No More He-Said-She-Said: Revised Regulations Allow CMS to Request Records Information Directly from any Person or Entity Involved in the Medicare Advantage or Part D Programs

by Buchanan Ingersoll & Rooney PC

The Centers for Medicare & Medicaid Services (CMS) on May 19, 2014, adopted a final rule that significantly revised Medicare Advantage (MA) and Part D prescription drug benefit program regulations (the “Final Rule”). One of the revised rules, which applies to both the MA and Part D programs, will for the first time allow CMS to request information directly from any person or entity involved in the MA and Part D programs, even if such person or entity does not have an agreement with CMS (the "Direct Access Rule"). The Direct Access Rule represents a subtle but significant change in CMS' ability to combat fraud, waste and abuse in the MA and Part D programs: CMS can now, in certain limited circumstances, bypass MA organizations (MAOs) and Part D sponsors and require their first tier, downstream and related entities (FDRs) produce information directly to CMS.

This advisory walks through the Direct Access Rule and suggests what persons or entities involved in the MA and Part D programs can do now to prepare for direct oversight by CMS.

CMS' need for direct access to FDRs' information with CMS

The Directed Access Rule aims to streamline the flow of information from FDRs to CMS, which currently is similar (in both accuracy and expediency) to the flow of information during a game of "telephone" on the average American playground. For instance, under the current regulations, the flow of information from FDRs to Medicare Drug Integrity Contractors (MEDICs), the entities contracted by CMS to detect and prevent fraud, waste and abuse in the MA and Part D programs, typically requires at least four steps. First, a MEDIC must submit a request to an MAO or Part D sponsor and request information from the MAO's or Part D sponsor's FDR. Second, the MAO or Part D sponsor must then request the information from its FDR. Next, the FDR must gather and send the requested information to its MAO or Part D sponsor. Finally, the MAO or Part D sponsor delivers the information to the MEDIC.

In order to expedite this process, improve the accuracy of records produced and ease the financial and administrative burdens placed on MAOs, Part D plans and MEDICs, the Direct Access Rule permits CMS (or its delegates) to bypass the MAO or Part D sponsor and directly access an FDR's information.

CMS' authority to enact the Direct Access Rule

CMS acknowledges in the Final Rule that it lacks the legal authority to directly regulate or access FDRs' information. CMS also notes, however, that it can indirectly regulate FDRs by requiring MAOs and Part D plans to incorporate as part of an agreement between the MAO or Part D sponsor a provision that guarantees CMS direct access to the FDR's information. Such mandatory “direct access” provisions will inevitably become commonplace in agreements between MAOs and Part D sponsors and their FDRs.

The Direct Access Rule will apply to all FDRs involved in the MA or Part D programs

Generally speaking, FDRs are persons or entities that deliver administrative or health care services under the MA or Part D program pursuant to the terms of an agreement with an MAO or Part D sponsor. FDRs are not directly regulated by, nor do they directly contract with CMS. In other words, FRDs' obligations under the MA and Part D programs are controlled by the four-corners of an agreement between the FDR and the MAO or Part D sponsor, not by the Medicare regulations.

Common examples of FDRs involved in the Part D program include pharmacy benefit managers (PBMs) and pharmacies. PBMs are considered "first tier" entities because they enter into written agreements directly with Part D sponsors to provide administrative or health care services to Medicare beneficiaries under the Part D program. Pharmacies and other point-of-care providers are considered "downstream" entities because they contract with PBMs (and other first tier or downstream entities) and, thus, are one step removed from the Part D sponsor's contractual relationship with CMS.

CMS vows to limit its use of the Direct Access Rule to only a few circumstances

Comments to the proposed version of the Direct Access Rule expressed concern that the revised regulation will lead to additional audits of FDRs and curtail the ability of MAOs and Part D sponsors to review information provided to CMS on their behalf. In response to these comments, CMS plans to issue sub-regulatory guidance to further explain under what circumstances it will bypass MAOs and Part D sponsors to directly access information from FDRs. In the meantime, the Final Rule sets forth two general limitations on CMS’ (or its designees) ability to use the Direct Access Rule.

First, the Final Rule clarifies that CMS can use its authority to bypass MAOs and Part D sponsors and request information directly from FDRs if “data analysis, complaints or investigations indicate a suspicion of fraud, waste or abuse.” Second, Final Rule also notes that only CMS can determine when “data analysis, complaints or investigations” warrant use of the Direct Access Rule. When read together, these two limitations seem to make it clear that no CMS contractor (i.e. MEDICs) will be permitted to unilaterally determine when it is appropriate to bypass the MAO or Part D sponsor in favor of requesting information directly from the FDR. However, further guidance is needed to explain the type of “data analysis, complaints or investigations” that will permit CMS to directly access information from FDRs.


The Direct Access Rule clearly indicates that CMS is more serious than ever about preventing fraud, waste and abuse in the MA and Part D programs. What is unclear, however, is how and when CMS plans to use its newly expanded powers under the Direct Access Rule. Future sub-regulatory guidance from CMS will hopefully explain the type of "complaints" or "investigations" that will sufficiently indicate fraud, waste and abuse and warrant direct access requests. In the meantime, FDRs should review their record keeping policies and procedures to be sure their records are organized and that they are prepared to respond to requests for information in a timely manner.

1 Occasionally an FDR will submit requested information directly to the MEDIC or CMS, if required under to do so under the terms of the agreement between the MAO or Part D sponsor and the FDR. 


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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