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Statement of Need: Section 4001 of the Balanced Budget Act of 1997 (BBA) (Public Law 105-33), enacted August 5, 1997, added sections 1851 through 1859 to the Social Security Act (the Act) to establish a new Part C of the Medicare program, known as the "Medicare+Choice (M+C) Program." Under section 1851(a)(1) of the Act, every individual entitled to Medicare Part A and enrolled under Part B, except for individuals with end-stage renal disease, may elect to receive benefits through either the existing Medicare fee-for-service program or Part C M+C plan, if one is available where he or she lives. The M+C statute authorizes a variety of private health plan options for beneficiaries, including both the traditional managed care (such as those offered by health maintenance organizations (HMOs)) that traditionally have been offered under section 1876 of the Act, and new options that were not previously authorized. Among the alternatives authorized by the BBA are M+C coordinated care plans (including plans offered by health maintenance organizations, preferred provider organizations, and provider-sponsored organizations), M+C "MSA" plans, that is, a combination of a high deductible M+C health insurance plan and a contribution to an M+C medical savings account (MSA), and M+C private fee-for-service plans. The M+C program also introduced several other fundamental changes to the managed care component of the Medicare program. These changes include: Establishment of an expanded array of quality assurance standards and other consumer protection requirements; Introduction of an annual coordinated enrollment period, in conjunction with the distribution by HCFA of uniform, comprehensive information about M+C plans that is needed to promote informed choices of beneficiaries; Revisions in the way we calculate payment rates to M+C organizations that will narrow the range of payment variation across the country and increase incentives for organizations to offer M+C plans in diverse geographic areas; and Establishment of requirements concerning provider participation procedures. As directed by the BBA, we published an interim final rule on June 26, 1998 to implement the M+C program. On February 17, 1999, we published a limited final rule that set forth selected changes to the interim final regulations. This more comprehensive final rule is necessary to respond to all comments on the interim final rule and implement other necessary changes. Issues discussed in this rule include eligibility, election, and enrollment policies; marketing requirements; access requirements; service area and benefit policy; quality improvement standards; payment rates, risk adjustment methodology and encounter data submission; provider participation rules; beneficiary appeals and grievances; contractual requirements; and preemption of State law by Federal law. This final rule also addresses comments on the M+C user fee interim final rule published on December 2, 1997 and on the provider-sponsored organization (PSO) interim final rule published April 1, 1998.

Summary of the Legal Basis: Sections 1851 through 1859 of the Social Security Act and the implementing regulations at 42 CFR 422 set forth a series of requirements for organizations that participate in the M+C program. The specific areas addressed by the different sections of the statute are as follows: Section 1851--Eligibility, election and enrollment Section 1852--Benefits and beneficiary protections Section 1853--Payment to M+C organizations Section 1854--Premiums Section 1855--Organizational and financial requirements for M+C organizations Section 1856--Establishment of standards Section 1857--Contracts with M+C organizations Section 1859--Definitions and miscellaneous provisions Part 422 establishes regulatory requirements based on these statutory provisions.

Alternatives: Section 1856(b)(1) of the Act provided that in order to carry out the requirement to establish M+C standards by regulation, the Secretary was authorized to promulgate regulations that take effect on an interim basis, after notice and pending opportunity for public comment. Inherent to this provision is the Department's commitment to subsequent publication of a final rule that responds to those public comments. Thus, we believe we have no alternative other than to publish a comprehensive final rule concerning the M+C program standards.

Anticipated Costs and Benefits: We do not anticipate that this final rule will implement any changes in the M+C program that will have a significant economic impact on M+C organizations or the general public. Where possible without negative effects on the care provided to M+C enrollees, we intend to make minor changes in the M+C regulations that would reduce the administrative burden on M+C organizations.

Risks: Given that the payment rates for M+C organizations are set by the statute, and that we do not intend to impose any burdensome new requirements on M+C organizations, we do not believe that this final rule poses any risks of financial harm to M+C organizations of causing pull-outs from the M+C program that could negatively affect Medicare beneficiaries.