FC Compliance Reg Dec2007

7/30/2019 FC Compliance Reg Dec2007

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Wednesday,December 5, 2007

Part VDepartment ofHealth and HumanServicesCenters for Medicare & Medicaid Services42 CFR Parts 422 and 423Medicare Program; Revisions to the

Medicare Advantage and Part D

Prescription Drug Contract

Determinations, Appeals, andIntermediate Sanctions Processes; Final

Rule


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68700 Federal Register /Vol. 72, No. 233 / Wednesday, December5, 2007 /Rules and Regulations

DEPARTMENT OF HEALTH ANDHUMAN SERVICES

Centers for Medicare & MedicaidServices

42 CFR Parts 422 and 423

[CMS4124FC]

RIN 0938AO78

Medicare Program; Revisions to theMedicare Advantage and Part DPrescription Drug ContractDeterminations , Appeals, andIntermediate Sanctions Processes

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

ACTION: Finalrulewithcommentperiod.

address,asprovidedbelow,nolaterthanFebruary4,2008.

ADDRESSES: In commenting, please referto file code CMS4124FC. Because ofstaff and resource limitations, we cannotaccept commentsby facsimile (FAX)transmission.

You may submit comments in one offour ways (no duplicates, please):

1. Electronically. You may submitelectronic comments on specific issuesin this regulation to http://www.cms.hhs.gov/eRulemaking . Clickon the link Submit electroniccomments on CMS regulations with anopen comment period. (Attachmentsshouldbe in Microsoft Word,WordPerfect, or Excel; however, weprefer Microsoft Word.)

2. By regular mail. You may mail

For information on viewingpubliccomments, see the beginning oftheSUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:Christine Reinhard, (410) 7862987.Kevin Stansbury, (410) 7862570.Stephanie Kaisler, (410) 7860957, for

issues regarding voluntary self-reporting, access to records, and

compliance.

SUPPLEMENTARY INFORMATION:Submitting Comments: We welcome

comments from the public onmandatoryself-reporting to assist us infully considering issues and developing

policies. You can assist us byreferencing the file code CMS4124FCand self-reporting.

Inspection of Public Comments: All

written comments (one original and two comments receivedbefore the close of

SUMMARY: This rule with commentperiod finalizes the Medicare programprovisions relating to contract

determinations involving MedicareAdvantage (MA) organizations andMedicare Part Dprescription drug plansponsors, including eliminating thereconsideration process for review ofcontract determinations, revising the

provisions related to appeals ofcontractdeterminations, and clarifying the

process for MA organizations and Part Dplan sponsors to complete correctiveaction plans. In this final rule withcomment period, we also clarify theintermediate sanction and civil money

penalty (CMP)provisions that apply toMA organizations and Medicare Part Dprescription drug plan sponsors, modifyelements oftheir compliance plans,retain voluntary self-reporting for Part Dsponsors and implement a voluntaryself-reporting recommendation for MAorganizations, and revise provisions toensure HHS has access to the books andrecords of MA organizations and Part D

plan sponsors first tier, downstream,and related entities. Although we havedecidednot to finalize the mandatoryself-reporting provisions that we

proposed, CMS remains committed toadopting a mandatory self-reportingrequirement. To that end, we arerequesting comments that will assist

CMS in crafting a future proposedregulation for a mandatory self-reportingrequirement.

DATES: Effective date: These regulationsare effective on January 4, 2008, exceptfor the amendments to 422.503,422.504, 423.504, and 423.505, whichare effective January 1, 2009.

CommentPeriod: We will considercomments on the mandatory self-reporting provisions discussedinsection II of this final rule withcomment periodat the appropriate

copies) to the following address ONLY:Centers for Medicare & MedicaidServices, Department ofHealth andHuman Services,Attention: CMS4124FC, P.O. Box 8020, Baltimore, MD212448020.

Please allow sufficient time for mailedcomments to be receivedbefore theclose of the comment period.

3. By express orovernight mail. Youmay send written comments (oneoriginal and two copies) to the followingaddress ONLY: Centers for Medicare &Medicaid Services, Department ofHealth and Human Services,Attention:CMS4124FC, Mail Stop C42605,7500 Security Boulevard, Baltimore, MD212441850.

4. By handorcourier. If you prefer,

you may deliver(by handor courier)your written comments (one originalandtwo copies)before the close ofthecomment periodto one of the followingaddresses. If you intendto deliver yourcomments to the Baltimore address,

please call telephone number(410) 7869994 in advance to schedule yourarrival with one of our staff members.

Room 445G, Hubert H. HumphreyBuilding, 200 Independence Avenue,SW., Washington, DC 20201; or

7500 Security Boulevard, Baltimore, MD212441850.

(Because access to the interiorofthe

HHH Building is not readily available topersons without Federal Governmentidentification, commenters areencouragedto leave their comments inthe CMS drop slots locatedin the mainlobby of the building. A stamp-in clockis available forpersons wishing to retaina proof of filing by stamping in andretaining an extra copy of the comments

being filed.)Comments mailedto the addresses

indicatedas appropriate for hand orcourier delivery may be delayed andreceivedafter the comment period.

the comment periodare available forviewingby the public, including any

personally identifiable or confidentialbusiness information that is included ina comment. We post all commentsreceivedbefore the close ofthecomment periodon the following Website as soon as possible after they have

been received:http://www.cms.hhs.gov/eRulemaking. Click on the linkElectronic Comments on CMSRegulations on that Web site to view

public comments.Comments received timely will also

be available forpublic inspection as theyare received, generally beginningapproximately 3 weeks afterpublicationof a document, at the headquarters ofthe Centers for Medicare & Medicaid

Services, 7500 Security Boulevard,Baltimore, Maryland 21244, Mondaythrough Friday of each week from 8:30a.m. to 4 p.m. To schedule anappointment to view public comments,

phone 18007433951.

Abbreviations

Because of the many terms to whichwe refer by abbreviation in this finalrule with comment period, we arelisting these abbreviations and theircorresponding terms in alphabeticalorder below:

ALJ Administrative Law Judge

BBA Balanced Budget Act of1997CAP Corrective Action PlanCMP Civil Money PenaltyCMS Centers forMedicare &Medicaid

Services DAB Departmental Appeals BoardFWA Fraud, Waste, and AbuseHHS U.S. Department ofHealth and Human

Services MA Medicare AdvantageMMA Medicare Prescription Drug,

Improvement, and Modernization Act of2003

M+C Medicare + ChoiceOIG Office of the Inspector General
http://www.cms.hhs.gov/eRulemakinghttp://www.cms.hhs.gov/eRulemakinghttp://www.cms.hhs.gov/http://www.cms.hhs.gov/http://www.cms.hhs.gov/http://www.cms.hhs.gov/http://www.cms.hhs.gov/eRulemaking


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Federal Register /Vol. 72, No. 233 / Wednesday, December5, 2007 /Rules and Regulations 68701

PBM Pharmaceutical Benefit ManagerPDE Prescription Drug Event

I. Background

On May 25, 2007, we published aproposedrule in the Federal Register(72 FR29368, hereafter referredto as the

proposedrule), setting forth the

proposedprovisions relating to contractdeterminations involving MedicareAdvantage (MA) organizations andMedicare Part Dprescription drug plansponsors, intermediate sanction andcivil money penalty (CMP) provisions,compliance plans, mandatory self-reporting, andprovisions to ensure theDepartment ofHealth and HumanServices (HHS) has access to the booksand records of MA organizations andPart Dplan sponsors first tier,downstream, and related entities. In thisfinal rule with comment periodwe arefinalizing the majority of the provisionsof the proposedrule, with some

clarifications in response to publiccomments. At this time, we are notfinalizing the proposed provision formandatory self-reporting ofpotentialfraudand abuse,but we intendto issuefuture rulemaking on this topic, asdiscussed below in section II.

A. Overview of the MedicarePrescriptionDrug,Improvement, and

ModernizationAct of 2003 (MMA)

The President signedthe MedicarePrescription Drug, Improvement, andModernization Act of 2003 (MMA) (Pub.L. 108173) into law on December 8,

2003. The MMA established theMedicare prescription drug benefitprogram and renamed theMedicare+Choice (M+C) program theMedicare Advantage (MA) program. Inaccordance with the MMA, we revisedthe existing Medicare regulationsapplicable to the MA program at 42 CFR

part 422 andpublished regulationsgoverning the prescription drug benefitprogram at 42 CFR part 423.

As we have gainedmore experiencewith MA organizations and Part Dprescription drug plan sponsors, weproposed clarifications to the Medicareprogram provisions relating to contract

determinations involving MAorganizations and Medicare Part Dprescription drug plan sponsors,including eliminating thereconsideration process for review ofcontract determinations; revising the

provisions related to appeals ofcontractdeterminations and clarifying the

process for MA organizations and Part Dplan sponsors to complete correctiveaction plans. We proposed clarificationsto the intermediate sanction and civilmoney penalty (CMP) provisions thatapply to MA organizations and

Medicare Part Dprescription drug plansponsors. We also proposed changes in

both programs to clarify elements ofthecompliance plan requirements, such astraining and education, and changes toclarify our access to the books andrecords of a MA organization or Part Dsponsors first tier, downstream, and

related entities. Finally, we proposed aself-reporting requirement as part ofboth MA organization and Part Dsponsorscompliance plans. We havedecidedat this time not to finalize theprovision requiring mandatory self-reporting ofpotential fraud andmisconduct. Until such time as such a

provision is finalized, we have chosento retain voluntary self-reporting forPartD sponsors and implement arecommendation for voluntary self-reporting for MA Organizations.

B.Relevant Legislative History andOverview

The Balanced Budget Act of1997(BBA) (Pub. L. 10533) established theM+C program. Under section 1851(a)(1)of the Social Security Act (the Act),every individual with Medicare Parts Aand B, except for individuals with end-stage renal disease (ESRD), could electto receive benefits either through theoriginal Medicare program or an M+Cplan, if one was offeredwhere thebeneficiary lived. The primary goal ofthe M+C program was to provideMedicare beneficiaries with a widerrange ofhealth plan choices.

The Medicare, Medicaid, and State

ChildrensHealth Insurance Program(SCHIP) Balanced Budget RefinementAct of 1999 (BBRA) (Pub. L. 106113),amendedthe M+C provisions oftheBBA. Further amendments were madeto the M+C programby the Medicare,Medicaid, and SCHIP BenefitsImprovement and Protection Act of2000 (BIPA) (Pub. L. 106554), enactedDecember21, 2000.

The President signedthe MMA intolaw on December8, 2003. Title I oftheMMA addednew sections 1860D1through 1860D42 to the Act creatingthe Medicare Prescription Drug Benefit

program, a landmark change to theMedicare program since its inception in1965.

Sections 201 through 241 of Title II ofthe MMA made significant changes tothe M+C program. As directedby TitleII of the MMA, we renamedthe M+C

program the MA program. We alsorevisedour regulations to include new

payment andbidding provisions basedlargely on risk, to recognize the additionofregional Preferred ProviderOrganization (PPO) plans, to address the

provision ofprescription drug benefits

underthe Medicare Part D regulations,and to make other changes.

The MMA, at section 1860D12(b)(3)of the Act, directedthat specific aspectsof the MA contracting requirementsapply to the prescription drug planbenefit program. Consequently, theprocesses forcontract determinations

andthe administrative appeal rights inthe two programs are virtually identical.Wepublishedthe regulations

implementing the MA andprescriptiondrug benefit regulations separately,though their development andpublication were closely coordinated.On August 3, 2004, we published

proposed rules for the MA program (69 FR 46866) andprescription drug benefitprogram (69 FR 46632). The finalregulations implementingboth the MAandprescription drug programs werepublishedon January 28, 2005 (70 FR4588 and 70 FR 4194, respectively). Werevisedsome of ourproposed provisions

in the final rules in response to publiccomments. For further discussion oftherevisions we made to ourproposedrules, see the final rules citedabove. Wehave not issued previous guidance,other than regulatory requirementsregarding contract determinations,corrective action plans, contractdetermination appeals, intermediatesanctions, or CMPs. However, we have

published guidance on how to developan effective fraud, waste and abuse(FWA) prevention program. Thisguidance is foundin Chapter9 ofthePrescription Drug Benefit Manual

entitled

Part D Program to ControlFraud, Waste and Abuse. This rulemakes further revisions to the MA andprescription drug regulations.

II. Summary of the Provisions oftheProposed Rule and Analysis ofandResponse to Public Comments

In response to the publication oftheMay 25, 2007 proposedrule, wereceived58 timely items ofcorrespondence from the public. Wereceived numerous comments fromvarious trade associations and healthinsurance providers. Comments alsooriginatedfrom other providers,

suppliers, andpractitioners, health careconsulting firms, andprivate citizens.

Brief summaries of each proposedprovision, a summary of the publiccomments we received (with theexception ofspecific comments on the

paperwork burden or the impactanalysis), and our responses to thecomments are set forth below.Comments relatedto the paperworkburden and the impact analysis areaddressedin the Collection ofInformation and Impact AnalysisSections in this preamble.


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A. General Comments on the Proposed

Rule

Comment: We receiveda questionrelatedto the applicability of the Part423 provisions to Medicare costcontractors who offer Part Dplans.

Response: Cost plans,per 42 CFR

417.440(b)(2)(ii), which offer a Part D

prescription drug program as anoptional supplemental benefit, must

offer the benefits inaccordance withapplicable requirements under Part423. The current proposed revisions donot change the existing regulations.Therefore, the Part 423 regulationswouldcontinue to apply to cost plans

just as they have priorto the publicationof this rule.

B. Proposed Changes to the MedicareAdvantage Program and thePrescriptionDrugBenefit Program

Our experience involving contractdeterminations, appeals, intermediatesanctions, and CMPs since theenactment of the BBA of 1997 led us topropose changes to our regulations. Inthe proposedrule, we proposed to

simplify the procedures forcontractdeterminations; to clarify the

procedures regarding submission andreview ofcorrective action plans; toclarify the procedures for imposition ofintermediate sanctions and CMPs; andto clarify the procedures to appeal CMPsimposed underthe MA and Part Dprograms.

In addition, we proposed revisions tothe appeal procedures for all types ofcontract determinations, which wouldmake these procedures identical fordecisions not to contract, nonrenewals,

Regulation change

and terminations. We proposed toprovide forenhanced beneficiaryprotections when we decide toterminate aplan on an expedited basis.

In the proposedrule, we alsoproposedchanges and clarifications toSubpart K, contract requirements underthe MA and Part Dprograms. We

proposed changesto

clarify HHS

accessto the books and records of a MAorganization or Part D sponsorsfirsttier, downstream, and related entities.We also proposed changes to clarify thatcertain elements of the complianceplanapply to first tier, downstream, andrelated entities. We also proposedmandatory self-reporting in both the MAand Part Dprograms,but we are notfinalizing the provision at this time.

Below, we set forth the finalregulatory changes, and correspondingfinal implementation dates:

Implementationdate

Incorporation of Fraud, Waste, and Abuse Prevention Measures into Compliance Plan .......................................................... 1/1/2009Requirement to apply Compliance Plans training and communication requirements to first tier, downstream, and related

entities ...................................................................................................................................................................................... 1/1/2009Voluntary procedures for MA organizations for self-reporting potential fraud and misconduct .................................................. 1/1/2009Requirement to obtain access to Part D sponsors first tier, downstream, and related entitys books and records through

contractual arrangements ........................................................................................................................................................ 1/1/2009Elimination of CMS requirement to inform organization of renewal ........................................................................................... 1/4/2008Change date of CMS notification of non-renewal from May 1 to August 1 ............................................................................... 1/4/2008Provide for same administrative appeal rights (including Corrective Action Plans (CAPs)) for all contract determinations

(non-renewal, expedited termination, termination) .................................................................................................................. 1/4/2008Change regarding CAP process may be provided prior to notification of termination, and the imposition of time limits on

Corrective Action Plans ............................................................................................................................................................ 1/4/2008Change immediate termination to expedited termination with CMS setting the effective date of termination ........................... 1/4/2008Elimination of Reconsideration Step for contract determination appeals ................................................................................... 1/4/2008

Implementation of Burden of Proof for contract determinations ................................................................................................. 1/4/2008Ability for a hearing officer to issue summary judgment ............................................................................................................. 1/4/2008Request for Administrator review, submission of information, and timeframe associated with Administrator review ............... 1/4/2008Settlement of Civil Money Penalties ............................................................................................................................................ 1/4/2008Appeal procedures for Civil Money Penalties ............................................................................................................................. 1/4/2008

We did not receive any comments onthe implementation dates we proposedand are generally finalizing theimplementation dates as we proposed,with minor modification to reflect thatcertain provisions will be effective onJanuary 4, 2008. However, since we arenot implementing the proposed

mandatory self-reporting requirement atthis time, we have only included a

reference to an implementation date forthe voluntary self-reportingrecommendation for MA organizationsin the above chart. We are retaining theexisting voluntary self-reportingrecommendation for Part D sponsors sothat recommendation is currently ineffect and will remain in effect in the

future.

C.Distribution Table

The following crosswalk tablereferences the changes we are making tothe prescription drug and the MAprograms. We proposed making thesame changes to 42 CFRparts 422 and423 with minimal differences. Thecrosswalklists the section headings, for

parts 422 and 423, and indicates ifthesection is being deleted.

TABLE 1.CROSSWALK OF PART 422 AND PART 423 CFR SECTIONS

Section heading Section references inpart 422

Section referencesin part 423

Definitions ........................................................................................................................................Compliance Plan ..............................................................................................................................Access to Facilities and Records ....................................................................................................

Contract Provisions ..........................................................................................................................Effective Date and Term of Contract ...............................................................................................Non-renewal of contract ..................................................................................................................

422.2 ............................422.503(b)(4)(vi) ..........422.504(e) and

422.503(d)(2)(iii).422.504(i) .....................422.505 ........................422.506 ........................

423.4423.504(b)(4)(vi)423.505(e)

423.505(i)423.506423.507


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Federal Register/Vol. 72,No. 233/Wednesday, December 5, 2007/Rules and Regulations 68703

TABLE 1.CROSSWALK OF PART 422 AND PART 423 CFR SECTIONSContinued

Section headingSection references in

part 422Section references

in part 423

Termination of contract by CMS ......................................................................................................Notice of contract determination ......................................................................................................Effect of contract determination .......................................................................................................Reconsideration: applicability ..........................................................................................................

Request for reconsideration ............................................................................................................Opportunity to submit evidence .......................................................................................................Reconsidered determination ............................................................................................................Notice of reconsidered determination ..............................................................................................Effect of reconsidered determination ...............................................................................................Right to a hearing and burden of proof ...........................................................................................Request for hearing .........................................................................................................................Postponement of effective date of a contract determination when a request for a hearing with

respect to a contract determination is filed timely.Time and Place of Hearing ..............................................................................................................Discovery .........................................................................................................................................Prehearing and Summary Judgment ...............................................................................................Review by the Administrator ............................................................................................................Reopening of initial contract determination or intermediate sanction or decision of a hearing offi-

cer or the Administrator.Effect of revised determination ........................................................................................................Types of intermediate sanctions and civil money penalties ............................................................

Basis for imposing intermediate sanctions and civil money penalties ............................................Procedures for imposing intermediate sanctions and civil money penalties ..................................Collection of civil money penalty imposed by CMS ........................................................................Determinations regarding the amount of civil money penalties and assessment imposed by

CMS.Settlement of penalties ....................................................................................................................Other applicable provisions .............................................................................................................Basis and scope ..............................................................................................................................Definitions ........................................................................................................................................Scope and applicability ....................................................................................................................Appeal rights ....................................................................................................................................Appointment of representatives .......................................................................................................Authority of representatives .............................................................................................................Fees for services of representatives ...............................................................................................Charge for transcripts ......................................................................................................................Filing of briefs with the Administrative Law J udge or Departmental Appeals Board, and oppor-

tunity for rebuttal.Notice and effect of initial determinations .......................................................................................Request for hearing .........................................................................................................................Parties to the hearing .....................................................................................................................Designation of hearing official ........................................................................................................Disqualification of Administrative Law J udge .................................................................................Prehearing conference ...................................................................................................................Notice of prehearing conference ....................................................................................................Conduct of prehearing conference .................................................................................................Record, order, and effect of prehearing conference ......................................................................Time and place of hearing ..............................................................................................................Change in time and place of hearing .............................................................................................J oint hearing ...................................................................................................................................Hearing on new issues ...................................................................................................................Subpoenas ......................................................................................................................................Conduct of hearing .........................................................................................................................Evidence .........................................................................................................................................Witnesses .......................................................................................................................................Oral and written summation ...........................................................................................................Record of hearing ...........................................................................................................................Waiver of right to appear and present evidence ............................................................................Dismissal of request for hearing .....................................................................................................Dismissal for abandonment ............................................................................................................Dismissal for cause ........................................................................................................................Notice and effect of dismissal and right to request review ............................................................Vacating a dismissal of request for hearing ...................................................................................Administrative Law Judges decision ..............................................................................................Removal of hearing to Departmental Appeals Board ....................................................................Remand by the Administrative Law J udge .....................................................................................Right to request Departmental Appeals Board review of Administrative Law J udges decision or

dismissal.Request for Departmental Appeals Board review ...........................................................................Departmental Appeals Board action on request for review ............................................................Procedures before De artmental A eals Board on review ...........................................................

422.510 ........................422.644 ........................422.646 ........................422.648 (delete) ..........

422.650 (delete) ..........422.652 (delete) ..........422.654 (delete) ..........422.656 (delete) ..........422.658 (delete) ..........422.660 ........................422.662 ........................422.664 ........................

422.670 ........................422.682 ........................422.684 ........................422.692 ........................422.696 ........................

422.698 (delete) ..........422.750 ........................

422.752 ........................422.756 ........................422.758 ........................422.760 ........................

422.762 ........................422.764 ........................422.1000 ......................422.1002 ......................422.1004 ......................422.1006 ......................422.1008 ......................422.1010 ......................422.1012 ......................422.1014 ......................422.1016 ......................

422.1018 ......................422.1020 ......................422.1022 ......................422.1024 ......................422.1026 ......................422.1028 ......................422.1030 ......................422.1032 ......................422.1034 ......................422.1036 ......................422.1038 ......................422.1040 ......................422.1042 ......................422.1044 ......................422.1046 ......................422.1048 ......................422.1050 ......................422.1052 ......................422.1054 ......................422.1056 ......................422.1058 ......................422.1060 ......................422.1062 ......................422.1064 ......................422.1066 ......................422.1068 ......................422.1070 ......................422.1072 ......................422.1074 ......................

422.1076 ......................422.1078 ......................422.1080 ......................

423.509423.642423.643423.644 (delete)

423.645 (delete)423.646 (delete)423.647 (delete)423.648 (delete)423.649 (delete)423.650423.651423.652

423.655423.661423.662423.666423.668

423.669 (delete)423.750

423.752423.756423.758423.760

423.762423.764423.1000423.1002423.1004423.1006423.1008423.1010423.1012423.1014423.1016

423.1018423.1020423.1022423.1024423.1026423.1028423.1030423.1032423.1034423.1036423.1038423.1040423.1042423.1044423.1046423.1048423.1050423.1052423.1054423.1056423.1058423.1060423.1062423.1064423.1066423.1068423.1070423.1072423.1074

423.1076423.1078423.1080


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TABLE 1.CROSSWALK OF PART 422 AND PART 423 CFR SECTIONSContinued

Section heading Section references inpart 422

Section referencesin part 423

Evidence admissible on review .......................................................................................................Decision or remand by the Departmental Appeals Board ..............................................................Effect of Departmental Appeals Board decision .............................................................................Extension of time for seeking judicial review ..................................................................................Basis, timing, and authority for reopening an Administrative Law J udge or Board decision .........

Revision of reopened decision ........................................................................................................Notice and effect of revised decision ..............................................................................................

422.1082 ......................422.1084 ......................422.1086 ......................422.1088 ......................422.1090 ......................

422.1092 ......................422.1094 ......................

423.1082423.1084423.1086423.1088423.1090

423.1092423.1094

We did not receive any comments onthe crosswalk distribution table andhave made no substantial changes to it.We are finalizing the table as proposed.

D. Proposed Changes to Part422Medicare Advantage Program and Part423Medicare Prescription DrugBenefit Program

Sections 422.2 and 423.4Definitions

We proposedto correct a technical

oversight in both regulations byincluding the definitions ofdownstreamentity,first tier entity,and relatedentity, in the overalldefinitions sections of both the MA andPart D regulations at 422.2 and 423.4to ensure that these terms are usedconsistently throughoutboth programs.Since these three terms are only definedin Subpart K ofparts 422 and 423, we

proposedto add them to Subpart A,General Provisions at 422.2 and 423.4.

Please see page 29372 of the proposedrule for a flow chart that provides

examples of, and describes therelationships between, Part D sponsors,and first tier, downstream, and relatedentities.

Comment: A few commentersrequestedmore explicit definitions offirst tier, downstream, and relatedentities. They askedus to provideclarification for the terms recordretention, administrative services,

written arrangements, acceptable toCMS, CMS instructions, and directors.We also receiveda request that weclarify the phrase a written agreement,acceptable to CMS,foundin thedefinition of downstreamentity,anda request that we clarify which entitiesare involvedin such an arrangement.

Response: The terms firsttierentity,downstreamentity,andrelatedentity are already definedin

Subpart K ofparts 422 and 423, and weare only including them in Subpart A,General Provisions at 422.2 and 423.4 for clarity, since these termswere originally definedin only SubpartK. Examples ofdownstream entitiesinclude,but are not limited to,

pharmacy benefit managers, mail orderpharmacies, retail pharmacies, firmsproviding agent/broker services, agents,brokers, marketing firms, and call centerfirms. We are neither providingdefinitions nor clarifications for theterms recordretention,administrativeservices,written

arrangements,

acceptable to CMS,

CMS instructions, or directors,since these terms are longstanding termsusedby us and the industry. We arefinalizing the definitions of firsttierentity and relatedentityas

proposed. Based upon an unintentional

oversight in the proposed regulation, weare revising the definition of

downstreamentity for improvedclarity, as described below. Thedefinition of a Part D downstreamentity at 423.4 states that a[d]ownstreamentity means any partythat enters into a written arrangementacceptable to CMS, below the level ofthe arrangement between a Part Dplansponsor(or applicant) and a first tierentity. In response to this comment, weare modifying the proposed definition to

address with whom the entity isentering into a written arrangement. Thedefinition is revisedto read:Downstreamentity means any partythat enters into a written arrangement,acceptable to CMS, with persons orentities involved with the Part Dbenefit,below the level of the arrangementbetween a Part Dplan sponsor (orapplicant) and a first tier entity. Thesewritten arrangements continue down tothe level of the ultimate providerofbothhealth and administrative services.Weare making similar changes to thedefinition of downstreamentity in the

MA regulation at 422.2.Comment: One commenter questioned

whetherapharmacist is a downstreamentity.

Response: As illustratedin the sampleflowchart providedon p. 29372 ofthe

proposedrule, andbelow, apharmacistwouldbe considereda downstreamentity as definedin the regulation.


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68705Federal Register /Vol. 72, No. 233 / Wednesday, December5, 2007 /Rules and Regulations

Sections 422.503 and 423.504GeneralProvisions

The current regulations at 423.504include a requirement that a Part Dsponsorscompliance plan consist oftraining and education, and effectivelines ofcommunication between thecompliance officer, and theorganization semployees, contractors,agents, directors, and managers. Theterms contractor and agent are not

definedin the current regulations, andit has been unclearto the industrywhich entities are subject to the trainingand education, and the effective lines ofcommunication requirements. Inresponse to industry concerns and toeliminate the confusion associatedwithusing the term contractor,currentlyusedin those sections, we proposed torevise paragraphs (b)(4)(vi)(C) and(b)(4)(vi)(D) of 423.504. The proposedrevision clarifiedthat a complianceplanmust consist oftraining and education,and effective lines ofcommunication

between the compliance officer and thePart D sponsorsemployees, managers,

and directors, as well as the Part Dsponsorsfirst tier, downstream, andrelatedentitieswhich are defined at422.500 and 423.501. This changeclarifies that Part Dplan sponsors needto apply these training andcommunication requirements to allentities they are partnering with to

provide benefits or services in the PartDprogram, not just to their directemployees within their organizations.

Pursuant to our authority under 1856(b)(1) of the Act to establish MA

standardsby regulation, we alsoproposedto make the same changes inthe MAprogram. We similarly proposedto require MA organizations to applytheir training and education andeffective lines ofcommunicationrequirements to theirfirst tier,downstream, and related entities, in aneffort to make the complianceplanrequirements uniform across MAorganizations, Medicare AdvantagePrescription Drug Plans (MAPDs), and

otherPart D sponsors. Additionally, weproposed clarifying paragraph (b)(4)(vi)in 422.503 and 423.504by removingwhat we believe to be a duplicative andconfusing finalelement ofthecompliance plana comprehensivefraud,waste, and abuse plan to detect,correct, andprevent fraud, waste, andabuse, at paragraph (b)(4)(vi)(H) ofbothregulations. Weproposedto remove thiselement because since the Part Dprogramsinception, we receivedfeedbackfrom many Part D sponsorsindicating that it was not clear whetherwe were requiring a fraud, waste, andabuse (FWA) plan separate and distinctfrom a complianceplan.

In April 2006, we issued Chapter9 ofthe Prescription Drug Benefit Manual(Part D Program to Control Fraud,Waste and Abuse,hereafter referred toas Chapter9) as best practicesguidance for Part D sponsors to developan FWA plan. We intendfor Chapter 9to be similarto the type of best practicesguidance issuedby the Office oftheInspector General (OIG) in itsCompliance Program Guidance for drugmanufacturers and health care

providers. While we clarifiedin Chapter9 that Part D sponsors could choosewhetherto incorporate FWA measuresin a compliance plan, we believe thefinal element continues to cause

potential confusion to the industry, andtherefore, proposedto remove thiselement from (b)(4)(vi) of 422.503 (forMAPDs) and 423.504 (for Part Dsponsors).

We continue to believe an effectivecompliance plan includes procedures

and policies forpreventing fraud, waste,and abuse, and so proposed changes tothe introductory clause of 423.504(b)(4)(vi) that reflect ourpolicystance. Congress mandated that Part Dsponsors have a program to controlfraud, waste, and abuse. See 1860D4(c)(1)(D) of the Act. Therefore, we arealso clarifying that if Part Dplansponsors develop an effectivecomplianceplan that incorporatesmeasures to detect, prevent, and correctfraud, waste, and abuse, this complianceplan wouldalso satisfy the statutoryrequirement that sponsors have a FWAplan in place. Part D sponsors shouldcontinue to look to Chapter9 asrecommended guidance for the types ofmeasures we recommendin detectingand preventing fraud, waste, and abuse.Chapter9 can be viewedat: http://www.cms.gov/PrescriptionDrugCovContra/Downloads/PDBManual_Chapter9_FWA.pdf.

We recognize that Chapter9 wasspecifically developedfor Part Dsponsors and is not applicable for MAorganizations that do not offer aprescription drug benefit. In the interim,
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MA organizations shouldrefer toChapter9 as a reference regarding howto incorporate fraud, waste, and abusedetection andprevention into theircompliance plans. Weplan to developseparate guidelines for MAorganizations for implementation byJanuary 1, 2009.

Pursuant to our authority under

section 1856(b)(1) of the Act, we alsoproposed to make the same change tothe introductory clause of 422.503(b)(4)(vi), so that thecompliance plan requirements for MAorganizations will be identical to thosefor Part D sponsors. Weproposed thatMA organizations must includemeasures to detect, correct, and

prevent fraud, waste, and abusethroughout the 7 elements ofthecompliance plan requirement. Beforethis proposed change, only MA-PDswere explicitly requiredto includedetection andprevention offraud,waste, and abuse into their compliance

plans. However, it has alwaysbeen ourexpectation that fraud, waste, and abusewouldbe addressed through theimplementation of all 7 elements in aMA organization scomplianceplan,enumeratedat paragraphs (A) through(G) of 422.504(b)(4)(vi). It has been ourlongstanding policy that an effectiveMA compliance plan addresses thedetection, correction, andprevention offraud, waste, and abuse in the MAprogram, and we believe that ourproposed change makes this policyexplicit in our regulations. As

previously statedin this final rule with

comment period, MA organizations mayrefer to Chapter9 in the interim, andfurther guidance on the types ofmeasures we recommendin detectingandpreventing fraud, waste, and abusewill be developed specifically for MAorganizations.

Comment: A numberofrespondentsrequested further clarification regardingwho must provide training andeducation underthe complianceplanand who mustbe trainedand educated.

Response: We did not intendto implythat MA organizations and Part Dsponsors are requiredto directly

provide Part D compliance training andeducation to all oftheirfirst tier,downstream, and related entities.Instead, we seek to reaffirm the role andresponsibilities of the MA organizationand Part D sponsorin this area. To theextent that aspects of the complianceplan are delegated, it is important torememberthat the MA organizationsorPart D sponsorscompliance officermustmaintain appropriate oversight ofthose delegated activities. The Part Dsponsorand the MA organizationmaintain ultimate responsibility

regardless of whether training has beendelegatedto the first tier, downstream,or related entities. In accordance withthe Part D and MA applications, the PartD sponsoror MA organization mustattest it will implement a complianceplan that includes effective training andeducation between the complianceofficer, organization employees,

contractors, agents and directors. Inaddition, as part ofplan audits, CMSwill verify that all necessary training has

been provided. Therefore, CMS wouldexpect that a Part D sponsorand MAorganization wouldhave training logsand copies ofattestations from the firsttier, downstream or related entities tocomply with this requirement. As

previously statedin this final rule withcomment period, MA organizations mayrefer to Chapter9 in the interim, andfurther guidance will be developed forMA organizations.

Comment: A few commentersquestionedwhowouldbe responsiblefor implementing the complianceprogramsfraud, waste, and abusedetection andprevention efforts relatedto Part D.

Response: The MA organization orPart D sponsoris ultimately responsiblefor meeting the complianceplanrequirement to implement measures fordetecting andpreventing fraud, waste,and abuse. However, we realize thateach MA organization and Part Dsponsorhas a unique business modeland structure, and that some will chooseto perform certain functions themselveswhile some MA organizations and Part

D sponsors will subcontract certainfunctions and rely on the expertise andoperations that first tier, downstream,and related entities offer. The job ofthecompliance officer cannotbe delegated.But MA organizations and Part Dsponsors have the flexibility todetermine how, and to what extent, theywill delegate their compliance activities,which may include training andeducation to control fraud, waste, andabuse. MA organizations and Part Dsponsors have the flexibility todetermine how and to what extent theywill delegate other aspects oftheircontractual requirements. To the extentthat any compliance activities aredelegatedto first tier, downstream, andrelated entities, MA organizations andPart D sponsors are ultimatelyresponsible forcomplianceplanoversight, including monitoring trainingand education, and complying with allstatutory and regulatory requirements,as well as any additional guidanceidentifiedby us. One option MAorganizations and Part D sponsors maychoose is to contractually require theirfirst tier, downstream, and related

entities to train theirown workforce ondelegated activities and establish linesofcommunication to the appropriatemanagers in those entities. Werecommendthat Part D sponsors reviewchapter9 of the Prescription DrugBenefit Manual for further guidanceregarding accountability and oversightoffirst tier, downstream, and related

entities. As previously statedin thisfinal rule with comment period, MAorganizations may refer to Chapter9 inthe interim, and further guidance will

be developed specifically forMAorganizations.

MA organizations and Part D sponsorsshould consider requiring that any firsttier, downstream, and related entities

performing activities on behalfoftheMA organization or Part D sponsor,provide theirown training inaccordance with 422.504(b)(4)(vi)(C)or 423.504(b)(4)(vi)(C) respectively, orwhere there are sufficient organizationalsimilarities, the MA organization orsponsormay choose to make its trainingprograms available to these entities.This will allow the first tier,downstream, and related entities thechoice ofaccessing the MA organizationor Part D sponsorstraining andeducation materials, orproviding proofto them oftheir compliance with thetraining and education requirement. Forfurther guidance, please refer to chapter9 of the Prescription Drug BenefitManual.

Employees with specificresponsibilities in Medicare Part D

business areas should receive

specialized training on issues posingcompliance risks basedon their jobfunction (for example, pharmacist,statistician, and so on), upon initialhire, when requirements change, orwhen an employee works in an area

previously foundto be noncompliantwith program requirements orassociated withpast misconduct. Suchtraining shouldalso be requiredat leastannually thereafteras a condition ofemployment. Specialized trainingcontent may be developedby thesponsoror employees may attend

professional education courses that help

meet this objective. Further discussionrelatedto this subject may be found inChapter 9.

In Chapter9, we discuss howdelegation oftraining would beapplicable, ifdeemed appropriateby thesponsor, for General ComplianceTraining and Specialized ComplianceTraining. We did not make any changesto ourproposed provisions as a result ofthis comment.

Comment: We received somecomments suggesting that we shouldwork with the industry to develop a


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standardized training andcommunication plan applicable to allstakeholders, and make it available onthe internet. This way, stakeholderswould receive one comprehensivetraining and communication package.

Response: We believe this to be avaluable suggestion, and we will take itunder consideration.

Comment: Some commentersrequestedthat we conduct certificationsto verify that training and education had

been completedfor Part Dplans andtheirfirst tier, downstream, and relatedentities.

Response: At this time, we do notrequire a certification processbut rather,through our audit and review process,will determine whetheror not thetraining and education requirementswere fulfilled. We holdthe Part Dsponsoror MA organization responsiblefor fulfilling this requirement regardless

ofwhetherfirst tier, downstream, andrelated entities certify to that effect. Wemay revisit the idea ofcertification inthe future.

Comment: One respondent questionedwho downstream entities should contactwith complianceconcerns.

Response: We have contracted withprogram integrity contractors who willuse innovative techniques to monitorand analyze data to help identify and

prevent fraud, waste, and abuse. Anyperson or entity at a first tier,downstream, or related entity level that

wishes to report potential fraud ormisconduct may contact aprogramintegrity contractor and/orthe MAorganization or the Part D sponsor,depending on the type ofviolation.

Comment: Anotherrespondentquestionedwho wouldbe responsibleforreporting potential prescription drugfraud.

Response: The Part D sponsoror MAorganization maintains ultimateresponsibility regardless ofwhetheroversight duties have been delegated. Tothe extent that any of the complianceactivities for Parts C or D are delegated,

it is important that the MA or Part Dcompliance officer maintain appropriateoversight ofthose duties that have beendelegated. The compliance officer isresponsible for determining whethervoluntary self-reporting of any potentialfraudor misconduct relatedto the MAor Part Dprogram is appropriate. Inaddition, first tier, downstream, andrelated entities are encouragedto reportfraud, waste, or abuse to the programintegrity contractor and/orthe MAorganization or the Part D sponsor.

Sections 422.503(b)(4)(vi)(G)(3) and423.504(b)(4)(vi)(G)(3)Mandatory Self-Reporting

At 422.503(b)(4)(vi)(G)(3) and 423.504(b)(4)(vi)(G)(3), we proposedmandatory self-reporting ofpotentialfraudor misconduct in both the MA andPart Dprograms. We believe that it isimportant for the government to haveinformation on potential fraud ormisconduct as soon as possible. Thecomments we receivedon the May 25,2007, proposedrule highlightedthechallenges in establishing the

parameters of a mandatory self-reportingprocess in the context of MA and PDPplans. Commenters expressed severalconcerns during the public comment

period, including the needfor us tobetterdefine what constitutespotentialfraudand misconduct, the

process for reporting, and the needto beconsistent with otheragenciesguidanceregarding self-reporting. After reviewing

these comments, we determined thatadditional analysis needs to beundertaken and additional informationsoughtbefore implementing amandatory self-reporting requirement.

In the meantime, we believe that self-reporting is a valuable component ofanMA organization s or Part D sponsorscompliance plan. Therefore, in an effortto make the complianceplanrequirements uniform across MAorganizations, Medicare AdvantagePrescription Drug Plans (MA-PDs), andotherPart D sponsors, we will amendproposed paragraph (b)(4)(vi)(G)(3) of

both 422.503 and 423.504 to read: AMA organization or Part D sponsorshouldhave procedures forvoluntaryself-reporting ofpotential fraud ormisconduct * * *. We are essentiallyretaining the voluntary self-reportingrecommendation for Part D sponsors,

but merely moving it within theregulatory text to accommodate otherregulatory changes we are making, andimplementing a voluntary self-reportingrecommendation for MA organizations.We are strongly recommending that, ifafter conducting a reasonable inquiry, itis determinedthat potential fraud ormisconduct has occurred, the conductshouldbe promptly referredto the

program integrity contractorfor furtherinvestigation. While we are notrequiring mandatory self-reporting inthis final rule with comment period,there may be instances under federalcriminal and fraudand abuse statuteswhere MA organizations and Part Dsponsors are potentially subject toprosecution ifcertain issues are notproperly addressed. We furthernote thatour decision not to amendthe existingMA and PDP requirements further at

this time does not mean thatorganizations may not be liable underother Federal laws or regulations if theyfail to disclose a violation they havediscovered.

We wish to call attention to theexisting guidance we provide on self-reporting. Key documents includeChapter9 of the Prescription Drug

Benefit Manual, concerning fraud,waste, and abuse (at http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/PDBManual_Chapter9_FWA.pdf) andthe Medicare Part D ReportingRequirements forContract Year 2007 (athttp://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/PartDReportingRequirements_CurrentYear.pdf). While thesedocuments are not codified rules, theguidance they contain provides cleardirection to plans as to our expectations.We will periodically revise theseguidelines to reflect additional guidanceon ways to improve reporting offraud,waste, and abuse.

We are committedto implementingmandatory self-reporting and we intendto issue aproposedrule. Finally, webelieve that it wouldbe valuable toobtain additional input at this time, inorderto inform our evaluative, analytic,and guidance efforts. Accordingly, weareasking foradditional publiccomments on this issue. Specifically, weask for comments regarding thefollowing:We proposed requiring MA

organizations and Part D sponsors to

report potential fraudor misconduct.We seek guidance as to how to definewhat kinds ofoffenses would constitutefraudand misconduct forpurposes ofthis reporting requirement. We seekspecific examples ofwhat constitutes

potential fraudand misconduct. Alternatively, we seek input as to

whether there is an alternateformulation, rather than fraudormisconduct that would better describethe categories ofoffenses that should bereportedto CMS (for example violationsofadministrative, civil and/or criminalauthorities).

Who are the entities that would beresponsible for reporting to CMS(sponsor, first tier, downstreamentities)? At what point wouldCMS require

that a MA or Part Dplan report apotential issue that couldfall into thecategory ofoffenses that would requireself-reporting (for example, upon initialdiscovery or after an opportunity forreasonable inquiry or due diligence)?How shouldthis information be

reportedto CMS (through the MEDICs,disclosure to the CMS plan manager, or
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CMS central office)? Please provide adiscussion of the advantages ordisadvantages of any ofthese or otherreporting mechanisms. In addition to the specific questions

raisedabove, please provide us with anyother comments or constructivefeedbackthat might assist us in craftinga mandatory self-reporting requirement.

Sections 422.504 and 423.505GeneralProvisions

We proposedto clarify which entitiesunder contract to MA organizations andPart D sponsors are subject to thecontract provisions in the MA and PartDprograms. Currently, the contract

provisions at 422.504 and 423.505 referto such entities as the MA organizationor Part D sponsorscontractorsandsubcontractors,which as wedescribedin the proposedrule, areundefined terms in the statute andregulations. We proposed, whereapplicable, to delete the termcontractor,because ofpotentialconfusion and redundancy, and replacethe term subcontractorwith the termsfirst tier entity and downstreamentity in 422.504(e) and (i), to clarifywhich entities are subject to the contract

provisions at 422.504.We also proposed, where applicable,

to delete the term contractor,andreplace the term subcontractorwiththe terms first tier entityanddownstreamentity in the Part Dcontract provisions at 423.505(e) and (i)for the same reasons. Webelieved usingfirst tier and downstream, entities

insteadofsubcontractor

would lessen

the potential for confusion in the Part Dprogram. Please see page 29372 oftheproposedrule forexamples of first tier,downstream, and related entities.

Comment: We receiveda numberoftechnical comments concerning thedefinitions of contractorandsubcontractor.

Response: Based on these comments,we are correcting a few typographicalerrors in 423.505(i)(3)(v)by replacingthe phrase relatedentity, contractor orsubcontractorwith the phrase firsttier, downstream, and relatedentitiesto be consistent with the other parts ofthe regulation. In 423.505(i)(3), and 423.505(i)(3)(ii), (i)(4), and (i)(4)(v),we are deleting the term pharmacyasit was includedin error and isredundant. Section 423.505(i)(4) willnow read: Ifany of the Part Dplansponsorsactivities or responsibilitiesunderits contract with CMS isdelegatedto other parties, the followingrequirements apply to any first tier,downstream, and related entity,and 423.505(i)(4)(v) will read: Allcontracts or written arrangements must

specify that the first tier, downstream,or related entity must comply with allapplicable Federal laws, regulations,and CMS instructions. We also aremaking similar corrections to 422.504(i)(3), (i)(3)(ii), and (i)(4) wherethe term provider was left in theregulations unintentionally. Allreferences to provider have been

deletedin the final regulations.Weproposedto add aprovision to the

contracts and written arrangementsbetween sponsors and theirfirst tier,downstream, and related entities at 423.505(i)(3)(iv) to clarify that thisinformation can be providedto eitherthe Part D sponsorto give to CMS, orcan be provided directly to CMS or itsdesignees. We discussedin the

proposedrule at page 29373 our existingauthority under section 1860D12(b)(3)(c) of the Act and 422.504(e)and 423.505(e) to inspect and auditany books, contracts, requests, andrecords of a Part D sponsoror MAorganization relating to the Part Dprogram. Because of the proposedcontract provision, we also proposed toredesignate 423.505(i)(3)(iv) as 423.505(i)(3)(v). We are finalizingthese changes as proposed.

Comment: A few commentersquestionedour authority to access the

books and records of first tier,downstream and related entities. Onecommenter suggesteda needfor moreformal rulemaking on this topic.

Response: We have existing authorityunder section 1860D12(b)(3)(c) oftheAct and 422.504(e)(2) and

423.505(e)(2) to inspect and audit anybooks, contracts, and records of a PartD sponsoror MA organization and itsfirst tier, downstream, and relatedentities that pertain to any aspect ofservices performed, reconciliation of

benefit liabilities, and determination ofaccounts payable underthe contract oras the Secretary may deem necessary toenforce the contract. Therefore, it is notnecessary, as the commenters suggested,to propose a more formal regulation andoffer another public comment period.These third party disclosurerequirements were finalizedin the finalMA and Part D rules and were approvedunderthe Paperwork Reduction Actapproval underOMB #09381004 (PartC) and OMB #09381000 (Part D).Additionally, in the preamble to the PartDproposedrule, publishedon January28, 2005 (70 FR 4194), we clearly statedour inspection and audit rights withrespect to a Part D sponsorand itscontractors, subcontractors, and relatedentities underthe section entitledAccess to Facilities and Records(69FR4663246712). In this regulation, wehave further clarifiedthat our access

rights apply to first tier, downstream,and related entities, and notcontractors, subcontractors, and relatedentities.

The limited rebate and other priceconcession information providedto thePart D sponsorby its contracting entitiesmay provide some payment informationto us, but it may not be enough forus

to determine in all cases whetherappropriate payments have been madeto the sponsor. Therefore, it may benecessary for us to rely on our authorityto accessbooks and records to obtainmore detailed rebate and other priceconcession information in order toverifyproper payments were made tothe Part D sponsor.

Comment: We receiveda number ofcomments questioning whether booksand records mustbe made available tous directly or through the Part Dsponsor.

Response: We have chosen not to beprescriptive regarding whether first tier,

downstream, and related entities mustmake theirbooks and records availableto us directly or through the Part DSponsor. It is our opinion that this isconsideredto be part of the negotiation

process between the Part D sponsor andits first tier, downstream, and relatedentities. The provision mustbe clear asto whetheror not the requesteddocumentation is to be submittedthrough the Part D sponsorto us (or ourdesignee(s)), or submitted directly to us(or our designee(s)). The parties couldalso decide to have suchbooks andrecords made directly available to us, or

our designee(s), through onsite access.The Part D sponsor mustbe prepared tosubmit evidence of this agreedupon

provision in its executed contracts to us.To clarify, the designeeeitherrefers toentities underaprogram integritycontract with us, orentities, such as lawenforcement, working in collaborationwith us to fight fraud, waste and abusein the Medicare Part Dprogram.

HHS, the Comptroller General, or itsdesignees have the authority to collectany information from the first tier,downstream, or related entities that isrelatedto the Medicare Part Dprescription drug transaction. Examplesof the type ofinformation collected areprovidedat 423.505(e)(2).

In addition to proposing a newcontract provision at 423.505(i)(4)(iv),we also proposed minor regulatorychanges which clarify the Part Dsponsors CMS contractualrequirements. While we continue tobelieve our regulations clearly state ourauthority to access the books andrecords of a Part D sponsors first tier,downstream, and related entities, we

proposedto add language about these


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partnering entit ies to 423.505(b)(10),andproposedto consolidate 423.505(e)(2) and (3) into one

provision at (e)(2). We proposed theserevisions to make explicit the Part Dplan sponsorscontractual obligation toensure HHS, the Comptroller General, ortheir designees have access to any booksand records relatedto the Part D

program, including those of a sponsors

first tier, downstream, and relatedentities. These revisions do not imposeany new requirements on Part Dsponsors or its partnering entities. Weare finalizing these proposed provisionswithout change.

Comment: A few commenters notedthat the proposed revision to 422.504and 423.505 has not prescribedtypical data sets to be reported withinthe context of our request for books andrecords of first tier, downstream, andrelated entities. Another commenterindicatedthat the information thatcouldbe collectedis too broad.

Response: We want to clarify that thebooks and records we are entitled toaccess do not make up a typical data setincludedin the Medicare Part DReporting Requirements. There is noreport form to be defined, as the formatwill be dependent upon the information

being requestedand the uniquecircumstances upon which the requestis based. The scope of the informationcollectedwill be basedon the type ofauditbeing performed. Ifupon review ofthe information submittedwe, or ourdesignee(s), determine that additionalinformation or clarification is

warranted, the scope of the review maybe expanded.

Comment: A commenter suggestedthat we shouldrely on subpoenaauthority, regulation, provider contracts,or some other methodto collect booksand records in connection withinvestigations.

Response: We do not have subpoenaauthority; however, our law enforcementpartners such as OIG and DOJ do. Thegovernment may use a variety ofmethods to obtain records andbooksfrom entities under contract with MAorganizations and/orPart D sponsors.There may be instances where we mayneedto see books and records withoutinvolving law enforcement. These

provisions at 422.504 and 423.505 only clarify one method wemay employ to do so.

We clarifiedin the preamble to theproposedrule that HHS, theComptroller General, or their designeeshave the authority underthe statute torequest records from MA organizationsand Part D sponsors or theirfirst tier,downstream, or related entities. MAorganizations and Part Dplan sponsors

must maintain, as required by 423.505(d), books,records,documents and other evidence ofaccounting procedures andpractices,

pertaining to determinations ofamountspayable under the contract, agreements,contracts, and subcontracts. Since PartD sponsors have delegated many Part Dfunctions to theirfirst tier entities, we

areaware that many ofthese recordsreside with first tier and downstreamentities, such as pharmaceutical benefitsmanagers (PBMs). We are taking theopportunity again, in this final rule withcomment period, to make explicit thatwe have the authority to request forverification ofpayment purposes, anyrecords relating to rebates and any other

price concessions between PBMs andmanufacturers that may impactpaymentsmade to sponsors in the PartDprogram.

Comment: We receiveda commentaddressing the 10-yearrecord retentionrequirement.

Response: This requirement wasimplementedin aprior regulation andis outside the scope of this final rulewith comment period.

Comment: A numberofcommentersexpressed concern that informationsubmittedby first tier, downstream, andrelated entities, especially proprietaryinformation, wouldnot be keptconfidentialby us.

Response: As an agency, we aresubject to various Federal disclosurelaws, such as the Trade Secrets Act, thePrivacy Act, and the Freedom ofInformation Act (FOIA) (5 U.S.C. 552).

We are also subject to confidentialityand disclosure regulations at 42 CFRPart 401 Subpart B. In addition, sections1860D15(d)(2)(B) and (f)(2) of the Act

place restrictions on the Secretarysdisclosure ofcertain payment datacollectedin the Part Dprogram toanyone outside of HHS. Therefore, we

believe there are sufficient legalrestrictions to protect the disclosure ofsuch proprietary data outside oftheagency.

Comment: One commenter questionedour needto gather information aboutrebate agreements betweenpotentialfirst tier and downstream entitycontracted partners.

Response: Ourproposal to obtainrebate andprice-concession relatedrecords is supportedby statute. Sections1860D15(d)(2) and 1860D15(f)(1)(A) ofthe Act authorize us to request anyinformation necessary to carry out the

payment provisions in section 1860D15 of the Act, which include paymentsofdirect subsidies, reinsurance, and riskcorridorcosts to sponsors. While therebate and other price concessioninformation reportedby the sponsors

may provide some paymentinformation, it may not be enough for usto determine in all cases whetherappropriate payments have been madeto the sponsor. It may be necessaryforus to obtain more detailed rebate andother price concession information fromfirst tier, downstream, and relatedentities in orderto verify proper

payments made to the sponsor. Forexample, we must receive accurate andcomplete rebate and other priceconcession information in order todetermine what was actuallypaidandto clearly reflect what was a grossprescription drug coveredcost, whichexcludes administrative costs.

As statedin the CMS 2007Prescription Drug SponsorCall Letter,CMS must assume that if a PBM retainsaportion of the manufacturer rebates itnegotiates on behalfof the Part Dsponsors then the direct payment thesponsorpays the PBM for its serviceswillbe less, that is, the sponsor receivesaprice concession from the PBM. Iftherebates are passed completely throughto the Plan then the charge from thePBM to the Plan wouldbe anadministrative cost that will needto bedeductedfrom the grosscoveredprescription drug costswhich alongwith the actuallypaidcosts are a

basis for CMS payment to the plans.In addition, such rebate and other

price concession information is criticalto our oversight efforts in curbing fraud,waste, and abuse in the Part Dprogram.Under section 1860D2(d)(3) oftheMMA, Congress grantedus the right to

conduct periodic audits of a sponsors

financial statements,books, and recordstoprotect against fraudand abuse andto ensure proper disclosure andaccounting in the Part Dprogram.

Given the history ofrebate reportingproblems the government hasencountered with PBMs inadministering the MedicaidDrug RebateAct, we believe we must have the abilityto evaluate and inspect records relatingto Part D rebates and other priceconcessions in orderto fulfill ourstatutory duty ofprotecting beneficiariesfrom fraudand abuse and to ensure the

financial integrity of the Part Dprogram.Therefore, we are restating in this finalrule with comment periodthat wereserve the right to request recordsrelating to Part D rebates andpriceconcessions from the sponsors first tierentities, downstream, and relatedentities when appropriate.

Comment: A commenter questionedwhether certain contracted partners areconsideredto be downstream entities.

Response: In Exhibit 1 oftheproposedrule, on p. 29372, and in thisfinal rule with comment period, we


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provided examples of first tier anddownstream entities. We encourage youto contact the CMS staff listedat thebeginning of this final rule withcomment periodif you have anyquestions as to whethera contractedpartneris a downstream entity.

Sections 422.505 and 423.506EffectiveDate and Term ofContract

We proposed removing 422.505(c)(1)and 423.506(c)(1), which state thatcontracts with MA organizations or PartDplan sponsors are only renewed ifCMS informs the MA organization orPart D sponsorthat it has authorized arenewal. Section 1857(c)(1) of the Act

provides that the contract renewsautomatically, unless CMS or theorganization notifies the other party ofits intent to terminate the contract at theend of the existing contract term.Therefore, we proposedto revise 422.505(c) and 423.506(c) to statethat in accordance with 422.506 and 423.507, contracts are renewedannually only if the MA organization orPart Dplan sponsorhas not provided uswith a notice ofintent not to renew andwe have not providedthe MAorganization or Part Dplan sponsor witha notice ofintent not to renew. Thischange better aligns the regulations withthe statute and we are finalizing the

provision as proposed.Comment: One commenter asked

whether contracts needing amendmentas a result of this final rule withcomment period couldbe made at thetime ofcontract renewal.

Response: As indicatedin theproposedrule and finalizedhere, theimplementation date of this provision isJanuary 1, 2009. Therefore, all revisedcontracts needto be in placeby thatdate. We did not make any changes

basedon this comment and arefinalizing the provision as proposed.

Sections 422.506 and 423.507Nonrenewal of a Contract

We proposed revising theintroductory text for 422.506(b)(2) and 423.507(b)(2). In addition, we

proposed revising 422.506(b)(2)(i) and 423.507(b)(2)(i). The existing

provisions require us to provide planswith notice of both renewal andnonrenewal decisionsby May 1. We

proposedthat a notice only be providedif we decide not to renew an MAorganization or a Part Dplan sponsorscontract with us. As discussedin the

proposedrule, Section 1857(c)(1) oftheAct provides for an automaticallyrenewable contract and does not requireus to provide notice when we decide torenew aplan or sponsorscontract withus.

Weproposed revising the 422.506(b)(2) introductory text and the 423.507(b)(2) introductory text toclarify that we must provide notice ofour decision not to authorize renewalof a contract. In addition, we proposedto revise 422.506(b)(2)(i) and 423.507 (b)(2)(i) to require that weprovide such noticeby September1 of

the contract year, rather than May 1. Ifan MA organization or Part D sponsorreceives a nonrenewal notice from CMS,we will not provide informationregarding the MA or Part Dplans thatthe organization or sponsoroffers incertain hardcopy materials, such as theMedicare & Youhandbook.Information regarding the plans wouldcontinue to be available on the CMSWeb site. Forpurposes of this final rulewith comment period, a nonrenewalwouldtake effect on January 1 ofthefollowing contract year (unless anonrenewal is being appealed throughthe administrative appeals process andthe appeals process is ongoing, oradditional time is requiredto complywith our requirements with respect to

providing notice to beneficiaries ofthenonrenewal, in which case thenonrenewal may become effectiveduring the following calendar year),whereas a termination may take effect atany time during the contract year. Our

proposed provisions make contractrenewal automatic, without notice,unless we notify the MA organization orMedicare Part Dplan sponsorofourintent to nonrenew the contract bySeptember1 of the current contract

year. Please see the proposedrule forour rational forchanging thenonrenewal notification date to a datelater than May 1.

Comment: We received severalcomments concerning the proposedSeptember1 nonrenewal notificationdate. Several commenters believedthatplans will have to incur significantexpenditures priorto September1 to

prepare for the following calendar year,and that a September1 date wouldrequire plans to incur expenditures thatwouldnot have been incurredbefore theexisting May 1 nonrenewal notification

date, in the event that we take action tononrenew aplan.Response: We understandthat MA

organizations and Part D sponsorsexpendeffort in preparing for thefollowing contract year. Therefore,while we will not retain the existingMay 1 nonrenewal notification date, weare revising ourproposal and finalizinga notification date ofAugust 1, insteadof ourproposed September 1notification date.

We understandthat MA organizations and Part D sponsors expendeffort in

preparing for the following contractyear. Therefore, while we will not retainthe existing May 1 nonrenewalnotification date, we are responding tocommentersconcerns and revising our

proposal and finalizing a notificationdate ofAugust 1, insteadofour

proposed September1 notification date.We believe that this is an appropriate

compromise. While we appreciatecommentersconcerns, we believe wehave a significant countervailinginterest in moving the current May 1nonrenewal notification date to later inthe calendaryear. As we explainedinthe preamble to the proposedrule, theseadditional months will allow us to haveaccess to significantly more informationabout plan performance, which willallow for more informedand educateddecisions about MA organizations andPart D sponsors that have seriouscompliance problems and may be thesubject of a nonrenewal determination.We believe that allowing for theopportunity to access this data will

benefitboth CMS and the MAorganizations and Part D sponsors.

Comment: Another commentersaidthat the September1 date would not

provide forenough time forbeneficiarynotification.

Response: As explainedabove, we arefinalizing a nonrenewal notificationdate ofAugust 1, rather than September1 as we proposed. We believe thischange is more likely to result inadministrative appeals ofCMSnonrenewal actionsbeing completedintime to allow for 90 days notice ofthe

nonrenewal to be providedto membersand the general public priorto the endof the calendar year.

Comment: One commenter requestedclarification as to whether deficienciescouldbe curedafter receiving the noticeof an intent to nonrenew. Thecommenter statedthat a September 1date wouldnot give enough time for anorganization to make necessary changesto come into compliance for the nextcontract year. This commenter alsoexpressed concern about the inability ofaplan to participate in the program forthe following yearbecause ofthetimeframes associated with CorrectiveAction Plans (CAPs) and appeal rights,

potentially rendering aplansappealrights moot.

Response: We believe commentsrelatedto plan participation in thefollowing calendaryearbasedon CAPsubmission dates reflect amisunderstanding of ourproposals inthe proposedrule. We clarifiedin our

proposedrule that we will offerplansan opportunity to submit an acceptableCAP prior to notifying them ofourintent to nonrenew or terminate their


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contract. If an acceptable CAP issubmittedto us, we will not take actionto nonrenew or terminate the sponsor ororganization scontract. Once a sponsoror organization receives a nonrenewalnotification from us (or a terminationnotice), the sponsoror organization isnot entitledto an additional opportunityto submit anotherCAP. We will not be

requiredto provide any additional timefor a MA organization or Part D sponsorto come into compliance or curedeficiencies once we have notified asponsoror organization of our intent tononrenew (or terminate) its contract. We

proposedthis clarification in an effort tostreamline the CAP and nonrenewal

process. We have added additionallanguage at 422.506, 422.510, 423.507, and 423.509 to expresslyclarify that the opportunity to submit anacceptable CAP is affordedto a MAorganization or Part D sponsor prior toour decision to nonrenew or terminatea

contract.

With respect to the commentregarding ongoing administrativeappeals, if a MA organization or Part Dsponsoris in the process ofappealing anonrenewal or termination, and theappeal process has not been concluded,the organization will be able toparticipate in the program the followingcalendaryear until such time during thefollowing calendaryear as the appeals

process is concludedand appropriatenotice is providedto beneficiaries.Therefore, appeal rights will not bemoot.

Comment: Several commenters

believedthat the September1 datewould place an undue burden on

pharmacies to join plan providernetworks and the commentersrecommendedthat we provide somesort ofcontingent renewal notice fororganizations and sponsors to send to

providers for the following year.Response: MA organizations and Part

D sponsors who have not received arequest for a CAP from us as a result ofdeficiencies are not in jeopardy ofreceiving a nonrenewal notification,making the needfor a contingentnonrenewal notice unnecessary.Furthermore, as explainedabove, we arechanging the proposed September 1nonrenewal notification date to August1, affording pharmacies an additionalmonth to make network decisions.

We proposed redesignating 422.506(b)(3) as 422.506(b)(4) andredesignating 423.507(b)(3) as 423.507(b)(4). Weproposed adding anew paragraph at 422.506(b)(3) and 423.507(b)(3) which would clarify theCAP process for nonrenewals. The Actrequires us to provide MA organizationsand Part Dplan sponsors with a

reasonable opportunity to develop aCAP priorto terminating a contract,either through the termination processor the nonrenewal process. The CAP

process for nonrenewals wouldbe thesame process as we proposed forterminations. We proposeda moredefined process than currently existsand we proposedaprocess and

timeframes for the submission andreview of CAPs. Ourproposal clarifiedthat, in the future, once we issue anonrenewal notice or a terminationnotice, the MA organization or Part D

plan sponsorwill not be entitledto anopportunity to submit a CAP. We will

provide that opportunity toorganizations and sponsors prior toissuing a notice ofintent to nonrenewor terminate a contract. MAorganizations and Part Dplan sponsorsshouldtake very seriously any requestfrom us to develop and implement aCAP since a failure to fully comply mayresult in a

nonrenewalor

terminationaction.Comment: One commenter questioned

whetherthe termination and CAPprocess applied to all contract years andif the termination wouldbe retroactiveto the beginning of a plan contract.

Response: The most recent finding ofdeficiencies and the request for a CAPwouldbe relied upon to support atermination or other contractdetermination. Prior CAPs may provideadditional information to us andsupport for our action if the MAorganization or Part D sponsorhas hadcontinued compliance problems that

have not been resolved,but would notbe the basis of a contract determinationif the priorCAPs have been accepted byus and implementedto our satisfaction.A termination action wouldaffect theexisting contract with us. Given that wehave already adopted automaticallyrenewable multi-year contracts, failureto substantially carry out a contract termnecessarily would apply to the entireterm of the contract (that is, the life ofthecontract). Part D and MA contractsare evergreen, so the existing contract isnot just the current calendaryearscontract,but is a continuing contractthat existed during prior calendar years(assuming the Part D sponsoror MAorganization participatedin the programin prior calendar years).

Weproposedtime limits at 422.506(b)(3) and 423.507(b)(3) forthe development and implementation ofa CAP. We proposedto provide the MAorganization or Part Dplan sponsor 45days in which to submit a CAP to us.If we find that the CAP is unacceptable,the MA organization or Part Dplansponsor wouldhave an additional 30days to revise and resubmit the CAP. If

we then find the CAP acceptable, wewould provide the MA organization orPart Dplan sponsor with a deadline bywhich the CAP mustbe implemented. Ifwe find that the second version oftheCAP is unacceptable, we would beunderno obligation to accept furtherrevisions to the CAP and would havethe discretion to proceed directly to

issuing a notice ofnonrenewal to theMA organization or Part Dplan sponsor.

Comment: One commenter requestedclarification on whetherthe timeframe ismeasuredin business or calendar days.The commenter requestedthat we leaveopen lines ofcommunication withorganizations with respect to working todevelop acceptable CAPs. Thecommenterwas concernedthat therewouldonly be one chance to provide anacceptable CAP.

Response: We are clarifying here, andat 422.506(3) and 423.507(3), that theCAP timeframes are measuredincalendardays. We will provide MAorganizations and Part D sponsors twoopportunities to submit acceptableCAPs. Prior to requesting a CAP, orsimultaneous with a request for a CAP,we will inform the MA organization orPart D sponsor about the deficienciesthat mustbe addressedand corrected. Ifthe first CAP submission isunacceptable to us, we will inform theMA organization or Part D sponsoras towhat is unacceptable. The MAorganization or Part D sponsorwill thenhave a second opportunity to submit anacceptable CAP.

It is our intent to assist plans in

submitting acceptable CAPs, whileimplementing a limit on the number ofCAP submissions in orderto bring someclosure to this process when Part Dsponsors or MA organizations areunable or unwilling to bring theirorganizations into compliance with ourrequirements. Aside from theclarification explainedabove regardingthe use ofcalendardays, we arefinalizing ourproposed processes andtimeframes for the submission andreview of CAPs as proposed.

Sections 422.510 and 423.509Termination ofContractby CMS

We proposed revising 422.510(a)(1)and 423.509(a)(1) to clarify one ofthe

bases for contract termination. Theexisting provision states that we mayterminate an MA organization or Part Dplan sponsorscontract with us iftheMA organization or Part Dplan sponsorfailedsubstantially to carry out theterms of its contract with CMS.We

proposed language to clarify that wemay terminate an MA organization orPart Dplan sponsorscontract iftheorganization substantially failedto carry


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out the terms of its contract with usduring the current calendaryear or foraprior calendaryear. This clarificationis consistent with section 1857(c)(1) ofthe Act, which states that a contractmustbe for aperiodof at least 1 yearwith the contractbeing automaticallyrenewable from term to term (that is,calendaryear to calendaryear), absent

notice from either party of an intent toterminate the contract at the end ofthecurrent term. Given that we havealready adopted automaticallyrenewable multi-year contracts, failureto substantially carry out a contract termnecessarily would apply to the entireterm of the contract (that is, the life ofthecontract).

We have made a minor change to theregulatory text at 422.510(a)(1) and423.509(a)(1) to clarify ourproposal.The change is a technical edit toaccurately reflect the multi-

FC Compliance Reg Dec2007

Documents

Transcript of FC Compliance Reg Dec2007