Department of Health and Human Services

Vol. 79 Friday,

No. 100 May 23, 2014

Part II

Centers for Medicare & Medicaid Services

42 CFR Parts 417, 422, 423, et al.

Medicare Program; Contract Year 2015 Policy and Technical Changes to

the Medicare Advantage and the Medicare Prescription Drug Benefit

Programs; Final Rule

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DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Centers for Medicare & Medicaid

Services

42 CFR Parts 417, 422, 423, and 424

[CMS–4159–F]

RIN 0938–AR37

Medicare Program; Contract Year 2015

Policy and Technical Changes to the

Medicare Advantage and the Medicare

Prescription Drug Benefit Programs

AGENCY

: Centers for Medicare &

Medicaid Services (CMS), HHS.

ACTION

: Final rule.

SUMMARY

: The final rule will revise the

Medicare Advantage (MA) program (Part

C) regulations and prescription drug

benefit program (Part D) regulations to

implement statutory requirements;

improve program efficiencies; and

clarify program requirements. The final

rule also includes several provisions

designed to improve payment accuracy.

DATES

: Effective Dates: These

regulations are effective on July 22, 2014

except for the amendment in instruction

27 to § 423.100, the amendment in

instruction 30 to § 423.501, and the

amendment in instruction 34 to

§ 423.505, which are effective on

January 1, 2016.

Applicability Dates: In the

SUPPLEMENTARY INFORMATION

section of

this final rule, we provide a table (Table

1) which lists key changes in this final

rule that have an applicability date

other than the effective date of this final

rule.

FOR FURTHER INFORMATION CONTACT

Christopher McClintick, (410) 786–

4682, Part C issues.

Marie Manteuffel, (410) 786–3447, Part

D issues.

Kristy Nishimoto, (206) 615–2367, Part

C and D enrollment and appeals

issues.

Whitney Johnson, (410) 786–0490, Part

C and D payment issues.

Joscelyn Lissone, (410) 786–5116, Part C

and D compliance issues.

Frank Whelan, (410) 786 1302, Part D

improper prescribing issues.

SUPPLEMENTARY INFORMATION

: Table 1

lists key changes that have an

applicability date other than 60 days

after the date of publication of this final

rule. The applicability dates are

discussed in the preamble for each of

these items.

ABLE

1—A

PPLICABILITY

ATE OF

ROVISIONS

THER

HAN

60 D

AYS

FTER THE

ATE OF

UBLICATION OF THE

INAL

ULE

Preamble section Section title Applicability date

III.A.4 ........................ Reducing the Burden of the Compliance Program Training Requirements (§§ 422.503(b)(4)(vi)(C) and

§ 423.504(b)(4)(vi)(C)).

01/01/2016

III.A.7 ........................ Agent/Broker Compensation Requirements (§§ 422.2274 and 423.2274) ............................................... 01/01/2015

III.A.20 ...................... Enrollment Requirements for the Prescribers of Part D Covered Drugs (§ 423.120(c)(6)) ..................... 06/01/2015

III.A.24 ...................... Eligibility of Enrollment for Incarcerated Individuals (§§ 417.1, 417.460(b)(2)(i), 417.460(f)(1)(i)(A)

through (C), 422.74(d)(4)(i)(A), 422.74(d)(4)(v), 423.44(d)(5)(iii) and (iv)).

01/01/2015

Table of Contents

I. Executive Summary

A. Purpose

B. Summary of the Major Provisions

1. Modifying the Agent/Broker

Requirements, Specifically Agent/Broker

Compensation

2. Drug Categories or Classes of Clinical

Concern

3. Improving Payment Accuracy—

Implementing Overpayment Provisions

of Section 1128J (d) of the Social

Security Act (§§ 422.326 and 423.360).

4. Risk Adjustment Data Requirements

(§ 422.310)

C. Summary of Costs and Benefits

II. Background

A. General Overview and Regulatory

History

B. Issuance of a Notice of Proposed

Rulemaking

C. Public Comments Received in Response

to the CY 2015 Policy and Technical

Changes to the Medicare Advantage and

the Medicare Prescription Drug Benefit

Programs Proposed Rule

D. Provisions Not Finalized in this Final

Rule

III. Provisions of the Proposed Regulations

A. Clarifying Various Program

Participation Requirements

1. Closing Cost Contract Plans to New

Enrollment (§§ 422.2 and 22.503)

2. Authority to Impose Intermediate

Sanctions and Civil Money Penalties

(§§ 422.752, 423.752, 422.760 and

423.760)

3. Contract Termination Notification

Requirements and Contract Termination

Basis (§§ 422.510 and 423.509)

4. Reducing the Burden of the Compliance

Program Training Requirements

(§§ 422.503(b)(4)(vi)(C) and

423.504(b)(4)(vi)(C))

5. Procedures for Imposing Intermediate

Sanctions and Civil Money Penalties

Under Parts C and D (§§ 422.756 and

423.756)

6. Timely Access to Mail Order Services

(§ 423.120)

7. Agent/Broker Requirements, Particularly

Compensation (§§ 422.2274 and

423.2274)

8. Drug Categories or Classes of Clinical

Concern (§ 423.120(b)(2)(v))

9. Medication Therapy Management

Program (MTMP) under Part D

(§ 423.153(d))

a. Multiple Chronic Diseases

b. Multiple Part D Drugs

c. Annual Cost Threshold

10. Requirement for Applicants or their

Contracted First Tier, Downstream, or

Related Entities to Have Experience in

the Part D Program Providing Key Part D

Functions (§ 423.504(b))

11. Requirement for Applicants for Stand

Alone Part D Plan Sponsor Contracts to

Be Actively Engaged in the Business of

the Administration of Health Insurance

Benefits (§ 423.504(b)(9))

12. Limit Parent Organizations to One

Prescription Drug Plan (PDP) Sponsor

Contract Per PDP Region (§ 423.503)

13. Limit Stand-Alone Prescription Drug

Plan Sponsors to Offering No More Than

Two Plans Per PDP Region (§ 423.265)

14. Applicable Cost-Sharing for Transition

Supplies: Transition Process Under Part

D (§ 423.120(b)(3))

15. Interpreting the Non Interference

Provision (§ 423.10)

16. Pharmacy Price Concessions in

Negotiated Prices (§ 423.100)

17. Preferred Cost Sharing (§§ 423.100 and

423.120)

18. Prescription Drug Pricing Standards

and Maximum Allowable Cost

(§ 423.505(b)(21))

19. Any Willing Pharmacy Standard Terms

& Conditions (§ 423.120(a)(8))

20. Enrollment Requirements for

Prescribers of Part D Covered Drugs

(§ 423.120(c)(5) and (6))

21. Improper Prescribing Practices

(§§ 424.530 and 424.535)

a. Background and Program Integrity

Concerns

b. Drug Enforcement Administration (DEA)

Certification of Registration

c. Patterns or Practices of Prescribing

22. Broadening the Release of Part D Data

(§ 423.505)

23. Establish Authority to Directly Request

Information From First Tier,

Downstream, and Related Entities

(§§ 422.504(i)(2)(i) and 423.505(i)(2)(i))

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24. Eligibility of Enrollment for

Incarcerated Individuals (§§ 417.1,

417.422, 417.460, 422.74, and 423.44)

a. Changes in Definition of Service Area for

Cost Plans (§§ 417.1 and 417.422(b))

b. Involuntary Disenrollment for

Incarcerated Individuals Enrolled in MA,

PDP and cost plans (§§ 417.460, 422.74,

and 423.44)

25. Rewards and Incentives Program

Regulations for Part C Enrollees

(§ 422.134)

B. Improving Payment Accuracy

1. Implementing Overpayment Provisions

of Section 1128J(d) of the Social Security

Act (§§ 422.326 and 423.360)

a. Terminology (§§ 422.326(a) and

423.360(a))

b. General Rules for Overpayments

(§ 422.326(b) through (c); § 423.360(b)

through (c))

c. Look-back Period for Reporting and

Returning Overpayments

2. Risk Adjustment Data Requirements

(§ 422.310)

3. RADV Appeals

a. Background

b. RADV Definitions

c. Publication of RADV Methodology

d. Proposal to Update RADV Appeals

Terminology (§ 422.311)

e. Proposal to Simplify the RADV Appeals

Process

(1) Issues Eligible for RADV Appeal

(2) Issues Not Eligible for RADV Appeals

(3) Manner and Timing of a Request for

RADV Appeal

(4) Reconsideration Stage

(5) Hearing Stage

(6) CMS Administrator Review Stage

f. Proposal to Expand Scope of RADV

Audits

g. Proposal to Clarify the RADV Medical

Record Review Determination Appeal

Burden of Proof Standard

h. Proposal to Change RADV Audit

Compliance Date

4. Recovery Audit Contractor (RAC)

Determination Appeals (Proposed Part

422 Subpart Z and Part 423 Subpart Z)

a. Background

b. Proposed RAC Appeals Process

(1) Reconsiderations (§§ 422.2605 and

423.2605)

(2) Hearing Official Determinations

(§§ 422.2610 and 423.2610)

(3) Administrator Review (§§ 422.2615 and

423.2615)

C. Implementing Other Technical Changes

1. Definition of a Part D Drug (§ 423.100)

a. Combination Products

b. Barbiturates and Benzodiazepines

c. Medical Foods

2. Special Part D Access Rules During

Disasters or Emergencies (§ 423.126)

3. Termination of a Contract Under Parts C

and D (§§ 422.510 and 423.509)

a. Cross-reference Change (§ 423.509(d))

b. Terminology Changes (§§ 422.510 and

423.509)

c. Technical Change to Align Paragraph

Headings (§ 422.510(b)(2))

d. Terminology Change

(§ 423.509(b)(2)(C)(ii))

4. Technical Changes Regarding

Intermediate Sanctions and Civil Money

Penalties (§§ 422.756 and 423.756)

a. Technical Changes to Intermediate

Sanctions Notice Receipt Provisions

(§§ 422.756(a)(2) and 423.756(a)(2))

b. Cross-reference Changes

(§§ 422.756(b)(4) and 423.756(b)(4))

c. Technical Changes (§§ 422.756(d) and

423.756(d))

d. Technical Changes to Align the Civil

Money Penalty Provision with the

Authorizing Statute (§§ 422.760(a)(3) and

423.760(a)(3))

e. Technical Changes to Align the Civil

Money Penalty Notice Receipt Provisions

(§§ 422.1020(a)(2), 423.1020(a)(2),

422.1016(b)(1), and 423.1016(b)(1))

IV. Collection of Information Requirements

A. ICRs Related to Improper Prescribing

Practices and Patterns (§ 424.535(a)(13)

and (14))

B. ICRs Related to Applicants or their

Contracted First Tier, Downstream, or

Related Entities to Have Experience in

the Part D Program Providing Key Part D

Functions (§ 423.504(b)(8)(i) through

(iii))

C. ICRs Related to Eligibility of Enrollment

for Incarcerated Individuals (§§ 417.460,

422.74, and 423.44)

D. ICRs Related to Rewards and Incentives

Program Regulations for Part C Enrollees

(§ 422.134)

E. ICR Related to Recovery Audit

Contractor Determinations (Part 422,

Subpart Z and Part 423, Subpart Z)

V. Regulatory Impact Analysis

A. Statement of Need

B. Overall Impact

C. Anticipated Effects

1. Effects of Closing Cost Contract Plans to

New Enrollment

2. Effects of the Authority to Impose

Intermediate Sanctions and Civil Money

Penalties

3. Effects of Contract Termination

Notification Requirements and Contract

Termination Basis

4. Effects of Reducing the Burden of the

Compliance Program Training

Requirements

5. Effects of the Procedures for Imposing

Intermediate Sanctions and Civil Money

Penalties under Parts C and D

6. Effects of Timely Access to Mail Order

Services

7. Effects of the Modification of the Agent/

Broker Compensation Requirements

8. Effects of Drug Categories or Classes of

Clinical Concern

9. Effects of the Medication Therapy

Management Program (MTMP) under

Part D

10. Effects of the Requirement for

Applicants or their Contracted First Tier,

Downstream, or Related Entities to Have

Experience in the Part D Program

Providing Key Part D Functions

11. Effects of Requirement for Applicants

for Stand Alone Part D Plan Sponsor

Contracts to Be Actively Engaged in the

Business of the Administration of Health

Insurance Benefits

12. Effects of Limit Parent Organizations to

One Prescription Drug Plan (PDP)

Sponsor Contract per PDP Region

13. Effects of Limit Stand-Alone

Prescription Drug Plan Sponsors to

Offering No More Than Two Plans per

PDP Region

14. Effects of Applicable Cost-Sharing for

Transition Supplies: Transition Process

Under Part D

15. Effects of Interpreting the Non-

Interference Provision

16. Effects of Pharmacy Price Concessions

in Negotiated Prices

17. Effects of Preferred Cost Sharing

18. Effects of Maximum Allowable Cost

Pricing Standard

19. Effects of Any Willing Pharmacy

Standard Terms & Conditions

20. Effects of Enrollment Requirements for

Prescribers of Part D Covered Drugs

21. Effects of Improper Prescribing

Practices and Patterns

22. Effects of Broadening the Release of

Part D Data

23. Effects of Establish Authority to

Directly Request Information From First

Tier, Downstream, and Related Entities

24. Effects of Eligibility of Enrollment for

Incarcerated Individuals

25. Effects of Rewards and Incentives

Program Regulations for Part C Enrollees

26. Effects of Improving Payment

Accuracy: Reporting Overpayments,

RADV Appeals, and LIS Cost Sharing

27. Effects of Part C and Part D RAC

Determination Appeals

28. Effects of the Technical Changes to the

Definition of a Part D Drug

29. Effects of the Special Part D Access

Rules During Disasters

30. Effects of Termination of a Contract

under Parts C and D

31. Effects of Technical Changes Regarding

Intermediate Sanctions and Civil Money

Penalties

D. Expected Benefits

1. Drug Categories or Classes of Clinical

Concern

2. Medication Therapy Management

Program under Part D

E. Alternatives Considered

1. Modifying the Agent/Broker

Compensation Requirements

2. Any Willing Pharmacy Standard Terms

and Conditions

3. Pharmacy Price Concessions in

Negotiated Prices

4. Special Part D Access Rules During

Disasters or Emergencies

5. Drug Categories or Classes of Clinical

Concern

6. Medication Therapy Management

Program (MTM) Under Part D

7. Requirement for Applicants or their

Contracted First Tier, Downstream, or

Related Entities to have Experience in

the Part D Program Providing Key Part D

Functions

F. Accounting Statement and Table

G. Conclusion

Regulations Text

Acronyms

ADS Automatic Dispensing System

AEP Annual Enrollment Period

AHFS American Hospital Formulary

Service

AHFS–DI American Hospital Formulary

Service–Drug Information

AHRQ Agency for Health Care Research

and Quality

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ALJ Administrative Law Judge

ANOC Annual Notice of Change

AO Accrediting Organization

AOR Appointment of Representative

BBA Balanced Budget Act of 1997 (Pub. L.

105–33)

BBRA [Medicare, Medicaid and State Child

Health Insurance Program] Balanced

Budget Refinement Act of 1999 (Pub. L.

106–113)

BIPA [Medicare, Medicaid, and SCHIP]

Benefits Improvement Protection Act of

2000 (Pub. L. 106–554)

BLA Biologics License Application

CAHPS Consumer Assessment Health

Providers Survey

CAP Corrective Action Plan

CCIP Chronic Care Improvement Program

CC/MCC Complication/Comorbidity and

Major Complication/Comorbidity

CCS Certified Coding Specialist

CDC Centers for Disease Control

CHIP Children’s Health Insurance Programs

CMP Civil Money Penalty

CMR Comprehensive Medical Review

CMS Centers for Medicare & Medicaid

Services

CMS–HCC CMS Hierarchal Condition

Category

CTM Complaints Tracking Module

COB Coordination of Benefits

CORF Comprehensive Outpatient

Rehabilitation Facility

CPC Certified Professional Coder

CY Calendar year

DAB Departmental Appeals Board

DEA Drug Enforcement Administration

DIR Direct and Indirect Remuneration

DME Durable Medical Equipment

DMEPOS Durable Medical Equipment,

Prosthetic, Orthotics, and Supplies

D–SNPs Dual Eligible SNPs

DOL U.S. Department of Labor

DUA Data Use Agreement

DUM Drug Utilization Management

EAJR Expedited Access to Judicial Review

EGWP Employer Group/Union-Sponsored

Waiver Plan

EOB Explanation of Benefits

EOC Evidence of Coverage

ESRD End-Stage Renal Disease

FACA Federal Advisory Committee Act

FDA Food and Drug Administration

FEHBP Federal Employees Health Benefits

Plan

FFS Fee-For-Service

FIDE Fully-integrated Dual Eligible

FIDE SNPs Fully-integrated Dual Eligible

Special Needs Plans

FMV Fair Market Value

FY Fiscal year

GAO Government Accountability Office

HAC Hospital-Acquired Conditions

HCPP Health Care Prepayment Plans

HEDIS HealthCare Effectiveness Data and

Information Set

HHS [U.S. Department of] Health and

Human Services

HIPAA Health Insurance Portability and

Accountability Act of 1996 (Pub. L. 104–

191)

HMO Health Maintenance Organization

HOS Health Outcome Survey

HPMS Health Plan Management System

ICL Initial Coverage Limit

ICR Information Collection Requirement

ID Identification

IVC Initial Validation Contractor

LCD Local Coverage Determination

LEP Late Enrollment Penalty

LIS Low Income Subsidy

LPPO Local Preferred Provider

Organization

LTC Long Term Care

MA Medicare Advantage

MAAA Member of the American Academy

of Actuaries

MA–PD Medicare Advantage–Prescription

Drug Plan

MIPPA Medicare Improvements for Patients

and Providers Act of 2008 (Pub. L. 110–

275)

MOC Medicare Options Compare

MOOP Maximum Out-of-Pocket

MPDPF Medicare Prescription Drug Plan

Finder

MMA Medicare Prescription Drug,

Improvement, and Modernization Act of

2003 (Pub. L. 108–173)

MS–DRG Medicare Severity Diagnosis

Related Group

MSA Metropolitan Statistical Area

MSAs Medical Savings Accounts

MSP Medicare Secondary Payer

MTM Medication Therapy Management

MTMP Medication Therapy Management

Program

NAIC National Association of Insurance

Commissioners

NCD National Coverage Determination

NCPDP National Council for Prescription

Drug Programs

NCQA National Committee for Quality

Assurance

NDA New Drug Application

NDC National Drug Code

NGC National Guideline Clearinghouse

NIH National Institutes of Health

NOMNC Notice of Medicare Non-Coverage

NPI National Provider Identifier

NWS National Weather Service

OIG Office of Inspector General

OMB Office of Management and Budget

OPM Office of Personnel Management

OTC Over the Counter

Part C Medicare Advantage

Part D Medicare Prescription Drug Benefit

Program

PBM Pharmacy Benefit Manager

PDE Prescription Drug Event

PDP Prescription Drug Plan

PFFS Private Fee For Service Plan

POA Present on Admission (Indicator)

POS Point-of-Sale

PPO Preferred Provider Organization

PPS Prospective Payment System

P&T Pharmacy & Therapeutics

QIC Qualified Independent Contractor

QIO Quality Improvement Organization

QRS Quality Review Study

PACE Programs of All Inclusive Care for the

Elderly

RADV Risk Adjustment Data Validation

RAPS Risk Adjustment Payment System

RPPO Regional Preferred Provider

Organization

SCORM Sharable Content Object Reference

Model

SEP Special Election Period

SHIP State Health Insurance Assistance

Programs

SNF Skilled Nursing Facility

SNP Special Needs Plan

SPAP State Pharmaceutical Assistance

Programs

SSA Social Security Administration

SSI Supplemental Security Income

T&C Terms and Conditions

TPA Third Party Administrator

TrOOP True Out-Of-Pocket

U&C Usual and Customary

UPIN Uniform Provider Identification

Number

USP U.S. Pharmacopoeia

I. Executive Summary

A. Purpose

The purpose of this final 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

Affordable Care Act. This final rule is

necessary to—(1) clarify various

program participation requirements; (2)

improve payment accuracy; and (3)

make other clarifications and technical

changes.

B. Summary of the Major Provisions

1. Modifying the Agent/Broker

Requirements, Specifically Agent/

Broker Compensation

The former regulatory compensation

structure was comprised of a 6-year

cycle that ended December 31, 2013.

Under that structure, MA organizations

and Part D sponsors provided an initial

compensation payment to independent

agents for new enrollees (Year 1), and

paid a renewal rate (equal to 50 percent

of the initial year compensation) for

Years 2 through 6. MA organizations

and Part D sponsors had the option to

pay the 50 percent renewal rate for

CY2014 (year 1). This compensation

structure proved to be complicated to

implement and monitor, and also

created an incentive for agents to move

beneficiaries as long as the fair market

value (FMV) continued to increase each

year. To resolve these issues, we

proposed to revise the compensation

structure. Under our proposal, MA

organizations and Part D sponsors

would continue to have the discretion to

decide, on an annual basis, whether or

not to use independent agents. Also, for

new enrollments, MA organizations and

Part D sponsors could determine what

their initial rate would be, up to the

CMS designated FMV amount. For

renewals in Year 2 and subsequent

years, with no end date, the MA

organization or Part D sponsor could

pay up to 35 percent of the current FMV

amount for that year. We believed that

revising the existing compensation

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structure to allow MA organizations or

Part D sponsors to pay up to 35 percent

of the FMV for year 2 and subsequent

years was appropriate based on a couple

of factors. First, we believed that a 2

tiered payment system (that is, initial

and renewal) would be significantly less

complicated than a 3-tiered system (that

is, initial, 50 percent renewal for years

2 through 6, and 25 percent residual for

years 7 and subsequent years), and

would reduce administrative burden

and confusion for plan sponsors.

Second, our analysis determined that 35

percent was the renewal compensation

level at which the present value of

overall payments under a 2-tiered

system would be relatively equal to the

present value of overall payments under

a 3-tiered system (taking into account

the estimated life expectancy for several

beneficiary age cohorts). In addition to

revising the agent and broker

compensation structures, we proposed

to amend the training and testing

requirements as well as setting limits on

referral fees ($100) for agents and

brokers.

We received more than 140 comments

from agents, health plans, and trade

associations opposing the 35 percent

renewal rate, and instead suggesting that

CMS maintain the 50 percent renewal

rate. A number of commenters

expressed concerns that the proposed

reduction in compensation would

represent a significant decrease from the

current compensation limit, and a rate

set at 50 percent of FMV would be in

line with industry standard. They noted

that the higher compensation amount

would be particularly important for

stand-alone prescription drug plans, as

35 percent would be insufficient to

cover an agent’s costs associated with

the renewal transaction and could

discourage agents from assisting in the

annual evaluation of a Medicare

beneficiary’s options. Commenters also

stated that, compared to current

practice, the proposed 35 percent

renewal rate is a reduction since a

number of MA plans began offering a

renewal rate of 50 percent for 10 years

or more at the end of the 6-year cycle

(2013). The majority of commenters also

stated that agents play an important role

in educating beneficiaries about

Medicare and the proposed reduction in

the renewal rate could reduce the level

and quality of services provided to

beneficiaries, thereby resulting in less

information sharing and poorer plan

choices by beneficiaries. Many

commenters also stated that agents

spend a significant amount of time in

training, preparing, and educating

beneficiaries and that the compensation

is already low relative to the hours

spent. Some commenters also expressed

concern that the lower compensation

rate would discourage new agents from

entering the MA market. Many agents

stated they would have to stop selling

MA products and instead sell other

more profitable products. No plans

strongly supported the 35 percent

renewal rate. Therefore, we are

modifying the compensation renewal

rate from up to 35 percent to up to 50

percent. These changes will be

applicable for enrollments effective

January 2015. Because the proposed rate

is similar to previous regulatory

requirements, present CMS guidance,

and industry practice, we believe this

implementation timeframe is reasonable

and appropriate. We are not finalizing

the proposed changes to agent and

broker training and testing at this time.

We are finalizing limits on referral fees

for agents as proposed.

2. Drug Categories or Classes of Clinical

Concern

We are not finalizing any new criteria

and will maintain the existing six

protected classes.

3. Improving Payment Accuracy—

Implementing Overpayment Provisions

of Section 1128J(d) of the Social

Security Act (§§ 422.326 and 423.360)

These proposed regulatory provisions

codify the Affordable Care Act

requirement establishing section

1128J(d) of the Act that MA

organizations and Part D sponsors report

and return identified Medicare

overpayments.

We proposed to adopt the statutory

definition of overpayment for both Part

C and Part D, which means any funds

that an MA organization or Part D

sponsor has received or retained under

Title XVIII of the Act to which the MA

organization or Part D sponsor, after

applicable reconciliation, is not entitled

under such title. To reflect the unique

structure of Part C and Part D payments

to plan sponsors, we also propose to

define two terms included in the

statutory definition of overpayments:

‘‘funds’’ and ‘‘applicable

reconciliation.’’ We proposed to define

funds as payments an MA organization

or Part D sponsor has received that are

based on data that these organizations

submitted to CMS for payment

purposes. For Part C we proposed that

applicable reconciliation occurs on the

annual final risk adjustment data

submission deadline. For Part D, we

proposed that applicable reconciliation

occurs on the date that is the later of

either the annual deadline for

submitting prescription drug event

(PDE) data for the annual Part D

payment reconciliations referred to in

§ 423.343(c) and (d) or the annual

deadline for submitting DIR data.

In addition, we proposed to state in

regulation that an MA organization or

Part D sponsor has identified an

overpayment if it has actual knowledge

of the existence of the overpayment or

acts in reckless disregard or deliberate

ignorance of the existence of the

overpayment. An MA organization or

Part D sponsor must report and return

any identified overpayment it received

no later than 60 days after the date on

which it identified it received an

overpayment. The MA organization or

Part D sponsor must notify CMS, using

a notification process determined by

CMS, of the amount and reason for the

overpayment. Finally, we proposed a

look-back period with an exception for

overpayments resulting from fraud,

whereby MA organizations and Part D

sponsors would be held accountable for

reporting overpayments within the 6

most recent completed payment years

for which the applicable reconciliation

has been completed.

We received approximately 30

comments from organizations and

individuals. Generally, commenters

supported establishing separate

applicable reconciliation dates for Part

C and Part D. Many commenters

questioned when the 60-day period for

reporting and returning begins, and

what activities constitute reporting and

returning an overpayment to CMS,

including questions about estimating an

amount of overpayment. A number of

commenters also requested to clarify the

standards for ‘‘identifying’’ an

overpayment, including questions about

the meaning of reasonable diligence.

Finally, a few commenters

recommended that we impose the same

limitation on the look-back period for

all overpayments, even those relating to

fraud.

We are finalizing the provisions at

§§ 422.326 and 423.360, with the

following modifications. First, we add at

the end of paragraph § 422.326(d) the

phrase ‘‘unless otherwise directed by

CMS for the purpose of § 422.311.’’

Also, to increase clarity we revise

§§ 422.326(c) and 423.360(c) regarding

identified overpayments. Finally, we

strike the following sentence in the

proposed paragraphs on the 6-year look-

back period: ‘‘Overpayments resulting

from fraud are not subject to this

limitation of the lookback period.’’

4. Risk Adjustment Data Requirements

We proposed several amendments to

§ 422.310 to strengthen existing

regulations related to the accuracy of

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risk adjustment data, including: (1) A

requirement that medical record

reviews, if used, be designed to

determine the accuracy of diagnoses

submitted under §§ 422.308(c)(1) and

422.310(g)(2); (2) a revision in the

deadlines for submission of risk

adjustment data; and (3) a limitation on

the type and purpose of late data

submissions. We also proposed a

restructuring of subparagraph (g)(2) as

part of the revisions. We received

approximately 25 comments from

organizations and individuals regarding

these proposals; many of the comments

were concerned and critical of the

proposals, highlighting vagueness and

the potential for operational instability.

For reasons discussed in more detail

below in section III.B.2 of the preamble,

we are not finalizing the proposed

amendment regarding the scope of

medical reviews and we are not

finalizing at this time the proposal to

change the date for final risk adjustment

data submission. We are finalizing as

proposed the restructuring of

§§ 422.310(g)(2) and the 422.310(g)(2)(ii)

provision to prohibit submission of

diagnoses for additional payment after

the final risk adjustment data

submission deadline.

C. Summary of Costs and Benefits

ABLE

2—S

UMMARY OF

OSTS AND

ENEFITS

Provision description Total costs Transfers

Modifying the agent/broker require-

ments, specifically agent/broker

compensation.

N/A ............... N/A

Improving Payment Accuracy ........... N/A ............... N/A

Eligibility of Enrollment for Incarcer-

ated Individuals.

................. We estimate that this change could save the MA program up to $27 million in 2015, in-

creasing to $103 million in 2024 (total of $650 million over this period), and could save

the Part D program (includes the Part D portion of MA PD plans) up to $46 million in

2015, increasing to $153 million in 2024 (total of $965 million over this period).

II. Background

A. General Overview and Regulatory

History

The Balanced Budget Act of 1997

(BBA) (Pub. L. 105–33) created a new

‘‘Part C’’ in the Medicare statute

(sections 1851 through 1859 of the

Social Security Act (the Act)) which

established what is now known as the

Medicare Advantage (MA) program. The

Medicare Prescription Drug,

Improvement, and Modernization Act of

2003 (MMA) (Pub. L. 108–173), enacted

on December 8, 2003, added a new ‘‘Part

D’’ to the Medicare statute (sections

1860D–1 through 42 of the Act) entitled

the Medicare Prescription Drug Benefit

Program (PDP), and made significant

changes to the existing Part C program,

which it named the Medicare Advantage

(MA) Program. The MMA directed that

important aspects of the Part D program

be similar to, and coordinated with,

regulations for the MA program.

Generally, the provisions enacted in the

MMA took effect January 1, 2006. The

final rules implementing the MMA for

the MA and Part D prescription drug

programs appeared in the Federal

4588 through 4741 and 70 FR 4194

through 4585, respectively).

Since the inception of both Parts C

and D, we have periodically revised our

regulations either to implement

statutory directives or to incorporate

knowledge obtained through experience

with both programs. For instance, in the

September 18, 2008 and January 12,

2009 Federal Register (73 FR 54226 and

74 FR 1494, respectively), we issued

Part C and D regulations to implement

provisions in the Medicare

Improvement for Patients and Providers

Act (MIPPA) (Pub. L. 110–275). We

promulgated a separate interim final

rule in January 16, 2009 (74 FR 2881) to

address MIPPA provisions related to

Part D plan formularies. In the final rule

that appeared in the April 15, 2010

Federal Register (75 FR 19678), we

made changes to the Part C and D

regulations which strengthened various

program participation and exit

requirements; strengthened beneficiary

protections; ensured that plan offerings

to beneficiaries included meaningful

differences; improved plan payment

rules and processes; improved data

collection for oversight and quality

assessment; implemented new policies;

and clarified existing program policy.

In a final rule that appeared in the

April 15, 2011 Federal Register (76 FR

21432), we continued our process of

implementing improvements in policy

consistent with those included in the

April 2010 final rule, and also

implemented changes to the Part C and

Part D programs made by recent

legislative changes. The Patient

Protection and Affordable Care Act

(Pub. L. 111–148) was enacted on March

23, 2010, as passed by the Senate on

December 24, 2009, and the House on

March 21, 2010. The Health Care and

Education Reconciliation Act (Pub. L.

111–152), which was enacted on March

30, 2010, modified a number of

Medicare provisions in Pub. L. 111–148

and added several new provisions. The

Patient Protection and Affordable Care

Act (Pub. L. 111–148) and the Health

Care and Education Reconciliation Act

(Pub. L. 111–152) are collectively

referred to as the Affordable Care Act.

The Affordable Care Act included

significant reforms to both the private

health insurance industry and the

Medicare and Medicaid programs.

Provisions in the Affordable Care Act

concerning the Part C and D programs

largely focused on beneficiary

protections, MA payments, and

simplification of MA and Part D

program processes. These provisions

affected implementation of our policies

regarding beneficiary cost-sharing,

assessing bids for meaningful

differences, and ensuring that cost-

sharing structures in a plan are

transparent to beneficiaries and not

excessive. In the April 2011 final rule,

we revised regulations on a variety of

issues based on the Affordable Care Act

and our experience in administering the

MA and Part D programs. The rule

covered areas such as marketing,

including agent/broker training;

payments to MA organizations based on

quality ratings; standards for

determining if organizations are fiscally

sound; low income subsidy policy

under the Part D program; payment

rules for non-contract health care

providers; extending current network

adequacy standards to Medicare

medical savings account (MSA) plans

that employ a network of providers;

establishing limits on out-of-pocket

expenses for MA enrollees; and several

revisions to the special needs plan

requirements, including changes

concerning SNP approvals.

In a final rule that appeared in the

April 12, 2012 Federal Register (77 FR

22072 through 22175), we made several

changes to the Part C and Part D

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programs required by statute, including

the Affordable Care Act, as well as made

improvements to both programs through

modifications reflecting experience we

have obtained administering the Part C

and Part D programs. Key provisions of

that final rule implemented changes

closing the Part D coverage gap, or

‘‘donut hole,’’ for Medicare beneficiaries

who do not already receive low-income

subsidies from us by establishing the

Medicare Coverage Gap Discount

Program. We also included provisions

providing new benefit flexibility for

fully-integrated dual eligible special

needs plans, clarifying coverage of

durable medical equipment, and

combatting possible fraudulent activity

by requiring Part D sponsors to include

an active and valid prescriber National

Provider Identifier on prescription drug

event records.

B. Issuance of a Notice of Proposed

Rulemaking

In the proposed rule titled ‘‘Contract

Year 2015 Policy and Technical

Changes to the Medicare Advantage and

the Medicare Prescription Drug Benefit

Programs,’’ which appeared in the

January 10, 2014 Federal Register (79

FR 1918), we proposed to revise the

Medicare Advantage (MA) program (Part

C) regulations and prescription drug

benefit program (Part D) regulations to

implement statutory requirements;

strengthen beneficiary protections;

exclude plans that perform poorly;

improve program efficiencies; and

clarify program requirements. The

proposed rule also included several

provisions designed to improve

payment accuracy.

C. Public Comments Received in

Response to the CY 2015 Policy and

Technical Changes to the Medicare

Advantage and the Medicare

Prescription Drug Benefit Programs

Proposed Rule

We received approximately 7,600

timely pieces of correspondence

containing multiple comments on the

CY 2014 proposed rule. While we are

finalizing several of the provisions from

the proposed rule, there are a number of

provisions from the proposed rule (for

example, enrollment eligibility criteria

for individuals not lawfully present in

the United States) that we intend to

address later and a few which we do not

intend to finalize. We also note that

some of the public comments were

outside of the scope of the proposed

rule. These out-of-scope public

comments are not addressed in this final

rule. Summaries of the public comments

that are within the scope of the

proposed rule and our responses to

those public comments are set forth in

the various sections of this final rule

under the appropriate heading.

However, we note that in this final rule

we are not addressing comments

received with respect to the provisions

of the proposed rule that we are not

finalizing at this time. Rather, we will

address them at a later time, in a

subsequent rulemaking document, as

appropriate.

D. Provisions Not Finalized in This

Final Rule

As noted previously, some of the

provisions of the proposed rule will be

addressed later and, therefore, are not

being finalized in this rule. Table 3 lists

the provisions that were proposed but

are not addressed at this time. We note

that several provisions that were

proposed are not being finalized in this

rule and are effectively being

withdrawn; those provisions are not

listed in Table 3.

ABLE

3—P

ROVISIONS

INALIZED AT

HIS

IME

Proposed

rule section

Topic

Clarifying Various Program Participation Requirements

III.A.2 .......... Two-year Limitation on Submitting a New Bid in an Area Where an MA has been Required to Terminate a Low-enrollment MA

Plan (§ 422.504(a)(19)).

III.A.6 .......... Changes to Audit and Inspection Authority (§ 422.503(d)(2) and § 423.504(d)(2)).

III.A.9 .......... Collections of Premiums and Cost Sharing (§ 423.294).

III.A.10 ........ Enrollment Eligibility for Individuals Not Lawfully Present in the United States (§§ 417.2, 417.420, 417.422, 417.460, 422.1,

422.50, 422.74, 423.1, 423.30, and 423.44).

III.A.11 ........ Part D Notice of Changes (§ 423.128(g)).

III.A.12 ........ Separating the Annual Notice of Change (ANOC) from the Evidence of Coverage (EOC) (§ 422.111(a)(3) and § 423.128(a)(3)).

III.A.14 ........ Exceptions to Drug Categories or Classes of Clinical Concern (§ 423.120(b)(2)(vi)).

III.A.15 ........ Medication Therapy Management Program (MTMP) under Part D (§ 423.153(d)(1)(v)(A))—outreach strategies.

III.A.16 ........ Business Continuity for MA Organizations and PDP Sponsors (§ 422.504(o) and § 423.505(p)).

III.A.21 ........ Efficient Dispensing in Long Term Care Facilities and Other Changes (§ 423.154).

III.A.23 ........ Medicare Coverage Gap Discount Program and Employer Group Waiver Plans (§ 423.2325).

III.A.26 ........ Payments to PDP Plan Sponsors For Qualified Prescription Drug Coverage (§ 423.308) and Payments to Sponsors of Retiree

Prescription Drug Plans (§ 423.882).

III.A.32 ........ Transfer of TrOOP Between PDP Sponsors Due to Enrollment Changes during the Coverage Year (§ 423.464).

III.A.37 ........ Expand Quality Improvement Program Regulations (§ 422.152).

III.A.38 ........ Authorization of Expansion of Automatic or Passive Enrollment Non-Renewing Dual Eligible SNPs (D-SNPs) to another D-SNP to

Support Alignment Procedures (§ 422.60).

Improving Payment Accuracy

III.B.2 .......... Determination of Payments (§ 423.329).

III.B.3 .......... Reopening (§ 423.346).

III.B.4 .......... Payment Appeals (§ 423.350).

III.B.5 .......... Payment Processes for Part D Sponsors (§ 423.2320).

III.B.6 .......... Risk adjustment data requirements—proposal regarding annual deadline for MAO submission of final risk adjustment data

(§ 422.310(g)(2)(ii)).

Strengthening Beneficiary Protections

III.C.1 .......... Providing High Quality Health Care (§ 422.504(a)(3) and § 423.505(b)(27)).

III.C.2 .......... MA-PD Coordination Requirements for Drugs Covered Under Parts A, B, and D (§ 422.112).

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ABLE

3—P

ROVISIONS

INALIZED AT

HIS

IME

—Continued

Proposed

rule section

Topic

III.C.3 .......... Good Cause Processes (§ 417.460, § 422.74 and § 423.44).

III.C.4 .......... Definition of Organization Determination (§ 422.566).

III.C.5 .......... MA Organizations May Extend Adjudication Timeframes for Organization Determinations and Reconsiderations (§ 422.568,

§ 422.572, § 422.590, § 422.618, and § 422.619).

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

Performers

III.D.1 .......... Two-Year Prohibition When Organizations Terminate Their Contracts (§§ 422.502, 422.503, 422.506, 422.508, and 422.512).

III.D.2 .......... Withdrawal of Stand-Alone Prescription Drug Plan Bid Prior to Contract Execution (§ 423.503).

III.D.3 .......... Essential Operations Test Requirement for Part D (§§ 423.503(a) and (c), 423.504(b)(10), 423.505(b)(28), and 423.509).

III.D.4. ......... Termination of the Contracts of Medicare Advantage Organizations Offering PDP for Failure for 3 Consecutive Years to Achieve

3 Stars on Both Part C and Part D Summary Star Ratings in the Same Contract Year (§ 422.510).

Implementing Other Technical Changes

III.E.1 .......... Requirements for Urgently Needed Services (§ 422.113).

III.E.2 .......... Skilled Nursing Facility Stays (§§ 422.101 and 422.102).

III.E.3 .......... Agent and Broker Training and Testing Requirements (§§ 422.2274 and 423.2274).

III.E.4 .......... Deemed Approval of Marketing Materials (§ 422.2266 and § 423.2266).

III.E.5 .......... Cross-Reference Change in the Part C Disclosure Requirements (§ 422.111).

III.E.6 .......... Managing Disclosure and Recusal in P&T Conflicts of Interest: [Formulary] Development and Revision by a Pharmacy and Thera-

peutics Committee under PDP (§ 423.120(b)(1)).

III.E.8 .......... Thirty-Six-Month Coordination of Benefits (COB) Limit (§ 423.466(b)).

III.E.9 .......... Application and Calculation of Daily Cost-Sharing Rates (§ 423.153).

III.E.10 ........ Technical Change to Align Regulatory Requirements for Delivery of the Standardized Pharmacy Notice (§ 423.562).

III.E.12 ........ MA Organization Responsibilities in Disasters and Emergencies (§ 422.100).

III.E.14 ........ Technical Changes to Align Part C and Part D Contract Determination Appeal Provisions (§§ 422.641 and 422.644).

III.E.15 ........ Technical Changes to Align Parts C and D Appeal Provisions (§§ 422.660 and 423.650).

III.E.17 ........ Technical Change to the Restrictions on use of Information under Part D (§ 423.322).

III. Provisions of the Proposed

Regulations and Analysis of and

Responses to Public Comments

A. Clarifying Various Program

Participation Requirements

1. Closing Cost Contract Plans to New

Enrollment (§ 422.503(b)(4))

To ensure that our original intent is

realized and to eliminate the potential

for organizations to move enrollees from

one of their plans to another based on

financial or some other interest, we

proposed to revise paragraph

§ 422.503(b)(4)(vi)(G)(5) so that an

‘‘entity seeking to contract as an MA

organization must [n]ot accept, or share,

a corporate parent organization with an

entity that accepts, new enrollees under

a section 1876 reasonable cost contract

in any area in which it seeks to offer an

MA plan.’’

In making the proposed revision to

paragraph § 422.503(b), we also

proposed to add the definition of

‘‘parent organization’’ to § 422.2 of the

MA program definitions, specifying

that, ‘‘Parent organization means a legal

entity that owns one or more other

subsidiary legal entities.’’ Although the

MA program regulations do not

currently define the term ‘‘parent

organization,’’ our proposed definition

is consistent with the way the term is

currently used in the context of the MA

program, for example, when assessing

an organization’s business structure. We

requested comments on whether a

parent organization with less than a 100

percent interest in a subsidiary legal

entity should trigger the prohibition we

proposed with the amendment at

§ 422.503(b)(4).

During the public notice and

comment process, a handful of

commenters provided their input on our

proposal. Some of the respondents

included multiple comments. The

comments and our responses follow.

Comment: A commenter supported

the proposal, stating that it would

prevent possible shifting of sicker

enrollees to cost plans and should result

in Medicare savings.

Response: We thank the commenter

for the support.

Comment: A commenter stated that

there is no evidence of complaints about

the current situation and thus no change

in current policy is necessary.

Response: The intention of our initial

rule was to ensure that situations not

arise in which an entity was able to

move an enrollee from one of its plans

to another plan in the same area based

on financial or other reasons that may

not be in the enrollee’s best interest. The

current regulations limit this possibility

to some extent, but, without the

proposed changes, would leave open the

possibility that legal entities controlled

by a shared parent organization could

move enrollees from one plan to

another, based on something other than

the enrollee’s best interest.

Comment: A commenter stated that

risk-adjusted payments for MA plans

eliminate any incentive for an entity to

move sicker enrollees from an MA plan

to a cost plan.

Response: While risk adjusted

payments do help to account for costs

associated with sicker enrollees, it may

still be advantageous for an organization

to move an enrollee from an MA plan

to a cost plan. Even with risk

adjustment, there are other reasons an

organization might want to move

enrollees from one plan to another to

include enrollment and other interests

based on the organization’s business

model.

Comment: A commenter stated that,

because cost plan cost-sharing and

premiums must be equal to the actuarial

value of Medicare fee-for-service cost-

sharing, cost plan enrollees with high

health care needs would have high

relative costs resulting in higher

premiums for the cost plan, thus

removing any incentive for moving

sicker enrollees from an entity’s MA

plan to the cost plan.

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Response: MA plans also have

constraints with respect to cost-sharing

that affect premiums, and out-of-pocket

payments by enrollees. We believe, as a

result, that any difference in cost plan

and MA premiums or cost-sharing is

negligible and does little to remove the

incentives for organizations to move

enrollees from one of their plans to

another.

Comment: A couple of commenters

requested that, at minimum, the

provision not be applied to entities that

have both a cost plan and dual eligible

special needs plan (D–SNP). One of the

commenters states that: (1) cost plans

would likely have a premium and cost

sharing that would make it unattractive

for dual eligibles; and (2) the regulation

could eliminate D–SNPs that

‘‘participate in longstanding dual

eligible integrated plans,’’ and thus the

proposal ‘‘could have the effect of

hurting a major initiative of the

Administration.’’

Response: As we have addressed

elsewhere in the comments on this

issue, we do not believe that any

premium and cost-sharing differences in

cost plans and MA plans necessarily

reduce the incentives an organization

may have for moving an individual from

one of its plans to another. We believe

this is also the case for D–SNPs and,

that in the case of D–SNPs, which are

frequently made up of enrollees that are

sicker and frailer than the general

Medicare population, there may be even

greater incentive to move these

enrollees to a cost contract plan.

Comment: A commenter requested

that we not finalize the proposal

because cost plan enrollees will already

be subject to dwindling cost plan

enrollment options as a result of the cost

plan competition statute. The

commenter stated that if we do finalize

the proposal, we should grant an

exception and not require cost plans

affected by the cost plan competition

requirements to close to new

enrollment.

Response: It isn’t clear at this point

what kind of overlap there might be

between cost plans affected by the cost

plan competition requirements and

those cost plans that would have to stop

accepting enrollment because of sharing

a parent organization with an MA plan.

However, we do not believe that a

significant number of cost plans will be

affected by expanding the requirement

to include a shared parent organization,

as the requirement is largely prospective

and designed to prevent a situation that

we did not originally account for, but

which we believe could lead to

potential harm for enrollees.

Comment: A commenter stated that

‘‘the test should not only be whether

entities have the same parent but also

whether the two entities are affiliated,

including if one entity is the parent of

the other (rather than shares a parent).’’

Response: We agree with the

commenter with respect to the specific

example cited and have included

language in the final rule that will also

trigger a prohibition on new enrollment

in a cost plan in situations in which a

parent organization and its subsidiary

have a cost contract and MA plan in the

same service area. In addition to the

proposed language that MA

organizations ‘‘Not accept, or share a

corporate parent organization with an

entity that accepts, new enrollees under

a section 1876 reasonable cost contract

in any area in which it seeks to offer an

MA plan,’’ we are adding to § 422.503

(b)(4)(vi)(G)(5)(ii) that MA organizations

‘‘Not accept, as either the parent

organization owning a controlling

interest of or subsidiary of an entity that

accepts, new enrollees under a section

1876 reasonable cost contract in any

area in which it seeks to offer an MA

plan.’’ The language from the initial

proposal along with the additional

language will now be contained in

§ 422.503 (b)(4)(vi)(G)(5)(i) and (ii).

Comment: A few commenters stated

that CMS should define a parent

organization as an entity that ‘‘exercises

a controlling interest in the applicant.’’

Other commenters stated that we should

limit the definition of ‘‘parent

organization’’ to the context of this

provision only as our proposed

definition could create inconsistencies

in the Part C and D polices and

guidance or have ‘‘unanticipated

implications that are difficult to identify

at this time.’’ One of the commenters,

who asked us to limit the application of

the ‘‘parent organization’’ definition to

this provision only, stated that it would

support our proposal if we clarified that

the parent organization must have a

‘‘controlling interest’’ in the subsidiary

legal entities in question.

Response: In the proposed rule, we

specifically solicited comments on

whether the requirement should be

applied to a parent organization with

less than 100 percent interest in the

affected cost contract and MA plan. We

agree that a controlling interest is a

reasonable standard that is consistent

with our intention to prevent an

organization from having control over

both a cost contract and MA plan in the

same service area. We also agree that the

threshold for determining when the

prohibition should be applied is best

established in the context of this

provision and thus are not finalizing the

definition of ‘‘parent organization’’ in

§ 422.2 . Instead, we are including the

threshold for the prohibition in

modifications in

§ 422.503(b)(4)(vi)(G)(5)(i) and (ii).

These sections will now state that any

entity seeking to contract as an MA

organization—

• Not accept, or share a corporate

parent organization owning a

controlling interest in an entity that

accepts, new enrollees under a section

1876 reasonable cost contract in any

area in which it seeks to offer an MA

plan.

• Not accept, as either the parent

organization owning a controlling

interest of, or subsidiary of, an entity

that accepts, new enrollees under a

section 1876 reasonable cost contract in

any area in which it seeks to offer an

MA plan.

We are finalizing the provisions of the

proposed rule with the revisions and

additions discussed in this section

III.A.1 of this final rule.

2. Authority To Impose Intermediate

Sanctions and Civil Money Penalties

(§§ 422.752, 423.752, 422.760 and

423.760)

Sections 1857(a) and 1860D–12(b)(1)

of the Act provided the Secretary with

the authority to enter into contracts with

MA organizations, and Part D sponsors

(respectively). Section 1857(g)(1) of the

Act provided a list of contract violations

and the corresponding enforcement

responses (intermediate sanctions

(sanctions) and/or civil money penalties

(CMPs)) are listed under section

1857(g)(2) of the Act (section 1860D–

12(b)(3)(E) applied these provisions to

Part D contracts).

We proposed two changes to our

existing authority to impose sanctions

and CMPs based on section 6408 of the

Affordable Care Act (Pub. L. 111–148).

The provisions of section 6408 provided

CMS with the authority to impose

intermediate sanctions or CMPs for

violations of the Part C and D marketing

and enrollment requirements. As well

as, an organization that enrolls an

individual without prior consent

(except in certain limited

circumstances) or transfers an

individual to a new plan without prior

consent. Additionally, we proposed to

revise the language of these provisions

to clarify that either CMS or the OIG

may impose CMPs for the violations

listed at §§ 422.752(a) and 423.752(a),

except 422.752(a)(5) and 423.752(a)(5).

Comment: A commenter expressed

concern and stated that MA

organizations and Part D sponsors

should be given the opportunity to

refute marketing or other allegations of

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non-compliance prior to sanctions and/

or CMPs being imposed.

Response: Enforcement actions are

only typically taken based on

substantiated, well documented

instances of non-compliance and in the

case of both a sanction and a CMP, even

after they are issued, MA organizations

and Part D sponsors are given an

opportunity to rebut or appeal CMS’

determination through a formal appeals

process.

Comment: A few commenters

requested clarification regarding the

new sanction authority, specifically the

language that would allow CMS to

impose intermediate sanctions on an

organization that enrolls an individual

without prior consent (except in certain

limited circumstances) or transfers an

individual to a new plan without prior

consent. The commenters requested that

CMS clarify that this would not apply

to organizations that perform facilitated

or auto-enrollment, passive enrollment,

seamless enrollment or requests from

Employer Group Waiver Plans (EGWPs).

Response: In the proposed rule, we

proposed to amend the regulation text at

§§ 422.752 and 423.752 by adding (a)(9),

and (a)(7), respectively, which read:

‘‘. . . Except as provided under § 423.34

of this chapter, enrolls an individual in

any plan under this part without the

prior consent of the individual or the

designee of the individual.’’ Section

423.34 specifically refers to enrollment

of individuals who receive the low

income subsidy (LIS) and are therefore

subject to facilitated or auto-enrollment.

Therefore, we believe that the proposed

regulation text already makes clear that

this provision would not apply to those

organizations that are performing

facilitated enrollment of LIS

beneficiaries. Additionally, passive

enrollment and use of the seamless

enrollment option are initiated or

approved by CMS, respectively.

Therefore, an organization who is

contacted by CMS to receive passive

enrollment would not be considered to

have performed enrollment without

prior consent. As for the seamless

enrollment option, as these proposals

must be submitted to and approved by

CMS, as long as organizations are

following CMS’ enrollment guidance in

Chapter 2, § 40.1.4, an organization,

again, would not be considered as

enrolling without prior consent and

would, therefore, not be considered for

a possible sanction. Finally, an

organization who is accepting group or

individual enrollment requests from

EGWPs must follow CMS’ enrollment

guidance in Chapter 2, § 40.1.6. As long

as CMS enrollment guidance is being

followed with respect to processing

these enrollments, CMS would not

consider MA and Part D organizations

in violation of the new requirement.

Comment: One commenter stated that

only one organization, either CMS or

OIG should have CMP authority and

that there should be no overlapping

authority. They went on to state that if

CMS proposed to allow overlapping

CMP authority that CMS agree that the

total amount of the CMPs issued not

exceed what either CMS or OIG could

impose separately.

Response: It is not CMS’ intent to

create overlapping CMP authority,

simply to clarify our existing CMP

authority. However, to the extent CMS

or OIG were planning on pursuing a

CMP, we have internal mechanisms in

place to ensure that the other entity

within the department is not

simultaneously pursuing a CMP for the

same or similar conduct. If we were to

determine that OIG was pursuing a CMP

for similar conduct, we would

coordinate with the OIG so that only

one CMP action would move forward.

Comment: One commenter requested

that CMS not finalize this provision

because they believe the current

division of authority to impose CMPs

should remain unchanged, with the

authority to CMP for certain violations

remaining with OIG, instead of adding

to CMS’ existing CMP authority, as this

approach ensures a natural division of

power and oversight expected from

government agencies.

Response: CMS has always had the

statutory authority to impose CMPs for

the violations currently designated as

belonging solely to the OIG in the

regulation. However, CMS agrees that

there are certain violations that should

be retained solely by OIG for purposes

of imposing CMPs, which is why the

proposed rule states that the authority to

impose CMPs for violations listed at

§§ 422.752(a)(5) and 423.752(a)(5),

involving misrepresentation or

falsification of information furnished to

CMS, an individual, or other entity, will

continue to reside solely with the OIG.

Comment: One commenter, in

addition to expressing support for our

proposal, stated that CMS should

authorize use of monies collected from

CMPs to allow states to contract with, or

grant funds to entities, provided that the

funds are used for CMS approved

projects to protect or improve SNF

services for residents.

Response: We thank the commenter

for their support and we will explore in

the future if such arrangements are

allowed within our current statutory

authority.

Comment: We received several

comments that supported the new

proposed sanction authority for

marketing and enrollment violations.

Response: We thank the commenters

for their support.

After careful consideration of all of

the comments we received, we are

finalizing these proposals without

modification.

3. Contract Termination Notification

Requirements and Contract Termination

Basis (§§ 422.510 and 423.509)

Sections 1857(c) and 1860D–

12(b)(3)(B) of the Act provided us with

the authority to terminate a Part C or D

sponsoring organization’s contract.

Sections 1857(h)(1)(B) and 1860D–

12(b)(3)(F) of the Act provided us with

the procedures necessary to facilitate

the termination of those contracts. We

proposed three revisions to our existing

regulations that relate to contract

termination.

First, we proposed to clarify the scope

of our authority to terminate Part C and

D contracts under §§ 422.510(a) and

423.509(a) by modifying the language at

§§ 422.510(a) and 423.509(a) to separate

the statutory bases for termination from

our examples of specific violations

which meet the standard for termination

established by the statute. We proposed

to effectuate this change by renumbering

the list of bases contained in

§§ 422.510(a) and 423.509(a).

Second, we proposed revisions to our

contract termination notification

procedures contained at §§ 422.510(b)(1)

and 423.509(b)(1). Current regulations

state that if CMS decides to terminate a

Part C or Part D sponsoring

organization’s contract, we must notify

the organization in writing 90 days

before the intended date of termination.

We proposed to shorten the notification

timeframe from 90 days to 45 days.

Additionally, in an effort to respond to

changes in the media and information

technology landscape, we proposed a

slight modification to the termination

notification provision for the general

public at §§ 422.510(b)(1)(iii) and

423.509(b)(1)(iii) which includes the

contracting organizations releasing a

press statement to news media serving

the affected community or county and

posting the press statement prominently

on the organization’s Web site instead of

publishing the notice in applicable

newspapers.

Finally, we proposed minor revisions

to the wording of our regulations at

§§ 422.510 and 423.509 to reflect the

authorizing language contained in

sections 1857(c)(2) and 1860D–12 of the

Act. Specifically, we proposed to

replace the word ‘‘fails’’ with ‘‘failed’’

so that it reads consistently throughout

§§ 422.510 and 423.509.

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Comment: Several commenters

opposed our proposal to shorten the

notification period for contract

termination from 90 days to 45 days.

Commenters made several arguments

supporting their opposition to the

shortened notification timeframe, but

most stated that it is not enough time to

ensure members’ needs are adequately

addressed, specifically noting the

difficulty in effectively communicating

the change with their members and

ensuring their members were effectively

transitioned to a new plan. Other

commenters stated that the timeframe

was too short to provide adequate notice

to affected providers and vendors. Yet

another commenter stated that the

shortened timeframe did not allow

enough time for a plan to appeal the

termination. A final commenter noted

that the shortened timeframe would

increase costs to the contracting

organization if the termination period is

reduced.

Response: After carefully considering

the commenters’ concerns, we

respectfully disagree that these concerns

outweigh the need to protect

beneficiaries and have them moved

from a plan that is in such substantial

non-compliance with our regulations

that CMS would proceed with

termination. Plans that receive a notice

of termination from CMS are instructed

that they must provide notice to their

affected beneficiaries at least 30 days

prior to the effective date of the

termination. If CMS provides their

notice of termination to contracting

organizations 45 days before the

effective date of the termination, this

affords plans 15 days to issue their

notice to enrollees while still complying

with the existing 30-day beneficiary

notification requirements. While we do

request that terminated plans work with

the receiving plan to transition enrollee

data and records, it is not expected that

these tasks would be completed by the

effective date of the termination, but

would instead begin upon transfer of the

enrollees once the termination was

actually effective.

As for adequate notification to

affected vendors and providers, it is the

responsibility of the contracting

organization to design their contracts

with their providers and vendors in a

manner that recognizes possible

contract actions, such as termination,

that could be taken by CMS. For

example, all plans that have a contract

with CMS could ultimately be subject to

immediate termination if they are found

in such substantial non-compliance by

CMS that it poses an imminent and

serious risk to Medicare enrollees.

Therefore, most, if not all plans, likely

have clauses in their provider and

vendor contracts that allow them to

terminate these contracts expeditiously

with the affected entities in the event of

a contract termination by CMS.

We also do not agree that the

shortened timeframe in any way affects

a contracting organization’s ability to

appeal. Contracting organizations who

are subject to a contract termination in

§§ 422.510(b) or 423.509(b) must file

their request for a hearing within 15

days from the date of receipt of the

notice of termination. A timely filed

request for hearing effectively stays the

termination proceeding until a hearing

decision is reached. Consequently,

shortening the notice of termination

from 90 to 45 days should have no

impact on a contracting organization’s

ability to file an appeal of the contract

termination.

Finally, we do not agree that the

shortened notice timeframe to effectuate

a termination would result in increased

costs to an organization. We already

have the ability to prorate its payment

to an organization for terminations that

are effective in the middle of a month;

consequently we do not agree that

shortening the notification timeframe

would in any way change the CMS’s

current approach to payment or

recoupment of capitated payments in

these circumstances.

Comment: One commenter suggested

that CMS should have different

notification timeframes for termination.

They recommended that 90 day notice

be provided to all post-acute care (PAC)

providers as well as to beneficiaries in

PAC. They stated that 45 days for notice

may be sufficient for non-post-acute

care beneficiaries, but not for people in

a short stay setting. They also suggested

that MA plans that are serving full dual

eligible beneficiaries should be required

to provide 180 day notice to individuals

and providers.

Response: CMS’ proposal to shorten

the notification of termination from 90

days to 45 days affects the amount of

notice that CMS must give to an MA or

Part D organization prior to moving

forward with a termination action. The

timeframe in which that organization

must then notify their beneficiaries,

which is currently 30 days, is not being

changed in this proposal. While we

appreciate the commenter’s suggestion,

we believe that it would be incredibly

burdensome to organizations and

confusing to our beneficiaries to

implement such a striated notification

process for our beneficiaries during a

termination. Additionally, if we were to

adopt the commenter’s suggestion of a

90 day notice period for beneficiaries in

a PAC setting or 180 day notice for dual

eligible beneficiaries, this would require

that we give organizations even more

advance notice of our intent to

terminate than we do currently, which

is contrary to the ultimate goal of our

proposal, which is to remove

beneficiaries as quickly as possible from

a plan with such significant

noncompliance issues that CMS is

pursuing termination. Consequently, we

plan to proceed with our proposed

change.

Comment: Several commenters

supported CMS’ proposed revisions to

the contract termination authority

(§§ 422.510 and 423.509) and stated that

these measures will help enforce

consumer protections and enhance plan

accountability.

Response: We thank the commenters

for their support.

After consideration of the public

comment(s) received, we are finalizing

these proposals without modification.

We note that the amendatory instruction

to the regulation text in this final rule

more precisely describes the

redesignation of subparagraph (a)(4) of

§ 423.509 than that found in the

proposed rule.

4. Reducing the Burden of the

Compliance Program Training

Requirements (§§ 422.503(b)(4)(vi)(C)

and 423.504(b)(4)(vi)(C))

Section 1857(a) and section 1860D–

12(b)(1) of the Act provided the

Secretary with the authority to enter

into contracts with MA organizations

and Part D sponsors (respectively).

Sections 1860D–12(b)(3)(D)(i) and

1857(e)(1) of the Act, specify that these

contracts shall contain other terms and

conditions that the Secretary may find

necessary and appropriate. We first

established that all Part C and Part D

contracting organizations have the

necessary administrative and

management arrangements to have an

effective compliance program, as

reflected in §§ 422.503(b)(4)(vi) and

423.504(b)(4)(vi). We later established

that compliance plans for sponsoring

organizations must include training and

education and effective lines of

communication between the compliance

officer and the sponsoring

organization’s employees, managers,

and directors, as well as their first-tier,

downstream and related entities (FDRs).

We reiterated the importance of this

requirement in the October 22, 2009

proposed rule entitled, ‘‘Medicare

Program; Policy and Technical Changes

to the Medicare Advantage and the

Medicare Prescription Drug Benefit

Programs’’ (74 FR 53634). We were

concerned that these FDRs would

potentially have to participate in

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(largely duplicative) training for each

organization with whom they contract.

We requested public comments on how

best to ensure that the training

requirement continued to be met while

not overly burdening the contracting

organization or its FDRs. In response,

we received numerous comments

suggesting that CMS develop its own

web-based trainings to lessen this

burden on sponsors and FDRs (75 FR

19688).

Consequently, we proposed in this

rule to require that all contracting

organizations accept a certificate of

completion of the CMS developed

training as satisfaction of this general

compliance program training

requirement. We proposed to modify the

regulation text by adding a new

§§ 422.503(b)(vi)(C)(3) and

423.504(b)(vi)(C)(4) to permit only this

CMS training for satisfaction of the

requirement to train first–tier,

downstream and related entities.

Comment: One commenter questioned

if there would be a fee associated with

the CMS mandated training.

Response: There is no fee to take the

CMS Standardized General Compliance

Program Training; it is provided free of

charge.

Comment: Multiple commenters

stated that Part C and Part D contracting

organizations should have the option of

using the CMS Standardized General

Compliance Program Training and

Education Module. The commenters

wrote that there should be flexibility in

meeting the proposed training

requirement, and that CMS should

consider allowing plan sponsors to

utilize their own training or the training

developed by established training

companies to meet the requirement.

Response: The CMS Standardized

General Compliance Program Training

and Education Module was created to

reduce the burden on sponsors and

FDRs. If we continue to allow sponsors

to modify or utilize their own training

in lieu of using the CMS Compliance

training, it will no longer ensure the

elimination of the prior duplication of

effort that so many FDRs stated was

creating a huge burden on their

operation. This is why CMS proposed

that only our training can be used, as it

is the only means to ensure that

duplication of effort is avoided for FDRs

who hold contracts with multiple Part C

and Part D contracting organizations.

Comment: One commenter raised

concerns over the significant amount of

time required to complete the current

CMS Compliance training and stated

that it may take time away from other

areas of training the organization has

deemed necessary through their own

internal risk assessments. They

suggested CMS consider modifying the

requirement to allow the longer training

initially and developing a shorter

‘‘refresher’’ version that could be taken

annually thereafter.

Response: We will not modify the

existing CMS Standardized General

Compliance Program Training at this

time. However, we recognize the

commenter’s concern and will take

under consideration the development of

a refresher training module for future

use.

Comment: A few commenters

recommended that CMS establish a

single centralized electronic location

where FDRs could obtain this training,

and that the centralized location would

also serve as a repository to hold

attestations of training completion

accessible to Part C and Part D

contracting organizations for

compliance oversight purposes.

Commenters suggested it be searchable

or that CMS provide updates, one

suggesting daily reports be pushed to

each MA organization and Part D

sponsor so that they could track

compliance with the training

requirement. One other commenter

suggested that the training be provided

in a Sharable Content Object Reference

Model (SCORM) format for

downloading into various organizations’

systems.

Response: The training is in a

centralized location on the Medicare

Learning Network. All who take the

training will be able to print out a

certificate of completion to prove they

have completed the training. It is the

responsibility of Part C and Part D

contracting organizations to determine

how to best retrieve and catalog this

information from their FDRs. CMS is

unable, at this time, to provide the

capacity for a publicly searchable

database of users who have completed

that training or a system that would

allow reports to be sent to the various

contracting organizations regarding the

training status of various FDR

organizations. We will consider and

determine if our training module could

be available for download into the

format suggested by commenters, but we

would need to ensure that the content

could not be modified to ensure the

integrity and completeness of the

training module.

Comment: One commenter suggested

CMS leverage the existing Compliance

Training, Education & Outreach (CTEO)

site to support this initiative and to

interactively execute the training and

collect and track the required

attestations.

Response: When we developed the

Standardized General Compliance

Program Training, the CTEO Web site

was not yet in existence. We will take

the commenter’s suggestion under

consideration and further explore that

Web site’s capability to determine if it

actually exceeds the current capability

of the Medicare Learning Network,

where the training is currently housed.

Comment: A few commenters

recommended maintaining the current

policy of allowing flexibility in how the

training requirement is met. These

commenters stated the current training

requirements meet their needs because

it allows options and reduces the

burden on various sectors of the

industry. They stated that various

organizations had already invested

resources to become compliant and to

develop efficient means of both

delivering and tracking the training. The

flexibility in the current regulations

allows plan sponsors to work in concert

with FDRs to develop effective training

for those specific entities and their

existing learning models.

Response: We recognize that the

current compliance program training

requirement does meet the needs of

some contracting organizations.

However, based on public feedback

received previously, as well as in

response to this proposed change, we

continue to believe that the proposed

approach is most efficient and effective

for the majority of FDRs and contracting

organizations.

Comment: Many commenters

requested clarification regarding who is

required to take the training: Providers,

brokers, FDRs, and/or internal

employees.

Response: The compliance and fraud,

waste, and abuse (FWA) training and

education requirement applies to all

delegated entities (which may include

agents/brokers) whom the Part C or Part

D contracting organization qualifies as

an FDR using the definition at 42 CFR

§§ 422.500(b) and 423.500. Whether a

Part C or Part D contracting organization

identifies a certain entity or individual

provider as an FDR depends on the

contractual relationship and/or written

agreement between the entity/

individual and the contracting

organization. The compliance and FWA

training is not intended to be mandatory

for the employees of those contracting

organizations.

Comment: Several commenters

wanted to know if this training would

satisfy the FWA and Compliance

training requirements.

Response: There is both a FWA and

a Compliance training module available

on the Medicare Learning Network,

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FDRs must take both modules in order

to satisfy the entire training

requirement.

Comment: A few comments requested

clarification regarding who was deemed

for purposes of the FWA training

requirement (for example, is it just the

provider participating in Medicare FFS

or also all of the employees that work

in his office, similarly with a hospital

participating in Medicare, does it extend

to their employees). Commenters also

requested if CMS was exploring

deeming status for providers in the Part

D program.

Response: This question is outside of

the scope of this regulation. We did not

propose any changes to the FWA

training module or the associated

deeming requirements. Therefore, we

are unable to address your question at

this time.

Comment: Several commenters had

questions regarding the one-pager that

contracting organizations can provide

with organization specific information,

and requested whether this meets the

requirements for distributing their codes

of conduct (COC) or standards of

conduct (SOC) located in Chapter 9 of

Pub. 100–18, Medicare Prescription

Drug Manual, and Chapter 21 of Pub.

100–16 of the Medicare Advantage

Manual. Some commenters inquired if

this new proposal could be construed to

forbid them from distributing their

COC/SOC to their FDRs.

Response: We intend that the

standardized FWA and Compliance

Training modules will cover the basic

training requirements. We recognize

that each contracting organization has

specific information that must be shared

with their FDRs regarding the

organization’s specific operations. The

one-pager was suggested for

organizations to communicate unique

information that is usually shared in

FWA/Compliance such as relevant

organization contact information (for

example, Web site address, hotline/

ethics phone numbers) the Compliance

Officer’s contact information, the

Compliance Department staff, and

possibly even online access to the COC/

SOC or disciplinary policies. Our

experience has shown that many

contracting organizations issue their

COC/SOC electronically (internally and

externally) and/or create Web sites

designated for their FDRs to locate the

information mentioned previously.

Contracting organizations must continue

to distribute their COC/SOC to all of

their employees, FDRs, board members,

etc. Nothing is this regulation should be

interpreted to preclude organizations

from satisfying the seven elements of

the compliance program requirements.

Comment: The commenters suggested

that feedback should be solicited from

the plans to assist with improving the

content of the training, specifically

including more examples that are

relevant to FDRs, as commenters

mentioned the modules examples are

often organization-centric.

Response: We always welcome

feedback from contracting organizations

and FDRs with respect to improving our

training products. Organizations,

entities or individuals who have

suggestions should submit them to the

following mailbox: Parts_C_and _D_CP_

[email protected].

Comment: Some commenters stated

that CMS should consider how it can

implement this proposal in a way that

reduces administrative burdens on

contracting organizations and FDRs, as

new processes to collect and track

attestations may be difficult and time

consuming. Many suggested that a

January 1, 2015 effective date was an

insufficient amount of time to set up

such elaborate processes and

recommended that these provisions be

effective no earlier than January 1, 2016.

Response: CMS recognizes the

administrative burden imposed on the

contracting organizations and their

FDRs. The primary goal of this proposal

is to reduce that administrative burden

by instituting a uniform compliance

training module and we believe that

contracting organizations are in the best

position to determine the most effective

way to collect and track compliance

amongst their FDRs. However, we

recognize that setting up these new

processes may take time, along with

potentially updating contracts to reflect

the new requirements. Therefore, we

will delay the implementation of this

provision to January 1, 2016.

Comment: The largest number of

commenters represented FDRs that

wrote in support of the proposed

compliance training program

requirements and use of the CMS

Standardized General Compliance

Program Training, agreeing that it would

greatly reduce burden on FDRs.

Response: We thank the commenters

for their support.

After careful consideration of all of

the comments received, we are

finalizing this proposal with the one

modification discussed previously, with

a delayed applicability date of January

1, 2016.

5. Procedures for Imposing Intermediate

Sanctions and Civil Money Penalties

Under Parts C and D (§§ 422.756 and

423.756)

Sections 1857(g) and 1860D–

12(b)(3)(E) of the Act provide the

Secretary the ability to impose

intermediate sanctions on MA

organizations and PDP sponsors.

Intermediate sanctions consist of

suspension of enrollment, suspension of

marketing and suspension of payment.

Current regulations governing

intermediate sanctions are contained in

subparts O of part 422 and part 423.

Sections 422.756 and 423.756 provide

specific procedures for imposing

intermediate sanctions and include

provisions which address: The duration

of the sanction; and the standard that

we apply when determining if a

sanction should be lifted.

We proposed to expand the potential

applicability of the test period

requirement to three types of

intermediate sanctions by modifying the

existing rules to clarify that CMS may

require a test period for a sponsoring

organization that has had any of the

three types of intermediate sanctions

imposed: Marketing, enrollment and/or

payment. Second, we proposed to

clarify the enrollment parameters for

sanctioned sponsoring organizations

offering Part D plans to include

language specifying that a sanctioned

plan is not available to receive

automatically assigned beneficiaries for

the entire duration or a portion of the

testing period. We proposed to modify

the regulation text at §§ 422.756 and

423.756 to reflect these changes.

Comment: One commenter questioned

clarification on what CMS considers a

contract violation of marketing

requirements and requested if violations

would be based solely on allegations of

misconduct.

Response: Marketing standards for

MA organizations and Part D sponsors

are codified in subpart V of parts 422

and 423. The current Medicare

Marketing guidelines are located in

Chapter 3 of Pub. 100–16, Medicare

Managed Care Manual, and Chapter 3

of Pub.100–18, The Medicare

Prescription Drug Manual, which

should provide sponsors with guidance

regarding current marketing

requirements. With respect to contract

violations being based on

unsubstantiated allegations of wrong-

doing, enforcement actions are only

taken based on substantiated, well

documented instances of non-

compliance. Additionally, MA

organizations and Part D sponsors that

are sanctioned are given an opportunity

to rebut or appeal our determination

through a formal appeals process.

Comment: One commenter suggested

the prohibition on auto-enrollment into

plans under a test period should also

apply to passive enrollment.

Specifically, the commenter stated that

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Medicare-Medicaid eligible individuals

should not be passively enrolled into an

MA or an MA Special Needs Plan (SNP)

that is under sanction or under sanction

and in a test period as part of a

demonstration or a state developed

integrated plan product.

Response: Plans that are under a

sanction are not eligible to receive

enrollments. However, we have the

discretion to require a sanctioned plan

to market or accept enrollments for a

limited period to assist in making a

determination as to whether the bases

for imposing the sanction have been

fully corrected and are not likely to

recur. As stated previously, sanctioned

sponsoring organizations offering a Part

D benefit would not be eligible to

receive automatically assigned

beneficiaries during the test period.

During a ‘‘test period’’ the sanction(s)

remain in effect.

Comment: One commenter requested

that we extend the proposal to also not

allow passive enrollment into plans that

are coming off of sanction or are

currently in a test period until we have

determined they are ready.

Response: CMS has determined that it

is legally permissible to provide for

enrollment in an MA or Part D plan

under a passive enrollment request

process in specific, limited

circumstances generally associated with

either immediate plan terminations or

in other situation where CMS

determines that remaining enrolled in

the plan would pose potential harm to

members. We determine when passive

enrollment is appropriate. In evaluating

whether such CMS-directed enrollee

movements are appropriate, a key factor

is the determination as to whether the

receiving plan is essentially equivalent

to (or better than) the current plan from

an overall perspective.

Therefore, in situations where passive

enrollment is determined permissible,

like an immediate plan termination,

CMS would factor in a number of

criteria, including the receiving plan’s

current premium, benefit and formulary

structure, as well as plan past

performance. In any event, our goal

would be to ensure that those affected

members suffered as little disruption as

possible during their transition. Plans

that were under sanction at the time of

a passive enrollment would not be

considered a viable option for affected

enrollees and it is unlikely that sponsors

under a test period would either.

However, if a sponsor who was removed

from sanction and was under a test

period met several other criteria for

receiving passive enrollment (that is,

plan’s benefit and formulary structure

was largely the same and their premium

was not significantly higher), we may

consider them among the group of

available plans to receive passive

enrollment.

Comment: A few commenters

requested clarification regarding the

new sanction authority, specifically the

language that would allow CMS to

impose intermediate sanctions on an

organization that enrolls an individual

without prior consent (except in certain

limited circumstances) or transfers an

individual to a new plan without prior

consent. The commenters asked that

CMS clarify that this would not apply

to organizations that perform facilitated

or auto-enrollment, passive enrollment,

seamless enrollment or group or

individual enrollment requests from

EGWPs.

Response: In the proposed rule, we

proposed to amend the regulation text at

§§ 422.752 and 423.752 by adding

subparagraph (a)(9), which reads:

‘‘. . .Except as provided under § 423.34

of this chapter, enrolls an individual in

any plan under this part without the

prior consent of the individual or the

designee of the individual.’’ Section

423.34 specifically refers to enrollment

of individuals who receive the low

income subsidy (LIS) and are therefore

subject to facilitated or auto-enrollment.

Therefore, we believe that the proposed

regulation text already makes clear that

this provision would not apply to those

organizations that are performing

facilitated enrollment of LIS

beneficiaries. Additionally, passive

enrollment and use of the seamless

enrollment option are initiated or

approved by CMS, respectively.

Therefore, an organization who is

contacted by CMS to receive passive

enrollment would not be considered to

have performed enrollment without

prior consent. As for the seamless

enrollment option, as these proposals

must be submitted to and approved by

CMS, as long as organizations are

following CMS’ enrollment guidance in

Chapter 2, § 40.1.4, and have received

CMS’ approval, an organization again

would not be considered as enrolling

without prior consent and would

therefore not be considered for a

possible sanction. Finally an

organization who is accepting

enrollment requests for an employer or

union sponsored plan using the group

enrollment mechanism must follow

CMS’ enrollment guidance in Chapter 2,

§ 40.1.6.1. As long as CMS enrollment

guidance is being followed with respect

to processing these enrollments, CMS

would not consider MA and Part D

organizations in violation of the new

requirement. However, we expect that

requests for enrollment into an

employer or union sponsored plan

outside of the group enrollment process

(that is, beneficiary initiated enrollment

requests) follow all requirements,

including prior consent, applicable to

any other individual enrollment request.

Comment: Several commenters

expressed support for our proposal to

expand the use of the ‘‘test period’’

requirement to all intermediate

sanctions, and support the proposal that

previously sanctioned below-the-

benchmark Part D plans not be allowed

to receive or process auto-enrollments

or reassignments until they are

determined to be ready by CMS.

Response: We thank the commenters

for their support.

After careful consideration of the

comments received, we are finalizing

these proposals without modification.

We inadvertently failed to include

proposed regulation text for § 423.756

that corresponds to this proposal. In this

final rule, we finalize amendments to

§§ 422.756 and 423.756 that are

virtually identical to implement this

proposal.

6. Timely Access to Mail Order Services

(§ 423.120)

Section 1860D–12(b)(3) of the Act

authorizes the Secretary to include

contract terms for Part D sponsors, not

inconsistent with the Part C and D

statutes, as necessary and appropriate.

Section 423.120(a)(3) specifies that a

Part D sponsor’s contracted network

may include non-retail pharmacies,

including mail order pharmacies, so

long as the network access requirements

are met. Part D plans are increasingly

entering into contracts with mail order

pharmacies to offer beneficiaries an

alternative way to fill prescriptions

under the Part D benefit, often at much

lower cost sharing than is available at

network retail pharmacies. While mail

order pharmacies make up a relatively

small percentage of total prescriptions

filled under the Part D program, we are

committed to ensuring consistent and

reliable beneficiary access to

medications, regardless of what type of

pharmacy fills the prescriptions.

Section 1860D–4 of the Act describes

the various beneficiary protections in

place in the Part D program. For mail

order pharmacies, the industry standard

for delivery times appears to range from

7 to 10 business days from the date the

prescription was received, and Part D

sponsors’ marketing materials often

specify this time frame to beneficiaries.

Beneficiaries generally choose to fill

prescriptions through a mail order

pharmacy, for lower cost sharing, when

it is feasible to wait 7 to 10 days to

receive their medications. However, if

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this time frame is disrupted,

beneficiaries may experience gaps in

therapy.

When issues with filling a

prescription arise in a retail setting, the

beneficiary often is notified of the

problem in real time, or within hours of

discovery. When issues arise in a mail

order setting, the delays in finding,

communicating, and making the

appropriate contacts to resolve the

problem may add days onto the ultimate

delivery date, resulting in a potentially

more significant concern for mail order

beneficiaries if these delays result in

gaps in therapy. For this reason, we

proposed to establish fulfillment

requirements for mail order pharmacies

as well as home delivery services

offered by retail pharmacies, to set

consistent expectations for beneficiary

access to drugs in this growing segment.

Many beneficiaries may be very well

served by this type of pharmacy access,

but only if they can rely upon efficient

processing and turnaround times. Mail

order pharmacies contracted by Part D

sponsors can reasonably be expected to

meet minimum performance standards

for order fulfillment, including

convenient order turnaround times, as a

beneficiary protection and as a

component of providing good customer

service. Clearly stating in beneficiary

materials the expected turnaround time

for delivery allows the beneficiary to

better control when they need to reorder

to ensure no gaps in medication supply.

Clarity in expected turnaround times

also can prevent needing to address

customer inquiries into the status of a

pending order, setting parameters for

when an order is or is not delayed and

what options become available at that

point. We believe that established

companies that have been providing

these services for years have generally

been meeting these standards in practice

already, and that the proposed

turnaround times are in line with

current practices followed by mail order

pharmacies today.

Therefore, we proposed to amend

§ 423.120(a)(3) to specify mail order

fulfillment requirements in line with

what we have observed in other

markets: 5 business days (from when the

pharmacy receives the prescription

order to when it is shipped) for those

prescriptions requiring intervention

beyond filling (such as clarifying

illegible orders, resolving third party

rejections, and coordinating with

multiple providers as part of drug

utilization management); and 3 business

days (from when the pharmacy receives

the prescription order to when it is

shipped) for those prescriptions not

requiring intervention. We recognize

that some prescription orders may

require clarification or additional steps

to be taken by the provider or

beneficiary that would extend beyond

the proposed period of 5 days. We

believe that such cases represent a

minority of mail order prescriptions,

and as such we would anticipate that

more than 99 percent of all mail order

prescriptions processed are filled in

compliance with either the 3- or 5-day

standard. We believed our proposed

standards are in alignment with

fulfillment requirements already in

place in the market and as such do not

create a new burden or new standard for

mail order pharmacies to meet. We

solicited comments not only on the

proposed time frames, but also on

whether there are instances (in addition

to those discussed previously) in which

the proposed 5-day time frame should

apply. We received the following

comments and our response follows:

Comment: A few commenters

questioned why we proposed

turnaround times of 3 and 5 days if we

list in preamble that standard

turnaround times are 7 to 10 days for

delivery.

Response: The preamble discussion

surrounding delivery of prescriptions

within 7 to 10 days is from the

perspective of the beneficiary; listing

the total time from when a medication

is ordered to the time it is delivered.

Importantly, this includes shipping

time. The proposed fulfillment

standards were specific to mail order

pharmacy processing times and did not

include actual time in shipping. In other

words, the 3 to 5-day turnaround time

only refers to the timeframe from when

the pharmacy receives the order until

the pharmacy ships the order.

Comment: Many commenters

expressed concerns that 5 business days

is too short of a time frame to require

mail order pharmacies to resolve some

issues when they arise (such as

manufacturer drug shortages), many of

which are outside the control of the

pharmacy. Many commenters noted

unique timeline concerns specific to

specialty medications, such as cold

chain shipping and needing to contact

the beneficiary to coordinate delivery.

Multiple commenters suggested that

additional leeway is also needed to

accommodate issues such as natural

disasters. Multiple commenters

suggested that mail order pharmacies

should contact beneficiaries as a good

customer service practice when any

delay in filling will prevent an order

from shipping within 5 days. Many

commenters noted that they currently

would be able to meet a 3-day

turnaround standard for filling orders

not requiring follow up contact with the

beneficiary or prescriber.

Response: We recognize that some

interventions may require more than 5

business days to resolve. In those cases,

we agree with the suggestion from

multiple commenters that mail order

pharmacies should contact beneficiaries

as a good customer service practice

when any delay in filling will prevent

an order from shipping within 5 days.

However, in light of the comments

received regarding a variety of situations

that we had not considered, including

some outside of the pharmacy’s control

that could create delays longer than 5

days, we are not finalizing the proposal

to establish fulfillment standards for

mail order. Instead, we will continue

analysis on mail order fulfillment time

frames, including evaluating the impact

of the implementation of the auto-ship

beneficiary consent policy finalized in

the 2014 Call Letter. In addition, Part D

sponsors are expected to follow best

practices by making clear their expected

delivery turnaround times in their

beneficiary materials, consistently

meeting such delivery time frames, and

having contingency plans for when they

cannot, such as allowing retail access at

mail order cost sharing levels if

necessary. The volume of complaints

that we receive related to mail order

delivery suggests that beneficiary

expectations are not consistently being

met. We will increase our monitoring of

mail order pharmacies, and will

consider the need to establish standards

and requirements in the future. Based

on the comments submitted, additional

consideration may be necessary

surrounding specialty medications and

their delivery, especially when there are

cold chain or other shipping

considerations. We reviewed the

information provided on how specialty

pharmacy differs from other mail order

deliveries, and agree that additional

consideration should be given to these

pharmacies and medications in any

future guidance. Additionally, we will

clarify existing guidance about

exception processes and coverage

denials to ensure that mail order

pharmacies provide beneficiaries notice

of non-fulfillment of a prescription as

expeditiously as possible. Current

guidance on disaster responses and drug

shortages still apply, and we encourage

sponsors to communicate with their

enrollees when unique situations like

these arise.

Comment: A few commenters

suggested that mail order turnaround

times are best left to state Boards of

Pharmacy to monitor, instead of being

set in regulation.

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Response: We proposed specifying

parameters for timely mail order

fulfillment, consistent with the

authority given to the Secretary to

specify additional contract terms not

inconsistent with the Part D statute.

However, we had not considered the

potential conflict or duplication with

state-based requirements and appreciate

the comments. We will take this under

consideration as we consider

establishing requirements for Part D

sponsors offering a mail order benefit in

the future.

Comment: Some commenters wrote

that turnaround times would be better

defined in guidance or incorporated in

star ratings or other quality metrics.

Response: We appreciate the

suggestion. As we will not be finalizing

the proposed fulfillment standards in

this final rule, we are exploring

alternatives for ensuring consistent and

predictable access to medications for

beneficiaries in a plan offering a mail

order benefit. As part of this effort, we

are currently developing a study of how

mail order benefits are used within the

Part D benefit. The comments received

on the proposed rule and the results of

this study will be considered when

determining whether fulfilment

standards should be included in future

star ratings measures, as well as used to

inform the need for future guidance or

rulemaking. Additionally, we will

increase our monitoring and analysis of

mail order-related complaints in the

CTM and explore setting a threshold for

the volume or severity of complaints

triggering a review by CMS. We remain

very concerned by the high level of

complaints received relating to mail

order, and take seriously the issues

raised by beneficiaries. We are also

exploring how fulfillment of plan-

designated turnaround times listed in

marketing or other beneficiary materials

could be included within the audit

framework.

Comment: One commenter wrote in

with concerns that the methodology

used in two CMS studies cited in

another provision were problematic and

stated that no regulation proposals

relating to mail order should be

finalized until corrected and

reexamined.

Response: The studies noted by the

commenter were not used when

designing the proposal specific to timely

delivery of mail order prescriptions.

Comment: Some commenters

suggested that the policy announced in

the CMS 2014 Call Letter that

pharmacies obtain beneficiary consent

prior to shipping any medications that

the beneficiary did not affirmatively

order directly affects the timeline for

order fulfilment and any defined

turnaround times for delivery should be

adjusted accordingly.

Response: We recognize that the CMS

2014 Call Letter auto-ship policy

necessitates an increased level of

coordination with the beneficiary for

some pharmacies, when filling

prescriptions that the beneficiary did

not directly request (such as new orders

submitted directly by the provider or

refills prompted by an automatic

delivery program). We will not be

finalizing the proposed fulfillment

standards in this final rule, but

encourage all plan sponsors to consider

the need for coordination with the

beneficiary when establishing and

marketing average turnaround time

estimates for their members.

Comment: A few commenters

suggested that beneficiaries should be

allowed to fill their medications at the

retail pharmacy of their choice, at the

same cost sharing level as mail order, if

a mail order pharmacy encounters any

delays, or delays extending beyond 5

days.

Response: While this was not a part

of our proposal, and we will not be

finalizing any new requirements at this

time, we do agree with commenters that

this would be an important beneficiary

protection. We believe that best

practices for addressing a lost or

delayed order would include plan

sponsors providing clear and timely

guidance to the beneficiary in the event

of a lost or delayed order, including a

list of options for obtaining a

medication. Part D sponsors should

have contingencies in place when issues

are encountered that lead to a delay and

potentially a gap in therapy. This could

include offering beneficiaries the ability

to fill a delayed mail order prescription

at a retail pharmacy and pay no more

than what they would have been

charged by a mail order pharmacy. The

need to prevent gaps in therapy for

beneficiaries relying on mail order

pharmacies remains a significant

concern to us.

In summary, we are not finalizing any

fulfillment standards for mail order

prescriptions, in light of the concerns

raised. We will use the information

gained from our mail order study and

from the public comments submitted to

explore the need for additional guidance

or rulemaking in the future. The need to

ensure consistent access to and prevent

gaps in therapy for enrollees relying on

mail order for their medications

continues to be a significant concern.

We additionally solicited comments

on whether we should establish

additional requirements for beneficiary

materials relating to mail order services,

such as: Clear definitions of processing

time and delivery time; how to access

customer support; how to submit a

complaint via 1 800 MEDICARE; and

beneficiary options for accessing

medications when a delivery is lost or

delayed. We received the following

comments and our response follows:

Comment: Many commenters stated

that additional requirements for

beneficiary materials would enhance

mail order services and that this would

be a positive change for beneficiaries.

These commenters noted that clear

definitions of requirements are needed

to resolve issues, ensure consistent

access, and ensure no gaps in therapy.

Response: We appreciate the

comments. We intend to conduct a

study of mail order benefits offered by

Part D sponsors and will use this, and

the information received from public

comments, to inform changes to

beneficiary materials relating to mail

order. At a minimum, we expect

sponsors offering mail order services to

follow best practices by clearly listing

estimated delivery times in their

marketing and beneficiary materials. In

the event of a failure to meet plan-

designated timeframes for delivery, as a

best practice sponsors should be

prepared to take the steps necessary to

provide their enrollee the medication in

a timely manner in order to avoid gaps

in therapy. This could include offering

enrollees the option to obtain delayed

medications at a retail pharmacy at the

same cost sharing level as mail order.

We also welcomed comments on any

other requirements we should consider

for mail order or other home delivery

options. For example, also potentially

affecting consistent access to medication

is the use of mail order to fill initial

prescriptions of new drugs or to fill 30-

day supplies of chronically used

medications. The need to order a refill

early, allowing sufficient time for

processing and delivery, can result in

refill-too-soon edits based upon retail 30

day standards. Resolving inappropriate

or inapplicable edits increases burden

on the beneficiary and the mail order

pharmacy and essentially creates a

disincentive for beneficiaries who are

planning ahead and attempting to order

early enough to ensure uninterrupted

supplies of chronic medications. In

general, we believe that filling initial

prescriptions or routine 30-day supplies

at mail order is not good practice. We

recognize that there may be a small

minority of beneficiaries who

successfully depend solely upon mail

order or other home delivery options for

access to prescription drugs due to

particular circumstances of geography

or mobility. We have no reason to

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discourage their continued use of these

services. However, due to the

difficulties reported to CMS with

consistently and effectively filling short

time frame supplies through mail order,

we do not believe that Medicare

beneficiaries in general should be

incentivized through lower cost sharing

to utilize mail order pharmacies for

initial prescriptions or 30-day supplies.

We received the following comments

and our response follows:

Comment: A few commenters agreed

that mail order is not an appropriate

venue for filling 30 day supplies of

medications.

Response: We appreciate the

comments and will explore how often

mail order is used for short days’

supplies of medications as a part of the

current study on mail order benefits.

Comment: Some commenters noted

that specialty pharmacies often dispense

medications by mail order in an amount

lasting 1 month or less.

Response: We agree with the

comments that noted some specialty

medications may be best supplied,

when supplied by mail order, in

quantities less than a 3 month supply,

due to frequent dose titrations, financial

concerns, or applicable controlled

substance laws.

We did not propose any specific

regulatory requirements to mail order

for 30-day supplies or less. We are

currently analyzing the types of

prescriptions filled by mail order

pharmacies and will use the information

gained from this to explore the need for

future guidance or rulemaking that

could help ensure consistent timely

access for Part D beneficiaries opting to

use mail order for both short and

extended days’ supplies.

7. Agent/Broker Compensation

Requirements (§§ 422.2274 and

423.2274)

Section 103(b)(1)(B) of MIPPA revised

the Act to charge the Secretary with

establishing guidelines to ’’ensure that

the use of compensation creates

incentives for agents and 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 the Act to apply these same

guidelines to Part D sponsors. Our

program experience indicates that some

agents may encourage beneficiaries to

enroll in plans that offer higher

commissions without regard to whether

plan benefits meet the beneficiaries’

health needs. In recognition that agents

and brokers play a significant role in

providing guidance and advice to

beneficiaries and are in a unique

position to influence beneficiary choice,

we had proposed, prior to the enactment

of MIPPA, a rule to regulate agent and

broker compensation. To implement the

MIPAA provisions and relying in part

on comments in response to our

previously proposed rule, we adopted

an interim final rule on September 18,

2008, entitled ‘‘Medicare Program;

Medicare Advantage and Prescription

Drug Benefit Programs: Final Marketing

Provisions’’ (73 FR 554226), which,

among other things, established the

current compensation structure for

agents and brokers as it applies to Parts

C and D. That rule remains significantly

in place at §§ 422.2274 and 423.2274,

and our experience since then indicates

that revision of the compensation

requirements is necessary to ensure that

we continue to meet our statutory

mandate.

The current compensation structure is

comprised of a 6-year compensation

cycle that began in Contract Year (CY)

2009. MA organizations and Part D

sponsors were to provide an initial

compensation payment to independent

agents for new enrollees (Year 1) and

pay a renewal rate (equal to 50 percent

of the initial year compensation) to

independent agents for Years 2 through

6. These rates were to be adjusted

annually based on changes to the MA

payment rates or Part D parameters as

established by CMS. We later amended

the regulations to allow MA

organizations and Part D sponsors to

compensate independent agents and

brokers annually using an amount at or

below the Fair Market Value (FMV).

(See the final rule with comment period

entitled, ‘‘Medicare Program; Changes to

the Medicare Advantage and the

Medicare Prescription Drug Benefit

Programs for Contract Year 2013 and

Other Changes’’ (77 FR 22072)

published in the April 12, 2012 Federal

The first 6-year cycle ended at the end

of CY 2013, on December 31, 2013. The

first year, CY 2009, was considered to be

the first renewal year for those already

enrolled, effectively making CY 2009

the second full year of compensation.

Because our regulations were silent

regarding compensation amounts for

Year 7 and beyond, we stated in our

Final Call Letter for Contract Year 2014,

issued on April 1, 2013, that MA

organizations and Part D sponsors

could, at their discretion, pay agents

and brokers the renewal amount for

Year 7 and beyond. However, this

subregulatory guidance was intended to

be a temporary measure, pending final

changes to our regulations.

Under the current structure, MA

organizations and Part D sponsors pay

an initial rate for the first year, and then

a renewal payment of 50 percent of the

initial compensation paid to the agent

for years 2 through 6. This structure has

proven to be complicated to implement

and monitor as it requires 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. In our NPRM, dated

January 10, 2014, we provided a

detailed example of the complexities of

the current compensation structure.

Summarizing the current complexities,

every MA organization or Part D

sponsor has to know, at any given time,

the amount of the initial compensation

for each plan year—going back as far as

2009—in which the member enrolled in

order to pay the correct compensation

amount to the agent for the current

contract year. For new members, MA

organizations and Part D sponsors must

first review CMS’ reports to determine

whether an initial or renewal payment

should be made, and then combine that

information with the FMV, or, if

applicable, the plan’s compensation set

at less than the FMV, for each plan year

to ensure the correct payments are made

to agents.

In addition to its complexity, we

remain concerned that the current

structure creates an incentive for agents

and brokers to move enrollees from a

plan of one parent organization to a plan

of another parent organization, even for

like plan-type changes. In our NPRM,

we discussed and expanded upon our

example of how the current system

results in different payments when a

beneficiary moves from one like plan to

another like plan in different

organizations. In these cases, the new

parent organization would pay the agent

50 percent of the current initial rate of

the new parent organization; not 50

percent of the original initial rate paid

by the other parent organization. Thus,

in cases where the FMV has increased,

or the other parent organization pays a

higher commission, an incentive exists

for the agent to move beneficiaries from

one parent organization to another. (See

§§ 422.2274(a)(3) and 423.2274(a)(3)).

Since 2008, we have received

inquiries from MA organizations and

Part D sponsors regarding the correct

calculation of agent/broker

compensation, and found it necessary to

take compliance actions against MA

organizations and Part D sponsors for

failure to comply with the

compensation requirements. To the

extent that there is confusion about the

required levels of compensation or the

timing of compensation, there could be

an uneven playing field for MA

organizations and Part D sponsors

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operating in the same geographic area.

In addition, CMS’ audit findings and

monitoring efforts have shown that MA

organizations and Part D sponsors are

having difficulty correctly administering

the compensation requirements.

Therefore, we proposed simpler agent/

broker compensation regulations to

better ensure that plan payments are

correct and establish a level playing

field that will further limit incentives

for agents and brokers to move enrollees

for financial gain.

We proposed to revise the existing

compensation structure for agents and

brokers so that, for new enrollments,

MA organizations and Part D sponsors

could make an initial payment that is no

greater than the FMV amount for

renewals in Year 2 and beyond, the MA

organization or Part D sponsor could

pay up to 35 percent of the FMV amount

for the renewal year, resulting in

renewal year payment changes each

year if the MA organization or Part D

sponsor chooses to pay 35 percent of the

current FMV (that is, the renewal year

FMV threshold). As is currently the

case, we would interpret the FMV

threshold in our annual guidance to MA

organizations and Part D sponsors. This

flexibility would enable MA

organizations and Part D sponsors to

better react to changes in the

marketplace and adjust their

compensation structures accordingly.

When we proposed the 35 percent

renewal rate, we also discussed several

different alternatives, including

prohibiting compensation payments

entirely beyond year 6, permitting MA

organizations and Part D sponsors to

pay a residual payment for year 7 and

subsequent years, and permitting

existing renewal payments to extend

past year 7. We also evaluated different

renewal amounts, including a 50

percent renewal payment for years 2

through 6 with a continuing 25 percent

residual payment for years 7 and

beyond. The evaluation took into

account different beneficiary ages for an

initial enrollment, as well as life

expectancy. In the analysis, a renewal

payment of 35 percent was similar in

payout to the combination of a 50

percent payment for years 2 through 6

and a residual payment of 25 percent for

year 7 and beyond.

In our NPRM, we stated that we

believed that revising the existing

compensation structure to allow MA

organizations or Part D sponsors to pay

up to 35 percent of the FMV for year 2

and beyond was appropriate based on

several factors. First, we stated that a

two-tiered (initial and renewal) payment

system would be significantly less

complicated than a three-tiered system

(initial, 50 percent renewal for years 2

through 6, and 25 percent residual for

years 7 and beyond), and would reduce

administrative burden and confusion for

plan sponsors. Second, our analysis

determined that 35 percent is the

renewal compensation level at which

the present value of overall payments

under a two-tiered system would be

relatively equal to the present value of

overall payments under a three-tiered

system (taking into account the

estimated mortality rates for several

beneficiary age cohorts). This analysis

was based on the existing commission

structure basing renewal commissions

on the starting year initial commission

amount and not the current year FMV

amount.

In order to implement the changes in

the identical Part C and Part D

regulations at §§ 422.2274 and 423.2274,

our NPRM first proposed to revise the

introductory language for each section

and then define ‘‘compensation’’ in

paragraph (a)(1) and to restate the fair

market value limit on compensation for

the initial year as paragraph (b)(1)(i).

Second, we proposed to combine the

current (a)(1)(i)(B), which addresses

payments for renewals, and (a)(1)(iii),

which addresses the length of time that

renewals should be paid, and designate

the revisions as a new (b)(1)(ii). Thus,

the proposed new paragraph (b)(1)(ii)

would state that plans may pay up to 35

percent of the current FMV and that

renewal payments may be made for the

second year of enrollment and beyond.

In addition, we proposed to modify

paragraph (a)(3) to remove the 6-year

cap on the compensation cycle.

Currently, paragraph (a)(3) refers to

policies that are replaced with a like

plan during the first year or the

subsequent 5 renewal years. Since we

proposed to eliminate the 6-year cycle,

our revised paragraph (b)(2) deletes the

reference to the initial year and the 5

renewal years. By tying renewal

compensation to the FMV for the

renewal year, rather than to the initial

year of enrollment, our proposal reduces

the financial incentives for an agent or

broker to encourage Medicare

beneficiaries to change plans, especially

from one parent organization to another

parent organization. As with the current

regulation, we proposed in paragraph

(b)(2)(iii) that a change in enrollment to

a new plan type be payable under the

same rules that apply to an initial

enrollment, regardless of whether the

change is to an unlike plan type in the

same parent organization or an unlike

plan type in another parent

organization. Note that, as with the

current rule, our proposal only

addresses compensation paid to

independent agents and does not

address compensation payable by an

MA organization or Part D sponsor to its

employees who perform services similar

to agents and brokers.

We welcomed comments on both the

amount of the renewal payment, as well

as the proposed indefinite time frame,

which are discussed in depth as follows.

In summary, we received a number of

comments supporting our efforts to

simplify agent/broker compensation

calculation. These comments were

primarily from plans and industry trade

groups. We will be finalizing the rule to

implement a two-tiered (initial and

renewal) payment system using the

FMV in the current year for renewal

calculations.

We received numerous comments

from agents, brokers, plans and trade

associations overwhelmingly opposing

the 35 percent renewal rate. Based on

the comments received, we will finalize

the amendment to the regulations with

a cap of 50 percent of the current FMV

for renewals.

In response to the comments received,

we also determined that some

clarifications were necessary. For

renewals, the payment is based on the

current FMV and not the initial

enrollment year FMV. For example,

assume a beneficiary enrolls in an MA

plan in CY 2013. The plan pays the

initial FMV for CY 2013, which is $413.

In CY 2015, assume the FMV is $420.

The plan chooses to pay 50 percent of

the FMV for renewals. The maximum

renewal payment for this member for

CY 2015 would be $210 ($420 * .50)

instead of $207 ($413 * .50). For all

enrollments, MA organizations and Part

D Sponsors should calculate the

renewal rate based on the FMV of the

enrollment year. We are also clarifying

that our proposed and final regulations

do not require an indefinite payment of

50 percent of the FMV. The final rule

would permit up to 50 percent of the

current FMV to be paid by an MA

organization or Part D sponsor. CMS

currently requires that plans inform

CMS as to whether they are using

independent agents. Contracts between

MA organizations and Part D Sponsors,

on one hand, and their independent

agents and/or downstream entities on

the other hand, such as Field Marketing

Organizations, are not exhaustively

regulated by CMS. Therefore, MA

organizations and Part D sponsors may

decide the duration of their contract

with agents, number of applicable

renewals, and the actual rate for

renewals for each year, subject to the

limits in this final rule.

Current regulations at

§§ 422.2274(a)(4) and 423.2274(a)(4),

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which we proposed to redesignate as

part of paragraph (b), address the timing

of plan payments, as well as

recoupment of payments when a

beneficiary disenrolls from a plan.

Specifically, current paragraph (a)(4)

states that compensation may only be

paid for the beneficiary’s months of

enrollment during the year (January

through December). Under our proposal,

the new subparagraph (a) would more

clearly define a plan year for purposes

of compensation. The annual

compensation amount covers January 1

through December 31 of each year. Our

proposal also clarified that the payment

made to an agent must be for January 1

through December 31 of the year and

may not span calendar years. For

example, a renewal payment cannot be

made for the period of November 1,

2013 through October 31, 2014. These

proposed revisions represented

clarifications rather than new proposals

and were necessary based on our

findings that some plans have been

paying compensation based on a rolling

year cycle, rather than a calendar year

cycle. Therefore, we are implementing

the provision defining ‘‘plan year’’ and,

at subparagraph (b)(3)(i), limiting

payments to the months of enrollment

during the calendar year, as proposed.

Comments concerning this provision are

discussed later in this section.

Currently, regulations at

§ 422.2274(a)(4)(i) permit payments to

be made at one time or in installments

and at any time. In order to reduce the

number of payments that need to be

recouped based on changes made during

the annual coordinated election period

(AEP), which runs from October 15

through December 7, CMS proposed, in

new subparagraph (b)(3)(ii), changing

the timing of payments to require that

payments may not be made until

January 1 of the enrollment year and

must be paid in full by December 31 of

the enrollment year. We stated that this

proposal was appropriate given that the

beneficiary’s final application during

the AEP becomes the effective

enrollment. This would reduce the

number of recoupments required when

an enrollee signed more than one

application during the AEP. We

received several comments opposing the

requirement that MA organizations and

Part D plans may not make AEP

payments until January 1 of the

following year, but do not find these

arguments sufficiently compelling to

outweigh the simplification that would

be gained by establishing the January

deadline. We also received comments

regarding our proposed requirement that

payments be completed by December

31. MA organizations and industry

associations stated that accurate

payments, especially for enrollments

effective on December 1, would be

difficult to operationalize by the end of

the year. However, we would expect

enrollment requests for a December 1

effective date to be relatively low, as

only individuals newly eligible to

Medicare Advantage and those with a

special election period would be able to

enroll for that date. Moreover,

organizations and sponsors are already

required to process most post-

enrollment activities within two weeks.

Therefore, we continue to believe that

the December 31 deadline is in the best

interest of the program and are

finalizing subparagraph (b)(3)(ii) as

proposed.

Current regulations at

§§ 422.2274(4)(ii)(A) and

423.2274(4)(ii)(A) require MA

organizations and Part D sponsors to

recoup compensation paid to agents

when a beneficiary disenrolls from a

plan within the first 3 months of

enrollment. However, in sub-regulatory

guidance, we have recognized several

circumstances (for example, death of the

beneficiary, the beneficiary moves out of

the service area, the beneficiary

becomes eligible to receive LIS, or the

beneficiary loses Medicaid benefits) in

which plans should not recoup

compensation, even though the

beneficiary was enrolled in the plan for

less than 3 months. In such

circumstances, since the disenrollment

decision could not be based on agent or

broker behavior, we believe it to be

appropriate and in the best interest of

the Medicare program for the agent to

receive the compensation based on the

number of months that beneficiary was

enrolled in the plan. While the plan

would not recoup the compensation for

those months, it would recoup any

compensation paid for the months after

the date of disenrollment.

CMS proposed to combine current

paragraphs (a)(4)(ii)(A) and (a)(4)(ii)(B)

into a revised paragraph (b)(3)(iii),

which included new text to require

plans to recover compensation for only

the months that the beneficiary is not

enrolled, unless the disenrollment took

place within the first 3 months. In our

proposed rule, paragraph (b)(3)(iii)

would require recoupment of all

compensation in cases where the

disenrollment was the result of agent or

broker behavior. We received few but

compelling comments on this proposal,

which stated that it would be extremely

difficult for MA organizations and Part

D Sponsors to determine whether the

disenrollment was a result of agent

behavior, potentially resulting in

compensation either being

inappropriately recouped or not

recouped when necessary. Based on

these comments, we are not finalizing

our proposal for subparagraph (b)(3)(iii)

but are finalizing regulation text to state

that the entire compensation must

recouped if a disenrollment occurs

during the first 3 months unless CMS

determines that recoupment is not in

the best interest of the Medicare

program. We intend for this standard to

be applied as we have implemented this

aspect of the current regulation in past,

with certain circumstances (for

example, death of the beneficiary, the

beneficiary moves out of the service

area, the beneficiary becomes eligible to

receive LIS, or the beneficiary loses

Medicaid benefits) not triggering the

recoupment requirement. We will

continue to provide exceptions to the

requirement in sub-regulatory guidance

by applying the standard we are

finalizing today.

We also proposed, to be codified at

§§ 422.2274(h) and 423.2274(h), to

codify existing sub-regulatory guidance

regarding referral (finder’s) fees. We

released a memorandum on October 19,

2011 addressing excessive referral fees,

noting that referral fees should not

exceed $100. We have long been

concerned that some MA organizations

or Part D sponsors can offer the entire

amount of compensation an agent or

broker receives through only a referral

while referral fees paid to others are part

of the total compensation. This creates

an uneven playing field within the

marketplace and a clear financial

incentive for the referring agent to steer

beneficiaries to MA organizations or

Part D sponsors that offer the higher

amount, without regard for whether

plan benefits meet the beneficiaries’

health care needs. Therefore, we

proposed to limit the amount that can

be paid as a referral fee to independent,

captive, and employed agents and

brokers, regardless of who completes the

enrollment form, to a reasonable

amount, as determined by CMS, which

is currently $100, for CY 2013 and CY

2014. The entire proposal concerning

agent and broker compensation was

discussed in the context of our concern

that agents and brokers not be

influenced by payments from MA

organizations and Part D sponsors to

steer beneficiaries to plans that do not

meet the beneficiaries’ needs. We note

that this proposal was clearly identified

in the preamble, 79 FR 1936, but the

proposed regulation text, 79 FR 2060

and 2071, mistakenly included language

discussing enrollee behavior and the

value of health-related activities.

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Furthermore, under §§ 422.2274(h)(2)

and 423.2274(h)(2), CMS proposed that

that referral fees paid to independent

agents and brokers must be part of total

compensation not to exceed the FMV for

that calendar year. Although a few

comments were received concerning our

proposals on referral fees, we are

implementing this proposal

substantively as described in the

preamble. However, we believe that use

of the phrase ‘‘. . . while not exceeding

the value of the health-related service or

activity itself’’ was an error in the

proposed regulation text. Therefore, we

are finalizing text at subparagraph (h)(1)

by removing that error and more clearly

providing that CMS will set an annual

threshold for finder fees based on a

determination about amounts that

would improperly incentivize agents

and brokers to steer beneficiaries. We

are finalizing subparagraph (h)(2) as

proposed. Comment details and our

responses may be found as follows.

We are finalizing the regulations with

additional regulation text for a technical

correction. One entity commented that

the proposal eliminated

§§ 422.2274(a)(1)(iv) and

423.2274(a)(1)(iv). Our proposal was not

to remove these provisions concerning

the applicability of compensation to

third party entities and the regulation

text should have included the substance

of current subparagraph (a)(1)(iv). We

have inserted the text from the

regulation prior to the proposal at

§§ 422.2274(b)(1)(iii) and

423.2274(b)(1)(iii) of this final rule.

Finally, we are not finalizing the

change to the introductory language to

§§ 422.2274 and 423.2274 in favor of

deleting the existing introductory

language (which forms the substantive

basis for the new paragraph (a)

definitions); the introductory language

we proposed seems unnecessary to

establish the scope of each regulation.

Comment: We received more than 140

comments concerning the level of

renewal payments, proposed at 35

percent. A few of the comments

appreciated the simplification and

briefly discussed the 35 percent but

neither strongly supported the amount

or strongly opposed the amount. A few

commenters believed renewal

compensation should increase. The vast

majority (over 95 percent) of the

comments did not support the proposed

renewal rate of 35 percent for years two

and beyond with a few clearly stating

that the renewal rate should be 50

percent. Commenters included agents,

brokers, plans, and industry trade

associations. One major trade

association representing 37 plans stated

that 35 percent was overly restrictive

and 50 percent is in line with industry

standards, especially concerning PDPs

where the 35 percent renewal would not

cover the agent’s costs to ensure

members are in the best plans for them.

The commenters provided various

reasons why the 35 percent should not

be implemented. The majority of

commenters stated that agents play an

important role in educating

beneficiaries and the reduced level of

compensation would result in a negative

impact on beneficiaries, as it would

reduce the level and quality of services

provided to beneficiaries, resulting in

less information and poor plan choices

made by beneficiaries and would also

result in agents leaving the MA

marketplace. Many commenters stated

that agents spend a significant amount

of time in training, preparing, and

testing in order to properly educate

beneficiaries about plan choices. A

number of commenters stated that their

overhead costs (travel, postage, facility

costs) were significant and a reduction

in compensation would affect this

aspect of their business. Commenters

also stated that the lower compensation

would discourage new agents from

entering the MA market.

Response: Based on the comments

received, we are modifying our

proposed regulations to permit the

renewal payment to be up to 50 percent

of FMV. MA organizations and Part D

sponsors may still determine how much

will be paid, up to 50 percent of the

current FMV, and retain the authority to

specify the details of their contracts

with agents, including how many years

renewal payments will be made. We

believe that this increased percentage

meets the statutory standard of

‘‘ensur[ing] that the use of

compensation creates incentives for

agents and brokers to enroll individuals

in the MA plan that is intended to best

meet their health care needs.’’

Comment: We received one comment

from an individual who misunderstood

our proposal. It appears that the

commenter thought our proposal would

allow two different payment options.

Response: We have reviewed this

comment and are not taking action

based on an incorrect understanding of

the proposal. Our proposal actually

discussed two options that we

considered for the renewal

compensation.

Comment: We received two comments

from individuals who suggested

alternative agent payment strategies.

One commenter suggested modifying

Medicare.gov to track agents for

enrollments processed through the Web

site for payment by plans. The

commenter also proposed paying agents

on a monthly basis, coinciding with the

months the beneficiary is in a plan,

eliminating the need to commission

reversals. Another commenter proposed

that plans submit compensation

schedules to CMS for review and

approval.

Response: These recommendations

entail significant changes with

numerous operational implications.

Therefore, we are not implementing the

suggestions from these comments at this

time. With respect to the comment

regarding the frequency of payments, we

did not propose to modify the existing

regulatory permission for MA

organizations and Part D sponsors to

determine whether payments would be

made at one time or in installments;

therefore the comment is outside the

scope of this proposed rule.

Comment: We received a few

comments regarding the requirement

that payments be made between January

1 and December 31 of the enrollment

year. One commenter supported the

proposal. A few commenters did not

support the January 1 date because

agents would have to wait 3 to 4 months

for compensation for those enrolling

during the AEP. One of these

commenters also noted that getting the

commission assures agents that the

beneficiary was enrolled. A few plans

were concerned about timely payment

of December 1 effective enrollees.

Response: Our proposal is aimed at

simplifying compensation while

ensuring an even playing field. As

explained previously, using a January 1

through December 31 payment

timeframe limits the recoupment of

payments made when a beneficiary

makes more than one election during

the AEP. Therefore, we are

implementing this provision as

proposed.

Comment: We received one comment

stating that regulating the payment of

only independent agents was unfair and

that employed agents should also be

regulated.

Response: We have reviewed this

comment and have determined that the

regulation of only independent agents is

still appropriate. Our initial regulations

were promulgated to ensure that agents/

brokers do not steer beneficiaries into

plans due to the agent’s/broker’s

financial or other interest; we continue

to be concerned about such steerage on

the part of independent agents, since

they often sell multiple products, with

varying levels of compensation. In

contrast, employed agents work for only

one company and therefore do not have

an incentive to move a member into a

plan offered by a different organization

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or sponsor in exchange for a higher

commission.

Comment: We received a comment

from a trade association recommending

that CMS consider changes from cost

plans to MA plans as ‘‘like’’ plan

changes, rather than ‘‘unlike’’ plan

changes for compensation purposes.

The commenter stated beneficiaries

evaluate cost plans similar to MA plans

and that treating these as unlike plan

types encourages churning.

Response: We have received this

comment and declined to implement

such this change from our proposal; we

believe that this is outside the scope of

the proposed rule. Our proposal did not

address what constitutes ‘‘like’’ and

‘‘unlike’’ plan types, but instead simply

referenced ‘‘like’’ and ‘‘unlike’’ plan

types, using the existing regulation

standards on this point, because CMS

re-designated and revised certain

portions of the existing regulation for

simplification.

Comment: We received a few

comments regarding referral fees. One

commenter recommended that the

referral fee for enrollments be limited to

FMV instead of $100. Other commenters

requested that CMS not allow referral

fees to be paid.

Response: We reviewed these

comments and are finalizing our

proposal as described in the preamble to

the proposed rule, with the changes to

the regulation text at subparagraph

(h)(1) as explained previously. Referral

fees are applicable to employed, captive,

and independent agents, and permitting

the referral fee to be as high as the Fair

Market Value (FMV) would increase the

potential for steerage among different

types of agents and thus plans. The $100

cap, which is required to be part of the

total compensation, is an added

protection to ensure financial interests

of agents do result in misleading

beneficiaries. Our proposal did not

address whether referral fees should be

permitted, only whether such fees

should be capped and, if so, at what

level. We do not believe that it is

appropriate to prohibit or eliminate

referral fees without additional rule-

making that is specific on that question.

Comment: One plan requested

clarification as to whether the renewal

rate of the ‘‘current’’ FMV meant the

year in which the renewal commission

is being paid.

Response: We intend, for purposes of

renewal rates, that the ‘‘current’’ FMV

be the FMV for the enrollment year. For

example, an agent would be paid 50

percent of Contract Year (CY) 2015’s

FMV for a renewal member who is

enrolled in CY 2015.

Comment: One plan requested

clarification as to whether CMS would

require payments to be retroactive or if

the existing regulations would continue

until member’s current 6-year cycle

ended. One trade organization wanted

to know whether the requirements will

be effective for January 1, 2015

enrollments and how the new

regulations will affect members

currently in the existing 6-year cycle.

Response: As part of this final rule,

the new compensation requirements

will be implemented for all members for

CY2015. One of CMS’ intentions was to

simplify the regulations and create an

even playing field. We would not be

able to accomplish these goals if we

were to wait to implement these new

requirements until all members finish

their current 6-year cycle. However, we

note that the final provides flexibility to

MA organizations and Part D sponsors

so long as payments are within the

thresholds established in the rule. To

the extent that an MA organization or

Part D sponsor wishes to continue

payment using a cycle system,

negotiates that payment structure with

its agents and brokers, and that cycle

system complies with the limits and

requirements of this final rule, the MA

organization or Part D sponsor may do

so.

Comment: We received a few

comments concerning recoupment of

compensation when a member

disenrolls within the first three months

of enrollment. One plan requested a

better definition of ‘‘broker behavior.’’

One trade association stated that there

would be significant challenges in

determining whether disenrollments

were due to independent agent/broker

conduct. The trade association is

concerned that plans could face

significant disputes with agents/brokers

about these decisions.

Response: We have reviewed these

comments and determined that the

current situation should remain

unchanged based on these concerns that

our proposed revisions would hamper

MA organizations’ and Part D sponsors’

ability to determine which enrollments

should be fully recouped, with the

result that compensation is either

inappropriately recouped or not

recouped when necessary. Therefore,

we are finalizing the regulation to

require full recoupment of

compensation when a member

disenrolls within the first three months

unless CMS determines that the

recoupment is not in the best interests

of the Medicare program. CMS will

apply this standard and specify

exceptions in sub-regulatory guidance.

Our current guidance is consistent with

this standard and will remain

applicable.

Comment: We received a few

comments regarding the implementation

date of the regulations. One trade

association stated that it typically took

nine months to make systems changes to

accommodate new requirements.

Response: We understand that

systems changes may take time to

implement. Because of necessary

industry systems changes, and because

the rule provides for a payment

structure applicable by calendar year,

these compensation changes do not take

effect until enrollments effective

January 2015. Therefore, organizations

and sponsors will have approximately

seven months to make such changes.

Other than simplifying how FMV

applies to renewal rates, the new

compensation structure is similar to

industry practice and present guidance.

Therefore, we did not make any changes

to this section of the regulation.

Comment: One trade organization

commented that many MA

organizations and Part D sponsors

currently operate on a ‘‘rolling year’’

basis, such that, if an enrollment is

effective February 1, the compensation

covers the period starting on February 1

and continuing through January 31 of

the following year. The association said

that these were well-established

processes and a change could disrupt

systems and require a significant re-

design effort.

Response: Our position has always

been that organizations and sponsors

were required under the existing rules

to pay compensation on a calendar year

basis, not a ‘‘rolling’’ year basis. When

we encountered situations where

organizations and sponsors have not

implemented these requirements

correctly, we have required the

organization to adjust its processes to

comply and they have done so in a

timely manner. We decided to clarify

this requirement in our regulations to

ensure that all plans fully understand

the CMS definition of an enrollment

year. Therefore, we will not be making

any modification based on this

comment.

Comment: One trade association

stated that the NPRM appears to have

eliminated the current provisions at

§§ 422.2274(a)(1)(iv) and

423.2274(a)(1)(iv), which address

compensation requirements for Third

Party Entities.

Response: We thank the commenter

for this observation. These provisions

were inadvertently eliminated from the

current provisions. We have revised the

regulation text accordingly.

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Comment: We received one comment

from a trade association that was

concerned about CMS’ requirement to

recover commissions if an enrollee

disenrolls in the middle of the year.

They suggested that CMS require MA

organizations and Part D sponsors to

take ‘‘commercially reasonable efforts’’

to recover funds.

Response: The requirement to recover

funds when a member disenrolls mid-

year remains the same; we did not

propose to change this requirement.

Organizations and sponsors have the

ability to make payments yearly,

quarterly, monthly, or in other

frequencies. Therefore, they could pay

monthly, rather than on a yearly or

quarterly basis, and thereby limit the

need to recoup funds for disenrollments

that occur at mid-year. Therefore, we

will not be making any changes to the

regulation.

Comment: We received a few

comments recommending that CMS

provide a mandatory plan comparison

form. Agents/Brokers would be required

to fill this out and provide to the

beneficiary for review.

Response: These comments are

outside the scope of our proposed rule,

but we will consider this suggestion for

future changes.

Comment: We received a few

comments from beneficiary advocacy

groups stating that MA organizations

and Part D sponsors slow down,

artificially delay, or dispute the

payment of compensation, which

ultimately encourages agents and

brokers to take their business to another

plan.

Response: These comments are

outside the scope of our proposed rule,

but we believe that our new requirement

that compensation be paid within the

enrollment year will address some of

these issues.

After consideration of the public

comments received, we are finalizing

our proposal at §§ 422.2274(a), (b) and

(h) and 423.2274(a), (b), and (h) with the

following modifications as previously

discussed:

• Deleting the introductory text to the

regulation section.

• Raising the renewal compensation

rate from 35 percent to (up to) 50

percent of the current fair market value

cut-off amounts published annually by

CMS.

• Removing the proposed recoupment

standard for rapid disenrollments by

reverting to the status quo where

subregulatory guidance describes

activities not triggering recoupments

(rather than requiring recoupment based

on ‘‘agent or broker behavior’’;

implementing a standard based on the

best interests of the Medicare program

to identify disenrollments that do not

require recoupment.

• Incorporating existing regulation

text about compensation to Field

Marketing Organizations.

• Clarifying the CMS standard for

applying the limit on referral fees.

8. Drug Categories or Classes of Clinical

Concern (§ 423.120(b)(2)(v))

Section 3307 of the Affordable Care

Act amended section 1860D–4(b)(3)(G)

of the Act by replacing the specific

criteria established under MIPPA in

2008 to identify categories or classes of

Part D drugs for which all Part D drugs

therein shall be included on Part D

sponsor formularies. The specified

criteria were replaced with the

requirement that the Secretary establish

criteria through notice and comment

rulemaking to identify drug categories

or classes of clinical concern. In

addition, section 3307 of the Affordable

Care Act requires the Secretary to

engage in rulemaking to establish

exceptions that permit a Part D sponsor

to exclude from its formulary a

particular Part D drug that is otherwise

required to be included in the formulary

in a drug category or class of clinical

concern (or otherwise limit access to

such a drug, including through prior

authorization or utilization

management). The Affordable Care Act

amendments to section 1860D–

4(b)(3)(G) of the Act specified that until

such time as the Secretary establishes

through rulemaking the criteria to

identify drug categories or classes of

clinical concern through rulemaking,

the following categories or classes shall

be identified as categories or classes of

clinical concern: anticonvulsants,

antidepressants, antineoplastics,

antipsychotics, antiretrovirals, and

immunosuppressants for the treatment

of transplant rejection. We proposed to

implement the Affordable Care Act

requirements set forth in section 1860D–

4(b)(3)(G) of the Act by revising

§ 423.120(b)(2)(v) and (vi) to specify: (1)

the criteria the Secretary will use to

identify drug categories or classes of

clinical concern; and (2) exceptions that

permit Part D sponsors to exclude a

particular Part D drug from within a

category or class of clinical concern that

is otherwise required to be included in

the formulary (or to otherwise limit

access to such a drug, including through

utilization management or prior

authorization restrictions). We also

proposed to specify which drug

categories or classes met the proposed

criteria and explained the process we

used for making these determinations.

We proposed to modify

§ 423.120(b)(2)(v) to require that, unless

an exception applies, all Part D drugs

within a drug category or class be

included on the formulary if the drug

category or class of drugs for a typical

individual with a disease or condition

treated by the drugs in the category or

class meets both of the following

criteria, as determined by CMS—

• Hospitalization, persistent or

significant disability or incapacity, or

death likely will result if initial

administration (including self-

administration) of a drug in the category

or class does not occur within 7 days of

the date the prescription for the drug

was presented to the pharmacy to be

filled; and

• More specific CMS formulary

requirements will not suffice to meet the

universe of clinical drug-and-disease-

specific applications due to the

diversity of disease or condition

manifestations and associated

specificity or variability of drug

therapies necessary to treat such

manifestations.

We were concerned that requiring

essentially open coverage of certain

categories and classes of drugs presents

both patient welfare concerns and

financial disadvantages for the Part D

program as a result of increased drug

prices and overutilization. We also

believed that criteria for identifying

drug categories and classes of clinical

concern should identify only those drug

categories or classes for which access

cannot be adequately ensured by

beneficiary protections that otherwise

apply. Consequently, as we took the

opportunity to propose to codify criteria

for identifying categories or classes of

drugs that are of clinical concern, we

believed that the requirements of

section 3307 of the Affordable Care Act

should be implemented taking into

consideration the other protections

available to beneficiaries. Otherwise, we

believed section 3307 of the Affordable

Care Act would establish duplicative,

and thus unnecessary, protections that

would serve only to increase Part D

costs—without any added benefit and

with the possibility of added harm from

misuse. Therefore, in considering

whether additional protections continue

to be needed under this section, we

needed to take the other beneficiary

access protections into account. We

detailed five such protections:

formulary transparency, formulary

requirements, reassignment formulary

coverage notices, transition supplies

and notices, and the coverage

determination and appeals processes.

Taken together, we believed these

requirements were comprehensive

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enough that additional access

safeguards would be needed only in

those situations where a Part D

beneficiary’s clinical needs cannot be

more efficiently met.

We received the following comments,

and our response follows:

Comment: We received strong support

for our entire proposal from some

commenters who agreed, as they stated,

with ‘‘all of the reasons’’ underlying the

proposal, but we received no supportive

comments explicitly directed toward

our proposed criteria for identifying

categories and classes of clinical

concern. However, we did receive

significant opposition to our proposed

criteria. Several commenters generally

stated that the criteria themselves were

flawed, much less their application to

the drug categories and classes in our

analysis. Although the statute did not

provide individual criteria, some

commenters stated that the criteria were

more restrictive than statutory intent

and insufficiently accounted for patient

complexity. Other commenters stated

that application of overly restrictive

criteria set a dangerous precedent, and

other commenters raised related

concerns that other categories and

classes of clinical concern could be

eliminated in the future or that they

could be incorrectly applied to other

disease states whose guidelines indicate

the use of these drugs. For example,

many commenters expressed concern

that if immunosuppressants for

transplant rejection no longer received

the additional protections under section

3307, patients with multiple sclerosis

who use immunosuppressants may face

access issues. Additionally, although it

was mentioned as a source of savings in

our RIA, some commenters opposed the

idea that future drugs in a particular

category or class, representing advances

in therapy, may not be covered,

believing this jeopardized beneficiary

health. Indeed, many commenters stated

that the application of these criteria

would be life-threatening.

Response: We thank the commenters

for bringing their concerns to our

attention. We attempted to embrace the

principle of balancing access and cost

through optimal formulary management

inherent in the design of the Part D

benefit in proposing to establish criteria

pursuant to section 3307 of the

Affordable Care Act. However, based on

the comments received, we have

concluded that our proposed criteria did

not strike the balance among beneficiary

access, quality assurance, cost-

containment, and patient welfare that

we were striving to achieve. Thus, we

are not finalizing our proposal to

establish new criteria for the categories

and classes of clinical concern.

Accordingly, we are maintaining the

existing six categories and classes of

clinical concern listed in the statute and

are amending the regulation at

§ 423.120(b)(2)(v) to reflect that the

categories and classes of clinical

concern will be as specified in section

1860D–4(b)(3)(G)(iv) of the Act until we

undertake rulemaking to specify criteria

to identify the categories and classes of

clinical concern.

During our annual formulary review

and approval process, regardless of a

drug’s placement in a category or class

of clinical concern, to the extent that a

treatment guideline speaks to a specific

category or class of drugs, we look for

representation from that category or

class of drugs on the formulary.

Moreover, if the treatment guidelines

address specific drugs, we would review

formularies to ensure inclusion of those

specific drugs. Thus, although a

category or class of clinical concern is

immunosuppressants for transplant

rejection, to the extent that the

treatment guidelines for multiple

sclerosis indicate the use of

immunosuppressants, we still would

look for representation of these drugs on

the formulary during our treatment

guidelines review for multiple sclerosis.

After consideration of the public

comments we received, we are

finalizing a technical change to

§ 423.120(b)(2)(v) to reflect the existing

categories and classes of clinical

concern. Because the existing regulation

at § 423.120(b)(2)(v) is obsolete in light

of the Affordable Care Act, we are

making a technical change to specify

that until such time as we undertake

rulemaking to establish criteria to

identify, as appropriate, categories and

classes of drugs for which we determine

are of clinical concern, the categories

and classes of clinical concern shall be

as specified in section 1860D–

4(b)(3)(G)(iv) of the Act.

9. Medication Therapy Management

Program (MTM) Under Part D

(§ 423.153(d))

Section 1860D–4(c)(2) of the Act

provides that Part D sponsors, in

offering Medication Therapy

Management (MTM) programs, must

target individuals who: (1) have

multiple chronic diseases (such as

diabetes, asthma, hypertension,

hyperlipidemia, and congestive heart

failure); (2) are taking multiple covered

Part D drugs; and (3) are identified as

likely to incur annual costs for covered

Part D drugs that exceed a level

specified by the Secretary. At the start

of the Part D program, we believed that

25 percent of enrollees would qualify

for MTM services. However, analysis

revealed that MTM program enrollment

was well below that level. In the 2010

Call Letter and subsequent regulation,

we modified the criteria to reduce the

variability in eligibility and level of

service and to improve access to MTM

services, again targeting 25 percent of

enrollees. Despite these changes, MTM

program participation remains very low.

Moreover, additional evidence that the

program improves quality and generates

medical savings supports the belief that

more than 25 percent of enrollees will

benefit from MTM services.

We continue to see restrictive criteria,

such as plan sponsors specifying a

narrow list of chronic diseases or Part D

drugs coupled with requiring a higher

minimum number of covered drugs (for

example, eight drugs versus two) for

eligibility. As a result, access to MTM

services remains very low with MTM

program eligibility rates at less than 8

percent in 2011. In the proposed rule,

we cited a number of studies which

discussed the following: there may be

racial disparities in meeting the

eligibility criteria, the current eligibility

criteria and variability are restricting

access to MTM services, and MTM

enrollees with certain chronic diseases,

particularly those who received annual

comprehensive medication reviews

(CMRs), experienced significant

improvements in drug therapy outcomes

when compared to beneficiaries who

did not receive any MTM services, and

cost savings.

We believe the studies support the

necessity to reduce variability and racial

disparity in eligibility criteria among

plans and improve access to beneficial

MTM services. We proposed changes to

the eligibility requirements regarding

multiple chronic diseases, multiple Part

D drugs, and the annual cost threshold.

a. Multiple Chronic Diseases

Under the statute, one of the three

criteria that are used to target

beneficiaries for MTM services is

whether a Part D beneficiary has

multiple chronic diseases such as

diabetes, asthma, hypertension,

hyperlipidemia, and congestive heart

failure. We previously interpreted this

language to allow sponsors to define

‘‘multiple chronic diseases’’ with three

chronic diseases being the maximum

number a plan sponsor may require for

targeted enrollment. Further, sponsors

are allowed to target beneficiaries with

select chronic diseases, but must

include at least five of the nine core

chronic diseases in their criteria. This

list of core chronic diseases, as updated

in the 2013 Call Letter (available at

http://www.cms.gov/Medicare/Health-

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Plans/MedicareAdvtgSpecRateStats/

Downloads/Announcement2013.pdf),

includes hypertension, congestive heart

failure, diabetes, dyslipidemia,

respiratory disease, bone disease—

arthritis, mental health, Alzheimer’s

disease, and end stage renal disease. We

proposed to revise our interpretation of

‘‘multiple chronic diseases’’ to require

that sponsors must target enrollees

having two or more chronic diseases for

MTM services. We also proposed to

require that at least one of the chronic

diseases that a beneficiary has in order

to satisfy the eligibility criteria must be

one of the list of core chronic diseases.

In addition, we proposed to redefine the

core diseases by combining

hypertension and congestive heart

failure under the umbrella of

‘‘cardiovascular disease,’’ which would

also encompass congestive heart failure,

acute myocardial infarction, cerebral

hemorrhage and effects of stroke,

vascular disease, specified heart

arrhythmias, and hypertensive heart

disease. The proposed list of core

chronic diseases became cardiovascular

disease, diabetes, dyslipidemia,

respiratory disease, bone disease—

arthritis, mental health, Alzheimer’s

disease, and end stage renal disease.

b. Multiple Part D Drugs

The second of the three statutory

criteria for identifying targeted

beneficiaries is whether a Part D

beneficiary is taking multiple covered

Part D drugs. We proposed to revise our

interpretation of ‘‘multiple Part D

drugs’’ to require that sponsors must

target enrollees taking two or more Part

D covered drugs for MTM services. We

also proposed to restrict the flexibility

previously available to sponsors by

requiring that they consider any Part D

covered drug. In the proposed rule, we

cited literature that supported the idea

that patients with multiple diseases and

taking at least two drugs are more likely

to have drug therapy problems and need

MTM.

c. Annual Cost Threshold

The final statutory requirement for

targeting Part D beneficiaries for MTM

services is that the beneficiary be

identified as likely to incur costs for

covered Part D drugs that exceed a level

specified by the Secretary. The Congress

did not impose any specific

requirements with respect to the cost

threshold at the time the MTM criteria

were passed in to law, nor has it

addressed this threshold in any of the

subsequent amendments to section

1860D–4(c)(2) of the Act. We previously

codified a $3,000 threshold, as updated

annually by the annual percentage

increase in the average per capita

aggregate expenditures for Part D drugs

for Part D eligible individuals under

§ 423.104(d)(5)(iv) in the April 2010

final rule entitled, ‘‘Policy and

Technical Changes to the Medicare

Advantage and Medicare Prescription

Drug Benefit Programs’’ (75 FR 19818).

The threshold is currently $3,017 in

2014. However, we are concerned that

there are a number of beneficiaries who

need MTM, but are not currently

eligible because they do not meet the

current cost threshold of $3,017, despite

the increased likelihood of having drug

therapy problems as a result of having

multiple chronic diseases and taking

multiple medications. Moreover, the

current cost threshold may have the

unintended consequence of causing

beneficiaries to no longer qualify for

MTM services in the next plan year

(whether remaining in the same plan or

enrolling into a new plan) if they fall

below the cost threshold as a result of

their enrollment in plans that employ

cost avoidant strategies, such as

aggressive use of generics, or in MTM

programs that center on therapeutic

interchange. Consistent with our

proposal that sponsors must target

enrollees taking two or more Part D

covered drugs for MTM services and

taking into account that one or more of

these Part D drugs are likely to be

generics, we proposed setting the

annual amount in Part D drug costs at

an amount that represents the

intersection of multiple conditions and

multiple drugs. Specifically, we

proposed setting the threshold at $620

which is the estimated annual total drug

cost for a beneficiary filling two generic

prescriptions, based on an analysis of

prescription drug event (PDE) data.

We are not finalizing these proposals.

We will engage in new notice and

comment rulemaking on this issue as

warranted in the future.

We received a large number of

comments related to our proposal to

revise § 423.153(d)(2)(i) through (iii) to

expand MTM program eligibility and

our response follows.

Comment: Many commenters were

supportive of MTM in general and CMS’

goals. These commenters were

supportive of the proposed changes to

expand access to MTM services, shared

CMS’ concerns regarding restrictive and

variable eligibility criteria established

by some sponsors, and endorsed the

proposals to revise the eligibility criteria

to increase uniformity. This included

support for and clarifying questions

regarding the revised definitions for

‘‘multiple chronic diseases,’’ with the

addition of ‘‘cardiovascular disease’’ to

the list of core diseases, and ‘‘multiple

Part D drugs.’’ Some commenters stated

that CMS should post MTM eligibility

rates on the CMS Web site or make plan-

reported data more available for

research. Other commenters, who

supported the proposed changes to

expand access to MTM, provided

information on return on investment,

outcomes, or individual experiences in

improving quality and lowering costs

through MTM provided by community

pharmacists who have close

relationships with the beneficiaries and

local prescribers. A large number of

commenters also stated that, to date,

variability in plan offerings and limited

compensation has made the provision of

MTM in the community setting difficult

in a consistent, scalable and timely

manner.

A significant number of commenters

also were strongly opposed to the broad

expansion of eligibility. They

questioned the effectiveness of

expansion under the current

infrastructure as delivered by drug plans

with limited incentives and a lack of

care coordination, and they commented

that the clinical evidence did not

support the proposed changes. We

received many comments that the

proposed changes would significantly

increase costs (both administrative and

beneficiary premiums), reduce the

quality of programs delivered to

beneficiaries who most need MTM, and

could overwhelm limited resources.

Many commenters requested that the

proposed changes be withdrawn, and

some commenters offered alternative

eligibility criteria for CMS to consider in

the future. These included: delay the

proposed changes or implement the

changes incrementally, alternative

criteria for the minimum thresholds for

eligibility, alternative eligibility criteria

based on risk factors, and requiring

MTM at transition of care.

Response: We thank these

commenters for their thoughtful and

supportive comments. MTM has been

shown to improve drug therapy

outcomes and lower costs, and we agree

that the use of community-based

resources for providing MTM services

shows promise in improving access and

quality. We still have concerns that

many sponsors are applying restrictive

criteria to narrow the pool of targeted

beneficiaries for MTM rather than

optimizing the eligibility criteria to offer

MTM to beneficiaries who will most

benefit from these services. These

programs are not living up to our

expectations. As we discussed in the

regulatory impact analysis for the

proposed rule (79 FR 2036), we estimate

that only 2.5 million beneficiaries (8

percent) are eligible for MTM services,

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13 percent opt-out of the MTM program,

and 10 percent of participating

beneficiaries receive an annual CMR.

That means that less than 220,000 Part

D enrollees receive CMRs, which

studies have shown is a crucial element

of MTM to improve drug therapy

outcomes and lower costs. Not enough

is being done by sponsors to provide

sufficient access to MTM services and

engage beneficiaries and providers in

this process. We will consider publicly

posting the MTM program eligibility

rates for each Part D contract, similar to

how we display MTM program CMR

rates, and explore ways to make the

plan-reported data available for public

use.

Despite the persuasive comments

from those who support the proposed

changes in eligibility criteria, we also

take into account the comments that the

timeline for implementing the proposed

changes may be too aggressive and

could negatively affect existing MTM

programs. While our goal was to

increase eligibility and access to MTM,

we do not want to do it at the expense

of sacrificing any quality with existing

programs. Therefore, we are not

finalizing our proposed changes to the

eligibility criteria. But, we will continue

to evaluate information on MTM

programs and monitor sponsors’

compliance in accordance with the

MTM requirements established by

§ 423.153, with the goal of proposing

other revisions to criteria in future

rulemaking that will help expand the

program. We believe that Part D

sponsors can target more beneficiaries

for MTM under the existing criteria. We

plan to closely scrutinize sponsors that

may be abusing the flexibility provided

to them in establishing the eligibility

criteria, which may have contributed to

the racial disparity, variability, and

beneficiary confusion with respect to

MTM eligibility that we identified in the

proposed rule. We will consider the

commenters’ suggestions for alternative

criteria and may consider revisions to

MTM eligibility criteria for future

rulemaking. We may also consider

changes to the definitions for ‘‘multiple

chronic diseases,’’ including the core

chronic diseases, and ‘‘multiple Part D

drugs’’ in the future.

10. Requirement for Applicants or Their

Contracted First Tier, Downstream, or

Related Entities To Have Experience in

the Part D Program Providing Key Part

D Functions (§ 423.504(b))

Since its establishment in 2006, the

Medicare Part D program has matured

into a generally stable, well-functioning

program, and the Part D sponsors (as

well as their first tier, downstream, and

related entities (FDRs)) with which CMS

contracts have developed vast expertise

in the operational complexities of the

program. While we will continue to fine

tune the program through rulemaking,

guidance, and additional oversight

procedures, we believe the program has

largely entered a mature stage. Despite

this progress, we still find ourselves

spending a disproportionate amount of

resources and attention on the

operations of new Part D sponsors

where neither the new sponsor nor its

supporting FDRs have experience with

Part D.

To address this problem, pursuant to

our authority at section 1860D–

12(b)(3)(D) of the Act to adopt

additional contract terms, not

inconsistent with the Part C and D

statutes, that are necessary and

appropriate to administer the Part D

program, we proposed to adopt

provisions that would require any entity

seeking to contract as a Part D plan

sponsor (as a stand-alone prescription

drug plan sponsor or as a MA

organization offering Part D benefits) to

have arrangements in place such that

either the applicant or one of its

contracted FDRs has one full benefit

year serving as a Part D plan sponsor, or

at least one full benefit year of

experience performing key Part D

functions for another Part D plan

sponsor. The applicant or a contracted

FDR will be required to have obtained

that experience within the 2 years

preceding the Part D sponsor

qualification application submission.

Under this proposal, the experience

requirement would be met by an entity

seeking to contract as a Part D plan

sponsor if its parent or another

subsidiary of that parent already holds

a Part D sponsor contract that has been

in effect for at least one year at the time

of the application submission.

Given the wealth of available Part D

expertise that now exists, it is justifiable

for us to require that new applicants to

the program bring with them Part D

experience so that we can better protect

Part D enrollees and minimize

unnecessary expenditures of resources

by us in correcting avoidable problems.

When neither a Part D sponsor, nor its

FDRs providing key Part D functions,

has any experience delivering Part D

benefits, the consequences can be

disastrous for beneficiaries and highly

disruptive for the program and CMS.

While there are many operational

functions that must run smoothly for a

Part D plan to be successful (for

example, pharmacy network

development/maintenance, enrollment

processing, prescription drug discount

negotiation, and provision of customer

service), we proposed to require Part D

experience in only three critical areas in

which beneficiaries are particularly

vulnerable should the sponsor

demonstrate significant non-

compliance. The three areas for which

we proposed to require prior experience

in Part D at the time of application to

become a new Part D sponsor are—

• (1) Authorization, adjudication and

processing of pharmacy claims at the

point of sale;

• (2) Administration and tracking of

enrollees’ drug benefits in real time,

including automated coordination of

benefits with other payers; and

• (3) Operation of an enrollee appeals

and grievance process.

It is in these three areas where—in

our view, based on our experience with

Part D—enrollee health is placed at the

most significant risk by Part D sponsor

compliance failures.

Under our proposal, multiple separate

organizations could together combine

their experience to meet the prior

qualification requirements for the three

key Part D functions. That is, no one

single entity would need to have prior

experience in all three areas. Rather, the

requirement would be for the Part D

applicant in combination with its FDRs,

if any, to have Part D experience

covering the three key functions.

Our proposal also does not prohibit

additional organizations from gaining

Part D experience in the selected key

functional areas. Should an organization

wish to become a new Part D FDR for

one or more of the key functions, this

‘‘novice’’ entity could provide the

service for just one of the hundreds of

existing Part D sponsors. After a period

of one year, the novice entity would

then be qualified to provide its services

to existing Part D sponsors as well as

partner with new Part D applicants. In

somewhat the opposite scenario, a new

Part D sponsor contracting with

experienced FDRs will have the

opportunity to gain its experience in the

key Part D functions by working closely

with its FDRs, developing in house

expertise, and providing oversight. After

a period of one or more years, if desired,

the Part D sponsor itself could

conceivably take responsibility for

carrying out one or more of the key Part

D functions.

While our proposal did not require

the Part D experience to be current at

the time of an application to become a

Part D sponsor, we proposed that the

experience be recent (that is, within the

past 2 years) and have lasted for at least

one full benefit year. We believe that

any experience older than 2 years would

be out of date and would not represent

experience with the current state of the

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Part D program. As for our proposed

requirement that the experience be for at

least a term of one full benefit year, this

approach is appropriate because

operating the benefit involves cyclical

activities, some of which take place only

one time per year, and thus an

organization can only gain full

experience by operating its Part D

functional area for an entire benefit

year.

We intend to implement this proposal

through our existing Part D contract

qualification application process, and

we proposed to amend § 423.504(b)

accordingly. Applicants with existing

Part D contracts or whose parents or

other subsidiaries of the same parent

hold Part D contracts will not be

required to submit evidence of their Part

D experience.

We received the following comments

and our response follows:

Comment: We received strong

statements of support from many

commenters. We received only one

suggestion of not finalizing the policy,

but the commenter did not provide any

details or rationale to support its

comment.

Response: We appreciate the

widespread support for this proposal.

Comment: We received one

recommendation to consider a less

stringent standard for employer groups

seeking to act as Employer Group

Waiver Plan (EGWP) sponsors.

Response: We expect all sponsors,

including EGWP sponsors, to meet our

experience and capability requirements.

We have an obligation to ensure that all

beneficiaries receive their benefits from

experienced Part D sponsors.

Comment: One commenter that

supported the policy suggested that

CMS should also address the problem of

applicants not having the skills or

capacity to even oversee their

experienced FDRs.

Response: We share the concern that

applicants may not have experience

overseeing FDRs, which is why, in

addition to the current requirements

and standards in place for

administration and management, we are

finalizing at section A.III.11. of this final

rule our proposed requirement that new

PDP sponsor applicants have

immediately prior to the date of the

application submission 2 years’

experience administering health

insurance benefits directly or 5 years’

experience providing certain

prescription drug benefit management

services to a health insurer . We also

have procedures and mechanisms in

place to monitor a Part D sponsor’s

administration and management of its

contract, including the option of

conducting an audit of a sponsor’s

operations prior to the start of the

contract year to confirm that it is

prepared to oversee the delivery of Part

D benefits to its members.

Given the near universal support for

this proposal we are finalizing this

provision without modification.

11. Requirement for Applicants for

Stand-Alone Part D Plan Sponsor

Contracts to Be Actively Engaged in the

Business of the Administration of

Health Insurance Benefits

(§ 423.504(b)(9))

The Medicare prescription drug

benefit program has matured into a

generally stable, well-functioning

program, and the Part D sponsors with

which CMS contracts have developed

vast expertise in the operational

complexities of the program. The market

for stand-alone Part D Prescription Drug

Plans (PDPs) has also matured

significantly since the program’s

inception and what was once a novel

product is now available to residents of

every state from multiple sponsors who

offer several plan options. Over the

same period, we have noticed that the

Part D program has in some cases

attracted sponsors wishing to offer

stand-alone PDPs who have no prior

experience in the delivery of health or

prescription drug insurance benefits,

often to the detriment of the Part D

program and the Medicare beneficiaries

who elect plans offered by these

sponsors.

To address this problem, we

proposed, pursuant to our authority at

section 1860D–12(b)(3)(D) of the Act to

adopt additional contract terms that are

necessary and appropriate to administer

the Part D program, regulatory

provisions that would require any entity

seeking to contract as a stand-alone PDP

sponsor, to have either actively

provided health insurance or health

benefits coverage for 2 continuous years

immediately prior to submitting a

contract qualification application, or

provided certain prescription drug

benefit management services to a

company providing health insurance or

health benefits coverage for 5

continuous years immediately prior to

submitting an application. This

requirement would not apply to an

entity seeking to contract as the sponsor

of a stand-alone PDP if its parent or

another subsidiary of itself or its parent

possesses the requisite experience.

This proposal may appear similar to

the immediately-preceding proposal

(section III.A.10. of this final rule)

requiring, at § 423.504(b)(8), that new

Part D sponsors engage first tier,

downstream, and related entities with

prior Part D experience. However, the

proposed change we are discussing in

this section, which we proposed to

codify at § 423.504(b)(9), would apply

only to entities seeking to contract as a

Part D sponsor of a stand-alone PDP,

whereas the proposed requirement at

§ 423.504(b)(8) would apply to all new

Part D sponsors, including those seeking

to contract as MA organizations offering

Part D through an MA–PD plan. We

proposed both requirements because the

problems encountered by new PDP

sponsors with no experience in the

health insurance market are distinct

from those encountered by new PDP

sponsors and MA organizations that use

PBMs with no experience in the Part D

market. New PDPs with no prior health

insurance or health benefits experience

have demonstrated significant problems

even when using experienced PBMs.

While relatively few sponsors fit this

profile each year, they have caused

disproportionate problems for

beneficiaries and CMS. Time and again,

these sponsors fail our past Medicare

contract performance and audit tests or

receive low quality scores (that is, star

ratings) because they lack the ability to

administer even the most basic elements

of a health or drug benefit program, let

alone one as complex as Medicare Part

When the sponsor is a novice not only

to Medicare Part D, but also to virtually

every aspect of health benefits

administration, there is no assurance

that the entity will be able to administer

or oversee the most basic elements of

health benefits coverage, such as

processing claims, administering a

coverage determination and appeals

process, enrolling beneficiaries, or

administering the benefit as approved.

To entrust inexperienced applicants

with responsibility for correctly

operating a program for which even

experienced health insurers have had to

develop new expertise has proven to be

unacceptably risky. We proposed that

new applicants have 2-years of

experience providing health insurance

or health benefits coverage (that is,

operating as risk-bearing entities

licensed in the states where they offer

benefits) prior to applying as stand-

alone Part D Sponsors because we

believe that this provides sufficient time

to demonstrate the applicant’s ability to

operate a health plan. We believe that

requiring 2-years of experience as a risk

bearing entity offering health insurance

or health benefits coverage ensures that

new sponsors of stand-alone PDPs have

minimal experience operating a health

benefits program without unduly

limiting new entrants to the

marketplace.

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We recognize that a number of PBMs

and Third Party Administrators with

experience administering prescription

drug benefits have entered the stand-

alone PDP market and have adapted to

providing the Part D benefit despite

their lack of previous experience as

health insurers. Therefore, we proposed

that organizations applying to contract

as stand-alone PDP sponsors that do not

have experience as a risk-bearing entity

providing health insurance or health

benefits coverage would, in the

alternative, be eligible to hold a PDP

contract if they had 5-continuous years

of experience performing services on

behalf of an insurer in the delivery of

benefits in any health insurance market

in the three key areas indicated in this

section III.A.10. of this final rule. The

three areas that we proposed as meeting

the experience requirements are: (1)

Adjudication and processing of

pharmacy claims at the point of sale; (2)

administration and tracking of enrollees’

drug benefits in real time, including

automated coordination of benefits with

other payers; and (3) operation of an

enrollee appeals and grievance process.

Our reasons for selecting these three

areas as meeting the experience

requirements are described in more

detail in the section of this rulemaking

notice relating to the proposed

requirement at § 423.504(b)(8) that new

Part D sponsors employ experienced

FDRs for these functions. We proposed

a longer experience requirement for

these entities because entities offering

these services face fewer barriers to

entry in the marketplace and are not as

tightly regulated as risk bearing entities.

Therefore, we believe that entities that

seek to qualify on the basis of their

experience as PBMs or Third Party

Administrators should be required to

have provided services in these key

areas for 5-continuous years, rather than

merely 2.

We intend to implement this proposal

through our existing Part D contract

qualification application process, and

we proposed to amend § 423.504(b)

accordingly.

We received the following comments

and our response follows:

Comment: We received strong

statements of support from several

commenters.

Response: We appreciate the support

for this proposal.

Comment: We received one

recommendation to consider a less

stringent standard for employer groups

seeking to act as EGWP sponsors.

Response: We are not persuaded by

this comment because, in general, we

expect that all sponsors, including

EGWP sponsors, meet all of our

experience and capability requirements.

EGWP sponsors perform the same core

functions as sponsors of individual

market PDPs, including claims

processing, formulary administration,

operation of an appeals and grievance

process, and coordination of benefits.

Therefore, the same concerns that led us

to adopt the requirement that new PDP

sponsors have experience in these areas

applies to EGWP sponsors as well as

sponsors of individual market plans.

Given the universal support for this

proposal, we are finalizing this

provision without modification.

12. Limit Parent Organizations to One

Prescription Drug Plan (PDP) Sponsor

Contract per PDP Region (§ 423.503)

Each year, we accept and review

applications from organizations seeking

to qualify to offer stand-alone

prescription drug plans in one or more

PDP regions. With limited exceptions

(for example, poor past contract

performance, limited Part D experience),

we approve all applications submitted

by organizations that demonstrate that

they meet all Part D application

requirements. We proposed, under our

authority at section 1860D–12(b)(3)(D)

of the Act to adopt additional contract

terms, not inconsistent with the Part C

and D statutes, that are necessary and

appropriate to administer the Part D

program, to add as a basis upon which

we may deny a PDP sponsor application

the fact that the applicant is applying

for qualification in a PDP Region where

another subsidiary of the applicant’s

parent organization already holds a PDP

sponsor contract. In our description of

this proposal, the term ‘‘parent

organization’’ refers to an entity that

controls a subsidiary through ownership

of more than 50 percent of the

subsidiary’s shares.

Section 1860D–12(b)(1) of the Act

provides that PDP sponsors may offer

multiple plan benefit packages (referred

to as PBPs or plans) under one PDP

sponsor contract. Therefore, parent

organizations need only one PDP

sponsor contract to offer the full range

of the possible plan options in a

particular PDP Region. Additionally,

informal communications made by past

requestors of duplicate contracts

indicated that the purpose has been to

either a) segregate low income

beneficiaries into their own contract, or

b) corral the experience of a particular

low-performing plan into its own CMS

contract so as not to taint the

performance rating of the better

performing plan offering, as

performance ratings are calculated at the

contract level. We oppose the

inefficiencies of duplicate contracts and

the gaming duplicate contracts can

support. That said, we welcomed

comments from industry, advocates, and

others as to circumstances for our

consideration under which duplicate

contracts may be beneficial.

One of the fundamental principles of

the Part D program is that the selection

of plans made available to beneficiaries

is the product of true competition

among PDP sponsors. Two subsidiaries

of the same parent organizations

offering plans in the same PDP region

are not truly competitors, as decisions

concerning their operations are

ultimately controlled by a single entity,

or parent organization. Also, we only

approve those PDP offerings that meet

the meaningful differences test stated at

§ 423.265(b)(2), and we apply that test at

the parent organization level. A parent

organization would not gain an

opportunity to offer more plan benefit

packages under two or more contracts it

controlled through its subsidiaries than

it would under one contract because we

would, as part of our bid review,

evaluate whether all the plans proposed

by the same parent organization met the

meaningful differences test.

The proposed limitation on the

number of PDP sponsor contracts a

parent may control in a PDP Region is

also necessary to preserve the integrity

of CMS’ star ratings. CMS assigns star

ratings at the contract level, and they are

intended to reflect all aspects of the PDP

operations controlled by a unique

contracting entity. However, that

principle is compromised when a parent

organization to one of the contracting

entities is permitted to control, through

other subsidiaries, more than one PDP

contract. Allowing a parent organization

to effectively administer two or more

PDP sponsor contracts would allow it

potentially to artificially inflate the star

ratings on one contract by excluding the

poor performance under its other

contract from the rating calculation. In

that instance, some beneficiaries could

make a plan election without complete

information about the performance of

the organization ultimately responsible

for the quality of services they would

receive by enrolling in that plan.

Based on our experience in

administering the Part D prescription

drug benefit program we do not believe

that there is a compelling justification

for parent organizations to administer

two PDP sponsor contracts in the same

PDP region. Moreover, such

arrangements impede our ability to

efficiently administer the Part D

program and provide a means by which

the integrity and reliability of our star

ratings system can be compromised.

Therefore, we proposed to amend

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§ 423.503(a) by adding a paragraph (3)

stating that CMS will not approve an

application when it would result in the

applicant’s parent organization holding

more than one PDP sponsor contract in

the PDP region for which the applicant

is seeking qualification as a PDP

sponsor. We anticipate that we would

most frequently use this authority to

deny an application in instances where

the applicant’s parent organization

already controls a PDP sponsor contract,

either directly by acting as a PDP

sponsor itself (in instances when the

parent is licensed as a risk-bearing

entity) or through its ownership of a

subsidiary that qualifies as a PDP

sponsor and is a party to a stand-alone

PDP sponsor contract. In the less likely

situation where two or more

subsidiaries of the same parent

organization each submit applications

in the same year for PDP regions where

the parent organization controls no PDP

sponsor contracts, we would request

that the parent withdraw all but one of

the applications. In the absence of a

withdrawal election, we will deny all of

the parent organization’s applications.

We received the following comments

and the response follows:

Comment: The comments of several

beneficiary advocacy organizations

contained expressions of support for our

proposal, citing in particular the role it

will play in preserving the integrity of

CMS’ star ratings system.

Response: We appreciate the

expressions of support for our proposal.

Comment: Several commenters stated

their opposition to our proposal on the

basis that it would limit their business

opportunities and reduce competition in

the Part D market by reducing the

number of plan sponsors participating

in a given PDP region.

Response: We note that the

commenters did not describe or provide

examples of the nature of the business

opportunities that Part D sponsors and

their parent organizations would be

denied should this provision go into

effect. Also, we believe that to properly

assess the level of competition in the

Part D market, it is important to

consider not just the number of plan

sponsors offering benefits, but also

whether all of those sponsors truly have

incentives to compete against one

another. As we noted in our preamble

discussion to the proposed rule,

additional plan sponsors controlled by

entities that already participate in the

Part D market do not promote improved

plan options since subsidiaries of the

same parent cannot be said to be truly

in competition with each other. In a

truly competitive market, multiple

entities develop and promote products

to capture as large a share of that market

as possible at the expense of other

market participants. It is our experience

that two or more subsidiaries of the

same parent organization are ultimately

accountable to the same set of

shareholders and are administered by

the same senior management team. In

such an arrangement, we believe there

is little incentive for the parent

organization to manage one PDP

contract in a way that would attempt to

take enrollees away from, or prevent

beneficiaries from electing, plans

offered by the related entity operating a

second contract. We also note that none

of the commenters provided an

explanation as to how related entities

would truly compete in the same PDP

region.

Comment: Several plan sponsors that

have recently acquired other plan

sponsor contracts expressed their

concern that the new policy would

jeopardize their right to maintain two or

more contracts during a transition

period following the acquisition.

Response: We assure the commenters

that our proposal has no effect on our

application of the regulatory provision

at § 423.272(b)(3), which provides

acquiring organizations an exemption

from the meaningful differences

standard normally applied to a

sponsor’s (or its parent organization’s)

bids for a 2-year period following the

acquisition of or merger with another

Part D sponsor. We have allowed

acquiring sponsors to maintain the

separate acquired contract during the

authorized 2-year period, and we will

continue to apply that policy after the

adoption of this provision.

Comment: Some plan sponsors that

currently hold more than one PDP

sponsor contract in a PDP region

commented that they were concerned

that the proposed provision would

require them to consolidate their

operations into one contract.

Response: We note that the proposal

only addressed our intention to deny

applications for new contracts

submitted by entities related to

organizations that already hold a PDP

sponsor contract in a particular region.

As we discussed in the preamble to the

proposed regulation, we will continue

to encourage such organizations to

consolidate their contracts, but we are

not requiring organizations to take such

action at this time.

Comment: One commenter requested

that CMS revise the proposal to allow a

parent organization to hold two

contracts in the same PDP region if one

of those contracts is maintained solely

for the purpose of offering employer

group waiver plans (EGWPs). The

commenter explained that because

EGWPs operate differently than

individual market plans (for example,

different enrollment processes, the need

to coordinate with non-Part D

supplemental coverage), it may reduce

the complexity of a parent

organization’s Part D operations if it is

permitted to keep its EGWP business

under a separate contract. Moreover,

since EGWP plans are not offered to

individual beneficiaries, these contracts

would not be subject to the same

incentives that might encourage

sponsors to game their star rating

performance to attract enrollments.

Response: We do not believe the

commenter’s arguments support special

treatment under our proposal for

organizations offering EGWPs. While it

is true that CMS affords EGWPs,

through the application of our statutory

waiver authority, flexibility in meeting

Part D requirements, the resulting

differences in requirements are not so

significant that a separate EGWP-only

contract is necessary for an organization

to administer such plans successfully.

In fact, the resulting differences do not

represent conflicting requirements that

might create the need for a separate

contract held by a different legal entity

to administer EGWPs. Rather, the EGWP

requirements are a result of our

completely waiving certain

requirements (for example, pharmacy

access standards, prior approval of

marketing materials) or modifying other

requirements (for example, enrollment

limited to employer group members),

and a single plan sponsor can meet

these if it is already offering individual

market PDPs. In fact, it is common for

a PDP sponsor to sign a stand-alone PDP

contract with CMS that includes an

EGWP addendum through which the

single entity offers both individual

market plans and EGWPs (that is, ‘‘800

series’’ plans). Our experience in

administering the Part D program

indicates that a properly managed single

legal entity is capable of complying with

multiple sets of Part D requirements.

Also, while sponsors may not have the

same incentives to game the star rating

system to attract EGWP enrollments as

they do to attract individual

beneficiaries, that fact alone would not

support allowing sponsors to maintain

separate EGWP contracts. We believe

the single contract rule is necessary to

maintain the integrity of the star ratings

that are reported to the public. As we

stated earlier in the preamble discussion

of our proposal, star ratings are intended

to reflect all aspects of the PDP

operations controlled by a unique

contracting entity, including the

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administration of EGWP products.

Allowing a parent organization to

maintain a separate EGWP contract

would mean that the star ratings

associated with each of its PDP

contracts contract would provide an

incomplete picture of the organization’s

performance. We believe that all

members of the public, including those

who make plan elections on behalf of

employer group members as well as

individual beneficiaries, benefit from

star ratings information that clearly

indicates the quality of all Part D

operations under one organization’s

control.

After consideration of the public

comments we received, we are

finalizing our proposal without

modification, with the exception of a

technical edit which changes the

proposed phrase ‘‘may not approve’’ to

‘‘does not approve’’ to clarify that CMS

will deny all applications that meet the

criteria stated in the provision.

13. Limit Stand-Alone Prescription Drug

Plan Sponsors To Offering No More

Than Two Plans per PDP Region

(§ 423.265)

Under our authority at section 1860D–

11(d) of the Act, we conduct

negotiations with stand-alone

prescription drug plan (PDP) sponsors

concerning our approval of the bids they

submit each year. As the Part D program

has evolved, we have adopted

regulations designed to authorize us to

use that negotiating authority to ensure

that the number of plans offered in a

given PDP region reflects a balance

between sponsors’ interest in providing

options tailored to meet the needs of a

diverse Medicare population and the

need to avoid creating undue confusion

for beneficiaries as they consider

various plan offerings. We continued

with this proposal our process of

updating our bid review authority to

reflect the evolution of the Part D

program by proposing to limit to two the

number of plans stand-alone PDP

sponsors may offer in each PDP region.

PDP sponsors must offer throughout a

PDP region at least one 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 during

which a beneficiary pays more of his

drug costs; 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 among each PDP sponsor’s

plan offerings in a PDP Region, CMS

guidance allowed sponsors that offered

a basic plan to offer in the same region

additional basic plans, 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, 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. In addition to

setting differential out-of-pocket-cost

(OOPC) targets each year to ensure

contracting organizations submit bids

that clearly offer differences in value to

beneficiaries, we issued regulations in

2010 that established at § 423.265(b)(2)

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 effectively

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. That regulation

also effectively limited to two the

number of enhanced alternative plans

that we can approve for a single PDP

sponsor in a PDP region. As part of the

same 2010 rulemaking, we also

established at § 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 without creating

undue confusion for beneficiaries.

We believe that the progressive

closure of the coverage gap provided for

in the Affordable Care Act affords us

another opportunity to promote even

greater clarity in the set of stand-alone

PDP plan options from which

beneficiaries may make an election.

Under the statute, beginning in 2011,

applicable beneficiaries enjoy discounts

of 50 percent off negotiated prices on

covered brand name drugs when

purchased while in the coverage gap

portion of the benefit. Also, since 2011,

the required coverage in the gap has

increased and will continue to do so

gradually until 2020, when the

combination of required coverage and

manufacturer discounts covers 75

percent on average for both brand-name

and generic drugs. This ‘‘closing’’ of the

coverage gap effectively will leave the

beneficiary with only a 25 percent cost

share on average across the entire

benefit (or its actuarial equivalent)

before the catastrophic threshold.

Our experience in applying the

meaningful differences standard

indicates that, as the Part D coverage

gap is closed, it will become

increasingly difficult for a PDP sponsor

to qualify to offer more than two plans

in the same service area and still meet

the meaningful differences test. Since

we began applying the meaningful

differences standard to our bid reviews,

we have generally approved two types

of enhanced alternative plans. The first

type of plan offers beneficiaries, in

exchange for a higher premium than

that charged for basic plan coverage,

significant reductions in the cost

sharing and deductible amounts

associated with the basic Part D benefit.

The second type offers even greater cost

sharing and deductible reductions as

well as coverage for many drugs in the

gap. Since coverage of Part D drugs in

the gap is the distinguishing feature

between the two types of enhanced

alternative plans currently available,

closing the coverage gap also means that

sponsors can no longer rely on it to

establish that their proposed second

enhanced alternative plan is

meaningfully different than their first.

Despite these developments, many

sponsors continue to submit three bids

per region each year. We believe that

plan sponsors and beneficiaries, as well

as the taxpayers, would be better served

by a more streamlined bid submission

process that limited sponsors to

submitting two PDP bids (one basic and

one enhanced) per PDP region each

year. This limitation would provide a

consistent bidding framework for all

sponsors, allowing them to focus on

quality, rather than quantity, in

development of their bids. It would also

reduce some of the sponsors’

administrative costs associated with

preparing, marketing, and administering

a third benefit package. It may also help

ensure that beneficiaries can choose

from a less confusing number of plans

that represent the best value each

sponsor can offer.

While the incremental closure of the

coverage gap continues until 2020, we

believe that the observed enrollment

trends in these plans demonstrate the

reduction in beneficiaries’ coverage gap

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costs that has occurred already has

moved the stand alone PDP plan market

in a way that warrants the imposition of

the two plan limit as soon as possible.

In addition, in many cases one of the

two enhanced plans offers the minimum

level of supplemental coverage required

to meet our meaningful differences tests.

We refer to these as ‘‘low value

enhanced plans’’ to distinguish them

from second enhanced plans with

substantially more supplemental

coverage. In some cases, the premiums

for these low value enhanced plans have

been less than the premiums for the

sponsors’ basic plans due to favorable

risk selection. This occurs because

many of the beneficiaries with more

serious health issues and higher

utilization of prescription drugs are in

the low-income subsidy (LIS) eligible

population, which will not receive the

full LIS subsidies in plans with

supplemental coverage. For this reason

we neither auto-assign the LIS eligible

population into such plans, nor will this

population generally affirmatively

enroll in such plans. Thus, continuing

to permit multiple enhanced plans,

particularly low value enhanced plans,

facilitates risk segmentation. This can

increase costs for the Part D program

and the taxpayers overall. During the

most recently completed CY 2014 bid

review cycle, we continued to encounter

bids submitted by sponsors for low

value enhanced plans with premiums

lower than the premiums for their basic

plans. We believed it was urgent that we

adopt the proposed policy as soon as

possible so that we could bring an end

to this bidding practice. We solicited

comments on whether there is any real

need for more than two standalone plan

options per PDP sponsor.

Therefore, we proposed to amend the

Part D regulations at § 423.265 to add a

revised subsection (b)(3), which would

state that ‘‘CMS shall not accept more

than one basic bid and one enhanced

bid for a coverage year from a single

PDP sponsor in the same PDP region.’’

We would adopt this provision under

our authority at section 1860D–11(d) of

the Act. In instances where a parent

organization owns a controlling interest

in more than one subsidiary that

operates as a PDP sponsor in a single

PDP region, we would apply subsection

(b)(3) at the parent organization level.

That is, in the same way that we

currently apply the meaningful

differences test, a parent organization

with two subsidiary PDP sponsors could

offer no more than one plan under each

sponsors’ contract.

In addition to proposing to limit PDP

sponsors to submitting one basic and

one enhanced bid per coverage year, we

also stated that we were considering

several regulatory proposals for limiting

the type of coverage offered in those two

plans to reduce or eliminate the risk

segmentation described previously. We

believe that risk segmentation is not

consistent with the policy goal, based

on our interpretation of current law, of

obtaining the best value for the

government and the taxpayer. We

believe the Congress intended sponsors

to compete in the Part D market by

offering their best bids for basic plans,

in order to attract the greatest

enrollment through the lowest

premiums, and that this competition

would maintain downward pressure on

Part D bids and government subsidies.

We do not believe that the Congress

intended that instead sponsors would

offer their best bids for a segment of the

market that represents individuals who

are low utilizers of prescription drugs

due to better health and who can afford

unsubsidized supplemental premiums

due to better socioeconomic status.

When many healthy individuals are not

included in the basic plans, the cost of

the basic plans is increased, and this in

turn increases low-income premium

subsidies. Therefore, permitting risk

segmentation does not generate the best

value for the Part D program as a whole.

To reduce or eliminate risk

segmentation, we stated that we were

considering three options, including a

proposal, based on a reinterpretation of

section 1860D–11(b) and (c) of the Act,

that enhanced alternative coverage be

redefined to consist of supplemental

coverage added to the sponsor’s one

basic benefits offering (for an additional

premium). This could be thought of as

basic benefits plus a supplemental

benefit rider. We solicited comments on

this approach and on our belief that this

approach would be the most effective

strategy for eliminating risk

segmentation and providing the best

value for the government and the

taxpayer. We received the following

comments and our response follows:

Comment: Several commenters

expressed support for our proposal to

limit sponsors to offering no more than

two plans per PDP region. They agree

that beneficiaries can be overwhelmed

by the number of plan choices, which

can cause them to avoid even

considering exploring during the annual

election period plan options that might

better meet their needs.

Response: We appreciate the

expressions of support for our proposal.

Comment: A number of commenters

stated their opposition to the proposal

to limit sponsors to offer no more than

two plans per PDP region. Among the

assertions made by the commenters was

that the regulatory authority already in

place will produce shortly the

improvements in bid submissions that

CMS seeks and that no further authority

is required. The commenters stated that

CMS’ application of the meaningful

differences standard to its review of bids

and its authority to non-renew plans

that do not meet minimum enrollment

standards already place effective limits

on a given sponsor’s number of plan

offerings. They stated that the continued

application of those authorities,

combined with the upcoming closure of

the coverage gap, will eventually reduce

the room for plan variation to the point

of effectively creating the two-plan limit

that CMS sought with its proposal.

Commenters also expressed opposition

to our three options for preventing risk

segmentation in plan bidding, with the

option requiring enhanced benefits to be

offered as a supplement to a sponsor’s

basic plan benefit package being

particularly disfavored. Commenters

that addressed the ‘‘supplement’’ option

stated that such a bidding structure

would result in less generous enhanced

benefits because there would be less

opportunity to spread the costs

associated with such benefits. They also

stated that such a bidding structure

would limit formulary options available

to beneficiaries because sponsors would

have to offer the same formulary for

both the sponsor’s basic benefit plan

and its enhanced/supplemental option.

Response: We appreciate the

comments. We believe that the

commenters overstate the effectiveness

of the tools already at our disposal to

prevent risk segmentation and to make

further strides in ensuring that

beneficiaries have access to an array of

plan options that represent real choice.

We have been conservative in our use of

the low enrollment non-renewal

authority as demonstrated by our

adoption of enrollment thresholds that

ensure that only the plans that attract

negligible interest from the market are

non-renewed, so few additional non-

renewals are likely to occur under this

authority in the coming years. Also, we

measure meaningful differences on a

relative basis, generally using a 95

percentile threshold to arrive at the

annual limits. As plan sponsors reduce

the additional value offered in their

benefit packages, the 95 percentile

threshold will be expected to converge

toward the value of basic plans.

Consequently, we will need to explore

alternative methodologies to ensure

meaningful differences remain among a

plan sponsor’s PDP offerings.

Nevertheless, the comments have

given us reason to conduct further

analysis of this issue and continue our

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close observation of the developments

in the Part D market. Therefore, we are

not finalizing this proposal. It may be,

as the commenters suggest, that as the

coverage gap closes, the problems of risk

segmentation and large numbers of plan

options may solve themselves. Should

that not turn out to be the case, we may

revisit the issues of plan number limits

and changes to basic and enhanced bid

structures, keeping in mind the

comments we received in response to

this proposal. In the event that we make

this or a similar proposal again, we

would only do it as part of a new

rulemaking process, during which we

would solicit public comment once

more before deciding whether to

publish final regulations.

After consideration of the public

comments we received, we are not

finalizing our proposal to limit PDP

sponsors to offering no more than two

bids per PDP region.

14. Applicable Cost-Sharing for

Transition Supplies. Transition Process

Under Part D § 423.120(b)(3)

We established transition

requirements under § 423.120(b)(3) for

Part D sponsors to address the needs of

new Part D plan enrollees who are

transitioning from other prescription

drug coverage (Part D or otherwise), and

whose current drug therapies may not

be included on their Part D plan’s

formulary (including Part D drugs that

are on a plan’s formulary but require

prior authorization or step therapy

under the plan’s utilization management

requirements). While § 423.120(b)(3)(iii)

specifies that PDP plans must provide a

temporary fill when an enrollee requests

a fill of a non-formulary drug during the

transition time period (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), it does not currently

specify the cost sharing that should

apply to such fills. Current guidance (at

§ 30.4.9 of Chapter 6 of the Medicare

Drug Benefit Manual, found at http://

www.cms.gov/Medicare/Prescription-

Drug-Coverage/

PrescriptionDrugCovContra/Downloads/

Chapter6.pdf) states that a Part D

sponsor may charge cost sharing for a

temporary supply of drugs provided

under its transition process. Further,

cost sharing for transition supplies for

low-income subsidy (LIS) eligible

beneficiaries cannot exceed the

statutory maximum copayment

amounts. However, for non-LIS

enrollees, we stated that a sponsor must

charge cost sharing based on one of its

approved drug cost sharing tiers (if the

sponsor has a tiered benefit design), and

this cost sharing must be consistent

with cost sharing that the sponsor

would charge for non-formulary drugs

approved under a coverage exception.

This guidance created a great deal of

confusion on the part of sponsors and

beneficiaries because it can result in

beneficiaries paying different cost

sharing for formulary drugs subject to

utilization management edits (such as

prior authorization or step therapy)

during transition than specified in their

tiered benefit design. It is possible that

beneficiaries may pay more during

transition than for his or her drug’s

normal designated formulary tier.

Conversely, it is also possible that the

beneficiary may pay more once the

utilization management edit had been

satisfied than he or she did under the

transition fill.

We believe that more consistent

treatment of formulary and non-

formulary drugs, respectively, will

simplify the benefit and reduce sponsor

and beneficiary confusion.

Consequently, we proposed to add a

paragraph at § 423.120(b)(3)(vi)

clarifying that when providing a

transition supply, the cost sharing is

determined as follows: A Part D sponsor

must charge cost sharing for a temporary

supply of drugs provided under its

transition process such that the

following conditions are met:

• For low-income subsidy (LIS)

enrollees, a sponsor must not charge

higher cost sharing for transition

supplies than the statutory maximum

copayment amounts.

• For non-LIS enrollees, a sponsor

must charge—

++ The same cost sharing for non-

formulary Part D drugs provided during

the transition that would apply for non-

formulary drugs approved through a

formulary exception in accordance with

§ 423.578(b); and

++ The same cost sharing for

formulary drugs subject to utilization

management edits provided during the

transition that would apply once the

utilization management criteria are met.

Comment: We received numerous

comments that this clarification in

regulation will simplify the rules for

transition policy and reduce beneficiary

confusion.

Response: We agree with these

commenters that this provision will

simplify the rules for transition cost

sharing and reduce beneficiary

confusion. We believe this requirement

will help ensure more consistent

treatment of transition cost sharing for

formulary and non-formulary drugs

across all Part D plans and removes any

ambiguity that Part D sponsors may

have had with respect to transition cost

sharing for formulary drugs that would

otherwise be subject to utilization

management edits.

Comment: One commenter wrote that

this requirement will further complicate

an already complex policy surrounding

transition fills.

Response: We disagree with this

commenter. This provision removes the

ambiguity surrounding the allowable

cost sharing when utilization

management edits are overridden during

transition for formulary drugs, and

ensures that beneficiaries will pay the

same cost sharing for such formulary

drugs during transition and after

transition if the utilization management

criteria are met. There has been a great

deal of confusion from both sponsors

and beneficiaries with respect to the

proper cost sharing that should apply in

these situations during transition and

both we and many commenters believe

this provision provides the necessary

clarification.

In light of the overwhelmingly

positive comments on this proposal, we

are finalizing this provision without

modification.

15. Interpreting the Non-Interference

Provision (§ 423.10)

Since the MMA created the Part D

benefit in 2003, we have never formally

interpreted section 1860D–11(i) of the

Act, which is known as the

noninterference provision. In practice

we have generally invoked the spirit of

this provision in declining to intervene

in negotiations or disputes involving

payment-related contractual terms

between participants in the drug

distribution channel. However, it is

increasingly clear from the many

questions that continue to arise when

working with stakeholders on matters

ranging from lawsuits to policy

clearance to complaint resolution that

the agency and all Part D stakeholders

would benefit from a clear, formal

interpretation of these limits on our

authority. Some stakeholders appear to

believe the prohibition on interference

in negotiations extends far beyond the

boundaries that we consider relevant,

while others insist our authority extends

into arbitrating matters that seem to us

to clearly fall within the intended

prohibition. Therefore, we proposed an

interpretation through rulemaking in

order to clarify and codify the extent of

these limits on our authority.

The noninterference provision at

section 1860D–11(i) of the Act provides

that, ‘‘In order to promote competition

under this part and in carrying out this

part, the Secretary: (1) May not interfere

with the negotiations between drug

manufacturers and pharmacies and PDP

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sponsors; and (2) may not require a

particular formulary or institute a price

structure for the reimbursement of

covered Part D drugs.’’ In beginning

with the words ‘‘In order to promote

competition under this part and in

carrying out this part. . .’’ we believe

that the Congress intended that the

activities addressed in the rest of the

provision should take place through

private market competition. We

interpret this to mean two separate but

related goals. The first goal is that the

Secretary through CMS should promote

private market competition in the

selection of Part D drugs for Part D

sponsor formularies. The second goal is

that CMS should not create any policies

that would be expected to interfere with

competitive market negotiations leading

to the selection of drug products to be

covered under Part D formularies.

Therefore, in light of these two goals we

believe there is both a duty to act—to

promote competition in the private

market for Part D drugs—and a duty to

refrain from acting—to avoid

intervention in private market

negotiations that take place in the

context of that competitive market.

Consequently, as an initial matter, in

light of our interpretation of the general

purpose of section 1860D–11(i) of the

Act, we proposed a general rule at

§ 423.10(a) that CMS promotes fair

private market competition in the

market for Part D drugs.

There is also a duty to avoid

intervention in private market

negotiations that take place in the

context of that competitive market. We

believe the intent of 1860D–11(i) is to

ensure that we do not create any

policies or become a participant in any

discussions that could be expected to

interfere with negotiations leading to

the selection of drug products to be

covered under Part D formularies. By

this we mean selection by Part D

sponsors (or other intermediary

contracting organizations) of specific

manufacturers’ products for inclusion

on formularies, formulary tier

placement, and negotiations of

acquisition costs, rebates, and any other

price concessions. We believe this

interpretation is consistent with a

textual reading of 1860D–11(i) and with

how private market transactions

determine which prescription drug

products are covered under Part D

plans. We outlined aspects of the

complex process of private market

competition for prescription drugs

described in detail elsewhere (such as in

the 2007 CBO report entitled

‘‘Prescription Drug Pricing in the Private

Sector’’ at: http://www.cbo.gov/

publication/18275) to support our

reading of the distinctly different types

of negotiations between the three parties

in ‘‘between drug manufacturers and

pharmacies and PDP sponsors’’. These

distinct sets of negotiations in the

private market between manufacturers

and pharmacies on the one hand, and

between manufacturers and plan

sponsors on the other hand, support our

textual reading of section 1860D–

11(i)(1) of the Act to prohibit CMS

involvement in negotiations between

manufacturers and pharmacies, and

between manufacturers and plan

sponsors. There are also separate price

negotiations between plan sponsors (or

their intermediary contracting

organizations) and pharmacies around

the negotiated prices required for

network participation. However, since

the statute establishes numerous

requirements that CMS must regulate

concerning access to network

pharmacies and negotiated prices, we

believe that a CMS role in negotiations

between plan sponsors and pharmacies

is not prohibited under section 1860D–

11(i)(1) of the Act, but rather under

section1860D–11(i)(2), as discussed in

this section.

Section 1860D–11(i)(1) of the Act

states that we ‘‘may not interfere with

the negotiations between drug

manufacturers and pharmacies and PDP

sponsors’’. We believe that the term

‘‘interference’’ in this context should be

interpreted as prohibiting our

involvement in discussions between

manufacturers and their distribution

channel customers (such as wholesalers

and pharmacies) or the ultimate

purchasers of prescription drugs (such

as plan sponsors and PBMs) leading to

signed contracts. We also believe

section 1860D–11(i)(1) of the Act should

be interpreted as prohibiting our

involvement in arbitration of

agreements already executed between

any of these parties. Therefore, we

interpret the prohibition in section

1860D–11(i)(1) of the Act on

interference in negotiations to pertain to

discussions either between prescription

drug manufacturers and pharmacies, or

between prescription drug

manufacturers and Part D sponsors (or

their intermediary contracting

organizations, hereafter included by

association whenever we refer to Part D

sponsors). Our interpretation is based

on the sequential phrasing of the clause

‘‘negotiations between drug

manufacturers and pharmacies and PDP

sponsors.’’ Because in general these

negotiations are not among all three

parties at once, and because

manufacturers separately contract with

pharmacies for the purchase of

inventory and with sponsors for

formulary placement, we believe the

quoted phrase can be interpreted as

recognizing these distinct types of

negotiations. Therefore, in our proposed

rule we stated that under such a

reading, the prohibition on interference

in negotiations, as described in section

1860D–11(i)(1) of the Act, would not

pertain to negotiations between Part D

sponsors and pharmacies. In hindsight,

given the strong reaction of most

commenters a better way to have

articulated CMS’ long-standing position

would have been to focus on what

‘‘interfere’’ means and to interpret it to

mean a sort of hindering or influence

beyond the implementation and

enforcement of statutory requirements.

This is the case because there are

numerous statutory provisions that

require us to directly intervene in the

contractual relationship between Part D

sponsors and network pharmacies, and

these provisions clearly signal that the

Congress expected CMS involvement in

at least some of these negotiations. The

Congress has provided many contractual

requirements for CMS to enforce

between sponsors and pharmacies; just

the drug-cost-related of these include:

interpretation of what ‘‘access to

negotiated prices’’ means, any-willing-

pharmacy standard terms and

conditions, prohibition on any

requirement to accept insurance risk,

prompt payment, and payment standard

update requirements. Consequently, we

believe that Part D sponsors and

pharmacies do not have sole discretion

to interpret these specific matters. We

would be obligated to intervene in

disputes over whether proposed or

finalized contractual arrangements

violated our rules in any area where our

oversight is directed under the statute.

So we believe it is clear that such

involvement could not be what the

Congress intended to prohibit.

Therefore, we proposed at § 423.10(b)

that CMS may not be a party to

discussions between prescription drug

manufacturers and pharmacies, or

between drug manufacturers and Part D

sponsors, and may not arbitrate the

meaning of or compliance with the

terms and conditions of agreements

reached between these parties, except as

necessary to enforce CMS requirements

applicable to those agreements. Thus,

we could only be involved in such

discussions in order to explain CMS

requirements and to ensure compliance

with Part D rules and regulations. We

also add that nothing in this prohibition

limits our authority to require

documentation of and access to all such

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agreements, or to require the inclusion

of terms and conditions in agreements

when necessary to implement

requirements under the Act.

The first part of the section 1860D–

11(i)(2) of the Act states that CMS ‘‘may

not require a particular formulary’’. The

noninterference clause must be read in

context of the other provisions that give

CMS authority with respect to

formularies, so we proposed to interpret

the term ‘‘particular formulary’’ to mean

the selection of specific manufacturer

licensed drug products to be on

formulary, or on any particular tier of a

formulary, assuming the product meets

the definition of a Part D drug. We

believe the first part of section 1860D–

11(i)(2) of the Act would prohibit us

from developing formulary guidelines

that prefer one manufacturer’s product

over another’s in Part D formularies,

leading to more limited formularies

such as provided by the Department of

Defense and the Veteran’s

Administration. The most efficient

formularies will make formulary

selections and then exclude all or most

competing multi-source and

therapeutically equivalent brand

products in order to concentrate volume

and maximize rebates. Given the size of

the Part D market, if CMS were able to

similarly limit access to Part D

formularies to certain products, this

would bestow significant competitive

advantage on the manufacturers of

selected products and significant

competitive disadvantage on

manufacturers of competing products.

Such limits would be expected to

fundamentally alter supply and demand

in the marketplace. This prohibited sort

of formulary drug product selection

would be distinguished from CMS

formulary requirements that may

require particular types of drug entities

to be on all formularies, or on preferred

tiers, in order to provide non-

discriminatory access to drugs necessary

to treat conditions in all Medicare

beneficiaries, or to address drug classes

of clinical concern. Therefore, we

proposed a provision prohibiting

establishment of formulary drug product

selection at § 423.10(c) that would

specify that CMS does not determine the

specific drug products to be included on

Part D sponsor formularies or any tier

placement of such products, except as

required to comply with

§§ 423.120(b)(1)(v) or 423.272(b)(2).

The second part of section 1860D–

11(i)(2) of the Act states that CMS ‘‘may

not institute a price structure for the

reimbursement of covered Part D

drugs’’. Again, the noninterference

clause must be read in context of the

other provisions that give CMS

responsibilities in a number of areas

that pertain to pricing, so we stated our

view that the phrase ‘‘price structure’’

refers to establishing either absolute or

relative indices of price for Part D drugs.

Specifically, we believe the intent of

this provision is to prohibit two types of

intervention by CMS. The first

prohibited activity is that CMS may not

require Part D drug acquisition costs or

sales prices to be a function of (be

defined relative to) any particular

published or unpublished pricing

standard, either existing or future. Thus,

we could not require that Part D prices

be based on, or be any particular

mathematical function (such as a

percentage or multiple) of established

pricing standards such as Average

Wholesale Price, Wholesale Average

Cost, Average Manufacturer Price,

Average Sales Price, Federal Supply

Schedule, 340b pricing, etc. The second

prohibited activity is that CMS cannot

require price concessions (on any

standard or basis) to be at any specific

(absolute) dollar amount or equal to a

level specified in other legislative

requirements for other federal programs.

Thus, we could not, for example, set

minimum or maximum dollar prices for

a drug product or require that Part D

prices be offered at acquisition cost, or

at the ‘best price’ applicable under the

Medicaid program. However, since the

statute requires us to regulate many

aspects of how drug costs are made

available and displayed to beneficiaries

and treated in Part D bidding and

payment processes, it is clear that we

have an important role to play in

establishing rules for consistent

treatment of drug costs in the program.

Consequently, we may establish

definitions of what constitutes a pricing

standard, a price concession, a cost, etc.

We may also establish rules concerning

how drug costs are treated under Part D,

including, but not limited to, how such

amounts are disclosed in the

marketplace, projected in Part D bids,

made available to beneficiaries at point

of sale, reported in Explanation of

Benefits (EOBs), submitted to CMS, and

treated in CMS payments to Part D

sponsors. Therefore, we proposed a

provision prohibiting establishment of

drug price reimbursement

methodologies at § 423.10(d) that

specifies that CMS does not establish

drug product pricing standards or the

dollar level of price concessions at any

stage in the drug distribution channel

for Part D drugs. Nothing in our

proposed regulation would have limited

our authority to require full disclosure

or uniform treatment and reporting of

drug costs and prices.

We received numerous comments on

this proposed interpretation, both

supportive and strongly critical.

Different commenters asserted different

‘‘plain readings’’ of the statute. The

wide variation in interpretations of the

statutory prohibition evidenced in these

comments, in our view, confirms our

belief that this provision is not

consistently understood by all

stakeholders. Although the

interpretation we proposed to codify is

the same interpretation we have been

operating under in managing the Part D

program since before the beginning of

the Part D program, many commenters

perceived our proposal as a change in

interpretation. And as noted previously,

in hindsight we could have better

articulated our policy rationale than by

stating that the prohibition in section

1860D–1(i)(1) did not apply to

negotiations between sponsors and

pharmacies. These widely differing

reactions to our proposal to codify our

current interpretation lead us to

understand that additional work needs

to be done to better explain our policy,

as well as to address the concerns and

arguments advanced by numerous

commenters. Consequently, we will not

finalize the proposed regulatory

provision at § 423.10 in this final rule,

and do not intend to codify this

provision without issuing an additional

future notice of proposed rulemaking.

Comment: Some commenters

supported our interpretation and

regulatory proposal; others supported

the interpretation but did not believe

there was any need to codify our

interpretation in regulation. One

commenter supported our intent to

clarify and specify the limits of our

authority, but was very concerned about

the proposed exceptions to the

limitations on our authority and

requested greater specificity around the

particular CMS requirements that would

invoke the exceptions.

Response: We appreciate the

supportive comments, and can

understand the desire for greater

specificity in some areas.

Comment: Several commenters stated

that our interpretation violated the plain

reading of the statute, and then offered

differing interpretations of the plan

meaning of the statute. In particular,

many commenters asserted that the

phrase ‘‘between drug manufacturers

and pharmacies and PDP sponsors’’

essentially had the plain meaning of

prohibiting any and all negotiations

between any two of the parties. Other

commenters agreed with our

interpretation and that it represented

the plain meaning.

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Response: These differing

interpretations of the statute confirm

our belief that the statutory language is

not universally understood in the same

way by all parties and would ultimately

benefit from formal interpretation and

codification in regulation.

Comment: Numerous commenters

understood us to be proposing that we

could now interfere in negotiations

between Part D sponsors and

pharmacies that we had previously

avoided.

Response: We intended to explain

how we could reconcile the distinct sets

of negotiations in the private market

between manufacturers and pharmacies,

between manufacturers and plan

sponsors, and between plan sponsors

and pharmacies with both the non-

interference provision and within the

context of the rest of the statute. Since

the statute establishes numerous

requirements that CMS must implement

concerning access to network

pharmacies and negotiated prices, we

sought to make that distinction in the

proposed rule by proposing that a CMS

role in negotiations between plan

sponsors and pharmacies is not

prohibited under section 1860D–11(i)(1)

of the Act, but rather under section

1860D–11(i)(2) of the Act. The strong

reaction of many commenters to this

interpretation has persuaded us that a

better way to have articulated this

distinction would have been to focus on

what ‘‘interfere’’ means and to interpret

it to mean a sort of hindering or

influence beyond the implementation

and enforcement of statutory

requirements. The Congress has

provided many contractual

requirements for CMS to enforce

between sponsors and pharmacies, and

we would be obligated to intervene in

disputes over whether proposed or

finalized contractual arrangements

violated our rules in any area where our

oversight is directed under the statute.

In other words, we sought to explain

that we could not involve ourselves in

negotiations between plan sponsors and

pharmacies except as necessary to fulfill

our requirements established under the

statute. From the many comments we

received on this issue, we conclude that

our explanation on this point in the

proposed rule conveyed the wrong

impression.

Comment: Numerous commenters

characterized our proposal as a change

in policy. These commenters frequently

cited examples of our previous

invocation of the prohibition on

interference in private market

negotiations as evidence of this alleged

change. For instance, commenters cited

a CMS response to a 2008 OIG report in

which CMS did not concur with several

OIG recommendations on the basis that

to do so would violate the non-

interference clause. This report,

‘‘Review of Medicare Part D Contracting

for Contract Year 2006’’ (A–06–07–

00082) is available at: http://

oig.hhs.gov/reports-and-publications/

archives/oas/cms_archive.asp.

Response: The interpretation put forth

in our proposed rule was intended to

represent the interpretation that the Part

D program has been operating under

since before the beginning of the Part D

program. We believe the examples cited

by commenters can all be traced back to

specific situations and topics that are

consistent with our proposal. For

instance, in the case of the 2008 OIG

report, the specific recommendations

with which CMS did not concur on the

basis of interference were

recommendations that violated that

provision in exactly the way we

proposed to prohibit in our proposed

rule. Specifically, we disagreed with

requiring Part D sponsors to disclose to

pharmacies the data source, basis, and

methodology used to develop

reimbursement rates, or to reveal to

pharmacies criteria for receiving higher

reimbursement rates available to certain

categories of pharmacies, and with CMS

determining whether reimbursement

rates for extended days’ supplies are

adequate. In other words, we disagreed

with CMS becoming a party to

discussions between Part D sponsors

and pharmacies on price structures or

the arbiter of the adequacy of

reimbursement methodologies. Thus, in

our view, our responses to the OIG

report were entirely consistent with our

proposed regulation. (We note that

section III.A.17 of this final rule

addresses changes to the prescription

drug pricing standard requirements

established under MIPPA, but still does

not require disclosure of data source,

basis, and methodology used to develop

reimbursement rates.) We believe that

the perception of a change in

interpretation arises from both the lack

of a common understanding of the

statutory prohibition, and from the

absence of any discussion of how our

previous statements on the record on

this topic do or do not conform to our

proposals. The numerous examples

provided by commenters will be very

helpful in developing such an

explanation in any future rulemaking on

this policy.

16. Pharmacy Price Concessions in

Negotiated Prices (§ 423.100)

We have learned that some Part D

sponsors have been reporting costs and

price concessions to CMS in different

ways. This reporting differential matters

because this variation in the treatment

of costs and price concessions affects

beneficiary cost sharing, CMS payments

to plans, federal reinsurance and low-

income cost-sharing (LICS) subsidies,

and manufacturer coverage gap discount

payments. Differential treatment of costs

would also be expected to affect plan

bids. If the projected net costs a sponsor

is liable for in its bid are understated

because the sponsor has been reporting

certain types of price concessions as

direct or indirect remuneration (DIR)

rather than as price concessions that

affect the negotiated price, it follows

that the sponsor may be able to offer a

lower bid than its competitors and may

achieve a competitive advantage

stemming not from greater efficiency,

but rather from a technical difference in

how costs are reported to CMS. When

this happens, such differential reporting

could result in bids that are no longer

comparable, and in premiums that are

no longer valid indicators of relative

plan efficiency. Therefore, we proposed

changes to rectify this concern.

Negotiated prices are the payment

amounts pharmacies receive from plans

for covered Part D drugs dispensed to

plan enrollees. CMS payments to plans

are based on the reporting of negotiated

prices (through PDE reporting) that are

actually paid and are then offset by any

other price concessions (submitted in

aggregate through the separate annual

DIR reporting process). CMS establishes

rules for cost and price concession

reporting through both PDE and DIR

guidance and other payment

reconciliation rules, and has regulated

the definition of negotiated price and

how it is to be treated in Part D benefit

administration and in payment

reconciliation. Since 2010, the

regulatory definition at § 423.100 has

been: ‘‘Negotiated prices means prices

for covered Part D drugs that: (1) The

Part D sponsor (or other intermediary

contracting organization) and the

network dispensing pharmacy or other

network dispensing provider have

negotiated as the amount such network

entity will receive, in total, for a

particular drug; (2) Are reduced by

those discounts, direct or indirect

subsidies, rebates, other price

concessions, and DIR that the Part D

sponsor has elected to pass through to

Part D enrollees at the point of sale; and

(3) Include any dispensing fees.’’

We intended clause 2 to primarily

refer to price concessions from parties

other than pharmacies, since these

would be price concessions that were

not based on the sale of the drug by the

pharmacy and calculated when the

claim adjudicated and, in fact, could not

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be calculated until a later date. In

particular, we expected these other non-

claim-based price concessions to be in

the form of rebates offered by

prescription drug manufacturers. Since

prescription drugs are dispensed by

pharmacies and purchased through

transactions between Part D sponsors (or

their intermediary contracting

organizations) and pharmacies,

manufacturers are never in a position to

apply price concessions to negotiated

prices at point of sale. We now

understand that clause 2 is ambiguous

and permits sponsors and their

intermediaries to elect to take some

price concessions from pharmacies in

forms other than the negotiated price

and report them outside the PDE. When

this occurs, the increased negotiated

prices generally shift costs to the

beneficiary, the government and

taxpayer, and when applicable to

certain brand name drugs, to

prescription drug manufacturers. (The

mechanism of this sort of cost shift was

discussed at length in the analogous

context of lock-in pricing in our 2008

proposed rule entitled ‘‘Medicare

Program; Revisions to the Medicare

Advantage and Prescription Drug

Benefit Programs’’ which was published

on May 16, 2008 in the Federal

In addition, when price concessions

from pharmacies are reflected in forms

other than the negotiated price, the

degree of price concession that the

pharmacy has agreed to is no longer

reflected in the negotiated prices

available at point of sale or reflected on

the Medicare Prescription Drug Plan

Finder (Plan Finder) tool. Thus, the true

price of drugs at individual pharmacies

is no longer transparent to the market.

Consequently, consumers cannot

efficiently minimize both their costs

(cost sharing) and costs to the taxpayers

by seeking and finding the lowest-cost

drug/pharmacy combination. Moreover,

as the coverage gap closes, there are

fewer and fewer beneficiaries who are

exposed to the full cost of drug

products, either at the point of sale or

as reflected in Plan Finder estimates.

When this occurs, the basis of

competition shifts from prices to cost

sharing, and the pricing signals

available to the market can be distorted

when lower cost sharing is not aligned

with lower prices. Thus, we believe the

exclusion of pharmacy price

concessions from the negotiated price

thwarts the very price competition that

the Congress intended with respect to

how private plans would compete with

other plans on both premiums and

negotiated prices.

We are aware that certain pharmacy

price concessions are being excluded

from the determination of the negotiated

price because they are being

characterized as ‘‘network access fees’’,

‘‘administrative fees,’’ ‘‘technical fees’’

or ‘‘service fees’’ that are frequently

imposed through PBM-issued manuals

rather than explicit contractual terms.

Pharmacies and pharmacy organizations

report that they do not receive anything

of value for those fees other than the

ability to participate in the Part D

network. The itemized types of services

for which their payments are offset

reportedly include things such as

transaction fees for submission of

claims, help desk support, information

technology and telecommunication

systems connectivity, electronic funds

transfers, and other expenses associated

with credentialing, maintaining, and

auditing pharmacy networks. These fees

take the form of deductions from

payments to pharmacies for drugs

dispensed, but in our view clearly

represent charges that offset sponsor/

PBM operating costs. We believe that if

the sponsor or its intermediary

contracting organization wishes to be

compensated for these services and have

those costs treated as administrative

costs, such costs should be accounted

for in the administrative costs of the

Part D bid. If instead these costs are

deducted from payments made to

pharmacies for purchases of Part D

drugs, such costs are price concessions

and must be treated as such in Part D

cost reporting. This is the case

regardless of whether the deductions are

calculated on a per-claim basis or not.

In our view, the decision on how such

network management costs are funded

between the PBM and the sponsor is not

governed by our rules, but our rules do

require that price concessions be fully

disclosed and net against drug costs in

reconciliation. We have also heard from

pharmacies that some sponsors apply

dispensing fees to claims when they are

adjudicated at point of sale, but require

that these fees later be rebated back to

the sponsor and deducted from payment

remittances. Such practices again

misstate the negotiated price. Our

proposal would require that dispensing

fees could only be applied at point of

sale if they are received and retained by

the pharmacy in the negotiated price.

Some stakeholders have

recommended that certain incentive

payments to pharmacies, such as

generic dispensing incentive fees,

should not be included in negotiated

prices. If these payments are included,

they explain, the negotiated prices

appear higher at the more efficient

pharmacy as the result of the additional

incentive payment. This higher price

then proportionally increases costs

borne by beneficiaries, the government,

and manufacturers. These incentives

really represent amounts that the

sponsor is willing to bear in order to

encourage the most efficient drug

choices, which will drive down total

costs overall, and thus the sponsor is

willing to bear a disproportionate share

of such expense. We agree with this

argument and we believe that this sort

of arrangement would not conflict with

our proposed requirement that all price

concessions be reflected in the

negotiated price since such additional

payments are the opposite of price

concessions. Instead such incentive fees

represent contingent price increases that

cannot be predicted in advance.

Therefore, they cannot be programmed

to be applied at point of sale or reflected

in the price posted on Plan Finder. We

believe it would be appropriate to treat

this particular sort of price increase

differently than price decreases because

including such amounts in the

negotiated price (incentive fee

component) at point of sale could

disguise the relative competitiveness of

the underlying pharmacy prices.

Incentive fees also primarily benefit the

plan sponsor who benefits from the

lower costs associated with the

incentivized behavior, rather than the

beneficiary. Therefore, in this case, we

agree that it would be more appropriate

for such incentive payments to be

excluded from the negotiated price, and

reported later in reconciliation as

negative DIR. When reported as negative

DIR, these amounts disproportionately

affect (increase) the amounts the

sponsor is liable for in risk sharing,

which is appropriate given the intent of

the incentives to promote least-cost drug

product selection at point of sale. Least-

cost drug product selection will directly

reduce the sponsor’s allowable risk

corridor costs, so any incentive paid to

encourage this behavior would be

expected to be more than offset by the

ingredient costs savings achieved

through avoidance of higher-cost drug

selection. This is so because, as we

learned from numerous commenters to

the 2014 draft Call Letter, the incentive

payments are generally in the range of

a dollar or two and the difference

between preferred and non-preferred

drug products is generally much greater.

Therefore, we proposed to revise the

definition of negotiated prices at

§ 423.100 to require that all price

concessions from pharmacies are

reflected in these prices. Specifically we

proposed to redefine negotiated prices

to mean prices for covered Part D drugs

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that: (1) The Part D sponsor (or other

intermediary contracting organization)

and the network dispensing pharmacy

or other network dispensing provider

have negotiated as the amount such

network entity will receive, in total, for

a particular drug; and (2) are inclusive

of all price concessions and any other

fees charged to network pharmacies;

and (3) include any dispensing fees; but

(4) exclude additional contingent

amounts, such as incentive fees, only if

these amounts increase prices and

cannot be predicted in advance; and (5)

may not be rebated back to the Part D

sponsor (or other intermediary

contracting organization) in whole or in

part.

We received the following comments

on our proposed revisions and our

responses follow.

Comment: We received a significant

number of comments in support of this

provision based on the improved

transparency of pharmacy price

concessions. One commenter stated the

belief that PDPs and their contracted

PBMs are circumventing the Medicare

Modernization Act by hiding pharmacy

charge backs as overall administrative

surcharges. These commenters stated

that amounts charged to pharmacies in

the form of ‘‘administrative fees,’’

‘‘network access fees’’ or rebates of

dispensing fees appeared to be vehicles

for price concessions. Another

commenter believed that the proposed

provision would alleviate the

complexity of tracking actual drug

reimbursement and help ensure that

reimbursement structures are not

actually increasing Medicare costs.

Several commenters stated that

inclusion of accurate costs in the Plan

Finder tool would be of benefit to

consumers, and added that drug prices

must be accurate and transparent to

help seniors compare plan costs.

We also received some comments in

opposition to the proposed provision.

These commenters stated that some

price concessions that benefit the Part D

program do not lend themselves to

inclusion in negotiated prices. A few

commenters stated that savings from

lower point-of-sale prices would be

reflected in higher enrollee premiums

and increased premium subsidies. Other

commenters stated that payments

received from pharmacies to PBMs were

for services provided and should not be

considered price concessions. One

commenter stated that just because

pharmacies pay for and benefit from

services from PBMs does not necessarily

make the fees price concessions. A few

commenters opposed the provision on

the grounds that it would place new

limitations on the terms sponsors will

be able to negotiate with network

pharmacies and stated that CMS is

limiting the tools available to sponsors

to offer varied incentive-based

agreements such as providing additional

compensation for increased dispensing

of generic medicines or superior

customer service. Other commenters

thought that Part D sponsors and PBMs

should be able to retain the flexibility to

determine which concessions to pass

through to beneficiaries through drug

prices or lower premiums. To bolster

this argument one commenter quoted

from our 2009 rule in which we stated

that the statute says prices will ‘‘take

into account’’ price concessions not

include them all, and that a ‘‘plain

reading of this demonstrates the

Congress’ intent to be permissive of Part

D sponsors to choose how much of their

negotiated price concessions to pass

through to Part D beneficiaries at the

point of sale’’.

One of the commenters who opposed

the provision suggested that, as an

alternative, CMS use its existing

authority to require plans to disclose

both in the bid pricing tool (BPT) and

through DIR, specific line-item reporting

of performance-based DIR received from

network pharmacies. Several

commenters urged CMS to use its

existing DIR reporting authority to

capture price concessions attributable to

risk-based performance measures,

which often require retrospective

performance review and therefore

cannot be captured in negotiated prices.

The commenters argued that the DIR

process must be used to allow sponsors

to maintain innovative payment

arrangements that yield efficient and

quality pharmacy networks. One of

these commenters voiced support for ‘‘a

competitive and level playing field for

all sponsors’’ and urged CMS to create

clear and comprehensive regulatory

guidance with respect to pharmacy

price concessions.

Response: We appreciate the detailed

comments we received in response to

our proposal. We continue to believe it

is critical that negotiated prices reported

on PDEs have a consistent meaning

across the Part D program in order to

preserve a level playing field in bidding

and cost reporting. As we stated in the

proposed rule, we intended clause 2 of

the existing definition of negotiated

price to primarily refer to price

concessions from parties other than

pharmacies, since these would be price

concessions that were not based on the

sale of the drug by the pharmacy and

calculated when the claim adjudicated

and, in fact, could not be calculated

until a later date. Our proposal to

require all pharmacy price concessions

be included in the negotiated price

would ensure that negotiated prices

have a consistent meaning, provide for

increased transparency in cost reporting

to CMS, and allow for meaningful price

comparisons between Part D sponsors.

While we recognize that some

pharmacy price concessions are

contingent upon risk or incentive based

arrangements, we provided an

illustration of how such price

concessions could adjust future

negotiated prices, rather than adjusting

the current quarter’s prices downward

through DIR reporting. Consequently,

we did not believe that our proposal

would limit Part D sponsors’ ability to

enter into such contracting relationships

with their network pharmacies. We did

not propose placing additional

restrictions around such arrangements,

only that their resulting costs must be

transparent to all concerned.

Nevertheless, we are persuaded by the

comments that there may be some price

concessions from pharmacies that are

based upon contingencies that cannot be

known at the point-of-sale and that

these price concessions should be

distinguished from all other pharmacy

price concessions and continue to be

reported as direct or indirect

remuneration. This would be also be

consistent with the commenter who

pointed out the statutory language that

negotiated prices will ‘‘take into

account’’ price concessions. While we

had proposed including all price

concessions from pharmacies in the

negotiated price to provide maximum

price transparency, we believe that there

is room for further discussion with

industry to determine whether there are

specific types of arrangements that do

not lend themselves to accurate

inclusion in the negotiated prices. As

long as all types of price concessions are

consistently ‘‘taken into account’’ in the

same way by each sponsor in preparing

bids and reporting costs, bids and point-

of-sale negotiated prices can remain

comparable. Therefore, in response to

comments we are revising our proposed

definition of negotiated price to allow a

narrow exception to the requirement

that all pharmacy price concession be

included in the negotiated price for

those contingent pharmacy price

concessions that cannot reasonably be

determined at the point-of-sale. We

intend to identify in our DIR reporting

guidance which types of price

concessions from pharmacies would

meet the standard for this exception,

and we intend to consult with industry

in developing our guidance in this area.

Any contingent pharmacy price

concessions or incentive payments that

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can be determined at the point-of-sale

must be included in negotiated prices.

We agree with the commenter who

pointed out that not all fees that

pharmacies pay to PBMs are price

concessions. But as discussed in the

NPRM, when such fees take the form of

deductions from payments to

pharmacies for Part D drugs dispensed,

such costs are price concessions and

must be treated as such in Part D cost

reporting. This is the case regardless of

whether the deductions are calculated

on a per-claim basis or not. Standard

treatment of all price concessions will

bring improved transparency to

pharmacy payments. We disagree that

this change is inconsistent with the

MMA because the MMA established

Medicare Part D as a voluntary, private-

market-based program what would rely

on private plans to provide coverage

and to bear some of the financial risk for

drug costs. These private plans would

determine premiums through a bid

process and would compete with other

plans based on premiums and

negotiated prices. While Part D sponsors

may lose some flexibility in deciding

how much of the price concessions

should be applied to beneficiaries at the

point of sale or through reduced

premium, consistency in how specific

types of price concessions are ‘‘taken

into account’’ in negotiated prices is

necessary in order to preserve reliance

on market competition between plans,

which is a cornerstone of the Medicare

Part D program.

Comment: A few commenters

questioned CMS’ authority to

implement the proposed change and

some asserted that the non-interference

provision prohibits CMS from defining

negotiated prices.

Response: We disagree with these

comments. We have the authority to

interpret the provisions of section

1860D–2(d)(1)(B) and believe our

interpretation is appropriate. We also

have a history of regulating on cost and

price concession reporting. We

established detailed guidance for

accurate and consistent cost and price

concession reporting through both PDE

and DIR guidance and other payment

reconciliation rules, and have twice

before regulated the definition of

negotiated price and how it is to be

treated in Part D benefit administration

and in payment reconciliation. In the

original Part D rule, negotiated prices

were mainly defined as ‘‘prices for

covered Part D drugs that were available

to beneficiaries at the point of sale at

network pharmacies’’. This definition

permitted sponsors or their

intermediaries to include PBM spread in

the price. Therefore, on January 12,

2009 we published in the Federal

entitled, ’’ Medicare Advantage and

Prescription Drug Benefit Programs:

Negotiated Pricing and Remaining

Revisions’’ (74 FR 4131), to clarify that

negotiated prices must be the amounts

actually received by the pharmacy for

the drug. We are now once again

revising the definition.

Comment: Several commenters

addressed the effective date of the

proposed rule. Commenters advocated

for a prospective implementation only,

or expressed the hope that the rule

could be delayed until 2016. They

stated that time was needed to allow

collaboration with the industry, enable

CMS to capture the changes in detailed

guidance, and give Part D sponsors time

to revise their pharmacy network

contracts.

Response: In response to these

comments we are postponing

implementation of this provision until

the 2016 contract year and will use this

time to work with the industry to

develop guidance on when the

exception previously described applies.

After considering comments received,

we are finalizing the provision as

proposed with modification to require

that negotiated prices be inclusive of all

price concessions from network

pharmacies except contingent price

concessions that cannot reasonably be

determined at the point-of-sale. We also

modified the language in paragraph (4)

by clarifying that additional contingent

amounts, such as incentive fees, that

increase prices are always excluded

from the negotiated price by removing

the word ‘‘may,’’ and we also replaced

‘‘cannot be predicted in advance’’ with

‘‘cannot reasonably be determined at the

point-of-sale’’ to parallel paragraph (2).

Finally, we have modified the effective

date of this provision to 2016 to avoid

disruption of the existing regulation

which will be applicable for the rest of

2014 and 2015.

17. Preferred Cost Sharing (§§ 423.100

and 423.120)

In our original rule implementing the

Part D Program, we codified an

interpretation of section 1860D–

4(b)(1)(B) of the Act at § 423.120(a)(9)

that permitted Part D sponsors to offer

lower cost sharing at a subset of network

pharmacies, dubbed ‘‘preferred

pharmacies,’’ than at other in-network

pharmacies. This lower cost sharing was

subject to certain conditions that

seemed straightforward to us at the

time, but which have proven to need

clarification. We have recently

discussed this concern in the

Announcement of Calendar Year (CY)

2014 Medicare Advantage Capitation

Rates and Medicare Advantage and Part

D Payment Policies and Final Call Letter

(2014 Call Letter) on pages 175 and 176

[at http://www.cms.gov/Medicare/

Health-Plans/

MedicareAdvtgSpecRateStats/

Downloads/Announcement2014.pdf].

Section 1860D–4(b)(1)(B) of the Act

contemplates the possibility of sponsors

offering lower cost sharing at some

network pharmacies than is offered in

conjunction with the any willing

pharmacy terms and conditions

mandated in the immediately preceding

paragraph (A). However, a plan’s ability

to reduce cost sharing is contingent

upon one condition: ‘‘In no case shall

such a reduction result in an increase in

payments made by the Secretary under

section 1860D–15 of the Act to a plan.’’

In our original proposed rule entitled

‘‘Medicare Program; Medicare

Prescription Drug Benefit; Proposed

Rule,’’ published on August 3, 2004 in

the Federal Register, 69 FR 46658

through 46659, we did not offer an

interpretation of this language but

implied that any assessment of whether

the condition was met would be a

matter of actuarial equivalence analysis.

We proposed to codify the requirements

in regulation with the following two

conditions: ‘‘. . . the plan must still

meet the requirements under

§ 423.104(e)(2) and (5); and [a]ny cost

sharing reduction must not increase

CMS payments under § 423.329.’’ In the

final regulation entitled ‘‘Medicare

Program; Medicare Prescription Drug

Benefit; Final Rule’’, published on

January 28, 2005 in the Federal

reiterated the language from the

aforementioned proposed rule (69 FR

46658). ‘‘However, we note that while

these within-network distinctions are

allowed, the statute also requires that

such tiered cost-sharing arrangements in

no way increase our payments to Part D

sponsors. Therefore, tiered cost-sharing

arrangements based on within-network

distinctions could be included in Part D

plans’ benefits subject to the same

actuarial tests that apply to formulary-

based tiered cost-sharing structures.

Thus, a reduction in cost sharing for

preferred pharmacies in a Part D plan

network could be offered through higher

cost sharing for non-preferred

pharmacies (or as alternative

prescription drug coverage).’’ (70 FR

4254, January 28, 2005.) This statement

was immediately followed by an

expression of our intent to ensure that

such network benefit designs were non-

discriminatory: ‘‘We recognize the

possibility that Part D plans could

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effectively limit access in portions of

their service areas by using the

flexibility provided in § 423.120(a)(9) of

our final rule to create a within-network

subset of preferred pharmacies. In other

words, in designing its network, a Part

D plan could establish a differential

between cost-sharing at preferred versus

non-preferred pharmacies—while still

meeting the access standards in

§ 423.120(a)(1) of our final rule—that is

so significant as to discourage enrollees

in certain areas (rural areas or inner

cities, for example) from enrolling in

that Part D plan. We emphasize that

such a network design has the potential

to substantially discourage enrollment

by certain Part D enrollees, and that we

have the authority under section

1860D–11(e)(2)(D) of the Act to disallow

benefit designs that are discriminatory.’’

However, what we failed to

sufficiently explain in 2005 was that if

cost sharing cannot rise beyond a

certain level, then in return for lower

cost sharing, preferred networks must

reduce drug costs paid by the plan in

order to prevent an increase in CMS

payments to the plan. In part this

omission may have been because we

presumed that Part D sponsors would

motivate enrollees to go to a subset of

pharmacies through lower cost sharing

only if those pharmacies offered

significantly lower negotiated prices,

and thus would provide a competitive

advantage for the sponsor in lowering

costs. As the concerns expressed in the

2014 Call Letter indicate, this does not

seem to have been the case for some

sponsors. However, if drug costs

(negotiated prices) are not lower in

return for lower cost sharing, and the

lower cost sharing cannot be completely

offset by higher cost sharing on other

beneficiaries due to our cost-sharing-

outlier limits, then the amount that

must be subsidized by the government

and the taxpayer will increase.

Therefore, we proposed to clarify that

preferred cost sharing should signal

consistently lower costs. When lower

cost sharing correctly signals the best

prices on drugs, then choosing

pharmacies on the basis of that lower

cost sharing lowers not only beneficiary

out-of-pocket costs, but also Part D plan

and other government subsidy costs.

Lower plan and government subsidies

translate into lower CMS payments to

plans, consistent with the statutory

requirements at section 1860D–

4(b)(1)(B) of the Act. Therefore, we

proposed to revise § 423.120(a)(9) to

state: ‘‘Preferred cost-sharing in network

pharmacies. A Part D sponsor offering a

Part D plan that provides coverage other

than defined standard coverage may

reduce copayments or coinsurance for

covered Part D drugs obtained through

a subset of network pharmacies, as long

as such preferred cost sharing is offered

in accordance with the requirements of

§ 423.120(a)(8) and for Part D drugs with

consistently lower negotiated prices

than the same drugs when obtained in

the rest of the pharmacy network.’’ We

proposed that by ‘consistently lower’ we

mean that sponsors must offer

beneficiaries and the Part D program

better (lower) negotiated prices on all

drugs in return for the lower cost

sharing. In practice we believe this

would mean that whatever pricing

standard is used to reimburse drugs

purchased from network pharmacies in

general, a lower pricing standard must

be applied to drugs offered at the

preferred level of cost sharing. We

welcomed comments on alternative

approaches to ensuring that the offering

of preferred cost sharing does not

increase our payments. We proposed

that any alternative methodology must

be based solely on the level of

negotiated prices and thus consistent

with our proposal to amend that

definition (section III.A.15. of this final

rule). As discussed in that section, we

proposed to revise the definition to

specify that all price concessions from

pharmacies must be reflected in the

negotiated price in order to promote

transparent price competition, as well as

to eliminate differential cost reporting

and cost shifting that interfere with a

fair and transparent competitive bidding

process. We requested that any

alternative methodology suggestions be

accompanied by specific proposals for

how we could objectively validate

compliance through data we already

collect.

In addition, we solicited comments on

whether we should also establish

standards on how much lower drug

costs should be in return for preferred

cost sharing. We are aware that there is

a wide range of savings projections

associated with the use of limited

networks. For instance, a January 2013

study prepared for the Pharmaceutical

Care Management Association (PCMA)

provides various estimates ranging from

5 percent to 18 percent [at http://

www.pcmanet.org/images/stories/

uploads/2013/visante-

pcma%20pharmacy%20networks

%20study%201-24-13%20final.pdf]. We

solicited comment on whether Medicare

should require a minimum level of

savings, such as 10 percent or 15

percent, over the costs available at retail

cost-sharing rates. We believe that

substantial discounts in this range

would be necessary to balance the

extremely low preferred cost sharing

rates offered by many sponsors in 2013.

We also solicited comments on how

broadly preferred cost sharing should be

applied to drugs on a sponsor’s

formulary. For instance, is it reasonable

to offer cost sharing as low as $0 for

only the least expensive generics on

formulary? Or should preferred cost

sharing have to apply to a minimum

percentage of formulary products to be

a meaningful benefit instead? Or should

preferred cost sharing have to apply to

all drugs available at pharmacies

offering preferred cost sharing? This

would require that the prices of all

drugs at those pharmacies could be no

higher than the prices at the other

network pharmacies. Such a policy

would prevent sponsors from offering

lower prices on drugs with preferred

cost sharing while offering higher prices

on other drugs not subject to preferred

cost sharing. Our concern is that

without such rules, it is possible that

the beneficiary is motivated to change

pharmacies in order to pay very low

copays on some drugs, but the program

may end up paying higher costs on

other drugs the beneficiary purchases at

the same pharmacy out of convenience.

We also proposed a clarification in

terminology to better describe the

application of the policy to a sponsor’s

approved Part D pharmacy network.

Specifically, we proposed to delete the

definitions of ‘‘preferred pharmacy’’ and

‘‘non-preferred pharmacy’’ from

§ 423.100 and to add a new definition of

preferred cost sharing. ‘‘Preferred cost

sharing’’ would mean lower cost sharing

for certain covered Part D drugs at

certain network pharmacies offered in

accordance with the requirements of

§ 423.120(a)(9). We would then require

that Part D sponsors would revise any

marketing materials to reflect the

revised nomenclature, and eliminate

any references to preferred or non-

preferred network pharmacies. We

solicited comment on whether any

further clarifications of terminology are

needed for this policy proposal.

We received the following comments

and our responses follow:

Comment: Many commenters strongly

supported our proposal to require

consistently lower negotiated prices at

pharmacies offering preferred cost

sharing. These commenters found it

troubling that some Part D plans’

negotiated prices were not lower for

some drugs at pharmacies offering

preferred cost sharing and stated that

the alignment of preferred cost sharing

with lower negotiated prices is

necessary to ensure that arrangements

with pharmacies to offer preferred cost

sharing do not cost the government

more and provide savings for

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beneficiaries. The commenters assert

that the current framework is not

transparent and allows PBMs to

maximize profits by moving as much

volume as possible to their mail order

pharmacies with little, if any, savings

for the beneficiary, and even the

possibility that the beneficiary could

pay more than they would at a

pharmacy without preferred cost

sharing.

However, other commenters strongly

opposed our proposal to require

consistently lower negotiated prices at

pharmacies offering preferred cost

sharing. While no commenters dispute

that benefit designs that provide

preferred cost sharing at some network

pharmacies must not increase payment

to Part D plans, many dispute our

proposal to make this determination

based entirely upon negotiated prices.

They assert that the reference in the

statute to ‘‘an increase in payments’’

does not refer solely to negotiated prices

but must also take into consideration

the direct subsidy, reinsurance

subsidies, end of year reconciliation,

and beneficiary premiums. Several

commenters said that we do not have

the authority to implement this proposal

because it violates the section 1860D–

11(i) statutory non-interference

provision that prohibits CMS from

instituting a price structure for the

reimbursement of Part D drugs. One

commenter said that while they share

our objectives for preferred cost sharing

arrangements to lower costs for the Part

D program and beneficiaries, they

believe these arrangements can be

beneficial if the price concessions are

reflected in prices at the pharmacies

and/or used to lower premiums.

Commenters also stated that requiring

lower negotiated prices for every drug

will restrict the flexibility that Part D

sponsors need to negotiate discounts

with pharmacies, which will lead to

increased prices and beneficiary

disruption. Moreover, commenters

argue that savings from preferred cost

sharing cannot be determined at the

individual drug level because that does

not account for different drug mixes at

different pharmacies that could better be

determined by actuarially sound

aggregate methods of comparison. One

commenter recommended that we

implement a ‘‘fixed basket of drugs’’

approach similar to our Out-of-Pocket

(OOPC) tools used for determining

meaningful differences between basic

and enhanced plans. A number of

commenters also contend that such a

consistently-lower-price requirement is

unworkable because their contracts

frequently have a ‘‘lesser of’’ provision

to ensure they only pay the pharmacies’

usual & customary prices when such

prices are lower than the negotiated rate

and they would have no way to ensure

that pharmacy usual & customary prices

are never lower at pharmacies that do

not offer preferred cost sharing. Finally,

most commenters opposed CMS

establishing standards on how much

lower drug costs should be in return for

preferred cost sharing.

Response: We appreciate the

significant support we received for the

proposal and continue to believe that

the proposal would provide a

transparent mechanism for ensuring

compliance with the statutory

requirement that prohibits benefit

designs with preferred cost sharing at

certain network pharmacies from

increasing payments to plans. While we

agree that basing increased payments to

plans entirely on negotiated prices is

not the only possible interpretation of

the statutory requirement, we believe it

is a reasonable interpretation that would

allow us to uniformly apply the

statutory requirement while also

providing price transparency to

beneficiaries and maximizing price

competition.

Nevertheless, we premised this

proposal on our related proposal to

change the definition of ‘‘Part D

Negotiated Price’’ to include all

pharmacy price concessions. If we are

going to use negotiated prices as the sole

basis for determining increased

payments to plans for purposes of

section1860D–4(b)(1)(B) of the Act, then

all pharmacy price concessions must be

in the negotiated price because the price

would need to have the same meaning

at every network pharmacy.

Consequently, because we are finalizing

a different definition of negotiated price

than originally proposed, one that will

allow for the exclusion of some

pharmacy price concessions from the

negotiated price, we will not be

finalizing our proposal to require

consistently lower negotiated prices at

pharmacies offering preferred cost

sharing. Clearly if some price

concessions are not reflected in the

negotiated price, a higher negotiated

price may not result in increased

payments to plans. We also are not

finalizing an alternative requirement at

this time, in light of the comments that

suggested different approaches because

we intend to consider them further as

we determine how best to ensure, in a

transparent manner, that preferred cost

sharing does not increase payments to

plans. While we are not finalizing the

proposal, we disagree with the

commenter who stated that CMS does

not have the authority to implement

such a requirement because it is

consistent with our obligation to

implement and enforce many statutory

requirements under the Part D program

that directly or indirectly affect

negotiations between pharmacies and

Part D sponsors, in particular section

1860D–4(b)(1)(B) of the Act, and

including several other closely related

statutory provisions contained in

section 1860D–4(b)(1) of the Act. For

example, we have previously

established retail and non-retail

pharmacy network adequacy

requirements under this authority to

ensure convenient pharmacy access as

required under section 1860D–4(b)(1)(C)

of the Act.

Comment: Some commenters asserted

that our April 2013 study (‘‘Negotiated

Pricing between Preferred and Non-

Preferred Pharmacy Networks’’, posted

at: http://www.cms.gov/Medicare/

Prescription-Drug-Coverage/

PrescriptionDrugCovGenIn/.

Downloads/PharmacyNetwork.pdf)

that we cited as showing some

negotiated prices for drugs were higher

at pharmacies offering preferred cost

sharing than the rest of the network was

flawed. Therefore, they contend that our

rationale for the proposal was flawed.

They point out that this study only

looked at prescription drug event (PDE)

data and did not take into consideration

any direct or indirect remuneration.

They claim that even if you accept the

results of this study as stated, it shows

only that drug prices were ‘‘slightly

higher’’ and only in ‘‘a few’’ preferred

networks in ‘‘some plans’’. In addition,

commenters raised methodological

concerns because the CMS study was

not normalized for different drug mix

and utilization between plans, which

they said will bias the results and lead

to incorrect conclusions that will

contribute to higher costs for

beneficiaries and the Part D program.

Response: We appreciate the detailed

comments regarding the validity of our

study and the conclusions that we drew.

However, we disagree with the assertion

that our study was flawed and believe

some commenters misinterpreted our

findings. Specifically, despite the

comments, we did not conclude that our

findings showed that some pharmacies

with preferred cost sharing were more

expensive than some other pharmacies

that were not offering preferred cost

sharing. We acknowledge that this study

did not take into consideration price

concessions reported as DIR or

differences in drug mix, and therefore

agree that one cannot make that

conclusion given the current definition

of negotiated price and variability

among plans on what is included in the

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price. Nevertheless, we believe the

findings of some higher negotiated

prices at some pharmacies offering

preferred cost sharing demonstrates that

we cannot assume point-of-sale

negotiated prices are always lower at

pharmacies offering preferred cost

sharing and, therefore cannot assume

that benefit designs with some

pharmacies offering preferred cost

sharing never increase payments to

plans. Instead, we believe our study

highlighted this vulnerability and the

need for us to propose a transparent and

consistent method for ensuring these

benefit designs do not increase

payments to plans.

Comment: Some commenters strongly

supported our proposal to remove the

definitions of preferred and non-

preferred pharmacies and replace them

with a definition of preferred cost

sharing. These commenters agreed that

the term ‘‘preferred pharmacy’’ is

confusing for beneficiaries who

sometimes interpret this to mean non-

preferred pharmacies are out-of-

network. Other commenters opposed

the proposal because they believe the

change in terminology will be confusing

for beneficiaries. They note that under

the current framework plans may

already refer to non-preferred

pharmacies as ‘‘other network

pharmacies’’ and, therefore, there is no

need for this change. Moreover, some

commenters opposed removing the term

‘‘preferred pharmacy’’ because they

believe it refers not only to lower cost

sharing but also quality of services.

Another commenter who was

supportive of the proposed change also

raised concerns about beneficiary

confusion from the change in

terminology and urged CMS to consider

education and outreach efforts to help

beneficiary understand the new

terminology and add related language to

Medicare & You.

Response: We appreciate the

comments we received on this proposal.

We agree with supporters that this

change will help avoid confusion

regarding pharmacy network status and

more accurately reflect what is meant by

preferred. While any change has the

potential to initially create some

confusion, we disagree that

substantively this change will be more

confusing to beneficiaries going

forward. In addition, we are perplexed

by the comments that said their

identification of preferred pharmacies

also takes into consideration the quality

of pharmacy services because that was

never part of the regulatory definition.

Nevertheless, we are not finalizing this

proposal because it is so closely tied to

the other preferred cost sharing proposal

to revise § 423.120(a)(9) that is not being

finalized as a result of changes to the

definition of negotiated price in this

final rule (as described in section

III.A.25 of this final rule).

After considering of the public

comments received, we are not

finalizing the proposed changes to

§§ 423.120(a)(9) and 423.100. We will

undertake notice and comment

rulemaking if we are going to make

changes to these provisions in the

future.

18. Prescription Drug Pricing Standards

and Maximum Allowable Cost

(§ 423.505(b)(21)

We proposed a change to the

regulations governing the disclosure and

updating of prescription drug pricing

standards used by Part D sponsors to

reimburse network pharmacies to make

clear that drug pricing based on

maximum allowable cost is subject to

these regulations. Section 173 of MIPPA

amended sections 1860D–12(b) and

1857(f)(3) of the Act to add a provision

requiring the regular updating of

prescription drug pricing standards.

Specifically, for plan years beginning on

or after January 1, 2009, CMS’s contracts

with Part D sponsors must include a

provision requiring sponsors to update

any standard they use to reimburse

network pharmacies based on the cost of

the drug to accurately reflect the market

price of acquiring the drug. These

updates must occur not less frequently

than once every 7 days, beginning with

an initial update on January 1 of each

year.

We codified this requirement in

§ 423.505(b)(21). We also amended

§ 423.505(i)(3) with respect to contracts

or written arrangements between Part D

sponsors and pharmacies or other

providers, first tier, downstream and

related entities. Specifically,

§ 423.505(i)(3)(viii)(A) requires that

sponsors’ pharmacy contracts include a

provision establishing regular updates

of any prescription drug pricing

standard used by the Part D sponsor,

consistent with § 423.505(b)(21), and

§ 423.505(i)(3)(viii)(B) requires that a

Part D sponsor’s pharmacy contract

indicate the source used by the Part D

sponsor for making any such pricing

updates. We finalized these regulations

in a final rule entitled, ‘‘Medicare

Program; Medicare Advantage Program

and Prescription Drug Benefit

Programs’’ at 76 FR 54600 (September 1,

2011) (‘‘September 2011 final rule’’).

We stated in the preamble to the

September 2011 final rule that a

‘‘prescription drug pricing standard’’ is

an accepted methodology based on

published drug pricing. In the preamble

to the proposed rule, we explained that

this was because we were unaware at

the time that there is at least one

standard based, at least in part, on costs

of the drugs that is not based strictly on

published drug pricing, which is

maximum allowable cost prices. Now

that we have become aware of these

types of pricing standards, we wish to

amend our regulatory requirement. We

believe that the updating requirement

should apply to pricing standards based

on the cost of a drug, even when the

standard is not based on published drug

pricing, an approach consistent with the

intent of the statute. The text of section

173 of MIPPA indicates the provision’s

purpose—Part D sponsors must update

their prescription drug pricing

standards regularly ‘‘to accurately

reflect the market price of acquiring the

drug.’’ We believe that this statement of

purpose indicates that the Congress

intended to provide pharmacies with a

means of ensuring that they have

current data on the amount of

reimbursement that they can expect,

including in cases when the

reimbursement is based upon maximum

allowable cost prices.

When the source of a prescription

drug pricing standard is published

publicly, such as with AWP or WAC,

pharmacies can determine their

reimbursement for all drugs at any given

time and can monitor these sources to

ensure they are being reimbursed

correctly. However, when a prescription

drug pricing standard is not published

publicly, network pharmacies are

unable to promptly determine whether

their reimbursement is consistent with

their contractual arrangements. This, in

turn, presents risks to the Medicare Part

D program in a number of ways. For

example, disclosure of the source used

to determine drug prices is necessary for

pharmacies to ensure accurate payment

of their claims, which is necessary for

accuracy in the costs submitted to CMS

by Part D sponsors on PDEs without

unnecessary later adjustments that are

disruptive to the operation of the Part D

program.

In addition, when network

pharmacies are unable to determine

whether their reimbursement is

consistent with their contractual

arrangements, the accuracy of the prices

displayed in the Medicare Prescription

Drug Plan Finder (‘‘MPDPF’’) is

questionable. While these prices only

provide an estimate of Part D drugs

costs at particular pharmacies,

beneficiaries do use the MPDPF to make

drug purchasing choices. If a pharmacy

does not know what it will be paid for

drugs on any given day, it cannot test

the MPDPF and validate the prices.

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Thus, there is no assurance that the

posted prices are accurate, and

pharmacies are deprived of the

opportunity to compete based on more

accurate prices, and beneficiaries may

make choices based on erroneous

estimated drug costs. This is contrary to

the public policy goal of facilitating

competition in the health care system

and supporting consumers to be

informed purchasers of health care.

Also, when we compare posted prices to

prices submitted on PDEs to evaluate

the estimates provided in the MPDPF,

there can be no assurance that those

values correspond to the payments

pharmacies actually receive.

For this and other reasons detailed in

the preamble to the proposed regulation,

as well as in response to comments

received on the proposed regulation, we

are defining ‘‘prescription drug pricing

standard’’ in regulation. Specifically, in

§ 423.501 a ‘‘prescription drug pricing

standard’’ is now defined as ‘‘any

methodology or formula for varying the

pricing of a drug or drugs during the

term of a pharmacy reimbursement

contract that is based on the cost of a

drug, which includes, but is not limited

to, drug pricing references and amounts

that are based upon average wholesale

price, wholesale acquisition cost,

average manufacturer price, average

sales price, maximum allowable cost, or

other cost, whether publicly available or

not.’’ In addition, we are finalizing the

following technical changes to make the

regulations on prescription drug pricing

standards easier to reference: (1) To

combine the current requirements

contained in § 423.505(b)(21) (i) and (ii)

into (i) and eliminate the reference to

the effective contract year 2009 as no

longer necessary. These requirements

generally state that Part D sponsors

agree to update any prescription drug

pricing standard (as would be defined in

§ 423.501) on January 1 of each contract

year and not less frequently than once

every 7 days thereafter. Also, we are

moving the current requirement to

indicate the source used for making any

such updates to (b)(21)(ii) from

§ 423.505(i)(3)(viii)(B), so that it is

clearer by its placement in the

regulation that this requirement is on

Part D sponsors.

For new paragraph

§ 423.505(b)(21)(iii), we are finalizing a

new requirement and not a technical

change, that Part D sponsors agree in

their contracts with CMS to disclose all

individual drug prices to be updated to

the applicable pharmacies in advance of

their use for reimbursement of claims, if

the source for any prescription drug

pricing standard is not publicly

available. This means, in conjunction

with the proposed definition of a

‘‘prescription drug pricing standard’’

discussed previously, that Part D

sponsors have to convey to network

pharmacies the actual maximum

allowable cost prices to be changed in

advance. We are requiring that the

actual maximum allowable cost prices

be disclosed in advance because, if the

pharmacies are not able to use the

updates as a reference against which

they can check their reimbursements,

there would be no point to the statutory

requirement.

As a final technical change, we are

eliminating language in

§ 423.505(i)(3)(viii)(A) about

establishing regular updates of any

prescription drug pricing standard used

by the Part D sponsor, which is

duplicative to language in

423.505(b)(21). As a result of the

changes described previously, there

would be no paragraphs (A) and (B) of

§ 423.505(i)(3)(viii) (which we note will

be redesignated as § 423.505(i)(3)(vii)

due to other changes in this final rule),

and this provision simply requires that,

if applicable, each and every contract

governing Part D sponsors and first tier,

downstream, and related entities, must

contain provisions addressing the

prescription drug pricing standard

requirements of § 423.505(b)(21). We

believe these changes will make the

regulation text easier to reference and

understand.

Comment: We received a very

significant number of supportive

comments for our proposal. These

commenters asserted that maximum

allowable cost prices are a source of

deep and ongoing concern for

pharmacies. Specifically, these

commenters assert that PBMs update

maximum allowable cost prices of drugs

for which the drug costs are declining

in a timely manner, but do not do so

when the drug costs are increasing.

These commenters asserted in particular

that there were significant spikes in the

acquisition costs for certain generic

drugs in Fall 2013, but that PBMs did

not update their maximum allowable

cost prices accordingly. These

commenters also offered specific

examples of maximum allowable cost

prices of drugs that they asserted

resulted in reimbursement that was

below pharmacy acquisition costs for

the drugs, yet the drugs were not

available on the market at lower prices.

These commenters stated that

pharmacies were forced not to stock

certain drugs due to inadequate

reimbursement based on maximum

allowable cost prices of drugs,

sometimes creating access issues for

patients. These commenters further

stated that the pharmacies are even in

danger of going out of business

altogether due to the low maximum

allowable cost prices for drugs, and that

if pharmacies are forced to close their

doors for this reason, there would be

even greater health care access issues in

many communities.

The supportive comments stated that

greater transparency in maximum

allowable cost prices of drugs would not

only give pharmacies the ability to shop

for more cost-effective versions of

generic drugs, but would improve

pharmacies’ ability to evaluate Medicare

Part D plan contract proposals, plan

their business staffing levels and

potential capital investments, and

monitor claims reimbursements and

appeal when it appears that there has

been a reimbursement error.

Conversely, some other commenters

opposed our proposal. One commenter

asserted that our proposal was based

upon anecdotal complaints from

pharmacies. This commenter stated that

PBMs make their most utilized

maximum allowable cost list available

upon request to any pharmacy that asks

for it, and that pharmacies almost never

make such a request.

Response: We thank the commenters

for their supportive comments of our

proposal. Given the voluminous number

of supportive comments we received,

we disagree with the commenter that

stated that our proposal was based upon

anecdotal pharmacy complaints.

However, we were surprised to learn

that pharmacies do not routinely request

PBMs’ most utilized maximum

allowable cost lists, and wonder if

pharmacies do not realize that they are

available upon request. We agree with

the supportive commenters that greater

drug price transparency will further

increase competition in the drug market

which can lead to even lower drug

prices. Therefore, we encourage

pharmacies to make requests for the

most utilized maximum allowable cost

lists from the PBMs with which they do

business, and thank the commenter for

this suggestion.

Comment: Many commenters support

our proposal out of concern that the

uncertainties surrounding current

maximum allowable cost prices for

drugs fall more heavily on smaller rural

and community pharmacies and may

limit beneficiary access. Additionally,

these commenters expressed support for

greater drug price transparency for

Medicare beneficiaries.

Response: We thank the commenters

for their support of our proposal.

Comment: Some commenters opposed

our proposal, asserting that it would

increase costs by requiring a specific

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time period (which many commenters

interpreted to be 7 days advance notice)

for advance notice, as generic drug costs

generally decrease over time. It also

appeared that some commenters

asserted that requiring any advance

notice of maximum allowable cost

prices would increase costs, including

one who made a general assertion that

it would permit pharmacies and drug

manufacturers to ‘‘game the system’’ by

modifying the timing of their various

transactions in a manner that capitalizes

on the pricing changes. Other

commenters stated that the proposal

would interfere with a mechanism that

incentivizes pharmacies to purchase the

least expensive generic drug available.

Finally, some commenters opposed the

requirement, asserting that requiring

price updates at least every 7 days is

redundant of the frequent updates that

are inherent in a maximum allowable

cost pricing mechanism and only adds

administrative cost.

Conversely, many commenters

requested that PBMs be required to give

at least 7 days prior notice before a

maximum allowable cost price change.

One commenter opposed the proposal,

but recommended as an alternative that

maximum allowable cost prices be

updated every 7 business days, and not

necessarily beginning on January 1 of

each year. Another commenter opposed

the proposal, but recommended as an

alternative that the no-less-than-7 day

update requirement for maximum

allowable cost prices be extended to no

less than every 14 days.

Response: This requirement does not

specify any particular time period for

advance notice of maximum allowable

cost prices to network pharmacies. The

requirement is that maximum allowable

cost prices of drugs must be updated at

least every 7 days and disclosed in

advance of their use, if the source for

any prescription drug pricing standard

is not publicly available. Also, if generic

prices generally decrease over time,

updating maximum allowable cost

prices for drugs at least every 7 days

generally should have a downward

pressure on overall drug costs.

Therefore, we do not agree with the

commenters that the requirement will

necessarily increase costs. Also,

maximum allowable cost prices

currently must be disclosed at point-of-

sale (POS) in order for a drug claim to

process, so we do not believe that mere

advance notice changes the drug claims

processing system so significantly as to

permit gaming of the system,

particularly since the commenter that

raised this concern provided no detail to

back up its assertions about how any

such gaming would occur. Furthermore,

we do not understand the argument for

the status quo—that disclosing

maximum allowable cost prices only at

POS better incentivizes pharmacies to

purchase the least expensive generic

drugs compared to requiring some

advance notice of those prices to the

pharmacies. We think pharmacies will

still be incentivized to acquire a drug at

the lowest cost possible regardless of

whether disclosed maximum allowable

cost prices are declining or increasing.

We further were not persuaded by the

argument that the requirement is

redundant, as it seems to suggest that

the Part D sponsors/PBMs will

frequently update maximum allowable

cost prices anyway and disclose them at

POS, but requiring them to be updated

at least every 7 days and disclosed in

advance adds significant administrative

costs. In fact, we think just the

opposite—that negligible administrative

costs will be incurred by Part D

sponsors due to this requirement, since

they are using and updating maximum

allowable cost prices for reimbursement

of drug claims already and must make

minimal changes to that current system

to comply with this requirement. In

other words, so long as Part D sponsors

are updating maximum allowable cost

prices as frequently as commenters

asserted that the prices change and

using them for reimbursement, then the

new updating and disclosure

requirement changes nothing for that

sponsor, other than that the sponsor

must now disclose the maximum

allowable cost prices to its network

pharmacies in advance of their use

(rather than just at point-of-sale) in a

way that enables the pharmacy to

connect a claim to the correct drug price

at the appropriate point in time in order

to validate the price. However, we

acknowledge that to the extent the

assertions of some commenters are

true—that PBMs update maximum

allowable cost prices only when drug

prices are declining, but not when they

are increasing—then we would agree

that this requirement may also result in

more updating for PBMs.

In addition, we note that the

requirement to update prescription drug

pricing standards every 7 days

beginning on January 1 of each year is

a statutory one. We do not have the

authority to implement different update

timing requirements, nor to disregard

the January 1 start date every year.

Comment: Some commenters stated

that our proposal was operationally

infeasible, as there are different

maximum allowable cost lists for

different pharmacies, types of

pharmacies, types of programs

(commercial, Medicare D, TRICARE,

etc.) and over 100,000 drugs are subject

to maximum allowable cost prices,

(sometimes daily). Some other

commenters stated that sending network

pharmacies a stream of continuous

maximum allowable cost pricing

updates would be a nuisance and

distraction and not helpful to network

pharmacies. One commenter did not

object to our proposal, as long the

requirement can be met in a manner that

is efficient, such as on a look-up basis

through a secure internet site that

network pharmacies can access at any

time to obtain the most current

maximum allowable cost pricing for a

particular drug.

One commenter requested that we

require maximum allowable cost prices

to be disclosed via a certain consistent

format layout and delivery method and

include industry standard drug

identifiers, such as Generic Pricing

Indicators (GPI), and that the data

format allow for efficient data analysis

such as MS Excel, or a text document

that could be converted to Excel.

Response: We were not persuaded by

the commenters that stated our proposal

was operationally infeasible. It does not

make sense to us that Part D sponsors/

PBMs can manage the complexity in

pharmacy reimbursement described in

the comments, but cannot manage to

modify that existing system in order to

disclose the prices in advance of their

use to network pharmacies, and update

them at least every 7 days. Rather, we

were persuaded by the commenter that

described one option for meeting the

requirement—through a secure internet

site that allowed network pharmacies to

look up their drug prices. This option

would be compliant with the

prescription drug pricing standard

requirement, so long as the site or other

delivery method to convey maximum

allowable cost prices enables

pharmacies to connect a claim to the

correct drug price at the appropriate

point in time in order to validate the

price. We decline to require a certain

format layout and delivery method for

disclosure of maximum allowable cost

prices, but note these matters can be

addressed by the parties in their

negotiations.

Comment: Some commenters asserted

that requiring the disclosure of

maximum allowable cost methodology

would increase Part D program costs by

revealing competitive information.

Many other commenters requested that

we require PBMs to disclose the specific

NDCs used to compute maximum

allowable cost prices on drugs.

Response: Our proposal did not

require Part D sponsors/PBMs to

disclose their maximum allowable cost

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methodology, nor the proprietary data

source or basis used to develop

reimbursement rates. We note that

423.505(b)(21)(ii) will require a Part D

sponsor to indicate the source for

making updates to a prescription drug

pricing standard. In the case of publicly

available standards, the sponsor would

identify the standard. In the case of

maximum allowable cost pricing that is

not publicly available, the sponsor

would indicate that the standard is

maximum allowable cost pricing to

meet this particular requirement. We

also decline to require Part D sponsors

to disclose the specific NDCs used to

compute maximum allowable cost

prices. However, we note that these

matters can be addressed in contractual

negotiations.

Comment: Some commenters asserted

that maximum allowable cost prices are

not a prescription drug pricing standard,

and that CMS is exceeding its statutory

authority in making it one. One

commenter asserted that the Congress’

intent in enacting section 173 of MIPPA

was to ensure that pricing standards are

timely adjusted when market prices

fluctuate and not to ensure that

pharmacies have current data on

reimbursement amounts. This

commenter also stated that when a

payment methodology uses non-public

costs for setting prices, payment

amounts may have no direct

relationship to fluctuations in

acquisition costs. Many commenters

specifically supported the language

‘‘includes, but is not limited to’’ in the

proposed definition of prescription drug

pricing standard, stating that without

this language, PBMs will shift to a

different drug claim reimbursement

mechanism over time and assert that the

new mechanism is not subject to the

prescription drug pricing standard

regulation. Another commenter

helpfully pointed out that our proposed

definition of ‘‘prescription drug pricing

standard’’ mistakenly referred to

‘‘wholesale average cost’’ instead of

‘‘wholesale acquisition cost.’’

Response: We thank the commenters

for their supportive comments and note

that we are finalizing the definition of

‘‘prescription drug pricing standard’’ as

proposed, with the exception of

changing ‘‘wholesale average cost’’ to

‘‘wholesale acquisition cost.’’ We

disagree with the commenters that

maximum allowable cost prices are not

a prescription drug pricing standard,

and we disagree that we are exceeding

our authority in specifying in regulation

that maximum allowable cost prices,

like other prescription drug standards,

must be updated in accordance with the

statutory requirements. In our view, it is

clear that Congress believed that if a

standard is based on the cost of a drug

(whether directly or indirectly), it must

be updated to accurately reflect the

market price of acquiring the drug.

Since the statutory language of section

173 of MIPPA does not exclude

maximum allowable cost prices from

the term ‘‘prescription drug pricing

standard,’’ and maximum allowable cost

prices are based on the cost of the drug

and thus fluctuate and are updated, we

believe it is reasonable to interpret the

term, ‘‘prescription drug pricing

standard,’’ to include maximum

allowable cost prices. As such, they

must be treated as any other

prescription drug pricing standard

under the statutory and regulatory

requirements. In the case of published

prescription drug pricing standards, the

standards themselves provide

pharmacies with current data on

reimbursement amounts. In the case of

non-published ones, disclosing the

prices themselves in advance of their

use provides this data. We agree with

the commenter who asserted that

MIPPA section 173 is intended to

ensure that prices are adjusted timely,

but we disagree that it necessarily

follows that the Congress did not intend

to ensure that pharmacies had access to

current data on reimbursement

amounts. We believe that the

requirement for timely updating of

reimbursement standards must include

sufficient transparency so that

pharmacies can determine that the

updating requirement is being fulfilled.

The disclosure requirements we are

finalizing here are consistent with the

updating requirement, and are

appropriate to ensure sufficient

transparency.

Comment: Many commenters stated

that having current data on the amount

of reimbursement pharmacies can

expect in turn impacts costs that plan

sponsors submit to CMS, as well as

prices displayed on Medicare

Prescription Drug Plan Finder (MPDFP).

Other commenters asserted that the

MPDFP is updated every 2 weeks with

pricing that is effectively a month old,

and that the validity of estimated prices

on the MPDPF does not depend on the

ability of pharmacies to verify the prices

shown, and that this responsibility is on

Part D sponsors. One commenter stated

that our requirement would necessitate

more frequent updating of the MPDPF.

Response: We thank the commenters

for their supportive comments of our

similar assertions in the preamble to the

proposed rule. Our proposal does not

affect the current process for Part D

sponsors to submit drug price for the

MPDPF. Our point about the MPDPF in

the preamble to the proposed rule was

that this requirement will enable

pharmacies to validate maximum

allowable cost prices in the MPDPF.

While we agree with the commenters

that the MPDPF is not a real-time

information system, but rather reflects

drug prices at a point in time, we note

that these prices should be the correct

prices for that point in time. Currently,

however, pharmacies have no ready way

to validate the prices in the MPDPF that

are based on maximum allowable cost

prices if they choose to do so. Once

maximum allowable cost prices are

disclosed to pharmacies in a way that

enables pharmacies to connect a claim

to the correct drug price at the

appropriate point in time, they will be

able to validate prices in the MPDPF

and alert sponsors, or CMS, to any

issues.

Comment: A few commenters

requested a delay in the effective date

for implementation of this requirement

until January 1, 2016. This delay would

provide for more preparation time.

Response: We were persuaded by

comments to delay the effective date of

this proposal until 2016 to give Part D

sponsors time to consider the format

layout and delivery method for

conveying maximum allowable cost

prices to network pharmacies in a

manner that allows the pharmacies to

connect a claim to the correct drug price

at the appropriate point in time in an

efficient way.

Comment: Many commenters

requested that we include a definition

for which drugs can be included on a

maximum allowable cost list, and

requirements for an appeals process for

challenging maximum allowable cost

prices and for standards related to

pharmacy audits. One commenter stated

that it sends 200 requests per month to

PBMs to increase their maximum

allowable cost reimbursement rates to

be closer to pharmacy acquisition costs

and that very few are ever responded to,

and fewer still are ever adjusted.

Response: These comments are out of

scope of our proposal.

In light of all the comments received,

we are finalizing this proposal without

change, except for correcting the error in

the definition for prescription drug

pricing standard previously noted and

delaying the effective date until January

1, 2016.

19. Any Willing Pharmacy Standard

Terms & Conditions (§ 423.120(a)(8))

Section 1860D–4(b)(1)(A) of the Act

requires Part D plans to permit any

pharmacy meeting the plan’s Terms and

Conditions (T&C) to participate in the

plan’s network. We used this authority

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to establish requirements under

§ 423.120(a)(8) and 423.505(b)(18) that

plan sponsors have reasonable and

relevant T&C for network participation

in their standard contract, and allow

any pharmacy meeting the T&C to

participate as a network pharmacy for

that plan. Section 1860D–4(b)(1)(B) of

the Act permits sponsors to reduce cost

sharing ‘‘below the level otherwise

required,’’ notwithstanding paragraph

(A). Thus, the statute permits a

‘‘preferred’’ cost sharing level to be

offered at some network pharmacies.

Since the beginning of the program, we

have required sponsors to offer standard

T&Cs to any willing pharmacy in order

to achieve broad network access, but

have permitted sponsors to offer

different T&Cs in return for preferred

cost sharing to a smaller subset of its

network. We have previously stated that

we believed our interpretation of these

two seemingly conflicting statutory

provisions struck an appropriate

balance between the need for broad

pharmacy access and the need for Part

D plans to have appropriate contracting

tools to lower costs. In this section we

proposed that in place of sponsors

having one contract with standard terms

for any willing pharmacy and a second

preferred cost sharing contract for a

limited subset of pharmacies, that

sponsors instead have standard T&C for

network participation that list all

combinations of cost sharing and

negotiated prices possible for retail

settings under the plan, allowing any

willing pharmacy the opportunity to

offer preferred cost sharing if the

pharmacy can offer the requisite level of

negotiated prices.

When discussing cost sharing,

distinctions are made in this section

between plans offering a preferred cost

sharing level and plans that do not. For

the purposes of this section, the cost

sharing levels offered at retail

pharmacies not contracted to offer

preferred cost sharing are referred to as

standard cost sharing levels. Cost

sharing levels offered at retail

pharmacies at the preferred T&C are

referred to as preferred cost sharing

levels.

We have heard from many

pharmacies, many of them small

independent community pharmacies,

that plans do not offer any willing

pharmacy the opportunity to offer

preferred cost sharing. Instead, some

pharmacies are being offered only the

plan’s standard T&C, at the highest level

of beneficiary cost sharing. We received

more than 200 comments in response to

our discussion of this topic in the

Announcement of Calendar Year (CY)

2014 Medicare Advantage Capitation

Rates and Medicare Advantage and PDP

Payment Policies and Final Call Letter

(2014 Call Letter) pp. 175 and 176 at

http://www.cms.gov/Medicare/Health-

Plans/MedicareAdvtgSpecRateStats/

Downloads/Announcement2014.pdf.

Most of these comments were from

pharmacies concerned about barriers to

entry for participation in preferred

networks, and many of these argued that

such limited networks violate the

statutory intent of the network access

provisions at section 1860D–4(b)(1) of

the Act. In particular, these commenters

disagreed that such barriers were

consistent with the any willing

pharmacy requirement as stated in

1860D–4(b)(1)(A) of the Act.

Consequently, we reviewed our

original regulatory interpretation of

these provisions, not only in light of

these complaints, but also in light of our

experience in the Part D program. We

believe that an alternative reading of

sections 1860D–4(b)(1)(A) and (B) of the

Act to reduce barriers is not only

permissible, but also it would have the

following key policy benefits, which we

describe as follows:

• Increased access for beneficiaries to

preferred level cost sharing with any

willing pharmacy able to agree to the

T&C that include preferred cost sharing.

• Improved opportunity for

competition among pharmacies

contracting with the sponsor to charge

no more than the ceiling price stated in

the contract for preferred cost sharing,

reducing costs charged to the program.

• Improved clarity for beneficiaries

surrounding cost sharing levels

available at retail and mail order

pharmacies.

We have heard the assertion that

limited networks achieve greater savings

than broader networks, and that

moreover, allowing more participants

into a limited network than those hand-

picked by the sponsor will necessarily

lead to increased prices. However, we

have been running a natural experiment

of sorts relative to this assertion in the

Part D program. If limited networks per

se led to significantly lower costs, we

would see consistently significant

savings in those network segments

relative to the rest of the sponsors’

networks. However, an April 2013

analysis by CMS, ‘‘Negotiated Pricing

Between Preferred and Non-Preferred

Pharmacy Networks’’, reviewed actual

program experience and indicated that

this is not the case across the board (see

http://www.cms.gov/Medicare/

Prescription-Drug-Coverage/

PrescriptionDrugCovGenIn/Downloads/

PharmacyNetwork.pdf). As the 2012

claims show, there is wide variation in

discounting across sponsors. Consistent

savings are not seen uniformly. In some

cases, pharmacies extending high

discounts are ones that have been

excluded from limited networks offering

preferred cost sharing, while some

pharmacies within the limited networks

offer effectively no discounts compared

to the rest of the network.

We have also heard the argument that

the pharmacies in currently limited

networks are offering deeper discounts

solely in return for increased market

share and that they will withdraw such

offers if the limited network is opened

up to other pharmacies that can meet

those T&C. We are skeptical that such

participants in the highly competitive

retail market will abandon their market

share by returning to the broader

network T&C. As some network

pharmacies offering standard cost

sharing have been able to extend

discounts in pricing even deeper than

what is seen in some pharmacies

offering preferred cost sharing, it is not

obvious that negotiated prices would

necessarily increase in the aggregate in

the event that a limited number of

pharmacies consider changing from

preferred to standard cost sharing. We

have also been informally told by one

sponsor with preferred cost sharing in a

limited network that its preferred cost-

sharing T&C already are offered to any

willing pharmacy. For these reasons, we

do not believe that our proposal would

result in increased prices.

We also believe that there is a limit to

the number of cost sharing levels offered

under a benefit plan that can be well

understood by beneficiaries. When

establishing its network, a Part D

sponsor does not offer identical T&C for

network participation to every

pharmacy. Certain terms will

necessarily differ among contracts with

the different types of pharmacies

needed to provide all Part D drugs, if for

no other reason than to address the

different access and service standards

established by CMS. These various

types include at a minimum: Retail,

mail-order, long-term care institutional,

limited-distribution-drug specialty, and

home infusion therapy pharmacies.

Terms will also differ with respect to

negotiated prices and the level of cost

sharing that a pharmacy’s claims will be

subject to. For instance, long-term care

institutional, specialty, and infusion

pharmacies are generally offered at the

standard level of cost sharing (for the

applicable formulary tier) for a month’s

supply of a covered drug. Retail and

mail-order pharmacies, in contrast,

currently may contract with plans to be

offered at more than one cost sharing

level.

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Cost sharing at retail and mail-order

pharmacies currently vary on three

dimensions: Whether the cost sharing is

standard or preferred, on the quantity

dispensed (or ‘‘days’ supply’’), and on

dispensing location.

We proposed that a more simplified

benefit design, incorporating these three

variables and accommodating a more

clearly defined set of cost sharing levels,

would promote better understanding of

Part D plan benefits, both in terms of

beneficiary cost sharing and prices

charged to the program, as well as

streamlined contracting options. We

also proposed to expressly state the total

number of possible cost-sharing levels,

to clarify expectations and to preempt

the introduction of additional or

unauthorized cost-sharing levels in the

future.

For prescriptions not subject to Long

Term Care, specialty pharmacy, or home

infusion pricing, the interaction of the

following four provisions of section

1860D–4(b)(1) of the Act point to three

authorized levels of cost sharing:

Standard, preferred, and extended days’

supplies for retail and mail order

pharmacies. We proposed to minimize

the number of variations on these three

levels to the following options and to

ensure that standard T&C for network

participation offer every level available

for each respective pharmacy type. First,

we proposed to limit long term care,

specialty, and infusion pharmacy cost

sharing to the standard monthly rate, as

is industry practice today. Second, we

proposed to limit retail pharmacies to

the three authorized levels; either the

standard or preferred monthly rate (for

supplies up to 34 days), and one

extended days’ supply cost sharing rate

not exceeding three times the monthly

retail rate (either three times the

standard monthly retail rate or three

times the preferred monthly retail rate,

depending upon the T&C of the

pharmacy’s contract). Third, we

proposed to limit the levels of cost

sharing at mail-order pharmacies to one

monthly rate and one extended day mail

order cost sharing rate (for any supplies

greater than 34 days) for reasons

discussed previously. We additionally

solicited comments on the frequency of

mail order being used to fill

prescriptions lasting one month or less.

We note that these proposals would not

alter our requirements around the

dispensing of any days’ supplies less

than 30 days, which is still subject to

the ‘‘daily cost sharing’’ provision at

§ 423.153(b)(4).

In summary, we proposed to use the

authority in section 1860D–4(b)(1)(C)(i)

of the Act to establish rules defining

convenient access within a Part D

pharmacy network, combined with the

authority in section 1860D–4(b)(1)(A) of

the Act to revise the any willing

pharmacy requirements, to ensure that

any pharmacy that can meet the

applicable T&C for offering standard or

preferred cost sharing can join the

network on those terms. We believe the

network access provisions in section

1860D–4(b)(1) of the Act support

expanding § 423.120(a)(8) to all levels of

cost sharing offered under a sponsor’s

benefit plans. We believe that doing so

supports the Congressional intent to

have plans compete on negotiated prices

by making this price competition more

open and accessible to pharmacies.

Specifically, we proposed to revise

§ 423.120(a)(8) to require that, in

establishing its contracted pharmacy

network, a Part D sponsor offering

qualified prescription drug coverage

must comply with all of the following

requirements:

• Must offer and publicly post

standard terms and conditions for

network participation for each type of

pharmacy in the network subject to the

following:

++ May not require a pharmacy to

accept insurance risk as a condition of

participation in the PDP sponsor’s

contracted pharmacy network.

++ Must offer payment terms for

every level of cost sharing offered under

the sponsor’s plans consistent with CMS

limitations on the number and type of

cost sharing levels, and for every type of

similarly situated pharmacy.

• Must contract with any willing

pharmacy able to meet one set of the

terms and conditions offered by that

plan for that type of pharmacy.

We also proposed to make conforming

changes to the contracting provisions at

§ 423.505(b)(18) to require Part D

sponsors to agree to have standard T&C

for network participation that meet the

requirements described in

§ 423.120(a)(8), with reasonable and

relevant T&C of participation for each

type of pharmacy in its network. We

believe these proposed requirements

would better ensure that each Part D

plan: (1) Provides convenient access to

Part D drugs in all Part D settings and

to the extent practical, at all cost sharing

levels; and (2) offers cost sharing levels

that encourage beneficiaries to make

choices that minimize costs not only for

themselves, but also to the Medicare

Part D program as a whole. We solicited

comments on these proposals to expand

the any willing pharmacy T&C and to

streamline the levels of cost sharing

offered under those standard T&C. We

believe these proposals would increase

beneficiary understanding of and access

to cost sharing that is better aligned

with the lowest negotiated prices,

improve market competition, and

increase downward pressure on total

program costs. We received more than

4,000 comments on these proposals and

our response follows:

Comment: This proposal received

significant support from commenters

citing an interest in expanding access to

preferred cost sharing and creating a

more level playing field for small and

independent pharmacies. Many

reported that the lower cost sharing at

a limited number of pharmacies offering

preferred cost sharing leads many

beneficiaries to drive sometimes great

distances to access these savings, even

when they have a stated preference to

stay with a local pharmacy, or one

where they have a long-term history

with the pharmacist. Many other

commenters reported that some current

marketing practices are mistakenly

interpreted as suggesting that only

pharmacies offering preferred cost

sharing can be used by enrollees of that

plan, also leading many beneficiaries to

leave their preferred choice of where to

access pharmacy services.

Response: We appreciate the strong

support we received for this proposal.

We agree with many of the commenters

who wrote that beneficiaries should be

able to choose where they obtain their

pharmacy services, and we are very

concerned to hear that the current

incentives (and potentially current

marketing of pharmacies offering

preferred cost sharing) lead many

beneficiaries to believe that only those

pharmacies offering preferred cost

sharing can be used. We are also

concerned by the many comments

reporting that beneficiaries are now

driving 30–60 miles to the nearest

pharmacy offering preferred cost

sharing, or are feeling forced into using

mail-order services, despite a preference

to stay with a local pharmacy. We share

the concerns of commenters who

suggest that current contracting

practices by sponsors, only extending

preferred cost sharing T&C with select

pharmacies, are being interpreted by

Medicare beneficiaries as a violation of

the Any Willing Pharmacy provision in

statute. While the Any Willing

Pharmacy provision applies only to

participation in a plan’s pharmacy

network, not the subset of pharmacies

offering preferred cost sharing, many

commenters reported that access to

preferred cost sharing does not align

with beneficiaries’ expectation for

choice of pharmacy service provider.

That is, if a plan offers preferred cost

sharing, beneficiaries assume they will

be able to access that cost sharing at

their own ‘‘preferred’’ pharmacy.

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Comment: Some commenters asserted

that requiring plan sponsors to allow

any willing pharmacy to accept publicly

disclosed terms and conditions to offer

preferred cost sharing to plan enrollees,

in exchange for requisite drug price

discounts, would limit sponsors’ ability

to negotiate significant discounts from a

more limited number of pharmacies.

Some of these commenters stated that

they did not believe CMS had the

authority to make this change. A few

commenters suggested that CMS use its

current authority to respond to plan

offerings that we determine to be

discriminatory in the availability and

access they provide to preferred cost

sharing, and to reject plans failing to

offer fair access. Many of the opponents

of this proposal objected to publicly

posting contract T&C, as potentially

undermining price competition. These

commenters suggested that this change

would ultimately result in higher drug

costs, as a higher number of pharmacies

offering preferred cost sharing would

lead to a decrease in the volume of

enrollees electing to use any one of

these pharmacies, and as a result

pharmacies would not be as willing to

negotiate deeply discounted drug prices

without the promise of a high volume of

enrollees. Some commenters submitted

economic analyses in support of their

claims. Some, but not all opponents

questioned CMS’ assumption that

pharmacies currently offering preferred

cost sharing would not elect to

discontinue offering preferred cost

sharing if such terms and conditions

were available to any willing pharmacy.

Response: We continue to believe that

reduced preferred cost sharing offered to

plan enrollees should be aligned with

reduced drug prices charged to the

program, aligning the cost sharing price

signals with high value plans offering

reduced drug pricing. We believe that

opening up these limited networks to

any pharmacy willing to charge no more

than the contract’s ceiling price to

qualify for offering the lower preferred

cost sharing may be necessary to restore

price competition in these networks. We

disagree with the comments suggesting

that this provision violates the non-

interference provision. Expanding

access to preferred cost sharing aligns

with the authority to establish rules

defining convenient access within a Part

D network, combined with the authority

to interpret the any willing pharmacy

requirements. We believe the network

access provisions in section 1860D–

4(b)(1)(A) of the Act support expanding

§ 423.120(a)(8) to establish access

standards for all levels of cost sharing

offered under a sponsor’s benefit plans,

and that this expansion aligns with

Congressional intent to have open

competition between plans based on

negotiated price.

Numerous comments from opponents

of the provision cited published

analyses that predate Part D on the

elimination of selective contracting

practices at the state level and higher

drug expenditures noted after this

change. However, we are concerned that

traditional analyses that study drug

expenditures after an expansion of a

previously limited network may not be

directly relevant to the Part D market.

While we recognize the general parallels

between the studies submitted for

consideration and the any willing

pharmacy proposal, any attempt to

generalize these studies to the Part D

benefit would need to incorporate

multiple other variables, especially

given the revenue streams other than

point-of-sale pricing that may distort

other economic incentives. The studies

submitted offer only limited explanation

of what trends in utilization, pricing,

and care management surrounded the

state-level changes, and without that

context we do not consider these

analyses persuasive. Further supporting

our concerns, one commenter provided

alternative economic analysis that

supported our assumption that within

the Part D market expanding access to

any willing pharmacy may not affect

drug prices.

While we continue to believe that

there are benefits in increasing

transparency and in permitting

pharmacies willing to charge reduced

prices in exchange for offering preferred

cost sharing, in light of these comments

we believe it is necessary to further

analyze the potential impacts on the

Part D market. Considering the

conflicting comments and analyses

submitted, and the potential

consequences of implementing any

changes based on incorrect

assumptions, we believe it is important

to wait and to spend additional time

considering the evidence for potential

financial impacts within the Part D

benefit. We will be closely studying

preferred cost sharing practices,

including the associated point-of-sale

drug pricing, going forward. In response

to the comments suggesting that CMS

use its current authority to respond to

plan offerings that we determine to be

discriminatory in its proposed

availability and access to preferred cost

sharing, we will further explore our

authority in this area. In addition, we

plan to closely monitor beneficiaries’

access to preferred cost sharing, as well

as drug pricing by pharmacies offering

preferred cost sharing, to determine

whether future rulemaking in this area

is necessary.

In summary, pending further study,

we are not finalizing the any willing

pharmacy contracting proposed

provision changes to § 423.120(a)(8) or

423.505(b)(18), nor the proposed

changes to limit the authorized levels of

cost sharing. We will engage in further

notice and comment rulemaking on this

issue as warranted in the future.

20. Enrollment Requirements for

Prescribers of Part D Covered Drugs

(§ 423.120(c)(5) and (6))

To improve our ability to oversee the

Medicare Part D program, we proposed

to implement section 6405(c) of the

Affordable Care Act effective January 1,

2015. This section provides the

Secretary with authority to require that

prescriptions for covered Part D drugs

be prescribed by a physician or eligible

professional (as defined at section

1848(k)(3)(B) of the Act (42 U.S.C.

1395w–4(k)(3)(B)) who is enrolled in the

Medicare program pursuant to section

1866(j) of the Act (42 U.S.C. 1395cc(j)).

We generally proposed in revised

§ 423.120(c)(5) and new paragraph (6)

that a prescriber of Part D drugs must

have (1) an approved enrollment record

in the Medicare program, or (2) a valid

opt-out affidavit on file with a Part A/

Part B Medicare Administrative

Contractor (A/B MAC) in order for a

prescription to be eligible for coverage

under the Part D program. More

specifically, we proposed the following:

• Under § 423.120(c)(5)(ii)(A) and (B),

a Part D sponsor must deny or must

require its PBM to deny a pharmacy

claim for a Part D drug if: (1) An active

and valid physician or eligible

professional National Provider Identifier

(NPI) is not contained on the claim; or

(2) the physician or eligible professional

(i) is not enrolled in the Medicare

program in an approved status, and (ii)

does not have a valid opt-out affidavit

on file with an A/B MAC.

• Under § 423.120(c)(5)(ii)(C) and

(c)(6)(ii), to receive payment for a drug,

a beneficiary’s request for

reimbursement from a Part D sponsor

must be for a Part D drug that was

dispensed in accordance with a

prescription written by a physician or

eligible professional who: (1) Is

identified by his or her legal name in

the request; and (2) is either enrolled in

Medicare in an approved status or has

a valid opt-out affidavit on file with an

A/B MAC.

• Under § 423.120(c)(6)(i), in order for

a Part D sponsor to submit to CMS a

prescription drug event (PDE) record,

the PDE must pertain to a claim for a

Part D drug that was dispensed in

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accordance with a prescription written

by a physician or eligible professional

who is either (1) enrolled in Medicare

in an approved status, or (2) has a valid

opt-out affidavit on file with an A/B

MAC.

• Under § 423.120(c)(6)(iii), a Part D

sponsor must deny or must require its

PBM to deny a pharmacy claim for a

drug (or a request for reimbursement

from a Medicare beneficiary for a drug)

if the claim does not meet the

requirements of § 423.120(c)(6)(i) or (ii),

respectively.

The overriding purpose of these

provisions is to help ensure that Part D

drugs are prescribed only by physicians

and eligible professionals who are

qualified to do so under state law and

under the requirements of the Medicare

program.

Our proposed enrollment deadline of

January 1, 2015 was intended to give

physicians and eligible professionals at

least 6 months after the publication of

a final rule to complete the Medicare

enrollment process. We solicited

comments regarding the propriety of

this effective date.

The Medicare enrollment process

requires that an A/B MAC screen and

validate each enrollment application

submitted by a physician or eligible

professional prior to the decision to

approve or deny enrollment in the

Medicare program. The enrollment

application collects identifying

information about the applicant and his

or her credentials, such as licensure

status. We have been concerned about

instances where unqualified individuals

are prescribing Part D drugs. In fact, in

a June 2013 report the OIG found that

the Part D program inappropriately paid

for drugs ordered by individuals who

clearly did not appear to have the

authority to prescribe. (See ‘‘Medicare

Inappropriately Paid for Drugs Ordered

by Individuals Without Prescribing

Authority’’ (OEI–02–09–00608).) There

have also been reports that the

prescriptions of physicians with

suspended licenses have been covered

by the Part D program. This should not

happen, and we believe we can better

address these and similar vulnerabilities

by verifying the credentials of

prescribers through either the Medicare

enrollment process or their submission

of a valid opt-out affidavit.

With respect to the latter, we note that

under section 1802(b) of the Act and the

implementing regulations at § 405.400 et

seq., certain physicians and eligible

professionals can opt-out of the

Medicare program and enter into private

contracts with Medicare beneficiaries.

By entering into such contracts, these

individuals do not bill the Medicare

program for non-emergency services

they furnish to beneficiaries.

Under our proposal, in short, the

prescriptions of a physician or eligible

professional who is not enrolled in

Medicare and does not have a valid opt-

out affidavit on file with an A/B MAC

would not be covered under the Part D

program. As explained in the proposed

rule, CMS would furnish or make

available to Part D sponsors a list of

physicians and eligible professionals

who have an approved Medicare

enrollment record or who have a valid

opt-out affidavit on file with an A/B

MAC.

We also solicited comments on the

following issues:

• Whether all pharmacies should be

required to enroll in Medicare in order

to dispense covered Part D drugs.

(Alternatively, we sought comment on

whether requiring Medicare enrollment

for network pharmacies is a ‘‘best

practice’’ in pharmacy contracting by

plan sponsors, and should be an integral

part of sponsors’ required fraud, waste

and abuse programs.)

• Whether doctors of dental surgery

or dental medicine, including family

dentists, should be required to enroll in

Medicare in order to prescribe covered

Part D drugs. (Note that we did not

propose to exclude dentists from our

requirements. Sections 423.120(c)(5)

and (6) were intended to apply to

dentists.)

We received a significant number of

comments regarding these proposed

provisions. Summaries of the comments

as well as our responses follow:

Comment: A number of commenters

opposed our proposed changes to

§ 423.120(c)(5) and the addition of

§ 423.120(c)(6). Several commenters

were concerned that these requirements

would disrupt Medicare beneficiaries’

current relationships with their

physicians or otherwise prevent patients

from seeing certain physicians, hence

denying them care. One commenter

stated that it appears that state licensure

alone is no longer sufficient for an

individual to prescribe drugs, and that

§ 423.120(c)(5) and (6) would

inappropriately limit one’s ability to

prescribe when he or she is otherwise

permitted to do so under state law. The

requirement to enroll is particularly

disconcerting, the commenter added,

considering that the prescribing

individual (as opposed to the pharmacy)

is not even receiving reimbursement

from Medicare for the prescribed drug.

Another commenter stated that

medication should be based on a

patient’s needs, rather than on whether

a physician is in the Medicare system.

Several commenters also requested

further clarification regarding the intent

of our proposed revisions.

Response: The central purpose of our

changes to § 423.120(c), as alluded to

previously, is to ensure that we can

verify that the prescriber is

appropriately licensed and certified, is

not excluded or debarred from

Medicare, and is otherwise qualified

under Medicare regulations to prescribe

Part D drugs. Again, we have been

concerned that unqualified individuals

are prescribing such drugs, and the

previously-referenced OIG report bears

this out. The enrollment process will

help ensure that Medicare beneficiaries

and the Trust Funds are protected,

which is why we intend to proceed with

our proposal. We note further that these

changes are fully consistent with our

requirement in § 424.507 that

physicians and eligible professionals

who order or certify certain services and

items are either enrolled in Medicare or

have a valid opt-out affidavit on file

with an A/B MAC.

Comment: Several commenters

contended that Medicare should not

require physicians who do not

participate in or take Medicare to enroll

in the program.

Response: Our changes to § 423.120(c)

permit a physician or eligible

professional who has a valid opt-out

affidavit on file with an A/B MAC to

prescribe Part D drugs.

Comment: Many commenters, some of

whom supported our proposed changes,

expressed concern about the proposed

January 1, 2015 date. Several of them

requested that the implementation of

§ 423.120(c)(5) and (6) be delayed until

2016 or even 2017 to give CMS,

prescribers, and plan sponsors adequate

time to prepare and to address all

operational and system challenges.

Other commenters suggested that CMS

utilize a phased-in approach, similar to

that which was used for CMS’

implementation of § 424.507. These

commenters asserted that this would

help ensure that patient care is not

interrupted, that all information

regarding prescribers’ enrollment

statuses is correct, that appropriate

system testing is done, that CMS

engages in regular communication with

all affected stakeholders, and that CMS

can more accurately report the number

of physicians and eligible professionals

who will be affected by our proposal.

Additional commenters recommended

that any revised implementation date be

on January 1 so as to coincide with the

beginning of the new plan year.

Response: We agree with these

commenters regarding the need to allow

adequate time to prepare. Therefore, we

are revising § 423.120(c)(5) and (6) to

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establish an effective date of June 1,

2015. We understand the commenters’

desire for a January 1 date, but we do

not believe a delay until January 1, 2016

is feasible given our aforementioned

program integrity concerns. A June 1,

2015 date, we believe, strikes an

appropriate balance between the need to

have sufficient time to prepare and the

need to ensure that only qualified

individuals are prescribing Part D drugs.

We wish to assure plan sponsors,

prescriber and supplier organizations,

and beneficiary advocacy groups that

we will regularly communicate with

them in the months leading up to the

June 1, 2015 effective date to address

whatever concerns they have and to

keep them abreast of CMS’ preparations

for implementation.

Plan sponsors, prescribers,

beneficiaries, and other affected parties

should note that existing policies that

will be superseded by our changes

remain intact (and should continue to

be adhered to) through May 31, 2015.

In order to: (1) Help ensure that

stakeholders can effectively determine

which provisions apply to them before

and after June 1, 2015, (2) simplify and

consolidate our proposed changes to

§ 423.120(c), and (3) eliminate potential

duplication between the provisions we

proposed in (c)(5)(ii) and in (c)(6), we

are making several technical revisions.

The existing version of paragraph (c)(5)

will remain intact with the exception of

the addition of the ‘‘Before June 1, 2015,

the following are applicable’’ language

at the very beginning of the paragraph.

We are not finalizing our proposed

changes to paragraph (c)(5)(ii), but are

instead merging them with our addition

of paragraph (a)(6). Hence, our final

version of new paragraph (c)(6) will

read as follows:

‘‘(6) Beginning June 1, 2015, the

following are applicable—

(i) A Part D sponsor must deny, or

must require its pharmaceutical benefit

manager (PBM) to deny, a pharmacy

claim for a Part D drug if an active and

valid physician or eligible professional

(as defined in section 1848(k)(3)(B)(i) or

(ii) of the Act) National Provider

Identifier (NPI) is not contained on the

claim.

(ii) A Part D sponsor must deny, or

must require its PBM to deny, a

pharmacy claim for a Part D drug if the

physician or eligible professional (when

permitted to write prescriptions by

applicable State law)—

(A) Is not enrolled in the Medicare

program in an approved status; and

(B) Does not have a valid opt-out

affidavit on file with an A/B Medicare

Administrative Contractor (MAC).

(iii) A Part D sponsor must deny, or

must require its PBM to deny, a request

for reimbursement from a Medicare

beneficiary for a drug if the request is

not for a Part D drug that was dispensed

in accordance with a prescription

written by a physician or, when

permitted by applicable State law, other

eligible professional (as defined in

section 1848(k)(3)(B)(i) or (ii) of the Act)

who—

(A) Is identified by his or her legal

name in the request; and

(B)(1) Is enrolled in Medicare in an

approved status; or

(2) Has a valid opt-out affidavit on file

with an A/B MAC.

(iv) In order for a Part D sponsor to

submit to CMS a prescription drug event

(PDE) record, the PDE must contain an

active and valid individual prescriber

NPI and must pertain to a claim for a

Part D drug that was dispensed in

accordance with a prescription written

by a physician or, when permitted by

applicable State law, an eligible

professional (as defined in section

1848(k)(3)(B)(i) or (ii) of the Act) who:

(A) Is enrolled in Medicare in an

approved status, or

(B) Has a valid opt-out affidavit on file

with an A/B MAC.

We note that in our final version of

§ 423.120(c)(6)(iv), we have included

the language ‘‘must contain an active

and valid individual prescriber NPI.’’

This is not a new mandate, for a PDE

must currently have the required NPI

under § 423.120(c)(5)(i). We are simply

clarifying that this requirement

continues on and after June 1, 2015.

Again, these are merely technical

revisions. They do not involve any

changes to our proposed policies.

Comment: A commenter stated that

proposed § 423.120(c)(5) and (6) reflect

CMS’ continued efforts to protect the

Medicare program from inappropriate

payments for prescription drugs.

Response: We appreciate the

commenter’s support.

Comment: A commenter requested

that CMS furnish sub-regulatory

guidance concerning the following

issues related to § 423.120(c)(5) and (6):

(1) the pharmacy’s capability at point of

service (POS) to verify that the

prescriber’s NPI and Medicare

enrollment are valid; (2) whether plan

sponsors will be expected to deny at the

point of service if the beneficiary’s

prescriber has not completed either the

enrollment process or an opt-out

affidavit; (3) how CMS will disseminate

relevant information to plan sponsors

on a timely basis to enable sponsors to

set up point of service edits and prevent

negative beneficiary impacts; (4)

whether CMS will require sponsors to

allow pharmacies to override these

denials, similar to other Prescriber ID

edits; (5) which party (assuming CMS

requires sponsors to pay claims at point

of service and investigate post-claim

payment) will be financially responsible

when it is subsequently confirmed that

the prescriber is not enrolled or has not

validly opted-out; and (6) how CMS and

sponsors will ensure that beneficiaries’

access to needed Medicare-covered

drugs are not delayed or denied due to

this new process. Other commenters

requested clarification regarding

whether § 423.120(c)(5) and (6) establish

any new responsibilities for plan

sponsors or pharmacies.

Response: We anticipate

disseminating, as deemed necessary,

sub-regulatory or other guidance to

address the topics raised by the

commenter and any new requirements

for plan sponsors and pharmacies.

Furthermore, and as already stated, we

will regularly communicate with plan

sponsors, prescriber and supplier

associations, and beneficiary

organizations prior to the June 1, 2015

effective date to address their concerns.

Comment: A commenter expressed

concern that there would be a flood of

CMS–855 enrollment application forms

or opt-out affidavit submissions by

physicians and practitioners. The

commenter asserted that this could

cause application processing delays

and, consequently, the denial of claims

for drugs prescribed by practitioners

whose applications could not be

processed to completion before the

implementation date. Another

commenter requested information

regarding the process and timeline for

Medicare enrollment. Another

commenter suggested that CMS could

give a grace period to accept PDEs for

physicians and eligible professionals

who have applied for enrollment but are

still awaiting the outcome of their

application submission. Yet another

commenter stated that the large number

of revalidation applications being

submitted could delay the processing of

prescribers’ CMS–855 applications.

Response: We believe that our

extension of the effective date to June 1,

2015 will give physicians and eligible

professionals plenty of time to submit

their enrollment applications or opt-out

affidavits to their A/B MACs and to

have the latter process these materials to

completion before § 423.120(c)(6) is

implemented. Therefore, we do not

believe that the grace period suggested

by the third commenter is or will be

necessary. As we stated in the proposed

rule, we believe that the number of

prescribers who are neither Medicare-

enrolled nor have validly opted-out is

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very low in any event, given that many

physicians and eligible professionals

furnish or order Part B services.

Nevertheless, we will monitor this

situation as June 1, 2015 approaches,

and will communicate with plan

sponsors, prescriber and supplier

organizations, and beneficiary advocacy

groups about progress in physician and

eligible professional enrollment in

Medicare pursuant to the requirements

of § 423.120(c)(6).

Information on the general provider

enrollment process and the timeframes

for application processing can be found

on CMS’ Web site at http://

www.cms.gov/Medicare/Provider-

Enrollment-and-Certification/

MedicareProviderSupEnroll/index.html.

Comment: Several commenters

questioned the accuracy of the

verification process, specifically as it

relates to PECOS. The commenters

stated that PECOS may not capture all

enrolled individuals and that the

information in the system may either be

inaccurate or inconsistent with the data

in NPPES. Another commenter

requested that CMS permit enrollment

via PECOS or a contractor’s legacy

system.

Response: We are continuously

enhancing PECOS and are confident

that all enrolled and opted-out

prescribers will be accurately reflected

in the system. In addition, all current

enrollments have been transitioned to

the PECOS system and all new

enrollments are directly entered into

PECOS.

Comment: A number of commenters

requested information about how plan

sponsors and pharmacies will be able to

determine that a prescription was

written by a prescriber who is enrolled

or has opted-out. One commenter

recommended that CMS clarify whether

the NPI would be used as the primary

identifier of whether a particular

physician or practitioner is enrolled.

Other commenters requested further

clarification regarding: (1) How our

proposal will be operationalized; (2)

whether the proposed list will include

all enrolled and opt-out prescribers and

will be sufficiently complete; (3)

whether or how often CMS will update

the list; (4) how plan sponsors will have

access to the file; (5) when CMS will

define the standard format; (6) whether

there will be start and end-dates in the

file; (7) whether there will be an

indicator for physicians who are in a

pended status; (8) the extent to which

NPPES will be used in prescriber

validation; (9) whether plan sponsors

will still be required to review the OIG/

System Access Management ((SAM);

formerly GSA) databases; (10) how

deceased prescribers and taxonomy data

will be handled; and (11) how plan

sponsors and pharmacists will identify

revoked or limited supplier statuses.

Response: As already indicated, we

will make available to plan sponsors

and pharmacies a complete list of

prescribers who are either enrolled in

Medicare or who have opted-out. The

list will be regularly updated. The NPI

will be one of several identifiers that

can or will be used. We will, as deemed

necessary, elaborate further on the

verification process, the specific

contents of the aforementioned list, the

specific frequency with which the list

will be updated, and various operational

aspects of our requirements via sub-

regulatory or other guidance.

Comment: One commenter

encouraged CMS to include a review of

the prescriber’s taxonomy code to

confirm prescribing authority as part of

the Medicare enrollment process for

physicians and other eligible

professionals.

Response: We appreciate this

suggestion and will take it under

advisement as we continue our efforts to

enhance the provider enrollment

process.

Comment: A commenter requested

clarification concerning whether an

individual who enrolls in Medicare

solely to prescribe Part D drugs will be

required to revalidate his or her

enrollment every 5 years per § 424.515.

Another commenter sought clarification

regarding whether enrollment pursuant

to § 423.120(c)(5) and (6) would subject

the enrollee to all of the enrollment

requirements outlined in §§ 424.500

through 424.570 (such as revalidation,

deactivation, retention of medical

documentation).

Response: We reserve the right to

apply applicable requirements in

§§ 424.500 through 424.570 to

individuals enrolled in Medicare solely

to prescribe Part D drugs. This would

include the requirement in § 424.515 to

revalidate one’s enrollment every 5

years.

Comment: A commenter requested

that CMS conduct a formal analysis to

determine the percentage of prescribers

with an active enrollment status by

comparing the prescriber NPIs

submitted on the PDEs to the Medicare

enrollment records. The commenter was

concerned that if the unenrolled

prescribers disproportionately reflect

certain supplier types or geographic

areas, this could cause disruptions. The

commenter also stated that CMS should

develop a process for allowing

prescribers who are authorized under

state law to prescribe but are not eligible

to be enrolled in Medicare to still

prescribe Part D drugs that would be

covered.

Response: Prior to the June 1, 2015

date, we will, as deemed necessary,

share information with plan sponsors

regarding the numbers and percentages

of prescribers who are enrolled in

Medicare. As for the final comment, the

prescriber must either opt-out of the

Medicare program or otherwise comply

with all Medicare enrollment

requirements. We cannot enroll a

prescriber who is ineligible to enroll in

Medicare regardless of the individual’s

status under state law, for we are bound

by our established enrollment

procedures. Consequently, we cannot

establish the exception process

envisioned by the commenter.

Comment: To limit POS denials that

could affect beneficiary access and

compromise patient care, a commenter

made several recommendations

regarding § 423.120(c)(5) and (6). First,

the prescriber enrollment files provided

by CMS should be the single and

authoritative source of prescriber

enrollment for all federal health care

programs. This would eliminate

duplication of effort, streamline the

enrollment process for prescribers,

ensure the consistent application of

CMS requirements, and eliminate the

need to review NPPES, the DHHS OIG

List, and the SAM. Second, a CMS and

industry task force should be developed

to establish data integrity criteria,

identify the minimum necessary data

elements, establish file dissemination

frequency to support real-time

validations, and ensure that appropriate

information is communicated to the

pharmacy and patient. Third, a process

should be developed to address changes

in a prescriber’s enrollment status (and

to notify beneficiaries of such changes)

after the most recent files have been

disseminated and before the next update

will be available. Fourth, there should

be changes to the PDE to support and

accept multiple Submission

Clarification Codes, as well as a process

for CMS to convey more accurate

information to the A/B MACs to update

their files. Fifth, a CMS call center

should be established to support

prescriber and beneficiary inquiries on

the prescriber’s enrollment status. Sixth,

there should be a CMS prescriber

outreach and education effort to

emphasize the importance of enrollment

and to address various prescriber

questions.

Response: We appreciate the

commenter’s suggestions and address

them as follows.

Regarding the first recommendation,

the aforementioned list will be the

authoritative list of prescribers who are

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enrolled in Medicare or have opted-out.

However, it will not contain information

regarding said individuals’ enrollment

in other federal health care programs.

We do not believe such an all-

encompassing list is feasible at the

present time due to the differing

requirements and standards of these

various programs.

We will continue to work with the

health care industry to ensure that the

files CMS disseminates contain the

information necessary for plan sponsors,

pharmacies, and prescribers to enforce

and comply with all CMS requirements.

This will include appropriate updates to

reflect changes in a prescriber’s status,

as alluded to in the commenter’s third

suggestion.

We will consider making changes to

the PDE as deemed necessary to

facilitate the appropriate

implementation of and adherence to

§ 423.120(c)(6). We will also, as deemed

necessary, furnish guidance regarding:

(1) appropriate information for

prescribers and beneficiaries concerning

the enrollment status of prescribers; (2)

the importance of enrollment; and (3)

vehicles for addressing prescriber

inquiries.

Comment: A commenter

recommended that in order to stop fraud

on a prepayment basis and to ensure

that Medicare beneficiaries are

protected from physicians and eligible

professionals who prescribe controlled

substances without a valid DEA

registration number, CMS should revise

§ 423.120(c)(6) to require Part D plan

sponsors to make payments to a

pharmacy or Medicare beneficiary when

a Part D controlled substance is

prescribed by a physician or eligible

professional who has a valid and active

DEA registration number.

Response: We do not believe this

revision is necessary, for we will be able

to revoke an individual’s ability to

prescribe such drugs under

§ 424.535(a)(13) (as explained in more

detail later in this section). We believe

that § 423.120(c)(6) as currently crafted

(aside from the effective date) will

achieve our goal of ensuring that only

qualified physicians and eligible

professionals can prescribe Part D drugs.

We further note that having a DEA

certificate does not necessarily mean

that a prescriber is in compliance with

all Medicare requirements.

Comment: A commenter requested

clarification regarding whether, if a

claim is rejected at the POS, a plan will

be required to provide beneficiaries

with a list of prescribers that are

enrolled in the Medicare program.

Response: No. This will not be

required.

Comment: A commenter stated that

§ 423.120(c)(5) and (6) do not take into

account the thousands of patients

currently serviced by interns and

residents who are yet to be licensed but

are authorized by state governments to

examine, treat and prescribe for their

patients provided they function under

the supervision of an attending

physician. The commenter sought

clarification concerning whether these

as yet unenrolled individuals would be

able to order prescriptions. Another

commenter requested that CMS furnish

guidance: (1) On how situations in

which a resident’s enrollment status has

changed should be handled; and (2) for

teaching hospitals regarding the

importance of ensuring that residents

comply with Medicare enrollment rules

(including updating enrollment data as

needed).

Response: Section 423.120(c)(6) does

not prohibit interns and residents from

prescribing Part D drugs to the extent

that these individuals are otherwise

qualified to prescribe such drugs under

applicable law and regulations and to

either enroll in Medicare or validly opt-

out of the program.

We will, as deemed necessary, issue

guidance concerning the importance of

complying with Medicare enrollment

rules.

Comment: A number of commenters

requested additional clarification

regarding the number of physicians who

are not enrolled in Medicare.

Response: Although a sizable majority

of physicians nationwide are enrolled in

Medicare, we do not have a precise

number.

Comment: Several commenters

recommended that CMS make available

for Medicare Advantage plans and other

stakeholders access to national, real-

time data—preferably in a single file—

to use in identifying excluded, non-

enrolled, and opt-out suppliers. One

commenter added that any opt-out file

should have the physician’s NPI and

specialty, as well as the expiration date

of his or her opt-out agreement.

Response: The file alluded to earlier

that will be distributed to plan sponsors

will be updated regularly. Specific

information regarding the frequency of

the updates and the contents of the file

will, as deemed necessary, be

disseminated via sub-regulatory or other

guidance.

Comment: A commenter questioned

whether there is evidence of higher

levels of fraud, waste, or abuse by

suppliers who are not enrolled in the

Medicare program versus those who are

enrolled, and whether increasing the

number of enrolled suppliers per

§§ 423.120(c)(5) and (6) will provide an

avenue for unscrupulous but unenrolled

prescribers to defraud Medicare.

Response: The enrollment process, as

explained earlier, is designed to ensure

that we can verify that a supplier meets

all CMS requirements, such as

licensure. Without this process,

unqualified and fraudulent suppliers

would be able to enter Medicare and bill

the program, resulting in billions of

dollars being improperly paid to such

individuals and organizations. We

maintain that CMS’ enrollment process

reduces the amount of potential fraud,

waste and abuse. Furthermore, we do

not see how § 423.120(c)(6) will provide

an avenue for unscrupulous persons to

defraud Medicare. To the contrary, it

will protect the Medicare program by

ensuring that only qualified and

legitimate individuals can prescribe Part

D drugs.

Comment: A commenter disagreed

with CMS’ proposal to allow a

physician who has opted-out of the

Medicare program to prescribe Part D

drugs to Medicare beneficiaries. The

commenter stated that CMS does not

have the legal authority to revoke the

prescribing privileges of a physician or

eligible professional who has been

convicted of health care fraud but is in

an opt-out status or is practicing via

private contract.

Response: Section 1802(b) of the Act

is clear that certain physicians and

practitioners may opt-out of the

Medicare program and enter into private

contracts with Medicare beneficiaries.

We believe that to require such

individuals to enroll in Medicare would

be inconsistent with this statutory

provision.

Comment: A commenter suggested

that CMS purge all opt-out affidavits if

they are more than 2 years old and

establish a systematic process to purge

all opt-out affidavits on a regular basis.

Response: We appreciate this

suggestion and will take it under

advisement as we continue our efforts to

enhance the integrity of the Medicare

program.

Comment: Several commenters stated

that numerous other federal

requirements (for example, DEA

certificate) and state regulations (for

example, state medical licensing boards)

already exist to ensure that medications

are only prescribed by qualified

individuals. Rather than implement

another bureaucratic hurdle, the

commenters contended that these other

federal and state regulations should be

tightened as needed. One commenter

stated that because there are multiple

safeguards currently in place through

the OIG, there is no need for

§ 423.120(c)(5) and (6). Other

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commenters stated that § 423.120(c)(5)

and (6) are unnecessary because (i) Part

D sponsors are already required to

review NPPES to verify a prescriber’s

NPI and other data; (ii) states already

license and regulate prescribers; and

(iii) pharmacists are responsible for

determining that prescriptions are

written by licensed individuals.

Response: We disagree with these

commenters. Data lists that are

prepared, administered and updated by

agencies outside of CMS frequently do

not capture the information we need to

confirm that a supplier meets Medicare

requirements. The CMS enrollment

process is the most practical, thorough,

and effective means of securing and

verifying all necessary information on

physicians and eligible professionals.

Comment: Several commenters

expressed support for our proposed

provisions but sought assurances that

plans would not be penalized for filling

prescriptions if, at the time the drug was

dispensed, the plan did not know of the

prescriber’s termination. Another

commenter did not believe there should

be retroactive enrollment terminations;

this would eliminate recoupment of

payment from pharmacies or Part D

sponsors for prescribers who were

shown as enrolled by the most current

information available at the time the

prescription was filled. Another

commenter requested clarification as to

whether there would be performance-

score safeguards established for plans

that appropriately deny drugs based on

the information available to them

through the MACs or other parties

responsible for maintaining said list.

Another commenter expressed concern

about the impact that these

requirements would have on plan

performance measures due to an

increased number of complaints from

beneficiaries relating to prescriptions

that could not be filled, or with respect

to which payment would be denied.

Response: It is important to note that

our requirements are directed

specifically at individuals who

prescribe Part D drugs. Individuals who

prescribe are required to enroll in

Medicare (or validly opt-out of

Medicare) in order to do so. As such,

plan sponsors would be required to pay

only for those prescriptions written by

physicians or eligible professionals

who, according to CMS, are enrolled in

Medicare in an approved status or who

have validly opted-out of Medicare. We

will, as deemed necessary, further

address these issues via sub-regulatory

or other guidance.

Comment: Several commenters

believed that the administrative burden

of these provisions would outweigh any

potential benefits in deterring fraud,

waste and abuse; this would be

especially true for plan sponsors that

would have to verify a particular

prescriber’s enrollment or opt-out

status. The commenters requested that

CMS more closely study the potential

administrative impact of these

provisions.

Response: We have studied the

impact of these provisions and believe

that the benefits to Medicare

beneficiaries, the Medicare Trust Funds,

and the program as a whole of

confirming that physicians and eligible

professionals are qualified to prescribe

Part D drugs far outweigh the burden to

prescribers of completing the

enrollment process or submitting an

opt-out affidavit. Besides, as mentioned

in the proposed rule, a large majority of

physicians and eligible professionals

who prescribe Part D drugs are already

enrolled in Medicare; hence, our

provisions will have no impact on these

individuals. Furthermore, those who are

impacted will have ample time to

complete the enrollment or opt-out

process due to the extension of the

compliance date to June 1, 2015.

Comment: A commenter suggested

that CMS issue warnings to prescribers

for a 6 to 12-month period prior to

rejecting claims that fail to meet the

necessary criteria.

Response: We appreciate this

suggestion. We are exploring various

means of alerting prescribers who are

neither enrolled in Medicare nor have

submitted a valid opt-out affidavit of the

need to comply with the requirements

of § 423.120(c)(6).

Comment: A commenter suggested

that CMS consider using technology that

already exists within the pharmacy

industry for validating prescriber data,

for this would (when compared to the

batch processes): (1) Improve patient

access to care as the most timely data is

made available at the time of

prescription drug dispensing; (2)

decrease costs associated with audits

and recovery of funds resulting from

out-of-date data; and (3) increase

consistency of data among the multiple

MACs and pharmacies. Another

commenter stated that CMS should

avoid using a PDF file similar to that

which exists for the current ordering/

certifying edits and instead create a

database containing this information.

Response: We are contemplating

various formats in which the

previously-discussed list might be

disseminated to plan sponsors.

Comment: A commenter requested

clarification as to: (1) Whether CMS is

proposing a new provider enrollment

process for Part D in addition to the

current enrollment process for obtaining

Medicare billing privileges; and (2) how

a Part D revocation would impact Part

B billing by the same practitioner.

Response: The provider enrollment

process under § 423.120(c)(6) will be the

same as that which is used for

physicians and eligible professionals

enrolling in Medicare in order to

comply with § 424.507. A revocation

under § 424.535(a) would eliminate the

individual’s ability to prescribe covered

Part D drugs because he or she would

no longer be enrolled in Medicare;

hence, the requirements of

§ 423.120(c)(6) would no longer be met.

Comment: Several commenters

requested that CMS exclude dentists

from proposed § 423.120(c)(5) and (6)’s

application because the provisions

would place an unnecessary burden on

dentists and their Medicare-eligible

patients, and would not address CMS’

desire to stop fraud and abuse. One

commenter added that it is unaware of

high-billing levels associated with

prescriptions written by dentists for

Medicare-eligible patients, yet the

administrative burden on dentists

would be significant. Another

commenter expressed concern that the

proposal could negatively impact plan

members, in that members who receive

prescriptions written by dentists not

enrolled in the program would be

financially responsible for such

prescriptions because they would no

longer be covered. Another commenter

noted that Medicare beneficiaries

enrolled in dual eligible SNPs may

receive comprehensive dental benefits,

including certain invasive procedures.

Dentists may prescribe antibiotics in

these circumstances, and these drugs

should be covered under Medicare Part

D. However, since dentists are not

typically enrolled in Medicare, our

proposal could interfere with this

coverage. Other commenters

recommended that CMS exclude from

§ 423.120(c)(5) and (6)’s purview those

suppliers who do not normally see

Medicare beneficiaries or receive

Medicare payment (including

psychiatrists and Veterans’

Administration (VA) doctors) and

enable them to (after a grace period)

capacity to enable them to write

prescriptions for Medicare beneficiaries.

Response: While we recognize the

concerns of these commenters, we do

not believe dentists, psychiatrists, VA

physicians, or any other physicians or

eligible professionals should be granted

special exemptions from § 423.120(c)(6).

The issue of primary concern to us is

not the typical volume of drugs these

individuals prescribe but the need to

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ensure and confirm that Medicare

payments are only made for Part D

drugs that are prescribed by qualified

physicians and eligible professionals.

This is precisely the concern that the

OIG expressed in its previously-

referenced report. Moreover, we believe

that our extension of the effective date

to June 1, 2015 will afford these

individuals more than adequate time to

complete the enrollment or opt-out

process, hence easing the burden on

them.

Comment: One commenter: (1)

Favored requiring dentists to enroll in

Medicare (or have a valid opt-out

affidavit on file) in order to prescribe

Part D drugs; and (2) believed that a

January 1, 2015 effective date was

reasonable.

Response: We agree with this

commenter’s first comment and intend

to apply § 423.120(c)(6) to dentists.

While we appreciate the commenter’s

second comment, we believe that a June

1, 2015 effective date is more

appropriate.

Comment: A commenter requested

clarification concerning how these

provisions would be enforced in cases

of out-of-network benefits, which permit

plan enrollees to receive healthcare

items and services (including

prescription medicines) across the

country. Another commenter stated that

if CMS allows point of service overrides,

the Prescription Drug Events (PDEs)

should be accepted and final, with no

requirement for plans/sponsors to

provide a retroactive look back. Other

commenters suggested that CMS should:

(1) Require plans to hold beneficiaries

harmless from the consequences of non-

coverage for a non-compliant supplier

for at least one fill of the prescription;

(2) require plans to reach out to the

beneficiary and the supplier to explain

the issue, allowing sufficient time for

the beneficiary to see another supplier

or for the supplier to correct his or her

enrollment status; and (3) reach out to

policy makers in the states that permit

foreign prescriptions, to determine what

kind of alternate supplier credential

checking might be available to ensure

that beneficiaries who spend portions of

the year in other countries can access

their medications without interruption

or the unneeded expense of additional

physician visits.

Response: We will, as deemed

necessary, address these matters via

sub-regulatory guidance or future

rulemaking.

Comment: A commenter requested

clarification as to whether

§ 423.120(c)(6) applies even if a

physician or eligible professional is

state-licensed but is neither Medicare-

enrolled nor has opted-out.

Response: Yes, it applies.

Comment: A commenter requested

information as to the following: (1)

Whether plan sponsors would remain

responsible for ensuring that a

prescriber is properly enrolled in

Medicare; (2) whether prescriber

validation should occur at the point-of-

sale and whether plan sponsors are not

permitted to ‘‘flow down’’ the

responsibility for this verification

process to their network pharmacies;

and (3) whether CMS could prohibit

Part D plans from reversing pharmacy

claims with prescriber verification

errors found in audits if the prescriber

enrollment verification found by that

plan was later found to be inaccurate.

Response: We will, as deemed

necessary, address these matters via

sub-regulatory guidance or future

rulemaking.

Comment: A commenter stated that

because the vast majority of prescribing

physicians and other practitioners are

already enrolled as Medicare suppliers,

§§ 423.120(c)(5) and (6) should not

impose a great burden on prescribers.

However, the commenter encouraged

CMS to make any requirements for

beneficiary requests for reimbursement

from Part D sponsors as clear and

concise as possible for beneficiaries.

Prescribers should be able to quickly

generate forms for patients who want to

submit them to their plan sponsors

directly.

Response: We agree with the

commenter’s first statement, and will

attempt to ensure that beneficiaries

understand the requirements for

requesting reimbursement.

Comment: A commenter urged CMS

to require plans to cover the costs

associated with the charge-back if there

is an error in the claim related to

Medicare enrollment, and that the cost

for verification and correction of any

claims be borne by the plan through

their administrative costs.

Response: We are not prepared in this

final rule to issue a definitive statement

regarding costs associated with charge-

backs. Any such statement will, as

deemed necessary, be addressed via

sub-regulatory or other guidance.

Comment: A commenter urged CMS

to explore options to reduce member

disruptions and to allow plans to

manage prescribers not meeting these

requirements. Such options could

include: (1) Allowing a period of ‘‘soft

edits’’ to effectively track and manage

potential future disruptions; (2)

applying our requirements only to new

fills; or (3) allowing prescriptions to be

grandfathered up to a year after the

effective date.

Response: We believe that our

extension of the effective date to June 1,

2015, as well as CMS’ outreach efforts,

will greatly reduce the potential for

coverage disruptions. However, we will

monitor the progress of the

implementation of § 423.120(c)(6) to

ensure that such disruptions do not

occur.

Comment: A commenter stated that

the proposed rule did not address how

Part D beneficiaries in the U.S.

territories would be impacted by

proposed § 423.120(c)(5) and (6).

Response: We anticipate conducting

outreach, as needed, for beneficiaries in

U.S. territories regarding how they may

be affected by these provisions.

Comment: A commenter expressed

concern that CMS had proposed to no

longer allow Part D coverage for foreign

prescriptions.

Response: We did not propose to deny

coverage for foreign prescriptions. We

simply proposed to require that all

prescribers of Part D drugs be enrolled

in Medicare or in a valid opt-out status.

We may, as deemed necessary, further

address this issue via sub-regulatory

guidance.

Comment: Several commenters

requested clarification concerning

whether plan sponsors would be able to

accept a pharmacy claim for an

automatically-generated refill

prescription if the prescriber is not

enrolled in Medicare. The commenters

also recommended that § 423.120(c)(5)

and (6) only be applied to new

prescriptions.

Response: The pharmacy claims

described by the commenters will not be

covered if the prescriber is not enrolled

in Medicare and does not have a valid

opt-out affidavit on file with an A/B

MAC, regardless of whether the

prescription is new or a refill.

Comment: A number of commenters

opposed the notion of requiring

pharmacies to enroll in Medicare in

order to distribute Part D drugs. They

expressed concern about the burden and

cost involved for pharmacies, and the

potential disruption to the Part D

program that would result if thousands

of pharmacies were required to enroll.

One commenter stated that Part D

sponsors or their PBMs have direct

contractual relationships with

pharmacies and perform their own

credentialing and verifications before

allowing pharmacies into their

networks; sponsors have the necessary

experience and expertise to identify and

remove unlicensed, fraudulent or

otherwise unqualified pharmacies from

their networks.

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Response: Because we concur with

these contentions, we do not intend to

apply § 423.120(c)(6) to pharmacies at

this time.

Comment: A commenter requested

clarification concerning whether the

pharmacy requirement for enrollment

refers to Part B DMEPOS supplier

enrollment for drugs.

Response: Our earlier reference to

pharmacy enrollment pertains to Part D

drugs. However, as stated previously,

we are not applying § 423.120(c)(6) to

pharmacies at this time.

Comment: One commenter supported

the notion of requiring pharmacy

enrollment.

Response: We appreciate this

comment. However, as already stated,

we do not intend to apply

§ 423.120(c)(6) to pharmacies at this

time.

Given this, we are finalizing our

proposed provisions in § 423.120(c)

with several exceptions. First, the

January 1, 2015 effective date is changed

to June 1, 2015. Second, the existing

version of paragraph (c)(5) will remain

intact with the exception of the addition

of the ‘‘Before June 1, 2015, the

following are applicable’’ language at

the very beginning of the paragraph.

Third, we are not finalizing our

proposed changes to paragraph (c)(5)(ii),

but are instead merging them with our

addition of paragraph (a)(6). Our final

version of new paragraph (c)(6) will

thus read as follows:

‘‘(6) Beginning June 1, 2015, the

following are applicable—

(i) A Part D sponsor must deny, or

must require its pharmaceutical benefit

manager (PBM) to deny, a pharmacy

claim for a Part D drug if an active and

valid physician or eligible professional

(as defined in section 1848(k)(3)(B)(i) or

(ii) of the Act) National Provider

Identifier (NPI) is not contained on the

claim.

(ii) A Part D sponsor must deny, or

must require its PBM to deny, a

pharmacy claim for a Part D drug if the

physician or eligible professional (when

permitted to write prescriptions by

applicable State law)—

(A) Is not enrolled in the Medicare

program in an approved status; and

(B) Does not have a valid opt-out

affidavit on file with an A/B Medicare

Administrative Contractor (MAC).

(iii) A Part D sponsor must deny, or

must require its PBM to deny, a request

for reimbursement from a Medicare

beneficiary for a drug if the request is

not for a Part D drug that was dispensed

in accordance with a prescription

written by a physician or, when

permitted by applicable State law, other

eligible professional (as defined in

section 1848(k)(3)(B)(i) or (ii) of the Act)

who—

(A) Is identified by his or her legal

name in the request; and

(B)(1) Is enrolled in Medicare in an

approved status; or

(2) Has a valid opt-out affidavit on file

with an A/B MAC.

(iv) In order for a Part D sponsor to

submit to CMS a prescription drug event

(PDE) record, the PDE must contain an

active and valid individual prescriber

NPI and must pertain to a claim for a

Part D drug that was dispensed in

accordance with a prescription written

by a physician or, when permitted by

applicable State law, an eligible

professional (as defined in section

1848(k)(3)(B)(i) or (ii) of the Act) who:

(A) Is enrolled in Medicare in an

approved status, or

(B) Has a valid opt-out affidavit on file

with an A/B MAC.

These revisions to our proposed

paragraph (c)(6) do not involve any

changes from our proposed policy. They

are merely technical changes designed

to better fit the existing regulatory text.

21. Improper Prescribing Practices

(§§ 424.530 and 424.535)

a. Background and Program Integrity

Concerns

We stated in the preamble to the

proposed rule that notwithstanding our

proposed provisions in § 423.120(c),

additional program safeguard

enhancements were necessary to protect

the Medicare Trust Funds from fraud,

waste and abuse, and to ensure that Part

D drugs are prescribed only by qualified

suppliers. Along with the

aforementioned OIG report (‘‘Medicare

Inappropriately Paid for Drugs Ordered

by Individuals Without Prescribing

Authority’’ (OEI–02–09–00608)), we

cited another OIG report titled,

‘‘Prescribers with Questionable Patterns

in Medicare Part D’’ (OEI–02–09–

00603). This report highlighted a

number of instances in which

physicians and eligible professionals

prescribed inordinate amounts of drugs

to Part D beneficiaries in 2009. For

example—

• Medicare paid a total of $9.7

million—151 times more than the

average—for one California physician’s

prescriptions; most of this physician’s

prescriptions were filled by two

independent pharmacies, both of which

the OIG had identified as having

questionable billing;

• One hundred and eight general-care

physicians each ordered an average of

71 or more prescriptions per

beneficiary, more than 5 times general-

care physicians’ national average of 13;

• An Ohio physician ordered more

than 400 drugs each for 13 of his 665

beneficiaries; and

• A Texas physician ordered more

than 400 prescriptions each for 16

beneficiaries and prescribed 700 or

more drugs for 3 of these beneficiaries.

The OIG also noted examples of

physicians prescribing a high

percentage of Schedule II and III drugs

in 2009. In one case, 78 percent of the

prescriptions a Florida physician

ordered were for Schedule II drugs even

though the OIG found that 4 percent of

the prescriptions ordered by prescribers

nationwide were for Schedule II drugs.

For one beneficiary, the physician

prescribed a 605-day supply of

morphine sulfate, a 524-day supply of

oxycodone HCl, a 460-day supply of

fentanyl, and a 347-day supply of

hydromophone HCl.

The OIG has recommended that CMS

exercise greater oversight of the Part D

program, not only to curb the specific

practices outlined previously but also to

stem the overall risk of fraud and abuse

that the program presents. The OIG has

expressed particular concern over the

potential for beneficiaries to become

addicted to or otherwise be seriously

harmed by certain drugs if they are

inappropriately prescribed in

dangerously excessive amounts. We

share this concern, particularly as we

continue to receive reports of improper

prescribing practices. The difficulty, as

we explained in the proposed rule, is

that CMS does not possess the legal

authority to take administrative action

against the prescriber. This means, in

many cases, that the individual can

continue prescribing drugs that will be

covered under Part D and, if he or she

is enrolled in Medicare, remain so

enrolled to furnish medical services. We

believe this is inconsistent with: (1) The

OIG’s recommendations in its various

Part D reports; and (2) our goals of

protecting and promoting the health and

safety of Medicare beneficiaries and of

safeguarding the Medicare Trust Funds.

To this end, and as we explain in this

section, we proposed several changes to

Part 424, subpart P.

b. Drug Enforcement Administration

(DEA) Certification of Registration

The DEA implements and enforces

Titles II and III of the Comprehensive

Drug Abuse Prevention and Control Act

of 1970, and the Controlled Substances

Import and Export Act, as amended, and

collectively referred to as the Controlled

Substances Act (CSA) (21 U.S.C. 801–

971); the implementing regulations for

these statutes are in 21 CFR Parts 1300

through 1321. The CSA makes

possession of authority under state law

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to dispense controlled substances a

requirement for both obtaining and

maintaining a DEA Certificate of

Registration.

We view a DEA Certificate of

Registration to prescribe controlled

substances as similar to a state’s

requirement that a physician or eligible

professional be licensed or certified by

the state to furnish health care services.

Indeed, we are concerned that a

physician or eligible professional’s

improper prescribing practices may be

duplicated in the Medicare program. To

address these issues, we proposed the

following:

• Adding a new § 424.530(a)(11)

granting CMS the authority to deny a

physician or eligible professional’s

Medicare enrollment application if: (1)

His or her DEA Certificate is currently

suspended or revoked; or (2) the

applicable licensing or administrative

body for any state in which the

physician or eligible professional

practices has suspended or revoked the

physician or eligible professional’s

ability to prescribe drugs, and such

suspension or revocation is in effect on

the date he or she submits his or her

enrollment application to the Medicare

contractor.

• Adding a new § 424.535(a)(13)

granting CMS the authority to revoke a

physician or eligible professional’s

Medicare enrollment if: (1) His or her

DEA Certificate is suspended or

revoked; or (2) the applicable licensing

or administrative body for any state in

which the physician or eligible

professional practices suspends or

revokes his or her ability to prescribe

drugs. Again, this approach is consistent

with our requirement that suppliers

maintain compliance with all applicable

licensure and certification requirements.

(We also solicited comments on

whether our proposed additions of

§§ 424.530(a)(11) and 424.535(a)(13)

should be expanded to include

pharmacy activities.)

We believe that the loss of the ability

to prescribe drugs via a suspension or

revocation of a DEA Certificate or by

state action is a clear indicator that a

physician or eligible professional may

be misusing or abusing his or her

authority to prescribe such substances.

We also believe that our proposed

provisions were consistent with the

OIG’s recommendations and, equally

important, are necessary to protect

Medicare beneficiaries and the Trust

Funds.

We received a number of comments

related to our proposal. Summaries of

the comments and our responses are as

follows:

Comment: Several commenters

expressed support for §§ 424.530(a)(11)

and 424.535(a)(13), stating that these

provisions would help reduce abusive

prescribing.

Response: We appreciate the support

of these commenters.

Comment: Various commenters

recommended that CMS: (1) Verify a

DEA registration number submitted on

the CMS–855I or the CMS–855O with

the DEA prior to enrolling a physician

or eligible professional into Medicare;

(2) require physicians and eligible

professionals to report a change

(voluntary termination, revocation,

suspension) in their DEA registration

number within 30 days of the change;

(3) modify the CMS–855I and CMS–

855O to require that physicians and

eligible professionals report a DEA

registration number suspension or

revocation within 30 days; (4) require

that a physician or eligible professional

have a DEA number for each state in

which the physician or eligible

professional is prescribing controlled

substances; (5) require its Part D

sponsors to establish the necessary edits

to deny a prescription for a controlled

substance when the physician or

eligible professional does not maintain

a validly issued and active DEA

registration number in the state where

the prescription was written; (6) refer to

the DEA the name and NPI of any

physician or eligible professional who is

enrolled in Medicare in multiple states

and who is only using a single DEA

registration number to prescribe

controlled substances to Medicare

beneficiaries; and (7) establish a data

matching agreement with the DEA to

verify the DEA registration numbers

assigned by the DEA for all physicians

and eligible professionals enrolled in

Medicare. Another commenter

suggested that CMS establish a 3-year

reenrollment bar under § 424.535(c) for

any physician or eligible practitioner

who is revoked pursuant to

§ 424.535(a)(13), or at least identify in

the final rule what the reenrollment bar

length will be. The commenter also

recommended that the reenrollment bar

apply to Medicare Advantage

Organizations, not simply the Part B

Medicare program and Part D drugs.

Response: We appreciate these

suggestions and will take them into

consideration as part of our ongoing

efforts to strengthen payment safeguards

in the Medicare program.

Comment: Several commenters

recommended that CMS allow

physicians and eligible professionals to

self-report a DEA license revocation or

suspension (or a state licensing body

revocation or suspension associated

with prescribing drugs) within 30 days

of the revocation, suspension, or

voluntary surrender of their DEA

registration.

Response: We do not believe that a

physician or eligible professional

should be permitted to evade

§ 424.535(a)(13) and the subsequent

reenrollment bar merely by reporting

the DEA certificate suspension or

revocation to CMS. The issues of

concern to us are the certificate

revocation or suspension itself and the

consequent need to protect Medicare

beneficiaries and the Trust Funds, and

not so much the physician or eligible

professional’s voluntary revelation of

the revocation or suspension.

Comment: A commenter requested

that CMS furnish two lists to Part D

sponsors: (1) A list of physicians and

eligible professionals who have a DEA

registration number that CMS has

confirmed with the DEA; and (2) a list

of physicians and eligible professionals

who do not have a valid and active DEA

registration number. The data on these

lists, the commenter suggested, could be

broken down by state.

Response: We appreciate this

suggestion and will take it under

advisement as we continue our efforts to

strengthen the integrity of the Part D

program.

Comment: Several commenters

requested clarification concerning

whether CMS intends to implement

§ 424.535(a)(13) retrospectively and

revoke the Medicare billing privileges of

physicians and eligible professionals

who have had their DEA number

suspended or revoked. One commenter

opposed a retroactive application of our

proposal.

Response: We retain the discretion to

revoke the billing privileges of an

enrolled physician or eligible

professional whose DEA certificate is

suspended or revoked at the time

§ 424.535(a)(13) becomes effective.

Comment: A commenter requested

CMS’ rationale for permitting an

individual to enroll in Medicare after

the DEA has: (1) Denied him or her a

DEA certificate of registration; or (2)

suspended or revoked a DEA

registration number and the suspension

or revocation is still in force.

Response: In the commenter’s second

scenario, we would be able to deny the

individual’s enrollment under

§ 424.530(a)(11). As for the first

scenario, our focus in preparing our

proposed rule was on individuals who

had active DEA certificate suspensions

or revocations. We nonetheless

appreciate the commenter’s apparent

suggestion and may consider addressing

it in future rulemaking.

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Comment: Several commenters

recommended that § 424.535(a)(13) not

be applied in cases where a physician’s

DEA number was suspended due to

substance abuse issues and the

physician is in counseling.

Response: We do not believe that a

blanket exemption from

§ 424.535(a)(13)’s potential application

for such individuals is warranted or

justified. However, we note that

§ 424.535(a)(13), like most other

revocation reasons in § 424.535, is

discretionary, meaning that CMS is not

required to exercise its revocation

authority. Although we have the

discretion to invoke § 424.535(a)(13)

regardless of the grounds for the DEA

certificate revocation or suspension, we

would also be able to take into account

the circumstances surrounding the

suspension or revocation prior to

making a final determination.

Comment: Several commenters

requested clarification as to whether: (1)

Proposed § 424.535(a)(13) applies to

non-controlled substances; and (2)

whether a voluntary surrender of a DEA

certificate (for instance, a semi-retired

physician wishes to prescribe only non-

controlled substances) would invoke

§ 424.535(a)(13). The commenters

believed that non-controlled substances

should be excluded from

§ 424.535(a)(13)’s purview if the

prescriber otherwise maintains the legal

authority to prescribe such drugs, is in

good standing with a state professional

licensing board, and has not engaged in

abusive prescribing. At a minimum, one

commenter suggested, CMS should refer

a potential case to the state for review

prior to making a decision.

Response: We explained in the

proposed rule that a DEA certificate of

registration is not required to dispense

non-controlled substances. Thus, if

one’s DEA certificate is suspended or

revoked, he or she would still be able

to prescribe non-controlled substances

absent some other restrictive action

taken by the DEA or the state (although

his or her billing privileges could still

be revoked under § 424.535(a)(13)). Yet

we note that § 424.535(a)(13) can be

invoked if the applicable licensing or

administrative body for any state in

which the individual practices suspends

or revokes his or her ability to prescribe

drugs. Therefore, if the state rescinds

the person’s ability to prescribe any

drugs, the individual (should

§ 424.535(a)(13) be invoked) would be

prohibited from prescribing Part D

controlled and non-controlled drugs.

The voluntary surrender of a DEA

certificate would not constitute grounds

for revocation under § 424.535(a)(13).

The provision as written is limited to

certificate revocations and suspensions.

However, we may consider addressing

this issue via future rulemaking.

Comment: Several commenters

recommended that CMS: (1) Explain

how it will obtain information from the

DEA regarding registration numbers that

are valid, approved, revoked,

suspended, voluntarily surrendered,

etc.; (2) make available to Part D

sponsors the information necessary to

deny a Part D claim for controlled

substances when a physician or eligible

professional does not have a valid and

active DEA registration number in the

state in which the prescription is

written; and (3) explain whether this

data will be in the file that is to be used

for the enforcement of §§ 423.120(c)(5)

and (6).

Response: We will, as deemed

necessary, address these issues via sub-

regulatory or other guidance.

Comment: Several commenters

requested clarification concerning

whether a physician would be able to

reenroll in Medicare after the

suspension or revocation of his or her

DEA registration is lifted.

Response: If we revoke a physician’s

billing privileges under § 424.535(a)(13),

the physician would be able to submit

a CMS–855 application for enrollment

upon the expiration of his or her

reenrollment bar.

Comment: A commenter

recommended that CMS clarify whether

physicians and eligible professionals

have 30 days to report a DEA

registration number revocation per

§ 424.516(d).

Response: The individual would be

required to report this information to

CMS under § 424.516(d) to the extent

the CMS–855 mandates that such

information be disclosed on the

application.

Comment: A commenter suggested

that CMS revise and update item B1 in

section 3 of the CMS–855I and the

CMS–855O, which states ‘‘Any

revocation or suspension of a license to

provide health care by any state

licensing authority; this includes the

surrender of such a license while a

formal disciplinary proceeding was

pending before a state licensing

authority,’’ to read as follows: ‘‘Any

revocation or suspension of a license to

provide health care by any state

licensing authority or Drug Enforcement

Administration Registration number.

This includes the surrender of such a

license while a formal disciplinary

proceeding was pending before a state

licensing authority.’’ The commenter

also sought clarification regarding

whether CMS will indeed treat a DEA

registration number denial or revocation

as a final adverse legal action.

Response: We appreciate this

suggestion and will take it under

advisement as we continue our efforts to

strengthen the integrity of the Part D

and Part B programs.

At this stage, CMS does not have the

legal authority to treat a DEA certificate

revocation or suspension as a final

adverse action because the current

definition of the latter term in § 424.502

does not specifically include DEA

actions. However, we may address this

issue through future rulemaking.

Comment: A commenter supported

our proposal to require Part D

physicians and eligible professionals

who prescribe controlled substances to

obtain and maintain a valid DEA

certificate of registration as a condition

of enrollment. Yet the commenter

recommended that the provision apply

only to those individuals who prescribe

controlled substances; this would avoid

impacting the ability of practitioners

providing services solely in local public

health departments to prescribe non-

controlled medications.

Response: As stated previously, if

one’s DEA certificate is suspended or

revoked, he or she would still be able

to prescribe non-controlled substances

absent some other restrictive action

taken by the DEA or a state (although

his or her billing privileges could still

be revoked under § 424.535(a)(13)).

However, if the state in which the

individual practices suspends or

revokes his or her ability to prescribe

any drugs, the individual (should

§ 424.535(a)(13) be invoked) would be

prohibited from prescribing Part D

controlled and non-controlled drugs.

Comment: Several commenters

opposed our proposed addition of

§ 424.535(a)(13), stating that a

suspended DEA certificate or state

license does not necessarily reflect one’s

inability to treat Medicare patients

safely and at a high standard. This is

particularly true, one commenter

contended, considering that many DEA

certificate or licensure revocations,

suspensions, or restrictions are due to

the physician or practitioner’s medical

illness, usually drug abuse and

dependence. Such individuals generally

complete treatment programs

successfully and should be given a

second chance. At a minimum, the

commenter maintained, CMS should

take into account such situations in

determining whether to invoke

§ 424.535(a)(13).

Response: As explained earlier,

§ 424.535(a)(13) is a discretionary

authority, and CMS can use its

discretion to take into account the

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individual’s particular circumstances in

determining whether a revocation is

warranted. But we caution that we are

not required to do so, and there may be

instances in which we decide that the

certificate revocation or suspension

alone, on its face, is sufficient to justify

invoking § 424.535(a)(13).

For the reasons stated in this section,

we are finalizing our proposed additions

of §§ 424.530(a)(11) and 424.535(a)(13).

c. Patterns or Practices of Prescribing

We also proposed to add a new

§ 424.535(a)(14) that would permit CMS

to revoke a physician or eligible

professional’s Medicare enrollment if

CMS determines that he or she has a

pattern or practice of prescribing Part D

drugs that—

• Is abusive and represents a threat to

the health and safety of Medicare

beneficiaries; or

• Fails to meet Medicare

requirements.

We chose not to define ‘‘abusive’’ and

‘‘threat to the health and safety of

Medicare beneficiaries’’ in the proposed

rule, primarily because the myriad of

questionable situations that could

warrant the possible application of

§ 424.535(a)(14) requires that CMS have

the flexibility to address each case on its

own merits. We believed that the

sounder approach was to propose a list

of criteria that we would use in

determining whether a prescriber is

engaging in prescribing practices

sufficient to warrant a revocation.

In determining instances of a pattern

or practice of prescribing that is abusive

and a threat to the health and safety of

Medicare beneficiaries, we proposed to

consider several factors, including—

• Whether there are diagnoses to

support the indications for which the

drugs were prescribed;

• Whether there are instances where

the necessary evaluation of the patient

for whom the drug was prescribed could

not have occurred (for example, the

patient was deceased or out of state at

the time of the alleged office visit);

• Whether the physician or eligible

professional has prescribed controlled

substances in excessive dosages that are

linked to patient overdoses;

• The number and type(s) of

disciplinary actions taken against the

physician or eligible professional by the

licensing body or medical board for the

state or states in which he or she

practices, and the reason(s) for the

action(s);

• Whether the physician or eligible

professional has any history of ‘‘final

adverse actions’’ (as that term is defined

in § 424.502);

• The number and type(s) of

malpractice suits that have been filed

against the physician or eligible

professional related to prescribing that

have resulted in a final judgment against

the physician or eligible professional or

in which the physician or eligible

professional has paid a settlement to the

plaintiff(s) (to the extent this can be

determined);

• Whether any State Medicaid

program or any other public or private

health insurance program has restricted,

suspended, revoked, or terminated the

physician or eligible professional’s

ability to prescribe medications, and the

reason(s) for any such restriction,

suspension, revocation, or termination;

and

• Any other relevant information

provided to CMS.

In determining whether a physician or

eligible professional has a pattern or

practice of prescribing that fails to meet

Medicare requirements, we proposed to

consider the following factors, including

whether the physician or eligible

professional—

• Has a pattern or practice of

prescribing without valid prescribing

authority;

• Has a pattern or practice of

prescribing for controlled substances

outside the scope of the prescriber’s

DEA Certificate of Registration;

• Has a pattern or practice of

prescribing drugs for indications that

were not medically accepted—that is,

for indications neither approved by the

Food and Drug Administration (FDA)

nor medically accepted under 1860D–

2(e)(4) of the Act—and whether there is

evidence that the physician or eligible

professional acted in reckless disregard

for the health and safety of the patient.

Many patterns and practices of

prescribing, though perhaps

questionable on their face, do not upon

investigation involve abusive or

fraudulent behavior nor involve

substandard medical care. As such, we

proposed to base any revocation under

proposed § 424.535(a)(14) on situations

that fall outside the norm of appropriate

prescribing, and only after carefully

considering the relevant factors. A

thorough, detailed investigation by CMS

of the physician or eligible

professional’s prescribing practices

would be a prerequisite for the use of

§ 424.535(a)(14). Honest physicians and

eligible professionals who engage in

reasonable prescribing activities would

not be impacted by our proposal. We

noted further that CMS, rather than the

Part D plans or the A/B MACs, would

make all determinations under our

proposed provisions, though

information contained in referrals from

Part D Plan sponsors may be used as

part of CMS’ analysis to make

revocation decisions.

We received a high volume of

comments regarding proposed

§ 424.535(a)(14). Comment summaries

and our responses are as follows.

Comment: A number of commenters

opposed our proposed addition of

§ 424.535(a)(14). They generally stated

that this revocation reason would

negatively impact Medicare

beneficiaries by restricting access to

important medications and disrupting

current care plans, hence creating a

chilling effect on the practice of

medicine. They asserted that the

proposed provision could dissuade

physicians from appropriate

prescribing. What may be considered

excessive prescribing for the general

population, they added, could be

clinically appropriate given a patient’s

individual circumstances, particularly

in pain management; many ‘‘off-label’’

uses are clinically appropriate and

represent the standard of care,

especially with cancer patients. Several

commenters also stated that the process

of finding the right medication for a

particular individual may involve trial

and error over the course of months, if

not years; decisions about specific

medications to prescribe must be based

on clinical observations, knowledge of

past history, awareness of side effects,

and a process of collaboration between

doctor and patient. One commenter

stated that policies that markedly limit

the use of substances to treat chronic

pain could increase the suicide rate.

Response: We appreciate these

comments and fully recognize the

commenters’ concerns. We certainly

understand that each patient is

different, as is: (1) His or her specific

medical condition; (2) the setting in

which he or she is being treated; and (3)

the types and doses of medications that

may legitimately be required. As

alluded to in the proposed rule and as

we more emphatically state here, we

only intend to invoke § 424.535(a)(14) in

very limited and exceptional

circumstances. For this reason, we do

not believe that § 424.535(a)(14) will

have a chilling effect on physician or

practitioner prescribing activities or will

restrict beneficiaries’ access to

medications. Indeed, it will become

clear to honest and legitimate

prescribers (once § 424.535(a)(14)

becomes effective and is implemented)

that our focus is restricted to cases of

improper prescribing that are so

egregious that the physician or

practitioner’s removal from the

Medicare program is needed to protect

Medicare beneficiaries.

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Comment: Many commenters

contended that state medical licensing

boards are the appropriate bodies to

review prescribing practices; one such

commenter stated that prescription

restrictions under Part D should only be

imposed if the state board finds a

pattern of negligence in prescribing

practices. Other commenters

recommended that CMS, in lieu of

utilizing § 424.535(a)(14), refer cases of

improper prescribing to the applicable

state board for its review and

disposition, with one commenter adding

that CMS could then decide whether to

take action based on the state’s findings.

This commenter stated that such

investigatory actions should be left to

the state; having both CMS and the state

undertake separate investigations would

be duplicative and redundant, perhaps

slowing down both investigations in the

process.

Response: We recognize the leading

position of state medical boards in

monitoring the practice of medicine.

However, such bodies operate

independently of CMS. They play no

role in overseeing the Medicare

program, a responsibility that rests

exclusively with CMS. As such, we

must be able to rapidly take steps on our

own volition (without having to wait for

possible action by state licensing boards

or other bodies) to protect Medicare

beneficiaries and the Trust Funds from

abusive behavior.

Comment: Several commenters

asserted that CMS lacks the statutory

authority for § 424.535(a)(14).

Response: We disagree. As we stated

in the proposed rule, sections 1102 and

1871 of the Act give the Secretary the

authority to establish requirements for

the efficient administration of the

Medicare program. We believe that

§ 424.535(a)(14) is necessary to help

ensure the integrity and efficiency of the

Medicare program.

Comment: Several commenters

opposed the use of

§ 424.535(a)(14)(i)(F), which addresses

prescription-related malpractice suits,

as a criterion. One commenter

contended that CMS’ assertion that the

existence of such a lawsuit is somehow

equivalent to liability is incorrect. The

commenter, as well as others, stated that

many liability insurers settle cases with

little or no merit. Another commenter

stated that it would be difficult for CMS

to verify the existence of such suits and

settlements, while another commenter

contended that certain physician

specialties at high risk for malpractice

suits could be unfairly targeted under

§ 424.535(a)(14).

Response: We did not assert in the

proposed rule (and do not in this final

rule) that such a lawsuit automatically

equates to liability. We realize that

certain cases are settled with no

admission or even existence of liability.

Nonetheless, it would be inappropriate

and even irresponsible for CMS to

completely disregard situations where a

physician or practitioner has, for

example, been sued several times for

prescription-related malpractice and has

either settled one of the cases or has had

at least one final judgment against him

or her.

We stress that § 424.535(a)(14)(i)(F)

will represent only one of several factors

in our § 424.535(a)(14) determinations,

and it will not in and of itself be

dispositive.

With respect to the next-to-last

comment, we included the language ‘‘to

the extent this can be determined’’ at

the end of proposed

§ 424.535(a)(14)(i)(F) based on our

recognition that it may occasionally be

difficult to ascertain the specific

outcome of such suits.

Regarding the last comment, and as

already stated: (1) We only intend to

invoke § 424.535(a)(14) in very limited

and exceptional circumstances; (2) we

will account for the patient’s particular

situation and setting in determining

whether a § 424.535(a)(14) revocation is

warranted; and (3) § 424.535(a)(14)(i)(F)

is only one of a number of factors we

will consider.

Comment: Several commenters stated

that CMS’ proposal is duplicative of

current safety mechanisms, ignores the

long history of states regulating the

licensure process, adds yet another layer

of regulatory burden and administrative

costs to the program, and gives the

federal government an excessive amount

of latitude without furnishing clear

objectives. They added that CMS has

stepped outside its statutory authority

and into regulating the practice of

medicine, and has also usurped the

authority of state boards to regulate the

practice of medicine. They requested

that CMS work with the medical

community through pre-rulemaking

activities, such as listening sessions,

town halls, and the issuance of requests

for information (RFI), to better develop

any future proposals to address the

agency’s concerns. Another commenter

stated that CMS should focus on

preventing individuals who do not have

the authority to prescribe (such as

massage therapists) from prescribing

Part D drugs rather than on applying

§ 424.535(a)(14).

Response: Section 424.535(a)(14) is

not an attempt by CMS to regulate the

practice of medicine or to usurp state

medical boards’ roles in doing so. States

remain free to take action against

physicians and practitioners as they

deem fit. Again, though, Medicare is a

distinct program that is under the

purview of CMS, not the states. We

must have the ability to remove abusive

prescribers from the Medicare program

without having to obtain or wait for

approval from state licensing boards or

other bodies that do not have oversight

of Medicare.

As mentioned earlier, we have the

authority under sections 1102 and 1871

of the Act to establish requirements for

the efficient administration of the

Medicare program. We believe this

includes ensuring that the Part D

program is properly administered, and

that Medicare beneficiaries and the

Trust Funds are protected. We believe

that § 424.535(a)(14) will be an

important part of these objectives.

We appreciate the recommendation

that we work with the medical

community in developing future

proposals and will take it under

advisement.

As for the final comment, our

addition of (c)(6) is aimed at stemming

the problem of unqualified prescribers.

Yet we disagree with the implication

that this issue should be our sole focus.

Other matters, such as egregious and

dangerous prescribing practices by

physicians and eligible professionals,

must be addressed as well.

Comment: Several commenters

expressed concern about the potential

application of § 424.535(a)(14) to

hospice and palliative physicians. They

stated that medications furnished in a

hospice or palliative setting often

require doses and indications that are

generally not seen in conventional care.

Such doses, they contend, are often

necessary to relieve pain and furnish

comfort to terminally ill patients, noting

also that dosages might vary depending

on what stage of the dying process the

patient is in; terminally ill patients, they

state, require different pain management

strategies and often higher doses of

opioids than those who are not

terminally ill. The possible application

of § 424.535(a)(14) to hospice and

palliative physicians, they asserted,

could prevent these physicians from

prescribing needed medications to

dying patients due to concerns about

prescribing outside the usual norms.

They requested an exception to

§ 424.535(a)(14) when the patient is

specifically receiving hospice or

palliative services. Another commenter

suggested exempting from

§ 424.535(a)(14) those physicians who

are ABMS-board certified in hospice

and palliative medicine, or medical

directors certified by the Hospice

Medical Director Certification Board.

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Response: We decline to establish a

specific exception for hospice or

palliative physicians or services, for this

would eliminate our ability to take

action against truly egregious and

dangerous prescribing practices that

may occur in such settings. However, as

stated earlier, we fully understand that

each patient is different, as is his or her

specific condition and needs. We will

operate under this overriding principle

when considering whether

§ 424.535(a)(14) should be invoked in a

particular instance.

Comment: A number of commenters

contended that several of the criteria

identified by CMS are beyond the

expertise of CMS regulators.

Response: We disagree. We have

physicians and other medical personnel

on staff who we anticipate may be

consulted, as needed, in potential

§ 424.535(a)(14) cases.

Comment: A commenter stated that

because of the limited number of

certified hospice and palliative

physicians, most hospice and palliative

patients will be cared for by their

primary care physician or mid-level

practitioner. The commenter

recommended that CMS add an appeals

process with peer-review to ensure that

good clinicians are not penalized

unduly. Other commenters expressed

concern that the proposed rule made no

mention of appeal rights, while one

commenter requested how physicians

can defend themselves against a

§ 424.535(a)(14) revocation.

Response: A physician or eligible

professional whose Medicare billing and

prescribing privileges are revoked under

§ 424.535(a)(14) may appeal the

revocation per 42 CFR part 498. Also, as

already mentioned, we anticipate that

physicians and other medical personnel

of CMS may be consulted, as needed, in

potential § 424.535(a)(14) cases.

Comment: One commenter stated that

CMS should clarify the term ‘‘necessary

evaluation’’ as it is used in

§ 424.535(a)(14)(i)(B); the commenter

explained that a hospice or palliative

physician must often rely on the

evaluations of the nurses and is not

always able to physically see a

homebound patient. The commenter

was concerned that he or she would not

be able to adjust dosages without seeing

the patient. Another commenter stated

that in applying this criterion, CMS

should focus more on the prescriber’s

status than on beneficiaries who may be

evaluated outside of their normal

residence.

Response: We are not in a position to

further clarify or define the term

‘‘necessary evaluation’’ in this rule, for

we must retain the flexibility to address

the variety of factual scenarios that

could potentially implicate

§ 424.535(a)(14). However, we recognize

the commenter’s concern, and as stated

earlier we will account for the patient’s

particular needs and circumstances.

We intend to review all aspects of the

prescriber’s and the patient’s statuses

and physical locations when examining

this criterion.

Comment: A commenter

recommended that in lieu of adopting

its proposed new revocation policy,

CMS should use its existing regulatory

authority under § 405.371 to suspend

Part D prescribing privileges when there

is a credible allegation of fraud. If CMS

believes it lacks the legal authority to

implement a payment suspension that

precludes a physician or eligible

professional from prescribing, ordering,

or certifying services for a Medicare

beneficiary when a credible allegation of

fraud exists, CMS should consider

proposing a new policy that expands on

the existing provisions in § 405.371 and

allow the public to comment on this

policy. Another commenter requested

that CMS explain how a revocation

under § 424.535(a)(14) is different from

an OIG exclusion based on a conviction

of fraud. Another commenter contended

that CMS, through § 424.535(a)(14),

would essentially be making fraud

determinations that CMS lacks the

statutory authority to undertake.

Response: We disagree with the first

commenter’s recommendation and the

third commenter’s statement because

abusive or inappropriate prescribing

does not necessarily involve fraudulent

behavior, although it could well involve

improper payments. We further believe

that revocation is a more appropriate

remedy for abusive prescribing than a

payment suspension. In the latter

situation, the prescriber would remain

enrolled in Medicare despite his or her

improper prescribing; we believe this

goes against the overall objective of

§ 424.535(a)(14), which is to protect

Medicare beneficiaries and the Trust

Funds from abusive behavior.

Comment: A commenter suggested

that CMS should, prior to finalizing

§ 424.535(a)(14), solicit comments on a

process of notification and opportunity

to correct prior to implementing a

revocation under § 424.535(a)(14). Other

commenters likewise stated that before

revoking a supplier under

§ 424.535(a)(14), CMS should notify the

supplier of the potential revocation and

enable the supplier to respond.

Response: We disagree. Providing a

physician with an opportunity to take

corrective action would not be

appropriate under these circumstances,

given that CMS would have based its

revocation action on a prescriber

engaging in a pattern or practice of

abusive prescribing over some period of

time. One of our goals with

§ 424.535(a)(14) is to place prescribers

on notice that abusive prescribing

practices can result in the individual’s

losing his or her Medicare billing

privileges. To permit an abusive

prescriber to avoid revocation by simply

modifying his or her behavior

temporarily would undermine this

objective and, more importantly, would

not undo the harm that may have been

done to Medicare beneficiaries because

of the prescriber’s practices.

Comment: Several commenters

suggested that CMS be required to

consult with and receive written

approval from the OIG and/or the

Department of Justice prior to any

invocation of § 424.535(a)(14).

Response: We do not agree. As

mentioned earlier, CMS administers the

Medicare program. We must be able to

expeditiously remove abusive

prescribers from the Medicare program

without having to secure prior approval

from law enforcement. Indeed, failure to

take such quick action would be

inconsistent with the spirit of the two

aforementioned OIG reports that urged

CMS to exercise greater oversight of the

Part D program.

Comment: A commenter opposed the

criterion in § 424.535(a)(14)(i)(B) that

reads, ‘‘Whether there are instances

where the necessary evaluation of the

patient for whom the drug was

prescribed could not have occurred (for

example, the patient was deceased or

out of state at the time of the alleged

office visit).’’ The commenter stated that

this factor does not address whether the

physician or eligible professional is out

of the country when the new

prescription for a Part D drug was given

to a beneficiary. Another commenter

stated that the criterion does not: (1)

Outline cases where a physician or

eligible professional is allowed under

state law to prescribe Part D drugs over

the phone to a Medicare beneficiary

who is on vacation and may need a Part

D prescription; and (2) differentiate

between a prescription for a new Part D

drug a day after the death of a Medicare

beneficiary and a refill of an existing

Part D medication by the spouse or

child after the death of the Medicare

patient. This commenter requested that

CMS rescind this criterion unless it

furnishes more information, such as

how it will be used as a factor in making

a revocation determination. Another

commenter requested the removal of

this criterion if it will be based solely on

PDE data.

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Response: The example cited in

§ 424.535(a)(14)(i)(B) is not the only one

to which the criterion could apply. The

term ‘‘for example’’ indicates that

multiple factual scenarios are

envisioned. Such is the case with

§ 424.535(a)(14)(i)(B). We will consider

the specific facts of each situation in

determining whether the resolution of

this factor weighs in favor of a

revocation under § 424.535(a)(14). In

addition, we will consider information

besides PDE data when evaluating this

criterion.

Comment: A commenter opposed the

criterion outlined in

§ 424.535(a)(14)(i)(D) regarding the

number and type(s) of disciplinary

actions. The commenter contended that

CMS did not indicate whether it would

use a particular state licensing board

decision (for example, a reprimand or

fine) as its basis for taking an action

under § 424.535(a)(14). The commenter

stated that CMS should rescind this

portion of its proposal unless it: (1)

Provides more information regarding the

state medical board actions that would

be used as a factor in making a decision

under § 424.535(a)(14); and (2) affords

the public an opportunity to comment

on CMS’ implementation approach.

Response: We are not in a position to

outline every conceivable disciplinary

action that a state medical board could

impose. Such actions vary widely by

state and by magnitude, which is why

§ 424.535(a)(14)(D) accounts for the

specific type of disciplinary action

involved.

Comment: Several commenters stated

that the term ‘‘abusive’’ should be

stricken from the rule because it is too

broad and subjective. Others requested

that CMS at least provide more

clarification and guidance: (1) As to the

meaning of the terms ‘‘abusive,’’

‘‘excessive dosage,’’ ‘‘improper

prescribing practices,’’ and ‘‘threat to

patient health and safety’’; and (2)

regarding the steps that would be taken

if the agency determines that a

prescriber’s Medicare enrollment should

be revoked; one commenter stated that

CMS Publication 100–18, Chapter 9,

contains a definition of ‘‘abusive’’

whereas our proposed rule did not.

Another commenter recommended that

this guidance incorporate evidence-

based guidelines and research along

with the patient’s history.

Response: We did not define these

terms in the proposed rule and decline

to do so in this final rule because of the

need to retain our flexibility in

addressing a variety of factual scenarios.

Any revocation under § 424.535(a)(14)

would be processed in the same manner

as all other revocations, with the

exception that with these revocations,

the applicable Part D plan sponsor(s)

would also be notified of CMS’

revocation action so that the sponsor

can terminate the individual’s

prescribing privileges.

Comment: A commenter stated that

while CMS noted in its proposed rule

that it would conduct a complete and

thorough investigation prior to any

revocation, there are no safeguards to

ensure a full investigation. The

commenter added that CMS did not

identify who would conduct these

investigations. Other commenters

requested information as to the process

for determining whether abusive

prescribing or a threat to patient health

and safety exists. Another commenter

stressed the need for a clearly defined

protocol that would be followed before

any revocation decision is made.

Response: We stated in the proposed

rule and reiterate here that in every case

we will carefully consider all of the

relevant factors before invoking

§ 424.535(a)(14); this will include a

review of all of the evidence before us,

including the patient’s particular needs,

circumstances, and setting. CMS and

contractor staff will conduct the

investigations, with CMS personnel

performing the evaluation of the factors

and making the final determination.

More detailed information regarding the

review process will, as deemed

necessary, be disseminated via sub-

regulatory or other guidance.

Comment: Several commenters

requested clarification regarding

whether CMS intends to implement

§ 424.535(a)(14) retrospectively. They

supported a strictly prospective

application.

Response: We reserve the right to

revoke the billing privileges of a

physician or eligible professional

enrolled as of the effective date of this

rule who has engaged or is engaging in

abusive prescribing as described in

§ 424.535(a)(14). However, the effective

date of the revocation would not be

earlier than the effective date of this

final rule.

Comment: A commenter questioned

whether CMS will routinely scour its

data for suppliers with suspicious

prescribing patterns and, if so, what

CMS will then do.

Response: Consistent with our current

practices, we will be alert for such

prescribing patterns. Once a pattern is

detected, we will conduct a review and

investigation using our existing

procedures. If, based on this review, we

believe that a situation involving

abusive prescribing may exist, we will

determine whether action under

§ 424.535(a)(14) is warranted.

Comment: A commenter stated that

proposed § 424.535(a)(14) is

unnecessary because the OIG has the

ability to exclude from Medicare (under

42 U.S.C. 1320a–7(b)(6)(B)) any

individual who has furnished items or

services to patients substantially in

excess of the patients’ needs or of a

quality that does not meet

professionally recognized standards of

care.

Response: While we recognize that

the OIG has its exclusion authority,

CMS is the agency directly responsible

for administering the Medicare program

and for protecting Medicare

beneficiaries and the Trust Funds.

Consequently, CMS should be able to

use its own authority to pursue

administrative actions to address our

concerns regarding abusive prescribing.

We also reiterate that the OIG has

recommended that CMS exercise greater

oversight over the integrity of the Part

D program and has noted its concern

about abusive prescribing. Therefore, we

believe it is proper for CMS (and

consistent with the OIG’s

recommendations) to implement

§ 424.535(a)(14).

Comment: Several commenters

expressed support for our proposed

addition of § 424.535(a)(14). One

commenter stated that this will allow

for more effective monitoring of

improper prescribing behaviors. The

commenter noted that inappropriate

prescribing can result in overutilization

of medications that increase program

costs without providing any health

benefit and can harm beneficiaries.

Another commenter stated that

§ 424.535(a)(14) will enable CMS to

exercise greater control over the Part D

program.

Response: We appreciate the support

of these commenters.

Comment: Several commenters

recommended that CMS explain in the

final rule whether CMS or Medicare

contractors will use clinical staff

(physicians and pharmacists) in

determining whether Part D prescription

drug abuse has occurred and whether a

revocation under § 424.535(a)(14) is

warranted.

Response: As stated earlier, we may

use clinical staff, as needed, in making

§ 424.535(a)(14) determinations.

Comment: One commenter

recommended that CMS, in lieu of

finalizing § 424.535(a)(14), revoke the

Medicare billing and/or prescribing

privileges of individuals under

§ 424.535(a)(10) when the medical

documentation does not support the

Part D prescription written by the

physician or eligible professional. The

commenter believed that this approach

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would be easier and more cost-effective

to implement and would avoid the need

for CMS to make clinical judgments.

Response: Section 424.535(a)(10) does

not apply to Part D prescriptions.

Consequently, § 424.535(a)(10) cannot

be used in lieu of § 424.535(a)(14).

Comment: A commenter requested

clarification concerning whether CMS

or its Medicare contractors will conduct

medical document reviews to determine

whether an abusive prescribing pattern

exists.

Response: Medical document reviews

are one of several actions we may

undertake in determining whether an

invocation of § 424.535(a)(14) is

warranted.

Comment: With respect to the

criterion regarding diagnoses to support

indications for which the drugs were

prescribed, a commenter: (1) Questioned

how CMS will cross-reference Part D

prescriptions with appropriate

diagnoses; and (2) stated that CMS

should include all scientifically-

supported indications, whether on the

FDA labeling or not.

Response: We will, as deemed

necessary, furnish sub-regulatory or

other guidance to address the

commenter’s first issue. We agree with

the commenter’s second comment, and

intend to include all scientifically-

supported indications irrespective of

whether they are on the FDA labeling.

Comment: One commenter expressed

concern about the potential impact of

§ 424.535(a)(14) on pharmacies and

their patients. The commenter stated

that beneficiaries may see an

interruption in the continuity of their

health care if their physician is no

longer qualified to be a Medicare

supplier; the commenter believed there

should be options available to ensure

that health care is not interrupted.

Response: As explained earlier, we

only intend to invoke § 424.535(a)(14) in

exceptional circumstances.

Consequently, we do not believe that

patient access in general will be

impacted.

Comment: In referring to the criterion

in § 424.535(a)(14) regarding private

insurers, a commenter stated that CMS

does not have the statutory authority to

make enrollment and revocation

decisions based upon the actions of

commercial health insurers. The

commenter urged CMS to explain its

legal justification for invoking

§ 424.535(a)(14) on this ground. The

commenter also suggested that CMS

explain how it will obtain information

regarding private insurer actions taken

against physicians and practitioners and

whether these insurers will be required

to furnish such data to CMS.

Response: We disagree with the

commenter’s assertion that we do not

have the authority to consider the

actions of private insurers in

determining whether a § 424.535(a)(14)

is appropriate. Again, we have the

authority under sections 1102 and 1871

of the Act to establish requirements for

the efficient administration of the

Medicare program. If private insurers

have taken actions against a particular

physician or practitioner for

questionable prescribing activities, we

believe it would be appropriate for us to

consider this information in light of our

obligation to oversee the Part D program

in a responsible manner. We will

attempt to work with private insurers to

facilitate the appropriate exchange of

information.

Comment: A commenter opposed the

following criterion: ‘‘Whether the

physician or eligible professional has

prescribed controlled substances in

excessive dosages that are linked to

patient overdoses.’’ The commenter

contended that CMS: (1) Did not

provide the source or sources that it will

use to obtain this information, and (2)

already has a similar reason for

revocation in § 424.535(a)(3) regarding

felony convictions. The commenter

stated that if CMS adopts this criterion,

CMS should add the following language

to the end thereof: ‘‘that result in a

felony conviction of criminal neglect or

misconduct.’’ The commenter also

recommended that CMS: (1) Cite the

sources it will use to obtain information

on patient overdoses; and (2) defer to

the state medical boards regarding

whether a physician or eligible

professional is posing an immediate risk

to Medicare Part D beneficiaries

(assuming CMS intends to consider state

actions in its § 424.535(a)(3)

determinations).

Response: We are unclear as to the

specific information to which the

commenter is referring; namely,

whether the commenter is alluding to

published clinical data (for example,

professional journals) or to information

regarding a particular patient’s

overdose. If it is the latter, as we

suspect, we intend to use both publicly

available and internal data to determine

whether cases of excessive prescribing

exist. To the extent this data is obtained

from state medical boards, CMS (for

reasons alluded to earlier) does not

believe a prior determination by the

state of an immediate risk to Part D

beneficiaries is necessary.

Comment: A commenter suggested

that in lieu of revoking an individual

under § 424.535(a)(14), CMS should

place the physician under a payment

suspension and deactivate his or her

Medicare billing privileges. Another

commenter recommended that CMS

consider a sliding scale to include

lower-level consequences (such as

suspensions) for less severe

occurrences.

Response: We disagree. With a

payment suspension, the physician

would remain enrolled in Medicare and

be able to prescribe Medicare Part D

drugs and provide Medicare Part B

services (although he or she would have

Medicare payments withheld for a

period of time). Moreover, there would

be no legal basis under § 424.540 to

deactivate the supplier’s prescribing

privileges, which is why revocation is

the most appropriate remedy to address

these situations.

Comment: A commenter stated that

the sole use of PDE data to identify

prescriber trends is insufficient to

determine abusive practices, for such

data cannot distinguish between: (1)

Legitimate high dose and frequency of

prescriptions; and (2) illegitimate

prescribing.

Response: We agree and intend to use

various data sources to detect such

practices.

Comment: Several commenters stated

that prescribers may avoid long-term

care practice for fear of being revoked

from Medicare.

Response: We disagree. We

mentioned earlier that we only intend to

invoke § 424.535(a)(14) in exceptional

circumstances involving truly abusive

behavior. Accordingly, we do not

believe that § 424.535(a)(14) will deter

prescribers from practicing in long-term

care settings.

Comment: A commenter suggested

that CMS provide additional data to

plans in order to improve a plan’s

ability to identify inappropriate patterns

and to apply claims processing edits

correctly/timely.

Response: We agree and are

considering various means of doing so.

Comment: One commenter stated that

a revocation under § 424.535(a)(14)

alone will not suspend or revoke the

practitioner’s right to prescribe drugs

under state law, meaning that patients

other than Medicare beneficiaries would

still be at risk. This is especially true,

the commenter added, considering that

§ 424.535(a)(14) does not require such

CMS revocations to be reported to the

state.

Response: It is possible that a

prescriber revoked under

§ 424.535(a)(14) may still be able to

retain his or her state license. However,

we are currently working with the states

to facilitate a closer exchange of

information regarding Medicare actions

taken against physicians and

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practitioners, which may facilitate

concomitant action taken by states.

Comment: Several commenters

requested clarification as to whether a:

(1) Part D plan sponsor would be

penalized if it fills a prescription from

a terminated supplier when information

about the termination is not available

(for example, in cases of retroactive

termination or an error with CMS

records); and (2) whether a pharmacy

would be penalized for filling a

prescription order that has been

approved through the claims

adjudication process. The commenter

opposed the application of such

penalties.

Response: We believe these comments

are outside the scope of this final rule.

Comment: A commenter

recommended that CMS remove the

following as a factor for revocation:

‘‘Has a pattern or practice of prescribing

for controlled substances outside the

scope of the DEA Certificate of

Registration.’’ The commenter instead

suggested that CMS work with the DEA.

Response: We disagree with the

commenter. As previously mentioned,

we are responsible for administering the

Medicare program and must be able to

take quick action against abusive

prescribers without the prior approval

of another agency.

Comment: A commenter stated that,

on its face, each criterion appears

reasonable. However, the commenter

expressed concern that the rule does not

provide guidance on the application and

weight given to each factor, which could

allow for subjective, contradictory, and

discriminate revocation decisions

(especially with respect to the last

criterion that permits CMS to consider

‘‘any other relevant information

provided to CMS.’’).

Response: We understand the

commenter’s concern and note that we

will, as deemed necessary, be issuing

sub-regulatory guidance that explains in

more depth the operational details of

the § 424.535(a)(14) determination

process. In addition, CMS, rather than

its contractors, will make all final

determinations. This will ensure greater

overall uniformity, as well as a more

consistent application of the various

factors.

Comment: While supporting much of

our proposed addition of

§ 424.535(a)(14), a commenter expressed

concerns regarding several criteria.

First, the commenter (referring to

proposed § 424.535(a)(14)(i)(A)) stated

that there are many reasons why a

physician might prescribe a particular

drug without a formal diagnosis (for

instance, the physician may be unable

to conduct a full evaluation due to

distance, cultural preference, etc.).

Second, the commenter recommended

that a statute of limitations be imposed

regarding the individual’s final adverse

action history.

Response: We recognize that there

may be instances where a formal

diagnosis does not or cannot occur. In

applying § 424.535(a)(14)(i)(A), we will

consider the reason such a diagnosis did

not take place. Regarding the

commenter’s second concern, we do not

favor a statute of limitations for the final

adverse action criterion; CMS must be

able to retain its flexibility in this

regard. Nonetheless, we will take into

account when the adverse action

occurred when analyzing whether it

supports a finding of abusive

prescribing.

Comment: A commenter

recommended that CMS forgo adopting

§ 424.535(a)(14) and instead work with

the Congress to suspend Coverage and

Payment for Questionable Part D

Prescriptions, as described in the FY

2015 Department of Health and Human

Services performance budget.

Response: We continue to work with

the Congress in our efforts to enhance

Part D program integrity, and we believe

that § 424.535(a)(14) is an important

step in this direction.

Comment: With respect to the

criterion dealing with state disciplinary

actions, a commenter suggested that

CMS monitor prescriber licensure

statuses and status changes in lieu of

state disciplinary actions. The

commenter stated that many states do

not publish state board disciplinary

actions in a standardized format that

can be easily used to ascertain a

prescriber’s practicing privileges.

Response: We recognize that state

disciplinary data may not always be

available. To the extent that it is,

though, we do not believe it should be

completely disregarded, even if the

action did not result in a licensure

suspension or revocation.

Comment: A commenter requested

that CMS ensure that innovative abuse-

deterrent technologies are employed as

a tool in working to curb prescription

drug abuse in Medicare. Another

commenter recommended that CMS

utilize health information technology

systems to collect and organize data for

measuring performance, supporting

clinical decisions, and evaluating

quality improvement processes; drug

utilization procedures and prescription

drug monitoring programs (PDMPs), for

instance, could be important tools for

improving public health and clinical

practice.

Response: We appreciate these

suggestions and note that we are

considering various technological and

system-based means of enhancing our

oversight of the Part D program.

Comment: A commenter offered

several suggestions. First, CMS should

furnish examples in the final rule as to

the process of identifying and

quantifying a pattern or practice as well

as the actual revocation process of

Medicare enrollment. Second, CMS

should offer additional educational

opportunities for suppliers regarding

Medicare prescribing practices, which

would place physicians and eligible

professionals on notice that they must

meet Medicare requirements and must

prescribe properly.

Response: We agree with the

commenter’s second recommendation

and, as stated earlier, plan to conduct

outreach regarding prescribing

practices. As for the first suggestion, we

are not in a position in this final rule to

furnish specific examples of when we

would conclude that abusive

prescribing exists and a § 424.535(a)(14)

revocation is warranted; again, we must

retain our flexibility to address a variety

of factual scenarios.

The revocation process will be the

same as that which currently exists for

all other revocation reasons under

§ 424.535(a), the lone exception being

that Part D plan sponsors will be

notified of a revocation action under

§ 424.535(a)(14).

Comment: One commenter

recommended that CMS revise the

regulation to permit denial of an

enrollment application due to

prescribing practices that are either

abusive and/or represent a threat to the

health and safety of Medicare

beneficiaries.

Response: We appreciate this

suggestion and may consider it as part

of a potential future rulemaking effort.

Comment: One commenter

recommended that CMS obtain and

consider a recommendation from the

plan sponsor’s medical director as to

whether the prescribing pattern falls

outside the standard of care and

represents a therapeutic use for which

safety and efficacy is not otherwise

supported by available scientific

evidence.

Response: We appreciate this

suggestion, but note that CMS staff

includes medical personnel who, as

stated earlier, may be consulted as

needed in potential § 424.535(a)(14)

cases.

Comment: A commenter requested

that CMS eliminate the criterion dealing

with patterns and practices of

prescribing without authority and

instead utilize processes already in

place to validate prescriptive authority

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at the point of sale. The commenter also

recommended that CMS work with

industry stakeholders to develop a

streamlined process for capturing data

that will be used in CMS’

§ 424.535(a)(14) determinations.

Response: We disagree with the first

comment. The issue is not the technical

or logistical means of validating

prescriptive authority but whether the

unauthorized prescribing of drugs is

indicative of abusive prescribing. As for

the second comment, we are somewhat

unclear as to the commenter’s specific

request; nevertheless, we will consult

with plan sponsors and pharmacy

interest groups as needed to ensure that

our new provisions are effectively

implemented.

Comment: A commenter expressed

support for CMS’ decision not to define

‘‘abusive’’ and ‘‘threat to the health and

safety of Medicare beneficiaries’’ and to

allow CMS the flexibility to address

each case on its own merits. However,

it urged CMS to review the list of

criteria on a periodic basis and consider

additions and modifications to reflect

advances in clinical best practices and

the evolution of abusive prescribing

patterns or practices.

Response: We appreciate the

commenter’s support and intend to

regularly review (and, if needed, update

via further rulemaking) the criteria in

§ 424.535(a)(14) to account for changes

in the medical field.

Comment: A commenter suggested

that in making § 424.535(a)(14)

determinations, CMS should: (1) Take

into account historical information in

the National Practitioner Data Bank

(such as past DEA registration

suspensions); and (2) consider the

relative severity of any state licensure

sanctions.

Response: We appreciate this

comment. As stated earlier, a physician

or eligible professional’s final adverse

action history (both past and present)

will be a criterion for us to consider; the

severity of any such actions or sanctions

will be taken into account as well.

Comment: A commenter stated that

proposed § 424.535(a)(14) may run

counter to Medicare regulations that

protect patient rights, creating the

possibility that systematic limitations

on prescribing practices may constitute

a violation of patients’ rights to pain

assessments, palliative care, and the

provision of hospice care.

Response: We disagree with the

commenter. We do not believe that

§ 424.535(a)(14) will hinder the ability

of Medicare beneficiaries to receive

appropriate medications, particularly

considering that: (1) § 424.535(a)(14)

will only be applied in egregious

instances; and (2) the patient’s

particular needs, circumstances, and

setting will be taken into account.

Comment: A commenter stated that

there needs to be additional information

in the final rule as to how this

information would be provided to PBMs

and how PBMs should administer it; for

example, guidance is needed on how to

manage suppliers that are licensed in

multiple states but have an action

against them in one state but not the

other(s).

Response: We will, as deemed

necessary, disseminate sub-regulatory or

other guidance that addresses the issues

the commenter has raised.

Comment: Several commenters

believed that § 424.535(a)(14) could be

strengthened even further by permitting

revocation of enrollment based on

prescribing practices that are abusive

and/or represent a threat to the health

and safety of Medicare beneficiaries, as

opposed to requiring that both of these

criteria be met. The commenters stated

that some prescribing practices might be

fraudulent and abusive but not

necessarily representative of a threat to

the health and safety of Medicare

beneficiaries.

Response: We agree, and will revise

§ 424.535(a)(14) accordingly.

Specifically, the language in

§ 424.535(a)(14)(i) that reads, ‘‘The

pattern or practice is abusive and

represents a threat to the health and

safety of Medicare beneficiaries,’’ will

be changed to ‘‘The pattern or practice

is abusive or represents a threat to the

health and safety of Medicare

beneficiaries or both.’’ This will give us

further flexibility in addressing cases of

abusive prescribing, which in turn will

enable us to better protect Medicare

beneficiaries and the Trust Funds.

Given these comments and our

responses, we are finalizing our

addition of § 424.535(a)(14) with the

exception noted in the previous

paragraph.

We also received a number of

comments that, in general, either

applied to all of our proposed

provisions or were not precisely related

to any specific proposal. Our summary

of the comments and are responses are

as follows.

Comment: Several commenters

opposed the use of the CMS–855O on

various grounds. First, the CMS–855O

does not collect practice location or

medical storage information, which the

commenter believes is a significant

vulnerability and is inconsistent with

CMS’ existing regulations. Second, use

of the CMS–855O is inappropriate

because proposed and final regulations

(in which the notice-and-comment

process is used) regarding its use and

implementation were not published in

the Federal Register. Third, the

commenter contended that CMS does

not have the statutory or legal basis to

use an enrollment application other

than for the express purpose of enrolling

a provider or supplier; as such, CMS

exceeded its legal authority to

implement the CMS–855O for the sole

purpose of ordering and certifying

services and items in the Medicare

program. Fourth, the commenter

contended that CMS lacks the statutory

and regulatory basis to establish a

registration process for Medicare. Fifth,

the CMS–855O is duplicative of the

CMS–855I form, the latter of which was

subject to notice-and-comment; also,

requiring a physician who is enrolled

(via the CMS–855I) solely to order or

certify services or items to then

complete the CMS–855I if he or she

wishes to bill Medicare increases the

paperwork burden.

Response: These comments are

outside the scope of this final rule.

Comment: A commenter

recommended that to improve

transparency, CMS should post the

name, NPI, and reason for each

Medicare enrollment revocation or

payment suspension and the duration of

the revocation or payment suspension

on the Medicare Provider/Supplier

Enrollment Web site. The commenter

believed that this information would be

useful for Medicare Advantage

Organizations, Part D sponsors, and the

public.

Response: We appreciate this

suggestion, and will take it under

advisement as we continue our efforts to

strengthen the integrity of the Part D

program.

Comment: Several commenters

recommended that CMS: (1) Explain

why it does not believe the inclusion of

the practice location on the CMS–855O

is essential to identifying the physician

or non-physician practitioner; (2)

require that all physicians and non-

physician practitioners report their

practice locations; (3) mandate that only

physicians with a defined specialty be

permitted to prescribe Part D drugs; (4)

remove from the list of physicians and

eligible professionals with an approved

enrollment record any physician or non-

physician practitioner with an

undefined or unlisted physician or non-

physician specialty code; (5) explain

why it did not solicit comments on the

use of an electronic signature in the

Internet-based versions of the CMS–

855O and the CMS–855I; (6) provide the

authority to implement and use the

CMS–855O beginning in July 2011 and

explain why it did not choose to solicit

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public comments on changes to

regulatory provisions found in

§§ 424.502 and 424.505 for almost 3

years after adopting and using the CMS–

855O; (7) explain why it is using the

CMS–855O rather than the CMS–855I

since the CMS–855O, in the

commenter’s view, essentially

duplicates the CMS–855I; (8) modify

and use the CMS–855I (rather than

continue using the CMS–855O) because

CMS cannot verify the practice location

of a physician who registers using the

CMS–855O; (9) explain why CMS has

not proposed to revise § 424.500 to

accommodate the registration of

physicians and non-physician

practitioners for the sole purpose of

ordering/certifying services and items in

the Medicare program; (10) disenroll all

physicians and practitioners enrolled

via the CMS–855O and require them to

enroll via the CMS–855I; and (11)

provide the number of individuals

enrolled or registered into the Medicare

program using the CMS–855O since July

2011.

Response: These comments are

outside the scope of this final rule.

Comment: A commenter suggested

that the final rule take action against

physicians who report via the Internet

that they are board certified when in

fact they are not.

Response: We appreciate this

suggestion. While we are unable to

include such a provision in this final

rule because we did not propose it, we

will take it under advisement as we

continue our efforts to strengthen the

integrity of the Part D program.

Comment: A commenter

recommended that CMS require

physicians and eligible professionals to

have an active Medicare enrollment to

order Part B drugs.

Response: This comment is outside

the scope of this final rule.

Comment: A commenter

recommended that CMS not allow

physicians and eligible professionals

who have opted-out of Medicare to

order or certify services and items when

they have been suspended or revoked by

a state licensing body.

Response: This comment is outside

the scope of this final rule.

Comment: A commenter

recommended that CMS clarify whether

a Part D Medicare beneficiary will need

to provide his or her physician’s name

and NPI to his or her plan sponsor if he

or she submits a Part D claim for

payment.

Response: We will, as deemed

necessary, address this issue via sub-

regulatory or other guidance.

Comment: A commenter

recommended that CMS exclude

physicians and eligible professionals

who have opted out of the Medicare

program from prescribing Part D

covered drugs because CMS does not

have the legal authority in either the

Social Security Act or existing

regulations to revoke the prescribing

privileges of a physician or eligible

professional who has opted-out of the

Medicare program.

Response: As we stated previously,

section 1802(b) of the Act is clear that

certain physicians and practitioners

may opt-out of the Medicare program

and enter into private contracts with

Medicare beneficiaries. We believe that

to require such individuals to enroll in

Medicare would be inconsistent with

this statutory provision.

Comment: A commenter

recommended that CMS explain why

the April 14, 2012 and September 11,

2011 Federal Register Notices soliciting

comments on the CMS–855O state that

physicians and practitioners submitting

this form are registering rather than

enrolling in Medicare, while the April

2013 proposed rule states that they are

enrolling in Medicare; the commenter

stated that existing regulations do not

provide for a registration process.

Response: This comment is outside

the scope of this final rule.

Comment: A commenter stated that

diagnosis codes should be placed on

prescriptions to assess their

appropriateness.

Response: This comment is outside

the scope of this final rule.

Comment: A commenter: (1)

Requested clarification regarding

whether a revocation under our

proposed provisions would affect a

physician or eligible professional’s

Medicaid enrollment; (2) requested

clarification concerning how a State

Medicaid agency would differentiate

between one’s enrollment via the CMS–

855I and an enrollment via the CMS–

855O; and (3) suggested that CMS

provide a complete list of individuals

who can only order, certify or prescribe

in the Medicare program.

Response: With respect to the first

comment, any Medicare revocation

results in the termination of the

provider or supplier’s Medicaid

enrollment pursuant to § 455.416(c).

The second comment is outside the

scope of this final rule. As for the third

comment, and as alluded to in both the

proposed rule and in this final rule, we

plan to make available to Part D

sponsors a list of physicians and eligible

professionals who have an approved

enrollment record or a valid opt-out

affidavit on file with an A/B MAC. We

do not intend at this time to modify this

list (nor to create a separate list) to

identify those individuals who are

enrolled solely to order, certify, or

prescribe in the Medicare program.

However, we may consider this as part

of a future enhancement.

Comment: A commenter suggested

that CMS require private insurers in Part

D to report suspected fraud, waste and

abuse to Medicare’s fraud contractor.

Another commenter stated that CMS

should: (1) Encourage Part D sponsors to

voluntarily report suspected instances

of physician and eligible professional

misconduct or abusive prescribing, and

(2) institute measures to ensure a two-

way working dialogue between the

sponsors and the MEDIC.

Response: We are working to ensure

that Part D plans consistently and

regularly refer suspected fraud, waste,

and abuse to the MEDIC and that there

is appropriate communication between

them.

Comment: A commenter requested

that steps be taken to ensure that a

beneficiary is notified when his or her

physician’s billing privileges have been

revoked, and that an exception be made

for emergency or urgent care situations.

Similarly, another commenter requested

clarification as to whether claims will

be processed for emergency and urgent

care services furnished by opt-out

physicians and, if so, how processors

will identify claims in that scenario.

One commenter requested that CMS

furnish guidance regarding: (1) How

Part D prescribers can complete an opt-

out affidavit; (2) how opt-out prescribers

will be identified in the file; (3) which

(if any) edits will apply to opt-out

prescribers; (4) how various enrollment

statuses (for example, an enrollment

application or opt-out affidavit is

pending) should be handled; (5) how

terminations should be handled and

whether changes in enrollment

(including suspensions and revocations)

will be communicated to plan sponsors

at least 30 business days in advance; (6)

whether the enrollment/opt-out file will

be made available to prescriber data

vendors; (7) whether an alert process

will be established for reinstated or new

enrollments that occur between file

deliveries; (8) whether override

processes will be developed; (9)

whether procedures for notifying

beneficiaries of a change in an

individual’s ability to prescribe Part D

drugs will be established; (10) whether

a special call center for Part D

prescribing issues related to enrollment

will be created; and (11) how felony

convictions, exclusions, debarments,

and State Medicaid program prescriber

sanctions should be treated for purposes

of claim denials and coding (for

instance, whether they should be treated

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as Medicare revocations or OIG

exclusions for purposes of claim denials

and coding).

Response: We will, as deemed

necessary, address the aforementioned

issues via sub-regulatory or other

guidance.

Comment: A commenter

recommended that CMS reestablish the

systematic deactivation of Medicare

billing and prescribing privileges if the

physician or non-physician practitioner

has not billed the Medicare program in

more than a year to ensure consistency

with an OIG recommendation to this

effect. The commenter also

recommended that CMS provide the

number of physicians and eligible

professionals who have completed the

CMS–855I and who have not billed the

Medicare program in more than a year

as of March 7, 2014, the ending

comment date for this proposed rule.

Response: These comments are

outside the scope of this final rule.

Comment: A commenter stated that a

revocation would be too serious a

penalty for a DEA registration

suspension or revocation or for

improper prescribing.

Response: While we recognize

commenter’s concern regarding the

severity of a revocation action, this

action will in some cases be necessary

to protect Medicare beneficiaries and

the Trust Funds.

Comment: A commenter sought

clarification regarding whether CMS

would notify the prescriber at least 30

days in advance of a forthcoming

revocation.

Response: As already stated, the

operational procedures for revoking

suppliers under §§ 424.535(a)(13) and

(14) will be the same as those which

currently exist for other revocations

under § 424.535(a), the sole exception

being that Part D plans will be notified

of the revocation.

Comment: A commenter suggested

that CMS centralize all exclusion, opt-

out, and other lists in one location (to

the maximum extent possible),

preferably via a format that Part D plans

can download and convert into a file

format compatible with data analytics

programs. This would enable plans to

act more quickly against excluded

suppliers. Another commenter urged

that CMS update such lists

expeditiously so that plan sponsors can

take action as needed.

Response: We appreciate the first

commenter’s suggestion and may

consider this as part of a future

enhancement. We agree with the second

commenter’s recommendation and

stress that CMS attempts to update its

existing lists (and will attempt to update

the aforementioned enrolled/opted-out

prescriber list) as quickly as possible.

Comment: A commenter requested

clarification concerning whether: (1)

Plan sponsors are only supposed to

deny coverage in the state in which a

physician’s license is revoked or

whether denials should be for all states;

and (2) whether CMS will continue to

permit a physician with a CMS waiver

to continue practicing in rural areas

when he or she is the only physician

available, even though he or she is

revoked.

Response: We believe these comments

are outside the scope of this final rule.

Comment: A commenter requested

clarification regarding whether a

physician who is prohibited from

prescribing controlled substances for the

treatment of non-cancer related chronic

pain or obesity would have their

Medicare billing privileges and/or

prescribing privileges revoked by the

Medicare program.

Response: As stated in

§ 424.535(a)(13), if the applicable

licensing body for any state in which

the physician practices suspends or

revokes his or her ability to prescribe

controlled drugs, we have the discretion

to revoke his or her Medicare billing

and prescribing privileges. Should we

exercise this discretion, the physician

would be unable to prescribe covered

Part D drugs because he or she would

no longer be enrolled in Medicare.

Comment: A commenter

recommended that CMS explain the

process it uses to identify medical

licenses that are surrendered while a

formal disciplinary proceeding was

pending before a state licensing

authority.

Response: This comment is outside

the scope of this final rule.

Comment: A commenter encouraged

CMS to consider participation in the

Council for Affordable Quality

Healthcare (CAQH) universal

credentialing application process used

by many private sector healthcare

systems. Having one ‘‘portal’’ for

physicians to become credentialed for

both Medicare and private sector health

plans, the commenter believed, would

reduce the administrative burden for

physicians.

Response: We appreciate this

comment but believe it is outside the

scope of this final rule.

Comment: One commenter, while

expressing support for §§ 424.530(a)(11)

and 424.535(a)(13) and (14), requested

that CMS delay its implementation until

CMS (1) has fully field-tested the

Medicare enrollment and reporting

program, and (2) demonstrates that the

program will operate at a high level of

accuracy, with frequent updates, and

with consistently reliable linkages to

and from other federal and state

databases. Another commenter

recommended that the criterion in

§ 424.535(a)(14) regarding diagnosis

codes be delayed until the effects of the

ICD–10 transition are reviewed.

Response: While we appreciate the

first commenter’s support, we do not

believe that the implementation of these

provisions (including the criteria in

(a)(14)) should be delayed. As explained

earlier, CMS must take steps to ensure

the integrity of the Part D program and

to protect both Part D beneficiaries and

the Trust Funds.

We are neither finalizing nor

proposing any regulatory changes as a

result of these miscellaneous comments.

22. Broadening the Release of Part D

Data (§ 423.505)

We proposed to revise our regulations

governing the release of Part D data to

expand the release of unencrypted

prescriber, pharmacy, and plan

identifiers contained in prescription

drug event (PDE) records, as well as to

make other changes to our policies

regarding release of Part D PDE data. For

background, in the May 28, 2008

Federal Register (76 FR 30664), we

published a final rule entitled,

‘‘Medicare Program; Medicare Part D

Claims Data,’’ (hereinafter referred to as

the ‘‘Part D data final rule’’) to

implement regulations that govern the

collection of PDE data under the

authority of section 1860D–12(b)(3)(D)

of the Act and the disclosure of this data

in accordance with section 1106 of the

Act. The provisions governing the

collection and disclosure of PDE data

are codified at § 423.505(b)(8), (f)(3), (1)

and (m). The Part D data final rule

governed the collection and disclosure

of the original 37 elements of PDE data,

but was updated to apply to any

additional elements that were added to

the PDE record. This update was in a

final rule issued in April 2010 (75 FR

19678) entitled, ‘‘Medicare Program;

Policy and Technical Changes to the

Medicare Advantage and the Medicare

Prescription Drug Benefit Programs’’

(hereinafter referred to as the ‘‘April

2010 final rule’’).

In the preamble to the Part D data

final rule (73 FR 30671), we stated, ‘‘we

[ ] believe that it is in the interest of

public health to share the information

collected under [the authority of 1860D–

12(b)(3)(D)] with entities outside of

CMS.’’ We explained that the release of

PDE data assists CMS in evaluating the

Medicare Part D program and assessing

related policies. We further stated such

release was in the interest of public

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health and would improve the clinical

care of beneficiaries.

In addition to setting forth the

significant public policy reasons for

disclosure of PDE data, we made clear

in the preambles of both the Part D data

final rule and the April 2010 rule that

our primary concerns in releasing PDE

data are protecting the confidentiality of

beneficiary identifiable information and

commercially sensitive data of Part D

sponsors. Therefore, as described in the

Part D data final rule and the April 2010

rule, the release of PDE data is subject

to certain protections, described here

generally, such as encryption of

beneficiary information and aggregation

of commercially sensitive data of Part D

sponsors. In addition, whenever PDE

data is released, we only release the

minimum data necessary for a given

purpose, as determined in the sole

discretion of CMS after review of the

requestor’s detailed request for data. If

releasing data to an external entity for

research purposes, CMS indicated in the

Part D data final rule that the requestor

must be a legitimate researcher,

meaning the requestor has the requisite

experience and is working for, or on

behalf of, a reputable institution. (In the

preamble to the Part D data final rule

(73 FR 30674 citing 45 CFR 164.501), we

used the definition of ‘‘research’’

contained in the HIPAA Privacy Rule,

which defines the term as ‘‘a systematic

investigation, including research

development, testing, and evaluation,

designed to develop or contribute to

generalizable knowledge.’’) In the Part D

data final rule (73 FR 30674), we also

indicated that, consistent with our

current policies for Part A and B data,

identifiable Part D data would not be

disclosed for commercial purposes.

In the preamble to the proposed rule,

we stated that we believe the current

limitations on the release of certain data

elements hinder the use of PDE data in

a health care environment that is

substantially transforming due to the

Affordable Care Act, and that these

limitations therefore also inhibit

accompanying insights into prescription

drug benefit plans that could result from

broader release of the data. We further

stated that our experience has led us to

conclude that broader release of PDE

data to external entities can increase the

positive contributions researchers make

to the evaluation and function of the

Part D program and improve the

efficiency of the program and the

clinical care of its beneficiaries, which

is in the interest of public health. For

these reasons, we stated that increased

access to prescriber, pharmacy, and plan

identifiers by all categories of requestors

is of utmost importance and will

facilitate research by entities outside

CMS that involves identifiable plans,

prescribers, and pharmacies.

Furthermore, we stated that we could

relax the current policies on the release

of this PDE data, while still protecting

beneficiary confidentiality and

commercially sensitive data of Part D

sponsors.

Specifically, we proposed to permit

the release of unencrypted prescriber,

pharmacy, and plan identifiers

(including internal plan/pharmacy

identification numbers on the claim that

represent reference numbers assigned by

the plan at the time a drug is dispensed)

contained in PDE records to all current

categories of requestors (including other

HHS entities and the Congressional

oversight agencies, non-HHS executive

branch agencies and states, and external

entities). We noted that because the

minimum necessary policy will still

apply to all such releases, our proposal

was more a formality with respect to

HHS entities/Congressional oversight

agencies and non-HHS executive branch

agencies/states, since this data is

available in unencrypted format to these

same entities under the current Part D

data regulations ‘‘if needed.’’ For this

reason, in the proposed rule, we focused

on the release of unencrypted

prescriber, pharmacy, and plan

identifiers to external entities as

discussed later in this section.

We acknowledged in the preamble to

the proposed rule that there still may be

concerns about releasing unencrypted

prescriber, plan, and pharmacy

identifiers to outside entities based on

comments that were received in

response to our original proposed Part D

data regulations, and that were

discussed in the Part D data final rule

(73 FR 30675). In particular, we

addressed concerns that this

information could be used by

pharmaceutical companies and others

who may want to influence physicians’

prescribing patterns and interfere with

their professional judgment. As we

stated in the proposed rule, it is our

view today, however, that the vast

majority of physicians have prescribed

and do prescribe what they believe are

the appropriate medications for their

patients, and they should have no

concerns with transparency in their

prescribing patterns. Moreover, we

stated that there are other measures in

place to prevent inappropriate influence

by external entities on prescribers, such

as section 6002 of Affordable Care Act

and the federal Anti-Kickback Law

(section 1128B(b) of the Act). We also

pointed out that when data are

completely transparent, it is easier for

the attempts of some to use the data for

purposes of inappropriate manipulation

to be countered by others who have

access to the same data. We also noted

that it appears prescriber data are

already available commercially from

pharmacy data aggregators. For these

reasons, we stated that we believe that

our earlier concerns expressed in the

Part D data final rule about the release

of unencrypted prescriber identifiers in

PDE data to external entities are no

longer warranted.

In the proposed rule, in conjunction

with our proposal to broaden the release

of unencrypted prescriber identifiers,

we also highlighted our response to a

comment discussed in the Part D data

final rule, which argued that providing

access to linked physician identifiable

claims in order to pool them with

employer data would allow analysis to

reduce cost of care delivery and

improve the quality of care (73 FR

30676). We noted that in response to the

comment, we did not disagree with the

commenter, but referenced a variety of

pay for performance and value-based

health care initiatives being undertaken

by CMS at the time in an effort to

encourage health care providers to

furnish high quality health care and to

provide cost and quality information to

consumers. We also noted that in our

response to the comment, we had stated

that we intended to use PDE data in

those activities, but we declined to

adopt a policy that would include

making unencrypted prescriber

identifiers available for release to

external entities (except when needed to

link to another data set). In this

proposed rule, however, we

acknowledged that, in light of the goals

of the Affordable Care Act to improve

the quality of health care, including

through better access to information, we

now agree with the commenter

regarding the importance of providing

access to prescriber-identifiable claims

in order to allow researchers to pool

them with employer data and conduct

broader research.

We noted in the proposed rule that

our current policy on release of

ingredient cost and dispensing fee data

would not change under our proposal,

meaning the minimum necessary data

regarding ingredient costs and

dispensing fees would continue to be

available for release in disaggregated

form only to other HHS entities and

congressional oversight agencies. Non-

HHS executive branch agencies and

external entities could still only obtain

the minimum necessary ingredient cost

and dispensing fee data, and only in

aggregated form.

With respect to our proposal to

broaden the release of unencrypted plan

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identifiers, we also explained in the

proposed rule that an analysis of Part D

plans, their network pharmacies, and

average drug costs, can already be

accomplished through data posted on

CMS’ Web site and/or purchased in

public use files. Additionally, the

Medicare Prescription Drug Plan Finder

(‘‘MPDPF’’) allows users to view and

compare all available prescription drug

plan choices, including plan and

pharmacy specific estimates of the costs

of individual drugs. These data can be

manipulated by researchers to reveal

information about specific plans and

pharmacies that contribute to the

evaluation and functioning of the Part D

program and can be used to improve the

public health. Therefore, in light of the

fact that plan data is already publicly

available and the public policy rationale

for increasing access to PDE data by all

categories of requestors, we stated that

plan identifiers should be available in

an unencrypted format.

For the same reasons that we

proposed to make prescriber and plan

identifiers available for release in an

unencrypted format, we explained in

the proposed rule that we no longer see

a reason that pharmacy identifiers

should not be available for release in an

unencrypted format. Accordingly, we

also proposed to release unencrypted

pharmacy identifiers to all categories of

requestors.

We addressed one final aspect of our

policies governing the release of Part D

data in the proposed rule. As discussed

previously, in the preamble to the Part

D data final rule (73 FR 30664), we

explained that consistent with CMS’s

existing policies with respect to Parts A

and B data, CMS would not release PDE

data for commercial purposes (but

external researchers may be funded by

commercial firms if the researchers are

free to publish their results regardless of

the findings). However, for the same

reasons that we proposed to make

changes to our rules governing the

release of PDE data, we also solicited

comment on the current restriction on

the release of PDE data for commercial

purposes. We noted that we were not

making a specific proposal in this

regard, but rather, that we wished to

receive comments on this issue for

consideration.

In addition to the proposed changes

with respect to prescriber, pharmacy,

and plan identifiers described

previously, and our request for

comment on the restriction on the

release of Part D PDE data for

commercial purposes, we proposed a

few other changes to our regulations

governing the submission, use, and

release of PDE data, including some

changes intended to clarify our existing

policies with respect to several issues

related to PDE data. First, we proposed

to add supporting program integrity

purposes, including coordination with

states, as an additional purpose deemed

necessary and appropriate by the

Secretary for which a Part D sponsor

must agree to submit all data elements

included in all its drug claims under

section 1860D–12(b)(3)(D) of the Act.

The regulation at § 423.505(f)(3)

currently contains a non-exclusive list

of purposes deemed necessary and

appropriate. Thus, we indicated that we

believe the use of these data for

supporting program integrity purposes

has always been included, even though

not explicitly listed. However, given the

importance of our ability to release PDE

data for program integrity purposes,

including for coordination with states

on program integrity, we proposed to

add this purpose explicitly to the non-

exclusive list in § 423.505(f)(3).

Second, we proposed to clarify that

non-final action data (for example,

information on claims subject to

subsequent adjustment) are available to

entities outside of CMS. We explained

that non-final action data are captured

through the data element, ‘‘Original

versus Adjusted PDE (Adjustment/

Deletion code).’’ We further explained

that this is a PDE field which

distinguishes original from adjusted or

deleted PDE records, which allows

sponsors to make adjustments to the

original PDE record to ensure accurate

payment. The information included in

these revised PDE records is thus not

point-of-sale data. With the increasing

focus on coordination of care, we noted

that requests for access to non-final

action PDE data have understandably

also increased, and that non-final action

data are also routinely requested for

evaluation and research projects. We

noted that the Part D data final rule (73

FR 30683) included an appendix that

explained in more specific detail the

restrictions relative to the available PDE

elements for the different categories of

requestors. Specifically, we noted that

this appendix stated (73 FR 30685) that

the data element ‘‘Original versus

Adjusted PDE (Adjustment/Deletion

code)’’ was available to other (that is,

non-CMS) HHS entities and the

congressional oversight agencies, while

for non-HHS executive branch agencies,

states, and external entities, it stated

that ‘‘Final Action claims would be

provided, so this element should not be

needed.’’ Thus, we noted that this

appendix did not explicitly address the

question of whether non-final action

data would be available for release to

non-HHS executive branch agencies,

states, and external entities, because

such data were not expected to be

needed by these requestors. However,

since it is clear that these entities do

need access to non-final data, we

proposed to clarify that non-final action

data are also available for release to non-

HHS executive branch agencies, states,

and external entities under the Part D

data final rule.

Due to our proposals to make changes

to our policies governing the release of

PDE data described previously, we

proposed to make corresponding

changes to the current applicable

regulatory text. In addition, we also

proposed to eliminate the appendix that

accompanied the Part D data final rule

(73 FR 30683) that explained in more

specific detail which PDE elements

would be available to different

categories of requestors, and any

restrictions that applied. We stated that

we believed this appendix is no longer

necessary, as our proposed changes in

policy would eliminate most of the

distinctions with respect to the PDE

data available for release to the different

categories of requesters, with the

exception of Total Drug Costs, which

will continue to be available in

disaggregated form only to other (that is,

non-CMS) HHS entities and the

congressional oversight agencies, and

we proposed to revise the regulation at

§ 423.505(m)(1)(iii)(B) to account for

this distinction. We also proposed to

revise this provision to clarify that we

will continue to exclude sales tax from

the aggregation, if necessary for the

project. Finally, we proposed changes to

the regulatory text to incorporate notes

from the current Appendix that are not

addressed by the existing reference to

CMS data sharing procedures in

§ 423.505(m)(1)(ii).

We received the following comments

on our proposed revisions to the

regulations governing the release of Part

D data:

Comment: We received a number of

comments regarding these proposed

revisions, many of which strongly

supported our proposed revisions to the

Part D data regulations. Several

commenters commended CMS’ ongoing

work to improve the efficiency of the

Medicare program and the clinical care

of its beneficiaries, which these

commenters asserted will be better

facilitated through increased data

transparency that facilitates additional

research. These commenters stated that

releasing unencrypted physician, plan,

and pharmacy identifiers in Part D PDE

data under the parameters we proposed

will allow researchers to answer a

broader range of questions about the

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program. These commenters further

stated that greater access to Part D PDE

data will help ensure that this data is

used to maximum effect in the creation

of knowledge and understanding about

the program and around clinical care

received by beneficiaries. Commenters

additionally noted that the increased

availability of PDE data will enable

researchers to conduct in-depth

comparisons of medications provided

through different outlets, which could

enable CMS to take proactive measures

to achieve cost savings. One commenter

also stated that the public has a

significant interest in provider, plan,

and pharmacy professional conduct, as

these entities are government licensed

and regulated, and Medicare payments

are publicly funded. Finally, these

commenters noted that our existing

‘‘minimum necessary’’, ‘‘legitimate

researcher’’, and ‘‘aggregation’’ policies

are sufficient to provide some common

sense parameters for release of

unencrypted identifiers.

Potential areas of research suggested

by the commenters were linking

information on Part D plan features

(such as premiums, cost-sharing, and

formularies) to health outcomes and the

quality of health care provided to

Medicare beneficiaries. Other

commenters asserted that broader access

to prescriber, plan, and pharmacy

identifiers in PDE data will facilitate

research in particular for conditions for

which there are very few viable

treatments, no available cure, and much

more work to be done with respect to

researching and developing safe and

effective medicines. These commenters

welcomed the availability of additional

information to spur further knowledge,

investigation, and progress on how to

best treat—and ensure appropriate

coverage for treating—complex health

conditions.

Response: We thank these

commenters for their comments in

support of our proposed changes.

Comment: Other commenters opposed

our proposed revisions to the policies

governing the release of Part D data.

These commenters asserted that the

existing framework for release of Part D

PDE data fully accommodates the needs

of government entities and legitimate

researchers, and strikes the appropriate

balance between these needs and the

legitimate concerns of health care

providers and Part D plan sponsors

regarding the widespread dissemination

of sensitive data, including data that

specifically identifies them. One

commenter stated that CMS had not

articulated a reason for the need to

identify specific plans, pharmacies, and

prescribers, and that necessary research

can be accomplished with encrypted

identifiers. One commenter requested a

clarification on the meaning of ‘‘new

health care environment.’’ Some

commenters asserted that prescriber,

plan, and pharmacy identifiers in PDE

data are commercially sensitive

information, and that release of these

identifiers would undermine

competition and may lead to higher

costs in the Part D program and less

choice. A few of these commenters

asserted similarly that prescription drug

benefit plans could potentially reverse

engineer competitively sensitive data

regarding other plans, which could have

an anti-competitive effect on the Part D

bidding process.

Response: We think the preamble to

the proposed rule provided a clear

description of the ways in which the

Affordable Care Act is transforming the

health care system in this country—by

spearheading the drive toward an

information- and value-based system,

and the compelling reasons for the

release of unencrypted prescriber, plan,

and pharmacy identifiers in Part D PDE

data to allow for additional research to

achieve this goal. Specifically, it is in

the interest of public health to share this

information with entities outside of

CMS, as the work of these entities will

assist CMS in evaluating the Medicare

Part D program and assessing related

policies to improve the clinical care of

beneficiaries. We also note that when

more data is released about the

Medicare Part D program, the potential

research topics expand as well. For

instance, commenters supportive of the

proposed expansion in the release of

Part D data offered examples of

potential areas of new research, such as

linking information on Part D plan

features (such as premiums, cost-

sharing, and formularies) to health

outcomes and the quality of health care

provided to Medicare beneficiaries.

Such research is not possible with

encrypted plan identifiers, because the

researchers would not know the specific

features of the unidentified plans.

In addition, we are not persuaded that

these identifiers are commercially

sensitive data. As we stated in the

preamble to the proposed rule (79 FR

1990), an analysis of Part D plans, their

network pharmacies, and average drug

costs, can already be accomplished

through data posted on CMS’ Web site

and/or purchased in public use files.

Additionally, the MPDPF allows users

to view and compare all available

prescription drug plan choices,

including plan and pharmacy specific

estimates of the costs of individual

drugs. Moreover, we noted that it

appears that prescriber data are already

available commercially from pharmacy

data aggregators. These data can

currently be manipulated by researchers

to reveal information about specific

plans, pharmacies and prescribers. For

these reasons, we have concluded that

prescriber, plan and pharmacy

identifiers are not commercially

sensitive information, and that it is

appropriate to share this information in

an unencrypted format when it is

needed for a particular study or project.

Comment: Some commenters

supported our assertion in the proposed

rule that release of unencrypted

identifiers in Medicare Part D PDE data

subject to our current data release

policies, including our minimum

necessary and legitimate research

policies, will not result in data

recipients using the data

inappropriately, such as to influence

physicians’ prescribing patterns or

interfere with physicians’ professional

judgment. These commenters stated that

physicians are trained to use their best

medical judgment in making

prescription decisions for their patients.

Other commenters disagreed,

asserting that the release of unencrypted

identifiers has the potential, for

instance, to influence prescribing

patterns and physician judgment, or

otherwise to be used to draw incorrect

or inaccurate conclusions that could be

damaging to the reputations of

professionals and health care

organizations. These commenters

asserted that inappropriate influence

may adversely affect the quality of care

for beneficiaries. One commenter stated

that the Affordable Care Act’s additional

reporting requirements with respect to

physician prescribing do not address

this type of influence, and that CMS has

assumed that release of this data will

not adversely affect beneficiaries, rather

than carefully considering the impact of

release. Another commenter stated that

data and statistics are valuable in

observing trends among patient

populations, but that they are a blunt

instrument when applied to individuals.

One commenter opposed the

indiscriminate release of data to any

requesting external entity, including to

data aggregators that have little

knowledge of the Medicare Part D

program. A few commenters encouraged

CMS to present the data in a way that

considers the quality of the services

provided, including an explanation of

the data limitations, and allows for the

opportunity to correct information, for

instance, to include patient non-

compliance in the case of release of

prescriber identifiers. Finally, these

commenters stated that disputing

inaccurate findings takes significant

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time, effort, and expense, and even then,

it is often impossible to fully mitigate

the harm caused.

Response: While we are sensitive to

the concerns regarding undue influence

raised by the commenters, for the

reasons discussed in the proposed rule,

we agree with those commenters that

did not believe releasing these data

would result in improper influence on

physician prescribing patterns or

otherwise interfere with the exercise of

professional judgment. In addition, we

believe CMS’ current release policies

will also limit inappropriate use of the

data. In order for a researcher to gain

access to CMS data, the researcher must

submit a research protocol and receive

approval of the protocol from CMS. In

addition, all requestors are required to

sign a Data Use Agreement with the

agency that limits the use of the data to

only the approved purposes. The agency

carefully considers all data requests to

ensure that the use of the data will not

exploit or negatively impact Medicare

beneficiaries. Furthermore, we do not

believe the professional research

community would support the

dissemination of faulty analyses and

would be quick to offer criticisms of

poor research, should this happen

despite our careful evaluation of all data

requests. We also disagree that data and

statistics are only valuable in observing

trends among patient populations. As

we lead the effort to provide high

quality care and better health at lower

costs, data analysis at various levels of

specificity is crucial. For example,

analyses at the provider or supplier

level, when properly adjusted to

account for differences in patient

populations, could provide insight into

differences in the way a given condition

is treated and help develop best

practices. In addition, unencrypted

prescriber identifiers have valuable uses

beyond reporting on individual

physician prescribing patterns. For

example, unencrypted identifiers in Part

D data can be linked to other sources of

data, such as claims data from other

payers, electronic health records, and

clinical data such as lab results, in order

to facilitate broader and more complex

research projects.

Additionally, we were not persuaded

that CMS should release data in a way

that considers the quality of the services

provided, includes an explanation of the

data limitations, or allows for the

opportunity to correct information. This

is precisely what professional

researchers do, and as we previously

noted, we think the professional

research community would be quick to

offer criticisms of poor research, should

a project fail to address these issues

appropriately. Moreover, if CMS were to

analyze data before its release for

research, this practice would undermine

the independent nature of the analyses

performed by outside researchers.

Comment: Some commenters

specifically supported the release of

non-final action PDE records, asserting

such data would permit researchers to

explore data for a better understanding

of the Medicare Part D program. The

comments included a specific example

of how non-final action data can assist

researchers in exploring prescription

adherence and abandonment by tracking

and accounting for adjusted or deleted

prescriptions. In contrast, other

commenters specifically opposed the

release of non-final data, asserting that

this information can easily be

misinterpreted and may cause false

conclusions that impact providers. One

commenter opposed our proposed

clarification regarding release of non-

final action data stating that CMS had

failed to articulate a reason for releasing

non-final action data other than that it

had received requests for it.

Response: We disagree with the

commenter that asserted that CMS failed

to articulate a reason for releasing non-

final action data. We think we did

articulate a reason for releasing non-

final action data. It is the same as the

overarching reason to release Part D PDE

data, which we discussed at length in

the proposed rule. Specifically, it is in

the interest of public health to share this

information with entities outside of

CMS, as research conducted by these

entities may assist CMS in evaluating

the Medicare Part D program and

assessing related policies to improve the

clinical care of beneficiaries. In

addition, as we stated in the preamble

to the proposed rule, the release of non-

final action data is necessary due to the

increased focus on coordination of care

in the Medicare program and indeed in

the health care system as a whole.

Comment: One commenter opposed

the proposal to allow release of

unencrypted prescriber and pharmacy

identifiers stating that the current

release policies already allow external

entities to link unencrypted identifier

elements to another data set.

Response: We disagree. Under our

current regulations, the identifiers must

be re-encrypted after the link has been

made. Under the regulations as

finalized, once linked, research at

higher levels of specificity can be

conducted that is not possible with

encrypted identifiers. For instance, a

researcher conducting a study on

medication adherence will have many

more factors to consider and explore

when the prescribers, plans, and

pharmacies involved in the research are

identifiable. Is adherence related to plan

features? Physician location and/or

specialty? Pharmacy organization filling

the prescription? All three? The

research possibilities will expand, as the

additional connections that can be

explored by researchers expand. Drilling

down to higher and higher levels of

specificity to understand and

potentially solve a problem is the very

nature of 21st century data-driven

research, and we believe it is essential

that the Part D data release policies keep

current.

Comment: One commenter opposed

our proposal to release unencrypted

plan identifiers, asserting that plan

information is gathered only for Part D

administration purposes.

Response: We disagree. Section

423.505(f)(3) of the regulations states

that a plan sponsor agrees to submit to

the Secretary all data elements for

purposes deemed necessary and

appropriate by the Secretary, including,

but not limited to conducting

evaluations of the overall Medicare

program. As we noted previously,

commenters offered examples of

potential areas of research that will be

enabled through access to unencrypted

plan identifiers, such as linking

information on Part D plan features

(including premiums, cost-sharing, and

formularies) to health outcomes and the

quality of health care provided to

Medicare beneficiaries.

Comment: One commenter stated that

CMS should more specifically define

‘‘legitimate researcher’’ to ensure that

Part D data is not released for

competitive or commercial purposes

contrary to CMS’ current policy.

Response: Under current CMS data

sharing policies, the agency evaluates

all research requests to ensure that the

researcher has the expertise to conduct

the proposed study. In addition, we

must approve the research protocol

before any data is shared with a

researcher. We believe that this review

process contains appropriate safeguards

to prevent inappropriate use of the data

and, as such, we do not believe it is

necessary to define a ‘‘legitimate

researcher.’’ Furthermore, we believe a

variety of different types of individuals

could submit a valid research request.

Comment: Some commenters

supported our proposal to broaden the

release of Part D data, so long as

beneficiary privacy is protected. One

commenter suggested that a bio-

statistician conduct an expert review of

the data sets to be released in the

context of the permitted use(s) to ensure

beneficiary privacy in the context of the

permitted uses of the data. Another

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commenter stated that our proposed

expansion of the available data will

compromise beneficiary privacy and

requested that an approval process

similar to an IRB be established to

evaluate requests for such information

to weigh the risks and benefits of

disclosure. Another commenter stated

that CMS should ensure that its efforts

to protect beneficiary confidentiality do

not create such onerous data request

processes that qualified researchers are

discouraged from attempting to access

Part D data. Another commenter stated

that CMS should establish and impose

appropriate penalties for any breach of

privacy related to beneficiary

identifiable information.

Response: All users accessing

beneficiary identifiable data are

required to sign CMS’ Data Use

Agreement (DUA), which addresses

privacy and security for the data CMS

discloses. In addition, the DUA

currently does, and will continue to

have, enforcement mechanisms,

including criminal penalties. CMS

would make use of these provisions in

the event of any breach or violation of

the terms of the DUA. The DUA also

contains provisions regarding access to

and storage of CMS data to ensure that

beneficiary identifiable information is

stored in a secure system. We believe

these restrictions are necessary in order

to ensure that data is only requested in

compliance with the requirements of the

regulations and CMS data sharing

procedures, and that data shared by

CMS is appropriately protected and is

not reused or redisclosed without the

necessary approval. Given that

researchers have successfully been

accessing to CMS data under the terms

of this DUA for years, we do not believe

these requirements are too burdensome.

With regard to the suggestion that CMS

have a bio-statistician review the data

sets to be released to ensure beneficiary

privacy, we do not believe this is

necessary given the beneficiary privacy

protections in the DUA. However, to the

extent that CMS releases any de-

identified, summarized data sets based

on the Part D data, the agency carefully

reviews the proposed release to ensure

that it does not put beneficiary privacy

at risk. Finally, we disagree that the

expansion of the available data will

compromise beneficiary privacy or that

additional procedures are necessary in

order to safeguard beneficiary privacy.

CMS has an established process to

evaluate requests for data to ensure that

there are appropriate safeguards in place

to protect beneficiary privacy. We

believe this process contains the

necessary checks to ensure that the risks

of the disclosure are minimal.

Comment: One commenter stated that

CMS should be as transparent as

possible under its data use agreements,

asserting that the public, as well as the

parties involved, must be able to readily

determine the manner in which data are

released, the purpose for the release of

the data and the parties to whom the

data are released.

Response: We are strongly committed

to transparency. In particular, we have

established processes to ensure that

beneficiaries can request information

about to whom their protected health

information or personally identifiable

information has been disclosed, as well

as the purpose for the release of the

data. Beneficiaries interested in

requesting access to this information

should contact the CMS Freedom of

Information Act (FOIA) Office (http://

www.cms.gov/center/freedom-of-

information-act-center.html).

Comment: One commenter stated that

CMS should consider whether a

proliferation of analyses of outdated

Part D data will truly benefit the Part D

program, when CMS has the ability to

commission studies and data analysis

that would more knowledgeably take

into account a comprehensive

understanding of the continually

changing dynamics of the Part D

prescription drug market.

Response: We use Part D data to

conduct a variety of studies and

analyses. However, this work does not

even begin to cover the scope of

possible analyses that could be

performed using Part D data. We believe

that by limiting Part D data analysis to

that supported by CMS, the agency

would be inhibiting important research

and innovation that has the potential to

result in higher quality care at lower

costs in the Medicare Part D program,

and indeed for all Americans.

After review of the comments we

received, we are finalizing our proposed

changes to the regulations governing the

release of Part D data. Specifically, we

are finalizing the following revisions to

the applicable regulatory text:

• Section 423.505(f)(3) is revised to

add supporting program integrity

purposes, including coordination with

states, as an additional purpose.

• Section 423.505(m)(1)(iii) is revised

to remove references to encrypting

certain identifiers since prescriber, plan,

and pharmacy identifiers are no longer

be subject to encryption when released.

• Section 423.505(m)(1)(iii)(A) is

revised to clarify that, subject to the

restrictions contained in paragraph

(m)(1), all elements on the claim are

available not only to HHS, but also to

other executive branch agencies and

states, since there is no longer any

distinction between the two categories.

• Section 423.505(m)(1)(iii)(B) is

revised to incorporate a note from the

appendix that is being eliminated,

which states: ‘‘Upon request, CMS

excludes sales tax from the aggregation

at the individual level, if necessary for

the project’’ at the end of the provision.

• Section 423.505(m)(1)(iii)(C) is

deleted as no longer necessary since

unencrypted plan identifiers, including

the internal plan/pharmacy

identification numbers, are available for

release.

• Section 423.505(m)(1)(iii)(D) is re-

lettered as (C) and references to

encryption of pharmacy and prescriber

identifiers are deleted, since these

identifiers are available for release in

unencrypted format. Additional

language regarding beneficiary

identifiers is added to reflect the current

policy on release of this identifier. In

addition, we are including the

statement, ‘‘Public disclosure of

research results will not include

beneficiary identifying information,’’ at

§ 423.505(m)(1)(iii)(C)(2), which also

reflects current policy as described in

the appendix that is being eliminated.

• Section 423.505(m)(3) re-lettered as

(m)(3)(i) and (m)(3)(ii) is added to

incorporate a note from the appendix

that is being eliminated about the status

of the Congressional Research Service as

an external entity when it is not acting

on behalf of a Congressional committee

in accordance with 2 U.S.C. 166(d)(1).

With respect to our policy not to

release Part D data for commercial

purposes, we did not make a specific

proposal but solicited comments for

general consideration. We received

comments on both sides of this topic,

and thank all the commenters. The

following is a summary of the

comments:

Comment: Commenters that desire a

change in the policy applauded CMS for

soliciting comment on this topic. These

commenters stated that in order to

improve and modernize the U.S. health

care system, greater alignment of

stakeholder incentives is required, and

that CMS is keenly aware of this pivotal

requirement for success. These

commenters stated that the challenge of

quantifying greater efficiency and

evidence of improvement as part of

overall health reform requires more

access to the unique data sets in federal

data, and that the current restriction on

the use of these data for commercial

purposes will grow increasingly

challenging in the future as Medicare

employs more value-based payment

incentives, and as Medicare data are

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included in broader multi-payer sets,

such as those being established by the

Patient-Centered Outcomes Research

Institute. These commenters further

stated that because the quality and

efficiency of all physician groups,

health plans, hospital systems, and

other providers and suppliers can be

enhanced using data, any notion that

commercial interest is limited and

discrete is outdated. They stated that

PDE data is a valuable asset to all types

of commercial health care entities in

limiting the incidence of fraud,

obtaining practice pattern feedback,

managing health care delivery to deliver

value, developing best practice

standards, and conducting comparative

effectiveness research.

The commenters also stated that

eliminating or reducing this current

restriction on the release of data for

commercial purposes is consistent with

CMS’ desire to foster transparency and

competition in the Part D program

during a period of sweeping change to

the health care system. These

commenters asserted, for example, that

suppliers need to incorporate accurate

data into their product pricing and

discounting strategies to align their

approaches with the system-wide drive

toward value-based decision-making

and high quality care.

Commenters additionally stated that

the more access there is to Medicare

data, the more dramatically the

bandwidth for research will be

increased, leading to increased quality

of care, system efficiency, and consumer

satisfaction in the Medicare programs

and health care system in general. These

commenters noted that there is deep

scientific and analytic expertise within

organizations that are currently

excluded from accessing CMS data.

These commenters asserted that the

standard for data release by CMS should

be whether the research proposed is of

high quality and whether it has the

potential to improve program

administration or the health of the

covered population, rather than

financial benefit and profit status of the

organization proposing the research.

These commenters further noted that

CMS has in place strong research merit

criteria, rules, and obligations for data

use and individual privacy protections,

and that these processes and this

oversight are sufficient to determine

whether a requestor should have access

to PDE or other identifiable data,

regardless of the researcher’s affiliation.

Some commenters stated that broader

release of Part D data would not only

further public health research and

analysis of the Part D program, but also

would serve to further educate

consumer organizations, patient

advocates, and ultimately beneficiaries

about the program generally, as well as

coverage and prescribing patterns under

various plans.

Some commenters stated that they

would support changing the policy on

non-release of Part D data for

commercial purposes, so long as CMS

ensured that release of the data would

be conditioned on its use for

improvement of one or more aspects of

the Part D program, and CMS carefully

screened potential recipients of the data

for demonstrated expertise in using

research data to improve health

programs, as well as for any potential

conflicts of interest or other concerns.

Commenters that believe that the

policy of non-release for commercial

purposes should remain unchanged

stated that health care entities have

legitimate concerns regarding the

widespread dissemination of sensitive

data, such as data that specifically

identifies them. These commenters also

stated that strong program oversight and

public health and public policy

imperatives do not exist to

counterbalance these concerns.

One commenter stated that CMS lacks

the authority to release Part D data for

commercial purposes, because the

authority cited by CMS limits releases to

those required for program purposes

and for improving public health. The

same commenter asserted that the right

to make data available for purely

commercial reasons is a right inherent

in the ownership of the data, and that

CMS has never previously asserted an

ownership over, or right to control the

use of, data not obtained through access

to a CMS system. This commenter stated

that by granting itself this right to

release Part D PDE data for purely

commercial purposes, CMS would be

exercising a right inherent in ownership

of the data.

In light of all the comments received

on both sides of this particular topic, we

continue to believe that the best

approach is for our policy regarding the

release of Part D data for commercial

purposes to remain consistent with the

policies for the release of data from

Medicare Parts A and B. As we

discussed, in the Part D data final rule

(73 FR 30672), the procedures that we

use to make Part D data available are

built upon the practice that was already

in place with respect to the release of

Part A and B data. Furthermore, absent

specific reasons for treating the data

differently, we believe it is appropriate

to have consistent policies for the

release of data across Medicare Parts A,

B, and D. Therefore, although we are not

changing our policy against releasing

Part D data for commercial purposes at

this time, we note that in the event the

policy regarding the release of Parts A

and B data for commercial purposes

were to change, we would also revise

our Part D data sharing policies to be

consistent with that change.

23. Establish Authority To Directly

Request Information From First Tier,

Downstream, and Related Entities

(§§ 422.504(i)(2)(i), and 423.505(i)(2)(i))

Under section 1857(d)(2) and 1860D–

12(b)(3)(c) of the Act, existing

regulations at §§ 422.504(i) and

423.505(i) establish various conditions

that entities contracting as a first tier,

downstream, or related entity (FDR) to

an MA organization or Part D sponsor

must agree to in order to participate in

the MA or Part D program. One such

condition at §§ 422.504(i)(2)(i) and

423.505(i)(2)(i) is that HHS, the

Comptroller General, or their designees

have the right to audit, evaluate, and

inspect any books, contracts, computer

or other electronic systems, including

medical records and documentation of

the first tier, downstream, and related

(FDR) entities related to CMS’ contract

with the Part C and D sponsor.

CMS (or its designee(s)) conduct

routine audits of Part D sponsors and

MA organizations, as well as conduct

audits to investigate allegations of

noncompliance with Part C and/or Part

D rules and requirements. While

§§ 422.504(d) and 423.505(d) address

Part D and MA organizations’ own

maintenance of records and the rights of

CMS to inspect those records,

§§ 422.504(i)(2)(i) and 423.505(i)(2)(i)

also require plan sponsors to require

their FDRs to agree to a CMS right to

inspection. Plan sponsors regularly

contract with FDRs to perform critical

Part C and D operating functions. For

example, many (if not most) Part D

sponsors delegate critical Part D

functions to their PBMs. As a result,

many of the records that we or our

designees would need to review and

evaluate when we audit a Part D

sponsor or MA organization reside with

its FDRs.

Our existing regulation at § 423.505

(i)(3)(iv) states that the contracts

between the Part D sponsor and its FDRs

must indicate whether records held by

the FDR pertaining to the Part D

contract will be provided to the sponsor

to provide to CMS (upon request), or

will be provided directly to CMS or its

designees by the FDR (the Part C

regulation is silent on this matter). As

such, we have not previously required

Part C or Part D FDRs to provide

information directly to CMS.

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Two separate reports by the OIG

(OEI–03–08–00420, dated October 2009

and OEI 03–11–00310, dated January

2013), have highlighted barriers

experienced by the Medicare Drug

Integrity Contractor (MEDIC), the entity

contracted by CMS to be responsible for

detecting and preventing fraud, waste,

and abuse in the Medicare Parts C and

D programs nationwide, in obtaining

requested information in an expeditious

manner. The 2009 OIG report discussed

that CMS’ and its designees’ (in this

case, the MEDIC) lack of authority to

directly obtain information from

pharmacies, PBMs, and physicians has

hindered the MEDIC’s ability to

investigate potential fraud and abuse

and the OIG recommended that CMS

change its regulations to establish its

authority to obtain necessary

information directly from FDRs. The

OIG’s 2013 report reiterated the

recommendation that CMS have a more

direct route to obtain records held by

FDRs so that CMS would be able to

obtain necessary records in a timely

fashion. While the 2013 report pointed

out that sponsors and their FDRs

generally cooperate in providing the

information requested by the MEDIC, it

often takes months for it to reach the

MEDIC because the MA organization or

Part D sponsor acts as a gatekeeper.

In the past, we chose not to be

prescriptive regarding whether a first

tier, downstream, or related entity must

make its books and records available to

us directly or through the Part C or D

sponsor. As a consequence of what we

have learned through the OIG

investigations and the seriousness with

which we approach our fraud, waste,

and abuse oversight obligations, we

proposed to specify at

§§ 422.504(i)(2)(ii) and 423.505(i)(2)(ii)

that HHS, the Comptroller General, or

their designees have the right to audit,

evaluate, collect, and inspect any

records by obtaining them directly from

any first tier, downstream, or related

entity.

We further proposed to revise the

regulation at §§ 422.504(i)(2)(i) and

423.505(i)(2)(i) to make clear that CMS

and its designees may ‘‘collect’’ records,

in addition to our existing authority to

‘‘audit, evaluate, and inspect’’

information. The addition of ‘‘collect’’

removes any doubt that, in addition to

our other options for obtaining records,

we have the authority to request

information to be reviewed in some

location other than onsite at a sponsor’s

or FDR’s facility. Furthermore, this

proposed provision is intended to

clarify only that CMS may contact FDRs

directly and request that they provide

Part C or D-related information directly

to CMS. The question as to whether

CMS has the authority to enter the

premises of FDRs is to be determined by

interpreting other applicable statutory

and regulatory authority.

Finally, we also proposed to delete

the existing provision at

§ 423.505(i)(3)(iv) which gives Part D

sponsors the choice as to how

information sought from their FDRs will

be provided to CMS. Section 423.505

would be renumbered so that

paragraphs (v) through (viii) would

become paragraphs (iv) through (vii).

We received the following comments

and our responses follow:

Comment: Several MA organizations,

Part D sponsors, and industry

associations (about a dozen

organizations all together) raised their

opposition to this proposal. The main

argument made by these parties is that

CMS lacks the legal authority to directly

access information from FDRs since our

contractual relationship in these

situations is with the MA organizations

and PDP sponsors, not the FDRs

themselves. One physician’s group

raised the concern that this provision

would increase the likelihood of audits.

Response: We acknowledge that we

do not have the authority to directly

regulate FDRs. However, we believe our

proposal allows us to achieve our goal

of securing the right of access to FDR

records because it relies on our ability

to require the sponsors to incorporate

such a right of access as part of the

contractual relationship between the

sponsors and their FDRs. That is, the

proposal requires MA organizations and

PDP sponsors to require their FDRs to

agree to respond to direct requests for

information made by CMS. As a

practical matter, the mechanism for

sponsors to require their FDRs to agree

to such a provision is through the

contractual relationship between the

parties. We do not believe that this

proposal in any way changes the

likelihood of an audit, but merely affects

the flow of information which we would

be otherwise requesting.

Comment: The MA organizations and

PDP sponsors that commented also

maintained that since they are

ultimately accountable to CMS for the

work performed under their Medicare

contracts, they have the right to

participate in and manage the

information provided to their

contracting partner (CMS) on their

behalf by their FDRs. The MA

organizations and PDP sponsors further

asserted that allowing the MEDIC or

other government-related entities to

circumvent the plan sponsors would

lead to the collection of potentially

erroneous information since the plan

sponsor would not have the opportunity

to properly vet the information flowing

from the FDR to CMS. As a result, CMS’

and the MEDIC’s information collection

from FDRs may become less efficient

than it is under the current regulatory

regime. Several commenters argued that

the proposal would in fact increase

burden, in contrast to CMS’ suggestion

in the proposed rule that the proposal

would reduce burden.

Response: We maintain that having

direct access to information from FDRs

is an essential tool in combating fraud,

waste, and abuse which we should be

authorized to use. That said, we

appreciate concerns raised about MA

organizations and PDP sponsors’

interests in managing information

flowing to CMS, and the concern that

such information could at times be

flawed or erroneous without the quality

review performed by the MA

organization or PDP sponsor.

Consequently, we wish to clarify that

CMS and the MEDICs will default to the

current practice of requesting

information held by FDRs via an initial

request to the MA organization or PDP

sponsor. However, we will use the

‘‘direct access’’ route in circumstances

where either (a) the results of data

analytics, complaints, and/or

investigations indicate a suspicion of

fraud, waste, or abuse in the Medicare

Part C or D programs or (b) in the case

of an urgent law enforcement matter.

We will publish sub-regulatory

guidance on CMS’ standards for

determining when direct requests of

FDRs would be appropriate. We believe

that this approach promotes CMS’ anti-

fraud efforts by increasing fraud

investigators’ access to critical Part C

and D program information and will

likely increase the speed with which

investigators may get access to critical

FDR information, but at the same time

allows for continued MA organization

and PDP sponsor control and review of

information in appropriate

circumstances. We also wish to provide

assurance that CMS’ contractor, the

MEDIC, would not be permitted to

independently determine under what

circumstances it would be appropriate

to bypass the MA organization or PDP

sponsor in favor of requesting

information directly from the FDR; CMS

would be directly involved in all such

determinations. This approach also

minimizes any loss of quality or

potential for errors in the requested

information as well as the placement of

any additional burden on sponsors or

FDRs.

Comment: Several commenters

requested that if CMS finalizes the

provision, that we revise the regulatory

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language to state that CMS would notify

the MA organization or PDP sponsor

upon a direct request to one of its FDRs.

Response: While we had previously

stated in this final rule discussion that

MA organizations and PDP sponsors

would be notified when there is a direct

request for information made of an FDR,

we agree that it is reasonable for us to

specify this commitment in regulation.

As such, we have added at

§§ 422.504(i)(2)(iii) and 423.505(i)(2)(iii)

language stating that except in

exceptional circumstances, CMS will

provide notification to the MA

organization or PDP sponsor that a

direct request for information has been

made to one of its FDRs. The

exceptional circumstance exception is

included to allow for the possibility that

the MA organization or PDP sponsor

could be one of the parties to the fraud

investigation, in which case it may not

be appropriate to provide such

notification.

Therefore, we are finalizing this

provision with the modification that

CMS will provide notification to the MA

organization or PDP sponsor that a

direct request for information has been

made to one of its FDRs, except in

exceptional circumstances.

24. Eligibility of Enrollment for

Incarcerated Individuals (§§ 417.1,

417.460, 422.74, 423.44)

Entitlement and enrollment in the

Medicare program (Part A and Part B) is

contingent on entitlement to Social

Security retirement and disability

benefits as outlined in sections 226 and

226A of the Act, and enrollment in the

Medicare program for individuals not

receiving retirement or disability

benefits is outlined in sections 1818 and

1818A of the Act. These sections do not

preclude entitlement to or enrollment in

the Medicare program for individuals

who are incarcerated in prisons or other

penal facilities. However, section

1862(a)(3) of the Act excludes Medicare

payment for services which are paid

directly or indirectly by another

government entity, including federal,

state and local prisons, and penal

facilities. Given that Medicare

entitlement flows from entitlement to

Social Security retirement and disability

benefits, we established regulations at

§ 411.4(b) and implemented section

1862(a)(3) of the Act through a payment

exclusion process in the FFS program,

outlined in section 50 of Chapter 16 of

the Medicare Benefit Policy Manual and

section 10.4 of the Medicare Claims

Payment Manual.

The Medicare payment exclusion

process includes the receipt of

incarceration status for individuals via

regular data transfers from the SSA to

CMS. Once we receive the data, the

incarceration status is noted on the

individual’s record and is retained in

the FFS claims processing systems.

Upon receipt of submitted FFS claims,

CMS denies payment of both Part A and

Part B claims for individuals with

records on which incarceration is

denoted, subject to the narrow

exception provided in § 411.4(b). The

denial of claims continues until the

individual is no longer incarcerated and

that information is reported by SSA to

CMS. Individuals who are entitled to

premium-free Part A will maintain their

entitlement and will remain enrolled in

Part B as long as premiums are paid.

Similarly, individuals who are enrolled

in premium Part A and/or Part B

maintain their enrollment as long as

premiums are paid. Sections

1851(a)(3)(B), 1860D–1(a)(3)(A), and

1876(a)(1)(A) of the Act outline the

eligibility requirements to enroll in MA,

Part D, and Medicare Health

Maintenance Organization/Competitive

Medical Plans (cost plans). In all

options, individuals must have active

Medicare coverage. Specifically, to

enroll in MA, an individual must be

entitled to Part A and enrolled in Part

B; to enroll in a PDP, an individual must

be eligible for Part D by either being

entitled to Part A and/or enrolled in Part

B; to enroll in a Medicare cost plan, an

individual must be enrolled in Part B

but Part A is not required.

In addition, sections 1851(b)(1)(A),

1860D–1(b)(1)(B)(i), and 1876(d) of the

Act provide that Medicare beneficiaries

are eligible to enroll in an MA plan,

PDP, or cost plan only if they reside in

the geographic area served by the plan,

known as the plan’s ‘‘service area.’’ As

noted earlier, an individual who is

incarcerated still meets the eligibility

requirements for Part A and Part B and

is eligible generally to enroll in an MA

plan, PDP, or cost plan. However,

residence in a plan’s service area is also

a condition for eligibility to enroll in an

MA plan, PDP or cost plan. See

§§ 422.50(a)(3)(i) for MA plans,

423.30(a)(1)(ii) for PDPs, and 417.422(b)

for cost plans. If a member no longer

resides in the service area, plans must

disenroll that individual per rules at

§§ 422.74(a)(2)(i) and 422.74 (d)(4) for

MA plans, 423.44(b)(2)(i) for PDPs, and

417.460(b)(2)(i) for cost plans.

a. Changes in Definition of Service Area

for Cost Plans (§ 417.1)

In order to implement the exclusion

from Medicare coverage for incarcerated

individuals under section 1862(a)(3) of

the Act in the case of MA plans and

PDPs, we explicitly excluded facilities

in which individuals are incarcerated

from an MA plan’s service area by

including this exclusion in the

definition of ‘‘service area’’ when those

regulatory definitions were adopted (54

FR 41734 and 72 FR 47410).

Specifically, ‘‘service area,’’ under

§§ 422.2 for MA plans and 423.4 for

PDPs, is defined so that facilities in

which individuals are incarcerated are

considered outside of the service area.

We did not include a similar service

area exclusion in the case of cost plans.

To the extent that cost plans do not

incur costs for incarcerated enrollees

because their health care costs are

covered by the facility, there would be

no costs claimed on the cost report, and

therefore, no Medicare payment.

Nonetheless, to ensure that no cost

payments are made, we proposed to

revise the definition of service area in

§ 417.1 to specifically note that facilities

in which individuals are incarcerated

are not a part of the service area. This

adjustment will ensure parity among the

various Medicare plan coverage options

and be the basis for ensuring that

services are not paid by the Medicare

Trust Funds for those who are not

eligible for them.

b. Involuntary Disenrollment for

Incarcerated Individuals Enrolled in

MA, PDP and Cost Plans (§§ 417.460,

422.74, and 423.44)

Sections 1860D–1(b)(1)(B)(i),

1851(b)(1)(A), and 1876(a)(1)(A) of the

Act provide that individuals whose

permanent residence is outside the

plan’s service area are ineligible to

enroll in or to remain enrolled in the

MA, Part D, or cost plan. Based on the

definition of service area established in

§§ 422.2 and 423.4, this applied to

individuals who were incarcerated as

well. As such, individuals who became

incarcerated while enrolled were

ineligible to remain enrolled because

they did not meet the eligibility

criterion of residing in the MA plan or

PDP’s service area. As noted previously,

the regulations for cost plans currently

do not exclude incarcerated individuals

from enrolling or remaining enrolled in

these plans.

At the time of the implementation of

Part D, the data regarding incarceration

were not as robust as they are at the

present time. To compensate, we

provided instructions in sub-regulatory

guidance that required MA plans and

PDPs to investigate a notification from

CMS of an individual’s incarcerated

status. If a plan could not confirm an

enrollee’s status, the plan would then

apply the more-general policy for

investigation of a possible out-of-area

status, which would allow an

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incarcerated individual to remain

enrolled in the plan for up to 6 or 12

months for MA plans or PDPs,

respectively. Cost plans, on the other

hand, are not currently subject to

similar instructions. Therefore

individuals are currently not

disenrolled from cost plans solely

because they are determined to be

incarcerated.

Given that the data CMS receives from

SSA today regarding the incarceration

status of Medicare beneficiaries are

reliable enough for the purpose of

involuntary disenrollment from MA,

Part D, and cost plans, we proposed in

the preamble of the January 2014 notice

of proposed rulemaking to amend

§§ 417.460(b)(2)(i), 417.460(f)(1)(i),

422.74(d)(4)(i), 422.74(d)(4)(v) and add

423.44(d)(5)(iii) and 423.44(d)(5)(iv) to

establish that MA organizations, PDPs,

and cost plan organizations must

disenroll individuals incarcerated for 30

days or more upon notification of such

status from CMS. Our proposal

indicated that CMS, as a part of this

change, would review the incarceration

data provided by SSA and, where

possible, involuntarily disenroll

individuals who are incarcerated based

on the data provided by SSA and notify

the plan in which the individual is

enrolled of this involuntary

disenrollment. For all such

disenrollments under our proposal, the

effective date of disenrollment would be

the first of the month after the

incarceration start date, as reported by

SSA. Such disenrolled individuals

would maintain Medicare Part A and

Part B coverage through FFS, provided

they continue to pay premiums, as

applicable, and payment of FFS claims

would be based upon existing

regulations outlined at 42 CFR 411.4(b).

In connection with this change, we also

proposed to deny enrollment requests

for individuals if data received by CMS

indicates an active incarceration status

of at least 30 days. Based on the data

received from SSA, if incarceration is

denoted, we will deny that enrollment

and notify the plan of the denial. This

would replace the current process

requiring plans to accept the enrollment

and immediately begin the process to

verify that the individual was out of the

plan’s service area. We indicated our

intent to provide operational

instructions in subregulatory guidance.

We received the following comments

on our proposal:

Comment: We received general

support for our proposals. Specifically,

commenters appreciated the

clarification that individuals released

from incarceration are eligible for a

special election period (SEP) to enroll in

an MA or Part D plan.

Response: We appreciate the support

expressed by the commenters. We note

that the SEP related to release from

incarceration (that is, change in

residence) is not new or tied to this

proposal. Details about this SEP can be

found in section 30.4.1 of Chapter 2 of

the Medicare Managed Care Manual and

section 30.3.1 of Chapter 3 of the

Medicare Prescription Drug Benefit

Manual.

Comment: A few commenters had

suggestions for how we should

implement this proposal. Specifically,

they suggested that we issue updated

guidance and develop new model

notices. They also suggested that the

best vehicle for providing updates to

incarcerated status on members would

be through the MARx system or daily

transaction reply reports (DTRRs).

Response: We agree that manual and

operational guidance will be necessary

in order for MA, Part D and cost plans

to implement this provision

appropriately. We will evaluate whether

new or revised model notices are

needed and we will share these with

plans as soon as possible. We also agree

that transmission of data through MARx

and DTRRs would make the most sense

in terms of sharing incarcerated status

with plans.

Comment: A commenter requested

that CMS notify MA organizations and

Part D sponsors of involuntary

disenrollments on the day of

incarceration. This commenter also

suggested that we consider permitting

MA and Part D plans to disenroll

members as of the incarceration start

date (as opposed to the first day of the

month following the incarceration start

date) to be in line with rules governing

Qualified Health Plans (QHPs).

Response: Notification to plans and

sponsors on the day that incarceration

begins is not possible, since CMS

receives the data from SSA once a

month, and only after the correctional

facility provides it to SSA. We would

also note that plan enrollment and the

corresponding payment to plans by

CMS occurs in full calendar month

increments. Even if we were able to

provide plans with real time

incarceration data, an involuntary

disenrollment date other than the last

day of the month is not possible.

We understand that QHPs may have

different disenrollment effective dates

because they can disenroll on days other

than the first of the month. However, as

previously stated, MA, Part D and cost

plan effective dates begin and end on a

monthly basis (that is, the first day of

the month). Therefore, we cannot use

the date of incarceration as the

disenrollment effective date.

Comment: A commenter requested

that we clarify if there will be an option

for plans to disenroll a member if they

receive information from the State

Medicaid agency that an individual is

incarcerated.

Response: If a plan receives

information from an entity other than

CMS or receives from CMS, via existing

MARx processes, an indication of

possible out of area status due to

incarceration, there is already a process

outlined in sub-regulatory guidance for

plans to determine whether an

individual is residing outside of the

service area, which is what

incarceration is considered. For cases in

which CMS does not receive data

confirming the incarceration of the

individual, the MA organization or Part

D sponsor must establish that the

individual is no longer residing in the

plan’s service area due to incarceration

as outlined in Section 50.2.1 in Chapter

2 of the Medicare Managed Care Manual

and Chapter 3 of the Medicare

Prescription Drug Benefit Manual.

In addition, as outlined in Section

50.2.1 in Chapter 17, Subchapter D of

the Medicare Managed Care Manual,

cost plans must disenroll individuals

who permanently move out of the

service area based upon written

statement from the beneficiary or other

reasonable evidence that establishes the

individual no longer resides in the

plan’s service area. With the change in

definition of service area for cost plans

as reflected in the proposed change at

§ 417.1, cost plans must establish that

the individual is no longer residing in

the plan’s service area if they receive

information regarding incarceration

from CMS or another entity.

Comment: Two commenters suggested

creating a Part B SEP to ease the

transition for beneficiaries after they are

released from incarceration to ensure

access to Medicare Part B benefits as

they re-enter the community.

Oftentimes, the commenters cited, these

beneficiaries lose their Medicare Part B

coverage because they are unable to pay

their premiums during their

incarceration and are not eligible for a

Part B SEP upon their release. As a

result, if these individuals sign up for

Part B at a later date, there is the

likelihood that they will have to pay a

late enrollment penalty.

Response: This comment is outside

the scope of this rulemaking. However,

we would like to note that SEPs for Part

B and premium Part A are outlined in

statute and CMS does not have the

authority to establish additional SEPs.

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Ali Shirvani-Mahdavi, Ph.D. & Melissa Haeffner,

Ph.D., Rewarding Wellness: The Science Behind

Effective Wellness Incentive Programs (2014).

After consideration of the public

comments received, we are taking the

following action on our proposals:

• The definition of service area for

cost plans at § 417.1 is finalized without

modification.

• To articulate that the geographic

area is the HMO or CMP’s service area

as defined in § 417.1, we are finalizing

the language at § 417.460(b)(2)(i) with

the minor modification of adding the

word ‘‘service.’’

• To articulate that the basis of the

disenrollment for incarceration is due to

the individual not residing in the plan’s

service area, the regulation text at

§§ 417.460(f)(1)(i), 422.74(d)(4)(i)(A),

and 422.74(d)(4)(v)) is finalized with

modification.

• Due to an inadvertent omission, the

proposed regulatory text changes to

§ 423.44(d)(5)(iii) and (iv) were not

published in the proposed rule. Because

our preamble was clear that our

proposed changes were applicable to

Part D, and the comments received

demonstrated that readers understood

our intent, we are adding and finalizing

regulatory text changes at

§ 423.44(d)(5)(iii) and (iv).

• A proposed change to the definition

of ‘‘service area’’ was inadvertently

published in the January 2014 proposed

rule at § 422.2. That revised definition is

not being finalized.

Finally, we recognize that in our

discussion of the proposed rule we

described our intent that ineligibility

for—as well as involuntary

disenrollment from—MA, Part D, and

cost plans would be based on a period

of incarceration of 30 days or more. As

we will note in implementing guidance

for these final rules, we will determine

eligibility based on confirmed

incarceration data from SSA, not a 30-

day timeframe.

25. Rewards and Incentives Program

Regulations for Part C Enrollees

(§ 422.134)

Every year, CMS receives inquiries

from MA organizations that wish to

expand the scope of the rewards and

incentives that currently may be offered

to beneficiaries enrolled in their MA

plans. In some cases, MA organizations

wish to extend rewards and incentives

already offered to their commercial

members to their Medicare enrollees.

There is some evidence to suggest that

health-driven reward and incentive

programs for currently enrolled

members of health plans may lead to

meaningful and sustained improvement

to their health behaviors and health

outcomes.

CMS would like to enable MA

organizations to offer health-driven

rewards and incentives programs that

may be applied to more health-related

services and activities than are allowed

under our current guidance. We

proposed to amend our regulations to

establish parameters for rewards and

incentives programs offered to enrollees

of MA plans. Because we are concerned

about the possibility that such programs

would be targeted only to healthier

enrollees, and discourage sicker

enrollees from participating in such

incentives and in remaining enrolled in

the plan, we also proposed to include

specific requirements regarding rewards

and incentives so as to ensure that such

programs do not discriminate against

beneficiaries on the basis of health

status or disability, or other

impermissible bases for discrimination.

Section 1856(b)(1) of the Act provides

authority for the establishment of MA

standards by regulation that are

consistent with and carry out Part C,

and section 1857(e)(1) of the Act

provides authority to impose contract

requirements that CMS finds ‘‘necessary

and appropriate’’ and that are not

inconsistent with Part C. Section

1852(b)(1)(a) of the Act states that MA

organizations may not discriminate

against beneficiaries on the basis of

health status and that CMS may not

approve an MA plan if that offering is

susceptible to discrimination based on

an individual’s health status.

Furthermore, section 1857(g)(1)(D) of

the Act provides authority for taking

intermediate sanction action against an

MA organization which ‘‘engages in any

practice that would reasonably be

expected to have the effect of denying

or discouraging enrollment by eligible

individuals’’ as a result of their health

status or history. We proposed to rely

upon the aforementioned rulemaking

and substantive authority to establish

requirements for rewards and incentives

programs offered by MA organizations

to Medicare beneficiaries enrolled in

their MA plans.

Specifically, we proposed adding a

new provision at § 422.134 that would

authorize MA organizations to offer

reward and incentive programs to their

current Medicare enrollees to encourage

their participation in activities that

focus on promoting improved health,

preventing injuries and illness, and

promoting efficient use of health care

resources. We proposed requiring that

reward-eligible activities be designed so

that all enrollees are able to earn

rewards without discrimination based

on race, gender, chronic disease,

institutionalization, frailty, health

status, and other impairments. This

proposed requirement would not

preclude MA organizations from

offering rewards and incentives

programs that target a specific disease,

chronic condition or preventive service.

Rather, the goal of having a non-

discrimination requirement is to prevent

particularly vulnerable populations

from being disproportionately

underserved. MA organizations may not

use this provision to ‘‘cherry pick’’

healthier enrollees. Therefore, any

rewards and incentives program

implemented by an MA organization

under this proposal must accommodate

otherwise qualified beneficiaries who

receive services in an institutional

setting or who need a modified

approach to enable effective

participation.

To meet the proposed CMS

requirements, a reward or incentive

would have to be earned by completing

the entire health-related service or

activity and may not be offered for

completion of less than all required

components of the eligible service or

activity. An MA organization would

define what qualifies as an ‘‘entire

service or activity’’ within its program

design. This proposed requirement is

tied to interpreting the value of the

service provided as it relates to the

value of the reward. Under this

proposal, rewards and incentives would

be subject to a monetary cap in an

amount CMS determines could

reasonably be expected to affect enrollee

behavior while not exceeding the value

of the health-related service or activity

itself. As part of our proposal, we

indicated the intent to provide guidance

on this qualitative standard on a regular

basis.

In addition, our proposed regulation

would require MA organizations that

offer rewards and incentives programs

to provide information about the

effectiveness of such programs to CMS

upon request. If CMS determines that

the rewards and incentives programs are

not in compliance with our regulatory

standard, we proposed that we may

require that the MA organization modify

the basic parameters of the program.

We received the following comments

and our responses are as follows:

Comment: We received several

comments in support of this proposal,

approving of our effort to allow MA

organizations to make rewards and

incentives programs more widely

available to enrollees. Several

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commenters noted that facilitating

beneficiary engagement in health

behaviors and practices will help to

achieve better health outcomes.

Response: We thank the commenters

for their support.

Comment: Several organizations

expressed concern over the requirement

that rewards and incentives programs be

non-discriminatory and available to all

enrollees. They requested clarification

that such programs may target specific

chronic conditions, diseases and other

health care needs.

Response: In response to comments,

we have strengthened the regulation to

ensure that rewards and incentives

programs will not be discriminatory. As

revised, the non-discrimination

requirement of the provision is based on

the substantive requirement of section

1852(b)(1)(A) of the Act (which states

that MA organizations may not

discriminate against beneficiaries on the

basis of health status) and expands upon

it by identifying other impermissible

bases for discrimination, including race,

national origin, and gender. The

regulation is meant to prevent rewards

and incentives programs from being

used to unfairly benefit healthier

enrollees while excluding or

disadvantaging enrollees who are less

healthy or have a disability. MA

organizations may establish rewards and

incentives for specific chronic

conditions, diseases, or other health

care needs so long as the rewards and

incentives program is not

discriminatory.

Comment: We received several

comments stating that the requirement

that a beneficiary must complete a

whole service or activity is too narrow

to permit effective program designs and

requesting that CMS provide greater

flexibility in this area.

Response: We proposed to require

that rewards and incentives be offered

in connection with an entire service or

activity so that CMS and MA

organizations can interpret the value of

a reward or incentive in relation to the

service or activity for which it is being

given. MA organizations may reasonably

define the scope of the ‘‘entire service

or activity’’ in their program design. For

example, a MA organization may decide

to offer rewards and incentives for

participation in a smoking cessation

program. The MA organization may

decide to give smaller rewards for each

class attended or give one larger reward

for completing a set number of classes,

as long as the value of the reward

reflects the value of the service and

adheres to the monetary cap designated

by CMS. We are revising

§ 422.134(c)(1)(i) to eliminate the phrase

‘‘completion of’’ to make it possible for

portions of a service or activity to be

defined as the ‘‘entire service or

activity.’’ We emphasize that the value

limitation applies to each ‘‘entire

service or activity’’ such that the value

of the reward or incentive offered may

not be greater than the value of the

service or activity itself.

Comment: Several commenters

cautioned against rewards and incentive

programs because they have the

potential to disproportionately penalize

low-income, minority beneficiaries, and

beneficiaries with disabilities.

Response: We understand the

commenters’ concerns and consequently

emphasize here (and elsewhere in this

preamble) that all rewards and

incentives programs must be non-

discriminatory and may not

disproportionately penalize any groups,

specifically the vulnerable.

Additionally, as discussed in a previous

response, we have revised the regulation

text to strengthen the non-

discrimination language.

Comment: Several commenters

suggested that CMS solicit data from

rewards and incentives programs on a

regular basis rather than ‘‘on request.’’

Commenters are particularly interested

in outcomes data. In addition, one

commenter asked about CMS’

requirements for the format of that

information.

Response: We have noted these

comments and will consider adopting a

rewards and incentives program

reporting cycle in the future.

Comment: Several commenters do not

support rewards and incentive program

designs that include increased

beneficiary cost-sharing as a penalty for

not participating in such a program.

Response: The provision as finalized

only allows programs that will provide

rewards and incentives to beneficiaries.

It does not allow MA organizations to

penalize beneficiaries for non-

participation by any means, including

through increased cost-sharing. We also

note that § 422.134(c)(2)(i) prohibits

rewards and incentives from being

offered in the form of cash or monetary

rebates; we would consider a discount

on cost-sharing to be such a prohibited

reward and incentive. Furthermore,

CMS regulations requiring uniformity of

benefits (42 CFR 422.100(d)(2)) preclude

MA plans from charging enrollees of a

plan different premiums or cost-sharing

for the same service.

Comment: A few commenters asked

how this new provision will impact the

rewards and incentives guidance that is

currently located in the Medicare

Marketing Guidelines.

Response: This provision will

supersede any previously issued

rewards and incentives program

guidance. Upon finalization of this rule,

we will update our subregulatory

guidance accordingly.

Comment: A few commenters asked

CMS to provide more specific

information regarding rewards and

incentives programs. They asked for

guidance on calculating the value of the

activities for which the plan would like

to offer rewards and incentives, whether

the rewards and incentives may be used

to decrease cost-sharing or premiums

and whether there is a limit on how

often an MA organization may offer a

reward or incentive.

Response: The provision provides an

MA organization with great flexibility in

designing its own rewards and

incentives program. At this time, we

will rely on the MA Organizations to

reasonably value the activities/services

for which they offer rewards and

incentives. In this final rule, we neither

identify limits for how often rewards

and incentives may be offered nor do we

set a maximum monetary value for the

rewards and incentives. However, if we

determine such guidance is needed to

apply the standard in § 422.134(c)(1)(iii)

that the reward or incentive be expected

to impact enrollee behavior without

exceeding the value of the health-related

service or activity itself, we will provide

it through subregulatory guidance.

Rewards and incentives may never be

used to decrease cost-sharing or plan

premiums. In addition to the

prohibition at § 422.134(c)(2)(i), CMS

regulations requiring uniformity of

benefits (42 CFR 422.100(d)(2)) preclude

MA plans from charging enrollees of a

plan different premiums or cost-sharing

for the same service. Thus, a MA plan

may not offer lower cost-sharing or

premiums for plan benefits, as a reward

or incentive.

Comment: Two commenters asked

that we expand this provision to include

Part D plans.

Response: We have noted the

comment. At this time, the rewards and

incentives program provision only

applies to Part C.

Comment: One commenter requested

that SNPs be allowed greater flexibility

in rewards and incentives program

design.

Response: The current provision and

the parameters set forth are applied to

all types of MA plans, including SNPs.

At this time, we do not intend to

provide SNP-specific rewards and

incentives program rules or guidance.

Comment: Several commenters asked

how rewards and incentives will be

accounted for in plan bids and one

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commenter suggested that the costs

should be identified as an

administrative cost for care management

services in the bid.

Response: A rewards and incentives

program would be included in the bid

as a non-benefit expense and would not

be entered in the PBP. Per CMS OACT

Bidding Guidance, (available at:

https://www.cms.gov/Medicare/Health-

Plans/MedicareAdvtgSpecRateStats/

Bid-Forms-and-Instructions.html),

‘‘non-benefit expenses are all of the bid-

level administrative and other non-

medical costs incurred in the operation

of the MA plan.’’ We also wish to clarify

that the costs of a rewards and

incentives program would not

necessarily be related only to care

management services and that plans

must comply with applicable bidding

requirements.

Comment: Several commenters

requested that CMS clarify whether

rewards and incentives programs would

be offered as a benefit or otherwise.

Response: Our policy has been, and

continues to be, that rewards and

incentives programs are not benefits.

Comment: One commenter requested

that CMS, in considering additional

parameters for reward and incentive

programs, consider shared decision-

making and tiered networks. The same

commenter also stated that our proposal

removes a great deal of flexibility for

plans to develop these programs and

constrains employer group plans from

providing these programs to the entire

employer group.

Response: We are not clear what is

meant by the request that in our

consideration of additional parameters

we consider shared decision-making

and tiered networks. We note that

shared decision-making and tiering of

medical benefits are strategies that MA

organizations may use to influence

enrolled beneficiaries’ health care

decisions. Rewards and incentives are

another tool CMS is making available to

MA organizations to encourage

enrollees to engage in activities/services

that are intended to improve health and/

or decrease enrollee risk for illness. MA

organizations have the flexibility to use

these tools together or as separate

programs designed to improve enrollees’

health.

We are not aware of what flexibilities

plans may be using currently in

providing rewards and incentive

programs to enrollees that the

commenter believes CMS proposed to

remove. We specifically solicited

information on this topic from MA

organizations in both the proposed rule

and in the CY 2014 Call Letter and have

received no information that would lead

us to believe that our proposed rewards

and incentives program would limit,

rather than expand, current plan

flexibilities. The current guidance on

rewards and incentive programs that

may be offered to plan enrollees,

included in the Medicare Marketing

Guidelines, allows a very limited use of

rewards and incentives to promote

enrollee use of Medicare-covered

preventive services. Therefore, we do

not see how our proposed rewards and

incentives program framework could

remove plans’ flexibilities rather than

expand them.

After consideration of the public

comments received, we are finalizing

the proposed Rewards and Incentives

Program Regulations for Part C Enrollees

rule with modifications to subparagraph

(b)(1) to include ‘‘national origin,

including limited English proficiency,’’

and ‘‘disability.’’ In subparagraph (b)(1)

we are also changing the text from

‘‘institutionalization’’ to ‘‘whether a

person resides or receives services in an

institutional setting’’ and from ‘‘other

impairments’’ to ‘‘other prohibited

basis.’’ These changes clarify the scope

of the categories of beneficiaries

included in the context of prohibited

discrimination and address comments

expressing concern about the possible

disproportionate impact of rewards and

incentives programs.

Additionally, we are modifying

paragraph (c)(1)(i) to eliminate the

phrase ‘‘completion of’’ from the

regulation text to make it possible for

smaller increments of service or activity

to be defined as the ‘‘entire service or

activity.’’ However, we emphasize that

the value of any reward must reflect the

value of the service and adhere to any

monetary cap that has been determined

by CMS under § 422.134(c)(1)(iii).

Finally, we note that we have made a

technical change to delete the phrase

‘‘all of the following’’ from the

introductory language at paragraph (c).

B. Improving Payment Accuracy

1. Implementing Overpayment

Provisions of Section 1128J(d) of the

Social Security Act (§ 422.326 and

423.360)

This section of the final rule

implements Section 6402 of the

Affordable Care Act, which established

new section 1128J(d) of the Social

Security Act (‘‘the Act’’) entitled

Reporting and Returning of

Overpayments. Section 1128J(d)(4)(B) of

the Act defines the term overpayment as

any funds that a person receives or

retains under title XVIII or XIX to which

the person, after applicable

reconciliation, is not entitled under

such title. The definition of person at

section 1128J(d)(4)(C) includes a

Medicare Advantage organization (as

defined in section 1859(a)(1) of the Act)

and a Part D sponsor (as defined in

section 1860D–41(a)(13) of the Act). The

definition does not include a

beneficiary.

Section 1128J(d)(1) of the Act requires

a person who has received an

overpayment to report and return the

overpayment to the Secretary, the state,

an intermediary, a carrier, or a

contractor, as appropriate, at the correct

address, and to notify the Secretary,

state, intermediary, carrier or contractor

to whom the overpayment was returned

in writing of the reason for the

overpayment. Section 1128J(d)(2) of the

Act requires that an overpayment be

reported and returned by the later of (1)

the date which is 60 days after the date

on which the overpayment was

identified; or (2) the date any

corresponding cost report is due, if

applicable. Section 1128J(d)(3) of the

Act specifies that any overpayment

retained by a person after the deadline

for reporting and returning an

overpayment is an obligation (as defined

in 31 U.S.C. 3729(b)(3)) for purposes of

31 U.S.C. 3729.

Finally, section 1128J(d)(4)(A) of the

Act defines ‘‘knowing’’ and

‘‘knowingly’’ as those terms are defined

in 31 U.S.C. 3729(b). Specifically, the

terms ‘‘knowing’’ and ‘‘knowingly’’

‘‘mean that a person with respect to

information: (1) Has actual knowledge

of the information; (2) acts in deliberate

ignorance of the truth or falsity of the

information; or (3) acts in reckless

disregard of the truth or falsity of the

information.’’ There need not be ‘‘proof

of specific intent to defraud.’’

To implement section 1128J(d) of the

Act for the Part C Medicare Advantage

program and the Part D Prescription

Drug program, we proposed two new

sections, §§ 422.326 and 423.360,

respectively, both titled, ‘‘Reporting and

Returning of Overpayments.’’ These

sections proposed rules for MA

organizations and Part D sponsors to

report and return an identified

overpayment to the Medicare program.

We use the term Part D sponsor, as

defined at § 423.4, to refer to the entities

that offer prescription drug plans (PDPs)

under part 423 and thus are subject to

section 1128J(d) of the Act.

We also proposed conforming

amendments to §§ 422.1, 422.300, and

423.1 that add a reference to section

1128J(d) of the Act to the existing list of

statutory authorities for the regulations

governing the MA organizations and

Part D sponsors. We also proposed to

amend §§ 422.504(l) and 423.505(k) to

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incorporate a reference to the proposed

§§ 422.326 and 423.360, respectively, in

order to extend the existing data

certification requirement to data that

MA organizations and Part D sponsors

submit to CMS as part of fulfilling their

obligation to return an overpayment

under section 1128J(d) of the Act.

Section 422.504(l) refers to certification

of data ‘‘as a condition for receiving a

monthly payment’’ and § 423.505(k)

refers to certification of data for

enrollees ‘‘for whom the organization is

requesting payment.’’ Thus, we

proposed to add a requirement that

applies after CMS has completed

prospective monthly payments for a

year, and organizations are no longer

‘‘requesting payment’’ because

applicable reconciliation has occurred.

Applicable reconciliation, we stated, is

the point when organizations submit

their final data for the previous payment

year. Accordingly, if an MA

organization or Part D sponsor has

identified an overpayment, there clearly

is a different state of ‘‘best knowledge,

information, and belief’’ than the state

of knowledge, information, and belief

that existed prior to applicable

reconciliation. Thus, we proposed to

require that the CEO, CFO, or COO must

certify (based on best knowledge,

information, and belief) that information

the MA organization or Part D sponsor

submits to CMS for purposes of

reporting and returning of overpayments

under §§ 422.326 and 423.360 is

accurate, complete, and truthful.

We reminded all stakeholders that

even in the absence of a final regulation

on these statutory provisions, MA

organizations and Part D sponsors are

subject to the statutory requirements

found in section 1128J(d) of the Act and

could face potential False Claims Act

liability, Civil Monetary Penalties (CMP)

Law liability, and exclusion from

Federal health care programs for failure

to report and return an overpayment.

Additionally, MA organizations and

Part D sponsors continue to be obliged

to comply with our current procedures

for handling inaccurate payments.

In response to the January 10, 2014

proposed rule, we received

approximately 30 pieces of

correspondence from organizations and

individuals. In this section of the final

rule, we describe our proposals, respond

to the public comments, and state our

final policies.

We did not receive any comments on

our proposed amendments to

§§ 422.504(l) and 423.505(k) to

incorporate a reference to the proposed

§§ 422.326 and 423.360, respectively, in

order to extend the existing data

certification requirement to data that

MA organizations and Part D sponsors

submit to CMS as part of fulfilling their

obligation to return an overpayment

under section 1128J(d) of the Act. We

did not receive any comments on our

conforming amendments to §§ 422.1,

423.300, and 423.1. Therefore, we are

finalizing these amendments as

proposed.

a. Terminology (§§ 422.326(a) and

423.360(a))

We proposed definitions of 3 terms.

First, we proposed to adopt the statutory

definition of overpayment, where an

overpayment exists when—after

‘‘applicable reconciliation’’—an MA

organization or Part D sponsor is not

entitled to funds it has received and/or

retained. In order to clarify the statutory

definition of overpayment, we proposed

definitions of 2 key terms at

§§ 422.326(a) and 423.360(a): ‘‘Funds’’

and ‘‘applicable reconciliation.’’

We proposed to define ‘‘funds’’ as

payments an MA organization or Part D

sponsor has received that are based on

data that these organizations submitted

to CMS for payment purposes. We also

noted that MA organizations and Part D

sponsors have responsibility for the

accuracy, completeness, and

truthfulness of data they submit under

existing §§ 422.504(l) and 423.505(k).

For Part C, the data submitted by the

MA organization to CMS includes

§§ 422.308(f) (enrollment data) and

422.310 (risk adjustment data). For Part

D, data submitted by the Part D sponsor

to CMS includes data submitted under

§§ 423.329(b)(3), 423.336(c)(1), 423.343,

and data provided for purposes of

supporting allowable costs as defined in

§ 423.308 of this part which includes

data submitted to CMS regarding direct

or indirect remuneration (DIR).

There are additional payment-related

data CMS uses to calculate Part C and

Part D payments that are submitted

directly to CMS by other entities, such

as the Social Security Administration

(SSA), which is the authoritative source

for data they submit to CMS. We believe

that MAOs and Part D sponsors cannot

be held accountable for the accuracy of

data controlled and submitted to CMS

by other entities.

For example, the SSA is the

authoritative source for date of death.

An MA organization or Part D sponsor

generally does not submit a date of

death directly to CMS’ systems; it comes

from the SSA data feed. When the SSA

submits to CMS corrected data regarding

a beneficiary’s date of death, CMS’

systems recalculate the payments made

to the plan for that beneficiary and

recoup the incorrect payment in a

routine retroactive payment adjustment

process.

We stated that when CMS recoups an

incorrect payment from an MA

organization or Part D sponsor based on

data corrections submitted by

authoritative sources such as the SSA,

CMS would not consider this

recoupment to be the return of an

overpayment by an MA organization or

Part D sponsor under proposed

§§ 422.326 and 423.360. Therefore, the

proposed meaning of ‘‘funds’’ refers to

a payment amount that an MA

organization or Part D sponsor received

from CMS that is based on data that the

MA organization or Part D sponsor

controls and submits to CMS.

We stated that the term ‘‘applicable

reconciliation’’ refers to an event or

events after which an overpayment can

exist under section 1128J(d) of the Act,

and we proposed definitions of the term

applicable reconciliation that are

specific to Part C and Part D.

For Part C, we proposed that

applicable reconciliation occurs on the

date that CMS announces as the final

deadline for risk adjustment data

submission. For each payment year, we

apply three sets of risk scores to adjust

payments: Initial and midyear risk

scores during the payment year (both

sets are based on incomplete diagnosis

data from the data collection year); and

final risk scores after the payment year

using data MA organizations submit on

or before the final deadline for risk

adjustment data (which reflects

complete data for the data collection

year). We also stated that the final risk

adjustment data submission deadline

would function as the Part C applicable

reconciliation date.

For Part D sponsors, we proposed that

applicable reconciliation is the later of

either: The annual deadline for

submitting prescription drug event

(PDE) data for the annual Part D

payment reconciliations referred to in

§ 423.343 (c) and (d) or the annual

deadline for submitting DIR data. The

annual deadline for submitting PDE data

is the last federal business day prior to

June 30th of the year following the

benefit year being reconciled. The

annual deadline for submitting DIR data

is announced annually through

subregulatory guidance and generally

occurs around the last business day in

June the year following the benefit year

being reconciled. We selected these

events to define the Part D applicable

reconciliation because these data are

used for the purposes of determining

final Part D payment reconciliation. We

noted that MA organizations would still

have to submit all final risk adjustment

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diagnoses for Part D by the final risk

adjustment data submission deadline.

In summary, we proposed an

approach to defining applicable

reconciliation that establishes dates that

differ for Part C and Part D. We asked

for comment on this approach.

We noted that payment errors

identified as a result of any corrections

to risk adjustment data submitted by

MA organizations (and other

organizations required to submit risk

adjustment data to CMS) on or before

the annual final risk adjustment data

submission deadline are handled as part

of the current annual process of risk

adjustment payment reconciliation.

Because these payment errors are prior

to the date defined in this final rule as

‘‘applicable reconciliation’’, we stated

that we do not consider these errors to

be overpayments for the purpose of

§§ 422.326 and 423.360. That is, any

deletions of risk adjustment data in the

file submitted on or before the final risk

adjustment data submission deadline for

a payment year, would result in

payment errors that are addressed with

processes that have been in place prior

to our codification of section 1128J(d) of

the Act in proposed §§ 422.326 and

423.360.

Likewise, for Part D, any payment

errors identified as a result of any

corrections to PDE or DIR data

submitted on or before the later of the

annual deadline for submitted PDE and

DIR data are handled as part of the

current Part D reconciliation process,

and we do not consider these errors to

be overpayments for the purpose of

§ 423.360.

Finally, we stated our expectation that

MA organizations and Part D sponsors

must be continuously diligent regarding

the accuracy and completeness of

payment-related data they submit to

CMS for a payment year, whether

during or after that payment year, and

whether before or after applicable

reconciliation dates. This expectation is

based on existing requirements at

§§ 422.310, 422.504(l), 423.329(b)(3)(ii),

and 423.505(k), and proposed

amendments that clarify and strengthen

these requirements.

We did not receive any comments on

the proposed definitions of the terms

‘‘funds’’ or ‘‘overpayment.’’ (See the

next section for comments and

responses on the provision regarding

‘‘identified overpayment’’.) We received

the following comment on the term

‘‘applicable reconciliation’’, and our

response follows.

Comment: Some commenters

supported CMS’ proposal to have

separate applicable reconciliation dates

for the Part C and Part D programs,

noting that this approach is simpler and

more practical than the alternative CMS

described (where there would be 2

applicable reconciliation dates for the

Part D program—one for risk adjustment

and another for PDE and DIR data).

Response: We appreciate the support.

We will finalize our proposal that the

Part C applicable reconciliation date

will be the same as the final risk

adjustment data submission deadline,

and the Part D applicable reconciliation

date will be the later of: The annual

deadline for submitting prescription

drug event (PDE) data for the annual

Part D payment reconciliation referred

to in § 423.343(c) and (d) or the annual

deadline for submitting DIR data.

We would like to note that the final

risk adjustment data submission

deadline will still apply to diagnosis

data for both Part C and Part D risk

scores for beneficiaries in MA–PD plans.

After consideration of the public

comments received, we are finalizing

the provisions at §§ 422.326(a) and

423.360(a) as proposed.

b. General Rules for Overpayments

(§ 422.326(b) Through (c); § 423.360(b)

through (c))

We proposed at §§ 422.326(b) and

423.360(b) that if an MA organization or

Part D sponsor has identified that it has

received an overpayment, the MA

organization or Part D sponsor must

report and return that overpayment in

the form and manner set forth in the

section. In paragraphs §§ 422.326(c) and

423.360(c), we proposed that the MA

organization or Part D sponsor has

identified an overpayment if it has

actual knowledge of the existence of the

overpayment or acts in reckless

disregard or deliberate ignorance of the

existence of the overpayment. We noted

that the terms ‘‘reckless disregard’’ and

‘‘deliberate ignorance’’ are part of the

definitions of ‘‘knowing’’ and

‘‘knowingly’’ in section 1128J of the Act,

which provides that the terms

‘‘knowing’’ and ‘‘knowingly’’ have the

meaning given those terms in the False

Claims Act (31 U.S.C. 3729(b)(3)). We

stated that without such a proposal to

include ‘‘reckless disregard’’ and

‘‘deliberate ignorance’’, some MA

organizations and Part D sponsors might

avoid performing activities to determine

whether an overpayment exists. We also

provided that if an MA organization or

Part D sponsor has received information

that an overpayment may exist, the

organization must exercise reasonable

diligence to determine the accuracy of

this information, that is, to determine if

there is an identified overpayment.

Finally, in paragraphs §§ 422.326(d)

and 423.360(d), we proposed the

requirements for reporting and returning

an identified overpayment. An MA

organization or Part D sponsor must

report and return any identified

overpayment it received no later than 60

days after the date on which it

identified it received an overpayment.

The statute provides an alternative

deadline: The date any corresponding

cost report is due, if applicable. We

proposed that this alternative deadline

is not applicable to the Parts C or D

programs because, in general, MA

organizations and Part D sponsors are

paid based on their bids, and not based

on their actual incurred costs.

The MA organization or Part D

sponsor must notify CMS, using a

notification process determined by

CMS, of the amount and reason for the

overpayment. Also within this 60-day

time period, the organization must

return identified overpayments to CMS

in a manner specified by CMS,

including the amount and reason for the

overpayment. We proposed to codify at

paragraph (3) the statutory requirement

that any overpayment retained by an

MA organization or Part D sponsor after

the 60-day deadline for reporting and

returning is an obligation under 31

U.S.C. 3729(b)(3).

We also emphasized that an MA

organization and Part D sponsor are

deemed to have returned the

overpayment when they have taken the

actions that we will specify, in

forthcoming operational guidance, to

submit the corrected data that is the

source of the overpayment. We will

recover the returned overpayment

through routine processing according to

the systems schedule established in the

annual operations budget. That is,

payments are recovered through the

established payment adjustment

process, not on the 60-day schedule that

applies to each MA organization or Part

D sponsor that has identified an

overpayment. Rerunning reconciliation

each time an entity identifies an

overpayment that triggers its 60-day

clock is simply not feasible for CMS.

Finally, we proposed that there will

be circumstances when we may ask the

MA organization or Part D sponsor to

provide an auditable estimate of the

overpayment amount, reason for

overpayment, and make a payment to

CMS. This may occur, for example,

when an overpayment is identified after

the final Part D reopening for a contract

year has occurred but prior to the end

of the look-back period or if an MA

organization or Part D sponsor had a

thoroughly-documented catastrophic

loss of stored data. Information about

the nature of such a request would be

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detailed in forthcoming operational

guidance.

We received the following comments

on general rules for overpayments and

our responses follow.

Comment: Several commenters

requested that CMS clarify when the 60-

day period begins. Specifically, does the

period begin once the MA organization

or Part D sponsor has identified that

there is an overpayment or once the

organization has determined the exact

amount of the overpayment? A

commenter expressed concern that the

proposed rule does not appear to

acknowledge that the amount of an

overpayment must be quantified before

it is ‘‘identified.’’ Another commenter

requested that CMS address the

situation where an MA organization or

Part D sponsor becomes aware of an

issue or error that may have resulted in

one or more overpayments, but could

not determine, with reasonable

certainty, the amount of the

overpayment(s) within a 60-day period.

Response: It is important to

understand the distinctions among

identifying, reporting, and returning an

overpayment in this rulemaking for the

purposes of the MA and Part D

programs. Once an organization has

identified that it has received an

overpayment, the 60-day period for

reporting and returning the

overpayment begins. Because of the

nature of the Part C and Part D

programs, we did not propose that

‘‘identified’’ includes completion of the

act of quantification of an overpayment

amount. Rather, we proposed that

identification of an overpayment means

knowing that the MA organization or

Part D sponsor has submitted erroneous

data to CMS that caused CMS to

overpay the organization.

An organization can identify or assess

that there is a problem with data

submitted to CMS, and determine that it

is incorrect data, prior to actually

calculating what the payment impact is

of that erroneous data. For the MA and

Part D programs, the relevant factor is

identifying that the data is incorrect and

will result in an overpayment. For

example, a risk adjustment diagnosis

that has been submitted for payment but

is found to be invalid because it does

not have supporting medical record

documentation would result in an

overpayment. Under this provision, the

day after the date on which the

organization has confirmed an

identified overpayment—because the

organization knows that the diagnosis is

not supported by documentation—is the

first day of the 60-day period for

reporting and returning the

overpayment. As another example, an

MA organization may find that data

used to calculate Healthcare

Effectiveness Data and Information Set

(HEDIS) measures that the organization

submitted to CMS are found to be

invalid; when the organization has

confirmed that it has identified invalid

data leading to an overpayment, this is

the first day of the 60-day period for

reporting and returning the

overpayment.

Then, during the 2-month period for

reporting and returning the

overpayment, the organization must

determine what data should be

submitted to CMS to correct the

identified overpayment, and then must

engage in the reporting and returning

process that we will describe in

forthcoming guidance. This reporting

and returning process will involve: (1)

Notifying CMS that an overpayment

exists, including notification of the

reason and estimated amount for that

overpayment; and (2) submitting the

corrected data to CMS.

In other words, we believe that the

MA organization and Part D sponsor

will discover through appropriate

payment evaluation procedures when a

60-day period would begin under the

requirements of this provision, because

‘‘day one’’ of the 60-day period is the

day after the date on which organization

has determined that it has identified the

existence of an overpayment. Once the

organization ‘‘starts the clock,’’ it has 60

days to submit to CMS the corrected

data that is the basis of the

overpayment. It is the act of submitting

the corrected data to CMS, along with a

reason and an amount of the

overpayment (which may be an

estimate), that constitutes fulfillment of

the requirement to report and return the

overpayment.

As we stated in the January 10, 2014

proposed rule preamble (79 FR 1997),

‘‘It also is important to note that the MA

organization and Part D sponsor are

deemed to have returned the

overpayment when they have taken the

actions that we will specify, in

forthcoming operational guidance, to

submit the corrected data that is the

source of the overpayment’’. We will

recover the returned overpayment

through routine CMS payment

processes. That is, payments will

continue to be recovered through the

established payment adjustment

processes and schedules. As a result the

payment recovery may not occur within

the 60-day window triggered by

identifying an overpayment. Rerunning

payment reconciliations and conducting

payment recovery within CMS payment

systems each time an entity identifies an

overpayment that triggers its 60-day

clock is simply not feasible for CMS.

We will release operational guidance

on the process an organization will use

for informing CMS that it has identified

a Part C and/or Part D overpayment.

This guidance will also address how an

organization will be required to provide

a reason for and the amount of the

overpayment (which may be estimated).

We seek to reduce burden and

implement an efficient process for

administering the reporting and return

of overpayments, so we are considering

making use of existing procedures for

organizations to communicate payment

data issues to CMS. For example, MA

organizations and Part D sponsors have

used the Remedy system for a number

of years to inform CMS of payment

issues and provide relevant information

on that issue.

In the forthcoming operational

guidance, we will address the question

of how to report the overpayment

amount, including estimation of the

overpayment amount and updates under

certain scenarios.

Comment: A commenter contended

that, applying the principles adopted by

CMS in the RADV audit context, an

overpayment cannot exist for a

particular MA contract unless CMS’

payments as a whole to the MA

organization pursuant to the contract are

inaccurate in light of an appropriate FFS

Adjuster applied to the entire contract.

Potential overpayments can be

determined, therefore, based only on

processes such as CMS’ RADV audits,

which are designed to measure whether

contract-level payments to an MA

organization are accurate when

compared to an appropriate FFS

Adjuster. The commenter further

contended that to the extent an MA

organization develops processes

intended to measure payment accuracy

at the contract-level, the MA

organization would be required to report

and repay inaccuracies calculated after

applying CMS’s FFS Adjuster, and

consistent with prior CMS guidance,

this is the sole instance in which an

‘‘overpayment’’ can be determined for

purposes of proposed § 422.326.

Response: We disagree with the

commenter. Our RADV methodology

does not change our existing contractual

requirement that MA organizations must

certify (based on best knowledge,

information, and belief) the accuracy,

completeness, and truthfulness of the

risk adjustment data they submit to

CMS. Further, this decision does not

change the long-standing risk

adjustment data requirement that a

diagnosis submitted to CMS by an MA

organization for payment purposes must

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be supported by medical record

documentation.

However, we are clarifying the link

between the § 422.326 overpayment

provisions and RADV audits under

§ 422.311 by adding a condition to the

requirement at § 422.326(d), as follows:

an MA organization must report and

return any overpayment it received no

later than 60 days after the date on

which it identified it received an

overpayment. We are adding to

paragraph (d) the provision ‘‘unless

otherwise directed by CMS for the

purpose of § 422.311.’’ Thus, when an

MA organization has a contract selected

for a RADV audit, during the audit the

MA organization will not be allowed to

report and return an overpayment under

§ 422.326 that is due to errors in the

data used to risk-adjust payments for the

audited contract for the payment year

that is the subject of the RADV audit.

We will notify the MA organization

about the timeline for reporting and

returning any overpayments for a

contract under a RADV audit. This new

provision protects the integrity of the

RADV audit process, including the

sampling frame of beneficiaries in a

selected MA plan, whose diagnoses will

be audited.

Comment: A commenter stated that

there will be many circumstances and

situations where entities receiving an

overpayment will not have the ability to

repay funds within the 60-day period

without undue hardship.

Response: MA organizations and Part

D sponsors have an obligation to pay an

overpayment owed under Section

1128J(d). As noted previously, our

recovery of overpayments will occur

through routine payment processing

cycles and schedules. In most

circumstances, MA organizations and

Part D sponsors will be submitting

corrected data, which will be re-run by

CMS and then CMS will recover the

overpayment.

Comment: A commenter noted that 60

days is not a sufficient timeframe, as

identifying and quantifying

overpayments can be a very involved

process. Another commenter stated that

most overpayments are identified

through analyses and studies, such as

internal RADV studies; the commenter

requested that the 60-day time period

begin at the conclusion of the internal

study, so that overpayments can be

referred to CMS after all issues have

been identified and confirmed.

Response: We provide that the 60-day

period is the time period for reporting

and returning an identified

overpayment, after the organization has

conducted the activities needed to

identify that it has received an

overpayment. As explained previously,

for the purposes of the MA and Part D

programs, the MA organization or Part

D sponsor must report and return the

identified overpayment, which is due to

incorrect data it has submitted to CMS,

no later than 60 days after the date on

which the organization identified it

received the overpayment. Subsequently

and within the 60-day period the MA

organization or Part D sponsor is

required to report and return the

overpayment. Reporting the

overpayment involves notifying CMS of

the reason for and the amount of the

overpayment. Returning the

overpayment is deemed to have

occurred through the act of correcting

the erroneous data submitted to CMS,

for example, by deleting incorrect PDEs

or risk adjustment data. Note that if an

organization identifies one set of

erroneous data that has caused an

overpayment, the organization must

begin the 60-day clock on that date, and

if subsequent overpayments are

identified, the organization must begin

subsequent 60-day reporting and

returning periods.

Comment: A commenter questioned

whether CMS will be identifying criteria

for organizations to use to determine an

overpayment.

Response: We have specified in this

final rule the specific types of ‘‘funds’’

that are subject to the provisions under

this section through the definition of

‘‘funds’’. Funds are payments an

organization has received that are based

on data that the organization submitted

to CMS for payment purposes. We will

not provide additional criteria or a

checklist.

Comment: A commenter stated that

logically, an MA organization or Part D

sponsor cannot return an overpayment

until it has calculated the exact amount

that it must return. It might take a

considerable amount of time for the MA

organization or Part D sponsor to audit

its records to determine the amount,

whether there is an issue in previous

years, and whether extrapolation, or

case by case analysis, is appropriate.

The commenter was concerned that

while a plan sponsor might be able to

report to CMS that it has identified an

issue within 60 days, a plan sponsor

may not have enough information after

identification to be able to report the

exact amount. Therefore, the commenter

requested that CMS clarify that the 60

days begins once the organization has

identified the exact amount of the

overpayment. The commenter

suggested, as an alternative, that if the

MA organization or Part D sponsor has

notified CMS that it believes there is an

overpayment, but it will take more than

60 days to determine the exact amount,

CMS consider allowing a ‘‘tolling’’ of

the 60 days so that the organization may

determine the amount it must return to

CMS. Under this ‘‘tolling’’ process, the

organization would be required to notify

CMS within 60 days of identifying that

an overpayment likely exists, but would

be provided additional time by CMS to

determine the exact amount.

Response: We have not used the

phrase ‘‘exact amount’’ in this rule-

making. For the MA and Part D

programs, we define overpayment in the

regulation as ‘‘funds’’ the organization

has received to which it is not entitled,

and then defines ‘‘funds’’ as any

payment based on data submitted by an

MA or Part D organization. Because of

the nature of the Part C and Part D

programs, the key focus in

implementing these statutory provisions

for the MA and Part D programs is thus

correcting the incorrect data that the

organization submitted to CMS that

resulted in an overpayment. We will

then run reconciliation on its routine

operational schedule to recover

overpayment amounts based on the

corrected data. The purpose of the 60

days is to provide the MA or Part D

organization with sufficient time to

correct the incorrect data submitted to

CMS using established data correction

processes. MA organizations and Part D

sponsors are deemed to have returned

the overpayment when they have taken

the actions to submit the corrected data

that is the source of the identified

overpayment. Within the 60 days the

MA organization and Part D sponsor

must also report the overpayment

amount (or estimated amount). If an

estimated overpayment amount is

reported, it may be higher or lower than

the actual overpayment amount

recovered because additional payment

data submitted into the CMS payment

system from other sources may be

incorporated into the payment

calculations.

Comment: A commenter stated that it

is unclear what may occur post-

reconciliation if both parties have been

overpaid. For example, if CMS owes the

Part D sponsor $10 million due to

activity post-reconciliation and a $2

million overpayment is discovered, the

commenter questioned whether we will

still require that the $2 million be

refunded within 60 days or whether the

sponsor will be allowed to offset

amounts owed by CMS. The commenter

recommended that if an overpayment

would be reduced or fully covered by a

reopening, that CMS allow sponsors to

request a reopening and offset the

reopening amount due from the

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overpayment pending completion of the

reopening.

Response: For both the Part C and Part

D programs, the provisions regarding

reporting and returning identified

overpayments become effective the day

after the date of applicable

reconciliation. As we have stated, MA

organizations and Part D sponsors are

deemed to have returned the

overpayment when they have submitted

corrected data that is the source of the

overpayment. We will recover the

overpayment amount through routine

processing. For Part D, that means that

if an overpayment is discovered after

the initial reconciliation but prior to the

reopening described at § 423.346, a Part

D sponsor may request a reopening and

submit the corrected data to fulfill its

obligation to return the overpayment.

The overpayment will be reconciled

through the routine reopening process.

Comment: A commenter stated that

the onus on plans for the calculation of

an overpayment amount creates a risk

that CMS may be overpaid/underpaid in

the monies returned.

Response: As explained in proposed

rule (79 FR 1997), we will recover

overpayments through the correction of

erroneous data and established payment

adjustment processes. Therefore, we

believe that the risk the commenter

mentions does not exist because CMS’

systems will calculate the exact amount

to be recovered.

Comment: A few commenters

objected to the fact that the proposed

rule does not address situations in

which a sponsor has overpaid CMS, and

requested that this regulation also set

forth rules by which CMS handles an

organization’s overpayments to CMS.

Response: This final rule is intended

to implement section 1128J(d) of the

Act, which pertains only to

overpayments the government made to

contracting MA organizations and Part

D sponsors.

Comment: A commenter requested

that MA organizations and Part D

sponsors be able to submit auditable

estimates of an overpayment in lieu of

determining which data is in error and

submitting corrected data, given the fact

that the administrative costs of

determining a specific set of data deletes

is significant relative to the size of the

issue. The commenter recommended

that CMS permit plans to proactively

suggest the use of such tools to resolve

potential overpayments.

Response: The use of auditable

estimates is intended only for a limited

set of circumstances. This may occur,

for example, when the Part D reopening

occurs prior to the end of the look-back

period or if an MA organization or Part

D sponsor had a thoroughly-

documented catastrophic loss of stored

data. Information about the nature of

such a request would be detailed in

forthcoming operational guidance.

Therefore, we will not allow, on a

routine basis, submission of auditable

estimates in lieu of submission of

corrected data. By recovering

overpayments based on the corrected

payment data, we will be more likely to

ensure that the most accurate

overpayment amounts are returned to

the Medicare Trust Fund.

Comment: A commenter expressed

concern that this final rule could

impose a boundless duty to troll

medical records in search of unknown

vulnerabilities, and requested that CMS

make clear that Part C and Part D plans

are not obliged to proactively search for

an overpayment without reason to

believe that a specific overpayment

exists.

Response: The focus of this final rule

is on ensuring that MA and Part D

organizations return an overpayment

when it is identified. For many years

organizations have been obliged to

submit accurate, complete, and truthful

payment-related data, as described at

§§ 422.504(l) and 423.505(k). Further,

CMS has required for many years that

diagnoses that MA organizations submit

for payment be supported by medical

record documentation. Thus, we have

always expected that MA organization

or Part D sponsor implement, during the

routine course of business, appropriate

payment evaluation procedures in order

to meet the requirement of certifying the

data they submit to CMS for purposes of

payment. Therefore, we do not believe

that §§ 422.326 and 423.360 represent

such a new requirement.

Comment: A commenter requested

that CMS confirm that the data

submission requirement under this

section is based on enrollment data and

risk adjustment scores, and thus does

not apply to direct overpayments from

providers.

Response: Once an overpayment is

identified, the MA or Part D

organization is responsible for

correcting the data that caused the

overpayment. This is data that is

routinely submitted to CMS for payment

purposes, such as, risk adjustment data.

Comment: A commenter requested

that CMS clarify if changes in a

beneficiary’s low income subsidy (LIS)

status could result in an overpayment

under this provision.

Response: As we stated in the

proposed rule, we believe that MA

organizations and Part D sponsors

cannot be held accountable for the

accuracy of the data controlled and

submitted to CMS by other entities. (We

emphasize here that the term ‘‘other

entities’’ used to discuss these

overpayment provisions does not

include the following parties referenced

in §§ 422.504(i) and 423.505(i): first tier,

downstream, and related entities,

contractors, or subcontractors to the MA

organization or Part D sponsor.) It is the

Social Security Administration and the

states that notify CMS of individuals

whom they have determined to be

eligible for the Part D LIS. We in turn

provide the subsidy information,

including effective date and level of

subsidy, to the Part D plan in which the

beneficiary enrolls. Although, we will

not consider an overpayment to have

occurred strictly due to changes in a

beneficiary’s LIS status, Part D sponsors

are required to adjust prescription drug

event (PDE) data to accurately reflect the

beneficiary’s LIS status.

Comment: A commenter supported

our proposal for when overpayments

have been identified.

Response: We appreciate the

commenter’s support for our proposal.

Comment: A few commenters

requested that CMS provide more clarity

or an example of what is meant by ‘‘acts

in reckless disregard or deliberate

ignorance.’’

Response: We are revising our

definition of an identified overpayment

to state that an MA organization or Part

D sponsor has identified an

overpayment when it has determined, or

should have determined through the

exercise of reasonable diligence, that the

MA organization or Part D sponsor has

received an overpayment.

As to the circumstances that give rise

to a duty to exercise reasonable

diligence, we are not able to anticipate

all factual scenarios in this rulemaking.

MA organizations and Part D sponsors

are responsible for ensuring that

payment data they submit to CMS are

accurate, truthful, and complete (based

on best knowledge, information, and

belief), and are expected to have

effective and appropriate payment

evaluation procedures and effective

compliance programs as a way to avoid

receiving or retaining overpayments.

Thus, at a minimum, reasonable

diligence would include proactive

compliance activities conducted in good

faith by qualified individuals to monitor

for the receipt of overpayments.

However, conducting proactive

compliance activities does not mean

that the person has satisfied the

reasonable diligence standard in all

circumstances. In certain circumstances,

for example, reasonable diligence might

require an investigation conducted in

good faith and in a timely manner by

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qualified individuals in response to

credible information of a potential

overpayment.

We note that in discussing the

standard term ‘‘reasonable diligence’’ in

the preamble, we are interpreting the

obligation to ‘‘report and return the

overpayment’’ which is contained in

section 1128J(d) of the Social Security

Act. We are not seeking to interpret the

terms ‘‘knowing’’ and ‘‘knowingly’’,

which are defined in the Civil False

Claims Act and have been interpreted

by a body of False Claims Act case law.

Comment: Some commenters thought

that we had an overly broad

interpretation of the statute and that

there was no statutory basis for CMS to

interpret the term ‘‘identified’’ in

section 6402 of the Affordable Care Act

to include ‘‘reckless disregard or

deliberate ignorance of the existence of

the overpayment.’’ A commenter stated

that the term ‘‘knowing’’ is not actually

used in the overpayment standard set

forth in section 6402(d) of the

Affordable Care Act, so the mere

existence of an errant reference to the

False Claims Act definition of

‘‘knowing’’ does not give CMS sufficient

basis to apply the expansive False

Claims Act knowledge standard to the

definition of ‘‘identified’’ under section

6402. This commenter noted that in an

earlier version of the Affordable Care

Act, H.R. 3962, used the False Claims

Act knowledge standard in the section

on reporting and returning of

overpayments. The commenter also

stated that the final version of the

Affordable Care Act enacted by the

Congress used the term ‘‘identified,’’

and not the word ‘‘knowledge.’’ This

commenter believed that the Congress’s

explicit rejection of the False Claims Act

knowledge standard, and use of the term

‘‘identified’’ in the final legislative

language weighs against incorporating

the False Claims Act knowledge

standard into the regulatory provision.

Response: We disagree with the

commenters’ arguments. While we

acknowledge that the terms ‘‘knowing’’

and ‘‘knowingly’’ are defined but not

otherwise used in section 1128J(d), we

believe that the Congress intended for

section 1128J(d) to apply broadly. If the

requirement to report and return

overpayments applied only to situations

where the MA organization or Part D

sponsor has actual knowledge of the

existence of an overpayment, then these

entities could easily avoid returning

improperly received payments and the

purpose of the section would be

defeated. Thus, we decline to read a

narrow actual knowledge limitation into

the law as suggested by commenters.

Comment: Several commenters

recommended that CMS remove the

language relating to ‘‘reasonable

diligence’’ from the proposed

regulation. These commenters believed

that an identified overpayment should

be limited to actual knowledge of an

overpayment.

Response: For the reasons discussed

previously, we decline to read a narrow

actual knowledge limitation into the law

as suggested by commenters.

Comment: A few commenters were

concerned that by adding a reasonable

diligence requirement, CMS appears to

be suggesting that a much lower level of

sponsor behavior—a failure to act

reasonably—could trigger potential

False Claims Act liability. One

commenter stated that the phrase

‘‘reasonable diligence’’ is not a

recognized or defined standard and is

overly vague as to the obligations of

plans to follow through on information

received regarding a potential

overpayment. The commenters have

serious concerns about the implication

of such a standard.

Response: We understand the

commenters’ concerns. However, we do

not believe that it is inappropriate to

expect that MA organizations and Part

D sponsors act reasonably. We note that

it is the statute that establishes liability

under the False Claims Act for failure to

report and return identified

overpayments, pursuant to section

1128J(d)(3).

c. Look-Back Period for Reporting and

Returning Overpayments

We proposed at §§ 422.326(e) and

423.360(e) to codify a look-back period

for MA organizations and Part D

sponsors. MA organizations and Part D

sponsors would be required to report

and return any overpayment that they

identify within the 6 most recent

completed payment years. The statute of

limitations related to the False Claims

Act is 6 years from the date of the

violation or 3 years from the date the

relevant government official learns of

the situation, but in no case more than

10 years from the date of the violation.

CMS proposed 6 years as the look-back

period because we believe this best

balances government’s interest in

having overpayments returned with

entities’ interest in finality. Six years

also is consistent with the CMP

provisions, and maintenance of records

requirements under the contracts. We

also proposed that overpayments

resulting from fraud would not be

subject to this limitation of a look-back

period.

We received the following comments

on the look-back period, and our

responses follow.

Comment: We received a few

comments recommending that we

shorten the 6-year look-back period. A

commenter noted that permitting greater

finality in overpayment reporting and

recovery will decrease administrative

costs and free up resources to focus on

benefits. This commenter also stated

that an organization would have to

retain a significant amount of

documentation to fully support and

justify payments, more than what they

would retain under CMS’s 10-year

record retention requirement. Several

commenters recommended that the

look-back period be 3 years to align with

the RAC look-back period. A commenter

noted that the 3-year period would also

be consistent with the federal

government’s treatment of government

contractors that are subject to the

Federal Acquisition Regulation. A

couple of commenters recommended

that we implement a 4-year look-back

period to align with the 4-year period

that Medicare Administrative

Contractors can reopen Medicare fee-

for-service payment determinations.

Response: We disagree with the

commenters’ recommendations to

shorten the look-back period. We note

that section 1128J(d) of the Act has no

time limit to the obligation to report and

return overpayments received by a

provider or supplier. However, as we

stated in the preamble to our proposed

rule and again in this preamble to our

final rule, we proposed 6 years as the

look-back period because we believe

this best balances government’s interest

in having overpayments returned with

entities’ interest in finality. Six years is

consistent with the CMP provisions, and

maintenance of records requirements

under the contracts. It is also consistent

with the False Claims Act in that the

statute of limitations related to the False

Claims Act is 6 years from the date of

the violation or 3 years from the date the

relevant government official learns of

the situation, but in no case more than

10 years from the date of the violation.

We believe that our final rule does not

create additional recordkeeping burden

or cost. Under § 422.504(d) and

§ 423.505(d), MA organizations and Part

D sponsors are required to maintain for

10 years books, records, documents, and

other evidence of accounting procedures

and practices related to costs, financial

statements, cash flow, etc.

Comment: A commenter requested

that CMS clarify the parameters of the

6-year look-back provision.

Response: As we stated in the

preamble to the proposed rule and this

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final rule and again in §§ 422.326(e) and

423.360(e), MA organizations and Part D

sponsors are required to report and

return any overpayment that they

identify within the 6 most recent

completed payment years. That would

mean, for example, after the initial

reconciliation that takes place for Part D

payments (that is, the determination on

the final amount of direct subsidy

described in § 423.329(a)(1), final

reinsurance payments described in

§ 423.329(c), the final amount of the low

income subsidy described in

§ 423.329(d), or final risk corridor

payments as described in § 423.336) for

contract year 2015 (which will take

place at the end of 2016), Part D

sponsors are obligated to report and

return overpayments under § 423.360

for contract years 2010 through 2015.

Comment: A few commenters

recommended that CMS impose the

same limitation on the look-back period

for all overpayments, even those relating

to fraud. A commenter noted that under

the statutory scheme set forth in section

6402 of the Affordable Care Act, the

existence of an overpayment does not

depend on, or otherwise reflect, the

existence of fraud. Commenters also

requested clarification from CMS

whether MA organizations and Part D

sponsors that become aware of an

overpayment prior to the look-back

period have an obligation to investigate

and determine whether that

overpayment resulted from fraud. These

commenters were concerned that MA

organizations and Part D sponsors

would have to investigate potential

overpayments indefinitely, no matter

how far in the past they may have

occurred, because these organizations

would have to determine whether there

was any fraud in connection with the

potential overpayment in order to

determine whether a reporting

obligation exists.

Response: Upon further review, we

agree with the commenters’ suggestion

that CMS impose the same limitation on

the look-back period for all

overpayments. Six years is consistent

with the more commonly applicable

FCA statute of limitations as well as the

statute of limitations under section

1128A of the Act. Therefore, we have

elected to establish a 6-year look-back

period regardless of the nature of the

overpayment, and we have amended the

regulation text at §§ 422.326(e) and

423.360(e) accordingly. We note that the

government may have other avenues for

pursuing the return of overpayments

due to false and fraudulent claims

outside of these provisions.

Finally, we note that an MA

organization’s and Part D sponsor’s

obligation to investigate and identify

false and fraudulent claims is outside

the scope of this final rule.

After consideration of the public

comments received on the overpayment

provisions, we are finalizing as

proposed the following provisions:

§§ 422.1, 422.300, 422.504(l), 423.1, and

423.505(k). We are finalizing the

provisions at § 422.326, with the

following modifications. First, we add at

the end of paragraph (d) the phrase

‘‘unless otherwise directed by CMS for

the purpose of § 422.311.’’ Second, we

strike the following sentence in the

proposed paragraph on the six-year

look-back period: ‘‘Overpayments

resulting from fraud are not subject to

this limitation of the lookback period.’’

To increase clarity we also revise

paragraph (c) regarding identified

overpayments. We also are making a

technical correction by redesignating

proposed paragraph (d)(3) on

enforcement as paragraph (e), and

redesignating proposed paragraph (e) on

the six-year look-back period as

paragraph (f), and revising new

paragraph (e) on enforcement to say

‘‘Any overpayment retained by an MA

organization is an obligation under 31

U.S.C. 3729(b)(3) if not reported and

returned in accordance with paragraph

(d) above.’’

Finally, we are finalizing the

provisions at § 423.360 with the

following modifications. We strike the

following sentence in the proposed

paragraph on the six-year look-back

period: ‘‘Overpayments resulting from

fraud are not subject to this limitation

of the lookback period.’’ To increase

clarity we also revise paragraph (c)

regarding identified overpayments. We

also are making a technical correction

by redesignating proposed paragraph

(d)(3) on enforcement as paragraph (e),

and redesignating proposed paragraph

(e) on the six-year look-back period as

paragraph (f), and revising new

paragraph (e) on enforcement to say

‘‘Any overpayment retained by a Part D

sponsor is an obligation under 31 U.S.C.

3729(b)(3) if not reported and returned

in accordance with paragraph (d).’’

2. Risk Adjustment Data Requirements

(§ 422.310)

We proposed several amendments to

§ 422.310 to strengthen existing

regulations related to the accuracy of

risk adjustment data. We proposed to

renumber existing paragraph

§ 422.310(e) as paragraph (e)(2) and add

new paragraph (e)(1), which would

require that any medical record reviews

conducted by an MA organization must

be designed to determine the accuracy

of diagnoses submitted under

§§ 422.308(c)(1) and 422.310(g)(2).

Under our proposal, medical record

reviews conducted by an MA

organization could not be designed only

to identify diagnoses that would trigger

additional payments by CMS to the MA

organization; medical record review

methodologies would have to be

designed to identify errors in diagnoses

submitted to CMS as risk adjustment

data, regardless of whether the data

errors would result in positive or

negative payment adjustments.

We also proposed to amend

§ 422.310(g) regarding deadlines for

submission of risk adjustment data; our

proposal was to restructure and revise

subparagraph (g)(2) and add

subparagraph (g)(3). Our current

procedures generally permit submission

of risk adjustment data after the final

risk adjustment submission deadline

only to correct overpayments. Thus, we

proposed, at § 422.310(g)(2)(ii) to

explicitly permit late submissions only

to correct overpayments but not to

submit diagnoses for additional

payment so that the regulation text

would be consistent with our

procedures.

Finally, we proposed to make two

additional changes in paragraph (g).

First, we proposed the deletion of the

January 31 deadline in paragraph (2)

and replacing it with the statement that

CMS will announce the deadline by

which final risk adjustment data must

be submitted to CMS or its contractor.

We noted that the risk adjustment data

submission deadline would also

function as the Part C applicable

reconciliation date for purposes of

proposed § 422.326 on overpayment

rules, also discussed in this final rule.

Second, we proposed adding paragraph

(3) to § 422.310(g). Proposed paragraph

(3) cites § 422.326 as the source of rules

for submission of corrected risk

adjustment data after the final risk

adjustment data submission deadline,

that is, after applicable reconciliation as

defined at § 422.326(a).

In response to the January 10, 2014

proposed rule, we received

approximately 25 pieces of

correspondence from organizations and

individuals regarding these proposals.

We received the following public

comments and our responses follow.

Comment: Many commenters

expressed concern about the vagueness

and overly broad statement of CMS’

proposal to amend § 422.310(e) to

require that medical record reviews

conducted by MA organizations be

designed to determine the accuracy of

diagnoses they submitted to CMS. Some

commenters thought this implied a

requirement to verify every diagnosis

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submitted by every provider, while

others thought this implied a restriction

on the ability of plans to identify what

medical records to review. Other

commenters believed the proposed

amendment limited plans’ ability to

review medical records for operational

purposes other than risk-adjusted

payment, such as focusing on only a

portion of a medical record for a subset

of beneficiaries in order to enhance

HEDIS scores, conduct contract

compliance reviews, and validate claims

processing and billing.

Finally, a few commenters argued that

CMS should offset the payment impact

of diagnoses an MA organization

submitted to CMS that were later found

through medical record reviews to not

be supported by medical record

documentation by adjusting the amount

of CMS’ overpayment to the MA

organization for the level of error in

equivalent diagnoses in FFS claims

data. Specifically, the commenters

argued that CMS should give MA

organizations a credit for erroneous

diagnoses they submitted from their

providers’ claims up to the rate

identified by CMS as the applicable FFS

Adjustor in the RADV program. The

commenters also argued that there is no

reason to require that both MA and FFS

diagnosis data be scrutinized for error

rates when determining retroactive

payment adjustments, while not

engaging in a similar adjustment process

when paying plans prospectively.

Response: We thank the commenters

for their input. We are not finalizing the

proposed amendment to § 410.322(e).

However, we emphasize that our

decision to not finalize this regulatory

proposal does not change CMS’ existing

contractual requirement that MA

organizations must certify (based on

best knowledge, information, and belief)

the accuracy, completeness, and

truthfulness of the risk adjustment data

they submit to CMS. Further, this

decision does not change the long-

standing risk adjustment data

requirement that a diagnosis submitted

to CMS by an MA organization for

payment purposes must be supported by

medical record documentation.

Comment: A few commenters

supported CMS’ proposal to remove the

current date of January 31 as the annual

final risk adjustment data submission

deadline and replace it with the

provision that CMS will announce the

deadline annually, with the proviso that

CMS’ timing of this annual deadline

always allows sufficient opportunity for

organizations to make final data

submissions. Several other commenters

stated their concern about this proposed

change in deadline, including a concern

that CMS might announce a deadline

earlier than January 31 in some years.

These commenters requested that CMS

clarify that the annual deadline would

never be before January 31, and a few

commenters suggested that the

regulation state that the deadline is

January 31 but may be extended.

Finally, a few commenters requested

that CMS not change the January 31 date

to a floating date, in order to allow

operational stability.

Response: We are not finalizing this

proposal at this time.

Comment: Many commenters

disagreed with CMS’ proposal under

§ 410.322(g)(2) that, after the final risk

adjustment data submission deadline,

CMS would permit submission of data

to correct overpayments but not permit

late submission of diagnosis data that

would result in additional payment,

asserting that this asymmetrical

approach does not promote CMS’ stated

goal of improving payment accuracy.

The commenters maintained that an MA

organization should be allowed to

submit additional diagnoses after the

final risk adjustment data submission

deadline to correct not only an

overpayment to the MA organization,

but also an underpayment. A

commenter recommended that, after the

final deadline, MA organizations should

be able to submit paired deletions-

additions of diagnoses as long as the

result is not an increased payment to the

organization but a smaller reduction in

payment than would otherwise occur if

only the deletion were submitted; for

example, an MA organization may want

to delete the diagnosis code for diabetes

with acute complications and replace it

with the code for diabetes without

complications so that it loses only some

of the payment. Finally, a commenter

requested that CMS allow exceptions to

the general rule that no new diagnoses

may be submitted after the final risk

adjustment data submission deadline for

special circumstances such as system

failures, file formatting issues, and other

technical problems.

Response: For a given payment year

(which is a calendar year), CMS applies

diagnoses from the previous year (the

data collection year) to calculate

beneficiary risk scores used to risk-

adjust payments to MA organizations in

the payment year. MA organizations

must finalize any corrections and new

submissions of diagnosis data for a data

collection year by January 31 of the year

after the payment year. That is, we

allow 13 months after the end of the

diagnosis year for MA organizations to

identify errors in data they have

submitted (that is, deleting diagnoses

from CMS’ systems) and to identify and

submit additional diagnoses that were

not submitted during the diagnosis year.

We believe that is a very reasonable

period of time to finalize risk

adjustment data for a diagnosis year.

These risk adjustment processes have

been in place for many years, and we

believe it is the responsibility of MA

organizations to have internal audit

processes in place allowing them to

finalize their risk adjustment data for a

payment year by the conclusion of this

13-month period. Therefore, we are

finalizing, as proposed, the provision

codified at § 422.310(g)(2)(ii) that, after

the final deadline, an MA organization

may submit risk adjustment data to

correct overpayments but not to add

payments.

Comment: A commenter supported

CMS’ proposal to limit post-deadline

modifications to deletions of incorrect

diagnoses but requested that CMS offer

one additional opportunity to eliminate

unsupported diagnosis codes in advance

of a RADV audit.

Response: When we are preparing to

initiate a RADV audit cycle, all MA

organizations are notified that they

should eliminate unsupported

diagnoses from CMS’ systems by a date

specified in the notice. Subsequently,

we inform the contracts that have been

selected for RADV.

In summary, after consideration of the

public comments received, we are not

finalizing the proposed amendment to

§ 410.322(e). Also, we are not finalizing

at this time our proposal at

§ 422.310(g)(2)(ii) to remove the current

date of January 31 as the annual final

risk adjustment data submission

deadline and replace it with the

provision that CMS will announce the

deadline annually. We are finalizing as

proposed the restructuring of

§§ 422.310(g)(2) and the 422.310(g)(2)(ii)

provision to prohibit submission of

diagnoses for additional payment after

the final risk adjustment data

submission deadline. We did not

receive any comments on subparagraph

(g)(3) and are finalizing it as proposed.

3. RADV Appeals

a. Background

We published final Risk Adjustment

Data Validation (RADV) appeals

regulations in the April 15 2010 Federal

were proposed and finalized under our

authority to establish Medicare

Advantage (MA) program standards at

section 1856(b)(1) of the Act and are

found at § 422.311 et seq. Since

finalizing these rules in 2010, we

conducted additional RADV audits and

determined that some of the appeals

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provisions finalized in the 2010 RADV

Appeals final rule should be modified to

strengthen and streamline the RADV

appeals process and to prevent

confusion. Therefore, we proposed

revisions to the RADV appeals

regulations on January 10, 2014. These

proposed RADV provisions will apply

to any RADV determinations issued on

or after the effective date of this

regulation.

We proposed changing certain RADV

definitions at § 422.2. Specifically, we

proposed removing the definition Initial

Validation Contractor (IVC); removing

the definition of RADV payment error

calculation appeal process; and

removing the definition of ‘‘One Best

Medical Record for the purposes of

Medicare Advantage Risk Adjustment

Data Validation (RADV)’’. In addition,

we proposed adding one new definition

by specifically defining the RADV

appeals process. We also proposed

revising the definitions of ‘‘Risk

Adjustment Data Validation (RADV)’’

and ‘‘attestation process’’ within the

RADV appeals context. Furthermore, we

proposed amending RADV definitions at

§ 422.2 to specify that the Secretary,

along with CMS, could conduct RADV

audits.

At § 422.311, we proposed to update

select RADV appeals terminology. We

proposed amending the RADV

regulations by adopting one common

term to refer to RADV audit reports:

‘‘RADV Audit Report’’. As mentioned

earlier, we proposed removing from the

RADV regulations the term—‘‘Initial

Validation Contractor, or IVC,’’ since

RADV medical record review process no

longer utilizes ‘‘initial’’ and

‘‘secondary’’ validation contractors to

conduct medical record review under

RADV. Instead, we now utilize medical

record reviewers to code medical

records who may be employed by the

same or different medical record review

contractors.

At § 422.311(c)(1), we proposed to

simplify the RADV appeals process by

combining the two existing RADV

appeal procedures—one for medical

record review and one for payment error

calculation—into one set of

requirements and one process

comprised of three administrative steps:

Reconsideration, hearing officer review,

and CMS Administrator-level review.

Combining these existing RADV

medical record review determination

and payment error calculation appeals

policies and processes improves the

overall appeals process by simplifying

the overall RADV appeals process and

reducing burden on all parties involved

in the RADV appeals process. We also

believed that doing so improves overall

RADV appeals procedures by providing

clarity that leads to greater efficiencies

in adjudicating RADV appeals. Within

this overall framework, we also

proposed defining issues that would be

eligible for RADV appeal at

§ 422.311(c)(2) and issues that would

not be eligible for RADV appeals under

this combined-appeal process at

§ 422.311(c)(3). We further proposed

defining the manner and timing of a

request for RADV appeal at

§ 422.311(c)(2)(iii), a reconsideration

process at § 422.311(c)(6), a hearing

process at § 422.311(c)(7)(iv), and an

Administrator-level review at

§ 422.311(c)(8).

At § 422.311(a), we proposed that the

Secretary, along with CMS, be permitted

to conduct RADV audits beginning with

the effective date of this regulation.

Because of the absence of a clearly-

defined burden of proof standard for

RADV medical record review

determination appeals, at § 422.311(c)(4)

we proposed adoption of a burden of

proof standard for all RADV

determinations—be they payment error

calculation or RADV medical record

review determinations—whereby the

burden would be on MA organizations

to prove, based on a preponderance of

the evidence, that CMS’s

determination(s) was (were) erroneous.

At § 422.311(b)(2) we proposed

changing the compliance date for

meeting RADV audit requirements for

the validation of risk adjustment data to

the due date when MA organizations

selected for RADV audit must submit

medical records to the Secretary—and

not only CMS.

We received comments from health

plans, managed care industry trade

associations, providers, provider trade

associations and other interested

parties. These comments have resulted

in changes to the previously described

proposals, as discussed later in this

section. Some of the comments we

received did not apply to the proposed

RADV appeals processes. However,

because some of these comments apply

to underlying RADV audit process, we

are responding to certain comments

because they appear to be relevant to the

RADV appeals process. Other comments

were clearly outside the scope of our

proposed rule, so we have not included

responses to those comments.

b. RADV Definitions

We proposed to amend the RADV

definitions at § 422.2 as follows:

• Removing the following definitions:

++ ‘‘Initial Validation Contractor

(IVC)’’ means the first level of medical

record review under the RADV audit

process.

++ ‘‘RADV payment error calculation

appeal process’’ means an

administrative process that enables MA

organizations that have undergone

RADV audit to appeal the CMS

calculation of an MA organization’s

RADV payment error.

++ ‘‘The one best medical record for

the purposes of Medicare Advantage

Risk Adjustment Validation (RADV)’’

means the clinical documentation for a

single encounter for care (that is, a

physician office visit, an inpatient

hospital stay, or an outpatient hospital

visit) that occurred for one patient

during the data collection period. The

single encounter for care must be based

on a face-to-face encounter with a

provider deemed acceptable for risk

adjustment and documentation of this

encounter must be reflected in the

medical record.

• Adding the following definition:

++ ‘‘RADV appeal process’’ means an

administrative process that enables MA

organizations that have undergone

RADV audit to appeal the Secretary’s

medical record review determinations

and the Secretary’s calculation of an MA

organization’s RADV payment error.

• Revising the following definitions:

++ Risk adjustment data validation

(RADV) audit means a payment audit of

a Medicare Advantage (MA)

organization administered by CMS or

the Secretary that ensures the integrity

and accuracy of risk adjustment

payment data.

++ ‘‘Attestation process’’ means a

CMS-developed RADV process that

enables MA organizations undergoing

RADV audit to submit CMS-generated

attestations for eligible medical records

with missing or illegible signatures or

credentials. The purpose of the CMS-

generated attestations is to cure

signature and credential issues for

eligible medical records. CMS-generated

attestations do not provide an

opportunity for a provider or supplier to

replace a medical record or for a

provider or supplier to attest that a

beneficiary has the medical condition.

We received no comments specifically

recommending modifications to the

proposed definitions as stated, though

we did receive comments regarding the

policy behind some of these definition

changes. The policy comments will be

addressed later in this rule, though we

are finalizing the specific definitions

without modification.

c. Publication of RADV Methodology

In the October 22, 2009 proposed rule,

and as reinforced in the April 15, 2010

final rule, we indicated that we would,

‘‘publish its RADV methodology in

some type of public document—most

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likely, a Medicare Manual, so that the

public can review and provide comment

as it deems necessary’’. We also

indicated that we would provide an

annual notice of RADV audit

methodology. Our last RADV-related

notice of methodology was published in

February 2012. We will continue to

publish a notice of the methodology

employed, but will do so only if there

is a change in the RADV methodology

that would require publication. We note

that these notices of RADV audit

methodology updated information

provided on RADV audit methodology

provided in the October 22, 2009

proposed rule and April 15, 2010 final

rule.

In addition, we provided in the

October 22, 2009 proposed rule

preamble that we would provide an

expanded explanation of methodology

and payment error calculation factors as

a part of each audit report of findings

that we send to MA organizations that

undergo RADV audit. Such explanation

and factors have been and will continue

to be part of the RADV audit report(s)

that CMS provides health plans that

have undergone RADV audits.

d. Proposal To Update RADV Appeals

Terminology (§ 422.311)

Current RADV regulations utilize the

following terms for the CMS-issued

RADV audit report: Audit report post

medical record review; RADV audit

report; IVC-level RADV audit report;

and RADV audit report of finding. This

use of multiple terms to refer to what is

the same audit report (the RADV audit

report that CMS issues following

conclusion of the medical record review

portion of the audit) is potentially

confusing. Therefore, we proposed

amending the RADV regulations

throughout to adopt one common term

to refer to RADV audit reports: ‘‘RADV

Audit Report’’. By standardizing

terminology throughout the RADV

regulations, the proposed amendment

provides clarity which may lead to

increased efficiency.

As mentioned earlier in the

description of RADV-related definitions

that have changed, we have revised

certain RADV-related definitions to

accommodate changes to both the RADV

audit process and the RADV appeals

process. One definition that we have

removed from the RADV regulations is

Initial Validation Contractor, or IVC.

The RADV medical record review

process no longer utilizes ‘‘initial’’ and

‘‘secondary’’ validation contractors to

conduct medical record review under

RADV. Instead we now utilize medical

record reviewers to code medical

records undergoing RADV review.

These reviewers may be employed by

the same or different medical record

review contractors. Therefore, the term

‘‘IVC’’ is no longer relevant to the RADV

audit process. As a result, we proposed

to remove this term from the RADV

regulations at the following citations:

§ 422.311(c)(2)(i)(B) through (D);

§ 422.311(c)(2)(ii)(B),

§ 422.311(c)(2)(iii)(A), § 422.111(c)(2)(v),

(vi), § 422.311(c)(3)(ii)(A), and

§ 422.311(c)(3)(iii)(A) and (B). We

invited comment on this proposal.

Comment: A commenter requested

that CMS verify that the medical record

review error determination standard,

which presently requires multiple

review determinations by independent

coders to confirm a CMS–HCC coding

error, remains in effect and is not

altered by this proposed rule.

Response: While we did not propose

RADV coding changes, we believe the

question merits a response. We believe

that our proposal to remove the

definition of ‘‘Initial Validation

Contractor’’ (IVC) may have led some to

believe that we were abandoning RADV

audit processes that require multiple

levels of independent medical record

review (coding) by independent

reviewers before we will confirm a

CMS–HCC coding error. This standard

has not changed, notwithstanding the

removal of the term IVC from the RADV

appeals rules. We continue to utilize

medical record reviewers to code

medical records undergoing RADV

review, though these reviewers may

now be employed by the same or

different medical record review

contractors. The principle of

independent review and multiple

confirmations of an identified CMS–

HCC remain in effect.

e. Proposal To Simplify the RADV

Appeals Process

Currently, there are two types of

RADV-related appeals processes

described in our regulations at

§ 422.311: Medical record review-

determination appeals and RADV

payment error calculation appeals.

RADV medical record review-

determination appeal requirements and

procedures are discussed at

§ 422.311(b)(3) and § 422.311(c)(2).

Medical record review determination

appeal is a two-stage administrative

appeal process—the first step is a

hearing by a hearing officer, followed by

a CMS Administrator—level review.

This appeal procedure provides MA

organizations with an opportunity to

appeal RADV medical record review

determinations that are made by coders

reviewing the medical record

documentation submitted by MA

organizations undergoing RADV audit.

The second type of RADV appeal,

payment error calculation appeal, is

discussed at § 422.311(c)(3). Payment

error calculation appeal is a three-

pronged appeal process:

reconsideration, followed by a hearing

officer review, followed by CMS

Administrator—level review. This

appeal process was specifically

designed to afford MA organizations the

opportunity to appeal CMS’s contract-

level RADV payment error calculation.

We proposed that the administrative

appeals language described at

§ 422.311(b)(3) and § 422.311(c)(2) for

RADV medical record review

determination appeals and

§ 422.311(c)(3) for RADV payment error

calculation appeals be replaced with

new regulatory language proposed

§ 422.311(c)(1), that combines the two

existing RADV appeal policies and

procedures into one set of requirements

and one process. We proposed to

combine the two RADV appeals

processes into one combined RADV

appeals process that is comprised of

three administrative steps:

Reconsideration, hearing officer review,

and CMS Administrator-level review. A

three-step administrative appeals

process comprising reconsideration,

hearing officer review, and

Administrator-levels of review is a

common administrative appeals model

used elsewhere within the Medicare

managed care program, such as in

appealing contract award

determinations and intermediate

sanctions. The combined RADV appeal

process that we proposed at new

§ 422.311(c)(1), also has the benefit of

simplifying what is today a complex

two-track appeal process into one

process. While both CMS and the MA

industry will benefit from simplifying

this process, MA organizations also

obtain an additional level of review

under the combined approach since MA

organizations will be afforded a

reconsideration appeal step for medical

record review determinations that is

today—not part of the existing RADV

appeal process. Shortening the existing

two-track appeal process should also

reduce the resources and level of effort

needed from both MA organizations and

CMS in participating in a RADV appeal

proceeding. Under this proposal, MA

organizations can simply request to

appeal their RADV audit findings one

time and specify whether they want to

appeal either their medical record

review determination(s), payment error

calculation, or both. The specific details

regarding this proposed process follow.

We proposed these changes based upon

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our experience with RADV appeals and

because we hope to reduce the burden

associated with undertaking RADV

appeals on both MA organizations and

CMS. The details of the proposed policy

and procedure follow.

(1) Issues Eligible for RADV Appeal

Current regulations at §§ 422.311(c)(2)

et seq., and 422.311(c)(3) et seq., specify

RADV-related medical record review

and payment error calculation

documents and issues eligible for the

medical record review determination

and payment error calculation appeal

processes. We proposed to amend the

policies and procedures around issues

eligible for RADV appeals at

§ 422.311(c)(2) and § 422.311(c)(3) by

combining proposed policies and

procedures for the existing two-pronged

appeal approach into one set of policies

and procedures for RADV appeals at the

new § part 422.311(c)(2)(iv). At

§ 422.311(c)(2)(i), we proposed that as a

general rule, MA organizations may

appeal RADV medical record review

determinations and RADV payment

error calculation, though in order to be

eligible to pursue these appeals, we

specify at proposed § 422.311(c)(2)(i)(A)

and (B) that MA organizations must

adhere to established RADV audit

procedures and requirements and

adhere to RADV appeals procedures and

requirements. At § 422.311(c)(2)(ii) we

proposed that failure to follow RADV

audit procedures and requirements and

RADV appeals procedures and

requirements will render the MA

organization’s request for RADV appeal

invalid. Furthermore, at proposed

§ 422.311(c)(2)(iii) we stipulate that the

MA organization’s written request for

medical record review determination

appeal must specify the audited HCC(s)

that have been identified pursuant to

RADV audit as being in error, and

further specify that MA organizations

must provide a justification in support

of the audited HCC(s) that the MA

organization elects to appeal. At

§ 422.311(c)(2)(i)(iv) we proposed that

for each audited HCC, MA organizations

may appeal one medical record that has

undergone RADV medical record review

and that if an attestation was submitted

to cure a signature or credential issue,

that attestation may likewise be

included in the HCC appeal. For

example, if an MA organization

submitted a medical record that did not

contain a signature and/or credential—

and the MA organization submitted an

attestation to cure the error that CMS

subsequently failed to accept—the MA

organization could choose to appeal

CMS’s determination to not accept the

submitted attestation. We reiterate that

the purpose of CMS-generated

attestations is to cure signature and

credential errors associated with an

eligible submitted medical record and

not to provide an opportunity for a

provider or supplier to attest that a

beneficiary has a certain medical

condition. Evidence for the existence of

the medical condition is found in a

medical record.

We proposed to modify our language

at § 422.311(c)(2)(i)(v) to clarify existing

RADV appeals provisions which

stipulate that MA organizations must

adhere to the ‘‘one best medical record’’

policy. Under changes to the RADV

audit methodology announced by CMS

in February 2012, we now allow MA

organizations to submit more than one

medical record (that is, more than the

‘‘one best medical record’’) during the

RADV audit process to validate an

audited CMS–HCC. However, for

purposes of appealing a CMS medical

record review determination, we will

not permit organizations to appeal

multiple medical records but will

instead—require that MA organizations

identify a record from amongst those

records submitted, and to submit that

record for appeal. For each audited

HCC, MA organizations may appeal

only one medical record that has

undergone RADV review. This policy

was published in the February 2012

White Paper and is not included in this

final rule.

At § 422.311(c)(2)(vi) we proposed

that a written request for RADV

payment error calculation appeal must

clearly specify the MA organization’s

own RADV payment error calculation

and must also specify where the

payment error calculation was

erroneous.

(2) Issues Not Eligible for RADV

Appeals

At § 422.311(c)(3) we proposed

documents and issues that are ineligible

for RADV appeals. Consistent with the

overall approach of combining into one

RADV appeals process what was

heretofore two separate RADV appeals

processes—by way of this new proposed

section, we propose to amend existing

regulations at § 422.311(c)(3). At new

§ 422.311(c)(3), we proposed that MA

organizations’ request for appeal may

not include HCCs, medical records or