--- kind: "range" citation: "42 C.F.R. §§ 422.250–422.530" title: "42" from: "422.250" to: "422.530" count: 66 url: "https://uscodex.org/cfr/42/422.250..422.530" --- # §422.250. Basis and scope. This subpart is based largely on section 1854 of the Act, but also includes provisions from sections 1853 and 1858 of the Act, and is also based on [section 1106](/cfr/42/1106.md) of the Act. It sets forth the requirements for the Medicare Advantage bidding payment methodology, including CMS' calculation of benchmarks, submission of plan bids by Medicare Advantage (MA) organizations, establishment of beneficiary premiums and rebates through comparison of plan bids and benchmarks, negotiation and approval of bids by CMS, and the release of MA bid submission data. # §422.252. Terminology. Annual MA capitation rate means a county payment rate for an MA local area (county) for a calendar year. The terms “per capita rate” and “capitation rate” are used interchangeably to refer to the annual MA capitation rate. Low enrollment contract means a contract that could not undertake Healthcare Effectiveness Data and Information Set (HEDIS) and Health Outcome Survey (HOS) data collections because of a lack of a sufficient number of enrollees to reliably measure the performance of the health plan. MA local area means a payment area consisting of county or equivalent area specified by CMS. MA monthly basic beneficiary premium means the premium amount (if any) an MA plan (except an MSA plan) charges an enrollee for basic benefits as defined in [§ 422.100(c)(1)](/cfr/42/422.100.md?p=c-1), and is calculated as described at [§ 422.262](/cfr/42/422.262.md). MA monthly MSA premium means the amount of the plan premium for coverage of basic benefits as defined in [§ 422.100(c)(1)](/cfr/42/422.100.md?p=c-1) through an MSA plan, as set forth at [§ 422.254(e)](/cfr/42/422.254.md?p=e). MA monthly prescription drug beneficiary premium is the MA-PD plan base beneficiary premium, defined at section 1860D-13(a)(2) of the Act, as adjusted to reflect the difference between the plan's bid and the national average bid (as described in [§ 422.256(c)](/cfr/42/422.256.md?p=c)) less the amount of rebate the MA-PD plan elects to apply, as described at [§ 422.266(b)(2)](/cfr/42/422.266.md?p=b-2). MA monthly supplemental beneficiary premium is the portion of the plan bid attributable to mandatory and/or optional supplemental health care benefits described under [§ 422.102](/cfr/42/422.102.md), less the amount of beneficiary rebate the plan elects to apply to a mandatory supplemental benefit, as described at [§ 422.266(b)(1)](/cfr/42/422.266.md?p=b-1). MA-PD plan means an MA local or regional plan that provides prescription drug coverage under Part D of Title XVIII of the Social Security Act. Monthly aggregate bid amount means the total monthly plan bid amount for coverage of an MA eligible beneficiary with a nationally average risk profile for the factors described in [§ 422.308(c)](/cfr/42/422.308.md?p=c), and this amount is comprised of the following: - (1) The unadjusted MA statutory non-drug monthly bid amount for coverage of basic benefits as defined in [§ 422.100(c)(1)](/cfr/42/422.100.md?p=c-1). - (2) **The amount for coverage of basic prescription drug benefits under Part D (if any).** - (3) **The amount for provision of supplemental health care benefits (if any).** New MA plan means a MA contract offered by a parent organization that has not had another MA contract in the previous 3 years. For purposes of 2022 quality bonus payments based on 2021 Star Ratings only, new MA plan means an MA contract offered by a parent organization that has not had another MA contract in the previous 4 years. Plan basic cost sharing means cost sharing that would be charged by a plan for basic benefits as defined in [§ 422.100(c)(1)](/cfr/42/422.100.md?p=c-1) before any reductions resulting from mandatory supplemental benefits. Unadjusted MA area-specific non-drug monthly benchmark amount means, for local MA plans serving one county, the county capitation rate CMS publishes annually that reflects the nationally average risk profile for the risk factors CMS applies to payment calculations as set forth at [§ 422.308(c)](/cfr/42/422.308.md?p=c) of this part, (that is, a standardized benchmark). For local MA plans serving multiple counties it is the weighted average of county rates in a plan's service area, weighted by the plan's projected enrollment per county. The rules for determining county capitation rates are specific to a time period, as set forth at [§ 422.258(a)](/cfr/42/422.258.md?p=a). Effective 2012, the MA area-specific non-drug monthly benchmark amount is called the blended benchmark amount, and is determined according to the rules set forth under [§ 422.258(d)](/cfr/42/422.258.md?p=d) of this part. Unadjusted MA region-specific non-drug monthly benchmark amount means, for MA regional plans, the amount described at [§ 422.258(b)](/cfr/42/422.258.md?p=b). Unadjusted MA statutory non-drug monthly bid amount means a plan's estimate of its average monthly required revenue to provide coverage of basic benefits as defined in [§ 422.100(c)(1)](/cfr/42/422.100.md?p=c-1) to an MA eligible beneficiary with a nationally average risk profile for the risk factors CMS applies to payment calculations as set forth at [§ 422.308(c)](/cfr/42/422.308.md?p=c). # §422.254. Submission of bids. - (a) **General rules.** - (1) Not later than the first Monday in June, each MA organization must submit to CMS an aggregate monthly bid amount for each MA plan (other than an MSA plan) the organization intends to offer in the upcoming year in the service area (or segment of such an area if permitted under [§ 422.262(c)(2)](/cfr/42/422.262.md?p=c-2)) that meets the requirements in [paragraph (b)](#b) of this section. With each bid submitted, the MA organization must provide the information required in [paragraph (c)](#c) of this section and, for plans with rebates as described at [§ 422.266(a)](/cfr/42/422.266.md?p=a), the MA organization must provide the information required in [paragraph (d)](#d) of this section. - (2) CMS has the authority to determine whether and when it is appropriate to apply the bidding methodology described in this section to ESRD MA enrollees. - (3) If the bid submission described in paragraphs [(a)(1)](#a-1) and [(2)](#a-2) of this section is not complete, timely, or accurate, CMS has the authority to impose sanctions under [subpart O](/cfr/42/subpartO.md) of this part or may choose not to renew the contract. - (4) CMS may decline to accept any or every otherwise qualified bid submitted by an MA organization or potential MA organization. - (5) After an MA organization is permitted to begin marketing prospective plan year offerings for the following contract year (consistent with [§ 422.2263(a)](/cfr/42/422.2263.md?p=a)), the MA organization must not change and must provide the benefits described in its CMS-approved plan benefit package (PBP) (as defined in [§ 422.162](/cfr/42/422.162.md)) for the following contract year without modification, except where a modification in benefits is required by law. This prohibition on changes applies to cost sharing and premiums as well as benefits. - (b) **Bid requirements.** - (1) The monthly aggregate bid amount submitted by an MA organization for each plan is the organization's estimate of the revenue required for the following categories for providing coverage to an MA eligible beneficiary with a national average risk profile for the factors described in [§ 422.308(c)](/cfr/42/422.308.md?p=c): - (i) The unadjusted MA statutory non-drug monthly bid amount, which is the MA plan's estimated average monthly required revenue for providing basic benefits as defined in [§ 422.100(c)(1)](/cfr/42/422.100.md?p=c-1). - (ii) The amount to provide basic prescription drug coverage, if any (defined at section 1860D-2(a)(3) of the Act). - (iii) **The amount to provide supplemental health care benefits, if any.** - (2) **Each bid is for a uniform benefit package for the service area.** - (3) Each bid submission must contain all estimated revenue required by the plan, including administrative costs and return on investment. - (i) MA plans offering additional telehealth benefits as defined in [§ 422.135(a)](/cfr/42/422.135.md?p=a) must exclude any capital and infrastructure costs and investments directly incurred or paid by the MA plan relating to such benefits from their bid submission for the unadjusted MA statutory non-drug monthly bid amount. - (ii) [Reserved] - (4) The bid amount is for plan payments only but must be based on plan assumptions about the amount of revenue required from enrollee cost-sharing. The estimate of plan cost-sharing for the unadjusted MA statutory non-drug monthly bid amount for coverage of basic benefits as defined in [§ 422.100(c)(1)](/cfr/42/422.100.md?p=c-1) must reflect the requirement that the level of cost sharing MA plans charge to enrollees must be actuarially equivalent to the level of cost sharing (deductible, copayments, or coinsurance) charged to beneficiaries under the original Medicare fee-for-service program option. The actuarially equivalent level of cost sharing reflected in a regional plan's unadjusted MA statutory non-drug monthly bid amount does not include cost sharing for out-of-network Medicare benefits, as described at [§ 422.101(d)](/cfr/42/422.101.md?p=d). - (5) **Actuarial valuation.** The bid must be prepared in accordance with CMS actuarial guidelines based on generally accepted actuarial principles. - (i) A qualified actuary must certify the plan's actuarial valuation (which may be prepared by others under his or her direction or review). - (ii) To be deemed a qualified actuary, the actuary must be a member of the American Academy of Actuaries. - (iii) Applicants may use qualified outside actuaries to prepare their bids. - (c) **Information required for coordinated care plans and MA private fee-for-service plans.** MA organizations' submission of bids for coordinated care plans, including regional MA plans and specialized MA plans for special needs beneficiaries (described at [§ 422.4(a)(1)(iv)](/cfr/42/422.4.md?p=a-1-iv)), and for MA private fee-for-service plans must include the following information: - (1) **The plan type for each plan.** - (2) The monthly aggregate bid amount for the provision of all items and services under the plan, as defined in [§ 422.252](/cfr/42/422.252.md) and discussed in [paragraph (a)](#a) of this section. - (3) The proportions of the bid amount attributable to- - (i) The provision of basic benefits as defined in [§ 422.100(c)(1)](/cfr/42/422.100.md?p=c-1); - (ii) The provision of basic prescription drug coverage (as defined at section 1860D-2(a)(3) of the Act; and - (iii) The provision of supplemental health care benefits (as defined [§ 422.102](/cfr/42/422.102.md)). - (4) The projected number of enrollees in each MA local area used in calculation of the bid amount, and the enrollment capacity, if any, for the plan. - (5) The actuarial basis for determining the amount under [paragraph (c)(2)](#c-2) of this section, the proportions under [paragraph (c)(3)](#c-3) of this section, the amount under [paragraph (b)(4)](#b-4) of this section, and additional information as CMS may require to verify actuarial bases and the projected number of enrollees. - (6) A description of deductibles, coinsurance, and copayments applicable under the plan and the actuarial value of the deductibles, coinsurance, and copayments. - (7) For qualified prescription drug coverage, the information required under section 1860D-11(b) of the Act with respect to coverage. - (8) For the purposes of calculation of risk corridors under [§ 422.458](/cfr/42/422.458.md), MA organizations offering regional MA plans in 2006 and/or 2007 must submit the following information developed using the appropriate actuarial bases. - (i) Projected allowable costs (defined in [§ 422.458(a)](/cfr/42/422.458.md?p=a)). - (ii) The portion of projected allowable costs attributable to administrative expenses incurred in providing these benefits. - (iii) The total projected costs for providing rebatable integrated benefits (as defined in [§ 422.458(a)](/cfr/42/422.458.md?p=a)) and the portion of costs that is attributable to administrative expenses. - (9) For regional plans, as determined by CMS, the relative cost factors for the counties in a plan's service area, for the purposes of adjusting payment under [§ 422.308(d)](/cfr/42/422.308.md?p=d) for intra-area variations in an MA organization's local payment rates. - (d) **Beneficiary rebate information.** In the case of a plan required to provide a monthly rebate under [§ 422.266](/cfr/42/422.266.md) for a year, the MA organization offering the plan must inform CMS how the plan will distribute the beneficiary rebate among the options described at [§ 422.266(b)](/cfr/42/422.266.md?p=b). - (e) **Information required for MSA plans.** MA organizations intending to offer MA MSA plans must submit— - (1) The enrollment capacity (if any) for the plan; - (2) The amount of the MA monthly MSA premium for basic benefits (as defined in [§ 422.252](/cfr/42/422.252.md)); - (3) The amount of the plan deductible; and - (4) **The amount of the beneficiary supplemental premium, if any.** - (f) Separate bids must be submitted for Part A and Part B enrollees and Part B-only enrollees for each MA plan offered. # §422.256. Review, negotiation, and approval of bids. - (a) **Authority.** Subject to paragraphs [(a)(2)](#a-2), (d), and (e) of this section, CMS has the authority to review the aggregate bid amounts submitted under [§ 422.252](/cfr/42/422.252.md) and conduct negotiations with MA organizations regarding these bids (including the supplemental benefits) and the proportions of the aggregate bid attributable to basic benefits, supplemental benefits, and prescription drug benefits and may decline to approve a bid if the plan sponsor proposes significant increases in cost sharing or decreases in benefits offered under the plan. - (1) When negotiating bid amounts and proportions, CMS has authority similar to that provided the Director of the Office of Personnel Management for negotiating health benefits plans under 5 U.S.C. chapter 89. - (2) **Noninterference.** - (i) In carrying out Parts C and D under this title, CMS may not require any MA organization to contract with a particular hospital, physician, or other entity or individual to furnish items and services. - (ii) CMS may not require a particular price structure for payment under such a contract, with the exception of payments to Federally qualified health centers as set forth at [§ 422.316](/cfr/42/422.316.md). - (b) **Standards of bid review.** Subject to paragraphs [(d)](#d) and [(e)](#e) of this section, CMS can only accept bid amounts or proportions described in [paragraph (a)](#a) of this section if CMS determines the following standards have been met: - (1) The bid amount and proportions are supported by the actuarial bases provided by MA organizations under [§ 422.254](/cfr/42/422.254.md). - (2) The bid amount and proportions reasonably and equitably reflects the plan's estimated revenue requirements for providing the benefits under that plan, as the term revenue requirements is used for purposes of section 1302(8) of the Public Health Service Act. - (3) **Limitation on enrollee cost sharing.** For coordinated care plans (including regional MA plans and specialized MA plans) and private fee-for-service plans: - (i) The actuarial value of plan basic cost sharing, reduced by any supplemental benefits, may not exceed— - (ii) The actuarial value of deductibles, coinsurance, and copayments that would be applicable for the benefits to individuals entitled to benefits under Part A and enrolled under Part B in the plan's service area with a national average risk profile for the factors described in [§ 422.308(c)](/cfr/42/422.308.md?p=c) if they were not members of an MA organization for the year, except that cost sharing for non-network Medicare services in a regional MA plan is not counted under the amount described in paragraph (b)(2)(i) of this section. - (c) **Negotiation process.** The negotiation process may include the resubmission of information to allow MA organizations to modify their initial bid submissions to account for the outcome of CMS' regional benchmark calculations required under [§ 422.258(c)](/cfr/42/422.258.md?p=c) and the outcome of CMS' calculation of the national average monthly bid amount required under [section 1860D-13(a)(4)](/cfr/42/1860D-13.md?p=a-4) of the Act. - (d) **Exception for private fee-for-service plans.** For private fee-for-service plans defined at [§ 422.4(a)(3)](/cfr/42/422.4.md?p=a-3), CMS will not review, negotiate, or approve the bid amount, proportions of the bid, or the amounts of the basic beneficiary premium and supplemental premium. - (e) **Exception for MSA plans.** CMS does not review, negotiate, or approve amounts submitted with respect to MA MSA plans, except to determine that the deductible does not exceed the statutory maximum, defined at [§ 422.103(d)](/cfr/42/422.103.md?p=d). # §422.258. Calculation of benchmarks. - (a) **The term “MA area-specific non-drug monthly benchmark amount” means, for a month in a year—** - (1) **For MA local plans with service areas entirely within a single MA local area—** - (i) For years before 2007, one-twelfth of the annual MA capitation rate (described at [§ 422.306](/cfr/42/422.306.md)) for the area, adjusted as appropriate for the purpose of risk adjustment. - (ii) For years 2007 through 2010, one-twelfth of the applicable amount determined under section 1853(k)(1) of the Act for the area for the year, adjusted as appropriate for the purpose of risk adjustment. - (iii) **For 2011, one-twelfth of the applicable amount determined under 1853(k)(1) for the area for 2010.** - (iv) Beginning with 2012, one-twelfth of the blended benchmark amount described in [paragraph (d)](#d) of this section, subject to [paragraph (d)(8)](#d-8) of this section and adjusted as appropriate for the purpose of risk adjustment. - (2) For MA local plans with service areas including more than one MA local area, an amount equal to the weighted average of amounts described in [paragraph (a)(1)](#a-1) of this section for the year for each local area (county) in the plan's service area, using as weights the projected number of enrollees in each MA local area that the plan used to calculate the bid amount, and adjusted as appropriate for the purpose of risk adjustment. - (b) **For MA regional plans, the term “MA region-specific non-drug monthly benchmark amount” is—** - (1) **The sum of two components—** the statutory component (based on a weighted average of local benchmarks in the region, as described in [paragraph (c)(3)](#c-3) of this section; and the plan bid component (based on a weighted average of regional plan bids in the region as described in [paragraph (c)(4)](#c-4) of this section). - (2) **Announced before November 15 of each year, but after CMS has received the plan bids.** - (c) **Calculation of MA regional non-drug benchmark amount.** CMS calculates the monthly regional non-drug benchmark amount for each MA region as follows: - (1) **Reference month.** For all calculations that follow, CMS will determine the number of MA eligible individuals in each local area, in each region, and nationally as of the reference month, which is a month in the previous calendar year CMS identifies. - (2) **Statutory market share.** CMS will determine the statutory national market share percentage as the proportion of the MA eligible individuals nationally who were not enrolled in an MA plan. - (3) **Statutory component of the region-specific benchmark.** - (i) CMS calculates the unadjusted region-specific non-drug amount by multiplying the amount determined under [paragraph (a)](#a) of this section for the year by the county's share of the MA eligible individuals residing in the region (the number of MA eligible individuals in the county divided by the number of MA eligible individuals in the region), and then adding all the enrollment-weighted county rates to a sum for the region. - (ii) CMS then multiplies the unadjusted region-specific non-drug amount from [paragraph (c)(3)(i)](#c-3-i) of this section by the statutory market share to determine the statutory component of the regional benchmark. - (4) **Plan-bid component of the region-specific benchmark.** For each regional plan offered in a region, CMS will multiply the plan's unadjusted region-specific non-drug bid amount by the plan's share of enrollment (as determined under [paragraph (c)(5)](#c-5) of this section) and then sum these products across all plans offered in the region. CMS then multiples this by 1 minus the statutory market share to determine the plan-bid component of the regional benchmark. - (5) **Plan's share of enrollment.** CMS will calculate the plan's share of MA enrollment in the region as follows: - (i) In the first year that any MA regional plan is being offered in an MA region, and more than one MA regional plan is being offered, CMS will determine each regional plan's share of enrollment based on one of two possible approaches. CMS may base this factor on equal division among plans, so that each plan's share will be 1 divided by the number of plans offered. Alternatively, CMS may base this factor on each regional plan's estimate of projected enrollment. Plan enrollment projections are subject to review and adjustment by CMS to assure reasonableness. - (ii) If two or more regional plans are offered in a region and were offered in the reference month: The plan's share of enrollment will be the number of MA eligible individuals enrolled in the plan divided by the number of MA eligible individuals enrolled in all of the plans in the region, as of the reference month. - (iii) If a single regional plan is being offered in the region: The plan's share of enrollment is equal to 1. - (d) **Determination of the blended benchmark amount—** - (1) **General rules.** For the purpose of paragraphs [(a)](#a) and [(b)](#b) of this section, the term blended benchmark amount for an area for a year means the sum of two components: the applicable amount determined under section 1853(k)(1) of the Act and the specified amount determined under [section 1853(n)(2)](/cfr/42/1853.md?p=n-2) of Act. The weights for each component are based on the phase-in period assigned each area, as described in paragraphs [(d)(8)](#d-8) and [(d)(9)](#d-9) of this section. At the conclusion of an area's phase-in period, the blended benchmark for an area for a year equals the section 1853(n)(2) of the Act specified amount described in [paragraph (d)(2)](#d-2) of this section. The blended benchmark amount for an area for a year (which takes into account [paragraph (d)(8)](#d-8) of this section), cannot exceed the applicable amount described in [paragraph (d)(2)](#d-2) of this section that would be in effect but for the application of this paragraph. - (2) **Applicable amount.** For the purpose of paragraphs [(a)](#a) and [(b)](#b) of this section, the applicable amount determined under section 1853(k)(1) of the Act for a year is— - (i) In a rebasing year (described at [§ 422.306(b)(2)](/cfr/42/422.306.md?p=b-2), an amount equal to the greater of the average FFS expenditure amount at [§ 422.306(b)(2)](/cfr/42/422.306.md?p=b-2) for an area for a year and the minimum percentage increase rate at [§ 422.306(a)](/cfr/42/422.306.md?p=a) for an area for a year. - (ii) In a year when the amounts at [§ 422.306(b)(2)](/cfr/42/422.306.md?p=b-2) are not rebased, the minimum percentage increase rate at [§ 422.306(a)](/cfr/42/422.306.md?p=a) for the area for the year. - (iii) In no case the blended benchmark amount for an area for a year, determined taking into account [paragraph (d)(8)](#d-8) of this section, be greater than the applicable amount at [paragraph (d)(2)](#d-2) of this section for an area for a year. - (iv) **Paragraph (d) of this section does not apply to the PACE program under section 1894 of Act.** - (3) **Specified amount.** For the purpose of paragraphs [(a)](#a) and [(b)](#b) of this section, the specified amount under section 1853(n)(2) of the Act is the product of the base payment amount for an area for a year (adjusted as required under § [422.306(c)](/cfr/42/422.306.md?p=c) and [(d)](/cfr/42/422.306.md?p=d)) multiplied by the applicable percentage described in [paragraph (d)(5)](#d-5) of this section for an area for a year. - (4) **Base payment amount.** The base payment amount is as follows: - (i) For 2012, the average FFS expenditure amount specified in [§ 422.306(b)(2)](/cfr/42/422.306.md?p=b-2), determined for 2012. - (ii) For subsequent years, the average FFS expenditure amount specified in [§ 422.306(b)(2)](/cfr/42/422.306.md?p=b-2). - (5) **Applicable percentage.** Subject to [paragraph (d)(7)](#d-7) of this section, the applicable percentage is one of four values assigned to an area based on Secretary's determination of the quartile ranking of the area's average FFS expenditure amount (described at [§ 422.306(b)(2)](/cfr/42/422.306.md?p=b-2) and adjusted as required at § [422.306(c)](/cfr/42/422.306.md?p=c) and [(d)](/cfr/42/422.306.md?p=d)), relative to this amount for all areas. - (i) For the 50 States or the District of Columbia, a county with an average FFS expenditure amount adjusted under § [422.306(c)](/cfr/42/422.306.md?p=c) and [(d)](/cfr/42/422.306.md?p=d) that falls in the— - (A) Highest quartile of such rates for all areas for the previous year receives an applicable percentage of 95 percent; - (B) Second highest quartile of such rates for all areas for the previous year receives an applicable percentage of 100 percent; - (C) Third highest quartile of such rates for all areas for the previous year receives an applicable percentage of 107.5 percent; or - (D) Lowest quartile of such rates for all areas for the previous year receives an applicable percentage of 115 percent. - (ii) To determine the applicable percentages for a territory, the Secretary ranks such areas for a year based on the level of the area's [§ 422.306(b)(2)](/cfr/42/422.306.md?p=b-2) amount adjusted under § [422.306(c)](/cfr/42/422.306.md?p=c) and [(d)](/cfr/42/422.306.md?p=d), relative to the quartile rankings computed under [paragraph (d)(5)(i)](#d-5-i) of this section. - (6) **Additional rules for determining the applicable percentage.** - (i) In a contract year when the average FFS expenditure amounts from the previous year were rebased (according to the periodic rebasing requirement at [§ 422.306(b)(2)](/cfr/42/422.306.md?p=b-2)), the Secretary must determine an area's applicable percentage based on a quartile ranking of the previous year's rebased FFS amounts adjusted under § [422.306(c)](/cfr/42/422.306.md?p=c) and [(d)](/cfr/42/422.306.md?p=d). - (ii) If, for a year after 2012, there is a change in the quartile in which an area is ranked compared to the previous year's ranking, the applicable percentage for the area in the year must be the average of the applicable percentage for the previous year and the applicable percentage that would otherwise apply for the area for the year in the absence of this transitional provision. - (7) **Increases to the applicable percentage for quality.** Beginning with 2012, the blended benchmark under paragraphs [(a)](#a) and [(b)](#b) of this section will reflect the level of quality rating at the plan or contract level, as determined by the Secretary. The quality rating for a plan is determined by the Secretary according to a 5-star rating system (based on the data collected under section 1852(e) of the Act) specified in [subpart D](/cfr/42/subpartD.md) of this part 422. Specifically, the applicable percentage under [paragraph (d)(5)](#d-5) of this section must be increased according to criteria in [paragraphs (d)(7)(i) through (v)](#d-7-i..d-7-v) of this section if the plan or contract is determined to be a qualifying plan or a qualifying plan in a qualifying county for the year. - (i) **Qualifying plan.** Beginning with 2012, a qualifying plan means a plan that had a quality rating of 4 stars or higher based on the most recent data available for such year. For a qualifying plan, the applicable percentage at [paragraph (d)(5)](#d-5) of this section must be increased as follows: - (A) For 2012, by 1.5 percentage points. - (B) For 2013, by 3.0 percentage points. - (C) For 2014 and subsequent years, by 5.0 percentage points. - (ii) **Qualifying county.** - (A) A qualifying county means a county that meets the following three criteria: (1) Has an MA capitation rate that, in 2004, was based on the amount specified in section 1853(c)(1)(B) of the Act for a Metropolitan Statistical Area with a population of more than 250,000. (2) Of the MA-eligible individuals residing in the county, at least 25 percent of such individuals were enrolled in MA plans as of December 2009. (3) Has per capita fee-for-service spending that is lower than the national monthly per capita cost for expenditures for individuals enrolled under the Original Medicare fee-for-service program for the year. - (B) Beginning with 2012, for a qualifying plan serving a qualifying county, the increase to the applicable percentage described at [paragraph (d)(7)(i)](#d-7-i) of this section must be doubled for the qualifying county. - (iii) MA organizations that fail to report data as required by the Secretary must be counted as having a rating of fewer than 3.5 stars at the plan or contract level, as determined by the Secretary. - (iv) **Application of applicable percentage increases to low enrollment contracts.** - (A) For 2012, for an MA plan that the Secretary determines is unable to have a quality rating because of low enrollment, the Secretary treats this plan as a qualifying plan under [paragraph (d)(7)(i)](#d-7-i) of this section. - (B) For 2013 and subsequent years, the Secretary develops a methodology to apply to MA plans with low enrollment (as defined by the Secretary) to determine whether a low enrollment contract is a qualifying plan. - (v) **Application of increases in applicable percentage to new MA plans.** A new MA plan (as defined at [§ 422.252](/cfr/42/422.252.md)) that meets criteria specified by the Secretary must be treated as a qualifying plan under [paragraph (d)(7)(i)](#d-7-i) of this section, except that the applicable percentage must be increased as follows: - (A) For 2012, by 1.5 percentage points. - (B) For 2013, by 2.5 percentage points. - (C) For 2014 and subsequent years, by 3.5 percentage points. - (8) **Determination of phase-in period for the blended benchmark amount.** For 2012 through 2016, the blended benchmark amount for an area for a year depends on the phase-in period assigned to that area. The Secretary assigns one of three phase-in periods to each area: 2-year, 4 year, or 6 year. The phase-in period assigned to an area is based on the size of the difference between the 2010 applicable amount at [paragraph (d)(2)](#d-2) of this section and the projected 2010 benchmark amount defined at [paragraph (d)(8)(i)](#d-8-i) of this section. - (i) The projected 2010 benchmark amount is calculated once for the purpose of determining the phase-in period for an area. It is equal to one-half of the 2010 applicable amount at [paragraph (d)(2)](#d-2) of this section and one-half of the specified amount at [paragraph (d)(3)](#d-3) modified to apply to 2010 (as described in (d)(8)(ii) of this section). - (ii) To assign a phase-in period to an area, the specified amount is modified as if it applies to 2010, and is the product of— - (A) The 2010 base payment amount adjusted as required under [§ 422.306(c)](/cfr/42/422.306.md?p=c) of this part; and - (B) The applicable percentage determined as if the reference to the “previous year” at [paragraph (d)(5)](#d-5) of this section were deemed a reference to 2010 and increased as follows: (1) The increase at [paragraph (d)(7)(i)](#d-7-i) of this section for a qualifying plan in the area is applied as if the reference to a qualifying plan for 2012 were deemed a reference for 2010; and (2) The increase at [paragraph (d)(7)(ii)](#d-7-ii) of this section is applied as if the determination of a qualifying county were made for 2010. - (iii) **Two-year phase-in.** An area is assigned the 2-year phase-in period if the difference between the applicable amount at [paragraph (d)(2)](#d-2) of this section and the projected 2010 benchmark amount at [paragraph (d)(8)(i)](#d-8-i) of this section is less than $30. - (iv) **Four-year phase-in.** An area is assigned the 4-year phase-in period if the difference between the applicable amount at [paragraph (d)(2)](#d-2) of this section and the projected 2010 benchmark amount at [paragraph (d)(8)(i)](#d-8-i) of this section is at least $30 but less than $50. - (v) **Six-year phase-in.** An area is assigned the 6-year phase-in period if the difference between the applicable amount at [paragraph (d)(2)](#d-2) of this section and the projected 2010 benchmark amount at [paragraph (d)(8)(i)](#d-8-i) of this section is at least $50. - (9) **Impact of phase-in period on calculation of the blended benchmark amount—** - (i) **Weighting for the 2-year phase-in.** - (A) For 2012, the blended benchmark is the sum of one-half of the applicable amount at [paragraph (d)(2)](#d-2) of this section and one-half of the specified amount at [paragraph (d)(3)](#d-3) of this section. - (B) **For 2013 and subsequent years, the blended benchmark equals the specified amount.** - (ii) **Weighting for the 4-year phase-in.** The blended benchmark is the sum of the applicable amount at [paragraph (d)(2)](#d-2) of this section and the specified amount at [paragraph (d)(2)](#d-2) of this section in the following proportions: - (A) For 2012, three-fourths of the applicable amount for the area for the year and one-fourth of the specified amount for the area and year. - (B) For 2013, one-half of the applicable amount for the area for the year and one-half of the specified amount for the area and year. - (C) For 2014, one-fourth of the applicable amount for the area for the year and three-fourths of the specified amount for the area and year. - (D) For 2015 and subsequent years, the blended benchmark equals the specified amount for the area and year. - (iii) **Weighting for the 6-year phase-in.** The blended benchmark is the sum of the applicable amount at [paragraph (d)(2)](#d-2) and the specified amount at [paragraph (d)(3)](#d-3) of this section in the following proportions: - (A) For 2012, five-sixths of the applicable amount for the area and year and one-sixth of the specified amount for the area and year. - (B) For 2013, two-thirds of the applicable amount for the area and year and one-third of the specified amount for the area and year. - (C) For 2014, one-half of the applicable amount for the area and year and one-half of the specified amount for the area and for year. - (D) For 2015, one-third of the applicable amount for the area and year and two-thirds of the specified amount for the area and for year. - (E) For 2016, one-sixth of the applicable amount for the area and year and five-sixths of the specified amount for the area and for year. - (F) For 2017 and subsequent years, the blended benchmark equals the specified amount for the area and year. # §422.260. Appeals of quality bonus payment determinations. - (a) **Scope.** The provisions of this section pertain to the administrative review process to appeal quality bonus payment status determinations based on [section 1853(o)](/cfr/42/1853.md?p=o) of the Act. Such determinations are made based on the overall rating for MA-PDs and Part C summary rating for MA-only contracts for the contract assigned under [subpart D](/cfr/42/subpartD.md) of this part. - (b) **Definitions.** The following definitions apply to this section: Quality bonus payment (QBP) means— - (i) Enhanced CMS payments to MA organizations based on the organization's demonstrated quality of its Medicare contract operations; or - (ii) Increased beneficiary rebate retention allowances based on the organization's demonstrated quality of its Medicare contract operations. Quality bonus payment (QBP) determination methodology means the quality ratings system specified in [subpart D](/cfr/42/subpartD.md) of this part 422 for assigning quality ratings to provide comparative information about MA plans and evaluating whether MA organizations qualify for a QBP. (Low enrollment contracts and new MA plans are defined in [§ 422.252](/cfr/42/422.252.md).) Quality bonus payment (QBP) status means a MA organization's standing with respect to its qualification to— - (i) Receive a quality bonus payment, as determined by CMS; or - (ii) **Retain a portion of its beneficiary rebates based on its quality rating, as determined by CMS.** - (c) **Administrative review process for QBP status appeals.** - (1) **Reconsideration request.** An MA organization may request reconsideration of its QBP status. - (i) The MA organization requesting reconsideration of its QBP status must do so by providing written notice to CMS within 10 business days of the release of its QBP status. The request must specify the given measure(s) in question and the basis for reconsideration such as a calculation error or incorrect data was used to determine the QBP status. Requests are limited to those circumstances where the error could impact an individual measure's value or the overall Star Rating. Based on any corrections, any applicable measure-level Star Ratings could go up, stay the same, or go down. The overall Star Rating also may go up, stay the same, or go down based on any corrections. - (ii) The reconsideration official's decision is final and binding unless a request for an informal hearing is filed in accordance with [paragraph (2)](#c-2) of this section. - (2) **Informal hearing request.** An MA organization may request an informal hearing on the record following the reconsideration official's decision regarding its QBP status. - (i) The MA organization seeking an appeal of the reconsideration official's decision regarding its QBP status must do so by providing written notice to CMS within 10 business days of the issuance of the reconsideration decision. The notice must specify the errors the MA organization asserts that CMS made in making the QBP determination and how correction of those errors could result in the organization's qualification for a QBP or a higher QBP. - (ii) The MA organization may not request an informal hearing of its QBP status unless it has already requested and received a reconsideration decision in accordance with [paragraph (c)(1)](#c-1) of this section. - (iii) The informal hearing request must pertain only to the measure(s) and value(s) in question that precipitated the request for reconsideration. - (iv) **The informal hearing is conducted by a CMS hearing officer on the record.** The hearing officer receives no testimony, but may accept written statements with exhibits from each party in support of their position in the matter. - (v) The MA organization must prove by a preponderance of evidence that CMS' calculations of the measure(s) and value(s) in question were incorrect. The burden of proof is on the MA organization to prove an error was made in the calculation of the QBP status. - (vi) **The hearing officer issues the decision by electronic mail to the MA organization.** - (vii) After the hearing officer's decision is issued to the MA organization and the CMS Administrator, the hearing officer's decision is subject to review and modification by the CMS Administrator within 10 business days of issuance. If the Administrator does not review and issue a decision within 10 business days, the hearing officer's decision is final and binding. - (3) **Limits to requesting an administrative review.** - (i) CMS may limit the measures or bases for which a contract may request an administrative review of its QBP status. - (ii) **An administrative review cannot be requested for the following—** the methodology for calculating the star ratings (including the calculation of the overall star ratings); cut-off points for determining measure thresholds; the set of measures included in the star rating system; and the methodology for determining QBP determinations for low enrollment contracts and new MA plans. - (iii) The MA organization may not request a review based on data inaccuracy for the following data sources: - (A) **HEDIS.** - (B) **CAHPS.** - (C) **HOS.** - (D) **Part C and D Reporting Requirements.** - (E) **PDE.** - (F) **Medicare Plan Finder pricing files.** - (G) **Data from the Medicare Beneficiary Database Suite of Systems.** - (H) **Medicare Advantage Prescription Drug (MARx) system.** - (I) **Other Federal data sources.** - (4) **Designation of a hearing officer.** CMS designates a hearing officer to conduct the appeal of the QBP status. The officer must be an individual who did not directly participate in the initial QBP determination. - (d) **Reopening of QBP determinations.** CMS may, on its own initiative, revise an MA organization's QBP status at any time after the initial release of the QBP determinations through April 1 of each year. CMS may take this action on the basis of any credible information, including the information provided during the administrative review process by a different MA organization, that demonstrates that the initial QBP determination was incorrect. If a contract's QBP determination is reopened as a result of a systemic calculation issue that impacts more than the MA organization that submitted an appeal, the QBP rating for MA organizations that did not appeal will only be updated if it results in a higher QBP rating. # §422.262. Beneficiary premiums. - (a) **Determination of MA monthly basic beneficiary premium.** - (1) For an MA plan with an unadjusted statutory non-drug bid amount that is less than the relevant unadjusted non-drug benchmark amount, the basic beneficiary premium is zero. - (2) For an MA plan with an unadjusted statutory non-drug bid amount that is equal to or greater than the relevant unadjusted non-drug benchmark amount, the basic beneficiary premium is the amount by which (if any) the bid amount exceeds the benchmark amount. All approved basic premiums must be charged; they cannot be waived. - (b) **Consolidated monthly premiums.** Except as specified in [paragraph (b)(2)](#b-2) of this section, MA organizations must charge enrollees a consolidated monthly MA premium. - (1) The consolidated monthly premium for an MA plan (other than a MSA plan) is the sum of the MA monthly basic beneficiary premium (if any), the MA monthly supplementary beneficiary premium (if any), and the MA monthly prescription drug beneficiary premium (if any). - (2) **Special rule for MSA plans.** For an individual enrolled in an MSA plan offered by an MA organization, the monthly beneficiary premium is the supplemental premium (if any). - (c) **Uniformity of premiums—** - (1) **General rule.** Except as permitted for supplemental premiums pursuant to [§ 422.106(d)](/cfr/42/422.106.md?p=d), for MA contracts with employers and labor organizations, the MA monthly bid amount submitted under [§ 422.254](/cfr/42/422.254.md), the MA monthly basic beneficiary premium, the MA monthly supplemental beneficiary premium, the MA monthly prescription drug premium, and the monthly MSA premium of an MA organization may not vary among individuals enrolled in an MA plan (or segment of the plan as provided for local MA plans under [paragraph (c)(2)](#c-2) of this section). In addition, the MA organization cannot vary the level of cost-sharing charged for basic benefits or supplemental benefits (if any) among individuals enrolled in an MA plan (or segment of the plan). - (2) **Segmented service area option.** An MA organization may apply the uniformity requirements in [paragraph (c)(1)](#c-1) of this section to segments of an MA local plan service area (rather than to the entire service area) as long as such a segment is composed of one or more MA payment areas. The information specified under [§ 422.254](/cfr/42/422.254.md) is submitted separately for each segment. This provision does not apply to MA regional plans. - (d) **Monetary inducement prohibited.** An MA organization may not provide for cash or other monetary rebates as an inducement for enrollment or for any other reason or purpose. - (e) **Timing of payments.** The MA organization must permit payments of MA monthly basic and supplemental beneficiary premiums and monthly prescription drug beneficiary premiums on a monthly basis and may not terminate coverage for failure to make timely payments except as provided in [§ 422.74(b)](/cfr/42/422.74.md?p=b). - (f) **Beneficiary payment options.** An MA organization must permit each enrollee, at the enrollee's option, to make payment of premiums (if any) under this part to the organization through- - (1) Withholding from the enrollee's Social Security benefit payments, or benefit payments by the Railroad Retirement Board or the Office of Personnel Management, in the manner that the Part B premium is withheld; - (2) An electronic funds transfer mechanism (such as automatic charges of an account at a financial institution or a credit or debit card account); - (3) According to other means that CMS may specify, including payment by an employer or under employment-based retiree health coverage on behalf of an employee, former employee (or dependent), or by other third parties such as a State. - (i) Regarding the option in [paragraph (f)(1)](#f-1) of this section, MA organizations may not impose a charge on beneficiaries for the election of this option. - (ii) An enrollee may opt to make a direct payment of premium to the plan. - (g) **Prohibition on improper billing of premiums.** MA organizations shall not bill an enrollee for a premium payment period if the enrollee has had the premium for that period withheld from his or her Social Security, Railroad Retirement Board or Office of Personnel Management check. - (h) **Retroactive collection of premiums.** In circumstances where retroactive collection of premium amounts is necessary and the enrollee is without fault in creating the premium arrearage, the Medicare Advantage organization shall offer the enrollee the option of payment either by lump sum, by equal monthly installment spread out over at least the same period for which the premiums were due, or through other arrangements mutually acceptable to the enrollee and the Medicare Advantage organization. For monthly installments, for example, if 7 months of premiums are due, the member would have at least 7 months to repay. # §422.264. Calculation of savings. - (a) **Computation of risk adjusted bids and benchmarks—** - (1) **The risk adjusted MA statutory non-drug monthly bid amount—** is the unadjusted MA statutory non-drug monthly bid amount (defined at [§ 422.254(b)(1)(i)](/cfr/42/422.254.md?p=b-1-i)), adjusted using the factors described in [paragraph (c)](#c) of this section for local plans and [paragraph (e)](#e) of this section for regional plans. - (2) The risk adjusted MA area-specific non-drug monthly benchmark amount is the unadjusted benchmark amount for coverage of basic benefits defined in [§ 422.100(c)(1)](/cfr/42/422.100.md?p=c-1) by a local MA plan, adjusted using the factors described in [paragraph (c)](#c) of this section. - (3) The risk adjusted MA region-specific non-drug monthly benchmark amount is the unadjusted benchmark amount for coverage of basic benefits defined in [§ 422.100(c)(1)](/cfr/42/422.100.md?p=c-1) by a regional MA plan, adjusted using the factors described in [paragraph (e)](#e) of this section. - (b) **Computation of savings for MA local plans.** The average per capita monthly savings for an MA local plan is 100 percent of the difference between the plan's risk-adjusted statutory non-drug monthly bid amount (described in [paragraph (a)(1)](#a-1) of this section) and the plan's risk-adjusted area-specific non-drug monthly benchmark amount (described in [paragraph (a)(2)](#a-2) of this section). Plans with bids equal to or greater than plan benchmarks will have zero savings. - (c) **Risk adjustment factors for determination of savings for local plans.** CMS will publish the first Monday in April before the upcoming calendar year the risk adjustment factors described in paragraph [(c)(1)](#c-1) or [(c)(2)](#c-2) of this section determined for the purpose of calculating savings amounts for MA local plans. - (1) For the purpose of calculating savings for MA local plans CMS has the authority to apply risk adjustment factors that are plan-specific average risk adjustment factors, Statewide average risk adjustment factors, or factors determined on a basis other than plan-specific factors or Statewide average factors. - (2) In the event that CMS applies Statewide average risk adjustment factors, the statewide factor for each State is the average of the risk factors calculated under [§ 422.308(c)](/cfr/42/422.308.md?p=c), based on all enrollees in MA local plans in that State in the previous year. In the case of a State in which no local MA plan was offered in the previous year, CMS will estimate an average and may base this average on average risk adjustment factors applied to comparable States or applied on a national basis. - (d) **Computation of savings for MA regional plans.** The average per capita monthly savings for an MA regional plan and year is 100 percent of the difference between the plan's risk-adjusted statutory non-drug monthly bid amount (described in [paragraph (a)(1)](#a-1) of this section) and the plan's risk-adjusted region-specific non-drug monthly benchmark amount (described in [paragraph (a)(3)](#a-3) of this section), using the risk adjustment factors described in [paragraph (e)](#e) of this section. Plans with bids equal to or greater than plan benchmarks will have zero savings. - (e) **Risk adjustment factors for determination of savings for regional plans.** CMS will publish the first Monday in April before the upcoming calendar year the risk adjustment factors described in paragraph [(e)(1)](#e-1)and [(e)(2)](#e-2) of this section determined for the purpose of calculating savings amounts for MA regional plans. - (1) For the purpose of calculating savings for MA regional plans, CMS has the authority to apply risk adjustment factors that are plan-specific average risk adjustment factors, Region-wide average risk adjustment factors, or factors determined on a basis other than MA regions. - (2) In the event that CMS applies region-wide average risk adjustment factors, the region-wide factor for each MA region is the average of the risk factors calculated under [§ 422.308(c)](/cfr/42/422.308.md?p=c), based on all enrollees in MA regional plans in that region in the previous year. In the case of a region in which no regional plan was offered in the previous year, CMS will estimate an average and may base this average on average risk adjustment factors applied to comparable regions or applied on a national basis. # §422.266. Beneficiary rebates. - (a) **Calculation of rebate.** - (1) For 2006 through 2011, an MA organization must provide to the enrollee a monthly rebate equal to 75 percent of the average per capita savings (if any) described in [§ 422.264(b)](/cfr/42/422.264.md?p=b) for MA local plans and [§ 422.264(d)](/cfr/42/422.264.md?p=d) for MA regional plans. - (2) For 2012 and subsequent years, an MA organization must provide to the enrollee a monthly rebate equal to a specified percentage of the average per capita savings (if any) at [§ 422.264(b)](/cfr/42/422.264.md?p=b) for MA local plans and [§ 422.264(d)](/cfr/42/422.264.md?p=d) for MA regional plans. For 2012 and 2013, this percentage is based on a combination of the (a)(1) rule of 75 percent and the (a)(2)(ii) rules that set the percentage based on the plan's quality rating under a 5 star rating system, as determined by the Secretary under [§ 422.258(d)(7)](/cfr/42/422.258.md?p=d-7). For 2014 and subsequent years, this percentage is determined based only on the [paragraph (a)(2)(ii)](#a-2-ii) of this section. - (i) **Applicable rebate percentage for 2012 and 2013.** Subject to paragraphs [(a)(2)(iii)](#a-2-iii) and [(iv)](#a-2-iv) of this section, the transitional applicable rebate percentage is, for a year, the sum of two amounts as follows: - (A) **For 2012.** Two-thirds of the old proportion of 75 percent of the average per capita savings; and one-third of the new proportion assigned the plan under [paragraph (a)(2)(ii)](#a-2-ii) of this section, based on the quality rating specified in [§ 422.258(d)(7)](/cfr/42/422.258.md?p=d-7). - (B) **For 2013.** One-third of the old proportion of 75 percent of the average per capita savings; and two-thirds of the new proportion assigned the plan under paragraph (d)(2)(ii) of this section, based on the quality rating at [§ 422.258(d)(7)](/cfr/42/422.258.md?p=d-7). - (ii) **Final applicable rebate percentage.** For 2014 and subsequent years, and subject to paragraphs [(a)(2)(iii)](#a-2-iii) and [(iv)](#a-2-iv) of this section, the final applicable rebate percentage is as follows: - (A) In the case of a plan with a quality rating under such system of at least 4.5 stars, 70 percent of the average per capita savings; - (B) In the case of a plan with a quality rating under such system of at least 3.5 stars and less than 4.5 stars, 65 percent of the average per capita savings. - (C) In the case of a plan with a quality rating under such system of less than 3.5 stars, 50 percent of the average per capita savings. - (iii) **Treatment of low enrollment contracts.** For 2012, in the case of a plan described at [§ 422.258(d)(7)(iv)](/cfr/42/422.258.md?p=d-7-iv), the plan must be treated as having a rating of 4.5 stars for the purpose of determining the beneficiary rebate amount. - (iv) **Treatment of new MA plans.** For 2012 or a subsequent year, a new MA plan defined at [§ 422.252](/cfr/42/422.252.md) that meets the criteria specified by the Secretary for purposes of [§ 422.258(d)(7)(v)](/cfr/42/422.258.md?p=d-7-v) must be treated as a qualifying plan under [§ 422.258(d)(7)(i)](/cfr/42/422.258.md?p=d-7-i), except that plan must be treated as having a rating of 3.5 stars for purposes of determining the beneficiary rebate amount. - (b) **Form of rebate.** The rebate required under this paragraph must be provided by crediting the rebate amount to one or more of the following: - (1) **Supplemental health care benefits.** MA organizations may apply all or some portion of the rebate for a plan toward payment for non-drug supplemental health care benefits for enrollees as described in [§ 422.102](/cfr/42/422.102.md), which may include the reduction of cost sharing for benefits under original Medicare and additional health care benefits that are not benefits under original Medicare. MA organizations also may apply all or some portion of the rebate for a plan toward payment for supplemental drug coverage described at [§ 423.104(f)(1)(ii)](/cfr/42/423.104.md?p=f-1-ii), which may include reduction in cost sharing and coverage of drugs not covered under Part D. The rebate, or portion of rebate, applied toward supplemental benefits may only be applied to a mandatory supplemental benefit, and cannot be used to fund an optional supplemental benefit. - (2) **Payment of premium for prescription drug coverage.** MA organizations that offer a prescription drug benefit may credit some or all of the rebate toward reduction of the MA monthly prescription drug beneficiary premium. - (3) **Payment toward Part B premium.** MA organizations may credit some or all of the rebate toward reduction of the Medicare Part B premium (determined without regard to the application of subsections (b), (h), and (i) of section 1839 of the Act). - (c) **Disclosure relating to rebates.** MA organizations must disclose to CMS information on the amount of the rebate provided, as required at [§ 422.254(d)](/cfr/42/422.254.md?p=d). MA organizations must distinguish, for each MA plan, the amount of rebate applied to enhance original Medicare benefits from the amount of rebate applied to enhance Part D benefits.>[70 FR 4725, Jan. 28, 2005, as amended at 76 FR 21567, Apr. 15, 2011] # §422.270. Incorrect collections of premiums and cost-sharing. - (a) **Definitions.** As used in this section- - (1) Amounts incorrectly collected- - (i) Means amounts that- - (A) Exceed the limits approved under [§ 422.262](/cfr/42/422.262.md); - (B) In the case of an MA private fee-for-service plan, exceed the MA monthly basic beneficiary premium or the MA monthly supplemental premium submitted under [§ 422.262](/cfr/42/422.262.md); and - (C) In the case of an MA MSA plan, exceed the MA monthly beneficiary supplemental premium submitted under [§ 422.262](/cfr/42/422.262.md), or exceed permissible cost sharing amounts after the deductible has been met per [§ 422.103](/cfr/42/422.103.md); and - (ii) Includes amounts collected from an enrollee who was believed to be entitled to Medicare benefits but was later found not to be entitled. - (2) **Other amounts due—** are amounts due for services that were— - (i) Emergency, urgently needed services, or other services obtained outside the MA plan; or - (ii) Initially denied but, upon appeal, found to be services the enrollee was entitled to have furnished by the MA organization. - (b) **Basic commitments.** An MA organization must agree to refund all amounts incorrectly collected from its Medicare enrollees, or from others on behalf of the enrollees, and to pay any other amounts due the enrollees or others on their behalf. - (c) **Refund methods—** - (1) **Lump-sum payment.** The MA organization must use lump-sum payments for the following: - (i) **Amounts incorrectly collected that were not collected as premiums.** - (ii) **Other amounts due.** - (iii) All amounts due if the MA organization is going out of business or terminating its MA contract for an MA plan(s). - (2) **Premium adjustment or lump-sum payment, or both.** If the amounts incorrectly collected were in the form of premiums, or included premiums as well as other charges, the MA organization may refund by adjustment of future premiums or by a combination of premium adjustment and lump-sum payments. - (3) **Refund when enrollee has died or cannot be located.** If an enrollee has died or cannot be located after reasonable effort, the MA organization must make the refund in accordance with State law. - (d) **Reduction by CMS.** If the MA organization does not make the refund required under this section by the end of the contract period following the contract period during which an amount was determined to be due to an enrollee, CMS will reduce the premium the MA organization is allowed to charge an MA plan enrollee by the amounts incorrectly collected or otherwise due. In addition, the MA organization would be subject to sanction under subpart O of this part for failure to refund amounts incorrectly collected from MA plan enrollees. # §422.272. Release of MA bid pricing data. - (a) **Terminology.** For purposes of this section, the term “MA bid pricing data” means the following information that MA organizations must submit for each MA plan bid for the annual bid submission: - (1) The pricing-related information described at [§ 422.254(a)(1)](/cfr/42/422.254.md?p=a-1); and - (2) The information required for MSA plans, described at [§ 422.254(e)](/cfr/42/422.254.md?p=e). - (b) **Release of MA bid pricing data.** Subject to [paragraph (c)](#c) of this section and to the annual timing identified in [paragraph (d)](#d) of this section, CMS will release to the public MA bid pricing data for MA plan bids accepted or approved by CMS for a contract year under [§ 422.256](/cfr/42/422.256.md). The annual release will contain MA bid pricing data from the final list of MA plan bids accepted or approved by CMS for a contract year that is at least 5 years prior to the upcoming calendar year. - (c) **Exclusions from release of MA bid pricing data.** For the purpose of this section, the following information is excluded from the data released under [paragraph (b)](#b) of this section: - (1) For an MA plan bid that includes Part D benefits, the information described at § [422.254(b)(1)(ii)](/cfr/42/422.254.md?p=b-1-ii), [(c)(3)(ii)](/cfr/42/422.254.md?p=c-3-ii), and [(c)(7)](/cfr/42/422.254.md?p=c-c-7). - (2) Additional information that CMS requires to verify the actuarial bases of the bids for MA plans for the annual bid submission, as follows: - (i) Narrative information on base period factors, manual rates, cost-sharing methodology, optional supplement benefits, and other required narratives. - (ii) **Supporting documentation.** - (3) **Any information that could be used to identify Medicare beneficiaries or other individuals.** - (4) **Bid review correspondence and reports.** - (d) **Timing of data release.** CMS will release MA bid pricing data as provided in [paragraph (b)](#b) of this section on an annual basis after the first Monday in October. # §422.300. Basis and scope. This subpart is based on sections [1106](/cfr/42/1106.md), [1128J(d)](/cfr/42/1128J.md?p=d), [1852](/cfr/42/1852.md), [1853](/cfr/42/1853.md), [1854](/cfr/42/1854.md), and [1858](/cfr/42/1858.md) of the Act. It sets forth the requirements for making payments to MA organizations offering local and regional MA policies, including calculation of MA capitation rates and benchmarks, conditions under which payment is based on plan bids, adjustments to capitation rates (including risk adjustment), collection of risk adjustment data, conditions for use and disclosure of risk adjustment data, collection of improper payments and other payment rules. [Section 422.458](/cfr/42/422.458.md) specifies the requirements for risk sharing payments to MA regional organizations. # §422.304. Monthly payments. - (a) **General rules.** Except as provided in [paragraph (b)](#b) of this section, CMS makes advance monthly payments of the amounts determined under paragraphs [(a)(1)](#a-1) and [(a)(2)](#a-2) of this section for coverage of original fee-for-service benefits for an individual in an MA payment area for a month. - (1) **Payment of bid for plans with bids below benchmark.** For MA plans that have average per capita monthly savings (as described at [§ 422.264(b)](/cfr/42/422.264.md?p=b) for local plans and [§ 422.264(d)](/cfr/42/422.264.md?p=d) for regional plans), CMS pays: - (i) The unadjusted MA statutory non-drug monthly bid amount defined in [§ 422.252](/cfr/42/422.252.md), risk-adjusted as described at [§ 422.308(c)](/cfr/42/422.308.md?p=c) and adjusted (if applicable) for variations in rates within the plan's service area (described at [§ 422.258(a)(2)](/cfr/42/422.258.md?p=a-2)) and for the effects of risk adjustment on beneficiary premiums under [§ 422.262](/cfr/42/422.262.md); and - (ii) **The amount (if any) of the rebate described in paragraph (a)(3) of this section.** - (2) **Payment of benchmark for plans with bids at or above benchmark.** For MA plans that do not have average per capita monthly savings (as described at [§ 422.264(b)](/cfr/42/422.264.md?p=b) for local plans and [§ 422.264(d)](/cfr/42/422.264.md?p=d) for regional plans), CMS pays the unadjusted MA area-specific non-drug monthly benchmark amount specified at [§ 422.258](/cfr/42/422.258.md), risk-adjusted as described at [§ 422.308(c)](/cfr/42/422.308.md?p=c) and adjusted (if applicable) for variations in rates within the plan's service area (described at [§ 422.258(a)(2)](/cfr/42/422.258.md?p=a-2)) and for the effects of risk adjustment on beneficiary premiums under [§ 422.262](/cfr/42/422.262.md). - (3) **Payment of rebate for plans with bids below benchmarks.** The rebate amount under [paragraph (a)(1)(ii)](#a-1-ii) of this section is the amount of the monthly rebate computed under [§ 422.266(a)](/cfr/42/422.266.md?p=a) for that plan, less the amount (if any) applied to reduce the Part B premium, as provided under [§ 422.266(b)(3)](/cfr/42/422.266.md?p=b-3)). - (b) **Separate payment for Federal drug subsidies.** In the case of an enrollee in an MA-PD plan, defined at [§ 422.252](/cfr/42/422.252.md), the MA organization offering such a plan also receives- - (1) Direct and reinsurance subsidy payments for qualified prescription drug coverage, described at section 1860D-15(a) and (b) of the Act (other than payments for fallback prescription drug plans described at section 1860D-11(g)(5) of the Act); and - (2) Reimbursement for premium and cost sharing reductions for low-income individuals, described at [section 1860D-14](/cfr/42/1860D-14.md) of the Act. - (c) **Special rules—** - (1) **Enrollees with end-stage renal disease.** - (i) For enrollees determined to have end-stage renal disease (ESRD), CMS establishes special rates that are actuarially equivalent to rates in effect before the enactment of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. - (ii) CMS publishes annual changes in these capitation rates no later than the first Monday in April each year, as provided in [§ 422.312](/cfr/42/422.312.md). - (iii) CMS applies appropriate adjustments when establishing the rates, including risk adjustment factors. - (iv) CMS reduces the payment rate for each renal dialysis treatment by the same amount that CMS is authorized to reduce the amount of each composite rate payment for each treatment as set forth in [section 1881(b)(7)](/cfr/42/1881.md?p=b-7) of the Act. These funds are to be used to help pay for the ESRD network program in the same manner as similar reductions are used in original Medicare. - (2) **MSA enrollees.** In the case of an MSA plan, CMS pays the unadjusted MA area-specific non-drug monthly benchmark amount for the service area, determined in accordance with [§ 422.314(c)](/cfr/42/422.314.md?p=c) and subject to risk adjustment as set forth at [§ 422.308(c)](/cfr/42/422.308.md?p=c), less 1/12 of the annual lump sum amount (if any) CMS deposits to the enrollee's MA MSA. - (3) **RFB plan enrollees.** For RFB plan enrollees, CMS adjusts the capitation payments otherwise determined under this subpart to ensure that the payment level is appropriate for the actuarial characteristics and experience of these enrollees. That adjustment can be made on an individual or organization basis. - (d) **Payment areas—** - (1) **General rule.** Except as provided in [paragraph (e)](#e) of this section— - (i) An MA payment area for an MA local plan is an MA local area defined at [§ 422.252](/cfr/42/422.252.md). - (ii) An MA payment area for an MA regional plan is an MA region, defined at [§ 422.455(b)(1)](/cfr/42/422.455.md?p=b-1). - (2) **Special rule for ESRD enrollees.** For ESRD enrollees, the MA payment area is a State or other geographic area specified by CMS. - (e) **Geographic adjustment of payment areas for MA local plans—** - (1) **Terminology.** “Metropolitan Statistical Area” and “Metropolitan Division” mean any areas so designated by the Office of Management and Budget in the Executive Office of the President. - (2) **State request.** A State's chief executive may request, no later than February 1 of any year, a geographic adjustment of the State's payment areas for MA local plans for the following calendar year. The chief executive may request any of the following adjustments to the payment area specified in [paragraph (c)(1)(i)](#c-1-i) of this section: - (i) **A single statewide MA payment area.** - (ii) A metropolitan-based system in which all non-metropolitan areas within the State constitute a single payment area and any of the following constitutes a separate MA payment area: - (A) **All portions of each single Metropolitan Statistical Area within the State.** - (B) **All portions of each Metropolitan Statistical Area within each Metropolitan Division within the State.** - (iii) **A consolidation of noncontiguous counties.** - (3) **CMS response.** In response to the request, CMS makes the payment adjustment requested by the chief executive. This adjustment cannot be requested or made for payments to regional MA plans. - (4) **Budget neutrality adjustment for geographically adjusted payment areas.** If CMS adjusts a State's payment areas in accordance with [paragraph (d)(2)](#d-2) of this section, CMS at that time, and each year thereafter, adjusts the capitation rates so that the aggregate Medicare payments do not exceed the aggregate Medicare payments that would have been made to all the State's payments areas, absent the geographic adjustment. - (f) **Separate payment for meaningful use of certified EHRs.** In the case of qualifying MA organizations, as defined in [§ 495.200](/cfr/42/495.200.md) of this chapter, entitled to MA EHR incentive payments per [§ 495.204](/cfr/42/495.204.md) of this chapter, such payments are made in accordance with sections 1853(l) and (m) of the Act and [subpart C of part 495](/cfr/42/part495-subpartC.md) of this chapter. # §422.306. Annual MA capitation rates. Subject to adjustments at §§ [422.308(b)](/cfr/42/422.308.md?p=b) and [(g)](/cfr/42/422.308.md?p=g), the annual capitation rate for each MA local area is determined under [paragraph (a)](#a) of this section for 2005 and each succeeding year, except for years when CMS announces under [§ 422.312(b)](/cfr/42/422.312.md?p=b) that the annual capitation rates will be determined under [paragraph (b)](#b) of this section, and is then adjusted to exclude the applicable phase-in percentage of the standardized costs for payments under section 1886(d)(5)(B) of the Act in the area for the year under [paragraph (c)](#c) of this section and costs for kidney acquisitions in the area for the year under [paragraph (d)](#d) of this section. - (a) **Minimum percentage increase rate.** The annual capitation rate for each MA local area is equal to the minimum percentage increase rate, which is the annual capitation rate for the area for the preceding year increased by the national per capita MA growth percentage (defined at [§ 422.308(a)](/cfr/42/422.308.md?p=a)) for the year, but not taking into account any adjustment under [§ 422.308(b)](/cfr/42/422.308.md?p=b) for a year before 2004. - (b) **Greater of the minimum percentage increase rate or local area fee-for-service costs.** The annual capitation rate for each MA local area is the greater of— - (1) The minimum percentage increase rate under [paragraph (a)](#a) of this section; or - (2) The amount determined, no less frequently than every 3 years, to be the adjusted average per capita cost for the MA local area, as determined under section 1876(a)(4) of the Act, based on 100 percent of fee-for-service costs for individuals who are not enrolled in an MA plan for the year, with the following adjustments: - (i) Adjusted as appropriate for the purpose of risk adjustment; - (ii) Adjusted to exclude costs attributable to payments under section 1886(h) of the Act for the costs of direct graduate medical education; - (iii) Adjusted to include CMS' estimate of the amount of additional per capita payments that would have been made in the MA local area if individuals entitled to benefits under this title had not received services from facilities of the Department of Defense or the Department of Veterans Affairs; and - (iv) Adjusted to exclude costs attributable to payments under sections 1848(o) and 1886(n) of the Act of Medicare FFS incentive payments for meaningful use of electronic health records. - (c) **Phase-out of the indirect costs of medical education from MA capitation rates.** Beginning with 2010, after the annual capitation rate for each MA local area is determined under paragraph [(a)](#a) or [(b)](#b), the amount is adjusted in accordance with section 1853(k)(4) of the Act to exclude from such amount the phase-in percentage for the year of the estimated costs for payments under section 1886(d)(5)(B) of the Act in the area for the year. - (d) **Exclusion of costs for kidney acquisitions from MA capitation rates.** Beginning with 2021, after the annual capitation rate for each MA local area is determined under paragraph [(a)](#a) or [(b)](#b) of this section, the amount is adjusted in accordance with section 1853(k)(5) of the Act to exclude the Secretary's estimate of the standardized costs for payments for organ acquisitions for kidney transplants covered under this title (including expenses covered under section 1881(d) of the Act) in the area for the year. # §422.308. Adjustments to capitation rates, benchmarks, bids, and payments. CMS performs the following calculations and adjustments to determine rates and payments: - (a) **National per capita growth percentage.** - (1) The national per capita growth percentage for a year, applied under [§ 422.306](/cfr/42/422.306.md), is CMS' estimate of the rate of growth in per capita expenditures under this title for an individual entitled to benefits under Part A and enrolled under Part B. CMS may make separate estimates for aged enrollees, disabled enrollees, and enrollees who have ESRD. - (2) The amount calculated in [paragraph (a)(1)](#a-1) of this section must exclude expenditures attributable to sections [1848(a)(7)](/cfr/42/1848.md?p=a-7) and [(o)](/cfr/42/1848.md?p=a-o) and sections [1886(b)(3)(B)(ix)](/cfr/42/1886.md?p=b-3-B-ix) and [(n)](/cfr/42/1886.md?p=b-3-B-n) of the Act. - (b) **Adjustment for over or under projection of national per capita growth percentages.** CMS will adjust the minimum percentage increase rate at [§ 422.306(a)(2)](/cfr/42/422.306.md?p=a-2) and the adjusted average per capita cost rate at [§ 422.306(b)(2)](/cfr/42/422.306.md?p=b-2) for the previous year to reflect any differences between the projected national per capita growth percentages for that year and previous years, and the current estimates of those percentages for those years. CMS will not make this adjustment for years before 2004. - (c) **Risk adjustment—** - (1) **General rule.** CMS will adjust the payment amounts under § [422.304(a)(1)](/cfr/42/422.304.md?p=a-1), [(a)(2)](/cfr/42/422.304.md?p=a-2), and [(a)(3)](/cfr/42/422.304.md?p=a-3) for age, sex, disability status, institutional status, and other factors CMS determines to be appropriate, including health status, in order to ensure actuarial equivalence. CMS may add to, modify, or substitute for risk adjustment factors if those changes will improve the determination of actuarial equivalence. - (2) **Risk adjustment: Health status—** - (i) **Data collection.** To adjust for health status, CMS applies a risk factor based on data obtained in accordance with [§ 422.310](/cfr/42/422.310.md). - (ii) **Implementation.** CMS applies a risk factor that incorporates inpatient hospital and ambulatory risk adjustment data. This factor is phased as follows: - (A) 100 percent of payments for ESRD MA enrollees in 2005 and succeeding years. - (B) 75 percent of payments for aged and disabled enrollees in 2006. - (C) 100 percent of payments for aged and disabled enrollees in 2007 and succeeding years. - (3) **Uniform application.** Except as provided for MA RFB plans under [§ 422.304(c)(3)](/cfr/42/422.304.md?p=c-3), CMS applies this adjustment factor to all types of plans. - (4) **Authority to apply frailty adjustment under PACE payment rules for certain specialized MA plans for special needs individuals.** - (i) **Application of payment rules.** For plan year 2011 and subsequent plan years, in the case of a plan described in [paragraph (c)(4)(ii)](#c-4-ii) of this section, the Secretary may apply the payment rules under section 1894(d) of the Act (other than paragraph (3) of that section) rather than the payment rules that would otherwise apply under this part, but only to the extent necessary to reflect the costs of treating high concentrations of frail individuals. - (ii) **Plan described.** A plan described in this paragraph is a fully integrated dual-eligible special needs plan, as defined at [§ 422.2](/cfr/42/422.2.md), and has a similar average level of frailty (as determined by the Secretary) as the PACE program. - (5) **Application of coding adjustment.** - (i) In applying the adjustment under [paragraph (c)(1)](#c-1) of this section for health status to payment amounts, the Secretary ensures that such adjustment reflects changes in treatment and coding practices in the fee-for-service sector and reflects differences in coding patterns between MA plans and providers under Part A and B to the extent that the Secretary has identified such differences. - (ii) In order to ensure payment accuracy, the Secretary annually conducts an analysis of the differences described in [paragraph (c)(5)(i)](#c-5-i) of this section. - (A) The Secretary completes such analysis by a date necessary to ensure that the results of such analysis are incorporated on a timely basis into the risk scores for 2008 and subsequent years. - (B) In conducting such analysis, the Secretary uses data submitted with respect to 2004 and subsequent years, as available and updated as appropriate. - (iii) **In calculating each year's adjustment, the adjustment factor is as follows—** - (A) For 2014, not less than the adjustment factor applied for 2010, plus 1.3 percentage points. - (B) For each of the years 2015 through 2018, not less than the adjustment factor applied for the previous year, plus 0.25 percentage points. - (C) For 2019 and each subsequent year, not less than 5.7 percent. - (iv) Such adjustment is applied to risk scores until the Secretary implements risk adjustment using MA diagnostic, cost, and use data. - (6) **Improvements to risk adjustment for special needs individuals with chronic health conditions—** - (i) **General rule.** For 2011 and subsequent years, for purposes of the adjustment under [paragraph (c)(1)](#c-1) of this section with respect to individuals described in [paragraph (c)(6)(ii)](#c-6-ii) of the section, the Secretary uses a risk score that reflects the known underlying risk profile and chronic health status of similar individuals. Such risk score is used instead of the default risk score for new enrollees in MA plans that are not specialized MA plans for special needs individuals (as defined in section 1859(b)(6) of the Act). - (ii) **Individuals described.** An individual described in this clause is a special needs individual described in section 1859(b)(6)(B)(iii) of the Act who enrolls in a specialized MA plan for special needs individuals on or after January 1, 2011. - (iii) **Evaluation.** For 2011 and periodically thereafter, the Secretary evaluates and revises the risk adjustment system under this paragraph in order to, as accurately as possible, account for— - (A) Higher medical and care coordination costs associated with frailty, individuals with multiple, comorbid chronic conditions, and individuals with a diagnosis of mental illness; and - (B) Costs that may be associated with higher concentrations of beneficiaries with the conditions specified in [paragraph (c)(6)(iii)(A)](#c-6-iii-A) of this section. - (iv) **Publication of evaluation and revisions.** The Secretary publishes, as part of an announcement under section 1853(b) of the Act, a description of any evaluation conducted under [paragraph (c)(6)(iii)](#c-6-iii) of this section during the preceding year and any revisions made under [paragraph (c)(6)(iii)](#c-6-iii) of this section as a result of such evaluation. - (d) **Adjustment for intra-area variations.** CMS makes the following adjustments to payments. - (1) **Intra-regional variations.** For payments for an MA regional plan for an MA region, CMS will adjust the payment amount specified at § [422.304(a)(1)](/cfr/42/422.304.md?p=a-1) and [(a)(2)](/cfr/42/422.304.md?p=a-2) to take into account variations in local payment rates among the different MA local areas included in the region. - (2) **Intra-service area variations.** For payments to an MA local plan with a service area covering more than one MA local area (county), CMS will adjust the payment amount specified in § [422.304(a)(1)](/cfr/42/422.304.md?p=a-1) and [(a)(2)](/cfr/42/422.304.md?p=a-2) to take into account variations in local payment rates among the different MA local areas included in the plan's service area. - (e) **Adjustment relating to risk adjustment: the government premium adjustment.** CMS will adjust payments to an MA plan as necessary to ensure that the sum of CMS' monthly payment made under [§ 422.304(a)](/cfr/42/422.304.md?p=a) and the plan's monthly basic beneficiary premium equals the unadjusted MA statutory non-drug bid amount, adjusted for risk and for intra-area or intra-regional payment variation. - (f) **Adjustment of payments to reflect number of Medicare enrollees—** - (1) **General rule.** CMS adjusts payments retroactively to take into account any difference between the actual number of Medicare enrollees and the number on which it based an advance monthly payment. - (2) **Special rules for certain enrollees.** - (i) Subject to [paragraph (f)(2)(ii)](#f-2-ii) of this section, CMS may make adjustments, for a period (not to exceed 90 days) that begins when a beneficiary elects a group health plan (as defined in [§ 411.1010](/cfr/42/411.1010.md)) offered by an MA organization, and ends when the beneficiary is enrolled in an MA plan offered by the MA organization. - (ii) CMS does not make an adjustment unless the beneficiary certifies that, at the time of enrollment under the MA plan, he or she received from the organization the disclosure statement specified in [§ 422.111](/cfr/42/422.111.md). - (g) **Adjustment for national coverage determination (NCD) services and legislative changes in benefits.** If CMS determines that the cost of furnishing an NCD service or legislative change in benefits is significant, as defined in [§ 422.109](/cfr/42/422.109.md), CMS will adjust capitation rates, or make other payment adjustments, to account for the cost of the service or legislative change in benefits. Until the new capitation rates are in effect, the MA organization will be paid for the significant cost NCD service or legislative change in benefits on a fee-for-service basis as provided under [§ 422.109(b)](/cfr/42/422.109.md?p=b). - (h) **Adjustments to payments to regional MA plans for purposes of risk corridor payments.** For the purpose of calculation of risk corridors under [§ 422.458](/cfr/42/422.458.md), MA organizations offering regional MA plans in 2006 and/or 2007 must submit, after the end of a contract year and before a date CMS specifies, the following information: - (1) Actual allowable costs (defined in [§ 422.458(a)](/cfr/42/422.458.md?p=a)) for the previous contract year. - (2) **The portion of the costs attributable to administrative expenses incurred in providing these benefits.** - (3) The total costs for providing rebatable integrated benefits (as defined in [§ 422.458(a)](/cfr/42/422.458.md?p=a)) and the portion of the costs that is attributable to administrative expenses in addition to the administrative expenses described in [paragraph (h)(2)](#h-2) of this section. # §422.310. Risk adjustment data. - (a) **Definition of risk adjustment data.** Risk adjustment data are all data that are used in the development and application of a risk adjustment payment model. - (b) **Data collection: Basic rule.** Each MA organization must submit to CMS (in accordance with CMS instructions) the data necessary to characterize the context and purposes of each item and service provided to a Medicare enrollee by a provider, supplier, physician, or other practitioner. CMS may also collect data necessary to characterize the functional limitations of enrollees of each MA organization. - (c) **Sources and extent of data.** - (1) To the extent required by CMS, risk adjustment data must account for the following: - (i) **Items and services covered under the original Medicare program.** - (ii) **Medicare covered items and services for which Medicare is not the primary payer.** - (iii) Other additional or supplemental benefits that the MA organization may provide. - (2) The data must account separately for each provider, supplier, physician, or other practitioner that would be permitted to bill separately under the original Medicare program, even if they participate jointly in the same service. - (d) **Other data requirements.** - (1) MA organizations must submit data that conform to CMS' requirements for data equivalent to Medicare fee-for-service data, when appropriate, and to all relevant national standards. CMS may specify abbreviated formats for data submission required of MA organizations. - (2) The data must be submitted electronically to the appropriate CMS contractor. - (3) MA organizations must obtain the risk adjustment data required by CMS from the provider, supplier, physician, or other practitioner that furnished the item or service. - (4) MA organizations may include in their contracts with providers, suppliers, physicians, and other practitioners, provisions that require submission of complete and accurate risk adjustment data as required by CMS. These provisions may include financial penalties for failure to submit complete data. - (5) For data described in [paragraph (d)(1)](#d-1) of this section as data equivalent to Medicare fee-for-service data, which is also known as MA encounter data, MA organizations must submit a NPI in a billing provider field on each MA encounter data record, per CMS guidance. - (e) **Validation of risk adjustment data.** MA organizations and their providers and practitioners are required to submit a sample of medical records for the validation of risk adjustment data, as required by CMS. There may be penalties for submission of false data. MA organizations must remit improper payments based on RADV audits, in a manner specified by CMS. For RADV audits, CMS may extrapolate RADV Contract-Level audit findings for payment year 2018 and subsequent payment years. - (f) **Use and release of data.** Regarding the data described in [paragraphs (a) through (d)](#a..d) of this section, CMS may use and release the minimum data it determines is necessary in accordance with CMS data sharing procedures and applicable Federal laws, subject to the aggregation of dollar amounts reported for the associated encounter to protect commercially sensitive data, unless authorized by other applicable laws. - (g) **Deadlines for submission of risk adjustment data.** Risk adjustment factors for each payment year are based on risk adjustment data submitted for items and services furnished during the 12-month period before the payment year that is specified by CMS. As determined by CMS, this 12-month period may include a 6-month data lag that may be changed or eliminated as appropriate. CMS may adjust these deadlines, as appropriate. - (1) The annual deadline for risk adjustment data submission is the first Friday in September for risk adjustment data reflecting items and services furnished during the 12-month period ending the prior June 30, and the first Friday in March for data reflecting services furnished during the 12-month period ending the prior December 31. - (2) After the payment year is completed, CMS recalculates the risk factors for affected individuals to determine if adjustments to payments are necessary. - (i) Prior to calculation of final risk factors for a payment year, CMS allows a reconciliation process to account for risk adjustment data submitted after the March deadline until the final risk adjustment data submission deadline in the year following the payment year. - (ii) After the final risk adjustment data submission deadline, which is a date announced by CMS that is no earlier than January 31 of the year following the payment year, an MA organization can submit data to correct overpayments but cannot submit diagnoses for additional payment. - (3) Submission of corrected risk adjustment data in accordance with overpayments after the final risk adjustment data submission deadline, as described in [paragraph (g)(2)](#g-2) of this section, must be made as provided in [§ 422.326](/cfr/42/422.326.md). # §422.311. RADV audit dispute and appeal processes. - (a) **Risk adjustment data validation (RADV) audits.** In accordance with §§ [422.2](/cfr/42/422.2.md) and [422.310(e)](/cfr/42/422.310.md?p=e), the Secretary conducts RADV audits to ensure risk-adjusted payment integrity and accuracy. - (1) Recovery of improper payments from MA organizations is conducted in accordance with the Secretary's payment error extrapolation and recovery methodologies. - (2) CMS may apply extrapolation to audits for payment year 2018 and subsequent payment years. - (b) **RADV audit results.** - (1) MA organizations that undergo RADV audits will be issued an audit report post medical record review that describes the results of the RADV audit as follows: - (i) **Detailed enrollee-level information relating to confirmed enrollee HCC discrepancies.** - (ii) **The contract-level RADV payment error estimate in dollars.** - (iii) **The contract-level payment adjustment amount to be made in dollars.** - (iv) **An approximate timeframe for the payment adjustment.** - (v) **A description of the MA organization's RADV audit appeal rights.** - (2) **Compliance date.** The compliance date for meeting RADV medical record submission requirements for the validation of risk adjustment data is the due date when MA organizations selected for RADV audit must submit medical records to the Secretary. - (c) **RADV audit appeals—** - (1) **Appeal rights.** MA organizations that do not agree with their RADV audit results may appeal. - (2) **Issues eligible for RADV appeals—** - (i) **General rules.** MA organizations may appeal RADV medical record review determinations and the Secretary's RADV payment error calculation. In order to be eligible for RADV appeal, MA organizations must adhere to the following: - (A) **Established RADV audit procedures and requirements.** - (B) **RADV appeals procedures and requirements.** - (ii) **Failure to follow RADV rules.** Failure to follow the Secretary's RADV audit procedures and requirements and the Secretary's RADV appeals procedures and requirements will render the MA organization's request for appeal invalid. - (iii) **RADV appeal rules.** The MA organization's written request for medical record review determination appeal must specify the following: - (A) **The audited HCC(s) that the Secretary identified as being in error.** - (B) **A justification in support of the audited HCC selected for appeal.** - (iv) **Number of medical records eligible for appeal.** For each audited HCC, MA organizations may appeal one medical record that has undergone RADV review. If an attestation was submitted to cure a signature or credential-related error, the attestation may be included in the HCC appeal. - (v) **Selection of medical record for appeal.** The MA organization must select the medical record that undergoes appeal. - (vi) **Written request for RADV payment error calculation appeal.** The written request for RADV payment error calculation appeal must clearly specify the following: - (A) **The MA organization's own RADV payment error calculation.** - (B) Where the Secretary's RADV payment error calculation was erroneous. - (3) **Issues ineligible for RADV appeals.** - (i) MA organizations' request for appeal may not include HCCs, medical records or other documents beyond the audited HCC, RADV-reviewed medical record, and any accompanying attestation that the MA organization chooses for appeal. - (ii) MA organizations may not appeal the Secretary's medical record review determination methodology or RADV payment error calculation methodology. - (iii) **As part of the RADV payment error calculation appeal—** MA organizations may not appeal RADV medical record review-related errors. - (iv) MA organizations may not appeal RADV errors that result from an MA organization's failure to submit a medical record. - (4) **Burden of proof.** The MA organization bears the burden of proof by a preponderance of the evidence in demonstrating that the Secretary's medical record review determination(s) or payment error calculation was incorrect. - (5) **Manner and timing of a request for RADV appeal.** - (i) At the time the Secretary issues its RADV audit report, the Secretary notifies audited MA organizations of the following: - (A) That they may appeal RADV HCC errors that are eligible for medical record review determination appeal. - (B) That they may appeal the Secretary's RADV payment error calculation. - (ii) MA organizations have 60 days from date of issuance of the RADV audit report to file a written request with CMS for RADV appeal. This request for RADV appeal must specify one of the following: - (A) Whether the MA organization requests medical record review determination appeal, the issues with which the MA organization disagrees, and the reasons for the disagreements. - (B) Whether the MA organization requests a payment error calculation appeal, the issues with which the MA organization disagrees, and the reasons for the disagreements. MA organizations will forgo their medical record review determination appeal if they choose to file only a payment error calculation appeal because medical record review determinations need to be final prior to adjudicating a payment error calculation appeal. - (iii) For MA organizations that intend to appeal both the medical record review determination and the RADV payment error calculation, an MA organization's request for appeal of its RADV payment error calculation may not be filed and will not be adjudicated until— - (A) The administrative appeal process for the RADV medical record review determinations filed by the MA organization has been exhausted; or - (B) The MA organization does not timely request a RADV medical record review determination appeal at the hearing stage and/or the CMS Administrator review stage, as applicable. - (iv) An MA organization whose medical record review determination appeal has been completed as described in [paragraph (c)(5)(iii)](#c-5-iii) of this section has 60 days from the date of issuance of a revised RADV audit report, based on the final medical record review determination, to file a written request with CMS for a RADV payment error calculation appeal. This request for RADV payment error calculation appeal must clearly specify where the Secretary's RADV payment error calculation was erroneous, what the MA organization disagrees with, and the reasons for the disagreements. - (6) **Reconsideration stage—** - (i) **Written request for medical record review reconsideration.** A MA organization's written request for medical record review determination reconsideration must specify the following: - (A) Any and all HCC(s) that the Secretary identified as being in error that the MA organization wishes to appeal. - (B) **A justification in support of the audited HCC chosen for appeal.** - (ii) **Written request for payment error calculation.** The MA organization's written request for payment error calculation reconsideration— - (A) Must include the MA organization's own RADV payment error calculation that clearly specifies where the Secretary's RADV payment error calculation was erroneous; and - (B) May include additional documentary evidence pertaining to the calculation of the payment error that the MA organization wishes the reconsideration official to consider. - (iii) **Conduct of the reconsideration.** - (A) For medical record review determination reconsideration, a medical record review professional who was not involved in the initial medical record review determination of the disputed audited HCCs does the following: (1) Reviews the medical record and accompanying dispute justification. (2) Reconsiders the initial audited medical record review determination. - (B) For payment error calculation reconsideration, CMS ensures that a third party not involved in the initial RADV payment error calculation does the following: (1) Reviews the Secretary's RADV payment error calculation. (2) Reviews the MA organization's RADV payment error calculation; (3) Recalculates the payment error in accordance with CMS's RADV payment error calculation procedures. - (iv) **Effect of the reconsideration official's decision.** - (A) **The reconsideration official issues a written reconsideration decision to the MA organization.** - (B) The reconsideration official's decision is final unless it is reversed or modified by a final decision of the hearing officer as defined at [§ 422.311(c)(7)(x)](#c-7-x). - (C) If the MA organization disagrees with the reconsideration official's decision, they may request a hearing in accordance with [paragraph (c)(7)](#c-7) of this section. - (v) **Computations based on reconsideration official's decision.** - (A) Once the reconsideration official's medical record review determination decision is considered final in accordance with [paragraph (c)(6)(iv)(B)](#c-6-iv-B) of this section, the Secretary recalculates the MA organization's RADV payment error and issues a revised RADV audit report superseding all prior RADV audit reports to the appellant MA organization. - (B) For MA organizations appealing the RADV payment error calculation only, once the reconsideration official's payment error calculation decision is considered final in accordance with [paragraph (c)(6)(iv)(B)](#c-6-iv-B) of this section, the Secretary recalculates the MA organization's RADV payment error and issues a revised RADV audit report superseding all prior RADV audit reports to the appellant MA organization. - (7) **Hearing stage—** - (i) **Errors eligible for hearing.** At the time the reconsideration official issues his or her reconsideration determination to the MA organization, the reconsideration official notifies the MA organization of any RADV HCC errors or payment error-calculations that are eligible for RADV hearing. - (ii) **General hearing rules.** A MA organization that requests a RADV hearing must do so in writing in accordance with procedures established by CMS. - (iii) **Written request for hearing.** The written request for a hearing must be filed with the Hearing Officer within 60 days of the date the MA organization receives the reconsideration officer's written reconsideration decision. - (A) If the MA organization appeals medical record review reconsideration determination, the written request for RADV hearing must— (1) Include a copy of the written decision of the reconsideration official; (2) Specify the audited HCCs that the reconsideration official confirmed as being in error; and (3) Specify a justification why the MA organization disputes the reconsideration official's determination. - (B) If the MA organization appeals the RADV payment error calculation reconsideration determination, the written request for RADV hearing must include the following: (1) A copy of the written decision of the reconsideration official. (2) The MA organization's own RADV payment error calculation that clearly specifies where the Secretary's payment error calculation was erroneous. - (iv) **Designation of hearing officer.** A hearing officer will conduct the RADV hearing. - (v) **Disqualification of the hearing officer.** - (A) A hearing officer may not conduct a hearing in a case in which he or she is prejudiced or partial to any party or has any interest in the matter pending for decision. - (B) A party to the hearing who objects to the designated hearing officer must notify that officer in writing at the earliest opportunity. - (C) The hearing officer must consider the objections, and may, at his or her discretion, either proceed with the hearing or withdraw. - (D) If the hearing officer withdraws, another hearing officer conducts the hearing. - (E) If the hearing officer does not withdraw, the objecting party may, after the hearing, present objections and request that the officer's decision be revised or a new hearing be held before another hearing officer. The objections must be submitted in writing to the Secretary. - (vi) **Hearing Officer review.** The hearing officer reviews the following: - (A) **For a medical record review determination appeal, the hearing officer reviews all of the following—** (1) The RADV-reviewed medical record and any accompanying attestation that the MA organization selected for review. (2) The reconsideration official's written determination. (3) The written brief submitted by the MA organization or the Secretary in response to the reconsideration official's determination. - (B) **For a payment error calculation appeal, the hearing officer reviews all of the following—** (1) The reconsideration official's written determination. (2) Briefs addressing the reconsideration decision. - (vii) **Hearing procedures—** - (A) **Authority of the Hearing Officer.** The hearing officer has full power to make rules and establish procedures, consistent with the law, regulations, and the Secretary rulings. These powers include the authority to dismiss the appeal with prejudice and take any other action which the hearing officer considers appropriate, including for failure to comply with such rules and procedures. - (B) **The hearing is on the record.** (1) Except as specified in paragraph (c)(viii)(B)(2) of this section, the hearing officer is limited to the review of the record. (2)(i) Subject to the hearing officer's full discretion, the parties may request a live or telephonic hearing regarding some or all of the disputed medical records. (ii) The hearing officer may, on his or her own-motion, schedule a live or telephonic hearing. (3) The record is comprised of the following: (i) Written decisions described at paragraphs [(c)(6)(iv)](#c-6-iv) and [(7)(vi)](#c-7-vi) of this section. (ii) Written briefs from the MA organization explaining why they believe the reconsideration official's determination was incorrect. (iii) The Secretary's optional brief that responds to the MA organization's brief— (4) The hearing officer neither receives testimony nor accepts any new evidence that is not part of the record. (5) Either the MA organization or the Secretary may ask the hearing officer to rule on a motion for summary judgment. - (viii) **Hearing Officer decision.** The hearing officer decides whether to uphold or overturn the reconsideration official's decision, and sends a written determination to CMS and the MA organization, explaining the basis for the decision. - (ix) **Computations based on Hearing Officer's decision.** - (A) Once the hearing officer's medical record review determination decision is considered final in accordance with [paragraph (c)(7)(x)](#c-7-x) of this section, the Secretary recalculates the MA organization's RADV payment error and issues a revised RADV audit report superseding all prior RADV audit reports to the appellant MA organization. - (B) For MA organizations appealing the RADV payment error calculation only, once the hearing officer's payment error calculation decision is considered final in accordance with [paragraph (c)(7)(x)](#c-7-x) of this section, the Secretary recalculates the MA organization's RADV payment error and issues a revised RADV audit report superseding all prior RADV audit reports to the appellant MA organization. - (x) **Effect of the Hearing Officer's decision.** The hearing officer's decision is final unless the decision is reversed or modified by the CMS Administrator. - (8) **CMS Administrator review stage.** - (i) A request for CMS Administrator review must be made in writing and filed with the CMS Administrator. - (ii) CMS or a MA organization that has received a hearing officer's decision and requests review by the CMS Administrator must do so within 60 days of receipt of the hearing officer's decision. - (iii) After reviewing a request for review, the CMS Administrator has the discretion to elect to review the hearing officer's decision or to decline to review the hearing officer's decision. If the CMS Administrator does not decline to review or does not elect to review within 90 days of receipt of either the MA organization or CMS's timely request for review (whichever is later), the hearing officer's decision becomes final. - (iv) If the CMS Administrator elects to review the hearing decision— - (A) The CMS Administrator acknowledges the decision to review the hearing decision in writing and notifies CMS and the MA organization of their right to submit comments within 15 days of the date of the issuance of the notification that the Administrator has elected to review the hearing decision; and - (B) [Reserved] - (v) The CMS Administrator renders his or her final decision in writing within 60 days of the date of the issuance of the notice acknowledging his or her decision to elect to review the hearing officer's decision. - (vi) **The decision of the hearing officer is final if the CMS Administrator—** - (A) Declines to review the hearing officer's decision; or - (B) Does not decline to review or elect to review within 90 days of the date of the receipt of either the MA organization or CMS's request for review (whichever is later); or - (C) Does not make a decision within 60 days of the date of the issuance of the notice acknowledging his or her decision to elect to review the hearing officer's decision. - (vii) **Computations based on CMS Administrator decision.** - (A) Once the CMS Administrator's medical record review determination decision is considered final in accordance with [paragraph (c)(8)(vi)](#c-8-vi) of this section, the Secretary recalculates the MA organization's RADV payment error and issues a revised RADV audit report superseding all prior RADV audit reports to the appellant MA organization. - (B) For MA organizations appealing the RADV payment error calculation only, once the CMS Administrator's payment error calculation decision is considered final in accordance with [paragraph (c)(8)(vi)](#c-8-vi) of this section, the Secretary recalculates the MA organization's RADV payment error and issues a revised and final RADV audit report superseding all prior RADV audit reports to the appellant MA organization. - (9) **Final agency action.** In cases when an MA organization files a payment error calculation appeal subsequent to a medical record review determination appeal that has completed the administrative appeals process, the medical record review determination appeal final decision and the payment error calculation appeal final decision will not be considered a final agency action until the payment error calculation appeal has completed the administrative appeals process and a final revised audit report superseding all prior RADV audit reports has been issued to the appellant MA organization. # §422.312. Announcement of annual capitation rate, benchmarks, and methodology changes. - (a) **Capitation rates—** - (1) **Initial announcement.** Not later than the first Monday in April each year, CMS announces to MA organizations and other interested parties the following information for each MA payment area for the following calendar year: - (i) **The annual MA capitation rate.** - (ii) The risk and other factors to be used in adjusting those rates under [§ 422.308](/cfr/42/422.308.md) for payments for months in that year. - (2) CMS includes in the announcement an explanation of assumptions used and a description of the risk and other factors. - (3) **Regional benchmark announcement.** Before the beginning of each annual, coordinated election period under [§ 422.62(a)(2)](/cfr/42/422.62.md?p=a-2), CMS will announce to MA organizations and other interested parties the MA region-specific non-drug monthly benchmark amount for the year involved for each MA region and each MA regional plan for which a bid was submitted under [§ 422.256](/cfr/42/422.256.md). - (b) **Advance notice of changes in methodology.** - (1) No later than 60 days before making the announcement under [paragraph (a)(1)](#a-1) of this section, CMS notifies MA organizations of changes it proposes to make in the factors and the methodology it used in the previous determination of capitation rates. - (2) **The MA organizations have 30 days to comment on the proposed changes.** # §422.314. Special rules for beneficiaries enrolled in MA MSA plans. - (a) **Establishment and designation of medical savings account (MSA).** A beneficiary who elects coverage under an MA MSA plan— - (1) Must establish an MA MSA with a trustee that meets the requirements of [paragraph (b)](#b) of this section; and - (2) If he or she has more than one MA MSA, designate the particular account to which payments under the MA MSA plan are to be made. - (b) **Requirements for MSA trustees.** An entity that acts as a trustee for an MA MSA must— - (1) Register with CMS; - (2) Certify that it is a licensed bank, insurance company, or other entity qualified, under sections 408(a)(2) or 408(h) of the Internal Revenue Code of 1986, to act as a trustee of individual retirement accounts; - (3) Agree to comply with the MA MSA provisions of section 138 of the Internal Revenue Code of 1986; and - (4) Provide any other information that CMS may require. - (c) **Deposit in the MA MSA.** - (1) **The payment is calculated as follows—** - (i) The monthly MA MSA premium is compared with 1/12 of the annual capitation rate applied under this section for the. - (ii) If the monthly MA MSA premium is less than 1/12 of the annual capitation rate applied under this section for the area, the difference is the amount to be deposited in the MA MSA for each month for which the beneficiary is enrolled in the MSA plan. - (2) CMS deposits the full amount to which a beneficiary is entitled under [paragraph (c)(1)(ii)](#c-1-ii) of this section for the calendar year, beginning with the month in which MA MSA coverage begins. - (3) If the beneficiary's coverage under the MA MSA plan ends before the end of the calendar year, CMS recovers the amount that corresponds to the remaining months of that year. # §422.316. Special rules for payments to Federally qualified health centers. If an enrollee in an MA plan receives a service from a Federally qualified health center (FQHC) that has a written agreement with the MA organization offering the plan concerning the provision of this service (including the agreement required under section 1857(e)(3) of the Act and as codified in [§ 422.527](/cfr/42/422.527.md))— - (a) CMS will pay the amount determined under section 1833(a)(3)(B) of the Act directly to the FQHC at a minimum on a quarterly basis, less the amount the FQHC would receive for the MA enrollee from the MA organization (which includes the cost sharing amount the FQHC may charge an enrollee, as established in the contract between the FQHC and the MA organization); and - (b) CMS will not reduce the amount of the monthly payments under this section as a result of the application of [paragraph (a)](#a) of this section. # §422.318. Special rules for coverage that begins or ends during an inpatient hospital stay. - (a) **Applicability.** This section applies to inpatient services in a “subsection (d) hospital” as defined in section 1886(d)(1)(B) of the Act, a psychiatric hospital described in [section 1886(d)(1)(B)(i)](/cfr/42/1886.md?p=d-1-B-i) of the act, a rehabilitation hospital described in section 1886(d)(1)(B)(ii) of the Act, a distinct part rehabilitation unit described in the matter following clause (v) of section 1886(d)(1)(B) of the Act, or a long-term care hospital (described in [section 1886(d)(1)(B)(iv)](/cfr/42/1886.md?p=d-1-B-iv)). - (b) **Coverage that begins during an inpatient stay.** If coverage under an MA plan offered by an MA organization begins while the beneficiary is an inpatient in one of the facilities described in [paragraph (a)](#a) of this section— - (1) Payment for inpatient services until the date of the beneficiary's discharge is made by the previous MA organization or original Medicare, as appropriate; - (2) The MA organization offering the newly-elected MA plan is not responsible for the inpatient services until the date after the beneficiary's discharge; and - (3) The MA organization offering the newly-elected MA plan is paid the full amount otherwise payable under this subpart. - (c) **Coverage that ends during an inpatient stay.** If coverage under an MA plan offered by an MA organization ends while the beneficiary is an inpatient in one of the facilities described in [paragraph (a)](#a) of this section— - (1) The MA organization is responsible for the inpatient services until the date of the beneficiary's discharge; - (2) Payment for those services during the remainder of the stay is not made by original Medicare or by any succeeding MA organization offering a newly-elected MA plan; and - (3) The MA organization that no longer provides coverage receives no payment for the beneficiary for the period after coverage ends. # §422.320. Special rules for hospice care. - (a) **Information.** An MA organization that has a contract under [subpart K](/cfr/42/subpartK.md) of this part must inform each Medicare enrollee eligible to select hospice care under [§ 418.24](/cfr/42/418.24.md) of this chapter about the availability of hospice care (in a manner that objectively presents all available hospice providers, including a statement of any ownership interest in a hospice held by the MA organization or a related entity) if— - (1) A Medicare hospice program is located within the plan's service area; or - (2) **It is common practice to refer patients to hospice programs outside that area.** - (b) **Enrollment status.** Unless the enrollee disenrolls from the MA plan, a beneficiary electing hospice continues his or her enrollment in the MA plan and is entitled to receive, through the MA plan, any benefits other than those that are the responsibility of the Medicare hospice. - (c) **Payment.** - (1) No payment is made to an MA organization on behalf of a Medicare enrollee who has elected hospice care under [§ 418.24](/cfr/42/418.24.md) of this chapter, except for the portion of the payment attributable to the beneficiary rebate for the MA plan, described in [§ 422.266(b)(1)](/cfr/42/422.266.md?p=b-1) plus the amount of the monthly prescription drug payment described in [§ 423.315](/cfr/42/423.315.md) (if any). This no-payment rule is effective from the first day of the month following the month of election to receive hospice care, until the first day of the month following the month in which the election is terminated. - (2) During the time the hospice election is in effect, CMS' monthly capitation payment to the MA organization is reduced to the sum of— - (i) An amount equal to the beneficiary rebate for the MA plan, as described in [§ 422.304(a)(3)](/cfr/42/422.304.md?p=a-3) or to zero for plans with no beneficiary rebate, described at [§ 422.304(a)(2)](/cfr/42/422.304.md?p=a-2); and - (ii) The amount of the monthly prescription drug payment described in [§ 423.315](/cfr/42/423.315.md) (if any). - (3) **In addition, CMS pays through the original Medicare program (subject to the usual rules of payment)—** - (i) The hospice program for hospice care furnished to the Medicare enrollee; and - (ii) **The MA organization, provider, or supplier for other Medicare-covered services to the enrollee.** # §422.322. Source of payment and effect of MA plan election on payment. - (a) **Source of payments.** - (1) Payments under this subpart for original fee-for-service benefits to MA organizations or MA MSAs are made from the Federal Hospital Insurance Trust Fund or the Supplementary Medical Insurance Trust Fund. CMS determines the proportions to reflect the relative weight that benefits under Part A, and benefits under Part B represents of the actuarial value of the total benefits under title XVIII of the Act. - (2) Payments to MA-PD organizations for statutory drug benefits provided under this title are made from the Medicare Prescription Drug Account in the Federal Supplementary Medical Insurance Trust Fund. - (3) Payments under [subpart C of part 495](/cfr/42/part495-subpartC.md) of this chapter for meaningful use of certified EHR technology are made from the Federal Hospital Insurance Trust Fund or the Supplementary Medical Insurance Trust Fund. In applying section 1848(o) of the Act under sections 1853(l) and 1886(n)(2)of the Act under section 1853(m) of the Act, CMS determines the amount to the extent feasible and practical to be similar to the estimated amount in the aggregate that would be payable for services furnished by professionals and hospitals under Parts B and A, respectively, under title XVIII of the Act. - (b) **Payments to the MA organization.** Subject to §§ [412.105(g)](/cfr/42/412.105.md?p=g), [413.76](/cfr/42/413.76.md), and [495.204](/cfr/42/495.204.md) of this chapter and §§ [422.109](/cfr/42/422.109.md), [422.316](/cfr/42/422.316.md), and [422.320](/cfr/42/422.320.md), CMS' payments under a contract with an MA organization (described in [§ 422.304](/cfr/42/422.304.md)) with respect to an individual electing an MA plan offered by the organization are instead of the amounts which (in the absence of the contract) would otherwise be payable under original Medicare for items and services furnished to the individual. - (c) **Only the MA organization entitled to payment.** Subject to §§ [422.314](/cfr/42/422.314.md), [422.316](/cfr/42/422.316.md), [422.318](/cfr/42/422.318.md), [422.320](/cfr/42/422.320.md), and [422.520](/cfr/42/422.520.md) and sections 1886(d)(11) and 1886(h)(3)(D) of the Act, only the MA organization is entitled to receive payment from CMS under title XVIII of the Act for items and services furnished to the individual. - (d) **FFS payment for expenses for kidney acquisitions.** Paragraphs [(b)](#b) and [(c)](#c) of this section do not apply with respect to expenses for organ acquisitions for kidney transplants described in [section 1852(a)(1)(B)(i)](/cfr/42/1852.md?p=a-1-B-i) of the Act. # §422.324. Payments to MA organizations for graduate medical education costs. - (a) MA organizations may receive direct graduate medical education payments for the time that residents spend in non-hospital provider settings such as freestanding clinics, nursing homes, and physicians' offices in connection with approved programs. - (b) MA organizations may receive direct graduate medical education payments if all of the following conditions are met: - (1) **The resident spends his or her time assigned to patient care activities.** - (2) The MA organization incurs “all or substantially all” of the costs for the training program in the non-hospital setting as defined in [§ 413.75(b)](/cfr/42/413.75.md?p=b) of this chapter. - (3) There is a written agreement between the MA organization and the non-hospital site that indicates the MA organization will incur the costs of the resident's salary and fringe benefits and provide reasonable compensation to the non-hospital site for teaching activities. - (c) An MA organization's allowable direct graduate medical education costs, subject to the redistribution and community support principles specified in [§ 413.85(c)](/cfr/42/413.85.md?p=c) of this chapter, consist of— - (1) Residents' salaries and fringe benefits (including travel and lodging where applicable); and - (2) Reasonable compensation to the non-hospital site for teaching activities related to the training of medical residents. - (d) **The direct graduate medical education payment is equal to the product of—** - (1) **The lower of—** - (i) The MA organization's allowable costs per resident as defined in [paragraph (c)](#c) of this section; or - (ii) The national average per resident amount; and - (2) Medicare's share, which is equal to the ratio of the number of Medicare beneficiaries enrolled to the total number of individuals enrolled in the MA organization. - (e) Direct graduate medical education payments made to MA organizations under this section are made from the Federal Supplementary Medical Insurance Trust Fund. # §422.326. Reporting and returning of overpayments. - (a) **Terminology.** For purposes of this section— Applicable reconciliation occurs on the date of the annual final deadline for risk adjustment data submission described at [§ 422.310(g)](/cfr/42/422.310.md?p=g), which is announced by CMS each year. Funds means any payment that an MA organization has received that is based on data submitted by the MA organization to CMS for payment purposes, including [§ 422.308(f)](/cfr/42/422.308.md?p=f) and [§ 422.310](/cfr/42/422.310.md). Overpayment means any funds that an MA organization has received or retained under title XVIII of the Act to which the MA organization, after applicable reconciliation, is not entitled under such title. - (b) **General rule.** If an MA organization has identified that it has received an overpayment, the MA organization must report and return that overpayment in the form and manner set forth in this section. - (c) **Identified overpayment.** The MA organization has identified an overpayment when the MA organization knowingly receives or retains an overpayment. The term “knowingly” has the meaning set forth in [31 U.S.C. 3729(b)(1)(A)](/usc/31/3729.md?p=b-1-A). - (d) **Reporting and returning of an overpayment.** An MA organization must report and return any overpayment it received no later than 60 days after the date on which it identified it received an overpayment, unless otherwise directed by CMS for purposes of [§ 422.311](/cfr/42/422.311.md). - (1) **Reporting.** An MA organization must notify CMS, of the amount and reason for the overpayment, using a notification process determined by CMS. - (2) **Returning.** An MA organization must return identified overpayments in a manner specified by CMS. - (e) **Enforcement.** Any overpayment retained by an MA organization is an obligation under [31 U.S.C. 3729(b)(3)](/usc/31/3729.md?p=b-3) if not reported and returned in accordance with [paragraph (d)](#d) of this section. - (f) **Look-back period.** An MA organization must report and return any overpayment identified for the 6 most recent completed payment years. # §422.330. CMS-identified overpayments associated with payment data submitted by MA organizations. - (a) **Definitions.** For purposes of this section— Applicable reconciliation date occurs on the date of the annual final deadline for risk adjustment data submission described at [§ 422.310(g)(2)(ii)](/cfr/42/422.310.md?p=g-2-ii). Erroneous payment data means payment data that should not have been submitted either because the data submitted are inaccurate or because the data are inconsistent with Medicare Part C requirements. Payment data means data submitted by an MA organization to CMS and used for payment purposes, including enrollment data and data submitted under [§ 422.310](/cfr/42/422.310.md). - (b) **Request to correct payment data.** - (1) When CMS identifies erroneous payment data submitted by an MA organization (other than an error identified through the process described in [§ 422.311](/cfr/42/422.311.md)), CMS may send a data correction notice to the MA organization requesting that the MA organization correct the payment data. - (2) The notice will include or make reference to the specific payment data that need to be corrected, the reason why CMS believes that the payment data are erroneous, and the timeframe for correcting the payment data. - (c) **Payment offset.** - (1) If the MA organization fails to submit the corrected payment data within the timeframe as requested in accordance with [paragraph (b)](#b) of this section, CMS will conduct a payment offset against payments made to the MA organization if— - (i) The payment error affects payments for any of the 6 most recently completed payment years; and - (ii) The payment error for a particular payment year is identified after the applicable reconciliation date for that payment year. - (2) CMS will calculate the payment offset amount using the correct payment data and a payment algorithm that applies the payment rules for the applicable year. - (d) **Payment offset notification.** CMS will issue a payment offset notice to the MA organization that includes at least the following: - (1) **The dollar amount of the offset from plan payments.** - (2) An explanation of how the erroneous data were identified and used to calculate the payment offset amount. - (3) An explanation that, if the MA organization disagrees with the payment offset, it may request an appeal within 30 days of issuance of the payment offset notification. - (e) **Appeals process.** If an MA organization does not agree with the payment offset described in [paragraph (c)](#c) of this section, it may appeal under the following three-level appeal process: - (1) **Reconsideration.** An MA organization may request reconsideration of the payment offset described in [paragraph (c)](#c) of this section, according to the following process: - (i) **Manner and timing of request.** A written request for reconsideration must be filed within 30 days from the date that CMS issued the payment offset notice to the MA organization. - (ii) **Content of request.** The written request for reconsideration must specify the findings or issues with which the MA organization disagrees and the reasons for its disagreement. As part of its request for reconsideration, the MA organization may include any additional documentary evidence in support of its position. Any additional evidence must be submitted with the request for reconsideration. Additional information submitted after this time will be rejected as untimely. - (iii) **Conduct of reconsideration.** In conducting the reconsideration, the CMS reconsideration official reviews the underlying data that were used to determine the amount of the payment offset and any additional documentary evidence timely submitted by the MA organization. - (iv) **Reconsideration decision.** The CMS reconsideration official informs the MA organization of its decision on the reconsideration request. - (v) **Effect of reconsideration decision.** The decision of the CMS reconsideration official is final and binding unless a timely request for an informal hearing is filed in accordance with [paragraph (e)(2)](#e-2) of this section. - (2) **Informal hearing.** An MA organization dissatisfied with CMS' reconsideration decision made under [paragraph (e)(1)](#e-1) of this section is entitled to an informal hearing as provided for under [paragraphs (e)(2)(i) through (e)(2)(v)](#e-2-i..e-2-v) of this section. - (i) **Manner and timing for request.** A request for an informal hearing must be made in writing and filed with CMS within 30 days of the date of CMS' reconsideration decision. - (ii) **Content of request.** The request for an informal hearing must include a copy of the reconsideration decision and must specify the findings or issues in the decision with which the MA organization disagrees and the reasons for its disagreement. - (iii) **Informal hearing procedures.** The informal hearing will be conducted in accordance with the following: - (A) CMS provides written notice of the time and place of the informal hearing at least 30 days before the scheduled date. - (B) The informal hearing is conducted by a CMS hearing officer who neither receives testimony nor accepts any new evidence that was not timely presented with the reconsideration request. The CMS hearing officer is limited to the review of the record that was before the CMS reconsideration official when CMS made its reconsideration determination. - (C) The CMS hearing officer will review the proceeding before the CMS reconsideration official on the record made before the CMS reconsideration official using the clearly erroneous standard of review. - (iv) **Decision of the CMS hearing officer.** The CMS hearing officer decides the case and sends a written decision to the MA organization explaining the basis for the decision. - (v) **Effect of hearing officer's decision.** The hearing officer's decision is final and binding, unless the decision is reversed or modified by the Administrator in accordance with [paragraph (e)(3)](#e-3) of this section. - (3) **Review by the Administrator.** The Administrator review will be conducted in the following manner: - (i) An MA organization that has received a hearing officer's decision may request review by the Administrator within 30 days of the date of issuance of the hearing officer's decision under [paragraph (e)(2)(iv)](#e-2-iv) of this section. The MA organization may submit written arguments to the Administrator for review. - (ii) After receiving a request for review, the Administrator has the discretion to elect to review the hearing officer's determination in accordance with [paragraph (e)(3)(iv)](#e-3-iv) of this section or to decline to review the hearing officer's decision. - (iii) If the Administrator declines to review the hearing officer's decision, the hearing officer's decision is final and binding. - (iv) If the Administrator elects to review the hearing officer's decision, the Administrator will review the hearing officer's decision, as well as any information included in the record of the hearing officer's decision and any written argument submitted by the MA organization, and determine whether to uphold, reverse, or modify the hearing officer's decision. - (v) **The Administrator's determination is final and binding.** - (f) **Matters subject to appeal and burden of proof.** - (1) The MA organization's appeal is limited to CMS' finding that the payment data submitted by the MA organization are erroneous. - (2) The MA organization bears the burden of proof by a preponderance of the evidence in demonstrating that CMS' finding that the payment data were erroneous was incorrect or otherwise inconsistent with applicable program requirements. - (g) **Applicability of appeals process.** The appeals process under [paragraph (e)](#e) of this section applies only to payment offsets under [paragraph (c)](#c) of this section. # §422.350. Basis, scope, and definitions. - (a) **Basis and scope.** This subpart is based on sections 1851 and 1855 of the Act which, in part,— - (1) Authorize provider sponsored organizations, (PSOs), to contract as a MA plan; - (2) Require that a PSO meet certain qualifying requirements; and - (3) **Provide for waiver of State licensure for PSOs under specified conditions.** - (b) **Definitions.** As used in this subpart (unless otherwise specified)— Capitation payment means a fixed per enrollee per month amount paid for contracted services without regard to the type, cost, or frequency of services furnished. Cash equivalent means those assets excluding accounts receivable that can be exchanged on an equivalent basis as cash, or converted into cash within 90 days from their presentation for exchange. Control means that an individual, group of individuals, or entity has the power, directly or indirectly, to direct or influence significantly the actions or policies of an organization or institution. Current ratio means total current assets divided by total current liabilities. Deferred acquisition costs are those costs incurred in starting or purchasing a business. These costs are capitalized as intangible assets and carried on the balance sheet as deferred charges since they benefit the business for periods after the period in which the costs were incurred. Engaged in the delivery of health care services means— - (1) For an individual, that the individual directly furnishes health care services, or - (2) For an entity, that the entity is organized and operated primarily for the purpose of furnishing health care services directly or through its provider members or entities. Generally accepted accounting principles (GAAP) means broad rules adopted by the accounting profession as guides in measuring, recording, and reporting the financial affairs and activities of a business to its owners, creditors and other interested parties. Guarantor means an entity that— - (1) Has been approved by CMS as meeting the requirements to be a guarantor; and - (2) Obligates its resources to a PSO to enable the PSO to meet the solvency requirements required to contract with CMS as an MA organization. Health care delivery assets (HCDAs) means any tangible assets that are part of a PSO's operation, including hospitals and other medical facilities and their ancillary equipment, and such property as may be reasonably required for the PSO's principal office or for such other purposes as the PSO may need for transacting its business. Insolvency means a condition in which the liabilities of the debtor exceed the fair valuation of its assets. Net worth means the excess of total assets over total liabilities, excluding fully subordinated debt or subordinated liabilities. Provider-sponsored organization (PSO) means a public or private entity that— - (1) Is established or organized, and operated, by a provider or group of affiliated providers; - (2) Provides a substantial proportion (as defined in [§ 422.352](/cfr/42/422.352.md)) of the health care services under the MA contract directly through the provider or affiliated group of providers; and - (3) **When it is a group, is composed of affiliated providers who—** - (i) Share, directly or indirectly, substantial financial risk, as determined under [§ 422.356](/cfr/42/422.356.md), for the provision of services that are the obligation of the PSO under the MA contract; and - (ii) **Have at least a majority financial interest in the PSO.** Qualified actuary means a member in good standing of the American Academy of Actuaries or a person recognized by the Academy as qualified for membership, or a person who has otherwise demonstrated competency in the field of actuarial determination and is satisfactory to CMS. Statutory accounting practices means those accounting principles or practices prescribed or permitted by the domiciliary State insurance department in the State that PSO operates. Subordinated debt means an obligation that is owed by an organization, that the creditor of the obligation, by law, agreement, or otherwise, has a lower repayment rank in the hierarchy of creditors than another creditor. The creditor would be entitled to repayment only after all higher ranking creditors' claims have been satisfied. A debt is fully subordinated if it has a lower repayment rank than all other classes of creditors. Subordinated liability means claims liabilities otherwise due to providers that are retained by the PSO to meet net worth requirements and are fully subordinated to all other creditors. Uncovered expenditures means those expenditures for health care services that are the obligation of an organization, for which an enrollee may also be liable in the event of the organization's insolvency and for which no alternative arrangements have been made that are acceptable to CMS. They include expenditures for health care services for which the organization is at risk, such as out-of-area services, referral services and hospital services. However, they do not include expenditures for services when a provider has agreed not to bill the enrollee. # §422.352. Basic requirements. - (a) **General rule.** An organization is considered a PSO for purposes of a MA contract if the organization— - (1) Has obtained a waiver of State licensure as provided for under [§ 422.370](/cfr/42/422.370.md); - (2) Meets the definition of a PSO set forth in [§ 422.350](/cfr/42/422.350.md) and other applicable requirements of this subpart; and - (3) Is effectively controlled by the provider or, in the case of a group, by one or more of the affiliated providers that established and operate the PSO. - (b) **Provision of services.** A PSO must demonstrate to CMS's satisfaction that it is capable of delivering to Medicare enrollees the range of services required under a contract with CMS. Each PSO must deliver a substantial proportion of those services directly through the provider or the affiliated providers responsible for operating the PSO. Substantial proportion means— - (1) **For a non-rural PSO, not less than 70% of Medicare services covered under the contract.** - (2) **For a rural PSO, not less than 60% of Medicare services covered under the contract.** - (c) **Rural PSO.** To qualify as a rural PSO, a PSO must— - (1) **Demonstrate to CMS that—** - (i) It has available in the rural area, as defined in [§ 412.62(f)](/cfr/42/412.62.md?p=f) of this chapter, routine services including but not limited to primary care, routine specialty care, and emergency services; and - (ii) The level of use of providers outside the rural area is consistent with general referral patterns for the area; and - (2) **Enroll Medicare beneficiaries, the majority of which reside in the rural area the PSO serves.** # §422.354. Requirements for affiliated providers. A PSO that consists of two or more providers must demonstrate to CMS'S satisfaction that it meets the following requirements: - (a) **The providers are affiliated.** For purposes of this subpart, providers are affiliated if, through contract, ownership, or otherwise— - (1) One provider, directly or indirectly, controls, is controlled by, or is under common control with another; - (2) Each provider is part of a lawful combination under which each shares substantial financial risk in connection with the PSO's operations; - (3) Both, or all, providers are part of a controlled group of corporations under section 1563 of the Internal Revenue Code of 1986; or - (4) **Both, or all, providers are part of an affiliated service group under section 414 of that Code.** - (b) Each affiliated provider of the PSO shares, directly or indirectly, substantial financial risk for the furnishing of services the PSO is obligated to provide under the contract. - (c) **Affiliated providers, as a whole or in part, have at least a majority financial interest in the PSO.** - (d) For purposes of [paragraph(a)(1)](#a-1) of this section, control is presumed to exist if one party, directly or indirectly, owns, controls, or holds the power to vote, or proxies for, not less than 51 percent of the voting rights or governance right of another. # §422.356. Determining substantial financial risk and majority financial interest. - (a) **Determining substantial financial risk.** The PSO must demonstrate to CMS's satisfaction that it apportions a significant part of the financial risk of the PSO enterprise under the MA contract to each affiliated provider. The PSO must demonstrate that the financial arrangements among its affiliated providers constitute “substantial” risk in the PSO for each affiliated provider. The following mechanisms may constitute risk-sharing arrangements, and may have to be used in combination to demonstrate substantial financial risk in the PSO enterprise. - (1) **Agreement by a provider to accept capitation payment for each Medicare enrollee.** - (2) Agreement by a provider to accept as payment a predetermined percentage of the PSO premium or the PSO's revenue. - (3) The PSO's use of significant financial incentives for its affiliated providers, with the aim of achieving utilization management and cost containment goals. Permissible methods include the following: - (i) Affiliated providers agree to a withholding of a significant amount of the compensation due them, to be used for any of the following: - (A) **To cover losses of the PSO.** - (B) **To cover losses of other affiliated providers.** - (C) To be returned to the affiliated provider if the PSO meets its utilization management or cost containment goals for the specified time period. - (D) To be distributed among affiliated providers if the PSO meets its utilization management or cost-containment goals for the specified time period. - (ii) Affiliated providers agree to preestablished cost or utilization targets for the PSO and to subsequent significant financial rewards and penalties (which may include a reduction in payments to the provider) based on the PSO's performance in meeting the targets. - (4) **Other mechanisms that demonstrate significant shared financial risk.** - (b) **Determining majority financial interest.** Majority financial interest means maintaining effective control of the PSO. # §422.370. Waiver of State licensure. For an organization that seeks to contract to offer an MA plan under this subpart, CMS may waive the State licensure requirement of section 1855(a)(1) of the Act if— - (a) The organization requests a waiver no later than November 1, 2002; and - (b) CMS determines there is a basis for a waiver under [§ 422.372](/cfr/42/422.372.md). # §422.372. Basis for waiver of State licensure. - (a) **General rule.** Subject to this section and to paragraphs [(a)](/cfr/42/422.374.md?p=a) and [(e)](/cfr/42/422.374.md?p=e) of § 422.374, CMS may waive the State licensure requirement if the organization has applied (except as provided in [paragraph (b)(4)](#b-4) of this section) for the most closely appropriate State license or authority to conduct business as an MA plan. - (b) **Basis for waiver of State licensure.** Any of the following may constitute a basis for CMS's waiver of State licensure. - (1) **Failure to act timely on application.** The State failed to complete action on the licensing application within 90 days of the date the State received a substantially complete application. - (2) **Denial of application based on discriminatory treatment.** The State has— - (i) Denied the license application on the basis of material requirements, procedures, or standards (other than solvency requirements) not generally applied by the State to other entities engaged in a substantially similar business; or - (ii) Required, as a condition of licensure that the organization offer any product or plan other than an MA plan. - (3) **Denial of application based on different solvency requirements.** - (i) The State has denied the application, in whole or in part, on the basis of the organization's failure to meet solvency requirements that are different from those set forth in [§§ 422.380 through 422.390](/cfr/42/422.380..422.390.md); or - (ii) CMS determines that the State has imposed, as a condition of licensure, any documentation or information requirements relating to solvency or other material requirements, procedures, or standards relating to solvency that are different from the requirements, procedures, or standards set forth by CMS to implement, monitor, and enforce [§§ 422.380 through 422.390](/cfr/42/422.380..422.390.md). - (4) **State declines to accept licensure application.** The appropriate State licensing authority has given the organization written notice that it will not accept its licensure application. # §422.374. Waiver request and approval process. - (a) **Substantially complete waiver request.** The organization must submit a substantially complete waiver request that clearly demonstrates and documents its eligibility for a waiver under [§ 422.372](/cfr/42/422.372.md). - (b) CMS gives the organization written notice of granting or denial of waiver within 60 days of receipt of a substantially complete waiver request. - (c) **Subsequent waiver requests.** An organization that has had a waiver request denied, may submit subsequent waiver requests until November 1, 2002. - (d) **Effective date.** A waiver granted under [§ 422.370](/cfr/42/422.370.md) will be effective on the effective date of the organization's MA contract. - (e) **Consistency in application.** CMS reserves the right to revoke waiver eligibility if it subsequently determines that the organization's MA application is significantly different from the application submitted by the organization to the State licensing authority. # §422.376. Conditions of the waiver. A waiver granted under this section is subject to the following conditions: - (a) **Limitation to State.** The waiver is effective only for the particular State for which it is granted and does not apply to any other State. For each State in which the organization wishes to operate without a State license, it must submit a waiver request and receive a waiver. - (b) **Limitation to 36-month period.** The waiver is effective for 36 months or through the end of the calendar year in which the 36 month period ends unless it is revoked based on [paragraph (c)](#c) of this section. - (c) **Mid-period revocation.** During the waiver period (set forth in [paragraph (b)](#b) of this section), the waiver is automatically revoked upon— - (1) Termination of the MA contract; - (2) The organization's compliance with the State licensure requirement of section 1855(a)(1) of the Act; or - (3) The organization's failure to comply with [§ 422.378](/cfr/42/422.378.md). # §422.378. Relationship to State law. - (a) **Preemption of State law.** Any provisions of State law that relate to the licensing of the organization and that prohibit the organization from providing coverage under a contract as specified in this subpart, are superseded. - (b) **Consumer protection and quality standards.** - (1) A waiver of State licensure granted under this subpart is conditioned upon the organization's compliance with all State consumer protection and quality standards that— - (i) Would apply to the organization if it were licensed under State law; - (ii) Generally apply to other MA organizations and plans in the State; and - (iii) **Are consistent with the standards established under this part.** - (2) The standards specified in [paragraph (b)(1)](#b-1) of this section do not include any standard preempted under [section 1856(b)(3)(B)](/cfr/42/1856.md?p=b-3-B) of the Act. - (c) **Incorporation into contract.** In contracting with an organization that has a waiver of State licensure, CMS incorporates into the contract the requirements specified in [paragraph (b)](#b) of this section. - (d) **Enforcement.** CMS may enter into an agreement with a State for the State to monitor and enforce compliance with the requirements specified in [paragraph (b)](#b) of this section by an organization that has obtained a waiver under this subpart. # §422.380. Solvency standards. General rule. A PSO or the legal entity of which the PSO is a component that has been granted a waiver under [§ 422.370](/cfr/42/422.370.md) must have a fiscally sound operation that meets the requirements of [§§ 422.382 through 422.390](/cfr/42/422.382..422.390.md). # §422.382. Minimum net worth amount. - (a) At the time an organization applies to contract with CMS as a PSO under this part, the organization must have a minimum net worth amount, as determined under [paragraph (c)](#c) of this section, of: - (1) **At least $1,500,000, except as provided in paragraph (a)(2) of this section.** - (2) No less than $1,000,000 based on evidence from the organization's financial plan (under [§ 422.384](/cfr/42/422.384.md)) demonstrating to CMS's satisfaction that the organization has available to it an administrative infrastructure that CMS considers appropriate to reduce, control or eliminate start-up administrative costs. - (b) After the effective date of a PSO's MA contract, a PSO must maintain a minimum net worth amount equal to the greater of— - (1) One million dollars; - (2) Two percent of annual premium revenues as reported on the most recent annual financial statement filed with CMS for up to and including the first $150,000,000 of annual premiums and 1 percent of annual premium revenues on premiums in excess of $150,000,000; - (3) An amount equal to the sum of three months of uncovered health care expenditures as reported on the most recent financial statement filed with CMS; or - (4) **Using the most recent financial statement filed with CMS, an amount equal to the sum of—** - (i) Eight percent of annual health care expenditures paid on a non-capitated basis to non-affiliated providers; and - (ii) Four percent of annual health care expenditures paid on a capitated basis to non-affiliated providers plus annual health care expenditures paid on a non-capitated basis to affiliated providers. - (iii) Annual health care expenditures that are paid on a capitated basis to affiliated providers are not included in the calculation of the net worth requirement (regardless of downstream arrangements from the affiliated provider) under paragraphs [(a)](#a) and [(b)(4)](#b-4) of this section. - (c) **Calculation of the minimum net worth amount—** - (1) **Cash requirement.** - (i) At the time of application, the organization must maintain at least $750,000 of the minimum net worth amount in cash or cash equivalents. - (ii) After the effective date of a PSO's MA contract, a PSO must maintain the greater of $750,000 or 40 percent of the minimum net worth amount in cash or cash equivalents. - (2) **Intangible assets.** An organization may include intangible assets, the value of which is based on Generally Accepted Accounting Principles (GAAP), in the minimum net worth amount calculation subject to the following limitations— - (i) **At the time of application.** - (A) Up to 20 percent of the minimum net worth amount, provided at least $1,000,000 of the minimum net worth amount is met through cash or cash equivalents; or - (B) Up to 10 percent of the minimum net worth amount, if less than $1,000,000 of the minimum net worth amount is met through cash or cash equivalents, or if CMS has used its discretion under [paragraph (a)(2)](#a-2) of this section. - (ii) **From the effective date of the contract.** - (A) Up to 20 percent of the minimum net worth amount if the greater of $1,000,000 or 67 percent of the minimum net worth amount is met by cash or cash equivalents; or - (B) Up to ten percent of the minimum net worth amount if the greater of $1,000,000 or 67 percent of the minimum net worth amount is not met by cash or cash equivalents. - (3) **Health care delivery assets.** Subject to the other provisions of this section, a PSO may apply 100 percent of the GAAP depreciated value of health care delivery assets (HCDAs) to satisfy the minimum net worth amount. - (4) **Other assets.** A PSO may apply other assets not used in the delivery of health care provided that those assets are valued according to statutory accounting practices (SAP) as defined by the State. - (5) **Subordinated debts and subordinated liabilities.** Fully subordinated debt and subordinated liabilities are excluded from the minimum net worth amount calculation. - (6) **Deferred acquisition costs.** Deferred acquisition costs are excluded from the calculation of the minimum net worth amount. # §422.384. Financial plan requirement. - (a) **General rule.** At the time of application, an organization must submit a financial plan acceptable to CMS. - (b) **Content of plan.** A financial plan must include— - (1) A detailed marketing plan; - (2) Statements of revenue and expense on an accrual basis; - (3) Cash-flow statements; - (4) Balance sheets; - (5) Detailed justifications and assumptions in support of the financial plan including, where appropriate, certification of reserves and actuarial liabilities by a qualified actuary; and - (6) If applicable, statements of the availability of financial resources to meet projected losses. - (c) **Period covered by the plan.** A financial plan must— - (1) Cover the first 12 months after the estimated effective date of a PSO's MA contract; or - (2) If the PSO is projecting losses, cover 12 months beyond the end of the period for which losses are projected. - (d) **Funding for projected losses.** Except for the use of guarantees, LOC, and other means as provided in § [422.384(e)](#e), [(f)](#f) and [(g)](#g), an organization must have the resources for meeting projected losses on its balance sheet in cash or a form that is convertible to cash in a timely manner, in accordance with the PSO's financial plan. - (e) **Guarantees and projected losses.** Guarantees will be an acceptable resource to fund projected losses, provided that a PSO— - (1) Meets CMS's requirements for guarantors and guarantee documents as specified in [§ 422.390](/cfr/42/422.390.md); and - (2) **Obtains from the guarantor cash or cash equivalents to fund the projected losses timely, as follows—** - (i) Prior to the effective date of a PSO's MA contract, the amount of the projected losses for the first two quarters; - (ii) During the first quarter and prior to the beginning of the second quarter of a PSO's MA contract, the amount of projected losses through the end of the third quarter; and - (iii) During the second quarter and prior to the beginning of the third quarter of a PSO's MA contract, the amount of projected losses through the end of the fourth quarter. - (3) If the guarantor complies with the requirements in [paragraph (e)(2)](#e-2) of this section, the PSO, in the third quarter, may notify CMS of its intent to reduce the period of advance funding of projected losses. CMS will notify the PSO within 60 days of receiving the PSO's request if the requested reduction in the period of advance funding will not be accepted. - (4) If the guarantee requirements in [paragraph (e)(2)](#e-2) of this section are not met, CMS may take appropriate action, such as requiring funding of projected losses through means other than a guarantee. CMS retains discretion to require other methods or timing of funding, considering factors such as the financial condition of the guarantor and the accuracy of the financial plan. - (f) **Letters of credit.** Letters of credit are an acceptable resource to fund projected losses, provided they are irrevocable, unconditional, and satisfactory to CMS. They must be capable of being promptly paid upon presentation of a sight draft under the letters of credt without further reference to any other agreement, document, or entity. - (g) **Other means.** If satisfactory to CMS, and for periods beginning one year after the effective date of a PSO's MA contract, a PSO may use the following to fund projected losses— - (1) Lines of credit from regulated financial institutions; - (2) Legally binding agreements for capital contributions; or - (3) Legally binding agreements of a similar quality and reliability as permitted in paragraphs [(g)(1)](#g-1) and [(2)](#g-2) of this section. - (h) **Application of guarantees, Letters of credit or other means of funding projected losses.** Notwithstanding any other provision of this section, a PSO may use guarantees, letters of credit and, beginning one year after the effective date of a PSO's MA contract, other means of funding projected losses, but only in a combination or sequence that CMS considers appropriate. # §422.386. Liquidity. - (a) A PSO must have sufficient cash flow to meet its financial obligations as they become due and payable. - (b) To determine whether the PSO meets the requirement in [paragraph (a)](#a) of this section, CMS will examine the following— - (1) The PSO's timeliness in meeting current obligations; - (2) **The extent to which the PSO's current ratio of assets to liabilities is maintained at 1—** 1 including whether there is a declining trend in the current ratio over time; and - (3) **The availability of outside financial resources to the PSO.** - (c) If CMS determines that a PSO fails to meet the requirement in [paragraph (b)(1)](#b-1) of this section, CMS will require the PSO to initiate corrective action and pay all overdue obligations. - (d) If CMS determines that a PSO fails to meet the requirement of [paragraph (b)(2)](#b-2) of this section, CMS may require the PSO to initiate corrective action to— - (1) Change the distribution of its assets; - (2) Reduce its liabilities; or - (3) **Make alternative arrangements to secure additional funding to restore the PSO's current ratio to 1—** 1. - (e) If CMS determines that there has been a change in the availability of outside financial resources as required by [paragraph (b)(3)](#b-3) of this section, CMS requires the PSO to obtain funding from alternative financial resources. # §422.388. Deposits. - (a) **Insolvency deposit.** - (1) At the time of application, an organization must deposit $100,000 in cash or securities (or any combination thereof) into an account in a manner that is acceptable to CMS. - (2) The deposit must be restricted to use in the event of insolvency to help assure continuation of services or pay costs associated with receivership or liquidation. - (3) At the time of the PSO's application for an MA contract and, thereafter, upon CMS's request, a PSO must provide CMS with proof of the insolvency deposit, such proof to be in a form that CMS considers appropriate. - (b) **Uncovered expenditures deposit.** - (1) If at any time uncovered expenditures exceed 10 percent of a PSO's total health care expenditures, then the PSO must place an uncovered expenditures deposit into an account with any organization or trustee that is acceptable to CMS. - (2) The deposit must at all times have a fair market value of an amount that is 120 percent of the PSO's outstanding liability for uncovered expenditures for enrollees, including incurred, but not reported claims. - (3) The deposit must be calculated as of the first day of each month required and maintained for the remainder of each month required. - (4) If a PSO is not otherwise required to file a quarterly report, it must file a report within 45 days of the end of the calendar quarter with information sufficient to demonstrate compliance with this section. - (5) The deposit required under this section is restricted and in trust for CMS's use to protect the interests of the PSO's Medicare enrollees and to pay the costs associated with administering the insolvency. It may be used only as provided under this section. - (c) A PSO may use the deposits required under paragraphs [(a)](#a) and [(b)](#b) of this section to satisfy the PSO's minimum net worth amount required under § [422.382(a)](/cfr/42/422.382.md?p=a) and [(b)](/cfr/42/422.382.md?p=b). - (d) All income from the deposits or trust accounts required under paragraphs [(a)](#a) and [(b)](#b) of this section, are considered assets of the PSO. Upon CMS's approval, the income from the deposits may be withdrawn. - (e) On prior written approval from CMS, a PSO that has made a deposit under paragraphs [(a)](#a) or [(b)](#b) of this section, may withdraw that deposit or any part thereof if— - (1) A substitute deposit of cash or securities of equal amount and value is made; - (2) The fair market value exceeds the amount of the required deposit; or - (3) **The required deposit under paragraphs (a) or (b) of this section is reduced or eliminated.** # §422.390. Guarantees. - (a) **General policy.** A PSO, or the legal entity of which the PSO is a component, may apply to CMS to use the financial resources of a guarantor for the purpose of meeting the requirements in [§ 422.384](/cfr/42/422.384.md). CMS has the discretion to approve or deny approval of the use of a guarantor. - (b) **Request to use a guarantor.** To apply to use the financial resources of a guarantor, a PSO must submit to CMS— - (1) Documentation that the guarantor meets the requirements for a guarantor under [paragraph (c)](#c) of this section; and - (2) The guarantor's independently audited financial statements for the current year-to-date and for the two most recent fiscal years. The financial statements must include the guarantor's balance sheets, profit and loss statements, and cash flow statements. - (c) **Requirements for guarantor.** To serve as a guarantor, an organization must meet the following requirements: - (1) **Be a legal entity authorized to conduct business within a State of the United States.** - (2) **Not be under Federal or State bankruptcy or rehabilitation proceedings.** - (3) Have a net worth (not including other guarantees, intangibles and restricted reserves) equal to three times the amount of the PSO guarantee. - (4) If the guarantor is regulated by a State insurance commissioner, or other State official with authority for risk-bearing entities, it must meet the net worth requirement in [§ 422.390(c)(3)](#c-3) with all guarantees and all investments in and loans to organizations covered by guarantees excluded from its assets. - (5) If the guarantor is not regulated by a State insurance commissioner, or other similar State official it must meet the net worth requirement in [§ 422.390(c)(3)](#c-3) with all guarantees and all investments in and loans to organizations covered by a guarantee and to related parties (subsidiaries and affiliates) excluded from its assets. - (d) **Guarantee document.** If the guarantee request is approved, a PSO must submit to CMS a written guarantee document signed by an appropriate authority of the guarantor. The guarantee document must— - (1) State the financial obligation covered by the guarantee; - (2) **Agree to—** - (i) Unconditionally fulfill the financial obligation covered by the guarantee; and - (ii) Not subordinate the guarantee to any other claim on the resources of the guarantor; - (3) Declare that the guarantor must act on a timely basis, in any case not more than 5 business days, to satisfy the financial obligation covered by the guarantee; and - (4) Meet other conditions as CMS may establish from time to time. - (e) **Reporting requirement.** A PSO must submit to CMS the current internal financial statements and annual audited financial statements of the guarantor according to the schedule, manner, and form that CMS requests. - (f) **Modification, substitution, and termination of a guarantee.** A PSO cannot modify, substitute or terminate a guarantee unless the PSO— - (1) Requests CMS's approval at least 90 days before the proposed effective date of the modification, substitution, or termination; - (2) Demonstrates to CMS's satisfaction that the modification, substitution, or termination will not result in insolvency of the PSO; and - (3) Demonstrates how the PSO will meet the requirements of this section. - (g) **Nullification.** If at any time the guarantor or the guarantee ceases to meet the requirements of this section, CMS will notify the PSO that it ceases to recognize the guarantee document. In the event of this nullification, a PSO must— - (1) Meet the applicable requirements of this section within 15 business days; and - (2) If required by CMS, meet a portion of the applicable requirements in less than the time period granted in [paragraph (g)(1)](#g-1) of this section. # §422.400. State licensure requirement. Except in the case of a PSO granted a waiver under subpart H of this part, each MA organization must— - (a) Be licensed under State law, or otherwise authorized to operate under State law, as a risk-bearing entity (as defined in [§ 422.2](/cfr/42/422.2.md)) eligible to offer health insurance or health benefits coverage in each State in which it offers one or more MA 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 MA organization; and - (c) **Demonstrate to CMS that—** - (1) The scope of its license or authority allows the organization to offer the type of MA 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)](#b) of this section. # §422.402. Federal preemption of State law. The standards established under this part supersede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) with respect to the MA plans that are offered by MA organizations. # §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 subdivisions or other governmental authorities with respect to any payment CMS makes on behalf of MA enrollees under subpart G of this part, or with respect to any payment made to MA plans by beneficiaries, or payment to MA plans by a third party on a beneficiary's behalf. - (b) **Construction.** Nothing in this section shall be construed to exempt any MA 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. # §422.451. Moratorium on new local preferred provider organization plans. CMS will not approve the offering of a local preferred provider organization plan during 2006 or 2007 in a service area unless the MA organization seeking to offer the plan was offering a local preferred provider organization plan in the service area before December 31, 2005. # §422.455. Special rules for MA Regional Plans. - (a) **Coverage of entire MA region.** The service area for an MA regional plan will consist of an entire MA region established under [paragraph (b)](#b) of this section, and an MA region may not be segmented as described in [§ 422.262(c)(2)](/cfr/42/422.262.md?p=c-2). - (b) **Establishment of MA regions—** - (1) **MA region.** The term “MA region” means a region within the 50 States and the District of Columbia as established by CMS under this section. - (2) **Establishment—** - (i) **Initial establishment.** By January 1, 2005, CMS will establish and publish the MA regions. - (ii) **Periodic review and revision of service areas.** CMS may periodically review MA regions and may revise the regions if it determines the revision to be appropriate. - (3) **Requirements for MA regions.** CMS will establish, and may revise, MA regions in a manner consistent with the following: - (i) **Number of regions.** There will be no fewer than 10 regions, and no more than 50 regions. - (ii) **Maximizing availability of plans.** The main purpose of the regions is to maximize the availability of MA regional plans to all MA eligible individuals without regard to health status, or geographic location, especially those residing in rural areas. - (4) **Market survey and analysis.** Before establishing MA regions, CMS will conduct a market survey and analysis, including an examination of current insurance markets, to assist CMS in determining how the regions should be established. - (c) **National plan.** An MA regional plan can be offered in more than one MA region (including all regions). # §422.458. Risk sharing with regional MA organizations for 2006 and 2007. - (a) **Terminology.** For purposes of this section— Allowable costs means, with respect to an MA regional plan offered by an organization for a year, the total amount of costs that the organization incurred in providing benefits covered under the original Medicare fee-for-service program option for all enrollees under the plan in the region in the year and in providing rebatable integrated benefits, as defined in this paragraph, reduced by the portion of those costs attributable to administrative expenses incurred in providing these benefits. Rebatable integrated benefits means those non-drug supplemental benefits that are funded through beneficiary rebates (described at [§ 422.266(b)(1)](/cfr/42/422.266.md?p=b-1)) and that CMS determines are additional health benefits not covered under the original Medicare program option and that require expenditures by the plan. For purposes of the calculation of risk corridors, these are the only supplemental benefits that count toward allowable costs. Target amount means, with respect to an MA regional plan offered by an organization in a year, the total amount of payments made to the organization for enrollees in the plan for the year (which includes payments attributable to benefits under the original Medicare fee-for-service program option as defined in [§ 422.100(c)(1)](/cfr/42/422.100.md?p=c-1), the total of the MA monthly basic beneficiary premium collectible for those enrollees for the year, and the total amount of rebatable integrated benefits), reduced by the amount of administrative expenses assumed in the portion of the bid attributable to benefits under original Medicare fee-for-service program option or to rebatable integrated benefits. - (b) **Application of risk corridors for benefits covered under original fee-for-service Medicare—** - (1) **General rule.** This section will only apply to MA regional plans offered during 2006 or 2007. - (2) **Notification of allowable costs under the plan.** In the case of an MA organization that offers an MA regional plan in an MA region in 2006 or 2007, the organization must notify CMS, before that date in the succeeding year as CMS specifies, of— - (i) Its total amount of costs that the organization incurred in providing benefits covered under the original Medicare fee-for-service program option for all enrollees under the plan (as described in [paragraph (a)](#a) of this section). - (ii) Its total amount of costs that the organization incurred in providing rebatable integrated benefits for all enrollees under the plan (as described in [paragraph (a)](#a) of this section), and, with respect to those benefits, the portion of those costs that is attributable to administrative expenses that is in addition to the administrative expense incurred in provision of benefits under the original Medicare fee-for-service program option. - (c) **Adjustment of payment—** - (1) **No adjustment if allowable costs within 3 percent of target amount.** If the allowable costs for the plan for the year are at least 97 percent, but do not exceed 103 percent, of the target amount for the plan and year, there will be no payment adjustment under this section for the plan and year. - (2) **Increase in payment if allowable costs above 103 percent of target amount—** - (i) **Costs between 103 and 108 percent of target amount.** If the allowable costs for the plan for the year are greater than 103 percent, but not greater than 108 percent, of the target amount for the plan and year, CMS will increase the total of the monthly payments made to the organization offering the plan for the year under [§ 422.302(a)](/cfr/42/422.302.md?p=a) (section 1853(a) of the Act) by an amount equal to 50 percent of the difference between those allowable costs and 103 percent of that target amount. - (ii) **Costs above 108 percent of target amount.** If the allowable costs for the plan for the year are greater than 108 percent of the target amount for the plan and year, CMS will increase the total of the monthly payments made to the organization offering the plan for the year under section 1853(a) of the Act by an amount equal to the sum of— - (A) 2.5 percent of that target amount; and - (B) 80 percent of the difference between those allowable costs and 108 percent of that target amount. - (3) **Reduction in payment if allowable costs below 97 percent of target amount—** - (i) **Costs between 92 and 97 percent of target amount.** If the allowable costs for the plan for the year are less than 97 percent, but greater than or equal to 92 percent, of the target amount for the plan and year, CMS will reduce the total of the monthly payments made to the organization offering the plan for the year under [§ 422.302(a)](/cfr/42/422.302.md?p=a) (section 1853(a) of the Act) by an amount (or otherwise recover from the plan an amount) equal to 50 percent of the difference between 97 percent of the target amount and those allowable costs. - (ii) **Costs below 92 percent of target amount.** If the allowable costs for the plan for the year are less than 92 percent of the target amount for the plan and year, CMS will reduce the total of the monthly payments made to the organization offering the plan for the year under [§ 422.302(a)](/cfr/42/422.302.md?p=a) (section 1853(a)of the Act) by an amount (or otherwise recover from the plan an amount) equal to the sum of- - (A) 2.5 percent of that target amount; and - (B) 80 percent of the difference between 92 percent of that target amount and those allowable costs. - (d) **Disclosure of information—** - (1) **General rule.** Each MA organization offering an MA regional plan must provide CMS with information as CMS determines is necessary to implement this section; and - (2) According to [§ 422.504(d)(1)(iii)](/cfr/42/422.504.md?p=d-1-iii), CMS has the right to inspect and audit any books and records of the organization that pertain to the information regarding costs provided to CMS under [paragraph (b)(2)](#b-2) of this section. - (3) **Restriction on use of information.** Information disclosed or obtained for the purposes of this section may be used by officers, employees, and contractors of DHHS only for the purposes of, and to the extent necessary in, implementing this section. - (e) **Organizational and financial requirements—** - (1) **General rule.** Regional MA plans offered by MA organizations must be licensed under State law, or otherwise authorized under State law, as a risk-bearing entity (as defined in [§ 422.2](/cfr/42/422.2.md)) eligible to offer health insurance or health benefits coverage in each State in which it offers one or more plans. However, as provided for under this section, MA organizations offering MA regional plans may obtain a temporary waiver of State licensure. In the case of an MA organization that is offering an MA regional plan in an MA region, and is not licensed in each State in which it offers such an MA regional plan, the following rules apply: - (i) The MA organization must be licensed to bear risk in at least one State of the region. - (ii) For the other States in a region in which the organization is not licensed to bear risk, if it demonstrates to CMS that it has filed the necessary application to meet those requirements, CMS may temporarily waive the licensing requirement with respect to each State for a period of time as CMS determines appropriate for the timely processing of the application by the State or States. - (iii) If the State licensing application or applications are denied, CMS may extend the licensing waiver through the end of the plan year or as CMS determines appropriate to provide for a transition. - (2) **Selection of appropriate State.** In the case of an MA organization to which CMS grants a waiver and that is licensed in more than one State in a region, the MA organization will select one of the States, the rules of which shall apply in States where the organization is not licensed for the period of the waiver. # §422.500. Scope and definitions. - (a) **Scope.** This subpart sets forth application requirements for entities seeking a contract as a Medicare organization offering an MA plan, including MA organizations offering a specialized MA plan for special needs individuals. MA organizations offering prescription drug plans must, in addition to the requirements of this part, follow the requirements of [part 423](/cfr/42/part423.md) of this chapter specifically related to the prescription drug benefit. - (b) **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 MA organization's enrollees by hospitals and other providers, and by MA organization staff, medical groups, or independent practice associations, or by any combination of those entities. Clean claim means— - (1) A claim that has no defect, impropriety, lack of any required substantiating documentation (consistent with [§ 422.310(d)](/cfr/42/422.310.md?p=d)) or particular circumstance requiring special treatment that prevents timely payment; and - (2) A claim that otherwise conforms to the clean claim requirements for equivalent claims under original Medicare. Downstream entity means any party that enters into an acceptable written arrangement below the level of the arrangement between an MA organization (or contract applicant) and a first tier entity. These written arrangements continue down to the level of the ultimate provider of both health and administrative services. Final settlement adjustment period means the period of time between when the contract terminates and the date the MA organization is issued a notice of the final settlement amount. Final settlement amount is the final payment amount that CMS owes and ultimately pays to an MA organization, or that an MA organization owes and ultimately pays to CMS, with respect to an MA contract that has consolidated, nonrenewed, or terminated. The final settlement amount is calculated by summing final retroactive payment adjustments for a specific contract that accumulated after that contract ceases operation but before the calculation of the final settlement amount and the following applicable reconciliation amounts that have been completed as of the date the notice of final settlement has been issued, without accounting for any data submitted after the data submission deadlines for calculating these reconciliation amounts: - (1) Risk adjustment reconciliation (described in [§ 422.310](/cfr/42/422.310.md)); - (2) Part D annual reconciliation (described in [§ 423.343](/cfr/42/423.343.md)); - (3) Coverage Gap Discount Program annual reconciliation (described in [§ 423.2320](/cfr/42/423.2320.md)) and; - (4) MLR remittances (described in §§ [422.2470](/cfr/42/422.2470.md) and [423.2470](/cfr/42/423.2470.md)). Final settlement process means for a contract that has been consolidated, nonrenewed, or terminated, the process by which CMS calculates the final settlement amount, issues the final settlement amount along with supporting documentation in the notice of final settlement to the MA organization, receives responses from the MA organization requesting an appeal of the final settlement amount, and takes final actions to adjudicate an appeal (if requested) and make payments to or receive payments from the MA organization. The final settlement amount is calculated after all applicable reconciliations have occurred after a contract has been consolidated, nonrenewed, or terminated. First tier entity means any party that enters into an acceptable written arrangement with an MA organization or contract applicant to provide administrative services or health care services for a Medicare eligible individual. Fraud hotline tip is a complaint or other communications that are submitted through a fraud reporting phone number or a website intended for the same purpose, such as the Federal Government's HHS OIG Hotline or a health plan's fraud hotline. Inappropriate prescribing means that, after consideration of all the facts and circumstances of a particular situation identified through investigation or other information or actions taken by MA organizations and Part D plan sponsors, there is an established pattern of potential fraud, waste, and abuse related to prescribing of opioids, as reported by the plan sponsors. Beneficiaries with cancer and sickle-cell disease, as well as those patients receiving hospice and long term care (LTC) services are excluded, when determining inappropriate prescribing. Plan sponsors may consider any number of factors including, but not limited to the following: - (1) **Documentation of a patient's medical condition.** - (2) **Identified instances of patient harm or death.** - (3) **Medical records, including claims (if available).** - (4) Concurrent prescribing of opioids with an opioid potentiator in a manner that increases risk of serious patient harm. - (5) **Levels of morphine milligram equivalent (MME) dosages prescribed.** - (6) Absent clinical indication or documentation in the care management plan or in a manner that may indicate diversion. - (7) **State-level prescription drug monitoring program (PDMP) data.** - (8) **Geography, time, and distance between a prescriber and the patient.** - (9) **Refill frequency and factors associated with increased risk of opioid overdose.** Party in interest includes the following: - (1) Any director, officer, partner, or employee responsible for management or administration of an MA 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 MA 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 MA organization. - (6) Any spouse, child, or parent of an individual described in paragraph [(1)](#b-1), [(2)](#b-2), or [(3)](#b-3) of this definition. Related entity means any entity that is related to the MA organization by common ownership or control and— - (1) Performs some of the MA 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 MA 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 MA organization, have a total value that exceeds $25,000 or 5 percent of the MA organization's total operating expenses, whichever is less. Substantiated or suspicious activities of fraud, waste, or abuse means and includes, but is not limited to, allegations that a provider of services (including a prescriber) or supplier— - (1) Engaged in a pattern of improper billing; - (2) Submitted improper claims with suspected knowledge of their falsity; - (3) Submitted improper claims with reckless disregard or deliberate ignorance of their truth or falsity; or - (4) **Is the subject of a fraud hotline tip verified by further evidence.** # §422.501. Application requirements. - (a) **Scope.** This section sets forth application requirements for entities that seek a contract as an MA organization offering an MA plan and additional application requirements for MA organizations seeking to offer a Specialized MA Plan for Special Needs Individuals. - (b) **Completion of a notice of intent to apply.** - (1) An organization submitting an application under this section for a particular contract year must first submit a completed Notice of Intent to Apply by the date established by CMS. CMS will not accept applications from organizations that do not first submit a timely Notice of Intent to Apply. - (2) Submitting a Notice of Intent to Apply does not bind that organization to submit an application for the applicable contract year. - (3) An organization's decision not to submit an application after submitting a Notice of Intent To Apply will not form the basis of any action taken against the organization by CMS. - (c) **Completion of an application.** - (1) In order to obtain a determination on whether it meets the requirements to become an MA organization and is qualified to provide a particular type of MA plan, an entity, or an individual authorized to act for the entity (the applicant) must fully complete all parts of a certified application, in the form and manner required by CMS, including the following: - (i) Documentation of appropriate State licensure or State certification that the entity is able to offer health insurance or health benefits coverage that meets State-specified standards applicable to MA plans, and is authorized by the State to accept prepaid capitation for providing, arranging, or paying for the comprehensive health care services to be offered under the MA contract. - (ii) For regional plans, documentation of application for State licensure in any State in the region that the organization is not already licensed. - (iii) For Specialized MA Plans for Special Needs Individuals, documentation that the entity meets the requirements of [§§ 422.2](/cfr/42/422.2.md); 422.4(a)(1)(iv); 422.101(f); 422.107, if applicable; and 422.152(g) of this part. - (iv) Documentation that payment for health care services or items is not being and will not be made to individuals and entities included on the preclusion list, defined in [§ 422.2](/cfr/42/422.2.md). - (2) The authorized individual must thoroughly describe how the entity and MA plan meet, or will meet, all the requirements described in this part, including providing documentation that payment for health care services or items is not being and will not be made to individuals and entities included on the preclusion list, defined in [§ 422.2](/cfr/42/422.2.md). - (d) **Responsibility for making determinations.** - (1) CMS is responsible for determining whether an entity qualifies as an MA organization and whether proposed MA plans meet the requirements of this part. - (2) A CMS determination that an entity is qualified to act as an MA organization is distinct from the bid negotiation that occurs under subpart F of this part and such negotiation is not subject to the appeals provisions included in subpart N of this part. - (e) **Resubmittal of an application.** An application that has been denied by CMS for a particular contract year may not be resubmitted until the beginning of the application cycle for the following contract year. - (f) **Disclosure of application information under the Freedom of Information Act.** An applicant submitting material that he or she believes is protected from disclosure under [5 U.S.C. 552](/usc/5/552.md), the Freedom of Information Act, or because of exemptions provided in [45 CFR part 5](/cfr/45/part5.md) (the Department's regulations providing exceptions to disclosure), must label the material “privileged” and include an explanation of the applicability of an exception described in [45 CFR part 5](/cfr/45/part5.md). Any final decisions as to whether material is privileged is the final decision of the Secretary. # §422.502. Evaluation and determination procedures. - (a) **Basis for evaluation and determination.** - (1) **Information used to evaluate applications.** With the exception of evaluations conducted under [paragraph (b)](#b) of this section, CMS evaluates an application for an MA contract or for a Specialized MA Plan for Special Needs Individuals solely on the basis of information contained in the application itself and any additional information that CMS obtains through other means such as on-site visits. - (2) **Issuing application determination.** After evaluating all relevant information, CMS determines whether the applicant's application meets all the requirements described in this part. - (3) **Substantially incomplete applications.** - (i) CMS does not evaluate or issue a notice of determination described in [§ 422.502(c)](#c) when an organization submits a substantially incomplete application. - (ii) An application is substantially incomplete when the submission as of the deadline for applications established by CMS is missing content or responsive materials for one or more sections of the application form required by CMS. - (iii) A determination that an application is substantially incomplete is not a contract determination as defined in [§ 422.641](/cfr/42/422.641.md) and a determination that an organization submitted a substantially incomplete application is not subject to the appeals provisions of [subpart N](/cfr/42/subpartN.md) of this part. - (b) **Use of information from a current or prior contract.** - (1) Except as provided in [paragraphs (b)(2) through (4)](#b-2..b-4) of this section, if an MA organization fails during the 12 months preceding the deadline established by CMS for the submission of contract qualification applications to comply with the requirements of the Part C program under any current or prior contract with CMS under title XVIII of the Act, CMS may deny an application based on the applicant's failure to comply with the requirements of the Part C program under any current or prior contract with CMS even if the applicant currently meets all of the requirements of this part. - (i) An applicant may be considered to have failed to comply with a contract for purposes of an application denial under [paragraph (b)(1)](#b-1) of this section if during the applicable review period the applicant does any of the following: - (A) Was under intermediate sanction under [subpart O](/cfr/42/subpartO.md) of this part or a determination by CMS to prohibit the enrollment of new enrollees in accordance with [§ 422.2410(c)](/cfr/42/422.2410.md?p=c), with the exception of a sanction imposed under [§ 422.752(d)](/cfr/42/422.752.md?p=d). - (B) Failed to maintain a fiscally sound operation consistent with the requirements of [§ 422.504(a)(14)](/cfr/42/422.504.md?p=a-14). - (C) **Filed for or is currently in federal or state bankruptcy proceedings.** - (D) Received any combination of Part C or D summary ratings of 2.5 or less in both of the two most recent Star Rating periods, as identified in [§ 422.166](/cfr/42/422.166.md). - (E) **Met or exceeded 13 points for compliance actions for any one contract.** (1) CMS determines the number of points each MA organization accumulated during the performance period for compliance actions based on the following point values: (i) Each corrective action plan issued during the performance period under [§ 422.504(m)](/cfr/42/422.504.md?p=m) counts for 6 points. (ii) Each warning letter issued during the performance period under [§ 422.504(m)](/cfr/42/422.504.md?p=m) counts for 3 points. (iii) Each notice of noncompliance issued during the performance period under [§ 422.504(m)](/cfr/42/422.504.md?p=m) counts for 1 point. (2) CMS adds all the point values for each MA organization to determine if any organization meets CMS' identified threshold. - (ii) CMS may deny an application submitted by an organization that does not hold a Part C contract at the time of the submission when the applicant's parent organization or another subsidiary of the parent organization meets the criteria for denial stated in [paragraph (b)(1)(i)](#b-1-i) of this section. This paragraph does not apply when the parent organization completed the acquisition of the subsidiary that meets the criteria within the 24 months preceding the application submission deadline. - (2) In the absence of 12 months of performance history, CMS may deny an application based on a lack of information available to determine an applicant's capacity to comply with the requirements of the MA program. - (3) If CMS has terminated, under [§ 422.510](/cfr/42/422.510.md), or non-renewed, under [§ 422.506(b)](/cfr/42/422.506.md?p=b), an MA organization's contract, effective within the 38 months preceding the deadline established by CMS for the submission of contract qualification applications, CMS may deny an application for a new contract or service area expansion based on the applicant's substantial failure to comply with the requirements of the Part C program even if the applicant currently meets all of the requirements of this part. - (4) During the same 38-month period as specified in (b)(3) of this section, CMS may deny an application where the applicant's covered persons also served as covered persons for the terminated or non-renewed contract. A “covered person” as used in this paragraph means one of the following: - (i) All owners of terminated organizations who are natural persons, other than shareholders who have an ownership interest of less than 5 percent. - (ii) An owner in whole or part interest in any mortgage, deed of trust, note or other obligation secured (in whole or in part) by the organization, or any of the property or assets thereof, which whole or part interest is equal to or exceeds 5 percent of the total property, and assets of the organization. - (iii) A member of the board of directors or board of trustees of the entity, if the organization is organized as a corporation. - (c) **Notice of determination.** Within timeframes determined by CMS, it notifies each applicant that applies for an MA contract or to be designated a Specialized MA Plan for Special Needs Individuals under this part of its determination and the basis for the determination. The determination is one of the following: - (1) **Approval of application.** If CMS approves the application, it gives written notice to the applicant, indicating that it qualifies to contract as an MA organization. - (2) **Intent to deny.** - (i) If CMS finds that the applicant does not appear to be able to meet the requirements for an MA organization or Specialized MA Plan for Special Needs Individuals, CMS gives the applicant notice of intent to deny the application for an MA contract or for a Specialized MA Plan for Special Needs Individuals a summary of the basis for this preliminary finding. - (ii) Within 10 days from the intent to deny, the applicant must respond in writing to the issues or other matters that were the basis for CMS' preliminary finding and must revise its application to remedy any defects CMS identified. - (iii) If CMS does not receive a revised application within 10 days from the date of the notice, or if after timely submission of a revised application, CMS still finds that the applicant does not appear qualified or has not provided CMS enough information to allow CMS to evaluate the application, CMS will deny the application. - (3) **Denial of application.** If CMS denies the application, it gives written notice to the contract applicant indicating— - (i) That the applicant is not qualified to contract as an MA organization under Part C of title XVIII of the Act and/or is not qualified to offer a Specialized MA Plan for Special Needs Individuals; - (ii) The reasons why the applicant is not qualified; and - (iii) The applicant's right to request a hearing in accordance with the procedures specified in subpart N of this part. # §422.503. General provisions. - (a) **Basic rule.** In order to qualify as an MA organization, enroll beneficiaries in any MA plans it offers, and be paid on behalf of Medicare beneficiaries enrolled in those plans, an MA organization must enter into a contract with CMS. - (b) **Conditions necessary to contract as an MA organization.** Any entity seeking to contract as an MA organization must: - (1) Complete an application as described in [§ 422.501](/cfr/42/422.501.md). - (2) Be licensed by the State as a risk bearing entity in each State in which it seeks to offer an MA plan as defined in [§ 422.2](/cfr/42/422.2.md). - (3) Meet the minimum enrollment requirements of [§ 422.514](/cfr/42/422.514.md), unless waived under [§ 422.514(b)](/cfr/42/422.514.md?p=b). - (4) Have administrative and management arrangements satisfactory to CMS, as demonstrated by at least the following: - (i) A policy making body that exercises oversight and control over the MA 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 MA organization to organize, implement, control, and evaluate financial and communication activities, the furnishing of services, the quality improvement 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 MA 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 MA organization. - (v) Insurance policies or other arrangements, secured and maintained by the MA organization and approved by CMS to insure the MA organization against losses arising from professional liability claims, fire, theft, fraud, embezzlement, and other casualty risks. - (vi) Adopt and implement an effective compliance program, which must include measures that prevent, detect, and correct non-compliance with CMS' program requirements as well as measures that prevent, detect, and correct fraud, waste, and abuse. The compliance program must, at a minimum, include the following core requirements: - (A) **Written policies, procedures, and standards of conduct that—** (1) Articulate the organization's commitment to comply with all applicable Federal and State standards; (2) Describe compliance expectations as embodied in the standards of conduct; (3) Implement the operation of the compliance program; (4) Provide guidance to employees and others on dealing with potential compliance issues; (5) Identify how to communicate compliance issues to appropriate compliance personnel; (6) Describe how potential compliance issues are investigated and resolved by the organization; and (7) Include a policy of non-intimidation and non-retaliation for good faith participation in the compliance program, including but not limited to reporting potential issues, investigating issues, conducting self-evaluations, audits and remedial actions, and reporting to appropriate officials. - (B) The designation of a compliance officer and a compliance committee who report directly and are accountable to the organization's chief executive or other senior management. (1) The compliance officer, vested with the day-to-day operations of the compliance program, must be an employee of the MA organization, parent organization or corporate affiliate. The compliance officer may not be an employee of the MA organization's first tier, downstream or related entity. (2) The compliance officer and the compliance committee must periodically report directly to the governing body of the MA organization on the activities and status of the compliance program, including issues identified, investigated, and resolved by the compliance program. (3) The governing body of the MA organization must be knowledgeable about the content and operation of the compliance program and must exercise reasonable oversight with respect to the implementation and effectiveness of the compliance programs. - (C) (1) Each MA organization must establish and implement effective training and education for its compliance officer and organization employees, the MA organization's chief executive and other senior administrators, managers and governing body members. (2) Such training and education must occur at a minimum annually and must be made a part of the orientation for a new employee and new appointment to a chief executive, manager, or governing body member. - (D) Establishment and implementation of effective lines of communication, ensuring confidentiality, between the compliance officer, members of the compliance committee, the MA organization's employees, managers and governing body, and the MA organization's first tier, downstream, and related entities. Such lines of communication must be accessible to all and allow compliance issues to be reported including a method for anonymous and confidential good faith reporting of potential compliance issues as they are identified. - (E) Well-publicized disciplinary standards through the implementation of procedures which encourage good faith participation in the compliance program by all affected individuals. These standards must include policies that— (1) Articulate expectations for reporting compliance issues and assist in their resolution, (2) Identify noncompliance or unethical behavior; and (3) Provide for timely, consistent, and effective enforcement of the standards when noncompliance or unethical behavior is determined. - (F) Establishment and implementation of an effective system for routine monitoring and identification of compliance risks. The system should include internal monitoring and audits and, as appropriate, external audits, to evaluate the MA organization, including first tier entities', compliance with CMS requirements and the overall effectiveness of the compliance program. - (G) Establishment and implementation of procedures and a system for promptly responding to compliance issues as they are raised, investigating potential compliance problems as identified in the course of self-evaluations and audits, correcting such problems promptly and thoroughly to reduce the potential for recurrence, and ensure ongoing compliance with CMS requirements. (1) If the MA organization discovers evidence of misconduct related to payment or delivery of items or services under the contract, it must conduct a timely, reasonable inquiry into that conduct. (2) The MA organization must conduct appropriate corrective actions (for example, repayment of overpayments, disciplinary actions against responsible employees) in response to the potential violation referenced in paragraph (b)(4)(vi)(G)(1) of this section. (3) The MA organization should have procedures to voluntarily self-report potential fraud or misconduct related to the MA program to CMS or its designee. (4) The MA organization must have procedures to identify, and must report to CMS or its designee either of the following, in the manner described in [paragraphs (b)(4)(vi)(G)(4) through (6)](#b-4-vi-G-4..b-4-vi-G-6) of this section: (i) Any payment suspension implemented by a plan, pending investigation of credible allegations of fraud by a pharmacy, which must be implemented in the same manner as the Secretary does under [section 1862(o)(1)](/cfr/42/1862.md?p=o-1) of the Act. (ii) Any information concerning investigations, credible evidence of suspicious activities of a provider of services (including a prescriber) or supplier, and other actions taken by the plan related to the inappropriate prescribing of opioids. (5) The MA organization must submit data, as specified in this section, in the program integrity portal when reporting payment suspensions pending investigations of credible allegations of fraud by pharmacies; information related to the inappropriate prescribing of opioids and concerning investigations and credible evidence of suspicious activities of a provider of services (including a prescriber) or supplier, and other actions taken by the MA organization; or if the plan reports a referral, through the portal, of substantiated or suspicious activities of a provider of services (including a prescriber) or a supplier related to fraud, waste, or abuse to initiate or assist with investigations conducted by CMS, or its designee, a Medicare program integrity contractor, or law enforcement partners. The data categories, as applicable, include referral information and actions taken by the MA organization on the referral. (6)(i) The MA organization is required to notify the Secretary, or its designee, of a payment suspension described in paragraph (b)(4)(vi)(G)(4)(i) of this section 7 days prior to implementation of the payment suspension. The MA organization may request an exception to the 7-day prior notification to the Secretary, or its designee, if circumstances warrant a reduced reporting time frame, such as potential beneficiary harm. (ii) The MA organization is required to submit the information described in paragraph (b)(4)(vi)(G)(4)(ii) of this section no later than January 30, April 30, July 30, and October 30 of each year for the preceding periods, respectively, of October 1 through December 31, January 1 through March 31, April 1 through June 30, and July 1 through September 30. For the first reporting period (January 30, 2022), the reporting will reflect the data gathered and analyzed for the previous quarter in the calendar year (October 1-December 31). (7)(i) CMS will provide MA organizations with data report(s) or links to the information described in paragraphs (b)(4)(vi)(G)(4)(i) and (ii) of this section no later than April 15, July 15, October 15, and January 15 of each year based on the information in the portal, respectively, as of the preceding October 1 through December 31, January 1 through March 31, April 1 through June 30, and July 1 through September 30. (ii) Include administrative actions, pertinent information related to opioid overprescribing, and other data determined appropriate by the Secretary in consultation with stakeholders. (iii) Are anonymized information submitted by plans without identifying the source of such information. (iv) For the first quarterly report (April 15, 2022), that the report reflect the data gathered and analyzed for the previous quarter submitted by the plan sponsors on January 30, 2022. - (5) Not accept new enrollees under a [section 1876](/cfr/42/1876.md) reasonable cost contract in any area in which it seeks to offer an MA plan. - (i) Not accept, or share a corporate parent organization owning a controlling interest in an entity that accepts, new enrollees under a [section 1876](/cfr/42/1876.md) reasonable cost contract in any area in which it seeks to offer an MA plan that is not a dual eligible special needs plan. - (ii) Not accept, or be either the parent organization owning a controlling interest of or subsidiary of an entity that accepts, new enrollees under a [section 1876](/cfr/42/1876.md) reasonable cost contract in any area in which it seeks to offer an MA plan that is not a dual eligible special needs plan. - (6) The MA organization's contract must not have been non-renewed under [§ 422.506](/cfr/42/422.506.md) within the past 2 years unless— - (i) During the 6-month period beginning on the date the organization notified CMS of the intention to non-renew the most recent previous contract, there was a change in the statute or regulations that had the effect of increasing MA payments in the payment area or areas at issue; or - (ii) **CMS has otherwise determined that circumstances warrant special consideration.** - (7) Not have terminated a contract by mutual consent under which, as a condition of the consent, the MA organization agreed that it was not eligible to apply for new contracts or service area expansions for a period of 2 years per [§ 422.508(c)](/cfr/42/422.508.md?p=c) of this subpart. - (8) Not newly offer a dual eligible special needs plan that would result in noncompliance with [§ 422.514(h)](/cfr/42/422.514.md?p=h). - (c) **Contracting authority.** Under the authority of section 1857(c)(5) of the Act, CMS may enter into contracts under this part without regard to Federal and Departmental acquisition regulations set forth in [title 48 of the CFR](/cfr/48.md) and provisions of law or other regulations relating to the making, performance, amendment, or modification of contracts of the United States if CMS determines that those provisions are inconsistent with the efficient and effective administration of the Medicare program. - (d) **Protection against fraud and beneficiary protections.** - (1) CMS annually audits the financial records (including data relating to Medicare utilization, costs, and computation of the bid) of at least one-third of the MA organizations offering MA plans. These auditing activities are subject to monitoring by the Comptroller General. - (2) Each contract under this section must provide that CMS, or any person or organization designated by CMS has the right to: - (i) Inspect or otherwise evaluate the quality, appropriateness, and timeliness of services performed under the MA 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 MA organization that pertain to—** - (A) The ability of the organization or its first tier or downstream providers to bear the risk of potential financial losses; or - (B) **Services performed or determinations of amounts payable under the contract.** - (iv) CMS may require that the MA organization hire an independent auditor to provide CMS with additional information to determine if deficiencies found during an audit or inspection have been corrected and are not likely to recur. The independent auditor must work in accordance with CMS specifications and must be willing to attest that a complete and full independent review has been performed. - (e) **Severability of contracts.** The contract must provide that, upon CMS's request— - (1) The contract will be amended to exclude any MA plan, MA plan segment, or State-licensed entity specified by CMS; and - (2) A separate contract for any such excluded plan, segment, or entity will be deemed to be in place when such a request is made. # §422.504. Contract provisions. The contract between the MA organization and CMS must contain the following provisions: - (a) **Agreement to comply with regulations and instructions.** The MA organization agrees to comply with all the applicable requirements and conditions set forth in this part and in general instructions. Compliance with the terms of this [paragraph (a)](#a) is material to the performance of the MA contract. The MA 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 [§ 422.110](/cfr/42/422.110.md) on discrimination in beneficiary enrollment. - (3) **To provide—** - (i) The basic benefits as required under [§ 422.101](/cfr/42/422.101.md) and, to the extent applicable, supplemental benefits under [§ 422.102](/cfr/42/422.102.md); and - (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 CMS as required under [§ 422.111](/cfr/42/422.111.md); - (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 and supplier requirements in [subpart E](/cfr/42/subpartE.md) 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, limits on physician incentive plans, and the preclusion list requirements in §§ [422.222](/cfr/42/422.222.md) and [422.224](/cfr/42/422.224.md). - (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 [§ 422.516](/cfr/42/422.516.md) and the requirements in [§ 422.310](/cfr/42/422.310.md) for submitting data to CMS; - (9) That it will be paid under the contract in accordance with the payment rules in subpart G of this part; - (10) To develop its annual bid, and submit all required information on premiums, benefits, and cost-sharing by not later than the first Monday in June, as provided in subpart F 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 with all requirements that are specific to a particular type of MA plan, such as the special rules for private fee-for-service plans in §§ [422.114](/cfr/42/422.114.md) and [422.216](/cfr/42/422.216.md) and the MSA requirements in §§ [422.56](/cfr/42/422.56.md), [422.103](/cfr/42/422.103.md), and [422.262](/cfr/42/422.262.md); and - (13) To comply with the confidentiality and enrollee record accuracy requirements in [§ 422.118](/cfr/42/422.118.md). - (14) Maintain a fiscally sound operation by at least maintaining a positive net worth (total assets exceed total liabilities). - (15) As described in [§ 422.125](/cfr/42/422.125.md) of this part, address and resolve complaints received by CMS against the MA organization in the Complaints Tracking Module. - (16) To maintain administrative and management capabilities sufficient for the organization to organize, implement, and control the financial, marketing, benefit administration, and quality improvement activities related to the delivery of Part C services. - (17) To maintain a Part C summary plan rating score of at least 3 stars under the 5-star rating system specified in [subpart D](/cfr/42/subpartD.md) of this part. A Part C summary plan rating is calculated as provided in [§ 422.166](/cfr/42/422.166.md). - (18) To comply with the requirements for access to health data and plan information under §§ [422.119](/cfr/42/422.119.md) and [422.120](/cfr/42/422.120.md) of this chapter. - (19) Not to establish a segment of an MA plan that meets the criteria in [§ 422.514(d)](/cfr/42/422.514.md?p=d), as determined in the procedures described in [§ 422.514(e)(3)](/cfr/42/422.514.md?p=e-3), with the addition of the newly enrolled individuals. - (20) To comply with the requirements established in [§ 422.514(h)](/cfr/42/422.514.md?p=h). - (21) Not to establish additional MA plans that are not facility based I-SNPs to contracts described in [§ 422.116(f)(3)](/cfr/42/422.116.md?p=f-3). - (b) **Communication with CMS.** The MA organization must have the capacity to communicate with CMS electronically. - (c) **Prompt payment.** The MA organization must comply with the prompt payment provisions of [§ 422.520](/cfr/42/422.520.md) and with instructions issued by CMS, as they apply to each type of plan included in the contract. - (d) **Maintenance of records.** The MA organization agrees to maintain for 10 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 bid) of MA organizations. - (ii) Enable CMS to inspect or otherwise evaluate the quality, appropriateness and timeliness of services performed under the contract, and the facilities of the organization. - (iii) Enable CMS to audit and inspect any books and records of the MA 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 bid proposal. - (v) **Establish component rates of the bid 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 MA organization's financial, medical, and other record keeping systems.** - (ii) **Financial statements for the current contract period and 10 prior periods.** - (iii) **Federal income tax or informational returns for the current contract period and 10 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 MA 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 MA organization agrees to the following: - (1) HHS, the Comptroller General, or their designee may evaluate, through inspection, audit, or other means— - (i) The quality, appropriateness, and timeliness of services furnished to Medicare enrollees under the contract; - (ii) Compliance with CMS requirements for maintaining the privacy and security of protected health information and other personally identifiable information of Medicare enrollees; - (iii) The facilities of the MA organization to include computer and other electronic systems; and - (iv) **The enrollment and disenrollment records for the current contract period and 10 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 MA 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 MA organization agrees to make available, for the purposes specified in [paragraph (d)](#d) of this section, its premises, physical facilities and equipment, records relating to its Medicare enrollees, and any additional relevant information that CMS may require. - (4) HHS, the Comptroller General, or their designee's right to inspect, evaluate, and audit extends through 10 years from the end of the final contract period or completion of audit, whichever is later unless— - (i) CMS determines there is a special need to retain a particular record or group of records for a longer period and notifies the MA organization at least 30 days before the normal disposition date; - (ii) There has been a termination, dispute, or allegation of fraud or similar fault by the MA organization, in which case the retention may be extended to 6 years from the date of any resulting final resolution of the termination, dispute, fraud, or similar fault; or - (iii) CMS determines that there is a reasonable possibility of fraud or similar fault, in which case CMS may inspect, evaluate, and audit the MA organization at any time. - (f) **Disclosure of information.** The MA organization agrees to submit— - (1) To CMS, certified financial information that must include the following: - (i) Such information as CMS may require demonstrating that the organization has a fiscally sound operation. - (ii) Such information as CMS may require pertaining to the disclosure of ownership and control of the MA organization. - (2) To CMS, all information that is necessary for CMS to administer and evaluate the program and to simultaneously establish and facilitate a process for current and prospective beneficiaries to exercise choice in obtaining Medicare services. This information includes, but is not limited to: - (i) The benefits covered under an MA plan; - (ii) The MA monthly basic beneficiary premium and MA monthly supplemental beneficiary premium, if any, for the plan or in the case of an MSA plan, the MA 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 CMS; and - (E) Other information determined by CMS to be necessary to assist beneficiaries in making an informed choice among MA 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) To CMS, any other information deemed necessary by CMS for the administration or evaluation of the Medicare program. - (3) To its enrollees all informational requirements under [§ 422.64](/cfr/42/422.64.md) and, upon an enrollee's, request the financial disclosure information required under [§ 422.516](/cfr/42/422.516.md). - (g) **Beneficiary financial protections.** The MA organization agrees to comply with the following requirements: - (1) Effective January 1, 2010, each MA organization must adopt and maintain arrangements satisfactory to CMS to protect its enrollees from incurring liability (for example, as a result of an organization's insolvency or other financial difficulties) for payment of any fees that are the legal obligation of the MA organization. To meet this requirement, the MA organization must— - (i) Ensure that all contractual or other written arrangements with providers prohibit the organization's providers from holding any enrollee liable for payment of any such fees; - (ii) Indemnify the enrollee for payment of any fees that are the legal obligation of the MA organization for services furnished by providers that do not contract, or that have not otherwise entered into an agreement with the MA organization, to provide services to the organization's enrollees; and - (iii) For all MA organizations with enrollees eligible for both Medicare and Medicaid, specify in contracts with providers that such enrollees will not be held liable for Medicare Part A and B cost sharing when the State is responsible for paying such amounts, and inform providers of Medicare and Medicaid benefits, and rules for enrollees eligible for Medicare and Medicaid. The MA plans may not impose cost-sharing that exceeds the amount of cost-sharing that would be permitted with respect to the individual under title XIX if the individual were not enrolled in such a plan. The contracts must state that providers will— - (A) Accept the MA plan payment as payment in full, or - (B) **Bill the appropriate State source.** - (iv) Ensure that the enrollee does not have any financial liability for services, items, or drugs furnished, ordered, or prescribed to the enrollee by an MA contracted individual or entity on the preclusion list, as defined in [§ 422.2](/cfr/42/422.2.md) and as described in [§ 422.222](/cfr/42/422.222.md). - (v) Ensure that the plan's provider agreement contains a provision stating that after the expiration of the 60-day period specified in [§ 422.222](/cfr/42/422.222.md): - (A) The provider will no longer be eligible for payment from the plan and will be prohibited from pursuing payment from the beneficiary as stipulated by the terms of the contract between CMS and the plan per [§ 422.504(g)(1)(iv)](#g-1-iv); and - (B) The provider will hold financial liability for services, items, and drugs that are furnished, ordered, or prescribed after this 60-day period, at which point the provider and the beneficiary will have already received notification of the preclusion. - (2) The MA organization must provide for continuation of enrollee health care benefits— - (i) For all enrollees, for the duration of the contract period for which CMS payments have been made; and - (ii) For enrollees who are hospitalized on the date its contract with CMS terminates, or, in the event of an insolvency, through discharge. - (3) In meeting the requirements of this paragraph, other than the provider contract requirements specified in [paragraph (g)(1)(i)](#g-1-i) of this section, the MA organization may use— - (i) Contractual arrangements; - (ii) Insurance acceptable to CMS; - (iii) Financial reserves acceptable to CMS; or - (iv) **Any other arrangement acceptable to CMS.** - (h) **Requirements of other laws and regulations.** The MA organization agrees to comply with- - (1) Federal laws and regulations designed to prevent or ameliorate fraud, waste, and abuse, including, but not limited to, applicable provisions of Federal criminal law, the False Claims Act ([31 U.S.C. 3729](/usc/31/3729.md) et. seq.), and the anti-kickback statute ([section 1128B(b)](/cfr/42/1128B.md?p=b)) of the Act); and - (2) **HIPAA administrative simplification rules at 45 CFR parts 160, 162, and 164.** - (i) **MA organization relationship with first tier, downstream, and related entities.** - (1) Notwithstanding any relationship(s) that the MA organization may have with first tier, downstream, and related entities, the MA organization maintains ultimate responsibility for adhering to and otherwise fully complying with all terms and conditions of its contract with CMS. - (2) **The MA organization agrees to require all first tier, downstream, and related entities to agree that—** - (i) HHS, the Comptroller General, or their designees have the right to audit, evaluate, collect, and inspect any books, contracts, computer or other electronic systems, including medical records and documentation of the first tier, downstream, and entities related to CMS' contract with the MA organization. - (ii) HHS, the Comptroller General, or their designees have the right to audit, evaluate, collect, and inspect any records under paragraph (i)(2)(i) of this section directly from any first tier, downstream, or related entity. - (iii) For records subject to review under paragraph (i)(2)(ii) of this section, except in exceptional circumstances, CMS will provide notification to the MA organization that a direct request for information has been initiated. - (iv) 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 10 years from the final date of the contract period or from the date of completion of any audit, whichever is later. - (v) They will ensure that payments are not made to individuals and entities included on the preclusion list, defined in [§ 422.2](/cfr/42/422.2.md). - (3) All contracts or written arrangements between MA organizations and first tier, downstream, and related entities must contain the following: - (i) Enrollee protection provisions that provide, consistent with [paragraph (g)(1)](#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 MA organization. - (ii) Accountability provisions that indicate that the MA organization may only delegate activities or functions to a first tier, downstream, or related entity, in a manner consistent with the requirements set forth at paragraph (i)(4) of this section. - (iii) A provision requiring that any services or other activity performed by a first tier, downstream, and related entity in accordance with a contract are consistent and comply with the MA organization's contractual obligations. - (4) If any of the MA organizations' activities or responsibilities under its contract with CMS are delegated to other parties, the following requirements apply to any first tier, downstream and related entity: - (i) Each and every contract must specify delegated activities and reporting responsibilities. - (ii) Each and every contract must either provide for revocation of the delegation activities and reporting requirements or specify other remedies in instances where CMS or the MA organization determine that such parties have not performed satisfactorily. - (iii) Each and every contract must specify that the performance of the parties is monitored by the MA organization on an ongoing basis. - (iv) Each and every contract must specify that either— - (A) The credentials of medical professionals affiliated with the party or parties will be either reviewed by the MA organization; or - (B) The credentialing process will be reviewed and approved by the MA organization and the MA 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 CMS instructions. - (5) If the MA organization delegates selection of the providers, contractors, or subcontractor to another organization, the MA organization's contract with that organization must state that the CMS-contracting MA organization retains the right to approve, suspend, or terminate any such arrangement. - (j) **Additional contract terms.** The MA organization agrees to include in the contract such other terms and conditions as CMS may find necessary and appropriate in order to implement requirements in this part. - (k) **Severability of contracts.** The contract must provide that, upon CMS's request— - (1) The contract will be amended to exclude any MA plan or State-licensed entity specified by CMS; 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 G](/cfr/42/subpartG.md) of this part, the MA organization agrees that its chief executive officer (CEO), chief financial officer (CFO), or an individual delegated the authority to sign on behalf of one of these officers, and who reports directly to such officer, must request payment under the contract on a document that certifies (based on best knowledge, information, and belief) the accuracy, completeness, and truthfulness of relevant data that CMS requests. Such data include specified enrollment information, encounter data, and other information that CMS may specify. - (1) The CEO, CFO, or an individual delegated the authority to sign on behalf of one of these officers, and who reports directly to such officer, must certify that each enrollee for whom the organization is requesting payment is validly enrolled in an MA plan offered by the organization and the information relied upon by CMS in determining payment (based on best knowledge, information, and belief) is accurate, complete, and truthful. - (2) The CEO, CFO, or an individual delegated with the authority to sign on behalf of one of these officers, and who reports directly to such officer, must certify (based on best knowledge, information, and belief) that the data it submits under [§ 422.310](/cfr/42/422.310.md) are accurate, complete, and truthful. - (3) If such data are generated by a related entity, contractor, or subcontractor of an MA organization, such entity, contractor, or subcontractor must similarly certify (based on best knowledge, information, and belief) the accuracy, completeness, and truthfulness of the data. - (4) The CEO, CFO, or an individual delegated the authority to sign on behalf of one of these officers, and who reports directly to such officer, must certify (based on best knowledge, information, and belief) that the information in its bid submission is accurate, complete, and truthful and fully conforms to the requirements in [§ 422.254](/cfr/42/422.254.md). - (5) **Certification of accuracy of data for overpayments.** The CEO, CFO, or COO must certify (based on best knowledge, information, and belief) that the information provided for purposes of reporting and returning of overpayments under [§ 422.326](/cfr/42/422.326.md) is accurate, complete, and truthful. - (m) **Issuance of compliance actions for failure to comply with the terms of the contract.** The MA organization acknowledges that CMS may take compliance actions as described in this section or intermediate sanctions as defined in subpart O of this part. - (1) CMS may take compliance actions as described in [paragraph (m)(3)](#m-3) of this section if it determines that the MA organization has not complied with the terms of a current or prior Part C contract with CMS. - (i) CMS may determine that an MA organization is out of compliance with a Part C requirement when the organization fails to meet performance standards articulated in the Part C statutes, regulations in this chapter, or guidance. - (ii) If CMS has not already articulated a measure for determining noncompliance, CMS may determine that an MA organization is out of compliance when its performance in fulfilling Part C requirements represents an outlier relative to the performance of other MA organizations. - (2) CMS bases its decision on whether to issue a compliance action and what level of compliance action to take on an assessment of the circumstances surrounding the noncompliance, including all of the following: - (i) **The nature of the conduct.** - (ii) **The degree of culpability of the MA organization.** - (iii) The adverse effect to beneficiaries which resulted or could have resulted from the conduct of the MA organization. - (iv) **The history of prior offenses by the MA organization or its related entities.** - (v) **Whether the noncompliance was self-reported.** - (vi) Other factors which relate to the impact of the underlying noncompliance or the lack of the MA organization's oversight of its operations that contributed to the noncompliance. - (3) CMS may take one of three types of compliance actions based on the nature of the noncompliance. - (i) **Notice of noncompliance.** A notice of noncompliance may be issued for any failure to comply with the requirements of the MA organization's current or prior Part C contract with CMS, as described in [paragraph (m)(1)](#m-1) of this section. - (ii) **Warning letter.** A warning letter may be issued for serious and/or continued noncompliance with the requirements of the MA organization's current or prior Part C contract with CMS, as described in [paragraph (m)(1)](#m-1) of this section and as assessed in accordance with [paragraph (m)(2)](#m-2) of this section. - (iii) **Corrective action plan.** - (A) Corrective action plans are requested for particularly serious or continued noncompliance with the requirements of the MA organization's current or prior Part C contract with CMS, as described in [paragraph (m)(1)](#m-1) of this section and as assessed in accordance with [paragraph (m)(2)](#m-2) of this section. - (B) CMS issues a corrective action plan if CMS determines that the MA organization has repeated or not corrected noncompliance identified in prior compliance actions, has substantially impacted beneficiaries or the program with its noncompliance, or must implement a detailed plan to correct the underlying causes of the noncompliance. - (n) **Acknowledgements of CMS release of data—** - (1) **Summary CMS payment data.** The contract must provide that the MA organization acknowledges that CMS releases to the public summary reconciled CMS payment data after the reconciliation of Part C and Part D payments for the contract year as follows: - (i) **For Part C, the following data—** - (A) Average per member per month CMS payment amount for A/B (original Medicare) benefits for each MA plan offered, standardized to the 1.0 (average risk score) beneficiary. - (B) Average per member per month CMS rebate payment amount for each MA plan offered (or, in the case of MSA plans, the monthly MSA deposit amount). - (C) **Average Part C risk score for each MA plan offered.** - (D) County level average per member per month CMS payment amount for each plan type in that county, weighted by enrollment and standardized to the 1.0 (average risk score) beneficiary in that county. - (ii) For Part D plan sponsors, plan payment data in accordance with [§ 423.505(o)](/cfr/42/423.505.md?p=o) of this subchapter. - (2) **MA bid pricing data and Part C MLR data.** The contract must provide that the MA organization acknowledges that CMS releases to the public data as described at §§ [422.272](/cfr/42/422.272.md) and [422.2490](/cfr/42/422.2490.md). - (o) **Business continuity.** - (1) The MA organization agrees to develop, maintain, and implement a business continuity plan containing policies and procedures to ensure the restoration of business operations following disruptions to business operations which would include natural or man-made disasters, system failures, emergencies, and other similar circumstances and the threat of such occurrences. To meet the requirement, the business continuity plan must, at a minimum, include the following: - (i) **Risk assessment.** Identify threats and vulnerabilities that might affect business operations. - (ii) **Mitigation strategy.** Design strategies to mitigate hazards. Identify essential functions in addition to those specified in [paragraph (o)(2)](#o-2) of this section and prioritize the order in which to restore all other functions to normal operations. At a minimum, each MA organization must do the following: - (A) Identify specific events that will activate the business continuity plan. - (B) Develop a contingency plan to maintain, during any business disruption, the availability and, as applicable, confidentiality of communication systems and essential records in all forms (including electronic and paper copies). The contingency plan must do the following: (1) Ensure that during any business disruption the following systems will operate continuously or, should they fail, be restored to operational capacity on a timely basis: (i) Information technology (IT) systems including those supporting claims processing at point of service. (ii) Provider and enrollee communication systems including telephone, Web site, and email. (2) With respect to electronic protected health information, comply with the contingency plan requirements of the Health Insurance Portability and Accountability Act of 1996 Security Regulations at 45 CFR parts [160](/cfr/45/part160.md) and [164](/cfr/45/part164.md), [subparts A](/cfr/42/subpartA.md) and C. - (C) **Establish a chain of command.** - (D) Establish a business communication plan that includes emergency capabilities and procedures to contact and communicate with the following: (1) Employees. (2) First tier, downstream, and related entities. (3) Other third parties (including pharmacies, providers, suppliers, and government and emergency management officials). - (E) Establish employee and facility management plans to ensure that essential operations and job responsibilities can be assumed by other employees or moved to alternate sites as necessary. - (F) **Establish a restoration plan including procedures to transition to normal operations.** - (G) **Comply with all applicable Federal, State, and local laws.** - (iii) **Testing and revision.** On at least an annual basis, test and update the business operations continuity plan to ensure the following: - (A) **That it can be implemented in emergency situations.** - (B) **That employees understand how it is to be executed.** - (iv) **Training.** On at least an annual basis, educate appropriate employees about the business continuity plan and their own respective roles. - (v) **Records.** - (A) Develop and maintain records documenting the elements of the business continuity plan described in [paragraphs (o)(1)(i) through (iv)](#o-1-i..o-1-iv) of this section. - (B) Make the information specified in [paragraph (o)(1)(v)(A)](#o-1-v-A) of this section available to CMS upon request. - (2) **Restoration of essential functions.** Every MA organization must plan to restore essential functions within 72 hours after any of the essential functions fail or otherwise stop functioning as usual. In addition to any essential functions that the MA organization identifies under [paragraph (o)(1)(ii)](#o-1-ii) of this section, for purposes of this [paragraph (o)(2)](#o-2) of the section essential functions include, at a minimum, the following: - (i) Benefit authorization (if not waived) for services to be immediately furnished at a hospital, clinic, provider office, or other place of service. - (ii) **Operation of call center customer services.** # §422.505. Effective date and term of contract. - (a) **Effective date.** The contract is effective on the date specified in the contract between the MA organization and CMS and, for a contract that provides for coverage under an MSA plan, not earlier than January 1999. - (b) **Term of contract.** Each contract is for a period of at least 12 months. - (c) **Renewal of contract.** In accordance with 422.506, contracts are renewed annually only if the MA organization has not provided CMS with a notice of intention not to renew and CMS has not provided the MA organization with a notice of intention not to renew. - (d) **Renewal of contract contingent on reaching agreement on the bid.** Although an MA organization may be determined qualified to renew its contract under this section, if the organization and CMS cannot reach agreement on the bid under subpart F of this part, no renewal will take place, and the failure to reach an agreement is not subject to the appeals provisions in subpart N of this part. # §422.506. Nonrenewal of contract. - (a) **Nonrenewal by an MA organization.** - (1) An MA organization may elect not to renew its contract with CMS 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)](#a-2) and [(a)(3)](#a-3) of this section. - (2) If an MA organization does not intend to renew its contract, it must notify— - (i) CMS in writing, by the first Monday in June of the year in which the contract would end; - (ii) Each Medicare enrollee by mail at least 90 calendar days before the date on which the nonrenewal is effective. The MA organization must also provide information about alternative enrollment options by doing one or more of the following: - (A) Provide a CMS approved written description of alternative MA plan, MA-PD plan, and PDP options available for obtaining qualified Medicare services within the beneficiaries' region. - (B) Place outbound calls to all affected enrollees to ensure beneficiaries know who to contact to learn about their enrollment options. - (3) If an MA organization does not renew a contract under [paragraph (a)](#a) of this section, CMS may deny an application for a new contract or a service area expansion from the MA organization for 2 years unless there are circumstances that warrant special consideration, as determined by CMS. This prohibition may apply regardless of the product type, contract type or service area of the previous contract. - (4) During the same 2-year period as specified in [paragraph (a)(3)](#a-3) of this section, CMS will not contract with an organization whose covered persons also served as covered persons for the non-renewing sponsor. A “covered person” as used in this paragraph means one of the following: - (i) All owners of nonrenewed or terminated organizations who are natural persons, other than shareholders who have an ownership interest of less than 5 percent. - (ii) An owner in whole or part interest in any mortgage, deed of trust, note or other obligation secured (in whole or in part) by the organization, or any of the property or assets thereof, which whole or part interest is equal to or exceeds 5 percent of the total property, and assets of the organization. - (iii) A member of the board of directors or board of trustees of the entity, if the organization is organized as a corporation. - (b) [Reserved] # §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)](#b) of this section, the MA organization must provide notice to its Medicare enrollees and the general public as provided in § [422.512(b)(2)](/cfr/42/422.512.md?p=b-2) and [(b)(3)](/cfr/42/422.512.md?p=b-3). - (2) If the contract is modified by mutual consent, the MA organization must notify its Medicare enrollees of any changes that CMS determines are appropriate for notification within timeframes specified by CMS. - (3) If the organization submits a request to end the term of its contract after the deadline provided in [§ 422.506(a)(2)(i)](/cfr/42/422.506.md?p=a-2-i), the contract may be terminated by mutual consent in accordance with [paragraphs (a) through (d)](#a..d) of this section. CMS may mutually consent to the contract termination if the contract termination does not negatively affect the administration of the Medicare program. - (b) If the contract terminated by mutual consent is replaced the day following such termination by a new MA contract, the MA organization is not required to provide the notice specified in [paragraph (a)(1)](#a-1) of this section. - (c) **Agreement to limit new MA applications.** As a condition of the consent to a mutual termination CMS will require, as a provision of the termination agreement language prohibiting the MA organization from applying for new contracts or service area expansions for a period of 2 years, absent circumstances warranting special consideration. This prohibition may apply regardless of the product type, contract type or service area of the previous contract. - (d) **Prohibition against Part C program participation by organizations whose owners, directors, or management employees served in a similar capacity with another organization that mutually terminated its Medicare contract within the previous 2 years.** During the same 2-year period, CMS will not contract with an organization whose covered persons also served as covered persons for the mutually terminating sponsor. A “covered person” as used in this paragraph means one of the following: - (1) All owners of nonrenewal or terminated organizations who are natural persons, other than shareholders who have an ownership interest of less than 5 percent. - (2) An owner in whole or part interest in any mortgage, deed of trust, note or other obligation secured (in whole or in part) by the organization, or any of the property or assets thereof, which whole or part interest is equal to or exceeds 5 percent of the total property, and assets of the organization. - (3) **A member of the board of directors of the entity, if the organization is organized as a corporation.** # §422.510. Termination of contract by CMS. - (a) **Termination by CMS.** CMS may at any time terminate a contract if CMS determines that the MA organization meets any of the following: - (1) **Has failed substantially to carry out the contract.** - (2) Is carrying out the contract in a manner that is inconsistent with the efficient and effective administration of this part. - (3) **No longer substantially meets the applicable conditions of this part.** - (4) CMS may make a determination under paragraph [(a)(1)](#a-1), [(2)](#a-2), or [(3)](#a-3) of this section if the MA organization has had one or more of the following occur: - (i) Based on creditable evidence, has committed or participated in false, fraudulent or abusive activities affecting the Medicare, Medicaid or other State or Federal health care programs, including submission of false or fraudulent data. - (ii) Substantially failed to comply with the requirements in subpart M of this part relating to grievances and appeals. - (iii) Failed to provide CMS with valid data as required under [§ 422.310](/cfr/42/422.310.md). - (iv) Failed to implement an acceptable quality assessment and performance improvement program as required under subpart D of this part. - (v) Substantially failed to comply with the prompt payment requirements in [§ 422.520](/cfr/42/422.520.md). - (vi) Substantially failed to comply with the service access requirements in [§ 422.112](/cfr/42/422.112.md) or [§ 422.114](/cfr/42/422.114.md). - (vii) Failed to comply with the requirements of [§ 422.208](/cfr/42/422.208.md) regarding physician incentive plans. - (viii) **Substantially fails to comply with the requirements in subpart V of this part.** - (ix) Failed to comply with the regulatory requirements contained in this part or [part 423](/cfr/42/part423.md) of this chapter or both. - (x) Failed to meet CMS performance requirements in carrying out the regulatory requirements contained in this part or [part 423](/cfr/42/part423.md) of this chapter or both. - (xi) **Achieves a Part C summary plan rating of less than 3 stars for 3 consecutive contract years.** Plan ratings issued by CMS before September 1, 2012 are not included in the calculation of the 3-year period. - (xii) Has failed to report MLR data in a timely and accurate manner in accordance with [§ 422.2460](/cfr/42/422.2460.md) or that any MLR data required by this subpart is found to be materially incorrect or fraudulent. - (xiii) Fails to meet the preclusion list requirements in accordance with § [422.222](/cfr/42/422.222.md) and [422.224](/cfr/42/422.224.md). - (xiv) The MA organization has committed any of the acts in [§ 422.752(a)](/cfr/42/422.752.md?p=a) that support the imposition of intermediate sanctions or civil money penalties under [subpart O](/cfr/42/subpartO.md) of this part. - (xv) Following the issuance of a notice to the MA organization no later than August 1, CMS must terminate, effective December 31 of the same year, an individual MA plan if that plan does not have a sufficient number of enrollees to establish that it is a viable independent plan option. - (xvi) Meets the criteria in § [422.514(d)(1)](/cfr/42/422.514.md?p=d-1) or [(2)](/cfr/42/422.514.md?p=d-2). - (xvii) Is no longer eligible to offer a dual eligible special needs plan because the MA organization does not hold a contract consistent with [§ 422.107(b)](/cfr/42/422.107.md?p=b) with the State Medicaid agency. - (b) **Notice.** If CMS decides to terminate a contract it gives notice of the termination as follows: - (1) **Termination of contract by CMS.** - (i) CMS notifies the MA organization in writing at least 45 calendar days before the intended date of the termination. - (ii) The MA organization notifies its Medicare enrollees of the termination by mail at least 30 calendar days before the effective date of the termination. - (iii) The MA organization notifies the general public of the termination at least 30 calendar days before the effective date of the termination by releasing a press statement to news media serving the affected community or county and posting the press statement prominently on the organization's Web site. - (iv) In the event that CMS issues a termination notice to an MA organization on or before August 1 with an effective date of the following December 31, the MA organization must issue notification to its Medicare enrollees at least 90 days prior to the effective date of the termination. - (2) **Immediate termination of contract by CMS.** - (i) **The procedures specified in paragraph (b)(1) of this section do not apply if—** - (A) CMS determines that a delay in termination, resulting from compliance with the procedures provided in this part prior to termination, would pose an imminent and serious risk to the health of the individuals enrolled with the MA organization; or - (B) The MA 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; or - (C) The contract is being terminated based on the grounds specified in [paragraph (a)(4)(i)](#a-4-i) of this section. - (D) **The contract is being terminated based on paragraph (a)(4)(xvii) of this section.** - (ii) CMS notifies the MA organization in writing that its contract will be terminated on a date specified by CMS. If a termination is effective in the middle of a month, CMS has the right to recover the prorated share of the capitation payments made to the MA organization covering the period of the month following the contract termination. - (iii) CMS notifies the MA organization's Medicare enrollees in writing of CMS's decision to terminate the MA organization's contract. This notice occurs no later than 30 days after CMS notifies the plan of its decision to terminate the MA contract. CMS simultaneously informs the Medicare enrollees of alternative options for obtaining Medicare services, including alternative MA organizations in a similar geographic area and original Medicare. - (iv) CMS notifies the general public of the termination no later than 30 days after notifying the plan of CMS's decision to terminate the MA contract. This notice is published in one or more newspapers of general circulation in each community or county located in the MA organization's service area. - (c) **Opportunity to develop and implement a corrective action plan—** - (1) **General.** - (i) Before providing a notice of intent to terminate the contract, CMS will provide the MA organization with notice specifying the MA organization's deficiencies and a reasonable opportunity of at least 30 calendar days to develop and implement a corrective action plan to correct the deficiencies. - (ii) The MA organization is solely responsible for the identification, development, and implementation of its corrective action plan and for demonstrating to CMS that the underlying deficiencies have been corrected within the time period specified by CMS in the notice requesting corrective action. - (2) **Exceptions.** The MA organization will not be provided with an opportunity to develop and implement a corrective action plan prior to termination if— - (i) CMS determines that a delay in termination, resulting from compliance with the procedures provided in this part prior to termination, would pose an imminent and serious risk to the health of the individuals enrolled with the MA organization; - (ii) The MA 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; or - (iii) **The contract is being terminated based on the violation specified in (a)(4)(i) of this section.** - (iv) **The contract is being terminated based on paragraph (a)(4)(xvii) of this section.** - (d) **Appeal rights.** If CMS decides to terminate a contract, it sends written notice to the MA organization informing it of its termination appeal rights in accordance with subpart N of this part. - (e) If CMS makes a determination to terminate a MA organization's contract under [§ 422.510(a)](#a), CMS also imposes the intermediate sanctions at § [422.750(a)(1)](/cfr/42/422.750.md?p=a-1) and [(3)](/cfr/42/422.750.md?p=a-3) in accordance with the following procedures: - (1) **The sanction goes into effect 15 days after the termination notice is sent.** - (2) The MA organization has a right to appeal the intermediate sanction in the same proceeding as the termination appeal specified in [paragraph (d)](#d) of this section. - (3) **A request for a hearing does not delay the date specified by CMS when the sanction becomes effective.** - (4) **The sanction remains in effect—** - (i) Until the effective date of the termination; or - (ii) If the termination decision is overturned on appeal, when a final decision is made by the hearing officer or Administrator. # §422.512. Termination of contract by the MA organization. - (a) **Cause for termination.** The MA organization may terminate the MA contract if CMS fails to substantially carry out the terms of the contract. - (b) **Notice.** The MA organization must give advance notice as follows: - (1) **To CMS, at least 90 days before the intended date of termination.** This notice must specify the reasons why the MA 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 MA plans, Medigap options, original Medicare and must receive CMS approval. - (3) To the general public at least 60 days before the termination effective date by publishing an CMS-approved notice in one or more newspapers of general circulation in each community or county located in the MA organization's geographic area. - (c) **Effective date of termination.** The effective date of the termination is determined by CMS and is at least 90 days after the date CMS receives the MA organization's notice of intent to terminate. - (d) **CMS's liability.** CMS's liability for payment to the MA organization ends as of the first day of the month after the last month for which the contract is in effect. - (e) **Effect of termination by the organization.** - (1) CMS may deny an application for a new contract or a service area expansion from an MA organization that has terminated its contract within the preceding 2 years unless there are circumstances that warrant special consideration, as determined by CMS. This prohibition may apply regardless of the contract type, product type, or service area of the previous contract. - (2) During the same 2-year period specified in [paragraph (e)(1)](#e-1) of this section, CMS will not contract with an organization whose covered persons also served as covered persons for the terminating sponsor. A “covered person” as used in this paragraph means one of the following: - (i) All owners of nonrenewal or terminated organizations who are natural persons, other than shareholders who have an ownership interest of less than 5 percent. - (ii) An owner in whole or part interest in any mortgage, deed of trust, note or other obligation secured (in whole or in part) by the organization, or any of the property or assets thereof, which whole or part interest is equal to or exceeds 5 percent of the total property and assets of the organization. - (iii) **A member of the board of directors of the entity, if the organization is organized as a corporation.** # §422.514. Enrollment requirements. - (a) **Minimum enrollment rules.** Except as provided in [paragraph (b)](#b) of this section, CMS 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 [§ 412.62(f)](/cfr/42/412.62.md?p=f) (or, in the case of a PSO, the PSO meets the requirements in [§ 422.352(c)](/cfr/42/422.352.md?p=c)). - (3) Except as provided for in [paragraph (b)](#b) of this section, an MA organization must maintain a minimum enrollment as defined in paragraphs [(a)(1)](#a-1) and [(a)(2)](#a-2) of this section for the duration of its contract. - (b) **Minimum enrollment waiver.** For a contract applicant that does not meet the applicable requirement of [paragraph (a)](#a) of this section at application for an MA contract, CMS may waive the minimum enrollment requirement for the first 3 years of the contract. To receive a waiver, a contract applicant must demonstrate to CMS's satisfaction that it is capable of administering and managing an MA contract and is able to manage the level of risk required under the contract during the first 3 years of the contract. Factors that CMS takes into consideration in making this evaluation include the extent to which— - (1) The contract applicant 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)](#a) of this section; or - (2) **The contract applicant has the financial ability to bear financial risk under an MA contract.** In determining whether an organization is capable of bearing risk, CMS considers factors such as the organization's management experience as described in [paragraph (b)(1)](#b-1) of this section and stop-loss insurance that is adequate and acceptable to CMS; and - (3) The contract applicant is able to establish a marketing and enrollment process that allows it to meet the applicable enrollment requirement specified in [paragraph (a)](#a) of this section before completion of the third contract year. - (c) **Failure to meet enrollment requirements.** CMS may elect not to renew its contract with an MA organization that fails to meet the applicable enrollment requirement in [paragraph (a)](#a) of this section. - (d) **Rule on dual eligible enrollment.** In any state where there is a dual eligible special needs plan or any other plan authorized by CMS to exclusively enroll individuals entitled to medical assistance under a state plan under title XIX, CMS does not: - (1) **Enter into or renew a contract under this subpart for a MA plan that—** - (i) Is not a specialized MA plan for special needs individuals as defined in [§ 422.2](/cfr/42/422.2.md); and - (ii) Projects enrollment in its bid submitted under [§ 422.254](/cfr/42/422.254.md) in which enrollees entitled to medical assistance under a State plan under title XIX constitute a percentage of the plan's total enrollment that meets or exceeds one of the following:— - (A) **For plan year 2024, 80 percent.** - (B) **For plan year 2025, 70 percent.** - (C) **For plan year 2026 and subsequent years, 60 percent.** - (2) **Renew a contract under this subpart for an MA plan that—** - (i) Is not a specialized MA plan for special needs individuals as defined in [§ 422.2](/cfr/42/422.2.md); and - (ii) Unless the MA plan has been active for less than 1 year and has enrollment of 200 or fewer individuals at the time of such determination, has actual enrollment, as determined by CMS using the January enrollment of the current year in which enrollees who are entitled to medical assistance under a state plan under title XIX, constitute a percentage of the plan's total enrollment that meets or exceeds one of the following: - (A) **For renewals for plan year 2024, 80 percent.** - (B) **For renewals for plan year 2025, 70 percent.** - (C) **For renewals for plan year 2026 and subsequent years, 60 percent.** - (e) **Transition process and procedures.** - (1) For coverage effective January 1 of the next year, and subject to the disclosure requirements described in [paragraph (e)(2)](#e-2) of this section, an MA organization may transition enrollees in a plan specified in [paragraph (d)(2)](#d-2) of this section into another MA plan or plans (including into a dual eligible special needs plan for enrollees who are eligible for such a plan) offered by the MA organization, or another MA organization that shares the same parent organization as the MA organization, for which the individual is eligible in accordance with [§§ 422.50 through 422.53](/cfr/42/422.50..422.53.md) if the MA plan or plans receiving such enrollment— - (i) Would not meet the criteria in [paragraph (d)(2)(ii)](#d-2-ii) of this section, as determined in the procedures described in [paragraph (e)(3)](#e-3) of this section, with the addition of the newly enrolled individuals (unless such plan is a specialized MA plan for special needs individuals as defined in [§ 422.2](/cfr/42/422.2.md)); - (ii) Is an MA-PD plan described at [§ 422.2](/cfr/42/422.2.md); - (iii) Has a combined Part C and Part D premium of $0.00 for individuals eligible for the premium subsidy for full subsidy eligible individuals described in [§ 423.780(a)](/cfr/42/423.780.md?p=a) of this chapter; - (iv) Is of the same plan type (for example, HMO or PPO) as the plan specified in [paragraph (d)(2)](#d-2) of this section; and - (v) For transitions for plan year 2027 and subsequent years, is a dual eligible special needs plan as defined in [§ 422.2](/cfr/42/422.2.md). - (2) An MA organization may transition individuals under [paragraph (e)(1)](#e-1) of this section without requiring the individual to file the election form under [§ 422.66(a)](/cfr/42/422.66.md?p=a) if— - (i) The enrolled individual is eligible to enroll in the MA plan; and - (ii) The MA-PD plan into which individuals are transitioned describes changes to MA-PD benefits and provides information about the MA-PD plan in the Annual Notice of Change, which must be sent consistent with § [422.111(a)](/cfr/42/422.111.md?p=a), [(d)](/cfr/42/422.111.md?p=d), and [(e)](/cfr/42/422.111.md?p=e). - (3) For the purpose of approving a MA organization to transition enrollment under this [paragraph (e)](#e), CMS determines whether a non-SNP MA plan would meet the criteria in [paragraph (d)(2)](#d-2) of this section by adding the cohort of individuals identified by the MA organization for enrollment in a non-SNP MA plan to the April enrollment of such plan and calculating the resulting percentage of dual eligible enrollment. - (4) In cases where an MA organization does not transition current enrollees under [paragraph (e)(1)](#e-1) of this section, the MA organization must send a written notice to enrollees who are not transitioned, consistent with [§ 422.506(a)(2)](/cfr/42/422.506.md?p=a-2). - (f) **Special considerations.** Actions taken pursuant to [paragraph (d)](#d) of this section warrant special consideration to exempt affected MA organizations from the denial of an application for a new contract or service area expansion in accordance with §§ [422.502(b)(3)](/cfr/42/422.502.md?p=b-3) and [(4)](/cfr/42/422.502.md?p=b-4), [422.503(b)(6)](/cfr/42/422.503.md?p=b-6) and [(7)](/cfr/42/422.503.md?p=b-7), [422.506(a)(3)](/cfr/42/422.506.md?p=a-3) and [(4)](/cfr/42/422.506.md?p=a-4), [422.508(c)](/cfr/42/422.508.md?p=c) and [(d)](/cfr/42/422.508.md?p=d), and [422.512(e)(1)](/cfr/42/422.512.md?p=e-1) and [(2)](/cfr/42/422.512.md?p=e-2). - (g) **Applicability to segments.** The rules under [paragraphs (d) through (f)](#d..f) of this section also apply to segments of the MA plan as provided for local MA plans under [§ 422.262(c)(2)](/cfr/42/422.262.md?p=c-2). - (h) **Rule on dual eligible special needs plans in relation to Medicaid managed care.** - (1) Beginning in 2027, where an MA organization offers a dual eligible special needs plan and the MA organization, its parent organization, or any entity that shares a parent organization with the MA organization also contracts with a State as a Medicaid managed care organization (MCO) (as defined in [§ 438.2](/cfr/42/438.2.md)) that enrolls full-benefit dual eligible individuals as defined in [§ 423.772](/cfr/42/423.772.md), during the effective dates and in the same service area (even if there is only partial overlap of the service areas) of that Medicaid MCO contract, the MA organization— - (i) May only offer, or have a parent organization or share a parent organization with another MA organization that offers, one D-SNP for full-benefit dual eligible individuals, except as permitted in [paragraph (h)(3)](#h-3) of this section; and - (ii) Must limit new enrollment in the D-SNP to individuals enrolled in, or in the process of enrolling in, the Medicaid MCO. - (2) Beginning in 2030, such D-SNPs may only enroll (or continue to cover) individuals enrolled in (or in the process of enrolling in) the Medicaid MCO, except that such D-SNPs may continue to implement deemed continued eligibility requirements as described in [§ 422.52(d)](/cfr/42/422.52.md?p=d). - (3) - (i) If a State Medicaid agency's contract(s) with the MA organization differentiates enrollment into D-SNPs by age group or to align enrollment in each D-SNP with the eligibility or benefit design used in the State's Medicaid managed care program(s) (as defined in [§ 438.2](/cfr/42/438.2.md)), the MA organization, its parent organization, or an entity that shares a parent organization with the MA organization may offer one or more additional D-SNPs for full-benefit dual eligible individuals in the same service area in accordance with the group (or groups) eligible for D-SNPs based on provisions of the contract with the State Medicaid agency under [§ 422.107](/cfr/42/422.107.md). - (ii) If the MA organization, its parent organization, or an entity that shares a parent organization with the MA organization offers both HMO D-SNP(s) and PPO D-SNP(s), and one or more of the— - (A) HMO D-SNPs is subject to [paragraph (h)(1)](#h-1) of this section, the PPO D-SNP(s) not subject to [paragraph (h)(1)](#h-1) of this section may continue if they no longer accept new enrollment of full-benefit dual eligible individuals in the same service area as the plan (or plans) subject to [paragraph (h)(1)](#h-1) of this section. - (B) PPO D-SNPs is subject to [paragraph (h)(1)](#h-1) of this section, the HMO D-SNP(s) not subject to [paragraph (h)(1)](#h-1) of this section may continue if they no longer accept new enrollment of full-benefit dual eligible individuals in the same service area as the plan (or plans) subject to [paragraph (h)(1)](#h-1) of this section. - (iii) If an MA organization subject to [paragraph (h)(1)](#h-1) of this section holds a State Medicaid agency contract with a State that does not mandate enrollment in Medicaid managed care for all full-benefit dually eligible individuals and the State Medicaid agency contract allows, the MA organization, its parent organization, or an entity that shares a parent organization with the MA organization may offer one or more additional D-SNPs for full-benefit dually eligible individuals who are enrolled in Medicaid fee-for-service. These D-SNPs may not enroll full-benefit dually eligible individuals who are enrolled in a Medicaid managed care organization that is owned and controlled by an entity other than the MA organization, its parent organization, or an entity that shares a parent organization with the MA organization. - (iv) If a U.S. Territory has not adopted Medicare Savings Programs, as defined in [42 CFR 435.4](/cfr/42/435.4.md), an MA organization operating in such U.S. Territory is exempt from the requirements in [paragraph (h)(1)(i)](#h-1-i) of this section. # §422.516. Validation of Part C reporting requirements. - (a) **Required information.** Each MA organization must have an effective procedure to develop, compile, evaluate, and report to CMS, to its enrollees, and to the general public, at the times and in the manner that CMS requires, and while safeguarding the confidentiality of the provider-patient relationship, information with respect to the following: - (1) **The cost of its operations.** - (2) **The procedures related to and utilization of its services and items.** - (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 MA organization has a fiscally sound operation.** - (6) Other matters that CMS may require. - (b) **Significant business transactions.** Each MA organization must report to CMS annually, within 120 days of the end of its fiscal year (unless for good cause shown, CMS authorizes an extension of time), the following: - (1) A description of significant business transactions (as defined in [§ 422.500](/cfr/42/422.500.md)) between the MA 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)](#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 MA 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 MA organization go to a party in interest. - (ii) **Thirty-five percent or more of the revenue of a party in interest is from the MA organization.** - (c) **Requirements for combined financial statements.** - (1) The combined financial statements required by [paragraph (b)(3)](#b-3) of this section must display in separate columns the financial information for the MA 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 MA organization showing good cause, CMS may waive the requirement that the organization's combined financial statement include the financial information required in this [paragraph (c)](#c) with respect to a particular entity. - (d) **Reporting and disclosure under ERISA.** - (1) For any employees' health benefits plan that includes an MA organization in its offerings, the MA organization must furnish, upon request, the information the plan needs to fulfill its reporting and disclosure obligations (with respect to the particular MA organization) under the Employee Retirement Income Security Act of 1974 (ERISA). - (2) The MA 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. - (e) **Loan information.** Each organization must notify CMS of any loans or other special financial arrangements it makes with contractors, subcontractors and related entities. - (f) **Enrollee access to Information.** Each MA organization must make the information reported to CMS under [§ 422.502(f)(1)](/cfr/42/422.502.md?p=f-1) available to its enrollees upon reasonable request. - (g) **Data validation.** Each Part C sponsor must subject information collected under [paragraph (a)](#a) of this section to a yearly independent audit to determine their reliability, validity, completeness, and comparability in accordance with specifications developed by CMS. # §422.520. Prompt payment by MA organization. - (a) **Contract between CMS and the MA organization.** - (1) The contract between CMS and the MA organization must provide that the MA 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 MA 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 MA organization must pay interest on clean claims that are not paid within 30 days in accordance with sections [1816(c)(2)(B)](/cfr/42/1816.md?p=c-2-B) and [1842(c)(2)(B)](/cfr/42/1842.md?p=c-2-B). - (3) All other claims from non-contracted providers must be paid or denied within 60 calendar days from the date of the request. - (b) - (1) **Contracts between MA organizations and providers and suppliers.** Contracts or other written agreements between MA organizations and providers must contain a prompt payment provision, the terms of which are developed and agreed to by both the MA organization and the relevant provider. - (2) The MA organization is obligated to pay contracted providers under the terms of the contract between the MA organization and the provider. - (c) **Failure to comply.** If CMS determines, after giving notice and opportunity for hearing, that an MA organization has failed to make payments in accordance with [paragraph (a)](#a) of this section, CMS may provide— - (1) For direct payment of the sums owed to providers, or MA 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. - (d) A CMS decision to not conduct a hearing under [paragraph (c)](#c) of this section does not disturb any potential remedy under State law for 1866(a)(1)(O) of the Act. # §422.521. Effective date of new significant regulatory requirements. CMS will not implement, other than at the beginning of a calendar year, requirements under this part that impose a new significant cost or burden on MA organizations or plans, unless a different effective date is required by statute. # §422.524. Special rules for RFB societies. In order to participate as an MA 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 MA 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. # §422.527. Agreements with Federally qualified health centers. The contract between the MA organization and CMS must specify that— - (a) The MA organization must pay a Federally qualified health center (FQHC) a similar amount to what it pays other providers for similar services. - (b) Under such a contract, the FQHC must accept this payment as payment in full, except for allowable cost sharing which it may collect. - (c) Financial incentives, such as risk pool payments or bonuses, and financial withholdings are not considered in determining the payments made by CMS under [§ 422.316(a)](/cfr/42/422.316.md?p=a). # §422.528. Final settlement process and payment. - (a) **Notice of final settlement.** After the calculation of the final settlement amount, CMS sends the MA organization a notice of final settlement. The notice of final settlement contains at least all of the following information: - (1) A final settlement amount, which may be either an amount due to the MA organization, or an amount due from the MA organization, or $0 if nothing is due to or from the MA organization, for the contract that has been consolidated, nonrenewed, or terminated. - (2) Relevant banking and financial mailing instructions for MA organizations that owe CMS a final settlement amount. - (3) **Relevant CMS contact information.** - (4) A description of the steps for requesting an appeal of the final settlement amount calculation, in accordance with the requirements specified in [§ 422.529](/cfr/42/422.529.md). - (b) **Request for an appeal.** An MA organization that disagrees with the final settlement amount has 15 calendar days from issuance of the notice of final settlement, as described in [paragraph (a)](#a) of this section, to request an appeal of the final settlement amount under the process described in [§ 422.529](/cfr/42/422.529.md). - (1) If an MA organization agrees with the final settlement amount, no response is required. - (2) If an MA organization disagrees with the final settlement amount but does not request an appeal within 15 calendar days from the date of the issuance of the notice of final settlement, CMS does not consider subsequent requests for appeal. - (c) **Actions if an MA organization does not request an appeal.** - (1) For MA organizations that are owed money by CMS, CMS remits payment to the MA organization within 60 calendar days from the date of the issuance of the notice of final settlement. - (2) For MA organizations that owe CMS money, the MA organization is required to remit payment to CMS within 120 calendar days from issuance of the notice of final settlement. If the MA organization fails to remit payment within that 120-calendar-day period, CMS refers the debt owed to CMS to the Department of the Treasury for collection. - (d) **Actions following submission of a request for appeal.** If an MA organization responds to the notice of final settlement disagreeing with the final settlement amount and requesting appeal, CMS conducts a review under the process described at[§ 422.529](/cfr/42/422.529.md). - (e) **No additional payment adjustments.** After the final settlement amount is calculated and the notice of final settlement, as described under [§ 422.528(a)](#a), is issued to the MA organization, CMS no longer apply retroactive payment adjustments to the terminated, consolidated or nonrenewed contract and there are no adjustments applied to amounts used in the calculation of the final settlement amount. # §422.529. Requesting an appeal of the final settlement amount. - (a) **Appeals process.** If an MA organization does not agree with the final settlement amount described in [§ 422.528(a)](/cfr/42/422.528.md?p=a), it may appeal under the following three-level appeal process: - (1) **Reconsideration.** An MA organization may request reconsideration of the final settlement amount described in [§ 422.528(a)](/cfr/42/422.528.md?p=a) according to the following process: - (i) **Manner and timing of request.** A written request for reconsideration must be filed within 15 calendar days from the date that CMS issued the notice of final settlement to the MA organization. - (ii) **Content of request.** The written request for reconsideration must do all of the following: - (A) **Specify the calculation with which the MA organization disagrees and the reasons for its disagreement.** - (B) Include evidence supporting the assertion that CMS' calculation of the final settlement amount is incorrect. - (C) Not include new reconciliation data or data that was submitted to CMS after the final settlement notice was issued. CMS does not consider information submitted for the purposes of retroactively adjusting a prior reconciliation. - (iii) **Conduct of reconsideration.** In conducting the reconsideration, the CMS reconsideration official reviews the calculations that were used to determine the final settlement amount and any additional evidence timely submitted by the MA organization. - (iv) **Reconsideration decision.** The CMS reconsideration official informs the MA organization of its decision on the reconsideration in writing. - (v) **Effect of reconsideration decision.** The decision of the CMS reconsideration official is final and binding unless a timely request for an informal hearing is filed in accordance with [paragraph (a)(2)](#a-2) of this section. - (2) **Informal hearing.** An MA organization dissatisfied with CMS' reconsideration decision made under [paragraph (a)(1)](#a-1) of this section is entitled to an informal hearing as provided for under [paragraphs (a)(2)(i) through (a)(2)(iv)](#a-2-i..a-2-iv) of this section. - (i) **Manner and timing of request.** A request for an informal hearing must be made in writing and filed with CMS within 15 calendar days of the date of CMS' reconsideration decision. - (ii) **Content of request.** The request for an informal hearing must include a copy of the reconsideration decision and must specify the findings or issues in the decision with which the MA organization disagrees and the reasons for its disagreement. - (iii) **Informal hearing procedures.** The informal hearing is conducted in accordance with the following: - (A) The CMS Hearing Officer provides written notice of the time and place of the informal hearing at least 30 days before the scheduled date. - (B) The CMS reconsideration official provides a copy of the record that was before CMS when CMS made its decision to the hearing officer. - (C) The hearing officer review is conducted by a CMS hearing officer who neither receives testimony nor accepts any new evidence. The CMS hearing officer is limited to the review of the record that was before CMS when CMS made its decision. - (iv) **Decision of the CMS hearing officer.** The CMS hearing officer decides the case and sends a written decision to the MA organization explaining the basis for the decision. - (v) **Effect of hearing officer's decision.** The hearing officer's decision is final and binding, unless the decision is reversed or modified by the CMS Administrator in accordance with [paragraph (a)(3)](#a-3) of this section. - (3) **Review by the Administrator.** The Administrator's review is conducted in the following manner: - (i) **Manner and timing of request.** An MA organization that has received a hearing officer's decision may request review by the Administrator within 15 calendar days of the date of issuance of the hearing officer's decision under [paragraph (a)(2)(iv)](#a-2-iv) of this section. An MA organization may submit written arguments to the Administrator for review. - (ii) **Discretionary review.** After receiving a request for review, the Administrator has the discretion to elect to review the hearing officer's determination in accordance with [paragraph (a)(3)(iii)](#a-3-iii) of this section or to decline to review the hearing officer's decision within 30 calendar days of receiving the request for review. If the Administrator declines to review the hearing officer's decision, the hearing officer's decision is final and binding. - (iii) **Administrator's review.** If the Administrator elects to review the hearing officer's decision, the Administrator reviews the hearing officer's decision, as well as any information included in the record of the hearing officer's decision and any written argument submitted by the MA organization, and determine whether to uphold, reverse, or modify the hearing officer's decision. - (iv) **Effect of Administrator's decision.** The Administrator's decision is final and binding. - (b) **Matters subject to appeal and burden of proof.** - (1) **The MA organization's appeal is limited to CMS' calculation of the final settlement amount.** CMS does not consider information submitted for the purposes of retroactively adjusting a prior reconciliation. - (2) The MA organization bears the burden of proof by providing evidence demonstrating that CMS' calculation of the final settlement amount is incorrect. - (c) **Stay of financial transaction until appeals are exhausted.** If an MA organization requests review of the final settlement amount, the financial transaction associated with the issuance or payment of the final settlement amount is stayed until all appeals are exhausted. Once all levels of appeal are exhausted or the MA organization fails to request further review within the applicable 15-calendar-day timeframe, CMS communicates with the MA organization to complete the financial transaction associated with the issuance or payment of the final settlement amount, as appropriate. - (d) **Continued compliance with other law required.** Nothing in this section limits an MA organization's responsibility to comply with any other applicable statute or regulation. # §422.530. Plan crosswalks. - (a) **General rules—** - (1) **Definition of crosswalk.** A crosswalk is the movement of enrollees from one plan (or plan benefit package (PBP)) to another plan (or PBP) under a contract between the MA organization and CMS. To crosswalk enrollees from one PBP to another is to change the enrollment from the first PBP to the second. - (2) **Prohibitions.** Except as described in [paragraph (c)](#c) of this section, crosswalks are prohibited between different contracts or different plan types (for example, HMO to PPO). - (3) **Compliance with renewal/nonrenewal rules.** The MA organization must comply with renewal and nonrenewal rules in §§ [422.505](/cfr/42/422.505.md) and [422.506](/cfr/42/422.506.md) in order to complete plan crosswalks. - (4) **Eligibility.** Enrollees must be eligible for enrollment under [§§ 422.50 through 422.54](/cfr/42/422.50..422.54.md) in order to be moved from one PBP to another PBP. - (5) **Types of MA plans.** For purposes of crosswalk policy in this section, CMS considers the following plans as different plan types: - (i) **Health maintenance organizations coordinated care plans.** - (ii) **Provider-sponsored organizations coordinated care plans.** - (iii) **Regional or local preferred provider organizations coordinated care plans.** - (iv) **Special needs plans.** - (v) **Private Fee-for-service plans.** - (vi) **MSA plans.** - (b) **Allowable crosswalk types—** - (1) **All MA plans.** An MA organization may perform a crosswalk in the following circumstances: - (i) **Renewal.** A plan in the following contract year that links to a current contract year plan and retains the entire service area from the current contract year. The following contract year plan must retain the same plan ID as the current contract year plan. - (ii) **Consolidated renewal.** A plan in the following contract year that combines 2 or more complete current contract year plans of the same plan type but not including when a current PBP is split among more than one PBP for the following contract year. The plan ID for the following contract year must be the same as one of the current contract year plan IDs. - (iii) **Renewal with a service area expansion (SAE).** A plan in the following contract year that links to a current contract year plan and retains all of its plan service area from the current contract year, but also adds one or more new counties. The following year contract plan must retain the same plan ID as the current contract year plan. - (iv) **Renewal with a service area reduction (SAR).** - (A) A plan in the following contract year that links to a current contract year plan and only retains a portion of its plan service area. The following contract year plan must retain the same plan ID as the current contract year plan. The crosswalk is limited to the enrollees in the remaining service area. - (B) While the MA organization may not affirmatively crosswalk enrollees in the locations that will no longer be part of the service area, the MA organization may offer those affected enrollees in the reduced portion of the service area a continuation in accordance with [§ 422.74(b)(3)(ii)](/cfr/42/422.74.md?p=b-3-ii), provided that there are no other MA plan options in the reduced service area. - (C) If the MA organization offers another PBP in the locations that will no longer be part of the service area, current enrollees in the locations that will no longer be part of the service area must be disenrolled and the MA organization must send a non-renewal notice that includes notification of a special enrollment period under [§ 422.62](/cfr/42/422.62.md) and, for applicable enrollees, Medigap guaranteed issue rights. - (D) The MA organization may offer current enrollees in the locations that will no longer be part of the service area the option of enrolling in the other plan(s) the MA organization offers in the location that is no longer part of the service area, however, no specific plan information for the following contract year may be shared with any beneficiaries prior to the plan marketing period for the next contract year, consistent with 42 CFR [422.2263](/cfr/42/422.2263.md) and [423.2263](/cfr/42/423.2263.md). - (2) **Special needs plans (SNPs).** In addition to those described in [paragraph (b)(1)](#b-1) of this section, SNPs may also perform the following types of crosswalks: - (i) **Chronic SNPs (C-SNPs).** - (A) Renewing C-SNP with one chronic condition that transitions eligible enrollees into another C-SNP with a grouping that contains that same chronic condition. - (B) Non-renewing C-SNP with one chronic condition that transitions eligible enrollees into another C-SNP with a grouping that contains that same chronic condition. - (C) Non-renewing C-SNP with a grouping that is transitioning eligible enrollees into a different grouping C-SNP if the new grouping contains at least one condition that the prior C-SNP contained. - (ii) **Institutional SNP.** - (A) Renewing Institutional SNP that transitions enrollees to an Institutional/Institutional Equivalent SNP. - (B) Renewing Institutional Equivalent SNP that transitions enrollees to an Institutional/Institutional Equivalent SNP. - (C) Renewing Institutional/Institutional Equivalent SNP that transitions eligible enrollees to an Institutional SNP. - (D) Renewing Institutional/Institutional Equivalent SNP that transitions eligible enrollees to an Institutional Equivalent SNP. - (E) Non-renewing Institutional/Institutional Equivalent SNP that transitions eligible enrollees to another Institutional/Institutional Equivalent SNP. - (c) **Exceptions.** In order to perform a crosswalk that is not specified in [paragraph (b)](#b) of this section, an MA organization must request an exception. Crosswalk exceptions are prohibited between different plan types. CMS reviews exception requests and may permit a crosswalk exception in the following circumstances: - (1) When a non-network or partial network Private Fee-For-Service (PFFS) plan changes to either a partial network or to a full network PFFS plan, enrollees may be moved to the new plan when CMS determines it is in the interest of beneficiaries, considering whether the risks to enrollees are such that they would be better served by remaining in the plan, whether there are other suitable managed care plans available, and whether the enrollees are particularly medically vulnerable, such as institutionalized enrollees. Crosswalks from a network based PFFS plan to a non-network or partial network PFFS plan will not be permitted. - (2) When MA contracts offered by two different MA organizations that share the same parent organization are consolidated such that the separate contracts are consolidated under one surviving contract, the enrollees from the consolidating contracts may be crosswalked to an MA plan under the surviving contract. - (3) When a renewing D-SNP with a multi-state service area reduces its service area or, in the case of a D-SNP in an MA regional plan contract, nonrenews and creates state-specific local preferred provider organization plans in its place to accommodate state contracting efforts in the service area, enrollees who are no longer in the service area may be moved into one or more new or renewing D-SNPs, offered under the same parent organization (even if the D-SNPs are offered by two different MA organizations), and for which the enrollees are eligible, as CMS determines is necessary to accommodate changes to the contracts between the state and D-SNP under [§ 422.107](/cfr/42/422.107.md). For this crosswalk exception, CMS will permit enrollees to be moved between different contracts. - (4) **When—** - (i) A renewing D-SNP has another new or renewing D-SNP, and the two D-SNPs are offered to different populations, enrollees who are no longer eligible for their current D-SNP may be moved into the other new or renewing D-SNP offered by the same MA organization if they meet the eligibility criteria for the new or renewing D-SNP and CMS determines it is in the best interest of the enrollees to move to the new or renewing D-SNP in order to promote access to and continuity of care for enrollees relative to the absence of a crosswalk exception. For the crosswalk exception in this [paragraph (c)(4)(i)](#c-4-i), CMS does not permit enrollees to be moved between different contracts; or - (ii) An MA organization creates a new MA contract when required by a State as described in [§ 422.107(e)](/cfr/42/422.107.md?p=e), eligible enrollees may be moved from the existing D-SNP that is non-renewing, reducing its service area, or has its eligible population newly restricted by a State, to a D-SNP offered under the D-SNP-only contract, which must be of the same plan type operated by the same parent organization. For the crosswalk exception in this [paragraph (c)(4)(ii)](#c-4-ii), CMS permits enrollees to be moved between different contracts. - (iii) For contract year 2027 and subsequent years, where one or more MA organizations that share a parent organization seek to consolidate D-SNPs in the same service area down to a single D-SNP under one MA-PD contract to comply with requirements at §§ [422.514(h)](/cfr/42/422.514.md?p=h) and [422.504(a)(20)](/cfr/42/422.504.md?p=a-20), CMS permits enrollees to be moved between different contracts. - (5) Renewing C-SNP with a grouping of multiple conditions that is transitioning eligible enrollees into another C-SNP with one of the chronic conditions from that grouping. - (d) **Procedures.** - (1) An MA organization must submit all crosswalks in [paragraph (b)](#b) of this section in writing through the bid submission process in HPMS by the bid submission deadline announced by CMS. - (2) An MA organization must submit all crosswalk exception requests in [paragraph (c)(1)](#c-1) of this section in writing through the crosswalk exceptions process in HPMS by the crosswalk exception request deadline announced by CMS annually. CMS verifies the requests and notifies requesting MA organizations of the approval or denial after the crosswalk exception request deadline.