[Federal Register Volume 69, Number 59 (Friday, March 26, 2004)]
[Proposed Rules]
[Pages 15755-15761]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-6833]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 421

[CMS-1219-P]
RIN 0938-AL76


Medicare Program; Durable Medical Equipment Regional Carrier 
(DMERC) Service Areas and Related Matters

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would allow us to change the geographical 
boundaries served by the regional contractors that process durable 
medical equipment claims and to make other minor changes in the 
contract administration of the durable medical equipment regional 
carriers (DMERCs). It would allow us to increase or decrease the number 
of DMERCs, to change the boundaries of DMERCs based on criteria other 
than the boundaries of the Common Working File, and to name new 
contractors to perform statistical analysis or maintain the national 
supplier clearinghouse. We would publish the changes and their 
justifications in a Federal Register notice, rather than through notice 
and comment rulemaking.
    Although we are proposing to allow changes to the number and 
configuration of regional carriers, we are not proposing to alter the 
criteria and factors that we use in awarding contracts.
    The intent of this proposed rule would be to improve the contract 
process by swiftly meeting the challenges of the changing healthcare 
industry, addressing the changing needs of beneficiaries, suppliers, 
and the Medicare program, and facilitating our efforts to provide 
interested parties with the best value Medicare claims processing 
services. While we are not proposing to reconfigure the DMERC service 
boundaries at this time, the changes set forth in this proposed rule 
would provide a mechanism to swiftly make these kinds of changes 
without repeatedly invoking full rulemaking.

DATES: We will consider comments if we receive them at the appropriate 
address, as provided below, no later than 5 p.m. on May 25, 2004.

ADDRESSES: In commenting, please refer to file code CMS-1219-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit electronic comments to http://www.cms.hhs.gov/regulations/ecomments or to http://www.regulations.gov; or you may mail 
written comments (one original and two copies) to the following address 
ONLY: Centers for Medicare & Medicaid Services, Department of Health 
and Human Services, Attention: CMS-1219-P, P.O. Box 8016, Baltimore, MD 
21244-8016.
    Please allow sufficient time for mailed comments to be timely 
received in the event of delivery delays.
    If you prefer, you may deliver (by hand or courier) your written 
comments (one original and two copies) to one of

[[Page 15756]]

the following addresses: Room 445-G, Hubert H. Humphrey Building, 200 
Independence Avenue, SW., Washington, DC 20201, or Room C4-26-05, 7500 
Security Boulevard, Baltimore, MD 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 filing by stamping 
in and retaining an extra copy 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.
    All comments received before the close of the comment period are 
available for viewing by the public, including any personally 
identifiable or confidential business information that is included in a 
comment. After the close of the comment period, CMS posts all 
electronic comments received before the close of the comment period on 
its public Web site.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Kimberly Nyland, (410) 786-2289.

SUPPLEMENTARY INFORMATION:
    Submitting Comments: We welcome comments from the public on all 
issues set forth in this rule to assist us in fully considering issues 
and developing policies. You can assist us by referencing the file code 
CMS-1219-P and the specific ``issue identifier'' that precedes the 
section on which you choose to comment.
    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) 786-7195.
    This Federal Register document is available from the Federal 
Register online database through GPO Access, a service of the U.S. 
Government Printing Office. The Web site address is: http://www.access.gpo.gov/nara/index.html.

I. Background

A. Legislative Overview of Durable Medical Equipment, Prosthetics, 
Orthotics, and Supplies (DMEPOS) Claims Administration Covering 1966 
Through 1992

[If you choose to comment on issues in this section, please include the 
caption ``Background'' at the beginning of your comments.]
    Medicare has covered medically necessary items of durable medical 
equipment, prosthetics, orthotics, and supplies (DMEPOS) under Part B 
since the inception of the program in 1966. In the original authorizing 
legislation for the Medicare program, coverage was provided under 
sections 1832 and 1861(s) of the Social Security Act (the Act) (Pub. L. 
89-97). Since that time, the coverage and payment rules for DMEPOS, 
which may now be found in sections 1832, 1834, and 1861 of the Act and 
their implementing regulations have changed significantly.
    From 1986 to 1992, the number of complaints about fraud and abuse 
in the DMEPOS benefit began to increase markedly, and a variety of 
government investigations identified specific weaknesses in the 
program. We sought solutions to known claims processing problems, 
including the increasing level of fraud and abuse in billing. 
Subsequently, the Omnibus Budget Reconciliation Act of 1987 (OBRA 1987) 
Pub. L. 100-203, enacted on December 22, 1987, authorized the Secretary 
to designate, by regulation, regional carriers to process DMEPOS 
claims. (See sections 1834(a)(12) and 1834(h)(3) of the Act.)
    Before 1993, Medicare Part B claims for DMEPOS items and services 
were assigned to each of the more than 30 local Medicare carriers and 
represented, on average, only 5 percent of each carrier's overall 
workload. After much review, we concluded that this structure was not 
the most effective one for administering DMEPOS claims under Medicare. 
It was difficult for carriers to devote significant administrative 
review resources to this small percentage of claims.
    In addition, DMEPOS claims were generally complex and time-
consuming to process. The protocol for suppliers to obtain a Medicare 
billing number was ill-defined and required little identifying 
information or compliance with any particular business or operational 
standards.
    Furthermore, carriers' medical review policies varied significantly 
and contributed to inconsistent claims processing decisions. Finally, 
certain DMEPOS suppliers who engaged in unethical practices were able 
to exploit our local Medicare carriers by electing to submit claims to 
carriers that provided more generous coverage, paid more than other 
carriers, or both. As documented in program audits and congressional 
hearings, fraudulent suppliers could do this easily by manipulating our 
then existing ``point of sale'' claims jurisdiction rule; these 
suppliers could simply locate their business offices where conditions 
were most favorable. The collective impact of these issues resulted in 
significant abuse of the Medicare program by a subset of the DMEPOS 
supplier community, without any measurable improvement in patient care 
and outcomes.

B. Agency and Congressional Efforts To Reform DMEPOS Claims 
Administration, 1987 Through 1994

    To address the problem of fraud and abuse in the supplier 
community, we initiated an effort to reform the administration of the 
DMEPOS benefit category using several strategies. On November 6, 1991, 
we published a proposed rule (56 FR 56612) setting forth a new 
framework for DMEPOS claims processing. In that rule, we proposed to 
limit the number of carriers handling DMEPOS claims by establishing 
regional carriers who would be expert processors of DMEPOS claims. The 
rule also proposed to change the requirement for assigning DMEPOS 
claims to carriers (that is, the DMEPOS claim jurisdiction rule) from a 
``point of sale'' framework to a framework based on ``beneficiary 
residence.'' In addition, the rule proposed to establish supplier 
business standards and information disclosure requirements. We expected 
that these changes, taken together, would make Medicare's DMEPOS claim 
administration apparatus less susceptible to supplier manipulation.
    On June 18, 1992, we published a final rule with comment period (57 
FR 27307) to implement this revised statutory authority. The rule 
provided the following:
     Established four regional carriers (known as DME 
Regional Carriers or DMERCS) to standardize the coverage and payment of 
DMEPOS.
     Designated the States and territories to be 
served by each DMERC.
     Consolidated and focused efforts to curb fraud 
and abuse.
     Controlled the enrollment of all DMEPOS 
suppliers through a National Supplier Clearinghouse (NSC) (a contractor 
that reviews and approves supplier applications for Medicare program 
billing numbers).

[[Page 15757]]

     Introduced the concept of a Statistical Analysis 
DME Regional Carrier (SADMERC) to review supplier billing patterns.
     Established minimum business standards for all 
suppliers wishing to enroll in the Medicare Program.
     Required that regional carriers administer 
DMEPOS' claims based on the location (State) of the beneficiary's 
primary residence. The regulations for DMERC contracts, in accordance 
with these authorities are set forth at 42 CFR 405.874, 421.210, 
421.212, and 424.57.
    Finally, on October 31, 1994, the Congress enacted the Social 
Security Amendments of 1994, Public Law 103-432. Among other matters, 
this statute established section 1834(j)(1) of the Act, which 
incorporated and augmented the supplier business and operational 
standards established in the final rule of June 18, 1992. Paragraph (E) 
of this provision ratified the concept of using the NSC. However, this 
provision restricts the type of entity that may perform the NSC 
function exclusively to Medicare carriers holding contracts under 
section 1842 of the Act.

C. Provisions of the Existing DMERC Regulations (Especially Sec.  
421.210)

    As noted above, there are several regulatory provisions pertaining 
to the operation of the DMERCs and related functions. Section 405.874 
establishes a process by which the NSC makes determinations on whether 
to issue a Medicare billing number to a supplier applicant and 
specifies an administrative appeals process if we make an adverse 
determination. Section 421.212 specifies that the Railroad Retirement 
Board will use the CMS-contracted DMERCs to make DMEPOS claim 
determinations for Medicare-eligible railroad retirees. Section 424.57 
provides special payment rules for DMEPOS suppliers and requirements 
for the issuance of DMEPOS supplier billing numbers, including a series 
of business and operational standards that DMEPOS suppliers must meet 
in order to qualify for Medicare billing privileges.
    Section 421.210 could be viewed as the cornerstone regulation for 
the DMERC carrier structure. As we are proposing to amend this 
regulation, it is important to discuss its content in some detail.
    We published and implemented the current regulations at Sec.  
421.210 under the authority of sections 1842, 1834(a), and 1834(h) of 
the Act. The current regulation, which augments and expands on the 
underlying statutory provisions, provides for the following:
    Paragraph (a) identifies the statutory basis for the rule and 
indicates that the purpose of the rule is to designate one or more 
carriers ``by specific regions'' to process DMEPOS claims.
    Paragraph (b) identifies the types of claims for DMEPOS items and 
services that are processed by the DMEPOS carrier.
    Paragraph (c) defines four specific regions for the processing of 
DMEPOS claims by naming the States and territories to be included in 
each region. This section also states that the DMERC regions coincide 
with the ``sector'' boundaries of our Common Working File System.
    Paragraph (d) specifies criteria that we use in designating 
entities to serve as regional carriers for DMEPOS claims.
    Paragraph (e)(1) requires that the DMERCs process DMEPOS claims 
only for beneficiaries whose permanent residence falls within their 
designated regional areas (as established by paragraph (c)). Paragraph 
(e)(1) also specifies that in processing DMEPOS claims, the DMERCs will 
apply the payment rates applicable to the State of residence of the 
beneficiary. In addition, the rule makes clear that the ``beneficiary 
residence'' jurisdiction rule applies to qualified Railroad Retirement 
beneficiaries and defines ``permanent residence'' for the purpose of 
the rule.
    Paragraph (e)(2) identifies by name the initial DMERCs; paragraph 
(e)(3) identifies by name the initial NSC and SADMERC; paragraph (e)(4) 
commits us to periodically re-compete the four DME regional carrier 
contracts.
    Paragraph (f) requires the DMERCs to collect ownership and control 
information, as well as supplier standard certifications, from each 
DMEPOS supplier that they service.
    In section II of the preamble, we will discuss several changes we 
propose to make to paragraphs (a), (c), (d), and (e) of Sec.  421.210.

D. Establishment and Operation of the DMERCs, 1993 Through 2003

    We issued a Request for Proposal in May 1992 for the four regional 
DMERC contracts. We also solicited offers for two DMEPOS-related 
national contracts, the above-mentioned NSC and the SADMERC. In 
December 1992, the contracts, designed around Common Working File 
sectors, were awarded as follows:

Region A: Travelers Insurance Company for 10 States in the Northeast. 
\1\
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    \1\ The contract was initially awarded to Travelers Insurance 
Company and the regulations use this name. Through a series of 
corporate transactions, United Healthcare became the successor-in-
interest to Travelers and served as the DMERC until September 2000, 
when HealthNow was awarded the DMERC contract for Region A.
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Region B: AdminaStar Federal for 9 States in the Midwest and the 
District of Columbia.
Region C: Palmetto Government Benefits Administrators (GBA) for 14 
States and 2 territories in the South.
Region D: CIGNA for 17 States and 3 territories in the West.
NSC: Palmetto GBA.
SADMERC: Palmetto GBA.

    Initially, the DMERC and SADMERC contracts were 2-year contracts 
with two 1-year renewal options. The NSC was given two 1-year contracts 
and two 1-year renewal options. The contracts were modeled, to a 
significant extent, after requirements in the Federal Acquisition 
Regulations (FAR).
    One of the biggest challenges and accomplishments of the transition 
to the DMERC processing arrangement was the consolidation of diverse 
carrier medical policies for DMEPOS. The agency's initiative to 
configure geographical regions to process DMEPOS claims by 
consolidating DME workloads from the 34 carriers to 4 DMERCs greatly 
improved the rigor and consistency of medical review. Formerly, each 
carrier developed its own local medical review policies for DMEPOS 
claims under loose guidelines and oversight from us. During the 
transition period, our coverage and medical review staff worked closely 
with the DMERC medical directors to streamline and standardize medical 
policy within and across the DMERC regions. Regionalization allowed the 
DMERCs to have a consistent uniform interpretation of coverage 
policies, local medical review policies, and pricing for similar items 
and services. Today, the DMERCs share essentially one approach to 
coverage and medical review for all DMEPOS items.

II. Provisions of This Proposed Rule

[If you choose to comment on issues in this section, please include the 
caption ``Provisions of This Proposed Rule'' at the beginning of your 
comments.]
    We are proposing to make a number of changes to Sec.  421.210, 
which concern the designation of regional carriers to process claims 
for DMEPOS. Broadly speaking, we are seeking greater future flexibility 
to revise the number and boundaries of DMERC regional areas. We also 
desire greater flexibility in contracting for DMERC, NSC, and SADMERC 
functions. We have examined the statutory framework (section 
1834(a)(12) of the Act, as set forth below at paragraph (a), ``Basis'') 
for

[[Page 15758]]

the current regulation and have concluded that the current regulation 
is more restrictive on the Secretary's contracting discretion than 
required either by statute or the program's interest.
    Specifically, we are proposing to make the following changes to 
Sec.  421.210 ``Designations of regional carriers to process claims for 
durable medical equipment, prosthetics, orthotics, and supplies'':
     Paragraph (a), ``Basis.''
    We are proposing to revise paragraph (a) to more closely follow the 
actual language of section 1834(a)(12) of the Act that authorizes the 
Secretary to ``designate, by regulation under section 1842 of the Act, 
one carrier for one or more entire regions to process all claims within 
the region for covered items under this section.'' We are therefore 
revising paragraph (a) to state that the Secretary is authorized to 
designate carriers for ``one or more entire regions'' rather than to 
designate carriers by ``specific'' regions.
     Paragraph (c), ``Region designation.''
    We are proposing to revise the language in paragraph (c), designate 
the current paragraph (c) as (c)(1), and add a new paragraph (c)(2).
    In paragraph (c), we are proposing to clarify the Secretary's 
authority to revise the number or configuration of DMEPOS regional 
areas in the future, based on appropriate factors and criteria.
    The current regulations in Sec.  421.210(c) specify that there are 
four regional areas for DMEPOS claims and further specify that these 
areas be drawn to coincide with the Common Working File sectors. The 
regulations also specify, by name, which States and territories are 
assigned to each region for DMEPOS claims. To allow greater 
flexibility, in paragraph (c)(1), we are proposing to add the word 
``initial'' in front of the listing of the current DMERC service areas, 
to make clear that this configuration could change in the future.
    In addition, we would revise paragraph (c)(1) to remove a specific 
reference to the Common Working File sector framework as a determinant 
for the DMERC regions. Advances in technology have greatly diminished 
the importance of this consideration and, therefore, its inclusion in 
regulation is unnecessary.
    The existing reference to Common Working File sectors in paragraph 
(c)(1), as a constraint for the DMERC region boundaries, illustrates 
the approach of the original rule. The June 18, 1992 rule acknowledged 
a technical Medicare claims processing system constraint that was 
significant at the time. Since that time, advances in our claims 
processing system have greatly reduced the impact of ``out of the 
area'' processing, and it is no longer necessary to structure the 
DMERCs around the Common Working File sectors.
    New paragraph (c)(2) would allow us to revise the number and 
boundaries of DMERC regional service areas in the future based on 
appropriate factors and criteria. Our goal is to constantly strive to 
improve beneficiary and supplier satisfaction. Therefore, we would 
consider the effect of any service area changes on beneficiaries and 
suppliers in our decisions. Examples of factors and criteria include 
population shifts or natural disasters that require a reallocation of 
workload, and workforce conditions that may make it difficult for 
DMERCs in certain areas to recruit and retain qualified employees. We 
specify in paragraph (c)(2) that this change would allow us future 
discretion to identify which States and territories are assigned to 
various DMERC regions by publication of a Federal Register notice. The 
Federal Register notice would identify the nature of any changes in the 
DMERC service areas, as well as our rationale for the changes.
    Absent the proposed changes to these regulations, we would have to 
maintain the current DMERC configuration even if our administrative and 
program needs change. Currently, the only existing mechanism for 
changing the structure of the DMERC regions is to undertake notice and 
comment rulemaking for each change. We believe that it is not the 
intent of the statute to constrain the Secretary's administrative 
discretion to this extent. Although we are not now proposing to alter 
the number or configuration of the four areas for DMEPOS claims, we 
anticipate that new program circumstances may arise that may require 
alterations in the number or configuration of DMERC service areas. We 
believe that we have a definite need for the capability to move swiftly 
and make DMERC service area changes without going through notice and 
comment rulemaking whenever administrative issues arise. Just as 
critical, we believe it is important to consider the effects of these 
kinds of changes on beneficiaries and suppliers and to provide the 
public with an explanation of changes when they are made.
    Under our proposed rules, we would not be required to administer 
four DMEPOS areas, would not be required to determine these DMEPOS 
areas based on the sector areas of the Common Working File, and would 
not be required to go through rulemaking to modify the assignment of 
the States and territories to revised DMEPOS areas.
    We are providing a fictitious (but plausible) example of a 
situation, which cannot be addressed very well under the current 
regulation. In this example, DMERC X, which has historically performed 
well, is having difficulty serving all beneficiaries and suppliers in 
all of its assigned States, due to difficulties in recruiting a 
sufficient number of qualified personnel. At present, the regulations 
would seem to limit our options to--(1) hoping that DMERC X improves 
its performance; or (2) terminating DMERC X's contract for the entire 
service area and procuring and installing a replacement. We do not have 
the third option of removing a limited number of States from DMERC X's 
contract and attaching these service areas to another DMERC's service 
area (or setting up a fifth DMERC jurisdiction). However, under the 
proposed regulation, this kind of contract management action could 
yield many benefits, in that DMERC X could focus its resources on its 
remaining workload. Under the current regulation, moving a State to 
another area, or setting up a fifth jurisdiction, would require an 
extended rulemaking process unless the rules take a more general 
approach, as we are proposing.
     Paragraph (d), ``Criteria for designating 
regional carriers.''
    Paragraph (d) under this section currently discusses our 
``designation'' of regional carriers in a manner that does not 
explicitly acknowledge the fact that these designations must be 
premised on the awarding of Medicare carrier contracts in accordance 
with applicable law.
    We are proposing to revise paragraph (d) under this section to make 
clear that we will designate regional carriers to process DMEPOS claims 
by awarding DMERC contracts in accordance with applicable law. We are 
not proposing any changes to the current criteria under paragraphs 
(d)(1) through (d)(5) of this section, which we use in our procurement 
evaluation processes for this particular kind of contract.
     Paragraph (e), ``Carrier designation.''
    In paragraph (e)(1), we are also proposing to make minor revisions 
to conform the language to the changes made in Sec.  421.210(c).
    We are also proposing to revise paragraph (e) to provide that we 
have flexibility and discretion with respect to contracting for DMERC 
and related functions. The current regulations in Sec.  421.210(e) name 
the initial DMERC-contracting companies and also identify the 
particular region each company

[[Page 15759]]

serves. The current regulations could be interpreted as requiring that 
we constantly update our rules whenever our business partners change.
    The proposed regulatory framework will clarify our discretion not 
to name a contracting company in future regulations if we re-compete a 
DMERC contract after its conclusion or termination. This proposed 
change would potentially reduce the agency's administrative burden when 
a DMERC contract is not renewed. We are proposing, however, to notify 
affected beneficiaries and suppliers when we change contractors.
    Specifically in paragraph (e)(2), we are proposing to remove the 
names of the initial DMERCs from the regulation. This change would also 
clarify our future discretion to award a DMERC contract to process 
DMEPOS claims under the Medicare program (that is, designate a DMERC), 
without any obligation to name the new DMERC(s) in regulations or by 
Federal Register notice. We would, however, notify affected 
beneficiaries and suppliers to the change in contractors. Therefore, we 
are proposing to revise paragraph (e)(2) to add that we will notify 
affected Medicare beneficiaries when we designate a regional carrier.
    We are proposing to revise paragraphs (e)(3) and (e)(4) to allow us 
discretion to contract for the performance of NSC functions through 
either an amendment to a DMERC contract or through a non-DMERC Medicare 
carrier contract. In paragraph (e)(4), the current regulations for NSC 
functions limit the agency's selection of NSC contractors to one of the 
DMERCs. However, section 1834(j)(1)(E) of the Act actually more broadly 
permits any carrier with a contract under section 1842 of the Act to 
perform NSC functions. We believe that our rules should reflect this 
broader discretion under the statute. Therefore, in paragraph (e)(4), 
we are proposing to remove the limitation that restricts our list of 
contractors to only four DME regional carriers. This proposed revision 
gives us greater flexibility when we re-compete a DMERC contract after 
its conclusion or termination.
    In addition, we are proposing to delete the references to the 
SADMERC function in Sec.  421.210(e)(3) and Sec.  421.210(e)(4). 
SADMERCS are responsible for storing national DMEPOS claims history 
data, for distributing to the DMERCS national pricing files, and for 
conducting data analysis. Although we recognize the importance of the 
activities that the SADMERC provides to us and the DMERCS, these 
activities are not identified elsewhere in the regulations, and we 
believe that little purpose is served by naming an entity without any 
reference to its functions. Therefore, we do not believe it necessary 
to reference the SADMERC in our regulations.
    By removing the current reference to the SADMERC, including the 
constraint that this activity be included in a DMERC's contract, we 
will have the flexibility to include this function in a DMERC contract 
or to contract for the SADMERC activity through some other vehicle.
    In summary, this proposed rule would allow us to change the 
geographical boundaries served by the regional contractors that process 
DME claims and to make other minor changes in contract administration 
of the DMERCS. We would be able to increase or decrease the number of 
DMERCS or change the boundaries of the DMERCs through a Federal 
Register notice. Further, we would name new contractors to perform the 
functions of the DMERC and NSC without going through notice and comment 
rulemaking. Instead, we would notify affected beneficiaries and 
suppliers of contractor changes through our outreach and education 
initiative.

III. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its 
usefulness in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information 
collection burden.
     The quality, utility, and clarity of the 
information to be collected.
     Recommendations to minimize the information 
collection burden on the affected public, including automated 
collection techniques.
    This document does not impose any new 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.

IV. Response to Comments

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

V. Regulatory Impact

A. Overall Impact

[If you choose to comment on issues in this section, please include the 
caption ``Regulatory Impact'' at the beginning of your comments.]
    We have examined the impacts of this rule as required by Executive 
Order (E.O.) 12866 (September 1993, Regulatory Planning and Review), 
the Regulatory Flexibility Act (RFA) (September 16, 1980, Pub. L. 96-
354), section 1102(b) of the Act, the Unfunded Mandates Reform Act of 
1995 (Pub. L. 104-4), and E.O. 13132.
    E.O. 12866 (as amended by E.O. 13258, which merely reassigns 
responsibility of duties) 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 in any 1 year). This rule 
does not reach the economic threshold and thus is not considered a 
major rule. This rule only provides the Secretary with greater 
contracting flexibility consistent with the statute and would not have 
any direct economic impact. Because this proposed rule would only 
affect our administrative structures and does not change in any way the 
Medicare DMEPOS benefit (that is, neither coverage nor payment is 
changed), this rule would not affect the amount or distribution of the 
Medicare benefit payment for DMEPOS. Further, any possible 
restructuring of the DMERC regions in the future would not remotely 
approach a net economic impact of $100 million on either CMS's 
administrative costs or the administrative costs of DMEPOS suppliers. 
Therefore, we do not believe that a regulatory impact analysis is 
necessary under E.O. 12866.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and

[[Page 15760]]

government agencies. Most hospitals and most other providers and 
suppliers are small entities, either by nonprofit status or by having 
revenues of $6 million to $29 million in any 1 year. Individuals and 
States are not included in the definition of a small entity. This 
proposed rule, as noted above, would not have any direct economic 
impact on DMEPOS suppliers, because it would not affect the scope of 
benefits, coverage, or payment rules for DMEPOS, nor would it affect 
the billing requirements for these services. This rule would not commit 
us to any particular reconfiguration of the DMERC areas. However, we 
agree to consider any effects on DMEPOS suppliers in any future 
reconfigurations of the DMERC regions. We are not preparing an analysis 
for the RFA because we have determined that this rule would not have a 
significant economic impact on a substantial number of small 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 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. The changes that this 
rule proposes pertain to our processes for configuring and designating 
contractors to process DMEPOS claims and would not have a significant 
impact on the operations of a substantial number of small rural 
hospitals. Therefore, we are not preparing an analysis for section 
1102(b) of the Act.
    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. This rule would not have a consequential 
effect on the governments mentioned or on the private sector.
    E.O. 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. Since this regulation would not impose any costs on local 
governments, the requirements of E.O. 13132 are not applicable.

B. Conclusion

    For these reasons, we are not preparing analyses for either the RFA 
or section 1102(b) of the Act because we have determined that this rule 
would not have a significant economic impact on a substantial number of 
small entities or a significant impact on the operations of a 
substantial number of small rural hospitals.

C. Alternatives Considered

    We could have chosen to continue to operate under the constraints 
of our current regulations. This option would require that we 
periodically undertake notice and comment rulemaking to update the 
regulations with the names of new contractors. We have provided 
additional discussion in the preamble describing why we believe this is 
not the optimal solution. We believe our proposal to make modest 
changes to our regulations would offer us greater flexibility in 
contracting with DMERCs and allow us to be more responsive to the needs 
of all key stakeholders.
    In accordance with the provisions of E.O. 12866, the Office of 
Management and Budget reviewed this regulation.

List of Subjects in 42 CFR Part 421

    Administrative practice and procedure, Health facilities, Health 
professions, Medicare, Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR chapter IV, part 421 as 
set forth below:

PART 421--INTERMEDIARIES AND CARRIERS

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

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

Subpart C--Carriers

    2. Amend Sec.  421.210 as follows:
    A. Revise paragraph (a).
    B. Revise paragraph (c).
    C. Revise the introductory text of paragraph (d).
    D. Revise paragraph (e).
    The revisions read as follows:


Sec.  421.210  Designations of regional carriers to process claims for 
durable medical equipment, prosthetics, orthotics, and supplies.

    (a) Basis. This section is based on sections 1834(a)(12) and 
1834(h) of the Act, which authorize the Secretary to designate one 
carrier for one or more entire regions to process claims for durable 
medical equipment, prosthetic devices, prosthetics, orthotics, and 
other supplies (DMEPOS). This authority has been delegated to CMS.
* * * * *
    (c) Region designation. (1) The boundaries of the initial four 
regions for processing claims described in paragraph (b) of this 
section contain the following States and territories:
    (i) Region A: Maine, New Hampshire, Vermont, Massachusetts, 
Connecticut, Rhode Island, New York, New Jersey, Pennsylvania, and 
Delaware.
    (ii) Region B: Maryland, the District of Columbia, Virginia, West 
Virginia, Ohio, Michigan, Indiana, Illinois, Wisconsin, and Minnesota.
    (iii) Region C: North Carolina, South Carolina, Kentucky, 
Tennessee, Georgia, Florida, Alabama, Mississippi, Louisiana, Texas, 
Arkansas, Oklahoma, New Mexico, Colorado, Puerto Rico, and the Virgin 
Islands.
    (iv) Region D: Alaska, Hawaii, American Samoa, Guam, the Northern 
Mariana Islands, California, Nevada, Arizona, Washington, Oregon, 
Montana, Idaho, Utah, Wyoming, North Dakota, South Dakota, Nebraska, 
Kansas, Iowa, and Missouri.
    (2) CMS may modify the number and boundaries of the regions 
established in paragraph (c)(1) of this section based on appropriate 
criteria and considerations including the effect of the change on 
beneficiaries and DMEPOS suppliers. To announce changes, CMS will 
publish a notice in the Federal Register that delineates the regional 
boundary or boundaries changed, the States and territories affected, 
and supporting criteria or considerations.
    (d) Criteria for designating regional carriers. CMS designates 
regional carriers to achieve a greater degree of effectiveness and 
efficiency in the administration of the Medicare program. In making 
this designation, CMS will award regional carrier contracts in 
accordance with applicable law and will consider some or all of the 
following criteria--
* * * * *
    (e) Carrier designation. (1) Each carrier designated a regional 
carrier must process claims for items listed in paragraph (b) of this 
section for beneficiaries whose permanent residence is within that 
carrier's area as designated under paragraph (c) of this section. When 
processing the claims, the carrier must use the payment rates 
applicable for the State of residence of the beneficiary, including a 
qualified Railroad Retirement beneficiary. A beneficiary's permanent 
residence is the address at which he or she intends to

[[Page 15761]]

spend 6 months or more of the calendar year.
    (2) CMS will notify affected Medicare beneficiaries and suppliers 
when it designates a regional carrier (in accordance with paragraph (d) 
of this section) to process DMEPOS claims (as defined in paragraph (b) 
of this section) for all Medicare beneficiaries residing in their 
respective regions (as designated under paragraph (c) of this section).
    (3) CMS may contract for the performance of National Supplier 
Clearinghouse functions through a contract amendment to one of the DME 
regional carrier contracts or through a contract amendment to any 
Medicare carrier contract under Sec.  421.200.
    (4) CMS will periodically recompete the contracts for the DME 
regional carriers. CMS will also periodically recompete the National 
Supplier Clearinghouse function.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.774, 
Medicare--Supplementary Medical Insurance Program)

    Dated: September 29, 2003.
Thomas A Scully,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: December 31, 2003.
Tommy G. Thompson,
Secretary.
[FR Doc. 04-6833 Filed 3-25-04; 8:45 am]
BILLING CODE 4120-01-P