SubIJK

Medicare Plus Choice (M+C): Interim Final Rule

14. Subpart I is added as follows:

Subpart I–Organization Compliance with State Law and Preemption by Federal Law

Sec. 422.400 State licensure requirement.

422.402 Federal preemption of State law.

422.404 State premium taxes prohibited.

Subpart I–Organization Compliance with State Law and
Preemption by Federal Law

Sec. 422.400 State licensure requirement.

Except in the case of a PSO granted a waiver under subpart H of
this part, each M+C organization must–

(a) Be licensed under State law, or otherwise authorized to
operate under State law, as a risk-bearing entity (as defined in Sec.
422.2) eligible to offer health insurance or health benefits coverage
in each State in which it offers one or more M+C plans;

(b) If not commercially licensed, obtain certification from the
State that the organization meets a level of financial solvency and
such other standards as the State may require for it to operate as an
M+C organization; and

(c) Demonstrate to HCFA that– (1) The scope of its license or
authority allows the organization to offer the type of M+C plan or
plans that it intends to offer in the State; and (2) If applicable,
it has obtained the State certification required under paragraph (b)
of this section.

Sec. 422.402 Federal preemption of State law.

(a) General preemption. Except as
provided in paragraph (b) of this section, the rules, contract
requirements, and standards established under this part supersede any
State laws, regulations, contract requirements, or other standards
that would otherwise apply to M+C organizations and their M+C plans
only to the extent that such State laws are inconsistent with the
standards established under this part. This preemption of State laws
and other standards applies only to coverage pursuant to an M+C
contract, and does not extend to benefits outside of such contract or
to individuals who are not M+C enrollees of an organization with an
M+C contract.

(b) Specific preemption. As they
might otherwise apply to the M+C plans of an M+C organization in a
State, State laws and regulations pertaining to the following areas
are specifically preempted by this part: (1) Benefit requirements,
such as mandating the inclusion in an M+C plan of a particular
service, or specifying the scope or duration of a service (for
example, length of hospital stay, number of home health visits).
State cost-sharing standards with respect to any benefits are
preempted only if they are inconsistent with this part, as provided
for in paragraph (a) of this section. (2) Requirements relating to
inclusion or treatment of providers and suppliers. (3) Coverage
determinations (including related appeal and grievance processes for
all benefits included under an M+C contract). Determinations on
issues other than whether a service is covered under an M+C contract,
and the extent of enrollee liability under the M+C plan for such a
service, are not considered coverage determinations for purposes of
this paragraph.

(c) Except as provided in paragraphs (a) and (b) of this section,
nothing in this section may be construed to affect or modify the
provisions of any other law or regulation that imposes or preempts a
specific State authority.

Sec. 422.404 State premium taxes prohibited.

(a) Basic rule. No premium tax, fee,
or other similar assessment may be imposed by any State, the District
of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands,
Guam, and American Samoa, or any of their political subdivision or
other governmental authorities with respect to any payment HCFA makes
on behalf of M+C enrollees under subpart F of this part.

(b) Construction. Nothing in this
section shall be construed to exempt any M+C organization from taxes,
fees, or other monetary assessments related to the net income or
profit that accrues to, or is realized by, the organization from
business conducted under this part, if that tax, fee, or payment is
applicable to a broad range of business activity.

Subpart J [Reserved]

15. Subpart J is reserved.

16. Subpart K is added as follows:

Subpart K–Contracts With Medicare+Choice Organizations

Sec. 422.500 Definitions.

422.501 General provisions.

422.502 Contract provisions.

422.504 Effective date and term of contract.

422.506 Nonrenewal of contract.

422.508 Modification or termination of contract by mutual
consent.

422.510 Termination of contract by HCFA.

422.512 Termination of contract by the M+C organization.

422.514 Minimum enrollment requirements.

422.516 Reporting requirements.

422.520 Prompt payment by M+C organization.

422.524 Special rules for RFB societies.

Subpart K–Contracts With Medicare+Choice Organizations

Sec. 422.500 Definitions.

For purposes of this subpart, the following definitions apply:

• Business transaction means any of the following kinds of
  transactions: (1) Sale, exchange, or lease of property. (2) Loan
  of money or extension of credit. (3) Goods, services, or
  facilities furnished for a monetary consideration, including
  management services, but not including– (i) Salaries paid to
  employees for services performed in the normal course of their
  employment; or (ii) Health services furnished to the M+C
  organization’s enrollees by hospitals and other providers, and by
  M+C organization staff, medical groups, or independent practice
  associations, or by any combination of those entities.

• Clean Claim means a claim that has no defect, impropriety,
  lack of any required substantiating documentation, or particular
  circumstance requiring special treatment that prevents timely
  payment.

• Party in interest includes the following: (1) Any director,
  officer, partner, or employee responsible for management or
  administration of an M+C organization. (2) Any person who is
  directly or indirectly the beneficial owner of more than 5 percent
  of the organization’s equity; or the beneficial owner of a
  mortgage, deed of trust, note, or other interest secured by and
  valuing more than 5 percent of the organization. (3) In the case
  of an M+C organization organized as a nonprofit corporation, an
  incorporator or member of such corporation under applicable State
  corporation law. (4) Any entity in which a person described in
  paragraph (1), (2), or (3) of this definition: (i) Is an officer,
  director, or partner; or (ii) Has the kind of interest described
  in paragraphs (1), (2), or (3) of this definition. (5) Any person
  that directly or indirectly controls, is controlled by, or is
  under common control with, the M+C organization. (6) Any spouse,
  child, or parent of an individual described in paragraph (1), (2),
  or (3) of this definition.

• Related entity means any entity that is related to the M+C
  organization by common ownership or control and– [[Page 35100]]
  (1) Performs some of the M+C organization’s management functions
  under contract or delegation; (2) Furnishes services to Medicare
  enrollees under an oral or written agreement; or (3) Leases real
  property or sells materials to the M+C organization at a cost of
  more than $2,500 during a contract period.

• Significant business transaction means any business
  transaction or series of transactions of the kind specified in the
  above definition of “business transaction” that, during any fiscal
  year of the M+C organization, have a total value that exceeds
  $25,000 or 5 percent of the M+C organization’s total operating
  expenses, whichever is less.

Sec. 422.501 General provisions.

(a) Basic rule. In order to qualify
as an M+C organization, enroll beneficiaries in any M+C plans it
offers, and be paid on behalf of Medicare beneficiaries enrolled in
those plans, an M+C organization must enter into a contract with
HCFA.

(b) Conditions necessary to contract as an
M+C organization. Any entity seeking to contract as an M+C
organization must: (1) Be licensed by the State as a risk bearing
entity in each State in which it seeks to offer an M+C plan as
defined in Sec. 422.2. (2) Meet the minimum enrollment requirements
of Sec. 422.514, unless waived under Sec. 422.514(b). (3) Have
administrative and management arrangements satisfactory to HCFA, as
demonstrated by at least the following: (i) A policy making body that
exercises oversight and control over the M+C organization’s policies
and personnel to ensure that management actions are in the best
interest of the organization and its enrollees. (ii) Personnel and
systems sufficient for the M+C organization to organize, plan,
control, and evaluate financial and marketing activities, the
furnishing of services, the quality assurance program, and the
administrative and management aspects of the organization. (iii) At a
minimum, an executive manager whose appointment and removal are under
the control of the policy making body. (iv) A fidelity bond or bonds,
procured and maintained by the M+C organization, in an amount fixed
by its policymaking body but not less than $100,000 per individual,
covering each officer and employee entrusted with the handling of its
funds. The bond may have reasonable deductibles, based upon the
financial strength of the M+C organization. (v) Insurance policies or
other arrangements, secured and maintained by the M+C organization
and approved by HCFA to insure the M+C organization against losses
arising from professional liability claims, fire, theft, fraud,
embezzlement, and other casualty risks. (vi) A compliance plan that
consists of the following: (A) Written policies, procedures, and
standards of conduct that articulate the organization’s commitment to
comply with all applicable Federal and State standards. (B) The
designation of a compliance officer and compliance committee that are
accountable to senior management. (C) Effective training and
education between the compliance officer and organization employees.
(D) Effective lines of communication between the compliance officer
and the organization’s employees. (E) Enforcement of standards
through well-publicized disciplinary guidelines. (F) Provision for
internal monitoring and auditing. (G) Ensures prompt response to
detected offenses and development of corrective action initiatives.
(H) An adhered-to process for reporting to HCFA and/or the OIG
credible information of violations of law by the M+C organization,
plan, subcontractors or enrollees for a determination as to whether
criminal, civil, or administrative action may be appropriate. With
respect to enrollees, this reporting requirement shall be restricted
to credible information on violations of law with respect to
enrollment in the plan, or the provision of, or payment for, health
services. (4) Not accept new enrollees under a section 1876
reasonable cost contract in any area in which it seeks to offer an
M+C plan. (5) The M+C organization’s contract must not have been
terminated by HCFA under Sec. 422.510 within the past 5 years.

(c) Contracting authority. Under the
authority of section 1857(c)(5) of the Act, HCFA may enter into
contracts under this part without regard to Federal and Departmental
acquisition regulations set forth in title 48 of the CFR and
provisions of law or other regulations relating to the making,
performance, amendment, or modification of contracts of the United
States if HCFA determines that those provisions are inconsistent with
the efficient and effective administration of the Medicare program.

(d) Protection against fraud and beneficiary
protections. (1) HCFA annually audits the financial records
(including data relating to Medicare utilization, costs, and
computation of the ACR) of at least one-third of the M+C
organizations offering M+C plans. These auditing activities are
subject to monitoring by the Comptroller General. (2) Each contract
under this section must provide that HCFA, or any person or
organization designated by HCFA has the right to: (i) Inspect or
otherwise evaluate the quality, appropriateness, and timeliness of
services performed under the M+C contract; (ii) Inspect or otherwise
evaluate the facilities of the organization when there is reasonable
evidence of some need for such inspection; and (iii) Audit and
inspect any books, contracts, and records of the M+C organization
that pertain to– (A) The ability of the organization to bear the
risk of potential financial losses, or (B) Services performed or
determinations of amounts payable under the contract.

(e) Severability of contracts. The
contract must provide that, upon HCFA’s request– (1) The contract
will be amended to exclude any M+C plan or State- licensed entity
specified by HCFA; and (2) A separate contract for any such excluded
plan or entity will be deemed to be in place when such a request is
made.

Sec. 422.502 Contract provisions.

The contract between the M+C organization and HCFA must contain
the following provisions:

(a) Agreement to comply with regulations and
instructions. The M+C organization agrees to comply with all
the applicable requirements and conditions set forth in this part and
in general instructions. An M+C organization’s compliance with
paragraphs (a)(1) through (a)(13) of this section is material to
performance of the contract. The M+C organization agrees– (1) To
accept new enrollments, make enrollments effective, process voluntary
disenrollments, and limit involuntary disenrollments, as provided in
subpart B of this part. (2) That it will comply with the prohibition
in Sec. 422.108 on discrimination in beneficiary enrollment. (3) To
provide– (i) The basic benefits as required under Sec. 422.100 and,
to the extent applicable, supplemental benefits under Sec. 422.101;
and [[Page 35101]] (ii) Access to benefits as required under subpart
C of this part; (iii) In a manner consistent with professionally
recognized standards of health care, all benefits covered by
Medicare. (4) To disclose information to beneficiaries in the manner
and the form prescribed by HCFA as required under Sec. 422.110; (5)
To operate a quality assurance and performance improvement program
and have an agreement for external quality review as required under
subpart D of this part; (6) To comply with all applicable provider
requirements in subpart E of this part, including provider
certification requirements, anti- discrimination requirements,
provider participation and consultation requirements, the prohibition
on interference with provider advice, limits on provider
indemnification, rules governing payments to providers, and limits on
physician incentive plans; (7) To comply with all requirements in
subpart M of this part governing coverage determinations, grievances,
and appeals; (8) To comply with the reporting requirements in Sec.
422.516 and the requirements in Sec. 422.257 for submitting encounter
data to HCFA; (9) That it will be paid under the contract in
accordance with the payment rules in subpart F of this part; (10) To
develop its annual ACR, and submit all required information on
premiums, benefits, and cost-sharing by May 1, as provided in subpart
G of this part; (11) That its contract may not be renewed or may be
terminated in accordance with this subpart and subpart N of this
part. (12) To comply will all requirements that are specific to a
particular type of M+C plan, such as the special rules for private
fee- for-service plans in Secs. 422.114 and 422.216 and the MSA
requirements in Secs. 422.56, 422.103, and 422.262; and (13) To
comply with the confidentiality and enrollee record accuracy
requirements in Sec. 422.118. (14) An M+C organization’s compliance
with paragraphs (a)(1) through (a)(13) and (c) of this section is
material to performance of the contract.

(b) Communication with HCFA. The M+C
organization must have the capacity to communicate with HCFA
electronically.

(c) Prompt payment. The M+C
organization must comply with the prompt payment provisions of Sec.
422.520 and with instructions issued by HCFA, as they apply to each
type of plan included in the contract.

(d) Maintenance of records. The M+C
organization agrees to maintain for 6 years books, records,
documents, and other evidence of accounting procedures and practices
that– (1) Are sufficient to do the following: (i) Accommodate
periodic auditing of the financial records (including data related to
Medicare utilization, costs, and computation of the ACR) of M+C
organizations. (ii) Enable HCFA to inspect or otherwise evaluate the
quality, appropriateness and timeliness of services performed under
the contract, and the facilities of the organization. (iii) Enable
HCFA to audit and inspect any books and records of the M+C
organization that pertain to the ability of the organization to bear
the risk of potential financial losses, or to services performed or
determinations of amounts payable under the contract. (iv) Properly
reflect all direct and indirect costs claimed to have been incurred
and used in the preparation of the ACR proposal. (v) Establish
component rates of the ACR for determining additional and
supplementary benefits. (vi) Determine the rates utilized in setting
premiums for State insurance agency purposes and for other government
and private purchasers; and (2) Include at least records of the
following: (i) Ownership and operation of the M+C organization’s
financial, medical, and other record keeping systems. (ii) Financial
statements for the current contract period and six prior periods.
(iii) Federal income tax or informational returns for the current
contract period and six prior periods. (iv) Asset acquisition, lease,
sale, or other action. (v) Agreements, contracts, and subcontracts.
(vi) Franchise, marketing, and management agreements. (vii) Schedules
of charges for the M+C organization’s fee-for- service patients.
(viii) Matters pertaining to costs of operations. (ix) Amounts of
income received by source and payment. (x) Cash flow statements. (xi)
Any financial reports filed with other Federal programs or State
authorities.

(e) Access to facilities and records.
The M+C organization agrees to the following: (1) HHS, the
Comptroller General, or their designee may evaluate, through
inspection or other means– (i) The quality, appropriateness, and
timeliness of services furnished to Medicare enrollees under the
contract; (ii) The facilities of the M+C organization; and (iii) The
enrollment and disenrollment records for the current contract period
and six prior periods. (2) HHS, the Comptroller General, or their
designees may audit, evaluate, or inspect any books, contracts,
medical records, patient care documentation, and other records of the
M+C organization, related entity, contractor, subcontractor, or its
transferee that pertain to any aspect of services performed,
reconciliation of benefit liabilities, and determination of amounts
payable under the contract, or as the Secretary may deem necessary to
enforce the contract. (3) The M+C organization agrees to make
available, for the purposes specified in paragraph (d) of this
section, its premises, physical facilities and equipment, records
relating to its Medicare enrollees, and any additional relevant
information that HCFA may require. (4) HHS, the Comptroller General,
or their designee’s right to inspect, evaluate, and audit extends
through 6 years from the final date of the contract period or
completion of audit, whichever is later unless– (i) HCFA determines
there is a special need to retain a particular record or group of
records for a longer period and notifies the M+C organization at
least 30 days before the normal disposition date; (ii) There has been
a termination, dispute, or fraud or similar fault by the M+C
organization, in which case the retention may be extended to 6 years
from the date of any resulting final resolution of the termination,
dispute, or fraud or similar fault; or (iii) HCFA determines that
there is a reasonable possibility of fraud, in which case it may
inspect, evaluate, and audit the M+C organization at any time.

(f) Disclosure of information. The
M+C organization agrees to submit– (1) To HCFA, certified financial
information that must include the following: (i) Such information as
HCFA may require demonstrating that the organization has a fiscally
sound operation. (ii) Such information as HCFA may require pertaining
to the disclosure of ownership and control of the M+C organization.
(2) To HCFA, all information that is necessary for HCFA to administer
and evaluate the program and to simultaneously establish and
facilitate a process for current and prospective [[Page 35102]]
beneficiaries to exercise choice in obtaining Medicare services. This
information includes, but is not limited to: (i) The benefits covered
under an M+C plan; (ii) 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. (iii) The
service area and continuation area, if any, of each plan and the
enrollment capacity of each plan; (iv) Plan quality and performance
indicators for the benefits under the plan including — (A)
Disenrollment rates for Medicare enrollees electing to receive
benefits through the plan for the previous 2 years; (B) Information
on Medicare enrollee satisfaction; (C) Information on health
outcomes; (D) The recent record regarding compliance of the plan with
requirements of this part, as determined by HCFA; and (E) Other
information determined by HCFA to be necessary to assist
beneficiaries in making an informed choice among M+C plans and
traditional Medicare; (v) Information about beneficiary appeals and
their disposition; (vi) Information regarding all formal actions,
reviews, findings, or other similar actions by States, other
regulatory bodies, or any other certifying or accrediting
organization; (vii) For M+C organizations offering an MSA plan,
information specified by HCFA for HCFA’s use in preparing its report
to the Congress on the MSA demonstration, including data specified by
HCFA in the areas of selection, use of preventative care, and access
to services. (viii) To HCFA, any other information deemed necessary
by HCFA for the administration or evaluation of the Medicare program.
(3) To its enrollees all informational requirements under Sec. 422.64
and, upon an enrollee’s, request the financial disclosure information
required under Sec. 422.516.

(g) Beneficiary Financial Protection.
The M+C organization agrees to comply with the following
requirements: (1) Each M+C organization must adopt and maintain
arrangements satisfactory to HCFA to protect its enrollees from
incurring liability for payment of any fee that are the legal
obligation of the M+C organization. To meet this requirement the M+C
organization must– (i) Ensure that all contractual or other written
arrangements with providers prohibit the organization’s providers
from holding any beneficiary enrollee liable for payment of any such
fees; and (ii) Indemnify the beneficiary enrollee for payment of any
fees that are the legal obligation of the M+C organization for
services furnished by providers that do not contract, or that have
not otherwise entered into an agreement with the M+C organization, to
provide services to the organization’s beneficiary enrollees. (2) The
M+C organization must provide for continuation of enrollee health
care benefits– (i) For all enrollees, for the duration of the
contract period for which HCFA payments have been made; and (ii) For
enrollees who are hospitalized on the date its contract with HCFA
terminates, or, in the event of an insolvency, through discharge. (3)
In meeting the requirements of this paragraph (g), other than the
provider contract requirements specified in paragraph (g)(1) of this
section, the M+C organization may use– (i) Contractual arrangements;
(ii) Insurance acceptable to HCFA; (iii) Financial reserves
acceptable to HCFA; or (iv) Any other arrangement acceptable to HCFA.

(h) Requirements of other laws and
regulations. (1) The M+C organization agrees to comply with–
(i) Title VI of the Civil Rights Act of 1964 as implemented by
regulations at 45 CFR part 84; (ii) The Age Discrimination Act of
1975 as implemented by regulations at 45 CFR part 91; (iii) The
Americans With Disabilities Act; and (iv) Other laws applicable to
recipients of Federal funds; and (v) All other applicable laws and
rules. (2) M+C organizations receiving Federal payments under M+C
contracts, and related entities, contractors, and subcontractors paid
by an M+C organization to fulfill its obligations under its M+C
contract are subject to certain laws that are applicable to
individuals and entities receiving Federal funds. M+C organizations
must inform all related entities, contractors and subcontractors that
payments that they receive are, in whole or in part, from Federal
funds.

(i) M+C organization relationship with
related entities, contractors, and subcontractors. (1)
Notwithstanding any relationship(s) that the M+C organization may
have with related entities, contractors, or subcontractors, the M+C
organization maintains ultimate responsibility for adhering to and
otherwise fully complying with all terms and conditions of its
contract with HCFA. (2) The M+C organization agrees to require all
related entities, contractors, or subcontractors to agree that– (i)
HHS, the Comptroller General, or their designees have the right to
inspect, evaluate, and audit any pertinent contracts, books,
documents, papers, and records of the related entity(s),
contractor(s), or subcontractor(s) involving transactions related to
the M+C contract; and (ii) HHS’, the Comptroller General’s, or their
designee’s right to inspect, evaluate, and audit any pertinent
information for any particular contract period will exist through 6
years from the final date of the contract period or from the date of
completion of any audit, whichever is later. (3) All contracts or
written arrangements between M+C organizations and providers, related
entities, contractors, or subcontractors must contain the following:
(i) Enrollee protection provisions that provide– (A) Consistent with
paragraph (g)(1) of this section, arrangements that prohibit
providers from holding an enrollee liable for payment of any fees
that are the obligation of the M+C Organization; and (B) Consistent
with paragraph (g)(2) of this section, provision for the continuation
of benefits. (ii) Accountability provisions that indicate that– (A)
The M+C organization oversees and is accountable to HCFA for any
functions or responsibilities that are described in these standards;
and (B) The M+C organization may only delegate activities or
functions to a provider, related entity, contractor, or subcontractor
in a manner consistent with requirements set forth at paragraph
(i)(4) of this section. (iii) A provision requiring that any services
or other activity performed by a related entity, contractor or
subcontractor in accordance with a contract or written agreement will
be consistent and comply with the M+C organization’s contractual
obligations. (4) If any of the M+C organizations’ activities or
responsibilities under its contract with HCFA are delegated to other
parties, the following requirements apply to any related entity,
contractor, subcontractor, or provider: (i) Written arrangements must
specify delegated activities and reporting responsibilities. [[Page
35103]] (ii) Written arrangements must either provide for revocation
of the delegation activities and reporting requirements or specify
other remedies in instances where HCFA or the M+C organization
determine that such parties have not performed satisfactorily. (iii)
Written arrangements must specify that the performance of the parties
is monitored by the M+C organization on an ongoing basis. (iv)
Written arrangements must specify that either– (A) The credentials
of medical professionals affiliated with the party or parties will be
either reviewed by the M+C organization; or (B) The credentialing
process will be reviewed and approved by the M+C organization and the
M+C organization must audit the credentialing process on an ongoing
basis. (v) All contracts or written arrangements must specify that
the related entity, contractor, or subcontractor must comply with all
applicable Medicare laws, regulations, and HCFA instructions. (5) If
the M+C organization delegates selection of the providers,
contractors, or subcontractor to another organization, the M+C
organization’s written arrangements with that organization must state
that the HCFA-contracting M+C organization retains the right to
approve, suspend, or terminate any such arrangement.

(j) Additional contract terms. The
M+C organization agrees to include in the contract such other terms
and conditions as HCFA may find necessary and appropriate in order to
implement requirements in this part.

(k) Severability of contracts. The
contract must provide that, upon HCFA’s request– (1) The contract
will be amended to exclude any M+C plan or State- licensed entity
specified by HCFA; and (2) A separate contract for any such excluded
plan or entity will be deemed to be in place when such a request is
made.

(l) Certification of data that determine
payment. As a condition for receiving a monthly payment under
subpart F of this part, the M+C organization agrees that its chief
executive officer (CEO) or chief financial officer (CFO) must request
payment under the contract on a document that certifies the accuracy,
completeness, and truthfulness of relevant data that HCFA requests.
Such data include specified enrollment information, encounter data,
and other information that HCFA may specify. (1) The CEO or CFO must
certify that each enrollee for whom the organization is requesting
payment is validly enrolled in an M+C plan offered by the
organization and the information relied upon by HCFA in determining
payment is accurate. (2) The CEO or CFO must certify that the
encounter data it submits under Sec. 422.257 are accurate, complete,
and truthful. (3) If such encounter data are generated by a related
entity, contractor, or subcontractor of an M+C organization, such
entity, contractor, or subcontractor must similarly certify the
accuracy, completeness, and truthfulness of the data.

(m) Certification of accuracy of ACR.
The M+C organization agrees, as a condition for retaining (and not
providing additional benefits with) payment amounts below the amount
of its ACR, that the information in its ACR submission is accurate
and fully conforms to the requirements in Sec.
422.310.

Sec. 422.504 Effective date and term of contract.

(a) Effective date. The contract is
effective on the date specified in the contract between the M+C
organization and HCFA and, for a contract that provides for coverage
under an MSA plan, not earlier than January 1999.

(b) Term of contract. Except as
provided in paragraph (d) of this section, each contract is for a
period of 12 months beginning on January 1 and ending on December 31.

(c) Renewal of contract. In
accordance with Sec. 422.506, contracts are renewed annually only
if– (1) HCFA informs the M+C organization that it authorizes a
renewal; and (2) The M+C organization has not provided HCFA with a
notice of intention not to renew.

(d) Exception. Prior to January 1,
2002, at HCFA’s discretion, a contract may be for a term longer than
12 months and may begin on a date specified by HCFA other than
January 1.

Sec. 422.506 Nonrenewal of contract.

(a) Nonrenewal by an M+C organization.
(1) An M+C organization may elect not to renew its contract
with HCFA as of the end of the term of the contract for any reason
provided it meets the timeframes for doing so set forth in paragraphs
(a)(2) and (a)(3) of this section. (2) If an M+C organization does
not intend to renew its contract, it must notify– (i) HCFA in
writing, by May 1 of the year in which the contract would end; (ii)
Each Medicare enrollee, at least 90 days before the date on which the
nonrenewal is effective. This notice must include a written
description of alternatives available for obtaining Medicare services
within the service area, including alternative M+C plans, Medigap
options, and original Medicare and must receive HCFA approval. (iii)
The general public, at least 90 days before the end of the current
calendar year, by publishing a notice in one or more newspapers of
general circulation in each community located in the M+C
organization’s service area. (3) HCFA may accept a nonrenewal notice
submitted after May 1 if– (i) The M+C organization notifies its
Medicare enrollees and the public in accordance with paragraph
(a)(2)(ii) and (a)(2)(iii) of this section; and (ii) Acceptance is
not inconsistent with the effective and efficient administration of
the Medicare program. (4) If an M+C organization does not renew a
contract under this paragraph (a), HCFA will not enter into a
contract with the organization for 5 years unless there are special
circumstances that warrant special consideration, as determined by
HCFA.

(b) HCFA decision not to renew. (1)
HCFA may elect not to authorize renewal of a contract for any of the
following reasons: (i) The M+C organization has not fully implemented
or shown discernable progress in implementing quality improvement
projects as defined in Sec. 422.152(d). (ii) The M+C organization’s
level of enrollment or growth in enrollment is determined by HCFA to
threaten the viability of the organization under the M+C program and
or be an indicator of beneficiary dissatisfaction with the M+C
plan(s) offered by the organization. (iii) For any of the reasons
listed in Sec. 422.510(a), which would also permit HCFA to terminate
the contract. (iv) The M+C organization has committed any of the acts
in Sec. 422.752(a) that would support the imposition of intermediate
sanctions or civil money penalties under subpart O of this part. (2)
Notice. HCFA provides notice of its decision whether to authorize
renewal of the contract as follows: (i) To the M+C organization by
May 1 of the contract year. (ii) If HCFA decides not to authorize a
renewal of the contract, to the M+C organization’s Medicare enrollees
by mail at least 90 days before the end of the current calendar year.
(iii) If HCFA decides not to authorize a renewal of the contract, to
the general public at least 90 days before the end of the current
calendar year, by publishing a notice in one or more newspapers of
[[Page 35104]] general circulation in each community or county
located in the M+C organization’s service area. (3) Notice of appeal
rights. HCFA gives the M+C organization written notice of its right
to appeal the decision not to renew in accordance with Sec.
422.644.

Sec. 422.508 Modification or termination of contract by mutual
consent.

(a) A contract may be modified or terminated at any time by
written mutual consent. (1) If the contract is terminated by mutual
consent, except as provided in paragraph (b) of this section, the M+C
organization must provide notice to its Medicare enrollees and the
general public as provided in Sec. 422.512(b)(2) and (b)(3). (2) If
the contract is modified by mutual consent, the M+C organization must
notify its Medicare enrollees of any changes that HCFA determines are
appropriate for notification within timeframes specified by HCFA.

(b) If the contract terminated by mutual consent is replaced the
day following such termination by a new M+C contract, the M+C
organization is not required to provide the notice specified in
paragraph (a)(1) of this section.

Sec. 422.510 Termination of contract by HCFA.

(a) Termination by HCFA. HCFA may
terminate a contract for any of the following reasons: (1) The M+C
organization has failed substantially to carry out the terms of its
contract with HCFA. (2) The M+C organization is carrying out its
contract with HCFA in a manner that is inconsistent with the
effective and efficient implementation of this part. (3) HCFA
determines that the M+C organization no longer meets the requirements
of this part for being a contracting organization. (4) The M+C
organization commits or participates in fraudulent or abusive
activities affecting the Medicare program, including submission of
fraudulent data. (5) The M+C organization experiences financial
difficulties so severe that its ability to make necessary health
services available is impaired to the point of posing an imminent and
serious risk to the health of its enrollees, or otherwise fails to
make services available to the extent that such a risk to health
exists. (6) The M+C organization substantially fails to comply with
the requirements in subpart M of this part relating to grievances and
appeals. (7) The M+C organization fails to provide HCFA with valid
encounter data as required under Sec. 422.257. (8) The M+C
organization fails to implement an acceptable quality assessment and
performance improvement program as required under subpart D of this
part. (9) The M+C organization substantially fails to comply with the
prompt payment requirements in Sec. 422.520. (10) The M+C
organization substantially fails to comply with the service access
requirements in Sec. 422.112 or Sec. 422.114. (11) The M+C
organization fails to comply with the requirements of Sec. 422.208
regarding physician incentive plans.

(b) Notice. If HCFA decides to
terminate a contract for reasons other than the grounds specified in
Sec. 422.510(a)(5), it gives notice of the termination as follows:
(1) Termination of contract by HCFA. (i) HCFA notifies the M+C
organization in writing 90 days before the intended date of the
termination. (ii) The M+C organization notifies its Medicare
enrollees of the termination by mail at least 30 days before the
effective date of the termination. (iii) The M+C organization
notifies the general public of the termination at least 30 days
before the effective date of the termination by publishing a notice
in one or more newspapers of general circulation in each community or
county located in the M+C organization’s service area. (2) Immediate
termination of contract by HCFA. (i) For terminations based on
violations prescribed in Sec. 422.510(a)(5), HCFA notifies the M+C
organization in writing that its contract has been terminated
effective the date of the termination decision by HCFA. If
termination is effective in the middle of a month, HCFA has the right
to recover the prorated share of the capitation payments made to the
M+C organization covering the period of the month following the
contract termination. (ii) HCFA notifies the M+C organization’s
Medicare enrollees in writing of HCFA’s decision to terminate the M+C
organization’s contract. This notice occurs no later than 30 days
after HCFA notifies the plan of its decision to terminate the M+C
contract. HCFA simultaneously informs the Medicare enrollees of
alternative options for obtaining Medicare services, including
alternative M+C organizations in a similar geographic area and
original Medicare. (iii) HCFA notifies the general public of the
termination no later than 30 days after notifying the plan of HCFA’s
decision to terminate the M+C contract. This notice is published in
one or more newspapers of general circulation in each community or
county located in the M+C organization’s service area.

(c) Corrective action plan–(1)
General. Before terminating a contract for reasons other than the
grounds specified in paragraph (a)(5) of this section, HCFA provides
the M+C organization with reasonable opportunity, not to exceed
timeframes specified at subpart N of this part, to develop and
receive HCFA approval of a corrective action plan to correct the
deficiencies that are the basis of the proposed termination. (2)
Exception. If a contract is terminated under Sec. 422.510(a)(5), the
M+C organization will not have the opportunity to submit a corrective
action plan.

(d) Appeal rights. If HCFA decides to
terminate a contract, it sends written notice to the M+C organization
informing it of its termination appeal rights in accordance with
subpart N of this part.

Sec. 422.512 Termination of contract by the M+C
organization.

(a) Cause for termination. The M+C
organization may terminate the M+C contract if HCFA fails to
substantially carry out the terms of the contract.

(b) Notice. The M+C organization must
give advance notice as follows: (1) To HCFA, at least 90 days before
the intended date of termination. This notice must specify the
reasons why the M+C organization is requesting contract termination.
(2) To its Medicare enrollees, at least 60 days before the
termination effective date. This notice must include a written
description of alternatives available for obtaining Medicare services
within the services area, including alternative M+C plans, Medigap
options, original Medicare and must receive HCFA approval. (3) To the
general public at least 60 days before the termination effective date
by publishing an HCFA-approved notice in one or more newspapers of
general circulation in each community or county located in the M+C
organization’s geographic area.

(c) Effective date of termination.
The effective date of the termination is determined by HCFA
and is at least 90 days after the date HCFA receives the M+C
organization’s notice of intent to terminate.

(d) HCFA’s liability. HCFA’s
liability for payment to the M+C organization ends as of the first
day of the month [[Page 35105]] after the last month for which the
contract is in effect.

(e) Effect of termination by the
organization. HCFA does not enter into an agreement with an
organization that has terminated its contract within the preceding 5
years unless there are circumstances that warrant special
consideration, as determined by HCFA.

Sec. 422.514 Minimum enrollment requirements.

(a) Basic rule. Except as provided in
paragraph (b) of this section, HCFA does not enter into a contract
under this subpart unless the organization meets the following
minimum enrollment requirement– (1) At least 5,000 individuals (or
1,500 individuals if the organization is a PSO) are enrolled for the
purpose of receiving health benefits from the organization; or (2) At
least 1,500 individuals (or 500 individuals if the organization is a
PSO) are enrolled for purposes of receiving health benefits from the
organization and the organization primarily serves individuals
residing outside of urbanized areas as defined in Sec. 412.62(f) (or,
in the case of a PSO, the PSO meets the requirements in Sec.
422.352(c)). (3) Except as provided for in paragraph (b) of this
section, an M+C organization must maintain a minimum enrollment as
defined in paragraphs (a)(1) and (a)(2) of this section for the
duration of its contract.

(b) Minimum Enrollment Waiver. (1)
For an organization that does not meet the applicable requirement of
paragraph (a) of this section at application for an M+C contract or
during the first 3 years of such contract, HCFA may waive the minimum
enrollment requirement as provided for below. To receive a waiver, an
organization must demonstrate to HCFA’s satisfaction that it is
capable to administering and managing an M+C contract and is able to
manage the level of risk required under the contract. Factors that
HCFA will take into consideration in making this evaluation include
the extent to which– (i) The organization management and providers
have previous experience in managing and providing health care
services under a risk- based payment arrangement to at least as many
individuals as the applicable minimum enrollment for the entity as
described in paragraph (a) of this section, or (ii) The organization
has the financial ability to bear financial risk under an M+C
contract. In determining whether an organization is capable of
bearing risk, HCFA considers factors such as the organization’s
management experience as described in paragraph (b)(1)(i) of this
section and stop-loss insurance that is adequate and acceptable to
HCFA; and, (iii) The organization is able to establish a marketing
and enrollment process that will allow it to meet the applicable
enrollment requirement specified in paragraph (a) of this section
prior to completion of the third contract year. (2) If an M+C
organization fails to meet the enrollment requirement in the first
year, HCFA may waive the minimum requirements for another year
provided that the organization– (i) Requests an additional minimum
enrollment waiver no later than 120 days before the end of the first
year; (ii) Continues to demonstrate it is capable of administering
and managing an M+C contract and is able to manage the level of risk;
and, (iii) Demonstrates an acceptable marketing and enrollment
process. Enrollment projections for the second year of the waiver
will become the organization’s transitional enrollment standard. (3)
If an M+C organization fails to meet the enrollment requirement in
the second year, HCFA may waive the minimum requirements for the
third year only if the organization has attained the transitional
enrollment standard as described in paragraph (b)(2)(iii) of this
section.

(c) Failure to meet enrollment
requirements. HCFA may elect not to renew its contract with an
M+C organization that fails to meet the applicable enrollment
requirement in paragraph (a) of this section.

Sec. 422.516 Reporting requirements.

(a) Required information. Each M+C
organization must have an effective procedure to develop, compile,
evaluate, and report to HCFA, to its enrollees, and to the general
public, at the times and in the manner that HCFA requires, and while
safeguarding the confidentiality of the doctor-patient relationship,
statistics and other information with respect to the following: (1)
The cost of its operations. (2) The patterns of utilization of its
services. (3) The availability, accessibility, and acceptability of
its services. (4) To the extent practical, developments in the health
status of its enrollees. (5) Information demonstrating that the M+C
organization has a fiscally sound operation. (6) Other matters that
HCFA may require.

(b) Significant business
transactions. Each M+C organization must report to HCFA
annually, within 120 days of the end of its fiscal year (unless for
good cause shown, HCFA authorizes an extension of time), the
following: (1) A description of significant business transactions (as
defined in Sec. 422.500) between the M+C organization and a party in
interest. (2) With respect to those transactions– (i) A showing that
the costs of the transactions listed in paragraph (c) of this section
do not exceed the costs that would be incurred if these transactions
were with someone who is not a party in interest; or (ii) If they do
exceed, a justification that the higher costs are consistent with
prudent management and fiscal soundness requirements. (3) A combined
financial statement for the M+C organization and a party in interest
if either of the following conditions is met: (i) Thirty-five percent
or more of the costs of operation of the M+C organization go to a
party in interest. (ii) Thirty-five percent or more of the revenue of
a party in interest is from the M+C organization.

(c) Requirements for combined financial
statements. (1) The combined financial statements required by
paragraph (b)(3) of this section must display in separate columns the
financial information for the M+C organization and each of the
parties in interest. (2) Inter-entity transactions must be eliminated
in the consolidated column. (3) The statements must have been
examined by an independent auditor in accordance with generally
accepted accounting principles and must include appropriate opinions
and notes. (4) Upon written request from an M+C organization showing
good cause, HCFA may waive the requirement that the organization’s
combined financial statement include the financial information
required in this paragraph (c) with respect to a particular entity.

(d) Reporting and disclosure under
ERISA. (1) For any employees’ health benefits plan that
includes an M+C organization in its offerings, the M+C organization
must furnish, upon request, the information the plan needs to fulfill
its reporting and disclosure obligations (with respect to the
particular M+C organization) under the Employee Retirement Income
Security Act of 1974 (ERISA). (2) The M+C organization must furnish
the information to the employer or the employer’s designee, or to the
plan administrator, as the term “administrator” is defined in ERISA.
[[Page 35106]]

(e) Loan information. Each
organization must notify HCFA of any loans or other special financial
arrangements it makes with contractors, subcontractors and related
entities.

(f) Enrollee access to Information.
Each M+C organization must make the information reported to HCFA
under Sec. 422.502(f)(1) available to its enrollees upon reasonable
request.

Sec. 422.520 Prompt payment by M+C organization.

(a) Contract between HCFA and the M+C
organization. (1) The contract between HCFA and the M+C
organization must provide that the M+C organization will pay 95
percent of the “clean claims” within 30 days of receipt if they are
submitted by, or on behalf of, an enrollee of an M+C private
fee-for-service plan or are claims for services that are not
furnished under a written agreement between the organization and the
provider. (2) The M+C organization must pay interest on clean claims
that are not paid within 30 days in accordance with sections
1816(c)(2)(B) and 1842(c)(2)(B). (3) All other claims must be
approved or denied within 60 calendar days from the date of the
request.

(b) Contracts between M+C organizations and
providers and suppliers. Contracts or other written agreements
between M+C organizations and providers must contain a prompt payment
provision, the terms of which are developed and agreed to by both the
M+C organization and the relevant provider.

(c) Failure to comply. If HCFA
determines, after giving notice and opportunity for hearing, that an
M+C organization has failed to make payments in accordance with
paragraph (a) of this section, HCFA may provide– (1) For direct
payment of the sums owed to providers, or M+C private fee-for-service
plan enrollees; and (2) For appropriate reduction in the amounts that
would otherwise be paid to the organization, to reflect the amounts
of the direct payments and the cost of making those
payments.

Sec. 422.524 Special rules for RFB societies.

In order to participate as an M+C organization, an RFB society–

(a) May not impose any limitation on membership based on any
factor related to health status; and

(b) Must offer, in addition to the M+C RFB plan, health coverage
to individuals who are members of the church or convention or group
of churches with which the society is affiliated, but who are not
entitled to receive benefits from the Medicare program.

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