[Federal Register Volume 61, Number 183 (Thursday, September 19, 1996)]
[Rules and Regulations]
[Pages 49271-49276]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23958]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES
42 CFR Part 421

[BPO-105-F]
RIN 0938-AF85


Medicare Program; Part B Advance Payments to Suppliers Furnishing 
Items or Services Under Medicare Part B

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

ACTION: Final rule.

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SUMMARY: This rule establishes requirements and procedures for advance 
payments to suppliers of Medicare Part B services. An advance payment 
will be made only if the carrier is unable to process a claim timely; 
the supplier requests advance payment; we determine that payment of 
interest is insufficient to compensate the supplier for loss of the use 
of the funds; and, we expressly approve the advance payment in writing.
    These rules are necessary to address deficiencies noted by the 
General Accounting Office in its report analyzing current procedures 
for making advance payments. The intent of this rule is to ensure more 
efficient and effective administration of this aspect of the Medicare 
program.

EFFECTIVE DATE: This rule is effective October 21, 1996.

FOR FURTHER INFORMATION CONTACT: Robert Shaw, (410) 786-3312.

SUPPLEMENTARY INFORMATION:

I. Background

A. General

    The Medicare Supplementary Medical Insurance (Part B) program is a 
voluntary program that pays all or part of the costs for physicians' 
services; outpatient hospital services; certain home health services; 
services furnished by rural health clinics, ambulatory surgical centers 
and comprehensive outpatient rehabilitation facilities; and certain 
other items or medical and hospital health services not covered by the 
Medicare Hospital Insurance program (Part A).

B. Use of Carriers

    1. Statutory basis. Under section 1842(a) of the Social Security 
Act (the Act), public and private organizations and agencies may 
participate in the administration of the Medicare program under 
contracts entered into with the Secretary. These Medicare contractors, 
known as ``carriers,'' process and pay Part B claims.
    Usually, these payments are made on a claim-by-claim basis. 
Regulations at 42 CFR part 421, subpart C--Carriers, set forth the 
functions performed by Medicare carriers, which include the following:
     Determining the eligibility status of a beneficiary.
     Determining whether the services for which payment is 
claimed are covered under Medicare, and if so, the correct payment 
amounts.
     Making correct payment to the beneficiary or the supplier 
of the items or services, as appropriate.
    Carriers must also observe the ``prompt payment'' requirements set 
forth in section 1842(c) of the Act. As amended by section 13568 of the 
Omnibus Budget Reconciliation Act of 1993 (OBRA '93) (Public Law 103-
66), enacted on August 10, 1993, this provision currently requires 
interest to be paid on all ``clean'' claims for which payment is not 
issued within 30 calendar days.

[[Page 49272]]

    2. Advance payments to suppliers. Under Part B, a carrier may make 
an advance partial payment to a supplier if the carrier is not able to 
process a claim. (For purposes of the Medicare program, Sec. 400.202 
defines ``supplier'' as a physician or other practitioner, or an entity 
other than a provider, that furnishes health care services under 
Medicare. Section 400.202 defines ``services'' as medical care or 
services and items, such as medical diagnosis and treatment, drugs and 
biologicals, supplies, appliances, and equipment, medical social 
services, and use of the facilities of a hospital, a rural primary care 
hospital, or a skilled nursing facility.) An advance payment may be 
made to a supplier eligible to receive Medicare payments.
    At the present time, there are no regulations or guidelines for 
making advance payments. In rare instances, such as when major 
administrative changes are made in processing Part B claims, a backlog 
of pending claims may occur. To avoid or reduce the payment of interest 
on claims that are not processed timely, we sometimes authorize advance 
payments for pending backlogged claims, subject to later recoupment 
from amounts we owe, once the claims are processed.

II. General Accounting Office Report Finding--``HCFA Should Improve 
Internal Controls Over Part B Advance Payments''

    As a result of administrative changes made in processing Part B 
claims at two carriers in two States during 1988, a large backlog of 
pending claims occurred. In order to minimize the effects of these 
claims payment disruptions on suppliers, in 1989 we authorized the two 
carriers to make advance payments for pending backlogged claims, 
subject to later recoupment, once the claims were actually processed. 
The difficulties experienced by the suppliers resulted in the General 
Accounting Office investigating these two carriers and their claims 
processing systems. This investigation led the General Accounting 
Office to question whether we had sufficient guidelines and safeguards 
in place to ensure that advance payments were promptly recouped. A full 
report of the General Accounting Office findings is included in the 
proposed rule published in the Federal Register on July 18, 1994 (59 FR 
36415).
    As a result of its review of these cases, the General Accounting 
Office recommended that we determine whether it is appropriate for 
carriers to make advance payments to suppliers and that we be in 
compliance with the Federal Managers' Financial Integrity Act (31 
U.S.C. 3512) when making these determinations. A full discussion of the 
requirements of the Federal Managers' Financial Integrity Act was 
included in the proposed rule (59 FR 36416).
    In applying this standard to Part B advance payments, the General 
Accounting Office expressed the opinion that HCFA, rather than the 
carriers, should authorize advance payments to be executed by the 
carriers. In addition, the General Accounting Office asserted that we 
should clearly communicate to carriers our approval to make advance 
payments and include the terms under which these payments must be made. 
Therefore, the General Accounting Office recommended that we develop 
regulations and instructions for carriers regarding Part B advance 
payments to suppliers. (General Accounting Office report, GAO/HRD-91-81 
(April 1991), entitled ``Medicare: HCFA Should Improve Internal 
Controls Over Part B Advance Payments.'')

III. Summary of the Proposed Regulations

    We published a proposed rule in the Federal Register on July 18, 
1994 (59 FR 36415) to announce our intention to establish requirements 
and procedures for advance payments to suppliers of Medicare Part B 
services. The proposed rule responded to the General Accounting Office 
report and recommendation and proposed to add Sec. 421.214 (``Advance 
payments to suppliers furnishing items or services under Part B'') to 
42 CFR part 421, subpart C.
    Proposed Sec. 421.214 would ensure the smooth and uniform issuance 
and recoupment of Part B advance payments that may be authorized from 
time to time to counter the negative consequences of disruptions in 
Medicare Part B claims processing. The regulation, as proposed, would 
be entirely self-contained. Advance payments would be made when a 
carrier is unable to process a claim timely, not when delay is the 
result of late or incomplete submittal of a claim by a supplier. 
Processing delays would be highlighted to us to ensure that payment 
disruptions and risks to the Medicare trust fund would be minimized.
    There are some entities with provider agreements under section 1866 
of the Act that are paid for certain Part B services from the Part B 
Trust Fund through intermediaries (performing as a carrier when making 
Part B payments). These providers generally have access to the existing 
accelerated payment provisions under Sec. 413.64(g). The purpose of the 
proposed regulation is to create a Part B advance payment procedure for 
suppliers, not to supplant the existing Part A advance payment 
procedure for some providers. Therefore, this section would not apply 
to claims for Part B items or services that are furnished by entities 
with provider agreements under section 1866 of the Act that receive 
payments from intermediaries.
    Proposed Sec. 421.214(b) defines the term ``advance payment'' to 
mean a carrier's conditional partial payment to a supplier on a Part B 
claim that the carrier is unable to process within the prescribed time 
limits.
    Proposed Sec. 421.214(c) specifies that an advance payment may be 
made if the carrier is unable to process claims timely; if we determine 
that the prompt payment interest provision in section 1842(c) of the 
Act is insufficient to make claimants whole; and, if the advance 
payment is expressly approved by us in writing. The prompt payment 
interest provision currently requires us to pay interest on clean 
claims when the carrier is unable to make payment within 30 calendar 
days. The determination to issue advance payments must take into 
consideration elements that are, or may be, subject to changes, such as 
legislation related to prompt payment; system enhancements; severity of 
system malfunctions; changes to regulations; change in contractors; and 
any number of other factors that may necessitate the issuance of 
advance payments. Therefore, we stated we would implement the threshold 
criterion or criteria through manual instructions to the carriers. This 
would give us the flexibility to respond promptly to providers without 
going through the rulemaking process each time a unique situation 
occurs. We specifically requested public comments on this approach. In 
making changes, we would ensure that advance payments would be made in 
a way that would ensure budget neutrality.
    Section 421.214(d) specifies that no advance payment would be made 
to any supplier who is delinquent in repaying a Medicare overpayment, 
or one that has been advised that it is under active medical review or 
program integrity investigation. Also, an advance payment would not be 
made to a supplier that has not submitted any claims, or has not 
accepted claims' assignments within the most recent 180-day period 
preceding the system malfunction that created the need for the advance 
payment.
    Proposed Sec. 421.214(e)(1) specifies that a supplier must request, 
in writing to the carrier, an advance payment for providing Part B 
services. Paragraph

[[Page 49273]]

(e)(2) specifies that a supplier must accept an advance payment as a 
conditional payment subject to adjustment, recoupment, or both based on 
an eventual determination of the actual amount due on the claim and 
subject to the other rules found in Sec. 421.214.
    Proposed Sec. 421.214(f)(1) states that a carrier must calculate an 
advance payment for a specific claim at no more than 80 percent of the 
historical assigned claims payment data paid a supplier. ``Historical 
data'' are defined as a representative 90-day assigned claims payment 
trend within the most recent 180-day experience before the system 
malfunction. Based on this amount, the carrier must determine and issue 
an advance payment on a particular claim not to exceed 80 percent of 
the average per claim amount paid during the 90-day trend period. If 
historical data are not available or if backlogged claims cannot be 
identified, the carrier would determine and issue advance payments 
based on some other methodology approved by us. Advance payments would 
be made no more frequently than once every 2 weeks to a supplier.
    Proposed Sec. 421.214(f)(2) specifies that generally, a supplier 
would not receive advance payments for more assigned claims than were 
paid, on a daily average, for the 90 days before the system 
malfunction. This would prevent and discourage suppliers from 
submitting assigned claims that may lack merit in order to maximize the 
receipt of advance payments. However, an example of a permissible 
exception would be when a supplier does not receive payments from a 
carrier for services during the early months of the year when 
beneficiary deductibles are being met. In this case, the carrier would 
use more representative payment months for the suppliers' daily 
average.
    Proposed Sec. 421.214(f)(3) specifies that a carrier must recover 
an advance payment by applying it against the amount due on the claim 
on which the advance payment was made. Under the proposal, if the 
advance payment exceeds the Medicare payment amount, the carrier must 
apply the unadjusted balance of the advance payment against further 
Medicare payments due the supplier.
    It is not our intent to permit repayment of an advance payment by 
an option that could delay the recovery process or that would create a 
duplicate payment or an overpayment. Thus, a supplier of Part B 
services could not elect to receive the full payment amount for a claim 
and repay the advance payment separately at some other time.
    Proposed Sec. 421.214(f)(4) specifies that in accordance with our 
instructions, a carrier must maintain financial records in accordance 
with the Statement of Federal Financial Accounting Standards for 
tracking each advance payment and its recoupment.
    Proposed Sec. 421.214(g)(1) permits us to waive the requirements of 
paragraph (e)(1) if we determine it is appropriate to make advance 
payments to all affected suppliers. Paragraph (g)(2) specifies that if 
adjusting Medicare payments fails to recover an advance payment, we may 
authorize the use of any other recoupment method available (for 
example, lump sum repayment or an extended repayment schedule). 
Paragraph (g)(2) also allows an unpaid balance from a past advance 
payment to be converted into an overpayment. In the unlikely event 
that, after the adjustment process is completed, more money has been 
advanced to the supplier than was due, we would consider that amount to 
be an overpayment. We could then attempt to recover the overpayment 
under the Medicare recovery procedures in part 401, subpart F and part 
405, subpart C.
    Proposed Sec. 421.214(h) clarifies that the advance payment would 
be considered a payment that would satisfy the ``prompt payment'' 
requirements of section 1842(c)(2) of the Act for the amount of the 
advance. Therefore, if an advance payment is made before the ``prompt 
payment'' time limit and the actual amount of payment for the claim is 
determined after the time limit, interest would be paid only on the 
balance due the supplier after the carrier deducts the amount of the 
advance. (Of course, no interest would accrue if the amount of the 
advance exceeds the actual payment amount to be made on the claim.) If 
the advance payment is issued after the time limit for making a prompt 
payment, interest would accrue on the advance (or on the amount of the 
claim, whichever is smaller) up to the date that the advance payment is 
issued, and on the balance due the supplier, if any, up to the date of 
payment.
    Proposed Sec. 421.214(i) explains that the decision to advance 
payments and the determination of the amount to be advanced on any 
given claim are committed to agency discretion and are not subject to 
review or appeal. However, the carrier would notify the supplier 
receiving the advance payment about the amounts advanced and recouped, 
and how any Medicare payment amounts have been adjusted. If the 
supplier believes the carrier's reconciliation of the amounts advanced 
and recouped is incorrectly computed, it may request an administrative 
review from the carrier. If a review is requested, the carrier would 
provide a written explanation of the adjustments. This review and 
explanation would be separate from a supplier's right to appeal the 
amount and computation of benefits paid on the claim, as provided at 42 
CFR part 405, subpart H. The carrier's reconciliation of amounts 
advanced and recouped would not be an initial determination as defined 
at Sec. 405.803, and any written explanation of this reconciliation 
would not be subject to further administrative review. We expect that 
this review process would help to eliminate unnecessary appeals that 
might result from errors in computation.

IV. Analysis of Public Comments

    In response to the July 1994 proposed rule, we received three 
timely items of correspondence. Comments were received from two 
national trade associations--one is a nonprofit association comprised 
of over 2,100 home medical equipment suppliers and one represents over 
850 wholesale and retail distributors of health and medical products. 
The third comment was sent by a 30,000-member professional association 
representing pharmacists in various health settings. These comments and 
our responses are discussed below.
    Comment: One commenter stated that the term ``established time 
limit'' that is referenced in the definition of advance payment 
(Sec. 421.214(b)) should be specific for purposes of this rule. The 
commenter suggested that after 30 to 60 days, interest should be paid 
by the carrier on outstanding claims and after 60 days, advance 
payments should be made automatically.
    Response: Carriers must adhere to the ``prompt payment'' 
requirements set forth in section 1842(c) of the Act. As amended by 
section 13568 of OBRA '93, this provision currently requires interest 
to be paid on all ``clean'' claims for which payment is not made within 
30 calendar days. We expect that the need for advance payment would be 
determined in much less than 60 days. Additionally, as outlined in 
Sec. 421.214(c) (``When advance payments may be made'') and 
Sec. 421.214(d) (``When advance payments are not made''), advance 
payments will be paid when the requirements of the rule are met. 
However, it would be presumptuous for us or the carrier to assume that 
all suppliers would want an advance payment.
    Comment: Two commenters stated that it should be the obligation of 
the carrier to notify suppliers as soon as the carrier discovers that 
payment would not be made in a timely manner and

[[Page 49274]]

advance payments would be necessary. One of the commenters suggested 
that, after an initial request, suppliers should not have to request an 
advance payment in writing each time an advance payment is warranted.
    Response: We agree that the carrier should notify a supplier when 
there is a need to make advance payment. If the reason for not making 
prompt payment is associated with the carriers' inability to process 
Medicare claims in a timely manner, the carrier will notify the 
supplier. The supplier will have the option of receiving an advance 
payment, as long as the conditions as outlined in this final rule are 
met. Additionally, it is not our intention to require suppliers to 
request an advance payment each time a claim is submitted during a 
period that advance payments are deemed to be necessary. Advance 
payments will be automatic until the condition that caused the need for 
advance payments is corrected.
    Comment: One commenter disagreed with our position that the 
decision to advance payments and the determination of the amount of any 
advance payment are committed to agency discretion and are not subject 
to review or appeal (Sec. 421.214(i)). The commenter believed that this 
position does not ensure more efficient and effective administration of 
this aspect of the Medicare program.
    Response: Advance payments are discretionary because the Medicare 
statute imposes no obligation to advance these monies before a final 
payment determination is made. The final payment determination is not 
affected by the advance payment process; suppliers can only be 
advantaged by receiving these advances. Agency discretion for the 
amount to be advanced is based on a valid and fair formula, as outlined 
in Sec. 421.214(f)(1) and (f)(2). This is an efficient and effective 
administration of the program that minimizes the risks to the Medicare 
trust fund, without prejudice to the supplier.
    Comment: One commenter objected to the provision in the proposed 
rule instructing a carrier that the amount of an advance payment should 
be no more than 80 percent of the historical assigned claims payment 
data (Sec. 421.214(f)(1)). The commenter believed the supplier should 
get an advance payment of 100 percent of its submitted charges, minus 
the supplier's historical percentage differential between submitted and 
approved charges.
    Response: We have determined that the fairest method of calculating 
advance payments to suppliers without risking an overpayment is to 
calculate an advance payment for a particular claim at no more than 80 
percent of the anticipated payment for that claim based upon the 
historical assigned claims payment data for claims paid to the 
supplier. This payment methodology balances the financial needs of the 
supplier with our responsibility to protect the Medicare trust fund.
    Comment: One commenter was concerned that a provision in the 
proposed rule (Sec. 421.214(f)(3)) would allow the carrier to recover 
payment from the supplier without requiring the carrier to resolve the 
problem that actually caused the claims processing problem.
    Response: The commenter's concern is unfounded. It is not our 
intent to recover any part of the advance payment before the carrier 
resolves the problem that made the advance payment necessary.
    Comment: One commenter recommended that the supplier be given the 
opportunity to repay the advance payment by check or wire transfer to 
avoid the offsetting against claims because offsetting claims often 
results in accounting problems.
    Response: Permitting suppliers to refund advance payments (as 
opposed to having the advanced payment offset against the actual 
payment amount) would undoubtedly produce systemic overpayments and 
duplicate payments to suppliers. This would be directly contrary to the 
intent and purpose of this final rule. It is not our intent to permit 
repayment of an advance payment by an option that could delay the 
recovery process or that will create a duplicate payment or an 
overpayment. A supplier of Part B services could not elect to receive 
full payment for a claim and repay the advance payment separately at 
some other time. Permitting suppliers to refund the advance payment by 
check or wire transfer also conflicts with the definition of ``advance 
payment'' in Sec. 421.214(b) and the concept of advancing a portion of 
what is owed. The recommendation by the commenter would, in all 
probability, increase the frequency of overpayments and duplicate 
payments to providers, could be prone to abuse, and is inconsistent 
with the intent of this rule.
    Comment: One commenter had concerns about the provision prohibiting 
an advance payment to a supplier if the supplier is under active 
medical review or undergoing a program integrity investigation 
(Sec. 421.214(d)(2)). The same commenter also believed that suppliers 
that do not take assignment should not be excluded from receiving a 
cash advance (Sec. 421.214(d)(4)).
    Response: A supplier that is under an active medical review or 
undergoing a program integrity investigation is in a status that we do 
not treat lightly. These reviews and investigations could culminate in 
actions that result in civil, criminal, and administrative remedies. To 
authorize an advance payment without final resolution of the medical 
review or program integrity investigation is not in the best interest 
of the Medicare trust fund. A supplier that does not accept assignment 
receives no monies from Medicare. Therefore, there is no basis for an 
advance payment.
    Comment: One commenter suggested that within 3 business days of a 
carrier's receipt of an advance payment request, the carrier should 
inform the supplier in writing of the amount of the advance payment 
and, within the following 5 business days, the carrier should forward a 
check for the advance payment to the supplier.
    Response: The commenter proposes an administratively burdensome 
time frame for carrier action that is far shorter than (and 
inconsistent with) the ``prompt payment'' standard for ``clean'' claims 
provided by Congress in section 1842(c)(2) of the Act. In accordance 
with this provision, we pay interest when the carrier does not pay a 
claim within 30 calendar days of receipt. Under 421.214(b), we will 
issue advance payments only if the carrier is unable to process claims 
timely, that is, within this 30 day period. Once we decide that the 
carrier should issue advance payments, continuing advance payments will 
be timed to be consistent with these prompt payment rules and the 
carrier's usual operating procedures. This should minimize the 
obligation to pay interest, as well as reduce the administrative burden 
on the carrier during difficult circumstances. In addition, to adopt 
the commenter's suggestion would likely aggravate the situation because 
it would appear to create an incentive to seek advance payments.
    Comment: One commenter stated that it opposed our proposed method 
of calculating the amount of the advance payment (Sec. 421.214(f)) if 
the payment is based on 80 percent of assigned claims submitted in the 
past 90 days. The commenter further stated that if a carrier is unable 
to process claims, the advance payment provision should allow that 
carrier to pay at 100 percent of the supplier's submitted charges, 
minus the supplier's historical percentage differential between 
submitted and approved charges.

[[Page 49275]]

    Response: We chose to base the advance payment on 80 percent of 
assigned claims submitted in the past 90 days to meet the needs of a 
supplier to continue to be a viable business and our responsibility to 
protect the Medicare trust fund. If we chose to base the advance 
payment on 100 percent of its submitted charges, minus the supplier's 
historical percentage differential between submitted and approved 
charges, we would likely create a situation in which a carrier overpays 
a supplier and subsequently must recover the overpayment. This 
situation creates an administrative burden on the carrier to develop 
procedures to recover the overpayment successfully and results in 
increased costs to the Medicare program.

V. Provisions of the Final Rule

    We are making the following changes in this final rule as a result 
of written comments received on the proposed rule. We are adding the 
following paragraph (1) at the beginning of Sec. 421.214(f), which 
concerns requirements for carriers:
    ``(1) A carrier must notify a supplier as soon as it is determined 
that payment will not be made in a timely manner, and an advance 
payment option is to be offered to the supplier.''
    We are also clarifying Sec. 421.214(f)(1)(i) to eliminate possible 
uncertainty regarding how advance payments will be calculated.

VI. Collection of Information

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
requires that we solicit comment on the following issues:
     Whether the information collection is necessary and useful 
to carry out the proper functions of our agency;
     The accuracy of our estimate of the information collection 
burden;
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of these issues for 
Sec. 421.214(f)(4) of this document that contains information 
collection requirements. The information collection in that section 
requires carriers to maintain a system of financial data in accordance 
with the Statement of Federal Financial Accounting Standards for 
tracking each advance payment and its recoupment. We estimate that it 
will take a carrier 4 minutes for entry of an advance payment into the 
tracking system and 2 minutes for any update (including recoupment).
    For comments that relate to information collection requirements, 
mail a copy of comments to: Health Care Financing Administration, 
Office of Financial and Human Resources, Management Planning and 
Analysis Staff, Room C2-26-17, 7500 Security Boulevard, Baltimore, 
Maryland 21244-1850.

VII. 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 suppliers that provide services under Medicare 
Part B to be small entities. We do not consider carriers to be small 
entities.
    Also, section 1102(b) of the Act requires the Secretary to prepare 
a regulatory impact analysis for any rule that 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 amends Medicare regulations to ensure that if 
carriers make advance payments to suppliers and those payments are 
greater than the amounts actually due after the claim is processed, the 
excess payments are recovered promptly. We expect this rule will result 
in marginal administrative savings to carriers and suppliers. In 
addition, we do not believe this regulation will have a negative effect 
on the economy. Therefore, the overall benefits are positive and indeed 
provide stability for suppliers during potentially disruptive claims 
processing delays.
    We have determined, and we certify, 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. Therefore, we have not prepared 
analyses for either the RFA or section 1102(b) of the Act.
    In accordance with the provisions of Executive Order 12866, this 
regulation was not reviewed by the Office of Management and Budget.
    This rule is not a major rule as defined at 5 U.S.C. 804(2).

List of Subjects in 42 CFR Part 421

    Administrative practice and procedure, Health facilities, Health 
professions, Medicare, Reporting and recordkeeping requirements.
    42 CFR part 421 is amended as follows:

PART 421--INTERMEDIARIES AND CARRIERS

    1. The authority citation for part 421 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

Subpart C--Carriers

    2. A new Sec. 421.214 is added to subpart C to read as follows:


Sec. 421.214  Advance payments to suppliers furnishing items or 
services under Part B.

    (a) Scope and applicability. This section provides for the 
following:
    (1) Sets forth requirements and procedures for the issuance and 
recovery of advance payments to suppliers of Part B services and the 
rights and responsibilities of suppliers under the payment and recovery 
process.
    (2) Does not limit HCFA's right to recover unadjusted advance 
payment balances.
    (3) Does not affect suppliers' appeal rights under part 405, 
subpart H of this chapter relating to substantive determinations on 
suppliers' claims.
    (4) Does not apply to claims for Part B services furnished by 
suppliers that have in effect provider agreements under section 1866 of 
the Act and part 489 of this chapter, and are paid by intermediaries.
    (b) Definition. As used in this section, advance payment means a 
conditional partial payment made by the carrier in response to a claim 
that it is unable to process within established time limits.
    (c) When advance payments may be made. An advance payment may be 
made if all of the following conditions are met:
    (1) The carrier is unable to process the claim timely.
    (2) HCFA determines that the prompt payment interest provision 
specified in section 1842(c) of the Act is insufficient to make a 
claimant whole.

[[Page 49276]]

    (3) HCFA approves, in writing to the carrier, the making of an 
advance payment by the carrier.
    (d) When advance payments are not made. Advance payments are not 
made to any supplier that meets any of the following conditions:
    (1) Is delinquent in repaying a Medicare overpayment.
    (2) Has been advised of being under active medical review or 
program integrity investigation.
    (3) Has not submitted any claims.
    (4) Has not accepted claims' assignments within the most recent 
180-day period preceding the system malfunction.
    (e) Requirements for suppliers. (1) Except as provided for in 
paragraph (g)(1) of this section, a supplier must request, in writing 
to the carrier, an advance payment for Part B services it furnished.
    (2) A supplier must accept an advance payment as a conditional 
payment subject to adjustment, recoupment, or both, based on an 
eventual determination of the actual amount due on the claim and 
subject to the provisions of this section.
    (f) Requirements for carriers. (1) A carrier must notify a supplier 
as soon as it is determined that payment will not be made in a timely 
manner, and an advance payment option is to be offered to the supplier.
    (i) A carrier must calculate an advance payment for a particular 
claim at no more than 80 percent of the anticipated payment for that 
claim based upon the historical assigned claims payment data for claims 
paid the supplier.
    (ii) ``Historical data'' are defined as a representative 90-day 
assigned claims payment trend within the most recent 180-day experience 
before the system malfunction.
    (iii) Based on this amount and the number of claims pending for the 
supplier, the carrier must determine and issue advance payments.
    (iv) If historical data are not available or if backlogged claims 
cannot be identified, the carrier must determine and issue advance 
payments based on some other methodology approved by HCFA.
    (v) Advance payments can be made no more frequently than once every 
2 weeks to a supplier.
    (2) Generally, a supplier will not receive advance payments for 
more assigned claims than were paid, on a daily average, for the 90-day 
period before the system malfunction.
    (3) A carrier must recover an advance payment by applying it 
against the amount due on the claim on which the advance was made. If 
the advance payment exceeds the Medicare payment amount, the carrier 
must apply the unadjusted balance of the advance payment against future 
Medicare payments due the supplier.
    (4) In accordance with HCFA instructions, a carrier must maintain a 
financial system of data in accordance with the Statement of Federal 
Financial Accounting Standards for tracking each advance payment and 
its recoupment.
    (g) Requirements for HCFA. (1) In accordance with the provisions of 
this section, HCFA may determine that circumstances warrant the 
issuance of advance payments to all affected suppliers furnishing Part 
B services. HCFA may waive the requirement in paragraph (e)(1) of this 
section as part of that determination.
    (2) If adjusting Medicare payments fails to recover an advance 
payment, HCFA may authorize the use of any other recoupment method 
available (for example, lump sum repayment or an extended repayment 
schedule) including, upon written notice from the carrier to the 
supplier, converting any unpaid balances of advance payments to 
overpayments. Overpayments are recovered in accordance with part 401, 
subpart F of this chapter concerning claims collection and compromise 
and part 405, subpart C of this chapter concerning recovery of 
overpayments.
    (h) Prompt payment interest. An advance payment is a ``payment'' 
under section 1842(c)(2)(C) of the Act for purposes of meeting the time 
limit for the payment of clean claims, to the extent of the advance 
payment.
    (i) Notice, review, and appeal rights. (1) The decision to advance 
payments and the determination of the amount of any advance payment are 
committed to HCFA's discretion and are not subject to review or appeal.
    (2) The carrier must notify the supplier receiving an advance 
payment about the amounts advanced and recouped and how any Medicare 
payment amounts have been adjusted.
    (3) The supplier may request an administrative review from the 
carrier if it believes the carrier's reconciliation of the amounts 
advanced and recouped is incorrectly computed. If a review is 
requested, the carrier must provide a written explanation of the 
adjustments.
    (4) The review and explanation described in paragraph (i)(3) of 
this section is separate from a supplier's right to appeal the amount 
and computation of benefits paid on the claim, as provided at part 405, 
subpart H of this chapter. The carrier's reconciliation of amounts 
advanced and recouped is not an initial determination as defined at 
Sec. 405.803 of this chapter, and any written explanation of a 
reconciliation is not subject to further administrative review.

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

    Dated: August 30, 1996.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
[FR Doc. 96-23958 Filed 9-18-96; 8:45 am]
BILLING CODE 4120-01-P