[Federal Register Volume 59, Number 35 (Tuesday, February 22, 1994)] [Unknown Section] [Page 0] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 94-3608] [[Page Unknown]] [Federal Register: February 22, 1994] ----------------------------------------------------------------------- DEPARTMENT OF HEALTH AND HUMAN SERVICES 42 CFR Part 421 [BPO-111-P] RIN 0938-AG06 Medicare Program; Intermediary and Carrier Functions AGENCY: Health Care Financing Administration (HCFA), HHS. ACTION: Notice of proposed rulemaking. ----------------------------------------------------------------------- SUMMARY: This proposed rule would bring certain sections of the regulations concerning Medicare fiscal intermediaries and carriers into conformity with the appropriate sections of Title XVIII of the Social Security Act. The rule would distinguish between those functions which applicable statutory authorities require to be included in agreements with fiscal intermediaries and those functions that, while not required to be performed by organizations that have entered into intermediary agreements with the Secretary pursuant to section 1816 of the Social Security Act, may be included in such agreements at our discretion. We would require that the intermediary agreements include, as functions, requirements that intermediaries determine proper payment amounts and pay bills. All other functions would be optional. We propose that all functions for carriers are optional. These changes would provide us with the flexibility to transfer functions from one intermediary or carrier to another or to otherwise limit the functions an intermediary or carrier performs when we determine to do so would result in more effective and efficient program administration. In addition, we propose a number of technical or clarifying revisions concerning carrier payment on a fee schedule basis and the distinction between nonrenewal and termination of intermediary agreements and carrier contracts. DATES: Comments will be considered if we receive them at the appropriate address, as provided below, no later than 5 p.m. on April 25, 1994. ADDRESSES: Mail written comments to the following address: Health Care Financing Administration, Department of Health and Human Services, Attention: BPO-111-P, P.O. Box 26676, Baltimore, MD 21207. If you prefer, you may deliver your comments to one of the following addresses: Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201, or Room 132, East High Rise Building, 6325 Security Boulevard, Baltimore, Maryland 21207. Due to staffing and resource limitations, we cannot accept facsimile (FAX) transmissions. In commenting, please refer to file code BPO-111-P. Comments received timely will be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, in room 309-G of the Department's offices at 200 Independence Avenue, SW., Washington, DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m. (phone: (410) 966-7411). FOR FURTHER INFORMATION CONTACT: Alan Bromberg, (410) 966-7441 SUPPLEMENTARY INFORMATION: I. Background Intermediary Agreements and Carrier Contracts--Under sections 1816(a) and 1842(a) of the Social Security Act (the Act), public or private organizations and agencies may participate in the administration of the Medicare program under agreements or contracts entered into with us (on the Secretary's behalf). These Medicare contractors are known as fiscal intermediaries (section 1816(a) of the Act) and carriers (section 1842(a) of the Act). With certain exceptions, intermediaries perform bill processing and benefit payment functions for part A of the program (Hospital Insurance) and carriers perform claims processing and benefit payment functions for part B of the program (Supplementary Medical Insurance). Our regulations at 42 CFR 421.100, Intermediary functions, require that the agreement between us and a fiscal intermediary specify the functions the intermediary is to perform. In addition to any items specified by us unique to that intermediary, the regulations require that all intermediaries perform activities relating to Medicare coverage, fiscal management, provider audits, utilization patterns, resolution of cost report disputes, and reconsideration of determinations. In addition, the regulations require that all intermediaries furnish information and reports, undertake dual intermediary responsibilities for service to provider-based Home Health Agencies (HHAs) and provider-based hospices, and comply with all applicable laws and regulations and with any other terms and conditions included in their agreements. Similarly, our regulations at 42 CFR 421.200, Carrier functions, require that the contract between HCFA and a part B carrier specify the functions the carrier is to perform. In addition to any items specified by us unique to that carrier, the regulations require that all part B carriers perform activities relating to Medicare coverage, payment on a cost basis, payment on a charge basis, fiscal management, provider audits, utilization patterns and hearings to part B beneficiaries. In addition, the regulations require that all carriers furnish information and reports, maintain and make available records, and comply with any other terms and conditions included in their contracts. For both intermediaries and carriers, our regulations at 42 CFR 421.5, General provisions, state that HCFA has the authority not to renew a part A agreement or a part B Contract when it expires. Our regulations at 42 CFR 421.126, Termination of agreements, provide the Secretary with the authority to terminate fiscal intermediary agreements in certain circumstances, while the regulations at 42 CFR 421.205, Termination by the Secretary, give the Secretary similar authority to terminate carrier contracts. II. Proposed Changes to the Regulations As noted earlier, our regulations at Sec. 421.100 for intermediaries and Sec. 421.200 for carriers specify a list of functions that must, at a minimum, be included in all intermediary agreements and carrier contracts. These requirements far exceed those of the statute. Section 1816(a) of the Social Security Act requires only that an intermediary agreement provide for determination of the amount of payments to be made to providers and for the making of such payments. Section 1816(a) permits, but does not require, an intermediary agreement to include provisions for the intermediary to provide consultative services to providers to enable them to establish and maintain fiscal records or to otherwise qualify as providers and, for those providers to which it makes payments, to serve as a channel of communications between us and the providers, to make audits of the records of the providers, and to perform such other functions as are necessary. We believe that section 1816(a) mandates only that an intermediary agreement include the functions currently required by Sec. 421.100 paragraph (a) (Coverage) and paragraph (b) (Fiscal management) of the regulations. We believe that the other functions (Sec. 421.100 paragraphs (c) through (i)) that the regulations currently require to be included in all intermediary agreements are not required by statute and the mandatory inclusion of them in all agreements limits our ability to efficiently and effectively administer the Medicare program. Paragraph (a) of section 1842 of the Act, which pertains to carrier contracts, requires that the contracts must provide for some or all of the functions listed in that paragraph, but does not specify any functions which must be included in a carrier contract. As in the case of intermediary agreements, our experience has been that mandatory inclusion of a long list of functions in all contracts restricts our ability to administer the carrier contracts with optimum efficiency and effectiveness. We believe that the requirements of the regulations for both intermediaries and carriers should be brought into conformity with the statutory requirements. Moreover, we believe that such action would substantially enhance the efficient and effective administration of the Medicare program by giving both HCFA and the contractor community more flexibility in their approaches to the performance of intermediary and carrier functions. We further believe that intermediaries and carriers would benefit from the ability to enter voluntarily into regional arrangements for the performance of some functions. Intermediaries and carriers have shown interest in entering into agreements with other contractors in their regions to shift the performance of a given function to a single intermediary or carrier that is able to perform the function with the greatest efficiency or at the least cost, while another function might in turn be shifted to a second contractor. For example, one intermediary in a region might perform medical review for the entire region, while another would assume the audit function. Under the existing requirement that all intermediaries and carriers perform all functions, such arrangements are not permitted, except through subcontracts, which must be awarded through the competitive procurement process and which leave the final responsibility for the performance of the function with the original contractor. The proposed change in the regulations would provide the intermediaries and carriers with the ability to enter into arrangements to transfer formally the entire responsibility for performance of a function to other intermediaries and carriers, subject to our approval. The change would also simplify the process of our paying the intermediary or carrier actually performing the function. Under a subcontracting arrangement, we pay the contractor that subcontracts out the function and that entity, in turn, pays the subcontractor which is actually doing the work. Under the proposed change, we would make direct payment to the intermediary or carrier performing the function. Our conclusion is that the existing regulations, which state that intermediary agreements and carrier contracts must include all of the functions cited, are not only inconsistent with applicable statutory authority, but also are too restrictive. They deny us the flexibility to improve the administration of the Medicare program by removing some of the functions from an intermediary's agreement or a carrier's contract and transferring them to another intermediary or carrier where either we or the contractors themselves determine that such action would be more efficient than having every intermediary and carrier perform all functions specified in the regulations. We are proposing to redesignate Sec. 421.100, Intermediary functions, as Sec. 421.101, Optional intermediary functions. In a new Sec. 421.100, Required intermediary functions, we would specify that all agreements must include the functions of coverage (current content of Sec. 421.100(a)) and fiscal management (current Sec. 421.100(b)). We believe these functions are required to be included in all agreements by section 1816(a) of the Act. In the redesignated Sec. 421.101, Optional intermediary functions, we would indicate that the intermediary agreement may include the functions currently contained in Sec. 421.100(c) through 421.100(i). That is, the cumulative effect of the change would be to separate the two required functions that must be in all intermediary agreements from the remaining functions that may or may not be included. In Sec. 421.200, Carrier functions, we would change the word ``must'' to ``may'' in the first sentence, making all the functions listed for inclusion in carrier contracts optional. This change would reflect section 1842(a) of the Act, which does not list specific functions that must be included. Our use of the term ``optional'' does not mean that some functions might not be performed in some jurisdictions. All functions will continue to be performed in all intermediary and carrier jurisdictions. ``Optional'' in this case means only that HCFA will have the option of determining whether a given function should be performed in a specific jurisdiction by the intermediary or carrier which normally serves that jurisdiction and therefore included in that intermediary's agreement or carrier's contract, or should be performed by some other intermediary or carrier. In Sec. 421.200, we propose to add payment on a fee schedule basis as a new function which may be performed by carriers. While the original carrier functions included payment on a cost basis and on a charge basis, recent statutory changes and corresponding changes in the regulations have shifted some classes of physician and Medicare suppliers to payment according to fee schedules. However, Sec. 421.200 has never been updated to recognize these changes. Accordingly, the addition of payment on a fee schedule basis as a function which may be included in carrier contracts will bring this section of the regulations into conformity with current statutory provisions for Medicare part B payment. In addition, 42 CFR 421.5(d) states that, notwithstanding any of the provisions of part 421, HCFA has the authority not to renew an agreement or contract when its term expires. Section 421.126(b) allows the Secretary to terminate intermediary agreements under certain circumstances, while Sec. 421.205 gives the Secretary the authority to terminate carrier contracts at any time for cause. The distinction between the termination and nonrenewal of an agreement or contract is important because the right of an intermediary or carrier to a hearing applicable to terminations does not apply to nonrenewals. Consequently, we are proposing to revise Secs. 421.5, 421.126, and 421.205 to make certain that the distinction between nonrenewals and terminations is clear. The proposed changes are not substantive. They are meant to reflect existing statutory and regulatory requirements, as well as HCFA's longstanding policy and practice, as expressed in the standard intermediary agreements and carrier contracts. The objective of these proposed changes is to make the regulations fully consistent with the relevant statutory authority and to provide, as necessary, clarification of the distinction between contract nonrenewals and terminations. In addition, the change to the regulations concerning mandatory and optional functions will provide us with the flexibility to shift non-mandatory functions among intermediaries and carriers so that the Medicare program may be administered in the most efficient and effective manner possible. We anticipate using the authority granted us by this change sparingly. Any transfer or consolidation of functions will be determined on a case-by- case basis, and, prior to taking action in any specific case, we will closely study the situation to determine whether the benefits to the effective administration of the Medicare program warrant the action. It is not our intent at this time to shift functions from intermediaries and carriers to any entities except other intermediaries and carriers. III. Response to Comments Because of the large number of items of correspondence we normally receive on a proposed rule, we are not able to acknowledge or respond to them individually. However, we will consider all comments that we receive by the date and time specified in the ``DATES'' section of this preamble, and we will respond to them in the preamble to the final rule. IV. Collection of Information Requirement This rule contains no information collection requirements. Consequently, this rule need not be reviewed by the Office of Management and Budget under the authority of the Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.). V. Regulatory Impact Statement We generally prepare a regulatory flexibility analysis that is consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 through 612) unless the Secretary certifies that a proposed rule would not have a significant economic impact on a substantial number of small entities. For purposes of the RFA, intermediaries and carriers are not considered to be small entities that will be affected as a result of these regulations. Individuals and States are not included in the definition of a small entity. Also, section 1102(b) of the Act requires the Secretary to prepare a regulatory impact analysis if a proposed rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 603 of the RFA. For purposes of section 1102(b) of the Act, we consider a small rural hospital as a hospital that is located outside of a Metropolitan Statistical Area and has fewer than 50 beds. This proposed rule would potentially affect the 47 Medicare part A intermediaries and 33 part B carriers with agreements or contracts with HCFA to make payments to Medicare providers and beneficiaries for covered services and to perform certain other functions currently described in Sec. 421.100 for intermediaries and Sec. 421.200 for carriers. Under this proposed rule, we would have authority to redefine intermediary agreement and carrier contract requirements and remove functions from some contractors and transfer them to other contractors. We would also be able to consolidate some tasks under one contractor in regions where several contractors are all performing the same functions simultaneously. The proposed rule would also add payment on a fee schedule basis as a function which may be included in carrier contracts and distinguishes between contract nonrenewals and terminations. This proposed rule would make the regulations more consistent with the relevant statutory authority and promote the more effective and efficient administration of the Medicare program. Service to beneficiaries and Medicare providers would not be disrupted in the affected regions. Implementing this proposed rule would not create any additional expenses but should enable the Medicare program to realize savings in administrative costs. At present, we are unable to estimate the potential dollar amount of these savings. We evaluated the potential impact of these regulations changes on intermediaries and carriers for purposes of determining whether a regulatory flexibility analysis is required. We believe that the effects or the changes will be minimal. Almost all of the present contractors have been performing the functions for a number of years and have developed efficiencies that would argue against our needlessly altering their functions. Therefore, it is not our intention to use the flexibility of this regulation to make wholesale changes. Consequently, we have determined, and the Secretary certifies, that this proposed rule would not result in a significant impact on a substantial number of small entities. Similarly, the Secretary certifies that it would not have a significant effect on the operations of a substantial number of small rural hospitals. Therefore, we are not preparing analyses for either the RFA or section 1102(b) of the Act. In accordance with the provisions of Executive Order 12866 this regulation was reviewed by the Office of Management and Budget. List of Subjects in 42 CFR Part 421 Administrative practice and procedure, Health facilities, Health professions, Medicare, Reporting and recordkeeping requirements. 42 CFR part 421 would be amended as set forth below. PART 421--INTERMEDIARIES AND CARRIERS 1. The authority citation for part 421 continues to read as follows: Authority: Secs. 1102, 1815, 1816, 1833, 1834 (a) and (h), 1842, 1861(u), 1871, 1874, and 1875 of the Social Security Act (42 U.S.C. 1302, 1395g, 1395h, 1395l, 1395m (a) and (h), 1395u, 1395x(u), 1395hh, 1395kk, and 1395ll), and 42 U.S.C. 1395b-1. 2. Section 421.5(d) is revised to read as follows: Sec. 421.5 General provisions. * * * * * (d) Nonrenewal of agreement or contract. Notwithstanding any of the provisions of this part, HCFA has the authority to nonrenew an agreement or contract when its term expires. An intermediary or carrier has the authority to nonrenew an agreement or contract when its term expires. The notice and hearing requirements for the termination of an agreement or contract set forth in Secs. 421.126, 421.128, and 421.205 do not apply to such nonrenewal of an agreement or contract. An intermediary or carrier also has the authority to nonrenew an agreement or contract when its term expires. * * * * * 3. Section 421.100 is redesignated as Sec. 421.101 and revised to read as follows: Sec. 421.101 Optional intermediary functions. An agreement between HCFA and an intermediary may specify the optional functions to be performed by the intermediary, which may include, but are not necessarily limited to, the following: (a) Provider audits. The intermediary must audit the records of providers of services as necessary to assure proper payments. (b) Utilization patterns. The intermediary must assist providers to-- (1) Develop procedures relating to utilization practices; (2) Make studies of the effectiveness of those procedures and recommend methods to improve them; (3) Evaluate the results of utilization review activity; and (4) Assist in the application of safeguards against unnecessary utilization of services. (c) Resolution of cost report disputes. The intermediary must establish and maintain procedures approved by HCFA to consider and resolve any disputes that may result from provider dissatisfaction with an intermediary's determinations concerning provider cost reports. (d) Reconsideration of determinations. The intermediary must establish and maintain procedures approved by HCFA for the reconsideration of its determinations to deny payments to an individual or to the provider that furnished services to the individual. The PRO performs reconsideration of cases in which it made a determination subject to reconsideration. (e) Information and reports. The intermediary must furnish to HCFA any information and reports that HCFA requests in order to carry out its responsibilities in the administration of the Medicare program. (f) Other terms and conditions. The intermediary must comply with all applicable laws and regulations and with any other terms and conditions included in its agreement. (g) Dual intermediary responsibilities. With respect to the responsibility for service to provider-based HHAs and provider-based hospices, where the HHA or hospice and its parent provider will be served by different intermediaries under Sec. 421.117 of this part, the designated regional intermediary will process bills, make coverage determinations and make payments to the HHAs and hospices. The intermediary serving the parent provider will perform all fiscal functions, including audits and settlement of the Medicare cost reports and the HHA and hospice supplement worksheets. 4. A new Sec. 421.100 is added to subpart B to read as follows: Sec. 421.100 Required intermediary functions. An agreement between HCFA and an intermediary specifies the functions to be performed by the intermediary, which must include the following required functions and may include optional functions listed in Sec. 421.101 of this part and any others agreed to by HCFA. The required functions are: (a) Coverage. (1) The intermediary ensures that it makes payments only for services that are: (i) Furnished to Medicare beneficiaries; (ii) Covered under Medicare; and (iii) In accordance with PRO determinations when they are services for which the PRO has assumed review responsibility under its contract with HCFA. (2) The intermediary takes appropriate action to reject or adjust the claim if-- (i) The intermediary or the PRO determines that the services furnished were not reasonable, not medically necessary, or not furnished in the most appropriate setting; or (ii) The intermediary determines that the claim does not properly reflect the kind and amount of services furnished. (b) Fiscal management. The intermediary must receive, disburse, and account for funds in making Medicare payments. 5. Section 421.126 is amended by revising the heading and by adding a new paragraph (c) to read as follows: Sec. 421.126 Termination or nonrenewal or agreements. * * * * * (c) Nonrenewal by the intermediary or Secretary. (1) An intermediary may nonrenew an agreement with the Secretary by giving the Secretary written notice of the intermediary's intention to nonrenew the agreement at least 90 days before the end of the current period of the agreement. (2) The Secretary may nonrenew an agreement with an intermediary by giving the intermediary written notice of the Secretary's intention to nonrenew the agreement at least 90 days before the end of the current period of the agreement. (3) In the event that either the Secretary or intermediary gives notice of intention to nonrenew an agreement, the Secretary may extend the agreement for such time and under such conditions as may be specified in the agreement. (4) The providers served by an intermediary whose contract is not being renewed have the opportunity to nominate another intermediary, in accordance with Sec. 421.104. (5) The provisions for notice and the opportunity for a hearing in connection with the termination of an intermediary agreement, set forth in paragraph (b)(2) of this section and Sec. 421.128, do not apply to any nonrenewal of an intermediary agreement. 6. Section 421.200 is amended by redesignating paragraphs (d) through (j) as (e) through (k), respectively. The introductory text is revised and a new paragraph (d) is added to read as follows: Sec. 421.200 Carrier functions. A contract between HCFA and a carrier, other than a regional DMEPOS carrier, specifies the functions to be performed by the carrier, which may include, but are not necessarily limited to the following: * * * * * (d) Payment on a fee schedule basis. If payment is on a fee schedule basis, the carrier must assure that payments are made in accordance with the applicable provisions of parts 414 and 415 of this chapter. * * * * * 7. Section 421.205 is revised to read as follows: Sec. 421.205 Termination or nonrenewal of contracts. (a) Termination by the carrier. A carrier may terminate its contract at any time upon written notice to the Secretary of its intention to terminate. Upon notice to terminate, the contract continues for 180 days after such notice unless the Secretary decides to terminate at an earlier date. (b) Termination by the Secretary. (1) The Secretary may terminate a contract with a carrier at any time if he or she determines that the carrier has failed substantially to carry out any material terms of the contract or has performed its functions in a manner inconsistent with the effective and efficient administration of the Medicare Part B program. (2) Upon notification of the Secretary's intent to terminate the contract, the carrier may request a hearing within 20 days after the date of the notice of intent to terminate. (3) The hearing procedures will be those specified in Sec. 421.128(c). (c) Nonrenewal by the Secretary or carrier. (1) A carrier may nonrenew a contract with the Secretary by giving the Secretary written notice of its intention to nonrenew the contract at least 90 days before the end of the current period of the contract. (2) The Secretary may nonrenew a contract with a carrier by giving the carrier written notice of the Secretary's intention to nonrenew the contract at least 90 days before the end of the current period of the contract. (3) In the event that either the Secretary or the carrier gives notice of intention to nonrenew a contract for an additional period, the Secretary may extend the contract for such time and under such conditions as may be specified in the contract. (4) The provisions for notice and the opportunity for a hearing in connection with the termination of a carrier contract, set forth in paragraph (b) of this section and Sec. 421.128, do not apply to the nonrenewal of a carrier contract. (Catalog of Federal Domestic Assistance Program No. 13.714, Medicare Assistance Program; 13.773, Medicare--Hospital Insurance Program; No. 93.774, Medicare-Supplemental Medical Insurance) Dated: August 5, 1993. Bruce C. Vladeck, Administrator, Health Care Financing Administration. Dated: December 10, 1993. Donna E. Shalala, Secretary. [FR Doc. 94-3608 Filed 02-18-94; 8:45 am] BILLING CODE 4120-01-P