[Federal Register Volume 69, Number 146 (Friday, July 30, 2004)]
[Rules and Regulations]
[Pages 45604-45607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-17316]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405 and 411

[CMS-6014-F]
RIN 0938-AL14


Medicare Program; Interest Calculation

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

[[Page 45605]]


ACTION: Final rule.

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SUMMARY: This final rule changes the way we calculate interest on 
Medicare overpayments and underpayments to providers, suppliers, health 
maintenance organizations, competitive medical plans, and health care 
prepayment plans to be more reflective of current business practices. 
This change reduces the amount of interest assessed on overpayments and 
underpayments and simplifies the way the interest is calculated. This 
change in the way we calculate interest also applies to Medicare 
Secondary Payer debt.

DATES: This final rule is effective on October 1, 2004.

FOR FURTHER INFORMATION CONTACT: Nancy Braymer, (410) 786-4323.

SUPPLEMENTARY INFORMATION:

I. Background

A. Interest Calculation

    Sections 1815(d) and 1833(j) of the Social Security Act (the Act) 
require that, whenever a payment to a provider, supplier, or other 
entity is more than (overpayment) or less than (underpayment) the 
amount that was due to the provider, supplier, or other entity, we 
assess interest on the amount of the overpayment that the provider, 
supplier, or other entity owes to us or the underpayment that we owe to 
the provider, supplier, or other entity. This interest becomes due if 
the overpayment amount owed to us or the underpayment amount owed by us 
is not paid within 30 days of the date of the final determination of 
the overpayment or underpayment.
    Payments we receive are applied first to accrued interest and then 
to principal. Interest we collect on overpayments and Medicare 
Secondary Payer (MSP) recoveries goes to the Treasury as general 
revenue. The principal amount we recover is used to reimburse the 
applicable Medicare trust fund--the Federal Hospital Insurance Trust 
Fund or the Federal Supplementary Medical Insurance Trust Fund. 
Interest we pay on Medicare underpayments comes from the applicable 
Medicare trust fund.
    We determine the rate of interest in accordance with 42 CFR 405.378 
by comparing the Private Consumer Rate with the Current Value of Funds 
Rate and assessing the interest at the higher of the two rates that is 
in effect on the date of the final determination of the amount of the 
overpayment or underpayment.
    Interest is calculated from the date of the final determination and 
is owed if the amount of the overpayment or underpayment is not paid 
within 30 days. Interest accrues daily but is assessed and calculated 
in 30-day periods. A period that is less than 30 days is considered to 
be a full 30-day period.
    In this final rule, we are changing the method of calculating the 
amount of interest that is assessed on overpayments and underpayments 
to better align our practices to a commercial business model. 
Previously, we assessed interest prospectively (30 days into the 
future). Under private sector practices, interest is assessed on 
delinquent debts retrospectively.
    Effective with this final rule, periods of less than 30 days will 
not be treated as a full 30-day period. We will assess interest only 
for full 30-day periods when payment is not made on time. The date of 
the final determination is the first day of the first 30-day period. As 
an example, if a Medicare overpayment is not paid within the 30-day 
time period specified in the demand letter, the debtor would owe 
interest for one 30-day period on day 31. No interest would be due on 
day 29 or day 30.
    The change in the method of calculation applies only to 
overpayments and underpayments whose date of final determination occurs 
on or after the effective date of this final rule.

B. Technical Correction

    We are making a technical correction to correct a reference that 
was cited in a previous revision of the Code of Federal Regulations 
(CFR). In Sec.  411.24, the rate of interest to be assessed on Medicare 
Secondary Payer debts is incorrectly referenced as appearing in Sec.  
405.376(d), rather than Sec.  405.378(d), which is the correct 
reference.

C. Clarification of Application to Medicare Secondary Payer (MSP) Debt

    Section 1862(b)(2)(B)(i) of the Act provides express authority to 
assess interest on MSP debts. Our longstanding policy and practice have 
been to calculate interest on MSP debt using the method applicable to 
Medicare overpayments and underpayments as set forth in Sec.  405.378. 
Specifically, interest is calculated in 30-day periods, and a period 
that is less than 30 days is considered to be a full 30-day period for 
MSP debts as well as for Medicare overpayments and underpayments.
    It was and remains our intent to use the revised methodology set 
forth in this final rule for both types of debts: MSP recoveries and 
non-MSP Medicare overpayments and underpayments. Specifically, periods 
of less than 30 days will no longer be treated as a full 30-day period. 
However, the proposed rule published in the Federal Register (68 FR 
43995) on July 25, 2003 did not make this intent explicit, even though 
the regulatory impact analysis in that proposed rule included MSP debts 
in assessing the costs and benefits of this regulatory change.
    Therefore, this final rule amends Sec.  411.24 to clarify that this 
change in the methodology for calculating interest applies to MSP 
debts, as well as Medicare overpayments and underpayments under Sec.  
405.378. As an example, where a group health plan based MSP debt is not 
paid within the 60-day time period specified in the recovery demand 
letter, under the current practice the debtor would owe interest for 
three 30-day periods on day 61, for four 30-day periods on day 91, and 
so forth. Under this final rule, the debtor would owe interest for two 
30-day periods on day 61, for three 30-day periods on day 91, and so 
forth.
    This change in the method of calculation applies only to those MSP 
debts where the debt is established on or after the effective date of 
this final rule. MSP debts are routinely established as of the date of 
the recovery demand letter.

II. Provisions of the Proposed Rule

    The provisions of the proposed rule were the following:
     In Sec.  405.378, we stated that we would revise paragraph 
(b)(2) to delete the requirement that periods of less than 30 days be 
treated as a full 30-day period.
     In Sec.  411.24, we stated that we would revise paragraph 
(m)(2)(iii) to correct the reference to Sec.  405.376(d) by changing 
the reference to Sec.  405.378(d).

III. Provisions of the Final Rule

    No public comments were received in response to the provisions of 
the proposed rule which, consequently, have not been changed in this 
final rule. However, we have made a clarifying addition. In Sec.  
411.24, we have revised paragraph (m)(2)(ii) to make explicit that 
interest is applied for full 30-day periods.

IV. 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 (OMB) under the authority of the 
Paperwork Reduction Act of 1995 (PRA).

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V. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this rule 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 or more in any one year).
    This final rule is not a major rule. It simply changes the way we 
calculate interest on overpayments and underpayments and MSP debts. It 
does not change how overpayments or underpayments are determined, nor 
does it require providers, suppliers, or other entities to change the 
way they interact with us in determining overpayments and 
underpayments. It does not change how MSP debts are established.
    During fiscal year (FY) 2001, we recovered $167 million in interest 
on delinquent overpayments and MSP debts. In FY 2002 and FY 2003, we 
recovered $115.7 million and $93.4 million, respectively. Had this 
final rule been in effect, interest recoveries would have been $153 
million in FY 2001, $106.1 million in FY 2002, and $85.6 million in FY 
2003. This represents a difference of $14 million for FY 2001, $9.6 
million for FY 2002, and $7.8 million for FY 2003 due to the change in 
the interest calculation. During FY 2001, we paid $2.6 million in 
interest on underpayments; during FY 2002, we paid $5.2 million; and 
during FY 2003, we paid $4.1 million. Had this final rule been in 
effect, in FY 2001 interest payments would have been $2.4 million, a 
difference of $0.2 million. In FY 2002 interest payments would have 
been $4.8 million, a difference of $0.4 million; and in FY 2003 
interest payments would have been $3.8 million, a difference of $0.3 
million.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses, nonprofit organizations, and government agencies. 
Most hospitals, and most other providers, suppliers, health maintenance 
organizations, competitive medical plans, and health care prepayment 
plans are small entities, either by nonprofit status or by having 
revenues of $29 million or less in any one year. During FY 2001, we 
recovered $167 million in interest on delinquent overpayments and MSP 
debts; during FY 2002, we recovered $115.7 million; and during FY 2003, 
we recovered $93.4 million. Had this final rule been in effect, 
interest recoveries would have been $153 million during FY 2001, $106.1 
million during FY 2002, and $85.6 million during FY 2003, a difference 
of $14 million, $9.6 million, and $7.8 million, respectively. This 
would amount to 0.1 percent of the $13.5 billion in overpayments and 
MSP debts recovered during FY 2001 and less than 0.1 percent of the 
$13.4 billion recovered during FY 2002 and of the $14.5 billion 
recovered during FY 2003. During FY 2001, we paid $2.6 million in 
interest on underpayments; during FY 2002, we paid $5.2 million; and 
during FY 2003, we paid $4.1 million. Had this final rule been in 
effect, we would have paid $2.4 million during FY 2001, $4.8 million 
during FY 2002, and $3.8 million during FY 2003, a difference of $0.2 
million, $0.4 million, and $0.3 million, respectively. This would 
amount to less than 0.1 percent of the $236 billion, $246.8 billion, 
and $272.6 billion in benefit payments made during FY 2001, FY 2002, 
and FY 2003, respectively. For further details, see the Small Business 
Administration's regulation that set forth size standards for health 
care industries at 65 FR 69432.
    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.
    This final rule has no operations impact on any provider, supplier, 
or other entity including small rural hospitals. The final rule simply 
changes the way we calculate interest we assess on overpayments and 
underpayments and MSP debts. It does not change how overpayments or 
underpayments are determined nor require providers, suppliers, or other 
entities to change how they interact with us in determining 
overpayments or underpayments. Therefore, we have determined that this 
final rule would not have a significant effect on the operations of a 
substantial number of rural hospitals. Because the interest we collect 
in a year far exceeds the interest we pay, the majority of providers, 
suppliers, and other entities will benefit from changing the method of 
calculating interest.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in an expenditure in any 1 year by 
State, local, or tribal governments, in the aggregate, or by the 
private sector, of $110 million. During the three-year period from FY 
2001 through FY 2003, we recovered $167 million, $115.7 million, and 
$93.4 million, respectively, in interest on delinquent overpayments and 
MSP debts. Had this final rule been in effect, interest recoveries 
would have been $153 million during FY 2001, a difference of $14 
million. For FY 2002, interest recoveries would have been $106.1 
million, a difference of $9.6 million, and for FY 2003, $85.6 million, 
a difference of $7.8 million. During FY 2001, we paid $2.6 million in 
interest on underpayments. Had this final rule been in effect, we would 
have paid $2.4 million, a difference of $0.2 million. During FY 2002, 
we paid $5.2 million in interest on underpayments, and during FY 2003, 
we paid $4.1 million. Had this final rule been in effect, interest 
payments in FY 2002 would have been $4.8 million, a difference of $0.4 
million, and in FY 2003, $3.8 million, a difference of $0.3 million.
    This final rule does not have an impact on State, local, or tribal 
governments. It reduces annual expenditures by providers, suppliers, or 
other entities in the private sector because it changes the way that we 
compute interest on any delinquent overpayments or MSP debts owed to 
us. Additionally, the change in interest calculation that we pay on 
underpayments owed to providers, suppliers, and other entities will not 
be an expenditure by a State, local, or tribal government.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. This final rule imposes no direct requirement costs on 
State and local governments, does not preempt State law, or have any 
Federalism implications. By changing how we calculate interest, we are 
reducing the amount of interest assessed on overpayments and MSP debts 
owed to

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us and underpayments owed by us to providers, suppliers, and other 
entities.

B. Effects on the Medicare and Medicaid Programs

    This final rule reduces the amount of interest assessed on Medicare 
overpayments and underpayments and MSP debts. During FY 2001, we 
recovered $167 million in interest on delinquent overpayments and MSP 
debts. Had this final rule been in effect, interest recoveries would 
have been $153 million, a difference of $14 million. During FY 2001, we 
paid $2.6 million in interest on underpayments. Had this final rule 
been in effect, we would have paid $2.4 million, a difference of $0.2 
million. During FY 2002, we recovered $115.7 million in interest on 
delinquent overpayments and MSP debts. Had this final rule been in 
effect, interest recoveries would have been $106.1 million, a 
difference of $9.6 million. During FY 2002, we paid $5.2 million in 
interest on underpayments. Had this final rule been in effect, we would 
have paid $4.8 million, a difference of $0.4 million. In FY 2003, 
interest recoveries were $93.4 million and would have been $85.6 
million, or $7.8 million less, had this rule been in effect. In FY 
2003, interest we paid was $4.1 million and would have been $3.8 
million, or $0.3 million less, had this rule been in effect. There is 
no effect on the Medicaid program.

C. Alternatives Considered

    We considered a number of other methods to use in calculating the 
amount of interest owed. We assessed the relative merits of alternative 
calculation methods based on two primary criteria: comparability to a 
commercial business model and secondly, relative ease and cost of 
administration. Applying the first criterion precludes continuing our 
current calculation method. Under this final rule, we are able to use 
commercially obtained off-the-shelf software to calculate interest. As 
in the private sector, the debtor will still have a set payment period 
to pay the amount owed without additional interest being assessed 
during the payment period. We considered calculating and assessing 
interest on a daily basis but determined this would be prohibitively 
expensive and administratively burdensome for Medicare contractors, 
providers, beneficiaries, and other entities.

D. Conclusion

    This final rule is not a major rule. It does not change the way 
overpayments or underpayments are determined, nor how MSP debts are 
established. It does not have a significant impact on a substantial 
number of rural hospitals. Since a partial period is no longer 
considered a full 30-day period, interest assessed on amounts owed to 
us will be reduced. Therefore, this final rule reduces State, local, 
and tribal government expenditures. The final rule does not impose any 
direct requirement costs on State and local governments and does not 
preempt State law or have any Federalism implications.
    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 
does 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.
    In accordance with the provisions of Executive Order 12866, this 
final rule was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 405

    Administrative practice and procedure, Health facilities, Health 
professions, Kidney diseases, Medical devices, Medicare, Reporting and 
recordkeeping requirements, Rural areas, X-rays.

42 CFR Part 411

    Kidney diseases, Medicare, Reporting and recordkeeping 
requirements.


0
For the reasons set forth in the preamble, the Centers for Medicare & 
Medicaid Services amends 42 CFR chapter IV as set forth below:

PART 405--FEDERAL HEALTH INSURANCE FOR THE AGED AND DISABLED

Subpart C--Suspension of Payment, Recovery of Overpayments, and 
Repayment of Scholarships and Loans

0
1. The authority citation for part 405, subpart C, continues to read as 
follows:

    Authority: Secs. 1102, 1815, 1833, 1842, 1866, 1870, 1871, 1879, 
and 1892 of the Social Security Act (42 U.S.C. 1302, 1395g, 1351, 
1395u, 1395cc, 1395gg, 1395hh, 1395pp, and 1395ccc) and 31 U.S.C. 
3711.

0
2. In Sec.  405.378, paragraph (b)(2) is revised to read as follows:


Sec.  405.378  Interest charges on overpayments and underpayments to 
providers, suppliers, and other entities.

* * * * *
    (b) * * *
* * * * *
    (2) Interest accrues from the date of the final determination as 
defined in paragraph (c) of this section, and either is charged on the 
overpayment balance or paid on the underpayment balance for each full 
30-day period that payment is delayed.
* * * * *

PART 411--EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE 
PAYMENT

0
3. The authority citation for part 411 continues to read as follows:

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

Subpart B--Insurance Coverage That Limits Medicare Payment; General 
Provisions

0
4. In Sec.  411.24, paragraphs (m)(2)(ii) and (iii) are revised to read 
as follows:


Sec.  411.24  Recovery of conditional payments.

* * * * *
    (m) * * *
    (2) * * *
    (ii) Interest may accrue from the date when that notice or other 
information is received by CMS, is charged until reimbursement is made, 
and is applied for full 30-day periods; and
    (iii) The rate of interest is that provided at Sec.  405.378(d) of 
this chapter.

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: February 26, 2004.
Dennis G. Smith,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: April 15, 2004.
Tommy G. Thompson,
Secretary.
[FR Doc. 04-17316 Filed 7-29-04; 8:45 am]
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