You are on page 1of 20

Friday,

August 24, 2007

Part VII

Department of
Health and Human
Services
Centers for Medicare & Medicaid Services

42 CFR Parts 400 and 421


Medicare Program; Medicare Integrity
Program, Fiscal Intermediary and Carrier
Functions, and Conflict of Interest
Requirements; Final Rule
rfrederick on PROD1PC67 with RULES5

VerDate Aug<31>2005 14:44 Aug 23, 2007 Jkt 211001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\24AUR4.SGM 24AUR4
48870 Federal Register / Vol. 72, No. 164 / Friday, August 24, 2007 / Rules and Regulations

DEPARTMENT OF HEALTH AND 2005 effective date of amendments membership or subscription contracts,
HUMAN SERVICES made by section 911(b) and (c) of the or similar group arrangements, in
Medicare Prescription Drug, consideration of premiums or other
Centers for Medicare and Medicaid Improvement, and Modernization Act of periodic charges payable to the carrier,
Services (CMS) 2003 (Pub. L. 108–173) (MMA), the including a health benefits plan duly
Congress provided that public agencies sponsored or underwritten by an
42 CFR Parts 400 and 421 or private organizations may participate employee organization.’’ No entity was
[CMS–6030–F]
administering the Medicare program eligible for consideration for a carrier
under agreements or contracts entered contract unless it could demonstrate
RIN 0938–AN72 into with CMS. that it met this definition of carrier.
These Medicare contractors (which Section 1842(b) of the Act provided
Medicare Program; Medicare Integrity are, for the purposes of this preamble, us with the discretion to enter into
Program, Fiscal Intermediary and contractors that received awards under carrier contracts without regard to any
Carrier Functions, and Conflict of sections 1816 and 1842 of the Act prior provision of the statute requiring
Interest Requirements to October 1, 2005) are known as fiscal competitive bidding. Many other
intermediaries (FIs) and carriers. With provisions of generally applicable
AGENCY: Centers for Medicare &
certain exceptions, FIs perform bill Federal contract law and regulations, as
Medicaid Services (CMS), HHS.
processing and benefit payment well as the Department of Health and
ACTION: Final rule. functions for Part A of the program Human Services (HHS) procurement
(Hospital Insurance) and carriers regulations, remained in effect for
SUMMARY: This final rule establishes the
perform claims processing and benefit carrier contracts.
Medicare Integrity Program (MIP) and The former section 1816(a) of the Act
payment functions for Part B of the
implements program integrity activities authorized us to enter into agreements
program (Supplementary Medical
that are funded from the Federal with public agencies or private
Insurance).
Hospital Insurance Trust Fund. This (For the following discussion, the organizations (that is, FIs) for the
final rule sets forth the definitions terms ‘‘provider’’ and ‘‘supplier’’ are purpose of administering Part A of the
related to eligible entities; services to be used as those terms are defined in Medicare program. These entities are
procured; competitive requirements § 400.202. ‘‘Provider’’ means a hospital, responsible for determining the amount
based on Federal acquisition regulations a critical access hospital (CAH), a of payment due to providers in
and exceptions (guidelines for skilled nursing facility, a consideration of services provided to
automatic renewal); procedures for comprehensive outpatient rehabilitation beneficiaries and for making these
identification, evaluation, and facility, a home health agency, or a payments. Section 1816(a) gave us the
resolution of conflicts of interest; and hospice that has in effect an agreement authority to enter into an agreement
limitations on contractor liability. to participate in Medicare; or a clinic, a with an entity to serve as a FI if the
This final rule brings certain sections rehabilitation agency, or a public health entity was first ‘‘nominated’’ by a group
of the Medicare regulations concerning agency that has in effect a similar or association of providers to make
fiscal intermediaries (FIs) and carriers agreement but only to furnish outpatient Medicare payments to it. Effective
into conformity with the Social Security physical therapy or speech pathology October 1, 2005, section 911 of the
Act (the Act). The rule distinguishes services; or a community mental health MMA eliminated the requirement that
between those functions that the statute center that has in effect a similar FIs be nominated and establishes the
requires to be included in agreements agreement but only to furnish partial requirement that Medicare contracts
with FIs and those that may be included hospitalization services. ‘‘Supplier’’ is awarded to Medicare Administrative
in the agreements. It also provides that defined as a physician or other Contractors (MACs) be competitively
some or all of the functions may be practitioner, or an entity other than a bid.
included in carrier contracts. provider that furnishes health care Section 421.100 requires that the
DATES: Effective Dates: These services under Medicare.) agreement between CMS and a FI
regulations are effective on October 23, The former section 1842(a) of the Act specify the functions the FI must
2007. authorized us to contract with private perform. In addition to requiring any
FOR FURTHER INFORMATION CONTACT: entities (carriers) for the purpose of items specified by CMS in the
Brenda Thew, (410) 786–4889. administering the Medicare Part B agreement that are unique to that FI, our
program. Medicare carriers determine regulations require that all FIs perform
SUPPLEMENTARY INFORMATION:
payment amounts and make payments activities relating to determining and
I. Background for services (including items) furnished making payments for covered Medicare
by physicians and other suppliers such services, fiscal management, provider
A. Current Medicare Contracting as nonphysician practitioners (NPP), audits, utilization patterns, resolution of
Environment laboratories, and durable medical cost report disputes, and
Since the inception of the Medicare equipment (DME) suppliers. In addition, reconsideration of determinations.
program, the Medicare contracting carriers perform other functions Finally, our regulations require that all
authorities have been in place and required for the efficient and effective FIs furnish information and reports,
largely unchanged until the last few administration of the Part B program. perform certain functions for provider-
years. At the inception of the Medicare The former section 1842(f) of the Act based HHAs and provider-based
program, the health insurance and provided that a carrier must be a hospices, and comply with all
medical communities raised concerns ‘‘voluntary association, corporation, applicable laws and regulations and
that enacting Medicare could result in a partnership, or other nongovernmental with any other terms and conditions
rfrederick on PROD1PC67 with RULES5

large Federal presence in the provision organization which is lawfully engaged included in their agreements.
of health care. In response, under in providing, paying for, or reimbursing Similarly, § 421.200 requires that the
sections 1816(a) and 1842(a) of the the cost of, health services under group contract between CMS and a Part B
Social Security Act (the Act), as those insurance policies or contracts, medical carrier specify the functions the carrier
sections existed prior to the October 1, or hospital service agreements, must perform. In addition to requiring

VerDate Aug<31>2005 14:44 Aug 23, 2007 Jkt 211001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 E:\FR\FM\24AUR4.SGM 24AUR4
Federal Register / Vol. 72, No. 164 / Friday, August 24, 2007 / Rules and Regulations 48871

any items specified by CMS in the provider or supplier services and for suppliers will be assigned to FIs,
contract that are unique to that carrier, operational functions. carriers, and MACs during the
we require that all Part B carriers implementation period for section
B. Discussion About Medicare
perform activities relating to 1874A.
Administrative Contractors (MACs) The first of the full and open MAC
determining and making payments (on a
cost or charge basis) for covered Section 911 of the MMA added new competitions was for the DME claims
Medicare services, fiscal management, section 1874A to the Act, establishing workloads. We decided to start the
utilization patterns, and Part B the Medicare Fee-for-Service (FFS) Medicare contractor reform initiative
redeterminations. In addition, § 421.200 Contracting Reform (MCR) initiative that with the DME MAC contracts because
requires that all carriers furnish will be implemented over the next the workload of the then-existing four
information and reports, maintain and several years. Under this provision, durable medical equipment regional
make available records, and comply effective October 1, 2005, we have the carriers (DMERCs) was stable and the
with any other terms and conditions authority to replace the current risk of any significant program
included in their contracts. It is within Medicare FI and carrier contractors with disruption to the provider and
this context that Medicare FI and carrier new MACs using competitive beneficiary communities would have
contracts are significantly different from procedures. been minimal. We awarded the
standard Federal government contracts. In 2005, we began the process to contracts for the four specialty MACs
conduct full and open competitions to that will handle administration of
The Medicare FI and carrier contracts
replace the current contracts with Medicare claims for DME during 2006,
are normally renewed automatically
MACs. (This process is required to be and we anticipate that the last of these
from year to year, in contrast to the
completed by 2011.) These MACs will workloads will be fully implemented by
typical government contract that is
handle many of the same basic the summer of 2007.
recompeted at the conclusion of the
functions that are now performed by FIs During the initial implementation
contract term. The Congress, in
and carriers. Additionally, MACs may phase (2005 through 2011), we plan to
providing for the nomination process be charged with performing functions compete and award contracts for 15 Part
under section 1816 of the Act, and under the MIP under section 1893 of the A and Part B MACs servicing the
authorizing the automatic renewal of the Act. The statute does not preclude the majority of all types of providers (both
carrier contracts in then-existing section current FIs and carriers from competing Part A and Part B). We designed the new
1842(b)(5) of the Act, contemplated a for the MAC contracts. MAC jurisdictions to balance the
contracting process that would permit Among other provisions, section allocation of workloads, promote
us to noncompetitively renew the 1874A of the Act establishes eligibility competition, account for the integration
Medicare contracts from year to year. requirements for the MACs; describes of claims processing activities, and
For both FIs and carriers, § 421.5 the functions these new contractors may mitigate the risk to the Medicare
states that we have the authority not to perform (which may include functions program during the transition to the
renew a Part A agreement or a Part B of section 1893 of the Act so long as new contractors. The new jurisdictions
contract when it expires. Section these responsibilities do not duplicate reasonably balance the number of FFS
421.126 provides for terminating FI activities that are being carried out beneficiaries and providers. These
agreements in certain circumstances, under a MIP contract); and specifies jurisdictions will be substantially more
and, similarly, § 421.205 provides for various requirements for the structure, alike in size than the existing FI and
terminating carrier contracts. terms, and conditions of these new carrier jurisdictions, and they will
Each year, the Congress appropriates MAC contracts. In particular, section promote much greater efficiency in
funds to support Medicare contractor 1874A(a)(6) of the Act specifies that the processing Medicare’s billion claims a
activities. In addition, the Medicare Federal Acquisition Regulation (FAR) year. On July 31, 2006, we announced
Integrity Program (MIP) authorized by (48 CFR Chapter 1) will apply to the that we had awarded the first of the Part
the Health Insurance Portability and MAC contracts, except to the extent A/B MAC contracts (Jurisdiction 3).
Accountability Act of 1996 (Pub. L. inconsistent with a specific requirement More information about our plans to
104–191) (HIPAA) provides funding for of section 1874A of the Act. implement Medicare contracting reform,
program integrity efforts. These funds Unlike the contracting authority of including our Report to the Congress on
are distributed to the contractors based section 1893 of the Act, the new this subject, can be obtained by
on annual budget and performance authority of section 1874A of the Act accessing the Internet at http://
negotiations, where funds are provided does not mandate that the Secretary www.cms.hhs.gov/medicarereform/
by program activity to each of the publish either a proposed or final contractingreform/.
current Medicare contractors. regulation prior to entering into MAC
Historically, approximately 33 percent contracts. Instead, the Congress, when C. The Medicare Integrity Program
of these funds were for payment for the enacting section 1874A of the Act, Section 202 of HIPAA added new
processing of claims; an additional 25 directed CMS in section 1874A(a)(6) of section 1893 to the Act establishing the
percent of the funds were for program the Act to utilize the existing well- MIP. This program is funded from the
integrity activities. These include defined regulatory framework of the Medicare Hospital Insurance Trust Fund
conducting medical review of claims to FAR. to perform program integrity activities
determine whether services are As one element of our with respect to all parts of the Medicare
medically necessary and constitute an implementation of section 1874A of the program. Specifically, section 1893 of
appropriate level of care, deterring and Act, we published the Medicare the Act expanded our contracting
detecting potential Medicare fraud, Hospital Outpatient Prospective authority to allow us to contract with
auditing or settling provider cost Payment System and CY 2007 Payment eligible entities to perform Medicare
rfrederick on PROD1PC67 with RULES5

reports, and ensuring that Medicare acts Rates final rule (71 FR 68228 through program integrity activities. These
as a secondary payer when a beneficiary 68230) which made certain changes to activities include: Medical, potential
has primary coverage through other 42 CFR 421 Subparts A and B, and fraud, and utilization review; cost report
insurance. The remainder of the funds established a new Subpart E, to make audits; Medicare secondary payer
was allocated for beneficiary and clear how Medicare providers and determinations; overpayment recovery;

VerDate Aug<31>2005 14:44 Aug 23, 2007 Jkt 211001 PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 E:\FR\FM\24AUR4.SGM 24AUR4
48872 Federal Register / Vol. 72, No. 164 / Friday, August 24, 2007 / Rules and Regulations

educating providers, suppliers, in use in 1996, section 1893 of the Act that it had been greater than 3 years
beneficiaries, and other persons greatly expands our contracting since the publication of the initial
regarding payment integrity and benefit authority relative to the contracting proposed MIP regulations, we issued a
quality assurance issues; and authority of original sections 1816 and second proposed rule in the Federal
developing and updating a list of DME 1842 of the Act. Previously, we had a Register on June 17, 2005 (70 FR 35204
items that, under section 1834(a)(15) of limited pool of entities with whom to through 35220).
the Act, are subject to prior contract. This limited our ability to In the March 20, 1998 proposed rule
authorization. maximize efforts to effectively carry out (63 FR 13590), we outlined our
Section 1893(d) of the Act requires us the MIP functions. The flexibility made authority to contract with entities to
to set forth, through regulations, possible by section 1893 of the Act perform Medicare program integrity
procedures for entering into contracts allows us to attract a variety of offerors functions to promote the integrity of the
for performing specific Medicare with potentially new and different skill Medicare program prior to publishing a
program integrity activities, which sets and permits those offerors to final rule. In accordance with this MIP
include the following: propose innovative approaches to authority, we currently maintain the
• Procedures for identifying, implement MIP to deter potential fraud following MIP contracts: 12 Indefinite
evaluating, and resolving organizational and abuse. By using competitive Delivery-Indefinite Quantity (IDIQ)
conflicts of interest that are consistent procedures, as established in the FAR contracts for the Program Safeguard
with rules generally applicable to and supplemented by the Department of Contractor (PSC) effort; 1 Coordination
Federal acquisition and procurement. Health and Human Services Acquisition of Benefits (COB) contract, 8 IDIQ
• Competitive procedures for entering Regulation (HHSAR), our ability to contracts for the Medicare Managed
into new contracts under section 1893 manage the MIP activities is greatly Care (MMC) Program Integrity
of the Act and for entering into contracts enhanced, and we can seek to obtain the Contractors effort, 8 IDIQ contracts for
that may result in eliminating best value for our contracted services. the Medicare Drug Integrity Contractor
responsibilities of an individual FI or Third, section 1893 of the Act (MEDIC) effort, and other contracts.
carrier, and other procedures we deem requires us to address potential conflicts (IDIQ contracts are explained in detail
appropriate. of interest among prospective MIP
• A process for renewing contracts in FAR 48 CFR subpart 16.5.) After
contractors before entering into any being awarded an IDIQ contract,
entered into under section 1893 of the contracting arrangements with them.
Act. organizations are given a fair
Section 1893 of the Act instructs the opportunity to be considered for award
Section 1893(d) of the Act also Secretary to establish procedures for
specifies the process for contracting of task orders released by CMS to
identifying, evaluating, and resolving specifically address program integrity
with eligible entities to perform program organizational conflicts of interest that
integrity activities. In addition, section issues within the scope of the IDIQ
are generally applicable to FAR contract. These MIP contractors, which
1893(e) of the Act requires us to set contracts.
forth, through regulations, the limitation are discussed in the following section,
of a contractor’s liability for actions D. Experience With MIP Contractors must comply with the CMS Business
taken to carry out a contract. The MIP authority, established by Partners Systems Security Manual
The Congress established section 1893 HIPAA, gave us specific contracting (BPSSM) and its operational appendices
of the Act to strengthen our ability to authority, consistent with the FAR, to (A, B, C, and D); the CMS Policy for IT
deter potential fraud and abuse in the enter into contracts with entities to Security; and the CMS Information
Medicare program in a number of ways. promote the integrity of the Medicare Security ‘‘Virtual Handbook.’’ CMS’
First, it provides a separate and stable program. Core Security Requirements, as defined
long-term funding mechanism for MIP In the March 20, 1998 Federal in the CMS BPSSM, include, but are not
activities. Historically, Medicare Register (63 FR 13590), we published a limited to, security standards adopted
contractor budgets were subject to wide proposed rule that would implement under the Health Insurance Reform
fluctuations in funding levels from year provisions of section 1893 of the Act. regulations published under the HIPAA
to year. The variations in funding did We reviewed and considered all the and Title X, section 1002 of the
not have any relationship with the timely comments received concerning Homeland Security Act of 2002, the
underlying requirements for program the proposed MIP regulatory provisions. Federal Information Security
integrity activities. This instability made Comments received addressed a variety Management Act of 2002 (FISMA) (Pub.
it difficult for us to invest in innovative of issues, such as conflict of interest L. 107–296). The CMS requirements are
strategies to control potential fraud and issues, coordination among Medicare applicable to MIP contracts and to all
abuse. Our contractors also found it contractors, contractor functions, and subcontracts to MIP contractors. The
difficult to attract, train, and retain eligibility requirements. Overall, we BPSSM can be found at http://
qualified professional staff, including found that few changes were needed to www.cms.hhs.gov/informationsecurity/.
auditors and fraud investigators. A the regulatory text. However, a final rule The security requirements include the
stable funding source allows us the was never published. Notwithstanding, following:
flexibility to invest in innovative section 1893 of the Act granted us the • Contractor appointment of a
strategies to combat potential fraud and authority to contract with eligible dedicated systems security officer.
abuse. The funding mechanism has entities to perform program integrity • Contractor certification for
helped us shift our emphasis from activities prior to publishing the final compliance with CMS Systems Security
postpayment recoveries on potentially rule. Requirements.
fraudulent claims to prepayment Section 1871(a), added by section 902 • Contractor administration of a
strategies designed to ensure that more of the MMA, mandated that final rules systems security program.
rfrederick on PROD1PC67 with RULES5

claims are paid correctly the first time. relating to the Medicare program based • Contractor correction of any
Second, to allow us to more on a previous publication of a proposed security deficiencies, conditions,
aggressively carry out the MIP functions regulation or an interim final regulation weaknesses, findings, or gaps identified
and to require us to use procedures and be published within 3 years except by all audits, reviews, evaluations, tests,
technologies that exceed those generally under exceptional circumstances. Given and assessments.

VerDate Aug<31>2005 14:44 Aug 23, 2007 Jkt 211001 PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 E:\FR\FM\24AUR4.SGM 24AUR4
Federal Register / Vol. 72, No. 164 / Friday, August 24, 2007 / Rules and Regulations 48873

• Contractor compliance with CMS’ benefits with entities (including will continue to encourage new and
security certification and accreditation. insurers and other benefit programs) innovative approaches in the
CMS security requirements are fully that pay after Medicare. These entities marketplace to protect the Medicare
defined at http://www.cms.hhs.gov/ sign a standard COB agreement for this Trust Funds.
informationsecurity/ and will be purpose. Under a signed COB As discussed in the section I.B. of this
described in detail in the MIP-related agreement, the COB contractor collects preamble, implementing section 1874A
statement of work and task orders. information about beneficiaries who of the Act is also a major element of our
1. Program Safeguard Contractors (PSCs) have supplemental insurance. This contracting strategy. We are not
information is used under Parts A and including extensive rules relating to that
Since 1999, we have awarded more B of Medicare to cross Medicare authority in this final rule, but
than 65 individual task orders under the processed claims data over to insurers interested parties can gain information
PSC IDIQ contract, including 17 Benefit or benefit programs for calculating their about our plans for implementing
Integrity (BI) Model PSCs. These BI supplemental or tertiary payments, as section 1874A of the Act by accessing
PSCs are tasked with performing fraud applicable. This coordination of benefits the Internet at http://www.cms.hhs.gov/
and abuse detection and prevention is consolidated at the COB contractor. medicarereform/contractingreform. In
activities for their respective The COB contractor also has a role addition, the public can also send us
jurisdictions. Specific activities include under Part D to collect supplemental informal questions about MAC
fraud case development, local and payer information. This information is implementation through this site.
national data analysis to identify then shared and used by pharmacies to
potentially fraudulent billing schemes A. The Medicare Integrity Program
send secondary claims to supplemental
or patterns, law enforcement support, payers. 1. Basis, Scope, and Applicability
medical review for a BI purpose, and
identifying and developing appropriate 3. Medicare Managed Care Program In accordance with section 1893 of
administrative actions. Four of the 17 BI Integrity Contractors (MMC–PICs) the Act, we proposed to amend part 421
PSCs have additional medical review by adding a new subpart D entitled,
MMC–PICs supplement our regional
functions. The remaining task orders ‘‘Medicare Integrity Program
office integrity responsibilities related to
issued under the PSC IDIQ contract Contractors.’’ This subpart would—
Medicare Advantage (MA) (formerly
have focused on specific program • Define the types of entities eligible
known as Medicare+Choice (M+C)).
vulnerabilities and problem areas (for to become MIP contractors. We also
Similar to the PSC, the MMC–PIC was
example, Comprehensive Error Rate clarify that, in accordance with section
designed specifically to identify, stop,
Testing (CERT), Correct Coding 1874A of the Act, a MAC may perform
and prevent fraud, waste, and abuse.
Initiative (CCI), and Data Assessment & Services performed by a MMC–PIC MIP functions under certain conditions;
Verification (DAVe)). include— • Identify program integrity functions
Overall, we have been successful in • Complete monthly analysis of plan a MIP contractor may perform;
implementing the PSC program. Since discrepancies and report to MA • Describe procedures for awarding
2002, 12 of the 17 BI Model PSC Organizations; and renewing contracts;
contracts were awarded and • Review and analyze State regulatory • Establish procedures for
transitioned. Typically, a 3 to 6 month practices; identifying, evaluating, and resolving
period was allowed for the PSCs to • Evaluate marketing operations; organizational conflicts of interest
transition the BI workload from the FI • Audit financial and medical consistent with the FAR;
and Carrier that had previously been records, including claims, payments, • Prescribe responsibilities; and
performing this workload. and benefit packages; • Set forth limitations on MIP
• Evaluate enrollment and encounter contractor liability.
2. Coordination of Benefits Contractor Subpart D would apply to entities that
(COB) data;
• Collect information and review seek to compete for, or receive award of,
In November 1999, we awarded one matters that may contain evidence of a contract under section 1893 of the Act,
COB contract to consolidate activities fraud, waste, and abuse and make including entities that perform
that support the collection, referrals to the appropriate government functions under this subpart emanating
management, and reporting of other authority; from the processing of claims for
health insurance coverage for Medicare • Compliance testing of internal individuals entitled to benefits as
beneficiaries. The purposes of the COB controls of Health Care Prepayment Plan qualified railroad retirement
program are to identify the health (HCPP) contracting organizations; beneficiaries. We would set forth the
benefits available to a Medicare • Complete all Retroactive Payment basis, scope, and applicability of
beneficiary and to coordinate the Adjustments and Retroactive subpart D in § 421.300.
payment process to prevent the Enrollments or Disenrollments 2. Definition of Eligible Entities
mistaken payment of Medicare benefits. submitted by MA Organizations; (§ 421.302)
In January 2001, the COB contractor • Complete final reconciliation of
assumed all Medicare Secondary Payer payment for non-renewals of MA In accordance with section 1893(c) of
(MSP) claims investigations. contracts; and the Act, we proposed to add
Implementing this single-source • Make reconsideration § 421.302(a) to provide that an entity is
development approach greatly reduced determinations with plans that request eligible to enter into a MIP contract if
the amount of duplicate MSP decisions regarding payments. it—
investigations. It also offered a • Demonstrates the capability to
centralized, one-stop customer service II. Provisions of the Proposed Rule perform MIP contractor functions;
rfrederick on PROD1PC67 with RULES5

approach for most MSP-related In the June 17, 2005 Federal Register • Agrees to cooperate with the Office
inquiries, including those seeking (70 FR 35204), we published a proposed of Inspector General (OIG), the
general MSP information. rule as part of our overall contracting Department of Justice (DOJ), and other
Another task that the COB contractor strategy, which is designed to build on law enforcement agencies in
is responsible for is coordinating the strengths of the marketplace. We investigating and deterring potential

VerDate Aug<31>2005 14:44 Aug 23, 2007 Jkt 211001 PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 E:\FR\FM\24AUR4.SGM 24AUR4
48874 Federal Register / Vol. 72, No. 164 / Friday, August 24, 2007 / Rules and Regulations

fraud and abuse in the Medicare enforcement, was not stated in section proposed § 421.304 identified the
program, including making referrals; 1874A of the Act, we believed that this following as MIP activities:
• Complies with the conflict of requirement is not inconsistent with (a) Medical, Utilization, and Potential
interest standards in 48 CFR Chapters 1 section 1874A of the Act or the FAR. Fraud Review. Medical and utilization
and 3, and is not excluded under the This requirement is, in fact, compatible review includes the processes necessary
conflict of interest provisions with our general practices, multiple to ensure both the appropriate
established by this rule; statutes, and regulations governing HHS utilization of services and that services
• Maintains an appropriate written operations and contracts, and finally meet the professionally recognized
code of conduct and compliance with provisions within Title XI of the standards of care. These processes
policies that include, without Act. The fourth requirement clarified include review of claims, medical
limitation, an enforced policy on our authority to impose additional records, and medical necessity
employee conflicts of interest; reasonable requirements through documentation and analysis of patterns
• Meets financial and business contract, and therefore, it made sense to of utilization to identify inappropriate
integrity requirements to reflect apply this element to MAC contractors. utilization of services. This would
adequate solvency and satisfactory legal Our specific approach to all these issues include reviewing the activities of
history; and would be clarified in any solicitation for providers or suppliers and other
• Meets other requirements that we MAC contracts. individuals and entities (including
may impose. In accordance with section 1893(d) of health maintenance organizations,
Also, in accordance with the the Act, we may continue to contract, competitive medical plans, health care
undesignated paragraph following for the performance of MIP activities, prepayment plans, and MA plans). This
section 1893(c)(4) of the Act, we with FIs and carriers that had a contract function results in identifying
proposed to specify that Medicare with us on August 21, 1996 (the overpayments, prepayment denials,
carriers are deemed to be eligible to effective date of enactment of HIPAA). recommendations for changes in
perform the activity of developing and However, in accordance with sections national coverage policy, changes in
periodically updating a list of DME 1816(l) or 1842(c)(6) of the Act (both local coverage determinations (LCD)
items that are subject to prior added by HIPAA and both now repealed policies and payment screens, referrals
authorization. by the MMA), and section for potential fraud and abuse, and
In the June 17, 2005 proposed rule (70 1874A(a)(5)(A) of the Act (added by the identifying the education needs of
FR 35204), we stated that it is not MMA), these contractors and MACs beneficiaries, providers, and suppliers.
possible to identify each and every (which may also perform MIP activities) Potential fraud review includes fraud
possible contractor eligibility may not duplicate activities under a FI prevention initiatives, responding to
requirement that may appear in a future agreement or carrier contract and a MIP external customer complaints of alleged
solicitation. Therefore, we proposed that contract, with one excepted activity. fraud, developing strategies to detect
in order to permit us maximum The exception permits a carrier or a potentially fraudulent activities that
flexibility to tailor our contractor MAC to develop and update a list of may result in improper Medicare
eligibility requirements to specific items of DME that are subject to prior payment, and identifying and
solicitations while satisfying the intent authorization both under the MIP developing potential fraud cases to refer
of section 1893 of the Act, any contract and its contract under section to law enforcement.
contractor eligibility requirements in 1842 of the Act. This discretion to (b) Cost Report Audits. Providers and
addition to those specified in continue the performance of MIP managed care plans receiving Medicare
§ 421.302(a)(1) through (a)(4) would be activities through the FI and carrier payments are subject to audits for all
contained in the applicable solicitation. contracts until they are phased out in payments. The audits help ensure that
At § 421.302(a)(1), we proposed to accordance to section 911(d) of the proper payments are made in
clarify that a MAC under section 1874A MMA was provided for in proposed accordance with Medicare payment
of the Act may perform any or all of the changes to § 421.100 and § 421.200. policy, verify financial information for
MIP functions listed and described in making a final determination of
§ 421.304. However, in performing these 3. Definition of MIP Contractor allowable costs, identify potential
functions, the MAC may not duplicate (§ 400.202) instances of fraud and abuse, and ensure
work being performed under a MIP We proposed to define ‘‘Medicare the completion of special projects. This
contract. We believe the proposed integrity program contractor,’’ at functional area includes the receipt,
provision is consistent with sections § 400.202 (Definitions specific to processing, and settlement of cost
1874A(a)(4)(G) and 1874A(a)(5) of the Medicare), as an entity that has a reports based on reasonable costs,
Act, as added by the MMA. contract with us under section 1893 of prospective payment, or any other basis;
At proposed § 421.302(b), we also the Act to perform exclusively one or and the establishment or adjustment of
clarified our discretion to require a more of the program integrity activities the interim payment rate using cost
MAC performing any of the MIP specified in that section. The inclusion report or other information.
functions under § 421.304 to abide by of the word ‘‘exclusively’’ in this (c) Medicare Secondary Payer
the eligibility requirements applicable definition is intended to conform with Activities. The Medicare secondary
to MIP contracts, that is, the four section 1874A(a)(5)(B) of the Act as payer function is a process developed as
elements listed at § 421.302(a). The first added by the MMA. a payment safeguard to protect the
requirement at § 421.302(a) related to Medicare program against making
demonstrated capability and the third 4. Services To Be Procured (§ 421.304) mistaken primary payments. The focus
requirement related to addressing A MIP contractor may perform some of this process is to ensure that the
conflicts of interest were consistent with or all of the MIP activities listed in Medicare program pays only to the
rfrederick on PROD1PC67 with RULES5

provisions in the authorizing statute for § 421.304. Section 421.304 would state extent required by statute. Contractors
MAC contracts (section 1874A(a)(2)of that the contract between CMS and a performing Medicare secondary payer
the Act). While the second requirement, MIP contractor specifies the functions functions would be responsible for
which pertained to cooperation with the the contractor performs. In accordance identifying Medicare secondary payer
OIG and other forms of law with section 1893(b) of the Act, situations and pursuing the recovery of

VerDate Aug<31>2005 14:44 Aug 23, 2007 Jkt 211001 PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 E:\FR\FM\24AUR4.SGM 24AUR4
Federal Register / Vol. 72, No. 164 / Friday, August 24, 2007 / Rules and Regulations 48875

mistaken payments from the appropriate FI agreement or carrier contract to be noncompetitively awarded under
entity or individual, depending on the awarded a contract for MIP functions sections 1816(a) and 1842(b)(1) of the
specifics of the contract. This functional without competition if its predecessor Act. Furthermore, those agreements and
area includes the processes performed performed program integrity functions contracts have, in recent years prior and
to identify beneficiaries for whom there under the transferred agreement or subsequent to the enactment of the MIP
is coverage which is primary to contract and the resources, including legislation, included program integrity
Medicare. Through these processes, personnel, which were involved in activities, a fact that the Congress
information may be acquired for performing those functions, were acknowledged in section 1893(d)(2) of
subsequent use in beneficiary claims transferred to the successor. This the Act. Creating an exception to the use
adjudication, recovery, and litigation. provision would remain in effect until of competition for cases in which the
(d) Education. This functional area all FI agreements and carrier contracts same resources, including the same
includes educating beneficiaries, were transitioned to MACs in personnel, continue to be used by a
providers, suppliers, and other accordance with section 1874A of the third party as successor in interest to a
individuals regarding payment integrity Act. FI agreement or carrier contract is
and benefit quality assurance issues. The proposal was made in consistent with the Congress’
(e) Developing Prior Authorization anticipation that some FIs and carriers, authorization to forego competition
Lists. This functional area includes prior to the competition of their when the contracting entity was
developing and periodically updating a contracts in accordance with the MMA, carrying out the MIP functions on the
list of DME items that, in accordance may engage in transactions under which date of enactment of the MIP legislation.
with section 1834(a)(15) of the Act, are the recognition of a successor in interest Section 421.306(b) permits continuity in
subject to prior authorization. Prior by means of a novation agreement may the performance of the MIP functions
authorization is a determination that an be appropriate, and the resources until the time we determine a need to
item of DME is covered prior to when involved in the FI’s or carrier’s MIP procure MIP functions on the basis of
the equipment is delivered to the activities were transferred along with its full and open competition.
Medicare beneficiary. Section other Medicare-related resources to the The exception to competition will
1834(a)(15) of the Act requires prior successor in interest. For example, the operate only where a FI or carrier that
authorization to be performed on the FI or carrier may undergo a corporate performed program integrity functions
following items of DME: reorganization under which the under an agreement or a contract in
• Items identified as subject to corporation’s Medicare business is place on August 21, 1996, transfers its
unnecessary utilization; transferred entirely to a new subsidiary functions by means of a valid novation
• Items supplied by suppliers that corporation. When all of a contractor’s agreement in accordance with the
have had a substantial number of claims resources or the entire portion of the requirements of the FAR. This exception
denied under section 1862(a)(1) of the resources involved in performing a is intended to be applied only until we
Act as not reasonable or necessary or for contract are transferred to a third party, are prepared to award MIP contracts on
whom a pattern of overutilization has we may recognize the third party as the the basis of FAR competitive
been identified; or successor in interest to the contract procedures, or until we compete the full
• A customized item if the through approval of a novation FI and carrier workloads (both MIP and
beneficiary or supplier has requested an agreement as specified in the FAR at 48 non-MIP functions) in accordance with
advance determination. CFR 42.1200. section 1874A(b) of the Act. The
We note that the MIP functions were If the FI or carrier was performing exception is not intended, and will not
not limited to services furnished under program integrity activities under its be used, to circumvent the competitive
FFS payment methodologies. MIP contract on August 21, 1996, the date of process when we make competitive
functions apply to all types of claims. the enactment of the MIP legislation, awards of MIP and MAC contracts. This
They also apply to all types of payment section 1893(d) of the Act permits us to provision is intended to provide us with
systems including, but not limited to, continue to contract with the FI or flexibility in handling Medicare
managed care and demonstration carrier for the performance of those functions in the face of bona fide
projects. MIP functions also apply to activities without using competitive changes in corporate structure that often
payments made under the Medicare Part procedures (but only through and, no have little, if anything, to do with the
D prescription drug benefit that was later than, September 30, 2011). In the Medicare program.
implemented on January 1, 2006. context of a corporate reorganization In § 421.306(c), we further specified
under which all of the resources that an entity must meet the eligibility
5. Competitive Requirements (§ 421.306) involved in performing the contract, requirements established in proposed
We specified, in § 421.306(a), that including those involved in performing § 421.302 to be eligible to be awarded a
MIP contracts would be awarded in MIP activities, are transferred to a MIP contract.
accordance with 48 CFR chapters 1 and successor in interest, we may determine
3, 42 CFR part 421 subpart D, and all that breaking out the MIP activities and 6. Renewal of MIP Contracts (§ 421.308)
other applicable laws and regulations. competing them separately (prior to the Proposed § 421.308(a) specified that
Furthermore, in accordance with section MAC contract competitions) would not an initial contract term will be defined
1893(d)(2) of the Act, we specified that be in the best interest of the in the MIP contract and that contracts
the procedures set forth in these government. may contain renewal clauses. Contract
authorities would be used: (1) When Inherent in the requirement of section renewal provides a mutual benefit to
entering into new contracts; (2) when 1893(d) of the Act that the Secretary both parties. Renewing a contract, when
entering into contracts that may result establish competitive procedures to be appropriate, results in continuity both
in the elimination of responsibilities of used when entering into contracts for for us and the contractor and can be in
rfrederick on PROD1PC67 with RULES5

an individual FI or carrier; and (3) at MIP functions was the authority to the best interest of the Medicare
any other time we consider appropriate. establish exceptions to those program. The benefits are realized
In § 421.306(b), we proposed to procedures. (See 48 CFR 6.3) Moreover, through early communication of our
establish an exception to competition the statute stated that FI agreements and intention whether to renew a contract,
that allows a successor in interest to a carrier contracts would be which permits both parties to plan for

VerDate Aug<31>2005 14:44 Aug 23, 2007 Jkt 211001 PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 E:\FR\FM\24AUR4.SGM 24AUR4
48876 Federal Register / Vol. 72, No. 164 / Friday, August 24, 2007 / Rules and Regulations

any necessary changes in the event of contract, and it is in the best interest of performing activities under the MIP
nonrenewal. Furthermore, as a prudent the government. contract. We incorporated the definition
administrator of the Medicare program, At § 421.308(c), we provided that, if of ‘‘gift’’ from 5 CFR 2635.203(b) of the
we must ensure that we have sufficient we do not renew the contract, the Standards of Ethical Conduct for
time and resources to transfer the MIP contract will end in accordance with its Employees of the Executive Branch,
functions if a reassignment of the terms, and the contractor does not have which excludes from the definition
functions becomes necessary (either a right to a hearing or judicial review items such as greeting cards, soft drinks,
because the contractor has given notice regarding the nonrenewal. This is and coffee.
of its intent to nonrenew or because we consistent with our longstanding policy We also specified in § 421.310(b) that
have determined that reassignment is in for FI and carrier contracts. if we determine that the contractor’s
the best interest of the Medicare activities are creating a conflict, then a
7. Conflict of Interest Rules
program). Therefore, in § 421.308(a), we conflict of interest has occurred during
proposed to specify that we may renew The proposed rule established the the term of the contract. In addition, we
a MIP contract, as we determine process for identifying, evaluating, and specified that, if we determine that a
appropriate, by giving the contractor resolving conflicts of interest as conflict of interest exists, we may, as we
notice, within timeframes specified in required by section 1893(d)(1) of the deem appropriate—
the contract, of our intention to do so. Act. The process was designed to ensure • Not renew the contract for an
(The solicitation document that results that the more diversified business additional term;
in the contract would contain further arrangements of potential contractors do • Modify the contract; or
not inhibit competition between • Terminate the contract for default.
details regarding this provision.) We also specified that the solicitation
providers, suppliers, or other types of
The renewal clause referred to in this may require more detailed information
businesses related to the insurance
section is not an ‘‘option’’ as defined in than identified above. Our proposed
industry, or have the potential for
the FAR at 48 CFR subpart 2.101. provisions did not describe all of the
harming government interests.
Section 1893 of the Act allows for the Given the sensitive nature of the work information that may be required, or the
renewal of MIP contracts without regard to be performed under the MIP level of detail that would be required,
to any provision of the law requiring contract(s), the need to preserve the because we wish to have the flexibility
competition if the contractor has met or public trust, and the history of fraud to tailor the disclosure requirements to
exceeded performance requirements. As and abuse in the Medicare program, our each specific procurement.
stated in the FAR at 48 CFR 2.101, contracting officers may include an We intended to minimize the
‘‘ ‘Option’ means a unilateral right in a organizational conflict of interest reporting and recordkeeping
contract by which, for a specified time, provision in the solicitation and requirements as much as is feasible,
the government may elect to purchase subsequent contract award document, while taking into consideration our
additional supplies or services called for which may be tailored to each need to have assurance that MIP
by the contract, or may elect to extend procurement. The contract provision contractors do not have, and will not
the term of the contract.’’ will be consistent with the guidelines develop during the time of performance,
As described in the FAR, 48 CFR found at FAR 9.5, Organizational and a conflict of interest.
subpart 17.2, an option is different than consultant conflicts of interest, as well Because potential offerors may have
a renewal clause in several respects. The as address specific concerns for questions about whether information
length of time of an option is identifying, mitigating and resolving submitted in response to a solicitation,
established in a contract. In contrast, the actual, apparent or perceived conflict(s) including information regarding
length of a renewal period in a MIP of interest. In general, the contracting potential conflicts of interest, may be
contract may not be defined. officer will not enter into a MIP contract disclosed under a request submitted
Furthermore, an option must be with an offeror that has been under the Freedom of Information Act
exercised during the life of the contract. determined to have, or has the potential (FOIA), we provided the following
A MIP renewal clause can go into effect for, an unresolved organizational information.
only after exhausting the initial contract conflict of interest. To the extent that a proposal
period of performance, including any In § 421.310(a), we specified that an containing information is submitted to
option provisions. Finally, an option offeror for MIP contracts is, and MIP us as a requirement of a competitive
allows us to extend the term of a contractors are, subject to the solicitation under 41 U.S.C. Chapter 4,
contract only up to 60 months, the organizational conflict of interest Subchapter IV, and a FOIA request is
maximum term allowed by the FAR standards and requirements of the FAR made for a copy of that proposal, we
(excluding GSA awards). A MIP contract organizational conflict of interest will withhold the proposal to the extent
renewal clause allows the term of a MIP guidance, found at 48 CFR subpart 9.5, authorized by law. This withholding is
contract to surpass that limit, as long as and the requirements and standards as based upon 41 U.S.C. 253b(m).
the contractor meets the conditions in are contained in each individual However, there is one exception to this
the regulation and the contract contract awarded to perform functions requirement that involves any proposal
(including performance standards found at section 1893 of the Act. that is set forth or incorporated by
established in its contract) and we have In § 421.310(b), we stated that we reference in the contract awarded to an
a continuing need for the supplies or consider that a conflict of interest has offeror or bidder. In such cases, the
services under contract. occurred if, during the term of the FOIA does not offer presumptive
Based on section 1893(d)(3) of the contract, the contractor or its employee, categorical protection. Rather, we would
Act, we specified, in § 421.308(b), that agent or subcontractor has received, withhold, under 5 U.S.C. 552(b)(4),
we may renew a MIP contract without solicited, or arranged to receive any fee, information within the proposal that
rfrederick on PROD1PC67 with RULES5

competition if the contractor continues compensation, gift, payment of constitutes trade secrets or commercial
to meet all the requirements of proposed expenses, offer of employment, or any or financial information that is
subpart D of part 421, the contractor other thing of value from any entity that privileged or confidential, provided the
meets or exceeds the performance is reviewed, audited, investigated, or criteria established by National Parks &
standards and requirements in the contacted during the normal course of Conservation Association v. Morton, 498

VerDate Aug<31>2005 14:44 Aug 23, 2007 Jkt 211001 PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 E:\FR\FM\24AUR4.SGM 24AUR4
Federal Register / Vol. 72, No. 164 / Friday, August 24, 2007 / Rules and Regulations 48877

F.2d 765 (D.C. Cir. 1974), as applicable, of interest, including those created as a 8. Limitation on MIP Contractor
are met. In such cases, we will follow result of the financial relationships of Liability and Payment of Legal Expenses
the predisclosure notification individuals within the organization. Contractors that perform activities
procedures set forth at 45 CFR 5.65(d). These examples are not intended to be under the MIP contract would be
Any proposal containing the an exhaustive list of all the possible reviewing activities of providers and
information submitted to us under an methods to mitigate conflicts of interest suppliers that provide services to
authority other than 41 U.S.C. Chapter nor are we obligated to approve a Medicare beneficiaries. Their contracts
4, Subchapter IV, and any information mitigation method that uses one or more would authorize them to evaluate the
submitted independent of a proposal of these examples. An offeror’s or performance of providers, suppliers,
will be evaluated solely on the criteria contractor’s method of mitigating individuals, and other entities that may
established by National Parks & conflicts of interest will be evaluated on subsequently challenge their decisions.
Conservation Association v. Morton and a case-by-case basis.
To reduce or eliminate a MIP
other appropriate authorities to • Divestiture of, or reduction in the
contractor’s exposure to possible legal
determine if the proposal in whole or in amount of, the financial relationship the
organization has in another organization action from those it reviews, section
part contains trade secrets or
to a level acceptable to us and 1893(e) of the Act requires that we, by
commercial or financial information
appropriate for the situation. regulation, limit a MIP contractor’s
that is privileged or confidential and
• If shared responsibilities create the liability for actions taken in carrying out
protected from disclosure under 5
conflict, a plan, subject to our approval, its contract. We must establish, to the
U.S.C. 552(b)(4). Again, for proposals
to separate lines of business and extent we find appropriate, standards
such as this, we will follow the
management or critical staff from work and other substantive and procedural
predisclosure notification procedures
on the MIP contract. provisions that are the same as, or
set forth at 45 CFR 5.65(d) and will also
• If the conflict exists because of the comparable to, those contained in
invoke 5 U.S.C. 552(b)(6) to protect
amount of financial dependence upon section 1157 of the Act.
information that would cause a clearly
the Federal government, negotiating a Section 1157 of the Act limits liability
unwarranted invasion of personal
phasing out of other contracts or grants and provides for the payment of legal
privacy if disclosed. It should be noted
that continue in effect at the start of the expenses of a Quality Improvement
that the protection of proposals under
MIP contract. Organization (QIO) (formerly Peer
FOIA does not preclude CMS from
releasing contractor proposals when • If the conflict exists because of the Review Organization (PRO)) that
financial relationships of individuals contracts to carry out functions under
necessitated by law, such as in the case
within the organization, divestiture of section 1154 of the Act. Specifically,
of a lawful subpoena.
the relationships by the individual section 1157 of the Act provides that
We already protect information we
involved. QIOs, their employees, fiduciaries, and
receive in the contracting process.
However, to allay any fears potential • If the conflict exists because of an anyone who furnishes professional
individual’s indirect interest, divestiture services to a QIO, are protected from
offerors might have about disclosure of
of the interest to levels acceptable to us civil and criminal liability in
commercial information, at § 421.312(d)
or removal of the individual from the performing their duties under the Act or
we proposed protection of disclosed
work under the MIP contract. their contract, provided these duties are
submitted proprietary information as
In the procurement process, we performed with due care. Following the
allowed under the FOIA and to require
determine which proposals are in a mandate of section 1893(e) of the Act,
signed statements from our personnel
‘‘competitive range.’’ The competitive as specified in § 421.316(a), we
with access to proprietary information
range is based on cost or price and other proposed to protect MIP contractors
that prohibit unauthorized use during
factors that are stated in the solicitation from liability in the performance of their
the procurement process and term of the
and includes the most highly rated contracts provided they carry out their
contract.
In § 421.312, we described our proposals unless the range is further contractual duties with due care.
proposal to resolve conflicts of interest. reduced for purposes of efficiency in In accordance with section 1893(e) of
We specified that we may establish a accordance with FAR 15.306. Using the the Act, we proposed to employ the
Conflicts of Interest Review Board to process in the proposed regulation, same standards for the payment of legal
assist the contracting officer in resolving offerors would not be excluded from the expenses as are contained in section
conflicts of interest and determine when competitive range based solely on 1157(d) of the Act. Therefore,
or if the Board is convened. We would conflicts of interest. If we determined § 421.316(b) would provide that we
define resolution of an organizational that an offeror in the competitive range make payment to MIP contractors, their
conflict of interest as a determination of has a conflict of interest that is not members, employees, and anyone who
the following: adequately mitigated, we would inform provides them legal counsel or services
• The conflict was mitigated. the offeror of the deficiency and give it for expenses incurred in the defense of
• The conflict precludes award of a an opportunity to submit a revised any legal action related to the
contract to the offeror. mitigation plan. At any time during the performance of a MIP contract. We
• The conflict requires that we procurement process, we may convene proposed that the payment be limited to
modify an existing contract. the Conflicts of Interest Review Board to the reasonable amount of expenses
• The conflict requires that we evaluate and assist the contracting incurred, as determined by us, provided
terminate an existing contract for officer in resolving conflicts of interest. funds are available and that the
default. By providing a better process for the payment is otherwise allowable under
• It is in the best interest of the identification, evaluation, and the terms of the contract.
government to contract with the offeror resolution of conflicts of interest, we not In drafting § 421.316(a), we
rfrederick on PROD1PC67 with RULES5

or contractor even though the conflict only protect government interests but considered employing a standard for the
exists. also help ensure that contractors will limitation of liability other than the due
The following are examples of not hinder competition in their service care standard. For example, we
methods an offeror or contractor may areas by misusing their position as a considered whether it would be
use to mitigate organizational conflicts MIP contractor. appropriate to provide that a contractor

VerDate Aug<31>2005 14:44 Aug 23, 2007 Jkt 211001 PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 E:\FR\FM\24AUR4.SGM 24AUR4
48878 Federal Register / Vol. 72, No. 164 / Friday, August 24, 2007 / Rules and Regulations

would not be criminally or civilly liable discretion. In addition, we proposed to Medicare program. For example, if an
by reason of the performance of any add payment on a fee schedule basis as otherwise competent FI performs a
duty, function, or activity under its a new function that may be performed single function poorly, it would be
contract provided the contractor was not by carriers. efficient and effective to have that
grossly negligent in that performance. The February 22, 1994 proposed rule function transferred to another
However, section 1893(e) of the Act was never finalized, but its content was contractor that could carry it out in a
requires that we employ the same or reproposed in our initial March 20, 1998 satisfactory manner. The alternative is
comparable standards and provisions as proposed rule for the MIP program (63 to not renew or to terminate the
are contained in section 1157 of the Act. FR 13590). The second proposed rule, agreement of that FI and to transfer all
We do not believe that it would be published on June 17, 2005, set forth a functions to a new contractor, which
appropriate to expand the scope of new proposal to bring those sections of may not have had an ongoing
immunity to a standard of gross the regulations that concern the relationship with the local provider
negligence, as it would not be a functions Medicare FIs and carriers community.
comparable standard to that set forth in perform into conformity with the Therefore, we proposed to revise
section 1157(b) of the Act. provisions of sections 1816(a), 1842(a), § 421.100 to state that an agreement
We also considered indemnifying MIP and 1893(b) of the Act, for so long as the between CMS and a FI specifies the
contractors employing provisions FI and carrier contracts exist until they functions to be performed by the FI and
similar to those contained in the current are all replaced by MAC contracts. that these must include determining the
Medicare FI agreements and carrier As noted in section I.A. of this amount of payments to be made to
contracts. However, we may indemnify preamble, our current regulations at providers for covered services furnished
a MIP contractor only to the extent we § 421.100 specify a list of functions that to Medicare beneficiaries and making
have specific statutory authority to do must, at a minimum, be included in all the payments and may include any or
so, and section 1893(e) of the Act does FI agreements. Similarly, § 421.200 all of the following functions:
not provide that authority. Note specifies a list of functions that must, at • Any or all of the MIP functions
however, that section 1874A of the Act a minimum, be included in all carrier identified in proposed § 421.304,
as added by the MMA would provide us contracts. These requirements far provided that they are continuing to be
with some discretion to indemnify MAC exceed those of the statute. performed under an agreement entered
contractors. In addition, we proposed at Until October 1, 2005, section 1816(a)
into under section 1816 of the Act that
§ 421.316(a) to provide for immunity of the Act required only that a FI
was in effect on August 21, 1996, and
from liability in connection with the agreement provide for determination of
they do not duplicate work being
performance of a MIP contract provided the amount of payments to be made to
providers and for the making of the performed under a MIP contract.
the contractor exercised due care. • Undertaking to adjust overpayments
Indemnification is not necessary since payments. Pending the effective date of
changes made by the MMA, section and underpayments and to recover
the MIP contractors would have
1816(a) permitted, but did not require, overpayments when an overpayment
immunity from liability as specified in
a FI agreement to include provisions for determination has been made.
§ 421.316(a).
the FI to provide consultative services to • Furnishing to us timely information
B. Intermediary and Carrier Functions providers to enable them to establish and reports that we request in order to
The former section 1816(a) of the Act, and maintain fiscal records or to carry out our responsibilities in
which provided that providers could otherwise qualify as providers. It also administering the Medicare program.
nominate a FI, required only that provided that, for those providers to • Establishing and maintaining
nominated FIs perform the functions of which the FI makes payments, the FI procedures that we approve for the
determining payment amounts and may serve as a channel of redetermination of payment
making payment, and the former section communications between us and the determinations.
1842(a) of the Act required only that providers, may audit the records of the • Maintaining records and making
carriers perform some or all of the providers, and may perform other available to us the records necessary for
functions cited in that section. Section functions as were necessary. verification of payments and with other
911 of the MMA eliminated the Until October 1, 2005, section 1816(a) related purposes.
requirement that FIs be nominated, and of the Act mandated only that a FI make • Upon inquiry, assisting individuals
effective October 1, 2005, established payment determinations and make with matters pertaining to a FI contract.
the requirement that Medicare contracts payments and, because of the • Serving as a channel of
awarded to MACs be competitively bid nomination provision of section 1816(a) communication to and from us of
by September 30, 2011. of the Act, these functions must remain information, instructions, and other
Our existing requirements at with FIs. We believed that, pending the material as necessary for the effective
§ 421.100 and § 421.200 concerning effective date of changes made by the and efficient performance of a FI
functions to be included in FI MMA, section 1816(a) of the Act would contract.
agreements and carrier contracts far not require that the other functions set • Undertaking other functions as
exceeded those of the statute. Therefore, forth at § 421.100(c) through (i) be mutually agreed to by us and the FI.
in the February 22, 1994 Federal included in all FI agreements. In § 421.100(c), we specified that, for
Register (59 FR 8446), we published a Furthermore, section 1893 of the Act the responsibility for services to a
proposed rule that would distinguish permits the performance of functions provider-based HHA or a provider-based
between those functions that the statute related to Medicare program integrity by hospice, when different FIs serve the
previously required to be included in other entities. Thus, we proposed to HHA or hospice and its parent provider,
agreements with FIs and those functions revise § 421.100 to be consistent with the designated regional FI determines
rfrederick on PROD1PC67 with RULES5

that, while not required to be performed section 1893 of the Act and the the amount of payment and makes
by FIs, could have been included in FI implementing regulations. The payments to the HHA or hospice. The FI
agreements at our discretion. We also mandatory inclusion of all functions in or MIP contractor serving the parent
proposed that any functions included in all agreements limits our ability to provider performs fiscal functions,
carrier contracts may be included at our efficiently and effectively administer the including audits and settlement of the

VerDate Aug<31>2005 14:44 Aug 23, 2007 Jkt 211001 PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 E:\FR\FM\24AUR4.SGM 24AUR4
Federal Register / Vol. 72, No. 164 / Friday, August 24, 2007 / Rules and Regulations 48879

Medicare cost reports and the HHA and • Serving as a channel of III. Analysis and Responses to Public
hospice supplement worksheets. communication to and from us of Comments
Pending the effective date of changes information, instructions, and other We received three timely public
made by the MMA, section 1842(a) of material as necessary for the effective comments on the June 17, 2005
the Act, which pertains to carrier and efficient performance of a carrier proposed rule (70 FR 35204 through
contracts, requires that the contracts contract. 35220). The following is a summary of
provide for some or all of the functions • Undertaking other functions as
the issues raised by those comments and
listed in that paragraph but does not mutually agreed to by us and the carrier.
our responses.
specify any functions that must be Comment: Several commenters stated
C. Technical and Editorial Changes
included in a carrier contract. As in the
A new subpart D was added and that due care is not the appropriate
case of FI agreements, our experience
reserved to part 421 by the Revisions to standard for MIP functions and
has been that mandatory inclusion of a
Hospital Outpatient Prospective recommended that we hold MIP
long list of functions in all contracts
Payment System and Calendar Year contractors to a higher standard of care
restricts our ability to administer the
2007 Payment Rates final rule published because the potential for abuse by MIP
carrier contracts with optimum
in the November 24, 2006 Federal contractors is significant. One
efficiency and effectiveness. We believe
Register (71 FR 67960). The new commenter maintained that contractors
that the requirements of the regulations
subpart D will apply to MIP contractors. will conduct their activities in strict
for both FIs and carriers should be
In addition, because we have published compliance with MIP principles if
brought into conformity with the former
regulations that pertain to MAC immunity is not readily available.
statutory requirements for so long as the
contracts in the November 24, 2006 final Another commenter specifically
FI and carrier contracts exist until they
rule, the title of part 421 was revised advocated adopting a gross negligence
are all replaced by MAC contracts.
from ‘‘Intermediaries and Carriers’’ to or reckless disregard standard, stating
Therefore, we proposed to revise
read ‘‘Medicare Contracting.’’ that section 1893 of the Act gives CMS
existing § 421.200, ‘‘Carrier functions,’’
Furthermore, in the June 17, 2005 the authority to deviate from the due
to make it consistent with section 1893
proposed rule, we proposed to revise care standard ‘‘to the extent the
of the Act and the implementing
§ 421.1, which sets forth the basis, Secretary finds appropriate.’’ This
regulations. We stated that a contract
scope, and applicability of part 421. We commenter asserted that MIP
between CMS and a carrier specifies the
proposed to revise this section to add contractors should receive the same
functions to be performed by the carrier,
section 1893 of the Act to the list of protection that intermediaries and
which may include the following:
provisions upon which the part is carriers receive through their
• Any or all of the MIP functions
based. We also proposed to make agreements and contracts (that is,
described in § 421.304 if the following
editorial and other changes (such as immunity as long as they are not grossly
conditions are met: (1) The carrier is
reorganizing the contents of the section negligent). The commenter explained
continuing those functions under a
and providing headings) that improve that the nature of the functions that MIP
contract entered into under section 1842
the readability of the section without contractors perform (for example, fraud
of the Act that was in effect on August
affecting its substance. investigations, cost report audits, and
21, 1996; and (2) it does not duplicate
In addition, numerous sections of our recovering overpayments) expose them
work being performed under a MIP
regulations specifically refer to an to substantially greater risk of liability
contract, except that the function related
action being taken by a FI or a carrier. than Quality Improvement
to developing and maintaining a list of
(As previously noted in this preamble, Organizations (QIOs), and QIOs enjoy
DME may be performed under both a FIs and carriers refer to contractors that immunity from criminal or civil liability
carrier contract and a MIP contract. received awards under sections 1816
• Receiving, disbursing, and in performance of their duties if they act
and 1842 of the Act prior to October 1, with due care.
accounting for funds in making
2005.) If the action being described may Response: As we explained in the
payments for services furnished to
now be performed by a MIP contractor June 17, 2005 proposed rule, we believe
eligible individuals within the
that is not a FI or a carrier, we proposed that the due care standard specified in
jurisdiction of the carrier.
• Determining the amount of payment to revise those sections to indicate that § 421.316(a) is the only standard
for services furnished to an eligible this is the case. For example, § 424.11, consistent with the statutory mandate of
individual. which sets forth the responsibilities of the Act. Section 1893(e) of the Act
• Undertaking to adjust incorrect a provider, specifies, in paragraph (a)(2), requires us to limit a contractor’s
payments and recover overpayments that the provider must keep certification liability by employing the same or
when an overpayment determination and recertification statements on file for comparable standards that are set forth
has been made. verification by the FI. A MIP contractor in section 1157 of the Act. Section 1157
• Furnishing to us timely information now may also perform the verification. of the Act limits a contractor’s liability
and reports that we request in order to Therefore, we proposed to revise under a due care standard. We believe
carry out our responsibilities in § 424.11(a)(2) to specify that the that applying this standard to MIP
administering the Medicare program. provider must keep certification and contractors strikes a reasonable balance
• Maintaining records and making recertification statements on file for between the concerns of the contractors
available to us the records necessary for verification by the FI or MIP contractor. and those subject to the contractors’
verification of payments and for other Because our regulations are review. We believe MIP contractors
related purposes. continuously being revised and sections operate with due care to avoid liability,
• Establishing and maintaining redesignated, we did not identify all and those being reviewed have the
procedures under which an individual sections that would have technical assurance that they have legal recourse
rfrederick on PROD1PC67 with RULES5

enrolled under Part B will be granted an changes in the June 17, 2005 proposed if a contractor acts negligently.
opportunity for a redetermination. rule. If we determine that substantive Comment: One commenter stated that,
• Upon inquiry, assisting individuals changes to our regulations are to the extent that a MAC, carrier, or
with matters pertaining to a carrier necessary, we will make those changes fiscal intermediary enters into a contract
contract. through separate rulemaking. to perform MIP functions, they should

VerDate Aug<31>2005 14:44 Aug 23, 2007 Jkt 211001 PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 E:\FR\FM\24AUR4.SGM 24AUR4
48880 Federal Register / Vol. 72, No. 164 / Friday, August 24, 2007 / Rules and Regulations

be afforded the same immunity and The commenter also called the ‘‘funds for the exception on a case-by-case
indemnification that exists under their available’’ provision unprecedented, basis.
MAC, carrier, or fiscal intermediary noting that neither current FI or carrier Comment: A commenter asserted that
contract. In addition, the commenter contracts nor the MMA provisions that medical and utilization reviews should
urged us to add language to § 421.316(b) pertain to MAC contractors impose this be conducted only by physicians with
to clarify the continued applicability of condition. the same State licensure, from the same
the immunity/indemnification Response: Under § 421.316(b), we geographic area, and within the same
standards in FI and carrier contracts, as proposed to pay expenses incurred by specialty as the physician who provided
well as any standards ultimately MIP contractors and others in defense of the service under review.
included in MAC contracts to MIP a legal action related to the performance Response: Statements of Work for MIP
functions. of a MIP as long as certain conditions contractors contain guidelines that
Response: Generally, FIs and carriers are satisfied. However, we believe that address activities such as medical
are indemnified for any liability arising this payment should be limited to review and utilization. However, we
from the performance of contract reasonable expenses, as determined by decline to require by regulation medical
functions provided that the FI’s and the us. For clarity, in making the or utilization review to be performed by
carrier’s conduct was not grossly determination of what is a ‘‘reasonable’’ physicians with the same State
negligent, fraudulent, or criminal. cost, § 421.316(b), we adopt the licensure, from the same geographic
However, we do not believe we have description contained in the FAR at 48 area, and within the same specialty as
statutory authority under section CFR 31.201–3. In terms of the physician who provided the service
1893(e) of the Act to indemnify MIP reimbursement for legal expenses, we under review because we have found
contractors based on this same standard. note that § 421.316 is more generous that nurse clinicians have the
As we explained in the June 17, 2005 than FAR 31.205–47, which addresses appropriate clinical experience to make
proposed rule, section 1893(e) of the Act costs related to legal and other objective clinical decisions. However,
requires us to limit a contractor’s proceedings. Under the FAR, at 48 CFR we recognize the value that a provider
liability by employing the same or 31.205–47, for example, reimbursement meeting these requirements may offer,
comparable standards that are set forth is limited to 80 percent of the costs and our contractors utilize (as they
in section 1157 of the Act. Section 1157 allowed. This limitation does not apply deem appropriate) physician
of the Act limits a contractor’s liability under the final rule. consultants on a case-by-case basis to
under a due care standard. In addition, As previously noted, section provide this specialized knowledge.
§ 421.316(a) provides MIP contractors 421.316(b)(2) limits reimbursement to Comment: One commenter
immunity from liability in connection ‘‘funds available’’ in order to comply recommended that we revise
with the performance of a MIP contract with the Anti-Deficiency Act. The Anti- § 421.312(b)(5) to state that it is in the
as long as the contractors exercise due Deficiency Act applies to all best interest of the government to
care. Therefore, indemnification is not government expenditures and provides, contract with the offeror or contractor
necessary since the MIP contractors will among other things, that a government even though the conflict exists (and the
have immunity from liability as agency ‘‘may not authorize an conflict has been mitigated to the extent
specified in § 421.316(a). Note, however, expenditure or obligation exceeding an possible).
that section 1874A(d)(4) of the Act, as amount available in an appropriation or Response: We appreciate the
added by the MMA, provides that we fund’’ as specified in 31 U.S.C. 1341. A commenter’s recommendation. We
have some discretion to indemnify MAC contractor that incurs legal fees that may believe that our contracting officer must
contractors that perform MIP functions be reimbursable under § 421.316(b) have the flexibility to enter into a
under section 1874A(a)(4)(G) of the Act would be expected to notify its contract with an offeror or contractor
and other functions, as long as their contracting officer, under general FAR even if a conflict of interest exists
conduct was not grossly negligent, requirements, if it anticipates a cost without the additional requirement of
fraudulent, or criminal in nature. overrun due to legal fees and expenses. mitigating the conflict to the extent
Indemnification may include payment Then, if the resources are available, the possible. This flexibility ensures that
of judgments, settlements, awards, and funding for the contract could be the officer has the ability to enter into
costs (including reasonable legal adjusted. We do not believe it is these types of contracts when doing so
expenses) as specified in section appropriate or necessary for CMS, in is in the best interest of the government.
1874A(d)(4) of the Act. this final rule, to obligate itself to seek We are committed to minimizing and,
Comment: Section § 421.316(b) limits additional funds or to limit its actions where possible, eliminating all potential
payment of expenses incurred by MIP if funds are not available for conflict of interests as outlined in
contractors and others in defense of a reimbursement. § 421.312.
legal action related to the performance Comment: A commenter noted that Comment: A commenter urged that, if
of a MIP to reasonable expenses, as the preamble to the proposed rule stated CMS convenes a Conflicts of Interest
determined by CMS. In addition, section that a transfer of resources, including Review Board as specified in
421.316(b)(2) limits reimbursement to personnel, must occur to qualify for the § 421.321(a), the board’s membership
‘‘funds available’’ in order to comply successor-in-interest exception. The should include practicing physicians
with the Anti-Deficiency Act, which commenter asked that we clarify who regularly treat Medicare
applies to all government expenditures. whether a potential successor-in-interest beneficiaries. According to the
A commenter objected to what it may, assuming all other requirements of commenter, the board should also
describes as a ‘‘discretionary § 421.306(b) are met, qualify for the include representatives from the type of
reasonableness standard’’ and the exception if the predecessor does not entity that is experiencing the conflict,
‘‘funds available’’ condition. The technically transfer personnel to the CMS representatives, and other provider
rfrederick on PROD1PC67 with RULES5

commenter stated that both provisions successor-in-interest but instead representatives as appropriate.
have the potential to substantially provides such personnel through an Response: The Conflicts of Interest
undermine the intent of the Social administrative services agreement. Review Board is an internal process for
Security Act, which seeks to reimburse Response: We would determine CMS, which is convened only when
MIP contractors for their legal expenses. whether a particular contractor qualifies CMS deems necessary. To maintain the

VerDate Aug<31>2005 14:44 Aug 23, 2007 Jkt 211001 PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 E:\FR\FM\24AUR4.SGM 24AUR4
Federal Register / Vol. 72, No. 164 / Friday, August 24, 2007 / Rules and Regulations 48881

integrity of the procurement process and In § 421.1(a), we are revising the history’’ because we believe that this
the confidentiality of proprietary description of sections 1816 and 1842 of requirement may create an ambiguity
information submitted in proposals, the Act. The previous description (‘‘Use with the 48 FAR at 9.103.
opening the procurement process to the of organizations and agencies in making In § 421.304, Medicare integrity
public is not a viable option. Medicare payments to providers and program contractor functions, we list
Comment: One commenter expressed suppliers of services’’) was replaced the activities that a MIP contractor may
concerned about a MIP contractor with the following description: perform. Section 421.304 states that the
auditing a hospital’s cost reports and a ‘‘Provisions relating to the contract between CMS and a MIP
FI, a different contractor, processing the administration of Parts A and B.’’ contractor specifies the functions the
hospital’s claims. Specifically, the In § 421.1(b), we are revising this contractor performs. Specifically in the
commenter questioned whether the two section to clarify that FIs and carriers area of medical and utilization review,
contractors could effectively refer to contractors that received awards we include the processes necessary to
communicate with each other. The under sections 1816 and 1842 of the Act ensure both the appropriate utilization
commenter expressed concern about prior to October 1, 2005 to distinguish of services and that services meet the
access to updated claims information in these contractors from MACs. Therefore, professionally recognized standards of
cases where one contractor audited cost § 421.1(b) is revised to read, ‘‘The care. We state that these processes
reports and another contractor provisions of this part apply to include review of claims, medical
processed claims, and urged CMS to agreements with Part A (Hospital records, and medical necessity
discuss this issue with specific Insurance) FIs that received awards documentation and analysis of patterns
providers to ensure that existing under sections 1816 and 1842 of the Act of utilization to identify inappropriate
roadblocks are cleared before any prior to October 1, 2005, contracts with utilization of services. We proposed that
potential expansion of separate Part B (Supplementary Medical this would include reviewing the
contractors across the country. Insurance) carriers that received awards activities of providers or suppliers and
Response: We understand the under sections 1816 and 1842 of the Act other individuals and entities (including
comments related to the coordination of prior to October 1, 2005, and contracts health maintenance organizations,
activities between PSCs and the claims with Medicare integrity program competitive medical plans, health care
processing contractors, especially as contractors that perform program prepayment plans, and MA plans). We
they relate to audit activities. We are integrity functions.’’ are adding Part D Prescription Drug
concerned about the interaction In § 421.1(c)(2), we are revising this
Plans to the list of entities.
between PSCs and other CMS paragraph to omit language indicating
We are revising § 421.304(b) to
contractors. We continually promote that CMS specifies criteria and
include reconciling and issuing cost
positive interaction and effective standards to select FIs and designate
regional or national FIs for certain report payments for providers and
communication between all our various suppliers. Therefore, § 421.304(b) is
contractors. If significant issues arise, classes of providers. We no longer
perform these functions. In addition, revised to read, ‘‘Auditing, settling, and
we will intervene to address these determining cost report payments for
issues. language was added to clarify that CMS
specifies criteria and standards to providers of services, or other
IV. Provisions of the Final Rule evaluate the performance of successor- individuals or entities (including
This final rule accomplishes two in-interest entities to FIs. Therefore, entities contracting with CMS under
primary goals. First, it implements, with § 421.1(c)(2) is revised to read, parts 417 and 422 of this chapter), as
certain exceptions indicated below, the ‘‘Specifies criteria and standards CMS necessary to help ensure proper
provisions of the June 17, 2005 uses in evaluating the performance of Medicare payment.’’
proposed rule as issued. Second, it fiscal intermediaries’ successor entities In § 421.304(c), we are revising this
describes two new MIP contracts that and in assigning or reassigning a paragraph to specify that we will
were awarded between the publication provider or providers to particular fiscal recover mistaken and conditional
of the March 20, 1998 proposed rule and intermediaries.’’ payments. Therefore, § 421.304(c) is
before the publication of this final rule. In § 421.302(a)(4), Definition of revised to read, ‘‘Determining whether a
Eligible Entities, we are revising this payment is authorized under title XVIII,
A. Implementation, With Certain section to replace the phrase ‘‘without as specified in section 1862(b) of the
Exceptions, of the Provisions of the June limitation’’ with ‘‘but are not limited Act, and recovering mistaken and
17, 2005 Proposed Rule to.’’ This change was made to clarify conditional payments under section
With the exception of the following, that an appropriate written code of 1862(b) of the Act.’’
we are implementing the provisions of conduct and compliance policies In § 421.306(b), we are revising this
the June 17, 2005 proposed rule as consist of more than an enforced policy paragraph to clarify that CMS may
issued. on employee conflicts of interest. award an entity a Medicare integrity
In § 421.1, Basis, Applicability, and Therefore, § 421.304(a)(4) is revised to program contract by transfer—as
Scope, we are revising this section to read, ‘‘Maintains an appropriate written opposed to ‘‘without competition’’—if
omit the language in proposed code of conduct and compliance certain conditions apply. The phrase
paragraph (b) that states that ‘‘§ 421.118 policies that include, but are not limited ‘‘without competition’’ implies there is
is also based on 42 U.S.C. 1395(b)– to, an enforced policy on employee new work not contemplated in the
1(a)(1)(F), which authorizes conflicts of interest.’’ original contact award. However, work
demonstration projects involving FI In § 421.302, Definition of Eligible transferred by novation was competed at
agreements and carrier contracts.’’ This Entities, we are revising this section to some prior date, and a successor-in-
language was omitted because § 421.118 omit the requirement in proposed interest would take on that work.
rfrederick on PROD1PC67 with RULES5

was removed from the CFR by the paragraph (a)(5) that states that an entity Therefore, § 421.306(b) is revised to
Medicare Hospital Outpatient is eligible to enter into a MIP contract read, ‘‘CMS may award an entity a
Prospective Payment System and CY if it ‘‘meets financial and business Medicare integrity program contract by
2007 Payment Rates final rule (71 FR integrity requirements to reflect transfer if all of the following conditions
67960). adequate solvency and satisfactory legal apply * * *.’’

VerDate Aug<31>2005 14:44 Aug 23, 2007 Jkt 211001 PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 E:\FR\FM\24AUR4.SGM 24AUR4
48882 Federal Register / Vol. 72, No. 164 / Friday, August 24, 2007 / Rules and Regulations

In § 421.308(b), we are revising this terminated for the convenience of the that should be paid by a WC carrier.
paragraph to omit the phrase ‘‘without government. Therefore, This initiative creates a streamlined
competition’’ because that term implies § 421.312(b)(2)(iii) is revised to read, process for review of WCMSAs and
there is new work not contemplated in ‘‘The conflict requires that CMS reduces the time associated with such
the original contact award. Therefore, terminate or not renew an existing reviews and evaluations, ultimately
§ 421.308(b) is revised to read, ‘‘CMS contract * * *.’’ enhancing the level of customer service
may renew a Medicare integrity program to the WC industry. More information
B. Description of Two New MIP
contract if all of the following about the WCRC can be obtained by
Contractors
conditions apply are met * * *.’’ accessing the Internet at http://
In § 421.310, we are revising the As explained in the preamble to this www.cms.hhs.gov/
section to omit § 421.310(b)(1) in its final rule, since the March 20, 1998 WorkersCompAgencyServices/
entirety because, in § 421.310, we state proposed rule was published, we had 06_wcmsasreviewprocess.asp.
that conflict of interest standards and the authority to contract with entities to • Medicare Secondary Payer
requirements are contained in each perform Medicare program integrity Recovery Contractor. In August 2006,
contract awarded to perform section functions to promote the integrity of the we consolidated all of the functions
1893 of the Act functions. To eliminate Medicare program before publishing a related to recovering MSP Group Health
redundancy and possible ambiguities final rule. We also noted in the Plan (GHP) and ‘‘non-GHP’’ (Workers’
when read with the contract, we believe preamble to this final rule that, in Compensation (WC), no-fault, and
it is necessary to remove this section of accordance with this MIP authority, we liability) debts from the Medicare claims
the regulation as similar language is maintain various MIP contracts, which processing contractors into one MSP
contained in the contract. In addition, include, but are not limited to, the Recovery Contractor (MSPRC). The
we eliminated § 421.310(b)(1) because following: 12 IDIQ contracts for the PSC MSPRC was implemented in October
conflict of interest standards and effort; 1 COB contract, 8 IDIQ contracts 2006. The MSPRC only took over cases
requirements could vary among MIP for the MMC Program Integrity where the debtors are employers,
contracts (for example, PSC and COB) Contractors effort, 8 IDIQ contracts for insurers/Third Party Administrators,
and differ from those that are stated in the MEDIC effort, and other contracts. WC carriers, no-fault insurers, liability
this regulation. Finally, we removed Between publishing the March 20,
insurers, or beneficiaries. Cases where
§ 421.310(b)(2)addressing the resolution 1998 proposed rule and before
debtors are providers, physicians, or
of conflicts of interest in its entirety. For publishing this final rule, we awarded
suppliers remained at the FFS
clarity, the language in this provision two other types of MIP contracts:
contractors. Furthermore, those
was slightly revised and moved to Workers’ Compensation Review
contractors using the Healthcare
§ 421.312(b)(2) for organizational Contractors (WCRC) and Medicare
Integrated General Ledger Accounting
purposes. Secondary Payer Recovery Contractors
System (HIGLAS) kept cases already on
In § 421.312(a), we are revising the (MSPRC). Although these MIP contracts
that system to see through to
paragraph to clarify that CMS were not specifically identified in the
completion. Using one contractor to
determines when to convene a Conflicts March 20, 1998 proposed rule or the
June 17, 2005 proposed rule, the perform MSP recoveries is achieving
of Interest Review Board. Therefore,
preamble to both respective proposed administrative and operational
§ 421.312(a)is revised to read, ‘‘CMS
rules did not provide an exhaustive list efficiencies, standardizing the recovery
may establish and convene a Conflicts
of MIP contracts; instead, it provided process, maximizing recoveries, and
of Interest Review Board to assist the
examples of MIP contracts and enhancing customer service. The
contracting officer in resolving
indicated that there were ‘‘other [MIP] MSPRC is already introducing
organizational conflicts of interest.’’
In § 421.312(b), we are revising the contracts.’’ innovations into the process, including
section to separately identify resolution As MIP contractors, the WCRC and establishing a virtual case system to
of pre-award and post-award conflicts to the MSPRC must satisfy the same replace paper files and using a
increase clarity and for organizational requirements (for example, eligibility dedicated call center with a toll-free
purposes. For resolution of post-award requirements under section 421.302) number for more expedient customer
conflicts, we added language that that other MIP contractors must satisfy. service. More information about the
clarifies that we could continue a Their duties are briefly described as MSPRC can be obtained by accessing
contract even though a conflict of follows: the Internet at http://www.cms.hhs.gov/
interest exists. Note that we did not • Workers’ Compensation Review MSPRGenInfo/.
state in § 421.312(b)(2)(iv) that the Contractor. In September 2003, we V. Collection of Information
waiver of a conflict of interest must be awarded a contract to the WCRC to Requirements
in accordance with 48 CFR subpart review and evaluate proposed Workers’
Compensation Medicare Set-aside This document does not impose new
9.503 in the resolution of post-award
Arrangements (WCMSAs) in workers’ information collection and
conflicts of interest because that subpart
compensation (WC) cases to help ensure recordkeeping requirements subject to
applies only to pre-award conflicts.
In § 421.312(b)(2)(iii), which was that Medicare’s interests are properly the Paperwork Reduction Act of 1995
proposed as § 421.312(b)(4) in the June considered when determining the future (PRA) (44 U.S.C. 35). Consequently, it
17, 2005 proposed rule before case-related medical needs of the need not be reviewed by the Office of
§ 421.312(b) was reorganized in this claimant. The purpose of the contract is Management and Budget under the
final rule, we are revising this section to to procure an independent entity with authority of the PRA of 1995.
clarify that a contracting officer may qualified medical staff to determine VI. Regulatory Impact Analysis
resolve an organizational conflict of WCMSA amounts for future medical
rfrederick on PROD1PC67 with RULES5

interest by not renewing an existing expenses related to the WC injury to A. Introduction


contract. In addition, this section is protect Medicare’s interest. This We have examined the impact of this
revised to omit the phrase ‘‘for default.’’ function confirms the adequacy of final rule as required by Executive
Under the FAR, a contract may be WCMSAs and, as a result, prevents the Order 12866 (September 1993,
terminated for default, and it may be Medicare program from incurring costs Regulatory Planning and Review), the

VerDate Aug<31>2005 14:44 Aug 23, 2007 Jkt 211001 PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 E:\FR\FM\24AUR4.SGM 24AUR4
Federal Register / Vol. 72, No. 164 / Friday, August 24, 2007 / Rules and Regulations 48883

Regulatory Flexibility Act (RFA) RFA. For purposes of section 1102(b) of are similar yet more streamlined than
(September 19, 1980, Pub. L. 96–354), the Act, we define a small rural hospital those set forth in the 1998 proposed rule
section 1102(b) of the Social Security as a hospital that is located outside a and are currently applied by MIP
Act, the Unfunded Mandates Reform Metropolitan Statistical Area and has contractors. To the extent that small
Act of 1995 (UMRA) (Pub. L. 104–4), fewer than 100 beds. We have entities could be affected by the rule,
and Executive Order 13132. determined, and certify, that this final and because the rule raises certain
Executive Order 12866 (as amended rule would not have a significant policy issues for conflict of interest
by Executive Order 13258, which economic impact on a substantial standards, we provide an impact
merely reassigns responsibility of number of small entities. We also have analysis for those entities that we
duties) directs agencies to assess all determined, and certify, that this final believe will be most heavily affected by
costs and benefits of available regulatory rule would not have a significant impact the rule.
alternatives and, if regulation is on the operations of a substantial We believe that this rule will have an
necessary, to select regulatory number of small rural hospitals. impact, although not a significant one,
approaches that maximize net benefits Section 202 of the UMRA also in five general areas: (1) The Medicare
(including potential economic, requires that agencies assess anticipated program and Health Insurance Trust
environmental, public health and safety costs and benefits before issuing any Fund; (2) Medicare beneficiaries and
effects, distributive impacts, and rule whose mandates require spending taxpayers; (3) current FIs and carriers;
equity). A regulatory impact analysis in any 1 year of $100 million in 1995 (4) entities that have not previously
(RIA) must be prepared for major rules dollars, updated annually for inflation. contracted with us; and (5) Medicare
with economically significant effects That threshold level is currently providers and suppliers. These five
($100 million or more in any 1 year). approximately $120 million. We have general areas are examined below.
Although Table 1 shows a significant determined that this final rule would
decline in improper Medicare FFS not cause the private sector or State, 1. The Medicare Program and Health
payments based on the implementation local, or tribal governments in the Insurance Trust Fund
of MIP contractors and other initiatives, aggregate to expend $120 million or HIPAA provides for a direct
such as FI and carrier education efforts, more in any given year. apportionment from the Health
the decline is a function of our efforts Executive Order 13132 establishes
Insurance Trust Fund for program
to prevent and recoup improper certain requirements that an agency
integrity activities to thwart improper
payments, which represent savings to must meet when it issues a proposed
billing practices. Appropriations totaled
the Medicare program. As a result, we rule (and subsequent final rule) that
$700 million for 2002 and $720 million
have determined that this final rule is imposes substantial direct requirement
for fiscal year (FY) 2003 and all
not a major rule, and that it would not costs on State and local governments,
subsequent years. The Deficit Reduction
have economically significant effects. preempts State law, or otherwise has
The RFA requires agencies to analyze Act of 2005 (DRA) increased
Federalism implications. Under section
options for regulatory relief of small unrestricted general MIP funding by
I of Executive Order 13132, ‘‘ ‘[p]olicies
entities. For purposes of the RFA, small $100 million for FY 2006 only and
that have federalism implications’ refers
entities include small businesses, provided another $12 million in MIP
to regulations, legislative comments or
nonprofit organizations, and small funds in FY 2006 for the Medicare-
proposed legislation, and other policy
governmental jurisdictions. Most Medicaid (Medi-Medi) Data Match
statements or actions that have
hospitals and most other providers and Project, bringing total MIP funding in
substantial direct effects on the States,
suppliers are small entities, either by FY 2006 to $832 million. For FY 2007,
on the relationship between the national
nonprofit status or by having revenues general MIP funding returns to $720
government and the States, or on the
of $6.5 million to $31.5 million in any million, while the DRA provides $24
distribution of power and
1 year. By the North American million in MIP funds for the Medi-Medi
responsibilities among the various
Industrial Classification (NAIC) Codes Data Match Project, for a MIP total of
levels of government.’’ We have
which are set by the Department of $744 million.
determined, and certify, that this final
Commerce and the Business Size rule would not impose substantial direct A separate and dependable long-term
Standard of each of the NAIC codes requirement costs on State and local funding source for MIP allows us the
which are set by the Small Business governments, preempt State law, or flexibility to invest in innovative
Administration, FIs and carriers (which otherwise have Federalism implications. strategies to combat the fraud and abuse
are for the purposes of this final rule drain of the Medicare Trust Funds. By
contractors that received awards under B. Discussion of Impact shifting emphasis from post-payment
sections 1816 and 1842 of the Act prior Our MIP experience since 1999 recoveries on incorrectly paid claims to
to October 1, 2005) are not small suggests that this rule will continue to pre-payment strategies, most claims will
businesses based on the NAIC code used have a positive impact on the Medicare be paid correctly the first time.
for this type of work. program, Medicare beneficiaries, Improper billing and health care fraud
In addition, section 1102(b) of the Act providers, suppliers, and entities that are difficult to quantify because of their
requires us to prepare a regulatory have not previously contracted with us. hidden nature. However, estimates
impact analysis if a rule may have a Existing MIP contractors that seek suggest that the percentage of improper
significant impact on the operations of renewal of MIP contracts should not Medicare FFS payments as compared to
a substantial number of small rural expect any additional costs in total FFS payments has declined since
hospitals. This analysis must conform to complying with the requirements set the implementation of MIP contractors
the provisions of section 604 of the forth in the rule, as these requirements as shown in Table 1.
rfrederick on PROD1PC67 with RULES5

VerDate Aug<31>2005 14:44 Aug 23, 2007 Jkt 211001 PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 E:\FR\FM\24AUR4.SGM 24AUR4
48884 Federal Register / Vol. 72, No. 164 / Friday, August 24, 2007 / Rules and Regulations

TABLE 1*
Improper payment Percentage of Total FFS payment
Year (in billions) FFS total (in billions)

1998 ....................................................................................................... $14.9 billion 8.4 $177.0 billion


1999 ....................................................................................................... 14.5 8.6 168.9.
2000 ....................................................................................................... 16.4 9.4 174.6.
2001 ....................................................................................................... 16.8 8.8 191.3.
2002 ....................................................................................................... 17.1 8.0 212.8.
2003** ..................................................................................................... 12.7 6.4 199.1.
2004 ....................................................................................................... 21.7 10.1 213.5.
2005 ....................................................................................................... 12.1 5.2 234.1.
2006 ....................................................................................................... 10.8 4.4 246.8.
*The Improper Payments Information Act of 2002 (Pub. L. 107–300) mandates that federal agencies use gross figures when reporting improper
payment amounts and rates. A gross figure is calculated by adding underpayments to overpayments. All amounts and rates in this table have
been converted to gross figures.
**Since 1996, HHS has annually determined the rate of improper payments for FFS claims paid by Medicare contractors. The survey measures
claims found to be medically unnecessary, inadequately documented, or improperly coded. From 1996 until 2002, the survey was conducted by
the OIG based on a survey of some 6,000 claims. In 2003, CMS launched an expanded effort, reviewing approximately 128,000 Medicare claims
to learn more precisely where errors are being made. Because this was a new initiative, there was a high non-response rate. The 2003 figures
used in the above table reflect the adjusted error rate figures, which account for this high non-response rate. If this adjustment had not been
made, the improper payment would have been $21.5 billion and the national error rate would have been 10.8 percent. The numbers reported for
2004 are unadjusted and reflect CMS’ findings since employing its expanded effort.

As we referred to previously, the deductibles and Part B Medicare and MACs are not prohibited from
positive error rate trend also relates to premiums. Taxpayers, including those entering into MIP contracts when we
other initiatives, including FI and who are not yet eligible for Medicare, compete contracts for (MIP) activities
carrier education efforts, partnering contribute part of their earnings to the under section 1893 of the Act.
with the provider community, and our Part A Trust Fund. Taxpayers and (However, these contractors would have
anti-fraud and abuse efforts. beneficiaries contribute indirectly to the to meet conflict of interests
In 2004, we announced new steps to Part B Trust Fund because it is funded, requirements in the MIP contracts and
measure error rates in Medicare in part, from general tax revenues. the FAR.)
payments more accurately and Consistent performance of program We believe that this rule will have a
comprehensively at the contractor level integrity activities will ensure that less minimum impact in several areas.
and to further reduce improper money is wasted on inappropriate Medical directors continue to play an
payments through targeted error treatment or unnecessary services. As important role in medical review
improvement initiatives. Under the new evidence, MIP funds have contributed to activities, and locally-based medical
measurement process for the Medicare reducing the total percentage of directors improve our relationship with
error rate, the gross national rate for FY improper payments made for FFS local physicians by using groups like
2004 was 10.1 percent and decreased to claims paid in 2006 to 4.4 percent of all Carrier Advisory Committees. Locally-
5.2 percent in 2005. FFS claims, down from 8.4 percent of based fraud investigators and auditors
In addition to economic advantages, FFS claims in 1998. As a result, current are being used as necessary. Upon
MIP funding and contracting and future beneficiaries will obtain publishing this final regulation, we
improvements will allow us to better more value for every Medicare dollar anticipate that review policies will
serve Medicare beneficiaries in a spent. In addition, under the Medicare continue to be coordinated across
qualitative way. MIP gives us a tool to Secondary Payer program in FY 2005, contractors to ensure consistency, while
better administer the Medicare program CMS achieved $5.8 billion dollars in local practice will continue to be
and accomplish our mission of pre-payment and post payment savings. incorporated where appropriate.
providing access to quality health care This rule may have had a negative
3. Current Fiscal Intermediaries and
for Medicare beneficiaries. We will impact on current FIs and carriers in
Carriers
continue to use competitive procedures some respects. Many current FIs and
under the FAR to contract separately for Although FIs and carriers are not carriers may have lost a portion of their
the performance of integrity functions. considered small entities for purposes of Medicare business since 1998 as fraud
In general, economic theory postulates the RFA, and effective October 1, 2005, review and other functions were
that competition results in a better price we have the authority to replace the transferred to MIP contractors.
for the consumer which, in this current Medicare FI and carrier However, current contractors have
instance, is CMS on behalf of Medicare contracts with new MAC contracts, we benefited from the MIP program and
beneficiaries and taxpayers. are providing the following analysis. will benefit from this final rule. Under
Competition should also encourage the There are currently 18 Medicare FIs, the provisions of this rule, they are
use of innovative techniques to perform 15 Medicare carriers, 1 DME regional eligible to compete for MIP contracts as
integrity functions that will, in turn, contractor (which is also a carrier), and long as they comply with all conflict of
result in more efficient and effective 1 Medicare A/B MAC. Presently, these interest and other requirements.
safeguards for the Trust Funds. contractors perform general program (Current contractors may not receive
integrity activities addressed in this payment for performing the same
rfrederick on PROD1PC67 with RULES5

2. Medicare Beneficiaries and Taxpayers final rule apart from, but not duplicative program integrity activities under both a
MIP contracts have had, and we of, MIP contractors. In FY 2004, MIP contract and their existing
expect will continue to have, an overall approximately 29 percent of the total contract.) We considered proposing
positive effect on Medicare beneficiaries contractor budget was dedicated to rules that identified specific conflict of
and taxpayers. Beneficiaries pay program integrity. Current FIs, carriers, interest situations that would prohibit

VerDate Aug<31>2005 14:44 Aug 23, 2007 Jkt 211001 PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 E:\FR\FM\24AUR4.SGM 24AUR4
Federal Register / Vol. 72, No. 164 / Friday, August 24, 2007 / Rules and Regulations 48885

the award of a MIP contract. We also authority, we have awarded 12 to award contracts to entities to
considered prohibiting a MIP contractor Indefinite Delivery-Indefinite Quantity continue these activities, we have
whose contract was completed but not (IDIQ) contracts for the Program announced initiatives to measure error
renewed or terminated from competing Safeguard Contractor (PSC) effort, one rates in Medicare payments more
for another MIP contract for a certain Coordination of Benefits (COB) contract, accurately and comprehensively and to
period. Instead, the final rule would 8 IDIQ contracts for the Medicare further reduce improper payments.
establish a process for evaluating, on a Managed Care Program Integrity We conclude that our continued
case-by-case basis at the time of Contractors (MMC-PICs) effort, 8 IDIQ authority would save the Medicare
contracting, situations that may contracts for the MEDIC effort, and other program additional money and would
constitute conflicts of interest in miscellaneous contracts. With the extend the solvency of the Trust Funds
accordance with the FAR, subpart 9.5. It addition of the Medicare Part D as a result of this final rule. The
permits current contractors to position prescription drug benefit included in dynamic nature of fraud and abuse is
themselves to be eligible for a MIP the MMA, there will be further illustrated by the fact that wrongdoers
contract by mitigating any conflicts of opportunities for entities to compete for continue to find ways to evade
interest they may have in order to MIP contracts to perform additional safeguards. This supports the need for
compete. The economic impact on FIs program oversight activities. constant vigilance and increasingly
and carriers is lessened by this approach Use of full and open competition to sophisticated ways to protect against
when compared to the alternatives we award MIP contracts may encourage ‘‘gaming’’ the system. We solicited
considered. innovation and the creation of new public comments as well as data on the
The current contractors that are technology. Historically, cutting edge
extent to which any of the affected
awarded MIP contracts, or that continue technologies and analytical
entities would be significantly
to perform MIP functions under their FI methodologies created for the Medicare
economically affected by this final rule.
or carrier contracts, will also benefit program have benefited the private
from more consistent funding provided insurance arena. In accordance with the provisions of
by the law for program integrity Executive Order 12866, this proposed
5. Providers and Suppliers notice was reviewed by the Office of
activities. This more stable, long-term
funding mechanism enables Medicare Because MIP contractors have been in Management and Budget.
contractors to attract, train, and retain place since 1998, we anticipate no List of Subjects
qualified professional staff to help them additional burden imposed on providers
fulfill their program integrity functions. and suppliers that are small businesses 42 CFR Part 400
There will be an economic impact on or not-for-profit organizations by the
Grant programs—health, Health
current contractors that propose to need to deal with a new set of
facilities, Health maintenance
perform MIP contracts using contractors. There are approximately 1.1
organizations (HMO), Medicaid,
subcontractors. A MIP contractor would million health care providers and
Medicare, Reporting and recordkeeping
apply to its subcontractors the same suppliers (depending on how group
requirements.
conflict of interest standard to which it practices and multiple locations are
must adhere. It is impossible to assess counted) that bill independently. The 42 CFR Part 421
the precise economic impact of this final rule does not necessarily impose
portion of the final rule because a MIP any action on the part of these providers Administrative practice and
contractor is generally free to contract and suppliers. procedure, Health facilities, Health
with any subcontractor. A MIP Overall, we expect that providers and professions, Medicare, Reporting and
contractor may seek out subcontractors suppliers will benefit qualitatively from recordkeeping requirements.
that are conflict free, which would this final rule. Many providers and ■ For reasons set forth in the preamble,
reduce or eliminate the time expended suppliers perceive that their reputations the Centers for Medicare & Medicaid
monitoring conflict of interest are tarnished by the few dishonest Services amends 42 CFR chapter IV as
situations. However, our requirements providers and suppliers that take follows:
rely heavily on FAR subpart 9.5, which advantage of the Medicare program. The
normally apply to both prime media often focus on the most egregious PART 400—INTRODUCTION;
contractors and subcontractors. Thus, cases of Medicare fraud and abuse, DEFINITIONS
we do not believe this provision leaving the public with the perception
imposes any additional negative burden that physicians and other health care ■ 1. The authority citation for part 400
on current FIs or carriers. practitioners routinely make improper continues to read as follows:
claims. This rule would allow us to take Authority: Secs. 1102 and 1871 of the
4. New Contracting Entities a more effective and wider ranging Social Security Act (42 U.S.C. 1302 and
Entities that have not previously approach to identifying, stopping, and 1395hh) and 44 U.S.C. Chapter 35.
performed Medicare program integrity recovering from unscrupulous providers
activities will experience a positive and suppliers. As the number of ■ 2. Section 400.202 is amended by
effect from this rule. Integrity functions dishonest providers and suppliers and adding the following definition in
such as audit, medical review, and improper claims diminishes, ethical alphabetical order to read as follows:
potential fraud investigation may be providers and suppliers will benefit. § 400.202 Definitions specific to Medicare.
consolidated in a MIP contract to allow
C. Conclusion * * * * *
suspect claims to be identified and
investigated from all angles. This final Since publishing the March 20, 1998 Medicare integrity program contractor
rule may create new markets and proposed rule, we have awarded MIP means an entity that has a contract with
rfrederick on PROD1PC67 with RULES5

opportunities for small, small contracts to contractors in order to CMS under section 1893 of the Act to
disadvantaged, and woman-owned perform program integrity activities, and perform exclusively one or more of the
businesses. there has been a decrease in the program integrity activities specified in
Since publishing the 1998 proposed percentage of improper claims paid. In that section.
rule and in accordance to this MIP anticipation of our continued authority * * * * *

VerDate Aug<31>2005 14:44 Aug 23, 2007 Jkt 211001 PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 E:\FR\FM\24AUR4.SGM 24AUR4
48886 Federal Register / Vol. 72, No. 164 / Friday, August 24, 2007 / Rules and Regulations

PART 421—MEDICARE CONTRACTING (2) Making the payments. provided the following conditions are
(b) Additional functions. The contract met:
■ 3. The authority citation for part 421 may include any or all of the following (1) The carrier is continuing those
continues to read as follows: functions: functions under a contract entered into
Authority: Secs. 1102 and 1871 of the (1) Any or all of the program integrity under section 1842 of the Act that was
Social Security Act (42 U.S.C. 1302 and functions described in § 421.304, in effect on August 21, 1996.
1395hh). provided the intermediary is continuing (2) The functions do not duplicate
those functions under an agreement work being performed under a Medicare
■ 4. Section 421.1 is revised to read as entered into under section 1816 of the
follows: integrity program contract, except that
Act that was in effect on August 21, the function related to developing and
§ 421.1 Basis, applicability, and scope. 1996, and they do not duplicate work maintaining a list of DME may be
(a) Basis. This part is based on the being performed under a Medicare performed under both a carrier contract
provisions of the following sections of integrity program contract. and a Medicare integrity program
(2) Undertaking to adjust incorrect
the Act: contract.
Section 1124—Requirements for payments and recover overpayments
when it is determined that an (b) Receiving, disbursing, and
disclosure of certain information. accounting for funds in making
Sections 1816 and 1842—Provisions overpayment was made.
(3) Furnishing to CMS timely payments for services furnished to
relating to the administration of Parts A eligible individuals within the
information and reports that CMS
and B. jurisdiction of the carrier.
Section 1893—Requirements for requests in order to carry out its
responsibilities in the administration of (c) Determining the amount of
protecting the integrity of the Medicare payment for services furnished to an
program. the Medicare program.
(4) Establishing and maintaining eligible individual.
(b) Applicability. The provisions of
this part apply to agreements with Part procedures as approved by CMS for the (d) Undertaking to adjust incorrect
A (Hospital Insurance) fiscal redetermination of payment payments and recover overpayments
intermediaries that received awards determinations. when it is determined that an
(5) Maintaining records and making overpayment was made.
under sections 1816 or 1842 of the Act
available to CMS the records necessary (e) Furnishing to CMS timely
prior to October 1, 2005, contracts with
for verification of payments and for information and reports that CMS
Part B (Supplementary Medical
other related purposes. requests in order to carry out its
Insurance) carriers that received awards (6) Upon inquiry, assisting
under sections 1816 or 1842 of the Act responsibilities in the administration of
individuals for matters pertaining to an the Medicare program.
prior to October 1, 2005, and contracts intermediary agreement.
with Medicare integrity program (f) Maintaining records and making
(7) Serving as a channel of
contractors that perform program available to CMS the records necessary
communication to and from CMS of
integrity functions. for verification of payments and for
information, instructions, and other
(c) Scope. The scope of this part— other related purposes.
material as necessary for the effective
(1) Specifies that CMS may perform (g) Establishing and maintaining
and efficient performance of an
certain functions directly or by contract. procedures under which an individual
intermediary agreement.
(2) Specifies criteria and standards (8) Undertaking other functions as enrolled under Part B is granted an
CMS uses in evaluating the performance mutually agreed to by CMS and the opportunity for a redetermination.
of fiscal intermediaries’ successor intermediary. (h) Upon inquiry, assisting
entities and in assigning or reassigning (c) Dual intermediary responsibilities. individuals with matters pertaining to a
a provider or providers to particular Regarding the responsibility for service carrier contract.
fiscal intermediaries. to provider-based HHAs and provider- (i) Serving as a channel of
(3) Provides the opportunity for a based hospices, where the HHA or the communication to and from CMS of
hearing for fiscal intermediaries and hospice and its parent provider will be information, instructions, and other
carriers affected by certain adverse served by different intermediaries, the material as necessary for the effective
actions. designated regional intermediary will and efficient performance of a carrier
(4) Provides adversely affected fiscal process bills, make coverage contract.
intermediaries an opportunity for determinations, and make payments to (j) Undertaking other functions as
judicial review of certain hearing the HHAs and the hospices. The mutually agreed to by CMS and the
decisions. intermediary or Medicare integrity
(5) Sets forth requirements related to carrier.
program contractor serving the parent ■ 7. A new subpart D is added to part
contracts with Medicare integrity
provider will perform all fiscal 421 to read as follows:
program contractors.
functions, including audits and
■ 5. Section 421.100 is revised to read settlement of the Medicare cost reports Subpart D—Medicare Integrity Program
as follows: and the HHA and hospice supplement Contractors
worksheets. Sec.
§ 421.100 Intermediary functions. 421.300 Basis, applicability, and scope.
■ 6. Section 421.200 is revised to read
An agreement between CMS and an 421.302 Eligibility requirements for
as follows:
intermediary specifies the functions to Medicare integrity program contractors.
be performed by the intermediary. § 421.200 Carrier functions. 421.304 Medicare integrity program
contractor functions.
(a) Mandatory functions. The contract A contract between CMS and a carrier
rfrederick on PROD1PC67 with RULES5

421.306 Awarding of a contract.


must include the following functions: specifies the functions to be performed 421.308 Renewal of a contract.
(1) Determining the amount of by the carrier. The contract may include 421.310 Conflict of interest requirements.
payments to be made to providers for any or all of the following functions: 421.312 Conflict of interest resolution.
covered services furnished to Medicare (a) Any or all of the program integrity 421.316 Limitation on Medicare integrity
beneficiaries. functions described in § 421.304 program contractor liability.

VerDate Aug<31>2005 14:44 Aug 23, 2007 Jkt 211001 PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 E:\FR\FM\24AUR4.SGM 24AUR4
Federal Register / Vol. 72, No. 164 / Friday, August 24, 2007 / Rules and Regulations 48887

Subpart D—Medicare Integrity (4) Maintains an appropriate written requirements for awarding Medicare
Program Contractors code of conduct and compliance integrity program contracts are used as
policies that include, but are not limited follows:
§ 421.300 Basis, applicability, and scope. to, an enforced policy on employee (1) When entering into new contracts.
(a) Basis. This subpart implements conflicts of interest. (2) When entering into contracts that
section 1893 of the Act, which requires (5) Meets other requirements that may result in the elimination of
CMS to protect the integrity of the CMS establishes. responsibilities of an individual fiscal
Medicare program by entering into (b) A MAC as described in section intermediary or carrier under section
contracts with eligible entities to carry 1874A of the Act may perform any or all 1816(l) or section 1842(c) of the Act,
out Medicare integrity program of the functions described in § 421.304, respectively.
functions. The provisions of this subpart except that the functions may not (3) At any other time CMS considers
are based on section 1893 of the Act duplicate work being performed under a appropriate.
(and, where applicable, section 1874A Medicare integrity program contract. (b) CMS may award an entity a
of the Act) and the acquisition (c) If a MAC performs any or all Medicare integrity program contract by
regulations set forth at 48 CFR Chapters functions described in § 421.304, CMS transfer if all of the following conditions
1 and 3. may require the MAC to comply with apply:
(b) Applicability. This subpart applies any or all of the requirements of (1) Through approval of a novation
to entities that seek to compete or paragraph (a) of this section as a agreement in accordance with the
receive award of a contract under condition of its contract. requirements of the Federal Acquisition
section 1893 of the Act, including Regulation (FAR), CMS recognizes the
entities that perform functions under § 421.304 Medicare integrity program
contractor functions. entity as the successor in interest to a
this subpart emanating from the fiscal intermediary agreement or carrier
processing of claims for individuals The contract between CMS and a
Medicare integrity program contractor contract under which the fiscal
entitled to benefits as qualified railroad intermediary or carrier was performing
retirement beneficiaries. specifies the functions the contractor
performs. The contract may include any activities described in section 1893(b) of
(c) Scope. The scope of this subpart the Act on August 21, 1996.
follows: or all of the following functions:
(a) Conducting medical reviews, (2) The fiscal intermediary or carrier
(1) Defines the types of entities continued to perform Medicare integrity
eligible to become Medicare integrity utilization reviews, and reviews of
potential fraud related to the activities program activities until transferring the
program contractors. resources to the entity.
(2) Identifies the program integrity of providers of services and other
individuals and entities (including (c) An entity is eligible to be awarded
functions a Medicare integrity program
entities contracting with CMS under a Medicare integrity program contract
contractor performs.
parts 417 and 422 of this chapter) only if it meets the eligibility
(3) Describes procedures for awarding
furnishing services for which Medicare requirements specified in § 421.302; 48
and renewing contracts.
payment may be made either directly or CFR Chapters 1 and 3; and other
(4) Establishes procedures for
indirectly. applicable laws and regulations.
identifying, evaluating, and resolving
organizational conflicts of interest. (b) Auditing, settling and determining § 421.308 Renewal of a contract.
(5) Prescribes responsibilities. cost report payments for providers of
(a) General. (1) CMS specifies an
(6) Sets forth limitations on contractor services, or other individuals or entities
initial contract term in the Medicare
liability. (including entities contracting with
integrity program contract.
CMS under parts 417 and 422 of this
§ 421.302 Eligibility requirements for chapter), as necessary to help ensure (2) Contracts under this subpart may
Medicare integrity program contractors. proper Medicare payment. contain renewal clauses.
(a) CMS may enter into a contract (c) Determining whether a payment is (3) CMS may, but is not required to,
with an entity to perform the functions authorized under title XVIII, as renew the Medicare integrity program
described in § 421.304 if the entity specified in section 1862(b) of the Act, contract, without regard to any
meets the following conditions: and recovering mistaken and provision of law requiring competition,
(1) Demonstrates the ability to conditional payments under section as it determines to be appropriate, by
perform the Medicare integrity program 1862(b) of the Act. giving the contractor notice, within
contractor functions described in (d) Educating providers, suppliers, timeframes specified in the contract, of
§ 421.304. For purposes of developing beneficiaries, and other persons its intent to do so.
and periodically updating a list of DME regarding payment integrity and benefit (b) Conditions for renewal of contract.
under § 421.304(e), an entity is deemed quality assurance issues. CMS may renew a Medicare integrity
to be eligible to enter into a contract (e) Developing, and periodically program contract if all of the following
under the Medicare integrity program to updating, a list of items of DME that are conditions are met:
perform the function if the entity is a frequently subject to unnecessary (1) The Medicare integrity program
carrier with a contract in effect under utilization throughout the contractor’s contractor continues to meet the
section 1842 of the Act. entire service area or a portion of the requirements established in this
(2) Agrees to cooperate with the OIG, area, in accordance with section subpart.
the DOJ, and other law enforcement 1834(a)(15)(A) of the Act. (2) The Medicare integrity program
agencies, as appropriate, including contractor meets or exceeds the
making referrals, in the investigation § 421.306 Awarding of a contract. performance requirements established
and deterrence of potential fraud and (a) CMS awards and administers in its current contract.
rfrederick on PROD1PC67 with RULES5

abuse of the Medicare program. Medicare integrity program contracts in (3) It is in the best interest of the
(3) Complies with conflict of interest accordance with acquisition regulations government.
provisions in 48 CFR Chapters 1 and 3, set forth at 48 CFR chapters 1 and 3, this (c) Nonrenewal of a contract. If CMS
and is not excluded under the conflict subpart, all other applicable laws, and does not renew a contract, the contract
of interest provision at § 421.310. all applicable regulations. These ends in accordance with its terms.

VerDate Aug<31>2005 14:44 Aug 23, 2007 Jkt 211001 PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 E:\FR\FM\24AUR4.SGM 24AUR4
48888 Federal Register / Vol. 72, No. 164 / Friday, August 24, 2007 / Rules and Regulations

§ 421.310 Conflict of interest a determination by the contracting amount of the expenses, as determined
requirements. officer that one of the following has by CMS, incurred in connection with
Offerors for MIP contracts and MIP occurred: the defense of a suit, action, or
contractors are subject to the following: (i) The conflict is mitigated. proceeding, if the following conditions
(a) The conflict of interest standards (ii) The conflict requires that CMS are met:
and requirements of the Federal modify an existing contract. (1) The suit, action, or proceeding was
Acquisition Regulation (FAR) (iii) The conflict requires that CMS brought against the contractor, such
organizational conflict of interest terminate or not renew an existing person or entity by a third party and
guidance specified under 48 CFR contract. relates to the contractor’s, person’s or
subpart 9.5. (iv) It is in the best interest of the entity’s performance of any duty,
(b) The standards and requirements as government to continue the contract function, or activity under a contract
are contained in each individual even though a conflict of interest exists. entered into with CMS under this
contract awarded to perform section subpart.
1893 of the Act functions. § 421.316 Limitation on Medicare integrity
program contractor liability.
(2) The funds are available.
§ 421.312 Conflict of interest resolution.
(3) The expenses are otherwise
(a) A MIP contractor, a person or an allowable under the terms of the
(a) Review Board. CMS may establish entity employed by, or having a contract.
and convene a Conflicts of Interest fiduciary relationship with, or who
Review Board to assist the contracting furnishes professional services to a MIP (Catalog of Federal Domestic Assistance
contractor is not in violation of any Program No. 93.773, Medicare—Hospital
officer in resolving organizational
Insurance; and Program No. 93.774,
conflicts of interest. criminal law or civilly liable under any Medicare—Supplementary Medical
(b) Resolution—(1) Pre-award law of the United States or of any State Insurance Program)
conflicts. Resolution of an (or political subdivision thereof) by
reason of the performance of any duty, Dated: January 29, 2007.
organizational conflict of interest is a
determination by the contracting officer function, or activity required or Leslie V. Norwalk,
that one of the following has occurred: authorized under this subpart or under Acting Administrator, Centers for Medicare
(i) The conflict is mitigated. a valid contract entered into under this & Medicaid Services.
(ii) The conflict precludes award of a subpart, provided due care was Approved: May, 11 2007.
contract to the offeror. exercised in that performance and the Michael O. Leavitt,
(iii) It is in the best interest of the contractor has a contract with CMS Secretary.
government to award a contract to the under this subpart.
offeror (in accordance with 48 CFR (b) CMS pays a contractor, a person or Editorial Note: This document was
subpart 9.503) even though a conflict of an entity described in paragraph (a) of received at the Office of the Federal Register
on August 17, 2007.
interest exists. this section, or anyone who furnishes
(2) Post-award conflicts. Resolution of legal counsel or services to a contractor [FR Doc. E7–16606 Filed 8–23–07; 8:45 am]
an organizational conflict of interest is or person, a sum equal to the reasonable BILLING CODE 4120–01–P
rfrederick on PROD1PC67 with RULES5

VerDate Aug<31>2005 14:44 Aug 23, 2007 Jkt 211001 PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 E:\FR\FM\24AUR4.SGM 24AUR4