Background

The Organic Foods Production Act (OFPA), 7 U.S.C. 6501 et seq. , authorizes the establishment of the National List of exempted and prohibited substances. The National List identifies synthetic substances (synthetics) that are exempted (allowed) and nonsynthetic substances (nonsynthetics) that are prohibited in organic crop and livestock production. The National List also identifies nonsynthetics and synthetics that are exempted for use in organic handling.

The exemptions and prohibitions granted under the OFPA are required to be reviewed every 5 years by the National Organic Standards Board (NOSB). The Secretary of Agriculture has authority under the OFPA to renew such exemptions and prohibitions. If they are not reviewed by the NOSB and renewed by the Secretary within 5 years of their inclusion on the National List, their authorized use or prohibition expires. This means that a synthetic substance currently allowed for use in organic production will no longer be allowed for use after October 21, 2007; a non-synthetic substance currently prohibited from use in organic production will be allowed after October 21, 2007; and a synthetic or nonsynthetic substance currently allowed for use in organic handling will be prohibited after October 21, 2007.

Expiration of the exempted or prohibited use of substances is provided for under the OFPA's sunset provision. This ANPR announces the sunset of 165 exempted and 9 prohibited substances currently on the National List, which became effective October 21, 2002. This ANPR establishes October 21, 2007, as the date by which the sunset review and renewal process must be concluded and also begins the public comment process on whether the existing specific exemptions or prohibitions on the National List should be continued. This ANPR discusses how the NOP will manage the sunset review and renewal process.

Because these substances may be critical to the production and handling of a wide array of raw and processed organic agricultural products, their expiration could cause disruption of well-established and accepted organic production, handling, and processing systems. Therefore, the NOP is initiating the sunset review and renewal process now, in order to provide ample opportunity for you to make your views known.

As the first step in this process, we invite public comment on the specific exemptions or prohibitions currently on the National List that are described in this document. All substances currently on the National List have been previously evaluated and determined by the NOSB for consistency with OFPA and its implementing regulations. According to section 6517 (e) of the OFPA, these substances must be reviewed by the NOSB and renewed by the Secretary for their use or prohibition to continue after 5 years of their addition to the National List, which will be October 21, 2007. Public comments will be considered in the review and renewal process.

The NOP will forward comments received under this ANPR to the NOSB for review. The NOSB will review the exemptions and prohibitions of the substances designated to sunset on October 21, 2007, including the public comments received during this review. The NOSB will review each substance on the National List and may determine that certain substances warrant a more in-depth review and require additional information or research that considers new scientific data and technological and market advances.

Following the NOSB's review, the NOSB will make a recommendation to the Secretary about the continuation of specific exemptions and prohibitions contained on the National List. After the Secretary receives the NOSB's recommendations, the NOP will publish a proposed rule containing the NOSB recommendations. This proposed rule will provide an additional opportunity for you to express your views. Comments received on the proposed rule will be used to develop a final rule. Because the sunset review and renewal process involves rulemaking, the NOP believes it is appropriate to initiate the process now.

If you provide comments that support the renewal of any or all existing exemptions or prohibitions contained on the National List, you should clearly indicate this and provide your reasons and any relevant documentation that supports your position.

If you provide comments that do not support continuing an existing exemption, you should provide reasons why the use of the substance should no longer be allowed in organic agricultural production and handling. The current exemptions were originally recommended by the NOSB based on evidence available to the NOSB at the time of review which demonstrated that the substances were found to be: (1) Not harmful to human health or the environment, (2) necessary because of the unavailability of wholly nonsynthetic alternatives, and (3) consistent and compatible with organic practices. Therefore, comments against the continued exemption of a substance should demonstrate how the current substance is: (1) harmful to human health or the environment, (2) not necessary to the production of the agricultural products because of the availability of wholly nonsynthetic substitute products, or (3) inconsistent with organic farming and handling.

An Appendix to this ANPR contains worksheets to assist you in gathering relevant information concerning these issues. These worksheets are not required to submit a comment. These worksheets are used by the NOSB to develop their recommendations to the Secretary to include an exempted or prohibited substance on the National List. You do not have to answer the questions on the worksheets; they are intended only to help you provide substantive comments to the NOSB when you provide comments on the specific substance.

In addition, comments that do not support the continued use of a substance(s) on the National List should also provide the evidence concerning viable alternatives for the substance you believe should be discontinued. Viable alternatives include, but are not limited to: alternative management practices that would eliminate the need for the specific substance; other currently exempted substances that are on the National List which could eliminate the need for this specific substance; and other organic or nonorganic agricultural substances. Such evidence also should adequately demonstrate that the alternative has a function and effect that equals or surpasses the specific exempted substance that you do not want to be continued. Assertions about an alternative substance except for those alternatives that already appear on the National List should, if possible include the name and address of the manufacturer of the alternative. Further, your comments should include a copy or the specific source of any supportive literature, which could include product or practice descriptions; performance and test data; reference standards; name and address of producers who have used the alternative under similar conditions and the date of use; and an itemized comparison of the function and effect of the proposed alternative(s) with substance under review. The chart below can help you describe recommended alternatives for different types of organic operations in place of a current exempted substance that you do not want to be continued.

The NOP understands that supportive technical or scientific information for synthetic alternatives not currently on the National List may not be easily available to organic producers and handlers. Such information may, however, be available from the research community including universities, or other sources, including international organic programs.

If you provide comments against the continuation of a prohibition contained on the National List, you should specify how the prohibited substance is now consistent with the criteria in the OFPA and the NOP regulation. When these prohibitions were originally recommended by the NOSB, they were accepted because the evidence available to the NOSB at the time of review demonstrated that the substances were found to be harmful to human health or the environment and were inconsistent and not compatible with organic practices. Therefore, any comments against the continuation of an existing prohibited substance that is currently on the National List should provide new information, including a copy of the specific source of any supportive literatures showing that the currently prohibited substance is no longer harmful to human health or the environment and is consistent and compatible with organic practices.

An Appendix to this ANPR contains worksheets to assist you in gathering relevant information concerning these issues. These worksheets are not required for you to submit a comment. These worksheets are used by the NOSB to develop their recommendations to the Secretary to include an exempted or prohibited substance on the National List. You do not have to answer the questions on the worksheets; they are intended to help you provide substantive comments to the NOSB when you provide comments on the specific substance.

The NOP requests that you comment whether the NOSB should continue to recommend the following exemptions and prohibitions on the National List of Allowed and Prohibited Substances for organic agricultural production and handling:

This rule is issued under Marketing Order No. 981, as amended (7 CFR part 981), regulating the handling of almonds grown in California, hereinafter referred to as the “order.” The order is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

The Department of Agriculture (USDA) is issuing this rule in conformance with Executive Order 12866.

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. Under the marketing order now in effect, California almond handlers are subject to assessments. Funds to administer the order are derived from such assessments. It is intended that the assessment rate as proposed herein would be applicable to all assessable almonds beginning August 1, 2005, and continue until amended, suspended, or terminated. This rule will not preempt any State or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule.

The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom.

Such handler is afforded the opportunity for a hearing on the petition. After the hearing USDA would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review USDA's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.

This rule would increase the assessment rate established for the Board for the 2005-06 and subsequent crop years from $0.025 to $0.030 per pound of almonds received. Of the $0.030 per pound assessment, 60 percent (or $0.018 per pound) would be available as credit-back for handlers who conduct their own promotional activities.

The order provides authority for the Board, with the approval of USDA, to formulate an annual budget of expenses and collect assessments from handlers to administer the program. The members of the Board are producers and handlers of California almonds. They are familiar with the Board's needs and with the costs for goods and services in their local area and are thus in a position to formulate an appropriate budget and assessment rate. The assessment rate is formulated and discussed in a public meeting. Thus, all directly affected persons have an opportunity to participate and provide input.

For the 2004-05 and subsequent crop years, the Board recommended, and USDA approved, an assessment rate that would continue in effect from crop year to crop year unless modified, suspended, or terminated by USDA upon recommendation and information submitted by the Board or other information available to USDA.

The Board met on May 12, 2005, and unanimously recommended 2005-06 expenditures of $28,756,000. In comparison, last year's budgeted expenditures were $24,077,344. The recommended assessment rate of $0.030 would be $0.005 higher than the rate currently in effect, and the credit-back portion of the assessment rate ($0.018 per pound) would be $0.004 more than the credit-back portion currently in effect.

The major expenditures recommended by the Board for the 2005-06 crop year include $15,423,000 for domestic advertising, market research, and public relations; $4,920,000 for operational expenses; $4,873,000 for international public relations and other promotion and education programs, including a Market Access Program (MAP) administered by USDA's Foreign Agricultural Service (FAS); $1,200,000 for nutrition research; $850,000 for production research; $830,000 for food quality programs; and $500,000 for environmental research, plus other minor sums. Budgeted expenses for these items in 2004-05 were $12,540,000 for domestic advertising, market research, and public relations; $3,611,981 for operational expenses; $4,340,000 for international public relations and other promotion and education programs, including a MAP administered by USDA's FAS; $1,200,000 for nutrition research; $947,321 for production research; $858,000 for food quality programs; and $460,042 for environmental research, plus other minor sums.

The Board recommended increasing the assessment rate from $0.025 per pound to $0.030 per pound of almonds handled. Of the $0.030 per pound assessment, 60 percent (or $0.018 per pound) would be available as credit-back for handlers who conduct their own promotional activities consistent with § 981.441 of the order's regulations and subject to Board approval. The increased assessment rate is needed because the 2005-06 crop is projected at 816 million pounds of assessable almonds, down from the 1.0368 billion pound 2004-05 crop, and projected assessment revenue will likely be reduced. The increased rate should generate adequate revenue to fund the Board's 2005-06 budgeted expenses and to maintain a small financial reserve. Section 981.81(c) authorizes a financial reserve of approximately one-half year's budgeted expenses. One-half of the 2005-06 crop year's budgeted expenses of $28,756,000 equals $14,378,000. The Board's financial reserve at the end of the 2005-06 crop year is projected to be $1.1 million which is well within the authorized reserve.

The assessment rate recommended by the Board was derived by considering anticipated expenses and production levels of California almonds, and additional pertinent factors. In its recommendation, the Board utilized an estimate of 816 million pounds of assessable almonds for the 2005-06 crop year. If realized, this would provide estimated assessment revenue of $9,792,000 from all handlers, and an additional $9,180,000 from those handlers who do not participate in the credit-back program, for a total of $18,972,000. In addition, it is anticipated that $10,851,797 will be provided by other sources, including interest income, MAP funds, grant funds, miscellaneous income, and reserve/carryover funds. When combined, revenue from these sources would be adequate to cover budgeted expenses. Any unexpended funds from the 2005-06 crop year may be carried over to cover expenses during the succeeding crop year. Funds in the reserve at the end of the 2005-06 crop year are estimated to be approximately $1.1 million which would be within the amount permitted by the order.

The proposed assessment rate would continue in effect indefinitely unless modified, suspended, or terminated by USDA upon recommendation and information submitted by the Board or other available information.

Although this assessment rate would be in effect for an indefinite period, the Board will continue to meet prior to or during each crop year to recommend a budget of expenses and consider recommendations for modification of the assessment rate. The dates and times of Board meetings are available from the Board or USDA. Board meetings are open to the public and interested persons may express their views at these meetings. USDA would evaluate Board recommendations and other available information to determine whether modification of the assessment rate is needed. Further rulemaking would be undertaken as necessary. The Board's 2005-06 budget and those for subsequent crop years would be reviewed and, as appropriate, approved by USDA.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA), the Agricultural Marketing Service (AMS) has considered the economic impact of this rule on small entities. Accordingly, AMS has prepared this initial regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of business subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and the rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf. Thus, both statutes have small entity orientation and compatibility.

There are approximately 6,000 producers of almonds in the production area and approximately 115 handlers subject to regulation under the order. Small agricultural producers are defined by the Small Business Administration (13 CFR 121.201) as those having annual receipts of less than $750,000, and small agricultural service firms are defined as those whose annual receipts are less than $6,000,000.

Data for the most recently completed crop year indicate that about 48 percent of the handlers shipped over $6,000,000 worth of almonds and about 52 percent of handlers shipped under $6,000,000 worth of almonds. In addition, based on production and grower price data reported by the California Agricultural Statistics Service (CASS), and the total number of almond growers, the average annual grower revenue is estimated to be approximately $261,248. Based on the foregoing, the majority of handlers and producers of almonds may be classified as small entities.

This rule would increase the assessment rate established for the Board and collected from handlers for the 2005-06 and subsequent crop years from $0.025 to $0.030 per pound of almonds. Of the $0.030 per pound assessment, 60 percent (or $0.018 per pound) would be available as credit-back for handlers who conduct their own promotional activities consistent with § 981.441 of the order's regulations and subject to Board approval.

The Board met on May 12, 2005, and unanimously recommended 2005-06 expenditures of $28,756,000 and an assessment rate of $0.030 per pound. Of the $0.030 per pound assessment, 60 percent (or $0.018 per pound) would be available as credit-back for handlers who conduct their own promotional activities. The proposed assessment rate of $0.030 would be $0.005 higher than the current rate, and the credit-back portion of $0.018 per pound would be $0.004 more than the current credit-back portion. The quantity of assessable almonds for the 2005-06 crop year is estimated at 816,000,000 pounds. The proposed assessment rate would provide estimated assessment revenue of $9,792,000 from all handlers, and an additional $9,180,000 from those handlers who do not participate in the credit-back program, for a total of $18,972,000. In addition, it is anticipated that $10,851,797 will be provided by other sources, including interest income, MAP funds, grant funds, miscellaneous income, and reserve/carryover funds. When combined, revenue from these sources would be adequate to cover budgeted expenses. The projected financial reserve at the end of 2005-06 would be $1,137,797 which would be within the maximum permitted under the order.

The major expenditures recommended by the Board for the 2005-06 crop year include $15,423,000 for domestic advertising, market research, and public relations; $4,920,000 for operational expenses; $4,873,000 for international public relations and other promotion and education programs, including a MAP administered by USDA's FAS; $1,200,000 for nutrition research; $850,000 for production research; $830,000 for food quality programs; and $500,000 for environmental research, plus other minor sums. Budgeted expenses for these items in 2004-05 were $12,540,000 for domestic advertising, market research, and public relations; $3,611,981 for operational expenses; $4,340,000 for international public relations and other promotion and education programs, including a MAP administered by USDA's FAS; $1,200,000 for nutrition research; $947,321 for production research; $858,000 for food quality programs; and $460,042 for environmental research, plus other minor sums.

The Board considered alternative assessment rate levels, including the portion available for handler credit-back. After deliberating the issue, the Board recommended increasing the assessment rate to $0.030 per pound, with 60 percent (or $0.018 per pound) available for handler credit-back. In arriving at its budget, the Board considered information from its various committees. Alternative expenditure levels were discussed by these groups, based on the value of various activities to the industry. The committees ultimately recommended appropriate activities and funding levels, which were adopted by the Board.

A review of historical information and preliminary information pertaining to the upcoming crop year indicates that the average grower price for the 2005-06 season could range between $3.00 and $3.50 per pound of almonds. Therefore, the estimated assessment revenue for the 2005-06 crop year (disregarding any amounts credited pursuant to §§ 981.41 and 981.441) as a percentage of total grower revenue could range between 1.00 and 0.86 percent, respectively.

This action would increase the assessment obligation imposed on handlers. While assessments impose some additional costs on handlers, the costs are minimal and uniform on all handlers. Some of the additional costs may be passed on to producers. However, these costs would be offset by the benefits derived by the operation of the marketing order. In addition, the Board's meeting was widely publicized throughout the California almond industry and all interested persons were invited to attend the meeting and participate in Board deliberations on all issues. Like all Board meetings, the May 12, 2005, meeting was a public meeting and all entities, both large and small, were able to express views on this issue. Finally, interested persons are invited to submit information on the regulatory and informational impacts of this action on small businesses.

This proposed rule would impose no additional reporting or recordkeeping requirements on either small or large California almond handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies.

USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this rule.

A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at: http://www.ams.usda.gov/fv/moab.html . Any questions about the compliance guide should be sent to Jay Guerber at the previously mentioned address in the FOR FURTHER INFORMATION CONTACT section.

A 10-day comment period is provided to allow interested persons to respond to this proposed rule. Ten days is deemed appropriate because: (1) The 2005-06 crop year begins on August 1, 2005, and the order requires that the rate of assessment for each crop year apply to all assessable almonds handled during such crop year; (2) a final decision on the increase should be made as soon as possible so handlers can plan accordingly; (3) the Board needs to have sufficient funds to pay its expenses which are incurred on a continuous basis; and (4) handlers are aware of this action which was unanimously recommended by the Board at a public meeting and is similar to other assessment rate actions issued in past years.

For the reasons set forth in the preamble, 7 CFR part 981 is proposed to be amended as follows:

We propose to revise our regulations that explain how we make findings about whether your impairment(s) medically equals a listing. Since February 11, 1997, § 416.926, our regulation for making findings about medical equivalence under title XVI, has included different language from § 404.1526, our regulation about medical equivalence under title II. We are now proposing to update § 404.1526 so that it is the same as § 416.926.

As we discuss in more detail below, we are also proposing revisions to clarify language that was at issue in the decision in Hickman v. Apfel, 187 F.3d 683 (7th Cir. 1999), about the evidence we consider when we make findings about medical equivalence. When we issue any final rules, we will consider whether to rescind the Acquiescence Ruling (AR) that we issued in response to the court's decision (AR 00-2(7)) and to restore national uniformity in our adjudications.

In addition, we are proposing to update and clarify our rules in §§ 404.1525 and 416.925. As we explain below, the proposed changes are not substantive.

We are also proposing minor editorial changes throughout §§ 404.1525, 404.1526, 416.925, and 416.926, as well as conforming changes in other regulations to reflect the changes we are proposing in these sections.

These proposed regulations would affect disability determinations and decisions that we make under title II and title XVI of the Act. In addition, to the extent that Medicare entitlement and Medicaid eligibility are based on whether you qualify for disability benefits under title II or title XVI, these proposed regulations would also affect the Medicare and Medicaid programs.

Under title II of the Act, we provide for the payment of disability benefits if you are disabled and belong to one of the following three groups:

• Workers insured under the Act,

• Children of insured workers, and

• Widows, widowers, and surviving divorced spouses (see § 404.336) of insured workers.

Under title XVI of the Act, we provide for Supplemental Security Income (SSI) payments on the basis of disability if you are disabled and have limited income and resources.

Under both the title II and title XVI programs, disability must be the result of any medically determinable physical or mental impairment or combination of impairments that is expected to result in death or which has lasted or is expected to last for a continuous period of at least 12 months. Our definitions of disability are shown in the following table:

If you are seeking benefits under title II of the Act, or if you are an adult seeking benefits under title XVI of the Act, we use a five-step “sequential evaluation process” to decide whether you are disabled. We describe this five-step process in our regulations at §§ 404.1520 and 416.920. We follow the five steps in order and stop as soon as we can make a determination or decision. The steps are:

1. Are you working, and is the work you are doing substantial gainful activity? If you are working and the work you are doing is substantial gainful activity, we will find that you are not disabled, regardless of your medical condition or your age, education, and work experience. If you are not, we will go on to step 2.

2. Do you have a “severe” impairment? If you do not have an impairment or combination of impairments that significantly limits your physical or mental ability to do basic work activities, we will find that you are not disabled. If you do, we will go on to step 3.

3. Do you have an impairment(s) that meets or medically equals the severity of an impairment in the listings? If you do, and the impairment(s) meets the duration requirement, we will find that you are disabled. If you do not, we will go on to step 4.

4. Do you have the residual functional capacity to do your past relevant work? If you do, we will find that you are not disabled. If you do not, we will go on to step 5.

5. Does your impairment(s) prevent you from doing any other work that exists in significant numbers in the national economy, considering your residual functional capacity, age, education, and work experience? If it does, and it meets the duration requirement, we will find that you are disabled. If it does not, we will find that you are not disabled.

We use a different sequential evaluation process for children who apply for payments based on disability under SSI. If you are already receiving benefits, we also use a different sequential evaluation process when we decide whether your disability continues. See §§ 404.1594, 416.924, 416.994, and 416.994a of our regulations. However, all of these processes include steps at which we consider whether your impairment(s) meets or medically equals one of our listings.

The listings are examples of impairments that we consider severe enough to prevent you as an adult from doing any gainful activity. If you are a child seeking SSI payments based on disability, the listings describe impairments that we consider severe enough to result in marked and severe functional limitations. Although the listings are contained only in appendix 1 to subpart P of part 404 of our regulations, we incorporate them by reference in the SSI program in § 416.925 of our regulations, and apply them to claims under both title II and title XVI of the Act.

The listings are in two parts. There are listings for adults (part A) and for children (part B). If you are a person age 18 or over, we apply the listings in part A when we assess your claim, and we never use the listings in part B.

If you are a person under age 18, we first use the criteria in part B of the listings. If the listings in part B do not apply, and the specific disease process(es) has a similar effect on adults and children, we then use the criteria in part A. (See §§ 404.1525 and 416.925.) If your impairment(s) does not meet any listing, we will also consider whether it medically equals any listing; that is, whether it is as medically severe. (See §§ 404.1526 and 416.926.)

We use the listings only to decide that you are disabled or that you are still disabled. We will never deny your claim or decide that you no longer qualify for benefits because your impairment(s) does not meet or medically equal a listing. If you have a severe impairment(s) that does not meet or medically equal any listing, we may still find you disabled based on other rules in the “sequential evaluation process.” Likewise, we will not decide that your disability has ended only because your impairment(s) does not meet or medically equal a listing.

Also, when we conduct reviews to determine whether your disability continues, we will not find that your disability has ended because we have changed a listing. Our regulations explain that, when we change our listings, we continue to use our prior listings when we review your case, if you qualified for disability benefits or SSI payments based on our determination or decision that your impairment(s) met or medically equaled a listing. In these cases, we determine whether you have experienced medical improvement, and if so, whether the medical improvement is related to the ability to work. If your condition(s) has medically improved, so that you no longer meet or medically equal the prior listing, we evaluate your case further to determine whether you are currently disabled. We may find that you are currently disabled, depending on the full circumstances of your case. See §§ 404.1594(c)(3)(i) and 416.994(b)(2)(iv)(A). If you are a child who is eligible for SSI payments, we follow a similar rule when we decide whether you have experienced medical improvement in your condition(s). See § 416.994a(b)(2).

Current §§ 404.1526 and 416.926 do not contain the same language because of changes we made to § 416.926 in final rules that we published on February 11, 1997. On that date, we published interim final rules to implement the childhood disability provisions of Public Law 104-193, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. The rules became effective on April 14, 1997 (62 FR 6408).

Before April 14, 1997, §§ 404.1526 and 416.926 were essentially identical, with only minor differences specific to titles II and XVI. However, § 416.926 applied only to adults; our rules for evaluating medical equivalence for children under the SSI program were in § 416.926a of our regulations, along with our policies about functional equivalence in children. In the interim final rules that became effective on April 14, 1997, we moved the rules for medical equivalence in children into the same section as the rules for medical equivalence in adults, reserving § 416.926a solely for functional equivalence.

Before April 14, 1997, we provided more detailed rules for determining medical equivalence for children in § 416.926a than in the corresponding rules for determining medical equivalence for adults in §§ 404.1526 and 416.926. We adopted this language in our childhood regulations from internal operating instructions about medical equivalence that we applied to all individuals. When we revised § 416.926 in 1997, we decided to use the more detailed rules for both children and adults. We explained in the preamble to the interim final rules that:

While we did not revise § 404.1526 when we revised § 416.926 in 1997, we also recognized that there was no substantive difference between the two rules. We noted in the preamble that “[a]lthough some of the text of [§ 416.926(a)] will differ from the text of § 404.1526(a), both sections * * * will continue to provide the same substantive rules.” 62 FR at 6413. Since we did not revise § 404.1526 when we published the interim final rules for evaluating disability in children, we also did not revise it when we published final rules in 2000. 65 FR 54747, 54768 (2000). We are now proposing to revise § 404.1526 so that it includes the same language as § 416.926.

In addition, we propose to make minor revisions to the language in our rules on medical equivalence to clarify that we consider all information that is relevant to our finding about whether your impairment(s) medically equals the criteria of a listing. In Hickman v. Apfel , 187 F.3d 683 (7th Cir. 1999), the Court of Appeals interpreted our statement in current § 416.926(b) that “[w]e will always base our decision about whether your impairment(s) is medically equal to a listed impairment on medical evidence only” differently from what we intended. The Hickman court held that this provision means that we can use evidence only from medical sources when we make findings about medical equivalence. However, we intend the phrase “medical evidence only” in this regulation section only to exclude consideration of the vocational factors of age, education, and work experience, as defined in a number of our regulations. See, for example, §§ 404.1501(g), 404.1505, 404.1520(g), and 404.1560(c)(1) in part 404, and §§ 416.901(j), 416.905, 416.920(g), and 416.960(c)(1) in part 416 of our regulations. Under our interpretation of our regulations, the phrase “medical evidence” includes not just findings reported by medical sources but other information about your medical condition(s) and its effects, including your own description of your impairment(s).

The Hickman court believed that when we amended the regulations in 1997 to add § 416.926(b) we added a rule that “explicitly eliminates any recourse to non-medical evidence.” Hickman, 187 F.3d at 688. However, as we have already noted in the above quotes from the preamble to the 1997 interim final regulations, we stated in that preamble that this was not our intent. Thus, the court's decision interpreted the language of our regulations more narrowly than we intended.

Because of this, we issued AR 00-2(7) to implement the Court of Appeals' holding within the States in the Seventh Circuit. 65 FR 25783 (2000). In the AR, we stated that we intended to clarify the language at issue in Hickman at §§ 404.1526 and 416.926 through the issuance of a regulatory change and that we might rescind the AR once we clarified the regulations. 65 FR at 25785. Likewise, when we published the final rules for evaluating disability in children on September 11, 2000, we indicated in response to comments that we planned to revise § 404.1526 to clarify this issue in response to Hickman. 65 FR at 54768. We are now proposing to clarify our longstanding interpretation of the regulations in response to the Hickman decision.

We will not use these proposed rules until we evaluate the public comments we receive on them, determine whether they should be issued as final rules, and issue final rules in the Federal Register . If we publish final rules, we will explain in the preamble how we will apply them, and summarize and respond to the public comments. Until the effective date of any final rules, we will continue to use our current rules.

We propose to revise §§ 404.1526 and 416.926 so that they use the same language. We also propose to revise these sections to clarify that we consider all relevant evidence in your case record when we make a finding about whether your impairment or combination of impairments medically equals a listing. The specific proposals are as follows.

We propose to replace all of the headings with questions, to revise text to put it into active voice and use simpler language where possible, and to reorganize text and provide more subparagraphs for ease of reading.

Proposed §§ 404.1526(a) and 416.926(a)—“What is medical equivalence?”—correspond to the first sentence of current § 416.926(a)—“How medical equivalence is determined.” They provide a basic definition of medical equivalence.

Proposed §§ 404.1526(b) and 416.926(b)—“How do we determine medical equivalence?”—correspond to the last sentence of current § 416.926(a) and the provisions of current §§ 416.926(a)(1) and (a)(2). Throughout these proposed sections, we propose to remove the word “medical” from the phrase “medical findings” to help clarify that we consider all relevant information when we determine whether your impairment(s) medically equals the requirements of a listing.

We are also proposing new §§ 404.1526(b)(4) and 416.926(b)(4) to provide cross-references to §§ 404.1529(d)(3) and 416.929(d)(3). Those sections explain how we consider symptoms when we make findings about medical equivalence.

Proposed §§ 404.1526(c) and 416.926(c)—“What evidence do we consider when we determine if your impairment(s) medically equals a listing?”—correspond to current §§ 404.1526(b) and 416.926(b) and the third sentence of current § 416.926(a). In these proposed sections, we clarify that we consider all evidence in your case record about your impairment(s) and its effects on you that is relevant to our finding whether your impairment(s) medically equals a listing. We also explain that this means only that we do not consider your vocational factors of age, education, and work experience. The last sentence of proposed §§ 404.1526(c) and 416.926(c) corresponds to the last sentence of §§ 404.1526(b) and 416.926(b). We are proposing minor editorial changes to the language of that sentence, including the deletion of the word “medical” from the phrase “medical opinion.” Under §§ 404.1527(a) and 416.927(a) of our regulations, the term “medical opinion” has a specific meaning that does not include opinions about medical equivalence. This proposed change will only update the language of §§ 404.1526(b) and 416.926(b) to match our other rules.

Because we are proposing to add new §§ 404.1526(c) and 416.926(c), we would redesignate current §§ 404.1526(c) and 416.926(c) as §§ 404.1526(d) and 416.926(d). These paragraphs explain who we consider to be designated medical and psychological consultants for purposes of determining medical equivalence. We propose only a minor editorial correction to the heading of current paragraph (c) (proposed paragraph (d)): the addition of a question mark.

We would also redesignate current § 416.926(d) as § 416.926(e) because of the addition of proposed new § 416.926(c). This paragraph explains who is responsible for determining medical equivalence at each level of the administrative review process. We propose a minor correction to the second sentence to reflect our current organization. The current sentence refers to “the Associate Commissioner for Disability.” This reference is out of date because we no longer have an organization called the Office of Disability. The appropriate reference is now to “the Associate Commissioner for Disability Determinations.” For an explanation of the reorganization that resulted in this change, see 67 FR 69287 (November 15, 2002). (For similar reasons, we are proposing to replace the title “Director of the Office of Disability Hearings” with the title “Associate Commissioner for Disability Determinations” in a number of our rules in subpart J of part 404 and subpart N of part 416 to update those rules as well. We are also making a minor revision in the heading of this paragraph.)

Section 404.1526 does not currently include a provision analogous to current § 416.926(d) (proposed § 416.926(e)), so we propose to add § 404.1526(e) to make § 404.1526 the same as proposed § 416.926.

We propose to update and clarify these sections, which describe the listings and how we use them. As in proposed §§ 404.1526 and 416.926, we propose to replace all of the headings with questions, to delete the word “medical” from the phrase “medical criteria,” to revise text to put it into active voice and into simpler language where possible, and to reorganize text and provide more subparagraphs for ease of reading. We also propose to explain better how we organize listings sections and to provide an explanation of what it means to “meet” a listing.

We are also proposing to update our descriptions of the part B listings to reflect the current listings. As we explain below, some of the current provisions regarding the part B listings date back to 1977 and no longer accurately describe the content of those listings. Finally, we propose to move the provisions on symptoms as they pertain to meeting the listings to §§ 404.1529 and 416.929, our rules on evaluating symptoms, and to delete a provision that is unnecessary because it is redundant of other rules.

The following is a summary of the major changes we are proposing in §§ 404.1525 and 416.925.

We propose to move the discussion of duration in the last two sentences of current §§ 404.1525(a) and 416.925(a) to proposed §§ 404.1525(c) and 416.925(c), where we discuss how we use the listings.

Proposed §§ 404.1525(b) and 416.925(b)—“How is appendix 1 organized?”— correspond to current §§ 404.1525(b) and 416.925(b). They explain that the listings are in two parts: part A, which is primarily for adults, and part B, which is only for children. In paragraph (b)(2), the paragraph that describes part B of the listings, we propose to delete language that is out of date and no longer necessary.

When we originally published the part B listings for children in 1977, we intended them to supplement the part A listings. In the preamble to the publication of the part B listings, we explained that we originally developed the part A listings primarily for determining disability in adults. We indicated that a number of the listings for adults at that time were appropriate for evaluating disability in children too, but that there were also some listings that were not appropriate because certain listed impairments had different effects in children. We also noted that there were some diseases and other impairments in young children that were not addressed in the adult listings. Therefore, we published the part B listings, which we referred to as “additional criteria.” See 42 FR 14705 (March 16, 1977). The regulation at that time stated:

With minor editorial changes, the corresponding language of the current rules in §§ 404.1525(b)(2) and 416.925(b)(2) is essentially the same as the language that we first published. However, since we originally published the listings, we have greatly expanded the childhood listings in part B so that it is no longer appropriate to speak of them as a supplement to the part A listings. To the contrary, the part B listings are for the most part stand-alone; that is, in addition to listings that are specifically for children and with relatively few exceptions, they include the same listings as part A when those listings are applicable to both adults and children. Although it is still appropriate in claims of children to refer to certain listings in part A when the part B listings do not apply, the current relationship of part A to part B is the opposite of what it was when we first published the part B listings in 1977. For children, the primary listings are in part B, and we may use certain part A listings in addition to the part B listings.

We believe that the language in the first three sentences of current §§ 404.1525(b)(2) and 416.925(b)(2) is not only out of date but also unnecessary. We first published it (and the part B listings) to provide rules for adjudicating claims of children under the SSI program when that program was still relatively young. Rules explaining the relationship between part A and the new part B were helpful in those early years, but we believe that we do not need this kind of explanation in our regulations anymore. They do not provide rules for adjudication or guidelines for our adjudicators to follow when they determine disability in children under the listings, and we do not believe that they provide information that is especially helpful to public understanding of our rules.

Therefore, we propose to delete most of the language in the first three sentences of current §§ 404.1525(b)(2) and 416.925(b)(2). We propose to clarify in the third sentence of proposed §§ 404.1525(b)(2) and 416.925(b)(2)(i) that, if the criteria in part B do not apply, we may use the criteria in part A when those criteria give appropriate consideration to the effects of the impairment(s) in children. This is a more accurate statement of how we now use the part A listings in childhood claims. In the fourth sentence of the proposed rules, we propose to retain the provision in the third sentence of the current rules that explains that, to the extent possible, we number the provisions in part B to maintain a relationship with part A. We propose to retain this statement in our rules because there are still some body systems in part B in which the listings are not numbered consecutively because of this relationship, and this provision will continue to answer questions about why some listings in part B are not consecutively numbered.

In the current rules, § 416.925(b)(2) is longer than § 404.1525(b)(2). This is because the paragraph in part 416 includes rules about our definition of the phrase “listing-level severity,” which we use when we evaluate claims of children seeking SSI payments based on disability under title XVI of the Act. We do not propose any substantive changes to this language, but we are proposing minor editorial changes in proposed § 416.925(b)(2)(ii). None of these revisions would be a substantive change in our rules.

• First, because the current paragraph is long, we propose to divide it into two subparagraphs. Proposed § 416.925(b)(2)(i) would be the same as proposed § 404.1525(b)(2). Proposed § 416.925(b)(2)(ii) would contain the provisions unique to part 416 that now start at the sixth sentence of current § 416.925(b)(2).

• Second, the current section refers to both “domains of functioning” and “broad areas of functioning.” These terms are synonymous in our rules; however, we currently use the phrase “domains of functioning” more frequently. Therefore, in the proposed rules, we propose to change the phrase “broad areas of functioning” to “domains of functioning” for consistency of language within the rules.

• Third, in the current rules, we inadvertently refer inconsistently to both “extreme limitations ” and “extreme limitation ” in a domain as a standard of listing-level severity. We are correcting this inconsistency by changing the word “limitations” to “limitation” consistent with the standards in our other rules; see, for example, § 416.926a(a).

• Finally, we are deleting a duplicate cross-reference to § 416.926a. We inadvertently included the same parenthetical cross-reference to the definitions of the terms “marked” and “extreme” in the seventh and ninth sentences of current § 416.925(b). We propose to delete the second reference.

Proposed §§ 404.1525(c) and 416.925(c)—“How do we use the listings?”— correspond to current §§ 404.1525(c) and 416.925(c). We propose to break up the current paragraph into shorter subparagraphs and to make editorial changes for clarity. In the second sentence of proposed §§ 404.1525(c)(2) and 416.925(c)(2), we propose to expand and clarify the second sentence of current §§ 404.1525(c) and 416.925(c). The proposed rules would clarify that we sometimes provide information in the introductory section of each body system that is necessary to show whether your impairment meets the criteria of a particular listing, not just to establish a diagnosis or the existence of a medically determinable impairment. For example, to meet most musculoskeletal listings, you must show that you have either an “inability to ambulate effectively” or an “inability to perform fine and gross movements effectively.” We define these severity terms from the individual musculoskeletal listings in the introductory text of the musculoskeletal body system, in section 1.00B2 for adults and 101.00B2 for children. Likewise, to meet listings 12.05 and 112.05, you must have mental retardation that satisfies the criteria in the introductory paragraph of those listings (the so-called capsule definition) in addition to the criteria in one of the paragraphs that follows the capsule definition; that is, listing 12.05A, B, C, or D for adults or 112.05A, B, C, D, or E for children. We explain this requirement for meeting listings 12.05 and 112.05 in the fourth paragraph of section 12.00A for adults and the eighth paragraph of section 112.00A for children.

Proposed §§ 404.1525(c)(3) and 416.925(c)(3) correspond to the next-to-last sentence of current §§ 404.1525(c) and 416.925(c). However, we propose to expand the information and to clarify it to define what we mean when we say that your impairment “meets” the requirements of a listing. We propose to delete the explanation in the next-to-last sentence of the current rules that the required level of severity in a listing is shown by “one or more sets of medical findings” and to delete the last sentence, which says that the medical findings “consist of symptoms, signs, and laboratory findings.” These descriptions of our listings are no longer accurate. For many years, we have had listings that also include functional criteria. Further, we have a number of listings that do not include symptoms, signs, and laboratory findings in their criteria. We do not propose to replace the current sentences because we believe that the proposed rules would be clear enough without a detailed description of all the possible kinds of criteria a given listing might contain. Instead, we simply provide that your impairment(s) meets the requirements of a listing when it satisfies all of the criteria of that listing, including any relevant criteria in the introduction to the body system, and meets the duration requirement.

Proposed §§ 404.1525(c)(4) and 416.925(c)(4) correspond to the last two sentences of current §§ 404.1525(a) and 416.925(a). In the current rules, these sentences explain that

We propose to move this language to the section of the proposed rules in which we explain how we decide whether your impairment(s) meets a listing because it is most relevant to that finding. We also propose to explain better what we mean by the statement “or a specific statement of duration is made” in our current rules. We mean by this that in some listings we say that we will find that your impairment(s) will meet the listing for a specific period of time. For example, in listings 13.06A and 113.06A, acute leukemia, we state that we will find that your impairment is disabling until at least 24 months from the date of diagnosis or relapse or at least 12 months from the date of the bone marrow or stem cell transplantation, whichever is later. Thereafter, we will evaluate any residual impairment under the criteria for the affected body systems. (For current listings 13.06 and 113.06, see 69 FR 67018, at 67034 and 67037 (November 15, 2004).)

Proposed §§ 404.1525(c)(5) and 416.925(c)(5) are new. They explain that when your impairment(s) does not meet a listing, it can “medically equal” the criteria of a listing, and provide a cross-reference to §§ 404.1526 and 416.926, our rules on medical equivalence. They also explain that when your impairment(s) does not meet or medically equal a listing we may find you disabled at a later step in the sequential evaluation process. We do not specify the step in the process at which we may find you disabled or still disabled because there are different sequential evaluation processes for adults and children who file initial claims and for continuing disability reviews of adults and children.

We propose to remove current §§ 404.1525(e) and 416.925(e) because they are redundant, and we have more recent rules. Our policy on how we consider drug addiction and alcoholism is in §§ 404.1535 and 416.935, which we published in 1995. See 60 FR 8140, at 8147 (February 10, 1995).

Because of this deletion, we would redesignate §§ 404.1525(f) and 416.925(f) as §§ 404.1525(e) and 416.925(e). We also propose to simplify these sections and to make our regulations on the evaluation of symptoms more consistent by exchanging the provisions in current §§ 404.1525(f) and 416.925(f) (proposed §§ 404.1525(e) and 416.925(e)) with the provisions of §§ 404.1529(d)(2) and 416.929(d)(2). In current §§ 404.1529(d) and 416.929(d), we explain how we consider your symptoms (such as pain) at each step of the sequential evaluation process. For example, in paragraph (d)(1) we explain how we consider your symptoms when we determine if your impairment(s) is “severe,” and in paragraph (d)(3) we explain how we consider your symptoms when we determine if your impairment(s) medically equals a listing. However, in paragraph (d)(2), instead of explaining how we consider your symptoms when we determine if your impairment meets a listing, we currently provide only a cross-reference to §§ 404.1525(f) and 416.925(f), where we explain our policy on symptoms and meeting listings.

We believe that it would be more consistent to move our explanation of our policy on symptoms and meeting listings now in current §§ 404.1525(f) and 416.925(f) to §§ 404.1529(d)(2) and 416.929(d)(2) so that it is together with our explanations of how we consider symptoms at other steps in the sequential evaluation process. However, instead of removing the sections, we would in their place insert a cross-reference to §§ 404.1529(d)(2) and 416.929(d)(2) to ensure that our adjudicators refer to the policy. As we have already noted, we propose to add similar new §§ 404.1526(b)(4) and 416.926(b)(4) to provide cross-references to §§ 404.1529(d)(3) and 416.929(d)(3) to refer to our rules for considering medical equivalence.

We propose to delete the opening statement of these sections, which says that “[m]edical findings consist of symptoms, signs, and laboratory findings.” We believe that the statement is unnecessary and that deleting it would help to remove any confusion about the evidence we consider wherever we use “medical findings” in our rules.

As we have already explained, we propose to replace §§ 404.1529(d)(2) and 416.929(d)(2) with the text of current §§ 404.1525(f) and 416.925(f). Except for minor editorial revisions, the language is unchanged.

We propose to add the word “medically” to the heading of §§ 404.1529(d)(3) and 416.929(d)(3) so that they read “Decision whether the Listing of Impairments is medically equaled.” We also propose to revise the third sentence in those sections, for conformity with the proposed changes in §§ 404.1526 and 416.926, to indicate that we will base a finding of medical equivalence on all evidence in the case record and its effect on the individual.

We propose to make a number of minor editorial changes throughout §§ 404.1529 and 416.929 to update them to match our current rules. For example, throughout these sections we are changing references to “your treating or examining physician or psychologist” to “your treating or nontreating source.” This change would update the rules to match the terms we now use in §§ 404.1502 and 416.902 and our other rules that refer to medical sources; it does not change the meaning of the sentence. We are also correcting a cross-reference in the second sentence of §§ 404.1529(a) and 416.929(a) to reflect our current rules.

Executive Order 12866, as amended by Executive Order 13258, requires each agency to write all rules in plain language. In addition to your substantive comments on these proposed rules, we invite your comments on how to make these proposed rules easier to understand. For example:

• Have we organized the material to suit your needs?

• Are the requirements in the rules clearly stated?

• Do the rules contain technical language or jargon that isn't clear?

• Would a different format (grouping and order of sections, use of headings, paragraphing) make the rules easier to understand?

• Would more (but shorter) sections be better?

• Could we improve clarity by adding tables, lists, or diagrams?

• What else could we do to make the rules easier to understand?

We have consulted with the Office of Management and Budget (OMB) and determined that these proposed rules meet the criteria for a significant regulatory action under Executive Order 12866, as amended by Executive Order 13258. Thus, they were reviewed by OMB.

We certify that these proposed rules would not have a significant economic impact on a substantial number of small entities because they would affect only individuals. Thus, a regulatory flexibility analysis as provided in the Regulatory Flexibility Act, as amended, is not required.

These proposed rules contain reporting requirements as shown in the following table.

An Information Collection Request has been submitted to OMB for clearance. We are soliciting comments on the burden estimate; the need for the information; its practical utility; ways to enhance its quality, utility and clarity; and on ways to minimize the burden on respondents, including the use of automated collection techniques or other forms of information technology. Comments should be submitted and/or faxed to the Office of Management and Budget at the following address/number: Office of Management and Budget, Attn: Desk Officer for SSA, Fax Number: 202-395-6974.

Comments can be received for up to 60 days after publication of this notice and will be most useful if received within 30 days of publication. To receive a copy of the OMB clearance package, you may call the SSA Reports Clearance Officer on 410-965-0454.

For the reasons set forth in the preamble, we propose to amend subparts J and P of part 404 and subparts I and N of part 416 of chapter III of title 20 of the Code of Federal Regulations as set forth below:

Section 503(a) of the Act permits a State to assume primacy for the regulation of surface coal mining and reclamation operations on non-Federal and non-Indian lands within its borders by demonstrating that its program includes, among other things, “* * * a State law which provides for the regulation of surface coal mining and reclamation operations in accordance with the requirements of the Act * * *; and rules and regulations consistent with regulations issued by the Secretary pursuant to the Act.” See 30 U.S.C. 1253(a)(1) and (7). On the basis of these criteria, the Secretary of the Interior conditionally approved the Virginia program on December 15, 1981. You can find background information on the Virginia program, including the Secretary's findings, the disposition of comments, and conditions of approval of the Virginia program in the December 15, 1981, Federal Register (46 FR 61088). You can also find later actions concerning Virginia's program and program amendments at 30 CFR 946.12, 946.13, and 946.15.

By letter dated May 9, 2005 (Administrative Record Number VA-1048), the Virginia Department of Mines, Minerals and Energy (DMME) submitted an amendment to the Virginia program. In its letter, the DMME stated that the program amendment revises Virginia Coal Surface Mining Reclamation Regulations to reflect the changes in the renumbering of the Virginia Code section references of the Virginia Administrative Process Act; clarifies the filing of requests for formal hearing and judicial review; revises the Virginia rules to make them consistent with amendments to the Federal rules; revises its rules to allow approval of natural stream restoration channel design; changes its regulation to implement requirements of Virginia HB 2573 (enacted as emergency legislation in Chapter 3 of the 2005 Virginia Acts of Assembly); and corrects typographical errors. Specifically, the following amendments are proposed:

1. 4 VAC 25-130-700.12 Petitions to initiate rulemaking.

The proposed amendment revises subsection (e) by changing the citation of the Virginia Code section from “9-6.14:1” to “2.2-4000A.”

2. 4 VAC 25-130-773.21 Improvidently issued permits; Rescission procedures.

The proposed amendment revises subsection (c), right to appeal, by changing the citation of Virginia Code section from “9-6.14:1” to “2.2-4000A.”

3. 4 VAC 25-130-775.11 Administrative Review.

The proposed amendment revises subsection (b)(1) by changing the citation of the Virginia Code section from “9-6.14:12” to “2.2-4020.” In addition, new subsection (d) is added to provide as follows:

4. 4 VAC 25-130-775.13 Judicial Review.

New subsection (c) is added to provide as follows:

5. 4 VAC 25-130-784.20 Subsidence Control Plan.

Subsection (a)(3) is amended by deleting language concerning presubsidence survey requirements. The DMME stated that the provision was amended to delete those requirements that are counterpart to Federal regulations that were suspended effective December 22, 1999 (64 FR 71652). The following language is being deleted: “condition of all noncommercial buildings or occupied residential dwellings and structures related thereto, that may be materially damaged or for which the reasonably foreseeable use may be diminished by subsidence, within the area encompassed by the applicable angle of draw; as well as a survey of the.” In addition, the following language is being deleted: “premining condition or value of such noncommercial buildings or occupied residential dwellings and structures related thereto and the.” As revised, Subsection (a)(3) provides as follows:

6. 4 VAC 25-130-800.51 Administrative review of performance bond forfeiture.

Subsection (c)(1) is amended by changing the citation of the Virginia Code sections from “9-6.14:12” to “2.2-4020.”

Subsection (e) is amended by clarifying that the “Division of Mined Land Reclamation” is now the “Department of Mines, Minerals and Energy.” As amended, Subsection (e) provides as follows:

7. 4 VAC 25-130-816.11 Signs and markers.

New Subsection (a)(4) is added and existing (a)(4) is redesignated as (a)(5). As amended, Subsection (a) provides as follows:

8. 4 VAC 25-130-816.43 Diversions.

New Subsection (d) is added, and existing Subsection (d) is redesignated as Subsection (e). New Subsection (d) provides as follows:

9. 4 VAC 25-130-816.64 Use of explosives; blasting schedule.

New Subsection (a)(4) concerning seismic monitoring is added and provides as follows:

10. 4 VAC 25-130-816.105 Backfilling and grading; thick overburden.

This proposed change is intended to revise Virginia's rule to be consistent with the counterpart Federal rule. Thin overburden is addressed under Virginia rule 4 VAC 25-130-816.104. This provision is amended as follows: The term “Thin” is deleted and replaced by the term “Thick” in subsection (a); the term “insufficient” is deleted and replaced by “more than sufficient” in subsection (a); the term “less” is deleted and replaced by the term “more” in subsection (a); and the term “thin” is deleted and replaced by the term “thick” in subsection (b). As amended this provision provides as follows:

11. 4 VAC 25-130-817.11 Signs and markers.

New Subsection (a)(4) is added and existing subsection (a)(4) is redesignated as (a)(5). New subsection (a)(4) provides as follows:

12. 4 VAC 25-130-817.43 Diversions.

New Subsection (d) is added and existing Subsection (d) is redesignated as Subsection (e). As amended, new Subsection (d) provides as follows:

13. 4 VAC 25-130-817.64 Use of explosives; general performance standards.

New Subsection (d) is added and provides as follows:

14. 4 VAC 25-130-817.121 Subsidence control.

This provision is amended by deleting Subsections (c)(4)(i)-(iv) and redesignating Subsection (c)(4)(v) as subsection (c)(4). The DMME stated that this provision was amended to delete those requirements that are counterpart to Federal regulations that were suspended effective December 22, 1999 (64 FR 71652). This provision had created a rebuttable presumption that underground mining caused subsidence, where the subsidence damage occurred within the angle of draw. As amended, Subsection (c)(4) provides as follows:

15. 4 VAC 25-130-842.15 Review of decision not to inspect or enforce.

The proposed amendment revises Subsection (d) by changing the citation of the Virginia Code section from “9-6.14:1” to “2.2-4000A.”

16. 4 VAC 25-130-843.12 Notices of violation.

The proposed amendment revises Subsection (j) by changing the citation of the Virginia Code section from “9-6.14:1” to “2.2-4000A.”

17. 4 VAC 25-130-843.13 Suspension or revocation of permits; pattern of violations.

The proposed amendment revises Subsection (b) by changing the citation of the Virginia Code section from “9-6.14:12” to “2.2-4020.” Subsection (e) is amended by clarifying that the “Division of Mined Land Reclamation” is now the “Department of Mines, Minerals, and Energy.” As amended, Subsection (e) provides as follows:

18. 4 VAC 25-130-843.15. Informal public hearing.

The amendment revises Subsection (c) by changing the citation of the Virginia Code section from “9-6.14:11” to “2.2-4019.”

19. 4 VAC 25-130-843.16 Formal review of citations.

Subsection (e) is amended by clarifying that the “Division of Mined Land Reclamation” is now the “Department of Mines, Minerals, and Energy.” As amended, Subsection (e) provides as follows:

20. 4 VAC 25-130-845.13 Point System.

Subsections (c)(1) and (d) are amended to correct typographical errors. At Subsection (c)(1), the phrase “(a) and” is added immediately before “(b),” and the phrase “and (c)” is deleted. As amended, Subsection (c)(1) provides as follows:

Subsection (d) is amended by adding “(a),” immediately before “(b);” adding “and” immediately following “(b),” and deleting “and (d)” immediately following (c). As amended, the language of Subsection (d) provides as follows:

Subsection (e), concerning credit for additional penalties for previous history is amended at (e)(1) by adding the words “[e]xcept for a violation that resulted in personal injury or fatality to any person.” As amended, Subsection (e)(1) provides as follows:

Subsection (f), concerning maximum penalty which the division may assess, is amended by adding the words “except that if the violation resulted in a personal injury or fatality to any person, then the civil penalty determined under Subsection (d) shall be multiplied by a factor of twenty (20), not to exceed $70,000.” As amended, Subsection (f) provides as follows:

21. 4 VAC 25-130-845.15 Assessment of separate violations for each day.

Subsection (a) is amended in the last sentence by adding the words “or more” immediately following the words “a penalty of $5,000.” As amended, Subsection (a) provides as follows:

22. 4 VAC 25-130-845.18 Procedures for assessment conference.

The proposed amendment revises subsection (b)(1) by changing the citation of the Virginia Code sections from “9-6.14:11” to “2.2-4019.”

23. 4 VAC 25-130-845.19 Request for hearing.

The proposed amendment revises Subsection (c) by changing the citation of the Virginia Code sections from “9-6.14:12” to “2.2-4020.”

New Subsection (d) is added to provide as follows:

24. 4 VAC 25-130-846.14 Amount of the individual civil penalty.

Subsection (b) is amended by adding new language to the end of the first sentence. As amended, Subsection (b) provides as follows:

Under the provisions of 30 CFR 732.17(h), we are seeking your comments on whether the amendment satisfies the applicable program approval criteria of 30 CFR 732.15. If we approve the amendment, it will become part of the Virginia program.

Send your written or electronic comments to OSM at the address given above. Your written comments should be specific, pertain only to the issues proposed in this rulemaking, and include explanations in support of your recommendations. We may not consider or respond to your comments when developing the final rule if they are received after the close of the comment period (see DATES ). We will make every attempt to log all comments into the administrative record, but comments delivered to an address other than the Big Stone Gap Field Office may not be logged in.

Please submit Internet comments as an ASCII Word file avoiding the use of special characters and any form of encryption. Please also include Attn: SATS NO. VA-122-FOR and your name and return address in your Internet message. If you do not receive a confirmation that we have received your Internet message, contact the Big Stone Gap Field office at (540) 523-4303.

We will make comments, including names and addresses of respondents, available for public review during normal business hours. We will not consider anonymous comments. If individual respondents request confidentiality, we will honor their request to the extent allowable by law. Individual respondents who wish to withhold their name or address from public review, except for the city or town, must state this prominently at the beginning of their comments. We will make all submissions from organizations or businesses, and from individuals identifying themselves as representatives or officials of organizations or businesses, available for public inspection in their entirety.

If you wish to speak at the public hearing, contact the person listed under FOR FURTHER INFORMATION CONTACT by 4 p.m. (local time), on July 5, 2005. If you are disabled and need special accommodations to attend a public hearing, contact the person listed under FOR FURTHER INFORMATION CONTACT . We will arrange the location and time of the hearing with those persons requesting the hearing. If no one requests an opportunity to speak, we will not hold a hearing.

To assist the transcriber and ensure an accurate record, we request, if possible, that each person who speaks at the public hearing provide us with a written copy of his or her comments. The public hearing will continue on the specified date until everyone scheduled to speak has been given an opportunity to be heard. If you are in the audience and have not been scheduled to speak and wish to do so, you will be allowed to speak after those who have been scheduled. We will end the hearing after everyone scheduled to speak and others present in the audience who wish to speak, have been heard.

If only one person requests an opportunity to speak, we may hold a public meeting rather than a public hearing. If you wish to meet with us to discuss the amendment, please request a meeting by contacting the person listed under FOR FURTHER INFORMATION CONTACT . All such meetings will be open to the public and, if possible, we will post notices of meetings at the locations listed under ADDRESSES. We will make a written summary of each meeting a part of the Administrative Record.

This rule does not have takings implications. This determination is based on the analysis performed for the counterpart Federal regulation.

This rule is exempt from review by the Office of Management and Budget under Executive Order 12866.

The Department of the Interior has conducted the reviews required by section 3 of Executive Order 12988 and has determined that this rule meets the applicable standards of subsections (a) and (b) of that section. However, these standards are not applicable to the actual language of State regulatory programs and program amendments because each program is drafted and promulgated by a specific State, not by OSM. Under sections 503 and 505 of SMCRA (30 U.S.C. 1253 and 1255) and the Federal regulations at 30 CFR 730.11, 732.15, and 732.17(h)(10), decisions on proposed State regulatory programs and program amendments submitted by the States must be based solely on a determination of whether the submittal is consistent with SMCRA and its implementing Federal regulations and whether the other requirements of 30 CFR parts 730, 731, and 732 have been met.

This rule does not have Federalism implications. SMCRA delineates the roles of the Federal and State governments with regard to the regulation of surface coal mining and reclamation operations. One of the purposes of SMCRA is to “establish a nationwide program to protect society and the environment from the adverse effects of surface coal mining operations.” Section 503(a)(1) of SMCRA requires that State laws regulating surface coal mining and reclamation operations be “in accordance with” the requirements of SMCRA, and section 503(a)(7) requires that State programs contain rules and regulations “consistent with” regulations issued by the Secretary pursuant to SMCRA.

In accordance with Executive Order 13175, we have evaluated the potential effects of this rule on federally-recognized Indian tribes and have determined that the rule does not have substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. The basis for this determination is that our decision is on a State regulatory program and does not involve a Federal regulation involving Indian lands.

On May 18, 2001, the President issued Executive Order 13211 which requires agencies to prepare a Statement of Energy Effects for a rule that is (1) considered significant under Executive Order 12866, and (2) likely to have a significant adverse effect on the supply, distribution, or use of energy. Because this rule is exempt from review under Executive Order 12866 and is not expected to have a significant adverse effect on the supply, distribution, or use of energy, a Statement of Energy Effects is not required.

This rule does not require an environmental impact statement because section 702(d) of SMCRA (30 U.S.C. 1292(d)) provides that agency decisions on proposed State regulatory program provisions do not constitute major Federal actions within the meaning of section 102(2)(C) of the National Environmental Policy Act (42 U.S.C. 4332(2)(C)).

This rule does not contain information collection requirements that require approval by OMB under the Paperwork Reduction Act (44 U.S.C. 3507 et seq. ).

The Department of the Interior certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). The State submittal, which is the subject of this rule, is based upon counterpart Federal regulations for which an economic analysis was prepared and certification made that such regulations would not have a significant economic effect upon a substantial number of small entities. In making the determination as to whether this rule would have a significant economic impact, the Department relied upon the data and assumptions for the counterpart Federal regulations.

This rule is not a major rule under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness Act. This rule: (a) Does not have an annual effect on the economy of $100 million; (b) Will not cause a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions; and (c) Does not have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises. This determination is based upon the analysis performed under various laws and executive orders for the counterpart Federal regulations.

This rule will not impose an unfunded mandate on State, local, or tribal governments or the private sector of $100 million or more in any given year. This determination is based upon the analysis performed under various laws and executive orders for the counterpart Federal regulations.

For additional information, see the Direct Final Notice of Deletion which is located in the Rules section of this Federal Register .

Information Repositories: Repositories have been established to provide detailed information concerning this decision at the following address: U.S. EPA Region 3 Regional Center for Environmental Information, 1650 Arch Street, Philadelphia, Pennsylvania, 19103, (215) 814-5254 or (800) 553-2509, Monday through Friday 8 a.m. to 4:30 p.m.; West Mahanoy Township Building, 190 Pennsylvania Avenue, Shenandoah, Pennsylvania 17976, (570) 462-2958.

Submitting Comments: We welcome comments from the public on all issues set forth in this rule to assist us in fully considering issues and developing policies. Comments will be most useful if they are organized by the section of the proposed rule to which they apply. You can assist us by referencing the file code [CMS-6030-P2] and the specific “issue identifier” that precedes the section on which you choose to comment.

Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. After the close of the comment period, CMS posts all electronic comments received before the close of the comment period on its public website. Comments received timely will be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

Since the inception of the Medicare program, the Medicare contracting authorities have been in place and largely unchanged until the last few years. At the inception of the Medicare program, the health insurance and medical communities raised concerns that the enactment of Medicare could result in a large Federal presence in the provision of health care. In response, under sections 1816(a) and 1842(a) of the Social Security Act (the Act), the Congress provided that public agencies or private organizations may participate in the administration of the Medicare program under agreements or contracts entered into with CMS.

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, fiscal 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).

(For the following discussion, the terms “provider” and “supplier” are used as those terms are defined in § 400.202. That is, a provider is a hospital, rural care primary hospital, skilled nursing facility (SNF), home health agency (HHA), a hospice that has in effect an agreement to participate in Medicare, or a clinic, a rehabilitation agency, or a public health agency that has a similar agreement to furnish outpatient physical therapy or speech pathology services. Supplier is defined as a physician or other practitioner or an entity other than a “provider,” that furnishes health care services under Medicare.)

Section 1842(a) of the Act authorizes us to contract with private entities (carriers) for the purpose of administering the Medicare Part B program. Medicare carriers determine payment amounts and make payments for services (including items) furnished by physicians and other suppliers such as nonphysician practitioners (NPP), laboratories, and durable medical equipment (DME) suppliers. In addition, carriers perform other functions required for the efficient and effective administration of the Part B program. Section 1842(f) of the Act provides that a carrier must be a “voluntary association, corporation, partnership, or other nongovernmental organization which is lawfully engaged in providing, paying for, or reimbursing the cost of, health services under group insurance policies or contracts, medical or hospital service agreements, membership or subscription contracts, or similar group arrangements, in consideration of premiums or other periodic charges payable to the carrier, including a health benefits plan duly sponsored or underwritten by an employee organization.” No entity may be considered for a carrier contract unless it can demonstrate that it meets this definition of carrier.

Section 1842(b) of the Act provides us with the discretion to enter into carrier contracts without regard to any provision of the statute requiring competitive bidding. Many other provisions of generally applicable Federal contract law and regulations, as well as the Department of Health and Human Services (HHS) procurement regulations, remain in effect for carrier contracts.

Section 1816(a) of the Act authorizes us to enter into agreements with public agencies or private organizations (fiscal intermediaries) for the purpose of administering Part A of the Medicare program. These entities are responsible for determining the amount of payment due to providers in consideration of services provided to beneficiaries, and for making these payments. We may enter into an agreement with an entity to serve as a fiscal intermediary if the entity was first “nominated” by a group or association of providers to make Medicare payments to it. Effective October 1, 2005, section 911 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) (Pub. L. 108-173) eliminates the requirement that fiscal intermediaries be nominated, and establishes the requirement that Medicare contracts awarded to Medicare Administrative Contractors (MACs) be competitively bid.

Section 421.100 requires that the agreement between us and a fiscal intermediary specify the functions the fiscal intermediary must perform. In addition to requiring any items specified by us in the agreement that are unique to that fiscal intermediary, our regulations require that all fiscal intermediaries perform activities relating to determining and making payments for covered Medicare services, fiscal management, provider audits, utilization patterns, resolution of cost report disputes, and reconsideration of determinations. Finally, our regulations require that all fiscal intermediaries furnish information and reports, perform certain functions for provider-based 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, § 421.200 requires that the contract between CMS and a Part B carrier specify the functions the carrier must perform. In addition to requiring any items specified by CMS in the contract that are unique to that carrier, we require that all Part B carriers perform activities relating to determining and making payments (on a cost or charge basis) for covered Medicare services, fiscal management, provider audits, utilization patterns, and Part B beneficiary hearings. In addition, § 421.200 requires that all carriers furnish information and reports, maintain and make available records, and comply with any other terms and conditions included in their contracts. It is within this context that Medicare fiscal intermediary and carrier contracts are significantly different from standard Federal Government contracts.

Specifically, the Medicare fiscal intermediary and carrier contracts are normally renewed automatically from year to year, in contrast to the typical Government contract that is recompeted at the conclusion of the contract term. The Congress, in providing for the nomination process under section 1816 of the Act, and authorizing the automatic renewal of the carrier contracts in section 1842(b)(5) of the Act, contemplated a contracting process that would permit us to noncompetitively renew the Medicare contracts from year to year.

For both fiscal intermediaries and carriers, § 421.5 states that we have the authority not to renew a Part A agreement or a Part B contract when it expires. Section 421.126 provides for termination of the fiscal intermediary agreements in certain circumstances, and, similarly, § 421.205 provides for termination of carrier contracts.

Each year, the Congress appropriates funds to support Medicare contractor activities. These funds are distributed to the contractors based on annual budget and performance negotiations, which allocate funds by program activity to each of the current Medicare contractors. Historically, approximately one-half of the funds were for payment for the processing of claims; an additional one-quarter of the funds were for program integrity activities to fund activities such as conducting medical review of claims to determine whether services are medically necessary and constitute an appropriate level of care, deterring and detecting potential Medicare fraud, auditing provider cost reports, and ensuring that Medicare acts as a secondary payer when a beneficiary has primary coverage through other insurance. The remainder of the funds was allocated for beneficiary and provider or supplier services and for various productivity investments.

The MMA was enacted on December 8, 2003. Section 911 of the MMA adds new section 1874A to the Act, establishing the Medicare Fee-for-Service (FFS) Contracting Reform (MCR) initiative that will be implemented over the next several years. Under this provision, effective October 1, 2005, we have the authority to replace the current Medicare fiscal intermediary and carrier contracts with new MACs using competitive procedures.

Between 2005 and 2011, we will conduct full and open competitions to replace the current contracts with MACs. These MACs will handle many of the same basic functions that are now performed by fiscal intermediaries and carriers. Additionally, MACs may be charged with performing functions under the Medicare Integrity Program under section 1893 of the Act. The statute does not preclude the current fiscal intermediaries and carriers from competing for the MAC contracts.

Among other provisions, section 1874A of the Act establishes eligibility requirements for the MACs, describes the functions these new contractors may perform (which may include functions of section 1893 of the Act so long as these responsibilities do not duplicate activities that are being carried out under a Medicare Integrity Program contract), and specifies various requirements for the structure, terms and conditions of these new MAC contracts. In particular, section 1874A of the Act specifies that the Federal Acquisition Regulation (FAR) will apply to the MAC contracts, except to the extent inconsistent with a specific requirement of section 1874A of the Act. Unlike the contracting authority of section 1893 of the Act, the new authority of section 1874A of the Act does not mandate that the Secretary publish either a proposed or final regulation prior to entering into MAC contracts. Instead, the Congress when enacting the authority of section 1874A of the Act, placed a clear reliance on the existing well-defined regulatory framework of the FAR.

We considered whether we should propose regulations for the MAC authority in conjunction with this proposed rule to implement the authority of section 1893 of the Act. Since we are still analyzing whether any of the specific requirements of section 1874A of the Act need elaboration in the regulations, we are not prepared to do so at this time. As section 1874A of the Act places reliance on the FAR for MAC contracts and since section 1874A of the Act does not impose any requirement to issue additional rules in order to initiate procurements under the MAC authority, we do not believe such rules are required to initiate the implementation of section 1874A of the Act. We will, however, continue to analyze issues posed by the new contracting authority and the transition to that framework, and will propose rules for the authority of new section 1874A of the Act if and when we identify issues that need to be addressed through rulemaking.

However, because the history and structure of the Medicare program dictate that claims processing, customer service, and program integrity functions are highly interdependent, and since sections 1816, 1842, 1893 and 1874A of the Act are part of the same legislative development relating to Medicare administration, we will from time-to-time discuss the section 1874A of the Act authority and its potential impact on fiscal intermediaries, carriers, and the MIP contractors in this preamble. Further, this proposed rule was modified from our earlier proposal on this topic to make clear that section 1874A of the Act authorizes MAC contractors to perform functions of section 1893 of the Act. We also make clear that we may impose certain MIP requirements (for example, those proposed for § 421.302(a)) on the MACs when we elect to include functions of section 1893 of the Act in their contracts. Finally, it is our intention that the proposed rule changes at § 421.100 and § 421.200 discussed below would remain in effect only until all the Medicare fiscal intermediary and carrier contracts are replaced by MAC contracts in accordance with the MMA.

The MMA establishes a phase-in process for the transition of the current contractors to MACs. We are currently in the process of developing the Statement of Work (SOW) and performance requirements for MACs, and further regulatory and administrative guidance will be published as these details are developed. More information about our plans to implement Medicare contracting reform, including our Report to the Congress on this subject, can be obtained by accessing the Internet at http://www.cms.hhs.gov/medicarereform/contractingreform/ .

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) (Pub. L. 104-191) was enacted on August 21, 1996. Section 202 of HIPAA added new section 1893 to the Act establishing the Medicare Integrity Program (MIP). This program is funded from the Medicare Hospital Insurance Trust Fund for program integrity activities. Specifically, section 1893 of the Act expands our contracting authority to allow us to contract with eligible entities to perform Medicare program integrity activities. These activities include: Medical, potential fraud, and utilization review; cost report audits; Medicare secondary payer determinations; overpayment recovery; education of providers, suppliers, beneficiaries, and other persons regarding payment integrity and benefit quality assurance issues; and, developing and updating a list of DME items that, under section 1834(a)(15) of the Act, are subject to prior authorization.

Section 1893(d) of the Act requires us to set forth, through regulations, procedures for entering into contracts for the performance of specific Medicare program integrity activities. These procedures are to include the following:

• Procedures for identifying, evaluating, and resolving organizational conflicts of interest that are consistent with rules generally applicable to Federal acquisition and procurement.

• Competitive procedures for entering into new contracts under section 1893 of the Act and for entering into contracts that may result in the elimination of responsibilities of an individual fiscal intermediary or carrier, and other procedures we deem appropriate.

• A process for renewing contracts entered into under section 1893 of the Act.

Section 1893(d) of the Act also specifies the process for contracting with eligible entities to perform program integrity activities. In addition, section 1893(e) of the Act requires us to set forth, through regulations, the limitation of a contractor's liability for actions taken to carry out a contract.

The Congress established section 1893 of the Act to strengthen our ability to deter potential fraud and abuse in the Medicare program in a number of ways. First, it provides a separate and stable long-term funding mechanism for MIP activities. Historically, Medicare contractor budgets were subject to wide fluctuations in funding levels from year to year. The variations in funding did not have anything to do with the underlying requirements for program integrity activities. This instability made it difficult for us to invest in innovative strategies to control potential fraud and abuse. Our contractors also found it difficult to attract, train, and retain qualified professional staff, including auditors and fraud investigators. A dependable funding source allows us the flexibility to invest in innovative strategies to combat potential fraud and abuse. The funding mechanism will help us shift emphasis from post-payment recoveries on potentially fraudulent claims to prepayment strategies designed to ensure that more claims are paid correctly the first time.

Second, to allow us to more aggressively carry out the MIP functions and to require us to use procedures and technologies that exceed those generally in use in 1996, section 1893 of the Act greatly expands our contracting authority relative to the contracting authority of original sections 1816 and 1842 of the Act. Previously, we had a limited pool of entities with whom to contract. This limited our ability to maximize efforts to effectively carry out the MIP functions. Section 1893 of the Act allows us to attract a variety of offerors with potentially new and different skill sets and permits those offerors to propose innovative approaches to implement MIP to deter potential fraud and abuse. By using competitive procedures, as established in the FAR and supplemented by the Department of Health and Human Services Acquisition Regulation (HHSAR), our ability to manage the MIP activities is greatly enhanced, and we can seek to obtain the best value for our contracted services.

Third, section 1893 of the Act requires us to address potential conflicts of interest among prospective MIP contractors before entering into any contracting arrangements with them. Section 1893 of the Act instructs the Secretary to establish procedures for identifying, evaluating, and resolving organizational conflicts of interest that are generally applicable to FAR contracts.

The MIP authority, established by HIPAA, gave CMS specific contracting authority, consistent with the FAR, to enter into contracts with entities to promote the integrity of the Medicare program.

On March 20, 1998, we issued a proposed rule to implement provisions of section 1893 of the Act to which we received comments (63 FR 13590). We reviewed and considered all the comments received concerning the MIP regulation. Comments received addressed a variety of issues, such as conflict of interest issues, coordination among Medicare contractors, contractor functions, and eligibility requirements. Overall, we found that few changes were needed to the regulatory text. Due to time constraints, however, a final rule was never published. Notwithstanding, section 1893 of the Act granted us the authority to contract with eligible entities to perform program integrity activities prior to publication of the final rule.

Section 902 of the MMA mandated that final rules relating to the Medicare program based on a previous publication of a proposed regulation or an interim final regulation be published within three years except under exceptional circumstances. Given that it has been greater than three years since the publication of the initial proposed MIP regulations, we are reissuing these regulations in proposed form at this time.

The publication of the 1998 proposed rule (63 FR 13590) enabled us to contract with entities to perform Medicare program integrity functions to promote the integrity of the Medicare program prior to the publication of a final rule.

Since the publication of the 1998 proposed rule and in accordance with this MIP authority, we currently maintain the following MIP contracts: 12 Indefinite Delivery-Indefinite Quantity (IDIQ) contracts for the Program Safeguard Contractor (PSC) effort; one Coordination of Benefits (COB) contract, and 8 IDIQ contracts for the Medicare Managed Care (MMC) Program Integrity Contractors effort. (IDIQ contracts are explained in detail in FAR 48 CFR subpart 16.5.) After being awarded an IDIQ contract, organizations can competitively bid on task orders released by CMS to specifically address program integrity issues within the scope of the IDIQ contract. These MIP contractors are discussed below.

Since 1999, we have awarded more than 40 individual task orders under the PSC IDIQ contract, including 17 Benefit Integrity (BI) Model PSCs. These BI PSCs are tasked with performing fraud and abuse detection and prevention activities for their respective jurisdictions. Specific activities include fraud case development, local and national data analysis to identify potentially fraudulent billing schemes or patterns, law enforcement support, medical review for a BI purpose, and identification and development of appropriate administrative actions. Four of the 17 BI PSCs have additional medical review functions. The remaining task orders issued under the PSC IDIQ contract have focused on specific program vulnerabilities and problem areas (for example, Comprehensive Error Rate Testing (CERT), Correct Coding Initiative (CCI), and Data Assessment & Verification (DAVe)). More information on PSCs can be accessed on the Internet at http://www.cms.hhs.gov/PROVIDERS/PSC/pscwebp2.asp.

Overall, we have seen success in the implementation of the PSC program. Since 2002, 12 of the 17 BI Model PSCs were awarded and transitioned. Typically, a 3 to 6 month period was allowed for the PSCs to transition the BI workload from the Fiscal Intermediary and Carrier that had previously been performing this workload.

In November 1999, we awarded one COB contract to consolidate activities that support the collection, management, and reporting of other health insurance coverage for Medicare beneficiaries. The purposes of the COB program are to identify the health benefits available to a Medicare beneficiary and to coordinate the payment process to prevent mistaken payment of Medicare benefits. In January 2001, the COB contractor assumed all Medicare Secondary Payer (MSP) claims investigations. Implementing this single-source development approach greatly reduced the amount of duplicate MSP investigations. It also offered a centralized, one-stop customer service approach for all MSP-related inquiries, including those seeking general MSP information, except for those related to specific claims or recoveries that serve to protect the Medicare Trust Funds.

MMC-PICs supplement our regional office integrity responsibilities related to Medicare Advantage (MA), formerly known as Medicare+Choice (M+C). Similar to the PSC, MMC-PIC was designed specifically to identify, stop, and prevent fraud, waste, and abuse.

Services performed under MMC-PIC include—

• Complete monthly analysis of plan discrepancies and report to MA Organizations;

• Review and analyze State regulatory practices;

• Evaluate marketing operations;

• Audit financial and medical records including claims, payments, and benefit packages;

• Evaluate enrollment and encounter data;

• Collect information and review matters that may contain evidence of fraud, waste, and abuse and make referrals to the appropriate government authority;

• Compliance testing of internal controls of Health Care Prepayment Plan (HCPP) contracting organizations;

• Complete all Retroactive Payment Adjustments and Retroactive Enrollments or Disenrollments submitted by MA Organizations;

• Complete final reconciliation of payment for non-renewals of MA contracts; and,

• Make reconsideration determinations with plans that request decisions regarding payments.

This regulation is part of our overall contracting strategy, which is designed to build on the strengths of the marketplace. We are committed to conducting procurements using full and open competition that will provide opportunities for a wide range of contractors to participate in the program. We will continue to encourage new and innovative approaches in the marketplace to protect the Medicare Trust Funds.

As discussed earlier in the background section, the implementation of section 1874A of the Act is also a major element of our contracting strategy. We are not including extensive rules relating to that authority in this proposal, for the reasons discussed earlier, but interested parties can gain information about our plans for implementing section 1874A of the Act by accessing the Internet at http://www.cms.hhs.gov/medicarereform/contractingreform . In addition, the public can also send us informal questions about the Medicare administrative contractor (MAC) implementation through this site; any official comments on this proposed rule should be submitted in accordance with the instructions contained in the “Addresses” section of this preamble.

In accordance with section 1893 of the Act, this proposed rule would amend part 421 by adding a new subpart D entitled, “Medicare Integrity Program Contractors.” This subpart will:

• Define the types of entities eligible to become MIP contractors. We also clarify that, in accordance with section 1874A of the Act, a MAC may perform MIP functions under certain conditions;

• Identify program integrity functions a MIP contractor may perform;

• Describe procedures for awarding and renewing contracts;

• Establish procedures for identifying, evaluating, and resolving organizational conflicts of interest consistent with the FAR;

• Prescribe responsibilities; and,

• Set forth limitations on MIP contractor liability.

Subpart D will apply to entities that seek to compete for, or receive award of, a contract under section 1893 of the Act including entities that perform functions under this subpart emanating from the processing of claims for individuals entitled to benefits as qualified railroad retirement beneficiaries. We would set forth the basis, scope, and applicability of subpart D in § 421.300.

In accordance with section 1893(c) of the Act, proposed § 421.302(a) would provide that an entity is eligible to enter into a MIP contract if it:

• Demonstrates the capability to perform MIP contractor functions;

• Agrees to cooperate with the Office of Inspector General (OIG), the Department of Justice (DOJ), and other law enforcement agencies in the investigation and deterrence of potential fraud and abuse in the Medicare program, including making referrals;

• Complies with the conflict of interest standards in 48 CFR Chapters 1 and 3 and is not excluded under the conflict of interest provisions established by this rule;

• Maintains an appropriate written code of conduct and compliance policies that include, without limitation, an enforced policy on employee conflicts of interest;

• Meets financial and business integrity requirements to reflect adequate solvency and satisfactory legal history; and,

• Meets other requirements that we may impose.

Also, in accordance with the undesignated paragraph following section 1893(c)(4) of the Act, we would specify that Medicare carriers are deemed to be eligible to perform the activity of developing and periodically updating a list of DME items that are subject to prior authorization.

It is not possible to identify in this rule each and every possible contractor eligibility requirement that may appear in a future solicitation. In order to permit us maximum flexibility to tailor our contractor eligibility requirements to specific solicitations while satisfying the intent of section 1893 of the Act, any contractor eligibility requirements in addition to those specified in proposed § 421.302(a)(1) through (a)(4) will be contained in the applicable solicitation.

At § 421.302(b)(1), we propose to make clear that a MAC under section 1874A of the Act may perform any or all of the MIP functions as are listed and described in § 421.304. However, in performing such functions, the MAC may not duplicate work being performed under a MIP contract. We believe this proposed provision is consistent with sections 1874A(a)(4)(G) and 1874A(a)(5) of the Act, as added by the MMA.

At § 421.302(b)(2), we also make clear our discretion to require a MAC performing any of the MIP functions under § 421.304 to abide by the eligibility requirements applicable to MIP contracts, that is, the four elements listed at § 421.302(a). The first requirement at § 421.302(a) relating to demonstrated capability and the third requirement relating to addressing conflicts of interest are consistent with provisions in the authorizing statute for MAC contracts (section 1874A(a)(2)of the Act). While the second requirement, which pertains to cooperation with the OIG and other forms of law enforcement, is not reiterated in section 1874A of the Act, we believe this requirement is not inconsistent with section 1874A of the Act or the FAR. This requirement is, in fact, compatible with our general practices, multiple statutes and regulations governing HHS operations and contracts, and finally also with provisions within title XI of the Act. Once again, the fourth requirement makes clear our authority to impose additional reasonable requirements through contract and it makes sense to apply this element to MAC contractors. Our specific approach to all these issues, of course, will be made clear in any solicitation for MAC contracts.

Note that, in accordance with section 1893(d) of the Act, we may continue to contract, for the performance of MIP activities, with fiscal intermediaries and carriers that had a contract with us on August 21, 1996 (the effective date of enactment of Pub. L. 104-191). However, in accordance with sections 1816(l) or 1842(c)(6) of the Act (both added by Pub. L. 104-191), and section 1874A(a)(5)(A) of the Act (added by the MMA), these contractors as well as MACs may not duplicate activities under a fiscal intermediary agreement or carrier contract and a MIP contract, with one excepted activity. The exception permits a carrier or a MAC to develop and update a list of items of DME that are subject to prior authorization both under the MIP contract and its contract under section 1842 of the Act. This discretion to continue the performance of MIP activities through the fiscal intermediary and carrier contracts until they are phased out in accordance to section 911(d) of the MMA, is provided for in proposed changes to § 421.100 and § 421.200 discussed later in this preamble.

We propose to define “Medicare integrity program contractor,” at § 400.202 (Definitions specific to Medicare), as an entity that has a contract with us under section 1893 of the Act to perform exclusively one or more of the program integrity activities specified in that section. The inclusion of the word “exclusively” in this definition is intended to conform with section 1874A(a)(5)(B) of the Act as added by the MMA.

A MIP contractor may perform some or all of the MIP activities listed in § 421.304. Section 421.304 would state that the contract between CMS and a MIP contractor specifies the functions the contractor performs. In accordance with section 1893(b) of the Act, proposed § 421.304 identifies the following as MIP activities.

(a) Medical, utilization, and potential fraud review. Medical and utilization review includes the processes necessary to ensure both the appropriate utilization of services and that services meet the professionally recognized standards of care. These processes include review of claims, medical records, and medical necessity documentation and analysis of patterns of utilization to identify inappropriate utilization of services. This would include reviewing the activities of providers or suppliers and other individuals and entities (including health maintenance organizations, competitive medical plans, health care prepayment plans, and MA plans). This function results in the identification of overpayments, prepayment denials, recommendations for changes in national coverage policy, changes in local coverage determinations (LCD) policies and payment screens, referrals for potential fraud and abuse, and the identification of the education needs of beneficiaries, providers, and suppliers.

Potential fraud review includes fraud prevention initiatives, responding to external customer complaints of alleged fraud, the development of strategies to detect potentially fraudulent activities that may result in improper Medicare payment, and the identification and development of potential fraud cases for referral to law enforcement. Each solicitation will specify when cases should be referred to the OIG or other law enforcement agency. In general, however, identified overpayments, recurring acts of improper billing, and substantiated allegations of potentially fraudulent activity will be promptly referred to a Regional OIG.

(b) Cost report audits. Providers and managed care plans receiving Medicare payments are subject to audits for all payments applicable to services furnished to beneficiaries. The audit ensures that proper payments are made for covered services, provides verified financial information for making a final determination of allowable costs, identifies potential instances of fraud and abuse, and ensures the completion of special projects. This functional area includes the receipt, processing, and recommended settlement terms for cost reports based on reasonable costs, prospective payment, or any other basis, and the establishment or adjustment of the interim payment rate using cost report or other information.

(c) Medicare secondary payer activities. The Medicare secondary payer function is a process developed as a payment safeguard to protect the Medicare program against making mistaken primary payments. The focus of this process is to ensure that the Medicare program pays only to the extent required by statute. Entities under a MIP contract that includes Medicare secondary payer functions would be responsible for identifying Medicare secondary payer situations and pursuing recovery of mistaken payments from the appropriate entity or individual, depending on the specifics of the contract. This functional area includes the processes performed to identify beneficiaries for whom there is coverage which is primary to Medicare. Through these processes, information may be acquired for subsequent use in beneficiary claims adjudication, recovery, and litigation.

(d) Education. This functional area includes educating beneficiaries, providers, suppliers, and other individuals regarding payment integrity and benefit quality assurance issues.

(e) Developing prior authorization lists. This functional area includes developing and periodically updating a list of DME items that, in accordance with section 1834(a)(15) of the Act, are subject to prior authorization. Prior authorization is a determination that an item of DME is covered prior to when the equipment is delivered to the Medicare beneficiary. Section 1834(a)(15) of the Act requires prior authorization to be performed on the following items of DME:

• Items identified as subject to unnecessary utilization;

• Items supplied by suppliers that have had a substantial number of claims denied under section 1862(a)(1) of the Act as not reasonable or necessary or for whom a pattern of overutilization has been identified; or

• A customized item if the beneficiary or supplier has requested an advance determination.

We note that the MIP functions are not limited to services furnished under fee-for-service payment methodologies. MIP functions apply to all types of claims. They also apply to all types of payment systems including, but not limited to, managed care and demonstration projects. MIP functions will also apply to payments made under the Medicare Part D prescription drug benefit that will be implemented on January 1, 2006.

We would specify, in § 421.306(a), that MIP contracts will be awarded in accordance with 48 CFR chapters 1 and 3, 42 CFR part 421 subpart D, and all other applicable laws and regulations. Furthermore, in accordance with section 1893(d)(2) of the Act, we would specify that the procedures set forth in these authorities will be used: (a) When entering into new contracts; (b) when entering into contracts that may result in the elimination of responsibilities of an individual fiscal intermediary or carrier; and (c) at any other time we consider appropriate.

In proposed § 421.306(b), we will establish an exception to competition that allows a successor in interest to a fiscal intermediary agreement or carrier contract to be awarded a contract for MIP functions without competition if its predecessor performed program integrity functions under the transferred agreement or contract and the resources, including personnel, which were involved in performing those functions, were transferred to the successor. This provision will remain in effect until all fiscal intermediary agreements and carrier contracts are transitioned to MACs in accordance with section 911(d) of the MMA.

This proposal is made in anticipation that some fiscal intermediaries and carriers, prior to the competition of their contracts in accordance with the MMA, may engage in transactions under which the recognition of a successor in interest by means of a novation agreement may be appropriate, and the resources involved in the fiscal intermediary's or carrier's MIP activities are transferred along with its other Medicare-related resources to the successor in interest. For example, the fiscal intermediary or carrier may undergo a corporate reorganization under which the corporation's Medicare business is transferred entirely to a new subsidiary corporation. When all of a contractor's resources or the entire portion of the resources involved in performing a contract are transferred to a third party, we may recognize the third party as the successor in interest to the contract through approval of a novation agreement. (See 48 CFR 42.12.)

If the fiscal intermediary or carrier was performing program integrity activities under its contract on August 21, 1996, the date of the enactment of the MIP legislation, the statute permits us to continue to contract with the fiscal intermediary or carrier for the performance of those activities without using competitive procedures (but only through and, no later than, September 30, 2011). In the context of a corporate reorganization under which all of the resources involved in performing the contract, including those involved in performing MIP activities, are transferred to a successor in interest, we may determine that breaking out the MIP activities and competing them separately (prior to the MAC contract competitions) would not be in the best interest of the Government.

Inherent in the requirement of section 1893(d) of the Act that the Secretary establish competitive procedures to be used when entering into contracts for MIP functions is the authority to establish exceptions to those procedures. (See 48 CFR 6.3) Moreover, the statute states that fiscal intermediary agreements and carrier contracts will be noncompetitively awarded under sections 1816(a) and 1842(b)(1) of the Act. Furthermore, those agreements and contracts have, in recent years prior and subsequent to the enactment of the MIP legislation, included program integrity activities, a fact that the Congress acknowledged in section 1893(d)(2) of the Act. Creating an exception to the use of competition for cases in which the same resources, including the same personnel, continue to be used by a third party as successor in interest to a fiscal intermediary agreement or carrier contract is consistent with the Congress' authorization to forego competition when the contracting entity was carrying out the MIP functions on the date of enactment of the MIP legislation. Section 421.306(b) permits continuity in the performance of the MIP functions until such time as we determine a need to procure MIP functions on the basis of full and open competition.

The exception to competition will operate only where a fiscal intermediary or carrier that performed program integrity functions under an agreement or a contract in place on August 21, 1996, transfers its functions by means of a valid novation agreement in accordance with the requirements of the FAR. This exception is intended to be applied only until we are prepared to award MIP contracts on the basis of FAR competitive procedures, or until we compete the full fiscal intermediary and carrier workloads (both MIP and non-MIP functions) in accordance with the MMA. The exception is not intended, and will not be used, to circumvent the competitive process when we make competitive awards of MIP and MAC contracts. This provision is intended to provide us with flexibility in handling Medicare functions in the face of bona fide changes in corporate structure that often have little, if anything, to do with the Medicare program.

We further specify, in § 421.306(c), that an entity must meet the eligibility requirements established in proposed § 421.302 to be eligible to be awarded a MIP contract.

Proposed § 421.308(a) specifies that an initial contract term will be defined in the MIP contract and that contracts may contain renewal clauses. Contract renewal provides a mutual benefit to both parties. Renewing a contract, when appropriate, results in continuity both for us and the contractor and is in the best interest of the Medicare program. The benefits are realized through early communication of our intention whether to renew a contract, which permits both parties to plan for any necessary changes in the event of nonrenewal. Furthermore, as a prudent administrator of the Medicare program, we must ensure that we have sufficient time to transfer the MIP functions if a reassignment of the functions becomes necessary (either because the contractor has given notice of its intent to non-renew or because we have determined that reassignment is in the best interest of the Medicare program). Therefore, in § 421.308(a), we would specify that we may renew a MIP contract, as we determine appropriate, by giving the contractor notice, within timeframes specified in the contract, of our intention to do so. (The solicitation document that results in the contract will contain further details regarding this provision.)

The renewal clause referred to in this section is not an “option” as defined in the FAR at 48 CFR 2.101. Section 1893 of the Act allows for the renewal of MIP contracts without regard to any provision of the law requiring competition if the contractor has met or exceeded performance requirements. As stated in FAR 48 CFR 2.101, “ ‘Option’ means a unilateral right in a contract by which, for a specified time, the Government may elect to purchase additional supplies or services called for by the contract, or may elect to extend the term of the contract.”

As described in the FAR, 48 CFR subpart 17.2, an option is different than a renewal clause in several respects. The length of time of an option is established in a contract. In contrast, the length of a renewal period in a MIP contract may not be defined. Furthermore, an option must be exercised during the life of the contract. A MIP renewal clause can be invoked only after the exhaustion of the initial contract period of performance, including any option provisions. Finally, an option allows us to extend the term of a contract only up to 60 months, the maximum term allowed by the FAR (excluding GSA awards). A MIP contract renewal clause allows the term of a MIP contract to surpass that limit, as long as the contractor meets the conditions in the regulation and the contract (including performance standards established in its contract) and we have a continuing need for the supplies or services under contract.

Based on section 1893(d)(3) of the Act, we would specify, in § 421.308(b), that we may renew a MIP contract without competition if the contractor continues to meet all the requirements of proposed subpart D of part 421, the contractor meets or exceeds the performance standards and requirements in the contract, and it is in the best interest of the Government.

We would provide, at § 421.308(c), that, if we do not renew the contract, the contract will end in accordance with its terms, and the contractor does not have a right to a hearing or judicial review regarding the non-renewal. This is consistent with our longstanding policy for fiscal intermediary and carrier contracts.

This proposed rule would establish the process for identifying, evaluating, and resolving conflicts of interest as required by section 1893(d)(1) of the Act. The process was designed to ensure that the more diversified business arrangements of potential contractors do not inhibit competition between providers, suppliers, or other types of businesses related to the insurance industry, or have the potential for harming Government interests.

When soliciting for MIP contracts, we will adhere to the requirements of the FAR organizational conflict of interest guidance, found at 48 CFR subpart 9.5. Given the sensitive nature of the work to be performed under the contract, the need to preserve the public trust, and the history of fraud and abuse in the Medicare Program, we will maintain the rebuttable presumption that each prospective contract involves a significant potential organizational conflict of interest. In light of this presumption, we will apply the general rules in FAR 905.5 and such requirements as may be applicable to an individual procurement.

Prior to awarding a MIP contract, our contracting officer will fashion an organizational conflict of interest clause specific to the contractor for inclusion in the contract. In general, we will not enter into a MIP contract with an offeror or contractor that we have determined has, or has the potential for, an unresolved organizational conflict of interest.

In § 421.310(a), we will specify that an offeror for MIP contracts is, and MIP contractors are, subject to the conflict of interest standards and requirements of the FAR organizational conflict of interest guidance, found at 48 CFR subpart 9.5, and the requirements and standards as are contained in each individual contract awarded to perform functions found at section 1893 of the Act.

In § 421.310(b), we state that we consider that a conflict of interest has occurred if, during the term of the contract, the contractor or its employee, agent or subcontractor has received, solicited, or arranged to receive any fee, compensation, gift, payment of expenses, offer of employment, or any other thing of value from any entity that is reviewed, audited, investigated, or contacted during the normal course of performing activities under the MIP contract. We incorporate the definition of “gift” from 5 CFR 2635.203(b) of the Standards of Ethical Conduct for Employees of the Executive Branch, which excludes from the definition items such as greeting cards, soft drinks, and coffee.

We also specify in § 421.310(b), if we determine that the contractor's activities are creating a conflict, then a conflict of interest has occurred during the term of the contract. In addition, we would specify that, if we determine that a conflict of interest exists, among other actions, we may, as we deem appropriate:

• Not renew the contract for an additional term;

• Modify the contract; or

• Terminate the contract for default.

We would also specify that the solicitation may require more detailed information than identified above. Our proposed provisions do not describe all of the information that may be required, or the level of detail that would be required, because we wish to have the flexibility to tailor the disclosure requirements to each specific procurement.

We intend to reduce the reporting and recordkeeping requirements as much as is feasible, while taking into consideration our need to have assurance that a conflict of interest does not exist in the MIP contractors.

Because potential offerors may have questions about whether information submitted in response to a solicitation, including information regarding potential conflicts of interest, may be redisclosed under the Freedom of Information Act (FOIA), we provide the following information.

To the extent that a proposal containing information is submitted to us as a requirement of a competitive solicitation under 41 U.S.C. Chapter 4, Subchapter IV, we will withhold the proposal when requested under the FOIA. This withholding is based upon 41 U.S.C. 253b(m). However, there is one exception to this policy. It involves any proposal that is set forth or incorporated by reference in the contract awarded to the proposing bidder. Such a proposal may not receive categorical protection. Rather, we will withhold, under 5 U.S.C. 552(b)(4), information within the proposal that is required to be submitted that constitutes trade secrets or commercial or financial information that is privileged or confidential provided the criteria established by National Parks & Conservation Association v. Morton , 498 F.2d 765 (D.C. Cir 1974), as applicable, are met. For any such proposal, we will follow pre-disclosure notification procedures set forth at 45 CFR 5.65(d).

Any proposal containing the information submitted to us under an authority other than 41 U.S.C. Chapter 4, Subchapter IV, and any information submitted independent of a proposal will be evaluated solely on the criteria established by National Parks & Conservation Association v. Morton and other appropriate authorities to determine if the proposal in whole or in part contains trade secrets or commercial or financial information that is privileged or confidential and protected from disclosure under 5 U.S.C. 552(b)(4). Again, for any such proposal, we will follow pre-disclosure notification procedures set forth at 45 CFR 5.65(d) and will also invoke 5 U.S.C. 552(b)(6) to protect information that is of a highly sensitive personal nature. It should be noted that the protection of proposals under FOIA does not preclude CMS from releasing contractor proposals when necessitated by law, such as in the case of a lawful subpoena.

We already protect information we receive in the contracting process. However, to allay any fears potential offerors might have about disclosure, at § 421.312(d) we propose to provide, that we protect disclosed proprietary information as allowed under the FOIA and that we require signed statements from our personnel with access to proprietary information that prohibit personal use during the procurement process and term of the contract.

In proposed § 421.312, we describe how conflicts of interest are resolved. We specify that we may establish a Conflicts of Interest Review Board to assist the contracting officer in resolving conflicts of interest and we determine when or if the Board is convened. We would define resolution of an organizational conflict of interest as a determination that:

• The conflict has been mitigated;

• The conflict precludes award of a contract to the offeror;

• The conflict requires that we modify an existing contract;

• The conflict requires that we terminate an existing contract for default; or,

• It is in the best interest of the Government to contract with the offeror or contractor even though the conflict exists.

The following are examples of methods an offeror or contractor may use to mitigate organizational conflicts of interest, including those created as a result of the financial relationships of individuals within the organization. These examples are not intended to be an exhaustive list of all the possible methods to mitigate conflicts of interest nor are we obligated to approve a mitigation method that uses one or more of these examples. (An offeror's or contractor's method of mitigating conflicts of interest would be evaluated on a case-by-case basis.)

• Divestiture of, or reduction in the amount of, the financial relationship the organization has in another organization to a level acceptable to us and appropriate for the situation.

• If shared responsibilities create the conflict, a plan, subject to our approval, to separate lines of business and management or critical staff from work on the MIP contract.

• If the conflict exists because of the amount of financial dependence upon the Federal Government, negotiating a phasing out of other contracts or grants that continue in effect at the start of the MIP contract.

• If the conflict exists because of the financial relationships of individuals within the organization, divestiture of the relationships by the individual involved.

• If the conflict exists because of an individual's indirect interest, divestiture of the interest to levels acceptable to us or removal of the individual from the work under the MIP contract.

In the procurement process, we determine which proposals are in a “competitive range.” The competitive range is based on cost or price and other factors that are stated in the solicitation and includes the most highly rated proposals that have a reasonable chance for contract award unless the range is further reduced for purposes of efficiency in accordance with FAR 15.306. Using the process proposed in this regulation, offerors will not be excluded from the competitive range based solely on conflicts of interest. If we determine that an offeror in the competitive range has a conflict of interest that is not adequately mitigated, we would inform the offeror of the deficiency and give it an opportunity to submit a revised mitigation plan. At any time during the procurement process, we may convene the Conflict of Interest Review Board to evaluate and assist the contracting officer in resolving conflicts of interest.

By providing a better process for the identification, evaluation, and resolution of conflicts of interest, we not only protect Government interests but help ensure that contractors will not hinder competition in their service areas by misusing their position as a MIP contractor.

Contractors which perform activities under the MIP contract will be reviewing activities of providers and suppliers that provide services to Medicare beneficiaries. Their contracts will authorize them to evaluate the performance of providers, suppliers, individuals, and other entities that may subsequently challenge their decisions. To reduce or eliminate a MIP contractor's exposure to possible legal action from those it reviews, section 1893(e) of the Act requires that we, by regulation, limit a MIP contractor's liability for actions taken in carrying out its contract. We must establish, to the extent we find appropriate, standards and other substantive and procedural provisions that are the same as, or comparable to, those contained in section 1157 of the Act.

Section 1157 of the Act limits liability and provides for the payment of legal expenses of a Quality Improvement Organization (QIO) (formerly Peer Review Organization (PRO)) that contracts to carry out functions under section 1154(e) of the Act. Specifically, section 1157 of the Act provides that QIOs, their employees, fiduciaries, and anyone who furnishes professional services to a QIO, are protected from civil and criminal liability in performing their duties under the Act or their contract, provided these duties are performed with due care. Following the mandate of section 1893(e) of the Act, this proposed rule, at § 421.316(a), would protect MIP contractors from liability in the performance of their contracts provided they carry out their contractual duties with care.

In accordance with section 1893(e) of the Act, we propose to employ the same standards for the payment of legal expenses as are contained in section 1157(d) of the Act. Therefore, § 421.316(b) will provide that we will make payment to MIP contractors, their members, employees, and anyone who provides them legal counsel or services for expenses incurred in the defense of any legal action related to the performance of a MIP contract. We propose that the payment be limited to the reasonable amount of expenses incurred, as determined by us, provided funds are available and that the payment is otherwise allowable under the terms of the contract.

In drafting § 421.316(a), we considered employing a standard for the limitation of liability other than the due care standard. For example, we considered whether it would be appropriate to provide that a contractor would not be criminally or civilly liable by reason of the performance of any duty, function, or activity under its contract provided the contractor was not grossly negligent in that performance. However, section 1893(e) of the Act requires that we employ the same or comparable standards and provisions as are contained in section 1157 of the Act. We do not believe that it would be appropriate to expand the scope of immunity to a standard of gross negligence, as it would not be a comparable standard to that set forth in section 1157(b) of the Act.

We also considered indemnifying MIP contractors employing provisions similar to those contained in the current Medicare fiscal intermediary agreements and carrier contracts. Generally, fiscal intermediaries and carriers are indemnified for any liability arising from the performance of contract functions provided the fiscal intermediary's or carrier's conduct was not grossly negligent, fraudulent, or criminal. However, we may indemnify a MIP contractor only to the extent we have specific statutory authority to do so. Section 1893(e) of the Act does not provide that authority. Note however, that section 1874A of the Act as added by the MMA would provide us with some discretion to indemnify MAC contractors. In addition, proposed § 421.316(a) provides for immunity from liability in connection with the performance of a MIP contract provided the contractor exercised due care. Indemnification is not necessary since the MIP contractors will have immunity from liability under § 421.316(a).

Section 1816(a) of the Act, which provides that providers may nominate a fiscal intermediary, requires only that nominated fiscal intermediaries perform the functions of determining payment amounts and making payment, and section 1842(a) of the Act requires only that carriers perform some or all of the functions cited in that section. Section 911 of the MMA eliminates the requirement that fiscal intermediaries be nominated, and effective October 1, 2005, establishes the requirement that Medicare contracts awarded to MACs be competitively bid by September 30, 2011.

Our existing requirements at § 421.100 and § 421.200 concerning functions to be included in fiscal intermediary agreements and carrier contracts far exceed those of the statute. Therefore, on February 22, 1994, we published a proposed rule (59 FR 8446) that would distinguish between those functions that the statute requires be included in agreements with fiscal intermediaries and those functions, which although not required to be performed by fiscal intermediaries, may be included in fiscal intermediary agreements at our discretion. We also proposed that any functions included in carrier contracts would be included at our discretion. In addition, we proposed to add payment on a fee schedule basis as a new function that may be performed by carriers.

The February 1994 proposed rule was never finalized, but its content was re-proposed in our initial 1998 proposed rule for the MIP program (63 FR 13590). This second proposed rule sets forth a new proposal to bring those sections of the regulations that concern the functions Medicare fiscal intermediaries and carriers perform into conformity with the provisions of sections 1816(a), 1842(a), and 1893(b) of the Act, for so long as the fiscal intermediary and carrier contracts exist until they are all replaced by MAC contracts.

As noted in section I.A. of this preamble, our current regulations at § 421.100 specify a list of functions that must, at a minimum, be included in all fiscal intermediary agreements. Similarly, § 421.200 specifies a list of functions that must, at a minimum, be included in all carrier contracts. These requirements far exceed those of the statute.

Until October 1, 2005, section 1816(a) of the Act, in its present form, requires only that a fiscal intermediary agreement provide for determination of the amount of payments to be made to providers and for the making of the payments. Pending the effective date of changes made by the MMA, section 1816(a) permits, but does not require, a fiscal intermediary agreement to include provisions for the fiscal intermediary to provide consultative services to providers to enable them to establish and maintain fiscal records or to otherwise qualify as providers. It also provides that, for those providers to which the fiscal intermediary makes payments, the fiscal intermediary may serve as a channel of communications between us and the providers, may make audits of the records of the providers, and may perform other functions as are necessary.

Section 1816(a) of the Act, in its present form until October 1, 2005, mandates only that a fiscal intermediary make payment determinations and make payments and, because of the nomination provision of section 1816(a) of the Act, these functions must remain with fiscal intermediaries. We believe that, pending the effective date of changes made by the MMA, section 1816(a) of the Act does not require that the other functions set forth at § 421.100(c) through (i) be included in all fiscal intermediary agreements. Furthermore, section 1893 of the Act permits the performance of functions related to Medicare program integrity by other entities. Thus, § 421.100 would be revised to be consistent with section 1893 of the Act and the implementing regulation. The mandatory inclusion of all functions in all agreements limits our ability to efficiently and effectively administer the Medicare program. For example, if an otherwise competent fiscal intermediary performs a single function poorly, it would be efficient and effective to have that function transferred to another contractor that could carry it out in a satisfactory manner. The alternative is to not renew or to terminate the agreement of that fiscal intermediary and to transfer all functions to a new contractor, which may not have had an ongoing relationship with the local provider community.

Therefore, we will revise § 421.100 to state that an agreement between CMS and a fiscal intermediary specifies the functions to be performed by the fiscal intermediary and that these must include determining the amount of payments to be made to providers for covered services furnished to Medicare beneficiaries and making the payments and may include any or all of the following functions:

• Any or all of the MIP functions identified in proposed § 421.304, provided that they are continuing to be performed under an agreement entered into under section 1816 of the Act that was in effect on August 21, 1996, and they do not duplicate work being performed under a MIP contract.

• Undertaking to adjust overpayments and underpayments and to recover overpayments when it is determined that an overpayment has been made.

• Furnishing to us timely information and reports that we request in order to carry out our responsibilities in the administration of the Medicare program.

• Establishing and maintaining procedures that we approve for the review and reconsideration of payment determinations.

• Maintaining records and making available to us the records necessary for verification of payments and with other related purposes.

• Upon inquiry, assisting individuals with matters pertaining to a fiscal intermediary contract.

• Serving as a channel of communication to and from us of information, instructions, and other material as necessary for the effective and efficient performance of a fiscal intermediary contract.

• Undertaking other functions as mutually agreed to by us and the fiscal intermediary.

In § 421.100(c), we specify that, for the responsibility for services to a provider-based HHA or a provider-based hospice, when different fiscal intermediaries serve the HHA or hospice and its parent provider under § 421.117, the designated regional fiscal intermediary determines the amount of payment and makes payments to the HHA or hospice. The fiscal intermediary or MIP contractor serving the parent provider performs fiscal functions, including audits and settlement of the Medicare cost reports and the HHA and hospice supplement worksheets.

Pending the effective date of changes made by the MMA, section 1842(a) of the Act, which pertains to carrier contracts, requires that the contracts provide for some or all of the functions listed in that paragraph, but does not specify any functions that must be included in a carrier contract. As in the case of fiscal 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 fiscal intermediaries and carriers should be brought into conformity with the statutory requirements. Therefore, we would revise existing § 421.200, “Carrier functions,” to make it consistent with section 1893 of the Act and the implementing regulations. We state that a contract between CMS and a carrier specifies the functions to be performed by the carrier, which may include the following:

• Any or all of the MIP functions described in § 421.304 if the following conditions are met: (1) The carrier is continuing those functions under a contract entered into under section 1842 of the Act that was in effect on August 21, 1996; and (2) they do not duplicate work being performed under a MIP contract, except that the function related to developing and maintaining a list of DME may be performed under both a carrier contract and a MIP contract.

• Receiving, disbursing, and accounting for funds in making payments for services furnished to eligible individuals within the jurisdiction of the carrier.

• Determining the amount of payment for services furnished to an eligible individual.

• Undertaking to adjust incorrect payments and recover overpayments when it has been determined that an overpayment has been made.

• Furnishing to us timely information and reports that we request in order to carry out our responsibilities in the administration of the Medicare program.

• Maintaining records and making available to us the records necessary for verification of payments and for other related purposes.

• Establishing and maintaining procedures under which an individual enrolled under Part B will be granted an opportunity for a fair hearing.

• Upon inquiry, assisting individuals with matters pertaining to a carrier contract.

• Serving as a channel of communication to and from us of information, instructions, and other material as necessary for the effective and efficient performance of a carrier contract.

• Undertaking other functions as mutually agreed to by us and the carrier.

Because we propose to add a new subpart D to part 421 that would apply to MIP contractors, and because we may eventually propose regulations pertaining to MAC contracts, we propose to change the title of part 421 from “Intermediaries and Carriers” to “Medicare Contracting.” We also propose to revise § 421.1, which sets forth the basis, scope, and applicability of part 421. We would revise this section to add section 1893 of the Act to the list of provisions upon which the part is based. We would also make editorial and other changes (such as reorganizing the contents of the section and providing headings) that improve the readability of the section without affecting its substance.

In addition, numerous sections of our regulations specifically refer to an action being taken by a fiscal intermediary or a carrier. If the action being described may now be performed by a MIP contractor that is not a fiscal intermediary or a carrier, we would revise those sections to indicate that this is the case. For example, § 424.11, which sets forth the responsibilities of a provider, specifies, in paragraph (a)(2), that the provider must keep certification and recertification statements on file for verification by the fiscal intermediary. A MIP contractor now may also perform the verification. Therefore, we will revise § 424.11(a)(2) to specify that the provider must keep certification and recertification statements on file for verification by the fiscal intermediary or MIP contractor. Because our regulations are continuously being revised and sections redesignated, we have not identified all sections that will have technical changes in this proposed rule, but we may do so in the final rule. If we determine that substantive changes to our regulations are necessary, we will make those changes through separate rulemaking.

Because of the large number of items of correspondence we normally receive on Federal Register documents published for comment, we are not able to acknowledge or respond to them individually. We will consider all comments we receive by the date and time specified in the DATES section of this preamble, and, if we proceed with a subsequent document, we will respond to the comments in the preamble to that document.

This document does not impose new information collection and recordkeeping requirements subject to the Paperwork Reduction Act of 1995 (PRA). Consequently, it need not be reviewed by the Office of Management and Budget under the authority of the PRA of 1995.

We have examined the impacts of this proposed rule as required by Executive Order 12866 and the Regulatory Flexibility Act (RFA) (Pub. L. 96-354). Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). The RFA requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, non-profit organizations, and governmental agencies. Most hospitals and most other providers and suppliers are small entities, either by nonprofit status or by having revenues of $5 million or less annually. Fiscal intermediaries and carriers are not considered to be small entities.

Section 1102(b) of the Act requires us to prepare a regulatory impact analysis for any proposed rule that 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 define a small rural hospital as a hospital that is located outside a Metropolitan Statistical Area and has fewer than 50 beds.

This rule implements section 1893 of the Act, which encourages proactive measures to combat waste, fraud, and abuse, and to protect the integrity of the Medicare program. On March 20, 1998, we issued a proposed rule to implement provisions of section 1893 of the Act (63 FR 13590). Section 1893 of the Act grants us the authority to contract with eligible entities to perform program integrity activities prior to a final rule being published. Since the publication of the 1998 proposed rule, this authority has allowed us to enter into contracts, consistent with FAR, with new specialty contractors to promote the integrity of the Medicare program, despite a final rule never being published.

Section 902 of the MMA mandates that final rules based on a previous publication of a proposed regulation or an interim final regulation must be published within three years except under exceptional circumstances. Given that it has been greater than three years since the publication of the initial proposed Medicare Integrity Program regulations, we are publishing this new proposed rule in order to maintain our authority to enter into contracts with contractors to promote the integrity of the Medicare program. However, our experience in contracting with entities to perform MIP functions allows us to discuss some of the successes we have had with MIP.

The objective of this proposed regulation is to maintain our authority to contract with entities to perform program integrity functions, and to provide a procurement procedure to supplement the requirements of the FAR and specifically address contracts to perform MIP functions identified in the law.

According to the previously published proposed rule and mirrored in this current proposed rule, the following functions, as specified below, may be performed under MIP contracts:

• Review of provider activities such as medical review, utilization review, and potential fraud review.

• Audit of cost reports.

• Medicare secondary payer review and payment recovery.

• Provider and beneficiary education on payment integrity and benefit quality assurance issues.

• Developing and updating lists of DME items that are to be subject to prior approval provisions.

Our MIP experience since 1999 suggests that this rule will continue to have a positive impact on the Medicare program, Medicare beneficiaries, providers, suppliers, and entities that have not previously contracted with us. Existing MIP contractors that seek renewal of MIP contracts should not expect any additional costs in complying with the requirements set forth in the rule, as these requirements are similar yet more streamlined than those set forth in the 1998 proposed rule and are currently applied by MIP contractors. To the extent that small entities could be affected by the rule, and because the rule raises certain policy issues for conflict of interest standards, we provide an impact analysis for those entities that we believe will be most heavily affected by the rule.

We believe that this rule will have an impact, although not a significant one, in five general areas: (1) The Medicare program and Health Insurance Trust Fund; (2) Medicare beneficiaries and taxpayers; (3) current fiscal intermediaries and carriers; (4) entities that have not previously contracted with us; and (5) Medicare providers and suppliers.

HIPAA provides for a direct apportionment from the Health Insurance Trust Fund for program integrity activities to thwart improper billing practices. Appropriations totaled $700 million for 2002, and $720 million for FY 2003 and all subsequent years.

A separate and dependable long-term funding source for MIP allows us the flexibility to invest in innovative strategies to combat the fraud and abuse drain of the Medicare Trust Funds. By shifting emphasis from post-payment recoveries on incorrectly paid claims to pre-payment strategies, most claims will be paid correctly the first time.

Improper billing and health care fraud are difficult to quantify because of their hidden nature. However, estimates suggest that the percentage of improper Medicare fee for service payments as compared to total fee for service payments have declined since the implementation of MIP contractors:

We should note that the positive error rate trend also relates to other initiatives including fiscal intermediary and carrier education efforts, partnering with the American Medical Association (AMA), and anti-fraud and abuse efforts such as Operation Restore Trust.

In 2004, we announced new steps to measure error rates in Medicare payments more accurately and comprehensively at the contractor level, and to further reduce improper payments through targeted error improvement initiatives. Under the new measurement process for the Medicare error rate, the net national rate for fiscal year 2004 was 9.3 percent. This error rate is not comparable to the rates determined by the previous method used by CMS. We hope to reduce the error rate by more than half to 4.7 percent in four years, by building on recent reforms in payment oversight and new authorities in the Medicare law.

In addition to economic advantages, MIP funding and contracting improvements will allow us to better serve Medicare beneficiaries in a qualitative way. MIP gives us a tool to better administer the Medicare program and accomplish our mission of providing access to quality health care for Medicare beneficiaries. We will continue to use competitive procedures to contract separately for the performance of integrity functions. In general, economic theory postulates that competition results in a better price for the consumer which, in this instance, is CMS on behalf of Medicare beneficiaries and taxpayers. Competition should also encourage the use of innovative techniques to perform integrity functions that will, in turn, result in more efficient and effective safeguards for the Trust Funds.

MIP contracts have had, and we expect will continue to have, an overall positive effect on Medicare beneficiaries and taxpayers. Beneficiaries pay deductibles and Part B Medicare premiums. Taxpayers, including those who are not yet eligible for Medicare, contribute part of their earnings to the Part A Trust Fund. Taxpayers and beneficiaries contribute indirectly to the Part B Trust Fund because it is funded, in part, from general tax revenues. Consistent performance of program integrity activities will ensure that less money is wasted on inappropriate treatment or unnecessary services. As evidence, MIP funds have contributed to a reduction in the total percentage of improper payments made for fee-for-service (FFS) claims paid in 2003 to 5.8  2 percent of all FFS claims, down from 7.1 percent of FFS claims in 1998. 3 As a result, current and future beneficiaries will obtain more value for every Medicare dollar spent.

Although fiscal intermediaries and carriers are not considered small entities for purposes of the RFA, and effective October 1, 2005, we have the authority to replace the current Medicare fiscal intermediary and carrier contracts with new MAC contracts, we are providing the following analysis.

There are currently 25 Medicare fiscal intermediaries and 18 Medicare carriers plus 4 DME regional contractors which are also carriers. Presently, all these contractors perform general program integrity activities addressed in this proposed rule apart from, but not duplicative of, MIP contractors. In FY 2004, approximately 29 percent of the total contractor budget was dedicated to program integrity.

Current fiscal intermediaries and carriers are not prohibited from entering into MIP contracts when we compete contracts for section 1893 of the Act activities. Medical directors continue to play an important role in medical review activities, and locally-based medical directors improve our relationship with local physicians by using groups like Carrier Advisory Committees. Locally-based fraud investigators and auditors are being used as necessary. Upon the publication of this proposed regulation, we anticipate that review policies will continue to be coordinated across contractors to ensure consistency, while local practice will continue to be incorporated where appropriate.

This rule may have had a negative impact on current fiscal intermediaries and carriers in some respects. Many current fiscal intermediaries and carriers may have lost a portion of their Medicare business since 1998 as fraud review functions were transferred to MIP contractors. These contractors may have some additional functions transferred to MIP contractors in the next few years. Nevertheless, the effects of section 911 of the MMA will be more significant on the current fiscal intermediary and carrier.

However, current contractors have benefited from the MIP program and will benefit from this proposed rule. Under the provisions of this proposal, they are eligible to compete for MIP contracts as long as they comply with all conflict of interest and other requirements. (Current contractors may not receive payment for performing the same program integrity activities under both a MIP contract and their existing contract.) We considered proposing rules that identified specific conflict of interest situations that would prohibit the award of a MIP contract. We also considered prohibiting a MIP contractor whose contract was completed but not renewed or terminated from competing for another MIP contract for a certain period. Instead, the proposed rule would establish a process for evaluating, on a case-by-case basis at the time of contracting, situations that may constitute conflicts of interest in accordance with the FAR, subpart 9.5. It permits current contractors to position themselves to be eligible for a MIP contract by mitigating any conflicts of interest they may have in order to compete. The economic impact on fiscal intermediaries and carriers is lessened by the proposed approach when compared to the alternatives we considered.

The current contractors that are awarded MIP contracts, or that continue to perform MIP functions under their fiscal intermediary or carrier contracts, will also benefit from more consistent funding provided by the law for program integrity activities. This more stable, long-term funding mechanism enables Medicare contractors to attract, train, and retain qualified professional staff to assist these contractors to fulfill their program integrity functions.

There will be an economic impact on current contractors that propose to perform MIP contracts using subcontractors. A MIP contractor would apply to its subcontractors the same conflict of interest standard to which it must adhere. It is impossible to assess the precise economic impact of this portion of the proposed rule because a MIP contractor is free to contract with any subcontractor. A MIP contractor may seek out subcontractors that are conflict free, which would reduce or eliminate the time expended monitoring conflict of interest situations. However, our requirements rely heavily on FAR subpart 9.5, which normally apply to both prime contractors and subcontractors. Thus, we do not believe this provision imposes any additional negative burden on current fiscal intermediaries or carriers.

Entities that have not previously performed Medicare program integrity activities will experience a positive effect from this rule. Integrity functions such as audit, medical review, and potential fraud investigation may be consolidated in a MIP contract to allow suspect claims to be identified and investigated from all angles. Contractors may subcontract for these specific integrity functions, thus creating new markets and opportunities for small, small disadvantaged, and woman-owned businesses.

Since the publication of the 1998 proposed rule and in accordance to this MIP authority, we have awarded 12 Indefinite Delivery-Indefinite Quantity (IDIQ) contracts for the Program Safeguard Contractor (PSC) effort, one Coordination of Benefits (COB) contract, and 8 IDIQ contracts for the Medicare Managed Care Program Integrity Contractors (MMC-PICs) effort. With the forthcoming implementation of the Part D prescription drug benefit included in the MMA, there will be further opportunities for new entities to compete for MIP contracts to perform program oversight activities for this new benefit.

Use of full and open competition to award MIP contracts may encourage innovation and the creation of new technology. Historically, cutting edge technologies and analytical methodologies created for the Medicare program have benefited the private insurance arena.

Because MIP contractors have been in place since 1998, we anticipate no additional burden imposed on providers and suppliers that are small businesses or not-for-profit organizations by the need to deal with a new set of contractors. There are approximately 1.1 million health care providers and suppliers (depending on how group practices and multiple locations are counted) that bill independently. The proposed rule does not necessarily impose any action on the part of these providers and suppliers.

Overall, we expect that providers and suppliers will benefit qualitatively from this proposed rule. Many providers and suppliers perceive that their reputations are tarnished by the few dishonest providers and suppliers that take advantage of the Medicare program. The media often focus on the most egregious cases of Medicare fraud and abuse, leaving the public with the perception that physicians and other health care practitioners routinely make improper claims. This rule would allow us to take a more effective and wider ranging approach to identifying, stopping, and recovering from unscrupulous providers and suppliers. As the number of dishonest providers and suppliers and improper claims diminishes, ethical providers and suppliers will benefit.

Since the publication of the 1998 proposed rule, we have awarded MIP contracts to contractors in order to perform program integrity activities and there has been a decrease in the percentage of improper claims paid. In anticipation of our continued authority to award contracts to entities to continue these activities, we have announced initiatives to measure error rates in Medicare payments more accurately and comprehensively, and to further reduce improper payments.

We conclude that our continued authority would save the Medicare program additional money and extend the solvency of the Trust Funds as a result of this proposed rule. The dynamic nature of fraud and abuse is illustrated by the fact that wrongdoers continue to find ways to evade safeguards. This supports the need for constant vigilance and increasingly sophisticated ways to protect against “gaming” of the system. We solicit public comments as well as data on the extent to which any of the affected entities would be significantly economically affected by this proposed rule. However, based on the above analysis, we have determined, and certify, that this proposed rule would not have a significant economic impact on a substantial number of small entities. We also have determined, and certify, that this proposed rule would not have a significant impact on the operations of a substantial number of small rural hospitals. In accordance with the provisions of Executive Order 12866, this proposed rule was reviewed by the Office of Management and Budget.

For reasons set forth in the preamble in this proposed regulation, the Centers for Medicare & Medicaid Services propose to amend 42 CFR chapter IV as follows: