Common use of Fallback Clause in Contracts

Fallback. The New Section 1860D-3, discussed above, establishes access requirements. If access is not provided, including through a limited risk plan, the conference agreement establishes a fallback process. The Secretary is required to establish a separate process for the solicitation of bids from eligible fallback entities for the offering in all fallback service areas in or more PDP regions of a fallback prescription drug plan during the contract period. A single fallback entity may not offer all fallback plans throughout the United States. Except as otherwise provided, the general provision relating to approval or disapproval of bids under New Section 1860D-11(e) applies with respect to fallback plans. The Secretary can only approve one fallback plan for all fallback service areas in any PDP region for a contract period. Competitive contracting provisions apply. The Secretary shall approve fallback plans so that if there are any fallback service areas in the region for the year, they are offered at the same time as prescription dug plans would otherwise be offered. The fallback entity could not submit a bid for a prescription drug plan for any region for the first year of a contract period. A fallback service area is an area within a PDP region in which, after applying the provisions relating to limited risk plans, the access requirements will not be met. Fallback prescription drug plans are permitted to offer only standard prescription drug coverage, pass on negotiated discounts and meet such other requirements specified by the Secretary. The fallback plan would not be permitted to engage in any marketing or branding of the contract. Under a fallback contract, the Secretary would pay actual costs of Part D covered drugs taking into account negotiated price concessions. Payment would also be made for prescription management fees tied to performance management requirements, established by the Secretary. Performance requirements established by the Secretary would include the following; 1) the entity contained costs to the Medicare Prescription Drug Account and to beneficiaries; 2) the entity provided quality clinical care, including reduction in adverse drug interactions; and 3) the entity provided timely and accurate delivery of services, including pharmacy and beneficiary support services; and 4) efficient and effective benefit administration and claims adjudication services. Beneficiary premiums under fallback plans would be uniform and equal to 26 percent of the Secretary’s estimate of the average monthly per capita actuarial cost (including administrative costs) to the entity offering the fallback plan. In general, contract requirements for fallback plans would be the same as those established for prescription drug plans. A contract for a fallback plan would be for 3 years (and be renewable after a subsequent bidding process). However, a contract could not apply in an area in any year unless the area was a fallback service area. The Secretary will submit an annual report to Congress that describes the instances in which limited risk plans and fallback plans are offered. The secretary will include such recommendations as may be appropriate to limit the need for the provision of such plans and to maximize the assumption of financial risk. In order to promote competition, the Secretary is prohibited from interfering with the negotiations between drug manufacturers and pharmacies and PDP sponsors. Further, the Secretary may not require a particular formulary or require a particular price structure for the reimbursement of covered drugs. Conferees expect PDPs to negotiate price concessions directly with manufacturers. PDP sponsors shall permit State pharmaceutical assistance programs and prescription plans under Section 1860D-24 to coordinate benefits with the plan. Fees may not be imposed that are unrelated to coordination. Conferees want to ensure the new Medicare plans are required to coordinate with State plans to ensure those plans can efficiently enroll seniors without unnecessary constraints. Conferees want to ensure a seamless transition for both States and beneficiaries. Requirements for and Contracts With Prescription Drug Plan (PDP) Sponsors (New Section 1860D-12 of Conference agreement; (New Section 1860D-4 of House Bill; New Sections 1860D-7, 1860D-10, 1860D-12, and 1860D-13 of Senate Bill). Present Law Medicare+Choice plans are required to meet a number of financial and organizational requirements. In general they are required to be organized and licensed under state law, except that a special exception may be established for provider-sponsored organizations. In addition, entities must assume full financial risk for required services. House Bill New Section 1860D-4 would specify organizational plan requirements for entities seeking to become PDP plan sponsors. In general, the section would require a PDP sponsor to be 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 prescription drug plan. Alternatively it could meet solvency standards established by the Administrator for entities not licensed by the state. Plans would be required to assume full financial risk on a prospective basis for covered benefits except: 1) as covered by federal subsidy payments and reinsurance payments for high cost enrollees; or 2) as covered by federal incentive payments to encourage plans to expand service areas for existing plans or establish new plans. The entity could obtain reinsurance or make other arrangements for the cost of coverage provided to enrollees. PDP plan sponsors would be required to enter into a contract with the Administrator under which the sponsor agreed to comply both with the applicable requirements and standards and the terms and conditions of payment. The contract could cover more than one plan. Contracts would be for at least one year. The Administrator would have the same authority to negotiate the terms and conditions of the plans as the Director of the Office of Personnel Management has with respect to Federal Employee Health Benefits (FEHB) plans. The Administrator would be required to take into account subsidy payments for covered benefits in negotiating the terms and conditions regarding premiums. The Administrator would designate at least 10 service areas, consistent with EFFS regions. The new section would incorporate, by reference, many of the contract requirements applicable to MA plans including minimum enrollment, contract periods, allowable audits to protect against fraud and abuse, intermediate sanctions, and contract terminations. Pro rata user fees could be established to help finance enrollment activities; in no case could the amount of the fee exceed 20% of the maximum fee permitted for an MA or EFFS plan. The new Section would permit the Administrator to waive the state licensure requirements under circumstances similar to those permitted under Part C for provider sponsored organizations. In such cases, plans would be required to meet financial solvency and capital adequacy standards established by the Administrator. The Administrator would establish such standards by regulation by October 1, 2004. The standards established under Part D would supersede any state law or regulation (other than state licensing laws or laws relating to plan solvency). In addition, states would be prohibited from imposing premium taxes or similar taxes with respect to premiums paid to PDP sponsors or payments made to such sponsors by the Administrator. Senate Bill Under the New Section 1860D-7, an entity eligible to offer a Medicare Prescription Drug Plan would be organized and licensed under state law as a risk-bearing entity eligible to offer health insurance or health benefits coverage in each state it offers a plan. Alternatively, the Administrator could waive the requirement that the entity be licensed in the state, if the Administrator determined that grounds for approval of the application had been met. By January 1, 2005, the Administrator would, in consultation with the National Association of Insurance Commissioners, establish and publish solvency standards for non-licensed entities. Entities would be required to assume financial risk on a prospective basis for costs of benefits in excess of amounts received from premium payments and reinsurance payments. Entities would be permitted to obtain private reinsurance for the portion of the costs for which they were at risk. Beneficiaries could not elect a Medicare Prescription Drug Plan unless the Administrator had entered into a contract with the eligible entity for the plan. A contract with an entity could cover more than one plan. The New Section 1860D-12 would require the Administrator, by January 1, 2005, to establish by regulation standards to implement Part D. Such standards would be periodically reviewed and revised as appropriate. Significant new regulatory requirements could only be implemented at the beginning of a calendar year. The standards would supersede any state law and regulation to the extent such law or regulation was inconsistent with such standards and in the same manner those standards were superseded for Medicare Advantage plans. Standards specifically superseded include those relating to benefits (including requirements relating to cost- sharing and the structure of formularies), premiums, requirements relating to inclusion or treatment of providers, coverage determinations (including related grievance and appeals processes), and requirements relating to marketing materials and summaries and schedules of benefits for a plan. States would be prohibited from imposing a premium or similar tax with respect to premiums paid to the Administrator for Medicare Prescription Drug Plans and any payments made by the Administrator to eligible entities offering such a plan.