[Federal Register Volume 59, Number 223 (Monday, November 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-28399]


[[Page Unknown]]

[Federal Register: November 21, 1994]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 417

[OMC-008-F]
RIN 0938-AD79

 

Medicare Program; Appeal Rights and Procedures for Beneficiaries 
Enrolled in Prepaid Health Care Plans

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

ACTION: Final rule.

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SUMMARY: This final rule modifies or establishes administrative review 
procedures for Medicare beneficiaries enrolled in health maintenance 
organizations (HMOs), competitive medical plans (CMPs), and health care 
prepayment plans (HCPPs). Specifically, it requires that an HMO or CMP 
complete a reconsideration, requested by a Medicare enrollee for denied 
services or claims, within 60 days from the date of receipt of the 
reconsideration request; extends to HMO and CMP enrollees the right to 
request immediate review by a Utilization and Quality Control Peer 
Review Organization of an HMO's, CMP's, or hospital's determination 
that an inpatient hospital stay is no longer necessary; and requires an 
HCPP to establish administrative review procedures for its Medicare 
enrollees who are dissatisfied with decisions on denied services or 
claims.

DATES: These regulations are effective December 21, 1994. HMOs and CMPs 
must comply with the requirements of this final rule beginning February 
21, 1995. HCPPs must comply with the requirements of this final rule 
beginning May 22, 1995.

FOR FURTHER INFORMATION CONTACT: Maureen Miller, (202) 619-0129.

SUPPLEMENTARY INFORMATION:

I. General Background

    Payment for services provided to Medicare beneficiaries under title 
XVIII of the Social Security Act (the Act) is generally made on a fee-
for-service basis or on a prepayment basis. This rule deals with 
Medicare services provided to beneficiaries by entities paid on a 
prepayment basis. We refer to these entities collectively as ``prepaid 
health care organizations.'' Under the prepayment method, health 
maintenance organizations (HMOs), competitive medical plans (CMPs), and 
health care prepayment plans (HCPPs), enter into contracts or 
agreements with us to provide a range of services to Medicare 
beneficiaries who voluntarily enroll in these plans.
    Section 1876 of the Act provides the authority for us to enter into 
contracts with HMOs and CMPs to furnish Medicare covered services to 
beneficiaries and specifies the requirements these organizations must 
meet. Contracting HMOs and CMPs may be paid on either (1) a risk basis, 
under which they are paid a prospectively determined per capita monthly 
payment, or (2) a cost basis under which interim per capita payments 
are made on the basis of a budget and a retrospective cost settlement 
occurs to reflect the reasonable costs actually incurred by the HMO or 
CMP for the covered services it furnishes to enrolled members.
    Section 1833 of the Act provides the basis for regulations under 
which we enter into written agreements with HCPPs to furnish or arrange 
to have furnished covered Medicare Part B services to a defined 
population on a prepayment basis.

II. Additional Background and Provisions of the Proposed Rule

    On October 7, 1992, we published a proposed rule (57 FR 46119) in 
which we proposed to amend the Medicare regulations governing 
administrative review rights and procedures for Medicare enrollees in 
prepaid health care organizations to: (1) Impose a 60-calendar-day 
limit for an HMO or CMP to complete a reconsideration requested by a 
Medicare enrollee (or authorized representative) for denied services or 
claims; (2) permit an HMO or CMP enrollee (or authorized 
representative) to request immediate Utilization and Quality Control 
Peer Review Organization (PRO) review of an HMO, CMP, or hospital 
notice of a determination that an inpatient hospital stay is no longer 
necessary; and (3) require HCPPs to establish administrative review 
procedures for Medicare enrollees similar to those that we require HMOs 
and CMPs to establish for Medicare enrollees.

A. Time Limit on Reconsiderations

    Section 1876(c)(5)(A) of the Act requires a contracting HMO or CMP 
to establish procedures for hearing and resolving grievances between 
the organization and its Medicare enrollees. Section 1876(c)(5)(B) 
provides specific administrative and judicial review rights to Medicare 
enrollees who are dissatisfied with determinations by the HMO or CMP 
regarding services and claims. These rights are similar to those 
available to beneficiaries in the fee-for-service system, except that, 
under the existing regulations at 42 CFR 417.614 and 417.620, the 
initial level of review is by the HMO or CMP rather than by a PRO, 
intermediary, or carrier. Issues that are subject to the full scope of 
administrative and judicial review are those in which beneficiaries 
believe they: (l) Have been denied access to a service to which they 
are entitled, or (2) are required to pay an amount that is the 
responsibility of the HMO or CMP. (Other issues are only subject to the 
HMO's or CMP's internal grievance procedures.)
    Regulations at Secs. 417.600 through 417.638 describe the 
administrative and judicial review process. Under the first step of the 
process, the rules provide that the HMO or CMP must make a timely 
determination and notify the beneficiary of the reasons for the 
determination. A determination regarding a request for payment must be 
made within 60 days of receiving the claim. If the decision is 
unfavorable (in whole or in part), the beneficiary (or his or her 
authorized representative) may request that the HMO or CMP reconsider 
the decision. (The beneficiary must request reconsideration before 
proceeding to the next step in the review process.) An organization may 
issue a reconsidered determination on a case only if the reconsidered 
determination is entirely favorable to the beneficiary. If the 
organization reaffirms its denial of payment or services, in whole or 
in part, the organization may not issue a reconsidered decision to the 
beneficiary. Instead, the organization must prepare a written 
explanation and refer the case to us, along with a justification for 
its initial denial, so that we may make a new and independent 
determination concerning coverage of the services at issue. This step 
is considered part of the reconsideration process. If our 
reconsideration determination is not fully favorable to the 
beneficiary, the beneficiary has a right to request a hearing before an 
administrative law judge (ALJ) of the Social Security Administration if 
the amount remaining in controversy is $100 or more. If the ALJ hearing 
does not result in a fully favorable determination, the beneficiary may 
request Appeals Council review of the ALJ decision. Following the 
administrative review process, the beneficiary is entitled to judicial 
review of the final determination if the amount remaining in 
controversy is $1,000 or more.
    Existing regulations do not establish time limits for an HMO or CMP 
to complete a reconsideration. A beneficiary may not proceed to the 
next level of administrative review, however, until the HMO or CMP 
issues its decision or refers the matter to us. Therefore, we proposed 
to amend Sec. 417.620 (``Responsibility for reconsideration; time 
limits'') to require the following:
     That an HMO or CMP act on the beneficiary's 
reconsideration request within 60 calendar days from the date of 
receipt of the request.
     That, if the decision made by the organization is entirely 
favorable to the beneficiary, the organization so notify the 
beneficiary within the 60-calendar-day period.
     That, if the organization cannot make a decision that is 
fully favorable to the beneficiary, the organization must submit the 
case file to us (or our designated agent) within the 60-calendar-day 
period described above.

B. PRO Review of Decisions for Hospital Discharges

    Section 1154(e) of the Act, as amended by section 9351 of the 
Omnibus Budget Reconciliation Act of 1986 (Public Law 99-509), provides 
Medicare beneficiaries with the right to an immediate review by a PRO 
and, in some cases, certain financial protections when a hospital, with 
the concurrence of the attending physician, determines that the 
beneficiary no longer requires inpatient hospital care. To exercise the 
immediate review right, after receiving the hospital's notice of 
noncoverage, the beneficiary must request (by telephone or in writing) 
that the PRO review the validity of the hospital's decision. The 
beneficiary must make the request by noon of the first working day 
after receipt of the notice. The PRO then must determine within 1 full 
working day of the request (and receipt of pertinent information and/or 
records from the hospital) the appropriateness of the hospital's 
decision that the beneficiary no longer requires inpatient hospital 
care. The hospital cannot charge the beneficiary for the cost of 
additional hospital days until noon of the day after receipt of the 
PRO's determination that the hospital's decision was correct.
    Under current law, if the hospital (rather than the HMO or CMP) 
sends the discharge notice, the beneficiary is entitled to request 
immediate review by a PRO whether or not he or she is enrolled in an 
HMO or CMP. However, while a beneficiary enrolled in an HMO or CMP may 
be protected from being charged by the hospital, he or she is not 
necessarily protected from potential financial liability. If the PRO 
upholds the hospital's notice of noncoverage, there is no regulation 
prohibiting the HMO or CMP from billing the beneficiary for the extra 
days of care while the PRO is reviewing the case if the extra days 
result in additional costs to the HMO or CMP. (Depending on the payment 
arrangement with the hospital, it is possible that the HMO or CMP will 
not incur any additional costs by virtue of the patient's additional 
days in the hospital. For example, if there is no contract between the 
HMO and the hospital, the hospital may not charge more than the amount 
Medicare would pay. Under the prospective payment system (PPS), that 
amount remains the same regardless of the length of the hospital stay, 
unless outlier payment is involved, that is, additional payment for 
covered services for extended length-of-stay cases. Similarly, a 
contract between an HMO and a hospital might provide that the hospital 
is paid on a basis similar to PPS, rather than on a per diem basis.)
    If the HMO or CMP, rather than the hospital, makes the 
determination of noncoverage, the current regulations do not 
specifically afford an immediate PRO review right to the enrollees. 
Therefore, we proposed to amend Sec. 417.440 (``Entitlement to health 
care services from an HMO or CMP''), Sec. 417.454 (``Charges to 
Medicare enrollees''), and Sec. 417.604 (``General Provisions'') and 
add a new Sec. 417.605 (``Immediate PRO review of a determination of 
noncoverage of inpatient hospital care'') to provide the Medicare HMO 
or CMP enrollee with the same administrative review rights and 
financial protection as are available to beneficiaries under the fee-
for-service system.
    We proposed to require that an HMO or CMP that has not delegated 
the discharge decision to the hospital and attending physician: (l) 
Have the concurrence of the attending physician before making a 
determination that an enrollee no longer needs inpatient hospital care; 
and (2) give the beneficiary a written notice of noncoverage that 
specifies the effective date of his or her liability, states why the 
HMO or CMP believes he or she no longer requires a hospital level of 
care, and explains immediate review procedures.
    We proposed to revise the beneficiary administrative review 
procedures to offer an immediate review by the PRO with which the 
hospital has an agreement under Sec. 466.78. We proposed to adopt the 
same timeframes for immediate PRO reviews for HMO and CMP enrollees 
that are applicable to fee-for-service beneficiaries. Upon receiving a 
written notice from the HMO or CMP or a hospital of a determination 
that an inpatient hospital stay is no longer necessary, the enrollee 
(or authorized representative) would have until noon of the first 
working day after receipt of the notice to file (by telephone or in 
writing) a request for immediate PRO review. The PRO would notify the 
HMO or CMP that an appeal has been filed and require the HMO or CMP to 
provide any pertinent records or information by close of business of 
the first working day immediately following the day the beneficiary 
made the appeal. Further, in response to a request from the HMO or CMP, 
the hospital would be required to submit medical records and other 
pertinent information to the PRO by close of business of the first full 
working day immediately following the day the HMO or CMP makes its 
request. The PRO would also solicit the views of the enrollee who 
requested immediate PRO review (or the enrollee's authorized 
representative). The PRO would have 1 working day after receipt of the 
information from the HMO or CMP to make a determination. The HMO or CMP 
would be financially liable for the costs of the hospital stay until 
noon of the calendar day following receipt of the PRO determination.
    In addition, we also proposed to prohibit the HMO or CMP from 
billing the Medicare beneficiary for the added cost of hospital days 
during the immediate review process. An enrollee who requests immediate 
PRO review would not be entitled to any subsequent review, under the 
HMO's or CMP's administrative review process, of the issue of whether 
hospitalization was still needed. However, the PRO determination would 
be subject to appeal under the administrative and judicial review 
process set forth in 42 CFR part 473 (that is, PRO reconsiderations and 
hearings and judicial review of PRO reconsiderations). As under the 
current fee-for-service system, the beneficiary who requests that a PRO 
reconsider its determination would not be protected from financial 
liability.
    Under the proposed rule, the hospital would not be required to be a 
concurring party in a discharge decision if the HMO or CMP issues the 
notice of noncoverage. However, the hospital could submit the request 
to the PRO for immediate review on behalf of the HMO or CMP enrollee. 
We proposed to clarify that, with one exception, the HMO or CMP is 
financially responsible for the costs of the hospital stay until noon 
of the calendar day following the day the PRO notifies the enrollee of 
its review determination. Under the exception, a hospital may not 
charge the HMO or CMP (or the beneficiary) for the costs of the 
continued hospital stay during the PRO review process if the hospital 
files the request for immediate PRO review on behalf of a beneficiary 
and the PRO upholds the noncoverage determination made by the HMO or 
CMP.

C. Providing Administrative Review Rights to HCPP Members

    Section 1833(a)(l)(A) of the Act provides that an organization that 
furnishes services on a prepayment basis may elect to receive payment 
for Part B services on a reasonable cost basis rather than a reasonable 
charge basis. There is no indication that the Congress intended to deny 
Medicare beneficiaries enrolled in these organizations (referred to in 
these regulations as health care prepayment plans (HCPPs)) their full 
administrative review rights under section 1869 of the Act because they 
receive services through an organization that chooses this alternate 
payment option. The regulations at 42 CFR part 417, subpart D, 
applicable to HCPPs, do not, however, specifically address 
administrative review rights for Medicare enrollees of HCPPs.
    The fact that existing regulations do not specifically provide for 
administrative review of HCPP decisions is an oversight we proposed to 
correct by amending Sec. 417.801 (``Agreements between HCFA and health 
care prepayment plans'') and adding new Secs. 417.830 through 417.840 
to establish administrative review procedures for Medicare enrollees of 
HCPPs who are dissatisfied with denied services or claims. We proposed 
to adopt under these sections administrative review procedures for HCPP 
enrollees that are the same as those for HMO and CMP enrollees.

D. Technical Changes

    We also proposed to make several clarifying technical changes to 
the regulations relating to administrative reviews for HMO or CMP 
enrollees:
     Subpart Q, Secs. 417.600, 417.604, 417.606, 417.608, 
417.610, 417.612, 417.614, 417.616, 416.618, 416.620, 417.622, and 
417.638--We proposed to change the term ``initial determination'' to 
``organization determination'' to distinguish between a determination 
made by the HMO or CMP and one made by us. We also proposed to delete 
references to carriers and intermediaries making determinations on 
behalf of HMOs and CMPs. Carriers and intermediaries now make only fee-
for-service determinations.
     Sections 417.604 and 417.610--We proposed to revise 
Sec. 417.604(a)(4) to clarify that physicians and other individuals who 
furnish items or services under arrangements with an organization do 
not have a right to appeal under the regulations. We proposed to make a 
conforming change to Sec. 417.610(b).
     Section 417.614--We proposed to clarify the language by 
making a distinction between an original determination and a revised or 
reopened determination.
     Section 417.630--We proposed to clarify that the reference 
to the ``amount in controversy'' as a condition for a party to request 
a hearing is the amount ``remaining'' in controversy, not the amount of 
the total bill. We also proposed to add a phrase to clarify that if 
beneficiaries combine bills to meet the amount in controversy 
requirements, they can use both Part A and Part B bills.

III. Analysis of and Response to Public Comments

    We received timely comments from 16 commenters. The commenters 
included HMOs, a CMP, national and local professional associations, a 
State department of health, and consumer advocacy groups.

A. Time Limits

    Comment: While many of the commenters supported the proposed time 
limit for issuing reconsideration determinations, two commenters 
expressed concern about the initial organization determination. The 
concern is that HMOs and CMPs deny (or delay) referrals and other 
services without providing a written notice and, because there is no 
record of a denial or a decision date, it is unclear whether and when a 
request for reconsideration may be filed. One commenter proposed that 
written notices be given for all services granted or denied.
    Response: Regulations at Sec. 417.608(c) state that failure by an 
HMO or CMP to make timely notification of an adverse organization 
determination constitutes an adverse determination and may be appealed. 
In addition, no provision of Sec. 417.616 (``Request for 
reconsideration'') prevents or impedes a Medicare enrollee from filing 
a request for reconsideration if the HMO or CMP failed to provide the 
enrollee with written notice that a service is denied. Thus, if a 
Medicare enrollee maintains that he or she is being denied a covered 
service but is unable to obtain an explicit denial, we believe that the 
regulations permit the enrollee to move to the next step of the appeals 
process and file a request for reconsideration.
    Written notices for all decisions to grant or deny services, as 
proposed by the commenter, would require an inestimable amount of 
additional paperwork, with marginal benefit. This requirement would 
also eliminate the current flexibility of the regulations which allows 
enrollees to file for a reconsideration without a written denial.
    Comment: Two commenters expressed concern that the Medicare appeals 
process does not recognize the need for expedited determinations in 
time-sensitive medical situations. One commenter proposed incorporation 
of an expedited appeals process for denied services, depending on the 
relative urgency of the perceived need for the service.
    Response: We recognize that there are medical situations in which 
outcomes are greatly affected by the promptness of treatment. We also 
recognize that our regulations do not specifically address these 
situations. In order to establish an expedited process for organization 
determinations, however, we would need the benefit of proposed 
rulemaking and public comment. We will consider the need for 
regulations in this area in the near future. In the interim, we believe 
that regulations at Sec. 417.608(c), as noted above, permit the 
Medicare enrollee some flexibility in assuming a service is denied and 
seeking a timely reconsideration. Medicare enrollees also may obtain 
denied services outside the plan and use the appeals process to pursue 
payment, or complain in writing or by telephone to the HCFA regional 
office for the area. Complaints to the regional office are not intended 
to, and usually will not, circumvent the appeals process, but introduce 
Federal followup and tracking of HMO/CMP responses in these situations.
    Even in the absence of specific regulatory requirements, we expect 
Medicare contracting HMOs and CMPs to expedite any initial coverage 
determination and reconsideration if a delay in the decision, and a 
subsequent postponement or suspension of treatment, could have serious, 
adverse consequences on the health status of the beneficiary (for 
example, cause impairment of any bodily function and/or serious 
dysfunction of any bodily organ or part).
    Comment: Two commenters believed that the 60-day time period 
frequently is not long enough, and that the time limit should apply 
only to ``clean cases'' or should begin after all materials are 
received.
    Response: The 60-day limit is consistent with the time period 
allowed in making the initial organization determination, is supported 
as reasonable by most commenters on the proposed rule, and should be 
adequate in most circumstances. Nonetheless, while we do not agree with 
the specific suggestion of the commenters, we are amending Sec. 417.620 
(Responsibility for reconsideration; time limits) to allow extensions 
for ``good cause.'' The ``good cause'' extension authority will not 
diminish the new time limit requirement, but will allow for unusual 
circumstances such as natural disasters or circumstances that make it 
difficult or impossible for the enrollee to provide necessary 
information in a timely way. This will benefit both the enrollee and 
the health plan.
    Comment: Several commenters believed that a time limit similar to 
the 60-day limit on reconsiderations that is placed on HMOs/CMPs should 
be placed on HCFA's reconsiderations. In support of this position, one 
commenter cited the stipulated settlement in the case of Levy v. 
Sullivan concerning HMO appeal delays.
    Response: We do not accept this comment. In order to provide 
meaningful review of the HMO's/CMP's decision, we (or the independent 
reviewer with which we contract) must have the complete record of the 
dispute. When the HMO/CMP conducts a reconsideration of its original 
decision, it presumably has all of the documentation it considered 
relevant to its initial decision. However, our experience demonstrates 
that the independent reviewer must often request that additional 
material be submitted. Our current policy allows the HMO time to obtain 
the additional information. If the information is not received, the 
contractor will make its decision based on the record available. Since 
legitimate delays may occur, however, we believe it would be to the 
parties' advantage to have a flexible deadline for the independent 
review.
    We are, on the other hand, concerned that beneficiaries not suffer 
undue financial hardship during an appeal. We monitor the activities of 
the contractor and the status of reconsiderations as part of our 
overall monitoring of compliance with program requirements. Our 
contract with the independent reviewer also contains a 30-day 
timeliness standard for clean claims, as stipulated in Levy v. 
Sullivan, Civ. No. 88-3271 DT (TX) (S.D. Cal., filed March 13, 1989). 
That agreement, however, did not require that this be incorporated into 
regulations and does not preclude us from revising the contract to 
reflect intervening circumstances.
    Comment: One commenter suggested that the 60-day period begin with 
the date of receipt of the request by the health plan.
    Response: Section 417.620(c) specifies that the HMO must act within 
60 calendar days ``from the date of receipt of the request for 
reconsideration.''
    Comment: One commenter suggested that the appeals regulations 
explain the consequences of failure to meet the 60-day time limit or to 
issue written determinations. One commenter urged a system of 
intermediate sanctions for HMOs/CMPs that fail to make timely 
organization or reconsideration determinations.
    Response: We agree with the commenter that there should be 
consequences for failure to provide determinations in a timely manner 
and within established time standards. As explained in an earlier 
response to a comment, we believe that the regulations at 
Sec. 417.608(c) permit a Medicare enrollee to move to the 
reconsideration process if timely notification of an adverse 
organization determination is not made. To ensure that the 60-day limit 
serves as a time ceiling for this stage of the appeals process, we are 
adding a provision to Sec. 417.620. This provision clarifies that 
failure to complete the reconsideration within the time allowed, or to 
obtain a ``good cause'' extension from us, constitutes an adverse 
determination and the appeals file must be submitted to us.
    Regulations were published on July 15, 1994 (59 FR 36072) that 
allow us to impose intermediate sanctions and civil money penalties for 
a number of performance violations on the part of HMOs and CMPs. Though 
the sanction and penalty authorities are untested at this time, we will 
be assessing how information from the appeals process may be used to 
improve plan performance or initiate a sanctions process in response to 
suspected violations such as a substantial failure to provide required 
medically necessary services and the failure adversely affects the 
enrollee.

B. Requests for Immediate PRO Review of Decisions for Hospital 
Discharges

    Comment: While many of the commenters supported the proposed 
provision, several commenters opposed it on several accounts, including 
that it would have an adverse economic impact on HMOs/CMPs, that 
adequate enrollee protections already exist, and that it would 
interfere with the patient-physician relationship.
    Response: We are aware that the right to immediate PRO review may 
add to the costs of caring for Medicare enrollees. It is difficult to 
assess the degree to which this will affect HMOs and CMPs, because many 
Medicare-contracting plans delegate the discharge decision to the 
physician and hospital. In these circumstances, PRO review has already 
been in effect and no additional financial impact is anticipated. In 
addition, some HMOs/CMPs pay hospitals on a diagnosis-related group 
basis and hospital payments may not be affected. In circumstances where 
the HMO/CMP makes the discharge decision in conjunction with its 
affiliated physicians and pays the hospital on a per diem basis and 
thus faces additional hospital charges, we do not concur with the 
commenters' position, that is, that the HMO/CMP not be held financially 
accountable for the additional hospital days. For risk-contracting 
HMOs/CMPs, the Medicare payment rate is based on fee-for-service costs, 
and the costs of extra hospital days during the PRO review process are 
incorporated into these calculations. Therefore, the average cost for 
hospital inpatient days during the PRO review period in the HMO's/CMP's 
area are already included in the adjusted average per capita cost rate. 
Since all cost-contracting HMOs/CMPs currently choose to have the 
hospital seek payment directly from the fiscal intermediary, there 
should be no additional costs to the health plan.
    While we do not have evidence of early discharge complaints against 
HMOs and CMPs, it is possible that some Medicare enrollees are 
dissatisfied but have no mechanism for expressing it. Moreover, in the 
interests of due process, we believe it is important to provide 
beneficiaries comparable rights whether they do or do not enroll in an 
HMO/CMP, and whether or not they have the need to take advantage of 
those rights. Moreover, if there really are no complaints, then this 
will not be a burdensome requirement on HMOs and CMPs.
    Lastly, in response to concern about the patient-physician 
relationship, there has been no problem of this type arising out of the 
right to immediate PRO review under the fee-for-service program. Also, 
HMOs/CMPs, because they coordinate their enrollees' total health care 
needs, generally have a strong relationship between their Medicare 
enrollees and physicians (as well as other health plan staff). We 
believe that HMOs/CMPs that maintain positive communications and 
relationships with their Medicare enrollees will not experience any 
difficulty in this area.
    Comment: One commenter was concerned about frivolous claims and the 
potential incentives to appeal to the PRO for review. This commenter 
suggested that either the Medicare program or the enrollee be 
responsible for the expense of extra hospital days if the noncoverage 
decision is upheld.
    Response: Our experience with immediate PRO review of hospital 
discharge (noncoverage) decisions does not support a concern about 
frivolous claims. Relative to the number of discharges under the 
Medicare fee-for-service program, the number of appeals to the PRO is 
extremely small. We expect that HMOs/CMPs, because they are more 
involved in the health care of their enrollees, would have a similar 
experience, and may even experience fewer PRO appeals if they 
communicate effectively with their enrollees and have adequate 
safeguards against premature discharges.
    With respect to financial liability for extra hospital days, the 
adjusted average per capita cost calculation includes these costs. We 
would be overpaying if a separate payment was made to plans for these 
charges.
    We will not shift these costs to the Medicare enrollee because fee-
for-service beneficiaries are already protected, and we believe that 
beneficiaries should be treated similarly whether they choose managed 
care or fee-for-service. We do not believe this difference in 
protections should have to be a factor in the beneficiaries' choice. 
Further, we believe that financial responsibility for extra hospital 
days related to an appeal would be a strong disincentive to any 
beneficiary who questions the appropriateness of a discharge decision. 
Such a requirement would undermine the intent of an appeals process.
    Comment: One commenter stated that we mischaracterized the HMO's 
and CMP's responsibility for discharge decisions in the preamble of the 
proposed rule. The commenter stated that the final authority for 
discharge rests with the physician and that HMOs/CMPs cannot discharge 
enrollees from a hospital.
    Response: We agree that the preamble should have referred to 
``noncoverage'' decisions by the HMO/CMP rather than ``discharge'' 
decisions. The right to immediate PRO review affects noncoverage 
decisions in cases in which the HMO/CMP and its affiliated physicians 
agree that a Medicare enrollee no longer requires hospitalization and 
the hospital does not make the noncoverage decision. We also believe 
that the use of the term ``attending physician'' in proposed 
Secs. 417.440 (f)(2) and (f)(4) (which require concurrence of a 
physician in the discharge decision) does not clearly express the 
relationship between the HMO/CMP and its affiliated physician 
providers. Therefore, in the final rule we have removed the term 
``attending physician'' and inserted ``its affiliated physician 
responsible for the hospital care of the enrollee, or other physician 
as authorized by the HMO or CMP'' in its place.
    Comment: One commenter stated that the attending physician should 
be allowed to represent his or her patients and request PRO review of 
noncoverage decisions.
    Response: Usually, the HMO/CMP-affiliated physician makes the 
decision that a Medicare enrollee is ready for discharge. Some HMOs/
CMPs make use of an extended treatment team, such as case managers, 
discharge coordinators, or utilization review coordinators, and a 
member of this team may believe an enrollee is ready for discharge when 
the physician does not. In these situations, the health plan's internal 
procedures will provide guidance for making the discharge decision. 
HMO/CMP physicians have legal arrangements or contracts with their 
health plans, and must abide by the plan's procedures. We support the 
HMO/CMP structure for the delivery of health care, and we would not 
support a policy that undermines the nature of managed care operations.
    In cases in which the physician caring for a hospitalized enrollee 
is not under contract or bound by the terms of an arrangement with an 
HMO/CMP, the physician could represent the patient.
    Comment: One commenter believed that the time period (1 working 
day) for the HMO/CMP to submit information to the PRO is unreasonable 
and is concerned that PROs may take longer than 1 day to complete their 
review.
    Response: We do not agree with the commenter. Under the fee-for-
service Medicare program, hospitals have their charts ready to submit 
to the PRO at the same time that the notice of noncoverage is given. 
This, in effect, gives the PRO another working day to review the 
medical chart. We believe HMOs/CMPs can adopt the same efficiencies and 
that it is in the financial interest of the HMO/CMP to ensure that all 
records are submitted as soon as possible. In regard to PRO timeliness, 
the PROs have an excellent record for completing these reviews in the 
time allotted and, in many cases, earlier.
    Comment: Two commenters believed that the proposed appeals process 
should be available to Medicare enrollees in nursing homes and those 
receiving home health services.
    Response: We will consider this comment for regulatory action at a 
later date. This modification is significant enough to require issuance 
of a second proposed rule, and we believe that this final rule should 
not be delayed.
    Comment: One commenter asked that Sec. 417.440(f)(3) be revised to 
add the date of discharge to the list of information the notice of 
noncoverage will include.
    Response: We believe that HMOs and CMPs should have the flexibility 
either to use the Medicare hospital notice of noncoverage or to develop 
their own. In our interactions with PROs and hospitals on this matter, 
the inclusion or absence of the discharge date on the notice has not 
been identified as a problem or a concern. Therefore we have not 
modified this provision in the final rule.
    Comment: Several provisions of Sec. 417.454 appear to have been 
dropped as part of the proposed rule.
    Response: The revision to Sec. 417.454 as published in the proposed 
rule does remove existing paragraphs (a)(1) through (a)(3). This was 
done in error and is corrected in the final rule. In the final rule, a 
paragraph heading is added to existing paragraph (a); the new provision 
that limits charges for inpatient hospital stays is added as a new 
paragraph (b); and a paragraph heading is added to existing paragraph 
(b), and the paragraph redesignated as paragraph (c). No modification 
is made to other existing text in section Sec. 417.454.

C. Administrative Review Requirements for HCPPs

    Comment: Two commenters expressed concern about our regulations 
extending the section 1876 managed care administrative review 
requirements to HCPPs and disagreed with our interpretation of the 
intent of the Congress in this regard. It was the opinion of both 
commenters that the Congress should expressly legislate these 
requirements.
    Response: As noted previously, section 1833 of the Act simply 
permits entities that provide Part B services on a prepayment basis to 
be paid reasonable costs rather than reasonable charges. There is no 
indication that the Congress intended to deprive enrolled beneficiaries 
of meaningful appeal rights. Our regulations governing HCPPs were 
designed to establish a workable mechanism for reimbursing them, in 
light of the fact that the way they do business is more comparable to 
HMOs and CMPs than it is to physicians, suppliers, and providers who 
are paid under Part B.
    As certain aspects of the Medicare program have been improved over 
the years, such as the addition of beneficiary protections, we have not 
revised HCPP regulations to reflect these changes. Recently, we have 
embarked on an effort to identify actions that are within our 
authority, to ensure that the HCPP program is administered prudently 
and that Medicare beneficiaries enrolled in these plans have rights and 
benefits comparable to those that beneficiaries have in the fee-for-
service system and in HMOs/CMPs. We believe that we have administrative 
authority to ensure that these beneficiaries are given appropriate 
appeal rights.
    Comment: One commenter was concerned that, since HCPPs are not 
required to provide all Part B services, the administrative review 
process be limited to those Medicare covered services provided by the 
health plan under its agreement with us.
    Response: Paragraph (b)(2) of Sec. 417.838 (``Organization 
determinations'') of the regulation addresses this concern by 
specifying that a determination regarding services that are not covered 
under the HCPP's agreement with HCFA is not an organization 
determination.
    Comment: One commenter stated that disputes over the level or 
manner in which a service is provided, such as model variations of 
durable medical equipment, should not be subject to the appeals 
process.
    Response: The appeal rights of Medicare enrollees of an HCPP 
pertain to disputes involving an organization determination. We believe 
that Sec. 417.838(a), which identifies actions that are organization 
determinations, responds to this concern. Section 417.838(a) limits the 
applicability of the appeals process to a refusal, on the grounds that 
the services are not covered by Medicare, to furnish or arrange for 
services or pay for services furnished to the beneficiary.
    Comment: One commenter sought clarification on whether an HCPP's 
refusal to pay coinsurance on services obtained out-of-plan (and paid 
for by the carrier) would be subject to the appeals process.
    Response: The HCPP's obligation to pay coinsurance amounts, where 
the plan's Medicare premium covers such amounts, would depend on the 
circumstances. If an enrollee is denied a service by the HCPP, then 
obtains the service out-of-plan, and subsequently the service is 
determined to be a covered service and paid for by the carrier under 
Medicare principles of reimbursement, the enrollee can request that the 
health plan pay the coinsurance amount. Then, if the HCPP makes an 
organization determination that is adverse to the enrollee, or fails to 
complete its review in 60 days, the matter would be referred to us for 
reconsideration.
    Comment: One commenter suggested allowing HCPP enrollees to retain 
existing appeal rights through Medicare carriers if the HCPP review 
process proves futile or ineffective.
    Response: We disagree. One intent of this rule is to ensure that 
HCPP enrollees have the same appeal rights as other beneficiaries in 
Medicare managed care. A back-up system does not exist for other 
Medicare beneficiaries and cannot be justified on either a cost or 
programmatic basis. When this rule takes effect, HCPP performance in 
operating an effective administrative review process will be added to 
our contractor monitoring process.
    Comment: One commenter stated that the estimate for additional 
paperwork burden on HCPPs related to these new requirements is grossly 
underestimated.
    Response: Health plans that contract with us as HCPPs vary in their 
administrative systems and capability to adapt to the new requirements. 
While we agree that the estimate may underrepresent the additional 
burden on some health plans, it may not for others. We attempted to 
estimate an ``average'' additional workload, given that most HCPPs have 
a grievance system for commercial enrollees on which to build an 
appeals system for Medicare enrollees.
    Comment: One commenter stated that they opposed a change to 
Sec. 417.630 (``Right to a hearing'') regarding ``amounts remaining in 
controversy'' to qualify for a hearing.
    Response: Addition of this phrase is a clarification of existing 
practice, not a substantive change. Beneficiary appeals made to 
Medicare managed care organizations may be denied in full or in part. 
Once a service or a claim has been covered by an HMO/CMP, even if the 
service is only one part of the appeal, Sec. 417.604(a)(2) specifies 
that the service or claim is no longer subject to appeal. Only those 
services that continue to be denied may be moved through the process of 
reconsideration to hearing.
    Comment: One commenter opposed the change in terminology from 
``initial determination'' to ``organization determination.'' The 
commenter is concerned that policy issues may be mislabeled as 
``organization issues'' and be misdirected to the appeals process.
    Response: The concern of the commenter, we believe, is that 
communications to an HMO or CMP questioning the plan's coverage 
policies will be misinterpreted and directed to the plan's appeal 
process. We believe that HMOs and CMPs can distinguish between 
challenges to the plan's coverage policies, in general, and appeals of 
coverage decisions for specifically requested services, if clearly 
communicated. We do not believe that the commenter's rationale warrants 
a change from using the terminology ``organization determination'' as 
proposed.

D. Other Comments

    Comment: One commenter suggested that HMOs be granted formal appeal 
rights.
    Response: We have considered this suggestion. However, because the 
commenter is suggesting a significant change that was not addressed in 
the proposed rule, we cannot address this issue at this time. The issue 
of HMO and CMP appeal rights, as well as other appeals process issues, 
will be evaluated and considered for development as a separate 
regulation.
    Comment: One commenter questioned allowing HMOs/CMPs to request a 
reopening of a determination and another commenter recommended that an 
HMO/CMP request for a reopening should not delay implementation of the 
reconsideration determination.
    Response: With regard to the first comment, the regulations impose 
no limitation on who may request a reopening, although the decision 
whether to reopen is discretionary with the decisionmaker. In response 
to the second comment, Sec. 417.626 provides that a reconsidered 
determination is ``final and binding'' on all parties unless a hearing 
request is filed, or the determination ``is revised'' in accordance 
with a reopening decision. Therefore, if an HMO's or CMP's denial of a 
service or claim is overturned upon reconsideration, the plan must 
abide by the determination unless and until the termination is 
overturned as the result of the reopening.
    We will consider the need for intermediate sanction authority for 
HMOs and CMPs failing to abide by reconsidered determinations in a 
forthcoming rulemaking initiative.
    Comment: Two commenters recommended that we require HMOs/CMPs to 
prominently post information about the appeals process and send out a 
national notice communicating information about appeal rights.
    Response: Existing Sec. 417.604(c) (``Written description of 
appeals procedure'') requires HMOs/CMPs to provide enrollees with 
written materials on appeal procedures. We believe that this is a 
better method for ensuring that all enrollees are informed. Further, 
this approach makes the information readily available in the enrollee's 
own home. With regard to the need for a national communication, we 
agree that beneficiaries should be made aware of the new appeal rights 
and procedures. We will modify the Medicare Handbook and other booklets 
and pamphlets routinely distributed by us to incorporate the policies 
of this final regulation.
    Comment: One commenter suggested that we require HMOs/CMPs to 
notify enrollees, in writing, of the changes adopted in the final rule 
and to submit a plan for educating enrollees about the new rights and 
procedures.
    Response: While we disagree that a special education program is 
needed, we agree that HMOs/CMPs must inform Medicare enrollees of these 
new protections. HMOs/CMPs have various means of communicating with 
enrollees, including written material (for example, newsletters), and 
use of these means for informing Medicare beneficiaries of these new 
appeal rights is acceptable to us. The requirement at Sec. 417.604, 
discussed above, is adequate for this purpose and another regulatory 
requirement is unnecessary. HMOs, CMPs, and HCPPs must notify their 
enrollees of the changes/additions to the appeal rights and when they 
are effective.
    Comment: Two commenters recommended that these appeal rights be 
extended to Medicaid recipients in prepaid health plans.
    Response: Appeal rights for Medicaid beneficiaries is not part of 
the scope of this rulemaking effort. These comments, however, have 
merit and have been brought to the attention of appropriate persons 
within our Office of Managed Care.
    Comment: One commenter stated that we changed Sec. 417.801(4) 
without addressing it in the preamble.
    Response: We assume that the commenter is referring to 
Sec. 418.801(b)(4). In the amendatory language of the proposed rule, we 
stated that ``In Sec. 417.801, the introductory language of paragraph 
(b) is republished, paragraph (b)(4) is revised, paragraph (b)(5) is 
redesignated as paragraph (b)(6), and a new paragraph (b)(5) is added 
to read as follows:''. That amendatory language contained technical 
errors. Paragraph (b)(4) was not revised; the language published in the 
proposed rule is the same as existing paragraph (b)(4). Additionally, 
existing paragraph (b)(5) should not have been redesignated; existing 
paragraph (b)(6) should have been redesignated as paragraph (b)(7) and 
a new paragraph (b)(6) added. These errors have been corrected in the 
final rule.

IV. Provisions of This Final Rule

    We have adopted the provisions of the October 7, 1992, proposed 
rule, with the following changes, which have been discussed above:
     We have revised proposed Sec. 417.440(f) (``Notice of 
noncoverage of inpatient hospital care''). This proposed section 
required that, before giving notice of noncoverage, the HMO or CMP must 
obtain the concurrence of the attending physician. We have revised 
``attending physician'' to ``its affiliated physician responsible for 
the hospital care of the enrollee, or other physician as authorized by 
the HMO or CMP''.
     Proposed Sec. 417.454 (``Charges to Medicare enrollees'') 
is revised to restore existing provisions that were erroneously removed 
in the proposed rule.
     We have revised paragraph (c) of proposed Sec. 417.620 
(``Responsibility for reconsiderations; time limits) to require that 
the HMO or CMP issue the reconsidered determination to the enrollee, or 
submit an explanation and file to us, within 60 days from the date of 
receipt of the request for reconsideration.
     We have revised proposed Sec. 417.838(b) (``Actions that 
are not organization determinations'') by adding a new paragraph (3). 
New paragraph (3) specifies that a determination regarding services 
that are covered under the HCPP's agreement with us that the enrollee 
obtained from unaffiliated providers or physicians, in violation of the 
HCPP's enrollment agreement, is not an organization determination for 
purposes of administrative review procedures.
    In addition to the above changes, in a number of sections, we made 
a nomenclature change by substituting ``HMO or CMP'' and its plural and 
possessive forms for the words ``organization'', ``organizations'' and 
``organization's'', respectively. This change was made to use 
consistent terminology throughout part 417.
    We also have made technical changes and minor editorial changes 
that do not affect the substance of the provisions.

V. Paperwork Burden

    Sections 417.440(f), 417.605, 417.620, and 417.836 of this rule 
contain additional requirements that are subject to review by the 
Office of Management and Budget under the authority of the Paperwork 
Reduction Act of 1980 (44 U.S.C. Chapter 35). HMOs and CMPs are 
required to notify beneficiaries if the HMO or CMP refers a request for 
reconsideration to HCFA. We estimate that this reporting burden will be 
approximately 5 minutes per case. Also, before a hospital discharge, 
HMOs and CMPs are required to provide Medicare enrollees with a written 
notice of a determination that an enrollee's inpatient hospital stay is 
no longer necessary. We estimate that the reporting burden for an HMO 
or CMP that has not delegated the discharge decision to the hospital to 
provide the written notice of noncoverage to be approximately 10 
minutes per notice; for a Medicare enrollee of an HMO or CMP to 
complete a request for immediate PRO review of a notice of a 
determination that an inpatient hospital stay is no longer necessary to 
be approximately 10 minutes per request; for the HMO or CMP to submit 
requested medical information to the PRO, to be approximately \1/2\ 
hour per response. HCPPs are required to develop appeal procedures and 
inform Medicare enrollees of appeal rights. We estimate that it will 
take an HCPP 40 hours to develop these appeal procedures and 1 hour to 
process each appeal. A notice will be published in the Federal Register 
when OMB approval is obtained.

VI. Regulatory Impact Statement

    Consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612), we prepare a regulatory flexibility analysis unless the 
Secretary certifies that a rule will not have a significant economic 
impact on a substantial number of small entities. For purposes of the 
RFA, we consider all HMOs, CMPs, and HCPPs to be small entities.
    Also, section 1102(b) of the Act requires the Secretary to prepare 
a regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 50 beds.
    This final rule provides the Medicare HMO or CMP enrollee with the 
same administrative review rights and financial protections as are 
available to beneficiaries in the fee-for-service system. To the extent 
that current Medicare membership in HMOs, CMPs, and HCPPs to which this 
rule will apply is low (approximately 7 percent of the total Medicare 
population), we do not expect any significant increased costs or 
savings as a result of this final rule.
    We are not preparing analyses for either the RFA or section 1102(b) 
of the Act because we have determined, and the Secretary certifies, 
that this final rule will not have a significant economic impact on a 
substantial number of small entities or a significant impact on the 
operations of a substantial number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
regulation was not reviewed by the Office of Management and Budget.

Lists of Subjects in 42 CFR Part 417

    Administrative practice and procedure, Health maintenance 
organization (HMO), Medicare, Reporting and recordkeeping requirements.

    42 CFR part 417 is amended as follows:

PART 417--HEALTH MAINTENANCE ORGANIZATIONS, COMPETITIVE MEDICAL 
PLANS, AND HEALTH CARE PREPAYMENT PLANS

    1. The authority citation for Part 417 is revised to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh), secs. 1301, 1306, and 1310 of the Public 
Health Service Act (42 U.S.C. 300e, 300e-5, and 300e-9); and 31 
U.S.C. 9701.

    2. In Sec. 417.440, a new paragraph (f) is added, to read as 
follows:


Sec. 417.440  Entitlement to health care services from an HMO or CMP.

* * * * *
    (f) Notice of noncoverage of inpatient hospital care. (1) If an 
enrollee is an inpatient of a hospital, entitlement to inpatient 
hospital care continues until he or she receives notice of noncoverage 
of that care.
    (2) Before giving notice of noncoverage, the HMO or CMP must obtain 
the concurrence of its affiliated physician responsible for the 
hospital care of the enrollee, or other physician as authorized by the 
HMO or CMP.
    (3) The HMO or CMP must give the enrollee written notice that 
includes the following:
    (i) The reason why inpatient hospital care is no longer needed.
    (ii) The effective date of the enrollee's liability for continued 
inpatient care.
    (iii) The enrollee's appeal rights.
    (4) If the HMO or CMP delegates to the hospital the determination 
of noncoverage of inpatient care, the hospital obtains the concurrence 
of the HMO- or CMP-affiliated physician responsible for the hospital 
care of the enrollee, or other physician as authorized by the HMO or 
CMP, and sends notice, following the procedures set forth in 
Sec. 412.42(c)(3) of this chapter.
    3. Section 417.454 is amended by adding a paragraph heading to 
paragraph (a), redesignating paragraph (b) as paragraph (c) and adding 
a paragraph heading, and adding a new paragraph (b), to read as 
follows:


Sec. 417.454  Charges to Medicare enrollees.

    (a) Charges that are permitted. * * *
    (b) Limit on charges for inpatient hospital care. If a Medicare 
enrollee who is an inpatient of a hospital requests immediate PRO 
review (as provided in Sec. 417.605) of any determination by the 
hospital furnishing services or the HMO or CMP that the inpatient 
hospital services will no longer be covered, the HMO or CMP may not 
charge the enrollee for any inpatient care costs incurred before noon 
of the first working day after the PRO issues its review decision.
    (c) Reporting requirements. * * *


Secs. 417.600, 417.612, 417.622  [Amended]

    4. Nomenclature change: In the following sections of subpart Q, the 
term ``initial determination'' or ``initial determinations'' is revised 
to read ``organization determination'' or ``organization 
determinations'', respectively, wherever it appears:
    a. Sec. 417.600.
    b. Sec. 417.612, section title and text.
    c. Sec. 417.622(b).
    5. Section 417.604 is amended by revising paragraphs (a) and (b) to 
read as follows:


Sec. 417.604  General provisions.

    (a) Applicability. The appeals procedures set forth in this subpart 
apply to organization determinations as defined in Sec. 417.606, with 
the following exceptions:
    (1) If an enrollee requests immediate PRO review (as provided in 
Sec. 417.605) of a determination of noncoverage of inpatient hospital 
care--
    (i) The enrollee is not entitled to subsequent review of that issue 
under this subpart; and
    (ii) The PRO review decision is subject to the appeals procedures 
set forth in part 473 of this chapter.
    (2) Any determination regarding services that were furnished by the 
HMO or CMP, either directly or under arrangement, for which the 
enrollee has no further liability for payment are not subject to 
appeal.
    (3) Services included in an optional supplemental plan (see 
Sec. 417.440(b)(2)) are subject only to a grievance procedure under 
Sec. 417.436(a)(2).
    (4) Physicians and other individuals who furnish items or services 
under arrangement with an HMO or CMP have no right of appeal under this 
subpart.
    (5) The provisions of subpart R of 20 CFR part 404 dealing with 
representation of parties under title II of the Act are, unless 
otherwise provided in this subpart, also applicable to appeals under 
this subpart.
    (b) Responsibility for establishing appeals procedures. The HMO or 
CMP is responsible for establishing and maintaining the appeals 
procedures that are specified in Secs. 417.604 through 417.638.
* * * * *
    6. A new Sec. 417.605 is added to read as follows:


Sec. 417.605  Immediate PRO review of a determination of noncoverage of 
inpatient hospital care.

    (a) Right to review. A Medicare enrollee who disagrees with a 
determination made by an HMO, CMP, or a hospital that inpatient care is 
no longer necessary may remain in the hospital and may (directly or 
through his or her authorized representative) request immediate PRO 
review of the determination.
    (b) Procedures. For the immediate PRO review process, the following 
rules apply:
    (1) The enrollee or authorized representative must submit the 
request for immediate review--
    (i) To the PRO that has an agreement with the hospital under 
Sec. 466.78 of this chapter;
    (ii) In writing or by telephone; and
    (iii) By noon of the first working day after receipt of the written 
notice of the determination that the hospital stay is no longer 
necessary.
    (2) On the date it receives the enrollee's request, the PRO must 
notify the HMO or CMP that a request for immediate review has been 
filed.
    (3) The HMO or CMP must supply any information that the PRO 
requires to conduct its review and must make it available, by phone or 
in writing, by the close of business of the first full working day 
immediately following the day the enrollee submits the request for 
review.
    (4) In response to a request from the HMO or CMP, the hospital must 
submit medical records and other pertinent information to the PRO by 
close of business of the first full working day immediately following 
the day the HMO or CMP makes its request.
    (5) The PRO must solicit the views of the enrollee who requested 
the immediate PRO review (or the enrollee's representative).
    (6) The PRO must make a determination and notify the enrollee, the 
hospital, and the HMO or CMP by close of business of the first working 
day after it receives the information from the hospital, or the HMO or 
CMP, or both.
    (c) Financial responsibility--(1) General rule. Except as provided 
in paragraph (c)(2) of this section, the HMO or CMP continues to be 
financially responsible for the costs of the hospital stay until noon 
of the calendar day following the day the PRO notifies the enrollee of 
its review determination.
    (2) Exception. The hospital may not charge the HMO or CMP (or the 
enrollee) if--
    (i) It was the hospital (acting on behalf of the enrollee) that 
filed the request for immediate PRO review; and
    (ii) The PRO upholds the noncoverage determination made by the HMO 
or CMP.
    7. Section 417.606 is revised to read as follows:


Sec. 417.606  Organization determinations.

    (a) Actions that are organization determinations. An organization 
determination is any determination made by an HMO or CMP with respect 
to any of the following:
    (1) Payment for emergency or urgently needed services.
    (2) Any other health services furnished by a provider or supplier 
other than the HMO or CMP that the enrollee believes--
    (i) Are covered under Medicare; and
    (ii) Should have been furnished, arranged for, or reimbursed by the 
HMO or CMP.
    (3) The HMO's or CMP's refusal to provide services that the 
enrollee believes should be furnished or arranged for by the HMO or CMP 
and the enrollee has not received the services outside the HMO or CMP.
    (b) Actions that are not organization determinations. The following 
are not organization determinations for purposes of this subpart:
    (1) A determination regarding services that were furnished by the 
HMO or CMP, either directly or under arrangement, for which the 
enrollee has no further obligation for payment.
    (2) A determination regarding services included in an optional 
supplemental plan (see Sec. 417.440(b)(2)).
    (c) Relation to grievances. A determination that is not an 
organization determination is subject only to a grievance procedure 
under Sec. 417.436(a)(2).
    8. Section 417.608 is amended by revising the section heading and 
paragraphs (a) and (c) to read as follows:


Sec. 417.608  Notice of adverse organization determination.

    (a) If an HMO or CMP makes an organization determination that is 
partially or fully adverse to the enrollee, it must notify the enrollee 
of the determination within 60 days of receiving the enrollee's request 
for payment for services.
* * * * *
    (c) The failure to provide the enrollee with timely notification of 
an adverse organization determination constitutes an adverse 
organization determination and may be appealed.
    9. In Sec. 417.610, the section heading is revised, the 
undesignated introductory text is revised, and paragraph (b) is 
revised, to read as follows:


Sec. 417.610  Parties to the organization determination.

    The parties to the organization determination are--
* * * * *
    (b) An assignee of the enrollee (that is, a physician or other 
supplier who has provided a service to the enrollee and formally agrees 
to waive any right to payment from the enrollee for that service);
* * * * *
    10. Section 417.614 is revised to read as follows:


Sec. 417.614  Right to reconsideration.

    Any party who is dissatisfied with an organization determination or 
with one that has been reopened and revised may request reconsideration 
of the determination in accordance with the procedures of Sec. 417.616.
    11. In Sec. 417.616, the introductory text of paragraph (a) is 
republished, and paragraphs (a)(1), (b), (c)(1), and (c)(2) 
introductory text are revised, to read as follows:


Sec. 417.616  Request for reconsideration.

    (a) Method and place for filing a request. A request for 
reconsideration must be made in writing and filed with--(1) The HMO or 
CMP that made the organization determination;
* * * * *
    (b) Time for filing a request. Except as provided in paragraph (c) 
of this section, the request for reconsideration must be filed within 
60 days from the date of the notice of the organization determination.
    (c) Extension of time to file a request--(1) Rule. If good cause is 
shown, the HMO or CMP that made the organization determination may 
extend the time for filing the request for reconsideration.
    (2) Method of requesting an extension. If the time limit in 
paragraph (b) of this section has expired, a party to the organization 
determination may file a request for reconsideration with the HMO or 
CMP, HCFA, SSA, or, in the case of a qualified railroad retirement 
beneficiary, an RRB office. The request to extend the time limit must--
* * * * *


Sec. 417.618  [Amended]

    12. In Sec. 417.618, ``, carrier, or intermediary'' is removed.
    13. Section 417.620 is revised to read as follows:


Sec. 417.620  Responsibility for reconsiderations; time limits.

    (a) If the HMO or CMP can make a reconsidered determination that is 
completely favorable to the enrollee, the HMO or CMP issues the 
reconsidered determination.
    (b) If the HMO or CMP recommends partial or complete affirmation of 
its adverse determination, the HMO or CMP must prepare a written 
explanation and send the entire case to HCFA. HCFA makes the 
reconsidered determination.
    (c) The HMO or CMP must issue the reconsidered determination to the 
enrollee, or submit the explanation and file to HCFA, within 60 
calendar days from the date of receipt of the request for 
reconsideration.
    (d) For good cause shown, HCFA may allow exceptions to the time 
limit set forth in paragraph (c) of this section.
    (e) Failure by the HMO or CMP to provide the enrollee with a 
reconsidered determination within the 60-day limit described in 
paragraph (c) of this section or to obtain a good cause extension 
described in paragraph (d) of this section constitutes an adverse 
determination, and the HMO or CMP must submit the file to HCFA.
    (f) If the HMO or CMP refers the matter to HCFA, it must 
concurrently notify the beneficiary of that action.
    14. In Sec. 417.622, the introductory text is republished, and 
paragraph (a) is revised to read as follows. [For a nomenclature change 
in paragraph (b), see amendatory item 4.]


Sec. 417.622  Reconsidered determination.

    A reconsidered determination is a new determination that--
    (a) Is based on a review of the organization determination, the 
evidence and findings upon which it was based, and any other evidence 
submitted by the parties or obtained by HCFA or the HMO or CMP; and
* * * * *
    15. Section 417.630 is revised to read as follows:


Sec. 417.630  Right to a hearing.

    If the amount remaining in controversy is $100 or more, any party 
to the reconsideration who is dissatisfied with the reconsidered 
determination has a right to a hearing. (The amount remaining in 
controversy, which can include any combination of Part A and Part B 
services, is computed in accordance with Sec. 405.740 of this chapter 
for Part A services and Sec. 405.820(b) of this chapter for Part B 
services. If the basis for the appeal is the refusal of services, the 
projected value of those services is used in computing the amount 
remaining in controversy.)
    16. Section 417.638 is revised to read as follows:


Sec. 417.638  Reopening determinations and decisions.

    An organization, reconsidered, or revised determination made by an 
HMO, CMP, or HCFA, or a decision or revised decision of an ALJ or the 
Appeals Council, may be reopened in accordance with the provisions of 
Sec. 405.750 of this chapter.
    17. In Sec. 417.801, the introductory language of paragraph (b) is 
republished, paragraph (b)(6) is redesignated and republished as 
paragraph (b)(7), and a new paragraph (b)(6) is added to read as 
follows:


Sec. 417.801  Agreements between HCFA and health care prepayment plans.

* * * * *
    (b) Terms. The agreement must provide that the HCPP agrees to--
* * * * *
    (6) Establish administrative review procedures in accordance with 
Secs. 417.830 through 417.840 for Medicare enrollees who are 
dissatisfied with denied services or claims; and
    (7) Consider any additional requirements that HCFA finds necessary 
or desirable for efficient and effective program administration.
* * * * *
    18. New Secs. 417.830, 417.832, 417.834, 417.836, 417.838, and 
417.840 are added under subpart U to read as follows:


Sec. 417.830  Scope of regulations on beneficiary appeals.

    Sections 417.832 through 417.840 establish procedures for the 
presentation and resolution of organization determinations, 
reconsiderations, hearings, Appeals Council review, court reviews, and 
finality of decisions that are applicable to Medicare enrollees of an 
HCPP.


Sec. 417.832  Applicability of requirements and procedures.

    (a) The administrative review rights and procedures specified in 
Secs. 417.834 through 417.840 pertain to disputes involving an 
organization determination, as defined in Sec. 417.838, with which the 
enrollee is dissatisfied.
    (b) Physicians and other individuals who furnish items or services 
under arrangements with an HCPP have no right of administrative review 
under Secs. 417.834 through 417.840.
    (c) The provisions of subpart R of 20 CFR part 404 dealing with 
representation of parties under title II of the Act are, unless 
otherwise provided, also applicable.


Sec. 417.834  Responsibility for establishing administrative review 
procedures.

    The HCPP is responsible for establishing and maintaining the 
administrative review procedures that are specified in Secs. 417.830 
through 417.840.


Sec. 417.836  Written description of administrative review procedures.

    Each HCPP is responsible for ensuring that all Medicare enrollees 
are informed in writing of the administrative review procedures that 
are available to them.


Sec. 417.838  Organization determinations.

    (a) Actions that are organization determinations. For purposes of 
Secs. 417.830 through 417.840, an organization determination is a 
refusal to furnish or arrange for services, or reimburse the party for 
services provided to the beneficiary, on the grounds that the services 
are not covered by Medicare.
    (b) Actions that are not organization determinations. The following 
are not organization determinations for purposes of Secs. 417.830 
through 417.840:
    (1) A determination regarding services that were furnished by the 
HCPP, either directly or under arrangement, for which the enrollee has 
no further obligation for payment.
    (2) A determination regarding services that are not covered under 
the HCPP's agreement with HCFA.


Sec. 417.840  Administrative review procedures.

    The HCPP must apply Secs. 417.608 through 417.638 to organization 
determinations that affect its Medicare enrollees, and to 
reconsideration, hearings, Appeals Council review, and judicial review 
of those organization determinations.

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

    Dated: May 20, 1994.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.

    Dated: November 4, 1994.
Donna E. Shalala,
Secretary.
[FR Doc. 94-28399 Filed 11-18-94; 8:45 am]
BILLING CODE 4120-01-P