payments to the HMO on behalf of the beneficiary shall terminate effective with the month immediately following the last month of entitlement to benefits under the supplementary medical insurance program. The beneficiary may be continued as an enrollee other than a health insurance program beneficiary by the HMO under its regular plan if the HMO and the enrollee so choose.

(ii) Where an enrollee loses entitlement to benefits under the hospital insurance program, but remains entitled to benefits under the supplementary medical insurance program, he shall automatically continue as an enrollee of the HMO as a health insurance program beneficiary. He shall be entitled to receive and have payment made for services, as provided for in § 405.2021 beginning with the month immediately following the last month of his entitlement to hospital insurance program benefits.

(5) Enrollee commits fraud or permits abuse of HMO card. A health insurance program beneficiary may be disenrolled by the HMO if such beneficiary knowingly provides, on the application form, fraudulent information upon which an HMO relies and which materially affects his or her eligibility to enroll in the HMO, or if the beneficiary intentionally permits others to use his or her membership card to receive services from the HMO. In either case, the HMO must give the beneficiary a written notice of termination of enrollment. Such notice must be mailed to the enrollee prior to the submission of the disenrollment notice to the Social Security Administration. Such notice shall include an explanation of the enrollee's right to have any such disenrollment heard under the grievance procedures established pursuant to § 405.2057. The liability of the Health Care Financing Administration to make monthly capitation payments to the HMO on behalf of such a beneficiary shall terminate as of the first day of the month in which the termination of his membership in the HMO is made effective, as shown on the records of the Social Security Administration. In no event shall such month be earlier than the month immediately following, or later than the third

month following, the month in which the disenrollment notice is received in acceptable form by the Social Security Administration.

(b) Beneficiary disenrollment. A health insurance program beneficiary may disenroll from an HMO at any time by giving the HMO a signed, dated, written request on such form and in such manner as the HMO may require at least 30 days prior to the month in which he wishes the termination to be effective. In such cases, the HMO shall submit a disenrollment notice to the Social Security Administration within 30 days following the beneficiary's request. The liability of the Health Care Financing Administration to make monthly payments to the HMO on his behalf shall terminate with the close of the month of termination requested by the beneficiary, except that in no event shall the last month of payment be earlier than the month in which the beneficiary requested termination.

(c) Disenrollment in cases of termination or default of contract. (1) The termination of a contract between an HMO and the Secretary, whether by mutual consent or unilateral action by either party, shall result in the termination of the liability of the Health Care Financing Administration to make monthly capitation payments and the last month of liability shall be the last month for which the contract is effective.

(2) Where an HMO, for bankruptcy or other reasons, defaults in its contract with the Secretary prior to the close of the contract year, the Secretary shall establish the month in which the liability of the Health Care Financing Administration to make monthly capitation payments for all health insurance program beneficiaries enrolled in the HMO shall cease, and shall notify the HMO and such enrollees of his determination in writing as soon as practicable.

[41 FR 9311, Mar. 4, 1976. Redesignated at 42 FR 52826, Sept. 30, 1977, and amended at 43 FR 5827, Feb. 10, 1978]

§ 405.2028 Basis, purpose, and scope.

Sections 405.2029 through 405.2039 implement those parts of section 1876(a), (i), and (j) of the Social Security Act pertaining to the contract between the Secretary and an HMO under the Medicare program, and specify:

(a) Eligibility requirements and procedures for approval of a contract application;

(b) Basic contract requirements;
(c) Procedures for refunds; and

(d) Procedures for contract termination, renewals, and changes in ownership.

§ 405.2029 Eligibility requirements and procedures for approval of a contract application.

An organization that wishes to contract as an HMO under the Medicare program on either a cost-basis or a risk-basis must submit an application and supporting information to HCFA in the form and detail required by HCFA. Whenever feasible, HCFA will not require an organization to resubmit information which it has already submitted to the Assistant Secretary for Health in connection with the determination required by paragraph (a)(1) of this section.

(a) Eligibility requirements to enter into an HMO contract. An organization will be determined eligible to enter into an HMO contract if:

(1) The Assistant Secretary for Health finds that it meets the qualifying conditions specified in §§ 405.2001 through 405.2007, or those conditions are waived as provided by these sections, and

(2) HCFA finds that:

(i) Entering into, or renewing, an HMO contract with the organization would be consistent with the effective and efficient administration of section 1876 of the Act. HCFA may not approve a contract under this paragraph if it finds that the organization:

(A) Lacks sufficient administrative capability to carry out the requirements of the contract;

(B) Has a conflict of interest that would interfere with the performance of its contract, or the administration of the Medicare program; or

(C) Has any persons with ownership or control interests, or agents or managing employees, who have been convicted of criminal offenses related to their involvement in Medicaid, Medicare or the social services programs under title XX, and

(ii) In the case of an organization that is applying for a risk-basis contract, the organization:

(A) Has not previously voluntarily terminated or failed to renew a riskbasis contract under section 1876 of the Act; and

(B) Has the financial capability to assume the risk of any costs that might be reasonably anticipated during the contract period in excess of the adjusted average per capita cost for its area. Evidence of financial capability may include the purchase of an insurance program, or other financial arrangements that are satisfatory to HCFA.

If

(b) Approval of application. HCFA determines that the organization meets the eligibility requirements specified in paragraph (a) of this section, HCFA will notify the organization in writing that:

(1) It is eligible to enter into a contract with the Secretary under 1876 of the Act

(i) Either as a cost-basis HMO or as a risk-basis HMO or

(ii) Only as a cost-basis HMO;

(2) If the organization is dissatisfied with HCFA's determination that it is only eligible to enter into a contract as a cost-basis HMO, it may request a review of the determination by following the applicable procedures for reconsiderations of initial determinations specified in §§ 405.2065 through 405.2092; and

(3) If the organization wishes to be reimbursed as an HMO under Medicare, it must sign and submit a written contract that meets the requirements specified in §§ 405.2030 through 405.2036.

(c) Denial of application. If the organization does not meet the eligibility requirements specified in paragraph (a) of this section, HCFA will notify the organization in writing:

(1) That it is not eligible to enter into a contract with the Secretary under section 1876 of the Act;

(2) Of the reasons why the organization is ineligible for a contract; and

(3) That if it is dissatisfied with the notice of denial, it may request a review of the determination by following the applicable procedures for reconsiderations of initial determinations specified in §§ 405.2065 through

405.2092.

§ 405.2030 General contract requirements.

(a) Submittal of contract. In order to be reimbursed as an HMO under Medicare, an eligible organization must sign and submit a written contract, in the form required by HCFA, that meets the requirements of this subpart and contains any other provisions required by HCFA.

(b) General provisions of contract. The contract must provide that the HMO agrees to comply with:

(1) Title VI of the Civil rights Act of 1964, as provided in § 405.2065(c);

(2) Section 504 of the Rehabilitation Act of 1973, as amended;

(3) The requirements of Part B (Professional Standards Review) of title XI of the Social Security Act with respect to review of the services furnished its Medicare enrollees; and

(4) All provisions of this subpart.

(c) Waived conditions. All qualifying conditions that are waived (see § 405.2029(a)(1)) must be specified in the contract. The specification must include:

(1) The specific terms of the waiver; (2) The expiration date of the waiver; and

(3) Any other information that HCFA considers relevant.

(d) Exemption from Federal Procurement Regulations. Under the authority provided by section 1876(j) of the Act, the Federal Procurement Regulations and HHS Procurement Regulations contained in Title 41 of the Code of Federal Regulations will not apply to contracts entered into under this subpart.

§ 405.2031 Effective date and term of the contract.

(a) Effective date. The contract must specify its effective date, which may not be earlier than the date the contract is signed and executed by both the Secretary and the HMO.

(b) Term. The contract must specify its term.

(c) Initial term. The initial term of the contract may be not less than 12 months or more than 23 months.

(d) Subsequent term. Any subsequent term after the initial term will be for a period of 12 months.

(e) Renewal. A contract will be renewed automatically unless either party gives notice of its intent to terminate or not renew, as specified in § 405.2038.

§ 405.2032 Required services and organization.

The contract must specify that the HMO agrees to provide services, and is organized and operated, in the manner prescribed by section 1876(b)(1) (B) and (C) of the Social Security Act, and §§ 405.2001 through 405.2007 of this subpart.

§ 405.2033 Charges, refunds, and recoupment.

(a) Charges. The contract must provide that the HMO agrees to charge its Medicare enrollees—

(1) For covered items and services only as provided in § 405.2022(b).

(2) For noncovered items and services only as provided in § 405.2022(a). (b) Refunds. (1) The contract must provide that the HMO agrees to:

(i) Report all premiums, membership fees, and charges collected from its Medicare enrollees within 90 days after the close of the contract period; and

(ii) Refund all amounts incorrectly collected from its Medicare enrollees or from others on behalf of the enrollees, and any other amounts due Medicare enrollees or others on behalf of the enrollees.

(2) "Money incorrectly collected". This means sums collected in excess of the amount for which the enrollee was liable under § 405.2022(b). It includes amounts collected at a time when the

enrollee was believed not to be entitled to Medicare benefits but:

(i) The enrollee is later determined to have been entitled to Medicare benefits; and

(ii) The enrollees' entitlement period falls within the time the HMO's contract with the Secretary is in effect.

(3) "Other amounts due". This means amounts due an enrollee for items and services obtained from physicians, suppliers, or providers of services outside the HMO when:

(i) The enrollee is entitled to receive reasonable payment from the HMO for those items and services as provided in § 405.2021(a)(2); and

(ii) The amount has been determined to be due the enrollee under the procedures specified in §§ 405.2058 through 405.2063.

(4) Method of making refunds. (i) An HMO must make refunds to its present and former Medicare enrollees by means of a lump sum payment in the following situations:

(A) For amounts incorrectly collected if the amounts were not collected on a premium basis;

(B) For other amounts due; and (C) For all refunds if the HMO is going out of business.

If a former enrollee has died, or cannot be located after a reasonable effort on the part the HMO to do so, the HMO must make the refund in accordance with State law.

(ii) An HMO may use one of the following methods to refund money incorrectly collected on a premium basis (or through a combination of premiums and other charges) from one or more of its present or former Medicare enrollees:

(A) By a premium adjustment to the individual enrollee's or all enrollees' future years' premiums;

(B) By a lump sum payment to the enrollee; or

(C) By a combination of premium adjustment and lump sum payment.

(5) Reduction by HCFA. If the HMO does not comply with the requirements of paragraphs (b)(1)(ii) and (4) of this section by the close of the contract period following the one in which the amount was determined to be due, HCFA will reduce its payment to the HMO by the amount of the

sums incorrectly collected or otherwise due, and will arrange for this amount to be paid to the HMO's Medicare enrollees.

(c) Recoupment. An HMO may collect from its Medicare enrollees, or from others on behalf of the enrollees, deductible and coinsurance charges for which they were liable (see § 405.2022(b)) in a previous contract period if:

(1) The HMO's failure to collect these amounts during the contract period in which they were due resulted from:

(i) An underestimation of the actuarial value of the deductible and coinsurance amounts for the enrollees; or

(ii) A billing error or a miscalculation because of a mathematical error; (2) The HMO identifies these amounts and obtains HCFA's advance approval to recoup these amounts and of the method and timing to be used for the recoupment. In the case of amounts specified in paragraph (c)(1)(i) of this section, the HMO collects these amounts through an adjustment to its enrollees' future premiums; and

(3) The HMO collects these amounts no later than 24 months following the end of the contract period in which they were due.

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§ 405.2036 Information access and disclosure requirements.

The contract must provide that the HMO agrees:

(a) That HHS or anyone designated by it may evaluate through inspection or other means the quality, appropriateness, and timeliness of services furnished under the contract to its Medicare enrollees;

(b) That HHS, the Comptroller General, or their designees may audit or inspect any books and records of the HMO or its transferee which pertain to services performed and determination of amounts payable under the contract.

(c) To maintain, as required by § 405.2044, books, records, documents and other evidence of accounting procedures and practices.

(1) These records must be sufficient to:

(i) Assure an audit trail; and

(ii) Properly reflect all direct and indirect costs claimed to have been incurred under the contract.

(2) These records must include at least those pertaining to:

(i) Matters of ownership, organization, and operation of the HMO's financial, medical, and other recordkeeping systems;

(ii) Financial statements for the current contract period and three prior periods;

(iii) Federal income tax or information returns for the current contract period and three prior periods;

(iv) Asset acquisition, lease, sale, or other action;

(v) Agreements, contracts, and subcontracts;

(vi) Franchise, marketing, and management agreements;

(vii) Schedules of charges for the HMO's fee-for-service patients;

(viii) Matters pertaining to costs of operations;

(ix) Amounts of income received by source and payment;

(x) Cash flow statements; and (xi) Any financial reports filed with other Federal programs or State authorities.

(d) To make available for the purposes specified in paragraphs (a) and (b) of this section, its premises, physical facilities and equipment, its rec

ords relating to its Medicare enrollees, the records specified in paragraph (c) of this section, and any additional relevant information that HCFA may require.

(e) That the right to inspect, evaluate, and audit, will extend through 3 years from the date of the final settlement for any contract period unless:

(1) HCFA determines there is a special need to retain a particular record or group of records for a longer period and notifies the HMO at least 30 days before the normal disposition date;

(2) HCFA finds that Federal or State laws require a longer retention period;

(3) There has been a termination, dispute, fraud, or similar fault by the HMO, in which case the retention period may be extended to 3 years from the date of any resulting final settlement; or

(4) HCFA determines that there is a reasonable possibility of fraud, in which case it may reopen a final settlement at any time.

(f) To require all subcontractors (as defined in § 420.201 of this chapter) that are related to the HMO by common ownership or control (see § 405.2042(b)(11)), all entities that are related to the HMO by common ownership or control providing services to its Medicare enrollees, through either oral or written agreements, and all entities that are related to the HMO by common ownership or control with whom the HMO has leases of real property or total purchase orders in excess of $2,500 during the contract period to-.

(1) Agree that HHS and the Comptroller General of the United States or their designees have the right to inspect, evaluate, and audit any pertinent books, documents, papers, and records of the subcontractor involving transactions related to the subcontract; and

(2) Agree that the right under paragraph (f)(1) of this section to information for any particular contract period will exist for a period equivalent to that specified in paragraph (e) of this section.

(g) To submit to HHS: