Medicare Program; Medical Loss Ratio Requirements for the Medicare Advantage and the Medicare Prescription Drug Benefit Programs

SUMMARY: This final rule implements new medical loss ratio (MLR) requirements for the Medicare Advantage Program and the Medicare Prescription Drug Benefit Program established under the Patient Protection and Affordable Care Act.

DATES: These regulations are effective on July 22, 2013.

FOR FURTHER INFORMATION CONTACT: Ilina Chaudhuri, 410-786-8628 or [email protected].

SUPPLEMENTARY INFORMATION: We are publishing this final rule for the Medicare Advantage (Part C) and prescription drug (Part D) programs to make changes as required by the Patient Protection and Affordable Care Act (Pub. L. 111-148) as amended by the Health Care and Education Reconciliation Act (Pub. L. 111-152) ("Reconciliation Act"), which we refer to collectively as the Affordable Care Act. The Affordable Care Act includes significant reforms to both the private health insurance industry and the MedicareMedicaid programs. Provisions in the Affordable Care Act concerning the Part C Medicare Advantage (MA) and Part D Prescription Drug programs largely focus on beneficiary protections, MA payment reforms, and simplification of MA and Prescription Drug program processes for both programs. Regulations implementing most Affordable Care Act provisions pertaining to the MA and Prescription Drug program provisions were published on April 12, 2012 (77 FR 22072) and a correction was published June 1, 2012 (77 FR 32407).

This final rule implements section 1103 of Title I, Subpart B of the Reconciliation Act. This section of the Affordable Care Act amends section 1857(e) of the Social Security Act (the Act) to add new medical loss ratio (MLR) requirements. An MLR is expressed as a percentage, generally representing the percentage of revenue used for patient care, rather than for such other items as administrative expenses or profit. Because section 1860D-12(b)(3)(D) of the Act incorporates by reference the requirements of section 1857(e) of the Act, these new Affordable Care Act medical loss ratio requirements also apply to the Part D program. Under these new requirements, MA organizations and Part D sponsors are required to report their MLR, and are subject to financial and other penalties for a failure to meet a new statutory requirement that they have an MLR of at least 85 percent. The Affordable Care Act requires several levels of sanctions for failure to meet the 85 percent minimum MLR requirement, including remittance of funds to the Secretary, a prohibition on enrolling new members, and ultimately contract termination. In the February 22, 2013Federal Register (78 FR 12428), we published a proposed rule with revisions to the Medicare Advantage (MA) program (Part C) and prescription drug benefit program (Part D). This final rule sets forth CMS' implementation of these new MLR requirements for the MA and Part D programs.

II. Provisions of the Proposed Rule and Summary of and Responses to the Public Comments

We received approximately 51 items of timely correspondence containing comments in response to the February 22, 2013 proposed rule. These public comments addressed issues on multiple topics. Commenters included health and drug plan organizations, insurance industry trade groups, provider associations, pharmacist and pharmacy associations, beneficiary advocacy groups, private citizens, and others. Overall, commenters supported our decision to model Medicare MLR policy after the commercial MLR rules.

In this final rule, we address comments and concerns regarding the policies included in the proposed rule. We present a summary of public comments received, as well as our responses to them in the applicable section of this final rule.

A. Introduction

The new minimum MLR requirement in section 1857(e)(4) of the Act is intended to create incentives for MA organizations and Part D sponsors to reduce administrative costs such as marketing costs, profits, and other uses of the funds earned by MA organizations and Part D sponsors and to help ensure that taxpayers and enrolled beneficiaries receive value from Medicare health plans. Under this final rule, an MLR will be determined based on the percentage of Medicare contract revenue spent on clinical services, prescription drugs, quality improving activities, and direct benefits to beneficiaries in the form of reduced Part B premiums. The higher the MLR, the more the MA organization or Part D sponsor is spending on claims and quality improving activities and the less they are spending on other things. MA organizations and Part D sponsors will remit payment to CMS when their spending on clinical services, prescription drugs, quality improving activities, and Part B premium rebates, in relation to their total revenue, is less than the 85 percent MLR requirement established under section 1857(e)(4) of the Act. We believe the payment remittance of section 1857(4)(e)(A) of the Act is designed to encourage the provision of value to policyholders by creating incentives for MA organizations and Part D sponsors to become more efficient in their operations. If an MA organization or Part D sponsor fails to meet MLR requirements for more than 3 consecutive years, they will also be subject to enrollment sanctions and, after 5 consecutive years, to contract termination.

B. Scope, Applicability, and Definitions

As noted previously, section 1857(e)(4) of the Act, which establishes requirements for a minimum MLR, directly applies to the MA program. The requirements at section 1857(e)(4) of the Act also apply to the Medicare Prescription Drug Benefit Program, because section 1860D-12(b)(3)(D) of the Act requires that the contractual requirements at section 1857(e) of the Act apply to the Part D program.

1. Scope and Applicability

This section discusses the scope of the Medicare MLR requirements and the applicability to various plan types. Part 422 of the Code of Federal Regulations (CFR) regulates the MA Program, and Part 423 of the CFR regulates the Part D program. This final rule implements sections 1857(e)(4) and 1860D-12(b)(3)(D) of the Act by adding to both Parts 422 and 423 a new Subpart X, "Requirements for a Minimum Medical Loss Ratio." Subpart X for the MA program has the same structure as Subpart X for the Part D program. Thus, discussion in this preamble is organized by each Subpart X section, and both MA and Part D provisions are discussed within each section. Any differences between the MA and Part D provisions are described within the relevant section.

Because section 1857(e) of the Act, where the MLR requirement appears in statute, does not directly apply to Cost HMOs/CMPs (Cost Health Maintenance Organizations/Competitive Medical Plans), HCPPs (Health Care Prepayment Plans) or PACE (Program of All-Inclusive Care for the Elderly) organizations, we are finalizing that MLR requirements set forth in this final rule only apply to the Part D portion of the benefits offered by Cost HMOs/CMPs and employers/unions offering HCPPs. We are finalizing our proposal that we would treat these contracts like PDPs for MLR purposes. If a Cost HMO/CMP or an HCPP does not meet the minimum MLR requirement on the Part D portion of the benefits it provides to Medicare enrollees, for 3 consecutive years, it will be forced to stop enrolling new individuals in such Part D coverage and, after 5 consecutive years, will potentially lose the Part D portion of its contract.

As explained in the proposed rule, we believe that for PACE organizations offering Part D, the situation is different such that we should use our authority under the PACE statute to waive Medicare MLR requirements for PACE organizations. We received a comment on this proposal, which supported our proposed approach, and thus we are finalizing this proposal without modification, and are not applying the Part D MLR requirements to the Part D offerings of PACE organizations.

Comment: Several commenters supported the proposed rule and CMS's general approach of using the commercial MLR rules as a reference point for developing the Medicare MLR requirements.

Response: We appreciate the support.

Comment: Many commenters believe that CMS has the discretion to not apply the Medicare MLR requirements to the Part D program, citing what they contended was a lack of evidence of Congressional intent to do so, or noting that holding Part D stand-alone contracts to the same minimum MLR as MA contracts is unfair because of relatively low drug claims costs or more volatility compared to medical-only plans or plans with both medical and drug benefits. Several commenters pointed to the provision in section 1857(e)(3) of the Act that applies to contracts with federally qualified health centers (FQHCs) as a precedent for not applying a provision in section 1857(e) of the Act to Part D, presumably based on the belief that the FQHC provision does not apply to Part D.

Another commenter stated that, if Medicare MLR applies to Part D, we should consider a multiplier to increase Part D MLRs. Another commenter asked us to consider lowering the 85 percent requirement for Part D contracts. Some commenters argued that enforcing an MLR for Part D contracts would be unnecessary because plans are already subject to risk corridors that serve as an upper limit on net revenue. A commenter suggested that, at a minimum, CMS delay the applicability of Medicare MLR requirements to Part D until 2015. Several commenters supported applying Medicare MLR requirements to the Part D program.

Response: In the proposed rule, we explained that the statute requires us to apply all provisions in section 1857(e) of the Act to the Part D program. We disagree that the FQHC provision is relevant precedent for understanding the Medicare MLR statute. While this provision is not applicable as a practical matter, as Part D sponsors do not subcontract with FQHCs to provide FQHC services, if a Part D plan ever did so, that contract would be subject to this provision. In the case of the MLR rule, however, it clearly can be applied to drug costs, as it is under the commercial MLR rule upon which this rule is based.

--This is a summary of a Federal Register article originally published on the page number listed below--

Final rule.

CFR Part: "42 CFR Parts 422 and 423"

RIN Number: "RIN 0938-AR69"

Citation: "78 FR 31284"

Document Number: "CMS-4173-F"

Federal Register Page Number: "31284"

"Rules and Regulations"