[Federal Register Volume 70, Number 104 (Wednesday, June 1, 2005)]
[Rules and Regulations]
[Pages 31374-31389]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-10643]
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OFFICE OF PERSONNEL MANAGEMENT
48 CFR Parts 1601, 1602, 1604, 1615, 1631, 1632, 1644, 1646, and
1652
RIN 3206-AJ20
Federal Employees Health Benefits Acquisition Regulation: Large
Provider Agreements, Subcontracts, and Miscellaneous Changes
AGENCY: Office of Personnel Management.
ACTION: Final rule.
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SUMMARY: The Office of Personnel Management (OPM) is issuing this final
regulation to amend the Federal Employees Health Benefits Acquisition
Regulation (FEHBAR). It establishes requirements, including audit, for
Federal Employees Health Benefits Program (FEHB) experience-rated
carriers' Large Provider Agreements. It also modifies the dollar
threshold for review of carriers' subcontract agreements; revises the
definitions of Cost or Pricing Data and Experience-rate to reflect
mental health parity requirements; updates the contract records
retention requirement; updates the FEHB Clause Matrix; and conforms
subpart and paragraph references to Federal Acquisition Regulation
(FAR) revisions made since we last updated the FEHBAR.
DATES: Effective July 1, 2005.
ADDRESSES: This document is available for viewing at the U.S. Office of
Personnel Management, 1900 E Street, NW., Washington, DC 20415.
[[Page 31375]]
FOR FURTHER INFORMATION CONTACT: Anne Easton, Manager, at 202-606-0770
or e-mail [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 subcontractor costs. We have specified standard contracting
requirements for review and audit of costs and have routinely updated
our requirements as necessary. Historically, we have not considered
providers of healthcare 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
agreement was relatively small. However, the healthcare delivery system
has changed and new large healthcare delivery entities now play a
significant role in the industry. FEHB carriers now contract with these
entities for 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
healthcare services or supplies are not defined as subcontractors under
the FEHB Program, these 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 this provision should be in regulation
rather than in individual contracts to make the context clear and
consistent for all experience-rated carriers by mirroring the
regulatory requirements for oversight of FEHB subcontracting
arrangements. As with audit findings in subcontract arrangements, any
audit findings regarding Large Providers would be referred to the FEHB
carrier holding the Large Provider Agreement.
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 enrollee contracts are comprised of FEHB enrollee contracts, and
(2) a provider of services, 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 five percent of the
carrier's total FEHB benefits costs, or five 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 five percent threshold.
Large Provider Agreements include mail order pharmacy services,
pharmacy benefit management services, mental (behavioral) health and/or
substance abuse management services, preferred provider organizations
(including organizations that own and/or contract with direct providers
of medical services and supplies), utilization review services, and/or
large case or disease management services. Large Provider Agreements do
not include carriers' contracts with hospitals.
This regulation requires experience-rated carriers to meet minimum
notification and information requirements with respect to any new
procurement, renewal, significant modification, or option relating to a
Large Provider Agreement. Information to be provided includes: 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 reflects OPM's
need to be informed of the types of carriers' Large Provider Agreements
and their terms and conditions because of the value and cost of such
agreements to the FEHB Program. The clause describing the Large
Provider Agreement review requirement is applicable to Large Provider
Agreements and significant modifications effective January 1, 2004.
However, to allow for an appropriate transition period, OPM will apply
this requirement only to those Agreements and modifications that take
effect on or after 90 days following the effective date of this final
regulation.
This regulation authorizes the contracting officer to request
additional information after he or she receives the carrier's
notification and required information prior to the award of a Large
Provider Agreement, as well as any time during the performance of the
agreement. The contracting officer will give the carrier either written
comments on the agreement, or written notice that there will be no
comments. If the contracting officer provides comments, the carrier
must inform the contracting officer how it intends to address those
comments.
Under the regulation, Large Providers must retain and make
available for Government inspection all records applicable to the
carrier's Large Provider contractual agreement. The Government will
have audit rights with respect to Large Provider Agreements that are
the same for all carriers. The contract clauses at 1652.204-74, Large
Provider Agreements, and 1652.246-70, FEHB Inspection, contain
provisions that require carriers to insert the applicable clauses in
their Large Provider Agreements.
This regulation also updates our policy on FEHB Program
subcontracting consent which previously required advance approval of
carriers' subcontracts or modifications when the amount charged to the
FEHB Program was at least $100,000 and at least 25 percent of the total
subcontract costs. Consistent with FAR changes, we are increasing the
threshold to require advance approval if the amount charged to the FEHB
Program equals or exceeds $550,000 and is at least 25 percent of the
total subcontract costs. The regulation also clarifies the cost
components the carrier must consider in determining the $550,000
threshold. 1644.170, Policy for FEHB Program subcontracting, has been
clarified to reflect that (a) General Policy and (b) Consent work
together, along with the FEHB Program Clause Matrix.
We have added a new section to 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.
We have modified the definitions of Cost or Pricing Data and
Experience-rate to incorporate mental (behavioral) health benefits
capitation rates, thereby reflecting the implementation of mental
(behavioral) health parity in the FEHB Program as of the 2001 contract
year. Mental (behavioral) 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 have updated the contractor records retention requirement for
carrier rate submissions, patient claims, Large Provider Agreements,
and subcontracts to six years. Earlier in the history of the Program
when virtually all records were maintained in paper format, we
established a requirement for carriers to
[[Page 31376]]
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 have modified and
standardized the records retention requirement. Carriers' records are
subject to the Health Insurance Portability and Accountability Act
(HIPAA) standards for privacy of individually identifiable health
information.
To conform to current FAR sections, we have re-designated and/or
re-titled 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 Department of Defense (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 to 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.'' We also 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 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 updated the FEHB Program Clause Matrix by removing three clauses
that relate to the Cost Accounting Standards (FAR 52.230-2, FAR 52.230-
3, and FAR 52.230-6) that are waived and no longer apply.
On August 15, 2003, OPM published a proposed rule in the Federal
Register (68 FR 48851). OPM received comments from an association
representing fee-for-service health plans participating in the FEHB
Program, three individual FEHB fee-for-service health plans, and one
Federal employee union. The fee-for-service association recommended
that we change the term ``Large Provider Agreements'' to ``Managed Care
Agreements'' because certain preferred provider organization
contractors and utilization review contractors do not want to be
referred to as health providers because of liability concerns. The
association also recommended that we clarify the organizations that
would be considered Large Providers. We believe the Large Provider
definition adequately reflects our intent but for clarification, we
have added a representative sample of providers to the definition of
Large Provider Agreement in FEHBAR 1602.170-15.
The association also commented that most ``Managed Care
Agreements'' are price analysis based contracts, not cost reimbursement
contracts, are not subject to the inclusion of FARSec. 52.215-2,
``Audit and Records--Negotiation'' clause, and the flow down provision
to Large Provider Agreements would not apply. They stated that the
FEHBAR already contains FEHB Inspection clauses at 48 CFR 1646.301,
1652.246-70, for underwriting and administrative services and
recommended that we revise these clauses to include review of ``Managed
Care Agreements''. This would permit audit of cost analysis contracts
under the Audit and Records--Negotiation clause, and price analysis
contracts under the FEHB Inspection clause. We agree with the
association's comment and have revised the regulation accordingly. This
same principle applies to both Large Provider and subcontract
arrangements.
The association commented that Large Provider audit findings should
be treated pursuant to the overpayments clause of the fee-for-service
contract (Sec. 2.3(g)) because they are not defective pricing
situations under the Truth in Negotiations Act (TINA) which calls for
liability to be placed initially on the prime contractor. We agree
these audit findings are not defective pricing situations under TINA.
However we do not agree that findings are overpayments. Rather, we will
consider findings to be unallowable costs to the contract. The
association stated that they select many vendors using price-analysis/
price reasonableness, including competitive bidding, which by
definition do not include evaluation of the underlying costs and
profit. They recommended we revise the subcontract notification
requirement on describing the vendor's profit to ``only when
applicable''. We believe that this is not necessary because if there
are no costs or profit to be described, the carrier can so state.
The association commented that the additional notice requirements
for subcontracts should be defined more
[[Page 31377]]
narrowly (e.g., when the price change in the subcontract is above the
threshold, not when the price change plus the initial price exceeds the
threshold). We believe it is appropriate to review a subcontract
modification that causes the total outlay for the subcontract to equal
or exceed the $550,000 threshold.
The association stated that the 60-day advanced notice for
subcontract consent is commercially unworkable. We have revised the
notice period to 30 days for subcontracts. The association recommended
that the $550,000 threshold be adjusted by the same amount and at the
same time as any change to the threshold for application of the ``Truth
in Negotiations Act'' (TINA). We agree and have made the appropriate
change to the regulation. The association commented that it did not
think the $550,000 threshold should apply to evergreen contracts, e.g.,
contracts that renew automatically unless terminated by one of the
parties and recommended we clarify that evergreen contracts not be
considered option contracts. We expect advance notification of any
subcontract (initial, option or evergreen) where the total price equals
or exceeds the $550,000 threshold. Evergreen contracts and contracts
that include an initial contract term with options for renewal would
meet the requirement for advance approval when the $550,000 threshold
is expected to be met. For example, if an initial contract is for
$547,000, and a subsequent year's option is for $5,000, OPM would
expect to receive a request for advance approval upon receipt of the
$5,000 option. OPM would need to obtain copies of both the initial and
option components of the contract to conduct its review.
The association commented that OPM eliminated the threshold that
the subcontract amount charged to the FEHB must be no less that 25
percent of the subcontract's cost. We have restored the 25 percent
threshold to the final regulation. The association commented that
Federal procurement law does not require TINA's certified cost or
pricing data to be submitted to the contracting officer when the
subcontract's cost is based on adequate price competition or
subcontracts whose price is set by law or regulation, as well as those
for commercial items. We agree and have revised the regulation
accordingly.
The association commented that our proposed regulation appears to
require carriers to comply with the FAR in conducting subcontracting
activities. The association stated that the FAR's contract formation
rules are directly applicable only to the Federal Government. We
disagree and have not made revisions to the regulation. The association
objected to increasing the records retention period from three to six
years for patient records and from five to six years for operations
records, but recommended that any change to the retention period be
made prospectively. We have maintained the uniform six year retention
period consistent with existing FAR requirements, but agree to apply
the requirement prospectively. Further, any carrier that believes this
additional requirement may increase costs may ask the contracting
officer for consideration during negotiations on the annual
administrative cost ceiling.
We also received comments from a large FEHB fee-for-service plan
which agreed with the fee-for-service association's comments and made
additional comments of its own. The plan recommended that we clarify
the definition of Large Provider Agreement to ensure the requirements
applied only to the plan's parent association and not to its individual
servicing entities. The plan further indicated that none of its
servicing entities constitutes 25 percent of the plan's enrollment. The
Large Provider Agreement requirement is intended to apply to carriers'
contracts, not local plans that serve under an umbrella arrangement
with a carrier. Therefore, we have clarified the definition. Further,
since the definition of Large Provider Agreement contains a 25 percent
of FEHB enrollment threshold, none of the individual servicing entities
in the FEHB would be impacted by our new notice and audit requirements.
This means the Large Provider Agreement requirement would apply to such
entities as the Blue Cross and Blue Shield Association's Federal
Employee Program.
The plan also commented that we should include the 25 percent
threshold to the flow-down provision at 1652.222-70, Notice of
Significant Events, because without this clause the plan would be
required to insert the clause into many subcontracts with minor impact
on the Federal contract. We agree and have added the 25 percent
threshold.
We received comments from two of the fee-for-service plan's
servicing entities that stated if the Large Provider contract auditing
requirement was applied to them individually, it would be so
administratively onerous as to potentially prohibit their continued
participation in the program. As noted above, we have clarified the
definition.
We also received comments from a Federal employee union that stated
the definition of Large Provider Agreement could result in inequitable
results. The union stated that a relatively small provider could be
subject to the definition merely because its subscriber base is
disproportionately comprised of FEHB members and a very large insurer
could be excluded because its FEHB subscribers do not comprise 25
percent of the plan's enrollees. The union recommended that no provider
be considered a Large Provider unless it has a minimum of $25 million
in FEHB subscriber income and any provider with $50 million or more of
FEHB subscriber income be considered a Large Provider. We believe it is
reasonable that we should have input on any Large Provider contract
that affects a large number of Federal enrollees relative to the health
plan's commercial business, regardless of the actual dollar amount of
the contract. On the other hand, we do not believe that it is
reasonable for us to try and influence a Large Provider contract where
FEHB enrollment comprises a minor proportion of the contract's
enrollees, compared to the health plan's other commercial business. The
union disagreed with our newly proposed section 1631.205-81, Inferred
Reasonableness and stated the clause weakened existing procurement law.
We believe it is in the best interest of the FEHB Program to provide an
incentive to carriers to obtain advanced notification of subcontracts.
The union also disagreed with the removal of the three Cost Accounting
Standards clauses from the FEHB Program Clause Matrix. The Federal
Acquisition Regulation 30.201-5(b)(2) permits the head of an agency to
waive the Cost Accounting Standards (CAS) for a particular contract or
subcontract under exceptional circumstances when necessary to meet the
needs of the agency. We determined that there are sufficient reasons
and granted waivers for certain health plans under the FEHB Program. In
October 2002, OPM determined that it was appropriate to grant CAS
waivers for certain health plans under the FEHB Program for the reasons
outlined below. First, OPM determined that the Program has adequate
cost accounting requirements in its Federal Employees Health Benefits
Acquisition Regulations (FEHBAR), which supplement the Federal
Acquisition Regulation. The FEHBAR requires carriers to file annual
financial statements. The carriers, and their third party servicing
agents, must also adhere to financial and other related standards,
comply with an FEHB Program audit guide, and submit to audits by
Independent Public Accountants. Second, because OPM has contracted with
carriers for twenty to forty years,
[[Page 31378]]
it has been able to collect extensive data on each carrier, thus making
disclosure statements superfluous. Their existing systems are and have
been their benchmarks. Third, the OPM Office of the Inspector General
audits health carriers on a regular basis; contract rates, which are
negotiated annually, are subject to adjustment for audit findings.
Fourth, insurance carriers are subject to State regulatory authorities
and must meet State statutory reserve requirements in order to conduct
business; in addition, many carriers are required to submit to State
rate setting procedures. Accordingly, OPM's statutory oversight and
regulatory requirements already in place are sufficient to meet the
Government's interests in a much less burdensome way than applying CAS.
This new regulation will enhance the financial integrity of the Program
and demonstrate to the public and any other interested parties that
accounting methods and related financial disclosures by carriers are
consistent with sound business practices.
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 Regulatory Flexibility Act (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
one year. This rulemaking 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 impact of this final rule as required by
Executive Order 12866 (September 1993, Regulatory Planning and Review),
the RFA (September 16, 1980, Pub. L. 96-354), section 1102(b) of the
Social Security Act, the Unfunded Mandates Reform Act of 1995, (Pub. L.
104-4), and Executive Order 13132. Executive Order 12866 (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 one year). This 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 mirrors 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, 1646, and 1652
Government employees, Government procurement, Health insurance,
Reporting and recordkeeping requirements.
U.S. Office of Personnel Management.
Dan G. Blair,
Acting Director.
0
Accordingly, OPM is amending chapter 16 of title 48 CFR, as follows:
CHAPTER 16--OFFICE OF PERSONNEL MANAGEMENT FEDERAL EMPLOYEES HEALTH
BENEFITS ACQUISITION REGULATION
0
1. The authority citation for 48 CFR parts 1601, 1602, 1604, 1615,
1631, 1632, 1644, 1646, 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
1601.105 [Redesignated]
0
2. Section 1601.105 is redesignated as 1601.106.
PART 1602--DEFINITIONS OF WORDS AND TERMS
Subpart 1602.1--Definitions of FEHB Program Terms
0
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.
* * * * *
0
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 services
for the provision of healthcare such as capitation not adjusted for
specific groups, including mental health benefits capitation rates, per
diems, and DRG payments.
[[Page 31379]]
0
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 --
(1) An FEHB carrier, at least 25 percent of which total contracts
are FEHB enrollee contracts, and
(2) A vendor of services or supplies such as mail order pharmacy
services, pharmacy benefit management services, mental health and/or
substance abuse management services, preferred provider organization
services, utilization review services, and/or large case or disease
management services. This representative list includes organizations
that own or contract with direct providers of healthcare or supplies,
or organizations that process claims or manage patient care. A hospital
is not considered to be a vendor for purposes of this chapter.
(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).
(3) As used in this section, the term ``carrier'' does not include
local health plans that serve under an umbrella arrangement with an
FEHB carrier.
(b) The FEHB Program Annual Accounting Statement for the FEHB Plan
for the prior contract year will be used to determine the 5 percent
threshold under Large Provider Agreements.
(c) Large Provider Agreements based on cost analysis are subject to
the provisions of FAR 52.215-2, ``Audit and Records-Negotiation.''
(d) Large Provider Agreements based on price analysis are subject
to the provisions of 48 CFR 1646.301 and 1652.246-70.
PART 1604--ADMINISTRATIVE MATTERS
0
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.
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 their
intent to enter into or to make a significant modification to a Large
Provider Agreement. Significant modification means a 20% increase or
more in the amount of the 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, where applicable, what
contracting method it used, including the kind of competition obtained;
(iv) Describe the methodology the carrier used to compute the
provider's profit; and, (v) Describe the 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 Large 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) 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.
(6) The contracting officer's review of any Large Provider
agreement, option, renewal, or modification will 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 will 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) Large Provider Agreements based on cost analysis are subject to
the provisions of FAR 52.215-2, ``Audit and Records-Negotiation.''
(d) Large Provider Agreements based on price analysis are subject
to the provisions of 48 CFR 1646.301 and 1652.246-70.
1604.7202 Large Provider Agreement clause.
The contracting officer will 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
0
7. A new Sec. 1615.070 is added immediately before Subpart 1615.1 to
read as follows:
1615.070 Negotiation authority.
The authority to negotiate FEHB contracts is conferred by 5 U.S.C.
8902.
0
8. Subpart 1615.1 is revised to read as follows:
Subpart 1615.1--Source Selection Processes and Techniques.
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.
0
9. Subpart 1615.2 is added to read as follows:
Subpart 1615.2--Solicitations and Receipt of Proposals and
Information
1615.270 Applicability.
FAR subpart 15.2 has no practical application to the FEHB Program
[[Page 31380]]
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 [Redesignated]
0
10. Subpart 1615.6 is redesignated as Subpart 1615.3.
1615.202 [Redesignated and amended]
0
10a. Section 1615.602 is redesignated as 1615.370 and amended by
removing ``15.6'' and adding in its place ``15.3''.
0
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.
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 will 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 will not require the carrier
to provide cost or pricing data in the rate proposal for the following
contract term.
(b) Cost analysis will 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 will 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 will 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 will 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
will require the carrier to complete the proposed rates form containing
cost and pricing data, and the Community-Rate Questionnaire, but will
not require the carrier to send these documents to OPM. The carrier
will keep the documents on file for periodic auditor and actuarial
review in accordance with 1652.204-70. OPM will perform a basic
reasonableness test on the data submitted. Rates that do not pass this
test will 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 will require the carrier to
provide the data and methodology used to determine the FEHB Program
rates. OPM will also require the data and methodology used to determine
the rates for the carrier's similarly sized subscriber groups. The
carrier will provide cost or pricing data required by OPM in its rate
instructions for the applicable contract period. OPM will 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 will 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
similarly-sized subscriber groups (SSSGs). Such adjustments will 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 will 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 will be the total service charge that may be negotiated for
the contract and will 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
[[Page 31381]]
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 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 will 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 will 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 following weight ranges for each factor are used in the
weighted guidelines approach:
------------------------------------------------------------------------
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 will 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) will 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) will 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 will 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 will 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 will be inserted in all FEHB
contracts based on cost analysis.
Subpart 1615.8 [Removed and Reserved]
0
12. Subpart 1615.8 is removed and reserved.
Subpart 1615.9 [Removed and Reserved]
0
13. Subpart 1615.9 is removed and reserved.
0
14. Subpart 1615.70 is added to read as follows:
Subpart 1615.70--Audit and Records--Negotiation
1615.7001 Audit and records.
The Contracting officer will 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.'' This amount shall be adjusted by the
same amount and at
[[Page 31382]]
the same time as any change to the threshold for application of the
Truth in Negotiations Act pursuant to 41 U.S.C. 254b(a)(7).
SUBCHAPTER E--GENERAL CONTRACTING REQUIREMENTS
PART 1631--CONTRACT COST PRINCIPLES AND PROCEDURES
Subpart 1631.2--Contracts With Commercial Organizations
0
15. A new 1631.205-81 is added to Subpart 1631.2 to read as follows:
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 shall be inferred.
PART 1632--CONTRACT FINANCING
Subpart 1632.1--General
1632.170 [Amended]
0
16. In 1632.170, remove paragraph (c).
Subpart 1632.7--Contract Funding
1632.771 [Amended]
0
17. In 1632.771 paragraph (d), remove ``1652.232-70'' and add in its
place ``1652.232-72.''
1632.772 [Amended]
0
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
0
19. Section 1644.170 is revised to read as follows:
1644.170 Policy for FEHB Program subcontracting.
(a) General policy. Carriers shall follow appropriate procurement
procedures that comply with the FAR policies and procedures relating to
competition and contract pricing for the acquisition of both commercial
and non-commercial items.
(b) Consent. For all experience-rated contracts, carriers will
notify the Contracting officer in writing at least 30 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 the amount of the subcontract and modification charged to the FEHB
Program equals or exceeds $550,000 and is at least 25 percent of the
total subcontract's costs. The amount of the dollar charge to the FEHB
Program shall be adjusted by the same amount and at the same time as
any change to the threshold for application of the Truth in
Negotiations Act pursuant to 41 U.S.C. 254b(a)(7). Failure to provide
advance notice may result in a Contracting officer's disallowance of
subcontract costs or a penalty when considering the performance aspect
of the carriers' service charge.
(1) All subcontracts or subcontract modifications that equal or
exceed the threshold are subject to audit under FAR 52.215-2 ``Audit
and Records-Negotiations'' if based on cost analysis, and subject to
the provisions of 48 CFR 1646.301 and 1652.246-70 ``FEHB Inspection''
if based on price analysis.
(2) 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:
(i) For initial advance notification, the carrier shall provide the
total cost/price for the base year.
(ii) The carrier shall provide advance notification of any
modifications, options, including quantity or service options and
option periods, and renewals of ``evergreen contracts'' that cause the
total price to equal or exceed the threshold. OPM's review will be of
the modification(s), itself, but documentation for the original
subcontract will be required to perform the review.
(iii) The $550,000 threshold will be adjusted by the same amount
and at the same time as any change to the threshold for application of
the Truth in Negotiations Act.
PART 1646--QUALITY ASSURANCE
Subpart 1646.2--Contract Quality Requirements
0
20. Subpart 1646.2--Contract Quality Requirements is revised as
follows:
Subpart 1646.2--Contract Quality Requirements
1646.201 Contract Quality Policy.
(a) This section prescribes general policies and procedures to
ensure that services acquired under the FEHB contract conform to the
contract's quality and audit requirements.
(b) OPM will periodically evaluate the contractor's system of
internal controls under the quality assurance program required by the
contract and will acknowledge in writing whether or not the system is
consistent with the requirements set forth in the contract. After the
initial review, subsequent reviews may be limited to changes in the
contractor's internal control guidelines. However, a limited review
does not diminish the contractor's obligation to apply the full
internal control system.
(c) OPM will issue specific quality performance standards for the
FEHB contracts and will inform carriers of the applicable standards
prior to negotiations for the contract year. OPM will benchmark its
standards against standards generally accepted in the insurance
industry. The contracting officer may authorize nationally recognized
standards to be used to fulfill this requirement. FEHB carriers will
comply with the performance standards issued by OPM.
(d) In addition to reviewing carriers' quality assurance programs,
OPM will periodically audit contractors, subcontractors and Large
Providers' books and records to assure compliance with FEHB law,
regulations, and the contract.
SUBCHAPTER H--CLAUSES AND FORMS
PART 1652--CONTRACT CLAUSES
Subpart 1652.2--Texts of FEHB Clauses
0
21. Section Sec. 1652.204-70 is revised to read as follows:
1652.204-70 Contractor records retention.
As prescribed in 1604.705 the following clause will be inserted in
all FEHB Program contracts.
Contractor Records Retention (Jan 2004)
Notwithstanding the provisions of Section 5.7 (FAR 52.215-2(f))
``Audit and Records--Negotiation'' the carrier will 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 six 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 will be maintained for six years after the end
of the contract term to which the claim records relate. This clause
is effective prospectively as of the 2004 contract year.
(End of Clause)
0
22. Section 1652.204-74 is added to read as follows:
[[Page 31383]]
1652.204-74 Large provider agreements.
As prescribed by 1604.7202, the contracting officer will insert the
following clause in all FEHB Program contracts based on cost analysis
(experience-rated):
Large Provider Agreements (Jan 2004)
(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,
when such action would result in total costs to the FEHB Program of
an additional 20 percent or more above the existing contract. This
amount shall be adjusted by the same amount and at the same time as
any change to the threshold for application of the Truth in
Negotiations Act pursuant to 41 U.S.C. 254b(a)(7). However, if a
carrier is exercising a simple renewal or other option contemplated
by a Large Provider Agreement that OPM previously reviewed, and
there are no significant changes, then a statement to the effect
that the renewal or other option is being exercised along with the
dollar amount is sufficient notice.
(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) 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.
(6) The Contracting officer's review of any Large Provider
Agreement, option, renewal, or modification will 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 will 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 and Records--Negotiation. The provisions of FAR
52.215-2, ``Audit and Records--Negotiation,'' when required, or
FEHBAR 1652.246-70, ``FEHB Inspection'' apply to all experience-
rated Carriers' Large Provider Agreements. The Carrier will insert
the clauses at FAR 52.215-2, when applicable, or FEHBAR 1652.246-70
in all Large Provider Agreements. In FAR 52.215-2 the carrier will
substitute:
(1) The term ``Large Provider'' for the term ``Contractor''
throughout the clause, and
(2) The term ``Large Provider Agreement'' for the term
``Subcontracts'' in paragraph (g) of FAR 52.215-2. The term
``Contracting officer'' will mean the FEHB Program Contracting
officer at OPM. The carrier will 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 will provide for payment on a cost-plus-a-percentage-of-
cost basis.
(e) The carrier will insert this clause, 1652.204-74, in all
Large Provider Agreements.
(End of Clause)
1652.215-70 (Amended)
0
23. Amend Section 1652.215-70 as follows:
0
A. In the introductory text of section 1652.215-70, remove ``1615.804-
72'' and add in its place ``1615.407-1'' and remove ``15.804-2(a)(1)''
and add in its place ``15.403-4(a)(1)''.
0
B. In the clause title, remove ``JAN 2000'' and add in its place ``JAN
2004''.
0
C. In paragraph (a)(1) of the clause remove ``1615.804-70'' and add in
its place ``1615.406-2'' and
0
D. Remove paragraph (d).
1652.215-71 [Amended]
0
24. 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]
0
25. In Section 1652.216-70,
0
A. Remove ``JAN 2000'' in the clause title and add in its place ``JAN
2003'' and
0
B. Remove paragraph (c) of the clause.
1652.216-71 [Amended]
0
26. In 1652.216-71:
0
A. Remove ``JAN 2000'' in the clause title and add in its place ``JAN
2003'' and
0
B. Remove paragraph (d) of the clause.
0
27. In the clause in section 1652.222-70, the clause heading and
paragraph (d) are revised to read as follows:
1652.222-70 Notice of Significant Events.
* * * * *
Notice of Significant Events (Jan 2001)
* * * * *
(d) The carrier will 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 and is at least 25 percent of the total subcontract
cost. The amount of the dollar charge to the FEHB Program shall be
adjusted by the same amount and at the same time as any change to
the threshold for application of the Truth in Negotiations Act
pursuant to 41 U.S.C. 254b(a)(7).
(End of Clause)
0
28. Section 1652.244-70 is revised to read as follows:
1652.244-70 Subcontracts.
As prescribed in section 1644.270, the following clause will be
inserted in all FEHB Program contracts based on cost analysis
(experience-rated):
Subcontracts (Jan 2004)
(a) The carrier will notify the Contracting officer in writing
at least 30 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 and is at least 25
percent of the total subcontract cost. The amount of the dollar
charge to the FEHB Program shall be adjusted by the same amount and
at the same time as any change to the threshold for application of
the Truth in Negotiations Act pursuant to 41 U.S.C. 254b(a)(7).
Failure to provide advance notice may result in a Contracting
officer's disallowance of subcontract costs or a penalty in the
performance aspect of the carrier's service charge. 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 cost/price for the base year and all options, including
quantity or service options and option periods.
(2) For contract modifications, options and/or renewals (e.g.
evergreen contracts) not accounted for in paragraph (a)(1) of this
clause, the carrier shall provide advance notification if they cause
the total price to equal or exceed the threshold. OPM's review will
be of the modification(s), itself, but documentation for the
original subcontract will be required to perform the review. The
$550,000 threshold will be adjusted by the same amount and at the
same time as any change to the threshold for application of the
Truth in Negotiations Act. All subcontracts or subcontract
modifications that equal or exceed the threshold are subject to
audit
[[Page 31384]]
under FAR 52.215-2 ``Audit and Records--Negotiations'' if based on
cost analysis or 48 CFR 1646.301 and 1552.246-70 ``FEHB Inspection''
if based on price analysis.
(b) The advance notification required by paragraph (a) of this
clause will 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) 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 if required by law,
regulation, or other contract provisions.
(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 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 will 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 will 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
will 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 will provide for
payment on a cost-plus-a-percentage-of-cost basis. Any fee payable
under cost reimbursement type subcontracts will not exceed the fee
limitations in FAR 15.404-4(c)(4)(i). Any profit or fee payable
under a subcontract will be in accordance with the provision of
Section 3.7, Service Charge.
(g) The carrier will 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)
0
29. Section 1652.246-70 is revised to read as follows:
1652.246-70 FEHB Inspection.
As prescribed in 1646.301, the following clause will be inserted in
all FEHB contracts:
FEHB Inspection (Jan 2004)
(a) The Contracting officer, or an authorized representative of
the Contracting officer, has the right to inspect or evaluate the
work performed or being performed under the contract, and the
premises where the work is being performed, at all reasonable times
and in a manner that will not unreasonably delay the work.
(b) The Contractor shall maintain and the Contracting officer,
or an authorized representative of the Contracting officer, shall
have the right to examine and audit all books and records relating
to the contract for purposes of the Contracting officer's
determination of the carrier's subcontractor or Large Provider's
compliance with the terms of the contract, including its payment
(including rebate and other financial arrangements) and performance
provisions. The Contractor shall make available at its office at all
reasonable times those books and records for examination and audit
for the record retention period specified in the Federal Employees
Health Benefits Acquisition Regulation (FEHBAR), 48 CFR 1652.204-70.
This subsection is applicable to subcontract and Large Provider
Agreements with the exception of those that are subject to the
``Audits and Records--Negotiation'' clause, 48 CFR 52.215-2.
(c) If the Contracting officer, or an authorized representative
of the Contracting officer, performs inspection, audit or evaluation
on the premises of the carrier, the subcontractor, or the Large
Provider, the carrier shall furnish or require the subcontractor or
Large Provider to furnish all reasonable facilities for the same and
convenient performance of these duties.
(d) The carrier shall insert this clause, including this
subsection (d), in all subcontracts for underwriting and claim
payments and administrative services and in all Large Provider
Agreements and shall substitute ``contractor'' ``Large Provider,''
or other appropriate reference for the term ``carrier.''
(End of clause)
Subpart 1652.3-FEHB Clause Matrix
0
30. In section 1652.370, the FEHB Clause Matrix, is revised to read as
follows:
1652.370 Use of the Matrix.
* * * * *
BILLING CODE 6325-39-P
[[Page 31385]]
[GRAPHIC] [TIFF OMITTED] TR01JN05.633
[[Page 31386]]
[GRAPHIC] [TIFF OMITTED] TR01JN05.634
[[Page 31387]]
[GRAPHIC] [TIFF OMITTED] TR01JN05.635
[[Page 31388]]
[GRAPHIC] [TIFF OMITTED] TR01JN05.636
[[Page 31389]]
[FR Doc. 05-10643 Filed 5-31-05; 8:45 am]
BILLING CODE 6325-01-C