[Federal Register Volume 59, Number 61 (Wednesday, March 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7468]


[[Page Unknown]]

[Federal Register: March 30, 1994]


=======================================================================
-----------------------------------------------------------------------

OFFICE OF PERSONNEL MANAGEMENT

48 CFR Parts 1601, 1602, 1609, 1615, 1632, 1642, 1646, 1652

RIN 3206-AE67

 

Federal Employees Health Benefits Acquisition Regulation; 
Miscellaneous Changes

agency: Office of Personnel Management.

action: Final rulemaking.

-----------------------------------------------------------------------

summary: The Office of Personnel Management (OPM) is issuing final 
regulations that amend certain provisions of the Federal Employees 
Health Benefits Acquisition Regulation (FEHBAR). The changes will more 
precisely reflect the needs of OPM in contracting for health benefits 
under the Federal Employees Health Benefits Program (FEHBP) and in the 
general administration of the FEHBP contracts.

effective date: March 30, 1994.

for further information contact: Mary Ann Mercer, (202) 606-0191.

supplementary information: On June 29, 1993, OPM published proposed 
regulations in the Federal Register (58 FR 34769) that would amend 
certain community rating and experience rating provisions of the 
FEHBAR. We received 36 comments, 28 from FEHBP community rated 
carriers, two from FEHBP experience rated carriers, two from 
organizations representing FEHBP health maintenance organizations 
(HMOs) and similar managed care systems, two from law firms 
representing a number of community rated FEHBP carriers, one from a law 
firm representing an association of Federal health organizations, and 
one from a Federal agency. We appreciate the observations and 
suggestions offered and have taken them into consideration in these 
regulations.
    The majority of the comments were favorable toward OPM's efforts to 
more effectively administer the FEHBP. Many of the commenters expressed 
concerns, however, about the changes with respect to Similarly Sized 
Subscriber Groups (SSSGs) and the quality assurance program 
requirements proposed by OPM. A number of them offered suggestions as 
to how OPM might further clarify the regulations to mitigate these 
concerns.
    The comments and recommendations received reflect the difficulty 
OPM has experienced in specifying explicit standards in regulation in 
these two areas. The conflicting comments and suggestions from the 
carriers have prompted us to reconsider our decision to establish 
explicit standards by regulation. Instead, OPM has decided to replace 
the standards with guiding principles and will provide carriers with 
specific criteria for SSSGs in the annual rate letters. In addition, 
OPM intends to furnish specific quality assurance standards prior to 
its FEHBP contract negotiations for the following contract year. This 
approach will foster competitiveness and commercial practices in the 
FEHBP by reflecting the latest developments in the insurance industry 
and will thereby allow OPM to utilize the most recent market mechanisms 
in the FEHBP.
    This approach conforms to the principles of the Administration's 
National Performance Review (NPR) as well. A key element of the NPR is 
the simplification of government procurement regulations and processes, 
a shifting from rigid rules to guiding principles, and replacement of 
agency rules with policy directives and instructions, where 
appropriate. An important advantage to this approach is that OPM will 
no longer find its regulatory policies in these areas lagging behind 
insurance industry trends because both OPM and the carriers will have 
the flexibility to adjust quickly to current market conditions.
    Pursuant to section 553(d)(3) of title 5 of the United States Code, 
OPM is issuing these regulations with an immediate effective date. The 
regulations are being made effective immediately so that they may be in 
place before the rate letters for the 1995 FEHBP contract year are 
mailed to the carriers.
    The following will address the comments received and will clarify 
OPM's intent with respect to those portions of the regulations changed 
as well as those retained.
    In the past, we have noted a general misunderstanding relating to 
OPM's objective in using SSSGs to verify the Federal group's rate. 
OPM's objective is to ensure that the Federal group's rate is 
equivalent to the SSSGs' rates, thereby reflecting any market 
advantages given to the SSSGs.
    In the Supplementary Information section of the proposed 
regulations, OPM asserted that it may examine any aspect of a carrier's 
rating procedure to ensure that the carrier gives the Federal group an 
equitable rate. This statement troubled a number of commenters who 
expressed concern that, even where the carrier charges the Federal 
group a rate that is equivalent to that charged the SSSGs, it is OPM's 
practice to look beyond the SSSGs to determine whether the Federal 
group is entitled to any rate adjustment. They contend that OPM's 
regulations do not provide for any rate adjustment for the Federal 
group based on rates charged a group that is not an SSSG. One commenter 
interpreted the statement to mean that OPM will limit rates to the 
lowest amounts charged by an HMO to its largest groups.
    We would like to clarify that OPM's detailed examination of a 
carrier's rating process is not an alternative procedure to identify 
SSSGs. OPM will examine the rating methodology of the SSSGs to ensure 
that it is consistent with that used for the Federal group. For 
example, if the carrier uses traditional community rating (TCR) or 
community rating by class (CRC) for the Federal group and the SSSGs, 
OPM will verify that the carrier based on the self-and-family rates for 
all three groups on the same underlying capitation rate and derived 
them by the same general procedure. If the carrier uses adjusted 
community rating (ACR) for all three groups, OPM will verify that the 
carrier derived the self-and-family rates for all three groups by the 
same general methodology.
    We have revised the definition of SSSGs. The SSSGs are the two 
groups closest in size to the Federal group that meet the criteria 
specified in OPM's rate instructions. All groups are potentially SSSGs 
except those which the carrier rates by retrospective experience 
rating.
    OPM does, however, reserve the right to examine the rate 
development of non-SSSG groups. We want to emphasize that the sole 
purpose of such analysis is to make certain that the Federal group's 
rates are equivalent to the SSSGs' rates. For example, if an SSSG had a 
special benefit (e.g., dental benefit) not included in the Federal 
group benefit package, OPM would compare what the carrier charged the 
SSSG with what it charged other groups for this benefit. The purpose 
would be to verify that the SSSG received no discount. Carriers need 
not be concerned that an OPM review of a commercial group makes it a 
potential SSSG.
    One carrier wanted to know if health insurance purchasing 
cooperatives (HIPC) under state health care reform packages are 
excluded from consideration as SSSGs. OPM will consider all group not 
retrospectively experience rated as potential SSSGs. Assuming, then, 
that the group is not retrospectively experience rated, the size of the 
group in relation to the Federal group will be used to determine SSSGs. 
Since a HIPC negotiates rates on behalf of a group, if this group 
satisfies the size requirement, we would consider it to be an SSSG.
    One carrier suggested that OPM should change the definition of the 
SSSGs from one based on subscriber enrollment to one based on member 
enrollment. Basing the SSSGs on member enrollment is not practicable 
for the FEHBP because OPM does not have data on family members. The 
only reliable data available to OPM is the subscriber headcount. 
Consequently, OPM bases the SSSGs on subscriber enrollment.
    One law firm stated that the carriers' evaluations should be 
presumed correct in reconciling benefit differences unless inconsistent 
application of such values can be demonstrated. The firm, as well as 
another organization representing HMOs, is concerned that the actuaries 
and auditors will determine the value of the same benefits differently. 
OPM understands the concern. Nevertheless, OPM would be acting 
irresponsibly if it presumed the carriers' evaluations are correct. The 
fact that the Office of Actuaries accepts a rate proposal does not 
guarantee that no errors in the overall rates or in a particular aspect 
of the proposal will be uncovered in audit. This is precisely why the 
annual rate instructions to the carriers specifically state that the 
rate proposals are subject to audit.
    Ten community rated carriers and one law firm voiced concern about 
the requirement that the SSSGs be determined from enrollment data from 
the current contract year rather than data from the year preceding the 
contract year. They are concerned that the SSSGs may change as a result 
of enrollment changes between the date rate proposals are submitted and 
the date they are reconciled; that the HMO's target SSSGs may renew 
after the reconciliation date; or that they may not renew at all. They 
fear that the HMO may find itself out of compliance with the proposed 
SSSG requirements. They believe that reconciliations should look only 
at renewal dates already passed as of the time of reconciliation.
    OPM explained in its 1993 rate instructions that, beginning with 
the 1993 rate year, the enrollment for SSSGs would correspond to the 
rate year. For example, for the 1993 rate year, the 1993 enrollment for 
SSSGs would be used. Therefore, carriers need not be concerned that 
``target'' SSSGs may renew after the reconciliation date or that they 
may not renew at all. There are no longer any ``target'' SSSGs because, 
beginning with the 1993 rate year, carriers do not determine the SSSGs 
at the time of the proposal. A carrier now determines the SSSGs at the 
time it submits the reconciliation to OPM. It is at that time (usually 
around March of the rate year under consideration) that the carrier 
will compare the enrollment of its other groups to that of the Federal 
group.
    We agree with the comment that reconciliations should look only at 
renewal dates that are already passed at the time of the 
reconciliation. OPM will address this question in the 1994 
reconciliation instructions.
    Seven community rated carriers believe OPM should retain the 
benefits similarity requirement. OPM has dropped the benefits 
similarity requirement because many carriers have found the phrase 
``substantially the same benefit package'' vague. Future rate 
instructions will further define groups excluded from SSSG 
consideration. For example, we plan to exclude Medicaid groups, 
Medicare groups, and groups which have only a stand-alone benefit 
(e.g., dental benefits).
    In the Supplementary Information section to the proposed 
regulations, OPM referred to the definition of SSSG and stated that the 
regulations authorize the use of Government groups as SSSGs, provided 
that such groups are community rated. We stated that some carriers have 
considered the provision optional and are excluding State and local 
government groups even though they meet the SSG requirements and are 
community rated. Four carriers and one law firm believe that HMOs 
should have an option, not a mandate, to include state or local 
government groups as SSSGs since state procurement laws often dictate 
multiple year rate guarantees and the HMO Act does not require them to 
be community rated. Another carrier commented that the regulations 
concerning governmental groups are already permissive, not mandatory, 
as evidenced by OPM's use of the word ``may'' in the current 1602.170-
11(c). In fact, the term ``may'' was intended as authority for OPM to 
approve the use of Government groups as SSSGs if they are community 
rated and was not directed at the carriers. It was OPM's lack of 
clarity that caused the misunderstanding on the part of the carriers. 
OPM deleted this provision in the proposed and final regulations, 
because it is OPM's intention that government groups should not be 
treated differently from other groups provided for under 1602.170-
11(a). Note that under the revised language of 1602.170-11, all groups 
except those rated by retrospective experience rating are potential 
SSSGs.
    Several carriers raised questions specific to the proposed 
regulations that may not be relevant to future guidance issued by the 
Actuary. Consequently, we will not respond to them at this time. If 
carriers have specific questions when they receive the rate letter, 
then they should write or call OPM's Office of Actuaries for 
clarification.
    One commenter wanted to know whether a carrier could community rate 
its SSSGs and use some other rating practices for some or all of its 
other groups. It also wanted clarification whether, if OPM determines 
the rates on the two SSSGs are comparable, the carriers could use 
different rating methods or different rates with its other groups, 
including a discount. If the rating method for an SSSG differs from 
that used for the Federal group, OPM would review the SSSG rate to 
ensure that the rating method had been properly applied and that no 
discounts had been given to the group. As long as the Federal group 
rates are equivalent to the SSSG rates, OPM is not concerned with the 
plan's rating methods for its other groups.
    Two carriers noted that the Federal HMO regulations issued by HHS 
permit discounts (up to 5%) for groups which give the HMO special 
administrative or marketing advantages and asked whether OPM would 
recognize such discounts, or whether the discounts constitute defective 
community rating. We recognize the legitimacy of banding for 
administrative or marketing advantages. Any adjustments for these 
reasons should be disclosed to OPM and provided to the Federal group, 
if applicable.
    A number of carriers were confused by OPM's statement in the 
Supplementary Information section of the proposed regulations that a 
carrier must give the Federal group the lowest discount given to any 
SSSG. The confusion stemmed from 1615.802(b)(3), which states that a 
downward price adjustment will be made if OPM determines that the rate 
for one or both of the SSSGs is lower than that which would be obtained 
by basing the rate on the plan's community rate and further provides 
that such adjustments will be based on the lowest rate given to the 
SSSG. This language was never intended to require the lowest rate. 
Rather, it was meant to require the lowest rate derived using SSSG 
methodology applied to the Federal group. We have revised the language 
of the regulations to clarify our intent.
    One carrier believes that OPM is no longer allowing experience 
rating of HMOs. In fact, the reverse is true. Our regulations have 
moved away from a strict interpretation of community rating over the 
years. OPM is not eliminating experience rating by HMOs. On the 
contrary, we allow prospective experience rating for community rated 
plans in the form of Adjusted Community Rating. We also allow non-
community rated HMOs to use retrospective experience rating if they 
satisfy certain reporting requirements.
    Nine respondents commented that the effective date of the 
regulations should be prospective. They argue that a retroactive 
effective date potentially places contractors in violation of their 
Certificates of Accurate Pricing for the 1993 contract year. OPM agrees 
that the effective date should be prospective. These regulations will 
be in effect beginning with the 1994 rate reconciliation.
    In the proposed regulation, OPM adapted the FAR debarment 
certification at 52.209-5 to fit the FEHBP. In this certification, the 
carrier affirms that, among other things, neither it nor any of its 
``principles'' is presently debarred, suspended, or declared ineligible 
for the award of contracts by any Federal agency. One plan and one 
association of HMOs wanted to know the equivalent of a ``principal'' 
(referred to in the certification) in a managed care company. The term 
``principal'' is defined in the certification as ``officers; directors; 
owners; partners; and persons having primary management or supervisory 
responsibilities within a business entity. * * *'' We will not cite 
specific positions in managed care or other facilities equivalent to 
these positions because each organization's structure and 
responsibilities are unique.
    One respondent wanted to know if reliance solely on OPM's Inspector 
General-provided information on debarred providers would satisfy the 
ordinary course of business dealings standard in paragraph (e) of the 
proposed certification. Carriers cannot rely solely on debarred 
provider lists. Such lists include only health care providers, not non-
provider contractors, such as printing companies.
    The proposed regulations added 52.209-6, ``Protecting the 
Government's Interest When Subcontracting With Contractors Debarred, 
Suspended, or Proposed for Debarment,'' as a mandatory clause for all 
FEHBP carriers. This clause applies to all of the carrier's 
subcontractors. Carriers should note that the definition of 
subcontractor at 1602.170-12 excludes providers of direct medical 
services or supplies pursuant to the carrier's health benefits plan. To 
obtain information on whether or not a subcontractor is debarred, the 
carrier should refer to FAR 9.404(d).
    Under the proposed rules and pursuant to paragraph (d) of the 
certification at FAR 52.209-5, the contractor is not required to set up 
a system of records to determine whether each principal in the 
organization is debarred or suspended. The fact that a system of 
records is not required for debarred contractors and their principals 
under the FAR, however, does not necessarily mean that no system of 
records is needed to track debarred health care providers under 5 CFR 
970. The two debarment procedures fall under different statutory 
provisions and the issue under the latter is the payment of these 
individuals rather than the notification of the debarment or suspension 
status of the carrier's principals. Nevertheless, OPM expects that 
neither the debarment procedures under the FAR nor those under 5 CFR 
970 will require carriers to establish an additional system of records. 
Carriers should be able to set up debarment procedures for contractors, 
subcontractors, and providers within their existing systems.
    The proposed regulations prescribed novation and change of name 
agreements for FEHBP carriers (1642.12). Four commenters believe that 
OPM's provision authorizing it to terminate the contract if the carrier 
fails to submit the properly completed and signed novation agreement in 
a timely manner is unduly harsh.
    Transfer of Government contracts is prohibited by law (41 U.S.C. 
15). However, the Government may recognize a third party as the 
successor in interest to a Government contract when it is in the 
Government's best interest. When it is not in the Government's best 
interest to do so, the original contractor remains under contractual 
obligation to the Government, and the contract may be terminated for 
default should the original contractor not perform. These provisions 
are set out in FAR 43.1204 (a) and (b) and are applicable to all 
Government contractors. Thus, in FEHBAR subpart 1642.12, OPM is 
proposing no harsher standard for FEHBP carriers than is expected of 
other Government contractors. OPM simply intends to apply the 
procedures required under the FAR. Thus, in order to protect the 
interests of all FEHBP enrollees and to comply with the statute and 
regulations prohibiting transfer of a Government contract, OPM must 
obtain the novation agreement in a timely manner.
    One of the commenters noted that OPM already has authority to 
discipline carriers for repeated failure to comply with OPM 
instructions and directives at 1609.701(c)(4), and those provisions 
have a range of remedies in proportion to the seriousness of the 
action, only the most stringent of which is termination of the 
contract. Because Government contracts cannot be transferred, a 
carrier's failure to submit a novation agreement is not on the same 
level as an OPM instruction or directive. There is no less stringent 
remedy than contract termination for failure to submit a Novation 
Agreement.
    Three carriers and one law firm requested that OPM define the 
timeliness parameters in the novation and change of name agreements. 
One carrier asked that OPM address transfer of payments to the new 
company or under the new name. It believes that OPM's change in the 
direction of premiums should follow more closely upon the carrier's 
submission of the agreement to OPM.
    Consistent with past OPM practice, we consider timely to be 30 
calendar days. What is considered timely could vary, however, depending 
on the circumstances in a particular situation. OPM will attempt to 
accelerate the review process. Nevertheless, some delay may be 
unavoidable. Submission of paperwork does not necessarily mean 
automatic acceptance of a novation or change of name agreement, because 
the agreement must be reviewed by OPM's counsel for legal sufficiency, 
in accordance with FAR 42.1203(d).
    Nine carriers believe that the proposed FEHBP-specific quality 
assurance policies and procedures [Part 1646] would unnecessarily 
burden carriers if the plan is already subject to Federal or State 
quality assurance requirements. A number of the carriers recommended 
that OPM accept the National Committee for Quality Assurance (NCQA) 
Health Plan Employer Data and Information Set (HEDIS) standardized 
performance reports as an acceptable means of meeting the FEHBP 
contractual responsibility. OPM agrees with the carries in principle 
and has taken a number of steps in this director. We have withdrawn the 
proposed clause at 1646.246-70 relating to quality assurance/
performance standards. Thus, the audit inspection clause currently at 
1652.246-70 will remain in effect. We have amended Part 1646 to provide 
that OPM will issue specific performance standards for the FEHBP 
contracts. Finally, we will inform the carriers which standards apply 
prior to annual contract negotiations.
    In the future, OPM will issue FEHBP-specific standards which we 
will benchmark against the best performance standards in the insurance 
industry, consistent with the NPR. All performance standards will be 
evaluated against the same benchmark with the same results. We will 
consider a variety of standards, including those suggested to us in the 
written comments to the proposed regulations.
    Pursuant to section 553(d) of title 5 of the U.S. Code, I find that 
good cause exists for making these regulations effective immediately 
upon publication so that they may be used during the 1995 FEHBP 
contract negotiations.

E.O. 12866, Regulatory Review

    This rule has been reviewed by the Office of Management and Budget 
in accordance with E.O. 12866.

Regulatory Flexibility Act

    I certify that these regulations will not have a significant 
economic impact on a substantial number of small entities because they 
primarily affect administrative procedures used by OPM and the FEHBP 
carriers.

List of Subjects in 48 CFR Parts 1601, 1602, 1609, 1615, 1632, 
1642, 1646, and 1652

    Administrative practice and procedure, Government employees. Health 
facilities, Health insurance, Health professions, Hostages, Reporting 
and recordkeeping requirements, Retirement.

    Office of Personnel Management.
Lorraine A. Green,
    Deputy Director.

    Accordingly, OPM is amending chapter 16 of Title 48, Code of 
Federal Regulations, as follows:

CHAPTER 16--OFFICE OF PERSONNEL MANAGEMENT FEDERAL EMPLOYEES HEALTH 
BENEFITS ACQUISITION REGULATION

PART 1601--FEDERAL ACQUISITION REGULATIONS SYSTEM

    1. The authority citations for 48 CFR parts 1601, 1602, 1609, 1615, 
1632, 1646, and 1652 continue to read as follows:

    Authority: 5 U.S.C. 8913; 40 U.S.C. 486(c); 48 CFR 1.301.

    2. In section 1601.102, the existing paragraph is designated as 
paragraph (a) and a new paragraph (b) is added to read as follows:


Sec. 1601.102  Authority.

* * * * *
    (b) The FEHBAR does not replace or incorporate regulations found at 
5 CFR part 890, which provides the substantive policy guidance for 
administration of the FEHBP under 5 U.S.C. Chapter 89. The following is 
the order of precedence in interpreting a contract provision under the 
FEHBP:
    (1) 5 U.S.C. Chapter 89;
    (2) 5 CFR part 890;
    (3) 48 CFR Chapters 1 and 16;
    (4) The FEHBP contract.

PART 1602--DEFINITION OF WORDS AND TERMS

    3. Section 1602.170-11, is revised to read as follows:


Sec. 1602.170-11  Similarly sized subscriber groups.

    Similarly sized subscriber groups (SSSGs) are a comprehensive 
medical plan's two employer groups that:
    (a) As of the date specified by OPM in the rate instructions, have 
a subscriber enrollment closest to the FEHBP subscriber enrollment; 
and,
    (b) Use any rating method other than retrospective experience 
rating; and,
    (c) Meet the criteria specified in the rate instructions issued by 
OPM.

PART 1609--CONTRACTOR QUALIFICATIONS

    4. In part 1609, subpart 1609.4 is added; section 1609.701 in 
subpart 1609.70 is redesignated as 1609.7001, and paragraphs (a)(7), 
(b)(7), and (b)(8) are added to read as follows:

Subpart 1609.4--Debarment, Suspension, and Ineligibility


1609.470  Notification of Debarment, Suspension, and Ineligibility.

    (FAR) 48 CFR, part 9, subpart 9.4 is supplemented as set out in the 
certification required in 1609.471 by converting the FAR ``offeror's'' 
certification at (FAR) 48 CFR 52.209-5 into a carrier's certification. 
This change reflects the FEHBP's statutory exemption from competitive 
bidding (5 U.S.C. 8902), which obviates the issuance of solicitations.


1609.471  Contractor certification.

    All FEHBP carriers and applicant carriers are required to submit 
the following certification. Applicant carriers must submit the 
certification prior to OPM's determination on the application for 
approval to participate in the FEHBP. Current carriers must submit the 
certification once, along with their benefit and rate proposals for the 
1995 contract year.

Debarment, Suspension, Proposed Debarment, and Other Responsibility 
Matters

    The Carrier certifies, to the best of its knowledge and belief, 
that--
    (a) The Carrier and/or any of its Principals--
    (1) Are ( ) are not ( ) presently debarred, suspended, proposed 
for debarment, or declared ineligible for the award of contracts by 
any Federal agency;
    (2) Have ( ) have not ( ), within a 3-year period preceding this 
certification, been convicted of or had a civil judgment rendered 
against them for: Commission of fraud or a criminal offense in 
connection with obtaining, attempting to obtain, or performing a 
public (Federal, state, or local) contract or subcontract; violation 
of Federal or state antitrust statutes relating to the submission of 
offers; or commission of embezzlement, theft, forgery, bribery, 
falsification or destruction of records, making false statements, or 
receiving stolen property; and
    (3) Are ( ) are not ( ) presently indicted for, or otherwise 
criminally or civilly charged by a governmental entity with, 
commission of any of the offenses enumerated in subdivision (a)(2) 
of this clause.
    (4) The Carrier has ( ) has not ( ), within a 3-year period 
preceding this certification, had one or more contracts terminated 
for default by any Federal agency.
    (b) Principals, for the purposes of this certification, means 
officers; directors; owners; partners; and persons having primary 
management or supervisory responsibilities within a business entity 
(e.g., general manager; plant manager; head of a subsidiary, 
division, or business segment, and similar positions).
    This certification concerns a matter within the jurisdiction of 
an agency of the United States and the making of a false, 
fictitious, or fraudulent certification may render the Carrier 
subject to prosecution under section 1001, title 18, United States 
Code.
    (c) The Carrier shall provide immediate written notice to the 
Contracting Officer if, at any time, the Carrier learns that its 
certification was erroneous when submitted or has become erroneous 
by reason of changed circumstances.
    (d) A Carrier's certification that any of the actions mentioned 
in the certification exists will not necessarily result in 
termination of the contract. However, the certification, or the 
Carrier's failure to provide such additional information as 
requested by the Contracting Officer, will be considered in 
connection with a determination of the Carrier's responsibility 
under subpart 1609.70, Minimum Standards for Health Benefits 
Carriers.
    (e) Nothing contained in the certification shall be construed to 
require establishment of a system of records in order to render, in 
good faith, the certification required by this section. The 
knowledge and information of the Carrier is not required to exceed 
that which is normally possessed by a prudent person in the ordinary 
course of business dealings.
    (f) The certification in this section is a material 
representation of fact upon which reliance is placed by the 
Contracting Officer. If it is later determined that the Carrier 
knowingly rendered an erroneous certification, in addition to other 
remedies available to the Government, the Contracting Officer may 
terminate the contract for default.

Carrier Name:----------------------------------------------------------
----------------------------------------------------------------------
Name of Chief Executive Officer

Date signed:-----------------------------------------------------------

(End of Certificate)


1609.7001  Minimum standards for health benefits carriers.

    (a) * * *
    (7) It must timely submit to OPM a properly completed and signed 
novation or change-of-name agreement in accordance with subpart 1642.12 
of this chapter.
    (b) * * *
    (7) Application of performance standards for assuring contract 
quality as required by 1646.270(d).
    (8) Establishment and maintenance of a system of internal control 
that provides reasonable assurance that:
    (i) The provision and payments of benefits and other expenses are 
in compliance with legal, regulatory, and contractual guidelines;
    (ii) FEHB funds, property, and other assets are safeguarded against 
waste, loss, unauthorized use, or misappropriation; and,
    (iii) Data are accurately and fairly disclosed in all reports 
required by OPM.
* * * * *
    5. In section 1615.802, paragraph (a) is redesignated as paragraph 
(a)(1) and revised, paragraph (b)(3) is revised, a new paragraph (b)(4) 
is added, paragraph (c) is redesignated as paragraph (a)(2) and 
republished, and section 1615.804-70 is revised to read as follows:

Subpart 1615.8--Price Negotiation


1615.802  Policy.

* * * * *
    (a)(1) Cost analysis shall be used for contracts where premiums and 
subscription income are determined on the basis of experience rating.
    (2) The application of FAR 15.802(b)(2) should not be construed to 
prohibit the consideration of preceding year surpluses or deficits in 
carrier-held reserves in the rate adjustments for subsequent year 
renewals of contracts based on cost analysis.
    (b) * * *
    (3) Contracts will be subject to a downward price adjustment if OPM 
determines that the Federal group was charged more than it would have 
been charged using a methodology consistent with that used for the 
SSSGs. Such adjustments will be based on the lowest rates determined 
for the Federal group using the methodology (including discounts) for 
the two SSSGs.
    (4) FEHBP community rated carriers shall comply with SSSG criteria 
provided annually by OPM in the rate instructions for the applicable 
contract period.


1615.804-70  Certificate of accurate pricing for community rated plans.

    The contracting officer shall require a carrier that rates using a 
community rate as defined by FEHBAR 1602.170-2 to execute the 
Certificate of Accurate Pricing for Community Rated Plans contained in 
this section unless the carrier has been exempted from filing certified 
cost or pricing data pursuant to 1615.802(b)(1). The carrier shall 
submit the Certificate to OPM at the time it submits its rate 
reconciliation.

Certificate of Accurate Pricing for Community Rated Plans

    This is to certify that, to the best of my knowledge and belief: 
(1) the cost or pricing data submitted (or, if not submitted, 
maintained and identified by the carrier as supporting 
documentation) to the Contracting Officer or the Contracting 
Officer's representative or designee in support of the ______* FEHBP 
rates were developed in accordance with the requirements of 48 CFR 
Chapter 16 and the FEHBP contract, and are accurate, complete, and 
current as of the date this certificate is executed; and (2) The 
FEHBP rates were developed in a manner consistent with the 
methodology used to rate the plan's similarly sized subscriber 
groups and approved by OPM.
---------------------------------------------------------------------------

    *Insert the year for which the rates apply. Normally, this will 
be the year for which the rates are being reconciled.

Firm:------------------------------------------------------------------
Name:------------------------------------------------------------------
Title:-----------------------------------------------------------------
Signature:-------------------------------------------------------------
Date of Execution:-----------------------------------------------------

(End of Certificate)

PART 1632--CONTRACT FINANCING

    6. In Subpart 1632.6, section 1632.617 is revised to read as 
follows:


1632.617  Contract clause.

    The clause at (FAR) 48 CFR 52.232-17 will be modified in all FEHBP 
contracts to exclude the words ``net of any applicable tax credit under 
the Internal Revenue Code (26 U.S.C. 1481).''

Subchapter G--Contract Management

    7. Add a heading for Subchapter G immediately after part 1633 to 
read as follows:

Subchapter G--Contract Management

    8. In Subchapter G, Part 1642 is added to read as follows:

PART 1642--CONTRACT ADMINISTRATION

Subpart 1642.12--Novation and Change-of-Name Agreements

Sec.
1642.1201  Definitions.
1642.1204  Agreement to recognize a successor in interest (novation 
agreement).
1642.1205  Agreement to recognize carrier's change of name.

Subpart 1642-70--Management Agreement (in Lieu of Novation Agreement)

1642.7001  Management agreement.

    Authority: 5 U.S.C. 8913; 40 U.S.C. 486(c); 48 CFR 1.301.

Subpart 1642.12--Novation and Change-of-Name Agreements


1642.1201  Definitions.

    The definitions at (FAR) 48 CFR 42.1201 shall have the same meaning 
for this subpart.


1642.1204  Agreement to recognize a successor in interest (novation 
agreement).

    (a) (FAR) 48 CFR 42.1204 shall be implemented as provided in this 
section. The contracting officer shall insert the following agreement 
in all FEHBP contracts for use when the contractor's assets or the 
entire portion of the assets pertinent to the performance of the 
contract, as determined by the Government, are transferred.

Novation Agreement

    The (insert corporate name) (Transferor), a corporation duly 
organized and existing under the laws of (insert State) with its 
principal office in (insert city, state); the (insert corporate 
name) (Transferee), (if appropriate add ``formerly known as the 
______ Corporation'') a corporation duly organized and existing 
under the laws of (insert State) with its principal office in 
(insert city); and the UNITED STATES OF AMERICA (Government) enter 
into this Agreement effective (insert date transfer of assets became 
effective under applicable State law).
    (a) THE PARTIES AGREE TO THE FOLLOWING FACTS:
    (1) The Government, represented by various Contracting Officers 
of the Office of Personnel Management (OPM), has entered into 
Contract Number ______ with the Transferor. The term contracts, as 
used in this Agreement, means the contract cited in this paragraph 
and all other contracts and purchase orders, including any and all 
amendments and modifications made between the Government and the 
Transferor before the effective date of this Agreement (whether or 
not performance and payment have been completed and releases 
executed if the Government or the Transferor has any remaining 
rights, duties, or obligations under these contracts and purchase 
orders).
    (2) As of ____ 19__ (insert date transfer of assets became 
effective under applicable State law), the Transferor has 
transferred to the Transferee all the assets of the Transferor, or 
the entire portion of the Transferor's assets pertinent to 
performing the contract, as determined by OPM, by virtue of a(an) 
(insert term describing the legal transaction involved) between the 
Transferor and the Transferee.
    (3) The Transferee has acquired all the assets of the 
Transferor, or the entire portion of the Transferor's assets 
pertinent to performing the contract, as determined by OPM, by 
virtue of the transfer in paragraph (a)(1).
    (4) The Transferee has assumed all obligations and liabilities 
of the Transferor pertinent to performing the contract, as 
determined by OPM, by virtue of the transfer in paragraph (a)(1).
    (5) The Transferee is in a position to fully perform all 
obligations that may exist under the contract.
    (6) It is consistent with the Government's interest to recognize 
the Transferee as the successor party to the contract.
    (7) Evidence of the transfer in paragraph (a)(1) has been filed 
with the Government.
    (8) [If applicable:] A certificate dated ____, 19__, signed by 
the Secretary of State of (insert State), to the effect that the 
corporate name of (insert old corporate name) was changed to (insert 
new corporate name) on ____, 19__, has been filed with the 
Government.
    (b) IN CONSIDERATION OF THESE FACTS, THE PARTIES AGREE THAT BY 
THIS AGREEMENT--
    (1) The Transferor confirms the transfer to the Transferee, and 
waives any claims and rights against the Government or the Federal 
Employees Health Benefits Fund that it now has or may have in the 
future in connection with the contract.
    (2) The Transferee agrees to be bound by and to perform the 
contract in accordance with the conditions contained in the 
contract. The Transferee also assumes all obligations and 
liabilities of, and all claims against, the Transferor pertinent to 
the contract, as determined by OPM, as if the Transferee were the 
original party to the contract.
    (3) The Transferee ratifies all previous actions taken by the 
Transferor with respect to the contract, with the same force and 
effect as if the action had been taken by the Transferee.
    (4) The Government recognizes the Transferee as the Transferor's 
successor in interest in and to the contract. The Transferee by this 
Agreement becomes entitled to all rights, titles, and interests of 
the Transferor in and to the contract as if the Transferee were the 
original party to the contract. Following the effective date of this 
Agreement, the terms Carrier and Contractor as used in the contract, 
shall refer to the Transferee.
    (5) Except as expressly provided in this Agreement, nothing in 
it shall be construed as a waiver of any rights of the Government 
against the Transferor.
    (6) All payments and reimbursements previously made by the 
Government to the Transferor, and all other previous actions taken 
by the Government under the contract, shall be considered to have 
discharged those parts of the Government's obligations under the 
contract. All payments and reimbursements made by the Government 
after the date of this Agreement in the name of or to the Transferor 
shall have the same force and effect as if made to the Transferee, 
and shall constitute a complete discharge of the Government's 
obligations under the contract, to the extent of the amounts paid or 
reimbursed.
    (7) The Transferor and the Transferee agree that the Government 
is not obligated to pay or reimburse either of them for, or 
otherwise give effect to, any costs, taxes, or other expenses, or 
any related increases, directly or indirectly arising out of or 
resulting from the transfer of this Agreement, other than those that 
the Government in the absence of this transfer or Agreement would 
have been obligated to pay or reimburse under the terms of the 
contract.
    (8) The Transferor guarantees payment of all liabilities and the 
performance of all obligations that the Transferee (i) assumes under 
this Agreement or (ii) may undertake in the future should this 
contract be modified under its terms and conditions. The Transferor 
waives notice of, and consents to, any such future modifications.
    (9) The contract shall remain in full force and effect, except 
as modified by this Agreement. Each party has executed this 
Agreement effective (insert the date transfer of assets became 
effective under applicable State law).

UNITED STATES OF AMERICA,
By __________ Date__________
Title __________
    (Enter Transferor's name)
By __________ Date__________
    Title __________
    (Corporate Seal)

    (Enter Transferee's name)
By __________
Title __________
    (Corporate Seal)

Certificate

    I, ______, certify that I am the Secretary of (insert name of 
Transferor); that ______, who signed this Agreement for this 
corporation, was then ______ of this corporation; and that this 
Agreement was duly signed for and on behalf of this corporation by 
authority of its governing body and within the scope of its 
corporate powers.
    Witness my hand and the seal of this corporation this ______ day 
of ______, 19____.

By __________
    (Corporate Seal)

Certificate

    I, ______, certify that I am the Secretary of (insert name of 
Transferee); that ______, who signed this Agreement for this 
corporation, was then ______ of this corporation; and that this 
Agreement was duly signed for and on behalf of this corporation by 
authority of its governing body and within the scope of its 
corporate powers.
    Witness my hand and the seal of this corporation this ______ day 
of ______ 19__,

By---------------------------------------------------------------------
    (Corporate Seal)

    (End of Agreement)

    (b) Failure to submit the properly completed and signed Novation 
Agreement in a timely manner shall be cause for termination of the 
contract by OPM in accordance with FEHBAR 1652.249-70.
    (c) The Contracting Officer shall terminate the contract if it is 
determined not to be in the Government's interest to recognize a 
successor in interest to the contract. The effective date will be 
decided by the Contracting Officer after considering the best interests 
of FEHBP enrollees.


1642.1205  Agreement to recognize carrier's change of name.

    (a) (FAR) 42.1205 shall be implemented as provided in this section. 
The Contracting Officer shall insert the following Agreement in all 
FEHBP contracts for use when the carrier changes its name and the 
Government's and contractor's rights and obligations remain unaffected.

Change-of-Name Agreement

    The (insert new Carrier name), a corporation duly organized and 
existing under the laws of (insert State), and the UNITED STATES OF 
AMERICA (Government), enter into this Agreement effective (insert 
date when the change of name became effective under applicable State 
law).
    (a) THE PARTIES AGREE TO THE FOLLOWING FACTS:
    (1) The Government, represented by various Contracting Officers 
of the Office of Personnel Management (OPM), has entered into 
Contract Number ______ with the (insert old Carrier name). The term 
contracts as used in this Agreement means the contract cited in this 
paragraph and all other contracts and purchase orders and all 
modifications thereto made by the Government and the Contractor 
before the effective date of this Agreement (whether or not 
performance and payment have been completed and releases executed if 
the OPM or the Carrier has any remaining rights, duties, or 
obligations under these contracts and purchase orders).
    (2) The (insert old Carrier name), by an amendment to its 
certificate of incorporation, dated ____, 19__, has changed its 
corporate name to (insert new Carrier name).
    (3) This amendment accomplishes a change of corporate name only 
and all rights and obligations of the Government and the Carrier 
under the contract are unaffected by this change.
    (4) Documentary evidence of this change of corporate name has 
been filed with the Government.
    (b) IN CONSIDERATION OF THESE FACTS, THE PARTIES AGREE THAT:
    (1) The contract is amended by substituting the name `` (insert 
new Carrier name)'' for the name ``(insert old Carrier name)'' 
wherever it appears in the contract; and
    (2) Each party has executed this Agreement effective the day and 
year stated in paragraph (a)(2).

UNITED STATES OF AMERICA,
__________ Date __________---------------------------------------------
Title------------------------------------------------------------------
    (Enter new Carrier name)
By __________ Date __________
Title------------------------------------------------------------------
    (Corporate Seal)

Certificate

    I, ______, certify that I am the Secretary of (insert new 
Carrier name); that ______, who signed this Agreement for this 
corporation, was then (insert position held) of this corporation; 
and that this Agreement was duly signed for and on behalf of this 
corporation by authority of its governing body and within the scope 
of its corporate powers.
    Witness my hand and the seal of this corporation this ____ day 
of ____ 19__.

By---------------------------------------------------------------------
    (Corporate Seal)

(End of Agreement)

    (b) Failure to submit the properly completed and signed Change-of-
Name Agreement in a timely manner may be cause for termination of the 
contract by OPM in accordance with FEHBAR 1652.249-70.

Subpart 1642-70--Management Agreement (in Lieu of Novation 
Agreement)


1642.7001  Management agreement.

    When it is in the best interest of FEHBP enrollees to continue a 
contract for an interim period after the carrier discontinues its 
operations and has entered into a Purchase and Sale Agreement (or other 
descriptive term), but before a successor in interest has been 
recognized by OPM, the carrier may submit for OPM approval a Management 
Agreement that enables it to continue a contract through an agreement 
with a third party to administer the day-to-day performance of the 
contract. Examples of situations in which a Management Agreement may be 
accepted by OPM are:
    (a) When a transfer of assets does not meet the criteria for a 
novation;
    (b) While a request for a novation is pending;
    (c) While awaiting a decision on a request for a novation;
    (d) As an interim measure, when the timing of a transfer of assets 
or the timing of a carrier's withdrawal make administration of the 
contract inconvenient;
    (e) When it is not in the interests of the Government to either 
recognize a successor in interest or to immediately terminate the 
existing FEHBP contract.

PART 1646--QUALITY ASSURANCE

    9. In part 1646, subpart 1646.2 and the title for subpart 1646.3 
are added to read as follows:

Subpart 1646.2--Contract Quality Requirements

Sec.
1646.270  General.

Subpart 1646.3--Contract Clauses

1646.301  Contractor inspection requirements.

    Authority: 5 U.S.C. 8913; 40 U.S.C. 486(c); 48 CFR 1.301.

Subpart 1646.2--Contract Quality Requirements


1646.270  General.

    (a) This section prescribes general policies and procedures to 
ensure that services acquired under the FEHBP contract conform to the 
contract's quality requirements.
    (b) OPM shall periodically evaluate the contractor's system of 
internal controls under the quality assurance program required by the 
contract and will acknowledge in writing whether or not the system is 
consistent with the requirements set forth in the contract. After the 
initial review, subsequent reviews may be limited to changes in the 
contractor's internal control guidelines. However, a limited review 
does not diminish the contractor's obligation to apply the full 
internal control system.
    (c) OPM will issue specific performance standards for the FEHBP 
contracts and will inform carriers of the applicable performance 
standards prior to negotiations for the contract year. OPM will 
benchmark its standards against standards generally accepted in the 
insurance industry. The contracting officer may authorize nationally 
recognized standards to be used to fulfill this requirement.
    (d) FEHBP carriers shall comply with the performance standards 
issued under paragraph (c) of this section.

Subpart 1646.3--Contract Clauses


1646.301  Contractor inspection requirements.

* * * * *

PART 1652--CONTRACT CLAUSES

    10. In section 1652.000, FAR clauses 52.230-3, 52.230-4, 52.230-5 
and clause dates are removed and the following FAR clauses are added in 
numerical sequence as follows:


1652.000  Applicable clauses.

Section and Clause Title
* * * * *
52.203-7  Anti-Kickback Procedures.
52.203-9  Requirement for Certificate of Procurement Integrity--
Modification.
52.203-12  Limitation on Payments to Influence Certain Federal 
Transactions.
52.209-6  Protecting the Government's Interest When Subcontracting 
With Contractors Debarred, Suspended, or Proposed for Debarment.
* * * * *
52.223-6  Drug-Free Workplace.
* * * * *
52.230-2  Cost Accounting Standards.
52.230-3  Disclosure and Consistency of Cost Accounting Practices.
52.230-5  Administration of Cost Accounting Standards.
* * * * *
52.242-13  Bankruptcy.
* * * * *
52.249-2  Termination for Convenience of the Government (Fixed-
Price).
52.249-8  Default (Fixed-Price Supply and Service).
* * * * *
    12. In subpart 1652.3, section 1652.370, the full entries in the 
FEHBP clause matrix for FAR clauses 52.230-3, 52.230-4 and 52.230-5 are 
removed and the following FAR clause references are added in numerical 
sequence to read as follows:

Subpart 1652.3--FEHBP Clause Matrix


1652.370  Use of the Matrix.

* * * * *

FEHBP CLAUSE MATRIX

* * * * *

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                             Use with contracts based on
                                                                                                                           -----------------------------
        Clause No.                Text reference                               Title                           Use status   Cost analysis      Price    
                                                                                                                                              analysis  
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                        
                                                                      * * * * * * *                                                                     
FAR 52.203-9..............  FAR 3.104-10(b)...........  Requirement for Certificate of Procurement           M              T              T            
                                                         Integrity--Modification.                                                                       
FAR 52.203-12.............  FAR 3.808.................  Limitation on Payments to Influence Certain Federal  M              T              T            
                                                         Transactions.                                                                                  
                                                                      * * * * * * *                                                                     
FAR 52.209-6..............  FAR 9.409(b)..............  Protecting the Government's Interest When            M              T              T            
                                                         Subcontracting With Contractors Debarred,                                                      
                                                         Suspended, or Proposed for Debarment.                                                          
                                                                                                                                                        
                                                                      * * * * * * *                                                                     
FAR 52.215-27.............  FAR 15.804-8(e)...........  Termination of Defined Benefit Pension Plans.......  M              T              T            
                                                                                                                                                        
                                                                      * * * * * * *                                                                     
FAR 52.215-39.............  FAR 15.804-8(f)...........  Reversion or Adjustment of Plans for Postretirement  M              T              T            
                                                         Benefits Other Than Pensions (PRB).                                                            
                                                                                                                                                        
                                                                      * * * * * * *                                                                     
FAR 52.222-1..............  FAR 22.103-5(a)...........  Notice to the Government of Labor Disputes.........  M              T              T            
                                                                                                                                                        
                                                                      * * * * * * *                                                                     
FAR 52.230-2..............  FAR 30.201-4(a)(1)........  Cost Accounting Standards..........................  A              T              T            
FAR 52.230-3..............  FAR 30.201-4(b)(1)........  Disclosure and Consistency of Cost Accounting        A              T              T            
                                                         Practices.                                                                                     
FAR 52.230-5..............  FAR 30.201-4(d)(1)........  Administration of Cost Accounting Standards........  A              T              T            
                                                                                                                                                        
                                                                      * * * * * * *                                                                     
FAR 52.242-13.............  FAR 42.903................  Bankruptcy.........................................  M              T              T            
                                                                                                                                                        
                                                                      * * * * * * *                                                                     
FAR 52.249-2..............  FAR 49.502(b)(1)(i).......  Termination for Convenience of the Government        M              T              T            
                                                         (Fixed-Price).                                                                                 
FAR 52.249-8..............  FAR 49.504(a)(1)..........  Default (Fixed-Price Supply and Service)...........  M              T              T            
--------------------------------------------------------------------------------------------------------------------------------------------------------

[FR Doc. 94-7468 Filed 3-29-94; 8:45 am]
BILLING CODE 6325-01-M