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Federal Register / Vol. 86, No. 177 / Thursday, September 16, 2021 / Proposed Rules to the proposed notice to initiate a market conduct examination under new proposed 45 CFR 150.313e, which is described in section III.C.12 of the preamble.
12. Market Conduct Examinations 45
CFR 150.313
The proposed revisions to 45 CFR
150.313 would bring this rule in line with standard industry practices adopted by the NAIC, which CMS
generally follows, and would also codify additional CMS procedures for market conduct examinations. HHS also proposes several amendments to reorganize the order and presentation of information in this regulation to improve clarity.
First, HHS proposes to remove the last sentence in 45 CFR 150.313b as the proposed adoption of 45 CFR 150.313f, which would outline the requirements for responsible entities to provide the requested documentation to CMS, make this sentence unnecessary. HHS further proposes to revise 45 CFR 150.313b to clarify that CMS may initiate a market conduct examination of a randomly selected non-Federal governmental plan or issuer subject to CMSs enforcement authority. This change would align with the proposed revision at 45 CFR
150.303c.
Second, HHS proposes to revise 45
CFR 150.313c to clarify that CMS
would appoint examiners when CMS
initiates a random market conduct examination. Conforming amendments are also proposed to the opening clause of 45 CFR 150.313c to replace the current reference to investigation with further review to more clearly distinguish the authority to initiate a market conduct examination from the authority to conduct an investigation.
HHS additionally proposes to redesignate 45 CFR 150.313e1 and 2
as 45 CFR 150.313h1 and 2 and also proposes to replace the title of the newly designated section to clarify that it pertains to a draft market conduct examination report. HHS also proposes to revise 45 CFR 150.313e1, proposed to be redesignated at 45 CFR
150.313h1, to remove the description of CMS review of the draft report and replace it with a general statement indicating that upon completion of the examination, CMS would compose and provide a draft report to the responsible entity. HHS further proposes to include in redesignated 45 CFR 150.313h1 a description of the contents of the draft report. Under current CMS market conduct examination practices and as reflected in the second sentence in proposed 45 CFR 150.313h1, the draft report would include the scope of
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the examination, any findings of a PHS
Act violation, and any proposed actions the entity would need to take to correct such violation. The entity then has an opportunity to respond to the draft report and either concur with the draft report findings or disagree. As reflected in proposed 45 CFR 150.313h2i, if the responsible entity agrees with one or more of the findings in the draft report, the entity can inform CMS of any corrective action planned or already undertaken. If the entity disagrees with one or more of the findings, then the entity may provide evidence to CMS to support its disagreement. This is included in proposed 45 CFR
150.313h2ii.
HHS further proposes to redesignate 45 CFR 150.313e3, which currently addresses CMSs reply to a response to the market conduct examination report from the responsible entity, as a new 45
CFR 150.313i and revise it so it instead pertains to the final market conduct examination report. In the new proposed introductory sentence, HHS
proposes that upon receipt of a response from the responsible entity under new paragraph h2, CMS would provide a final examination report containing the agencys findings relevant to each examination issue, including the agencys reply to the responsible entitys responses to the findings in the draft report for each examination issue. HHS
also proposes to replace the current references to issuer or non-Federal governmental plan with references to responsible entity in the redesignated 45
CFR 150.313i1 through 4, currently codified at 45 CFR 150.313e3i through iv, for consistency in terminology. HHS also proposes to clarify CMSs review and response to the responsible entitys corrective actions, if applicable, in 45 CFR
150.313i3 and 4. Under current CMS market conduct examination practices and the proposed 45 CFR
150.313i, this report finalizes the draft report and includes the entitys concurrence or disagreement with each cited PHS Act violation, and CMSs responses thereto. As detailed in 45 CFR
150.313i1 through 5, CMSs reply would consist of one or more of the following: 1 Concurrence with the responsible entitys position; 2
disagreement with the responsible entitys position; 3 a determination that the corrective actions implemented by the responsible entity sufficiently addressed the identified PHS Act violation; 4 a determination that the corrective actions implemented by the responsible entity have not sufficiently addressed the identified PHS Act
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violation, and information on any further corrective actions deemed necessary by CMS; or 5 a notice to the responsible entity that has disagreed with a CMS finding and that has not undertaken corrective actions that there exists a violation of applicable PHS Act requirements and any actions the responsible entity must take to correct such violation. These changes are designed to align HHS regulations with industry standards for market conduct examinations. These industry standards, promulgated by NAIC, are used throughout the country by states and issuers and are generally followed by CMS. The adoption in regulation of the standard industry practices and procedures would bring uniformity to the framework CMS and the various states use to undertake market conduct examinations.
HHS proposes to add new text at 45
CFR 150.313e to provide that CMS
would initiate a market conduct examination by providing written notice to the responsible entity and to describe the substance of the examination notice call letter CMS would send to an entity to initiate a market conduct examination. HHS proposes that this would be a written notice from CMS to the responsible entity and that it would include the following information: 1 A
description of the information received under 45 CFR 150.303a that served as the basis for CMSs determination that a market conduct examination was warranted or notification that the entity was selected by CMS for a market conduct examination under 45 CFR
150.303c; 2 a description of the scope of the examination; 3 the identification of the examiners; 4 a statement that a civil money penalty may be assessed;
and 5 a statement that CMS may require a plan of corrective action. HHS
is of the view that this set of core information, which is intended to mirror the information provided in the notice to responsible entities under 45
CFR 150.307 when CMS initiates an investigation, is the appropriate vehicle to commence a market conduct examination and is standard industry practice.
HHS also proposes to add 45 CFR
150.313f to generally describe the documentation collection and the initial directive for the responsible entity to submit the information that CMS
identifies as relevant for the examination, the time frame for the entitys response, and to specify the penalties for failing to respond timely, which may include civil money penalties. This initial directive would provide the deadline by which responsible entities must forward the
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