is, in accordance with §417.165, again qualified under subpart D of this part.

(Sec. 215 of the Public Health Service Act, as amended, 58 Stat. 690, 67 Stat. 631 (42 U.S.C. 216); secs. 1301-1318, as amended, Pub. L. 9735, 95 Stat. 572–578 (42 U.S.C. 300e-300e-17)

[43 FR 32255, July 25, 1978, as amended at 50 FR 6176, Feb. 14, 1985. Redesignated at 52 FR 36746, Sept. 30, 1987, and amended at 58 FR 38078, July 15, 1993]

$ 417.165 Reapplication for qualification.

An entity whose qualification as an HMO has been revoked by HCFA for purposes of section 1310 of the PHS Act may, after completing the corrective action required under §417.163(c)(2), reapply for a determination of qualification in accordance with the procedures specified in subpart D of this part.

[43 FR 32255, July 25, 1978. Redesignated at 52 FR 36746, Sept. 30, 1987, and amended at 58 FR 38078, July 15, 1993]

8417.166 Waiver of assurances.

(a) General rule. HCFA may release an HMO from compliance with any assurances the HMO gives under subpart D of this part if—

(1) The qualification requirements are change by Federal law; or

(2) The HMO shows good cause, consistent with the purposes of title XIII of the PHS Act.

(b) Basis for finding of good cause. (1) Grounds upon which HCFA may find good cause include but are not limited to the following:

(i) The HMO has filed for reorganization under Federal bankruptcy provisions and the reorganization can only be approved with the waiver of the assurances.

(ii) State laws governing the entity have been changed after it signed the assurances so as to prohibit the HMO from being organized and operated in a manner consistent with the signed as

surances.

(2) Changes in State laws do not constitute good cause to the extent that the changes are preempted by Federal law under section 1311 of the PHS Act. (c) Consequences of waiver. If HCFA waives any assurances regarding compliance with section 1301 of the PHS Act, HCFA concurrently revokes the HMO's qualification unless the waiver

is based on paragraph (a)(1) of this section.

[59 FR 49842, Sept. 30, 1994]

EFFECTIVE DATE NOTE: At 59 FR 49842, Sept. 30, 1994, §417.166 was revised effective October 31, 1994. For the convenience of the user, the superseded text is set forth below. 8417.166 Waiver of assurances.

HCFA may release an entity from compliance with any assurances given under this subpart for good cause shown, consistant with the purpose of title XIII of the PHS Act, except that upon the waiver of any assurance regarding the HMO's compliance with section 1301 of the PHS Act, HCFA will revoke the qualification of the HMO unless the waiver is based on paragraph (c) of this section. Grounds upon which HCFA will find good cause include, but are not limited to, the following:

(a) The entity has filed for reorganization under Federal bankruptcy provisions and the reorganization can only be approved with the waiver of the assurances;

(b) State laws governing the entity have been changed after it signed the assurances so as to prohibit the entity from being organized and operated in a manner consistent with the signed assurances, except to the extent that the changes would be superseded under the authority of section 1311 of the PHS Act; or

(c) Qualification requirements have been changed by a law of the United States.

$ 417.168 Special requirements: titles XVIII and XIX of the Social Security Act.

(a) As provided in section 1307(d) of the PHS Act, an HMO that otherwise complies with section 1301(b) and section 1301(c) of the PHS Act, and with the applicable regulations of subparts B and C of this part and §417.169, and that has enrollees who are entitled to insurance benefits under title XVIII of the Act or to medical assistance under a State plan approved under title XIX of the Act, may still be considered to be an HMO if, with respect to its title XVIII and title XIX enrollees, it provides services and is operated as required by title XVIII or title XIX, as appropriate, and by implementing regulations.

(b) Notwithstanding any inconsistent requirements of subparts B and C of this part and §417.169, an HMO that enters into a contract with HCFA under title XVIII of the Act or with a State under title XIX of the Act must, with

respect to its enrollees entitled to insurance benefits or medical assistance under those titles, comply with the applicable title XVIII or title XIX requirements, including deductible and coinsurance requirements, enrollment mix and enrollment practice requirements, in accordance with the provisions of title XVIII or the title XIX State plan of the State with which it is contracting. Copayment options that are not in accordance with a title XIX State plan may not be imposed on title XIX enrollees.

(c) Any grievance procedures authorized under title XVIII or title XIX of the Act are not superseded by the provisions of § 417.124(g).

[58 FR 38071, July 15, 1993]

EFFECTIVE DATE NOTE: At 59 FR 49842, Sept. 30, 1994, §417.168 was removed effective October 31, 1994.

§417.169 Special requirements: Federal employee health benefits program.

An entity that provides health services to a defined population on a prepaid basis and that has enrollees who are enrolled under the health benefits program authorized by Chapter 89 of Title 5, United States Code, may be considered to be an HMO for purposes of receiving assistance under this part if, with respect to its other enrollees, it

(a) Provides health services in accordance with section 1301(b) of the Act, subpart B of this part, and § 417.168; and

(b) Is organized and operated in the manner prescribed by section 1301(c) of the PHS Act, subpart C of this part, and §417.168.

[58 FR 38072, July 15, 1993]

EFFECTIVE DATE NOTE: At 59 FR 49842, Sept. 30, 1994, §417.169 was removed effective October 31, 1994.

Subpart G-I (Reserved)

Subpart J-Qualifying Conditions for Medicare Contracts

SOURCE:50 FR 1346, Jan. 10, 1985, unless otherwise noted.

8417.400 Basis and scope.

(a) Statutory basis. The regulations in this subpart implement section 1876 of the Act which authorizes Medicare payments to HMOs and competitive medical plans (CMPs) through contracts under which the HMOs and CMPs are reimbursed for furnishing covered services to Medicare beneficiaries.

(b) Scope. This subpart sets forth the requirements an entity must meet in order to enter into a contract with HCFA as an HMO or CMP to be reimbursed, through capitation payments, for services furnished to Medicare beneficiaries who are enrolled with the HMO or CMP. Subparts N, O, and P set forth the principles that apply for each of the two methods for reimbursing HMOS and CMPS: Reimbursement on a risk basis and reimbursement on a reasonable cost basis.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38078, July 15, 1993; 59 FR 49843, Sept. 30, 1994]

EFFECTIVE DATE NOTE: At 59 FR 49843, Sept. 30, 1994, in §417.400, paragraph (a) was amended by removing "as amended by section 114 of Public Law 97-248. Section 1876 of the Act" and adding "which" in its place effective October 31, 1994.

As used in this subpart and subparts K through R of this part, unless the context indicates otherwise

Adjusted average per capita cost (AAPCC) means an actuarial estimate made by HCFA in advance of an HMO's or CMP's contract period that represents what the average per capita cost to the Medicare program would be for each class of the HMO's or CMP's Medicare enrollees if they had received covered services other than through the HMO or CMP in the same geographic area or in a similar area.

Adjusted community rate (ACR) is the equivalent of the premium that a risk HMO or CMP would have charged to Medicare enrollees independently of Medicare payments using the same rates as charged to non-Medicare enrollees if the benefit package was limited to covered Medicare services.

Arrangement or arrangements means a written agreement executed between an HMO or CMP and another entity in

which the other entity agrees to furnish specified services to Medicare enrollees of the HMO or CMP, but the HMO or CMP retains responsibility for those services. Under an arrangement, Medicare payment to the HMO or CMP discharges the beneficiary's obligation to pay for the service.

Benefit stabilization fund means a fund established by HCFA at the request of an HMO or CMP with a new risk contract to withhold a portion of the per capita payments available to the HMO or CMP for payment in a subsequent contract period for the purpose of stabilizing fluctuations in the availability of the additional benefits provided by the HMO or CMP to its Medicare enrollees.

Demonstration project means a demonstration project under section 402 of the Social Security Amendments of 1967 (42 U.S.C. 1395b-1) or section 222(a) of the Social Security Amendments of 1972 (42 U.S.C. 1395b-1 (note)), relating to the provision of services for which payment is made under Medicare on a prospectively determined basis.

Emergency services means covered inpatient or outpatient services that (1) Are furnished by an appropriate source other than the HMO or CMP;

(2) Are needed immediately because of an injury or sudden illness; and

(3) Cannot be delayed for the time required to reach the HMO's or CMP's providers or suppliers (or alternatives authorized by the HMO or CMP) without risk of permanent damage to the patient's health.

These services are considered to be emergency services as long as transfer of the enrollee to the HMO's or CMP's source of health care or designated alternative is precluded because of risk to the enrollee's health or because transfer would be unreasonable, given the distance involved in the transfer and the nature of the medical condition.

Geographic area means the area found by HCFA to be the area within which the HMO or CMP furnishes, or arranges for furnishing, the full range of services that it offers to its Medicare enrollees.

Medicare enrollee means an individual who is entitled to Medicare benefits (Part A and Part B or Part B only) and

who has been identified on HCFA records as an enrollee of an HMO or CMP that has a contract under section 1876 of the Act.

New Medicare enrollee means a Medicare enrollee who

(1) Enrolls with an HMO or CMP after the date on which the HMO or CMP first enters into a risk contract under subpart L of this part;

(2) Is entitled to both Part A and Part B benefits under Medicare or Part B benefits only at the time of the enrollment; and

(3) Was not enrolled with the HMO or CMP at the time he or she became entitled to benefits under Part A or eligible to enroll in Part B of Medicare.

Risk contract means a contract entered into under section 1876(g) of the Act on or after February 1, 1985.

Urgently needed services means covered services required in order to prevent serious deterioration of an enrollee's health that results from an unforeseen illness or injury if—

(a) The enrollee is temporarily absent from the HMO's or CMP's geographic area; and

(b) Receipt of the health care service cannot be delayed until the enrollee's return to the HMO's or CMP's geographic area.

[50 FR 1346, Jan. 10, 1985, as amended at 51 FR 28573, Aug. 8, 1986; 56 FR 46569, Sept. 13, 1991; 56 FR 51986, Oct. 17, 1991; 58 FR 38072, July 15, 1993]

§ 417.402 Effective date of initial regulations.

The changes made to section 1876 of the Act by section 114 of the Tax Equity and Fiscal Responsibility Act of 1982 became effective on February 1, 1985, the effective date of the initial implementing regulations.

[58 FR 38072, July 15, 1993]

$ 417.404 Introduction.

(a) General requirements. In order to participate as an HMO or CMP under Medicare, an entity must

(1) Establish that it is an HMO or CMP; and

(2) Satisfy the contract requirements for an HMO or CMP to enter into a contract with HCFA.

(b) Applicable regulations. (1) Sections 417.406 and 417.407 set forth the require

ments an entity must meet to be determined to be an HMO or CMP.

(2) Sections 417.408 through 417.418 set forth the requirements and conditions that an HMO or CMP must meet in order to enter into a contract with HCFA. Regulations dealing with the contents of the contract are specified in subpart L of this part.

[50 FR 1346, Jan. 10, 1985, as amended at 56 FR 8853, Mar. 1, 1991; 58 FR 38078, July 15, 1993]

§ 417.406 Application and determination.

(a) Responsibility for making determinations. (1) HCFA has the responsibility for determining if an entity is an eligible organization.

(2) The application requirements for HMOs are set forth in § 417.143.

(i) Paragraphs (a), (b), (g), and (h) of that section apply to any entity that seeks a determination that it is an HMO or CMP.

(ii) Paragraphs (c), (d), (e), and (f) of that section apply only to an entity that seeks qualification as an HMO.

(3) HCFA uses the procedures set forth in §417.144 (a) through (d) in determining whether an entity meets the definition of a competitive medical plan as set forth in §417.407(b). For purposes of this paragraph, references in those sections to "qualified HMO" are deemed references to "competitive medical plan" and references to requirements for qualification are deemed references to the requirements contained in the definition of "competitive medical plan", except that references in those sections to the requirements of section 1301 of the PHS Act, subparts B and C of this part and §§ 417.142, 417.168, and §417.169 apply only to HMOs and not to CMPs.

(b) Oversight of continuing eligibility. (1) HCFA is responsible for overseeing an entity's continuing compliance with the definition of an HMO or CMP as set forth in §417.407.

(2) If an entity no longer meets the definition of an HMO or CMP, HCFA will terminate the entity's contract as specified in § 417.494(b).

[52 FR 22322, June 11, 1987, as amended at 56 FR 8853, Mar. 1, 1991; 58 FR 38078, July 15, 1993]

8417.407 Definitions of HMO and CMP.

(a) State law. To qualify as an HMO or CMP, an entity must be organized under the laws of any State and meet the definition under paragraph (b) or (c) of this section, respectively.

(b) Health maintenance organization (HMO). An HMO is a legal entity that is a qualified HMO as defined in section 1301 of the PHS Act. The regulations for qualified HMOs are set forth in subparts B and C of this part and §§ 417.168 and 417.169.

(c) Competitive medical plan (CMP). A CMP is a legal entity that meets the following requirements:

(1) Except as specified in paragraph (d) of this section, the entity provides to its enrollees at least the following services:

(i) Physicians' services performed by physicians.

(ii) Laboratory, X-ray, emergency, and preventive services.

(iii) Out-of-area coverage.

(iv) Inpatient hospital services.

(2) The entity receives compensation (except for deductibles, coinsurance, and copayments) for the health care services it provides to enrollees on a periodic, prepaid capitation basis regardless of the frequency, extent, or kind of services provided to any enrollee.

(3) The entity provides physicians' services primarily through—

(i) Physicians who are employees or partners of the entity; or

(ii) Physicians or groups of physicians (organized on a group or individual practice basis) under contract with the entity to provide physicians' services.

(4) The entity assumes full financial risk, under the procedures described in § 417.120(b), on a prospective basis for the provision of health care services listed in paragraph (c)(1) of this section, except that the entity may

(i) Obtain insurance or make other arrangements for the cost of providing to any enrollee the health care services listed in paragraph (c)(1) of this section, if the aggregate value of the services exceeds $5,000 in any year;

(ii) Obtain insurance or make other arrangements for the cost of providing health care services listed in paragraph (c)(1) of this section to enrollees other

than through the entity for cases in which medical necessity required that the services be provided before they could be secured through the entity;

(iii) Obtain insurance or make other arrangements for not more than 90 percent of the amount by which the entity's costs for any of its fiscal years exceed 115 percent of its income for that fiscal year; and

(iv) Make arrangements with physicians and other health professionals, health care institutions, or any combination of these to assume all or part of the financial risk on a prospective basis for the provision of basic health services by the physicians or other health professionals or through the institutions.

(5) The entity provides adequately against the risk of insolvency by meeting the fiscal and administrative management requirements of §417.120(a)(1) (i) through (a)(1)(iv) and 417.122(a).

(d) Exception for Medicaid prepayment risk contracts. An entity that had a Medicaid prepayment risk contract before 1970 that did not include provision of inpatient hospital services does not have to meet the requirement of paragraph (c)(1)(iv) of this section.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 52 FR 22322, June 11, 1987; 56 FR 8853, Mar. 1, 1991; 58 FR 38078, July 15, 1993]

8417.408 Contract application process.

(a) Contents of application. The application for a contract must include supporting information in the form and detail required by HCFA. Whenever feasible, HCFA will exempt the HMO or CMP from resubmittal of information it has already submitted to HCFA in connection with a determination made under the provisions of § 417.406.

(b) Approval of application. (1) If HCFA approves the application, it will give written notice to the HMO or CMP, indicating that it meets the requirements for either a risk or reasonable cost contract or only for a reasonable cost contract.

(2) If the HMO or CMP is dissatisfied with a determination that it meets the requirements only for a reasonable cost contract, it may request reconsideration in accordance with the proce

dures specified in subpart R of this part.

(c) Denial of application. If HCFA denies the application, it will give written notice to the HMO or CMP indicating

(1) That it does not meet the contract requirements under section 1876 of the Act;

(2) The reasons why the HMO or CMP does not meet the contract requirements; and

(3) The HMO's or CMP's right to request reconsideration in accordance with the procedures specified in subpart R of this part.

[50 FR 1346, Jan. 10, 1985, as amended at 56 FR 8853, Mar. 1, 1991; 58 FR 38078, July 15, 1993]

8417.410 Qualifying conditions: General.

(a) In order to qualify for a contract with HCFA under this subpart, an HMO or CMP must demonstrate its ability to enroll Medicare beneficiaries and other individuals and groups and to deliver a specified comprehensive range of high quality services efficiently, effectively, and economically to its Medicare enrollees.

(b) An HMO or CMP must meet qualifying conditions that pertain to operating experience, enrollment, range of services, furnishing of services, and a quality assurance program.

(c) Generally, each qualifying condition is interpreted by a series of standards that are used in surveying an HMO or CMP to determine its qualifications for a Medicare contract.

(d) Application of the standards enables the surveyor to determine(1) The HMO's or CMP's activities; (2) The extent to which the HMO or CMP complies with each condition; (3) The nature and extent of any deficiencies; and

(4) The need for improvement if HCFA should enter into a contract with the HMO or CMP.

(e) An HMO or CMP may enter into a risk contract with HCFA if it—

(1) Meets all the applicable requirements in the statute and regulations;

(2) Has at least 5,000 enrollees or 1,500 enrollees if it serves a primarily rural area as defined in §417.413(b)(3);