[Federal Register Volume 60, Number 131 (Monday, July 10, 1995)]
[Rules and Regulations]
[Pages 35498-35503]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16806]



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DEPARTMENT OF HEALTH AND HUMAN SERVICES
42 CFR Part 433

[MB-39-F]
RIN: 0938-AF11


Medicaid Program; Third Party Liability (TPL) Cost-Effectiveness 
Waivers

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

ACTION: Final rule.

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SUMMARY: This final rule revises regulations concerning Medicaid 
agencies' actions where third party liability (TPL) may exist for 
expenditures for medical assistance covered under the State plan. It 
allows the Medicaid agencies to request waivers from certain procedures 
in our regulations that are not expressly required by the Social 
Security Act. We will consider waiving nonstatutorily required 
procedures relating to identifying possible TPL where the agency finds 
that following a given required procedure is not cost-effective and is 
duplicative of another State activity. A nonstatutorily required 
activity is eligible for a waiver if the cost of the required activity 
exceeds the TPL recoupment and the required activity accomplishes, at 
the same or at a higher cost, the same objective as another activity 
that is being performed by the States. This change gives States greater 
flexibility in managing their Medicaid programs.

EFFECTIVE DATE: This final rule is effective September 8, 1995.

FOR FURTHER INFORMATION CONTACT: Mel Schmerler, (410) 966-5942.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 1902(a)(25) of the Social Security Act (the Act) requires 
that State or local Medicaid agencies take all reasonable measures to 
ascertain the legal liability of third parties to pay for care and 
services furnished to Medicaid recipients. A third party is any 
individual, entity, or program that is or may be liable to pay all or 
part of the expenditures for medical assistance furnished under a State 
plan. Medicaid is intended to be the payer of last resort; that is, 
other available resources must be used before Medicaid pays for the 
care and services of a Medicaid-eligible individual. These other 
resources are known as third party liability, or TPL.
    Further, provisions under section 1902(a)(25)(A)(i) of the Act 
specify that the Medicaid State plan must provide for the collection of 
sufficient information to enable the State to pursue claims against 
third parties. Examples of liable third parties include commercial 
insurance companies through employment-related or privately purchased 
health insurance; casualty coverage resulting from an accidental 
injury; payments received directly from an individual who has either 
voluntarily accepted or been assigned legal responsibility for the 
health care of one or more Medicaid recipients; and fraternal groups, 
union, or State workers' compensation commissions. TPL also includes 
medical support provided by a parent under a court or administrative 
order.
    Statutory provisions (sections 1137 and 1902(a)(25) of the Act) 
require States to obtain health insurance information at eligibility 
intake and redetermination interviews, perform the State Wage 
Information Collection 

[[Page 35499]]
Agency (SWICA) data match, safeguard recipient information, obtain 
recipient assignment of rights, and submit a TPL action plan for HCFA 
approval. These statutory requirements are not affected by the 
provisions of this final rule.
    Nonstatutory requirements, specified in the Medicaid regulations at 
Sec. 433.138 (and subject to proposed waiver), include obtaining 
information (via data matching) with the State Workers' Compensation or 
Industrial Accident Commission files and State Motor Vehicle Accident 
report files. Another nonstatutory requirement is the requirement for 
agencies to identify all paid claims with trauma/diagnosis codes found 
in the International Classification of Disease, 9th Revision, Clinical 
Modification, Volume 1 (ICD-9-CM) 800 through 999, except 994.6. In 
Sec. 433.139 (and subject to proposed waiver), State agencies are 
required to bill the third party resource within 60 days after the last 
day of the month the State learns of the available resource.
    Under our regulations at Sec. 433.138, pertinent health insurance 
information must be obtained (1) from Medicaid applicants or recipients 
during the determination and redetermination process; (2) by securing 
data match agreements with specific Federal and State agencies; (3) by 
conducting diagnosis and trauma code edits; and (4) by following 
specified procedures regarding the frequency of these activities.
    Regulations at Sec. 433.139 govern State payment of claims where 
TPL is involved. There are two methods of paying claims for recipients 
with known TPL: the cost-avoidance method and the pay-and-chase method. 
Under the cost-avoidance method, the Medicaid agency does not initially 
pay the claim, but returns the claim to the provider with information 
necessary for the provider to bill the third party. Under the pay-and-
chase method, an agency may pay the total amount allowed under its 
payment schedule and then seek recovery from the liable third parties. 
The agency must initiate recovery within 60 days after the end of the 
month in which payment is made or the Agency learns of the existence of 
the third party resource.
    Most States that implement the requirements in our regulations at 
Sec. 433.138 achieve significant Medicaid savings. Whenever third party 
resources can be utilized instead of Medicaid, both Federal and State 
taxpayers save money. In some instances, however, TPL requirements are 
not cost-effective.
    Some States have reported very poor results in terms of identifying 
new TPL leads through trauma and diagnosis code edits. There are 
reports that some codes never yield TPL. Currently, States may obtain a 
partial waiver from HCFA of the requirement in Sec. 433.138(e) to take 
action to identify those paid claims for Medicaid recipients that 
contain diagnosis codes 800 through 999 (except that no State has to 
pursue information concerning code 994.6, motion sickness). Under 
Sec. 433.138(e), the State may obtain a waiver from complying with the 
requirements for specific codes.
    In Sec. 433.139(e), we also permit a State to request a waiver from 
HCFA of the cost-avoidance method of paying if the State could document 
that the pay-and-chase method is at least as cost-effective as the 
cost-avoidance method. The State is required to revalidate its cost-
avoidance waiver request every 3 years and notify HCFA of any event 
that may change the cost-effectiveness of the waiver.
    When these requirements were established by HCFA, the Medicaid TPL 
program was in its infancy. Many States were not pursuing TPL or only 
recovering TPL passively; that is, making recoveries when contacted by 
a provider or attorney who was making a third party settlement. We 
believed there were tremendous untapped TPL resources that were not 
identified by States. Therefore, the initial regulations were broad and 
did not allow States discretion to decide whether or not to perform 
required TPL activities based upon their cost-effectiveness. For this 
reason, we issued TPL regulations which we have determined are now too 
prescriptive and, at times, duplicative. On February 27, 1987, we 
published in the Federal Register (52 FR 5971) a response to State 
comments regarding cost-effectiveness of our discretionary regulations 
at Secs. 433.138 and 433.139. We stated that we would reevaluate these 
requirements if we received substantial complaints. This rule is 
consistent with that statement.
    Currently, the majority of the States have aggressive and 
comprehensive TPL programs and have reported substantial savings from 
TPL activities. However, program experience has identified situations 
where some activities required by our regulations duplicate some State 
agency requirements in identifying new TPL leads. Also, situations have 
been identified where some of our requirements in regulations are not 
cost-effective; that is, States can reasonably expect to spend more to 
perform a TPL activity than will be realized in savings. It is for 
these reasons that we are now offering States the opportunity to 
request waivers from the unproductive activities that are not mandated 
by statute, and for which States have superior methods for 
accomplishing the same objectives as our regulations.

II. Issuance of Proposed Rule

    On February 2, 1994, we published in the Federal Register (59 FR 
4880) a proposed rule that would allow States to request a waiver from 
requirements in Sec. 433.138(c), (d)(4), (d)(5), (e), (f), (g)(1), 
(g)(2), (g)(3), and (g)(4) or Sec. 433.139(b), (d)(1), and (d)(2) that 
are not explicitly mandated by statute when it is found that performing 
the requirement is not cost-effective. We indicated that we would 
revise our rules to allow a State to request a waiver from the 
nonstatutorily required activities that concern specific types of third 
party information, exchange of data, diagnosis and trauma code edits, 
and follow-up activities for certain exchanges. A nonstatutorily 
required activity would be eligible for a waiver if the cost of the 
required activity exceeds the TPL recoupment and the required activity 
accomplishes, at the same or at a higher cost, the same objective as 
another activity that is being performed by the State.
    We made this proposal to allow States to perform TPL operations 
more efficiently and at a greater savings to the Federal Government. We 
believed that duplicative efforts (and higher costs) would be 
eliminated when States have already identified third party resources 
through another more cost-effective means. We note that HCFA's 
financial participation in State Medicaid Management Information 
Systems costs, including costs related to data matches we require 
States to perform, may be as much as 90 percent. Therefore, it is not 
in the interest of the Federal Government to have States perform 
activities which are either duplicative or nonproductive.
    We proposed relief from regulatory requirements in the form of a 
waiver. The State would submit a formal request to the HCFA regional 
office (RO). The State would be required to provide documentation that 
demonstrates that the cost of the required activity exceeds the TPL 
recoupment and the required activity accomplishes, at the same or at a 
higher cost, the same objective as another activity which is being 
performed by the State.
    Documentation to support the waiver request could include past 
claims recovery data that demonstrate the administrative expenses 
involved in meeting that particular requirement, and a State analysis 
that documents a cost-effective alternative that accomplishes the same 
task. HCFA's ROs would 

[[Page 35500]]
consider the individual merits of each waiver request and would grant 
or deny the waiver request based on cost-effectiveness and State 
alternatives presented.
    We indicated that we would issue separate guidelines for developing 
and evaluating waiver requests for the new waivers. We currently have 
cost-effectiveness guidelines in place to govern our existing cost-
avoidance waiver process. These guidelines were developed by a national 
work group comprised of HCFA Central Office (CO) and RO staff, whose 
purpose was to make the guidelines comprehensive and to ensure 
consistent application throughout the country. They are found in 
section 3904.2 of the State Medicaid Manual. We indicated that we would 
issue similar guidelines to review the new waivers. Sources of data 
would most likely include claims processing tabulations, State 
expenditure reports, and savings data from the TPL recovery units and 
the HCFA Form 64.9a report.
    CO staff also would provide clarification to RO staff as needed 
through our regular teleconferences. Consultation on specific waiver 
requests would be provided routinely, as is currently done in the State 
plan amendment process, cost-avoidance waivers, trauma code edit 
waivers, and State TPL action plan submissions. As with our current 
waiver provisions, ROs would be required to report approvals and 
disapprovals to CO on an ongoing basis. When changes in waiver status 
occur, CO also would be notified.

III. Summary of Public Comments and Responses

    We received four letters of comment on the February 1994 proposed 
rule. These comments and our responses are discussed below:
    Comment: Several commenters expressed concern that the proposed 
rule did not go far enough to allow States the flexibility needed to 
achieve additional savings from TPL. One commenter cited section 
1902(a)(25) of the Act which requires States to take all reasonable 
measures to ascertain the legal liability of third parties (including 
health insurers) to pay for care and services available under the plan. 
The commenter provided two examples of unique and innovative practices 
that enhance the State's TPL operations and should be permissible under 
Federal regulations. In the first example, the recipient receives a 
portion of the proceeds of settlements from tort actions taken against 
third parties. In the second example, the State has developed a program 
which pays county welfare departments incentive payments (``bounties'') 
of $50 for each new case certified for eligibility where other health 
insurance is identified.
    Response: We agree that States should be allowed to implement 
unique and innovative practices that are reasonable measures and not 
prohibited by Federal statute. Medicaid services are provided using 
Federal matching funds. In the first example, the State has provided 
Medicaid services for recipients that were injured by liable third 
parties, and these recipients have subsequently taken legal action to 
receive compensation through the courts for their injuries. Section 
1912(b) of the Act requires that when a State makes a recovery, the 
State reimburse itself (and the Federal government) before any 
remaining funds are given to the recipient. If the State is reimbursing 
the recipient from the amounts collected before fully refunding the 
Federal government its share, such practice violates section 1912(b) of 
the Act. The State is, however, free to pay State monies to the 
recipient as an incentive, without violating section 1912 of the Act.
    In the second example, we take issue with the ``county bounty'' 
program where Federal matching funds were requested and denied for the 
bounty payments, because these expenditures are not authorized for 
Federal matching funds under title XIX of the Act. We agree, that in 
both examples, these practices could increase TPL identification and 
savings, and States may find it worthwhile to continue these programs 
with State-only funds. This rule will provide States with additional 
flexibility in their TPL programs within the confines of Federal law.
    Comment: One commenter requested that we revise the regulations to 
define, interpret, and explain more positively the meaning of the 
statutory phrase ``all reasonable measures.''
    Response: We have interpreted the language in section 1902(a)(25) 
of the Act that refers to ``all reasonable measures'' by specifying the 
requirements for TPL in regulations at Secs. 433.138 and 433.139. These 
regulations include TPL activities specified by the statute, and other 
discretionary activities that we have deemed to be logical actions to 
take to identify and pursue TPL. We originally decided to offer TPL 
waivers of these regulatory requirements because several States 
expressed concern that our discretionary regulatory activities were not 
cost effective, and that other State activities were accomplishing the 
same objective. We believe waivers of discretionary TPL requirements 
can provide States with some flexibility in managing their TPL programs 
without compromising the integrity of the TPL program. We have always 
supported States' innovative and unique measures to achieve TPL savings 
that are not prohibited by Federal statute. These innovative and unique 
measures have been issued several times by us in a compilation 
entitled, ``Third Party Liability in the Medicaid Program . . . A Guide 
to Successful State Agency Practices.'' We are continuously supportive 
of approaches that do not violate the statute, and these regulations do 
not preclude States from developing such operations.
    Comment: Two commenters suggested that in Sec. 433.138(l) we 
provide considerable flexibility in our interpretation of ``adequate 
documentation'' for waiver consideration.
    Response: We wish to stress that our ``examples of documentation'' 
in the proposed rule are strictly examples and not an inclusive list. 
It is our intention to employ flexibility when considering these waiver 
requests. While we will provide guidance to States for submissions of 
waiver requests through the State Medicaid Manual, we understand that 
the unique characteristics of each State Medicaid program will govern 
States' abilities to produce cost-effectiveness data.
    Comment: One commenter questioned our intent regarding the 
requirements for ``adequate documentation'', as specified in proposed 
Sec. 433.138(l)(ii), which states that ``Examples of documentation are 
claims recovery data and a State analysis documenting a cost-effective 
alternative that accomplished the same task.'' The commenter noted that 
this language means that even if a State TPL practice is not cost-
effective, the State must also demonstrate that it performs an 
alternative practice. The commenter also points out that in section II 
of the preamble of the proposed rule, an example of ``adequate 
documentation'' was given as ``. . . claims recovery data or State 
analysis . . .'' (emphasis added), and asserts that HCFA intended that 
States either document that a practice is not cost-effective or that 
another alternative practice is performed, but that the intent is that 
States do not have to provide both. In addition, the commenter 
requested that we add after the words ``. . . claims recovery data . . 
.'' the language ``costs for the process(es) for which a waiver is 
being requested.''
    Response: The commenter was correct in pointing out the 
inconsistency in the use of the word ``or'' in section II of the 
preamble of the proposed rule which 

[[Page 35501]]
was not used in proposed Sec. 433.138(l)(ii). The use of ``or'' in the 
preamble was inadvertent, and we have deleted the word ``or'' and 
replaced it with ``and'' in this final rule. The intent of the proposed 
rule is elucidated in the summary of the preamble of the proposed rule. 
The summary stated the following: ``We would consider waiving 
nonstatutorily required procedures relating to identifying possible TPL 
where the agency finds that following a given required procedure is not 
cost-effective and is duplicative of another State activity. A 
nonstatutorily required activity would be eligible for a waiver if the 
cost of the required activity exceeds the TPL recoupment and the 
required activity accomplishes, at the same or at a higher cost, the 
same objective as another activity that is being performed by the 
States.'' (59 FR 4880). We added this waiver consideration because we 
found through the Federal oversight process that some States have not 
achieved a satisfactory level of compliance with TPL requirements, and 
for these States, where processes can be highly manual and labor 
intensive, an argument can be made that certain TPL requirements are 
not cost-effective. Nevertheless, the objective of the requirement in 
question has not been accomplished, and potential TPL resources are 
lost. Our concern is that these States could theoretically receive 
waivers and remain in technical compliance, and yet still not 
accomplish the TPL objective. Therefore, our position is that a State 
can receive approval of a waiver of a current requirement only if it 
has an alternate activity that will accomplish the same objective.
    In terms of the language that the commenter has requested to be 
added to the ``examples of documentation'', our reponse is the same as 
the response to the previous comment requesting flexibility in our 
interpretation of ``adequate documentation.'' Our examples of 
documentation are not inclusive, and we will be flexible when 
considering these waiver requests. We therefore are not adding the 
requested language to our example in the final rule.
    Comment: One commenter requested that States be allowed to request 
TPL waivers for certain family planning clients.
    Response: The commenter appears to be requesting that this rule 
should provide relief from the general statutory requirement of section 
1902(a)(25) of the Act to perform TPL activities for certain family 
planning clients. This request addresses a broader issue, the State's 
general responsibility to pursue and determine the existence of third 
parties, than what is addressed by this rule. There is no statutory 
authority or regulation that permits HCFA to waive third party 
identification for a class of claims or recipients. If a State believes 
that cost avoidance of family planning claims for recipients with TPL 
is not cost-effective, the regulations at Sec. 433.139(e) provide a 
recourse for States to follow. If a State identifies TPL but finds that 
pursuing a recovery is no longer cost-effective, the regulations at 
Sec. 433.139(f) may provide relief.
    In situations where it is determined that the recipient has ``good 
cause'' for not cooperating in pursuing the third party, the Medicaid 
agency would not pursue the third party by employing either the cost 
avoidance or pay and chase method.

IV. Provisions of the Final Regulations

    We are adopting the February 2, 1994 proposed rule as final with a 
modification to the title of Sec. 433.138 ``Determining liability of 
third parties'' to read ``Identifying liable third parties'' and a 
conforming change to Sec. 433.137 to reflect this change. While section 
1902(a)(25)(A) requires States to take reasonable measures to ascertain 
the legal liability of third parties to pay for care and services 
available under the plan, States must first identify third party 
resources. Section 433.138 explains the requirements for identifying 
third parties through data exchanges. It does not explain the process 
of determining liability of third parties. We believe Sec. 433.139 
explains that determination of the liability of a third party takes 
place when the Medicaid agency receives confirmation from the provider 
or third party resource indicating the extent of TPL. Therefore, we are 
changing the title of Sec. 433.138 to accurately reflect the section's 
content.

V. Regulatory Impact Statement

    We generally prepare a regulatory flexibility analysis that is 
consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612), unless the Secretary certifies that a final regulation 
will not have a significant impact on a substantial number of small 
entities.
    Under the RFA, a small entity is a small business, a nonprofit 
enterprise, or a government jurisdiction (such as a county or township) 
with a population of less than 50,000. These final regulations will 
affect only States and individuals, which are not considered small 
entities.
    Also, section 1102(b) of the Act requires the Secretary to prepare 
a regulatory impact analysis for any final rule that may have a 
significant impact on the operations of a substantial number of small 
rural hospitals. Such an 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 a 
Metropolitan Statistical Area and has fewer than 50 beds.
    This final rule requires States to submit a formal waiver request 
to be relieved of compliance with certain TPL requirements that are in 
our regulations when the cost of implementing the regulation's 
requirement is not cost-effective. It is extremely difficult to give an 
exact estimate of the cost savings that would accrue with the 
implementation of this regulation. This is largely because the cost of 
any single TPL data match or other procedure, as well as its relative 
effectiveness, varies from State to State.
    In reviewing the need for this waiver, we recognized that some TPL 
claims reporting and payment regulations are expressly required by 
statute and that these and additional regulatory requirements are a 
valuable mechanism by which the Medicaid program has saved and 
recovered financial resources and that these regulations should be 
maintained. This waiver gives credence to valid concerns raised by 
States regarding the cost-effectiveness of certain portions of the TPL 
regulations in certain instances and allows States greater flexibility 
in managing their Medicaid programs.
    An alternative to these regulatory enhancements would be to force 
States to comply with all regulations and not allow for any waiver 
provisions. In this scenario, States would either comply and lose money 
or discontinue the inefficient practice and risk HCFA sanctions through 
the system's performance review. Clearly, it was not the intent of the 
Congress for HCFA to promulgate regulations designed to save the 
taxpayers money, and then penalize States when the regulations are 
found by experience not to be cost-effective. This is consistent with 
our response to comments published in the Federal Register dated 
February 27, 1987 (52 FR 5971) stating that if HCFA received 
substantial complaints from State Medicaid agencies regarding the cost-
effectiveness of State workers' compensation or Motor Vehicle Accident 
File data matches and diagnosis and trauma code edits, HCFA would 
reevaluate the data requirement.
    We believe that implementation of the waiver procedures will work 
towards a realistic and cost-effective TPL program. 

[[Page 35502]]
Allowing States to request waivers will also provide States with 
increased control over their individual TPL programs.
    We have determined, and the Secretary certifies, that this final 
rule is not a significant regulatory action and will not have a 
significant economic impact on a substantial number of small entities. 
Also, this final rule will not have a significant impact on the 
operations of a substantial number of small rural hospitals. Therefore, 
we have not prepared a regulatory impact analysis, a small rural 
hospital analysis, or an initial regulatory flexibility analysis.
    In accordance with the provisions of the Executive Order of 12866, 
this final regulation was not reviewed by the Office of Management and 
Budget.

VI. Paperwork Reduction Act

    Sections 433.138(l) and 433.139(e) of this final rule contain new 
information collection requirements that are subject to the Office of 
Management and Budget (OMB) approval under the Paperwork Reduction Act 
of 1980 (44 U.S.C 3504, et seq.). Reporting burden for the collection 
of information in Secs. 433.138(1) and 433.139(e) is estimated to be 8 
hours per request for waiver.

List of Subjects in 42 CFR Part 433

    Administrative practice and procedure, Claims, Grant programs--
health, Medicaid, Reporting and recordkeeping requirements.

    42 CFR part 433 is amended as follows:

PART 433--STATE FISCAL ADMINISTRATION

    1. The authority citation for part 433 continues to read as 
follows:

    Authority: Secs. 1102, 1137, 1902(a)(4), 1902(a)(25), 
1902(a)(45), 1903(a)(3), 1903(d)(2), 1902(d)(5), 1903(o), 1903(p), 
1903(r), and 1912 of the Social Security Act (42 U.S.C. 1302, 1320b-
7, 1396a(a)(4), 1396a(a)(25), 1396a(a)(45), 1396b(a)(3), 
1396b(d)(2), 1396a(d)(5), 1396b(o), 1396b(p), 1396b(r), and 1396k, 
unless otherwise noted.

    2. Section 433.137(a) is revised to read as follows:


Sec. 433.137  State plan requirements.

    (a) A State plan must provide that the requirements of 
Secs. 433.138 and 433.139 are met for identifying third parties liable 
for payment of services under the plan and for payment of claims 
involving third parties.
* * * * *
    3. Section 433.138 is amended by revising the section title, 
paragraphs (a) and (c), the introductory text of paragraph (d), and 
paragraphs (e), (f), and (j); by adding undesignated introductory 
language to paragraph (g); and by adding a new paragraph (l) to read as 
follows:


Sec. 433.138  Identifying liable third parties.

    (a) Basic provisions. The agency must take reasonable measures to 
determine the legal liability of the third parties who are liable to 
pay for services furnished under the plan. At a minimum, such measures 
must include the requirements specified in paragraphs (b) through (k) 
of this section, unless waived under paragraph (l) of this section.
* * * * *
    (c) Obtaining other information. Except as provided in paragraph 
(l) of this section, the agency must, for the purpose of implementing 
the requirements in paragraphs (d)(1)(ii) and (d)(4)(i) of this 
section, incorporate into the eligibility case file the names and SSNs 
of absent or custodial parents of Medicaid recipients to the extent 
such information is available.
    (d) Exchange of data. Except as provided in paragraph (l) of this 
section, to obtain and use information for the purpose of determining 
the legal liability of the third parties so that the agency may process 
claims under the third party liability payment procedures specified in 
Sec. 433.139(b) through (f), the agency must take the following 
actions:
* * * * *
    (e) Diagnosis and trauma code edits. (1) Except as specified under 
paragraph (e)(2) or (l) of this section, or both, the agency must take 
action to identify those paid claims for Medicaid recipients that 
contain diagnosis codes 800 through 999 International Classification of 
Disease, 9th Revision, Clinical Modification, Volume 1 (ICD-9-CM) 
inclusive, for the purpose of determining the legal liability of third 
parties so that the agency may process claims under the third party 
liability payment procedures specified in Sec. 433.139(b) through (f).
    (2) The agency may exclude code 994.6, Motion Sickness, from the 
edits required under paragraph (e)(1) of this section.
    (f) Data exchanges and trauma code edits: Frequency. Except as 
provided in paragraph (l) of this section, the agency must conduct the 
data exchanges required in paragraphs (d)(1) and (d)(3) of this section 
in accordance with the intervals specified in Sec. 435.948 of this 
chapter, and diagnosis and trauma edits required in paragraphs (d)(4) 
and (e) of this section on a routine and timely basis. The State plan 
must specify the frequency of these activities.
    (g) Follow-up procedures for identifying legally liable third party 
resources. Except as provided in paragraph (l) of this section, the 
State must meet the requirements of this paragraph.
* * * * *
    (j) Reports. The agency must provide such reports with respect to 
the data exchanges and trauma code edits set forth in paragraphs (d)(1) 
through (d)(4) and paragraph (e) of this section, respectively, as the 
Secretary prescribes for the purpose of determining compliance under 
Sec. 433.138 and evaluating the effectiveness of the third party 
liability identification system. However, if the State is not meeting 
the provisions of paragraph (e) of this section because it has been 
granted a waiver of those provisions under paragraph (l) of this 
section, it is not required to provide the reports required in this 
paragraph.
* * * * *
    (l) Waiver of requirements. (1) The agency may request initial and 
continuing waiver of the requirements to determine third party 
liability found in paragraphs (c), (d)(4), (d)(5), (e), (f), (g)(1), 
(g)(2), (g)(3), and (g)(4) of this section if the State determines the 
activity to be not cost-effective. An activity would not be cost-
effective if the cost of the required activity exceeds the third party 
liability recoupment and the required activity accomplishes, at the 
same or at a higher cost, the same objective as another activity that 
is being performed by the State.
    (i) The agency must submit a request for waiver of the requirement 
in writing to the HCFA regional office.
    (ii) The request must contain adequate documentation to establish 
that to meet a requirement specified by the agency is not cost-
effective. Examples of documentation are claims recovery data and a 
State analysis documenting a cost-effective alternative that 
accomplished the same task.
    (iii) The agency must agree, if a waiver is granted, to notify HCFA 
of any event that occurs that changes the conditions upon which the 
waiver was approved.
    (2) HCFA will review a State's request to have a requirement 
specified under paragraph (l)(1) of this section waived and will 
request additional information from the State, if necessary. HCFA will 
notify the State of its approval or disapproval determination within 30 
days of receipt of a properly documented request.
    (3) HCFA may rescind a waiver at any time that it determines that 
the agency 

[[Page 35503]]
no longer meets the criteria for approving the waiver. If the waiver is 
rescinded, the agency has 6 months from the date of the rescission 
notice to meet the requirement that had been waived.
    4. Section 433.139 is amended by revising paragraphs (b), (d)(1), 
(d)(2), and (e) to read as follows:


Sec. 433.139  Payment of claims.

* * * * *
    (b) Probable liability is established at the time claim is filed. 
Except as provided in paragraph (e) of this section--
    (1) If the agency has established the probable existence of third 
party liability at the time the claim is filed, the agency must reject 
the claim and return it to the provider for a determination of the 
amount of liability. The establishment of third party liability takes 
place when the agency receives confirmation from the provider or a 
third party resource indicating the extent of third party liability. 
When the amount of liability is determined, the agency must then pay 
the claim to the extent that payment allowed under the agency's payment 
schedule exceeds the amount of the third party's payment.
    (2) The agency may pay the full amount allowed under the agency's 
payment schedule for the claim and then seek reimbursement from any 
liable third party to the limit of legal liability if the claim is for 
labor and delivery and postpartum care. (Costs associated with the 
inpatient hospital stay for labor and delivery and postpartum care must 
be cost-avoided.)
* * * * *
    (d) Recovery of reimbursement. (1) If the agency has an approved 
waiver under paragraph (e) of this section to pay a claim in which the 
probable existence of third party liability has been established and 
then seek reimbursement, the agency must seek recovery of reimbursement 
from the third party to the limit of legal liability within 60 days 
after the end of the month in which payment is made unless the agency 
has a waiver of the 60-day requirement under paragraph (e) of this 
section.
    (2) Except as provided in paragraph (e) of this section, if the 
agency learns of the existence of a liable third party after a claim is 
paid, or benefits become available from a third party after a claim is 
paid, the agency must seek recovery of reimbursement within 60 days 
after the end of the month it learns of the existence of the liable 
third party or benefits become available.
* * * * *
    (e) Waiver of requirements. (1) The agency may request initial and 
continuing waiver of the requirements in paragraphs (b)(1), (d)(1), and 
(d)(2) of this section, if it determines that the requirement is not 
cost-effective. An activity would not be cost-effective if the cost of 
the required activity exceeds the third party liability recoupment and 
the required activity accomplishes, at the same or at a higher cost, 
the same objective as another activity that is being performed by the 
State.
    (i) The agency must submit a request for waiver of the requirement 
in writing to the HCFA regional office.
    (ii) The request must contain adequate documentation to establish 
that to meet a requirement specified by the agency is not cost-
effective. Examples of documentation are costs associated with billing, 
claims recovery data, and a State analysis documenting a cost-effective 
alternative that accomplishes the same task.
    (iii) The agency must agree, if a waiver is granted, to notify HCFA 
of any event that occurs that changes the conditions upon which the 
waiver was approved.
    (2) HCFA will review a State's request to have a requirement 
specified under paragraph (e)(1) of this section waived and will 
request additional information from the State, if necessary. HCFA will 
notify the State of its approval or disapproval determination within 30 
days of receipt of a properly documented request.
    (3) HCFA may rescind the waiver at any time that it determines that 
the State no longer meets the criteria for approving the waiver. If the 
waiver is rescinded, the agency has 6 months from the date of the 
rescission notice to meet the requirement that had been waived.
    (4) An agency requesting a waiver of the requirements specifically 
concerning either the 60-day limit in paragraph (d)(1) or (d)(2) of 
this section must submit documentation of written agreement between the 
agency and the third party, including Medicare fiscal intermediaries 
and carriers, that extension of the billing requirement is agreeable to 
all parties.

(Catalog of Federal Domestic Assistance Program No. 93.778--Medical 
Assistance Program)

    Dated: June 28, 1995.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
[FR Doc. 95-16806 Filed 7-7-95; 8:45 am]
BILLING CODE 4120-01-P