M+C Preamble

Medicare Plus Choice Preamble

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

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. [[Page 34971]]

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–

  • Determines the payment rate to the organization for enrollees
    of the plan, based on the counties included in the service area;

  • 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;

  • 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

  • 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

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

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

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

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

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

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

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 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

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*

Coverage Election

When: Sec. 422.62

Required to Accept
Enrollments? Sec. 422.60

Effective Date of Coverage:
Sec. 422.68

Initial Coverage Election Period

3 months before entitlement to Part A & Part


1st day of month of entitlement to Part A &
Part B

Annual Election Period

Annually in November


January 1

Special Election Period

Starting 2002, if beneficiary moves, plan
terminates, etc.


To Be Determined– depends on situation.

Special Election Period at Age 65

Starting 2002, in first 12 months after after
month of initial election of M+C plan.

No–Election is original Medicare election.

1st day of the month

Open Enrollment Periods

Anytime 1998-2001 Jan- Jun 2002 Jan-Mar 2003+

No–Plans have option of accepting enrollments.

1st day of the month after month of election.

*Refer to referenced regulation text for

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

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

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

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

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

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

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,, 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

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.

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

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.

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

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

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.

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.

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

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

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:

  • Emergency services as defined in Sec. 422.2;
  • Urgently needed services as defined in Sec. 422.2;
  • Renal dialysis services provided while the enrollee was
    temporarily outside the M+C plan’s service area;

  • Post-stabilization care as described in Sec. 422.100(b)(iv);

  • 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–

  • The enrollee is discharged;
  • A plan physician arrives and assumes responsibility for the
    enrollee’s care; or

  • 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

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

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.

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

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.

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

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–

  • To identify Medicare enrollees with complex or serious medical

  • For assessment of those conditions, including medical
    procedures to diagnose and monitor them on an ongoing basis; and

  • 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.

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

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:

  • Payment rates that apply under original Medicare for the
    provider and service in question;

  • 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

  • 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.

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.

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

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

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:

  • 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.

  • 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.

  • 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

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, 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.

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

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:

  • Each relevant provider and enrollee has a chance of being
    selected; no provider or enrollee is systematically excluded from
    the sampling.

  • 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.

  • 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:

  • Clinical areas–prevention and care of acute and chronic
    conditions; high volume services and high risk services;
    continuity and coordination of care.

  • 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

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 [[Page 34996]] 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

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

5. Deemed Compliance Based on Accreditation (Secs. 422.156 Through

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

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

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

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

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

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.

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