[Federal Register Volume 68, Number 158 (Friday, August 15, 2003)]
[Proposed Rules]
[Pages 48851-48863]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-20857]
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OFFICE OF PERSONNEL MANAGEMENT
48 CFR Parts 1601, 1602, 1604, 1615, 1631, 1632, 1644, and 1652
RIN 3206-AJ20
Federal Employees Health Benefits; Acquisition Regulation: Large
Provider Agreements, Subcontracts, and Miscellaneous Changes
AGENCY: Office of Personnel Management.
ACTION: Proposed regulation.
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SUMMARY: The Office of Personnel Management (OPM) is issuing a proposed
regulation to amend the Federal Employees Health Benefits Acquisition
Regulation (FEHBAR). We are proposing a new policy that establishes
notification and information requirements, including audit, for Federal
Employees Health Benefits (FEHB) Program experience rated carriers'
large provider agreements. The proposed regulation also modifies the
threshold for review of carrier subcontracts; revises the definitions
of Cost or Pricing Data and Experience Rate to reflect mental health
parity requirements effective with the 2001 contract year; updates the
records retention period, updates the FEHB Program Clause Matrix, and
conforms various subpart and paragraph references in the Federal
Acquisition Regulation (FAR) revisions made since we last updated the
FEHBAR.
DATES: Comments must be received on or before October 14, 2003.
ADDRESSES: Send written comments to Abby L. Block, Deputy Associate
Director, Employee and Family Services, Strategic Human Resources
Policy Division, Office of Personnel Management, Washington, DC 20415-
3601; or deliver to OPM, Room 3425, 1900 E Street NW., Washington, DC;
or FAX to (202) 606-0633.
FOR FURTHER INFORMATION CONTACT: Michael W. Kaszynski, (202) 606-0004;
or send email to [email protected].
SUPPLEMENTARY INFORMATION: The primary purpose of this rulemaking is to
provide for additional OPM oversight of the FEHB Program carriers'
contract costs that are charged to the Government. Since the beginning
of the Program, we have maintained oversight of FEHB carriers' costs,
including their subcontractor costs. We have specified standard
contracting requirements for review and audit of those costs and have
routinely updated our requirements as necessary. Historically, we did
not consider providers of medical services or supplies to be
subcontractors as the term is defined in the Federal Acquisition
Regulation (FAR) because hundreds of thousands of such agreements
between carriers and providers are in place, and until recently, the
dollar value of each individual agreement was relatively small.
However, the healthcare delivery system has changed over the years and
new large healthcare delivery entities now play a significant role in
the healthcare industry. FEHB carriers contract with those types of
entities for the delivery of services that represent a significant
portion of individual carriers total costs charged to the FEHB Program,
and in the aggregate represent a sizeable portion of overall Program
costs. Because of the impact of these costs on the FEHB Program, we are
expanding our oversight in this area. Even though large providers of
medical services or supplies are not defined as subcontractors under
the FEHB Program, the proposed regulatory changes would bring them
under the umbrella of the FEHBAR and subject them to audit requirements
currently applicable to carriers and their subcontractors. Some but not
all FEHB carriers' large provider agreements already provide for a
limited right to audit. We believe the provision should be in
regulation rather than in individual contracts to make the context
clear, explicit and consistent for all experience-rated carriers by
mirroring the regulatory requirements for subcontracting arrangements
that are already in place. As is currently the case with audit findings
in subcontract arrangements, any audit findings regarding large
providers would be referred to the FEHB carriers holding the provider
contract.
For FAR audit purposes, we define a large provider agreement as an
agreement between (1) an FEHB carrier, at least 25 percent of whose
total contracts are comprised of FEHB enrollee contracts, and (2) a
provider, where the total costs charged to the FEHB carrier for a
contract term for FEHB members, including benefits and services, are
reasonably expected to exceed 5 percent of the carrier's total FEHB
benefits costs, or 5 percent of the carrier's total FEHB administrative
costs (where the provider is not responsible for benefits costs under
the agreement). We will use the FEHB Program Annual Accounting
Statement for the prior contract year to determine the 5 percent
threshold.
The proposed regulation requires experience rated carriers to meet
minimum notification and information requirements with respect to any
new
[[Page 48852]]
procurement, renewal, significant modification, or option relating to
such a provider agreement. Examples of information to be provided are a
description of the supplies or services required, basis for
reimbursement, reason the proposed provider was selected, method of
contracting and competition obtained, methodology used to compute
profit, and provider risk provisions. This new oversight initiative
reflects OPM's need to be informed of the types of carrier large
provider agreements and their terms and conditions, because of the
value and cost of such agreements to the FEHB Program.
The proposed regulation authorizes the contracting officer to
request additional information after he or she receives the carrier's
notification and required information and prior to award of a large
provider agreement, and any time during the performance of the
agreement. The contracting officer will give the carrier either written
comments on the agreement, or will give written notice that there will
be no comments. If the contracting officer provides comments, the
carrier must tell the contracting officer how it intends to address the
contracting officer's concerns.
In the event the carrier awards the large provider agreement
without providing notification and addressing each of the contracting
officer's written concerns, the contracting officer may disallow the
carrier's costs incurred under the agreement.
Under the proposed regulation, large providers must retain and make
available for Government inspection all records applicable to the
carrier's provider contractual agreement. The Government will have
audit rights with respect to large provider contractual agreements that
are the same as for carriers. The contract clause at 1652.204-74, Large
provider agreements, contains a flow-down provision that requires the
carrier to insert the clause in all large provider agreements.
We are updating our policy for FEHB Program subcontracting consent
which currently requires advance approval of carrier subcontracts or
modifications that exceed $100,000. The proposed regulation increases
the threshold so that subcontracts and modifications will require
advance approval only if they equal or exceed $550,000. The regulation
also clarifies the cost components the carrier must consider in
determining the $550,000 threshold. Under the Competition in
Subcontracting Clause (FAR 52.244-5), however carriers must still
comply with the competition requirements even when the subcontract does
not require OPM approval.
We have added a new section in part 1631, Contract Cost Principles
and Procedures, concerning the inferred reasonableness of a
subcontract's costs. If the carrier follows the notification and
consent requirements of 1652.244-70, Subcontracts, and later obtains
the contracting officer's consent or ratification of the subcontract's
costs, then the reasonableness of the subcontract's costs will be
inferred.
The modified definitions of Cost or Pricing Data and Experience
Rate incorporate mental health benefits capitation rates to reflect the
new mental health parity requirements in the FEHB Program effective as
of the 2001 contract year. Specifically, we are clarifying that mental
health capitation rates are considered to be cost or pricing data and
are included as actual paid claims and administrative expenses in
experience rating.
We are also updating the contractor records retention requirement
for carrier rate submissions, patient claims, large provider
agreements, and subcontracts to 6 years. Earlier in the history of the
Program when virtually all records were maintained in paper format, we
established a requirement for carriers to retain claims records for
three years and financial records for five years. Since electronic data
storage significantly reduces the maintenance burden and the Program
can benefit from having records available for a slightly longer period,
we are modifying and standardizing the records retention requirement.
All carriers' records are subject to The Health Insurance Portability
and Accountability Act (HIPAA) standards for privacy of individually
identifiable health information.
To conform with the current FAR sections, we have redesignated and/
or retitled certain sections and references in FEHBAR parts 1615, 1632,
and 1652. No material changes were made to these three Parts. Old
FEHBAR 1615.1, General Requirements for Negotiation, is retitled
``Source Selection Processes and Techniques.'' Old FEHBAR 1615.170,
Negotiation authority, is now section 1615.070. Old FEHBAR 1615.4,
Solicitations and Receipt of Proposals and Quotations, is now 1615.2,
Solicitations and Receipt of Proposals and Information. Old 1615.401,
Applicability, is now 1615.270. Old FEHBAR 1615.6, Source Selection, is
now 1615.3. Old FEHBAR 1615.602, Applicability, is now 1615.370. We
moved the provisions in old FEHBAR Subparts 1615.8, Price Negotiation,
and 1615.9, Profit, to Subpart 1615.4, Contract Pricing, to correspond
with the FAR. We removed and reserved sections 1615.8 and 1615.9
because there are no longer corresponding references in the FAR. Old
Section 1615.802, Policy, is now 1615.402, Pricing policy. Old
paragraph 1615.804-70, Certificate of accurate cost or pricing data for
community rated carriers, is now 1615.406-2, Certificate of accurate
cost or pricing data for community rated carriers. Old paragraph
1615.804-72, Rate reduction for defective pricing or defective cost or
pricing data, is now 1615.407-1. Old paragraph 1615.805-70, Carrier
investment of FEHB funds, is now 1615.470. Old paragraph 1615.805-71,
Investment income clause, is now 1615.470-1. Old Section 1615.902,
Policy, is now 1615.404-4, Profit, and old Section 1615.905, Profit
analysis factors, is now 1615.404-70.
In 1632.170, Recurring premium payments to carriers, we removed
paragraph (c) relating to the 3-Year DoD Demonstration Project (10
U.S.C. 1108) because the term of the demonstration project expired
December 31, 2002.
In 1632.771, Non-commingling of FEHB Program funds, and 1632.772,
Contract clause, we removed the incorrect reference to paragraph
1652.232-70 and replaced it with the reference 1652.232-72.
We removed the reference to ``1615.804-72'' in the introductory
text of ``1652.215-70, Rate reduction for defective pricing or
defective cost or pricing data,'' and replaced it with ``1615.407-1.''
In the same section, we removed the reference to ``15.804-2(a)(1)'' and
replaced it with ``15.403-4(a)(1).'' We also replaced the clause date
with ``2003.'' In paragraph (a) of the clause, we replaced ``1615.804-
70 ``with ``1615.406-2.'' Finally, we removed paragraph (d) relating to
the 3-Year DoD Demonstration Project (10 U.S.C. 1108) because the term
of the demonstration project expired December 31, 2002.
In the introductory text of 1652.215-71, Investment income, we
replaced ``1615.805-71'' with ``1615.470-1.''
In 1652.216-70, Accounting and price adjustment, we changed the
clause date to ``2003'' and removed paragraph (c) because the term of
the 3-Year DoD Demonstration Project (10 U.S.C. 1108) expired December
31, 2002.
In 1652.216-71, Accounting and allowable cost, we changed the
clause date to ``2003'' and removed paragraph (d) because the term of
the 3-Year DoD Demonstration Project (10 U.S.C. 1108) expired December
31, 2002.
In 1652.222-70, Notice of significant events, we revised paragraph
(d) of the clause to increase the threshold for
[[Page 48853]]
inserting the clause in the carrier's subcontracts and subcontract
modifications.
In 1652.232-70, Payments--Community-rated contracts, we changed the
clause date to ``2003'' and removed paragraph (f) because the term of
the 3-Year DoD Demonstration Project (10 U.S.C. 1108) expired December
31, 2002.
In 1652.232-71, Payments--Experience-rated contracts, we changed
the clause date to ``2003'' and removed paragraph (f) because the term
of the 3-Year DoD Demonstration Project (10 U.S.C. 1108) expired
December 31, 2002.
We have also updated the FEHB Clause Matrix by removing clauses
that relate to the Cost Accounting Standards.
Collection of Information Requirement
This rulemaking imposes additional oversight and audit requirements
on individual Federal contractors. The requirements do not represent
routine information collection. Carriers are required to provide the
information on an individual case by case basis only when they are
initiating a new large provider contract or renewing an existing
contract. It does not impose information collection and recordkeeping
requirements that meet the definition of the Paperwork Reduction Act of
1995's term ``collection of information'' which means obtaining,
causing to be obtained, soliciting, or requiring the disclosure to
third parties or the public, of facts or opinions by or for an agency,
regardless of form or format, calling for either answers to identical
questions posed to, or identical reporting or recordkeeping
requirements imposed on, ten or more persons, other than agencies,
instrumentalities, or employees of the United States; or answers to
questions posed to agencies, instrumentalities, or employees of the
United States which are to be used for general statistical purposes * *
* Consequently, it need not be reviewed by the Office of Management and
Budget under the authority of the Paperwork Reduction Act of 1995 (44
U.S.C. 3501 et seq.).
Regulatory Flexibility Act
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 government agencies with
revenues of $11.5 million or less in any 1 year. This rulemaking
primarily affects FEHB Program experience rated carriers and their
large provider contractual arrangements which exceed that dollar
threshold. Therefore, I certify that this regulation will not have a
significant economic impact on a substantial number of small entities.
Regulatory Impact Analysis
We have examined the impacts of this final rule as required by
Executive Order 12866 (September 1993, Regulatory Planning and Review),
the Regulatory Flexibility Act (RFA) (September 16, 1980, Pub. L. 96-
354), section 1102(b) of the Social Security Act (the Act), the
Unfunded Mandates Reform Act of 1995 (UMRA), (Pub. L. 104-4), and
Executive Order 13132. Executive Order 12866 (as amended by Executive
Order 13258, which merely assigns responsibility of duties) directs
agencies to assess all costs and benefits of available regulatory
alternatives and, if regulation is necessary, to select regulatory
approaches that maximize net benefits (including potential economic,
environmental, public health and safety effects, distributive impacts,
and equity). A regulatory impact analysis (RIA) must be prepared for
major rules with economically significant effects ($100 million or more
in any 1 year). This proposed rule is not considered a major rule, as
defined in Title 5, United States Code, section 804(2), because we
estimate its impact will only affect FEHB carriers and their large
provider agreements and would mirror current FEHB Program practice with
regard to carriers' subcontract arrangements. Any economic impact
resulting from oversight or audit efforts would not be expected to
exceed the dollar threshold.
Executive Order 12866, Regulatory Review
This rule has been reviewed by the Office of Management and Budget
in accordance with Executive Order 12866.
List of Subjects in 48 CFR Parts 1601, 1602, 1604, 1615, 1631,
1632, 1644, and 1652
Government employees, Government procurement, Health insurance,
Reporting & recordkeeping requirements.
Office of Personnel Management.
Kay Coles James,
Director.
Accordingly, OPM proposes to amend chapter 16 of title 48, CFR as
follows:
CHAPTER 16--OFFICE OF PERSONNEL MANAGEMENT FEDERAL EMPLOYEES HEALTH
BENEFITS ACQUISITION REGULATION
1. The authority citation for 48 CFR parts 1601, 1602, 1604, 1615,
1631, 1632, 1644, and 1652 continues to read as follows:
Authority: 5 U.S.C. 8913; 40 U.S.C. 486(c); 48 CFR 1.301.
SUBCHAPTER A--GENERAL
PART 1601--FEDERAL ACQUISITION REGULATIONS SYSTEM
Subpart 1601.1--Purpose, Authority, Issuance.
2. Section 1601.105 is redesignated as 1601.106.
PART 1602--DEFINITIONS OF WORDS AND TERMS
Subpart 1602.1--Definitions of FEHB Program Terms
3. In 1602.170-5, paragraph (a) is revised to read as follows:
1602.170-5 Cost or pricing data.
(a) Experience rated carriers. Cost or pricing data for experience
rated carriers includes:
(1) Information such as claims data;
(2) Actual or negotiated benefits payments made to providers of
medical services for the provision of healthcare, such as capitation
not adjusted for specific groups, including mental health benefits
capitation rates, per diems, and Diagnostic Related Group (DRG)
payments;
(3) Cost data;
(4) Utilization data; and
(5) Administrative expenses and retentions, including capitated
administrative expenses and retentions.
* * * * *
4. Section 1602.170-7 is revised to read as follows:
1602.170-7 Experience rate.
Experience rate means a rate for a given group that is the result
of that group's actual paid claims, administrative expenses (including
capitated administrative expenses), retentions, and estimated claims
incurred but not reported, adjusted for benefit modifications,
utilization trends, and economic trends. Actual paid claims include any
actual or negotiated benefits payments made to providers of medical
services for the provision of healthcare such as capitation not
adjusted for specific groups, including mental health benefits
capitation rates, per diems, and Diagnostic Related Group (DRG)
payments.
5. Section 1602.170-15 is added to read as follows:
1602.170-15 Large provider agreement.
(a) Large provider agreement means an agreement between--
[[Page 48854]]
(1) An FEHB carrier, at least 25 percent of whose total contracts
are comprised of FEHB enrollee contracts, and
(2) A provider of services or supplies (including organizations
that own or contract with direct providers, or organizations that
process claims or manage patient care),
(i) Where the total costs charged to the FEHB carrier for a
contract term for FEHB members, including benefits and services, are
reasonably expected to exceed 5 percent of the carrier's total FEHB
benefits costs, or
(ii) Where the total administrative costs charged to the FEHB
carrier for the contract term for FEHB members are reasonably expected
to exceed 5 percent of the carrier's total FEHB administrative costs
(applicable to agreements where the provider is not responsible for
FEHB benefits costs).
(b) The FEHB Program Annual Accounting Statement for the prior
contract year will be used to determine the 5 percent threshold under
large provider agreements.
(c) Large provider agreements are subject to the audit provisions
of FAR 52.215-2, ``Audit and Records-Negotiation.''
PART 1604--ADMINISTRATIVE MATTERS
6. Subpart 1604.72 is added to read as follows:
Subpart 1604.72--Large Provider Agreements
Sec.
1604.7201 FEHB Program large provider agreements.
1604.7202 Large provider agreement clause.
Authority: 5 U.S.C. 8913; 40 U.S.C. 486(c); 48 CFR 1.301.
Subpart 1604.72--Large Provider Agreements
1604.7201 FEHB Program large provider agreements.
The following provisions apply to all experience rated carriers
participating in the FEHB Program:
(a) Notification and information requirements. (1) All experience
rated carriers must provide notice to the contracting officer of its
intent to enter into or to make a significant modification of a large
provider agreement:
(i) Not less than 60 days before entering into any large provider
agreement; and
(ii) Not less than 60 days before exercising renewals or other
options, or making a significant modification.
(2) The carrier's notification to the contracting officer must be
in writing and must, at a minimum:
(i) Describe the supplies and/or services the proposed provider
agreement will require;
(ii) Identify the proposed basis for reimbursement;
(iii) Identify the proposed provider agreement, explain why the
carrier selected the proposed provider, and what contracting method it
used, where applicable, including the kind of competition obtained;
(iv) Describe the methodology the carrier used to compute the
provider's profit; and,
(v) Describe provider risk provisions.
(3) The contracting officer may request from the carrier any
additional information on a proposed provider agreement and its terms
and conditions prior to a provider award and during the performance of
the agreement.
(4) Within 30 days of receiving the carrier's notification, the
contracting officer will either give the carrier written comments or
written notice that there will be no comments. If the contracting
officer comments, the carrier must respond in writing within 10
calendar days and explain how it intends to address any concerns.
(5) The contracting officer may inform the carrier that if it
awards the provider agreement before addressing OPM's concerns, it may
not charge costs incurred under the agreement to the contract.
(6) When computing the carrier's annual service charge, the
contracting officer will consider how well the carrier complies with
the provisions of this section, including the advance notification
requirements, as an aspect of the carrier's performance factor.
(7) The contracting officer's review of any provider agreement,
option, renewal, or modification shall not constitute a determination
of the acceptability of terms or conditions of any provider agreement
or the allowability of any costs under the carrier's contract, nor
shall it relieve the carrier of any responsibility for performing the
contract.
(b) Records and Inspection. The carrier must insert in all large
provider agreements the requirement that the provider will retain and
make available to the Government all records relating to the agreement
as follows:
(1) Records that support the annual statement of operations--Retain
for 6 years after the agreement term ends.
(2) Enrollee records, if applicable--Retain for 6 years after the
agreement term ends.
(c) Audit. The provisions of FAR 52.215-2, Audit and Records--
Negotiation, apply to all experience rated carriers' large provider
agreements.
1604.7202 Large provider agreement clause.
The Contracting Officer shall insert the clause set forth at
section 1652.204-74 in all experience rated FEHB Program contracts.
SUBCHAPTER C--CONTRACTING METHODS AND CONTRACT TYPES
PART 1615--CONTRACTING BY NEGOTIATION
7. A new Sec. 1615.070 is added to read as follows:
1615.070 Negotiation authority.
The authority to negotiate FEHB contracts is conferred by 5 U.S.C.
8902.
8. Subpart 1615.1 is revised to read as follows:
Subpart 1615.1--Source Selection Processes and Techniques.
Sec.
1615.170 Applicability.
Authority: 5 U.S.C. 8913; 40 U.S.C. 486(c); 48 CFR 1.301.
1615.170 Applicability.
FAR subpart 15.1 has no practical application to the FEHB Program
because prospective contractors (carriers) are considered for inclusion
in the FEHB Program according to criteria in 5 U.S.C. chapter 89 and 5
CFR part 890 rather than by competition between prospective carriers.
9. Subpart 1615.2 is added to read as follows:
Subpart 1615.2--Solicitation and Receipt of Proposals and Information
Sec.
1615.270 Applicability.
Authority: 5 U.S.C. 8913; 40 U.S.C. 486(c); 48 CFR 1.301.
1615.270 Applicability.
FAR subpart 15.2 has no practical application to the FEHB Program
because OPM does not issue formal procurement solicitations to health
benefits carriers. Eligible contractors (i.e., qualified health
benefits carriers) are identified in accordance with 5 U.S.C. 8903.
Offerors voluntarily come forth in accordance with procedures provided
in 5 CFR part 890.
Subpart 1615.6--[Amended]
10. Subpart 1615.6 is redesignated as 1615.3 and Section 1615.602
is redesignated as 1615.370. In newly redesignated 1615.370 remove
``15.6'' and add in its place ``15.3''.
[[Page 48855]]
11. Subpart 1615.4 is revised to read as follows:
Subpart 1615.4--Contract Pricing
Sec.
1615.402 Pricing policy.
1615.404-4 Profit.
1615.404-70 Profit analysis factors.
1615.406-2 Certificate of accurate cost or pricing data for
community rated carriers.
1615.407-1 Rate reduction for defective pricing or defective cost or
pricing data.
1615.470 Carrier investment of FEHB funds.
1615.470-1 Investment income clause.
Authority: 5 U.S.C. 8913; 40 U.S.C. 486(c); 48 CFR 1.301.
Subpart 1615.4--Contract Pricing
1615.402 Pricing policy.
Pricing of FEHB contracts is governed by 5 U.S.C. 8902(i), 5 U.S.C.
8906, and other applicable law. FAR subpart 15.4 shall be implemented
by applying its policies and procedures--to the extent practicable--as
follows:
(a) For both experience rated and community rated contracts for
which the FEHB Program premiums for the contract term will be less than
the threshold at FAR 15.403-4(a)(1), OPM shall not require the carrier
to provide cost or pricing data in the rate proposal for the following
contract term.
(b) Cost analysis shall be used for contracts where premiums and
subscription income are determined on the basis of experience rating.
(c)(1) A combination of cost and price analysis shall be used for
contracts where premiums and subscription income are based on community
rates. For contracts for which the FEHB Program premiums for the
contract term will be less than the threshold at FAR 15.403-4(a)(1),
OPM shall not require the carrier to provide cost or pricing data. The
carrier is required to submit only a rate proposal and abbreviated
utilization data for the applicable contract year. OPM will evaluate
the proposed rates by performing a basic reasonableness test on the
information submitted. Rates failing this test will be subject to
further review.
(2) For contracts with fewer than 1,500 enrollee contracts for
which the FEHB Program premiums for the contract term will be at or
above the threshold at FAR 15.403-4(a)(1), OPM shall require the
carrier to submit its rate proposal, utilization data, and the
certificate of accurate cost or pricing data required in 1615.406-2. In
addition, OPM shall require the carrier to complete the proposed rates
form containing cost and pricing data, and the Community Rate
Questionnaire, but shall not require the carrier to send these
documents to OPM. The carrier shall keep the documents on file for
periodic auditor and actuarial review in accordance with 1652.204-70.
OPM shall perform a basic reasonableness test on the data submitted.
Rates that do not pass this test shall be subject to further OPM
review.
(3) For contracts with 1,500 or more enrollee contracts for which
the FEHB Program premiums for the contract term will be at or above the
threshold at FAR 15.403-4(a)(1), OPM shall require the carrier to
provide the data and methodology used to determine the FEHB Program
rates. OPM shall also require the data and methodology used to
determine the rates for the carrier's similarly sized subscriber
groups. The carrier shall provide cost or pricing data required by OPM
in its rate instructions for the applicable contract period. OPM shall
evaluate the data to ensure that the rate is reasonable and consistent
with the requirements in this chapter. If necessary, OPM may require
the carrier to provide additional documentation.
(4) Contracts shall be subject to a downward price adjustment if
OPM determines that the Federal group was charged more than it would
have been charged using a methodology consistent with that used for the
SSSGs. Such adjustments shall be based on the lower of the two rates
determined by using the methodology (including discounts) the Carrier
used for the two SSSGs.
(5) FEHB Program community rated carriers shall comply with SSSG
criteria provided by OPM in the rate instructions for the applicable
contract period.
(d) The application of FAR 15.402(b)(2) should not be construed to
prohibit the consideration of preceding year surpluses or deficits in
carrier-held reserves in the rate adjustments for subsequent year
renewals of contracts based, in whole or in part, on cost analysis.
1615.404-4 Profit.
(a) When the pricing of FEHB Program contracts is determined by
cost analysis, OPM will determine the profit or fee prenegotiation
objective (service charge) portion of the contracts by use of a
weighted guidelines structured approach. The service charge so
determined shall be the total service charge that may be negotiated for
the contract and shall encompass any service charge (whether entitled
service charge, profit, fee, contribution to reserves or surpluses, or
any other title) that may have been negotiated by the prime contractor
with any subcontractor or underwriter.
(b) OPM will not guarantee a minimum service charge.
1615.404-70 Profit analysis factors.
(a) OPM contracting officers will apply a weighted guidelines
method in developing the service charge prenegotiation objective for
FEHB Program contracts. The following factors, as defined in FAR
15.404-4(d), will be applied to projected incurred claims and allowable
administrative expenses:
(1) Contractor performance. OPM will consider such elements as the
accurate and timely processing of benefit claims and the volume and
validity of disputed claims as measures of economical and efficient
contract performance. This factor will be judged apart from the
contractor's basic responsibility for contract performance and will be
a measure of the extent and nature of the contractor's contribution to
the FEHB Program through the application of managerial expertise and
effort. Evidence of effective contract performance will receive a plus
weight, and poor performance or failure to comply with contract terms
and conditions a negative weight. Innovations of benefit to the FEHB
Program will generally result in a positive weight; documented
inattention or indifference to cost control will generally result in a
negative weight.
(2) Contract cost risk. In assessing the degree of cost
responsibility and associated risk assumed by the contractor as a
factor to be considered in negotiating profit, OPM will consider such
underwriting elements as the availability of margins, group size,
enrollment demographics and fluctuation, and the probability of
conversion and adverse selection, as well as the extent of financial
assistance the carrier renders to the contract. However, the ``loss
carry forward basis'' of experience rated group insurance practices,
which mitigates contract risk, will likely serve to diminish this
profit analysis factor in an overall determination of profit. This
factor is intended to provide profit opportunities commensurate with
the contractor's share of cost risks only, taking into account elements
such as the adequacy and reliability of data for estimating costs.
(3) Federal socioeconomic programs. OPM will consider documented
evidence of successful, contractor-initiated efforts to support Federal
socioeconomic programs such as drug and substance abuse deterrents and
concerns of the type enumerated in FAR 15.404-4(d)(iii), as a factor in
negotiating profit. This factor will be
[[Page 48856]]
assessed by considering the quality of the contractor's policies and
procedures and the extent of unusual effort or achievement
demonstrated. Evidence of effective support of Federal socioeconomic
programs will receive a positive weight; poor support will receive a
negative weight.
(4) Capital investments. This factor is generally not applicable to
FEHB Program contracts because facilities capital cost of money may be
an allowable administrative expense. Generally, this factor shall be
given a weight of zero. However, special purpose facilities or
investment costs of direct benefit to the FEHB Program that are not
recoverable as allowable or allocable administrative expenses may be
taken into account in assigning a positive weight.
(5) Cost control. OPM will consider contractor-initiated efforts
such as improved benefit design, cost-sharing features, innovative peer
review, or other professional cost containment efforts as a factor in
negotiating profit. OPM shall use this factor to reward contractors
with additional profit opportunities for self-initiated efforts to
control contract costs.
(6) Independent development. OPM will consider any profit
opportunities that may be directly related to relevant independent
efforts such as the development of a unique and enhanced customer
support system that is of demonstrated value to the FEHB Program and
for which developmental costs have not been recovered directly or
indirectly through allowable administrative expenses. OPM will use this
factor to provide additional profit opportunities based upon an
assessment of the contractor's investment and risk in developing
techniques, methods, and practices having viability to the program at
large. OPM will not consider improvements and innovations recognized
and rewarded under any of the other profit factors.
(b) The weight ranges for each factor to be used in the weighted
guidelines approach are set forth as follows:
------------------------------------------------------------------------
Profit factor Weight ranges (percent)
------------------------------------------------------------------------
1. Contractor performance................. -.2 to + .45
2. Contract cost risk*.................... +.02 to + .2
3. Federal socioeconomic programs......... -.05 to + .05
4. Capital investments.................... 0 to +.02
5. Cost control........................... 0 to +.35
6. Independent development................ 0 to +.03
------------------------------------------------------------------------
*The contract cost risk factor is subdivided into two parts: group size
(.02 to .10) and other risk elements (0 to .10). With respect to the
group size element, subweights should be assigned as follows:
------------------------------------------------------------------------
Enrollment Weight (percent)
------------------------------------------------------------------------
10,000 or less............................ .06 to .10
10,001-50,000............................. .05 to .09
50,001-200,000............................ .04 to .07
200,001-500,000........................... .03 to .06
500,001 and over.......................... .02 to .04
------------------------------------------------------------------------
1615.406-2 Certificate of accurate cost or pricing data for community
rated carriers.
The contracting officer shall require a carrier with a contract
meeting the requirements in 1615.402(c)(2) or 1615.402(c)(3) to execute
the Certificate of Accurate Cost or Pricing Data contained in this
section. A carrier with a contract meeting the requirements in
1615.402(c)(2) shall complete the Certificate and keep it on file at
the carrier's place of business in accordance with 1652.204-70. A
carrier with a contract meeting the requirements in 1615.402(c)(3)
shall submit the Certificate to OPM along with its rate reconciliation,
which is submitted during the first quarter of the applicable contract
year.
Certificate of Accurate Cost or Pricing Data for Community Rated
Carriers
This is to certify that, to the best of my knowledge and belief:
(1) The cost or pricing data submitted (or, if not submitted,
maintained and identified by the carrier as supporting
documentation) to the Contracting Officer or the Contracting
Officer's representative or designee, in support of the --------*
FEHB Program rates were developed in accordance with the
requirements of 48 CFR Chapter 16 and the FEHB Program contract and
are accurate, complete, and current as of the date this certificate
is executed; and (2) the methodology used to determine the FEHB
Program rates is consistent with the methodology used to determine
the rates for the carrier's Similarly Sized Subscriber Groups.
Firm:------------
Name: ------------
Signature: ------------
Date of Execution: ------------
*Insert the year for which the rates apply. Normally, this will be
the year for which the rates are being reconciled.
(End of Certificate)
1615.407-1 Rate reduction for defective pricing or defective cost or
pricing data.
The clause set forth in section 1652.215-70 shall be inserted in
FEHB Program contracts, at or above the threshold in FAR 15.403-
4(a)(1), that are based on a combination of cost and price analysis
(community rated).
1615.470 Carrier investment of FEHB funds.
(a) Except for contracts based on a combination of cost and price
analysis (community rated), the carrier is required to invest and
reinvest all funds on hand, including any attributable to the special
reserve or the reserve for incurred but unpaid claims, exceeding the
funds needed to discharge promptly the obligations incurred under the
contract.
(b) The carrier is required to credit income earned from its
investment of FEHB funds to the special reserve on behalf of the FEHB
Program. If a carrier, for any reason, fails to invest excess FEHB
funds or to credit any income due to the contract, it shall return or
credit any investment income lost to OPM or the special reserve.
(c) Investment income. Investment income is the net amount earned
by the carrier after deducting investment expenses.
1615.470-1 Investment income clause.
The clause set forth in 1652.215-71 shall be inserted in all FEHB
contracts based on cost analysis.
Subpart 1615.8 [Reserved]
12. Subpart 1615.8 is removed and reserved.
Subpart 1615.9 [Reserved]
13. Subpart 1615.9 is removed and reserved.
Subpart 1615.70--Audit and Records--Negotiation
14. Section 1615.7001 is added to read as follows:
1615.7001 Audit and records.
The Contracting Officer shall modify 52.215-2 in all FEHB Program
experience rated contracts by amending paragraph (g) of that section to
replace the words ``exceed the simplified acquisition threshold'' with
``equals or exceeds $550,000.''
SUBCHAPTER E--GENERAL CONTRACTING REQUIREMENTS
PART 1631--CONTRACT COST PRINCIPLES AND PROCEDURES
Subpart 1631.2--Contracts With Commercial Organizations
15. A new 1631.205-81, is added to read as follows:
[[Page 48857]]
1631.205-81 Inferred Reasonableness.
If the Carrier follows the notification and consent requirements of
paragraphs (a), (b) and (c) of 1652.244-70, and subsequently obtains
the Contracting Officer's consent or ratification, then the
reasonableness of the subcontract's costs will be inferred.
PART 1632--CONTRACT FINANCING
Subpart 1632.1--General
1632.170 [Amended]
16. In 1632.170, remove paragraph (c).
Subpart 1632.7--Contract Funding
1632.771 [Amended]
17. In 1632.771 paragraph (d), remove ``1652.232-70'' and add in
its place ``1652.232-72.''
1632.772 [Amended]
18. In 1632.772, remove ``1652.232-70'' and add in its place
``1652.232-72.''
SUBCHAPTER G--CONTRACT MANAGEMENT
PART 1644--SUBCONTRACTING POLICIES AND PROCEDURES
Subpart 1644.1--General
19. Section 1644.170 is revised to read as follows:
1644.170 Policy for FEHB Program subcontracting consent.
For all experience rated contracts, the Carriers shall notify the
Contracting Officer in writing at least 60 days in advance of entering
into any subcontract or subcontract modification, or as otherwise
specified by the contract, if the amount of the subcontract or
modification charged to the FEHB Program equals or exceeds $550,000.
Failure to provide advance notice may result in the Contracting
Officer's disallowance of the costs. In determining whether the amount
chargeable to the FEHB Program contract for a given subcontract or
modification equals or exceeds the $550,000 threshold, the following
rules apply:
(a) For initial advance notification, the Carrier shall add the
total price for the base year and all options, including quantity or
service options and option periods, and
(b) The Carrier shall give advance notification of modifications
not accounted for in paragraph (a) of this section that cause the total
price to equal or exceed the threshold. Carriers shall follow
appropriate procurement procedures that comply with the Federal
Acquisition Regulation's (FAR) policies and procedures relating to
competition and contract pricing for the acquisition of both commercial
and non-commercial items. All subcontracts or subcontract modifications
that equal or exceed the threshold are subject to audit under FAR
52.215-2 Audit and Records--Negotiation.
SUBCHAPTER H--CLAUSES AND FORMS
PART 1652--CONTRACT CLAUSES
Subpart 1652.2--Texts of FEHB Program Clauses
20. Section 1652.204-70 is revised to read as follows:
1652.204-70 Contractor Records Retention.
As prescribed in 1604.705 the following clause shall be inserted in
all FEHB Program contracts.
Contractor Records Retention (Jan 2003)
Notwithstanding the provisions of Section 5.7 (FAR 52.215-2(f))
Audit and Records--Negotiation, the Carrier shall retain and make
available all records applicable to a contract term that support the
annual statement of operations and, for contracts that equal or
exceed the threshold at FAR 15.403-4(a)(1), the rate submission for
that contract term for a period of 6 years after the end of the
contract term to which the records relate. This includes all records
of large provider agreements and subcontracts that equal or exceed
the threshold requirements. In addition, individual enrollee and/or
patient claim records shall be maintained for 6 years after the end
of the contract term to which the claim records relate.
(End Clause)
21. Section 1652.204-74 is added to read as follows:
1652.204-74 Large provider agreements.
As prescribed by 1604.7202, the contracting officer shall insert
the following clause in all FEHB Program contracts based on cost
analysis (experience rated):
Large Provider Agreements (JAN 2003)
(a) Notification and Information Requirements. (1) The
experience rated Carrier must provide notice to the contracting
officer of its intent to enter into or to make a significant
modification of a large provider agreement:
(i) Not less than 60 days before entering into any large
provider agreement; and
(ii) Not less than 60 days before exercising a renewal or other
option, or significant modification to a large provider agreement.
(2) The Carrier's notification to the contracting officer must
be in writing and must, at a minimum:
(i) Describe the supplies and/or services the proposed provider
agreement will require;
(ii) Identify the proposed basis for reimbursement;
(iii) Identify the proposed provider agreement, explain why the
Carrier selected the proposed provider, and what contracting method
it used, where applicable, including the kind of competition
obtained;
(iv) Describe the methodology the carrier used to compute the
provider's profit; and,
(v) Describe provider risk provisions.
(3) The Contracting Officer may request from the Carrier any
additional information on a proposed provider agreement and its
terms and conditions prior to a provider award and during the
performance of the agreement.
(4) Within 30 days of receiving the Carrier's notification, the
Contracting Officer will give the Carrier either written comments or
written notice that there will be no comments. If the Contracting
Officer comments, the Carrier must respond in writing within 10
calendar days, and explain how it intends to address any concerns.
(5) The Contracting Officer may inform the Carrier that if it
awards the provider agreement before addressing OPM's concerns, it
may not charge costs incurred under the agreement to the contract.
(6) When computing the carrier's service charge, the Contracting
Officer will consider how well the Carrier complies with the
provisions of this section, including the advance notification
requirements, as an aspect of the Carrier's performance factor.
(7) The Contracting Officer's review of any provider agreement,
option, renewal, or modification shall not constitute a
determination of the acceptability of the terms and conditions of
any provider agreement or of the allowability of any costs under the
Carrier's contract, nor shall it relieve the Carrier of any
responsibility for performing the contract.
(b) Records and Inspection. The Carrier must insert in all large
provider agreements the requirement that the provider will retain
and make available to the Government all records relating to the
agreement that support the annual statement of operations and
enrollee records--Retain for 6 years after the agreement term ends.
(c) Audit. The provisions of FAR 52.215-2, Audit and Records--
Negotiation, apply to all experience rated Carriers' large provider
agreements. The Carrier shall insert the clause, 52.215-2, in all
large provider agreements and shall substitute
(1) The term ``provider'' for the term ``Contractor'' throughout
the clause, and
(2) The term ``large provider contracts'' for the term
``Subcontracts'' in paragraph (g) of FAR 52.215-2. The term
``Contracting Officer'' shall mean the FEHB Program Contracting
Officer at OPM. The Carrier shall be responsible for ensuring the
large provider complies with the provisions set forth in the clause.
(d) Prohibited Agreements. No provider agreement made under this
contract shall provide for payment on a cost-plus-a-percentage-of-
cost basis.
(e) The Carrier shall insert this clause, 1652.204-74, in all
large provider agreements.
(End of Clause)
[[Page 48858]]
1652.215-70 (Amended)
22. In the introductory text of section 1652.215-70, remove
``1615.804.72'' and add in its place ``1615.407-1,'' remove ``15.804-
2(a)(1)'' and add in its place ``15.403-4(a)(1),'' in the clause title,
remove ``JAN 2000'' and add in its place ``JAN 2003,'' in paragraph
(a)(1) of the clause remove ``1615.804.70'' and add in its place
``1615.406-2,'' and remove paragraph (d).
1652.215-71 [Amended]
23. In the introductory text of section 1652.215-71, remove
``1615.805-71'' and add in its place ``1615.470-1.''
1652.216-70 [Amended]
24. In 1652.216-70, remove ``JAN 2000'' in the clause title and add
in its place ``JAN 2003,'' and remove paragraph (c) of the clause.
1652.216-71 [Amended]
25. In 1652.216-71, remove ``JAN 2000'' in the clause title and add
in its place ``JAN 2003,'' and remove paragraph (d) of the clause.
26. In 1652.222-70, paragraph (d) of the clause is revised to read
as follows:
1652.222-70 Notice of Significant Events.
* * * * *
Notice of Significant Events (Jan 2001)
* * * * *
(d) The Carrier shall insert this clause in any subcontract or
subcontract modification if the amount of the subcontract or
modification charged to the FEHB Program (or in the case of a
community rated carrier, applicable to the FEHB Program) equals or
exceeds $550,000.
(End of Clause)
27. Section 1652.244-70, is revised to read as follows:
1652.244-70 Subcontracts.
As prescribed in section 1644.270, the following clause shall be
inserted in all FEHB Program contracts based on cost analysis
(experience rated):
Subcontracts (Jan 2003)
(a) The Carrier shall notify the Contracting Officer in writing
at least 60 days in advance of entering into any subcontract or
subcontract modification, or as otherwise specified by this
contract, if the amount of the subcontract or modification charged
to the FEHB Program equals or exceeds $550,000. Failure to provide
advance notice may result in the Contracting Officer's disallowance
of the costs. In determining whether the amount chargeable to the
FEHB Program contract for a given subcontract or modification equals
or exceeds the $550,000 threshold, the following rules apply:
(1) For initial advance notification, the Carrier shall add the
total price for the base year and all options, including quantity or
service options and option periods, and
(2) The Carrier shall give advance notification of modifications
not accounted for in paragraph (a) of this clause, if they cause the
total price to equal or exceed the threshold. The Carrier shall
follow appropriate procurement procedures that comply with the
Federal Acquisition Regulation's (FAR) policies and procedures
relating to competition and contract pricing for the acquisition of
both commercial and non-commercial items. All subcontracts or
subcontract modifications that equal or exceed the threshold are
subject to audit under FAR 52.215-2 Audit and Records-Negotiations.
(b) The advance notification required by paragraph (a) of this
clause shall include the information specified below:
(1) A description of the supplies or services to be
subcontracted;
(2) Identification of the type of subcontract to be used;
(3) Identification of the proposed subcontractor and an
explanation of why and how the proposed subcontractor was selected,
including the competition obtained;
(4) The proposed subcontract price and the Carrier's cost or
price analysis;
(5) An explanation of why the subcontract has been categorized
as a subcontract for a commercial item as defined in 48 CFR 2.101.
If the subcontract is not for a commercial item, then the
subcontractor's current, complete, and accurate cost or pricing data
and a Certificate of Current Cost or Pricing Data must be submitted
to the Contracting Officer.
(6) (Reserved)
(7) A negotiation memorandum reflecting--
(i) The principal elements of the subcontract price
negotiations;
(ii) The most significant consideration controlling
establishment of initial or revised prices;
(iii) An explanation of the reason cost or pricing data are not
required, if the item is not a commercial item but the carrier
believes that cost or pricing data are not required.
(iv) The extent, if any, to which the Carrier did not rely on
the subcontractor's cost or pricing data in determining the price
objective and in negotiating the final price;
(v) The extent, if any, to which it was recognized in the
negotiation that the subcontractor's cost or pricing data were not
accurate, complete, or current; the action taken by the Carrier and
the subcontractor; and the effect of any such defective data on the
total price negotiated;
(vi) The reasons for any significant difference between the
Carrier's price objective and the price negotiated; and
(vii) A complete explanation of the incentive fee or profit
plan, when incentives are used. The explanation shall identify each
critical performance element, management decisions used to quantify
each incentive element, reasons for the incentives, and a summary of
all trade-off possibilities considered.
(c) The Carrier shall obtain the Contracting Officer's written
consent before placing any subcontract for which advance
notification is required under paragraph (a) of this clause.
However, the Contracting Officer may ratify in writing any such
subcontract for which written consent was not obtained. Ratification
shall constitute the consent of the Contracting Officer.
(d) The Contracting Officer may waive the requirement for
advance notification and consent required by paragraphs (a), (b) and
(c) of this clause where the Carrier and subcontractor submit an
application or renewal as a contractor team arrangement as defined
in FAR Subpart 9.6 and--
(1) The Contracting Officer evaluated the arrangement during
negotiation of the contract or contract renewal; and
(2) The subcontractor's price and/or costs were included in the
Plan's rates that were reviewed and approved by the Contracting
Officer during negotiation of the contract or contract renewal.
(e) If the Carrier follows the notification and consent
requirements of paragraphs (a), (b) and (c) of this clause and
subsequently obtains the Contracting Officer's consent or
ratification, then the reasonableness of the subcontract's costs
will be inferred as provided for in 1631.205-81. However, consent or
ratification by the Contracting Officer will not constitute a
determination
(1) Of the acceptability of any subcontract terms or conditions;
(2) Of the allowability of any cost under this contract; or
(3) That the Carrier should be relieved of any responsibility
for performing this contract.
(f) No subcontract placed under this contract shall provide for
payment on a cost-plus-a-percentage-of-cost basis. Any fee payable
under cost reimbursement type subcontracts shall not exceed the fee
limitations in FAR 15.404-4(c)(4)(i). Any profit or fee payable
under a subcontract shall be in accordance with the provision of
Section 3.7, Service Charge.
(g) The Carrier shall give the Contracting Officer immediate
written notice of any action or suit filed and prompt notice of any
claim made against the Carrier by any subcontractor or vendor that,
in the opinion of the Carrier, may result in litigation related in
any way to this contract with respect to which the Carrier may be
entitled to reimbursement from the Government.
(End of Clause)
Subpart 1652.3-FEHB Program Clause Matrix
28. In section 1652.370, the FEHB Program Clause Matrix, is revised
to read as follows:
1652.370 Use of the Matrix.
* * * * *
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[FR Doc. 03-20857 Filed 8-14-03; 8:45 am]
BILLING CODE 6325-50-C