[Federal Register Volume 68, Number 247 (Wednesday, December 24, 2003)]
[Notices]
[Pages 74613-74621]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-31468]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-1226-GNC]
RIN 0938-ZA44


Medicare Program; Criteria and Standards for Evaluating 
Intermediary, Carrier, and Durable Medical Equipment, Prosthetics, 
Orthotics, and Supplies (DMEPOS) Regional Carrier Performance During 
Fiscal Year 2004

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 
Durable Medical Equipment, Prosthetics, Orthotics, and Supplies 
(DMEPOS) regional carriers in the administration of the Medicare 
program beginning on the first day of the first month following 
publication of this notice 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. We are requesting 
public comment on these criteria and standards.

DATES: Effective Date: The criteria and standards are effective January 
2, 2004.
    Comment Period: Comments will be considered if we receive them at 
the appropriate address as provided below no later than 5 p.m. (EDT) on 
January 23, 2004.

ADDRESSES: In commenting, please refer to file code CMS-1226-GNC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (fax) transmission. Mail written comments (one original and 
two copies) to the following address:
    Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-1226-GNC, PO Box 8016, Baltimore, MD 
21244-8016.
    If you prefer, you may deliver (by hand or courier) your written 
comments (one original and two copies) to one of the following 
addresses:
    Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, 
SW., Washington, DC, 20201 or Room C5-14-03, 7500 Security Boulevard, 
Baltimore, Maryland 21244-1850.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of the comments being 
filed.)
    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 SUPPLEMENTARY 
INFORMATION section.

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

SUPPLEMENTARY INFORMATION: 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 manual 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. To locate the nearest FDL, 
individuals should contact any public library.
    In addition, individuals may contact regional depository libraries 
that 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: http://www.cms.hhs.gov/manuals.
    Finally, all of our regional offices (ROs) maintain all Medicare 
manuals for

[[Page 74614]]

public inspection. To find the location of our nearest available 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.
    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 Comment Period section of this preamble, and, if 
we proceed with a subsequent document, we will respond to the comments 
in the preamble of that document.
    Inspection of Public Comments: Comments received timely are 
available for public inspection or they are processed beginning 
approximately 3 weeks after the close of the comment period, 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), and community mental health centers) 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.
    Section 1816(e)(4) of the Act requires us to designate regional 
agencies or organizations, which are already Medicare intermediaries 
under section 1816 of the Act, to perform claim processing functions 
for freestanding Home Health Agency (HHA) claims. We refer to these 
organizations as Regional Home Health Intermediaries (RHHIs). See Sec.  
421.117 and the final rule published in the Federal Register on May 19, 
1988 (53 FR 17936) for more details about the RHHIs.
    The evaluation of intermediary performance is part of our contract 
management process. These evaluations need not be limited to the 
current fiscal year (FY), other fixed term basis, or agreement term.

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 contractor performance need not be limited to the current FY, 
other fixed term basis, or contract term. 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, we have 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. Evaluation of Medicare 
fee-for-service contractor performance need not be limited to the 
current FY, other fixed term basis, or contract term. The evaluation of 
DMEPOS regional carrier performance is part of our contract management 
process.

D. Development and Publication of Criteria and Standards

    In addition to the statutory requirements, Sec. Sec.  421.120 and 
421.122 provide for publication of a Federal Register notice to 
announce criteria and standards for intermediaries before 
implementation. Section 421.201 provides for publication of a Federal 
Register notice to announce criteria and standards for carriers before 
implementation. The current criteria and standards for intermediaries, 
carriers, and DMEPOS regional carriers were published in the February 
28, 2003 final rule (68 FR 9681).
    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 an amended Federal Register notice before 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.

[[Page 74615]]

II. Analysis of and Response to Public Comments Received on FY 2003 
Criteria and Standards

    We received no comments in response to the February 28, 2003 
Federal Register general notice with comment.

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 
statute, law, regulation, contract, and our directives.
    We have developed a contractor oversight program for FY 2004 that 
outlines expectations of the contractor; measures the performance of 
the contractor; evaluates the performance against the expectations; and 
provides for appropriate contract action based upon the evaluation of 
the contractor's performance.
    As a means to monitor the accuracy of Medicare FFS payments, we 
have established the Comprehensive Error Rate Testing (CERT) program--
which produces error rates for claims payment decisions made carriers, 
DMERCs, and FIs. Beginning in November 2003, the CERT program produced 
claims payment error rates for each individual carrier and DMERC. (FI--
specific rates will be available the following year.) These rates 
measure not only how well contractors are doing at implementing 
automated review edits and identifying which claims to subject to 
manual medical review but also measure the impact of the contractor's 
provider outreach/education and effectiveness of the contractor's 
provider call centers. As such, we will utilize these contractor-
specific error rates as a means to evaluate a contractor's performance.
    Several times throughout this notice, we refer to the 
``readability'' of letters, decisions, or correspondence that are going 
to Medicare beneficiaries from intermediaries or carriers. In those 
instances, ``readability'' is defined as being below the 8th grade 
reading level unless it is obvious that an incoming request from the 
beneficiary contains language written at a higher level. In these 
cases, the readability level is tailored to the capacities and 
circumstances of the intended recipient.
    In addition to evaluating performance based upon expectations for 
FY 2004, we may also conduct follow-up evaluations throughout FY 2004 
of areas in which contractor performance was out of compliance with 
statute, regulations, and our performance expectations during prior 
review years and thus required the contractor to submit a Performance 
Improvement Plan (PIP).
    We may also utilize Statement of Auditing Standards-70 (SAS-70) 
reviews as a means to evaluate contractors in some or all business 
functions.
    In FY 2001, we established the Contractor Rebuttal Process as a 
commitment to continual improvement of contractor performance 
evaluation (CPE). We will continue the use of this process in FY 2004. 
The Contractor Rebuttal Process provides the contractors an opportunity 
to submit a written rebuttal of CPE findings of fact. Whenever we 
conduct an evaluation of contractor operations, contractors have 7 
calendar days from the date of the CPE review exit conference to submit 
a written rebuttal. The CPE review team or, if appropriate, the 
individual reviewer will consider the contents of the rebuttal before 
the issuance of the final CPE report to the contractor.
    The FY 2004 CPE 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 Medicare Summary Notices (MSNs), the appropriateness of 
determinations reversed by an administrative law judge (ALJ), the 
timeliness of intermediary reconsiderations, reviews and hearings and 
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 standard in the 
Customer Service Criterion is the need to provide beneficiaries with 
written replies that are responsive, that is, provide in detail the 
reasons for a determination when a beneficiary requests this 
information, have a 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 replies provided by the contractor's 
customer service representatives (quality call monitoring); beneficiary 
and provider education, training, and outreach activities; and service 
by the contractor's customer service representatives to beneficiaries 
who come to the contractor's facility (walk-in inquiry service).
    The third criterion is ``Payment Safeguards'' that evaluates 
whether the Medicare Trust Fund is safeguarded against inappropriate 
program expenditures. Intermediary and carrier performance may be 
evaluated in the areas of 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).
    In FY 1996 the Congress enacted the Health Insurance Portability 
Act, Medicare Integrity Program giving us the authority to contract 
with other than, but not excluding, Medicare carriers and 
intermediaries to perform certain program safeguard functions. In 
situations where one or more program safeguard functions have been 
contracted to another entity, we may evaluate the flow of communication 
and information between a Medicare fee-for-service contractor and the 
Payment Safeguard Contractor. All Benefit Integrity functions have been 
transitioned from intermediaries and carriers to the Program Safeguard 
Contractors, but three DMERCs will continue to handle this work in FY 
2004. Because some of the DMERC contractors still conduct Benefit 
Integrity activities, we may evaluate their performance of that 
function.
    Mandated performance standards for intermediaries in the Payment 
Safeguards criterion are the accuracy of decisions on 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.

[[Page 74616]]

    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 that 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 contractor implementation of our general instructions and 
data and reporting requirements.
    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 is effectively and efficiently administering 
the program benefit or whether the functions should be moved from one 
intermediary to another in order to gain that assurance.
    Below, we list the criteria and standards to be used for evaluating 
the performance of intermediaries, RHHIs, carriers, and DMEPOS regional 
carriers.

IV. Criteria and Standards for Intermediaries

A. Claims Processing Criterion

    The Claims Processing criterion contains the following six mandated 
standards:
    Standard 1. Not less than 95.0 percent of clean electronically 
submitted non-Periodic Interim Payment 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 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). 
Our expectation is that contractors will meet this percentage on a 
monthly basis.
    Standard 2. Not less than 95.0 percent of clean paper non-Periodic 
Interim Payment 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). Our 
expectation is that contractors will meet this percentage on a monthly 
basis.
    Standard 3. The percentage of reconsideration determinations 
reversed 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 within 90 days. Our expectation 
is that contractors will meet this percentage on a monthly basis.
    Standard 5. 95.0 percent of Part B review determinations are 
completed within 45 days. Our expectation is that contractors will meet 
this percentage on a monthly basis.
    Standard 6. 90.0 percent of Part B hearing decisions are completed 
within 120 days. Our expectation is that contractors will meet this 
percentage on a monthly basis.
    Because intermediaries process many claims for benefits under the 
Part B Medical Insurance portion of the Medicare Program, we also may 
evaluate how well an intermediary follows the procedures for processing 
appeals of any Part B claims.
    Additional functions that may be evaluated under this criterion 
include, but are not limited to, the following:
    [sbull] Accuracy of claims processing.
    [sbull] Establishment and maintenance of a relationship with Common 
Working File (CWF) Host.
    [sbull] Accuracy of processing reconsideration cases.
    [sbull] Accuracy of reviews and hearings, as well as the 
appropriateness of the reading level of any review determination 
letters.
    [sbull] Accuracy and timeliness of processing appeals under section 
521 of the Medicare, Medicaid and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA) and section 940 of the Medicare 
Prescription Drug, Improvement, and Modernization Act (DIMA). See Note 
below.


    Note: Section 521 of BIPA and section 940 of DIMA amend section 
1869 of the Act by requiring major revisions to the Medicare appeals 
process. Upon implementation of section 521, the first level in a 
beneficiary's appeal will be a ``redetermination'' that will replace 
the current reconsideration for Part A appeals and the current 
review for Part B appeals. Intermediaries will be required to 
process all requests for redeterminations within 60 days of receipt 
of the request. Upon implementation of section 521 of BIPA, and 
section 940 of DIMA, we intend to begin evaluating whether 
intermediaries are meeting the timeliness and accuracy requirements 
for processing redeterminations. Because the ability for 
beneficiaries to request this new first level of appeal will not be 
initiated until section 521 of BIPA is implemented, there will be a 
period of time in which intermediaries will not only be processing 
redeterminations, but will continue to process the reconsideration, 
review, and hearing workloads that existed prior to the 
implementation of BIPA. Upon the implementation of section 521 of 
BIPA and section 940 of DIMA, this 60-day requirement and the 
processing accuracy will be additional functions that may be 
evaluated.


B. Customer Service Criterion

    Functions that may be evaluated under this criterion include, but 
are not limited to, the following:
    [sbull] Providing timely and accurate replies to beneficiary and 
provider telephone inquiries.
    [sbull] Quality Call Monitoring.
    [sbull] Training of Customer Service Representatives.
    [sbull] Ensuring the validity of the call center performance data 
that are being reported in the Customer Service Assessment and 
Management System.
    [sbull] Providing timely and accurate written replies to 
beneficiaries and providers that address the concerns raised and are 
written with an appropriate customer-friendly tone and clarity and that 
those written to beneficiaries are at the appropriate reading level.
    [sbull] Walk-in inquiry service.

[[Page 74617]]

    [sbull] Conducting beneficiary and provider education, training, 
and outreach activities.
    [sbull] Effectively maintaining an Internet Website dedicated to 
furnishing providers and physicians timely, accurate, and useful 
Medicare program information.

C. Payment Safeguards Criterion

    The Payment Safeguard criterion contains the following 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 Part A contractual agreement. These functions and 
activities include, but are not limited to the following:
    [sbull] Audit and Reimbursement
    --Performing the activities specified in our general instructions 
for conducting audit and settlement of Medicare cost reports.
    --Establishing accurate interim payments.
    [sbull] Benefit Integrity
    --Referring allegations of potential fraud that are made by 
beneficiaries, providers, CMS, Office of Inspector General (OIG), and 
other sources to the Payment Safeguard Contractor.
    --Putting in place effective detection and deterrence programs for 
potential fraud.
    [sbull] Medical Review
    --Increasing the effectiveness of medical review activities.
    --Exercising accurate and defensible decision making on medical 
reviews.
    --Effectively educating and communicating with the provider 
community.
    --Collaborating with other internal components and external 
entities to ensure the effectiveness of medical review activities.
    [sbull] Medicare Secondary Payer
    --Accurately reporting MSP savings.
    --Accurately following MSP claim development and edit procedures.
    --Auditing hospital files and claims to determine that claims are 
being filed to Medicare appropriately.
    --Supporting the Coordination of Benefits Contractor's efforts to 
identify responsible payers primary to Medicare.
    --Identifying, recovering, and referring mistaken/conditional 
Medicare payments in accordance with appropriate Medicare Intermediary 
Manual instructions and our other pertinent general instructions, in 
the specified order of priority.
    [sbull] Overpayments
    --Collecting and referring Medicare debts timely.
    --Accurately reporting and collecting overpayments.
    --Adhering to our instructions for management of Medicare Trust 
Fund debts.
    [sbull] 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

    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 functions that may be reviewed under the Fiscal 
Responsibility criterion include, but are not limited to, the 
following:
    [sbull] Adherence to approved program management and MIP budgets.
    [sbull] Compliance with the BPRs.
    [sbull] Compliance with financial reporting requirements.
    [sbull] Control of administrative cost and benefit payments.

E. Administrative Activities 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), automated data processing (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:
    [sbull] Systems security.
    [sbull] ADP maintenance (configuration management, testing, change 
management, and security).
    [sbull] Disaster recovery plan/systems contingency plan.
    [sbull] Implementation of our general instructions.
    [sbull] Data and reporting requirements implementation.
    [sbull] 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 three standards are mandated for the RHHI criterion:
    Standard 1. Not less than 95.0 percent of clean electronically 
submitted non-Periodic Interim Payment 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 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). 
Our expectation is that contractors will meet this percentage on a 
monthly basis.
    Standard 2. Not less than 95.0 percent of clean paper non-Periodic 
Interim Payment 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). Our 
expectation is that contractors will meet this percentage on a monthly 
basis.
    Standard 3. 75.0 percent of HHA and hospice reconsiderations are 
processed within 60 days and 90.0 percent are processed within 90 days. 
Our expectation is that contractors will meet this percentage on a 
monthly basis.
    We may use this criterion to review an RHHI's performance for 
handling the HHA and hospice workload. This includes processing HHA and 
hospice claims timely and accurately; properly paying and settling HHA 
cost reports; and timely and accurately processing reconsiderations and 
BIPA section 521 redeterminations from beneficiaries, HHAs, and 
hospices.


    Note: Section 521 of BIPA and section 940 of DIMA amend section 
1869 of the Act by requiring major revisions to the Medicare appeals 
process. Upon implementation of section 521 of BIPA, the first level 
in a beneficiary's appeal will be a ``redetermination'' that will 
replace the current reconsideration for Part A appeals and the 
current review for Part B appeals. RHHIs will be required to process 
all requests

[[Page 74618]]

for redeterminations within 60 days of receipt of the request. Upon 
implementation of section 521 of BIPA and section 940 of DIMA, we 
intend to begin evaluating whether RHHIs are meeting the timeliness 
and accuracy requirements for processing redeterminations. Because 
the ability for beneficiaries to request this new first level of 
appeal will not be initiated until section 521 of BIPA are 
implemented, RHHIs will not only be processing redeterminations, but 
will continue to process the reconsideration, review, and hearing 
workloads that existed prior to the implementation of BIPA. Upon the 
implementation of section 521 of BIPA and section 940 of DIMA this 
60-day requirement and the processing accuracy will be additional 
functions that may be evaluated.


VI. Criteria and Standards for Carriers

A. Claims Processing Criterion

    The Claims Processing criterion contains the following six mandated 
standards:
    Standard 1. Not less than 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 
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). Our expectation is that contractors will meet this percentage 
on a monthly basis.
    Standard 2. Not less than 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). Our expectation is that contractors will meet this percentage 
on a monthly basis.
    Standard 3. 98.0 percent of MSNs are properly generated. Our 
expectation is that MSN messages are accurately reflecting the services 
provided.
    Standard 4. 95.0 percent of review determinations are completed 
within 45 days. Our 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. Our expectation is that contractors will meet this 
percentage on a monthly basis.
    Standard 6. Review determination letters prepared in response to 
beneficiary initiated appeal requests are written at an appropriate 
reading level.
    Additional functions that may be evaluated under this criterion 
includes, but are not limited to, the following:
    [sbull] Claims Processing accuracy.
    [sbull] Establishment and maintenance of relationship with the CWF 
Host.
    [sbull] Accuracy of processing review determination cases.
    [sbull] Accuracy of processing hearing cases with decision letters 
that are clear and have an appropriate customer-friendly tone.
    [sbull] Accuracy and timeliness of processing appeals under BIPA.


    Note: Section 521 of BIPA and section 940 of DIMA amend section 
1869 of the Act by requiring major revisions to the Medicare appeals 
process. Upon implementation of section 521 of BIPA, the first level 
in a beneficiary's appeal will be a ``redetermination'' that will 
replace the current review for Part B appeals. Carriers will be 
required to process all requests for redeterminations within 60 days 
of receipt of the request. Upon implementation of section 521 of 
BIPA and section 940 of DIMA, we intend to begin evaluating whether 
carriers are meeting the timeliness and accuracy requirements for 
processing redeterminations. Because the ability for beneficiaries 
to request this new first level of appeal will not be initiated 
until section 521 of BIPA is implemented, there will be a period of 
time in which carriers will not only be processing redeterminations, 
but will continue to process the review and hearing workloads that 
existed prior to the implementation of BIPA. Upon the implementation 
of section 521 of BIPA and section 940 of DIMA, this 60-day 
requirement and the processing accuracy will be additional functions 
that may be evaluated.


B. Customer Service Criterion

    Customer Service criterion contains the following mandated 
standard:
    Standard. Replies to beneficiary correspondence address the 
beneficiary's concerns, are written with an appropriate customer-
friendly tone and clarity, and are at the appropriate reading level.
    Contractors must meet our performance expectations that 
beneficiaries and providers are served by prompt and accurate 
administration of the program in accordance with all applicable 
laws, regulations, and our general instructions.
    Additional functions that may be evaluated under this criterion 
include, but are not limited to, the following:
    [sbull] Providing timely and accurate replies to beneficiary and 
provider telephone inquiries.
    [sbull] Quality call monitoring.
    [sbull] Training of customer service representatives.
    [sbull] Providing timely and accurate written replies to 
beneficiary and provider inquiries.
    [sbull] Ensuring the validity of the call center performance 
data that are being reported in the Customer Service Assessment and 
Management System.
    [sbull] Walk-in inquiry service.
    [sbull] Conducting beneficiary and provider education, training, 
and outreach activities.
    [sbull] Effectively maintaining an Internet Website dedicated to 
furnishing providers timely, accurate, and useful Medicare program 
information.

C. Payment Safeguards 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:
    [sbull] Benefit Integrity
    --Referring allegations of potential fraud that are made by 
beneficiaries, providers, CMS, OIG, and other sources to the Payment 
Safeguard Contractor.
    --Putting in place effective detection and deterrence programs 
for potential fraud.
    [sbull] Medical Review
    --Increasing the effectiveness of medical review activities.
    --Exercising accurate and defensible decision making on medical 
reviews.
    --Effectively educating and communicating with the provider 
community.
    --Collaborating with other internal components and external 
entities to ensure the effectiveness of medical review activities.
    [sbull] Medicare Secondary Payer
    --Accurately reporting MSP savings.
    --Accurately following MSP claim development/edit procedures.
    --Supporting the Coordination of Benefits Contractor's efforts 
to identify responsible payers primary to Medicare.
    --Identifying, recovering, and referring mistaken/conditional 
Medicare payments in accordance with the appropriate Medicare 
Carriers Manual instructions, and our other pertinent general 
instructions.
    [sbull] Overpayments
    --Collecting and referring Medicare debts timely.
    --Accurately reporting and collecting overpayments.
    --Compliance with our instructions for management of Medicare 
Trust Fund debts.
    [sbull] Provider Enrollment
    --Complying with assignment of staff to the provider enrollment 
function and training staff in procedures and verification 
techniques.
    --Complying with the operational standards relevant to the 
process for enrolling suppliers.

D. Fiscal Responsibility 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 functions that may be reviewed under the Fiscal 
Responsibility criterion include, but are not limited to, the 
following:
    [sbull] Adherence to approved program management and MIP 
budgets.
    [sbull] Compliance with the BPRs.
    [sbull] Compliance with financial reporting requirements.
    [sbull] Control of administrative cost and benefit payments.

[[Page 74619]]

E. Administrative Activities 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), 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:
    [sbull] Systems security.
    [sbull] ADP maintenance (configuration management, testing, 
change management, and security).
    [sbull] Disaster recovery plan/systems contingency plan.
    [sbull] Implementation of our general instructions.
    [sbull] Data and reporting requirements implementation.
    [sbull] 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 five criteria for DMEPOS regional carriers contain a total 
of seven mandated standards against which all DMEPOS regional 
carriers must be evaluated.
    There also are examples of other activities for which the DMEPOS 
regional carriers may be evaluated. The mandated standards are in 
the Claims Processing and Customer 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 
statement of work (SOW).

A. Claims Processing Criterion

    The Claims Processing criterion contains the following six 
mandated standards:
    Standard 1. Not less than 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 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). Our expectation is 
that contractors will meet this percentage on a monthly basis.
    Standard 2. Not less than 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). Our expectation is that contractors will meet this 
percentage on a monthly basis.
    Standard 3. Properly generated 98.0 percent of MSNs. Our 
expectation is that MSN messages are accurately reflecting the 
services provided.
    Standard 4. 95.0 percent of DMEPOS regional carrier review 
determinations are completed within 45 days. Our expectation is that 
contractors will meet this percentage on a monthly basis.
    Standard 5. 90.0 percent of DMEPOS regional carrier hearing 
decisions are completed within 120 days. CMS's expectation is that 
contractors will meet this percentage on a monthly basis.
    Standard 6. Review determination letters prepared in response to 
beneficiary initiated appeal requests are written at an appropriate 
reading level.
    Additional functions that may be evaluated under this criterion 
include, but are not limited to, the following:
    [sbull] Claims processing accuracy.
    [sbull] Review determinations and hearing decisions are written 
accurately, clearly, and in a customer friendly tone.
    [sbull] Telephone reviews are appropriately documented and 
adjudicated timely.
    [sbull] Requests for ALJ hearings are forwarded timely.
    [sbull] Accuracy and timeliness of processing appeals under 
BIPA.

    Note: Section 521 of BIPA and section 940 of DIMA amend section 
1869 of the Act by requiring major revisions to the Medicare appeals 
process. Upon implementation of section 521 of BIPA, the first level 
in a beneficiary's appeal will be a ``redetermination'' which will 
replace the current review for Part B appeals. DMEPOS regional 
carriers will be required to process all requests for 
redeterminations within 60 days of receipt of the request. Upon 
implementation of section 521 of BIPA and section 940 of DIMA, we 
intend to begin evaluating whether DMEPOS regional carriers are 
meeting the timeliness and accuracy requirements for processing 
redeterminations. Because the ability for beneficiaries to request 
this new first level of appeal will not be initiated until section 
521 of BIPA is implemented, there will be a period of time in which 
DMEPOS regional carriers will not only be processing 
redeterminations, but will continue to process the review and 
hearing workloads that existed prior to the implementation of BIPA. 
Upon the implementation of section 521 of BIPA and section 940 of 
DIMA, this 60-day requirement and the processing accuracy will be 
additional functions that may be evaluated.

B. Customer Service Criterion

    The Customer Service Criterion contains the following mandated 
standard:
    Standard. Replies to beneficiary correspondence, addresses 
concerns raised, writes with an appropriate customer-friendly tone 
and clarity at the appropriate reading level.
    Contractors must meet our 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 SOW, and our general 
instructions.
    Additional functions that may be evaluated under this criterion 
include, but are not limited to, the following:
    [sbull] Providing timely and accurate replies to beneficiary and 
supplier telephone inquiries.
    [sbull] Monitoring calls for quality.
    [sbull] Training of Customer Service Representatives.
    Ensuring the validity of the call center performance data that 
are being reported in the Customer Service Assessment and Management 
System.
    [sbull] Providing timely and accurate replies to beneficiaries, 
providers, and suppliers.
    [sbull] Maintaining walk-in inquiry service.
    [sbull] Conducting beneficiary and supplier education, training, 
and outreach activities.
    [sbull] Effectively maintaining an Internet Website dedicated to 
furnishing suppliers timely, accurate, and useful Medicare program 
information.
    [sbull] Ensuring that communications are made to interested 
supplier organizations for the purpose of developing and maintaining 
collaborative supplier education and training activities and 
programs.

C. Payment Safeguards Criterion

    DMEPOS regional carriers may be evaluated on any MIP activities 
if performed under their contracts. The DMEPOS regional carriers 
must undertake actions to promote an effective program 
administration for DMEPOS regional carrier claims. These functions 
and activities include, but are not limited to the following:
    [sbull] Benefit Integrity
    --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, suppliers, CMS, OIG, and other sources.
    --Putting in place effective detection and deterrence programs 
for potential fraud.
    [sbull] Medical Review
    --Reducing the error rate by identifying patterns of 
inappropriate billing.
    --Educating suppliers concerning Medicare coverage and coding 
requirements.
    [sbull] Medicare Secondary Payer
    --Accurately reporting MSP savings.
    --Accurately following MSP claim development/edit procedures.
    --Supporting the Coordination of Benefits Contractor's efforts 
to identify responsible payers primary to Medicare.
    --Identifying, recovering, and referring mistaken/conditional 
Medicare payments in accordance with the appropriate program 
instructions in the specified order of priority.
    [sbull] Overpayments
    --Determining that the DMEPOS regional carrier completely, 
accurately, timely, and aggressively pursued all outstanding 
overpayments in adherence with the Medicare Carriers Manual and CMS 
Program Memoranda resulting from the Debt Collection Improvement Act 
(DCIA).
    --Verifying that all overpayments were timely and accurately 
recorded.

D. Fiscal Responsibility Criterion

    We may review the DMEPOS regional carrier's efforts to establish 
and maintain

[[Page 74620]]

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 this criterion 
include, but are not limited to the following:
    [sbull] Compliance with financial reporting requirements.
    [sbull] Adherence to approved program management and MIP 
budgets.
    [sbull] Control of administrative cost and benefit payments.

E. Administrative Activities

    We may measure a DMEPOS regional 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. Our evaluation of a DMEPOS regional carrier under this 
criterion may include, but is not limited to review of the 
following:
    [sbull] Systems Security.
    [sbull] Disaster recovery plan/systems contingency plan.
    [sbull] Internal controls establishment and use, including the 
degree to which the contractor cooperates with the Secretary in 
complying with the FMFIA.

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 is 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 for the contract management process under 
the authority of applicable law(s), regulation(s), contract(s), or 
our 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 
nonrenewal 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--
    [sbull] Entering into, renewing, or terminating agreements or 
contracts with contractors, and
    [sbull] 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 on 
the nature and degree of performance. More specifically, these 
decisions depend on the following:
    --Relative overall performance compared to other contractors.
    --Number of criteria in which nonconformance occurs.
    --Extent of each nonconformance.
    --Relative significance of the requirement for which 
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. Regulatory Impact Statement

    We have examined the impacts of this notice as required by 
Executive Order 12866 (September 1993, Regulatory Planning and 
Review), the Regulatory Flexibility Act (RFA) (September 16, 1980, 
Pub. L. 96-354), section 1102(b) of the Social Security Act, the 
Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), and Executive 
Order 13132.
    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 in any one year). 
Since this notice only describes criteria and standards for 
evaluating FIs (including RHHIs), carriers, and DMEPOS regional 
carriers and has no significant economic impact on the program, its 
beneficiaries, providers or suppliers, this is not a major notice.
    The RFA requires agencies to analyze options for regulatory 
relief of small businesses, but intermediaries, RHHIs, carriers and 
DMEPOS regional carriers are not small businesses.
    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.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in expenditure in any 1 year by 
State, local, or tribal governments, in the aggregate, or by the 
private sector, of $110 million. In accordance with section 202, we 
have determined that the notice does not impose any unfunded 
mandates on States, local or tribal governments, or on the private 
sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a notice that imposes 
substantial direct requirement costs on State and local governments, 
preempts State law, or otherwise has Federalism implications. We 
have determined that the notice does not significantly affect the 
rights, roles, and responsibilities of States.
    We have not prepared a Regulatory Impact Analysis for this 
notice, in accordance with Executive Order 12866, because it will 
not have a significant economic impact, nor does it impose any 
unfunded mandates on State, local, or tribal governments or the 
private sector. Furthermore, we certify that the notice will not 
have a significant impact on a substantial number of small entities 
or small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
notice was reviewed by the Office of Management and Budget.

X. 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.).

    Authority: Sections 1816(f), 1834(a)(12), and 1842(b) of the 
Social Security Act (42 U.S.C. 1395h(f), 1395m(a)(12), and 
1395u(b)).

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital

[[Page 74621]]

Insurance, and Program No. 93.774, Medicare--Supplementary Medical 
Insurance Program)

    Dated: June 5, 2003.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.

    Editorial Note. This document was received at the Office of the 
Federal Register on December 17, 2003.

[FR Doc. 03-31468 Filed 12-23-03; 8:45 am]
BILLING CODE 4120-01-P