[Federal Register Volume 59, Number 203 (Friday, October 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-26161]


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[Federal Register: October 21, 1994]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
[BPO-124-PN]

 

Medicare Program; Data, Standards, and Methodology Used to 
Establish Fiscal Year 1995 Budgets for Fiscal Intermediaries and 
Carriers

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

ACTION: Proposed notice.

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SUMMARY: This notice describes the data, standards, and methodology 
that will be used to establish fiscal intermediary and carrier budgets 
for fiscal year 1995, which begins October 1, 1994. Fiscal 
intermediaries and carriers are public or private entities that 
participate in the administration of the Medicare program by performing 
claims processing and benefit payment functions. This notice is 
published in accordance with sections 1816(c)(1) and 1842(c)(1) of the 
Social Security Act, which require us to publish for public comment the 
data, standards, and methodology we intend to use to establish budgets 
for Medicare fiscal intermediaries and carriers.

DATES: Comments will be considered if we receive them at the 
appropriate address, as provided below, no later than 5 p.m. on 
December 20, 1994.

ADDRESSES: Mail written comments (1 original and 3 copies) to the 
following address:

Health Care Financing Administration, Department of Health and Human 
Services, Attention: BPO-124-PN, P.O. Box 26676, Baltimore, Maryland 
21207.

    If you prefer, you may deliver your comments (1 original and 3 
copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201, or
Room 132, East High Rise Building, 6325 Security Boulevard, Baltimore, 
Maryland 21207.

    Because of staffing and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code BPO-124-PN. Comments received timely will be available for 
public inspection as they are received, generally beginning 
approximately 3 weeks after publication of a document, in Room 309-G of 
the Department's offices at 200 Independence Avenue, SW., Washington, 
DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m. 
(phone: (202)-690-7890).

FOR FURTHER INFORMATION CONTACT: Phyllis Mosmiller, (410) 966-7528

SUPPLEMENTARY INFORMATION:

I. Background

    Under sections 1816(a) and 1842(a) of the Social Security Act (the 
Act), public or private organizations and agencies may participate in 
the administration of the Medicare program under agreements or 
contracts entered into with the Secretary. These Medicare contractors 
are known as fiscal intermediaries (section 1816(a) of the Act) and 
carriers (section 1842(a) of the Act). Fiscal intermediaries perform 
bill processing and benefit payment functions for Part A of the program 
(Hospital Insurance) and carriers perform claim processing and benefit 
payment functions for Part B of the program (Supplementary Medical 
Insurance). When bills are submitted by providers, and claims by 
beneficiaries, physicians, and suppliers of services, fiscal 
intermediaries and carriers are responsible for:
     Determining the eligibility status of a beneficiary;
     Determining whether the services on the submitted claims 
or bills are covered under Medicare and, if so, what are the correct 
payment amounts; and
     Making appropriate payments to the provider, beneficiary, 
physician, and/or supplier of services.
    Fiscal intermediary and carrier performance is monitored by HCFA at 
the central office and regional office (RO) levels. In general, issues 
that affect policies on a national level are addressed by the central 
office, and issues dealing with regional and local policies, as well as 
those of an operational nature, are addressed by the ROs. Continuous 
communication between HCFA and the fiscal intermediaries and carriers 
is established through consultation workgroups that meet on a regular 
basis and are comprised of representatives from the central office, 
ROs, and Medicare contractors.

II. Fiscal Intermediary and Carrier Budget Process

    HCFA's central office is responsible for developing a national 
contractor budget for Parts A and B of the Medicare program. The budget 
is formulated over an 18-month period, beginning in March of the 
calendar year preceding the fiscal year (FY) to which it applies. Input 
from the contractor community, HCFA, the Department of Health and Human 
Services, and the Office of Management and Budget (OMB) is received and 
included before submission to the President for approval and forwarding 
to the Congress. Once the national contractor budget has been approved, 
HCFA issues Budget and Performance Requirements (BPRs). BPRs specify 
the level of effort required for contractor functions and serve as the 
statement of work for contractor use in preparing their individual 
budgets for submission to HCFA.
    The budgets submitted by contractors are reviewed by the ROs during 
a budget level determination process that is 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. We subsequently allocate funding 
within these constraints.
    This notice contains the proposed data, standards, and methodology 
that we intend to use to establish a national contractor budget for 
fiscal intermediaries and carriers for FY 1995. As in prior years, we 
have had, and will continue to seek, extensive input from the involved 
parties, particularly contractors, when establishing the national 
contractor budget. The national contractor budget (the FY 1995 
President's budget) has already been presented to the Congress. 
Nevertheless, to the extent that we receive comments during this 
comment period, which warrant revisions to the data, standards, and 
methodology we used, we will make the necessary changes before 
publishing the final notice.
    In accordance with Executive Order 12866, this final notice was not 
reviewed by the Office of Management and Budget.

III. Overview of FY 1995 National Medicare Contractor Budget

A. Data, Standards, and Methodology

    The FY 1995 national Medicare contractor budget request was 
submitted to the Congress in February 1994. The workload for the FY 
1995 request is expressed in terms of work processed. For Part A, the 
FY 1995 estimated workload (129.2 million bills) is 9.2 percent more 
than the FY 1994 estimate. For Part B, the estimated workload (655.6 
million claims) results in a 4.2 percent increase over the FY 1994 
estimate.
    Our estimates involved the use of a regression model that uses the 
last 36 months of actual contractor workload data. For the FY 1995 
projections, we used November 1993 data, which were the latest 
available to us at the time. The resulting projections will be updated 
monthly to assure that the most timely data are available for budgeting 
purposes.
    The FY 1995 unit costs for processing bills and claims were 
calculated based on the FY 1994 level adjusted for savings achieved due 
to productivity, Electronic Media Claims, and reduced funding for 
incremental workload. This calculation resulted in a new unit cost, 
which, when multiplied by the Part A or Part B workloads, determines 
the total amount required for bill and claim processing in FY 1995.
    Feedback received from contractors and ROs during the past several 
years has led us to believe that contractors can make major 
improvements in performance if given the authority to manage their 
budgets. The FY 1994 BPRs gave the ROs the authority to set a budget 
and the contractors the authority to manage their budgets on a bottom-
line basis. Once funding was issued, each contractor had the 
flexibility to optimally manage the budget consistent with the 
statement of work contained in the BPRs. Prior to FY 1993, 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 the ``Payment Safeguards,'' ``Productivity Investments,'' and 
``Other'' line items, contractors now have total flexibility in the use 
of funds. There is a 5 percent limitation on the amount of funds that 
may be shifted out of individual ``Payment Safeguards,'' with unlimited 
shifting into ``Payment Safeguards.'' Shifting into or out of 
``Productivity Investments'' and ``Other'' line item funding, not 
governed by contract modifications, may not exceed 5 percent. Each 
``Other'' line item is treated separately. The ``Productivity 
Investment'' line item is treated as a whole and not by a separate 
project. Funding that is governed by contract modifications may not be 
shifted to other functions or line items.

B. Medicare Contractor Functional Areas

    The Medicare contractor budget consists of functional areas of 
responsibility that are performed by the fiscal intermediaries for Part 
A and the carriers for Part B. The eight functional areas of 
responsibility for fiscal intermediaries under Part A are:
     Bill Payment;
     Reconsideration and Hearing;
     Medicare Secondary Payer;
     Medical Review and Utilization Review;
     Provider Audit (Desk Review, Field Audit, and Provider 
Settlement);
     Provider Reimbursement;
     Productivity Investments; and
     Benefits Integrity.

The nine functional areas of responsibility for carriers under Part B 
are:
     Claim Payment;
     Review and Hearing;
     Beneficiary or Physician Inquiry;
     Provider (physician/supplier) Education and Training;
     Medical Review and Utilization Review;
     Medicare Secondary Payer;
     Participating Physicians;
     Productivity Investments; and
     Benefits Integrity.
    These functions are funded from the Hospital Insurance and 
Supplementary Medical Insurance trust funds. The data, standards, and 
methodology used in these functional areas are discussed in section IV. 
of this notice. In the following national budget summary, we have 
combined the discussion of functional areas that are common to fiscal 
intermediaries and carriers. However, data specific to Part A or Part B 
are provided under each heading. Workload estimates are provided for 
all functional areas where the development of the budget is 
predominantly workload driven. Workload estimates are not provided for 
functional areas that are not predominantly workload driven, or for 
which a workload is uncertain until final negotiations with the 
Medicare contractors are complete.
1. Bill and Claim Payment (Part A and Part B)
    We currently estimate the Part A processed workload to be 129.2 
million bills in FY 1995. The Part B processed workload is currently 
projected at 655.6 million claims and is based on the current funding 
available.
2. Reconsideration (Review Under Part B) and Hearing (Part A and Part 
B)
    This function includes all activities related to guaranteeing due 
process of law as a result of contractor action, for example, 
disallowances on bills and claims. The estimated workload volume is 
expected to total approximately 10.9 million for FY 1995.
    In FY 1995, we expect to maintain efficiencies achieved in prior 
years through the use of shorter decision letters and the experimental 
use of the telephone to conduct reviews and reconsiderations.
3. Medicare Secondary Payer (Part A and Part B)
    The Medicare Secondary Payer (MSP) function is the first of four 
initiatives (Medicare Secondary Payer, Medical Review and Utilization 
Review, Benefits Integrity, and Provider Audit) we developed as 
``Payment Safeguards'' to safeguard the Medicare program against 
improper payments. The focus of the MSP initiative is to ensure that 
the Medicare program pays for covered care only to the extent required 
after payment by the primary insurer.
    Medicare contractors are responsible for identifying MSP situations 
and aggressively pursuing the recovery of improper payments from the 
appropriate party. The standard for determining the amount of MSP 
funding a contractor will receive in FY 1995 is based on workload 
volumes, required systems changes, and any special projects that may be 
assigned to contractors.
    Based on actuarial analysis, we develop specific savings goals for 
each contractor. The goals are developed on estimates of savings to be 
achieved by contractors for the MSP categories of working aged, 
disabled, workers' compensation, end-stage renal disease, and liability 
or no-fault insurance. After assigning goals to contractors, funds are 
allocated based on the various MSP activities a contractor must perform 
such as processing prepayment claims, postpayment claims, inquiries, 
outreach, and hospital reviews.
    In FY 1995, the Initial Enrollment Questionnaire (IEQ) will be 
operational. The IEQ eliminates the need for first claim development on 
approximately 85 percent of the new enrollees. This initiative will 
improve service to beneficiaries on a national basis by providing 
detailed information on the MSP program at the time a beneficiary 
enrolls in Medicare.
    We have also included funding to process the workloads based on the 
Internal Revenue Service (IRS)/Social Security Administration (SSA)/
HCFA data match project created by section 6202 of the Omnibus Budget 
Reconciliation Act of 1989 (OBRA '89), Public Law 101-239. The funds 
are allocated on the basis of the number of report identification 
numbers a contractor will process.
    In addition to the IRS/SSA/HCFA data match, we will continue to 
pursue other data matches with State Motor Vehicle Administrations, 
Workers' Compensation, and Medicaid Agencies, and the Departments of 
Defense, Labor, and Veterans Affairs.
4. Medical Review and Utilization Review (Parts A and B)
    In addition to processing and paying claims from providers of 
services and Medicare beneficiaries, contractors perform medical and 
utilization reviews of claims to determine whether services are covered 
under the program and are medically necessary. The distribution of 
Medicare contractor funding is based on each contractor's proportion of 
the workload and individual contractor medical review/utilization 
review projects.
    Fiscal intermediaries are responsible for medical and utilization 
review of home health agencies, skilled nursing facilities, outpatient 
hospital services (excluding surgery), and other outpatient services 
such as those provided by rehabilitation facilities, rural health 
clinics, and similar entities. This review assures that medical care 
received is necessary and appropriate, and that quality medical 
services are delivered to Medicare beneficiaries.
    Carriers are responsible for medical and utilization review of Part 
B providers and suppliers. All carriers will utilize data analysis 
capabilities to target on focused medical review in FY 1995. Through 
focused medical review, carriers will identify aberrancies from 
national or local carrier data and further investigate aberrancies to 
determine which require appropriate corrective actions to eliminate 
overutilization. These actions will include provider education 
(individual or group), development and revision of local medical review 
policies or screens, identification/recoupment of overpayments, and 
referral of cases to HCFA's Benefit Integrity staff.
    Additionally in FY 1995, HCFA will support the Medical Review 
activities of the four Durable Medical Equipment Regional Carriers 
(Regional Carriers). The Regional Carriers will conduct prepayment and 
postpayment review of durable medical equipment, prosthetic, orthotic, 
and supply claims to identify areas of potential abuse and 
overutilization and prevent payment for non-covered items and services. 
Through focused medical review and analysis of data, the Regional 
Carriers will initiate corrective action for the recoupment of 
overpayments and the targeting of suppliers with aberrant billing 
patterns. They will also continue to revise regional medical review 
policies and screens and make referrals where appropriate to the HHS 
Office of Inspector General.
5. Provider Audit (Part A Only)
    For FY 1995, we have planned a modest increase in the number of 
onsite reviews/audits for all types of providers to help in the 
identification and prevention of improper payments. This increase is 
made possible by reducing the amount of resources needed to perform 
desk reviews, and by applying these resources to onsite reviews, 
focused reviews, and field audits. In addition, we will encourage all 
contractors to retain a knowledgeable audit staff and provide training 
in accordance with Government Auditing Standards. All contractors are 
expected to respond to provider appeals and file position papers with 
the Provider Reimbursement Review Board.
    A large percentage of the hospitals paid under the Prospective 
Payment System (PPS) are expected to appeal their capital cost 
reimbursement because of adjustments made for the purpose of setting 
their capital PPS rate. Also, there is an expected increase in the 
number of appeals to be filed for payments made for graduate medical 
education based upon per-resident amounts.
6. Provider Payment (Part A Only)
    In FY 1995, Medicare contractors are expected to provide payment 
services to approximately 34,300 health care providers. This represents 
an increase of approximately 7.5 percent over the number of providers 
requiring payment services in FY 1994. These payment services include 
establishing and adjusting interim rates, recouping provider 
overpayments, and providing consultative services to providers for 
maintaining and adjusting their accounting systems to ensure accurate 
data for preparing claims and cost reports.
    We will distribute funds in proportion to workload by provider 
type.
7. Productivity Investments (Part A and Part B)
    The costs of implementing new initiatives that are designed to 
improve the effectiveness of Medicare program administration are 
referred to as productivity investments (PIs). PIs generally provide 
start-up funds for new or revised contractor activities. Once these 
projects are operational, their funding becomes part of the 
contractor's ongoing costs. The criteria for selecting PIs to be 
implemented are varied. For example, some PIs are required by statute 
or regulation. We also fund projects that will improve administrative 
cost efficiency, such as Contractor Resource Sharing.
    There is no single distribution methodology for the allocation of 
PI funds. After we determine the national cost of a PI, funds are 
distributed among the contractors. These funds are based on the 
contractors' cost estimates or through formulas that we derive, which 
are based on project specifications. Other PI initiatives require equal 
effort by all contractors regardless of size and, therefore, funds are 
distributed equally among contractors. Finally, some PIs, such as the 
Common Working File and Contractor Resource Sharing, are given only to 
contractors that are involved in the specific projects.
8. Beneficiary or Physician Inquiry (Part B Only)
    The Medicare contractors are the direct link between beneficiaries, 
providers, physicians, other suppliers, and the Medicare program. It is 
the responsibility of HCFA and the contractors to provide the most 
effective and efficient service to beneficiaries, providers, 
physicians, and other suppliers, and to continue to expand their 
awareness and understanding of the Medicare program. Funding will 
continue to be provided to contractors so they may continue to provide 
toll-free telephone lines for beneficiaries and expand the use of Audio 
Response Units.
    In FY 1995, carriers will receive an estimated 40.4 million 
inquiries by telephone, in writing, or through direct contact. This is 
an increase of 3.2 percent over FY 1994.
9. Participating Physicians/Suppliers (Part B Only)
    Participating physicians and suppliers are those who agree to 
accept assignment on all Medicare claims in return for certain 
incentives or benefits. All physicians must be given an opportunity to 
enroll or disenroll in the participation program annually.
    For FY 1995, the FY 1994 funding was used as the base and was 
adjusted in proportion to the workload within the limits of the funding 
available to HCFA.
10. Provider (Physician/Supplier) Education and Training (Part B Only)
    The success of the Medicare program depends upon the continuing 
cooperation of individuals and institutions providing health care 
services. The funding provided in FY 1995 will allow carriers to 
perform the activities outlined in the BPRs.
11. Benefit Integrity (Part A and B)
    In FY 1995, HCFA will provide funding to continue its efforts in 
deterring and detecting emerging Medicare fraud and abuse. The carriers 
will improve the quality of referrals to the Office of Inspector 
General by expanding data analysis capability. The Medicare fraud focus 
will include a full range of Medicare fraud detection activities 
through our fiscal intermediaries and carriers. The fiscal 
intermediaries will concentrate on home health agencies and skilled 
nursing facilities and Medicare carriers will focus their detection 
activities on medical laboratory, radiology, anesthesia, and ambulance 
claims. Also, in FY 1995, Medicare carriers will standardize the method 
of how fraud units treat billing and assignment violations.
12. Printing Claim Forms (Part A and Part B)
    Although this activity is not among the seven Part A and nine Part 
B contractor functional areas, it is a part of the national Medicare 
contractor budget. In the interest of maintaining standard formats and 
quality of Medicare entitlement and report forms, fiscal intermediaries 
and carriers supply beneficiary enrollment and provider cost reporting 
forms. The use of these forms is essential to beneficiary notification, 
effective and efficient contractor operations, and other program 
objectives.

C. Contractor Unit Cost Calculations

    A key step in the contractor budget process is the development of 
contractor unit costs for processing Part A bills and Part B claims. 
These bottom-line unit costs encompass all of the budget's line items 
except ``Provider Audit,'' ``Productivity Investments,'' ``Other,'' 
and, in FY 1995, ``Provider Reimbursement.''
    As first implemented in FY 1992, the complexity index (CI) was 
designed to improve efficiency and reduce contractor-by-contractor cost 
inequities, and was based on the application of the Industrial 
Engineering (IE) study commissioned by HCFA. The IE study provided HCFA 
with an actual weighted unit cost for each claim type; that is, 
inpatient or outpatient, and method of submission (electronically 
submitted or hardcopy) of a bill or a claim. After adjustment for 
changes in program emphasis, these unit costs were applied to each 
contractor's individual workload mix to develop a weighted unit cost 
that reflects the complexity of its workload mix. We published an 
explanation of the CI in our FY 1992 Federal Register notice on January 
2, 1992 (57 FR 57). Each contractor had a percentage goal in FY 1992 
for increasing the submission of claims electronically.
    We adjusted the unit costs to reflect achievement of the goals. 
After adjusting for various savings and increases associated with 
initiatives, such as the Unique Physician Identifier Number and 
sections 6111(b), Clinical Diagnostic Laboratory Tests (Annual 
Monitoring and Certification) and 6204, Physician Ownership of, and 
Referral to, Health Care Entities (Annual Monitoring Cost) of OBRA '89, 
we then arrayed the contractors' unit costs and identified the 
contractor at the 60th percentile. Each contractor with a unit cost 
higher than the 60th percentile was held to the 60th percentile unit 
cost, multiplied by the contractor's CI. Each contractor at or below 
the 60th percentile retained its own unit cost, multiplied by its CI.
    We believe that the use of the CI over the last three FYs has 
enabled us to successfully achieve the goals of improving efficiency in 
contractor operations and reducing contractor-by-contractor cost 
inequities. Since we have achieved these goals, and believe that costs 
can be controlled, we will base each contractor's FY 1995 unit cost on 
the FY 1994 level, adjusted for savings achieved due to increased 
productivity, Electronic Media Claims, and reduced funding for 
incremental workload.

D. Overall Budget Considerations

    It should be noted that limitations on the FY 1995 budget could 
require across-the-board cost cutting measures. In that case, each RO 
will determine the amount of budget reduction for its contractors.

IV. FY 1995 National Medicare Contractor Budget: Data, Standards, and 
Methodology

    Since the submission of the President's FY 1995 Medicare contractor 
budget request to the Congress in February 1994, we have been 
developing BPRs to be issued to the contractors. These requirements 
outline the statement of work and level of effort that fiscal 
intermediaries and carriers are expected to perform during the upcoming 
FY in each of the functional areas for which they are responsible.
    The draft BPRs were released to the ROs in May, and the final BPRs 
scheduled for release in June 1994. Each fiscal intermediary and 
carrier will have been given its individual requirements to be used in 
preparing its FY 1995 budget request in June 1994. The ROs will send 
any additional information that is pertinent to the fiscal 
intermediaries and carriers within their region. Fiscal intermediaries 
and carriers are to submit their budget requests to HCFA no later than 
6 weeks after the issuance of the BPRs.
    After the fiscal intermediaries and carriers review the BPRs, they 
prepare their budget requests. The central office and RO staff review 
the fiscal intermediary and carrier budget requests as they are 
submitted. The RO staff negotiates a final and mutually acceptable 
budget, within the limits of the funding available to HCFA, with each 
fiscal intermediary and carrier. The central office prepares a 
financial operating plan for each RO that provides total regional 
funding authority for each functional area. The ROs, in turn, prepare a 
Notice of Budget Approval (NOBA) for each fiscal intermediary and 
carrier that provides a full year budget plan subject to quarterly cash 
draw limitations.

A. Standards

    The basic statement of work, along with new and special activities 
that fiscal intermediaries and carriers are expected to perform, is 
described in the BPR package. Fiscal 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 1995. For consideration in developing 
their initial budget requests, a copy of the draft CPEP standards will 
be sent to contractors. Final FY 1995 CPEP standards are published in 
the Federal Register.

B. Data

    The following sources of data that contain various workload 
volumes, functional costs, and manpower information are used in 
developing the individual fiscal intermediary and carrier budgets for 
FY 1995:
     Forms HCFA-1523/1524 (a multipurpose form that serves as 
the Budget Request, Notice of Budget Approval, and Interim Expenditure 
Report);
     Forms HCFA-1523A/1524A (Schedule of Productivity 
Investments and Other);
     Forms HCFA-1523B/1524B (Schedule of Credits, EDP, and 
Overhead);
     Forms HCFA-1523C/1524C (Schedule of Appeals);
     Forms HCFA-1523D/1524D (Schedule of MSP Costs);
     Forms HCFA-1523E/1524E (Schedule of MR Costs);
     Forms HCFA-1523G/1524G (Schedule of Fraud and Abuse);
     Form HCFA-1525A (Contractor Auditing and Settlement Report 
(CASR));
     Schedules A, B, & C;
     Provider Reimbursement Profile;
     Schedule of Providers Serviced;
     MSP Savings Report;
     Medical Review/Utilization Review Savings Report;
     Form HCFA-2580 (Cost Classification Report);
     Form HCFA-3529 (Facilities and Occupancy Schedule);
     Forms HCFA-1565/1566 (Carrier Performance Report/
Intermediary Monthly Workload Report);
     HCFA Actuary's Workload Estimates;
     OMB's Economic Assumptions of 2.6 Percent;
     Savings from Prior Productivity Investments;
     New Legislation Costs;
     Regional Office Recommendations; and
     Contract Provisions.

C. Methodology

    The Medicare contractor budget is organized around the previously 
listed functional areas that are performed by the fiscal intermediaries 
for Part A and the carriers for Part B. FY 1992 was the first year in 
which we developed a bottom-line unit cost for each individual 
contractor. The following narrative describes the methodology used to 
calculate individual line-item costs. This methodology will be 
considered as general reference for contractors as they develop their 
FY 1995 budgets, and also to provide additional explanation in 
determining how certain costs and savings were determined.
1. Bill and Claim Payment
    The individual fiscal intermediary and carrier workload levels for 
FY 1995 are determined by using a statistical forecasting model. Using 
the same data, we are also projecting the number of bills or claims a 
fiscal intermediary and carrier may expect to have pending at the end 
of the FY 1994. We then combine the FY 1995 receipt estimate with the 
anticipated end of FY 1994 pending level, and subtract the estimated FY 
1995 pending for each fiscal intermediary and carrier to establish a 
processed workload; that is, Estimated FY 1995 receipts + Estimated end 
of FY 1994 pending - Estimated end of FY 1995 pending = Estimated FY 
1995 Processed Workload.
    In order to price individual contractor bill and claim workload, we 
develop a unit cost that is the cost of processing a single bill or 
claim. The individual fiscal intermediary and carrier unit costs for FY 
1995 are calculated from the unit costs in the FY 1994 Notices of 
Budget Approval. The calculations include increases to recognize the 
cost of new legislation. Savings achieved from operating efficiencies 
also are part of the formula employed in computing FY 1995 target unit 
costs. The ROs will negotiate with the fiscal intermediaries and 
carriers to resolve any differences within the limits of the funding 
available to HCFA.
2. Reconsideration (Reviews Under Part B) and Hearing
    We will allocate funding based on the amount of dollars spent (line 
2 of Forms HCFA-1523/1524) in the prior years, adjusted for inflation 
and changes in volume. Specifically, we will adjust the previous year's 
costs for reconsiderations and hearings by the estimated percentage 
change in workload.
    The individual fiscal intermediary and carrier budget allocations 
for reconsiderations, reviews, and hearings are estimated by 
multiplying forecast workloads by the adjusted unit costs.
    The ROs will negotiate with the fiscal intermediaries and carriers 
to resolve any differences between HCFA's allocations and the 
contractors' requests within the limits of the funding available to 
HCFA.
3. Beneficiary and Provider Inquiries (Part B Only)
    To establish a budgeted amount for beneficiary and provider 
inquiries, the prior year's cost is increased by the projected workload 
change. We also consider special conditions unique to specific carriers 
in negotiating the budget. We will use the data to develop a budgeted 
cost for beneficiary and provider inquiries by multiplying forecasted 
processed volume times unit cost. The ROs will negotiate with the 
carriers to resolve any differences between HCFA's allocations and the 
carriers' requests within the limits of the funding available to HCFA.
4. Provider Reimbursement (Part A Only)
    In determining individual fiscal intermediary budgets for 
reimbursement activities, we first calculated a FY 1993 unit cost by 
using the funding included on the latest FY 1993 NOBA (Form HCFA 1523) 
and dividing that amount by the workload reported on the Schedule of 
Providers Serviced (SPS) for the same period. The SPS is a listing of 
all the facilities serviced by the fiscal intermediary. The SPS is 
submitted with each initial budget request so that a part of the 
analysis is the comparison of the composition of the provider community 
serviced by the fiscal intermediary and any change reported between 
fiscal years.
    The ROs will negotiate with the fiscal intermediaries to resolve 
any differences between HCFA's allocations and the fiscal 
intermediaries' requests within the limits of the funding available to 
HCFA.
5. Provider Audit (Part A Only)
    For FY 1995, the provider audit function is divided into three 
major activities: field audits, desk reviews, and settlements. The 
Contractor Auditing and Settlement Report (CASR) (Form HCFA-1525A) 
provides a breakout of audit activities and costs by type of provider, 
and documents the savings incurred as a result of audit activity. Using 
this as a base, the desk review costs are developed by projecting the 
number of providers serviced by the unit cost per desk review 
(developed for the latest CASR for FY 1993) to determine the cost of 
handling the FY 1995 workload at the FY 1993 unit cost.
    Settlement costs are based on the workload projected in the fiscal 
intermediary's budget request, multiplied by the unit cost for 
settlements found in the most recent CASR for FY 1993.
    The first priority of all audit efforts is the completion of any 
special activities required by legislation. The second priority is that 
all cost reports be reviewed and, to the extent possible, settled.
    The ROs will negotiate with the fiscal intermediaries to resolve 
any differences between HCFA's allocations and the fiscal 
intermediaries' requests within the limits of the funding available to 
HCFA.
6. Medicare Secondary Payer
    We will review the estimated workload data, reported backlog data, 
and any other items, for example, proposed MSP systems enhancements, to 
determine MSP funding allocations. Each contractor's case mix is 
analyzed to adjust for specialized workloads such as home health claims 
or durable medical equipment (DME).
    In FY 1995, the budget will be allocated based on the above 
considerations, adjustments created by shifts in the DME workload from 
all carriers to the four specialty carriers, and other shifts in 
workload that may require adjustments.
    The ROs will negotiate with the fiscal intermediaries and carriers 
to resolve any differences between HCFA's allocations and their 
requests within the limits of the funding available to HCFA.
7. Medical Review/Utilization Review (MR/UR)
    The individual fiscal intermediary and carrier MR/UR budgets for FY 
1995 will be calculated in three segments: (1) Prepayment medical 
review, (2) postpayment medical review activities, and (3) data 
analysis and screen development. The BPR describes the activities and 
workload requirements that the fiscal intermediaries and carriers are 
expected to meet. As part of the BPRs, we will ask the fiscal 
intermediaries and carriers to estimate the required funding to meet 
their requirements. We will allocate prepayment and postpayment medical 
review funding to contractors based upon the workload that a fiscal 
intermediary or carrier projects for FY 1995.
    The ROs will negotiate with the fiscal intermediaries and carriers 
to resolve any differences between HCFA's allocations and the 
contractors' requests within the limits of the funding available to 
HCFA.
8. Participating Physicians/Suppliers (Part B Only)
    In determining the individual carrier funding levels for the 
participating physician/supplier program for FY 1995, we considered the 
following factors:
     The number of physicians/suppliers in the carrier's 
service area;
     The carrier's current participation rate;
     The carrier's recent performance in increasing its 
participation rate;
     The statement of work to be performed as outlined in the 
BPRs; and
     Last year's cost experience.
    Since participating physicians/suppliers are eligible for toll-free 
telephone lines for electronic billing, allowance has been made for 
these expenses. Carriers with lower participation rates will receive 
greater funding for the limiting charge violation monitoring. We have 
discontinued carrier monitoring of the elective surgery disclosure 
requirement. We now require carriers to investigate beneficiary 
complaints on a case-by-case basis.
    Carrier monitoring funds are allocated based on the national 
percentage of nonparticipating physicians/suppliers. All carriers will 
receive the same funding amount for reporting participation statistics.
    In FY 1995 the participating physician incentive payment will be 
discontinued due to the implementation of the Resource-Based Relative 
Value Scale fee schedules that have contributed largely to the increase 
in the number of physicians participating in the Medicare program. Non- 
participation is discouraged by the ``limiting charges'' imposed under 
Physician Payment Reform.
    The ROs will negotiate with the carriers to resolve any differences 
between HCFA's allocations and the carriers' requests within the limits 
of the funding available to HCFA.
9. Productivity Investments (PIs)
    The costs of implementing legislation and new initiatives that are 
designed to improve the effectiveness and efficiency of Medicare 
program administration are referred to as PIs. Several allocation 
methodologies will be employed in calculating the PI budgets for 
individual fiscal intermediaries and carriers. For those projects 
involving only single contractors or small groups of contractors, we 
will allocate funds based upon the specifications of the particular 
project. For those projects involving all fiscal intermediaries or 
carriers, where the costs are driven by bill or claim volume, we will 
distribute the funding based upon our workload projections for each 
contractor. Finally, for those projects involving all fiscal 
intermediaries or carriers that require equal effort, regardless of the 
contractor's size, we derived a standard allocation to be given to all 
contractors.
    The ROs will negotiate with the fiscal intermediaries and carriers 
to resolve any differences between HCFA's allocations and the 
contractors' requests within the limits of the funding available to 
HCFA.
10. Provider (Physician/Supplier) Education and Training (Part B Only)
    Distribution of funds made available to HCFA for provider 
(physician/supplier) education and training is based upon the ratio of 
physicians and suppliers in each carrier's service area to the national 
total of physicians and suppliers.
11. Benefit Integrity (BI)
    In allocating the FY 1995 BI budget to individual fiscal 
intermediaries and carriers, HCFA will consider:
     The prior year's effectiveness in initiating fraud 
referrals to the Office of Inspector General;
     Initiating overpayment recoveries when appropriate;
     Prioritizing workload to concentrate on high dollar and 
multi-state fraud;
     The extracted workload and cost data from the Schedule of 
Fraud and Abuse (forms HCFA 1523G/1524G);
     The Medicare Fraud Unit Workload Report;
     The fraud unit's level of sophistication to determine BI 
funding allocations;
     The completion of any special activity required by 
legislation will be an overriding priority; and
     The networking costs, which will be determined by the 
personnel cost to support the Medicare Fraud and Abuse Information 
Coordinator, travel costs, and the other expenses needed to conduct 
networking for the area assigned.

The ROs will negotiate with the contractors to resolve any differences 
between HCFA's allocation and the contractors' requests within the 
limits of the funding available to HCFA.

V. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on documents published for comment, we are not able to 
acknowledge or respond to them individually. We will consider all 
comments we receive by the date specified in the ``DATES'' section of 
this notice, and, we will respond to the comments in our final notice.
    In accordance with Executive Order 12866, this notice was not 
reviewed by the Office of Management and Budget.

    Authority: Sections 1816(c)(1) and 1842(c)(1) of the Social 
Security Act (42 U.S.C. 1395h(c)(1) and 1395u(c)(1)).

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

    Dated: August 16, 1994.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
[FR Doc. 94-26161 Filed 10-20-94; 8:45 am]
BILLING CODE 4120-03-P