[Federal Register Volume 59, Number 4 (Thursday, January 6, 1994)]
[Rules and Regulations]
[Pages 679-682]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-63]


[[Page Unknown]]

[Federal Register: January 6, 1994]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 421

[BPO-083-F]
RIN 0938-AF84

 

Medicare Program; Revisions to Criteria and Standards for 
Evaluating Intermediaries and Carriers

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Final rule.

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SUMMARY: This rule issues technical amendments to Medicare regulations 
intended to simplify and improve our system for evaluating the 
performance of fiscal intermediaries and carriers in the administration 
of the Medicare program. Currently, we evaluate intermediaries using 
performance criteria and standards announced in an annual notice in the 
Federal Register. We are clarifying the methodology for establishing 
these criteria and standards. For consistency, we establish comparable 
regulation requirements for the evaluation of carrier performance.
    These revisions are published in accordance with sections 1816(f) 
and 1842(b)(2) of the Social Security Act which require us to develop 
standards, criteria, and procedures to evaluate an intermediary's or 
carrier's overall performance.

EFFECTIVE DATE: This final rule is effective February 7, 1994.

FOR FURTHER INFORMATION CONTACT: Larry Pratt, (410) 966-7403.

SUPPLEMENTARY INFORMATION:

I. Background

    Under section 1816(a) of the Social Security Act (the Act), public 
or private organizations and agencies participate in the administration 
of Part A (Hospital Insurance) of the Medicare program under agreements 
with the Secretary of Health and Human Services (HHS). These agencies 
or organizations are known as fiscal intermediaries, and they perform 
bill processing and benefit payment functions for the Medicare program. 
Under section 1842(a) of the Act, the Secretary is authorized to enter 
into contracts with carriers to fulfill various functions in the 
administration of Part B (Supplementary Medical Insurance) of the 
Medicare program. Beneficiaries, physicians and suppliers of the 
services submit claims to these carriers that, in turn, make 
appropriate payments.
    Beginning in 1980 for intermediaries and in 1981 for carriers, we 
have been evaluating the effectiveness and efficiency of contractor 
operations through a system of criteria and standards called the 
Contractor Performance Evaluation Program (CPEP).
    We refer to the performance requirements we use to evaluate the 
performance of intermediaries and carriers in meeting their contractual 
obligations to HCFA in our regulations and program instructions as 
criteria and standards. When we developed our regulations, criteria 
were expected to be distinguished from standards; we intended to 
measure broad categorizations of performance using criteria (42 CFR 
421.120) and to measure statistical and performance data using 
standards (Sec. 421.122). As planned, a contractor had to be evaluated 
by and pass the requirements of the criteria before we evaluated 
contractor performance using statistical standards. However, in 
practice, the standards have been used to measure a contractor's 
compliance with the requirements of the criteria. The separate reliance 
on statistical standards diminished and we have developed a CPEP under 
which standards are used to measure the performance of specific 
activities in a defined criteria instead of ``statistical'' standards.

II. Summary of the Proposed Rule

    On December 3, 1992, we published in the Federal Register (57 FR 
57125) a proposed rule describing technical revisions we proposed to 
make to Medicare regulations in order to simplify and improve our 
system for evaluating the performances of fiscal intermediaries and 
carriers in the administration of the Medicare program. These technical 
revisions are necessary to bring our regulations up to date with our 
actual use of criteria and standards in performance evaluations.
    In the preamble to the proposed rule we described how the reliance 
on statistical standards diminished and that current ``standards'' are 
used to measure the performance of specific activities in a defined 
criterion. That is, measurement and evaluation using criteria and 
standards have evolved into a one-step process. In addition, we noted 
that certain functions that were included in the original planned 
evaluation structure have been transferred to more appropriate review 
activities. We, therefore, proposed to amend Secs. 421.3, 421.112(b), 
421.118(b) and 421.122 to delete reference to statistical standards and 
to replace the general standards for the areas evaluated formerly by 
statistical standards with a general explanation of the areas evaluated 
by performance standards.
    We also mentioned in the proposed rule that our regulations do not 
contain requirements relating to measurement of carrier performance 
that are parallel to those for intermediaries. For consistency, we 
proposed to establish a new Sec. 421.201, ``Performance Criteria and 
Standards,'' that would measure and evaluate carrier performance of 
functional responsibilities, such as, accurate and timely processing of 
claims, responsiveness to beneficiaries', physicians' and suppliers' 
concerns, and proper management of administrative funds.
    We proposed to base performance criteria and standards on the 
experience of carriers nationwide, changes in carrier operations due to 
fiscal constraints, and our objectives in achieving better performance. 
Before the beginning of each CPEP evaluation period, we would publish 
the performance criteria and standards as a notice in the Federal 
Register.
    We also announced that we would add a new Sec. 421.203, ``Carrier's 
failure to perform efficiently and effectively,'' to explain the 
adverse action that may be taken by the Secretary if the carrier fails 
to meet criteria and standards specified at Sec. 421.201. The content 
is parallel to Sec. 421.124, which applies to intermediaries. This new 
Sec. 421.203 does not add or change carrier obligations. It merely 
codifies in regulations a provision specific to carriers that has been 
in effect since Public Law 98-369.

III. Analysis of and Response to Public Comments

    We received 10 timely items of correspondence in response to the 
December 3, 1992 proposed rule. The comments were from intermediaries, 
carriers, contractor advocacy groups, and provider advocacy groups. A 
summary of the comments and the Department's responses follow:
    Comment: Several commenters suggested that a process be developed 
by HCFA for receiving comments, complaints, or problems with carrier 
performance by physicians or professional organizations and that the 
information generated by this process be included in the overall 
performance evaluation of a carrier.
    Response: Beginning in Fiscal Year 1994, HCFA will review both 
intermediaries' and carriers' efforts to enhance customer satisfaction 
through the use of customer satisfaction surveys, including the 
National Physician Survey. Results of the surveys will be used to 
establish performance data on customer satisfaction and to identify 
areas in need of improvement. The results will be summarized for 
publication in the report of contractor performance.
    Comment: A number of the commenters believe that certain of our 
proposed changes at Secs. 421.124 and 421.203 are unnecessary. Those 
changes would allow the Secretary to take adverse action if an 
intermediary or carrier exceeds the amount the Secretary finds to be 
reasonable and adequate to meet the costs which must be incurred by an 
efficiently and economically operated intermediary or carrier, 
notwithstanding whether the intermediary or carrier meets the published 
criteria and standards. Both the intermediary and carrier contracts 
currently have a provision to allow the Secretary to request a 
committee of the contractors to assist in efforts to effect 
improvements in the high cost contractor's performance. In addition, 
the current Contractor Performance Evaluation Program (CPEP) contains 
measures on contractor costs. If a contractor fails to meet the 
applicable criteria, its CPEP score is reduced accordingly.
    Response: We do not agree that the proposed changes are 
unnecessary. This section of the regulation would authorize us to take 
adverse action for deficient performance of a function not specifically 
evaluated by CPEP. Currently, CPEP only measures contractor performance 
in meeting the approved budget and the contractor's relative standing 
among similar contractors. Moreover, beginning in FY 1993, CPEP 
eliminated the concept of passing/failing the overall evaluation. 
Passing/failing now is determined on a standard by standard basis. For 
example, if a contractor fails to meet the approved budget, it will 
fail one standard in CPEP, not the entire CPEP. Thus, despite CPEP, the 
authority to take adverse contract action against high cost 
intermediaries and carriers is necessary. As the commenters note, 
current contracts allow the Secretary to request a committee of the 
contractors to assist in efforts to effect improvements in the high 
cost contractor's performance. The proposed regulatory change allows us 
to take the next logical step in the event efforts to effect 
improvement have failed. We will have authority to take adverse action 
based on continued high cost performance.
    Comment: Several commenters stressed that the proposed Sec. 421.124 
and Sec. 421.203 were vague. They asked that HCFA further define 
``reasonable'' amount, and how and when high cost would be calculated.
    Response: We believe that the provisions at Sec. 421.124 and 
Sec. 421.203 are clear and straightforward. It is our responsibility to 
consider the funding levels that are reasonable and adequate to meet 
the costs incurred by an efficiently and economically operated 
contractor. To address this responsibility, we develop unit cost 
targets for each contractor prior to the start of every fiscal year. 
These unit cost targets are forwarded to the HCFA regional offices as 
part of the Budget and Performance Requirements (BPRs) package and 
represent the benchmark for the negotiations between the regional 
offices and the contractors.
    We believe that the composition of a contractor's workload (for 
example, number of hospital inpatient bills versus number of outpatient 
bills or laboratory bills, etc.) is an important factor in the amount 
of costs it incurs since some claims are inherently more problematic 
and difficult to resolve. In order to give full consideration of each 
contractor's unique situation, we currently apply a ``complexity 
index'' to develop the BPRs' unit cost targets. This methodology allows 
us to correlate the contractor's costs with its individual workload 
composition. The use of the complexity index allows us to identify the 
contractors whose unit costs appear to be out of proportion to the type 
and medium (electronic versus hardcopy) of workload they must process.
    Use of the complexity index methodology allows us to evaluate each 
contractor's costs with full consideration of its unique workload mix 
and within the national forum of its peers. In this way, we identify 
our high cost contractors. However, since the use of the complexity 
index methodology is an administrative tool to identify contractors 
with aberrant costs and can be changed or modified as required, we do 
not believe it necessary to outline this methodology in the regulation.
    Comment: Several commenters stated that the proposed 
Secs. 421.124(a) and 421.203(a) on high cost contractors do not specify 
the types of adverse action we may take on the grounds of excessive 
cost. Contractors are uncertain about how we would go about the process 
of applying sanctions and what these sanctions might be.
    Response: Adverse contract actions are listed in Secs. 421.124(a) 
and 421.203(a) of the proposed regulation, but we are not limited to 
those. Adverse contract actions are further defined in the intermediary 
and carrier manual issuances released within the HCFA Program Manual 
Issuances System, which contain the details of the CPEP. Adverse 
actions range in severity commensurate with relative performance and 
include, but are not limited to, such actions as, Regional Office 
Letter of Admonition; Central Office Letter of Admonition; deletion of 
the automatic renewal clause from the contract without performance 
goals established; deletion of the automatic renewal clause from the 
contract with performance goals established; limited contract 
automatic-renewal clause and provision for termination upon 90 days 
notice; reduction in territory or ``carve-out''; non-renewal; and 
termination.
    Comment: A commenter was unsure whether, if HCFA does not publish 
the CPEP standards during a fiscal year, there would be no performance 
evaluation for that year or whether the previous year's CPEP would 
apply.
    Response: In general, the evaluation period which the criteria and 
standards measure is the Federal fiscal year. We make every effort to 
publish the criteria and standards prior to the beginning of the 
Federal fiscal year, that is, October 1st. If we do not publish a 
Federal Register notice before the new fiscal year begins, readers may 
presume that, until and unless notified otherwise, the criteria and 
standards which were previously in effect remain in effect. When a new 
CPEP is published, it usually applies to a prospective period, as 
stated in the Federal Register notice.
    Comment: One commenter states that contractors participate in pilot 
projects which may involve additional funding from HCFA. They assume 
this ``additional funding'' would not be considered as ``excessively 
high costs''.
    Response: We encourage contractors to participate in pilot projects 
which may result in improved quality, service or efficiency in the 
administration of the Medicare program. Where a contractor's 
participation in a pilot study or program adversely affects its 
performance evaluation, appropriate adjustments are made to mitigate 
the impact of the pilot study or program.
    Comment: One commenter recommends that HCFA not base criteria and 
standards on the sliding scale of available funding but on true 
expectations of performance and therefore delete ``changes in fiscal 
operations due to fiscal constraints'' as a basis for developing 
criteria and standards.
    Response: Each year the specific standards are revised and 
developed in concert with the specific budget and performance 
requirements, because that is the fiscally responsible approach to 
develop uniform and fair performance standards for the Medicare 
contractor community. We will continue to develop standards in 
conjunction with budget and performance requirements.
    Comment: One commenter notes that Secs. 421.124 and 421.203 do not 
include the contract's provision for an extension of the contract, 
subject to cost limitations. This would deprive high cost contractors 
of the formal opportunity to choose between accepting limits on their 
reimbursable costs and losing their Medicare contracts.
    Response: The contract allows us to offer a high cost contractor 
the option of submitting a lower budget or losing its Medicare 
contract. Sections 421.124 and 421.203 would give us the authority to 
determine the amount which is reasonable and adequate to efficiently 
and economically operate as an intermediary and carrier. If we 
determine that we cannot afford to contract with high cost 
intermediaries or carriers, we may consider appropriate adverse 
contract action.

IV. Provisions of the Final Rule

    Based on our review of the comments submitted, we are making no 
substantive changes to the proposed revisions to the rules affecting 
criteria and standards for evaluating intermediaries and carriers as 
published on December 3, 1992, (57 FR 233). Only minor editorial and 
technical revisions have been made to the proposed rules.

List of Subjects in 42 CFR Part 421

    Administrative practice and procedure, Health facilities, Health 
professions, Medicare, Reporting and recordkeeping requirements.

    42 CFR part 421 is amended as set forth below:

PART 421--INTERMEDIARIES AND CARRIERS

    1. The authority citation for part 421 continues to read as 
follows:

    Authority: Secs. 1102, 1815, 1816, 1833, 1834(a) and (h), 1842, 
1861(u), 1871, 1874, and 1875 of the Social Security Act (42 U.S.C. 
1302, 1395g, 1395h, 1395l, 1395m(a) and (h), 1395u, 1395x(u), 
1395hh, 1395kk, and 1395ll), and 42 U.S.C. 1395b-1.

    2. Section 421.3 is revised to read as follows:


Sec. 421.3  Definitions.

    Intermediary means an entity that has a contract with HCFA to 
determine and make Medicare payments for Part A or Part B benefits 
payable on a cost basis (or under the Prospective Payment System for 
hospitals) and to perform other related functions. For purposes of 
designating regional or alternative regional intermediaries for home 
health agencies and of designating intermediaries for hospices under 
Sec. 421.117 as well as for applying the performance criteria in 
Sec. 421.120 and the performance standards in Sec. 421.122 and any 
adverse action resulting from such application, the term intermediary 
also means a Blue Cross Plan which has entered into a subcontract 
approved by HCFA with the Blue Cross and Blue Shield Association to 
perform intermediary functions.


Sec. 421.112  [Amended]

    3. In Sec. 421.112(b), ``statistical standards'' is revised to read 
``performance standards''.


Sec. 421.118  [Amended]

    4. In Sec. 421.118(b) ``statistical standards'' is revised to read 
``performance standards''.
    5. Section 421.122 is revised to read as follows:


Sec. 421.122  Performance standards.

    (a) Development of standards. In addition to the performance 
criteria (Sec. 421.120), HCFA develops detailed performance standards 
for use in evaluating intermediary performance which may be based on 
historical performance, application of acceptable statistical measures 
of variation to nationwide intermediary experience during a base 
period, or changing program emphases or requirements. These standards 
are also developed considering intermediary experience and evaluate the 
specific requirements of each functional responsibility or criterion.
    (b) Factors beyond intermediary's control. To identify measurable 
factors that significantly affect an intermediary's performance, but 
that are not within the intermediary's control, HCFA will--
    (1) Study the performance of intermediaries during the base period, 
and
    (2) Consider the noncontrollable factors in developing performance 
standards.
    (c) Publication of standards. The development and revision of 
standards for evaluating intermediary performance is a continuing 
process. Therefore, before the beginning of each evaluation period, 
which usually coincides with the Federal fiscal year period of October 
1-September 30, HCFA publishes the performance standards as part of the 
Federal Register notice describing the performance criteria issued 
under Sec. 421.120(c). HCFA may not necessarily publish the criteria 
and standards every year. HCFA interprets the statutory phrase ``before 
the beginning of each evaluation period'' as allowing publication of 
the criteria and standards after the Federal fiscal year begins, as 
long as the evaluation period of the intermediaries for the new 
criteria and standards begins after the publication of the notice.
    6. Section 421.124 is revised to read as follows:


Sec. 421.124  Intermediary's failure to perform efficiently and 
effectively.

    (a) Failure by an intermediary to meet, or to demonstrate the 
capacity to meet, the criteria or standards specified in Secs. 421.120 
and 421.122 may be grounds for adverse action by the Secretary or by 
HCFA, such as reassignment of providers, offer of a short-term 
agreement, termination of a contract, or non-renewal of a contract. If 
an intermediary meets all criteria and standards in its overall 
performance, but does not meet them with respect to a specific provider 
or class of providers, HCFA may reassign that provider or class of 
providers to another intermediary in accordance with Sec. 421.114.
    (b) In addition, notwithstanding whether an intermediary meets the 
criteria and standards, if the cost incurred by the intermediary to 
meet its contractual requirements exceeds the amount which HCFA finds 
to be reasonable and adequate to meet the cost which must be incurred 
by an efficiently and economically operated intermediary, those high 
costs may also be grounds for adverse action.
    7. In subpart C a new Sec. 421.201 is added to read as follows:


Sec. 421.201  Performance criteria and standards.

    (a) Application of performance criteria and standards. As part of 
the carrier evaluations mandated by section 1842(b)(2) of the Act, HCFA 
periodically assesses the performance of carriers in their Medicare 
operations using performance criteria and standards.
    (1) The criteria measure and evaluate carrier performance of 
functional responsibilities such as--
    (i) Accurate and timely payment determinations;
    (ii) Responsiveness to beneficiary, physician, and supplier 
concerns; and
    (iii) Proper management of administrative funds.
    (2) The standards evaluate the specific requirements of each 
functional responsibility or criterion.
    (b) Basis for criteria and standards. HCFA bases the performance 
criteria and standards on--
    (1) Nationwide carrier experience;
    (2) Changes in carrier operations due to fiscal constraints; and
    (3) HCFA's objectives in achieving better performance.
    (c) Publication of criteria and standards. Before the beginning of 
each evaluation period, which usually coincides with the Federal fiscal 
year period of October 1-September 30, HCFA publishes the performance 
criteria and standards as a notice in the Federal Register. HCFA may 
not necessarily publish the criteria and standards every year. HCFA 
interprets the statutory phrase ``before the beginning of each 
evaluation period'' as allowing publication of the criteria and 
standards after the Federal fiscal year begins, as long as the 
evaluation period of the carriers for the new criteria and standards 
begins after the publication of the notice.
    8. A new Sec. 421.203 is added to read as follows:


Sec. 421.203  Carrier's failure to perform efficiently and effectively.

    (a) Failure by a carrier to meet, or demonstrate the capacity to 
meet, the criteria and standards specified in Sec. 421.201 may be 
grounds for adverse action by the Secretary, such as contract 
termination or non-renewal.
    (b) Notwithstanding whether or not a carrier meets the criteria and 
standards specified in Sec. 421.201, if the cost incurred by the 
carrier to meet its contractual requirements exceeds the amount that 
HCFA finds to be reasonable and adequate to meet the cost which must be 
incurred by an efficiently and economically operated carrier, those 
high costs may also be grounds for adverse action.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: October 20, 1993.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
    Dated: December 2, 1993.
Donna E. Shalala,
Secretary.
[FR Doc. 94-63 Filed 1-5-94; 8:45 am]
BILLING CODE 4120-01-P