[Federal Register: June 26, 1998 (Volume 63, Number 123)]
[Rules and Regulations]
[Page 34967-35016]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26jn98-27]
[[Page 34967]]
_______________________________________________________________________
Part II
Department of Health and Human Services
_______________________________________________________________________
Health Care Financing Administration
_______________________________________________________________________
42 CFR Part 400, et al.
Medicare Program; Establishment of the Medicare+Choice Program; Final
Rule
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Parts 400, 403, 410, 411, 417, and 422
[HCFA-1030-IFC]
RIN 0938-AI29
Medicare Program; Establishment of the Medicare+Choice Program
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Interim final rule with comment period.
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SUMMARY: The Balanced Budget Act of 1997 (BBA) establishes a new
Medicare+Choice (M+C) program that significantly expands the health
care options available to Medicare beneficiaries. Under this program,
eligible individuals may elect to receive Medicare benefits through
enrollment in one of an array of private health plan choices beyond the
original Medicare program or the plans now available through managed
care organizations under section 1876 of the Social Security Act. Among
the alternatives that will be available to Medicare beneficiaries are
M+C coordinated care plans (including plans offered by health
maintenance organizations, preferred provider organizations, and
provider-sponsored organizations), M+C ``MSA'' plans, that is, a
combination of a high deductible M+C health insurance plan and a
contribution to an M+C medical savings account (MSA), and M+C private
fee-for-service plans.
The introduction of the M+C program will have a profound effect on
Medicare beneficiaries and on the health plans and providers that
furnish care. The new provisions of the Medicare statute, set forth as
Part C of title XVIII of the Social Security Act, address a wide range
of areas, including eligibility and enrollment, benefits and
beneficiary protections, quality assurance, participating providers,
payments to M+C organizations, premiums, appeals and grievances, and
contracting rules. This interim final rule explains and implements
these provisions.
In addition, we are soliciting letters of intent from organizations
that intend to offer M+C MSA plans to Medicare beneficiaries and/or to
serve as M+C MSA trustees.
DATES: Effective date: This interim final rule is effective July 27,
1998.
Comment period: Comments will be considered if received at the
appropriate address, as provided below, no later than September 24,
1998.
ADDRESSES: Mail written comments (1 original and 3 copies) to the
following address: Health Care Financing Administration, Department of
Health and Human Services, Attention: HCFA-1030-IFC, P.O. Box 26688,
Baltimore, MD 21207.
If you prefer, you may deliver your written comments (1 original
and 3 copies) to one of the following addresses:
Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,
Washington, DC 20201, or
Room C5-09-26, 7500 Security Boulevard, Baltimore, MD 21244-1850.
Because of staffing and resource limitations, we cannot accept
comments by facsimile (FAX) transmission. In commenting, please refer
to file code HCFA-1027-IFC Comments received timely will be available
for public inspection as they are received, generally beginning
approximately 3 weeks after publication of a document, in Room 309-G of
the Department's offices at 200 Independence Avenue, SW., Washington,
DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m.
(phone: (202) 690-7890).
FOR FURTHER INFORMATION CONTACT:
Provider Sponsored Organizations, Aaron Brown, 410-786-1033.
M+C Private Fee-For Service Plans, Anita Heygster, 410-786-4486.
M+C MSA Plans, Cindy Mason, 410-786-6680.
Applications, Robert King, 410-786-7623.
Quality Assurance, Brian Agnew, 410-786-5964.
Payment/ACRs, Al D'Alberto, 410-786-1100.
Encounter Data, Cynthia Tudor, 410-786-6499.
Federal/State, Rebecca Cardozo, 410-786-0300.
Beneficiary Appeals, Valerie Hart, 410-786-6690.
Enrollment, Debe McKeldin, 410-786-9159.
Information Campaign, Jan Drass, 410-786-1354.
Contracts, Chris Eisenberg, 410-786-5509.
General Issues, Tony Hausner, 410-786-8290.
General Issues, Dorothea Musgrave, 410-786-8290.
SUPPLEMENTARY INFORMATION:
I. Background
A. Balanced Budget Act of 1997
Health care benefits covered under the Medicare program are divided
into two parts: hospital insurance, also known as ``Part A,'' and
supplementary medical insurance, also known as ``Part B.'' Health care
services covered under Part A include: inpatient hospital care, skilled
nursing facility care, home health agency care, and hospice care. Part
B coverage is optional and requires payment of a monthly premium. Part
B covers physician services (in both hospital and nonhospital settings)
and services furnished by certain nonphysician practitioners. It also
covers certain other services, including: clinical laboratory tests,
durable medical equipment, medical supplies, diagnostic tests,
ambulance services, prescription drugs that cannot be self-
administered, certain self-administered anti-cancer drugs, some other
therapy services, certain other health services, and blood not covered
under Part A.
Section 4001 of the Balanced Budget Act of 1997 (BBA) (Public Law
105-33), enacted August 5, 1997, added sections 1851 through 1859 to
the Social Security Act (the Act) to establish a new Part C of the
Medicare program, known as the ``Medicare+Choice Program.'' Note that
hereinafter, unless otherwise indicated references to the statute are
references to the Act. (The existing Part C of the statute, which
included provisions in section 1876 governing existing Medicare health
maintenance organization (HMO) contracts, has been redesignated as Part
D.) Under section 1851(a)(1), every individual entitled to Medicare
Part A and enrolled under Part B, except for individuals with end-stage
renal disease, may elect to receive benefits through either the
existing Medicare fee-for-service program or a Part C M+C plan.
The introduction of the M+C program represents what is arguably the
most significant change in the Medicare program since its inception in
1965. As its name implies, the primary goal of the M+C program is to
provide Medicare beneficiaries with a wider range of health plan
choices to complement the Original Medicare option. Alternatives
available to beneficiaries under the M+C program include both the
traditional managed care plans (such as HMOs) that have participated in
Medicare on a capitated payment basis under section 1876 , as well as a
broader range of plans comparable to those now available through
private insurance. Specifically, effective January 1, 1999, section
1851(a)(2) provides for three types of M+C plans:
<bullet> M+C coordinated care plans, including HMO plans (with or
without point of service options), provider-sponsored organization
(PSO) plans, and preferred provider organization (PPO) plans.
[[Page 34969]]
<bullet> M+C medical savings account (MSA) plans (that is,
combinations of a high deductible M+C health insurance plan and a
contribution to an M+C MSA).
<bullet> M+C private fee-for-service plans.
In addition to expanding the types of available health plans, the
M+C program introduces several other fundamental changes to the private
health plan sector of the Medicare program. These changes include:
<bullet> Establishment of an expanded array of quality assurance
standards and other consumer protection requirements.
<bullet> Introduction of an annual coordinated election period.
This election period, to be conducted in November for a January
effective date, will feature a phased in lock-in of enrollees to the
plan they have elected during this coordinated election period. In
addition, the annual coordinated election period will include the
distribution by HCFA of uniform, comprehensive information about
participating plans that is needed to promote informed choices by
beneficiaries.
<bullet> Revisions in the way we calculate payment rates to the
plans that will narrow the amount of payment variation across the
country and increase incentives for plans to operate in diverse
geographic areas.
<bullet> Establishment of requirements concerning participation
procedures for physicians and other health care professionals in M+C
plans, including prohibitions on interference with advice to enrollees.
These requirements will bring about changes for beneficiaries, for
physicians and other health care providers, for managed care
organizations that now contract with Medicare as well as those that
will be able to contract with Medicare for the first time, and for HCFA
and the States. The specific areas addressed by the different sections
of the statute are as follows:
<bullet> Section 1851--Eligibility, election and enrollment
<bullet> Section 1852--Benefits and beneficiary protections
<bullet> Section 1853--Payments to M+C organizations
<bullet> Section 1854--Premiums
<bullet> Section 1855--Organizational and financial requirements
for M+C organizations
<bullet> Section 1856--Establishment of standards
<bullet> Section 1857--Contracts with M+C organizations
<bullet> Section 1859--Definitions and miscellaneous provisions
As provided for in section 1856(b)(1), this interim final rule (1)
incorporates the new M+C provisions into the Medicare regulations, (2)
interprets the new statutory provisions in Part C, and (3) establishes
by regulation new standards under the M+C program. Other provisions of
the BBA addressed in this interim final rule include:
<bullet> Section 4002--Transitional rules for current HMO Medicare
program.
<bullet> Section 4003--Conforming changes in the Medigap program.
<bullet> Section 4006--M+C MSAs.
We note that in February, 1998, the President issued an Executive
Order directing the Secretary to comply to the extent possible through
administrative activities with the standards contained in the Consumer
Bill of Rights and Responsibilities. Therefore, as discussed in several
sections of this preamble, we have taken these standards into
consideration in developing the regulations contained in this interim
final rule. We have also incorporated conforming provisions consistent
with other parts of the Medicare statute, such as exempting services
under M+C coordinated care plans from the anti-referral provisions in
section 1877.
In several places in this preamble, we indicate that HCFA intends
to develop additional policy guidance or instructions. In doing so, we
will use a formal rulemaking process and allow for review by the Office
of Management and Budget pursuant to the requirements of the Paperwork
Reduction Act of 1995, wherever it is appropriate to do so.
B. Codification of Regulations
The regulations text set forth in this interim final rule is
codified in 42 CFR Part 422--Medicare+Choice Program. (Note that new
part 422 was established in our April 14, 1998 interim final rule on
PSOs (63 FR 18124).) The current Medicare regulations for managed care
organizations that contract with HCFA under section 1876, or for health
care prepayment plans (HCPPs) that are paid under section
1833(a)(1)(A), will continue to be located in 42 CFR part 417, Health
Maintenance Organizations, Competitive Medical Plans, and Health Care
Prepayment Plans. Although the part 422 provisions will eventually
supersede the regulations in part 417 for contracts with risk-bearing
HMOs and competitive medical plans (CMPs), there are some purposes for
which the part 417 provisions will continue in effect for a
transitional period. Also, various provisions of section 4002 of the
BBA provide for the continuation of cost-based contracts under section
1876 and of agreements with HCPPs under section 1833(a). Thus, the part
422 regulations cannot entirely replace the part 417 regulations at
this time. (Both transitional provisions and those relating to cost-
based contracts and HMOs are discussed in detail below in the
appropriate sections of this interim final rule.)
For the convenience of organizations that contract with HCFA only
under the M+C program, we are including in part 422 both new
requirements that implement newly enacted provisions in Part C and
existing requirements from part 417 that also will be imposed under
Part C. For transitional requirements, which could logically appear in
both parts, we are setting forth the full requirements in part 422 and
referencing them in part 417. Requirements that apply to organizations
that contract with HCFA, or are paid by HCFA, only under section 1876
or 1833(a) will remain in part 417. Regulations implementing the
provisions of section 1310 of the Public Health Service Act concerning
Federally-qualified HMOs also remain in part 417.
C. Organizational Overview of Part 422
The major subjects covered in each subpart of part 422 are as
follows:
<bullet> Subpart A--Definitions, including definition of types of
plans, application process, and user fees.
<bullet> Subpart B--Requirements concerning beneficiary
eligibility, election, enrollment and disenrollment procedures, and
plan information and marketing materials.
<bullet> Subpart C--Requirements concerning benefits, point of
service options, disclosure of information, access to services,
confidentiality of enrollee records, advance directives, and
beneficiary protection against liability.
<bullet> Subpart D--Quality assurance standards, external review,
and deeming of accredited organizations.
<bullet> Subpart E--Organizational relationships with participating
entities including the prohibition against interference with health
care professionals' advice to enrollees, physician incentive
requirements, and special rules for M+C private fee-for-service plans
and private contracts with health care professionals.
<bullet> Subpart F--Payment methodology for M+C organizations,
coverage that begins or ends during inpatient hospital stays, hospice
care, and encounter data requirements.
<bullet> Subpart G--Requirements concerning terms and conditions
for receiving capitated payments, limits on premiums and cost sharing,
determination of adjusted community rate, and prohibition of State-
imposed premium taxes.
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<bullet> Subpart H--Requirements concerning provider-sponsored
organizations (PSOs).
<bullet> Subpart I--Organization compliance with State law and
preemption by Federal law.
<bullet> Subpart K--General contract and enrollment requirements,
administration and management, and procedures for nonrenewal or
termination of contracts.
<bullet> Subpart L--Effect of change of ownership or leasing of
facilities during term of contract.
<bullet> Subpart M--Requirements concerning beneficiary grievances
and organization determinations and appeals.
<bullet> Subpart N--Requirements and procedures for contractor
appeals of nonrenewals or terminations of contracts.
<bullet> Subpart O--Procedures for imposing intermediate sanctions.
Each of these subparts is discussed below in section II of this
preamble. Sections III and IV consist of separate discussions of
provisions of the part 422 regulations that specifically concern M+C
MSA plans and M+C private fee-for-service plans, respectively.
II. Provisions of the Interim Final Rule
A. General Provisions--Subpart A
1. Overview
Subpart A begins with a brief section (Sec. 422.1) that specifies
the general statutory authority for the ensuing regulations and
indicates that the scope of part 422 is to establish standards
applicable to the M+C program. Under Sec. 422.2, we then set forth
definitions for terms used in part 422 that we believe need
clarification. These definitions provide the generally applied meaning
for terms that are used throughout part 422. Where necessary, we have
included in specific subparts of part 422 definitions for terms used
primarily in those subparts. In Sec. 422.4, we define the three
different types of M+C plans, consistent with section 1851(a)(2)--M+C
coordinated care plans, M+C MSA plans and M+C private fee-for-service
plans.
Sections 422.6 and 422.8 then detail the application process for an
entity seeking an M+C contract and HCFA's application evaluation
procedures.
Section 422.10 adopts, for purposes of the M+C program, the user
fee provisions now set forth at Sec. 417.472(h).
2. Definitions (Sec. 422.2)
For the most part, the definitions presented here are taken
directly from the statute or are essentially self-explanatory. Below,
we discuss some notable exceptions to this, including cases where we
have clarified the exact meaning and context of certain terms. Please
keep in mind that the definitions set forth in subpart A reflect
general meanings for the terms as they are used in part 422 unless
otherwise indicated; the definitions apply strictly for purposes of
part 422. For example, the term ``provider'' has a more inclusive
meaning under part 422 than it does for other Medicare purposes, as
discussed below. Similarly, when we define a term anywhere in part 422
other than in subpart A, it can be assumed that the definition of the
term is limited to a specified purpose in the relevant subpart or
section. Thus, as specified in the relevant sections of the
regulations, the term ``substantial financial risk'' has a different
meaning for purposes of the physician incentive provisions under
Sec. 422.208 than it does in the PSO provisions under Sec. 422.356.
Benefits and Benefit Categories
In Sec. 422.2, we have defined both the term ``benefits'' as well
the different categories under which benefits are provided: basic
benefits, additional benefits, mandatory supplemental benefits, and
optional supplemental benefits. ``Benefits'' consist of the health care
services delivered or covered by an M+C organization. (Note that
``services,'' under the long-standing Medicare definition at
Sec. 400.202, encompass medical care, services, and items.) The
definition of benefits is relevant both for purposes of the process of
determining adjusted community rates (ACRs) for M+C plans and for
purposes of a new provision in Part C that ``pre-empts'' State laws
relating to ``benefits.''
When we refer to one of the categories under which benefits are
provided, however, we generally are referring not only to the actual
health services that a beneficiary receives or is eligible to receive,
but also to the pricing structure applied to these benefits. For
example, the definition of ``additional benefits'' includes both the
health care services covered under a plan that are in addition to
regularly covered Medicare services, as well as any reductions in
premiums or cost-sharing for Medicare covered services. Thus, the
amount of deductibles or copayments that an M+C plan enrollee must
expend to receive services would fall within the scope of the term
``additional benefits.''
We wish to note that we have defined ``basic benefits'' in this
regulation to include both the Medicare-covered benefits required under
section 1852(a)(1)(A) and required ``additional benefits'' under
section 1852(a)(1)(B). Both Medicare benefits and required additional
benefits are: (1) Coupled together in section 1852(a)(1), in the first
paragraph under subsection (a), titled ``Basic Benefits''; (2) benefits
that an M+C has an obligation to provide (in contrast to supplemental
benefits, which may be provided totally at the M+C organization's
discretion); (3) benefits paid for with Medicare trust fund money; and
(4) benefits that are covered by the basic premium, if any, that counts
towards the limit based on the actuarial value of original Medicare
coinsurance and deductible amounts.
For all of these reasons, we have decided to divide benefits into
the two categories of the ``basic benefits'' including all required
benefits, and ``supplemental benefits,'' including both mandatory and
optional supplemental benefits provided at the discretion of the M+C
organization. We note that while Congress did not include a
``definition'' of ``basic benefits'' in Part C, it appears to use the
term ``basic'' to refer only to the Medicare-covered service package.
(See, for example, section 1851(b)(1)(B) or section 1854(e)(1).)
Although Congress did not actually include additional benefits in the
term ``basic benefits,'' in almost all cases, it coupled these benefits
together, and treated them the same. (See sections 1852(a)(1), and
1854(a)(2)(A), (3)(A), (4)(A), and (e)(1).) We accordingly believe that
it is appropriate in this regulation to include these two categories
together in the definition of ``basic benefits'' that applies for
purposes of part 422. We note, however, that where a statutory
provision refers only to the Medicare benefit component of our part 422
definition of ``basic benefits,'' we will similarly limit the
regulation implementing that provision.
M+C Organization and M+C Plan
The definitions of ``M+C organization'' and ``M+C plan'' set forth
in Sec. 422.2 are based on the BBA's use of these terms, which is not
always compatible with the way the terms ``organization'' and ``plan''
have been used in the past. In previous HCFA documents, the term
``managed care organization'' frequently has been used interchangeably
with the term ``managed care plan'' or ``health plan.'' Section 422.2
addresses this area of potential confusion by clarifying the
distinction between an M+C organization and an M+C plan. Succinctly
stated, an M+C ``organization'' is an entity that contracts with HCFA
to offer an M+C plan; the ``plan'' consists of the specific health
benefits, terms of coverage, and pricing structure.
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Section 1857(a) specifically states that HCFA contracts with an M+C
organization. Thus, for requirements that we would normally think of as
contractual requirements, we use the term ``M+C organization.'' In
Sec. 422.2 then, an M+C organization is defined as a public or private
entity organized and licensed under State law as a risk-bearing entity
(with the exceptions of PSOs receiving waivers) that is certified by
HCFA as meeting the M+C contract requirements. Under various BBA
provisions, the requirements M+C organizations are responsible for
meeting include: processing the enrollment and disenrollment of
beneficiaries within a plan; transmitting information such as
enrollment information and encounter data to HCFA; submitting marketing
materials; providing all Medicare-covered benefits and other benefits
covered under the contract in a manner consistent with specified access
standards; performing quality assurance; creating and carrying out all
plan procedures for grievances, organization determinations, and
appeals; maintaining necessary records; providing advance directives;
establishing procedures related to provider participation; setting
medical policies; notifying beneficiaries of any ``Conscience
Protection'' exceptions; disclosing physician incentive plans;
receiving payment; reporting financial information; paying user fees;
making prompt payments to providers; receiving any sanctions invoked by
HCFA on any of the organization's plans; and fulfilling other contract
requirements as specified in regulation.
Again, in contrast, an M+C plan is merely the health benefits
coverage and pricing structure that the organization offers to
beneficiaries. An M+C plan may include the basic benefits only (basic
benefits include Medicare-covered benefits and additional benefits) or
basic benefits combined with mandatory and/or optional supplemental
benefits.
An M+C organization may select which providers furnish services
under the plan, as long as the benefit package meets all the
requirements for access within the area, and outside of the area for
specific services. As discussed in detail below, service areas and
benefit packages generally are associated with individual plans;
uniform premium requirements and the need for an ACR proposal also
apply at the plan level.
Service Area
The service area designation of an M+C plan is an important element
of the structure and design of a particular plan. A plan's service
area--
<bullet> Determines the payment rate to the organization for
enrollees of the plan, based on the counties included in the service
area;
<bullet> Affects what benefits will be provided, since benefits and
premiums must be uniform under an M+C plan, throughout that plan's
defined service area;
<bullet> Determines which beneficiaries are able to elect the plan,
because organizations are obligated to enroll any eligible resident of
the service area who elects the plan; and
<bullet> For network plans, is the area in which the plan is
required to make covered services available and accessible; and
determines the boundaries beyond which the plan assumes liability for
urgently needed care and may offer enrollment continuation options.
As explained below, we will exercise discretion in reviewing and
approving service areas requested by M+C plans. For network plans, we
will use our knowledge of how service areas have been designated in the
past in the Medicare managed care program and in the Federally-
qualified HMO program, which we have administered since 1986, to ensure
availability and accessibility of services. We will attempt to ensure
that service areas of M+C network plans are consistent with community
patterns of care and/or rating practices--that is, service area
designations are not artificially delineated in such a way that usual
sources of care, in terms of geographic location, are not available to
beneficiaries; or in such a way that the service area designation
allows ``gaming'' of the community rate that forms the basis of M+C
premiums and benefits, to the disadvantage of Medicare beneficiaries. A
nondiscrimination standard will also apply to both network and non-
network plans. To the extent possible, we will attempt to ensure a
``level playing field'' among plans operating in the same geographic
area (for example, if one plan in an area is subject to the county
integrity rule discussed below, a new plan may also be subject to the
same standard in determining a new service area). These standards will
also be applied in evaluating requests for M+C service area expansions
and service area reductions. Consistent with the goals of the new M+C
program, we will attempt to maximize the number of choices available to
Medicare beneficiaries and maximize the availability of low-cost plans
offering additional benefits.
The regulations at Sec. 422.2 provide that an M+C organization may
propose a specified service area for each M+C plan, and HCFA will
determine whether the proposed area can be approved. The regulatory
definition of service area is slightly different from the current
service area definition at Sec. 417.401. The latter regulation defines
the term geographic area (which we used interchangeably with service
area with respect to section 1876 contracts) as ``the area found by the
Secretary to be the area in which an HMO is able to deliver the full
range of services,'' a definition that was essentially common to both
the Medicare program and the Federally qualified HMO program
(Sec. 417.1, ``service area''). The earlier definition emphasizes the
role of the Secretary (HCFA) in the designation of service areas, and
incorporates one of the standards applicable to network plans (which
continue to apply to such plans in these regulations). Statutory
references to a service area or geographic area under Medicare,
including references in the BBA, do not offer a definition of the term
or an indication of how the area is to be determined.
We have modified the wording of the earlier regulatory definition
of ``service area'' to recognize that organizations will propose
specific areas for M+C plans. Pursuant to section 1856(b)(1), which
provides for establishing M+C standards by regulation, and section
1856(b)(2), which provides for basing the standards on standards under
section 1876, we have retained our authority to approve or deny service
area configurations that organizations propose. This reflects what has
been the actual past practice of the agency in administering the
Medicare HMO/CMP program and the Federally-qualified HMO program. The
new definition also recognizes that service areas designated by
organizations for non-network plans are designated for the purpose of
determining who is eligible to enroll in the plan.
Consistent with current and past regulatory and statutory
standards, we will evaluate proposed service areas of network plans to
determine whether covered services are available and accessible, under
the standards of Sec. 422.112, to any resident of the area eligible to
elect enrollment in the plan. We will also examine the proposed service
area of any plan, including non-network plans, to ensure that the
delineation of the area does not result in discrimination against
beneficiaries through ``gerrymandering'' or ``red-lining'' to
deliberately avoid particular areas (e.g., to prevent the enrollment of
poorer Medicare beneficiaries, or those known to be in poorer health).
An example of such a practice would be an
[[Page 34972]]
urban area network plan's exclusion of poorer inner-city areas, leaving
obvious ``holes'' in the service area where residents would not have
any problem gaining access to care through the plan's providers had the
area been included in the proposed service area. Although we would not
ordinarily dictate the inclusion of particular areas in the service
area of a plan--for example, a multi-county commercial plan could
include only some of its counties in a Medicare contract--we would seek
to prevent clear cases of discrimination against, or disadvantaging of,
particular groups or populations.
Prior to the BBA, contracting HMOs and CMPs (virtually without
exception) all had existing, defined service areas prior to entering
into a Medicare contract. These were areas in which the entities
offered comprehensive health care services to non-Medicare enrollees of
the specified geographic area. As noted above, Medicare's statutory
language did not clearly define the terms service area or geographic
area, but it was assumed that each organization would have a specific
service area in which it operated and provided coverage to any enrollee
from the community (including any Medicare enrollee). The Medicare
premiums and benefits are a function of the community rate of the plan,
the rate applicable to any covered group within the community covered
by the plan. Hence, until the mid-1980s, we required that the service
area for Medicare be the same as the service area for the non-Medicare
population. Subsequently, we changed our policy to permit HMOs and CMPs
to limit the Medicare service area to a subset of the non-Medicare
(commercial) area, breaking the link between commercial service areas
and Medicare service areas (though the Medicare premiums and benefits
continue to be based on the community rate for the entire non-Medicare
community). We applied a ``county integrity'' standard in determining
how HMOs could reduce their service areas for Medicare; whole counties
could be excluded, but partial counties could only be excluded if the
organization operated (for commercial purposes) only in a portion of
the county.
Because the BBA provisions on waiver of minimum enrollment and
composition of enrollment requirements permit organizations to have M+C
plans with no prior enrollment, there will be plans that do not have
designated service areas and do not have a commercial service area that
can be used as a reference point for the designation of a Medicare
service area. In the case of network plans, we would work with such
organizations to determine an appropriate service area for the plan's
provider network, taking into consideration the patterns of medical
care in the community (e.g., where people obtain care, the types of
providers available in the community, reasonable travel times to obtain
care). We would also use our knowledge of how plan service areas
generally have been determined and approved in the past, as well as how
other organizations in the same area, or a similar area, have
established their service areas. There could be concerns both with a
proposed area that is too wide, offering limited availability of
services for outlying areas, and with a proposed area that is too
small, which would limit choices available to beneficiaries or might
raise the concerns discussed above regarding discrimination.
We believe that basing our decisions on community patterns of care
and the practices of other organizations in the same area, or in
similar areas, is consistent with our past approach to the issue of
service area designations, and consistent with the BBA. The BBA
requires a similar approach in developing elements of the adjusted
community rate for new plans (e.g., 1854(f)(4), referring to
``enrollment experience of other contracts entered into under this part
and * * * data in the general commercial marketplace'').
With respect to another issue related to service areas, our policy
that permitted HMOs and CMPs under 1876 to vary premium and benefit
offerings by county within a service area (the ``flexible benefits''
policy) will no longer apply under M+C. The flexible benefits policy
permitted organizations to use non-Medicare revenue to offer extra
benefits or reduced premiums (``free benefits'') to residents of a
particular county or counties rather than in the entire service area,
as long as all Medicare beneficiaries in the entire service received at
least the level of benefits required under the statute as determined
through the adjusted community rate process. With the requirement that
premiums and benefits be uniform throughout an M+C service area, it is
not possible to continue the flexible benefits policy. However, an
organization may be able to offer multiple plans and propose different
service areas for the plans in order to achieve a similar result as the
flexible benefits policy. This presents us with an issue of how to deal
with the proposals for service areas, or the carving up of existing
non-Medicare service areas, when it is done in order to have different
premiums and benefits in different counties. In the case of network
plans, a carving up of an existing service area, and the offering of
multiple plans across what may be a single service area for the non-
Medicare population, is only possible if each of the plans with
different service areas is able to ``stand alone'' in terms of meeting
all the requirements applicable to plans. The designation of multiple
service areas in such cases should also be consistent with community
practices in patterns of care, and/or consistent with rating practices,
and service are designations, for other purchasers.
Except in the case of non-network MSA plans, as discussed below,
the fact that Medicare pays different capitation rates by county is not
a sufficient reason to establish service areas consisting of individual
counties. For example, a staff-model HMO operating in a multi-county
area, that has a service delivery network consisting of only one
hospital and a group of physicians employed by the organization, cannot
designate each county as a separate service area. Although services are
accessible and available in each county, we do not believe there is a
valid reason to charge different premiums by county, for example, when
all Medicare beneficiaries enrolled in the organization will be using
the same providers.
On the other hand, some organizations that operate with very large
service areas may be justified in breaking up larger service areas for
Medicare contracting purposes. This would be similar to what Federally-
qualified HMOs do in designating distinct service areas as ``regional
components,'' which are sub-areas with an autonomous provider network
and with different community rating for the regional component. Some
HMOs, although they do not identify distinct service areas, require
enrollees to obtain services from a particular subset of providers
within the broader network (as Federally-qualified HMOs are permitted
to do (see 45 FR 28655 (April 29, 1980)). Some HMOs offer large
employers a statewide service area consisting of different provider
networks in geographically distinct areas in which there is no crossing
of boundaries, or very little crossing of boundaries, to receive
services. The large employer may be offered one rate for all areas, but
the same HMO may have smaller designated service areas for smaller
regional employers, in which different rates apply.
In evaluating proposals requesting approval of multiple service
areas in a contiguous geographic area, we would consider the patterns
of care in the community; and the rating and service
[[Page 34973]]
area practices of the individual organization, of other organizations
in the area, and of other organizations in similar areas. The
commercial service area will continue to be a reference point in that
we would be likely to approve a proposal if what is proposed for
Medicare contracting is similar to what is done in the commercial
marketplace. Similarly, we would take into consideration any
determination, or approval, of service areas by State regulatory
bodies.
At a minimum, each proposed M+C service area must be an area in
which the full range of covered services are available and accessible
to all Medicare enrollees primarily through providers located in the
service area. We would also evaluate proposals on the basis of the
criteria we discuss above relating to discrimination against, or
disadvantaging of, particular beneficiaries in the community. These
criteria would also be used in evaluating the proposed service areas of
non-network plans. Using the inner-city example, an entity could
request an area consisting only of the poorer inner-city area, where
residents would be required to pay a relatively high premium, while
other areas were charged a much lower premium. We would view this
practice as discouraging enrollment within a particular area. Although
the statute does not expressly provide for evaluation of service area
designations to determine whether they are discriminatory, we believe
that it is consistent with statutory requirements relating to
discrimination and discouraging enrollment (at 1852(a)(3), with respect
to the pricing of mandatory supplemental premiums, and 1852(b), with
respect to limiting enrollment based on a health status factor,
including claims experience or insurability). We have included the
above criteria for service area approval in the definition of ``service
area'' in Sec. 422.2.
As noted above, we are providing for a special exception for
service areas for non-network MSA plans. In the case of M+C MSA plans,
differences in payment rates for a given county affect not just the
amount the M+C organization offering the MSA plan is paid, but the
amount that is deposited in MSA accounts. (See section III of this
preamble.) We have decided that in the case of M+C non-network MSA
plans, under which enrollees are not limited to receiving services in a
defined area, we will permit M+C organizations to offer a different M+C
plan in each county in which they wish to enroll beneficiaries. This
would mean that a uniform amount would be deposited in the M+C MSA
account of every enrollee in the M+C MSA plan, and the M+C organization
could file a separate premium amount for each county to ensure that the
proper amount is deposited in accounts in that county.
Emergency and Urgently Needed Services
The definitions of emergency services and urgently needed services
in Sec. 422.2 are based on section 1852(d) and thus differ from those
in existing Sec. 417.401. In accordance with section 1852(d)(3) of the
statute, we are codifying the concept that an ``emergency medical
condition'' exists if a ``prudent layperson'' could reasonably expect
the absence of immediate medical attention to result in serious
jeopardy or harm to the individual. In addition, the new definition of
``emergency services'' includes emergency services provided both within
and outside of the plan, while the definition of ``urgently needed
services'' continues to encompass only services provided outside of the
plan's service area (or continuation area, if applicable), except in
extraordinary circumstances such as those discussed below.
Under section 1852(d)(1)(C)(i), M+C organizations are required to
pay for nonemergency services provided other than through the
organization where the services are immediately required because of
unforseen illness, injury or condition, and it is not reasonable given
the circumstances to obtain the services through the organization. We
believe that except in the rarest and most extraordinary of
circumstances, the only situation in which it would not be reasonable
to receive nonemergency services through the organization would be when
the enrollee is absent from the service area of the M+C plan in which
he or she is enrolled. It is possible, however, albeit extremely
unlikely, that there might be other situations in which this standard
would be met by an enrollee who is in the plan service area.
For example, there could be some temporary disruption of access to
the M+C plan's provider network, such as a strike, or possibly some
temporary physical impediment to traveling to M+C plan providers that
are otherwise readily accessible. Under such circumstances, an
individual might not need emergency services, but still may warrant
immediate attention. Because we do not believe that we can say that the
statutory standard could never be met by an individual who is in the
plan service area, we believe it is appropriate to provide for an
exception in the definition of urgently needed services to the rule
that the enrollee be out of area. We are thus providing for such an
exception in extraordinary cases in which the network is unavailable or
inaccessible due to an unusual event.
Other Definitions
In our April 14, 1998 interim final rule setting forth the
definition of a PSO and related requirements, we established under
Sec. 422.350(b) a definition for ``health care provider'' that is based
on the PSO requirements in section 1855(d)(5). In this interim final
rule, we are adopting the identical definition for general purposes of
the M+C program. Under this definition, as discussed in greater detail
in our April 14 interim final rule (63 FR 18126), the term ``provider''
applies both to individuals licensed or certified by a State to engage
in the delivery health care services (such as physicians, nurse
practitioners, clinical social workers), as well as to entities engaged
in the delivery of health care services (such as hospitals, nursing
homes, home health agencies).
Another clarification contained in this subpart involves the
definition of ``copayment.'' We have defined copayment as a fixed
amount that can be charged for a service. This is to distinguish
copayment from ``coinsurance,'' which is a fixed percentage of the
total cost of a service that can be charged. Copayments, coinsurance,
and deductibles represent the three forms of cost-sharing under a plan.
Finally, we have included a general definition of the term
``balance billing,'' indicating that balance billing refers to an
amount billed by a provider that represents the difference between the
amount the provider charges an individual for a service and the sum of
the amount the individual's health insurer (for example, the original
Medicare program) will pay for the service plus any cost sharing by the
individual. We note that there is significant variation within both
original Medicare and the M+C program regarding the extent to which
balance billing is permissible. For example, under original Medicare,
no balance billing is permitted for providers of services (such as
hospitals and home health agencies), while for nonparticipating
physicians, balance billing is permissible only up to the difference
between the Medicare allowed amount and the Medicare limiting charge.
Different rules apply under original Medicare for other
nonparticipating suppliers (such as ambulance or durable medical
equipment suppliers, for which there are currently no limits on balance
[[Page 34974]]
billing). Similarly, under the M+C program, different balance billing
restrictions apply depending on the type of M+C plan and the
contracting status of the provider. These restrictions are discussed in
detail in the appropriate sections of this preamble, particularly in
section IV regarding M+C private fee-for-service plans.
3. Types of M+C Plans (Sec. 422.4)
The creation of the M+C program allows beneficiaries access to a
much wider array of private health plan choices than the existing
alternatives to the original Medicare program. Moreover, this new
program will enable Medicare to use innovations from the commercial
sector that have helped the private market contain costs and expand
health care delivery options.
The BBA provides for several different types of M+C plans to be
available for beneficiaries. As noted above, these various M+C plans
can be classified into three general categories: M+C coordinated care
plans, M+C MSA plans (that is, a combination of a high deductible M+C
health insurance plan and a contribution to an M+C MSA), and M+C
private fee-for-service plans. Within each of these three categories,
M+C organizations may offer a variety of plans to Medicare
beneficiaries.
Since these are the only legally significant categories of plans
under the M+C program, we do not believe it is necessary to define all
of the different entities that accept prepaid, capitated payment for
delivering health services. Thus, examples of these entities, such as
PPOs, HMOs, or health insurance organizations, are not defined for
purposes of this regulation. Essentially, all entities that apply to
offer an M+C plan must conform to the requirements for either an M+C
coordinated care plan, an M+C MSA plan, or an M+C private fee-for-
service plan.
M+C Coordinated Care Plans (Sec. 422.4(a)(1))
Under the M+C program, beneficiaries may choose from among a
variety of coordinated care plans. Coordinated care plans include, but
are not limited to, HMO plans (with or without point of service
options) (HMOs), plans offered by PSOs (as defined in section 1855(d)
and in our April 14, 1998 interim final rule), and PPO plans. In
addition, certain beneficiaries may be able to choose another type of
coordinated care plan, the Religious Fraternal Benefit Society plan,
which is defined in section 1859(e).
Except in the case of a PSO granted a waiver under subpart H of
part 422, all organizations offering M+C coordinated care plans must
meet the State licensure requirements in section 1855 (and
Sec. 422.400). Thus, an M+C coordinated care plan must be offered by an
entity that is (1) appropriately licensed by the State to bear risk and
(2) eligible to offer health insurance or health benefits coverage in
each State in which it offers an M+C plan.
In addition, an M+C coordinated care plan must meet the definition
of a coordinated care plan set forth in Sec. 422.4. That is, an M+C
coordinated care plan is a type of plan offered by an M+C organization
that includes a network of providers that are under contract or
arrangement with the organization to deliver the benefit package
approved by HCFA. The network must be approved by HCFA to ensure that
all applicable requirements are met including access and availability
standards, service area requirements, and quality standards. A
coordinated care plan may include mechanisms to control utilization,
such as referrals from a gatekeeper to receive services within the
plan, and financial arrangements that offer incentives to providers to
furnish high quality and cost-effective care.
Except for PSOs that have obtained a waiver of the State licensure
requirement, and thus are subject to the additional requirements set
forth in subpart H of part 422, distinctions among HMOs, PSOs, PPOs,
and other coordinated care plans are not relevant for the purpose of
applying to offer an M+C plan. The distinctions among the various types
of coordinated care plans may be relevant for purposes of State
licensure. However, for the purpose of an M+C application, we are not
concerned with what type of coordinated care plan an applicant intends
to offer. In fact, an entity may offer an M+C coordinated care plan
even though it is not specifically licensed as an HMO, PSO, or PPO. As
long as the entity is licensed as a risk-bearing entity in accordance
with section 1855 of the statute and the plan being offered meets the
definition of a coordinated care plan under Sec. 422.4, the entity does
not need to be licensed specifically as an HMO, PSO, or PPO to offer an
M+C coordinated care plan.
For example, like an HMO or a PSO, a PPO may offer an M+C plan. Any
organization that is licensed as a risk-bearing entity in a State may
offer an M+C plan that is structured in the form of a PPO. We are not
requiring that an organization applying to offer an M+C PPO plan be
operating as a PPO in the non-Medicare marketplace. In that sense, the
BBA imposes a distinct change from prior law, because it does not
require that organizations with Medicare prepaid health plan contracts
meet certain conditions imposed on their structure and their commercial
business. Under section 1876, a PPO generally could not obtain a
Medicare risk contract because most PPOs have members that are
enrollees of an indemnity insurance product, and would not meet the
requirements under section 1876 to be an ``eligible organization''
entitled to contract under that section. The BBA only requires that an
organization be providing health benefits and insurance to enrollees
(regardless of whether on an indemnity or prepaid, capitated status)
and that it be licensed by the State as a risk-bearing entity.
The majority of the PPOs that are currently operating are plans
being offered by State-licensed indemnity carriers or State-licensed
HMOs. However, where the State does license the PPO as a risk-bearing
entity, the PPO may be eligible to become an M+C organization in and of
itself. Conversely, where the State does not allow the PPO to bear
risk, the PPOs in those States would not be eligible to become an M+C
organization on their own. These PPOs that are not allowed to bear risk
may partner with a licensed risk-bearing entity or contract with a
licensed risk-bearing entity to ``rent out'' their PPO network of
providers. Consistent with our policy of deferring to the State as to
which entities constitute licensed risk-bearing entities eligible for
the M+C program, HCFA will defer to the State in terms of whether the
PPOs can accept partial capitation from the licensed indemnity carrier
or licensed HMO.
An entity offering a PPO plan must still comply with the
requirements in 1854(e), which limit enrollee financial liability under
a PPO plan in the same manner that liability is limited under an HMO
plan or any other type of M+C coordinated care plan. That is, the sum
of the premium for basic benefits and the actuarial value of all out-
of-pocket expenses for such benefits (including the actuarial value of
all cost-sharing for non-participating providers in a PPO) cannot
exceed the actuarial value of the deductibles and coinsurance in
original fee-for-service Medicare. Therefore, if a PPO expects a high
level of utilization of non-participating providers, it must have a
very low premium or it must have a significantly reduced level of cost-
sharing for such services.
Religious Fraternal Benefit Society Plans
One specific type of coordinated care plan authorized by the BBA is
a religious fraternal benefit society plan
[[Page 34975]]
(RFB plan), which is defined in section 1859(e). An RFB plan is an
entirely new type of plan that may be offered under the M+C program.
As with the other types of coordinated care plans, an entity
offering an RFB plan must be organized and licensed under State law as
a risk-bearing entity eligible to offer health insurance or health
benefits coverage in each State in which it offers an M+C plan.
Essentially, an RFB society must meet the state licensing requirements
outlined in section 1855. As discussed above, the States define the
criteria for licensure, including any fiscal solvency standards that
apply.
Also, an organization offering an RFB plan under the M+C program
must do more than merely pay health care claims on behalf of their
beneficiaries. Rather, RFB plans that constitute M+C coordinated care
plans must meet the definition of a coordinated care plan included in
this regulation. That is, they must have a network of health
professionals and meet the applicable access, availability, service
area, and quality assurance requirements.
Section 1859(e) defines and describes the requirements for RFB
plans. Section 1859(e)(2) describes an M+C RFB plan as a coordinated
care plan that: (A) Is offered by a religious fraternal benefit society
only to members of the church, convention, or affiliated group; and (B)
permits all members to enroll without regard to health status-related
factors. Section 1859(e)(3) states that the RFB plan must be offered by
a religious fraternal benefit society that: (A) is described under
section 501(c)(8) of the Internal Revenue Code and is exempt from
taxation under section 501(a) of that Act; (B) is affiliated with,
carries out the tenets of, and shares a religious bond with, a church
or convention or association of churches or an affiliated group of
churches; (C) offers, in addition to an M+C religious fraternal benefit
society plan, at least the same level of health coverage to individuals
not entitled to Medicare benefits who are members of such church,
convention, or group; and (D) does not impose any limitation on
membership in the society based on any health status-related factor.
Section 501(c) of the Internal Revenue Code generally describes the
rules applicable to those organizations which are not subject to
Federal income tax under section 501(a) of the code. Section 501(c)(8)
describes one type-- fraternal beneficiary societies, orders or
associations that (a) operate under the lodge system for the exclusive
benefit of a Fraternity itself operating under the lodge system; (b)
provide for the payment of life, sick or accident or other benefits for
the members of such society or association or their dependents.
RFB Plans have two distinguishing factors from other types of M+C
coordinated care plans. The first is that RFB plans are allowed to
limit their enrollment to members of the church. Section 1859(e)(1)
indicates that a religious fraternal benefit society offering an M+C
plan may restrict the enrollment of individuals in the plan to
individuals who are members of the church, convention, or group with
which the society is affiliated.
In addition to this ability to limit enrollment strictly to members
of the church, RFB plans are distinct from other M+C coordinated care
plans in that RFB plans may be subject to possible payment adjustments
to ensure an ``appropriate payment level.'' Specifically, section
1859(e)(4) indicates that the Secretary shall provide for such
adjustment to the payment amounts otherwise established under section
1854 as may be appropriate to assure an appropriate payment level,
taking into account the actuarial characteristics and experience of
such individuals.
M+C MSA Plans (Sec. 422.4(a)(2))
The definition of an M+C MSA plan, as well as other requirements
that apply solely or in a different manner to M+C MSA plans, are
discussed in full in section III. of this preamble. Note that in
section III.K. of this preamble, we solicit letters of intent from
organizations that intend to offer M+C MSA plans to Medicare
beneficiaries and/or to serve as M+C MSA trustees.
M+C Private Fee-For-Service Plans (Sec. 422.4(a)(3))
The definition of an M+C private fee-for-service plan, as well as
other requirements that apply solely or in a different manner to M+C
private fee-for-service plans, are discussed in full in section IV of
this preamble.
Multiple Plans (Sec. 422.4(b))
Section 422.4(b) establishes that an M+C organization may offer
multiple plans, including plans of different types, under a single
contract with HCFA, provided that the organization is licensed or
approved under State law to offer the applicable types of plans. We
believe that this policy should prove to be less administratively
burdensome for both prospective M+C organizations and for HCFA than
other alternatives, such as requiring separate contracts between HCFA
and an M+C organization for each plan, or type of plan, being offered
by the organization. We also specify under this section that if an M+C
organization has received a waiver of the licensing requirement to
offer a PSO plan, the waiver does not apply to the licensing
requirement for other types of plans. Other issues associated with the
ability of an M+C organization to offer multiple plans under a single
contract with HCFA are discussed below, in the section of the preamble
that deals with the contract requirements contained in subpart K of
part 422.
4. Applications (Secs. 422.6 and 422.8)
Sections 422.6 and 422.8 set forth the application requirements for
entities seeking to contract with HCFA to offer M+C plans, as well as
HCFA's application evaluation procedures. For the most part we have
retained the contracting requirements from Secs. 417.143 and 417.144 as
authorized by section 1856(b)(2). This section of the law allows HCFA
to use past contracting standards applied to contracts under section
1876 or to create new standards as needed to implement the M+C program.
The application requirements and evaluation procedures are almost
identical to the current application procedures.
The primary change to our previous process is the additional
requirement that organizations wishing to contract with HCFA must
submit documentation of their appropriate State licensure, or submit
documentation of State certification that the entity is, in fact, able
to offer health insurance or health benefits coverage meeting State
fiscal solvency standards and authorized to accept prepaid capitation
for providing, arranging, or paying for comprehensive health care
services. (Entities meeting the definition of a PSO can be exempted
from this requirement if they meet conditions for a waiver, which can
be granted by HCFA--see subpart H of part 422.) This requirement is
necessitated by the fact that HCFA will no longer have primary
responsibility for determining the fiscal solvency of new contractors.
We intend to rely for the most part on State certification to insure
that the entities that we contract with are indeed fiscally solvent and
have the ability to handle and afford risk payments for health care
coverage, although we will if necessary ``look behind'' State
certifications for validation purposes.
In one addition to existing rules, Sec. 422.8(b) specifies that
HCFA may deny an entity's application to offer an M+C plan if the
entity has failed to complete a corrective action plan during the term
of its previous contract with HCFA, regardless of whether the contract
was under the section 1833, 1876, or the new Part C provisions of the
law. We
[[Page 34976]]
believe that this provision explicitly ensures that the proven
performance problems of entities that apply to contract with HCFA under
the M+C program are taken into consideration in the application
evaluation process.
5. User Fees (Sec. 422.10)
The last section of subpart A contains regulations implementing the
user fees provided for in section 1857(e)(2). Section 1857(e)(2)
directs the Secretary to collect user fees from M+C organizations, with
each paying its pro rata share, for the purpose of paying for costs
associated with enrollment and information activities under section
1851 and subpart B, and counseling and assistance programs under
section 4360 of the Omnibus Budget Reconciliation Act of 1990 (Public
Law 103-66).
Under section 1876(k)(4)(D), the user fees provided for in section
1857(e)(2) apply in 1998 to HMOs and CMPs with risk contracts under
section 1876. On December 2, 1997, we published regulations in
Sec. 417.472(h) implementing the user fee authority in section
1857(e)(2), and setting forth a methodology for determining an
organization's ``pro rata share'' of these fees. (62 FR 63669).
In this interim final rule, we are simply adopting at Sec. 422.10,
for purposes of the M+C program, the user fee provisions now set forth
at Sec. 417.472(h). Our reasons for adopting the methodology reflected
in these regulations are set forth in the preamble to the December 2,
1997 rule. We intend to respond to comments received on the December 2
interim final rule, as well as comments on this rule, in a future
rulemaking document.
B. Eligibility, Election, and Enrollment
1. Eligibility to Elect an M+C Plan (Sec. 422.50)
Section 1876 background: The provisions that have in the past
applied to managed care entities (and continue to apply until these
entities become M+C organizations) are in section 1876 and part 417 of
this chapter. Section 1876(d) provides that Medicare beneficiaries who
are entitled to benefits under Part A and enrolled in Part B, or
enrolled under Part B only, except those with ESRD, residing in the
service area of the plan are eligible to receive all their Medicare
benefits through an HMO or CMP that has a contract with HCFA.
Regulations at Sec. 417.423(b) excluded beneficiaries who elect hospice
care from enrolling in an HMOs or CMPs as long as the hospice election
remains in effect. Existing regulations at Sec. 417.460(f) require that
HMO or CMP disenroll individuals who move out of their geographic
areas, except that Sec. 417.460(f)(2) allows enrollees to remain
enrolled in an HMO or CMP under the following circumstances: (1) During
a temporary move from the service area for up to 90 days, or (2) during
a move to a new area for as long as 1 year if the HMO or CMP has
elected to offer this option under Sec. 417.460(f)(2).
a. Eligibility. The BBA established a new section 1851(a) that
includes the eligibility criteria an individual must meet in order to
enroll in an M+C plan, as defined in Sec. 422.4. Accordingly, except as
discussed below at section B.1.b. regarding the transition of Part B
only individuals, Sec. 422.50 states that individuals who are entitled
to Part A and enrolled in Part B are eligible to enroll in an M+C plan.
These individuals are referred to as ``M+C eligible individuals.''
Individuals with end stage renal disease (ESRD) are not permitted
to be new enrollees of an M+C organization offering an M+C plan.
Section 1851(a)(3)(B) excludes individuals with ESRD from enrolling in
an M+C plan generally, but provides that an individual who develops
ESRD while an enrollee in an M+C plan may ``continue to be enrolled''
in that plan. For purposes of this provision only we are considering
individuals who are enrolled in a private health plan offered by the
M+C organization to have been enrollees of the M+C plan when they
developed ESRD. In section 422.50(a)(2), therefore, we provide that an
individual who develops end-stage renal disease while enrolled in an
M+C plan, or in a private health plan offered by the M+C organization
offering an M+C plan, may continue to be enrolled in the M+C
organization as an M+C plan enrollee.
We take this position because we believe that Congress intended in
section 1851(a)(3)(B) to permit individuals with ESRD who are enrolled
with an M+C organization to remain enrolled with that organization. If
an individual develops ESRD as an enrollee of the organization after
becoming Medicare eligible, he or she clearly would be permitted under
section 1851(a)(3)(B) to remain enrolled with the organization. We do
not believe that enrollees of an M+C organization should be penalized
because they develop ESRD prior to becoming Medicare eligible rather
than after. This position is consistent with our existing policy
implementing a similar ESRD exclusion under section 1876, and therefore
is supported by section 1856(b)(2), which provides for the retention of
``standards established under section 1876 to carry out analogous
provisions of such section.''
We are not continuing the Sec. 417.423(b) exclusion policy on
hospice; individuals who elect hospice coverage may elect an M+C plan.
Unlike ESRD patients, individuals who elect hospice care are not
specifically excluded from participating in the M+C program. In fact,
section 1853(h) contains special rules for M+C organizations that
enroll hospice patients.
Section 1851(b) states that, except as the Secretary may otherwise
provide, individuals must live in the geographic area served by the M+C
plan in order to enroll in that plan. We have exercised the discretion
provided in this provision to provide that those individuals converting
from health plans in which they were enrolled prior to Medicare
entitlement who reside out of the plan's service area may also continue
enrollment in the M+C organization if they reside in the continuation
area of the plan.
An M+C organization must disenroll beneficiaries who permanently
move from the service area, unless the plan has chosen to provide a
continuation of enrollment option in the area to which the enrollee
moved, as allowed in section 1851(b)(1)(B) and the enrollee chooses to
remain with the plan. We discuss continuation of enrollment in detail
in section b.2., ``Continuation of Enrollment.'' Section 4002
enrollment transition for 1876 risk contracts.
Section 1876 risk contracts cannot be renewed for a contract year
beginning on or after January 1, 1999. Current risk contractors that
remain in compliance with current standards and that demonstrate
compliance with new requirements established by this regulation will be
able to transition into the M+C program by entering into an M+C
contract, as an M+C organization, with a contract effective date of
January 1, 1999.
Section 4002(c) of the BBA provided for a seamless transition of
enrolled membership. An individual who is enrolled on December 31, 1998
with an eligible organization under section 1876 shall be considered to
be enrolled with that organization on January 1, 1999 under the M+C
program if that organization has a contract under Part C of title XVIII
for providing services on January 1, 1999, unless the individual has
disenrolled effective on that date.
In addition, section 4002(b) provides that an individual who is
enrolled in Part B only and is enrolled in an eligible organization
with a risk-sharing contract under section 1876 on December 31, 1998,
may continue to be enrolled in the
[[Page 34977]]
organization in accordance with our regulations. This means that on
January 1 there will be a small population of ``grandfathered Part B
only'' enrollees retained in organizations formerly with risk contracts
that now hold contracts under the M+C program. However, this is a one
time opportunity, and an individual who is enrolled in Part B and not
entitled to Part A and who disenrolls from the M+C organization is not
eligible to elect a plan offered by another M+C organization.
In summary, we are interpreting the statute to allow an individual
to transition enrollment from the 1876 program without regard to
location of residence or whether the individual has end-stage renal
disease and to choose to enroll in any plan offered by the M+C
organization into which they are transitioning.
2. Continuation of Enrollment (Sec. 422.54)
As stated previously, section 1851(b)(1)(B) allows M+C
organizations to offer enrollees the option of continued enrollment in
the M+C plan when enrollees leave the plan's service area to reside
elsewhere, we have to interpieted this to mean on a permanent basis.
M+C organizations that choose the continuation of enrollment option
must explain it in marketing materials and make it available to all
enrollees in the service area. Enrollees may choose to exercise this
option when they move or they may choose to disenroll.
Before an M+C organization may offer a continuation of enrollment
option to Medicare beneficiaries, the organization must obtain HCFA
approval of the continuation area, its marketing materials, and the
organization's assurances that it will meet access requirements. Under
section 1851(b)(1)(B), the organization must provide enrollees with
reasonable access within the continuation area to the Medicare covered
benefits described in section 1852(a)(1)(A).
The payment rate at which the M+C organization will receive payment
from HCFA will be based on the rate and adjustment factors that
correspond to the beneficiary's permanent residence. The M+C
organization must, at a minimum, provide or arrange for the provision
of Medicare covered benefits in the continuation area as described in
the first sentence of Sec. 422.100(b)(1), and the plan must meet access
and cost-sharing requirements for all basic benefits.
Because the rate that we pay to M+C organizations includes amounts
that ordinarily must be used to provide additional benefits (see
preamble for subpart G), we believe that M+C organizations should be
required to provide additional benefits in the continuation area. As
noted above, however, section 1851(b)(1)(B) requires only that Medicare
benefits be provided to continuation enrollees. We accordingly are
considering a legislative proosial to require M+C organizations to
provide all services in section 1852(a)(1), including required
additional benefits under section 1852(a)(1)(B).
Section 1851(b)(1)(B) requires that ``reasonable access'' be
provided in the continuation area, and that enrollees be subject to
``reasonable cost-sharing.'' We are requiring that M+C organizations
satisfy the access requirements in Sec. 422.112, and provide services
either through written agreements with providers or by making payments
that satisfy the requirements in Sec. 422.100(b)(2).
We are defining ``reasonable cost-sharing'' in the continuation
area to be limited to (1) the cost-sharing amounts required in the M+C
plan's service area (in which the enrollee no longer resides) if
provided by contract providers; (2) the cost-sharing amounts required
by the continuation area plan if provided through agreements with
another M+C plan; or (3) the amount for which a beneficiary would be
liable under original Medicare if noncontracting providers furnish the
services.
We have included two items in these regulations that reflect our
prior experience with similar situations. They are: (1) that plans may
require prior notification from members of their intention to use the
continuation of enrollment option, but this requirement must be in
their marketing materials, and (2) appeals and grievances in the
continuation area must be handled in the same timely fashion as in the
service area, but the ultimate responsibility for the appropriate
handling of appeals and grievances is with the organization that is
receiving payment from HCFA.
3. Limitations on Enrollment in an M+C MSA Plan (Sec. 422.56)
While most M+C eligible individuals can choose to receive benefits
through one of the M+C plans defined in Sec. 422.4, the statute places
limitations on eligibility to enroll in M+C MSA plans.
Sections 1851(b)(2) and (b)(3) specifically exclude certain
individuals from enrolling in M+C MSA plans. We have specified at
Sec. 422.56(b) of this section, that individuals who are enrolled in a
Federal Employees Health Benefit program (FEHB) plan, or who are
eligible for health care benefits through the Veterans Administration
(VA) or the Department of Defense (DoD) may not enroll in an M+C MSA
plan. The statute provides that the restrictions on FEHB enrollment may
be eliminated if the Director of the Office of Management and Budget
certifies to the Secretary that the Office of Personnel Management has
adopted polices that will ensure that the enrollment of FEHB
participants in M+C MSA plans will not result in increased expenditures
for the Federal government. The Office of Personnel Management has
indicated to HCFA that they would not be able to certify that FEHB
costs would not increase at this time. Under our authority in section
1851(b)(2)(B), we intend to apply the same rules for enrollment
restriction to individuals who are eligible for health benefits through
the VA and DoD. Additionally, in Sec. 422.56(c) we have incorporated
the statutory requirement under section 1851(b)(3) that individuals who
are entitled to Medicare cost-sharing under a State plan under title
XIX are not eligible to enroll in M+C MSA plans. In addition, an
individual who receives health benefits that cover all or part of the
annual deductible under an M+C MSA plan may not enroll in an M+C MSA
plan.
Note that M+C MSA plans are described in detail in Section III of
this preamble.
4. Limited Enrollment Under M+C RFB Plans (Sec. 422.57)
Section 1859(e)(1) states that Religious Fraternal Benefit Society
(RFB) plans may limit the enrollment of individuals to those who are
members of the church, convention or group with which the society is
affiliated. We have included the restrictions on enrollment in RFB
plans at Sec. 422.57.
5. Election Process (Sec. 422.60)
Under section 1851(c)(1) the Secretary is required to establish a
process through which elections in M+C plans are made and changed,
including the form and manner in which they are done. In Sec. 422.60,
we describe the election process for enrollment with the M+C
organization. Where applicable we have included existing rules from 42
CFR Sec. 417.430 with conforming changes.
As stated at Sec. 422.66(a), M+C eligible individuals who wish to
elect an M+C plan may do so by filing the appropriate election form
with the M+C organization. At Sec. 422.60(a), we specify that M+C
organizations must accept without restriction, except as specified in
Sec. 422.57 for RFB plans, individuals who enroll in an M+C plan during
the
[[Page 34978]]
election periods described in section 1851(e)(6) and set forth at
Sec. 422.62 of the regulation.
As provided by section 1851(e)(6), and stated at Sec. 422.60(a),
and displayed in the following chart, M+C organizations are required to
accept enrollments during the initial coverage election period, the
annual election period, and special election periods, but M+C
organizations are not required to be open for enrollment during open
enrollment periods.
When Elections May Be Made or Changed*
----------------------------------------------------------------------------------------------------------------
M+C Plans Required to
Coverage Election Periods When: Sec. 422.62 Accept Enrollments: Effective Date of
Sec. 422.60 Coverage: Sec. 422.68
----------------------------------------------------------------------------------------------------------------
Initial Coverage Election Period..... 3 months before Yes.................... 1st day of month of
entitlement to Part A entitlement to Part A
and Part B. and Part B.
Annual Election Period............... Annually in November... Yes.................... January 1.
Special Election Period.............. Starting 2002, if Yes.................... To Be Determined--
beneficiary moves, depends on situation.
plan terminates, etc.
Special Election Period at Age 65.... Starting 2002, in first No--Election is 1st day of the month
12 months after original Medicare. after month of
initial election of election.
M+C plan.
Open Enrollment Periods.............. Anytime 1998-2001 Jan- No--Plans have option 1st day of the month
Jun 2002 Jan-Mar 2003+. of accepting after month of
enrollments. election.
----------------------------------------------------------------------------------------------------------------
*Refer to referenced regulation text for detail.
Note that different rules apply to M+C MSA plans.
As provided at Sec. 422.306(a)(2) to reflect the requirements in
section 1854(a)(1)(B), M+C organizations must submit by May 1 of each
year the enrollment capacity of each plan they offer. Section 422.60(b)
then provides that if HCFA determines that the M+C plan has a capacity
limit, the plan may limit the enrollment of M+C eligible individuals if
the plan accepts first those individuals who elected the plan prior to
the HCFA determination and then accepts others in a manner that does
not discriminate on the basis of health status.
We note that we have not included regulation text to address the
last sentence of section 1851(g)(2) regarding ``nonrepresentative''
enrollment. As written, the sentence disallows a capacity limit if
enrollment would become substantially nonrepresentative of the Medicare
population in the plan's service area, as determined in accordance with
regulations of the Secretary. We cannot envision circumstances under
which the imposition of a capacity limit on enrollment would by itself
lead to an enrollment ``substantially non-representative'' of the
Medicare population in an M+C plan's service area. We particularly
cannot envision circumstances under which the non-representativeness of
enrollment would be so ``substantial'' as to justify possible risks to
patient access and quality of services as the result of overloaded
capacity. We accordingly are not promulgating regulations at this time
implementing the authority in the last sentence in section 1851(g)(2).
We invite comments on this provision, and would consider including
guidance on this matter in a final regulation based upon comments
received.
At Sec. 422.60(c) we indicate requirements for the election form.
The form must comply with HCFA instructions regarding content and
format, must be completed and signed by the beneficiary (or the
individual who will soon be entitled to Medicare benefits), and must
include authorization for disclosure and exchange of necessary
information between HCFA and the M+C organization. Persons who assist
beneficiaries in completing forms must sign the form and indicate their
relationship to the beneficiary. The forms must also be filed and
retained by the M+C organization.
In general, and as indicated by our requirement that the
beneficiary complete and sign the form, we believe that an M+C eligible
individual should personally complete and sign any election form or
disenrollment request (referenced at Sec. 422.66(b)) whenever possible.
If for some reason a beneficiary is unable to sign for himself or
herself, we recognize and defer to state laws on who may sign for other
persons, which is also the policy in the Section 1876 program.
In Sec. 422.60(d), we specify that an election is considered to
have been made on the date it is received by the M+C organization. We
believe it is necessary that we define ``when an election is made''
because it is a determining factor in establishing the effective date
of M+C plan coverage. Note that HCFA's liability for payment is not as
of the election date, but rather, is as of the effective date of
coverage. Effective dates of coverage are specified at Sec. 422.68.
We have also set forth at Sec. 422.60(e) a process for handling of
forms, including for providing written notification of acceptance or
denial in the M+C plan.
6. Election of Coverage Under an M+C Plan (Sec. 422.62)
Section 1876 background: Section 1876(c)(3)(A)(i) requires that
HMOs and CMPs hold an open enrollment period for Medicare beneficiaries
of at least 30 consecutive days during each contract year to qualify
for a Medicare contract. For Medicare beneficiaries who enroll during
the open enrollment period, Sec. 417.450(a)(2) states that the
effective date of coverage cannot be earlier than the first month, nor
later than the third month, after the month in which HCFA received the
information necessary to include the beneficiary in its records. In
Sec. 417.450(b), HCFA reserves the option to approve a later month if
requested by the organization and the beneficiary. HMOs and CMPs can
also offer continuous open enrollment outside of the 30-day period.
In the M+C program under section 1851(a)(1), M+C eligible
individuals may elect to receive Medicare benefits under original
Medicare or through election of an M+C plan. Section 1851(e) describes
the various election periods available to M+C eligible individuals.
Many of these provisions allow the individual to ``change the election
under subsection (a)(1)'' during these periods. If section 1851(a)(1)
were read narrowly, it arguably would only allow an eligible individual
to change between original Medicare or the M+C program under Part C. We
have taken a broader approach in interpreting section (a)(1) to allow
eligible individuals to not only make a change between the original
Medicare program and an M+C plan, but also among M+C plans. Therefore,
an M+C eligible individual
[[Page 34979]]
who changes his or her election may change from an M+C plan to original
Medicare, from an M+C plan to another M+C plan or from original
Medicare to an M+C plan.
The BBA establishes specific parameters in which elections can be
made and/or changed. Individuals who wish to elect an M+C plan or
subsequently change their election, must do so during the periods
established under section 1851(e). That section requires that elections
or changes in election be made during the following periods: The
initial coverage election period, continuous open enrollment periods,
an annual coordinated election period or special election periods. Note
that the Medigap implications of a change of election to original
Medicare are discussed at section II.B.12 (Extended Period of
Guaranteed Access to Medigap Plans) of this preamble.
a. Initial Coverage Election Period. Section 1851(e)(1) requires
that the Secretary specify an initial coverage election period during
which an individual who is initially entitled to Part A and enrolled in
Part B may elect an M+C plan. The statute further stipulates that if an
individual elects an M+C plan during that period, coverage under the
plan will become effective as of the first day on which the individual
may receive that coverage. We believe that Congress intended that we
give a newly eligible individual the opportunity to be enrolled in an
M+C plan as soon as he or she would be entitled to actually receive
both Medicare Part A and Part B coverage.
In other contexts, we have interpreted the concept of ``entitled''
to mean that an individual has met all of the necessary requirements
for a benefit (that is, is eligible for the benefit), and has actually
applied for and been granted coverage. An individual is considered to
be ``enrolled'' under section 1837, on the other hand, when he or she
has applied for Part B coverage (or is deemed to have applied). Under
some situations, an individual may apply for or be deemed to have
applied for Part B before he or she is actually entitled to receive
coverage. For example, if an individual applies for Part B coverage and
becomes ``enrolled'' after he or she reaches age 65, the individual may
not actually be entitled to Part B coverage under section 1838 until
one or several months after the month of application and enrollment. If
we were to interpret section 1851(e)(1) to give effect to an M+C plan
election when an individual has only enrolled in Part B, he or she
could be entitled to the benefits of the M+C plan before actually being
entitled to Medicare Part B coverage. In order to avoid such a result,
we have interpreted ``enrolled'' in Part B as ``entitled'' to Part B.
We believe our interpretation is consistent with section
1851(e)(1), which requires the Secretary to specify an initial coverage
election period that would result in coverage under the plan becoming
effective as of the first day on which the individual may receive that
coverage.
In establishing the initial coverage election period we considered
the statutory process of entitlement to Part A and enrollment in Part
B. Section 226 of the Act provides that individuals who are age 65 and
entitled to retirement benefits under title II or the Railroad
Retirement Board Act and those who are under age 65 and have been
entitled (or deemed entitled) to disability benefits under title II or
the Railroad Retirement Board Act for 24 months shall be entitled to
Part A under the Medicare program and eligible to enroll in Part B.
Part A coverage is effective the month an individual attains age 65, or
the 25th month he or she is entitled to disability benefits. If an
individual is entitled to disability or retirement benefits at least 3
months before reaching age 65 or, in the case of a disabled individual,
three months before the 25th month in which he or she is entitled to
disability benefits, the individual is deemed enrolled in Part B at
that time. Under section 1838, Part B is effective with the month an
individual reaches age 65 or in the 25th month he or she is entitled to
disability benefits.
In order for an individual to have coverage under an M+C plan
effective as of the first day on which the individual may receive such
coverage, the individual must elect an M+C plan before he or she is
actually entitled to Part A and Part B coverage. We have therefore
defined the initial coverage election period as the 3-month period that
begins 3 months prior to the month the individual is first entitled to
both Part A and Part B and ends the last day of the month preceding the
month of entitlement.
This approach also permits individuals who do not enroll in Part B
at initial eligibility (i.e. at age 65 or in the 25th month of
disability entitlement) to elect an M+C plan at the time of subsequent
enrollment in Part B. Section 1837(i) provides for a special enrollment
period for individuals who defer enrollment in Part B because they are
covered under a group health plan based on their own employment or that
of a spouse (in the case of the disabled, the employment may be that of
any family member). Enrollment in Part B may occur during any month the
individual is covered under the group health plan based on current
employment or during the 8-month period that begins the first full
month the individual is no longer covered under the group health plan
based on current employment. Under section 1838(e), Part B coverage is
effective the first day of the month the application is filed or, at
the individual's option, the first day of any of the following three
months when enrollment occurs while the individual is covered under the
group health plan based on current employment or during the first full
month when not so covered. Therefore, an individual may file an
application for Part B up to three months in advance of entitlement.
Consequently, individuals who enroll in Part B during the special
enrollment period may elect an M+C plan during the 3-month period prior
to entitlement to Part B.
Additionally, section 1837(e) allows individuals who fail to enroll
for Part B during their initial enrollment period (3 months before they
are entitled to Part A or within 3 months after the month they are
entitled to Part A) to enroll for Part B during a general enrollment
period, which runs from January through March of every year, with
coverage effective July 1 of the year of enrollment. In this case, the
Part B application may be filed up to 6 months in advance of the month
of entitlement. (Individuals who enroll in a general enrollment period
are subject to an increased premium under section 1839(b), measured by
the length of the delay in enrollment.)
In order to be consistent with the 3 month periods that can occur
between timely enrollment for Part B and actual entitlement in existing
sections of the Medicare statute, we have limited the period during
which an individual may elect an M+C plan to the 3-month period prior
to actual entitlement to Part B. We believe that this correlation with
the 3-month period will be administratively more efficient than a
shorter or longer time period.
b. Annual Coordinated Election Period. Section 1851(e)(6)
establishes that organizations offering M+C plans in January, 1999 must
open enrollment to Medicare beneficiaries in November, 1998. In
addition, section 1851(e)(3) establishes the month of November of each
year beginning in 1999 as the annual coordinated election period.
During the month of November, an M+C eligible individual may elect
an M+C plan or change his or her election. Thus, the section 1876
requirement that plans be open any 30-day period is replaced by a
requirement that plans
[[Page 34980]]
have to be open for enrollment during the month of November.
c. Open Enrollment Periods. Section 1851(e)(2) establishes open
enrollment periods during which M+C eligible individuals may elect an
M+C plan, if it is open to new enrollees, or change their elections.
M+C individuals may not, however, as provided in section 1851(e)(5),
elect an M+C MSA plan during open enrollment periods.
Note that as provided by section 1851(e)(6) and stated at
Sec. 422.60(a)(2), M+C organizations may, but are not required, to
offer continuous open enrollment during open enrollment periods. This
is similar to the section 1876 policy which also allowed, but did not
require, continuous open enrollment outside of a 30-day period.
Section 1851(e)(2)(A) establishes that at any time during calendar
years 1998 through 2001, there will be no limit on the number of
elections or changes that an M+C eligible individual can make.
Section (e)(2)(B) establishes the first six months of 2002,
(January through June) as the open enrollment period for that year. An
M+C eligible individual may elect an M+C plan or change his or her
election, but only once during the first six months of the calendar
year.
Section (e)(2)(C) establishes the first three months of each year
(January through March) beginning 2003, as the open enrollment period.
An M+C eligible individual may elect an M+C plan or change his or her
election, but only once during the first three months of the calendar
year.
Section 1851(e)(2)(B)(i) allows that an individual who becomes an
M+C eligible individual in 2002 and elects an M+C plan or original
Medicare, to change that election once during the first 6 months of M+C
eligibility in 2002. Beginning in the year 2003 and thereafter, a newly
eligible individual who has made an election may change that election
once during the first 3 months of M+C eligibility in that year.
Consequently, those who become M+C eligible individuals late during the
year may not have a full 6-month or 3-month open enrollment period. For
example, an individual who becomes eligible in August 2002 has an open
enrollment period of 5 months, August through December. The sixth
month, January, does not occur during 2002 and cannot qualify as part
of the open enrollment period.
The limit to one change during the open enrollment periods in the
first six months of 2002 and the first three months of subsequent years
does not apply to changes in elections that an individual makes during
an annual coordinated election period or during a special election
period.
In Sec. 422.62, paragraphs (a)(4)(ii) and (5)(ii), we have
interpreted the 6 and 3 month periods ``in which the individual is an
M+C eligible individual'' in section 1851, paragraphs (e)(2)(B)(i) and
(e)(2)(C)(i), as the periods that begin with the month the individual
is first ``entitled to both Part A and Part B.'' The statute defines
``eligible for Medicare+Choice'' as eligible for Part A and enrolled in
Part B, a definition that we have reflected in Sec. 422.50(a)(1);
however, this definition could cause problems for newly eligible
individuals during the open enrollment period.
For example, individuals who are newly eligible for M+C in the year
2002 under section 1851(e)(2)(B) will have 6 months, beginning with
their eligibility for M+C, to change their election. If we start
counting this period from the time individuals enroll in Part B, some
will have little or no opportunity to change. Some of these individuals
may not actually be entitled to receive benefits for a delayed period,
which can be up to 6 months after they have enrolled if they have
enrolled during a general election period. Hence, the opportunity to
change could have no meaning, with the open enrollment period expiring
before the individuals have actually received any M+C coverage.
d. Special Election Periods. Section 1851(e)(4) establishes special
election periods beginning in 2002, during which M+C eligible
individuals may disenroll from an M+C plan or elect another M+C plan.
Special election periods are available if: (1) The service area or
continuation area is reduced or the plan terminates or is terminated in
the area in which the individual resides; (2) the individual moves out
of the plan's service area and the plan does not offer, or the
individual does not elect, the continuation of enrollment feature, or
there is some other change of circumstances specified by HCFA; (3) the
individual demonstrates to HCFA, in accordance with guidelines
established by HCFA, that the M+C organization offering the plan
substantially violated a material provision of its contract with regard
to the individual or the organization, its agent, representative, or
plan provider materially misrepresented the plan's provisions in
marketing the plan to the individual; or (4) the individual meets such
other exceptional conditions specified by HCFA.
The last paragraph in section 1851(e)(4) provides that, effective
January 1, 2002, an individual who, upon first becoming eligible for
benefits under Part A at age 65, enrolls in an M+C plan (other than an
M+C MSA plan), may discontinue the election and elect original Medicare
at any time during the 12 month period beginning on the effective date
of the M+C election. We have interpreted this provision to apply to
individuals who elect an M+C plan (other than an M+C MSA plan) during
the initial enrollment period, as defined under section 1837(d), that
surrounds their 65th birthday. This period begins 3 months before and
ends 3 months after the month of an individual's 65th birthday. We
believe that this interpretation fulfills the intention of the statute,
which is to provide this special election period to individuals who,
upon turning 65 and first becoming entitled to Medicare, elect an M+C
plan. Our interpretation takes into account the fact that many, if not
most, individuals will be making an election during an initial
enrollment period, rather than during the month that they turn 65.
e. Special Enrollment and Disenrollment Rules for M+C MSA Plans.
Section 1851(e)(5) establishes special rules for individuals enrolling
in M+C MSAs. M+C eligible individuals may elect the M+C MSA option only
during an initial coverage election period or during November of any
year, beginning in 1998. M+C MSA enrollees may discontinue their
election only during November of 1998, during annual coordinated
election periods in November of each subsequent year, and during
special election periods described in the first sentence of section
1851(e)(4). Individuals who elect an M+C MSA for the first time during
the annual coordinated election periods that begin in November of 1999
may revoke their election if they do so before December 15 of the year
in which they make the election, i.e., before the M+C MSA coverage
begins. M+C MSA plans are described in detail at the end of this
preamble.
7. Information about the M+C Program (Sec. 422.64)
Once these regulations are effective and M+C plans are approved by
HCFA, eligible Medicare beneficiaries will be able to choose to receive
their Medicare benefits from a new array of health care options. New
options will include coordinated care plans such as Health Maintenance
Organizations, Preferred Provider Organizations, Provider Sponsored
Organizations, as well as Private Fee for Service Plans and Medical
Savings Accounts. Medicare beneficiaries will still be able to choose
to remain in original Medicare. These choices are designed to offer
Medicare beneficiaries a marketplace of options
[[Page 34981]]
similar to those available to the non-Medicare population.
Under section 1851(d)(2), the Secretary is obligated to mail an
``open season notification'' at least 15 days before the beginning of
each annual coordinated election period to each M+C eligible individual
residing in an area and, to the extent practicable, to a newly eligible
individual not later than 30 days before the individual's initial
coverage election period. The notice must include certain general
information listed in section 1851(d)(3) and a list of plans and
certain plan comparisons as described in section 1851(d)(4). Section
1851(d)(1) requires that HCFA provide for activities to broadly
disseminate information to beneficiaries and prospective beneficiaries
on their coverage options under M+C, and section 1851(d)(5) requires
HCFA to maintain a toll-free line for M+C inquiries and an Internet
site through which individuals can obtain electronic information.
To promote informed choice, HCFA will provide access, via the
Internet and through distribution of print materials, to information
about original Medicare and M+C options. In accordance with section
1851(d)(3) and reflected in Sec. 422.64(c), HCFA will provide general
information to M+C eligible individuals with respect to benefits
available under Part A and Part B of original Medicare, including
covered services, beneficiary cost-sharing, such as deductibles,
coinsurance, and copayment amounts, including any beneficiary liability
for balanced billing. Such general information will also include
instructions on how to exercise election options under M+C; procedural
rights including the grievance and appeals procedures for original
Medicare and M+C and the individual's right to be protected against
discrimination based on health status related factors under section
1852(b), including the fact that an M+C organization may terminate its
contract, refuse to renew its contract, or reduce the service area
included in its contract and the effect this may have on the
individuals enrolled in the M+C plan. Finally, a general description of
the benefits, enrollment rights, and other requirements applicable to
Medicare supplemental policies under section 1882, including Medicare
Select, will be included.
Under section 1851(d)(4) and reflected in Sec. 422.64(c)(6), HCFA
will also provide information to M+C eligible individuals comparing M+C
plan options, including the benefits covered under the M+C plan;
covered services beyond those provided under original Medicare; and
beneficiary cost-sharing including maximum limitations on out-of-pocket
expenses and, in the case of an MSA plan or M+C private fee-for-service
plan, differences in cost-sharing, premiums, and balance billing as
compared to other M+C plans and whether the organization offering the
plan includes mandatory supplemental benefits in addition to its base
benefit package or offers optional supplemental benefits and the
premiums and other terms and conditions for such coverage. The M+C
monthly basic beneficiary premium and M+C monthly supplemental
beneficiary premium, if any for the plan or, in the case of an MSA
plan, the M+C monthly MSA premium, will also be included. M+C eligible
individuals will also be informed about the extent to which they may
obtain benefits through out-of-network health care providers; the
extent to which they may select among health care providers and the
types of providers participating in the plan's network. M+C eligible
individuals will be informed of the M+C organization's coverage of
emergency and urgently needed care, service area of the plan, and, to
the extent available, M+C plan quality and performance indicators.
The information comparing plan options is crucial to empowering
beneficiaries with the knowledge that will help them evaluate M+C
options and make informed decisions based on their individual needs. We
wish to make clear that our provision of comparative data is intended
neither to encourage or discourage beneficiaries from choosing one
health care plan over another nor to favor a choice of an M+C plan over
original Medicare.
We invite the public to comment or to provide specific guidance on
the types of information that should be made available to
beneficiaries. Once we have worked out what specific information we
will require within the above categories, we will post these at our
Internet site.
The Internet site, www.Medicare.gov, is a Medicare beneficiary-
centered consumer website designed to provide a broad array of
information on program benefits, health system performance, health care
choices, healthy behaviors and health promotion. This site will be
continuously improved to meet the mandate in section 1851(d)(2)(C) that
we provide information in a style and format that is easy to
understand. If necessary, we will publish regulations and allow for OMB
review, pursuant to the requirements of the Paperwork Reduction Act of
1995.
HCFA's ``Medicare Compare,'' the Managed Care Plans Comparison
Database, will be available on the Internet for public use. ``Medicare
Compare'' provides a wealth of information on health care plans,
allowing users to ``comparison shop'' for plans. Users can look up
information in different areas, by state, county or zip code. They can
also compare costs for premiums and types of services offered. The
information in the database will be updated quarterly. Plan specific
quality performance measures from the HEDIS information set and the
Consumer Assessment of Health Plans Survey (CAHPS) will be incorporated
into information provided to beneficiaries once the data and results
have been validated and determined to be accurate and reliable. HCFA is
committed to using a public process to determine information and data
specifications, including the details of what information will need to
be collected and the methods of collection to determine the remaining
unspecified data elements that organizations are required to submit.
HCFA will work collaboratively with organizations involved with quality
and performance standards and measurements, including performance
measurement experts, public and private purchasers, and beneficiary
representatives in this process. In addition, HCFA will hold public
meetings to invite interested parties to comment and provide input in
the process of determining the data specifications for additional
performance information, e.g., data about appeals or health outcome
measures. Finally, HCFA will publish a notice regarding plan data
elements to be collected and a summary of public processes used to
determine the data elements in question and this document would be
available at the discretion of the requestor. Educational information
will be made available on the Internet site to prepare consumers on how
to use this information when comparing plans and in making decisions
about their health care.
In support of efforts to promote informed choice, HCFA will also
maintain a toll-free line for M+C information.
Under section 1851(e)(3)(D), we are required to provide in the fall
of 1998 for a ``Special Information Campaign'' in the form of an
educational and publicity campaign that informs M+C eligible
individuals about the availability of M+C plans offered in different
areas, and about the election process. Section 1851(e)(3)(C) requires
that we provide for a nationally coordinated educational and publicity
campaign about M+C plans and the election process in November of each
year, beginning in 1999. We may conduct these campaigns
[[Page 34982]]
using health fairs, as well as other methods for distributing
information.
8. Coordination of Enrollment and Disenrollment Through M+C
Organizations (Sec. 422.66)
a. Enrollment. Section 1851 (c)(1) and (c)(2) provide that
individuals who wish to elect an M+C plan may do so through filing an
appropriate election form with the organization during an election
period specified in section 1851(e), and reflected in Sec. 422.62.
Section 1851(c)(1) requires that the Secretary establish a process
through which elections in M+C plans are made. Therefore, we reserve
the right to develop and provide additional mechanisms for electing an
M+C plan. We have provided instructions on how M+C organizations must
process elections at Sec. 422.60(e). If necessary, we will publish
regulations and allow for OMB review, pursuant to the requirements of
the Paperwork Reduction Act of 1995.
b. Disenrollment. Section 1876 background: Under section
1876(c)(3)(B), which covers disenrollment from HMOs and CMPs, a
Medicare beneficiary can disenroll from an HMO or CMP at any time.
Under the HMO and CMP regulations in Sec. 417.461(a), an enrollee who
wishes to disenroll may, at any time, give the organization a signed,
dated request in the form and manner we specify. The beneficiary can
request a certain disenrollment date, but it can be no earlier than the
first day of the month following the month in which the organization
receives the disenrollment request. Under section 9312(h) of the
Omnibus Budget Reconciliation Act of 1986, Medicare beneficiaries are
also permitted to disenroll from an eligible organization under Section
1876 at a local Social Security office.
Section 417.461(b) describes the responsibility of the HMO or CMP
to promptly submit a disenrollment notice to HCFA and provide the
enrollee with a copy of the request for disenrollment and, in the case
of a risk HMO or CMP, an explanation of the date of disenrollment.
Section 417.461(c) provides that HMOs and CMPs must reimburse HCFA in
cases where a disenrollment notice is not submitted timely to HCFA.
Currently, when an individual enrolls in one HMO or CMP while still
enrolled in another, we regard this action as a disenrollment from the
first HMO or CMP, and automatically amend our enrollment records to
reflect the disenrollment. We do this so that the beneficiary does not
have to both submit a disenrollment request to the first HMO or CMP,
and an enrollment request to the new HMO or CMP.
To reflect these current policies, Sec. 422.66(b)(1) provides that
an individual who wishes to disenroll may change his or her election in
the following manner: (i) Elect a different M+C plan during an election
period specified in Sec. 422.62 or (ii) submit a signed and dated
request for disenrollment to the M+C organization during an election
period specified in Sec. 422.62. HCFA also reserves the right to
develop and provide additional mechanisms for disenrollments in
accordance with section 1851(c). Note that the Medigap implications of
a change of election to original Medicare are discussed at section
II.B.12 (Extended Period of Guaranteed Access to Medigap Plans) of this
preamble.
At Sec. 422.66(b)(2) we specify that a disenrollment request is
considered to have been made on the date it is received by the M+C
organization. Note that HCFA's liability for payment ends not on the
date the disenrollment request is received by the M+C organization, but
rather, as of the date of disenrollment. The date of disenrollment is
determined at Sec. 422.68 for changes made by enrollees during coverage
election periods and at Sec. 422.74 for disenrollments made by M+C
organizations.
At Sec. 422.66(b)(3) and (4) we are continuing the Sec. 417.461(b)
and (c) requirements for M+C organizations to provide timely notice of
disenrollment to HCFA and to provide the enrollee with a copy of the
disenrollment request with information on the date of disenrollment and
any lock-in requirements of the plan that apply until the effective
date of disenrollment. We also state that disenrollment requests must
be filed and retained as specified in HCFA instructions.
The regulation also provides that if the M+C organization fails to
submit a correct and complete disenrollment notice to us promptly, the
M+C organization must reimburse us for any capitation payments it has
received after the month in which we would have stopped payment, had
the M+C organization met the requirement.
c. Retroactive Disenrollment. Section 1876 background: In the case
of section 1876 contractors, HCFA has permitted beneficiaries to be
retroactively disenrolled from an HMO or CMP if it determines that
there never was a legally valid enrollment, or a valid request for
disenrollment was properly made but not processed or acted upon.
In the M+C program, HCFA will continue to consider retroactive
disenrollments in cases in which we determine that there never was a
legally valid enrollment, or a valid request for disenrollment was made
but not processed or acted upon. We have reflected this provision in
Sec. 422.66(b)(5).
d. Fee-for-Service Election by Default. Section 1851(c)(3)(A)(i)
establishes that newly eligible enrollees who do not choose an M+C plan
during the initial coverage election period are deemed to have chosen
original Medicare. We have reflected this provision in Sec. 422.66(c).
e. Seamless Continuation of Coverage (Conversions). Section 1876
background: In regulations at Sec. 417.432, an HMO/CMP is required to
accept any individual who was already enrolled in the HMO/CMP for the
month immediately prior to the month in which he or she was entitled to
both Part A and Part B, or entitled to Part B only. HCFA refers to such
enrollments as ``conversions'' or ``age-ins.'' The individual's
effective month of enrollment in the HMO or CMP as a Medicare enrollee
is effective the month in which he or she is entitled to both Medicare
Parts A and B, or Part B only.
With the enactment of BBA, a new section 1851(c)(3)(A)(ii) is added
to the statute that gives the Secretary discretion to establish
procedures under which individuals who are enrolled in a health plan
offered by an M+C organization at the time of their initial coverage
election periods will ``default'' to or be deemed to have elected an
M+C plan offered by the M+C organization, unless these individuals
elect a different option. We have chosen not to have individuals
default to the M+C plan offered by the organization. At this time we do
not have a mechanism in place to capture the information we would need
to implement such a process. A default process would require that M+C
eligible individuals as well as their relevant health plan information
be identified and captured prior to the individual's initial coverage
election period. At present, we do not have access to information on
which health plans individuals are enrolled in because such plans are
private health plans. In addition, we are not given any information if
individuals have not previously filed for title II (Social Security)
and/or title XVIII (Medicare) benefits.
One option that we may consider would be to specify that M+C
organizations which have individuals enrolled in private health plans
must notify such individuals 4 months preceding the month in which the
individual becomes an M+C eligible individual of their opportunity to
``age-in'' to the M+C plan or to select another option. This would give
the individual
[[Page 34983]]
the opportunity to select from a range of health care options in a
manner that would facilitate seamless continuation of coverage. M+C
organizations would be required to transmit to us the necessary plan
information for those individuals who are interested in exercising
their opportunity to ``age-in''. HCFA would then have the information
necessary to ``deem'' or ``default'' M+C eligible individuals into the
appropriate M+C plan. We request public comments on this issue and will
issue further clarification in the final rule. In the interim, we have
retained the conversion of enrollment process described in Sec. 417.432
with conforming changes.
In Sec. 422.66(d) we specify that M+C plans must accept any
individual who is enrolled in a health plan (other than an M+C plan)
offered by the same M+C organization, during the month immediately
preceding the month in which the individual is entitled to both Part A
and Part B. Conversion may occur if the individual resides in the
service area or continuation area of the plan and regardless of whether
an individual has ESRD. We limit conversions to individual in a service
area and continuation area in order to ensure that enrollees have
access to the full range of services offered by the plan. This policy
is also reflected in the section describing eligibility to elect a plan
(Sec. 422.50(a)(2) and (a)(3)). Therefore, an M+C organization's
obligation to accept current enrollees extends to enrollees in a
service area or a continuation area, or who developed ESRD while
enrolled with the organization under a private health plan. Converted
beneficiaries who reside out of the plan's service area or who have
ESRD cannot, however, later elect to enroll in a plan offered by
another M+C organization unless they meet the statutory requirements at
sections 1851(b)(1)(A) and 1851(a)(e)(B).
In addition, we allow M+C organizations to reserve vacancies for
their plans to accommodate conversions in recognition that M+C
organizations must accept conversions. We require the individual who is
converting to file an election form in accordance with
Sec. 422.60(c)(1). We also stipulate that the M+C organization may not
disenroll the individual except under the conditions described in
Sec. 422.74.
f. Maintenance of Enrollment. The statute provides at section
1851(c)(3)(B) that an individual who has made an election or is deemed
to have made an election is considered to have continued to make that
election until the individual changes it or the M+C plan is
discontinued or no longer serves the area in which the individual
resides. We have stated this rule at Sec. 422.66(e).
9. Effective Dates of Coverage and Change of Coverage (Sec. 422.68)
Section 1851(f) establishes the effective dates for elections and
changes to elections made during the various enrollment periods. Note
that the Medigap implications of a change of election to original
Medicare are discussed at section II.B.12 (Extended Period of
Guaranteed Access to Medigap Plans) of this preamble.
Section 1851(f)(1) states that an election made during the initial
coverage election period will take effect on the date the individual
becomes entitled to Part A and enrolled under Part B, but gives the
Secretary discretion to interpret this provision in a manner,
consistent with section 1838, that prevents retroactive coverage. We
are interpreting ``enrolled in Part B'' as ``entitled to Part B'' in
order to avoid retroactive coverage in an M+C plan that an individual
might receive after enrolling in Part B but prior to the time the
individual is actually entitled to Part B benefits. Therefore, we have
established that an election made during the initial coverage election
period is effective the first day of the month of entitlement to both
Part A and Part B.
Under section 1851(f)(3), an election or change of election made
during an annual coordinated election period is effective the first day
of the following calendar year. We have reflected this provision in
Sec. 422.68(b).
Under section 1851(f)(2), an election or change of election made
during an open enrollment period is effective the first day of the
first calendar month following the month in which the election is made.
We have reflected this provision in Sec. 422.68(c).
Under section 1851(f)(4), an election that occurs as the result of
a special election period is effective, to the extent practicable, in a
manner determined by HCFA to promote continuity of coverage. We have
reflected this provision in Sec. 422.68(d).
At Sec. 422.68(e) we are stating that an election of original
Medicare made during a special election period by an individual age 65
as provided at Sec. 422.62(c) is effective the first day of the first
calendar month following the month in which the election is made.
10. Disenrollment by the M+C Organization (Sec. 422.74)
Section 1851(g)(3) specifies that M+C organizations may only
disenroll individuals from an M+C plan for the following reasons: the
individual fails to pay any basic and supplemental premiums on a timely
basis; the individual engages in disruptive behavior; or the M+C
organization terminates its coverage of all M+C eligible individuals in
the area in which the individual resides.
In Sec. 422.74, we have set forth the conditions under which M+C
organizations can disenroll individuals. Section 1851(g)(3)(A) provides
that, except as provided in section 1851(g)(3)(B), ``a Medicare+Choice
organization may not for any reason terminate'' an individual's
enrollment in ``a Medicare+Choice plan it offers.'' [Emphasis added.]
We have included the three grounds for termination set forth in section
1851(g)(3)(B) in Sec. 422.74. With respect to the ground in section
1851(g)(3)(B)(ii), under which an enrollee can be disenrolled for
``disruptive behavior'' as specified in standards established in
regulations, we have implemented this ground for termination in two
separate provisions. First, under Sec. 422.74(b)(1)(ii), we refer to an
individual who meets general standards for disruptiveness set forth in
Sec. 422.74(d)(2). Section 422.74(d)(2) refers to behavior of an
individual that is ``disruptive, unruly, abusive, or uncooperative to
the extent that his or her continued enrollment * * * seriously impairs
the M+C organization's ability to furnish services. * * *'' We also
separately refer to a different kind of ``disruption'' or failure to
``cooperate''; namely, fraud or abuse of the enrollee's enrollment
card. This ground for termination is also based on section
1851(g)(3)(B)(ii), and standards for disenrollment on this basis are
also included in Sec. 422.74(d), in a separate paragraph (3).
In addition to implementing the grounds in section 1851(g)(3)(B),
we also provide in Sec. 422.74 for the termination of individuals who
are no longer eligible for enrollment in the M+C plan, because they
have left the area, lost entitlement to Medicare, or died. We believe
that the prohibition in section 1851(g)(3)(A) on terminating an
enrollee on grounds other than those set forth in paragraph (B) applies
only to individuals who are otherwise eligible for enrollment in the
plan. Clearly, if an individual does not meet the threshold
requirements for eligibility, disenrollment is not only permissible but
required.
We have established specific guidelines in Sec. 422.74(d)(1) that
the M+C organization must follow when disenrollment is based on failure
to pay basic and supplemental premiums, including the requirement to
send a notice of nonpayment within 20 days after the date that
delinquent charges
[[Page 34984]]
are due. The notice must alert the individual that he or she is
delinquent on a premium payment, provide the individual with an
explanation of the disenrollment procedures and any lock-in provisions
of the plan, and advise the individual that failure to pay the premiums
within the 90-day grace period will result in termination of M+C
coverage.
Note that in the section 1876 program, disenrollment for non-
payment of premiums is treated differently. At Sec. 417.460(c)(2), if a
beneficiary pays the basic premium and other charges, but fails to pay
the premium for optional supplemental benefits, the organization can
discontinue the optional benefits, but cannot disenroll the
beneficiary. However, under section 1851(g)(3)(B)(i), an M+C
organization may terminate an election of a plan if any M+C monthly
basic and supplemental beneficiary premiums are not paid on a timely
basis.
We have retained the current processes described in Sec. 417.460
for disenrollment for disruptive behavior and fraud and abuse. In the
case of disenrollment for disruptive behavior, the M+C organization
must ascertain that the individual's behavior is not related to the use
of medical services or to diminished mental capacity. If an individual
is disenrolled for disruptive behavior, HCFA will review the
documentation submitted by the M+C organization and the beneficiary to
determine whether the disenrollment requirements have been met.
We have included a qualifier for disenrollment when the individual
no longer resides in the M+C plan's service area to conform to section
1851(b)(1)(B), which permits plans to offer a continuation of
enrollment feature if the individual moves out of the service area. We
have modified the existing regulatory text at Sec. 417.460(h) which
requires disenrollment when the individual loses entitlement to Part B
benefits, to require disenrollment when an individual loses entitlement
to Part A or Part B benefits. We have also addressed the process for
disenrollment for plan termination or area reduction.
For all disenrollment situations, except those due to the death of
the individual or loss of Part A or Part B benefits, we require M+C
organizations to provide the individual with a written notice of the
disenrollment that includes an explanation of why the M+C organization
is planning to disenroll the individual and a description of the
individual's right to a hearing under the M+C organization's grievance
procedures.
The statute provides at section 1851(g)(3)(C) that individuals who
are disenrolled from an M+C plan due to disruptive behavior or failure
to pay basic or supplementary premiums will be deemed to have elected
original Medicare. We have treated fraud and abuse by the enrollee in
the same manner as other forms of disruptive behavior, with the
individual being disenrolled into the original Medicare program. We
believe that the result should be comparable because, in both cases,
the individual's disruptive behavior has given the organization cause
for the disenrollment. Individuals who lose entitlement to Part A or
Part B benefits default to original Medicare because they no longer
meet the requirements to receive Medicare benefits through an M+C plan,
which requires entitlement to Part A and enrollment in Part B.
As previously discussed, special election periods are available to
individuals who are disenrolled (or who disenroll) because of plan
termination or service area or continuation area reduction or because
they no longer reside in the M+C plan's service area or continuation
area. Section 1851(g)(3)(C)(ii), however, stipulates that individuals
who are disenrolled and who do not make an election during the special
election period are deemed to have elected original Medicare.
11. Approval of Marketing Materials and Application Forms (Sec. 422.80)
Section 1851(h) contains requirements related to marketing by M+C
organizations. These provisions are implemented in Sec. 422.80. Section
422.80(a) implements the requirement in section 1851(h)(1) that all
marketing material and application forms be submitted to HCFA for
approval 45 days before distribution, and that such materials may only
be used if HCFA does not disapprove such use by the end of this 45 day
period. In section 422.80(b), we define ``marketing materials'' which
must be submitted for approval under Sec. 422.80(a).
Section 1851(h)(2) requires that M+C standards under section 1856
include guidelines for review of marketing materials under section
1851(h)(1) and Sec. 422.80(a). Section 422.80(c) contains guidelines
for HCFA's review of marketing materials under Sec. 422.80(a). As
provided for in section 1852(b)(2), these guidelines include existing
marketing guidelines for HMOs and CMPs in Sec. 417.428, which have been
in effect since the inception of the existing Medicare risk contracting
program.
Section 1851(h)(3) provides that, if HCFA has not disapproved the
distribution of marketing materials or forms with respect to an M+C
plan in an area, HCFA is deemed not to have disapproved the
distribution in all other areas covered by the M+C plan and
organization except with regard to any portion of the material or form
that is specific to the particular area. This ``deemed approval,'' or
``1 stop-shopping,'' provision is included in the statute to address
the needs of M+C organizations that operate in multiple states and
within multiple HCFA Regional Office (RO) regulatory districts. Under
the section 1876 program, a marketing piece submitted for HCFA review
in multiple ROs was often susceptible to different regulatory
interpretations by different RO staff; this occurrence could result in
approval by one RO and a request for revisions by another RO. This
phenomenon was primarily the result of RO staffs working within the
environment of either an ``emerging'' market area or a ``mature'' area.
The speed of review and approval of marketing materials should be
enhanced by implementation of this statutory requirement.
Section 1851(h)(4) provides that M+C organizations shall conform to
``fair marketing standards'' included in the ``standards under section
1856,'' and requires that these standards prohibit an organization from
providing cash or other monetery inducements for enrollment. Standards
under section 1854(h)(4) are set forth in Sec. 422.80(e). Again, as
provided in section 1856(b)(2), these standards include existing
section 1876 standards.
Section 1851(h)(4)(B) indicates that the fair marketing standards
``may include a prohibition against an M+C organization (or agent of
such an organization) completing any portion of any election form used
to carry out elections under this section on behalf of any
individual.'' However, we have decided at this time not to prohibit an
M+C organization (or agent of such an organization) from assisting
beneficiaries in completing the election form. We recognize and
understand that we must provide accommodations for persons with
disabilities and for situations in which such a prohibition could
represent a potential physical burden to beneficiaries. However, in
general, we believe that it is good practice that the M+C eligible
individual should complete and sign the election form. Currently, we
have no way to check for any plan impropriety, especially in situations
where beneficiaries require help in completing the enrollment form,
except beneficiary allegations and requests for disenrollment. While we
cannot
[[Page 34985]]
quantify the amount of inappropriate behavior, we know that some plans
have completed election forms for beneficiaries fraudulently or have
convinced beneficiaries to sign forms without explaining to them the
contents and telling them the form is for enrollment (U.S. General
Accounting Office report: ``HCFA Should Release Data To Aid Consumers,
Prompt Better HMO Performance'', HS-97-23, October 1996.) Therefore, we
request public comment on this issue and will provide further guidance
in the final rule.
In the interim, we are providing at Sec. 422.60(c) that persons who
assist beneficiaries in completing forms should sign the form and
indicate their relationship to the beneficiary. In addition, we
encourage M+C organizations to use neutral parties such as family
members, ombudsmen or counseling programs for those individuals who
require assistance in completing forms.
Finally, in Sec. 422.80(f), we specify that HCFA may permit M+C
organizations to develop marketing materials designed for members of an
employer group who are eligible for employer-sponsored benefits through
the M+C organization, and to furnish these materials only to such group
members. While such materials must be submitted for approval under
paragraph (a), HCFA will only review portions of these materials that
relate to M+C plan benefits.
12. Medigap
Prior to the enactment of the BBA, Federal law provided only one
opportunity for a Medicare beneficiary to purchase a Medicare
supplement (Medigap) policy on a ``guaranteed issue'' basis. (Generally
this means that the insurance company cannot deny the application, or
charge extra, based on the individual's health experience.) This
opportunity was during the 6-month period beginning with the date a
beneficiary is both age 65 or over, and enrolled in Medicare Part B.
Amendments made by the BBA now specify additional situations in which
beneficiaries will, after July 1, 1998, be guaranteed access to certain
types of Medigap policies on a guaranteed issue basis if they apply
within 63 days after losing other coverage, and submit evidence of the
date the prior coverage terminated. The law also requires the entity
that provided the prior coverage to notify beneficiaries of these
rights.
Therefore, while this regulation does not implement the Medigap
provisions of the BBA, it is important to be aware of the implications
for M+C organizations, since some of the situations covered by the
Medigap provisions involve beneficiaries who leave M+C plans and return
to original Medicare. The situations that will give rise to the
obligation to notify the beneficiary will include, for example,
termination of coverage by an M+C plan, or loss of coverage under an
M+C plan due to a change in the individual's place of residence. The
beneficiary also will have the right to guaranteed issue of a Medigap
policy if he or she either enrolls in an M+C plan upon first becoming
eligible for Medicare at age 65, or enrolls after previously being
covered under a Medigap policy, and later disenrolls from the M+C plan
within 12 months of the effective date of the M+C enrollment.
Because the Medigap provisions establish specific time deadlines
for beneficiaries who wish to take advantage of these new rights,
prompt action by M+C organizations to notify beneficiaries of their
rights, and by HCFA to provide accurate evidence of recently terminated
coverage, will be essential. CFA is committed to providing
beneficiaries whose M+C coverage terminates under the specified
circumstances with timely and accurate evidence of the recently
terminated coverage. There are a number of ways in which we are
considering providing the necessary evidence, including enabling
Medigap insurers to query HCFA systems, if privacy and security issues
can be resolved. HCFA is seeking comments on the most effective way to
coordinate with Medigap insurers in order to protect beneficiaries'
rights under the statute, and promote continuity of care.
We also urge M+C organizations to keep in mind that they will be
obligated to notify beneficiaries whose coverage terminates of their
rights under the Medigap provisions. Those provisions are complex--only
certain beneficiaries will be entitled to guaranteed issue of Medigap
policies, and their choice of policies will depend on the precise
reason for termination of their coverage under the M+C plan. Further
guidance is available from the National Association of Insurance
Commissioners (NAIC), which on April 29, 1998 issued a revised Model
regulation that incorporated the Medigap changes made by the BBA.
C. Benefits and Beneficiary Protections
1. General Requirements (Sec. 422.100)
Subpart C of these regulations details the scope of benefits a
Medicare beneficiary is entitled to receive when electing coverage
through an M+C plan. The statutory authority for most of the provisions
of subpart C is found in section 1852, which outlines benefit
requirements and provides authority for beneficiary protections under
Medicare Part C. Many of the statutory provisions are the same as, or
similar to, benefit provisions of section 1876. Therefore, much of the
regulatory language of part 417 is retained for purposes of
establishing M+C standards, as provided for in section 1856(b)(2)
(which directs that the M+C standards be based on the analogous
standards established under section 1876).
A principal difference between section 1876 provisions and the
newly enacted law is that the new law permits a wider range of types of
entities to assume risk for the coverage of benefits for Medicare
enrollees. Section 1876 limited the Medicare contract option to
organizations that operated as entities accepting full-risk, prepaid
capitation for the provision of a comprehensive range of services and
defined ``eligible organizations'' as a Federally qualified HMO (under
title XIII of the Public Health Service Act) or a competitive medical
plan (CMP). Except in a very few instances where waivers were granted
during years when such waivers were authorized, the organizations had
to offer such a product in the commercial marketplace in order to have
a Medicare contract. From the point of view of benefit requirements
imposed on plans, the new types of network plans are subject to the
same benefit requirements applicable to organizations that would have
met the definition of ``eligible organization'' under section 1876
(HMOs and CMPs). The requirements under the new law for network plans
are in many cases identical to the requirements under section 1876.
While adding PPOs, indemnity insurers, and provider-sponsored
organizations to the range of entities eligible for Medicare contracts,
the BBA also permits non-network plans, such as private fee-for-service
plans and M+C non-network MSA plans, to assume prepaid, capitated risk
for services used by enrollees of these organizations. Medicare
beneficiaries who elect these plans are not subject to the same
constraints in use of providers that exist in network plans. Therefore,
the benefit requirements applicable to these plans, and cost-sharing
requirements, may be very different from those that apply to network
plans. This section of the preamble mainly discusses the requirements
for network plans. Sections III and IV of the preamble provide more
extensive information about benefit requirements applicable to non-
network M+C MSA plans and to
[[Page 34986]]
private fee-for-service plans, respectively.
All M+C organizations are required to cover the full range of
Medicare benefits that enrollees would otherwise have been able to
receive under original Medicare, subject to certain rules regarding
available networks of providers. M+C organizations are further required
to cover Medicare preventive benefits with the same frequency that they
are covered under original Medicare (e.g., annual screening mammography
examinations). Beneficiaries may be required to contribute to the cost
of covered services in the form of cost-sharing provided for under the
M+C plan. Beneficiaries may have to cover all costs until a deductible
is met (including the high deductible provided for under an MSA plan
(see section III of this preamble)), a percentage of costs in the form
of coinsurance, or a fixed amount for services, in the form of a
copayment. As discussed in subpart G below, there are limits that apply
to the cost-sharing that can be imposed on beneficiaries under M+C
plans. For benefits that are covered under original Medicare, the
benefits must be obtained through providers meeting the conditions of
participation of the Medicare program.
Organizations with network plans, which include coordinated care
plans and network M+C MSA plans, are required to provide these services
directly or through arrangements (i.e., written agreements with
providers) in order to meet the availability and accessibility
requirements of section 1852(d)(1) and Sec. 422.112, discussed below.
In some situations, an M+C organization, for its network plan or
plans, may be required to assume liability for services provided to
Medicare enrollees through noncontracting providers. Under
Sec. 422.100(b), the organization is required to assume financial
responsibility for the following items and services obtained from a
provider that does not contract with the M+C organization:
<bullet> Emergency services as defined in Sec. 422.2;
<bullet> Urgently needed services as defined in Sec. 422.2;
<bullet> Renal dialysis services provided while the enrollee was
temporarily outside the M+C plan's service area;
<bullet> Post-stabilization care as described in
Sec. 422.100(b)(iv); and
<bullet> For both network and non-network plans, services denied by
the M+C organization and found upon appeal (under subpart M of this
part) to be services the enrollee was entitled to have furnished or
paid for by the M+C organization.
The requirements that the M+C organization assume financial
liability for renal dialysis services, and post-stabilization care are
new requirements introduced by the BBA that were not included in
section 1876 requirements. The BBA also revised the definition of
emergency services, as discussed elsewhere in the preamble.
``Post-stabilization care'' (also referred to in the Act as
``maintenance care'') means medically necessary, non-emergency services
needed to ensure that the enrollee remains stabilized from the time
that the treating hospital requests authorization from the M+C
organization until--
<bullet> The enrollee is discharged;
<bullet> A plan physician arrives and assumes responsibility for
the enrollee's care; or
<bullet> The treating physician and plan agree to another
arrangement.
Section 422.100(b)(1)(iv) provides that an M+C organization is
responsible for the cost of post-stabilization care provided outside
the plan if they were pre-approved, if they were not pre-approved
because the organization did not respond to the request by the provider
of post-stabilization care services for pre-approval within 1 hour
after the organization was asked to approve post-stabilization care, or
if the M+C organization could not be contacted for pre-approval. M+C
organization liability will extend until the organization has contacted
the hospital to arrange for discharge or transfer. These requirements
reflect comments we received on post-stabilization care in response to
the Federal Register notice of January 20, 1998. The majority of
commenters advocated that we establish a timeframe for an M+C
organization's response to a request for approval. Because we agree
that an untimely response to a request for approval would unduly delay
the delivery of the post-stabilization care services, thereby
compromising their effectiveness, we have established a 1-hour
timeframe in the regulation as an enrollee protection. Because a
completely accurate assessment of an enrollee's need for post-
stabilization care services cannot be made until the enrollee is
stabilized, we expect that the provider of the post-stabilization care
services will not request the M+C organization's approval of the
services until after the enrollee is stabilized, at which time enough
details about the enrollee's condition should be known to allow the
organization to make an informed decision on whether to approve the
care almost immediately. We welcome comments on this issue.
In the case of payments to noncontracting providers for covered
items and services, the M+C organization's obligation is met when it
provides for payment in an amount the provider would have received
under original Medicare (including payment from the organization and
beneficiary cost-sharing under the plan).
The benefits offered by an M+C plan may be divided into two major
components, ``basic benefits'' and ``supplemental benefits.'' Basic
benefits in an M+C plan include all Medicare-covered services (except
hospice) and additional benefits. Basic benefits are discussed below,
and special rules for M+C enrollees electing hospice are set forth in
Sec. 422.266 and discussed in section II.F.9. of this preamble.
Supplemental benefits include both mandatory and optional supplements,
which we also discuss below.
Section 1852(a)(1) stipulates that M+C organizations offering an
M+C plan (or plans) must offer it to all Medicare beneficiaries
eligible to elect the plan who reside in the service area of the M+C
plan at a uniform premium with uniform cost sharing. An organization
may offer more than one plan in the same service area. The premium and
cost-sharing may vary among plans within the same organization. We will
review each M+C plan offered by the same organization to ensure that it
is not designed to promote discrimination, discourage enrollment, steer
specific subsets of Medicare beneficiaries to particular M+C plans, or
inhibit access to services.
2. Requirements Relating to Basic Benefits (Sec. 422.101)
With the exception of special rules concerning hospice care and M+C
coverage that begins during an inpatient hospital stay (described in
Secs. 422.266 and 422.264, respectively), a Medicare enrollee is
entitled to have the M+C organization provide all Medicare-covered
services that are available in the geographic area in which services
are covered under the plan.
M+C organizations are required to provide their enrollees with
services covered under original Medicare and available to beneficiaries
residing in the geographic area in which services are covered under the
plan, as we provide at Sec. 422.101(a). Organizations must also abide
by our national coverage decisions, as well as specific written
policies of the Medicare carrier or intermediary with jurisdiction for
claims (if the encounter had occurred under original Medicare) in the
[[Page 34987]]
geographic area served by the plan. (These policies are sometimes
called ``local medical review determinations.'') In cases where
services are covered under the plan in an area that includes
jurisdictions of more than one contractor for original Medicare, and
the contractors have different medical review policies, the plan must
apply the medical review policies of the contractor in the area where
the beneficiary lives.
In addition, the organization is required to provide ``additional
benefits,'' which include health care services not covered by Medicare,
as well as reductions in premiums or cost sharing for covered services.
As discussed in section II.A of this preamble, we use the term ``basic
benefits'' to encompass all Medicare-covered benefits (except hospice
services) and additional benefits. These benefits are determined by our
approval of an M+C organization's Adjusted Community Rate (ACR)
proposal for a given M+C plan and must be provided uniformly to all
Medicare enrollees electing that plan. Additional benefits are
generated when the average payment rate for a plan exceeds the adjusted
community rate, thereby producing a surplus known as the ``excess
amount.'' (See section II.F of this preamble for a more thorough
discussion of the requirements that apply to additional benefits, which
are set forth under Sec. 422.312.)
In the case of an M+C private fee-for-service plan or a non-network
M+C MSA plan, the obligation to cover Medicare services is not limited
to services available in the plan's approved service area. Rather, in
this context, we interpret ``geographic area served by the plan'' in
section section 1852(a)(1)(A) to mean the area within which the M+C
private fee-for-service or non-network M+C MSA plan enrollee has the
right to receive covered services under the plan.
Under our authority in section 1856(b)(1) to establish standards
under the M+C program, Sec. 422.100(h) establishes special rules for
influenza vaccine, pneumococcal vaccine, and screening mammography.
Section 422.100(h)(2) prohibits enrollee cost-sharing for influenza
vaccine and pneumococcal vaccine. Under original Medicare, there is no
cost-sharing imposed on these items, and we believe congressional
intent is for Medicare beneficiaries to have maximum possible access to
both vaccines. We note that original Medicare provides for beneficiary
payment of coinsurance for mammography screening; therefore, a plan may
also impose copayment or coinsurance for this service.
Also note that beneficiaries under original Medicare may ``self-
refer'' and directly access screening mammography and influenza
vaccine. We have established a similar standard in Sec. 422.100(h)(1)
for M+C enrollees.
3. Supplemental Benefits (Sec. 422.102)
Section 1852(a)(3) provides for supplemental benefits. These
benefits are health care items and services beyond the basic benefits
described above and are categorized as either mandatory or optional.
Mandatory supplemental benefits are benefits not included in basic
benefits which must be purchased by all beneficiaries who enroll in the
M+C plan under which they are included. Mandatory supplemental benefits
may be offered under coordinated care plans and fee-for-service plans
only, and must be approved by HCFA. HCFA will approve such benefits
unless we determine that they would substantially discourage enrollment
in the plan. Specifically, we will determine whether the inclusion of
the mandatory supplemental benefits would discourage particular
subcategories of Medicare beneficiaries from enrolling (e.g., those
residing in certain parts of a plan service area). These benefits are
addressed in Sec. 422.102(a).
Section 1852(a)(3)(C) provides that nothing in paragraph (3) of
section 1852(a), addressing supplemental benefits, shall be construed
to prevent a fee-for-service plan from offering supplemental benefits
covering the balance billing permitted under section 1852(k)(2)(A)(i)
and Sec. 422.216(b)(1) and additional services. See discussion of M+C
private fee-for-service plans in section IV of this preamble. The only
provision in section 1852(a)(3) that could possibly be construed to
prevent a private fee-for-service plan from offering such benefits
would be the right of the Secretary, and of HCFA under these
regulations, to disapprove mandatory supplemental benefits. We
accordingly wish to make it clear that HCFA will not disapprove such
benefits in the case of a private fee-for-service plan. (As discussed
below in subpart G, HCFA does not have the right to review or approve
the amount that a private fee-for-service plan charges for supplemental
benefits.) We believe that the foregoing statement is sufficient to
give effect to section 1852(a)(3)(C).
Optional supplemental benefits are benefits beyond basic benefits
that may be purchased by an M+C plan enrollee at his or her option. If
a plan offer optional supplemental benefits, it must offer those
benefits to all enrollees in the M+C plan. While optional supplemental
benefits may be offered under all types of plans, in the case of MSA
plans, there are limits, discussed in section III of the preamble, on
the nature of optional supplemental benefits that can be offered.
Under mandatory supplemental benefits for coordinated care plans,
an M+C organization may require an enrollee who elects an M+C plan to
accept and pay for items and services beyond basic benefits if he or
she wants to enroll in a particular M+C plan. If an organization
requires supplemental benefits, it must do so uniformly for all
Medicare beneficiaries enrolled in that plan. As provided for at
section 1852(a)(3)(A), we will approve such offerings unless we
determine that would substantially discourage enrollment in the plan.
We will determine whether the mandatory supplemental benefits would
discourage subcategories of Medicare beneficiaries from enrolling
(e.g., those residing in certain parts of a plan's service area).
An organization may also offer optional supplemental benefits
within an M+C plan. In this case, the beneficiary is free to choose to
accept or decline the supplement. In the case of both mandatory and
optional supplemental benefits, the benefits are paid for by (or on
behalf of) the individual electing the M+C plan.
Sections 422.103 and 422.104, addressing benefits under MSA plans
generally, and optional supplemental benefits under an MSA plan, are
discussed in section III. below.
4. Special Rules for Point-of-Service (POS) Option (Sec. 422.105)
This section of the rule codifies our existing policy for point-of-
service plans. Because these policies have not previously appeared in
regulations, we welcome comments.
A POS benefit is an option that an M+C organization may offer
through an M+C coordinated care plan or network M+C MSA plan to provide
Medicare enrollees with additional choice in obtaining specified health
care items and services from entities that do not have a contract with
the M+C organization. A coordinated care plan may offer a POS option as
an additional benefit, a mandatory supplemental benefit, or an optional
supplemental benefit. A network MSA plan may only offer a POS option as
a supplemental benefit.
Under POS, the health plan generally provides partial reimbursement
to enrollees for items and services obtained from non-network
providers. The enrollee may be required to pay a premium for the
benefit unless the
[[Page 34988]]
benefit is offered as an additional benefit. The Act contains two
mentions of the term ``point of service'' as it relates to M+C plans.
Section 1851(a)(1)(A) states that an HMO may include a POS option, and
section 1852(c)(1)(C), requires disclosure to enrollees of ``any point-
of-service option (including the supplemental premium for such
option).'' Therefore, the Act indicates that HMOs could offer POS
products, and that there could be a supplemental enrollee premium for
such a product.
We currently permit HMOs and CMPs to offer POS products. There is
no specific statutory reference to such a product in section 1876; the
statutory basis for allowing Medicare HMOs to provide POS products lies
in the additional and supplemental benefit offerings an HMO may have
under section 1876. We believe that under the structure of the M+C
program, any coordinated care plan or network M+C MSA plan may offer a
POS product.
The regulations at Sec. 422.105 governing the POS benefit are
largely a restatement of our previously issued guidelines. In issuing
the guidelines, we were particularly concerned with assuring the
continued accessibility and availability of medically necessary care
within the Medicare plan's approved network. We also emphasized that
organizations are responsible for: members' continuity of care;
ensuring beneficiaries are fully informed about how the POS benefit
would be implemented; and the potential financial liability of the
individual. We also required organizations to provide data to us about
the POS benefit, including expenditures and levels of POS utilization,
and the effect on the financial status of the organization. Moreover,
the guidelines required the plans to maintain a record-keeping system
to make information on utilization of the POS benefit available to plan
providers. These previous operational policy requirements are carried
over into Sec. 422.105.
There are some changes in Sec. 422.105 to the guidelines we issued
under section 1876, however. One has to do with POS coverage available
for in-network items and services. Under the guidelines, we permitted
HMOs and CMPs to include network providers who could be paid through
the POS option. These regulations eliminate that option. Additionally,
under Sec. 422.105, we will now require plans to place a cap on a
beneficiary's total annual financial liability under a POS benefit. In
another change, we are eliminating separate solvency standards for POS
products. Each of these changes is discussed below.
Although HCFA guidelines did permit a Medicare beneficiary to use a
POS option to seek, for example, ``direct access'' to a specialist
within the plan's network, and thereby avoid any prior authorization
requirement or other plan rules relating to access to particular
providers, we believe such a feature of a POS option is inconsistent
with the concept of a network plan and not a desirable feature of a POS
option. The basic access and availability requirements both of sections
1876 and 1852(d) require that benefits be made available, through
providers selected by the M+C organization, in a manner that ensures
availability, accessibility and continuity of care. If the care an
individual seeks from a network provider is necessary care, the
individual should be able to obtain that care through the network,
following network rules. Although the enrollee might not receive
treatment from the particular provider he or she prefers, the
organization and its contractors are obligated to make covered services
available to all enrollees through network providers. We do not believe
it is appropriate to use the POS benefit to circumvent network rules.
In Sec. 422.105 we also specify that an M+C organization offering a
POS benefit establish an annual limit on a beneficiary's maximum
financial liability when using a POS benefit. We require a financial
limit to alert beneficiaries to their maximum potential financial
liability in using their POS benefit. We consider it a critical part of
beneficiary information that enrollees are clearly informed about all
of their potential costs when enrolling in an M+C plan.
Another change from existing policy in Sec. 422.105 is the
elimination of the additional solvency requirements that have been
imposed under the POS guidelines (though reporting requirements
relating to solvency remain). The Act gives the States primary
responsibility for setting and enforcing solvency standards for M+C
plans (other than a provider-sponsored organization with a waiver of
the State licensure requirement), and our imposition of additional
solvency requirements on POS products is inconsistent with the States'
responsibility. (In fact, because of solvency concerns, many States
require licensure as an indemnity insurer if an HMO wishes to offer a
POS product.) We will continue to require M+C organizations to comply
with this reporting requirement, as was the case with Medicare
contractors under section 1876. This reporting requirement is not
superseded by the Act's preemption provision relating to benefits in
section 1856(b)(3)(B).
5. Special Arrangements With Employer Groups (Sec. 422.106)
An M+C organization may negotiate with an employer group to provide
benefits to Medicare members of the employer group who are enrolled in
an M+C plan offered by the organization and these benefits must be
provided uniformly to members of the group. While these negotiated
employer group benefits may be designed to complement benefits
available to Medicare beneficiaries enrolled in the plan, they are
offered by the employer group independently as the product of private
negotiation. These benefits may include contributions on the employee
group member's behalf toward M+C plan premiums or cost-sharing for
which the Medicare eligible group member is responsible, or benefits
not covered by the M+C plan, for which premiums and cost-sharing may be
charged. We do not review such employer group benefits, premiums, or
cost-sharing amounts.
6. Medicare Secondary Payer (MSP) Procedures (Sec. 422.108)
As specified in section 1852(a)(4), if a Medicare enrollee receives
covered items and services from an M+C organization for which the
enrollee is entitled to benefits under a State or Federal workers'
compensation law or plan, any no-fault insurance, or any liability
insurance policy or plan (including a self-insured plan), the M+C
organization may charge the insurance carrier, employer or other entity
that is responsible to pay for the provision of those items and
services. The M+C organization may also charge the Medicare enrollee to
the extent that the enrollee has been paid by the carrier, employer, or
other entity for those items and services. In addition, an M+C
organization may charge a group health plan or large group health plan
for items and services for which Medicare is a secondary payor.
In this area, pursuant to section 1856(b) (1) and (2), we are
retaining for M+C organizations the requirements that applied to HMOs
and CMPs under part 417.
7. Effect of National Coverage Determinations (NCDs) (Sec. 422.109)
This provision implements section 1852(a)(5). Under this rule, M+C
organizations are not required to assume risk for the costs of certain
``significant cost'' NCDs until an adjustment has
[[Page 34989]]
been made in the per capita rate to reflect the NCD. A national
coverage determination is a national policy statement regarding the
coverage status of a specified service that HCFA makes as a program
memorandum or manual instruction. The term does not include coverage
changes mandated by statute. Past NCDs have included items such as
heart transplants.
On February 22, 1994 HCFA published a notice of proposed rule
making (NPRM) to define ``significant cost'' and other requirements for
NCDs as they applied to section 1876 risk contracting plans. With one
exception discussed below, we are including in this rule the policies
included in the February 22, 1994 proposed rule. For example, we have
maintained the definition of ``significant cost'' as $100,000 for a
single NCD service for calendar years 1998 and 1999. We are providing
for an automatic adjustment of a single service threshold amount to
reflect rising costs, and will adjust the dollar threshold by the
national per capita growth percentage used to calculate the annual
capitation rates to pay M+C organizations. We are also providing an
alternative definition for lower cost services that will affect a large
number of beneficiaries. For the cost of all of the services furnished
nationwide as a result of a particular NCD, we have redefined
significant cost as 0.1 percent of the national standardized annual
capitation rate (which is used in calculating the annual capitation
rates used to pay M+C organizations) multiplied by the total number of
Medicare beneficiaries nationwide for the applicable calendar year.
This rule also describes how the NCD will be provided to M+C plan
enrollees during the period the M+C organization is not at risk for the
new or expanded benefit established by the NCD, including procedures to
pay M+C organizations and the policies affecting beneficiary liability.
It is in this area that this rule differs from the February 22, 1994
proposed rule. That proposed rule reflected the NCD provision that
applied to HMOs with risk contracts under section 1876. There is one
key difference between the NCD provision in section 1876 and the NCD
provision under the new M+C. Like the new NCD provision in section
1852(a)(5), section 1876(c)(2)(B) provided that services required under
certain mid-year NCDs were excluded from risk contracts until the first
year in which payment for the services is reflected in capitation
payments. However, under Section 1876(a)(6), original Medicare coverage
of such NCD services was identified as an exception to the rule that
only the risk-contracting HMO could receive Medicare payment on behalf
of one of its enrollees. Therefore, an HMO enrollee was not required to
receive NCD services excluded from the HMO's contract through the HMO,
and could receive the services either from the HMO or from any other
Medicare provider, and Medicare would pay. This was reflected in the
February 2, 1994 proposed rule.
Under the M+C program, however, there is no similar exception for
excluded NCD services providing that only an M+C organization may be
paid by Medicare on behalf of an enrollee in an M+C plan offered by
that organization. We believe that this difference reflects Congress'
intent that beneficiaries be required to receive services through their
M+C organization, under the same rules that apply to any other non-
urgent and non-emergency services. Under the new NCD provision, only
the method that HCFA pays the organization for the services, and the
cost-sharing that applies to such services differs from other services.
If the excluded NCD services are received from, or through, the M+C
organization, the organization will be paid on a fee-for-service basis
for those services. If the services are not available from the plan,
the organization will pay the authorized provider after receiving fee-
for-service from the intermediaries or carriers.
Pursuant to our authority under section 1856(b)(1), we are
expressly requiring that the M+C organization provide the NCD services
in question on a fee-for-service basis.
8. Discrimination Against Beneficiaries Prohibited (Sec. 422.110)
The current rule reflects section 1852(b), and the details provided
in Sec. 422.110 are consistent with existing policy and regulation. In
general, M+C organizations may not discriminate among Medicare
beneficiaries based on health-related factors with the exception that
organizations may not enroll new beneficiaries with end-stage renal
disease. For further discussion of discrimination provisions affecting
M+C enrollees with ESRD, see the discussion in section II.B.1 of this
preamble.
9. Disclosure Requirements (Sec. 422.111)
In section 1852(c), the Act lists several areas where an M+C
organization must disclose specific information to each M+C plan
enrollee. These requirements are, in large part, a codification of
existing program administration requirements under section 1876, and we
detail these requirements in Sec. 422.111 of the regulations. In
general, an M+C organization is required to provide in a clear,
accurate, and standardized form information relating to: service area;
benefits access; out-of-area coverage; emergency coverage; supplemental
benefits; prior authorization rules; plan grievance and appeals
procedures; disenrollment rights and responsibilities; and information
about the M+C organization's quality assurance program.
M+C organizations are also required to provide further information
on a beneficiary's request, which we also detail in Sec. 422.111 of the
regulation text. These ``upon request'' requirements include: general
coverage and comparative plan information; information on utilization
control procedures; information on grievances and appeals; information
on the financial condition of the M+C organization; and a summary of
physician compensation arrangements.
10. Access to Services (Sec. 422.112)
The requirements of section 1852(d) of the Act (concerning access
to services) are being implemented through this rule, in part, by
applying existing regulations and policies pursuant to our authority in
section 1856(b)(1) to establish standards under the M+C program. We are
also addressing recommendations from the President's ``Consumer Bill of
Rights and Responsibilities'' (CBRR), and incorporating the ``Quality
Improvement System for Managed Care'' (QISMC) standards.
For example, our existing policy shaped the language in
Sec. 422.112(a)(1)(i) requiring M+C organizations to maintain and
monitor a network of appropriate providers, supported by written
agreements sufficient to certify beneficiary access to covered
services. The CBRR shaped the access to (and continuity of) specialist
services text in Sec. 422.112(a), as well as provisions for provider
credentialing and timeliness of access, among other consumer
protections. We also include a provision at Sec. 422.112(a)(4)(vii)for
M+C organizations to ensure ``cultural competency'' in the provision of
health care. This provision reflects CBRR recommendations that M+C
organizations make a particular effort to ensure that enrollees with
limited English proficiency, limited education, or other socioeconomic
disadvantages receive the health care to which they are entitled.
The Consumer's Bill of Rights and Responsibilities also recommends
that women be able to choose a women's
[[Page 34990]]
health care specialist within network for the provision of routine and
preventive women's health care services. In support of this
recommendation, Sec. 422.112(a)(1)(iii)(A) requires M+C network plans
to provide direct access to a women's health specialist within the
network for routine and preventive women's health care services
provided as basic benefits, as defined in Sec. 422.2. We note that
coverage of routine and preventive health services under original
Medicare is limited. For example, original Medicare covers a screening
pap smear and a screening pelvic exam, including a clinical breast
exam, once every 3 years under normal circumstances. M+C plans must
cover routine and preventive health services with at least the same
frequency as they are covered under original Medicare and may offer
expanded services in these areas as additional benefits.
M+C plans satisfy the requirement in Sec. 422.112(a)(1)(iii)(A) by
providing direct access to gynecologists, certified nurse midwives, and
other qualified health care providers for provision of routine and
preventive women's health services. At the same time, M+C plans are
required to provide women enrollees with continued access to their
primary care physician to ensure continuity of care. We welcome
comments on this issue.
In Sec. 422.112(a)(1)(iii)(B), we require that plans have HCFA-
approved procedures--
<bullet> To identify Medicare enrollees with complex or serious
medical conditions;
<bullet> For assessment of those conditions, including medical
procedures to diagnose and monitor them on an ongoing basis; and
<bullet> For establishment and implementation of a treatment plan
appropriate to those conditions, with an adequate number of direct
access visits to specialists to accommodate the treatment plan. To meet
these requirements and those of Sec. 422.112(a)(5)(v)(A), M+C plans
must conduct a baseline and establish a treatment plan for people with
complex or serious medical conditions. This assessment should be
completed within timeframes deemed appropriate by M+C plans based on
the needs of its enrollees, but, in general, should occur within 90
days of the effective date of enrollment.
Section 422.112(a)(5)(v)(A) also requires M+C plans to conduct a
baseline health assessment for all new Medicare enrollees (i.e., not
limited to those with complex or serious medical conditions) in a
timely manner. We believe that this initial assessment should also be
performed based on timelines deemed appropriate by the plan, but not
later than 90 days after the effective date of enrollment. We welcome
comments regarding timely baseline assessments both for new enrollees
and those with complex or serious medical conditions.
Note that, as indicated in the heading of Sec. 422.112(a), some
access provisions apply only to network organizations, (i.e.,
coordinated care plans and network MSAs), while others
(Sec. 422.112(b)) apply to all M+C organizations.
Section 422.112(b) states that M+C organizations must provide
coverage of emergency services and urgently needed services even in the
absence of the organization's prior approval and without regard to the
provider's contractual relationship with the M+C organization. For
definitions of emergency and urgently needed services, see Sec. 422.2.
This section continues the prohibition at Sec. 417.414(c)(1) on
prior authorization requirements for emergency services as explicitly
provided by 1852(d) and continues the Sec. 417.414(c)(1) regulatory
prohibition on prior authorization requirements for urgently-needed
services. This section also establishes a prohibition on prior
authorization requirements for emergency services provided within the
plan because the prohibition on prior authorization at section 1852(d)
applies to services provided both within and outside the organization.
Consistent with the new definition of ``emergency medical
condition'' in section 1852(d)(3)(B), we are codifying longstanding
HMO/CMP Manual policy (Sec. 2104) of prohibiting retrospective denial
for services which appeared, to the prudent layperson, to be
emergencies, but which turn out to be nonemergency in nature.
We are establishing that when a physician or other representative
affiliated with the organization instructs the enrollee to seek
emergency services within or outside the organization, the organization
is responsible for payment for medically necessary emergency services
provided to the enrollee.
We are codifying in regulation an HMO/CMP Manual policy (Sec. 2104)
specifying that the decision of the examining physician treating the
individual enrollee prevails regarding when the enrollee may be
considered stabilized for discharge or transfer.
We are establishing limits on cost-sharing for emergency services
obtained outside of the M+C plan's provider network equal to of the
lesser of $50 or what the organization may charge for emergency
services provided within the plan's provider network. We are imposing
this requirement in order to facilitate and ensure access to covered
emergency services provided other than through the organization. We do
not view this requirement as overly burdensome. A review of 1997 data
on what Medicare HMOs and CMPs charged for emergency services found
that 93 percent of contracts charged $50 or less. We believe that it
may be appropriate to lower this limit or eliminate cost-sharing
altogether, and would welcome comments on this subject.
Note that an M+C organization's failure to provide medically
necessary emergency services could result in intermediate sanctions for
failing to provide coverage, or payment, or through actions (such as a
prospective refusal of payment) that could result in discharge or
transfer of an unstabilized patient. The new coverage requirements for
M+C enrollees do not affect the rights of all persons (whether or not
they are Medicare beneficiaries) to receive emergency services at any
Medicare-participating hospital that offers emergency services (under
the patient ``anti-dumping'' statute in section 1867).
11. Access to Services Under an M+C Private Fee-for-Service plan
(Sec. 422.114)
In the case of an M+C organization that offers an M+C private fee-
for-service plan, that organization must demonstrate that it has a
sufficient number and range of providers willing to furnish items and
services under the plan. An M+C organization meets this requirement if,
with respect to a particular category of providers, the organization
has:
<bullet> Payment rates that apply under original Medicare for the
provider and service in question;
<bullet> Contracts or agreements with a sufficient number and range
of providers to furnish the items and services covered under the M+C
private fee-for-service plan; or
<bullet> A combination of the two.
Additionally, an M+C private fee-for-service plan must permit
enrollees to obtain items and services from any entity that is
authorized to provide items and services under Medicare Parts A and B
and agrees to provide services under the terms of the M+C private fee-
for-service plan. For a fuller discussion of M+C private fee-for-
service plans, see section IV of this preamble.
12. Confidentiality and Accuracy of Enrollee Records (Sec. 422.118)
M+C organizations are required to safeguard the confidentiality and
[[Page 34991]]
accuracy of enrollee records that identify a particular enrollee,
including both medical documents and enrollment information. An M+C
organization may circulate this information within the organization to
coordinate care for a Medicare enrollee. The M+C organization may not,
however, circulate this information outside the organization without
specific authorization from the Medicare enrollee. M+C organizations
are prohibited from selling (or circulating outside the organization)
names and addresses of enrollees for any purpose, including scientific
study.
Additionally, the M+C organization must maintain records in an
accurate and timely manner and ensure timely access to enrollees who
wish to examine their records. Moreover, the M+C organization must
abide by all Federal and State laws regarding confidentiality and
disclosure for mental health records, medical records, other health
information, and enrollee information.
13. Information on Advance Directives (Sec. 422.128)
Advance directives are documents signed by a patient that explain
the patient's wishes concerning a given course of medical care should a
situation arise where he or she is unable to make these wishes known.
The M+C organization is responsible for documenting advance directives
in a prominent part of the Medicare beneficiary's medical record.
Accordingly, pursuant to our authority in section 1856(b)(1) and (2) to
establish M+C standards, we are retaining for M+C organizations the
requirements that applied to HMOs and CMPs under part 417.
14. Protection Against Liability and Loss of Benefits (Sec. 422.132)
Each M+C organization must adopt and maintain satisfactory
arrangements to protect Medicare enrollees from incurring liability for
payment of any fees that are the legal obligation of the M+C
organization. By reference in Sec. 417.407(f) (implementing regulations
for section 1876), enrollee protections described in Sec. 417.122 are
unchanged by the BBA, and their application to M+C organizations are
carried forward in this section.
Medicare law requires that Medicare contracting M+C organizations
make Medicare covered services ``available and accessible.'' Section
1852(d)(1), in describing access to services, allows M+C organizations
to select the providers from whom benefits may be obtained so long as
``the organization makes such benefits available and accessible to each
individual electing the plan within the plan service area with
reasonable promptness * * * '' We believe these sections require health
plans to provide the same accessibility afforded by HCFA to
beneficiaries under original Medicare.
D. Quality Assurance
1. Overview
Subpart D of part 422 contains the quality assurance requirements
for M+C organizations. These requirements implement and are based on
the provisions of section 1852(e) of the Act. They also incorporate the
requirements of section 1851(d)(4)(D), which provides that the
information made available to Medicare beneficiaries for plan
comparison purposes should include plan quality and performance
indicators, to the extent available. Section 1852(e)(1) sets forth the
general rule that each M+C organization must establish an ongoing
quality assurance program, consistent with implementing regulations,
for the health care services it provides to enrollees in the
organization's M+C plans. The rest of section 1852(e) contains the
required elements of the quality assurance program, requirements for
external review, and provisions concerning the use of accreditation
organizations to determine compliance with the quality assurance
requirements.
The provisions of section 1852(e) represent a significant expansion
in the scope of the statutory quality assurance provisions applicable
to managed care organizations that contract with the Medicare program.
Existing section 1876(c)(6) contains a general requirement similar to
that of section 1852(e)(1) that an organization must have a quality
assurance program, but it provides very limited guidance as to the
nature of this program. The only required elements of a quality
assurance program under section 1876(c)(6) are that it stress health
outcomes and include physician review of the procedures used in the
provision of health care services. Like section 1876(c)(6), existing
quality assurance regulations (Sec. 417.418 and, by reference,
Sec. 417.106(a)) contain few detailed requirements concerning quality
assurance. The regulations basically restate the statutory requirements
relating to health outcomes and physician review and then add two broad
requirements regarding data collection and the need for written
procedures for taking remedial action.
In contrast, section 1852(e) sets forth a series of specific
elements that now must be addressed in an M+C organization's quality
assurance program. As discussed in detail below, these requirements
focus on the need for an M+C organization, with respect to each M+C
plan that it offers, to operate an outcome-oriented quality assessment
and performance improvement program that achieves demonstrable
improvements, across a broad spectrum of care and services, in the
health, functional status, and satisfaction of its enrollees. (Note
that some of the specific performance improvement requirements of the
statute do not apply to M+C non-network MSA plans or PFFS plans, as
addressed under Sec. 422.152(e).) The collection, evaluation, and
reporting of the data necessary to demonstrate quality improvements are
also critical elements of each M+C organization's quality-related
responsibilities.
2. Origins of the Quality Assessment and Improvement Requirements
The regulations to implement sections 1852(e)(1) and (2) and
section 1851(d)(4)(D) incorporate each of the explicit statutory
requirements into new subpart D. Consistent with our explicit statutory
authority under section 1851(e), these regulations include additional
detail to clarify how an M+C organization can meet the statutory
requirements. Like Congress, we recognize that the state of the art in
quality assurance has evolved from a problem-focused approach, with an
emphasis on remedial action, to a proactive approach aimed at achieving
continuous, systemic quality improvement. In recent years, HCFA, the
States, and other managed care purchasers have been involved in a
series of initiatives aimed at improving the quality of care and
services provided to managed care enrollees. Examples of such efforts
include:
<bullet> The Quality Assurance Reform Initiative (QARI), which
developed and tested standards for States to use in monitoring and
improving quality in Medicaid contractors, with a particular emphasis
on plans' own internal quality improvement efforts.
<bullet> Uniform data collection and reporting instruments, such as
the Health Plan Employer Data and Information Set (HEDIS 3.0), which
was developed by the National Committee for Quality Assurance (NCQA).
Use of HEDIS 3.0 is now a contract requirement for Medicare risk-based
managed care plans, under section 1876 and is intended to allow
assessment and comparison of plan performance.
<bullet> Projects to enhance the role of Medicare Peer Review
Organizations (PROs) in evaluating and improving managed care plan
quality, including
[[Page 34992]]
the development and testing of a minimum set of performance evaluation
measures and quality improvement projects developed through
collaboration between PROs and managed care organizations. States have
undertaken similar efforts through Medicaid External Quality Review
Organizations (EQROs).
Among the most comprehensive of recent quality-related initiatives
is the Quality Improvement System for Managed Care (QISMC). During the
past 2 years, HCFA has been working closely with other Federal and
State officials, as well as representatives of beneficiary advocacy
groups and the managed care industry, to develop quality standards that
can better ensure that managed care organizations that contract with
HCFA protect and improve the health and satisfaction of their
enrollees. QISMC is the product of these efforts. Originally drafted
based on the authority of section 1876, it builds on a variety of
recent HCFA and State efforts, like those mentioned above, to promote
the assessment and improvement of managed care quality. The QISMC
standards are in the final stages of development at this time and are
being modified to reflect the quality-related requirements under the
BBA. Once QISMC is complete, we believe it will offer a uniform set of
quality standards that can be used by HCFA and the State Medicaid
agencies to determine whether a managed care organization can meet the
quality assurance requirements necessary to become and remain eligible
to enter into a Medicare or Medicaid contract.
The QISMC initiative is substantially in accord with the quality
assurance requirements of new section 1851(e). For example, both the
statutory requirements and the QISMC quality standards emphasize
measurement of health outcomes, consumer satisfaction, the
accountability of managed care organizations for achieving ongoing
quality improvement, the need for intervention to achieve this
improvement, and the importance of data collection, analysis, and
reporting. Moreover, as noted above, representatives of all segments of
the managed care community have contributed to the development of
QISMC, and generally support HCFA's intention to eventually require
managed care organizations to meet the QISMC standards. Given the
shared goals of the BBA and QISMC standards, and HCFA's implementation
plans for QISMC, we believe it is appropriate to establish new M+C
quality assurance regulations that reflect those QISMC standards that
mirror the intent of the statute. Although we have not included in the
regulations the level of detail embodied in QISMC, we have attempted to
build into the regulations some principles from QISMC that can guide
M+C organizations in meeting the quality requirements established by
the statute. For example, Sec. 422.152(d) establishes objective
standards concerning the improvement projects that are required of M+C
organizations, in accordance with the statutory requirements concerning
an organization's responsibility to take action to improve quality
(such as section 1852(e)(2)(A)(xi) of the Act.
Although QISMC remains an evolving document, several of the
discussions below of the ways in which organizations can meet the M+C
quality requirements are informed to some degree by the underlying
details contained in QISMC. Also, as discussed below, we anticipate
that requirements pertaining to a plan's quality assessment and
performance improvement responsibilities may be implemented as part of
the M+C contracting process. QISMC standards may be a guide in
implementing the requirements in the BBA and these regulations.
Eventually, we believe QISMC can serve to define what HCFA's
expectations are with regard to an M+C organization's quality
assessment and improvement responsibilities. (A copy of the most recent
version of QISMC is available at HCFA's website, www.hcfa.gov/quality/
qlty-3e.htm.)
3. Quality Assessment and Performance Improvement Requirements
(Sec. 422.152)
This section of the regulation implements paragraphs (e)(1) and (2)
of section 1852. Subject to certain exceptions for M+C PFFS and non-
network MSA plans, which are discussed below, the statute requires that
an organization's quality assurance program meet the following
requirements with respect to each plan that it offers:
(i) Stress health outcomes and provide for the collection,
analysis, and reporting of data (in accordance with a quality
measurement system that HCFA recognizes) that will permit measurement
of outcomes and other quality indices.
(ii) Monitor and evaluate high-volume and high-risk services and
the care of acute and chronic conditions.
(iii) Evaluate the continuity and coordination of the care that
enrollees receive.
(iv) Be evaluated on an ongoing basis as to its effectiveness.
(v) Include measures of consumer satisfaction.
(vi) Provide HCFA access to the information it needs to monitor and
ensure the quality of the care provided.
(vii) Provide for physicians and other health care professionals to
review the process followed in providing health care services.
(viii) Establish written protocols for utilization review, based on
current standards of medical practice.
(ix) Have mechanisms to detect both underutilization and over
utilization of services.
(x) Establish or alter practice parameters when areas needing
improvement are identified.
(xi) Take action to improve quality and assess the effectiveness of
that action through systematic follow-up.
(xii) Make available to HCFA information on quality and outcomes
measures to facilitate beneficiary comparisons and choice of health
care options (in such form and on such quality and outcomes measures as
HCFA determines is appropriate).
As noted above, section 1852(e)(1) also requires that the
organization's quality assurance program be consistent with any
regulation developed by HCFA. Therefore, Sec. 422.152 reflects the
statutory requirements listed above, as well as those implementing
requirements that are consistent with, and necessary to accomplish, the
intent of the Act. While certain requirements in section 1852(e)(2)
that expressly refer to ``improvement'' in quality do not apply to all
types of M+C plans, we believe that all of the requirements in section
1852(e) are geared toward improving quality, not simply monitoring it.
For this reason, we are using the term ``quality assessment and
performance improvement program'' to refer to the program that is
required of all M+C plans, which section 1852(e)(1) refers to as a
``quality assurance program.'' We accordingly use the term ``quality
assessment and performance improvement program'' in the heading of
Sec. 422.152 and in the general rule at Sec. 422.152(a).
a. Requirements for M+C Coordinated Care Plans and Network MSA
Plans. Sections 422.152(b) through (d) set forth requirements that M+C
organizations must meet with respect to M+C coordinated care plans and
network MSA plans. As alluded to above, as directed by section 1852(e),
these requirements reflect a departure from the problem-focused
approach to ensuring quality that was prevalent in the past. Thus,
under these regulations, it will no longer be sufficient for
organizations to identify and correct problems in their operations--
they must now focus on systemic quality
[[Page 34993]]
improvement as well. This approach is also consistent with HCFA's
responsibility to demand value in the form of positive outcomes from
the organizations with which we contract.
To implement this approach, Sec. 422.152(b) establishes two basic
quality assessment and performance improvement requirements: (1)
measurement and reporting of performance; and (2) conducting
performance improvement projects that achieve, through ongoing
measurement and intervention, demonstrable and sustained improvement in
significant aspects of both clinical care and nonclinical care areas
that can be expected to affect health outcomes and member satisfaction.
The specific requirements associated with the measurement and reporting
of performance and the execution of performance improvement projects
are set forth under Sec. 422.152(c) and (d), as discussed in detail
below. Before turning to that discussion, however, we note that
Sec. 422.152 also incorporates statutory requirements from section
1852(e)(2)(viii), (ix), and (xii), as listed above, concerning written
utilization review protocols, the identification of underutilization
and overutilization of services, and the availability of information on
quality and outcome measures as needed to facilitate beneficiary
comparisons and choices among M+C plans.
b. Performance Measurement and Reporting. Section 422.152(c)
elaborates on paragraph (b)(1) by requiring that the organization: (1)
measure and report its performance to HCFA using measures required by
HCFA, and (2) for M+C coordinated care plans, achieve any minimum
performance levels that may be established locally, regionally, or
nationally by HCFA. The first requirement is based directly on the
requirement under section 1852(e)(2)(A)(i) of the Act concerning
outcome measurement and reporting. Thus, it applies both to M+C
coordinated care plans and network MSA plans (as well as to M+C non-
network MSA plans and PFFS plans, as discussed below in section
II.D.2.d of the preamble). The second requirement enables HCFA to
evaluate a plan's ability to meet the objectives of sections
1852(e)(2)(A)(x) and (xi) of the Act concerning quality assessment and
improvement. It also reflects HCFA's responsibility to require that the
services we purchase meet minimum quality standards. (We note that
although the requirements of sections 1852(e)(2)(A)(x) and (xi) of the
Act apply to M+C network MSA plans as well as to M+C coordinated care
plans, we are not requiring in this interim final rule that M+C network
MSA plans achieve minimum performance levels. In keeping with the
demonstration status of the M+C MSA plans, we intend to evaluate the
performance of these plans in the context of the evaluation provisions
of section 1851(b)(4)(B) of the Act.)
Health plan performance measurement and reporting is in its early
stages. Consensus regarding what aspects of plan performance can and
should be measured, how this information should be reported, how it
should be audited, and which measures are collectible for which types
of organizations, is only now being developed. HCFA, large private
purchasers, managed care organizations, and others have made important
progress in defining and measuring health plan performance. This
regulation must move us toward enhancing health plan accountability
while leaving flexibility for the specific reporting and performance
requirements to progress as we learn more about performance
measurement. We want to be able to respond rapidly to new developments
in the state of the art of quality measurement and improving
performance levels.
We do not intend to adopt a ``one size fits all'' approach that
assumes that reporting under all types of M+C plans will be possible in
the same manner for all measures. We will balance our efforts to
increase uniformity to facilitate consumer comparison of plans with
sensitivity to the different organizational structures of plans and
their different abilities to affect provider behavior.
In general, an M+C organization should not be held accountable for
improving services that it does not promise to provide under a plan,
nor for reporting information to which it does not reasonably have
access under a plan. At the same time, an organization should be held
accountable for improving plan performance with respect to the benefits
provides under the M+C program and all applicable M+C standards, and
for having the information needed to maintain and improve the quality
of the services it delivers or arranges for. Organizations should be
expected to improve their capacity to collect and analyze information
about the delivery of M+C benefits, consistent with changes that are
occurring in the health plan market place. We believe that Congress
intended us to take the actions that any prudent purchaser would take
to hold M+C organizations accountable for the benefits they promise to
provide under a plan.
For these reasons, we are not specifying the particular measures
for which reporting will be required or the minimum performance levels
that M+C coordinated care plans will be expected to achieve. Instead,
the regulation clarifies the general clinical and nonclinical areas to
be addressed by the performance reporting, such as effectiveness of
care, use of services, and access to services. The performance measures
to be reported and the minimum performance standards that the M+C plan
or plans offered by an organization will be required to meet will be
addresses on an organization and plan-specific basis, as described
below.
Section 422.152(c)(1) establishes that standard performance
measures may be specified in data collection and reporting instruments
required by HCFA. For example, as mentioned earlier, HCFA has already
begun requiring reporting of standardized quality measurement data
through instruments such as HEDIS <SUP><greek-l></SUP> 3.0, as well as
reporting of standardized consumer satisfaction data through the
Consumer Assessment of Health Plans Study (CAHPS). We expect that in
contract year 1999, the standard performance measures for M+C
organizations will include most HEDIS measures and a member survey,
with the possibility of additional measures. (Where data on particular
measures are not reasonably available with respect to a given plan,
organizations can report ``not available''. HCFA will work with M+C
organizations to identify those measures for which data are and are not
reasonably available for a given plan.) To the extent that we do
include HEDIS measures, we will use the HEDIS measurement
specifications. Before the beginning of the next contract year, we will
decide on the measures on which reporting will be required for contract
year 1999 and will notify organizations of those measures through the
contracting process.
We expect to develop a core set of measures on which reporting will
be required under all plans. We also expect to identify additional
reporting requirements to reflect the plan's characteristics (such as
supplemental benefits, type of delivery system) and past performance.
In adopting minimum performance requirements for coordinated care
plans, we intend to ensure that the targets are achievable, meaningful,
and equitable. We intend to move toward minimum uniform national
performance standards
[[Page 34994]]
based on what plans across the nation are able to achieve.
We expect to start with standards that are adjusted to reflect
performance in the plan's region and the individual plan's or
organization's historical performance (or performance in Medicare fee-
for-service where the plan has no history). Performance requirements
will be established only for measures for which there are sufficient
historical data available to establish regional standards based on
actual performance of a number of plans. (We will therefore require
reporting on measures for which performance standards have not been
established.) Other criteria will also guide the selection of measures
for which minimum performance levels will be established, including
their significance for the health of the enrolled population under a
plan and the likelihood that they fairly reflect the organization's
performance.
Because the process of identifying achievable, meaningful and
equitable minimum performance levels will require a significant amount
of data collection and analysis, we expect that it will be several
years before a full complement of minimum performance levels can be
established. At this point, it is uncertain whether any minimum
performance levels will be established for the 1999 contract year. We
will identify minimum performance levels on a measure by measure basis,
after evaluating baseline data and the distribution of organization
performance and considering potential opportunities for improvement.
The process of identifying minimum performance levels will evolve as
new methods of performance measurement develop.
HCFA is committed to public involvement in the selection of
measurement topics. HCFA will also work collaboratively with
organizations involved with quality and performance standards and
measurements, including performance measurement experts, health plans,
public and private purchasers and beneficiary representatives in the
selection of specific measures and setting of minimum performance
levels. As we develop minimum performance standards, we will consider
how our goal of maintaining maximum consumer choice in the M+C program
should affect our expectations concerning plan performance.
When we have identified minimum performance levels, we plan to
establish them prospectively upon contract initiation and renewal, so
that an organization will have the entire contract year in which to
take action to meet them. By the end of the contract year, the
organization must meet any identified minimum performance levels. In
some cases, we believe that the next contract year will have already
begun by the time HCFA learns whether the organization has met the
minimum performance levels established for the previous year.
Therefore, we specify that HCFA may decline to renew an organization's
contract in the year that HCFA determines that the organization failed
to meet the minimum performance levels, even if the failure itself was
in the prior contract year.
c. Performance Improvement Projects. Section 422.152(d) establishes
the requirements for performance improvement projects, beginning with
the requirement that performance improvement projects focus on
specified areas of clinical and nonclinical services. It also explains
that HCFA will set M+C organizational and plan-specific requirements
for the number and distribution of these projects among the required
areas. In addition, it authorizes HCFA to direct an M+C organization to
undertake specific performance improvement projects and participate in
national and State-wide performance improvement projects. Section
422.152(d) reflects many of the provisions of section 1852(e)(2) of the
statute, including for example the requirements for projects in areas
such as high-volume and high-risk services and continuity and
coordination of care (sections 1852(e)(2)(A)(ii) and (iii),
respectively).
Section 422.152(d)(1) explains what is meant by a project. All
projects must involve the measurement of performance, system
interventions (including the establishment or alteration of practice
parameters), improving performance, and systematic follow-up on the
effect of the interventions.
Section 422.152(d)(2) requires that projects address the entire
population to which the performance measure is relevant. Thus, once a
topic has been selected, the organization must assure that its
measurement and improvement efforts are at least plan-wide. (Note that
we do not intend to prohibit an M+C organization from conducting
performance improvement projects that would cut across plans.) We
expect that, to the extent feasible, each project should reach all
enrollees and providers in the plan network who are involved in the
aspect of care or services to be studied. This does not mean that a
project must involve review of the performance of each provider who
furnishes the services that are the subject of the project, or that it
must survey every affected enrollee. Sampling is acceptable if the
organization can demonstrate that its samples are genuinely random. An
organization could do so by showing, for example that:
<bullet> Each relevant provider and enrollee has a chance of being
selected; no provider or enrollee is systematically excluded from the
sampling.
<bullet> Each provider serving a given number of enrollees has the
same probability of being selected as any other provider serving the
same number of enrollees.
<bullet> Providers and enrollees who were not included in the
sample for the baseline measurement have the same chance for being
selected for the follow-up measurement as providers and enrollees who
were included in the baseline.
Section 422.152(d)(3) states that HCFA will establish M+C
organizational and M+C plan-specific obligations for the number and
distribution of projects among the required clinical and non-clinical
areas. Sections 422.152(d)(4) and (5) then specify the minimum clinical
and nonclinical focus areas that must be addressed through these
projects. These minimum focus areas are:
<bullet> Clinical areas--prevention and care of acute and chronic
conditions; high volume services and high risk services; continuity and
coordination of care.
<bullet> Nonclinical areas: appeals, grievances, and other
complaints; access and availability of services.
Note that these areas represent minimum requirements, and
organizations are likely to carry out projects in other areas in order
to meet their contractual performance improvement obligations. The
length of the performance improvement cycle, that is, the period of
time during which an organization must conduct a project that
demonstrates improvement in each of the required focus areas, will be
one of the contractual performance improvement obligations. Within each
clinical and nonclinical focus area, an organization will have
considerable freedom to select its own particular topics for
measurement and improvement, so that it can initiate projects relating
to aspects of care and services that are significant for its plan-
specific population. Our goal is to achieve a balance between
encouraging flexibility and innovation and ensuring that every
organization conducts meaningful projects over a broad spectrum of care
and services. As noted above, however, there may be instances where it
is necessary for HCFA to direct the organization to address a specific
[[Page 34995]]
topic within a given focus area. Thus, Sec. 422.152(d)(6)(i) provides
that, in addition to requiring that an organization initiate its own
performance improvement projects, HCFA may direct an organization to
conduct particular performance improvement projects that are specific
to the organization. We believe this could be necessary, for example,
when an organization demonstrates a significant weakness in a
particular performance area, but the area is not addressed in the
organization's own performance improvement projects. Similarly,
Sec. 422.152(d)(6)(ii) provides that HCFA may require an organization
to participate in national or statewide performance improvement
projects. These performance improvement projects would focus on aspects
of care that we believe are of high priority, and would be designed by
HCFA (or possibly by other entities, such as the external quality
review organizations affiliated with Medicaid managed care
organizations).
In general, we believe that when an organization initiates a
project, the clinical or nonclinical issue selected for study should
affect a substantial portion of the plan's M+C enrollees (or a
specified subpopulation of enrollees) and have a potentially
significant impact on enrollee health, functional status, or
satisfaction. There may be instances in which less frequent conditions
or services warrant study, as when data show a pattern of unexpected
adverse outcomes; however, the prevalence of a condition or volume of
services involved should be sufficient to permit meaningful study.
A project topic may be suggested by patterns of inappropriate
utilization--for example, frequent use of the emergency room by
enrollees with a specific diagnosis. However, the project should be
focused clearly on identifying and correcting deficiencies in care or
services that might have led to this pattern, such as inadequate access
to primary care, rather than on utilization and cost issues alone. This
is not to say that an organization may not make efforts to address
overutilization, but only that such efforts may not meet the
requirements of Sec. 422.152, unless the primary objective is to
improve outcomes. Thus, it would be acceptable for a project to focus
on patterns of overutilization that present a clear threat to health or
functional status, for example, a high risk of iatrogenic problems or
other adverse outcomes.
Because the achievement of demonstrable improvement is a central
criterion in the evaluation of projects, the projects should
necessarily address areas in which meaningful improvement can be
effected through system interventions by the organization. Thus,
organizations should focus on areas in which there is significant
variation in practice and resulting outcomes within a plan, or in which
performance as a whole falls below acceptable benchmarks or norms.
Organizations are encouraged to undertake complex projects or
innovative projects that have a high risk of failure but that offer
potential for making a significant difference in the health or
functional status of enrollees. We recommend that M+C organizations
look to the independent quality review and improvement organizations
with which they have agreements (see the discussion below about the
external review requirements of Sec. 422.154) for assistance in
designing and executing performance improvement projects.
Section 422.152(d)(7) requires that an organization assess
performance for each project using one or more quality indicators, that
are objective, clearly defined, and based on current clinical knowledge
or health services research. In accordance with the emphasis section
1852(e)(2)(A)(i) places on outcomes, the regulation requires that the
quality indicators measure outcomes such as changes in health status,
functional status, and enrollee satisfaction, or measure valid proxies
of these outcomes. We recognize that relatively few existing
standardized performance measures actually address outcomes. For
example, of the 16 effectiveness measures in HEDIS 3.0, only one
(health of seniors) is truly outcome-based. Even when outcome measures
are available, their utility as quality indicators for projects may be
limited if the outcomes are dictated largely by factors outside the
organization's control.
Therefore, we do not require that quality indicators be limited to
outcome measures. Process measures are acceptable so long as the plan
can show that they are valid proxies, that is, there is strong clinical
evidence that the process being measured is meaningfully associated
with outcomes. To the extent possible, this determination should be
based on published guidelines that support the association and that
cite evidence from randomized clinical trials, case control studies, or
cohort studies. An M+C organization may furnish its own similar
evidence of association between a process and an outcome, as long as
this association is not contradicted by a published guideline. Although
published evidence is generally required, there may be certain areas of
practice for which empirical evidence of process/outcome linkage is
limited. At a minimum, an organization should be able to demonstrate
that there is a consensus among relevant practitioners as to the
importance of a given process.
While we consider enrollee satisfaction an important aspect of
care, improvement in satisfaction may not be the sole demonstrable
outcome of a project in any clinical focus areas. Some improvement in
health or functional status must also be measured. (Note that this
measurement can rely on enrollee surveys that address topics in
addition to satisfaction. For example, self-reported health status may
be an acceptable indicator.) For projects in the nonclinical areas, use
of health or functional status indicators is generally preferred,
particularly for projects addressing access and availability. However,
there may be some nonclinical projects for which enrollee satisfaction
indicators alone are sufficient.
Section 422.152(d)(8) requires that performance assessment be based
on systematic, ongoing collection and analysis of valid and reliable
data. Data will most commonly be derived from administrative data
generated by an organization's health information system or from review
of medical records. (In assessing nonclinical services, other sources
such as enrollee or provider surveys may be appropriate.) When data are
derived from the health information system, their reliability is
obviously a function of the general reliability of the system. When
data are derived from direct review of medical records or other primary
source documents, steps must be taken to assure that the data are
uniformly extracted and recorded. Appropriately qualified personnel
must be used; this will vary with the nature of the data being
collected and the degree of professional judgment required. We expect
there to be clear guidelines or protocols for obtaining and entering
the data; this is especially important if multiple reviewers are used
or if data are collected by multiple subcontractors. Inter-reviewer
reliability should be assured through, for example, repeat reviews of a
sample of records.
Section 422.152(d)(9) requires that interventions achieve
improvement that is significant and sustained over time. In general, we
will judge improvement to be significant when a benchmark level of
performance is achieved in the percentage of enrollees who exhibit a
negative outcome defined by the indicator.
Again, specific acceptable performance measures will be defined for
each M+C organization and M+C
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plan. Currently, we are considering requiring a 10 percent reduction in
negative outcomes as evidence of significant improvement. An
organization would meet this requirement if, for example, its flu
immunization rate under a plan is 80 percent in the baseline and
increases to 82 percent, because the percentage of enrollees not
immunized has dropped from 20 percent to 18 percent, a 10 percent
reduction. A plan whose baseline rate was 60 percent would have to
reach 64 percent (a reduction in nonimmunized enrollees from 40 percent
to 36 percent).
We are considering requiring a 10 percent reduction in adverse
outcomes as evidence of significant improvement for several reasons.
First, the use of a constant percentage reflects the likelihood that
change is harder to achieve when an organization's baseline performance
is already superior. Thus, under a plan with an 80 percent immunization
rate, we would expect a 2 percentage point improvement, while under a
plan with a 60 percent rate, a 4 percentage point improvement would be
expected. Second, the 10 percent level is consistent with results HCFA
has observed in successful improvement projects sponsored by the
agency. Finally, we believe that smaller improvements would generally
be of little clinical significance. We invite comment on the issue of
whether Sec. 422.152(d)(9) should be revised to provide for a 10
percent reduction in adverse outcomes.
Note that improvement in an indicator is not necessarily the same
as improvement in the health or functional status of enrollees. For
example, the ``health of seniors'' indicator under HEDIS 3.0 will
track, over time, changes in the functional status of elderly
enrollees. Each enrollee's functional status may remain stable or
actually decline. However, an organization would demonstrate
improvement on the indicator if it slowed the rate of decline, whether
or not it actually improved enrollees' functional status. HCFA is
considering judging improvement to be sustained under a plan if it can
be demonstrated through continued measurement that performance gains
have endured for at least one year.
We recognize that many organizations still have limited experience
in conducting well-designed performance improvement projects, and that
any given project may take some time to produce measurable improvement.
Therefore, we intend to permit a gradual phase-in of the number of
focus areas for which improvement must be demonstrated consistent with
the individual circumstances of an M+C organization.
Section 422.152(d)(10) concludes the performance improvement
requirements by providing explicitly that an organization must report
the status and results of each project to HCFA upon request. This
requirement is necessary to implement the reporting requirements
embodied in sections 1852(e)(2)(A)(vi) and (xii) and 1851(d)(4)(D) and
(d)(7), which call for HCFA to make available to M+C eligible
individuals information comparing M+C plan options, including
information on quality and performance.
d. Requirements for M+C Private Fee-for-Service and Non-Network MSA
Plans. In enacting the quality assurance provisions of the BBA,
Congress recognized that not all of the quality assessment and
performance improvement activities that are appropriate for a plan with
a defined provider network would be appropriate for an M+C non-network
MSA plan or an M+C private fee-for-service plan. (Section 1852(e)(2)(C)
defines a non-network MSA plan as an MSA plan that does not provide any
of the covered benefits through a defined set of providers under
contract to the organization or under arrangements made by the
organization, and we have incorporated this provision into
Sec. 422.4(a)(2)(ii).) As a result, section 1852(e)(2)(B) establishes
different required elements of a quality assessment and performance
improvement program depending on the type of plan involved.
Specifically, the Act exempts M+C non-network MSA and PFFS plans from
the requirements of paragraphs (e)(2)(A)(vii) through (xii) of section
1852, which include the utilization review requirements discussed above
as well as the explicit requirement to take action to improve quality
and assess the effectiveness of such action through systematic follow-
up. However, the statute continues to require that organizations
offering these types of plans stress outcomes, provide for the data
collection, analysis, and reporting necessary to measure outcomes, and
monitor and ensure the quality of care they provide.
Consistent with the statute, the specific requirements to achieve
minimum performance levels and undertake performance improvement
projects will not apply to M+C non-network MSA and PFFS plans. Both
requirements are derived primarily from the statutory requirements from
which these types of plans have been exempted (that is, sections
1852(e)(2)(A)(x) and (xi). Instead, we have established separate
requirements that apply for these types of plans under Sec. 422.152(e).
These requirements parallel the requirements for other types of plans
to the extent permitted under the statute. For example,
Sec. 422.152(e)(1) requires that under these plans, an organization
must measure its performance, using standard measures established or
adopted by HCFA. These measures will focus on the prevention and care
of acute and chronic conditions, high-volume and high-risk services,
and enrollee satisfaction. We invite comment on whether additional
areas for standard measures should be added to Sec. 422.152(e)(1).
Section 422.152(e)(2) requires evaluation of the continuity and
coordination of care that enrollees receive. Together, the requirements
under Sec. 422.152(e)(1) and (2) reflect the requirements of paragraphs
(e)(2)(A)(i), (ii), (iii), and (v) of section 1852.
Sections 1852(e)(2)(B)(ii) and (iii) specify that if an M+C non-
network MSA or PFFS plan has written protocols for utilization review,
those protocols must be based on current standards of medical practice,
and have mechanisms to evaluate utilization services and inform
providers and enrollees of the results of such evaluation. These
requirements are incorporated into Sec. 422.152(e)(3).
e. Requirements for All Plans: Health Information. In order to
support the measurement of performance levels and the conduct of its
performance improvement projects, if applicable, all plans must
maintain a health information system that collects, analyzes,
integrates, and reports data. This requirement is covered at
Sec. 422.152(f). Although an encounter data system may often be the
most efficient means of meeting the requirements of this standard, the
plan may use any methods or procedures for the collection of quality
data, so long as it can demonstrate that its system achieves the
objectives of the requirement.
The strategy of relying on performance measurement and performance
standards to assess and improve quality is heavily dependent on the
validity of the data collected and reported by plans. Therefore,
Sec. 422.152(f)(1)(ii) requires that an organization ensure that the
information received from its providers is reliable and complete. If
the organization receives individual encounter data directly from
providers, it must have a system for comparing reported data to a
sample of medical records, to verify the accuracy and timeliness of
reporting or transmission. The objective is to assure that, to the
extent feasible, there is a
[[Page 34997]]
one-to-one correspondence between items included in an organization's
summary data and specific services entered in medical records or
equivalent source documents. (That is, no reported service was not
performed, and no service performed was not reported.) If the
organization receives aggregate information, instead of individual
patient encounter reporting, from any provider, under a plan the
organization must approve the provider's own system for collecting,
recording, aggregating, and reporting the data, and must assure that
the provider has its own mechanisms for validation. Identified
deficiencies in reported data should be addressed through provider
education or other corrective action. The organization's process for
recredentialing or recontracting with practitioners and providers
should specify the actions to be taken in the event of ongoing failure
by a contractor to meet the organization's health information
standards.
In addition to requiring that the information collected be accurate
and complete, Sec. 422.152(f)(1)(iii) requires that the organization
make all information collected available to HCFA. This requirement
reflects section 1852(e)(2)(A)(vi), which recognizes that HCFA cannot
adequately monitor and ensure the quality of health care services
without access to appropriate information. For example, access to this
information will allow HCFA to validate the accuracy and completeness
of the information and to evaluate performance improvement projects.
Note that although HCFA may disclose whether an organization has met
its requirements for performance improvement, we will not make public
the results of an organization's performance improvement projects, as
these results may involve enrollee-specific information.
f. Program Review. Section 422.152(f)(2) requires that for each
plan an organization have a process for formal evaluation, at a minimum
annually, of the impact and effectiveness of the quality assessment and
performance improvement program strategy. The evaluation should assess
both the progress in implementing the strategy and the extent to which
the strategy is in fact promoting the development of an effective
quality assessment and performance improvement program. It should
consider whether quality-related activities in the organization's
workplan are being completed on a timely basis or whether commitment of
additional resources is necessary. The evaluation should include
recommendations for needed changes in program strategy or
administration. These recommendations should be forwarded to and
considered by the policymaking body of the organization. These
requirements reflect the evaluation provisions of section
1852(e)(2)(A)(iv).
4. External Review (Sec. 422.154)
Section 1852(e)(3) requires, subject to the exceptions discussed
below, that each M+C organization, for each M+C plan it operates, have
an agreement with an independent quality review and improvement
organization (review organization) approved by HCFA to perform
functions of the type described in part 466 of chapter 42, which
establishes review responsibilities for utilization and quality control
Peer Review Organizations (PROs). This requirement appears in
Sec. 422.154(a).
PROs are physician-sponsored or physician-access organizations that
review services ordered or furnished by other practitioners in the same
professional field for the purpose of determining whether such services
are or were reasonable or medically necessary, and whether the quality
of such services meets professionally recognized standards of health
care. Because PROs generally are already accomplished at the activities
the statute requires of review organizations, HCFA will approve as
review organizations the PROs and PRO-like entities who are currently
under contract with HCFA to perform the functions of part 466. The
current PRO contract will expire on March 31, 1999. The entities
awarded the next contract, known as the Sixth Scope of Work, will be
approved to serve as review organizations as of April 1, 1999.
An important element of both the current and next contract is a
strategy to continuously improve quality of care and strengthen the
ability of health care organizations and practitioners to assess and
improve their own performance. Under this strategy, known as the Health
Care Quality Improvement Program, part 466 contractors use statistical
information to examine medical processes and outcomes of health care
and provide feedback to providers so that this information can be used
to benchmark progress toward improved practice and outcomes.
HCFA will establish guidelines for the agreements between M+C
organizations and review organizations modeled on the guidelines found
in part 466. The guidelines will specify that an M+C organization must
allocate adequate space for the review organization to carry out its
review (during the period of the review); and that the organization
must provide enrollee care data and other pertinent data to the review
organization on a timely basis as needed to facilitate making its
determinations. These requirements appear in Sec. 422.154(b)(1).
With respect to M+C non-network MSA and PFFS plans, for which
utilization review is not a requirement, section 1852(e)(3)(A) of the
statute exempts organizations from the requirement that there be an
agreement with a review organization. Section 1852(e)(3)(B) also
provides an exemption for review organization activities with respect
to accredited plans that HCFA determines would be duplicative of
activities conducted as part of the accreditation process. In the case
of review of quality complaints, this exemption does not apply,
however, and the requirement for investigation by the review
organization would apply even with respect to an accredited plan. This
exemption appears in Sec. 422.154(b)(2). While the statute only
mandates that the Secretary exempt accredited plans from the
duplicative review by review organizations, we believe that the same
logic extends to review activities that would be duplicative of HCFA
monitoring review. Thus, pursuant to our general authority under
section 1856(b)(1) to establish standards under Part C, we are
providing in Sec. 422.154(b)(2) that M+C organizations are also exempt
from review by a review organization that would be duplicative of HCFA
monitoring review.
Under section 1852(e)(3)(C), HCFA may waive the requirement that an
M+C organization have an agreement with a review organization if HCFA
determines that an organization has consistently maintained an
excellent record of quality assessment and performance improvement and
compliance with the other requirements of this part. As discussed in
detail above, Sec. 422.152 establishes requirements for a plan's
quality assessment and performance improvement (QAPI) program. After
the rule is effective, and HCFA has had the opportunity to assess QAPI
implementation, we will be in a position to establish waiver criteria,
which we intend to promulgate through notice and comment rulemaking.
5. Deemed Compliance Based on Accreditation (Secs. 422.156 Through
422.158)
a. Compliance Deemed on the Basis of Accreditation (Sec. 422.156).
Section 1852(e)(4) gives HCFA the authority to deem that an M+C
organization meets certain requirements if the M+C organization is
accredited and
[[Page 34998]]
periodically reaccredited by a private organization under a process
that HCFA has determined ensures that the M+C organization, as a
condition of accreditation, meets standards that are no less stringent
than the applicable HCFA requirements. We do not believe that HCFA
could effectively determine whether a potentially unlimited number of
small, regional accreditation organizations meet the standard in
section 1852(e)(4). Section 422.156 accordingly limits the deeming
provided for under section 1852(e)(4) to national accreditation
organizations. National accreditation organizations are those that
offer accreditation services that are available in every State to every
organization wishing to obtain accreditation status.
The process that HCFA will use to deem compliance with M+C
requirements will mirror the process used for deeming compliance with
fee-for-service requirements, because that process is equally
applicable to the managed care setting. Therefore, many of the
requirements of this section, as well as those in Secs. 422.157 and
422.158, are essentially restatements of their fee-for-service
equivalents in subpart A of part 488 of existing Medicare regulations.
Section 422.156(a) specifies the conditions under which an M+C
organization may be deemed to meet the HCFA requirements permitted to
be deemed under section 1852(e)(4). (These requirements are identified
in the regulations at Sec. 422.156(b).) The first condition is that the
M+C organization be fully accredited (and periodically reaccredited) by
a private, national accreditation organization approved by HCFA. Only
full accreditation offers HCFA adequate assurance that the M+C
organization meets the applicable HCFA requirements. M+C organizations
that are conditionally or provisionally accredited (or the equivalent
thereof) by their accreditation organization do not meet all of their
accreditation organization's requirements, and for this reason, will
not be deemed to meet the HCFA requirements. The second condition is
that the M+C organization be accredited using the standards approved by
HCFA for the purposes of assessing the M+C organization's compliance
with Medicare requirements. Given that certain accreditation
organizations have multiple accreditation processes (for example, other
product lines aside from their Medicare product line), this requirement
is necessary to ensure that only M+C organizations with the appropriate
accreditation are deemed to meet HCFA requirements.
Section 422.156(b) specifies the requirements that may be deemed.
In accordance with the statute, these include the quality assessment
and performance improvement requirements of Sec. 422.152, and the
requirements of Sec. 422.118 related to confidentiality and accuracy of
enrollee records. An M+C organization accredited by an approved
accreditation organization may be deemed to meet any or all of these
requirements, depending on the specific requirements for which its
accreditation organization's request for approval was granted.
Given the complexity and breadth of the benefits and services
offered under the M+C program, we believe that we should analyze the
standards applied by accreditation organizations on a standard-by-
standard basis. In the past, in the context of original fee-for-service
Medicare, we have taken an ``all or nothing'' approach in approving
accreditation organizations. If an organization was approved, it was
approved for purposes of all requirements, and all requirements were
accordingly deemed. Since section 1852(e)(4) refers to deeming of ``the
requirements involved,'' however, we intend under this authority to
determine on a standard-by-standard basis whether an accreditation
organization applies and enforces requirements no less stringent than
those in part 422 with respect to the standard at issue. We will
determine the scope of the accreditation organization's approval (and
thus the extent to which M+C organizations accredited by the
organization are deemed to meet HCFA requirements) based on a
comparison of the accreditation organization's standards, and its
procedures for assessing compliance, with the deemable HCFA
requirements and our own decision-making standards.
As mentioned above, the requirements that may be deemed are the
quality assessment and performance improvement requirements of
Sec. 422.152, and the confidentiality and accuracy of enrollee records
requirements of Sec. 422.118. We will approve an accreditation
organization only for those requirements for which it applies and
enforces standards that are as least as stringent as the HCFA
requirements. For instance, Sec. 422.152(e) requires that an M+C
organization conduct performance improvement projects that achieve
significant and sustained improvement. An accreditation organization
will not be approved for this requirement unless we determine that, as
a condition of accreditation, the accreditation organization's
requirements concerning the conduct of performance improvement projects
are as rigorous as the HCFA requirements, with a similar emphasis on
outcomes. We will make such determinations on the basis of the
application materials submitted by accreditation organizations seeking
HCFA approval in accordance with Sec. 422.158. We would also do surveys
to validate the accreditation organization's enforcement on a standard-
by-standard basis.
Section 422.156(c) establishes when deemed status is effective.
Deemed status is effective on the later of the following dates: the
date on which the accreditation organization is approved by HCFA, or
the date that the M+C organization is accredited by the accreditation
organization.
Section 422.156(d) establishes the obligations of deemed M+C
organizations. An M+C organization deemed to meet Medicare requirements
must submit to surveys to validate its accreditation organization's
accreditation process, and authorize its accreditation organization to
release to HCFA a copy of its most current accreditation survey,
together with any information related to the survey that HCFA may
require (including corrective action plans and summaries of unmet HCFA
requirements.) These two activities are part of HCFA's ongoing
oversight strategy for ensuring that the accreditation organization
applies and enforces its accreditation standards in a manner comparable
to HCFA's.
Section 422.156(e) addresses removal of deemed status. HCFA will
remove part or all of an M+C organization's deemed status if: (1) HCFA
determines, on the basis of its own survey or the results of the
accreditation survey, that the M+C organization does not meet the
Medicare requirements for which deemed status was granted; (2) HCFA
withdraws its approval of the accreditation organization that
accredited the M+C organization; or (3) the M+C fails to meet the
requirements of paragraph (d) of this section.
The final paragraph, Sec. 422.156(f), explains that HCFA retains
the authority to initiate enforcement action against any M+C
organization that it determines, on the basis of its own survey or the
results of the accreditation survey, no longer meets the Medicare
requirements for which deemed status was granted. We expect the
accreditation organization to have a system in place for enforcing
compliance with its standards, perhaps sanctions for motivating
correction of deficiencies, but HCFA cannot delegate to the
accreditation organization the authority to impose the intermediate
[[Page 34999]]
sanctions established by section 1857(g) or termination of the M+C
contract.
b. Accreditation organizations (Sec. 422.157). This section of the
regulation discusses three conditions for HCFA approval of an
accreditation organization. HCFA may approve an accreditation
organization if the organization applies and enforces standards for M+C
organizations that are at least as stringent as Medicare requirements
(as discussed above); the organization complies with the application
and reapplication procedures set forth in Sec. 422.158, ``Procedures
for approval of accreditation as a basis for deeming compliance;'' and,
the organization is not controlled by the managed care organizations it
accredits, as defined at 42 CFR 413.17. Control exists if the
accredited organizations have the power, directly or indirectly, to
significantly influence or direct the activities or policies of the
accreditation organization. We have included this requirement to
preclude any conflict of interest that should compromise the integrity
of the accreditation process.
Section 422.157(b) describes notice and comment procedures. Because
the approval of an accreditation organization could have broad impact
upon large numbers of organizations, providers, and consumers, we are
providing notice and comment opportunities similar to those provided in
the fee-for-service arena. HCFA will publish a proposed notice in the
Federal Register whenever it contemplates approving an accreditation
organization's application for approval. The proposed notice will
specify the basis for granting approval; describe how the accreditation
organization's accreditation program meets or exceeds all of the
Medicare requirements for which HCFA would deem compliance on the basis
of accreditation; and provide opportunity for public comment. HCFA will
publish a final notice in the Federal Register whenever it grants an
accreditation organization's request for approval. Publication of the
final notice will occur after HCFA has reviewed the public comments
received in response to the proposed notice. The final notice will
specify the effective date of the approval, and the term of approval,
which will not exceed 6 years.
Section 422.157(c) establishes ongoing accreditation organization
responsibilities. These responsibilities largely parallel those
currently imposed upon accreditors under original Medicare. One
exception is the requirement at Sec. 422.157(c)(4) that an
accreditation organization notify HCFA in writing within 3 days of
identifying, with respect to an accredited M+C organization, a
deficiency that poses immediate jeopardy to the M+C organization's
enrollees or to the general public. Although the existing counterpart
for this requirement under original Medicare (Sec. 488.4(b)(3)(vii))
allows an accreditation organization 10 days to provide this notice, we
believe that a 3-day time period will better enable HCFA to take any
necessary action to protect the health and safety of enrollees or the
general public in a situation that poses immediate jeopardy. (Note that
we also intend to address this issue in our planned comprehensive
revision of the deeming requirements under original fee-for-service
Medicare.)
Section 422.157(d) establishes specific criteria and procedures for
continuing oversight and for withdrawing approval of an accreditation
organization. Oversight consists of equivalency review, validation
review, and onsite observation.
Equivalency review. HCFA compares the accreditation organization's
standards and its application and enforcement of those standards to the
comparable HCFA requirements and processes when HCFA imposes new
requirements or changes its survey process; an accreditation
organization proposes to adopt new standards or changes in its survey
process; or the term of an accreditation organization's approval
expires.
Validation review. HCFA or its agent may conduct a survey of an
accredited organization, examine the results of the accreditation
organization's own survey, or attend the accreditation organization's
survey, in order to validate the organization's accreditation process.
At the conclusion of the review, HCFA identifies any accreditation
programs for which validation survey results indicate (1) a 20 percent
rate of disparity between certification by the accreditation
organization and certification by HCFA or its agent on standards that
do not constitute immediate jeopardy to patient health and safety if
unmet; or (2) indicate any disparity at all on standards that
constitute immediate jeopardy to patient health and safety if unmet.
Our beneficiary-centered approach to managed care oversight dictates
zero tolerance of accreditation organization failures to identify
noncompliance that expose beneficiaries to such serious risks. At the
conclusion of a validation review, HCFA also identifies any
accreditation programs for which validation survey results indicate,
irrespective of the rate of disparity, that there are widespread or
systematic problems in an organization's accreditation process such
that accreditation no longer provides assurance that the Medicare
requirements are met or exceeded. Accreditation programs identified as
noncompliant through validation review may be subject to withdrawal of
HCFA approval.
Onsite observation. HCFA may conduct an onsite inspection of the
accreditation organization's operations and offices to verify the
organization's representations and assess the organization's compliance
with its own policies and procedures. The onsite inspection may
include, but is not limited to, reviewing documents, auditing meetings
concerning the accreditation process, evaluating survey results or the
accreditation status decision making process, and interviewing the
organization's staff.
Notice of intent to withdraw approval. If a comparability review,
validation review, onsite observation, or HCFA's daily experience with
the accreditation organization suggests that an accreditation
organization is not meeting the requirements of this subpart, HCFA
gives the organization written notice of its intent to withdraw
approval.
HCFA may withdraw its approval of an accreditation organization at
any time if we determine that deeming based on accreditation no longer
guarantees that the M+C organization meets the Medicare requirements,
and failure to meet those requirements could jeopardize the health or
safety of Medicare enrollees or constitute a significant hazard to the
public health; or the accreditation organization has failed to meet its
obligations under Secs. 422.156, 422.157, 422.158.
The final provision of Sec. 422.157(d) addresses reconsideration.
An accreditation organization dissatisfied with a determination to
withdraw HCFA approval may request a reconsideration of that
determination in accordance with subpart D of part 488 of this chapter.
c. Application and reapplication procedures for accreditation
organizations (Sec. 422.158). As mentioned, the process that HCFA will
use to deem compliance with M+C requirements is virtually identical to
the process that is being used for deeming compliance with fee-for-
service requirements. This section of the regulation is modeled on
Sec. 488.4, ``Application and reapplication procedures for
accreditation organizations.'' One requirement that appears in
Sec. 422.158 does not appear in Sec. 488.4 is the requirement that an
[[Page 35000]]
accreditation organization applying for approval of deeming authority
submit the name and address of each person with an ownership or control
interest in the accreditation organization. Such information will be
used to determine whether the accreditation organization is controlled
by the organizations it accredits, for the purposes of Sec. 422.157.
The remaining requirements of this section, which pertain to other
required information and materials, the mechanics of the approval
process, and the reconsideration of an adverse determination, are
essentially restatements of the requirements of Sec. 488.4.
E. Relationships With Providers
Subpart E focuses on requirements for relationships between M+C
organizations and health care professionals with whom they contract or
enter agreements to provide services to Medicare beneficiaries enrolled
in an M+C plan. These requirements encourage communication,
coordination, and cooperation between organizations and health care
professionals on plan rules and policies. This subpart also includes
other new provider protections enacted as part of the BBA; incorporates
provisions affecting health professionals that are consistent with the
recommendations contained in the Consumer Bill of Rights and
Responsibilities, as recommended by the President's Advisory Commission
on Consumer Protection and Quality in the Health Care Industry, the
model act adopted by the National Association of Insurance
Commissioners, credentialing standards of nationally accepted
accrediting bodies, and QISMC standards; and incorporates policies
already applicable to provider and plan relationships included in the
current part 417 or other policy issuances. In February 1998, an
executive order was issued directing the Secretary to comply to the
extent possible through administrative activities with the standards
contained within the Consumer Bill of Rights presented to the President
in November 1997. Many of the issues were addressed in the BBA and
implementation of the regulations will expand compliance with the
directive.
1. Participation Procedures (Sec. 422.202)(a))
Section 1852(j)(1) requires an M+C organization that offers
benefits under an M+C plan through agreements with physicians to
establish reasonable procedures relating to their participation under
the plan. This is a new federal requirement for Medicare contracting
managed care organizations. Current rules in part 417 do not mandate
that HMOs/CMPs adopt provider participation rules. However, some
Medicare contractors have adopted provider participation policies in
response to state laws or plan policies.
We are interpreting this provision to apply to all M+C
organizations that operate M+C plans providing benefits through a
limited network of contracting health care professionals or groups of
health care professionals, that is, all types of M+C coordinated care
plans, such as HMOs, PPOs, etc., as well as network M+C MSA plans. In
the case of M+C private fee-for-service plans and non-network M+C MSA
plans, there are no limits on the number of health professionals who
may provide services covered under the M+C plan, as long as they accept
the plan's terms and conditions for payment. These plans in essence
operate on an ``any willing provider'' approach to which the procedures
in section 1852(j)(1) would not be relevant. Since any provider has the
right to participate, rules requiring a notice of adverse participation
decisions, and appeals from such decisions could have no applicability.
It also would not be feasible to provide the notices required under
section 1852(j)(1) and Sec. 422.202(a) (discussed below) to the
virtually unlimited number of providers who would be entitled to
provide services to a M+C private fee-for-service or non-network M+C
MSA plan enrollees.
The statutory requirements in section 1852(j)(1) focus on three
procedural aspects--ensuring that providers are aware of the plan
participation rules; requiring written notice when participation
decisions are adverse; and affording the provider an opportunity to
appeal adverse plan participation decisions. The statute specifies that
these procedures apply to plan relationships with physicians. In
reviewing the model act of the National Association of Insurance
Commissioners (NAIC), QISMC standards, and many state laws and
regulations, we found that these procedural protections generally have
been applied to all health care professionals who are responsible for
delivering services to beneficiaries of the plan, not just physicians.
Since Medicare-payments can be made to practitioners other than
physicians and since M+C organizations may furnish services utilizing a
range of licensed health care professionals, we believe it is
appropriate to apply these requirements to all health care
professionals if coverage for their services is provided under the M+C
plan. For purposes of Sec. 422.202 and Sec. 422.204, these include, but
are not limited to, a physician, podiatrist, optometrist, chiropractor,
psychologist, dentist, physician assistant, physical or occupational
therapist, speech-language pathologist, audiologist, nurse
practitioner, clinical nurse specialist, certified nurse anesthetist,
and certified nurse-midwife and licensed certified social worker. Thus,
under our authority under section 1856(b)(1) to establish standards for
M+C organizations, Sec. 422.202 requires that all professionals as
listed above should be provided with rules of participation, written
notices of participation decisions and an appeal process.
With regard to types of procedures that are subject to disclosure,
written notification and appeal requirements, we are adopting a broad
definition of procedures that might affect participation in the plan or
network. In Sec. 422.202 we specify that procedural requirements should
include any rules that affect the process of direct delivery of
services by a health professional to a Medicare beneficiary. The
examples include terms of payment, utilization review, quality
improvement programs, credentialing, data reporting, confidentiality,
guidelines or criteria for furnishing services, and other rules related
to administrative policy. All of these procedures affect how a health
care professional would participate in a plan and should therefore be
divulged up front prior to a health care professional's agreement to
participate in the plan. In addition, we believe that full disclosure
in advance, to potential participating health care professionals, of
the broad range of procedures relating to participation should reduce
subsequent challenges or appeals. While the disclosure requirement in
Sec. 422.202(a)(1) does not apply directly to M+C private fee-for-
service plans, as discussed below, M+C organizations offering such
plans will be required to make the information described in
Sec. 422.202(a)(1) available to providers treating enrollees of the
plan.
Section 1852(j) requires the provision of written notice of the
participation rules. We are requiring in Sec. 422.202 that any material
changes in rules must be provided in writing in advance of
implementation. Such advance communication would enable health care
professionals to evaluate their continued participation prior to
instituting a formal appeal process regarding any rules they believe
are adverse. This benefits M+C organizations and providers in allowing
the health care professional to judge what is adverse as this can vary
among
[[Page 35001]]
individual health care professionals; what is adverse to one physician
or health care professional may not be adverse to another.
2. Consultation (Sec. 422.202(b))
Consistent with section 1852(j)(2), Sec. 422.202(b) requires an M+C
organization to consult with physicians or relevant health care
professionals who have entered into participation agreements/contracts
with the organization regarding the organization's medical policy,
quality and medical management procedures. Pursuant to our authority in
section 1856(b)(1) to establish standards under the M+C program, in
addition to requiring consultation on any aspect of clinical policy, we
have included three specific standards relating to the development of
practice guidelines--(1) practice guidelines and utilization management
guidelines must be based on reasonable medical evidence or consensus of
relevant practitioners, developed in consultation with participating
practitioners, and reviewed and updated periodically; (2) the
guidelines must be communicated to practitioners and, as appropriate,
enrollees; and (3) decision making in utilization management, enrollee
education, interpretation of covered benefits, and other areas to which
the guidelines are applicable must be consistent with the guidelines.
These three standards are taken from QISMC discussed in section II.D.
of this preamble. These national standards also are consistent with the
NAIC model act and language adopted for state laws regarding managed
care. We believe these standards ensure that practitioners are fully
consulted in all aspects of the use of practice guidelines from
development to application.
3. Treatment of Subcontracted Networks (Sec. 422.202 (c))
In today's business environment, managed care organizations
delegate not only the provision of services to subcontracted networks,
but also a variety of policy making and implementation
responsibilities. Each health care professional is an integral part of
the organization's health care delivery system, whether he contracts
directly with the organization or through an intermediary entity, such
as an Independent Practice Association (IPA). Therefore, under our
authority in section 1856(b)(1) to establish M+C standards, in
Sec. 422.202(c) we require provider protections not only for direct
contracting physicians and health care professionals but also for all
subcontracted arrangements. Extension of the BBA provisions to
subcontracts means that providers within subnetworks (e.g. an IPA)
receive the rules of participation, written notices, and have an
opportunity to appeal. Thus, health care professionals within the
subcontracted groups should be included in the procedures established
for participation appeals and in the formulation of medical policy for
the organization. In cases where subnetworks maintain most of the
medical records for the Medicare beneficiaries they serve, it is
essential that the formulation of policy includes all of the resources
that contribute to fair and equitable treatment for beneficiaries. We
also believe that subnetworks should have the ability to grieve or
appeal decisions for the providers within their subnetworks.
4. Provider Credentialing and Provider Rights (Sec. 422.204)
Section 422.204(a), ``Basic Requirements,'' states that the M+C
organization must have a system for credentialing physicians and other
health care professionals. The M+C organization must ensure that
providers meet applicable State and Federal requirements. Basic
benefits must be provided through, or payments must be made to,
providers that meet applicable requirements of title XVIII and part A
of title XI of the Act. Also, in the case of providers meeting the
definition of ``provider of services'' in section 1861(u), basic
benefits may only be provided through such providers if they have a
provider agreement with HCFA permitting them to provide services under
original Medicare. An M+C organization may not employ or contract with
providers excluded from participation in Medicare. M+C organizations,
at a minimum, should check the OIG website at http://www.dhhs.gov/
progorg/oig for the listing of excluded providers and entities. These
requirements are promulgated pursuant to our authority under section
1856(b)(1) to establish M+C standards by regulation, and are based on
(1) the requirement in section 1852(a)(1) of the Act that Medicare
covered services be furnished through Medicare qualified providers, (2)
existing requirements in Sec. 417.416, and (3) detailed standards
developed under QISMC, discussed in section D. above.
Section 422.204(b), ``Discrimination Prohibited,'' prohibits M+C
organizations from discriminating with respect to provider
participation, provider reimbursement, or provider indemnification to
any provider acting within the scope of his license or certification
under applicable State law, solely on the basis of such license or
certification. These requirements are based on section 1852(b)(2). This
does not prohibit plans from including providers only to the extent
necessary to meet the needs of the plan's enrollees, ensure quality and
control costs, and does not prohibit an organization from reimbursing
different specialty providers differing fees for their services. It is
however, the responsibility of the organization to adopt policies
related to participation, reimbursement, and indemnification based on
reasonable criteria. Organizations may want to consider such measures
as health outcomes, satisfaction surveys, market saturation of the
provider type or other legitimate reasons.
Under Sec. 422.204(c), ``Denial, suspension, or termination of a
contract,'' organizations offering coordinated care or network MSA
plans are required to provide information on their plan participation
criteria and an appeals process for participation decisions, including
decisions involving denial, suspension or termination of contracts. We
have incorporated the timeframes for contract termination notification
between the M+C organization and its providers contained within the
NAIC model act. As discussed in section C. above, we have incorporated
similar timeframes for notice to enrollees about changes in the
provider network, including changes that result from a termination
covered under Sec. 422.204(c).
The notice and appeals requirements in this part are based on the
requirement in section 1852(j)(1)(C), requiring a process for appealing
adverse participation decisions, and, as noted above, on the NAIC model
act, and our authority under section 1856(b)(1) to establish standards
under Part C.
5. Interference With Health Care Professionals' Advice to Enrollees
Prohibited (Sec. 422.206)
Section 422.206 (a) incorporates the requirements set forth in
section 1852(j)(3)(A). This section prohibits an M+C organization from
interfering with the advice of a health care professional to an
enrollee who is his or her patient. Thus the health professional may
act within his or her scope of practice in advising the enrollee about
their health status, all relevant medical or treatment options
available regardless of whether care or treatment is provided under the
plan. For purposes of Sec. 422.206, the term health care professional
includes those listed in section 1852(j)(3)(D) of the Act. Pursuant to
our authority in section 1852(b)(1) to establish standards
[[Page 35002]]
under the M+C program, Sec. 422.206(a) includes standards from the
Consumer Bill of Rights that further delineate the types and mode of
communication between patients and health care providers regarding
health care treatment options within which interference is prohibited.
While the scope of this section governs communication regarding care or
treatment advice, we recognize that patients seek advice from
physicians regarding insurance coverage choices as well as treatment
option choices. Physicians can disclose their participation in M+C
organizations, however, we are concerned about any inappropriate
steerage based on knowledge of a beneficiary's health status or the
physician's financial interest. Program instructions will be issued as
HCFA continues to clarify policy in the area of provider marketing and
the role of physicians and other health care professionals in
disseminating M+C information to beneficiaries.
6. Conscience Protection (Sec. 422.206)
Section 422.206(b) incorporates the requirements of section
1852(j)(3)(B). The regulations state that the prohibition against
interference with the content of advice a health care provider gives to
enrollees regarding medical treatment should not be construed as
requiring counseling by a professional or a referral to a service by
that professional, if there is an objection based on moral or religious
grounds, and the M+C organization fulfills certain notification
requirements to prospective and current enrollees. The regulation
incorporates the notification process and time frames included in the
law and clarifies that the plan must also notify HCFA at the time of
application and within 10 days of submitting its ACR proposal. With
respect to current enrollees, the organization is eligible for the
exception to the rule in Sec. 422.206(a)(1) if it provides notice
within 90 days after adopting the policy at issue; however, under
Sec. 422.111(d), notice of such a change must be provided in advance.
7. Physician Incentive Plans (Secs. 422.208 and 422.210)
Consistent with section 1852(j)(4), regulations at Secs. 422.208
and 422.210 outline the limitations on the operation of physician
incentive plans. The provisions in this section are the same as those
previously included in Sec. 417.479 with some reduction in the amount
of data that must be disclosed by the organization. HCFA has determined
that the capitated data is no longer required because other sources of
data, such as encounter data required by the Act and the National Data
Reporting Requirements (NDRR) are available. The provisions are
consistent with the provisions under section 1852(j)(4) which prohibit
specific payments as a disincentive to provide services to an
individual enrollee and which place limits on the transfer of
substantial financial risk for referral services to physicians or
physician groups contracting with the M+C organization. The provisions
in these sections apply to all coordinated care and network MSA plans.
M+C private fee-for-service plans are prohibited from having a
physician incentive plan because they may not place their providers at
financial risk. The physician incentive plans regulations require that
M+C organizations conduct customer satisfaction surveys of both
enrollees and disenrollees if any physician or physician group in an
M+C organization's network is placed at substantial risk for referral
services as defined in Sec. 422.208. (Please note that there are at
least two other uses of the term ``substantial financial risk''
contained in legislation or regulation. Specifically, section 216 of
the Health Insurance Portability and Accountability Act of 1996
addressing safe harbors from the anti-kickback statute and the
determination of substantial financial risk related to PSOs (63 FR
18124, April 14, 1998)) M+C organizations may satisfy their requirement
for enrollee surveys either by their mandated inclusion in HCFA's
national administration of the Consumer Assessments of Health Plans
Study (CAHPS) or, if the organization is excluded from CAHPS due to not
having contracted with us for at least one year, by conducting their
own surveys.
8. Limitation on Provider Indemnification (Sec. 422.212)
Section 422.212 prohibits an M+C organization from having a
provider, or group of providers, indemnify the organization against any
liability arising from the organization's denial of medically necessary
care. This prohibition is a very narrow exception for a civil action
brought by, or on behalf of, an enrollee where the damage is due to a
determination by the M+C organization to deny medically necessary care.
The regulation includes the statutory language from section 1852(j)(5)
without elaboration.
9. Special Rules for Services Provided by Noncontract Providers
(Sec. 422.214)
Consistent with section 1852(k) and section 4002(e), the
regulations in Sec. 422.214 require any health care provider that does
not have a contract establishing payment amounts for services furnished
to a beneficiary enrolled in an M+C coordinated care plan to accept as
payment in full, the amounts that could have been collected if the
beneficiary were enrolled in original Medicare. An M+C organization
(other than an M+C MSA plan) satisfies its liability for Medicare
covered services if the provider receives the total amount that would
have been received if the beneficiary were enrolled in original
Medicare. This amount equals the total of Medicare's payment (including
any applicable deductible and coinsurance amounts) and any balance
billing amount that would have been allowed by original Medicare. In
the case of a participating physician or supplier, this amount would
equal the Medicare fee schedule amount for the service. For a
nonparticipating physician, this amount would equal 115 percent of the
fee schedule amount for nonparticipating physicians (which is 95
percent of the fee schedule amount applicable to participating
physicians). Of these amounts, the provider could collect from the M+C
plan enrollee the cost sharing amount required under the M+C plan, as
approved by HCFA under subpart G of part 422 and the remainder from the
M+C organization.
Section 1866(a)(1)(O) places a limitation on what a provider of
services (as defined in section 1861(u)) must accept as payment in full
for services furnished to an M+C plan enrollee. The limit is applicable
to those institutional type providers of service that do not have in
effect a contract with the M+C organization establishing payment
amounts for services furnished to an enrollee. The limitation equals
the amount that would have been payable for a beneficiary enrolled in
original Medicare less any payments that could be collected directly
from Medicare representing graduate medical education (both direct and
indirect).
10. Special Rules for M+C Private Fee-for-Service Plans
Special rules for M+C private fee-for-service plans are discussed
in section IV of this preamble.
11. Exclusion of Services Furnished Under a Private Contract
(Sec. 422.220)
Section 422.220 prohibits an M+C organization offering an M+C plan
from paying for services furnished to an
[[Page 35003]]
enrollee by a physician or other health care professional who has
signed a private contract as described in section 1802(b). Section 4507
of the BBA specifies that nothing in title XVIII of the Act shall
prohibit a physician or practitioner from privately contracting with a
beneficiary to furnish services for which no claim shall be submitted
to Medicare and no Medicare payment shall be made directly or
indirectly or by any organization paid by Medicare where the physician
or practitioner has opted out of Medicare for 2 years. Therefore, no
payment may be made by an M+C organization for services furnished to
Medicare enrollees by a physician or practitioner who opts out of
Medicare where he or she has signed a private contract with an
enrollee. There is one exception: the physician or practitioner who has
opted out of Medicare may not ask a beneficiary who requires emergency
or urgent care to sign a private contract. Therefore, where a physician
or practitioner who has opted out of Medicare provides emergency or
urgent care to an enrollee of an M+C organization, the organization
must pay for the emergency or urgent care the enrollee required. For
purposes of this provision, we consider ``urgent care'' to mean
urgently needed services as defined in Sec. 422.2.
12. M+C Plans and the Physician Referral Prohibition
One other item that relates to M+C organizations but is not
contained within the part 422 regulations is the physician referral
prohibition.
a. The prepaid health plan exception: Under section 1877, if a
physician or a member of a physician's immediate family has a financial
relationship with a health care entity (through an ownership interest
or a compensation relationship), the physician may not refer Medicare
patients to that entity for any of 11 designated health services,
unless an exception applies. Under an exception in section 1877(b)(3),
the prohibition on referrals does not apply to services furnished by
certain prepaid health plans. To qualify for the exception, the
services must be furnished by one of the following organizations to its
enrollees:
<bullet> Organizations with a contract under section 1876, which
authorizes us to enter into contracts with HMOs and competitive medical
plans (CMPs) to furnish covered items and services on a risk-sharing or
reasonable cost basis.
<bullet> Organizations with health care prepayment plans, as
described in section 1833(a)(1)(A), which authorizes payment for
Medicare Part B services to prepaid health plans on a reasonable cost
basis.
<bullet> Organizations receiving payments on a prepaid basis under
a demonstration project under section 402(a) of the Social Security
Amendments of 1967 or section 222(a) of the Social Security Amendments
of 1972.
<bullet> Qualified health maintenance organizations, within the
meaning of section 1310(d) of the Public Health Service Act.
As discussed in section I. of this preamble, beginning in January
1999, the new M+C program replaces the HMO and CMP risk contracting
program provided for in section 1876.
In enacting the BBA, Congress failed to revise section 1877(b)(3)
to except the services furnished under M+C coordinated care plans. We
believe that this must have been an oversight, since Congress expressed
no intention in the legislative history for the BBA of subjecting
existing managed care entities to the self-referral law. In addition,
subjecting physicians who have an ownership interest in an M+C
organization offering a coordinated care plan in which the physicians
participate, to the self-referral rules would be contradictory to
Congress' purposes in establishing PSOs as coordinated care plans. PSOs
are defined in the BBA provisions as entities that must be organized
and operated by a provider (which may be a physician) or a group of
affiliated health care providers (which may include physicians). These
providers must share a substantial financial risk for the provision of
items and services and have at least a majority financial interest in
the entity. The self-referral provisions, on the other hand, are
specifically designed to discourage physician ownership of entities
that provide a broad range of services to Medicare beneficiaries.
b. No risk of program or patient abuse exception--Coordinated Care
Plans: Although there is no statutory exception for services furnished
under coordinated care plans, section 1877(b)(4) allows us to create an
exception to the referral prohibition for a financial relationship
which the Secretary determines, and specifies in regulations, does not
pose a risk of program or patient abuse. An example of program abuse is
Medicare payment for unnecessary services. We will pay M+C
organizations for enrollees in coordinated care plans on a capitated
basis and beneficiaries will be responsible for premiums and cost
sharing. Section 1854 limits HCFA's capitation amount and the total
amount of beneficiary premiums and cost-sharing. Because M+C
organizations offering coordinated care plans will not be paid for each
additional service they provide, we believe that there is no risk of
over-utilization of services. Because HCFA's capitation amount and the
total amount of beneficiary premiums and cost sharing is limited, we
believe that there is no risk of program or patient abuse.
Therefore, we are excluding from the physician referral prohibition
services furnished under a coordinated care plan to an enrollee. This
exception applies in all cases in which a physician has an ownership
interest in or a compensation relationship with the M+C organization
offering the coordinated care plan. We are making a change in the
regulation text at Sec. 411.355(c)(5).
c. No risk of program or patient abuse exception--M+C MSA Plans:
M+C organizations offering an M+C MSA plan are paid a fixed capitation
amount for beneficiaries enrolled in the plan, and section 1853(a)
limits HCFA's capitation amount and section 1859(a)(3)(A) limits the
amount that M+C organizations under M+C MSA plans will pay entities for
furnishing covered services. Section 1859(a)(3)(B) limits the annual
deductible amount. However, the Act does not similarly limit the amount
that a beneficiary will have to pay as premiums and costsharing; that
is, there is no limit on beneficiary balance billing by the entities
that furnish health care services. See section IV. below. Thus,
although there is no risk of program abuse, there is a risk of patient
abuse. Therefore, we are not excluding from the physician referral
prohibition services furnished under an M+C MSA.
d. No risk of program or patient abuse exception--Private fee-for-
service plans: Section 1853(a) also limits HCFA's capitation amount to
be paid to M+C organizations under private fee-for-service-plans.
Because there will not be excessive payments by the Medicare program,
there is no risk of program abuse. However, section 1859(b)(2)(A)
provides that the plans will pay an individual or entity furnishing
services on a fee-for-service basis. Since beneficiaries are
responsible for coinsurance amounts, copayments, and balance billing
amounts under private fee-for-service plans (see section IV. of this
preamble), beneficiaries are subject to added out-of-pocket liability
if physicians providing services under a fee-for-service plan order
additional unneeded services in order to obtain additional fee-for-
service payments from the M+C organization offering the private fee-
for-service plan. Thus,
[[Page 35004]]
although there is no risk of program abuse in this case, excessive
Medicare payment, there is a risk of patient abuse. Therefore, we are
not excluding from the physician referral prohibition services
furnished under a private fee-for-service plan.
F. Payments to M+C Organizations
1. General Provisions (Sec. 422.250)
Subpart F of part 422 sets forth rules that govern Medicare payment
to M+C organizations, including the methodology used to calculate M+C
capitation rates. These rules also apply for 1998 under section 1876
risk contracts.
Payments and Adjustments: We provide in Sec. 422.250(a)(1) that,
with the exception of payments under M+C MSA plans and payments for
ESRD enrollees in all other plans, which we discuss below, we will pay
M+C organizations for each enrollee in an M+C plan they offer, a
monthly payment that is equal to 1/12th of the county-wide (or, in the
case of ESRD enrollees, 1/12th of the State rate) ``capitation rate''
under Sec. 422.252 that applies for the county in which the enrollee
lives, adjusted by demographic factors applicable to that enrollee.
Effective January 1, 2000, however, section 1853(a)(3)(C) directs us to
implement a risk adjustment methodology that accounts for variation in
per capita cost based on health status and demographic factors.
Implementation of health status risk adjusters has implications for M+C
plan data submissions, and we discuss this issue further below.
In addition to health status and demographic risk adjustments, we
make an adjustment, under Sec. 422.250(a)(2)(i)(A), to the payment rate
for M+C enrollees with end-stage renal disease (ESRD). Under
Sec. 422.250(a)(2)(i)(B), we make an adjustment that is the equivalent
to a 50 cent reduction for each renal dialysis treatment that we will
use to help pay for the ESRD network program in the same manner as
other reductions are used in original Medicare. Finally, under
Sec. 422.250(b), we provide for making retroactive adjustments to the
aggregate monthly payment to an M+C organization to reflect any
difference between the actual number of enrollees and the number upon
which we had based the organization's advance monthly payment.
Under Sec. 422.250(a)(2)(ii) for M+C MSA plan enrollees, we make a
monthly payment to the M+C organization as described above less the
amount (if any) identified in Sec. 422.262(c)(1)(ii) to be deposited in
the M+C MSA. In addition, we deposit in the M+C MSA the lump sum
amounts (if any) determined in accordance with Sec. 422.262(c). See
section III. below for a more complete discussion of payments under M+C
MSA plans.
In Sec. 422.250(a)(2)(iii), we provide for adjustments to be made
to payments under RFB plans (which are limited to members of a
religious and fraternal benefit plan) to ensure that the payment level
is appropriate for the actuarial characteristics and experience of [RFB
plan] enrollees.
Payment Areas: In Sec. 422.250(c)(1), we reflect the general rule,
under section 1853(d) of the Act, that the M+C payment area is a county
or equivalent area specified by HCFA. Under Sec. 422.250(c)(2), in the
case of beneficiaries with ESRD, the payment area is the State or
equivalent area we specify. Additionally, in a significant change to
payment area policy from the section 1876 program, section 1853(d)(3)
permits Governors of States to request that we approve alternative
geographic areas for payment rates. These alternatives are either a
single State-wide M+C payment area or a metropolitan-based system in
which all nonmetropolitan areas within the State constitute a single
payment area, and any of the following constitutes a separate M+C
payment area:
<bullet> All portions of each single metropolitan statistical area
within the State.
<bullet> All portions of each primary metropolitan statistical area
within each consolidated metropolitan statistical area within the
State.
<bullet> A consolidation of noncontiguous counties.
Section 1853(d)(3) directs us to approve a Governor's request;
however, this section of the Act also directs us to subject these
requests to a budget neutrality requirement, and any payment for
alternative geographic areas cannot exceed the aggregate payments for
that State absent the adjustment. Additionally, the Governor's request
must be submitted to us no later than February 1 of the year preceding
the contract year. This provision is implemented in Sec. 422.250(e).
2. Annual Capitation Rates (Sec. 422.252)
Among the more significant payment changes in section 1853 is the
incremental separation of capitated Medicare payments from local fee-
for-service rates. Previously, Medicare had paid risk contractors
according to the Adjusted Average Per Capita Cost (AAPCC) payment
methodology. The AAPCC was based on Medicare fee-for-service
expenditures by county and was used to pay risk contractors through
December 31, 1997. These fee-for-service expenditures were adjusted for
demographic factors (that is, age; sex; institutional, welfare, and
employment status).
The AAPCC had been legitimately criticized for its wide range of
payment rates among geographic regions--in some cases it varied by over
20 percent between adjacent counties. It was also criticized for its
poor risk adjustment capabilities and inappropriate provision of
graduate medical education funds to some Medicare risk plans. Moreover,
the AAPCC was criticized for setting erratic annual payment updates,
which often made it difficult for contracting health plans to engage in
long-term business planning. The BBA introduces a new payment
methodology that addresses these and other concerns, and we discuss
them in detail below.
``Greater of'' Payment Rate: Since January 1, 1998, Medicare
capitation rates paid to section 1876 risk contractors for each
calendar year have been the greater of a blended capitation rate, a
minimum amount rate, or a minimum percentage increase. This same
methodology will apply to payments under M+C contracts.
<bullet> The blended capitation rate is a blend of the area-
specific (local) rate and the national rate, with the latter adjusted
for input prices. The blended capitation rate is then adjusted by a
budget neutrality factor.
<bullet> The minimum amount rate will equal $367 per month per
enrollee in 1998 for all areas in the 50 States and the District of
Columbia. Outside the 50 States and the District of Columbia, the rate
is not to exceed 150 percent of the 1997 AAPCC for those areas. The
minimum amount rate will be adjusted each year using the update factors
described below. (On an individual basis, our monthly payment may be
more or less than the minimum amount due to the demographic or other
risk factors applicable to that individual used to adjust the minimum
amount rate.)
<bullet> The minimum percentage increase is 2 percent. The minimum
percentage increase rate for 1998 is 102 percent of the 1997 AAPCC.
Thereafter, it is 102 percent of the prior year's rate.
3. Calculation and Adjustment Factors (Sec. 422.254)
Blend of Area-Specific and National Percentages: The 1997 AAPCC
capitation rates serve as the base for both the area-specific rates in
the blend and the minimum percentage increase rates. Section 1853(c)(2)
stipulates that the blended area-specific/national rate
[[Page 35005]]
(discussed further below) will be implemented over a 6 year transition
period from 1998 through 2002 according to the following schedule:
<bullet> 90 percent area-specific/10 percent national in 1998
<bullet> 82 percent area-specific/18 percent national in 1999
<bullet> 74 percent area-specific/26 percent national in 2000
<bullet> 66 percent area-specific/34 percent national in 2001
<bullet> 58 percent area-specific/42 percent national in 2002
<bullet> 50 percent area-specific/50 percent national in 2003 and
thereafter.
Section 1853(c)(6) also provides for a ``national per capita M+C
growth percentage.'' Each year, from 1998 through 2002, this national
growth percentage is applied to the national and local components of
the blended rate and to the floor rate (discussed below). The national
per capita growth percentage is HCFA's projection of per capita
expenses, reduced by the following amounts established in section
1853(c)(6): 0.8 percentage points in 1998 and 0.5 percentage points
each year from 1999 through 2002. After 2002, the reduction amount is
zero. This provision is implemented in Sec. 422.254(d).
As indicated above, the blended rates are adjusted by a budget
neutrality factor. Section 1853(c)(5) provides for a ``budget
neutrality'' adjustment to the blended capitation rate under
Sec. 422.252(a), designed to ensure that the aggregate amount paid
under the M+C payment methodology equals the amount that would have
been paid if payments were based entirely on area-specific rates (as
they were under section 1876(a)). The statute requires that this budget
neutrality adjustment apply only to the blended capitation rate under
Sec. 422.252(a), rather than to the final capitation rate under
Sec. 422.252. Since the capitation rate is based upon the highest of
the blended capitation rate, the minimum payment, and the prior year's
payment plus 2 percent, the budget neutrality adjustment cannot produce
any further savings once the blended capitation rate is reduced to the
point where it is lower than the other two amounts in every county.
This is what happened for 1998 and 1999. For these years, the budget
neutrality adjustment reduced the blended rate to the point where no
county's payment rate is based upon the blended rate, since one of the
two other rates is higher in every county. Yet, even with this
reduction, the goal of the budget neutrality provision in section
1853(c)(5) was not met for 1998 and 1999. We are considering seeking a
statutory change to address this problem.
Area-Specific Component of the Blended Capitation Rate: Above we
discussed the relationship between area-specific and national rates and
how they are intended to develop into a 50/50 balance by the year 2003.
Here we discuss features of the area-specific (local) rate and,
directly below, features of the national rate.
In 1998, the base for the area-specific rate is the 1997 AAPCC,
adjusted for 20 percent of the indirect medical education/direct
graduate medical education (GME) carve-out. This is a significant
change to payment policy under section 1876 Medicare ``risk''
contracts. In accordance with section 1853(c)(3)(B), under
Sec. 422.254(e)(2), we will remove all graduate medical education
payments in the base rate between 1998 and 2002 on the following
schedule: 20 percent in 1998; 40 percent in 1999; 60 percent in 2000;
80 percent in 2001; and 100 percent in 2002 and thereafter. These GME
funds will be removed from the area-specific portion of the blended
rate. Since the national portion of the blend is computed based on the
adjusted local rates, it also reflects removal of these GME funds.
Teaching hospitals will be paid directly for the GME costs associated
with Medicare managed care enrollees under Sec. 412.322.
Additionally, pursuant to section 1853(c)(3)(C)(ii), in
Sec. 422.254(e)(3), to the extent we estimate that the 1997 per capita
base rate reflects payments to State hospitals under section
1814(b)(3), we will make appropriate adjustments to the M+C payment
rate. Payments are made to hospitals located in Maryland under this
provision.
Finally, pursuant to section 1853(c)(3)(D), in Sec. 422.254(e)(4),
we provide that HCFA may substitute a rate for the 1997 capitation rate
a rate that is more representative of the costs of the enrollees in the
area if the 1997 rate varied by more than 20 percent from the 1996
rate.
National Component of the Blended Capitation Rate: The national
component of the blended capitation rate has two major features: (1)
the national standardized annual capitation rate; and (2) the national
input-price-adjusted capitation rate.
The national standardized annual capitation rate is a weighted
average of all area-specific rates adjusted for risk factor weights
used to calculate payments as though all eligible individuals were
members of an M+C plan. The calculation for the national standardized
annual capitation rate is described at Sec. 422.254(f).
The input-price-adjusted annual national capitation rate is
adjusted for geographic variation in the prices of goods and services
used to produce medical services and is the sum of the products of
three amounts:
<bullet> The national standardized annual capitation rate for the
year, which consists of the weighted average of all area-specific
capitation rates.
<bullet> The proportion of the rate that is attributable to each
type of service.
<bullet> An index that reflects (for that year and that type of
service) the relative input price of services in the area, as compared
to the national average input price for these services.
The input-price-adjusted annual national capitation rate is
described in Sec. 422.254(g).
4. Adjustments to Capitation Rates and Aggregate Payments
(Sec. 422.256)
Beginning with 1999 payment rates, we will adjust all area-specific
and national capitation rates (and beginning with the 2000 payment
rates, the minimum amount rate) for the previous year to reflect any
differences between the projected national per capita growth
percentages and the current estimates of those percentages.
We will also adjust for national coverage determinations (NCD) that
were significant cost as defined in Sec. 422.109 and defined above. An
NCD is a national policy statement regarding the coverage status of a
specified service that we make under administrative authority and
publish in the Federal Register as a notice of HCFA Ruling. (The term
does not include coverage changes mandated by statute.)
If we determine that the cost of furnishing a service subject to an
NCD is ``significant,'' we will adjust capitation rates for the next
calendar year to take into account the cost of that service. Until the
new capitation rates are in effect, the M+C organization would be paid
through original Medicare for the provision of such services.
Risk Adjustment: Section 1853(a)(3) requires us to develop and
submit to the Congress, by March 1, 1999, a report on a proposed method
of risk adjustment of M+C payment rates. We are also required to
implement a risk-adjustment methodology for payment periods beginning
on or after January 1, 2000. We provide for such risk adjustment in
Sec. 422.256(d). Under the previous payment methodology, the AAPCC, we
used a demographic risk adjuster that has been criticized as an
inadequate predictor of health care costs.
[[Page 35006]]
Nonetheless, until the new risk adjustment methodology is implemented
in 2000, we will be using the same demographic adjusters used under the
AAPCC method to make demographic adjustments under Sec. 422.256(c) to
the capitation rate determined under Sec. 422.252. Section
1853(a)(3)(C) specifically directs HCFA to implement health-status
based risk adjusters, as well as ``other demographic factors.'' Section
1853(a)(3)(D) requires that, with the exception of enrollees in M+C RFB
plans, the same risk adjustment methodology be used for all enrollees
in M+C plans, regardless of plan type. The implementation of health-
status based risk adjusters has major implications for M+C
organizations' data requirements, as discussed directly below.
5. Encounter Data (Sec. 422.257)
Section 1853(a)(3)(B) addresses the collection of encounter data
from M+C organizations needed to implement the risk adjustment
methodology. The Act requires that the collection of inpatient hospital
data for discharges beginning on or after July 1, 1997 and allows the
collection of other data no earlier than July 1, 1998. The statutory
language is tied to the creation of risk-adjusted payment rates, as
defined at Sec. 422.256(c) and (d) of this rule. Requirements
concerning collection of encounter data apply to M+C organizations with
respect to all their M+C plans, including and private fee-for-service
plans.
There are two different ways encounter data are used for risk-
adjustment purposes. To calculate payment rates, encounter data are
necessary to tie payment to expected patient resource use using
diagnosis codes. The initial risk-adjusted payment will be based on
inpatient hospital encounter data. However, use of an inpatient-based
system in the long run has two major weaknesses: (1) It provides M+C
organizations with an incentive to hospitalize their enrollees in order
to receive additional payment; and (2) a risk-adjustor system based
only on inpatient hospital diagnosis codes will not allow more accurate
payment for the chronically-ill-but-not-hospitalized. For both of these
reasons, we have developed a more comprehensive risk-adjustment
methodology that uses diagnosis data from physician services and
hospital outpatient department encounters. In addition, physician
services data include data from limited license practitioners, such as
clinical psychologists and nurse midwives who provide services
independently, but do not include nonprofessional services ordered by
physicians as a result of the initial physician services furnished,
such as laboratory services and durable medical equipment.
Encounter data are also necessary to ``recalibrate'' any risk-
adjusted payment model. Recalibration is necessary to adjust the
payment models for improved coding. For example, upcoding may occur if
plans improve coding of beneficiary diagnoses and, as a result, the
average use of resources for enrollees in a particular category may be
less than when the relative payment rates were determined. When this
happens, the average actual expenditures per enrollee for these
diagnoses are less than the average expenditures used to assign the
original payment weights. The result is overpayment for some diagnoses
in the risk adjustment model. To account for possible coding changes,
all risk adjustor payment model diagnosis weights would be
recalculated, or ``recalibrated'' based on encounter data gathered
after implementation of risk adjustment. A preferred method for full
recalibration requires that all services provided to each M+C plan
enrollee be priced and the total cost of care determined for each
enrollee. This approach would require that organizations submit
encounter data for all services provided to each enrollee. An
alternative approach would require the organizations to submit to HCFA
the cost of providing medical care for each Medicare enrollee, but
organizations might oppose such a requirement as too intrusive.
While the purpose of collecting the encounter data will be to
calculate risk-adjusted payments, there are a wide variety of other
uses of whatever data we collect. Quality improvement targets can be
identified using encounter data. Our ability to monitor the care
received by M+C enrollees through targeted special studies (such as an
examination of post-acute care utilization patterns) will be greatly
enhanced by the availability of encounter data. Encounter data will
also be useful for program integrity functions, both by providing
additional utilization norms for original Medicare billing and by
providing additional information regarding M+C organizations' behavior.
Timing of Encounter Data Collection: The first issue to address
with regard to data collection is the ability of the organizations to
generate the necessary data and to ensure accurate transmission. While
some organizations will be able to transmit encounter data quickly and
with little difficulty, others will be further behind in their internal
information systems development. To the extent that organizations have
capitated arrangements with their providers, they may not currently
require encounter-type data from those providers. The ability to
generate encounter data may well vary by type of service provided as
well as by type of organization submitting the data. All organizations
will have to conform to the HIPAA information system standards
regarding encounter data formats by 24 months (36 months for small
organizations) after the effective date of the final rule (currently
estimated to be published in the fall of 1998), so the main issues with
regard to the organizations should be transition issues rather than
long run implementation issues.
HCFA has issued instructions delineating a specific timetable for
M+C organizations to submit inpatient hospital data. M+C organizations
will be required to select a fiscal intermediary designated by HCFA to
transmit data.
Given any start date, comprehensive risk-adjusted payments will be
made about 3 years after the year of the initial collection of
outpatient hospital and physician encounter data. Similarly,
recalibration of the risk-adjusted payments to reflect managed care
practice patterns could occur about 3 years after the complete data are
collected. In order to minimize the period for which payments are
determined based on inpatient hospital data only, we will provide
advance notice to M+C organizations to collect and submit physician,
outpatient hospital, SNF, and HHA data beginning no earlier than
October 1, 1999; and all other data HCFA deems necessary beginning no
earlier than October 1, 2000.
Because M+C organization payments will depend on the data
transmitted and because M+C organizations are the entities with which
HCFA contracts, we will hold the M+C organization responsible for
transmission of the data. If the M+C organization is held responsible,
it follows that they should transmit the data directly, rather than
monitoring the transmission by their providers. We will allow
organizations to hire third party data transmitters, but the M+C
organization will be responsible for the accuracy and completeness of
the data transmitted.
Data Format: The format of the data we will require will be
identical to the data we require of original Medicare providers of
similar services, because pricing of the data using original Medicare's
methods is necessary for recalibration. The data will be processed
using designated HCFA contractors. Providers are familiar with the HCFA
[[Page 35007]]
1500 (or its electronic equivalent) and the electronic UB-92 (or other
electronic equivalent) through their original Medicare billings. In
addition, organizations will have mechanisms in place to receive UB-92
data from hospitals and send it to fiscal intermediaries by July 1,
1998, because of the requirements for submission of inpatient encounter
data. It would clearly be beneficial to all parties to use the UB-92
and this transmission format for any other required data that is
currently submitted on the UB-92 in original Medicare. There are no
current organization-to-carrier links for data HCFA currently processes
on the electronic version of the HCFA 1500. From the provider,
contractor, and HCFA point of view, it is clear that use of the
electronic version of the HCFA 1500 would minimize any data collection
burden.
Data Accuracy: Audit of the data will be necessary to ensure
accuracy; any audit efforts will include medical record review for a
portion of the submitted data. Statistical analysis (for example,
examination of hospitalization rates for various organizations and
inquiry into outliers) will be combined with traditional audit methods
in order to maximize our examination of the data while managing the
amount of contractor resources used for audit.
6. Announcement of Annual Capitation Rates and Methodology Changes
(Sec. 422.258)
Previously, under section 1876, we were required to announce
Medicare risk contractor payment rates by the first week in September,
no later than 45 days after publishing for comment our mid-July
announcement of payment methodology changes. This schedule was designed
to allow HMOs and CMPs time to consider the coming year's payment
rates, decide about their continued participation in the Medicare
program, calculate their Adjusted Community Rate (ACR) proposal, and,
finally, afford us the time to approve or disapprove the ACR proposal
prior to the January 1 contract effective date.
Under section 1853(b)(1), starting in 1998, we must announce rates
by March 1 of the year prior to the year the rates apply. We must
include in this announcement a description of the risk and other
factors and explain the methodology in sufficient detail to enable M+C
organizations to compute monthly adjusted capitation rates for
individuals in each of their payment areas.
The March 1 announcement will ensure that subsequent events can
occur to meet the November annual coordinated election period
stipulated in section 1851(e)(3). As under prior law, 45 days prior to
announcing payment rates on March 1, section 1853(b)(2) requires us to
provide notice of changes in the methodology and assumptions used in
the previous year.
7. Special Rules for Beneficiaries Enrolled in M+C MSA Plans
(Sec. 422.262)
The BBA establishes special rules for beneficiaries enrolled in M+C
MSA plans, and we discuss them in detail under section III. below.
8. Special Rules for Coverage That Begins or Ends During an Inpatient
Hospital Stay (Sec. 422.264)
The BBA contains special payment rules for situations where an M+C
enrollee's coverage begins or ends while the Medicare beneficiary is a
hospital inpatient. Section 1853(g) provides that, where a beneficiary
is receiving inpatient hospital services from a hospital covered under
original Medicare's prospective payment system (PPS) or another M+C
organization on the effective date his or her M+C election of a new M+C
plan, payment for inpatient services (up until the date of discharge)
would continue to be the responsibility of the original Medicare
program or previous M+C organization. The M+C organization offering the
newly elected M+C plan would not be responsible for inpatient hospital
service payment until the date of discharge, and original Medicare or
the previous M+C organization would pay the full amount for that
beneficiary for that inpatient episode, even if it extends beyond the
effective date of a beneficiary's M+C election.
In the case of a beneficiary's M+C plan election ending while he or
she is a hospital inpatient, the M+C organization remains responsible
for payment for inpatient hospital services furnished by a hospital
after expiration of enrollment up until the date of discharge. Payment
for these services would not be made under Medicare's PPS system, and
the responsible M+C organization would not receive any payment from us
for the hospitalized individual during the period the individual was
not enrolled.
9. Special Rules for Hospice Care (Sec. 422.266)
Section 1853(h) of the BBA contains special provisions for Medicare
beneficiaries who elect hospice care concurrent with their enrollment
in an M+C organization. Specifically, an M+C organization must inform
each Medicare enrollee eligible to elect hospice care under section
1812(d)(1) about Medicare hospice programs within the M+C plan's
service area. If it is common practice to refer patients to hospice
areas outside the service area, the organization must inform the M+C
enrollee of that as well. This information must be provided to
beneficiaries in a manner that objectively presents all available
hospice providers, including a statement of any ownership interest held
by the M+C organization or a related entity. If the M+C organization
has an ownership or other financial interest in one or more of the
available hospice providers, M+C plan enrollees cannot be required to
use that hospice provider.
BBA payment provisions for hospice care state that our monthly
payment to the M+C organization will be reduced to an amount equal to
the adjusted excess amount in the M+C plan's approved ACR. Beyond the
adjusted excess amount, we pay through original Medicare for hospice
care furnished to the M+C plan enrollee. We also pay through original
Medicare (to the M+C organization), for other Medicare-covered services
furnished to the hospice patient.
Unless the individual disenrolls from the M+C plan, an M+C enrollee
electing hospice continues his or her enrollment in the plan and is
entitled to receive through the plan any benefits, other than those
that are the responsibility of the Medicare hospice.
10. Source of Payment (Sec. 422.268)
As under the section 1876 risk program, we will determine which
proportion of payments to M+C organizations comes from the Hospital
Insurance Trust Fund (Part A) and which proportion of payments comes
from the Supplementary Medical Insurance Trust Fund (Part B). We
determine these proportions based on the actuarial value of total
benefits under both parts.
G. Premiums and Cost-Sharing
Subpart G of part 422 details provisions found in section 1854 for
the M+C program. In this subpart we discuss how limits on M+C plan
enrollee premiums and other cost sharing are established through the
ACR approval process. The ACR process is applicable to all M+C plans
except M+C MSA plans. M+C MSA plans are not required to submit an ACR,
but other information must be submitted for HCFA's review (see
discussion below). We discuss limitations that the process imposes on
other cost-sharing that M+C organizations may impose on Medicare
enrollees for the M+C plan they elect.
[[Page 35008]]
Note that there are a number of terms pertinent to the following
discussion, and they are defined in Sec. 422.302 of this rule. ACR and
APR are terms that were used under section 1876 risk program. Section
1854(b) discusses the definition of the terms relating to beneficiary
premiums. The term additional revenues is discussed in detail in
section 5 below.
As under the section 1876 risk program, the ACR process under the
BBA serves three important purposes. First, HCFA examines an M+C
organization's ACR proposal for each M+C plan to determine whether
Medicare payments in excess of the amount the organization would charge
commercially for Medicare-covered benefits are passed on to
beneficiaries in the form of added additional benefits. Second, we
review ACR proposals to determine whether the structure of premiums,
deductibles, copayment, and coinsurance charged to beneficiaries are
within the limits established by law as required under section
1854(f)(1)(A). Third, benefit package information is reviewed to
determine whether the benefit package is in compliance with the
principles contained in subpart C.
We have taken into account that the M+C program is a significant
departure from the section 1876 risk contracting program it replaces.
Therefore, we are allowing a special period during which organizations
will be able to add benefits (at no additional cost to the M+C plan
enrollee) or lower premiums or cost-sharing mid-year. We also are
providing for the submission of ACRs on a date other than May 1 if a
contract will begin on a date other than January 1. The transition
rules for this period are found in Sec. 422.300(b). This special period
will end on December 31, 2001.
1. Rules Governing Premiums (Sec. 422.304)
This section of the regulation implements provisions of the BBA
relating to premiums paid by (or behalf of) beneficiaries. Each
Medicare enrollee must be afforded the opportunity to pay the M+C plan
premium on a monthly basis and, as under the section 1876 risk program,
pursuant to Section 1128B(b) of the Act, the M+C organization may not
provide for cash or other financial rebate as an inducement for
enrollment (or for any other reason).
As discussed in above, section 1852(a)(1) requires an M+C
organization to include in its M+C plan all services covered under
original Medicare (except hospice care) that are available to Medicare
beneficiaries in the area in which services are covered under the M+C
plan. In addition, additional benefits must be provided to all
enrollees electing the M+C plan (see section 1854(f)(1)). Section
1852(a)(3) allows an M+C organization to add supplemental benefits to
the M+C plan either at the M+C organization's discretion (with our
approval) or at the enrollee's election. For these benefits offered
through a coordinated care plan, section 1854(e) does not allow the M+C
organization in total, for the year, to impose a total average cost to
the beneficiary, with an actuarial value greater than the actuarial
value of original Medicare's deductibles and coinsurance for items and
services covered by original Medicare plus the actuarial value approved
through the ACR process for supplemental services. For M+C PFFS and M+C
MSA plans, see discussion below.
Section 1854(c) provides that M+C basic and supplemental
beneficiary premiums and M+C MSA premiums may not vary among
individuals enrolled in the plan. This means that all enrollees in a
given M+C plan must be charged the same premium amount for basic
benefits and for any supplemental benefits the M+C organization may
choose to offer. In the case of coordinated care plans, this uniform
premium counts toward an overall limit on the actuarial value of
beneficiary liability in section 1854(e) (discussed further below).
Thus, in the case of coordinated care plans, the actuarial value of any
cost-sharing imposed under the plan would also be uniform, since a
uniform premium would be subtracted from a uniform overall limit to
determine the amount that can be charged in cost-sharing.
We believe that section 1854(c) reflects congressional intent that
all beneficiaries enrolled under a particular M+C plan pay the same
amount. While cost-sharing amounts are not expressly mentioned, in the
case of coordinated care plans, there is a uniform limit on the
actuarial value of cost-sharing. Accordingly, pursuant to our authority
in section 1856(b)(1) to establish M+C standards, we are providing in
Sec. 422.304(b) that M+C organizations may not vary the level of
copayments, coinsurance, or deductibles charged for basic benefits or
supplemental benefits among individuals enrolled in an M+C plan.
2. Submission of Proposed Premiums and Related Information
(Sec. 422.306)
Section 1854(a) requires each M+C organization to submit no later
than May 1 information about the M+C plan the organization wants to
offer in the subsequent year. As under the Medicare section 1876 risk
program, except in the case of M+C MSA plans, such information includes
a complete description of the services included in the M+C plan, ACR
and service area information, premium amounts, and descriptions of
enrollee cost sharing. For M+C MSA plans, organizations have to submit
the MSA premium that is used to determine the MSA deposit. No ACRs are
required for M+C MSA plans. Pursuant to our authority in section
1856(b)(1), we have added a new requirement that M+C organizations also
submit information on amounts collected in the previous contract period
for basic benefits. We have done this to assure Medicare enrollees are
not being charged cost-sharing that exceeds the limits in section
1854(e)(see Sec. 422.308).
Section 422.306(a) reflects the requirement in section 1854(a)(1)
that the information in paragraphs (b), (c), and (d) of Sec. 422.306 be
submitted by May 1 of the year prior to the year for which the
information is submitted. This information is needed timely in order
for HCFA to comply with the requirement in subpart B that comparative
information on M+C plans be provided to Medicare enrollees. As noted
above, during the transition period prior to 2002 provided for in
Sec. 422.300(b), M+C organizations may be permitted, at HCFA's
discretion, to submit applications and ACR information on a flow basis
and as discussed in section K below, under Sec. 422.504(d) contracts
could begin on a date other than January 1. In such a case, benefit
package and pricing structures must be approved before the contract can
take effect. Beginning with the 2002 calendar year, however, anyone
wishing to offer an M+C plan in that year must submit an ACR by May 1
of the previous year (May 1, 2001 in the case of 2002).
If the information submitted is not complete, accurate, or timely,
HCFA has the authority to impose sanctions under subpart O or may
choose not to renew the contract.
We will review and approve all information submitted except for any
amounts submitted by M+C MSA plans and premiums submitted by M+C
private fee-for-service plans. Premiums and cost sharing will be
reviewed in accordance with the rules established in Sec. 422.310.
Benefits offered under the M+C plan will reviewed in accordance with
the rules established in Subpart C.
3. Limits on Premiums and Cost-Sharing Amounts (Sec. 422.308)
The rules in this section set the limits on the amount an M+C
organization may charge a Medicare enrollee of an M+C plan. Section
1854(b) specifies that
[[Page 35009]]
the premium that a beneficiary is charged under an M+C plan other than
an M+C MSA plan is the M+C monthly basic premium, plus any M+C
supplemental premium. In the case of an M+C MSA plan, the beneficiary
is charged only any M+C supplemental premium that may apply. The limits
of Medicare enrollee liability are:
<bullet> For M+C basic benefits (Medicare covered services and
additional benefits) offered by coordinated care plans: 12 times the
basic monthly premium, plus the actuarial value of plan cost-sharing
(copayments, coinsurance, and deductibles) for the year, cannot exceed
the actuarial value of original Medicare's deductibles and coinsurance
for the year or, if less, the amount authorized to be charged in the
ACR (see Sec. 422.310).
<bullet> For M+C basic benefits (Medicare covered services and
additional benefits) offered by M+C private fee-for-service plans: the
actuarial value of plan cost sharing (copayments, coinsurance, and
deductibles) for the year, cannot exceed the actuarial value of
original Medicare's deductibles and coinsurance for the year or, if
less, the amount authorized to be charged in the ACR (see
Sec. 422.310).
<bullet> For supplemental benefits offered by a coordinated care
plan: 12 times the M+C monthly supplemental premium plus the actuarial
value of plan cost sharing (copayments, coinsurance, and deductibles)
cannot exceed the ACR for such benefit or, if less, the amount
authorized to be charged in the ACR (see Sec. 422.310).
It is possible for an M+C organization to have M+C plan enrollees
that are entitled to Medicare Part B benefits only. Section 1876(k)(2)
specifies that existing Part B enrollees under section 1876 risk
contracts on December 31, 1998 may remain as enrollees of the
organization in accordance with regulations under section 1856(b)(1) if
the organization enters into an M+C contract on January 1, 1999.
Pursuant to sections 1876(k)(2) and 1856(b)(1), this final rule
provides for such continued Part B-only enrollment, and Sec. 422.308
provides that the limit on enrollee charges is the same as the limit
that applies to other enrollees, except that the limit is based only on
the actuarial value of cost sharing paid under Part B of original
Medicare.
Also pursuant to our authority in sections 1876(k)(2) and
1856(b)(1), in Sec. 422.308(a)(3), we impose a limit on the liability
of Part B-only enrollees for an M+C organization's coverage of services
that would be covered by Medicare Part A if the enrollee had Part A
coverage. Specifically, we provide that the premium and cost sharing
charged for such coverage may not exceed the lesser of what Medicare
would pay an M+C plan in capitation for the services, plus the
actuarial value of Medicare Part A deductibles and coinsurance, or the
ACR for such services.
The above-described limits on enrollee liability apply to enrollee
costs incurred for services furnished by noncontracting providers as
well as providers that contract with the M+C organization offering the
M+C plan in which the beneficiary is enrolled. In the case of
contracting providers, limits on enrollee liability would generally be
delineated in the contract between the provider and the M+C
organization. Also, in the case of most coordinated care plans (for
example, HMOs), it could be assumed that most nonemergency services
will be obtained through contract providers.
Thus, to the extent an M+C coordinated care plan provides for
different cost sharing in the case of noncontracting providers, it is
not difficult to estimate the percentage of services that will be
obtained at that level of cost sharing, when making the overall
projection of the actuarial value of the cost sharing structure. In the
case of M+C private fee-for-service plans, it is less clear to what
extent noncontracting providers will be used, and the information on
actual cost sharing from the prior year will be particularly valuable
in assessing the accuracy of actuarial projections by the M+C
organization. We note that in all cases, beneficiary liability is
limited to the cost sharing provided for under the plan in the case of
noncontract provider services. While sections 1852(k) and 1866(a)(1)(O)
require noncontracting providers to accept as payment in full the
amounts that they would be required to accept under original Medicare,
balance billing to the beneficiary may be permitted under original
Medicare but it is not permitted under the M+C plan in question. The
M+C organization must hold beneficiaries harmless against any such
balance billing. See section IV. below for a discussion of this issue
in connection with M+C private fee-for-service plans and section III in
connection with M+C MSA plans.
4. Incorrect Collections of Premiums and Other Cost Sharing
(Sec. 422.309)
This section contains procedures to be used in situations where an
M+C organization collects more than the amount that is allowed to be
charged to the Medicare enrollee. These procedures were developed using
the rules previously applied under section 1876 and promulgated under
our authority in section 1856(b)(1) to establish standards under Part
C.
Section 1857(d) requires that at least \1/3\ of the M+C
organizations be audited for, among other things, data used in the
submitted ACR and all charges to the M+C plan enrollee for benefits
covered under the M+C plan. These audits may reveal that the M+C
organization has been overcharging the M+C plan enrollees. Section
422.309 requires the M+C organization to refund these over collections
through an adjustment to current and future premiums allowed to be
charged across all M+C plan enrollees.
We note that in addition to the above requirements for refunding
amounts incorrectly collected, an M+C organization that collects
amounts in excess of those permitted is subject to intermediate
sanctions and civil money penalties under subpart O. See section
422.752(a)(2) and discussion below in section II. O. of the preamble.
Refunding amounts improperly collected, at a minimum, would be a
prerequisite to the lifting of such sanctions.
5. ACR Approval Process (Sec. 422.310)
Section 1854 requires that an ACR proposal be submitted each year
for each M+C coordinated care plan or M+C private fee-for-service plan,
and that premiums be filed for MSA plans. Section 422.310 of this rule
sets forth the rules M+C organizations must follow to determine the
limits placed on an M+C plan's price structure (premiums, copayments,
coinsurance, deductibles, etc.). Since this regulation was not
published until after May 1, 1998, new requirements under this rule
discussed below will apply to contract periods beginning on or after
January 1, 2000. For contract periods beginning before January 1, 2000,
M+C organizations shall use the rules promulgated in accordance with
section 1876 for risk contractors to determine the limits placed on M+C
plan's price structure.
Under the existing ACR process, a M+C organization must establish
an initial rate for non-Medicare enrollees for each M+C plan offered.
This rate is determined through a community rating method (defined in
section 1308 of the Public Health Service Act) or an aggregate premium
method. The initial rate is then modified by the relative difference in
utilization characteristics of the Medicare population compared to the
non-Medicare population included in the initial rate. Additional
adjustments may be made with our agreement. Those M+C organizations
that do not have a non-Medicare
[[Page 35010]]
population cannot establish an initial rate. These M+C organizations
will be allowed to use an estimate of the ACR value for a service or
services offered using generally accepted accounting principles. These
estimated values will be treated as additional adjustments for our
review.
The ACR computation places a limit on the beneficiary premiums and
cost-sharing amounts of an M+C plan, and we will only approve the
beneficiary premiums and cost-sharing amounts proposed by an M+C
organization for a specific M+C plan if they do not exceed the ACR
limits.
As noted above, Sec. 422.310 contains new requirements for
calculating ACRs that will require existing section 1876 contractors to
change the methodology they have used to calculate their ACRs under
section 1876. We recognize that section 1856(b)(2) provides that
consistent with the requirements of Part C, standards established under
Part C should be based on standards established under section 1876 to
carry our analogous provisions of that section. The requirements in
Sec. 422.310 are based on, and fully consistent with, the existing
section 1876 requirements in Sec. 417.594. An M+C organization
following the methodology set forth in Sec. 422.310 would fully comply
with the existing ACR provisions in Sec. 417.594.
However, based upon our years of experience under the section 1876
program, we have determined that the language in Sec. 417.594 permitted
HMOs and CMPs to use methods for calculating their ACRs that produced
ACRs that we do not believe accurately reflected the statutory standard
implemented in that section. Indeed, the existing methodology has been
criticized by the General Accounting Office and the Office of the
Inspector General as inaccurate, and subject to modification by
organizations. The existing methodology also did not provide for
necessary adjustments (for example, based upon changes in utilization
assumptions in anticipation of changes in cost sharing structures, or
changes in Medicare coverage) that we provide for in Sec. 422.310.
Also, as discussed below, some of these changes accommodate the fact
that some organizations do not maintain data used under the old
methodology (service statistics) but do maintain data (cost data) used
under the new methodology in Sec. 422.310. Finally, the existing ACR
form necessarily has to be changed to adapt to the new options under
the M+C program.
For all of the above reasons and others discussed below, pursuant
to our authority in section 1856(b)(1) to establish standards for M+C
organizations, and consistent with the provision in section 1865(b)(2)
that such standards be based on section 1876 standards, we have built
on the existing ACR methodology in Sec. 417.594 but refined this
methodology in order to ensure the accuracy of ACRs under the M+C
program.
Specifically, we have added the following new requirements to the
provisions in Sec. 417.594:
1. Revision of data requirements used to develop differences in
utilization characteristics of the Medicare population from a relative
service ratio to a relative cost ratio (for additional revenue, a
relative excess revenue ratio) experienced in a prior period.
2. Separation of the administrative component into two parts--an
administrative cost component and a component that reflects revenues
collected in excess of costs.
3. Provision for an M+C organization to adjust for relative
differences that the organization expects to encounter in the period
covered by the ACR that were not reflected in the prior period. Below
we discuss each in turn, including where the new process diverges from
the former ACR methodology.
Revision of Data Requirements Used to Develop Differences in
Utilization Characteristics of the Medicare Population from a Service
Ratio to a Cost Ratio Experienced in a Prior Period: Currently, risk
contracting plans (HMOs) under section 1876 of the Act use a relative
volume/complexity (V/C) factor to modify commercial premiums for each
health care component (e.g. inpatient hospital, physician) to account
for differences in utilization characteristics between commercial
members and Medicare members. The modified commercial premium is the
ACR value for that health care component applicable to the Medicare
enrollee.
Currently, HMOs are directed to develop the V/C factors using
comparative service statistic ratios on a health care component basis.
Service ratios require HMOs to supply a large amount of service
statistics.
Risk contractors assert that they, as a rule, do not keep service
statistics in the same manner, format, and/or detail needed to compute
these ratios. Some HMOs have resorted to using statistics gathered from
one commercial package to be compared to all Medicare enrollee
statistics. Others have used estimations of service statistics
(especially for those services not offered by the HMO in the past).
Managed care organizations keep detailed records on the cost of
care included in the benefit packages sold. Since the cost of providing
medical care is a function of both volume (number of services) and
complexity (price of the service), M+C organizations could compare the
direct cost of medical care (incurred in a previous period) between the
organization's commercial and Medicare populations on an average per
enrollee basis to account for differences in utilization
characteristics of the respective populations. For those services not
offered in the past, the M+C organization could use an estimate of the
cost to establish an ACR value for the new service.
We believe this modification of data requirements will make the ACR
more accurate, easier to process, and ultimately, easier to verify.
Costs could be compared from year to year to establish the
reasonableness of the data provided. In addition, cost data as reported
could be compared to other required reports and the organization's
financial statements. Later, during monitoring visits, costs could be
compared to the organization's financial records.
This approach is justified in view of the expanded participation of
different types of M+C plans authorized in the BBA. BBA provisions
include organizations offering new types of M+C plans that may not have
an enrolled commercial population and, without an enrolled commercial
population, these organizations would be unable to complete the current
ACR. Under the new method, these M+C organizations would be allowed to
develop a cost estimate for the purpose of establishing an ACR value
for the Medicare population.
Separation of Administrative Component into Two Components--an
Administrative Cost Component and a Component that Reflects Revenues
Collected in Excess of Costs: Currently, HMOs are directed to bundle
that part of the commercial premium that represents any excess revenue
over expenses with administration into one component. In Sec. 422.302,
we refer to the component of the premium that represents revenue in
excess of costs incurred as ``additional revenues.'' Specifically, we
define ``additional revenues'' to mean revenues collected or expected
to be collected from charges for M+C plans offered by an M+C
organization in excess of costs actually incurred or expected to be
incurred. Additional revenues would include such things as revenues in
excess of expenses of an M+C plan, profits, contribution to surplus,
risk margins, contributions to risk reserves, assessments by a related
entity that do
[[Page 35011]]
not represent a direct medical or related administrative cost, and any
other premium component not reflected in direct medical care costs and
administrative costs.) The combined component representing
administrative and excess revenues was then converted to a Medicare
value using the same method the HMO used to compute the amount for
commercial enrollees. HMOs have consistently claimed they use a
percentage method (For example, administration is calculated as a
specific percentage of health care components). In effect, this
increases the administration and additional revenues anywhere from 300
percent to 500 percent for Medicare. In addition, this bundling assumes
that both administration and additional revenues are similar in nature
and should be treated the same.
Under the new ACR, we are requiring M+C organizations to divide the
administrative component into two parts and modify each part with a
factor that is consistent with each part. We believe this will provide
HCFA with data that is both more accurate and more useful.
Administrative costs will be included in the ACR computation in the
same manner as they are incurred in commercial premiums. M+C
organizations will be required to reveal projected amounts of
additional revenues to HCFA for each population group (commercial and
Medicare). M+C organizations would be required to justify larger
additional revenues projected for the Medicare population in relation
to their commercial population.
Construction of a Method for an Organization to Adjust for Relative
Differences the Organization Expects to Encounter in the Period Covered
by the ACR that Were not Reflected in the Prior Period: Section 1876
allowed for modification of the initial rate by a relative factor of
services furnished in a prior period. Implementing regulations did not
allow for any other modifications to the initial rate in establishing
the ACR for a service or services, and we have since recognized that
additional modifications to the initial rate may be necessary. For
example, Medicare coverage may be increased from one year to the next.
If the organization did not provide the service in the past and no
additional modifications to the initial rate were allowed, the
organization could not adjust for the new service in its ACR.
Organizations also had no method for making adjustments to take into
account projected changes in utilization patterns that would result
from changes in cost sharing amounts. We have included a provision in
this rule to allow for such changes.
M+C organizations will be allowed to further reduce the ACR values
so that the ACR values equal the actuarial value of the charge
structure of the M+C plan.
6. Requirement for Additional Benefits (Sec. 422.312)
If the ACR calculation for an M+C plan produces an excess amount
(the difference between the average of the M+C per capita rates of
payment (APR) and the ACR value (less the actuarial value of original
Medicare's deductibles and coinsurance)) for Medicare covered services,
the M+C organization is required to use that amount as follows:
<bullet> First, the M+C organization may elect to contribute part
or all of the excess amount to a stabilization fund;
<bullet> Second, the M+C organization may use the remainder to fund
additional services not covered by Medicare; and
<bullet> Third, the M+C organization must use any remainder to
reduce the premium and/or cost sharing allowed for services covered by
original Medicare.
A number of rules contained in this section were developed using
the rules under section 1876, though certain changes to those rules
were made to comply with new provisions in the BBA. For example, the
rules for the stabilization fund under section 1876 were largely
incorporated in this section. However, section 1854(f)(2) revised the
time period and disposition of those funds at the end of that time
period. We have incorporated these changes in Sec. 422.312(c).
H. Provider-Sponsored Organizations
This interim final rule makes certain technical and conforming
changes to existing subpart H of part 422. These changes are discussed
in section II.R. of this preamble.
I. Organization Compliance With State Law and Preemption by Federal Law
1. State Licensure (Sec. 422.500)
Among the organizational and financial requirements for M+C
organizations, section 1855 of the Act requires that an organization
shall be organized and licensed under State law as a risk-bearing
entity eligible to offer health insurance or health benefits coverage
in each State in which it offers an M+C plan. (An exception to the
licensure requirement is made for PSOs, as provided for in part 422
subpart H.) Section 1855(b) specifies the level of risk that an
organization assumes under an M+C contract (i.e., full risk for the M+C
benefit package), and the extent to which the organization may insure
against such risk or may pass off all or part of the risk to
subcontracting providers. The requirements of the statute result in a
two-pronged test of appropriate licensure, consisting of the licensure
requirement itself and a scope of licensure requirement.
Licensure and Scope of Licensure: With regard to the licensure
requirement, although the BBA uses the term ``licensure,'' we have
interpreted the provision as requiring a license or some other type of
certification (such as a certificate of authority) that represents
permission granted by the appropriate State authority for the
organization to operate within the State as a risk-bearing entity
offering health insurance or health benefits. Having met the State
licensure requirement, an organization must also show that the ability
to offer an M+C plan of the type they wish to offer is within the scope
of its State licensure or State authorization. For example, an
organization that offers only a prepaid dental plan in a State could be
licensed as a risk-bearing entity, but its licensure status may not
permit the organization to offer a health benefits plan that includes a
comprehensive range of services, as would be necessary under an M+C
contract. Similarly, a State may require an organization that is a
licensed HMO to obtain separate licensure as an indemnity insurer in
order to offer an M+C point-of-service (POS) plan, on the basis that
the HMO scope of licensure does not include the ability to offer what
is considered an indemnity product. (A State's requirement that an
organization have an indemnity license in order to offer a POS product
is not superseded by the Federal preemption provisions discussed
below.)
In some States, a Medicaid HMO may operate without a license from
the department of insurance or other State agency that licenses
organizations offering health benefits or health insurance in the
commercial and Medicare markets. The Medicaid plans operate under the
authority of the State Medicaid agency, which may be the agency
establishing solvency standards for such organizations, as required by
section 1903(m)(1)(A)(ii). The State authorization for these plans may
be viewed as a limited scope licensure, enabling plans to operate as
Medicaid contractors only, and not in other segments of the health
insurance market.
To establish the licensure status of organizations, and in
particular to determine compliance with scope of licensure
requirements, we will require, as part of the application process for
[[Page 35012]]
new applicants, documentation that both the licensure and scope of
licensure requirements are met. Organizations must provide verification
from the appropriate State regulatory body authorized to license
Medicare risk products demonstrating that the licensure status of the
organization enables it to offer the M+C plan, or plans, it intends to
offer. This would ensure that, in the case of an organization only
authorized to offer a Medicaid plan, for example, solvency standards
appropriate to an M+C product are met. In the case of non-commercially
licensed entities, we are requiring that they obtain a special
certification from the State that they meet appropriate solvency
standards.
As noted in the BBA, ``The fact that an organization is licensed in
accordance with paragraph [1855(a)](1) does not deem the organization
to meet other requirements imposed under this part'' (1855(a)(3)). That
is, while the State licensure requirement is imposed on all plans as a
prerequisite for contracting as an M+C organization, licensure in and
of itself does not guarantee that an organization will be able to
obtain an M+C contract. The organization must meet other applicable
requirements of this part in order for us to grant an M+C contract.
2. Federal Preemption of State Law (Sec. 422.502)
Section 1856(b)(3)(A) of the Act provides for a Federal preemption
of State laws, regulations, and standards affecting any M+C standard if
the State provisions are inconsistent with Federal standards (a
preemption policy we refer to below as a general preemption). There is
also a specific preemption of State laws (1856(b)(3)(B)) in three areas
where Federal standards ``preempt the field''; that is, regardless of
whether State laws are inconsistent or not, Federal standards preempt
State law, regulations, and standards. The general and specific
preemption of State law applies to ``Medicare benefits and Medicare
beneficiaries,'' as stated in the conference report that accompanied
the BBA. The BBA preemption provisions do not extend to non-Medicare
enrollees or activities or non-Medicare ``lines of business'' of
organizations that have M+C contracts.
Prior to the BBA, section 1876 of the Act (governing Medicare risk
and cost contracts with HMOs and competitive medical plans) did not
contain any specific preemption provisions. However, section 1876
requirements could preempt a State law or standard based on general
constitutional Federal preemption principles, consistent with the
provisions of Executive Order 12612 on Federalism. Under the guidelines
of the Executive Order, section 1876 requirements did not preempt a
State law or standard unless the law or standard was in direct conflict
with the Federal law, or it prevented the organization from complying
with the Federal law. Put another way, if Federal law permitted the HMO
to do what State law required, there was no preemption. In practice,
rarely, if ever, did Federal law preempt State laws affecting Medicare
prepaid plans. For example, Medicare risk plans operating in States
with mandated benefit laws were generally required to comply with such
State laws. Compliance with the State mandated benefit law was not
viewed as interfering with the ability of plans to function as Medicare
risk contractors under Federal standards. (Because the BBA preemption
applies only to M+C plans, this approach to preemption issues will
continue to apply to cost contracts governed by section 1876 rules.)
General Preemption: The general preemption provision of the BBA
will be applied in the same way that the Executive Order has been
applied, in that State laws or standards will be preempted only when
they are inconsistent with M+C standards, as clearly indicated in the
statute. Because the BBA requires that PSOs operating under a waiver of
the State licensure requirement must comply with State quality and
consumer protection standards, it seems clear that the Congress
expected States, in some cases, to have more rigorous or more
comprehensive standards for quality and consumer protection which would
enhance, rather than duplicate or be subsumed under, the M+C standards
for quality and consumer protection. Thus, unless one of the specific
preemptions discussed below applies, State laws or standards that are
more strict than the M+C standards would not be preempted unless they
prevented compliance with the M+C requirements. This is consistent with
the BBA conference report language that notes that State laws apply if
they provide ``consumer protections in addition to, or more stringent
than'' the BBA. The BBA also provides that the quality and consumer
protection standards with which PSOs must comply include only those
requirements ``generally applicable to M+C organizations and plans in
the State'' which are ``consistent with the standards'' of the BBA.
That is, there are likely to be quality and consumer protection
standards imposed by States that all M+C plans must comply with, and
for which there is no Federal preemption.
Specific Preemption: Though the general preemption provision will
be applied in the same way that the Executive Order has been applied,
for the three areas in which the Congress provided for a specific
preemption of State laws, the M+C standards supersede any State laws
and standards. These three areas are:
<bullet> Benefit requirements:
<bullet> Requirements relating to inclusion or treatment of
providers; and
<bullet> Coverage determinations (``including related appeals and
grievance processes'').
We are adopting a narrow interpretation of the applicability of the
three areas of specific preemption, which we believe is justified by
the conference report language and the overall structure of the BBA in
its delineation of the relative roles of the State and Federal
governments. Under the BBA, States have exclusive authority (other than
in the case of PSOs) to make the determination of whether organizations
are eligible to enter into M+C contracts, while under section 1876 of
the Act, it was the Federal Government that designated ``eligible
organizations'' (HMOs under title XIII of the Public Health Service Act
(a Federal designation) or competitive medical plans (also a Federal
designation)). Under section 1876, the Federal Government also
determined solvency standards for organizations, while under the BBA
this becomes a State responsibility (other than for PSOs). The
conference report (p. 638) also clarifies the intended scope of
preemption in the three specific areas. The report indicates the
conferees seek to put M+C on a par with ``original fee-for-service,''
where the ``Federal government alone set legislative requirements
regarding reimbursement, covered providers, covered benefits and
services, and mechanisms for resolving coverage disputes.'' The
conferees wish to ``[extend] the same treatment to private M+C plans
providing Medicare benefits to Medicare beneficiaries.''
Using the analogy of original Medicare, Federal law preempts State
laws and standards in certain specific areas. Under original Medicare:
States cannot specify what must be included as a Medicare benefit;
States do not specify the conditions of participation of Medicare
providers (though they license providers and practitioners and
determine their scope of practice); States may not specify how a
coverage determination is to be made with respect to whether or not the
Medicare program covers a benefit; and a State
[[Page 35013]]
does not determine the type of appeal mechanism that is to be used to
appeal a coverage decision made by a Medicare carrier or intermediary
with respect to a Medicare benefit. For M+C plans, the specific
preemption of State laws in the three areas would prevent, for example,
the application of mandated benefits laws; ``any willing provider''
laws and other laws mandating the inclusion of specific types of
providers or practitioners; or laws that supplant or duplicate the
Medicare coverage determination and appeal process as it relates to
coverage of benefits under the M+C contract. However, States may have
various laws and requirements that could still apply to
<bullet> Benefits (for example, a plan could be required to have a
toll free number to answer benefit questions),
<bullet> Providers and practitioners generally in the State (e.g.,
they must all be licensed by the State and comply with scope of
practice laws), and
<bullet> Laws and standards which could apply to disputes between
members and health plans, as discussed below.
Under our narrow construction of the specific preemptions, and
consistent with our definition of the term ``benefits'' at Sec. 422.2,
the specific preemption of benefit laws does not extend to State laws
and standards relating to cost sharing or other financial liability
standards for enrollees of health plans, though we are inviting
comments on our position, outlined below, that cost sharing should not
fall under the benefits preemption, as well as comments on whether
there are types of cost sharing that should or should not be included
in the benefits preemption.
Thus, a State law prescribing limits on cost sharing generally, or
limits on cost sharing that can be imposed for specific benefits, would
not be preempted. If the benefit to which the State cost sharing limits
apply is not a Medicare covered benefit, however, the limits on cost
sharing would only apply if the M+C organization chooses to offer the
benefit in question. Thus, to the extent that limits on cost sharing
are linked to a benefit mandate, the cost sharing limits could be seen
to be indirectly ``preempted'' in that the obligation to provide the
benefit to which they apply is preempted. If the M+C organization
chooses not to provide the benefit that would otherwise be mandated
under a preempted benefit mandate, the cost sharing limits that apply
to that benefit would never come into play. We note that while cost
sharing limits are not specifically preempted under the benefits
preemption in section 1856(b)(3)(B)(i) and Sec. 422.402(b)(1), cost
sharing limits are still subject to the general preemption in section
1856(b)(3)(A) and Sec. 422.402(a). Thus, to the extent the cost sharing
limit would be inconsistent with M+C provisions, it would be preempted.
An example of State cost-sharing requirements being preempted because
they are inconsistent with M+C provisions would be a State requirement
that requires all insurers and health plans to pay 100 percent of the
cost of a particular service (e.g., mammography screening or other
preventive care). In the case of an M+C MSA plan, we would argue that
the general preemption provision applies, because the State requirement
is inconsistent with the basis structure of a high-deductible plan
under which covered services are not payable under the plan until the
deductible is met.
To address a specific question that has arisen, State laws
requiring direct access to particular providers (either contracted by
the M+C organization or not under contract), and State laws requiring,
for example, a second opinion from non-contracted physicians, would be
superseded by the benefit and provider participation preemptions
(though M+C standards in these regulations dealing with access to
particular providers may have an effect that is similar to that of
State laws that are superseded). This is because these requirements in
essence mandate the ``benefit'' of access to a particular provider's
services even where the services of that provider would not otherwise
be a covered benefit.
We are also adopting a narrow interpretation of the scope of
preemption of coverage determinations. Coverage determinations are made
initially by M+C organizations and may be appealed as provided for
under subpart M of these regulations. Our view is that the types of
decisions related to coverage included in this specific preemption are
only those determinations that can be subject to the appeal process of
subpart M. These are decisions about whether an item or service is
covered under the M+C contract and the extent of financial liability
beneficiaries have for the cost of covered services under their M+C
plan. The Medicare appeal process applies to basic benefits, mandatory
supplemental benefits, and optional supplemental benefits offered under
an M+C contract. The specific preemption makes the Medicare appeal
process the exclusive remedy for disputes over coverage determinations,
displacing any State grievance or appeal process that might otherwise
be available in such cases. However, the specific preemption does not
preempt State remedies for issues other than coverage under the
Medicare contract (i.e. tort claims or contract claims under State law
are not preempted). The same claim or circumstance that gave rise to a
Medicare appeal may have elements that are subject to State remedies
that are not superseded. For example, an M+C organization's denial of
care that a beneficiary believes to be covered care is subject to the
Medicare appeals process, but under our interpretation of the scope of
the specific preemption on coverage decisions, the matter may also be
the subject of a tort case under State law if medical malpractice is
alleged, or of a state contract law claim if an enrollee alleges that
the M+C organization has obligated itself to provide a particular
service under State law without regard to whether it is covered under
its M+C contract.
We are seeking public comments on our interpretation of the
applicability of the three areas of pre-emption specifically the
exclusion of cost sharing and financial liability standards from the
federal pre-emption and the exclusion of direct access to particular
providers.
As noted above, where the BBA preempts State laws and standards,
any Federal preemption based on the BBA applies only to the Medicare
``line(s) of business'' of an M+C organization (i.e., Medicare
enrollees). As such, there would be no Federal preemption of State laws
which are applicable to other enrollees of the organization.
Additionally, there would be no Federal preemption of State laws which
are applicable to arrangements outside the scope of the BBA, such as
arrangements between employers and M+C plans for the provision of
negotiated employer group benefits discussed at Sec. 422.106 of these
regulations. Neither the specific nor the general preemption would
apply to any aspect of such arrangements.
3. Prohibition on State Premium Taxes (Sec. 422.404)
Section 1854(g) of the Act, introduced in the BBA, provides that
``No State may impose a premium tax or similar tax with respect to
payments to M+C organizations under section 1853.'' Section 4002(b)(4)
of the BBA makes the prohibition on premium taxes applicable to risk-
sharing contracts operating under section 1876 effective the date of
enactment of the BBA. This prohibition does not apply to enrollee
premium payments made to M+C plans, which are authorized under section
1854.
The regulations provide clarification on the applicability of the
prohibition of State premium taxes. The BBA does not
[[Page 35014]]
define the term ``State,'' but elsewhere in the Medicare statute
(1861(x), referring to 210(h) of the Act), the term ``State'' is
defined to include the District of Columbia, the Commonwealth of Puerto
Rico, the Virgin Islands, Guam, and American Samoa. The regulations
include this definition of State for purposes of the scope of the
premium tax prohibition.
The BBA is also silent as to whether the prohibition of premium
taxes includes county taxes or taxes by other governmental entities
within a State. The Federal Employees Health Benefits Program (FEHBP)
statute, on the other hand, has more specific language on the
applicability of the exemption from premium taxes. The FEHBP statute
specifically extends the prohibition to ``any political subdivision or
other governmental authority'' of a State (5 U.S.C. 8909(f)(1)).
The BBA conference report does not provide any clarification on
this issue. However, a July 31, 1997 summary of the provisions of the
BBA prepared by the Senate Finance Committee (``Summary: Health and
Welfare Provisions in the Balanced Budget Act of 1997''), stated that
``[t]he current law on federal preemption of state premium taxes or
fees on Federal payments from the FEHBP to health plans will be
extended to Federal payments to M+C plans and other health plans
receiving capitated payments from the Medicare Trust Funds.'' Although
the language of the BBA prohibition is not as specific as the FEHBP
language, we are clarifying in these regulations that the prohibition
does apply to any political subdivision or other governmental authority
within a State. We believe such an interpretation is necessary because
counties and other State authorities derive their powers from the
State. Thus, any prohibition of State actions contained in a Federal
statute should be interpreted as prohibitions on actions at any level
of State government or any State or local governmental body within a
State.
The BBA does not define the phrase ``premium tax or other similar
tax,'' other than by reference to the applicability of such a tax to
revenue received from the Federal Government for health plan enrollees.
Relying again on the FEHBP statute, we have included a provision in the
regulations (Sec. 422.404(b) that serves to clarify the scope of what
constitutes a prohibited premium tax. The FEHBP statute expressly
permits States to impose taxes on the profits arising from
participation as an FEHBP plan, to the extent that the tax on profits,
or other taxes or fees, are general business taxes. We have included a
similar exception because such taxes are not taxes applied directly and
exclusively to premium revenues, and therefore should not be prohibited
under section 1854(g).
The BBA premium tax prohibition does not provide for any exception
to the prohibition based on the purpose of the tax. For example, some
States are using a broadly applicable premium tax to fund health care
coverage for individual State residents who might otherwise be
uninsured (e.g., financing a State high-risk pool), or to fund a State
guaranty fund that could potentially benefit enrollees of an M+C plan
in the event of insolvency. Although such premium taxes do provide a
social good, and may yield a direct benefit to M+C organizations and
their enrollees, there are no exceptions to the premium tax prohibition
included in the BBA or in these regulations. By not having allowed any
exceptions, we would note that, to the extent participation in a State
guaranty fund is used as means of satisfying State (or Federal)
requirements for protections in the event of insolvency, M+C
organizations that would otherwise have participated in the guaranty
fund by paying the premium tax are likely to be required to meet
alternative insolvency requirements. An M+C organization may also
choose to voluntarily pay premium taxes in order to participate in such
a fund.
J. Subpart J of Part 422
Subpart J of part 422 is being reserved.
K. Contracts with M+C Organizations
1. Definitions (Sec. 422.500)
Section 422.500 of subpart K contains definitions germane to
subpart K that address provisions pertaining to contracts with M+C
organizations. These definitions, for the most part, have been imported
from part 417 under our authority from section 1856(b)(2). The lone
exception, Party of Interest has been clarified in paragraph (3) to
include non-profit entities.
2. General Provisions (Sec. 422.501)
Section 1857(a) provides that the Secretary will not permit an
organization to operate as an M+C organization unless it has entered
into a contract with HCFA. The statute also provides that the contract
may cover more than one M+C plan.
An applicant, however, must meet certain requirements before HCFA
can consider entering into a contract with it. First, in accordance
with section 1855(a)(1), the applicant must be licensed (or if the
state does not license such entities, hold a certificate of authority/
operation) as a risk-bearing entity in the State in which it wishes to
operate as an M+C organization; section 1855(a)(2), however, allows for
a waiver of this requirement for Federally-waivered PSOs under certain
circumstances. Second, the applicant must meet the minimum enrollment
requirements specified at section 1857(b). These requirements provide
that the organization must have at least 5,000 (or 1,500 if it is a
Federally-waivered PSO) individuals receiving health benefits from the
organization or at least 1,500 (or 500 if it is a PSO) individuals
receiving benefits in a rural area. Section 1857(b)(3) gives the
Secretary the authority to waive the minimum enrollment requirements
for the first 3 contract years.
Third, an M+C organization must demonstrate certain administrative
and managerial capabilities that we believe are essential for HCFA to
examine prior to agreeing to contract with any applicant as an M+C
organization. For this reason, pursuant to section 1856(b)(2) which
provides for the adoption of regulations implementing section 1876, we
have adopted the administration and management requirements from
Secs. 417.120 and 417.124 and have applied them to M+C organizations.
In addition, pursuant to our authority in section 1856(b)(1) to
establish standards under Part C by regulation, we will require that
all M+C organizations establish a plan for complying with all
applicable Federal and State standards. The compliance plan must
include written policies, procedures, and standards of conduct, the
designation of a compliance officer accountable to senior management of
the organization, provisions for internal monitoring, auditing,
accountability, and an adhered to process for reporting violations of
law by the organization or their subcontractors.
Further, pursuant to our authority in section 1856(b)(1) to
establish standards for M+C organizations by regulation, we are in this
rule establishing an additional condition for entering into an M+C
contract. Under this rule, an entity that is accepting new enrollees
under a section 1876 cost contract will be ineligible to enter into an
M+C contract covering the area it serves under its cost contract. Our
reason for establishing this rule is to eliminate the potential for an
organization to encourage higher cost enrollees to enroll under its
cost contract while healthy enrollees are enrolled in its risk-based
M+C plan. This rule is consistent with our longstanding policy that
entities not
[[Page 35015]]
have both a risk and cost contract under section 1876 in the same area.
Further, we provide at Sec. 422.501(b) that in order to be eligible
to contract as an M+C organization, an applicant organization that held
a prior contract terminated by HCFA under Sec. 422.510 within the past
five years.
Section 1857(c)(5) authorizes the Secretary to enter into contracts
with organizations without regard to provisions of law or regulations
that the Secretary determines to be inconsistent with the furtherance
of the purpose of Title XVIII of the Act. Based on this authority, we
provide in Sec. 422.501(c) that HCFA may enter into contracts under
part 422 without regard to the Federal and Departmental acquisition
regulations set forth in title 48 of the CFR.
Further, section 1857(d)(1) and (2) provide for the auditing of the
financial records of at least one third of M+C organizations annually,
and the inclusion of specified inspection and auditing rights in M+C
contracts. We have incorporated these requirements in Sec. 422.501(d).
We likewise specify related requirements that enable HCFA to do so.
Since section 1857(a) allows that an M+C contract may cover more
than one M+C plan, we have added paragraph (e), ``Severability of
contracts,'' through our authority in section 1856(b)(1). The contract
provides that upon HCFA's request (1) the contract will be amended to
exclude any M+C plan or State-licensed entity specified by HCFA, and
(2) a separate contract for any such excluded plan or entity would be
deemed to be in place when such a request is made.
National Contracting
The BBA does not specifically define or otherwise address the issue
of national contracting. While we are interested in national
contracting, we have not specified it in the regulations and welcome
comment on this concept. One option we are considering would allow an
M+C applicant to request that HCFA enter into a national contract with
the applicant if the applicant holds license as a risk-bearing entity
in each state where it operates or has a waiver as provided in
Sec. 422.370. The applicant M+C organization would have the option of
having a uniform premium and benefit plan across the country, with one
service area and a national ACR proposal.
We are considering a different concept of a national agreement with
national chain organizations. This concept would apply to those chain
organizations that enter into separate contracts in multiple States.
The agreement would allow for the chain organization to establish a
uniform policy across all of its states as to marketing, quality
assurance, utilization review, claims processing, etc. HCFA would have
to approve the national policy procedures. HCFA would continue to
contract separately with individual, albeit related, M+C organizations
affiliated through common ownership or control. We would continue to
monitor operational activities for each organization in each State, but
having approved national policy, our review at the State and local
level would be reduced.
3. Contract Provisions (Sec. 422.502)
Section 422.502 of this rule sets forth the provisions and related
requirements for contracts between HCFA and M+C organizations. In
general, Medicare beneficiaries may not elect to enroll in an M+C plan
offered by an M+C organization, and no payment will be made to the M+C
organization, unless the Secretary enters into a contract with the
organization. The provisions that describe this relationship between
the Secretary and the M+C organization are based on Part C of title
XVIII of the Act and on Medicare contract requirements derived from
subparts C and L of part 417.
The provisions of the Act as added by the BBA are generally silent
with regard to the specific provisions that must be included in the
contract between the M+C organization and HCFA. The Act does, however,
specify at section 1857(a) that the contract must provide that the
organization agrees to comply with the applicable requirements,
standards, and terms and conditions of payment of Part C of title XVIII
of the Act. In addition, section 1857(e) provides that the contract
shall contain such other terms and conditions not inconsistent with
Part C of title XVIII of the Act that the Secretary may find necessary
and appropriate. Included in Sec. 422.502(a), ``Agreement to comply
with regulations and instructions,'' are the following contract
conditions:
<bullet> The M+C organization must agree to accept new enrollments,
make enrollments effective, process voluntary disenrollments, and limit
involuntary disenrollments. The M+C organization agrees that it will
comply with the prohibition in Sec. 422.108 on discrimination in
beneficiary enrollment.
<bullet> The M+C organization must agree to provide the basic
benefits as required under Sec. 422.101 and to the extent applicable,
supplemental benefits under Sec. 422.102.
<bullet> The M+C organization must agree to provide access to
benefits as required under subpart C of part 422. All benefits covered
by Medicare must be provided in a manner consistent with professionally
recognized standards of health care.
<bullet> The M+C organization agrees to disclose information to
beneficiaries as required under Sec. 422.110.
<bullet> The M+C organization must agree to operate a quality
assurance and performance improvement program, and to have an agreement
for external quality review as required under subpart D of part 422.
<bullet> The M+C organization must agree to comply with all
applicable provider requirements in subpart E of part 422, including
provider certification requirements, anti-discrimination requirements,
provider participation and consultation requirements, the prohibition
on interference with provider advice, limits on provider
indemnification, rules governing payments to providers, and limits on
physician incentive plans.
<bullet> The M+C organization will agree to comply with all
requirements in subpart M governing coverage determinations,
grievances, and appeals.
<bullet> The M+C organization will comply with the reporting
requirements in Sec. 422.516 and the requirements for submitting
encounter data to HCFA in Sec. 422.257.
<bullet> The M+C organization agrees that it will be paid under the
contract in accordance with the payment rules under subpart F of part
422.
<bullet> The M+C organization will develop annual adjusted
community rate proposals and submit all required information on
premiums, benefits, cost sharing by May 1, as provided in subpart G of
part 422.
<bullet> The M+C organization agree that its contract may be
terminated or not renewed in accordance with subparts K and N of part
422.
<bullet> The M+C organization will agree to comply with all
requirements that are specific to a particular type of M+C plan, such
as the special rules for private fee-for-service plans in Secs. 422.114
and 422.216 and the M+C MSA requirements in Secs. 422.56, 422.103, and
422.262.
<bullet> The M+C organization will agree to comply with the
confidentiality and enrollee accuracy requirement in Sec. 422.118.
<bullet> The M+C organization agrees that complying with the
aforementioned contract conditions is material to performance of the
contract.
Contract requirements that were either not required of HMOs and
CMPs
[[Page 35016]]
under section 1876, or have been modified to implement the M+C program
follow:
<bullet> The M+C organization must possess the capabilities to
communicate with HCFA electronically.
<bullet> The M+C organization is required to provide prompt payment
of covered services if these services are not furnished by a provider
under contract or agreement in an M+C plan's health services delivery
network. Under section 1876, the prompt payment requirement was limited
to noncontracting providers. Section 1857(f) duplicates this
requirement and adds to it the requirement that if the Secretary
determines that an M+C organization fails to pay claims promptly, the
Secretary may provide for direct payment of the amounts owed providers.
When this occurs, the Secretary reduces the amount of the M+C
organization's monthly payment to account for payments to these
providers. We explain the full implications of this requirement in the
discussion below pertaining to Sec. 422.520.
<bullet> Pursuant to our authority in section 1856(b)(1) to
establish standards under Part C, we are requiring that M+C
organizations maintain records for 6 years. The standard for retention
of records for HMO and CMPs was 3 years. We are changing the retention
period from 3 years to 6 years so as not to prematurely foreclose our
ability to address fraudulent or other abusive activities.
<bullet> Pursuant to our authority at section 1856(b)(1) to
establish standards under Part C, we specify requirements relating to
M+C organizations providing access to facilities and records at
Sec. 422.502(e). In this section we assert that M+C organizations allow
HHS, the Comptroller General, or their designees to evaluate, through
inspection or other means, all aspects of medical services furnished to
Medicare beneficiary enrollees, the facilities of M+C organizations,
and enrollment and disenrollment records of M+C organizations. We
further provide that HHS, the Comptroller General, or their designees
may audit, evaluate, or inspect all facilities and records as the
Secretary may deem necessary to enforce an M+C contract. HHS's, the
Comptroller General's, and designee's right to inspect such facilities
and records extends through 6 years from the date of the contract
period or completion of any inspection or audit activity, whichever is
later. Exceptions to this 6-year inspection timeframe can occur in
instances when: (1) HCFA determines there is a special need to retain
particular records or a group of records for a longer period and
notifies the M+C organization at least 30 days before the normal
disposition date, (2) there has been a termination, dispute, or fraud
or similar fault by the M+C organization, in which case the retention
may be extended to 6 years from the date of any resulting final
solution of the termination, dispute, or fraud or similar fault, or (3)
HCFA determines that there is a reasonable possibility of fraud, in
which case it may inspect, evaluate, and audit the M+C organization at
any time.
<bullet> Pursuant to our authority in section 1856(b)(1) to
establish standards under Part C, and the provision in section
1856(b)(2) for adopting section 1876 standards, we have included
certain disclosure requirements from Sec. 417.486 in Sec. 422.502(f).
We have also included additional disclosure requirements to reflect new
reporting requirements in Sec. 422.516.
<bullet> At Sec. 422.502(f)(2), we add the requirement that M+C
plans submit to HCFA specific information necessary to evaluate and
administer the program and to enable beneficiaries to exercise informed
choice in obtaining Medicare services. Section 1851(d) authorizes the
Secretary to obtain this information to enable HCFA to fulfill its
responsibility to develop activities to disseminate broadly information
to current and prospective Medicare beneficiaries in order to promote
an active, informed selection among such options.
<bullet> Pursuant to section 1851(b)(4)(B), we have specified
requirements at Sec. 422.502(b)(2)(vii) that M+C organizations offering
MSA plans disclose to HCFA information that will enable HCFA to
evaluate the impact of permitting enrollment in MSA plans.
<bullet> Enrollee financial protection provisions are addressed at
Sec. 422.502(g). The first item protects beneficiary enrollees from
incurring liability for payment of any fee that M+C organizations are
legally obligated to bear. Section 422.502(g) contains the enrollee
financial protection that has applied to HMO and CMP enrollees under
Sec. 417.122 (a)(1), which was made applicable to all section 1876
contractors under Sec. 417.407(f). The beneficiary protection at
422.502(g)(1) is designed to protect beneficiary enrollees from being
held financially responsible for fees for which the M+C organization is
legally liable. Under the provision, we assert that M+C organizations
protect beneficiary enrollees in two ways. First, through inclusion,
hold harmless language in its written agreements with the providers
that comprised the M+C plan's Medicare provider network. And pursuant
to our rulemaking authority at section 1856(b)(1), we also specify that
M+C organizations must indemnify beneficiary enrollees for the
organization's legal obligations that are derived from health care
services provided to enrollee beneficiaries by providers that have not
entered into a written agreement to participate in the M+C
organization's Medicare provider network. The beneficiary protection at
422.502(g)(2) afford beneficiaries protection against loss of benefits
for which the M+C organization is legally obligated to pay. Except in
the case of PSOs that have been awarded Federal waivers (see subpart
H), States have the primary responsibility under Part C for determining
whether an M+C organization has sufficient reserves to assume the risk
it takes on under an M+C contract. The State that licenses the entity
under applicable State law determines whether an entity has sufficient
financial reserves to enter into an M+C contract.
Congress has given HCFA some ongoing responsibility concerning
solvency, however. In section 1857(d)(4)(A)(i), M+C organizations are
required to provide the Secretary with such information ``as the
Secretary may require demonstrating that the organization has a
fiscally sound operation.'' Accordingly, we believe that it is
appropriate, under our authority in section 1856(b)(1) to establish
standards under Part C to require (in Sec. 422.502(g)) that an entity
that already has an M+C contract demonstrate to HCFA that it has
protections in place ensuring that beneficiaries will not be held
liable for the entity's debts. We believe that this can be seen as part
of having a fiscally sound operation as provided for in section
1857(d)(4)(A)(i).
<bullet> The subsection entitled ``Requirements of Other Laws and
Regulations'' at Sec. 422.502(h) requires that contracts reflect the
M+C organization's obligations under other laws, specifically, the
Civil Rights Act of 1964, the Age Discrimination Act of 1975, the
Americans with Disabilities Act, other laws applicable to recipients of
Federal funds, and all other applicable laws and rules.
<bullet> Pursuant to our authority under section 1856(b)(1) to
establish standards under Part C, paragraph (i) of Sec. 422.502
contains requirements that apply to related entities, contractors, and
subcontractors of an M+C organization. These requirements promote an
M+C organization's accountability and program integrity.
The requirements in paragraph (i) recognize that organizations that
are likely to apply for M+C contracts commonly enter into business
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