United States: CMS Proposed Rule Reflects Increased Sophistication In Administration Of MA/Part D Programs

Addressing issues ranging from participation in Part D Plan pharmacy networks to compliance training for so-called first-tier, downstream and related entities, the Proposed Rule covers numerous topics with varying degrees of importance for Medicare Advantage Organizations, Part D Plan Sponsors, pharmacy benefit managers, pharmacies, and other health care and administrative service providers.

The Centers for Medicare & Medicaid Services (CMS) on January 10, 2014, published the first "omnibus"-type proposed rule (Proposed Rule) for the Medicare Advantage (MA) and Medicare Prescription Drug (Part D) Programs in more than two years.  Addressing issues ranging from participation in Part D Plan pharmacy networks to compliance training for so-called first-tier, downstream and related entities, the Proposed Rule covers numerous topics with varying degrees of importance for MA Organizations, Part D Plan Sponsors, pharmacy benefit managers, and other health care and administrative service providers participating in the Programs.

This summary of the Proposed Rule addresses several issues of interest for both MA Organization and Part D Plan Sponsors (collectively, Plan Sponsors), as well as for entities with which Plan Sponsors contract.  Other forthcoming On the Subjects will focus on CMS proposals for the Part D Program, risk adjustment data validation (RADV) proposals, and CMS's proposed implementation of Section 6402 of the Affordable Care Act and its overpayment provisions for the MA and Part D Programs.

Comments on the  Proposed Rule are due to CMS by 5 p.m. EST on March 7, 2014.

CMS Proposes Independent Program Audits at Plan Sponsors' Expense

CMS conducts annual performance audits of Plan Sponsors, but resources limit the number of its assessments.  Accordingly, CMS proposes to adopt the authority to require Plan Sponsors to audit themselves.  Plan Sponsors would be obligated to hire an independent auditor, at the Plan Sponsor's expense, to undertake a performance audit in compliance with CMS standards and to report to CMS on deficiencies identified during the review.  CMS's authority also would include directing Plan Sponsors to engage independent auditors to verify corrective action undertaken by the Plan Sponsor to respond to any deficiencies identified in a performance audit.

Several issues related to this proposal go unaddressed, including the qualifications for independent auditors, potential conflicts of interest between auditors and Plan Sponsors, and how CMS would ensure consistency among audits. In light of the fact that audit results factor into past performance reviews (affecting future Program participation opportunities) and quality star ratings (affecting MA Plan payments), and given the issues that have arisen during audits performed by CMS-contracted auditors, the lack of specific information regarding these self-auditing provisions potentially frustrates the ability of Plan Sponsors to provide meaningful comment on details that will be critical if this proposal is adopted.  

CMS estimates in the Proposed Rule that implementation of this independent auditing requirement would cost Plan Sponsors approximately $8.9 million every year.  Given the complexity of the CMS requirements reviewed through program audits, the high cost of consulting and audit firms with specialization in this field, and the internal resources Plan Sponsors will have to dedicate to facilitating these audits, it is possible that the ultimate costs to the industry could be much higher.

Revised Compensation Formula for Agents and Brokers May Decrease Renewal Payments

CMS proposes to revise the independent agent/broker compensation regulations, in part to further minimize incentives to move Medicare beneficiaries among MA and Part D Plans.  To date, Plan Sponsors must limit compensation for initial and renewal enrollments in their MA/Part D Plans to amounts that are equal to or less than the fair market value (FMV) amount adopted by CMS for initial enrollments, or 50 percent thereof for renewals through the sixth renewal year.  To simplify the requirements, CMS would retain the existing FMV ceiling on compensation for initial enrollments, but would reduce the renewal compensation ceiling to up to 35 percent of the FMV, if renewal compensation is paid by the Plan Sponsor.  CMS also removed the six-year compensation cycle requirement, such that agents and brokers may be paid for enrollee renewals indefinitely.

Under the Proposed Rule, the referral fee parameters previously articulated by CMS in sub-regulatory guidance—in particular, the requirement that such payment be included in the determination of compensation paid in connection with a beneficiary's enrollment and subject to the regulatory limits—would be incorporated into regulation.

Next Steps

Plan Sponsors that rely on independent agents and brokers for marketing and enrollment activities may consider evaluating their programs, contracts and other operations that would be affected if CMS finalizes these proposals, in order to come into compliance prior to the launch of CY 2015 marketing on October 1, 2014.

Standardized Compliance Program Training for FDRs Does Not Relieve Administrative Burdens

Plan Sponsors are required to maintain "effective compliance programs," which must include mandatory training and education on the Plan Sponsors' compliance programs for first-tier, downstream and related entities (FDRs).  Plan Sponsors have typically implemented this requirement through Plan Sponsor-specific compliance training obligations, which CMS has acknowledged on several occasions poses challenges for health care providers and other entities that contract with multiple Plan Sponsors and therefore must complete multiple compliance training programs.  Accordingly, CMS proposes to amend the regulatory requirement, obligating the Plan Sponsor to require all FDRs to take CMS's standardized compliance training and accept the certificate of completion of such training.  Under the Proposed Rule, this CMS training would no longer be an option for satisfying the training requirement but in fact would be the only way.  Plan Sponsors would be prohibited from providing Plan Sponsor-specific training in fulfillment of this requirement.

Although the standardized CMS training module may reduce the training burden for providers and other FDRs, Plan Sponsors may not see the same benefits.  Plan Sponsors would, for example, continue to be required to maintain "effective" compliance programs, and a general CMS compliance training may undermine the effectiveness of a compliance program that reflects a Plan Sponsor's specific operations, standards and protocols.  Moreover, CMS proposes to retain the obligation for Plan Sponsors to track FDRs' completion of this CMS training, to maintain supporting documentation in the event of a CMS audit, and to negotiate a contractual provision in connection with the same.  FDRs similarly would remain obligated to provide multiple Plan Sponsors with documentation of CMS compliance training completion.

Further, this proposed change arguably transforms the compliance training component into more of a direct Medicare Program requirement imposed by CMS, rather than an MA or Part D Program requirement reflecting the unique characteristics of the Programs or the Plan Sponsors.  Although it would be reasonable for Plan Sponsors to administer a compliance training requirement (and collect documentation) for administrative service providers and other entities that are not participating providers in the Medicare Program and do not contract with CMS, it is less clear why Plan Sponsors—and not CMS or its Medicare Administrative Contractors—should administer a Medicare compliance training obligation, particularly since these providers also undergo CMS fraud and abuse training as part of their Original Medicare enrollment.

Also of interest is CMS's proposal to adopt a new definition for the MA Program for the term "parent organization," in connection with the agency's proposal to limit new enrollment in certain cost contracts.  CMS does not, however, reference in the Proposed Rule the fact that the term "parent organization" is used in other agency guidance, such as Chapters 9 and 21 of the Prescription Drug Benefit Manual and Medicare Managed Care Manual, respectively, nor reconcile this definition with the existing definition of "related entity."  This proposed definition and its lack of coordination with other terms and requirements potentially could create challenges for Plan Sponsors with multiple legal entities in their corporate enterprise.

Next Steps

Plan Sponsors, providers and other FDRs may consider submitting to CMS information and data describing the administrative burden associated with the current compliance training obligations and the revised approach, to help educate CMS on the burdens that would be eliminated—and those that would remain—under the proposal.  Tracking CMS's final action in this area will be important for updating compliance programs and FDR contracts.

More Changes, Including Business Continuity Obligations, for FDR Contracts?

CMS continues to tinker with FDR contract requirements, setting out in the Proposed Rule an amendment to the record retention and access provision that would provide the U.S. Department of Health & Human Services, the Comptroller General or their designees with the right to audit, evaluate, collect and inspect directly an FDR's records.  The Plan Sponsor would not be permitted to play an intermediary role in facilitating the request for and provision of records between the government and the Plan Sponsor's contractor, notwithstanding the fact that it is the Plan Sponsor's contract with CMS that serves as the basis for CMS seeking the FDR's records.  Rather, CMS indicates in the preamble (but not the regulatory text) that it would provide notice to the Plan Sponsor of any record request.

A separate proposal would impose new requirements for Plan Sponsors' business continuity plans, including obligations related to risk assessments, mitigation strategies, annual testing, training and documentation.  Among the requirements is an obligation for Plan Sponsors to restore "essential functions" within 24 hours after any of the functions fail or stop functioning as usual.  An MA Organization's and a Part D Plan Sponsor's respective "essential functions" are identified in the Proposed Rule, and include benefit authorization and claims adjudication, call centers, and organization/coverage determinations and appeals.  Plan Sponsors that delegate any of these functions likely will have to revisit their contracts, particularly the performance standards, to address any finalized requirements applicable to the FDR.  Coordination of the operational elements of Plan Sponsors' business recovery processes with that of their FDRs also may be an important consideration if CMS moves forward with this requirement.

Next Steps

If finalized, several proposals in the Proposed Rule may require FDRs' cooperation for implementation, and Plan Sponsors likely will not have the resources to modify all contracts immediately.  Identifying now the contracts that should be a high priority for review upon release of final regulations—such as those under negotiation or coming up for renewal, and key service arrangements—may help streamline the contracting process and apply resources effectively and efficiently.  To the extent their contracts do not already do so, Plan Sponsors may consider whether and how to modify FDR contracts to protect Plan Sponsors' ability to learn about any government audit of an FDR that relates to the Plan Sponsors' MA/Part D contracts with CMS, and to know what information is collected, now that Plan Sponsors may not contractually preserve their right to serve as the go-between.

Revised Participation Criteria for MA and Part D Programs

The Proposed Rule exemplifies CMS's continued trend of managing—indeed, limiting—the entities permitted to participate in the MA and Part D Programs under the banner of protecting Medicare beneficiaries.  The following are some examples:

  • CMS proposes to require that entities applying to become Part D Plan Sponsors (whether as an MA Organization offering a Medicare Advantage-Prescription Drug Plan or stand-alone Part D Plan) must have (or have an affiliate that has) at least one full benefit year of experience performing key Part D functions, or have contracted with an FDR that has such experience, within the two years prior to the application deadline.
  • CMS also proposes implementing an "essential operations test" as a new step in the Plan Sponsor application process for entities that are new to the Part D Program.  This test, performed post-application and post-bidding, would assess the ability of applicants to actually perform the required operational functions of a Part D Plan prior to the January 1 launch date of the benefit plan.
  • CMS also proposes to prohibit applications from entities that apply to become a stand-alone Part D Plan Sponsor but withdraw their applications and bids following release of the low-income subsidy benchmark (and prior to finalization of the contract with CMS).  This new requirement is intended to prevent gaming of the competitive bidding system.

Next Steps

These provisions would not be finalized in time for the CY 2015 applications process, but would apply to the CY 2016 application cycle, if finalized.  Organizations that are considering applying to participate in the MA and Part D Programs—alone or through a joint venture with another party—may need to evaluate their strategic plans and partners to accommodate new participation requirements.

Other Proposed Regulatory Changes

  • CMS has proposed regulations to codify its new authority, under Section 6408 of the Affordable Care Act, to impose sanctions on a Plan Sponsor that enrolls an individual or transfers an individual to a new Plan without prior consent (except in limited circumstances).  The statute and these proposed regulations also make it a contract violation for a Plan Sponsor to violate the Part C and D marketing requirements or to employ or contract with any individual or entity that engages in any of the conduct that gives CMS the right to impose intermediate sanctions (as set forth in Section 1857(g) of the Social Security Act). 
  • CMS proposes several modifications to the intermediate sanction and civil money penalty (CMP) provisions, including expanding the bases upon which CMS may impose CMPs.
  • CMS proposes to shorten to 45 days the advance notice it provides before terminating an MA or Part D Plan contract.
  • CMS proposes an administrative appeals process for appealing Part C and Part D Recovery Audit Contractor (RAC) overpayment determinations.  Under the proposal, Plan Sponsors would be permitted to appeal only a RAC's application of the prescribed payment methodology, and not the underlying payment methodology itself.  The proposed three-step appeals process, which involves a reconsideration phase, appeal to a hearing officer and discretionary review by the CMS Administrator, was modeled after the existing RADV audit dispute and appeals process.


The Proposed Rule continues CMS's trend over the past several years to enhance its ability to administer the MA and Part D Programs, as well as to expand and tighten the performance requirements for Program participants.  The increase in performance audits and proposal for self-auditing, as well as CMS's willingness to impose sanctions and CMPs on Plan Sponsors that do not meet the performance standards, ups the ante for Program participants.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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