 5-star scale. The range of the values for 
each cluster (identified by cluster labels) is examined and would be 
used to determine the set of cut points for the Star Ratings. The 
measure score that corresponds to the lower bound for the measure-level 
ratings of 2 through 5 would be included in the star-specific rating 
category for a measure for which a higher score corresponds to better 
performance. For a measure for which a lower score is better, the 
process would be the same except that the upper bound within each 
cluster label would determine the set of cut points. The measure score 
that corresponds to the cut point for the ratings of 2 through 5 would 
be included in the star-specific rating category. In cases where 
multiple clusters have the same measure score value range, those 
clusters would be combined, leading to fewer than 5 clusters. Under our 
proposal to use clustering to set cut points, we would not require the 
same number of observations (contracts) within each rating and instead 
would use a data-driven approach.
    As proposed in paragraphs (a)(2)(ii) of each section the 
improvement measures for Part C and Part D would require the clustering 
algorithm to be done twice for the identification of the cut points 
that would allow the conversion of the improvement measure scores to 
the star scale. The Part D improvement measure score clustering for MA-
PDs and PDPs would be reported separately. Improvement scores of zero 
or greater would be assigned at least 3 stars for the improvement Star 
Rating, while improvement scores less than zero would be assigned 
either 1 or 2 stars. The clustering would be conducted separately for 
improvement measure scores greater than or equal to zero and those with 
improvement measure scores less than zero. For contracts with 
improvement scores greater than or equal to zero, the clustering 
process would result in three clusters with measure-level Star Ratings 
of 3, 4, or 5 with the lower bound of each cluster serving as the cut 
point for the associated Star Rating. For those contracts with 
improvement scores less than zero, the clustering algorithm would 
result in two clusters with measure-level Star Ratings of 1 or 2.
    We propose in paragraphs (a)(3) of each section to use percentile 
standing relative to the distribution of scores for other contracts, 
measurement reliability standards, and statistical significance testing 
to determine star assignments for the CAHPS measures. This method would 
combine evaluating the relative percentile distribution of scores with 
significance testing and measurement reliability standards in order to 
maximize the accuracy of star assignments based on scores produced from 
the CAHPS survey. For CAHPS measures, contracts are first classified 
into base groups by comparisons to percentile cut points defined by the 
current-year distribution of case-mix adjusted contract means. 
Percentile cut points would then be rounded to the nearest integer on 
the 0-100 reporting scale, and each base group would include those 
contracts whose rounded mean score is at or above the lower limit and 
below the upper limit. Then, the number of stars assigned would be 
determined by the base group assignment, the statistical significance 
and direction of the difference of the contract mean from the national 
mean, an indicator of the statistical reliability of the contract score 
on a given measure (based on the ratio of sampling variation for each 
contract mean to between-contract variation), and the standard error of 
the mean score. Table 4, which we propose to codify at Sec. Sec.  
422.166(a)(3) and 423.186(a)(3), details the CAHPS star assignment 
rules for each rating. All statistical tests, including comparisons 
involving standard error, would be computed using unrounded scores.
    We propose that if the reliability of a CAHPS measure score is very 
low for a given contract, less than 0.60, the contract would not 
receive a Star Rating for that measure. For purposes of applying the 
criterion for 1 star on Table 3, at item (c), low reliability scores 
would be defined as those with at least 11 respondents and reliability 
greater than or equal to 0.60 but less than 0.75 and also in the lowest 
12 percent of contracts ordered by reliability. The standard error 
would be considered when the measure score is below the 15th percentile 
(in base group 1), significantly below average, and has low 
reliability: In this case, 1 star would be assigned if and only if the 
measure score is at least 1 standard error below the unrounded cut 
point between base groups 1 and 2. Similarly, when the measure score is 
at or above the 80th percentile (in base group 5), significantly above 
average, and has low reliability, 5 stars would be assigned if and only 
if the measure score is at least 1 standard error above the unrounded 
cut point between base groups 4 and 5.

                  Table 4--CAHPS Star Assignment Rules
------------------------------------------------------------------------
          Star                  Criteria for assigning star ratings
------------------------------------------------------------------------
1.......................  A contract is assigned one star if both
                           criteria (a) and (b) are met plus at least
                           one of criteria (c) and (d):
                          (a) Its average CAHPS measure score is lower
                           than the 15th percentile; AND
                          (b) its average CAHPS measure score is
                           statistically significantly lower than the
                           national average CAHPS measure score;
                          (c) the reliability is not low; OR
                          (d) its average CAHPS measure score is more
                           than one standard error (SE) below the 15th
                           percentile.

[[Page 56399]]

 
2.......................  A contract is assigned two stars if it does
                           not meet the one[dash]star criteria and meets
                           at least one of these three criteria:
                          (a) Its average CAHPS measure score is lower
                           than the 30th percentile and the measure does
                           not have low reliability; OR
                          (b) its average CAHPS measure score is lower
                           than the 15th percentile and the measure has
                           low reliability; OR
                          (c) its average CAHPS measure score is
                           statistically significantly lower than the
                           national average CAHPS measure score and
                           below the 60th percentile.
3.......................  A contract is assigned three stars if it meets
                           at least one of these three criteria:
                          (a) Its average CAHPS measure score is at or
                           above the 30th percentile and lower than the
                           60th percentile, AND it is not statistically
                           significantly different from the national
                           average CAHPS measure score; OR
                          (b) its average CAHPS measure score is at or
                           above the 15th percentile and lower than the
                           30th percentile, AND the reliability is low,
                           AND the score is not statistically
                           significantly lower than the national average
                           CAHPS measure score; OR
                          (c) its average CAHPS measure score is at or
                           above the 60th percentile and lower than the
                           80th percentile, AND the reliability is low,
                           AND the score is not statistically
                           significantly higher than the national
                           average CAHPS measure score.
4.......................  A contract is assigned four stars if it does
                           not meet the 5-star criteria and meets at
                           least one of these three criteria:
                          (a) Its average CAHPS measure score is at or
                           above the 60th percentile and the measure
                           does not have low reliability; OR
                          (b) its average CAHPS measure score is at or
                           above the 80th percentile and the measure has
                           low reliability; OR
                          (c) its average CAHPS measure score is
                           statistically significantly higher than the
                           national average CAHPS measure score and
                           above the 30th percentile.
5.......................  A contract is assigned five stars if both
                           criteria (a) and (b) are met plus at least
                           one of criteria (c) and (d):
                          (a) Its average CAHPS measure score is at or
                           above the 80th percentile; AND
                          (b) its average CAHPS measure score is
                           statistically significantly higher than the
                           national average CAHPS measure score;
                          (c) the reliability is not low; OR
                          (d) its average CAHPS measure score is more
                           than one SE above the 80th percentile.
------------------------------------------------------------------------

    We request comments on our proposed methods to determine cut 
points. For certain measures, we previously published pre-determined 4-
star thresholds. If commenters recommend pre-determined 4-star 
thresholds, we request suggestions on how to minimize generating Star 
Ratings that do not reflect a contract's ``true'' performance, 
otherwise referred to as the risk of ``misclassifying'' a contract's 
performance (for example, scoring a ``true'' 4-star contract as a 3-
star contract, or vice versa, or creating ``cliffs'' in Star Ratings 
and therefore, potential benefits between plans with nearly identical 
Star Ratings on different sides of a fixed threshold), and how to 
continue to create incentives for quality improvement. We also welcome 
comments on alternative recommendations for revising the cut point 
methodology. For example, we are considering methodologies that would 
minimize year-to-year changes in the cut points by setting the cut 
points so they are a moving average of the cut points from the two or 
three most recent years or setting caps on the degree to which a 
measure cut point could change from one year to the next. We welcome 
comments on these particular methodologies and recommendations for 
other ways to provide stability for cut points from year to year.
m. Hierarchical Structure of the Ratings
    We propose to continue our existing policy to use a hierarchical 
structure for the Star Ratings. The basic building block of the MA Star 
Ratings System is, and under our proposal would continue to be, the 
measure. Because the MA Star Ratings System consists of a large 
collection of measures across numerous quality dimensions, the measures 
would be organized in a hierarchical structure that provides ratings at 
the measure, domain, Part C summary, Part D summary, and overall 
levels. The regulation text at Sec. Sec.  422.166 and 423.186 is built 
on this structure and provides for calculating ratings at each 
``level'' of the system. The organization of the measures into larger 
groups increases both the utility and efficiency of the rating system. 
At each aggregated level, ratings are based on the measure-level stars. 
Ratings at the higher level are based on the measure-level Star 
Ratings, with whole star increments for domains and half-star 
increments for summary and overall ratings; a rating of 5 stars would 
indicate the highest Star Rating possible, while a rating of 1 star 
would be the lowest rating on the scale. Half-star increments are used 
in the summary and overall ratings to allow for more variation at the 
higher hierarchical levels of the ratings system. We believe this 
greater variation and the broader range of ratings provide more useful 
information to beneficiaries in making enrollment decisions while 
remaining consistent with the statutory direction in sections 1853(o) 
and 1854(b) of the Act to use a 5-star system. These policies for the 
assignment of stars would be codified with other rules for the ratings 
at the domain, summary, and overall level. Domain ratings employ an 
unweighted mean of the measure-level stars, while the Part C and D 
summary and overall ratings employ a weighted mean of the measure-level 
stars and up to two adjustments. We propose to codify these policies at 
paragraphs (b)(2), (c)(1) and (d)(1) of Sec. Sec.  422.166 and 423.186.
n. Domain Star Ratings
    Groups of measures that together represent a unique and important 
aspect of quality and performance are organized to form a domain. 
Domain ratings summarize a plan's performance on a specific dimension 
of care. Currently the domains are used purely for purposes of 
displaying data on Medicare Plan Finder to organize the measures and 
help consumers interpret the data. We propose to continue this policy 
at Sec. Sec.  422.166(b)(1)(i) and 423.186(b)(1)(i).
    At present, there are nine domains--five for Part C measures for 
MA-only and MA-PDs plans and four for Part D measures for MA-PDs. We 
propose to continue to group measures for purposes of display on 
Medicare Plan Finder and to continue use of the same domains as in 
current practice in Sec. Sec.  422.166(b)(1)(i) and 423.196(b)(1)(i). 
The current domains are listed in Tables 5 and 6.

                         Table 5--Part C Domains
------------------------------------------------------------------------
                                 Domain
-------------------------------------------------------------------------
Staying Healthy: Screenings, Tests and Vaccines.
Managing Chronic (Long Term) Conditions.
Member Experience with Health Plan.

[[Page 56400]]

 
Member Complaints and Changes in the Health Plan's Performance.
Health Plan Customer Service.
------------------------------------------------------------------------


                         Table 6--Part D Domains
------------------------------------------------------------------------
                                 Domain
-------------------------------------------------------------------------
Drug Plan Customer Service.
Member Complaints and Changes in the Drug Plan's Performance.
Member Experience with the Drug Plan.
Drug Safety and Accuracy of Drug Pricing.
------------------------------------------------------------------------

    Currently, Star Ratings for domains are calculated using the 
unweighted mean of the Star Ratings of the included measures. They are 
displayed to the nearest whole star, using a 1-5 star scale. We propose 
to continue this policy at paragraph (b)(2)(ii). We also propose that a 
contract must have stars for at least 50 percent of the measures 
required to be reported for that domain for that contract type to have 
that domain rating calculated in order to have enough data to reflect 
the contract's performance on the specific dimension. For example, if a 
contract is rated only on one measure in Staying Healthy: Screenings, 
Tests and Vaccines, that one measure would not necessarily be 
representative of how the contract performs across the whole domain so 
we do not believe it is appropriate to calculate and display a domain 
rating. We propose to continue this policy by providing, at paragraph 
(b)(2)(i), that a minimum number of measures must be reported for a 
domain rating to be calculated.
o. Part C and D Summary Ratings
    In the current rating system the Part C summary rating provides a 
rating of the health plan quality and the Part D summary rating 
provides a rating of the prescription drug plan quality. We are 
proposing, at Sec. Sec.  422.166(c) and 423.186(c), to codify 
regulation text governing the adoption of Part C summary ratings and 
Part D summary ratings. An MA-only plan and a Part D standalone plan 
would receive a summary rating only for, respectively, Part C measures 
and Part D measures.
    First, in paragraphs (c)(1) of each section, we propose the overall 
formula for calculating the summary ratings for Part C and Part D. 
Under current policy, the summary rating for an MA-only contract is 
calculated using a weighted mean of the Part C measure-level Star 
Ratings with up to two adjustments: The reward factor (if applicable) 
and the categorical adjustment index (CAI); similarly, the current 
summary rating for a PDP contract is calculated using a weighted mean 
of the Part D measure-level Star Ratings with up to two adjustments: 
The reward factor (if applicable) and the CAI. We propose in Sec. Sec.  
422.166(c)(1) and 423.186(c)(1) that the Part C and Part D summary 
ratings would be calculated as the weighted mean of the measure-level 
Star Ratings with an adjustment to reward consistently high performance 
(reward factor) and the application of the CAI, pursuant to paragraph 
(f) (where we propose the specifics for these adjustments) for Parts C 
and D, respectively.
    Second, and also consistent with current policy, we propose an MA-
only contract and PDP would have a summary rating calculated only if 
the contract meets the minimum number of rated measures required for 
its respective summary rating: A contract must have scores for at least 
50 percent of the measures required to be reported for the contract 
type to have the summary rating calculated. The proposed regulation 
text would be codified as paragraph (c)(2)(i) of Sec. Sec.  422.166 and 
423.186. The same rules would be applied to both the Part C and Part D 
summary ratings for the minimum number of rated measures and flags for 
display. We would apply this regulation to require a MA-PD to have a 
Part C and a Part D summary rating if the minimum requirement of rated 
measures for each summary rating type is met. The improvement measures 
are based on identified measures that are each counted towards meeting 
the proposed requirement for the calculation of a summary rating. We 
propose (at paragraph (c)(2)(ii)) that the improvement measures 
themselves are not included in the count of minimum number of measures 
for the Part C or Part D summary ratings.
    Third, we propose a paragraph (c)(3) in both Sec. Sec.  422.166 and 
423.186 to provide that the summary ratings are on a 1 to 5 star scale 
in half-star increments. Traditional rounding rules would be employed 
to round the summary rating to the nearest half-star. The summary 
rating would be displayed in HPMS and Medicare Plan Finder to the 
nearest half-star. As proposed in Sec. Sec.  422.166(h) and 423.186(h), 
if a contract has not met the measure requirement for calculating a 
summary rating, the display in HPMS (and on Medicare Plan Finder) for 
the applicable summary rating would be the flag ``Not enough data 
available'' or if the measurement period is less than 1 year past the 
contract's effective date the flag would be ``Plan too new to be 
measured''.
    We welcome comments on the calculations for the Part C and D 
summary ratings.
p. Overall Rating
    The overall Star Rating is a global rating that summarizes the 
plan's quality and performance for the types of services offered by the 
plans under the rated contract. We propose at Sec. Sec.  422.166(d) and 
423.186(d) to codify the standards for calculating and assigning 
overall Star Ratings for MA-PD contracts. The overall rating for an MA-
PD contract is proposed to be calculated using a weighted mean of the 
Part C and Part D measure level Star Ratings, respectively, with an 
adjustment to reward consistently high performance described in 
paragraph (f)(1) and the application of the CAI, pursuant to described 
in paragraph (f)(2).
    Consistent with current policy, we propose at paragraph (d)(2) that 
an MA-PD would have an overall rating calculated only if the contract 
receives both a Part C and Part D summary rating, and scores for at 
least 50% of the measures are required to be reported for the contract 
type to have the overall rating calculated. As with the Part C and D 
summary ratings, the Part C and D improvement measures would not be 
included in the count for the minimum number of measures for the 
overall rating. Any measure that shares the same data and is included 
in both the Part C and Part D summary ratings would be included only 
once in the calculation for the overall rating; for example, Members 
Choosing to Leave the Plan and Complaints about the Plan. As with 
summary ratings, we propose that overall MA-PD ratings would use a 1 to 
5 star scale in half-star increments; traditional rounding rules would 
be employed to round the overall rating to the nearest half-star. These 
policies are proposed as paragraphs (d)(2)(i) through (iv).
    In accordance with our general proposed policy at Sec. Sec.  
422.166(h) and 423.186(h), the overall rating would be posted on HPMS 
and Medicare Plan Finder, with specific messages for lack of ratings 
for certain reasons. Applying that rule, if an MA-PD contract has only 
one of the two required summary ratings, the overall rating would not 
be calculated and the display in HPMS would be the flag ``Not enough 
data available.''
    For QBP purposes, low enrollment contracts and new MA plans are 
defined in Sec.  422.252. Low enrollment contract

[[Page 56401]]

means a contract that could not undertake Healthcare Effectiveness Data 
and Information Set (HEDIS) and Health Outcomes Survey (HOS) data 
collections because of a lack of a sufficient number of enrollees to 
reliably measure the performance of the health plan; new MA plan means 
a MA contract offered by a parent organization that has not had another 
MA contract in the previous 3 years. Low enrollment contracts and new 
plans do not receive an overall or summary rating because of the lack 
of necessary data. However, they are treated as qualifying plans for 
the purposes of QBPs. Section 1853(o)(3)(A)(ii)(II) of the Act, as 
implemented at Sec.  422.258(d)(7), provides that for 2013 and 
subsequent years, CMS shall develop a method for determining whether an 
MA plan with low enrollment is a qualifying plan for purposes of 
receiving an increase in payment under section 1853(o). This 
determination is applied at the contract level and thus determines 
whether a contract (meaning all plans under that contract) is a 
qualifying contract. The statute, at section 1853(o)(3)(A)(iii) of the 
Act, provides for treatment of new MA plans as qualifying plans 
eligible for a specific QBP. We therefore propose, at Sec. Sec.  
422.166(d)(3) and 423.186(d)(3), that low enrollment contracts (as 
defined in Sec.  422.252 of this chapter) and new MA plans (as defined 
in Sec.  422.252 of this chapter) do not receive an overall and/or 
summary rating; they would be treated as qualifying plans for the 
purposes of QBPs as described in Sec.  422.258(d)(7) of this chapter 
and announced through the process described for changes in and adoption 
of payment and risk adjustment policies in section 1853(b) of the Act. 
This proposal would merely codify existing policy and practice.
q. Measure Weights
    Prior to the 2012 Part C and D Plan Ratings (now known as Star 
Ratings), all individual measures included in the program were weighted 
equally, suggesting equal importance. Based on feedback from 
stakeholders, including health and drug plans and beneficiary advocacy 
groups, we moved to provide greater weight to clinical outcomes and 
lesser weight to process measures. Patient experience and access 
measures were also given greater weight than process measures, but not 
as high as outcome measures. The differential weighting was implemented 
to help create further incentives to drive improvement in clinical 
outcomes, patient experience, and access. These differential weights 
for measures were implemented for the 2012 Ratings following a May 2011 
Request for Comments and adopted in the CY2013 Rate Announcement and 
Final Call Letter.
    In the Contract Year 2012 Final Rule for Changes to the Medicare 
Advantage and the Medicare Prescription Drug Benefit Programs rule (79 
FR 21486), we stated that scoring methodologies should also consider 
improvement as an independent goal. To this end, we implemented in the 
CY 2013 Rate Announcement the Part C and D improvement measures that 
measure the overall improvement or decline in individual measure scores 
from the prior to the current year. Given the importance of recognizing 
quality improvement as an independent goal, for the 2015 Star Ratings, 
we proposed and subsequently finalized through the 2015 Rate 
Announcement and final Call Letter an increase in the weight of the 
improvement measure from 3 times to 5 times that of a process measure. 
This weight aligns the Part C and D Star Ratings program with value-
based purchasing programs in Medicare fee-for-service which heavily 
weight improvement.
    We are proposing in Sec. Sec.  422.166(e) and 423.186(e) to 
continue the current weighting of measures in the Part C and D Star 
Ratings program by assigning the highest weight (5) to improvement 
measures, followed by outcome and intermediate outcome measures (weight 
of 3), then by patient experience/complaints and access measures 
(weight of 1.5), and finally process measures (weight of 1). We are 
considering increasing the weight of the patient experience/complaints 
and access measures and are interested in stakeholder feedback on this 
potential change in order to reflect better the importance of these 
issues in plan performance. If we were to increase the weight, we are 
considering increasing it from a weight of 1.0 to between 1.5 and 3 
similar to outcome measures. This increased weight would reflect CMS' 
commitment to serve Medicare beneficiaries by putting the patients 
first, including their assessments of the care received by plans. We 
solicit comment on this point, particularly the potential change in the 
weight of the patient experience/complaints and access measures.
    Table 7 includes the proposed measure categories, the definitions 
of the measure categories, and the weights. In calculating the summary 
and overall ratings, a measure given a weight of 3 counts three times 
as much as a measure given a weight of 1. In section III.A.12. of this 
proposed rule, we propose (as Table 2) the measure set and include the 
category and weight for each measure; those weight assignments are 
consistent with this proposal. We propose that as new measures are 
added to the Part C and D Star Ratings, we would assign the measure 
category based on these categories and the regulation text proposed at 
Sec. Sec.  422.166(e) and 423.186(e), subject to two exceptions. We 
propose in paragraphs (e)(2) of each section as the first exception, to 
assign new measures to the Star Ratings program a weight of 1 for their 
first year in the Star Ratings. In subsequent years the weight 
associated with the measure weighting category would be used. This is 
consistent with current policy.

                              Table 7--Measure Categories, Definitions and Weights
----------------------------------------------------------------------------------------------------------------
              Measure category                                    Definition                          Weight
----------------------------------------------------------------------------------------------------------------
Improvement.................................  Part C and Part D improvement measures are derived               5
                                               through comparisons of a contract's current and
                                               prior year measure scores.
Outcome and Intermediate Outcome............  Outcome measures reflect improvements in a                       3
                                               beneficiary's health and are central to assessing
                                               quality of care. Intermediate outcome measures
                                               reflect actions taken which can assist in
                                               improving a beneficiary's health status.
                                               Controlling Blood Pressure is an example of an
                                               intermediate outcome measure where the related
                                               outcome of interest would be better health status
                                               for beneficiaries with hypertension.
Patient Experience/Complaints...............  Patient experience measures reflect beneficiaries'             1.5
                                               perspectives of the care and services they
                                               received.
Access......................................  Access measures reflect processes and issues that              1.5
                                               could create barriers to receiving needed care.
                                               Plan Makes Timely Decisions about Appeals is an
                                               example of an access measure.

[[Page 56402]]

 
Process.....................................  Process measures capture the health care services                1
                                               provided to beneficiaries which can assist in
                                               maintaining, monitoring, or improving their
                                               health status.
----------------------------------------------------------------------------------------------------------------

    In addition, we propose (at Sec. Sec.  422.166(e)(3) and 
423.186(e)(3)) a second exception to the general weighting rule for MA 
and Part D contracts that have service areas that are wholly located in 
Puerto Rico. We recognize the additional challenge unique to Puerto 
Rico related to the medication adherence measures used in the Star 
Ratings Program due to the lack of Low Income Subsidy (LIS). For the 
2017 Star Ratings, we implemented a different weighting scheme for the 
Part D medication adherence measures in the calculation of the overall 
and summary Star Ratings for contracts that solely serve the population 
of beneficiaries in Puerto Rico. We propose, at Sec. Sec.  
422.166(e)(3) and 423.186(e)(3), to continue to reduce the weights for 
the adherence measures to 0 for the summary and overall rating 
calculations and maintain the weight of 3 for the adherence measures 
for the improvement measure calculations for contracts that solely 
serve the population of beneficiaries in Puerto Rico. We request 
comment on our proposed weighting strategy for Measure Weights 
generally and for Puerto Rico, including the weighting values 
themselves.
r. Application of the Improvement Measure Scores
    Consistent with current policy, we propose at Sec. Sec.  422.166(g) 
and 423.186(g) a hold harmless provision for the inclusion or exclusion 
of the improvement measure(s) for highly-rated contracts' highest 
ratings. We are proposing, in paragraphs (g)(1)(i) through (iii), a 
series of rules that specify when the improvement measure is included 
in calculating overall and summary ratings.
    MA-PDs would have the hold harmless provisions for highly-rated 
contracts applied for the overall rating. For an MA-PD that receives an 
overall rating of 4 stars or more without the use of the improvement 
measures and with all applicable adjustments (CAI and the reward 
factor), a comparison of the rounded overall rating with and without 
the improvement measures is done. The overall rating with the 
improvement measures used in the comparison would include up to two 
adjustments, the reward factor (if applicable) and the CAI. The overall 
rating without the improvement measures used in the comparison would 
include up to two adjustments, the reward factor (if applicable) and 
the CAI. The higher overall rating would be used for the overall 
rating. For an MA-PD that has an overall rating of 2 stars or less 
without the use of the improvement measure and with all applicable 
adjustments (CAI and the reward factor), the overall rating would 
exclude the improvement measure. For all others, the overall rating 
would include the improvement measure.
    MA-only and PDPs would have the hold harmless provisions for 
highly-rated contracts applied for the Part C and D summary ratings, 
respectively. For an MA-only or PDP that receives a summary rating of 4 
stars or more without the use of the improvement measure and with all 
applicable adjustments (CAI and the reward factor), a comparison of the 
rounded summary rating with and without the improvement measure and up 
to two adjustments, the reward factor (if applicable) and CAI, is done. 
The higher summary rating would be used for the summary rating for the 
contract's highest rating. For MA-only and PDPs with a summary rating 
of 2 stars or less without the use of the improvement measure and with 
all applicable adjustments (CAI and the reward factor), the summary 
rating would exclude the improvement measure. For all others, the 
summary rating would include the improvement measure. MA-PDs would have 
their summary ratings calculated with the use of the improvement 
measure regardless of the value of the summary rating.
    In addition, at paragraph (g)(2), we also propose text to clarify 
that summary ratings use only the improvement measure associated with 
the applicable Part C or D performance.
    We welcome comments on the hold harmless improvement provision we 
propose to continue to use, particularly any clarifications in how and 
when it should be applied.
s. Reward Factor (Formerly Referred to as Integration Factor)
    In 2011, the integration factor was added to the Star Ratings 
methodology to reward contracts that have consistently high 
performance. The integration factor was later renamed the reward 
factor. (The reference to either reward or integration factor refers to 
the same aspect of the Star Ratings.) This factor is calculated 
separately for the Part C summary rating, Part D summary rating for MA-
PDs, Part D summary rating for PDPs, and the overall rating for MA-PDs. 
It is currently added to the summary (Part C or D) and overall rating 
of contracts that have both high and stable relative performance for 
the associated summary or overall rating. The contract's performance 
will be assessed using its weighted mean relative to all rated 
contracts without adjustments.
    The contract's stability of performance will be assessed using its 
weighted variance relative to all rated contracts at the same rating 
level (overall, summary Part C, and summary Part D). The Part D summary 
thresholds for MA-PDs are determined independently of the thresholds 
for PDPs. We propose to codify the calculation and use of the reward 
factor in Sec. Sec.  422.166(f)(1) and 423.186(f)(1).
    Annually, we propose to update the performance and variance 
thresholds for the reward factor based upon the data for the Star 
Ratings year, consistent with current policy. A multistep process would 
be used to determine the values that correspond to the thresholds for 
the reward factors for the summary and/or overall Star Ratings for a 
contract. The determination of the reward factors would rely on the 
contract's ranking of its weighted variance and weighted mean of the 
measure-level stars to the summary or overall rating relative to the 
distribution of all contracts' weighted variance and weighted mean to 
the summary and/or overall rating. A contract's weighted variance would 
be calculated using the quotient of the following two values: (1) The 
product of the number of applicable measures based on rating-type and 
the sum of the products of the weight of each applicable measure and 
its squared deviation \42\ and (2) the product of one less than the 
number of applicable measures and the sum of the weights of the 
applicable measures. A contract's weighted mean performance would be

[[Page 56403]]

found by calculating the quotient of the following two values: (1) The 
sum of the products of the weight of a measure and its associated 
measure-level Star Ratings of the applicable measures for the rating-
type and (2) the sum of the weights of the applicable measures for the 
rating type. The thresholds for the categorization of the weighted 
variance and weighted mean for contracts would be based upon the 
distribution of the calculated values of all rated contracts of the 
same type. Because highly-rated contracts may have the improvement 
measure(s) excluded in the determination of their final highest rating, 
each contract's weighted variance and weighted mean is calculated both 
with and without the improvement measures.
---------------------------------------------------------------------------

    \42\ A deviation is the difference between the performance 
measure's Star Rating and the weighted mean of all applicable 
measures for the contract.
---------------------------------------------------------------------------

    A contract's weighted variance is categorized into one of three 
mutually exclusive categories, identified in Table 8A, based upon the 
weighted variance of its measure-level Star Ratings and its ranking 
relative to all other contracts' weighted variance for the rating type 
(Part C summary for MA-PDs and MA-only, overall for MA-PDs, Part D 
summary for MA-PDs, and Part D summary for PDPs), and the manner in 
which the highest rating for the contract was determined--with or 
without the improvement measure(s). For an MA-PD's Part C and D summary 
ratings, its ranking is relative to all other contracts' weighted 
variance for the rating type (Part C summary, Part D summary) with the 
improvement measure. Similarly, a contract's weighted mean is 
categorized into one of three mutually exclusive categories, identified 
in Table 8B, based on its weighted mean of all measure-level Star 
Ratings and its ranking relative to all other contracts' weighted means 
for the rating type (Part C summary for MA-PDs and MA-only, overall, 
Part D summary for MA-PDs, and Part D summary for PDPs) and the manner 
in which the highest rating for the contract was determined--with or 
without the improvement measure(s). For an MA-PD's Part C and D summary 
ratings, its ranking is relative to all other contracts' weighted means 
for the rating type (Part C summary, Part D summary) with the 
improvement measure. Further, the same threshold criterion is employed 
per category regardless of whether the improvement measure was included 
or excluded in the calculation of the rating. The values that 
correspond to the thresholds are based on the distribution of all rated 
contracts and are determined with and without the improvement 
measure(s) and exclusive of any adjustments. Table 8A details the 
criteria for the categorization of a contract's weighted variance for 
the summary and overall ratings. Table 8B details the criteria for the 
categorization of a contract's weighted mean (performance) for the 
overall and summary ratings. The values that correspond to the cutoffs 
are provided each year during the plan preview and are published in the 
Technical Notes.

                                      Table 8A--Categorization of a Contract Based on Its Weighted Variance Ranking
--------------------------------------------------------------------------------------------------------------------------------------------------------
                Variance category                                                                 Ranking
--------------------------------------------------------------------------------------------------------------------------------------------------------
Low.............................................  Below the 30th percentile.
Medium..........................................  At or above the 30th percentile to less than the 70th percentile.
High............................................  At or above the 70th percentile.
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                   Table 8B--Categorization of a Contract Based on Weighted Mean (Performance) Ranking
--------------------------------------------------------------------------------------------------------------------------------------------------------
      Weighted mean  (performance) category                                                       Ranking
--------------------------------------------------------------------------------------------------------------------------------------------------------
High............................................  At or above the 85th percentile.
Relatively High.................................  At or above the 65th percentile to less than the 85th percentile.
Other...........................................  Below the 65th percentile.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    These definitions of high, medium, and low weighted variance 
ranking and high, relatively high, and other weighted mean ranking 
would be codified in narrative form in paragraph (f)(1)(ii).
    A contract's categorization for both weighted mean and weighted 
variance determines the value of the reward factor. Table 9 shows the 
values of the reward factor based on the weighted variance and weighted 
mean categorization; these values would be codified, as a chart, in 
paragraph (f)(i)(iii). The weighted variance and weighted mean 
thresholds for the reward factor are available in the Technical Notes 
and updated annually.

       Table 9--Categorization of a Contract for the Reward Factor
------------------------------------------------------------------------
                                        Weighted mean
         Weighted variance              (performance)     Reward  factor
------------------------------------------------------------------------
Low...............................  High................             0.4
Medium............................  High................             0.3
Low...............................  Relatively High.....             0.2
Medium............................  Relatively high.....             0.1
High..............................  Other...............             0.0
------------------------------------------------------------------------

    We propose to continue the use of a reward factor to reward 
contracts with consistently high and stable performance over time. 
Further, we propose to continue to employ the methodology described in 
this subsection to categorize and determine the reward factor for 
contracts. As proposed in paragraphs (c)(1) and (d)(1), these reward 
factor adjustments would be applied at the summary and overall rating 
level.

[[Page 56404]]

t. Categorical Adjustment Index
    A growing body of evidence links the prevalence of beneficiary-
level social risk factors with performance on measures included in 
Medicare value-based purchasing programs, including MA and Part D Star 
Ratings. With support from our contractors, we undertook research to 
provide scientific evidence as to whether MA organizations or Part D 
sponsors that enroll a disproportionate number of vulnerable 
beneficiaries are systematically disadvantaged by the current Star 
Ratings. In 2014, we issued a Request for Information to gather 
information directly from organizations to supplement the data that CMS 
collects, as we believe that plans and sponsors are uniquely positioned 
to provide both qualitative and quantitative information that is not 
available from other sources. In February and September 2015, we 
released details on the findings of our research.\43\ We have also 
reviewed reports about the impact of socio-economic status (SES) on 
quality ratings, such as the report published by the NQF posted at 
www.qualityforum.org/risk_adjustment_ses.aspx and the Medicare Payment 
Advisory Commission's (MedPAC) Report to the Congress: Medicare Payment 
Policy posted at http://www.medpac.gov/docs/default-source/reports/march-2016-report-to-the-congress-medicare-payment-policy.pdf?sfvrsn=0. 
We have more recently been reviewing reports prepared by the Office of 
the Assistant Secretary for Planning and Evaluation (ASPE \44\) and the 
National Academies of Sciences, Engineering, and Medicine on the issue 
of measuring and accounting for social risk factors in CMS' value-based 
purchasing and quality reporting programs, and we have been considering 
options on how to address the issue in these programs. On December 21, 
2016, ASPE submitted a Report to Congress on a study it was required to 
conduct under section 2(d) of the Improving Medicare Post-Acute Care 
Transformation (IMPACT) Act of 2014. The study analyzed the effects of 
certain social risk factors of Medicare beneficiaries on quality 
measures and measures of resource use in nine Medicare value-based 
purchasing programs. The report also included considerations for 
strategies to account for social risk factors in these programs. A 
January 10, 2017 report released by the National Academies of Sciences, 
Engineering, and Medicine provided various potential methods for 
measuring and accounting for social risk factors, including stratified 
public reporting.\45\
---------------------------------------------------------------------------

    \43\ The February release can be found at https://www.cms.gov/medicareprescription-drug-coverage/prescriptiondrugcovgenin/performancedata.html.
    The September release can be found at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovGenIn/Downloads/Research-on-the-Impact-of-Socioeconomic-Status-on-Star-Ratingsv1-09082015.pdf.
    \44\ https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \45\ National Academies of Sciences, Engineering, and Medicine. 
2017. Accounting for social risk factors in Medicare payment. 
Washington, DC: The National Academies Press--https://www.nap.edu/catalog/21858/accounting-for-social-risk-factors-in-medicare-payment-identifying-social.
---------------------------------------------------------------------------

    We have also engaged NCQA and the PQA to examine their measure 
specifications used in the Star Ratings program to determine if re-
specification is warranted. The majority of measures used for the Star 
Ratings program are consensus-based. Measure specifications can be 
changed only by the measure steward (the owner and developer of the 
measure). Thus, measure scores cannot be adjusted for differences in 
enrollee case mix unless required by the measure steward. Measure re-
specification is a multiyear process. For example, NCQA has a standard 
process for reviewing any measure and determining whether a measure 
requires re-specification. NCQA's re-evaluation process is designed to 
ensure any resulting measure updates have desirable attributes of 
relevance, scientific soundness, and feasibility:
     Relevance describes the extent to which the measure 
captures information important to different groups, for example, 
consumers, purchasers, policymakers. To determine relevance, NCQA 
assesses issues such as health importance, financial importance, and 
potential for improvement among entities being measured.
     Scientific soundness captures the extent to which the 
measure adheres to clinical evidence and whether the measure is valid, 
reliable, and precise.
     Feasibility captures the extent to which a measure can be 
collected at reasonable cost and without undue burden. To determine 
feasibility, NCQA also assesses whether a measure is precisely 
specified and can be audited. The overall process for assessing the 
value of re-specification emphasizes multi-stakeholder input, use of 
evidence-based guidelines and data, and wide public input.
    Beginning with 2017 Star Ratings, we implemented the CAI that 
adjusts for the average within-contract disparity in performance 
associated with the percentages of beneficiaries who receive a low 
income subsidy and/or are dual eligible (LIS/DE) and/or have disability 
status. We developed the CAI as an interim analytical adjustment while 
we developed a long-term solution. The adjustment factor varies by a 
contract's categorization into a final adjustment category that is 
determined by a contract's proportion of LIS/DE and beneficiaries with 
disabilities. By design, the CAI values are monotonic in at least one 
dimension (LIS/DE or disability status) and thus, contracts with larger 
LIS/DE and/or disability percentages realize larger positive 
adjustments. MA-PD contracts can have up to three rating-specific CAI 
adjustments--one for the overall Star Rating and one for each of the 
summary ratings (Part C and Part D). MA-only contracts can have one 
adjustment for the Part C summary rating. PDPs can have one adjustment 
for the Part D summary rating. We propose to codify the calculation and 
use of the reward factor and the CAI in Sec. Sec.  422.166(f)(2) and 
423.186(f)(2), while we consider other alternatives for the future.
    As is currently done today, the adjusted measure scores of a subset 
of the Star Ratings measures would serve as the foundation for the 
determination of the index values. Measures would be excluded as 
candidates for adjustment if the measures are already case-mix adjusted 
for SES (for example, CAHPS and HOS outcome measures), if the focus of 
the measurement is not a beneficiary-level issue but rather a plan or 
provider-level issue (for example, appeals, call center, Part D price 
accuracy measures), if the measure is scheduled to be retired or 
revised during the Star Rating year in which the CAI is being applied, 
or if the measure is applicable to only Special Needs Plans (SNPs) (for 
example, SNP Care Management, Care for Older Adults measures). We 
propose to codify these paragraphs for determining the measures for CAI 
values at paragraph (f)(2)(ii).The categorization of a beneficiary as 
LIS/DE for the CAI would rely on the monthly indicators in the 
enrollment file. For the determination of the CAI values, the 
measurement period would correspond to the previous Star Ratings year's 
measurement period. For the identification of a contract's final 
adjustment category for its application of the CAI in the current 
year's Star Ratings Program, the measurement period would align with 
the Star Ratings year. If a beneficiary was designated as full or 
partially dually eligible or receiving a LIS at any time during the 
applicable measurement period, the

[[Page 56405]]

beneficiary would be categorized as LIS/DE. For the categorization of a 
beneficiary as disabled, we would employ the information from the 
Social Security Administration (SSA) and Railroad Retirement Board 
(RRB) record systems. Disability status would be determined using the 
variable original reason for entitlement (OREC) for Medicare. The 
percentages of LIS/DE and disability per contract would rely on the 
Medicare enrollment data from the applicable measurement year. The 
counts of beneficiaries for enrollment and categorization of LIS/DE and 
disability would be restricted to beneficiaries that are alive for part 
or all of the month of December of the applicable measurement year. 
Further, a beneficiary would be assigned to the contract based on the 
December file of the applicable measurement period. We propose to 
codify these paragraphs for determining the enrollment counts at 
paragraph (f)(2)(i)(B).
    Using the subset of the measures that meet the basic inclusion 
requirements, we propose to select the measure set for adjustment based 
on the analysis of the dispersion of the LIS/DE within-contract 
differences using all reportable numeric scores for contracts receiving 
a rating in the previous rating year. For the selection of the Part D 
measures, MA-PDs and PDPs would be independently analyzed. For each 
contract, the proportion of beneficiaries receiving the measured 
clinical process or outcome for LIS/DE and non-LIS/DE beneficiaries 
would be estimated separately, and the difference between the LIS/DE 
and non-LIS/DE performance rates per contract would be calculated. CMS 
would use a logistic mixed effects model for estimation purposes that 
includes LIS/DE as a predictor, random effects for contract and an 
interaction term of contract and LIS/DE.
    Using the analysis of the dispersion of the within-contract 
disparity of all contracts included in the modelling, the measures for 
adjustment would be identified employing the following decision 
criteria: (1) A median absolute difference between LIS/DE and non-LIS/
DE beneficiaries for all contracts analyzed is 5 percentage points or 
more or \46\ (2) the LIS/DE subgroup performed better or worse than the 
non-LIS/DE subgroup in all contracts. We propose to codify these 
paragraphs for the selection criteria for the adjusted measures for the 
CAI at paragraph (f)(2)(iii).
---------------------------------------------------------------------------

    \46\ The use of the word `or' in the decision criteria implies 
that if one condition or both conditions are met, the measure would 
be selected for adjustment.
---------------------------------------------------------------------------

    The Part D measures for PDPs would be analyzed separately. In order 
to apply consistent adjustments across MA-PDs and PDPs, the Part D 
measures would be selected by applying the selection criteria to MA-PDs 
and PDPs independently and, then, selecting measures that met the 
criteria for either delivery system. The measure set for adjustment of 
Part D measures for MA-PDs and PDPs would be the same after applying 
the selection criteria and pooling the Part D measures for MA-PDs and 
PDPs. We propose to codify these paragraphs for the selection of the 
adjusted measure set for the CAI for MA-PDs and PDPs at (f)(2)(iii)(C). 
We also seek comment on the proposed methodology and criteria for the 
selection of the measures for adjustment. Further, we seek comment on 
alternative methods or rules to select the measures for adjustment for 
future rulemaking.
    Annually, while the CAI is being developed using the rules we are 
proposing here, we would release on CMS.gov an updated analysis of the 
subset of the Star Ratings measures identified for adjustment using 
this rule as ultimately finalized. Basic descriptive statistics would 
include the minimum, median, and maximum values for the within-contract 
variation for the LIS/DE differences. The set of measures for 
adjustment for the determination of the CAI would be announced in the 
draft Call Letter.
    We propose, at paragraph (f)(2)(iv) of each regulation, to 
determine the adjusted measure scores for LIS/DE and disability status 
from regression models of beneficiary-level measure scores that adjust 
for the average within-contract difference in measure scores for MA or 
PDP contracts. The approach employed to determine the adjusted measure 
scores approximates case-mix adjustment using a beneficiary-level, 
logistic regression model with contract fixed effects and beneficiary-
level indicators of LIS/DE and disability status, similar to the 
approach currently used to adjust CAHPS patient experience measures. 
However, unlike CAHPS case-mix adjustment, the only adjusters would be 
LIS/DE and disability status.
    The sole purpose of the adjusted measure scores is for the 
determination of the CAI values. The adjusted measure scores would be 
converted to a measure-level Star Rating using the measure thresholds 
for the Star Ratings year that corresponds to the measurement period of 
the data employed for the CAI determination.
    All contracts would have their adjusted summary rating(s) and for 
MA-PDs, an adjusted overall rating, calculated employing the standard 
methodology proposed at Sec. Sec.  422.166 and 423.186 (which would 
also be outlined in the Technical Notes each year), using the subset of 
adjusted measure-level Star Ratings and all other unadjusted measure-
level Star Ratings. In addition, all contracts would have their summary 
rating(s) and for MA-PDs, an overall rating, calculated using the 
traditional methodology and all unadjusted measure-level Star Ratings.
    For the annual development of the CAI, the distribution of the 
percentages for LIS/DE and disabled using the enrollment data that 
parallels the previous Star Ratings year's data would be examined to 
determine the number of equal-sized initial groups for each attribute 
(LIS/DE and disabled). The initial categories would be created using 
all groups formed by the initial LIS/DE and disabled groups. The total 
number of initial categories would be the product of the number of 
initial groups for LIS/DE and the number of initial groups for the 
disabled dimension.
    The mean difference between the adjusted and unadjusted summary or 
overall ratings per initial category would be calculated and examined. 
The initial categories would then be collapsed to form the final 
adjustment categories. The collapsing of the initial categories to form 
the final adjustment categories would be done to enforce monotonicity 
in at least one dimension (LIS/DE or disabled). The mean difference 
within each final adjustment category by rating-type (Part C, Part D 
for MA-PD, Part D for PDPs, or overall) would be the CAI values for the 
next Star Ratings year.
    The percentage of LIS/DE is a critical element in the 
categorization of contracts into the final adjustment category to 
identify a contract's CAI. Starting with the 2017 Star Ratings, we 
applied an additional adjustment for contracts that solely serve the 
population of beneficiaries in Puerto Rico to address the lack of LIS 
in Puerto Rico. The adjustment results in a modified percentage of LIS/
DE beneficiaries that is subsequently used to categorize contracts into 
the final adjustment category for the CAI.
    We propose to continue this adjustment and to calculate the 
contract-level modified LIS/DE percentage for Puerto Rico using the 
following sources of information: The most recent data available at the 
time of the development of the model of both the 1-year American 
Community Survey (ACS) estimates for the percentage of people living 
below the Federal Poverty Level (FPL) and the ACS 5-year estimates for 
the percentage of people living below 150 percent of the FPL, and

[[Page 56406]]

the Medicare enrollment data from the same measurement period used for 
the Star Ratings year.
    The data to develop the model would be limited to the 10 states, 
drawn from the 50 states plus the District of Columbia, with the 
highest proportion of people living below the FPL as identified by the 
1-year ACS estimates. Further, the Medicare enrollment data would be 
aggregated from MA contracts that had at least 90 percent of their 
enrolled beneficiaries with mailing addresses in the 10 highest poverty 
states. A linear regression model would be developed using the known 
LIS/DE percentage and the corresponding DE percentage from the subset 
of MA contracts.
    The estimated slope from the linear regression approximates the 
expected relationship between LIS/DE for each contract in Puerto Rico 
and its DE percentage. The intercept term is adjusted for use with 
Puerto Rico contracts by assuming that the Puerto Rico model will pass 
through the point (x, y) where x is the observed average DE percentage 
in the Puerto Rico contracts based on the enrollment data, and y is the 
expected average percentage of LIS/DE in Puerto Rico. The expected 
average percentage of LIS/DE in Puerto Rico (the y value) is not 
observable, but is estimated by multiplying the observed average 
percentage of LIS/DE in the 10 highest poverty states by the ratio 
based on the most recent 5-year ACS estimates of the percentage living 
below 150 percent of the FPL in Puerto Rico compared to the 
corresponding percentage in the set of 10 states with the highest 
poverty level. (Further details of the methodology can be found in the 
CAI Methodology Supplement available at http://go.cms.gov/partcanddstarratings.)
    Using the model developed from this process, the estimated modified 
LIS/DE percentage for contracts operating solely in Puerto Rico would 
be calculated. The maximum value for the modified LIS/DE indicator 
value per contract would be capped at 100 percent. All estimated 
modified LIS/DE values for Puerto Rico would be rounded to 6 decimal 
places when expressed as a percentage.
    We propose to continue to employ the LIS/DE indicator for contracts 
operating solely in Puerto Rico while the CAI is being used as an 
interim analytical adjustment. Further, we propose that the modeling 
results would continue to be detailed in the appendix of the Technical 
Notes and the modified LIS/DE percentages would be available for 
contracts to review during the plan previews.
    We propose to continue the use of the CAI while the measure 
stewards continue their examination of the measure specifications and 
ASPE completes their studies mandated by the IMPACT Act and formalizes 
final recommendations. Contracts would be categorized based on their 
percentages of LIS/DE and disability using the data as outlined 
previously. The CAI value would be the same for all contracts within 
each final adjustment category. The CAI values would be determined 
using data from all contracts that meet reporting requirements from the 
prior year's Star Rating data. The CAI calculation for the PDPs would 
be performed separately and use the PDP specific cut points. Under our 
proposal, CMS would include the CAI values in the draft and final Call 
Letter attachment of the Advance Notice and Rate Announcement each year 
while the interim solution is applied. The values for the CAI value 
would be displayed to 6 decimal places. Rounding would take place after 
the application of the CAI value and if applicable, the reward factor; 
standard rounding rules would be employed. (All summary and overall 
Star Ratings are displayed to the nearest half-star.)
    While we consider the recommendations from the ASPE report, 
findings from measure developers, and work by NQF on risk adjustment 
for quality measures, we are continuing to collaborate with 
stakeholders. We are seeking to balance accurate measurement of genuine 
plan performance, effective identification of disparities, and 
maintenance of incentives to improve the outcomes for disadvantaged 
populations. Keeping this in mind, we continue to seek public comment 
on whether and how we should account for low SES and other social risk 
factors in the Part C and D Star Ratings.
    We look forward to continuing to work with stakeholders as we 
consider the issue of accounting for LIS/DE, disability and other 
social risk factors and reducing health disparities in CMS programs. As 
we have stated previously, we are continuing to consider options to how 
to measure and account for social risk factors in our Star Ratings 
program. What we discovered though our research to date is, although a 
sponsoring organization's administrative costs may increase as a result 
of enrolling significant numbers of beneficiaries with LIS/DE status or 
disabilities, the impacts of SES on the quality ratings are quite 
modest, affect only a small subset of measures, and do not always 
negatively impact the measures. However, CMS would like to better 
understand whether, how, and to what extent a sponsoring organization's 
administrative costs differ for caring for low-income beneficiaries and 
we welcome comment on that topic. Administrative costs may include non-
medical costs such as transportation costs, coordination costs, 
marketing, customer service, quality assurance and costs associated 
with administering the benefit. We continue our commitment toward 
ensuring that all beneficiaries have access to and receive excellent 
care, and that the quality of care furnished by plans is assessed 
fairly in CMS programs.
u. High and Low Performing Icons
    Consistent with our current practice, we are proposing regulation 
text to govern assignment of high and low performing icons at 
Sec. Sec.  422.166(i) and 423.186(i). We propose to continue current 
policy that a contract would receive a high performing icon as a result 
of its performance on the Part C and D measures. The high performing 
icon would be assigned to an MA-only contract for achieving a 5-star 
Part C summary rating, a PDP contract for a 5-star Part D summary 
rating, and an MA-PD contract for a 5-star overall rating.
    We propose that a contract would receive a low performing icon as a 
result of its performance on the Part C or Part D summary ratings. The 
low performing icon would be calculated by evaluating the Part C and 
Part D summary ratings for the current year and the past 2 years (for 
example, the 2016, 2017, and 2018 Star Ratings). If the contract had 
any combination of Part C and Part D summary ratings of 2.5 or lower in 
all 3 years of data, it would be marked with a low performing icon. A 
contract must have a summary rating in either Part C or Part D for all 
3 years to be considered for this icon. These rules would be codified 
at Sec. Sec.  422.166(i)(2)(i) and 423.186(i)(2)(i).
    We also propose, at paragraph (i)(2)(ii), to continue our policy of 
disabling the Medicare Plan Finder online enrollment function for 
Medicare health and prescription drug plans with the low-performing 
icon to ensure that beneficiaries are fully aware that they are 
enrolling in a plan with low quality and performance ratings; we 
believe this is an important beneficiary protection to ensure that the 
decision to enroll in a low rated and low performing plan has been 
thoughtfully considered. Beneficiaries who still want to enroll in a 
low-performing plan or who may need to in order to get the benefits and 
services they require (for example, in geographical areas with limited 
plans) will be warned, via explanatory

[[Page 56407]]

messaging of the plan's poorly rated performance and directed to 
contact the plan directly to enroll.
v. Plan Preview of Star Ratings
    We propose in Sec. Sec.  422.166(i)(3) and 423.186(i)(3) that CMS 
have plan preview periods before each Star Ratings release, consistent 
with current practice. Part C and D sponsors can preview their Star 
Ratings data in HPMS prior to display on the Medicare Plan Finder. 
During the first plan preview, we expect Part C and D sponsors to 
closely review the methodology and their posted numeric data for each 
measure. The second plan preview would include any revisions made as a 
result of the first plan preview. In addition, our preliminary Star 
Ratings for each measure, domain, summary score, and overall score 
would be displayed. During the second plan preview, we expect Part C 
and D sponsors to again closely review the methodology and their posted 
data for each measure, as well as their preliminary Star Rating 
assignments. As part of this regulation, we are proposing that CMS 
continue to offer plan preview periods, but are not codifying the 
details of each period because over time the process has evolved to 
provide more data to sponsors to help validate their data. We envision 
it to continue to evolve in the future and do not believe that 
codifying specific display content is necessary.
    It is important that Part C and D sponsors regularly review their 
underlying measure data that are the basis for the Part C and D Star 
Ratings. For measures that are based on data reported directly from 
sponsors, any issues or problems should be raised well in advance of 
CMS' plan preview periods. A draft version of the Technical Notes would 
be available during the first plan preview. The draft is then updated 
for the second plan preview and finalized when the ratings data have 
been posted to Medicare Plan Finder.
    We welcome comments on the proposed plan preview process.
w. Technical Changes
    We also propose a number of technical changes to other existing 
regulations that refer to the quality ratings of MA and Part D plans; 
we propose to make technical changes to refer to the proposed new 
regulation text that provides for the calculation and assignment of 
Star Ratings. Specifically, we propose:
     In Sec.  422.258(d)(7), to revise paragraph (d)(7) to 
read: Increases to the applicable percentage for quality. Beginning 
with 2012, the blended benchmark under paragraphs (a) and (b) of this 
section will reflect the level of quality rating at the plan or 
contract level, as determined by the Secretary. The quality rating for 
a plan is determined by the Secretary according to the 5-star rating 
system (based on the data collected under section 1852(e) of the Act) 
specified in subpart D of this part 422. Specifically, the applicable 
percentage under paragraph (d)(5) of this section must be increased 
according to criteria in paragraphs (d)(7)(i) through (v) of this 
section if the plan or contract is determined to be a qualifying plan 
or a qualifying plan in a qualifying county for the year.
     In Sec.  422.260(a), to revise the paragraph to read: 
Scope. The provisions of this section pertain to the administrative 
review process to appeal quality bonus payment status determinations 
based on section 1853(o) of the Act. Such determinations are made based 
on the overall rating for MA-PDs and Part C summary rating for MA-only 
contracts for the contract assigned pursuant to subpart 166 of this 
part 422.
     In Sec.  422.260(b), to revise the definition of ``quality 
bonus payment (QBP) determination methodology'' to read: Quality bonus 
payment (QBP) determination methodology means the quality ratings 
system specified in subpart 166 of this part 422 for assigning quality 
ratings to provide comparative information about MA plans and 
evaluating whether MA organizations qualify for a QBP.
     In Sec.  422.504(a)(18), to revise paragraph (a)(18) to 
read: To maintain a Part C summary plan rating score of at least 3 
stars pursuant to the 5-star rating system specified in subpart 166 of 
this part 422. A Part C summary plan rating is calculated as provided 
in Sec.  422.166.
     In Sec.  423.505(b)(26), to revise paragraph (b)(26) to 
read: Maintain a Part D summary plan rating score of at least 3 stars 
pursuant to the 5-star rating system specified in subpart 186 of this 
part 423. A Part D summary plan rating is calculated as provided in 
Sec.  423.186.
    We welcome comment on these technical changes and whether there are 
additional changes that should be made to account for our proposal to 
codify the Star Ratings methodology and measures in regulation text.
12. Any Willing Pharmacy Standards Terms and Conditions and Better 
Define Pharmacy Types (Sec. Sec.  423.100, 423.505)
    Section 1860D-4(b)(1)(A) of the Act and Sec.  423.120(a)(8)(i) 
require a Part D plan sponsor to contract with any pharmacy that meets 
the Part D plan sponsor's standard terms and conditions for network 
participation. Section 423.505(b)(18) requires Part D plan sponsors to 
have a standard contract with reasonable and relevant terms and 
conditions of participation whereby any willing pharmacy may access the 
standard contract and participate as a network pharmacy.
    In the preamble to final rule published on January 28, 2005 
(January 2005 final rule) (70 FR 4194) which implemented Sec.  
423.120(a)(8)(i) and Sec.  423.505(b)(18), we indicated that standard 
terms and conditions, particularly for payment terms, could vary to 
accommodate geographic areas or types of pharmacies, so long as all 
similarly situated pharmacies were offered the same terms and 
conditions. We also stated that we viewed these standard terms and 
conditions as a ``floor'' of minimum requirements that all similarly 
situated pharmacies must abide by, but that Part D plans could modify 
some standard terms and conditions to encourage participation by 
particular pharmacies. We believe this approach strikes an appropriate 
balance between the any willing pharmacy requirement at section 1860D-
4(b)(1)(A) of the Act and the provisions of section 1860D-4(b)(1)(B) of 
the Act, which permits Part D plan sponsors to offer reduced cost 
sharing at preferred pharmacies.
    The balancing of these goals has led to the development of 
preferred pharmacy networks in which certain pharmacies agree to 
additional or different terms from the standard terms and conditions. 
This has resulted in the development of ``standard'' terms and 
conditions that in some cases has had the effect, in our view, of 
circumventing the any willing pharmacy requirements and inappropriately 
excluding pharmacies from network participation. This section is 
intended to clarify or modify our interpretation of the existing 
regulations to ensure that plan sponsors can continue to develop and 
maintain preferred networks while fully complying with the any willing 
pharmacy requirement.
    First, we intend to clarify that the any willing pharmacy 
requirement applies to all pharmacies, regardless of how they have 
organized one or more lines of pharmacy business. Second, we propose to 
revise the definition of retail pharmacy and define mail-order 
pharmacy. Third, we propose to clarify our regulatory requirements for 
what constitutes ``reasonable and relevant'' standard contract terms 
and conditions. Finally, we propose to codify our existing guidance 
with respect to when a pharmacy must be provided with a

[[Page 56408]]

Part D plan sponsor's standard terms and conditions.
a. Any Willing Pharmacy Required for All Pharmacy Business Models
    With the pharmaceutical distribution and pharmacy practice 
landscape evolving rapidly, and because pharmacies now frequently have 
multiple lines of business, many pharmacies no longer fit squarely into 
traditional pharmacy type classifications. For example, compounding 
pharmacies and specialty pharmacies, including but not limited to 
manufacturer-limited-access pharmacies, and those that may specialize 
in certain drugs, disease states, or both, are increasingly common, and 
Part D enrollees increasingly need access to their services. As noted 
previously, in implementing the any willing pharmacy provision, we 
indicated that standard terms and conditions could vary to accommodate 
different types of pharmacies so long as all similarly situated 
pharmacies were offered the same terms and conditions. In the original 
rule to implement Part D (70 FR 4194, January 28, 2005), we defined 
certain types of pharmacies (that is, retail, mail order, Long Term 
Care (LTC)/institutional, and I/T/U [Indian Health Service, Indian 
tribe or tribal organization, or urban Indian organization]) at Sec.  
423.100 to operationalize various statutory provisions that 
specifically mention these types of pharmacies (for example, section 
1860D-4(b)(1)(C)(iv) of the Act). However, these definitions were never 
intended to limit the scope of the any willing pharmacy requirement. 
Nevertheless, we have anecdotal evidence that some Part D plan sponsors 
have declined to permit willing pharmacies to participate in their 
networks on the grounds that they do not meet the Part D plan sponsor's 
definition of a pharmacy type for which it has developed standard terms 
and conditions.
    Section 1860D-4(b)(1)(A) of the Act requires Part D plan sponsors 
to permit the participation of ``any pharmacy'' that meets the standard 
terms and conditions. Accordingly, it is not appropriate for Part D 
plan sponsors to offer standard terms and conditions for network 
participation that are specific to only one particular type of 
pharmacy, and then decline to permit a willing pharmacy to participate 
on the grounds that it does not squarely fit into that pharmacy type. 
Therefore, we are clarifying in this preamble that although Part D 
sponsors may continue to tailor their standard terms and conditions to 
various types of pharmacies, Part D plan sponsors may not exclude 
pharmacies with unique or innovative business or care delivery models 
from participating in their contracted pharmacy network on the basis of 
not fitting in the correct pharmacy type classification. In particular, 
we consider ``similarly situated'' pharmacies to include any pharmacy 
that has the capability of complying with standard terms and conditions 
for a pharmacy type, even if the pharmacy does not operate exclusively 
as that type of pharmacy.
    Thus, Part D plan sponsors must not exclude pharmacies from their 
retail pharmacy networks solely on the basis that they, for example, 
maintain a traditional retail business while also specializing in 
certain drugs or diseases or providing home delivery service by mail to 
surrounding areas. Or as another example, a Part D plan sponsor must 
not preclude a pharmacy from network participation as a retail pharmacy 
because that pharmacy also operates a home infusion book of business, 
or vice versa. Later in this section we are proposing to codify our 
requirements for when a Part D sponsor must provide a pharmacy with a 
copy of its standard terms and conditions. These requirements, if 
finalized, would apply to all pharmacies, regardless of whether they 
fit into traditional pharmacy classifications or have unique or 
innovative business or care delivery models.
b. Revise the Definition of Retail Pharmacy and Add a Definition of 
Mail-Order Pharmacy
    Since the inception of the Part D program, Part D statute, 
regulations, and sub-regulatory guidance have referred to ``mail-
order'' pharmacy and services without defining the term ``mail order''. 
Unclear references to the term ``mail order'' have generated confusion 
in the marketplace over what constitutes ``mail-order'' pharmacy or 
services. This confusion has contributed to complaints from pharmacies 
and beneficiaries regarding how Part D plan sponsors classify 
pharmacies for network participation, the Plan Finder, and Part D 
enrollee cost-sharing expectations. Additionally, pharmacies that are 
not mail-order pharmacies, but that may offer home delivery services by 
mail (relative to that pharmacy's overall operation), have complained 
because Part D plan sponsors classified them as mail-order pharmacies 
for network participation and required them to be licensed in all 
United States, territories, and the District of Columbia, as would be 
required for traditional mail-order pharmacies providing a mail-order 
benefit.
    In creating the Part D program, the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173) 
added the convenient access provision of section 1860D-4(b)(1)(C) of 
the Act and the level playing field provision of section 1860D-
4(b)(1)(D) of the Act. The convenient access provisions, as codified at 
Sec.  423.120(a)(1)-(7), require Part D plan sponsors to secure the 
participation in their networks a sufficient number of pharmacies that 
dispense (other than by mail order) drugs directly to patients to 
ensure convenient access (consistent with rules established by the 
Secretary) and includes special provisions for standards with respect 
to Long Term Care (LTC) and I/T/U pharmacies (as defined at Sec.  
423.100). The level playing field provision, as codified at Sec.  
423.120(a)(10), requires Part D plan sponsors to permit enrollees to 
receive the same benefits, including extended days' supplies, through a 
pharmacy (other than a mail-order pharmacy) (that is, a retail 
pharmacy), although the Part D plan sponsor may require the enrollee to 
pay a higher level of cost-sharing to do so.
    We currently define ``retail pharmacy'' at Sec.  423.100 to mean 
``any licensed pharmacy that is not a mail-order pharmacy from which 
Part D enrollees could purchase a covered Part D drug without being 
required to receive medical services from a provider or institution 
affiliated with that pharmacy.'' Although we did not define ``non-
retail pharmacy,'' Sec.  423.120(a)(3) provides that ``a Part D plan's 
contracted pharmacy network may be supplemented by non-retail 
pharmacies, ``including pharmacies offering home delivery via mail-
order and institutional pharmacies,'' provided the convenient access 
requirements are met (emphasis added). In the preamble to our January 
2005 final rule, we also stated, ``examples of non-retail pharmacies 
include I/T/U, FQHC, Rural Health Center (RHC) and hospital and other 
provider-based pharmacies, as well as Part D [plan]-owned and operated 
pharmacies that serve only plan members'' (see 70 FR 4249). We also 
stated ``home infusion pharmacies will not count toward Part D plans' 
pharmacy access requirements (at Sec.  423.120(a)(1)) because they are 
not retail pharmacies'' (see 70 FR 4250).
    Since 2005, our regulation at Sec.  423.120(a) has included access 
requirements for retail, home infusion, LTC, and I/T/U pharmacies. 
While mail-order pharmacies could be considered

[[Page 56409]]

one of several subsets of non-retail pharmacies, we never defined the 
term mail-order pharmacy in regulation, nor have we specified access or 
service-level requirements at Sec.  423.120(a) for mail-order 
pharmacies.
    As discussed previously, our classifications of certain types of 
pharmacies were never intended to limit or exclude participation of 
pharmacies, such as pharmacies with multiple lines of business, that do 
not fit into one of these classifications. Additionally, we have 
recognized since our January 2005 final rule that pharmacies may have 
multiple lines of business, including retail pharmacies that may offer 
home delivery services (see 70 FR 4235 and 4255).
    Nonetheless, despite this guidance and specific access requirements 
for LTC and HI pharmacies at Sec.  423.120(a), some Part D plan 
sponsors interpreted ``including pharmacies offering home delivery via 
mail-order and institutional pharmacies'' at Sec.  423.120(a)(3) to 
mean that any pharmacies, even retail pharmacies, that may offer home 
delivery services by mail are mail-order pharmacies. Although Sec.  
423.120(a)(3) specifically allows for access to non-retail pharmacies, 
and we intended ``including pharmacies offering home delivery via mail-
order and institutional pharmacies'' to mean home infusion pharmacies, 
mail-order pharmacies, long-term care pharmacies, or other non-retail 
pharmacies that offer home delivery services by mail, some Part D plan 
sponsors began to require any interested pharmacies, even retail 
pharmacies, that may offer home delivery services by mail to contract 
as mail-order pharmacies in order to participate in the plan's 
contracted pharmacy network. Because Part D plan sponsors frequently 
require contracted mail-order pharmacies to be licensed in all United 
States, territories, and the District of Columbia, the classification 
of any pharmacies that may offer home delivery services by mail as 
mail-order pharmacies for purposes of contracting with Part D plan 
sponsors as a network pharmacy, including licensure requirements, led 
to complaints from beneficiaries and pharmacies, including retail, 
specialty, and other pharmacies.
    Although the language at Sec.  423.120(a)(3) is specific to non-
retail pharmacies, there is a great deal of confusion regarding mail-
order pharmacy in the Part D marketplace. We believe it is 
inappropriate to classify pharmacies as ``mail-order pharmacies'' 
solely on the basis that they offer home delivery by mail. Because the 
statute at section 1860D-4(b)(1)(D) of the Act discusses cost sharing 
in terms of mail order versus other non-retail pharmacies, mail-order 
cost sharing is unique to mail-order pharmacies, as we have proposed to 
define the term. For example, while a non-retail home infusion pharmacy 
may provide services by mail, cost-sharing is commensurate with retail 
cost-sharing. Therefore, to clarify what a mail-order pharmacy is, we 
propose to define mail-order pharmacy at Sec.  423.100 as a licensed 
pharmacy that dispenses and delivers extended days' supplies of covered 
Part D drugs via common carrier at mail-order cost sharing.
    Although we propose to add the definition of mail-order pharmacy, 
we also believe that our existing definition of retail pharmacy has 
contributed, in part, to the confusion in the Part D marketplace. As 
discussed previously, the existing definition of ``retail pharmacy'' at 
Sec.  423.100 means ``any licensed pharmacy that is not a mail-order 
pharmacy from which Part D enrollees could purchase a covered Part D 
drug without being required to receive medical services from a provider 
or institution affiliated with that pharmacy.'' This definition, given 
the rapidly evolving pharmacy practice landscape, may be a source of 
some confusion given that it expressly excludes mail-order pharmacies, 
but not other non-retail pharmacies such as home infusion or specialty 
pharmacies.
    We note that Medicaid recently adopted a definition of ``retail 
community pharmacy.'' Pursuant to section 1927(k)(10) of the Act, as 
amended by section 2503 of the Affordable Care Act (ACA), for purposes 
of Medicaid prescription drug coverage, CMS defines ``retail community 
pharmacy'' at Sec.  447.504(a) as ``an independent pharmacy, a chain 
pharmacy, a supermarket pharmacy, or a mass merchandiser pharmacy that 
is licensed as a pharmacy by the state and that dispenses medications 
to the walk-in general public at retail prices. Such term does not 
include a pharmacy that dispenses prescription medications to patients 
primarily through the mail, nursing home pharmacies, long-term care 
facility pharmacies, hospital pharmacies, clinics, charitable or not-
for-profit pharmacies, government pharmacies, or pharmacy benefit 
managers.'' Although this definition adds greater clarity about the 
locations or practice settings where retail pharmacies may be found, we 
were concerned that, for the purposes of the Part D program, the 
mention of additional types of pharmacies in our regulation could 
contribute to more confusion instead of less.
    However, two aspects of this definition are similar to Part D 
statutory language in section 1860D-4(b)(1)(C) and (D) of the Act. The 
first is the concept that a retail pharmacy is open to dispense 
prescription medications to the walk-in general public, which echoes 
the requirement at section 1860D-4(b)(1)(C) of the Act that Part D plan 
sponsors secure the participation in their networks a sufficient number 
of pharmacies that dispense (other than mail order) drugs directly to 
patients. The second is the concept that prescriptions are dispensed at 
retail prices, or for the Part D program, retail cost-sharing, which 
echoes the requirement at section 1860D-4(b)(1)(D) of the Act that Part 
D plan sponsors permit enrollees to receive benefits (which may include 
a 90-day supply of drugs or biologicals) through a pharmacy (other than 
a mail-order pharmacy), with any differential in charge paid by such 
enrollees. Because these concepts are consistent with the Part D 
statute, we believe their inclusion in our definition of retail 
pharmacy at Sec.  423.100 would be appropriate.
    Therefore, to clarify what a retail pharmacy is, we propose to 
revise the definition of retail pharmacy at Sec.  423.100. First, we 
note that the existing definition of ``retail pharmacy'' is not in 
alphabetical order, and we propose a technical change to move it such 
that it would appear in alphabetical order. Second, we propose to 
incorporate the concepts of being open to the walk-in general public 
and retail cost-sharing such that the definition of retail pharmacy 
would mean ``any licensed pharmacy that is open to dispense 
prescription drugs to the walk-in general public from which Part D 
enrollees could purchase a covered Part D drug at retail cost sharing 
without being required to receive medical services from a provider or 
institution affiliated with that pharmacy.''
    Although we were originally unsure whether Part D enrollees would 
need routine access to specialty drugs and specialty pharmacies beyond 
our out-of-network requirements (see 70 FR 4250), as the Part D program 
has evolved, the use of specialty drugs in the Part D program has grown 
exponentially and will likely continue to do so. The June 2016 MedPAC 
report (available at http://www.medpac.gov/docs/default-source/reports/chapter-6-improving-medicare-part-d-june-2016-report-.pdf) notes growth 
in the use of specialty drugs in the Part D program is currently 
outpacing other drugs and health spending, generally. Such drugs are 
often high-cost and complex, for

[[Page 56410]]

diseases including, but not limited to, cancer, Hepatitis C, HIV/AIDS, 
multiple sclerosis, and rheumatoid arthritis. The report also 
highlights that each year since 2009, more than half of the United 
States Food and Drug Administration (FDA) approvals have been for 
specialty drugs. Because many specialty drugs can be self-administered 
on an outpatient basis, even in the patient's home, and for chronic or 
long-term use, increasing numbers of Part D enrollees need routine 
access to specialty drugs and specialty pharmacies. Nonetheless, 
because the pharmacy landscape is changing so rapidly, we believe any 
attempt by us to define specialty pharmacy could prematurely and 
inappropriately interfere with the marketplace, and we decline to 
propose a definition of specialty pharmacy at this time.
    Similar to specialty pharmacy, we also decline to further define 
non-retail pharmacy. The pharmacy types that we define and propose to 
modify and define in regulation describe functional lines of business 
that an individual pharmacy may have, solely, or in combination. 
However, unlike mail order, home infusion, I/T/U, FQHC, LTC, hospital, 
other institutional, other provider-based, and ``members-only'' Part D 
plan-owned and operated pharmacy types or lines of business that 
comprise ``non-retail'', the term ``non-retail'' does not, itself, 
define a unique pharmacy functional line of business, and does not lend 
itself to a clear definition. Consistent with statutory any willing 
pharmacy and preferred pharmacy provisions, mail-order pharmacies may 
be preferred or non-preferred. Part D plan sponsors may establish 
unique non-preferred mail-order cost-sharing, or may establish such 
non-preferred mail-order cost sharing commensurate with those for 
retail pharmacies.
    We solicit comment on our proposed definition of mail-order 
pharmacy and our proposed modification to the definition of retail 
pharmacy. Specifically, we solicit comment regarding whether 
stakeholders believe these definitions strike the right balance to 
resolve confusion in the marketplace, afford Part D plan sponsor 
flexibility, and incorporate recent innovations in pharmacy business 
and care delivery models.
c. Treatment of Accreditation and Other Similar Any Willing Pharmacy 
Requirements in Standard Terms and Conditions
    As noted previously, since the beginning of the Part D program, we 
have considered standard terms and conditions for network participation 
to set a ``floor'' of minimum requirements by which all similarly 
situated pharmacies must abide. We further believe it is reasonable for 
a Part D plan sponsor to require additional terms and conditions beyond 
those required in the standard contract for network participation for 
pharmacies to have preferred status. Therefore, we implemented the 
requirements of section 1860D-4(b)(1)(A) of the Act by requiring that 
standard terms and conditions be ``reasonable and relevant,'' but 
declined to further define ``reasonable and relevant'' in order to 
provide Part D plans with maximum flexibility to structure their 
standard terms and conditions.
    We note that a pharmacy's ability to participate in a preferred or 
specially labeled subset of the Part D plan sponsor's larger contracted 
pharmacy network or to offer preferred cost sharing assumes that, at a 
minimum, the pharmacy is able to participate in the network. Where 
there are barriers to a pharmacy's ability to participate in the 
network at all, it raises the question of whether the standard (that 
is, entry-level) terms and conditions are reasonable and relevant.
    It has been our longstanding policy that Part D plans cannot 
restrict access to certain Part D drugs to specialty pharmacies within 
their Part D network in such a manner that contravenes the convenient 
access protections of section 1860D-4(b)(1)(C) of the Act and Sec.  
423.120(a) of our regulations. (See Q&A at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/Downloads/QASpecialtyAccess_051706.pdf). In 2006, we informed sponsors 
they cannot restrict access to drugs on the ``specialty/high cost'' 
tier to a subset of network pharmacies, except when necessary to meet 
FDA-mandated limited dispensing requirements (for example, Risk 
Evaluation and Mitigation Strategies (REMS) processes) or to ensure the 
appropriate dispensing of Part D drugs that require extraordinary 
special handling, provider coordination, or patient education when such 
extraordinary requirements cannot be met by a network pharmacy (that 
is, a contracted network pharmacy that does not belong to the 
restricted subset). Since 2006, it has been our general policy that 
these types of special requirements for Part D plan sponsors to limit 
dispensing of specialty drugs be directly linked to patient safety or 
regulatory reasons.
    As the specialty drug distribution market has grown, so has the 
number of organizations competing to distribute or dispense specialty 
drugs, such as pharmacy benefit managers (PBMs), health plans, 
wholesalers, health systems, physician practices, retail pharmacy 
chains, and small, independent pharmacies (see the URAC White Paper, 
``Competing in the Specialty Pharmacy Market: Achieving Success in 
Value-Based Healthcare,'' available at http://info.urac.org/specialtypharmacyreport). CMS is concerned that Part D plan sponsors 
might use their standard pharmacy network contracts in a way that 
inappropriately limits dispensing of specialty drugs to certain 
pharmacies. In fact, we have received complaints from pharmacies that 
Part D plan sponsors have begun to require accreditation of pharmacies, 
including accreditation by multiple accrediting organizations, or 
additional Part D plan-/PBM-specific credentialing criteria, for 
network participation. We agree that there is a role in the Part D 
program for pharmacy accreditation, to the extent pharmacy 
accreditation requirements in network agreements promote quality 
assurance. In particular, we support Part D plan sponsors that want to 
negotiate an accreditation requirement in exchange for, for example, 
designating a pharmacy as a specialty or preferred pharmacy in the Part 
D plan sponsor's contracted pharmacy network. However, we do not 
support the use of Part D plan sponsor- or PBM-specific credentialing 
criteria, in lieu of, or in addition to, accreditation by recognized 
accrediting organizations, apart from drug-specific limited dispensing 
criteria such as FDA-mandated REMS or to ensure the appropriate 
dispensing of Part D drugs that require extraordinary special handling, 
provider coordination, or patient education when such extraordinary 
requirements cannot be met by a network pharmacy (as discussed 
previously). Moreover, we are especially concerned about anecdotal 
reports that allege such standard terms and conditions for network 
participation are waived, for example, when a Part D plan sponsor needs 
a particular pharmacy in its network in order to meet convenient access 
requirements, or even for certain pharmacies that received preferred 
pharmacy status.
    If the premise of accreditation or Part D plan sponsor- or PBM-
specific credentialing requirements is to ensure more stringent quality 
standards, then there is no reasonable explanation for why a quality-
related standard term or condition could be waived for situations when 
the Part D plan sponsor needs a particular pharmacy in its contracted

[[Page 56411]]

pharmacy network in order to meet the convenient access standards or to 
designate a particular pharmacy with preferred pharmacy status. A term 
or condition which can be dropped in such situations is by definition 
not ``standard'' according to the plain meaning of the word. Waivers or 
inconsistent application of such standard terms and conditions is an 
explicit acknowledgement that such terms and conditions are not 
necessary for the ability of a pharmacy to perform its core functions, 
and are thus neither reasonable nor relevant for any willing pharmacy 
standard terms and conditions.
    It has been our longstanding policy to leave the establishment of 
pharmacy practice standards to the states, and we do not intend to 
change that now. We continue to believe pharmacy practice standards 
established by the states provide applicable minimum standards for all 
pharmacy practice standards, and Sec.  423.153(c)(1) requires 
representation that network providers are required to comply with 
minimum standards for pharmacy practice as established by the states.
    Additionally, because a pharmacy's ability to dispense certain 
medications is not dependent on it having the ability to dispense other 
medications, it is not relevant for sponsors to require pharmacies to 
dispense a particular roster of certain drugs or drugs for certain 
disease states in order to receive standard terms and conditions for 
network participation as a contracted network pharmacy for that Part D 
plan sponsor. Consequently, consistent with our longstanding policy, 
discussed previously, we would not expect Part D plan sponsors to limit 
dispensing of certain drugs or drugs for certain disease states to a 
subset of network pharmacies, except when necessary to meet FDA-
mandated limited dispensing requirements (for example, Risk Evaluation 
and Mitigation Strategies (REMS) processes) or except as required by 
applicable state law(s) if the contracted network pharmacy is capable 
of and appropriately licensed under applicable state law(s) for doing 
so. We solicit comment on this topic.
d. Timing of Contracting Requirements
    CMS has received complaints over the years from pharmacies that 
have sought to participate in a Part D plan sponsor's contracted 
network but have been told by the Part D plan sponsor that its standard 
terms are not available until the sponsor has completed all other 
network contracting. In other instances, pharmacies have told us that 
Part D plan sponsors delay sending them the requested terms and 
conditions for weeks or months or require pharmacies to complete 
extensive paperwork demonstrating their eligibility to participate in 
the sponsor's network before the sponsor will provide a document 
containing the standard terms and conditions. CMS believes such actions 
have the effect of frustrating the intent of the any willing pharmacy 
requirement, and as a result, we believe it is necessary to codify 
specific procedural requirements for the delivery of pharmacy network 
standard terms and conditions.
    To this end, we propose to establish deadlines by which Part D plan 
sponsors must furnish their standard terms and conditions to requesting 
pharmacies. The first deadline we propose to establish is the date by 
which Part D plan sponsors must have standard terms and conditions 
available for pharmacies that request them. By mid-September of each 
year, Part D plan sponsors have signed a contract with CMS committing 
them to delivering the Part D benefit through an accessible pharmacy 
network during the upcoming year and have provided information about 
that network to CMS for posting on the Medicare Plan Finder Web site. 
At that point, Part D plan sponsors should have had ample opportunity 
to develop standard contract terms and conditions for the upcoming plan 
year. Therefore, we propose to require at Sec.  423.505(b)(18)(i) that 
Part D plan sponsors have standard terms and conditions readily 
available for requesting pharmacies no later than September 15 of each 
year for the succeeding benefit year.
    The second deadline we propose concerns the promptness of Part D 
plan sponsors' responses to pharmacy requests for standard terms and 
conditions. As discussed previously, we propose to require all Part D 
plan sponsors to have standard terms and conditions developed and ready 
for distribution by September 15. Therefore, we propose to require at 
Sec.  423.505(b)(18)(ii) that, after that date and throughout the 
following plan year, Part D plan sponsors must provide the applicable 
standard terms and conditions document to a requesting pharmacy within 
two business days of receipt of the request. Part D plan sponsors would 
be required to clearly identify for interested pharmacies the avenue 
(for example, phone number, email address, Web site) through which they 
can make this request. In instances where the Part D plan sponsor 
requires a pharmacy to execute a confidentiality agreement with respect 
to the terms and conditions, the Part D plan sponsor would be required 
to provide the confidentiality agreement within two business days after 
receipt of the pharmacy's request and then provide the standard terms 
and conditions within 2 business days after receipt of the signed 
confidentiality agreement. While Part D plan sponsors may ask 
pharmacies to demonstrate that they are qualified to meet the Part D 
plan sponsors' standard terms and conditions before executing the 
contract, Part D plan sponsors would be required to provide the 
pharmacy with a copy of the contract terms for its review within the 
two-day timeframe. If finalized, this proposed requirement would permit 
pharmacies to do their due diligence with respect to whether a Part D 
plan sponsor's standard terms and conditions are acceptable at the same 
time Part D plan sponsors are conducting their own review of the 
qualifications of the requesting pharmacy. We specifically seek comment 
on whether these timeframes are the right length to address our goal 
but are operationally realistic. We also request examples of situations 
where a longer timeframe might be needed.
13. Changes to the Days' Supply Required by the Part D Transition 
Process
    We promulgated regulations under the authority of section 1860D-
11(d)(2)(B) of the Act to require Part D sponsors to provide for an 
appropriate transition process for enrollees prescribed Part D drugs 
that are not on the prescription drug plan's formulary (including Part 
D drugs that are on a sponsor's formulary but require prior 
authorization or step therapy under a plan's utilization management 
rules). These regulations are codified at Sec.  423.120(b)(3). 
Specifically, these regulations require that a Part D sponsor ensure 
certain enrollees access to a temporary supply of drugs within the 
first 90 days under a new plan (including drugs that are on a plan's 
formulary but require prior authorization or step therapy under a 
plan's utilization management rules) by ensuring a temporary fill when 
an enrollee requests a fill of a non-formulary drug during this time 
period. In the outpatient setting, the supply must be for at least 30 
days of medication, unless the prescription is written for less. In the 
LTC setting, this supply must be for up to at least 91 days and may be 
up to 98 days, consistent with the dispensing increment, unless a less 
amount is prescribed.
    We propose to make two changes to these regulations. First, we 
propose to shorten the required transition days'

[[Page 56412]]

supply in the long-term care (LTC) setting to the same supply currently 
required in the outpatient setting. Second, we propose a technical 
change to the current required days' transition supply in the 
outpatient setting to be a month's supply.
    We provided our rationale for the transition fill days' supply 
requirement in the LTC setting in CMS final rule CMS-4085-F published 
on April 15, 2010 (75 FR 19678). In that final rule, we stated that for 
a new enrollee in a LTC facility, the temporary supply may be for up to 
31 days (unless the prescription is written for less than 31 days), 
consistent with the dispensing practices in the LTC industry. We 
further stated that, due to the often complex needs of LTC residents 
that often involve multiple drugs and necessitate longer periods in 
order to successfully transition to new drug regimens, we will require 
sponsors to honor multiple fills of non-formulary Part D drugs, as 
necessary during the entire length of the 90-day transition period. 
Thus, we required a Part D sponsor to provide a LTC resident enrolled 
in its Part D plan with at least a 31 day supply of a prescription with 
refills provided, if needed, up to a 93 days' supply (unless the 
prescription is written for less) (75 FR 19721). In a subsequent final 
rule published on April 15, 2011, we changed the 93 days' supply to 91 
to 98 days' supply, as noted previously, to acknowledge variations in 
days' supplies that could result from the short-cycle dispensing of 
brand drugs in the LTC setting (76 FR 21460 and 21526).
    We received and responded to a comment in the April 2010 final rule 
about transition and a longer timeframe in the LTC setting. We stated 
that a number of commenters supported our proposal of requiring an 
extended transition supply for enrollees residing in LTC facilities but 
that commenters requested that we provide the same protections to 
individuals requiring LTC in community-based settings. In our response 
to the comment, we indicated that residents of LTC institutions were 
more limited in access to prescribing physicians hired by LTC 
facilities due to a limited visitation schedule and more likely to 
require extended transition timeframes in order for the physician to 
work with the facility and LTC pharmacies on transitioning residents to 
formulary drugs. We further stated that we believed that community-
based enrollees, in contrast, were less limited in their access to 
prescribing physicians and did not require an extended transition 
period to work with their physicians to successfully transition to a 
formulary drug. (75 FR 19721). Thus, the requirement to provide longer 
transition fill days' supply in the LTC setting was a result of our 
concerns that a longer timeframe would be needed in the LTC setting.
    After more than 10 years of experience with Part D in LTC 
facilities, we have not seen the concerns that we expressed in the 2010 
final rule materialize. We are not aware of any evidence that 
transition for a Part D beneficiary in the LTC setting necessarily 
takes any longer than it does for a beneficiary in the outpatient 
setting. We understand that it is common for Part D beneficiaries in 
the LTC setting to be cared for by on-staff or consultant physicians 
and other health professionals with prescriptive authority who are 
under contract with the LTC facility. Additionally, we also understand 
that Part D beneficiaries in the LTC setting are typically served by an 
on-site pharmacy or one under contract to service the LTC facility. 
Given this structure of the LTC setting, we understand that the LTC 
prescribers and pharmacies are readily available to address transition 
for Part D beneficiaries in the LTC setting. In addition, LTC 
facilities now have many years' experience with the Medicare Part D 
program generally and transition specifically.
    While our concerns about the needed timeframe for transition in the 
LTC setting do not seem to have materialized, we have continuing 
concerns about drug waste and the costs associated with such waste in 
the LTC setting. Some of these concerns have been addressed by our rule 
requiring the short-cycle dispensing of brand drugs to Part D 
beneficiaries in LTC facilities in the April 2011 final rule. That 
rule, codified at 42 CFR 423.154, requires that all Part D sponsors 
require all network pharmacies servicing LTC facilities to dispense 
certain solid oral doses of covered Part D brand-name drugs to 
enrollees in such facilities in no greater than 14-day increments at a 
time to reduce drug waste. However, we now believe that CMS could 
eliminate additional drug waste and cost by no longer requiring a 
longer transition days' supply in the LTC setting. Therefore, we are 
proposing that the transition days' supply in the LTC setting be the 
same as it is in the outpatient setting.
    Our second proposed change involves the current required 30 days' 
transition supply in the outpatient setting, which is codified at Sec.  
423.120(b)(3)(iii)(A). We have received a number of inquiries from Part 
D sponsors regarding scenarios involving medications that do not easily 
add up to a 30 days' supply when dispensed (for example, drugs that 
typically are dispensed in 28-day packages). Historically, our response 
to those inquiries has been that the regulation requires plans to 
provide at least 30 days of medication, which requires plans to 
dispense more than one package to comply with the text of the 
regulation. However, the intent of the regulation was for the 
transition fill in the outpatient setting to be for at least a month's 
supply. For this reason, we are proposing a change to the regulation 
from ``30 days'' to ``a month's supply.'' If finalized, this change 
would mean that the regulation would require that a transition fill in 
the outpatient setting be for a supply of at least a month of 
medication, unless the prescription is written by the prescriber for 
less. Therefore, the supply would have to be for at least the days' 
supply that the applicable Part D prescription drug plans has approved 
as its retail month's supply in its Plan Benefit Package submitted to 
CMS for the relevant plan year, again, unless the prescription is 
written by the prescriber for less.
    Together, our two proposals--if finalized--would mean that Sec.  
423.120 (b)(3)(iii)(A) would be consolidated into Sec.  423.120 
(b)(3)(iii) to read that the transition process must ``[e]nsure the 
provision of a temporary fill when an enrollee requests a fill of a 
non-formulary drug during the time period specified in paragraph 
(b)(3)(ii) of this section (including Part D drugs that are on a plan's 
formulary but require prior authorization or step therapy under a 
plan's utilization management rules) by providing a one-time, temporary 
supply of at least a month's supply of medication, unless the 
prescription is written by a prescriber for less than a month's supply 
and requires the Part D sponsor to allow multiple fills to provide up 
to a total of a month's supply of medication.'' Section 
423.120(b)(3)(iii)(B) would be eliminated.
    Please note that we also are proposing in II.A.15. Expedited 
Substitutions of Certain Generics and Other Midyear Formulary Changes 
to revise Sec.  423.120(b)(3)(i)(B) to state that the transition 
process is not applicable in cases in which a Part D sponsor 
substitutes a generic drug for a brand name drug as specified under 
paragraph Sec.  423.120(b)(3)(iv) or Sec.  423.120(b)(6) of this 
section.

[[Page 56413]]

14. Expedited Substitutions of Certain Generics and Other Midyear 
Formulary Changes (Sec. Sec.  423.100, 423.120, and 423.128)
    Section 1860D-4(b)(3)(E) of the Act requires Part D sponsors to 
provide ``appropriate notice'' to the Secretary, affected enrollees, 
authorized prescribers, pharmacists, and pharmacies regarding any 
decision to either: (1) Remove a drug from its formulary, or (2) make 
any change in the preferred or tiered cost-sharing status of a drug. 
Section 423.120(b)(5) implements that requirement by defining 
appropriate notice as that given at least 60 days prior to such change 
taking effect during a given contract year. We have recognized that 
both current and prospective enrollees of a prescription drug plan need 
to have the most current formulary information by the time of the 
annual election period described in Sec.  423.38(b) in order to enroll 
in the Part D plan that best suits their particular needs. To this end, 
Sec.  423.120(b)(6) prohibits Part D sponsors and MA organizations from 
removing a covered Part D drug from a formulary or changing the 
preferred or tiered cost-sharing status of a covered Part D drug 
between the beginning of the annual election period described in Sec.  
423.38(b)(2) and 60 days subsequent to the beginning of the contract 
year associated with that annual election period. Our concern has been 
to prevent situations in which Part D sponsors change their formularies 
early in the contract year without providing appropriate notice as 
described in Sec.  423.120(b)(5) to new enrollees. Thus, Sec.  
423.120(b)(6) has required that all materials distributed during the 
annual election period reflect the formulary the Part D sponsor will 
offer at the beginning of the contract year for which it is enrolling 
Part D eligible individuals. Lastly, under Sec.  423.128(d)(2)(iii), 
Part D sponsors must also provide current and prospective Part D 
enrollees with at least 60 days' notice regarding the removal or change 
in the preferred or tiered cost-sharing status of a Part D drug on its 
Part D plan's formulary. The general notice requirements and burden are 
currently approved by OMB under control number 0938-0964 (CMS-10141).
    MedPAC observed that the continuity of a plan's formulary is very 
important to all beneficiaries in order to maintain access to the 
medications that were offered by the plan at the time the beneficiaries 
enrolled. While we agree with MedPAC's assertion, we acknowledge the 
need to balance formulary continuity with requests from Part D sponsors 
to provide greater flexibility to make midyear changes to formularies. 
Indeed, MedPAC made its observation in a report that suggested that 
CMS's rules regarding formulary changes warranted examination. There 
MedPAC pointed out, among other things, that CMS could provide Part D 
sponsors with greater flexibility to make changes such as adding a 
generic drug and removing its brand name version without first 
receiving agency approval. (MedPAC, Report to the Congress: Medicare 
and the Health Care Delivery System, June 2016, page 192.)
    This proposed rule would implement MedPAC's recommendation by 
permitting generic substitutions without advance approval as specified 
later in this section. We have also taken this opportunity to examine 
our regulations to determine how to otherwise facilitate the use of 
certain generics. Currently, Part D sponsors can add drugs to their 
formularies at any time; however, there is no guarantee that enrollees 
will switch from their brand name drugs to newly added generics. 
Therefore, Part D sponsors seeking to better manage the Part D benefit 
may choose to remove a brand name drug, or change its preferred or 
tiered cost-sharing, and substitute or add its therapeutic equivalent. 
But even this takes some time: Under current regulations, Part D 
sponsors must submit formulary change requests to CMS and provide 
specified notice before removing drugs or changing their cost-sharing 
(except for unsafe drugs or those withdrawn from the market). As noted 
earlier, the general notice requirements and burden are currently 
approved by OMB under control number 0938-0964 (CMS-10141). Also, as 
detailed previously, Sec.  423.120(b)(5)(i) requires 60 days' notice to 
specified entities prior to the effective date of changes and 60 days' 
direct notice to affected enrollees or a 60 day refill. The ability of 
Part D sponsors to make generic substitutions as approved by CMS is 
further limited by the fact that as detailed previously, under Sec.  
423.120(b)(6), Part D sponsors generally cannot remove drugs or make 
cost-sharing changes from the start of the annual election period (AEP) 
until 2 months after the plan year begins.
    We propose to provide Part D sponsors with more flexibility to 
implement generic substitutions as follows: The proposed provisions 
would permit Part D sponsors meeting all requirements to immediately 
remove brand name drugs (or to make changes in their preferred or 
tiered cost-sharing status), when those Part D sponsors replace the 
brand name drugs with (or add to their formularies) therapeutically 
equivalent newly approved generics--rather than having to wait until 
the direct notice and formulary change request requirements have been 
met. The proposed provisions would also allow sponsors to make those 
specified generic substitutions at any time of the year rather than 
waiting for them to take effect 2 months after the start of the plan 
year. Related proposals would require advance general and retrospective 
direct notice to enrollees and notice to entities; clarify online 
notice requirements; except specified generic substitutions from our 
transition policy; and conform our definition of ``affected 
enrollees.'' Lastly, to address stakeholder requests for greater 
flexibility to make midyear formulary changes in general, we are also 
proposing to decrease the days of enrollee notice and refill required 
when (aside from generic substitution and drugs deemed unsafe or 
withdrawn from the market) drug removal or changes in cost-sharing will 
affect enrollees.
    Specifically, we propose to add a new paragraph (b)(5)(iv) to Sec.  
423.120 to permit Part D sponsors to immediately remove, or change the 
preferred or tiered cost-sharing of, brand name drugs and substitute or 
add therapeutically equivalent generic drugs provided specified 
requirements are met. The generic drug would need to be offered at the 
same or a lower cost-sharing and with the same or less restrictive 
utilization management criteria originally applied to the brand name 
drug. The Part D sponsor could not have as a matter of timing been able 
to previously request CMS approval of the change because the generic 
drug had not yet been released to the market. Also, the Part D sponsor 
must have previously provided prospective and current enrollees general 
notice that certain generic substitutions could occur without 
additional advance notice. As proposed, we would permit Part D sponsors 
to substitute a generic drug for a brand name drug immediately rather 
than make that change effective, for instance, at the start of the next 
month. However, we solicit comment as to whether there would be a 
reason to require such a delay, especially given the fact that we are 
proposing not to require advance direct notice (rather, only advance 
general notice) or CMS approval. The proposed regulation would also 
require that, when generic drug substitutions occur, Part D sponsors 
must provide direct notice to affected enrollees and other specified 
notice to CMS and other entities. We also propose to specify in a 
revision to

[[Page 56414]]

Sec.  423.120(b)(3)(i)(B) that the transition process is not applicable 
in cases in which a Part D sponsor substitutes a generic drug for a 
brand name drug under paragraph (b)(6) of this section.
    A proposed exception to Sec.  423.120(b)(6) would permit Part D 
sponsors to make the above specified changes (removing covered Part D 
drugs from their formularies, or changing their cost-sharing, when 
substituting or adding their generic equivalents) during any time of 
the year. That section generally provides--with a current exception 
only for unsafe drugs and drugs removed from the market--that Part D 
sponsors generally cannot remove drugs or make cost-sharing changes 
between the beginning of the AEP and 60 days after the plan year 
begins. We believe that revising this provision would assist Part D 
sponsors by permitting substitutions to take place effect during a 
longer time period than is currently permitted. Given that the previous 
exception would permit generic substitutions prior to the start of the 
calendar year, we also propose to conform the definition of ``affected 
enrollees'' to clarify that applicable changes must affect their access 
to drugs during the current plan year.
    We are aware that some may be concerned about not requiring advance 
CMS approval or advance direct notice to enrollees prior to making the 
permitted generic substitutions, or requiring a transition fill. But we 
would only permit immediate substitution when the generics are deemed 
therapeutically equivalent to the brand name drug being removed by the 
Federal Drug and Food Administration (FDA) and meet other requirements 
specified later in this section. This would not apply to follow-on 
biological products under current FDA guidance. The FDA has, in fact 
noted that, ``A generic drug is a medication created to be the same as 
an existing approved brand-name drug in dosage form, safety, strength, 
route of administration, quality, and performance characteristics.'' 
(``Generic Drug Facts,'' see FDA Web site, https://www.fda.gov/Drugs/ResourcesForYou/Consumers/BuyingUsingMedicineSafely/UnderstandingGenericDrugs/ucm167991.htm, accessed September 19, 2017, 
hereafter FDA, ``Abbreviated New Drug Application (ANDA): Generics''.) 
Additionally, immediate generic substitution has long been an 
established bedrock of commercial insurance, and we are not aware of 
any harm to the insured resulting from such policies.
    Also, we do not believe a transition policy would be appropriate 
for these situations: The purpose of the transition process is to make 
sure that the medical needs of enrollees are safely accommodated in 
that they do not go without their medications or face an abrupt change 
in treatment. If the proposal to permit Part D sponsors to immediately 
substitute generics for brand name drugs upon market release were 
finalized, most enrollees in this situation would not have had an 
opportunity to try the drug prior to the drug substitution to see how 
it worked for them. In other words, an enrollee could not be certain 
that a generic substitution would not work, would constitute an abrupt 
change in treatment, or that the enrollee would be better served by 
taking no medication rather than the generic unless he or she had 
previously tried the generic drug.
    Moreover, we have built beneficiary protections into the proposed 
provisions. First, proposed Sec.  423.120(b)(5)(iv)(A) addresses safety 
concerns by permitting Part D sponsors to add only therapeutically 
equivalent generic drugs. This means the FDA must have approved the 
generic drug in an abbreviated new drug application pursuant to section 
505(j) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)), 
and it must be listed with the innovator drug in the publication 
``Approved Drug Products with Therapeutic Equivalence Evaluations'' 
(commonly known as the Orange Book) in which the FDA identifies drug 
products approved on the basis of safety and effectiveness by the FDA, 
and be considered by the FDA to be therapeutically equivalent to the 
brand name drug.
    Second, we share the concern that prospective enrollees could be 
misled by Part D sponsors that deliberately offer brand name drugs 
during open enrollment periods only to remove them or change their 
cost-sharing as quickly as possible during the plan year. We believe 
that our proposed provision would address such problems: Under proposed 
Sec.  423.120(b)(5)(iv)(B), a Part D sponsor cannot substitute a 
generic for a brand name drug unless it could not have previously 
requested formulary approval for use of that drug. As a matter of 
operations, CMS permits Part D sponsors to submit formularies, and 
their respective change requests, only during certain windows. Under 
proposed Sec.  423.120(b)(5)(iv)(B), a Part D sponsor could not remove 
a brand name drug or change its preferred or tiered cost-sharing if 
that Part D sponsor could have included its generic equivalent with its 
initial formulary submission or during a later update window.
    However, to be certain, that we have not missed practical or other 
complications that would hinder the ability of Part D sponsors to 
timely seek approval within the CMS timeframes, we solicit comment as 
to whether we should consider immediate substitution, potentially in 
limited circumstances, of specified generics for which Part D sponsors 
could have previously requested formulary approval. At the same time, 
we remain mindful of beneficiary protections and are hesitant to simply 
permit substitution of any generics regardless of how long they have 
been on the market. Accordingly, we welcome suggestions of any other 
practical cut-offs, as well as information on possible effects on 
beneficiaries that could result if we were to permit Part D sponsors to 
substitute specified generics that have been on the market for longer 
time periods.
    Third, we believe the two-pronged approach of the proposed 
provision would provide appropriate notice for this type of formulary 
change. The general notice requirement of proposed Sec.  
423.120(b)(iv)(C) would require that, before making any generic 
substitutions, a Part D sponsor provide all prospective and current 
enrollees with notice in the formulary and other applicable beneficiary 
communication materials stating that the Part D sponsor can remove, or 
change the preferred or tiered cost-sharing of, any brand name drug 
immediately without additional advance notice (beyond the general 
advance notice) when a new equivalent generic is added. This would, for 
instance, include the Evidence of Coverage (EOC). Proposed Sec.  
423.120(b)(iv)(C) would also require that this general notice advise 
prospective and current enrollees that they will get direct notice 
about any specific drug substitutions made that would affect them and 
that the direct notice would advise them of the steps they could take 
to request coverage determinations and exceptions. Therefore, the 
general notice would advise enrollees about what might take place 
before any changes occur.
    When the Part D sponsor substitutes a generic for a brand name 
drug, the proposed direct notice provision, Sec.  423.120(b)(5)(iv)(E), 
would require the Part D sponsor to provide affected enrollees with 
direct notice consistent with Sec.  423.120(b)(5)(ii). We currently 
require Part D sponsors to provide this information 60 days before such 
changes are made. Under the proposed changes, enrollees would receive 
the same information they receive under the current regulation--the 
only difference being that the notice could be provided

[[Page 56415]]

after the effective date of the generic substitution. As discussed 
earlier, under the proposed provision Part D sponsors seeking to make 
immediate substitutions would be newly required to have previously 
provided general notice in beneficiary communication materials such as 
formularies and EOCs that certain generic substitutions could take 
place without additional advance notice.
    We understand there may be concerns that the direct notice 
identifying the specific drug substitution would arrive after the 
formulary change has already taken place. As explained previously, we 
believe generic substitutions pose no threat to enrollee safety. Also, 
as noted earlier, we are proposing to revise Sec.  423.120(b)(6) to 
permit generic substitutions to take place throughout the entire year. 
This means that, under the proposed provision, a Part D sponsor meeting 
all the requirements would be able to substitute a generic drug for a 
brand name drug well before the actual start of the plan year (for 
instance, if a generic drug became available on the market days after 
the summer update). There is nothing in our regulation that would 
prohibit advance notice and, in fact, we would encourage Part D 
sponsors to provide direct notice as early as possible to any 
beneficiaries who have reenrolled in the same plan and are currently 
taking a brand name drug that will be replaced with a generic drug with 
the start of the next plan year. We would also anticipate that Part D 
sponsors will be promptly updating the formularies posted online and 
provided to potential beneficiaries to reflect any permitted generic 
substitutions--and at a minimum meeting any current timing requirements 
provided in applicable guidance. At this time we are not proposing to 
set a regulatory deadline by which Part D sponsors must update their 
formularies before the start of the new plan year. However, if we were 
to finalize this provision and thereafter find that Part D sponsors 
were not timely updating their formularies, we would reexamine this 
policy. And we would note, as regards timing, that Sec.  
423.128(d)(2)(iii) requires that the current formulary posted online be 
updated at least monthly.
    In cases in which the Part D sponsor would necessarily have to send 
notice after the fact, for example instances in which a drug is not 
released to the market until after the beginning of the plan year and 
the Part D sponsor then immediately makes a generic substitution, the 
proposed general notice would have already advised enrollees that they 
would receive information about any specific drug generic substitutions 
that affected them and that they would still be able to request 
coverage determinations and exceptions. While the timing would most 
likely mean most enrollees would only be able to make such requests 
after receiving a generic drug fill, in the vast majority of cases, an 
enrollee could not be certain that a generic substitution would not 
work unless he or she actually tried the generic drug. Additionally, we 
are strongly encouraging Part D sponsors to provide the retrospective 
direct notices of these generic substitutions (including direct notice 
to affected enrollees and notice to entities including CMS) no later 
than by the end of the month after which the change becomes effective. 
While sponsors are required to report this information to both 
enrollees and entities including CMS, we currently are not proposing to 
codify the end of month timing requirement; however, if we were to 
finalize this provision and thereafter find that Part D sponsors were 
not timely providing retrospective notice, we would reexamine this 
policy.
    Fourth, enrollees would be protected from higher cost-sharing under 
proposed paragraph (b)(5)(iv)(A), which would require Part D sponsors 
to offer the generic with the same or lower cost-sharing and the same 
or less restrictive utilization management criteria as the brand name 
drug.
    We also believe requirements and guidance regarding beneficiary 
communications will continue to provide beneficiary protections. 
Section 423.128(e)(5) currently requires Part D sponsors to furnish 
directly to enrollees an explanation of benefits (EOB) that includes 
any applicable formulary changes for which Part D plans are required to 
provide notice as described in Sec.  423.120(b)(5). As noted 
previously, Sec.  423.128(d)(2)(iii) currently requires Part D sponsors 
to post at least 60 days' notice of removals and cost-sharing changes 
online for current and prospective Part D enrollees. In light of our 
proposal for generic substitutions described previously, we propose to 
modify Sec.  423.128(d)(2)(iii) to require Part D sponsors to provide 
``timely'' notice under 423.120(b)(5). This would mean that, under the 
proposed provision, a Part D sponsor would need to provide at least 30 
days' online notice to affected enrollees before removing drugs or 
making cost-sharing changes except when adding a therapeutically 
equivalent generic as specified, and as has currently been the 
requirement, removing unsafe or withdrawn drugs. Part D sponsors could 
provide online notice after the effective date of changes only in those 
limited instances.
    As regards content, Sec.  423.128(d)(2)(iii) requires--and would 
continue to do so under the proposed revisions--that Part D sponsors 
post online notice regarding any removal or change in the preferred or 
tiered cost-sharing status of a Part D drug on its Part D plan's 
formulary. Posting information online related to removing a specific 
drug or changing its cost-sharing solely to meet the content 
requirements of Sec.  423.128(d)(2)(iii) cannot replace general notice 
under proposed Sec.  423.120(b)(5)(iv)(C); direct notice to affected 
enrollees under Sec.  423.120(b)(5)(ii); or notice to CMS when required 
under Sec.  423.120(b)(5). For instance, as noted in the January, 28, 
2005 final rule (70 FR 4265), we view online notification under Sec.  
423.128(d)(2)(iii) on its own as an inadequate means of providing 
specific information to the enrollees who most need it, and we consider 
it an additional way that Part D sponsors provide notice of formulary 
changes to affected enrollees.
    However, we do not mean to restrict or otherwise affect other rules 
governing the provisions of materials online. For instance, if Part D 
sponsors were able to fulfill CMS marketing and beneficiary 
communications requirements by posting a specific document online 
rather than providing it in paper, the fact the document was posted 
online would not preclude it from providing general notice required 
under our proposed provisions. In other words, if otherwise valid, 
provision of general notice in a document posted online could suffice 
as notice as regards that specified document under proposed Sec.  
423.120(b)(5)(iv)(C). In contrast, we do not wish to suggest that 
posting one type of notice online would necessarily suffice to meet 
distinct notice requirements. For instance, providing the general 
advance notice that would be required under Sec.  423.120(b)(5)(iv)(C) 
in a document posted online could not meet the online content 
requirements of Sec.  423.128(d)(2)(iii) related to providing 
information about removing drugs or changing their cost-sharing. Nor, 
as noted previously, could the opposite apply: Posting the content 
required under Sec.  423.128(d)(2)(iii) online could not fulfill the 
advance general notice requirements that would be required under 
proposed Sec.  423.120(b)(5)(iv)(C) (or suffice to provide direct 
notice to affected enrollees under Sec.  423.120(b)(5)(ii) or notice to 
CMS under Sec.  423.120(b)(5)).
    In addition to requiring the direct notice to affected enrollees 
discussed previously, proposed Sec.  423.120(b)(iv)(D) would also 
require Part D sponsors to provide the following entities with

[[Page 56416]]

notice of the generic substitutions consistent with Sec.  
423.120(b)(5)(ii): CMS, State Pharmaceutical Assistance Programs (as 
defined in Sec.  423.454), entities providing other prescription drug 
coverage (as described in Sec.  423.464(f)(1)), authorized prescribers, 
network pharmacies, and pharmacists. (To avoid repetition, we propose 
to revise the provision to refer to all of these entities as ``CMS and 
other specified entities'' for the purposes of Sec.  423.120(b).) Even 
though, as proposed, a Part D sponsor that met all of the requirements 
would be able to make the generic substitution immediately without 
submitting any formulary change requests to CMS, the Part D sponsor 
must include the generic substitution in the next available formulary 
submission to CMS. We note that Part D plans can determine the most 
effective means to communicate formulary change information to State 
Pharmaceutical Assistance Programs, entities providing other 
prescription drug coverage, authorized prescribers, network pharmacies, 
and pharmacists and that, under our proposed provision, we would 
consider online posting sufficient for those purposes.
    Lastly as part of our reexamination of the need to generally 
provide Part D sponsors greater flexibility in formulary changes, we 
plan to decrease the amount of direct notice required in cases where 
the removal of a drug or change in cost-sharing status will affect 
enrollees currently taking the drug. (This would contrast proposed 
notice requirements that would apply to immediate substitution of 
specified generics. There we would also require advance general notice 
that such changes can occur, and direct notice of the specific changes 
could be provided after their effective date.) Section 423.120(b)(5)(i) 
currently requires at least 60 days' notice to all entities prior to 
the effective date of changes and at least 60 days' direct notice to 
affected enrollees or a 60 day refill upon the request of an affected 
enrollee. We propose to reduce the notice requirement in both instances 
to at least 30 days and the refill requirement to a month. 
Beneficiaries would be affected, and therefore receive the 30 days' 
notice or a month refill, in cases in which, for instance, Part D 
sponsors planned to add prior authorization requirements as a result of 
new safety-related information or clinical guidelines. This proposal 
would permit Part D sponsors to institute formulary changes in half the 
time.
    We are, again, aware that some may be concerned that we are 
reducing the number of days advance notice afforded to enrollees in 
these instances. But again, we believe current CMS requirements provide 
the necessary beneficiary protections, and that 30 (rather than 60) 
days' notice still will afford enrollees sufficient time to either 
change to a covered alternative drug or to obtain needed prior 
authorization or an exception for the drug affected by the formulary 
change. Existing CMS regulations establish robust beneficiary 
protections in the coverage and appeals process, including expedited 
adjudication timeframes for exigent circumstances (maximum timeframe of 
24 hours for coverage determinations and 72 hours for level 1 and 2 
appeals), and a requirement that Part D plan sponsors automatically 
forward all untimely coverage determinations and redeterminations to 
the IRE for independent review. Further, while 60 days' notice is 
currently required, we have no evidence to suggest that beneficiaries 
are currently utilizing the full 60 days. The reduction to 30 days 
would align these requirements with the timeframes for transition 
fills. And, with over 11 years of program experience, we have no 
evidence to suggest that 30 days has been an insufficient temporary 
days supply for transition fills.
    (Note we are also proposing to amend the refill amount to months 
(namely a month) rather than days (it was 60 days previously) to 
conform to a proposed revision to the transition policy regulations at 
Sec.  423.120(b)(3).) For further discussion, see section III.A.15 of 
this proposed rule, Changes to the Transition.)
    Summary: The following provides a high level summary of notice 
changes proposed in Sec.  423.120(b). Details on these requirements 
appear in the preamble and proposed provisions. This summary does not 
address other proposed changes (for instance, changes to transition 
requirements); notice provisions we do not propose to change (for 
instance, notice for safety edits); or other rules that may also apply 
(for instance, marketing and beneficiary communications rules regarding 
formulary updates).
     Notice required for expedited substitutions of certain 
generics: Part D sponsors that would otherwise be permitted to make 
certain generic substitutions as specified under proposed Sec.  
423.120(b)(5)(iv) would be required to provide the following types of 
notice:
    ++ Advance general notice in the formulary and EOC and other 
applicable beneficiary communications stating that such changes may 
occur without notice.
    ++ Notice that identifies the specific drug substitution made--
which may be provided after the effective date of the change--as 
follows:

--Direct notice to affected enrollees.
--Notice posted online for current and prospective enrollees.
--Notice to CMS.
--Notice to other entities.

     Notice and refill required for certain other midyear 
formulary changes: Part D sponsors that would be otherwise permitted to 
remove or change the preferred or tiered cost-sharing status of drugs 
would be required to provide the below types of notice and refills 
under proposed Sec.  423.120(b)(5)(i) and (ii). However, these notice 
requirements do not apply when removing drugs deemed unsafe by the FDA 
or removed from the market by manufacturers (for applicable 
requirements see Sec.  423.120(b)(5)(iii).)
     For affected enrollees--
    ++ Advance direct written notice at least 30 days prior to the 
effective date; or
    ++ Written notice of the change and a month supply of the brand 
name drug under the same terms as provided before the change; and
     For entities and other enrollees:
    ++ Advance notice identifying the specific drug changes to be made 
at least 30 days prior to the effective date of the change as follows:

--Notice posted online for current and prospective enrollees;
--Notice to CMS; and
--Notice to other entities.
15. Treatment of Follow-On Biological Products as Generics for Non-LIS 
Catastrophic and LIS Cost Sharing
    Similar to the introduction of an abbreviated approval pathway for 
generic drugs provided by the Hatch-Waxman Act in 1984 to spur more 
competition through quicker approvals and introduction of lower cost 
therapeutic alternatives in the marketplace, Congress enacted the 
``Biologics Price Competition and Innovation Act of 2009'' to balance 
innovation and consumer interests. Specifically, section 7002 of the 
ACA amended section 351 of the Public Health Service Act (PHS Act) (42 
U.S.C. 262), adding a subsection (k) to create an abbreviated licensure 
pathway for follow-on biological products that are demonstrated to be 
either ``biosimilar'' to or ``interchangeable'' with a United States 
Food and Drug Administration (FDA) licensed reference biological 
product. According to the FDA, ``a biosimilar product is a biological 
product that is approved based on a showing that it is highly similar 
to an FDA-approved biological product, known as a reference product, 
and has

[[Page 56417]]

no clinically meaningful differences in terms of safety and 
effectiveness from the reference product. Only minor differences in 
clinically inactive components are allowable in biosimilar products.'' 
However, ``an interchangeable biological product is biosimilar to an 
FDA-approved reference product and meets additional standards for 
interchangeability. An interchangeable biological product may be 
substituted for the reference product by a pharmacist without the 
intervention of the health care provider who prescribed the reference 
product.'' (See http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/ApprovalApplications/TherapeuticBiologicApplications/Biosimilars/) Biosimilar biological 
products are, by definition, not interchangeable, and are not 
substitutable without a new prescription. Follow-on biological products 
are listed in the FDA's Purple Book: Lists of Licensed Biological 
Products with Reference Product Exclusivity and Biosimilarity or 
Interchangeability Evaluations, available at http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/ApprovalApplications/TherapeuticBiologicApplications/Biosimilars/ucm411418.htm. Part D plan sponsors are also encouraged to monitor the 
FDA's Web site for new biologic (BLA) approvals at http://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Reports.ReportsMenu.
    Sections 1860D-2(b)(4) and 1860D-14(a)(1)(D)(ii-iii) of the Act 
specify lower Part D maximum copayments for low-income subsidy (LIS) 
eligible individuals for generic drugs and preferred drugs that are 
multiple source drugs (as defined in section 1927(k)(7)(A)(i) of the 
Act) than are available for all other Part D drugs. Currently the 
statutory cost sharing levels are set at the maximums. CMS does not 
interpret the statutory language to mean that each plan can establish 
lower LIS cost sharing on drugs, but rather, that CMS, through 
rulemaking, could establish lower cost sharing than the maximum amount, 
and it would therefore be the same for all Part D plans.
    For the Part D program, CMS defines a ``generic drug'' at Sec.  
423.4 as a drug for which an application under section 505(j) of the 
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)) is approved. 
Biosimilar and interchangeable biological products do not meet the 
section 1927(k)(7) definition of a multiple source drug or the CMS 
definition of a generic drug at Sec.  423.4. Consequently, follow-on 
biological products are subject to the higher Part D maximum copayments 
for LIS eligible individuals and non-LIS Part D enrollees in the 
catastrophic portion of the benefit applicable to all other Part D 
drugs. While the statutory maximum LIS copayment amounts apply to all 
phases of the Part D benefit, the statute only specifies non-LIS 
maximum copayments for the catastrophic phase. CMS clarified the 
applicable LIS and non-LIS catastrophic cost sharing in a March 30, 
2015 Health Plan Management System (HPMS) memorandum. We advised that 
additional guidance may be issued for interchangeable biological 
products at a later date.
    Nonetheless, treatment of follow-on biological products, which are 
generally high-cost, specialty drugs, as brands for the purposes of 
non-LIS catastrophic and LIS cost sharing generated a great deal 
confusion and concern for plans and advocates alike, and CMS received 
numerous requests to redefine generic drug at Sec.  423.4. Advocates 
expressed concerns that LIS enrollees were required to pay the higher 
brand copayment for biosimilar biological products. Stakeholders who 
contacted us asserted treatment of biosimilar biological products as 
brands for purposes of LIS cost-sharing creates a disincentive for LIS 
enrollees to choose lower cost alternatives. Some of these stakeholders 
also expressed similar concerns for non-LIS enrollees in the 
catastrophic portion of the benefit.
    We agree and propose to revise the definition of generic drug at 
Sec.  423.4 to include follow-on biological products approved under 
section 351(k) of the PHS Act (42 U.S.C. 262(k)) solely for purposes of 
cost-sharing under sections 1860D-2(b)(4) and 1860D-14(a)(1)(D)(ii-iii) 
of the Act. Lower cost sharing for lower cost alternatives will improve 
enrollee incentives to choose follow-on biological products over more 
expensive reference biological products, and will reduce costs to both 
Part D enrollees and the Part D program.
    While CMS generally seeks to encourage the utilization of lower 
cost follow-on biological products, we propose to limit inclusion of 
follow-on biological products in the definition of generic drug to 
purposes of non-LIS catastrophic cost sharing and LIS cost sharing only 
because we want to avoid causing any confusion or misunderstanding that 
CMS treats follow-on biological products as generic drugs in all 
situations. We do not believe that would be appropriate because the 
same FDA requirements for generic drug approval (for example, 
therapeutic equivalence) do not apply to biosimilar biological 
products, currently the only available follow-on biological products. 
Accordingly, CMS currently considers biosimilar biological products 
more like brand name drugs for purposes of transition or midyear 
formulary changes because they are not interchangeable. In these 
contexts, treating biosimilar biological products the same as generic 
drugs would incorrectly signal that CMS has deemed biosimilar 
biological products (as differentiated from interchangeable biological 
products) to be therapeutically equivalent. This could jeopardize Part 
D enrollee safety and may generate confusion in the marketplace through 
conflation with other provisions due to the many places in the Part D 
statute and regulation where generic drugs are mentioned. Therefore, we 
believe the proposed change to treat follow-on biological products as 
generics should be limited to purposes of non-LIS catastrophic and LIS 
cost sharing only.
    We propose to modify the definition of generic drug at Sec.  423.4 
as follows:
     We propose to redesignate the existing definition as 
paragraph (i).
     We propose to add a new paragraph (ii) to state ``for 
purposes of cost sharing under sections 1860D-2(b)(4) and 1860D-
14(a)(1)(D) of the Act only, a biological product for which an 
application under section 351(k) of the Public Health Service Act (42 
U.S.C. 262(k)) is approved.''
    We solicit comment on this proposed change to the definition of 
generic drug at Sec.  423.4.
16. Eliminating the Requirement To Provide PDP Enhanced Alternative 
(EA) to EA Plan Offerings With Meaningful Differences (Sec.  423.265)
    CMS has the authority under section 1857(e)(1) of the Act, 
incorporated for Part D by section 1860D-12(b)(3)(D) of the Act, to 
establish additional contract terms that CMS finds ``necessary and 
appropriate,'' as well as authority under section 1860D-11(d)(2)(B) of 
the Act to propose regulations imposing ``reasonable minimum 
standards'' for Part D sponsors. Using this authority we previously 
issued regulations to ensure that multiple plan offerings by Part D 
sponsors represent meaningful differences to beneficiaries with respect 
to benefit packages and plan cost structures. At that time, separate 
meaningful difference rules were concurrently adopted for MA and stand-
alone PDPs. This section addresses proposed changes to our regulations 
pertaining strictly to meaningful

[[Page 56418]]

differences in PDP plan offerings. One of the underlying principles in 
the establishment of the Medicare Part D prescription drug benefit is 
that both market competition and the flexibility provided to Part D 
sponsors in the statute would result in the offering of a broad array 
of cost effective prescription drug coverage options for Medicare 
beneficiaries. We continue to support the concept of offering a variety 
of prescription drug coverage choices for Medicare beneficiaries 
consistent with our commitment to afford beneficiaries access to the 
prescription drugs they need.
    PDP sponsors must offer throughout a PDP region a basic plan that 
consists of: Standard deductible and cost sharing amounts (or actuarial 
equivalents); an initial coverage limit based on a set dollar amount of 
claims paid on the beneficiary's behalf during the plan year; a 
coverage gap phase; and finally, catastrophic coverage that applies 
once a beneficiary's out-of-pocket expenditures for the year have 
reached a certain threshold. Prior to our adopting regulations 
requiring meaningful differences between each PDP sponsor's plan 
offerings in a PDP Region, our guidance allowed sponsors that offered a 
basic plan to offer additional basic plans in the same region, as long 
as they were actuarially equivalent to the basic plan structure 
described in the statute. These sponsors could also offer enhanced 
alternative plans that provide additional value to beneficiaries in the 
form of reduced deductibles, reduced copays, coverage of some or all 
drugs while the beneficiary is in the gap portion of the benefit, 
coverage of drugs that are specifically excluded as Part D drugs under 
paragraph (2)(ii) of the definition of Part D drug under Sec.  423.100, 
or some combination of those features. As we have gained experience 
with the Part D program, we have made consistent efforts to ensure that 
the number and type of plan benefit packages PDP sponsors may market to 
beneficiaries are no more numerous than necessary to afford 
beneficiaries choices from among meaningfully different plan options. 
To that end, CMS sets differential out-of-pocket cost (OOPC) targets 
each year, using an analysis performed on the previous year's bid 
submissions, to ensure contracting organizations submit bids that 
clearly offer differences in value to beneficiaries. Published annually 
in the Call Letter, the threshold differentials are defined for a basic 
and enhanced plan, as well as for two enhanced plans, when offered by a 
parent organization in the same region. For example, in CY 2018, a 
basic and enhanced plan are required at minimum to provide for a $20 
out-of-pocket difference, while two enhanced plans are required to have 
at least a $30 differential. Over the years, the thresholds have ranged 
from $18 to $23 between basic and enhanced plans, and from $12 to $34 
between two enhanced plans. We issued regulations in 2010, at Sec.  
423.265(b)(2), that established our authority to deny bids that are not 
meaningfully different from other bids submitted by the same 
organization in the same service area. Our application of this 
authority has eliminated PDP sponsors' ability to offer more than one 
basic plan in a PDP region since all basic plan benefit packages must 
be actuarially equivalent to the standard benefit structure discussed 
in the statute, and in guidance we have also limited to two the number 
of enhanced alternative plans that we approve for a single PDP sponsor 
in a PDP region. As part of the same 2010 rulemaking, we also 
established at Sec.  423.507(b)(1)(iii) our authority to terminate 
existing plan benefit packages that do not attract a number of 
enrollees sufficient to demonstrate their value in the Medicare 
marketplace. Both of these authorities have been effective tools in 
encouraging the development of a variety of plan offerings that provide 
meaningful choices to beneficiaries.
    We continue to be committed to maintaining benefit flexibility and 
efficiency throughout both the MA and Part D programs. We wish to 
continue the trend of using transparency, flexibility, program 
simplification, and innovation to transform the MA and Part D programs 
for Medicare enrollees to have options that fit their individual health 
needs. In our April 2017 Request for Information (RFI), we offered 
stakeholders the opportunity to submit their ideas on how to better 
accomplish these goals. In response to the RFI, we received two 
comments specific to the meaningful difference requirement for PDPs. 
One commenter urged us to eliminate meaningful difference requirements 
to allow market competition to determine the appropriate number and 
type of plan offerings. Alternatively, it was suggested that if the 
meaningful difference standard is retained, we should revise it to 
allow plans to be treated as meaningfully different based on 
differences in plan characteristics not previously considered by CMS. 
The commenter contends that the meaningful difference requirement, as 
currently applied, unfairly limits the number of plan offerings and 
beneficiary choices. Specifically, it was argued that the meaningful 
difference test does not recognize premiums as elements constituting 
meaningful differences, despite this being an extremely important 
factor for beneficiaries in making enrollment decisions. Another 
commenter recommended that we lower the OOPC differentials between 
basic and enhanced PDP offerings but at a minimum, we should lower the 
OOPC differential between enhanced PDP offerings.
    While we received relatively few comments related to meaningful 
difference in response to the RFI, we did receive a number of comments 
both in support of and opposing the proposed increase in the meaningful 
difference threshold between enhanced PDP offerings we announced in the 
Draft CY 2018 Call Letter. Those in favor of our proposal believe that 
the increase would help to ensure that sponsors are offering 
meaningfully different plans and would minimize beneficiary confusion. 
Commenters opposed to the proposal argued that the increase would lead 
to more expensive plans and would effectively limit plan choice. They 
argued that expanding OOPC differentials would ultimately create more 
beneficiary disruption as sponsors would have to consolidate plans that 
do not meet the new threshold. This result would directly contradict 
our request that plan sponsors consider options to minimize beneficiary 
disruption. Commenters suggested that we should utilize OOPC estimates 
as they were originally intended, to ensure that beneficiaries receive 
a minimum additional value from enhanced plans. They added that steady 
and reasonable OOPC thresholds will give beneficiaries more consistent 
benefits and lower premiums.
    We appreciate the importance of ensuring adequate plan choice for 
beneficiaries and the value of multiple plan offerings with a diversity 
of benefits, now and in the future. We agree with the argument that two 
enhanced plans offered by a plan sponsor could vary with respect to 
their plan characteristics and benefit design, such that they might 
appeal to different subsets of Medicare enrollees, but in the end have 
similar out-of-pocket beneficiary costs. We continue to believe however 
that a meaningful difference, that takes into account out-of-pocket 
costs, be maintained between basic and enhanced plans to ensure that 
there is a meaningful value for beneficiaries given the supplemental 
Part D premium associated with the enhanced plans. Therefore, effective 
for

[[Page 56419]]

Contract Year (CY) 2019, we propose to revise the Part D regulations at 
Sec.  423.265 (b)(2) to eliminate the PDP EA to EA meaningful 
difference requirement, while maintaining the requirement that enhanced 
plans be meaningfully different from the basic plan offered by a plan 
sponsor in a service area. We believe these proposed revisions will 
help us accomplish the balance we wish to strike with respect to 
encouraging competition and plan flexibilities while still providing 
PDP choices to beneficiaries that represent meaningful choices in 
benefit packages. Anticipated impacts to this change include: (1) A 
modest increase in the number of plans that would be offered by PDP 
sponsors (if the EA to EA meaningful difference requirement was the 
sole barrier to a PDP sponsors offering a second EA plan in a region) 
and (2) a potential decrease in the average supplemental Part D 
premium.
    We also announce our future intent to reexamine, with the benefit 
of additional information, how we define the meaningful difference 
requirement between basic and enhanced plans offered by a PDP sponsor 
within a service area. We recognize that the current OOPC methodology 
is only one method for evaluating whether the differences between plan 
offerings are meaningful, and will investigate whether the current OOPC 
model or an alternative methodology should be used to evaluate 
meaningful differences between PDP offerings. While we intend to 
conduct our own analyses, we also seek stakeholder input on how to 
define meaningful difference as it applies to basic and enhanced Part D 
plans. CMS will continue to provide guidance for basic and enhanced 
plan offering requirements in the annual Call Letter.
    Beneficiaries can continue to rely on the many resources CMS makes 
available, such as the Medicare Plan Finder (MPF), 1-800-MEDICARE and 
the Medicare and You Handbook, to assist them and their caregivers in 
making the best plan choices that meet their individual health needs. 
To the extent that CMS finds its elimination results in potential 
beneficiary confusion or harm, CMS will consider reinstating the 
meaningful difference requirement through future rule making or 
consider taking other action.
17. Request for Information Regarding the Application of Manufacturer 
Rebates and Pharmacy Price Concessions to Drug Prices at the Point of 
Sale
a. Introduction
    Part D sponsors and their contracted PBMs have been increasingly 
successful in recent years at negotiating price concessions from 
pharmaceutical manufacturers, network pharmacies, and other such 
entities. Between 2010 and 2015, the amount of all forms of price 
concessions received by Part D sponsors and their PBMs increased nearly 
24 percent per year, about twice as fast as total Part D gross drug 
costs, according to the cost and price concession data Part D sponsors 
submitted to CMS for payment purposes.
    The data Part D sponsors submit to CMS as part of the annual 
required reporting of direct or indirect remuneration (DIR) show that 
manufacturer rebates, which comprise the largest share of all price 
concessions received, have accounted for much of this growth.\47\ The 
data also show that manufacturer rebates have grown dramatically 
relative to total Part D gross drug costs each year since 2010. Rebate 
amounts are negotiated between manufacturers and sponsors or their 
PBMs, independent of CMS, and are often tied to the sponsor driving 
utilization toward a manufacturer's product through, for instance, 
favorable formulary tier placement and cost-sharing requirements.
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    \47\ Sponsors report all DIR to CMS annually by category at the 
plan level. DIR categories include: Manufacturer rebates, 
administrative fees above fair market value, price concessions for 
administrative services, legal settlements affecting Part D drug 
costs, pharmacy price concessions, drug cost-related risk-sharing 
settlements, etc.
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    The DIR data show similar trends for pharmacy price concessions. 
Pharmacy price concessions, net of all pharmacy incentive payments, 
have grown faster than any other category of DIR received by sponsors 
and PBMs and now buy down a larger share of total Part D gross drug 
costs than ever before. Such price concessions are negotiated between 
pharmacies and sponsors or their PBMs, again independent of CMS, and 
are often tied to the pharmacy's performance on various measures 
defined by the sponsor or its PBM.
    When manufacturer rebates and pharmacy price concessions are not 
reflected in the price of a drug at the point of sale, beneficiaries 
might see lower premiums, but they do not benefit through a reduction 
in the amount they must pay in cost-sharing, and thus, end up paying a 
larger share of the actual cost of a drug. Moreover, given the increase 
in manufacturer rebates and pharmacy price concessions in recent years, 
the point-of-sale price of a drug that a Part D sponsor reports on a 
PDE record as the negotiated price is rendered less transparent at the 
individual prescription level and less representative of the actual 
cost of the drug for the sponsor when it does not include such 
discounts. Finally, variation in the treatment of rebates and price 
concessions by Part D sponsors may have a negative effect on the 
competitive balance under the Medicare Part D program, as explained 
later in this section.
    At the time the Part D program was established, we believed, as 
discussed in the Part D final rule that appeared in the January 28, 
2005 Federal Register (70 FR 4244), that market competition would 
encourage Part D sponsors to pass through to beneficiaries at the point 
of sale a high percentage of the manufacturer rebates and other price 
concessions they received, and that establishing a minimum threshold 
for the rebates to be applied at the point of sale would only serve to 
undercut these market forces. However, actual Part D program experience 
has not matched expectations in this regard. In recent years, only a 
handful of plans have passed through a small share of price concessions 
to beneficiaries at the point of sale. Instead, because of the 
advantages that accrue to sponsors in terms of premiums (also an 
advantage for beneficiaries), the shifting of costs, and plan revenues, 
from the way rebates and other price concessions applied as DIR at the 
end of the coverage year are treated under the Part D payment 
methodology, sponsors may have distorted incentives as compared to what 
we intended in 2005.
    Therefore, in this request for information we discuss 
considerations related to and solicit comment on requiring sponsors to 
include at least a minimum percentage of manufacturer rebates and all 
pharmacy price concessions received for a covered Part D drug in the 
drug's negotiated price at the point of sale. Feedback received will be 
used for consideration in future rulemaking on this topic.
b. Background
    Section 1860D-2(d)(1) of the Act requires that a Part D sponsor 
provide beneficiaries with access to negotiated prices for covered Part 
D drugs. Under our current regulations at Sec.  423.100, the negotiated 
price is the price paid to the network pharmacy or other network 
dispensing provider for a covered Part D drug dispensed to a plan 
enrollee that is reported to CMS at the point of sale by the Part D 
sponsor. This point of sale price is used to calculate beneficiary 
cost-sharing. More broadly, the negotiated price is the primary basis 
by which the Part D benefit is adjudicated, and is used to determine 
plan, beneficiary, manufacturer (in the

[[Page 56420]]

coverage gap), and government liability during the course of the 
payment year, subject to final reconciliation following the end of the 
coverage year.
    Under current law, when not explicitly required to do so for 
certain types of pharmacy price concessions, Part D sponsors can choose 
whether to reflect various price concessions, including manufacturer 
rebates, they or their intermediaries receive in the negotiated price. 
Specifically, section 1860D-2(d)(1)(B) of the Act merely requires that 
negotiated prices ``shall take into account negotiated price 
concessions, such as discounts, direct or indirect subsidies, rebates, 
and direct or indirect remunerations, for covered part D drugs . . . 
.'' In other words, Part D sponsors are allowed, but generally not 
currently required, to apply rebates and other price concessions at the 
point of sale to lower the price upon which beneficiary cost-sharing is 
calculated. To date, sponsors have elected to include rebates and other 
price concessions in the negotiated price at the point-of-sale only 
very rarely. All rebates and other price concessions that are not 
included in the negotiated price must be reported to CMS as DIR at the 
end of the coverage year and are used in our calculation of final plan 
payments, which, under the statute, are required to be based on costs 
actually incurred by Part D sponsors, net of all applicable DIR.
(1) Premiums and Plan Revenues
    The main benefit to a Part D beneficiary of price concessions 
applied as DIR at the end of the coverage year (and not to the 
negotiated price at the point of sale) comes in the form of a lower 
plan premium. A sponsor must factor into its plan bid an estimate of 
the DIR expected to be generated--that is, it must lower its estimate 
of plan liability by a share of the projected DIR--which has the effect 
of reducing the price of coverage under the plan. Under the current 
Part D benefit design, price concessions that are applied post-point-
of-sale, as DIR, reduce plan liability, and thus premiums, more than 
price concessions applied at the point of sale. When price concessions 
are applied to reduce the negotiated price at the point of sale, some 
of the concession amount is apportioned to reduce beneficiary cost-
sharing, as explained in this section, instead of plan and government 
liability; this is not the case when price concessions are applied 
post-point-of-sale, where the majority of the concession amount accrues 
to the plan, and the remainder accrues to the government. Therefore, to 
the extent that plan bids reflect accurate DIR estimates, the rebates 
and other price concessions that Part D sponsors and their PBMs 
negotiate, but do not include in the negotiated price at the point of 
sale, put downward pressure on plan premiums, as well as the 
government's subsidies of those premiums. The average Part D basic 
beneficiary premium has grown at an average rate of only about 1 
percent per year between 2010 and 2015, and is projected to decline in 
2018, due in part to sponsors' projecting DIR growth to outpace the 
growth in projected gross drug costs each year. The average Medicare 
direct subsidy paid by the government to cover a share of the cost of 
coverage under a Part D plan has also declined, by an average of 8.1 
percent per year between 2010 and 2015, partly for the same reason.
    However, any DIR received that is above the projected amount 
factored into a plan's bid contributes primarily to plan profits, not 
lower premiums. The risk-sharing construct established under Part D by 
statute allows sponsors to retain as plan profit the majority of all 
DIR that is above the bid-projected amount.\48\ Our analysis of Part D 
plan payment and cost data indicates that in recent years, DIR amounts 
Part D sponsors and their PBMs actually received have consistently 
exceeded bid-projected amounts.
---------------------------------------------------------------------------

    \48\ Medicare shares risk with Part D sponsors on the drug costs 
for which they are liable using symmetrical risk corridors and 
through the payment of 80 percent reinsurance in the catastrophic 
phase of the benefit.
---------------------------------------------------------------------------

    To capture the relative premium and other advantages that price 
concessions applied as DIR offer sponsors over lower point-of-sale 
prices, sponsors sometimes opt for higher negotiated prices in exchange 
for higher DIR and, in some cases, even prefer a higher net cost drug 
over a cheaper alternative. This may put upward pressure on Part D 
program costs and, as explained below, shift costs from the Part D 
sponsor to beneficiaries who utilize drugs in the form of higher cost-
sharing and to the government through higher reinsurance and low-income 
cost-sharing subsidies.
(2) Cost-Shifting
    When manufacturer rebates and other price concessions are not 
reflected in the negotiated price at the point of sale (that is, 
applied instead as DIR at the end of the coverage year), beneficiary 
cost-sharing, which is generally calculated as a percentage of the 
negotiated price, becomes larger, covering a larger share of the actual 
cost of a drug. Although this is especially true when a Part D drug is 
subject to coinsurance, it is also true when a drug is subject to a 
copay because Part D rules require that the copay amount be at least 
actuarially equivalent to the coinsurance required under the defined 
standard benefit design. For many Part D beneficiaries who utilize 
drugs and thus incur cost-sharing expenses, this means, on average, 
higher overall out-of-pocket costs, even after accounting for the 
premium savings tied to higher DIR. For the millions of low-income 
beneficiaries whose out-of-pocket costs are subsidized by Medicare 
through the low income cost-sharing subsidy, those higher costs are 
borne by the government. This potential for cost-shifting grows 
increasingly pronounced as manufacturer rebates and pharmacy price 
concessions increase as a percentage of gross drug costs and continue 
to be applied outside of the negotiated price. Numerous research 
studies further suggest that the higher cost-sharing that results can 
impede beneficiary access to necessary medications, which leads to 
poorer health outcomes and higher medical care costs for beneficiaries 
and Medicare.49 50 51 These effects of higher beneficiary 
cost-sharing under the current policies regarding the determination of 
negotiated prices must be weighed against the impact on beneficiary 
access to affordable drugs of the lower premiums that are currently 
charged for Part D coverage.
---------------------------------------------------------------------------

    \49\ Michele Heisler et al., ``The Health Effects of Restricting 
Prescription Medication Use Because of Cost,'' Medical Care, 626-634 
(2004).
    \50\ Peter Bach, ``Limits on Medicare's Ability to Control 
Rising Spending on Cancer Drugs,'' The New England Journal of 
Medicine, 360, 626-633 (2009).
    \51\ Sonya Blesser Streeter et al., ``Patient and Plan 
Characteristics Affecting Abandonment of Oral Oncolytic 
Prescriptions,'' Journal of Oncology Practice, 7, no. 3S, 46S-51S 
(2011).
---------------------------------------------------------------------------

    Moreover, beneficiaries progress through the four phases of the 
Part D benefit as their total gross drug costs and cost-sharing 
obligations increase. Because both of these values are calculated based 
on the negotiated prices reported at the point of sale, when 
manufacturer rebates and pharmacy price concessions are not applied at 
the point of sale, the higher negotiated prices that result move Part D 
beneficiaries more quickly through the Part D benefit. This, in turn, 
shifts more of the total drug spend into the catastrophic phase, where 
Medicare liability is highest (80 percent, paid as reinsurance) and 
plan liability, after the closing of the coverage gap, is lowest (15 
percent). Part D program experience further suggests that sponsors are 
able to offset their already limited liability in the catastrophic 
phase by capturing additional rebates from manufacturers,

[[Page 56421]]

the largest share of which, under current Part D rules, as explained 
previously, are allocated to reduce plan liability. Consistent with 
this benefit, we note that sponsors have negotiated more high price-
high rebate arrangements, especially in recent years, which has caused 
the proportion of costs for which the plan sponsor is at risk to shrink 
when those higher rebates are not passed on at the point of sale. Under 
current rules, therefore, Part D sponsors may have weak incentives, 
and, in some cases even, no incentive, to lower prices at the point of 
sale or to choose lower net cost alternatives to high cost-highly 
rebated drugs when available.
(3) Transparency and Differential Treatment
    Given the significant growth in manufacturer rebates and pharmacy 
price concessions in recent years, when such amounts are not reflected 
in the negotiated price, at least to some degree, the true price of a 
drug to the plan is not available to consumers at the point of sale, 
nor is it reflected on the Medicare Prescription Drug Plan Finder (Plan 
Finder) tool. Consequently, consumers cannot efficiently minimize both 
their costs and costs to the taxpayers by seeking and finding the 
lowest-cost drug or the lowest-cost drug and pharmacy combination.
    The quality of information available to consumers is even less 
conducive to producing efficient choices when rebates and other price 
concessions are treated differently by different Part D sponsors; that 
is, when they are applied to the point-of-sale price to differing 
degrees and/or estimated and factored into plan bids with varying 
degrees of accuracy. First, when some sponsors include price 
concessions in negotiated prices while others treat them as DIR, 
negotiated prices no longer have a consistent meaning across the Part D 
program, undermining meaningful price comparisons and efficient choices 
by consumers. Second, if a sponsor's bid is based on an estimate of net 
plan liability that is understated because the sponsor has been 
applying price concessions as DIR at the end of the coverage year 
rather than using them to reduce the negotiated price at the point of 
sale, it follows that the sponsor may be able to submit a lower bid 
than a competitor that applies price concessions at the point of sale 
or opts for lower net cost alternatives to high cost-highly rebated 
drugs when available. This lower bid results in a lower plan premium 
that must be paid by enrollees in the plan, which could allow the 
sponsor to capture additional market share. The resulting competitive 
advantage accruing to one sponsor over another in this scenario stems 
only from a technical difference in how plan costs are reported to CMS. 
Therefore, the opportunity for differential treatment of rebates and 
price concessions could result in bids that are not comparable and in 
premiums that are not valid indicators of relative plan efficiency.
c. Manufacturer Rebates to the Point of Sale
    We are soliciting comment from stakeholders on how we might most 
effectively design a policy requiring Part D sponsors to pass through 
at the point of sale a share of the manufacturer rebates they receive, 
in order to mitigate the effects of the DIR construct \52\ on costs to 
both beneficiaries and Medicare, competition, and efficiency under Part 
D. In this section, we put forth for consideration potential parameters 
for such a policy and seek detailed comments on their merits, as well 
as the merits of any alternatives that might better serve our goals of 
reducing beneficiary costs and better aligning incentives for Part D 
sponsors with the interests of beneficiaries and taxpayers. We 
specifically seek comment on how this issue could be addressed without 
increasing government costs and without reducing manufacturer payments 
under the coverage gap discount program. We encourage all commenters to 
provide quantitative analytical support for their ideas wherever 
possible.
---------------------------------------------------------------------------

    \52\ We use the term ``DIR construct'' to refer to how DIR is 
treated under current Part D payment rules and the advantages that 
accrue to Part D sponsors when they apply rebates and other price 
concessions as DIR at the end of the coverage year.
---------------------------------------------------------------------------

    Specifically, we are considering requiring, through future 
rulemaking, Part D sponsors to include in the negotiated price reported 
to CMS for a covered Part D drug a specified minimum percentage of the 
cost-weighted average of rebates provided by drug manufacturers for 
covered Part D drugs in the same therapeutic category or class. We will 
refer to the rebate amount that we would require be included in the 
negotiated price for a covered Part D drug as the ``point-of-sale 
rebate.'' Under such a policy, sponsors could apply as DIR at the end 
of the coverage year only those manufacturer rebates received in excess 
of the total point-of-sale rebates. In the unlikely event that total 
manufacturer rebate dollars received for a drug are less than the total 
point-of-sale rebates, the difference would be reported at the end of 
the coverage year as negative DIR.
(1) Specified Minimum Percentage
    We are considering setting the minimum percentage of manufacturer 
rebates that must be passed through at the point of sale at a point 
less than 100 percent of the applicable average rebate amount for drugs 
in the same drug category or class. For operational ease, we are 
considering setting the same minimum percentage, which we would specify 
in regulation, for all rebated drugs in all years--that is, the minimum 
percentage would not change by drug category or class or by year.
    It is important to note that we are not considering requiring that 
100 percent of rebates be applied at the point of sale. As explained 
earlier, the statutory definition of negotiated price in section 1860D-
2(d)(1)(B) of the Act requires that ``negotiated prices shall take into 
account negotiated price concessions, such as discounts, direct or 
indirect subsidies, rebates, and direct or indirect remunerations, for 
covered part D drugs . . .'' (emphasis added). We believe this 
language, particularly when read in the context of the requirement in 
section 1860D-2(d)(2) of the Act that Part D sponsors report the 
aggregate price concessions made available ``by a manufacturer which 
are passed through in the form of lower subsidies, lower monthly 
beneficiary prescription drug premiums, and lower prices through 
pharmacies and other dispensers,'' contemplates that Part D sponsors 
have some flexibility in determining how to apply manufacturer rebates 
in order to reduce costs under the plan.
    Furthermore, we are cognizant of the fact that while requiring that 
a higher share of rebates be included in the negotiated price would 
more meaningfully address the concerns highlighted earlier and lead to 
larger cost-sharing savings for many beneficiaries, doing so would also 
result in larger premium increases for all beneficiaries, as discussed 
in greater detail later in this section, and lower flexibility for Part 
D sponsors in regards to the treatment of manufacturer rebates, and 
thus, for some sponsors, weaker incentives to participate in the Part D 
program. We aim to set the minimum percentage of rebates that must be 
applied at the point of sale at a point that allows an appropriate 
balance between these outcomes and thus achieves the greatest possible 
increase in beneficiary access to affordable drugs.
    We are soliciting comment on the minimum percentage of manufacturer 
rebates that should be reflected in the negotiated price in order to 
achieve this balance. We are also seeking comment on how and how often, 
if at all, that

[[Page 56422]]

minimum percentage should be updated by CMS, and what factors should be 
considered in making any such change. We request that commenters 
provide analytical justification for their ideas wherever possible. We 
also are seeking comment on the effect that specifying a minimum 
percentage of rebates that must be reflected in the negotiated price 
would have on the competition for rebates under Part D and the total 
rebate dollars received by Part D sponsors and PBMs.
(2) Applicable Average Rebate Amount
    We are also particularly interested in stakeholder feedback 
regarding the following methodology to calculate the applicable average 
rebate amount, a specified minimum percentage of which would be 
required to be applied at the point of sale:
     Rebate Year: We are considering requiring that 
point-of-sale rebate amounts be based on average manufacturer rebates 
expected to be received for each drug category or class under the 
manufacturer rebate agreements for the current payment year, not 
historical rebate experience. To the extent that rebate agreements are 
structured with contingencies that would be unclear at the point of 
sale, sponsors would be required to base the point-of-sale rebate 
amount on a good faith estimate of the rebates expected to be received. 
We solicit comments on whether this approach would ensure that the 
price available to beneficiaries at the point of sale reflects the 
actual price of a drug at that time, or if an alternative approach 
would do so more effectively.
     Rebated Drugs: We are considering requiring that 
the average rebate amount be calculated using only drugs for which 
manufacturers provide rebates. We believe including non-rebated drugs 
in this calculation would serve only to drive down the average 
manufacturer rebates, which would dampen the intended effects of any 
change.
    Additionally, we would likely consider each drug product with a 
unique 11-digit national drug code (NDC) separately for purposes of 
calculating the average rebate amount. PDE and rebate data submitted to 
CMS show that gross drug costs and rebate rates under a plan can vary 
even for the same drugs produced by the same manufacturer that are 
packaged differently and thus have different NDC-11 identifiers. 
Therefore, we believe that the average rebate amounts are more likely 
to be accurate when calculated based on the gross drug cost and rebate 
data at the 11-digit NDC level. We solicit comment on whether 
specifying such a requirement would also serve to ensure consistency in 
how average rebates are calculated across sponsors, which would make 
prices more comparable across Part D plans and enforcement easier.
     Plan-Level Average: We are considering requiring 
that average rebate amounts be calculated separately for each plan 
(that is, calculated at the plan-benefit-package level). In other 
words, the same average rebate amount would not apply to the point-of-
sale price for a covered drug across all plans under one contract, nor 
across all contracts under one sponsor. We believe this approach would 
result in the calculation of more accurate average rebates because the 
PDE and rebate data that are submitted by sponsors demonstrate that 
gross drug costs and rebate levels are not the same across all plans 
under one contract, nor across all contracts under one sponsor. This 
approach would also largely be consistent with how sponsors develop 
cost estimates for their Part D bids because benefit designs, including 
formulary structure, and assumptions about enrollee characteristics and 
utilization vary by plan, even for multiple plans under one contract. 
Similarly, final payments are calculated by CMS at the plan level, 
based on the data submitted by the sponsor. We solicit comment on 
whether the most appropriate approach for calculating the average 
rebate amount for point-of-sale application would be to do so at the 
plan level, using plan-specific information, given that moving a 
portion of manufacturer rebates to the point of sale would impact plan 
liability and payments, or if another approach would be more 
appropriate.
     Drug Category or Class: We are considering 
requiring that the manufacturer rebate amount applied to the point-of-
sale price for a covered drug be based on the plan's average rebate 
amount calculated for the rebated drugs in the same category or class. 
We are considering requiring sponsors to determine the average rebate 
amount at the therapeutic category or class level, rather than a drug-
specific rebate amount, in order to maintain the confidentiality of any 
manufacturer-sponsor/PBM pricing relationship with respect to an 
individual drug. Given that rebate rates are typically negotiated at 
the individual drug level, we believe that the drug category/class-
average approach we are considering would help maintain fair 
competition among drug manufacturers, as well as Part D sponsors, by 
preventing competitors from reverse engineering the particulars of any 
proprietary pricing arrangement. This approach would also increase 
price transparency over the status quo, especially at the drug category 
or class level, and improve market competition and efficiency under 
Part D as a result. In addition to feedback on this general approach 
and our rationale for it, we are seeking comment, in particular, on the 
drug classification system that Part D sponsors should be required to 
use to calculate their drug category/class-level average rebate amounts 
and why that system would be most appropriate for use in such a point-
of-sale rebate policy. We also are seeking comment on the effect of 
calculating average rebates at the drug category/class level on 
competition and, in turn, on the total rebate dollars received.
    We are also particularly interested in comments on how an average 
rebate amount should be calculated for a drug that is the only rebated 
drug in its drug category or class. An alternative approach would be 
necessary in this case because the average rebate amount calculated 
under the general approach we have described above would equal the 
drug-specific rebate amount, which, if included in the negotiated 
price, could result in the release of proprietary pricing information. 
We ask that commenters explain how any alternative they suggest for the 
only rebated drug scenario would address this concern and comment on 
the level of price transparency that would be achieved under the 
suggested alternative.
     Weighting: We are considering requiring that 
when calculating the applicable average rebate amount for a particular 
drug category, the manufacturer rebate amount for each individual drug 
in that category be weighted by the total gross drug costs incurred for 
that drug, under the plan, over the most recent month, quarter, year, 
or another time period to be specified in future rulemaking for which 
cost data is available. We believe a weighted average is more accurate 
than a simple average because sponsors do not receive the same level of 
rebates for all drugs in a particular drug category or class, and thus, 
contrary to the assumption underlying a simple average, not all drugs 
contribute equally to the final average rebate percentage for a drug 
category or class received by the sponsor under a plan at the end of a 
payment year. A gross drug cost-weighted average ensures that drugs 
with higher utilization, higher costs, or both will be more important 
to the final average rebate rate realized for the drug category or 
class than lower utilization, lower cost, or lower cost-lower 
utilization drugs in the category or class.

[[Page 56423]]

    In the case of a drug with less time on the market than the time 
period for which cost data would be required under this weighting 
approach or of a plan that has not been active in the Part D program 
for the time period required under the weighting approach, we are 
considering requiring that the drug's rebate amount be weighted by a 
sponsor's projection of total gross drug costs for the plan that takes 
into account any plan-specific cost experience already available. If no 
plan-specific cost experience is available when calculating average 
rebate amounts, such as at the beginning of a payment year for a new 
plan, are considering requiring sponsors to use the same drug cost 
projections on which they base their Part D bids. Further, for 
operational ease, it appears the manufacturer rebates used in the 
calculation of the average rebate amount would need to include all 
manufacturer rebates received for the drug, including all point-of-sale 
rebates. Then, in order not to double count the point-of-sale rebates, 
the total gross drug costs used to weight the average under this 
methodology would have to be based on the drug's price at the point of 
sale before it is lowered by any manufacturer rebates or other price 
concessions applied at the point of sale. We are interested in 
stakeholder feedback on these considerations.
    For an illustration of how the weighted-average rebate amount for a 
particular drug category or class would be calculated, see the point-
of-sale rebate example later in this section.
     Timing: We are considering requiring Part D 
sponsors to recalculate the applicable average rebate amount every 
month, quarter, year, or another time period to be specified in future 
rulemaking, in order to ensure that the average reflects current cost 
experience and manufacturer rebate information. We believe that a 
requirement to recalculate the average rebate amount should balance the 
need to sustain a level of price transparency throughout the entire 
year with the additional burden on sponsors associated with more 
frequent updates. We are seeking comment on how often the applicable 
cost-weighted drug category/class-average rebate amount, and thus the 
point-of-sale rebate for any drug, should be recalculated.
(3) Point-of-Sale Rebate Drugs
    We are considering limiting the application of any point-of-sale 
rebate requirement to only rebated drugs. Under this approach, the 
calculated average rebate amount would only be required to be applied 
to the point-of-sale prices for drugs that are rebated, with each drug 
identified by its unique NDC-11 identifier. The alternative would 
result in a manufacturer that provides no rebates for a particular drug 
benefiting from a direct competitor's rebate, as the competitor's 
rebate would be used to lower the negotiated price and thereby 
potentially increasing sales of the non-rebated drug. However, to be 
clear, under this potential approach, sponsors would maintain their 
flexibility to include in the negotiated price for any drug, including 
a non-rebated drug, manufacturer rebates and other price concessions 
above those required to be included in the negotiated price for rebated 
drugs under a point-of-sale rebate policy such as the one we describe 
here.
    Moreover, in order to limit the impact on premiums for all 
beneficiaries of adopting a requirement that sponsors include a portion 
of manufacturer rebates in the negotiated price at the point of sale, 
we are also seeking comment on the merits or limitations of, a more 
targeted version of the policy approach that would require sponsors to 
pass through a minimum percentage of rebates at the point of sale only 
for specific drugs or drug categories or classes. Under this 
alternative approach, the point-of-sale rebate policy would apply only 
for drugs or drug categories or classes that most directly contribute 
to increasing Part D drug costs in the catastrophic phase of coverage 
or drugs with high price-high rebate arrangements; such drugs or drug 
categories or classes are likely to have the most significant impact on 
beneficiary costs and serve to increase program costs overall, as 
discussed previously. We are interested in stakeholder feedback on 
whether targeting the rebate requirement in such a way would 
effectively address the misaligned sponsor incentives and market 
inefficiencies that exist under Part D today as a result of the DIR 
construct. In addition to general comments on the alternative, more 
targeted policy approach, we are particularly interested in 
recommendations for the criteria that we might use to determine which 
drugs or drug categories or classes to target under such an alternative 
approach.
(4) Point-of-Sale Rebate Example
    To illustrate how the weighted-average rebate amount for a 
particular drug class would be calculated under a point-of-sale rebate 
requirement that includes the features described earlier, we provide 
the following example: suppose drugs A, B, and C are the only three 
rebated drugs on the plan's formulary in a particular drug class. The 
negotiated prices, before application of the point-of-sale rebates, for 
the three drugs in the current time period are $200, $100, and $75, 
respectively. The manufacturer rebates expected by the plan in this 
payment year, given the information available in the current period, 
for drugs A, B, and C equal 20, 10, and 5 percent, respectively, of the 
drugs' pre-rebate negotiated prices. Over the previous time period, 
total gross drug costs incurred under the plan for drug A equaled $2 
million, for drug B equaled $750,000, and for drug C equaled $150,000. 
Therefore, the gross drug cost-weighted average rebate rate for this 
drug class in the current time period is calculated as the following: 
[($2 million x 20 percent) + ($750,000 x 10 percent) + ($150,000 x 5 
percent)]/($2 million + $750,000 + $150,000), or 16.64 percent. If we 
were to require that a minimum 50 percent of the average rebate be 
applied at the point of sale for all rebated drugs in this drug class 
(and the plan only applies the minimum required percentage), the final 
negotiated prices for drugs A, B, and C, now equal to $183.36, $91.68, 
and $68.76, respectively, would be 8.32 percent (50 percent of 16.64 
percent) lower than the pre-rebated prices.
    For each of the three drugs in this example, beneficiary out-of-
pocket costs would be lower under the approach we are considering than 
under the status quo. Assuming, for instance, these drugs are subject 
to a 25 percent coinsurance, the enrollee's costs for the three drugs 
under this approach would be $45.84 (25 percent of $183.36) for drug A, 
$22.92 (25 percent of $91.68) for drug B, and $17.19 (25 percent of 
$68.76) for drug C. Under the status quo, the enrollee's costs would be 
$50 for drug A ($4.16 higher), $25 for drug B ($2.08 higher), and 
$18.75 for drug C ($1.56 higher).
    Any difference between the rebates applied at the point of sale and 
those actually received would be captured as DIR through reporting at 
the end of the coverage year. Assume, for instance, that total gross 
drug costs for drugs A, B, and C equal $1.5 million, $1 million, and 
$200,000, respectively, in this period. The actual manufacturer rebates 
received, therefore, will equal $300,000, $100,000, and $10,000, 
respectively, for drugs A, B, and C in this period, based on the plan's 
expected rebate rates of 20, 10, and 5 percent, respectively, for the 
three drugs in this payment year. Based on the point-of-sale rebate 
rate calculated above for the applicable drug class and the total gross 
drug cost assumptions provided for the three drugs, we calculate the 
total point-of-

[[Page 56424]]

sale rebates in this period to be $124,786.48 (8.32 percent of $1.5 
million) for drug A, $83,189.66 (8.32 percent of $1 million) for drug 
B, and $16,637.93 (8.32 percent of $200,000) for drug C. Therefore, the 
manufacturer rebates applied by the plan as DIR at the end of the 
coverage year for the three drugs, respectively, would be $175,215.52, 
$16,810.34, and -$6,637.93 and total $185,387.93 across the drug class.
(5) Additional Considerations
    Under the policy approach that we are considering here for moving 
manufacturer rebates to the point of sale, the responsibility for 
calculating the appropriate point-of-sale rebate amount over the course 
of the year would fall on Part D sponsors given their role in 
administering the Medicare drug benefit. We would leverage existing 
reporting mechanisms to review the sponsors' calculations, as we do 
with other cost data required to be reported. Specifically, we would 
likely use the estimated rebates at point-of-sale field on the PDE 
record to collect point-of-sale rebate information, and the 
manufacturer rebates fields on the Summary and Detailed DIR Reports to 
collect final manufacturer rebate information at the plan and NDC 
levels. Differences between the manufacturer rebate amounts applied at 
the point of sale and rebates actually received would become apparent 
when comparing the data collected through those means at the end of the 
coverage year.
    Additionally, we note that in accordance with Sec.  423.505(k) of 
the Part D regulations, a Part D sponsor is required to certify the 
accuracy, completeness, and truthfulness of all data related to 
payment, including the PDE data and information on allowable costs that 
it submits for purposes of risk corridor and reinsurance payment. A 
Part D sponsor certifies its Part D cost data by signing and submitting 
attestations to CMS. By signing the attestations, the Part D sponsor 
certifies (based on best knowledge, information, and belief) that the 
PDE data, DIR data, and any other information provided for the purposes 
of determining payment to the plan for the applicable contract year are 
accurate, complete, and truthful. If we were to move forward with a 
point-of-sale rebate policy, we would also consider amending Sec.  
423.505(k) to add a new requirement that the CEO, CFO, or COO attest 
(based on best knowledge, information, and belief) to the accuracy, 
completeness, and truthfulness of the average rebate amount included in 
the negotiated price and reported on the PDE. The submission of 
accurate, complete, and truthful data regarding the average rebate 
amount included in the negotiated price would be necessary to ensure 
accurate reinsurance and risk corridor payments.
    Under the approach we are considering, if a Part D sponsor 
discovers errors after the certification has been made (that is, after 
the attestation has been signed), the Part D sponsor would submit 
corrected PDE data, and, under most circumstances, CMS would reconcile 
the error through the reopening process described at Sec.  423.346. All 
reopenings are at the discretion of CMS. CMS performs a global 
reopening approximately 4 years after the initial reconciliation for 
that contract year. A Part D sponsor's reopening request resulting from 
errors in PDE data discovered after the global reopening for the 
contract year in which the error occurred would be evaluated by CMS on 
a case by case basis. Any errors in the calculation of the average 
rebate amount that result in overpayments would be required to be 
reported and returned consistent with Sec.  423.360 and the applicable 
subregulatory guidance on overpayments.
    We note that prior to the submission of the attestation, and more 
specifically, prior to the PDE submission deadline for the initial 
reconciliation for a contract year, if a Part D sponsor discovers an 
issue with the average rebate amount included in the negotiated price 
and reported on the PDE, all affected PDEs would need to be adjusted or 
deleted in accordance with applicable CMS guidance. As of the 
publication of this request for information, the applicable guidance is 
October 6, 2011 CMS memorandum, Revision to Previous Guidance Titled 
``Timely Submission of Prescription Drug Event (PDE) Records and 
Resolution of Rejected PDEs.''
    We encourage stakeholders to comment on what other enforcement and 
oversight mechanisms should be instituted to ensure compliance with any 
potential point-of-sale rebate requirement. We are particularly 
interested in stakeholder feedback on how we might ensure accurate 
rebate amounts are applied at the point of sale when rebate agreements 
are structured with contingencies that would be unclear at the point of 
sale.
    We also seek stakeholder comment on what, if any, special 
considerations should be taken into account in the design of a point-
of-sale rebate policy, for Part D employer group waiver plans (EGWPs). 
We are also interested in feedback on what particular effects requiring 
Part D sponsors to apply some manufacturer rebates at the point of sale 
would have on the EGWP market, as well as on how such a requirement 
might impact the retiree drug subsidy program.
    Finally, we note that the negotiated price is also the basis by 
which manufacturer liability for discounts in the coverage gap is 
determined. Under section 1860D-14A(g)(6) of the Act, the negotiated 
price used for coverage gap discounts is based on the definition of 
negotiated price in the version of Sec.  423.100 that was in effect as 
of the passage of the Patient Protection and Affordable Care Act 
(PPACA). Under this definition, the negotiated price is ``reduced by 
those discounts, direct or indirect subsidies, rebates, other price 
concessions, and direct or indirect remuneration that the Part D 
sponsor has elected to pass through to Part D enrollees at the point of 
sale'' (emphasis added). Because this definition of negotiated price 
only references the price concessions that the Part D sponsor has 
elected to pass through at the point of sale, we are uncertain as to 
whether we would have the authority to require sponsors include in the 
negotiated price the weighted-average rebate amounts that would be 
required to be passed through under any potential point-of-sale rebate 
policy, for purposes of determining manufacturer coverage gap 
discounts. We intend to consider this issue further and will address it 
in any future rulemaking regarding the requirements for determining the 
negotiated price that is available at the point of sale.
(6) Impacts of Applying Manufacturer Rebates at the Point of Sale
    Under a point-of-sale rebate policy designed as we have described 
in this comment solicitation, beneficiaries would see lower prices at 
the pharmacy point-of-sale, and on Plan Finder, beginning immediately 
in the year the policy takes effect. Lower point-of-sale prices would 
result directly in lower cost-sharing costs for non-low income 
beneficiaries, especially for those who use drugs in highly 
competitive, highly-rebated categories or classes. For low income 
beneficiaries whose out-of-pocket costs are subsidized through 
Medicare's low-income cost-sharing subsidy, cost-sharing savings 
resulting from lower point-of-sale prices would accrue to the 
government. Plan premiums would likely increase as a result of such a 
point-of-sale rebate policy--if some rebates are required to be passed 
through to beneficiaries at the point of sale, fewer such concessions 
could be apportioned to reduce plan liability, which would have the 
effect of

[[Page 56425]]

increasing the cost of coverage under the plan. At the same time, the 
reduction in cost-sharing obligations for the average beneficiary would 
likely be large enough to lower their overall out-of-pocket costs. The 
increasing cost of coverage under Part D plans as a result of rebates 
being applied at the point of sale likely would have a more significant 
impact on government costs, which would increase overall due to the 
significant growth in Medicare's direct subsidies of plan premiums and 
low income premium subsidies.
    Partially offsetting the increase in direct subsidy and low income 
premium subsidy costs for the government would be decreases in 
Medicare's reinsurance and low income cost-sharing subsidies. Decreases 
in Medicare's reinsurance subsidy result when lower negotiated prices 
slow down the progression of beneficiaries through the Part D benefit 
and into the catastrophic phase, and when the government's 80 percent 
reinsurance payments for allowable drug costs incurred in the 
catastrophic phase are based on lower negotiated prices. Similarly, low 
income cost-sharing subsidies would decrease if beneficiary cost-
sharing obligations decline due to the reduction in prices at the point 
of sale. Finally, the slower progression of beneficiaries through the 
Part D benefit would also have the effect of reducing manufacturer gap 
discount payments as fewer beneficiaries would enter the coverage gap 
phase or progress entirely through it.
    The following tables summarize the 10-year impacts we have modeled 
for when 33, 66, 90, and 100 percent of all manufacturer rebates are 
applied at the point of sale: \53\
---------------------------------------------------------------------------

    \53\ Assumptions: (1) For purposes of calculating impacts only, 
we assume that total rebates will equal about 20 percent of 
allowable Part D drug costs projected for each year modeled, and 
that rebates are perfectly substituted with the point-of-sale 
discount in all phases of the Part D benefit, including the coverage 
gap phase.
    (2) Used 2016 distribution of costs by benefit phase to form 
assumptions.
    (3) Assumed no other behavioral changes by sponsors, 
beneficiaries, or others.

                                 Table 10A--Total Impacts for 2019 Through 2028
                                                 [In $billions]
----------------------------------------------------------------------------------------------------------------
                                                        33%             66%             90%            100%
----------------------------------------------------------------------------------------------------------------
Beneficiary Costs...............................          -$19.6          -$39.1          -$53.2          -$56.9
    Cost-Sharing................................           -28.8           -57.8           -78.9           -85.2
    Premium.....................................             9.2            18.7            25.7            28.3
Government Costs................................            27.3            55.1            75.5            82.1
    Direct Subsidy..............................            62.8           128.1           177.4           200.0
    Reinsurance.................................           -21.7           -44.7           -62.2           -73.1
    LI Cost-Sharing Subsidy.....................           -16.6           -34.2           -47.7           -53.7
    LI Premium Subsidy..........................             2.9             5.9             8.1             8.9
Manufacturer Gap Discount.......................            -9.7           -19.4           -26.4           -29.4
----------------------------------------------------------------------------------------------------------------


                                Table 10B--2019-2028 Per Member-Per Month Impacts
----------------------------------------------------------------------------------------------------------------
                                                        33%             66%             90%            100%
----------------------------------------------------------------------------------------------------------------
Beneficiary Costs...............................         -$30.33         -$60.58         -$82.42         -$88.13
    Cost-Sharing................................          -44.61          -89.50         -122.26         -131.97
    Premium.....................................           14.29           28.92           39.83           43.84
Government Costs................................           42.38           85.40          117.01          127.22
    Direct Subsidy..............................           97.45          198.93          275.43          310.58
    Reinsurance.................................          -33.76          -69.57          -96.84         -113.75
    LI Cost-Sharing Subsidy.....................          -25.80          -53.06          -74.11          -83.42
    LI Premium Subsidy..........................            4.49            9.10           12.53           13.81
Manufacturer Gap Discount.......................          -15.01          -30.02          -40.93          -45.48
----------------------------------------------------------------------------------------------------------------


                                  Table 10C--2019-2028 Impacts--Percent Change
----------------------------------------------------------------------------------------------------------------
                                                        33%             66%             90%            100%
----------------------------------------------------------------------------------------------------------------
Beneficiary Costs...............................              -3              -5              -7              -8
    Cost-Sharing................................              -6             -12             -16             -17
    Premium.....................................               4               7              10              11
Government Costs................................               2               4               5               6
    Direct Subsidy..............................              24              49              67              76
    Reinsurance.................................              -3              -7              -9             -11
    LI Cost-Sharing Subsidy.....................              -4              -9             -12             -14
    LI Premium Subsidy..........................               4               8              11              12
Manufacturer Gap Discount.......................              -7             -13             -18             -20
----------------------------------------------------------------------------------------------------------------

    While we did not account for behavioral changes when modeling these 
impacts, requiring rebates to be applied at the point of sale might 
induce changes in sponsor behavior related to drug pricing that would 
further reduce the cost of the Part D program for beneficiaries and 
taxpayers. Specifically, requiring that at least a minimum percentage 
of manufacturer rebates be used to lower the price at the point of sale 
could limit the potential for sponsors to leverage the benefits that 
accrue to them when price concessions are applied as DIR at the end of 
the

[[Page 56426]]

coverage year rather than as discounts at the point of sale, and thus 
potentially better align sponsors' incentives with those of 
beneficiaries and taxpayers. For example, we believe such an approach 
could reduce the incentive for sponsors to favor high cost-highly 
rebated drugs to lower net cost alternatives, when such alternatives 
are available, and also potentially increase the incentive for sponsors 
and PBMs to negotiate lower prices at the point of sale instead of 
higher DIR. We seek comment on the extent to which a point-of-sale 
rebate policy might be expected to further align the incentives for 
beneficiaries, sponsors, and taxpayers.
    Finally, we believe requiring that some manufacturer rebates be 
applied at the point of sale as we are considering doing would improve 
price transparency and limit the opportunity for differential reporting 
of costs and price concessions, which may have a positive effect on 
market competition and efficiency. We solicit comment on whether basing 
the rebate applied at the point of sale on average rebates at the drug 
category/class level, as described previously, would meaningfully 
increase price transparency over the status quo by ensuring a 
consistent percentage of the rebates received are reflected in the 
price at the point of sale, while also protecting the details of any 
manufacturer-sponsor pricing relationship.
d. Pharmacy Price Concessions to Point of Sale
    In recent years, a growing proportion of Part D sponsors and their 
contracted PBMs have entered into payment arrangements with Part D 
network pharmacies in which a pharmacy's reimbursement for a covered 
Part D drug is adjusted after the point of sale based on the pharmacy's 
performance on various measures defined by the sponsor or its PBM. 
Furthermore, we understand that the share of pharmacies' reimbursements 
that is contingent upon their performance under such arrangements has 
also grown steadily each year. As a result, sponsors and PBMs have been 
recouping increasing sums from network pharmacies after the point of 
sale (pharmacy price concessions) for ``poor performance'' relative to 
standards defined by the sponsor or PBM. These sums are far greater 
than those paid to network pharmacies after the point of sale (pharmacy 
incentive payments) for ``high performance.'' We refer to pharmacy 
price concessions and incentive payments collectively as pharmacy 
payment adjustments. These findings are largely based on the aggregate 
pharmacy payment adjustment data submitted to CMS by Part D sponsors as 
part of the annual required reporting of DIR, which show that 
performance-based pharmacy price concessions, net of all pharmacy 
incentive payments, increased most dramatically after 2012.
    In order to address the effects of the DIR construct, as it relates 
to pharmacy payment adjustments, on cost, competition, and efficiency 
under Part D, in the Part C and Part D final rule that appeared in the 
May 23, 2014 Federal Register (79 FR 29844), we amended the definition 
of ``negotiated prices'' at Sec.  423.100 to require Part D sponsors to 
include in the negotiated price at the point of sale all pharmacy price 
concessions and incentive payments to pharmacies, with an exception, 
which was intended to be narrow, allowed for contingent pharmacy 
payment adjustments that cannot reasonably be determined at the point 
of sale (the reasonably determined exception). However, when we 
formulated these requirements in 2014, the most recent year for which 
DIR data was available was 2012 and we did not anticipate the growth of 
performance-based pharmacy payment arrangements that we have observed 
in subsequent years. We now understand that the reasonably determined 
exception we currently allow applies more broadly than we had initially 
envisioned because of the shift by Part D sponsors and their PBMs 
towards these types of contingent pharmacy payment arrangements, and, 
as a result, this exception prevents the current policy from having the 
intended effect on price transparency, consistency, and beneficiary 
costs.
    Specifically, we have heard from several stakeholders that have 
suggested that the reasonably determined exception applies to all 
performance-based pharmacy payment adjustments. The amount of these 
adjustments, by definition, is contingent upon performance measured 
over a period that extends beyond the point of sale and, thus, cannot 
be known in full at the point of sale. Therefore, performance-based 
pharmacy payment adjustments cannot ``reasonably be determined'' at the 
point of sale as they cannot be known in full at the point of sale. We 
initially proposed, in a September 29, 2014 memorandum entitled Direct 
and Indirect Remuneration (DIR) and Pharmacy Price Concessions, that if 
the amount of the post-point of sale pharmacy payment adjustment could 
be reasonably approximated at the point of sale, the adjustment should 
be reflected in the negotiated price, even if the actual amount of the 
payment adjustment was subject to later reconciliation and thus not 
known in full at the point of sale. However, we did not finalize that 
interpretation because we determined that it was inconsistent with the 
existing regulation given that it would have effectively eliminated the 
reasonably determined exception from inclusion in the negotiated price 
for all pharmacy price concessions, as we stated in our follow-up 
memorandum of the same name released on November 5, 2014.
    Given the predominance of performance-contingent pharmacy payment 
arrangements, we do not believe that the existing requirement that 
pharmacy price concessions be included in the negotiated price can be 
implemented in a manner that achieves meaningful price transparency, 
ensures that all pharmacy payment adjustments are taken into account 
consistently by all Part D sponsors, and prevents the shifting of costs 
onto beneficiaries and taxpayers. Therefore, we are soliciting comment 
from stakeholders on how we might update the requirements governing the 
determination of negotiated prices, to better reflect current pharmacy 
payment arrangements, so as to ensure that the reported price at the 
point of sale includes all pharmacy price concessions. In this section, 
we put forth for consideration one potential approach for doing so and 
seek comments on its merits, as well as the merits of any alternatives 
that might better serve our goals of reducing beneficiary costs and 
better aligning incentives for Part D sponsors with the interests of 
beneficiaries and taxpayers. We encourage all commenters to provide 
quantitative analytical support for their ideas wherever possible.
(1) All Pharmacy Price Concessions
    We are considering revising the definition of negotiated price at 
Sec.  423.100 to remove the reasonably determined exception and to 
require that all price concessions from pharmacies be reflected in the 
negotiated price that is made available at the point of sale and 
reported to CMS on a PDE record, even when such concessions are 
contingent upon performance by the pharmacy. We believe we have the 
discretion to require that all pharmacy price concessions be applied at 
the point of sale, and not just a share of the amounts as we discussed 
earlier for manufacturer rebates. Such a requirement would preserve the 
flexibilities provided under section 1860D-2(d)(1)(B) of the Act with 
respect to the treatment of manufacturer rebates, while also allowing 
for greater

[[Page 56427]]

transparency and consistency in the reporting of pharmacy price 
concessions. First, section 1860D-2(d)(2) of the Act, which provides 
the context critical to our interpretation that sponsors are granted 
flexibility in how to apply manufacturer rebates, does not contemplate 
price concessions from sources other than manufacturers, such as 
pharmacies, being passed through in various ways. Second, even when all 
price concessions from pharmacies are required to be applied at the 
point of sale, sponsors would retain the flexibility to determine how 
to apply manufacturer rebates and other price concessions received from 
sources other than pharmacies in order to reduce costs under the plan. 
Finally, we believe that requiring that all pharmacy price concessions 
be applied at the point of sale would ensure that negotiated prices 
``take into account'' at least some price concessions and, therefore, 
would be consistent with the plain language of section 1860D-2(d)(1)(B) 
of the Act. We are considering requiring all, and not only a share of, 
pharmacy price concessions be included in the negotiated price in order 
to maximize the level of price transparency and consistency in the 
determination of negotiated prices and bids and meaningfully reduce the 
shifting of costs from sponsors to beneficiaries and taxpayers.
(2) Lowest Possible Reimbursement
    In order to effectively capture all pharmacy price concessions at 
the point of sale consistently across sponsors, we are considering 
requiring the negotiated price to reflect the lowest possible 
reimbursement that a network pharmacy could receive from a particular 
Part D sponsor for a covered Part D drug. Under this approach, the 
price reported at the point of sale would need to include all price 
concessions that could potentially flow from network pharmacies, as 
well as any dispensing fees, but exclude any additional contingent 
amounts that could flow to network pharmacies and increase prices over 
the lowest reimbursement level, such as incentive fees. That is, if a 
performance-based payment arrangement exists between a sponsor and a 
network pharmacy, the point-of-sale price of a drug reported to CMS 
would need to equal the final reimbursement that the network pharmacy 
would receive for that prescription under the arrangement if the 
pharmacy's performance score were the lowest possible. If a pharmacy is 
ultimately paid an amount above the lowest possible contingent 
incentive reimbursement (such as in situations where a pharmacy's 
performance under a performance-based arrangement triggers a bonus 
payment or a smaller penalty than that assessed for the lowest level of 
performance), the difference between the negotiated price reported to 
CMS on the PDE record and the final payment to the pharmacy would need 
to be reported as negative DIR. For an illustration of how negotiated 
prices would be reported under such an approach, see the example 
provided later in this section.
    We are interested in public comment on whether requiring the 
negotiated price at the point of sale to reflect the lowest possible 
pharmacy reimbursement would effectively address recent developments in 
industry practices, that is, the growing prevalence of performance-
based pharmacy payment arrangements, and ensure that all pharmacy price 
concessions are included in the negotiated price, and thus shared with 
beneficiaries, in a consistent manner by all Part D sponsors. By 
requiring that sponsors assume the lowest possible pharmacy performance 
when reporting the negotiated price, we would be prescribing a 
standardized way for Part D sponsors to treat the unknown (final 
pharmacy performance) at the point of sale under a performance-based 
payment arrangement, which many Part D sponsors and PBMs have 
identified as the most substantial operational barrier to including 
such concessions at the point of sale. We are also interested in public 
comment on whether requiring the negotiated price to be the lowest 
possible pharmacy reimbursement would serve to maximize the cost-
sharing savings accruing to beneficiaries by passing through all 
potential pharmacy price concessions at the point of sale.
    Further, we are interested in public comment on whether this 
approach would be clearer for Part D sponsors to follow than the 
requirements in place today, which require Part D sponsors to assess 
which types of pharmacy payment adjustments fall under the reasonably 
determined exception. We are interested in public comment on whether 
providing such additional clarity and thus limiting the need for 
interpretation of the requirements by Part D sponsors would improve 
consistency in the application of the requirements regarding pharmacy 
price concessions across sponsors, as well as reducing sponsor burden 
in terms of the resources necessary to ensure compliance in the absence 
of clear guidance. In addition, we welcome feedback on whether the 
change we describe here would improve the quality of pricing 
information available across Part D plans and thus improve market 
competition and cost-efficiency under Part D.
    Requiring the negotiated price to reflect the lowest possible 
pharmacy reimbursement, would move the negotiated price closer to the 
final reimbursement for most network pharmacies under current pharmacy 
payment arrangements and thus closer to the actual cost of the drug for 
the Part D sponsor. We are interested in public comment on whether such 
an outcome would help us to achieve meaningful price transparency. We 
have learned from the DIR data reported to CMS and feedback from 
numerous stakeholders that pharmacies rarely receive an incentive 
payment above the original reimbursement rate for a covered claim. We 
gather that performance under most arrangements dictates only the 
magnitude of the amount by which the original reimbursement is reduced, 
and most pharmacies do not achieve performance scores high enough to 
qualify for a substantial, if any, reduction in penalties. Therefore, 
we seek comment on whether a requirement that the negotiated price 
reflect the lowest possible reimbursement to a network pharmacy, 
including all potential pharmacy price concessions, is likely to 
capture the actual price of the drug at a network pharmacy, or at least 
move closer to it.
    Finally, we are considering requiring that all contingent incentive 
payments be excluded from the negotiated price because including the 
actual amount of any contingent incentive payments to pharmacies in the 
negotiated price would make drug prices appear higher at a ``high 
performing'' pharmacy, which receives an incentive payment, than at a 
``poor performing'' pharmacy, which is assessed a penalty. This pricing 
differential could potentially create a perverse incentive for 
beneficiaries to choose a lower performing pharmacy for the advantage 
of a lower price. We seek comment on whether such an approach would 
prevent this unintended consequence and thus avoid reducing the 
competitiveness of high performing pharmacies by increasing the 
negotiated price charged to the beneficiary at those pharmacies.
(3) Lowest Possible Reimbursement Example
    To illustrate how Part D sponsors and their intermediaries would 
report costs under the approach we are considering, we provide the 
following example: Suppose that under a performance-based payment 
arrangement between a

[[Page 56428]]

Part D sponsor and its network pharmacy, the sponsor will: (1) Recoup 5 
percent of its total Part D-related payments to the pharmacy at the end 
of the contract year for the pharmacy's failure to meet performance 
standards; (2) recoup no payments for average performance; or (3) 
provide a bonus equal to 1 percent of total payments to the pharmacy 
for high performance. For a drug that the sponsor has agreed to pay the 
pharmacy $100 at the point of sale, the pharmacy's final reimbursement 
under this arrangement would be: (1) $95 for poor performance; (2) $100 
for average performance; or (3) $101 for high performance. However, 
under all performance scenarios, the negotiated price reported to CMS 
on the PDE at the point of sale for this drug would be $95, or the 
lowest reimbursement possible under the arrangement. Thus, if a plan 
enrollee were required to pay 25 percent coinsurance for this drug, 
then the enrollee's costs under all scenarios would be 25 percent of 
$95, or $23.75, which is less than the $25 the enrollee would pay today 
(when the negotiated price is likely to be reported as $100). Any 
difference between the reported negotiated price and the pharmacy's 
final reimbursement for this drug would be reported as DIR at the end 
of the coverage year. The sponsor would report $0 as DIR under the poor 
performance scenario ($95 minus $95), - $5 as DIR under the average 
performance scenario ($95 minus $100), and - $6 as DIR under the high 
performance scenario ($95 minus $101), for every covered claim for this 
drug purchased at this pharmacy.
(4) Additional Considerations
    As with the policy approach that we described previously for moving 
manufacturer rebates to the point of sale, we would leverage existing 
reporting mechanisms to confirm that sponsors are appropriately 
applying pharmacy price concessions at the point of sale, as we do with 
other cost data required to be reported. Specifically, we would likely 
use the estimated rebates at point-of-sale field on the PDE record to 
also collect point-of-sale pharmacy price concessions information, and 
fields on the Summary and Detailed DIR Reports to collect final 
pharmacy price concession information at the plan and NDC levels. 
Differences between the amounts applied at the point of sale and 
amounts actually received, therefore, would become apparent when 
comparing the data collected through those means at the end of the 
coverage year.
    Finally, as noted previously, the negotiated price is also the 
basis by which manufacturer liability for discounts in the coverage gap 
determined. Under section 1860D-14A(g)(6) of the Act, the definition of 
negotiated price used for coverage gap discounts is based on the 
regulatory definition of the negotiated price in the version of Sec.  
423.100 that was in effect as of the passage of the PPACA. As discussed 
previously, this definition of negotiated price only references the 
price concessions that the Part D sponsor has elected to pass through 
at the point of sale. As such, we are uncertain as to whether we would 
have the authority to require sponsors include pharmacy price 
concessions in the negotiated price for purposes of determining 
manufacturer coverage gap discounts. We intend to consider this issue 
further and will address it in any future rulemaking regarding the 
requirements for determining the negotiated price that is available at 
the point of sale.
(5) Impacts for Applying Pharmacy Price Concessions at the Point of 
Sale
    Requiring that all pharmacy price concessions that sponsors and 
PBMs receive be used to lower the price at the point of sale, as we 
described earlier, would affect beneficiary, government, and 
manufacturer costs largely in the same manner as discussed previously 
in regards to moving manufacturer rebates to the point of sale. The 
difference is in the magnitude of the impacts given that sponsors and 
PBMs receive significantly higher sums of manufacturer rebates than of 
pharmacy price concessions. The following table summarizes the 10-year 
impacts we have modeled for moving all pharmacy price concessions to 
the point of sale: \54\
---------------------------------------------------------------------------

    \54\ Assumptions: (1) For purposes of calculating impacts only, 
we assume that pharmacy price concession will equal about 3 percent 
of allowable Part D costs projected for each year modeled, and that 
the concession amounts are perfectly substituted with the point-of-
sale discount in all phases of the Part D benefit, including the 
coverage gap phase.
    (2) Used 2016 distribution of costs by benefit phase to form 
assumptions.
    (3) Assumed no other behavioral changes by sponsors, 
beneficiaries, or others.

                      Table 11--2019-2028 Point-of-Sale Pharmacy Price Concessions Impacts
----------------------------------------------------------------------------------------------------------------
                                                                       Total      Per member-per
                                                                    (billions)         month      Percent change
----------------------------------------------------------------------------------------------------------------
Beneficiary Costs...............................................          -$10.4         -$16.09              -1
    Cost-Sharing................................................           -16.1          -24.89              -3
    Premium.....................................................             5.7            8.79               2
Government Costs................................................            16.6           25.65               1
    Direct Subsidy..............................................            33.5           51.89              13
    Reinsurance.................................................            -8.8          -13.74              -1
    LI Cost-Sharing Subsidy.....................................            -9.9          -15.23              -3
    LI Premium Subsidy..........................................             1.8            2.73               2
Manufacturer Gap Discount.......................................            -5.0           -7.69              -3
----------------------------------------------------------------------------------------------------------------

    Moreover, while not accounted for when modeling these impacts, we 
seek comment on whether requiring that all pharmacy price concessions 
be included in the negotiated price, as we have described, would also 
lead to prices and Part D bids and premiums being more accurately 
comparable and reflective of relative plan efficiencies, with no unfair 
competitive advantage accruing to one sponsor over another based on a 
technical difference in how costs are reported. We are further 
interested in comments on whether this outcome could make the Part D 
market more competitive and efficient.

B. Improving the CMS Customer Experience

1. Restoration of the Medicare Advantage Open Enrollment Period 
(Sec. Sec.  422.60, 422.62, 422.68, 423.38 and 423.40)
    Section 4001 of the Balanced Budget Act of 1997 (BBA), added 
section

[[Page 56429]]

1851(e) of the Act establishing specific parameters in which elections 
can be made and/or changed during open enrollment and disenrollment 
periods under the Medicare Advantage (MA) program. In addition, section 
1851(e)(6) of the Act permits MA organizations, at their discretion, to 
choose not to accept enrollment requests during the open enrollment 
period (that is, choose to be closed to accept enrollments for all or a 
portion of the enrollment period). The Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA) amended section 
1851(e)(2) of the Act to further establish open enrollment periods 
during which MA-eligible individuals were limited to a single election 
to (that is, enroll, disenroll, or change MA plans) during such period.
    From 2007 to 2010, the Act outlined an Open Enrollment Period 
(OEP)--referred to hereafter as the ``old OEP''--which provided MA-
eligible individuals one opportunity to make an enrollment change 
between January 1 and March 31. It permitted new enrollment into an MA 
plan from Original Medicare, switches between MA plans, and 
disenrollment from a MA plan to Original Medicare. During this old OEP, 
individuals were not allowed to make changes to their Part D coverage. 
Hence, an individual who had Part D coverage through a Medicare 
Advantage Prescription Drug plan (MA-PD plan) could only use the old 
OEP to switch to (1) another MA-PD plan; or (2) Original Medicare with 
a Prescription Drug Plan (PDP). This old OEP did not permit someone 
enrolled in either an MA-only plan or Original Medicare without a PDP 
to enroll in Part D coverage through this enrollment opportunity. The 
old OEP was codified at Sec.  422.62(a)(5) in 2005 (see 70 FR 4587).
    In 2010, section 3204 of the Patient Protection and Affordable Care 
Act modified section 1851(e)(2)(C) of the Act to no longer offer the 
old OEP and instead provide a different enrollment period for MA 
enrollees to leave the MA program and return to Original Medicare in 
the first 45 days of the calendar year. The statute further permitted 
individuals who utilized this disenrollment opportunity to enroll in a 
Part D plan upon their return to Original Medicare. On April 15, 2011, 
we amended Sec.  422.62(a)(5) and codified Sec. Sec.  422.62(a)(7) and 
423.38(d) to conform with this statutory change and to establish the 
current Medicare Advantage Disenrollment Period (MADP) with its 
coordinating Part D enrollment period. These changes were effective for 
the 2011 plan year (76 FR 21442 and43).
    Section 17005 of the 21st Century Cures Act (the Cures Act) 
modified section 1851(e)(2) of the Act to eliminate the MADP and to 
establish, beginning in 2019, a new OEP--hereafter referred to as the 
``new OEP''--to be held from January 1 to March 31 each year. Subject 
to the MA plan being open to enrollees as provided under Sec.  
422.60(a)(2), this new OEP allows individuals enrolled in an MA plan to 
make a one-time election during the first 3 months of the calendar year 
to switch MA plans or to disenroll from an MA plan and obtain coverage 
through Original Medicare. In addition, this provision affords newly 
MA-eligible individuals (those with Part A and Part B) who enroll in a 
MA plan, the opportunity to also make a one-time election to change MA 
plans or drop MA coverage and obtain Original Medicare. Newly eligible 
MA individuals can only use this new OEP during the first 3 months in 
which they have both Part A and Part B. Similar to the old OEP, 
enrollments made using the new OEP are effective the first of the month 
following the month in which the enrollment is made, as outlined in 
Sec.  422.68(c). In addition, an MA organization has the option under 
section 1851(e)(6) of the Act to voluntarily close one or more of its 
MA plans to OEP enrollment requests. If an MA plan is closed for OEP 
enrollments, then it is closed to all individuals in the entire plan 
service area who are making OEP enrollment requests. All MA plans must 
accept OEP disenrollment requests, regardless of whether or not it is 
open for enrollment.
    There are a few key differences between the old OEP and the new OEP 
as authorized by the Cures Act. Unlike the old OEP, this new OEP 
permits changes to Part D coverage for individuals who, prior to the 
change in election during the new OEP, were enrolled in an MA plan. As 
eligibility to use the new OEP is available only for MA enrollees, the 
ability to make changes to Part D coverage is limited to any individual 
who uses the OEP; however, the new OEP does not provide enrollment 
rights to any individual who is not enrolled in an MA plan during the 
applicable 3-month period. Individuals who use the new OEP to make 
changes to their MA coverage may also enroll in or disenroll from Part 
D coverage. For example, an individual enrolled in an MA-PD plan may 
use the new OEP to switch to: (1) Another MA-PD plan; (2) an MA-only 
plan; or (3) Original Medicare with or without a PDP. The new OEP would 
also allow an individual enrolled in an MA-only plan to switch to--(1) 
another MA-only plan; (2) an MA-PD plan; or (3) Original Medicare with 
or without a PDP. However, this enrollment period does not allow for 
Part D changes for individuals enrolled in Original Medicare, including 
those with enrollment in stand-alone PDPs.
    In addition, individuals with enrollment in Original Medicare or 
other Medicare health plan types, such as cost plans, are not able use 
the new OEP to enroll in an MA plan, regardless of whether or not they 
have Part D. We note that the inability for an individual enrolled in 
Original Medicare to use the new OEP is a significant difference from 
the old OEP. Furthermore, and significantly different from the old OEP, 
unsolicited marketing is prohibited by statute during this period.
    To implement the changes required by the Cures Act, we propose the 
following revisions:
     Amend current Sec.  422.62(a)(5) and add Sec. Sec.  
423.38(e) and 423.40(e) to establish the new OEP starting 2019 and the 
corresponding limited Part D enrollment period.
     Amend Sec. Sec.  422.62(a)(7), 422.68(f), 423.38(d) and 
423.40(d) to end the MADP at the end of 2018.
     Remove current regulations in Sec.  422.62(a)(3) and 
(a)(4) that outline historical OEPs which have not been in existence 
for more than a decade. As these past enrollment periods are no longer 
relevant to the current enrollment periods available to MA-eligible 
individuals, we are proposing to delete these paragraphs and renumber 
the enrollment periods which follow them. As such, we propose that 
Sec.  422.62 (a)(5) become Sec.  422.62 (a)(3), and both Sec. Sec.  
422.62 (a)(6) and (a)(7) be renumbered as Sec. Sec.  422.62(a)(4) and 
(a)(5), respectively.
     Amend new redesignated paragraph (a)(4) (proposed to be 
redesignated from (a)(6)) to make two technical changes to replace the 
phrase ``as defined by CMS'' with ``as defined in Sec.  422.2'' and to 
capitalize ``original Medicare.''
     As noted previously, and discussed in section III.C.7, 
Sec. Sec.  422.2268 and 423.2268 would be revised to prohibit marketing 
to MA enrollees during the OEP.
     Conforming technical edits to update cross references in 
Sec. Sec.  422.60(a)(2), 422.62(a)(5)(iii), and 422.68(c).
2. Reducing the Burden of the Compliance Program Training Requirements 
(Sec. Sec.  422.503 and 423.504)
    Sections 1857(e) and 1860D-12(b)(3)(D) of the Act specify that 
contracts with MA organizations and

[[Page 56430]]

Part D sponsors shall contain other terms and conditions that the 
Secretary may find necessary and appropriate. We have previously 
established that all Part C and Part D contracting organizations must 
have the necessary administrative and management arrangements to have 
an effective compliance program, as reflected in Sec.  
422.503(b)(4)(vi) and Sec.  423.504(b)(4)(vi). Effective compliance 
programs are those designed and implemented to prevent, detect and 
correct Medicare non-compliance, fraud waste and abuse and address 
improper conduct in a timely and well-documented manner. Medicare non-
compliance may include inaccurate and untimely payment or delivery of 
items or medical services, complaints from providers and enrollees, 
illegal activities and unethical behavior. While there is no ``one-size 
fits all'' program for every contracting organization, there are seven 
core elements that must exist to have an effective compliance program 
that is tailored to the organization's unique operations, compliance 
risks, resources and circumstances. These 7 core elements are codified 
in current regulations at Sec. Sec.  422.503(b)(4)(vi)(A) through (G) 
and 423.504(b)(4)(vi)(A) through (G). One of the 7 core elements is 
training and education. Compliance programs for Part C and Part D 
organizations must include training and education between the 
compliance officer and the sponsoring organization's employees, senior 
administrators, governing body members as well as their first-tier, 
downstream and related entities (FDRs).
    FDRs have long complained of the burden of having to complete 
multiple sponsoring organizations' compliance trainings and the amount 
of time it can take away from providing care to beneficiaries. We 
attempted to resolve this burden by developing our own web-based 
standardized compliance program training modules and establishing, in a 
May 23, 2014 final rule (79 FR 29853 and 29855), which was effective 
January 1, 2016, that FDRs were required to complete the CMS training 
to satisfy the compliance training requirement. The mandatory use of 
the CMS training by FDRs was a means to ensure that FDRs would only 
have to complete the compliance training once on an annual basis. The 
FDRs could then provide the certificate of completion to all Part C and 
Part D contracting organizations they served, hence, eliminating the 
prior duplication of effort that so many FDRs stated was creating a 
huge burden on their operation.
    However, CMS continues to receive hundreds of inquiries and 
concerns from sponsors and FDRs regarding their difficulties with 
adopting CMS' compliance training to satisfy the compliance program 
training requirement. While CMS' previous market research indicated 
that this provision would mitigate the problems raised by FDRs who held 
contracts with multiple sponsors and who completed repetitive trainings 
for each sponsor with which they contract, in practice, we learned that 
the problems persisted. Many sponsors are unwilling to accept 
completion of the CMS training as fulfillment of the training 
requirement and identify which critical positions within the FDR are 
subject to the training requirement. As a result, FDRs are still being 
subjected to multiple sponsors' specific training programs. FDRs have 
the additional burden of taking CMS training and reporting completion 
back to the sponsor or sponsors with which they contract. Furthermore, 
the industry has indicated that the requirement has increased the 
burden for various Part C and Part D program stakeholders, including 
hospitals, suppliers, health care providers, pharmacists and 
physicians, all of which may be considered FDRs. Since the 
implementation of the mandatory CMS-developed training has not achieved 
the intended efficiencies in the administration of the Part C and Part 
D programs, we propose to delete the provisions from the Part C and 
Part D regulations that require use of the CMS-developed training. 
Additionally we propose to restructure Sec.  422.503(b)(4)(vi)(C)(1) 
(with the proposed revisions) into two paragraphs (that is, paragraph 
(C)(1) and (C)(2)) to separate the scope of the compliance training 
from the frequency with which the training must occur, as these are two 
distinct requirements. With this proposed revision, the organization of 
Sec.  422.503(b)(4)(vi)(C) will mirror that of Sec.  
423.504(b)(4)(vi)(C). Further, we propose to revise the text in Sec.  
423.504(b)(4)(vi)(C)(2) to track the phrasing in Sec.  
422.503(b)(4)(vi)(C)(2), as reorganized. The technical changes in the 
text eliminate any potential ambiguity created by different phrasing in 
what we intend to be identical requirements as to the timing 
requirements for the training. We believe these technical changes make 
the requirements easier to understand.
    Furthermore, we believe that the broader requirement that plan 
sponsors provide compliance training to their FDRs no longer promotes 
the effective and efficient administration of the Medicare Advantage 
and Prescription Drug programs. Part C and Part D sponsoring 
organizations have evolved greatly and their compliance program 
operations and systems are well established. Many of these 
organizations have developed effective training and learning models to 
communicate compliance expectations and ensure that employees and FDRs 
are aware of the Medicare program requirements. Also, the attention 
focused on compliance program effectiveness by CMS' Part C and Part D 
program audits has further encouraged sponsors to continually improve 
their compliance operations.
    CMS does not generally interfere in private contractual matters 
between sponsoring organizations and their FDRs. Our contract is with 
the sponsoring organization, and sponsoring organizations are 
ultimately responsible for compliance with all applicable statutes, 
regulations and sub-regulatory guidance, regardless who is performing 
the work. Additionally, delegated entities range in size, structure, 
risks, staffing, functions, and contractual arrangements which 
necessitates the sponsoring organization have discretion in its method 
of oversight to ensure compliance with program requirements. This may 
be accomplished through routine monitoring and implementing corrective 
action, which may include training or retraining as appropriate, when 
non-compliance or misconduct is identified.
    We will continue to hold MA organizations and Part D sponsors 
accountable for the failures of their FDRs to comply with Medicare 
program requirements, even with these proposed changes. Existing 
regulations at Sec.  422.503(b)(4)(vi) and Sec.  423.504(b)(4)(vi) 
require that every sponsor's contract must specify that FDRs must 
comply with all applicable federal laws, regulations and CMS 
instructions. Additionally, we audit sponsors' compliance programs when 
we conduct routine program audits, and our audit process includes 
evaluations of sponsoring organizations' monitoring and auditing of 
their FDRs as well as FDR oversight. Our audits also evaluate formulary 
administration and processing of coverage and appeal requests in the 
Part C and Part D programs. FDRs often perform some or all of these 
functions for sponsors, so if they are non-compliant, it will come to 
light during the program audit and the sponsoring organization is 
ultimately held responsible for the FDRs' failure to comply with 
program requirements.
    Given that compliance programs are very well established and have 
grown more sophisticated since their inception, coupled with the 
industry's desire to perform well on audit, the

[[Page 56431]]

CMS training requirement is not the driver of performance improvement 
or FDR compliance with key CMS requirements. Given this accumulated 
program experience and the growing sophistication of the industry's 
compliance operations, as well as our continuing requirements on 
sponsors for oversight and monitoring of FDRs, we are proposing to 
delete not just the regulatory provision requiring acceptance of CMS' 
training as meeting the compliance training requirements, but also the 
reference to FDRs in the compliance training requirements codified at 
Sec. Sec.  422.503(b)(4)(vi)(C) and 423.504(b)(4)(vi)(C). Specifically, 
we propose to remove the phrases in paragraphs (C)(1) and (C)(2) that 
refer to first tier, downstream and related entities and remove the 
paragraphs specific to FDR training at Sec. Sec.  
422.503(b)(4)(vi)(C)(2) and (3) and 423.504(b)(4)(vi)(C)(3) and (4); we 
are also proposing technical revisions to restructure Sec.  
422.503(b)(4)(vi)(C)(1) into two paragraphs and ensure that the 
remaining text is grammatically correct and consistent with Office of 
the Federal Register style. Compliance training would still be required 
of MA and Part D sponsors, their employees, chief executives or senior 
administrators, managers, and governing body members. This change will 
allow sponsoring organizations, and the FDRs with which they contract, 
the maximum flexibility in developing and meeting training requirements 
associated with effective compliance programs. We invite comments 
concerning this proposal and suggestions on other options we can 
implement to accomplish the desired outcome.
3. Medicare Advantage Plan Minimum Enrollment Waiver (Sec.  422.514(b))
    Under section 1857(b) of the Act, CMS may not enter into a contract 
with a MA organization unless the organization complies with the 
minimum enrollment requirement. Under the basic rule at Sec.  
422.514(a), to provide health care benefits under the MA program, MA 
organizations must demonstrate that they have the capability to enroll 
at least 5,000 individuals, and provider sponsored organizations (PSOs) 
must demonstrate that they have the capability to enroll at least 1,500 
individuals. If an MA organization intends to offer health care 
benefits outside urbanized areas as defined in Sec.  422.62(f), then 
the minimum enrollment level is reduced to 1,500 for MA organizations 
and to 500 for PSOs. The statute permits CMS to waive this requirement 
in the first 3 years of the contract for an MA contract applicant. We 
have codified this authority at Sec.  422.514(b) and limited it to 
circumstances where the MA contract applicant is capable of 
administering and managing an MA contract and is able to manage the 
level of risk required under the contract. We are proposing to revise 
Sec.  422.514 regarding the minimum enrollment requirements to improve 
program efficiencies.
    Currently, MA organizations, including PSOs, with an approved 
minimum enrollment waiver for their first contract year have the option 
to resubmit the waiver request for CMS in the second and third year of 
the contract. In conjunction with the waiver request, the MA 
organization must continue to demonstrate the organization's ability to 
operate and demonstrate that it has and uses an effective marketing and 
enrollment system, despite continued failure to meet the minimum 
enrollment requirement. In addition, the current regulation limits our 
authority to grant the waiver in the third year to situations where the 
MA organization has at least attained a projected number of enrollees 
in the second year. Since 2012, we have not received any waiver to the 
minimum enrollment requirement during the second and third year of the 
contract. Rather, we only received minimum enrollment waiver requests 
through the initial application process.
    We believe the current requirement to resubmit the waiver in the 
second and third year of the contract is unnecessary. The statute does 
not require a reevaluation of the minimum enrollment standard each year 
and plainly authorizes a waiver ``during the first 3 contract years 
with respect to an organization.'' The current minimum enrollment 
waiver review in the initial MA contract application provides CMS the 
confidence to determine whether an MA organization may operate for the 
first 3 years of the contract without meeting the minimum enrollment 
requirement. CMS currently monitors low enrollment at the plan benefit 
package (PBP) level. We note that a similar provision in current Sec.  
422.506(b)(1)(iv) permits CMS to terminate an MA contract (or terminate 
a specific plan benefit package) if the MA plan fails to maintain a 
sufficient number of enrollees to establish that it is a viable 
independent plan option for existing or new enrollees. In addition, 
compliance with Sec.  422.514 is required under Sec.  422.503(a)(13). 
If an organization's PBP does not achieve and maintain enrollment 
levels in accordance with the applicable low and minimum enrollment 
policies in existing regulations, CMS may move to terminate the PBP 
absent an approved waiver from CMS during the first 3 years of the 
contract pursuant to Sec.  422.510(a).
    Under our proposal, we would only review and approve waivers 
through the MA application process as opposed to the current practice 
of reviewing annual requests and, potentially, requests from existing 
MA organizations that fail to maintain enrollment in the second or 
third year of operation.
    We are proposing to revise the text in Sec.  422.514(b) to provide 
that the waiver of the minimum enrollment requirement may be in effect 
for the first 3 years of the contract. Further, we are proposing to 
delete all references to ``MA organizations'' in paragraph (b) to 
reflect our proposal that we would only review and approve waiver 
requests during the contract application process. We also propose to 
delete current paragraphs (b)(2) and (b)(3) in their entirety to remove 
the requirement for MA organizations to submit an additional minimum 
enrollment waiver annually for the second and third years of the 
contract. Finally, the proposed text also includes technical changes to 
redesignate paragraphs (b)(1)(i) through (iii) as (b)(1) through (3), 
consistent with regulation style requirements of the Office of the 
Federal Register.
4. Revisions to Timing and Method of Disclosure Requirements 
(Sec. Sec.  422.111 and 423.128)
    As provided in sections 1852(c)(1) and 1860D-4(a)(1)(A) of the Act, 
Medicare Advantage (MA) organizations and Part D sponsors must disclose 
detailed information about the plans they offer to their enrollees ``at 
the time of enrollment and at least annually thereafter.'' This 
detailed information is specified in section 1852(c)(1) of the Act, 
with additional information specific to the Part D benefit also 
required under section 1860D-4(a)(1)(B) of the Act. Under Sec.  
422.111(a)(3), CMS requires MA plans to disclose this information to 
each enrollee ``at the time of enrollment and at least annually 
thereafter, 15 days before the annual coordinated election period.'' A 
similar rule for Part D sponsors is found at Sec.  423.128(a)(3). 
Additionally, Sec.  417.427 directs 1876 cost plans to follow the 
disclosure requirements in Sec.  422.111 and Sec.  423.128. In making 
the changes proposed here, we will also affect 1876 cost plans, though 
it is not necessary to change the regulatory text at Sec.  417.427.
    Sections 422.111(b) and 423.128(b) of the Part C and Part D program 
regulations, respectively, describe the information plans must 
disclose. The content listed in Sec.  422.111(b) is found in

[[Page 56432]]

an MA plan's Evidence of Coverage (EOC) and provider directory. The 
content listed in Sec.  423.128(b) is found in a Part D Sponsor's EOC, 
formulary, and pharmacy directory. Section 422.111(h)(2)(i) requires 
that plans must maintain an internet Web site that contains the 
information listed in Sec.  422.111(b) and also states that posting the 
EOC, Summary of Benefits, and provider network information on the 
plan's Web site ``does not relieve the MA organization of its 
responsibility under Sec.  422.111(a) to provide hard copies to 
enrollees.''
    We propose two changes to the disclosure requirements. First, we 
propose to revise Sec. Sec.  422.111(a)(3) and 423.128(a)(3) to require 
MA plans and Part D Sponsors to provide the information in paragraph 
(b) of the respective regulations by the first day of the annual 
enrollment period, rather than 15 days before. In addition, we propose 
to modify the sentence in Sec.  422.111(h)(2)(ii) which states that 
posting the EOC, Summary of Benefits, and provider network information 
on the plan's Web site does not relieve the plan of responsibility to 
provide hard copies to enrollees. We propose to revise the sentence 
slightly and add ``upon request'' to the existing regulatory language 
to make it clear when any document that is required to be delivered 
under paragraph (a) in a manner that includes provision of a hard copy 
upon request, posting the document on the Web site (whether that 
document is the EOC, SB, directory information or other materials) does 
not relieve the MA organizations of a responsibility to deliver hard 
copies upon request. We intend these proposals to provide CMS with the 
flexibility to permit delivery other than through mailing hard copies 
(which is the requirement today for all materials and information 
covered by Sec.  422.111(a)), including through electronic delivery or 
posting on the Web site in conjunction with delivery of a hard copy 
notice describing how the information and materials are available. We 
believe this proposal will ultimately provide additional flexibility to 
plans to take advantage of technological developments and reduce the 
amount of mail enrollees receive from plans.
    Prior to the 2009 contract year, Sec. Sec.  422.111(a) and 
423.128(a) required the provision of the materials in their respective 
paragraphs (b) at the time of enrollment and at least annually 
thereafter, but did not specify a deadline. In the September 18, 2008, 
final rule, CMS required MA organizations to send this material to 
current enrollees 15 days before the annual coordinated election period 
(AEP) (73 FR 54216). The rationale for this requirement was to provide 
beneficiaries with comprehensive information prior to the AEP so that 
they could make informed enrollment decisions.
    However, we have found through consumer testing that the large size 
of these mailings overwhelmed enrollees. In particular, the EOC is a 
long document that enrollees found difficult to navigate. Enrollees 
were more likely to review the Annual Notice of Change (ANOC), a 
shorter document summarizing any changes to plan benefits beginning on 
January 1 of the upcoming year, if it was separate from the EOC. 
Sections 422.111(d) and 423.128(g)(2) require MA organizations and Part 
D sponsors to provide the ANOC to all enrollees at least 15 days before 
the AEP.
    The ANOC is intended to convey all of the information essential to 
an enrollee's decision to remain enrolled in the same plan for the 
following year or choose another plan during the AEP. CMS's research 
and experience have indicated that the ANOC is particularly useful to 
and used by enrollees. Therefore, we are not proposing to change the 
Sec. Sec.  422.111(d) and 423.128(g) requirements that the ANOC be 
received 15 days prior to AEP.
    Unlike the ANOC, the EOC is a document akin to a contract that 
provides enrollees with exhaustive information about their medical 
coverage and rights and responsibilities as members of a plan. The 
provider directory, pharmacy directory, and formulary also contain 
information necessary to access care and benefits. As such, CMS 
requires MA organizations and Part D sponsors to make these documents 
available at the start of the AEP, so CMS proposes to amend Sec. Sec.  
422.111(a)(3) and 423.128(a)(3) to remove the current deadline and 
insert ``by the first day of the annual coordinated election period.'' 
To the extent that enrollees find the EOC, provider directory, pharmacy 
directory, and formulary useful in making informed enrollment 
decisions, CMS believes that receipt of these documents by the first 
day of the AEP is sufficient. Any changes in the plan rules reflected 
in these documents for the next year should be adequately described in 
the ANOC, which will be provided earlier.
    This change would also provide an additional 2 weeks for MA 
organizations and Part D plan sponsors to prepare, review, and ensure 
the accuracy of the EOC, provider directory, pharmacy directory, and 
formulary documents. CMS considers the additional time for the EOC 
important due to the high number errors plans self-identify in the 
document through errata sheets they submit to CMS and mail to 
beneficiaries. In 2017, plans submitted 166 ANOC/EOC errata, which 
identified 221 ANOC errors and 553 EOC errors. Additional time to 
produce the EOC will give plans more time to conduct quality assurance 
and improve accuracy and result in fewer errata sheets in the future.
    In addition to the proposed changes in Sec. Sec.  422.111(a)(3) and 
423.128(a)(3), we also propose to give plans more flexibility to 
provide the materials specified in Sec.  422.111(b) electronically. The 
language in Sec.  422.111(h)(2)(ii) requiring hard copies of the 
specified documents first appeared in the January 28, 2005, final rule 
(70 FR 4587) in Sec.  422.111(f)(12). At that time, MA plans were not 
required to maintain a Web site, but if they chose to they were 
required to include the EOC, Summary of Benefits, and provider network 
information on the Web site. However, plans were prohibited from 
posting these documents online as a substitute for providing hard 
copies to enrollees. A subsequent final rule, published April 15, 2011, 
established that MA plans are required to maintain an internet Web site 
at Sec.  422.111(h)(2) and moved the requirement that posting documents 
on the plan Web site did not substitute for hard copies from Sec.  
422.111(f)(12) to Sec.  422.111(h)(2)(ii) (76 FR 21502).
    There is no parallel to Sec.  422.111(h)(2)(ii) in Sec.  423.128. 
Instead, Sec.  423.128(a) states that Part D sponsors must disclose the 
information in paragraph (b) in the manner specified by CMS. Section 
423.128(d)(2)(i) requires Part D sponsors to maintain an internet Web 
site that includes information listed in Sec.  423.128(b). CMS sub-
regulatory guidance has instructed plans to provide the EOC in hard 
copy, but we believe that the regulatory text would permit delivery by 
notifying enrollees of the internet posting of the documents, subject 
to the right to request hard copies.\55\ As explained previously 
regarding the changes to Sec.  422.111, we intend for plans to have the 
flexibility to provide documents such as the Summary of Benefits, the 
EOC, and the provider network information in electronic format. We 
intend to change the relevant sub-regulatory guidance to coincide with 
this as well.
---------------------------------------------------------------------------

    \55\ Medicare Marketing Guidelines, section 60.6, issued July 
20, 2017, https://www.cms.gov/Medicare/Health-Plans/ManagedCareMarketing/Downloads/CY-2018-Medicare-Marketing-Guidelines_Final072017.pdf.
---------------------------------------------------------------------------

    In the preamble to the 2005 final rule, we noted that the 
prohibition on

[[Page 56433]]

substituting electronic posting on the MA plan's internet site for 
delivery of hardcopy documents was in response to comments recommending 
this change (70 FR 4623). At the time, we did not think enough Medicare 
beneficiaries used the internet to permit posting the documents online 
in place of mailing them.
    In the 12 years since the rule was finalized, research indicates 
that internet use has increased significantly among Medicare 
beneficiaries. Drawing on nationally representative surveys, the Pew 
Research Center found that 67 percent of American adults age 65 and 
older use the internet. Half of seniors have broadband available at 
home. Internet use increases even more among seniors age 65-69, of 
which 82 percent use the internet and 66 percent have broadband at 
home.\56\ Electronic documents include advantages such as word search 
tools, the ability to magnify text, screen reader capabilities, and 
bookmarks or embedded links, all of which make documents easier to 
navigate. Given that the younger range of Medicare beneficiaries have a 
higher rate of internet access, we believe the number of beneficiaries 
who ``use the internet'' will only continue to grow with time. Posted 
electronic documents can also be accessed from anywhere the internet is 
available.
---------------------------------------------------------------------------

    \56\ Pew Research Center, May 2017, ``Tech Adoption Climbs Among 
Older Adults'', http://www.pewinternet.org/2017/05/17/tech-adoption-climbs-among-older-adults/.
---------------------------------------------------------------------------

    As mentioned previously, the EOC sometimes contains errors. To 
correct these, MA and Part D plans currently have to mail errata sheets 
and post an updated version online. The hardcopy version of the EOC is 
then out-of-date. Beneficiaries either have to refer to errata sheets 
in addition to the hardcopy EOC or go online to access a corrected EOC. 
Increasing beneficiary use of the electronic EOC ensures that 
beneficiaries are using the most accurate information. Under this 
proposal to permit flexibility for us to approve non-hard-copy delivery 
in some cases, we intend to continue requiring hardcopy mailings of any 
ANOC or EOC errata.
    Plans have also continued to request CMS give plans the flexibility 
to provide the EOC electronically. They have frequently cited the 
expense of printing and mailing large documents. Medicaid managed care 
plans already have the flexibility to provide directories, formularies, 
and member handbooks (similar to the EOC) electronically, per 
Sec. Sec.  438.10(h)(1), 438.10(h)4)(i), and 438.10(g)(3) respectively.
    To begin addressing this, in the Medicare Marketing Guidelines 
released July 2, 2015, CMS notified plans that they could mail either a 
hardcopy provider and/or pharmacy directory or a hardcopy notice to 
enrollees instructing them where to find the directories online and how 
to request a hard copy. That guidance has been moved to Chapter 4, 
section 110.2.3, of the Medicare Managed Care Manual. If plans choose 
to mail a notice with the location of the online directory rather than 
a hard copy, the notice must include: A direct link to the online 
directory, the customer service number to call and request a hard copy, 
and if available the email address to request a hard copy. The notice 
must be distinct, separate, and mailed with the ANOC/EOC.\57\ Section 
60.4 of the Medicare Marketing Guidelines released July 20, 2017, 
extends the same flexibility to formularies, with the same required 
content in the notice identifying the location of the online formulary. 
As CMS has received few complaints from any source about this new 
process, allowing plans the option to use a similar strategy for 
additional materials is appropriate.
---------------------------------------------------------------------------

    \57\ Medicare Managed Care Manual Chapter 4--Benefits and 
Beneficiary Protections, Rev. 121, issued April 22, 2016, https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/mc86c04.pdf.
---------------------------------------------------------------------------

    Upon finalizing this rule, we would issue sub-regulatory guidance 
to identify permissible manners of disclosure; we expect that guidance 
would be similar to the current guidance for the provider directory, 
pharmacy directory, and formulary regarding dissemination of the EOC. 
Importantly, this provision does not eliminate the requirement for 
plans to provide accessible formats of required documents. As 
recipients of federal funding, plans are obligated to provide materials 
in accessible formats upon request, at no cost to the individual, to 
individuals with disabilities, under Section 504 of the Rehabilitation 
Act of 1973 and to take reasonable steps to provide meaningful access, 
including translation services, to individuals who have limited English 
proficiency under Title VI of the Civil Rights Act of 1964.
    To create this flexibility, CMS proposes modifying the sentence, 
``Such posting does not relieve the MA organization of its 
responsibility under Sec.  422.111(a) to provide hard copies to 
enrollees,'' to include ``upon request'' in Sec.  422.111(h)(2)(ii) and 
to revise Sec.  422.111(a) by inserting ``in the manner specified by 
CMS.'' These changes will align Sec. Sec.  422.111(a) and 423.128(a) to 
authorize CMS to provide flexibility to MA plans and Part D sponsors to 
use technology to provide beneficiaries with information. CMS intends 
to use this flexibility to provide sponsoring organizations with the 
ability to electronically deliver plan documents (for example, the 
Summary of Benefits) to enrollees while maintaining the protection of a 
hard copy for any enrollee who requests such hard copy. As the current 
version of Sec.  422.111(a) and (h)(2) require hard copies, we believe 
this proposal will ultimately result in reducing burden and providing 
more flexibility for sponsoring organizations.
5. Revisions to Sec. Sec.  422 and 423 Subpart V, Communication/
Marketing Materials and Activities
    Section 1851(h) of the Act prohibits Medicare Advantage (MA) 
organizations from distributing marketing materials and application 
forms to (or for the use of) MA eligible individuals unless the 
document has been submitted to the Secretary at least 45 days (10 days 
for certain materials) prior to use and the document has not been 
disapproved. Further, in section 1851(j), the Secretary is authorized 
to adopt standards regarding marketing activities, and the statute 
identifies certain prohibited activities. While the Act requires the 
submission and review of the marketing materials and applications, it 
does not provide a definition of what materials fall under the umbrella 
term ``marketing.'' Sections 1806D-1(d)(3)(B)(iv) and 1860D-4(l) of the 
Act provide similar restrictions on use of marketing and enrollment 
materials and activities to promote enrollment in Part D plans.
    Section 1876(c)(3)(C) of the Act states that no brochures, 
application forms, or other promotional or informational material may 
be distributed by cost plan to (or for the use of individuals eligible 
to enroll with the organization under this section unless (i) at least 
45 days before its distribution, the organization has submitted the 
material to the Secretary for review, and (ii) the Secretary has not 
disapproved the distribution of the material. As delegated this 
authority by the Secretary, CMS reviews all such material submitted and 
disapproves such material upon determination that the material is 
materially inaccurate or misleading or otherwise makes a material 
misrepresentation. Similar to 1851(h) of the Act, section 1876(c)(3)(C) 
of the Act focuses more on the review and approval of materials as 
opposed to providing an exhaustive list of materials that would qualify 
as marketing or promotional information and materials.

[[Page 56434]]

As part of the implementation of section 1876(c)(3)(C) of the Act, the 
regulation governing cost plans at Sec.  417.428(a) refers to Subpart V 
of part 422 for marketing guidance. Throughout this proposal, the 
changes discussed for MA organizations/MA plans and prescription drug 
plan (PDP) sponsors/Part D plans applies as well to cost plans subject 
to the same requirements as a result of this cross-reference.
    Section 422.2260(1)-(4) of the Part C program regulations currently 
identifies marketing materials as any materials that: (1) Promote the 
MA organization, or any MA plan offered by the MA organization; (2) 
inform Medicare beneficiaries that they may enroll, or remain enrolled 
in, an MA plan offered by the MA organization; (3) explain the benefits 
of enrollment in an MA plan, or rules that apply to enrollees; and (4) 
explain how Medicare services are covered under an MA plan, including 
conditions that apply to such coverage. Section 423.2260(1)-(4) applies 
identical regulatory provisions to the Part D program.
    Sections 422.2260(5) and 423.2260(5) provide specific examples of 
materials under the ``marketing materials'' definition, which include: 
General audience materials such as general circulation brochures, 
newspapers, magazines, television, radio, billboards, yellow pages, or 
the internet; marketing representative materials such as scripts or 
outlines for telemarketing or other presentations; presentation 
materials such as slides and charts; promotional materials such as 
brochures or leaflets, including materials for circulation by third 
parties (for example, physicians or other providers); membership 
communication materials such as membership rules, subscriber 
agreements, member handbooks and wallet card instructions to enrollees; 
letters to members about contractual changes; changes in providers, 
premiums, benefits, plan procedures etc.; and membership activities 
(for example, materials on rules involving non-payment of premiums, 
confirmation of enrollment or disenrollment, or no claim specific 
notification information). Finally, Sec. Sec.  422.2260(6) and 
423.2260(6) provide a list of materials that are not considered 
marketing materials, including materials that are targeted to current 
enrollees; are customized or limited to a subset of enrollees or apply 
to a specific situation; do not include information about the plan's 
benefit structure; and apply to a specific situation or cover claims 
processing or other operational issues.
    We are proposing several changes to Subpart V of the part 422 and 
423 regulations. To better outline these proposed changes, they are 
addressed in four areas of focus: (1) Including ``communication 
requirements'' in the scope of Subpart V or parts 422 and 423, which 
will include new definitions for ``communications'' and ``communication 
materials;'' (2) amending Sec. Sec.  422.2260 and 423.2260 to add (at a 
new paragraph (b)) a definition of ``marketing'' in place of the 
current definition of ``marketing materials'' and to provide lists 
identifying marketing materials and non-marketing materials; (3) adding 
new regulation text to prohibit marketing during the Open Enrollment 
Period proposed in section III.B.1 of this proposed rule; (4) technical 
changes to other regulatory provisions as a result of the changes to 
Subpart V. To the extent necessary, CMS relies on its authority to add 
regulatory and contract requirements to the cost plan, MA, and Part D 
programs to propose and (ultimately) adopt these changes. We note as 
well that sections 1851(h) and (j) of the Act (cross-referenced in 
sections 1860D-1 and 1860D-4(l)) of the Act address activities and 
direct that the Secretary adopt standards limiting marketing 
activities, which CMS interprets as permitting regulation of 
communications about the plan that do not rise to the level of 
activities and materials that specifically promote enrollment.
a. Revising the Scope of Subpart V To Include Communications and 
Communications Materials
    The current version of Subpart V of parts 422 and 423 regulation 
focuses on marketing materials, as opposed to other materials currently 
referred to as ``non-marketing'' in the sub-regulatory Medicare 
Marketing Guidelines. This leaves a regulatory void for the 
requirements that pertain to those materials that are not considered 
marketing. Historically, the impact of not having regulatory guidance 
for materials other than marketing has been muted because the current 
regulatory definition of marketing is so broad, resulting in most 
materials falling under the definition. The overall effect of this 
combination--no definition of materials other than marketing and a 
broad marketing definition--is that marketing and communications with 
enrollees became synonymous.
    With this CMS proposal to narrow the marketing definition, we 
believe there is a need to continue to apply the current standards to 
and develop guidance for those materials that fall outside of the 
proposed definition. We propose changing the title of each Subpart V by 
replacing the term ``Marketing'' with ``Communication.'' We propose to 
define in Sec. Sec.  422.2260(a) and 423.2260(a) definitions of 
``communications'' (activities and use of materials to provide 
information to current and prospective enrollees) and ``communications 
materials'' (materials that include all information provided to current 
members and prospective beneficiaries). We propose that marketing 
materials (discussed later in this section) would be a subset of 
communications materials. In many ways, the proposed definition of 
communications materials is similar to the current definition of 
marketing materials; the proposed definition has a broad scope and 
would include both mandatory disclosures that are primarily informative 
and materials that are primarily geared to encourage enrollment.
    CMS also proposes, through revisions to Sec. Sec.  422.2268 and 
423.2268, to apply some of the current standards and prohibitions 
related to marketing to all communications and to apply others only to 
marketing. Marketing and marketing materials would be subject to the 
more stringent requirements, including the need for submission to and 
review by CMS. Under this proposal, those materials that are not 
considered marketing, per the proposed definition of marketing, would 
fall under the less stringent communication requirements.
    In addition to these proposals related to defined terms and 
revising the scope of Subparts V in parts 422 and 423, we are proposing 
changes to the current regulations at Sec. Sec.  422.2264 and 423.2264 
and Sec. Sec.  422.2268 and 423.2268 that are related to our proposal 
to distinguish between marketing and communications.
    With regard to Sec. Sec.  422.2264 and 423.2264, we are proposing 
the following changes:
     Deletion of paragraph (a)(3), which currently provides for 
an adequate written explanation of the grievance and appeals process to 
be provided as part of marketing materials. In our view grievance and 
appeals communications would not be within the scope of marketing as 
proposed in this rule.
     Deletion of paragraph (a)(4), which provides for CMS to 
determine that marketing materials include any other information 
necessary to enable beneficiaries to make an informed decision about 
enrollment. The intent of this section was to ensure that materials 
which include measuring or ranking mechanisms such as Star Ratings were 
a part of CMS's marketing review. We

[[Page 56435]]

propose deleting this section as the exclusion list to be codified at 
Sec.  422.2260(c)(2)(ii) ensures materials that include measuring or 
ranking standards will be considered marketing, thus making Sec. Sec.  
422.2264(a)(4) and Sec.  423.2264(a)(4) duplicative.
     Deletion of paragraph (e), which requires sponsoring 
organizations to provide translated materials in certain areas where 
there is a significant non-English speaking population. We propose to 
recodify these requirement as a general communication standard in 
Sec. Sec.  422.2268 and 423.2268, at new paragraph (a)(7). As part of 
the redesignation of this requirement as a standard applicable to all 
communications and communication materials, we are also proposing 
revisions. First, we are proposing to revise the text so that it is 
stated as a prohibition on sponsoring organizations: For markets with a 
significant non-English speaking population, provide materials, as 
defined by CMS, unless in the language of these individuals. We propose 
adding the statement of ``as defined by CMS'' to the first sentence to 
allow the agency the ability to define the significant materials that 
would require translation. We propose deleting the word ``marketing'' 
so the second sentence now reads as ``materials'', to make it clear 
that the updated section applies to the broader term of communications 
rather than the more narrow term of marketing.
    In addition, we are proposing to revise Sec. Sec.  422.2262(d) and 
423.2262(d) to delete the term ``ad hoc'' from the heading and 
regulation text in favor of referring to ``communication materials'' to 
conform to the addition of communication materials under Subpart V.
    Current regulations at Sec. Sec.  422.2268 and 423.2268 list 
prohibited marketing activities. These activities include items such as 
providing meals to potential enrollees, soliciting door to door, and 
marketing in provider settings. With the proposal to distinguish 
between overall communications and marketing activities, we are 
proposing to break out the prohibitions into categories: those 
applicable to all communications (activities and materials) and those 
that are specific to marketing and marketing materials. In reviewing 
the various standards under the current regulations to determine if 
they would apply to communications or marketing, we looked at the each 
standard as it applied to the new definitions under Subpart V. 
Prohibitions that offer broader beneficiary protections and are 
currently applicable to a wide variety of materials are proposed here 
to apply to communications activities and communication materials; this 
list of prohibitions is proposed as paragraph (a) Conversely, 
prohibitions that are currently targeted to activities and materials 
that are within the narrower scope of marketing and marketing materials 
are proposed at paragraph (b) as prohibitions on marketing. We are not 
proposing to expand the list of prohibitions but are proposing to 
notate which prohibitions are applicable to which category. The only 
substantive change is in connection with paragraph (a)(7), which we 
discuss earlier in this section. We welcome comment on our proposed 
distinctions between these types of prohibitions and whether certain 
standards or prohibitions from current Sec. Sec.  422.2268 and 423.2268 
should apply more narrowly or broadly than we have proposed.
b. Amending the Regulatory Definition of Marketing and Marketing 
Materials
    In conjunction with adding new proposed communication requirements, 
we also propose a definition of ``marketing'' be codified in Sec. Sec.  
422.2260(b) and 423.2260(b). Under this proposal, we would delete the 
current text in that section defining only ``marketing materials'' to 
add a new definition of ``marketing'' and lists of materials that are 
``marketing materials'' and that are not. Specifically, the term 
``marketing'' would be defined as the use of materials or activities by 
the sponsoring organization (that is, the MA organization, Part D 
Sponsor, or cost plan, depending on the specific part) or downstream 
entities that are intended to draw a beneficiary's attention to the 
plan or plans and influence a beneficiary's decision making process 
when making a plan selection; this last criterion would also be met 
when the intent is to influence an enrollee's decision to remain in a 
plan (that is, retention-based marketing).
    The current regulations address both prohibited marketing 
activities and marketing materials. The prohibited activities are 
directly related to marketing activities, but the current definition of 
``marketing materials'' is overly broad and has resulted in a 
significant number of documents being classified as marketing 
materials, such as materials promoting the sponsoring organization as a 
whole (that is, brand awareness) rather than materials that promote 
enrollment in a specific Medicare plan. We believe that Congress' 
intent was to target those materials that could mislead or confuse 
beneficiaries into making an adverse enrollment decision. Since the 
original adoption of Sec. Sec.  422.2260 and 423.2260, CMS has reviewed 
thousands of marketing materials, tracked and resolved thousands of 
beneficiary complaints through the complaints tracking module (CTM), 
conducted secret shopping programs of MA plan sales events, and 
investigated numerous marketing complaints. These efforts have provided 
CMS insight into the types of plan materials that present the greatest 
risk of misleading or confusing beneficiaries. Based on this 
experience, we believe that the current regulatory definition of 
marketing materials is overly broad. As a result, materials that pose 
little to no threat of a detrimental enrollment decision fall under the 
current broad marketing definition. As such, the materials are also 
required to follow the associated marketing requirements, including 
submission to CMS for potential review under limited statutory 
timeframes. CMS believes that the level of scrutiny required on 
numerous documents that are not intended to influence an enrollment 
decision, combined with associated burden to sponsoring organizations 
and CMS, is not justified. By narrowing the materials that fall under 
the scope of marketing, this proposal will allow us to better focus its 
review on those materials that present the greatest likelihood for a 
negative beneficiary experience.
    We propose to more appropriately implement the statute by narrowing 
the definition of marketing to focus on materials and activities that 
aim to influence enrollment decisions. We believe this is consistent 
with Congress's intent. Moreover, the new definition differentiates 
between factually providing information about the plan or benefits 
(that is, the Evidence of Coverage (EOC)) versus persuasively conveying 
information in a manner designed to prompt the beneficiary to make a 
new plan decision or to stay with their current plan (for example, a 
flyer that touts a low monthly premium). As discussed later, the 
majority of member materials would no longer fall within the definition 
of marketing under this proposal. The EOC, subscriber agreements, and 
wallet card instructions are not developed nor intended to influence 
enrollment decisions. Rather, they are utilized for current enrollees 
to understand the full scope of and the rules associated with their 
plan. We believe the proposed new marketing definition appropriately 
safeguards potential and current enrollees while not placing an undue 
burden on sponsoring organizations. Moreover, those materials that 
would be

[[Page 56436]]

excluded from the marketing definition would fall under the proposed 
definition of communication materials, with what we believe are more 
appropriate requirements. CMS notes that enrollment and mandatory 
disclosure materials continue to be subject to requirements in 
Sec. Sec.  422.60(c), 422.111, 423.32(b), and 423.128.
    Second, we propose to revise the list of marketing materials, 
currently codified at Sec. Sec.  422.2260(5) and 423.2260(5), and to 
include it in the proposed new Sec. Sec.  422.2260(c)(1) and 
423.2260(c)(1). The current list of examples includes: brochures; 
advertisements in newspapers and magazines, and on television, 
billboards, radio, or the internet, and billboards; social media 
content; marketing representative materials, such as scripts or 
outlines for telemarketing or other presentations; and presentation 
materials such as slides and charts. In conjunction with the proposed 
new definition of marketing, we are proposing to remove from the list 
of examples items such as membership communication materials, 
subscriber agreements, member handbooks, and wallet card instructions 
to enrollees, as they would no longer fall under the proposed 
regulatory definition of marketing. The proposed text complements the 
new definition by providing a concise non-exhaustive list of example 
material types that would be considered marketing.
    Third, we propose to revise the list of exclusions from marketing 
materials, currently codified at Sec. Sec.  422.2260(6) and 
423.2260(6), and to include it in the proposed new Sec. Sec.  
422.2260(c)(2) and 423.2260(c)(2) to identify the types of materials 
that would not be considered marketing. Materials that do not include 
information about the plan's benefit structure or cost sharing or do 
not include information about measuring or ranking standards (for 
example, star ratings) will be excluded from marketing. In addition, 
materials that do mention benefits or cost sharing, but do not meet the 
definition of marketing as proposed here, would also be excluded from 
marketing. We also propose that required materials in Sec.  422.111 and 
Sec.  423.128 not be considered marketing, unless otherwise specified. 
Lastly, we are proposing to exclude materials specifically designated 
by us as not meeting the definition of the proposed marketing 
definition based on their use or purpose. The purpose of this proposed 
revision of the list of exclusions from marketing materials, as with 
the proposed marketing definition and proposed non-exhaustive list of 
marketing materials, is to maintain the current beneficiary protections 
that apply to marketing materials but to narrow the scope to exclude 
materials that are unlikely to lead to or influence an enrollment 
decision.
    In the proposed changes to the exclusions from marketing materials, 
we intend to exclude materials that do not include information about 
the plan's benefit structure or cost-sharing. We believe that materials 
that do not mention benefit structure or cost sharing would not be used 
to make an enrollment decision in a specific Medicare plan, rather they 
would be used to drive beneficiaries to request additional information 
that would fall under the new definition of marketing. Similarly, we 
want to be sure it is clear that the use of measuring or ranking 
standards, such as the CMS Star Ratings, even when not accompanied by 
other plan benefit structure or cost sharing information, could lead a 
beneficiary to make an enrollment decision. It should be noted that our 
authority for similar requirements can be found under the current 
Sec. Sec.  422.2264(a)(4) and 423.2264(a)(4). We believe this is 
clearer and more appropriately housed under the regulatory definition 
of marketing. As such, together with the proposed update to excluded 
materials, we will make the technical change to remove (a)(4) from 
Sec. Sec.  422.2264 and 423.2264. In addition, we propose to exclude 
materials that mention benefits or cost sharing but do not meet the 
proposed definition of marketing. The goal of this proposal is to 
exclude member communications that convey important factual information 
that is not intended to influence the enrollee's decision to make a 
plan selection or to stay enrolled in their current plan. An example is 
a monthly newsletter to current enrollees reminding them of preventive 
services at $0 cost sharing.
    In addition, we note the proposal excludes those materials required 
under Sec.  422.111 (for MA plans) and Sec.  423.128 (for Part D 
sponsors), unless otherwise specified by CMS because of their use or 
purpose. This proposal is intended to exclude post-enrollment materials 
that we require be disclosed and distributed to enrollees, such as the 
EOC. Such materials convey important plan information in a factual 
manner rather than to entice a prospective enrollee to choose a 
specific plan or an existing enrollee to stay in a specific plan. In 
addition, either these materials use model formats and text developed 
by us or are developed by plans based on detailed instructions on the 
required content from us; this high level of standardization by us on 
the front-end provides the necessary beneficiary protections and 
negates the need for our review of these materials before distribution 
to enrollees.
    The proposed changes do not release cost plans, MA organizations, 
or Part D sponsors from the requirements in sections 1876(c)(3)(C), 
1851(h), and 1860D-1(b)(1)(B)(vi) of the Act to have application forms 
reviewed by CMS as well. To clarify this requirement, we are proposing 
to revise Sec.  417.430(a)(1) and Sec.  423.32(b), which pertain to 
application and enrollment processes, to add a cross reference to 
Sec. Sec.  422.2262 and 423.2262, respectively. The cross references 
directly link enrollment applications back to requirements related to 
review and distribution of marketing materials. These proposed changes 
update an old cross-reference, codify existing practices, and are 
consistent with language already in Sec.  422.60(c).
c. Prohibition of Marketing During the Open Enrollment Period
    The 21st Century Cures Act (the Cures Act) amended section 
1851(e)(2) of the Act by adding a new continuous open enrollment and 
disenrollment period (OEP) for MA and certain PDP members. See section 
III.A.X for CMS's other proposal related to that provision. As part of 
establishing this OEP, the Cures Act prohibits unsolicited marketing 
and mailing marketing materials to individuals who are eligible for the 
new OEP. We are proposing to add a new paragraph (b)(9) to both 
proposed Sec. Sec.  422.2268 and 423.2268 to apply this prohibition on 
marketing. However, we request comment on how the agency could 
implement this statutory requirement. The new OEP is not available for 
enrollees in Medicare cost plans; therefore, these limitations would 
apply to MA enrollees and to any PDP enrollee who was enrolled in an MA 
plan the prior year. CMS is concerned that it may be difficult for a 
sponsoring organization to limit marketing to only those individuals 
who have not yet enrolled in a plan during the OEP. One mechanism could 
be to limit marketing entirely during that period, but we are concerned 
that such a prohibition would be too broad We believe that using a 
``knowing'' standard will both effectuate the statutory provision and 
avoid against overly broad implementation. We welcome comment on how a 
sponsoring organization could appropriately control who would or should 
be marketed to during the new OEP, such as through as mailing campaigns 
aimed at a more general audience.

[[Page 56437]]

d. Technical Changes to Other Regulatory Provisions as a Result of the 
Changes to Subpart V
    As previously stated, because of the broad regulatory definition of 
marketing, the term marketing and communication became synonymous. With 
the proposed updates to Subpart V in both part 422 and part 423, a 
definition of the broader term communication would be added and the 
definition of marketing, as well as the materials that fall within the 
scope of that definition, would be narrowed. As a result, a number of 
technical changes will be needed to update certain sections of the 
regulation that use the term marketing. Accordingly, we propose the 
following technical changes in Part C:
     In Sec.  422.54, we propose to update paragraphs (c)(1)(i) 
and (d)(4)(ii) to replace ``marketing materials'' with ``communication 
materials.''
     In Sec.  422.62, we propose to update paragraph 
(b)(3)(B)(ii) by replacing ``in marketing the plans to the individual'' 
with ``in communication materials.''
     In Sec.  422.102(d), we propose to use ``supplemental 
benefits packaging'' instead of ``marketing of supplemental benefits.''
     In Sec.  422.206(b)(2)(i), we propose to replace ``Sec.  
422.80 (concerning approval of marketing materials and election 
forms)'' with ``all applicable requirements under subpart V''.
     In Sec.  422.503(b)(4)(ii), we propose to replace the term 
``marketing'' with the term ``communication.''
     In Sec.  422.510(a)(4)(iii), we propose to remove the word 
``marketing'' so that the reference is to the broader Subpart V.
    CMS has had longstanding authority to initiate ``marketing 
sanctions'' in conjunction with enrollment sanctions as a means of 
protecting beneficiaries from the confusion that stems from receiving 
information provided by a plan that is--as a result of enrollment 
sanctions--unable to accept enrollments. In this rulemaking, CMS is 
proposing to replace the term ``marketing'' with ``communications'' in 
Sec.  422.750 and 422.752 to reflect its proposal for Subpart V. The 
intent of this proposal to change the terminology is not to expand the 
scope of CMS's authority with respect to sanction regulations. Rather, 
CMS intends to preserve the existing reach of its sanction authority it 
currently has--to prohibit any communications under the current broad 
definition of ``marketing materials'' from being issued by a sponsoring 
organization while that entity is under sanction. For this reason, CMS 
is proposing the following changes to Sec. Sec.  422.750 and 422.752:
     In Sec.  422.750, we propose to revise paragraph (a)(3) to 
refer to suspension of ``communication activities.''
     In Sec.  422.752, we propose to replace the term 
``marketing'' in paragraph (a)(11) and the heading for paragraph (b) 
with the term ``communications.''
    We are not proposing any changes to the use of the term 
``marketing'' in Sec. Sec.  422.384, 422.504(a)(17), 422.504(d)(2)(vi), 
or 422.514, as those regulations use the term in a way that is 
consistent with the proposed definition of the term ``marketing,'' and 
the underlying requirements and standards do not need to be extended to 
all communications from an MA organization.
    We also propose the following technical changes in Part D:
     In Sec.  423.38(c)(8)(i)(C), we propose to revise the 
paragraph to read: ``The organization (or its agent, representative, or 
plan provider) materially misrepresented the plan's provisions in 
communication materials.''
     In Sec.  423.504(b)(4)(ii), we propose to replace 
``marketing'' with ``communications'' to reflect the change to Subpart 
V.
    For the reasons explained in connection with our proposal to revise 
the Part C sanction regulations, we also propose the following changes:
     In Sec.  423.505(b)(25), we propose to replace 
``marketing'' with ``communications'' to reflect the change to Subpart 
V.
     In Sec.  423.509(a)(4)(V)(A), we propose to delete the 
word ``marketing'' and instead simply refer to Subpart V.
    We are not proposing any changes to the use of the term 
``marketing'' in Sec. Sec.  423.505(d)(2)(vi), 423.871(c), or 
423.756(c)(3)(ii), as those regulations use the term in a way that is 
consistent with the proposed definition of the term ``marketing,'' and 
the underlying requirements and standards do not need to be extended to 
all communications from a PDP sponsor.
    We solicit comment on the proposed technical changes, particularly 
whether a proposed revision here would be more expansive than 
anticipated or have unintended consequences for sponsoring 
organizations or for CMS's oversight and monitoring of the MA and Part 
D programs.
    In conclusion, we believe that our proposal here--the proposed 
definitions of ``communications,'' ``communications materials,'' 
``marketing,'' and ``marketing materials;'' and the various proposed 
changes to Subpart V; to distinguish between prohibitions applicable to 
communications and those applicable to marketing; and to conform Sec.  
417.430(a)(1) and Sec.  423.32(b) to Sec.  422.60(c) and reflect the 
statutory direction regarding enrollment materials; all maintain the 
appropriate level of beneficiary protection. These proposals will 
facilitate and focus our oversight of marketing materials, while 
appropriately narrowing the scope of what is considered marketing. We 
believe beneficiary protections are further enhanced by adding 
communication materials and associated standards under Subpart V. These 
changes allow us to focus its oversight efforts on plan marketing 
materials that have the highest potential for influencing a beneficiary 
to make an enrollment decision that is not in the beneficiary's best 
interest. We solicit comment on these proposals and whether the 
appropriate balance is achieved with the proposed regulation text.
6. Lengthening Adjudication Timeframes for Part D Payment 
Redeterminations and IRE Reconsiderations (Sec. Sec.  423.590 and 
423.636)
    Sections 1860D-4(g) and (h) of the Act require the Secretary to 
establish processes for initial coverage determinations and appeals 
similar to those used in the Medicare Advantage program. In accordance 
with section 1860D-4(g) of the Act, Sec.  423.590 establishes Part D 
plan sponsors' responsibilities for processing redeterminations, 
including adjudication timeframes. Pursuant to section 1860D-4(h) of 
the Act, Sec.  423.600 sets forth the requirements for an independent 
review entity (IRE) for processing reconsiderations.
    We are proposing changes to the adjudication timeframe for Part D 
standard redetermination requests for payment at Sec.  423.590(b) and 
the related effectuation provision Sec.  423.636(a)(2). Specifically, 
we are proposing to change the timeframe for issuing decisions on 
payment redeterminations from 7 calendar days from the date the plan 
sponsor receives the request to 14 calendar days from the date the plan 
sponsor receives the request. This proposed 14-day timeframe for 
issuing a decision related to a payment request would also apply to the 
IRE reconsideration pursuant to Sec.  423.600(d). We are not proposing 
to make changes to the existing requirements for making payment. When 
applicable, the Part D plan sponsor must make payment no later than 30 
days from receipt of the request

[[Page 56438]]

for redetermination, or the IRE reconsideration notice, respectively.
    Some of the feedback received from the RFI published in the 2018 
Call Letter related to simplifying and establishing greater consistency 
in Part D coverage and appeals processes. The proposed change to a 14 
calendar day adjudication timeframe for payment redeterminations, which 
would also apply to payment requests at the IRE reconsideration level 
of appeal, will establish consistency in the adjudication timeframes 
for payment requests throughout the plan level and IRE processes, as 
Sec.  423.568(c) requires a plan sponsor to notify the enrollee of its 
determination no later than 14 calendar days after receipt of the 
request for payment. We believe affording more time to adjudicate 
payment redetermination requests (including obtaining necessary 
documentation to support the request) will ease burden on plan sponsors 
because it could reduce the need to deny payment redeterminations due 
to missing information. We also expect the proposed change to the 
payment redetermination timeframe would reduce the volume of untimely 
payment redeterminations that must be auto-forwarded to the IRE.
    In addition, having more time to gather information and process 
these requests could be beneficial to enrollees because decisions will 
be more fully informed, potentially resulting in fewer decisions having 
to undergo further appeal. While we acknowledge that some enrollees 
would have to wait longer for a decision, we note that the proposed 
changes are limited to payment requests where the enrollee has already 
received the drug, ensuring any delay would not adversely affect the 
enrollee's health. As noted previously, when coverage is approved, the 
plan would remain obligated to remit payment to affected enrollees 
within 30 days. Allowing plan sponsors and the IRE additional time to 
process payment appeal requests may assist these adjudicators in 
allocating resources in a manner that is most efficient and enrollee 
friendly, for example, ensuring adequate resources are directed to 
processing more time-sensitive pre-service requests where the enrollee 
has not yet obtained the drug, particularly during periods of increased 
case volume.
7. Elimination of Medicare Advantage Plan Notice for Cases Sent to the 
IRE (Sec.  422.590)
    Section 1852(g) of Act requires MA organizations to have a 
procedure for making timely determinations regarding whether an 
enrollee is entitled to receive a health service and any amount the 
enrollee is required to pay for such service. Under this statutory 
provision, the MA plan also is required to provide for reconsideration 
of that determination upon enrollee request.
    In accordance with section 1852(g) of the Act, our current 
regulations at Sec. Sec.  422.578, 422.582, and 422.584 provide MA 
enrollees with the right to request reconsideration of a health plan's 
initial decision to deny Medicare coverage. Pursuant to Sec.  422.590, 
when the MA plan upholds initial payment or service denials, in whole 
or in part, it must forward member case files to an independent review 
entity (IRE) that contracts with CMS to review plan-level appeals 
decisions; that is, plans are required to automatically forward to the 
IRE any reconsidered decisions that are adverse or partially adverse 
for an enrollee without the enrollee taking any action.
    Currently, MA plans are required to notify enrollees upon 
forwarding cases to the IRE, as set forth at Sec.  422.590(f). CMS sub-
regulatory guidance, set forth in Chapter 13 of the Medicare Managed 
Care Manual, specifically directs plans to mail a notice to the 
enrollee informing the individual that the plan has upheld its decision 
to deny coverage, in whole or in part, and thus is forwarding the 
enrollee's case file to the IRE for review. We have made a model notice 
available for plans to use for this purpose. (See Medicare Managed Care 
Manual, Chapter 13, Sec.  10.3.3, 80.3, and Appendix 10.) In addition, 
the Part C IRE is required, under its contract with CMS, to notify the 
enrollee when the IRE receives the reconsidered decision for review. We 
are proposing to revise Sec.  422.590 to remove paragraph (f) and 
redesignate the existing paragraphs (g) and (h) as (f) and (g), 
respectively. The Part C IRE is contractually responsible for notifying 
an enrollee that the IRE has received and will be reviewing the 
enrollee's case; thus, we believe the plan notice is duplicative and 
nonessential. Under this proposal, the IRE would be responsible for 
notifying enrollees upon forwarding all cases--including both standard 
and expedited cases. We will continue to closely monitor the 
performance of the IRE and beneficiary complaints related to timely and 
appropriate notification that the IRE has received and will be 
reviewing the enrollee's case.
    We received feedback in response to the Request for Information 
included in the 2018 Call Letter related to simplifying and 
streamlining appeals processes. To that end, we believe this proposed 
change will help further these goals by easing burden on MA plans 
without compromising informing the beneficiary of the progress of his 
or her appeal. If this proposal is finalized, and plans are no longer 
required to notify an enrollee that his or her case has been sent to 
the IRE, we would expect plans to redirect resources previously 
allocated to issuing this notice to more time-sensitive activities such 
as review of pre-service and post-service coverage requests, improved 
efficiency in appeals processing, and provision of health benefits in 
an optimal, effective, and efficient manner.
8. E-Prescribing and the Part D Prescription Drug Program; Updating 
Part D E-Prescribing Standards
a. Legislative Background
    Section 101 of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) (Pub. L. 108-173) amended title XVIII 
of the Act to establish a voluntary prescription drug benefit program 
at section 1860D-4(e) of the Act. Among other things, these provisions 
required the adoption of Part D e-prescribing standards. Prescription 
Drug Plan (PDP) sponsors and Medicare Advantage (MA) organizations 
offering Medicare Advantage-Prescription Drug Plans (MA-PD) are 
required to establish electronic prescription drug programs that comply 
with the e-prescribing standards that are adopted under this authority. 
There is no requirement that prescribers or dispensers implement e-
prescribing. However, prescribers and dispensers who electronically 
transmit prescription and certain other information for covered drugs 
prescribed for Medicare Part D eligible beneficiaries, directly or 
through an intermediary, are required to comply with any applicable 
standards that are in effect.
    For a further discussion of the statutory basis for this proposed 
rule and the statutory requirements at section 1860D-4(e) of the Act, 
please refer to section I. (Background) of the E-Prescribing and the 
Prescription Drug Program proposed rule, published February 4, 2005 (70 
FR 6256).
b. Regulatory History
    Transaction standards are periodically updated to take new 
knowledge, technology and other considerations into account. As CMS 
adopted specific versions of the standards when it adopted the 
foundation and final e-prescribing standards, there was a need to 
establish a process by which the standards could be updated or replaced

[[Page 56439]]

over time to ensure that the standards did not hold back progress in 
the industry. We discussed these processes in the November 7, 2005 
final rule (70 FR 67579).
    The discussion noted that the rulemaking process will generally be 
used to retire, replace or adopt a new e-prescribing standard, but it 
also provided for a simplified ``updating process'' when a non-HIPAA 
standard could be updated with a newer ``backward-compatible'' version 
of the adopted standard. In instances in which the user of the later 
version can accommodate users of the earlier version of the adopted 
non-HIPAA standard without modification, however, it noted that notice 
and comment rulemaking could be waived, in which case the use of either 
the new or old version of the adopted standard would be considered 
compliant upon the effective date of the newer version's incorporation 
by reference in the Federal Register. We utilized this streamlined 
process when we published an interim final rule with comment on June 
23, 2006 (71 FR 36020). That rule recognized NCPDP SCRIPT 8.1 as a 
backward compatible update to the NCPDP SCRIPT 5.0 for the specified 
transactions, thereby allowing for use of either of the two versions in 
the Part D program. Then, on April 7, 2008, we used notice and comment 
rulemaking (73 FR 18918) to finalize the identification of the NCPDP 
SCRIPT 8.1 as a backward compatible update of the NCPDP SCRIPT 5.0, 
and, effective April 1, 2009, retire NCPDP SCRIPT 5.0 and adopt NCPDP 
SCRIPT 8.1 as the official Part D e-prescribing standard for the 
specified transactions. On July 1, 2010, CMS utilized the streamlined 
process to recognize NCPDP SCRIPT 10.6 as a backward compatible update 
of NCPDP SCRIPT 8.1 in an interim final rule (75 FR 38026).
    We finalized the NCPDP SCRIPT 10.6 as a Backward Compatible Version 
of NCPDP SCRIPT 8.1, and retired NCPDP SCRIPT 8.1 and adopted the NCPDP 
SCRIPT 10.6 as the official Part D e-Prescribing Standard for the 
specified transactions in the CY 2013 Physician Fee Schedule, effective 
November 1, 2013. For a more detailed discussion, see the CY 2013 PFS 
final rule (77 FR 69329 through 69333).
    c. Proposed adoption of NCPDP SCRIPT version 2017071 as the 
official Part D E-Prescribing Standard for certain specified 
transactions, retirement of NCPDP SCRIPT 10.6, proposed conforming 
changes elsewhere in 423.160, and correction of a historic 
typographical error in the regulatory text which occurred when NCPDP 
SCRIPT 10.6 was initially adopted.
    The National Council for Prescription Drug Programs (NCPDP) is a 
not-for-profit ANSI-Accredited Standards Development Organization (SDO) 
consisting of more than 1,600 members who are interested in electronic 
standardization within the pharmacy services sector of the healthcare 
industry. NCPDP provides a forum wherein our diverse membership can 
develop solutions, including ANSI-accredited standards, and guidance 
for promoting information exchanges related to medications, supplies, 
and services within the healthcare system.
    NCPDP has developed the NCPDP SCRIPT standard for use by 
prescribers, dispensers, pharmacy benefit managers (PBMs), payers and 
other entities who wish to electronically transmit information about 
prescriptions and prescription-related information. NCPDP has 
periodically updated its SCRIPT standard over time, and three separate 
versions of the NCPDP SCRIPT standard, versions 5.0, 8.1 and most 
recently 10.6 have been adopted by CMS for the part D e-prescribing 
program through the notice and comment rulemaking process. We believe 
that our current proposal to adopt the NCPDP SCRIPT 2017071 as the 
official part D e-prescribing standard for certain specified 
transactions, and to retire the current standard for those transactions 
would, among other things, improve communications between the 
prescriber and dispensers, and we welcome public comment on these 
proposals.
    Our actions were, in part, precipitated by a May 24, 2017, letter 
from the NCPDP that requested our adoption of NCPDP SCRIPT Standard 
Version 2017071. This version was balloted and approved July 28, 2017. 
The letter noted the considerable amount of time that had passed since 
the last update to the current adopted standard (NCPDP SCRIPT 10.6), 
and that there were many changes to the NCPDP SCRIPT Standard version 
2017071 that would benefit its users.
    CMS reviewed the specifications for NCPDP SCRIPT Standard Version 
2017071 and found that this version would allow users substantial 
improvements in efficiency. Version 2017071 supports communications 
regarding multi-ingredient compounds, thereby allowing compounded 
medication to be prescribed electronically. Previously prescriptions 
for compounds were handwritten and sent via fax to the dispenser, which 
often required follow up communications between the prescriber and 
pharmacy. The ability to process prescriptions for compounds 
electronically in lieu of relying on more time intensive interpersonal 
interactions would be expected to improve efficiency.
    While we do not propose mandating its use at this time, one 
transaction supported by the proposed version of NCPDP SCRIPT would 
also provide interested users with a Census transaction functionality 
which is designed to service beneficiaries residing in long term care. 
The Census feature would trigger timely notification of a beneficiary's 
absence from a long term care facility, which would enable 
discontinuation of daily medication dispensing when a leave of absence 
occurs, thereby preventing the dispensing of unneeded medications. 
Version 2017071 also contains an enhanced Prescription Fill Status 
Notification that allows the prescriber to specify if/when they want to 
receive the notifications from the dispenser. It now supports data 
elements for diabetic supply prescriptions and includes elements which 
could be required for the pharmacy during the dispensing process which 
may be of value to prescribers who need to closely monitor medication 
adherence.
    We therefore believe that the functionalities offered by NCPDP 
SCRPT 2017071 could offer efficiencies to the industry, and believe 
that it would be an appropriate e-prescribing standard for the 
transactions currently covered by the Medicare Part D program. 
Furthermore, NCPDP SCRIPT 2017071 supports transactions new to the part 
D e-prescribing program that we believe would prove beneficial to the 
industry. Therefore, in addition to the transactions for which prior 
versions of NCPDP SCRIPT were adopted (as reflected in the current 
regulations at 423.160(b)), we propose to require use of NCPDP SCRPT 
2017071 for the following transactions:
     Prescription drug administration message,
     New prescription requests,
     New prescription response denials,
     Prescription transfer message,
     Prescription fill indicator change,
     Prescription recertification,
     Risk Evaluation and Mitigation Strategy (REMS) initiation 
request,
     REMS initiation response, REMS request, and
     REMS response.
    We believe that transitioning to the new 2017071 versions of the 
transactions already covered by the current part D e-prescribing 
standard (version 10.6 of the NCPDP SCRIPT) will impose deminimus cost 
on the

[[Page 56440]]

industry as the burden in using the updated standards is anticipated to 
be the same as using the old standards for the transactions currently 
covered by the program. We are also proposing adoption of version 
2017071 of the NCPDP SCRIPT standards for the nine new transactions to 
replace manual processes that currently occur. Reducing the manual 
processes currently used to support these transactions will improve 
efficiency, accuracy, and user satisfaction with the system. While 
system implementation may result in minimal expenses, we believe that 
these minimal expenses will be more than offset by rendering these 
manual transactions obsolete. That is, we believe that prescribers and 
dispensers that are now e-prescribing largely invested in the hardware, 
software, and connectivity necessary to e-prescribe. We do not 
anticipate that the retirement of NCPDP SCRIPT 10.6 in favor of NCPDP 
SCRIPT 2017071 will result in significant costs.
    As such, we are proposing to revise Sec.  423.160(b)(1)(iv) so as 
to limit its application to transactions before January 1, 2019 and add 
a new Sec.  423.160(b)(1)(v). The requirement at Sec.  423.160(b)(1)(v) 
would identify the standards that will be in effect on or after January 
1, 2019, for those that conduct e-prescribing for part D covered drugs 
for part D eligible beneficiaries. If finalized, those individuals and 
entities would be required to use NCPDP SCRIPT 2017071 to convey 
prescriptions and prescription-related information for the following 
transactions:
     Get message transaction.
     Status response transaction.
     Error response transaction.
     New prescription request transaction.
     Prescription change request transaction.
     Prescription change response transaction.
     Refill/Resupply prescription request transaction.
     Refill/Resupply prescription response transaction.
     Verification transaction.
     Password change transaction.
     Cancel prescription request transaction.
     Cancel prescription response transaction.
     Fill status notification.
     Prescription drug administration message.
     New prescription requests.
     New prescription response denials.
     Prescription transfer message.
     Prescription fill indicator change.
     Prescription recertification.
     Risk Evaluation and Mitigation Strategy (REMS) initiation 
request.
     REMS initiation response, REMS request
     REMS initiation response.
     REMS request.
     REMS response.
    We are also proposing to adopt NCPDP SCRIPT 2017071 as the official 
part D e-prescribing standard for the medication history transaction at 
Sec.  423.160(b)(4). As a result, we are also proposing to retire NCPDP 
SCRIPT versions 8.1 and 10.6 for medication history transactions 
transmitted on or after January 1, 2019.
    Furthermore, we propose to amend Sec.  423.160(b)(1) by modifying 
Sec.  423.160(b)(1)(iv) to limit usage of NCPDP SCRIPT version 10.6 to 
transactions before January 1, 2019.
    In addition, we propose to add Sec.  423.160(b)(1)(v) to provide 
that NCPDP Version 2017071 must be used to conduct the covered 
transactions on or after January 1, 2019. Furthermore, we are proposing 
to amend Sec.  423.160(b)(2) by adding Sec.  423.160(b)(2)(iv) to name 
NCPDP SCRIPT Version 2017071 for the applicable transactions. Finally, 
we propose to incorporate NCPDP SCRIPT version 2017071 by reference in 
our regulations. We seek comment regarding our proposed retirement of 
NCPDP SCRIPT version 10.6 on December 31, 2018 and adoption of NCPDP 
SCRIPT Version 2017071 on January 1, 2019 as the official Part D e-
prescribing standard for the e-prescribing functions outlined in our 
proposed Sec.  423.160(b)(1)(v) and (b)(2)(v), and for medication 
history as outlined in our proposed Sec.  423.160(b)(4), effective 
January 1, 2019. We are also soliciting comments regarding the impact 
of these proposed effective dates on industry and other interested 
stakeholders.
    We are also proposing a technical correction of a prior regulation. 
On July 30, 2012, we published regulation (CMS-1590-P), which 
established version 10.6 as the Part D e-prescribing standard effective 
March 1, 2015 for certain electronic transactions that convey 
prescription or prescription related information, as listed in Sec.  
423.160(b)(2)(iii). However, despite the regulation clearly noting 
adoption of NCPDP SCRIPT 10.6 as the part D e-prescribing standard for 
the listed transactions, due to a typographical error, Sec.  
423.160(b)(1)(iv) references (b)(2)(ii) (NCPDP SCRIPT 8.1), rather than 
(b)(2)(iii) (NCPDP SCRIPT 10.6). We propose a correction of this 
typographical error by changing the reference at Sec.  423.160 
(b)(1)(iv) to reference (b)(2)(iii) instead of (b)(2)(ii).
    In proposing updates to the Part D E-Prescribing Standards CMS has 
reviewed specification documents developed by the National Council for 
Prescription Drug Programs (NCPDP). The Office of the Federal Register 
(OFR) has regulations concerning incorporation by reference. 1 CFR part 
51. For a proposed rule, agencies must discuss in the preamble to the 
NPR ways that the materials the agency proposes to incorporate by 
reference are reasonably available to interested persons or how the 
agency worked to make the materials reasonably available. In addition, 
the preamble to the proposed rule must summarize the materials.
    Consistent with those requirements CMS has established procedures 
to ensure that interested parties can review and inspect relevant 
materials. The proposed update to the Part D prescribing standards has 
relied on the NCPDP SCRIPT Implementation Guide Version 2017071 
approved July 28, 2017. Members of the NCPDP may access these materials 
through the member portal at www.ncpdp.org; non- NCPDP members may 
obtain these materials for information purposes by contacting the 
Centers for Medicare & Medicaid Services (CMS), 7500 Security 
Boulevard, Baltimore, Maryland 21244, Mailstop C1-26-05, or by calling 
(410) 786- 3694.
9. Reduction of Past Performance Review Period for Applications 
Submitted by Current Medicare Contracting Organizations (Sec. Sec.  
422.502 and 423.503)
    In April 2010, we clarified our authority to deny contract 
qualification applications from organizations that have failed to 
comply with the requirements of a Medicare Advantage or Part D plan 
sponsor contract they currently hold, even if the submitted application 
otherwise demonstrates that the organization meets the relevant program 
requirements. As part of that rulemaking, we established, at Sec.  
422.502(b)(1) and Sec.  423.503(b)(1), that we would review an 
applicant's prior contract performance for the 14-month period 
preceding the application submission deadline (see 75 FR 19684 through 
19686). We conduct that review in accordance with a methodology we 
publish each year \58\ and use to score each applicant's performance by 
assigning weights based on the severity of its non-compliance in 
several

[[Page 56441]]

performance categories. Under the annual contract qualification 
application submission and review process we conduct, organizations 
must submit their application by a date, usually in mid-February, 
announced by us. We now propose to reduce the past performance review 
period from 14 months to 12 months.
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    \58\ https://www.cms.gov/Medicare/Compliance-and-Audits/Part-C-and-Part-D-Compliance-and-Audits/Downloads/Final_2018_Application_Cycle_Past_Performance_Methodology.pdf.
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    We originally established the 14-month review period because it 
covered the time period from the start of the preceding contract year 
through the date on which CMS receives contract applications for the 
upcoming contract year. We believed at the time that the combination of 
the most recent complete contract year and the 2 months preceding the 
application submission provided us with the most complete picture of 
the most relevant information about an applicant's past contract 
performance. Our application of this authority since its publication 
has prompted comments from contracting organizations that the 14-month 
period is too long and is unfair as it is applied. In particular, 
organizations have noted that non-compliance that occurs during January 
and February of a given year is counted against an organization in 2 
consecutive past performance review cycles while non-compliance 
occurring in all other months is counted in only one review cycle. The 
result is that some non-compliance is ``double counted'' based solely 
on the timing of the non-compliance and can, depending on the severity 
of the non-compliance, prevent an organization from receiving CMS 
approval of their application for 2 consecutive years.
    Rather than creating a gap in the look-back period, as we were 
concerned in 2010, 75 FR 19685, we now believe a 12-month look-back 
period provides a more accurate period to consider. We believe it is 
still important to capture in each review cycle an applicant's most 
recent contract performance. Therefore, we propose to revise Sec.  
422.502(b)(1) and Sec.  423.503(b)(1) to reduce the review period from 
14 to 12 months. This would effectively establish a new review period 
for every application review cycle of March 1 of the year preceding the 
application submission deadline through February 28 (February 29 in 
leap years) of the year in which the application is submitted and would 
eliminate the counting of instances of non-compliance in January and 
February of each year in 2 separate application cycles. We also propose 
to have this review period change reflected consistently in the Part C 
and D regulation by revising the provisions of Sec.  422.502(b)(2) and 
Sec.  423.503(b)(2) to state that CMS may deny an application from an 
existing Medicare Advantage or Part D plan sponsor in the absence of a 
record of at least 12, rather than 14, months of Medicare contract 
performance by the applicant. We do not intend to change any other 
aspect of our consideration of past performance in the application 
process.
10. Preclusion List--Part D Provisions
a. Background
(1) 2014 Final Rule
    On May 23, 2014, we published a final rule in the Federal Register 
titled ``Medicare Program; Contract Year 2015 Policy and Technical 
Changes to the Medicare Advantage and the Medicare Prescription Drug 
Benefit Programs'' (79 FR 29844). Among other things, this final rule 
implemented section 6405(c) of the Affordable Care Act, which provides 
the Secretary with the authority to require that prescriptions for 
covered Part D drugs be prescribed by a physician enrolled in Medicare 
under section 1866(j) of the Act (42 U.S.C. 1395cc(j)) or an eligible 
professional as defined at section 1848(k)(3)(B) of the Act (42 U.S.C. 
1395w-4(k)(3)(B)). More specifically, the final rule revised Sec.  
423.120(c)(5) and added new Sec.  423.120(c)(6), the latter of which 
stated that for a prescription to be eligible for coverage under the 
Part D program, the prescriber must have (1) an approved enrollment 
record in the Medicare fee for service program (that is, original 
Medicare); or (2) a valid opt out affidavit on file with a Part A/Part 
B Medicare Administrative Contractor (A/B MAC).
    The purpose of this change was to help ensure that Part D drugs are 
prescribed only by qualified prescribers. In a June 2013 report titled 
``Medicare Inappropriately Paid for Drugs Ordered by Individuals 
Without Prescribing Authority'' (OEI-02-09-00608), the Office of 
Inspector General (OIG) found that the Part D program improperly paid 
for drugs prescribed by persons who did not appear to have the 
authority to prescribe. We also noted in the final rule the reports we 
received of prescriptions written by physicians with suspended licenses 
having been covered by the Part D program. These reports raised 
concerns within CMS about the propriety of Part D payments and the 
potential for Part D beneficiaries to be prescribed dangerous or 
unnecessary drugs by individuals who lack the authority or 
qualifications to prescribe medications. Given that the Medicare FFS 
provider enrollment process, as outlined in 42 CFR part 424, subpart P, 
collects identifying information about providers and suppliers who wish 
to enroll in Medicare, we believed that forging a closer link between 
Medicare's coverage of Part D drugs and the provider enrollment process 
would enable CMS to confirm the qualifications of the prescribers of 
such drugs. That is, requiring Part D prescribers to enroll in Medicare 
would provide CMS with sufficient information to determine whether a 
physician or eligible professional is qualified to prescribe Part D 
drugs.
    We stated in the May 23, 2014 final rule that the compliance date 
for our revisions to new Sec.  423.120(c)(6) would be June 1, 2015. We 
believed that this delayed date would give physicians and eligible 
professionals who would be affected by these provisions adequate time 
to enroll in or opt-out of Medicare. It would also allow CMS, A/B MACs, 
Medicare beneficiaries, and other impacted stakeholders sufficient 
opportunity to prepare for these requirements.
(2) 2015 Interim Final Rule
    On May 6, 2015, we published in the Federal Register an interim 
final rule with comment period (IFC) titled ``Medicare Program; Changes 
to the Requirements for Part D Prescribers'' (80 FR 25958). This IFC 
made changes to certain requirements outlined in the May 23, 2014 final 
rule related to beneficiary access to covered Part D drugs.
    First, we changed the compliance date of Sec.  423.120(c)(6) from 
June 1, 2015 to January 1, 2016. This was designed to give all affected 
parties more time to prepare for the additional provisions included in 
the IFC before Part D drugs prescribed by individuals who are neither 
enrolled in nor opted-out of Medicare are no longer covered.
    Second, we revised paragraph Sec.  423.120(c)(6)(ii) to address a 
gap in Sec.  423.120(c)(6) regarding certain types of prescribers; such 
prescribers included pharmacists who may be authorized under state law 
to prescribe medications but are ineligible to enroll in Medicare and 
thus, under Sec.  423.120(c)(6), would not have their prescriptions 
covered. Revised paragraph (c)(6)(ii) stated that pharmacy claims and 
beneficiary requests for reimbursement for Part D prescriptions written 
by prescribers other than physicians and eligible professionals who are 
nonetheless permitted by state or other applicable law to prescribe 
medications (defined in Sec.  423.100 as ``other authorized 
prescribers'') will not be rejected or denied, as applicable, by the 
pharmacy benefit manager (PBM) if all other requirements are met. This 
meant that

[[Page 56442]]

the enrollment requirement specified in Sec.  423.120(c)(6) would not 
apply to other authorized prescribers--that is, to individuals who are 
ineligible to enroll in or opt out of Medicare because they do not meet 
the statutory definition of ``physician'' or ``eligible professional'' 
yet who are otherwise legally authorized to prescribe drugs.
    Third, and to help ensure that beneficiaries would not experience a 
sudden lapse in Part D prescription coverage upon the January 1, 2016 
effective date, we added a new paragraph Sec.  423.120(c)(6)(v). This 
provision stated that a Part D sponsor or its PBM must, beginning on 
January 1, 2016 and upon receipt of a pharmacy claim or beneficiary 
request for reimbursement for a Part D drug that a Part D sponsor or 
PBM would otherwise be required to reject or deny, as applicable, under 
Sec.  423.120(c)(6):
     Provide the beneficiary with:
    ++ A 3-month provisional supply of the drug (as prescribed by the 
prescriber and if allowed by applicable law); and
    ++ Written notice within 3 business days after adjudication of the 
claim or request in a form and manner specified by CMS; and
     Ensure that reasonable efforts are made to notify the 
prescriber of a beneficiary who was sent the notice referred to in the 
previous paragraph.
    The 3-month provisional supply and written notice were intended to 
(1) notify beneficiaries that a future prescription written by the same 
prescriber would not be covered unless the prescriber enrolled in or 
opted-out of Medicare, and (2) give beneficiaries time to make 
arrangements to continue receiving the prescription if the prescriber 
of the medication did not intend to enroll in or opt-out of Medicare.
(3) Preparations for Enforcement of Part D Prescriber Enrollment 
Requirement
    Immediately after the publication of the previously mentioned May 
23, 2014 final rule, we undertook major efforts to educate affected 
stakeholders about the forthcoming enrollment requirement. Particular 
focus was placed on reaching out to Part D prescribers with information 
regarding (1) the overall purpose of the enrollment process; (2) the 
important program integrity objectives behind Sec.  423.120(c)(6); (3) 
the mechanisms by which prescribers may enroll in Medicare (for 
example, via the Internet based Provider Enrollment, Chain and 
Ownership System (PECOS); and (4) how to complete an enrollment 
application. Numerous prescribers have, in preparation for the 
enforcement of Sec.  423.120(c)(6), enrolled in or opted out of 
Medicare, and we are appreciative of their cooperation in this effort. 
However, based on internal CMS data, as of July 2016 approximately 
420,000 prescribers--or 35 percent of the total 1.2 million prescribers 
of Part D drugs--whose prescriptions for Part D drugs would be affected 
by the requirements of Sec.  423.120(c)(6) have yet to enroll or opt 
out. Of these prescribers, 32 percent are dentists, 11 percent are 
student trainees, 7 percent are nurse practitioners, 6 percent are 
pediatric physicians, and 5 percent are internal medicine physicians.
    Several provider organizations, moreover, have expressed concerns 
about the enrollment requirements. They have contended that (1) most 
prescribers pose no risk to the Medicare program; and (2) certain types 
of physicians and eligible professionals prescribe Part D drugs only 
very infrequently. Their general position, in short, is that the burden 
to the prescriber community would outweigh the payment safeguard 
benefits of Sec.  423.120(c)(6). After the publication of the IFC, and 
based on our desire to give prescribers and other stakeholders more 
time to prepare for the enrollment requirements, we announced a phased-
in enforcement of the enrollment requirements and stated that full 
enforcement would be delayed until January 1, 2019. (Information was 
posted at the following link: https://www.cms.gov/Medicare/Provider-Enrollment-and-Certification/MedicareProviderSupEnroll/Prescriber-Enrollment-Information.html.) However, the concerns of these provider 
organizations remain.
    We do recognize these concerns. We wish to reduce as much burden as 
possible for providers without compromising our program integrity 
objectives. In addition, over 400,000 prescribers remain unenrolled 
and, as a consequence, approximately 4.2 million Part D beneficiaries 
(based on analysis performed on 2015 and 2016 PDE data) could lose 
access to needed prescriptions when full enforcement of the enrollment 
requirement begins on January 1, 2019 unless their prescriber enrolls 
or opt outs or they change prescribers. We believe that an appropriate 
balance is possible between burden reduction and the need to protect 
Medicare beneficiaries and the Trust Funds. To this end, we propose 
several changes to Sec.  423.120(c)(6).
b. Proposed Provisions
    In accordance with section 1871 of the Act, within 3 years of the 
publication of the May 6, 2015 IFC, we must either publish a final rule 
or publish a notice of a different timeline. If we finalize the 
proposals described in this notice of proposed rulemaking, we would not 
finalize the provisions of the IFC. Instead, the proposals described in 
this publication would supersede our earlier rulemaking.
    The effective date of our proposed provisions in Sec.  
423.120(c)(5) would be 60 days after the publication of a final rule. 
The effective date of our proposed revisions to Sec.  423.120(c)(6) 
would be January 1, 2019.
(1) Prescriber NPI Validation on Part D Claims
(a) Provisions of Sec.  423.120(c)(5)
    Section 423.120(c)(5) states that before January 1, 2016, the 
following are applicable:
     In paragraph (c)(5)(i), we state that a Part D sponsor 
must submit to CMS only a prescription drug event (PDE) record that 
contains an active and valid individual prescriber NPI.
     In paragraph (c)(5)(ii), we state that a Part D sponsor 
must ensure that the lack of an active and valid individual prescriber 
NPI on a network pharmacy claim does not unreasonably delay a 
beneficiary's access to a covered Part D drug, by taking the steps 
described in paragraph (c)(5)(iii) of this section.
     In paragraph (c)(5)(iii), we state that the sponsor must 
communicate at point-of-sale whether or not a submitted NPI is active 
and valid in accordance with this paragraph (c)(5)(iii).
    ++ In paragraph (c)(5)(iii)(A), we state that if the sponsor 
communicates that the NPI is not active and valid, the sponsor must 
permit the pharmacy to (1) confirm that the NPI is active and valid; or 
(2) correct the NPI.
    ++ In paragraph (c)(5)(iii)(B), we state that if the pharmacy:
    ++ Confirms that the NPI is active and valid or corrects the NPI, 
the sponsor must pay the claim if it is otherwise payable; or
    ++ Cannot or does not correct or confirm that the NPI is active and 
valid, the sponsor must require the pharmacy to resubmit the claim 
(when necessary), which the sponsor must pay, if it is otherwise 
payable, unless there is an indication of fraud or the claim involves a 
prescription written by a foreign prescriber (where permitted by State 
law).
     In paragraph (c)(5)(iv), we state that a Part D sponsor 
must not later recoup payment from a network pharmacy for a claim that 
does not contain an active and valid individual prescriber NPI on the 
basis that it does not contain one, unless the sponsor--
    ++ Has complied with paragraphs (c)(5)(ii) and (iii) of this 
section;

[[Page 56443]]

    ++ Has verified that a submitted NPI was not in fact active and 
valid; and
    ++ The agreement between the parties explicitly permits such 
recoupment.
     In paragraph (c)(5)(v), we state that with respect to 
requests for reimbursement submitted by Medicare beneficiaries, a Part 
D sponsor may not make payment to a beneficiary dependent upon the 
sponsor's acquisition of an active and valid individual prescriber NPI, 
unless there is an indication of fraud. If the sponsor is unable to 
retrospectively acquire an active and valid individual prescriber NPI, 
the sponsor may not seek recovery of any payment to the beneficiary 
solely on that basis.
    These provisions, which focus on NPI submission and validation, are 
no longer effective because the January 1, 2016 end-date for their 
applicability has passed. Since that time, however, and as explained in 
detail in section (b)(1)(b) below, congressional legislation requires 
us to revisit some of the provisions in former paragraph (c)(5) and, as 
warranted, to re-propose them in what would constitute a new paragraph 
(c)(5). We believe that these new provisions would not only effectively 
implement the legislation in question but also enhance Part D program 
integrity by streamlining and strengthening procedures for ensuring the 
identity of prescribers of Part D drugs. This would be particularly 
important in light of our preclusion list proposals.
(b) Medicare Access and CHIP Reauthorization Act of 2015 (MACRA)
    MACRA was signed into law on April 16, 2015, just before the IFC 
was finalized. Section 507 of MACRA amends section 1860D-4(c) of the 
Act (42 U.S.C. 1395w-104(6)) by requiring that pharmacy claims for 
covered Part D drugs include prescriber NPIs that are determined to be 
valid under procedures established by the Secretary in consultation 
with appropriate stakeholders, beginning with plan year 2016.
    In light of the enactment of MACRA, on June 1, 2015, we issued a 
guidance memo, ``Medicare Prescriber Enrollment Requirement Update'' 
(memo). The memo noted that Sec.  423.120(c)(5) would no longer be 
applicable beginning January 1, 2016 due to the IFC we had just 
published, but that its provisions reflected certain existing Part D 
claims procedures established by the Secretary in consultation with 
stakeholders through the National Council for Prescription Drug 
Programs (NCPDP) that would comply with section 507 of MACRA, except 
one.
    The provisions in Sec.  423.120(c)(5) that reflected the procedures 
that would comply with section 507 of MACRA are the following:
     Paragraph (c)(5)(iii).
     Paragraph (c)(5)(iii)(A).
     Paragraph (c)(5)(iii)(B)(1). (Note that paragraph 
(c)(5)(iii)(B)(2) would not comply with section 507 because the sponsor 
has no evidence that the NPI is active or valid.)
     Paragraph (c)(5)(iv).
     Paragraph (c)(5)(v).
    Given this, we are proposing to include these provisions in new 
paragraph (c)(5). They would be enumerated as, respectively, new 
paragraphs (c)(5)(ii), (c)(5)(ii)(A), (c)(5)(ii)(B), (c)(5)(iii), and 
(c)(5)(iv). Current paragraphs (c)(5)(i), (c)(5)(ii), and 
(c)(5)(iii)(B)(2) would not be included in new paragraph (c)(5).
    We also note that in the May 6, 2015 IFC, we revised Sec.  
423.120(c)(6)(i) to require a Part D plan sponsor to reject, or require 
its pharmaceutical benefit manager (PBM) to reject, a pharmacy claim 
for a Part D drug, unless the claim contains the NPI of the prescriber 
who prescribed the drug. This provision, too, reflects existing Part D 
claims procedures and policies that comply with section 507 of MACRA. 
We thus propose to retain this provision and seek comment on associated 
burdens or unintended consequences and alternative approaches. However, 
we wish to move it from paragraph (c)(6) to paragraph (c)(5) so that 
most of the NPI provisions in Sec.  423.120 are included in one 
subsection. We believe this would improve clarity.
(2) Targeted Approach to Part D Prescribers
    We believe that the most effective means of reducing the burden of 
the Part D enrollment requirement on prescribers, Part D plan sponsors, 
and beneficiaries without compromising our payment safeguard aims would 
be to concentrate our efforts on preventing Part D coverage of 
prescriptions written by prescribers who pose an elevated risk to 
Medicare beneficiaries and the Trust Funds. In other words, rather than 
require the enrollment of Part D prescribers regardless of the possible 
level of risk posed, we propose to focus on preventing payment for Part 
D drugs prescribed by demonstrably problematic prescribers.
    There is precedent for such a risk based approach. For instance, 
consistent with Sec.  424.518, A/B MACs are required to screen 
applications for enrollment in accordance with a CMS assessment of risk 
and assignment to a level of ``limited,'' ``moderate,'' or ``high.'' 
Applications submitted by provider and supplier types that have 
historically posed higher risks to the Medicare program are subjected 
to a more rigorous screening and review process than those that present 
limited risks. Moreover, Sec.  424.518 states that providers and 
suppliers that have had certain adverse actions imposed against them, 
such as felony convictions or revocations of enrollment, are placed 
into the highest and most rigorous screening level. We recognize that 
the risk based approach in Sec.  424.518 applies to enrollment 
application screening rather than payment denials. However, we believe 
that using a risk-based approach would enable CMS to focus on 
prescribers who pose threats to the Medicare program and its 
beneficiaries, while minimizing the burden on those who do not. The 
process we envision and propose, which would replace the prescriber 
enrollment requirement outlined in Sec.  423.120(c)(6) with a claims 
payment-oriented approach, would consist of the following components:
     Step 1: We would research our internal systems and other 
relevant data for prescribers who have engaged in behavior for which 
CMS:
    ++ Has revoked the prescriber's enrollment and the prescriber is 
under a reenrollment bar; or
    ++ Could have revoked the prescriber (to the extent applicable) if 
he or she had been enrolled in Medicare.
    Concerning revocations, we have the authority to revoke a 
provider's or supplier's Medicare enrollment for any of the applicable 
reasons listed in Sec.  424.535(a). There are currently 14 such 
reasons. When revoked, the provider or supplier is barred under Sec.  
424.535(c) from reenrolling in Medicare for a period of 1 to 3 years, 
depending upon the severity of the underlying behavior. We have an 
obligation to protect the Trust Funds from providers and suppliers that 
engage in activities that could threaten the Medicare program, its 
beneficiaries, and the taxpayers. In light of the significance of 
behavior that could serve as grounds for revocation, we believe that 
prescribers who have engaged in inappropriate activities should be the 
focus of our Part D program integrity efforts under Sec.  
423.120(c)(6).
     Step 2--We would review, on a case-by-case basis, each 
prescriber who--
    ++ Is currently revoked from Medicare and is under a reenrollment 
bar. We would examine the reason for the prescriber's revocation.
    ++ Has engaged in behavior for which CMS could have revoked the

[[Page 56444]]

prescriber to the extent applicable if he or she had been enrolled in 
Medicare.
    The prescribers to be reviewed would be those who, according to PDE 
data and CMS' internal systems, are eligible to prescribe drugs covered 
under the Part D program. That is, our review would not be limited to 
those persons who are actually prescribing Part D drug, but would 
include those that potentially could prescribe drugs. We believe that 
the inclusion of these individuals in our review would help further 
protect the integrity of the Part D program.
    We are also seeking comment on an alternative by which we would 
first identify, through PDE data, those providers who are prescribing 
drugs to Medicare beneficiaries. This would significantly reduce the 
universe of prescribers who are on the preclusion list and reduce the 
government's surveillance of prescribers. We anticipate that this could 
create delays in our ability to screen providers due to data lags and 
may introduce some program integrity risks. We are particularly 
interested in hearing from the public on the potential risks this could 
pose to beneficiaries, especially in light of our efforts to address 
the opioids epidemic.
     Step 3--Based on the results of Steps 1 and 2, we would 
compile a ``preclusion list'' of prescribers who fall within either of 
the following categories:
    ++ Are currently revoked from Medicare, are under a reenrollment 
bar, and CMS determines that the underlying conduct that led to the 
revocation is detrimental to the best interests of the Medicare 
program.
    ++ Have engaged in behavior for which CMS could have revoked the 
prescriber to the extent applicable if he or she had been enrolled in 
Medicare, and CMS determines that the underlying conduct that would 
have led to the revocation is detrimental to the best interests of the 
Medicare program.
    We propose to adopt this preclusion list approach as an alternative 
to enrollment in part to reflect the more indirect connection of 
prescribers in the Medicare Part D program. We seek comment on whether 
some of the bases for revocation should not apply to the preclusion 
list in whole or in part and whether the final regulation (or future 
guidance) should specify which bases are or are not applicable and 
under what circumstances.
(i) Preclusion List
    Considering the program integrity risk that the two previously 
mentioned sets of prescribers present, we must be able to accordingly 
protect Medicare beneficiaries and the Trust Funds. We thus propose to 
revise Sec.  423.120(c)(6), as further specified in this proposed rule, 
to require that a Part D plan sponsor must reject, or must require its 
PBM to reject, a pharmacy claim (or deny a beneficiary request for 
reimbursement) for a Part D drug prescribed by an individual on the 
preclusion list. We believe we have the legal authority for such a 
provision because sections 1102 and 1871 of the Act provide general 
authority for the Secretary to prescribe regulations for the efficient 
administration of the Medicare program; also, section 1860D-12(b)(3)(D) 
of the Act authorizes the Secretary to add additional Part D contract 
terms as necessary and appropriate, so long as they are not 
inconsistent with the Part D statute. We note also that our proposal is 
of particular importance when considering the current nationwide opioid 
crisis. We believe that the inclusion of problematic prescribers on the 
preclusion list could reduce the amount of opioids that are improperly 
or unnecessarily prescribed by persons who pose a heightened risk to 
the Part D program and Medicare beneficiaries.
    All grounds for revocation under Sec.  424.535(a) reflect behavior 
or circumstances that are of concern to us. However, considering the 
variety of factual scenarios that CMS may come across, we believe it is 
necessary for CMS to have the flexibility to take into account the 
specific circumstances involved when determining whether the underlying 
conduct is detrimental to the best interests of the Medicare program. 
Accordingly, CMS would consider the following factors in making this 
determination:
     The seriousness of the conduct involved;
     The degree to which the prescriber's conduct could affect 
the integrity of the Part D program; and
     Any other evidence that CMS deems relevant to its 
determination.
    We emphasize that in situations where the prescriber was enrolled 
and then revoked, CMS' determination would not negate the revocation 
itself. The prescriber would remain revoked from Medicare.
    We also recognize that unique circumstances behind the potential or 
actual inclusion of a particular prescriber on the preclusion list 
could exist. Of foremost importance would be situations pertaining to 
beneficiary access to Part D drugs. We believe that we should have the 
discretion not to include (or, if warranted, to remove) a particular 
individual on the preclusion list (who otherwise meets the standards 
for said inclusion) should exceptional circumstances exist pertaining 
to beneficiary access to prescriptions. This could include 
circumstances similar to those described in section 1128(c)(3)(B) of 
the Act, whereby the Secretary may waive an OIG exclusion under section 
1128(a)(1), (a)(3), or (a)(4) of the in the case of an individual or 
entity that is the sole community physician or sole source of essential 
specialized services in a community. In making a determination as to 
whether such circumstances exist, we would take into account-- (1) the 
degree to which beneficiary access to Part D drugs would be impaired; 
and (2) any other evidence that CMS deems relevant to its 
determination.
    With respect to the foregoing, we solicit comment on the following 
issues:
    ++ Whether the actions referenced in Sec.  424.535(a) are 
appropriate grounds for inclusion on the preclusion list.
    ++ Whether actions other than those referenced in Sec.  424.535(a) 
should constitute grounds for inclusion on the preclusion and, if so, 
what those specific grounds are.
    ++ Suggestions for means of monitoring abusive prescribing 
practices and appropriate processes for including such prescribers on 
the preclusion list.
(b) Replacement of Enrollment Requirement With Preclusion List 
Requirement
    We are proposing to delete the current regulations that require 
prescribers to enroll in or opt out of Medicare for a pharmacy claim 
(or beneficiary request for reimbursement) for a Part D drug prescribed 
by a physician or eligible professional to be covered. We also propose 
to generally streamline the existing regulations because, given that we 
would no longer be requiring certain prescribers to enroll or opt out, 
we would no longer need an exception for ``other authorized 
providers,'' as defined in Sec.  423.100, for there would be no 
enrollment requirement from which to exempt them. Instead, we would 
require plan sponsors to reject claims for Part D drugs prescribed by 
prescribers on the preclusion list. We believe this latter approach 
would better facilitate our dual goals of reducing prescriber burden 
and protecting the Medicare program and its beneficiaries from 
prescribers who could present risks.
(ii) Updates to Preclusion List
    The preclusion list would be updated on a monthly basis. 
Prescribers would be added or removed from the list based on CMS' 
internal data that indicate, for instance: (1) Prescribers who have 
recently been convicted of a felony that,

[[Page 56445]]

consistent with Sec.  424.535(a)(33), CMS determines to be detrimental 
to the best interests of the Medicare program, and (2) prescribers 
whose reenrollment bars have expired. As a particular prescriber's 
status with respect to the preclusion list changes, the applicable 
provisions of Sec.  423.120(c)(6) would control. To illustrate, suppose 
a prescriber in March 2020 is convicted of a felony that CMS deems 
detrimental to Medicare's best interests. Pharmacy claims for 
prescriptions written by the individual would thus be rejected by Part 
D sponsors or their PBMs upon the prescriber being added to the 
preclusion list. Conversely, a prescriber who was revoked under Sec.  
424.535(a)(4) but whose reenrollment bar has expired would be removed 
from the preclusion list; claims for prescriptions written by the 
individual would therefore no longer be rejected based solely on his or 
her inclusion on the preclusion list. CMS would regularly review the 
preclusion list to determine whether certain individuals should be 
added to or removed therefrom based on changes to their status.
    Consistent with our application of a reenrollment bar to providers 
and suppliers that are enrolled in and then revoked from Medicare, we 
propose to keep an unenrolled prescriber on the preclusion list for the 
same length of time as the reenrollment bar that we could have imposed 
on the prescriber had he or she been enrolled and then revoked. For 
example, suppose an unenrolled prescriber engaged in behavior that, had 
he or she been enrolled, would have warranted a 2-year reenrollment 
bar. The prescriber would remain on the preclusion list for that same 
period of time. We note that in establishing such a time period, we 
would use the same criteria that we do in establishing reenrollment 
bars.
    Prescribers who were revoked from Medicare or, for unenrolled 
prescribers, engaged in behavior that could serve as a basis for an 
applicable revocation prior to the effective date of this rule (if 
finalized) could, if the requirements of Sec.  423.120(c)(6) are met, 
be added to the preclusion list upon said effective date even though 
the underlying action (for instance, felony conviction) occurred prior 
to that date. However, the Part D claim rejections by Part D sponsors 
and their PBMs under Sec.  423.120(c)(6) would only apply to claims for 
Part D prescriptions filled or refilled on or after the date he or she 
was added to the preclusion list; that is, sponsors and PBMs would not 
be required to retroactively reject claims based on the effective date 
of the revocation or, for unenrolled prescribers, the date of the 
behavior that could serve as a basis for an applicable revocation 
regardless of whether that date occurred before or after the effective 
date of this rule.
    We do seek comment on a reasonable time period for Part D sponsors/
PBMs to incorporate the preclusion list into their claims adjudication 
systems, and whether and how our proposed regulatory text needs to be 
modified to accommodate such a time period. We wish to avoid a 
situation where a Part D sponsor/PBM pays for prescriptions written by 
individuals on the preclusion list before the sponsors/PBMs have 
incorporated the list but later are unable to submit their PDEs, which 
CMS typically edits based on date of service.
(3) Provisional Coverage
    The current text of Sec.  423.120(c)(6)(v) states that a Part D 
sponsor or its PBM must, upon receipt of a pharmacy claim or 
beneficiary request for reimbursement for a Part D drug that a Part D 
sponsor would otherwise be required to deny in accordance with Sec.  
423.120(c)(6), furnish the beneficiary with (a) a provisional supply of 
the drug (as prescribed by the prescriber and if allowed by applicable 
law); and (b) written notice within 3 business days after adjudication 
of the claim or request in a form and manner specified by CMS. The 
purpose of this provisional supply requirement is to give beneficiaries 
notice that there is an issue with respect to future Part D coverage of 
a prescription written by a particular prescriber.
    Although CMS' proposed changes to Sec.  423.120(c)(6) would 
significantly reduce the number of affected prescribers and, by 
extension, the number of impacted beneficiaries, we remain concerned 
that beneficiaries who receive prescriptions written by individuals on 
the preclusion list might suddenly no longer have access to these 
medications without provisional coverage and without notice, which 
gives beneficiaries time to find a new prescriber. Therefore, we 
propose to maintain the provisional coverage requirement consistent 
with what was finalized in the IFC, but with a modification. 
Additionally, many commercial plans are pursuing policies to address 
the opioid epidemic, such as limiting the amount of initial opioid 
prescriptions. Given the opioid epidemic, we are considering other 
solutions for when a beneficiary tries to fill an opioid prescription 
from a provider on the preclusion list. We seek comment as to what 
limits or other guardrails CMS should set with respect to number of 
doses, initial dosing, and type of product for opioid prescriptions for 
particular clinical presentations (including acute pain, chronic pain, 
hospice setting and so forth).
    An alternative method of ensuring beneficiaries have access to 
opioids as necessary would be to require the sponsor immediately 
provide a transfer to a new provider when the first provider is on the 
preclusion list. The new provider should be able to make an assessment 
and either provide appropriate SUD treatment or continue the opioid or 
pain management regimen, as medically appropriate. We are interested to 
hear from commenters how to operationalize this and whether there is a 
better method to ensure appropriate medication is provided without 
transferring the beneficiary to a new provider. We are proposing a 90-
day provisional coverage period in lieu of a 3-month drug supply/90-day 
time period established in existing Sec.  423.120(c)(6), which was 
described on page 6 in the Technical Guidance on Implementation of the 
Part D Prescriber Enrollment Requirement (Technical Guidance) issued on 
December 29, 2015.\59\ Under the existing regulation (which, as noted 
above, we have not enforced), a sponsor or MA-PD must track a separate 
90-day consecutive time period for each drug covered as a provisional 
supply from the initial date-of-service; the sponsor or MA-PD must not 
reject a claim or deny a beneficiary's request for reimbursement until 
the 90-day time period has passed or a 3-month supply has been 
dispensed, whichever comes first. Under our proposal, however, a 
beneficiary would have one 90-day provisional coverage period with 
respect to an individual on the preclusion list. Accordingly, a 
sponsor/PBM would track one 90-day time period from the date the first 
drug is dispensed to the beneficiary pursuant to a prescription written 
by the individual on the preclusion list. This dispensing event would 
trigger a written notice and a 90-day time period for the beneficiary 
to fill any prescriptions from that particular precluded prescriber and 
to find another prescriber during that 90-day time period.
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    \59\ See https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovGenIn/Downloads/Technical-Guidance-on-Implementation-of-the-Part-D-Prescriber-Enrollment-Requirement.pdf.
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    Our rationale for this change is that individuals on the preclusion 
list are demonstrably problematic. This has negative implications not 
only for the Trust Funds but also for beneficiary safety. Thus, it is 
imperative that a beneficiary switch to a new prescriber who is not on 
the preclusion list as soon as practicable. Under the current

[[Page 56446]]

prescriber enrollment requirement, the vast majority of prescribers who 
are not enrolled in or opted-out of Medicare likely do not pose a risk 
to the beneficiary or the Trust Funds, and therefore we can allow a 3-
month provisional supply/90-day time period for each prescription 
written by such a prescriber. In addition, our proposed policy would 
eliminate the difficulty sponsors and PBMs have under the current ``per 
drug'' provisional supply policy in determining whether the beneficiary 
already received a provisional supply of a drug. We seek specific 
comment on the modifications we are proposing as to the provisional 
coverage and time period.
    With respect to beneficiaries who would also be entitled to a 
transition, we are not proposing any change to the current policy. If a 
Part D sponsor determines when adjudicating a pharmacy claim that a 
beneficiary is entitled to provisional coverage because the prescriber 
is on the preclusion list, but the drug is off-formulary and the 
transition requirements set forth in Sec.  423.120(b)(3) are also 
triggered, the beneficiary would not receive more than the applicable 
transition supply of the drug, unless a formulary exception is 
approved. We note that we considered proposing that the transition 
requirements would not apply during the provisional supply period in 
order to simplify the policy for situations when both apply to reduce 
beneficiary confusion. We seek comment on this or other alternatives 
for these situations.
    We intend to allow the normal Part D rules (for example, edits, 
prior authorization, quantity limits) to apply during the 90-day 
provisional coverage period, but solicit comment on whether different 
limits should apply when opioids are involved, particularly when the 
reason for precluding the provider/prescriber relates to opioid 
prescribing.
(4) Appeals
    In our revisions to Sec.  423.120(c)(6), we propose to permit 
prescribers who are on the preclusion list to appeal their inclusion on 
this list in accordance with 42 CFR part 498. We believe that given the 
aforementioned pharmacy claim rejections that would be associated with 
a prescriber's appearance on the preclusion list, due process warrants 
that the prescriber have the ability to challenge this via appeal. Any 
appeal under this proposed provision, however, would be limited 
strictly to the individual's inclusion on the preclusion list. The 
proposed appeals process would neither include nor affect appeals of 
payment denials or enrollment revocations, for there are separate 
appeals processes for these actions. In addition, wewould send written 
notice to the prescriber of his or her inclusion on the preclusion 
list. The notice would contain the reason for the inclusion and would 
inform the prescriber of his or her appeal rights. This is to ensure 
that the prescriber is duly notified of the action, why it was taken, 
and his or her ability to challenge our determination.
    Consistent with our proposed provision in Sec.  423.120(c)(6) 
regarding appeal rights, we propose to update several other regulatory 
provisions regarding appeals:
     We propose to revise Sec.  498.3(b) to add a new paragraph 
(20) stating that a CMS determination to include a prescriber on the 
preclusion list constitutes an initial determination. This revision 
would help enable prescribers to utilize the appeals processes 
described in Sec.  498.5.
     In Sec.  498.5, we propose to add a new paragraph (n) that 
would state as follows:
    ++ In paragraph (n)(1), we propose that any prescriber dissatisfied 
with an initial determination or revised initial determination that he 
or she is to be included on the preclusion list may request a 
reconsideration in accordance with Sec.  [thinsp]498.22(a).
    ++ In paragraph (n)(2), we propose that if CMS or the prescriber 
under paragraph (n)(1) is dissatisfied with a reconsidered 
determination under Sec.  498.5(n)(1), or a revised reconsidered 
determination under Sec.  498.30, CMS or the prescriber is entitled to 
a hearing before an administrative law judge (ALJ).
    ++ In paragraph (n)(3), we propose that if CMS or the prescriber 
under paragraph (n)(2) is dissatisfied with a hearing decision as 
described in paragraph (n)(2), CMS or the prescriber may request review 
by the Departmental Appeals Board (DAB) and the prescriber may seek 
judicial review of the DAB's decision.
    These revisions are designed to include preclusion list 
determinations within the scope of appeal rights described in Sec.  
498.5. However, we solicit comment on whether a different appeals 
process is warranted and, if so, what its components should be.
    In addition, given that a beneficiary's access to a drug may be 
denied because of the application of the preclusion list to his or her 
prescription, we believe the beneficiary should be permitted to appeal 
alleged errors in applying the preclusion list.
c. Specific Regulatory Changes
    Given the foregoing discussion, we propose the following regulatory 
changes:
     In Sec.  423.100, we propose to delete the definition of 
``other authorized prescriber'' and add the following:
    ++ Preclusion List means a CMS compiled list of prescribers who:
    (1) Meet all of the following requirements: (A) The prescriber is 
currently revoked from the Medicare program under Sec.  424.535.
    (B) The prescriber is currently under a reenrollment bar under 
Sec.  424.535(c).
    (C) CMS determines that underlying conduct that led to the 
revocation is detrimental to the best interests of the Medicare 
program. In making this determination under this paragraph, CMS 
considers the following factors:
    (i) The seriousness of the conduct underlying the prescriber's 
revocation;
    (ii) The degree to which the prescriber's conduct could affect the 
integrity of the Part D program; and
    (iii) Any other evidence that CMS deems relevant to its 
determination; or
    (2) Meet both of the following requirements:
    (i) The prescriber has engaged in behavior for which CMS could have 
revoked the prescriber to the extent applicable if he or she had been 
enrolled in Medicare.
    (ii) CMS determines that the underlying conduct that would have led 
to the revocation is detrimental to the best interests of the Medicare 
program. In making this determination under this paragraph, CMS 
considers the following factors:
    (i) The seriousness of the conduct involved.
    (ii) The degree to which the prescriber's conduct could affect the 
integrity of the Part D program; and
    (iii) Any other evidence that CMS deems relevant to its 
determination
     In paragraph (c)(5)(i), we propose that a Part D plan 
sponsor must reject, or must require its pharmacy benefit manager (PBM) 
to reject, a pharmacy claim for a Part D drug unless the claim contains 
the active and valid National Provider Identifier (NPI) of the 
prescriber who prescribed the drug. This requirement is consistent with 
existing policy.
     In paragraph (c)(5)(ii), we propose that the sponsor must 
communicate at point-of sale whether or not a submitted NPI is active 
and valid in accordance with this paragraph (c)(5)(ii).
     In paragraph (c)(5)(ii)(A), we propose that if the sponsor 
communicates that the NPI is not active and valid, the sponsor must 
permit the pharmacy to--

[[Page 56447]]

    ++ Confirm that the NPI is active and valid; or
    ++ Correct the NPI.
     In paragraph (c)(5)(ii)(B), we propose that if the 
pharmacy confirms that the NPI is active and valid or corrects the NPI, 
the sponsor must pay the claim if it is otherwise payable.
     In paragraph (iii), we propose that a Part D sponsor must 
not later recoup payment from a network pharmacy for a claim that does 
not contain an active and valid individual prescriber NPI on the basis 
that it does not contain one, unless the sponsor--
    ++ Has complied with paragraph (ii) of this section;
    ++ Has verified that a submitted NPI was not in fact active and 
valid; and
    ++ The agreement between the parties explicitly permits such 
recoupment.
     In paragraph (iv), we propose that with respect to 
requests for reimbursement submitted by Medicare beneficiaries, a Part 
D sponsor may not make payment to a beneficiary dependent upon the 
sponsor's acquisition of an active and valid individual prescriber NPI, 
unless there is an indication of fraud. If the sponsor is unable to 
retrospectively acquire an active and valid individual prescriber NPI, 
the sponsor may not seek recovery of any payment to the beneficiary 
solely on that basis.
     In paragraph (c)(6)(i), we propose to state: ``Except as 
provided in paragraph (c)(6)(iv) of this section, a Part D sponsor must 
reject, or must require its PBM to reject, a pharmacy claim for a Part 
D drug if the individual who prescribed the drug is included on the 
preclusion list, defined in Sec.  423.100.'' This would help ensure 
that Part D sponsors comply with our proposed requirement that claims 
involving prescribers who are on the preclusion list should not be 
paid.
     In paragraph (c)(6)(ii), we propose to state as follows: 
``Except as provided in paragraph (c)(6)(iv) of this section, a Part D 
sponsor must deny, or must require its PBM to deny, a request for 
reimbursement from a Medicare beneficiary if the request pertains to a 
Part D drug that was prescribed by an individual who is identified by 
name in the request and who is included on the preclusion list, defined 
in Sec.  423.100.'' As with paragraph (c)(6)(i), this would help ensure 
that Part D sponsors comply with our proposed requirement that payments 
not be made for prescriptions written by prescribers who are on the 
preclusion list.
     In paragraph (c)(6)(iii), we propose to state: ``A Part D 
plan sponsor may not submit a prescription drug event (PDE) record to 
CMS unless it includes on the PDE record the active and valid 
individual NPI of the prescriber of the drug, and the prescriber is not 
included on the preclusion list, defined in Sec.  423.100, for the date 
of service.'' This is to help ensure that-- (1) the prescriber can be 
properly identified, and (2) prescribers who are on the preclusion list 
are not included in PDEs.
     In paragraph (c)(6)(iv), we propose to address the 
provisional coverage period and notice provisions as follows:
    ``(iv)(A) A Part D sponsor or its PBM must not reject a pharmacy 
claim for a Part D drug under paragraph (c)(6)(i) of this section or 
deny a request for reimbursement under paragraph (c)(6)(ii) of this 
section unless the sponsor has provided the provisional coverage of the 
drug and written notice to the beneficiary required by paragraph 
(c)(6)(iv)(B) of this section.
    (B) Upon receipt of a pharmacy claim or beneficiary request for 
reimbursement for a Part D drug that a Part D sponsor would otherwise 
be required to reject or deny in accordance with paragraphs (c)(6)(i) 
or (ii) of this section, a Part D sponsor or its PBM must do the 
following: (1) Provide the beneficiary with the following, subject to 
all other Part D rules and plan coverage requirements:
    (i) A 90-day provisional supply coverage period during which the 
sponsor must cover all drugs dispensed to the beneficiary pursuant to 
prescriptions written by the individual on the preclusion list. The 
provisional supply period begins on the date-of-service the first drug 
is dispensed pursuant to a prescription written by the individual on 
the preclusion list.
    (ii) Written notice within 3 business days after adjudication of 
the first claim or request for the drug in a form and manner specified 
by CMS.
    (2) Ensure that reasonable efforts are made to notify the 
prescriber of a beneficiary who was sent a notice under paragraph 
(c)(6)(iv)(B)(1)(ii) of this section.''
     In new Sec.  423.120(c)(6)(v), we propose that CMS would 
send written notice to the prescriber via letter of his or her 
inclusion on the preclusion list. The notice would contain the reason 
for the inclusion on the preclusion list and would inform the 
prescriber of his or her appeal rights. A prescriber may appeal his or 
her inclusion on the preclusion list in accordance with 42 CFR part 
498.
     In new Sec.  423.120(c)(6)(vi), we propose that CMS has 
the discretion not to include a particular individual on (or, if 
warranted, remove the individual from) the preclusion list should it 
determine that exceptional circumstances exist regarding beneficiary 
access to prescriptions. In making a determination as to whether such 
circumstances exist, CMS would take into account--(1) the degree to 
which beneficiary access to Part D drugs would be impaired; and (2) any 
other evidence that CMS deems relevant to its determination.
     In Sec.  498.3(b), we propose to add a new paragraph (20) 
stating that a CMS determination that a prescriber is to be included on 
the preclusion list constitutes an initial determination.
     In Sec.  498.5, we propose to add a new paragraph (n) that 
would state as follows:
    ++ In paragraph (n)(1), we propose that any prescriber dissatisfied 
with an initial determination or revised initial determination that he 
or she is to be included on the preclusion list may request a 
reconsideration in accordance with Sec.  [thinsp]498.22(a).
    ++ In paragraph (n)(2), we propose that if CMS or the prescriber 
under paragraph (n)(1) is dissatisfied with a reconsidered 
determination under Sec.  498.5(n)(1), or a revised reconsidered 
determination under Sec.  498.30, CMS or the prescriber is entitled to 
a hearing before an ALJ.
    ++ In paragraph (n)(3), we propose that if CMS or the prescriber 
under paragraph (n)(2) is dissatisfied with a hearing decision as 
described in paragraph (n)(2), CMS or the prescriber may request review 
by the DAB and the prescriber may seek judicial review of the DAB's 
decision.
11. Preclusion List--Part C/Medicare Advantage Cost Plan and PACE 
Provisions
a. Background
(1) 2016 Final Rule
    On November 15, 2016, CMS published a final rule in the Federal 
Register titled ``Medicare Program; Revisions to Payment Policies Under 
the Physician Fee Schedule and Other Revisions to Part B for CY 2017; 
Medicare Advantage Bid Pricing Data Release; Medicare Advantage and 
Part D Medical Loss Ratio Data Release; Medicare Advantage Provider 
Network Requirements; Expansion of Medicare Diabetes Prevention Program 
Model; Medicare Shared Savings Program Requirements'' (81 FR 80169). 
This rule contained a number of requirements related to provider 
enrollment, including, but not limited to, the following:
     We added a new Sec.  422.222 to require providers and 
suppliers that furnish health care items or services to

[[Page 56448]]

a Medicare enrollee who receives his or her Medicare benefit through an 
MA organization to be enrolled in Medicare and be in an approved status 
no later than January 1, 2019. (The term ``MA organization'' refers to 
both MA plans and MA plans that provide drug coverage, otherwise known 
as MA-PD plans.) We also updated Sec. Sec.  417.478, 460.70, and 460.71 
to reflect this requirement.
     We added a requirement in new Sec.  422.204(b)(5) that 
required MA organizations to comply with the provider and supplier 
enrollment requirements referenced in Sec.  422.222. A similar 
requirement was added to Sec.  422.504.
     We revised Sec. Sec.  422.510, 422.752, 460.40, and 460.50 
to state that organizations and programs that do not ensure that 
providers and suppliers comply with the provider and supplier 
enrollment requirements may be subject to sanctions and termination.
     We revised Sec.  422.501 to require that MA organization 
applications include documentation demonstrating that all applicable 
providers and suppliers are enrolled in Medicare in an approved status. 
We believed that these new requirements, as they pertained to MA, were 
necessary to help ensure that Medicare enrollees receive items or 
services from providers and suppliers that are fully compliant with the 
requirements for Medicare enrollment. We also believed it would assist 
our efforts to prevent fraud, waste, and abuse, and to protect Medicare 
enrollees, by allowing us to carefully screen all providers and 
suppliers (especially those that potentially pose an elevated risk to 
Medicare) to confirm that they are qualified to furnish Medicare items 
and services. Indeed, although Sec.  422.204(a) requires MA 
organizations to have written policies and procedures for the selection 
and evaluation of providers and suppliers that conform with the 
credentialing and recredentialing requirements in Sec.  422.204(b), CMS 
has not historically had direct oversight over all network providers 
and suppliers under contract with MA organizations. While there are CMS 
regulations governing how and when MA organizations can pay for covered 
services, those are tied to statutory provisions. We concluded that 
requiring Medicare enrollment in addition to the existing MA 
credentialing requirements would permit a closer review of MA providers 
and suppliers, which could, as warranted, involve rigorous screening 
practices such as risk-based site visits and, in some cases, 
fingerprint-based background checks, an approach we already take in the 
Medicare Part A and Part B provider and supplier enrollment arenas. The 
fact that CMS also has access to information and data not available to 
MA organizations was also relevant to our decision.
(2) Preparations for Part C Enrollment
    As with our Part D enrollment requirement, we promptly commenced 
outreach efforts after the publication of the November 15, 2016 final 
rule. We communicated with Part C provider associations and MA 
organizations regarding, among other things, the general purpose of the 
enrollment process, the rationale for Sec.  422.222, and the mechanics 
of completing and submitting an enrollment application. According to 
recent CMS internal data, approximately 933,000 MA providers and 
suppliers are already enrolled in Medicare and meeting the MA provider 
enrollment requirements. However, roughly 120,000 MA-only providers and 
suppliers remain unenrolled in Medicare, and concerns have been raised 
by the MA community over the enrollment requirement, principally over 
the burden involved in enrolling in Medicare while having to also 
undergo credentialing by their respective health plans.
    We understand and share these concerns. We believe that the 
Medicare enrollment requirement could result in a duplication of effort 
and, consequently, impose a burden on MA providers and suppliers as 
well as MA organizations and beneficiaries in the form of limiting 
access to providers. While we maintain that Medicare enrollment, in 
conjunction with MA credentialing, is the most thorough means of 
confirming a provider's compliance with Medicare requirements and of 
verifying the provider's qualifications to furnish services and items, 
we believe that an appropriate balance can be achieved between this 
program integrity objective and the desire to reduce the burden on the 
provider and supplier communities. Given this, we propose to utilize 
the same ``preclusion list'' concept in MA that we are proposing for 
Part D (described in section III.B.9.) and to eliminate the current 
enrollment requirement in Sec.  422.222. We believe this approach would 
allow us to concentrate our efforts on preventing MA payment for items 
and services furnished by providers and suppliers that could pose an 
elevated risk to Medicare beneficiaries and the Trust Funds, an 
approach, as previously mentioned, similar to the risk-based process in 
Sec.  424.518. This would, we believe, minimize the burden on MA 
providers and suppliers.
b. Proposed Provisions
(1) Process
    The process we envision and propose would, similar to the proposed 
Part D process, consist of the following components:
     Step 1: We would research our internal systems and other 
relevant data for individuals and entities that have engaged in 
behavior for which CMS:
    ++ Has revoked the individual's or entity's enrollment and the 
individual or entity is under a reenrollment bar; or
    ++ Could have revoked the individual or entity to the extent 
applicable if they had been enrolled in Medicare.
    In light of the significance of any activity that would result in a 
revocation under Sec.  424.535(a), we believe that individual and 
entities that have engaged in inappropriate behavior should be the 
focus of our Part C program integrity efforts.
     Step 2--CMS would review, on a case-by-case basis, each 
individual and entity that:
    ++ Is currently revoked from Medicare and is under a reenrollment 
bar. We would examine the reason for the revocation.
    ++ Has engaged in behavior for which CMS could have revoked the 
individual or entity to the extent applicable if he or she had been 
enrolled in Medicare.
    Similar to our approach with Part D and for the same reason, the 
individuals and entities to be reviewed would be those that-- according 
to CMS' internal systems MA organization data, state board information, 
and other relevant data for individuals and entities who are or who 
could become eligible to furnish health care services or items. To 
avoid confusion, we refer to such parties in our proposed Part C 
preclusion list provisions as ``individuals'' and ``entities'' rather 
than ``providers'' and ``suppliers.'' This is because the latter two 
terms could convey the impression that the party in question must be 
actively furnishing health care services or items to be included on the 
preclusion list.
    Similar to the Part D approach, we are also seeking comment on an 
alternative by which CMS would first identify through encounter data 
those providers or suppliers furnishing services or items to Medicare 
beneficiaries. This would significantly reduce the universe of 
prescribers who are on the preclusion list and reduce the government's 
surveillance of prescribers. We

[[Page 56449]]

anticipate that this could create delays in CMS' ability to screen 
providers or suppliers due to data lags and may introduce some program 
integrity risks. We are particularly interested in hearing from the 
public on the potential risks this could pose to beneficiaries.
    Based on the results of Steps 1 and 2, we would compile a 
preclusion list of individuals and entities that fall within either of 
the following categories:
    ++ Are currently revoked from Medicare, are under a reenrollment 
bar, and CMS determines that the underlying conduct that led to the 
revocation is detrimental to the best interests of the Medicare 
program.
    ++ Have engaged in behavior for which CMS could have revoked the 
individual or entity to the extent applicable if they had been enrolled 
in Medicare, and CMS determines that the underlying conduct that would 
have led to the revocation is detrimental to the best interests of the 
Medicare program.
    We propose to update Sec.  422.2 to add a definition of 
``preclusion list'' consistent with both the foregoing discussion as 
well as our proposed definition of the same term for the Part D 
program.
    We propose to adopt this preclusion list approach as an alternative 
to enrollment in part to reflect the more indirect connection of 
providers and suppliers in Medicare Advantage. We seek comment on 
whether some of the bases for revocation should not apply to the 
preclusion list in whole or in part and whether the final regulation 
(or future guidance) should specify which bases are or are not 
applicable and under what circumstances.
    In addition, we note that while there would be separate regulatory 
provisions for Part C and Part D, there would not be two separate 
preclusion lists: one for Part C and one for Part D. Rather, there 
would be a single preclusion list that includes all affected 
individuals and entities. Having one joint list, we believe, would make 
the preclusion list process easier to administer.
    (2) Denial of Payment
    Section 422.222(a) currently states that providers or suppliers 
that are types of individuals or entities that can enroll in Medicare 
in accordance with section 1861 of the Act, must be enrolled in 
Medicare and be in an approved status in Medicare in order to provide 
health care items or services to a Medicare enrollee who receives his 
or her Medicare benefit through an MA organization. This requirement 
applies to all of the following providers and suppliers:
     Network providers and suppliers.
     First-tier, downstream, and related entities (FDR).
     Providers and suppliers in Cost HMOs or CMPs, as defined 
in 42 CFR part 417.
     Providers and suppliers participating in demonstration 
programs.
     Providers and suppliers in pilot program.
     Locum tenens suppliers.
     Incident-to suppliers.
    We propose to revise this requirement to state than an MA 
organization shall not make payment for an item or service furnished by 
an individual or entity that is on the preclusion list (as defined in 
Sec.  422.2). We also propose to remove the language beginning with 
``This requirement applies to all of the following providers and 
suppliers'' along with the list of applicable providers, suppliers, and 
FDRs. This is consistent with our previously mentioned intention to use 
the terms ``individuals'' and ``entities'' in lieu of ``providers'' and 
``suppliers.''
    We also propose that both basic and supplemental benefits should be 
subject to the payment prohibition that is tied to the preclusion list. 
We believe that restricting the payment prohibition to only one of 
these two categories would undercut the effectiveness of our preclusion 
list proposal.
    We solicit comment on the following issues:
    ++ Whether the actions referenced in Sec.  424.535(a) are 
appropriate grounds for inclusion on the preclusion list.
    ++ Whether actions other than those referenced in Sec.  424.535(a) 
should constitute grounds for inclusion on the preclusion and, if so, 
what those specific grounds are.
    ++ Suggestions for means of monitoring potentially abusive MA 
practices involving providers and suppliers, and appropriate processes 
for including such providers and suppliers on the preclusion list.
    As stated earlier in reference to prescribers, the preclusion list 
would be updated on a monthly basis. Individuals and entities would be 
added or removed from the list based on CMS' internal data or other 
informational sources that indicate, for instance-- (1) persons 
eligible to provide medical services who have recently been convicted 
of a felony that CMS determines to be detrimental to the best interests 
of the Medicare program; and (2) entities whose reenrollment bars have 
expired. As a particular individual's or entity's status with respect 
to the preclusion list changes, the applicable provisions of Sec.  
422.222 would control.
    Individuals and entities that were revoked from Medicare or, for 
unenrolled individuals and entities, had engaged in conduct that could 
serve as a basis for an applicable revocation prior to the effective 
date of this rule (if finalized) could, if the requirements of Sec.  
422.222(a) are met, be added to the preclusion list upon said effective 
date even though the underlying action (for instance, felony 
conviction) occurred prior to that date. The proposed payment denials 
under Sec.  422.222(a), however, would only apply to health care items 
or services furnished on or after the date the individual or entity was 
added to the preclusion list; that is, payment denials would not be 
made retroactive to the date of the revocation or, for unenrolled 
individuals and entities, the conduct that could serve as a basis for 
an applicable revocation occurring before the effective date of the 
final rule. Likewise, health care items and services furnished by 
individuals and entities revoked from Medicare or engaging in conduct 
that could serve as a basis for an applicable revocation after the 
rule's effective date and that are subsequently added to the preclusion 
list would not be subject to retroactive payment denials under Sec.  
422.222(a); only the date on which the affected individual or entity is 
added to the preclusion list would be used to determine payment and the 
start date of payment denials under this proposal. We believe that this 
approach is the most consistent with principles of due process.
(3) MA Organization Compliance
    Section 422.222 currently states that MA organizations that do not 
ensure that providers and suppliers comply with paragraph (a) may be 
subject to sanctions under Sec.  422.750 and termination under Sec.  
422.510. We propose to revise this to state that MA organizations that 
do not comply with paragraph (a) may be subject to sanctions under 
Sec.  422.750 and termination under Sec.  422.510. This is to help 
ensure that MA organizations do not make improper payments for items 
and services furnished by individuals and entities on the preclusion 
list.
(4) Related Revisions
    As discussed previously, in the November 15, 2016 final rule, we 
added or updated a number of other MA regulatory provisions (for 
example, Sec.  422.501 and 422.510) in order to fully incorporate our 
new enrollment requirements. Because we are proposing to replace these 
enrollment requirements with an approach centered upon a preclusion 
list--and to help

[[Page 56450]]

ensure that providers, suppliers, MA organizations, PACE organizations, 
and other applicable stakeholders comply with our proposed 
requirements--we believe that these other MA regulatory provisions must 
also be revised to reflect this change. To this end, we propose the 
following revisions:
     Section 422.204(a) states that an MA organization must 
have written policies and procedures for the selection and evaluation 
of providers and suppliers. These policies must conform with the 
credentialing and recredentialing requirements in Sec.  422.204(b). 
Under paragraph (b)(5), an MA organization must follow a documented 
process with respect to providers and suppliers that have signed 
contracts or participation agreements that ensures compliance with the 
provider and supplier enrollment requirements in Sec.  422.222. To 
achieve consistency with our preclusion list proposals and to help 
facilitate MA organizations' compliance therewith, we propose to:
    ++ Establish a new Sec.  422.204(c) that would require MA 
organizations to follow a documented process that ensures compliance 
with the preclusion list provisions in Sec.  422.222.
    ++ Delete Sec.  422.204(b)(5) because it applies to the Part C 
enrollment process, which we are proposing to eliminate. Further, 
revising paragraph (b)(5) to address the preclusion list requirements 
could cause confusion, for paragraph (b) references providers and 
suppliers. We thus believe that creating a new paragraph (c) would 
better clarify our expectations.
     In 42 CFR part 417, subpart L, we address certain 
contractual requirements concerning health maintenance organizations 
(HMOs) and competitive medical plans (CMPs) that contract with CMS to 
furnish covered services to Medicare beneficiaries. Under Sec.  
417.478(e), the contract between CMS and the HMO or CMP must, among 
other things, provide that the HMO or CMP agrees to comply with 
``Sections 422.222 and 422.224, which require all providers and 
suppliers that are types of individuals or entities that can enroll in 
Medicare in accordance with section 1861 of the Act, to be enrolled in 
Medicare in an approved status and prohibits payment to providers and 
suppliers that are excluded or revoked.'' Paragraph (e) adds that this 
requirement includes ``locum tenens suppliers and, if applicable, 
incident-to suppliers.''
    Furthermore, Sec.  417.484(b)(3) requires that the contract must 
provide that the HMO or CMP agrees to require all related entities to 
agree that ``All providers or suppliers that are types of individuals 
or entities that can enroll in Medicare in accordance with section 1861 
of the Act, are enrolled in Medicare in an approved status.'' We 
accordingly propose the following revisions:
    ++ We propose to revise Sec.  417.478(e) to state as follows:
    ++ In new paragraph (e)(1), we propose to state that the 
prohibitions, procedures and requirements relating to payment to 
individual and entities on the preclusion list (defined in Sec.  422.2 
of this part) apply to HMOs and CMPs that contract with CMS under 
section 1876 of the Act.
    ++ In new paragraph (e)(2), we propose to state that in applying 
the provisions of Sec. Sec.  422.2, 422.222, and 422.224 under 
paragraph (e)(1) of this section, references to part 422 of this 
chapter must be read as references to this part, and references to MA 
organizations as references to HMOs and CMPs.
    ++ We propose to revise Sec.  417.484(b)(3) to state: ``That 
payments must not be made to individuals and entities that are included 
on the preclusion list (as defined in Sec.  422.2).''
     In 42 CFR part 460, we address requirements relating to 
Programs of All-Inclusive Care for the Elderly (PACE). The PACE program 
is a state option under Medicaid to provide for Medicaid payments to, 
and coverage of benefits under, PACE. We propose to make the following 
changes to Part 460:
    ++ Section 460.40 states that, in addition to other remedies 
authorized by law, CMS may impose any of the sanctions specified in 
Sec. Sec.  460.42 and 460.46 if CMS determines that a PACE organization 
commits certain violations, one of which is outlined in paragraph (j) 
and reads: ``Employs or contracts with any provider or supplier that is 
a type of individual or entity that can enroll in Medicare in 
accordance with section 1861 of the Act, that is not enrolled in 
Medicare in an approved status.'' We propose to revise paragraph (j) to 
state: ``Makes payment to any individual or entity that is included on 
the preclusion list, defined in Sec.  422.2 of this chapter.''
    ++ Section 460.50(b) addresses grounds for which CMS or the state 
administering agency may terminate a PACE program agreement if CMS or 
the state administering agency determines that the conditions of 
paragraphs (b)(1) and (2) are met. In (b)(1), one of two conditions, 
outlined in paragraphs (b)(1)(i) and (ii), must be met. Paragraph 
(b)(1)(ii) states: ``The PACE organization failed to comply 
substantially with conditions for a PACE program or PACE organization 
under this part, or with terms of its PACE program agreement, including 
employing or contracting with any provider or supplier that are types 
of individuals or entities that can enroll in Medicare in accordance 
with section 1861 of the Act, that is not enrolled in Medicare in an 
approved status.'' We propose to revise paragraph (b)(1)(ii) by 
changing the current language beginning with ``including'' to read 
``including making payment to an individual or entity that is included 
on the preclusion list, defined in Sec.  422.2 of this chapter.'' We 
note that this change would not prohibit a PACE organization from 
employing or contracting with an individual or entity on the preclusion 
list. As previously discussed, the focus of our preclusion list 
proposals is on the denial of payment.
    ++ Section 460.68(a) lists certain categories of individuals who a 
PACE organization may not employ, as well as individuals and 
organizations with whom a PACE organization may not contract. Among 
these parties are those listed in paragraph (a)(4); specifically, those 
``that are not enrolled in Medicare in an approved status, if the 
providers or suppliers are of the types of individuals or entities that 
can enroll in Medicare in accordance with section 1861 of the Act.'' We 
propose to delete paragraph (a)(4), given our proposed removal of the 
Part C enrollment requirement.
    ++ Section 460.70(a) states that a PACE organization must have a 
written contract with each outside organization, agency, or individual 
that furnishes administrative or care-related services not furnished 
directly by the PACE organization, except for emergency services as 
described in Sec.  460.100; various requirements that a contract 
between a PACE organization and a contractor must meet are listed in 
Sec.  460.70(b). Paragraph (b)(1) states that the PACE organization 
must contract only with an entity that meets all applicable Federal and 
State requirements, including, but not limited to, those listed in 
paragraphs (b)(1)(i) through (iv). Paragraph (b)(1)(iv) reads: 
``Providers or suppliers that are types of individuals or entities that 
can enroll in Medicare in accordance with section 1861 of the Act, must 
be enrolled in Medicare and be in an approved status in Medicare in 
order to provide health care items or services to a PACE participant 
who receives his or her Medicare benefit through a PACE organization.'' 
Consistent with our proposed deletion of Sec.  460.68(a)(4), we propose 
to delete Sec.  460.70(b)(1)(iv). We note that we are not proposing to 
prohibit individuals and entities on the preclusion list from 
furnishing services

[[Page 56451]]

and items to PACE participants; we are merely proposing to prohibit 
payment for such services and items if provided by an individual or 
entity on the preclusion list.
    ++ Section 460.71(b) states that a PACE organization must develop a 
program to ensure that all staff furnishing direct participant care 
services meets the requirements outlined in paragraph (b). One of these 
requirements, listed in paragraph (b)(7), reads: ``Providers or 
suppliers that are types of individuals or entities that can enroll in 
Medicare in accordance with section 1861 of the Act, must be enrolled 
in Medicare and be in an approved status in Medicare in order to 
provide health care items or services to a PACE participant who 
receives his or her Medicare benefit through a PACE organization.'' 
Similar to our proposed deletion of Sec.  460.68(a)(4), we propose to 
delete paragraph (b)(7).
    ++ Section 460.86 addresses payments to excluded or revoked 
providers and suppliers as follows:
    ++ Paragraph (a) states that a PACE organization may not pay, 
directly or indirectly, on any basis, for items or services (other than 
emergency or urgently needed services as defined in Sec.  460.100) 
furnished to a Medicare enrollee by any individual or entity that is 
excluded by the Office of the Inspector General (OIG) or is revoked 
from the Medicare program.
    ++ Paragraph (b) states: ``If a PACE organization receives a 
request for payment by, or on behalf of, an individual or entity that 
is excluded by the OIG or is revoked from the Medicare program, the 
PACE organization must notify the enrollee and the excluded or revoked 
individual or entity in writing, as directed by contract or other 
direction provided by CMS, that payments will not be made. Payment may 
not be made to, or on behalf of, an individual or entity that is 
excluded by the OIG or is revoked from the Medicare program.''
    We propose to revise these paragraphs as follows:
    ++ Paragraph (a) would state: ``A PACE organization may not pay, 
directly or indirectly, on any basis, for items or services (other than 
emergency or urgently needed services as defined in Sec.  460.100) 
furnished to a Medicare enrollee by any individual or entity that is 
excluded by the Office of the Inspector General (OIG) or is included on 
the preclusion list, defined in Sec.  422.2 of this chapter.'' We are 
not proposing to include the current regulatory language ``or revoked'' 
in our revised paragraph. This is because, as outlined previously, 
there could be situations under revised Sec.  422.222 where a revoked 
individual or entity would not be included on the preclusion list.
    ++ Paragraph (b) would state: ``If a PACE organization receives a 
request for payment by, or on behalf of, an individual or entity that 
is excluded by the OIG or is included on the preclusion list, defined 
in Sec.  422.2 of this chapter, the PACE organization must notify the 
enrollee and the excluded individual or entity or the individual or 
entity included on the preclusion list in writing, as directed by 
contract or other direction provided by CMS, that payments will not be 
made. Payment may not be made to, or on behalf of, an individual or 
entity that is excluded by the OIG or is included on the preclusion 
list.''
     Section 422.501(c) states that in order to obtain a 
determination on whether it meets the requirements to become an MA 
organization and is qualified to provide a particular type of MA plan, 
an entity (or an individual authorized to act for the entity (the 
applicant)), must fully complete all parts of a certified application. 
As part of the application, paragraph (c)(1)(iv) requires 
``(d)ocumentation that all providers or suppliers in the MA or MA-PD 
plan that are types of individuals or entities that can enroll in 
Medicare in accordance with section 1861 of the Act, are enrolled in an 
approved status.'' Also, paragraph (c)(2) requires the following: ``The 
authorized individual must thoroughly describe how the entity and MA 
plan meet, or will meet, all the requirements described in this part, 
including providing documentation that all providers and suppliers 
referenced in Sec.  422.222 are enrolled in Medicare in an approved 
status.''
    We propose to:
    ++ Revise paragraph (c)(1)(iv) to read: ``Documentation that 
payment for health care services or items is not being and will not be 
made to individuals and entities included on the preclusion list, 
defined in Sec.  422.2.''
    ++ Revise paragraph (c)(2) to replace the language beginning with 
``including providing documentation . . . '' with ``including providing 
documentation that payment for health care services or items is not 
being and will not be made to individuals and entities included on the 
preclusion list, defined in Sec.  422.2.''
     Section 422.752(a) lists certain violations for which CMS 
may impose sanctions (as specified in Sec.  422.750(a)) on any MA 
organization with a contract. One violation, listed in paragraph 
(a)(13), is that the MA organization ``(f)ails to comply with Sec.  
422.222 and 422.224, that requires the MA organization to ensure that 
providers and suppliers are enrolled in Medicare and not make payment 
to excluded or revoked individuals or entities.'' We propose to revise 
paragraph (a)(13) to read: ``Fails to comply with Sec. Sec.  422.222 
and 422.224, that requires the MA organization not to make payment to 
excluded individuals or entities, nor to individuals or entities on the 
preclusion list, defined in Sec.  422.2.''
     Section 422.510(a)(4) lists various grounds by which CMS 
may terminate a contract with an MA organization. Paragraph 
(a)(4)(xiii) refers to the MA organization's failure ``to meet the 
preclusion list requirements in accordance with Sec. Sec.  422.222 and 
422.224.'' We propose to revise this paragraph to read: ``Fails to meet 
the preclusion list requirements in accordance with Sec. Sec.  422.222 
and 422.224.''
     Section 422.504 outlines provisions that the contract 
between the MA organization and CMS must contain. Under paragraph 
(a)(6), the MA organization must agree to adhere to, among other 
things, ``Medicare provider and supplier enrollment requirements.'' 
Pursuant to paragraph (i)(2)(v), moreover, the MA organization agrees 
to require all first tier, downstream, and related entities to agree 
that ``they will require all of their providers and suppliers to be 
enrolled in Medicare in an approved status consistent with Sec.  
422.222.'' We propose to revise these two paragraphs as follows:
    ++ Paragraph (a)(6) would be revised to replace the language 
``Medicare provider and supplier enrollment requirements'' with ``the 
preclusion list requirements in 422.222.''
    ++ Paragraph (i)(2)(v) would be revised to replace the language 
following ``they will'' with ``ensure that payments are not made to 
individuals and entities included on the preclusion list, defined in 
Sec.  422.2.''
     Section 422.224, which applies to MA organizations and 
pertains to payments to excluded or revoked providers or suppliers, 
contains provisions very similar to those in Sec.  460.86:
    ++ Paragraph (a) states that an MA organization ``may not pay, 
directly or indirectly, on any basis, for items or services (other than 
emergency or urgently needed services as defined in Sec.  422.113) 
furnished to a Medicare enrollee by any individual or entity that is 
excluded by the Office of the Inspector General (OIG) or is revoked 
from the Medicare program except as provided.''
    ++ Paragraph (b) states: ``If an MA organization receives a request 
for

[[Page 56452]]

payment by, or on behalf of, an individual or entity that is excluded 
by the OIG or is revoked from the Medicare program, the MA organization 
must notify the enrollee and the excluded or revoked individual or 
entity in writing, as directed by contract or other direction provided 
by CMS, that payments will not be made. Payment may not be made to, or 
on behalf of, an individual or entity that is excluded by the OIG or is 
revoked in the Medicare program.
    We propose to revise these paragraphs as follows:
    ++ Paragraph (a) would state: ``An MA organization may not pay, 
directly or indirectly, on any basis, for items or services (other than 
emergency or urgently needed services as defined in Sec.  422.113 of 
this chapter) furnished to a Medicare enrollee by any individual or 
entity that is excluded by the Office of the Inspector General (OIG) or 
is included on the preclusion list, defined in Sec.  422.2.
    ++ Paragraph (b) would state: ``If an MA organization receives a 
request for payment by, or on behalf of, an individual or entity that 
is excluded by the OIG or an individual or entity that is included on 
the preclusion list, defined in Sec.  422.2, the MA organization must 
notify the enrollee and the excluded individual or entity or the 
individual or entity included on the preclusion list in writing, as 
directed by contract or other direction provided by CMS, that payments 
will not be made. Payment may not be made to, or on behalf of, an 
individual or entity that is excluded by the OIG or is included on the 
preclusion list.''
    In addition to the aforementioned proposals, CMS proposes to amend 
existing data submission requirements for risk adjustment to require MA 
organizations to include provider NPIs as part of encounter data 
submissions; CMS intends to use the NPI data to identify individuals 
and entities that, depending on the results of CMS investigation, may 
be included on the preclusion list proposed in this section. Pursuant 
to section 1853(a)(1)(C) and (a)(3)(B) of the Act, CMS adjusts the 
capitation rates paid to MA organizations to account for such risk 
factors as age, disability status, gender, institutional status, and 
health status and requires MA organizations to submit data regarding 
the services provided to MA enrollees. Implementing regulations at 42 
CFR 422.310 set forth the requirements for the submission of risk 
adjustment data that CMS uses to risk-adjust payments. MA organizations 
must submit data, in accordance with CMS instructions, to characterize 
the context and purposes of items and services provided to their 
enrollees by a provider, supplier, physician, or other practitioner 
(OMB Control No. 0938-1152). Currently, risk adjustment data is 
submitted in two formats: comprehensive data equivalent to Medicare 
fee-for-service claims data (often referred to as encounter data); and 
data in abbreviated formats (often referred to as RAPS data).
    CMS requires that MA organizations and other entities submit 
encounter data using the X12 837 5010 format to fulfill the reporting 
requirements at 42 CFR 422.310, where ``X12'' refers to healthcare 
transactions, ``837'' refers to an electronic format for institutional 
(``837-I'') and professional (``837-P'') encounters, and ``5010'' 
refers to the most recent version of this national standard. The X12 
837 5010 is one of the national standard HIPAA transaction and code set 
formats for electronic transmission of healthcare transactions. Records 
that MA organziations and other submitters send to CMS in the X12 837 
5010 format are known as ``encounter data records.''
    One of the required data elements on the X12 837 5010 encounter 
data record is the ``Billing Provider.'' The Billing Provider is 
identified through several data fields (for example, name field and 
address field), but a key data field for identifying the Billing 
Provider is the National Provider Identifier (NPI). The NPI was 
established as a national standard for a unique health identifier for 
health care providers, as part of HIPAA Administrative Simplification 
efforts for electronic transactions among trading partners. CMS 
announced its decision to implement the NPI for Medicare, in the final 
rule 69 FR 3434, published January 23, 2004. Billing Provider NPIs are 
required for X12N 837 5010 transactions (both institutional and 
professional), as established in the national implementation guides 
(known by the shorthand ``TR3 guides''): Standards for Electronic Data 
Interchange Technical Report Type 3, Health Care Claim: Institutional 
(837) and Standards for Electronic Data Interchange Technical Report 
Type 3, Health Care Claim: Professional (837). However, CMS has not 
incorporated this Billing Provider NPI requirement into its Part C MA 
regulations for submission of risk adjustment data. CMS has 
incorporated the Part D program requirement that plan sponsors submit 
NPIs on the Prescription Drug Event Record (77 FR 22072, published 
April 12, 2012).
    We are proposing to amend Sec.  422.310 by adding a new paragraph 
(d)(5) to require that, for data described in paragraph (d)(1) as data 
equivalent to Medicare fee-for-service data (which is also known as MA 
encounter data), MA organizations must submit a National Provider 
Identifier in a Billing Provider field on each MA encounter data 
record, per CMS guidance. While the NPI is a required data element for 
the X12 837 5010 format (as set forth in the TR3 guides cited in the 
Background), CMS has not codified a regulatory requirement that MA 
organizations include the Billing Provider NPI in encounter data 
records. The proposed amendment would implement that requirement.
    We propose to include the phrase ``per CMS guidance'' to allow CMS 
to take into account situations where there is no bill (no claim for 
payment) in an MA organization's system. For example, CMS allows 
submission of chart review records (also submitted to CMS in the X12 
837 5010 format) only for the purpose of submitting, correcting, and 
deleting diagnoses from encounter data records for the purposes of risk 
adjustment payment, based on medical record reviews (chart reviews). 
Thus, chart review records and encounters that are capitated (when 
there is no bill) would have different guidance for populating the 
Billing Provider NPI field than encounters for which a bill was 
received and adjudicated by the MA organization.
(5) Appeals
    We propose to add a provision to Sec.  422.222(a) that would permit 
individuals or entities that are on the preclusion list to appeal their 
inclusion on this list in accordance with 42 CFR part 498. Given the 
aforementioned payment denial that would ensue with the individual's or 
entity's inclusion on the preclusion list, due process warrants that 
the individual or entity have the ability to appeal this initial 
determination. Any appeal under this proposed provision, however, would 
be limited strictly to the individual's or entity's inclusion on the 
preclusion list. It would neither include nor affect appeals of payment 
denials or enrollment revocations, for there are separate appeals 
processes for these actions. Individuals and entities that file an 
appeal pursuant to Sec.  422.222(a) would be able to avail themselves 
of any other appeals processes permitted by law.
    CMS would send written notice to the individual or entity of their 
inclusion on the preclusion list. The notice would contain the reason 
for the inclusion and would inform the individual or entity of their 
appeal rights.

[[Page 56453]]

    We also propose to update the following regulatory provisions 
regarding appeals. Note that these provisions would include references 
to preclusion list inclusions under Sec.  422.222 (MA) and, as 
previously mentioned, Sec.  423.120(c)(6).
     We propose to revise Sec.  498.3(b) to add a new paragraph 
(20) stating that a CMS determination that an individual or entity is 
to be included on the preclusion list constitutes an initial 
determination. This change would help enable individuals and entities 
to utilize the appeals processes described in Sec.  498.5:
     In Sec.  498.5, we propose to add a new paragraph (n) that 
would state as follows:
    ++ In paragraph (n)(1), we propose that any individual or entity 
dissatisfied with an initial determination or revised initial 
determination that they are to be included on the preclusion list may 
request a reconsideration in accordance with Sec.  [thinsp]498.22(a).
    ++ In paragraph (n)(2), we propose that if CMS or the individual or 
entity under paragraph (n)(1) is dissatisfied with a reconsidered 
determination under Sec.  498.5(n)(1), or a revised reconsidered 
determination under Sec.  498.30, CMS or the individual or entity is 
entitled to a hearing before an ALJ.
    ++ In paragraph (n)(3), we propose that if CMS or the individual or 
entity under paragraph (n)(2) is dissatisfied with a hearing decision 
as described in paragraph (n)(2), CMS or the individual or entity may 
request review by the Departmental Appeals Board (DAB) and the 
individual or entity may seek judicial review of the DAB's decision.
    These revisions are designed to include preclusion list 
determinations within the scope of appeal rights described in Sec.  
498.5. However, we solicit comment on whether a different appeals 
process is warranted and, if so, what its components should be.
    In addition, given that a beneficiary's access to health care items 
or services may be impaired because of the application of the 
preclusion list to his or her item or service, we believe the 
beneficiary should be permitted to appeal alleged errors in applying 
the preclusion list. We solicit comment whether additional beneficiary 
protections, such as notices to enrollees when an individual or entity 
that has recently furnished services or items to the enrollee is placed 
on the preclusion list or a limited and temporary coverage approval 
when an individual or entity is first placed on the preclusion list but 
is in the middle of a course of previously covered treatment, should 
also be included these rules upon finalization.
(6) Technical Changes
    The title of Sec.  422.222 reads: ``Enrollment of MA organization 
network providers and suppliers; first-tier, downstream, and related 
entities (FDRs); cost HMO or CMP, and demonstration and pilot 
programs.'' We propose to change this to simply state ``Preclusion 
list'' so as to accord with our previously mentioned proposed changes. 
For this same reason, we propose to:
    ++ Change the title of Sec.  422.224 from ``Payment to providers or 
suppliers excluded or revoked'' to ``Payment to individuals and 
entities excluded by the OIG or included on the preclusion list.''
    ++ Change the title of Sec.  460.86 from ``Payment to providers or 
suppliers excluded or revoked'' to ``Payment to individuals or entities 
excluded by the OIG or included on the preclusion list.''
c. Specific Regulatory Changes
    Given the foregoing discussion, we propose the following regulatory 
changes:
     In Sec.  417.478, we propose to revise paragraph (e) as 
follows:
    ++ In new paragraph (e)(1), we propose to state that the 
prohibitions, procedures and requirements relating to payment to 
individuals and entities on the preclusion list (defined in Sec.  422.2 
of this chapter) apply to HMOs and CMPs that contract with CMS under 
section 1876 of the Act.
    ++ In new paragraph (e)(2), we propose to state that in applying 
the provisions of Sec. Sec.  422.2, 422.222, and 422.224 under 
paragraph (e)(1) of this section, references to part 422 of this 
chapter must be read as references to this part, and references to MA 
organizations as references to HMOs and CMPs.
     In Sec.  417.484, we propose to revise paragraph (b)(3) to 
state: ``That payments must not be made to individuals and entities 
included on the preclusion list, defined in Sec.  422.2.''
     In Sec.  422.2, we propose to add a definition of 
``preclusion list'' that reads as follows:
    ++ Preclusion list means a CMS compiled list of individuals and 
entities that:
    (1) Meet all of the following requirements:
    (i) The individual or entity is currently revoked from Medicare 
under Sec.  424.535.
    (ii) The individual or entity is currently under a reenrollment bar 
under Sec.  424.535(c).
    (iii) CMS determines that the underlying conduct that led to the 
revocation is detrimental to the best interests of the Medicare 
program. In making this determination under this paragraph, CMS would 
consider the following factors:
    (A) The seriousness of the conduct underlying the individual's or 
entity's revocation.
    (B) The degree to which the individual's or entity's conduct could 
affect the integrity of the Medicare program.
    (C) Any other evidence that CMS deems relevant to its 
determination; or
    (2) Meet both of the following requirements:
    (i) The individual or entity has engaged in behavior for which CMS 
could have revoked the individual or entity to the extent applicable 
had they been enrolled in Medicare.
    (ii) CMS determines that the underlying conduct that would have led 
to the revocation is detrimental to the best interests of the Medicare 
program. In making this determination under this paragraph, CMS 
considers the following factors:
    (i) The seriousness of the conduct involved.
    (ii) The degree to which the individual's or entity's conduct could 
affect the integrity of the Medicare program; and
    (iii) Any other evidence that CMS deems relevant to its 
determination
     We propose to delete Sec.  422.204(b)(5).
     We propose to establish a new Sec.  422.204(c) that would 
require MA organizations to follow a documented process that ensures 
compliance with the preclusion list provisions in Sec.  422.222.
     We propose to delete the existing version of Sec.  
422.222(a) and replace it with the following:
    ++ In Sec.  422.222, we propose to change the title thereof to 
``Preclusion list''.
    ++ In paragraph (a)(1), we propose to state that an MA organization 
shall not make payment for a health care item or service furnished by 
an individual or entity that is included on the preclusion list, 
defined in Sec.  422.2.
    ++ In paragraph (a)(2), we propose to replace the existing language 
therein with a provision stating that CMS would send written notice to 
the individual or entity via letter of their inclusion on the 
preclusion list. The notice would contain the reason for the inclusion 
and would inform the individual or entity of their appeal rights. An 
individual or entity may appeal their inclusion on the preclusion list, 
defined in Sec.  422.2, in accordance with Part 498.
    ++ In paragraph (b), we propose to state that an MA organization 
that does

[[Page 56454]]

not comply with paragraph (a) of Sec.  422.222 may be subject to 
sanctions under Sec.  422.750 and termination under Sec.  422.510.
     In Sec.  422.224, we propose to:
    ++ Change the title thereof to ``Payment to individuals and 
entities excluded by the OIG or included on the preclusion list.''
    ++ Revise paragraph (a) to state: ``An MA organization may not pay, 
directly or indirectly, on any basis, for items or services (other than 
emergency or urgently needed services as defined in Sec.  422.113 of 
this chapter) furnished to a Medicare enrollee by any individual or 
entity that is excluded by the Office of the Inspector General (OIG) or 
is included on the preclusion list, defined in Sec.  422.2''.
    ++ Revise paragraph (b) to state: ``If an MA organization receives 
a request for payment by, or on behalf of, an individual or entity that 
is excluded by the OIG or an individual or entity that is included on 
the preclusion list, defined in Sec.  422.2, the MA organization must 
notify the enrollee and the excluded individual or entity or the 
individual or entity included on the preclusion list in writing, as 
directed by contract or other direction provided by CMS, that payments 
will not be made. Payment may not be made to, or on behalf of, an 
individual or entity that is excluded by the OIG or is included on the 
preclusion list.''
     We propose to revise Sec.  422.310 to add a new paragraph 
(d)(5) to require that, for data described in paragraph (d)(1) as data 
equivalent to Medicare fee-for-service data (which is also known as MA 
encounter data), MA organizations must submit a National Provider 
Identifier in a Billing Provider field on each MA encounter data 
record, per CMS guidance.
     In Sec.  422.501(c), we propose to:
    ++ Revise paragraph (c)(1)(iv) to read: ``Documentation that 
payment for health care services or items is not being and will not be 
made to individuals and entities included on the preclusion list, 
defined in Sec.  422.2.''
    ++ Revise paragraph (c)(2) to replace the language beginning with 
``including providing documentation . . .'' with ``including providing 
documentation that payment for health care services or items is not 
being and will not be made to individuals and entities included on the 
preclusion list, defined in Sec.  422.2.''
     In section 422.504, we propose to:
    ++ Replace the language in paragraph (a)(6) that reads ``Medicare 
provider and supplier enrollment requirements'' with ``the preclusion 
list requirements in Sec.  422.222 and Sec.  422.224.''
    ++ Revise paragraph (i)(2)(v) to read, ``they will ensure that 
payments are not made to individuals and entities included on the 
preclusion list, defined in Sec.  422.2.''
     In Sec.  422.510(a)(4), we propose to revise paragraph 
(xiii) to read: ``Fails to meet the preclusion list requirements in 
accordance with Sec. Sec.  422.222 and 422.224.''
     In Sec.  422.752, we propose to revise paragraph (a)(13) 
to read: ``Fails to comply with Sec. Sec.  422.222 and 422.224, that 
requires the MA organization not to make payment to excluded 
individuals and entities, nor to individuals and entities included on 
the preclusion list, defined in Sec.  422.2.''
     In Sec.  460.40, we propose to revise paragraph (j) to 
state: ``Makes payment to any individual or entity that is included on 
the preclusion list, defined in Sec.  422.2 of this chapter.''
     In Sec.  460.50, we propose to revise paragraph (b)(1)(ii) 
by changing the current language following ``including'' to read 
``making payment to an individual or entity that is included on the 
preclusion list, defined in Sec.  422.2 of this chapter.'' ''
     We propose to delete Sec.  460.68(a)(4).
     We propose to delete Sec.  460.70(b)(1)(iv).
     We propose to delete Sec.  460.71(b)(7).
     In Sec.  460.86, we propose to revise paragraphs (a) and 
(b) to state as follows:
    ++ Paragraph (a) would state: ``A PACE organization may not pay, 
directly or indirectly, on any basis, for items or services (other than 
emergency or urgently needed services as defined in Sec.  460.100) 
furnished to a Medicare enrollee by any individual or entity that is 
excluded by the OIG or is included on the preclusion list, defined in 
Sec.  422.2 of this chapter.''
    ++ Paragraph (b) would state: ``If a PACE organization receives a 
request for payment by, or on behalf of, an individual or entity that 
is excluded by the OIG or is included on the preclusion list, defined 
in Sec.  422.2 of this chapter, the PACE organization must notify the 
enrollee and the excluded individual or entity or the individual or 
entity that is included on the preclusion list in writing, as directed 
by contract or other direction provided by CMS, that payments will not 
be made. Payment may not be made to, or on behalf of, an individual or 
entity that is excluded by the OIG or is included on the preclusion 
list.''
    ++ We also propose to change the title of Sec.  460.86 to ``Payment 
to individuals and entities that are excluded by the OIG or are 
included on the preclusion list.''
     In Sec.  498.3(b), we propose to add a new paragraph (20) 
stating that a CMS determination that an individual or entity is to be 
included on the preclusion list constitutes an initial determination.
     In Sec.  498.5, we propose to add a new paragraph (n) that 
would state as follows:
    ++ In paragraph (n)(1), we propose that any individual or entity 
dissatisfied with an initial determination or revised initial 
determination that they are to be included on the preclusion list may 
request a reconsideration in accordance with Sec.  [thinsp]498.22(a).
    + In paragraph (n)(2), we propose that if CMS or the individual or 
entity under paragraph (n)(1) is dissatisfied with a reconsidered 
determination under (n)(1), or a revised reconsidered determination 
under Sec.  498.30, CMS or the individual or entity is entitled to a 
hearing before an ALJ.
    ++ In paragraph (n)(3), we propose that if CMS or the individual or 
entity under paragraph (n)(2) is dissatisfied with a hearing decision 
as described in paragraph (n)(2), CMS or the individual or entity may 
request review by the DAB and the individual or entity may seek 
judicial review of the DAB's decision.
12. Removal of Quality Improvement Project for Medicare Advantage 
Organizations (Sec.  422.152)
    Section 1852(e) of the Act requires that Medicare Advantage (MA) 
organizations have an ongoing Quality Improvement (QI) Program for the 
purpose of improving the quality of care provided to enrollees in the 
organization's MA plans. The statute requires that the MA organization 
include a Chronic Care Improvement Program (CCIP) as part of the 
overall QI Program
    Our regulations at Sec.  422.152 outline the QI Program 
requirements for MA organizations, which include the development and 
implementation of both Quality Improvement Projects (QIPs), at 
paragraphs (a)(3) and (d), and a CCIP, at paragraphs (a)(2) and (c). 
Both provisions require that the MA organization's QIP and CCIP address 
areas or populations identified by CMS.
    The January 2005 final rule (70 FR 4587) addressed the QI 
provisions added to section 1852(e) of the Act by the Medicare 
Modernization Act of 2003 (MMA). In the final rule, we specified in 
Sec.  422.152 that MA organizations must have ongoing QI Programs, 
which include chronic care programs. In addition, CMS provided MA 
organizations the flexibility to shape their QI efforts to the needs of 
their enrollees.

[[Page 56455]]

    In the April 2010 final rule (75 FR 19677), CMS indicated concern 
that MA organizations were choosing QIPs and CCIPs that did not address 
QI areas that best reflected enrollee needs. Additionally, there were 
concerns that some projects focused more on improving processes rather 
than improving clinical outcomes. Therefore, we modified the regulation 
to provide for CMS to identify focus areas for QIPs and population 
areas for CCIPs. MA organizations retained the flexibility to identify 
topics for development of QIPs and CCIPs based on the needs of their 
population, but also had to implement QIPs and CCIPs as directed by 
CMS, which could identify general areas of focus that supported CMS 
quality strategies and initiatives.
    During this time, CMS was also concerned that MA organizations were 
employing inconsistent methods in developing criteria for QIPs and 
CCIPs. As a result, CMS further modified the regulation to require MA 
organizations to report progress in a manner identified by CMS. This 
allowed CMS to review results and extrapolate lessons learned and best 
practices consistently across the MA program.
    After making these regulation modifications, CMS issued a number 
sub-regulatory QIP and CCIP guidance documents to ensure that MA 
organizations measured progress in a consistent and meaningful way. For 
example, the new Plan-Do-Study-Act QI model required MA organizations 
to place some structure and parameters around their QIPs and CCIPs, 
ultimately leading to more consistency.
    Over time, CMS found its implementation of the QIP and CCIP 
requirements had become burdensome and complex, rather than 
streamlining and conforming MA organizations' implementation of QIPs 
and CCIPs. For example, the complex sub-regulatory guidance led to a 
wide range of MA organization interpretations, resulting in extraneous, 
irrelevant, voluminous, and redundant information being reported to 
CMS. We gained little value from this information. As a result, we 
scaled down our sub-regulatory guidance in order to gain more concise 
and useful information with which to evaluate the outcomes and show any 
sort of attribution. However, we also found that the complex guidance 
did not necessarily produce better outcomes in the review of annual 
updates.
    Continued evaluation through annual review of plan reported updates 
of the QIPs and CCIPs has led CMS to believe that the QIPs in 
particular do not add significant value. Through annual review of plan-
reported updates, CMS has found that a number of QIPs implemented are 
duplicative of activities MA organizations are already doing to meet 
other plan needs and requirements, such as the CCIP and internal 
organizational focus on STAR Rating metrics. For example, we designated 
``Reducing All-Cause Hospital Readmissions'' as the 2012 QIP topic. The 
QIPs for this topic often duplicated other CMS and MA organization care 
coordination initiatives aimed to improve transition of care across 
health care settings and reduce hospital readmissions. We found that 
many plans were already engaged in activities to reduce hospital 
readmissions because they are annually scored on their performance in 
this area (and many other areas) through Healthcare Effectiveness Data 
and Information Set (HEDIS). HEDIS are a set of plan performance and 
quality measures. Each year, MA organizations are required to report 
HEDIS data and are evaluated annually based on these measures. High 
performance on these measures also plays a large role in achieving high 
Star Ratings, which has beneficial payment consequences for MA 
organizations. This suggests that CMS direction and detailed regulation 
of QIPs is unnecessary as the Star Ratings program use of HEDIS 
measures (and other measures) incentivizes MA organizations 
sufficiently to focus on desired improvements and outcomes.
    Therefore, we believe the removal of the QIP and the continued CMS 
direction of populations for required CCIPs would allow MA 
organizations to focus on one project that supports improving the 
management of chronic conditions, a CMS priority, while reducing the 
duplication of other QI initiatives. We propose to delete Sec. Sec.  
422.152(a)(3) and 422.152(d), which outline the QIP requirements. In 
addition, in order to ensure that remaining cross references for other 
provisions in this section remain accurate, we will reserve paragraphs 
(a)(3) and (d). The removal of these requirements would reduce burden 
on both MA organizations and CMS.
    Even with this proposed removal of the QIP requirements, the MA 
requirements for QI Programs would remain in place and be robust and 
sufficient to ensure that the requirements of section 1852(e) of the 
Act are met. As a part of the QI Program, each MA organization would 
still be required to develop and maintain a health information system; 
encourage providers to participate in CMS and HHS QI initiatives; 
implement a program review process for formal evaluation of the impact 
and effectiveness of the QI Program at least annually; correct all 
problems that come to its attention through internal, surveillance, 
complaints, or other mechanisms; contract with an approved Medicare 
Consumer Assessment of Health Providers and Systems (CAHPS[supreg]) 
survey vendor to conduct the Medicare CAHPS[supreg] satisfaction survey 
of Medicare plan enrollees; measure performance under the plan using 
standard measures required by CMS and report its performance to CMS; 
develop, compile, evaluate, and report certain measures and other 
information to CMS, its enrollees, and the general public; and develop 
and implement a CCIP. Further, CMS emphasizes here that MA 
organizations must have QI Programs that go beyond only performance of 
CCIPs that focus on populations identified by CMS. The CCIP is only one 
component of the QI Program, which has the purpose of improving care 
and provides for the collection, analysis, and reporting of data that 
permits the measurement of health outcomes and other indices of quality 
under section 1852(e) of the Act.
    We believe this proposed change will allow MA organizations to 
maintain existing health improvement initiatives and take steps to 
reduce the risk of redundancies or duplication. The remaining elements 
of the QI Program, including the CCIP, will still maintain the intended 
purpose of the QI Program: That plans have the necessary infrastructure 
to coordinate care and promote quality, performance, and efficiency on 
an ongoing basis.
    This proposal does not eliminate the CCIP requirements that MA 
organizations address populations identified by CMS and report project 
status to CMS as requested. Per the April 2010 rule (75 FR 19677), we 
still believe that these requirements are necessary to ensure that MA 
organizations are developing projects that positively impact 
populations identified by CMS and that progress is documented and 
reported in a way that is consistent with our requirements.
    In conclusion, we are proposing to amend Sec.  422.152 by:
     Deleting and reserving paragraphs (a)(3) and (d).
    We solicit comments on this proposal, including whether additional 
revision to Sec.  422.152 is necessary to eliminate redundancies CMS 
has identified in this preamble.
13. Reducing Provider Burden--Comment Solicitation
    Health care providers are key partners in the delivery of Medicare 
benefits, and we are exploring ways to reduce burden

[[Page 56456]]

on providers (meaning institutions, physicians, and other 
practitioners) arising from requests for medical record documentation 
by MA organizations, particularly in connection with MA program 
requirements. We are interested in stakeholder feedback on the nature 
and extent of this burden of producing medical record documentation and 
on ideas to address the burden. We are particularly interested in 
burden experienced by solo providers. Please note that this is a 
solicitation for comment only and does not commit CMS to adopt any 
ideas submitted nor to making any changes to CMS audits or activities, 
including risk adjustment data validation (RADV) processes.
    By law, CMS is required to adjust payments to MA organizations for 
their enrollees' risk factors, such as age, disability status, gender, 
institutional status, and health status. To this end, MA organizations 
are required in regulation (Sec.  422.310) to submit risk adjustment 
data to CMS--including diagnosis codes--to characterize the context and 
purposes of items and services provided to MA organization plan 
enrollees. Risk adjustment data refers to data submitted in two 
formats: Comprehensive data equivalent to Medicare fee-for-service 
claims data (often referred to as encounter data) and data in 
abbreviated formats (often referred to as RAPS data). Under Sec.  
422.310, risk adjustment data that is submitted must be documented in 
the medical record and MA organizations will be required to submit 
medical records to validate the risk adjustment data. Finally, at Sec.  
422.310(d)(4), MA organizations may include in their contracts with 
providers, suppliers, physicians, and other practitioners, provisions 
that require submission of complete and accurate risk adjustment data 
as required by CMS. These provisions may include financial penalties 
for failure to submit complete data.
    To address concerns from providers about burdensome requests from 
MA organizations for their patients' medical record documentation, we 
are soliciting comment from stakeholders to more fully understand the 
issue and for ideas to accomplish reductions in provider burden. 
Specifically, we seek comment on the following:
     The nature and extent of medical record requests, 
including the following:
    ++ Reasoning behind the request sent by the MA organization to the 
provider.
    ++ Amount of time afforded to providers to respond to such 
requests.
    ++ Frequency of requests for providers to submit medical records.
    ++ Volume of medical records in a given request.
    ++ Method of collection and submission of medical records.
    ++ How narrowly or broadly the requests are framed (for example, 
whether the request is for a single visit, a specific condition, and 
for what timeframe).
    ++ Extent to which requests are made pursuant to a CMS-conducted 
RADV audit, other CMS activities, or for other purposes (please specify 
what the other purposes are).
    ++ Considerations that may be unique to solo providers.
    ++ Impact on burden due to increased adoption of electronic health 
record systems.
    ++ Specific examples of medical record requests (for example, 
anecdotes and/or the requests themselves, appropriately redacted of 
confidential information and PII/PHI).
     The nature and extent of requests related to medical 
record attestations, including the following:
    ++ Reasoning behind the attestation request.
    ++ Amount of time afforded to providers to respond to such 
requests.
    ++ Frequency of requests for providers to sign attestations.
    ++ Volume of requests.
    ++ Level and duration for which attestations are requested (for 
example, for each medical record, for all medical records for a 
beneficiary for a particular date of service or for a particular year).
    ++ Whether there is reduced burden associated with electronic 
signatures.
    ++ Specific examples of medical record attestations and attestation 
requests.
     Ideas for improving the process around MA organizations 
requesting medical records and/or attestations that are not directly 
pursuant to CMS-conducted RADV audits. Specify the type of change the 
idea would necessitate: a statutory, regulatory, subregulatory, 
operational, or CMS-issued guidance such as best practices for MA 
organizations when requesting medical records and/or attestations, and 
how such a change may interact with other provisions, such as state law 
or Joint Commission requirements. If the ideas involve novel legal 
questions, analysis regarding our authority is welcome for our 
consideration. For each idea, describe the extent of provider burden 
reduction, quantitatively where possible, and any other consequences 
that implementing the idea may have on beneficiaries, providers, MA 
organizations, or CMS. Further, we encourage all relevant parties to 
respond to this request: MA organizations, providers, associations for 
these entities, and companies assisting MA organizations, providers, 
and hospitals with handling medical record requests.

C. Implementing Other Changes

1. Reducing the Burden of the Medicare Part C and Part D Medical Loss 
Ratio Requirements
a. Background
    Section 1103 of Title I, Subpart B of the Health Care and Education 
Reconciliation Act (Pub. L. 111-152) amends section 1857(e) of the Act 
to add medical loss ratio (MLR) requirements to Medicare Part C (MA 
program). An MLR is expressed as a percentage, generally representing 
the percentage of revenue used for patient care rather than for such 
other items as administrative expenses or profit. Because section 
1860D-12(b)(3)(D) of the Act incorporates by reference the requirements 
of section 1857(e) of the Act, these MLR requirements also apply to the 
Medicare Part D program. In the May 23, 2013 Federal Register (78 FR 
31284), we published a final rule that codified the MLR requirements 
for Part C MA organizations, and Part D sponsors (including 
organizations offering cost plans that provide the Part D benefit) in 
the regulations at 42 CFR part 422, subpart X and part 423, subpart X.
    For contract year 2014 and subsequent contract years, MA 
organizations and Part D sponsors are required to report their MLRs and 
are subject to financial and other penalties for a failure to meet the 
statutory requirement that they have an MLR of at least 85 percent (see 
Sec. Sec.  422.2410 and 423.2410). The statute imposes several levels 
of sanctions for failure to meet the 85 percent minimum MLR 
requirement, including remittance of funds to CMS, a prohibition on 
enrolling new members, and ultimately contract termination. The minimum 
MLR requirement in section 1857(e)(4) of the Act creates incentives for 
MA organizations and Part D sponsors to reduce administrative costs, 
such as marketing costs, profits, and other uses of the funds earned by 
plan sponsors, and helps to ensure that taxpayers and enrolled 
beneficiaries receive value from Medicare health and drug plans.
    Section 1001(5) of the Patient Protection and Affordable Care Act 
(Pub. L. 111-148), as amended by section 10101(f) of the Health Care 
Reconciliation Act, also established a new MLR requirement under 
section 2718 of the Public Health Service Act (PHSA) that applies to 
issuers of employer group and individual market

[[Page 56457]]

private insurance. We will refer to the MLR requirements that apply to 
issuers of private insurance as the ``commercial MLR rules.'' 
Regulations implementing the commercial MLR rules are published at 45 
CFR part 158.
    This proposed rule sets forth our proposed modifications to certain 
MLR requirements in the Medicare Part C and Part D programs.
b. Proposed Regulatory Changes to the Calculation of the Medical Loss 
Ratio (Sec. Sec.  422.2420, 422.2430, 423.2420, and 423.2430)
(1) Fraud Reduction Activities
    As explained in the February 22, 2013 proposed rule (78 FR 12428), 
we used the commercial MLR rules as a reference point for developing 
the Medicare MLR rules. We sought to align the commercial and Medicare 
MLR rules in order to limit the burden on organizations that 
participate in both markets, and to make commercial and Medicare MLRs 
as comparable as possible for comparison and evaluation purposes, 
including by Medicare beneficiaries. Although we believe it is 
important to maintain consistency between the commercial and Medicare 
MLR requirements, we also recognized that some areas of the commercial 
MLR rules would need to be revised to fit the unique characteristics of 
the MA and Part D programs.
    One area of alignment between the commercial and Medicare MLR rules 
is the treatment of expenditures related to fraud reduction efforts, 
which we defined to include both fraud prevention and fraud recovery in 
both rules (see 78 FR 12433). The Medicare MLR regulations adopted the 
same definitions of activities that improve healthcare quality (also 
referred to as quality improvement activities, or QIA), as had been 
adopted in the commercial MLR regulations at 45 CFR 158.150 and 
158.151, in order to facilitate uniform accounting for the costs of 
these activities across lines of business (see 78 FR 12435). Consistent 
with this policy of alignment, the Medicare MLR regulations at 
Sec. Sec.  422.2430(b)(8) and 423.2430(b)(8) adopted the commercial MLR 
rules' exclusion of fraud prevention activities from QIA. The Medicare 
MLR regulations (Sec. Sec.  422.2420(b)(2)(ix) and 
423.2420(b)(2)(viii)) further aligned with the commercial MLR rules' 
treatment of fraud-related expenditures by allowing the amount of claim 
payments recovered through fraud reduction efforts, not to exceed the 
amount of fraud reduction expenses, to be included in the MLR numerator 
as an adjustment to incurred claims. The Medicare MLR proposed rule (78 
FR 12433) explained that we considered this approach to be appropriate 
because without such an adjustment, the recovery of paid fraudulent 
claims would reduce an MLR and could create a disincentive to engage in 
fraud reduction efforts. Allowing an adjustment to incurred claims to 
reflect claims payments recoveries up to the limit of fraud reduction 
expenses would help mitigate whatever disincentive might occur if fraud 
reduction expenses were treated solely as nonclaims and nonquality 
improving expenses. The Medicare MLR proposed rule echoed the December 
7, 2011 commercial MLR final rule with comment period (76 FR 76577), 
where we had earlier expressed the view that allowing an unlimited 
adjustment for fraud reduction expenses would undermine the purpose of 
requiring issuers to meet the MLR standard.
    We have reconsidered this position based on the specific 
characteristics of the MA and Part D programs, and are now proposing 
certain changes to the treatment of expenses for fraud reduction 
activities in the Medicare MLR calculation. First, we are proposing to 
revise the MA and Part D regulations by removing the current exclusion 
of fraud prevention activities from QIA at Sec. Sec.  422.2430(b)(8) 
and 423.2430(b)(8). Second, we are proposing to expand the definition 
of QIA in Sec. Sec.  422.2430 and 423.2430 to include all fraud 
reduction activities, including fraud prevention, fraud detection, and 
fraud recovery. Third, we are proposing to no longer include in 
incurred claims the amount of claims payments recovered through fraud 
reduction efforts, up to the amount of fraud reduction expenses, in 
Sec. Sec.  422.2420(b)(2)(ix) and 423.2420(b)(2)(viii). We note that 
the commercial MLR rules and the Medicaid MLR rules are outside the 
scope of this proposed rule.
    We are proposing these changes to the Medicare MLR rules because we 
believe that limiting or excluding amounts invested in fraud reduction 
undermines the federal government's efforts to combat fraud in the 
Medicare program, and reduces the potential savings to the government, 
taxpayers, and beneficiaries that robust fraud prevention efforts in 
the MA and Part D programs can provide. Fraud prevention activities can 
improve patient safety, deter the use of medically unnecessary 
services, and can lead to higher levels of health care quality, which 
is part of the reason why we require such activities as a condition of 
participation in the MA and Part D programs.
    MA organizations and Part D sponsors are required at Sec. Sec.  
422.503(b)(4)(vi) and 423.504(b)(4)(vi), respectively, to adopt an 
effective compliance program which includes measures that prevent, 
detect, and correct fraud. We believe that the proposed change to 
include all expenditures in connection with fraud reduction activities 
as QIA-related expenditures in the MLR numerator best aligns with this 
Medicare contracting requirement. We are concerned that the current 
rules could create a disincentive to invest in fraud reduction 
activities, which is only partly mitigated by the current adjustment to 
incurred claims for amounts recovered as a result of fraud reduction 
activities, up to the amount of fraud reduction expenses. We believe 
that it is particularly important that MA organizations and Part D 
sponsors invest in fraud reduction activities as the Medicare trust 
funds are used to finance the MA and Part D programs. We believe that 
including the full amount of expenses for fraud reduction activities as 
QIA will provide additional incentive to encourage MA organizations and 
Part D sponsors to develop innovative and more effective ways to detect 
and deter fraud.
    We continue to believe that the minimum MLR requirement in section 
1857(e)(4) of the Act is intended to create an incentive to reduce 
administrative costs, marketing, profits, and other such uses of the 
funds that plan sponsors receive, and to ensure that taxpayers and 
enrolled beneficiaries receive value from Medicare health plans. 
However, we also believe that MA organizations' and Part D sponsors' 
fraud reduction activities can potentially provide significant value to 
the government and taxpayers by reducing trust fund expenditures. When 
MA organizations and Part D sponsors prevent fraud and recover amounts 
paid for fraudulent claims, this lowers the overall cost of providing 
coverage to MA and Part D enrollees. Because MA organizations' and Part 
D sponsors' monthly payments are based in part on their claims 
experience in prior years, if MA organizations and Part D sponsors pay 
fewer fraudulent claims, this should be reflected in their subsequent 
cost projections, which would ultimately result in lower payments to MA 
organizations and Part D sponsors out of the Medicare trust funds, and 
could also result in lower premiums or additional supplemental benefits 
for beneficiaries.
    Given the proposed change to include expenditures for fraud 
reduction activities in the QIA portion of the MLR numerator, we no 
longer believe that it

[[Page 56458]]

would be necessary or appropriate to include in incurred claims the 
amount of claim payments recovered through fraud reduction efforts, up 
to the amount of fraud reduction expenses. As noted previously, we 
originally included an adjustment to incurred claims for claims 
payments recovered through fraud reduction efforts based on the 
rationale that, because the recovery of paid fraudulent claims reduces 
the amount of incurred claims in the MLR numerator, if expenditures for 
fraud reduction efforts were treated solely as nonclaims and nonquality 
improvement activities, this could create a disincentive to engage in 
fraud reduction activities. The adjustments to incurred claims under 
current Sec. Sec.  422.2420(b)(2)(ix) and 423.2420(b)(2)(viii) mitigate 
the potential disincentive to invest in fraud reduction activities 
insofar as MA organizations' and Part D sponsors' recoveries of paid 
fraudulent claims do not result in a reduction to incurred claims. 
Because this adjustment to incurred claims is only available to the 
extent that an MA organization or Part D sponsor recovers paid 
fraudulent claims, it encourages MA organizations and Part D sponsors 
to invest in tracking down and recouping amounts that have already been 
paid, rather than in preventing payment of fraudulent claims. Under our 
proposal, claim payments recovered through fraud reduction efforts, up 
to the amount of fraud reduction expenses, would no longer be included 
in the MLR numerator as an adjustment to incurred claims. Instead, all 
expenditures for fraud reduction activities would be included in the 
MLR numerator as QIA, even if such expenditures exceed the amount 
recovered through fraud reduction efforts. As a result, MA 
organizations and Part D sponsors will no longer have an incentive to 
use contract revenue to pursue recovery of paid fraudulent claims 
instead of investing in fraud prevention. We believe that effective 
fraud reduction strategies will include efforts to prevent payment of 
fraudulent claims, and we believe that the proposed inclusion of all 
fraud reduction activities as QIA in the MLR numerator will strengthen 
the incentive to engage in these vital activities.
    In summary, we are proposing the following regulatory revisions:
     Remove and reserve Sec. Sec.  422.2420(b)(2)(ix) and 
423.2420(b)(2)(viii).
     In Sec. Sec.  422.2430 and 423.2430, redesignate existing 
paragraphs (a)(1) and (a)(2) as (a)(2) and (a)(3), respectively.
     In Sec. Sec.  422.2430 and 423.2430, add new paragraph 
(a)(4) that lists activities that are automatically included in QIA.
     Designate the introductory text of Sec. Sec.  422.2430(a) 
and 423.2430(a) as paragraph (a)(1), and revise newly designated 
paragraph (a)(1) to specify that, for an activity to be included in 
QIA, it must either fall into one of the categories listed in newly 
redesignated (a)(2) and meet all of the requirements in newly 
redesignated (a)(3), or be listed in paragraph (a)(4).
     Remove and reserve Sec. Sec.  422.2430(b)(8) and 
423.2430(b)(8).
    We solicit comment on these proposed changes, particularly whether 
our proposal is based on the best understanding of the motives and 
incentives applicable to MA organizations and Part D sponsors to engage 
in fraud reduction activities. We also solicit comment on the types of 
activities that should be included in, or excluded from, fraud 
reduction activities. In addition, we solicit comment on alternative 
approaches to accounting for fraud reduction activities in the MLR 
calculation. In particular, we are interested in receiving input on:
     Whether fraud reduction activities should be included in 
quality improvement activities as proposed, or whether we should create 
a separate MLR numerator category for fraud reduction activities;
     Whether fraud reduction activities should be subject to 
any or all of the exclusions at Sec. Sec.  422.2430(b) and 422.2430(b). 
Although our proposal removes the exclusion of fraud prevention 
activities from QIA at Sec. Sec.  422.2430(b)(8) and 423.2430(b)(8), it 
is possible that fraud reduction activities would be subject to one of 
the other exclusions under Sec. Sec.  422.2430(b) and 423.2430(b), such 
as the exclusion that applies to activities that are designed primarily 
to control or contain costs (Sec. Sec.  422.2430(b)(1) and 
423.2430(b)(1)) or the exclusion of activities that were paid for with 
grant money or other funding separate from premium revenue (Sec. Sec.  
422.2430(b)(1) and 423.2430(b)(3).)
(2) Medication Therapy Management (MTM) (Sec. Sec.  422.2430 and 
423.2430)
    In the May 23, 2013 final rule (78 FR 31294), we stated that 
Medication Therapy Management (MTM) activities (defined at Sec.  
423.153(d)) qualify as QIA, provided they meet the requirements set 
forth in Sec. Sec.  422.2430 and 423.2430. To meet these requirements, 
the activity must fall into one of the categories listed in current 
paragraph (a)(1) of those regulations, which means the activity must: 
(1) Improve health quality; (2) increase the likelihood of desired 
health outcomes in ways that are capable of being objectively measured 
and of producing verifiable results; (3) be directed toward individual 
enrollees, specific groups of enrollees, or other populations as long 
as enrollees do not incur additional costs for population-based 
activities; and (4) be grounded in evidence-based medicine, widely 
accepted best clinical practice, or criteria issued by recognized 
professional medical associations, accreditation bodies, government 
agencies or other nationally recognized health care quality 
organizations. In our prior MLR rulemaking, we did not attempt to 
determine whether all MTM programs that comply with Sec.  423.153(d) 
would necessarily meet the QIA requirements at Sec.  422.2430 (for MA-
PD contracts) and Sec.  423.2430 (for stand-alone Part D contracts). 
Subsequent to publication of the May 23, 2013 final rule, we have 
received numerous inquiries seeking clarification regarding whether MTM 
programs are QIA. To address those questions and resolve any 
ambiguities or uncertainties, we are now proposing to specifically 
address MTM programs in the MLR regulations.
    We propose to modify our regulations at Sec. Sec.  422.2430 and 
423.2430 by adding new paragraph (a)(4)(i), which specifies that all 
MTM programs that comply with Sec.  423.153(d) and are offered by Part 
D sponsors (including MA organizations that offer MA-PD plans 
(described in Sec.  422.2420(a)(2)) are QIA. Each Part D sponsor is 
required to incorporate an MTM program into its plans' benefit 
structure, and the MTM Program Completion Rate for Comprehensive 
Medication Reviews (CMR) measure has been included in the Star Ratings 
as a metric of plan quality since 2016. We believe that the MTM 
programs that we require improve quality and care coordination for 
Medicare beneficiaries. We also believe that allowing Part D sponsors 
to include compliant MTM programs as QIA in the calculation of the 
Medicare MLR would encourage sponsors to ensure that MTM is better 
utilized, particularly among standalone PDPs that may currently lack 
strong incentives to promote MTM.
    Furthermore, we have expressed concern that Part D sponsors may be 
restricting MTM eligibility criteria to limit the number of qualified 
enrollees, and we believe that explicitly including MTM program 
expenditures in the MLR numerator as QIA-related expenditures could 
provide an incentive to reduce any such restrictions. This is 
particularly important in providing individualized disease management 
in conjunction with the ongoing opioid

[[Page 56459]]

crisis evolving within the Medicare population. We hope that, by 
removing any restrictions or uncertainty about whether compliant MTM 
programs will qualify for inclusion in the MLR numerator as QIA, the 
proposed changes will encourage Part D sponsors to strengthen their MTM 
programs by implementing innovative strategies for this potentially 
vulnerable population. We believe that beneficiaries with higher rates 
of medication adherence have better health outcomes, and that 
medication adherence can also produce medical spending offsets, which 
could lead to government and taxpayer savings in the trust fund, as 
well as beneficiary savings in the form of reduced premiums. We solicit 
comment on these proposed changes.
(3) Additional Technical Changes to Calculation of the Medical Loss 
Ratio (Sec. Sec.  422.2420 and 423.2420)
    We are also proposing technical changes to the MLR provisions at 
Sec. Sec.  422.2420 and 423.2420. In Sec.  422.2420(d)(2)(i), we are 
replacing the phrase ``in Sec.  422.2420(b) or (c)'' with the phrase 
``in paragraph (b) or (c) of this section''. In Sec.  423.2430, the 
regulatory text includes two paragraphs designated as (d)(2)(ii). We 
propose to resolve this error by amending Sec.  423.2420 as follows:
     Revise paragraph (d)(2)(i) by adding at the end the text 
of the first paragraph designated as (d)(2)(ii).
     Remove the first paragraph designated as (d)(2)(ii).
c. Proposed Regulatory Changes to Medicare MLR Reporting Requirements 
(Sec. Sec.  422.2460 and 423.2460)
    Our general approach when developing the current Medicare MLR 
regulations was to align the Medicare MLR requirements with the 
commercial MLR requirements. Consistent with this policy, we attempted 
to model the Medicare MLR reporting format on the tools used to report 
commercial MLR data in order to limit the burden on organizations that 
participate in both markets. However, as noted previously, we also 
recognized that there are some areas where the unique characteristics 
of the MA and Part D programs make it appropriate for the Medicare MLR 
reporting requirements to deviate from the rules that apply to 
commercial MLR reporting. Most beneficiaries are enrolled in plans 
offered by MA organizations and Part D sponsors that also participate 
in the commercial market, and these entities are familiar with the 
commercial MLR forms that they have had to submit since 2012 for the 
2011 benefit year. In practice, however, these forms and reports have 
not been identical. We have become concerned, after having received two 
annual Medicare MLR reports at the time that this proposed rule is 
being published, that requiring health insurance issuers to complete a 
substantially different set of forms for Medicare MLR purposes has 
created an unnecessary additional burden. Our proposal to reduce the 
burden of the current Medicare requirement for MLR reporting aligns 
with the directive in the January 30, 2017 Presidential Executive Order 
on Reducing Regulation and Controlling Regulatory Costs to manage the 
costs associated with the governmental imposition of private 
expenditures required to comply with Federal regulations.
    It is with these concerns in mind that we are proposing to reduce 
the current reporting burden to require the minimum amount of 
information needed for MLR reporting by organizations with contracts to 
offer Medicare benefits. Specifically, we are proposing that the 
Medicare MLR reporting requirements would be limited to the following 
data fields, as shown in Table 12: Organization name, contract number, 
adjusted MLR (which would be populated as ``Not Applicable'' or ``N/A'' 
for non-credible contracts as determined in accordance with Sec. Sec.  
422.2440(d) and 423.2440(d)), and remittance amount. We solicit comment 
on these proposed changes.

           Table 12--MLR Reporting for Fully Credible, Partially Credible, and Non-Credible Contracts
----------------------------------------------------------------------------------------------------------------
                                                                                   Adjusted MLR     Remittance
                          Organization                             Contract No.         (%)           amount
----------------------------------------------------------------------------------------------------------------
ABC, Inc........................................................           H1234            90.1              $0
XYZ, LLC........................................................           S4321            84.8          17,420
MAO1, LLC.......................................................           H4321             N/A             N/A
----------------------------------------------------------------------------------------------------------------

    We believe that it is important to note that although we are 
proposing a significant reduction in the amount of data that MA 
organizations and Part D sponsors must report to us, we are not 
proposing to change our authority under Sec.  422.2480 or Sec.  
423.2480 to conduct selected audit reviews of the data reported under 
Sec. Sec.  422.2460 and 423.2460 to determine that remittance amounts 
under Sec. Sec.  422.2410(b) and 423.2410(b) and sanctions under 
Sec. Sec.  422.2410(c), 422.2410(d), 423.2410(c), and 423.2410(d) were 
accurately calculated, reported, and applied. Moreover, MA 
organizations and Part D sponsors would continue to be required to 
retain documentation supporting the MLR figure reported and to make 
available to CMS, HHS, the Comptroller General, or their designees any 
information needed to determine whether the data and amounts submitted 
with respect to the Medicare MLR are accurate and valid, in accordance 
with Sec. Sec.  422.504 and 423.505.
    In addition, we have realized that the MLR Reporting Requirements 
at Sec.  422.2460 do not include provisions that correspond to the 
provisions currently codified at Sec.  423.2460(b) and (c). In the 
February 22, 2013 proposed rule (78 FR 12435), we proposed that the 
total revenue reported by MA organizations and Part D sponsors for MLR 
purposes would be net of all projected reconciliations, and that each 
MA and Part D contract's MLR would only be reported once and would not 
be reopened as a result of any payment reconciliation processes. In the 
May 23, 2013 final rule (78 FR 31293), we finalized these proposals 
without change. Although we explicitly proposed that both MA 
organizations and Part D sponsors would be required to report their 
revenues net of all projected reconciliations (78 FR 12435), and we did 
not indicate that only Part D sponsors would be affected by our 
proposal for each contract's MLR to be reported once and not reopened 
as a result of any payment reconciliation process (our discussion of 
this proposal in the final rule addressed how this policy would apply 
to both MA organizations and Part D sponsors (78 FR 31293)), regulatory 
provisions implementing the finalized proposals were only included in 
the Part D regulations, where they currently appear at Sec.  
423.2460(b) and (c); corresponding regulatory text was not added to the 
MA regulations. We are proposing to make a technical change to Sec.  
422.2460 by

[[Page 56460]]

incorporating provisions which parallel the language of current 
paragraphs (b) and (c) of Sec.  423.2460 for purposes of the reporting 
requirements for contract year 2014 and subsequent contract years. This 
proposed technical change does not establish any new rules or 
requirements for MA organizations; it merely updates regulatory 
references that were overlooked in previous rulemaking.
    In summary, we are proposing to revise the regulations at 
Sec. Sec.  422.2460 and 423.2460 as follows:
     In Sec.  422.2460, redesignate the existing regulation 
text as paragraph (a).
     Revise newly designated Sec. Sec.  422.2460(a) and 
423.2460(a) by adding ``from 2014 through 2017'' after the phrase ``For 
each contract year'' in the first sentence to limit the more detailed 
MLR reporting requirement to that period, making minor grammatical 
changes to clarify the text, and by adding ``under this part'' to 
modify the phrase ``for each contract''.
     In Sec.  423.2460, redesignate existing paragraphs (b) and 
(c) as paragraphs (c) and (d), respectively.
     In Sec. Sec.  422.2460 and 423.2460, add a new paragraph 
(b) to require MA organizations and Part D plan sponsors with--
    ++ Fully credible and partially credible experience to report the 
MLR for each contract for the contract year along with the amount of 
any owed remittance; and
    ++ Non-credible experience, to report that such experience was non-
credible.
    For each, the proposed text cross-references the applicable 
regulations for the determination of credibility, and for the general 
remittance requirement.
     In newly redesignated Sec.  423.2460(c), revise the text 
to refer to total revenue included in the MLR calculation rather than 
reports of that information.
     Add new paragraphs (c) and (d) to Sec.  422.2460 that 
mirror the text in Sec.  423.2460(c) and (d), as redesignated and 
revised.
d. Proposed Technical Changes to Medicare MLR Review and Non-Compliance 
and the Release of MLR Data (Sec. Sec.  422.2410, 422.2480, 422.2490, 
423.2410, 423.2480, and 423.2490)
    We are proposing technical changes to the General Requirements, MLR 
review and non-compliance, and Release of MLR data provisions at 
Sec. Sec.  422.2410, 422.2480, 422.2490, 423.2410, 423.2480, and 
423.2490. These changes are being proposed in conformity with the more 
substantive regulatory text changes being proposed herein. These 
proposed technical changes do not establish any new rules or 
requirements for MA organizations or Part D sponsors. The proposed 
technical changes revise references to MLR reports in conformity with 
our proposal to scale back Medicare MLR reporting so that we only 
require the submission of a limited number of data points, as opposed 
to a full report.
2. Medicare Advantage Contract Provisions (Sec.  422.504)
    Under the authority of section 1857(b) of the Act, CMS may enter 
into a contract with a Medicare Advantage (MA) organization, through 
which the organization agrees to comply with applicable requirements 
and standards. CMS has established and codified provisions of contracts 
between the MA organization and CMS at Sec.  422.504. This proposed 
rule seeks to correct an inconsistency in the text that identifies the 
contract provisions deemed material to the performance of an MA 
contract.
    Section 422.504(a) sets forth regulations and instructions at 
paragraphs (1) through (15) that are material to the performance of the 
MA contract in accordance to Sec.  422.504(a)(16). This is inconsistent 
with the introductory regulatory text at Sec.  422.504(a), which 
provides, ``An MA organization's compliance with paragraphs (a)(1) 
through (a)(13) of this section is material to performance of the 
contract.'' Further, both paragraphs (a) and (a)(15) fail to mention 
paragraphs (a)(17) and (a)(18).
    We propose to correct the inconsistent language by revising the 
language in the introductory text in Sec.  422.504(a) and deleting 
paragraph Sec.  422.504(a)(16). With this revision, We will renumber 
current paragraphs Sec. Sec.  422.504(a)(17) and (a)(18). The proposed 
revision to the paragraph (a) introductory text would provide that 
compliance with all contract terms listed in paragraph (a) is material.
3. Late Contract Non-Renewal Notifications (Sec. Sec.  422.506, 
422.508, and 423.508)
    Pursuant to section 1857(c)(1) of the Act, CMS enters into 
contracts with MA organizations for a period of 1 year. As implemented 
by CMS pursuant to that provision, these contracts automatically renew 
absent notification by either CMS or the MA organization to terminate 
the contract at the end of the year. Section 1860D-12(b)(3)(B) of the 
Act makes this same process applicable to CMS contracts with Part D 
plan sponsors. CMS has implemented these provisions in regulations that 
permit MA organizations and Part D plan sponsors to non-renew their 
contracts, with CMS approval and consent necessary depending on the 
timeframe of the sponsoring organization's notice to CMS that a non-
renewal is desired. We are proposing to clarify its operational policy 
that any request to terminate a contract after the first Monday in June 
is considered a request for termination by mutual consent.
    Under Sec.  422.506(a)(2)(i) and Sec.  423.507(a)(2)(i), contract 
non-renewals effective at the end of the 1-year contract term must be 
submitted to CMS in writing by the first Monday in June. There may be 
instances where CMS accepts a late non-renewal notice after the first 
Monday in June for an MA contract if the non-renewal is consistent with 
the effective and efficient administration of the contract under Sec.  
422.506(a)(3). There is no corresponding regulatory provision affording 
CMS such discretion for Part D contracts.
    We have seen that many MA organizations do not understand that CMS 
treats non-renewals requested after the first Monday in June as an 
organization's request for a mutual termination pursuant to Sec.  
422.508 when determining whether it is in the best interest of the 
Medicare program to permit non-renewals in applying Sec.  
422.506(a)(3). Organizations that request a non-renewal of their 
contract after the first Monday in June, must receive written 
confirmation from CMS of the termination by mutual consent pursuant to 
Sec.  422.508(a) (and Sec.  423.508(a) if an MA-PD plan) to be 
effectively relieved of their obligation to participate in the MA or 
Part D programs during the upcoming contract year. CMS has received a 
number of late non-renewal requests and has received questions from MA 
organizations inquiring why their request was not treated as a contract 
non-renewal, but rather as a termination by mutual consent.
    We propose to modify Sec.  422.506(a)(3) to remove language that 
indicates late non-renewals may be permitted by CMS so that there would 
only be one process--mutual termination under Sec. Sec.  422.508--that 
is applicable if CMS is not taking action under Sec.  422.506(b) or 
Sec.  422.510. Also, we propose to amend Sec. Sec.  422.508 and 423.508 
to clarify that organizations that request to non-renew a contract 
after the first Monday in June are in effect requesting that CMS agree 
to mutually terminate their contract.
4. Contract Request for a Hearing (Sec. Sec.  422.664(b) and 
423.652(b))
    Under the authority of section 1857(a) of the Act, CMS enters into 
contracts with MA organizations which authorize

[[Page 56461]]

them to offer MA plans to Medicare beneficiaries. Similarly, CMS 
contracts with Part D plan sponsors according to section 1860D-12(a) of 
the Act. CMS determines that an organization is qualified to hold an MA 
contract through the application process established at 42 CFR 422, 
Subpart K. CMS evaluates the qualifications of potential Part D plan 
sponsors according to Subpart K of 42 CFR, part 423. If CMS denies an 
application, organizations have the right to appeal CMS's decision 
(under Sec.  422.502(c)(3)(iii) and Sec.  423.503(c)(3)(iii) using the 
procedures in subparts N of part 422 and part 423). This proposed rule 
seeks to correct an inconsistency in the text that identifies CMS's 
deadline for rendering its determination on appeals of application 
denials.
    According to Sec.  422.660(c) and Sec.  423.650(c), CMS must issue 
a determination on appealed application denials by September 1 in order 
to enter into an MA contract for coverage starting January 1 of the 
following year. We codified this September 1 deadline in the April 15, 
2010, final rule (45 FR 19699). As stated in the in the 2009 proposed 
rule (74 FR 54650 and 54651), we proposed to modify Sec.  422.660(c) 
and Sec.  423.660(c), which then specified that the notice of any 
decision favorable to a Part C or D applicant must be issued by July 15 
for the contract in question to be effective on January 1 of the 
following year. However, in that rulemaking, we inadvertently 
overlooked other regulatory provisions that address the date by which a 
favorable decision must be made on an appeal of a CMS determination 
that an entity is not qualified for a Part C or Part D contract.
    There is an inconsistency in regulations regarding the date by 
which an MA organization must receive a decision from CMS on an appeal. 
Section 422.660(c) specifies that a notice of any decision favorable to 
the MA organization appealing a determination that it is not qualified 
to enter into a contract with CMS must be issued by September 1 for the 
contract to be effective on January 1. However, Sec.  422.664(b)(1) 
specifies that if a final decision is not reached by July 15, CMS will 
not enter into a contract with the applicant for the following year. 
Similarly, there is an inconsistency in regulations regarding the date 
by which a Part D sponsor must receive a CMS decision on an appeal. 
Section 423.650(c) specifies that a notice of any decision favorable to 
the MA organization appealing a determination that it is not qualified 
to enter into a contract with CMS must be issued by September 1 to be 
effective on January 1. However, Sec.  423.652(b)(1) specifies that if 
a final decision is not reached on CMS's determination for an initial 
contract by July 15, CMS will not enter into a contract with the 
applicant for the following year.
    We propose to modify Sec.  422.664(b)(1) and Sec.  423.652(b)(1) to 
align with the September 1 date codified in Sec.  422.660(c) and Sec.  
423.650(c), which was codified on April 15, 2010.
5. Physician Incentive Plans--Update Stop-Loss Protection Requirements 
(Sec.  422.208)
    Pursuant to section 1852(j)(4), MA organizations that operate 
physician incentive plans must meet certain requirements, which CMS has 
implemented in Sec.  422.208. MA organizations must provide adequate 
and appropriate stop-loss insurance to all physicians or physician 
groups that are at substantial financial risk under the MA 
organization's physician incentive plan (PIP). The current stop-loss 
insurance deductible limits are identified in a table codified at Sec.  
422.208(f)(2)(iii).
    Under the current regulation, an MA organization that operates a 
PIP must provide stop-loss protection for 90 percenter of actual costs 
of referral services that exceed the per patient deductible limit to 
all physicians and physician groups at financial risk under the PIP. 
The stop-loss protection may be per patient or aggregate. The current 
regulation contains a chart that identifies per-patient stop-loss 
deductible limits for single combined; separate institutional; and 
separate professional insurance. The current regulation establishes 
requirements for stop-loss attachment points (deductibles) based on the 
patient panel size and does not distinguish between at-risk or non-at-
risk patients in that panel. There is no requirement for an MA 
organization to provide stop-loss protection when the physician or 
physician group has a panel of risk patients of more than 25,000; we 
are not proposing to change to this requirement. In recent years, CMS 
has received a number of requests to update the stop-loss insurance 
limits associated with PIP arrangements to better account for medical 
costs and utilization changes that have occurred since the final rule 
was published in the June 29, 2000 Federal Register (65 FR 40325) on.
    We are not proposing to change the requirements that the MAO (in 
connection with the PIP) must provide aggregate stop-loss protection 
for 90 percentage of actual costs of referral services that are greater 
than 25 percent of potential income to all physicians and physician 
groups at financial risk under the PIP and that no stop-loss protection 
is required when the panel size of the physician or physician group is 
above 25,000. We are proposing three changes to update the existing 
regulation:
     Update the stop-loss deductible limits at Sec.  
422.208(f)(2)(iii) and codify the methodology that CMS would use to 
update the stop-loss deductible limits in the future to account for 
changes in medical cost and utilization;
     Authorize, at paragraph Sec.  422.208(f)(3), MA 
organizations to use actuarially equivalent arrangements to protect 
against substantial financial loss under the PIP due to the risks 
associated with serving particular groups of patients.
     Modify paragraph 422.208(f)(2) to allow non-risk patient 
equivalents (NPEs), such as Medicare Fee-For-Service patients (FFS), 
who obtain some services from the physician or physician group to be 
included when determining the deductible.
    We do not believe that other substantive requirements set forth in 
the PIP regulation, such as the determination of substantial financial 
risk based on a risk threshold of 25 percent of potential payments (see 
Sec.  422.208(d)(2)), need to be updated regularly or have been 
rendered obsolete in the years since the regulation was initially 
adopted. Although we are not proposing a change to the determination of 
``substantial financial risk,'' we appreciate that the regulatory 
standard (25% of potential payments) in Sec.  422.208(d)(2) was adopted 
many years ago. Therefore, we seek comment on whether the definitions 
of ``substantial financial risk'' and ``risk threshold'' contained in 
the current regulation should be revisited, including whether the 
current identification of 25 percent of potential payments codified in 
paragraph (d)(2) remains appropriate as the standard in light of 
changes in medical cost.
b. Update Deductible Limits and Codify Methodology
    Because of increases in medical costs and changes in utilization 
since the current regulatory standards for PIP stop-loss insurance were 
adopted, we are concerned that the current regulation requires stop-
loss insurance on more generous and more expensive terms than is 
necessary. Our goal in developing this proposal was to identify the 
point at which most, if not all, physicians and physician groups would 
be subject to the substantial loss so that the requirement for the 
provision of

[[Page 56462]]

stop-loss protection and the parameters of that protection would be 
tailored to address that risk. We intend to avoid regulatory 
requirements that require protection that is broader than the minimum 
required under the statute. In developing the new minimum attachment 
points for the stop-loss protection that is required under the statute, 
one goal is to provide flexibility to MA organizations and the 
physicians and physician groups that participate in PIPs in selecting 
between combined stop-loss insurance and separate professional services 
and institutional services stop loss insurance.
    In order to develop the specific attachment points, we engaged in a 
data-driven analysis using Part A and Part B claims data from 340,000 
randomly selected beneficiaries from 2016. We assumed a multi-specialty 
practice and we estimated medical group income based on FFS claims, 
including payments for all Part A and Part B services. We used the 
central limit theorem to calculate the distribution of claim means for 
a multi-specialty group of any given panel size. This distribution was 
used to obtain, with 98% confidence, the point at which a multi-
specialty group of a given panel size would, through referral services, 
lose more than 25% of its income derived from services that the 
physician or physician group personally rendered. We used projections 
of total income based on services provided personally by individual 
physicians and directly by physician groups because that is how we 
interpret ``potential payments'' as defined in the existing regulation. 
The point at which loss would exceed 25% of potential payments was set 
as the single combined per patient deductible in Table 13, which we 
describe in our proposed text at Sec.  422.208(f)(2)(iii); we are not 
proposing to codify the table, but to codify the methodology for 
creating it so that the table itself may be updated by CMS as 
necessary. Nonetheless, Table 13 would be the table applicable for 
contract years beginning on or after January 1, 2019 until CMS 
reapplied the methodology and published an updated table under our 
proposal. We performed the analysis for multiple panel sizes, which are 
listed on Table 13. Table 13 also includes a `net benefit premium' 
(NBP) column, which is used under our proposal to identify the 
attachment points for separate stop-loss insurance for institutional 
services and professional services. This NBP column is not needed for 
identification of the minimum attachment point (maximum deductible) for 
combined aggregate insurance. The NBP is computed by dividing the total 
amount of stop-loss claims (90 percent of claims above the deductible) 
for that panel size by the panel size.

           Table 13--Combined Stop-Loss Insurance Deductibles
------------------------------------------------------------------------
                                                           Net benefit
          Panel size                Single combined      premium  (NBP)
                                      deductible              PMPY
------------------------------------------------------------------------
400...........................  $5,000................            $5,922
800...........................  10,000................             4,891
1400..........................  15,000................             4,122
2,000.........................  20,000................             3,514
3,300.........................  30,000................             2,612
4,600.........................  40,000................             1,984
5,800.........................  50,000................             1,539
6,900.........................  60,000................             1,216
7,900.........................  70,000................               977
10,100........................  100,000...............               553
12,300........................  150,000...............               267
13,500........................  200,000...............               159
14,800........................  300,000...............                79
16,100........................  500,000...............               428
16,800........................  1,000,000.............                12
17,400-25,000.................  2,000,000.............                 4
>25,000.......................  No Stop Loss..........                 0
------------------------------------------------------------------------

    We propose, at paragraph Sec.  422.208 (f)(2)(iii), other 
significant provisions. Proposed paragraph Sec.  422.208 (f)(2)(iii)(A) 
provides that the table (published by CMS using the methodology 
proposed in paragraph Sec.  422.208(f)(2)(iv)) identifies the maximum 
attachment point/maximum deductible for per-patient-combined insurance 
coverage that must be provided for 90% of the costs above the 
deductible or an actuarial equivalent amount. For panel sizes and 
deductible amounts not shown in the tables, we propose that linear 
interpolation may be used to identify the required deductible for panel 
sizes between the table values. In addition, proposed paragraph Sec.  
422.208(f)(2)(iii)(B) provides that the table applies only for 
capitated risk.
    In order to provide the attachment points for separate per patient 
insurance for institutional services and professional services, we 
propose to use the NBP from Table 13. This second table provides 
separate deductibles for physician and institutional services. Table 14 
was calculated using a methodology similar to the calculation of Table 
13. The source for our estimate of medical group income and 
institutional income is derived from CMS claims files which includes 
payments for all Part A and Part B services. The central limit theorem 
was used to obtain the distribution of claim means, and deductibles 
were obtained at the 98 percent confidence level. We propose to codify 
the methodology and assumptions for Table 14 in Sec.  422.208 
(f)(2)(vi) and (f)(2)(vii).
BILLING CODE 4120-01-P

[[Page 56463]]

[GRAPHIC] [TIFF OMITTED] TP28NO17.013

BILLING CODE 4120-01-C
    The physician or physician group would look up the combined 
deductible in the second column of Table 13 and select the 
corresponding NBP in the

[[Page 56464]]

third column. If necessary, linear interpolation would be used. 
Finally, the physician or physician group would select any cell in the 
table in Table 14 whose numerical entry is greater than or equal to 
that NBP. The row and column labels for this cell are the corresponding 
professional and institutional deductibles for that selection. Any such 
selection would meet the requirement of the basic rule stated in 
paragraph (f)(2)(i). We are proposing to codify the use of this table 
of deductibles for separate stop-loss insurance professional services 
and institutional services based on the NBP in paragraph (f)(2)(v).
    We solicit comment on our proposal, specifically the following:
     Whether our proposed regulation text at paragraphs 
(f)(2)(iv), (vi) and (vii) details the methodology for developing 
Tables 13 and 14 in sufficient detail.
     Whether our proposed regulation text clearly identifies 
how the tables would be used.
     Whether we should finalize a specific schedule, such as 
annually or every 3 years for updating the tables using the proposed 
methodologies in order to ensure that the maximum deductibles are 
consistent with medical cost and utilization trends.
d. Actuarially Equivalent Arrangements
    Over the past several years, MA organizations, have requested an 
update to the tables as well as additional flexibilities around 
protection arrangements other than combined and separate per-patient 
stop-loss insurance. CMS believes that providing the flexibility to MA 
organizations to use actuarially equivalent arrangements is appropriate 
as the nature of the PIP negotiated between the MA organization and 
physicians or physician groups might necessitate other arrangements to 
properly and adequately protect physicians from substantial financial 
risk. Examples where actuarially equivalent modifications might be 
necessary, include: Global capitation arrangements that include some, 
but not all Parts A and B services; stop-loss policies with different 
coinsurances; stop-loss policies that use medical loss ratios (MLR), 
which generally pay specific stop-loss amounts only to the extent that 
the overall aggregate MLR for the physician group exceeds a certain 
amount; stop-loss policies for exclusively primary care physicians; and 
risk arrangements on a quota share basis, which occurs when less than 
full capitation risk is transferred from a plan to a physician or 
physician group. Therefore, we propose to add Sec.  422.208(f)(3) to 
permit MA organizations to use other stop-loss protection arrangements; 
the proposal would allow actuaries to develop actuarially equivalent 
special insurances that are: Appropriately developed for the population 
and services furnished; in accordance with generally accepted actuarial 
principles and practices; and certified as meeting these requirements 
by actuaries who meet the qualification standards established by the 
American Academy of Actuaries and follow the practice standards 
established by the Actuarial Standards Board. Under this proposal, CMS 
would review the attestation of the actuary certifying the special 
insurance arrangement. We solicit comment whether these proposed 
standards provide sufficient flexibility to MA organizations and 
physicians.
c. Non-Risk Patient Equivalents Included in Panel Size
    We believe that the number of a physician group's non-risk patients 
should be taken into account when setting stop loss deductibles for 
risk patients. For example a group with 50,000 non-risk patients and 
5,000 risk patients needs less protection than a group with only 3,000 
non-risk patients and 5,000 risk patients. We propose, at Sec.  
422.208(f)(2)(iii) and (v), to allow non-risk patient equivalents 
(NPEs), such as Medicare Fee-For-Service patients, who obtain some 
services from the physician or physician group to be included in the 
panel size when determining the deductible. Under our proposal, NPEs 
are equal to the projected annual aggregate payments to a physician or 
physician group for non-global risk patients, divided by an estimate of 
the average capitation per member per year (PMPY) for all non-global 
risk patients, whether or not they are capitated. Both the numerator 
and denominator are for physician services that are rendered by the 
physician or physician group. We propose that the deductible for the 
stop-loss insurance that is required under this regulation would be the 
lesser of: (1) The deductible for globally capitated patients plus up 
to $100,000 or (2) the deductible calculated for globally capitated 
patients plus NPEs. The deductible for these groups would be separately 
calculated using the tables and requirements in our proposed regulation 
at paragraph (f)(2)(iii) and (v) and treating the two groups (globally 
capitated patients and globally capitated patients plus NPEs) 
separately as the panel size. We propose the same flexibility for 
combined per-patient stop-loss insurance and the separate stop-loss 
insurances. We solicit comment on this proposal.
6. Changes to the Agent/Broker Compensation Requirements (Sec. Sec.  
422.2274 and 423.2274)
    Sections 103(b)(1)(B) and 103(b)(2) of the Medicare Improvements 
for Patients and Providers Act (MIPPA) revised section 1851(j)(2)(D) of 
the Act to charge the Secretary with establishing guidelines to 
``ensure that the use of compensation creates incentives for agents/
brokers to enroll individuals in the MA plan that is intended to best 
meet their health care needs.'' Section 103(b)(2) of MIPPA revised 
section 1860D-4(l)(2) of the Act to apply these same guidelines to Part 
D sponsors. We believe agents/brokers play a significant role in 
providing guidance and are, as such, in a unique position to influence 
beneficiary choice. CMS implemented these MIPPA-related changes in a 
May 23, 2014 final rule (79 FR 29960). The 2014 final rule revised the 
provisions previously established in the interim final rule (IFR) 
adopted on September 18, 2008 (73 FR 554226).
    The IFR had established the previous compensation structure for 
agents/brokers as it applied to the MA and Part D programs. In 
particular, the IFR limited compensation for renewal enrollments to no 
greater than 50 percent of the rate paid for the initial enrollment on 
a 6-year cycle. This structure had proven to be complicated to 
implement and monitor, as it required the MA organization or Part D 
sponsor to track the compensation paid for every enrollee's initial 
enrollment and calculate the renewal rate based on that initial 
payment. To the extent that there was confusion about the required 
levels of compensation or the timing of compensation, it seemed that 
there was an uneven playing field for MA organizations and Part D 
sponsors operating in the same geographic area.
    In addition to the many inquiries from MA organizations and Part D 
sponsors regarding the correct calculation of agent/broker 
compensation, CMS found it necessary to take compliance actions against 
MA organizations and Part D sponsors for failure to comply with the 
compensation requirements. CMS's audit findings and monitoring efforts 
performed after implementation of the IFR showed that MA organizations 
and Part D sponsors were having difficulty correctly administering the 
compensation requirements.
    Also, we were concerned that the structure as it existed before the 
2014 revisions created an incentive for agents/brokers to move 
enrollees from a plan of one parent organization to a plan of another 
parent organization, even for like plan-type changes. That

[[Page 56465]]

compensation structure resulted in different payments when a 
beneficiary moved from one plan to another like plan in a different 
organization. In such situations, the new parent organization would pay 
the agent 50 percent of the current initial rate of the new parent 
organization; not 50 percent of the initial rate paid by the prior 
parent organization. Thus, in cases where the fair market value (FMV) 
for compensation had increased, or the other parent organization paid a 
higher commission, an incentive existed for the agent to move 
beneficiaries from one parent organization to another, rather than 
supporting the beneficiary's continued enrollment in the prior parent 
organization.
    In a 2014 proposed rule (79 FR 1918), we proposed to simplify 
agent/broker compensation rules to help ensure that plan payments were 
correct and establish a level playing field that further limited the 
incentive for agents/brokers to move enrollees for financial gain 
rather than for the beneficiary's best interest. In the final rule 
published on May 23, 2014, we codified technical changes to the 
language established by the IFR relating to agent/broker compensation, 
choosing instead to link payment rates for renewal enrollments to 
current FMV rates rather than the rate paid for the original (that is, 
initial) enrollment. These changes also effectively removed the 6-year 
cycle from the payment structure. We codified these changes in 
Sec. Sec.  422.2274(a), (b), and (h) for MA organizations and 
Sec. Sec.  423.2274(a), (b), and (h) for Part D sponsors.
    At that time, we should have also proposed to remove the language 
at Sec.  422.2274(b)(2)(i), Sec.  422.2274(b)(2)(ii), Sec.  
423.2274(b)(2)(i), and Sec.  423.2274(b)(2)(ii), but we failed to do 
so. Since then, this language is no longer relevant, as the current 
compensation structure is not based on the initial payment. However, it 
has created confusion among plan staff and brokers.
    We propose to make a technical correction to the existing 
regulatory language at Sec.  422.2274(b) and Sec.  423.2274(b). We 
propose to remove the language at Sec. Sec.  422.2274(b)(2)(i), 
422.2274(b)(2)(ii), 423.2274(b)(2)(i), and 423.2274(b)(2)(ii). 
Additionally, we would renumber the existing provisions under Sec.  
422.2274(b) and Sec.  423.2274(b) for clarity.
7. Changes to the Agent/Broker Requirements (Sec. Sec.  422.2272(e) and 
423.2272(e))
    Section 1851(h)(7) of the Act directs CMS to act in collaboration 
with the states to address fraudulent or inappropriate marketing 
practices. In particular, section 1851(h)(7)(A)(i) of the Act requires 
that MA organizations only use agents/brokers who have been licensed 
under state law to sell MA plans offered by those organizations. 
Section 1860D-4(l)(4) of the Act references the requirements in section 
1851(h)(7) of the Act and applies them to Part D sponsors. We have 
codified the requirement in Sec. Sec.  422.2272(c) and 423.2272(c).
    In the April 15, 2011, final rule (76 FR 21503 and 21504), we 
codified a provision in Sec. Sec.  422.2272(e) and 423.2272(e) that 
required MA organizations and Part D sponsors to terminate any employed 
agent/broker who became unlicensed. The provision also required MA 
organizations and Part D sponsors to notify any beneficiaries enrolled 
by the unqualified agent/broker of that agent/broker's status. Finally, 
the provision specified that the MA organization or Part D sponsor must 
comply with any request from the beneficiary regarding the 
beneficiary's options to confirm enrollment or make a plan change if 
the beneficiary requests such upon notification of the agent/broker's 
status.
    Since implementation of the provision in Sec. Sec.  422.2272(e) and 
423.2272(e), we have become aware that the regulation does not allow 
latitude for punitive action in situations when a license lapses. The 
MA organization or Part D sponsor may terminate the agent/broker and 
immediately rehire the individual thereafter if licensure has been 
already reinstated or prohibit the agent/broker from ever selling the 
MA organization's or Part D sponsor's products again. Discussions with 
the industry indicate that these two options are impractical due to 
their narrow limits. We believe agents/brokers play a significant role 
in providing guidance to beneficiaries and are in a unique position to 
positively influence beneficiary choice. However, the statute directs 
CMS to require MA organizations and Part D sponsors to only use agents/
brokers who are licensed under state law. We do not intend to change 
the regulation, at Sec. Sec.  422.2272(c) and 423.2272(c), requiring 
agent/broker licensure as a condition of being hired by a plan, and 
will continue to review the licensure status of agents/brokers during 
those monitoring activities that focus on MA organizations' and Part D 
sponsors' marketing activities. CMS believes MA organizations and Part 
D sponsors should determine the level of disciplinary action to take 
against agents/brokers who fail to maintain their license and have sold 
MA/Part D products while unlicensed, so long as the MA organization or 
Part D plan complies with the remaining statutory and regulatory 
requirements.
    We propose to delete Sec. Sec.  422.2272(e) and 423.2272(e), the 
provisions that limit what MA organizations and Part D sponsors can do 
when they have discovered that a previously licensed agent/broker has 
become unlicensed. Nonetheless, CMS may pursue compliance actions upon 
discovery of MA organizations and Part D sponsors who allow unlicensed 
agents/brokers to continue selling their products in violation of 
Sec. Sec.  422.2272(c) and 423.2272(c).
    Note that deleting paragraph (e) from Sec. Sec.  422.2272 and 
423.2272 removes language describing the opportunity beneficiaries have 
to select a different MA or Part D plan when the broker who enrolled 
them was unlicensed at the time the beneficiaries enrolled. Removing 
paragraph (e) from Sec. Sec.  422.2272 and 423.2272 does not eliminate 
the special enrollment period (SEP) that enrollees receive when it is 
later discovered that their agent/broker was not licensed at the time 
of the enrollment as that SEP exists under the authority of Sec.  
422.62(b)(4).
8. Codification of Certain Medicare Premium Adjustments as Initial 
Determinations (Sec.  405.924)
    Current regulations at Sec.  405.924(a) set forth Social Security 
Administration (SSA) actions that constitute initial determinations 
under section 1869(a)(1) of the Act. These actions at Sec.  405.924(a) 
include determinations with respect to entitlement to Medicare hospital 
(Part A) or supplementary medical insurance (Part B), disallowance of 
an application for entitlement; a denial of a request for withdrawal of 
an application for Medicare Part A or Part B, or denial of a request 
for cancellation of a request for withdrawal; or a determination as to 
whether an individual, previously determined as entitled to Part A or 
Part B, is no longer entitled to these benefits, including a 
determination based on nonpayment of premiums.
    In addition to the actions set forth at Sec.  405.924(a), SSA, the 
Office of Medicare Hearings and Appeals (OMHA), and the Departmental 
Appeals Board (DAB) also treat certain Medicare premium adjustments as 
initial determinations under section 1869(a)(1) of the Act. These 
Medicare premium adjustments include Medicare Part A and Part B late 
enrollment and reenrollment premium increases made in accordance with 
sections 1818, 1839(b) of the Act, Sec. Sec.  406.32(d),

[[Page 56466]]

408.20(e), and 408.22 of this chapter, and 20 CFR 418.1301. Due to the 
effect that these premium adjustments have on individuals' entitlement 
to Medicare benefits, they constitute initial determinations under 
section 1869(a)(1) of the Act.
    Accordingly, we are proposing to add a new paragraph (5) to Sec.  
405.924(a) to clarify that these premium adjustments, made in 
accordance with sections 1818 and 1839(b) of the Act, Sec. Sec.  
406.32(d) and 408.22 of this chapter, and 20 CFR 418.1301, constitute 
initial determinations under section 1869(a)(1) of the Act. Because 
this proposed change seeks only to codify existing processes related to 
premium adjustments, and not to alter existing processes or procedures, 
it applies only to Part A and Part B late enrollment and reenrollment 
penalties. Based on 1860D-13(b)(6)(C) of the Act, CMS does not consider 
Part D late enrollment and reenrollment penalties to be initial 
determinations. As a result, their appeal rights stop at the 
reconsideration level.
9. Eliminate Use of the Term ``Non-Renewal'' To Refer to a CMS-
Initiated Termination (Sec. Sec.  422.506, 422.510, 423.507 and 
423.509)
    Section 1857(c)(2) of the Act provides the bases upon which CMS may 
make a decision to terminate a contract with an MA organization. Under 
section 1860D 12(b)(3) of the Act, these same bases are available for a 
CMS termination of a Part D sponsor contract, as section 1860D-12(b)(3) 
of the Act incorporates into the Part D program the Part C bases by 
reference to section 1857(c)(2). Also, sections 1857(h) and 1860D 
12(b)(3)(F) of the Act provide the procedures CMS must follow in 
carrying out MA organization or Part D sponsor contract terminations.
    Although the Act only expressly refers to terminations, through 
rulemaking and subregulatory guidance, we have created two different 
processes relating to severing the contractual agreement between CMS 
and an MA organization or Part D sponsor. In accordance with sections 
1857(h) and 1860D-12(b)(3)(F) of the Act, we have adopted regulations 
providing for distinct contract termination and bases and procedures 
for nonrenewal if contracts. Our regulations at Sec. Sec.  422.506 and 
422.510 provide for the nonrenewal and termination, respectively, of 
CMS contracts with MA organizations. The Part D regulations provide for 
similar procedures with respect to Part D sponsor contracts at 
Sec. Sec.  423.507 and 423.509.
    Each nonrenewal provision is divided into two parts, one governing 
nonrenewals initiated by a sponsoring organization and another 
governing nonrenewals initiated by CMS. Two features of the nonrenewal 
provisions have created multiple meanings for the term ``nonrenewal'' 
in the operation of the Part C and D programs, contributing, in some 
instances, to confusion within CMS and among contracting organizations 
surrounding the use of the term. The first feature is the difference 
between non renewals initiated by sponsoring organizations and those 
initiated by CMS with respect to the need to establish cause for such 
an action. The second is the partial overlap between CMS' termination 
authority and our nonrenewal authority. We propose to revise our use of 
terminology such that that the term ``nonrenewal'' only refers to 
elections by contracting organizations to discontinue their contracts 
at the end of a given year. We propose to remove the CMS initiated 
nonrenewal authority stated at paragraph (b) from both Sec. Sec.  
422.506 and 423.507 and modify the existing CMS initiated termination 
authority at Sec. Sec.  422.510 and 423.509 to reflect this change.
    MA organizations and Part D plan sponsors may elect to end the 
automatic renewal provision in Part C or Part D contracts and 
discontinue those contracts with CMS without cause, simply by providing 
notice in the manner and within the timeframes stated at Sec.  
422.506(a) and Sec.  423.507(a). Thus, organizations are free to make a 
business decision to end their Medicare contract at the end of a given 
year and need not provide CMS with a rationale for their decision. By 
contrast, CMS may not end an MA organization or Part D plan sponsor's 
contract through nonrenewal without establishing that the contracting 
organization's performance has met the criteria for at least one of the 
stated bases for a CMS initiated contract nonrenewal in paragraphs (b) 
of those sections.
    Contracting organizations often respond to changes in the Medicare 
markets or changes in their own business objectives by making decisions 
to end or modify their participation in the Part C and D programs. 
Thus, these organizations exercise their nonrenewal rights under Sec.  
422.506(a) and Sec.  423.507(a) much more frequently than CMS conducts 
contract non renewals under Sec.  422.506(b) and Sec.  423.507(b). As a 
result, within CMS and among industry stakeholders, the term 
``nonrenewal'' has effectively come to refer almost exclusively to MA 
organization and Part D plan sponsor initiated contract non renewals.
    The termination authority allows us to provide notice of such an 
action at any time and make it effective at least 30 days after 
providing such notice to the contracting organization. By contrast, CMS 
may issue a nonrenewal notice of a contract no later than August 1, and 
the nonrenewal takes effect at the end of the current contract year. 
Yet, the result of both actions taken by CMS is the discontinuation, 
for cause (although the basis of that cause might be different), of an 
organization's MA or Part D contract.
    The similarities between nonrenewal and termination are 
demonstrated by the extensive but not complete overlap in bases for CMS 
action under both processes. For example, both nonrenewal authorities 
incorporate by reference the bases for CMS initiated terminations 
stated in Sec.  422.510 and Sec.  423.509. The remaining CMS initiated 
nonrenewal bases (any of the bases that support the imposition of 
intermediate sanctions or civil money penalties (Sec. Sec.  
422.506(b)(iii) and Sec.  423.507(b)(1)(ii)), low enrollment in an 
individual MA plan or PDP (Sec. Sec.  422.506(b)(iv) and 
423.507(b)(1)(iii)), or failure to fully implement or make significant 
progress on quality improvement projects (Sec.  422.506(b)(i))) were 
all promulgated in accordance with our statutory termination authority 
at sections 1857(c)(2) and 1860D-12(b)(3) of the Act and are all more 
specific examples of an organization's substantial failure to carry out 
the terms of its MA or Part D contract or its carrying out the contract 
in an inefficient or ineffective manner. Therefore, we propose striking 
these provisions from the nonrenewal portion of the regulation and 
adding them to the list of bases for CMS initiated contract 
terminations.
    Finally, there are aspects of the notice requirements related to 
the CMS initiated nonrenewal authority that are useful in the 
administration of the Part C and D programs and which we propose 
preserving in the revised termination provision. Specifically, Sec.  
422.506(b)(2)(ii) requires notice to be provided by mail to a 
contracting organization's enrollees at least 90 days prior to the 
effective date of the nonrenewal, while Sec.  422.510(b)(1)(ii) 
requires affected plan enrollees to be notified within 30 days of the 
effective date of the termination. We see a continuing benefit to the 
administration of the Part C and D programs in retaining the authority 
to ensure that, when possible, enrollees can be made aware of their 
plan's discontinuation at least by October 1 of a given year so that 
they can make the necessary plan choice

[[Page 56467]]

during the annual election period. Therefore, we propose adding 
provisions at Sec. Sec.  422.510(b)(2)(v) and 423.509(b)(2)(v) to 
require that enrollees receive notice no later than 90 days prior to 
the December 31 effective date of a contract termination when we make 
such determination on or before August 1 of the same year.

III. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), 
we are required to provide 60-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. In order to fairly evaluate whether an information 
collection should be approved by OMB, section 3506(c)(2)(A) of the 
Paperwork Reduction Act of 1995 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 this proposed rule, we are soliciting public comment on each of 
these issues for the following sections of this document that contain 
information collection requirements (ICRs).

A. Wage Data

    To derive average costs, we used data from the U.S. Bureau of Labor 
Statistics' (BLS') May 2016 National Occupational Employment and Wage 
Estimates for all salary estimates (http://www.bls.gov/oes/current/oes_nat.htm). In this regard, the following table presents the mean 
hourly wage, the cost of fringe benefits and overhead (calculated at 
100 percent of salary), and the adjusted hourly wage.

                          Table 15--National Occupational Employment and Wage Estimates
----------------------------------------------------------------------------------------------------------------
                                                                                      Fringe         Adjusted
              BLS occupation title                  Occupation      Mean hourly    benefits and   hourly wage ($/
                                                       code         wage ($/hr)   overhead ($hr)        hr)
----------------------------------------------------------------------------------------------------------------
Business Operations Specialist..................         13-1000           34.54           34.54           69.08
Compliance Officers.............................         13-1041           33.77           33.77           67.54
Computer and Information Systems Managers.......         11-3021           70.07           70.07          140.14
Computer Programmer.............................         15-1131           40.95           40.95           81.90
Health Diagnostic and Treating Practitioners....         29-1199           40.77           40.77           81.54
Insurance Claim and Policy Processing Clerk.....         43-9041           19.61           19.61           39.22
Lawyers.........................................         23-1011           67.25           67.25          134.50
Medical and Health Service Manager..............         11-9111           52.58           52.58          105.16
Medical Secretary...............................         43-6013           16.85           16.85           33.70
Office and Administrative Support Workers, All           43-9199           17.33           17.33           34.66
 Other..........................................
Physicians and Surgeons.........................         29-1060          101.04          101.04          202.08
Physicians and Surgeons, all other..............         29-1069           98.83           98.83          197.66
Software Developers and Programmers.............         15-1130           48.11           48.11           96.22
Word Processors and Typists.....................         43-9022           19.22           19.22           38.44
----------------------------------------------------------------------------------------------------------------

    As indicated, we are adjusting our employee hourly wage estimates 
by a factor of 100 percent. This is necessarily a rough adjustment, 
both because fringe benefits and overhead costs vary significantly from 
employer to employer, and because methods of estimating these costs 
vary widely from study to study. Nonetheless, there is no practical 
alternative and we believe that doubling the hourly wage to estimate 
total cost is a reasonably accurate estimation method.

B. Proposed Information Collection Requirements (ICRs)

1. ICRs Regarding Passive Enrollment Flexibilities To Protect 
Continuity of Integrated Care for Dually Eligible Beneficiaries (Sec.  
422.60(g))
    In section II.A.9 of this proposed rule, we are proposing a limited 
expansion of passive enrollment authority. More specifically, the new 
provisions at Sec.  422.60(g) would allow CMS, in consultation with a 
state Medicaid agency, to implement passive enrollment procedures in 
situations where criteria identified in the regulation text are met. We 
propose the criteria based on our policy determination that passive 
enrollment is appropriate in those cases to promote integrated care and 
continuity of care for full-benefit dual eligible beneficiaries who are 
currently enrolled in an integrated D-SNP.
    Under passive enrollment procedures, a beneficiary who is offered a 
passive enrollment is deemed to have elected enrollment in a plan if he 
or she does not affirmatively elect to receive Medicare coverage in 
another way. Plans to which individuals are passively enrolled under 
the proposed provision would be required to comply with the existing 
requirement under Sec.  422.60(g) to provide a notification. The notice 
must explain the beneficiaries' right to choose another plan, describe 
the costs and benefits of the new plan, how to access care under the 
plan, and the beneficiary's ability to decline the enrollment or choose 
another plan. Providing notification would include mailing notices and 
responding to any beneficiary questions regarding enrollment.
    We anticipate that there will be relatively few instances each year 
in which passive enrollment occurs under the new provisions at Sec.  
422.60(g). This is informed by our experience in implementing passive 
enrollments under the existing regulations at Sec.  422.60(g), where in 
recent years there have been only one to two contract terminations 
annually where CMS allows passive enrollment. We estimate that 
approximately one percent of the 373 active D-SNPs would meet the 
criteria identified in the regulation text, and operate in a market 
where all of the conditions of passive enrollment are met and where 
CMS, in consultation with a state Medicaid agency, implements passive 
enrollment. Therefore, under the new provisions at Sec.  422.60(g), we 
anticipate only four additional instances in which CMS allows passive 
enrollment each year.
    We estimate it would take 10 hours at $69.08/hr for a business 
operations

[[Page 56468]]

specialist to develop the initial notice. We also estimate it would 
take 1 minute for a business operations specialist to electronically 
generate and submit a notice for each beneficiary that is offered 
passive enrollment. We estimate that approximately 5,520 full-benefit 
dual eligible beneficiaries would be sent a notice in each instance in 
which passive enrollment occurs, which reflects the average enrollment 
of currently active D-SNP plans. Four instances of passive enrollment 
annually would result in 22,080 beneficiaries being sent the notice 
(5,520 x 4 organizations) each year.
    To develop the initial notice, we estimate a one-time burden of 40 
hours (4 organizations x 10 hr) at a cost of $2,763.20 (40 hr x $69.08/
hr) or $690.80 per organization ($2,763.20/4 organizations). To 
electronically generate and submit a notice to each beneficiary, we 
estimate a total burden of 368 hours (22,080 beneficiaries x 1 min/60) 
at a cost of $25,421.44 (368 hr x $69.08/hr) or $6,355.36 per 
organization ($25,421.44/4 organizations) annually.
    Since we estimate fewer than 10 respondents, the information 
collection requirements are exempt (5 CFR 1320.3(c)) from the 
requirements of the Paperwork Reduction Act of 1995. However, we seek 
comment on our estimates for the overall number of respondents and the 
associated burden.
2. ICRs Regarding the Restoration of the MA Open Enrollment Period 
(Sec. Sec.  422.60, 422.62, 422.68, 423.38, and 423.40)
    In section II.B.1. of this rule, we are proposing to codify the 
requirements for open enrollment and disenrollment opportunities at 
Sec. Sec.  422.60, 422.62, 422.68, 423.38, and 423.40 that would 
eliminate the existing MADP and establish a MA Open Enrollment Period 
(OEP). This new OEP revises a previous OEP which would allow MA-
enrolled individuals the opportunity to make a one-time election during 
the first 3 months of the calendar year to switch MA plans, or 
disenroll from an MA plan and obtain coverage through Original 
Medicare. Although no new data would be collected, the burden 
associated with this requirement would be the time and effort that it 
takes an MA organization to process an increased number of enrollment 
and disenrollment requests by individuals using this OEP, which is 
first available in 2019.
    To estimate the potential increase in the number of enrollments and 
disenrollments from the new OEP, we considered the percentage of MA-
enrollees who used the old OEP that was available from 2007 through 
2010. For 2010, the final year the OEP existed before the MADP took 
effect, we found that approximately 3 percent of individuals used the 
OEP. While the parameters of the old OEP and new OEP differ slightly, 
we believe that this percentage is the best approximation to determine 
the burden associated with this change. In January 2017, there were 
approximately 18,600,000 individuals enrolled in MA plans. Using the 3 
percent adjustment, we expect that 558,000 individuals (18.6 million MA 
beneficiaries x 0.03), would use the OEP to make an enrollment change.
a. Beneficiary Estimate (Current OMB Control Number 0938-0753 (CMS-R-
267))
    We estimate it would take a beneficiary approximately 30 minutes 
(0.5 hours) at $7.25/hour to complete an enrollment request. While 
there may be some cost to the respondents, there are individuals 
completing this form who are working currently, may not be working 
currently or never worked. Therefore, we used the current federal 
minimum wage outlined by the U.S. Department of Labor (https://www.dol.gov/whd/minimumwage.htm) to calculate costs. The burden for all 
beneficiaries is estimated at 279,000 hours (558,000 beneficiaries x 
0.5 hour) at a cost of $2,022,750 (279,000 hour x $7.25/hour) or $3.63 
per beneficiary ($2,022,750/558,000 beneficiaries).
b. MA Organization Estimate (Current OMB Ctrl# 0938-0753 (CMS-R-267))
    There are currently 468 MA organizations in 2017. Not all MA 
organizations are required to be open for enrollment during the OEP. 
However, for those that are, we estimate that this enrollment period 
would result in approximately 1,192 enrollments per organization 
(558,000 individuals/468 organizations) during the OEP each year.
    We estimate it would take approximately 5 minutes at $69.08/hour 
for a business operations specialist to determine eligibility and 
effectuate the changes for open enrollment. The burden for all 
organizations is estimated at 46,500 hours (558,000 beneficiaries x 5 
min/60) at a cost of $3,212,220 (46,500 hour x $69.08/hour) or $6,864 
per organization ($3,212,220/468 MA organizations).
    Once the enrollment change is completed, we estimate that it will 
take 1 minute at $69.08/hour for a business operations specialist to 
electronically generate and submit a notice to convey the enrollment or 
disenrollment decision for each of the 558,000 beneficiaries. The total 
burden to complete the notices is 9,300 hours (558,000 notices x 1 min/
60) at a cost of $642,444 (9,300 hour x $69.08/hour) or $1.15 per 
notice ($642,444/558,000 notices) or $1,372.74 per organization 
($642,444/468 MA organizations).
    The burden associated with electronic submission of enrollment 
information to CMS is estimated at 1 minute at $69.08/hour for a 
business operations specialist to submit the enrollment information to 
CMS during the open enrollment period. The total burden is estimated at 
9,300 hours (558,000 notices x 1 min/60) at a cost of $642,444 (9,300 
hour x $69.08/hour) or $1.15 per notice ($642,444/558,000 notices) or 
$1,372.74 per organization ($642,444/468 MA organizations).
    Additionally, MA organizations will have to retain a copy of the 
notice in the beneficiary's records. The burden associated with this 
task is estimated at 5 minutes at $34.66/hour for an office and 
administrative support worker to perform record retention for the open 
enrollment period. In aggregate we estimate an annual burden of 46,500 
hours (558,000 beneficiaries x 5 min/60) at a cost of $1,606,110 
(46,500 hour x $34.66/hour) or $3,431.86 per organization ($1,606,110/
468 MA organizations).
    We estimate a total annual burden for all MA organizations 
resulting from this proposed provision to be 111,600 hours (46,500 hour 
+ 9,300 hour + 9,300 hour + 46,500 hour) at a cost of $6,103,218 
($3,212,220 + $642,444 + $642,444 + $1,606,110). Per organization, we 
estimate an annual burden of 238 hours (111,600 hour/468 MA 
organizations) at a cost of $13,041 ($6,103,218/468 organizations). For 
beneficiaries we estimate a total annual burden of 279,000 hours at a 
cost of $2,022,750 and a per beneficiary burden of 30 minutes at $3.63.
    The proposed requirements and burden will be submitted to OMB for 
approval under control number 0938-0753 (CMS-R-267).
3. ICRs Regarding Coordination of Enrollment and Disenrollment Through 
MA Organizations and Effective Dates of Coverage and Change of Coverage 
(Sec. Sec.  422.66 and 422.68) OMB Control Number 0938-0753 (CMS-R-267)
    In section II.A.8. of this rule we propose to revise Sec.  422.66 
and 422.68 by: Codifying the requirements for default enrollment that 
are currently set out in subregulatory guidance,\60\

[[Page 56469]]

revising current practice to limit the use of this type of enrollment 
mechanism, and clarifying the effective date for ICEP elections. This 
would provide an MA organization the option to enroll its Medicaid 
managed care enrollees who are newly eligible for Medicare into an 
integrated D-SNP administered by the same MA organization that operates 
the Medicaid managed care plan. While our proposal restricts its use to 
individuals in the organization's Medicaid managed care plan that can 
be enrolled into an integrated D-SNP, the estimated burden for an 
organization that desires to use default enrollment and obtain CMS 
approval would not change. For those MA organizations that want to use 
this enrollment mechanism and request and obtain CMS approval, the 
administrative requirements would remain unchanged from the current 
practice. Enrollment requirements and burden are currently approved by 
OMB under control number 0938-0753 (CMS-R-267). Since this proposed 
rule would not impose any new or revised requirements/burden, we are 
not making any changes to that control number.
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4. ICRs Regarding Timing and Method of Disclosure Requirements 
(Sec. Sec.  422.111(a)(3) and (h)(2)(ii) and 423.128(a)(3) and 
423.128(d)(2)) (OMB Control Number 0938-1051)
a. Timing of Disclosure (Sec. Sec.  422.111(a)(3) and 423.128(a)(3))
    In section II.B.4. of this rule, we propose to revise the timing 
and method of disclosing the information as required under Sec.  
422.111(a) and (b) and the timing of such disclosures under Sec.  
423.128(a) and (b). These regulations provide for disclosure of plan 
content information to beneficiaries. We would revise Sec. Sec.  
422.111(a)(3) and 423.128(a)(3) by requiring MA plans and Part D 
sponsors to provide the information in Sec. Sec.  422.111(b) and 
423.128(b) by the first day of the annual enrollment period, rather 
than 15 days before that period. Plans must still distribute the ANOC 
15 days prior to the AEP. In other words, the proposed provision would 
provide the option of either submitting the EOC with the ANOC or 
waiting until the first day of the AEP, or sooner, for distribution. 
The provision simply gives plans that may need some flexibility the 
ability to rearrange schedules and defer a deadline. Consequently, 
there is no change in burden.
b. Method of Disclosure (Sec. Sec.  422.111(h)(2) and 423.128(d)(2)) 
(OMB Control Number 0938-1051)
    Sections 422.111(h)(2)(i) and 423.128(d)(2)(i) require that plans 
maintain a Web site which contains the information listed in Sec. Sec.  
422.111(b) and 423.128(b). Section 422.111(h)(2)(ii) states that the 
posting of the EOC, Summary of Benefits, and provider network 
information on the plan's Web site ``does not relieve the MA 
organization of its responsibility under Sec.  422.111(a) to provide 
hard copies to enrollees.'' There is no parallel to Sec.  
422.111(h)(2)(ii) in Sec.  423.128 for Part D sponsors. Further, Sec.  
423.128(a) includes language providing that disclosures required under 
that section be ``in the manner specified by CMS.''
    In Sec.  422.111(h)(2)(ii), we propose to modify the sentence which 
states that posting the EOC, Summary of Benefits, and provider network 
information on the plan's Web site does not relieve the plan of its 
responsibility to provide hard copies of these documents to 
beneficiaries ``upon request.'' In addition, we propose to add the 
phrase ``in the manner specified by CMS'' in paragraph (a). These 
proposed revisions would give CMS the authority to permit MA plans the 
flexibility to provide the information in Sec.  422.111(b) 
electronically when specified by CMS as a permissible delivery option, 
and better aligns with the provisions under Sec.  423.128. We intend to 
continue to specify hardcopy mailing, as opposed to electronic 
delivery, for most documents that convey the type of information 
described in paragraph (b). CMS intends that provider and pharmacy 
directories, the plan's Summary of Benefits, and EOC documents would be 
those for which electronic posting and delivery of a hard copy upon 
request are permissible. Electronic delivery would reduce plan burden 
by reducing printing and mailing costs. Additionally, the IT systems of 
the plans are already set up to format and print these documents. Also, 
plans must provide hard copies upon request. To estimate the cost of 
printing these documents, we note that the CMS Trustee's report, 
accessible at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/, lists 47.8 million 
beneficiaries in MA, Section 1876 cost,\61\ and Prescription Drug 
contracts for contract year 2019.
---------------------------------------------------------------------------

    \61\ Per 42 CFR 417.427, cost plans must comply with Sec.  
422.111 and Sec.  423.128.
---------------------------------------------------------------------------

    Based on reports from the InternetSociety.org and Pew Research 
Center,\62\ we estimate that 33 percent of these beneficiaries who are 
in MA and Prescription Drug contracts would prefer to opt in to 
receiving hard copies to receiving electronic copies. Thus, the savings 
comes from the 67 percent of beneficiaries who are in MA and 
Prescription Drug contracts that will not opt in to having printed 
copies mailed to them, namely 67 percent x 47.8 = 32,026,000 
individuals.
---------------------------------------------------------------------------

    \62\ Global Internet Report, 2017, Internet Society, http://www.internetsociety.org/globalinternetreport/2016/?gclid=EAIaIQobChMI-tz1nN_W1QIVgoKzCh1EVggBEAAYASAAEgLpj_D_BwE and 
``Tech Adoption Climbs Among Older Adults,'' Pew Research Center, 
http://www.pewinternet.org/2017/05/17/tech-adoption-climbs-among-older-adults/.
---------------------------------------------------------------------------

    The major expenses in printing an EOC include paper, toner, and 
mailing costs. The typical EOC has 150 pages. Typical wholesale costs 
of paper are between $2.50 and $5.00 for a ream of 500 sheets. We 
assume $2.50 per ream of 500 sheets. Since each EOC has 150 pages, we 
are estimating a cost of $0.75 per EOC [$2.50/(150 pages per EOC/500 
sheets per ream)]. Thus, we estimate that the total savings from paper 
is $24,019,500 (32,026,000 EOCs x $0.75 per EOC).
    Toner costs can range from $50 to $200 and each toner can last 
4,000 to 10,000 pages. We conservatively assumes a cost of $50 for 
10,000 pages. Each toner would print 66.67 EOCs (10,000 pages per 
toner/150 pages per EOC) at a cost of $0.005 per page ($50/10,000 
pages) or $0.75 per EOC ($0.005 per page x 150 pages). Thus, we 
estimate that the total savings on toner is $24,019,500 ($0.75 per EOC 
x 32,026,000 EOCs).
    Regarding mailing costs, since a ream of paper with 2,000 8.5 
inches by 11 inches pages weighs 20 pounds or 320 ounces it then 
follows that 1 sheet of paper weighs 0.16 ounces (320 ounces/2,000 
pages). Therefore, a typical EOC of 150 pages weighs 24 ounces (0.016 
ounces/page x 150 pages) or 1.5 pounds. Since commercial mailing rates 
are 13.8 cents per pound, the total savings in mailings is $6,629,382 
($0.138/pounds x 1.5 pound x 32,026,000 EOCs).
    In aggregate, we estimate a savings (to plans for not producing and 
mailing hardcopy EOCs) of $54,668,382 ($24,019,500 + $24,019,500 + 
$6,629,382). We will submit the proposed requirements and burden to OMB 
for approval under OMB control number 0938-1051 (CMS-10260).
5. ICRs Regarding the Removal of Quality Improvement Project for 
Medicare Advantage Organizations (Sec.  422.152) (OMB Control Number 
0938-1023)
    In section II.B.12. of this rule, we are proposing the removal of 
the Quality Improvement Project (QIP) requirements (and CMS-direction 
of QIPs) from the Quality Improvement (QI) Program

[[Page 56470]]

requirements, which would result in an annual savings of $12,663.75 to 
MA organizations. The driver of the anticipated savings is the removal 
of requirements to attest having a QIP annually.
    To derive our savings, we estimate that it takes 1 MA organization 
staff member (BLS: Compliance Officer) 15 minutes (0.25 hour) at 
$67.54/hour to submit a QIP attestation. Currently, there are 750 MA 
contracts, and each contract is required to submit a QIP attestation. 
Therefore, we anticipate that there will be 750 QIP attestations 
annually.
    Using these assumptions, we estimate that the removal of the QIP 
provision will result in a total savings of 187.5 hours (750 contracts 
x 0.25 hour) at $12,663.75 (187.5 hour x $67.54/hour) or $16.89 per 
contact ($12,663.75/750 contracts).
    The proposed requirements and burden will be submitted to OMB for 
approval under control number 0938-1023 (CMS-10209).
6. ICRs Regarding Medicare Advantage Quality Rating System (Sec. Sec.  
422.162, 422.164, 422.166, 422.182, 422.184, and 422.186)
    In section II.A.11. of this rule, we are proposing to codify the 
existing measures and methodology for the Part C and D Star Ratings 
program. The proposed provisions would not change any respondent 
requirements or burden pertaining to any of CMS' Star Ratings-related 
PRA packages including: OMB control number 0938-0701 for CAHPS (CMS-
10203), OMB control number 0938-0732 for HOS (CMS-R-246), OMB control 
number 0938-1028 for HEDIS (CMS-10219), OMB control number 0938-1054 
for Part C Reporting Requirements (CMS-10261), and OMB control number 
0938-0992 for Part D Reporting Requirements (CMS-10185).
    Since this rule would not impose any new or revised requirements/
burden, we are not making changes to any of the aforementioned control 
numbers.
7. ICRs Regarding Medicare Advantage Plan Minimum Enrollment Waiver 
(Sec.  422.514(b))
    CMS regulations provide Medicare Advantage (MA) organizations, 
including provider sponsored organizations, with the opportunity to 
request a waiver of CMS's minimum enrollment requirements at Sec.  
422.514(a) during the first 3 years of the contract. Regulations also 
require that MA organizations reapply for the minimum enrollment waiver 
in the second and third years of their contract. However, since CMS has 
not received or approved any waivers outside of the application 
process, CMS proposes to remove the requirement for MA organizations to 
reapply for the minimum enrollment waiver during years 2 and 3 of the 
contract under Sec.  422.514(b)(2) and (3). CMS also proposes to modify 
Sec.  422.514(b)(2) to clarify that CMS will only accept a waiver 
through the application process and allow the minimum enrollment 
waiver, if approved by CMS, to remain effective for the first 3 years 
of the contract. The requirement and burden associated with the 
submission of the minimum enrollment waiver in the application is 
currently approved by OMB under control number 0938-0935 (CMS-10237) 
which does not need to be revised.
8. ICRs Regarding Revisions to Sec. Sec.  422 and 423 Subpart V, 
Communication/Marketing Materials and Activities
    In section II.B.5. of this rule, we are proposing to narrow the 
definition of ``marketing materials'' under Sec. Sec.  422.2260 and 
423.2260 to only include materials and activities that aim to influence 
enrollment decisions. We believe the proposed definitions appropriately 
safeguard potential and current MA/PDP enrollees from inappropriate 
steering of beneficiary choice, while not including materials that pose 
little risk to current or potential enrollees and are not traditionally 
considered ``marketing.'' Revisions to Sec. Sec.  422.2260 and 423.2260 
would provide a narrower definition than is currently provided for 
``marketing materials.'' Consequently, this change decreases the number 
of marketing materials that must be reviewed by CMS before use. 
Additionally, the proposal would more specifically outline the 
materials that are and are not considered marketing materials.
    We believe the net effects of the proposed changes would reduce the 
burden to MA organizations and Part D sponsors by reducing the number 
of materials required to be submitted to us for review.
    To estimate the savings, we reviewed the most recent 12-month 
period of marketing material submissions from the Health Plan 
Management System, July 2016 through and including June 2017. As 
documented in the currently approved PRA package, we also estimates 
that it takes a plan 30 minutes at $69.08/hour for a business 
operations specialist to submit the marketing materials. To complete 
the savings analysis, we also must estimate the number of marketing 
materials that would have been submitted to and reviewed by CMS under 
the current regulatory marketing definition (note that while all 
materials that meet the regulatory definition of marketing must be 
submitted to CMS, not all marketing materials are prospectively 
reviewed by CMS). Certain marketing materials qualify for ``File and 
Use'' status, which means the material can be submitted to CMS and used 
5 days after submission, without being prospectively reviewed by CMS. 
We estimates 90 percent of marketing materials are exempt from our 
prospective review because of the file and use process. Thus, we only 
prospectively review about 10 percent of the marketing materials 
submitted.
    Marketing materials are coded using 4- or 5-digit numbers, based on 
marketing material type. The relevant codes and counts are summarized 
in Table 16.
BILLING CODE 4120-01-P

[[Page 56471]]

[GRAPHIC] [TIFF OMITTED] TP28NO17.014

BILLING CODE 4120-01-C
    By reducing the number of marketing materials submitted to CMS by 
39,824 documents (80,110 current-40,286 excluded) we estimate a savings 
of

[[Page 56472]]

19,912 hours (39,824 materials * 0.5 hours per material) at a cost 
savings of $1,348,372.52 (19,912 hours * 69.08 per hour). Some key 
points in the calculations are as follows:
     There were a total of 80,110 marketing materials submitted 
to CMS during the 12-month period sampled. These materials already 
exclude PACE program marketing materials (30000 Code) which are 
governed by a different authority and not affected by the proposed 
provision. The 80,110 figure also excludes codes 16000 and 1700 
Medicare-Medicaid Plan (MMP) materials. The MMP materials are not being 
counted as the decision for review rests with the states and CMS.
     The statute is clear that ``applications,'' which CMS also 
refers to as enrollment or election forms, must be reviewed. Thus the 
981 materials submitted under marketing code 1070, enrollment forms, 
must be subtracted from the 80,110.
     Marketing code 1100 includes the combined ANOC/EOC as well 
as the D-SNP standalone ANOC. CMS intends to split the ANOC and EOC and 
will still require the ANOC be submitted as a marketing material, 
whereas the EOC will no longer be considered marketing and not require 
submission. To account for the ANOC submission, CMS estimates that 
5,162 ANOCs will still require submission.
     We do not expect any disenrollment or grievance forms (the 
2000 and 3000 codes) to be required submissions under this proposal.
     Marketing code 4000 covers all advertisements which 
constitute 55 percent (43,965) of the 80,110 materials. The majority of 
these advertisements deal with benefits and enrollment. We estimate 25 
percent of the 43,965 code 4000 documents (that is, 10,991 documents) 
would fall outside of the new regulatory definition of marketing and no 
longer require submission. Thus, we must subtract these 32,974 (43,965 
- 10,991) from the 80,110.
     Marketing code 5000 covers formulary drugs. Although, as 
is currently the case, formularies will continue to be submitted to us 
for review in capacities outside of marketing, they will no longer fall 
under the new regulatory definition of marketing and hence would not be 
submitted separately for review as marketing materials.
     Marketing code 6000 includes sales scripts which are 
predominantly used to encourage enrollment, and would likely still fall 
under the scope of the new marketing definition. As such, we must 
subtract 1,169 documents (code 6013) from the 80,110 total marketing 
materials.
     Marketing code 8000 includes creditable coverage and late 
enrollment penalty (LEP) notices that will fall outside of the new 
regulatory definition of marketing and no longer require submission. 
Over the 12-month period sampled, this represents 559 material 
submissions.
    The proposed requirements and burden will be submitted to OMB under 
control number 0938-1051 (CMS-10260).
9. ICRs Regarding Medical Loss Ratio Reporting Requirements (Sec. Sec.  
422.2460 and 423.2460)
    In section II.C.1. of this rule, we note that under current 
Sec. Sec.  422.2460 and 423.2460, for each contract year, MA 
organizations and Part D sponsors must report to CMS the information 
needed to verify the MLR and remittance amount, if any, for each 
contract, such as: Incurred claims, total revenue, expenditures on 
quality improving activities, non-claims costs, taxes, licensing and 
regulatory fees, and any remittance owed to CMS under Sec.  422.2410 or 
Sec.  423.2410. Our proposed amendments to Sec. Sec.  422.2460 and 
423.2460 would reduce the MLR reporting burden by requiring that MA 
organizations and Part D sponsors report, for each contract year, only 
the MLR and the amount of any remittance owed to us for each contract 
with credible or partially credible experience. For each non-credible 
contract, MA organizations and Part D sponsors would be required to 
report only that the contract is non-credible.
    Our analysis of the estimated administrative costs related to the 
MLR reporting requirements is based on the average number of MA and 
Part D contracts subject to the reporting requirements for each 
contract year. The average number of MA and Part D contracts subject to 
the annual MLR reporting requirements for contract years 2014 to 2018 
is 587. The total number of MA and Part D contracts is relatively 
stable year over year. To calculate the estimated administrative costs 
of MLR reporting under the proposed amendments to Sec. Sec.  422.2460 
and 423.2460, we assume that 587 MA and Part D contracts would be 
subject to the MLR reporting requirements in each contract year.
    Our estimate for the amount of time that MAOs and Part D sponsors 
would spend on administrative tasks related to the MLR reporting 
requirements under this proposed rule is based on our current burden 
estimates that are approved by OMB under control number 0938-1232 (CMS-
10476), where we estimated that, on average, MA organizations and Part 
D sponsors would spend approximately 47 hours per contract on 
administrative work related to Medicare MLR reporting, including: 
Collecting data, populating the MLR reporting forms, conducting a final 
internal review, submitting the reports to the Secretary, and 
conducting internal audits. Inadvertently, our currently approved 
estimate did not specify (or break out) the portion of the overall 
reporting burden that could be attributed solely to the tasks of 
preparing and submitting the MLR report. We are correcting that 
oversight by estimating that the burden for preparing and submitting 
the MLR report is approximately 11.5 hours (or 24.4 percent of the 
estimated 47 total hours spent on all administrative work related to 
the MLR reporting requirements) per contact.
    We arrived at the 11.5-hour estimate by considering the amount of 
time it would take an MA organization or Part D sponsor to perform each 
of the following tasks: (1) Review the MLR report filing instructions 
and external materials referenced therein and to input all figures and 
plan-level data in accordance with the instructions; (2) draft 
narrative descriptions of methodologies used to allocate expenses; (3) 
perform an internal review of the MLR report form prior to submission; 
(4) upload and submit the MLR report and attestation; and (5) correct 
or provide explanations for any suspected errors or omissions 
discovered by CMS or our contractor during initial review of the 
submitted MLR report.
    We estimate that our proposal to scale back the MLR reporting 
requirements would reduce the amount of time spent on administrative 
work by 11 hours, from 47 hours to 36 hours.
    Table 17 compares the estimated administrative costs related to the 
MLR reporting requirements under the current regulation and under this 
proposed rule. As indicated, this proposed rule estimates that MA 
organizations and Part D sponsors will spend on average 36 hours per MA 
or Part D contract on administrative work, compared to 47 hours per 
contract under the current rule. We estimate the average cost per hour 
of MLR reporting using wage data for computer and information systems 
managers, as we believe that the tasks associated with MLR reporting 
generally fall within the fields of data processing, computer 
programming, information systems, and systems analysis. Based on 
computer and information systems managers wage

[[Page 56473]]

data from BLS, we estimate that MA organizations and Part D sponsors 
would incur annual MLR reporting costs of approximately $5,045 per 
contract on average under our proposal, as opposed to $6,587 per 
contract under the current regulations. Consequently, the proposed 
changes would, on average, reduce the annual administrative costs by 
$1,542 per contract. Across all MA and Part D contracts, we estimate 
that the proposed changes would reduce the annual administrative burden 
related to MLR reporting by 6,457 hours, resulting in a savings of 
$904,884.

                          Table 17--Estimated Administrative Burden Related to Medical Loss Ratio (MLR) Reporting Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                             Estimated
                                     Total number of contracts/    Estimated       Estimated     Estimated average cost      Estimated     average cost
           Type of burden                      reports           average hours    total hours           per hour            total cost     per contract/
                                                                  per report                                                                  report
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ongoing Costs (current regulations)  587......................              47          27,589  $140.14.................      $3,866,322          $6,587
Ongoing Costs (proposed regulation   587......................              36          21,132  140.14..................       2,961,438           5,045
 changes).
Change.............................  No change................              11           6,457  No change...............         904,884           1,542
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: The source data has been modified to reflect estimated costs for MA organizations and Part D sponsors. Values may not be exact due to rounding.

    The proposed requirements and burden will be submitted to OMB for 
approval under control number 0938-1232 (CMS-10476).
10. ICRs Regarding Establishing Limitations for the Part D Special 
Enrollment Period for Dual Eligible Beneficiaries (Sec.  423.38(c)(4)) 
OMB Under Control Number 0938-0964
    In section II.A.11. of this rule, we propose to revise Sec.  
423.38(c)(4) to limit the SEP for dual- and LIS-eligible individuals. 
The provision would make the SEP for FBDE or other subsidy-eligible 
individuals available only in the following circumstances:
     For beneficiaries who are making an allowable onetime-per-
calendar-year election.
     For beneficiaries who have been assigned to a plan by CMS 
or a state (that is, through auto enrollment, facilitated enrollment, 
passive enrollment, or reassignment) and decide to change plans 
following notification of the change or within 2 months of the election 
effective date.
     For beneficiaries who have a change in their dual or LIS-
eligible status.
    In instances where an individual is not able to utilize the dual 
SEP because of the proposed limitations, we anticipate that there will 
be no change in burden. Under current requirements, if a beneficiary 
uses the dual SEP to disenroll from their plan, the plan would send a 
notice to the beneficiary to acknowledge the voluntary disenrollment 
request. If the beneficiary is subject to the dual SEP limitation, the 
plan would send a notice to deny their voluntary disenrollment request. 
The requirement to acknowledge the beneficiary request and address the 
resolution would be the same in both scenarios, but the content of the 
notice would be different. Enrollment processing and notification 
requirements are codified at Sec.  423.32(c) and (d) and are not being 
revised as part of this rulemaking. Therefore, no new or additional 
information collection requirements are being imposed. Moreover, the 
requirements and burden are currently approved by OMB under control 
number 0938-0964 (CMS-10141). Since this rule would not impose any new 
or revised requirements/burden, we are not making any changes to that 
control number.
11. ICRs Related to Expedited Substitutions of Certain Generics and 
Other Midyear Formulary Changes (Sec. Sec.  423.100, 423.120, and 
423.128) OMB Under Control Number 0938-0964
    In section II.A.15 of this rule, we propose to expedite certain 
generic substitutions and other midyear formulary changes and except 
applicable generic substitutions from the transition process. Excepting 
generic substitutions that would otherwise require transition fills 
from the transition process would lessen the burden for Part D sponsors 
because they would no longer need to provide such fills. Permitting 
Part D sponsors to immediately substitute newly approved generic drugs 
or to make other formulary changes sooner than has been required would 
allow Part D sponsors to take action sooner, but would not increase nor 
decrease paperwork.
    While the proposed provisions would additionally require general 
notice that certain generic substitutions could take place immediately, 
Part D sponsors are already creating the documents in which that notice 
would appear such as formularies and EOCs. Similarly, Sec.  
423.128(d)(2)(ii) already requires Web sites to include information 
about drug removals and changes to cost-sharing. In other words, the 
proposed general notice requirement would not require efforts in 
addition to routine updates to beneficiary communications materials and 
Web sites. In theory, if Part D sponsors that would have been denied 
requests to make generic changes could do so under the proposed 
provision, they would have somewhat more of a burden since the proposed 
provision does require notice including direct notice to affected 
enrollees. However, our practice has been to approve all or virtually 
all generic substitutions that would meet the requirements of this 
proposed provision--which again means that the proposed provisions 
would just permit those substitutions to take place sooner.
    The general notice requirements and burden are currently approved 
by OMB under control number 0938-0964 (CMS-10141). Since this rule 
would not impose any new or revised requirements/burden, we are not 
making any changes to that control number.
12. ICRs Related to Preclusion List Requirements for Prescribers in 
Part D and Individuals and Entities in Medicare Advantage, Cost Plans, 
and PACE
a. Preclusion List Requirements for Part D Sponsors
(1) Burden and Costs
    In sections II.D.10 and 11. of this proposed rule, we are proposing 
in Sec.  423.120(c)(6) to require that Part D sponsors cover a 
provisional supply of a drug before they reject a claim based on a 
prescriber's inclusion on the preclusion list. The proposed provision 
would also require that Part D sponsors provide written notice to the 
beneficiary of the prescriber's presence on the preclusion list and 
take reasonable efforts to furnish written notice to the prescriber. 
The burden associated with these provisions would be the time and

[[Page 56474]]

effort necessary for Part D adjudication systems to be programmed and 
for model notices to be created, generated, and disseminated.
(a) Part D System Programming
    We estimate that it would take all 30 sponsors and PBMs with Part D 
adjudication systems a total of approximately 93,600 hours in 2019 for 
software developers and programmers to program their systems to comply 
with the requirements of Sec.  423.120(c)(6). In 2020 and 2021, we do 
not anticipate any system costs. The sponsors and PBMs would need 
approximately 6 to 12 months to perform system changes and testing. The 
total hour figures are based on a 6-month preparation and testing 
period. There are roughly 1,040 full-time working hours in a 6-month 
period. Using an estimate of 3 full-time software developers and 
programmers at $96.22/hour resulted in the aforementioned 93,600 hour 
figure (3 workers x 1,040 hour x 30 sponsors/PBMs) at a cost of 
$9,006,192 (93,600 x $96.22/hour) for 2019. There would be no burden 
associated with 2020 and 2021.
(b) Creation of Template Notices to Beneficiaries and Prescribers
    As stated in the May 6, 2015 IFC, we estimate that 212 parent 
organizations would need to create two template notices to notify 
beneficiaries and prescribers under proposed Sec.  423.120(c)(6). We 
project that it would take each organization 3 hours at $69.08/hour for 
a business operations specialist to create the two model notices. For 
2019, we estimate a one-time total burden of 636 hours (212 
organizations x 3 hours) at a cost of $43,935 (636 hour x $69.08/hour) 
or $207.24 per organization ($43,935/212 organizations). There would be 
no burden associated with 2020 and 2021.
    The proposed system programing and notice development requirements 
and burden will be submitted to OMB for approval under control number 
0938-0964 (CMS-10141).
(c) Preparation and Issuance of the Notices
    We estimate that it would take an average of 5 minutes (0.083 hour) 
at $39.22/hour for an insurance claim and policy processing clerk to 
prepare and distribute the notices. We estimate that an average of 
approximately 800 prescribers would be on the preclusion list in early 
2019 with roughly 80,000 Part D beneficiaries affected; that is, 80,000 
beneficiaries would have been receiving prescriptions written by these 
prescribers and would therefore receive the notice referenced in Sec.  
423.120(c)(6). In 2019 we estimate a total burden of 6,640 hours (0.083 
hour x 80,000 responses) at a cost of $260,421 (6,640 hour x $39.22/
hour) or $1,228.40 per organization ($260,421/212 organizations).
    In 2020 and 2021, we estimate that roughly 150 prescribers each 
year would be added to the preclusion list, though this would be 
largely offset by the same number of prescribers being removed from the 
list (for example, based on reenrollment after the expiration of a 
reenrollment bar or decision to remove them from the preclusion list) 
with 15,000 affected beneficiaries. In aggregate, we estimate an annual 
burden of 1,245 hours (15,000 beneficiaries x 0.083 hours) at a cost of 
$48,829 (1,245 hour x $39.22/hour) or $325.53 per prescriber ($48,829/
150 prescribers).
    The proposed notice preparation and distribution requirements and 
burden will be submitted to OMB for approval under control number 0938-
0964 (CMS-10141).

                    Table 18--Estimated Burden of Part D--Notice Preparation and Distribution
                                                   [In hours]
----------------------------------------------------------------------------------------------------------------
                                                       2019            2020            2021       3-year average
----------------------------------------------------------------------------------------------------------------
Provisional Supply--Programming.................          93,600               0               0          31,200
Provisional Supply--Template Creation...........             636               0               0             212
Provisional Supply--Letter Preparation..........           6,640           1,245           1,245           3,043
                                                 ---------------------------------------------------------------
    Total.......................................         100,876           1,245           1,245          34,455
----------------------------------------------------------------------------------------------------------------


                    Table 19--Estimated Burden of Part D--Notice Preparation and Distribution
                                                     [In $]
----------------------------------------------------------------------------------------------------------------
                                                       2019            2020            2021       3-year average
----------------------------------------------------------------------------------------------------------------
Provisional Supply--Programming.................      $9,006,192              $0              $0      $3,002,064
Provisional Supply--Template Creation...........          43,935               0               0          14,645
Provisional Supply--Notice Preparation..........         260,421          48,829          48,829         119,360
                                                 ---------------------------------------------------------------
    Total.......................................       9,310,548          48,829          48,829       3,136,069
----------------------------------------------------------------------------------------------------------------

(2) Savings
    We believe that savings would accrue for the prescriber community 
from our proposed elimination of the requirement that prescribers 
enroll in Medicare in order to prescribe Part D drugs.
    As previously explained in this proposed rule, approximately 
420,000 prescribers have yet to enroll in Medicare via the CMS-855O 
application (OMB 0938-1135). We estimate that it would take 0.5 hours 
for a prescriber to complete a CMS-855O application. This is based on 
the following assumptions:
     A medical secretary would take 0.42 hours to prepare the 
application.
     A physician would take 0.08 hours to review and sign the 
application.
    This would result in a per application cost of $30.32 ((0.42 hours 
x $33.70) + (0.08 hours x $202.08). Multiplying this figure by 420,000 
applications results in a total savings of $12,734,400. We believe that 
these savings would accrue in 2019.
(3) Net Costs and Savings
    We believe that a result of our proposed elimination of the Part D

[[Page 56475]]

enrollment requirement, the following net savings for prescribers would 
ensue:

                                           Table 20--Net Costs/Savings
                                                     [In $]
----------------------------------------------------------------------------------------------------------------
                                                       2019            2020            2021       3-year average
----------------------------------------------------------------------------------------------------------------
Costs...........................................      $9,310,548         $48,829         $48,829      $3,136,069
Savings.........................................      12,734,400               0               0       4,244,800
Net *...........................................       3,423,852        (48,829)        (48,829)       1,108,731
----------------------------------------------------------------------------------------------------------------
* Net costs denoted in parentheses.

b. Preclusion List Requirements for Part C
    As previously explained in this proposed rule, approximately 
120,000 MA providers and suppliers have yet to enroll in Medicare via 
the CMS-855 application. Of these providers and suppliers, and based on 
internal CMS statistics, we estimate that 90,000 would complete the 
CMS-855I (OMB No. 0938-0685), which is completed by physicians and non-
physician practitioners; 24,000 would complete the CMS-855B (OMB 
control number 0938-0685), which is completed by certain Part B 
organizational suppliers; and 6,000 would complete the CMS-855A (OMB 
No. 0938-0685), which is completed by Part A providers and certain Part 
B certified suppliers. Therefore, we believe that savings would accrue 
for providers and suppliers from our proposed elimination of our MA/
Part C enrollment. Table 21 estimates the burden hours associated with 
the completion of each form.

                                      Table 21--CMS-855 Application Burden
----------------------------------------------------------------------------------------------------------------
                                     Number of                                     Hours for an
                                  respondents no     Hours for      Hours for a     authorized
         Submission type              longer       completion by   physician to     official to     Total hours
                                    required to       office        review and      review and    for completion
                                      enroll         personnel         sign            sign
----------------------------------------------------------------------------------------------------------------
CMS-855I........................          90,000             2.5             0.5             n/a               3
CMS-855B........................          24,000               4             n/a               1               5
CMS-855A........................           6,000               5             n/a               1               6
----------------------------------------------------------------------------------------------------------------

    In projecting the savings involved, we assume a medical and health 
services manager would serve as the provider's or supplier's 
``authorized official'' and would sign the CMS-855A or CMS-855B 
application on the provider's or supplier's behalf.
    Therefore, we project the following total hour and cost burdens:
     CMS-855I: We estimate a total reduction in hour burden of 
270,000 hours (90,000 applicants x 3 hours). With the cost of each 
application processed by a medical secretary and physician as being 
$185.29 (($33.70 x 2.5 hours) + ($202.08 x 0.5 hours)), we estimate a 
savings of $16,676,100 (90,000 applications x $185.29).
     CMS-855B: We estimate a total reduction in hour burden of 
120,000 hours (24,000 applicants x 5 hours). With the cost of each 
application processed by a medical secretary and signed off by a 
medical and health services manager as being $239.96 (($33.70 x 4 
hours) + ($105.16 x 1 hour)), we estimate a total savings of $5,759,040 
(24,000 applications x $105.16).
     CMS-855A: We estimate a total reduction in hour burden of 
36,000 hours (6,000 applicants x 6 hours). With the cost of each 
application processed by a medical secretary and signed off by a 
medical and health services manager as being $273.66 (($33.70 x 5 
hours) + ($105.16 x 1 hour)), we estimate a total savings of $6,567,840 
(24,000 applications x $273.66).
    Given the foregoing, we estimate that providers and suppliers would 
experience a total reduction in hour burden of 426,000 hours (270,000 + 
120,000 + 36,000) and a total cost savings of $32,102,980 ($9,667,660 + 
$5,759,040 + $16,676,100). We expect these reductions and savings to 
accrue in 2019 and not in 2020 or 2021. Nonetheless, over the OMB 3-
year approval period of 2019-2021, we expect an annual reduction in 
hour burden of 142,000 hours and an annual savings of $10,700,933 
($32,102,800/3) under OMB Control No. 0938-0685.
    We also propose to revise Sec.  422.310 to add a new paragraph 
(d)(5) to require that, for data described in paragraph (d)(1) as data 
equivalent to Medicare fee-for-service data (which is also known as MA 
encounter data), MA organizations must submit a National Provider 
Identifier in a Billing Provider field on each MA encounter data 
record, per CMS guidance. We do not expect any additional burden from 
this particular proposal, for this activity is consistent with existing 
policy.
13. ICRs Regarding the Part D Tiering Exceptions ((Sec. Sec.  423.560 
and Sec.  423.578(a) and (c))
    In section II.A.9. of this rule, we are proposing various changes 
to Sec.  423.578(a) and (c) related to the requirements for tiering 
exceptions criteria that Part D plan sponsors are required to 
establish. These changes include establishing a revised framework for 
treatment of tiering exception requests based on whether the requested 
drug is a brand name or generic drug or biological product, and where 
the same type of drug alternatives are located on the plan's formulary. 
The proposed changes also include clarification of appropriate cost-
sharing assigned to approved tiering exception requests when preferred 
alternative drugs are on multiple lower-cost tiers. At the coverage 
determination level, if a plan issues a decision that is partially or 
fully adverse to the enrollee, it is already required to send written 
notice of that decision. The existing requirement to send written 
notice of an adverse coverage determination would

[[Page 56476]]

not change under the proposed changes related to tiering exceptions. We 
do not expect the proposed changes to significantly impact the overall 
volume or the approval rate of tiering exceptions requests, which 
represent a consistently low percentage of total request volume.
    While the requirement to send a written denial notice is subject to 
the PRA, the requirement and burden are currently approved by OMB under 
control number 0938-0976 (CMS-10146). Since this rule would not impose 
any new or revised requirements/burden, we are not making any changes 
to that control number.
14. ICRs Regarding the Implementation of the Comprehensive Addiction 
and Recovery Act of 2016 (CARA) Provisions (Sec.  423.153(f))
    As discussed in section of this rule, proposed Sec.  423.153(f) 
would implement provisions of section 704 of CARA, which allows Part D 
plan sponsors to establish a drug management program that includes 
``lock-in'' as a tool to manage an at-risk beneficiary's access to 
coverage of frequently abused drugs. Part D plan sponsors would be 
required to notify at-risk beneficiaries about their plan's drug 
management program. Part D plan sponsors are already expected to send a 
notice to some beneficiaries when the sponsor decides to implement a 
beneficiary-specific POS claim edit for opioids (OMB under control 
number 0938-0964 (CMS-10141)). However, the OMB control number 0938-
0964 only accounts for the notices that are currently sent to 
beneficiaries who have a POS edit put in place to monitor opioid access 
(which would count as the initial notice described in the preamble and 
defined in Sec.  423.153(f)(4)) and would not capture the second notice 
that at-risk beneficiaries would receive confirming their determination 
as such or the alternate second notice that potentially at-risk 
beneficiaries would receive to inform them that they were not 
determined to be at risk.
    Since 2013, there have been 4,617 POS edits submitted into MARx by 
plan sponsors for 3,961 unique beneficiaries as a result of the drug 
utilization review policy. Given that there has not been a steady 
increase or decrease in edits, we have used the average, 923 edits 
annually, to assess burden under this rule. If we assume that the 
number of edits or access to coverage limitations will double due to 
the addition of pharmacy and prescriber ``lock-in'' to OMS, to 
approximately 1,846 such limitations, we estimate 3,693 initial, and 
second notices (number of limitations (1,846) multiplied by the number 
of notices (2)) total corresponding to such edits/limitations. We 
estimate it would take an average of 5 minutes (0.083 hours) at $39.22/
hour for an insurance claim and policy processing clerk to prepare each 
notice. We estimate an annual burden of 307 hours (3,693 notices x 
0.083 hour) at a cost of $12,040.54 (307 hour x $39.22/hour).
    Part D plan sponsors are required to upload these new notice 
templates into their internal claims systems. We estimate that 219 Part 
D plan sponsors (31 PDP parent organizations and 188 MA-PD parent 
organizations, based on plan year 2017 plan participation) would be 
subject to this requirement. We estimate that it will take on average 5 
hours at $81.90/hour for a computer programmer to upload all of the 
notices into their claims systems (note, this is an estimate to upload 
all of the documents in total; not per document). This would result in 
a total burden of 1,095 hours (5 hours x 219 sponsors) at a cost of 
$89,680.50 (1,095 hour x $81.90/hour).
    In aggregate, the burden to upload and prepare these additional 
notices is 1,402 hours (307 hours + 1,095 hours) at a cost of $101,721 
($12,040 + $89,681).
    Proposed revisions to Sec.  423.38(c)(4) would limit the SEP for 
dual- or other LIS-eligible individuals who are identified as a 
potential at-risk beneficiary subject to the requirements of a drug 
management program, as outlined in Sec.  423.153(f). As already 
codified in Sec.  423.38(c)(4), this proposed SEP limitation would be 
extended to ``other subsidy-eligible individuals'' so that both full 
and partial subsidy individuals are treated uniformly. Once an 
individual is identified as a potential at-risk beneficiary, that 
individual will not be permitted to use this election period to make a 
change in enrollment.
    Contingent with a Part D sponsor opting to implement a drug 
management program, Part D sponsors will identify, and submit to CMS, 
an individual's ``potential'' at-risk status and, if applicable, 
confirmed at-risk status. The Part D sponsor will include notification 
of the limitation of the duals' SEP in the required notice to the 
beneficiary that he or she has been identified as a potential at-risk 
beneficiary.
    Therefore, the burden associated with the notification of the 
inability to use the duals' SEP is covered under the previous statement 
of burden.
    Furthermore, we are proposing to codify that an at-risk beneficiary 
will have an election opportunity if their dual- or LIS-eligible status 
changes, that is, if they gain, lose or have a change in the level of 
the subsidy assistance. Also, if a beneficiary is eligible for another 
election period (for example, AEP, OEP, or other SEP), this SEP 
limitation would not prohibit the individual from making an election. 
This proposed provision, by creating a limitation for dually- and other 
LIS-eligible at-risk beneficiaries after the initial notification, 
would decrease sponsor burden in processing disenrollment and 
enrollment requests for dual- and LIS-eligible beneficiaries who wish 
to change plans.
    We estimate that 1,846 beneficiaries would meet the criteria 
proposed to be identified as an at-risk beneficiary and have a 
limitation implemented. About 76 percent of the 1,846 beneficiaries are 
estimated to be LIS. Approximately 10 percent of LIS-eligible enrollees 
use the duals' SEP to make changes annually. Thus we estimate, at most, 
140 changes per year (1,846 beneficiaries x 0.76 x 0.1) will no longer 
take place because of the proposed duals' SEP limitation. There are 
currently 219 Part D sponsors. This amounts to an average of 0.6 
changes per sponsor per year (140 changes/219 sponsors). In 2016, there 
were more than 3.5888 Part D plan switches, and as such, a difference 
of 0.6 enrollments or disenrollments per sponsor will not impact the 
administrative processing infrastructure or human resources needed to 
process enrollments and disenrollments. Therefore, there is no change 
in burden for sponsors to implement this component of the provision.
    We are proposing that reviews of at-risk determinations made under 
the processes at Sec.  423.153(f) be adjudicated under the existing 
Part D benefit appeals process and timeframes set forth in part 423 
Subparts M and U. Consistent with existing rules for redeterminations, 
an enrollee who wishes to dispute an at-risk determination would have 
60 days from the date of the notice of the determination to make such 
request, must affirmatively request IRE review of an adverse plan level 
appeal decision made under a plan sponsor's drug management program, 
and would have rights to an expedited redetermination. Revisions to 
regulations in part 423 Subparts M (Sec. Sec.  423.558, 423.560, 
423.562, 423.564, 423.580, 423.582, 423.584, 423.590, 423.602, 423.636, 
and 423.638) and U (Sec. Sec.  423.1970, 423.2018, 423.2020, 423.2022, 
423.2032, 423.2036, 423.2038, 423.2046, 423.2056, 423.2062, 423.2122 
and 423.2126) are being proposed to account for reviews of at-risk 
determinations. The filing of an appeal is an information collection 
requirement that is associated with an administrative action pertaining 
to specific individuals or entities (5 CFR 1320.4(a)(2) and (c)). 
Consequently, the

[[Page 56477]]

burden for preparing and filing the appeal is exempt from the 
requirements and collection burden estimates of the PRA; however, the 
burden estimate for appeals is included in the regulatory impact 
analysis.
    In aggregate, these components of this provision would result in an 
annual net cost of $101,012.
    The aforementioned requirements and burden, excluding beneficiary 
appeals, will be submitted to OMB for approval under control number 
0938-0964 (CMS-10141).

                               Table 22--Estimated Burden for the CARA Provisions
                                                   [In hours]
----------------------------------------------------------------------------------------------------------------
                                                       2019            2020            2021       3-year average
----------------------------------------------------------------------------------------------------------------
Preparation and Upload Notices..................           1,402               0               0           467.3
SEP Limitation..................................               0               0               0               0
Appeals.........................................             N/A             N/A             N/A             N/A
                                                 ---------------------------------------------------------------
    Total.......................................           1,402               0               0           467.3
----------------------------------------------------------------------------------------------------------------


                               Table 23--Estimated Burden for the Cara Provisions
                                                     (In $)
----------------------------------------------------------------------------------------------------------------
                                                                                                      3-Year
                                                       2019            2020            2021           average
----------------------------------------------------------------------------------------------------------------
Preparation and Upload Notices..................        $101,012              $0              $0       $33,670.7
SEP Limitation..................................               0               0               0               0
Appeals.........................................             N/A             N/A             N/A             N/A
                                                 ---------------------------------------------------------------
    Total.......................................         101,012               0               0        33,670.7
----------------------------------------------------------------------------------------------------------------

C. Summary of Proposed Information Collection Requirements and Burden

                                           Table 24--Proposed Annual Recordkeeping and Reporting Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                Total
 Regulatory section(s) in title 42 of   OMB control                                                             annual    Labor cost  of    Total cost
                the CFR                    No. *       Respondents      Responses     Burden per  response      burden       reporting          ($)
                                                                                                               (hours)        (hours)
--------------------------------------------------------------------------------------------------------------------------------------------------------
422.60, 422.62, 422.68, 423.38, and       0938-0753             468         558,000  5 min.................       46,500          $69.08      $3,212,220
 423.40 eligibility determination.
422.60, 422.62, 422.68, 423.38, and       0938-0753             468         558,000  1 min.................        9,300           69.08         642,444
 423.40 notification.
422.60, 422.62, 422.68, 423.38, and       0938-0753             468         558,000  1 min.................        9,300           69.08         642,444
 423.40 report to CMS.
422.60, 422.62, 422.68, 423.38, and       0938-0753             468         558,000  5 min.................       46,500           34.66       1,606,110
 423.40 record keeping.
422.152 QIP...........................    0938-1023             468           (750)  (15 min)..............        (188)           67.54        (12,664)
422.2260 and 423.2260 marketing           0938-1051             805        (67,061)  (30 min)..............     (26,959)           69.08     (1,862,397)
 materials.
422.2460 and 423.2460 MLR reporting...    0938-1232             587           (587)  (11 hr)...............      (6,457)          140.14       (904,884)
423.120(c)(6) create model notices....    0938-0964             212             212  3 hr..................          636           69.08          43,935
423.120(c)(6) 2019 prepare and            0938-0964             212          80,000  0.083 hr..............        6,640           39.22         260,421
 distribute the notices.
423.120(c)(6) 2020 and 2021 prepare       0938-0964             212          15,000  0.083 hr..............        1,245           39.22          48,829
 and distribute the notices.
423.153(f) notice preparation.........    0938-0964             219           3,693  0.083 hr..............          307           39.22          12,041
423.153(f) notice upload..............    0938-0964             219           3,693  5 hr..................        1,095           81.90          89,681
423.153(f) contract: Part D plan          0938-0964              31              31  10 hr.................          310          134.50          41,695
 sponsors.
423.153(f) contract: MA-PDs...........    0938-0964             188             188  20 hr.................        3,760          134.50         505,720
                                       -----------------------------------------------------------------------------------------------------------------
    Subtotal: Private Sector Burden...  ...........             805       2,266,419  varies................       91,989          varies       4,325,595
                                       -----------------------------------------------------------------------------------------------------------------
422.62, 423.38, and 423.40 complete       0938-0753      18,600,000         558,000  30 min................      279,000            7.25       2,022,750
 enrollment.
                                       -----------------------------------------------------------------------------------------------------------------

[[Page 56478]]

 
    Subtotal: Burden on Beneficaries..  ...........      18,600,000         558,000  30 min................      279,000            7.25       2,022,750
                                       -----------------------------------------------------------------------------------------------------------------
422.111(a)(3) and (h)(2)(ii) and          0938-1051             n/a    (32,026,000)  n/a...................          n/a             n/a    (24,019,500)
 423.128(a)(3) EOC paper.
422.111(a)(3) and (h)(2)(ii) and          0938-1051             n/a    (32,026,000)  n/a...................          n/a             n/a    (24,019,500)
 423.128(a)(3) EOC toner.
422.111(a)(3) and (h)(2)(ii) and          0938-1051             n/a    (32,026,000)  n/a...................          n/a             n/a     (6,629,382)
 423.128(a)(3) EOC mailing.
                                       -----------------------------------------------------------------------------------------------------------------
    Subtotal: Non-Labor Burden........  ...........             n/a    (32,026,000)  n/a...................          n/a             n/a    (54,668,382)
                                       -----------------------------------------------------------------------------------------------------------------
        Total.........................  ...........      18,600,805    (29,201,581)  varies................      370,989          varies    (48,320,037)
--------------------------------------------------------------------------------------------------------------------------------------------------------
* OMB control numbers and corresponding CMS ID numbers: 0938-0753 (CMS-R-267), 0938-1023 (CMS-10209), 0938-1051 (CMS-10260), 0938-1232 (CMS-10476), and
  0938-0964 (CMS-10141).

D. Submission of PRA-Related Comments

    We have submitted a copy of this proposed 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 the OMB.
    To obtain copies of the supporting statement and any related forms 
for the proposed collections previously discussed, please visit CMS' 
Web site at Web site address at https://www.cms.gov/Regulations-andGuidance/Legislation/PaperworkReductionActof1995/PRAListing.html, or 
call the Reports Clearance Office at 410-786-1326.
    We invite public comments on these potential information collection 
requirements. If you wish to comment, please submit your comments 
electronically as specified in the ADDRESSES section of this proposed 
rule and identify the rule (CMS-4182-P) and where applicable the ICR's 
CFR citation, CMS ID number, and OMB control number.
    See the DATES and ADDRESSES sections of this proposed rule for 
further information.

V. Regulatory Impact Analysis

A. Statement of Need

    This proposed rule approaches to improve the quality, accessibility 
and affordability of the Medicare Part C and Part D programs and to 
improve the CMS customer experience. While satisfaction with these 
programs remain high, these proposals are responsive to input we 
received from stakeholders while administering the program, as well as 
through a Request for Information process earlier this year. 
Additionally, this regulation includes a number of provisions that will 
help address the opioid epidemic and mitigate the impact of increasing 
drug prices in the Part D program.

B. Overall Impact

    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 (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), the Congressional Review Act (5 U.S.C. 804(2)), and Executive 
Order 13771 on Reducing Regulation and Controlling Regulatory Costs 
(January 30, 2017).
    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 of $100 
million in 1995 dollars, updated annually for inflation. In 2017, that 
threshold is approximately $148 million. This proposed rule is not 
anticipated to have an effect on State, local, or tribal governments, 
in the aggregate, or on the private sector of $148 million or more.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final

[[Page 56479]]

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.
    If regulations impose administrative costs on MA Plans and Part D 
Sponsors, such as the time needed to read and interpret this proposed 
rule, we should estimate the cost associated with regulatory review. 
There are currently 468 MA plans and Part D Sponsors.
    We assume each plan will have one designated staff member who will 
read the entire rule.
    Using the wage information from the BLS for medical and health 
service managers (Code 11-9111), we estimate that the cost of reviewing 
this rule is $105.16 per hour, including overhead and fringe benefits 
(https://www.bls.gov/oes/2016/may/naics4_621100.htm). Assuming an 
average reading speed, we estimate that it would take approximately 
15.6 hours for each person to review this proposed rule. For each MA 
plan that reviews the rule, the estimated cost is therefore, $1,640 
(15.6 hours x $105.16). Therefore, we estimate that the total cost of 
reviewing this regulation is $767,520 ($1,640 x 468 reviewers).
    In accordance with the provisions of Executive Order 12866, this 
rule was reviewed by the Office of Management and Budget.

C. Anticipated Effects

1. CARA Provisions
    Proposed Sec.  423.153(f) would implement provisions of section 704 
of CARA, which allows Part D plan sponsors to establish a drug 
management program that includes ``lock-in'' as a tool to manage an at-
risk beneficiary's access to coverage of frequently abused drugs.
    Under CARA, potentially at-risk beneficiaries are to be identified 
under guidelines developed by CMS with stakeholder input. Also, the 
Secretary must ensure that the population of at-risk beneficiaries can 
be effectively managed by Part D plans. CMS considered a variety of 
options as to how to define the clinical guidelines. We provide the 
estimated population of potential at-risk beneficiaries under different 
guidelines that take into account that the beneficiaries may be 
overutilizing opioids, coupled with use of multiple prescribers and/or 
pharmacies to obtain them, based on retrospective review, which makes 
the population appropriate to consider for ``lock-in'' and a 
description of the various options. We note that the measurement year 
for the estimates was 2015.
    For background, the current Part D Opioid Overutilization policy 
and Overutilization Monitoring System (OMS) has been successful at 
reducing high risk opioid overutilization. Under this policy, plans 
retrospectively identify beneficiaries at high risk of an adverse event 
due to opioids and use of multiple prescribers and pharmacies. CMS 
created the OMS to monitor plans' effectiveness in complying with the 
policy. The OMS criteria incorporate the CDC Guideline for Prescribing 
Opioids for Chronic Pain (March 2016) (CDC Guideline) to identify 
beneficiaries who are possibly overutilizing opioids and are at high 
risk but the CDC Guideline is not a prescribing limit. CDC identifies 
50 Morphine Milligram (MME) as a threshold for increased risk of opioid 
overdose, and to generally avoid increasing the daily dosage to 90 MME.
    Plans are expected to perform case management for each beneficiary 
identified in OMS and respond using standardized responses. If viewed 
as helpful by a prescriber, plans may implement a beneficiary-specific 
claim edit at the point-of-sale to prevent coverage of opioids outside 
of the amount deemed medically necessary by the prescriber. Plans may 
also implement an edit in the absence of prescriber response to case 
management.

                             Table 25--Guidelines To Identify At-Risk Beneficiaries
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Option                                  Average MME        Number of opioid prescribers and     Estimated number
                                                             opioid dispensing pharmacies        of potentially
                                                                                                  at-risk Part D
                                                                                                   beneficiaries
----------------------------------------------------------------------------------------------------------------
1................................  >=90................                 4+                 4+             33,053
                                   >=90................                 6+                 1+
2................................  >=90................                 4+                 4+             52,998
                                   >=90................                 5+                 1+
3................................  >=90................                 3+                 3+            103,832
                                   >=90................                 5+                 1+
4................................  >=90................                 3+                 3+            152,652
                                   >=90................                 4+                 1+
5................................  >=90................                 3+                 3+            319,133
                                   >=90................                 3+                 1+
----------------------------------------------------------------------------------------------------------------
                                        Average MME         Number of opioid prescribers or     Estimated number
                                                             opioid dispensing pharmacies        of potentially
                                                                                                  at-risk Part D
                                                                                                   beneficiaries
----------------------------------------------------------------------------------------------------------------
6................................  >=50................                 5+                 5+            153,880
                                   Any MME level.......                 7+                 7+
----------------------------------------------------------------------------------------------------------------

    Under Option 1, CMS would propose to integrate the CARA lock-in 
provisions with our current Part D Opioid Overutilization Policy/
Overutilization Monitoring System (OMS). We will propose to initially 
define frequently abused drugs as all and only opioids for the 
treatment of pain. The guidelines to identify at-risk beneficiaries 
would be the current Part D OMS criteria finalized for 2018 after 
stakeholder input. Plans that adopt a drug management program would 
have to engage in case management of the opioid use of all enrollees 
who meet these criteria, which would be reported through OMS and plans 
must provide a response for each case. The estimated number of 
potential

[[Page 56480]]

at-risk beneficiaries in 2019 using Option 1 is 33,053. Option 1 would 
allow plans to use pharmacy/prescriber lock in as an additional tool to 
address the opioid overutilization of identified at-risk beneficiaries.
    Option 2, 3, 4, and 5 are operationally the same as Option 1, 
including 90 MME, but would identify approximately 52,998 to 319,133 
beneficiaries in 2019 due to different clinical guidelines related to 
the number of opioid prescribers and opioid dispensing pharmacies. 
These options would result in up to 10 times the program size compared 
to Option 1.
    Finally, under Option 6, the guidelines to identify potentially at-
risk beneficiaries would not be fully integrated into our current OMS 
criteria. This option would identify beneficiaries whose opioid use is 
at the 50 MME level instead of 90, and the estimated number of 
potentially at-risk beneficiaries in 2019 is 153,880. Of these, 
approximately 29,000 would meet these criteria and the current OMS 
criteria. We seek comment on proposed Option 1 or if any of the 
alternative options may be currently viewed as manageable for Part D 
sponsors to implement.
    In addition, while these criteria would identify far more 
potentially at-risk beneficiaries, we may have to implement these 
options in a way that plans that adopt a drug management program would 
not have to review the opioid use of all enrollees who meet these 
criteria. This would mean a change in the structure of the successful 
OMS or a separate administrative structure for prescription drug 
management programs.
    As noted in section II. of this rule, we have chosen to propose 
Option 1. This approach is a cautious approach for the initial 
implementation year of the CARA ``lock-in'' provisions. We believe 
these provisions will result in the following savings to the program.
    We estimate that the CARA provisions would result in a net savings 
of $10 million (the estimated savings of $13 million less the total 
estimated costs of $2,836,651 = $10,163,349, rounded to the nearest 
million) in 2019. The following are details on each of these savings.
    We assume, based on past experience with OMS, that about 61 percent 
of at-risk beneficiaries may reduce prescriptions for frequently abused 
drugs and will no longer meet the clinical criteria. This means that 
prescriber and pharmacy lock-in would impact the remaining 39 percent 
of at-risk beneficiaries or 39 percent x 33,000 at-risk beneficiaries = 
12,870 at-risk beneficiaries. We estimate that the average number of 
scripts per year on frequently abused drugs for those at-risk 
beneficiaries is about 48 and the average cost per script is about $106 
in 2016. Our data show that those beneficiaries who would meet the 
proposed criteria for identification as an at-risk beneficiary and have 
a limitation placed on their access to opioids, have 4 opioids scripts 
per month on average. OACT anticipates between 10 and 30 percent 
reduction in prescriptions for frequently abused drugs would be 
possible through drug management programs and picked the average, 20 
percent. Therefore, we believe there could be a 20 percent reduction in 
the prescriptions for frequently abused drugs for those 12,870 
beneficiaries, resulting in a projected savings of about $13 million to 
Medicare in 2019.
    Part D plan sponsors would also be required to send at-risk 
beneficiaries multiple notices to notify them of about their plan's 
drug management program. Part D plan sponsors are already expected to 
send a notice to some beneficiaries when the Part D plan sponsors 
decide to implement a beneficiary-specific POS claim edit for opioids. 
Therefore, we anticipate limited additional burden for Part D plan 
sponsors to send certain at-risk beneficiaries an additional notice to 
indicate their lock-in status.
    Since 2013, there have been 4,617 POS edits submitted into MARx by 
plan sponsors for 3,961 unique beneficiaries as a result of the drug 
utilization review policy. That results in approximately 923 edits 
annually. If we assume that the number of edits or access to coverage 
limitations will double due to the addition of pharmacy and prescriber 
``lock-in'' to OMS, to approximately 1,846 such limitations, we 
estimate 3,692 initial and second notices (number of limitations 
(1,846) multiplied by the number of notices (2)) total corresponding to 
such edits/limitations. For purposes of this estimate, we assume that 
all beneficiaries who receive initial notices will be placed on an 
access limitation. We estimate it would take an average of 5 minutes 
(0.083 hours) at $39.22/hour for an insurance claim and policy 
processing clerk to prepare each notice. The burden of 307 hours (3,692 
notices x 0.083 hour) at a cost of $12,040.54 (307 hour x $39.22/hr) in 
2019 was estimated in section III of this rule.
    Part D plan sponsors are required to upload these new notice 
templates into their internal claims systems. We estimate that 219 Part 
D plan sponsors (31 PDP parent organizations and 188 MA-PD parent 
organizations) will be subject to this requirement. We estimate that it 
will take on average 5 hours at $81.90/hour for a computer programmer 
to upload the notices into their claims systems. This would result in a 
total burden of 1,095 hours (5 hours x 219 sponsors) at a cost of 
$89,680.50 (1,095 hour x $81.90/hr). In aggregate, the burden to 
prepare and upload these additional notices was estimated as 1,402 
hours (307 hours + 1,095 hours) at a cost of $101,721 ($12,040 + 
$89,681) in 2019 in section III. of this proposed rule.
    Part D plan sponsors may also renegotiate the contracts with 
network pharmacies and network prescribers in the case of MA-PDs. For 
Part D plan sponsors that contract with pharmacies only, we estimate it 
would take 10 hours at $134.50/hour for lawyers to conduct the PDP 
contract negotiations with network pharmacies. Considering 31 sponsors 
we estimate a total burden of 310 hours at a cost of $41,695 (310 hour 
x $134.50/hour). For MA-PDs who also contract with prescribers, we 
estimate that the annual burden for negotiating a contract with network 
providers who can prescribe controlled substances to be 3,760 hours 
(188 MA-PDs x 20 hours per sponsor) at a cost of $505,720 (3,760 hour x 
$134.50/hour). The total estimated burden associated with the contract 
negotiations from both PDP and MA-PD sources in 2019 was estimated as 
4,070 hours (310 hours + 3,760 hours) at a cost of $547,415 ($41,695 + 
$505,720).
    We estimate that, in order to implement pharmacy or prescriber 
lock-in, Part D plan sponsors would have to program edits into their 
pharmacy claims systems so that once they restrict an at-risk 
beneficiaries' access to coverage for frequently abused drugs through 
applying pharmacy or prescriber lock-in, claims at a non-selected 
pharmacies or associated with prescriptions for frequently abused drugs 
from non-selected prescribers would be rejected. We believe that most 
Part D plan sponsors with Medicaid or private lines of business will 
have existing lock-in programs in those lines of business to pull 
efficiencies from. We estimate it would take a total number of 26,280 
labor hours across all 219 Part D plan sponsors (31 PDP parent 
organizations and 188 MA-PD parent organizations) at a wage of $81.90 
an hour for computer programmers to program these edits into their 
existing systems. Thus, the total cost to program these edits is 26,280 
hours x $81.90 = $2,152,332.
    The right of an enrollee to appeal an at-risk determination will 
also have an associated cost. As explained, we estimate a total hourly 
burden of 178

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hours at an annual estimated cost of $35,183 in 2019. As previously 
discussed, we estimate that 1,846 beneficiaries would meet the criteria 
for being identified as an at-risk beneficiary. Based on validated 
program data for 2015, 24 percent of all adverse coverage 
determinations were appealed to level 1. Given the nature of drug 
management programs, the extensive level of case management conducted 
by plans prior to making the at-risk determination, and the opportunity 
for an at-risk beneficiary to submit preferences to the plan prior to 
lock-in implementation, we believe it is reasonable to assume that this 
rate of appeal will be reduced by at least 50 percent for at-risk 
determinations made under a drug management program. Therefore, this 
estimate is based on an assumption that about 12 percent of the 
beneficiaries estimated to be subject to an at-risk determination 
(1,846) will appeal the determination. Hence, we estimate that there 
will be 222 level 1 appeals (1,846 x 12 percent). We estimate it takes 
48 minutes (0.8 hours) to process a level 1 appeal. There is a 
statutory requirement that a physician with appropriate expertise make 
the determination for an appeal of an adverse initial determination 
based on medical necessity. Thus, we estimate an hourly burden of 178 
hours (222 appeals x 0.8) at a cost of $197.66 per hour for physicians 
to perform these appeals. Thus the total cost in 2019 is estimated as 
$35,183 = 178 hours x $197.66.
    In aggregate, this provision would result in a net savings of $13 
million - ($101,721 + $547,415 + $2,152,332 + $35,183) = $13 million - 
$2,836,651 = $10,163,349 (or $10,000,000 if rounded to nearest million) 
in 2019.
2. Reducing the Burden of the Compliance Program Training Requirements 
(Sec. Sec.  422.503 and 423.504)
    The proposed provision would amend the regulation so that first-
tier, downstream and related entities (FDR) no longer are required to 
take the CMS compliance training, which lasts 1 hour, and so that MA 
organizations and Part D sponsors no longer have a requirement to 
ensure that FDRs have compliance training. However, it is still the 
sponsoring organization's responsibility to manage relationships with 
its FDRs and ensure compliance with all applicable laws, rules and 
regulations. Furthermore, we would continue to hold sponsoring 
organizations accountable for the failures of its FDRs to comply with 
Medicare program requirements.
    We believe that by deleting this provision we will reduce burden 
for sponsoring organizations and their FDRs. We estimate that the 
burden reduction will be roughly 1 hour for each FDR employee who would 
be required to complete the CMS training on an annual basis, under the 
current regulation at Sec. Sec.  422.503(b)(4)(vi)(C) and 
423.504(b)(4)(vi)(C). We do not know how many employees were required 
to take the CMS training, nor do we know the exact numbers of FDRs that 
were subject to the requirement. Sponsoring organizations have 
discretion in not only which of their contracted organizations meet the 
definition of an FDR, but also discretion in which employees of that 
FDR are subject to the training. But we know from public comments that 
PBMs, hospitals, pharmacies, labs, physician practice groups and even 
some billing offices were routinely subjected to the training. 
Unfortunately, the Medicare Learning Network (MLN) Matters[supreg] Web 
site is not able to track the number of people that took CMS' training, 
so we cannot use that as a data source. CMS has reviewed the 
Organization for Economic Co-operation and Development's (OECD) 2015 
statistics which show a total of 20,076,000 people employed in the 
health and social services fields in the United States, although 
certainly not all of them were subject to CMS' training requirement 
(See http://stats.oecd.org/index.aspx?DataSetCode=HEALTH_STAT). 
Hospitals are one sector of the health industry that has been 
particularly vocal about the burden the current training requirement 
has placed on them and their staff. If we use hospitals as an example 
to estimate potential burden reduction, the OECD Web site states that 
there are 5,627 hospitals in the United States, employing 6,210,602 
people. That is an average of 1,103 people per hospital. There are 
approximately 4,800 hospitals registered with Original Medicare. If we 
assume that each one of those hospitals holds at least one contract 
with a M A health plan and all of their employees were subjected to the 
training (4,800 x 1,103 x 1 hour) that is 5,294,400 hours of burden 
that would be eliminated by this proposal. If we add pharmacists, 
pharmacy technicians, billing offices, physician practice groups, we 
would expect further burden reduction. OECD has data for a few more 
sectors of the industry, including 295,620 pharmacists, 3,626,060 
nurses and 820,251 physicians in the United States. Many of the 
physicians and nurses are likely represented in the 6 million employed 
by hospitals. Unfortunately we don't have data sources for all sectors 
of the industry. However, using hospital staff as a starting point and 
OECD's total figure of 20 million working in the health and social 
service fields, we estimate the burden reduction is likely 6 to 8 
million hours each year. Again, we have no way to determine exactly how 
many FDRs there are or exactly how many staff would be expected to take 
the training under the current regulation, but we hope this example 
demonstrates the reduction in burden this proposal would mean for the 
industry. We request comment that would allow for more complete 
monetization of cost savings in the analysis of the final rule.
    Although sponsors must still monitor FDRs and implement corrective 
actions when mistakes are found, we believe that they are currently 
already doing this. Therefore no additional burden complementing the 
reduction in burden is anticipated from this proposal to eliminate the 
CMS training.
3. Meaningful Differences in Medicare Advantage Bid Submissions and Bid 
Review (Sec. Sec.  422.254 and 422.256)
    For CY 2018 bids, 2,743 non-D-SNP non-employer plans (that is, HMO, 
HMO-POS, Local PPO, PFFS, and RPPO) used in house and/or consulting 
actuaries to address the meaningful difference requirement based on CY 
2018 bid information. The most recent Bureau of Labor Statistics report 
states that actuaries made an average of $54.87 an hour in 2016, and we 
estimate that 2 hours per plan are required to fully address the 
meaningful difference requirement. The estimated hours are based on 
assumptions developed in consultation with our Office of the Actuary. 
We additionally allow 100 percent for benefits and overhead costs of 
actuaries, resulting in an hourly wage of $54.87 x 2 = $109.74. 
Therefore, we estimate a savings of 2 hours per plan x 2,743 plans = 
5,486 hours reduction in hourly burden with a savings in cost of 5,486 
hours x $109.74 = $602,033.64, rounded down to $0.6 million to be saved 
annually under this proposal.
    The number of plan bids received by CMS may increase because of a 
variety of factors, such as payments, bidding and service area 
strategies, serving unique populations, and in response to other 
program constraints or flexibilities. However, CMS expects that 
eliminating the meaningful difference requirement will improve the plan 
options available for beneficiaries, but do not believe the number of 
similar plan options offered by the same MA organization in each county 
will necessarily increase significantly or create more confusion in 
beneficiary decision-making related specifically to

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the number of plan options. New flexibilities in benefit design and 
more sophisticated approaches to consumer engagement and decision-
making should help beneficiaries, caregivers, and family members make 
informed plan choices.
    CMS does not believe this proposed change will have a significant 
impact on health care providers. The number of plans offered by 
organizations in each county are not expected to increase significantly 
as a result of this change and health care provider contracts with MA 
organizations typically include all of the organization's plans rather 
than having separate contracts for each plan. In addition, CMS does not 
expect a significant increase in time spent in bid review as a direct 
result of eliminating meaningful difference nor increased provider 
burden.
4. Physician Incentive Plans--Update Stop-Loss Protection Requirements 
(Sec.  422.208)
    Some physician contracts with MA organizations provide that the MA 
organization pay the physician a capitated amount to assume financial 
responsibility for services (for example, hospital costs) that they do 
not personally render. CMS refers to capitations to physicians that 
include services the physicians do not render as ``global capitation.'' 
When physicians are globally capitated to the extent that they can lose 
more than 25 percent of their income, they are required to be covered 
by stop-loss insurance. We propose to replace the current insurance 
schedule in the regulation with updated stop-loss insurance 
requirements that would allow insurance with higher deductibles. The 
new schedule would result in a significant reduction to the cost of 
obtaining stop-loss insurance. The higher deductibles are consistent 
with the increase in medical costs due to inflation.
    To determine the cost of different stop-loss insurance policies, we 
used claim distributions from original Medicare enrollees. Then, we 
assumed an average loading for administrative and profit of 20 percent. 
Using these assumptions, we estimate that plans and physicians would 
save an average of $100 per globally capitated member per year in total 
costs. The derivation of this $100 figure is as follows:
    Under the current regulation at Sec.  422.208(f)(2)(iii), stop-loss 
insurance for the provider (at the MA organization's expense) is needed 
only if the number of members in the physician's group at global risk 
under the MA plan is less than 25,000. The average number of members in 
the under 25,000 group estimated under the current regulation is 6,000 
members. Ideally, to obtain an average, we should weight the panel 
sizes in the chart at Sec.  422.208(f)(2)(iii) by the number of 
physician practices and the number of capitated patients per practice 
per plan. However, this information is not available. Therefore, we 
used the median of the panel sizes listed in the chart at Sec.  
422.208(f)(2)(iii), which is about 8,000. Since the per member per year 
(PMPY) stop-loss premiums are greater for a smaller number of patients, 
we lowered this 8,000 to 6,000 to reflect the fact that the 
distribution of capitated patients is skewed to the left. We use this 
rough estimate of 6,000 for its estimates.
    For these 6,000 members, the current regulation at Sec.  
422.208(f)(2)(iii) (the chart) shows the physician needs stop-loss 
insurance for $37,000 in a combined attachment point (deductible). The 
$37,000 is obtained by using linear interpolation on the chart at Sec.  
422.208(f)(2)(iii), replacing panel sizes with midpoints of ranges and 
rounding to the nearest 1,000. To find the premium for a stop-loss 
insurance with a deductible of $37,000, we use Table 26, which reflects 
current insurance rates, that is, what would be charged today. By using 
linear interpolations on the columns with $30,000 and $40,000 and 
rounding to the nearest $1,000, we see that the PMPY premium for 
insurance with $37,000 combined attachment points is $2,000 PMPY. This 
$2,000 premium reflects the baseline charge today for a combined 
deductible of $37,000.
BILLING CODE 4120-01-P

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[GRAPHIC] [TIFF OMITTED] TP28NO17.015

BILLING CODE 4120-01-C

[[Page 56484]]

    Next, we compute the premium under the proposed rule. We still 
assume an average of 6,000 capitated members. However, the proposed 
rule allows higher deductibles corresponding to medical inflation. By 
using linear interpolation on the columns headed with 50,000 and 60,000 
combined attachment points and rounding. We see that a deductible 
(combined attachment point) of $57,000 corresponds to 6,000 capitated 
members and a premium of $1,500 PMPY.
    The savings in premium between using Sec.  422.208(f)(iii) to 
calculate deductibles (combined attachment point) and using Table A to 
calculate deductibles is $2000 - $1500 = $500 PMPY. We assume that the 
average loading for profit and administrative costs is roughly 20 
percent. So our PMPY savings is 20 percent x 500 = $100 PMPY. The 
remaining $500 - $100 = $400 in savings is on net benefits. That 
reduction does not produce any savings since the plans and physicians 
are simply trading claims for premiums.
    In 2007, we estimated that 7 percent of enrollees were receiving 
services under capitated arrangements. Although we do not have more 
current data, based on CMS observation of managed care industry trends, 
we believe that the percentage is now higher, and we assume that 11 
percent of enrollees are now paid under global capitation. There are 
currently 18.6 million MA beneficiaries. We estimate that about 18.6 
million x 11 percent = 2,046,000 MA members are paid under some degree 
of global capitation. Thus, the total aggregate projected annual 
savings under this proposal is roughly $100 PMPY x 2,046,000 million 
beneficiaries paid under global capitation = $204.6 million.
    The $204.6 million savings is removed from the plan bid, but not 
the CMS benchmark. If the benchmark exceeds the bid, Medicare pays the 
MA organization the bid (capitation rate and risk adjustment) plus a 
percentage of the difference between the benchmark and the bid, called 
the rebate. The rebate is based on quality ratings and allows Medicare 
to share in the savings to the plans; our experience with rebates shows 
that the average rebate is on the order of 2/3. We assumed that of the 
$204.6 million in annual savings, Medicare would save 35 percent x 
$204.6 million = $71,610,000, and the remaining 65 percent x $204.6 
million = $132,990,000 would be paid to the plans. The plan portion of 
the savings we project for this proposal would fund extra benefits or 
possibly reduce cost sharing for plan members.
    The figures for 2019 were updated for 2020 to 2023 using enrollment 
and inflation factors found in the CMS trustees report, accessible at: 
https://www.cms.gov/reportstrustfunds.
5. Changes to the Agent/Broker Requirements (Sec. Sec.  422.2272(e) and 
423.2272(e))
    We propose to delete the limitation placed on MA organizations and 
Part D sponsors as to how they can respond to an agent/broker who has 
become unlicensed. We propose to delete a requirement that the MA plan 
or Part D plan terminate an unlicensed agent or broker and contact 
beneficiaries to notify them if they had been enrolled by the 
unlicensed agent or broker. We already require MA organizations and 
Part D sponsors to use only licensed agents/brokers. We have 
established the requirement to have a licensed agent or broker in a 
2008 final rule (73 FR 54219). That burden assessment is not changing 
due to the proposal to remove paragraph (e) from these sections. The 
impact analysis for the specific provision at paragraph (e) of 
Sec. Sec.  422.2272 and 423.2272 was established in rule-making in 
April 2011 (76 FR 21534). As for the impact of review and compliance 
activities that remain to plans after removing the narrow scope of 
compliance actions available to MA organizations and Part D sponsors, 
we do not believe this change would have a significant increase in 
burden or financial impact. Removing this requirement allows state 
Department of Insurance (DOI) requirements to take precedence in this 
situation. While some MA organizations and Part D sponsors may choose 
to make operational changes to ensure compliance, these changes are not 
based on this rule, but are required to meet existing requirements.
6. Coordination of Enrollment and Disenrollment Through MA 
Organizations and Effective Dates of Coverage and Change of Coverage
    We propose to revise our regulations at Sec.  422.66 to permit 
default enrollment of Medicaid managed care plan members into an MA 
special needs plan for dual eligible beneficiaries. Upon a Medicaid 
managed care plan member becoming eligible for Medicare, qualification 
for enrollment into the MA special needs plan for dual eligibles is 
contingent on the following:
     State support for the default enrollment process, and
     The organization's ability to identify such individuals at 
least 90 days in advance of their Medicare eligibility; and
     To issue written notification of the enrollment a minimum 
of 60 days in advance.
    Our proposal represents the partial codification of existing policy 
on seamless conversion enrollment that has been specified in 
subregulatory guidance for contract years 2006 and subsequent years, 
but with additional parameters and limits. Among the new limits 
proposed for seamless conversion default enrollments are allowing such 
enrollments only from the organization's Medicaid managed care plan 
into an integrated D-SNP and requiring facilitation from applicable 
state (in the form of a contract term and provision of data). This will 
result in the discontinuation of the use of the seamless conversion 
enrollment mechanism by some of the approved MA organizations. However, 
as this enrollment mechanism is voluntary and not required for 
participation in the MA program, we do not believe the proposed changes 
would have any impact to the Medicare Tr