On April 21, 2008, the Department of Homeland Security (DHS), through U.S. Immigration and Customs Enforcement (ICE), Student and Exchange Visitor Program (SEVP), published a notice of proposed rulemaking (NPRM) to amend the fees charged by SEVP and to establish a school certification program. 73 FR 21260. This final rule implements those changes and other legal requirements by amending DHS regulations governing certification, oversight and recertification of schools by SEVP for attendance by F and/or M students. The rule establishes procedures for schools to submit recertification petitions, adds a provision allowing a school to voluntarily withdraw from its existing certification, clarifies procedures for school operations with regard to F and M visa students during recertification and following a withdrawal of certification, and removes obsolete provisions used prior to implementation of the Student and Exchange Visitor Information System (SEVIS). SEVP administers SEVIS as a Web-enabled database that provides current information on F, M and J nonimmigrants in the United States.

The rule also adjusts the SEVP school certification fee and student application fees (Form I-901 SEVIS fee) to reflect existing program operating costs, program requirements, and planned program enhancements. These fee adjustments are driven by two factors: (1) The need to comply with statutory and regulatory requirements that SEVP review its fee structure every two years to ensure that the cost of the services that are provided are fully captured by fees assessed on those receiving the services; and (2) the need to enhance SEVP capability to meet current program requirements and to achieve its mission goals in support of homeland security and countering immigration fraud.

Once promulgated, the rule will allow SEVP to fully fund activities and institute critical near-term program and system enhancements in a manner that fairly allocates cost among the F, M and J visa categories, and acknowledges defined performance goals. These enhancements include implementation of the next generation SEVIS ( i.e. , SEVIS II), increased enforcement capability, expansion of school liaison activity, and establishment of a school recertification process.

SEVP makes these changes under a series of statutory authorities, including, but not limited to the following immigration and homeland security laws: sections 101(a)(15)(F)(i), 101(a)(15)(M)(i) and 101(a)(15)(J) of the Immigration and Nationality Act of 1952 (INA), as amended; section 641 of the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA), Public Law 104-208, Div. C, 110 Stat. 3009-546 (September 30, 1996); the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56, 115 Stat. 272 (October 26, 2001; USA PATRIOT Act); and the Enhanced Border Security and Visa Entry Reform Act of 2002 (EBSVERA), Public Law 107-173, 116 Stat. 543 (May 14, 2002), codified at 8 U.S.C. 1762. These laws govern the admission of foreign nationals into the United States in nonimmigrant status to attend academic, language and vocational schools, and to participate in foreign exchange visitor programs. They require that DHS collect certain information about F and M students and J exchange visitors at ports of entry. They also establish certification and recertification requirements for schools seeking approval for school attendance by F and/or M students.

DHS's authority to assess fees arises under IIRIRA sections 641(e)(1), 641(e)(4)(A) and 641(g)(2), as amended. In addition, section 286(m) of the INA permits the Secretary of Homeland Security to collect fees at a level that ensures recovery of the full costs of providing adjudication services, including the costs of providing similar services without charge to asylum applicants and certain other immigrants. All fees collected by ICE pursuant to this final rule are deposited as offsetting receipts into the Immigration Examinations Fee Account (IEFA) and remain available to the Secretary until expended for the purposes of the program. IIRIRA section 641(e)(4)(B). The fee assessments and collections implemented under this final rule are consistent with Office of Management and Budget (OMB) Circular A-25, User Charges (revised). See 58 FR 38142 (July 15, 1993). Section 6 of OMB Circular A-25 defines “full cost” to include all direct and indirect cost to any part of the federal government for providing a good, resource, or service. The fees implemented under this final rule also are consistent with OMB Circular A-11, Preparation, Submission and Execution of the Budget, section 31.12 (July 2, 2007), which directs agencies to develop user charge estimates based on the full cost recovery policy set forth in OMB Circular A-25.

Further, this rule complies with the Federal Accounting Standards Advisory Board (FASAB) Statement of Federal Financial Accounting Standards (SFFAS) No 4: Managerial Cost Accounting Concepts and Standards for the Federal Government (July 31, 1995), which provides federal government standards regarding managerial cost accounting and full cost recovery. The Chief Financial Officers Act of 1990 (CFO Act), 31 U.S.C. 901-903, requires each agency's Chief Financial Officer (CFO) to “review, on a biennial basis, the fees, royalties, rents and other charges imposed by the agency for services and things of value it provides, and make recommendations on revising those charges to reflect cost incurred by it in providing those services and things of value.” 31 U.S.C. 902(a)(8). This final rule is consistent with these federal sector financial and accounting laws, rules and standards, and reflects fee collection recommendations made by the CFO. As such, the rule increases funding that supports current SEVP operations; provides funding for new initiatives critical to improving the program; funds operations to comply with statutory requirements to implement school recertification; and reflects the implementation of specific cost allocation methods to segment program costs to the appropriate fee, either F and M students, J exchange visitors, or schools, to ensure compliance with the federal sector legal framework for fee setting.

This final rule amends the SEVP school certification petition fees and the application fees for nonimmigrants seeking to become academic (F visa) or vocational (M visa) students, or exchange visitors (J visa). The rule also implements mandatory review of fees collected by SEVP. It sets the fee for submitting a school certification petition at $1,700 and the fee for each site visit at $655. It sets the fee for each F or M student at $200. The rule sets the fee for certain J exchange visitors at $180 and maintains the fee for exchange visitors seeking admission as au pairs, camp counselors, and summer work/travel program participants at $35. All fee payments addressed in this final rule must be made in the amounts established by this rule beginning October 27, 2008.

The rule also establishes procedures for oversight and recertification of schools with F and/or M students. This includes procedures for schools to submit recertification petitions as well as procedures to allow a school to voluntarily withdraw from an existing certification. The rule further clarifies procedures for school operation with regard to F and M students during recertification and following a denial of recertification or a withdrawal of certification. Finally, the rule removes obsolete provisions used prior to implementation of SEVIS.

The 60-day comment period for this rulemaking action concluded on June 20, 2008; although SEVP allowed posting of late-filed comments through June 27, 2008. The proposed rule identified several alternative means for submitting comments. SEVP converted all comments submitted, regardless of means chosen for submission, to electronic format where they may be viewed electronically through the Federal Docket Management System (FDMS) at http://www.regulations.gov (use DHS docket number ICEB-2008-0004 when searching). SEVP received 61 written comments to FDMS.

In addition, in the weeks following the publication of the proposed rule, the SEVP Director and key staff, led in several instances by the Assistant Secretary for U.S. Immigration and Customs Enforcement, launched a nationwide tour of educational institutions to engage the public in a “town hall” format to encourage open dialogue, public comments and understanding about the proposed rule. SEVP opened the forums to the public at large, and specifically invited officials from every SEVP-certified school and exchange visitor program sponsors from a listing provided to SEVP by the Department of State (DoS). SEVP posted the transcripts of those forums on the public docket for this rulemaking at www.regulations.gov.

SEVP further extended outreach to the public through the home page of the SEVP Web site, http://www.ice.gov/sevis. The site included related press releases, “frequently asked questions” (FAQs), links to documents and access to FDMS for comment submission. Although not an official method of comment submission, SEVP received some rule-related input through its policy guidance “help” e-mail address, SEVIS.Source@dhs.gov. In these instances, SEVP asked submitters to comply with docket submission criteria, but also added all substantive issues related to the proposed rule raised in those e-mails to the FDMS docket.

This final rule considered all comments received during the comment period and has responded to those comments in this final rule. Below is a summary of changes to the final rule text made in response to public comment:

1. The proposed text for 8 CFR 103.7(b)(1) related to the Form I-290B has been removed.

2. The proposed text for 8 CFR 103.7(b)(1) related to the Form I-901 has been amended slightly to clarify fees for J visa holders by listing the J-visa categories first and then the fees, and by specifically listing the government sponsored program visa categories exempt from these fees.

3. The proposed text for 8 CFR 214.3(g)(1) Student Records is amended by adding after the first sentence the following text: “Student information not required for entry in SEVIS may be kept in the school's student system of records, but must be accessible to DSOs.”

4. The proposed text for 8 CFR 214.3(g)(1)(ii) is amended by adding a parenthetical clarification regarding the recordation of legal name changes as follows: “Identification of the student, to include name while in attendance (record any legal name change), date and place of birth, country of citizenship, school's student identification number.”

5. The proposed text for 8 CFR 214.3(g)(1)(xi), requiring schools to maintain record of nonimmigrant students' “date of last entry into the United States; most recent Form I-94 number and date of issue,” has been deleted.

6. The proposed text for 8 CFR 214.3(g)(2)(iii)(D) Adjustment to the program completion date is amended by adding examples in parenthesis to read: “Any factors that influence the student's progress toward program completion ( e.g. , deferred attendance, authorized drop below, program extension) must be reflected by making an adjustment updating the program completion date.”

7. The proposed text for 8 CFR 214.3(h)(2) Recertification is amended by adding after the first sentence, “There is no recertification petition fee.”

8. The proposed text for 8 CFR 214.4(a)(1) is amended to add the sentence, “No fee is required with appeals related to SEVP certification.”

9. The proposed text for 8 CFR 214.4(a)(2)(xix) is amended to include only those changes that represent a “material change to the scope of the institution offerings” as follows: “Failure of a DSO to notify SEVP of material changes, such as changes to the school's name, address, or curricular changes that represent material change to the scope of institution offerings ( e.g. , addition of a program, class or course for which the school is issuing Forms I-20, but which does not have Form I-17 approval), as required by 8 CFR 214.3(f)(1).”

10. The proposed text of 8 CFR 214.4(h) is amended by adding the last sentence, “No fee is required with appeals related to denial of SEVP recertification or withdrawal of SEVP certification.”

11. The proposed text of 8 CFR 214.13 is expanded to include paragraph (b)(1). This allows a slight technical correction—the addition of the G-7 category.

Comments submitted to the docket for this rulemaking were distributed relatively evenly among various issues, with concerns about the potential impact of the increased I-901 SEVIS fee on student and exchange visitor participation in F, M and J programs and questions about adjustments to student reporting requirements receiving the greatest number of comments.

Some comments affirmed the purpose and scope of the rule, acknowledging the need to remove DHS authorization to enroll F and/or M students from noncompliant schools, and supporting increased interaction and communication among federal agencies through the development of SEVIS II and expanded SEVP liaison activity. One commenter, in particular, applauded U.S. government policy related to assessing fees for the cost of government programs and opined that all costs associated with international students' presence in the United States should be paid by students rather than by U.S. taxpayers. SEVP agrees with and appreciates these expressions of support for the program and, in this final rule, seeks to fulfill its legal requirements to fully capture the costs associated with carrying out government responsibilities under the SEVP program through appropriate fee assessments.

A number of comments were not relevant to the substance of the proposed rule; in particular those questioning the government's basis for establishing and continuing SEVP overall and criticizing the rule for not addressing or solving immigration issues in general. One comment, in particular, questions the logic of focusing U.S. government attention and public resources on foreign students and researchers as opposed to other immigrant and nonimmigrant groups.

Other comments noted recent increases in fees for nonimmigrants by the Department of State (DoS) for visa processing and by U.S. Citizenship and Immigration Services (USCIS) for benefit applications, and asked if the fees could be better coordinated and phased-in. These comments suggested changes in substantive federal laws, USCIS regulations and processes for implementing the immigration laws by USCIS, U.S. Customs and Border Protection (CBP) and other agencies.

Several comments criticized the Department's law enforcement programs for lack of collection of adequate law enforcement data related to criminal behavior. One comment, in particular, asked that SEVP further illuminate the scale of the problems that this regulation purports to address and provide additional information as to how many uninvestigated leads related to nonimmigrant student and exchange visitor activities resulted in criminal conduct, how many institutions are complying with SEVP requirements, and what percentage of foreign students are represented by these institutions.

Finally, an advocacy group, endorsed by four commenters, questioned the efficacy of U.S. international education policy and its intersection with national immigration policy; concluding that SEVIS is an example of government regulation “for extraneous purposes,” developed in the absence of comprehensive U.S. international education policy.

All of these comments are beyond the scope of this rulemaking. The final rule does not address comments seeking changes in statutes, regulations, policy or processes unrelated to or not addressed by the proposed rule. It also does not respond to requests for changes in procedures of other DHS components or other agencies, or the resolution of any other issues not within the scope of the rulemaking.

Several individual commenters observed that the language in the preamble to the proposed rule regarding terrorist threats to the United States overstated the actual terrorist threat of a relatively small segment of the total population that visits the United States. They believe that such language has been a deterrent to foreign nonimmigrant participation with schools and exchange visitor programs. Some commenters, including two advocacy groups, feel that the “message” that foreign nationals will perceive from the rule will be that the United States is “unwelcoming.”

SEVP strongly supports international education. Most non-immigrant students have positive experiences while in the United States, and the goodwill engendered by all that the United States has to offer will encourage mutually beneficial international relations. SEVP, by ensuring students' legitimacy, both reduces potential terrorist threats and decreases the risk of discrimination in the larger community, contributing to a safe environment for students and exchange visitors when they attend programs in the United States.

As discussed in the proposed rule, and in sources such as The 9/11 Commission Report , a strong immigration policy, including the ability of the U.S. government to know whether nonimmigrant visitors have overstayed the term of their admission to the United States, is critical to safeguarding the homeland. See 72 FR at 21266. The National Commission on Terrorist Attacks upon the United States (the 9/11 Commission), in its seminal report, noted:

SEVP identified three required technical corrections to the proposed rule. SEVP discovered that Table 1: Summary of Requirements by Organization and Program Category , in the section addressing Program Expenses, the expenses for SEVIS II for 2009 and reflecting the change of $25,100 are in error (carried over from a previous calculation). The entry of $25,100 is corrected to $25,600. The correct entry was used for determining the totals of the Program Expenses section, so the totals remain unchanged.

Also, SEVP discovered that Table 12: FY 2009 SEVP Program Fees , line 4, in the proposed rule preamble, contained a typographical error by stating “190” for the I-901 SEVIS fee for most J-1 exchange visitors. The proposed rule included and discussed the correct “180” figure at several points in the document, including the proposed rule text, and no commenter expressed confusion over this proposed dollar amount.

The proposed text of 8 CFR 214.13 did not include the G-7 visa category, as required by law. SEVP expanded the final rule text to include paragraph (b)(1), which corrects this oversight by adding the G-7 category. This inclusion does not substantially change the intent of the proposed rule but reflects a well-established and nondiscretionary legal requirement.

An individual commenter asked how frequently the SEVP community should expect future fee adjustments. In the same vein, an advocacy group commented that the rule asserts DHS authority to revisit the fee every two years, describing this authority and the possible frequency of fee review as “drastic and sweeping.” Another comment suggested that a more business-like approach, sensitive to consumers, would have been to raise fees incrementally.

As stated in the NPRM, this is the first adjustment of fees based upon actual operational costs to the program implemented by SEVP since 2002. Due to the lapse in time and significant increase in operating costs for the program, SEVP had to propose, and now implement, a substantial fee increase to cover the actual operating costs of the program. ICE is required by law and Executive Order to review these fees on a biennial basis. 31 U.S.C. 902(a)(8). SEVP will continue to review its fees every two years and make future fee adjustments, as necessary, at more regular intervals consistent with the biennial review and in line with the commenters' suggestions.

Two individuals commented, without providing specific examples, that efficiencies in SEVP and DHS operations, as well as at DoS, could eliminate the need for fee increases. Similarly, one commenter observed that the Departments have not yet delivered promised efficiencies and should do so before raising fees.

SEVP is unable to respond to these comments because they are vague and fail to identify a means of achieving the supposed efficiencies. They also do not identify the Departments' alleged promised efficiencies. SEVP endorses streamlining and promoting efficiencies in its operations. This is one reason for creating the SEVIS II system, which will provide for more efficient processing and sharing of student data. SEVP disagrees that there remain significant unrecognized efficiencies attainable under the current program with the current fee levels. As described in the proposed rule, these adjusted fees are based on expanding program operating needs; including a need for the SEVIS II system and additional enforcement and liaison personnel to address the existing and expanding SEVP caseload. They are based on legal requirements, including the recertification program required by EBSVERA (8 U.S.C. 1762) and Homeland Security Presidential Directive-2 (HSPD-2) and are not susceptible to overall reduction or elimination by the program through leveraging additional efficiencies.

The largest volume of comments on the proposed rule voiced concern that the increase in the I-901 SEVIS fee would adversely affect U.S. competitiveness in the international market for foreign student enrollment and exchange visitor participation. Some commenters expanded this concern to emphasize the importance of foreign student enrollment and exchange visitor participation to the U.S. culture and economy. These comments, including a comment from a major advocacy group, suggested that SEVP seek alternative public funding sources. Some of the comments in this area asked if SEVP could decrease the burden on students by having the student fee paid incrementally, part before and part after visa issuance, to minimize the loss to those that do not receive visas.

SEVP fully appreciates the importance of foreign student and exchange visitor enrollment to the U.S. culture and economy, and is firmly committed to lawful visitation of foreign nationals for this purpose. This is reflected in recent enrollment data, which indicate that enrollment of F, M and J nonimmigrants at higher education institutions is at a historic high and does not indicate any demonstrable variance in overall U.S. market share in relation to other countries. 2

SEVP also observes that the comments neither cited to nor provided a published study or other data supporting the suggestion that an increase in government fees charged to international students adversely affects their decision to choose the United States for academic or vocational study, or exchange visits. SEVP, likewise, has been unable to locate such a study. The program thus has no objective basis for concluding that international students choose or reject attending education institutions in the United States based on government fees which, generally, are a very small portion of the overall costs of attending these programs.

Rather, SEVP research reveals that the fees currently required for all incoming F-1 students equates to similar fees charged in other countries. 3 An analysis of twelve countries (Australia, Canada, China, France, Germany, India, Japan, Russia, South Africa, Saudi Arabia, South Korea, and the United Kingdom) shows that the average student visa fee is $126.58. The composite U.S. cost, after the effective date of this rule, will be $330, which includes a visa processing fee of $130 and the $200 I-901 SEVIS fee. This fee is neither the most expensive nor the least expensive when compared with these twelve countries. In fact, Australia, cited by most commenters as the singular competitor of U.S. market share, currently charges nonimmigrant students a total of $450. The table below lists the fees charged by the twelve countries researched in the SEVP analysis.

There is also no objective evidence that this fee is the sole, or even the most important, criterion that a student might consider while weighing educational options. The increased I-901 SEVIS fee represents less than 1% of the average cost of yearly expenses for students in a four-year program, an amount that could easily be overshadowed by changes in international currency fluctuations or changes in school tuition amounts in foreign countries.

Perhaps more importantly, the United States features types of education, such as community colleges and focused vocational educational programs of study that are unique in the world. The United States offers courses of study, specializations in content, and programs that cannot be found anywhere else. Noted research facilities, the majority of which continue to be dominated by American entities, provide opportunities for advanced research and collaboration among an increasingly international community of scholars. Given the many variables that go into a decision to study abroad, and the lack of validated data on this issue, there is no basis to conclude that United States government fees ultimately persuade a student or exchange visitor not to attend a school in this country. SEVP, consequently, cannot conclude at this time that an increase in the I-901 SEVIS fee is directly or even indirectly related to a decrease in U.S. competitiveness for international students and exchange visitors.

But even if a rise in the cost to F and M students and J exchange visitors were to cause a reduction in the demand by foreign students or exchange visitors for U.S. educational or exchange opportunities, that point would not alter this rulemaking. Current law requires that DHS and DoS recoup the full costs of administering the programs that manage F, M and J nonimmigrants from those who benefit from it. DHS may not reduce its fees based on a desire to attract a greater number of aliens to the program.

With respect to the suggestion of some commenters that students pay SEVP fees incrementally, SEVP cannot implement such a payment system at this time due to the additional administrative burden and development costs such an incremental payment system would place on the program, but will continue to study the idea.

One commenter observed that DHS, including SEVP, tends to institute new requirements for schools and students before either data systems or program policy have been sufficiently developed to support them and that, subsequently, an inordinate amount of effort is expended on “work-around” procedures and data fixes. The observer sought assurance that SEVP will have a concrete plan to avoid premature deployment of SEVIS II and to augment policy and helpdesk staffing to support anticipated need for problem resolution. Another comment asked how SEVIS users will transition from SEVIS I to SEVIS II and how new functionalities in SEVIS II will be introduced.

SEVP is committed to providing the planning and support necessary to make SEVIS II implementation a success. SEVP has already started to engage with its stakeholders and expects to continue to engage in a major outreach initiative for the SEVIS II rollout, including but not limited to, meetings, brochures, e-newsletters, and Web site postings.

A commenter suggested that, with SEVIS II a year and a half from activation, it would be very helpful if SEVP would establish a Web-based ability for students to self-report. SEVP acknowledges the value of such an innovation and will take the consideration under advisement.

A commenter requested that schools be given the ability in SEVIS to print-out draft Forms I-17 for review prior to submission. It is not likely such an enhancement will be made to SEVIS I, but SEVP will maintain the request as a suggested system requirement for SEVIS II.

A commenter reported instances of erroneous data appearing in the CBP port of entry data systems when compared with SEVIS information on the applicable J-1 exchange visitors that was verified to be correct. This comment is outside the scope of this rule.

A commenter noted instances when students' visa and passport numbers were identical in SEVIS. Data fixes were requested but were not completed. SEVP appreciates comments regarding its systems and will note and investigate to determine whether a data fix can be made to resolve such a problem.

A commenter noted degraded responsiveness in SEVIS during peak times during the recent optional practical training (OPT) validation. SEVP acknowledges that response time can be adversely affected by circumstances beyond its control.

Commenters included SEVP stakeholders who had participated in SEVIS II development meetings held by SEVP in Washington D.C. last summer, at which they identified several requested system requirements for SEVIS II. They commended SEVP on the inclusion of all user communities in SEVIS II development.

Two commenters questioned whether SEVIS II becoming “paperless,” as proposed, is a realistic expectation and whether this paperless process is a move away from faxing. SEVIS II is certainly a move away from faxing. SEVP anticipates that, with improved access to data systems, and with the incorporation of electronic signature capability and availability of biometric information coming in the near future, U.S. government processes related to F, M and J nonimmigrants will become paperless. For example, in SEVIS II the DSO will electronically sign the equivalent to the Form I-20, Certificate of Eligibility for Nonimmigrant Student Status. SEVIS II will be paperless in implementing its processes but will also have the ability to generate paper forms. As needs are identified by State and local governments and the private sector, SEVP will consider modifying the format and content of paper Forms I-20 to better serve their processes.

Another commenter asked how SEVIS II paperless processes will interact with the requirements of the Real ID Act of 2005. We understand that students and exchange visitors are likely to need paper documentation of their F, M or J status in the United States to obtain driver's licenses, establish bank accounts and other similar activities. As discussed above, SEVIS II will allow for the generation of paper forms as needed by students and exchange visitors. As the States move forward developing their processes for verifying documents presented by individuals seeking REAL ID-compliant driver's licenses or identification cards as required under the REAL ID Act  5 and DHS REAL ID regulations, DHS will work with the States to ensure that DMVs are able to verify the immigration status of foreign students and exchange visitors through DHS's Systematic Alien Verification for Entitlements program (SAVE). 6

A commenter asked how a Form I-20 generated out of SEVIS II for identification purposes will meet State DMV and/or Social Security Administration (SSA) requirements that necessitate the form having a port of entry stamp. This comment points to a training problem and not a SEVIS II data system concern. While some port of entry officials stamp Forms I-20 as a courtesy, there is no requirement for them to do so. A related misconception is the expectation that Forms I-94, Arrival/Departure Record, will be stamped. Forms I-94 should be stamped when their issuance is related to entry into the United States. Forms I-94 issued in conjunction with approval of a benefit are not stamped. SEVP continues to conduct outreach among government agencies to correct areas of misinformation like these that negatively impact nonimmigrants.

Two commenters asked if Form I-290, Notice of Appeal or Motion, and USCIS Form I-134, Affidavit of Support Information, were being incorporated in the transition to paperless processes.

The Form I-290 will be entirely paperless. SEVP, with USCIS, is in the process of deciding whether the Form I-134 will be included in the paperless process.

A commenter asked if the elimination of paper Forms I-20 will extend to border commuter students. The answer is yes, the elimination of paper Forms I-20 will extend to border commuter students.

A few commenters asked about SEVP's efforts to improve SEVIS interface and interoperability with other government databases, in general. SEVP recognizes that the value of SEVIS to the United States, its citizens and the nonimmigrants it tracks is multiplied by increasing appropriate access to all potential, legitimate users. Since the inception of SEVP, the program has entered into agreements and developed interfaces with several governmental agencies. SEVIS currently interfaces with: Foreign Terrorist Task Tracking Force (FTTTF), U.S. Bank I-901, United States Visitor and Immigrant Status Indicator Technology (US-VISIT), CBP Arrival & Departure Information System (ADIS), USCIS Computer Linked Application Information Management System (CLAIMS), DoS Nonimmigrant Visa, and DoS Consular Consolidated Database (CCD). SEVP, through the U.S. Immigration and Customs Enforcement (ICE) Office of the Chief Information Officer, is currently brokering agreements for SEVIS II to interface with: Pay.gov —I-17, ICE—Business Compliance Enforcement—National Security Entry Exit Registration System (NSEERS), CBP Interagency Border Inspection System (IBIS), User Application Module (UAM)—single sign-on, Non-Immigrant Visa Interface (NIV) and the USCIS Verification Information System (VIS). The developing interface between SEVIS and VIS, the database of the SAVE program, will be a significant benefit. This interface alone will significantly relieve problem areas for nonimmigrants interacting with SSA and the State DMVs, or seeking authorized employment.

Two commenters asked if SEVIS II would ameliorate tracking problems USCIS seems to have in keeping up with student benefit petitions.

SEVP has an active partnership with USCIS and both agencies are strongly committed to developing the best possible interface between their tracking systems, SEVIS and CLAIMS. SEVP acknowledges room for improvement, but significant progress has been made.

A commenter observed that a lot of unnecessary enforcement actions are occurring because DHS and other government data systems do not adequately share information and interfaces do not always send the intended data. As discussed above, SEVP is fully aware of the importance of effective interfacing and places a high priority on improving and increasing interfaces with SEVIS II. The fees implemented by this final rule will, in part, be used to address these interfacing issues. In recognition of the current situation, SEVP has a staff member that serves as a full-time liaison with the ICE Compliance Enforcement Unit (CEU). When data anomalies are identified or there are indications that a student may have violated status, this individual is the first responder. Through search of the relevant data systems and telephone consultations with school officials, most of these concerns are resolved through a desk audit, requiring no further action. CEU investigators are assigned to follow up with that small number of situations that the liaison is unable to explain. Of these, greater than 70% result in finding substantive issues that warrant investigation. Again, SEVP will use a portion of the fees collected from this final rule to improve this system.

Commenters asked about their capability to extract information from SEVIS II, especially to support the Open Door census.

Enhancing the ability of SEVIS users to extract and use information from SEVIS was one of the biggest reasons SEVP sought SEVIS II, and will be a key purpose for which SEVP uses fees assessed by this rule. The new system will provide users additional history information on individuals and will vastly improve reporting and search functionality.

Several commenters asked about the impact of SEVIS II on J exchange visitor programs. An advocacy group suggested that J program interests have not been met in SEVIS development.

SEVP does not concur. Officials from DoS have had an active role in SEVIS development. Since the inception of SEVIS through SEVIS release 5.10, released in August 2008, 99 system upgrades (approximately one third of all system upgrades in that period) have been directed towards meeting exchange visitor program needs. Of these, twenty-five percent of the upgrades dealt directly with refining the redesignation process. Regarding SEVIS II, of the more than 1,300 functional requirements that were developed from stakeholder input, including input from the DoS and exchange visitor program sponsors, approximately 416 are exclusively for use by the exchange visitor community. Among the remaining system requirements, approximately fifty percent are shared commonly by the F, M and J visa categories. Academic representatives from the exchange visitor program sponsors were involved from the beginning of SEVIS II development and some of these individuals made particular note of the significant improvements they had observed and of the high level of interagency cooperation. As is reflected in the transcripts on the docket for this rulemaking, senior leadership and staff from DoS participated both during the development meetings that collected SEVIS II requirements and during the recent town hall meetings. While the specific needs of F, M and J schools and programs may differ, it has been a priority for SEVIS program developers to ensure that new capabilities are available to all SEVIS users. This rule, and the fees collected pursuant to the rule, will enhance the exchange visitor programs as well as F and M programs.

One commenter cited the significant cost to his school in modifying data systems to interface and support batch-feeding of data to SEVIS. He raised concern that SEVIS II would pass a similar, uncompensated cost on to schools and exchange visitor program sponsors.

SEVIS II is being designed to be fully compatible with SEVIS I and consistent with industry standards. All data currently in SEVIS will be migrated by SEVP into SEVIS II. Further, while changes in data requirements are a natural part of program evolution, there are very few added fields beyond those already in SEVIS. (Adding new fields, historically, has been the biggest recurring problem with batch interfaces.) As discussed in the proposed rule, SEVIS II enhancements are a key part of these fee increases, which are calculated to include conversion costs. Consequently, SEVP anticipates that any added costs to SEVIS users for conversion to SEVIS II will be negligible.

A commenter voiced concern that schools which rely on the feeding of data to SEVIS by batch do not have the flexibility that real-time interface (RTI) reliant schools have in responding to SEVP changes. The commenter noted that batch users must often use RTI procedures to be able to meet SEVP requirements. The commenter asked that SEVP be mindful of this in initiating changes.

SEVP will do so. Batch providers were invited to attend SEVIS II development workshops, at which they voiced concerns and provided insights into the amelioration of these concerns.

Commenters asked about SEVIS II's use of biometrics.

SEVIS II, scheduled for deployment in October 2009, will include a data field to record a biometric identifier ( i.e. , functional identification number: FIN) for nonimmigrant records. SEVIS II will, however, have no functions related to the acquisition or storage of biometric information. SEVP will have access to biometric information, as needed, and will incorporate the use of biometrics in its tracking processes. The costs related to these processes are included in the fees assessed by the rule.

Commenters also asked for a description of how a biometric identifier will impact recordkeeping processes and management.

The biometric identifier will be “person-centric,” meaning that it will remain with the person for life whenever they seek entry into the United States or seek immigration related benefits. The SEVIS identifier is a record of a particular period of time that an individual has been in F, M or J status. The biometric identifier will tie all SEVIS identifiers to an individual. This will enable government, school officials or exchange visitor program sponsors to see all pertinent information on a nonimmigrant in deciding whether or not to grant benefits or accept that individual for enrollment. For example, if a student is terminated at one school and chooses to seek reinstatement “by travel,” the CBP inspector will see the previous termination and assess the situation in more depth than for a normal “initial” student arriving for entry into the United States. A biometric identification will streamline all government systems. Currently these systems identify individuals through consistencies in personal identification information ( e.g. , name, birth date, address). These fields are subject to mistakes, such as entry errors and variations in spelling, and are often difficult to match from one system to another. By having access to the common biometric identifier, government users can bypass less reliable search fields and can readily identify and correct data mistakes. As discussed in the proposed rule, funding these types of enhancements are part of the purpose of these increased fee assessments.

A commenter asked if the biometric identifier and its ability to connect an individual's SEVIS records will have any impact on the payment of the I-901 SEVIS fee when a student decides to reinstate by travel.

The answer is no. If a student is out of status and seeks to return to status by leaving the United States and re-entering, he or she must pay the I-901 SEVIS fee.

A commenter questioned the legal authority of using the I-901 SEVIS fee to support hiring of enforcement officers, suggesting they should be funded by appropriated monies.

As was discussed in the proposed rule, 8 U.S.C. 1372(e)(4)(A), (g)(2), 8 U.S.C. 1372(e)(4)(B) and 8 U.S.C. 1356(m) provide the Secretary with authority to establish, revise, collect, retain and expend fees to operate SEVP. This authority provides that fees be set at a level that will ensure recovery of the full costs of providing all services for the program. The full cost concept addresses the activities associated with the continuum of providing services under the program, from accepting applications, to developing policy, to enforcement of program regulations and associated laws. Full cost includes the direct and indirect costs to any part of the federal government of providing a good, resource, or service and these costs include, but are not limited to, an appropriate share of direct and indirect personnel costs, including salaries and fringe benefits such as medical insurance and retirement; physical overhead, consulting, and other indirect costs including material and supply costs, utilities, insurance, travel, and rents or imputed rents on land, buildings, and equipment; the management and supervisory costs; and the costs of enforcement, collection, research, establishment of standards, and regulation. See OMB Circular A-25, User Charges (revised), section 6(d)(1). As such, “enforcement costs” are part of a continuum of program services and are to be considered as part of the full cost of program services chargeable as user fees.

In addition, SEVP currently funds only 79 CEU personnel. ICE is spending much more than 79 agent full-time hours investigating school and student issues. There are hundreds of issues and cases that arise in SEVIS and in the student and academic institution area. Those are categorized by high, medium and low risk cases. Currently, the 79 positions SEVP funds do not cover all of the cases identified as the high risk cases, much less all cases. The additional 155 positions funded by this rule are meant to close this gap.

A commenter questioned whether the increased funding for CEU personnel would result in the hiring of employees with greater specialized knowledge and training, observing that some investigators seem to have very little knowledge of school and/or student requirements.

SEVP does intend to use this increased funding to hire additional CEU personnel and to support specialized training for CEU personnel related to SEVP-certified schools, DoS exchange visitor sponsors and F, M and J nonimmigrants. Federal law enforcement officers receive extensive, standardized training at the Federal Law Enforcement Training Facility (FLETC) in Glynco, Georgia. SEVP continues to work with the appropriate authorities within ICE and at FLETC to provide training content for this curriculum. SEVP also intends to hire liaisons whose duties will include collateral support of CEU investigators. This should further help CEU personnel understand school and exchange visitor sponsor, as well as student and exchange visitor requirements.

One commenter nominated a person to become an SEVP liaison. SEVP does not accept nominations for SEVP liaison positions, but urges interested individuals to monitor www.usajobs.opm.gov for vacancy announcements related to these and other SEVP positions.

More than one commenter noted a general lack of knowledge in both DHS and DoS about the structure of higher education, particularly the unique needs of research facilities and the critical importance of not impeding foreign scholar participation in their programs. These commenters cited examples of misunderstanding about the applicability of accreditation to research facilities seeking redesignation or recertification and at least one comment pointed to a research institute that is having difficulty becoming accredited because there are no qualified U.S. candidates for enrollment and accreditation requires that the program be previously in operation. (Redesignation by DoS requires accreditation. SEVP certification requires the program to have been previously in operation.) Hope was raised that the SEVP liaisons would overcome this knowledge shortcoming.

SEVP appreciates these observations and will follow-up with the commenters. A “provisional certification” status is under consideration by SEVP but will not be implemented with this rule due to the additional cost and administrative burden related to establishing such a program.

A commenter asked if SEVP liaisons would be able to assist schools and students in determining the status of benefit applications pending with USCIS. SEVP is taking this suggestion under consideration and will discuss it with USCIS representatives.

An advocacy group and a concurring commenter feel the need for liaisons is created by SEVIS requirements being “cumbersome and complicated.”

SEVP disagrees and notes that no such comments were received in the nationwide town hall meetings. To the contrary, the introduction of liaison support was received enthusiastically. As discussed in the proposed rule, liaison activity will be much more than mere troubleshooting, but will also provide timely information regarding program enhancements, support CEU activities and offer greater feedback to SEVP on positive and negative user comments and suggestions. Simply making SEVIS more user friendly, which is a key goal of SEVIS II, would not eliminate the need for liaisons.

One commenter asked why the $35 fee for au pairs, camp counselors, and summer work/travel programs was not included in the funding increase.

Congress established the $35 fee for au pairs, camp counselors and summer work/travel program participants by law and did not provide a similar set fee for other categories of the J-visa for exchange visitors. 8 U.S.C. 1372(e)(4)(A). This indicates a strong Congressional intent that the fee for au pairs, camp counselors and summer work/travel programs remain set at $35. Thus, SEVP did not adjust that fee.

Several commenters voiced concern about the negative impact of the increased fee on all F, M and J nonimmigrants, but particularly on students and exchange visitors in short-term status or individuals with limited means ( e.g. , teachers and high school students; those from poor countries; language study). Commenters asked if SEVP could establish a lower fee for particular groups through regulation suggesting, for example, a tiered fee of $35 for exchange visitor programs currently identified and for F/M programs of study six months or less in duration; $200 fee for F/M programs more than six months; $180 for exchange visitor programs other than government sponsored. In a similar request other comments, including those from two major advocacy groups, expressed support for the SEVP initiative furthering the institution of a short-term visa category. In fact, over 250 participants at a May 28, 2008, town hall forum at the NAFSA national conference were supportive of this idea.

SEVP cannot establish a lower fee as requested. As discussed above and in the proposed rule in relation to OMB Circular A-25, User Charges (revised), applicable laws, regulations and directives prohibit SEVP from establishing fees below program costs. Any preference given by SEVP to a select group would result in a penalty to the participants at large. By allowing a select group the same benefit as others in the population at a fee below cost, the fee for the majority of the population must increase in order to fully cover program costs. SEVP has reviewed its program costs for processing students in short-term status versus those in long-term status and can find no basis for charging a lower fee for students on short-term status. The government would also incur additional administrative costs associated with separate processing of these fees. Accordingly, and as was discussed in the town hall meetings, SEVP is constrained at this time to charge a single set fee for each individual group.

A commenter noted that most scholarships and assistance given to students of limited means is directed to costs after the student enters the United States and that, consequently, the various government fees can pose an insurmountable burden on a student since they are levied before entry and, generally, not compensated.

Although SEVP appreciates identification of this problem, government agencies must collect fees at the time services are provided. We welcome further input from students and schools at SEVIS.Source@dhs.gov as to how they handle this situation.

One commenter questioned the timing for implementation of the rule.

SEVP timed implementation of the final rule for October 1, 2008, the beginning of fiscal year 2009. This is the date when the student enrollment is completed for the largest population; therefore, the fewest number of students will be involved in initiation of the new fee levels. By implementing the fee for the beginning of the government fiscal year, SEVP is able to better simplify and reduce costs related to government accounting. Further, as noted in the NPRM and this final rule, SEVP has been underfunded for many years since the program has not implemented a fee increase for several years. By implementing the fees at the start of SEVP's fiscal year, the program funding will be better aligned with its budgetary and operational needs for the full fiscal year and thus allow SEVP to better serve its constituents.

A commenter noted that it was unclear in the proposed text for 8 CFR 214.3(h)(2) whether or not schools must submit a fee for recertification.

SEVP appreciates the observation and has clarified the text accordingly, inserting final rule text at 8 CFR 214.4(a)(1) and 8 CFR 214.4(h) that expressly provides that no fee is required with appeals related to SEVP certification, recertification or withdrawal of SEVP certification.

Two commenters, including a high school administrator, suggested that the increased SEVP certification fee may be a disincentive to small schools to seek certification and cited the cultural value of international students in these settings. SEVP appreciates and agrees with the observation of the cultural value of having international students in all settings. SEVP does not have the authority, however, to identify and designate specific groups of schools for a lower fee because its costs are not lower for small schools. SEVP welcomes any additional suggestions for potentially decreasing burdens on small businesses.

A commenter from an SEVP-certified school observed that the $655 site visit fee would cut into its programming funds.

The site-visit fee pertains only to initial SEVP certification (or initial events, such as approving a new location or campus). Should a school require an on-site review as a part of an out-of-cycle review or recertification, the expense of that visit will be borne by SEVP as part of its compliance funding. Accordingly, SEVP anticipates that the site visit fee will have minimal impact on programming funds for certified schools.

A professional association and an advocacy group comment that fee assessments should be limited to visa application costs, and that costs related to national security and anti-fraud are benefits to the public that should be borne by appropriated, taxpayer funds. Another advocacy group commented that, beyond visa application costs, SEVP legal authorities allow for data collection, but not for assessment of enforcement costs.

SEVP agrees in part and disagrees in part with these comments. SEVP agrees that agency fees cannot be charged based upon perceived furthering of public policy goals if those fees are unrelated to a specific service provided by the agency to an identifiable recipient. If, however, the agency does confer a specific benefit upon an identifiable beneficiary, then the fact that the service may incidentally confer a benefit upon the general public as well does not preclude assessing a user fee. See, e.g., Seafarers International Union of North America v. United States Coast Guard, 81 F.3d 179, 184 (DC Cir. 1996) (interpreting Coast Guard user fees established under the Independent Offices Appropriations Act); quoting Engine Manufacturers Ass'n v. EPA, 20 F.3d 1177, 1180 (DC Cir. 1994).

The direct benefits of the SEVP program inure to F and M students and J exchange visitors. The benefit conferred is admission into and lawful presence in the United States, which permits F and M students, and J exchange visitors to receive academic, vocational and exchange opportunities and experiences not enjoyed by the public-at-large. SEVP enforcement activities create public confidence and consistency within the program which perpetuates and enables these visa categories for the direct benefit of F and M students, and J exchange visitors. Homeland security and anti-fraud benefits are incidental public benefits of the program. These incidental public benefits do not diminish SEVP's authority to assess fees against identifiable beneficiaries.

In addition, as discussed above, 8 U.S.C. 1372 and 8 U.S.C. 1356(m), authorize a full range of SEVP program activities and collection of fees related thereto, and not merely data collection. Use of the I-901 SEVIS fee to fund the activities of additional enforcement officers to perform these activities is thus authorized under 8 U.S.C. 1372(e)(4)(A), (g)(2), 8 U.S.C. 1372(e)(4)(B) and 8 U.S.C. 1356(m). Pursuant to OMB Circular A-25, User Fees (revised), Section 6(d)(1), “enforcement costs” are part of a continuum of program services that must be included as part of the full cost of program services when assessing user fees. Accordingly, inclusion of these costs within the full cost of the program is appropriate and congruent with the full cost concept as outlined in federal cost accounting guidance, federal policy for user charges and legal precedent.

Another advocacy group commented that charging J visa holders for enforcement costs of DHS is redundant, since DoS has its own compliance unit, and “beyond the mandate of the rule.”

SEVP does not concur. DHS is mandated by the INA to enforce immigration law for all nonimmigrants and has done so historically for all nonimmigrant populations, including the J visa category. The compliance unit at DoS reviews DoS designated sponsors for their statutory and regulatory compliance—not the immigration-related violations of exchange visitors. The law enforcement programs of DHS and DoS are separate and distinct, not redundant.

A few participants in the town hall meetings had questions about submitting updates to school information. Individuals should address additional questions about submitting these updates to SEVIS.source@dhs.gov. As stated at the forums and as presented at numerous conferences over the last several months, it is important that school updates be timely. Updates to this information are the single most beneficial step most schools can take to prepare for recertification.

Two comments, respectively, questioned whether electronic notices and communications meet due process requirements and whether schools would need to obtain software to transmit electronic signatures.

Various laws, rules and regulations govern the use of electronic systems in relation to the provision of government services, and permit and encourage government agencies to use electronic notices. As such, these processes have been found to satisfy due process requirements. SEVP, as a program, and SEVIS, as a Web-based data platform, are inherently reliant on electronic communication. For this reason, notices and alerts are sent to multiple addressees, as listed on the school's Form I-17. Capability to submit electronic signatures will be a SEVIS II design feature.

Several commenters, including three advocacy groups, opposed the proposed text on recordkeeping, retention and reporting as establishing new and unnecessary requirements.

SEVP has deleted rule text in response to these comments. Specifically, SEVP proposed a new requirement at 8 CFR 214.3(g)(1)(xi) that the DSOs enter “date of last entry into the United States; most recent Form I-94 number and date of issue,” into SEVIS, items which are normally entered through SEVIS interface with the CBP ADIS database. This interface is not yet fully reliable and many DSOs have found that inputting this arrival information, like keeping copies of Forms I-20, can be useful in helping students expedite benefit applications. Keeping this information is not required, however, and the final rule deletes proposed 8 CFR 214.3(g)(1)(xi). Other SEVIS entries in the regulatory text are not new, but have been clarified with this rule.

One commenter suggested that, because SEVIS is the only tracking system of its kind, it is subject to misuse and overuse.

SEVP does not concur and views the proper use of SEVIS very differently. SEVP is obligated to U.S. taxpayers to maximize the effective utilization of the data it collects. SEVP thus seeks every opportunity to share SEVIS data with appropriate, authorized users not only for law enforcement purposes, but also to facilitate validation of benefit eligibility. This sharing benefits F, M and J nonimmigrants by providing more efficient delivery of benefits from various agencies of the federal government.

An individual commented that SEVP needs to make better use of the data it has in SEVIS.

While the comment did not provide sufficient detail to prompt a response, SEVP concurs and is committed to developing data-driven management and compliance processes.

A commenter asked whether records review procedures require hard copy. Not necessarily; records review will be of the system that is in place at the school, electronic or hard copy.

A commenter asked for clarification that the “unabridged academic history of the student at the institution” refers to the institution's primary student recordkeeping system, not a duplication of that system. Several commenters presumed that SEVP was proposing duplication of records. SEVP has edited the final rule text in response to these comments. The proposed text for 8 CFR 214.3(g)(1) Student Records is amended by adding, after the first sentence: “Student information not required for entry in SEVIS may be kept in the school's student system of records, but must be accessible to DSOs.” This clarification should eliminate any unintended presumption about duplication of records.

Several commenters also questioned why DHS needed the information introduced in 8 CFR 214.3(g)(1)(iv) and thought SEVP was trying to do the job of the schools. As many commenters noted, the items introduced in 8 CFR 214.3(g)(1)(iv) are already included in the recordkeeping processes and systems of most bona fide institutions, and many institutions go well beyond these requirements. SEVP has identified these as minimums that a bona fide school should maintain in order to set a standard for compliance. The absence of effective recordkeeping is a strong indicator that an institution is not suited for SEVP certification ( i.e. , DSOs must be able to explain how they obtain this information, which is essential to determining that a student is maintaining status).

A commenter noted that their school records policy did not require transcripts with as much information as required by this rule for transcripts received from a transfer-out school ( e.g. , course numbers and credits are required but grades are not).

SEVP responds that the institution must be able to demonstrate how it determined that the student was eligible and met its requirements for transfer to their institution. This may not be as extensive as the records required by the institution that conferred the credits.

One privacy advocate voiced privacy concerns with respect to DHS access to student records.

SEVP is diligent in its compliance with individual privacy protections. Examination of student records as part of an institution's audit is done solely in support of that audit. Record access is strictly limited to appropriate authorized users. SEVP policy on privacy issues is codified in the SEVP Privacy Information Assessment (PIA), available on its Web site.

Several comments questioned the need for extending the student records retention requirement from one to three years.

SEVP responds that this is necessary to support the two-year recertification cycle and is consistent with the current exchange visitor program standard. Most schools and many states have much more stringent records retention schedules.

Similarly, a commenter asked how the extended records retention requirement will be implemented.

The requirement begins with implementation of this rule and is not retroactive ( i.e. , if a school's records were reviewed on that day, the reviewer could not require records from further back than the current requirement of one year).

A comment noted the need for improved entry and exit data in SEVIS and observed that the rule makes no mention of this in the recordkeeping section.

SEVP strongly concurs on the importance of this information. This information is received from other DHS agencies and points to a recognized need to improve the SEVIS interface with their systems, which is a key goal of SEVIS II, as funded by this final rule.

An advocacy group suggested that the rule unnecessarily broadens records access beyond SEVP to include DHS.

The statutes authorizing this rule and establishing DHS, including 8 U.S.C. 1372 and the Homeland Security Act of 2002, Public Law 107-296 (November 25, 2002), section 102(b), permit the Secretary of Homeland Security, in his discretion, to exercise these authorities utilizing the various DHS resources at his disposal. Moreover, blocking records access to other components of DHS would run directly counter to the lessons our Nation learned after 9/11. See, e.g., The 9/11 Commission Report at pp. 416-19.

An advocacy group and a commenter stated that the proposed text at 8 CFR 214.3(g)(2)(ii)(E), requiring a school to respond to a notification request by DHS, is overly broad and that the existing regulation limits such a request to SEVIS.

SEVP does not concur. The replacement of “SEVIS” in this text updates the context of the existing regulation. Since the current text was approved (67 FR 76256, December 11, 2002), DHS instituted SEVP to administer SEVIS. SEVIS, being a database, can only distribute notification requests from SEVP. However, SEVP exists to support the DHS enforcement agencies in tracking F, M and J nonimmigrants. SEVP investigatory activities are limited and, as warranted, result in a hand-off to more extensive investigation by other DHS agencies, highlighting the transition from internal compliance related activities to law enforcement activities that can only be rendered by those immigration officers so authorized. The text, consistent also with 8 CFR 214.3(g)(1), facilitates cooperation between SEVP-certified schools and DHS. Notification requests from these agencies may come outside of SEVIS. Just as SEVP is limited in its information collection by law, these enforcement agencies have laws restricting their information collection. Any request for information from these agencies will be governed by the laws that apply to them respectively.

An advocacy group commented that the use of the term “student,” rather than “students,” to describe reporting requirements limits DHS to requiring reports on just individuals, not groups.

SEVP does not concur. As is consistent with SEVP past practice, the term “student” is expansive of individual students and/or larger populations of students depending on the nature of the reporting request.

An advocacy group questions DHS and SEVP authority to conduct validation studies.

SEVP does not concur. On-going validation of certified schools is inherent in the out-of-cycle and recertification processes. Validation studies are one of many administrative tools that SEVP uses to ensure that issues are identified and corrected before they become problems. SEVIS data are examined through a variety of filters to determine whether issues exist across and among schools. Only when data cannot be verified through existing information does SEVP ask schools to validate information, reducing the burden on their reporting. SEVIS II will enhance this capability for SEVP, further eliminating the burden on schools.

A commenter asked for clarification of proposed text in 214.3(g)(2)(iii)(D), regarding factors impacting the adjustment of program completion dates.

SEVP has changed the rule text in response to this comment by adding examples in parentheses. The proposed text for 8 CFR 214.3(g)(2)(iii)(D) Adjustment to the program completion date is amended and clarified to read: “Any factors that influence the student's progress toward program completion ( e.g. , deferred attendance, authorized drop below, program extension) must be reflected by making an adjustment updating the program completion date.” This clarification should resolve any misunderstanding regarding factors impacting the adjustment of program completion dates.

A commenter suggested that CFR text giving records and information access to DHS representatives be limited to ICE representatives, since they are specifically tasked with student tracking and compliance.

SEVP disagrees. While this reflects the current practice, agencies and tasking within DHS are subject to realignment at the Secretary's discretion. SEVP appreciates the suggestion, but concludes that “DHS” appropriately encompasses all possibilities and reflects the legal authorities underpinning the program and the operation of the DHS.

A few commenters asked about possible future innovations enabling F, M and J nonimmigrants to access SEVIS data.

SEVP appreciates the comment and will explore these possibilities.

Several commenters asked if, as interfaces with other data systems and SEVIS increase and become more reliable, mistakes from other systems couldn't be corrected electronically by DSOs ( e.g. , Form I-94 errors with CBP and SAVE errors, as they affect Social Security and DMV applications). The current priority with systems interfaces is on accurate and complete data sharing. It is reasonable to assume that upgrading data integrity along the lines of the comments will be considered and is one of the reasons for the fee increases implemented by this rule.

An advocacy group and a commenter supported the requirement of accreditation for SEVP certification.

SEVP acknowledges the value of accreditation as an indicator of institution bona fides and compliance, but also has excellent experience with many non-accredited schools. For non-accredited schools, the SEVP School Certification Branch has instituted and continually refines measures of school bona fides “in lieu” of accreditation.

A commenter requested amplification of the “basic competencies for DSOs” that the site visit seeks to promote.

SEVP responds that unlike the majority of schools already certified in SEVIS that have extensive experience and knowledge with enrolling F and/or M nonimmigrants, schools seeking initial SEVP certification today lack a similar background. In compliance with SEVP requirements and support of these students, however, these schools must be held to the same standard as all other SEVP-certified schools. In recognition of this, SEVP views the on-site visit for initial certification as an outreach instrument, an opportunity for intensive training and familiarization. While details of this outreach are evolving, they include but are not limited to the following topics: maneuvering in SEVIS; becoming aware of pertinent regulations and where to find them; complying with recordkeeping, retention and reporting requirements; Internet resources; and contingency planning. These are potential uses for the fees generated by this rule.

Three comments requested that SEVP better define what a campus is and what is required of schools when a campus is added ( e.g. , when is a fee required).

SEVP agrees with the comments but does not intend to make this clarification in this rule. SEVP, in the meantime, provides individualized guidance to schools on this issue. SEVP intends to propose a rule amending 8 CFR 214.3 to be in place when recertification begins and anticipates addressing this issue in more detail in that rulemaking.

A commenter asked how SEVP will determine the order in which schools will become eligible for recertification.

A few factors that come into consideration in determining the order in which schools will become eligible for recertification include, but are not limited to: the amount of time since the school's previous certification; the anticipated processing time for the school ( e.g. , non-accredited schools take longer than accredited schools); whether the school is of special interest, either by type of school or compliance questions; and the anticipated School Certification Branch (SCB) workload. The order of processing will be chosen to create a balanced workload.

A commenter asked if recertification could be every five years, instead of every two years.

SEVP cannot implement this proposal because two-year certification is mandated under EBSVERA and HSPD-2. With out-of-cycle review on-going and continuous from the time of initial certification forward, the frequency of recertification should be less of a concern to schools. SEVP intends that noncompliance be identified as soon as possible after its occurrence and appropriate action be taken immediately. As the proposed rule describes, recertification is an affirmation of performance, not the reopening of a school's file for the first time.

An advocacy group commented that institutions should not be charged for enforcement costs related to certification and recertification. SEVP notes, as was presented in the proposed rule, fees charged to institutions for certification and certification site visits are not used for enforcement costs. As described in the NPRM, these costs are covered by other fees.

One comment asked about the reasoning for reviewing DSO compliance even when a DSO is no longer employed by the school. SEVP responds that an employer ( i.e. , school) is responsible for oversight of all of its employees and the consequences of their actions. Termination of employment, in and of itself, does not absolve the employer of that responsibility.

A commenter asked for more detail about text stating that institutions must have adequate qualified personnel to perform DSO responsibilities.

SEVP has decided to leave this as an area of institutional discretion for the moment. Larger schools have asked if the limit of ten DSOs at a campus could be increased and/or if an associate DSO position, with no advisory role but ability to enter data, couldn't be established. SEVP is actively considering both of these recommendations. Some schools have appointed senior management, whose primary functions do not relate to providing service to students, as DSOs. SEVP discourages this practice. Smaller schools have, on occasion, appointed only one DSO. This makes full-time and continuous adequate service of foreign students nearly impossible.

A commenter asked what will be the focus of recertification.

Recertification will focus primarily on how well a school updates records on school information and student records. For schools that are not accredited, bona fides will need to be reconfirmed with documentation “in lieu of accreditation.” SEVP will develop and send schools guidance on the submission of petitions along with their notification that entering the six-month period of eligibility to submit a recertification petition.

A commenter asked if SEVP-certified schools for public school (grades 9-12) and private school (grades kindergarten-12) in a district or system could file for recertification with a single petition.

SEVP responds that, yes, these schools may file for recertification with a single petition.

A commenter asked if an institution with more than one SEVIS identifier ( i.e. , a number for the main campus and each other campus) could file for recertification with a single petition.

SEVP responds that, yes, this is permitted.

Commenters were unclear about the distinction between on-site visits and on-site reviews.

As stated during the town hall meetings, few schools would receive an on-site review during SEVP recertification. On-site review in recertification is distinguished from an on-site visit given during initial certification. The purposes of an on-site visit include confirmation of a school's eligibility for SEVP certification, promoting basic competencies for DSOs, and providing outreach to better familiarize the school with the roles and responsibilities that come with the benefit of SEVP certification. The purpose of an on-site review is, generally, to address compliance. While a few random on-site reviews may be conducted to maintain a performance baseline for all schools and to explore potential performance benchmarks, the primary reason an on-site review is conducted is to resolve questions or concerns about school performance. Optional visits to schools by SEVP personnel prior to the implementation of the liaison program will be available within SEVP resource constraints and by invitation from the school. To offset operational limitations in providing these visits, comprehensive resources on recertification will be provided on the SEVP Web site.

A few comments included questions on fees related to on-site visits and on-site reviews.

For initial SEVP certification petitions, a petition fee ($1,700) is required for each institution and an on-site visit fee ($655) is required for each campus. School systems (limited to public schools grades 9-12, private schools grades K-12) require a petition fee and a single on-site visit fee. SEVP-certified institutions that have a change of ownership must pay a petition fee. SEVP-certified institutions seeking approval for change of location must pay an on-site visit fee. SEVP-certified institutions seeking approval for a new campus must pay an on-site visit fee. No fee is charged of institutions either petitioning for recertification or selected to receive an on-site review.

One comment asked how accreditation might be a factor in determining selection of a school for on-site review. To the extent that accreditation provides an impartial affirmation of school bona fides and performance, it is less likely that an accredited school will receive an on-site review.

A few individual commenters and an advocacy group felt out-of-cycle review, as presented in the proposed rule, is too broad.

SEVP disagrees. At the simplest level, out-of-cycle review is nothing more than maintaining the data integrity of SEVIS, and describes a process that exists with all data systems. Changes are reviewed for accuracy and reasonableness. Most out-of-cycle reviews constitute nothing more than a desk audit conducted from the SEVP offices. For example, a routine update changing a zip code may result in SEVP asking other schools impacted by the change to update their information. This sort of audit is not invasive; rather, it is responsible.

An advocacy group commented that audits of schools for other than changes to SEVIS information identified as material should be delayed until recertification.

SEVP, again, does not concur. Compliance management requires resolution of anomalies in performance when they are identified and before potential problems escalate.

A commenter voiced concern about unscheduled and large data requests of schools from SEVP ( e.g., the validation study and OPT updating).

SEVP regrets the difficulties placed on schools by these requests and appreciates the patience and understanding of SEVIS users in explaining the obstacles they impose. As a maturing program, SEVP is committed to improving the administration of future requests and minimizing their frequency. SEVIS users should realize that their outstanding responsiveness on these requests is noted by key decision makers. Additionally, as SEVIS II is developed and implemented, SEVP looks forward to improved capability to validate SEVIS information through alternative means.

An individual commented that out-of-cycle review is a waste of SEVP and school time for compliant schools. SEVP is required to perform these out-of-cycle reviews for due diligence. SEVP's review also allows the program to monitor changes outside of the control of SEVP or the schools (for example, the zip code change referenced above).

One comment suggested that text describing the events that trigger out-of-cycle review should be qualified with “may.”

SEVP does not occur with this comment. Introduction of this text into the CFR only formalizes what has been published in the SEVIS User Manual and reviewed by SEVP for years. It clarifies language currently found at 8 CFR 214.3(e)(3) and parallels the explicitness that has to date only been found in operational instructions. Specifically, it identifies that SEVP conducts a desk review of each of these changes, determines what additional information is required, requests that information and then adjudicates the petition update. This is not an elective process that could be characterized by “may,” but a prescriptive process directed by current regulation. With many of these changes, a cursory review is adequate and little or no direct follow-up with the school is needed; the out-of-cycle review has been transparent to the school.

An individual commented that the time period should be extended from 10 to 30 days.

SEVP does not agree. Schools are required to keep school information in SEVIS current at all times. A request for an update of this information should require nothing more than a few moments of review and submission. Because this relates to SEVP-certified schools, supporting documentation requested pertains only to changes since certification. Presuming changes are submitted to SEVP timely, authorizing documentation for the changes should be readily available.

A commenter questioned whether all DSOs must be knowledgeable of regulations.

Yes, the individual certifies to knowledge of SEVP regulations when they sign the Form I-17 accepting appointment to become a DSO. SEVP is considering future personnel alignment ( e.g., positions with limited data entry access to accommodate school administrative processes) and will likely adjust knowledge and training needs accordingly to sustain role-related SEVIS responsibilities.

A commenter questioned the expectation that an individual be knowledgeable of regulatory requirements and SEVIS operation when first appointed as a DSO.

When first appointed as DSOs, individuals should have a basic knowledge of SEVP regulatory requirements and SEVIS operations. As a practical matter SEVP does not expect an entry level DSO to have detailed regulatory knowledge but the individual should be able to identify pertinent regulations and demonstrate where they can be found. SEVP has and is developing resources to assist new DSOs in getting up to speed as quickly as possible. PDSOs should anticipate the need for mentoring newly appointed DSOs to assist in bringing them up to an acceptable standard as quickly as possible.

A commenter asked what documentation must be submitted when a new DSO is appointed and who must sign the documentation.

SEVP responds that in addition to submitting the identification of newly appointed DSOs in SEVIS, the principal designated school official (PDSO) of an SEVP-certified institution must submit copies of the school's Form I-17 with the PDSO and new appointee signatures, as well as be able to provide documentation certifying that the new individual is a U.S. citizen or lawful permanent resident to SEVP.

A commenter recommended establishment of an alternate PDSO position.

SEVP appreciates this recommendation and is considering it as one of many recommendations in the realignment of personnel with SEVIS roles and SEVP responsibilities.

A commenter asked for clarification of the need for DSOs at locations other than the main campus.

If students can complete a program of study solely at the alternate location, that location is a campus and must meet DSO requirements. If students receive part of their program of study at an alternate location, but must receive the remainder at another campus that meets DSO requirements, this alternate location is a satellite facility and does not require DSOs. The underlying purpose of this regulation is to ensure proper monitoring of student activity and to provide counsel to students. If a school is uncertain of their need for DSOs, they should contact SEVP. Note that DSOs can serve on multiple campuses, as long as the institution can assure that DSO responsibilities are being met at each campus.

A commenter suggested that the text citing reasons for withdrawal of SEVP certification be expanded to include a “pattern” of such behavior, not limited to a single violation.

It is unclear, based on the comment, what would constitute a pattern and what threshold of violation would be permissible. SEVP believes the suggestion opens the regulation to ambiguity, and chooses to retain the proposed text.

A commenter noted that, as used in the proposed rule at 8 CFR 214.4(a)(2)(xix), the term “curriculum” was too broad and did not convey the intended meaning.

SEVP appreciates the recommendation and has modified the text accordingly with an explanatory parenthetical. Specifically, the proposed text for 8 CFR 214.4(a)(2)(xix) is amended to read as follows: “Failure of a DSO to notify SEVP of material changes, such as changes to the school's name, address, or curricular changes that represent material change to the scope of institution offerings ( e.g., addition of a program, class or course for which the school is issuing Forms I-20, but which does not have Form I-17 approval), as required by 8 CFR 214.3(f)(1).” Addition of this text clarifies the aspects of curriculum change that must be reported.

An individual commented that the I-901 SEVIS fee will be a deterrent to foreign student/exchange visitor participation and, subsequently, will place a strain on small to mid-sized educational institutions.

As is discussed above and in more detail in the Regulatory Flexibility Act section below, SEVP does not concur that the I-901 SEVIS fee will be a deterrent to foreign student/exchange visitor participation, nor does SEVP see a disproportionate impact on smaller schools.

DHS is amending regulations governing SEVP found in 8 CFR parts 103 and 214 to adjust the school certification fee and the application fee for nonimmigrants seeking to become academic (F visa) or vocational (M visa) students, or exchange visitors (J visa). The final rule will increase the fees for submitting a SEVP school certification petition to $1,700, plus $655 for each site visit; set the fee for each F or M student at $200; set the fee for most J exchange visitors at $180; and maintains the fee for J exchange visitors seeking admission as au pairs, camp counselors, and summer work/travel program participants at $35. In addition, this final rule will establish procedures for recertification of schools with F and/or M students. The rule will become effective October 1, 2008.

DHS recognizes that the final rule will result in economic impacts on F, M, and J nonimmigrants, as well as programs and schools seeking to become SEVP-certified or recertified. In this section of the final rule we will focus only on the economic impact of the regulation on small entities, as defined and required by the Regulatory Flexibility Act. 7 In addition, we will address significant comments submitted by the public on the economic analysis and the Initial Regulatory Flexibility Analysis (IRFA)  8 which accompanied the proposed rule. DHS has determined that the final rule amending the initial SEVP school certification fee and establishing procedures for recertification of schools with F and/or M students will not have a significant impact on a substantial number of small entities; therefore, a Final Regulatory Flexibility Analysis was not necessary. The factual basis for certification is presented in the following analysis of the economic effects of the final rule.

Currently, the fee for schools seeking initial certification is $230, plus a $350 fee for each campus receiving a site visit. These fees have not changed since 2002, prior to the reorganization of the INS into DHS. Both the processes and costs for adjudicating school petitions for initial certification have changed substantially since that time. SEVP is statutorily required to regularly review the fee level to ensure that the cost of services provided by the program are fully captured by fees assessed on those receiving the services. 9 The increased fee schedule set by this rule will recover the full cost of SEVP operations with fee-generated revenue, and align fees with currently planned costs and processes that have been redesigned and refined as the program has expanded over the years. Moreover, SEVP examined three alternatives to the rule, which are detailed in the economic analysis to the proposed rule, all of which were rejected because they did not accomplish stated goals of the regulation.

Accordingly, the final rule will increase the initial certification fee for schools seeking to admit F and/or M students to $1700, plus an additional fee of $655 per site visit. In addition, the final rule will set procedures by which SEVP-certified schools are recertified every two years. The cost burden to the schools associated with recertification entail the time and effort associated with filing the petition rather than direct monetary outlays. It is important to note that schools applying for SEVP certification and recertification are making a voluntary decision based on their desire to admit nonimmigrant students into their program. Likewise, schools that have already been SEVP-certified, but have no F and/or M students and no concrete plans to enroll any have little incentive to recertify. As such, the compliance requirements of this rule only affect those schools wishing to become SEVP-certified, or those that wish to maintain their approval to admit nonimmigrant students, by undergoing recertification.

SEVP conducted an analysis of the potential impact of the increased certification fee using data drawn from SEVIS in May 2007. All SEVP-certified schools self-report average enrollment and average tuition costs for students. Therefore, SEVP did not need to use publicly available information or use sampling to gather data on the finances of the type of schools applying for certification. The reported number of F and/or M students and the tuition costs per F and/or M student were used to estimate annual total tuition income. The tuition cost per student was determined by the data in the school's Form I-17, Petition for Approval of School for Attendance by Nonimmigrant Student, available in SEVIS.

While tuition revenue may underestimate the actual school revenue, this is the best information available. It is the most significant source of income for most schools and is a reasonable approach to measuring the impact of this fee rule.

As detailed in the economic analysis and IRFA to the proposed rule, SEVP developed a profile of schools applying for certification for the last three years using current SEVIS enrollment data. Based on this developed profile, SEVP projects that 700 new schools will certify annually. Of these, we expect about 575, or approximately 82% of the schools seeking certification in the future to be small schools by U.S. Small Business Administration (SBA) standards. 10 SBA's size standard for all schools, except flight schools and public high schools, is $6 million or less in annual receipts. The SBA small business definition for flight schools is $21.5 million or less in annual receipts. The analysis uses the definition of a small government jurisdiction as defined in the Regulatory Flexibility Analysis (RFA) to determine the small entity threshold of public high schools. Size classifications of SEVP-certified public school districts were determined using the figures from the National Center for Education Statistics on the Department of Education Web site. Schools in districts serving populations of 50,000 or less were designated as small schools for the purposes of this analysis.

Of the 575 small schools expected to apply for certification, only 47 are expected to have a compliance impact of 1% or more. That is, the certification fee is 1% or more of the total earnings of the school, as calculated by the tuition collected from F and/or M students. The 47 small schools comprise about 7% of all schools expected to certify annually, and about 8% of all small schools expected to certify annually. Table 1 provides the projected number of small schools at each level of impact.

As evidenced from the table above, the overwhelming majority, approximately 91.8%, of small schools expected to apply for certification will have compliance costs of less than 1% of their annual earnings. Furthermore, only 18 schools (about 3% of small school certification applicants) will have impact costs of 2% or more, and only 11 schools (about 2%) will have impact costs of 3% or more. Only 5 small schools (about 0.9%) are expected to have compliance impacts of 5% or more of their annual earnings.

The RFA requires agencies to address all significant public comments raised in regard to the expected economic impact of the regulation. SEVP received two comments directly referencing the economic impacts of the rule. One commenter expressed concern over the increase in the I-901 SEVIS fee, stating that the increased fee coupled with immigration laws would result in decreased enrollment among small to mid-sized educational institutions in the United States. While SEVP recognizes that the increased nonimmigrant student application fee will place an additional cost burden on those students wishing to study in the United States, we do not believe it will result in significant decreases in enrollment among U.S. small to mid-size educational institutions. Prior to implementing this rule, SEVP compared the new fee schedule for nonimmigrant students with that of our top 12 global competitors and discovered that the new fees would place the United States firmly in the upper-middle of this group. Furthermore, SEVP is under statutory requirement to regularly review and adjust fees collected so as to capture the true operating costs of the program. Another commenter expressed concern over the increase in the certification fee, and stated the increase is a disincentive for schools, especially small schools, to seek certification. Based on our review of current SEVP-certification schools, especially those classified as small entities, we have found that a significantly larger number of the schools certified since 2004 were small schools. In addition, we anticipate that the overwhelming majority (over 90%) of potential small schools applying for certification in the future will have compliance costs of 1% or less of the annual tuition earnings collected from nonimmigrant students. As such, we believe the increased school certification fee will not prove to be a major disincentive for those schools wishing to admit nonimmigrant students.

We did not receive public comments in opposition of our belief that the rule will not cause a significant economic impact to a substantial number of affected businesses, as stated in the analysis accompanying the proposed rule. In light of public comments received, combined with our analysis of the expected compliance costs impacts of certification, DHS certifies that this rule will not have a significant economic impact on a substantial number of small entities.

The Unfunded Mandates Reform Act of 1995 (UMRA) requires certain actions to be taken by an agency before “promulgation of any rule that includes any federal mandate that may result in the expenditure by State, Local and Tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more (adjusted annually for inflation) in any 1 year.” 2 U.S.C. 1532(a). This rulemaking is not a “Federal mandate,” as defined for UMRA purposes, 2 U.S.C. 658(6), as the payment of an SEVP certification fee by individuals, Local governments or other private sector entities is (to the extent it could be termed an enforceable duty) one that arises from participation in a voluntary federal program ( i.e., applying for status as F-1, F-3, M-1, or M-3 students or as J-1 exchange visitor in the United States or seeking approval from the United States for attendance by certain aliens seeking status as F-1, F-3, M-1 students). 2 U.S.C. 658(7)(A)(ii). Therefore, no actions were deemed necessary under the provisions of the UMRA.

This rulemaking is not a major rule, as defined by 5 U.S.C. 804, for purposes of Congressional review of agency rulemaking under the Small Business Regulatory Enforcement Act of 1996, Public Law 104-121. This rulemaking would not result in an annual effect on the economy of more than $100 million; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of U.S.-based companies to compete with foreign-based companies in domestic and export markets.

This proposed rule is not considered by DHS to be an economically significant regulatory action under Executive Order 12866, section 3(f), Regulatory Planning and Review, since it would not have an annual effect on the U.S. economy of $100 million. The implementation of this proposed rule would provide ICE with additional fee revenue of $58.538 million in FY 2009 and $62.581 million in FY 2010. It is, however, a significant rulemaking under the Executive order and therefore has been reviewed by OMB.

This rulemaking would not have substantial direct effects on the States, or on the relationship between the federal government and the States, or on the distribution of power and responsibilities among the various levels of government. Consequently, DHS has determined that this rulemaking does not have sufficient federalism implications to warrant the preparation of a federalism summary impact statement, in accordance with section 6 of Executive Order 13132.

This proposed rule meets the applicable standards set forth in 3(a) and 3(b)(2) of Executive Order 12988.

All Departments are required to submit to OMB for review and approval, any reporting or recordkeeping requirements inherent in a rule under the Paperwork Reduction Act of 1995, Public Law 104-13, 109 Stat. 163 (1995), 44 U.S.C. 3501, et seq. Schools will be using SEVIS to petition for recertification. The recertification process requires schools to input data into SEVIS, print the Form I-17 and sign the form. The electronic data captured for the Form I-17 have been previously approved for use by OMB as one component of the data captured in SEVIS. The OMB Control Number for this collection is 1615-0066 (changed to 1653-0038). With the implementation of SEVIS under 67 FR 60107 (September 25, 2002), most schools enrolled in SEVIS were petitioning for DHS recertification, rather than initial certification ( i.e., enrolling F or M nonimmigrant students for the first time). The workload for both certification and recertification was included under OMB 1615-0066.

The changes to the fees require changes to SEVIS and the I-901 software to reflect the updated fee amounts, as these systems generate the pertinent petition and application forms. SEVP would submit a revision to OMB with respect to any changes to existing information collection approvals.

In light of the ongoing dislocations in the financial markets, and the impact of such dislocations on the functioning of the markets for ABCP and on the operations of money market mutual funds, the Board of Governors of the Federal Reserve System adopted the ABCP Lending Facility on September 19, 2008. Under the ABCP Lending Facility, depository institutions and bank holding companies (banking organizations) are able to borrow from the Federal Reserve Bank of Boston on a nonrecourse basis on condition that the banking organizations use the proceeds of the Federal Reserve credit to purchase, at amortized cost, certain highly rated U.S. dollar-denominated ABCP from money market mutual funds. The ABCP purchased must be used to secure the borrowing from the Reserve Bank. The purpose of the ABCP Lending Facility is to assist money market mutual funds to obtain liquidity by enabling them to sell some of their high-credit-quality secured assets at amortized cost. The ABCP Lending Facility will expire on January 30, 2009.

National banks that participate in the ABCP Lending Facility must acquire and hold ABCP on their balance sheet. These ABCP holdings attract regulatory capital requirements under the OCC's regulatory capital guidelines and rules. 1 To facilitate the ABCP Lending Facility, and for the reasons discussed below, the OCC has adopted, on an interim final basis, an exemption from its risk-based capital guidelines for ABCP purchased by a national bank as a result of its participation in the facility. Specifically, the interim final rule amends the OCC's risk-based capital guidelines to permit national banks to assign a zero percent risk weight to ABCP purchased by the national bank as a result of its participation in the facility.

The OCC has determined that the current risk-based capital requirements for ABCP acquired by a national bank pursuant to the ABCP Lending Facility do not reflect the substantial protections provided to the bank by the Federal Reserve in connection with the facility. Because of the non-recourse nature of the Federal Reserve's credit extension to the banking organization, the bank is not exposed to the credit or market risk of the ABCP purchased by the bank and pledged to the Federal Reserve. Therefore, the OCC believes that it would be appropriate—and consistent with the economic substance of the transactions—not to impose risk-based capital requirements on a national bank that serves as an intermediary in the ABCP Lending Facility.

Consistent with generally accepted accounting principles, the OCC would expect national banks to report purchased ABCP as an investment security (for example, held-to-maturity). These assets would be reflected at the time of purchase at the national bank's best estimate of fair value. The nonrecourse nature of the transaction would impact the valuation of the liability to the Federal Reserve. After reflecting any appropriate discounts on the assets and associated liabilities, national banks are not expected to report any material net gains or losses at the time of purchase.

This interim final rule is effective immediately upon adoption. Pursuant to the Administrative Procedure Act (APA), at 5 U.S.C. 553(b)(B), notice and comment are not required prior to the issuance of a final rule if an agency, for good cause, finds that “notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.”  2 Similarly, a final rule may be published with an immediate effective date if an agency finds good cause and publishes such with the final rule. 3

Consistent with section 553(b)(B) of the APA, the OCC finds that good cause exists for a finding that notice and comment is impracticable and contrary to the public interest. As previously described, modification of the risk-based capital guidelines are critical to maintain the orderly functioning of markets and provide market liquidity. Completion of notice and comment rulemaking procedures prior to issuing this interim final rule would delay their implementation. In the current market environment, such a delay is impracticable and inconsistent with the public interest since it may result in undue constraint on national banks' ability to perform critical lending and financial intermediary roles which are necessary for the orderly functioning and liquidity of markets. Issuance of this interim final rule furthers the public interest because it will reduce liquidity and other strains being experienced by money market mutual funds. For the same reasons, the OCC finds good cause to publish this interim final rule with an immediate effective date. 4

Although notice and comment are not required prior to the effective date of this interim final rule, the OCC invites comments on all aspects of the rule and will revise it if necessary or appropriate in light of the comments received.

For the reasons described elsewhere in the SUPPLEMENTARY INFORMATION the OCC's issuance of this interim final rule is subject to the procedures set forth in Section 6(a)(3)(D) of Executive Order 12,866.

The Regulatory Flexibility Act (Pub. L. 96-354, Sept. 19, 1980) (RFA) applies only to rules for which an agency publishes a general notice of proposed rulemaking pursuant to 5 U.S.C. 553(b). 5 Pursuant to the Administrative Procedure Act (APA) at 5 U.S.C. 553(b)(B), general notice and an opportunity for public comment are not required prior to the issuance of a final rule when an agency, for good cause, finds that “notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.”  6

As discussed above, the OCC has determined for good cause that the APA does not require general notice and public comment on this interim final rule and, therefore, we are not publishing a general notice of proposed rulemaking. Thus, the RFA, pursuant to 5 U.S.C. 601(2), does not apply to this interim final rule.

In accordance with the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3506), we have reviewed the interim final rule to assess any information collections. There are no collections of information as defined by the Paperwork Reduction Act in the interim final rule.

Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 104-4 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency prepare a budgetary impact statement before promulgating any rule likely to result in a Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. The OCC has determined that there is no Federal mandate imposed by this rulemaking. Accordingly, the interim final rule is not subject to section 202 of the Unfunded Mandates Act.

In light of the ongoing dislocations in the financial markets, and the impact of such dislocations on the functioning of the markets for ABCP and on the operations of money market mutual funds, the Board adopted the ABCP Lending Facility on September 19, 2008. Under the ABCP Lending Facility, depository institutions and bank holding companies (banking organizations) are able to borrow from the Federal Reserve Bank of Boston on a nonrecourse basis on condition that the organizations use the proceeds of the Federal Reserve credit to purchase, at amortized cost, certain highly rated U.S. dollar-denominated ABCP from money market mutual funds. The ABCP purchased must be used to secure the borrowing from the Reserve Bank. The purpose of the ABCP Lending Facility is to assist money market mutual funds to obtain liquidity by enabling them to sell some of their high-credit-quality secured assets at amortized cost. The ABCP Lending Facility will expire on January 30, 2009 (unless further extended by the Board).

Banking organizations that participate in the ABCP Lending Facility must acquire and hold ABCP on their balance sheet. These ABCP holdings attract leverage and risk-based capital charges under the Board's regulatory capital rules for state member banks and bank holding companies. To facilitate the ABCP Lending Facility, and for the reasons discussed below, the Board has adopted, on an interim final basis, an exemption from its leverage and risk-based capital rules for ABCP purchased by a state member bank or bank holding company as a result of its participation in the facility. Specifically, the interim final rule (i) amends the Board's risk-based capital rules for state member banks and bank holding companies to assign a zero percent risk weight to ABCP purchased by the banking organization as a result of its participation in the facility; and (ii) amends the Board's leverage capital rules for state member banks and bank holding companies to permit banking organizations to exclude from average total consolidated assets—the denominator of the leverage ratio—ABCP purchased by the banking organization as a result of its participation in the facility.

The Board has determined that the current leverage and risk-based capital requirements for ABCP acquired by a banking organization pursuant to the ABCP Lending Facility do not reflect the substantial protections provided to the organization by the Federal Reserve in connection with the facility. Because of the non-recourse nature of the Federal Reserve's credit extension to the banking organization, the organization is not exposed to the credit or market risk of the ABCP purchased by the organization and pledged to the Federal Reserve. Therefore, the Board believes that it would be appropriate—and consistent with the economic substance of the transactions—not to impose regulatory capital requirements on the ABCP purchased by a banking organization in connection with its service as an intermediary in the ABCP Lending Facility.

Consistent with its purpose to mitigate temporary stresses faced by U.S. money market mutual funds, the interim final rule will expire on January 30, 2009, unless extended by the Board.

Pursuant to sections 553(b) and (d) of the Administrative Procedure Act (5 U.S.C. 553(b) and (d)), the Board finds that there is good cause for making the rule effective immediately on September 19, 2008, and that it is impracticable, unnecessary, or contrary to the public interest to issue a notice of proposed rulemaking and provide an opportunity to comment before the effective date. The Board has adopted the rule in light of, and to help address, the continuing unusual and exigent circumstances in the financial markets. The rule will provide immediate regulatory capital relief to state member banks and bank holding companies that elect to participate in the Federal Reserve's ABCP lending program. The Board is soliciting comment on all aspects of the rule and will make such changes that they consider to be appropriate or necessary after review of any comments received.

The Regulatory Flexibility Act requires an agency that is issuing a final rule to prepare and make available a regulatory flexibility analysis that describes the impact of the final rule on small entities. 5 U.S.C. 603(a). The Regulatory Flexibility Act provides that an agency is not required to prepare and publish a regulatory flexibility analysis if the agency certifies that the final rule will not have a significant economic impact on a substantial number of small entities. 5 U.S.C. 605(b).

Pursuant to section 605(b), the Board certifies that this interim final rule will not have a significant economic impact on a substantial number of small entities. The rule reduces regulatory burden on large and small state member banks and bank holding companies by granting an exemption from the leverage and risk-based capital rules for state member banks and bank holding companies that purchase ABCP from money market mutual funds pursuant to the Federal Reserve's ABCP lending program.

In accordance with the Paperwork Reduction Act (44 U.S.C. 3506; 5 CFR Part 1320 Appendix A.1), the Board has reviewed the interim final rule under authority delegated to the Board by the Office of Management and Budget. The rule contains no collections of information pursuant to the Paperwork Reduction Act.

Section 722 of the Gramm-Leach-Bliley Act requires the Board to use “plain language” in all proposed and final rules. In light of this requirement, the Board has sought to present the interim final rule in a simple and straightforward manner. The Board invites comment on whether it could take additional steps to make the rule easier to understand.

In light of the ongoing dislocations in the financial markets, and the impact of such dislocations on the functioning of the ABCP markets and on the operations of money market mutual funds, the Board adopted the ABCP Lending Facility on September 19, 2008. Under the facility, depository institutions and bank holding companies (banking organizations) are able to borrow from the Federal Reserve Bank of Boston on a non-recourse basis on condition that the organizations use the proceeds of the Federal Reserve credit to purchase, at amortized cost, certain highly rated U.S. dollar-denominated ABCP from money market mutual funds. The ABCP purchased must be used to secure the borrowing from the Reserve Bank. The purpose of the ABCP Lending Facility is to assist money market mutual funds to obtain liquidity by enabling them to sell some of their high-credit-quality secured assets at amortized cost. The ABCP Lending Facility will expire on January 30, 2009 (unless extended by the Board).

To facilitate usage of the ABCP Lending Facility, the Board has adopted on an interim basis exemptions from sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 371c, 371c-1) and the Board's Regulation W (12 CFR part 223). The exemptions increase the capacity of a member bank to purchase ABCP from an affiliated money market mutual fund in connection with the ABCP Lending Facility. In addition, a member bank may use the exemptions only if the bank has not been specifically informed by the Board, after consultation with the bank's appropriate Federal banking agency, that the bank may not use these exemptions. If the Board believes, after such consultation, that use of the exemptions would not be appropriate for the member bank, the Board may withdraw the exemptions for the bank or may impose supplemental conditions on the bank's use of the exemptions.

The Board has determined that these exemptions are in the public interest and consistent with the purposes of sections 23A and 23B. The substantial protections provided to intermediaries by the Federal Reserve in connection with the ABCP Lending Facility largely mitigate the safety-and-soundness concerns that sections 23A and 23B were designed to address. Because Federal Reserve extensions of credit to a member bank under the ABCP Lending Facility are on a non-recourse basis, the bank should bear no risk of loss from purchases of ABCP under the facility. Therefore, the Board believes that it is appropriate to exempt a member bank that serves as an intermediary in the ABCP Lending Facility from the requirements of sections 23A and 23B and Regulation W.

Consistent with its purpose to mitigate temporary stresses faced by money market mutual funds, the interim final rule will expire on January 30, 2009, unless extended by the Board.

Pursuant to sections 553(b) and (d) of the Administrative Procedure Act (5 U.S.C. 553(b) and (d)), the Board finds that there is good cause for making the rule effective immediately on September 19, 2008, and that it is impracticable, unnecessary, or contrary to the public interest to issue a notice of proposed rulemaking and provide an opportunity to comment before the effective date. The Board has adopted the rule in light of, and to help address, the continuing unusual and exigent circumstances in the financial markets. The rule will provide immediate relief to depository institutions that elect to participate in the ABCP Lending Facility. The Board is soliciting comment on all aspects of the rule and will make any changes that it considers appropriate or necessary after review of any comments received.

The Regulatory Flexibility Act requires an agency that is issuing a final rule to prepare and make available a regulatory flexibility analysis that describes the impact of the final rule on small entities. 5 U.S.C. 603(a). The Regulatory Flexibility Act provides that an agency is not required to prepare and publish a regulatory flexibility analysis if the agency certifies that the final rule will not have a significant economic impact on a substantial number of small entities. 5 U.S.C. 605(b).

Pursuant to section 605(b), the Board certifies that this interim final rule will not have a significant economic impact on a substantial number of small entities. The rule reduces regulatory burden on large and small insured depository institutions by granting exemptions from the Federal transactions with affiliates regime for insured depository institutions that purchase ABCP from affiliated money market mutual funds pursuant to the ABCP Lending Facility.

In accordance with the Paperwork Reduction Act (44 U.S.C. 3506; 5 CFR Part 1320 Appendix A.1), the Board has reviewed the interim final rule under authority delegated to the Board by the Office of Management and Budget. The rule contains no collections of information pursuant to the Paperwork Reduction Act.

Section 722 of the Gramm-Leach-Bliley Act requires the Board to use “plain language” in all proposed and final rules. In light of this requirement, the Board has sought to present the interim final rule in a simple and straightforward manner. The Board invites comment on whether it could take additional steps to make the rule easier to understand.

Effective July 30, 2008, the Federal Housing Finance Regulatory Reform Act of 2008 (Act), Division A of the Housing and Economic Recovery Act of 2008, Public Law No. 110-289, 122 Stat. 2654 (2008), transferred the supervisory and oversight responsibilities of the Office of Federal Housing Enterprise Oversight and the Federal Housing Finance Board over the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, Enterprises), and the Banks to a new independent executive branch agency known as the Federal Housing Finance Agency (FHFA). The FHFA is responsible for ensuring that the Enterprises and the Banks operate in a safe and sound manner, including being capitalized adequately, and carry out their public policy missions, including fostering liquid, efficient, competitive, and resilient national housing finance markets. The Enterprises and the Banks continue to operate under regulations promulgated by OFHEO and the FHFB until the FHFA issues its own regulations.

Section 1101 of the Act revised section 7 of the Bank Act. 12 U.S.C. 1427. The FHFB regulation implementing section 7 is codified at 12 CFR part 915. Part 915 governed the nomination and election only of those directors who are chosen from among the officers and directors of members of the Banks, which this interim final rule refers to as member directors. The Act amended section 7(b) of the Bank Act, 12 U.S.C. 1427(b), to give the members the right to also elect all of the other directors on the boards of directors of the Banks, which other directors are referred to in this interim final rule as independent directors. The FHFA has kept the basic process of elections that exists in part 915 as it applies to member directorships, making changes as necessary to comply with the amendments to section 7 of the Bank Act. The FHFA has added provisions to govern the process for nominating individuals for independent directorships and for conducting the election of independent directors in conjunction with the election of member directors. The organizational structure of part 915 also has been revised.

Section 1201 of the Act ( codified at 12 U.S.C. 4513(f)) requires the Director of the FHFA to consider the differences between the Banks and the Enterprises in rulemakings that affect the Banks with respect to the Banks' cooperative ownership structure, mission of providing liquidity to members, affordable housing and community development mission, capital structure, and joint and several liability. In preparing the interim final rule, the Director considered these factors and determined that the rule is appropriate, particularly because this interim final rule implements a statutory provision of the Bank Act that applies only to the Banks. See 12 U.S.C. 1427.

The interim final regulation removes part 915 of the FHFB regulations and establishes part 1261 of the FHFA regulations, which will contain the rules governing the eligibility and election of Bank directors. The name of new part 1261 will read “Federal Home Loan Bank Director Eligibility and Elections.”

The FHFA has made technical changes to the definitions of “bona fide resident,” “guaranteed directorship,” “stock directorship,” and “voting state,” but their meanings remain the same as they were in part 915. The meaning of “record date” has not changed. The identification number for the Banks is the same, except that it is now the number assigned by the FHFA.

The Act's amendments to section 7 of the Bank Act, 12 U.S.C. 1427, divide the directorships of the Banks into two categories—member directorships and independent directorships. Both types of directorships are filled by a vote of the members; however, elections for member directors are held on a state-by-state basis, whereas independent directors are elected at large by all the members of a Bank without regard to whether the members located in a particular voting state may be voting on member directors in any particular year. The definitions of “independent directorship” and “member directorship” reflect that difference.

The definitions of “guaranteed directorship” and “stock directorship” reflect that there are two categories of member directorships, because section 7(c) of the Bank Act, 12 U.S.C. 1417(c), guarantees that directorships from members located in some states will be no fewer than the number that existed on December 31, 1960, regardless of the amount of voting stock located in those states. The definition of “public interest directorship” reflects the statutory criteria that an independent director must have in order to receive this designation.

Section 7(c) of the Bank Act, 12 U.S.C. 1427(c), requires the Director of the FHFA to determine the number of member directorships based on the approximate ratio of required stock held by members located in particular states in a Bank's geographic region. The method the FHFA uses is defined in this section as the “method of equal proportions.”

Section 7(a) of the Bank Act, 12 U.S.C. 1427(a), sets the size of a Bank's board of directors at 13, or such other number as the Director may determine, provided the member directorships always maintain a majority and the independent directorships comprise at least 40 percent of the entire board. Section 1261.2(a) provides that the FHFA Director annually will set the number of directorships for each Bank, and will designate the directorships as either member directorships or independent directorships. The rule does not provide that the Director will designate the independent directorships as either public interest directorships or other independent directorships. If the Director does not further designate the independent directorships, the board of directors of a Bank will have the power, through the nomination process, to nominate any number of the independent directorships as public interest directorships, provided it so designates at least two of the independent directorships. The FHFA requests comments on whether the boards of the Banks or the FHFA Director should establish the number of public interest directorships.

Section 7(c) of the Bank Act, 12 U.S.C. 1427(c), continues to require that states be grandfathered with the number of directorships representing members in the states on December 31, 1960, notwithstanding any other provision in section 7. Thus, in applying the grandfather provision to the Banks based on their current districts, notwithstanding the Act's apparent default board size of 13, every Bank must have a minimum of 14 directorships, 8 of which must be member directorships. The Act amends section 7(d) of the Bank Act, 12 U.S.C. 1427(d), to require that the term of office of directors elected after July 30, 2008 be four years, except that the FHFA has to adjust terms to achieve an approximately equal staggering of the years for the election of the members of the board of directors of a Bank. Section 1261.2(b) addresses this requirement. The Act also amends the Bank Act to require that existing directorships that do not expire on December 31, 2008 continue their existing terms, so the FHFA has to adjust the terms of new directorships beginning January 1, 2009 in order to achieve staggering.

Section 1261.2(c) carries forward the requirement in section 915.3(a) that the Banks are responsible for conducting annual elections. Section 1261.2(d) and (e) are based on the sections 915.3(d) and 915.2, respectively, of the FHFB rule.

Section 1261.3(a) continues the requirement in section 915.4 of the FHFB rule that each Bank must submit a capital report. The FHFA will rely on this information to designate stock directorships among the voting states in a Bank's district. Each Bank also must notify each of its members of its minimum required stock holdings. Section 1261.3(a)(2) applies only to the Chicago Bank, whose capital plan is not yet in effect.

Section 1261.3(b) and (c) of the interim final rule carry forward the requirements of section 915.3(b) of the FHFB regulations. Section 1261.3(b) specifies the methodology by which the FHFA will make the allocation of member directorships, and section 1261.3(c) provides that the FHFA will follow the requirements in sections 7(b) and (c) of the Bank Act in designating member directorships to the states. Annually, the FHFA will use the method of equal proportions to determine how member directorships should be divided among the states in a Bank's district, based on the stock holdings of the members located in each state in the Bank's district. The FHFA's annual allocation to each state will be sufficient to meet the requirement in section 7(c) of the Bank Act that the number of member directorships in each state be equal to the number of elective directorships that it had on December 31, 1960 (the guaranteed directorships).

The effect of the so-called “grandfather” provision is that, based on the present geographic districts of the Banks, each Bank will have a minimum of eight member directorships. Section 1261.3(c) recognizes that some existing directorships at a Bank may cease to exist if, resulting from the Director's annual designation, the number of directors is set at a number below the size of the existing board, the number of member directorships increases and the number of independent directorships decreases, or vice versa, or the application of the method of equal proportions causes any state to lose a directorship to another state. If a state loses a directorship through any of these events, section 1261.3(c) provides that the director sitting in that directorship shall be ineligible to serve after December 31 of that year.

Section 1261.3(d) continues the notification provision in section 915.3(e) of the FHFB rule.

Section 1261.4(a) carries forward section 915.7(b) of the FHFB rule regarding the eligibility requirements of member directors. Section 1261.4(b) sets forth the eligibility requirements of independent directors in section 7(a) of the Bank Act.

Section 1261.4(c) describes situations in which otherwise eligible individuals would not be eligible to serve. The term limit provisions of section 7(d) of the Bank Act limit service of individuals who have served all or part of three consecutive full terms. Such individuals are ineligible for the two years following such service. For terms beginning after the effective date of the Act, section 1261.4(c) deems only four year terms to be full terms. The existing directorships that do not end on December 31, 2008, have three year terms, and those directorships' terms are full terms. If the FHFA creates shorter than four year terms for directorships that begin on or after January 1, 2009, to effectively stagger the directorships, those shorter terms will not be deemed to be full terms. Nonetheless, such shorter terms will not be effective for purposes of creating a break in service or avoiding the three consecutive term count. In other words, serving in three consecutive three year elective directorships ending December 31, 2008 will render an individual ineligible to serve a shortened term beginning January 1, 2009, and serving in one or two three year elective directorships ending December 31, 2008, a shortened term beginning January 1, 2009, and one or two four year terms immediately thereafter, for a total of three full terms, will render an individual ineligible to again serve for two more years.

The FHFA seeks comment on its application of the consecutive full-term limitation in section 7(d) of the Bank Act. If a director serves in a term which met the Bank Act's requirement of a full term at the time the director assumed that directorship, no matter how long the term is, should that term be considered a full term? Should the current terms and any prior terms consecutive thereto of directors elected prior to July 30, 2008, be deemed to be full terms for purposes of the three consecutive term rule in section 7(d) of the Bank Act? Should the full terms of the directors appointed by the Finance Board be treated any differently from how the terms of elective directors are treated? Should the shorter term that the FHFA creates for purposes of staggering be considered a break between terms before and after other terms of service, for purposes of treating the other terms as consecutive full terms?

Section 1261.4(d) deems a sitting director to be ineligible on December 31 of the year in which that person's directorship is eliminated or redesignated to another state through the annual allocation under the method of equal proportions. The FHFA is required to do an annual allocation, and changes in member stock ownership on a state-by-state basis may cause a state to lose one or more directorships. Although an individual may have to give up a directorship due to reallocation or elimination, if the individual does not complete a full term due to such action, that term will not count as a full term for purposes of eligibility.

Section 1261.5 carries forward section 915.5 of the FHFB rule, which sets forth how the Banks must determine the number of votes of each member. For those Banks that have more than one class of stock, the Banks are required to calculate the average number of shares separately for each class and allow each member to vote its combined average number of shares. The average for each class is calculated based on the total number of members in each state, even if a member holds no shares in a class of stock. The number of votes allocated to a member is the number of votes that the member may vote for any directorship, whether it is a member directorship, independent public interest directorship, or other independent directorship.

Section 915.6 of the FHFB regulation set forth the requirements for member directorship nominations. Section 1261.6 carries forth these requirements with some modifications and sets forth how the Banks will nominate independent directorship candidates. Banks are not required to do so in any particular mode of communication, so long as they can demonstrate to the FHFA their compliance with the regulations.

As required by section 1261.6(a) of the interim final rule, the Banks must provide to each member a notice of the commencement of the election process in a reasonable time in advance of the elections. As to member directorships, the notice and nomination procedures do not differ significantly from the procedures set forth in the FHFB regulation.

As to independent directorships, section 7 of the Bank Act requires each Bank to nominate candidates, and the election from among the candidates is the right of the members of each Bank. Under section 1261.6(d) of the interim final rule, a Bank must consider anyone who applies using an application form prescribed by the FHFA and indicates on the form that s/he meets the eligibility requirements set forth in section 1261.4(b), provided the application form is delivered to the Bank by a deadline set by the Bank and the application form contains any of the qualifications for independent directors set forth in that section. Independent directors may meet either the requirements of public interest directors or the requirements set forth in section 1261.6(e).

Section 1261.6(d) also requires that a Bank's board of directors consult with the Bank's Advisory Council before nominating independent directors. The FHFA requests comment on whether it should require the Advisory Council to play any specific role in the consultation process and whether the FHFA should prescribe procedures on how the consultation should take place.

Section 7(a) of the Bank Act and section 1261.6(d) of the interim final rule require that public interest directors have more than four years experience in representing consumer or community interests in banking services, credit needs, housing, or consumer financial protections. Prior to the Act's amendments to section 7(a), a public interest director had to be from an organization that had a history of more than two years representing consumer or community interests, but the individual did not necessarily have to have personal experience doing so. Although the FHFA will impose the Act's requirements on newly chosen independent directors, the FHFA will deem existing public interest directors who qualified and were designated as public interest directors under the Bank Act before it was amended to be public interest directors for the remainder of their existing terms.

The FHFA requests comments on whether it should apply the revised experience requirements to existing public interest directors and, if so, whether it should require any Bank that does not have two public interest directors who meet the revised requirements to nominate candidates who do meet those requirements.

Section 1261.6(d)(3) requires the Banks to establish the number of public interest directorships from among the number of independent directorships established by the FHFA Director pursuant to section 1261.3(c). It requires the Banks to have at least two public interest directors, as required by section 7(a) of the Bank Act. The boards of directors of the Banks must nominate at least as many individuals for public interest directorships as there are positions available. Any board may nominate more individuals for public interest directorship positions than there are positions to be filled; however, the Bank may fill only those vacant positions that the board has designated as public interest directorships with public interest director nominees.

The rule permits a board of directors to have only enough nominees to fill the vacant positions, because the board of directors of a Bank might determine that the most highly qualified candidates may not apply unless they are assured of a seat after having been nominated. The FHFA requests comment on whether the board of directors of a Bank should be required to nominate more candidates for independent directorships than there are positions to be filled, if the board has determined that there are sufficient applicants who are both eligible and qualified.

Section 7(a) of the Bank Act sets forth specific qualifications that independent directors, other than public interest directors, must have, and it authorizes the FHFA Director to establish other knowledge or experience that an independent director may have in lieu of the types of knowledge or experience specified in section 7(a). Section 1261.6(e) provides that independent directors may be qualified if they have knowledge or experience in the law, in addition to the statutorily prescribed subjects of auditing or accounting, derivatives, financial management, organizational management, project development or risk management practices. In each case, a candidate's knowledge or experience must be commensurate with the knowledge or experience needed to oversee a business of the size and complexity of the Bank. The FHFA solicits comment on whether additional areas of expertise should be added to the list.

Pursuant to section 1261.6(f) of the interim final rule, Banks must verify the eligibility of nominees for directorships before placing their names on the ballots. The FHFA will prescribe eligibility certification forms for member directors, and the Banks must use information on those forms to verify eligibility of nominees for member directorships. The FHFA will prescribe application forms and eligibility certification forms for independent directors. For new nominees for independent directorships, the Banks may use information on the application forms. For incumbent nominees for independent directorships, the Banks may use information on eligibility certification forms or on application forms. As to independent directorship nominees, both incumbent and new nominees, the Banks must deliver the names and contemporaneously executed director application forms of the nominees to the FHFA for its review and comment before the names of any such nominees can be placed on ballots. The FHFA intends to review the information submitted and, whenever it has comments that might aid a Bank, make comments to the Bank's board of directors about how any nominee's qualifications might serve the needs of the Bank.

Similar to the current election process conducted by the Banks, the interim final rule requires each Bank to prepare a ballot for each voting state. A Bank may not deliver ballots until after the FHFA has commented on the independent director nominees. Independent director nominees are elected on a district-wide basis, so all states in the district will be voting states in each annual election. The FHFA contemplates that ballots will differ from state to state, because a Bank likely will not include on the ballots in one state the member director nominees for the other states in its district. The ballots must include a closing date for voting, which may not be sooner than 30 days after the ballots are delivered.

The ballots must contain the type of minimum information on member directorship nominees required in section 915.8 of the FHFB rule. As to independent directorship nominees, the ballots must include information about their qualifications for the type of directorship for which they are nominated. All nominees must be listed alphabetically and separately for each type of directorship for which the election is being held. A Bank may include additional information it deems appropriate, including a description of the skills and experience of the member director nominees. If, pursuant to section 1261.9, a Bank has conducted an assessment of the skills and experience it needs on its board of directors and included that information in its notice required in section 1261.6, or subsequently has revised that assessment, the Bank may include a statement of the most recent version of its assessment with the ballots. The interim final rule also requires the Banks to include on the ballots a statement that write-in candidates are not permitted and a statement that the Bank will not disclose how any member votes its ballot.

In those instances where the number of member nominees is not greater than the number of member directorships to be filled, section 1261.7(c) of the interim final rule requires a Bank to declare the seats filled by the eligible nominees, first filling any guaranteed directorships and then any remaining stock directorships. If any member directorship is not filled, or if the failure to fill any directorship would cause the number of member directors to be fewer than a majority of the directors, then such directorship will become vacant on January 1 of the following year, and the Bank's board of directors at that time may elect an individual to fill the vacancy.

The interim final rule provides that a member's vote for a nominee is deemed a vote in the amount of all the stock that the member is required to hold as of the record date. A member may not vote more than the amount of its required stock for any one nominee, no matter how many directorships are being filled by the election. A member may vote for as many nominees as there are directorships being filled by the election, but a member may vote only one time for any one nominee. A member may vote at any time up until the closing date, by which time it must have delivered its ballot to the Bank.

Section 1261.7(f) of the interim final rule provides that the individual receiving the highest number of votes is declared the winner of a member directorship. If other member directorships are being filled, the individual receiving the next highest number of votes also will be declared a winner, and so on down the line. The same rule applies to each type of independent directorship, except that a nominee who receives fewer than 20 percent of the number of votes eligible to be cast may not be declared a winner. If, for the last available directorship of any type, there is a tie vote, and for an independent directorship the tie vote is at least 20 percent of the eligible votes, then the disinterested members of the Bank's board of directors by majority vote will determine the winner. At the time of declaring winners and at the time any director is seated, a Bank may not have any reason to know that such director is ineligible to serve.

The FHFA requests comment on whether the rule should continue to require that independent directors must receive at least a minimum percentage of votes cast in order to be elected and, if so, what that minimum should be. The FHFA believes that receiving at least a minimum percentage of votes affirms that the candidate is the choice of the members, even when the number of candidates does not exceed the number of directorships to be filled. If there is a minimum percentage, should it be based on the number of shares actually voting or on the number of shares eligible to vote?

Section 1261.7(g) of the interim final rule requires each Bank to promptly report to its members, each nominee, and the FHFA on the results of an election. The report must contain the number of voting members, the number of votes cast, and the number of votes received by each nominee. As to each member director-elect, the Bank must provide the same information required in section 915.8(e) or the FHFB rule. As to each public interest director, the Bank must provide the consumer or community interest represented and the expiration date of the term of office. For each other independent director-elect, the Bank must provide the individual's qualifications under section 1261.6(e) and the expiration date of the term of office.

If any independent directorship is not filled for failure to receive 20 percent of the eligible votes, section 1261.7(h) of the interim final rule requires a Bank to conduct another election for such directorship, following the same procedures required for the initial election. The Bank must continue repeated election procedures until the directorship is filled by a vote of 20 percent of the votes eligible to be voted. The eligible votes remain the same for each such repeat election.

Section 1261.9(a) of the interim final rule continues the authorization to a Bank's board of directors to conduct an annual assessment of the skills and experience needed on a Bank's board of directors, as provided in section 915.9(a) of the FHFB rule. If such an assessment identifies particular skills or experience needed on the board, a Bank may inform its members of those needs in its notice of elections.

Section 1261.9(b) of the interim final rule authorizes a Bank and any of its directors, officers, attorneys, employees, and agents, including the Bank's board of directors and Advisory Council, to support any individual for nomination and election to an independent directorship. Such individuals, if acting in their personal capacity, are not prohibited from supporting the nomination or election of any individual for a member directorship. The distinction between member directorships and independent directorships is that the Bank's board of directors nominates individuals for independent directorships, and support of the Bank's nominees could benefit the Bank without discriminating against any member.

Except as allowed under section 1261.9(a) and (b), no director, officer, employee, attorney, or agent of a Bank may support or oppose the nomination or election of any individual for any directorship of the Bank, or take any other action to influence the voting for or against any such individual.

The FHFA seeks comment on whether it is appropriate to distinguish between member and independent directors when establishing prohibitions on actions that might influence others with respect to any director. Comment also is sought on whether there are other issues that the FHFA should address in this section.

Section 7(a) of the Bank Act prohibits an independent director from serving as an officer of any Bank and from serving as a director, officer, or employee of any member of the Bank on whose board the director sits, or of any recipient of any advances from that Bank. Section 1261.10 of the interim final rule sets forth this prohibition and requires any nominee for, and incumbent holding, an independent directorship to disclose such interests. Positions held in a holding company that controls any member or any recipient of advances, are attributed to any member or recipient of advances if the assets of all members or recipients of advances under the control of the holding company equal at least 35 percent of the assets of the holding company. Positions in any other subsidiary or affiliate of the holding company are not attributed to the member or recipient of advances. Positions held by an individual's spouse are attributed to the individual.

The FHA seeks comment on whether the holding company attribution rule should be set at a number other than 35 percent.

Section 1261.11(a) of the interim final rule revises and restates the requirement in section 915.11 of the FHFB rule that Banks adopt a conflicts of interest policy to apply to the members of their boards of directors. The rule sets forth the minimum contents of such a policy. One requirement is that the policy must require the board of directors to administer the affairs of the Bank fairly and impartially, without discriminating in favor of or against any member. The rule does not address nonmember borrowers specifically, but the absence of any reference to nonmember borrowers does not prohibit a Bank from addressing conflicts of interests with respect to nonmember borrowers.

Section 1261.11(b) of the interim final rule requires any director of a Bank to disclose fully to the board of directors of the Bank any financial interest that the director or any immediate family member or business associate has in any business matter or proposed business matter involving the Bank and to refrain from any action in connection with the matter. Section 1261.11(c) requires directors to maintain the confidentiality of confidential information obtained by serving as a director and to refrain from using that information for personal benefit.

Section 1261.11(d) of the interim final rule prohibits the acceptance of gifts to influence the director's actions as a member of the board of directors of a Bank. A director may not accept a gift, no matter the value, if the director believes, or would have reason to believe, that the gift is given with the intent to influence the director's actions. A director may not accept a gift, no matter the value, if acceptance would have the appearance of the donor's intent to influence the director's actions. Although the prohibition does not prohibit other gifts, the absence of a specific prohibition does not prohibit a Bank from addressing other situations in its conflict of interest policy.

Section 1261.11(e) of the interim final rule prohibits a director from accepting compensation for service on the board of a Bank from any source other than the Bank. This prohibition does not prohibit any director who is a salaried employee from continuing to receive a salary even when the time that the director devotes to the Bank would otherwise be time devoted to the employer.

Pursuant to section 1261.12(a) of the interim final rule, each sitting director is required to execute an annual eligibility certification form applicable to the directorship held by the director. The form, prescribed by the FHFA for the purpose of identifying any changes since a prior eligibility review, must be executed and delivered to the Bank, and the Bank must deliver a copy to the FHFA.

Section 1261.12(b) of the interim final rule requires any sitting director of a Bank who believes or has reason to believe that s/he no longer meets the statutory or regulatory eligibility requirements to notify promptly both the Bank and the FHFA. Likewise, any Bank that believes or has reason to believe that any of its directors no longer meets the eligibility requirements must notify the FHFA promptly.

Section 7(f) of the Bank Act, prior to the amendments made by the Act, provided that an appointive directorship would become vacant whenever the director holding that directorship failed to meet the eligibility requirements set forth in the Bank Act, but the director could continue to serve until replaced. The amendments to section 7(f) now require that all directors who fail to meet their statutory eligibility requirements immediately must vacate their offices. Section 1261.13 of the interim final rule applies these results whenever the FHFA or a director's Bank makes a determination that the director has failed to meet any eligibility requirement set forth in the Bank Act or in part 1261 or has failed to comply with the reporting requirements in section 1261.12 of the interim final rule. Section 1261.13 also requires a Bank to notify the FHFA promptly after it has made such a determination.

Section 1261.14(a) of the interim final rule implements the requirements in section 7(f) of the Bank Act that any individual who fills a vacancy on the board of a Bank be elected by a majority vote of the remaining directors.

Section 1261.14(b) of the interim final rule requires the board of directors of a Bank to fill any vacancy with an individual who meets the eligibility and qualification requirements applicable to any individual who was the predecessor in that position; however, if a Bank continues to have at least two public interest directors, the board of directors of the Bank may fill the vacant directorship with an individual who meets the eligibility and qualification requirements for any independent directorship. The eligibility requirements for both member and independent directors are set forth in section 1261.4 of the interim final rule. The eligibility requirements for independent public interest directors and for other independent directors are the same. The qualification requirements for independent public interest directors and for other independent directors are set forth in section 1261.6 of the interim final rule. The Bank must verify eligibility before allowing any director elected by the board to assume office, and the Bank must deliver the individual's application form to the FHFA for review and comment before the individual is allowed to assume office.

Section 1261.14(c) of the interim final rule requires a Bank to provide a notice to the FHFA and to each member of the Bank that includes specified information about any individual who has been elected by the directors of the Bank.

Section 1261.15 designates the grandfathered directorships that apply at the present time to the 12 Banks. The section also provides that the grandfathering of directorships for any two or more Banks that merge does not apply to those Banks that are a part of the merger, as required by an amendment to section 7(c) of the Bank Act.

Section 1261.16 of the interim final rule requires each Bank to set a reasonable schedule for the nomination and election of directors in 2008 only.

This temporary director election schedule will cease to be effective after December 31, 2008.

The notice and comment procedure required by the Administrative Procedure Act is inapplicable to this interim final rule because it is in the public interest to implement the requirements of the Act as soon as it is practicable to do so: The Banks need to conduct elections and install directors in compliance with the new law by January 1, 2009, when a number of terms of existing directors expire. See 5 U.S.C. 553(b)(3)(B). However, because the FHFA believes that public comments are valuable, it encourages comments on this interim final rule, and will consider all comments received on or before November 25, 2008 in promulgating a final rule.

For the reasons stated in part III above, the FHFA for good cause finds that the interim final rule should become effective on September 26, 2008. See 5 U.S.C. 553(d)(3).

The interim final rule will have no substantive effect on any collection of information covered by the Paperwork Reduction Act of 1995 (PRA). See 44 U.S.C. 3501 et seq. Therefore, the FHFA has not submitted this interim final rule to the Office of Management and Budget (OMB) for review. The Finance Board used application forms to collect information on prospective appointive directors, and those forms had been assigned control number 3069-0002 by the OMB. The FHFA will direct the Banks to use those forms, which will be amended as appropriate but the changes to the forms will not materially modify the approved information collection. Consequently, the FHFA has not submitted any information to OMB for review under the PRA.

The FHFA is adopting this regulation in the form of an interim final rule and not as a proposed rule. Therefore, the provisions of the Regulatory Flexibility Act do not apply. See 5 U.S.C. 601(2) and 603(a).

On January 3, 2005, FAA published a final rule revising the regulations concerning registering aircraft and recording security documents (70 FR 245). These revisions were required by the Cape Town Treaty Implementation Act of 2004. The Cape Town Treaty established a new International Registry for registering interests against certain aircraft and aircraft engines. The rule also made unrelated technical changes to other portions of the regulations.

One of the technical changes affected 14 CFR 47.35. The amendment should have revised paragraph (a) introductory text, in order to revise an outdated reference to an Act. However, the entire paragraph (a) was inadvertently revised, which resulted in the loss of paragraphs (a)(1) and (a)(2). The information in paragraphs (a)(1) and (a)(2) was still necessary and should have remained in the section.

This technical amendment merely reinstates paragraphs (a)(1) and (a)(2) to 14 CFR 47.35. The text of these paragraphs remains as it was at the time of their inadvertent removal.

Because this action reinstates paragraphs that were never intended to be removed, the FAA finds that notice and public comment under 5 U.S.C. 553(b) is unnecessary. For the same reason, the FAA finds that good cause exists under 5 U.S.C. 553(d) for making this rule effective upon publication.

The FAA published a direct final rule with request for comments in the Federal Register July 7, 2008, (73 FR 38314), Docket No. FAA-2008-0610. The FAA uses the direct final rule procedure for non-controversial rules where the FAA believes that there will be no adverse public comment. This direct final rule advised the public that no adverse comments were anticipated, and that unless a written adverse comment, or a written notice of intent to submit an adverse comment, was received within the comment period, the regulation would become effective on September 25, 2008. No adverse comments were received; thus, this notice confirms that the direct final rule will become effective on this date. Also, the charting office recommended changing the airport description to include Mesa Vista Ranch Airport.

On June 6, 2007, the FAA published in the Federal Register a notice of proposed rulemaking (NPRM) to redesign the SUA in the vicinity of Fort Drum, NY (72 FR 31211). Interested parties were invited to participate in this rulemaking proceeding by submitting written comments on the proposal to the FAA. Seven responses were received.

The Aircraft Owners and Pilots Association (AOPA) opposed the proposed Adirondack Airspace Complex modifications for several reasons. AOPA questioned the need for two nearly identical SUA expansions being developed within 150 nautical miles (NM) of one another (i.e., Adirondack Airspace Complex, NY and Condor MOA, ME). AOPA contended that expanding both Adirondack and Condor would result in redundant SUA and would not be efficient use of the National Airspace System (NAS).

FAA Response: Many factors are considered in the development of SUA proposals including, but not limited to, distance of the proposed SUA from the user's base, number of users to be accommodated and training capacity of the area. Ideally, MOAs should be located within 100 NM of the users' home base. However, this is often not possible due to other requirements of the NAS. The greater the distance from the launch base to the SUA, the more transit time is required, which results in less training time available per sortie and increased training costs per sortie. The main distinction between the Adirondack and Condor SUA is the existence of restricted airspace at Fort Drum, NY. No restricted airspace is available at Condor; therefore, no hazardous activities may be conducted in that airspace. Use of the Condor airspace is limited to air-to-air tactics training, basic flight maneuvers, etc. The Adirondack Airspace Complex is used by as many as eight fighter wings for training in air-to-air tactics, and air-to-ground weapons delivery, lasers, etc. In addition, Fort Drum is the home of the U.S. Army's 10th Mountain Division and the restricted areas are extensively used for surface-based weapons training (e.g., artillery and mortar firing, missiles, etc.) by U.S. Army and National Guard units. The 174th FW at Syracuse, NY, is both the proponent and one of the primary users of the Adirondack Airspace Complex. The distance from Syracuse to Adirondack is about 72 NM and about 274 NM from Syracuse to the Condor airspace. While the 174th FW could conceivably use Condor for its air-to-air training, that would add some 400 NM travel distance—about one hour flying time—to the sortie and severely limit available training time. In addition, some training profiles combine both air-to-air and air-to-ground events in the same sortie making it more efficient to conduct the entire sortie in the Adirondack airspace. At this time, the Condor MOA proposal is still under study and it must be analyzed and evaluated on its own merit.

Additionally, AOPA stated its opposition to use of the “Dynamic Airspace concept” for airspace management as it has yet to be developed and defined.

FAA Response: The “Dynamic Airspace concept” was not addressed in the NPRM and is not an FAA-recognized term. The NPRM did indicate that one feature of the proposed airspace changes was to enable more efficient real-time use of the airspace. It is FAA policy that all SUA areas be activated on a real-time use basis to the extent possible. This means that only those SUA areas, or portions of areas, that are actually needed for the mission are activated, and users are expected to return the airspace to the controlling agency when not needed for the mission. Real-time use provisions are normally specified in a letter of agreement to allow the controlling agency to place temporary restrictions or altitude limitations on the use of the SUA, if required, so that nonparticipating aircraft can transit the SUA area. These provisions would be applied based on traffic conditions at the time.

AOPA recommended that the FAA require a charted radio frequency and telephone number for all new SUA proposals to enable pilots to obtain real-time status information about the airspace. AOPA said that other military units, including the ANG's Volk Field in Wisconsin, have successfully implemented charted frequencies and phone numbers.

FAA Response: The FAA agrees with the use of charted frequencies and phone numbers where the capabilities exist. The Volk Field Combat Readiness Training Center is an advanced operation with multiple radar feeds into their facility and a dedicated VHF radio frequency for disseminating SUA information. Unfortunately, the Adirondack Airspace Complex proponent does not have the same capabilities as Volk Field. There is no military radar coverage and no dedicated radio frequency located at the ANG facility on Fort Drum to provide those services. However, Boston Air Route Traffic Control Center (ARTCC), which is the controlling agency for all Adirondack SUA except the Drum MOA and Wheeler-Sack Approach Control (Drum MOA controlling agency), will be able to provide real-time status for the airspace. Additionally, the Eastern Air Defense Sector (EADS), as the scheduling agency for all of the airspace, has agreed to provide a phone number for SUA scheduling information (1-800-223-5612, Prompt #3).

AOPA also recommended that the managing unit for the Adirondack Airspace Complex be required to use the FAA's Military Airspace Data Entry (MADE) SUA scheduling system to ensure that SUA information is available to Automated Flight Service Stations and other agencies.

FAA Response: EADS, the airspace scheduling agency, supports this process and plans to use MADE to the maximum extent possible.

Two commenters objected to the proposal based on the impact on flights between the areas to the south and west of the Adirondack Airspace Complex MOAs and towns in northern New York, such as Saranac Lake and Lake Placid. One commenter was concerned that a convenient VOR Federal airway would be eliminated. Another stated that, on Instrument Flight Rules (IFR) flights when using GPS for point-to-point direct navigation, about 50% of the time, he is vectored off the direct routing and sent to V-196. Both individuals feared that the expanded MOAs would result in flights being forced further east and directly over the highest mountain peaks where the minimum en route altitude is 10,000 feet mean sea level (MSL). This would result in increased costs in both fuel and time and also decrease flight safety by placing the aircraft over inhospitable terrain and in an area where the worst icing is encountered. Further, the commenter doubted that the proposal to open parts of the MOAs for transit by civil aircraft would not be realized due to controller staffing and workload issues.

FAA Response: The FAA acknowledges that the proposed new MOAs may have some impact on Visual Flight Rules and IFR traffic flying southwest/northeast through the region. However, several mitigations were incorporated to minimize the impacts. To better facilitate real-time use of the airspace, the proposed Tupper North airspace has been further spilt into two MOAs: the Tupper West and Tupper Central (the proposed Tupper North designation will not be used). The Tupper West MOA lies directly over the Cranberry MOA (Note: Cranberry extends from 500 feet above ground level (AGL) to but not including 6,000 feet MSL). The Tupper Central MOA consists of the remainder of what was proposed as the Tupper North MOA. This new configuration will provide greater flexibility in accommodating both military activity and civil traffic in the area. Additionally, the letter of agreement with the using agency will provide Boston ARTCC the option to adjust the MOA floor as required to allow civil aircraft to traverse the Tupper MOA airspace. Despite the MOA expansions, Federal airway V-196 will remain a viable means for transiting the area.

One commenter, who flies an amphibian float plane between Rochester, NY, and the Thousand Island region of New York State, wrote with concerns about the impact of the airspace changes on the use of Maxson Field (89N) and Crystal Lake, within the Drum MOA. The commenter had similar concerns about the MOAs being too close to Piseco Airport (K09) and the Adirondack Regional Airport, Saranac Lake (SLK). The commenter cited the Adirondack D MOA as being too low and too close to Maxson and Crystal Lake and suggested that, instead of beginning at 500 feet AGL, the MOA should be raised to at least 2,000 feet AGL.

FAA Response: Currently, the closest MOA to Maxson Field is the Drum 1 MOA, which extends from 500 AGL to 5,000 feet MSL. The western boundary of the existing Drum 1 MOA lies about 2 1/2 NM east of the airport. With the airspace changes, the Drum 1 MOA is being reduced in size and renamed the Drum MOA. The new Drum MOA boundary will be moved further eastward increasing the distance from Maxson Field to about 5 NM, thereby reducing impacts on the airport. Although the commenter identified the new Adirondack D MOA as impacting Maxson Field and Crystal Lake, we believe the commenter meant Drum MOA. The Adirondack D MOA lies east of, and adjacent to, the new Drum MOA and extends upward from 5,000 feet MSL up to but not including Flight Level (FL) 180. Regarding the concerns about the proximity of the MOAs to the Piseco and Saranac Lake airports, the Piseco airport is located about 2 NM south of the Tupper South MOA boundary. The floor of the Tupper South MOA will vary seasonally ranging from 6,000 feet MSL during November through April, to 8,000 feet MSL during May through October. Although the new MOA does extend into close proximity to Piseco Field, with its field elevation of 1,703 feet MSL, ample airspace should be available for traffic patterns and airport arrivals and departures. The Adirondack Regional Airport is located directly under the eastern boundary of the new Tupper East MOA. The Tupper East MOA, with a floor of 10,000 feet MSL, was specifically designed as a separate area in order to minimize impacts to the Adirondack Regional Airport. While the published floor of the Tupper East MOA will remain at 10,000 feet MSL to accommodate the mission when needed, the proponent has agreed that Boston ARTCC will routinely limit MOA users to a 12,000 foot floor. This will further minimize impacts on civil traffic in the Saranac Lake area. If the military mission requires a lower altitude, pilots will request the 10,000 foot floor on a real-time basis. Boston ARTCC will have the option to approve the request if traffic permits.

Comments were also received from the Adirondack Mountain Club, The Adirondack Council, and the Adirondack Park Agency. These organizations expressed support for the various mitigations included in the proposal for environmental and cultural impacts, but also noted general concerns about the impacts of low level flights and noise. However, no significant noise impacts are expected as a result of these airspace changes. Generally, noise levels are expected to remain consistent with existing levels, or be less across the complex.

MOAs are non-rulemaking airspace actions that are established administratively and published in the NFDD. Since they are an integral part of the Adirondack Airspace Complex, the MOA changes were described in the NPRM and are included in this rule for information purposes.

The ANG requested the MOA modifications to improve flight safety; enable more efficient real-time, joint-use management of the airspace; lessen or balance environmental impacts of the current MOA configuration; and permit more realistic aircrew training in the Adirondack Airspace Complex. Most of the redesigned MOAs are contained within airspace that is already designated as MOA. However, these modifications do encompass some additional airspace, both laterally and vertically, outside the current MOA boundaries to the east and south of the currently charted MOAs.

There are several changes to the descriptions of the MOAs from those contained in the proposal. As discussed above, the proposed Tupper North MOA is further subdivided into the Tupper West and Tupper Central. The Tupper North title will not be used. This change enhances the real-time use of airspace and provides air traffic control with additional airspace management options. The northern boundary of the Cranberry MOA is moved south by 1/2 NM to avoid conflict with protected airspace for instrument procedures at Massena International Airport—Richards Field, NY. One common point that is shared in the descriptions of the Adirondack B, Adirondack D and Drum MOAs was listed differently in the proposed descriptions and is corrected to lat. 44°19′00″ N., long. 75°37′05″ W. The controlling agency for all of the Adirondack airspace, except the Drum MOA, is Boston ARTCC. The controlling agency for the Drum MOA is Wheeler-Sack Approach Control. The using agency for all of the MOAs is the New York ANG, 174th Fighter Wing, Detachment 1, Fort Drum, NY.

In consideration of the above, the nine existing MOAs in the Adirondack Airspace Complex (i.e., Drum 1 MOA, Drum 2 MOA, Falcon 1 MOA, Falcon 3 MOA, Syracuse 1 MOA, Syracuse 2A MOA, Syracuse 2B MOA, Syracuse 3 MOA, and Syracuse 4 MOA), are cancelled and are replaced by 13 new MOAs as follows:

The FAA is amending Title 14 Code of Federal Regulations (14 CFR) part 73 to establish two new restricted areas, R-5202A and R-5202B, in the vicinity of Fort Drum, NY. The new restricted areas supplement the existing restricted area, R-5201, to enable aircrews to train in high altitude, long range weapons delivery and other modern tactics at the Adirondack Range. In the NPRM, the FAA also proposed to change the designated altitudes of R-5201 from “Surface to 23,000 feet MSL,” to “Surface to but not including 23,000 feet MSL.” After further discussions between the controlling agency and the proponent, it was determined that this change is not needed; therefore, R-5201 will not be modified as proposed. As a result, the proposed FL 230 base altitude of the new restricted area, R-5202A, which overlies R-5201, is changed to 23,000 feet MSL to be consistent with the ceiling of R-5201. In addition, the NPRM contained an incorrect date in the time of designation for R-5202A and R-5202B. The portion of the time of designation stated in the NPRM as “May 1-August 21” should read “May 1-August 31.” The correct dates are included in this rule. Except as noted above, the restricted area descriptions are the same as proposed in the NPRM.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under Department of Transportation (DOT) Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of the airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it modifies special use airspace in New York.

The FAA has determined that the Final Environmental Assessment (FEA) prepared by the Air National Guard associated with the proposed project is adequate for adoption in accordance with FAA Order 1050.1E, “Environmental Impacts: Policies and Procedures,” Paragraph 404d. The FAA has independently evaluated the information contained in the FEA and takes full responsibility for the scope and content that addresses FAA actions. Further, the FAA has issued its own Finding of No Significant Impact.

Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G. Kelly, Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff.

1. On December 26, 2007, the Commission issued Order No. 704, which imposed an annual reporting requirement on certain natural gas market participants. 1 The order requires certain natural gas buyers and sellers to file annually FERC Form No. 552 and report summary information about physical natural gas transactions for each calendar year.

2. Order No. 704 has its genesis in the Energy Policy Act of 2005 (EPAct 2005). 2 EPAct 2005 added section 23 of the Natural Gas Act (NGA), 15 U.S.C. § 717t-2 (2000 & Supp. V 2005) to authorize the Commission “to facilitate price transparency in markets for the sale or transportation of physical natural gas in interstate commerce, having due regard for the public interest, the integrity of those markets, and the protection of consumers.” Section 23 further provides that the Commission may issue such rules as it deems necessary and appropriate to “provide for the dissemination, on a timely basis, of information about the availability and prices of natural gas sold at wholesale and interstate commerce to the Commission, State commissions, buyers and sellers of wholesale natural gas, and the public.”

3. Section 23 of the NGA enhances the Commission's authority to ensure confidence in the nation's natural gas markets. The Commission's market-oriented policies for the wholesale natural gas industry require that interested persons have broad confidence that reported market prices accurately reflect the interplay of legitimate market forces. Without confidence in the fairness of price formation, the true value of transactions is very difficult to determine. Further, price transparency makes it easier for us to ensure that jurisdictional prices are “just and reasonable.”  3

4. The performance of Western electric and natural gas markets early in the decade shook confidence in posted market prices for energy. In examining these markets, the Commission's staff found that some companies submitted false information to the publishers of natural gas price indices, so that the resulting reported prices were inaccurate and untrustworthy. 4 As a result, questions arose about the legitimacy of published price indices, remaining even after the immediate crisis passed. Moreover, market participants feared that the indices might have become even more unreliable, since reporting (which has always been voluntary) declined to historically low levels in late 2002.

5. One of the Commission's responses to these developments was the issuance, on July 24, 2003, of a Policy Statement on Electric and Natural Gas Price Indices (Policy Statement) that explained our expectations of natural gas and electricity price index developers and the companies that report transaction data to them. 5 The Policy Statement, among other things, directed the Commission's staff to continue to monitor price formation in wholesale markets, including the level of reporting to index developers and the amount of adherence to the Policy Statement standards by price index developers and by those who provide data to them. 6 In adhering to this directive, Commission staff documented improvements in the number of companies reporting prices from back offices, adopting codes of conduct, and auditing their price reporting practices. 7 These efforts resulted in significant progress in the amount and quality of both price reporting and the information provided to market participants by price indices. 8 It is against this backdrop that Congress passed EPAct 2005 and provided us with expanded authority to mandate additional reporting and improve market confidence through greater price transparency.

6. In an April 19, 2007 Notice of Proposed Rulemaking, the Commission proposed regulations consistent with these new responsibilities. 9 The April 2007 NOPR contained both an annual transaction reporting requirement for market participants as well as a daily posting requirement for pipelines. On December 26, 2007, the Commission issued Order No. 704 regarding the annual reporting requirement. The daily pipeline posting requirement proposal was separated from the annual filing requirement and a new Notice of Proposed Rulemaking regarding the pipeline posting requirement was issued concurrently in Docket No. RM08-2-000. 10

The Delaware River Basin Commission (“Commission” or “DRBC”) is a federal-state regional agency charged with managing the water resources of the Delaware River Basin without regard to political boundaries. Its members are the governors of the four Basin states—Delaware, New Jersey, New York and Pennsylvania—and the North Atlantic Division Commander of the U.S. Army Corps of Engineers, representing the federal government.

Notice of the proposed amendments appeared in the Federal Register (72 FR 57255) on October 9, 2007 as well as in the Delaware Register of Regulations on October 1, 2007 (11 DE Reg. 376-378 (10/01/07)), the New Jersey Register (39 N.J.R. 4392) on October 15, 2007, the New York State Register (page 8) on October 10, 2007 and the Pennsylvania Bulletin (37 Pa. B. 5527) on October 13, 2007, respectively. The Commission held informational meetings about the proposed changes on October 25, 2007 in Stockton, New Jersey and on November 1, 2007 in Easton, Pennsylvania. A public hearing was held on December 4, 2007, and written comments were received through December 6, 2007.

By Resolution No. 2005-2 in January of 2005, following a duly noticed public hearing, the Commission classified the Lower Delaware River as SRW on a temporary basis, pending the determination of numeric values for existing water quality for this section of the river and a thorough evaluation of the data to determine whether or not to classify certain sections of the Lower Delaware as Outstanding Basin Waters and whether to make the temporary Special Protection Waters designation permanent for some or all of the Lower Delaware. Following additional advertised public hearings in September 2005, September 2006, September 2007 and May 2008, temporary designation was extended repeatedly pending the Commission's final action on July 16, 2008. By that action, the Commission continued temporary classification of the Lower Delaware as SRW once more, until the amendments approved by Resolution No. 2008-9 are filed with each of the signatory parties in accordance with Section 14.2 of the Delaware River Basin Compact and a notice of final rulemaking has appeared in the Federal Register .

A comment and response document addressing comments offered at the public hearing and written comments received through the close of the comment period is available on the Commission's Web site, DRBC.net. Copies of this document may be obtained by request of the Commission's information resources coordinator at the telephone and e-mail addresses listed above. A charge for printing and mailing may apply.

DRBC Resolution No. 2008-9, including the amended rule in the form approved by the resolution, also is available on the DRBC Web site, DRBC.net. The resolution incorporates the entire text of Section 3.10.3 A.2. of the Water Quality Regulations and Water Code, showing the amendments as proposed in October of 2007 and as finally approved by the Commission on July 16, 2008. Copies may be obtained from the information resources coordinator at the telephone and e-mail addresses listed above. A charge for printing and mailing may apply.

The Environmental Protection Agency published a final rule on June 24, 2008 that contained the following: (1) Final amendments to the existing refineries new source performance standards (NSPS) in 40 CFR part 60, subpart J; and (2) a new refineries NSPS in 40 CFR part 60, subpart Ja (73 FR 35838). The preamble to that rule contained an incorrect effective date and contained an error in the Congressional Review Act (CRA) statement in the Statutory and Executive Order Reviews section. To address that error, the effective date of NSPS subpart Ja was stayed for 60 days until September 26, 2008. The amendments in NSPS subpart J were not affected and remained effective from June 24, 2008.

On June 13, 2008, the American Petroleum Institute (API), the National Petrochemical and Refiners Association (NPRA), and the Western States Petroleum Association (WSPA) (collectively referred to as “Industry Petitioners”) requested an administrative stay under Clean Air Act (CAA) section 307(d)(7)(B) of certain provisions of 40 CFR part 60, subpart Ja. On July 25, 2008, the Industry Petitioners sought reconsideration of the provisions of NSPS subpart Ja for which they had previously requested a stay. Specifically, Industry Petitioners requested that EPA reconsider the following provisions in NSPS subpart Ja: (1) The definition of “modification” (40 CFR 60.100a(c)); (2) the definition of “flare” (40 CFR 60.101a); (3) the fuel gas combustion device sulfur limits as they relate to flares (40 CFR 60.102a(g)(1)); (4) the flow limit for flare systems (40 CFR 60.102a(g)(3)); (5) the total reduced sulfur and flow monitoring requirements for flares (40 CFR 60.107a(d), (e)); and (6) the nitrogen oxide (NO X ) limit for process heaters (40 CFR 60.102a(g)(2)). Subsequently, on August 21, 2008, the Industry Petitioners identified additional issues for reconsideration.

On August 25, 2008, HOVENSA, LLC (“HOVENSA”) filed a petition for reconsideration of the following provisions of 40 CFR part 60, subpart Ja: (1) the NO X limit for process heaters (40 CFR 60.102a(g)(2)); (2) the flaring requirements, including the definitions of “flare” and “modification” (40 CFR 60.100a(c), 60.101a, 60.102a(g)-(i), 60.103a(a)-(b)); and (3) the depressurization work practice standard for delayed coking units (40 CFR 60.103a(c)). The petition also requested that EPA stay the effectiveness of these provisions during the reconsideration process.

EPA received a third petition for reconsideration on August 25, 2008, from the Environmental Integrity Project, Sierra Club, and Natural Resources Defense Council (“Environmental Petitioners”) requesting EPA reconsider several aspects of 40 CFR part 60, subpart Ja. The petition identifies the following issues for reconsideration: (1) EPA's decision not to promulgate NSPS for carbon dioxide and methane emissions from refineries; (2) the flaring requirements (40 CFR 60.100a(c), 60.101a, 60.102a(g)-(i), 60.103a(a)-(b)); (3) the NO X limit for fluid catalytic cracking units (FCCU) (40 CFR 60.102a(b)(2)); and (4) the particulate matter limit for FCCU (40 CFR 60.102a(b)(1)). Unlike the other Petitioners, Environmental Petitioners did not seek a stay of these provisions during reconsideration.

EPA has begun reviewing all of these petitions and is addressing in this notice only those issues for which Industry Petitioners and HOVENSA sought reconsideration and a stay of those specific provisions during reconsideration. EPA is taking no action on all of the other issues raised in the petitions but will consider all of the outstanding issues in a future notice.

In this action, EPA is granting reconsideration with respect to the following provisions: (1) The definition of “modification;” (2) the definition of “flare;” (3) the fuel gas combustion device sulfur limits as they apply to flares; (4) the flow limit for flare systems; (5) the total reduced sulfur and flow monitoring requirements for flares; and (6) the NO X limit for process heaters. We are granting reconsideration on these specific issues because the grounds for Petitioners' objections arose after the public comment period (but within the time specified for judicial review) and the objections are of central relevance to the outcome of the final rule pursuant to CAA section 307(d)(7)(B).

EPA is also granting Industry Petitioners and HOVENSA's request for a 90-day stay of the following provisions that are under reconsideration (see CAA section 307(d)(7)(B)): (1) The definition of “modification;” (2) the definition of “flare;” (3) the fuel gas combustion device sulfur limits; (4) the flow limit for flare systems; (5) the total reduced sulfur and flow monitoring requirements for flares; and (6) the NO X limit for process heaters. We are staying the first five provisions listed above because the final approach to regulating flare emissions was first introduced in the final rule and represented significant changes from the proposal. Facilities had no chance to comment on these new requirements in the final rule. Accordingly, we have reason to believe that certain facilities may be out of compliance with requirements for which they had no notice or time to come into compliance. Moreover, a stay is appropriate because in reconsidering these requirements both the affected universe and the substantive requirements could change. It should be noted that as a consequence of staying the fuel gas combustion device sulfur limits as they apply to flares we are staying the requirement for all fuel gas combustion devices. The effect of this action is to delay compliance obligations for 90 days of the sulfur limits under NSPS subpart Ja for fuel gas combustion devices other than flares such as process heaters and boilers. Although this is not a preferred outcome, it is unavoidable due to the structure of the rule and is an unintended consequence of this action.

We are staying the sixth provision listed above because information provided by Industry Petitioners and HOVENSA has led the Agency to question whether the emission limits in the final rule are achievable and represent best demonstrated technology. The information provided has convinced us that certain facilities may suffer undue hardship in attempting compliance with this limit. Granting a stay of this requirement while we reconsider this limit is, therefore, necessary to prevent any possible harm that may occur.

EPA is denying HOVENSA's request for a 90-day stay of the depressurization work practice standard for delayed coking units. HOVENSA provided no individual demonstration regarding its need for EPA to stay this work practice standard. HOVENSA provided no specific information or explanation of why staying this provision of a nationally applicable rule is the appropriate recourse for protecting its individual facility. HOVENSA's generalized assertions of incurring compliance costs absent a stay are not enough reason for granting this request for a stay. EPA, therefore, denies HOVENSA's request for a stay of this provision.

All other requirements promulgated in 40 CFR part 60, subpart Ja become effective as of September 26, 2008.

EPA will address the substantive aspects of this reconsideration in a separate notice in the Federal Register .

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and, therefore, is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). In addition, this action does not impose any enforceable duty or contain any unfunded mandate as described in the Unfunded Mandates Reform Act of 1995 (Pub. L.104-4), or require prior consultation with State officials as specified by Executive Order 12875 (58 FR 58093, October 28, 1993), or involve special consideration of environmental justice related issues as required by Executive Order 12898 (59 FR 7629, February 16, 1994). Because this action is not subject to notice-and-comment requirements under the Administrative Procedure Act or any other statute, it is not subject to the regulatory flexibility provisions of the Regulatory Flexibility Act (5 U.S.C. 601, et seq. ). This action also does not have tribal implications because it will not have a substantial direct effect 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, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997). The requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. This action does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501, et seq. ). EPA's compliance with these statutes and Executive Orders for the underlying rule is discussed in the June 24, 2008 Federal Register document.

The Congressional Review Act, 5 U.S.C. 801, et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this notice and other required information to the United States Senate, the United States House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . The stay of these particular provisions in NSPS subpart Ja is not a “major rule” as defined by 5 U.S.C. 804(2).

CMS's Medicare contracting authority has been in place since the inception of the Medicare program in 1965. Section 1874 of the Social Security Act (the Act) authorizes the Secretary to perform Medicare program functions directly or by contract.

On August 21, 1996, the Congress enacted the Health Insurance Portability and Accountability Act of 1996 (HIPAA) (Pub. L. 104-191). Section 202 of HIPAA added section 1893 to the Act to establish the Medicare Integrity Program and to allow CMS to contract with eligible entities to perform program integrity activities. Specifically, we contract with the following entities: Intermediaries as specified in section 1816(a) of the Act; carriers as specified in section 1842(a) of the Act; and program safeguard contractors (PSCs) to perform medical, fraud, and utilization reviews, and cost report audits of Medicare claims. (Hereinafter, intermediaries, carriers, and PSCs that perform medical review functions are referred to as “contractors.”) The Medicare Integrity Program is funded by the Medicare Hospital Insurance Trust Fund for activities related to Medicare Part A and Part B.

On December 8, 2003, the Congress enacted the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173). Section 934 of the MMA amended section 1874A of the Act by adding a new subsection regarding random prepayment reviews and non-random prepayment complex medical reviews, and requiring CMS to establish termination date(s) for non-random prepayment complex medical reviews performed by Medicare Administrative Contractors (MACs) (or intermediaries and carriers until MACs are in place). While section 1874A of the Act does not require CMS to establish termination dates for non-random prepayment complex medical reviews performed by PSCs, we have authority to apply these termination dates to medical review performed by PSCs under section 1893(b) of the Act. Applying this final rule to all contractors who perform non-random prepayment complex medical review not for benefit integrity purposes ensures that the same criteria for terminating non-random prepayment complex medical review apply to all providers and suppliers, whether they are under review by a MAC or a PSC.

Although section 934 of the MMA sets forth requirements for random prepayment review, our contractors currently do not perform random prepayment review. However, our contractors do perform non-random prepayment complex medical review. We are cognizant of the need for additional rulemaking should we wish our contractors to perform random review.

In the October 7, 2005 Federal Register (70 FR 58649), we published a proposed rule specifying the criteria contractors would use for the termination of providers and suppliers from non-random prepayment complex medical review as required under the MMA (hereinafter referred to as the proposed rule).

For purposes of this regulation, we are defining the following terms related to medical review activities:

Allowable charge means the dollar amount (including co-payment and deductibles) that the Medicare program will pay for a particular item or service.

Benefit integrity review means medical review of claim information and medical documentation focusing on addressing situations of potential fraud, waste and abuse.

Complex medical review means review of claim information and medical documentation, by a licensed medical professional, for a billed item or service identified by data analysis techniques or probe review to have a likelihood of sustained or high level of payment error.

Contractor means intermediaries, carriers, Medicare Administrative Contractors (MACs), and program safeguard contractors (PSCs).

Error rate means the dollar amount of allowable charges for a particular item or service billed in error as determined by complex medical review, divided by the dollar amount of allowable charges for that medically reviewed item or service.

Initial error rate means the calculation of an error rate based on the results of a probe review prior to the initiation of non-random prepayment complex medical review.

Medical review means the process performed by Medicare contractors to ensure that billed items or services are covered and are reasonable and necessary as specified under section 1862(a)(1)(A) of the Act.

Nonclinician medical review staff means specially trained medical review staff that does not possess the knowledge, skills, training, or medical expertise of a licensed medical professional.

Non-random prepayment complex medical review means the prepayment medical review of claim information and medical documentation, by a licensed medical professional, for a billed item or service identified by data analysis techniques or probe review to have a likelihood of sustained or high level of payment error.

Non-random prepayment medical review means the prepayment medical review of claims, by nonclinical or clinical medical review staff, for a billed item or service identified by data analysis techniques or probe review to have a likelihood of a sustained or high level of payment error.

Postpayment medical review means medical review of claims, by nonclinical or clinical medical review staff, for a billed item or service after a claim has been paid.

Provider-specific probe review means the complex medical review of a small sample of claims, generally 20 to 40 claims, from a specific provider or supplier for a specific billing code to confirm that or determine whether the provider or supplier is billing the program in error.

Quarterly error rate means the calculation of an error rate based on the results of non-random prepayment complex medical review for a specific billing code for a specific quarter.

Random prepayment medical review means the prepayment medical review of claims, by nonclinical or clinical medical review staff, for a billed item or service that has not been identified by data analysis techniques or probe review to have a likelihood of a sustained or high level of payment error.

Service-specific probe review means the complex medical review of a sample of claims, generally 100 claims, across the providers or suppliers that bill a particular item or service to confirm that or determine whether the item or service is billed in error.

Termination of non-random prepayment complex medical review means the cessation of non-random prepayment complex medical review.

We enter into contractual agreements with contractors to perform medical review functions. One of the functions of a contractor is to ensure the fiscal integrity of the Medicare program by conducting medical review of claims to determine whether items or services are covered and are reasonable and necessary. When a claim is submitted for payment, it may be subject to medical review before payment is made.

There are three types of non-random prepayment medical review: Automated, routine, and complex. Non-random prepayment medical review is one form of targeted medical review. An automated non-random prepayment medical review is when decisions are made at the system level, using available electronic information, without the intervention of contractor personnel. A routine non-random prepayment medical review is limited to rule-based determinations performed by specially trained nonclinical medical review staff. Automated and routine non-random prepayment medical reviews do not create an administrative burden on the provider or supplier since additional medical documentation does not need to be submitted for these types of medical reviews and payments for covered, reasonable and necessary items or services are not delayed. Therefore, these types of reviews pose no discernable administrative burden on the provider or supplier because there is no interaction between the contractor and the provider or supplier during the medical review process.

Non-random prepayment complex medical review is the evaluation of medical records or any other documentation by a licensed medical professional prior to Medicare payment. Complex medical review determinations require the reviewer to make a clinical judgment about whether an item or service is covered, and is reasonable and necessary. In order for this determination to be made, the provider or supplier must submit a copy of the medical records that indicate that the items or services billed are covered, and are reasonable and necessary for the condition of the patient. This type of review delays payment until the contractor is able to make a determination that the items or services billed are covered and are reasonable and necessary. This final rule only applies to terminating a provider or supplier from non-random prepayment complex medical review. (A detailed description of the concepts for performing the different types of non-random prepayment medical review functions are located in our manual instructions at: http://www.cms.hhs.gov/manuals/IOM/list.asp and then click on “Publication 100-08.”)

Generally, with non-random prepayment complex medical review, the contractor employs data analysis procedures to identify claims that may be billed inappropriately. These procedures may be based on claims data (national and local), beneficiary complaints, and alerts from other organizations (for example, the U.S. Department of Health and Human Services Office of Inspector General and the Government Accountability Office). When a contractor identifies a likelihood of sustained or high level of payment error, the contractor may request supporting medical record documentation. Examples of a high level of payment error include unusual patterns such as prescribing the same items or services for a high number of patients, consistently prescribing inappropriate treatments, unexplained increases in volume when compared to historical or peer trends, or any other reasons as determined by the Secretary or his designees.

Before a contractor places a provider or supplier on non-random prepayment complex medical review, the contractor performs a probe review (that is, complex medical review of a small sample of claims for a specific billing code, generally 20 to 40 claims to confirm that the provider or supplier is billing the program in error). In the case of a widespread “item or service-specific” problem, a larger sample of claims (generally, 100 claims of the item or service in question) would be subjected to complex medical review. Performing medical review on a sample of claims for a specific billing code before placing the provider or supplier on non-random prepayment complex medical review allows for a determination as to whether a problem exists, ensures that contractor medical review resources are targeted appropriately, and ensures that providers and suppliers are not unnecessarily burdened.

When a probe confirms or determines whether a provider or supplier is billing the program in error, and those billing errors present a likelihood of sustained or high level of payment error (for example, a high billing error rate or errors on claims representing high dollar value) this may result in the provider or supplier being placed by the contractor on non-random prepayment complex medical review. Contractors target their medical review activities at those providers, suppliers, items, or services that pose the greatest risk of improper payments from the Medicare Trust Funds.

Complex medical review as defined in § 421.501 (proposed § 421.401), involves the application of clinical judgment by a licensed medical professional in order to evaluate medical records to determine whether an item or service billed is covered, correctly coded, and reasonable and necessary for the condition of the patient under Medicare rules.

Medical records, defined at § 421.501 (proposed § 421.401), include any medical documentation, other than what is included on the face of the claim that supports the item or service that is billed. For Medicare to consider coverage and payment for any item or service, the claims submitted by the supplier or provider must be supported by the documentation in the patient's medical records. The patient's medical records may include the following: (1) Physician's office records; (2) hospital records; (3) nursing home records; (4) home health agency records; (5) records from other healthcare professionals; and (6) diagnostic testing reports and other supporting documentation. The contractor specifies what documentation it needs to conduct medical review. Providers and suppliers may be required to supply additional documentation not explicitly listed by the contractor. This supporting information may be requested by CMS and our contractors on a routine basis in instances where information on the claims (for example, diagnosis, frequency, site of service) or in claims history does not clearly indicate medical necessity.

Any determination must be documented by the contractor and include the rationale for the decision. While medical review staff must follow National Coverage Determinations and Local Coverage Determinations, they are expected to use their expertise to make clinical judgments when making medical review determinations. They must take into consideration the clinical condition of the beneficiary as indicated by the beneficiary's diagnosis and medical history when making these determinations. At any time during the medical review process where the contractor detects possible fraud, the contractor would refer the issue to the contractor responsible for benefit integrity review.

Before the enactment of the MMA, we continued to perform non-random prepayment complex medical review until the provider or supplier met all Medicare billing requirements as evidenced by an acceptable error rate. The contractor made the determination of “acceptable error rate.” As a result, some providers and suppliers have remained on non-random prepayment complex medical review for a considerable period of time.

In accordance with section 934 of the MMA, we proposed to terminate, in most cases, a provider or supplier from non-random prepayment complex medical review no later than 1 year from the initiation of the review, or when the provider's or supplier's error rate decreases by 70 percent from the initial error rate (70 FR 58651, October 7, 2005). The initiation of review begins on the date of notification by the contractor to the provider or supplier. This letter notification would inform the provider or supplier of the results of the probe review and inform the provider or supplier that they are being placed on non-random prepayment complex medical review.

In the proposed rule, we proposed that a provider or supplier be terminated from non-random prepayment complex medical review if error rate findings indicate that the provider or supplier has corrected its billing errors, resulting in at least a 70 percent decrease from its initial error rate (70 FR 58651, October 7, 2005). For a discussion of our rationale for setting this percentage for purposes of this regulation, see the proposed rule (70 FR 58651, October 7, 2005).

We did not explicitly propose whether there is a minimum timeframe that a provider or supplier must be on non-random prepayment complex medical review. We proposed that the initial error rate would be calculated based on the probe review prior to the initiation of non-random complex prepayment medical review.

We proposed when a provider or supplier is terminated from non-random prepayment complex medical review and the contractor determines that the provider or supplier continues to have a high error rate despite educational interventions, the contractor must consider referring the provider or supplier to the contractor responsible for Benefit Integrity review. Contractors must also consider continuing educational interventions (without performing further medical review) or consider the need for post-payment medical review.

We also proposed that a contractor must extend a non-random prepayment complex medical review beyond the 1-year limit in certain situations where the provider or supplier may have altered its billing practices in such a way to avoid or minimize contractor review. We proposed if the reduction in the error rate is attributed to a 25 percent or greater reduction in the number of claims submitted for the specific billing code under review, non-random prepayment complex medical review for that provider or supplier must be extended.

We also proposed if the number of claims submitted for a specific code was reduced because the provider or supplier began billing claims using a new appropriate code, or there is another legitimate explanation for the reduced number of claims billed, at the contractor's discretion, the provider or supplier may not be required to undergo extended non-random prepayment complex medical review. If extended medical review is necessary, contractors would notify providers and suppliers in writing of the reason for the need to perform additional prepayment complex medical review.

We proposed that the contractor would evaluate the results of non-random complex prepayment medical review, and the length of time a provider or supplier remains on review, at least every quarter following the initiation of non-random prepayment complex medical review. Quarterly error-rate evaluations would be for the discrete quarter; a rolling error rate average over more than one quarter would not be appropriate. We also proposed that after the contractor determines that the provider or supplier must be terminated from non-random prepayment complex medical review, the contractor must update the claims processing system within 2 business days to ensure that the provider's and supplier's claims are no longer suspended for that specific billing error.

We proposed that once a provider or supplier is terminated from non-random prepayment complex medical review contractors must periodically reevaluate the provider or supplier's data and retain the discretion to place a provider or supplier that appears to have resumed a high level of payment error on complex prepayment medical review. The proposed rule stated that before placing a provider or supplier back on non-random prepayment complex medical review, the contractor must conduct a probe review to confirm that there continues to be a high level of payment error (70 FR 58652, October 7, 2005). If such review finds a high level of payment error, the contractor may place the provider or supplier back on non-random prepayment complex medical review.

We received 18 timely public comments on the proposed rule. The following is a summary of the comments received and our responses.

Comment: We received several comments concerning whether the 70 percent decrease in error rate was an appropriate number in order for a provider or supplier to be terminated from non-random prepayment complex review. Some commenters generally agreed with this percentage and others believed it should be lower.

Response: The commenters requested many different error rates, many of which were lower than what we proposed, but we did not find consensus among the commenters for any one particular error rate. Since there was no consensus on an alternate percentage, we are leaving the percentage as originally proposed. We believe it strikes a fair balance between safeguarding the Medicare Trust Funds and providing a rational and predictable process for providers and suppliers to be removed from non-random prepayment complex medical review.

Comment: One commenter believed that the proposed 70 percent decrease in error rate should only apply to nonclinical aspects of error determination. Instead, the commenter proposed a 51 percent decrease as a threshold for reviewing clinical decision making outcomes, asserting this would improve the mathematic probability of termination in such cases because reviewers may form subjective clinical judgments from reviewing mostly documentation and being unable to clinically verify diagnoses. Also, the commenter believed a 51 percent reduction would provide small to medium-sized providers a fair opportunity for successful termination.

Response: We believe that regardless of whether the denial is based on a nonclinical or clinical error, it is still a denial for improper payment. We continue to believe a 70 percent reduction in error rate is a reasonable percentage to use to determine whether non-random prepayment complex medical review must continue. The statute does not require us to distinguish between provider size in establishing termination dates. We believe all providers and suppliers will have a fair opportunity for successful termination, regardless of size.

Comment: One commenter believes that extensions of non-random prepayment complex medical review should be rare, and that contractors should be prohibited from using the extension authority because it contravenes our efforts to provide reliability and predictability to the termination process.

Response: In addition to the criteria set forth in § 421.505(b) (proposed § 421.405(b)) for extending non-random prepayment complex medical review, we will provide specific manual instructions to our contractors in IOM Manual 100-08 (Program Integrity Manual) to address this concern after the release of this final rule.

Comment: We received several comments concerning whether 1 year is the appropriate timeframe to terminate a provider from non-random prepayment complex medical review. The concern of the commenters was whether or not CMS should keep providers on review for longer than 365 days in order to obtain 4 complete quarters of data; whether the contractor will stop reviewing claims on day 365 and start to calculate the error rate on day 366; or terminate review completely on day 365 before the error rate had been calculated.

Response: We proposed that the 1-year timeframe would begin on the date provided in the letter notifying the provider or supplier of initiation of non-random prepayment complex medical review. We believe that 1 year is a sufficient amount of time for a provider or supplier to reduce its initial error rate or for the contractor to determine whether a referral to Benefit Integrity or extended medical review under § 421.505(b) (proposed § 421.405(b)) is necessary. Unless an exception applies under § 421.505(b) (proposed § 421.405(b)), the contractor must remove a provider or supplier from non-random prepayment complex medical review after 1 calendar year (365 days) from the date of notification of non-random prepayment complex medical review regardless of whether an error rate for the fourth quarter has been calculated. Thus, they would be removed from review on day 366.

Comment: One commenter asked if a provider continues to incur a sustained or high level of payment error following termination, whether the appropriate procedure should be to place the provider back on non-random prepayment complex review. The commenter also noted that at that point, the burden of proof should shift to the contractor.

Response: We have revised proposed § 421.505(d) (proposed § 421.405(d)) to indicate that if after the 1-year termination date the provider continues to have a sustained or high level of payment error, the contractor may reinitiate non-random prepayment complex review after 6 months, but only after a probe confirms that there continues to be a high level of payment error. When a provider or supplier is terminated from non-random prepayment complex medical review after 1 year of review and the contractor determines that the provider or supplier continues to have a high error rate despite educational interventions, the contractor must consider referring the provider or supplier to the contractor responsible for benefit integrity review. Contractors must also consider continuing educational interventions without performing further medical review or consider the need for post-payment medical review.

Comment: One commenter questioned how the 1-year timeframe would be calculated if the contractor selects only 20 to 40 claims for the initial probe review and then terminates the edit.

Response: By “terminates the edit,” we believe the commenter means that after the initial 20 to 40 claims are selected, the contractor does not initiate non-random prepayment complex medical review. As previously stated, the 1-year timeframe is calculated from the date the provider or supplier is notified by letter that they are being subject to non-random prepayment complex manual review after the initial probe review is completed. A small sample (for example, 20 to 40 claims) enables the contractor to make an error rate determination in a short time period, so there is not an extended period of time when claims are paid without review. If a provider does not submit an adequate number of new claims for the probe review, the contractor has the option to complete the sample selection from paid claims. If a significant number of claims are billed and paid during the review process, the contractor has an option to complete a post-pay review process to collect the overpayment.

Comment: One commenter asked if it is acceptable to have a provider on an intermittent non-random prepayment review for longer than 1 year if quarterly evaluation of the sample of claims shows that provider specific education has not resulted in significant improvement.

Response: In the circumstance described above and assuming that review could not be extended under § 421.505(b) (proposed § 421.405(b)), once a provider is removed from targeted non-random prepayment review, the contractor would need to conduct a new probe before it would be able to place that provider back on review and start the clock over again.

Comment: Two commenters indicated that providers and suppliers should have some ability to appeal a probe review determination which places the provider or supplier on medical review.

Response: Neither the statute nor the regulations provide the provider or supplier a right to appeal a probe review determination, which we assume the commenter means a finding by the contractor that there is a likelihood of sustained or high level of payment error. Nor does it require an expedited appeal if a provider remains on review for a given period of time. However, we note that a provider or supplier always has the ability to appeal the results of a contractor's determination on an individual claim.

Comment: Several commenters suggested that the contractors should recompute the error rate to include reversals in each appeal level.

Response: If during the 1-year timeframe a provider or supplier is successful on appeal in overturning the initial medical review determination, we have instructed contractors through manual instructions located at http://www.cms.hhs.gov/manuals/IOM/list.asp and then click on “Publication 100-08”) to consider such appeals results when making decisions to continue medical review activities. However, after such consideration there may still be valid reasons for the contractor to elect not to remove providers or suppliers from review. Therefore, we are giving the contractor discretion to remove the provider or supplier from review based on appeals information. Please note that the timeframe allowed for appeal through all levels of appeal is not always accomplished within the 1-year timeframe made final in this rule. Therefore, it is not practical to require contractors to modify the error rate based on appeals results, as the appeals information may change through the levels of appeal.

Comment: One commenter suggested that the computation of the quarterly error rate should account for the supplier's accreditation and past compliance.

Response: We believe accreditation and past compliance are extremely important but in order to safeguard the Medicare Trust Fund we need to ensure that the error rate computation is based on current claims submitted.

Comment: Several commenters indicated that we do not explain the process contractors use to determine what error rate is determined to be a “high level,” what mathematical probability or range constitute a “likelihood,” or what time period and intensity of billing errors meet the definition of “sustained.”

Response: We do not further define the terms “high level, likelihood, or sustained” in the definition of “complex medical review” under § 421.501 (proposed § 421.401) because we believe contractors need the administrative flexibility to determine whether an error rate is “high level, likely, or sustained.” A variety of factors influence our determinations of such payment error such as the scope of the problem, potential risk to the Trust Fund, the risk relative to other risks identified by contractor data analysis, and past history of the provider or supplier.

Comment: One commenter stated that unless and until statistically meaningful verification of billing error is performed by a licensed medical professional through a complex review probe, a provider should not be placed on non-random prepayment complex medical review status.

Response: We believe the probe sample is an appropriate tool to determine the nature and extent of the problem. A “provider-specific probe review” may only be performed by a clinician based on problems identified by contractor data analysis. We believe that requiring a physician to review every claim in a probe would be cost prohibitive to the contractor. In addition, we note that each contractor is required to employ a physician to provide their clinical expertise. Statistically valid verification would require a much larger sample than 20 to 40 claims, thus increasing the burden and cost to the provider or supplier.

Comment: One commenter indicated that the 1-year mark for termination is not necessarily a true calendar year for all cases under such review. The commenter stated that we proposed to allow contractors to make code-specific error rate determinations on a quarterly basis. Contractors are not required to calculate error rates at the 1-year anniversary mark after the provider is sent notice of non-random prepayment complex medical review. That means that a provider whose anniversary falls at the beginning of a quarter can remain on review almost 3 months longer than a calendar year. Another commenter asked if a quarter was any 3-month period that the contractor chooses or if it must be a financial quarter.

Response: Unless an exception applies under § 421.505(b) (proposed § 421.405(b)), the contractor must remove a provider or supplier from non-random prepayment complex medical review after 1 calendar year (365 days) from the date of notification of non-random prepayment complex medical review regardless of whether an error rate for the fourth quarter has been calculated. We will defer to the contractor as to how to calculate when the quarter begins. Depending on the timing of the initiation of non-random prepayment complex medical review, contractors may or may not have an opportunity to calculate a fourth quarter error rate for a particular provider or supplier.

Comment: Two commenters requested a tiered system that depends upon the degree of improvement in a provider's error rate, or an option that would remove a provider from review when they meet a threshold of 10 percent or less of the overall error rate.

Response: We initially considered whether a 90 to 95 percent decrease in a provider's or supplier's error rate was appropriate, but determined that, for purposes of this regulation, a 90 to 95 percent reduction in error rate would be impracticable. We continue to believe that an error rate reduction of 70 percent from the initial error rate calculated during probe review would protect the financial integrity of the Medicare program, and allow the provider or supplier a realistic opportunity to be terminated from non-random prepayment complex medical review. Our contractors will continue to retain the discretion to terminate providers and suppliers at an earlier date.

Comment: One commenter was concerned about the lack of specific quantitative measures for triggering placement of providers on non-random prepayment complex medical review. The commenter recommended that we establish 30 percent as the national probe denial rate for triggering non-random prepayment complex medical review.

Response: In order for the contractors to have sufficient flexibility to guard the integrity of the Medicare Trust Fund, we leave the criteria for triggering review to the contractor's discretion. This allows the contractors to provide the specific level of review that best enables them to work with the provider or supplier to lower their error rate.

Comment: One commenter indicated that although we recommend limiting agency probe edits to 20 to 40 claims, and limiting service specific probe edits to 100 claims, we do not provide direction as to a minimum number of claims to be reviewed when determining whether a provider or supplier is likely to have a sustained or high level of payment error rate. The commenter recommended that we create criteria for a minimum number of records to be reviewed before determining that a provider or supplier has a likelihood of sustained or high level of payment error. The commenter stated that this should be no fewer than 10 claims on a particular probe for a quarter. Another commenter asked if provider-specific probe reviews should only include claims for the particular item or service that may be billed in error.

Response: The minimum number of claims to be reviewed in a probe will vary across provider and supplier type, volume, and service. Quarterly termination evaluation does not entail a probe. The contractor evaluates claims reviewed under the non-random prepayment complex medical review in a quarter and determines the error rate for selected claims during the quarter. The probe is used to establish the initial error rate only. The contractor does attempt to focus provider-specific probe review on those claims with items or services that may be billed in error. In the case of service specific review, the 70 percent reduction will be determined against the service-wide error rate. In some cases, service-specific review becomes a catalyst for provider-specific review of a subset of providers. In this instance, that subset would be measured against their own individual error rates. This is consistent with our Internet-Only Manual 100-08, Chapter 3, section 3.11.1.2.

Comment: One commenter requested notice and comment rulemaking on the definition of “complex medical review.”

Response: The definition and description of “complex medical review” were provided in the proposed rule (70 FR 58653, October 7, 2005), and as such, were subjected to notice and comment rulemaking.

Comment: Two commenters urged us to revise the proposed provisions that require contractors terminate a provider's or supplier's non-random prepayment complex medical review and remove any language establishing a minimum timeframe that providers or suppliers are subject to review.

Response: We agree with the commenters and have clarified in § 421.505(b) (proposed § 421.405(b)) that contractors may extend non-random prepayment complex medical review in certain cases and have clarified in § 421.505(a) (proposed § 421.405(a)) that there is no minimum timeframe that a provider or supplier must be on review. Unless an exception applies under § 421.505(b) (proposed § 421.405(b)) a provider or supplier must be removed from review if it meets either the 1 year or 70 percent criteria set forth in § 421.505(a) (proposed § 421.405(a)), and may be removed at any time at the discretion of the contractor.

Comment: One commenter stated that updated error rate reports from the contractor to the provider need to be timely and specific, demonstrate individual claims decisions (paid or unpaid), and show a detailed accounting of how the quarterly error rate was calculated or updated.

Response: We agree that the error rate reports should be given to providers with a narrative explanation. We will provide specific manual instructions in IOM Manual 100-08 (Program Integrity Manual) to our contractors in this regard after the release of this final rule.

Comment: One commenter questioned how the error rate percentage is determined. Specifically the commenter asked if it is based on dollar amount, days of coverage, or if it depends on the type of service billed.

Response: The error rate percentage is based on dollars.

Comment: We received several comments stating that the 10-minute estimated time for obtaining medical records discussed in the proposed rule (70 FR 58652, October 7, 2005) is not the correct estimate of needed time.

Response: In response to these comments, we have updated our estimate in the Collection of Information Requirements section of this final rule to 20 minutes to account for variations across providers or suppliers.

Comment: Several commenters expressed concern that medical records and chart notes should not be relied upon to determine Medicare eligibility. The commenters believe that the medical records a supplier must collect and submit are inherently ambiguous, subjective, and not suited for uniform review. The commenters also believe that physicians do not typically document specific Medicare coverage criteria in their medical records, and the records are not created with an intention that they will be reviewed by third parties who are not familiar with the patients and their medical condition. The commenters are concerned that requiring physicians to document the medical records in this fashion will place a substantial burden on the physicians, cause nonclinicians to interfere with the prescribing physicians, and will create a new and relatively unfamiliar documentation scheme.

Response: This final rule does not change existing documentation requirements. We believe that current documentation requirements for providers and suppliers are designed to provide a comprehensive picture of a patient's history and condition. CMS and our contractors have implemented extensive educational outreach to both suppliers and the medical community pertaining to documentation requirements.

We require under § 421.505(a)(2) (proposed § 421.405(a)(2)) that providers and suppliers submit supporting medical documentation for claims under review in order for our contractors to be able to compute an error rate based on current claims. If the contractor is unable to calculate an error rate due to the failure or refusal by a provider or supplier to submit requested medical documentation, we have clarified in § 421.505(b)(1) (proposed § 421.405(b)(1)) that the contractor may extend non-random prepayment complex medical review for such a provider or supplier. Without sufficient medical records to calculate the quarterly error rate the contractor is unable to apply the regulation's criteria to a provider or supplier in determining whether to remove it from review. We believe it is a prerequisite for these rules to apply that providers and suppliers submit the required medical documentation for claims while they are on non-random prepayment complex medical review.

Comment: One commenter estimated that the burden for a supplier to locate and obtain the supporting documentation for a claim and forward the materials to the Medicare contractor for review will take 4.71 hours per claim.

Response: We do not believe that this time is typical across provider types. In any event, we did not propose to change documentation requirements.

Comment: One commenter indicated that medical review findings are critical to performing focused education. The commenter stated that without the identified errors, local provider education and training would be less effective. The commenter believes that education would be general, based on global findings, and not specific to the provider's issue.

Response: We agree that there are different interventions, including education, available to our contractors. This regulation does not limit those interventions.

Comment: One commenter indicated that it would be difficult to determine if shifts to other codes not subject to review are inappropriate if claims for those services are not reviewed with records.

Response: Nothing in this regulation precludes the contractor from performing record review to determine if an inappropriate shift in billing codes occurred. However, we are not requiring such additional review since in some cases shifts may be readily explained from data analysis alone.

Comment: One commenter inquired if the referral to benefit integrity could be delayed while additional provider education and validation are performed.

Response: Referral to benefit integrity may be delayed if additional provider education is needed and/or further validation is needed to evaluate a provider or supplier's error rate. A contractor may need to extend review of a provider or supplier beyond the 1-year timeframe or even if the initial error rate has been reduced by 70 percent or more if the contractor needs to further validate whether the provider or supplier has properly reduced its error rate. In some cases, a provider or supplier may use improper billing practices to reduce its error rate to minimize or avoid review. We proposed at § 421.405(b)(1) to extend review beyond 1 year if a provider or supplier engaged in two specific types of improper billing practices: T he provider or supplier stopped billing the code under review or shifted billing to another inappropriate code to avoid proper calculation of the error rate.

In the final rule, we have added two more bases for the contractor to extend review at § 421.505(b)(1) (proposed § 421.405(b)(1)) and have clarified that review may be extended even if the provider or supplier has been on review for 1 year or has reduced its initial error rate by 70 percent or more. In addition to the proposed bases to extend review, the contractor may also extend review where the provider or supplier fails to respond to requests for medical records or the contractor determines the provider or supplier is engaging in improper claims or billing-related activities.

Because we cannot anticipate all types of improper claims or billing-related practices that providers and suppliers may engage in, we believe it is important that contractors have discretion to extend non-random prepayment complex medical review in any instance where the contractor determines the provider or supplier is engaging in improper claims or billing activities to avoid review. For example, a contractor may extend review if the provider or supplier starts billing under a different provider identification number with apparent intent to avoid proper calculation of the error rate. We believe the proposed bases for a contractor extending review may have fallen short of addressing all situations where the contractor may need to extend non-random prepayment complex medical review to evaluate whether the initial error rate has been appropriately reduced, and therefore, we are revising § 421.505(b)(1) (proposed § 421.405(b)(1)) to encompass these additional types of situations.

If there is potential fraud, we believe it is vital for the reviewing contractor to quickly make the referral to Benefit Integrity. The contractor responsible for performing the benefit integrity review can validate if potential fraud has occurred or is ongoing. If the contractor does not find any evidence of fraud, then the benefit integrity contractor can still provide education to the provider. If the contractor detects possible fraud at any time during the medical review process, the contractor would refer the issue to the contractor responsible for benefit integrity review.

Comment: Two commenters recommended that the proposed timeframe to update the claims processing system should be changed from 2 to 5 business days once a provider or supplier is taken off of prepayment complex medical review. The commenters also stated that the system security regulations will prevent most contractors from discontinuing an edit in 2 business days.

Response: Although we are not aware of what system security regulations the commenter is speaking of, we are revising § 421.505(c)(2) (proposed § 421.405(c)(2)) to state that the contractors' claims processing system must be updated within 5 business days after the contractor determines that the provider or supplier should be terminated from non-random prepayment complex medical review.

Comment: A number of commenters indicated that we have not issued instructions that indicate that documentation requirements for power mobility devices (PMDs) vary by patient diagnosis.

Response: We agree that we have not issued instructions that indicate that document requirements for power mobility devices vary by patient diagnosis. In addition, we believe that the example included in the proposed rule (70 FR 58651) was an inappropriate example, and therefore, we are not including that example as part of this final rule.

Comment: One commenter stated that, when a provider or supplier is terminated from non-random prepayment complex medical review and a new probe review must be performed to determine if there is a high level of payment error, the probe review cost per claim is significantly higher than provider-specific prepayment review.

Response: We realize that it may be more costly to complete a new probe review; however, we believe requiring a new probe provides assurance to the public that non-random prepayment complex review is data driven and its impact on providers and suppliers is not to be taken lightly. Contractors need to allocate resources as efficiently as possible to protect the Medicare Trust Fund.

Comment: One commenter asked that we distinguish between the medical role of the physician and the collaborative role of the supplier. The commenter believes it is not the role of the supplier to review, analyze, and interpret medical records to fill the treating physician's prescription, and that it is not in the best interest of the beneficiary for the supplier to overturn the judgment of the patient's treating physician.

Response: This final rule does not add any new documentation requirements. We note that it is the supplier's responsibility to provide a legible copy of the written prescription and any other required information. We believe that a party engaged in healthcare-related business should ensure that their staff has adequate expertise to carry out its responsibilities, and should obtain the training necessary to achieve and maintain that level of expertise.

The supplier should obtain as much documentation from the patient's medical record as it needs to determine if the Medicare coverage criteria for payment have been met. If the information in the patient's medical record does not adequately support the medical necessity for the item, then the supplier is liable for the dollar amount of the assigned claims involved unless a properly executed advance beneficiary notice (ABN) of possible denial has been obtained.

Comment: One commenter recommended that we develop an expanded version of the current Certificate of Medical Necessity (CMN), or a template that employs several open-ended questions that could easily be used by physicians, suppliers, and beneficiaries to determine if medical necessity exists and to document that need.

Response: This comment is outside the scope of this regulation. We do not address CMNs in this regulation.

Comment: One commenter asked if we expect all non-random prepayment complex medical review edits to be selecting 100 percent of a provider's claims for at least 1 year.

Response: No, contractors continue to have the flexibility to do less than 100 percent prepayment review.

Comment: One commenter asked if the 1-year timeframe is for each provider or supplier in a progressive corrective action case, or for the progressive corrective action case itself.

Response: The 1-year timeframe is for each provider placed on non-random prepayment complex medical review.

Comment: One commenter asked if the probe review finds that a provider is submitting claims to Medicare for a service that is not a Medicare benefit, would a 100 percent non-random prepayment review be appropriate until the situation is corrected.

Response: If the probe review finds that a provider is submitting claims to Medicare for a service that is not a Medicare benefit, a 100 percent non-random prepayment review is an option open to the contractor to correct the situation. This regulation applies to these types of claims, as well as other inappropriate claims. If the provider or supplier is billing non-covered services under covered codes, the contractor may wish to refer to the contractor responsible for benefit integrity review for fraud or abuse investigation. The contractor responsible for benefit integrity review has the option of continuing prepayment review during their investigative process.

Although we did not receive comments on what entities are considered CMS contractors, we want to clarify that a new type of contractor (as mandated by the MMA), the Medicare Administrative Contractors (MACs), are also contractors for purposes of this regulation. In the proposed rule, we stated that we enter into contractual agreements with contractors (for example, intermediaries, carriers, and program safeguard contractors (PSCs)) to perform medical review functions to ensure that items or services are covered and are reasonable and necessary in accordance with Medicare coverage policies and program instructions. For clarity, we are adding MACs to the types of contractors subject to these regulations and clarifying that this rule only applies to medical review not for benefit integrity purposes.

Section 421.500 (proposed § 421.400) is revised to read as follows: “CMS enters into contractual agreements with intermediaries, carriers, program safeguard contractors (PSCs), and Medicare Administrative Contractors (MACs) to perform medical review functions to ensure that items or services are covered and are reasonable and necessary in accordance with Medicare coverage policies and program instructions.

After the publication of the October 7, 2005 proposed rule, we published a final rule adding regulations to Part 421, subpart E. Therefore, the regulations in this final rule are finalized in Part 421, subpart F and the sections are renumbered as indicated throughout this final rule. We are also adopting the provisions as set forth in the proposed rule with the following changes.

In § 421.500 (proposed § 421.400), although we did not receive comments on what entities are considered CMS contractors, we are clarifying that the Medicare Administrative Contractors (MACs), are also contractors subject to this regulation. In the proposed rule, we stated that we enter into contractual agreements with contractors (for example, intermediaries, carriers, and program safeguard contractors (PSCs)) to perform medical review functions to ensure that items or services are covered and are reasonable and necessary in accordance with Medicare coverage policies and program instructions. When the proposed rule was published in 2005, the MACs were not yet established and only intermediaries, carriers, and PSCs were conducting medical review. Now that MACs are in operation, we are clarifying that MACs, as required by the statute, are also subject to this regulation. We are also clarifying in § 421.500 (proposed § 421.400) that this rule only applies to medical review not for benefit integrity purposes. Section 421.500 (proposed § 421.400) is revised to read as follows: “CMS enters into contractual agreements with intermediaries, carriers, program safeguard contractors (PSCs), and Medicare Administrative Contractors (MACs) to perform medical review functions not for benefit integrity purposes to ensure that items or services are covered and are reasonable and necessary in accordance with Medicare coverage policies and program instructions.

In § 421.501 (proposed § 421.401), we are adding the definition of “contractor” as used in this subpart.

We are clarifying in § 421.505(a) (proposed § 421.405(a)) that there is no minimum timeframe that a provider or supplier must be on review. We are also correcting a technical error from the proposed rule where we stated “a contractor may terminate a provider or supplier” to read “a contractor must terminate a provider or supplier” (70 FR 58653). Unless an exception applies under § 421.505(b) (proposed § 421.405(b)), providers and suppliers must be removed if they meet either the 70 percent reduction in error rate criterion or have been on review for 1 year from the initiation of such review. Providers and suppliers may also be removed at any time at the discretion of the contractor.

We are revising § 421.505(b)(1) (proposed § 421.405(b)(1)) to state that contractors have the discretion to extend non-random prepayment complex medical review if a provider or supplier fails to respond to requests for medical records, stops billing the code under review, shifts billing to another inappropriate code to avoid proper calculation of the error rate, or engages in any other improper claims or billing-related activity to avoid non-random prepayment complex medical review.

We are revising § 421.505(c)(2) (proposed § 421.405(c)(2)) to state that the contractors' claims processing system must be updated within 5 business days after the contractor determines that the provider or supplier should be terminated from non-random prepayment complex medical review.

In § 421.405(d) of the proposed rule, we stated that contractors must periodically reevaluate the provider or supplier's data and, if necessary, must place a provider or supplier that appears to have resumed a high level of payment error on complex medical review. Due to contractor resources, we are revising the language at § 421.505(d)(1) (proposed § 421.405(d)(1)) to state that contractors may periodically reevaluate the provider or supplier's data and, if necessary, may place a provider or supplier that appears to have resumed a high level of payment error on complex medical review.

In § 421.505(d)(1) (proposed § 421.405(d)(1)), we are correcting a technical error from the proposed rule at § 421.405(d) to state that a provider or supplier found to have resumed a high level of payment error is placed back on “non-random prepayment complex medical review.” In § 421.505(d)(2) (proposed § 421.405(d)(2)), we have also clarified that a provider or supplier is not placed back on such review earlier than 6 months after termination of a previous non-random prepayment complex medical review.

Under the Paperwork Reduction Act of 1995, we are required to provide 30-day notice in the Federal Register and solicit public comment before a collection of information requirement is submitted to the Office of Management and Budget (OMB) for review and approval. In order to fairly evaluate whether an information collection should be approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 requires that we solicit comment on the following issues:

• The need for the information collection and its usefulness in carrying out the proper functions of our agency.

• The accuracy of our estimate of the information collection burden.

• The quality, utility, and clarity of the information to be collected.

• Recommendations to minimize the information collection burden on the affected public, including automated collection techniques.

In summary, § 421.505 (proposed § 421.405) outlines the requirements and process for the termination and extension of non-random prepayment complex medical review, a form of complex medical review. Contractors conduct complex medical review to determine whether items or services billed are covered, correctly coded, and are reasonable and necessary for the condition of the patient. Under complex medical review the provider or supplier must submit a copy of the medical records that support the items or services billed.

The burden associated with this section is the time and effort necessary for the provider or supplier of services to locate and obtain the supporting documentation for the claim to Medicare and to forward the materials for submission to Medicare contractors for review. We expect that this information would generally be maintained by suppliers and or providers as a normal course of business and that this information will be readily available.

Based on public comments, we revised the burden estimate associated with this requirement. We increased the allotted time from 10 to 20 minutes per provider or supplier to locate, photocopy, and transmit this information to the contractor upon request.

The total annual burden for all of the Medicare providers and suppliers associated with this requirement is estimated to be 966,667 hours (2.9 million requests for medical records × 20 minutes per provider or supplier). The burden associated with this information collection requirement is currently approved under OMB control number 0938-0969 with a January 31, 2010 expiration date.

We have examined the impacts of this rule as required by Executive Order 12866 on Regulatory Planning and Review (September 30, 1993, as further amended), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 1999), and the Congressional Review Act (5 U.S.C. 804(2)).

Executive Order 12866 (as amended by Executive Order 13258) directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year). This rule does not reach the economic threshold and thus is not considered a major rule.

The RFA requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small governmental jurisdictions. Most hospitals and most other providers and suppliers are small entities, either by nonprofit status or by having revenues of $6.5 million to $31.5 million in any 1 year. Individuals and States are not included in the definition of a small entity. We are not preparing an analysis for the RFA because we have determined that this rule would not have a significant economic impact on a substantial number of small entities. We believe that this rule would decrease the costs for providers and suppliers because it establishes guidelines for terminating a provider or supplier from non-random prepayment complex medical review. We believe this rule would decrease the time and amount of resources spent on inappropriate reviews and would ensure that Medicare payments would not be withheld for extended time periods. Because a contractor would no longer be maintaining providers or suppliers on non-random prepayment complex medical review for extended periods, administrative expenses (for example, copying, mailing, and the retention of medical documentation) would be reduced.

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 604 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 of a Metropolitan Statistical Area and has fewer than 100 beds. We are not preparing an analysis for section 1102(b) of the Act because we have determined that this rule would not have a significant impact on the operations of a substantial number of small rural hospitals.

Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. The threshold level is currently approximately $130 million. This rule would have no consequential effect on the governments mentioned or on the private sector.

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications. Since this regulation would not impose any costs on State or local governments, the requirements of E.O. 13132 are not applicable.

In accordance with the provisions of Executive Order 12866, this regulation was reviewed by the Office of Management and Budget.

In FR Doc. 07-5946 (72 FR 68700 through 68741), the final rule entitled, “Revisions to the Medicare Advantage and Part D Prescription Drug Contract Determinations, Appeals, and Intermediate Sanctions Processes,” there were technical errors that have been identified and corrected in the regulations text of this correcting amendment. We note that correcting two of these technical errors, found at § 422.756(d) and § 423.756(d), ensure that certain existing provisions which were never intended to be the subject of notice and comment rulemaking, remain in place for the benefit of all affected parties, including MA organizations and Part D sponsors. The provisions in this correcting amendment for § 422.756(d) and § 423.756(d) are effective as if they were included in the final rule published December 5, 2007. Accordingly, the corrections are effective retroactive to January 4, 2008, the effective date of most of the provisions of the final rule. However, the provisions in this correcting amendment for § 423.505 are effective January 1, 2009 since these particular provisions in § 423.505 were not set to take effect until January 1, 2009.

On pages 68726 and 68735 of the December 5, 2007 final rule, there were technical errors made in the regulation text of § 422.756(d) and § 423.756(d). Specifically, a typographical error in our amendatory instructions caused us to inadvertently omit from the Code of Federal Regulations (CFR) existing paragraphs § 422.756(d)(3) and § 423.756(d)(3) regarding the duration of an MA and Part D intermediate sanction, respectively. We note that these existing provisions were not intended to be revised in the December 5, 2007 final rule (72 FR 68700 through 68741).

On page 68732 of the December 5, 2007 final rule, our amendatory instruction indicated that we were revising § 423.505(i)(2)(i). However, when we set out the changed regulations text, we inadvertently revised paragraph (i)(2)(ii) instead of paragraph (i)(2)(i). This typographical error, if not corrected, would have inadvertently deleted from the CFR the current paragraph at § 423.505(i)(2)(ii) regarding the 10-year record retention requirement as of January 1, 2009, the effective date of this provision as specified in the final rule. The correct § 423.505(i)(2)(i) should read “HHS, the Comptroller General, or their designees have the right to audit, evaluate and inspect any books, contracts, records, including medical records, and documentation of the first tier, downstream, and related entities involving transactions related to CMS' contract with the Part D sponsor.” As stated above, the existing § 423.505(i)(2)(ii), which references the 10-year record retention requirements, remains in the CFR unchanged.

In § 423.505(i)(3)(iii) the term “related entity” is incorrectly used twice in the same sentence, so we have removed this duplication. In addition, we inadvertently included MA organization in § 423.505(i)(3)(iv) which only applies to Part D sponsors. We have revised the language accordingly.

We ordinarily publish a notice of proposed rulemaking in the Federal Register to provide a period for public comment before the provisions of a rule take effect in accordance with section 553(b) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). However, we can waive this notice and comment procedure if the Secretary finds, for good cause, that the notice and comment process is impracticable, unnecessary, or contrary to the public interest, and incorporates a statement of the finding and the reasons therefore in the notice.

Section 553(d) of the APA ordinarily requires a 30-day delay in effective date of final rules after the date of their publication in the Federal Register . This 30-day delay in effective date can be waived, however, if an agency finds for good cause that the delay is impracticable, unnecessary, or contrary to the public interest, and the agency incorporates a statement of the findings and its reasons in the rule issued.

The provisions of this correcting amendment regarding the duration of sanctions at § 422.756(d) and § 423.756(d) make no substantive changes and are intended to restore provisions which were inadvertently removed from the CFR. These provisions were not revised in the final rule but were dropped because of a typographical error in our amendatory instructions. We must reinstate these provisions in the CFR to ensure that CMS may lift sanctions on MA and Part D plans as appropriate.

In addition, a typographical error in our regulations text would have inadvertently removed the current § 423.505(i)(2)(ii) from the CFR as of the effective date for these provisions on January 1, 2009. We are taking this opportunity to correct this error in the CFR to ensure that the 10-year record retention requirements for Part D sponsors remains in the CFR unchanged. Without this correcting amendment, the Medicare Part D regulations could have been construed as being silent on the 10-year Part D recordkeeping requirement which could create confusion and uncertainty for affected parties regarding CMS' policy on this issue.

Finally, we are also taking this opportunity to correct typographical errors in § 423.505(i)(3)(iii) and (iv).

Because we are issuing this correcting amendment based on typographical errors, we find that undertaking further notice and comment procedures to incorporate these corrections into the December 5, 2007 final rule is unnecessary and contrary to the public interest.

For the same reasons, we are also waiving the 30-day delay in effective date for § 422.756(d) and § 423.756(d) in this correcting amendment. We believe that it is in the public interest to ensure that the December 5, 2007 final rule accurately state the current law and CMS policy. Thus, delaying the effective date of these corrections would be contrary to the public interest. Therefore, we also find good cause to waive the 30-day delay in effective date for § 422.756(d) and § 423.756(d).

States and the Federal government share in the responsibility for safeguarding Medicaid program integrity. States must comply with Federal requirements designed to ensure that Medicaid funds are properly spent (or recovered, when necessary). CMS is the primary Federal agency responsible for providing oversight of States' Medicaid activities and facilitating their program integrity efforts.

Section 6034 of the Deficit Reduction Act (DRA) of 2005 (Pub. L. 109-171, enacted on February 8, 2006) added a new section 1936 to the Act that established the Medicaid Integrity Program, referenced as the “Program” hereafter, to combat Medicaid fraud and abuse. The Program is intended to identify, recover, and prevent Medicaid overpayments. It is also intended to support the efforts of the State Medicaid agencies through a combination of support and technical assistance.

Although individual States work to ensure the integrity of their respective Medicaid programs, the Program represents CMS' first national strategy to detect and prevent Medicaid fraud and abuse. The Program will provide CMS with the ability to more directly ensure the accuracy of Medicaid payments and to deter those who would exploit the program.

Section 6034 of the DRA amended title XIX of the Act by redesignating the former section 1936 as section 1937; and adding the new 1936 “Medicaid Integrity Program.” The new section 1936 states the Secretary will promote the integrity of the Medicaid program by entering into contracts with eligible entities to carry out the following activities:

• Review of actions of individuals or entities furnishing items or services (whether on a fee-for-service, risk, or other basis) for which payment may be made under the State plan approved under title XIX (or under any waiver of such plan approved under section 1115 of the Act) to determine whether fraud, waste, or abuse has occurred, or is likely to occur, or whether such actions have a potential for resulting in an expenditure of funds under title XIX in a manner which is not intended under the provisions of title XIX.

• Audit of claims for payment for items or services furnished, or administrative services rendered, under a State plan under title XIX, including cost reports, consulting contracts, and risk contracts under section 1903(m) of title XIX.

• Identification of overpayments to individuals or entities receiving Federal funds under title XIX.

• Education of providers of services, managed care entities, beneficiaries, and other individuals with respect to payment integrity and quality of care.

Section 1936 of the Act also mandates that the Secretary will, by regulation, establish procedures which will include the following:

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

• Competitive procedures to be used when entering into new contracts under this section; when entering into contracts that may result in the elimination of responsibilities under section 202(b) of the Health Insurance Portability and Accountability Act of 1996; and any other time considered appropriate by the Secretary.

• Procedures under which a contract under this section may be renewed without regard to any provision of law requiring competition if the contractor has met or exceeded the performance requirements established in the current contract.

CMS has determined not to address in this final rule the above bullet that references the Health Insurance Portability and Accountability Act of 1996 (HIPAA). We have determined that section 202(b) of HIPAA addressed certain Medicare contracting issues which, because of structural differences between the Medicare and Medicaid programs, such as the fact that the Federal Government does not utilize carriers or fiscal intermediaries in the Federal administration of the Medicaid program, do not pertain to the Medicaid contracting environment. Moreover, we have also determined that the provisions of the Act established by section 202(b) of HIPAA have since been repealed by section 911 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.

The Medicaid Integrity Audit Program will use three separate Indefinite-Delivery Indefinite Quantity (IDIQ) contracts to achieve the goals identified above. These contracts include the following: Audit and Identification of Overpayment Medicaid Integrity Contractor (Audit MIC), Review or Provider MIC (Review MIC) to five contractors, and Education MIC.

CMS has awarded two of the three IDIQ contracts to Medicaid Integrity Contractors (MICs) to carry out the Secretary's mandated activities described above. In December 2006, CMS awarded Audit MIC IDIQ contracts to five contractors and awarded the Review MIC IDIQ contracts to five contractors. The Education MIC is yet to be awarded. The IDIQ contracts will be managed by task orders. Each of the MIC IDIQ contractors will have the opportunity to bid for task orders authorizing specific work within the scope of the appropriate IDIQ contract. To date, one task order has been awarded to an Audit MIC and one to a Review MIC. In addition to the requirements described in the IDIQ contract, the task order statement of work provides further clarification and specifics as to the work to be performed.

CMS is planning to release individual task orders for five jurisdictions, which are comprised of two CMS Regions, as well as for identified special initiatives. When requesting task order proposals, CMS provided protocols to the Audit MICs to use during the course of an audit. The protocols, which were developed by contractor, provide specific guidelines and audit steps that each Audit MIC will follow during an audit. This will help ensure that audits are conducted in a uniform manner among the Audit MICs and across the five jurisdictions. In an effort to ensure that the protocols concisely and accurately describe the auditing process, CMS had the protocols reviewed and tested by a separate CMS contractor. Having a separate CMS contractor review the protocols eliminated the potential of conflict of interest that may have occurred had the development contractor reviewed and tested the protocols.

Auditing is scheduled to begin in mid-June 2008 with the Atlanta jurisdiction which is comprised of CMS Regions II and IV. With the first task order, the Review MIC will initially concentrate on CMS' Region IV, the Atlanta Region; the Audit MIC will concentrate on CMS' Region III and IV, the Atlanta and Philadelphia Region.

Section 6034 of the DRA of 2005 (DRA) amended title XIX of the Act by establishing, under the new section 1936, the Medicaid Integrity Program to promote the integrity of the Medicaid program by requiring CMS to enter into contracts with eligible entities to: (1) Review the actions of individuals or entities furnishing items or services (whether on a fee-for-service, risk, or other basis) for which payment may be made under an approved State plan and/or any waiver of such plan approved under section 1115 of the Act; (2) audit claims for payment of items or services furnished, or administrative services rendered, under a State plan; (3) identify overpayments to individuals or entities receiving Federal Medicaid funds; and (4) educate providers of services, managed care entities, beneficiaries, and other individuals with respect to payment integrity and quality of care.

In the proposed rule we provided requirements for which an entity is eligible to enter into a contract under the Medicaid integrity audit program. The requirements would include procedures for identifying, evaluating, and resolving organizational conflicts of interest that are generally applicable to Federal acquisition and procurement; competitive procedures to be used; and procedures under which a contract may be renewed.

In the November 23, 2007 Federal Register (72 FR 65686), we published the proposed rule entitled “Medicaid Integrity Program; Eligible Entity and Contracting Requirements for the Medicaid Integrity Audit Program,” and provided for a 30 day public comment period. We received a total of 3 timely comments from State government agencies and a health care association. Brief summaries for each proposed provision, a summary of the public comments we received, and our responses to comments are set forth below.

Comment: One commenter indicated that although they support the provisions of this proposed rule, they believe the rule does not sufficiently establish requirements for the MICs to ensure their work is carried out in an efficient, effective, and defensible manner. The commenter also stated that the proposed rule does not address methods of assuring coordination between the Medicaid integrity functions and existing programs already on-going in the States. In addition, the commenter notes that the proposed rule does not address how to prevent duplication of efforts or prevent multiple audits related to the same time period or same claims.

Response: The Medicaid Integrity Group (MIG), a component within CMS which has been created in order to carry out the Medicaid Integrity Program, will coordinate and communicate with its stakeholders in an effort to prevent duplication of efforts. In addition, the MIG will closely monitor the performance of the MICs. The roles and responsibilities of the MICs are further defined within the IDIQ contract as well as each task order. In addition, the MICs have been provided with protocols to help guide them through the audit process. The Audit MICs are responsible for performing comprehensive and focused audits. The goal of the audits is to examine payments to individuals or entities providing items or services under title XIX of the Act for the purposes of identifying potential overpayments to those individuals or entities. The Review MICs are responsible for performing reviews of providers furnishing Medicaid items or services to determine whether Medicaid fraud, waste, or abuse has occurred, is likely to occur, or whether Medicaid provider actions have the potential of causing inappropriate or incorrect expenditure of Medicaid funds. The Review MICs are also responsible for analyzing data and performing risk assessments of Medicaid data including, but not limited to, claims for payment under title XIX of the Act. The Education MICs will be responsible for promoting the integrity of the Medicaid program by educating providers of services, managed care entities, and other individuals with respect to Medicaid payment and quality of care.

In the proposed § 455.200 we set forth the statutory basis, section 1936 of the Act, for promulgating this rule. We proposed, in subpart C, § 455.200(b), Basis and Scope, additional language stating that part of the Medicaid Integrity Program's scope is to carry out the Medicaid integrity audit functions. CMS also published a final rule in the Federal Register on November 30, 2007 (72 FR 67653), entitled “Limitation on Contractor Liability” that finalized the portion of our proposed rule addressing the limitation on a contractor's liability to carry out a contract under the Medicaid Integrity Program. In addition, subpart C would apply to entities that seek to compete for, or receive an award of, a contract under section 1936 of the Act.

Comment: A commenter expressed concern that the proposed rule fails to recognize the respective roles of State Medicaid Agencies and Medicaid Fraud Control Units. The commenter additionally stated the proposed rule is silent on the respective roles of the States and the new contractors and silent on any coordination of effort between the eligible entities and the States. The commenter recommended that the rule be expanded to clarify the relationship between the States and any contracted entities, including the plan for coordination of effort and addressing individual State plan provisions.

Response: This final rule is not designed to discuss the roles of State Medicaid Agencies and Medicaid Fraud Control Units. There are however, regulations set forth in 42 CFR part 455—Program Integrity: Medicaid, that address the relationships with States. These regulations, which will remain in effect, at § 455.21, describe the cooperation with State Medicaid Fraud Control Units and the provisions at § 455.12 address State plan requirements. In addition, when conducting the audits, the Audit MICs will utilize established protocols that provide guidance on how the MICs are to coordinate with the individual States.

In § 455.230 we described that an eligible entity may enter into a Medicaid integrity audit program contract if it:

• Has demonstrated the capability to carry out the contractor activities;

• In carrying out such activities, agrees to cooperate with the Inspector General of the Department of Health and Human Services, the Attorney General, and other law enforcement agencies, as appropriate, in the investigation and deterrence of fraud and abuse in relation to title XIX and in other cases arising out of such activities;

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

• Complies with such conflict of interest standards are generally applicable to Federal acquisition and procurement; and,

• Meets other requirements the Secretary may impose.

It would not be possible to identify in this rule every possible contractor requirement that may appear in a future solicitation. In order to permit maximum flexibility to tailor our contractor eligibility requirements to specific solicitations while satisfying section 1936 of the Act, any additional requirements would be contained in the applicable solicitation.

Comment: A commenter strongly recommended that the MIC utilize medical directors from the outset of claims reviews and that complex medical decisions made by physician specialists and specialized mid-level providers be reviewed by a physician from a like specialty.

Another commenter suggested that this section be amended by clarifying the categories of entities eligible to perform the audit functions. For example, the commenter inquired as to whether State Medicaid agencies would qualify, and addressed the potential conflict of interest that may arise if a MIC already acts as a fiscal agent in one or more States and/or performs key Medicaid administrative functions including, but not limited to, claims adjudication, provider enrollment, pharmacy benefits management, etc.

Response: The Audit MICs are required, as described in the IDIQ contract, to have as key personnel a medical director. The Audit MICs are to ensure that questions of medical necessity are reviewed by physicians with appropriate expertise.

A State Medicaid Agency will not be able to operate as a MIC. We adhered to the requirements of the Federal Acquisition Regulation (FAR) organizational conflict of interest requirements found at 48 CFR subpart 9.5 when soliciting contracts for the Medicaid Integrity Program.

In § 455.232 we identified the functions of the Medicaid integrity audit program contractor as follows:

• Review of the individual actions or entities furnishing items or services (whether on a fee-for-service, risk, other basis) for which payment may be made under a State Plan approved under title XIX (or under any waiver of such plan approved under section 1115 of the Act) to determine whether fraud, waste, or abuse has occurred, is likely to occur, or whether such actions have the potential for resulting in an expenditure of funds under title XIX in a manner which is not intended under the provisions of title XIX.

• Audit of claims for payment for items or services furnished or administrative services rendered, under a State plan under title XIX, including cost reports; consulting contracts; and risk contracts under section 1903(m) of the Act.

• Identification of overpayments to individuals or entities receiving Federal funds under title XIX.

• Educating providers of service, managed care entities, beneficiaries, and other individuals with respect to payment integrity and quality of care.

Comment: Several commenters indicated there is no direction on how the contractors should coordinate with existing State Medicaid integrity programs and Medicaid Fraud Control Units. They expressed concern that this will result in duplication of efforts and possible interference with State program integrity investigations. One commenter recommended that we add a bullet to read: Coordinate any provider specific action outlined above including but not limited to, claim audits, other audits, overpayment recoveries and provider education with appropriate State Medicaid agency, before, during and after the action. Another commenter questioned how the contractors will coordinate with the State surveillance and utilization review (SUR) functions; how the contractors will be assigned their integrity cases; how the source data will be used by contractors to determine audit targets; whether the contactors be allowed to access the Medicaid Management Information Systems (MMIS); who will perform the data analysis; and to whom the contractor will refer suspicion of fraud cases.

Response: As previously stated under the Background section C. Medicaid Integrity Program Contract Overview, CMS has awarded two IDIQ contracts each of which are managed by task orders. When CMS released the request for task order proposal for the Audit MICs, CMS issued protocols to which the Audit MICs must adhere to when performing audits. The protocols provide specific guidance as to how the Audit MICs are to coordinate and communicate with State agencies. The task order instructs the Audit MICs to refer any instances of potential cases of fraud to the CMS as well as to the Department of Health and Human Services, Office of Inspector General (OIG). The task order further defines the Audit MIC roles and responsibilities for coordinating with law enforcement. The Review MICs will be responsible for performing reviews of providers furnishing Medicaid items or services to determine whether Medicaid fraud, waste, or abuse has occurred, is likely to occur, or whether provider actions have the potential of causing inappropriate or incorrect expenditure of Medicaid funds. After performing these reviews, the Review MICs will provide their findings to CMS. CMS will provide the Audit MICs with the specific providers to be audited. The Review MICs will not perform audits.

Comment: A commenter suggested that the MICs should allow providers to track electronically the status of claims. The commenter indicated that they have experienced frustration with the Recovery Audit Contractors (RAC) demonstration contractor and the lack of communication between the RAC and provider regarding the status of claims under review and therefore suggested that providing this information to the providers will enable them to plan accordingly.

Response: It is important to note that the RAC is a separate program from the Medicaid Integrity Audit Program. The RAC operates under different statutory authority and is associated with Medicare and not Medicaid. While it is not feasible to implement a system as suggested by the commenter, States and providers will have an opportunity to comment on the findings of a provider audit before the audit is completed and an overpayment is finally and formally identified. To minimize the likelihood of duplication of effort, before the MIG communicates audit targets to the Audit MICs, the MIG will communicate with the State program integrity offices and State Medicaid Fraud Control Units, among others, to ensure that a proposed audit does not interfere with an ongoing investigation.

Comment: A commenter stated that the language of the proposed rule describing the functions of the contractors was broad and ambiguous. The commenter further noted that this language failed to provide sufficient guidance by which the intent of the statute can be determined, and appears to leave the contractors in a policy-making role. The commenter recommended the language be removed or modified to make clear the responsibility of the contractors. The commenter questions whether there are standard criteria for the contractors to use to determine that an action is likely to result in fraud, waste or abuse and whether there are specific audit standards that must be followed.

Response: MICs are not policy-making entities. We have outlined the MICs' roles and responsibilities not only in the proposed rule, but also in the MICs IDIQ contracts as well as in the task orders. The Audit MICs have been provided audit protocols, which provide guidance on how to conduct audits and which set forth audit standards.

Comment: A commenter suggested the proposed rule is silent on the qualifications of the potential contractors. The commenter also questioned whether there will be minimum education and training requirements; how performance will be measured; whether there will be evaluations and whether the criteria on which they are based will be made public; and whether they will be required to show a better return on investment than the States.

Response: The IDIQ contracts specify minimum qualifications that the MICs must meet. CMS evaluated the qualifications information bidders submitted in selecting the MICs. The MICs are not required to show a better return on investment than the States. Although individual States work to ensure the integrity of their respective programs, the Medicaid Integrity Audit Program provides CMS with the ability to set in place a national strategy to ensure the accuracy of Medicaid payments and to deter those exploiting the program. This advances goals that are shared by the States and Federal government.

Comment: A commenter expressed concern that it is unclear what entity is responsible for collecting the overpayments and defending the audit findings, and what appeal process will be followed.

Response: Pursuant to existing regulations at part 433, Subpart F, once CMS formally identifies a Medicaid overpayment, CMS will collect the federal share of the overpayment from a State. The individual States will be responsible for collecting overpayments from providers. Providers may utilize the laws and procedures of the State, including State appellate procedures, to challenge findings concerning an overpayment. A determination by a State administrative or judicial proceeding altering or dismissing a finding of, or relating to, a provider overpayment, however, will not necessarily relieve a State of the obligation to refund the federal share of CMS' determined overpayment. During the audit process, CMS, Audit MIC, and the State will confer and discuss the audit findings before CMS formally identifies an overpayment.

Section 455.234 would specify that a Medicaid integrity audit contract will be awarded in accordance with 48 CFR chapters 1 and 3 (the Federal Acquisition Regulation (FAR) and the Health and Human Services Acquisition Regulation, respectively), this subpart, and all other applicable laws and regulations. In accordance with section 1936 of the Act, we would specify that these competitive procedures and requirements will be used as follows:

• When entering into new contracts under this section.

• At any other time considered appropriate by the Secretary. In addition, we proposed to specify in § 455.234 that an entity must meet the eligibility requirements established in proposed § 455.230 to become eligible to be awarded a Medicaid integrity audit program contract.

Comment: A commenter stated that although the DRA does not require that the contractor be retained on a contingency-fee basis, they would caution CMS from using such a compensation scheme. The commenter believed tying a contractor's payment to the volume of claims denied creates a perverse incentive irrespective of the claims' merits. The commenter also suggested that CMS should allow providers to retain funds recouped as part of the MIC's work until all avenues of appeal are exhausted. The commenter recognized this is not common practice, but believes it is within the Secretary's authority to administer the recovery program under section 1885 of the Act.

Response: The Audit MICs will not be compensated on a contingency fee basis.

In response to the comment indicating CMS should allow providers to retain monies recouped during the course of appeals, it is important to note that the recoupment of overpayments is not the responsibility of the MIC, but will remain the responsibility of the State. Whether the provider is allowed to retain recouped funds until the appellate process is complete will depend on State law. CMS will, however, recover from States the Federal share of an overpayment consistent with the existing statutory and regulatory requirements. Section 1885 is a provision of the Medicare statute, title XVIII of the Act. Section 1885 does not apply to the Medicaid Integrity Program. The Medicaid statue is at title XIX of the Act.

In § 455.236, we proposed that an initial contract term would be defined in the Medicaid integrity audit program contract and a renewal clause may be included in the contract. We also proposed that we may, but are not required to, renew the Medicaid integrity audit program contracts without regard to any provision of law requiring competition if the contractor has met or exceeded the performance requirements established in the current contract.

In accordance with sections 1936(c)(2) and (3) of the Act, we proposed in § 455.236(b) that we may renew a Medicaid integrity audit program contract without competition if the contractor continues to meet all requirements of the proposed subpart C, the contractor meets or exceeds the performance requirements established in its current contract, and it is in the best interest of the Federal Government.

At § 455.236(a) we proposed that if CMS does not renew a contract, the contract would end in accordance with its terms. We also proposed that the contractor would not have a right to a hearing or judicial review regarding our renewal decision.

We did not receive public comments on our proposed provision. Therefore, we adopt the provisions as proposed.

We proposed to establish at § 455.238 the process for identifying, evaluating, and resolving conflicts of interest as mandated by section 1936(c)(2) and (3) of the Act. We adhered to the requirements of the FAR's organizational conflict of interest requirements found at 48 CFR subpart 9.5 when soliciting contracts for the Medicaid integrity audit program. Due to the sensitive nature of the work to be performed under the contract, the need to preserve public trust, and the history of fraud and abuse in the Medicaid program, we would maintain the presumption that each prospective contract involves a significant potential organizational conflict of interest.

Prior to awarding a Medicaid integrity audit program contract, the contracting officer will draft an organizational conflict of interest clause specific to the contractor for inclusion in the contract. In general we would not enter into a Medicaid integrity audit program contract with an offeror or an existing Medicaid integrity audit program contractor that has been determined to have, or that has the potential for, an unresolved organizational conflict of interest.

We did not receive public comments on our proposed provision. Therefore, we adopt the provisions as proposed.

At § 455.238(a), we proposed that an offeror for a Medicaid integrity audit program contract is, and the Medicaid integrity audit program 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 that are contained in each individual contract awarded to perform the functions described under section 1936 of the Act.

We did not receive public comments on our proposed provision. Therefore, we adopt the provisions as proposed.

In § 455.238(b), we proposed to include post award discussions in which the contactor will present any later occurring or identified conflict of interest to CMS for resolution. We proposed that we would consider a post award conflict of interest resolution discussion if, during the term of the contract, the contractor or any of its employees, agents, or subcontractors 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 a Medicaid integrity audit program contract. We incorporated the definition of “gift” from the Standards of Ethical Conduct for Employees of the Executive Branch [5 CFR 2635.203(b)].

We did not receive public comments on our proposed provision. Therefore, we adopt the provisions as proposed.

In § 455.238(c) we proposed that if CMS has determined that a contractor's activities are creating a conflict, then a conflict of interest has occurred during the term of the contract. We proposed if such an event has occurred, among other actions, we may, as we deem appropriate:

• Not renew the contract for an additional term;

• Modify the contract; or

• Terminate the contract.

The proposed rule did not describe all of the information that may be required under each task order, or the level of detail that would be required. Therefore, we proposed to have the flexibility to tailor the requirements to each individual procurement.

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 provided 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 proposed to withhold the proposal when requested under the FOIA. This withholding is based upon 41 U.S.C. 253b(m). However, we proposed one exception to this policy. It involves any proposal that is set forth or incorporated by reference in the contract awarded to the proposing offeror. Such a proposal may not receive categorical protection. Rather, we would 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 proposed to follow pre-disclosure notification procedures set forth at 45 CFR 5.65(d).

We proposed that 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 would 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 proposed to 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 us from releasing contractor proposals when necessitated by law, such as in the case of a lawful subpoena.

We did not receive public comments on our proposed provision. Therefore, we adopt the provisions as proposed.

We described at § 455.240(a) how a conflict of interest may be resolved. We stated that a Conflicts of Interest Review Board may be established and convened at any time during the term of the contract, as well as during the procurement process, to evaluate and assist the contracting officer in resolving conflicts of interest. We proposed to determine when or if the Board will be convened.

We proposed, at § 455.240(b), to specify that a resolution of an organizational conflict of interest is a determination by the contracting officer that:

• The conflict is 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; or

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

We discussed an offeror's or contractor's method of mitigating conflicts of interest will be evaluated on a case by case basis. We provided examples of methods an offeror or contractor may use to mitigate organizational conflicts of interest. The examples are not an all-inclusive list of possible methods of mitigation nor are we obligated to approve a mitigation method that uses one of the provided examples. Possible methods of mitigation include:

• Divestiture, 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 Medicaid integrity audit program 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 Medicaid integrity audit program 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 Medicaid integrity audit program contract.

By providing a process for the identification, evaluation, and resolution of conflicts of interest, we not only protect the government's interests but help to ensure that the contractors do not hinder competition in their service areas by misusing their position as a Medicaid integrity audit program contractor.

We did not receive public comments on our proposed provision. Therefore, we adopt the provisions as proposed.

The comments received required no substantive revisions to the proposed rule. The comments did, however, ask specific questions or asked for clarification on the CMS Medicaid Integrity Audit Program processes. We provided responses to the questions and provided clarification to other comments. In addition, we inserted, under the preamble, “Section C. Medicaid Integrity Audit Program Contract Overview” in an effort to provide additional clarification to the comments. In this final rule we are adopting all of the provisions as set forth in the November 23, 2007 proposed rule with the exception of several minor editorial changes which that did not result in any policy changes.

We have examined the impact of this rule as required by Executive Order 12866 (September 1993, Regulatory Planning and Review), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.

Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year). This rule will not reach the economic threshold and thus is not considered a major rule.

The RFA requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small governmental jurisdictions. Most hospitals and most other providers and suppliers are small entities, either by nonprofit status or by having revenues of $6.5 million to $31.5 million in any 1 year. Individuals and States are not included in the definition of a small entity. We are not preparing an analysis for the RFA because we certify that this rule will not have a significant economic impact on a substantial number of small entities.

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 603 of the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside of a Core-Based Statistical Area and has fewer than 100 beds. We are not preparing an analysis for section 1102(b) of the Act because we certify that this rule will not have a significant impact on the operations of a substantial number of small rural hospitals.

Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. That threshold level is currently approximately $120 million. This final rule will not exceed this established threshold level. This rule will not have a significant impact on State, local, or tribal governments or on the private sector.

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a final rule (and subsequent final rule) that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications. Since this regulation will not impose any costs on State or local governments, the requirements of E.O. 13132 are not applicable.

In accordance with the provisions of Executive Order 12866, this regulation was reviewed by the Office of Management and Budget.

Under the Paperwork Reduction Act of 1995, we are required to provide 30-day notice in the Federal Register and solicit public comment before a collection of information requirement is submitted to the Office of Management and Budget (OMB) for review and approval. In order to fairly evaluate whether an information collection should be approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 requires that we solicit comment on the following issues:

• The need for the information collection and its usefulness in carrying out the proper functions of our agency.

• The accuracy of our estimate of the information collection burden.

• The quality, utility, and clarity of the information to be collected.

• Recommendations to minimize the information collection burden on the affected public, including automated collection techniques.

Therefore, we are soliciting public comment on each of these issues for the following sections of this document that contain information collection requirements:

Section 455.230(c) requires that each entity that has entered into a contract with CMS to perform the activities described at 455.232, maintain an appropriate written code of conduct and compliance policies that include, without limitation, an enforced policy on employee conflicts of interest.

The burden associated with this requirement is the time and effort put forth by the entity to prepare and maintain such policies. While there is burden associated with this requirement, we believe that the burden is exempt from the PRA in accordance with 5 CFR 1320.3(b)(2) because the time, effort, and financial resources necessary to comply with these requirements would be incurred by persons in the normal course of their activities.

If you comment on these information collection and recordkeeping requirements, please mail copies directly to the following:

I. Background

The four systems of records (SORs) that are the subject of this final rule and the May 25, 2007 proposed rule are as follows:

In the August 22, 2003 Federal Register (68 FR 50795), we published a notice announcing a new SOR titled Automated Survey Processing Environment (ASPEN) Complaint/Incidents Tracking System (ACTS), HHS/CMS, System No. 09-70-0565.

In the May 23, 2006 Federal Register (71 FR 29643) we published a notice that modified the ACTS SOR. This notice included all modifications and the full text of this system of records. ACTS is a Windows-based program whose primary purpose is to track and process complaints and incidents reported against health care facilities regulated by CMS and State agencies. These facilities include Clinical Laboratory Improvement Amendment (CLIA)-certified laboratories, skilled nursing facilities (SNFs), nursing facilities, hospitals, home health agencies (HHAs), end stage renal disease (ESRD) facilities, hospices, rural health clinics (RHCs), comprehensive outpatient rehabilitation facilities (CORFs), outpatient physical therapy services, community mental health centers (CMHCs), ambulatory surgical centers (ASCs), suppliers of portable x-ray services, and intermediate care facilities for persons with mental retardation (ICF/MRs). ACTS contains identifiable information on individuals, who are complainants, residents, patients, clients, contacts or witnesses. It also may include alleged perpetrators, survey team members, laboratory directors, laboratory owners, and employees and directors of the health care facilities noted previously. ACTS is designed to manage all operations associated with complaint and incident tracking and processing, from initial intake and investigation through the final disposition.

In the July 6, 2005 Federal Register (70 FR 38944), we published a notice announcing a new SOR titled Health Insurance Portability and Accountability Act (HIPAA) Information Tracking System (HITS), HHS/CMS, System No. 09-70-0544

In general, HITS consists of an electronic repository of information, documents, and supplementary paper document files resulting from investigations of alleged violations of the transactions and code sets, security, and unique identifier provisions of HIPAA. HITS' purpose is to support investigations of complainants, determinations as to whether there were violations as charged in the original complaint, referral of violations to law enforcement entities as necessary, and maintenance and retrieval of records that contain the results of the complaint investigations. The system of records covers individuals who have submitted complaints alleging violations of the provisions of HIPAA. Investigative files maintained in HITS are received either as electronic documents or as paper records that are compiled for law enforcement purposes.

In the May 22, 2006 Federal Register (71 FR 29336), we published a notice announcing a new SOR titled Organ Procurement Organizations System (OPOS), HHS/CMS, System No. 09-70-0575. OPOS is a Windows based program whose purpose is to track and process complaints and incidents reported against Organ Procurement Organizations. Section 701 of the Organ Procurement Organization System Certification Act of 2000 (Pub. L. 106-505) gave the Department the authority to collect and maintain individually identifiable information pertaining to allegations filed by a complainant, beneficiary, or provider of services against Organ Procurement Organizations. This information includes information gathered during all aspects of an investigation, including initial complaints, findings, results, disposition, and relevant correspondence.

In the October 28, 2002 Federal Register (70 FR 65795), we published a notice that modified, among other things, the name of a SOR entitled “CMS Utilization Review Investigatory Files, System No. 09-70-0527” to “CMS Fraud Investigation Database (FID).” The notice included the full text of the FID system of records. The FID system of records contains the name, work address, work phone number, social security number, Unique Provider Identification Number (UPIN), and other identifying demographics of individuals alleged to have violated provisions of the Social Security Act (the Act) related to Medicare, Medicaid, HMO/Managed Care, and the Children's Health Insurance Program. The FID system of records also contains the contact information and other identifying demographics of individuals alleged to have violated other criminal or civil statutes connected with the Act and the Act's programs. Here, individuals are persons alleged to have abused the Act's programs. (For example, an individual could be a person alleged to have rendered unnecessary services to Medicare beneficiaries or Medicaid recipients, over-used services, or engaged in improper billing.) They are persons whose activities have provided a substantial basis for criminal or civil prosecution, or who are identified as defendants in criminal prosecution cases.

In the May 25, 2007 Federal Register (72 FR 29289) we published a proposed rule that would exempt the ACTS, HITS, OPOS, and FID systems of records from subsection (c)(3), (d)(1) through (d)(4), (e)(4)(G) and (H), and (f) of the Privacy Act pursuant to 5 U.S.C. 552a(k)(2). These exemptions would apply only to the extent that information in a record is subject to exemption pursuant to 5 U.S.C. 552a(k)(2). We proposed that the ACTS, HITS, OPOS, and FID systems of records would be exempted from the following subsections for the reasons set forth below:

• Subsection (c)(3). Release of an accounting of disclosures to an individual who is the subject of an investigation could reveal the nature and scope of the investigation and could result in the altering or destruction of evidence, improper influencing of witnesses, and other evasive actions that could impede or compromise the investigation.

• Subsection (d)(1). Release of investigative records to an individual who is the subject of an investigation could interfere with pending or prospective law enforcement proceedings, constitute an unwarranted invasion of the personal privacy of third parties, reveal the identity of confidential sources, or reveal sensitive investigative techniques and procedures.

• Subsections (d)(2) through (d)(4). Amendment or correction of investigative records could interfere with pending or prospective law enforcement proceedings, or could impose an impossible administrative and investigative burden by requiring us to continuously retrograde our investigations in an attempt to resolve questions of accuracy, relevance, timeliness, and completeness.

• Subsection (e)(4)(G) and (H). Notifying an individual who is the subject of an investigation or a witness that a system of records contains information about him or her could reveal the nature and scope of the investigation and could result in the altering or destruction of evidence, improper influencing of witnesses, and other evasive actions that could impede or compromise the investigation.

• Subsection (f). Establishing procedures for notification, inspection or amendment of records, or appeals of denials of access to records would interfere with pending or prospective law enforcement proceedings, constitute an unwarranted invasion of the personal privacy of third parties, reveal the identity of confidential sources, or reveal sensitive investigative techniques. Furthermore, these actions could impose an impossible administrative and investigative burden by requiring us to continuously retrograde our investigations in an attempt to resolve questions of accuracy, relevance, timeliness, and completeness.

Accordingly, we proposed to amend 45 CFR 5b.11(b)(2)(ii) of the Privacy Act regulations by adding the following:

• A new paragraph (H) that exempts investigative materials compiled for law enforcement purposes from ACTS.

• A new paragraph (I) that exempts investigative materials compiled for law enforcement purposes from HITS.

• A new paragraph (J) that exempts investigative materials compiled for law enforcement purposes from OPOS.

• A new paragraph (K) that exempts investigative materials compiled for law enforcement purposes from FID.

We solicited and received two timely public comments on the May 25, 2007 proposed rule. The following is a summary of the comments and our responses.

Comment: One commenter believed that 45 CFR 5b.11(d) seems to allow the Department of Health and Human Services to disclose identities of sources who furnished information under an express promise of confidentiality.

Response: We do not disclose information that would reveal the identities of sources who furnish information under an express promise of confidentiality because the promise of confidentiality made to a witness is an agreement with that individual, and such disclosure would be both a violation of that agreement and counterproductive to law enforcement efforts, as it would discourage individuals from coming forward to supply information about alleged misconduct. 45 CFR 5b.11(b) gives the responsible Department official discretion to grant notification of access to a record in a system of records which is exempt under 45 CFR 5b.11(b), unless disclosure to the general public is otherwise prohibited by law. The department does not intend to exercise its discretion to disclose identifying information about sources who furnish information under an express promise of confidentiality.

Comment: Commenters requested that the exemptions be narrowed or clarified by defining the terms “investigative materials” and “law enforcement purposes,” including differentiating among kinds of records within each system that constitute “investigatory materials,” as well as describing agency uses that are not consistent with “law enforcement purposes.” A commenter suggested that CMS implement regulatory definitions, criteria, guidelines or other means to effectuate a confidentiality promise to an informant and to recognize whether or not one has been effectuated for purposes of compliance with subsection (k)(2) of the Privacy Act.

Response: We believe that with respect to clarifying what constitutes a confidentiality promise, we continue to rely upon the following language in subsection (k)(2) of the Privacy Act (5 U.S.C 552a), which permits exemptions from certain subsections of the Privacy Act:

Further, since the information in the SORs at issue was collected on or after September 27, 1975, we believe that, with respect to investigative material that would reveal the identity of a confidential source, only express promises to a source that his or her identity would not be revealed will be implicated here. An example of an express promise could occur when a source expressly requests that his or her identity not be revealed as a condition of furnishing the information, and CMS agrees to that condition and documents that promise in writing.

The four SORs at issue were established after September 27, 1975, the effective date of the Privacy Act, as follows:

• The CMS Fraud Investigation Database (FID) was published under its previous name, “HCFA Utilization Review Investigatory Files,” on December 29, 1988 (53 FR 52792) and republished under its current name on October 28, 2002 (67 FR 65795 ).

• The Automated Survey Processing Environment (ASPEN). Complaints/Incidents Tracking System (ACTS) was first established on August 22, 2003 (68 FR 50795).

• The Health Insurance Portability and Accountability Act(HIPAA) Information Tracking System (HITS) was first established on July 6, 2005 (70 FR 38944).

• The Organ Procurement Organizations System (OPOS) was first established on May 22, 2006 (71 FR 29336).

Further information about this exemption can be found in the Office of Management and Budget's Privacy Act Guidelines, (see the July 9, 1975 Federal Register (40 FR 28972 through 28973)).

After review of the public comments, we are finalizing the provisions of the proposed rule with minor technical changes. We are revising the paragraphs in § 5b.11(b)(2)(ii) so that the SORs are listed in chronological order by the date established.

This final rule does not impose information collection and recordkeeping requirements. Consequently, it need not be reviewed by the Office of Management and Budget under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 35).

We have examined the impact of this rule as required by Executive Order 12866 (September 1993, Regulatory Planning and Review), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act (the Act), the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.

Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for regulating actions with economically significant effects ($100 million or more in any one year or other substantial adverse economic effects) known as “major rules”. This rule does not meet the “major rule” criteria therefore we are not preparing an RIA.

The RFA requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small governmental jurisdictions. Most hospitals and most other providers and suppliers are small entities, either by nonprofit status or by having revenues of $6 million to $29 million in any one year. Individuals and States are not included in the definition of a small entity. We are not preparing an analysis for the RFA because we have determined that this rule will not have a significant economic impact on a substantial number of small entities.

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 604 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 of a Metropolitan Statistical Area and has fewer than 100 beds. We are not preparing an analysis for section 1102(b) of the Act because we have determined that this rule will not have a significant impact on the operations of a substantial number of small rural hospitals.

Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any one year of $100 million in 1995 dollars, updated annually for inflation. That threshold level is currently approximately $120 million. This final rule will have no consequential effect on State, local, or tribal governments or on the private sector.

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications. Since this regulation does not impose any costs on State or local governments, the requirements of Executive Order 13132 are not applicable.

In accordance with the provisions of Executive Order 12866, this regulation was reviewed by the Office of Management and Budget.

This is a correction to a summary of the Commission's Report and Order in WT Docket No. 00-19, FCC 02-218, adopted on July 18, 2002 and released on July 31, 2002. The Report and Order streamlined, clarified and updated part 101 rules. These actions were to provide increased flexibility to licensees, ensure greater and more efficient use of spectrum bands regulated under part 101, and ensure that our Rules are consistent with international agreements.

As published, the final rules contain an error in § 101.115 Directional Antennas, Antenna Standards Table. The Commission did not request that the listed entry to the Antenna Standards Table for the frequency of 10,550 to 10,680  5,7 MHz be omitted. This correction removes the listing that should have been omitted. The entry for 10,550 to 10,680 7 , which was adopted in that proceeding, will remain.