[Federal Register Volume 60, Number 172 (Wednesday, September 6, 1995)]
[Rules and Regulations]
[Pages 46228-46234]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21695]



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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 417

[OMC-014-FC]


Medicare Program; Payments to HMOs and CMPs and Appeals: 
Technical Amendments

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

ACTION: Final rule with comment period.

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SUMMARY: This rule clarifies and updates portions of the HCFA 
regulations that pertain to payment for services furnished to Medicare 
enrollees by health maintenance organizations (HMOs) and competitive 
medical plans (CMPs); appeals by Medicare enrollees concerning payment 
for those services; and appeals by HMOs and CMPs with regard to their 
Medicare contracts.
    This rule completes the special project aimed at the total 
technical revision of part 417. Part 417 contains the regulations 
applicable to all prepaid health care organizations, that is, HMOs, 
CMPs, and health care prepayment plans (HCPPs).
    These are technical and editorial changes that do not affect the 
substance of the regulations. They are intended to make it easier to 
find particular provisions, to eliminate needless repetition and remove 
obsolete content, and to better ensure uniform understanding of the 
rules.

DATES: Effective dates: These rules are effective as of October 1, 
1995.
    Comment date: We will consider comments received by October 6, 
1995.

ADDRESSES: Mail written comments (1 original and 3 copies) to the 
following address: Health Care Financing Administration, Department of 
Health and Human Services, Attention: OMC-014-FC, PO Box 26688, 
Baltimore, MD 21207.
    If you prefer, you may deliver your written comments (1 original 
and 3 copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201, or
Room C5-09-26, 7500 Security Boulevard, Baltimore, MD 21244-1850

    Due to staffing and resource limitations, we cannot accept comments 
by facsimile (FAX) transmission. In commenting, please refer to file 
code OMC-014-FC.
    Written comments received timely will be available for public 
inspection as they are received--generally beginning approximately 3 
weeks after publication of the document, in Room 309-G of the 
Department's offices at 200 Independence Avenue, SW., Washington, DC, 
Monday through Friday, from 8:30 a.m. to 5 p.m. (phone: (202) 690-
7890).
    Although we cannot respond to individual comments, if we revise 
this rule as a result of comments, we will discuss all timely comments 
in the preamble to the revised rule.

FOR FURTHER INFORMATION CONTACT: Tracy Jensen, (410) 786-1033.

SUPPLEMENTARY INFORMATION:

A. Background

    The previous 4 technical regulations of the special project have--
     Removed obsolete content;
     Designated the remaining text under 17 subparts that 
identify the different program aspects so that it is easier to refer to 
those aspects and to find particular rules;
     Through nomenclature and definition changes, established 
certain terms to be used throughout part 417, so as to preclude 
confusion, make clear that responsibility for the prepaid health care 
programs has been delegated to HCFA, and ensure use of the most precise 
terms available;
     Redesignated certain portions of part 417 to free section 
numbers needed so that new rules can be incorporated in logical order; 
and
     Established a separate subpart C to set forth the many 
requirements for the organization and operation of HMOs. Under previous 
rules, these were compressed into a single section (Sec. 417.107).
    As a result of the redesignations, Secs. 417.107 through 417.119 
were made available for new rules that are required because of 
statutory amendments that affect the furnishing of services by 
Federally qualified HMOs, or may be needed because of future changes in 
the statute. Similarly, Secs. 417.128 through 417.139 are available for 
additional rules on the organization and operation of those HMOs.

B. Changes made by this rule

    This technical rule affects the following subparts:

Subpart N--Medicare Payment to HMOs and CMPs--General Rules
Subpart O--Medicare Payment: Cost Basis;
Subpart P--Medicare Payment: Risk Basis;
Subpart Q--Beneficiary Appeals; and,
Subpart R--Contract Appeals.

    Changes to the first three subparts reflect a general change of 
approach--

[[Page 46229]]
use of the term ``payment'' rather than ``reimbursement''. Changes in 
all five subparts, such as use of the active voice, are intended to 
improve clarity. They also provide more headings, revise confusing word 
order, and remove obsolete provisions (rules that applied to contract 
periods that began before 1986).
    In subpart Q, the revisions add a paragraph explaining the 
statutory basis for the beneficiary appeals rules and expand the 
``Scope'' paragraph to reference a recently added provision that gives 
the beneficiary the right to request immediate PRO review of a 
determination that he or she no longer needs inpatient hospital care.

Other Required Information

Waiver of Proposed Rulemaking and Delayed Effective Date

    The changes made by this rule are technical and editorial in 
nature. Their aim is to simplify, clarify, and update subparts N 
through R of part 417 without substantive change.
    Accordingly, we find that notice and opportunity for public comment 
are unnecessary and that there is good cause to waive proposed 
rulemaking procedures.
    In addition, it is important, for the convenience of the public, 
that these changes be effective as of October 1, 1995, so that they can 
be included in the 1995 edition of the Code of Federal Regulations on 
which the public relies. Therefore, we find good cause to also waive 
the usual 30-day delay in the effective date
    As previously indicated, however, we will consider timely comments 
from anyone who believes that, in making the technical and editorial 
changes, we have unintentionally altered the substance.

Paperwork Reduction Act

    Sections 417.558, 417.576, and 417.600 of the regulations amended 
by this technical rule contain requirements that are subject to review 
by the Office of Management and Budget (OMB) under the Paperwork 
Reduction Act of 1980 (44 U.S.C. 3501 et seq.). The requirement for a 
certified cost report (Sec. 417.576(b)) has OMB approval under number 
0938-0165, with an expiration date of 9-30-95. The burden for this 
report is estimated at 200 hours for record keeping and 260 hours for 
completing the report. The requirements for justification of exception 
to cost limits (Sec. 417.558(c)) and for grievance and appeals 
procedures (Sec. 417.600(b)) are being submitted for OMB approval. If 
you comment on these requirements, please send a copy directly to: 
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 10235, Executive Office Building, Washington, DC 30503.

Regulatory Impact Statement

    Consistent with the Regulatory Flexibility Act (RFA) and section 
1102(b) of the Social Security Act, we prepare a regulatory flexibility 
analysis for each rule, unless the Secretary certifies that the 
particular rule will not have a significant economic impact on a 
substantial number of small entities, or a significant impact on the 
operation of a substantial number of small rural hospitals.
    The RFA defines ``small entity'' as a small business, a nonprofit 
enterprise, or a governmental jurisdiction (such as a county, city, or 
township) with a population of less than 50,000. We also consider all 
providers and suppliers of services to be small entities. For purposes 
of section 1102(b) of the Act, we define small rural hospital as a 
hospital that has fewer than 50 beds, and is not located in a 
metropolitan statistical area.
    We have not prepared a regulatory flexibility analysis because we 
have determined and we certify that these rules (which make only 
technical and editorial changes with no substantive effect) will not 
have a significant economic impact on a substantial number of small 
entities or a significant impact on the operation of a substantial 
number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
rule was not reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 417

    Administrative practice and procedure, Health maintenance 
organizations (HMO), Medicare.
    42 CFR part 417 is amended as set forth below.

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

    A. The authority citation for part 417 continues 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.

    B. Subpart N is amended as set forth below.

Subpart N--Medicare Payment to HMOs and CMPs: General Rules

    1. Section 417.524 is revised to read as follows:


Sec. 417.524  Payment to HMOs or CMPs: General.

    (a) Basic rule. The payments that HCFA makes to an HMO or CMP under 
this subpart and subparts O and P of this part for furnishing covered 
Medicare services are in place of any payment that HCFA would otherwise 
make to a beneficiary or the HMO or CMP under sections 1814(b) and 
1833(a) of the Act.
    (b) Basis of payment. (1) HCFA pays the HMOs or CMPs on either a 
reasonable cost basis or a risk basis depending on the type of contract 
the HMO or CMP has with HCFA.
    (2) In certain cases a risk HMO or CMP also receives payments on a 
reasonable cost basis for certain Medicare enrollees who retain nonrisk 
status, as provided in Sec. 417.444, after the HMO or CMP enters into a 
risk contract.


Sec. 417.526  [Amended]

    2. In Sec. 417.526, ``reimbursement'' is revised to read 
``payment'' each time it appears.
    3. Section 417.528 is amended to revise the section heading to 
revise, paragraphs (a) through (c) and to add a heading to paragraph 
(d) to read as follows:


Sec. 417.528  Payment when Medicare is not primary payer.

    (a) Limits on payments and charges. (1) HCFA may not pay for 
services to the extent that Medicare is not the primary payer under 
section 1862(b) of the Act and part 411 of this chapter.
    (2) The circumstances under which an HMO or CMP may charge, or 
authorize a provider to charge, for covered Medicare services for which 
Medicare is not the primary payer are stated in paragraphs (b) and (c) 
of this section.
    (b) Charge to other insurers or the enrollee. If a Medicare 
enrollee receives from an HMO or CMP covered services that are also 
covered under State or Federal worker's compensation, automobile 
medical, or any no-fault insurance, or any liability insurance policy 
or plan, including a self-insured plan, the HMO or CMP may charge, or 
authorize a provider that furnished the service to charge--
    (1) The insurance carrier, employer, or other entity that is liable 
to pay for these services; or
    (2) The Medicare enrollee, to the extent that he or she has been 
paid by the carrier, employer, or other entity. 

[[Page 46230]]

    (c) Charge to group health plans (GHPs) or large group health plans 
(LGHPs). An HMO or CMP may charge a GHP or LGHP for covered services it 
furnished to a Medicare enrollee and may charge the Medicare enrollee 
to the extent that he or she has been paid by the GHP or LGHP for these 
covered services if--
    (1) The Medicare enrollee is covered under the plan; and
    (2) Under section 1862(b) of the Act, HCFA is precluded from paying 
for the covered services .
    (d) Responsibilities of HMO or CMP. * * *
    C. Subpart O is amended as set forth below.

Subpart O--Medicare Payment: Cost Basis

    1. Section 417.530 is revised to read as follows:


Sec. 417.530  Basis and scope.

    This subpart sets forth the principles that HCFA follows to 
determine the amount it pays for services furnished by a cost HMO or 
CMP to its Medicare enrollees. These principles are based on sections 
1861(v) and 1876 of the Act and are, for the most part, the same as 
those set forth--
    (a) In part 412 of this chapter, for paying the costs of inpatient 
hospital services which, for cost HMOs and CMPs, are considered 
``reasonable'' only if they do not exceed the amounts allowed under the 
prospective payment system; and
    (b) In part 413 of this chapter, for the costs of all other covered 
services.


Sec. 417.531  [Amended]

    2. In Sec. 417.531, the following changes are made:
    a. In paragraph (a), ``reimbursement'' is revised to read 
``payment'', and ``participating in the Medicare program'' is removed.
    b. In paragraph (b), introductory text, ``the HMO or CMP may be 
reimbursed'' is revised to read ``HCFA pays the HMO or CMP''.


Sec. 417.532  [Amended]

    3. In Sec. 417.532, the following changes are made:
    a. Throughout Sec. 417.532, ``reimbursement'' is revised to read 
``payment'' and ``reimburses'' is revised to read ``pays''.
    b. In paragraph (a)(3), ``Except as specified in paragraph (a)(4) 
of this section,'' is removed and ``in judging'' is revised to read 
``In judging''.
    c. Paragraph (a)(4) is removed.
    d. In paragraph (f), ``will determine'' is revised to read 
``determines''.
    e. Paragraph (g) is revised to read as follows:


Sec. 417.532  General considerations.

* * * * *
    (g) Direct payment by HCFA. (1) If the HMO or CMP elects to have 
HCFA pay for provider services, HCFA pays each provider on a reasonable 
cost basis or under the PPS system, whichever is appropriate for the 
particular provider under part 412 or part 413 of this chapter.
    (2) In computing the Medicare payment to the HMO or CMP, HCFA 
deducts these payments and any other payments made by the Medicare 
intermediary or carrier on behalf of the HMO or CMP (such as payment 
for emergency or urgently needed services under Sec. 417.558).


Sec. 417.533  [Amended]

    4. In Sec. 417.533, the following changes are made:
    a. In the introductory text, the phrase ``is responsible for'' is 
revised to read ``must''.
    b. In paragraphs (a), (b), and (c), ``Determining'', ``Making'', 
and ``Carrying'' are revised to read ``Determine'', ``Make'', and 
``Carry'', respectively.


Sec. 417.536  [Amended]

    5. In Sec. 417.536, the following changes are made:
    a. The section heading is revised to read ``Cost payment 
principles.''
    b. In paragraph (a), first sentence, the phrase ``or reasonable 
cost reimbursement'' is removed.
    c. In paragraphs (a), (f)(3), and (m), ``reimbursement'' is revised 
to read ``payment''.
    d. In paragraph (m), the heading is revised to read ``Limitations 
on payment.''; in the introductory text, ``reimbursed'' is revised to 
read ``paid''; and ``subpart E of part 405, and'' is removed.


Sec. 417.538  [Amended]

    6. In Sec. 417.538, the following changes are made:
    a. Paragraph (a) is revised to read as set forth below.
    b. The heading of paragraph (b) is revised to read ``Included 
costs.'' 
    c. The heading of paragraph (d) is revised to read ``Limitation on 
payment.'' and in the last sentence, ``such costs'' is revised to read 
``those costs''.


Sec. 417.538  Enrollment and marketing costs.

    (a) Principle. Costs incurred by an HMO or CMP in performing the 
enrollment and marketing activities described in subpart k of this part 
are allowable.
* * * * *


Sec. 417.544  [Amended]

    7. In Sec. 417.544, in paragraph (a), the paragraph designations 
(1), (2), and (3) are added, preceding the first, second, and third 
sentences and in paragraph (b), the paragraph designations (1) and (2) 
are added preceding the first and second sentences.


Sec. 417.548  [Amended]

    9. In Sec. 417.548, the following changes are made:
    a. In paragraph (a), ``reimbursable'' is revised to read 
``payable''.
    b. In paragraph (b), in the second sentence, ``For example, in'' is 
removed and ``(c) Example. In'' is inserted in its place, and the 
parenthetical phrase is revised to read ``(rather than the payment 
amounts determined under part 412 or part 413 of this chapter)''.
    10. Section 417.550 is revised to read as follows:


Sec. 417.550  Special Medicare program requirements.

    (a) Principle. HCFA pays the full reasonable cost incurred by an 
HMO or CMP for activities that are solely for Medicare purposes and 
unique to Medicare contracts under section 1876 of the Act.
    (b) Application. HCFA pays the full reasonable cost of the 
following activities:
    (1) Reporting increases and decreases in the number of Medicare 
enrollees.
    (2) Obtaining independent certification of the HMO's or CMP's cost 
report to the extent that it is for Medicare purposes.
    (3) Reporting special data that HCFA requires solely for program 
planning and evaluation.
    (c) Prior approval requirement. The costs specified in paragraph 
(b) of this section must be separately budgeted and approved by HCFA 
before the contract period begins.
    (d) Limit on full payment. Full payment is limited to the costs 
specified in paragraph (b) of this section. All other administrative 
costs must be apportioned in accordance with Sec. 417.552.
Sec. 417.552  [Amended]

    11. In Sec. 417.552, the following changes are made:
    a. In the introductory text of paragraph (a), ``Except as provided 
in Sec. 417.556(c)'' is removed and ``the'' is revised to read ``The''.
    b. In paragraph (a)(1), ``Secs. 417.530 through 417.576; and'' is 
revised to read ``this subpart; and''. 

[[Page 46231]]



Sec. 417.554  [Amended]

    12. In Sec. 417.554, the regulation citations at the end are 
revised to read ``Sec. 405.480, part 412, and Secs. 413.5 and 413.24 of 
this chapter.''
    13. Section 417.558 is revised to read as follows:


Sec. 417.558  Emergency, urgently needed, and out-of-area services for 
which the HMO or CMP accepts responsibility.

    (a) Source of payment. Either HCFA or the HMO or CMP may pay a 
provider for emergency or urgently needed services or other covered 
out-of-area services for which the HMO or CMP accepts responsibility.
    (b) Limits on payment. If the HMO or CMP pays, the payment amount 
may not exceed the amount that is allowable under part 412 or part 413 
of this chapter.
    (c) Exception to limit on payment. Payment in excess of the limit 
imposed by paragraph (b) of this section is allowable only if the HMO 
or CMP demonstrates to HCFA's satisfaction that it is justified on the 
basis of advantages gained by the HMO or CMP, as set forth in 
Sec. 417.548.


Sec. 417.560  [Amended]

    14. In Sec. 417.560, the following changes are made:
    a. In paragraph (a) introductory text, ``will base'' is revised to 
read ``bases''.
    b. In paragraph (d)(1), ``(1) Except as provided in paragraph 
(d)(2) of this section,'' is removed, and ``the Medicare share'' is 
revised to read ``The Medicare share''.
    c. Paragraph (d)(2) is removed.
    15.-16. Section 417.564 is revised to read as follows:


Sec. 417.564  Apportionment and allocation of administrative and 
general costs.

    (a) Costs not directly associated with providing medical care. 
Enrollment, marketing, and other administrative and general costs that 
benefit the total enrollment of the HMO or CMP and are not directly 
associated with furnishing medical care must be apportioned on the 
basis of a ratio of Medicare enrollees to the total HMO or CMP 
enrollment.
    (b) Costs significantly related to providing medical services. (1) 
The following administrative and general costs, which bear a 
significant relationship to the services furnished, are not apportioned 
to Medicare directly; they must be allocated or distributed to the HMO 
or CMP components and then apportioned to Medicare in accordance with 
Secs. 417.552 through 417.560:
    (i) Facility costs.
    (ii) Interest expense.
    (iii) Medical record costs.
    (iv) Centralized purchasing costs.
    (v) Accounting and data processing costs.
    (vi) Other administrative and general costs that are not included 
in paragraph (a) of this section.
    (2) The allocation or distribution process must be as follows:
    (i) If a separate entity or department of an HMO or CMP performs 
administrative functions the benefit of which can be quantitatively 
measured (such as centralized purchasing and data processing), the 
total allowable costs of this entity or department must be allocated or 
distributed to the components of the HMO or CMP in reasonable 
proportion to the benefits received by these components.
    (ii) If a separate entity or department of an HMO or CMP performs 
administrative functions the benefit of which cannot be quantitatively 
measured (such as facility costs), the total allowable costs of this 
entity or department must be allocated or distributed to the components 
of the HMO or CMP on the basis of a ratio of total incurred and 
distributed costs per component to the total incurred and distributed 
costs for all components.


Sec. 417.568  [Amended]

    17. In Sec. 417.568, the following changes are made:
    a. In paragraph (a)(1), ``payable by Medicare'' is revised to read 
``payable by HCFA'', and the comma after ``enrollees'' is removed.
    b. In paragraph (a)(2), the phrase ``the HMO or CMP must follow'' 
is added immediately before ``standardized definitions * * *'', and the 
last three words ``must be followed.'' are removed.
    c. In paragraph (b)(2), ``as described in this paragraph'' is 
revised to read ``as provided in paragraph (b)(3) of this section''.
    d. In paragraph (b)(3), ``based on this basis'' is revised to read 
``developed on this basis'' and ``will be acceptable'' is revised to 
read ``is acceptable''.
    e. Paragraph (c) is revised to read as set forth below.
    f. In paragraph (d), ``the HMO or CMP'', the last time it appears, 
is revised to read ``it''.
Sec. 417.568  Adequate financial records, statistical data, and cost 
finding.

* * * * *
    (c) Provider services furnished directly by the HMO or CMP. If the 
HMO or CMP furnishes provider services directly, the provider is 
subject to the cost-finding and cost-reporting requirements set forth 
in parts 412 and 413 of this chapter. The provider must use an approved 
cost-finding method described in Sec. 413.24 of this chapter to 
determine the actual cost of these covered services.
* * * * *


Sec. 417.576  [Amended]

    18. In Sec. 417.576, the following changes are made:
    a. In the following paragraphs, ``reimbursement'' is revised to 
read ``payment'': paragraphs (b)(2)(ii), (c)(1), (c)(2)(ii), (d) 
heading, introductory text, and (d)(1), and (e)(1).
    b. In the following paragraphs, ``reimbursable'' is revised to read 
``payable'': paragraphs (c)(1) and (d)(2).
    c. In paragraph (b)(2), ``Secs. 417.532 through 417.566'' is 
revised to read ``this subpart''.
    d. In paragraph (c)(1), ``providing'' is revised to read 
``furnishing''.
    e. In paragraph (c)(2)(ii), ``an insignificant amount'' is revised 
to read ``an insignificant portion''.
    f. Paragraphs (b)(3) and (e)(3) are revised to read as set forth 
below:


Sec. 417.576  Final settlement.

* * * * *
    (b) Certified cost report as basis for final settlement. * * *
    (3) Failure to report required financial information. If the HMO or 
CMP fails to submit the required cost report and supporting documents 
within 180 days (or an extended period approved by HCFA under paragraph 
(b)(1) of this section), HCFA may--
    (i) Consider the failure to report as evidence of likely 
overpayment; and
    (ii) Initiate recovery of amounts previously paid, or reduce 
interim payments, or both.
* * * * *
    (e) Basis for retroactive adjustment. * * *
    (3) Any withholding continues until the earliest of the following 
occurs:
    (i) The overpayment is liquidated.
    (ii) The HMO or CMP enters into an agreement with HCFA to refund 
the overpaid amount.
    (iii) HCFA, on the basis of subsequently acquired information, 
determines that there was no overpayment.
    (iv) The decision of a hearing specified in paragraph (d)(4) of 
this section is that there was no overpayment.
    D. Subpart P is amended as set forth below.

Subpart P--Medicare Payment: Risk Basis


Sec. 417.580  [Amended]

    1. In Sec. 417.580, paragraph (a), ``reimbursed'' is revised to 
read ``pays''. 

[[Page 46232]]



Sec. 417.582  [Amended]

    2. In Sec. 417.582 the heading is revised and three definitions are 
added in alphabetical order, to read as follows:


Sec. 417.582  Definitions.

    AAPCC stands for adjusted average per capita cost.
    ACR stands for adjusted community rate.
* * * * *
    APCRP stands for average of per capita rates of payment.
* * * * *


Sec. 417.584  [Amended]

    3. In Sec. 417.584, the following changes are made.
    a. The introductory text of the section and paragraph (c) are 
revised to read as set forth below.
    b. In paragraph (d), ``Sec. 417.592(e)'' is revised to read 
``Sec. 417.592(b)(2)''; ``will reduce'' is revised to read ``reduces''; 
and the last sentence is removed.


Sec. 417.584  Payment to HMOs and CMPs with risk contracts.

    Except in the circumstances specified in Sec. 417.440(d) for 
inpatient hospital care, and as provided in Sec. 417.585 for hospice 
care, HCFA makes payment for covered services only to the HMO or CMP.
* * * * *
    (c) Adjustments to payments. If the actual number of Medicare 
enrollees differs from the estimated number on which the amount of 
advance monthly payment was based, HCFA adjusts subsequent monthly 
payments to take account of the difference.
* * * * *


Sec. 417.585  [Amended]

    4. In Sec. 417.585, the following changes are made:
    a. The section heading is revised to read: ``Special rules: Hospice 
care.''
    b. In paragraph (a), ``No payment is made effective the first day'' 
is revised to read: ``This no-payment rule is effective from the first 
day''.
    c. In paragraph (b), Introductory text, ``for only'' is revised to 
read ``but only for''.
    d. In paragraph (b)(2), ``hospice care was elected'' is revised to 
read ``the enrollee elected hospice care''.
    e. In paragraph (c), the clause ``are made to the hospice 
participating in Medicare elected by the enrollee'' is revised to read 
``is made to the Medicare-participating hospice elected by the 
enrollee''.


Sec. 417.586  [Removed]

    5. Section 417.586 is removed.


Sec. 417.588  [Amended]

    6. In Sec. 417.588, the following changes are made.
    a. In paragraph (a), ``resulting in an AAPCC'' is revised to read 
``to establish an AAPCC''.
    b. In paragraph (c)(2), ``A further adjustment is made by HCFA'' is 
revised to read ``HCFA makes a further adjustment''.
    7. Section 417.592 is revised to read as follows:


Sec. 417.592  Additional benefits requirement.

    (a) General rules. (1) An HMO or CMP that has an APCRP (as 
determined under Sec. 417.590) greater than its ACR (as determined 
under Sec. 417.594) must elect one of the options specified in 
paragraph (b) of this section.
    (2) The dollar value of the elected option must, over the course of 
a contract period, be at least equal to the difference between the 
APCRP and the proposed ACR.
    (b) Options--(1) Additional benefits. Provide its Medicare 
enrollees with additional benefits in accordance with paragraph (c) of 
this section.
    (2) Payment reduction. Request HCFA to reduce its monthly payments.
    (3) Combination of additional benefits and payment reduction. 
Provide fewer than the additional benefits required under paragraph 
(b)(1) of this section and request HCFA to reduce the monthly payments 
by the remaining difference between the APCRP and the ACR.
    (4) Combination of additional benefits and withholding in a 
stabilization fund. Provide fewer than the additional benefits required 
under paragraph (b)(1) of this section, and request HCFA to withhold in 
a stabilization fund (as provided in Sec. 417.596) the remaining 
difference between the APCRP and the ACR.
    (c) Special rules: Additional benefits option. (1) The HMO or CMP 
must determine additional benefits separately for enrollees entitled to 
both Part A and Part B benefits and those entitled only to Part B.
    (2) The HMO or CMP may elect to provide additional benefits in any 
of the following forms--
    (i) A reduction in the HMO's or CMP's premium or in other charges 
it imposes in the form of deductibles or coinsurance.
    (ii) Health benefits in addition to the required Part A and Part B 
covered services.
    (iii) A combination of reduced charges and additional benefits.
    (d) Notification to HCFA. (1) The HMO or CMP must give HCFA notice 
of its ACR and its weighted APCRP at least 45 days before its contract 
period begins.
    (2) An HMO or CMP that elects the option of providing additional 
benefits must include in its submittal--
    (i) A description of the additional benefits it will provide to its 
Medicare enrollees; and
    (ii) Supporting evidence to show that the selected benefits meet 
the requirements of paragraph (a)(2) of this section with respect to 
dollar value equivalence.
    8. Section 417.594 is amended to revise paragraphs (a), (b)(1) and 
(b)(2), (c), (d), and (e) to read as follows:


Sec. 417.594  Computation of adjusted community rate (ACR).

    (a) Basic rule. Each HMO or CMP must compute its basic rate as 
follows:
    (1) Compute an initial rate in accordance with paragraph (b) of 
this section.
    (2) Adjust and reduce the initial rate in accordance with 
paragraphs (c) and (d) of this section.
    (b) Computation of initial rates. (1) The HMO or CMP must compute 
its initial rate using either of the following systems:
    (i) A community rating system as defined in Sec. 417.104(b); or
    (ii) A system, approved by HCFA, under which the HMO or CMP 
develops an aggregate premium for all its enrollees and weights the 
aggregate by the size of the various enrolled groups that compose its 
enrollment.
    (For purposes of this section, enrolled groups are defined as 
employee groups or other bodies of subscribers that enroll in the HMO 
or CMP through payment of premiums.)
    (2) Regardless of which method the HMO or CMP uses--
    (i) The initial rate must be equal to the premium it would charge 
its non-Medicare enrollees for the Medicare-covered services;
    (ii) The HMO or CMP must compute the rates separately for enrollees 
entitled to Medicare Part A and Part B and for those entitled only to 
Part B; and
    (iii) The HMO or CMP must identify and take into account 
anticipated revenue from health insurance payers for those services for 
which Medicare is not the primary payer as provided in Sec. 417.528.
* * * * *
    (c) Adjustment of initial rates--(1) Purpose of adjustment. The 
purpose of adjustment is to reflect the utilization characteristics of 
Medicare enrollees.
    (2) Adjustment by the HMO or CMP. The HMO or CMP may adjust the 
rate for a particular service using more than one of the following 
factors if they do not duplicate each other: 

[[Page 46233]]

    (i) Unit of service. If the HMO or CMP purchases or identifies 
services on a unit of service basis and the unit of service is defined 
the same for all enrollees, the HMO or CMP may make an adjustment in 
its initial rate to reflect the number of units of services furnished 
to its Medicare enrollees in comparison to those furnished to other 
enrollees.
    (ii) Complexity or intensity of services. The HMO or CMP may make 
an adjustment to reflect the differences in the complexity or intensity 
of services furnished to its Medicare enrollees if the calculation of 
its initial rate includes the elements of this adjustment.
    (3) Support documentation. All adjustments made by the HMO or CMP 
must be accompanied by adequate supporting data. If an HMO or CMP does 
not have sufficient enrollment experience to develop this data, it may, 
during its initial contract period, use documented statistics from a 
nationally recognized statistical source.
    (4) Adjustment by HCFA. If the HMO or CMP does not have adequate 
data to adjust the initial rate calculated under paragraph (b) of this 
section to reflect the utilization characteristics of its Medicare 
enrollees, HCFA will, at the HMO's or CMP's request, adjust the initial 
rate. HCFA adjusts the rate on the basis of differences in the 
utilization characteristics of--
    (i) Medicare and non-Medicare enrollees in other HMOs or CMPs; or
    (ii) Medicare beneficiaries (in the HMO's or CMP's area, or State, 
or the United States) who are eligible to enroll in an HMO or CMP and 
other individuals in that same area, or State, or the United States.
    (d) Reduction of adjusted rates. The HMO or CMP or HCFA further 
reduces the adjusted rates by the actuarial value of applicable 
Medicare deductibles and coinsurance.
    (e) HCFA review--(1) Submission of data. The HMO or CMP must submit 
its ACR and the methodology used to compute it for HCFA review and 
approval, and must include adequate supporting data.
    (2) Appeals procedures. (i) If HCFA determines that an HMO's or 
CMP's ACR computation is not acceptable, the HMO or CMP may, within 30 
days after receipt of notice of the determination, file with HCFA a 
request for a hearing.
    (ii) The request must state why the HMO or CMP believes the 
determination is incorrect, and include any supporting evidence the HMO 
or CMP considers pertinent.
    (iii) A hearing officer designated by HCFA conducts the hearing in 
accordance with the hearing procedures set forth in Secs. 405.1819 
through 405.1833 of this chapter.


Sec. 417.596  [Amended]

    9. In Sec. 417.596, the following changes are made:
    a. In paragraphs (a), (b), and (c)(1), ``the average of its per 
capita rates of payment'' is revised to read ``its APCRP''.
    b. In paragraphs (c)(1) and (c)(2), ``will not'' is revised to read 
``does not''.
    c. In paragraph (d), ``for the purpose of establishing and 
maintaining'' is revised to read ``to establish and maintain''.


Sec. 417.597  [Amended]

    10. In paragraph (a) of Sec. 417.597, in the introductory text, 
``the average of its per capita rates of payment'' is revised to read 
``its APCRP''.


Sec. 417.598  [Amended]

    11. In Sec. 417.598, ``will conduct'' is revised to read 
``conducts''.
    E. Subpart Q is amended as set forth below.

Subpart Q--Beneficiary Appeals

    1. Section 417.600 is revised to read as follows:


Sec. 417.600  Basis and scope.

    (a) Statutory basis. (1) Section 1869 of the Act provides the right 
to a hearing and to judicial review for any individual dissatisfied 
with a determination regarding his or her Medicare benefits.
    (2) Section 1876 of the Act provides for Medicare payments to HMOs 
and CMPs that contract with HCFA to enroll Medicare beneficiaries and 
furnish Medicare-covered health care services to them. Section 
1876(c)(5) provides that--
    (i) An HMO or CMP must establish grievance and appeals procedures; 
and
    (ii) Medicare enrollees dissatisfied because they do not receive 
health care services to which they believe they are entitled, at no 
greater cost than they believe they are required to pay, have the 
following appeal rights:
    (A) The right to an ALJ hearing if the amount in controversy is 
$100 or more.
    (B) The right to judicial review of the hearing decision if the 
amount in controversy is $1000 or more.
    (iii) The Medicare enrollee and the HMO or CMP are parties to the 
hearing and to the judicial review.
    (b) Scope. This subpart sets forth--
    (1) The appeals procedures, as required by section 1876(c)(5)(B) of 
the Act for Medicare enrollees who are dissatisfied with an 
``organization determination'' as defined in Sec. 417.606;
    (2) The applicability of grievance procedures established by the 
HMO or CMP under section 1876(c)(5)(A) of the Act and Sec. 417.604(a) 
for complaints that do not involve an organization determination;
    (3) The responsibility of the HMO or CMP--
    (i) To develop and maintain procedures; and
    (ii) To ensure that all Medicare enrollees have a complete written 
explanation of their grievance and appeal rights, of the steps to 
follow, and of the time limits for each step of the procedures; and
    (4) The special rules that apply when a beneficiary requests 
immediate PRO review of a determination that he or she no longer needs 
inpatient hospital care.


Sec. 417.602  [Amended]

    2. In Sec. 417.602, the heading is revised to read ``Sec. 417.602 
Definitions.'' and the definition of ``enrollee'' is removed.
    3. Section 417.604 is revised to read as follows:


Sec. 417.604  General provisions.

    (a) Responsibilities of the HMO or CMP. (1) The HMO or CMP must 
establish and maintain--
    (i) Appeals procedures that meet the requirements of this subpart 
for issues that involve organization determinations; and
    (ii) Grievance procedures for dealing with issues that do not 
involve organization determinations.
    (2) The HMO or CMP must ensure that all enrollees receive written 
information about the grievance and appeals procedures that are 
available to them.
    (b) Limits on applicability of this subpart. (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 under 
(Sec. 417.440(b)(2)) are subject only to a grievance procedure.
    (4) Physicians and other individuals who furnish services under 
arrangement with an HMO or CMP have no right of appeal under this 
subpart.
    (c) Applicability of other regulations. Unless otherwise provided 
in this 

[[Page 46234]]
subpart, regulations at 20 CFR, part 404, subparts J and R, (pertaining 
respectively to conduct of hearings and representation of parties under 
title II of the Act) are applicable under this subpart.


Sec. 417.628  [Removed]

    4. Section 417.628 is removed.
    5. In Sec. 417.632, paragraphs (c) and (d) are revised to read as 
follows:


Sec. 417.632  Request for hearing.

* * * * *
    (c) Parties to a hearing. (1) The parties to a hearing must be the 
parties to the reconsideration and any other person or entity whose 
rights with respect to the reconsideration may be affected by the 
hearing, as determined by the ALJ.
    (2) The HMO or CMP must be made a party to the hearing but does not 
have a right to request a hearing.
    (d) ALJ action when the amount in controversy is less than $100. 
(1) If the request plainly shows that the amount in controversy is less 
than $100, the ALJ dismisses the request.
    (2) If, after a hearing is initiated, the ALJ finds that the amount 
in controversy is less than $100, he or she discontinues the hearing 
and does not rule on the substantive issues raised in the appeal.

    F. Subpart R is amended as set forth below.

Subpart R--Medicare Contract Appeals


Sec. 417.644  [Amended]

    1. In Sec. 417.644, the following changes are made:

    a. In paragraph (a), ``will notify the HMO or CMP in writing'' is 
revised to read ``gives the HMO or CMP written notice''.

    b. In paragraph (c), ``Notice of an initial determination specified 
in Sec. 417.640 is mailed to the HMO or CMP'' is revised to read ``HCFA 
mails the notice to the HMO or CMP''.

    2. Section 417.648 is revised to read as follows:
Sec. 417.648  Reconsideration: Applicability.

    (a) Reconsideration is the first step for appealing an organization 
determination specified in Sec. 417.640 (a) or (b).
    (b) HCFA reconsiders either of the specified determinations if the 
HMO or CMP files a written request in accordance with Sec. 417.650.


Sec. 417.652  [Amended]

    3. In Sec. 417.652, ``will provide'' is revised to read 
``provides''.
    4. Section 417.656 is revised to read as follows:


Sec. 417.656  Notice of reconsidered determination.

    (a) HCFA gives the parties written notice of the reconsidered 
determination.
    (b) The notice--
    (1) Contains findings with respect to the HMO's or CMP's 
qualifications to enter into a contract with HCFA under section 1876 of 
the Act;
    (2) States the specific reasons for the reconsidered determination; 
and
    (3) Informs the party of its right to a hearing if it is 
dissatisfied with the determination.


Sec. 417.666  [Amended]

    5. In Sec. 417.666, ``will designate'' is revised to read 
``designates''.


Sec. 417.668  [Amended]

    6. In Sec. 417.668, ``will designate'' is revised to read 
``designates''.


Sec. 417.670  [Amended]

    7. In Sec. 417.670, the following changes are made:
    a. In paragraph (a), ``will fix'', ``send'', and ``must also 
inform'' are revised to read ``fixes'', ``sends'', and ``also 
informs'', respectively.
    b. In paragraph (c), ``any change in time or place or of 
adjournment'' is revised to read ``any change in time or place of 
hearing, or of adjournment or postponement''.


Sec. 417.676  [Amended]

    8. In Sec. 417.676, the following changes are made:
    a. In paragraph (a), ``will be open'' is revised to read ``is 
open''.
    b. In paragraph (b), ``will inquire'' is revised to read 
``inquires'', and ``must receive'' is revised to read ``receives''.
    c. In paragraph (c), ``The parties will be provided'' is revised to 
read ``The hearing officer provides the parties''.
    d. In paragraph (d), ``will decide'' is revised to read 
``decides''.


Sec. 417.678  [Amended]

    9. In Sec. 417.678, ``will rule'' is revised to read ``rules''.


Sec. 417.680  [Amended]

    10. In Sec. 417.680, paragraph (b), ``will be'' is revised to read 
``are''.


Sec. 417.682  [Amended]

    11. In Sec. 417.682, in paragraphs (a) and (c), ``will be'' is 
revised to read ``is''.


Sec. 417.686  [Amended]

    12. In Sec. 417.686, in paragraph (a), ``will be'' is revised to 
read ``is''.


Sec. 417.690  [Amended]

    13. In Sec. 417.690, the following changes are made:
    a. In paragraph (a), ``will issue'' is revised to read ``issues''.
    b. In paragraph (b), ``will provide'' is revised to read 
``provides''.


Sec. 417.692  [Amended]

    14. In Sec. 417.692, the following changes are made:
    a. In paragraph (c)(1), ``will be'' is revised to read ``is''.
    b. In paragraph (c)(2), ``will specify'' is revised to read 
``specifies''.


Sec. 417.694  [Amended]

    15. In Sec. 417.694, ``final and binding'' is revised to read 
``binding''.

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

    Dated: July 31, 1995.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
[FR Doc. 95-21695 Filed 9-5-95; 8:45 am]
BILLING CODE 4120-01-P