[Federal Register: August 28, 2006 (Volume 71, Number 166)]
[Rules and Regulations]
[Page 51049-51085]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28au06-8]
[[Page 51049]]
-----------------------------------------------------------------------
Part III
Department of Health and Human Services
-----------------------------------------------------------------------
Centers for Medicare & Medicaid Services
42 CFR Parts 431 and 457
Medicaid Program and State Children's Health Insurance Program (SCHIP)
Payment Error Rate Measurement; Final Rule
[[Page 51050]]
-----------------------------------------------------------------------
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 431 and 457
[CMS-6026-IFC2]
RIN 0938-AN77
Medicaid Program and State Children's Health Insurance Program
(SCHIP) Payment Error Rate Measurement
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Interim final rule with comment period.
-----------------------------------------------------------------------
SUMMARY: This interim final rule with comment period sets forth the
State requirements to provide information to us for purposes of
estimating improper payments in Medicaid and SCHIP. The Improper
Payments Information Act of 2002 (IPIA) requires heads of Federal
agencies to estimate and report to the Congress annually these
estimates of improper payments for the programs they oversee, and
submit a report on actions the agency is taking to reduce erroneous
payments.
This interim final rule with comment responds to the public
comments on the October 5, 2005 interim final rule and sets forth State
requirements for submitting claims and policies to the Federal
contractor for purposes of conducting FFS and managed care reviews.
This interim final rule also sets forth and invites further comments on
the State requirements for conducting eligibility reviews and
estimating payment error rates due to errors in eligibility
determinations.
DATES: Effective Date: These regulations are effective on October 1,
2006.
Comment Date: To be assured consideration, comments must be
received at one of the addresses provided below, no later than 5 p.m.
on September 27, 2006.
ADDRESSES: In commenting, please refer to file code CMS-6026-IFC2.
Because of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (no duplicates,
please):
1. Electronically. You may submit electronic comments on specific
issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click
on the link ``Submit electronic comments on CMS regulations with an
open comment period.'' (Attachments should be in Microsoft Word,
WordPerfect, or Excel; however, we prefer Microsoft Word.)
2. By regular mail. You may mail written comments (one original and
two copies) to the following address ONLY: Centers for Medicare &
Medicaid Services, Department of Health and Human Services, Attention:
CMS-6026-IFC2, P.O. Box 8013, Baltimore, MD 21244-8013.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments (one
original and two copies) to the following address ONLY: Centers for
Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS-6026-IFC2, Mail Stop C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments (one original and two copies) before the
close of the comment period to one of the following addresses. If you
intend to deliver your comments to the Baltimore address, please call
telephone number (410) 786-7195 in advance to schedule your arrival
with one of our staff members. Room 445-G, Hubert H. Humphrey Building,
200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security
Boulevard, Baltimore, MD 21244-1850.
(Because access to the interior of the HHH Building is not readily
available to persons without Federal Government identification,
commenters are encouraged to leave their comments in the CMS drop slots
located in the main lobby of the building. A stamp-in clock is
available for persons wishing to retain a proof of filing by stamping
in and retaining an extra copy of the comments being filed.)
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
Submission of Comments on Paperwork Requirements. You may submit
comments on this document's paperwork requirements by mailing your
comments to the addresses provided at the end of the ``Collection of
Information Requirements'' section in this document.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT: Janet E. Reichert, (410) 786-4580.
Elizabeth Pham, (410) 786-7703.
SUPPLEMENTARY INFORMATION:
Submitting Comments: We welcome comments from the public on the
State requirements for conducting eligibility reviews and estimating
payment error rates due to errors in eligibility determinations. You
can assist us by referencing the file code CMS-6026-IFC.
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: http://www.cms.hhs.gov/eRulemaking.
Click on the link ``Electronic Comments on
CMS Regulations'' on that Web site to view public comments.
Comments received in a timely manner will be also available for
public inspection as they are received, generally beginning
approximately 3 weeks after publication of a document, at the
headquarters of the Centers for Medicare & Medicaid Services, 7500
Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of
each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view
public comments, phone 1-800-743-3951.
I. Background
A. The Improper Payments Information Act of 2002
The Improper Payments Information Act of 2002 (IPIA), Public Law
107-300, enacted on November 26, 2002, requires the heads of Federal
agencies annually to review programs they oversee that are susceptible
to significant erroneous payments, and to estimate the amount of
improper payments, to report those estimates to the Congress, and to
submit a report on actions the agency is taking to reduce erroneous
expenditures. The IPIA directed the Office of Management and Budget
(OMB) to provide guidance on implementation. OMB defines significant
erroneous payments as annual erroneous payments in the program
exceeding both 2.5 percent of program payments and $10 million (OMB M-
03-13, May 21, 2003). For those programs with significant erroneous
payments, Federal agencies must provide the estimated amount of
improper payments and report on what actions the agency is taking to
reduce them, including setting targets for future erroneous payment
levels and a timeline by which the targets will be reached.
According to OMB directives, Federal agencies must include in the
report to the Congress: (1) The estimate of the
[[Page 51051]]
annual amount of erroneous payments; (2) a discussion of the causes of
the errors and actions taken to correct those problems, including plans
to increase agency accountability; (3) a discussion of the amount of
actual erroneous payments the agency expects to recover; (4)
limitations that prevent the agency from reducing the erroneous payment
levels, that is, resources or legal barriers; and (5) a target for the
program's future payment rate, if applicable.
The Medicaid and SCHIP programs were identified by OMB as programs
at risk for significant erroneous payments. OMB directed the Department
of Health and Human Services (DHHS) to report the estimated error rates
for the Medicaid and SCHIP programs each year for inclusion in the
Performance and Accountability Report (PAR).
Through the Payment Accuracy Measurement (PAM) and Payment Error
Rate Measurement (PERM) pilot projects that CMS operated in Fiscal
Years (FYs) 2002 through 2005, we developed a claims-based review
methodology designed to estimate State-specific payment error rates for
all adjudicated claims within 3 percent of the true population error
rate with 95 percent confidence. An ``adjudicated claim'' is a claim
for which either money was obligated to pay the claim (paid claims) or
for which a decision was made to deny the claim (denied claims).
B. CMS Rulemaking
We published a proposed rule on August 27, 2004 (69 FR 52620) to
comply with the requirements of the IPIA and the OMB guidance. Based on
the methodology developed in the pilot projects, the proposed rule set
forth provisions for all States annually to estimate improper payments
in their Medicaid and SCHIP programs and to report the State-specific
error rates for purposes of our computing the national improper payment
estimates for these programs. The intended effects of the proposed rule
were to have States measure improper payments based on fee-for-service
(FFS), managed care, and eligibility reviews; to identify errors to
target corrective actions; to reduce the rate of improper payments; and
to produce a corresponding increase in program savings at both the
State and Federal levels.
After extensive analysis of the issues related to having States
measure improper payments in Medicaid and SCHIP, including public
comments on the provisions in the proposed rule, we revised our
approach. Our revised approach adopted the recommendation to engage
Federal contractors to review State Medicaid and SCHIP FFS and managed
care payments (we define the term ``claims'' to include both managed
care capitation payments and FFS line items) and to calculate the
State-specific and national error rates for Medicaid and SCHIP. (States
will calculate the State-specific eligibility error rates. Based on
these rates, the Federal contractor will calculate the national
eligibility error rate for each program.) We also adopted the
recommendation to sample a subset of States each year rather than to
measure every State every year. We adopted these recommendations
primarily in response to commenters' concerns with the cost and burden
to implement the regulatory provisions that the proposed rule would
have imposed on States.
Since our revised approach deviated significantly from the approach
in the proposed rule, we published an interim final rule with comment
period on October 5, 2005 (70 FR 58260). The October 5th interim final
rule with comment period responded to the public comments on the
proposed rule, and informed the public of our national contracting
strategy and of our plan to measure improper payments in a subset of
States. Our State selection will ensure that a State will be measured
once, and only once, every 3 years in each program.
The October 5, 2005 interim final rule also set forth the types of
information that States would submit to the Federal contractors for the
purpose of estimating Medicaid and SCHIP FFS improper payments. The
October 5, 2005 interim final rule invited further comments on methods
for estimating eligibility and managed care improper payments. We
received very few comments regarding managed care and a number of
comments regarding eligibility. Based on the public comments, we
developed an approach to measuring eligibility errors and, through this
second interim final rule, invite further public comments on this
eligibility methodology. Section 1102(a) of the Social Security Act
(the Act) authorizes the Secretary to establish such rules and
regulations as may be necessary for the efficient administration of the
Medicaid and SCHIP programs. Medicaid statute at section 1902(a)(6) of
the Act and SCHIP statute at section 2107(b)(1) of the Act require
States to provide information that the Secretary finds necessary for
the administration, evaluation, and verification of the State's
program. Also, section 1902(a)(27) of the Act (and 42 CFR 457.950)
requires providers to submit information regarding payments and claims
as requested by the Secretary, State agency, or both.
Under the authority of these statutory provisions, this second
interim final rule requires those States selected for review in any
given year for the Medicaid or SCHIP improper payments measurement to
provide the Federal contractors with information needed to conduct
medical and data processing reviews on FFS claims and data processing
reviews on managed care claims. (Managed care claims are not subject to
medical review because managed care payments are based on capitated
payments made per enrollee, not on the individual services provided.)
The States selected for PERM must provide:
(a) All adjudicated FFS and managed care claims information from
the review year, on a quarterly basis, with FFS claims stratified by
type of service;
(b) Upon request from the contractor, provider contact information
that has been verified by the State as current;
(c) All medical and other related policies in effect and any
quarterly policy updates;
(d) Current managed care contracts, rate information, and any
quarterly updates to the contracts and rates for the review year for
SCHIP and, as requested, for Medicaid;
(e) Data processing systems manuals;
(f) Repricing information for claims that are determined to have
been improperly paid;
(g) Information on claims that were selected as part of the sample,
but which changed in substance after selection, for example, successful
provider appeals;
(h) Adjustments made within 60 days of the adjudication dates for
the original claims or line items with sufficient information to
indicate the nature of the adjustments and to match the adjustments to
the original claims or line items;
(i) A corrective action report for purposes of reducing the payment
error rate in the FFS, managed care and eligibility components of the
program; and
(j) Other information that the Secretary determines is necessary
for, among other purposes, estimating improper payments and determining
error rates in Medicaid and SCHIP.
C. IPIA Implementation
We expect to be compliant with IPIA requirements by 2008. We are
measuring Medicaid FFS improper payments in FY 2006 and plan to have
all components (FFS, managed care and eligibility) of Medicaid and
SCHIP measured in FY 2007 and beyond. We delayed announcing a
methodology for
[[Page 51052]]
measuring errors in managed care and eligibility in the October 5, 2005
interim final rule; and instead, we invited comments on methods for
measuring these types of improper payments in both Medicaid and SCHIP.
We determined that the Federal contractor would review managed care
claims similar to the review process used in the PERM pilot. We
published the information collection request for SCHIP and Medicaid
managed care error measurements on February 3, 2006 (71 FR 5851) and
again on April 14, 2006 (71 FR 19522) for public comment. We are
describing the State information submission requirements in this
interim final rule.
In the October 5, 2005 interim final rule, we stated that it was
still possible that States sampled for review would be required to
conduct eligibility reviews as described in our approach to the
proposed rule. We also announced in the October 5, 2005 interim final
rule our intentions to establish an eligibility workgroup to make
recommendations on the best approach for reviewing Medicaid and SCHIP
eligibility within the confines of current statute, with minimal impact
on States and additional discretionary funding. We convened an
eligibility workgroup comprised of DHHS [including CMS and, in an
advisory capacity, the Office of the Inspector General (OIG)], OMB, and
representatives from two States. We determined that States should
conduct the eligibility measurement based on the workgroup's
consideration of public comments and the examination of various
approaches proposed in such comments. We also developed a review
methodology, which we have outlined in this interim final rule with
comment period and invite further public comment on these eligibility
error measurement provisions.
Thus, in FY 2007 and beyond, we expect to have Federal contractors
measure improper payments in the FFS and managed care components of
Medicaid and SCHIP, and have States selected for these reviews in any
given year measure the error rate in their respective determinations of
program eligibility. These measurements will produce State-specific
error rates for the three components--FFS, managed care and
eligibility--as well as composite program error rates for the State's
Medicaid and SCHIP programs. From the State-specific error rates, we
will calculate national error rates for each of the components and for
the Medicaid and SCHIP program.
Annual PERM Error Rates Produced
------------------------------------------------------------------------
State-specific: Four error rates per
selected program (for 17 states) National: Eight error rates
------------------------------------------------------------------------
1. FFS.................................... 1. Medicaid FFS.
2. Managed care........................... 2. SCHIP FFS.
3. Eligibility............................ 3. Medicaid managed care.
4. Medicaid/SCHIP Program Error Rate...... 4. SCHIP managed care.
5. Medicaid eligibility.
6. SCHIP eligibility.
7. Medicaid Program.
8. SCHIP Program.
------------------------------------------------------------------------
We expect State corrective actions to address the causes of error
in each of the three program components. As a result, we expect States
will reduce their error rates over the course of each measurement cycle
which, in turn, should reduce the national error rates.
II. Provisions of the October 5, 2005 Interim Final Regulations
We published an interim final rule with comment period on October
5, 2005 that responded to comments on the August 27, 2004 proposed rule
and informed the public that we will use a national contracting
strategy to estimate improper payments in Medicaid and SCHIP FFS in a
subset of States rather than every State every year. We adopted this
approach based on public comments on the proposed rule.
A. Selecting States for Review
Medicaid State Selection. We will use a rotational approach to
review the States in Medicaid. For each fiscal year, we expect to
measure 17 States. The result is that each State will be measured once,
and only once, every 3 years. The rotation allows States to plan for
the reviews because States know in advance in which year they will be
measured.
In determining the Medicaid State selection, we grouped all States
into three equal strata of small, medium, and large based on the
States' most recently available FFS annual expenditure data. We
randomly selected up to six States from each stratum each year, until
we selected all States for review over the current and next 2 fiscal
years (that is, FY 2006 through FY 2008). (The third stratum with the
large States (based on annual expenditures) was substratified into two
strata of 8 and 9 States. Two States were selected from one substratum
and three States were selected from the other substratum. We selected 6
States each from the ``small'' and ``medium'' strata for a total of 17
States.)
The States selected for Medicaid FFS review in FY 2006, and
Medicaid FFS, managed care, and eligibility reviews in FY 2007 and FY
2008 are listed below. At the end of the 3-year period, the rotation
will repeat so that the Medicaid FY 2006 States will be reviewed in FY
2009; the Medicaid FY 2007 States will be reviewed in FY 2010; and the
Medicaid FY 2008 States will be reviewed in 2011. We announced the
Medicaid State selection rotation through a State Health Official
Letter transmitted November 18, 2005.
Medicaid State Selection
------------------------------------------------------------------------
------------------------------------------------------------------------
FY 2006...................... Pennsylvania, Ohio, Illinois, Michigan,
Missouri, Minnesota, Arkansas,
Connecticut, New Mexico, Virginia,
Wisconsin, Oklahoma, North Dakota,
Wyoming, Kansas, Idaho, Delaware.
FY 2007...................... North Carolina, Georgia, California,
Massachusetts, Tennessee, New Jersey,
Kentucky, West Virginia, Maryland,
Alabama, South Carolina, Colorado, Utah,
Vermont, Nebraska, New Hampshire, Rhode
Island.
FY 2008...................... New York, Florida, Texas, Louisiana,
Indiana, Mississippi, Iowa, Maine,
Oregon, Arizona, Washington, District of
Columbia, Alaska, Hawaii, Montana, South
Dakota, Nevada.
------------------------------------------------------------------------
SCHIP State Selection. Subsequent to the Medicaid State selection
for PERM reviews, we completed the SCHIP State selection. We determined
that SCHIP can be measured in the same States selected for Medicaid
review each fiscal year with a high probability that the SCHIP error
rate will meet OMB requirements for confidence and precision levels.
Since SCHIP and Medicaid will be measured in the selected States at the
same time, each State will be measured for SCHIP once and only once
every three years. We will send a State Health Official Letter
regarding the SCHIP State selection as we did on the Medicaid State
selection.
We believe that paralleling the SCHIP and Medicaid mesaurements
will minimize administrative complexities for both CMS and the States.
Measuring
[[Page 51053]]
both programs at the same time may also reduce the State cost and
burden because States are able to plan activities for both measurements
and may gain efficiencies by combining staff and resources for the
reviews.
As with Medicaid, we expect to measure improper payments in all
components (FFS, managed care, and eligibility) of SCHIP in FY 2007 and
beyond. For States measured for Medicaid FFS in FY 2006, SCHIP will be
measured in FY 2009.
B. Use of Federal Contractors
Under the national contracting strategy, we will use Federal
contractors to measure Medicaid and SCHIP FFS and managed care improper
payments. For FY 2006, we have engaged three contractors: (1) A
statistical contractor (SC); (2) a documentation/database contractor
(DDC); and (3) a review contractor (RC). The use of three Federal
contractors allows for the award of contracts in areas of
specialization and expertise, minimizes potential problems if one
contractor experiences operational difficulties, and provides CMS with
optimum oversight.
The SC collects adjudicated claims data, determines the sample
size, draws the sample, and calculates the State and national error
rates. The DDC collects and stores State medical and other related
policies, and requests the medical records from providers for the FFS
medical reviews. The RC conducts the medical and data processing
reviews.
Statistical Contractor
The States selected for review will submit to the SC the following
information for Medicaid and SCHIP:
All adjudicated FFS and managed care claims information
from the review year on a quarterly basis, with FFS claims stratified
into seven strata by service type and one additional stratum for denied
claims;
Information on claims that were selected as part of the
sample, but which changed in substance after selection (for example,
successful provider appeals); and
Adjustments made within 60 days from the adjudication
dates for the original claims or line items, with sufficient
information to indicate the nature of the adjustments and to match the
adjustments to the original claims or line items.
States are requested to provide stratified FFS claims data because
stratifying the claims by service type improves the efficiency of the
sampling methodology by distributing the claims in the sample in
proportion to the dollar share in the universe. Stratification allows
services with a larger dollar share to compose a larger share of the
sample and reduces the variance in the sample. Stratifying the claims
also allows for smaller sample sizes and for the identification of
errors in specific service types so that States can systematically
target causes of errors.
The SC will work with States and will compare the data submitted to
recent data to help establish that the data are complete. Based on the
annual expenditure data, the SC will determine the State's sample size
and, for FFS claims, the sample size for each of the eight total
strata. These strata were established during the pilot projects based
on the total share of dollars. In addition, States had already grouped
their claims similarly in their Medicaid Management Information System
(MMIS); therefore, we believe that the stratification of claims for
submission should not be burdensome to States. Stratification of the
claims also provides States with information regarding the service
areas where the errors are concentrated so that States can better
target corrective actions.
The strata are: (1) Hospital services; (2) long term care services;
(3) other independent practitioners and clinics; (4) prescription
drugs; (5) home and community based services; (6) other services and
supplies (for example, durable medical equipment, clinical lab tests,
and x-rays); (7) primary care case management; and (8) denied claims.
We expect that the average sample size will be 1,000 FFS claims and 500
managed care claims per State program in order to achieve a 3 percent
precision level at the 95 percent confidence level (based on a range
estimated during the PAM/PERM pilots).
From the State's quarterly adjudicated claims data, the SC will
randomly select a sample of FFS and managed care claims each quarter.
The State will stratify the FFS claims before submitting the data to
the SC. Each selected FFS claim will be subjected to a medical and data
processing review. Managed care claims will not be stratified and will
not be subject to medical reviews because the payments that are made to
a managed care plan are based on a set fee from a predetermined
capitation agreement, rather than for the specific service(s) provided.
Documentation/Database Contractor
States selected for review will provide the DDC the following
information for Medicaid and SCHIP:
All medical and other related policies in effect for the
review year and any quarterly policy updates;
Current managed care contracts, rate information, and any
quarterly updates to contracts and rates for the review year for SCHIP
and, as requested, for Medicaid; and
Upon request from the contractor, provider contact
information that has been verified by the State as current.
Review Contractor
States selected for review will provide the RC the following
information for Medicaid and SCHIP:
Systems manuals for data processing reviews. (If a State's
medical and data processing policies are intertwined, the State may
send the policies to the DDC. The DDC will then identify the data
processing policies so the RC can access them through the DDC.
Repricing information, as requested by the RC, for claims
that the RC determines to be improperly paid. The RC will request that
States reprice claims that are found to be in error so that the RC is
able to determine the amount of the improper payment.
The RC will use the information collected by the DDC to conduct the
medical reviews. The RC will conduct the data processing reviews, most
likely on-site, using the systems information provided by the State.
The RC will, at a minimum, send monthly disposition reports to the
States. The disposition reports will list the contractor's review
findings for each sampled claim. States can review these findings and
notify the RC if they identify errors they believe should be reversed.
The RC will work with States to resolve differences in findings. If the
State finding prevails, the RC will reverse the error finding. If the
RC's finding is upheld, the error finding will stay in the calculation
of the error rate.
When the reviews are completed, the SC will estimate the State-
specific error rates for the FFS and managed care components of the
Medicaid and SCHIP programs, as well as national program error rates
and national component error rates. The States will review their error
rates; determine root causes of error-prone areas and develop
corrective actions to address the error causes for purposes of reducing
the payment error rates.
CMS
States selected for review will provide us with the following
information for Medicaid and SCHIP:
A corrective action report for purposes of reducing the
State's payment error rates in the FFS, managed care, and eligibility
components of the program; and
[[Page 51054]]
Other information that the Secretary determines necessary
for, among other purposes, estimating improper payments and determining
error rates in Medicaid and SCHIP.
We will notify selected States regarding any additional information
that may be necessary for determining error rates in Medicaid and
SCHIP. We do not expect to request additional information other than
the information we have specified in this interim final rule with
comment period. However, we would necessarily request information we
find during the course of measuring each program that would improve the
process, produce more accurate error rates, or reduce the cost and
burden on either or both the State and Federal governments. Similarly,
if we determined that we are collecting specific information that does
not add value to the error rate measurement or is not productive to
collect, we would discontinue that collection. Once the State-specific
and national error rates are estimated, the States will develop and
send to us corrective action reports describing corrective actions that
the States will implement to reduce the incidence of improper payments.
C. Review Process
The process for measuring improper payments, called the
``production cycle,'' under the national contracting strategy will take
approximately 23 months per cycle. For example, the measurement for FY
2006 (which involves the reviews of adjudicated Medicaid FFS claims
during October 2005 through September 2006) begins October 1, 2005 and
will be completed by August 30, 2007. The results will be included in
the FY 2007 PAR, which is published in November 2007. Using FY 2006 as
an example, the following table provides an approximate overview of the
PERM process. It is important to note that the process is fluid, so
timeframes may fluctuate slightly depending on such factors as the
complexities of the reviews.
Example of the PERM Production Cycle: FY 2006
[Note: only includes Medicaid FFS]
------------------------------------------------------------------------
Timeframe Event
------------------------------------------------------------------------
December 1, 2005............. States submit medical policies
in effect for the review period to the
DDC.
January 15, 2006............. States submit 1st quarter FY
2006 (October-December 2005) adjudicated
claims to the SC.
February 1, 2006............. State submits 1st quarter FFS
policy updates to the DDC.
April 15, 2006............... States submit 2nd quarter FY
2006 (January-March 2006) adjudicated
claims to the SC.
May 1, 2006.................. States submit 2nd quarter policy
updates to the DDC.
July 15, 2006................ States submit 3rd quarter FY
2006 (April-June 2006) adjudicated
claims to the SC.
August 1, 2006............... States submit 3rd quarter policy
updates to the DDC.
October 15, 2006............. States submit 4th quarter FY
2006 (July-September 2006) adjudicated
claims to the SC.
November 1, 2006............. States submit 4th quarter policy
updates to the DDC.
Throughout PERM process...... States identify and resolve
differences in review findings with the
RC.
------------------------------------------------------------------------
D. Eligibility Measurement
In the October 5, 2005 interim final rule, we invited comments on
methods for measuring improper payments in eligibility in Medicaid and
SCHIP. We stated in the October 5, 2005 interim final rule that the
States sampled for the Medicaid or SCHIP FFS and managed care reviews
in any year may be required to conduct eligibility reviews as set out
in the proposed rule. To develop the eligibility measurement, we
convened a workgroup comprised of DHHS (including CMS and, in an
advisory role, the OIG), OMB, and representatives from two States. The
workgroup considered public comments and made recommendations on the
best method to measure Medicaid and SCHIP eligibility improper payments
within the confines of current law, and with minimal impact on States
and on additional discretionary funding.
We also invited comments on managed care review. We received few
comments on measuring this component. We developed a plan for measuring
managed care improper payments in a manner similar to the managed care
reviews conducted under the PERM pilot. We have addressed comments
received on eligibility and managed care in this interim final rule.
III. Analysis of and Responses to Public Comments
CMS received a total of 30 comments: 27 from State agencies
(including one territory) and 3 from consumer advocacy and other
groups. These commenters reiterated many of the comments from the
proposed rule to which we responded in the October 5, 2005 interim
final rule. Although we are not required to respond to these comments
again, we are summarizing the comments in this interim final rule and
providing our responses for the convenience of the reader. However, it
is important to note that we are bound by, and therefore cannot change,
the requirements of the IPIA, the OMB guidance (such as inclusion of
denied claims), and section 1903(d)(2) of the Act governing recoveries.
Current regulations at 42 CFR part 433, subpart F and 42 CFR part 457,
subparts B and F are not addressed by this rulemaking. Below are the
comments on the October 5, 2005 interim final rule, grouped by topic,
and our responses as follows:
A. Purpose, Basis and Scope
1. Payment Error Rates
2. State Selection
3. Use of National Contractor
4. State Impact
B. Methodology
1. Exclusions From the Claims Universe
a. Denied Claims
b. Provider Appeals/Provider Fraud
2. Sampling Issues
3. Overpayments and Underpayment Errors
4. Adjustments
5. Medical and Data Processing Reviews
a. Methodology
b. Medical Reviews
c. Data Processing Reviews
6. Payment Error Rate and Reporting
C. Expanded FY 2007 Error Rate Measurement
1. Eligibility
a. Cost and Burden
b. Eligibility Workgroup
c. Methodology
2. Managed Care
3. SCHIP
D. Appeals
E. State Requirements
1. Collection of Information
a. State's Role
b. State Cost and Burden
c. Information Collection
d. Repricing
2. Technical Assistance
3. Corrective Action Plans
4. Recoveries
F. Regulatory Impact Statement
G. Anticipated Effects
Overall, comments on the October 5, 2005 interim final rule
supported our efforts in assuring that Medicaid and SCHIP payments are
correct. Many commenters indicated that although the
[[Page 51055]]
October 5, 2005 interim final rule significantly reduced the burden on
the States by using a Federal contracting strategy and limiting State
selection to once every 3 years, they believed that the October 5, 2005
interim final rule still placed an undue technical and financial burden
on the States to assist the Federal contractors. Many commenters
believed that the October 5, 2005 interim final rule underestimated the
amount of resources that would be necessary to provide information and
technical assistance to the Federal contractors for the estimation of
State payment error rates. Commenters were also concerned with the
States' ability to review and challenge the contractor's error
determinations and estimates of State error rates before they were
reported to OMB.
A. Purpose, Basis, and Scope
1. Payment Error Rates
Comment: Many commenters stated that the IPIA did not require
State-specific error rate estimates and that State-specific error rates
went beyond the requirements of the IPIA. Several commenters proposed
that CMS abandon the State-level error rates in favor of having the
national contractor select a nationwide statistical sample, after which
the contractor would review those claims with the assistance of the
individual State.
Response: We did not adopt the recommendation to select a
nationwide sample because we believed that it was not the best overall
method to meet the requirements of the IPIA and OMB guidance.
There is no national sampling framework for SCHIP claims, and the
Medicaid Statistical Information Statistics (MSIS) data for Medicaid
are too old to produce meaningful data on which States could base
effective corrective actions. As such, we are not abandoning State
rates for only a national rate. We will use the State rates as the
basis for the national rates and States can use their individual
results as the basis for corrective actions.
Comment: One commenter stated that State-specific error rates would
lead to the unwarranted comparisons of States when there was wide
variation in States' Medicaid and SCHIP programs.
Response: We agree and will caveat in our reporting of the error
rates that comparisons among States should not be made since each
program and its policies vary. State error rates will be used to
measure each State's progress in reducing improper payments (that is,
individual State error rates will be compared over time).
Comment: Some commenters believed that CMS' adoption of a payment
error methodology that includes State-specific error rates constitutes
an unnecessary burden on the States.
Response: We believe that our adoption of the recommendation to
engage Federal contractors has significantly reduced the cost and
burden by limiting State involvement to providing information and
technical assistance to the contractor. States are required to provide
information necessary for the Secretary to monitor program performance
under the Medicaid statute at section 1902(a)(6) of the Act, and the
SCHIP statute at section 2107(b)(1) of the Act. Therefore, we believe
that it is reasonable that States provide State-specific information to
assist in the national improper payment measurements.
Comment: Some commenters believed that since the IPIA is a Federal
obligation, State participation should be 100 percent fully funded by
CMS rather than at the Federal match rate.
Response: Our adoption of the commenters' recommendation to engage
Federal contractors to estimate several components of the improper
payment measurement should reduce the cost and burden that States would
have otherwise incurred to conduct medical and data processing reviews
on FFS and managed care claims. States will not pay for the national
contractor. Only those States selected for review each year will incur
costs by providing information necessary for claims sample selections
and reviews, providing technical assistance, as needed, and developing
a corrective action plan to reduce the error rates.
The States selected will also conduct the eligibility measurement.
The States will be reimbursed for these activities at the applicable
administrative Federal match under Medicaid and SCHIP. As part of the
rulemaking process, we have evaluated and determined that the burden
and cost of these responsibilities will not significantly impact the
States.
Comment: One commenter questioned the likelihood of achieving an
accurate national error rate, by aggregating error rates from all the
States' programs with their inherent variations.
Response: We will be using a statistical sampling methodology to
obtain an estimate of a national error rate and the ``margin of error''
around that rate. By drawing a stratified random sample of States and
then reviewing a random sample of claims within each of those States
(using each State's program policies), we are able to obtain an
estimate of the national error rate without having to conduct reviews
on all claims. This methodology will produce the estimate and the
precision level of the estimated national error rate, within the
parameters set by OMB.
Comment: Several commenters stated that the rule is silent on how
PERM relates to existing State Medicaid program integrity functions and
asked if it is CMS' intent for PERM to supplant or enhance existing
audit programs. They argued that PERM activities should not create
duplication of States' existing audit programs and Medicaid Eligibility
Quality Control (MEQC). One commenter stated that the rule should not
result in any change to these practices.
Response: The PERM program is intended to fulfill the requirements
of the IPIA and is not intended to supplant, enhance, or change other
program integrity activities in which the States are currently engaged.
We are considering methods to minimize duplication of efforts regarding
the eligibility reviews.
Comment: Several commenters stated that the PAM/PERM pilots have
demonstrated that State-level error rates have a negative return on
investment (ROI). One commenter stated that PERM is based upon
calculation of the number of claims that had any type of error, which
would have minimal cost impact. The commenter recommended that CMS
support expansion of State payment integrity programs that use
sophisticated algorithms and models to identify targeted leads for
investigation and audit that have demonstrated a positive ROI. Another
commenter stated that they have found their error rate to be quite low
and given that they have a relatively high Federal match rate, this
means that State's resources will be expended disproportionately to the
State's ROI.
Response: We do support the States' use of sophisticated algorithms
and models to identify targeted leads for investigation and audit.
However, the IPIA requires error rate measurement for these programs
and does not cite lack of cost savings as a circumstance which would
excuse us and the States from measuring improper payments. Since we are
estimating improper payments in a select number of States, primarily
through a Federal contracting strategy, we believe the State cost to
measure error rates has been substantially reduced. We anticipate that
savings will be realized over time through disseminating findings from
selected States, States' corrective action measures, and modeling best
practices.
Comment: One commenter asked the following questions regarding CMS
targets for future improper payment
[[Page 51056]]
levels and a timeline by which the targets would have to be reached:
Will CMS set an arbitrary target level or use baseline
empirical data, when available?
Will each State be measured against its individual past
performance or a national average?
What are the incentives for having a lower error rate or
disincentives for a higher estimate?
What recourse will a State have if, due to understated CMS
cost estimates coupled with the State's budgetary constraints, it is
unable to satisfy its PERM process obligation?
Response: CMS will use baseline empirical data, when available, to
set targets for future error rate levels. States will be measured
against their individual rates rather than a national average. We
believe that States strive to be fiscally responsible and will work
with us to lower their payment error rates because it will benefit both
State and Federal governments.
We aim to work in partnership with States in this endeavor. Thus
far, in collecting claims data and medical policies for the FY 2006
measurement, States have been very cooperative and helpful and have not
experienced any insurmountable problems in submitting the information.
We believe our cost estimates are accurate and we have minimized
the burden as much as possible through the use of Federal contractors
and reviewing a subset of States rather than every State every year.
Comment: One commenter stated that there is nothing in the October
5, 2005 interim final rule that would protect a non-sampled State from
having a payment error rate applied to it, based upon results from
sampled States, and from CMS seeking ``recoveries.''
Response: Section 1903(d)(2) of the Act, 42 CFR part 433, subpart F
and 42 CFR part 457, subparts B and F, solely govern recoveries for
overpayments identified through the medical and data processing
reviews. We will not seek PERM recoveries from States not selected for
PERM in that year based on results from other sampled States.
2. State Selection
Comment: Several commenters stated that the proposed selection of
States in PERM on a three-year cycle will make it difficult to predict
what resources a given State will need in advance to conduct PERM.
Other commenters requested that CMS consider alternative methodologies
that would permit States to know the schedule for PERM audits in
advance so that the States can make staffing and funding plans for the
years their program is selected for review.
Response: We agree with these comments and have adopted a State
rotation that will provide States with advance notice of which fiscal
years they will be participating in PERM. As we described in the
preamble to this interim final rule, we randomly selected 17 States
from the three strata for PERM measurement in FY 2006 through FY 2008.
We announced the State selections for PERM reviews for FY 2006, FY
2007, and FY 2008 through a State Medicaid Director's letter dated
November 18, 2005. We have also included the list of States selected
for these fiscal years above in the preamble of this interim final rule
with comment period. We also indicated that the SCHIP State selection
will be based on the Medicaid State selection in that States selected
for Medicaid will also be measured for SCHIP in the same year. We
expect to measure improper payments in all components of SCHIP in FY
2007 and beyond. We plan to use a rotational basis for subsequent years
so each State will know which fiscal year they will be participating in
the PERM review of Medicaid and SCHIP.
3. Use of National Contractors
Comment: Several commenters believed the adoption of Federal
contractors to measure the improper payments for one-third of the
States each year and the phased-in implementation of the components to
be reviewed would substantially reduce the burden on State Medicaid and
SCHIP agencies. They stated that it would ensure greater consistency
across States and reliability in the review process and outcome.
Response: We agree and appreciate the support of our adoption of
the recommendations as a result of public comments.
Comment: One commenter stated that the national contracting
methodology was not tested in the PAM or PERM studies. They argued that
States' extensive knowledge is not easily transferred to a Federal
contractor and the implementation of this knowledge transfer has not
been designed or tested, but is germane to generating an accurate error
rate estimate.
Response: Many States that participated in the PAM and PERM pilots
used contractors to implement the reviews and compile the findings. It
is important to note that CMS engaged one of the contractors used in
the PAM and PERM pilots as the statistical contractor (SC) because of
its experience with developing the sampling strategy and calculating
error rates. Similarly, we engaged the documentation/database
contractor (DDC) based on its experience with information collection
for Medicare's Comprehensive Error Rate Testing (CERT) program and a
review contractor (RC) that has demonstrated knowledge and experience
with claim reviews. Therefore, we believe that the Federal contractors,
working closely with States, will be able to produce accurate error
rate estimates.
Comment: A number of commenters believed that the use of three
contractors places an additional and unreasonable burden on States to
ensure timely and coordinated responses to contractor questions,
requests, etc. The comments included:
The contractors will need to learn States' policies,
including States' waivers, which would mean the States would have to
educate each one of the contractors;
The fact that three different contractors may have three
different standards or procedures is problematic and may skew the error
rates;
The separate contractors may not share data and
communicate effectively to complete the reviews; and
The work should be consolidated for one main contractor or
for one lead national contractor to coordinate the processes of the
other subcontractors to give consistency to the requirements.
Response: States will be required to provide technical assistance
on State policies only to the RC, who will examine State policies and
the medical records to determine if payment for a FFS claim was
medically necessary and paid correctly. States will also provide
technical assistance to the RC on the data processing reviews. The SC
will perform the sampling of claims and the calculation of the State
and national error rates. The DDC will collect, store, and provide the
review contractor with access to the State policies and medical
records. The contractual agreements have been written to assure that
the contractors will share information and communicate with each other.
We will provide coordination and oversight.
Comment: Several commenters believed that the contractor's
operational success is heavily contingent on information and technical
assistance provided by participating States. The comments included:
Success would require the contractors to have extensive
knowledge of State policies and procedures to be aware of what might
constitute special handling of a particular claim, and to know where to
find documentation or authority to approve the service or item for
payment;
[[Page 51057]]
The contractor may not be well situated to fully grasp the
nuances of each individual State program without a very close working
relationship with State staff; and
The rule should require the national contractor to
collaborate with each program being reviewed during each stage of the
review process (medical records, processing, and eligibility).
Response: We recognize that Medicaid and SCHIP programs are unique
to each State. We agree that the contractor may need State assistance
with nuances of each State program and as a result, the RC will work
closely with the State. In addition, States will have the option to
review the contractor's decision on the claims indisposition reports
and discuss with the contractor any difference of opinion in the
contractor's error determinations through the difference resolution
process. Our goal is to work in partnership with the States to produce
the most accurate State-specific rates.
Comment: Citing the intricacies inherent within each State's
programs and systems, one commenter preferred that States be fully
funded to conduct the processing and medical review at the State level.
The commenter stated that States have the ability to conduct those
reviews more efficiently, more accurately, and at a lower cost than a
Federal contractor. The commenter believed that this is an opportunity
for the States to learn additional ways to improve the programs and
save Federal and State dollars that otherwise would be lost.
Response: We engaged in a national contracting strategy to
implement the PERM program based on comments to the proposed rule
regarding State cost and burden. We also believe that having the
Federal contractor conducting the processing and medical reviews will
provide consistency in reviews across States. Therefore, we are not
adopting this recommendation. States will be able to identify
additional ways to improve the programs and save State and Federal
dollars through the contractor's review findings.
Comment: A number of commenters stated that they did not believe
that the use of a national contracting strategy exempts CMS or its
contractors from having any public review of the procedures on how
medical reviews are conducted and how an error is determined. The
comments included:
Since the States are required to share all of their claims
processing procedures, policies and provider enrollment, and payment
methodologies with the Federal contractor(s), there is a need for a
clear process to enable States to know what steps are taken by the
contractor(s) working on the PERM project and to re-review error
findings.
CMS should make arrangements for a public review of the
PERM protocols and the contractor's performance, including input from
State agencies, provider organizations and other public entities.
The use of a Federal contractor increases the need for
outside oversight and review because the procedures will be less
transparent to States and other parties who are affected by the
policies.
Response: We described in the preamble of this interim final rule
what each contractor's roles and responsibilities are in the
implementation of the PERM program. We will be using the review and
error rate calculation methodologies that we used in the PERM pilot,
which States worked with us to design and refine. The contractors will
work closely with the States to understand the State's policies such as
special handling of claims.
States will also be able to review the contractor's claim
determinations and resolve any differences in findings through the
difference resolution process, which provides States with a level of
outside oversight and review.
Comment: Several commenters argued that unlike Medicare, which is a
single national program, reviewers for Medicaid and SCHIP must be
experts in the policy, policy application, administration, and claims
processing systems of 102 different State programs. The commenters
stated that they wanted more opportunities for input in the development
and monitoring of the PERM contractors, work plans, work statements,
and protocol. Also they believed that the rule should describe the
performance standards of the contractors and the ways that CMS will
monitor compliance of those standards to ensure that States are not
required to devote unnecessary resources in providing assistance to the
Federal contractors.
Response: We recognize the complexities of reviewing Medicaid and
SCHIP claims, and we have engaged a review contractor (RC) with
experience in conducting claims reviews. The RC is required to have
clinical experts perform the medical reviews. The RC will perform
reviews in 17 States per year for the Medicaid and SCHIP measurements
and will work with each State to clarify questions on the application
of the policies in the medical review and also will work with States
when questions on the data processing reviews arise.
Information regarding the procurement of Medicaid PERM contractors
was posted on FedBizOpps.gov during the procurement process for public
review. Information regarding the statistical contract was posted on
August 4, 2005, the documentation/database contract on August 10, 2005,
and the review contract on August 18, September 19, and October 14,
2005. We anticipate using the same standards set in the Medicaid
procurement to engage the contractors (statistical, documentation/
database, and review) for the SCHIP measurement. The performance and
monitoring of the PERM contractors is a Federal responsibility, and we
will oversee their work.
Comment: One commenter recommended that CMS employ an independent
contractor to evaluate the final results of the PERM process for
accuracy and cost effectiveness.
Response: As part of the Chief Financial Officer (CFO) audit, the
PERM program may be audited by an independent agency, similar to
Medicare's Comprehensive Error Rate Testing (CERT) program, which was
established to monitor and report the accuracy of Medicare FFS
payments.
4. State Input
Comment: Several commenters stated that CMS should establish a
steering committee or other advisory group that includes State
representatives to help ensure that the PERM contractors consider all
the logistical and data collection issues to reduce demands on State
staff.
Response: For the FY 2006 measurement, we have held several
conference calls with States clarifying the collection process for the
requested information. Due to the wide variation in the States'
programs, the contractors have followed up individually with each State
selected for the FY 2006 measurement. We believe that this one-on-one
communication between the contractor and each selected State has worked
well to address any issues the State may have related to data
collection. We will continue to have informational conference calls and
the contractors will follow up with each State selected for review, as
necessary.
Comment: Several commenters expressed concern with the States'
inability to actively participate in the rulemaking process,
particularly for development of the eligibility and managed care
components of PERM. They stated that CMS should not publish a final
rule until CMS can draft the eligibility and managed care claims review
processes, estimate realistic cost
[[Page 51058]]
assessments of the burden to States of the untested national contractor
model, and the States can examine these processes, estimates, and other
issues regarding PERM. These commenters expected that any rules that
are formulated regarding eligibility or managed care reviews related to
PERM will be published in the Federal Register and be subject to public
comment.
Response: We agree and believe that States have been active
participants in this process. States commented in the proposed rule,
and we invited further comments on eligibility and managed care
measurements in the October 5, 2005 interim final rule. We also
provided the opportunity for public comment on the information
collection requests for FFS (70 FR 42324 and 70 FR 50357), managed care
(71 FR 5851 and 19522), and eligibility (71 FR 30410) and believe that
our estimates of cost and burden to the States are realistic. Finally,
we are publishing this as an interim final rule with an additional
comment period to provide the opportunity for further public comment on
the PERM eligibility review requirements before publishing a final
rule.
Comment: One commenter stated that CMS should open workgroup
participation on SCHIP, eligibility, or managed care to any State
having an interest. CMS should share the options under consideration
with the States. Workgroup minutes should be circulated to all parties.
Response: We solicited representatives through the American Public
Human Services Association (APHSA) to participate on the eligibility
workgroup. We believe that at least one State representative apprised
States of the eligibility workgroup's recommendations through at least
one Eligibility Technical Advisory Group conference call. We did not
conduct managed care or SCHIP workgroups but we provided opportunity
for State input through the proposed rule and the October 5, 2005
interim final rule as well as the information collection requests for
FFS and managed care. We note that this workgroup, which was primarily
internal, is exempt from FACA requirements under 2 U.S.C. sec. 1534. We
are also soliciting further comments on the eligibility reviews through
this subsequent interim final rule.
Comment: One commenter asked whether the text of the October 5,
2005 interim final rule with comment at 70 FR 58273, third column, was
intended to reference Sec. 437.978 and Sec. 437.982 of the rule or
whether these were typographical errors.
Response: Yes, these were technical errors.
Comment: One commenter stated it is imperative that the final
eligibility review rules be published as quickly as possible to give
States the necessary time to obtain legislative authority to create and
fund new positions.
Response: We alerted States in the October 5, 2005 interim final
rule that we expect that eligibility would be included in the PERM
program beginning in FY 2007 and that it was possible that States would
be conducting the eligibility error measurement. This interim final
rule with comment period sets out the eligibility review requirements.
We expect States selected for review in FY 2007 will conduct
eligibility reviews for Medicaid and SCHIP. However, we invite further
comments on these eligibility provisions before publication of the
final rule.
B. Methodology
1. Exclusions From the Claims Universe
a. Denied Claims
Comment: Some commenters noted that the inclusion of denied claims
in the sample is questionable and conflicts with the definition of
payment in the October 5, 2005 interim final rule since Federal funds
are not used to pay denied claims. Therefore, the commenters believe
that denied claims should be removed from the sampling universe.
Response: The IPIA defines an improper payment as ``* * * any
payment that should not have been made or that was made in an incorrect
amount including overpayments and underpayments.'' Additionally, OMB
guidance M-03-13, published May 21, 2003, states that ``* * * incorrect
amounts are overpayments and underpayments including inappropriate
denials or payment of services.'' Therefore, we must include denied
claims in the error rate measurement process.
Comment: A number of commenters stated that CMS' response that
denied claims are included to comply with OMB guidance does not resolve
the State concerns regarding the inclusion of denied claims in the
estimation of improper payments. The commenters noted that ``improper''
and ``error'' as used throughout the notice indicate misspent funds and
to count non-payments with payments is misleading. One commenter argued
that to include unspent dollars with misspent dollars attempts to
change the definition of error payment and would result in a
meaningless statistic. They recommended that overpayments,
underpayment, and denied payment errors should be calculated and
reported separately.
Response: The commenters are correct that ``improper'' and
``error'' refers to misspent funds. However, we believe the incorrect
denials of claims that should have been paid are payment errors in the
same manner that payments of claims that should not have been paid are
payment errors and should be measured. Additionally, we are bound by
the requirements of the IPIA and OMB guidance and must include denied
claims in the error rate measurement process. Therefore, denied claims
made in error are included in the estimation of improper payments. We
will provide an analysis of these errors in the PERM report.
b. Provider Appeals and Provider Fraud Investigations
Comment: One commenter believed that unresolved disputed claims
should be excluded from the PERM measurement to avoid interfering with
the resolution.
Response: We believe the commenter's use of ``unresolved disputed
claims'' is referring to claims that are in the appeals process at the
time data analysis begins. Claims that are appealed by providers are
potentially underpaid claims or denied claims, so we must include them
in the payment universe as required by OMB guidance. We do not believe
that inclusion of these claims will interfere with the State's
resolution with the provider. Independent of the State's appeals
process, the contractor will review the claim and make its
determination as to whether it was correct or in error and provide the
State with the disposition of the claim. The State can review the
contractor's determination in the difference resolution process but
will not be bound by it.
Comment: Many commenters expressed concerns regarding claims from
providers and beneficiaries that are under active fraud investigation.
Their comments include:
CMS needs to adopt specific procedures for how fraudulent
claims and providers under investigation will be handled.
Such claims should be excluded from the PERM process to
avoid interfering or compromising the investigation.
The contractor should consult with the States before
contacting providers so
[[Page 51059]]
as not to jeopardize ongoing fraud investigations.
Including such claims under active investigation would
result in a decrease in response rate and skew the error rate.
The contractor could over-sample the strata on a quarterly
basis to allow for the substitution of claims under investigation; and
that CMS should allow for at least 5 percent of the claims sample to be
dropped for claims that are under active investigation.
Response: Fraudulent provider claims or claims under active
provider fraud investigation will be included in the universe. We
believe that the PERM review will not compromise the investigation
since requests for medical records are an expected part of the
provider's participation in the Federal medical assistance programs.
The intent of the IPIA is to measure the extent to which Medicaid and
SCHIP payments were made improperly, regardless of whether potential
fraud exists. However, we are allowing States to exclude beneficiary
cases under active fraud investigations from the eligibility reviews
because we believe that, in most cases, payments are not being made
directly to the beneficiary.
Comment: One commenter believed that dropping claims under fraud
investigation could skew the results if these types of claims were
always dropped.
Response: We agree and will include these claims in the FFS and
managed care reviews.
Comment: One commenter recommended that States be notified of the
list of medical records requested from providers so that the States
could notify the contractor of any claims flagged for review that have
already been identified as overpayments and addressed by their State
Surveillance and Utilization Review Systems (SURS) or Medicaid Fraud
Control Unit (MFCU).
Response: Once the quarterly claims sample is completed, the SC
will provide the State with a list of the selected claims for which the
DDC will be requesting records. However, claims selected for PERM will
be reviewed for improper payments regardless of whether overpayments
have already been identified by other State review systems.
2. Sampling Issues
Comment: One commenter asked whether CMS or the Federal contractor
selects the participating States.
Response: The Federal contractor randomly selected the sample of
States for PERM reviews in Medicaid. A table of the States selected for
FY 2006, FY 2007, and FY 2008 is provided above in the preamble of this
interim final rule. For the SCHIP State selection, we determined that
SCHIP will be measured in the same year that States are selected for
the Medicaid measurement. We will send a State Health Official Letter
announcing the SCHIP State selection.
Comment: One commenter believed that CMS could achieve the IPIA
requirements and reduce the State sample size by allowing a larger
standard error for each State's sample. The commenter argued that it is
possible for States to identify vulnerabilities and to implement
corrective actions because States are already performing activities to
eliminate reimbursement weaknesses through SURS, Peer Review
Organizations, and payment integrity program activities.
Response: Although we agree with the commenter that we could reduce
State sample size by allowing for a larger standard error and still
achieve the national IPIA requirements, we are not adopting this
recommendation. We want to ensure a large enough sample size to provide
enough information to the States on where the errors occurred so that
States can efficiently and effectively target their efforts to address
these vulnerabilities.
We intend for the PERM program to be an independent measurement;
however, States can use the information from PERM in conjunction with
information from their own payment integrity programs to efficiently
and effectively target corrective actions and improve program
performance.
Comment: One commenter is concerned that the previous year's data
already provided to CMS, which are to be used for determining sample
size per stratum, may not agree with the same type of stratification as
submitted in the quarterly data.
Response: The SC has determined that it can base the actual sample
size per stratum on the stratified quarterly claims data submitted by
the States. Therefore, we will not request data from the previous
fiscal year on which to approximate the sample.
3. Overpayment and Underpayment Errors
Comment: Several commenters stated a true error rate could only be
determined by identifying overpayments and underpayments, and
offsetting or netting one against the other to determine the sum of
errors. Moreover, aggregating overpayments and underpayments provides a
false indicator of overpayments and payment error, and distorts the
results.
Response: We must comply with OMB guidance (M-03-13) on IPIA, which
defines improper payments as including overpayments and underpayments
and requires that these payments be measured separately. Further, we
view overpayments and underpayments each as sources of payment error
since the amount of payment that should have been made was made
incorrectly by virtue of the fact that the State either paid too much
or too little for the service provided.
4. Adjustments to Claims
Comment: Several commenters argued that the proposed 60-day limit
for adjustments to claims would overstate the amount of the payment
error since adjustments occur later than 60 days after the payment
adjudication date. They believed that all adjustments to the claims
should be included in the review at the time when the sample is drawn
and do not believe that the 60-day limit has been adequately tested.
Response: Consistent error rate measurement requires a specified
timeframe for considering adjustments. The 60-day limit provides a
consistent time period across States since States have varying
timeframes for adjustments of claims. We believe that the 60-day
timeframe has been adequately tested through the PAM/PERM pilots.
5. Medical and Data Processing Review Procedures
a. Methodology
Comment: Several commenters stated that CMS responded to a number
of comments requesting clarification of the review procedures by
stating that the comments were ``no longer relevant since States will
not be conducting the medical or data processing reviews.'' Although
the States will not be conducting the reviews, these commenters
believed that:
CMS has obligated States to provide whatever technical
assistance is needed for the contractor to perform the reviews. Clear
guidelines will enhance State and provider understanding. This in turn
will improve cooperation, compliance, quality, and accuracy;
States need to understand the processes, standards and
requirements in order to develop and implement effective corrective
action plans that will address the payment errors identified in the
reviews; and
The guidance already developed cooperatively with CMS and
the States should be used along with nationally recognized review
criteria.
[[Page 51060]]
Response: The contractors will work closely with States during the
review process. Most States have participated in the pilots and are
familiar with how the reviews are conducted. The contractors will
generally follow the guidelines that were developed in the PAM/PERM
pilots. Additionally, State corrective action plans are based on the
sources of errors rather than the review process.
Comment: One commenter argued that without specifying the
methodology in the regulation text, CMS could change the methodology at
will, including increasing the sampling precision, thus increasing the
response burden on the States, especially for the eligibility
component. The commenter asserted that CMS should not be permitted to
unilaterally change any element of the methodology without affording
the public an opportunity to comment on it through applicable
administrative review requirements.
Response: We have tested the methodology within the three pilot
programs and may make changes, as needed, to improve the payment error
rate measurement. We have specified in the rule that each State error
rate must be within the 3 percent precision level at a 95 percent
confidence interval level. However, we do not anticipate making
significant changes to the methodology unless revisions are necessary
to produce accurate error rates that meet the statistical requirements.
We will be able to request any further information necessary from the
States through our authority under the current Medicaid and SCHIP
regulations.
Comment: One commenter stated that CMS should revise the October 5,
2005 interim final rule to allow States' continuing involvement in
establishing review procedures and to base these procedures on the best
practices already identified through the PAM and PERM pilot projects.
Response: During the PAM/PERM pilots, we sought extensive feedback
from the participating States on the review procedures. We used this
feedback to help develop the review guidelines. We have based the
review procedures for the Federal contractors on the procedures and the
best practices identified through the pilots. We also invited and
considered public comments on the managed care and eligibility review
procedures through the October 5, 2005 interim final rule. Finally, we
are publishing this interim final rule with comment period to provide
the opportunity for further public comments regarding the PERM
eligibility review requirements.
b. Medical Reviews
Comment: One commenter expressed concern about the amount of
information that must be gathered and reviewed in context for an
adequate error determination. Contract medical reviewers would need
access to recipient case histories and provider claim patterns over a
number of years to make a full and complete assessment of claims. The
commenter stated that they could make available onsite access to the
contractor, if requested.
Response: We agree that for some cases, the RC will need to contact
the States for additional information for the medical reviews, for
example, to determine whether the maximum number of services has been
met. For these cases, if necessary, the RC can obtain more information
during the data processing reviews, which will be done on-site.
However, we do not anticipate that the RC will need additional
information to this extent for the majority of the medical reviews.
Comment: One commenter asked if ``no documentation'' would be
considered an error. The commenter stated that States should not be
penalized because of non-responsive providers who fail to produce
records or respond to follow-up questions.
Response: Yes, an error will be cited in cases in which there is no
documentation because there is no evidence to adequately determine
whether the services were provided, were medically necessary, and were
properly coded and paid. The contractors will follow up a number of
times with the providers in order to obtain the medical records. States
can, at any time, proactively educate their providers about submitting
the information for the PERM program. We have posted a ``provider
education'' letter at http://www.cms-perm.org/ that States can use to
educate their providers. States need not wait until they are selected
for the PERM reviews to begin this activity. In addition, the selected
States will be able to obtain information identifying which providers
have not submitted the requested medical records within the first 45
days of the initial request from the DDC, so that such States may do
their own follow-up, if they choose.
Comment: Some commenters expressed their concerns regarding the
inclusion of any documentation error as an improper payment. The
inclusion would produce a higher error rate, especially in States that
are the most demanding in their documentation requirements. They
suggested that CMS could alleviate their concerns by including, in its
final report, a comprehensive explanation of what is included as a
payment error and distinguish between inadequate documentation and
provider non-response to documentation requests.
Response: We agree and the findings will distinguish errors due to
no documentation and insufficient documentation from other types of
errors. However, the total payment error rate will include these
errors.
Comment: Many commenters believed that the contractors will have
limited incentives to work to obtain near-complete provider records for
the sampled claims and stated that the final rule should clearly
indicate the contractor's responsibilities to assure complete receipt
of medical records and the accurate review of each and every sampled
claim.
Response: According to our contractual agreement with the DDC, the
DDC will make a number of attempts to obtain the medical records and
will send up to three letters and make up to three phone calls, if
necessary, to the providers. As for the accuracy of review, the RC will
work closely with States to clarify policies. Also, the RC will conduct
a second level review on all errors and on 10 percent of the claims
sampled. States also have the option of reviewing and requesting
reconsideration of the RC's findings through the difference resolution
process discussed below.
Comment: Several commenters stated that labeling a claim an error
after a provider exceeded an arbitrarily imposed response deadline does
not make a payment improper, and recommended that guidelines allowing
an additional 30 days for efforts to be made by the Federal contractor
to obtain medical records.
Response: We believe that the 90-day timeframe is a reasonable
amount of time for the collection of medical records, given that the
DDC will make up to 6 contacts to the provider.
Comment: A number of commenters asked for clarification as to what
role States will play in the record collection process. They believed
that States will need to commit significant resources to assist the
Federal contractor in obtaining the required records and documentation
in order to minimize payment error rates resulting from records not
received within the 90-day timeframe.
Response: The DDC will contact providers directly to request
medical records. States are not required to be involved in the
collection of medical records unless they opt to follow up
[[Page 51061]]
with providers who do not respond to the DDC's requests.
Comment: Several commenters indicated that States must be
considered a partner in the efforts to ensure a reliable error rate
determination. They believed that States should be involved in the
development of model letters requesting records, establishing provider
guidance, and working with the provider to ensure that the contractor
has the full record for review.
Response: We agree. We view the States as partners in this effort.
States can choose to participate in follow-up discussions with
providers who have not responded to requests for medical records. We
have placed the provider education letter regarding the requirements of
medical records submission on the PERM Web site, http://www.cms-perm.org/.
States can use this letter and its contents, as appropriate,
to educate providers on this program.
Comment: Since some providers may be guarded about confidentiality
of medical records, several commenters asked how the contractors will
handle complaints about health privacy concerns regulated under the
Health Insurance Portability and Accountability Act of 1996 (Pub. L.
104-191, enacted August 21, 1996) (HIPAA), many of which will be
directed to State Medicaid staff. They recommended that the records
request letter clearly set forth the business relationship that permits
disclosure under HIPAA, the obligation to provide records without
compensation, and indicates that HIPAA explicitly allows this type of
collection.
Response: We will indicate in the provider letters: (1) That CMS
has authority to collect the medical records under section 1902(a)(27)
of the Act; (2) that the information collection complies with the
Privacy Act and HIPAA; and (3) that we will comply with the Privacy
Act, HIPAA and the regulations at 45 CFR parts 160 and 164.
Comment: Several commenters suggested that when the contractor is
unable to obtain sufficient information to determine whether a claim
was an error, the case should be eliminated from the sample. They
stated that the contractor should continue to keep track of the
insufficient documentation cases as an incentive to improve future
performance of medical record collection.
Response: We are not adopting this recommendation because a claim
with either no documentation or insufficient documentation does not
have evidence to support that the payment was correct. The RC will
record the cases of no documentation and insufficient documentation;
States may use the information to educate providers on the importance
of submitting adequate documentation.
Comment: One commenter noted that some States verify medical
necessity determinations by calling the physicians that delivered the
services, and encouraged CMS to include this step in the contractor
workplans.
Response: We are not adopting this recommendation because, as part
of standard medical practice, providers should include full
documentation in the medical records.
Comment: A number of commenters stated that the rule should specify
that the contractor will submit to the State agency all erroneous
claims with all appropriate documentation, so that the State can decide
whether to re-review the case. If the State can demonstrate that there
is no error, the error determination should be nullified and the
appropriate adjustments should be made to the State's error rate.
Response: Based on the comments to the October 5, 2005 interim
final rule, we have provided for a difference-resolution process in
this interim final rule. The difference-resolution process, a type of
alternative dispute resolution process, will provide the States with
the opportunity to review the error determinations made by the RC
(through its medical and data processing reviews) and to resolve any
concerns about the findings. The RC will make the documentation on
which the decision was based available to the States.
Comment: As an alternative to determining claims without sufficient
documentation as errors, the contractor could develop a statistically
appropriate method to estimate the proportion of State claims with
missing documentation which are actually in error and actually correct
and use that method to adjust the error rates.
Response: We are not adopting this recommendation. Every claim must
have documentation in the medical record to support payment of the
claim. A provider must submit this information to support his or her
claim; otherwise, the payment of the claim itself is an error.
Comment: One commenter recommended a number of changes to the
medical review guidelines including:
Explaining the difference between a medical necessity
review and a comprehensive medical review, including defining the
components of each type of review;
Omitting the words, ``if applicable'' pertaining to prior
authorizations;
Providing more guidance on how a claim line versus a claim
will be reviewed; and,
Providing more detailed sections specific to personal care
service providers.
Response: These suggestions were made to clarify areas of the
medical review guidelines that some States found troublesome when using
the guidelines for the medical reviews under the past PERM pilot
project. These changes may no longer be needed since we anticipate the
contractor that we engage to conduct the medical reviews will have a
higher level of expertise than the States in evaluating medical
records. However, we believe that these recommendations may offer
improvements to the guidelines, and we will review and incorporate
these recommendations, as applicable.
Comment: One commenter indicated that States using InterQual Level
of Care criteria for inpatient stay approvals, as opposed to States
that use specific length of stay by diagnosis, have a higher likelihood
of a higher error rate due to inadequate documentation. The commenter
asked if the CMS contractor is licensed and trained for InterQual
Reviews, because States cannot provide the proprietary information to
the contractor.
Response: Some States use various tools, such as InterQual Reviews,
to authorize payments or conduct secondary reviews of payments. These
tools are used to review items in the medical record, such as specific
chart notations or notations on daily progress and nursing notes. The
contractor would not need access to these tools since it will base its
determinations on reviews of the underlying medical records.
c. Data Processing Review
Comment: One commenter stated that it is unclear from the October
5, 2005 interim final rule whether there will be a separate systems
review component in the process and requested CMS further clarify the
extent to which systems will be reviewed as part of PERM.
Response: Yes, data processing reviews, which determine whether
there are errors due to the State's payment processing system, will be
conducted on all sampled claims. The RC will most likely conduct these
reviews on-site and will work with the State on learning its claims
processing system. For both FFS and managed care claims, the processing
reviews will determine if each sampling unit was processed correctly.
The FFS processing reviews will determine, for example, whether the
service is a duplicate item or claim;
[[Page 51062]]
the service is covered; the service should have been covered by a
managed care organization (MCO); the service was priced correctly;
whether there was a problem with the logic edits; and whether the
information was entered into the system correctly. For managed care
claims, the processing reviews will determine whether the capitation
payment was made correctly based on the information available to the
capitation payment system or to the system that processes vouchers for
payment to a MCO; whether the person is in the program; and whether the
claim was correctly paid.
Comment: Several commenters asked whose interpretation of the State
policy would establish the standard by which payments would be
measured. They stated that the contractor must consult with the State
regarding all claims they determine to have errors. They believed that
the program operations staff will need to provide an enormous amount of
technical assistance, explanations and clarifications for non-typical
situations, which are not easily found by simply consulting manuals and
bulletins, or by review of system edits.
Response: The contractor will follow the State's policy and will
work closely with the State to clarify the policy if it is unclear.
Upon review of the contractor's determination of claims, the State can
review the claims and file a difference resolution.
Comment: One commenter stated that there is no reference to
beneficiaries' eligibility files, which the State found was necessary
for the processing reviews in the PERM project.
Response: In the data processing review, the eligibility check will
be limited to data matching to determine whether a beneficiary was
enrolled in the program on the date of service.
Comment: One commenter stated that, regarding the response to
third-party liability (TPL) not being reported on the line-item level,
it will be necessary to review all line items of a claim (not just the
sampled detail line) when TPL or patient liability is involved. They
stated that this could be accomplished by using the data extracts
submitted by the States.
Response: We agree that in some cases, the contractor will need to
review other claim information beside the line item for TPL or patient
liability. However, the contractor will not need the States to submit
data extracts in these cases. The contractor will be able to review TPL
information during the data processing review, which will most likely
be conducted through the State's processing system.
Comment: One commenter stated that the probability of a PERM error
increases with each safeguard that a State adds to its payment
processes. The commenter argued that this may cast a negative light on
States that have been aggressive in their efforts to protect the
integrity of their payment system.
Response: The PERM program is intended to measure each State
against its own standards and policies to determine if it complies with
these standards and policies when making payments for services rendered
in FFS and managed care settings and when making payments based on
program eligibility. Therefore, we do not agree that States with high
standards of operation are disadvantaged or would be cast in a negative
light since the State is being measured against itself.
6. Payment Error Rate and Reporting
Comment: One commenter stated that managed care and FFS error rates
are not comparable because the majority of the managed care sample
would have fewer processing requirements and therefore, fewer errors.
The commenter believed CMS should include in the final report an
explanation of the difference in the managed care and FFS error rates.
Response: We agree. We will measure FFS claims separate from
managed care capitation payments.
Comment: One commenter stated that States should receive a copy of
the draft report for their State and be provided with an opportunity to
respond within 30 days before publication.
Response: We provide States with the opportunity to provide input
during the entire measurement process, from clarifying policies to
reviewing disposition reports. Moreover, States may use the difference
resolution process when States disagree with a contractor
determination. States will also be provided with their error rate
information before CMS reports the rates.
Comment: One commenter asked whether the State error rates would be
presented in a way that provides for accurate representation of a
national rate with an understanding of each State's performance.
Response: Yes, CMS will report national error rate information in
the PAR and will include State information in its error rate report. We
believe the reporting will accurately represent both a national rate
and individual State performance.
Comment: Several commenters expressed concern that it is possible
for PERM to be flawed by both dependent and independent variables. For
example, if a claim was determined to be an error in the eligibility
review due to the participant having an open Medicaid number, then the
State would incur a second error if it was inappropriately denied.
There is no provision for preventing the double counting of error
dollars.
Response: The proposed method for accounting for both eligibility
errors and medical and processing review errors is to draw two
independent samples. For FFS, one sample will be drawn for eligibility
review and one sample will be drawn for medical and processing reviews.
For managed care, one sample will be drawn for eligibility review and
one sample will be drawn for processing review.
The eligibility error rate and the medical and processing review
error rates will be calculated independently for the two respective
samples. They will be combined into a single, total error rate under
the assumption that the types of errors (that is, eligibility, medical
and processing reviews) are independent. ``Independence'' means that
the probability of a processing or medical review error on a given
claim or line item is not related to the probability of an eligibility
error for the recipient of the services implied by the claim or line
item. In making this assumption, we considered the results from the PAM
Year 3 pilot study. In those States that subjected the same sampling
unit to a full eligibility review and medical and processing reviews,
the data suggested that the two types of errors were independent
(though this finding is limited because the sample sizes were small).
As the methodology for combining both samples for ``total'' error
rate is implemented, we plan to monitor the individual results. In
particular, over time there will be some overlap between the
beneficiaries reviewed for eligibility review and the claims of those
beneficiaries reviewed for medical and processing reviews. This will
allow us to test the independence assumption as this type of data
accumulates. In practice, the independence assumption will overstate
the error rate significantly only if eligibility and medical and
processing review errors are highly correlated. There is no evidence at
this time that there is a dependence or correlation of the samples.
Comment: One commenter recommended using a systematic random
sampling methodology in which claims are ordered before the sample is
drawn to accomplish maximum precision, given the wide variation in the
Medicaid benefits provided by the States, and the
[[Page 51063]]
corresponding variation in claims processing procedures.
Response: We agree that using a systematic sampling methodology
would increase the precision. We adopted the stratification
methodology, which was first used in the pilots, to substitute for the
systematic sampling and to minimize the required sample size and burden
on the States. Also, the stratification of the FFS claims sample
provides States with information on where the errors are concentrated
so that States can target corrective actions.
Comment: Several commenters stated that the proposed strata are
neither mutually exclusive nor representative across all Medicaid
programs and if unchanged, these methods will produce invalid estimates
of the State-specific error. Also, there is considerable confusion and
overlap regarding the groupings of service types among the strata. One
commenter stated that using a systematic random sampling methodology
would increase the validity of the estimates and reduce the confusion,
or alternatively, CMS might consider reducing the number of strata.
Response: The States selected for the FY 2006 measurement were
provided with a list of crosswalk codes from the MSIS for the PERM
strata, and the SC will work with each State in order to stratify the
claims. We intend for the strata to be mutually exclusive, but because
of variations in coverage and how the services are categorized across
the States, there may be overlap between the groupings of service types
for some States. We believe that because the estimates are based on a
sample of all services, regardless of the categories, the effect of any
potential overlap on the error rates would be insignificant. Also, if
we reduced the number of strata, it could result in an increase in the
required sample size and would limit the ability of States to identify
specific service types that were vulnerable to improper payments.
Comment: One commenter questioned whether a ``one-size fits all''
statistical approach works across 50 different State Medicaid programs,
especially in light of the differences in the types of populations each
State covers and the populations in FFS as compared to managed care.
They asked whether error rates in a State with a high managed care
population would be equivalent to a State with a predominantly FFS
population, and whether CMS asserts that any error rate calculation in
the first year is complete without managed care claim reviews and
eligibility reviews.
Response: In order to produce a statistically valid national error
rate, we must implement a standardized methodology that is consistent
across all States. We understand that there are great variations among
State programs and will point out these variances in our reporting. We
note that the FY 2006 error rates are based only on Medicaid FFS
claims. The reason for this is because we solicited public comment on
methods to measure managed care and eligibility. The rate reported in
the FY 2007 PAR is exclusively a FFS component rate; a complete program
error rate will be reported in the FY 2008 PAR based on FY 2007 reviews
of FFS, managed care and eligibility.
Comment: A number of commenters requested the opportunity to allow
State statisticians to review and comment on the relevance and
reliability of the methodology for determining the error rates.
Response: We appreciate the commenters' offers to review the
relevance and reliability of the error rate methodology. However, we
believe that, in consultation with our contracted statisticians, the
method developed to produce the error rate calculations is valid and
reliable. The PERM program, including its statistical aspects, will be
subject to an independent audit and we believe this audit would reveal
any issues that may need to be addressed.
C. Expanded FY 2007 Error Rate Measurements
1. Eligibility
a. Cost and Burden
Comment: One commenter observed that if CMS' intent was to
implement the eligibility component of PERM within existing Medicaid
and SCHIP law, then 42 CFR part 431 subpart P would have to be revised
to substitute the existing MEQC requirements with PERM eligibility
requirements. Another commenter acknowledged that MEQC and PERM have
different methodologies and are in separate areas of the law. However,
the commenter believed that the PERM reviews could be substituted for
the MEQC reviews in years when a State was selected to participate in
PERM. This would eliminate duplication of efforts and enable States to
convert MEQC resources to PERM eligibility resources.
Response: We agree that duplication of effort should be minimized
to the extent possible. However, we cannot waive the MEQC statutory
requirements and substitute the PERM eligibility reviews for the MEQC
reviews. In light of States' expressed concern regarding duplication of
effort and cost to operate two eligibility review systems, we will
consider this suggestion.
Comment: Several commenters believed that there are significant
resource implications to conducting eligibility reviews for PERM. They
stated that the Federal government must be responsible for the resource
and logistical implications of the eligibility reviews and that the
expense of eligibility reviews should be fully federally funded. A
number of commenters expressed concern that State-conducted eligibility
reviews will be costly and inherently duplicate MEQC activities. One
commenter stated that if the eligibility measurement followed what was
planned in the proposed rule, CMS would not have responded adequately
to State concerns regarding burden. One commenter believed that it was
incumbent on CMS to look at other regulations already in place and make
every attempt to incorporate established requirements rather than
overburden States with redundant policies.
Response: We have determined that States will be conducting the
eligibility reviews for Medicaid and SCHIP. We are considering public
comments to eliminate or reduce duplication of effort. However, since
State submission of information on Medicaid and SCHIP program
performance is an ongoing administrative requirement, States will be
reimbursed at their normal administrative match for conducting the
eligibility reviews and associated activities.
Comment: One commenter questioned CMS estimates that the burden of
the eligibility review component will be no greater than the
traditional MEQC effort. The demands on State staff to educate the
contractor staff are uncertain at best since the contractor's
capabilities are unknown.
Response: Since the States, rather than the Federal contractor,
will be conducting the eligibility reviews, the State will not need to
educate the contractor; thus eliminating this demand on State staff.
Comment: One commenter anticipated that its actual cost for
performing eligibility reviews similar to MEQC reviews would exceed
CMS' previous estimate of $570 per eligibility review. The commenter
suggested that the eligibility workgroup consider this figure as a
starting point when developing the eligibility review methodology.
Response: We based our estimated cost to perform the review on
State-reported costs from PAM Year 2.
Comment: One commenter believed that because the eligibility
component of PERM has not yet been developed, it
[[Page 51064]]
is premature to conclude that the impact on State resources will be
minimal.
Response: As stated in the October 5, 2005 interim final rule, we
strove to develop a review process that has minimal impact on the
States.
Comment: Stressing that eligibility reviews are extremely time-
consuming and labor-intensive, several commenters believed that CMS
should consider conducting eligibility reviews on a statistically valid
sub-sample of the claims selected for the PERM review.
Response: We are not adopting this recommendation. The PAM and PERM
pilots used this approach and the review results indicated that claims-
based eligibility reviews had inherent problems predominantly due to
the inability to verify eligibility information as of the date the
service was received, which could be up to two years prior to when the
claim was sampled. Therefore, we developed a case-based sample and
methodology that reviews recent cases at less cost and burden, and
provides more current information on which States can base corrective
actions.
Comment: One commenter stated that the PERM rule should address the
organizational structures that are applicable for conducting the PERM
eligibility reviews. Since PERM identifies improper payments, the
commenter believed that a possible conflict of interest may occur if a
Quality Control (QC) Unit is contained within a Medicaid Policy Office
or Division.
Response: We agree and will adopt this recommendation. We will
provide in the regulation that the agency conducting the PERM
eligibility reviews must be functionally and physically separate and
independent from the State agency responsible for Medicaid and SCHIP
policy and operations, including eligibility determinations.
b. Eligibility Workgroup
Comment: A number of commenters stated that they believed that
members of the public, including State officials and other interested
parties, should be able to participate in the eligibility workgroup.
Their comments include:
CMS should comply with requirements under the Sunshine
Act;
The workgroup has been formed without the opportunity for
public participation and no information has been sent to States on it,
nor was there an opportunity for interested States to participate in
the workgroup;
There should be an opportunity for States to submit their
comments to the workgroup and a procedure for input before the
promulgation process;
States included in the workgroup (that is, New Jersey)
have not participated in previous PERM pilots; and,
The eligibility workgroup should include presentations
from States with and without PAM or PERM pilot experience in Medicaid
and SCHIP.
Response: The ``Government in the Sunshine Act'' (Pub. L. 94-409,
codified at 5 U.S.C. section 552b) (``Sunshine Act''), defines
``agency'' under (a)(1) as a collegial body. This definition applies to
independent commissions rather than Cabinet agencies. Therefore, DHHS
is exempt from the requirements of the Sunshine Act. Generally,
meetings of workgroups of this kind would be covered by the Federal
Advisory Committee Act (FACA), 5 U.S.C. App. 2. However, under 2 U.S.C.
1534(b), as promulgated by section 204 of the Unfunded Mandates Reform
Act (Pub. L. 104-4, enacted March 22, 1995), the workgroup did not need
to comply with the FACA requirements because meetings between Federal
officials and designated State employees are FACA-exempt under the
statute.
Nonetheless, States and the public were offered the opportunity,
through the rulemaking process of both the proposed rule and the
October 5, 2005 interim final rule, to submit comments and
recommendations on the best measurement for eligibility errors and to
express concerns. Public comments were considered by both the workgroup
in making recommendations, and by CMS in crafting this interim final
rule to incorporate the views of the public. Moreover, we are
publishing this rule as an interim final rule with comment period
rather than a final rule to provide the opportunity for further public
comment on the PERM eligibility review requirements.
To solicit State participation in the workgroup, we contacted the
American Public Human Services Association (APHSA) and we were notified
of two States they selected for the workgroup. We believe that
participation in the PAM or PERM pilots was not necessary to provide
valuable input in the workgroup because the pilots demonstrated many
problems with a claims-based sample and the States commented on these
problems.
c. Methodology
Comment: One commenter stated that having the contractor conduct
the eligibility review raises confidentiality issues both in State and
Federal law concerning Social Security Administration and Internal
Revenue Service information in the case records.
Response: We believe these concerns are addressed by having the
States rather than the Federal contractor conduct the reviews.
Comment: A few commenters expressed concern about the lack of an
administrative period to allow for the reporting of changes in
beneficiary status. One commenter stated that measuring eligibility
solely based on the date of service was inconsistent with CMS
regulations at 42 CFR 431.211, which requires the State to mail the
Medicaid recipient a notice 10 days before withdrawing Medicaid
eligibility for an individual, and is also inconsistent with quality
control policies in other programs. One commenter recommended that as
part of the review, the administrative period be applicable to
eligibility determinations and that failure to do so will result in an
artificially inflated eligibility error rate.
Response: As defined under Sec. 431.804, the administrative period
is a timeframe under the MEQC program that provides States with a
reasonable period of time to reflect changes in the beneficiary's
circumstances without an error being cited. This period consists of the
review month and month before the review month. The administrative
period is not applicable for those cases where the review is the month
of the State's most recent action (application or redetermination
cases). For all other cases, eligibility is also reviewed as of the
State's most recent action so the administrative period would not be
applicable in this instance either. However, if the State did not
redetermine eligibility timely, the review will assess eligibility as
of the sample month. We will not apply the administrative period to
these cases because we do not believe the State should be held harmless
when it has not demonstrated good case management by redetermining
eligibility at least annually as required by Federal regulations at 42
CFR 435.916(a) and 457.960.
Comment: One commenter stated that, under the pilot projects, a
relatively large percentage of improper payments were due to ``lack of
documentation'' errors. The commenter believed that if full
documentation were provided, it is possible that the error findings
would decrease. Regarding eligibility samples, the commenter argued
that caseloads larger than those selected in traditional MEQC were not
needed to identify and address problem areas.
Response: In the past PAM and PERM pilot projects, ``insufficient
documentation'' errors were determined with respect to lack of
documentation to
[[Page 51065]]
support the medical reviews, not to support eligibility determinations.
Regarding eligibility samples, we will base the number of eligibility
reviews on an estimated sample size projected to be within 3 percent
precision level at the 95 percent confidence interval level. We
estimate an average of 500 reviews per year, which is less than the
sample sizes for half the States under the traditional MEQC program.
Comment: Several commenters agreed with CMS' response that the
State should be accountable for all Medicaid eligibility determinations
regardless of which State agency made the determination but believed
that Medicaid recipients who receive Supplementary Security Income
(SSI) and whose Medicaid eligibility were determined by the Social
Security Administration pursuant to section 1634 agreements should be
excluded.
Response: We agree and have excluded from the Medicaid universe SSI
cases in States with a section 1634 agreement, as well as Title IV-E
foster care and adoption cases in all States.
Comment: One commenter noted that the PERM rule provided for
adjustment to the error rate due to the provider appeals process. The
commenter argued that adjustments should also be made to eligibility
determinations under a fair hearing process and that decisions from
such process should cause the error to be backed out of the error rate.
Response: If a State is properly continuing coverage due to a
beneficiary appeal, the case would be counted as correct. There are no
dollars associated with an improper denial or termination, so these
cases would not have been included in the payment error rate and
therefore would not need to be reversed. Note that for Medicaid, there
are no adverse consequences associated with eligibility error rate
computations under the IPIA. Disallowances of misspent Federal Medicaid
funds are statutorily required for MEQC under section 1903(u) of the
Act. For identified improper payments based on eligibility errors in
SCHIP, the general recoveries statute at section 2105(e) applies.
Comment: One commenter expressed concern for conducting the
Medicaid and SCHIP reviews independently and recommended that the issue
be considered by the eligibility workgroup. The commenter stated that,
in some States, families applying for SCHIP are first reviewed to
determine if they are Medicaid eligible and if they are Medicaid
eligible, they do not have the choice to be enrolled in SCHIP. In the
above situation, the commenter argued that it is counterproductive to
pursue repayment of Medicaid overpayments, especially for families who
applied using only SCHIP applications.
Response: We are measuring SCHIP and Medicaid dollars separately
and, therefore, must conduct these program reviews independent of each
other. Under SCHIP regulations at 42 CFR 457.350, States are required
to screen SCHIP applicants for Medicaid eligibility. If a State
erroneously determines a person eligible for Medicaid, the payments for
the Medicaid services made by the State are improper regardless of
whether the eligibility determination was made as a result of an SCHIP
application or a Medicaid application. The statutory provisions
requiring recoveries of misspent Federal funds due to Medicaid
eligibility errors are at section 1903(u) of the Act. The general
recovery provisions for misspent Medicaid Federal funds other than
those due to eligibility errors are at section 1903(d) of the Act. For
SCHIP, the recovery provisions are at section 2105(e) of the Act. These
statutory provisions do not permit us to make exceptions to recoveries
of misspent funds on the basis that such recoveries are
counterproductive.
Comment: Several commenters expressed concern about citing
eligibility errors for participants sampled for one program (SCHIP)
while found eligible for the other program (Medicaid). The commenters
believed that the difference between the levels of Federal matching
should be considered erroneous and that adjustments to Federal claims
should be allowed simply as adjustments to claims.
Response: As we previously stated, we are measuring improper
payments in each separately funded program. The OMB guidance requires a
statistically valid error rate that meets specified confidence and
precision levels for estimating improper payments in each individual
program. Therefore, for purposes of measuring improper payments in a
program under PERM, adjustments in Federal claiming will not be made
between a State's Medicaid and SCHIP programs.
Comment: One commenter stated that while he believed that CMS does
not intend the payment error rate measurements to affect beneficiary
eligibility or program coverage through State actions (such as States
imposing more restrictive documentation requirements to prove
eligibility) it is a possible outcome of PERM.
Response: States may take actions to avoid errors in eligibility
determinations in any of a number of ways, including by making the
application or redetermination process more stringent. For example,
States may require a higher level of proof of eligibility or require
face-to-face interviews which could discourage program enrollment. This
interim final rule does not require States to change their eligibility
policies and procedures. However, if analysis of a State's error rate
reveals weaknesses in its policies or procedures, the State may decide
to address the causes in a manner that could require a higher level of
beneficiary participation in substantiating his or her eligibility.
Comment: One commenter stated that a possible solution to address
the barriers in eligibility verification as of the date the service was
received, which can be 12 months prior to the date the claim is sampled
for review, is to impose a maximum date of service of no earlier than 3
to 6 months from when the claim is sampled.
Response: We are using a case-based methodology for eligibility
reviews to avoid situations where the reviewer is attempting to verify
eligibility factors for a year or more in the past. The case-based
sample reviews eligibility as of the State's most recent action rather
than as of the date of service.
Comment: One commenter stated that CMS should eliminate the
multiple month reviews for individuals within a continuous eligibility
period; the review requirements should be limited to the month of
service only. The commenter argued that this would support the intent
of the PERM process, which is to determine if the individual was
eligible for the service at the time the service was provided. The
commenter stated that it also clearly highlights areas where the
eligibility determination process could be improved to more accurately
reflect the participants' continuing eligibility. The errors could be
categorized as disqualifying or non-disqualifying depending on which
eligibility factor was determined to be in error (that is, income, age,
and/or residency). The commenter believed that this generally would
move the review month closer to the month in which the eligibility
review itself is completed.
Response: The review month is the month when the State took its
last action to grant or redetermine eligibility and is the month in
which the State will verify eligibility for the purposes of PERM. If
the State's last action was taken beyond 12 months before the sample
month, the review month will be the sample month. Each month, a State
will divide its universe of cases into three strata and draw a random
sample of cases from each stratum. The strata are as follows: (1) All
applications (2) all redeterminations on which the State took an action
to continue eligibility,
[[Page 51066]]
and (3) all other cases. For cases in stratum one, the review month is
the month of the State's last action to grant eligibility. For stratum
two, the review month is the month of the State's last action to
redetermine eligibility. Therefore, for continuous eligibility cases in
strata one and two, eligibility will be determined as of the first
month of the 12-month continuous eligibility period. The same concept
is true for cases in stratum three unless the State's last action was
taken prior to 12 months from the sample month. In those instances,
eligibility is reviewed as of the sample month. These review procedures
eliminate the multiple month reviews for continuous eligibility cases.
Comment: One commenter is interested in how eligibility errors will
translate into dollars.
Response: For purposes of computing an eligibility error rate (as
opposed to the FFS and managed care error rates), the amount of
improper payments is the amount paid improperly for services received,
if any, either in the first 30 days of eligibility or in the review
month (for cases in strata 1 and 2) or during the sample month (for
cases in stratum 3). Each State will compute its error rate as a result
of the reviews and associated claims. Disallowances of Federal funds
due to Medicaid eligibility errors are governed by section 1903(u) of
the Act as part of the MEQC program. The general recoveries statute at
section 2105(e) of the Act applies to identified improper payments
based on eligibility errors in SCHIP. States must attempt recoveries on
identified errors under these statutory requirements.
2. Managed Care
Comment: One commenter stated that for managed care reviews there
are two considerations: whether the individual was eligible when
payment was made to the MCO and whether the payment to the MCO was in
the proper amount (for example, capitation code and amount). With
respect to SCHIP, CMS must additionally consider whether any applicable
cost-shares were correctly assessed for the enrollee's family (for
those in premium assistance programs).
Response: Medicaid and SCHIP managed care data processing reviews
will determine whether: (1) the beneficiary was enrolled in Medicaid or
the SCHIP program; (2) the capitation amount was correct according to
State policy; and (3) the capitation payment was paid correctly. Cost-
sharing will not be reviewed because generally the State has built
these cost sharing amounts into their rate structures and CMS is not
reviewing the accuracy of the cost-sharing calculations as part of the
review.
Comment: One commenter expressed concern regarding the potential
additional expenses incurred in connection with medical reviews, which
may erode provider participation in Medicaid/SCHIP managed care
programs due to increases in response burdens.
Response: The managed care measurement does not include medical
reviews; thus, provider participation in the managed care programs
should not be affected since providers would not need to send in
medical records.
Comment: One commenter expressed an interest in an opportunity to
participate in any discussions about the methodology and procedures for
calculating errors in managed care. Another commenter stated that the
guidance and instructions from CMS for the PERM pilot managed care
reviews would serve as a thorough and appropriate methodology for
managed care reviews.
Response: We invited comments on managed care in the proposed rule
and the October 5, 2005 interim final rule; the respective comment
periods provided the opportunity to participate in discussions about
the methodology and procedures for calculating errors. A number of
commenters availed themselves of those opportunities. We concluded that
it was best to base the managed care reviews and error calculations on
the general methodology used in the PERM pilot project.
3. SCHIP
Comment: One commenter stated that, in the event the State exceeded
its allotment, for every dollar the State used to provide information
to support the measurement of a SCHIP payment error rate (or, in the
instance of eligibility, actually makes such determinations), a dollar
would be taken away from providing insurance coverage to the target
population. The commenter used CMS' estimate of $620,000 per State to
argue that the State would need to cut 344 individuals from SCHIP (at
an average cost of $1,800 per individual per year) in order to comply
with the October 5, 2005 interim final rule.
Response: The cost estimate of $620,000 per State that we indicated
in the October 5, 2005 interim final rule is the Federal cost, not the
State cost, for PERM activities related to the medical and data
processing reviews of FFS claims. We estimated that the cost to submit
the information requested would not be significant, since States should
have this information on hand. Therefore, we do not believe that
complying with the PERM requirements would necessarily result in
termination of individuals from the State's program.
D. Appeals
Comment: Most commenters were concerned that the PERM regulation
does not provide a process for States to review the contractor's
findings for accuracy. Their comments include:
The rule should allow States to formally review all errors
using the documentation, including State reimbursement or billing
policies used by the contractor to determine errors, before a final set
of State-specific or national estimates are made;
States will need a report with error codes to evaluate
whether the error determination was appropriate;
The Federal contractor should be required to hold an exit
conference with the State before the findings are categorized as
errors; and,
CMS should revise the rule to clarify how and when the
contractor would be able to validate the errors and resolve any
discrepancies with the States.
Response: In responding to these comments, we have incorporated a
``difference-resolution'' process (a type of alternative dispute
resolution) in this interim final rule, which provides States with the
opportunity to review the RC's error findings and resolve instances
where the State believes the claims were not erroneously paid.
At least monthly, the RC will provide the State with a disposition
report. The disposition report includes the review determinations of
the medical and data processing reviews for each sampled claim reviewed
for the time period covered by the disposition report. The RC will make
available information on which it based its findings so that the State
can agree or disagree with the findings. A State can file a
disagreement with a finding by sending a written request to the RC. If
the RC agrees with the State, the RC will send the corrected findings
to the SC. The SC will then delete the error and recalculate the error
rate. If the State and the RC cannot resolve the difference in
findings, the State may appeal to CMS for final resolution.
Comment: Several commenters expressed their concern that it was
unclear who would make the final decision on the error determinations.
One commenter stated that an appeals process, consisting of a neutral
independent party to review potential errors that could not be mutually
agreed upon by the State and the national contractor, should be
incorporated in the final rule.
[[Page 51067]]
Response: This interim final rule provides that we will make the
final decision on claims that cannot be resolved between the RC and the
State.
Comment: One commenter stated that clarification is needed on
whether States have appeal rights. Since CMS did not indicate whether
States could appeal the contractor's error determinations, the
commenters believed that appeals would fall upon the providers when the
State implemented recovery efforts based on the contractor's findings
of overpayments. However, if a provider receives a notice of
overpayment and it is a small amount, the provider may not feel it
worthy of an appeal, but the error would nonetheless affect the State
error rate.
Response: States may work with the RC to resolve differences in
findings on claims that are determined by the RC to have been paid in
error (except for errors caused by no documentation). In addition, we
would reverse errors based on successful provider appeals. However,
whether or not a provider chooses to appeal an overpayment is a factor
that we believe should not be influential