42 C.F.R. Subpart G—Payments to Part D Plan Sponsors For Qualified Prescription Drug Coverage
Title 42 - Public Health
This subpart sets forth rules for the calculation and payment of CMS direct and reinsurance subsidies for Part D plans; the application of risk corridors and risk-sharing adjustments to payments; and retroactive adjustments and reconciliations to actual enrollment and interim payments. This subpart does not apply to fallback entities or fallback prescription drug plans. For the purposes of this subpart, the following definitions apply- Actually paid means that the costs must be actually incurred by the Part D sponsor and must be net of any direct or indirect remuneration (including discounts, chargebacks or rebates, cash discounts, free goods contingent on a purchase agreement, up-front payments, coupons, goods in kind, free or reduced-price services, grants, or other price concessions or similar benefits offered to some or all purchasers) from any source (including manufacturers, pharmacies, enrollees, or any other person) that would serve to decrease the costs incurred by the Part D sponsor for the drug. Allowable reinsurance costs means the subset of gross covered prescription drug costs actually paid that are attributable to basic prescription drug coverage for covered Part D drugs only and that are actually paid by the Part D sponsor or by (or on behalf of) an enrollee under the Part D plan. The costs for any Part D plan offering enhanced alternative coverage must be adjusted not only to exclude any costs attributable to benefits beyond basic prescription drug coverage, but also to exclude any costs determined to be attributable to increased utilization over the standard prescription drug coverage as the result of the insurance effect of enhanced alternative coverage in accordance with CMS guidelines on actuarial valuation. Allowable risk corridor costs means the subset of actually paid costs for covered Part D drugs (not including administrative costs, but including dispensing fees) that are attributable to basic prescription drug coverage only and that are incurred and actually paid by the Part D sponsor under the Part D plan. Costs must be based upon imposition of the maximum amount of copayments permitted under §423.782. The costs for any Part D plan offering enhanced alternative coverage must be adjusted not only to exclude any costs attributable to benefits beyond basic prescription drug coverage, but also to exclude any prescription drug coverage costs determined to be attributable to increased utilization over standard prescription drug coverage as the result of the insurance effect of enhanced alternative coverage in accordance with CMS guidelines on actuarial valuation. Coverage year means a calendar year in which covered Part D drugs are dispensed if the claim for those drugs (and payment on the claim) is made not later than 3 months after the end of the year Gross covered prescription drug costs means those actually paid costs incurred under a Part D plan, excluding administrative costs, but including dispensing fees during the coverage year and costs relating to the deductible. They equal- (1) All reimbursement paid by a Part D sponsor to a pharmacy (or other intermediary) or to indemnify an enrollee when the reimbursement is associated with an enrollee obtaining drugs under the Part D plan; plus (2) All amounts paid under the Part D plan by or on behalf of an enrollee (such as the deductible, coinsurance, cost-sharing, or amounts between the initial coverage limit and the out-of-pocket threshold) in order to obtain drugs covered under the Part D plan. These costs are determined regardless of whether the coverage under the plan exceeds basic prescription drug coverage. Target amount for any Part D plan equals the total amount of payments (from both CMS and by or on behalf of enrollees) to that plan for the coverage year for all standardized bid amounts as risk adjusted under §423.329(b)(1), less the administrative expenses (including return on investment) assumed in the standardized bids. (a) Source of payments. CMS payments under this section are made from the Medicare Prescription Drug Account. (b) Monthly payments. CMS provides a direct subsidy in the form of advance monthly payments equal to the Part D plan's standardized bid, risk adjusted for health status as provided in §423.329(b), minus the monthly beneficiary premium as determined in §423.286. (c) Reinsurance subsidies. CMS provides reinsurance subsidy payments described in §423.329(c) on a monthly basis during a year based on either estimated or incurred allowable reinsurance costs as provided under §423.329(c)(2)(i), and final reconciliation to actual allowable reinsurance costs as provided in §423.343(c). (d) Low-income subsidies. CMS makes payments for premium and cost sharing subsidies, including additional coverage above the initial coverage limit, on behalf of certain subsidy-eligible individuals as provided in §423.780 and §423.782. CMS provides low-income cost-sharing subsidy payments described in §423.782 through interim payments of amounts as provided under §423.329(d)(2)(i) and reconciliation to actual allowable reinsurance costs as provided in §423.343(d). (e) Risk-sharing arrangements. CMS may issue lump-sum payments or adjust monthly payments in the following payment year based on the relationship of the Part D plan's adjusted allowable risk corridor costs to predetermined risk corridor thresholds in the coverage year as provided in §423.336. (f) Retroactive adjustments and reconciliations. CMS reconciles payment year disbursements with updated enrollment and health status data, actual low-income cost-sharing costs and actual allowable reinsurance costs as provided in §423.343. (g) Special rules for private fee-for-service plans—(1) Application of reinsurance. For private fee-for-service plans (as defined by §422.4(a)(3) of this chapter) offering qualified prescription drug coverage, CMS determines the amount of reinsurance payments as provided under §423.329(c)(3). (2) Exemption from risk corridor provisions. The provisions of §423.336 regarding risk sharing do not apply. (a) Payment conditional upon provision of information. Payments to a Part D sponsor are conditioned upon provision of information to CMS that is necessary to carry out this subpart, or as required by law. (b) Restriction on use of information. Officers, employees and contractors of the Department of Health and Human Services may use the information disclosed or obtained in accordance with the provisions of this subpart only for the purposes of, and to the extent necessary in, carrying out this subpart including, but not limited to, determination of payments and payment-related oversight and program integrity activities. This restriction does not limit OIG's authority to fulfill the Inspector General's responsibilities in accordance with applicable Federal law. (a) Subsidy payments—(1) Direct subsidy. CMS makes a direct subsidy payment for each Part D eligible beneficiary enrolled in a Part D plan for a month equal to the amount of the plan's approved standardized bid, adjusted for health status (as determined under §423.329(b)(1)), and reduced by the base beneficiary premium for the plan (as determined under §423.286(c) and adjusted in §423.286(d)(1)). The direct subsidy payment may be increased by the excess amount of a negative premium as described in §423.286(d)(1), if applicable. (2) Subsidy through reinsurance. CMS makes reinsurance subsidy payments as provided under paragraph (c) of this section. (3) Low-income cost-sharing subsidy. CMS makes low-income cost-sharing subsidy payments as provided under paragraph (d) of this section. (b) Health status risk adjustment—(1) Establishment of risk factors. CMS establishes an appropriate methodology for adjusting the standardized bid amount to take into account variation in costs for basic prescription drug coverage among Part D plans based on the differences in actuarial risk of different enrollees being served. Any risk adjustment is designed in a manner so as to be budget neutral in the aggregate to the risk of the Part D eligible individuals who enroll in Part D plans. (2) Considerations. In establishing the methodology under paragraph (b)(1) of this section, CMS takes into account the similar methodologies used under §422.308(c) of this chapter to adjust payments to MA organizations for benefits under the original Medicare fee-for-service program option. (3) Data collection. In order to carry out this paragraph, CMS requires— (i) PDP sponsors to submit data regarding drug claims that can be linked at the individual level to Part A and Part B data in a form and manner similar to the process provided under §422.310 of this chapter and other information as CMS determines necessary; and (ii) MA organizations that offer MA-PD plans to submit data regarding drug claims that can be linked at the individual level to other data that the organizations are required to submit to CMS in a form and manner similar to the process provided under §422.310 of this chapter and other information as CMS determines necessary. (4) Publication. At the time of publication of risk adjustment factors under §422.312(a)(1)(ii) of this chapter, CMS publishes the risk adjusters established under this paragraph of this section for the upcoming calendar year. (c) Reinsurance payment amount—(1) General rule. The reinsurance payment amount for a Part D eligible individual enrolled in a Part D plan for a coverage year is an amount equal to 80 percent of the allowable reinsurance costs attributable to that portion of gross covered prescription drug costs incurred in the coverage year after the individual has incurred true out-of-pocket costs that exceed the annual out-of-pocket threshold specified in §423.104(d)(5)(iii). (2) Payment method. Payments under this section are based on a method that CMS determines. (i) Payments during the coverage year. CMS establishes a payment method by which payments of amounts under this section are made on a monthly basis during a year based on either estimated or incurred allowable reinsurance costs. (ii) Final payments. CMS reconciles the payments made during the coverage year to final actual allowable reinsurance costs as provided in §423.343(c). (3) Special rules for private fee-for-service Plans offering prescription drug coverage. CMS determines the amount of reinsurance payments for private fee-for-service plans as defined by §422.4(a)(3) of this chapter offering qualified prescription drug coverage using a methodology that— (i) Bases the amount on CMS' estimate of the amount of the payments that are payable if the plan were an MA-PD plan described in section 1851(a)(2)(A)(i) of the Act; and (ii) Takes into account the average reinsurance payments made under §423.329(c) for populations of similar risk under MA-PD plans described in section 1851(a)(2)(A)(i) of the Act. (d) Low-income cost sharing subsidy payment amount—(1) General rule. The low-income cost-sharing subsidy payment amount on behalf of a low-income subsidy eligible individual enrolled in a Part D plan for a coverage year is the amount described in §423.782. (2) Payment method. Payments under this section are based on a method that CMS determines. (i) Interim payments. CMS establishes a payment method by which interim payments of amounts under this section are made during a year based on the low-income cost-sharing assumptions submitted with plan bids under §423.265(d)(2)(iv) and negotiated and approved under §423.272. (ii) Final payments. CMS reconciles the interim payments to actual incurred low-income cost-sharing costs as provided in §423.343(d). (a) Portion of total payments to a Part D sponsor subject to risk—(1) Adjusted allowable risk corridor costs. For purposes of this paragraph, the term adjusted allowable risk corridor costs means— (i) The allowable risk corridor costs for the Part D plan for the coverage year, reduced by— (ii) The sum of— (A) The total reinsurance payments made under §423.329(c) to the Part D sponsor of the Part D plan for the year; and (B) The total non-premium subsidy payments made under §423.782 to the Part D sponsor of the Part D plan for the coverage year. (2) Establishment of risk corridors. (i) Risk corridors. For each year, CMS establishes a risk corridor for each Part D plan. The risk corridor for a plan for a coverage year is equal to a range as follows: (A) First threshold lower limit. The first threshold lower limit of the corridor is equal to— (1) The target amount for the plan; minus (2) An amount equal to the first threshold risk percentage for the plan (as determined under paragraph (a)(2)(ii)(A) of this section) of the target amount. (B) Second threshold lower limit. The second threshold lower limit of the corridor is equal to— (1) The target amount for the plan; minus (2) An amount equal to the second threshold risk percentage for the plan (as determined under paragraph (a)(2)(ii)(B) of this section) of the target amount. (C) First threshold upper limit. The first threshold upper limit of the corridor is equal to the sum of— (1) The target amount; and (2) An amount equal to the first threshold risk percentage for the plan (as determined under paragraph (a)(2)(ii)(A) of this section) of the target amount. (D) Second threshold upper limit. The second threshold upper limit of the corridor is equal to the sum of— (1) The target amount; and (2) An amount equal to the second threshold risk percentage for the plan (as determined under paragraph (a)(2)(ii)(B) of this section) of the target amount. (ii) First and second threshold risk percentage defined. (A) First threshold risk percentage. Subject to paragraph (a)(2)(iii) of this section, the first threshold risk percentage is for— (1) 2006 and 2007, 2.5 percent; (2) 2008 through 2011, 5 percent; and (3) 2012 and subsequent years, a percentage CMS establishes, but in no case less than 5 percent. (B) Second threshold risk percentage. Subject to paragraph (a)(2)(iii) of this section, the second threshold risk percentage is for— (1) 2006 and 2007, 5.0 percent; (2) 2008 through 2011, 10 percent (3) 2012 and subsequent years, a percentage CMS establishes that is greater than the percent established for the year under paragraph (a)(2)(ii)(A)(3) of this section, but in no case less than 10 percent. (iii) Reduction of risk percentage to ensure two Plans in an area. In accordance with §423.265(e), a PDP sponsor may submit a bid that requests a decrease in the applicable first or second threshold risk percentages or an increase in the percents applied under paragraph (b) of this section. Only a PDP sponsor may request a reduction of risk under this paragraph. An MA organization offering an MA-PD plan, a PACE program offering qualified prescription drug coverage, and a cost-based HMO or CMP offering qualified prescription drug coverage may not request a reduction of risk under this paragraph. (3) Plans at risk for entire amount of supplemental prescription drug coverage. A Part D sponsor that offers a Part D plan that provides supplemental prescription drug benefits is at full financial risk for the provision of the supplemental benefits. (b) Payment adjustments—(1) No adjustment if adjusted allowable risk corridor costs within risk corridor. If the adjusted allowable risk corridor costs for the Part D plan for the coverage year are at least equal to the first threshold lower limit of the risk corridor (specified in paragraph (a)(2)(i)(A) of this section) but not greater than the first threshold upper limit of the risk corridor (specified in paragraph (a)(2)(i)(C) of this section) for the Part D plan for the coverage year, CMS makes no payment adjustment. (2) Increase in payment if adjusted allowable risk corridor costs above upper limit of risk corridor—(i) Costs between first and second threshold upper limits. If the adjusted allowable risk corridor costs for the Part D plan for the year are greater than the first threshold upper limit, but not greater than the second threshold upper limit, of the risk corridor for the Part D plan for the year, CMS increases the total of the payments made to the Part D sponsor offering the Part D plan for the year under this section by an amount equal to 50 percent (or, for 2006 and 2007, 75 percent or 90 percent if the conditions described in paragraph (b)(2)(iii) of this section are met for the year) of the difference between the adjusted allowable risk corridor costs and the first threshold upper limit of the risk corridor. (ii) Costs above second threshold upper limits. If the adjusted allowable risk corridor costs for the Part D plan for the year are greater than the second threshold upper limit of the risk corridor for the Part D plan for the year, CMS increases the total of the payments made to the Part D sponsor offering the Part D plan for the year under this section by an amount equal to the sum of— (A) 50 percent (or, for 2006 and 2007, 75 percent or 90 percent if the conditions specified in paragraph (b)(2)(iii) of this section are met for the year) of the difference between the second threshold upper limit and the first threshold upper limit; and (B) 80 percent of the difference between the adjusted allowable risk corridor costs and the second threshold upper limit of the risk corridor. (iii) Conditions for application of higher percentage for 2006 and 2007. The conditions specified in this paragraph are met for 2006 or 2007 if CMS determines for the year that— (A) At least 60 percent of Part D plans to which this paragraph applies have adjusted allowable risk corridor costs for the Part D plan for the year that are more than the first threshold upper limit of the risk corridor for the Part D plan for the year; and (B) Such plans represent at least 60 percent of Part D eligible individuals enrolled in any Part D plan. (3) Reduction in payment if adjusted allowable risk corridor costs below lower limit of risk corridor—(i) Costs between first and second threshold lower limits. If the adjusted allowable risk corridor costs for the Part D plan for the coverage year are less than the first threshold lower limit, but not less than the second threshold lower limit, of the risk corridor for the Part D plan for the coverage year, CMS reduces the total of the payments made to the Part D plan for the coverage year under this section by an amount (or otherwise recovers from the Part D sponsor an amount) equal to 50 percent (or, for 2006 and 2007, 75 percent) of the difference between the first threshold lower limit of the risk corridor and the adjusted allowable risk corridor costs. (ii) Costs below second threshold lower limit. If the adjusted allowable risk corridor costs for the Part D plan for the coverage year are less the second threshold lower limit of the risk corridor for the Part D plan for the coverage year, CMS reduces the total of the payments made to the Part D sponsor for the coverage year under this section by an amount (or otherwise recovers from the Part D sponsor an amount) equal to the sum of— (A) 50 percent (or, for 2006 and 2007, 75 percent) of the difference between the first threshold lower limit and the second threshold lower limit; and (B) 80 percent of the difference between the second threshold upper limit of the risk corridor and the adjusted allowable risk corridor costs. (c) Payment methods. CMS makes payments after a coverage year after obtaining all of the cost data information in paragraph (c)(1) of this section necessary to determine the amount of payment. CMS will not make payments under this section if the Part D sponsor fails to provide the cost data information in paragraph (c)(1) of this section. (1) Submission of cost data. Within 6 months of the end of a coverage year, the Part D sponsor must provide the information that CMS requires. (2) Lump sum and adjusted monthly payments. CMS at its discretion makes either lump-sum payments or adjusts monthly payments in the following payment year based on the relationship of the plan's adjusted allowable risk corridor costs to the predetermined risk corridor thresholds in the coverage year, as determined under this section. (d) No effect on monthly premium. No adjustment in payments made by reason of this section may affect the monthly beneficiary premium for qualified prescription drug coverage. (a) Application of enrollee adjustment. The provisions of §422.308(f) of this chapter apply to payments to Part D sponsors under this section in the same manner as they apply to payments to MA organizations under section 1853(a) of the Act. (b) Health status. CMS makes adjustments to payments made under §423.329(a)(1) to account for updated health status risk adjustment data as provided under §422.310(g)(2) of this chapter. CMS may recover payments associated with health status adjustments if the Part D sponsor fails to provide the information described in §423.329(b)(3). (c) Reinsurance. CMS makes final payment for reinsurance after a coverage year after obtaining all of the information necessary to determine the amount of payment. (1) Submission of cost data. Within 6 months of the end of a coverage year, the Part D sponsor must provide the information that CMS requires. (2) Payments. CMS at its discretion either makes lump-sum payments or adjusts monthly payments throughout the remainder of the payment year following the coverage year based on the difference between monthly reinsurance payments made during the coverage year and the amount payable in §423.329(c) for the coverage year. CMS may recover payments made through a lump sum recovery or by adjusting monthly payments throughout the remainder of the coverage year if the monthly reinsurance payments made during the coverage year exceed the amount payable under §423.329(c) or if the Part D sponsor does not provide the data in paragraph (c)(1) of this section. (d) Low-income cost-sharing subsidy. CMS makes final payment for low-income cost-sharing subsidies after a coverage year after obtaining all of the information necessary to determine the amount of payment. (1) Submission of cost data. Within 6 months of the end of a coverage year, the Part D sponsor must provide the information that CMS requires. (2) Payments. CMS at its discretion either makes lump-sum payments or adjusts monthly payments throughout the remainder of the payment year following the coverage year based on the difference between interim low-income cost-sharing subsidy payments and total low-income cost-sharing subsidy costs eligible for subsidy under §423.782 submitted by the plan for the coverage year. CMS may recover payments made through a lump sum recovery or by adjusting monthly payments throughout the remainder of the coverage year if interim low-income cost-sharing subsidy payments exceed the amount payable under §423.782 or if the Part D sponsor does not provide the data in paragraph (d)(1) of this section. In the event adequate data is not provided for risk corridor costs, CMS assumes that the Part D plan's adjusted allowable risk corridor costs are 50 percent of the target amount. (a) CMS may reopen and revise an initial or reconsidered final payment determination (including a determination on the final amount of direct subsidy described in §423.329(a)(1), final reinsurance payments described in §423.329(c), the final amount of the low income subsidy described in §423.329(d), or final risk corridor payments as described in §423.336)— (1) For any reason, within 12 months from the date of the notice of the final determination to the Part D sponsor (2) After that 12-month period, but within 4 years after the date of the notice of the initial or reconsidered determination to the Part D sponsor, upon establishment of good cause for reopening; or (3) At any time, in instances of fraud or similar fault of the Part D sponsor or any subcontractor of the Part D sponsor. (b) For purposes of this section, CMS will find good cause if— (1) New and material evidence that was not readily available at the time the final determination was made is furnished; (2) A clerical error in the computation of payments was made; or (3) The evidence that was considered in making the determination clearly shows on its face that an error was made. (c) For purposes of this section, CMS will not find good cause if the only reason for reopening is a change of legal interpretation or administrative ruling upon which the final determination was made. (d) A decision not to reopen under this section is final and is not subject to review. (a) Payment determinations—(1) Payment methods subject to appeal. If CMS did not apply its stated payment methodology correctly, a Part D sponsor may appeal the following: (i) The reconciled health status risk adjustment of the direct subsidy as provided in §423.343(b). (ii) The reconciled reinsurance payments under §423.343(c). (iii) The reconciled final payments made for low-income cost sharing subsidies provided in §423.343(d); or (iv) Final risk-sharing payments made under §423.336). (2) Payment information not subject to appeal. Payment information submitted to CMS under §423.322 and reconciled under §423.343 is final and may not be appealed nor may the appeals process be used to submit new information after the submission of information necessary to determine retroactive adjustments and reconciliations. (b) Request for reconsideration—(1) Time for filing a request. The request for reconsideration must be filed within 15 days from the date of the notice of the adverse determination. (2) Content of request. The request for reconsideration must specify the findings or issues with which the Part D sponsor disagrees and the reasons for the disagreements. Excluding new payment information, the request for reconsideration may include additional documentary evidence the sponsor wishes CMS to consider. (3) Conduct of informal written reconsideration. In conducting the reconsideration, CMS reviews the payment determination, the evidence and findings upon which it was based, and any other written evidence submitted by the Part D sponsor or by CMS before notice of the reconsidered determination is made. (4) Decision of the informal written reconsideration. CMS informs the sponsor of the decision orally or through electronic mail. CMS sends a written decision to the Part D sponsor on the sponsor's request. (5) Effect of CMS informal written reconsideration. A reconsideration decision, whether delivered orally or in writing, is final and binding unless a request for hearing is filed in accordance with paragraph (c) of this section, or it is revised in accordance with §423.346. (c) Right to informal hearing. A Part D sponsor dissatisfied with the CMS reconsideration decision is entitled to an informal hearing as provided in this section. (1) Manner and timing for request. A request for a hearing must be made in writing and filed with CMS within 15 days of the date the Part D sponsor receives the CMS reconsideration decision. (2) Content of request. The request for informal hearing must include a copy of the CMS reconsideration decision (if any) and must specify the findings or issues in the decision with which the Part D sponsor disagrees and the reasons for the disagreements. (3) Informal hearing procedures. (i) CMS provides written notice of the time and place of the informal hearing at least 10 days before the scheduled date. (ii) The hearing are conducted by a CMS hearing officer who neither receives testimony nor accepts any new evidence that was not presented with the reconsideration request. The CMS hearing officer is limited to the review of the record that was before CMS when CMS made both its initial and reconsideration determinations. (iii) If CMS did not issue a written reconsideration decision, the hearing officer may request, but not require, a written statement from CMS or its contractors explaining CMS' determination, or CMS or its contractors may, on their own, submit the written statement to the hearing officer. Failure of CMS to submit a written statement does not result in any adverse findings against CMS and may not in any way be taken into account by the hearing officer in reaching a decision. (4) Decision of the CMS hearing officer. The CMS hearing officer decides the case and sends a written decision to the Part D sponsor, explaining the basis for the decision. (5) Effecting of hearing officer decision. The hearing officer decision is final and binding, unless the decision is reversed or modified by the Administrator in accordance with paragraph (d) of this section. (d) Review by the Administrator. (1) A Part D sponsor that has received a hearing officer decision upholding a CMS initial or reconsidered determination may request review by the Administrator within 15 days of receipt of the hearing officer's decision. (2) The Administrator may review the hearing officer's decision, any written documents submitted to CMS or to the hearing officer, as well as any other information included in the record of the hearing officer's decision and determine whether to uphold, reverse or modify the hearing officer's decision. (3) The Administrator's determination is final and binding.
Title 42: Public Health
PART 423—VOLUNTARY MEDICARE PRESCRIPTION DRUG BENEFIT
Subpart G—Payments to Part D Plan Sponsors For Qualified Prescription Drug Coverage
§ 423.301 Scope.
§ 423.308 Definitions and terminology.
§ 423.315 General payment provisions.
§ 423.322 Requirement for disclosure of information.
§ 423.329 Determination of payments.
§ 423.336 Risk-sharing arrangements.
§ 423.343 Retroactive adjustments and reconciliations.
§ 423.346 Reopening.
§ 423.350 Payment appeals.
