[Federal Register Volume 73, Number 188 (Friday, September 26, 2008)]
[Rules and Regulations]
[Pages 55753-55763]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-22307]



[[Page 55753]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 421

[CMS-6022-F]
RIN 0938-AN31


Medicare Program; Termination of Non-Random Prepayment Complex 
Medical Review

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

ACTION: Final rule.

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SUMMARY: This final rule implements requirements regarding the 
termination of non-random prepayment complex medical review as required 
under the Medicare Prescription Drug, Improvement and Modernization Act 
of 2003. This final rule sets forth the criteria CMS contractors will 
use for terminating a provider or supplier from non-random prepayment 
complex medical review.

DATES: Effective Date: These regulations are effective on January 1, 
2009.

FOR FURTHER INFORMATION CONTACT: Debbie Skinner, (410) 786-7480; or 
Daniel Schwartz, (410) 786-4197.

SUPPLEMENTARY INFORMATION:

I. Background

    CMS's Medicare contracting authority has been in place since the 
inception of the Medicare program in 1965. Section 1874 of the Social 
Security Act (the Act) authorizes the Secretary to perform Medicare 
program functions directly or by contract.
    On August 21, 1996, the Congress enacted the Health Insurance 
Portability and Accountability Act of 1996 (HIPAA) (Pub. L. 104-191). 
Section 202 of HIPAA added section 1893 to the Act to establish the 
Medicare Integrity Program and to allow CMS to contract with eligible 
entities to perform program integrity activities. Specifically, we 
contract with the following entities: Intermediaries as specified in 
section 1816(a) of the Act; carriers as specified in section 1842(a) of 
the Act; and program safeguard contractors (PSCs) to perform medical, 
fraud, and utilization reviews, and cost report audits of Medicare 
claims. (Hereinafter, intermediaries, carriers, and PSCs that perform 
medical review functions are referred to as ``contractors.'') The 
Medicare Integrity Program is funded by the Medicare Hospital Insurance 
Trust Fund for activities related to Medicare Part A and Part B.
    On December 8, 2003, the Congress enacted the Medicare Prescription 
Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-
173). Section 934 of the MMA amended section 1874A of the Act by adding 
a new subsection regarding random prepayment reviews and non-random 
prepayment complex medical reviews, and requiring CMS to establish 
termination date(s) for non-random prepayment complex medical reviews 
performed by Medicare Administrative Contractors (MACs) (or 
intermediaries and carriers until MACs are in place). While section 
1874A of the Act does not require CMS to establish termination dates 
for non-random prepayment complex medical reviews performed by PSCs, we 
have authority to apply these termination dates to medical review 
performed by PSCs under section 1893(b) of the Act. Applying this final 
rule to all contractors who perform non-random prepayment complex 
medical review not for benefit integrity purposes ensures that the same 
criteria for terminating non-random prepayment complex medical review 
apply to all providers and suppliers, whether they are under review by 
a MAC or a PSC.
    Although section 934 of the MMA sets forth requirements for random 
prepayment review, our contractors currently do not perform random 
prepayment review. However, our contractors do perform non-random 
prepayment complex medical review. We are cognizant of the need for 
additional rulemaking should we wish our contractors to perform random 
review.
    In the October 7, 2005 Federal Register (70 FR 58649), we published 
a proposed rule specifying the criteria contractors would use for the 
termination of providers and suppliers from non-random prepayment 
complex medical review as required under the MMA (hereinafter referred 
to as the proposed rule).
    For purposes of this regulation, we are defining the following 
terms related to medical review activities:
    Allowable charge means the dollar amount (including co-payment and 
deductibles) that the Medicare program will pay for a particular item 
or service.
    Benefit integrity review means medical review of claim information 
and medical documentation focusing on addressing situations of 
potential fraud, waste and abuse.
    Complex medical review means review of claim information and 
medical documentation, by a licensed medical professional, for a billed 
item or service identified by data analysis techniques or probe review 
to have a likelihood of sustained or high level of payment error.
    Contractor means intermediaries, carriers, Medicare Administrative 
Contractors (MACs), and program safeguard contractors (PSCs).
    Error rate means the dollar amount of allowable charges for a 
particular item or service billed in error as determined by complex 
medical review, divided by the dollar amount of allowable charges for 
that medically reviewed item or service.
    Initial error rate means the calculation of an error rate based on 
the results of a probe review prior to the initiation of non-random 
prepayment complex medical review.
    Medical review means the process performed by Medicare contractors 
to ensure that billed items or services are covered and are reasonable 
and necessary as specified under section 1862(a)(1)(A) of the Act.
    Nonclinician medical review staff means specially trained medical 
review staff that does not possess the knowledge, skills, training, or 
medical expertise of a licensed medical professional.
    Non-random prepayment complex medical review means the prepayment 
medical review of claim information and medical documentation, by a 
licensed medical professional, for a billed item or service identified 
by data analysis techniques or probe review to have a likelihood of 
sustained or high level of payment error.
    Non-random prepayment medical review means the prepayment medical 
review of claims, by nonclinical or clinical medical review staff, for 
a billed item or service identified by data analysis techniques or 
probe review to have a likelihood of a sustained or high level of 
payment error.
    Postpayment medical review means medical review of claims, by 
nonclinical or clinical medical review staff, for a billed item or 
service after a claim has been paid.
    Provider-specific probe review means the complex medical review of 
a small sample of claims, generally 20 to 40 claims, from a specific 
provider or supplier for a specific billing code to confirm that or 
determine whether the provider or supplier is billing the program in 
error.
    Quarterly error rate means the calculation of an error rate based 
on the results of non-random prepayment complex medical review for a 
specific billing code for a specific quarter.
    Random prepayment medical review means the prepayment medical 
review of claims, by nonclinical or clinical medical review staff, for 
a billed item or

[[Page 55754]]

service that has not been identified by data analysis techniques or 
probe review to have a likelihood of a sustained or high level of 
payment error.
    Service-specific probe review means the complex medical review of a 
sample of claims, generally 100 claims, across the providers or 
suppliers that bill a particular item or service to confirm that or 
determine whether the item or service is billed in error.
    Termination of non-random prepayment complex medical review means 
the cessation of non-random prepayment complex medical review.

II. General Overview of the Medical Review Process and Provisions of 
the Proposed Rule

A. Medical Review

    We enter into contractual agreements with contractors to perform 
medical review functions. One of the functions of a contractor is to 
ensure the fiscal integrity of the Medicare program by conducting 
medical review of claims to determine whether items or services are 
covered and are reasonable and necessary. When a claim is submitted for 
payment, it may be subject to medical review before payment is made.
    There are three types of non-random prepayment medical review: 
Automated, routine, and complex. Non-random prepayment medical review 
is one form of targeted medical review. An automated non-random 
prepayment medical review is when decisions are made at the system 
level, using available electronic information, without the intervention 
of contractor personnel. A routine non-random prepayment medical review 
is limited to rule-based determinations performed by specially trained 
nonclinical medical review staff. Automated and routine non-random 
prepayment medical reviews do not create an administrative burden on 
the provider or supplier since additional medical documentation does 
not need to be submitted for these types of medical reviews and 
payments for covered, reasonable and necessary items or services are 
not delayed. Therefore, these types of reviews pose no discernable 
administrative burden on the provider or supplier because there is no 
interaction between the contractor and the provider or supplier during 
the medical review process.
    Non-random prepayment complex medical review is the evaluation of 
medical records or any other documentation by a licensed medical 
professional prior to Medicare payment. Complex medical review 
determinations require the reviewer to make a clinical judgment about 
whether an item or service is covered, and is reasonable and necessary. 
In order for this determination to be made, the provider or supplier 
must submit a copy of the medical records that indicate that the items 
or services billed are covered, and are reasonable and necessary for 
the condition of the patient. This type of review delays payment until 
the contractor is able to make a determination that the items or 
services billed are covered and are reasonable and necessary. This 
final rule only applies to terminating a provider or supplier from non-
random prepayment complex medical review. (A detailed description of 
the concepts for performing the different types of non-random 
prepayment medical review functions are located in our manual 
instructions at: http://www.cms.hhs.gov/manuals/IOM/list.asp and then 
click on ``Publication 100-08.'')
    Generally, with non-random prepayment complex medical review, the 
contractor employs data analysis procedures to identify claims that may 
be billed inappropriately. These procedures may be based on claims data 
(national and local), beneficiary complaints, and alerts from other 
organizations (for example, the U.S. Department of Health and Human 
Services Office of Inspector General and the Government Accountability 
Office). When a contractor identifies a likelihood of sustained or high 
level of payment error, the contractor may request supporting medical 
record documentation. Examples of a high level of payment error include 
unusual patterns such as prescribing the same items or services for a 
high number of patients, consistently prescribing inappropriate 
treatments, unexplained increases in volume when compared to historical 
or peer trends, or any other reasons as determined by the Secretary or 
his designees.
    Before a contractor places a provider or supplier on non-random 
prepayment complex medical review, the contractor performs a probe 
review (that is, complex medical review of a small sample of claims for 
a specific billing code, generally 20 to 40 claims to confirm that the 
provider or supplier is billing the program in error). In the case of a 
widespread ``item or service-specific'' problem, a larger sample of 
claims (generally, 100 claims of the item or service in question) would 
be subjected to complex medical review. Performing medical review on a 
sample of claims for a specific billing code before placing the 
provider or supplier on non-random prepayment complex medical review 
allows for a determination as to whether a problem exists, ensures that 
contractor medical review resources are targeted appropriately, and 
ensures that providers and suppliers are not unnecessarily burdened.
    When a probe confirms or determines whether a provider or supplier 
is billing the program in error, and those billing errors present a 
likelihood of sustained or high level of payment error (for example, a 
high billing error rate or errors on claims representing high dollar 
value) this may result in the provider or supplier being placed by the 
contractor on non-random prepayment complex medical review. Contractors 
target their medical review activities at those providers, suppliers, 
items, or services that pose the greatest risk of improper payments 
from the Medicare Trust Funds.
    Complex medical review as defined in Sec.  421.501 (proposed Sec.  
421.401), involves the application of clinical judgment by a licensed 
medical professional in order to evaluate medical records to determine 
whether an item or service billed is covered, correctly coded, and 
reasonable and necessary for the condition of the patient under 
Medicare rules.
    Medical records, defined at Sec.  421.501 (proposed Sec.  421.401), 
include any medical documentation, other than what is included on the 
face of the claim that supports the item or service that is billed. For 
Medicare to consider coverage and payment for any item or service, the 
claims submitted by the supplier or provider must be supported by the 
documentation in the patient's medical records. The patient's medical 
records may include the following: (1) Physician's office records; (2) 
hospital records; (3) nursing home records; (4) home health agency 
records; (5) records from other healthcare professionals; and (6) 
diagnostic testing reports and other supporting documentation. The 
contractor specifies what documentation it needs to conduct medical 
review. Providers and suppliers may be required to supply additional 
documentation not explicitly listed by the contractor. This supporting 
information may be requested by CMS and our contractors on a routine 
basis in instances where information on the claims (for example, 
diagnosis, frequency, site of service) or in claims history does not 
clearly indicate medical necessity.
    Any determination must be documented by the contractor and include 
the rationale for the decision. While medical review staff must follow 
National Coverage Determinations and Local Coverage Determinations, 
they are

[[Page 55755]]

expected to use their expertise to make clinical judgments when making 
medical review determinations. They must take into consideration the 
clinical condition of the beneficiary as indicated by the beneficiary's 
diagnosis and medical history when making these determinations. At any 
time during the medical review process where the contractor detects 
possible fraud, the contractor would refer the issue to the contractor 
responsible for benefit integrity review.
    Before the enactment of the MMA, we continued to perform non-random 
prepayment complex medical review until the provider or supplier met 
all Medicare billing requirements as evidenced by an acceptable error 
rate. The contractor made the determination of ``acceptable error 
rate.'' As a result, some providers and suppliers have remained on non-
random prepayment complex medical review for a considerable period of 
time.

B. Termination of Non-Random Prepayment Complex Medical Review

    In accordance with section 934 of the MMA, we proposed to 
terminate, in most cases, a provider or supplier from non-random 
prepayment complex medical review no later than 1 year from the 
initiation of the review, or when the provider's or supplier's error 
rate decreases by 70 percent from the initial error rate (70 FR 58651, 
October 7, 2005). The initiation of review begins on the date of 
notification by the contractor to the provider or supplier. This letter 
notification would inform the provider or supplier of the results of 
the probe review and inform the provider or supplier that they are 
being placed on non-random prepayment complex medical review.
    In the proposed rule, we proposed that a provider or supplier be 
terminated from non-random prepayment complex medical review if error 
rate findings indicate that the provider or supplier has corrected its 
billing errors, resulting in at least a 70 percent decrease from its 
initial error rate (70 FR 58651, October 7, 2005). For a discussion of 
our rationale for setting this percentage for purposes of this 
regulation, see the proposed rule (70 FR 58651, October 7, 2005).
    We did not explicitly propose whether there is a minimum timeframe 
that a provider or supplier must be on non-random prepayment complex 
medical review. We proposed that the initial error rate would be 
calculated based on the probe review prior to the initiation of non-
random complex prepayment medical review.
    We proposed when a provider or supplier is terminated from non-
random prepayment complex medical review and the contractor determines 
that the provider or supplier continues to have a high error rate 
despite educational interventions, the contractor must consider 
referring the provider or supplier to the contractor responsible for 
Benefit Integrity review. Contractors must also consider continuing 
educational interventions (without performing further medical review) 
or consider the need for post-payment medical review.
    We also proposed that a contractor must extend a non-random 
prepayment complex medical review beyond the 1-year limit in certain 
situations where the provider or supplier may have altered its billing 
practices in such a way to avoid or minimize contractor review. We 
proposed if the reduction in the error rate is attributed to a 25 
percent or greater reduction in the number of claims submitted for the 
specific billing code under review, non-random prepayment complex 
medical review for that provider or supplier must be extended.
    We also proposed if the number of claims submitted for a specific 
code was reduced because the provider or supplier began billing claims 
using a new appropriate code, or there is another legitimate 
explanation for the reduced number of claims billed, at the 
contractor's discretion, the provider or supplier may not be required 
to undergo extended non-random prepayment complex medical review. If 
extended medical review is necessary, contractors would notify 
providers and suppliers in writing of the reason for the need to 
perform additional prepayment complex medical review.
    We proposed that the contractor would evaluate the results of non-
random complex prepayment medical review, and the length of time a 
provider or supplier remains on review, at least every quarter 
following the initiation of non-random prepayment complex medical 
review. Quarterly error-rate evaluations would be for the discrete 
quarter; a rolling error rate average over more than one quarter would 
not be appropriate. We also proposed that after the contractor 
determines that the provider or supplier must be terminated from non-
random prepayment complex medical review, the contractor must update 
the claims processing system within 2 business days to ensure that the 
provider's and supplier's claims are no longer suspended for that 
specific billing error.
    We proposed that once a provider or supplier is terminated from 
non-random prepayment complex medical review contractors must 
periodically reevaluate the provider or supplier's data and retain the 
discretion to place a provider or supplier that appears to have resumed 
a high level of payment error on complex prepayment medical review. The 
proposed rule stated that before placing a provider or supplier back on 
non-random prepayment complex medical review, the contractor must 
conduct a probe review to confirm that there continues to be a high 
level of payment error (70 FR 58652, October 7, 2005). If such review 
finds a high level of payment error, the contractor may place the 
provider or supplier back on non-random prepayment complex medical 
review.

III. Analysis of and Response to Public Comments

    We received 18 timely public comments on the proposed rule. The 
following is a summary of the comments received and our responses.

A. Comments Regarding the Proposed 70 Percent Decrease in Error Rate

    Comment: We received several comments concerning whether the 70 
percent decrease in error rate was an appropriate number in order for a 
provider or supplier to be terminated from non-random prepayment 
complex review. Some commenters generally agreed with this percentage 
and others believed it should be lower.
    Response: The commenters requested many different error rates, many 
of which were lower than what we proposed, but we did not find 
consensus among the commenters for any one particular error rate. Since 
there was no consensus on an alternate percentage, we are leaving the 
percentage as originally proposed. We believe it strikes a fair balance 
between safeguarding the Medicare Trust Funds and providing a rational 
and predictable process for providers and suppliers to be removed from 
non-random prepayment complex medical review.
    Comment: One commenter believed that the proposed 70 percent 
decrease in error rate should only apply to nonclinical aspects of 
error determination. Instead, the commenter proposed a 51 percent 
decrease as a threshold for reviewing clinical decision making 
outcomes, asserting this would improve the mathematic probability of 
termination in such cases because reviewers may form subjective 
clinical judgments from reviewing mostly documentation and being unable 
to clinically verify diagnoses. Also, the commenter believed a 51 
percent reduction would provide small to

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medium-sized providers a fair opportunity for successful termination.
    Response: We believe that regardless of whether the denial is based 
on a nonclinical or clinical error, it is still a denial for improper 
payment. We continue to believe a 70 percent reduction in error rate is 
a reasonable percentage to use to determine whether non-random 
prepayment complex medical review must continue. The statute does not 
require us to distinguish between provider size in establishing 
termination dates. We believe all providers and suppliers will have a 
fair opportunity for successful termination, regardless of size.
    Comment: One commenter believes that extensions of non-random 
prepayment complex medical review should be rare, and that contractors 
should be prohibited from using the extension authority because it 
contravenes our efforts to provide reliability and predictability to 
the termination process.
    Response: In addition to the criteria set forth in Sec.  421.505(b) 
(proposed Sec.  421.405(b)) for extending non-random prepayment complex 
medical review, we will provide specific manual instructions to our 
contractors in IOM Manual 100-08 (Program Integrity Manual) to address 
this concern after the release of this final rule.

B. Comments Regarding the Proposed 1 Year Timeframe for Termination 
From Non-Random Prepayment Review

    Comment: We received several comments concerning whether 1 year is 
the appropriate timeframe to terminate a provider from non-random 
prepayment complex medical review. The concern of the commenters was 
whether or not CMS should keep providers on review for longer than 365 
days in order to obtain 4 complete quarters of data; whether the 
contractor will stop reviewing claims on day 365 and start to calculate 
the error rate on day 366; or terminate review completely on day 365 
before the error rate had been calculated.
    Response: We proposed that the 1-year timeframe would begin on the 
date provided in the letter notifying the provider or supplier of 
initiation of non-random prepayment complex medical review. We believe 
that 1 year is a sufficient amount of time for a provider or supplier 
to reduce its initial error rate or for the contractor to determine 
whether a referral to Benefit Integrity or extended medical review 
under Sec.  421.505(b) (proposed Sec.  421.405(b)) is necessary. Unless 
an exception applies under Sec.  421.505(b) (proposed Sec.  
421.405(b)), the contractor must remove a provider or supplier from 
non-random prepayment complex medical review after 1 calendar year (365 
days) from the date of notification of non-random prepayment complex 
medical review regardless of whether an error rate for the fourth 
quarter has been calculated. Thus, they would be removed from review on 
day 366.
    Comment: One commenter asked if a provider continues to incur a 
sustained or high level of payment error following termination, whether 
the appropriate procedure should be to place the provider back on non-
random prepayment complex review. The commenter also noted that at that 
point, the burden of proof should shift to the contractor.
    Response: We have revised proposed Sec.  421.505(d) (proposed Sec.  
421.405(d)) to indicate that if after the 1-year termination date the 
provider continues to have a sustained or high level of payment error, 
the contractor may reinitiate non-random prepayment complex review 
after 6 months, but only after a probe confirms that there continues to 
be a high level of payment error. When a provider or supplier is 
terminated from non-random prepayment complex medical review after 1 
year of review and the contractor determines that the provider or 
supplier continues to have a high error rate despite educational 
interventions, the contractor must consider referring the provider or 
supplier to the contractor responsible for benefit integrity review. 
Contractors must also consider continuing educational interventions 
without performing further medical review or consider the need for 
post-payment medical review.
    Comment: One commenter questioned how the 1-year timeframe would be 
calculated if the contractor selects only 20 to 40 claims for the 
initial probe review and then terminates the edit.
    Response: By ``terminates the edit,'' we believe the commenter 
means that after the initial 20 to 40 claims are selected, the 
contractor does not initiate non-random prepayment complex medical 
review. As previously stated, the 1-year timeframe is calculated from 
the date the provider or supplier is notified by letter that they are 
being subject to non-random prepayment complex manual review after the 
initial probe review is completed. A small sample (for example, 20 to 
40 claims) enables the contractor to make an error rate determination 
in a short time period, so there is not an extended period of time when 
claims are paid without review. If a provider does not submit an 
adequate number of new claims for the probe review, the contractor has 
the option to complete the sample selection from paid claims. If a 
significant number of claims are billed and paid during the review 
process, the contractor has an option to complete a post-pay review 
process to collect the overpayment.
    Comment: One commenter asked if it is acceptable to have a provider 
on an intermittent non-random prepayment review for longer than 1 year 
if quarterly evaluation of the sample of claims shows that provider 
specific education has not resulted in significant improvement.
    Response: In the circumstance described above and assuming that 
review could not be extended under Sec.  421.505(b) (proposed Sec.  
421.405(b)), once a provider is removed from targeted non-random 
prepayment review, the contractor would need to conduct a new probe 
before it would be able to place that provider back on review and start 
the clock over again.

C. Comments Regarding the Proposed Provider Appeal Process

    Comment: Two commenters indicated that providers and suppliers 
should have some ability to appeal a probe review determination which 
places the provider or supplier on medical review.
    Response: Neither the statute nor the regulations provide the 
provider or supplier a right to appeal a probe review determination, 
which we assume the commenter means a finding by the contractor that 
there is a likelihood of sustained or high level of payment error. Nor 
does it require an expedited appeal if a provider remains on review for 
a given period of time. However, we note that a provider or supplier 
always has the ability to appeal the results of a contractor's 
determination on an individual claim.
    Comment: Several commenters suggested that the contractors should 
recompute the error rate to include reversals in each appeal level.
    Response: If during the 1-year timeframe a provider or supplier is 
successful on appeal in overturning the initial medical review 
determination, we have instructed contractors through manual 
instructions located at http://www.cms.hhs.gov/manuals/IOM/list.asp and 
then click on ``Publication 100-08'') to consider such appeals results 
when making decisions to continue medical review activities. However, 
after such consideration there may still be valid reasons for the 
contractor to elect not to remove providers or suppliers from review. 
Therefore, we are giving the contractor discretion to remove the 
provider or supplier from review based on appeals information. Please 
note that

[[Page 55757]]

the timeframe allowed for appeal through all levels of appeal is not 
always accomplished within the 1-year timeframe made final in this 
rule. Therefore, it is not practical to require contractors to modify 
the error rate based on appeals results, as the appeals information may 
change through the levels of appeal.

D. Comments Regarding the Proposed Computation of Error Rate

    Comment: One commenter suggested that the computation of the 
quarterly error rate should account for the supplier's accreditation 
and past compliance.
    Response: We believe accreditation and past compliance are 
extremely important but in order to safeguard the Medicare Trust Fund 
we need to ensure that the error rate computation is based on current 
claims submitted.
    Comment: Several commenters indicated that we do not explain the 
process contractors use to determine what error rate is determined to 
be a ``high level,'' what mathematical probability or range constitute 
a ``likelihood,'' or what time period and intensity of billing errors 
meet the definition of ``sustained.''
    Response: We do not further define the terms ``high level, 
likelihood, or sustained'' in the definition of ``complex medical 
review'' under Sec.  421.501 (proposed Sec.  421.401) because we 
believe contractors need the administrative flexibility to determine 
whether an error rate is ``high level, likely, or sustained.'' A 
variety of factors influence our determinations of such payment error 
such as the scope of the problem, potential risk to the Trust Fund, the 
risk relative to other risks identified by contractor data analysis, 
and past history of the provider or supplier.
    Comment: One commenter stated that unless and until statistically 
meaningful verification of billing error is performed by a licensed 
medical professional through a complex review probe, a provider should 
not be placed on non-random prepayment complex medical review status.
    Response: We believe the probe sample is an appropriate tool to 
determine the nature and extent of the problem. A ``provider-specific 
probe review'' may only be performed by a clinician based on problems 
identified by contractor data analysis. We believe that requiring a 
physician to review every claim in a probe would be cost prohibitive to 
the contractor. In addition, we note that each contractor is required 
to employ a physician to provide their clinical expertise. 
Statistically valid verification would require a much larger sample 
than 20 to 40 claims, thus increasing the burden and cost to the 
provider or supplier.
    Comment: One commenter indicated that the 1-year mark for 
termination is not necessarily a true calendar year for all cases under 
such review. The commenter stated that we proposed to allow contractors 
to make code-specific error rate determinations on a quarterly basis. 
Contractors are not required to calculate error rates at the 1-year 
anniversary mark after the provider is sent notice of non-random 
prepayment complex medical review. That means that a provider whose 
anniversary falls at the beginning of a quarter can remain on review 
almost 3 months longer than a calendar year. Another commenter asked if 
a quarter was any 3-month period that the contractor chooses or if it 
must be a financial quarter.
    Response: Unless an exception applies under Sec.  421.505(b) 
(proposed Sec.  421.405(b)), the contractor must remove a provider or 
supplier from non-random prepayment complex medical review after 1 
calendar year (365 days) from the date of notification of non-random 
prepayment complex medical review regardless of whether an error rate 
for the fourth quarter has been calculated. We will defer to the 
contractor as to how to calculate when the quarter begins. Depending on 
the timing of the initiation of non-random prepayment complex medical 
review, contractors may or may not have an opportunity to calculate a 
fourth quarter error rate for a particular provider or supplier.
    Comment: Two commenters requested a tiered system that depends upon 
the degree of improvement in a provider's error rate, or an option that 
would remove a provider from review when they meet a threshold of 10 
percent or less of the overall error rate.
    Response: We initially considered whether a 90 to 95 percent 
decrease in a provider's or supplier's error rate was appropriate, but 
determined that, for purposes of this regulation, a 90 to 95 percent 
reduction in error rate would be impracticable. We continue to believe 
that an error rate reduction of 70 percent from the initial error rate 
calculated during probe review would protect the financial integrity of 
the Medicare program, and allow the provider or supplier a realistic 
opportunity to be terminated from non-random prepayment complex medical 
review. Our contractors will continue to retain the discretion to 
terminate providers and suppliers at an earlier date.
    Comment: One commenter was concerned about the lack of specific 
quantitative measures for triggering placement of providers on non-
random prepayment complex medical review. The commenter recommended 
that we establish 30 percent as the national probe denial rate for 
triggering non-random prepayment complex medical review.
    Response: In order for the contractors to have sufficient 
flexibility to guard the integrity of the Medicare Trust Fund, we leave 
the criteria for triggering review to the contractor's discretion. This 
allows the contractors to provide the specific level of review that 
best enables them to work with the provider or supplier to lower their 
error rate.
    Comment: One commenter indicated that although we recommend 
limiting agency probe edits to 20 to 40 claims, and limiting service 
specific probe edits to 100 claims, we do not provide direction as to a 
minimum number of claims to be reviewed when determining whether a 
provider or supplier is likely to have a sustained or high level of 
payment error rate. The commenter recommended that we create criteria 
for a minimum number of records to be reviewed before determining that 
a provider or supplier has a likelihood of sustained or high level of 
payment error. The commenter stated that this should be no fewer than 
10 claims on a particular probe for a quarter. Another commenter asked 
if provider-specific probe reviews should only include claims for the 
particular item or service that may be billed in error.
    Response: The minimum number of claims to be reviewed in a probe 
will vary across provider and supplier type, volume, and service. 
Quarterly termination evaluation does not entail a probe. The 
contractor evaluates claims reviewed under the non-random prepayment 
complex medical review in a quarter and determines the error rate for 
selected claims during the quarter. The probe is used to establish the 
initial error rate only. The contractor does attempt to focus provider-
specific probe review on those claims with items or services that may 
be billed in error. In the case of service specific review, the 70 
percent reduction will be determined against the service-wide error 
rate. In some cases, service-specific review becomes a catalyst for 
provider-specific review of a subset of providers. In this instance, 
that subset would be measured against their own individual error rates. 
This is consistent with our Internet-Only Manual 100-08, Chapter 3, 
section 3.11.1.2.
    Comment: One commenter requested notice and comment rulemaking on 
the definition of ``complex medical review.''

[[Page 55758]]

    Response: The definition and description of ``complex medical 
review'' were provided in the proposed rule (70 FR 58653, October 7, 
2005), and as such, were subjected to notice and comment rulemaking.
    Comment: Two commenters urged us to revise the proposed provisions 
that require contractors terminate a provider's or supplier's non-
random prepayment complex medical review and remove any language 
establishing a minimum timeframe that providers or suppliers are 
subject to review.
    Response: We agree with the commenters and have clarified in Sec.  
421.505(b) (proposed Sec.  421.405(b)) that contractors may extend non-
random prepayment complex medical review in certain cases and have 
clarified in Sec.  421.505(a) (proposed Sec.  421.405(a)) that there is 
no minimum timeframe that a provider or supplier must be on review. 
Unless an exception applies under Sec.  421.505(b) (proposed Sec.  
421.405(b)) a provider or supplier must be removed from review if it 
meets either the 1 year or 70 percent criteria set forth in Sec.  
421.505(a) (proposed Sec.  421.405(a)), and may be removed at any time 
at the discretion of the contractor.
    Comment: One commenter stated that updated error rate reports from 
the contractor to the provider need to be timely and specific, 
demonstrate individual claims decisions (paid or unpaid), and show a 
detailed accounting of how the quarterly error rate was calculated or 
updated.
    Response: We agree that the error rate reports should be given to 
providers with a narrative explanation. We will provide specific manual 
instructions in IOM Manual 100-08 (Program Integrity Manual) to our 
contractors in this regard after the release of this final rule.
    Comment: One commenter questioned how the error rate percentage is 
determined. Specifically the commenter asked if it is based on dollar 
amount, days of coverage, or if it depends on the type of service 
billed.
    Response: The error rate percentage is based on dollars.

E. Comments Regarding the Proposed Documentation Requirements

    Comment: We received several comments stating that the 10-minute 
estimated time for obtaining medical records discussed in the proposed 
rule (70 FR 58652, October 7, 2005) is not the correct estimate of 
needed time.
    Response: In response to these comments, we have updated our 
estimate in the Collection of Information Requirements section of this 
final rule to 20 minutes to account for variations across providers or 
suppliers.
    Comment: Several commenters expressed concern that medical records 
and chart notes should not be relied upon to determine Medicare 
eligibility. The commenters believe that the medical records a supplier 
must collect and submit are inherently ambiguous, subjective, and not 
suited for uniform review. The commenters also believe that physicians 
do not typically document specific Medicare coverage criteria in their 
medical records, and the records are not created with an intention that 
they will be reviewed by third parties who are not familiar with the 
patients and their medical condition. The commenters are concerned that 
requiring physicians to document the medical records in this fashion 
will place a substantial burden on the physicians, cause nonclinicians 
to interfere with the prescribing physicians, and will create a new and 
relatively unfamiliar documentation scheme.
    Response: This final rule does not change existing documentation 
requirements. We believe that current documentation requirements for 
providers and suppliers are designed to provide a comprehensive picture 
of a patient's history and condition. CMS and our contractors have 
implemented extensive educational outreach to both suppliers and the 
medical community pertaining to documentation requirements.
    We require under Sec.  421.505(a)(2) (proposed Sec.  421.405(a)(2)) 
that providers and suppliers submit supporting medical documentation 
for claims under review in order for our contractors to be able to 
compute an error rate based on current claims. If the contractor is 
unable to calculate an error rate due to the failure or refusal by a 
provider or supplier to submit requested medical documentation, we have 
clarified in Sec.  421.505(b)(1) (proposed Sec.  421.405(b)(1)) that 
the contractor may extend non-random prepayment complex medical review 
for such a provider or supplier. Without sufficient medical records to 
calculate the quarterly error rate the contractor is unable to apply 
the regulation's criteria to a provider or supplier in determining 
whether to remove it from review. We believe it is a prerequisite for 
these rules to apply that providers and suppliers submit the required 
medical documentation for claims while they are on non-random 
prepayment complex medical review.
    Comment: One commenter estimated that the burden for a supplier to 
locate and obtain the supporting documentation for a claim and forward 
the materials to the Medicare contractor for review will take 4.71 
hours per claim.
    Response: We do not believe that this time is typical across 
provider types. In any event, we did not propose to change 
documentation requirements.

F. General Comments

    Comment: One commenter indicated that medical review findings are 
critical to performing focused education. The commenter stated that 
without the identified errors, local provider education and training 
would be less effective. The commenter believes that education would be 
general, based on global findings, and not specific to the provider's 
issue.
    Response: We agree that there are different interventions, 
including education, available to our contractors. This regulation does 
not limit those interventions.
    Comment: One commenter indicated that it would be difficult to 
determine if shifts to other codes not subject to review are 
inappropriate if claims for those services are not reviewed with 
records.
    Response: Nothing in this regulation precludes the contractor from 
performing record review to determine if an inappropriate shift in 
billing codes occurred. However, we are not requiring such additional 
review since in some cases shifts may be readily explained from data 
analysis alone.
    Comment: One commenter inquired if the referral to benefit 
integrity could be delayed while additional provider education and 
validation are performed.
    Response: Referral to benefit integrity may be delayed if 
additional provider education is needed and/or further validation is 
needed to evaluate a provider or supplier's error rate. A contractor 
may need to extend review of a provider or supplier beyond the 1-year 
timeframe or even if the initial error rate has been reduced by 70 
percent or more if the contractor needs to further validate whether the 
provider or supplier has properly reduced its error rate. In some 
cases, a provider or supplier may use improper billing practices to 
reduce its error rate to minimize or avoid review. We proposed at Sec.  
421.405(b)(1) to extend review beyond 1 year if a provider or supplier 
engaged in two specific types of improper billing practices: The 
provider or supplier stopped billing the code under review or shifted 
billing to another inappropriate code to avoid proper calculation of 
the error rate.
    In the final rule, we have added two more bases for the contractor 
to extend review at Sec.  421.505(b)(1) (proposed Sec.  421.405(b)(1)) 
and have clarified that

[[Page 55759]]

review may be extended even if the provider or supplier has been on 
review for 1 year or has reduced its initial error rate by 70 percent 
or more. In addition to the proposed bases to extend review, the 
contractor may also extend review where the provider or supplier fails 
to respond to requests for medical records or the contractor determines 
the provider or supplier is engaging in improper claims or billing-
related activities.
    Because we cannot anticipate all types of improper claims or 
billing-related practices that providers and suppliers may engage in, 
we believe it is important that contractors have discretion to extend 
non-random prepayment complex medical review in any instance where the 
contractor determines the provider or supplier is engaging in improper 
claims or billing activities to avoid review. For example, a contractor 
may extend review if the provider or supplier starts billing under a 
different provider identification number with apparent intent to avoid 
proper calculation of the error rate. We believe the proposed bases for 
a contractor extending review may have fallen short of addressing all 
situations where the contractor may need to extend non-random 
prepayment complex medical review to evaluate whether the initial error 
rate has been appropriately reduced, and therefore, we are revising 
Sec.  421.505(b)(1) (proposed Sec.  421.405(b)(1)) to encompass these 
additional types of situations.
    If there is potential fraud, we believe it is vital for the 
reviewing contractor to quickly make the referral to Benefit Integrity. 
The contractor responsible for performing the benefit integrity review 
can validate if potential fraud has occurred or is ongoing. If the 
contractor does not find any evidence of fraud, then the benefit 
integrity contractor can still provide education to the provider. If 
the contractor detects possible fraud at any time during the medical 
review process, the contractor would refer the issue to the contractor 
responsible for benefit integrity review.
    Comment: Two commenters recommended that the proposed timeframe to 
update the claims processing system should be changed from 2 to 5 
business days once a provider or supplier is taken off of prepayment 
complex medical review. The commenters also stated that the system 
security regulations will prevent most contractors from discontinuing 
an edit in 2 business days.
    Response: Although we are not aware of what system security 
regulations the commenter is speaking of, we are revising Sec.  
421.505(c)(2) (proposed Sec.  421.405(c)(2)) to state that the 
contractors' claims processing system must be updated within 5 business 
days after the contractor determines that the provider or supplier 
should be terminated from non-random prepayment complex medical review.
    Comment: A number of commenters indicated that we have not issued 
instructions that indicate that documentation requirements for power 
mobility devices (PMDs) vary by patient diagnosis.
    Response: We agree that we have not issued instructions that 
indicate that document requirements for power mobility devices vary by 
patient diagnosis. In addition, we believe that the example included in 
the proposed rule (70 FR 58651) was an inappropriate example, and 
therefore, we are not including that example as part of this final 
rule.
    Comment: One commenter stated that, when a provider or supplier is 
terminated from non-random prepayment complex medical review and a new 
probe review must be performed to determine if there is a high level of 
payment error, the probe review cost per claim is significantly higher 
than provider-specific prepayment review.
    Response: We realize that it may be more costly to complete a new 
probe review; however, we believe requiring a new probe provides 
assurance to the public that non-random prepayment complex review is 
data driven and its impact on providers and suppliers is not to be 
taken lightly. Contractors need to allocate resources as efficiently as 
possible to protect the Medicare Trust Fund.
    Comment: One commenter asked that we distinguish between the 
medical role of the physician and the collaborative role of the 
supplier. The commenter believes it is not the role of the supplier to 
review, analyze, and interpret medical records to fill the treating 
physician's prescription, and that it is not in the best interest of 
the beneficiary for the supplier to overturn the judgment of the 
patient's treating physician.
    Response: This final rule does not add any new documentation 
requirements. We note that it is the supplier's responsibility to 
provide a legible copy of the written prescription and any other 
required information. We believe that a party engaged in healthcare-
related business should ensure that their staff has adequate expertise 
to carry out its responsibilities, and should obtain the training 
necessary to achieve and maintain that level of expertise.
    The supplier should obtain as much documentation from the patient's 
medical record as it needs to determine if the Medicare coverage 
criteria for payment have been met. If the information in the patient's 
medical record does not adequately support the medical necessity for 
the item, then the supplier is liable for the dollar amount of the 
assigned claims involved unless a properly executed advance beneficiary 
notice (ABN) of possible denial has been obtained.
    Comment: One commenter recommended that we develop an expanded 
version of the current Certificate of Medical Necessity (CMN), or a 
template that employs several open-ended questions that could easily be 
used by physicians, suppliers, and beneficiaries to determine if 
medical necessity exists and to document that need.
    Response: This comment is outside the scope of this regulation. We 
do not address CMNs in this regulation.
    Comment: One commenter asked if we expect all non-random prepayment 
complex medical review edits to be selecting 100 percent of a 
provider's claims for at least 1 year.
    Response: No, contractors continue to have the flexibility to do 
less than 100 percent prepayment review.
    Comment: One commenter asked if the 1-year timeframe is for each 
provider or supplier in a progressive corrective action case, or for 
the progressive corrective action case itself.
    Response: The 1-year timeframe is for each provider placed on non-
random prepayment complex medical review.
    Comment: One commenter asked if the probe review finds that a 
provider is submitting claims to Medicare for a service that is not a 
Medicare benefit, would a 100 percent non-random prepayment review be 
appropriate until the situation is corrected.
    Response: If the probe review finds that a provider is submitting 
claims to Medicare for a service that is not a Medicare benefit, a 100 
percent non-random prepayment review is an option open to the 
contractor to correct the situation. This regulation applies to these 
types of claims, as well as other inappropriate claims. If the provider 
or supplier is billing non-covered services under covered codes, the 
contractor may wish to refer to the contractor responsible for benefit 
integrity review for fraud or abuse investigation. The contractor 
responsible for benefit integrity review has the option of continuing 
prepayment review during their investigative process.
    Although we did not receive comments on what entities are

[[Page 55760]]

considered CMS contractors, we want to clarify that a new type of 
contractor (as mandated by the MMA), the Medicare Administrative 
Contractors (MACs), are also contractors for purposes of this 
regulation. In the proposed rule, we stated that we enter into 
contractual agreements with contractors (for example, intermediaries, 
carriers, and program safeguard contractors (PSCs)) to perform medical 
review functions to ensure that items or services are covered and are 
reasonable and necessary in accordance with Medicare coverage policies 
and program instructions. For clarity, we are adding MACs to the types 
of contractors subject to these regulations and clarifying that this 
rule only applies to medical review not for benefit integrity purposes.
    Section 421.500 (proposed Sec.  421.400) is revised to read as 
follows: ``CMS enters into contractual agreements with intermediaries, 
carriers, program safeguard contractors (PSCs), and Medicare 
Administrative Contractors (MACs) to perform medical review functions 
to ensure that items or services are covered and are reasonable and 
necessary in accordance with Medicare coverage policies and program 
instructions.

IV. Provisions of the Final Rule

    After the publication of the October 7, 2005 proposed rule, we 
published a final rule adding regulations to Part 421, subpart E. 
Therefore, the regulations in this final rule are finalized in Part 
421, subpart F and the sections are renumbered as indicated throughout 
this final rule. We are also adopting the provisions as set forth in 
the proposed rule with the following changes.
    In Sec.  421.500 (proposed Sec.  421.400), although we did not 
receive comments on what entities are considered CMS contractors, we 
are clarifying that the Medicare Administrative Contractors (MACs), are 
also contractors subject to this regulation. In the proposed rule, we 
stated that we enter into contractual agreements with contractors (for 
example, intermediaries, carriers, and program safeguard contractors 
(PSCs)) to perform medical review functions to ensure that items or 
services are covered and are reasonable and necessary in accordance 
with Medicare coverage policies and program instructions. When the 
proposed rule was published in 2005, the MACs were not yet established 
and only intermediaries, carriers, and PSCs were conducting medical 
review. Now that MACs are in operation, we are clarifying that MACs, as 
required by the statute, are also subject to this regulation. We are 
also clarifying in Sec.  421.500 (proposed Sec.  421.400) that this 
rule only applies to medical review not for benefit integrity purposes. 
Section 421.500 (proposed Sec.  421.400) is revised to read as follows: 
``CMS enters into contractual agreements with intermediaries, carriers, 
program safeguard contractors (PSCs), and Medicare Administrative 
Contractors (MACs) to perform medical review functions not for benefit 
integrity purposes to ensure that items or services are covered and are 
reasonable and necessary in accordance with Medicare coverage policies 
and program instructions.
    In Sec.  421.501 (proposed Sec.  421.401), we are adding the 
definition of ``contractor'' as used in this subpart.
    We are clarifying in Sec.  421.505(a) (proposed Sec.  421.405(a)) 
that there is no minimum timeframe that a provider or supplier must be 
on review. We are also correcting a technical error from the proposed 
rule where we stated ``a contractor may terminate a provider or 
supplier'' to read ``a contractor must terminate a provider or 
supplier'' (70 FR 58653). Unless an exception applies under Sec.  
421.505(b) (proposed Sec.  421.405(b)), providers and suppliers must be 
removed if they meet either the 70 percent reduction in error rate 
criterion or have been on review for 1 year from the initiation of such 
review. Providers and suppliers may also be removed at any time at the 
discretion of the contractor.
    We are revising Sec.  421.505(b)(1) (proposed Sec.  421.405(b)(1)) 
to state that contractors have the discretion to extend non-random 
prepayment complex medical review if a provider or supplier fails to 
respond to requests for medical records, stops billing the code under 
review, shifts billing to another inappropriate code to avoid proper 
calculation of the error rate, or engages in any other improper claims 
or billing-related activity to avoid non-random prepayment complex 
medical review.
    We are revising Sec.  421.505(c)(2) (proposed Sec.  421.405(c)(2)) 
to state that the contractors' claims processing system must be updated 
within 5 business days after the contractor determines that the 
provider or supplier should be terminated from non-random prepayment 
complex medical review.
    In Sec.  421.405(d) of the proposed rule, we stated that 
contractors must periodically reevaluate the provider or supplier's 
data and, if necessary, must place a provider or supplier that appears 
to have resumed a high level of payment error on complex medical 
review. Due to contractor resources, we are revising the language at 
Sec.  421.505(d)(1) (proposed Sec.  421.405(d)(1)) to state that 
contractors may periodically reevaluate the provider or supplier's data 
and, if necessary, may place a provider or supplier that appears to 
have resumed a high level of payment error on complex medical review.
    In Sec.  421.505(d)(1) (proposed Sec.  421.405(d)(1)), we are 
correcting a technical error from the proposed rule at Sec.  421.405(d) 
to state that a provider or supplier found to have resumed a high level 
of payment error is placed back on ``non-random prepayment complex 
medical review.'' In Sec.  421.505(d)(2) (proposed Sec.  
421.405(d)(2)), we have also clarified that a provider or supplier is 
not placed back on such review earlier than 6 months after termination 
of a previous non-random prepayment complex medical review.

V. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 30-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.
    In summary, Sec.  421.505 (proposed Sec.  421.405) outlines the 
requirements and process for the termination and extension of non-
random prepayment complex medical review, a form of complex medical 
review. Contractors conduct complex medical review to determine whether 
items or services billed are covered, correctly coded, and are 
reasonable and necessary for the condition of the patient. Under 
complex medical review the provider or supplier must submit a copy of 
the medical records that support the items or services billed.
    The burden associated with this section is the time and effort 
necessary for the provider or supplier of services to locate and obtain 
the supporting documentation for the claim to Medicare and to forward 
the materials for submission to Medicare contractors for review. We 
expect that this

[[Page 55761]]

information would generally be maintained by suppliers and or providers 
as a normal course of business and that this information will be 
readily available.
    Based on public comments, we revised the burden estimate associated 
with this requirement. We increased the allotted time from 10 to 20 
minutes per provider or supplier to locate, photocopy, and transmit 
this information to the contractor upon request.
    The total annual burden for all of the Medicare providers and 
suppliers associated with this requirement is estimated to be 966,667 
hours (2.9 million requests for medical records x 20 minutes per 
provider or supplier). The burden associated with this information 
collection requirement is currently approved under OMB control number 
0938-0969 with a January 31, 2010 expiration date.

                          Table 1--Estimated Annual Reporting and Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
                                                                                   Burden per
               OMB control No.                  Respondents       Responses         response       Total annual
                                                                                   (minutes)      burden (hours)
----------------------------------------------------------------------------------------------------------------
0938-0969...................................       1,160,000        2,900,000               20          966,667
----------------------------------------------------------------------------------------------------------------
    Total...................................  ...............  ...............  ...............         966,667
----------------------------------------------------------------------------------------------------------------

VI. Regulatory Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993, as 
further amended), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4), Executive Order 13132 on Federalism (August 4, 1999), and the 
Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866 (as amended by Executive Order 13258) 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.
    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 
$6.5 million to $31.5 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 would 
not have a significant economic impact on a substantial number of small 
entities. We believe that this rule would decrease the costs for 
providers and suppliers because it establishes guidelines for 
terminating a provider or supplier from non-random prepayment complex 
medical review. We believe this rule would decrease the time and amount 
of resources spent on inappropriate reviews and would ensure that 
Medicare payments would not be withheld for extended time periods. 
Because a contractor would no longer be maintaining providers or 
suppliers on non-random prepayment complex medical review for extended 
periods, administrative expenses (for example, copying, mailing, and 
the retention of medical documentation) would be reduced.
    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 would 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. The threshold 
level is currently approximately $130 million. This rule would have no 
consequential effect on the governments mentioned or on the private 
sector.
    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. Since this regulation would 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 421

    Administrative practice and procedure, Health facilities, Health 
professions, 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 follows:

PART 421--MEDICARE CONTRACTING

0
1. The authority citation for part 421 continues to read as follows:

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


0
2. Subpart F is added consisting of Sec.  421.500 through Sec.  421.505 
to read as follows:
Subpart F--Medical Review
Sec.
421.500 Medicare review functions.
421.501 Definitions.
421.505 Termination and extension of non-random prepayment complex 
medical review.

Subpart F--Medical Review


Sec.  421.500  Medicare review function.

    CMS enters into contractual agreements with intermediaries, 
carriers, Medicare Administrative Contractors (MACs), and program 
safeguard contractors (PSCs) to perform

[[Page 55762]]

medical review functions not for benefit integrity purposes to ensure 
that items or services are covered and are reasonable and necessary in 
accordance with Medicare coverage policies and program instructions.


Sec.  421.501  Definitions.

    As used in this subpart--
    Allowable charge means the dollar amount (including co-payment and 
deductibles) that the Medicare program will pay for a particular item 
or service.
    Benefit integrity review means medical review of claim information 
and medical documentation focusing on addressing situations of 
potential fraud, waste and abuse.
    Complex medical review means all medical review of claim 
information and medical documentation by a licensed medical 
professional, for a billed item or service identified by data analysis 
techniques or probe review to have a likelihood of sustained or high 
level of payment error.
    Contractor, as used in this subpart, means intermediaries, 
carriers, Medicare Administrative Contractors (MACs), and program 
safeguard contractors (PSCs).
    Error rate means the dollar amount of allowable charges for a 
particular item or service billed in error as determined by complex 
medical review, divided by the dollar amount of allowable charges for 
that medically reviewed item or service.
    Initial error rate means the calculation of an error rate based on 
the results of a probe review prior to the initiation of complex 
medical review.
    Medical review means the process performed by a contractor to 
ensure that billed items or services are covered and are reasonable and 
necessary as specified under section 1862(a)(1)(A) of the Act.
    Nonclinician medical review staff means specially trained medical 
review staff not possessing the knowledge, skills, training, or medical 
expertise of a licensed health care professional.
    Non-random prepayment complex medical review means the prepayment 
medical review of claim information and medical documentation, by a 
licensed medical professional, for a billed item or service identified 
by data analysis techniques or probe review to have a likelihood of 
sustained or high level of payment error.
    Non-random prepayment medical review means the prepayment medical 
review of claims, by nonclinical or clinical medical review staff, for 
a billed item or service identified by data analysis techniques or 
probe review to have a likelihood of a sustained or high level of 
payment error.
    Postpayment medical review means medical review of claims, by 
nonclinical or clinical medical review staff, for a billed item or 
service after a claim has been paid.
    Provider-specific probe review means the complex medical review of 
a small sample of claims, generally 20 to 40 claims, from a specific 
provider or supplier for a specific billing code to confirm that or 
determine whether the provider or supplier is billing the program in 
error.
    Random prepayment medical review means the prepayment medical 
review of claims, by nonclinical or clinical medical review staff, for 
a billed item or service that has not been identified by data analysis 
techniques or probe review to have a likelihood of a sustained or high 
level of payment error.
    Quarterly error rate means the calculation of an error rate based 
on the results of non-random prepayment complex medical review for a 
specific billing code for a specific quarter.
    Service-specific probe review means the complex medical review of a 
sample of claims, generally 100 claims, across the providers or 
suppliers that bill a particular item or service to confirm that or 
determine whether the item or service is billed in error.
    Termination of non-random prepayment complex medical review means 
the cessation of non-random prepayment complex medical review.


Sec.  421.505  Termination and extension of non-random prepayment 
complex medical review.

    (a) Timeframe that a provider or supplier must be on non-random 
prepayment complex medical review. There is no minimum timeframe that a 
provider or supplier must be on review. Except for cases described in 
paragraph (b) of this section, a contractor must terminate a provider 
or supplier from non-random prepayment complex medical review--
    (1) No later than 1 year following the initiation of non-random 
prepayment complex medical review; or
    (2) When calculation of the error rate indicates that the provider 
or supplier has reduced its initial error rate by 70 percent or more. A 
contractor must review claims for a specific billing code aberrancy for 
the quarter and calculate the quarterly error rate for those claims 
medically reviewed in that quarter. In order for this determination to 
be made, the provider or supplier must submit a copy of the medical 
records that indicate that the items or services billed are covered, 
correctly coded, and are reasonable and necessary for the condition of 
the patient.
    (3) When a provider or supplier is terminated from non-random 
prepayment complex medical review after 1 year of review and the 
contractor determines that the provider or supplier continues to have a 
high error rate despite educational interventions, the contractor must 
consider referring the provider or supplier to the contractor 
responsible for benefit integrity review. Contractors must also 
consider continuing educational interventions without performing 
further medical review or consider the need for post-payment medical 
review.
    (b) Extension of non-random prepayment complex medical review. (1) 
A contractor has the discretion to extend non-random prepayment complex 
medical review if a provider or supplier stops billing the code under 
review, shifts billing to another inappropriate code to avoid proper 
calculation of the error rate, fails to respond to requests for medical 
records, or engages in any other improper claims or billing-related 
activity to avoid non-random prepayment complex medical review. If the 
reduction in the error rate is attributed to a 25 percent or greater 
reduction in the number of claims submitted for the specific billing 
code under review, non-random prepayment complex medical review for 
that provider or supplier may be extended. However, if the number of 
claims submitted for a specific code was reduced because the provider 
or supplier began billing claims using a new appropriate code, or there 
is another legitimate explanation for the reduced number of claims 
billed, the contractor retains discretion to terminate from or extend a 
provider or supplier on non-random prepayment complex medical review.
    (2) If extended medical review is necessary, contractors must 
notify providers and suppliers in writing the reasons for the need to 
perform additional prepayment complex review.
    (c) Quarterly termination evaluation. (1) Contractors, at a 
minimum, must evaluate the length of time a provider or supplier has 
been on non-random prepayment complex medical review on a quarterly 
basis.
    (2) A determination as to whether the provider's or supplier's 
initial probe review error rate for a specific billing code has been 
reduced by 70 percent must also be evaluated quarterly. There is no 
minimum timeframe that a provider or supplier must be on review.
    (3) The contractor's quarterly error rate evaluations must be for 
the discrete

[[Page 55763]]

quarter; a rolling error rate average over more than 1 quarter is not 
permitted.
    (4) After the contractor determines that the provider or supplier 
must be terminated from non-random prepayment complex medical review, 
the claims processing system must be updated within 5 business days to 
ensure that a provider's or supplier's claims for a specific billing 
error are no longer suspended for non-random prepayment complex medical 
review.
    (d) Periodic re-evaluation. (1) Once a provider or supplier is 
terminated from non-random prepayment complex medical review, 
contractors may periodically re-evaluate the provider or supplier's 
data and may place a provider or supplier that appears to have resumed 
a high level of payment error on non-random prepayment complex medical 
review.
    (2) This review would only be initiated if a probe review confirms 
that there continues to be a high level of payment error.
    (3) If there is a high level of payment error, a provider or 
supplier may be placed on non-random prepayment complex medical review 
no earlier than 6 months after termination of a previous non-random 
prepayment complex medical review. As set forth in Sec.  421.505(a)(3) 
contractors may also refer the provider or supplier to the contractor 
responsible for benefit integrity review or place the provider or 
supplier on postpayment medical review.

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

    Dated: March 21, 2008.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: June 3, 2008.
Michael O. Leavitt,
 Secretary.
[FR Doc. E8-22307 Filed 9-25-08; 8:45 am]
BILLING CODE 4120-01-P