[Federal Register Volume 66, Number 249 (Friday, December 28, 2001)]
[Notices]
[Pages 67257-67266]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-31720]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-4021-GNC]
RIN 0938-ZA22


Medicare Program; Criteria and Standards for Evaluating 
Intermediary, Carrier, and Durable Medical Equipment, Prosthetics, 
Orthotics, and Supplies (DMEPOS) Regional Carrier Performance During 
Fiscal Year 2002

AGENCY: Centers for Medicare & Medicaid Services (CMS), Health and 
Human Services (HHS).

ACTION: General notice with comment period.

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SUMMARY: This notice describes the criteria and standards to be used 
for evaluating the performance of fiscal intermediaries, carriers, and 
DMEPOS regional carriers in the administration of the Medicare program 
beginning the first day of the month following publication in the 
Federal Register. The results of these evaluations are considered 
whenever we enter into, renew, or terminate an intermediary agreement, 
carrier contract, or DMEPOS regional carrier contract or take other 
contract actions, for example, assigning or reassigning providers or 
services to an intermediary or designating regional or national 
intermediaries. The criteria and standards for DMEPOS regional carriers 
(also referred to as Durable Medical Equipment Regional Carriers 
(DMERCs)) were previously published under a separate Federal Register 
notice, but with this release will now be incorporated in the notice of 
criteria and standards for the intermediaries and carriers. We are 
requesting public comment on these criteria and standards.

EFFECTIVE DATE: The criteria and standards are effective January 2, 
2002.

COMMENTS:  Comments will be considered if we receive them at the 
appropriate address as provided below no later than 5 p.m. (EDT) on 
January 28, 2002.

ADDRESSES: In commenting, please refer to file code CMS-4021-GNC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (fax) transmission. Mail written comments (one original and 
three copies) to the following address: Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Attention: CMS-4021-
GNC, P.O. Box 8016, Baltimore, MD 21244-8016.
    If you prefer, you may deliver (by hand or courier) your written 
comments (one original and three copies) to one of the following 
addresses:

Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC, 20201 or
Room C5-16-03, 7500 Security Boulevard, Baltimore, Maryland 21244-8016.

    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and could be considered late.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Sue Lathroum, (410) 786-7409.

SUPPLEMENTARY INFORMATION
    Inspection of Public Comments: Comments received timely will be 
available for public inspection as they are received, generally 
beginning approximately 3 weeks after publication of a document, at the 
headquarters of the Centers for Medicare & Medicaid Services, 7500 
Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of 
each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view 
public comments, phone (410) 786-7197.

I. Background

A. Part A--Hospital Insurance

    Under section 1816 of the Social Security Act (the Act), public or 
private organizations and agencies participate in the administration of 
Part A (Hospital Insurance) of the Medicare program under agreements 
with us. These agencies or organizations, known as fiscal 
intermediaries, determine whether medical services are covered under 
Medicare, determine correct payment amounts and then make payments to 
the health care providers (for example, hospitals, skilled nursing 
facilities (SNFs), community mental health centers, etc.) on behalf of 
the beneficiaries. Section 1816(f) of the Act requires us to develop 
criteria, standards, and procedures to evaluate an intermediary's 
performance of its functions under its agreement. Evaluations of 
Medicare fee-for-service performance need not be limited to the current 
fiscal year (FY), other fixed term basis, or agreement term. We may 
evaluate performance using a time frame that does not mirror the FY or 
other fixed term. The evaluation of intermediary performance is part of 
our contract management process.

B. Part B Medical Insurance

    Under section 1842 of the Act, we are authorized to enter into 
contracts with carriers to fulfill various functions in the 
administration of Part B (Supplementary Medical Insurance) of the 
Medicare program. Beneficiaries, physicians, and suppliers of services 
submit claims to these carriers. The carriers determine whether the 
services are covered under Medicare and the amount payable for the 
services or supplies, and then make payment to the appropriate party.
    Under section 1842(b)(2) of the Act, we are required to develop 
criteria, standards, and procedures to evaluate a carrier's performance 
of its functions under its contract. Evaluations of Medicare fee-for-
service performance need not be limited to the current FY, other fixed 
term basis, or contract term. We may evaluate performance using a 
timeframe that does not mirror the FY. The evaluation of carrier 
performance is part of our contract management process.

C. Durable Medical Equipment, Prosthetics, Orthotics, and Supplies 
(DMEPOS) Regional Carriers

    In accordance with section 1834(a)(12) of the Act, CMS has entered 
into contracts with four DMEPOS regional carriers to perform all of the 
duties associated with the processing of claims for DMEPOS, under Part 
B of the Medicare program. These DMEPOS regional carriers process 
claims based on a Medicare beneficiary's principal residence by State. 
Section 1842(a) of the Act authorizes contracts with carriers for the 
payment of Part B claims for Medicare covered services and items. 
Section 1842(b)(2) of the Act requires us to publish in the Federal 
Register criteria and standards for the efficient and effective 
performance of carrier contract obligations. The criteria and standards 
to be used for evaluating the performance of DMEPOS regional carriers 
were first published on June 18, 1992 at 57 FR 27302. The evaluation of 
DMEPOS regional carrier performance is part of our contract management 
process.

[[Page 67258]]

D. Development and Publication of Criteria and Standards

    In addition to the statutory requirements, 42 CFR 421.120 and 
421.122 provide for publication of a Federal Register notice to 
announce criteria and standards for intermediaries prior to 
implementation. Section 421.201 provides for publication of a Federal 
Register notice to announce criteria and standards for carriers prior 
to implementation. The current criteria and standards for 
intermediaries and carriers were published in the Federal Register on 
October 31, 2000 at 65 FR 64968 and for DMEPOS regional carriers on 
January 26, 1996 at 61 FR 2516.
    To the extent possible, we make every effort to publish the 
criteria and standards before the beginning of the Federal FY, which is 
October 1. If we do not publish a Federal Register notice before the 
new FY begins, readers may presume that until and unless notified 
otherwise, the criteria and standards that were in effect for the 
previous FY remain in effect.
    In those instances in which we are unable to meet our goal of 
publishing the subject Federal Register notice before the beginning of 
the FY, we may publish the criteria and standards notice at any 
subsequent time during the year. If we publish a notice in this manner, 
the evaluation period for the criteria and standards that are the 
subject of the notice will be effective on the first day of the first 
month following publication. Any revised criteria and standards will 
measure performance prospectively; that is, we will not apply new 
measurements to assess performance on a retroactive basis.
    It is not our intention to revise the criteria and standards that 
will be used during the evaluation period once this information has 
been published in a Federal Register notice. However, on occasion, 
either because of administrative action or congressional mandate, there 
may be a need for changes that have a direct impact on the criteria and 
standards previously published, or that require the addition of new 
criteria or standards, or that cause the deletion of previously 
published criteria and standards. If we must make these changes, we 
will publish a Federal Register notice prior to implementation of the 
changes. In all instances, necessary manual issuances will be published 
to ensure that the criteria and standards are applied uniformly and 
accurately. Also, as in previous years, this Federal Register notice 
will be republished and the effective date revised if changes are 
warranted as a result of the public comments received on the criteria 
and standards.

II. Analysis of and Response to Public Comments Received on FY 2001 
Criteria and Standards

    In response to the October 31, 2000 Federal Register general notice 
with comments, we received comments from 12 entities or individuals. We 
acknowledge and thank each respondent for submitting comments. All 
comments were reviewed, but none necessitated our reissuance of the FY 
2001 Criteria and Standards. Not all comments submitted pertained 
specifically to the FY 2001 Criteria and Standards. Medicare program 
components were advised of the concerns as appropriate. When warranted, 
revisions have been incorporated in this Federal Register notice. We 
are responding to the following performance evaluation issues:
    Comment: We were asked to clarify the time frames of 45 days for 
Standard 4 and 120 days for Standard 5 under the Customer Service 
criterion for carriers.
    Response: Sections 1842(b)(2)(B)(i) and (ii) of the Act specifies 
time frames for carriers to complete review determinations and to make 
hearing decisions. A review determination is to be completed within 45 
days after the date of a request. A hearing decision is to be made 
within 120 days after the date of receipt of a request. The date of 
receipt is the date the request is received and date stamped in the 
contractor's mailroom.
    Comment: A commenter advised us of their concern about what they 
feel is the inconsistent manner in which the DMERCs conduct medical 
review. We were asked to instruct the DMERCs on what constitutes 
appropriate medical record review regarding suppliers, facilities, and 
physicians, and to instruct the DMERC to take into account that 
suppliers are not the appropriate conduits for medical record review. 
Further, we were asked to develop standards to ensure that DMERCs 
comply with these instructions.
    Response: We must hold the entity receiving Medicare payments 
accountable for providing documentation that supports that services and 
equipment are covered by the Medicare program. The law requires 
physicians or practitioners ordering certain services and equipment to 
provide suppliers with this information to support claims payments.
    Comment: Several commenters advised us that there seemed to be a 
discrepancy between the All Trunks Busy (ATB) internal rate, under the 
Customer Service criterion for carriers Standard 1, published in the 
October 31, 2000 Federal Register notice and the ATB internal rate in 
CMS' FY 2001 Budget and Performance Requirements (BPRs) for 
contractors. The October 31, 2000 Federal Register notice states, 
``Carriers are to achieve a monthly ATB rate of not more than 10%.'' In 
contrast, the FY 2001 BPRs states the monthly ATB rate ``shall average 
10%.''
    Response: The BPRs changed during FY 2001. The commenter is correct 
in noting a difference between the BPRs ATB internal rate and the ATB 
internal rate published in the Federal Register. However, we want to 
assure the commenter that we conducted Contractor Performance 
Evaluation (CPE) reviews based on the BPRs. If any contractor was 
evaluated earlier in the fiscal year on the basis of a BPR requirement 
that was subsequently changed, CMS subsequently reevaluated its 
performance against the latest BPR requirements. When necessary, 
revised CPE reports were issued to reflect our evaluation changes.
    Comment: Commenters asked several questions concerning issues under 
section VII, Action Based on Performance Evaluations of the FY 2001 
notice. The questions are as follows: CMS refers to the possibility of 
contractors (manipulating data in order to receive a ``more favorable 
performance evaluation.)'' How does the intermediary or carrier obtain 
a more favorable evaluation? How will the affected public know whether 
a contractor ``meets the level of performance required?'' Will the 
contractor's annual performance reports, referred to in paragraph 
three, be made available to the affected public?
    Response: Many standards established for contractors, including 
some mandated ones specified in each year's Federal Register notice, 
rely on data submitted to the CMS Contractor Reporting of Operational 
and Workload Data Database. If a contractor manipulates data to reflect 
quicker processing of appeals or changes a claim identified as clean to 
be one identified as other than clean, the contractor's actions could 
result in more favorable timeliness data for those workloads. Because 
we identified only those performance standards, which are mandated by 
law, regulations, or judicial decision and provide examples of some 
other possible standards, we believe we have minimized the situations 
in which contractors are certain of the precise methodology by which we 
evaluate them.
    The public may request CPE review reports through the Freedom of

[[Page 67259]]

Information Act, but we do not normally publish information on the 
findings of our performance evaluations.
    Comment: A commenter stated, ``We understand that the numerical 
CPEP requirements of past years, for example, an old requirement that 
intermediaries find $5.99 to $7.99 in disallowance for every dollar 
they received to perform medical review and utilization review, have 
been eliminated.'' ``Clearly something has been substituted for the old 
``quotas''.'' ``We ask that CMS make this information available to the 
affected public.'' ``Many providers have the perception that CMS still 
requires its contractors to meet some sort of numerical ratios and/or 
that the contractors are free to set up their own quotas and reward 
system.''
    Response: CMS does not require contractors to meet savings quotas 
or targets, nor have reward systems. Instead, CMS assesses contractor 
activities that support the accomplishment of core performance 
standards specified in the annual Budget and Performance Requirements 
for medical review. These activities include, for example, workload 
management and data analysis.
    Comment: One commenter stated that Medicare intermediary workload 
data from some recent years showed that approximately 35-40 percent of 
intermediary denials of home health or hospice care were reversed by 
Administrative Law Judges (ALJs) after reconsideration determinations 
by intermediaries. The commenter believes that, in light of CMS' 
definition of an acceptable reversal rate, this past data on reversals 
is quite disturbing. Home health intermediaries should be held 
accountable to the standards and criteria established by CMS.
    Response: Certain intermediaries have as an amendment to their 
contract the responsibility to serve as a Regional Home Health 
Intermediary (RHHI). This means that in addition to processing claims 
from hospitals and skilled nursing facilities they are also responsible 
for claims and appeals from home health agencies and hospices. The 
mandate for intermediaries to have an acceptable ALJ reversal rate of 
their determinations applies to the full range of claims determinations 
which may be appealed to the ALJ level. That is, the determination of 
acceptable is not based solely on ALJ decisions concerning home health 
claims for intermediaries designated as RHHI's. As a result, the data 
applicable to only reversals of home health and hospice claims is not 
reflective of the data CMS uses to evaluate this standard.
    Comment: Commenters stated that the use of the verbiage, 
``criterion may include, but is not limited to * * *'' specific items, 
appears to broaden the scope of CMS' contractor performance evaluation 
by indicating that the five criteria can be expanded. The commenter 
believes that in a year of tight contractor funding, CMS should be more 
focused in its directions to carriers and intermediaries and indicate 
standards for activities that must be performed regardless of budgeted 
levels. This will allow contractors to prioritize activities within 
funding constraints.
    Response: In the general criteria and standards we state the goal 
of the contractor performance evaluation is to ensure that contractors 
meet their contractual obligations. To ensure that contractors are 
meeting their contractual obligations we have established criteria and 
standards that are mandated or authorized by law, regulation, judicial 
decision, contract, or administration directives. We take into 
consideration the BPRs, any changes to them, and any abatements. It is 
not our intention to evaluate performance for which a contractor is not 
budgeted.
    Comment: A commenter noted that in the Actions Based on Performance 
Evaluations section we state, ``In addition, if the cost incurred by 
the intermediary or carrier to meet its contractual requirements 
exceeds the amount that we find to be reasonable and adequate to meet 
the cost that must be incurred by an efficiently and economically 
operated intermediary or carrier, these high costs may also be grounds 
for adverse action.'' The commenter states CMS should identify and 
ensure that contractors report costs accurately within each activity 
and ensure that there is consistent performance activities across the 
contractor community. This will allow effective contractor comparisons.
    Response: CMS budget staff, who review contractor cost reporting 
and budget expenditures, review the overall spending associated with 
contractors' work. Additionally, CMS' functional components may include 
in their protocols an evaluation of the appropriateness of spending for 
the work performed.
    Comment: A commenter recommended that until Administrative Law 
Judges (ALJs) are required to follow CMS manuals, the standard for 
intermediaries to not have more than 5.0 percent of appeals 
determinations reversed by ALJs should be removed.
    Response: Section 1816 (f)(2)(A)(ii) of the Act requires that CMS 
evaluate ``the extent to which such agency's or organization's 
determinations are reversed on appeal.'' In response to this 
requirement, CMS has defined an acceptable reversal rate by ALJs as one 
that is at or below 5.0 percent. We recognize that ALJs act 
independently. As we evaluate this standard we take into consideration 
whether the ALJ followed Medicare laws, regulations, and/or CMS program 
manuals.
    Comment: Commenters stated that while the preamble mentions 
provider education as an element for evaluation under the Customer 
Service criterion it is unclear in the standards whether intermediaries 
are being evaluated on responsiveness to providers or just to 
beneficiaries.
    Response: We agree that clarification is needed. With this notice 
we have specified that intermediaries may be evaluated on their 
responsiveness to providers as well as to beneficiaries.
    Comment: One commenter expressed disappointment that the details of 
the FY 2001 process, while containing a number of objectively measured 
standards, depended heavily upon the subjective judgements of the 
individuals who would perform the reviews.
    Response: We acknowledge that there were criteria and standards 
that permitted reviewers to make more subjective determinations 
concerning acceptableness of performance. We are working to decrease 
the number of these standards.
    Comment: A commenter noted that the background portion of Section I 
indicated CMS may evaluate contractors' performance using a time frame 
that does not mirror the fiscal year or other fixed term. This means 
that the criteria and standards do not necessarily pertain to work 
performed during FY 2001, but rather to evaluations performed during 
that time. The concern is that a lack of a uniform time frame for the 
work being evaluated adds further to the subjectivity, imprecision, and 
variability that characterize the ``rules'' by which individual 
contractors' performance will be judged.
    Response: Reviewers use evaluation protocols developed by CMS 
business function components. The use of standard protocols by all CPE 
reviewers helps to add greater overall consistency to the evaluation 
process. Our general focus, is on reviewing the work performed during 
the current FY, however, there could be situations where review of work 
conducted in previous years may be appropriate. The criteria and 
standards that were in effect at the time the work was performed will 
be used to evaluate work performed in previous years.

[[Page 67260]]

    Comment: Commenters stated that contractor workloads, overall 
funding, and funding for specific activities, as well as CMS priorities 
and instructions to contractors, all fluctuate from year to year. In 
addition, in any fiscal year contractors often spend several months 
operating under restricted continuation budgets that do not reflect the 
full level of funding for the year that CMS eventually authorizes 
sometimes too late to be spent efficiently. We were told it is 
important that reviews of contractor performance take these time-
related variances into account.
    Response: In conducting CPE reviews we take into consideration 
budgetary restraints and situations experienced by each contractor. 
Authorizing the full level of funding to contractors is dependent upon 
the timing of Congressional appropriations.
    Comment: A commenter requested that we provide a description of the 
types of analysis by intermediaries and carriers that we intend to 
address under the Claims Processing Criterion.
    Response: In the October 31, 2000 Federal Register notice of 
criteria and standards we identified analysis and validation of data as 
additional functions that may be evaluated under the Claims Processing 
Criterion. However, rather than being functions we may evaluate, they 
are methods by which we can evaluate the accuracy of data submitted to 
CMS by intermediaries and carriers. We erred in listing this as a 
contractor function that could be reviewed. Thus, there was no analysis 
in this area that we had planned to evaluate.
    Comment: A commenter noted that the FY 2001 Payment Safeguards 
Criterion specifies identifying fraud cases, investigating allegations 
of fraud, and putting in place effective fraud detection and deterrence 
programs. In contrast, the same criterion for carriers specifies 
identifying fraud and abuse cases, investigating fraud and/or abuse 
cases, and putting into place effective fraud and abuse detection and 
deterrence programs. We were asked if the failure to mention ``abuse'' 
in the criteria and standards for intermediaries meant to imply a 
distinction between CMS'' evaluations of intermediaries and those of 
carriers, or was this a drafting oversight?
    Response: Failing to mention ``abuse'' under the Payment Safeguards 
Criterion for intermediaries was indeed a drafting oversight. We have 
corrected the oversight with this notice.
    Comment: We were advised that in section VII, Action Based on 
Performance Evaluations for the FY 2001 notice, we provided a 
definition for deficiency and vulnerability but not for ``weakness.'' 
We have been requested to provide a definition of what constitutes a 
``weakness.''
    Response: A weakness may be an observed decline in contractor 
performance or a shortcoming in an operational process.

III. Criteria and Standards--General

    Basic principles of the Medicare program are to pay claims promptly 
and accurately and to foster good beneficiary and provider relations. 
Contractors must administer the Medicare program efficiently and 
economically. The goal of performance evaluation is to ensure that 
contractors meet their contractual obligations. We measure contractor 
performance to ensure that contractors do what is required of them by 
law, regulation, contract, and our directives. We have developed a 
contractor oversight program for FY 2002 that outlines expectations of 
the contractor; measures the performance of the contractor; evaluates 
the performance against the expectations; and, takes appropriate 
contract action based upon the evaluation of the contractor's 
performance. We will work to develop and refine measurable performance 
standards in key areas in order to better evaluate contractor 
performance. In addition to evaluating performance based upon 
expectations for FY 2002, we may conduct follow-up evaluations of areas 
in which contractor performance was out of compliance with laws, 
regulations, and our performance expectations during FY 2001, thus 
having required the contractor to submit a Performance Improvement Plan 
(PIP).
    In FY 2001, CMS introduced the Contractor Rebuttal Process as a 
commitment to continual improvement of CPE. This mechanism provides an 
opportunity for contractors to submit a written rebuttal of CPE 
findings of fact. Contractors have 7 calendar days from the CPE exit 
conference to submit a written rebuttal. The contents of the rebuttal 
will be considered by the review team prior to the issuance of the 
final CPE report to the contractor. We will assess the implementation 
and effectiveness of this new process during the FY 2001 CPE review 
cycle and, in consultation with the Medicare contractors, will 
determine if the rebuttal process adequately meets our respective 
needs.
    Throughout this notice, we frequently refer to mandated standards. 
Mandated standards are those required by law, regulation, or judicial 
decision. We have reviewed the language of the laws, regulations, and 
court decisions in which the mandates were presented comparing them to 
those standards we identified as mandated in the more recent notices 
that have been published. In so doing, we determined that in some cases 
we had included requirements that in fact were not mandated, for 
example, accuracy of review decisions. In this FY 2002 notice of 
criteria and standards we have corrected those erroneously indicated 
performance mandates. Those requirements were standards in the Claims 
Processing Criterion and Customer Service Criterion.
    The FY 2002 Contractor Performance Evaluation for intermediaries 
and carriers is structured into five criteria designed to meet the 
stated objectives. The first criterion is ``Claims Processing,'' which 
measures contractual performance against claims processing accuracy and 
timeliness requirements, as well as activities in handling appeals. 
Within the Claims Processing Criterion, we have identified those 
performance standards that are mandated by legislation, regulation, or 
judicial decision. These standards include claims processing 
timeliness, the accuracy of Explanations of Medicare Benefits (EMOBs) 
and Medicare Summary Notices (MSNs), the appropriateness of 
determinations reversed by Administrative Law Judges (ALJs), the 
timeliness of intermediary reconsideration cases, the timeliness of 
carrier reviews and hearings, and the readability of carrier reviews. 
Further evaluation in the Claims Processing Criterion may include, but 
is not limited to, the accuracy of claims processing, the percent of 
claims paid with interest, and the accuracy of reconsiderations, 
reviews, and hearings.
    The second criterion is ``Customer Service'' which assesses the 
adequacy of the service provided to customers by the contractor in its 
administration of the Medicare program. The mandated standards in the 
Customer Service Criterion include achieving and maintaining the 
monthly All Trunks Busy rate for beneficiary telephone inquiries; 
responding timely to beneficiary telephone inquiries; and providing 
beneficiaries with written replies that are responsive, written with 
appropriate customer-friendly tone and clarity, and are at the 
appropriate reading level. Further evaluation of services under this 
criterion may include, but is not limited to, the timeliness and 
accuracy of all correspondence both to beneficiaries and providers; 
monitoring of the quality of responses provided by the contractor's 
customer service representatives (quality call

[[Page 67261]]

monitoring); beneficiary and provider education and outreach; and 
service by contractor's customer service representatives to 
beneficiaries who come to the contractor's facility (walk-in inquiry 
service).
    The third criterion is ``Payment Safeguards,'' which evaluates 
whether the Medicare Trust Fund is safeguarded against inappropriate 
program expenditures. Intermediary and carrier performance may be 
evaluated in the areas of Benefit Integrity (BI) (referred to in prior 
Federal Register notices as Fraud and Abuse), Medical Review (MR), 
Medicare Secondary Payer (MSP), Overpayments (OP), and Provider 
Enrollment (PE). In addition, intermediary performance may be evaluated 
in the area of Audit and Reimbursement (A&R). Mandated performance 
standards for intermediaries in the Payment Safeguards criterion are 
the accuracy of decisions on Skilled Nursing Facility (SNF) demand 
bills, and the timeliness of processing Tax Equity and Fiscal 
Responsibility Act (TEFRA) target rate adjustments, exceptions, and 
exemptions. There are no mandated performance standards for carriers in 
the Payment Safeguards criterion. Intermediaries and carriers may also 
be evaluated on any Medicare Integrity Program (MIP) activities if 
performed under their agreement or contract.
    The fourth criterion is ``Fiscal Responsibility,'' which evaluates 
the contractor's efforts to protect the Medicare program and the public 
interest. Contractors must effectively manage Federal funds for both 
the payment of benefits and costs of administration under the Medicare 
program. Proper financial and budgetary controls, including internal 
controls, must be in place to ensure contractor compliance with its 
agreement with HHS and CMS. Additional functions reviewed under this 
criterion may include, but are not limited to, adherence to approved 
budget, compliance with the Budget and Performance Requirements (BPRs), 
and compliance with financial reporting requirements.
    The fifth and final criterion is ``Administrative Activities,'' 
which measures a contractor's administrative management of the Medicare 
program. A contractor must efficiently and effectively manage its 
operations. Proper systems security (general and application controls), 
Automated Data Processing (ADP) maintenance, and disaster recovery 
plans must be in place. A contractor's evaluation under the 
Administrative Activities criterion may include, but is not limited to, 
establishment, application, documentation, and effectiveness of 
internal controls, which are essential in all aspects of a contractor's 
operation and the degree to which the contractor cooperates with us in 
complying with the Federal Managers' Financial Integrity Act of 1982 
(FMFIA). Administrative Activities evaluations may also include reviews 
related to implementation of general CMS instructions and data and 
reporting requirements.
    We have also developed separate measures for evaluating unique 
activities of Regional Home Health Intermediaries (RHHIs). Section 
1816(e)(4) of the Act requires us to designate regional agencies or 
organizations, which are already Medicare intermediaries under section 
1816, to perform claim processing functions with respect to 
freestanding Home Health Agency (HHA) claims. The law requires that we 
limit the number of these regional intermediaries (RHHIs) to not more 
than 10; see 42 CFR 421.117 and the final rule published in the Federal 
Register on May 19, 1988 at 53 FR 17936 for more details about the 
RHHIs.
    We have developed separate measures for RHHIs in order to evaluate 
the distinct RHHI functions. These functions include the processing of 
claims from freestanding HHAs, hospital affiliated HHAs, and hospices. 
Through an evaluation using these criteria and standards, we may 
determine whether the RHHI functions should be moved from one 
intermediary to another in order to ensure effective and efficient 
administration of the program benefit.
    Below, we list the criteria and standards to be used for evaluating 
the performance of intermediaries, RHHIs, carriers, and DMEPOS regional 
carriers. In several instances, we identify a Medicare manual as a 
source of more detailed requirements. Medicare fee-for-service 
contractors have copies of the various Medicare manuals referenced in 
this notice. Members of the public also have access to our manualized 
instructions. Medicare manuals are available for review at local 
Federal Depository Libraries (FDLs). Under the FDL Program, government 
publications are sent to approximately 1,400 designated public 
libraries throughout the United States. Interested parties may examine 
the documents at any one of the FDLs. Some may have arrangements to 
transfer material to a local library not designated as a FDL. To locate 
the nearest FDL, individuals should contact any public library.
    In addition, individuals may contact regional depository libraries, 
which receive and retain at least one copy of nearly every Federal 
government publication, either in printed or microfilm form, for use by 
the general public. These libraries provide reference services and 
interlibrary loans; however, they are not sales outlets. Individuals 
may obtain information about the location of the nearest regional 
depository library from any library. Information may also be obtained 
from the following web site: www.cms.hhs.gov/pubforms/program.htm. Some 
manuals may be obtained from the following web site: www.cms.gov/pubforms/p2192toc.htm.
    Finally, all of our Regional Offices (RO) maintain all Medicare 
manuals for public inspection. To find the location of the nearest 
available CMS RO, you may call the individual listed at the beginning 
of this notice. That individual can also provide information about 
purchasing or subscribing to the various Medicare manuals.

IV. Criteria and Standards for Intermediaries

A. Claims Processing Criterion

    The Claims Processing criterion contains 4 mandated standards.
    Standard 1. 95.0 percent of clean electronically submitted non-
Periodic Interim Payment claims paid within statutorily specified time 
frames. Clean claims are defined as claims that do not require Medicare 
intermediaries to investigate or develop them outside of their Medicare 
operations on a prepayment basis. Specifically, clean, non-Periodic 
Interim Payment electronic claims can be paid as early as the 14th day 
(13 days after the date of receipt) and must be paid by the 31st day 
(30 days after the date of receipt). CMS' expectation is that 
contractors will meet this percentage on a monthly basis.
    Standard 2. 95.0 percent of clean paper non-Periodic Interim 
Payment claims paid within specified time frames. Specifically, clean, 
non-Periodic Interim Payment paper claims can be paid as early as the 
27th day (26 days after the date of receipt) and must be paid by the 
31st day (30 days after the date of receipt). CMS' expectation is that 
contractors will meet this percentage on a monthly basis.
    Standard 3. 5.0 percent reversal rate by ALJs is acceptable. We 
have defined an acceptable reversal rate by ALJs as one that is at or 
below 5.0 percent.
    Standard 4. 75.0 percent of reconsiderations are processed within 
60 days and 90.0 percent are processed

[[Page 67262]]

within 90 days. CMS' expectation is that contractors will meet this 
percentage on a monthly basis.
    Additional functions may be evaluated under this criterion. These 
functions include, but are not limited to, the following:
     Claims processing accuracy.
     Establishment and maintenance of relationship with Common 
Working File (CWF) Host.
     Accuracy of processing reconsideration cases with 
determination letters that are clear and have appropriate customer-
friendly tone.

B. Customer Service Criterion

    There are no mandated standards for this criterion for 
intermediaries.
    Functions that may be evaluated under this criterion include, but 
are not limited to the following:
     Ensuring that the monthly All Trunks Busy rate for 
beneficiary and provider inquiries is achieved and maintained.
     Responding timely and accurately to beneficiary and 
provider telephone inquiries.
     Quality Call Monitoring.
     Ensuring the validity of the call center performance data 
that are being reported in the Customer Service Assessment and 
Management System.
     Providing timely and accurate responses to beneficiaries 
and providers that are responsive and written with appropriate 
customer-friendly tone and clarity and those written to beneficiaries 
are at the appropriate reading level.
     Conducting beneficiary and provider education and 
outreach.
     Walk-in inquiry service.

C. Payment Safeguards Criterion

    The Payment Safeguard criterion contains two mandated standards.
    Standard 1. Decisions on SNF demand bills are accurate.
    Standard 2. TEFRA target rate adjustments, exceptions, and 
exemptions are processed within mandated time frames. Specifically, 
applications must be processed to completion within 75 days after 
receipt by the contractor or returned to the hospitals as incomplete 
within 60 days of receipt.
    Intermediaries may also be evaluated on any MIP activities if 
performed under their agreement or contract. These functions and 
activities include, but are not limited to the following:
Audit and Reimbursement
     Performing the activities specified in our general 
instructions for conducting audit and settlement of Medicare cost 
reports.
     Establishing accurate interim payments.
Benefit Integrity
     Identifying potential fraud cases that exist within the 
intermediary's service area and taking appropriate actions to resolve 
these cases.
     Investigating allegations of potential fraud that are made 
by beneficiaries, providers, CMS, Office of Inspector General (OIG), 
and other sources.
     Putting in place effective detection and deterrence 
programs for potential fraud.
Medical Review
     Applying analytical skills and focusing resources on 
particular providers or claim types that represent unnecessary or 
inappropriate care.
     Making accurate and defensible decisions on medical 
reviews.
     Developing means of addressing any aberrance identified 
during the analysis of all local and national data.
     Effectively educating and communicating with the provider 
community.
Medicare Secondary Payer
     Identifying, recovering, and referring mistaken Medicare 
payments in accordance with appropriate Medicare Intermediary Manual 
instructions and other pertinent CMS general instructions.
     Accurately reporting savings and following claim 
development procedures.
     Prioritizing and processing recoveries in compliance with 
instructions.
     Financial reporting activities.
Overpayments
     Collecting and referring Medicare debts timely.
     Accurately reporting overpayments to CMS.
     Adhering to our instructions for management of Medicare 
Trust Fund debts.
Provider Enrollment
     Complying with assignment of staff to the provider 
enrollment function and training the staff in procedures and 
verification techniques.
     Complying with the operational standards relevant to the 
process for enrolling providers.

D. Fiscal Responsibility Criterion

    While there are no mandated standards in this criterion, we may 
review the intermediary's efforts to establish and maintain appropriate 
financial and budgetary internal controls over benefit payments and 
administrative costs. Proper internal controls must be in place to 
ensure that contractors comply with their agreements with us.
    Additional matters that may be reviewed under the Fiscal 
Responsibility criterion include, but are not limited to the following:
     Adherence to approved program management and MIP budgets.
     Compliance with the BPRs.
     Compliance with financial reporting requirements.
     Control of administrative cost and benefit payments.

E. Administrative Activities Criterion

    While there are no mandated standards in this criterion, we may 
measure an intermediary's administrative ability to manage the Medicare 
program. We may evaluate the efficiency and effectiveness of its 
operations, its system of internal controls, and its compliance with 
our directives and initiatives. We may measure an intermediary's 
efficiency and effectiveness in managing its operations. Proper systems 
security (general and application controls), ADP maintenance, and 
disaster recovery plans must be in place. An intermediary must also 
test system changes to ensure the accurate implementation of our 
instructions.
    Our evaluation of an intermediary under the Administrative 
Activities criterion may include, but is not limited to, reviews of the 
following:
     Systems security.
     ADP maintenance (configuration management, testing, change 
management, security, etc).
     Disaster recovery plan.
     Implementation of general CMS instructions.
     Data and reporting requirements implementation.
     Internal controls establishment and use, including the 
degree to which the contractor cooperates with the Secretary in 
complying with the FMFIA.

V. Criteria and Standards for Regional Home Health Intermediaries 
(RHHIs)

    The following standards are mandated for the RHHI criterion:
    Standard 1. 95.0 percent of clean electronically submitted non-
Periodic Interim Payment HHA/hospice claims are paid within statutorily 
specified time frames. Clean claims are defined as claims that do not 
require Medicare intermediaries to investigate or develop them outside 
of their Medicare operations on a prepayment basis. Specifically, 
clean, non-Periodic Interim Payment electronic claims can be paid

[[Page 67263]]

as early as the 14th day (13 days after the date of receipt) and must 
be paid by the 31st day (30 days after the date of receipt). CMS' 
expectation is that contractors will meet this percentage on a monthly 
basis.
    Standard 2. 95.0 percent of clean paper non-Periodic Interim 
Payment HHA/hospice claims are paid within specified time frames. 
Specifically, clean, non-Periodic Interim Payment paper claims can be 
paid as early as the 27th day (26 days after the date of receipt) and 
must be paid by the 31st day (30 days after the date of receipt). CMS' 
expectation is that contractors will meet this percentage on a monthly 
basis.
    Standard 3. 75.0 percent of HHA/hospice reconsiderations are 
processed within 60 days and 90.0 percent are processed within 90 days. 
CMS' expectation is that contractors will meet this percentage on a 
monthly basis.
    We may use this criterion to review a RHHI's performance with 
respect to handling the HHA/hospice workload. This includes processing 
HHA/hospice claims timely and accurately; properly paying and settling 
HHA cost reports; and timely and accurately processing reconsiderations 
from beneficiaries, HHAs, and hospices, interim rate setting, and 
accuracy of MR coverage decisions.

VI. Criteria and Standards for Carriers

A. Claims Processing Criterion

    The Claims Processing criterion contains six mandated standards.
    Standard 1. 95.0 percent of clean electronically submitted claims 
processed within statutorily specified time frames. Clean claims are 
defined as claims that do not require Medicare carriers to investigate 
or develop them outside of their Medicare operations on a prepayment 
basis. Specifically, clean electronic claims can be paid as early as 
the 14th day (13 days after the date of receipt) and must be paid by 
the 31st day (30 days after the date of receipt). CMS' expectation is 
that contractors will meet this percentage on a monthly basis.
    Standard 2. 95.0 percent of clean paper claims processed within 
specified time frames. Specifically, clean paper claims can be paid as 
early as the 27th day (26 days after the date of receipt) and must be 
paid by the 31st day (30 days after the date of receipt). CMS' 
expectation is that contractors will meet this percentage on a monthly 
basis.
    Standard 3. 98.0 percent of EOMBs and MSNs are properly generated.
    Standard 4. 95.0 percent of review determinations are completed 
within 45 days. CMS' expectation is that contractors will meet this 
percentage on a monthly basis.
    Standard 5. 90.0 percent of carrier hearing decisions are completed 
within 120 days. CMS' expectation is that contractors will meet this 
percentage on a monthly basis.
    Standard 6. Responses to beneficiary reviews are written at an 
appropriate reading level.
    Additional functions may be evaluated under this criterion. These 
functions include, but are not limited to, the following:
     Claims Processing accuracy.
     Establishment and maintenance of relationship with the CWF 
Host.
     Accuracy of processing review cases.
     Accuracy of processing hearing cases with determination 
letters that are clear and have appropriate customer-friendly tone.

B. Customer Service Criterion

    The Customer Service criterion contains three mandated standards.
    CMS' obligation to evaluate performance of these activities was 
mandated by the court decisions of Gray Panther v. Heckler, 1985 WL 
81770 (D.D.C.) for Standards 1 and 2 and in David v. Heckler, 591, F. 
Supp. 1033, (U.S. Dist. Ct. 1984) for Standard 3. Contractors are 
expected to comply with performance expectations set forth in the court 
renderings, unless expectations established by CMS are more stringent. 
In these instances, contractors must meet CMS' performance 
expectations.
    Standard 1. Achieve and maintain the monthly All Trunks Busy rate 
for beneficiary telephone inquiries.
    Standard 2. Respond timely to beneficiary telephone inquiries.
    Standard 3. Responses to beneficiary correspondence are responsive, 
written with appropriate customer-friendly tone and clarity, and are at 
the appropriate reading level.
    Additional functions which may be evaluated under this criterion 
include, but are not limited to the following:
     Ensuring that the monthly All Trunks Busy rate for 
provider inquiries is achieved and maintained.
     Responding timely to provider telephone inquiries.
     Quality Call Monitoring.
     Ensuring the validity of the call center performance data 
that are being reported in the Customer Service Assessment and 
Management System.
     Providing timely and accurate responses to beneficiaries 
and providers that are responsive and written with appropriate 
customer-friendly tone and clarity.
     Conducting beneficiary and provider education and 
outreach.
     Walk-in inquiry service.

C. Payment Safeguards Criterion

    While there are no mandated standards in this criterion, carriers 
may be evaluated on any MIP activities if performed under their 
contracts. In addition, other carrier functions and activities that may 
be reviewed under this criterion include, but are not limited to the 
following:
Benefit Integrity
     Identifying potential fraud cases that exist within the 
carrier's service area and taking appropriate actions to resolve these 
cases.
     Investigating allegations of potential fraud that are made 
by beneficiaries, providers, CMS, OIG, and other sources.
     Putting in place effective detection and deterrence 
programs for potential fraud.
Medical Review
     Applying analytical skills and focusing resources on 
particular providers or claim types that represent unnecessary or 
inappropriate care.
     Developing effective means of addressing any aberrance 
identified through analyzing data to target prepay and post-pay review.
     Making accurate and defensible decisions on medical 
reviews.
     Effectively educating and communicating with physician 
and/or supplier communities.
Medicare Secondary Payer
     Identifying, recovering, and referring mistaken Medicare 
payments in accordance with the appropriate Medicare Carriers Manual 
instructions, and other pertinent CMS general instructions.
     Accurately reporting savings and following claim 
development procedures.
     Prioritizing and processing recoveries in compliance with 
instructions.
     Financial reporting activities.
Overpayments
     Collecting and referring Medicare debts timely.
     Accurately reporting overpayments to CMS.
     Compliance with CMS instructions for management of 
Medicare Trust Fund debts.
Provider Enrollment
     Complying with assignment of staff to the provider 
enrollment function and training staff in procedures and verification 
techniques.

[[Page 67264]]

     Complying with the operational standards relevant to the 
process for enrolling providers.

D. Fiscal Responsibility Criterion

    While there are no mandated standards in this criterion, we may 
review the carrier's efforts to establish and maintain appropriate 
financial and budgetary internal controls over benefit payments and 
administrative costs. Proper internal controls must be in place to 
ensure that contractors comply with their contracts.
    Additional matters that may be reviewed under the Fiscal 
Responsibility criterion include, but are not limited to the following:
     Adherence to approved program management and MIP budgets.
     Compliance with the BPRs.
     Compliance with financial reporting requirements.
     Control of administrative cost and benefit payments.

E. Administrative Activities Criterion

    While there are no mandated standards in this criterion, we may 
measure a carrier's administrative ability to manage the Medicare 
program. We may evaluate the efficiency and effectiveness of its 
operations, its system of internal controls, and its compliance with 
our directives and initiatives.
    We may measure a carrier's efficiency and effectiveness in managing 
its operations. Proper systems security (general and application 
controls), Automatic Data Processing (ADP) maintenance, and disaster 
recovery plans must be in place. Also, a carrier must test system 
changes to ensure accurate implementation of our instructions.
    Our evaluation of a carrier under this criterion may include, but 
is not limited to, reviews of the following:
     Systems security.
     ADP maintenance (configuration management, testing, change 
management, security, etc.).
     Disaster recovery plan.
     Implementation of general CMS instructions.
     Data and reporting requirements implementation.
     Internal controls establishment and use, including the 
degree to which the contractor cooperates with the Secretary in 
complying with the FMFIA.

VII. Criteria and Standards for Durable Medical Equipment, 
Prosthetics, Orthotics, and Supplies (DMEPOS) Regional Carriers

    The complete list of criteria and standards for evaluating the 
performance of DMEPOS regional carriers is contained in detail in the 
DMEPOS' regional carrier statement of work (SOW), which is subject to 
change due to modifications to the contractor BPRs, as well as legal 
and administrative changes that have a direct impact on the 
contractors.
    We will use the same six criteria contained in the DMEPOS regional 
carrier SOW to evaluate the overall performance of DMEPOS regional 
carriers. They are (1) Quality, (2) Efficiency, (3) Service, (4) 
Benefit Integrity, (5) National Supplier Clearinghouse, and (6) 
Statistical Analysis DMEPOS regional carrier.
    These six criteria contain a total of nine mandated standards 
against which all DMEPOS regional carriers must be evaluated as well as 
examples of other activities for which the DMEPOS regional carriers may 
also be evaluated. The mandated standards are in the Quality, 
Efficiency, and Service Criteria.
    In addition to being described in these criteria, the mandated 
standards are also described in Attachment J-37 to the DMEPOS regional 
carrier SOW.

A. Quality Criterion

    The Quality criterion contains one mandated standard.
    A DMEPOS regional carrier must pay claims accurately and in 
accordance with program instructions. The DMEPOS regional carrier is 
required to:
    Standard 1. Properly generate 98.0 percent of MSN's.
    The DMEPOS regional carriers must undertake actions to promote 
effective program administration with respect to DMEPOS regional 
carrier claims. These activities include, but are not limited to: 
processing claims accurately, overpayment recovery and offsetting of 
claims payment; assuring the proper submission of certificates of 
medical necessity; review of the implementation of fee schedules and 
reasonable charge updates; medical review activities; implementation of 
coverage policy; and, analysis of workload to detect patterns of 
outcomes. We may evaluate the DMEPOS regional carriers in performing 
these kinds of activities.

B. Efficiency Criterion

    The Efficiency criterion contains five mandated standards.
    Standard 1. 95.0 percent of clean electronically submitted claims 
are processed within statutorily specified time frames. Clean claims 
are defined as claims that do not require Medicare DMEPOS regional 
carriers to investigate or develop them outside of their Medicare 
operations on a prepayment basis. Specifically, clean claims can be 
paid as early as the 14th day (13 days after the date of receipt) and 
must be paid by the 31st day (30 days after the date of receipt). CMS' 
expectation is that contractors will meet this percentage on a monthly 
basis.
    Standard 2. 95.0 percent of clean paper claims are processed within 
specified time frames. Specifically, clean paper claims can be paid as 
early as the 27th day (26 days after the date of receipt) and must be 
paid by the 31st day (30 days after the date of receipt). CMS' 
expectation is that contractors will meet this percentage on a monthly 
basis.
    Standard 3. 95.0 percent of review determinations are completed 
within 45 days. CMS' expectation is that contractors will meet this 
percentage on a monthly basis.
    Standard 4. 90.0 percent of DMEPOS regional carrier hearing 
decisions are completed within 120 days. CMS' expectation is that 
contractors will meet this percentage on a monthly basis.
    Standard 5. Letters prepared to respond to beneficiary requests for 
reviews are written at an appropriate reading level.
    Additional functions which may be evaluated under this criterion 
include, but are not limited to the following:
     Determinations on review and hearing requests are written 
accurately and clearly.
     Documentation of telephone reviews is accurate and timely.
     Requests for ALJ hearings are processed timely, to include 
preparation and forwarding to the ALJ of the case files.
     Completed ALJ decisions are reviewed for accuracy.
     Agency referral and case files are submitted timely to the 
designated CMS Regional Office.
     ALJ decisions are effectuated correctly and within 
specified timeframes.
     Documentation of completed ALJ decisions is maintained.
     Requests from the Departmental Appeals Board for ALJ case 
files are processed.

C. Service Criterion

    The Service criterion contains three mandated standards.
    CMS' obligation to evaluate performance of these activities was 
mandated by the court decisions of Gray Panther v. Heckler, 1985 WL 
81770 (D.D.C.) for Standards 1 and 2 and in David v. Heckler, 597, F. 
Supp. 1033, (U.S. Dist. Ct. 1984) for Standard 3. Contractors are 
expected to comply with performance expectations set forth in the court 
renderings, unless expectations established by CMS are

[[Page 67265]]

more stringent. In such instances, contractors must meet CMS' 
performance expectations that beneficiaries and suppliers are served by 
prompt and accurate administration of the program in accordance with 
all applicable laws, regulations, the DMEPOS regional carrier statement 
of work (SOW), and CMS' general instructions.
    Standard 1. Achieve and maintain a monthly All Trunks Busy rate for 
beneficiary telephone inquiries.
    Standard 2. Respond timely to beneficiary telephone inquiries.
    Standard 3. Responses to beneficiary correspondence are responsive 
and are written with appropriate customer-friendly tone and clarity, 
and are at the appropriate reading level. Additional functions which 
may be evaluated under this criterion include, but are not limited to 
the following:
     Ensuring that the monthly All Trunks Busy rate for 
provider inquiries is achieved and maintained.
     Responding timely to provider telephone inquiries.
     Quality Call Monitoring.
     Ensuring the validity of the call center performance data 
that are being reported in the Customer Service Assessment and 
Management System.
    Providing timely and accurate responses to beneficiaries, 
providers, and suppliers that are responsive and written with 
appropriate customer-friendly tone and clarity.
     Conducting beneficiary and provider education and 
outreach.
     Responding to beneficiary and supplier education and 
training needs.

D. Benefit Integrity Criterion (referred to in prior Federal Register 
notices as Fraud and Abuse)

    While there are no mandated standards in this criterion, other 
DMEPOS regional carrier functions and activities that may be reviewed 
under this criterion include, but are not limited to the following:
     Identifying potential fraud cases that exist within the 
DMEPOS regional carrier's service area and taking appropriate actions 
to resolve these cases.
     Investigating allegations of potential fraud made by 
beneficiaries, providers, CMS, OIG, and other sources.
     Putting in place effective detection and deterrence 
programs for potential fraud.

E. National Supplier Clearinghouse Criterion

    (The National Supplier Clearinghouse (NSC) DMEPOS regional carrier 
function is assigned to one of the DMEPOS regional carriers. It 
performs the functions measured under this criterion.)
    While there are no mandated standards in this criterion, the NSC 
DMEPOS regional carrier is required to properly administer the NSC.
    We review the NSC activities to ensure the NSC DMEPOS regional 
carrier meets various requirements, such as--processing new and renewal 
applications for billing numbers, maintaining supplier files, matching 
OIG sanctioned suppliers, and enforcing supplier standards.

F. Statistical Analysis DMEPOS Regional Carrier Criterion

    (The Statistical Analysis DMEPOS regional carrier function is 
assigned to one of the DMEPOS regional carriers. It performs the 
functions measured under this criterion.)
    While there are no mandated standards in this criterion, the 
Statistical Analysis DMEPOS regional carrier is required to properly 
administer the Statistical Analysis DMEPOS regional carrier program.
    We review the activities of the Statistical Analysis DMEPOS 
regional carrier to ensure it meets various requirements such as: 
analyzing national reports to identify trends, aberrancies, and 
utilization patterns; generating reports according to our 
specifications; serving as the Healthcare Common Procedure Coding 
System (HCPCS) definition resource center; and developing national 
parental and enteral nutrition pricing as well as oral anti-cancer 
drugs pricing.
    In addition, we evaluate the Statistical Analysis DMEPOS regional 
carrier's performance in conducting statistical analysis of data to 
identify potential areas of over utilization, fraudulent or abusive 
claims practices, and other areas of concern.

VIII. Action Based on Performance Evaluations

    We evaluate a contractor's performance against applicable program 
requirements for each criterion. Each contractor must certify that all 
information submitted to us relating to the contract management 
process, including, without limitation, all files, records, documents 
and data, whether in written, electronic, or other form, is accurate 
and complete to the best of the contractor's knowledge and belief. A 
contractor will also be required to certify that its files, records, 
documents, and data have not been manipulated or falsified in an effort 
to receive a more favorable performance evaluation. A contractor must 
further certify that, to the best of its knowledge and belief, the 
contractor has submitted, without withholding any relevant information, 
all information required to be submitted with respect to the contract 
management process under the authority of applicable law(s), 
regulation(s), contracts, or CMS' manual provision(s). Any contractor 
that makes a false, fictitious, or fraudulent certification may be 
subject to criminal and/or civil prosecution, as well as appropriate 
administrative action. This administrative action may include debarment 
or suspension of the contractor, as well as the termination or non-
renewal of a contract.
    If a contractor meets the level of performance required by 
operational instructions, it meets the requirements of that criterion. 
When we determine a contractor is not meeting performance requirements, 
we will use the terms major nonconformance or minor nonconformance to 
classify our findings. A major nonconformance is a nonconformance that 
is likely to result in failure of the supplies or services, or to 
materially reduce the usability of the supplies or services for their 
intended purpose. A minor nonconformance is a nonconformance that is 
not likely to materially reduce the usability of the supplies or 
services for their intended purpose, or is a departure from established 
standards having little bearing on the effective use or operation of 
the supplies or services. The contractor will be required to develop 
and implement a PIP for findings determined to be either a major or 
minor nonconformance. The contractor will be monitored to ensure 
effective and efficient compliance with the PIP, and to ensure improved 
performance when requirements are not met.
    The results of performance evaluations and assessments under all 
criteria applying to intermediaries, carriers, RHHIs and DMEPOS 
regional carriers will be used for contract management activities and 
will be published in the contractor's annual Report of Contractor 
Performance (RCP). We may initiate administrative actions as a result 
of the evaluation of contractor performance based on these performance 
criteria. Under sections 1816 and 1842 of the Act, we consider the 
results of the evaluation in our determinations when:
     Entering into, renewing, or terminating agreements or 
contracts with contractors.
     Deciding other contract actions for intermediaries and 
carriers (such as deletion of an automatic renewal clause). These 
decisions are made on a case-by-case basis and depend primarily

[[Page 67266]]

on the nature and degree of performance. More specifically, they depend 
on the following:
     Relative overall performance compared to other 
contractors.
     Number of criteria in which nonconformance occurs.
     Extent of each major nonconformance.
     Relative significance of the requirement for which major 
nonconformance occurs within the overall evaluation program.
     Efforts to improve program quality, service, and 
efficiency.
     Deciding the assignment or reassignment of providers and 
designation of regional or national intermediaries for classes of 
providers.
    We make individual contract action decisions after considering 
these factors in terms of their relative significance and impact on the 
effective and efficient administration of the Medicare program.
    In addition, if the cost incurred by the intermediary, RHHI, 
carrier, or DMEPOS regional carrier to meet its contractual 
requirements exceeds the amount that we find to be reasonable and 
adequate to meet the cost that must be incurred by an efficiently and 
economically operated intermediary or carrier, these high costs may 
also be grounds for adverse action.

IX. Response to Public Comments

    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, we are 
unable 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 of that 
document.

X. Regulatory Impact Statement

    We have examined the impacts of this notice as required by 
Executive Order 12866 (September 1993, Regulatory Planning and Review) 
and the Regulatory Flexibility Act (RFA) (September 19, 1980 Public Law 
96-354). Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more annually). Since this notice 
only describes criteria and standards for evaluating FI's, Carriers and 
DMEPOS carriers and has no economic or social impact on the program, 
its beneficiaries or providers or suppliers, this is not a major 
notice.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. This notice does not affect small businesses, 
individuals and States are not included in the definition of a small 
business entities.
    In addition, section 1102(b) of the Act requires us 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 
notice does not affect small rural hospitals.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. This notice does not require an impact analysis because 
it does not have an economic impact on small entities, small rural 
hospitals, or State, local, or tribal governments.
    In accordance with the provisions of Executive Order 12866, this 
notice was reviewed by the Office of Management and Budget.

XI. Federalism

    We have reviewed this notice under the threshold criteria of 
Executive Order 13132, Federalism. We have determined that the notice 
does not significantly affect the rights, roles, and responsibilities 
of States.

XII. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently it need not be reviewed by the 
Office of Management and Budget under the authority of the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

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

    Dated: September 13, 2001.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.
[FR Doc. 01-31720 Filed 12-27-01; 8:45 am]
BILLING CODE 4120-01-P