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

Wednesday,
October 5, 2005
Part II
Department of
Health and Human
Services
Centers for Medicare & Medicaid Services
42 CFR Parts 431 and 457

Medicaid Program and State Children’s
Health Insurance Program (SCHIP)
Payment Error Rate Measurement;
Interim Rule
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58260 Federal Register / Vol. 70, No. 192 / Wednesday, October 5, 2005 / Rules and Regulations
DEPARTMENT OF HEALTH AND forth the requirements for States to persons without Federal Government
HUMAN SERVICES assist us and the contractor to produce identification, commenters are
State-specific error rates in Medicaid encouraged to leave their comments in
Centers for Medicare & Medicaid and SCHIP which will be used as the the CMS drop slots located in the main
Services basis for a national error rate, and lobby of the building. A stamp-in clock
outlines future plans for measuring is available for persons wishing to retain
42 CFR Parts 431 and 457 eligibility, which may include greater a proof of filing by stamping in and
[CMS–6026–IFC] State involvement than the level retaining an extra copy of the comments
required for the medical and data being filed.)
RIN 0938–AN77 processing reviews. Comments mailed to the addresses
DATES: Effective date: These regulations indicated as appropriate for hand or
Medicaid Program and State Children’s
are effective on November 4, 2005. courier delivery may be delayed and
Health Insurance Program (SCHIP)
Comment date: To be assured received after the comment period.
Payment Error Rate Measurement
consideration, comments must be Submission of comments on
AGENCY: Centers for Medicare & received at one of the addresses paperwork requirements. You may
Medicaid Services (CMS), HHS. provided below, no later than 5 p.m. on submit comments on this document’s
ACTION: Interim final rule with comment November 4, 2005. paperwork requirements by mailing
period. ADDRESSES: In commenting, please refer your comments to the addresses
to file code CMS–6026–IFC. Because of provided at the end of the ‘‘Collection
SUMMARY: This interim final rule sets of Information Requirements’’ section in
forth the State requirements to provide staff and resource limitations, we cannot
accept comments by facsimile (FAX) this document.
information to us for purposes of For information on viewing public
estimating improper payments in transmission.
You may submit comments in one of comments, see the beginning of the
Medicaid and the State Children’s SUPPLEMENTARY INFORMATION section.
Health Insurance Program (SCHIP), as four ways (no duplicates, please):
1. Electronically. You may submit FOR FURTHER INFORMATION CONTACT:
required under the Improper Payments
electronic comments on specific issues Christine Jones, (410) 786–3722; or Janet
Information Act (IPIA) of 2002. The IPIA
in this regulation to http:// E. Reichert, (410) 786–4580.
requires heads of Federal agencies to
annually estimate and report to the www.cms.hhs.gov/regulations/ SUPPLEMENTARY INFORMATION:
Congress these estimates of improper ecomments. (Attachments should be in Submitting Comments: We welcome
payments for the programs they oversee Microsoft Word, WordPerfect, or Excel; comments from the public on all issues
and, submit a report on actions the however, we prefer Microsoft Word.) set forth in this rule to assist us in fully
agency is taking to reduce erroneous 2. By regular mail. You may mail considering issues and developing
payments. We published a proposed written comments (one original and two policies. You can assist us by
rule on August 27, 2004 to propose that copies) to the following address ONLY: referencing the file code CMS–6026–IFC
States measure improper payments in Centers for Medicare & Medicaid and the specific ‘‘issue identifier’’ that
Medicaid and SCHIP and report the Services, Department of Health and precedes the section on which you
State-specific error rates to us for Human Services, Attention: CMS–6026– choose to comment.
purposes of computing the improper IFC, PO Box 8012, Baltimore, MD Inspection of Public Comments: All
payment estimates for these programs. 21244–8012. comments received before the close of
After extensive analysis of the issues Please allow sufficient time for mailed the comment period are available for
related to having States measure comments to be received before the viewing by the public, including any
improper payments in Medicaid and close of the comment period. personally identifiable or confidential
SCHIP, including public comments on 3. By express or overnight mail. You business information that is included in
the provisions in the proposed rule, we may send written comments (one a comment. We post all electronic
are revising our proposed approach. Our original and two copies) to the following comments received before the close of
new approach incorporates commenters’ address ONLY: Centers for Medicare & the comment period on its public Web
suggestions to engage a Federal Medicaid Services, Department of site as soon as possible after they have
contractor by contracting with that Health and Human Services, Attention: been received. Hard copy comments
entity to complete the data processing CMS–6026–IFC, Mail Stop C4–26–05, received timely will be available for
and medical reviews and calculate the 7500 Security Boulevard, Baltimore, MD public inspection as they are received,
State-specific error rates. Based on the 21244–1850. generally beginning approximately 3
States’ error rates, the contractor also 4. By hand or courier. If you prefer, weeks after publication of a document,
will calculate the improper payment you may deliver (by hand or courier) at the headquarters of the Centers for
estimates for these programs which will your written comments (one original Medicare & Medicaid Services, 7500
be reported by the Department of Health and two copies) before the close of the Security Boulevard, Baltimore,
and Human Services as required by the comment period to one of the following Maryland 21244, Monday through
IPIA. This interim final rule sets out the addresses. If you intend to deliver your Friday of each week from 8:30 a.m. to
types of information that States would comments to the Baltimore address, 4 p.m. To schedule an appointment to
need to submit to allow CMS to conduct please call telephone number (410) 786– view public comments, phone 1–800–
medical and data processing reviews on 7195 in advance to schedule your 743–3951.
claims made in the fee-for-service (FFS) arrival with one of our staff members.
Room 445–G, Hubert H. Humphrey I. Background
setting. CMS will address estimating
improper payments for Medicaid Building, 200 Independence Avenue, [If you choose to comment on issues
managed care and eligibility and SCHIP SW., Washington, DC 20201; or 7500 in this section, please include the
FFS, managed care and eligibility at a Security Boulevard, Baltimore, MD caption ‘‘BACKGROUND’’ at the
later time. 21244–1850. beginning of your comments.]
This rule responds to the public (Because access to the interior of the The Improper Payments Information
comments on the proposed rule, sets HHH Building is not readily available to Act of 2002 (IPIA), Public Law 107–300,
Federal Register / Vol. 70, No. 192 / Wednesday, October 5, 2005 / Rules and Regulations 58261
enacted on November 26, 2002, requires program characteristics, State engaging a Federal contractor rather
the heads of Federal agencies to review participation in estimating improper than requiring States to produce error
annually programs they oversee that are payments was critical during the pilot rates. We plan to publish a final rule
susceptible to significant erroneous projects and continues to be necessary that responds to comments made on this
payments to estimate the amount of and important for the Secretary to interim final rule. We expect the
improper payments, to report those comply with the requirements of the determination of the eligibility error rate
estimates to the Congress, and to submit IPIA. Obtaining and considering State to require State participation and seek
a report on actions the agency is taking input in IPIA requirements has comments through this interim final
to reduce erroneous expenditures. The necessarily been time-consuming; rule on how such a rate could best be
IPIA directed the Office of Management however, the end result is an interim calculated within current Medicaid and
and Budget (OMB) to provide final rule with comment period that is SCHIP laws and regulations, and with
subsequent guidance. OMB defines more responsive to our stakeholders’ minimal imposition on State resources.
significant erroneous payments as concerns. We anticipate producing a Medicaid
annual erroneous payments in the FFS error rate for the FY 2007
II. Provisions of the Proposed Rule
program exceeding both 2.5 percent of Performance and Accountability Report
program payments and $10 million We published a proposed rule on (PAR) based on reviews conducted in
(OMB M–03–13, 05/21/03). For those August 27, 2004 (69 FR 52620) that FY 2006. In FY 2007, we expect to
programs with significant erroneous contained provisions for all States to measure improper payments in the FFS,
payments, Federal agencies must annually estimate total improper managed care and eligibility
provide the estimated amount of payments in Medicaid and SCHIP. components of Medicaid and SCHIP to
improper payments and report on what Based on medical, data processing, and be reported in the FY 2008 PAR. We are
actions the agency is taking to reduce eligibility reviews on a monthly random also seeking comments on how best to
them, including setting targets for future selection of a total of approximately 800 determine an error rate for managed care
erroneous payment levels and a timeline to 1,200 fee-for-service (FFS) and in Medicaid and SCHIP.
by which the targets will be reached. managed care claims (stratified between
In the report to the Congress, Federal the components) each for Medicaid and III. Analysis and Response to Public
agencies must include: (1) The estimate SCHIP, States would produce and report Comments on the Proposed Rule
of the annual amount of erroneous to us State-specific payment error rates Public comments on the proposed
payments; (2) a discussion of the causes in Medicaid and SCHIP. We would then rule expressed concerns predominantly
of the errors and actions taken to correct calculate a national error rate for these with the cost and burden that States
those causes; (3) a discussion of the programs. States would take actions to would incur and the potential adverse
amount of actual erroneous payments address causes of errors identified effect that error rate measurement could
the agency expects to recover; and (4) through the claims reviews. States also have on beneficiaries’ access to care.
limitations that prevent the agency from would submit an annual report to us Although many commenters supported
reducing the erroneous payment levels, detailing the causes of errors and the general need for program integrity,
that is, resources or legal barriers. specifying actions to be taken to reduce they offered alternatives that they
The Medicaid and SCHIP programs the level of improper payments. The believed would better achieve
were identified by OMB as programs at process for recoveries of improper compliance with the IPIA requirements.
risk for significant erroneous payments. payments under Medicaid is already set Many commenters made the following
OMB has directed the Department of in statute. States must return the Federal recommendations to allow us to achieve
Health and Human Services (DHHS) to share of overpayments identified compliance with IPIA by other means:
report the estimated error rate for the through the medical and data processing • Utilize national sampling using
Medicaid and SCHIP programs to OMB reviews of the sampled claims within 60 Medicaid Statistical Information System
by November 15 of each year. days in accordance with existing (MSIS) data.
There currently is no systematic statutory and regulatory requirements • Pool State-specific data across the
means of measuring payment errors at governing recoveries (section 1903(d)(2) years, or accept larger standard errors to
the State and national levels for of the Social Security Act (Act) and 42 generate a national estimate,
Medicaid and SCHIP. Through the CFR part 433, subpart F). Recoveries of particularly for SCHIP.
Payment Accuracy Measurement (PAM) the Federal share of improper payments • Use the Medicaid Eligibility Quality
and Payment Error Rate Measurement based on eligibility errors are subject to Control (MEQC) program as a sampling
(PERM) pilot projects that operated in the provisions of section 1903(u) of the process. States could change their
Fiscal Years (FYs) 2002 through 2005, Act and related regulations at 42 CFR sampling methodology from case to
we determined that it is feasible to part 431, subpart P. claim, stratify the claims and sample
estimate improper payments for The intended effect of the proposed monthly to determine eligibility and
Medicaid and SCHIP and refined a rule was to have States measure perform a medical review. Regulations
claims-based review methodology. This improper payments, to target corrective for MEQC are in place and
methodology was designed to estimate actions in response to identified errors, implementing the additional
State-specific payment error rates to reduce the rate of improper requirements within an existing
within +/¥3 percent of the true payments, and to produce a structure would be easier. The MEQC
population error rate with 95 percent corresponding increase in program error rates could also be used to produce
confidence. Moreover, through weighted savings at both the State and Federal a national eligibility error rate to
aggregation, the State-specific estimates levels. The proposed rule would have prevent the redundancy of conducting
can be used to make national level error allowed us to comply with the IPIA PERM and MEQC, along with
rate estimates for Medicaid and SCHIP requirements. minimizing financial burdens.
that meet OMB’s confidence and This rule is being promulgated as • Use existing State methodologies
precision requirements. interim final with comment period due and compare them to the results of other
Since Medicaid and SCHIP are to the significant departure in the samples to determine whether they
administered by State agencies approach to estimate improper contribute to the goal of a national
according to each State’s unique payments in Medicaid and SCHIP by program error rate.
• Hire a Federal contractor. comparability and aggregation for a and large based on States’ annual FFS
• Use gathered information to provide national rate. Medicaid expenditures from the
technical assistance to States to improve We also did not adopt the previous year, and select a random
program integrity, rather than penalize recommendation to use existing States’ sample of an estimated 18 States to be
States. methodologies to produce a national reviewed. The error rates produced by
We considered all of the program error rate. Commenters stated this selection methodology will provide
recommendations and adopted several that, in addition to MEQC, States use the State with a State-specific error rate
of the recommendations. The new the Surveillance and Utilization Review estimated to be within 3 percent
approach to error rate measurement will System (SURS), program integrity, and precision at the 95 percent confidence
rely on a Federal contractor to conduct checks and balances in the claims level. For subsequent years, our
medical and data processing reviews processing systems and suggested that sampling methodology will ensure that
and produce State-specific and national the States submit proof of program each State will be selected once, and
Medicaid and SCHIP error rates. The savings that equaled a percentage of the only once, every 3 years for each
contractor will sample selected States program’s current costs. We believe this program.
each year to estimate improper recommendation would not result in a The States selected for review will
payments in Medicaid and SCHIP and standardized approach since the submit the previous year’s claims data
create a national error rate. We have not information that States would submit and expenditure data, not otherwise
made a final determination about how would be based on varying already provided by CMS, on which the
eligibility errors will be measured. It is methodologies and that submitting cost contractor will determine each State’s
likely, however, that States would be savings information is not a sample size and the sample size for each
active participants in this process. For measurement of improper payments, as stratum. The strata we are considering
example, though several options remain required by IPIA. Also, not all States are: (1) Hospital services; (2) long term
under consideration, it is possible that may apply these systems to SCHIP. care services; (3) other independent
the States sampled for the medical and Therefore, this approach may not practitioners and clinics; (4)
produce a national error rate that would prescription drugs; (5) home and
data processing reviews would be
meet the confidence and precision community based services; (6) other
required to test for eligibility errors in
requirements contained in OMB services and supplies, for example, labs,
a manner similar to that presented in
guidance. The proposed rule did not x-rays; (7) primary care case
the proposed rule.
provide for States to be penalized management; and (8) denied claims.
We did not adopt the other through this error rate measurement. These States also will submit quarterly
recommendations, either because they Finally, we are always available to stratified claims data to the contractor
would not achieve compliance with provide technical assistance to States. who will pull a statistically valid
OMB guidance, or because we believed After consideration of the proposed random sample, each quarter, by strata
that they were not the best methods to alternatives, we are adopting the and medical and data processing
meet the requirements of OMB recommendations to hire a Federal reviews will be performed. State-
guidance. We did not adopt the first contractor to conduct the medical and specific error rates will be based on the
recommendation because there is no data processing reviews and calculate results of these reviews.
national sampling frame for SCHIP the State-specific and national error In FY 2006, contingent on available
claims, and the MSIS data for Medicaid rates for Medicaid and SCHIP. We also funding, we plan to estimate improper
are too old to produce meaningful data are adopting the recommendation to payments in the FFS component of
on which States could base effective sample a subset of States each year. Medicaid. In FY 2007, we expect to
corrective actions. Pooling State-specific Each State will have a State-specific measure improper payments in both the
data across the years or accepting larger error rate which will be the basis for a FFS and managed care components of
standard errors to generate a national national error rate. Adopting these Medicaid and SCHIP. We will measure
estimate would not generate an error recommendations addresses the error rate in each component (FFS
rate that was based on an annual commenters’ concerns with State cost and managed care) separately due to
standardized measurement of improper and burden. their differing nature. For example, FFS
payments and therefore would not By FY 2008, we hope to be compliant has a wide variance in payments
provide a basis on which an annual with the IPIA requirements by amounts, whereas managed care
national error rate that was compliant producing error rates for both Medicaid payments do not. We expect to be able
with OMB guidance could be and SCHIP FFS, managed care and to produce the Medicaid and SCHIP
calculated. Although accepting State eligibility. In FY 2006, we will use a FFS, managed care and eligibility
samples with larger standard errors may Federal contractor to estimate improper national error rates for reporting in the
produce a national error rate that was payments from medical and data FY 2008 PAR to the Congress.
compliant with OMB guidance, those processing reviews in the fee-for-service We received a total of 121 comments:
estimates would not provide the States component of Medicaid and establish a 43 from State agencies and 78 from
with sufficient information to identify workgroup to make recommendations consumer advocacy and other groups.
vulnerabilities and to implement on the best approach for reviewing Overall, commenters expressed concern
corrective actions. We also did not Medicaid and SCHIP eligibility, within with the proposed methodology for
adopt the recommendation to use MEQC the confines of current statute and with measuring improper payments, although
as a sampling process because the minimal budgetary impact for purposes many also expressed support for the
MEQC statute does not apply to SCHIP of meeting IPIA requirements to general need for program integrity.
stand-alone programs under Title XXI. measure improper payments based on Areas of greatest concern were burden
Also, many States have their MEQC payments to ineligibles. and cost, the requirement for States to
programs attached to the section 1115 Under the national contracting construct error rates to meet a legal
research and demonstration waivers strategy, a number of States will be requirement imposed on Federal
that, while allowing them the flexibility selected for review. In FY 2006, the agencies, and the impact on
to tailor their eligibility oversight Federal contractor will group all States beneficiaries. States did not believe the
efforts, have the effect of preventing into three equal strata of small, medium proposed rule’s methodology would be
cost-effective or realize savings. Some selected for review each year will modification to the rule focus on the
States and the advocacy groups were provide information necessary for measurement of monies lost to fraud
concerned that the proposed claims sample selections and reviews, and abuse. The commenters emphasized
methodology would have an adverse will provide technical assistance as prevention strategies centered on
effect on access to care as States needed, and will implement and report education, data mining, prospective
increased or imposed new requirements on the corrective actions to reduce the flags, as well as recovery of erroneous
on applicants for documented proof of error rate. The States will be reimbursed payments and cooperation with law
eligibility to avoid errors. Following are for these activities at the applicable enforcement to facilitate criminal
the comments on the proposed rule, administrative Federal match under prosecution.
grouped by topic, and our responses. Medicaid and SCHIP. As part of the Response: We are not adopting this
rulemaking process, we have evaluated recommendation. We currently conduct
A. Purpose and Basis the burden and impact that these fraud and abuse oversight activities,
Comment: Many commenters responsibilities will have on States and which include data analysis through the
expressed concern with the cost and determined that there was significantly Medicare-Medicaid data match, to
burden that the proposed rule would less impact on States and providers. We identify potential fraud and abuse.
have imposed on States, particularly plan to measure SCHIP FFS, managed Other activities, such as education,
since they believe the IPIA imposes the care and eligibility in FY 2007, and we prospective flags, recovery of erroneous
requirement to measure improper acknowledge that the 10-percent cap on payments, and cooperation with law
payments on Federal agencies rather SCHIP administrative expenditures enforcement are currently conducted at
than the States. States are also could be a concern in the future, the State level. We believe additional
concerned that: particularly depending on the nature of actions are not necessary at this time.
• Critical staff would need to be reviews necessary to produce SCHIP Comment: Several commenters urged
diverted to perform the reviews; eligibility error rates. Though the CMS to reconsider its proposal and
• It would be difficult to implement burden and cost States would bear for develop a system under which the error
corrective actions while measuring error eligibility testing in both Medicaid and reporting requirements are clear and
rates at the same time; SCHIP fee-for-service and managed care identical for all States. They are
• The rule places an added burden on remains uncertain, the eligibility concerned that differing State rules for
States at a time when some are workgroup will make every effort to reviews will contribute to the
struggling to maintain and expand minimize both while establishing a administrative burden and potential
coverage to currently uninsured useful and worthwhile methodology. inefficiencies in the system, especially
individuals; and, Finally, due to the minimal additional for providers operating facilities in
• Forces States to shift funds from activity required by the regulation, we many States.
other programs. Providers need the believe that States selected for review Response: We have reconsidered our
States to invest additional resources in should not need to divert staff from approach and believe this strategy will
provider outreach, education, and other areas of program activities. provide more standardized measures
resource material that would improve Comment: Some commenters stated across States. The States’ requirements
the entire system, not to shift funds that the proposed rule goes beyond the for the medical and data processing
away from activities to calculate error requirements of law and lacks details reviews are clearly stated in this
rates. needed for States to determine regulation text, and the public is
The commenters stated that, if States requirements and resource afforded the opportunity through this
must estimate improper payments in commitments. A few commenters rule to comment on them.
Medicaid and SCHIP, these activities recommended that CMS postpone the Any additional State requirements
should be fully federally funded. proposed rule until more details could will be described in a proposed rule
Response: We agree that the IPIA be given or revise the regulation to with an opportunity for public
imposes the requirement on Federal establish key principles to make the comment. We invite comments on how
agencies rather than the States to reviews fair and accurate based on a system that relies, in part, on State
measure improper payments. Although public comment. measurement could be standardized
Medicaid and SCHIP are jointly funded Response: The Federal contractor’s across States.
by the Federal and State governments, responsibility for medical and data Comment: A few commenters stated
the programs are fully administered and processing reviews should lift a that some States should be given special
operated by the States. Also, there is substantial portion of the burden from consideration such as States that have
wide variation in States’ Medicaid and States. Since Medicaid and SCHIP are limited or no previous error rate
SCHIP programs due to the flexibility partnerships between the Federal and experience; and CMS should exclude
States have in developing the coverage, State governments, we will rely on States with SCHIP minimal allotments,
benefit, and reimbursement aspects of States’ assistance throughout the error similar to excluding the Territories due
the programs. As a result, we must measurement process. This interim final to minimal funding.
measure improper payments on a State- rule provides the opportunity for States Response: State burden and cost are
specific basis in order to produce a and other interested parties to comment significantly reduced under this revised
national payment error rate. on the States’ responsibilities in this strategy, so we believe the basis to
Regarding the cost and burden that revised approach. consider excluding States with small
the proposed rule would have imposed Additionally, we will request that SCHIP allotments no longer exists.
on States, our adoption of the some States and/or their representatives Therefore, we are not adopting this
commenters’ recommendation to engage be part of the eligibility workgroup. We recommendation.
a Federal contractor to estimate a look forward to their input and Comment: A few States inquired as to:
component of improper payments participation as we continue through (a) the legal obligation of States to
significantly reduces the cost and the process. institute payment error rate
burden and addresses this concern. Comment: A few commenters were measurement; and (b) the consequences
States will not pay for the national highly supportive of the proposed rule if a State could not comply with the
contractor. In addition, only those States and recommended that any regulatory requirements.
Response: Current law at section 1102 Comment: A number of commenters States in implementing payment error
of the Act authorizes the Secretary to believe that working with Medicaid and rate measurement, including CMS
establish regulations as may be SCHIP will be more difficult for regional office representatives. The
necessary for the efficient providers because of increasing taskforce could seek feedback from
administration of the Medicaid and paperwork burdens, higher rates of stakeholders on the process for
SCHIP programs. The Medicaid statute denied claims, delays in payments, and improvements in moving forward.
at section 1902(a)(6) of the Act, and the sanctions. Response: Since we are engaging a
SCHIP statute at section 2107(b)(1) of Response: The providers who would Federal contractor rather than the States
the Act, require States to provide submit medical documentation to to produce error rates, the
information necessary for the Secretary support the medical reviews are recommendation to convene a taskforce
to monitor program performance. participating providers in Medicaid to track States’ progress on medical and
Section 1902(a)(27) of the Act requires and/or SCHIP. We have analyzed the data processing reviews no longer
providers also to submit information as cost and burden on providers as part of applies. However, the eligibility
requested by the Secretary. These this rule and determined that there will workgroup may decide to have a
statutory provisions provide the bases not be a significant cost or impact. We taskforce track States’ progress on the
for requiring States and providers to believe we have further minimized the eligibility reviews, when implemented.
submit information needed to produce burden on providers nationwide by
Medicaid and SCHIP error rates. reviewing only a selection of States B. Definitions
Regarding compliance, the regulations rather than all States every year. Also, Comment: A few commenters
that govern State compliance with providers only need to submit medical recommended replacing the definition
Federal requirements in Medicaid and records for FFS claims since managed of ‘‘total estimated improper payments’’
SCHIP are 42 CFR 430.35 and 457.204, care claims are not subject to medical with a definition of ‘‘Federal estimated
respectively. Under these regulations, reviews. improper payments’’ that is based on
the Administrator has the discretion to Comment: Several commenters were the Federal share of improper payments,
enforce the compliance regulations by concerned that the proposed rule would
as computed using the appropriate
withholding Federal matching funds in place a unique burden on providers who
Federal matching rate for Medicaid or
whole or in part until a State complies serve a disproportionately large share of
SCHIP.
with Federal requirements. Medicaid and SCHIP enrollees. The
negative impact of additional time and Response: We agree with the
Comment: Some commenters stated commenter that the IPIA and OMB
practice cost that would be required of
that savings will not be realized since guidance refer only to Federal improper
providers to respond to requests for
the cost of conducting error rate payments. We have deleted this
medical records and error rate
measurement will exceed savings. definition from the interim final rule.
measurement efforts should be
Response: The IPIA requires error rate considered as the final rule is drafted.
measurement for these programs and C. Claims Universe and Sampling
Response: As stated above, we have
does not include lack of cost savings as analyzed the burden on providers as 1. Exclusions From the Universe
a reason for not measuring improper part of this rule. We believe that a. Denied Claims
payments. Since we are estimating utilizing a sample of States will reduce
improper payments in a select number the burden on providers nationwide Comment: Many commenters objected
of States through a Federal contracting since only those Medicaid and SCHIP to the inclusion of denied claims in the
strategy, we believe the State cost to providers in States selected for review sampling process. They believe that a
measure error rates has been drastically will submit medical records and, in denied claim is not included in the IPIA
reduced. We will analyze the cost/ each State, only providers whose FFS definition of improper payment as
savings benefits when we have reliable claims were selected would need to defined in the IPIA or the proposed rule.
findings, but we anticipate that savings submit records, as managed care claims Some commenters questioned OMB’s
will be realized over time through are not subject to medical review. interpretation of an improper payment
efficiencies gained by experience in Comment: A few commenters wanted which includes denied claims. Some
estimating error rates, through to know what would be considered an commenters stated that denied claims
disseminating findings from selected acceptable State error rate percentage. are not improper payments since
States, States’ corrective action Response: Unlike the statute at payments have not actually been made.
measures, and modeling best practices. section 1903(u) of the Act which sets a Response: The IPIA defines improper
Comment: A few commenters 3-percent error rate tolerance for payment as ‘‘any payment that should
recommended that payment error rate Medicaid eligibility errors before a not have been made or that was made
measurement use a claims-based disallowance of the Federal share of in an incorrect amount including
sampling methodology and be improper payments can be imposed, the overpayments and underpayments.’’
administered electronically, since a IPIA and subsequent OMB guidance OMB guidance M–03–13, published
paper-based model would prove does not set a State-specific error rate May 21, 2003, states that ‘‘incorrect
burdensome to States and providers and percentage. IPIA is merely a reporting amounts are overpayments and
could lead to lower provider response requirement; it neither penalizes nor underpayments including inappropriate
rates. rewards States for acceptable or denials or payment of service.’’
Response: The proposed rule unacceptable error rates. However, Therefore, we must include denied
provided for a claims-based sampling States would still be required to claims in the error rate measurement
methodology as does the interim final reimburse CMS for the Federal portion process.
rule for the medical and data processing of all improper payments identified Comment: Some commenters stated it
reviews. Since States and providers through the medical and data processing may be difficult for States to find a
have different levels of systems reviews. standard definition of denied claim and
sophistication, the contractor will work Comment: A few commenters wanted to know whether the amount of
with States to determine the format for suggested that CMS develop an internal a denied claim should be a zero amount
States to submit information. taskforce to review the progress of the or the amount billed.
Response: A denied claim is a claim payment system, corrected and sampling and review to the same extent
or line item that was submitted by a resubmitted, and ultimately approved as any other claim.
provider for services furnished, was for payment. This reduces the chance Comment: A few commenters stated
accepted by the claims processing or that a claim for a single service would that Medicare crossover claims should
payment system, was adjudicated for show up in the sample as both a denial be excluded because the buy-in claims
payment, and was not approved for and a paid claim. The inclusion of are paid directly to a Federal agency and
payment. The amount of a denied claim denials is consistent with guidance from have the unintended outcome of having
when part of the universe for sampling OMB, which has stated that improper States determine the accuracy of
purposes is zero dollars. The amount of payments include inappropriate denials Medicare claims, when the primary
improper payment, if a claim was of payment or service. Medicare claims are already measured
denied erroneously, would be the Comment: Some commenters by CMS. The commenters stated these
amount that should have been paid as questioned how an error rate would be claims were not tested in the PAM
a result of the review. determined for a denied claim pilots.
Comment: Some commenters asked specifically inquiring as to the nature of Response: The commenter is correct
what documentation supports a denied the numerator and denominator. that Medicare Parts A and B crossover
claim. States may not have the authority Response: There are multiple claims were not tested in the PAM
to demand a medical record for a denied approaches for including denials in the pilots. At that time, CMS and the
claim. error rate. If denials are included as a participating States were still refining
Response: Documentation to support separate stratum, the ‘‘difference’’ the methodology to estimate error rates.
a denied claim depends on the reason version of the error rate calculation In the FY 2005 pilot (PERM pilot), both
the claim was denied. For example, if would be applied. Errors from denials Medicare crossover claims and denied
the reason for the denial was based on are included in the total error rate, claims were included in the reviews.
the claims processing, a processing projected to the population or universe Medicare crossover claims are included
review would be done to verify the using the inverse of the sampling
in the universe for sampling because
denial. If the reason for the denial was they are considered Medicaid payments
frequency. In the denominator, the non-
medically based, a medical record made to insurers, similar to Medicaid
stochastic (that is, deterministic) value
would support whether or not the claim payments for employee health care
of all line items paid over the sampling
was correctly denied. If the provider premiums. This methodology measures
period is included, and denials enter the
does not submit the record or if the the accuracy of the Medicaid payment
denominator as zero.
submitted record does not substantiate on the claim rather than the accuracy of
the service billed, then the denial would Comment: Some commenters asked the Medicare payment.
be correct. Since we are utilizing a what denial explanation of benefits will Comment: A few commenters stated
Federal contractor, States will not be be used to identify denied claims that that buy-in claims should be excluded
requesting medical records for denied will be included or excluded from the from sampling because these payments
claims, so this point is no longer universe. are made to a Federal agency and,
applicable. Response: All denied claims are furthermore, buy-in overpayments or
Comment: Some commenters asked included in the universe. Therefore, it is payments made on behalf of ineligible
what would constitute an adjustment to not necessary to categorize denials participants are unrecoverable.
a denied claim (similar to when a paid based on the explanation of benefits. Response: Although the Medicare
claim is adjusted to, for example, correct Comment: Some commenters asked if program is administered by a Federal
the billing amount or coding) and eligibility determinations will need to agency, it is considered an insurer, as
whether it would be possible to identify be conducted on denied claims. noted above. Moreover, it is immaterial
these adjustments to claims denied for Response: If a claim is denied on the whether an erroneous payment is
payment. basis that the person is not eligible, we recoverable or non-recoverable.
Response: Denied claims are not believe an eligibility review should be Comment: A few commenters stated
subject to adjustments because, when a done to confirm the claim was correctly that Parts A and B premiums are not
claim is denied for payment, the denied. This issue is likely to be processed as claims through MMIS and
provider will resubmit a new claim for considered by the eligibility workgroup. stated they believe that the sampling
payment. The claim resubmitted for was intended to test claims submitted
b. Medicare Claims and Other Premium
payment would not be associated with by providers and processed by the
Payments
the claim that was originally denied. States’ MMIS systems. If these claims
Therefore, adjustments to denied claims Comment: Some commenters stated were included, they argued other
are not included in this interim final that it was not clear if Medicare contracts with Federal match, such as
rule. crossover claims were included in the disproportionate payments, rent and
Comment: Some commenters stated proposed rule methodology. salary should be included.
that inclusion of denied claims will Response: We believe the commenter Response: The methodology in the
affect the precision levels. Denied defines crossover claims as payment proposed rule would have reviewed
claims have a greater chance of selection authorization for Medicare coinsurance only claims paid to providers, insurers
since a large portion will reappear in the and deductible amounts. The proposed and managed care organizations.
universe as a paid claim. They inquired rule intended to include Medicare Payments not falling within these
why denied claims will be used to crossover claims in the reviews since categories would be excluded from the
increase the amount of misspent dollars. these are considered part of the universe universe. Medicare crossover claims
Response: Denied claims include of claims. The universe includes all would be included because Medicare is
claims accepted by the claims claims submitted by providers, insurers, considered an insurer for this purpose.
processing or payment system, and managed care organizations for We acknowledge that most claims are
adjudicated for payment and not which a decision to pay or deny was processed by the States’ MMIS systems;
approved for payment. This definition made by Medicaid or SCHIP. Under this however, the proposed rule did not
excludes many or most of the types of interim final rule, these claims would be provide for States to exclude any claims
claims that are rejected from the claims included in the universe and subject to that were not processed through the
MMIS. The data processing review in approach. Should the eligibility testing like outreach and enrollment
the proposed rule, as well as in the require States to do any sampling, those processing. These commenters
revised approach discussed in this issues would be addressed in a suggested relaxing sampling and
interim final rule, is intended to ensure subsequent issuance. precision estimates for smaller States or
the claim was correctly paid regardless Comment: A few commenters programs.
of the system making the payment. expressed concern with the large sample Response: We cannot adopt this
Comment: A few commenters stated sizes and asked that we identify the recommendation. As noted above,
that States may not have the necessary percent of error assumed to develop the reducing the State sample sizes to
understanding of Medicare payment methodology. Commenters suggested achieve less than 3 percent precision
policies. that States be allowed to submit with a 95 percent confidence level
Response: Although we are available alternative sampling plans that have an would (1) not provide the State with
to provide technical assistance to States equal or better precision than required. sufficient information to determine
that do not understand Medicare Response: Under the proposed rule, vulnerabilities and to initiate corrective
payment policies, under the proposed the Federal contractor would determine action; and (2) not achieve a national
rule, States would not be required to the sample sizes needed to achieve the error rate that meets the OMB
verify the accuracy of Medicare required precision levels for Medicaid confidence and precision requirements
payments. The States would only verify and for SCHIP, which is an estimate that when rolling up the State error rates.
that the State had paid its own portion is within +/¥3 percentage points of the Comment: Some commenters stated
correctly. However, since States are no true population payment error rate with the stratified sample is a complicated
longer conducting the medical or data 95 percent confidence. When we feature and expressed concern with the
processing reviews, this fact is no longer originally estimated the range of sample cost and resource burden to pull a large
relevant. sizes to be between 800 to 1,200 for each sample for review, particularly for the
Comment: A few commenters stated program in each State, we did not SCHIP program, which has limited
that ‘‘improper payment’’ needed assume a particular error rate; rather, we administrative funding, or for States
further definition and asked what assumed a variance in payment size. with smaller populations.
impact uncollected, incorrect, or Experience now shows that the 800– Response: Stratification of the claims
disputed (official complaint on file) 1200 sample size results in States is necessary to improve precision,
premium payments would have on the achieving the precision level of +/¥3 reduce sample size, and identify the
error rate (for example, for SCHIP percent. It is important to note that the areas of greatest vulnerability. We
participants who prepay a monthly sample sizes could be larger or smaller believe it is necessary for each selected
premium). in each State or in the SCHIP program. State to submit stratified claims data
Response: We believe the definition of Since States will not need to submit because the contractor otherwise would
‘‘improper payment’’ in the proposed sampling plans for selecting claims for not be able to complete the statistical
rule as well as this interim final rule is medical and data processing reviews or aspect of the measurement process in a
clear. The error rate methodology in the review these claims under the national timely manner. We have reevaluated the
proposed rule would have required contracting strategy, we believe these burden associated with States
States to review claims to determine if concerns have been addressed. submitting adjudicated and stratified
the payment amount was correct. An Comment: A few commenters claims data for each current quarter and
uncollected, incorrect, or disputed suggested that as a way to reduce the estimated the burden to be up to 200
premium amount in a sampled claim sample size, the Medicaid and SCHIP FTE hours per quarter. Details regarding
would have been determined to be an claims be combined or suggested that States’ role in eligibility testing will be
over-or underpayment in the amount the sample sizes should not be the same described in a subsequent issuance.
that was either the participant’s liability for Medicaid and SCHIP. Comment: A few commenters
or the State’s liability to pay, depending Response: The Medicaid and SCHIP suggested reducing the sample size to
on the circumstances of the specific claims cannot be combined because the minimize the burden on providers.
claim being reviewed. OMB guidance requires a statistically Response: The sample size is
valid error rate that meets specified determined by the number of claims
c. Other Exclusions confidence and precision levels for each that need to be reviewed to meet our
Comment: A few commenters asked if individual program. The sample sizes State-specific confidence and precision
FFS or managed care components with for Medicaid and SCHIP will be levels and cannot be reduced to
less than 10 percent of program estimated to achieve +/¥3 percent minimize the burden on providers. We
expenditures will be excluded. precision within 95 percent confidence. analyzed the impact on providers as
Response: For purposes of the pilot Although we estimated the Medicaid part of the proposed rule and
programs, we did exclude such FFS or and SCHIP sample size to be within the determined it was not significant. It
managed care components from review same range, the actual sample size may should be noted that only providers
but we did not anticipate in the or may not be the same. Combining whose FFS claims were selected would
proposed rule or in this interim final Medicaid and SCHIP claims or submit medical records, as managed
rule that components would be arbitrarily reducing the sample sizes for care claims are not subject to medical
excluded on this basis. either program to calculate error rates review.
would not meet the OMB requirements. Comment: A few commenters stated
2. Sampling Issues Comment: Some commenters noted that it was not clear if the sample size
Comment: Some commenters wanted that the sample size required of the considers cases where eligibility cannot
to know if CMS had adequate staff to SCHIP program is the same required for be verified due to death or non-
approve States’ sample plans in a timely the Medicaid program, even though the cooperation of the client.
manner and asked that ‘‘timely manner’’ SCHIP programs are far smaller. They Response: The sample sizes in the
be defined. stated that imposing such large burdens proposed rule would not have excluded
Response: At this time, States will not on SCHIP programs, which have fewer these cases. Under the pilot projects, we
need to submit sampling plans to us for administrative funds, would necessitate allowed States to oversample to account
approval under the national contractor diversion of resources away from areas for these cases that are dropped from the
eligibility review if the State could not which unfairly characterizes FFS as Comment: Some commenters believe
verify eligibility due to these reasons. more prone to fraud and error. They that only overpayments are the
We will ask the eligibility workgroup to expressed concern that higher error appropriate gauge of misspent dollars.
consider this issue for measuring rates would inevitably be detected for Response: We must estimate improper
eligibility error rates and will clarify fee-for-service claims than for managed payments according to the IPIA and
how these cases will be treated in a care payments, even though undetected OMB guidelines. OMB guidelines
subsequent issuance. Medicaid payment errors may also require the inclusion of both
Comment: A few commenters believe occur under capitated managed care. overpayments and underpayments in
that monthly samples would be Response: Under the proposed rule, the error rate estimate. As such, we
complicated and were not pulled under the sample is drawn proportional to the must measure and report both
the PAM pilots. State’s spending. For example, if two- overpayments and underpayments.
Response: Since States will not need thirds of the State’s funds are spent in Comment: A few commenters asked if
to pull monthly samples for the data FFS, then two-thirds of the dollar share the sum of both underpaid and overpaid
processing and medical reviews under of the Medicaid sample in the State claims exceeds 2.5 percent or more than
the national contractor approach, we would be FFS claims. In this manner, $10 million, would this be considered
believe this issue is no longer applicable the measurement would be more ‘‘significant’’ or must the error rate meet
for these reviews. To the extent that the representative of total Medicaid just one or both of these conditions to
final eligibility testing methodology spending and we believed would be considered ‘‘significant.’’
involves State sampling, as stated above, produce a more accurate error rate. Response: The IPIA states that
we will address this issue in a However, in this interim final rule, as significant improper payments are
subsequent issuance. previously stated, when we begin payments that exceed $10 million. OMB
Comment: A few commenters pointed measuring both the FFS and managed guidance defines significant erroneous
out that the proposed rule did not care components of Medicaid and payments as annual erroneous payments
mention whether Medicaid FFS claims SCHIP, as we expect to in FY 2007, we exceeding both 2.5 percent of program
would be stratified into seven strata by will estimate separate error rates for FFS payments and $10 million. However,
service, as was done in the PAM pilots. and managed care. We will also produce these thresholds refer to the national
Response: Under the proposed rule, a combined FFS and managed care error error rate for the program rather than
the intent was to stratify the Medicaid rate for each State for each program in State-specific error rates. Neither the
FFS claims. We are considering the addition to providing a national error IPIA nor OMB guidelines set target
following strata: (1) Inpatient hospital, rate for each program. State-specific error rates.
(2) long term care, (3) practitioners and Comment: Some commenters
clinics, (4) pharmacy, (5) home and suggested that CMS should require that 4. Adjustment to Claims
community-based services, (6) other data presented on error rates explain Comment: Some commenters stated
services and supplies, and (7) fixed that the errors computed for FFS claims that the 60-day timeframe to allow for
payments such as Medicare Parts A and and capitated payments are not adjustments to claims is arbitrary and
B premiums, and an eighth stratum for comparable because of measurement should be extended to 120 calendar
denied claims. This is the stratification differences and that fewer errors are days to give providers and the States’
model that is being used for the current detected for managed care because the payment systems more time to identify
PERM pilot. The methodology under the review is less intensive. and correct adjudicated claims issues.
national contracting strategy described Response: We agree with this Response: The 60-day timeframe was
in this interim final rule would stratify comment. However, since States will agreed upon by States and CMS during
the FFS claims in a similar manner with not be estimating FFS error rates, the the development of the review
variations for SCHIP, as appropriate. recommendation that we require States methodology under the PAM pilot
However, CMS will direct the national to provide an explanation on the projects as a reasonable timeframe that
contractor on all implementation issues. measurement differences is no longer allows for adjustments while
Comment: A few commenters stated relevant. maintaining a timeline that also allows
that a dollar weighted sample would for completion of the reviews and to
cause an over sampling of high-cost, 3. Overpayment and Underpayment
compute and report the error rates in
low-error services like nursing home Errors
time for inclusion in the next PAR. If we
and hospital care, rather than lower-cost Comment: Many commenters stated extend the timeframe to a point beyond
services that have historically higher that adding overpayments and 60 days, we could not be assured that
error incidence. underpayments together will count the error rate measurement process
Response: This method improves the unspent dollars as misspent dollars and would be completed in time to report
precision of the estimate if the variance recommended an error rate for each type the error rate. Therefore, we are not
of the accuracy rate across strata is of payment. adopting this recommendation.
proportional to the Medicaid payment Response: The IPIA specifically Comment: Other commenters stated
share represented by the stratum. When provided that OMB set implementation that identification and review of
calculating the final payment error rate, guidelines for Federal agencies. The adjustments are complicated and
this oversampling and undersampling OMB guidelines state that the annual increase the complexity of the error rate
by stratum is taken into account and the estimated amount of erroneous measurement process.
sample is reweighted to calculate an payments is the gross total of both Response: Reviewing adjustments to
unbiased estimate of the overall overpayments and underpayments. In claims provides a more accurate error
payment error rate. order to be in compliance with IPIA, we rate because adjustments reflect a more
Comment: Many commenters must follow OMB guidelines regarding accurate final amount paid.
recommended that the reviews have a total gross overpayments and Comment: A few commenters stated
more balanced approach between FFS underpayments to derive error rate that, in the current Health Information
and capitated payments. The concern is estimates. However, we also intend to Portability and Accountability Act
that FFS claims will have a higher level report separately the amount of (HIPAA) claim format, information on
of scrutiny than managed care claims, overpayment and underpayments. the allocation of third party liability
(TPL) amounts is not required at the line contract with external quality review Comment: A few commenters
level. There is no way to know if TPL organizations to do the reviews. suggested that the method for
calculations are correct for a specific Response: Since States will not be determining medical necessity should
line if the provider reported the conducting the medical and data be clearly stated in regulation, and
information in the aggregate and asked processing reviews, they will not need recommended using the InterQual level
whether this is what is meant by ‘‘line to contract with external organizations. of care criteria or similar product to
items that are not individually priced.’’ Comment: Some commenters stated reduce error rates and improve
Response: Line items that are not that projected costs to conduct the relationships with providers.
individually priced are generally reviews will exceed the $300 per review Response: As stated above, since the
bundled into a service. Under the due to the type and number of FFS States are not performing the medical
proposed rule, the service is the claims to be sampled. reviews, it is no longer necessary to
sampling unit. States were not required Response: We estimated the costs of define or clarify review procedures.
to sample at the line item. This concept review based on information given by Comment: A few commenters noted
would remain the same under the States participating in the PAM pilot that hospitals can be large organizations
national contracting strategy as projects. However, since we will engage where mail with no addressee could
described in this interim final rule. a contractor to perform the medical and take weeks to get to the appropriate
data processing reviews and States will person or could get lost and suggested
5. Other Comments not incur these costs, this comment is that there should be a phone and e-mail
Comment: A few commenters stated no longer relevant. Once the details of address on the notification where
that CMS should ensure that all eligibility testing are finalized, we will receipt of the request can be confirmed.
payment information from CMS that address cost estimates in a subsequent They also recommended follow-up to no
States depend on to pay providers is guidance. responses from providers.
given to States at least 60 days before Comment: A few commenters stated
Response: We appreciate this
the expected implementation date. that requesting, receiving and
Response: We strive to work with suggestion but believe it is no longer
performing medical reviews is a time-
States on a myriad of complicated relevant since States will not be
consuming process. There is not enough
financial issues and respond to issues in conducting the medical reviews.
time allocated to completing the review
a timely manner. To that extent, we also Comment: Some commenters wanted
process prior to having to return the
make every effort to provide policy to know whether the claims for which
Federal share for overpayments
guidance to States in a timely manner providers did not respond should be
identified within 60 days.
but, due to the complexity of issues, we Response: States are no longer being discarded from the sample and how
would not commit the agency to a 60- asked to conduct the medical reviews they should proceed with providers
day timeframe for providing all payment for purposes of this interim final rule. who are no longer in the program and
information. Therefore, we believe the concern with refuse to provide medical records.
concluding the medical reviews timely Response: As stated above,
D. Review Procedures clarification of the review procedures is
in relation to returning recoveries is no
1. Medical Reviews longer relevant. not necessary since States are not
Comment: Some commenters made conducting the medical reviews.
Comment: Some commenters stated Comment: A few commenters stated
that requiring a medical review recommendations that only medically
unnecessary services and services not that it may be difficult to obtain records
increases the cost and logistical on Medicare cross-over claims and
complexity of the review effort due to covered or delivered, as well as over
and underpayments due to improper SCHIP claims when Medicaid has no
the review time and follow-up necessary agreement with the provider.
to obtain provider records. coding, should be counted as errors and
other error types such as technical Response: We agree with the
Response: Since States are no longer
errors, such as minor coding and commenter and Medicare crossover
performing the medical reviews and
clerical errors, should be excluded. claims will not be subject to medical
will not incur the cost of the reviews,
Response: It is not clear what the review. The Medicare crossover claims
we believe this concern has been
commenters believe to be a minor will be subject to the data processing
addressed.
Comment: A few commenters stated coding or clerical error. We believe that review.
that obtaining records for denied claims if the error has any effect on the Comment: Some commenters
may prove more problematic than for payment, then it must be included in suggested that medical records should
paid claims. the error rate calculation. be requested only as a last resort since
Response: As stated above, since Comment: A few commenters it is labor intensive for providers.
States are not performing the medical acknowledged that inadequate Instead, commenters suggested that
reviews and will not need to obtain documentation is a problem and agreed information be gleaned from claims.
records for the reviews, we believe this it should be measured but Response: We are unclear as to how
concern has been addressed. recommended that it be measured one would perform a comprehensive
Comment: A few commenters stated separately from clearly improper medical review based on the
that providers should not have to payments. information provided on the face of the
submit records for denied claims since Response: We disagree with this claim. In addition, we analyzed the
there is no incentive for them to copy comment. If documentation is burden on providers as part of the
records for services that Medicaid did inadequate to support the correctness of proposed rule and determined that there
not reimburse. the claim, we believe it would be is no major impact on them to provide
Response: If providers chose not to unreasonable to consider these claims as medical records.
submit medical records for denied correct. Otherwise, any claim with Comment: A few commenters stated
claims, we would consider the State to inadequate documentation could be that the current medical review process
have properly denied the claim. deemed correct which would accomplished under the Surveillance
Comment: Some commenters undermine the purpose and reliability and Utilization Review Subsystem
recommended that States be allowed to of the improper payment measurement. (SURS) program is more than adequate.
Response: We believe this point is not the application process, such as self- category, then no overpayment would
applicable since States will not be declaration, and excluding have occurred.
conducting the medical reviews. Supplemental Security Income (SSI) Response: The eligibility reviews in
However, we encourage States to cases. the proposed rule were intended to look
continue with reviews that uncover Response: We are not adopting these at eligibility under the Medicaid
payment errors and other program suggestions in this interim final rule program, not just the category of
weaknesses. since we have not yet finalized a coverage within the Medicaid program.
method for eligibility reviews and plan The same concept holds true for SCHIP.
2. Data Processing Reviews As such, no overpayment would have
not to conduct eligibility reviews in
Comment: A few commenters stated Medicaid and SCHIP in FY 2006. We occurred if the review determined that
that most claims are submitted by will consider these recommendations as the person was eligible for the program
electronic media and asked whether the CMS and the workgroup determine the and that the beneficiary was eligible to
review can be accomplished through best method to measure eligibility errors receive the service under that program.
software that duplicates MMIS and will address these suggestions and We will apply this same concept when
processing. the requirements for eligibility reviews we implement eligibility reviews.
Response: Since States will not be in a later issuance. However, since we have been and will
conducting the data processing reviews, Comment: Most commenters stated continue to be estimating error rates for
we believe this question is no longer that the proposed eligibility reviews Medicaid and SCHIP separately, if a
relevant. have flaws that would produce person was ineligible for one program or
Comment: A few commenters asked overestimates of Medicaid eligibility ineligible for a service under the
whether the State should review the errors. The eligibility review should be program, the claim would have been in
capitation fee or the actual claims for further clarified. error regardless of whether the person
SCHIP when it is administered by a Response: As stated above, we are not was eligible for the other program or
capitated per member per month fee. adopting these suggestions in this that the service was covered under the
Response: Since States will not be other program. In other words, if a
interim final rule time since we have
conducting the data processing reviews, person is determined ineligible for
not yet finalized a method for eligibility
we believe this question also is no Medicaid or for a Medicaid service,
reviews and will not conduct eligibility
longer relevant. eligibility for SCHIP is not relevant to
Comment: A few commenters reviews in FY 2006. We will convene a
whether or not an improper payment for
commented that the specific review workgroup to consider the best
Medicaid was made for the person.
items for managed care claims, for approach to eligibility reviews under Comment: Some commenters stated
example, non-covered services, third the IPIA. We invite public comments on that beneficiaries, whose eligibility is
party liability, invalid pricing seemed to this issue. based on information provided by
be inappropriate since the States would Comment: Most commenters stated another program, including Food
not be reviewing managed care that payment errors should not be Stamps, Temporary Assistance for
encounters. determined for a beneficiary who is Needy Families, or Medicare low-
Response: Since States will not be certified on the basis of presumptive income drug benefit, should be exempt
conducting the data processing reviews, eligibility for Medicaid or SCHIP during similar to the proposed rule’s exemption
we believe this comment is no longer the period of presumptive eligibility, so of SSI beneficiaries.
relevant. long as the presumptive eligibility Response: We do not agree with this
determination has been conducted comment. We believe that, in measuring
3. Eligibility properly. improper payments, the State should be
Comment: Many commenters stated Response: Under the proposed rule, accountable for all Medicaid eligibility
that the eligibility reviews in the cases of presumptive eligibility under determinations regardless of which
proposed rule are expensive in both Federal law would have been excluded State agency is making the
funds and staffing needs and duplicate from review. We believe that the intent determination or regardless of which
current efforts under the MEQC program of the Congress is to hold States State agency provides the information.
and SCHIP eligibility audit processes. harmless for the limited time that While the eligibility reviews would not
They recommended that the eligibility presumptive eligibility is in effect for have required the State to verify, for
reviews be eliminated or merged with pregnant women and children under example, TANF eligibility, the
MEQC. sections 1920, 1920A and 1920B of the information obtained by the TANF
Response: As previously stated, we Act. Since we have not determined how agency on which a Medicaid eligibility
cannot eliminate the eligibility reviews best to conduct the eligibility reviews at determination was made should be
because the IPIA includes payments to this time, we cannot state for certain verified if there is no evidence that the
ineligibles in defining improper that these cases will be excluded when TANF agency verified the information
payments. We have previously we implement the reviews but we will as part of its eligibility determination.
addressed the reasons why we chose not raise this concern to the eligibility The proposed rule did not exempt SSI
to merge the reviews with MEQC. When workgroup for their consideration and cases from the eligibility reviews (see
we convene the eligibility workgroup, will address this issue in a subsequent proposed § 431.982(a)(2)(iv), 69 FR
we will ask for recommendations about issuance. 52631).
how to estimate eligibility errors while Comment: Many commenters Comment: A few commenters asked
minimizing burden, cost, and suggested that if the review found a how the eligibility reviews would
duplication with MEQC. person to be ineligible under the coordinate with the medical and data
Comment: Many commenters had Medicaid or SCHIP eligibility category processing reviews.
suggestions and recommendations on in which they were enrolled, the review Response: Under the proposed rule,
the eligibility review process and should have assessed whether the all three reviews would have been
procedures, such as retaining the person was eligible under another conducted on each FFS claim (there
administrative period, allowing for Medicaid or SCHIP eligibility category. would not have been a medical review
technical errors, using the same rules as If a person was eligible under another on managed care claims). We expect the
eligibility reviews will be coordinated separate measurements of improper Medicaid or SCHIP coverage in cases
with the medical and data processing payments in Medicaid and SCHIP and where beneficiaries failed to complete
reviews being done in those States would have cited the improper payment the redetermination process, which
selected for review so that an error rate amount for the claim being reviewed. would disrupt the patient-provider
for Medicaid and SCHIP FFS, managed Comment: A few commenters stated relationship, leading to higher health
care and eligibility can be concurrently that some States will face difficulties care costs and increasing the potential
calculated for each State under review. with respect to coordination among for quality concerns.
We will address this issue in a later agencies, record retention, and storage. Response: The eligibility workgroup
issuance. Response: We agree that the proposed will take into consideration the possible
Comment: Many commenters stated rule presented States with many impact that any proposed
that determining eligibility at the time challenges for measuring improper recommendations for eligibility error
of service is stringent and raises payments in their programs. We believe rate measurement may have on
difficulties and significant barriers for adopting the recommendation to engage beneficiaries, including this concern.
States in verifying eligibility for a time a Federal contractor to conduct medical Comment: Many commenters stated
so far in the past and pointed out that reviews addresses many of the that the eligibility review, which would
corrective actions would be commenters’ concerns and alleviates, to have required the beneficiary to be
meaningless. the extent reasonably possible, eligible on the date of service and
Response: We agree with this challenges that States would have faced. provided no administrative period to
comment. We have not determined at Comment: A few commenters wanted allow for report of changes in
this time how eligibility reviews will be to know how the MEQC findings would beneficiary status, would have created a
conducted under IPIA. We invite public coordinate with the deadlines for significant burden for beneficiaries of
comment on this issue and will respond reports to OMB for the following year, these programs and would likely have
in a subsequent issuance. and any possible corrective action plans resulted in disenrollment of many
Comment: Some commenters stated between agencies. eligible individuals and families.
that State remedies to improve error Response: The provisions of MEQC Response: We disagree with this
rates, such as more frequent were not coordinated with or affected by comment. The eligibility review is to
redeterminations, will exacerbate the proposed rule. Based on the verify eligibility at the time of service to
involuntary disenrollment and churning recommendations of the eligibility determine whether the claim was
without providing any meaningful fiscal workgroup, we will address any correctly paid. The review would ask for
impact. coordination between MEQC and the the recipient’s cooperation only if
Response: We do not agree with this eligibility reviews under IPIA in a eligibility could not be verified through
comment. States should strive to subsequent issuance. Finally, we believe the case record review or through other
improve the accuracy of their eligibility that States should have the flexibility to sources. Recipients have a responsibility
determinations as part of their prudent coordinate corrective action plans to cooperate in the eligibility
fiscal management responsibilities among their agencies as appropriate. determination process, whether at
regardless of whether or not we are Comment: Most of the commenters application, during redetermination or
specifically measuring eligibility errors. expressed concern that if the proposed through a quality control review.
As such, States can improve their rule were implemented, the regulations Recipient cooperation during a MEQC
eligibility processes in many ways could harm the coverage and well-being review is longstanding. Also, the
beyond more frequent eligibility of low-income children, families, proposed rule would not have required
determinations without necessarily seniors, and people with disabilities in States to terminate program eligibility as
creating an adverse effect on program Medicaid and SCHIP by encouraging a result of the reviews. As such, we do
enrollment. restrictive policies that could have made not agree that the review would have
Comment: A few commenters argued it harder for low-income beneficiaries to created a significant burden for
that error rates would be skewed enroll and stay enrolled in Medicaid beneficiaries or resulted in
upward by children who are ineligible and SCHIP. disenrollment. When we determine the
at a particular point in time but who are Response: Neither the proposed nor type of eligibility reviews for Medicaid
eligible over the course of a year. this interim final rule requires States to and SCHIP to be implemented under
Response: We believe this comment reduce or terminate a beneficiary’s IPIA, we will address this issue.
means to be asking about the issue of program benefits in any way or require Comment: Many commenters
continuous eligibility and its impact on States to impose more restrictive expressed concern that the regulation
improper payment measurement. The requirements that would create barriers would have barred reviewers from
eligibility workgroup will be addressing to the programs. The eligibility counting the ‘‘administrative period’’
the issues of defining the universe, workgroup will take into consideration which is currently used in MEQC to
sampling techniques and other review the possible impact that any proposed account for the time permitted for a
variables regarding an eligibility error recommendations for eligibility error person to submit changes in eligibility
rate. rate measurement may have on information and for the time for the
Comment: A few commenters argued beneficiaries, including this concern. State to process these data.
that SCHIP participants who are eligible Comment: Many commenters were Response: We will consider this
for Medicaid and vice versa should not concerned that the restrictive policies comment in the context of the
be cited as totally ineligible and only that would require more participation workgroup in determining the best
the difference in the error amount by the recipients to prove eligibility, for approach to eligibility reviews under
between the two programs should be example, providing documentation or the IPIA and we will address it in a
cited as an error for a service obtainable attending interviews, would threaten subsequent document.
through both programs. enrollment simplification and access for Comment: Many commenters noted
Response: We disagree with this beneficiaries and individuals who might that if eligibility reviews remained in
comment because the IPIA requires have been eligible for Medicaid or PERM, CMS and the States would need
estimates of improper payments for each SCHIP and could also increase the to develop a system to review for errors
program. As such, the rule provides for ‘‘churning’’ of recipients in and out of in denials of eligibility or recertification,
in order to comply with the IPIA. They records meet the requirements of the 1903(u) of the Act governs the recovery
argued that the OMB guidance for IPIA rule regarding supporting the testing of overpayments based on eligibility
stated that payment error estimates and statistical calculation of the errors. As stated in this interim final
should include estimates of Medicaid and SCHIP error rates. rule, we will determine the eligibility
inappropriate denials of services; PERM Response: We would be unable to review process with the assistance of
included no efforts to measure verify any assumption that States’ the workgroup and will respond to the
erroneous denials of eligibility or to documentation retained for purposes of reporting of improper eligibility
measure progress in serving eligible supporting the error rate is adequate determinations under the IPIA in a later
people. since we would have no control over document.
Response: Current Federal regulations what documentation the States retained Comment: A few commenters
require States to review a sample of and if States retained all documentation recommended that CMS consider that
Medicaid denials and terminations in good and full form for the required overpayments may be part of fraud
under MEQC which helps protect period of time. We are proposing that investigations and the Medicaid Fraud
beneficiaries against erroneous denials under our Federal contractor’s and Control Unit (MFCU) may not want
and terminations of Medicaid. SCHIP methodology insufficient State intervention in an active
agencies can institute a similar review. documentation to support a investigation.
OMB guidance did not include determination that the claim was Response: Because the proposed rule
erroneous denials of eligibility as correctly paid would be considered an has been substantially altered through
eligibility decisions do not always drive error for the purposes of the IPIA. the use of a Federal contractor, State
Medicaid or SCHIP payment. However, intervention in an active CMS fraud
F. Recoveries
we will revisit this concern with the investigation is no longer a relevant
eligibility workgroup and will address it Comment: A few commenters stated issue. Conversely, the Federal contractor
in a subsequent issuance. that the Federal share of any will not know which claims in the
overpayment be returned within 60 days sample are under State fraud
E. Reporting and Recordkeeping of the actual recovery of the payment, investigation nor would the contractor
Comment: A few commenters stated rather than identification of the be working directly with the MFCUs
that medical records do not lend payment, and that the States should during the course of the medical and
themselves to replication for record decide whether pursuing recovery is data processing reviews.
retention, for example, x-rays, and asked cost effective since pursuing recoveries Comment: A few commenters stated
if scanning is allowed for any and all against providers on a claim-by-claim that, since States return the Federal
records. basis is administratively burdensome. share of overpayments, States should
Response: Those States selected for Response: As stated earlier, the receive additional funds for
reviews will submit information that the requirement to return the Federal share underpayments.
contractor will scan and retain. of erroneous payments within 60 days Response: We agree with the
Therefore, States will not be required to of identification is longstanding in commenters. States that make
retain this information for purposes of statute and regulation and does not adjustments for underpayments would
error rate measurements under the OMB allow for only cost-effective recoveries. draw down the appropriate Federal
guidance. The collection of this The provisions of the recovery matching funds.
information is permitted (subject to regulation were open to public comment Comment: A few commenters
privacy restrictions) under the HIPAA at the time of its publication. It is suggested that measuring improper
provisions and our regulations at 45 outside the scope and intent of this payments in Medicaid and SCHIP
CFR Part 164. regulation to amend provisions of should include adequate safeguards to
Comment: In commenting on separate, existing regulations. prevent against repayments of Federal
retaining records for Federal re-review Comment: A few commenters asked funds when genuine errors do not exist,
or audits, a few commenters asked how the recovery is affected by the for example, an incorrect date of service
whether there will be some level of MEQC statute under which improper that, if corrected, would not affect the
tolerance that will keep Federal repayments based on eligibility errors are amount of payment.
reviews and audits from occurring. The recouped, particularly if a State is Response: The recoveries provision in
commenters stated that it is becoming conducting MEQC pilots or has its the proposed rule was a cross-reference
difficult to accommodate the various MEQC program attached to its research to existing State requirements to refund
audits from internal and external and demonstration waiver under section the Federal share of payments when an
sources. 1115 of the Act. overpayment occurred. It is outside the
Response: The proposed rule would Response: Improper payments based scope of this rule to make exceptions or
have required States to retain records for on eligibility determinations are subject changes to another regulation.
Federal re-review and future audits on to recovery under section 1903(u) of the Therefore, we are not adopting this
the basis that the States were Act which governs the MEQC program. recommendation in the interim final
conducting the reviews and calculating Thus, these payments are not subject to rule.
the State-specific error rates. However, recovery under section 1903(d)(2) of the Comment: A few commenters
since the records to support the medical Act. recommended that States be required
determinations and the calculation of Comment: A few commenters asked only to return the Federal share of any
the State-specific error rates and the how erroneous eligibility payments after all the overpayments and
national error rate will be retained by determinations, though exempt from underpayments are taken into
the national contractor, the Federal re- Medicaid overpayments, will be consideration.
reviews (for example, OIG review) will reported. Response: The proposed rule was not
be conducted at the national contractor Response: The proposed rule did not intended to make exceptions or changes
location(s). exempt the reporting of erroneous to another regulation. Therefore, we are
Comment: A few commenters asked eligibility determinations or not adopting this recommendation.
that the final rule verify the assumption overpayments on this basis. The Comment: A few commenters
that the States’ electronic files and proposed rule merely stated that section recommended that small overpayments
that resulted in an expanded SCHIP as programs at risk for significant with minimal budgetary impact. It is
investigation would reap more Federal improper payments. Because of the possible that States will be required to
share of funds returned. Therefore, the wide variation in States’ Medicaid and conduct at least part of the eligibility
commenters recommend that SCHIP programs due to the flexibility tests, should the workgroup recommend
overpayments should be returned as one States have in developing coverage, it. Any additional requirements placed
large payment rather than two separate eligibility determination policies, on States will be detailed in a
payments. benefit, and reimbursement aspects of subsequent issuance.
Response: We are unable to adopt this the programs, we rely on State-specific This interim final rule sets forth the
recommendation because it would information to develop State-level State requirements to provide
violate the current requirement that estimates. information to us for purposes of
States return the Federal share within Based on comments and estimating medical and data processing
60 days of identification of an recommendations received on the improper payments in Medicaid and
overpayment. August 27, 2004 proposed rule, we will SCHIP. Section 1102 of the Act
adopt the recommendation to use a authorizes the Secretary to establish
G. Appeals
Federal contractor to estimate medical regulations as may be necessary for the
Comment: A few commenters stated and data processing error rates for efficient administration of the Medicaid
that the proposed rule is devoid of any Medicaid and SCHIP based on reviews and SCHIP programs. Medicaid law at
discussion of provider notification and of adjudicated claims. By FY 2008, we section 1902(a)(6) of the Act and SCHIP
appeal rights when an error has been expect to be compliant with the IPIA law at section 2107(b)(1) of the Act
determined, nor does it provide an requirements. In FY 2006, we will use require States to provide information
opportunity to appeal or indicate how a Federal contractor to estimate necessary for the Secretary to monitor
the process would use the existing improper payments from medical and program performance. Through these
notification and appeals process for data processing reviews in the fee-for- statutory provisions, this interim final
both beneficiaries and providers. service component of Medicaid and rule with comment period requires only
Response: Appeals procedures are not establish a workgroup to make those States selected for review to
modified by this rule and therefore have recommendations on the best approach provide the contractor with the
not been addressed. To summarize, if for reviewing Medicaid and SCHIP following information needed to
the State retrospectively denied the eligibility within the confines of current monitor program performance by
claim, the provider could appeal the statute and with minimal budgetary submitting, at a minimum, the following
denial under the existing State appeal impact for purposes of meeting IPIA information:
process. If the provider won the appeal, requirements to measure improper • The previous year’s claim data and
we would back the error out of the error payments based on payments to expenditures, not already otherwise
rate calculation, either at the time of the ineligibles. provided by CMS from which the
error rate calculation or, for claims Under the national contracting contractor will stratify claims and
reviewed towards the end of the year, strategy, a number of States will be determine sample sizes.
subsequent to the error rate calculation. selected for review. Our sampling • Quarterly adjudicated and stratified
Regarding beneficiaries, we do not methodology will ensure that each State claims data from the review year that
make payments to beneficiaries except will be selected once, and only once, are needed to select a random sample of
in limited circumstances permitted by every 3 years for each program. The claims for review in each State.
CMS regulation or policy, so we do not error rates produced by this selection • All medical policies in effect and
anticipate that they will be impacted by methodology will provide the State with quarterly medical policy revisions
this rule. Also, States must, under a State-specific error rate estimated to be needed to review claims.
current regulations at § 435.916, within 3 percent precision at the 95 • Systems manuals needed for data
redetermine Medicaid eligibility prior to percent confidence level. processing reviews.
terminating program benefits. Therefore, The contractor will select a number of • Current provider contact
the State cannot terminate program States to be reviewed. States selected for information; verified and/or updated as
benefits based on any eligibility errors review will submit the previous year’s necessary to have providers submit
found through these reviews without claims data and expenditures, not medical records needed for medical
first doing a redetermination. If the already otherwise provided by CMS, reviews.
redetermination concludes the person is after which the contractor will • Repricing of claims the contractor
no longer eligible, the normal determine each State’s sample size and determines to be in error.
beneficiary appeals process would occur the sample size for each stratum. These • Claims that were included in the
at that time. Similarly, the SCHIP States also will submit quarterly sample, but the adjudication decision
program provides for beneficiaries to adjudicated and stratified claims data to changed due to the provider appealing
appeal any proposed termination action. the contractors who will pull a the determination and the State
statistically valid random sample, each overturning the original decision.
IV. Provisions of the Interim Final Rule quarter, by stratum. Based on previous • An annual report on corrective
[If you choose to comment on issues estimates, the average sample size per actions to reduce the error rate.
in this section, please include the State is expected to be 1,000 claims • Other information that the Secretary
caption ‘‘PROVISIONS of the INTERIM (based on a previous estimate of range determines is necessary for, among
FINAL RULE’’ at the beginning of your of 800 to 1,200 claims per State). other purposes, estimating improper
comments.] The contractor will conduct medical payments and determining error rates in
The IPIA requires the Secretary to and data processing reviews. Initially, Medicaid and SCHIP.
annually review all programs and the eligibility reviews will not be States selected for review also will
activities that are susceptible to conducted. We will convene a provide technical assistance as needed
significant improper payments, estimate workgroup that will consider the best to allow the contractor to fully and
the amount of improper payments, and approach to measure improper effectively perform all functions
report those estimates to the Congress. payments based on eligibility errors necessary to produce the program error
OMB has identified Medicaid and within the confines of current law and rates.
In addition, regulations at § 430.35 Secretary’s general rulemaking authority Medicaid and SCHIP. That section is
and § 457.204 govern State compliance and the States’ obligation to provide replaced by a new § 431.970 in this
with Federal requirements in Medicaid information for monitoring program interim final rule with comment period
and SCHIP, either because the State performance. This section will be to specify the information that States
plan does not comply with Federal revised to add the statutory reference of would be required to provide to the
requirements or because the State is not section 1902(a)(27) of the Act, which Secretary that is necessary for, among
complying in practice. Under these requires providers to retain and provide other purposes, estimating improper
regulations, the Administrator notifies a medical records necessary to disclose payments and determining error rates in
State that it is in noncompliance with a the extent of services provided to Medicaid and SCHIP and for submitting
particular regulation and that no further individuals receiving assistance and any a corrective action report for purposes of
payments will be made to the State or payments claimed by the provider for reducing the error rate.
that only partial payments will be made, furnishing the services as the Secretary Sections 431.974, 437.978, 437.982,
that is, in areas not affected by the may request. 431.986, and 431.990, which prescribe
noncompliance, until the Administrator Section 431.954(b) in the proposed the basic elements of PERM and set
is satisfied that the State has come into rule would have set forth the scope of forth the methodology by which States
compliance. The Administrator has the the statutory provisions as requiring would sample and review claims, report
discretion to enforce these regulations States to annually estimate total the error rates, and retain records are
in instances when States do not Medicaid and SCHIP improper removed.
cooperate in a timely and efficient payments in their States and submit to Section 431.1002 in the proposed rule
manner with us in producing Medicaid the Secretary the payment error rates. reiterates for the reader’s convenience
and SCHIP program error rates for IPIA This section will be revised by the current regulations at § 433.312 that
purposes. Finally, section 1902(a)(27) of interim final rule with comment period requires States to return the Federal
the Act requires providers to retain to set forth the types of information that share of overpayments identified
records necessary to disclose the extent the States and providers are required to through the State reviews. This section
of services provided to individuals submit to the Secretary for the purposes is revised in the interim final rule with
receiving assistance and furnish the of estimating improper payments in comment period to remove the phrase
Secretary with information regarding Medicaid and SCHIP. ‘‘in the sampled claims reviewed for
any payments claimed by the provider Section 431.958 which, in the data processing and medical necessity’’
for furnishing the services as the proposed rule, would have set forth the and to cross-reference the existing
Secretary may request. definitions and use of terms, will be regulatory requirement for States to
This interim final rule with comment revised by the interim final rule to strike return the Federal share of
period does not require States to all definitions except the following overpayments within 60 days of
estimate the annual total improper definitions: improper payment; identification. This section is for the
medical and data processing payments payment; and payment error rate. reader’s convenience only and is not
and produce payment error rates in Section 431.962 in the proposed rule intended to revise the existing
Medicaid and SCHIP using the would have set forth the State plan regulatory requirement at § 433.312.
methodology described in the proposed requirements for providing and Section 457.720 is revised to include
rule. The provisions of this interim final submitting to the Secretary estimates of the same requirements in this section
rule with comment period will be set the payment error rates for Medicaid that are included in § 431.970.
forth in 42 CFR part 431, subpart Q and and SCHIP. This section is removed in
in part 457, subpart G, as in the the interim final rule because States are V. Collection of Information
proposed rule, with the following no longer required to submit estimates Requirements
changes: of the payment error rates for Medicaid Under the Paperwork Reduction Act
Section 431.950 in the proposed rule and SCHIP. However, existing Medicaid of 1995, we are required to provide 30-
would have required States to estimate and SCHIP regulations require: (1) State day notice in the Federal Register and
improper payments and produce plans to include assurance that the State solicit public comment before a
payment error rates in Medicaid and collects data, maintains records and collection of information requirement is
SCHIP. This section will be revised by furnishes reports to the Secretary (see submitted to the Office of Management
the interim final rule with comment § 457.720 for SCHIP and § 431.16 and and Budget (OMB) for review and
period to state that the purpose of the § 431.17 for Medicaid; and, (2) that the approval. In order to fairly evaluate
rule is to require States to submit SCHIP and Medicaid programs must whether an information collection
information necessary to enable the include methods of administration that should be approved by OMB, section
Secretary to produce a national the Secretary finds necessary for the 3506(c)(2)(A) of the Paperwork
improper payment error rate for the proper and efficient operation of the Reduction Act of 1995 requires that we
Medicaid and SCHIP programs. This program (see § 457.910 for SCHIP and solicit comment on the following issues:
interim final rule includes the types of § 431.15 and § 435.903 for Medicaid). • The need for the information
information that States would need to Therefore, to avoid States incurring collection and its usefulness in carrying
submit in order for CMS to estimate additional cost and burden, we believe out the proper functions of our agency.
improper payments in Medicaid fee-for- it is not necessary to require States to • The accuracy of our estimate of the
service (FFS) beginning in FY 2006 by submit new State plan material information collection burden.
conducting medical and data processing requiring submission of information to • The quality, utility, and clarity of
reviews on claims made in the FFS the Secretary since we believe these the information to be collected.
setting. CMS will address estimating requirements are covered under these • Recommendations to minimize the
improper payments for Medicaid current regulations and are included in information collection burden on the
managed care and eligibility and SCHIP this interim final rule. affected public, including automated
FFS, managed care and eligibility at a Section 431.970 in the proposed rule collection techniques.
later time. would have set forth the requirement Therefore, we are soliciting public
Section 431.954(a) in the proposed that States provide annually to the comment on each of these issues for the
rule set forth the statutory basis for the Secretary payment error rates for both following sections of this document that
contain information collection available for public inspection at the (including potential economic,
requirements: Office of the Federal Register beginning environmental, public health and safety
Section 431.970 of this document on July 15, 2005 and comments were effects, distributive impacts, and
contains information collection requested by August 15, 2005 (30 days equity). A regulatory impact analysis
requirements. This section sets forth from date of public display). The (RIA) must be prepared for major rules
requirements for States to provide shortened timeframe for public with economically significant effects
information to us for purposes of comment is essential so that CMS can ($100 million or more in any 1 year). We
estimating medical and data processing proceed with data collection from States estimate that it will cost up to $11.16
improper payments in Medicaid and and providers by October 2005 to meet million in Federal funds for a Federal
SCHIP. Only those States selected for the deadlines for reporting national contractor to estimate Medicaid FFS
review will be required to provide the Medicaid error rate to Congress. error rates in up to 18 States. Contingent
contractor, at a minimum, with the If you comment on these information on available funds, we plan to
following information needed to collection and recordkeeping implement reviews to produce a
monitor program performance: requirements, please mail copies Medicaid FFS error rate to be reported
• The previous year’s claim data and directly to the following: in the FY 2007 PAR.
annual expenditures, not already Centers for Medicare & Medicaid We estimated it would cost $620,000
otherwise provided by CMS, from Services, Office of Strategic Operations per State per program based on a cost
which the contractor will stratify claims and Regulatory Affairs, Regulations of $360 per claim multiplied by an
and determine sample sizes. Development Group, Attn: William average of 1,000 claims plus $260,000
• Quarterly adjudicated and stratified Parham Room C4–26–05, 7500 Security for travel and other administrative
claims data from the review year that Boulevard, Baltimore, MD 21244–1850; expenses. Based on $620,000 per State
are needed to select a random sample of and to estimate error rates in Medicaid and
claims for review in each State. Office of Information and Regulatory $620,000 per State to estimate error
• All medical policies in effect and Affairs, Office of Management and rates in SCHIP, error rate estimates for
quarterly medical policy revisions Budget, Room 10235, New Executive up to 18 States would cost a total of up
needed to review claims. Office Building, Washington, DC 20503, to $22.3 million (up to $11.16 million in
• Systems manuals needed for data Attn: Katherine Astrich, CMS Desk each program).
processing reviews. Officer, CMS–6026–IFC, Since we have not determined the
• Current provider contact KAstrich@omb.eop.gov. Fax (202) 395– type of eligibility review that will be
information; verified and/or updated as 6974. done to gather eligibility error rates
necessary to have providers submit under IPIA, we cannot state for certain
medical records needed for medical VI. Response to Comments what State and Federal costs will be
reviews. Because of the large number of public added to the approximate $22.3 million
• Repricing of claims the contractor comments we normally receive on Federal amount. We have determined
determines to be in error. Federal Register documents, we are not that the interim final rule with comment
• Claims that were included in the able to acknowledge or respond to them period will not exceed the annual $100
sample, but the adjudication decision individually. We will consider all million threshold impact criterion and
changed due to the provider appealing comments we receive by the date and an impact analysis is not required under
the determination and the State time specified in the DATES section of E.O. 12866.
overturning the original decision. this preamble, and, when we proceed The RFA requires agencies to analyze
• An annual report on corrective with a subsequent document, we will options for regulatory relief of small
actions to reduce the error rate. respond to the comments in the businesses. For purposes of the RFA,
• Other information that the Secretary preamble to that document. small entities include small businesses,
determines is necessary for, among nonprofit organizations, and small
other purposes, estimating improper VII. Regulatory Impact Statement governmental jurisdictions. Most
payments and determining error rates in [If you choose to comment on issues hospitals and most other providers and
Medicaid and SCHIP. in this section, please include the suppliers are small entities, either by
The burden associated with this caption ‘‘REGULATORY IMPACT nonprofit status or by having revenues
requirement is the time and effort STATEMENT’’ at the beginning of your of $6 million to $29 million in any 1
necessary for States to collect this comments.] year. A request for medical
information and provide it to the documentation to substantiate a claims
Federal contractor. The number of A. Overall Impact payment is not a burden to individual
respondents is estimated to be up to 36 We have examined the impact of this providers nor is the request outside the
States (up to 18 Medicaid and up to 18 rule as required by Executive Order customary and usual business practice
SCHIP States). The annualized number 12866 (September 1993, Regulatory of a Medicaid and/or SCHIP provider.
of hours that may be required to Planning and Review), the Regulatory Not all States will be reviewed every
respond to the requests for information Flexibility Act (RFA) (September 19, year so it is highly unlikely for a
equals 58,680 hours (1630 hours per 1980, Pub. L. 96–354), section 1102(b) of provider to be selected more than once,
State per program). the Social Security Act, the Unfunded per program per year to provide
As required by section 3504(h) of the Mandates Reform Act of 1995 (Pub. L. supporting documentation. In addition,
Paperwork Reduction Act of 1995, we 104–4), and Executive Order 13132. the information should be readily
have submitted a copy of this document Executive Order 12866 (as amended available and the response should take
to the Office of Management and Budget by Executive Order 13258, which minimal time and cost since the
(OMB) for its review of these merely reassigns responsibility of response requires gathering the
information collection requirements. duties) directs agencies to assess all documents and either copy and mail
A notice of this proposed collection costs and benefits of available regulatory them, send by facsimile or transmit
was previously published in the Federal alternatives and, if regulation is electronically. Therefore, the request for
Register for public comment on July 22, necessary, to select regulatory medical documentation from providers
2005 (70 FR 42324). That document was approaches that maximize net benefits is within the customary and usual
business practice of a provider who associated with submitting information methodology to measure Medicaid and
accepts payment from an insurance are for copying and mailing the SCHIP error rates, we considered other
provider whether it is a private information although States and alternatives. We considered different
organization, Medicare, Medicaid or providers have the option to send the sampling methods in an effort to meet
SCHIP and should not have a significant information electronically. Finally, both the requirements in OMB guidance
impact on the provider’s operations. States will be required to develop, and our goal of being able to compare
Individuals and States are not included submit and implement corrective action error rates from year to year while
in the definition of a small entity. plans designed to reduce the error rates, providing States with advance
Therefore, an impact analysis is not if necessary. knowledge of when they would be
required under the RFA. Under the proposed rule the costs selected for review. We considered
In addition, section 1102(b) of the Act could have been as high as $6 million random sampling, rotational sampling,
requires us to prepare a regulatory total computable by States’ estimation to sampling on a stratified probability
impact analysis if a rule may have a conduct reviews and calculate States’ proportional to size and randomly
significant impact on the operations of error rates. This interim final rule with selecting States based on probability
a substantial number of small rural comment period eliminates all but two proportional to size. We concluded that
hospitals. This analysis must conform to of the State requirements contained in statistically valid (random) sampling
the provisions of section 604 of the the proposed rule. As the interim final and a stratified or random probability
RFA. For purposes of section 1102(b) of rule with comment period drastically proportional to size basis would meet
the Act, we define a small rural hospital reduces the costs and burden to States, OMB guidelines but would not provide
as a hospital that is located outside of we do not anticipate State costs to States with the desired predictability of
a Core-Based Statistical Area and has exceed $110 million. selection.
fewer than 100 beds. Executive Order 13132 establishes In FY 2006, the Federal contractor
These entities may incur costs due to certain requirements that an agency will group all States into three equal
collecting and submitting medical must meet when it promulgates a rule strata of small, medium and large based
records to the contractor to support that imposes substantial direct on States’ annual FFS Medicaid
medical reviews but, like any other requirement costs on State and local expenditures from the previous year,
Medicaid and/or SCHIP provider, we governments, preempts State law, or and select a random sample of an
estimate these costs would not be otherwise has Federalism implications. estimated 18 States to be reviewed. The
outside the usual and customary The proposed rule, which would have error rates produced by this selection
business practice nor do we anticipate imposed significantly more cost burden methodology will provide the State with
that a great number, if any, small rural on States than this interim final rule a State-specific error rate estimated to be
hospitals would be asked for medical with comment period, had an estimated within 3 percent precision at the 95
records. As stated above, not all States costs of $1 million to $2 million per percent confidence level. For
will be reviewed every year so it is State. As the remaining costs will be subsequent years, our sampling
highly unlikely for a provider to be significantly lower than these, we assert methodology will ensure that each State
selected more than once, per program this regulation will not have a will be selected once, and only once,
per year to provide supporting substantial impact on State or local every 3 years for each program.
documentation. Therefore, an impact governments. Regarding the eligibility reviews,
analysis is not required under section The cost and burden associated with because the majority of the cost and
1102(b) of the Social Security Act. submitting this information is the time burden are attributable to verifying
Section 202 of the Unfunded and cost to copy and mail the
Mandates Reform Act of 1995 also eligibility, we considered limiting the
information or, at State option, submit reviews to confirming that persons were
requires that agencies assess anticipated the information electronically.
costs and benefits before issuing any actually enrolled in the program at the
rule that may result in expenditure in B. Anticipated Effects time of service. We considered
any 1 year by State, local, or tribal augmenting this review with
The interim final rule with comment
governments, in the aggregate, or by the strengthening the current MEQC
period is intended to measure errors in
private sector, of $110 million. In the eligibility oversight activities. However,
Medicaid and SCHIP. States would
proposed rule, we estimated that the we determined that an eligibility
implement corrective actions to reduce
total computable cost will range from $1 workgroup should be convened to make
the error rate, thereby producing
million to $2 million (total computable) recommendations on the best approach
savings. However, these savings cannot
for States to measure Medicaid and to Medicaid and SCHIP eligibility
be estimated until after the corrective
SCHIP error rates. States commenting on reviews. We plan to have
actions have been monitored and
the proposed rule estimated the costs to recommendations from the workgroup
determined to be effective, which can
be higher, and a few States estimated in FY 2006 so that eligibility reviews
take several years.
the costs at three times that amount. In can commence in FY 2007 for error rate
this interim final rule with comment C. Alternatives Considered reporting in the FY 2008 PAR.
period, we are not requiring States to We considered the alternatives D. Conclusion
measure the error rates but rather are recommended by the public
using a national contractor. This rule is commenting on the proposed rule and In accordance with the provisions of
not imposing a cost on States to produce adopted the recommendations for a Executive Order 12866, this regulation
the error rates but rather requires States Federal contractor to review a subset of was reviewed by the Office of
and providers to submit information States. We considered the other Management and Budget.
already on hand to the contractor so that alternatives to be not viable or were not List of Subjects
activities needed to estimate the error the best approach to meet the
rates can be performed. Since the requirements of the law. If sufficient 42 CFR Part 431
information is on hand and States and data are available to estimate these Grant programs-health, Health
providers are not being required to impacts in the final rule, it will be facilities, Medicaid, Privacy, Reporting
develop new materials, the costs included there. In constructing the and recordkeeping requirements.
42 CFR Part 457 regarding any payments claimed by the (a) Claims data and annual
Administrative practice and provider for furnishing services, as the expenditures from previous year;
procedure, Grant programs-health, Secretary may request. (b) Quarterly, stratified adjudicated
Health insurance, Reporting and (b) Scope. This subpart requires States claims data from the review year;
recordkeeping requirements. under the statutory provisions in (c) All medical and other policies in
paragraph (a) of this section to submit effect and quarterly updates as needed
■ For the reasons set forth in the Medicaid and SCHIP expenditures and to perform claims reviews;
preamble, the Centers for Medicare & claims data, medical policies, data (d) Data processing systems manuals;
Medicaid Services amends 42 CFR processing manuals and other (e) Current provider contact
chapter IV as set forth below: information as necessary for, among information that is verified and/or
other purposes, estimating improper updated to contain current provider
PART 431—STATE ORGANIZATION
payments in Medicaid and SCHIP. This contact information;
AND GENERAL ADMINSTRATION
subpart also requires States to submit (f) Repricing information for claims
■ 1. The authority citation for part 431 corrective action reports as prescribed that are determined to be improperly
continues to read as follows: by the Secretary for purposes of paid;
reducing their payment error rates. This
Authority: Sec. 1102 of the Social Security (g) Other information that the
Act (42 U.S.C. 1302). subpart also requires providers to
Secretary determines is necessary for,
submit medical records and other
■ 2. Part 431 is amended by adding new among other purposes, estimating
information necessary to disclose the
subpart Q to read as set forth below: improper payments and determining
extent of services provided to
error rates in Medicaid and SCHIP, and
individuals receiving assistance and
Subpart Q—Requirements for furnish the information regarding any (h) A corrective action report as
Estimating Improper Payments in payments claimed by the provider for prescribed by the Secretary for purposes
Medicaid and SCHIP furnishing the services, to the Secretary of reducing the payment error rate.
Sec. as requested. § 431.1002 Recoveries.
431.950 Purpose. States must return to CMS the Federal
§ 431.958 Definitions and use of terms.
431.954 Basis and scope. share of overpayments identified within
431.958 Definitions and use of terms. As used in this subpart, the following
431.970 Information submission definitions apply: 60 days in accordance with section
requirements. 1903(d)(2) of the Act and related
Improper payment means any regulations at part 433, subpart F of this
431.1002 Recoveries. payment that should not have been chapter. Payments based on erroneous
made or that was made in an incorrect Medicaid eligibility determinations are
Subpart Q—Requirements for
amount (including overpayments and exempt from this provision because they
Estimating Improper Payments in
underpayments) under statutory, are addressed under section 1903(u) of
Medicaid and SCHIP
contractual, administrative, or other the Act and related regulations at part
§ 431.950 Purpose. legally applicable requirements; and 431, subpart P of this chapter.
This subpart requires States to submit includes any payment to an ineligible
recipient, any duplicate payment, any SUBCHAPTER D—STATE CHILDREN’S
information necessary to enable the
payment for services not received, any HEALTH INSURANCE PROGRAM
Secretary to produce a national
improper payment estimate for payment incorrectly denied and any
PART 457—ALLOTMENTS AND
Medicaid and the State Children’s payment that does not account for
GRANTS TO STATES
Health Insurance Program (SCHIP). credits or applicable discounts.
Payment means any payment to a ■ 3. The authority citation for part 457
§ 431.954 Basis and scope. provider, insurer, or managed care continues to read as follows:
(a) Basis. The statutory bases for this organization for a Medicaid or SCHIP
subpart are sections 1102, 1902(a)(6), recipient for which there is Medicaid or Authority: Section 1102 of the Social
and 2107(b)(1) of the Act, which contain Security Act (42 U.S.C. 1302).
SCHIP Federal financial participation. It
the Secretary’s general rulemaking may also mean a direct payment to a Subpart G—Strategic Planning,
authority and obligate States to provide Medicaid or SCHIP recipient in limited Reporting, and Evaluation
information, as the Secretary may circumstances permitted by CMS
require, to monitor program regulation or policy. ■ 4. Section 457.720 is revised to read
performance. In addition, this rule Payment error rate means an annual as follows:
supports the Improper Payments estimate of improper payments made
Information Act of 2002, (Pub. L. 107– under Medicaid and SCHIP equal to the § 457.720 State plan requirement: State
300) which requires Federal agencies to sum of the overpayments (including assurance regarding data collection,
annually review and identify those records, and report.
payments to ineligible recipients) and
programs and activities that may be underpayments, that is, the absolute A State plan must include an
susceptible to significant erroneous value, expressed as a percentage of total assurance that the State collects data,
payments, estimate the amount of payments made over the sampling maintains records, and furnishes reports
improper payments, and report those period. to the Secretary, at the times and in the
estimates to the Congress and, submit a standardized format the Secretary may
report on actions the agency is taking to § 431.970 Information submission require to enable the Secretary to
reduce erroneous payments. Section requirements. monitor State program administration
1902(a)(27) of the Act requires providers States must submit information to the and compliance and to evaluate and
to retain records necessary to disclose Secretary for, among other purposes, compare the effectiveness of State plans
the extent of services provided to estimating improper payments in under title XXI. This includes collection
individuals receiving assistance and Medicaid and SCHIP, that include but of data and reporting as required under
furnish the Secretary with information are not limited to— § 431.970 of this chapter.
(Catalog of Federal Domestic Assistance (Catalog of Federal Domestic Assistance Dated: August 16, 2005.
Program No. 93.778, Medical Assistance Program No. 93.767, State Children’s Health Mark B. McClellan,
Program) Insurance Program) Administrator, Centers for Medicare &
Medicaid Services.
Approved: August 22, 2005.
Michael O. Leavitt,
Secretary.
[FR Doc. 05–19910 Filed 9–30–05; 11:03 am]
BILLING CODE 4120–01–P

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

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42 CFR Parts 431 and 457

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