[Federal Register Volume 72, Number 230 (Friday, November 30, 2007)]
[Rules and Regulations]
[Pages 67653-67656]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-23217]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 455

[CMS-2264-F]
RIN 0938-AO88


Medicaid Integrity Program; Limitation on Contractor Liability

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

ACTION: Final rule.

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SUMMARY: The Medicaid Integrity Program (the Program) provides that the 
Secretary promote the integrity of the Medicaid program by entering 
into contracts with contractors that will review the actions of 
individuals or entities furnishing items or services (whether fee-for-
service, risk, or other basis) for which payment may be made under an 
approved State plan and/or any waiver of the plan approved under 
section 1115 of the Social Security Act; audit claims for payment of 
items or services furnished, or administrative services furnished, 
under a State plan; identify overpayments of individuals or entities 
receiving Federal funds; and educate providers of services, managed 
care entities, beneficiaries, and other individuals with respect to 
payment integrity and quality of care. This final rule will provide for 
limitations on a contractor's liability while performing these services 
under the Program.
    The final rule will, to the extent possible, employ the same or 
comparable standards and other substantive and procedural provisions as 
are contained in section 1157 (Limitation on Liability) of the Social 
Security Act.

DATES: Effective Date: These regulations are effective on December 31, 
2007.

FOR FURTHER INFORMATION CONTACT: Barbara Rufo, 410-786-5589 or Crystal 
High, 410-786-8366.

SUPPLEMENTARY INFORMATION: 

I. Background

A. Current Law

    States and the Federal Government share in the responsibility for 
safeguarding Medicaid program integrity. States must comply with 
Federal requirements designed to ensure that Medicaid funds are 
properly spent (or recovered, when necessary). The Centers for Medicare 
& Medicaid Services (CMS) is the primary Federal agency responsible for 
providing oversight of States' activities and facilitating their 
program integrity efforts.

B. Medicaid Integrity Program

    Section 6034 of the Deficit Reduction Act (DRA) of 2005 (Pub. L. 
109-171, enacted on February 8, 2006) amended title XIX of the Social 
Security Act (the Act), (42 U.S.C. 1396 et seq.) by redesignating the 
old section 1936 as section 1937; and inserting the new section 1936 to 
combat Medicaid fraud and abuse. For the first time, the Program 
authorizes the Federal Government to directly identify, recover, and 
prevent inappropriate Medicaid payments. It will also support the 
efforts of the State Medicaid agencies through a combination of 
oversight and technical assistance.
    Although individual States work to ensure the integrity of their 
respective Medicaid programs, the Program represents CMS' first 
comprehensive national strategy to detect and prevent Medicaid fraud 
and abuse. The Program will provide CMS with the ability to more 
directly ensure the accuracy of Medicaid payments and to deter those 
who would exploit the program.
    The new section 1936 of the Act states that the Secretary shall 
promote the integrity of the Medicaid program by entering into 
contracts with eligible entities to carry out the following activities:
    1. Review of the actions of individuals or entities furnishing 
items or services (whether on a fee-for-service, risk or other basis) 
for which payment may be made under a State plan approved under title 
XIX (or under any waiver of this plan approved under section 1115 of 
the Act) to determine whether fraud, waste, and/or abuse has occurred, 
or is likely to occur, or whether these actions have any potential for 
resulting in an expenditure of funds under title XIX in a manner that 
is not intended under the provisions of title XIX.
    2. Audit of claims for payment for items or services furnished, or 
administrative services rendered, under a State plan under title XIX, 
including cost reports, consulting contracts; and risk contracts under 
section 1903(m) of the Act.
    3. Identification of overpayments to individuals or entities 
receiving Federal funds under title XIX.
    4. Education of providers of services, managed care entities, 
beneficiaries, and other individuals with respect to payment integrity 
and quality of care.
    Section 1936 of the Act also provides that the Secretary will, by 
regulation, provide for the limitation of a contractor's liability for 
actions taken to carry out a contract under the Medicaid Integrity 
Program.

II. Provisions of the Proposed Regulation and Response to Comments

Limitations on Contractor Liability

    Section 6034 of the Deficit Reduction Act of 2005 amended title XIX 
of the Act by establishing, under the new section 1936, the Medicaid 
Integrity Program to promote the integrity of the Medicaid program by 
authorizing the Centers for Medicare & Medicaid Services (CMS) (on 
behalf of the Secretary) to enter into contracts with contractors that 
will (1) review the actions of individuals or entities

[[Page 67654]]

furnishing items or services (whether fee-for-service, risk, or other 
basis) for which payment may be made under an approved State plan and/
or any waiver of the plan approved under section 1115 of the Social 
Security Act; (2) audit claims for payment of items or services 
furnished, or administrative services rendered, under a State plan; (3) 
identify overpayments to individuals or entities receiving Federal 
funds under title XIX; and (4) educate providers of services, managed 
care entities, beneficiaries, and other individuals with respect to 
payment integrity and quality of care. This final rule will set forth 
limitations on a contractor's liability while performing these services 
under the Program.
    Contractors that perform activities under the Program will be 
reviewing activities of providers and others seeking Medicaid payment 
for providing services to Medicaid beneficiaries. In an effort to 
reduce or eliminate the Program contractors' exposure to possible legal 
action from entities they review, section 1936 of the Act requires that 
we, by regulation, limit the Program contractor's liability for actions 
taken in carrying out its contract. We must establish, to the extent we 
find appropriate, standards and other substantive and procedural 
provisions that are the same as, or comparable to, those contained in 
section 1157 of the Act.
    Section 1157 of the Act provides that any organization having a 
contract (under Title XI, Part B of the Act) with the Secretary, as 
well as its employees, fiduciaries, and anyone who furnishes 
professional services to such an organization, is/are protected from 
civil and criminal liability in performing its duties under the Act or 
its contract, provided these duties are performed with due care.
    In the July 20, 2007 Federal Register (72 FR 39766), we published 
the proposed rule entitled, ``Medicaid Integrity Program; Limitation on 
Contractor Liability,'' and provided for a 30-day public comment 
period. We received a total of 1 timely comment from a health care 
association. The comment questioned the proposed provisions and we 
responded with further clarification in our response. Brief summaries 
for each proposed provision, a summary of the public comments we 
received, and our responses to comments, are set forth below.

General Comments

    Comment: A commenter expressed concern that CMS has not provided 
the health care community or the public any information about the 
federal government's discussions on the Program's contractors, termed 
Medicaid Integrity Contractor's, (MIC) roles, responsibilities, and 
qualifications. The commenter also stated the MICs may not understand 
state-specific payment methodologies, resulting in a significant 
learning curve. The commenter also expressed concern that a lack of 
public information about the capabilities of the contractors prevents 
the transparency which all federal government programs should strive to 
achieve.
    Response: We appreciate the commenter's concerns regarding 
information sharing and transparency, as well as the concern that the 
MICs may face a significant learning curve in developing a knowledge 
base and experience regarding state-specific practices. To address 
these concerns, we have been working aggressively with our state and 
federal partners and stakeholders (State Medicaid Directors, State 
Program Integrity Directors, Medicaid Fraud Control Unit Directors, the 
Federal Bureau of Investigation, and HHS' Office of Inspector General) 
to share information and to obtain their input on our planning efforts. 
We have also presented information regarding both the Program and MICs 
at conferences of national and regional associations, including the 
National Association of State Medicaid Directors and the National 
Association for Medicaid Program Integrity. To address the MICs' 
potential learning curve, we have engaged strategic development 
contractors to help us build upon the tools and expertise we already 
have. These strategic contractors are assisting by developing state 
program integrity profiles, and developing audit protocols, 
methodologies, and standards for the MICs to use. These tools will 
establish a solid knowledge baseline for the MICs, enabling them to get 
off to an aggressive, well-informed start. Moreover, we strive to 
inform the public about our mission and accomplishments, and encourage 
interested parties to utilize CMS' internet site to learn more about 
Medicaid program integrity generally at: http://www.cms.hhs.gov/MCAIDFraudAbuseGenInfo/, and more specific information about the CMS' 
Medicaid integrity implementation plan and efforts at: http://www.cms.hhs.gov/DeficitReductionAct/Downloads/CMIPupdateaugust2007final.pdf.
Section 455.1 Basis and Scope
    The proposed rule, in Sec.  455.1, Basis and scope, added a new 
paragraph (c) stating that subpart C implements section 1936 of the 
Act. Section 1936 of the Act establishes the Medicaid Integrity Program 
under which the Secretary will promote the integrity of the program by 
entering into contracts with eligible entities to carry out the 
activities under subpart C. We did not receive public comments on this 
provision, therefore we adopt the provision as final.

Subpart C--Medicaid Integrity Program

Section 455.200 Basis and Scope
    In Sec.  455.200(a), we set forth the proposed statutory basis 
which would implement section 1936 of the Act, which states that the 
Secretary will promote the integrity of the Medicaid program by 
entering into contracts with eligible entities to carry out the 
activities under subpart C. In Sec.  455.200(b) we proposed the scope 
for the limitation on a contractor's liability to carry out a contract 
under the Medicaid Integrity Program as proposed under new Sec.  
455.202. We did not receive public comments on this provision; 
therefore we adopt the provision as final.
Section 455.202 Limitation on Contractor Liability
    We proposed in Sec.  455.202 to protect Program contractors from 
liability in the performance of their contracts provided they carry out 
their contractual duties with due care.
    Comment: A commenter questioned the proposed standard for the MICs 
which states they will be protected from civil and criminal liability 
in performing their duties so long as they perform these duties with 
``due care.'' The commenter expressed that under such a standard, the 
Federal Government cannot sufficiently ensure that the MICs will be 
held adequately accountable for their actions.
    Response: As explained in the proposed rule, we believe that the 
due care standard specified in Sec.  455.202 is the only standard 
consistent with the statutory mandate of the Act. Section 1936 of the 
Act require us to limit a contractor's liability by employing the same 
or comparable standards and provisions as are contained in section 1157 
of the Act. Section 1157 of the Act limits a contractor's liability 
under a due care standard. We believe that applying this standard to 
the MICs strikes a reasonable balance between the concerns of the 
contractors and those subject to the contractors' review. We further 
believe the MICs will operate with due care to avoid liability, and 
those being reviewed have the assurance that they have legal recourse 
if a contractor fails to abide by that standard.

[[Page 67655]]

Alternative Standards of Liability Considered

    In accordance with section 1936 of the Act, we proposed to employ 
the same standards for payment of legal expenses as are contained in 
section 1157(d) of the Act. Therefore, in Sec.  455.202(b) we proposed 
that we make payment to Program contractors, their members, employees, 
and anyone who provides legal counsel or services to them, for expenses 
incurred in the defense of any legal action related to the performance 
of the Program contract. We also proposed that any and all payment(s) 
and the amount of each payment(s) if any, will be determined 
exclusively by us, and conditioned upon (1) the reasonableness of the 
expense(s); (2) the amount of government funds available for 
payment(s); and (3) whether the payment(s) is(are) allowable under the 
terms of the contract.
    In Sec.  455.202, we considered employing a standard for the 
limitation of liability other than the due care standard. We considered 
whether it would be appropriate to provide that a contractor would not 
be civilly liable by reason of the performance of any duty, function, 
or activity under its contract provided the contractor was not grossly 
negligent in that performance. However, section 1936 of the Act 
requires that we employ the same or comparable standards and provisions 
as are contained in section 1157 of the Act. This approach is 
consistent with a similar approach taken in the Medicare Integrity 
Program (72 FR 48870), which has virtually identical statutory 
limitations on contractor liability language. Therefore, we did not 
believe that it would be appropriate to expand the scope of immunity to 
a standard of gross negligence, as it would not be a comparable 
standard to that set forth in section 1157(b) of the Act.

III. Provisions of the Final Rule

    In this final rule we are adopting the provisions as set forth in 
the July 20, 2007 proposed rule (72 FR 39776) as final.

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 under the authority of the 
Paperwork Reduction Act of 1995.

V. Regulatory Impact Statement

    We have examined the impact of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 19, 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 1 year). This rule 
will not reach the economic threshold and thus is not considered a 
major rule.
    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 small governmental 
jurisdictions. 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. We are not preparing an 
analysis for the RFA because we have determined that this rule will 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 604 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. We are not preparing an 
analysis for section 1102(b) of the Act because we have determined that 
this rule will not have a significant impact on the operations of a 
substantial number of 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 whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. That threshold 
level is currently approximately $120 million. This rule will have no 
consequential effect on State, local, or tribal governments or on the 
private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a rule that imposes substantial 
direct requirement costs on State and local governments, preempts State 
law, or otherwise has Federalism implications. Since this regulation 
will not impose any costs on State or local governments, the 
requirements of E.O. 13132 are not applicable.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 455

    Fraud, Grant programs--health, Health facilities, Health 
professions, Investigations, Medicaid, 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 455--PROGRAM INTEGRITY; MEDICAID

0
1. The authority citation for part 455 continues to read as follows:

    Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).


0
2. In Sec.  455.1, add new paragraph (c) to read as follows:


Sec.  455.1  Basis and scope.

* * * * *
    (c) Subpart C implements section 1936 of the Act. It establishes 
the Medicaid Integrity Program under which the Secretary will promote 
the integrity of the program by entering into contracts with eligible 
entities to carry out the activities of subpart C.

0
3. New subpart C, consisting of Sec.  455.200 and Sec.  455.202, is 
added to part 455 to read as follows:
Subpart C--Medicaid Integrity Program
Sec.
455.200 Basis and scope.
455.202 Limitation on contractor liability.

Subpart C--Medicaid Integrity Program


Sec.  455.200  Basis and scope.

    (a) Statutory basis. This subpart implements section 1936 of the 
Act that establishes the Medicaid Integrity Program under which the 
Secretary will promote the integrity of the program by entering into 
contracts with eligible entities to carry out the activities under this 
subpart C.
    (b) Scope. This subpart provides for the limitation on a 
contractor's liability to carry out a contract under the Medicaid 
Integrity Program.

[[Page 67656]]

Sec.  455.202  Limitation on contractor liability.

    (a) A program contractor, a person, or an entity employed by, or 
having a fiduciary relationship with, or who furnishes professional 
services to a program contractor will not be held to have violated any 
criminal law and will not be held liable in any civil action, under any 
law of the United States or of any State (or political subdivision 
thereof), by reason of the performance of any duty, function, or 
activity required or authorized under this subpart or under a valid 
contract entered into under this subpart, provided due care was 
exercised in that performance and the contractor has a contract with 
CMS under this subpart.
    (b) CMS pays a contractor, a person, or an entity described in 
paragraph (a) of this section, or anyone who furnishes legal counsel or 
services to a contractor or person, a sum equal to the reasonable 
amount of the expenses, as determined by CMS, incurred in connection 
with the defense of a suit, action, or proceeding, if the following 
conditions are met:
    (1) The suit, action, or proceeding was brought against the 
contractor, person or entity by a third party and relates to the 
contractor's, person's or entity's performance of any duty, function, 
or activity under a contract entered into with CMS under this subpart.
    (2) The funds are available.
    (3) The expenses are otherwise allowable under the terms of the 
contract.

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)

    Dated: September 27, 2007.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: October 9, 2007.
Michael O. Leavitt,
Secretary.
[FR Doc. E7-23217 Filed 11-29-07; 8:45 am]
BILLING CODE 4120-01-P