This week, the Centers for Medicare and Medicaid Services (CMS) issued a final rule which impacts the Medicare Advantage (Part C) and Prescription Drug (Part D) programs. Beginning in 2015, CMS may use Part C and D plan performance ratings as a measure of the effectiveness of administrative and management arrangements and as a basis for termination or non-renewal of a Medicare contract.

The performance ratings are based on CMS’ five star system, which uses plan performance data to calculate ratings for a variety of measures (e.g., access to care, communication with members, and clinical quality of care). A rating of three stars – an “average” score – is the lowest acceptable rating for Part C and D plan sponsors. Plan sponsors with lower than a three-star rating must make corrective action plans.

Under the final rule, the maintenance of effective administrative and management arrangements is a material term of the Part C and D sponsor contracts, and CMS believes that plan ratings are a direct indicator of the ongoing effectiveness of a contracting organization’s administrative and management arrangements. CMS may terminate the contracts of Part C and D sponsors that fail to achieve at least a three-star rating for three consecutive years. CMS may also deny applications of Part C and D sponsors that performed so poorly that CMS has terminated or declined to renew a contract with the sponsor in the past. Data beginning with the 2013 contract year will be used to make CMS’ termination and non-renewal determinations in 2015.

The final rule also: (1) codifies existing Coverage Gap Discount Program (donut hole) requirements; (2) provides reporting, confidentiality, and penalty requirements for pharmacy benefit manager data reporting; (3) provides physicians with greater flexibility in assisting beneficiaries in drug coverage appeals; (4) provides benefit flexibility for certain dual eligible special needs plans that meet integration and performance standards; (5) establishes a daily cost-sharing rate as part of the Drug Utilization Management and Fraud, Abuse, and Waste Control Program; and (6) requires Part D sponsors to include valid NPIs on prescription drug event records submitted to CMS. More information on these additional provisions is available in CMS’ fact sheet.