[Federal Register Volume 62, Number 83 (Wednesday, April 30, 1997)]
[Rules and Regulations]
[Pages 23368-23376]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11182]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 417

[OMC-025-FC]
RIN 0938-AH62


Medicare Program; Establishment of an Expedited Review Process 
for Medicare Beneficiaries Enrolled in Health Maintenance 
Organizations, Competitive Medical Plans, and Health Care Prepayment 
Plans

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

ACTION: Final rule with comment period.

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SUMMARY: This final rule with comment period establishes a new 
administrative review requirement for Medicare beneficiaries enrolled 
in health maintenance organizations (HMOs), competitive medical plans 
(CMPs), and health care prepayment plans (HCPPs). This rule implements 
section 1876(c)(5) of the Social Security Act, which specifies the 
appeal and grievance rights for Medicare enrollees in HMOs and CMPs. 
This rule requires that an HMO, CMP, or HCPP establish and maintain, as 
part of the health plan's appeals procedures, an expedited process for 
making organization determinations and reconsidered determinations when 
an adverse determination could seriously jeopardize the life or health 
of the enrollee or the enrollee's ability to regain maximum function. 
This rule also revises the definition of appealable determinations to 
clarify that it includes a decision to discontinue services.

DATES: Effective date: These regulations are effective June 30, 1997.
    Compliance date: HMOs, CMPs, and HCPPs must comply with the 
requirements of this final rule beginning August 28, 1997.
    Comment date: Comments will be considered if we receive them at the 
appropriate address, as provided under ADDRESSES, no later than 5 p.m. 
on June 30, 1997.

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-025-FC, P.O. Box 26688, Baltimore, MD 21207-
0488.

    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.

    Comments may also be submitted electronically to the following e-
mail address: [email protected] E-mail comments must include the full 
name and address of the sender and must be submitted to the referenced 
address to be considered. All comments must be incorporated in the e-
mail message because we may not be able to access attachments. 
Electronically submitted comments will be available for public 
inspection at the Independence Avenue address below.
    Because of staffing and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code OMC-025-FC. Comments received timely will be available for 
public inspection as they are received, generally beginning 
approximately 3 weeks after publication of a document, in Room 309-G of 
the Department's offices at 200 Independence Avenue, SW., Washington, 
DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m. 
(phone: (202) 690-7890).
    Copies: To order copies of the Federal Register containing this 
document, send your request to: New Orders, Superintendent of 
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password required).

FOR FURTHER INFORMATION CONTACT: Maureen Miller, (410) 786-1097.

SUPPLEMENTARY INFORMATION:

I. General Background

A. Program Background

    Under title XVIII of the Social Security Act (the Act), Medicare 
beneficiaries have a choice of whether to obtain Medicare-covered 
services through the traditional fee-for-service program or through a 
managed care entity or ``prepaid health care organization.'' This final 
rule with comment period concerns appeal rights for Medicare 
beneficiaries who choose a prepaid health care organization. Under the 
prepayment method, health maintenance organizations (HMOs), competitive 
medical plans (CMPs), and health care prepayment plans (HCPPs) enter 
into contracts or agreements with us to provide a range of services to 
Medicare beneficiaries who voluntarily enroll in these health plans.
    Section 1876 of the Act provides the authority for us to enter into 
contracts with HMOs and CMPs to furnish

[[Page 23369]]

Medicare-covered services to beneficiaries on either a ``risk'' or a 
``cost payment'' basis. Section 1833 of the Act provides the basis for 
regulations under which we enter into written agreements with HCPPs to 
furnish covered Medicare Part B services on a cost payment basis.
    Section 1876 specifies the requirements that eligible health plans 
must meet in order to enter into and maintain a Medicare contract, 
including the provision of appeal and grievance rights to Medicare 
enrollees, as set forth under section 1876(c)(5) of the Act. 
Regulations implementing the beneficiary appeals requirements are found 
at 42 CFR, subpart Q, Secs. 417.600 through 417.638. These regulations 
were most recently amended on November 21, 1994 with the publication of 
the final rule entitled ``Medicare Program: Appeal Rights and 
Procedures for Beneficiaries Enrolled in Prepaid Health Care Plans'' 
(59 FR 59933). That final rule (1) codified a program standard that 
HMOs and CMPs complete reconsiderations requested by a Medicare 
enrollee, referenced in this final rule as an ``enrollee,'' for denied 
services or claims, within 60 days from the date of receipt of the 
reconsideration request; (2) extended to HMO and CMP enrollees the 
right to request immediate review by a Utilization and Quality Control 
Peer Review Organization (PRO) of an HMO's, CMP's, or hospital's 
determination that an inpatient hospital stay is no longer necessary; 
and (3) required HCPPs to establish administrative review procedures 
for their Medicare beneficiaries who are dissatisfied with decisions to 
deny a service or a claim. In this final rule, we refer to HMOs, CMPs, 
and HCPPs as ``health plans.''

B. Current Requirements

    Medicare-contracting health plans are required to maintain 
procedures for making ``organization determinations'' (decisions 
concerning whether to provide a service or pay a claim) and for 
reconsidering the organization determination. That is, if the 
organization determination is adverse to the beneficiary, the health 
plan also must provide a second level of review called a 
``reconsideration'' upon request by the Medicare enrollee.
    Current regulations, drafted in the early 1980's, permit health 
plans up to 60 days to issue a formal notice of an adverse organization 
determination if an enrollee's request for a service or payment is 
denied. This notice informs the beneficiaries of the reason for the 
determination and their right to file a request for reconsideration. 
The health plan has an additional 60 days to conduct the 
reconsideration and issue a reconsidered determination. These 60-day 
time frames stem from the fee-for-service appeals process, a process 
the Congress referenced in drafting section 1876 of the Act.
    At the reconsideration stage, the health plan may uphold the 
decision to deny a service or payment of a claim, or it may overturn 
the decision and issue a reconsidered determination in favor of the 
enrollee. If, upon reconsideration, a health plan upholds its decision 
to deny, the appeal is automatically sent to an independent reviewer 
under contract with and acting for HCFA. No written request from the 
enrollee is necessary for this external review. The reconsideration 
contractor, on our behalf, is responsible for issuing the reconsidered 
determination. The reconsidered determination may uphold or overturn 
the plan's determination. If the contractor's determination upholds the 
plan's decision (in whole or in part) and if the amount in controversy 
is $100 or more, the enrollee may request an Administrative Law Judge 
hearing. At this point, the enrollee may pursue the same administrative 
and judicial review processes that are available to beneficiaries in 
fee-for-service. Thus, beneficiaries enrolled in HMOs, CMPs, and HCPPs 
have appeal rights equivalent to those available in the fee-for-service 
program.

II. Additional Background

A. Expedited Organization Determinations and Reconsiderations

    The regulations pertaining to Medicare managed care appeals 
requirements do not include a specific provision requiring expedited 
organization determinations or reconsiderations in time-sensitive 
situations. However, increased program experience resulting from the 
growth and penetration of HMOs in the private insurance and Medicare 
markets has prompted us, along with other groups, to recognize the 
desirability of an expedited decision-making process for certain 
services in certain situations. In fact, the National Association of 
Insurance Commissioners (NAIC) has developed and recently adopted a 
model Grievance Act setting forth standards for grievance procedures 
that include provision for expedited appeals. (Although our regulations 
make a distinction between appealable organization determinations and 
``grievances,'' which are not appealable, the model ``Grievance'' Act 
prepared by NAIC encompasses determinations of the type addressed in 
this rule.)
    The need for an expedited process to address certain preservice 
denials, as well as reductions and discontinuations of service in 
certain time-sensitive circumstances, is further supported by reports 
and studies of the General Accounting Office (1995), the Physician 
Payment Review Commission (1996), and the Institute of Medicine (1996). 
Organizations that advocate for beneficiaries also have reported to us 
the urgent need for expedited decision-making, particularly when 
certain services are being discontinued. Therefore, we are amending 
part 417, subpart Q to establish and incorporate provisions for 
expediting organization determinations and reconsiderations in certain 
time-sensitive situations.
    In developing the provisions for this final rule, we looked for 
guidance to the NAIC's model Grievance Act. This model act is the 
result of more than 2 years of deliberation among State regulators, in 
open consultation with consumer groups (including Medicare beneficiary 
advocacy groups), provider and physician associations, insurance and 
managed care representatives, HCFA staff, and others. We anticipate 
that many States will adopt this model act or amend existing 
regulations to conform with these new, state-of-the-art standards.
    Because of the inclusive and exhaustive efforts invested in the 
development of the NAIC's model Grievance Act as well as the importance 
of acting rapidly to institute expedited appeals for the Medicare 
population, we have drawn on the NAIC's time lines and definition in 
developing the new Medicare requirement. In addition to the important 
precedent of NAIC's accountability standards, we believe that 
beneficiaries (particularly those enrolled in prepaid plans before 
Medicare eligibility) would benefit from consistent standards regarding 
appeal rights. We believe, too, that similar thresholds for expediting 
a review process and similar time lines will lessen the margin for 
error among health plan staff handling commercial as well as Medicare 
enrollee appeals, and strengthen the ability of enrollees to exercise 
appeal rights when making the transition to the Medicare managed care 
plan.
    Under the provisions of this rule, health plans are required to 
incorporate into their appeals process a procedure for reviewing and 
issuing certain organization determinations and reconsiderations within 
a short time frame. Expedited reviews will be conducted for situations 
in which the standard (60-day) time frame for issuing determinations 
could jeopardize the life

[[Page 23370]]

or health of the enrollee or the enrollee's ability to regain maximum 
function. Also, requests for reconsideration of noncoverage 
determinations for inpatient stays, other than hospital discharges for 
which immediate Peer Review Organization (PRO) review is available, 
will be expedited, as well as requests for reconsiderations of 
determinations to discontinue a service (such as physical therapy) in 
the home or outpatient setting where a longer review time could 
jeopardize the enrollee's life, health, or ability to regain his or her 
maximum function. Health plans will be required to conduct the review 
within a time period appropriate to the condition or situation of the 
enrollee, but no more than 72 hours from the time of the request. Thus, 
expedited reviews could occur in 24 hours, 48 hours, or other 
appropriate time period. Similarly, an expedited organization 
determination to deny a service could be issued in 48 hours, but the 
expedited reconsideration could take the full 72 hours allotted for 
making a determination.
    Because of the time-sensitive nature of these situations, certain 
requirements and conditions applicable to standard appeals are altered. 
For instance, the Medicare enrollee, or his or her representative, will 
be able to request an expedited review orally, such as by telephone. In 
a similar manner, the health plan's determination will be given to the 
enrollee or the representative, and to the appropriate physician or 
provider as necessary, in an expeditious manner. When the determination 
is given orally, a written follow-up version must be issued within 2 
working days. Further, any physician will be permitted to request an 
expedited review on behalf of the enrollee, and the health plan must 
accept the physician's decision that the situation meets the criterion 
for expedited review, that is, that a longer review period could place 
the enrollee in jeopardy.
    The health plan must receive the request for an expedited 
determination or reconsideration, make the procedural decision whether 
the determination will be made through the expedited process (or 
redirect it to the standard process), conduct the review, and issue its 
determination within the 72-hour time frame set forth in the 
regulation. In limited circumstances, health plans will be allowed to 
take more than 72 hours to issue a determination. Health plans will be 
permitted up to 10 additional working days beyond the 72-hour standard 
if the ``extension'' of time benefits the beneficiary, such as allowing 
for additional diagnostic testing or consultations with medical 
specialists, or if the beneficiary requests the extension in order to 
provide the plan with additional information for making its decision. 
Delays in meeting the 72-hour standard will also be permitted if an 
expedited organization determination or reconsideration is requested by 
a physician not affiliated with the health plan. In this case, the 72-
hour time standard will begin only when the medical information 
necessary for making the determination has been communicated (orally or 
in writing by the out-of-plan physician) to the health plan. If the 
physician fails to provide necessary information, the health plan must 
notify the enrollee (or attempt to notify the enrollee who is out of 
the service area) in a timely manner, and no later than 72 hours after 
the request, that the information has not been provided. When a small 
amount of additional time is needed to make a determination and, 
overall, is in favor of the beneficiary, the beneficiary must be kept 
informed and written documentation made to the case file. However, 
delays in the communication of medical record information between 
affiliated physicians or providers and the health plan will not be 
accepted as reason for extending the time standard.
    In those instances in which the health plan determines that the 
enrollee's request does not meet the criterion for expedited review, 
the HMO or CMP must notify the enrollee as soon as possible and follow 
up any oral communication with a written explanation. This is a 
procedural decision, and because the enrollee has requested an 
organization determination--or a reconsideration--the health plan must 
handle the request through standard appeals procedures. We anticipate 
that questions will arise on matters such as enrollee recourse and plan 
procedures if a request is not granted, and we plan to consult 
beneficiary advocacy groups and the managed care industry on needed 
action and operational guidance in areas such as notification of 
grievance rights, filing quality of care complaints with the local PRO, 
and modifying procedures to carry out the standard review process.
    If a decision is made by the health plan not to expedite an 
organization determination, and at the completion of the standard 
review process there is a determination adverse to the enrollee, the 
enrollee could request an expedited reconsideration if he or she again 
believes that a longer (standard) time frame could jeopardize life, 
health, or functioning. On the other hand, a health plan may have a 
protocol that any reconsideration will be expedited if the organization 
determination was expedited.
    If a health plan expedites a reconsideration, and upholds its 
decision that is adverse to the enrollee in whole or in part, it must 
forward the case to our reconsideration contractor in as expeditious 
manner as possible and within 24 hours of its decision. Our contractor 
will then conduct an expedited reconsideration. Currently, our 
contractor has an expedited process for time-sensitive situations 
involving preservice denials and terminations of coverage. As part of 
this rulemaking, we will review this process for possible improvement 
and assess the need for contract modification.
    The expedited appeals process established by this rule, generally, 
will not affect the handling of hospital discharge disputes because, as 
noted earlier in this preamble, an ``expedited'' process is already in 
place for these appeals, that is, the right to immediate PRO review. 
The right to immediate PRO review for possible premature discharge 
would extend, also, to instances in which an enrollee is preauthorized 
for an inpatient procedure and only 1 or 2 days of hospital care. The 
HMO or CMP must assure that it (or its delegated hospital) has 
procedures in place that would allow an enrollee who is admitted for a 
very short stay to exercise this right to immediate PRO review. This 
independent review protection would not preclude a health plan from 
establishing a procedure for appealing before hospitalization, although 
this process could not replace the right to PRO review once 
hospitalized. If the enrollee does not request PRO review, an 
alternative appeals protection exists: The enrollee may remain in the 
hospital for extra days of care then submit a request for the health 
plan to pay the hospital charges.
Options Considered
    In developing this rule, we consulted beneficiary advocacy groups 
and the managed care industry concerning several policy options. In 
particular, we considered several options before deciding to adopt a 
72-hour time standard for expedited appeals. The beneficiary advocacy 
groups we consulted indicated that the expedited review process should 
take less, but no more, than 72 hours. Representatives of the HMO 
industry estimated a need for 5 days. We chose the 72-hour time 
standard because (1) it is consistent with the model standard recently 
adopted by the NAIC, (2) agency staff estimate that a majority of these 
cases could be reasonably resolved in this

[[Page 23371]]

time frame, and (3) the 72-hour time frame is similar to that 
established by the Congress for completion of immediate PRO review of 
fee-for-service and HMO hospital discharge decisions.
    We also considered options regarding the procedural issue of 
deciding whether to expedite a review. Beneficiary advocacy groups 
recommended that the beneficiary decide whether determinations and 
reconsiderations are expedited, not the health plan, in order to ensure 
that these special appeal requests are granted. Representatives of the 
HMO industry believe that health plans should make these decisions 
because the criterion for expeditious treatment of a review requires 
the judgment of trained persons and health professionals. HMOs are also 
concerned that beneficiaries will overuse and misuse this process. In 
this final rule, we are modifying the NAIC language from ``would 
jeopardize * * *'' to ``could jeopardize'' the life, health, or 
functioning of the beneficiary, and are adding the mandatory granting 
of physician requests. We believe this language strikes the proper 
balance and provides beneficiaries with an expedited appeal in most 
cases, but allows HMOs some flexibility to refuse expedition in cases 
in which the beneficiary is misusing the new right.
    The beneficiary groups and the HMO industry both recommended that 
our reconsideration contractor be held to similar expedited review 
requirements. The current contractor already expedites its review of 
preservice denial cases with a self-imposed time standard of 3 to 10 
days. It is our intent to hold the contractor to a time limit of no 
more than 10 days to complete time-sensitive reconsiderations.
    After publication of this rule, we will issue implementation 
instructions to all contracting health plans, including directives 
concerning notification of enrollees on the new appeals right and 
revising member documents. Furthermore, we will incorporate information 
about this new appeal right in various materials, including the 
Medicare Handbook.
    We believe that the addition of regulations pertaining to an 
expedited process to part 417, subpart Q will provide a needed 
protection for beneficiaries while allowing health plans to manage 
effectively the resources that must be available for expediting urgent 
cases.

B. Clarification of Organization Determination Definition

    In making payments to affiliated providers and physicians, prepaid 
health plans (including Medicare-contracting HMOs, CMPs, and HCPPs) 
commonly use financial arrangements that incorporate an incentive to 
utilize health resources efficiently. Some believe these incentives, 
which are designed to achieve quality outcomes without overutilizing 
the health care system, could have the untoward result of 
underutilization or failure to furnish medically necessary covered 
services in some situations. Thus, an important protection for 
beneficiaries enrolled in HMOs, CMPs, or HCPPs is the right to appeal 
denials of care (also known as preservice denials) and to seek 
reimbursement for the costs of services received out of plan following 
a preservice denial.
    Regulations set forth at Sec. 417.606 (``Organization 
determinations'') define those actions that are organization 
determinations and therefore subject to reconsideration and the 
Medicare appeals process, as well as those actions that are not 
organization determinations. These regulations do not expressly 
identify as organization determinations those situations in which an 
enrollee has been receiving services but the care is being 
discontinued, although the intent is that enrollees have the right to 
appeal decisions for which Medicare coverage is in dispute. These 
disputes are not limited to preservice denials or postservice claims 
for payment but must include situations in which services have been 
furnished, but the enrollee disagrees with his or her health plan's 
decision that continued care or the skilled level of care is no longer 
medically necessary, appropriate, or covered.
    We have received information that some enrollees do not fully 
understand their appeal rights and that health plan administrators 
themselves are confused about appeal rights in these situations. Most 
recently, the Office of Inspector General of the Department of Health 
and Human Services found that, while enrollees ``were knowledgeable 
about their general right'' to register formal complaints, they were 
less aware of specifically when to exercise appeal rights. (Medicare 
HMO Appeal and Grievance Processes: Beneficiaries' Understanding, 
December 1996, OEI-07-96-11281.) Therefore, we are revising 
Sec. 417.606(a) to clarify that the definition of organization 
determination includes discontinuations of covered services, when an 
enrollee believes there is a continuing need for the service, or level 
of service, that would be covered by Medicare. Examples of these 
situations are discharges from skilled nursing facilities, decisions to 
move an enrollee from a skilled level to custodial care in the nursing 
facility, and exhaustion of skilled nursing facility benefits.
Options Considered
    We believe that the current definition of organization 
determination extends to reductions in services, such as changes in the 
intensity and mix of home health services furnished to an enrollee. 
However, because the definition in the regulations does not expressly 
identify reductions in services furnished to an enrollee, we considered 
including a clarification in this final rule. In assessing the 
ramifications of this clarification, we became aware of the potential 
scope and the complexity of addressing reductions in various medical 
services, as well as the interaction of such a provision with other 
improvements under consideration for improving appeals protections (see 
section III. of this regulation). Therefore, we have decided to include 
this provision in a subsequent rulemaking document. This will allow not 
only beneficiary and managed care representatives to comment, but also 
medical, other professional, and provider organizations. Commenters to 
this final rule, however, are invited to submit their initial comments, 
concerns, and ideas on establishing effective and efficient parameters 
for giving notice and providing appeal rights when services are being 
reduced (for example, in home health care, outpatient clinics, and 
physician offices), when reconsiderations of a reduction should be 
expedited, and when enrollees are participating in case management 
programs or other innovative treatment modalities for which there are 
pre-agreements regarding the services to be furnished.

C. Grijalva et al. and Balistreri et al. v. Shalala

    Civ. 93-711 (D. Arizona) concerns the service denial appeal rights 
of members of Medicare health maintenance organizations. The District 
Court's October 17, 1996 decision and March 3, 1997 judgment are 
subject to appeal on or before May 2, 1997.

III. Additional Pending Revisions to the Regulations

    We have undertaken a broad review of the overall appeals program 
and have identified a number of improvements that we believe are 
warranted. Therefore, in addition to the two changes being made in this 
rule, we intend to publish soon a separate proposed rule making a 
variety of other

[[Page 23372]]

improvements in Medicare managed care appeals processes.

IV. Provisions of This Final Rule

    The provisions of this final rule with comment period follow:
    In Sec. 417.600 (``Basis and scope''), paragraph (b)(3)(ii) is 
modified to require that the HMO or CMP must ensure that Medicare 
enrollees have a complete written explanation of the availability of 
expedited reviews.
    In Sec. 417.604 (``General provisions''), paragraph (b)(4) is 
modified to allow physicians and other health professionals to act on 
behalf of an enrollee in time-sensitive situations when an organization 
determination or reconsideration is being requested.
    The definition of ``organization determination'' set forth at 
Sec. 417.606 (``Organization determinations''), paragraph (a), is 
revised to include discontinuations of services being furnished by an 
HMO or CMP.
    In Sec. 417.608 (``Notice of adverse organization determination''), 
paragraph (a) is modified to incorporate expedited organization 
determinations, and paragraphs (b)(2) and (c) are revised to require 
that the HMO or CMP must inform the enrollee of his or her right to and 
conditions for obtaining an expedited reconsidered determination and 
that failure to provide the enrollee with timely notification (72 hours 
in the case of certain expedited organization determinations) 
constitutes an adverse organization determination and may be appealed.
    A new Sec. 417.609 (``Expediting certain organization 
determinations'') is added to provide that an enrollee may request that 
certain organization determinations be expedited if the standard time 
frames could jeopardize the life or health of the enrollee or the 
enrollee's ability to regain maximum function. This new section also 
sets forth the procedures for expediting certain organization 
determinations. An extension of up to 10 working days is permitted if 
requested by the enrollee or if the HMO or CMP finds that additional 
information is necessary and the delay is in the interest of the 
enrollee.
    In Sec. 417.614 (``Right to reconsideration''), a modification is 
made to extend the right to reconsideration to include expedited 
reconsiderations in time-sensitive situations.
    In Sec. 417.616 (``Request for reconsideration''), paragraph (a) 
(``Method and place for filing a request'') is modified to provide for 
an exception for expedited reconsiderations to the place for filing a 
request for a reconsideration.
    A new Sec. 417.617 (``Expediting certain reconsiderations'') is 
added to require that an enrollee may request expedition of a 
reconsideration of certain organization determinations when the longer 
time frames in Sec. 417.620(c) could seriously jeopardize the life or 
health of the enrollee or the enrollee's ability to regain maximum 
function. This section also sets forth the procedures for health plans 
to expedite reconsiderations. An extension of up to 10 working days is 
permitted if requested by the enrollee or if the HMO or CMP finds that 
additional information is necessary and the delay is in the interest of 
the enrollee.
    A modification is made to Sec. 417.618 (``Opportunity to submit 
evidence'') to recognize and clarify the procedural limitation for 
providing evidence by enrollees, their representatives, or a health 
professional on the enrollee's behalf.
    Section 417.620 (``Responsibility for reconsiderations; time 
limits'') paragraphs (c) and (e) are revised to incorporate the time 
limit for expediting certain reconsiderations. Paragraph (d) is revised 
to correct typographical errors.

V. Collection of Information Requirements

    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 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying 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.
    However, we believe that the information collection requirements 
referenced in this rule, as summarized below, are exempt from the 
Paperwork Reduction Act of 1995 for the following reasons:
    Sections 417.608, 417.609, 417.616, 417.617, 417.618, and 417.620 
of this rule, as well as the retention and possible audit of health 
plan records related to expedited requests, are exempt because they are 
performed in the conduct of an administrative action, investigation, or 
audit involving an agency against specific individuals or 
organizations, as outlined in 5 CFR 1320.4(a)(2).
    Below is a summary of information collection requirements 
referenced in this rule, which we believe are exempt from the Paperwork 
Reduction Act of 1995:
    Section 417.608 requires that the HMO or CMP must inform the 
enrollee of his or her right to and conditions for obtaining an 
expedited reconsidered determination and that failure to provide the 
enrollee with timely notification (72 hours in the case of certain 
expedited organization determinations) constitutes an adverse 
organization determination and may be appealed.
    Section 417.609 requires an HMO or CMP to establish and maintain 
procedures for expediting certain organization determinations. This 
section also requires an HMO or CMP to notify an enrollee of an 
expedited organization determination as expeditiously as the enrollee's 
health condition requires, but within 72 hours of the request. Finally, 
the section requires an HMO or CMP to accept the request of a 
physician, regardless of whether the physician is affiliated with the 
organization or not, to expedite the process for making an organization 
determination. Section 417.616 requires that an enrollee may request a 
reconsideration of an organization determination and specifies the 
method and place for filing a request, which, in the case of a request 
for an expedited reconsideration, as provided for in Sec. 417.617 
(concerning certain expedited reconsiderations), is the HMO or CMP.
    Section 417.617 requires that an enrollee may request a 
reconsideration of certain organization determinations. It also 
requires an HMO or CMP to have and maintain procedures for expediting 
reconsiderations when the longer time frames permitted in 
Sec. 417.620(c) could seriously jeopardize the life or health of the 
enrollee or the enrollee's ability to regain maximum function. This 
section also requires an HMO or CMP to accept the request of a 
physician, regardless of whether the physician is affiliated with the 
organization or not, to expedite the reconsideration. Finally, this 
section requires that, if the HMO or CMP defaults on its obligation to 
provide an expedited reconsideration, it must forward the file to us.
    Section 417.618 requires an HMO or CMP to provide the parties to 
the reconsideration reasonable opportunity to present evidence and 
allegations of fact or law, related to the issue in

[[Page 23373]]

dispute, in person as well as in writing. In the case of expedited 
reconsiderations, the opportunity to present the evidence is more 
limited, and the organization must inform the enrollee, or authorized 
representative of the enrollee, of the conditions for submitting 
evidence.
    Section 417.620 requires an HMO or CMP to issue the reconsidered 
determination to the enrollee, or submit the explanation and file to us 
within the time frames specified. Failure by the HMO or CMP to provide 
the enrollee with a reconsidered determination within the time limits 
described constitutes an adverse determination, and the HMO or CMP must 
submit the file to us.
    Although we believe the information collection requirements 
referenced in this document are exempt under 5 CFR 1320.4(a)(2), as 
required by section 3504(h) of the Paperwork Reduction Act of 1995, we 
have submitted a copy of this document to OMB for its review. 
Organizations and individuals desiring to submit comments should send 
to both of the following addresses:

Health Care Financing Administration, Office of Financial and Human 
Resources, Management Planning and Analysis Staff, Room C2-26-17, 7500 
Security Boulevard, Baltimore, MD 21244-1850.
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 10235, New Executive Office Building, Washington, DC 
20503, Attn: Allison Herron Eydt, HCFA Desk Officer.

VI. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, we are not 
able to acknowledge or respond to them individually. We will consider 
all comments we receive by the date and time specified in the DATES 
section of this preamble, and, if we proceed with a subsequent 
document, we will respond to the comments in the preamble to that 
document.

VII. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite prior public comment on proposed rules. The 
notice of proposed rulemaking includes a reference to the legal 
authority under which the rule is proposed, and the terms and substance 
of the proposed rule or a description of the subjects and issues 
involved. This procedure can be waived, however, if an agency finds 
good cause that a notice-and-comment procedure is impracticable, 
unnecessary, or contrary to the public interest and incorporates a 
statement of the finding and its reasons in the rule issued.
    For the reasons that follow, we believe that it would be contrary 
to the public interest to delay the revisions made in this rule until 
after a public notice and comment process has been completed. The first 
provision concerns an expedited appeals process for certain preservice 
denials. This expedited decision-making would occur if the 
determination that services are not needed or no longer needed could 
seriously jeopardize the life or health of the enrollee or could 
jeopardize the enrollee's ability to regain maximum function. While a 
number of Medicare-contracting plans have an expedited review process 
in place for Medicare enrollees, not all do, and the opportunity to 
obtain the reviews may not be consistently applied. For this reason, 
the growing number of enrollees who could be adversely affected by a 
slow process, and the fact that the situations addressed by this 
provision are of such a serious nature, we find that there is good 
cause to waive proposed rulemaking.
    We have reached the same conclusion about the provision in this 
rule that merely clarifies the original intent of the definition of an 
organizational decision. This clarification, however, could help ensure 
that a beneficiary has the appeal rights that the Congress intended 
when services the beneficiary believes the HMO should provide are 
terminated.
    Clearly, the intent of section 1876(c)(5)(B) of the Act and 
regulations set forth in part 417, subpart Q is that enrollees have the 
opportunity to seek administrative review when they believe the health 
plan is not furnishing any health service to which they are entitled. 
The Medicare Health Maintenance Organization/Competitive Medical Plan 
Manual indicates this intent in the ``Benefits'' chapter with a 
requirement that health plans notify enrollees of their appeal rights 
at discharge from a skilled nursing facility (see section 2112.1). 
However, growing reports from beneficiaries and beneficiary advocacy 
groups indicate that many enrollees are not being informed, or 
appropriately informed, of appeal rights when services are being 
discontinued and the enrollee disagrees that services are no longer 
covered. When this occurs, the critical protection against 
underutilization provided by the appeals process is not available to 
enrollees.
    We believe that it would be contrary to the public interest to 
leave HMO enrollees at risk of being denied this critical protection in 
cases in which health care service is being terminated while a notice 
and comment process is being conducted.
    Although we find that it is in the public interest to waive 
proposed rulemaking in these two areas, there are a number of other 
improvements to part 417, subpart Q that we are developing. While these 
revisions are important, we did not believe that the standard for 
waiving notice of proposed rulemaking was met or we found that public 
comment is needed for the policy changes under consideration. We 
anticipate that a second rule addressing improvements to the appeals 
protections of Medicare enrollees will be issued as a proposed 
regulation for comment in the near future.

VIII. Regulatory Impact Analysis

    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, many Medicare-contracting HMOs, CMPs, and HCPPs are considered to 
be small entities.
    In addition, section 1102(b) requires the Secretary to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b), we define a small rural hospital as a 
hospital that is located outside of a Metropolitan Statistical Area and 
has fewer than 50 beds.
    We require all Medicare-contracting HMOs, CMPs, and HCPPs to 
maintain systems for making initial organization determinations and 
conducting reconsiderations. Systems must also be in place so that 
hospitalized beneficiaries who disagree with an HMO's or CMP's 
discharge determination are given a written notice of noncoverage with 
instructions for requesting immediate review by a PRO. In addition, the 
Medicare Health Maintenance Organization/Competitive Medical Plan 
Manual requires that beneficiaries being discharged from a nursing home 
be given advance written notice of noncoverage and procedures for 
requesting an appeal.
    The clarification in the regulations that organization 
determinations include discontinuations of care, and are thus 
appealable, could increase the number of written notices issued and the 
number of reconsiderations that a

[[Page 23374]]

health plan must conduct. However, because the majority of services 
provided by any health plan are ambulatory care and hospital care--
where it is already required by statute, as mentioned above, that 
notices be given any time a beneficiary disagrees that the 
hospitalization can be ``discontinued''--this regulation will primarily 
affect discontinuations involving skilled nursing facility, 
rehabilitation, and home health care. In addition, not all changes in 
level of care or terminations of coverage are disputed by the 
beneficiary. Having considered the limited applicability of this 
important clarification, we believe the increased volume of notices and 
reconsiderations, and the associated increase in expenses, will not 
have a significant impact on contracting health plans and HCPPs.
    The new process for making expedited determinations and 
reconsiderations in certain circumstances requires a modification of 
existing appeals processes. In particular, contracting health plans 
that do not currently have the process must develop procedures, train 
staff, and maintain a daily availability of health professionals 
necessary to handle an anticipated but unpredictable volume of cases 
and the diverse, complex coverage issues usually associated with 
serious, time-sensitive situations. We anticipate a net increase in the 
number of determinations and reconsiderations due to an increase in 
standard cases as well as a new, but smaller volume of expedited 
reviews. This will occur because of the public attention being given to 
appeal and expedited review rights, and, to a lesser degree, because of 
fewer disenrollments. The volume increase is anticipated despite the 
substitution of expedited reviews for a number of standard 
determinations and reconsiderations. We do not believe, however, that 
the net increase in the cost of the appeals system resulting from this 
modification will have a significant impact on HMOs, CMPs, and HCPPs as 
set forth in the RFA.
    We estimate, based on 450 health plans, that the clarification 
regarding discontinuations will cost approximately $30 million across 
all plans (100,000 new reconsiderations  x  $300 per notice). Our 
estimates for the expedited review requirements for the same number of 
plans are the following: $9 million for development and training 
($20,000 per plan); $20 million for expedited organization 
determinations (50,000 determinations  x  $400 per expedited 
determination); and $10 million for expedited reconsiderations (12,500 
reconsiderations  x  $800 per reconsideration). The total estimated 
economic impact is $69 million in the first year and $60 million 
annually thereafter.
    There is no direct impact on the Medicare trust funds from these 
costs to the plans because there is no payment adjustment to Medicare 
managed care plans associated with this rulemaking.
    We anticipate that, while this final rule will affect our 
administrative costs associated with the Medicare reconsideration 
contract, these costs will be negligible. The availability of expedited 
reviews and the clarification regarding discontinuations of care may 
have a significant impact on the reconsideration contractor's volume of 
reviews. However, although it is difficult to estimate, we believe the 
additional cost of this contract will not exceed $1 million per year.
    The number of Medicare enrollees in health plans that also have 
commercial (and often Medicaid) enrollments, varies greatly. Thus, it 
is very difficult to estimate the average net costs to contracting 
health plans. Given the degree of variability, we estimate average net 
costs to entities to implement the provisions of this regulation to 
range between $20,000 and $200,000 annually. Entities with revenues of 
$5 million or less annually or nonprofit organizations are considered 
small entities for purposes of this regulation. Although 99 of 353 
current contracting health plans are nonprofit and considered small 
entities for the purpose of preparing an RFA, we do not believe the 
annual cost to prepaid plans of implementing these provisions will be 
significant since net cost to these entities will not constitute a 
substantial portion of their annual revenues.
    Therefore, we are not preparing analyses of this final rule for 
either the RFA or section 1102(b) of the Act because we have 
determined, and the Secretary certifies, that this rule will not have a 
significant economic impact on a substantial number of small entities 
or a significant economic impact on the operations of a substantial 
number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 417

    Administrative practice and procedure, Grant programs-health, 
Health care, Health facilities, Health insurance, Health maintenance 
organizations (HMO), Loan programs-health, Medicare, Reporting and 
recordkeeping requirements.
    42 CFR chapter IV is amended as set forth below:

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

    Part 417 is amended as set forth below:
    1. 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.

    2. In Sec. 417.600, the introductory text of paragraphs (b) and 
(b)(3) is republished, and paragraph (b)(3)(ii) is revised to read as 
follows:


Sec. 417.600  Basis and scope.

* * * * *
    (b) Scope. This subpart sets forth--
* * * * *
    (3) The responsibility of the HMO or CMP--
* * * * *
    (ii) To ensure all Medicare enrollees have a complete written 
explanation of their grievance and appeal rights, the availability of 
expedited reviews, the steps to follow, and the time limits for each 
procedure; and
* * * * *
    3. In Sec. 417.604, paragraph (b)(4) is revised to read as follows:


Sec. 417.604  General provisions.

* * * * *
    (b) Limits on applicability of this subpart.
* * * * *
    (4) Physicians and other individuals who furnish services under 
arrangement with an HMO or CMP have no right of appeal under this 
subpart, except as provided in Secs. 417.609(c)(4) and 417.617(c)(4), 
which allow physicians and other health professionals to act on behalf 
of an enrollee in time-sensitive situations when an organization 
determination or reconsideration is being requested.
* * * * *
    4. In Sec. 417.606, the introductory text to paragraph (a) is 
republished, and new paragraph (a)(4) is added to read as follows:


Sec. 417.606  Organization determinations.

    (a) Actions that are organization determinations. An organization 
determination is any determination made by an HMO or CMP with respect 
to any of the following:
* * * * *

[[Page 23375]]

    (4) Discontinuation of a service (such as a skilled nursing 
facility discharge), if the enrollee disagrees with the determination 
that the service is no longer medically necessary.
* * * * *
    5. In Sec. 417.608, the introductory text of paragraph (b) is 
republished, and paragraphs (a), (b)(2), and (c) are revised to read as 
follows:


Sec. 417.608  Notice of adverse organization determination.

    (a) If an HMO or CMP makes an organization determination that is 
partially or fully adverse to the enrollee, it must notify the enrollee 
of the determination--
    (1) Within 60 days of receiving the enrollee's request for payment 
for services; or
    (2) As specified in Sec. 417.609(c)(3) for expedited organization 
determinations.
    (b) The notice must--
* * * * *
    (2) Inform the enrollee of his or her right to a reconsideration, 
including the right to and conditions for obtaining an expedited 
reconsidered determination.
    (c) The failure to provide the enrollee with timely notification of 
an adverse organization determination as specified in paragraph (a) of 
this section or in Sec. 417.609(b) (concerning time frames for 
expediting certain organization determinations) constitutes an adverse 
organization determination and may be appealed.
    6. A new Sec. 417.609 is added to read as follows:


Sec. 417.609  Expediting certain organization determinations.

    (a) An enrollee, or an authorized representative of the enrollee, 
may request that an organization determination as defined in 
Secs. 417.606(a)(3) and (a)(4) be expedited. The request may be made 
orally to the HMO or CMP.
    (b) The HMO or CMP must maintain procedures for expediting 
organization determinations when, upon request from an enrollee or 
authorized representative of the enrollee, the organization decides 
that making the determination according to the procedures and time 
frames set forth in Sec. 417.608(a)(1) could seriously jeopardize the 
life or health of the enrollee or the enrollee's ability to regain 
maximum function.
    (c) The procedures must include the following:
    (1) Receipt of oral requests, followed by written documentation of 
the oral requests.
    (2) Prompt decision-making regarding whether the request will be 
expedited, or handled within the standard time frame set forth at 
Sec. 417.608(a)(1), including notification of the enrollee if the 
request is not expedited.
    (3) Notification of the enrollee, and the physician as appropriate, 
as expeditiously as the enrollee's health condition requires, but 
within 72 hours of the request. An extension of up to 10 working days 
is permitted if requested by the enrollee or if the HMO or CMP finds 
that additional information is necessary and the delay is in the 
interest of the enrollee.
    (i) Notification must comply with Sec. 417.608(b), concerning the 
content of a notice of adverse organization determination.
    (ii) If the initial notification is not in writing, written 
confirmation must be mailed to the enrollee within 2 working days.
    (iii) In cases for which the HMO or CMP must receive medical 
information from a physician or provider not affiliated with the HMO or 
CMP, the time standard begins with receipt of the information.
    (4) Granting the request of a physician, regardless of whether the 
physician is affiliated with the organization or not, to expedite the 
enrollee's request.
    7. Section 417.614 is revised to read as follows:


Sec. 417.614  Right to reconsideration.

    Any party who is dissatisfied with an organization determination or 
with one that has been reopened and revised may request reconsideration 
of the determination in accordance with the procedures of Sec. 417.616, 
concerning a request for reconsideration, or Sec. 417.617, concerning 
certain expedited reconsiderations.
    8. In Sec. 417.616, the introductory text to paragraph (a) is 
republished, and a new paragraph (a)(4) is added to read as follows:


Sec. 417.616  Request for reconsideration.

    (a) Method and place for filing a request. A request for 
reconsideration must be made in writing and filed with--
* * * * *
    (4) In the case of a request for an expedited reconsideration, as 
provided for in Sec. 417.617 (concerning certain expedited 
reconsiderations), the HMO or CMP.
* * * * *
    9. A new Sec. 417.617 is added to read as follows:


Sec. 417.617  Expediting certain reconsiderations.

    (a) An enrollee, or an authorized representative of the enrollee, 
may request that a reconsideration be expedited. The request may be 
made orally to the HMO or CMP.
    (b) The HMO or CMP must maintain procedures for expediting 
reconsiderations when, upon request from an enrollee or an authorized 
representative of the enrollee, the organization decides that the 
longer time frames permitted in Sec. 417.620(c) could seriously 
jeopardize the life or health of the enrollee or the enrollee's ability 
to regain maximum function.
    (c) The procedures must comply with the requirements for 
reconsidered determinations set forth in Secs. 417.614 through 417.626 
and include the following items:
    (1) Receipt of oral requests, followed by written documentation of 
the oral requests.
    (2) Prompt decision-making regarding whether the request will be 
expedited or handled within the standard time frame of Sec. 417.620(c), 
including notification of the enrollee if the request is not expedited.
    (3) Notification of the enrollee, and the physician as appropriate, 
as expeditiously as the enrollee's health condition requires, but 
within 72 hours of the request. An extension of up to 10 working days 
is permitted if requested by the enrollee or if the HMO or CMP finds 
that additional information is necessary and the delay is in the 
interest of the enrollee.
    (i) Notification must comply with Sec. 417.624(b), concerning the 
content of a notice of a reconsidered determination.
    (ii) If the initial notification is not in writing, written 
confirmation must be mailed to the enrollee within 2 working days.
    (iii) In cases for which the HMO or CMP must receive medical 
information from a physician or provider not affiliated with the HMO or 
CMP, the time standard begins with receipt of the information.
    (4) Granting the request of a physician, regardless of whether the 
physician is affiliated with the organization or not, to expedite the 
request.
    8. Section 417.618 is revised to read as follows:


Sec. 417.618  Opportunity to submit evidence.

    The HMO or CMP must provide the parties to the reconsideration 
reasonable opportunity to present evidence and allegations of fact or 
law, related to the issue in dispute, in person as well as in writing. 
In the case of an expedited reconsideration, the opportunity to present 
evidence is limited by the short time frames for making decisions, and

[[Page 23376]]

the organization must inform the enrollee, or the authorized 
representative of the enrollee, of the conditions for submitting the 
evidence.
    9. In Sec. 417.620, paragraphs (c), (d), and (e) are revised to 
read as follows:


Sec. 417.620  Responsibility for reconsideration; time limits.

* * * * *
    (c) The HMO or CMP must issue the reconsidered determination to the 
enrollee, or submit the explanation and file to HCFA within 60 calendar 
days from the date of receipt of the request for reconsideration. In 
the case of an expedited reconsideration, the HMO or CMP must issue the 
reconsidered determination as specified in Sec. 417.617(c)(3) or submit 
the explanation and file to HCFA within 24 hours of its determination, 
the expiration of the 72-hour review period, or the expiration of the 
extension.
    (d) For good cause shown, HCFA may allow extensions to the time 
limit set forth in paragraph (c) of this section.
    (e) Failure by the HMO or CMP to provide the enrollee with a 
reconsidered determination within the time limits described in 
paragraph (c) of this section or to obtain a good cause extension 
described in paragraph (d) of this section constitutes an adverse 
determination, and the HMO or CMP must submit the file to HCFA.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance)

    Dated: March 19, 1997.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.

    Dated: April 11, 1997.
Donna E. Shalala,
Secretary.
[FR Doc. 97-11182 Filed 4-29-97; 8:45 am]
BILLING CODE 4120-01-P