What Organizations Are Considered FDRs?

Healthcare programs like Medicare and Medicaid rely on a complex network of organizations to deliver services. The Centers for Medicare & Medicaid Services (CMS) designates certain organizations as First-Tier, Downstream, and Related Entities (FDRs) to ensure compliance and prevent fraud, waste, and abuse. This article clarifies which types of organizations are considered FDRs and their general obligations.

Understanding First-Tier, Downstream, and Related Entities

An organization’s classification as a First-Tier, Downstream, or Related Entity depends on its contractual relationship and the services it provides for Medicare Advantage (Part C) or Part D benefits. This hierarchical structure ensures accountability throughout the service delivery chain.

A First-Tier Entity is any party with a direct written arrangement with a Medicare Advantage Organization (MAO) or a Part D Plan Sponsor. This arrangement involves providing administrative or healthcare services to Medicare-eligible individuals. For instance, a third-party administrator contracting directly with an MAO to manage claims is a First-Tier Entity.

A Downstream Entity enters into a written arrangement with a First-Tier Entity or another Downstream Entity. These arrangements also involve providing administrative or healthcare services for Medicare-eligible individuals. For example, a physician group contracting with a Third-Party Administrator, which in turn contracts with an MAO, would be a Downstream Entity.

A Related Entity is an organization connected to an MAO or Part D Plan Sponsor through common ownership or control. This relationship is defined by performing some of the MAO or Plan Sponsor’s management functions, furnishing services to Medicare enrollees, or leasing real property or selling materials to the MAO or Plan Sponsor at a cost exceeding $2,500 within a contract period. These entities are closely tied to the plan sponsor through shared business interests or control.

Common Examples of FDR Organizations

Various organizations commonly fall under the FDR umbrella due to their involvement in Medicare Advantage and Part D programs. These examples illustrate how contractual relationships and service provision determine an entity’s classification.

Third-party administrators (TPAs) are frequently First-Tier Entities, contracting directly with MAOs or Part D sponsors to handle benefit administration. Pharmacy Benefit Managers (PBMs) also serve as First-Tier Entities, managing prescription drug benefits, including formulary development and claims processing for plan sponsors. Hospitals and large physician groups can be First-Tier Entities if they contract directly with an MAO to provide healthcare services to enrollees.

Downstream Entities include individual physicians, clinics, or smaller provider groups that contract with a First-Tier hospital system or TPA. Credentialing organizations, which verify provider qualifications, can also be Downstream Entities if they contract with a First-Tier entity. Call centers, marketing firms, and certain IT service providers may be classified as Downstream Entities if their services support the Medicare program through an arrangement with a First-Tier or other Downstream Entity.

Related Entities might include a management company owned by the same parent company as the MAO that performs delegated management functions. A real estate company leasing property to the plan sponsor and sharing common ownership could also be a Related Entity if the cost exceeds the specified threshold.

Key Compliance Requirements

Once identified as an FDR, an organization becomes subject to specific compliance obligations mandated by CMS. These requirements ensure that all entities within the Medicare network adhere to federal standards. Adherence to these obligations is regularly monitored by Medicare Advantage Organizations and Part D Plan Sponsors.

FDRs must comply with federal healthcare program requirements, including specific regulations for Medicare Parts C and D. This includes maintaining an effective compliance program designed to prevent, detect, and correct noncompliance and fraud, waste, and abuse (FWA). A foundational requirement is providing FWA and general compliance training to all employees involved in Medicare business, typically within 90 days of hire and annually thereafter.

Another obligation involves screening employees and contractors against federal exclusion lists, such as those maintained by the Office of Inspector General (OIG) and the General Services Administration (GSA). This screening must occur prior to hiring or contracting and on a monthly basis to ensure individuals or entities excluded from participating in federal healthcare programs are not involved. FDRs are also required to report any potential FWA or noncompliance to the plan sponsor promptly.

FDRs are expected to maintain effective oversight of their own downstream entities, ensuring that these subcontractors also comply with applicable Medicare requirements. This involves conducting sufficient auditing and monitoring of their downstream partners. FDRs must also cooperate with audits and investigations initiated by CMS or the plan sponsor, providing requested information and records, and retaining all Medicare-related documentation for a minimum of 10 years.