On March 12, 2004, the Centers for Medicare and Medicaid Services ("CMS") announced that it will accept service area expansion applications that are submitted on or before September 1, 2006 from Section 1876 cost contractors. The Medicare Prescription Drug, Improvement and Modernization Act (the "MMA"), which created the Medicare Advantage ("MA") program, amended Section 1876(h)(5) of the Social Security Act to allow CMS to extend or renew all reasonable cost contracts beyond the previous limit of December 31, 2004. The MMA also provides, however, that after January 1, 2008, CMS may not extend or renew a reasonable cost contract for a service area if (1) there were either two or more MA regional plans or two or more MA local plans in that service area during the entire previous year and (2) those regional or local plans meet minimum enrollment requirements. Thus, after September 1, 2006, CMS will only accept service area expansion applications from Section 1876 cost contractors for service areas for which one of those two statutory requirements is not met.

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