[Federal Register Volume 59, Number 55 (Tuesday, March 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-6655]


[[Page Unknown]]

[Federal Register: March 22, 1994]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES
[BPO-106-FN]

 

Medicare Program: Data, Standards and Methodology Used to 
Establish Fiscal Year 1993 Budgets for Fiscal Intermediaries and 
Carriers

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

ACTION: Final Notice.

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SUMMARY: This notice is published in accordance with sections 
1816(c)(1) and 1842(c)(1) of the Social Security Act which requires us 
to publish the final data, standards and methodology used to establish 
budgets for Medicare intermediaries and carriers.
    It announces that we are adopting as final, and responds to 
comments about, the data, standards, and methodology we proposed to use 
to establish Medicare fiscal intermediary and carrier budgets for the 
fiscal year (FY) 1993, beginning October 1, 1992.

Effective Date: The data, standards, and methodology are effective for 
the fiscal year beginning October 1, 1992.

For Further Information Contact: Tom Hessenauer, (410) 966-7542.

SUPPLEMENTARY INFORMATION:

I. Background

    On November 16, 1992, we published in the Federal Register (57 FR 
54083) a proposed notice describing the data, standards, and 
methodology we intended to use to establish budgets for Medicare 
program fiscal intermediaries and carriers for the Federal fiscal year 
beginning October 1, 1992. The notice was published in accordance with 
sections 1816(c)(1) and 1842(c)(1) of the Social Security Act, (the 
Act) which require us to publish for public comments the data, 
standards, and methodology we propose to use to establish budgets for 
Medicare intermediaries and carriers. Following the same format we have 
used in prior years' notices, the notice described the budget 
development process in general; gave an overview of how we intend to 
use the contractor budget data, standards, and methodology to establish 
the FY 1993 budgets; and identified the FY 1993 national Medicare 
contractor budget, standards and methodology.
    In the proposed notice, we indicated that the Medicare contractor 
budget would be structured to coincide with the seven functional areas 
of responsibilities performed by intermediaries for Part A and nine 
functional areas of responsibilities performed by carriers for Part B. 
The functional areas of responsibilities for Part A are: (1) Bills 
Payment; (2) Reconsiderations and Hearings; (3) Medicare Secondary 
Payer; (4) Medical Review and Utilization Review; (5) Provider Audit 
(Desk Reviews, Field Audits, and Provider Settlements); (6) Provider 
Reimbursement; and (7) Productivity Investments. The functional area 
responsibilities for Part B are: (1) Claims Payment; (2) Reviews and 
Hearings; (3) Beneficiary/Physician Inquiries; (4) Medical Review and 
Utilization Review; (5) Fraud and Abuse; (6) Participating Physicians; 
(7) Provider Education and Training; (8) Medicare Secondary Payer; and 
(9) Productivity Investments. These functions are funded from the 
Hospital Insurance (HI) and Supplementary Medical Insurance (SMI) trust 
funds.
    We proposed that final funding would be allocated based on current 
claims processing trends, legislative mandates, administrative 
initiatives, current year performance standards and criteria, and the 
availability of funds appropriated by the Congress.
    The FY 1993 Budget Performance Requirements (BPRs) gave the 
contractors the authority to manage their budgets on a bottom line 
basis. Once funding is issued, each contractor has the flexibility to 
optimally manage the budget consistent with the scope of work contained 
in the BPRs. In past years, contractors were not allowed to shift more 
than 5 percent of funds from one line item to another in their budget, 
as determined by the lesser of the two line items. This restriction was 
intended to give contractors some latitude with regard to reporting 
their costs, yet still allow HCFA to maintain control over the national 
budget. With the exception of Payment Safeguards, Productivity 
Investments, and ``Other'' line items, contractors have total 
flexibility in the use of funds subject to certain constraints. The 
constraints for Payment Safeguards require that no more than 5 percent 
of total funding for each Payment Safeguard function can be shifted out 
of that functions and used elsewhere. Unlimited shifting into Payment 
Safeguard, a change from previous policies, is permitted. The 
constraints for Productivity Investments (PI) and ``Other'' lines, 
require that no more than 5 percent may be shifted into or out of these 
lines and used elsewhere. Each ``Other'' line is treated separately; 
the PI line is treated as a whole, not by separate projects. 
Contractors can use the PI funds provided to complete any authorized PI 
project. Funding governed by contract modifications may not be shifted 
to other functions or lines.
    We announced that final BPRs were sent to all contractors in May 
1992 to assist them in preparing their FY 1993 budget requests. 
Intermediaries and carriers are expected to perform the work as 
described in the BPR package and in accordance with the standards 
included in the Contractor Performance Evaluation Program (CPEP) for FY 
1993 which was published in the Federal Register on September 18, 1992 
(57 FR 43230). While the contractors were preparing their budget 
requests, we developed preliminary budget allocations for the 16 
functional areas based on historical patterns, workload growth, 
inflation assumptions, statistical forecasting reports, and any other 
available information.
    A key step in the budget process is the development of contractor 
unit costs for processing Part A bills and Part B claims. As was 
started in FY 1992, the FY 1993 budget process incorporates a bottom 
line unit cost approach that encompasses all budget line items except 
Provider Audit, Productivity Investments, and Other. For funding the 
bills/claims processing function, the Complexity Index, also new in FY 
1992, was continued in FY 1993. The only difference in calculation in 
FY 1993 from FY 1992 was the use of the 60th percentile instead of the 
70th percentile.
    It was also noted that limitations on the FY 1993 budget could 
require across-the-board cost cutting measures. Should this occur, each 
HCFA Regional Office (RO) would determine the amount of budget 
reduction for its contractors.

II. Analysis of and Responses to Public Comments

    In response to our request for comments, we received four timely 
items of correspondence. Comments were received from: one national 
specialty association, one beneficiary advocacy association, one 
national health insurance association, and one concerned citizen.
    Several issues raised by the commenters are outside the scope of 
the notice and are not addressed in these responses. Where appropriate 
they were referred to the components within HCFA for review and 
analysis to determine if operational adjustments are required or 
warranted.
    Comment: Three commenters, noting that the proposed notice was 
published after the beginning of FY 1993, expressed concern that the 
timing denied interested parties the opportunity to comment before 
implementation of the budget.
    Response: We appreciate the need to publish all proposed notices as 
timely as possible. Although, we did not publish the proposed notice 
before the beginning of the fiscal year, due to considerations in 
reviewing data and developing a budget, we did however provide adequate 
opportunity for all intermediaries and carriers to comment on the data, 
standards and methodology, and were fully prepared to issue revised 
Budget and Performance Requirements (BPRs) to intermediaries and 
carriers based on the comments received. If necessary, we were prepared 
to renegotiate any affected areas of intermediary and carrier budgets 
within the levels of funding made available by the Congress.
    Comment: One commenter expressed the opinion that the notice lacks 
the specificity about the development of the contractor budgets that 
the Omnibus Budget Reconciliation Act of 1987 (OBRA '87) was intended 
to elicit. The commenter also stated that most of the methodology 
described in the notice is general and could apply to any contractor 
budget year.
    Response: We believe the congressional intent was for us to provide 
sufficient description of the data, standards, and methodology used in 
determining the annual budgets. We believe the notice complies with the 
intent of the Congress. The commenter is correct that some 
methodologies are retained from year to year. However, we always apply 
the most recent data. Additionally, legislative changes and budget 
priorities or constraints affect the standards.
    This notice is intended to include only the data, standards, and 
methodology to be used to establish budgets for fiscal intermediaries 
and carriers for a given fiscal year. Specific instructions on how to 
implement and monitor certain initiatives (e.g. beneficiary inquiries, 
participating physician, physician payment reform, etc.) are presented 
through other means such as program memoranda, manual instructions, 
BPRs, etc.
    Comment: One commenter expressed concern whether the budget 
provided funding for continuation of toll-free beneficiary information 
lines.
    Response: Funding for this important service was restored in the FY 
1992 budget. In the absence of language to the contrary, funding is 
included to continue this service in FY 1993.
    Comment: Commenters addressed several issues related to 
calculations of the unit cost targets (e.g., complexity index, 
electronic media claims goals, etc.) suggesting that a more complete 
explanation be given.
    Response: The national Medicare contractor administrative budget 
has been severely constrained over the last several years as a result 
of the Federal budget deficit. These budget restraints have presented a 
challenge to both the contractor community and us. It is our 
responsibility to ensure that available funding is distributed in a 
responsible and appropriate manner. In order to do this, we have 
provided unit cost targets for the Medicare contractors for the past 
several years.
    For FYs 1990-1992, we used each individual contractor's most recent 
full-year's actual unit cost as the baseline unit cost for the upcoming 
fiscal year. In order to recognize the inherent differences in the 
costs that each contractor realizes by participating in the Medicare 
program, the basis for each contractor's FY 1993 unit cost target was 
its actual unit cost as reported on the FY 1991 Final Administrative 
Cost Proposal. This calculation confirms that our methodologies do 
consider the actual costs incurred by contractors in delivering 
required services.
    In accordance with sections 1816 and 1842 of the Act, all of our 
methodologies were developed to provide each contractor with the 
incentive and direction needed to conduct its Medicare business in an 
efficient and economical manner. It is true that the majority of our 
contractors are in a cost contract arrangement with HCFA. However, it 
is our role to encourage the Medicare contractors to identify and 
institute more efficient (and less costly) ways of doing business. The 
unit cost targets do not supplant the cost contract arrangement, but 
rather provide direction to ensure that our own administrative 
initiatives will be fully considered by the contractors. We would be 
negligent in our responsibilities if we failed to encourage contractors 
to reduce administrative costs.
    We believe we are acting within the authority of Title XVIII of the 
Act, the Federal Acquisitions Regulations (FAR), and the Medicare 
contracts with intermediaries and carriers. For example, in 
establishing intermediaries' administrative costs, section 1816(c)(1) 
of the Act explicitly provides that the Secretary ``* * * shall provide 
for payment of so much of the cost of administration of the agency or 
organization as is determined by the Secretary to be necessary and 
proper for carrying out the functions covered by the agreement.'' 
(Emphasis added.) Parallel language regarding carriers' administrative 
costs is set out in section 1842(c)(1).
    The commenters inferred that the imposed ``target costs'' for 
contractors, in effect, are intended to convert the contracts from a 
cost to a fixed-price basis. Again, referring to the FAR, we note that 
our actions are well within the definition of a cost-reimbursement type 
contract. Section 16.301-1 of the FAR states that ``Cost-reimbursement 
types of contracts provide for payment of allowable incurred costs, to 
the extent prescribed in the contract. These contracts establish an 
estimate of total costs for the purpose of obligating funds and 
establishing a ceiling that the contractor may not exceed (except at 
its own risk) without the approval of the contracting officer.'' We 
believe that the use of the Complexity Index (CI) is in compliance with 
this section of the FAR.
    The CI was developed because of a perception (both within and 
outside of HCFA) that too much variation exists among contractors' unit 
costs. There is also a perception that some contractors are realizing 
costs that are out of proportion to the difficulty of the workload they 
process.
    Use of the CI has allowed us to grant contractors an extra degree 
of budget flexibility. We have been able to replace the 
``micromanagement'' of functional unit costs with the bottom-line 
concept. As previously mentioned, we believe that a contractor's costs 
are driven by its overall bill/claims workload mix. This workload mix 
also impacts other contractor functions such as Medicare Secondary 
Payer and Inquiries. We believe that it is appropriate, given the level 
of budget flexibility granted to the contractors, to provide a bottom-
line budget with which contractors can finance their operations as they 
deem appropriate. It should also be noted the application of the CI 
allows us to identify high cost contractors within the context of the 
entire Medicare contractor community. If a contractor is experiencing 
an inordinately high level of inquiries, we want to provide an 
incentive for it to investigate the reason for the excessive volume.
    Based on the results of the 1989 Industrial Engineering Study, 
conducted by the Technology Management Corporation, we believe that the 
savings per bill/claim that we apply for increases in electronic media 
claims (EMC) volume are conservative. We do not believe that we have 
overstated the potential savings associated with EMC. Also, the 
discussion concerning the elimination of the toll-free telephone lines 
for beneficiary inquiries is now moot since the release of the FY 1992 
contingency funds negated the need to eliminate this service. Full 
funding was reinstated to the contractor budgets.
    Since the CI includes a full consideration of each individual 
contractor's workload mix and its actual costs as reported on the FY 
1991 Final Administrative Cost Proposals, we believe that this 
methodology is an equitable and efficient method of formulating 
contractor unit cost targets.
    The use of unit cost targets does not preclude the negotiation 
process between the ROs and the contractors. As always, contractors 
should submit budget requests in keeping with their estimated 
administrative expenses. However, they also need to consider all of 
HCFA's administrative initiatives, including cost reduction 
initiatives, in formulating their budgets. Furthermore, the contractors 
identified as high cost should be investigating the reasons for their 
status and actively seeking to remedy these conditions.

III. Provisions of the Final Notice

    Based on our review of the comments submitted, we are making no 
changes to the data, standards, and methodology as published on 
November 16, 1992 (57 FR 54083). Therefore, we are adopting as final, 
the notice as proposed.
    This final notice was reviewed by the Office of Management and 
Budget.

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

    Dated: December 14, 1993.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
[FR Doc. 94-6655 Filed 3-21-94; 8:45 am]
BILLING CODE 4120-01-P