Rule: Medicaid Program and State Children's Health Insurance Program: Payment Error Rate Measurement

Friday,
August 31, 2007
Part III
Department of
Health and Human
Services
Centers for Medicare & Medicaid Services
42 CFR Parts 431 and 457

Medicaid Program and State Children’s
Health Insurance Program (SCHIP);
Payment Error Rate Measurement; Final
Rule
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50490 Federal Register / Vol. 72, No. 169 / Friday, August 31, 2007 / Rules and Regulations
DEPARTMENT OF HEALTH AND annual erroneous payments in the States’ program. Also, section
HUMAN SERVICES program exceeding both 2.5 percent of 1902(a)(27) of the Act (and 42 CFR
program payments and $10 million 457.950) requires providers to submit
Centers for Medicare & Medicaid (OMB M–03–13, May 21, 2003 and OMB information regarding payments and
Services M–06–23, August 10, 2006). For those claims as requested by the Secretary,
programs with significant erroneous State agency, or both.
42 CFR Parts 431 and 457 payments, Federal agencies must Under the authority of these statutory
provide the estimated amount of provisions, we published a proposed
[CMS–6026–F]
improper payments and report on what rule on August 27, 2004 (69 FR 52620)
RIN 0938–AN77 actions the agency is taking to reduce to comply with the requirements of the
them, including setting targets for future IPIA and the OMB guidance. Based on
Medicaid Program and State Children’s erroneous payment levels and a timeline the methodology developed in the pilot
Health Insurance Program (SCHIP); by which the targets will be reached. projects, the proposed rule set forth
Payment Error Rate Measurement According to the OMB directive, provisions for all States annually to
Federal agencies must include in the estimate improper payments in their
AGENCY: Centers for Medicare &
report to the President and Congress: (1) Medicaid and SCHIP programs and to
Medicaid Services (CMS), HHS.
The estimate of the annual amount of report the State-specific error rates for
ACTION: Final rule. erroneous payments; (2) a discussion of purposes of our computing the national
the causes of the errors and actions improper payment estimates for these
SUMMARY: This final rule sets forth the
taken to correct those problems, programs. The intended effects of the
State requirements to provide
including plans to increase agency proposed rule were to have States
information to us for purposes of
accountability; (3) a discussion of the measure improper payments based on
estimating improper payments in
amount of actual erroneous payments FFS, managed care, and eligibility
Medicaid and SCHIP. The Improper
the agency expects to recover; (4) reviews; to identify errors; to target
Payments Information Act of 2002
limitations that prevent the agency from corrective actions; to reduce the rate of
(IPIA) requires heads of Federal
reducing the erroneous payment levels, improper payments; and to produce a
agencies to estimate and report to the
that is, resources or legal barriers; and corresponding increase in program
Congress annually these estimates of
(5) a target for the program’s future savings at both the State and Federal
improper payments for the programs
payment rate, if applicable. levels.
they oversee, and submit a report on The Medicaid program and the State After extensive analysis of the issues
actions the agency is taking to reduce Children’s Health Insurance Program related to having States measure
erroneous payments. (SCHIP) were identified by OMB as improper payments in Medicaid and
This final rule responds to the public programs at risk for significant SCHIP, including public comments on
comments on the August 28, 2006 erroneous payments. OMB directed the the provisions in the proposed rule, we
interim final rule (71 FR 51050) and sets Department of Health and Human revised our approach. Our revised
forth State requirements for submitting Services (DHHS) to report the estimated approach adopted the recommendation
claims and policies to the CMS Federal error rates for the Medicaid and SCHIP to engage Federal contractors to review
contractors for purposes of conducting programs each year for inclusion in the State Medicaid and SCHIP fee-for-
fee-for-service and managed care Performance and Accountability Report service (FFS) and managed care claims
reviews. This final rule also sets forth (PAR). (we define the term ‘‘claims’’ to include
the State requirements for conducting Through the Payment Accuracy both managed care capitation payments
eligibility reviews and estimating case Measurement (PAM) and Payment Error and FFS line items) and to calculate the
and payment error rates due to errors in Rate Measurement (PERM) pilot projects State-specific and national error rates
eligibility determinations. that CMS operated in Fiscal Years (FYs) for Medicaid and SCHIP. States will
DATES: Effective Date: These regulations 2002 through 2005, we developed a calculate the State-specific eligibility
are effective on October 1, 2007. claims-based review methodology error rates. Based on these rates, the
FOR FURTHER INFORMATION CONTACT: designed to estimate State-specific Federal contractor will calculate the
Janet E. Reichert, (410) 786–4580. payment error rates for all adjudicated national eligibility error rate for each
SUPPLEMENTARY INFORMATION:
claims within 3 percent of the true program. We also adopted the
population error rate with 95 percent recommendation to sample a subset of
I. Background confidence. An ‘‘adjudicated claim’’ is a States each year rather than to measure
claim for which either money was every State every year. We adopted
A. The Improper Payments Information
obligated to pay the claim (paid claims) these recommendations primarily in
Act of 2002
or for which a decision was made to response to commenters’ concerns with
The Improper Payments Information deny the claim (denied claims). the cost and burden to implement the
Act of 2002 (IPIA), Pub. L. 107–300, regulatory provisions at the State level
enacted on November 26, 2002, requires B. CMS Rulemaking that the proposed rule would have
the heads of Federal agencies annually Section 1102(a) of the Social Security imposed on States.
to review programs they oversee that are Act (the Act) authorizes the Secretary to Since our revised approach departed
susceptible to significant erroneous establish such rules and regulations as significantly from the approach in the
payments, to estimate the amount of may be necessary for the efficient proposed rule, we published an interim
improper payments, to report those administration of the Medicaid and final rule with comment period on
estimates to the Congress, and to submit SCHIP programs. The Medicaid statute October 5, 2005 (70 FR 58260). The
a report on actions the agency is taking at section 1902(a)(6) of the Act and the October 5, 2005 interim final rule with
to reduce erroneous expenditures. The SCHIP statute at section 2107(b)(1) of comment period responded to the
IPIA directed the Office of Management the Act require States to provide public comments on the proposed rule,
and Budget (OMB) to provide guidance information that the Secretary finds and informed the public of our national
on implementation. OMB defines necessary for the administration, contracting strategy and of our plan to
‘‘significant erroneous payments’’ as evaluation, and verification of the measure improper payments in a subset
Federal Register / Vol. 72, No. 169 / Friday, August 31, 2007 / Rules and Regulations 50491
of States. Our State selection will ensure examination of various approaches 28, 2006 that responded to comments on
that a State will be measured once, and proposed in such comments, and the the October 5, 2005 initial interim final
only once, every 3 years for each suggestions of the panel members. rule with comment period. In the
program. For each fiscal year, we stated The October 5, 2005 interim final rule August 28, 2006 interim final rule, we
that we expected to measure up to 18 also set forth the types of information reiterated our national contracting
States. We also stated that we would use that States would submit to the Federal strategy to estimate improper payments
a rotational approach to review the contractors for the purpose of estimating in both Medicaid and SCHIP fee-for-
States’ Medicaid programs. The rotation Medicaid and SCHIP FFS improper service and managed care claims and set
allows States to plan for the reviews payments and invited further comments
forth the State requirements for
because States know in advance in on methods for estimating eligibility
estimating improper payments due to
which year they will be measured. At and managed care improper payments.
We received very few comments errors in Medicaid and SCHIP eligibility
the end of the first 3-year cycle, the determinations. We also announced that
rotation will repeat so that the FY 2006 regarding managed care and a number of
comments regarding eligibility. a State’s Medicaid and SCHIP programs
States will be reviewed again in FY
Based on the public comments and would be reviewed in the same year.
2009; the FY 2007 States will be
reviewed again in FY 2010; and the FY recommendations from the eligibility A. Selecting SCHIP States for Review
2008 States will be reviewed again in workgroup, we published a second
FY 2011. The rotation will continue in interim final rule on August 28, 2006 After the October 2005 Medicaid State
this manner for future years. (71 FR 51050), which set forth the selection, we decided on the SCHIP
In determining the Medicaid State methodology for measuring improper State selection for the PERM
selection, we grouped all States into payments in Medicaid and SCHIP FFS, measurement beginning with FY 2007.
three equal strata of small, medium, and managed care, and eligibility in 17 We determined that SCHIP could be
large, based on the States’ most recently States and invited further public measured in the same States selected for
available FFS annual expenditure data. comments on the eligibility Medicaid review each fiscal year with a
We randomly selected up to six States measurement.
high probability that the SCHIP error
from each stratum each year, until we C. IPIA Compliance rate would meet OMB requirements for
selected all States for the first cycle of confidence and precision levels.
We expect to be fully compliant with
FY 2006 through FY 2008. We
IPIA requirements by the year 2008. We We believe that paralleling the SCHIP
announced the Medicaid State selection measured Medicaid FFS improper
rotation in the October 5, 2005 interim and Medicaid measurements will
payments in FY 2006 and plan to have minimize administrative complexities
final rule and also through a State all components (FFS, managed care, and
Health Official Letter released to all for both CMS and the States. Measuring
eligibility) of Medicaid and SCHIP both programs at the same time may
States on November 18, 2005. measured in FY 2007 for reporting in
In the October 5, 2005 interim final further reduce the State cost and burden
the FY 2008 Performance and because States are able to plan activities
rule, we stated that it was still possible Accountability Report (PAR).
that States sampled for review would be for both measurements and may gain
These measurements in 17 States each
required to conduct eligibility reviews year will produce State-specific efficiencies by combining staff and
as described in the proposed rule. We component error rates as well as resources for the reviews.
also announced our intentions to composite program error rates for the We announced in the August 28, 2006
establish an eligibility workgroup to State’s Medicaid and SCHIP programs. interim final rule our decision to
make recommendations on the best From the State-specific error rates, we measure Medicaid and SCHIP in a State
approach for reviewing Medicaid and will calculate national error rates for at the same time. We also sent a State
SCHIP eligibility within the confines of each of the components and for the Health Official Letter to all States
current statute, with minimal impact on Medicaid and SCHIP programs. regarding the SCHIP State selection on
States and additional discretionary We expect State corrective actions to August 30, 2006. As with Medicaid, we
funding. We convened an eligibility address the causes of error in each of the
workgroup comprised of DHHS stated that we expected to measure
program components. As a result, we improper payments in all components
(including CMS and, in an advisory expect States will reduce their program
capacity, the Office of the Inspector of SCHIP in FY 2007 and beyond. The
error rates over the course of each
General (OIG)), OMB, and selection of States for the first PERM
measurement cycle which, in turn,
representatives from two States. We cycle of FY 2006 through FY 2008 is
should reduce the national error rates.
determined that States should conduct listed below. Note that, for States
the eligibility measurement and II. Provisions of the August 28, 2006 measured for Medicaid FFS in FY 2006,
developed an eligibility measurement (Second) Interim Final Rule all three components of Medicaid and
methodology based on the workgroup’s We published a second interim final SCHIP will be measured in FY 2009.
consideration of public comments, the rule with comment period on August
MEDICAID AND SCHIP STATE SELECTION

FY 2006 ....... Pennsylvania, Ohio, Illinois, Michigan, Missouri, Minnesota, Arkansas, Connecticut, New Mexico, Virginia, Wisconsin, Oklahoma,
North Dakota, Wyoming, Kansas, Idaho, Delaware.
FY 2007 ....... North Carolina, Georgia, California, Massachusetts, Tennessee, New Jersey, Kentucky, West Virginia, Maryland, Alabama,
South Carolina, Colorado, Utah, Vermont, Nebraska, New Hampshire, Rhode Island.
FY 2008 ....... New York, Florida, Texas, Louisiana, Indiana, Mississippi, Iowa, Maine, Oregon, Arizona, Washington, District of Columbia, Alas-
ka, Hawaii, Montana, South Dakota, Nevada.
B. PERM Measurement Cycle national contracting strategy would take process. It is important to note that the
We stated in the August 28, 2006 approximately 23 months per cycle. process is fluid, so timeframes may
interim final rule that the process for Using FY 2006 as an example, we fluctuate slightly depending on such
measuring improper payments, called provided the following table as an factors as the complexities of the
the ‘‘production cycle,’’ under the approximate overview of the PERM reviews.
EXAMPLE OF THE PERM PRODUCTION CYCLE: FY 2006

[Note: only illustrates Medicaid FFS]
Timeframe Event
December 1, 2005 .......................... • States submit medical policies in effect for the review period to the DDC.
January 15, 2006 ............................ • States submit 1st quarter FY 2006 (October–December 2005) adjudicated claims to the SC.
February 1, 2006 ............................ • State submits 1st quarter FFS policy updates to the DDC.
April 15, 2006 .................................. • States submit 2nd quarter FY 2006 (January–March 2006) adjudicated claims to the SC.
May 1, 2006 .................................... • States submit 2nd quarter policy updates to the DDC.
July 15, 2006 .................................. • States submit 3rd quarter FY 2006 (April–June 2006) adjudicated claims to the SC.
August 1, 2006 ................................ • States submit 3rd quarter policy updates to the DDC.
October 15, 2006 ............................ • States submit 4th quarter FY 2006 (July–September 2006) adjudicated claims to the SC.
November 1, 2006 .......................... • States submit 4th quarter policy updates to the DDC.
Throughout PERM process ............ • States identify and resolve differences in review findings with the RC.
C. Use of Federal Contractors to Review following information for Medicaid and System (MMIS); therefore, we believed
FFS and Managed Care Claims SCHIP: that the stratification of claims for
• All adjudicated FFS and managed submission would not be burdensome to
In the August 28, 2006 interim final care claims information from the review States.
rule, we reiterated that, under the year on a quarterly basis, with FFS We established the following strata:
national contracting strategy, we would claims stratified into seven strata by (1) Hospital services; (2) long term care
use Federal contractors to measure service type and one additional stratum services; (3) other independent
Medicaid and SCHIP FFS and managed for denied claims; practitioners and clinics; (4)
care improper payments. We believe the • Information on claims that were prescription drugs; (5) home and
use of more than one CMS Federal selected as part of the sample, but community based services; (6) other
contractor allows for the award of which changed in substance after services and supplies (for example,
contracts in areas of specialization and selection (for example, successful durable medical equipment, clinical lab
expertise, minimizes potential problems provider appeals); and tests, and x-rays); (7) primary care case
with the error rate measurement process • Adjustments made within 60 days management; and (8) denied claims.
if one contractor experiences after the adjudication dates for the From the State’s quarterly adjudicated
operational difficulties, and provides us original claims or line items, with claims data, the SC would randomly
with optimum oversight. However, we sufficient information to indicate the select a sample of FFS and managed
may revise our use of multiple nature of the adjustments and to match care claims each quarter. Each selected
contractors in the future if warranted by the adjustments to the original claims or FFS claim would be subjected to a
our experience as the program matures, line items. medical and data processing review.
for example, if we can gain efficiencies. We required States to provide Managed care claims would not be
For FYs 2006 and 2007, we awarded stratified FFS claims data because we stratified or subjected to medical
three contracts: (1) A statistical analysis believed that stratifying the claims by reviews because the payments made to
contract; (2) a documentation/database service type would improve the a managed care plan are based on a set
contract; and (3) a review contract. efficiency of the sampling methodology fee from a predetermined capitation
The statistical contractor (SC) collects by distributing the claims in the sample agreement, rather than for the specific
adjudicated claims data, determines the in proportion to the dollar share in the service(s) provided. We expected that
sample size, draws the sample, and universe. Stratification allows services the sample size would be 1,000 FFS
calculates the State and national error with a larger dollar share to compose a claims and 500 managed care claims per
rates. The documentation/database larger share of the sample and reduces State per program in order to achieve a
contractor (DDC) standardizes State the variance in the sample. Stratifying 3 percent precision level at the 95
data, collects and stores State medical the claims also allows for smaller percent confidence level (based on a
and other related policies, and requests sample sizes and for the identification range estimated during the PAM/PERM
the medical records from providers for of errors in specific service types so that pilots).
the FFS medical reviews. The review States would have information that For review of the sampled claims,
contractor (RC) conducts the medical could be helpful to target causes of States would provide the DDC the
and data processing reviews on the errors. following information for Medicaid and
States’ FFS and managed care claims. Based on the annual expenditure data, SCHIP:
In the August 28, 2006 interim final the SC would determine the State’s • All medical and other related
rule, we indicated that the States’ sample size and, for FFS claims, the policies in effect for the review year and
responsibilities to support the improper sample size for each of the eight total any quarterly policy updates;
payments measurement for both strata. These strata were established • Current managed care contracts,
Medicaid and SCHIP would include during the pilot projects based on the rate information, and any quarterly
submission of information on managed total share of dollars. States had already updates to contracts and rates for the
care. We stated that the States selected grouped their claims similarly in their review year for SCHIP and, as requested,
for review would submit to the SC the Medicaid Management Information for Medicaid; and
• Upon request from the contractor, payments and determining error rates in the total amount of payment from all
provider contact information that has Medicaid and SCHIP. undetermined cases in the active case
been verified by the State as current. We stated that we would request sample, to be submitted by July 1 after
States selected for review also would information we found during the course the end of the fiscal year under
provide the RC the following of measuring each program that would review.
information for Medicaid and SCHIP: improve the process, produce more We invited further comment on this
• Systems manuals for data accurate error rates, or reduce the cost methodology for measuring improper
processing reviews. (If a State’s medical and burden on either or both the State payments due to errors in eligibility
and data processing policies are and Federal governments. Similarly, we determinations.
intertwined, the State may send the stated that, if we determined that we
policies to the DDC. The DDC would were collecting specific information that III. Analysis of and Responses to the
then identify the data processing did not add value to the error rate Public Comments on the August 28,
policies so the RC could access them measurement or was not productive to 2006 Interim Final Rule
through the DDC.) collect, we would discontinue that We received a total of 33 comments:
• Repricing information, as requested collection. 28 from State agencies, 3 from consumer
by the RC, for claims that the RC advocacy and other groups and 2 from
determined to be improperly paid. The D. Eligibility Measurement
individuals. These commenters
RC would request that States submit the In the August 28, 2006 interim final reiterated some of the comments from
price that should have been paid so that, rule, we set forth the eligibility the proposed rule to which we
for claims that were found to be in error, measurement methodology developed responded in the October 5, 2005 and
the RC would be able to determine the through the eligibility workgroup and August 28, 2006 interim final rules.
amount of the improper payment. through our consideration of public
The August 28, 2006 interim final rule Although we are not required to
comments submitted in response to the respond to these comments again, we
also set forth a difference resolution October 5, 2005 initial interim final
process whereby States would be are summarizing the comments in this
rule. The eligibility measurement final rule and providing our responses
provided disposition reports listing the methodology is summarized below: for the convenience of the reader. Below
contractor’s review finding on each • A State would review program are the comments on the August 28,
claim. Based on these reports, States eligibility in the year it was scheduled
would be able to dispute error findings. 2006 interim final rule and our
for review for FFS and managed care responses.
When the reviews were completed, improper payments. The eligibility
the SC would estimate the State-specific Most comments responded to our
reviews would be conducted by a State invitation for further comment on the
error rates for the FFS and managed care agency that was functionally and
components of the Medicaid and SCHIP PERM eligibility measurement process.
physically independent of the State Commenters also indicated that,
programs. States (using the eligibility agency making the program policy and
methodology set forth in the August 28, although the August 28, 2006 interim
eligibility determinations. final rule significantly reduced the
2006 interim final rule to conduct • The Medicaid and SCHIP eligibility burden on the States by using a Federal
eligibility reviews beginning in FY sample universes would consist of both
2007) would calculate and report the contracting strategy and limiting State
active cases (individuals enrolled in the selection to once every 3 years, they
State-specific eligibility error rates to us. program) and negative cases
These measurements also will produce believed that the August 28, 2006
(individuals denied or terminated from interim final rule still placed an undue
component error rates for the State’s the program). technical and financial burden on the
Medicaid and SCHIP programs. From • Medicaid and SCHIP cases in the
the State-specific error rates, we will States to assist the Federal contractors.
active universe would be stratified into
calculate national error rates for each of three strata: (1) Applications, (2) A. Purpose, Basis, and Scope
the components and for the Medicaid redeterminations, and (3) all other cases.
1. Payment Error Rates
and SCHIP programs. Negative case action samples would not
Once the State-specific and national be stratified in either program. Comment: Several commenters
error rates were estimated, the States • A State would calculate its asserted that a State error rate is not
would develop and send to us corrective eligibility error rates for active cases required by IPIA and funds are wasted
action reports describing corrective (including undetermined cases) and in establishing a payment error rate. The
actions that the States would implement negative cases. commenters also maintained that State
to address the major causes of improper • States would submit the following audits could identify improper
payments. The States would review to CMS: payments. The commenters stated that a
their error rates, determine root causes —A sampling plan for approval (which national sampling framework should be
of error-prone areas, and develop would be submitted 60 days before used to measure a national error rate,
corrective actions to address the major the beginning of the fiscal year and that CMS should abandon the
error causes for purposes of reducing selected for review); proposed State-level error rate in favor
the payment error rates. States selected —A monthly sample selection list that of a national error rate and sampling
for review would provide us with the identified the cases selected for plan.
following information for Medicaid and review (to be submitted each month Response: As we observed in the
SCHIP: and before commencing the reviews); October 5, 2005 and August 28, 2006
• A corrective action report for —Detailed findings on the cases interim final rules, the IPIA requires the
purposes of reducing the State’s reviewed; Secretary to estimate the amount of
payment error rates in the FFS, managed —Summary findings on the cases improper payments in programs and
care, and eligibility components of the reviewed; and activities that are susceptible to
program; and —State-specific case and payment error significant improper payments and
• Other information that the Secretary rates for active cases, case error rates report those estimates to the Congress.
determined necessary for, among other for negative cases, the number and OMB has identified Medicaid and
purposes, estimating improper amount of undetermined cases, and SCHIP as programs at risk for significant
improper payments. Because States Response: Our statistical contractor sampling far fewer than the entire
administer these programs and because will calculate the State-specific error population or universe. Based on the
there is wide variation in States’ rates for FFS and managed care. In outcome of the sample, one can make an
coverage, eligibility, benefit, and general, the ratio method of estimating inference regarding the values of the
reimbursement policies for these the error rate is formed using data from true population mean, for example, and
programs, we must rely on State-specific the sample. From the sample, the dollar a statement of the probability or
information to develop State-level value of claims or payments in error likelihood that a small range around the
estimates as the basis for a national enters the numerator, while the dollar sample estimate captures the
program error rate. value of payments (both those made in population’s true mean.
In addition, even though State audits error and those that are valid) enters The national error rate is calculated as
may identify improper payments, we into the denominator. This ratio is the the outcome of a two-stage sampling
could not be confident that States’ audit error rate. process. First, States are sampled. Then,
procedures would be similar and would In general, the ‘‘difference’’ estimator claims are sampled within the State.
be consistently applied nationwide or is calculated as follows. The dollar
would produce statistically reliable value of each error (the difference States were placed into one of three
information on which a national rate between what should have been paid strata. These strata consist of the large,
could be based. Finally, we have stated and what was paid) in the sample is medium, and small States as measured
that the PERM program is intended to added, with weights equal to the inverse by Medicaid expenditures. For each
fulfill the requirements of the IPIA; it is of the sampling frequency for the year, a total of 17 States were randomly
not intended to supplant, enhance, or respective claim or line item. This selected from the three strata. For States
change other program integrity activities provides an estimate of the total dollars sampled in each strata, claims and
in which the States are currently in error for the universe or population payments are sampled for Medicaid and
engaged. for which the inference is made. This SCHIP fee-for-service and managed care.
Comment: One commenter suggested becomes the numerator of the error rate. A sufficient number of claims and
that the national error rate be computed The denominator of the error rate is payments are sampled to estimate an
using State error rates that are weighted actual payments made for the universe error rate at a precision level of plus or
against dollar volume in other States to or population. The denominator is non- minus 3 percentage points with 95
ensure that each State’s contribution to stochastic, that is, non-random. This percent confidence for that State. Then,
the error rate is clear, balanced, and ratio, then, provides an estimate of the within each of the three strata, an error
consistently calculated at all levels of error rate. rate is calculated based on the States
data analysis. Because the actual payments made by sampled in that stratum. Finally, a
Response: The national error rate is the State for the universe or population national error rate is calculated by
calculated as the outcome of a two-stage may not be available when we calculate estimating the error rate for the
sampling process. States were placed the error rate, we plan to use the ratio population of all States as a weighted
into one of three strata. These strata estimator. average of the error rates within each
consist of the large, medium, and small Comment: A commenter observed stratum. The variance in this estimate is
States as measured by Medicaid that, in the August 28, 2006 interim calculated by taking into account the
expenditures. For each of the three final rule, we responded to a comment variance of the error rate of the
rotations, 17 States were randomly regarding the likelihood of achieving a individual States in the sample and the
selected from three strata. Beginning in national error rate by aggregating error variance in the original sample of States
FY 2007, for the States sampled in each rates from all the States’ programs with from the three strata.
year, claims and payments are sampled their inherent variations. We stated that, Comment: A commenter would like to
for Medicaid and SCHIP fee-for-service ‘‘(b)y drawing a stratified random know the operational benefit of a
and managed care. Sufficient numbers sample of States and then reviewing a national error rate to the States if they
of claims and payments are sampled to random sample of claims within each of will be measured against their
estimate an error rate for the State at a those States (using each State’s program individual rates rather than a national
precision level of plus or minus 3 policies), we are able to obtain an average.
percentage points with 95 percent estimate of the national error rate
confidence. Then, within each of the without having to conduct reviews on Response: The Improper Payments
three strata, an error rate is calculated to all claims. This methodology will Information Act of 2002 (IPIA) requires
represent the error rate of that stratum. produce the estimate and the precision CMS to estimate and report to the
Finally, a national error rate is level of the estimated national error rate, Congress annual estimates of improper
calculated by computing the error rates within the parameters set by OMB.’’ The payments. The national error rate for
across the three strata, where each commenter asserted this logic is circular SCHIP and Medicaid will be reported to
stratum’s rate is weighted by the share and stated that more information is the Congress as required by law. States
of expenditures for that program needed to explain how this process will use their State-specific error rates to
represented by its strata. The variance in would work. implement corrective action plans. We
this estimate is calculated by taking into Response: The process is based on believe that these plans will ultimately
account: (1) The variance of the error sampling. By sampling, one can obtain reduce the national error rate.
rate of the individual States in the an estimate of a population parameter, Comment: A commenter asked what
sample, and (2) the variance in the such as the mean dollar value of a assurance States would have that
original sample of States from the three Medicaid claim for a State, without comparisons among States would not be
strata. The error rate is based on the having to examine every claim in that made when the error rates were
total error, not the State or Federal State’s universe. The larger the sample reported. Because of the wide variation
share. size, the more precise the estimate of the in States’ Medicaid and SCHIP
Comment: One commenter suggested mean value will be. For most programs, this assurance is needed in
that States should be allowed to populations, one can typically obtain a order to reassure States that
calculate error rates based on either the very precise estimate of the population unwarranted comparisons are not being
difference method or ratio method. parameters, such as the mean, by made.
Response: We agree that care should Response: We agree that the IPIA is measuring Medicaid and SCHIP in the
be taken in comparing the State error not intended to root out these problems. same year, the commenter believes that
rates due to variation in State programs. The IPIA is intended to identify CMS has unilaterally increased the
Comment: A commenter requested improper payments, and provider fraud State’s cost and burden by 100 percent.
that CMS develop methods to may be discovered during the course of According to the commenter, this
communicate with States regarding their the measurement. In addition, erroneous decision is contrary to the supporting
responsibilities, timelines, and Medicaid and SCHIP program statement issued with the initial request
completion expectations. enrollment decisions may be discovered to gain OMB approval (71 FR 30409)
Response: We have communicated during the eligibility reviews. The published May 26, 2006.
with States through kick-off calls and discovery of these problems would be Response: We believe that State cost
one-on-one calls with each State addressed by the State through and burden could actually be reduced
involved in each year’s measurement. In corrective actions. by measuring both programs in the same
addition, we post all instructions, letters Comment: A commenter indicated year. States would have to measure
and questions and answers on our CMS that the rule does not explain if errors in both programs at some point.
PERM Web site at http:// extrapolations will be conducted and if By evaluating them simultaneously, we
www.cms.hhs.gov/PERM for all States to error rates will be reported based on believe efficiencies will be gained that
review. claims, dollar amount, or both. may lower costs and burden. We stated
Comment: A commenter stated that, Response: The method for estimating in both published interim final rules
since PERM is measured in a 3-year error rates is based on sampling from that we would rotate the States, not the
cycle, the ‘‘national average’’ error rate the population or universe. From the programs. We reiterate, in this final rule,
cannot be compared year-to-year. sample, inferences (or extrapolations) that each State will be measured on a
are drawn regarding specific population rotational basis.
Response: We believe there are
or universe values, such as the error rate Comment: A commenter stated that
several approaches to assess the
for the population. The active case the proposed random selection of States
improvement in the reduction of
eligibility error rates will be dollar- to be reviewed under the PERM program
improper payments year-to-year and
weighted error rates. The dollars makes it difficult to predict the
over the years.
assigned to the case will be those resources needed for PERM-related
Comment: Two commenters believed associated with the claims that are activities. If not forthcoming, States
that State program integrity efforts are in collected for the recipient. The sample could be held responsible for time
jeopardy because claims from providers sizes for the active cases were delays in the program.
under active fraud investigation are constructed to achieve an estimate of Response: In the August 28, 2006
included in the universe. The the State’s dollar-weighted error at a interim final rule, we stated that we will
commenters believed that (1) The error precision level of plus or minus 3 use a rotational approach to review the
rate will be inflated because fraudulent percentage points with 95 percent States in Medicaid and SCHIP. We
and abusive providers are not likely to confidence. The State level active case released instructions explaining the
respond to requests for medical records; eligibility error rates will be a selection of the States to be reviewed
(2) providers can create, alter, or destroy component of a national active case under the PERM program through an
documentation and evidence when they eligibility error rate. A simple binomial October 10, 2006 State Health Official
are alerted that their claims are error rate (valid/invalid) will be letter. This information was also posted
investigated; and (3) false, fraudulent, calculated for the active case error rate, on the CMS PERM Web site at http://
and abusive claims can only be and a binomial (valid/invalid) error rate www.cms.hhs.gov/PERM. Further, we
identified by interviewing recipients will be calculated for negative cases. stated that we believe that the rotation
and reviewing medical records. The Medicaid and SCHIP error rates will allow States to plan for the reviews
Response: We do not intend to for both fee-for-service and managed because States will know in advance in
jeopardize States’ provider fraud care will be calculated and reported which year they will be measured.
investigations based on our review of based on the dollar value of the line
FFS and managed care claims. 3. Use of National Contractor
items or payments sampled. The sample
Therefore, if a FFS or managed care sizes were constructed to achieve a Comment: A commenter stated that
claim sampled under PERM is part of a precision level for each of the programs Generally Accepted Government
fraud investigation and the State notifies (Medicaid and SCHIP fee-for-service Auditing Standards (GAGAS) require
the statistical contractor of this fact, the and managed care) of plus or minus 3 States to review and comment on
claim will not be subject to review percentage points with 95 percent contractor-generated PERM working
under PERM. However, we will cite the confidence. The State level error rates papers and findings for quality control
claim as an error. We believe the State, will also be used to estimate national purposes. The commenter asserted that
in this instance, also believes the claim error rates for these programs, which are the contractor’s findings should not be
is in error since the State is investigating expected to achieve a precision level of deemed final or actionable until this
the provider for fraud. For purposes of plus or minus 2.5 percentage points review is complete. In addition, the
the eligibility review, which is with 90 percent confidence. commenter stated that the cost of this
conducted on individual beneficiary To summarize, the methodology is to review must be included in the rules,
cases rather than claims, cases under sample from the population or universe, which, according to the commenter,
beneficiary fraud investigation are and then use the sample results to infer does not appear to be the case.
excluded from review. or extrapolate the error rate for the Response: The PERM program does
Comment: A commenter asked for population. not require States to use GAGAS.
clarification on whether the IPIA is GAGAS is issued by the Comptroller of
intended to root out provider fraud or 2. State Selection the United States as auditing standards
challenge program enrollment Comment: A commenter stated that for governmental audits. The PERM
decisions. The commenter stated that States were led to believe that each program is not an audit and as such,
those functions are under the purview program would be measured on an GAGAS would not be applicable.
of other Federal and State initiatives. alternating or rotational basis. By However, under PERM, States have the
opportunity through the difference contractor’s proposed findings, we will project planning documents to CMS and
resolution process to review error issue guidance instructing our national the States that would explain delays,
findings. States also have the contractors to request that providers, in barriers, or other issues that have arisen
opportunity to further dispute error compliance with our regulations at 42 and the contractor’s plans to resolve any
findings by appealing to CMS. CFR 431.107(b)(2), 431.970, and problem areas.
Comment: A commenter applauded 457.720, submit medical records no Response: We provided an overall
the use of national contractors but did later than 60 days after issuance of the timeline of the measurement process in
not believe the contractors have the contractor’s letter requesting such the August 28, 2006 interim final rule
required knowledge to complete the records. This will provide additional
(using the FY 2006 Medicaid FFS
reviews under CMS’ current schedule. time for the State and contractor to
The commenter believed additional measurement as an example) to identify
analyze and resolve discrepancies.
time is needed for the transfer of when States should submit needed
knowledge from State to contractor. 4. State Input into the Program information. We have included the
Response: The contractors will work Comment: One commenter disagreed timeline again in this final rule (see
closely with the States during the with CMS’ statement that States have ‘‘Example of the PERM Production
measurement process to ensure that been active participants in the PERM Cycle: FY 2006’’ illustration) for the
program knowledge is transferred. We regulatory process. The commenter reader’s convenience. In addition, we
believe this will help mitigate delays in stated that CMS has not provided an have held kick-off calls, State-specific
the process that might be encountered acceptable forum for State participation calls, component review calls, and
otherwise. in the development of PERM regulation, provided instructions to States selected
Comment: A commenter asked how and that only two States were involved for the FY 2006 and FY 2007
many days after the quarter ends would in meetings with CMS during the measurements, so States would
State information have to be submitted development of the regulation. In understand the schedule and deadlines
to the statistical contractor. The addition, the commenter indicated that for the FFS and managed care claims
commenter stated that no details were CMS has not been present on three all- data submission. We intend to provide
provided on page 51053 of the Federal State calls regarding PERM regulation, the same guidance to States selected for
Register publication of the August 28, and that when CMS is present on calls, the FY 2008 and FY 2009
2006 interim final rule. CMS does not provide substantive measurements. The timeline for the
Response: Our statistical contractor’s responses to questions and points of eligibility measurement is attached to
instructions request that State clarification from the States. The the eligibility instructions, which can be
information be submitted to the commenter concluded that States found along with the claims submission
statistical contractor no later than 15 cannot make reasonable comments and instructions, on the CMS PERM Web
days after the quarter ends. suggestions when CMS does not provide site at http://www.cms.hhs.gov/PERM.
Comment: A commenter asked CMS States with sufficient information.
to further clarify the format in which Response: The two States participated Sampling
States will be required to submit data in the eligibility workgroup; they did 1. Exclusions From the Claims Universe
for PERM compliance purposes and not participate in developing the entire
whether the data would need to be PERM regulation. Consistent with the Denied Claims
coded. rulemaking process, we have provided a
Comment: Two commenters suggested
Response: The operational details are vehicle by which we review all timely
that CMS remove denied claims as a
contained in the instructions that the public comments submitted to us.
review stratum. The commenters stated
statistical contractor sends to the States Through this process, we have received
that there is an increased burden on
being measured at the beginning of each valuable assistance in developing an
States to produce a list of adjudicated
quarter. error rate measurement procedure that
Comment: A commenter stated that denied claims and track re-billings of
we believe is both sensitive to the
the delay in collecting provider denied claims. The commenters also
burdens that States must bear in
documentation does not allow enough noted that there is difficulty in
meeting their responsibilities, as well as
time for a State to respond to any determining the sample size based on
one that allows us to uphold the duties
findings or perceived errors. The dollar value when the value of the
that we must carry out to be in
commenter does not believe that hiring denied claim is zero. The commenters
compliance with the IPIA.
three contractors is effective in recommended convening a workgroup
measuring error rates. B. Methodology to determine a methodology to measure
Response: We believe that having Comment: Commenters stated that errors in denied claims.
three contractors is effective because the CMS should provide a detailed timeline Response: Denied claims could be
program is not jeopardized or for the PERM sampling year for claim underpayments, and IPIA requires the
substantially delayed if one contractor and eligibility reviews, so that States inclusion of underpayments in our
experiences problems; the other would understand the schedule and measurement. We believe it is as
contractors could continue their deadlines. They indicated that this important to know when claims and
respective aspects of the measurement. timeline should identify all three eligibility have been wrongfully denied
We agree that the 90-day timeframe to contractor activities and expected State as when they have been wrongfully paid
collect medical records from providers responsibilities (for example, claim and approved. Furthermore, the sample
may not allow States adequate time to delivery and sampling schedule dates size is determined by our statistical
resolve errors with the RC through the and required State documentation due contractor, not the States. Finally, the
difference resolution process. In order to dates needed by contractors to comply methodology to measure errors in
expedite the difference resolution with CMS contract deadlines). In denied claims was developed by CMS
process within the overall timeframe for addition, the commenters noted that and States during PAM/PERM pilots.
calculating annual error rates under States have suggested that, for each Therefore, we are not adopting the
PERM, and provide States with PERM State being reviewed, the suggestion to convene a workgroup to
adequate time to respond to our contractors should prepare monthly revisit this matter.
2. Sampling Issues population can be treated as if it were from the provider, it is imperative that
Comment: A commenter noted that an infinite population. In other words, the contractor immediately review the
the PERM stratification requirements are statistically speaking, beyond a universe records for completeness and
complex and would likely pose a of about 10,000, population differences appropriateness of documentation. The
challenge for its systems. do not have a significant effect on commenter stated that the review
Response: We agree that stratifying sample size. should not be delayed until the medical
Comment: A commenter asked CMS review occurs because such delay
Medicaid FFS claims has posed
to clarify each sample size and increases the likelihood of a claim
challenges for States. Many States
methodology for each area of the PERM found in error.
measured in FY 2006 had difficulties
project. The commenter stated that in all Response: The DDC is responsible
stratifying the claims. Therefore, we are
correspondence released by CMS to the only for the collection of medical
revising the requirement at
States, the sample sizes and records and does not have the clinical
§ 431.970(a)(1) to remove the
methodologies have varied, which has expertise to determine the completeness
stratification of Medicaid and SCHIP
made it difficult for States to determine of these records. However, the review
FFS claims by service requirement. This contractor (who conducts the medical
what is expected from them.
approach will further reduce State Response: PERM measures three reviews) will notify the DDC if
burden since States would need only to components in Medicaid and three additional information is needed during
submit the universe data. We believe we components in SCHIP: FFS, managed the medical review, and the DDC will
can achieve greater sampling efficiency care, and eligibility. For FY 2006, the follow-up with the provider to obtain
by stratifying the FFS claims by dollar FFS sample size is 1,000 claims the specific information needed.
value rather than by service. The annually per program. These claims are Insufficient documentation errors are
Federal contractor will stratify the subject to data processing and medical cited when the provider does not
claims by dollar value. reviews by our contractor. For FY 2006, respond to the request for additional
Comment: A commenter stated that the managed care sample is 500 claims information or does not provide the
CMS did not provide a rationale for the annually per program. These claims are additional information within 14 days
following statement in the August 28, subject to data processing review only of the request.
2006 interim final rule: ‘‘We did not by our contractor. For FY 2006, the Comment: A commenter stated that
adopt the recommendation to select a eligibility sample size is 504 active our assurances related to the receipt of
nationwide sample because we believed cases and 204 negative cases (not documentation before considering an
that it was not the best overall method claims). Reviews to verify eligibility are error for lack of documentation were
to meet the requirements of the IPIA and done by the States. Future sample sizes insufficient. According to the
OMB guidance. There is no national are subject to change as necessary commenter, it is unreasonable to suggest
sampling framework for SCHIP claims depending on such factors as lessons that providers will respond timely to
* * *’’ The commenter maintained that learned or other situations impacting three written and oral requests during a
the absence of a national sample the timely and accurate error rate 90-day time period. The commenter
framework for SCHIP does not mean measurement. believed the documentation/database
that one could not or should not exist. Comment: Commenters asked when contractor should be required to obtain
Response: We do not believe a FY 2007 States could expect to receive documentation throughout the entire
national sample is the best method to additional information regarding the review year.
achieve IPIA compliance. The Medicaid data elements that would be required for Response: Our experience has shown
and SCHIP programs are State- data submission. that our provider response rate to
administered, and as such, we think it Response: The statistical contractor requests for medical records is
is necessary for States to participate in sends instructions out to each State 45 excellent, and that most providers
part of the measurement process. We days before the beginning of each fiscal submit records within 30 days of the
considered the suggestions made by year. original request. Therefore, we do not
commenters on the past interim final believe that the timeframe should be
rules and determined that we would not 3. Medical Records Collection extended to include the entire review
adopt this recommendation. Comment: A commenter asked if it year and are not adopting this
Comment: A commenter asked was the State’s responsibility to pursue recommendation. In fact, given that the
whether the universe of claims includes information identifying which providers provider response rate is good and
pharmacy, mental health, and substance have not submitted requested medical considering States’ concerns with the
abuse claims. records and whether the 90-day timeframe impeding on the
Response: Yes, pharmacy, mental documentation/database contractor difference resolution process, we are
health, and substance abuse claims are would provide this information to the considering reducing the timeframe, for
included in the universe of claims. State. example, to no later than 60 days from
Comment: Since the annual sample Response: The documentation/ the date of the letter sent by the
size is 1,000 FFS claims per State per database contractor will request the contractor requesting the medical
program, a commenter stated that the medical records directly from providers records. If we decide this is worthwhile,
State’s SCHIP program will likely be for the FFS medical reviews. The we will issue a policy instruction to that
disproportionately oversampled, since contractor will follow-up with providers effect.
its State represents only approximately who have not submitted medical Comment: A commenter stated that,
10 percent of the total United States records. The contractor will notify the since the documentation/database
population. State of providers who have not contractor will request medical records
Response: From a sampling submitted medical records. The State for the PERM program from a provider,
perspective, there is generally no can opt to follow-up with these CMS should consider methods to
difference between a small and large providers. minimize the duplication of efforts
population. Specifically, a property of Comment: A commenter stated that, since the State will have already
sampling is that, once the population when the documentation/database received documentation from the
size exceeds about 10,000, the contractor receives the medical records provider.
Response: We agree that duplication pilot projects as a reasonable timeframe. category through surveys. CMS could
of effort should be minimized wherever The 60-day timeframe allows for claims then utilize the data to correct the errors
possible as long as the documentation is adjustments while maintaining a by giving States and providers
complete, comprehensive, and timely. timeline that also allows for completing additional training where needed.
the reviews and computing and Response: Although we appreciate the
4. Adjustments to Claims
reporting the error rates in time for commenter’s recommendation, we are
Comment: A commenter requested inclusion in the PAR. not adopting it. States are responsible
clarification regarding whether the 60- If we extend the timeframe to a point for performing error rate analyses and
day adjustment timeframe pertains to beyond 60 days, we cannot be assured for taking appropriate corrective
managed care claims or whether it only that the error rate measurement process action(s). The requirements for the
applies to FFS claims. will be completed in time to report the PERM program do not preclude a State
Response: The 60-day adjustment error rate. Accordingly, we are not from independently evaluating any area
timeframe pertains to both FFS and adopting this recommendation. within its Medicaid or SCHIP program
managed care claims. Adjustments Comment: A commenter stated that a that may trigger a concern or may be
made within 60 days of the original paid bottom-line error rate must net vulnerable to payment errors. In
date will be included in the review overpayments and underpayments as addition, it does not prevent a State
process, which will consider the net already required by the HHS Office of from taking appropriate corrective
amount paid (original paid amount with Inspector General Corporate Integrity action.
additions and subtractions due to Agreements (http://oig.hhs.gov/fraud/
adjustments that occurred within 60 cia/docs/ciafaq1.html). b. Medical Reviews
days) in calculating the error rate. Response: OMB guidance M–06–23, Comment: A commenter suggested
States will submit adjustments for
published on August 10, 2006, states that CMS should allow findings of
managed care payments selected in the
that ‘‘incorrect amounts are ‘‘undetermined’’ for the medical claims
random sample each quarter. These may
overpayments and underpayments reviews as is permitted for the eligibility
include retroactive rate changes, rate
(including inappropriate denials or reviews. The commenter believed that
cell assignment corrections, and
payment of services).’’ OMB guidance failure to recognize an ‘‘undetermined’’
takebacks for beneficiaries who lost
further directs that the estimate of result due to missing or insufficient
eligibility.
Note that, while States may have improper payments is a gross total of documentation to support the medical
policies that allow adjustments to be both over and under payments. The OIG reviews of FFS claims could produce
made more than 60 days after the guidance that the commenter refers to is artificially inflated payment error rates.
original paid date, only the adjustments for a different purpose and does not Response: Requirements to document
made within 60 days are considered for apply to PERM. eligibility can vary by State. However,
PERM purposes. Comment: If a claim is sampled that all medical records should contain
Comment: Several commenters is a reversal of a prior claim, a documentation to support services
expressed concern that § 431.970(a)(8) commenter asked whether States would rendered. We believe that claims should
requires States to make adjustments to need to provide the original claim, not be considered correctly paid when
managed care capitation claims within which may have been outside the documentation is missing to support the
60 days of the adjudication date. The timeframe. payment or does not justify the
commenters maintained that States Response: The State will sample payment. Therefore, we are not adopting
needed a longer timeframe to reconcile original claims only because no stand this recommendation.
and adjust payments before the alone adjustments to claims are Even though the total payment error
payments were classified as errors. One included in the universe. In other rate will include documentation errors,
commenter observed that its SCHIP words, the State will sample original as we stated in the August 28, 2006
program has a reconciliation process in claims only and make any necessary interim final rule, the findings by our
place that makes positive and negative adjustments within 60 days of the paid Federal contractors will distinguish
adjustments to capitation payments to date for the claims after the sample is errors due to missing documentation
health plans on a retroactive basis; this selected. These consolidated and and insufficient documentation from
process takes longer than 60 days. Some adjusted claims would then be reviewed other types of errors. As a result, States
other commenters asserted that adopting to determine if they were correctly paid. will be able to target corrective actions
a 60-day window for adjustments is Comment: A commenter asked appropriately.
contrary to the time periods now whether adjustments to claims made Comment: A commenter asked why
allowed in many States. One of the within 60 days from the adjudication claims will be counted in error if
commenters recommended that CMS dates for the original claims or line medical records cannot be provided.
extend the adjustment timeframe to a items should be provided for the Response: The FFS claims subject to
minimum of 4 months. universe, or just for the selected sample. medical review and lacking
Response: We responded to this Response: Adjustments should be documentation to support the payments
comment in the August 28, 2006 interim provided for the selected sample only. are considered errors because there is no
final rule (70 FR 58260). We understand 5. Medical and Data Processing Reviews evidence available to determine the
the commenter’s concern; however, appropriateness and medical necessity
States have varying timeframes in which a. Methodology of the payments.
claims are adjusted, and we cannot Comment: A commenter Comment: The August 28, 2006
extend the timeframe in a manner that recommended separating out claims for interim final rule stated that ‘‘[e]ach
would accommodate all States’ residential care services within the selected FFS claim will be subjected to
practices. We noted in the August 28, overall estimate of the State payment a medical and data processing review.’’
2006 interim final rule that the 60-day error rate, and suggested that CMS According to a commenter, this
timeframe was agreed upon by States perform a quantitative and qualitative statement contradicts previous Federal
and CMS during the development of the analysis to determine the underlying Register information and PAM/PERM
review methodology under the PAM reasons for the payment errors in this guidance on medical review of cross-
over claims. The commenter asks CMS address only those claims that are reviewer; or (2) the State’s written
to clarify the reported contradiction. substantial enough to warrant re- policy in effect at the time the service
Response: The statement in the consideration. Therefore, we are not was rendered did not require the
August 28, 2006 interim final rule was adopting this recommendation. The specific documentation that was the
intended to provide a broad description $100 threshold for appeals at the CMS basis for the initial error finding. (This
of the PERM measurement process. In level also ensures that States receive provision excludes policies developed
response to this comment, we are timely decisions on their appeals, which after the fiscal year under review and
clarifying that cross-over claims (claims could be jeopardized if the CMS appeals made effective retroactive to the date of
that are paid by both Medicare and process was inundated with appeals by service.) Operational details regarding
Medicaid for services provided to every State on error findings with a the difference resolution process will be
Medicaid beneficiaries) are not subject dollar value of less than $100. This issued via CMS guidelines.
to medical review. threshold is similar to Medicare’s Comment: Assuming that the number
Comprehensive Error Rate Testing of unresolved differences between the
c. Data Processing Reviews State and the review contractor will be
program’s threshold, which allows
Comment: A commenter asked how contractors to dispute one error finding very small, a commenter suggested that
data processing reviews would be per quarter. the unresolved differences be
conducted if a SCHIP program did not As always, if a State is aggrieved by considered ‘‘undetermined’’ and not be
process its own claims but instead the contractor’s adjudication or CMS’ included in error rate calculations.
processed claims through a contracted reconsideration, or wants to address Response: The contractor’s reviews
insurance company. The commenter errors with dollar values of less than findings will stand for purposes of the
asked whether the on-site data $100, it can appeal to the Departmental error rate calculations in cases where
processing reviews would be performed Appeals Board. the differences remain unresolved after
at the insurance company. If not, the Comment: A commenter noted that no the conclusion of the difference
commenter asked how the reviews time limits or restrictions were placed resolution process. After the State’s
would be conducted. on the difference resolution process. A error rate has been calculated for
Response: In instances when the State may find it difficult to adequately purposes of PAR reporting, a State may
SCHIP claims are processed through an review cases without sufficient time, request a new error rate calculation from
insurance company, the review especially if the review contractor is the statistical contractor based on
contractor most likely will conduct the behind in its review process. resolution of outstanding differences
reviews on-site at the insurance Response: We plan to release when the expected impact of the change
company. guidance to States on the difference in the error rate is at least 0.25
resolution process through our review percentage points. The state can use this
d. Difference Resolution contractor, which will include recalculated error rate for its own
Comment: A commenter timeframes to respond to and resolve purposes (for example, corrective
recommended that the review contractor differences. action, analysis, budgetary and resource
be required to provide the State with all Comment: A commenter stated that planning).
documentation it received for each the difference resolution process is cited Comment: A commenter noted that
claim rather than partial documentation. as a means to resolve disputes between formal procedures for resolving
This will allow the State to adequately States and the review contractor. differences have not been published.
evaluate the review contractor’s However, according to the commenter, The commenter observed that States
decision. it is unclear whether all differences can should be given the opportunity to
Response: We believe the be addressed in this process. The review and comment on the procedures
determination of the level of commenter also stated that the before implementation to ensure that
information needed should be made on difference resolution process does not concerns raised by States in previous
a case-by-case basis. The RC or the DDC, outline a process that addresses what public comments are addressed.
or both, will provide the State with happens if there are still unresolved Response: We will release formal
sufficient information on which it can differences between States and the guidance for resolving differences in the
decide if it disagrees with the error review contractor in the final report. difference resolution process through
finding. We believe that it is inefficient Response: All differences in the the review contractor. We will take the
for the RC to provide the State with all review contractor’s error findings other concerns expressed by the States into
documentation on every claim and, than errors due to no documentation are consideration as we implement the
therefore, we are not adopting this addressed in the difference resolution difference resolution process.
recommendation. process. We also stated that errors due Comment: A commenter stated that an
Comment: Several commenters noted to insufficient documentation will be error of less than $100 on a claim
that the difference resolution process excluded from consideration because should not be considered an error, since
needs more specific information to be the difference resolution process is not these findings cannot be considered in
adequately evaluated. They said that it intended to provide an extended the difference resolution process.
could be rendered ineffective if it timeframe for submitting additional Response: The $100 threshold applies
excluded review differences under an documentation. However, we believe only to appeals to CMS. Error findings
arbitrary amount (for example, $100) there are instances when States should with a dollar value of less than $100
and did not include all the information be allowed to dispute errors attributed could be considered in the difference
received by the review contractor. One to insufficient documentation. resolution process.
commenter recommended eliminating Therefore, at a minimum, States will be
the $100 dollar threshold in the dispute able to dispute ‘‘insufficient 6. Payment Error Rate and Reporting
resolution process. documentation’’ errors when the State Comment: A commenter noted that
Response: We have restricted when contends that: (1) There was OMB guidance M–03–13 stated that
States can appeal an error finding in documentation in the case record at the OMB defines ‘‘significant erroneous
order to prevent de minimis disputes time of the medical review which was payments’’ as ‘‘annual erroneous
and to ensure that appeals to CMS overlooked or misinterpreted by the payments in the program exceeding
both 2.5 percent of program payments reviews of adjudicated FFS and positions and deplete field offices of
and $10 million.’’ The commenter asked managed care claims. In that same eligibility determination resources and
whether erroneous payments in PERM interim final rule, we also noted that we thereby impact error rates in all
that fail to meet either threshold at the would convene a workgroup that would programs (that is, Medicaid, Food
State level would not be reported and consider the best approach to measure Stamps, and Temporary Assistance for
not be repayable to the Federal improper payments based on eligibility Needy Families) and place States at high
government. errors within the confines of current law risk of future Federal Food and
Response: The above noted definition and with minimal budgetary impact. In Nutrition Service sanctions.
of ‘‘significant erroneous payments’’ addition, we pointed out that States Response: The rule does not require
was provided by OMB to help agencies could be required to conduct at least experienced case workers to conduct the
identify programs that are susceptible to part of the eligibility reviews, and that reviews. Furthermore, the annual active
significant erroneous or improper any additional requirements placed on case sample size in a State’s initial year
payments for purposes of measurement States would be detailed in a under PERM is 504 cases per program.
under the IPIA (in this case the subsequent issuance. Therefore, the This annual sample size results in a
Medicaid and SCHIP programs). The requirements in the August 28, 2006 State reviewing 42 cases per month per
criteria set forth in the definition of interim final rule obligating States to program. The annual sample size could
‘‘significant erroneous payments’’ is not conduct the eligibility reviews is be reduced in subsequent years based
relevant to computation of the error rate consistent with the stated intent in the on the State’s most recently calculated
or recoveries. They are only applicable October 5, 2005 interim final rule and eligibility error rate under PERM.
to the Federal agencies. with the August 27, 2004 proposed rule Therefore, we do not believe States will
Comment: A commenter asked CMS that required States to conduct the need to commit significant resources to
to define the term ‘‘agency’’ as that term eligibility reviews. Both of those rules the reviews, particularly to the extent
is used in § 431.974(a)(2) of the August alerted States that they would likely that other programs would be negatively
28, 2006 interim final rule. The have to conduct at least part of the impacted.
commenter indicated that some States eligibility reviews. As a result, we Comment: Some commenters believe
have divisions and departments rather disagree that there has been a policy that the time and expense to conduct
than agencies. reversal on this matter. the eligibility reviews for approximately
Response: The term ‘‘agency’’ is Comment: Several commenters stated 1,000 cases (500 per program) is
defined in § 431.958 of the August 28, that the eligibility review requirement underestimated. Commenters stated
2006 interim final rule. Under that placed a significant staffing and that, even at the underestimated 108,800
provision, the term is defined as financial burden on States. The hours for collection activities and
follows: ‘‘Agency means, for purposes of commenters believed that since they did 19,960 hours to complete the Medicaid
the PERM eligibility reviews and this not have the funding available for and SCHIP reviews, this burden will
regulation, the agency that performs the additional personnel, they would have have a substantial impact on States,
Medicaid and SCHIP eligibility to shift staff away from other programs especially smaller States.
determinations under PERM and to comply with this requirement. Response: We believe the amounts
excludes the State agency as also Response: Based on our plan to rotate which we provided in the August 28,
defined in the regulation.’’ Under this States for the PERM measurement, 2006 interim final rule accurately
definition, the term ‘‘agency’’ could States can plan for the eligibility estimated the impact on States.
mean a State’s division or department as reviews. Each State also has the option However, these amounts are estimates
well. We use the word ‘‘agency’’ as a of contracting out the eligibility reviews and we agree that States may experience
general term recognizing that States to an entity that is not directly higher or lower costs during actual
have various words. Therefore, States participating in the State’s eligibility implementation. It should be noted that
should apply the term ‘‘agency’’ and enrollment processes for either States are reimbursed at the Federal
appropriately to mean division or program, which may lessen State Administrative Match Rate for these
department. burden. In addition, it should be noted activities. We are considering ways to
that, depending on a State’s most recent reduce costs through minimizing
C. Expanded FY 2007 Error Rate error rate established under PERM, the duplication of effort in the PERM and
Measurement sample size for subsequent eligibility MEQC reviews or through other means.
1. Eligibility reviews needed to produce a reliable Comment: Based on its experience
error rate could be reduced in future with MEQC and the PERM pilot, a
a. Cost and Burden years, thus further reducing cost and commenter stated that the estimates of
Comment: A commenter stated that burden. We are also considering other the August 28, 2006 interim final rule
the August 28, 2006 interim final rule is means to minimize cost and burden are understated; according to the
a complete reversal of the policy that related to the eligibility reviews. To that commenter, the estimates do not take
was established in the October 5, 2005 extent, we are providing in this final the expanded scope of PERM into
interim final rule, in that the cost and rule a provision to eliminate duplication consideration.
burden of the PERM eligibility reviews of the negative case action reviews Response: We considered estimates
is placed back on the States instead of under both the PERM and Medicaid for the FFS, managed care and eligibility
having the reviews administered by a Eligibility Quality Control (MEQC) measurements for both Medicaid and
national contractor. programs. We will provide in this final SCHIP in the August 28, 2006 interim
Response: The October 5, 2005 rule that, in a year a State conducts the final rule as well as in this final rule.
interim final rule stated that, based on negative case action reviews under Insofar as this can be deemed to be an
comments and recommendations on the PERM, these PERM reviews will be expansion of PERM, we did take that
August 27, 2004 proposed rule, we considered to meet the negative case into account. However, we would not
adopted the recommendation to use a action requirements under MEQC. necessarily agree with the commenter
CMS Federal contractor to estimate Comment: A commenter believed that that the interim final rule represents an
medical and data processing error rates the rule would require experienced expanded scope. Indeed, our decision to
for Medicaid and SCHIP based on caseworkers to move into reviewer use national contractors for much of the
PERM measurement represents a Response: We notified States of their using these sources in cases where
narrowing of our scope. We believe that selection in the rotation through a State documentation is missing from the case
our estimates are accurate. Health Official letter released to all record or is outdated and likely to
Comment: A commenter stated that States on November 18, 2005. Therefore, change regardless of whether a State
CMS should further revise eligibility we believe that States are able to uses these sources to verify eligibility
cost and burden estimates to reflect the adequately plan for the PERM for the Medicaid and SCHIP program.
need to hire and train staff, travel measurement process and are not However, since these documents (birth
allotments, and the complexity of adopting this recommendation. certificate, driver’s license, etc.) are
certain reviews that will require Comment: A commenter believed that commonly used as evidence of
additional time to complete. there will be an increased cost to and eligibility, we would expect a State
Response: We included an additional burden on States if they choose to hire would already be using these sources.
2,135 hours in our estimates for a consultant to perform eligibility Comment: A commenter stated that
supporting functions like training, reviews (for example, States would have staff time devoted to developing a
supervision, quality assurance and to coordinate efforts to provide corrective action plan and reporting
creation of review tools, etc. The total documentation to the consultant and error rates must be considered in the
10,055 hour estimate represents the manage the consultant). review costs.
burden to complete review findings to Response: Contracting out the Response: We have considered these
show the disposition of each case and eligibility reviews to an outside vendor factors in our estimates. In the August
includes all of the review supporting is an optional decision for States. If a 28, 2006 interim final rule, we estimated
functions. State believes this option would have a the cost and burden on States to be up
Comment: A commenter believed that detrimental effect, it is not required to to 1,000 hours per State per program to
the burden estimates that CMS provided select it. develop a corrective action plan and
in the August 28, 2006 interim final rule Comment: A commenter stated that
9,980 hours per State per program to
do not adequately reflect the burden States should be allowed to conduct
conduct the eligibility reviews and
that States must assume in the PERM reviews in accordance with their
report error rates.
review process. The commenter stated eligibility policies, to reduce time and
that CMS should consider that, although expense. According to the commenter Comment: A commenter stated that
the PERM cycle is 23 months, different and to further illustrate this point, the PERM places a disproportionate and
staff will be required to complete commenter indicates that States should excessive burden on SCHIP by applying
different phases of each process. The not be required to document verification the same requirements to both Medicaid
commenter noted that the same staff of income and age if the State’s and SCHIP. The commenter stated that
will not be used for the FFS component, eligibility policy accepts self- SCHIP is a significantly smaller program
managed care component, and declaration. covering far fewer individuals than
eligibility component. Response: The PERM eligibility Medicaid and with a fraction of the
Response: We estimated cost and reviews provide for a State to verify expenditures of Medicaid. However, the
burden for each function of the PERM eligibility according to the State’s smallest SCHIP programs will be
program as outlined in the interim final policies to determine if the case meets required to sample the same number of
rule. We refer to section V., Collection the eligibility criteria set by the State. cases at an estimated cost of $532,000
of Information Requirements of the These instructions were developed to per program, which represents a
August 28, 2006 interim final rule (71 allow States to use their own policies to significant amount of money for many
FR 51077). We considered the cost of the maximum extent possible while SCHIP programs.
the staff in each individual function. We ensuring a consistent methodology Response: From a sampling
do not believe that additional costs nationwide. We released instructions for perspective, there is generally no
necessarily will result from different conducting eligibility reviews through difference between a small and large
staff working on different functions. We an October 10, 2006 State Health population. Specifically, a property of
believe this will vary from state to state. Official letter. These instructions sampling is that, once the population
We continue to believe our estimates are provide for the acceptance of self- size exceeds about 10,000, the
correct. declaration under certain population can be treated as if it were
Comment: A commenter suggested circumstances. These instructions are an infinite population. In other words,
that if PERM reviews cannot be used to posted on our CMS PERM Web site at statistically speaking, beyond a universe
satisfy MEQC requirements, then States http://www.cms.hhs.gov/perm/ of about 10,000, population differences
should be reimbursed in full for the downloads/2007EligibilityGuidance.pdf. do not have a significant effect on
eligibility functions. The accompanying State Health Official sample size. We have provided in our
Response: In the August 28, 2006 Letter is posted on our CMS PERM Web eligibility instructions that, based on the
interim final rule, we noted that States site at http://www.cms.hhs.gov/perm/ finite population correction factor,
selected to conduct eligibility reviews downloads/2007ParticipationLetter.pdf. States with a SCHIP or Medicaid
will be reimbursed for those activities at Comment: A commenter asked if population of 10,000 or less can use a
the applicable administrative Federal reviewers would be required to accept a smaller sample size. After a State
match under Medicaid and SCHIP. State’s standards and processes and not establishes its baseline eligibility error
Comment: A commenter maintained verify information using other sources rate, it can use that rate to determine the
that States that are preparing for or in not used by the State. sample size for the next measurement
the process of implementing a new Response: The eligibility instructions year, which could be smaller. Therefore,
Medicaid Management Information address sufficient evidence of we expect that the State would
System (MMIS) or eligibility system documentation and also refer to section experience a savings in cost and burden
should be exempt from selection until 7269 of the State Medicaid Manual for due to the smaller sample size.
the implementation of the system has listings of acceptable documentation to Comment: Several commenters
been finalized. Otherwise, the verify eligibility for PERM purposes. We expressed concern that the eligibility
commenter stated that resources will be would expect reviewers to verify reviews will significantly impact the
stretched to the maximum. eligibility under the PERM reviews SCHIP program’s 10 percent cap on
administrative expenditures. Their FY 2009 will have ample time to held in developing the eligibility review
comments include: prepare for the reviews. methodology.
• PERM costs should be separate, as Response: We convened an eligibility
it was not part of the consideration b. Eligibility Workgroup workgroup comprised of DHHS
when the cap was created. The costs Comment: A commenter stated that (including CMS and, in an advisory
will exceed the estimated costs of CMS should not implement the PERM capacity, the Office of the Inspector
$400,000 under the regulatory impact eligibility reviews for SCHIP in FY 2007 General (OIG)), OMB, and
statement. However, references to the as proposed in the August 28, 2006 representatives from New York and New
SCHIP program in the analysis and interim final rule. Instead, the Jersey, as selected by the American
response to public comments stated that commenter recommends that CMS Public Health Services Association. We
there will be no consideration of should convene a workgroup composed did not believe that their previous
exempting PERM activities from this of all stakeholders—including Federal participation in the PAM/PERM pilots
cap. officials, State SCHIP directors and was necessary since the purpose of the
• The estimated cost of $532,000 per children’s advocates—in order to workgroup was to establish a
program will have a particularly develop an alternative methodology methodology for eligibility reviews
significant impact on smaller States, tailored more appropriately to the based on a case sample. The eligibility
States which are close to reaching the 10 SCHIP program. reviews conducted in the PAM/PERM
percent cap on administrative expenses, Response: The eligibility workgroup, pilots were based on a claims sample.
and which may exhaust their SCHIP which included both a State and a We also developed the methodology
allotments in the year that they must Federal SCHIP representative, carefully based on the workgroup’s consideration
conduct PERM reviews. A number of considered the impact the eligibility of public comments and the
States could be forced to serve fewer reviews would have on the SCHIP examination of various approaches
children and cut back on other program when it developed its review proposed in these comments.
important administrative functions, methodology. During the process, the
such as outreach, application c. Duplication of Effort
workgroup tailored its methodology to
processing, and quality improvement Comment: Many commenters noted
the SCHIP program (to the extent
because of the new PERM requirements. that the interim final rule requires States
possible) while it took steps to maintain
• States may exceed their 10 percent to conduct two eligibility reviews—once
the consistency and integrity of the
administrative cap and violate Social for the MEQC program and once for the
review measurement. As a result, we PERM program. Commenters responded
Security Act Title XXI since CMS noted,
have implemented the PERM eligibility as follows:
in the August 28, 2006 interim rule,
reviews for SCHIP in FY 2007 as • One State noted that the August 28,
‘‘We are not considering exempting the
proposed in the August 28, 2006 interim 2006 interim final rule prohibiting
costs of PERM-related activities from the
10 percent cap on SCHIP administrative final rule. We also felt it was important PERM reviews from being substituted
expenditures.’’ to maintain consistency between for MEQC reviews conflicts with the
Response: Although we respect the Medicaid and SCHIP reviews to the information collection request and
commenters’ concerns that the extent possible to reduce burden on supporting statement that indicated this
eligibility reviews will significantly States whose SCHIP programs are substitution would be possible. States
impact the SCHIP program’s 10 percent Medicaid-expansion. need a final decision in order to plan for
cap on administrative expenditures, as Comment: A commenter asked why adequate staffing.
we stated in the August 28, 2006 interim no SCHIP representatives were invited • Another commenter wanted to
final rule, we view PERM as part of the to participate on the eligibility know whether the PERM review could
cost of administering the SCHIP workgroup to comment on the eligibility substitute as a MEQC pilot program. A
program. sample size. number of commenters urged us to
Comment: Several commenters stated Response: We had one State and one reconsider allowing the option of
that they must obtain additional funds Federal SCHIP representative on the substituting PERM eligibility reviews for
for additional budgetary issues (that is, workgroup. The sample size was MEQC eligibility reviews since the
hire and train staff, purchase materials, determined by statistical measures that requirements for States to conduct both
and modify and develop systems) assumed a 5 percent error rate, since MEQC and PERM eligibility reviews is
through their biennial legislature. there are no reliable Medicaid eligibility duplicative, administratively
However, without specific guidance and error rates for the majority of States and burdensome, and, a poor use of
particulars on PERM eligibility reviews, no SCHIP eligibility error rates exist on resources. If States use PERM reviews to
the requests for additional funds cannot which we could use as a basis to substitute for MEQC reviews, the
be developed. CMS should finalize the determine sample size. We have commenters asked whether the PERM
PERM regulations and give States time provided for a modest population review would preclude imposition of
to develop internal procedures and correction, which could potentially financial penalties that would otherwise
structure or consider deferring reduce the sample size necessary for apply to the standard MEQC program.
implementation or stagger the States with small Medicaid or SCHIP Response: The notice of information
measurement of the programs. populations. collection requirements, published in
Response: Our guidance for the Comment: A commenter indicated the Federal Register for public comment
eligibility measurement was released on that there were many States that on July 22, 2005 (70 FR 42324), was in
October 10, 2006 and is posted on our participated in the PAM and PERM pilot draft form for comment. We republished
CMS PERM Web site. We agree that the projects. The commenter asked how the the final notice in the Federal Register
States selected for the FY 2007 two States that participated in the on September 1, 2006 (71 FR 52079). We
measurement needed additional time to eligibility workgroup were selected, and have determined that the PERM
prepare for the reviews, and we whether these States participated in the program is not intended to supplant
provided these States with a 3-month pilot projects. In addition, the other programs, such as the MEQC
implementation period. We believe the commenter asked CMS to provide a program. However, in an attempt to
States being measured in FY 2008 and schedule and meeting minutes that were reduce duplication of effort, we have
decided that the negative cases reviews the PERM reviews were developed in as of the State’s last action difficult and
under PERM can be used to fulfill the response to the IPIA and were never expensive. The data are collected evenly
negative case review requirements intended to mirror MEQC reviews. over the entire year, rather than being
under MEQC at § 431.812 for the fiscal Therefore, we do not believe the concentrated in one or two months, to
year a State is being measured under regulations conflict. reduce the potential for biasing the
PERM. We will amend the MEQC Comment: A commenter stated that eligibility error rate if there is
regulations accordingly. Finally, any consideration has not been given to seasonality in the errors.
recoveries due to Medicaid eligibility waive PERM review requirements for Comment: A commenter pointed out
errors that fall within the scope of the States that have efforts underway to that CMS has stated that it is
MEQC program would be recouped measure improper payments. ‘‘considering’’ methods to minimize
through the MEQC program at section Response: PERM enables us to comply duplication of efforts in eligibility
1903(u) of the Act and would be subject with the reporting requirements under reviews. However, States speculate this
to the 3 percent disallowance. SCHIP IPIA. It is not intended to replace will not be addressed.
improper payments identified through existing efforts by States independently Response: We have identified one
the PERM eligibility reviews are subject to measure improper payments. area in which we can reduce
to recovery under section 2105(e) of the Comment: Several commenters duplication of effort. In this final rule,
Social Security Act. recommended that regulatory changes we will amend the MEQC regulations at
Comment: A commenter asked if be made to allow PERM reviews to § 431.812 to provide that a State can use
States are allowed to substitute PERM substitute for MEQC reviews in years the PERM negative case action reviews
reviews for MEQC reviews, whether when States are selected for the PERM to meet the MEQC requirements for
MEQC staff could conduct SCHIP program and revert back to MEQC negative case action reviews in the
eligibility reviews in lieu of MEQC reviews in non-PERM years. The Fiscal Year a State is being measured
reviews, or whether States with SCHIP commenters stated that CMS has the under PERM.
programs that are not Medicaid authority to change the PERM
methodology. d. SCHIP Concerns
expansion programs would be required
to hire separate staff for the SCHIP Response: We have previously stated Comment: A commenter stated that
reviews. that the PERM eligibility reviews were SCHIP programs are charged with
Response: As noted above, States developed to comply with the IPIA and examining the quality of services
cannot substitute PERM reviews for the are not intended to substitute for other rendered through their programs and
MEQC active case reviews. Furthermore, program initiatives. Therefore, we are clearly demonstrating their ability to
we wish to clarify that under PERM, not adopting this recommendation. provide preventive services to the child
SCHIP eligibility reviews include all Comment: Instead of conducting population. The commenter indicated
cases where benefits are paid by title simultaneous reviews for PERM and that the majority of SCHIP programs
XXI funds, which would include MEQC, one commenter made the report this information in their annual
Medicaid expansion cases. We are not following recommendations: (1) Waive reports to CMS. The commenter asked
requiring SCHIP programs to hire the MEQC requirements for the PERM whether ‘‘the model and leading edge’’
separate staff to conduct eligibility year; (2) during PERM measurement for which SCHIP has become known
reviews under PERM; certain years, allow States to use the PERM will be curtailed or stopped as a result
commenters have made this decision on quarterly samples for eligibility reviews; the PERM regulations. The commenter
their own. As previously stated, each and (3) eliminate the stratification for stated that, in 2007, it could spend 15.9
State must determine and ensure that eligibility and reduce the number of percent of its entire administrative
the agency and personnel that develop, months data are collected to manage the budget on PERM-related activities. The
direct, implement, and evaluate the aggregate sample size at the State level. commenter asked what would be lost if
PERM eligibility reviews and associated Response: As indicated earlier, we these activities forced States to exceed
activities are functionally and cannot waive MEQC since the program their financial cap on administrative
physically separate from the State is a statutory mandate. In addition, the federal funds.
agencies and personnel that are PERM quarterly FFS and managed care Response: The PERM activities are not
responsible for Medicaid and SCHIP samples, which during the PAM/PERM intended to curtail or impede other
policy and operations. pilots were the basis for the eligibility activities for SCHIP. Since States know
Comment: A commenter asserted that reviews, are claims-based. We when they will be selected to participate
the regulations conflict on whether determined through the PAM/PERM in PERM, we expect that States would
MEQC reviews can be substituted for pilots that a claims-based sample was be able to budget for the reviews in a
PERM reviews. The commenter noted not conducive to eligibility reviews manner that would not impede these
that CMS presently mandates MEQC because the time lag between when the other activities.
reviews. According to the commenter, claim is paid and when the service was
States would experience a duplication received (when eligibility is verified) e. Administration of Eligibility Reviews
of effort since these reviews would not could be up to two years. This time lag Comment: A commenter asked
be eliminated or replaced through the not only would make verifying whether a SCHIP stand-alone State
proposed regulation. The commenter eligibility expensive and difficult but office would be excluded from
stated that there are distinct and notable also would not produce current performing eligibility reviews, even
differences between the PERM and information on which to base corrective though it does not determine eligibility
MEQC reviews. actions. Finally, stratifying active cases but does develop policies and
Response: We cannot waive the ensures that the number of recently procedures.
MEQC statutory requirements and have determined cases (applications and Response: We believe that an office
determined that the PERM eligibility redeterminations) will be large. If the that develops program policies and
reviews will not be used to meet the active cases were drawn randomly procedures and also conducts the PERM
MEQC requirements. We agree there are without stratification, most of the eligibility reviews most likely would not
distinct and notable differences between determinations would be months old, provide independence to the reviews
the PERM and MEQC reviews. However, which would make verifying eligibility and should be excluded. However, we
also believe that the States should have having these staff commingled or having concurrence. In addition, section 7218
the flexibility to determine which one supervisor immediately responsible of the Manual further discusses the
agency performs the reviews based on for both functions provides this independence of the MEQC review. The
our clarification of the requirement for assurance. Therefore, we are not similar requirement for the PERM
a separate and independent agency (as adopting this recommendation. eligibility reviews was adopted from a
provided on the CMS PERM Web site in However, we are clarifying in this recommendation made through public
the Q & A Section at http:// response that this requirement does not comment on the October 5, 2005 interim
www.cms.hhs.gov/PERM/Downloads/ preclude the State from placing the final rule because we believe it helps to
PERMQ&A072507.pdf). agency responsible for the PERM ensure the integrity of the reviews.
Comment: Several commenters asked eligibility reviews within the same Therefore, we believe the PERM
whether a State could contract with an single State agency or umbrella agency requirement is appropriate and, for
appropriate vendor to conduct as the State agency responsible for those comparing the programs, is
eligibility reviews or whether only program eligibility policies and consistent with the requirement for the
another State agency could conduct the determinations, provided that both independence of the MEQC reviews as
reviews. agencies do not report to the same expressly stated in the State Medicaid
Response: Yes, the State can contract immediate supervisor—for example, Manual.
with a vendor, as long as the contracting first-line manager, Unit, Branch or Comment: A commenter stated that it
entity did not participate in the State’s Division Director. Our standard is that contacted CMS on whether its structure
eligibility determinations and the agency responsible for the PERM would meet the regulatory requirement
enrollment activities and does not eligibility measurement report to upper to have the agency conducting the
report to and is not overseen by the management that does not have direct PERM eligibility reviews be functionally
State agency responsible for eligibility, responsibility for program policies, and physically separate from the State
policies and operations. operations and eligibility agency responsible for Medicaid and
Comment: Several commenters did determinations. We also strongly SCHIP eligibility policy, operations, and
not support the requirement that PERM recommend that this agency also have a determinations. This commenter
eligibility reviews must be functionally direct reporting line to the head of the explained that its Program Integrity
and physically separate and single State agency or other top division, which conducts QC reviews, is
independent from the State agency management—that is, the State within the Medicaid Agency and is
responsible for Medicaid and SCHIP Medicaid Director, State SCHIP separate and independent of its
policy and operations, including Director, and Commissioner or Eligibility Division that is responsible
eligibility determinations. They equivalent thereof. States should for setting policy and determining
recommended that we remove the arrange the placement of the PERM eligibility. The commenter requested a
‘‘separate and independent’’ eligibility measurement to achieve this clear and definitive answer of whether
requirement. One commenter believed it standard to the extent possible. or not its Program Integrity Unit can
was administratively cumbersome and Comment: Several commenters conduct the eligibility review.
unnecessary to place the PERM reviews believed that State employees who were Response: Section 431.974 in the
outside of its Department of Health and not physically and functionally separate August 28, 2006 interim final rule
Human Services particularly because from the State agency responsible for outlines the basic elements of Medicaid
shifting responsibility to conduct eligibility policy and operations were and SCHIP eligibility reviews, including
eligibility reviews to agencies that do currently performing MEQC activities. the parameters for determining which
not have expertise in Medicaid and The commenters stated that there was agency can perform the reviews. We
SCHIP will result in incorrect findings no evidence to support that the current provided further interpretation of these
and misapplication of Federal policy. organizational structure presented a provisions in eligibility instructions
According to the commenters, the conflict of interest for MEQC. In through an October 10, 2006 State
‘‘separate and independent’’ addition, they maintained that there was Health Official Letter and the CMS
requirement could also limit State no indication that the program integrity PERM Web site at http://
flexibility and unnecessarily increase process could be compromised by the www.cms.hhs.gov/PERM.
the complexity and cost of PERM location of employees conducting the We are also clarifying this specific
administration. The commenters also reviews. The commenters believed that requirement in this final rule. As a
believed that States would have placing restrictions on State resources result, we believe that States should
difficulty securing contracts without used to comply with PERM eligibility have sufficient guidance on which to
sufficient time. requirements would increase the determine which agency within the
Response: We agree that the States complexity and cost of administration. State’s organization should
selected for the FY 2007 measurement Response: It is important to note that appropriately conduct the reviews. We
might not have adequate time to secure the MEQC program and the PERM are not approving each State’s
contracts, and we apologize for the short eligibility measurement are separate and determination, as the commenter urges
notice of this option. However, all States distinct requirements and should not be us to do in this case, that the agency
have adequate time to secure contracts compared. However, regarding the assigned to perform the reviews or that
for future years if they wish to elect this placement of MEQC staff, the State the State’s organizational structure
option. Medicaid Manual, Part 7, section 7005 meets the regulatory requirement in
The intent of the requirement to have provides guidance on administering the § 431.974(2) of the August 28, 2006
the agency responsible for the PERM MEQC program and specifically states interim final rule. That determination is
eligibility reviews be physically and that MEQC staff should report to top reserved for each State to make. In this
functionally separate from the State management, and that the State should particular situation presented by the
agency responsible for program policies, ‘‘separate staff physically and commenter, although we do not know
operations, and eligibility functionally from operating units and the State’s organizational structure,
determinations is to ensure a level of policy units.’’ The Manual states that based on the description we believe
independence and integrity in the any other organizational structure that, as long as the Program Integrity
review process. We do not believe that requires CMS regional office Unit does not report to the same
immediate supervisor as the Eligibility from the State agency responsible for reviewers on an interim basis between
Division, and reports to upper Medicaid and SCHIP policy operations PERM selection years to enhance
management and, preferably, has direct poses a considerable hardship on the Medicaid or SCHIP program integrity
reporting to the State Medicaid or State and requires creating a completely activities, which suggests that CMS
SCHIP Director or other top new entity or organizational structure would want States to use these
management, the placement of the within the State. CMS should allow employees to staff ongoing operations in
PERM eligibility reviews within the States to use the agency that is most the agency.
Program Integrity Unit appears familiar with eligibility requirements to Response: We responded to a similar
reasonable. conduct the PERM eligibility reviews. comment in the August 28, 2006 interim
Comment: Two commenters stated Response: We are not requiring States final rule in which we stated that, with
that the regulation needs further to create a new entity or organizational respect to eligibility reviews, staff for
clarification so that States can structure. Rather, we expect States to PERM would be needed longer than one
determine which unit or agency can place the PERM eligibility reviews year because the process to measure one
perform the PERM reviews. within the States’ organizational fiscal year takes approximately 23
Response: To assist States to structures in a manner that provides months. In the time period before a
determine which agency can perform integrity and independence to the State’s next PERM measurement
the PERM eligibility reviews, States reviews and in accordance with our activities (approximately 13 months),
should determine: clarifications provided above. we suggested, in response to the oral
• Whether the PERM review Comment: A commenter stated that comment, that a State could use the staff
(eligibility and payment) staff would be the functional and physical separation for other quality assurance initiatives,
physically separate from the program requirement contradicts CMS’ assertion such as enhancing its MEQC and SCHIP
eligibility review staff, for example, that having the State conduct the program integrity activities. We were
located on a separate floor in a building eligibility review will reduce or not suggesting that PERM employees
or located in a separate building and not eliminate the demand that would staff ongoing agency operations. This
commingled in any way. otherwise be placed on State staff to response, as well as the oral response at
• Whether the eligibility review educate a contractor about eligibility the conference, was intended to clarify
agency would be functionally separate issues. The current staff will have to that staffing is not necessarily needed
and independent from the agency take time to provide technical assistance for only 1 year, there are other areas
responsible for eligibility to the PERM audit staff that the State where staff could be used when not
determinations, policy and operations. would need to establish under this needed for PERM activities. However,
The PERM unit should not report to the requirement, thus increasing the cost of we do not necessarily expect States to
same agency head, first line supervisor, conducting these reviews. hire staff devoted to PERM. We have
Division Director or other immediate Response: Providing technical provided States the option to contract
supervisor. There should be at least one assistance to State staff rather than the these reviews out to an entity not
level of supervision between the Federal contractor would not actively involved with the State’s
agencies and upper management. For necessarily increase the cost of eligibility and enrollment activities.
example, each agency would report to conducting the reviews. State policies Comment: A commenter asked if CMS
its own immediate supervisor; both by which reviews are conducted are will allow MEQC staff to perform the
supervisors would then report to upper already in-house. In addition, States can PERM review to satisfy the requirement
management. We recommend that the determine the appropriate agency to for the MEQC program.
PERM agency also have a direct conduct the reviews or contract out this Response: No. States that would use
reporting line to top management, for function, either of which may not the MEQC staff to perform the PERM
example, State Medicaid Director or require extensive technical assistance. review would necessarily need to
Deputy Commissioner. Comment: A commenter asked reduce MEQC activities or scope of
Comment: A commenter was whether it is CMS’ intent that States reviews to divert MEQC staff to conduct
concerned with the agency conducting hire staff dedicated solely to PERM. the PERM reviews.
the PERM reviews being a part of the Response: No States should decide Comment: A commenter
same Medicaid office or division, not which staff are appropriate to recommended allowing States the
the same State agency. implement the eligibility methodology option to use MEQC staff to perform
Response: We have clarified in this under PERM within the parameters PERM eligibility reviews.
final rule that the agency conducting the required by this regulation. Response: We are not adopting this
PERM reviews can be housed within the Comment: A commenter asked if recommendation because we do not
same State agency containing the States choose to hire staff for the PERM agree that the current level of effort
program office or division. However, project in years they are measured, what committed to the MEQC program should
this agency should not be housed in the functions would this staff have during be reduced to accommodate the PERM
same office or division as the State the off years when the State is not being eligibility reviews.
agency responsible for eligibility to the measured. Comment: A commenter asserted that
extent that both agencies are Response: It is not our intent to this provision would require States to
commingled and report to the same require States to hire staff dedicated contract out the eligibility reviews,
immediate supervisor, for example, a solely to PERM. However, States have because no other State agency would
first-line manager or Division Director, the discretion to hire such staff if they have the expertise to perform the
because we do not believe this wish to do so. reviews. Contracting out eligibility
placement would support the Comment: A commenter stated that reviews would result in duplication of
independence of the reviews and the the requirement seems to contradict a organization and add significantly more
findings. response to a comment made at a costs.

Comment: A commenter noted that conference regarding the difficulty of Response: We have given States the
the requirement that the agency staffing for PERM when staff is only discretion to organize their eligibility
conducting the PERM eligibility reviews needed every three years. The CMS oral review staff as they see fit within
be functionally and physically separate response suggested using eligibility specific parameters. Our clarification of
this provision provides States flexibility procedures, PERM reviewers should not Response: In the October 5, 2005
to place the PERM reviews in the be required to independently verify interim final rule, we announced the
appropriate agency as well as information upon which the State’s States selected for Medicaid FFS,
contracting with an external determination was made. Otherwise, the managed care, and eligibility reviews in
organization. estimated errors will be overstated, FY 2006, FY 2007 and FY 2008, so that
Comment: Several commenters asked which may compel States to implement the States would know in advance in
if it was CMS’ intent for the State more restrictive procedural which year they will be measured under
agency to contract with an outside requirements and thereby resurrect PERM. We also stated in that rule we
vendor to conduct the PERM eligibility barriers to the enrollment of eligible expected the determination of the
reviews. If so, then the eligibility individuals. eligibility error rate would require State
component of PERM should be delayed Response: We announced in the participation, and that we planned to
to allow time for the States to develop October 5, 2005 interim final rule our have the eligibility reviews commence
and implement contractual intentions to establish an eligibility in FY 2007. Finally, we notified all
arrangements. workgroup to make recommendations States in an August 30, 2006 State
Response: It was not our intent to on the best approach for reviewing Health Official Letter that States will
require a State agency to contract with Medicaid and SCHIP eligibility within conduct the eligibility reviews, and we
an outside vendor to conduct the PERM the confines of current statute, with met with States at two conferences held
eligibilities reviews. However, this minimal impact on both States and on in September 2006 to provide additional
approach is an option a State may wish additional discretionary funding. We information. Therefore, we believe
to pursue. convened an eligibility workgroup, States had preliminary information to
which included representatives from help prepare for conducting the
f. Review Methodology
two States, and we considered public required eligibility reviews, which were
Comment: A commenter stated that comments. In the August 28, 2006 followed up with detailed written
the interim final rule provided little interim final rule, we published our eligibility review instructions released
specific guidance as to the processes eligibility review methodology and on October 10, 2006. Finally, the FY
and methodologies that should be invited further public comment. In 2007 States, which had less advance
employed for conducting the eligibility addition, as noted, we have made our notice than the remaining States, are
reviews, thereby making it difficult to eligibility review instructions available already working successfully with our
develop a sampling plan and determine to all States, not just to States that were contractors in developing their sampling
complete staffing and financial needs to selected for FY 2007 reviews, on our plans. Therefore, we are not adopting
conduct the reviews. CMS PERM Web site at http:// the recommendation to delay
Response: We released detailed www.cms.hhs.gov/PERM. implementing the eligibility reviews.
eligibility review instructions to the Finally, we do not agree with the Comment: A commenter suggested
States being measured in FY 2007 commenter’s statement that, if a State’s that CMS clarify that PERM reviews will
through an October 10, 2006 State verification and other procedural not immediately encompass State
Health Official Letter. These requirements comply with Federal law compliance with significant changes in
instructions are posted on our CMS and the eligibility caseworker complied Federal rules or policies until States
PERM Web site at http:// with State procedures, PERM reviewers have had a reasonable opportunity to
www.cms.hhs.gov/perm/downloads/ should not be required independently to implement the new rules.
2007EligibilityGuidance.pdf. The State verify information upon which the Response: The PERM reviews will
Health Official Letter is posted on our State’s determination was made. The follow State policies and procedures so
CMS PERM Web site at http:// purpose of the eligibility review is to long as they comply with Federal
www.cms.hhs.gov/perm/downloads/ verify that the individual is actually requirements, using the effective dates
2007ParticipationLetter.pdf. States may eligible for the program, not to verify of the Federal requirements and CMS
access these Web sites to obtain this that the State’s policies comply with policies regarding State implementation.
information. Federal law or to determine that the The PERM reviews are not intended to
Comment: Several commenters stated caseworker conducted the review hold States harmless in matters of non-
that the regulations do not contain any appropriately. Therefore, in some compliance. Therefore, we are not
specifics on conducting the eligibility instances, the PERM review may adopting this recommendation.
reviews. Their comments include: necessarily go beyond the State’s Comment: A commenter
• CMS is preparing more detailed procedures and caseworker’s actions to recommended that the FY 2007 PERM
instruction about PERM without public verify eligibility. reviews should not encompass the
comment or input. CMS should make Comment: Some commenters Medicaid citizenship documentation
the policy for eligibility reviews recommended postponing the requirements, which went into effect
available to all States, not just States commencement of the eligibility review July 1, 2006 under the Deficit Reduction
selected for the FY 2007 reviews, as component. The comments included: Act of 2005. The commenter believed
soon as it is available to allow sufficient • States cannot develop sampling that since CMS policy in implementing
time to set up procedures and train staff plans that meet CMS expectations due the new documentation requirements
accordingly. to the uncertainty of expectations. has not been completely settled in a
• CMS should clarify in its • States must follow budgetary final rule, the uncertain nature of the
instructions that PERM reviewers are processes to get necessary State agency new rules will make it difficult for
not required to consult information or contract staff and may not have States to be in full compliance in FY
sources other than those that the State adequate time to arrange funding. 2007.
itself had to consult in making the • States need additional guidance as Response: The PERM review of
underlying determination. Therefore, if to the sampling processes and citizenship for Medicaid will follow
a State’s verification and other methodologies for reviewing cases, as CMS policy set out in a final regulation
procedural requirements comply with well as time to arrange the necessary with comment published on July 12,
Federal law and the eligibility infrastructure and funding needed to 2006 (71 FR 39214) and any subsequent
caseworker complied with State support the eligibility review. regulatory and policy guidance.
For purposes of the PERM reviews, if cases, adds complexity to the Comment: A commenter asked
documentation is missing from the file anticipated programming time and whether CMS could provide specific
that should have been obtained under costs. information about eligibility review
this final rule with comment, the Response: Sampling by individuals verification requirements.
reviewer would need to make a rather than by cases was a State Response: This information is
reasonable attempt to obtain evidence of recommendation, through public included in our instructions, which are
citizenship either independently or comment, that we adopted. We posted on the CMS PERM Web site at
through beneficiary contact. recognize that all State Medicaid and http://www.cms.hhs.gov/PERM.
Comment: A commenter noted that SCHIP programs are unique, and that Comment: A commenter asked
the PERM eligibility sampling and sampling by individuals would not whether States would be required to
stratification requirements will require accommodate all States. However, in review the eligibility of all beneficiaries
complex system coding and is a radical order to have a consistent approach to within a case, or would eligibility be
departure from traditional MEQC the eligibility measurement, one reviewed for one selected individual
sampling techniques. The commenter approach to sampling and review is beneficiary within a case.
recommended that CMS consider necessary. Response: States are required to
suspending MEQC reviews during the Comment: A commenter stated that review eligibility for one beneficiary. If
PERM review year. there is not a clear schedule to pull a State cannot identify individuals
Response: The PERM eligibility eligibility samples and begin reviews. without requiring major system changes,
reviews are independent of MEQC, and The commenter stated that if such work it should demonstrate in its sampling
their methodology should not be is implemented without sufficient time, plan how it will randomly select one
compared to MEQC. As stated in the then an unrealistic expectation will be person from the case sampled.
August 28, 2006 interim final rule, the put on the States. Comment: A commenter asked, since
PERM program is intended to fulfill the Response: The instructions posted on the interim regulation states that
requirements of the IPIA and is not Medicaid and SCHIP are measured
the CMS PERM Web site include a
intended to substitute for other program separately, whether CMS would
timeline that details the entire review
integrity activities in which the States recommend a way to review eligibility
process for FY 2007 (which allows these
are currently engaged. In addition, the when it is determined for both Medicaid
States a 3-month implementation period
MEQC program is a statutory and SCHIP within an integrated
due to the short notice). The timeline
requirement, so we cannot suspend it eligibility system and a request for
will be revised and posted to the CMS
during the year a State is measured health care coverage is considered an
PERM Web site prior to the beginning of
under PERM. However, as previously application for Medicaid or SCHIP.
FY 2008 to reflect sampling over a full
stated, we are considering how we can Response: A State would need to
year beginning in FY 2008. This can be
reduce duplication of efforts and have identify the Medicaid-approved cases
addressed the negative case reviews found at http://www.cms.hhs.gov/
for the Medicaid universe and the
required under both the PERM and PERM.
SCHIP-approved cases for the SCHIP
MEQC programs. Comment: A commenter stated that,
universe and review the cases
Regarding stratification of the as demonstrated in the PERM pilot,
accordingly. For the negative reviews, if
universe, we agree that some States may unexpected changes, which impact
the application is denied for one or both
face challenges in identifying cases for eligibility, do occur after eligibility has
programs, the case would be reviewed
appropriate placement in each stratum. been confirmed. Therefore, according to
under both programs, or alternatively,
However, the stratification allows for the commenter, the administrative
under the one program for which
reviews of an equal number of (a) period is applicable if States are
eligibility was denied to ensure the
Applications (that is, initial required to determine the accuracy of
denial was correct.
determinations); (b) redeterminations; eligibility determinations based on Comment: A commenter asked if CMS
and (c) all other cases; and provides actual case circumstances in the review is going to provide States with an
administrative ease in the review of month. eligibility data collection system to
cases in strata (1) and (2), since the Response: The PERM eligibility ensure uniformity in the error rate
State’s most recent action will have review verifies eligibility as of the calculation.
occurred within one to two months of State’s most recent action on the case. Response: States are responsible for
the sample month. (The most recent Therefore, changes after the State’s last the eligibility data collection, which
action for cases in stratum (3) may have action are not within the scope of the will be submitted on CMS-provided
occurred up to twelve months prior to reviews, so the administrative period forms for reporting purposes. We will
the sample month.) would not apply. provide a State with an error rate
If we did not stratify the universe in Comment: A commenter asks whether calculator to calculate the rate at the
this manner, States would incur the States or CMS’ statistical contractor State’s request.
additional cost and burden associated will determine the number of eligibility Comment: One State recommends that
with verifying eligibility for all cases in reviews required to achieve the desired a footnote be included in State reports
the sample at up to twelve months prior precision level. when a SCHIP participant is found
to the sample month. The result could Response: For FY 2007, FY 2008, and eligible for Medicaid but must be
be an increased number of cases where FY 2009, the statistical contractor has reported as ineligible for both programs.
eligibility could not be determined as determined the sample size for the Response: If a SCHIP case is found
well as a loss of information on error eligibility reviews. Future sample sizes eligible for Medicaid but ineligible for
causes that is both timely and specific will be set by the statistical contractor SCHIP, it would not be reported as
to applications and redeterminations on and will be based on the size of the ineligible for both programs. Therefore,
which a State can base corrective variance from the State’s previous error we are not adopting this
actions. rate estimate under PERM. The State recommendation.
Comment: A commenter argued that will have the opportunity to comment Comment: According to a commenter,
basing the sampling process upon and recommend an alternative sample to exclude cases denied or terminated
individual recipients, rather than on size, if appropriate. for failing to complete the application or
re-determination process eliminates level error rates that meet 3 percent an assumed 5 percent error rate and was
valuable insight into a certifying precision at a 95 percent confidence not increased to produce an equal
agency’s case processing practices and level given that the largest of States will number of cases per stratum. We have
complaint resolution process. have the same sample size requirements provided for the finite population and
Response: We agree. The decision to as the smallest State. The commenter that sample sizes may be reduced in
exclude these cases came from the recommended that States be allowed to future years based on a State’s most
eligibility workgroup. Panel members draw samples that accurately reflect recently calculated error rate. Therefore,
felt that States should be measured on their unique Medicaid and SCHIP we do not believe the requirement for
the eligibility determinations that were populations. States to annually sample and review
based on complete information and Response: The sample size chosen is 504 cases will cause an excessive
participation by the beneficiary. estimated to obtain a precision level of burden on States.
However, there could be instances 3 percentage points at the 95 percent Comment: A commenter stated that
where a case should be properly confidence level, assuming an eligibility the positive sample size among
included in the universe, for example, error rate of 5 percent (as decided upon participating States to meet PERM
the beneficiary provided requested by the eligibility workgroup). statistical requirements is understated.
information but the State failed to act on By the nature of sampling, a sample Given that the universe size influences
the information and denied or size of 504 is likely to achieve the the sample size, a State could have a
terminated eligibility. Since a State’s precision goal with a high probability. sample size much larger than 201 cases
system most likely would not be able to Once a State has an eligibility error rate per year. In addition, the commenter
make the distinction between these under the PERM program, the State can said that CMS cannot properly estimate
types of cases (or similar case situations) use that rate to estimate the sample size cost and burden to States with sample
that should be included in the universe needed to achieve the confidence and sizes higher than 501 because CMS will
and other cases, that is, where the precision levels for the subsequent not have sufficient information before
beneficiary did not provide information, measurement. Therefore, we are not the November 15, 2006 submission date
we are adopting this recommendation to adopting this recommendation. for PERM sampling plans.
eliminate the exclusion of any cases in Comment: A commenter asked CMS Response: The commenter is correct
the negative universe and in the sample to clarify and further define the that there has not yet accumulated
of redetermination cases. sampling parameters (that is, confidence sufficient information to determine how
Comment: A commenter requested interval, confidence level, and margin of sample sizes may vary across the states.
that the procedure to exclude from the error) States are expected to use for For this reason, we made assumptions,
negative case universe cases that were active and negative cases to select the informed by a working group consisting
denied or terminated based upon monthly samples. of representatives of several States, for
incomplete applications or cases where Response: The details for sample the calculation of sample sizes.
beneficiaries did not complete the parameters are discussed in our In the initial year of implementation,
redetermination process be clarified and eligibility instructions that are posted the States are asked to use the sample
that examples be provided for compiling on the CMS PERM Web site at http:// sizes specified in the instruction for FY
the negative case universe for sample www.cms.hhs.gov/PERM. In addition, 2007. These sample sizes are 504 cases
selection for eligibility reviews. our statistical contractor is available to for active cases and 204 cases for
Response: We are adopting the discuss State-specific sampling plan negative cases. If the State had a very
comment not to exclude these cases questions. small caseload, it could include a finite
from the negative case action universe. Comment: A commenter stated that population adjustment to these sample
Therefore, these cases will be included clear guidance is needed as to what sizes in its sampling plan.
in the compilation of the universe for States should do in estimating the These sample sizes should be
sample selection purposes. margin of error for the sample size. The adequate if the assumptions used are
Comment: A commenter stated that commenter asks whether CMS will accurate. Going forward, as evidence
§ 431.978(d)(1)(i) excludes cases in allow States to set their own margin of accumulates within individual States
which the Social Security error in the eligibility sampling plans. regarding the variation in eligibility
Administration, under a 1634 Response: States should not set their error rates, the sample sizes may
agreement, determines eligibility for own margin of error in the eligibility become more tailored to each State’s
Supplemental Security Income (SSI) sampling plans but rather should follow respective circumstances.
recipients. The commenter asked what the eligibility guidance on this matter. Comment: Several commenters stated
the State should use to review Comment: Two commenters stated that CMS has not addressed the validity
determinations of Medicaid eligibility that the sizes of the universe and each of the eligibility sampling approach.
for SSI recipients in 209(b) States. stratum will cause an excessive burden One commenter asked whether there
Response: Beneficiaries have to apply on States. One of the commenters stated will be weighting to balance the
separately for Medicaid in 209(b) States that CMS’ decision to increase the proportions of the three strata. The
because these States have one or more eligibility sample size to produce an commenter stated that the stratification
eligibility criteria more restrictive than equal sample size per stratum does not approach poses some methodology
SSI. Therefore, there is no link by law consider the States’ limited resources issues because the same case may be
to the receipt of SSI cash and eligibility and fiscal constraints. The other sampled more than once during the
for Medicaid. States must conduct an commenter asserts that stratification Federal Fiscal Year under review.
eligibility review of this population just will lead to a larger sample size, thus Response: There will be weighting to
like they would for any other case creating an excessive burden on the balance the proportions of the three
where cash assistance does not convey States. strata. Equal sample sizes are drawn
automatic Medicaid eligibility. Response: We have estimated the cost from each of the three strata, but the
and burden for States to sample and number of cases in the universe of each
g. Sampling review an annual sample size of 504 stratum will differ. Sampling weights
Comment: A commenter questioned cases, which are evenly placed into the must be applied to obtain the correct
CMS’ remarks about producing State three strata. The sample size is based on eligibility error rate for the complete
universe. The sampled cases and determinations, one-third burden and cost of these responsibilities
associated payments will be weighted redeterminations, and one-third ongoing will not significantly impact the States.
by the inverse of the sampling cases, a State would presumably have to
b. Accuracy of Estimates
frequencies with the three strata. This estimate the annual number of opening
will ensure that the results within the and redetermination actions; calculate Comment: A commenter stated that
stratum are appropriately weighted an interval; compile the information for the State cost estimate ($42,348 per
across the three strata to reflect the each month and draw samples. Thus, program) for furnishing claims
universe of all cases. the programming for stratified sampling information to the Federal contractors is
We are aware that the stratification will present some difficult and costly actually higher than estimated because
approach poses some methodology challenges and will impact other State it excludes costs associated with
issues. We have addressed how to program initiatives. training and technical assistance.
review cases sampled more than once in Response: To stratify cases, the State Response: We do not believe that
a year in our eligibility instructions. would identify all cases in the universe States will incur significant costs in
Comment: A commenter stated that, that are active in the sampling month. providing such assistance. As stated in
to prevent oversampling and, thereby Based on the date of the State’s last the August 28, 2006 interim final rule,
reduce costs for States being measured action and our definitions of cases for we have engaged, and will continue to
under PERM, sampling should stop each stratum, the State would stratify engage, a review contractor that has
once the desired precision and the cases into the three strata. Next, the demonstrated knowledge and
confidence level are reached. The State would count the number of cases experience with claims reviews. In this
commenter noted that the sample size of in each stratum. The State would not way, we have tried to minimize the
1,000 FFS claims is likely excessive for have to estimate the number; it would burden on States and ensure the
many States. In addition, the commenter be an actual count. Then, if systematic accuracy of the reviews.
stated that this final rule should state sampling were used to draw the sample, Comment: A commenter stated that,
whether attribute and/or variable a skip factor would be developed for because sections of the interim rule
sampling will be performed. each stratum, and, for FY 2007, 18 cases remain unclear, the proposed burden
Response: A goal of the sampling would be sampled a month from each estimates should be revisited when the
method is that all claims or line items stratum for the first 3 months and 19 issues are resolved.
have a positive probability of being cases a month for the last 6 months. The Response: We have revisited the
sampled. This means that we cannot skip factor would be equal to the estimates as part of developing this final
stop during the fiscal year when a number in the universe in that stratum rule and continue to believe our
desired level of precision is reached, divided by sample size, which in this estimates stated in the interim final rule
because claims paid later in the fiscal case would be 18. Alternatively, the are reasonable.
year may not have a chance to be State could draw 18 cases from each Comment: A commenter
sampled. That said, if we find that a stratum randomly using a random recommended that States should track
sample size of 1,000 produces precision number generator, selecting cases their own PERM costs.
levels in excess of those required, the randomly after appropriately numbering Response: States have the option to
sample sizes will be adjusted in the cases. track their own costs for PERM for
subsequent years. Sampling for FY 2007 planning resources for upcoming years.
will be based on dollar value D. State Requirements However, tracking State costs is not
stratification, a form of attribute 1. State Cost and Burden required under this rule.
sampling. Comment: Two commenters asserted
Comment: A commenter noted that a. SCHIP that the cost to the States is grossly
the August 28, 2006 interim final rule Comment: Several commenters underestimated. The commenters stated
indicated that the total estimated annual believed that PERM-related SCHIP that the final cost estimate for Medicaid
sample size for Medicaid and SCHIP activity costs should be 100 percent FFS, SCHIP FFS, and managed care
cases in the active universe is 501 cases federally-funded to alleviate the burden reviews is for information collection
per program per State. The commenter on the State costs, resources, and purposes only. The commenters
observed that formulas for both payment extensive time necessary to support the believed that State activities necessary
and case error rates were issued in that Federal initiative. to comply with CMS directives and to
rule. The commenter asked which Response: As we stated in the August communicate with the national
formula States should use to meet the 28, 2006 interim final rule, our adoption contractors are not accounted for in the
statistical criteria. The commenter of the recommendation to engage estimates. According to the commenters,
stated that the sample size used to Federal contractors to estimate the FFS cost estimates were ignored for the
obtain the desired precision will be and managed care components of following activities: corrective actions
different depending on the error rate Medicaid and SCHIP should reduce the plans, provider education, difference
used and may further be different in cost and burden that States would have resolution process, and technical
each stratum. otherwise incurred to conduct medical assistance.
Response: The sample size estimate and data processing reviews on these Response: Most of the cost estimates
for the active case error rate, which is claims. We further reduced State burden that the commenter notes were
dollar weighted, is the following. It is by rotating States on a 3-year cycle, so considered. In the August 28, 2006
taken directly from the instructions: that States will not incur an annual interim final rule, we included the
Payment Error Rate Measurement burden. In that same interim final rule, estimate for the costs of providing
Verifying Eligibility for Medicaid and we noted that States selected to conduct information for managed care,
SCHIP Benefits FY 2007, which are on eligibility reviews will be reimbursed conducting eligibility reviews, and
the CMS PERM Web site at http:// for those activities at the applicable developing a corrective action plan. (We
www.cms.hhs.gov/PERM. administrative Federal match under believe that the costs of monitoring and
Comment: A commenter stated that to Medicaid and SCHIP. Finally, in the evaluating the corrective action plan are
accomplish the stratified sample of August 28, 2006 interim final rule, we part of the States’ overall operating
active cases consisting of one-third new evaluated and determined that the procedures and, therefore, we did not
include these costs in our estimates). technical assistance—not training—on them by the PERM program, States
Estimates of this burden and these costs State policies only to the RC, who will would need to take corrective actions to
are indicated in section VI of that examine State policies and the medical reduce improper payments as a matter
interim final rule. We estimated that it records to determine if payment for a of prudently administering the SCHIP
would take each selected State up to 500 FFS claim was medically necessary and program. The findings under the PERM
hours for the FFS component, up to 500 paid correctly. States will also provide program can serve as a useful tool for all
hours for the managed care component, technical assistance to the RC on the States to reduce improper payments and
and up to 1,000 hours for the eligibility data processing reviews of FFS and particularly for States that have no
component of the corrective action plan managed care claims. corrective action process currently in
for each program. Therefore, we place. Further, a good corrective action
estimate that the total annual burden 2. Contacts with States
process entails participation by a panel
associated with this requirement for 34 Comment: A commenter proposed comprised of a variety of State positions
programs (Medicaid and SCHIP in 17 that CMS initiate monthly conference so that no one person would be
States) will be 68,000 hours (2,000 calls with States, PERM contractors and committed to the process on a full-time
hours per State per program). It should sub-contractors to address ongoing basis.
be noted that cost estimates for provider PERM concerns and questions.
education are included in the corrective Response: We are adopting this 4. Recoveries
action plans. recommendation and will establish the Comment: Several commenters noted
Cost estimates for the difference PERM Technical Advisory Group, that States are allowed only to dispute
resolution process were also estimated. which will hold conference calls with error findings with a difference of more
In the August 28, 2006 interim final States, CMS, and, as appropriate, its than $100. However, according to the
rule, we stated that the selected States contractors as a forum to address commenters, approximately 10 percent
would have the option to enter the ongoing PERM concerns and questions. of the PAM and PERM pilot errors were
difference resolution process, and that identified as more than $100. The
3. Corrective Action Plans
States wishing to do so would have to commenters believe that recovery is not
notify the Federal contractor and submit Comment: A commenter stated that cost effective since the Federal share
documentation to support its the interim regulation does not identify must be refunded within 60 days from
determination that the claim was the requirements of the corrective action the date the overpayment was
incorrectly paid. In that same interim plan. identified. The commenters recommend
final rule, we stated that the burden Response: We detailed the
that CMS consider a minimal dollar
associated with this requirement would requirements in the preamble of the
amount, and that the overpayments
be the time and effort it would take for August 28, 2006 interim final
under $100 should be exempt from
a State to gather the facts and valid regulation. See 71 FR 51071.
recovery and payback of the Federal
documentation and submit it to the Comment: A commenter asserted that
share.
Federal contractor or, upon appeal, to the States’ concerns about the costs and
resources associated with complying Response: The $100 threshold applies
CMS. We anticipate that 17 States (per only to appeals to CMS as part of the
program for a total of 34 programs) will with the requirements of corrective
action plans were ignored. The difference resolution process. In terms
request difference resolutions for each
commenter also stated that CMS’s of recoveries, the current requirements
fiscal year, and that it will take up to 5
intention for corrective action plans to are longstanding and the recovery of
hours per claim to request a difference
be carried out within the restriction of improper payments identified through
resolution and present evidence to
the ongoing program seems to conflict the PERM FFS and managed care
support the State’s disagreement with
with the States’ goal to reduce improper reviews fall under these requirements.
the Federal contractor’s determination.
Finally, as stated in the August 28, payments. The PERM program is not intended to
2006 interim final rule, we acknowledge Response: In the August 28, 2006 make revisions to the recoveries
that States must provide technical interim final rule, in response to requirements. Therefore, we are not
assistance to assist the RC in conducting concerns expressed by commenters that adopting this recommendation.
the medical and data processing reviews it would be impossible to determine the Comment: A commenter
(for example, a State may need to costs and resources that would be recommended that the billing provider
explain or clarify unusual policies or needed to comply with CMS’s corrective be used as the sampling unit so that the
procedures and provide training on its action plan requirements without billing provider would be able to return
MMIS or claims processing system). clarifying those requirements, we the potential overpayment since they
However, we believe this assistance outlined the requirements. See 71 FR initially received it, rather than the
provided to the contractor will not 51071. In addition, in § 431.992 of the provider who performed the service.
result in additional costs and estimate August 28, 2006 interim final rule, we Response: Since we are measuring
that the burden will be minimal. made a good faith estimate of the improper payments, the claim is the
Comment: A commenter stated that burden on States to comply with our sampling unit. States are responsible for
burdens related to State finances and corrective action plan requirements. See ensuring recoveries are made to CMS
staff resources are exacerbated because 71 FR 51078. and can recoup or offset the improper
each State will deal with 3 contractors Comment: A commenter stated that, payment from the provider.
in coordinating information and although administrative cost has been Comment: A commenter stated that
training. diminished, States will be challenged to the relationship between States and the
Response: We believe that our evaluate the results and formulate Federal government is deteriorating due
adoption of the recommendation to corrective action plans. According to the to the recent Federal auditing and
engage Federal contractors has commenter, this will significantly affect oversight activities (for example, PERM,
significantly reduced the cost and small SCHIP programs with few full- Medicare and Medicaid program
burden to States. As stated in the time equivalent positions. integrity, oversight by CMS, and the
August 28, 2006 interim final rule, Response: We believe that, even General Accounting Office and MEQC
States will be required to provide without the requirements placed on audits).
Response: PERM was developed to associated with the interim final rule $15,075,748 in Federal funds
implement the IPIA. Recent laws such that published on August 28, 2006 (71 ($7,537,874 per program). This estimate
as the IPIA are intended to improve FR 51077), have received OMB approval is based on our experience to date with
fiscal oversight, to identify fraud and and consequently, need not be reviewed the Federal contractors that have been
abuse, and to protect taxpayer dollars. by the Office of Management and engaged to work on the PERM project.
States can also benefit since the Budget under the authority of the Based on an average of 1,000 claims
programs are also funded with State Paperwork Reduction Act of 1995 (44 reviewed per State plus travel and other
dollars. CMS is committed to U.S.C. 35). administrative expenses, the FFS error
maintaining a positive and strong Note: The OMB approved numbers for the rate estimates for 34 States would cost
partnership with the States. collections of information outlined in the approximately $15,075,748 in Federal
August 28, 2006, interim final rule are as funds for the Federal contracting cost.
IV. Provisions of This Final Regulation
follows: (1) The burden associated FFS and Under the national contracting
We published a second interim final corrective action plan is approved under
OMB #0938–0974 with an expiration date of
strategy, we anticipate State cost to be
rule with comment on August 28, 2006
10/31/2008; (2) The burden associated with the cost associated with submitting
to respond to comments on the October
managed care and corrective action plan is information. We estimated the cost to
5, 2005 first interim final rule with
approved under OMB #0938–0994 with an respond to requests for information for
comment, to announce that we would
expiration date of 9/30/2009; and (3) The the Medicaid and SCHIP FFS reviews is
measure SCHIP in the same State that burden associated with eligibility and $2,297,713 ($1,321,185 in Federal cost
would be measured for Medicaid in any corrective action plan is approved under and $976,528 in State cost). Therefore,
given year under PERM, and to set forth OMB #0938–1012 with an expiration date of the estimated total Federal cost is
the methodology under which eligibility 1/31/2010.
$16,396,933 and total State cost is
would be reviewed. We invited further
VI. Regulatory Impact Statement $976,528 for FFS measurement.
comments on the eligibility
methodology. A. Overall Impact 2. Cost Estimate for Managed Care
This final rule responds to the public Reviews
comments on the August 28, 2006 We have examined the impact of this
interim final rule (71 FR 51050) and rule as required by Executive Order We have estimated that it will cost
finalizes requirements that States must 12866 (September 1993, Regulatory $5.7 million annually ($5,275,571 in
meet for submitting claims and policies Planning and Review), the Regulatory Federal cost and $389,414 in State cost)
to the CMS Federal contractors for Flexibility Act (RFA) (September 19, to estimate managed care error rates for
purposes of conducting fee-for-service 1980, Pub. L. 96–354), section 1102(b) of 34 States (17 States for Medicaid and 17
(FFS) and managed care reviews. This the Social Security Act, the Unfunded States for SCHIP). This is based on the
final rule also finalizes the State Mandates Reform Act of 1995 (Pub. L. Federal cost of engaging the Federal
requirements for conducting eligibility 104–4), and Executive Order 13132. contractors to conduct the reviews and
reviews and estimating case and Executive Order 12866 (as amended calculate the error rates, and the State
payment error rates due to errors in by Executive Order 13258, which cost to submit requested information to
eligibility determinations. merely reassigns responsibility of support the reviews. We estimated these
In the preamble, we summarize the duties) directs agencies to assess all costs as follows:
regulatory history of the States’ costs and benefits of available regulatory We estimated that it will cost
requirements under the PERM program alternatives and, if regulation is $4,748,718 in Federal funds annually
and describe the basis for the national necessary, to select regulatory for a Federal contractor to estimate the
contracting strategy, the selection and approaches that maximize net benefits error rates for 34 States. We assumed
rotation of States once every 3 years for (including potential economic, that we will use the same statistical
Medicaid and SCHIP, the PERM environmental, public health and safety contractor and the same review
measurement cycle, the methodology for effects, distributive impacts, and contractor for managed care and FFS
measuring eligibility under the PERM equity). A regulatory impact analysis reviews in each program to gain cost
program and information States must (RIA) must be prepared for major rules efficiencies in administration, overhead
submit to support the improper with economically significant effects and systems. Based on an average of 500
payments measurement under PERM. ($100 million or more in any 1 year). claims reviewed per State plus travel
This final rule: For the reasons discussed below, we and other administrative expenses, we
• Revises subpart P, § 431.812(b) to have determined that this final rule is estimate that it would cost $4,748,718 in
add a provision that the negative case not a major rule. Federal funds for the Federal
action eligibility reviews under PERM contracting cost.
1. Cost Estimate for FFS Reviews
can be considered as meeting the
negative case action review We have estimated that it will cost Under the national contracting
requirements of this section for $17.4 million annually ($16,396,933 in strategy, we anticipate State cost to be
purposes of the MEQC program; Federal cost and $976,528 in State cost) the cost associated with submitting
• Deletes the requirement under to review FFS claims and estimate error information, similar to the cost for FFS
§ 431.970(a)(1) that States submit FFS rates in 34 States (17 States for Medicaid reviews. As we indicated in the
claims stratified by service; and and 17 States for SCHIP). This estimate information collection section of this
• Revises the definition of negative is based on the Federal cost of engaging rule, we estimated the cost to respond
case universe under § 431.978(d)(2). the Federal contractors to conduct the to requests for information for the
reviews and calculate the error rates, managed care reviews would be
V. Collection of Information and the State cost to submit requested $916,267 ($526,853 in Federal cost and
Requirements information to support the reviews. We $389,414 in State cost). Therefore, the
This document does not impose any estimated these costs as follows: estimated total Federal cost is
new information collection and Through the use of Federal $5,275,571 and total State cost is
recordkeeping requirements. The contractors, we estimated that for the $389,414 for managed care
information collection requirements FFS measurement it would cost measurement.
3. Cost Estimate for Eligibility Reviews in Federal cost and $7,896,098 in State Secretary certifies, that an impact
cost). analysis is not required under the RFA.
Beginning in FY 2007, States will In addition, section 1102(b) of the Act
review eligibility in the same year they 4. Cost Estimate for Total PERM Costs requires us to prepare a regulatory
are selected for FFS and managed care Based on our estimates of the costs for impact analysis if a rule may have a
reviews in Medicaid and SCHIP. We the FFS, managed care and eligibility significant impact on the operations of
estimated that total cost for eligibility reviews for both the Medicaid and a substantial number of small rural
review for 34 States is $18.6 million SCHIP programs at approximately $41.6 hospitals. This analysis must conform to
($10,682,957 in Federal cost and million ($32,355,461 in Federal cost and the provisions of section 604 of the
$7,896,098 in State cost). This cost $9,262,040 in State cost), this rule does RFA. For purposes of section 1102(b) of
estimate is based on the cost for States not exceed the $100 million or more in the Act, we define a small rural hospital
to submit information to CMS and the any 1 year criterion for a major rule, and as a hospital that is located outside of
cost for States to conduct eligibility a regulatory impact analysis is not a Metropolitan Statistical Area and has
reviews and report rates to CMS. These required. fewer than 100 beds.
costs are estimated as follows: The RFA requires agencies to analyze These entities may incur costs due to
We estimated in the information options for regulatory relief of small collecting and submitting medical
collection section, that the annualized businesses. For purposes of the RFA, records to the contractor to support
number of hours required to respond to small entities include small businesses, medical reviews; but, like any other
requests for information for the nonprofit organizations, and small Medicaid or SCHIP provider, we
eligibility review (for example, sampling governmental jurisdictions. Most estimate these costs would not be
plan, monthly sample lists, the hospitals and most other providers and outside the limit of usual and customary
eligibility corrective action report) for suppliers are small entities, either by business practices. Also, since the
34 States will be 108,800 hours (3,200 nonprofit status or by having revenues sample is randomly selected and only
hours per State per program). At the of $6.5 million to $31.5 million in any FFS claims are subject to medical
2007 general schedule GS–12–01 rate of 1 year. Individuals and States are not review, we do not anticipate that a great
pay that includes fringe and overhead included in the definition of a small number of small rural hospitals would
costs ($41.46/hour), we calculated a cost entity. be asked for an unreasonable number of
of $4,510,848 ($2,593,738 in Federal We stated in the August 27, 2004 medical records. As stated before, a
cost and $1,917,110 in State cost). This proposed rule that providers could be State will be reviewed only once, per
cost estimate includes the following required to supply medical records or program, every 3 years and it is highly
estimated annualized hours: (1) Up to other similar documentation that unlikely for a provider to be selected
1,000 hours required for States to verified the provision of Medicaid or more than once per program to provide
develop and submit a sampling plan; (2) SCHIP services to beneficiaries as part supporting documentation. Therefore,
up to 1,200 hours for States to submit of the PERM reviews, but we anticipated we have determined, and the Secretary
this action would not have a significant certifies, that an impact analysis is not
12 monthly sample lists detailing the
cost impact on providers. Providers required under section 1102(b) of the
cases selected for review; and (3) up to
would only need to provide medical Act.
1,000 hours for States to submit a
records for the FFS component of this Section 202 of the Unfunded
corrective action plan for purposes of
program. A request for medical Mandates Reform Act of 1995 also
reducing the eligibility payment error
documentation to substantiate a claim requires that agencies assess anticipated
rate.
for payment would not be a burden to costs and benefits before issuing any
For the eligibility review and providers nor would it be outside the rule that may result in expenditure in
reporting of the findings, we estimated customary and usual business practices any 1 year by State, local, or tribal
that each State would need to review an of Medicaid or SCHIP providers. Not all governments, in the aggregate, or by the
annual sample size of 504 active cases States would be reviewed every year private sector, of $120 million or more.
to achieve a 3 percent margin of error and medical records would only be This final rule does not impose costs on
at a 95 percent confidence interval level requested for FFS claims, so it would be States to produce the error rates for FFS
in the State-specific error rates. We also unlikely for a provider to be selected and managed care payments, but only
estimated that States would need to more than once per program to provide requires States and providers to submit
review 204 negative cases to produce a supporting documentation, particularly information already on hand to the
case error rate that met similar in States with a large Medicaid or contractor so that the error rates can be
standards for statistical significance. We SCHIP managed care population. calculated. The costs associated with
estimated that for 34 States the In addition, the information should be submitting information for copying and
annualized number of hours required to readily available and the response mailing the information or for sending
complete the eligibility case reviews should take minimal time and cost since the information by facsimile are
and report the eligibility-based error the response would merely require minimal.
rates to CMS would be 339,320 hours gathering the documents and either Based on our estimates of State
(9,980 hours per State, per program). At copying and mailing them or sending participation burden for both Medicaid
the 2007 general schedule GS–12–01 them by facsimile. Therefore, we have and SCHIP, for 34 States (17 States per
rate of pay that includes fringe and concluded in this final rule that the Medicaid and 17 States for SCHIP), for
overhead costs ($41.46/hour), we provision of medical documentation by the FFS reviews ($976,528), the
calculated a cost of $14,068,207 providers is within the customary and managed care reviews ($389,414), and
($8,089,219 in Federal cost and usual business practice of a provider eligibility ($7,896,098), we calculated
$5,978,988 in State cost). who accepts payment from an insurance that the annual burden for these States
Therefore, the total annual estimate of provider, whether it is a private for the PERM program is approximately
the cost for 34 States to submit organization, Medicare, Medicaid, or $9,262,040 in State costs for both
information and to conduct the SCHIP and should not have a significant Medicaid and SCHIP. The combined
eligibility reviews and report the error impact on the provider’s operations. costs of both programs total
rate to CMS is $18,579,055 ($10,682,957 Therefore, we have determined, and the approximately $544,826 for each of the
17 States. Thus, we do not anticipate C. Conclusion negative action were met. A State’s
State costs to exceed $120 million. In accordance with the provisions of negative case sample size is determined
Executive Order 13132 establishes Executive Order 12866, this regulation on the basis of the number of negative
certain requirements that an agency was reviewed by the Office of case actions in the universe.
must meet when it promulgates a rule Management and Budget. * * * * *
that imposes substantial direct List of Subjects Subpart Q—Requirements for
requirements on State and local
42 CFR Part 431 Estimating Improper Payments in
governments, preempts State law, or Medicaid and SCHIP
otherwise has Federalism implications. Grant programs—health, Health
The proposed rule, which would have facilities, Medicaid, Privacy, Reporting ■ 3. Section 431.970 is amended by
imposed significantly more cost burden and recordkeeping requirements. revising paragraph (a)(1) to read as
on States to measure improper 42 CFR Part 457 follows:
payments, had estimated costs of $1
million to $2 million per State. This Administrative practice and § 431.970 Information submission
procedure, Grant programs—health, requirements.
final rule significantly reduces these
Health insurance, Reporting and (a) * * *
costs by requiring States only to submit recordkeeping requirements.
information to support the medical and (1) All adjudicated fee-for-service
■ For the reasons set forth in the (FFS) and managed care claims
data processing reviews. The costs and
preamble, the Centers for Medicare & information, on a quarterly basis, from
burden associated with submitting this Medicaid Services confirms as final the
information are the time and costs to the review year;
interim final rules published on October
copy and mail the information or, at 5, 2005 (70 FR 58260) and August 28, * * * * *
State option, submit the information 2006 (71 FR 51050), with the following ■ 4. Section 431.978 is amended by
electronically. amendments to 42 CFR chapter IV: revising paragraph (d)(2) to read as
This final rule does require States follows:
selected for review to submit an PART 431—STATE ORGANIZATION
§ 431.978 Eligibility sampling plan and
eligibility sampling plan, monthly AND GENERAL ADMINISTRATION
procedures.
sample selection information, summary ■ 1. The authority citation for part 431 * * * * *
review findings, State error rate continues to read as follows: (d) * * *
calculations, and other information in Authority: Sec. 1102 of the Social Security (2) Eligibility universe—negative
order for CMS to calculate the eligibility Act (42 U.S.C. 1302). cases. The Medicaid and SCHIP
national error rate. We estimated that negative universe consists of all
the burden to conduct the eligibility Subpart P—Quality Control
negative cases for the sample month.
measurement for Medicaid and SCHIP ■ 2. Section 431.812 is amended by The negative case universe is not
for 34 States will be approximately revising paragraph (b) to read as stratified.
$18,579,055 ($10,682,957 in Federal follows:: * * * * *
cost and $7,896,098 in State cost). As a
§ 431.812 Review procedures. (Catalog of Federal Domestic Assistance
result, we assert that this regulation will
* * * * * Program No. 93.778, Medical Assistance
not have a substantial impact on State Program) (Catalog of Federal Domestic
or local governments. (b) Negative case reviews. Except as
provided in paragraph (c) of this Assistance Program No. 93.767, State
B. Anticipated Effects section, or unless a State is utilizing an Children’s Health Insurance Program)
approved sampling plan to conduct Dated: April 10, 2007.
The final rule is intended to measure negative case action reviews under Leslie Norwalk,
improper payments in Medicaid and § 431.978(a) and § 431.980(b), the Acting Administrator, Centers for Medicare
SCHIP. States would implement agency must review those negative cases & Medicaid Services.
corrective actions to reduce the error selected from the State agency’s list of
rate, thereby producing savings over cases that are denied, suspended, or Approved: June 15, 2007.
time. These savings cannot be estimated terminated in the review month to Michael O. Leavitt,
until after the corrective actions have determine if the reason for the denial, Secretary.
been monitored and determined to be suspension, or termination was correct [FR Doc. 07–4240 Filed 8–24–07; 4:00 pm]
effective, which can take several years. and if requirements for timely notice of BILLING CODE 4120–01–P

Rule: Medicaid Program and State Children's Health Insurance Program: Payment Error Rate Measurement

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August 31, 2007

42 CFR Parts 431 and 457

MEDICAID AND SCHIP STATE SELECTION

ka, Hawaii, Montana, South Dakota, Nevada.

EXAMPLE OF THE PERM PRODUCTION CYCLE: FY 2006

findings. response to a comment made at a costs.

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