This subpart sets forth application procedures and contracts with Part D plans: application procedures and requirements; contract terms; procedures for termination of contracts; reporting by Part D plans. For purposes of this subpart, Medicare Advantage (MA) organizations offering Part D plans follow the requirements of part 422 of this chapter for MA organizations, except in cases where the requirements for the qualified prescription drug coverage involve additional requirements.

For purposes of this subpart, the following definitions apply:

Bona fide service fees means fees paid by a manufacturer to an entity that represent fair market value for a bona fide, itemized service actually performed on behalf of the manufacturer that the manufacturer would otherwise perform (or contract for) in the absence of the service arrangement, and that are not passed on in whole or in part to a client or customer of an entity, whether or not the entity takes title to the drug.

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 Part D plan sponsor's enrollees by pharmacies and other providers, by Part D plan sponsor staff, medical groups, or independent practice associations, or by any combination of those entities.

Downstream entity means any party that enters into a written arrangement, acceptable to CMS, below the level of the arrangement between a Part D plan sponsor (or 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 Part D sponsor is issued a notice of the final settlement amount.

Final settlement amount means the final payment amount that CMS owes and ultimately pays to a Part D sponsor, or that a Part D sponsor owes and ultimately pays to CMS, with respect to a Part D 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 all of 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, as applicable (described in § 422.310 of this chapter).

(2) Part D annual reconciliation (described in § 423.343).

(3) Coverage Gap Discount Program annual reconciliation (described in § 423.2320).

(4) MLR remittances (described in §§ 422.2470 of this chapter and 423.2470).

Final settlement process means for a contract that has been consolidated, nonrenewed, or terminated, the process by which CMS does all of the following:

(1) Calculates the final settlement amount.

(2) Issues the final settlement amount along with supporting documentation in the notice of final settlement to the Part D sponsor.

(3) Receives responses from the Part D sponsor requesting an appeal of the final settlement amount.

(4) Takes action to adjudicate an appeal (if requested) and make payments to or receive payments from the Part D sponsor. 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 a written arrangement, acceptable to CMS, with a Part D plan sponsor or applicant to provide administrative services or health care services for a Medicare eligible individual under Part D.

Party in interest means the following:

(1) Any director, officer, partner, or employee responsible for management or administration of a Part D plan sponsor.

(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 a PDP sponsor organized as a nonprofit corporation, an incorporator or member of the corporation under applicable State corporation law.

(4) Any entity in which a person specified in paragraphs (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 Part D plan sponsor.

(6) Any spouse, child, or parent of an individual specified in paragraphs (1), (2), or (3) of this definition.

Prescription drug pricing standard means any methodology or formula for varying the pricing of a drug or drugs during the term of a pharmacy reimbursement contract that is based on the cost of a drug, which includes, but is not limited to, drug pricing references and amounts based on any of the following:

(1) Average wholesale price.

(2) Wholesale acquisition cost.

(3) Average manufacturer price.

(4) Average sales price.

(5) Maximum allowable cost.

(6) Other cost, whether publicly available or not.

Related entity means any entity that is related to the PDP sponsor by common ownership or control and—

(1) Performs some of the Part D plan sponsor'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 Part D plan sponsor 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 Part D plan sponsor, have a total value that exceeds $25,000 or 5 percent of the PDP sponsor's total operating expenses, whichever is less.

(a) Scope. This section sets forth application requirements for an entity that seeks a determination from CMS that it is qualified to contract as a sponsor of a Part D plan.

(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 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 an 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 a Part D plan sponsor, 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 as specified in subpart I of this part; or

(ii) A Federal waiver as specified in subpart I of this part.

(2) The authorized individual must describe thoroughly how the entity is qualified to meet the all requirements described in this part.

(d) Responsibility for making determinations. (1) CMS is responsible for determining whether an entity is qualified to contract as a Part D plan sponsor and meets the requirements of this part.

(2) A CMS determination that an entity is qualified to act as a Part D plan sponsor is distinct from the bid negotiations that occur under subpart F of part 423 and such negotiations are not subject to the appeals provisions included in subpart N of this part.

(e) 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 USC 552, the Freedom of Information Act, or because of exemptions provided in 45 CFR part 5 (the Department's regulations providing exemptions to disclosure), must label the material “privileged” and include an explanation of the applicability of an exemption specified in 45 CFR part 5.

(a) Basis for evaluation and determination. (1) Information used to evaluate applications. With the exception of evaluations conducted under paragraph (b) of this section, CMS evaluates an entity's application solely on the basis of information contained in the application itself and any additional information that CMS obtains through on-site visits and any essential operations test.

(2) Issuing application determination. After evaluating all relevant information, CMS determines whether the application meets all the requirements described in this part.

(3) Limitation on PDP contracts under a single parent organization CMS does not approve an application when it would result in the applicant's parent organization, directly or through its subsidiaries, holding more than one PDP sponsor contract in the PDP Region for which the applicant is seeking qualification as a PDP sponsor.

(4) Substantially incomplete applications. (i) CMS does not evaluate or issue a notice of determination described in § 423.503(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 § 423.641 and a determination that an organization submitted a substantially incomplete application is not subject to the appeals provisions of subpart N of this part.

(b) Use of information from a current or prior contract. (1) Except as provided in paragraphs (b)(2) through (4) of this section, if a Part D plan sponsor 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 D 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 D 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) of this section if during the applicable review period the applicant:

(A) Was under an intermediate sanction under subpart O of this part, or a determination by CMS to prohibit the enrollment of new enrollees under § 423.2410(c).

(B) Failed to maintain a fiscally sound operation consistent with the requirements of § 423.505(b)(23).

(C) Filed for or is currently in federal or state bankruptcy proceedings.

(D) Received any combination of Part C or Part D summary ratings of 2.5 or less in both of the two most recent Star Rating periods, as identified in § 423.186.

(E) Met or exceeded 13 points for compliance actions on any one contract.

(1) CMS determines the number of points each Part D plan sponsor 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 § 423.505(n) counts for 6 points.

(ii) Each warning letter issued during the performance period under § 423.505(n) counts for 3 points.

(iii) Each notice of noncompliance issued during the performance period under § 423.505(n) counts for 1 point.

(2) CMS adds all the point values for each Part D plan sponsor 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 D 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) of this section. This paragraph does not apply when the parent 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 Part D program.

(3) If CMS has terminated, under § 423.509, or non-renewed, under § 423.507(b), a Part D plan sponsor'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 based on the applicant's substantial failure to comply with the requirements of the Part D 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. Except for fallback entities, which are governed under subpart Q of this part, CMS notifies each applicant that applies to be determined qualified to contract as a Part D plan sponsor, under this part, of its determination on the application and the basis for the determination. The determination may be 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 Part D plan sponsor.

(2) Intent to deny. (i) If CMS finds that the applicant does not appear qualified to contract as a Part D sponsor, it gives the applicant notice of intent to deny the application and a summary of the basis for this preliminary finding.

(ii) Within 10 days from the date of the notice, the applicant may respond in writing to the issues or other matters that were the basis for CMS's preliminary finding and may 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 the applicant does not appear qualified to contract as a Part D plan sponsor or has not provided enough information to allow CMS to evaluate the application, CMS denies the application.

(3) Denial of application. If CMS denies the application, it gives written notice to the applicant indicating—

(i) That the applicant is not qualified to contract as a Part D sponsor under Part D of title XVIII of the Act;

(ii) The reasons why the applicant does is not so qualified; and

(iii) The applicant's right to request a hearing in accordance with the procedures specified in subpart N of this part.

(4) Nullification of approval of application. If CMS discovers through any means that an applicant is not qualified to contract based on information gained subsequent to application approval (for example, failure of an essential operations test, absence of required employees, etc.), CMS gives the applicant written notice indicating that the approval issued under paragraph (c)(1) of this section is nullified and the applicant no longer qualifies to contract as a Part D plan sponsor.

(i) This determination is not subject to the appeals provisions in subpart N of this part.

(ii) This provision only applies to applicants that have not previously entered into a Part D contract with CMS and neither it, nor another subsidiary of the applicant's parent organization, is offering Part D benefits during the current year.

(d) Withdrawal of application and bid in a previous year. An applicant that withdraws its application and corresponding bid after the release of the low-income subsidy benchmark is not eligible to be approved as a Part D plan sponsor for the 2 succeeding annual contracting cycles.

(a) General rule. Subject to the provisions at § 423.265 of this part concerning submission of bids, to enroll beneficiaries in any Part D drug plan it offers and be paid on behalf of Part D eligible individuals enrolled in those plans, a Part D plan sponsor must enter into a contract with CMS. The contract may cover more than one Part D plan.

(b) Conditions necessary to contract as a Part D plan sponsor. Any entity seeking to contract as a Part D plan sponsor must—

(1) Complete an application as described in § 423.502 demonstrating that the entity has the capability to meet the requirements of this part, including those listed in § 423.505.

(2) Be organized and licensed under State law as a risk bearing entity eligible to offer health insurance or health benefits coverage in each State in which it offers a Part D plan, or have secured a Federal waiver, as described in subpart I of this part. (Fallback entity applicants need not be licensed as risk-bearing entities, nor are they required to obtain State licensure demonstrating that the applicant is eligible to offer health insurance or health benefits coverage in each State in which it applies to operate.)

(3) Meet the minimum enrollment requirements of § 423.512(a) unless waived under § 423.512(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 Part D plan sponsor'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 Part D plan sponsor to organize, implement, control, and evaluate financial and communication activities, the furnishing of prescription drug services, the quality assurance, medical therapy management, and drug and or utilization management programs, 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 Part D sponsor, 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 Part D plan sponsor.

(v) Insurance policies or other arrangements, secured and maintained by the Part D plan sponsor and approved by CMS to insure the Part D plan sponsor 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 noncompliance 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 Part D plan sponsor'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 Part D plan sponsor; 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 Part D plan sponsor'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 Part D plan sponsor, parent organization or corporate affiliate. The compliance officer may not be an employee of the Part D plan sponsor'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 Part D plan sponsor 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 Part D plan sponsor 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 Part D plan sponsor must establish and implement effective training and education for its compliance officer and organization employees, the Part D sponsor'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 Part D plan sponsor's employees, managers and governing body, and the Part D plan sponsor'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 non-compliance or unethical behavior; and

(3) Provide for timely, consistent, and effective enforcement of the standards when non-compliance 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 Part D plan sponsors, 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 Part D sponsor discovers evidence of misconduct related to payment or delivery of prescription drug items or services under the contract, it must conduct a timely, reasonable inquiry into that conduct;

(2) The Part D sponsor must conduct appropriate corrective actions (for example, repayment of overpayments and disciplinary actions against responsible individuals) in response to the potential violation referenced above.

(3) The Part D plan sponsor should have procedures to voluntarily self-report potential fraud or misconduct related to the Part D program to CMS or its designee.

(4) The Part D plan sponsor 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) 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) 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 Part D plan sponsor 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 plan sponsor; 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 Part D plan sponsor on the referral. (6)(i) The plan sponsor is required to notify the Secretary, or its designee, of a payment suspension described in paragraph (b)(4)(vi)(G)(4) of this section 7 days prior to implementation of the payment suspension. The MA organization may request an exception to the 7day prior notification to the Secretary, or its designee, if circumstances warrant a reduced reporting time frame, such as potential beneficiary harm.

(ii) The plan sponsor 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 provides plan sponsors 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 have non-renewed a contract under § 423.507 within the past 2 years unless—

(i) During the 6-month period, beginning on the date the entity 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 Part D sponsor payments in the payment area or areas at issue; or

(ii) CMS has otherwise determined that circumstances warrant special consideration.

(6) Not have terminated a contract by mutual consent under which, as a condition of the consent, the Part D plan sponsor agreed that it was not eligible to apply for new contracts or service area expansions for a period up to 2 years per § 423.508(e) of this subpart.

(7) For a full risk or limited risk PDP applicant, not submitted a bid or offered a fallback prescription drug plan in accordance with the following rules.

(i) CMS does not contract with a potential PDP sponsor for the offering of a full risk or limited risk prescription drug plan in a PDP region for a year if the applicant—

(A) Submitted a bid under § 423.863 for the year (as the first year of a contract period under § 423.863 to offer a fallback prescription drug plan in any PDP region;

(B) Offers a fallback prescription drug plan in any PDP region during the year; or

(C) Offered a fallback prescription drug plan in that PDP region during the previous year.

(ii) Construction. For purposes of this paragraph (b)(6), an entity is treated as submitting an application to become qualified to contract as a full risk or limited risk PDP sponsor, if the entity is acting as a subcontractor for an integral part of the drug benefit management activities of a full risk or limited risk PDP sponsor or applicant. The previous sentence does not apply to entities that are subcontractors of an MA organization except insofar as the MA organization is applying to act as a full risk or limited risk PDP sponsor.

(8) If neither the applicant, nor its parent or another subsidiary of the same parent, holds a Part D sponsor contract that has been in effect for at least 1 year at the time it submits an application, the applicant must have arrangements in place such that the applicant and its contracted first tier, downstream, or related entities, in combination, have at least 1 full-benefit year of experience within the 2 years preceding the application submission performing at a minimum all of the following functions in support of the operation of another Part D contract:

(i) Authorization, adjudication, and processing of prescription drug claims at the point of sale.

(ii) Administration and tracking of enrollees' drug benefits in real time, including automated coordination of benefits with other payers.

(iii) Operation of an enrollee appeals and grievance process.

(9) For organizations applying to offer stand-alone prescription drug plans, the organization, its parent, or a subsidiary of the organization or its parent, must have either of the following:

(i) For 2 continuous years immediately prior to submitting an application, actively offered health insurance or health benefits coverage, including prescription drug coverage, as a risk-bearing entity in at least one State.

(ii) For 5 continuous years immediately prior to submitting an application, actively managed prescription drug benefits for an organization that offers health insurance or health benefits coverage, including at a minimum, all of the services listed in paragraph (b)(8) of this section.

(10) Pass an essential operations test prior to the start of the benefit year. This provision only applies to new sponsors that have not previously entered into a Part D contract with CMS when neither it, nor another subsidiary of the applicant's parent organization, is offering Part D benefits during the current year.

(c) Contracting authority. CMS may enter into contracts under this part, or in order to carry out this part, without regard to Federal and Departmental acquisition regulations set forth in Title 48 of the CFR and provisions of law or other regulations relating to the making, performance, amendment, or modification of contracts of the United States if 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, but not limited to, data relating to Medicare utilization and costs, including allowable reinsurance and risk corridor costs as well as low income subsidies and other costs) under this part of at least one-third of the Part D sponsors offering Part D drug plans.

(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 Part D plan sponsor's contract;

(ii) Inspect or otherwise evaluate the facilities of the Part D sponsor when there is reasonable evidence of some need for the inspection; and

(iii) Audit and inspect any books, contracts, and records of the Part D plan sponsor 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 Part D Plan sponsor 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' request—

(1) The contract could be amended to exclude any State-licensed entity, or a Part D plan specified by CMS; and

(2) A separate contract for any excluded plan or entity must be deemed to be in place when a request is made.

(a) General rule. The contract between the Part D plan sponsor and CMS must contain the provisions specified in paragraph (b) of this section.

(b) Requirements for contracts. The Part D plan sponsor agrees to—

(1) All the applicable requirements and conditions set forth in this part and in general instructions.

(2) Accept new enrollments, make enrollments effective, process voluntary disenrollments, and limit involuntary disenrollments, as provided in subpart B of this part.

(3) Comply with the prohibition in § 423.34(a) on discrimination in beneficiary enrollment.

(4) Provide the basic prescription drug coverage as defined under § 423.100 and, to the extent applicable, supplemental benefits as defined in § 423.100. (Fallback entities may offer only standard prescription drug coverage as specified in § 423.855.)

(5) Disclose information to beneficiaries in the manner and the form specified by CMS under § 423.128.

(6) Operate quality assurance, cost and utilization management, medication therapy management, and support e-prescribing as required under subpart D of this part.

(7) Comply with all requirements in subpart M of this part governing coverage determinations, grievances, and appeals, and formulary exceptions.

(8) Comply with the disclosure and reporting requirements in § 423.505(f), § 423.514, and the requirements in § 423.329(b) of this part for submitting current and prior drug claims and related information to CMS for its use in risk adjustment calculations and for the purposes of implementing § 423.505(f), (l), and (m) and § 423.329(b) of this part.

(9) Provide CMS with the information CMS determines is necessary to carry out payment provisions in subpart G of this part (or for fallback entities, the information necessary to carry out the payment provisions in subpart Q of this part).

(10) Allow CMS to inspect and audit any books and records of a Part D plan sponsor and its delegated first tier, downstream and related entities, that pertain to the information regarding costs provided to CMS under paragraph (b)(9) of this section, or, if a fallback entity, the information submitted under subpart Q of this part.

(11) Be paid under the contract in accordance with the payment rules in subpart G of this part, or, if a fallback entity, in accordance with the payment rules of subpart Q of this part.

(12) Except for fallback entities, submit a future year's bid, including all required information on premiums, benefits, and cost-sharing, by any applicable due date, as provided in subpart F so that CMS and the Part D plan sponsor may conduct negotiations regarding the terms and conditions of the proposed bid and benefit plan renewal.

(13) Permit CMS to determine that it is not qualified to renew its contract or that its contract may be terminated in accordance with this subpart and subpart N of this part. (Subpart N applies to fallback entities only to the extent a fallback contract is terminated.)

(14) Comply with the confidentiality and enrollee record accuracy specified in § 423.136.

(15) Comply with State law and preemption by Federal law requirements described in subpart I of this part.

(16) Comply with the coordination requirements with SPAPs and plans that provide other prescription drug coverage as described in subpart J of this part.

(17) Provide benefits by means of point of service systems to adjudicate in a drug claims in a timely and efficient manner in compliance with CMS standards, except when necessary to provide access in underserved areas, I/T/U pharmacies (as defined in § 423.100), and long-term care pharmacies (as defined in § 423.100).

(18) To agree to have a standard contract with reasonable and relevant terms and conditions of participation whereby any willing pharmacy may access the standard contract and participate as a network pharmacy including all of the following:

(i) Making standard contracts available upon request from interested pharmacies no later than September 15 of each year for contracts effective January 1 of the following year.

(ii) Providing a copy of a standard contract to a requesting pharmacy within 7 business days after receiving such a request from the pharmacy.

(19) Effective contract year 2010, include the prompt payment provisions described in § 423.520.

(20) Effective contract year 2010, provide that pharmacies located in, or having a contract with, a long-term care facility (as defined in § 423.100) must have not less than 30 days, nor more than 90 days, to submit to the Part D sponsor claims for reimbursement under the plan.

(21)(i) Update any prescription drug pricing standard (as defined in § 423.501) based on the cost of the drug used for reimbursement of network pharmacies by the Part D sponsor on January 1 of each contract year and not less frequently than once every 7 days thereafter;

(ii) Indicate the source used for making any such updates; and

(iii) Disclose all individual drug prices to be updated to the applicable pharmacies in advance of their use for reimbursement of claims, if the source for any prescription drug pricing standard is not publicly available.

(22) As described in § 423.129, address and resolve complaints received by CMS against the Part D sponsor in the Complaints Tracking Module.

(23) Maintain a fiscally sound operation by at least maintaining a positive net worth (total assets exceed total liabilities).

(24) Provide applicable beneficiaries with applicable discounts on applicable drugs in accordance with the requirements in subpart W of part 423.

(25) Maintain administrative and management capabilities sufficient for the organization to organize, implement, and control the financial, communication, benefit administration, and quality assurance activities related to the delivery of Part D services.

(26) Maintain a Part D summary plan rating score of at least 3 stars under the 5-star rating system specified in subpart 186 of this part 423. A Part D summary plan rating is calculated as provided in § 423.186.

(27) Pass an essential operations test prior to the start of the benefit year. This provision only applies to new sponsors that have not previously entered into a Part D contract with CMS and neither it, nor another subsidiary of the applicant's parent organization, is offering Part D benefits during the current year.

(c) Communication with CMS. The Part D plan sponsor must have the capacity to communicate with CMS electronically in accordance with CMS requirements.

(d) Maintenance of records. The Part D plan sponsor 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 part D plan sponsors).

(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 Part D plan sponsor 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) Except for fallback entities, properly reflect all direct and indirect costs claimed to have been incurred and used in the preparation of the Part D plan sponsor's bid and necessary for the calculation of gross covered prescription drug costs, allowable reinsurance costs, and allowable risk corridor costs (as defined in § 423.308).

(v) Except for fallback entities, establish the basis for the components, assumptions, and analysis used by the Part D plan in determining the actuarial valuation of standard, basic alternative, or enhanced alternative coverage offered in accordance with the CMS guidelines specified in § 423.265(c)(3).

(2) Include records of the following:

(i) Ownership and operation of the Part D sponsor'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 actions.

(v) Agreements, contracts, and subcontracts.

(vi) Franchise, marketing, and management agreements.

(vii) Matters pertaining to costs of operations.

(viii) Amounts of income received by source and payment.

(ix) Cash flow statements.

(x) Any financial reports filed with other Federal programs or State authorities.

(xi) All prescription drug claims for the current contract period and 10 prior periods.

(xii) All price concessions (including concessions offered by manufacturers) for the current contract period and 10 prior periods accounted for separately from other administrative fees.

(e) Access to facilities and records. The Part D plan sponsor agrees to the following:

(1) HHS, the Comptroller General, or their designee may evaluate, through audit, inspection, 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 Part D sponsor to include computer and other electronic systems; and

(iv) The enrollment and disenrollment records for the current contract period and 10 prior periods.

(2) The Part D plan sponsor agrees to make available to HHS, the Comptroller General, or their designees, for the purposes specified in paragraph (d) of this section, its premises, physical facilities and equipment, records relating to its Medicare enrollees, and any additional relevant information that CMS may require. The Part D plan sponsor also agrees to make available any books, contracts, records and documentation of the Part D plan sponsor, first tier, downstream and related entity(s), 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 Part D plan sponsor agrees to make available, for the purposes specified in paragraph (d) of this section, its premises, physical facilities and equipment, records relating to its Medicare enrollees, and any additional relevant information that 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 Part D plan sponsor at least 30 days before the normal disposition date;

(ii) There is a termination, dispute, or allegation of fraud or similar fault by the Part D plan sponsor, in which case the retention may be extended to 6 years from the date of any resulting final resolution of the termination, dispute, or fraud or similar fault; or

(iii) CMS determines that there is a reasonable possibility of fraud or similar fault, in which case CMS may inspect, evaluate, and audit the Part D plan sponsor at any time.

(f) Disclosure of information. The Part D plan sponsor agrees to submit to CMS—

(1) Certified financial information that must include the following:

(i) Information as CMS may require demonstrating that the organization has a fiscally sound operation.

(ii) Information as CMS may require pertaining to the disclosure of ownership and control of the Part D plan sponsor.

(2) All information to CMS 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 prescription drug coverage. This information includes, but is not limited to:

(i) The benefits covered under a Part D plan.

(ii) The Part D plan monthly basic beneficiary premium and Part D plan monthly supplemental beneficiary premium, if any, for the plan. Fallback entities submit the monthly beneficiary premium for standard prescription drug coverage.

(iii) The service area 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) The recent records regarding compliance of the plan with requirements of this part, as determined by CMS; and

(D) Other information determined by CMS to be necessary to assist beneficiaries in making an informed choice regarding Part D plans.

(v) Information about beneficiary appeals and their disposition, and formulary exceptions.

(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) Information on other matters that CMS may require, including, but not limited to, program monitoring and oversight, performance measures, quality assessment, research and evaluation, CMS outreach activities, payment-related oversight*, and fraud, abuse, and waste*, as specified in CMS guidelines.

(viii) Any other information deemed necessary to CMS for the administration or evaluation of the Medicare program.

(3) All data elements included in all its drug claims for purposes deemed necessary and appropriate by the Secretary, including, but not limited to the following:

(i) Reporting to Congress and the public on overall statistics associated with the operation of the Medicare prescription drug program.

(ii) Conducting evaluations of the overall Medicare program, including the interaction between prescription drug coverage under Part D of Title XVIII of the Social Security Act and the services and utilization under Parts A, B, and C of title XVIII of the Act and under titles XIX and XXI of the Act, as well as other studies addressing public health questions.

(iii) Making legislative proposals to the Congress regarding Federal health care programs and related programs.

(iv) Conducting demonstration and pilot projects and making recommendations for improving the economy, efficiency, or effectiveness of the Medicare program.

(v) Supporting care coordination and disease management programs.

(vi) Supporting quality improvement and performance measurement activities.

(vii) Populating personal health care records.

(viii) Supporting program integrity purposes, including coordination with the States.

(4) To its enrollees, all informational requirements under § 423.128 and, upon an enrollee's request, the financial disclosure information required under § 423.128(c)(4).

(g) Beneficiary financial protections. The Part D plan sponsor agrees to comply with the following requirements:

(1) Each Part D plan sponsor must adopt and maintain arrangements satisfactory to CMS to protect its enrollees from incurring liability for payment of any fees that are the legal obligation of the Part D sponsor. To meet this requirement, the Part D plan sponsor must—

(i) Ensure that all contractual or other written arrangements prohibit the sponsor's contracting agents from holding any beneficiary enrollee liable for payment of any such fees; and

(ii) Indemnify the beneficiary enrollee for payment of any fees that are the legal obligation of the Part D plan sponsor for covered prescription drugs furnished by non-contracting pharmacists, or that have not otherwise entered into an agreement with the Part D plan sponsor, to provide services to the organization's beneficiary enrollees.

(2) In meeting the requirements of this paragraph, other than the provider contract requirements specified in paragraph (g)(1)(i) of this section, the Part D plan sponsor 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 Part D plan sponsor agrees to comply with—

(1) Federal laws and regulations designed to prevent fraud, waste, and abuse, including, but not limited to applicable provisions of Federal criminal law, the False Claims Act (31 U.S.C. 3729 et seq.), and the anti-kickback statute (section 1128B(b) of the Act).

(2) HIPAA Administrative Simplification rules at 45 CFR parts 160, 162, and 164.

(i) Relationship with first tier, downstream, and related entities. (1) Notwithstanding any relationship(s) that the Part D plan sponsor may have with first tier, downstream, and related entities, the Part D sponsor maintains ultimate responsibility for adhering to and otherwise fully complying with all terms and conditions of its contract with CMS.

(2) The Part D sponsor 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 related entities related to CMS' contract with the Part D sponsor.

(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 Part D sponsor 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 exists through 10 years from the final date of the contract period or from the date of completion of any audit, whichever is later.

(3) Each and every contract governing Part D sponsors and first tier, downstream, and related entities, must contain the following:

(i) Enrollee protection provisions that provide, consistent with paragraph (g)(1) of this section, arrangements that prohibit pharmacies or other providers from holding an enrollee liable for payment of any fees that are the obligation of the Part D plan sponsor.

(ii) Accountability provisions that indicate that the Part D sponsor may delegate activities or functions to a first tier, downstream, or related entity only in a manner consistent with requirements set forth at paragraph (i)(4) of this section.

(iii) A provision requiring that any services or other activity performed by a first tier, downstream, and related entity in accordance with a contract are consistent and comply with the Part D sponsor's contractual obligations.

(iv) Each and every contract must specify that first tier, downstream, and related entities must comply with all applicable Federal laws, regulations, and CMS instructions.

(v) A provision requiring prompt payment of clean claims by the Part D sponsor, consistent with § 423.520.

(vi) A provision that establishes timeframes, consistent with § 423.505(b)(20), for long-term care pharmacies to submit claims to the Part D sponsor for reimbursement under the plan.

(vii) If applicable, provisions addressing the drug pricing standard requirements of § 423.505(b)(21).

(4) If any of the Part D plan sponsors' activities or responsibilities under its contract with CMS is 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 responsibilities described in paragraph (i)(4)(i) of this section or specify other remedies in instances when CMS or the Part D plan sponsor determine that the parties have not performed satisfactorily.

(iii) Each and every contract must specify that the Part D plan sponsor on an ongoing basis monitors the performance of the parties.

(iv) Each and every contract must specify that the related entity, contractor, or subcontractor must comply with all applicable Federal laws, regulations, and CMS instructions.

(5) If the Part D plan sponsor delegates selection of its prescription drug providers to another organization, the Part D sponsor's written arrangements with that organization must state that the CMS-contracting Part D plan sponsor retains the right to approve, suspend, or terminate any such arrangement.

(6) If the Part D plan sponsor delegates any of the following functions to a first tier, downstream, or related entity, the Part D sponsor's written arrangements must state that a termination initiated by such entity must provide, at minimum, 60-days' prior notice and have an effective termination date that coincides with the end of a calendar month:

(i) Authorization, adjudication, and processing of prescription drug claims at the point of sale.

(ii) Administration and tracking of enrollees' drug benefits in real time, including automated coordination of benefits with other payers.

(iii) Operation of an enrollee appeals and grievance process.

(iv) Contracting with or selection of prescription drug providers for inclusion in the Part D sponsor's network.

(j) Additional contract terms. The Part D plan sponsor agrees to include in the contract other terms and conditions as CMS may find necessary and appropriate in order to implement requirements in this part.

(k) Certification of data that determine payment—(1) General rule. As a condition for receiving a monthly payment under subpart G of this part (or for fallback entities, payment under subpart Q of this part),, the Part D plan sponsor 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 the 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 all data related to payment. The data may include specified enrollment information, claims data, bid submission data, and other data that CMS specifies.

(2) Certification of enrollment and payment information. The CEO, CFO, or an individual delegated the authority to sign on behalf of one of these officers, and who reports directly to the officer, must certify (based on best knowledge, information, and belief) that each enrollee for whom the organization is requesting payment is validly enrolled in a program offered by the organization and the information CMS relies on in determining payment is accurate, complete, and truthful and acknowledge that this information will be used for the purposes of obtaining Federal reimbursement.

(3) Certification of claims data. The CEO, CFO, or an individual delegated with the authority to sign on behalf of one of these officers, and who reports directly to the officer, must certify (based on best knowledge, information, and belief) that the claims data it submits under § 423.329(b)(3) (or for fallback entities, under § 423.871(f)) are accurate, complete, and truthful and acknowledge that the claims data will be used for the purpose of obtaining Federal reimbursement. If the claims data are generated by a related entity, contractor, or subcontractor of a Part D plan sponsor, the entity, contractor, or subcontractor must similarly certify (based on best knowledge, information, and belief) the accuracy, completeness, and truthfulness of the data and acknowledge that the claims data will be used for the purposes of obtaining Federal reimbursement.

(4) Certification of bid submission information. The CEO, CFO, or an individual delegated the authority to sign on behalf of one of these officers, and who reports directly to the officer, must certify (based on best knowledge, information, and belief) that the information in its bid submission and assumptions related to projected reinsurance and low income cost sharing subsidies is accurate, complete, and truthful and fully conforms to the requirements in § 423.265.

(5) Certification of allowable costs for risk corridor and reinsurance information. The Chief Executive Officer, Chief Financial Officer, or an individual delegated the authority to sign on behalf of one of these officers, and who reports directly to the officer, must certify (based on best knowledge, information, and belief) that the information provided for purposes of supporting allowable costs as defined in § 423.308 of this part, including data submitted to CMS regarding direct or indirect remuneration (DIR) that serves to reduce the costs incurred by the Part D sponsor for Part D drugs, is accurate, complete, and truthful and fully conforms to the requirements in § 423.336 and § 423.343 of this part and acknowledge that this information will be used for the purposes of obtaining Federal reimbursement.

(6) Certification of accuracy of data for price comparison. The CEO, CFO, or an individual delegated the authority to sign on behalf of one of these officers, and who reports directly to the officer, must certify (based on best knowledge, information, and belief) that the information provided for purposes of price comparison is accurate, complete, and truthful.

(7) 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 § 423.360 is accurate, complete, and truthful.

(l) CMS may use the information collected under paragraph (f)(3) of this section. Any restriction set forth by § 423.322(b) of this part must not be construed to limit the Secretary's authority to use the information collected under paragraph (f)(3).

(m) Release of data. (1) CMS may release the minimum data necessary for a given purpose from the data collected under paragraph (f)(3) of this section to Federal executive branch agencies, States, and external entities in accordance with the following:

(i) Applicable Federal laws.

(ii) CMS data sharing procedures.

(iii) Subject, in certain cases, to encryption of beneficiary identifiers and aggregation of cost data to protect beneficiary confidentiality and commercially sensitive data of Part D sponsors, in accordance with all of the following principles:

(A) Subject to the restrictions in this paragraph, all elements on the claim are available to HHS, other executive branch agencies, and the States.

(B) Cost data elements on the claim generally are aggregated for releases to other executive branch agencies, States, and external entities. Upon request, CMS excludes sales tax from the aggregation at the individual level if necessary for the project.

(C) Beneficiary identifier elements on the claim generally are encrypted for release, except in limited circumstances, such as the following:

(1) If needed, in the case of release to other HHS entities, Congressional oversight agencies, non-HHS executive agencies and the States.

(2) If needed to link to another dataset, in the case of release to external entities. Public disclosure of research results will not include beneficiary identifying information.

(iv) For purposes of paragraph (m)(1)(iii) of this section, States and executive-branch Federal agencies are not considered to be external entities.

(2) Any restriction set forth by § 423.322(b) of this part must not be construed to limit the Secretary's authority to release the information collected under paragraph (f)(3) of this section.

(3)(i) CMS must make available to Congressional support agencies (the Congressional Budget Office, the Government Accountability Office, the Medicare Payment Advisory Commission, and the Congressional Research Service when it is acting on behalf of a Congressional committee in accordance with 2 U.S.C. 166(d)(1)) all information collected under paragraph (f)(3) of this section for the purposes of conducting congressional oversight, monitoring, making recommendations, and analysis of the Medicare program.

(ii) The Congressional Research Service is considered an external entity when it is not acting on behalf of a Congressional committee in accordance with 2 U.S.C. 166(d)(1) for the purposes of paragraph (m)(1) of this section.

(n) Issuance of compliance actions for failure to comply with the terms of the contract. The Part D plan sponsor 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 (n)(3) of this section if it determines that the Part D plan sponsor has not complied with the terms of a current or prior Part D contract with CMS.

(i) CMS may determine that a Part D plans sponsor is out of compliance with a Part D requirement when the organization fails to meet performance standards articulated in the Part D statutes, regulations in this chapter, or guidance.

(ii) If CMS has not already articulated a measure for determining noncompliance, CMS may determine that a Part D plan sponsor is out of compliance when its performance in fulfilling Part D requirements represents an outlier relative to the performance of other Part D plan sponsors.

(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 Part D plan sponsor.

(iii) The adverse effect to beneficiaries which resulted or could have resulted from the conduct of the Part D plan sponsor.

(iv) The history of prior offenses by the Part D plan sponsor 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 Part D plan sponsor'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 Part D plan sponsor's current or prior Part D contract with CMS, as described in paragraph (n)(1) of this section.

(ii) Warning letter. A warning letter may be issued for serious and/or continued noncompliance with the requirements of the Part D plan sponsor's current or prior Part D contract with CMS, as described in paragraph (n)(1) of this section and as assessed in accordance with paragraph (n)(2) of this section.

(iii) Corrective action plan. (A) Corrective action plans are issued for particularly serious and/or continued noncompliance with the requirements of the Part D plan sponsors' current or prior Part D contract with CMS, as described in paragraph (n)(1) of this section and as assessed in accordance with paragraph (n)(2) of this section.

(B) CMS issues a corrective action plan if CMS determines that the Part D plan sponsor has repeated or not corrected noncompliance identified in prior compliance actions, has substantially impacted beneficiaries or the program with its noncompliance, and/or must implement a detailed plan to correct the underlying causes of the noncompliance.

(o) Acknowledgements of CMS release of data—(1) Summary CMS payment data. The contract must provide that the Part D sponsor acknowledges that CMS releases to the public summary reconciled Part D payment data after the reconciliation of Part D payments for the contract year as follows:

(i) The average per member per month Part D direct subsidy standardized to the 1.0 (average risk score) beneficiary for each Part D plan offered.

(ii) The average Part D risk score for each Part D plan offered.

(iii) The average per member per month Part D plan low-income cost sharing subsidy for each Part D plan offered.

(iv) The average per member per month Part D Federal reinsurance subsidy for each Part D plan offered.

(v) The actual Part D reconciliation payment data summarized at the Parent Organization level including breakouts of risk sharing, reinsurance, and low income cost sharing reconciliation amounts.

(2) Part D MLR data. The contract must provide that the Part D sponsor acknowledges that CMS releases to the public data as described at § 423.2490.

(p) Business continuity. (1) The Part D sponsor 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 during 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 (p)(2) of this section and prioritize the order in which to restore all other functions to normal operations. At a minimum, each Part D sponsor 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 and 164, subparts A 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 or both.

(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 paragraph (p)(1)(i) through (iv) of this section.

(B) Make the information specified in paragraph (p)(1)(v)(A) of this section available to CMS upon request.

(2) Restoration of essential functions. Every Part D sponsor 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 Part D sponsor identifies under paragraph (p)(1)(ii) of this section, for purposes of this paragraph (p)(2) of this section essential functions include at a minimum, the following:

(i) Benefit authorization (if not waived), adjudication, and processing of prescription drug claims at the point of sale.

(ii) Administration and tracking of enrollees' drug benefits in real time, including automated coordination of benefits with other payers.

(iii) Provision of pharmacy technical assistance.

(iv) Operation of an enrollee exceptions and appeals process including coverage determinations.

(v) Operation of call center customer services.

(a) Effective date. The contract is effective on the date specified in the contract between the Part D plan sponsor and CMS.

(b) Term of contract. Each contract is for a period of 12 months.

(c) Qualification to renew a contract. In accordance with 423.507, an entity is determined qualified to renew its contract annually only if the Part D plan sponsor has not provided CMS with a notice of intention not to renew and CMS has not provided the Part D organization with a notice of intention not to renew.

(d) Renewal of contract contingent on reaching agreement on the bid. Although a Part D plan sponsor may be determined qualified to renew its contract under this section, if the sponsor and CMS cannot reach agreement on the bid under subpart F, no renewal takes place, and the failure to reach agreement is not subject to the appeals provisions in subpart N of this part.

(e) The provisions of this section do not apply to fallback entities.

(a) Nonrenewal by a Part D plan sponsor. (1) Except for fallback entities, a Part D plan sponsor may elect not to renew its contract with CMS, effective at the end of the term of the contract for any reason provided it meets the timeframes for doing so set forth in paragraphs (a)(2) and (a)(3) of this section.

(2) If a Part D plan sponsor does not intend to renew its contract, it must notify—

(i) CMS in writing by the first Monday of June in the year in which the contract ends;

(ii) Each Medicare enrollee by mail at least 90 calendar days before the date on which the nonrenewal is effective. The sponsor 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 and PDP options available for obtaining qualified prescription drug coverage 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)(i) If a Part D plan sponsor does not renew a contract under this paragraph (a), CMS cannot enter into a contract with the organization for 2 years in the PDP region or regions served by the contract unless there are circumstances that warrant special consideration, as determined by CMS.

(ii) If a PDP sponsor does not renew any of its PBPs in a PDP region, CMS does not approve plan bids submitted by the organization in that PDP region for 2 years unless there are circumstances that warrant special consideration, as determined by CMS.

(iii) The provisions of this paragraph do not apply to employer group waiver plans offered by a Part D plan sponsor.

(4) During the same 2-year period specified under paragraph (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 of a whole or part interest in a mortgage, deed of trust, note or other obligation secured (in whole or in part) by the organization, or by 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.

(5) If a Part D plan sponsor does not renew a contract under this paragraph (a), it must ensure the timely transfer of any data or files.

(b) [Reserved]

(a) General rule. A contract may be modified or terminated at any time by written mutual consent. If the PDP sponsor submits a request to end the term of its contract after the deadline provided in § 423.507(a)(2)(i), the contract may be terminated by mutual consent in accordance with paragraphs (b) through (f) of this section. CMS may mutually consent to the contract termination if the contract termination does not negatively affect the administration of the Medicare Part D program.

(b) Notification of termination. If the contract is terminated by mutual consent, the Part D plan sponsor must provide notice to its Medicare enrollees and the general public as provided in paragraph (c) of this section.

(c) Notification of modification. If the contract is modified by mutual consent, the Part D plan sponsor must notify its Medicare enrollees of any changes that CMS determines are appropriate for notification within timeframes specified by CMS.

(d) Timely transfer of data and files. If a contract is terminated under paragraph (a) of this section, the Part D plan sponsor must ensure the timely transfer of any data or files.

(e) Agreement to limit new Part D applications. (1) As a condition of the consent to a mutual termination, CMS requires, as a provision of the termination agreement, language prohibiting the Part D plan sponsor from applying for new contracts or service area expansions in the PDP region or regions served by the contract for a period up to 2 years unless there are circumstances that warrant special consideration, as determined by CMS.

(2) A PDP sponsor that agrees to terminate its offering of PBPs in a PDP region also agrees that it is not eligible to apply to resume offering plans in that region for 2 years.

(3) The provisions of this paragraph do not apply to employer group waiver plans offered by a Part D plan sponsor.

(f) Prohibition against Part D 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 2-year period specified in paragraph (e) of this section, 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 nonrenewed or terminated organizations who are natural persons, other than shareholders who have an ownership interest of less than 5 percent.

(2) An owner of a whole or part interest in a 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 or board of trustees of the entity, if the organization is organized as a corporation.

(a) Termination by CMS. CMS may at any time terminate a contract if CMS determines that the Part D plan sponsor 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), (2) or (3) of this section if the Part D Plan sponsor has had one or more of the following occur:

(i) Based on credible 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 risk adjustment, reinsurance and risk corridor related data as required under §§ 423.322 and 423.329 (or, for fallback entities, failed to provide the information in § 423.871(f)).

(iv) Substantially failed to comply with the service access requirements in § 423.120.

(v) Substantially failed to comply with either of the following:

(A) Requirements in subpart V of this part.

(B) Information dissemination requirements of § 423.128 of this part.

(vi) Substantially failed to comply with the coordination with plans and programs that provide prescription drug coverage as described in subpart J of this part.

(vii) Substantially failed to comply with the cost and utilization management, quality improvement, medication therapy management and fraud, abuse and waste program requirements as specified in subparts D and K of this part.

(viii) Failed to comply with the regulatory requirements contained in this part.

(ix) Failed to meet CMS performance requirements in carrying out the regulatory requirements contained in this part.

(x) Achieves a Part D 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.

(xi)(A) Has failed to report MLR data in a timely and accurate manner in accordance with § 423.2460; or

(B) That any MLR data required by this subpart is found to be materially incorrect or fraudulent.

(xii) Failure of an essential operations test before the start of the benefit year by an organization that has entered into a Part D contract with CMS when neither it, nor another subsidiary of the organization's parent organization, is offering Part D benefits during the current year.

(xiii) The Part D plan sponsor has committed any of the acts in § 423.752 that support the imposition of intermediate sanctions or civil money penalties under § 423.750.

(xiv) Following the issuance of a notice to the sponsor no later than August 1, CMS must terminate, effective December 31 of the same year, an individual PDP if that plan does not have a sufficient number of enrollees to establish that it is a viable independent plan option.

(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 Part D plan sponsor in writing at least 45 calendar days before the intended date of the termination.

(ii) The Part D plan sponsor notifies its Medicare enrollees of the termination by mail at least 30 calendar days before the effective date of the termination.

(iii) The Part D plan sponsor 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) CMS notifies the general public of the termination no later than 30 calendar days after notifying the plan of CMS's decision to terminate the Part D plan sponsor's contract by releasing a press statement.

(v) In the event that CMS issues a termination notice to a Part D plan sponsor on or before August 1 with an effective date of the following December 31, the Part D plan sponsor 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 (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 Part D plan sponsor;

(B) The Part D plan sponsor 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 paragraphs (a)(4)(i) and (xii) of this section.

(ii) CMS notifies the Part D plan sponsor in writing that its contract will be terminated on a date specified by CMS. If a termination in is effective in the middle of a month, CMS has the right to recover the prorated share of the capitation payments made to the Part D plan sponsor covering the period of the month following the contract termination.

(iii) CMS notifies the Part D plan sponsor's Medicare enrollees in writing of CMS's decision to terminate the Part D plan sponsor's contract. This notice occurs no later than 30 days after CMS notifies the plan of its decision to terminate the Part D plan sponsor's contract. CMS simultaneously informs the Medicare enrollees of alternative options for obtaining qualified prescription drug coverage, including alternative PDP sponsors and MA-PDs in a similar geographic area.

(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 Part D plan sponsor's contract. This notice is published in one or more newspapers of general circulation in each community or county located in the Part D plan sponsor'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 Part D plan sponsor with notice specifying the Part D plan sponsor'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 Part D plan sponsor 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 Part D plan sponsor 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 Part D plan sponsor;

(ii) The Part D plan sponsor 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.

(d) Appeal rights. If CMS decides to terminate a contract, it sends written notice to the Part D plan sponsor informing it of its termination appeal rights in accordance with subpart N of this part.

(e) Timely transfer of data and files. If a contract is terminated under paragraph (a) of this section, the Part D plan sponsor must ensure the timely transfer of any data or files.

(f) If CMS makes a determination to terminate a Part D sponsor's contract under § 423.509(a), CMS also imposes the intermediate sanctions at § 423.750(a)(1) and (3) in accordance with the following procedures:

(1) The sanction will go into effect 15 days after the termination notice is sent.

(2) The Part D sponsor will have a right to appeal the intermediate sanction in the same proceeding as the termination appeal specified in paragraph (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 will remain 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.

(a) Cause for termination. The Part D plan sponsor may terminate its contract if CMS fails to substantially carry out the terms of the contract.

(b) Notice of termination. The Part D plan sponsor 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 Part D sponsor 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 qualified prescription drug coverage within the services area, including alternative PDPs, MA-PDPs, and original Medicare and must receive CMS approval.

(3) To the general public, at least 60 days before the termination effective date by publishing a CMS-approved notice in one or more newspapers of general circulation in each community or county located in the Part D plan sponsor'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 Part D plan sponsor's notice of intent to terminate.

(d) CMS's liability. CMS's liability for payment to the Part D plan sponsor 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 does not enter into an agreement with an organization that has terminated its contract within the preceding 2 years unless there are circumstances that warrant special consideration, as determined by CMS.

(2) During the same 2-year period specified in (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 nonrenewed or terminated organizations who are natural persons, other than shareholders who have an ownership interest of less than 5 percent.

(ii) An owner of a whole or part interest in a 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.

(f) Timely transfer of data and files. If a contract is terminated under paragraph (a) of this section, the Part D plan sponsor must ensure the timely transfer of any data or files.

(a) Basic rule. Except as provided in paragraph (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 are enrolled for the purpose of receiving prescription drug benefits from the organization; or

(2) At least 1,500 individuals are enrolled for purposes of receiving prescription drug benefits from the organization and the organization primarily serves individuals residing outside of urbanized areas as defined in § 412.62(f) of this chapter;

(3) Except as provided for in paragraph (b) of this section, a Part D plan sponsor must maintain a minimum enrollment as defined in paragraphs (a)(1) and (a)(2) of this section for the duration of its contract.

(b) Minimum enrollment waiver. CMS waives the requirement of paragraphs (a)(1) and (a)(2) of this section during the first contract year for a sponsor in a region.

(a) Required information. Each Part D plan sponsor 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, information indicating 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) Information demonstrating that the Part D plan sponsor has a fiscally sound operation.

(5) Pharmacy performance measures.

(6) Other matters that CMS may require.

(b) Significant business transactions. Each Part D plan sponsor 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 § 423.501, between the Part D plan sponsor and a party in interest, including the following:

(i) Indication that the costs of the transactions listed in paragraph (c) of this section do not exceed the costs that would be incurred if these transactions were with someone who is not a party in interest; or

(ii) If they do exceed, a justification that the higher costs are consistent with prudent management and fiscal soundness requirements.

(2) A combined financial statement for the Part D plan sponsor 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 Part D sponsor go to a party in interest.

(ii) Thirty five percent or more of the revenue of a party in interest is from the Part D plan sponsor.

(c) Requirements for combined financial statements. (1) The combined financial statements required by paragraph (b)(2) of this section must display in separate columns the financial information for the Part D plan sponsor and each of the parties in interest.

(2) Inter-entity transactions must be eliminated in the consolidated column.

(3) The statements must be examined by an independent auditor in accordance with generally accepted accounting principles and must include appropriate opinions and notes.

(4) Upon written request from a Part D plan sponsor showing good cause, CMS may waive the requirement that the organization's combined financial statement include the financial information required in this paragraph (c) of this section for a particular entity.

(d) Reporting requirements for pharmacy benefits manager data. Each entity that provides pharmacy benefits management services must provide to the Part D sponsor, and each Part D sponsor must provide to CMS, in a manner specified by CMS, the following:

(1) The total number of prescriptions that were dispensed.

(2) The percentage of all prescriptions that were provided through retail pharmacies compared to mail order pharmacies.

(3) The percentage of prescriptions for which a generic drug was available and dispensed (generic dispensing rate), by pharmacy type (which includes an independent pharmacy, chain pharmacy, supermarket pharmacy, or mass merchandiser pharmacy that is licensed as a pharmacy by the State and that dispenses medication to the general public), that is paid by the Part D sponsor or PBM under the contract.

(4) The aggregate amount and type of rebates, discounts, or price concessions (excluding bona fide service fees as defined in § 423.501) that the PBM negotiates that are attributable to patient utilization under the plan.

(5) The aggregate amount of the rebates, discounts, or price concessions that are passed through to the plan sponsor, and the total number of prescriptions that were dispensed.

(6) The aggregate amount of the difference between the amount the Part D sponsor pays the PBM and the amount that the PBM pays retail pharmacies, and mail order pharmacies.

(e) Confidentiality of pharmacy benefits manager data. Information disclosed by a Part D sponsor or PBM as specified in paragraph (d) of this section is confidential and must not be disclosed by the Secretary or by a plan receiving the information, except that the Secretary may disclose the information in a form which does not disclose the identity of a specific PBM, plan, or prices charged for drugs, for the following purposes:

(1) As the Secretary determines necessary to carry out section 1150A of the Act or Part D of Title XVIII.

(2) To permit the Comptroller General to review the information provided.

(3) To permit the Director of the Congressional Budget Office to review the information provided.

(f) Penalties for failure to provide pharmacy benefits manager data. The provisions of section 1927(b)(3)(C) of the Act are applicable to a Part D sponsor or PBM that fails to provide the required information on a timely basis or knowingly provides false information in the same manner as such provisions apply to a manufacturer with an agreement under section 1927 of the Act.

(g) Reporting and disclosure under Employee Retirement Income Security Act of 1974 (ERISA). (1) For any employees' health benefits plan that includes a Part D plan sponsor in its offerings, the PDP sponsor must furnish, upon request, the information the plan needs to fulfill its reporting and disclosure obligations (for the particular PDP sponsor) under the Employee Retirement Income Security Act of 1974 (ERISA).

(2) The PDP sponsor 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.

(h) Loan information. Each Part D plan sponsor must notify CMS of any loans or other special financial arrangements it makes with contractors, subcontractors and related entities.

(i) Enrollee access to information. Each Part D plan sponsor must make the information reported to CMS under this section available to its enrollees upon reasonable request.

(j) Data validation. Each Part D sponsor must subject information collected under paragraph (a) of this section to a yearly independent audit to determine its reliability, validity, completeness, and comparability in accordance with specifications developed by CMS.

CMS may not implement, other than at the beginning of a calendar year, regulations under this section that impose new, significant regulatory requirements on a PDP sponsor or a prescription drug plan.

(a) Contract between CMS and the Part D sponsor. (1) Effective contract year 2010, the contract between the Part D sponsor and CMS must provide that the Part D sponsor will issue, mail, or otherwise transmit payment with respect to all clean claims, as defined in paragraph (b) of this section, submitted by network pharmacies (other than mail-order and long-term care pharmacies) within—

(i) 14 days after the date on which the claim is received, as defined in paragraph (a)(2)(i) of this section, for an electronic claim; or

(ii) 30 days after the date on which the claim is received, as defined in paragraph (a)(2)(ii) of this section, for any other claim.

(2) Date of receipt of claim. A claim is considered to have been received—

(i) On the date on which the claim is transferred, for an electronic claim; or

(ii) On the 5th day after the postmark day of the claim or the date specified in the time stamp of the transmission, for any other claim, whichever is sooner.

(b) Clean claim. A clean claim means a claim that has no defect or impropriety (including any lack of any required substantiating documentation) or particular circumstance requiring special treatment that prevents timely payment of the claim from being made under this section.

(c) Procedures involving claims—(1) Claims determined to be clean. A claim is deemed to be a clean claim if the Part D sponsor receiving the claim does not provide notice to the submitting network pharmacy of any deficiency in the claim within—

(i) 10 days after the date on which the claim is received, as defined in paragraph (a)(2)(i) of this section, for an electronic claim; or

(ii) 15 days after the date on which the claim is received, as defined in paragraph (a)(2)(ii) of this section, for any other claim.

(2) Claims determined not to be clean—(i) General. If a Part D sponsor determines that a submitted claim is not a clean claim, as defined in paragraph (b) of this section, the Part D sponsor must notify the submitting network pharmacy of such determination within the period described in paragraph (c)(1) of this section. Such notification must specify all defects or improprieties in the claim and must list all additional information necessary for the proper processing and payment of the claim.

(ii) Determination after submission of additional information. A claim is deemed to be a clean claim under paragraph (b) of this section if the Part D sponsor that receives the claim does not provide notice to the submitting network pharmacy of any remaining defect or impropriety, or of any new defect or impropriety raised by the additional information, in the claim within 10 days of the date on which additional information is received under paragraph (c)(2)(i) of this section. A Part D sponsor may not provide notice of a new deficiency or impropriety in the claim that could have been identified by the sponsor in the original claim submission under this paragraph.

(3) Obligation to pay. A claim submitted to a Part D sponsor that is not paid by the Part D sponsor within the timeframes specified in paragraphs (a)(1)(i) and (ii) or contested by the Part D sponsor within the timeframe specified in paragraph (c)(1)(i) and (ii) of this section must be deemed to be a clean claim and must be paid by the Part D sponsor in accordance with paragraph (a) of this section.

(d) Date of payment of claim. Payment of a clean claim under paragraph (c)(3) of this section is considered to have been made on the date on which—

(1) The payment is transferred, for an electronic claim; or

(2) The payment is submitted to the United States Postal Service or common carrier for delivery, for any other claim.

(e) Interest payment—(1) General. Subject to paragraph (e)(2) of this section, if payment is not issued, mailed or otherwise transmitted for a clean claim as required under paragraph (a) of this section, the Part D sponsor must pay interest to the network pharmacy that submitted the claim at a rate equal to the weighted average of interest on 3-month marketable Treasury securities determined for such period, increased by 0.1 percentage point for the period beginning on the day after the required payment date and ending on the date on which the payment is made, as determined under paragraph (d). Interest amounts paid under this paragraph will not count against the Part D sponsor's administrative costs, as defined in § 423.308, and will not be treated as allowable risk corridor costs, as defined in § 423.308.

(2) Authority not to charge interest. As CMS determines, a Part D sponsor is not charged interest under paragraph (e)(1) in exigent circumstances that prevent the timely processing of claims, including natural disasters and other unique and unexpected events.

(f) Electronic transfer of funds. A Part D sponsor must pay all clean claims submitted electronically by electronic transfer of funds provided the submitting network pharmacy so requests or has so requested previously that contract year. When such payment is made electronically, remittance may also be made electronically by the Part D sponsor.

(g) Protecting the rights of the claimants—(1) General. Nothing in this section may be construed to prohibit or limit a claim or action that any individual or organization has against a pharmacy, provider, or Part D sponsor that is not covered by the subject matter of this section.

(2) Anti-retaliation. Consistent with applicable Federal or State law, a Part D sponsor may not retaliate against an individual, pharmacy, or provider for exercising a right of action under paragraph (g)(1) of this section.

(h) Construction. A determination under this section that a claim submitted by a network pharmacy is a clean claim shall not be construed as a positive determination regarding eligibility for payment under title XVIII of the Act, nor is it an indication of government approval of, or acquiescence regarding, the claim submitted. The determination does not relieve any party of civil or criminal liability with respect to the claim, nor does it offer a defense to any administrative, civil, or criminal action with respect to the claim.

(a) Notice of final settlement. After the calculation of the final settlement amount, CMS sends the Part D sponsor a notice of final settlement. The notice of final settlement contains at least the following information:

(1) A final settlement amount for the contract that has been consolidated, nonrenewed, or terminated, which may be one of the following:

(i) An amount due to the Part D sponsor.

(ii) An amount due from the Part D sponsor.

(iii) $0 if nothing is due to or from the Part D sponsor.

(2) Relevant banking and financial mailing instructions for Part D sponsors 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 § 423.522.

(b) Request for an appeal. A Part D sponsor that disagrees with the final settlement amount has 15 calendar days from issuance of the notice of final settlement, as described in paragraph (a) of this section, to request an appeal of the final settlement amount under the process described in § 423.522.

(1) If a Part D sponsor agrees with the final settlement amount, no response is required.

(2) If a Part D sponsor 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 a Part D sponsor does not request an appeal. (1) For Part D sponsors that are owed money by CMS, CMS remits payment to the Part D sponsor within 60 calendar days from the date of the issuance of the notice of final settlement.

(2) For Part D sponsors that owe CMS money, the Part D sponsor is required to remit payment to CMS within 120 calendar days from issuance of the notice of final settlement. If the Part D sponsor 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 a request for appeal. If a Part D sponsor responds to the notice of final settlement disagreeing with the final settlement amount and requesting appeal, CMS conducts a review process under the process described at § 423.522.

(e) No additional payment adjustments. After the final settlement amount is calculated and the notice of final settlement, as described under § 423.521(a), is issued to the Part D sponsor, CMS—

(1) No longer applies retroactive payment adjustments to the terminated, consolidated or nonrenewed contract; and

(2) There are no adjustments applied to amounts used in the calculation of the final settlement amount.

(a) Appeals process. If a Part D sponsor does not agree with the final settlement amount described in § 423.521(a) of this section, it may appeal under the following three-level appeal process:

(1) Reconsideration. A Part D sponsor may request reconsideration of the final settlement amount described in § 423.521(a) according to the following process:

(i) Manner and timing of request. A written request for reconsideration must be filed within 15 days from the date that CMS issued the notice of final settlement to the Part D sponsor.

(ii) Content of request. The written request for reconsideration must do all of the following:

(A) Specify the calculation with which the Part D sponsor disagrees and the reasons for its disagreement.

(B) Include evidence supporting the assertion that CMS's 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 Part D sponsor.

(iv) Reconsideration decision. The CMS reconsideration official informs the Part D sponsor 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) of this section.

(2) Informal hearing. A Part D sponsor dissatisfied with CMS's reconsideration decision made under paragraph (a)(1) of this section is entitled to an informal hearing as provided for under paragraphs (a)(2)(i) through (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's 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 Part D sponsor 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 calendar 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 Part D sponsor 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) of this section.

(3) Review by the Administrator. The Administrator's review is conducted in the following manner:

(i) Manner and timing of request. A Part D sponsor 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) of this section. The Part D sponsor may submit written arguments to the Administrator for review.

(ii) Discretionary review. (A) 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) of this section or to decline to review the hearing officer's decision within 30 calendar days of receiving the request for review.

(B) If the Administrator declines to review the hearing officer's decision, the hearing officer's decision is final and binding.

(iii) Electing to 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 Part D sponsor, 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 Part D sponsor's appeal is limited to CMS's calculation of the final settlement amount. CMS does not consider information submitted for the purposes of retroactively adjusting a prior reconciliation.

(2) The Part D sponsor 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 a Part D sponsor 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 Part D sponsor fails to request further review within the applicable 15-calendar-day timeframe, CMS communicates with the Part D sponsor 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 a Part D sponsor's responsibility to comply with any other statute or regulation.

(a) General rules—(1) Definition of plan crosswalk. A plan crosswalk is the movement of enrollees from one plan benefit package (PBP) in a PDP contract to another PBP under a PDP contract between a Part D Sponsor and CMS. To crosswalk enrollees from one PBP to another is to change the enrollment from the first PBP to the second.

(2) Prohibitions. (i) Plan crosswalks between PBPs under one PDP contract and PBPs under another PDP contract are prohibited unless both the PDP sponsors with which CMS contracts are the same legal entity or have the same parent organization.

(ii) Plan crosswalks are prohibited that split the enrollment of one PBP into multiple PBPs.

(iii) Plan crosswalks are prohibited from a PBP offering basic prescription drug coverage to a PBP offering enhanced alternative coverage.

(3) Compliance with renewal/non-renewal rules. The PDP sponsor must comply with renewal and non-renewal rules in §§ 423.506 and 423.507 in order to complete plan crosswalks.

(4) Eligibility. Enrollees must be eligible for enrollment under § 423.30 in order to be moved from one PBP to another PBP.

(5) Applicability to Employer group health or waiver plans. Nothing in this section permits the crosswalk of enrollees in an employer group health or waiver plan PBP to another PBP outside the usual process for enrollment in employer group health or waiver plans.

(b) Mandatory plan crosswalks. A Part D sponsor of a PDP must perform a plan crosswalk in the following circumstances:

(1) Renewal of a PBP offering basic prescription drug coverage. A PDP sponsor that plans to continue operating a PBP offering basic prescription coverage in the same service area for the upcoming contract year must crosswalk enrollment from the PBP offering basic prescription drug coverage in the current contract year into a PBP offering basic prescription drug coverage under the same PDP contract in the upcoming contract year. The PBP for the upcoming contract year must retain the same plan ID as the PBP for the current contract year.

(2) Renewal of a PBP offering enhanced alternative drug coverage. A PDP sponsor that plans to continue operating a PBP offering enhanced alternative coverage in the same service area for the upcoming contract year must crosswalk enrollment from the PBP offering enhanced alternative drug coverage in the current contract year into a PBP offering enhanced alternative drug coverage in the upcoming contract year. The PBP for the upcoming contract year PBP must retain the same plan ID as the PBP for the current contract year.

(c) Plan crosswalk exceptions. A Part D sponsor of a PDP may perform a plan crosswalk in the following circumstances after receiving approval from CMS under the procedures described in paragraph (d) of this section.

(1) Consolidated renewals. If a PDP sponsor wishes to non-renew a PBP offering enhanced alternative prescription drug coverage under a PDP contract that is not non-renewing or reducing its service area so that the contract no longer includes the service area of the non-renewing PBP, it may crosswalk enrollment from the non-renewing PBP into a PBP offered under the contract in the upcoming contract year.

(i) The plan ID for the upcoming contract year PBP must be the same plan ID as one of PBPs for the current contract year.

(ii) The PBPs being consolidated must be under the same PDP contract.

(iii) A PBP offering basic prescription drug coverage may not be discontinued if the PDP contract continues to offer coverage (other than employer group waiver plans) in the service area of the PBP.

(iv) Enrollment from a PBP offering enhanced alternative coverage may be crosswalked into a PBP offering either enhanced alternative or basic prescription drug coverage.

(v) If the PDP contract includes more than one renewing PBP into which enrollment of the non-renewing PBP can be crosswalked, the enrollment of the non-renewing PBP must be crosswalked into the renewing PBP that will result in lowest increase in monthly premiums for the enrollees.

(vi) A plan crosswalk is not approved under this paragraph if it will result in a premium increase for the following benefit year (as reflected in the bid for the receiving PBP submitted on the first Monday in June) that is higher than the greater of the following:

(A) The current year's premium for the non-renewing PBP.

(B) The current year's average base beneficiary premium, as described in § 423.286(c) of this part, for the PDP region in which the PBP operates.

(vii) If an organization that non-renews an enhanced alternative PBP does not request and receive a plan crosswalk exception as provided in paragraph (d) of this section, CMS does not approve a new enhanced alternative PBP in the same service area as the non-renewing PBP in the following contract year.

(2) Contract consolidations. If a PDP sponsor non-renews all or part of the service area of its contract with CMS in accordance with §§ 423.507 or 423.508, the enrollees of the non-renewing PBPs may be crosswalked into one or more PBPs in another PDP contract (the surviving contract).

(i) The non-renewing PDP contract and the surviving contract must be held by the same legal entity or by legal entities with the same parent organization.

(ii) The approved service area of the surviving contract must include the service area of the non-renewing PBPs whose enrollment will be crosswalked into the surviving contract.

(iii) Enrollment may be crosswalked between PBPs offering the same type of prescription drug coverage (basic or enhanced alternative).

(iv) Enrollment from a PBP offering enhanced alternative coverage may be crosswalked into a PBP offering basic prescription drug coverage.

(v) Enrollment from a PBP offering enhanced alternative coverage must be crosswalked into the PBP in the surviving contract that will result in the lowest premium increase.

(vi) A plan crosswalk is not approved under this paragraph if it will result in a premium increase for the following benefit year (as reflected in the bid for the receiving PBP submitted on the first Monday in June) that is higher than the greater of:

(A) The current year's premium for the non-renewing PBP, or

(B) The current year's average base beneficiary premium, as described in § 423.286(c), for the region in which the PBP operates.

(d) Procedures. (1) A PDP sponsor must submit the following:

(i) All plan crosswalks described in paragraph (b) of this section in writing through the bid submission process in HPMS by the bid submission deadline.

(ii) All plan crosswalk exception requests described in paragraph (c) of this section in writing through the plan crosswalk exceptions process in HPMS by the plan crosswalk exception request deadline announced annually by CMS.

(2) CMS verifies the requests and notifies a requesting PDP sponsor of the approval or denial after the crosswalk exception request deadline.