[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]
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Part III
Department of Health and Human Services
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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
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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.
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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
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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
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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
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State-specific: Four error rates per
selected program (for 17 states) National: Eight error rates
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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
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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
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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 on error determinations or
error rates.
Comment: One commenter stated that CMS' description of the appeals
process, in which States provided any adjudication changes due to
successful provider appeals of the State's determinations, was unclear,
and that more clarification is required in order for States to
correctly submit the requested information. The commenter believed that
CMS was referring to sampled denials by the State agency that the
provider appealed. However, in those cases the commenter observed that
entire new claims were created (not adjustments to prior claims). The
commenter argued that, by regulation, providers must accept the payment
that Medicaid sends them; providers can only appeal notices of
recoupment of overpayment.
Response: Under our regulations at 42 CFR 447.15, providers
participating in the Medicaid program must accept, as payment in full,
the amount paid for the service by the State (plus any beneficiary
cost-sharing required to be paid by the beneficiary). Thus, the
provider cannot appeal the rate set by the State for each service.
However, this does not preclude a provider from appealing partial
payments, incorrect payments, or denied payments for services delivered
to Medicaid beneficiaries. As part of the PERM process, States will
provide the SC with information regarding the resolution of sampled
claims that enter their appeals process. As the commenter noted, in
many States an entirely new claim is created after a successful
provider appeal and is not associated with the original claim. If the
resolution affects the contractor's disposition on the sampled claim,
the error rate calculation will be revised to reflect that change.
Comment: Several commenters stated that CMS' response of adjusting
the State's error rate if a provider's appeal reverses the decision
would not be feasible for some States where the appeal process can take
at least 2 years. They asked how transaction errors would be handled
when a provider appealed an error and the State had an appeal process
that was not exhausted before the completion of the PERM audit.
Response: The contractor will adjust the error rate in instances
where the provider appeals the adjudication decision, the claim is
adjusted and it affects the review finding so long as this process is
completed earlier than 45 days before the error rate calculation. For
claims adjustments due to provider appeals that occurred after the
error rate calculation, the State may request that we adjust the
State's error rate and issue a revised error rate.
Comment: Several commenters expressed their concerns regarding
their ability to respond to provider appeals of overpayments identified
through PERM. The commenters noted that in their States' respective
provider appeal and repayment process, they could not rely on the
contractor's determination as the sole reason for collection of an
overpayment. Other commenters stated that the national contractor
should be responsible for defending its decisions related to all
provider appeals in the appeals process and that States should not have
to expend time and effort to defend the error findings of the national
contractor when State staff did not participate in the reviews.
Otherwise, they argued that the States would have to make their own
determinations, which puts additional burden on States.
Response: We have provided States with the opportunity to review
the RC's error findings on all claims and have these errors reversed if
the State can demonstrate the claims were correctly paid through the
difference-resolution process. This is the vehicle we intend the States
to use to participate in the reviews. For claims where error findings
stand, the State must recover the overpayment from the provider under
section 1903(d) or section 2105(e) of the Act. The RC will make
available to the State the information on which the RC made its
determination that a claim was improperly paid.
E. State Requirements
1. Collection of Information
a. State's Role
Comment: One commenter stated that it appeared that the information
collection notice listing State responsibilities in the Federal
Register (70 FR 50357) was different than the list of State
responsibilities sent to the State Health Officials by letter on
October 6, 2005.
Response: The October 6, 2005 letter addressed to State Health
Officials listed the information to be submitted by the sampled States
as outlined in the October 5, 2005 interim final rule. The letter did
not include the requirement that States provide ``other information''
that the Secretary may need to estimate error rates; we apologize for
this omission. In response to public comments regarding the burden of
information collection, we have reduced the burden by making one change
in this interim final rule. We have provided that States will no longer
need to submit the previous year's claims data. The contractor can use
the quarterly claims data to determine sample size and, therefore, we
determined that the collection of this information would be
superfluous.
Comment: One commenter asked whether CMS would require States to
establish data use agreements with each of the three national
contractors.
Response: States do not need to establish data use agreements with
the national contractors. The contractors will collect the required
information for us under the authority in the Medicaid statute at
section 1902(a)(6) of the Act and the SCHIP statute at section
2107(b)(1) of the Act. The contractors would be business associates of
CMS pursuant to 45 CFR 164.502(e), and would be required to sign a
business associate agreement as specified at 45 CFR 164.504(e). Our
contractors must abide by terms and conditions of these contractual
agreements, which incorporate HIPAA and Privacy Act provisions
requiring security measures and imposing limitation on use.
Comment: Several commenters were concerned with the open-ended
language used in describing the information States would need to
submit. Their comments included:
The use of the language ``that include but are not limited
to'' in conjunction with the language in 42 CFR 431.970(g) means that
CMS could require States to report State-specific payment error rates
for Medicaid and SCHIP. The commenter argued that Sec. 431.970 should
reflect CMS' intention
[[Page 51068]]
as expressed in the preamble to the October 5, 2005 interim final rule
that States would not be required to submit State-specific payment
error rates to CMS.
Section 431.971, paragraph (g) would require States to
provide ``other information that the Secretary deems necessary for,
among other purposes, estimating improper payments, and determining
error rates.'' The commenter believed that the rule was intended to
govern only estimating improper payments and error rates and that CMS
had other authority under Federal law to demand information necessary
for the administration of the Medicaid program. The commenter argued
that the phrase ``among other purposes'' is not within CMS' authority
under the IPIA, is unnecessary, and should be deleted.
Response: The phrase, ``that include but are not limited to,'' in
the information submission requirements enables us to collect
information that is not specifically listed so that we could include
any information that could help improve the process or would produce
more accurate error rates. ``Among other purposes'' is included to
allow us to use the information for other purposes if needed without
duplicating our request for information from the States.
Comment: One commenter stated that requiring its territory to meet
error rate standards without the territory having comparable access to
technology support is a serious challenge that places financial strain
on the territorial government.
Response: As stated in the August 27, 2004 proposed rule and the
October 5, 2005 interim final rule, we have excluded the territories
from payment error rate measurements.
Comment: Several commenters noted that for States to provide the
Federal contractors with the requested information would require
constant communication between the State and the Federal contractors.
The commenters recommended that CMS assure States that the Federal
contractors and States will have systematic and regular contact and
communication for the duration of the project. To facilitate the
communication, one commenter asked whether States planned to use staff
from the State's Program Integrity or Program Operations as the
designated contact persons.
Response: A State can designate, at its own discretion, State
contacts for PERM. Once the State contacts are established, the
contractors will communicate with the designated person regarding
specific State information that is needed for the program. We have
provided the Federal contractor and CMS contact information at http://www.cms-perm.org/
.
Comment: Several commenters stated that it would be difficult to
obtain approval for additional staff when PERM activities occur only
once every 3 years. They stated that even temporary positions are time
consuming to establish at the State level, and retention of
knowledgeable and experienced staff for the PERM project will not be
possible if they are utilized only once every 3 years.
Response: Since the Federal contractors will conduct the reviews
for managed care and FFS, the selected State will only provide the
required State policies and claims information, technical assistance on
the State's program, and the State's corrective action plan to reduce
improper payments. We believe the submission of information would not
require experts or experienced staff since the information that we are
requesting (for example, State medical policies and updates) should be
available in-house for submission. With respect to eligibility reviews,
staff for PERM will be needed longer than once every 3 years because
the process to measure one fiscal year takes approximately 23 months.
In the interim time before a State's next PERM measurement activities
(approximately 13 months), a State could use the staff for other
quality assurance initiatives, such as enhancing its MEQC and/or SCHIP
program integrity activities.
b. State Cost and Burden
Comment: Many commenters believed that the October 5, 2005 interim
final rule underestimates the amount of resources that will be needed
to comply with the proposed rule. Their comments include:
Experience with the PERM pilot project indicates that this
work will require more than 1,630 hours, with one commenter believing
that it would require 4,000 to 5,000 hours of State effort.
The estimation of 800 hours for the sole purpose of
submitting the quarterly stratified claims data (200 FTE hours per
quarter) leaves only 830 budgeted hours left for each State's program
to perform all other functions, which seems inadequate.
The estimates do not incorporate the appropriate sample
sizes, or account for the expanded scope of PERM or other tasks.
Response: We believe our estimates are accurate based on the
experience with the past PAM/PERM pilots. Under the national
contracting strategy, the Federal contractors will conduct the reviews.
We agree that the estimates do not account for the expanded scope of
PERM. The October 5, 2005 interim final rule only included estimates
for the FFS measurement.
Comment: Several commenters stated that the rule does not take into
account that each State will need to dedicate a substantial amount of
personnel and resources to ensure that the payment error rate is
accurate. The commenter requested that the rule be amended to consider
the resources that will be required for this task.
Response: We have provided estimates of State burden and cost in
this interim final rule with comment. However, ensuring that the FFS
and managed care payment error rates are accurate is not a State
requirement under PERM. Reviewing the RC's findings is the State's
option. We believe that our monitoring of the contractor's quality
assurance plan is sufficient to provide for accurate and reliable
findings. The quality assurance plan includes, at a minimum, that the
RC:
Become International Organization for Standardization
(ISO) compliant and registered within one year of being awarded its
contract;
Perform a second level review on each sampling unit
determined to have a payment error and on a 10 percent random sample of
all other sampling units.
Comment: Some commenters stated that CMS' cost and burden estimates
of the information collection and technical assistance requirement are
understated. Their comments included:
CMS assumes that the contractor will operate with minimal
State technical assistance. Because of the complexities of State
programs, the commenters believed that it will be difficult for a
Federal contractor to become proficient in evaluating how claims are
processed and reviewed in all 50 States without constant guidance from
the States.
This will require a substantial commitment of the States'
resources, from multiple program areas and from the States'
contractors, to support initial contractor start-up and follow-up with
contractors on State policies.
It is difficult to gauge the technical assistance that
States must provide because the contractor's capabilities are unknown.
Response: As previously stated, we have engaged, and will continue
to engage, a review contractor that has demonstrated knowledge and
experience with claims reviews. In this
[[Page 51069]]
way, we have tried to minimize the burden on States.
Comment: Some commenters believed that implementing the PERM
requirements as described in the October 5, 2005 interim final rule
will compete with State resources that are directed toward more
promising quality control projects. They stated the rule will create a
diversion of staff from program integrity and MEQC, which target known
areas of vulnerability, and could result in a decline in recoupments,
fewer ineligible recipients being detected, and fewer corrective
actions implemented.
Response: The purpose of the PERM program is to fulfill the
requirements of the IPIA. PERM does not serve as a waiver of other
Medicaid and SCHIP program requirements. States have a responsibility
to comply with those other requirements.
Comment: Since resources will be pulled from various State program
areas and from multiple State program contractors, the State will be
faced with a significant responsibility as it attempts to coordinate
the work efforts of multiple State and contractor staff that will be
interfacing with multiple CMS contractors.
Response: We believe that the need for State coordination will be
minimal for medical and data processing reviews since each Federal
contractor will contact the appropriate State staff members to obtain
the information requested for the PERM reviews. Also, we will be
coordinating efforts of the Federal contractors.
Comment: One commenter questioned whether the estimated State
burden of 200 FTE hours per quarter for submitting claims data is
adequate given that fiscal intermediaries must write new data programs
for each stratum and the data must be reviewed for quality. They argued
that due to the unique design of the data extracts, significant burden
may be placed on States if the Federal contractor requests multiple
data extracts because of incorrect data queries provided by the fiscal
intermediaries.
Response: The 200 hours per quarter is an estimate for the FFS
measurement. We anticipate the majority of the hours required for
submitting the claims data will be in the initial quarter of review.
Once the statistical program, which stratifies the claims information
for the first quarter, is created, that same statistical program will
be used for the subsequent quarters. The SC can provide technical
assistance to the State or fiscal intermediary so the State correctly
submits the quarterly claims information. We do not anticipate multiple
requests for data extracts. The SC will provide detailed instructions
and technical assistance to each selected State or its fiscal agent on
the stratification process. Through our experience with the past PAM/
PERM pilots, stratification will require minimal data programming since
we have based the strata on the MSIS categories. We do not believe this
will substantially burden the States or their fiscal agents.
Comment: Several commenters expressed concern about the 10 percent
cap on SCHIP administrative expenditures and recommended that CMS
consider exempting the cost of PERM-related SCHIP activities. One
commenter believed that the PERM-related SCHIP activity costs should be
100 percent federally-funded. A number of commenters asked whether the
enhanced Federal funding would be available for the State to meet this
obligation and some commenters requested a 90 percent enhanced match.
Other commenters asserted that providing full funding or increasing the
FFP to 100 percent would alleviate the burden on States for the hours
and resources necessary for the State to support this Federal
initiative.
Response: States will be compensated at the SCHIP match rate,
similar to other Federal audits. We are not considering exempting the
costs of PERM-related activities from the 10 percent cap on SCHIP
administrative expenditures.
Comment: Several commenters expressed concerns regarding the start-
up costs for PERM. Their comments included:
CMS should consider additional support to States during
the start-up phase; the initial time would be most onerous since States
are transferring a large body of information for medical reviews,
systems, and provider information to PERM contractors; and
Since CMS did not issue final plans for the PERM model
until recently, States have not received budgetary approval to support
this initiative. CMS should consider fully funding these costs until
such time that they can be included in an approved State budget.
Response: Our adoption of the commenters' recommendation to engage
a Federal contractor to estimate several components of the improper
payment measurement significantly reduces the cost and burden. States
will not pay for the Federal contractors. Only those States selected
for review each year will provide information necessary for the sample
selections and reviews, provide technical assistance as needed, and
implement and report on the corrective actions to reduce the error
rate. The States will be reimbursed for these activities at the
applicable Federal SCHIP match rate for SCHIP and at the Medicaid
administrative match rate for Medicaid. Our estimates of the burden and
cost of these responsibilities can be found in this interim final rule
at Section VI, Regulatory Impact.
We understand that States may need to receive budgetary approval in
advance and we have selected States for review in a manner that allows
for States to plan for the reviews.
Comment: Some commenters stated that the stratification of
quarterly claims data by service is a burden to the States. They
believed that the contractor will need substantially more data files
from the States than specified in the notice, which will increase the
burden to States. They stated that States should not be responsible for
the costs of formatting the data into required format and delivering
the data to the contractor. One commenter stated that to comply with
the minimum data sets, a State will have to pay their fiscal agents for
any and all work that amends the fiscal agent's scope of work.
Response: The SC will provide detailed instructions and technical
assistance to each selected State or its fiscal agent on the
stratification process. Through our experience with the past PAM/PERM
pilots, stratification will not require more information than we have
specified in the rule since we have based the strata on the MSIS
categories. We have determined that this will not substantially burden
the States or their fiscal agents.
Comment: One commenter stated that providing the universe of denied
claims data to the Federal contractor will be time-consuming and the
cost of this activity may not have been properly estimated since it was
not included in the PAM cost study.
Response: The strata were used in the PERM pilot and we must
include the denied claims in the universe. We incorporated the cost of
including denied claims in the universe when we estimated the impact on
States and do not believe that including denied claims would be a
burden to the States.
c. Information Collection
Comment: Several commenters noted that the resources needed by the
States to meet the information requirements vary considerably depending
on the level of detail required and expressed that it is critical that
States have a clear understanding of the CMS requirements, so that
States can more accurately assess the resources needed to support PERM.
Response: We have provided cost estimates and more specific details
[[Page 51070]]
regarding the methods and timeframe for the submission of information
in Section IV, Regulatory Impact, of this interim final rule.
Comment: One commenter stated that since only the States selected
for review are required to provide the information needed by the
Federal contractor, the body of the regulation should explicitly state
that States should not have to report any information if the State's
program has not been selected in the sample to be reviewed.
Response: The information collected through this rule applies only
to the PERM program and does not relieve States, whether or not they
are selected for the PERM program, of their responsibilities to report
to the Secretary for this or other purposes, as required under Medicaid
law at section 1902(a)(6) of the Act and SCHIP law at section
2107(b)(1) of the Act. Both Medicaid and SCHIP statutes require States
to provide information necessary for the Secretary to monitor program
performance. We do not anticipate situations that would require a State
to report information not related to its error rate in the off years to
satisfy PERM requirements.
Comment: One commenter cited the statement in the rule that CMS
will be reporting the error rates in the FY 2007 and FY 2008 PAR and
believed that States could be asked to submit all required information
delineated in the regulation whether or not the information will
actually be used for reporting in the PAR. The commenter asserted that
the body of the regulation should explicitly indicate that States
should not have to report any information if a program will not be
reported in the PAR.
Response: The information collected through the October 5, 2005
interim final rule will be necessary for producing the national
Medicaid and SCHIP improper payment estimates that will be reported in
the PAR. Otherwise, as noted above, we retain a statutory right to
collect information from States to effectively administer the Medicaid
and SCHIP programs.
Comment: One commenter argued that the timelines associated with
the States submitting the quarterly data are unclear and asked when the
quarterly claims data would be due. They believed there may not be
sufficient time for the Federal contractor to receive the data for the
last quarter of FY 2006 (July though September 2006) and then request
medical documentation, review the claims for processing errors, and
report on the findings by August 2007.
Response: The FY 2006 measurement timeline runs from October 2005
through August 2007. This timeline is aggressive; however, we believe
we will be able to report the FY 2006 error rates in August 2007.
Comment: Several commenters pointed out that CMS will direct the
Federal contractors on stratification issues; however, they argued that
States will also need to know these directions in a timely fashion so
they can properly submit their data in the required stratified format.
They asked whether the States would need to reformat their claims data
using standard headings before submission, since the States' data
systems are different.
Response: The stratification of FFS claims will be similar to the
classification system used in the PERM pilot, in which the claims were
stratified into the eight strata: (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, labs, x-rays; (7) fixed payments,
such as Medicare Parts A and B premiums; and (8) denied claims. States
can submit the claims information using the following formats: A
portable flat file, CD/DVD, or tapes. The SC will also work with the
States to determine the best format for each individual submission of
the stratified claims data.
Comment: Several commenters stated that the proposed rule would not
require States to provide the contractor with States' Medicaid
Management Information System (MMIS) (the claims processing system for
the State) data and that this would add substantial State staff
burdens. They recommended that the contractor use data by extracting
Medicaid Statistical Information System (MSIS) data (which summarizes
historical claims payment information from the different MMIS systems
and stores it in a centralized CMS database) that the Federal
government already collects, to avoid duplication with information
already reported by the States.
Response: States are not required to submit MMIS data to the
contractor, but rather the adjudicated claims from the previous quarter
stratified into eight strata. The MSIS data that we have in-house are
too old to produce meaningful data on which States could base effective
corrective actions. Also, we note that there is no similar national
sampling framework which could be used to process SCHIP claims.
Comment: One commenter stated that CMS should provide a
``preprint'' for the States to fulfill PERM requirements in order to
minimize the response burden on the States in this regard.
Response: States are not required to submit State plan amendments
for PERM purposes. Therefore, a preprint is not necessary.
d. Repricing
Comment: One commenter stated that the re-pricing of claims which
were determined by the national contractor to have been underpaid or
overpaid would require the contractor to copy all medical records
associated with the claims reviewed and provide them to the States.
Response: The repricing of claims will be performed by the national
contractor during the data processing reviews or through other
available State information. If the contractor cannot determine a
reprice, the contractor will provide the States with the appropriate
information (for example, billing code, place of service) for the
States to use to reprice the claim.
Comment: One commenter stated that in a particular State, providers
have a year to submit valid claims and 18 months to adjust their
claims.
Response: We recognize that States have varying time period for
adjustments. In order to have a consistent timeframe and to allow for
timely completion of the error rate estimates, only adjustments made to
claims within 60 days of adjudication or payment will be considered in
the error rate calculation.
Comment: One commenter asked whether States can factor in both
provider and Department of Medical Assistance adjustments in the re-
pricing of claims.
Response: In this context we intend ``re-pricing'' to mean the
Federal contractor's determination of the correct payment amount
(according to the State's payment rate) that should have been paid for
a claim so that the Federal contractor can calculate the amount of
improper payment. The Federal contractor will determine the correct
payment amount during the data processing review or through other
available State information. If the contractor is unable to determine
the correct payment amount, the contractor will contact the state for
re-pricing.
Comment: One commenter asked whether the re-pricing of errors
identified by the Federal contractor would provide an opportunity for
each State to review the Federal contractor's work and for the State to
dispute a potential error and provide more information. The commenter
argued that this review by the State is necessary
[[Page 51071]]
considering the Federal contractor's work is final and that the State's
review is a crucial component of obtaining a valid national error rate
that States can agree with and support.
Response: The repricing of claims is not meant to occasion a review
of the national contractor's findings. However, the re-pricing of
errors will offer the State an early indication that there may be an
error determination by the contractor. States will have the opportunity
to review the contractor's determination of the claims and resolve
differences through the difference-resolution process.
2. Technical Assistance
Comment: Several commenters noted that section IV of the October 5,
2005 interim final rule stated that selected States would provide
technical assistance to the CMS contractors as needed to ``allow the
contractor to fully and effectively perform all functions necessary to
produce the program error rates.'' They argued that if the provision of
technical assistance by the States is required or expected, those
expectations should be expressed more clearly.
Response: The States must provide technical assistance to assist
the RC in conducting the medical and data processing reviews. For
instance, the State may need to explain or clarify unusual policies or
procedures, and the State may need to provide training on its MMIS or
claims processing system.
Comment: One commenter observed that data processing reviews will
be an additional cost to States because the IT staff would have to
provide manual and technical assistance to the federal contractors. The
IT staff would have to interpret fields for the Federal contractor's
process reviews and provide answers in a timely manner.
Response: We agree that the State must provide technical assistance
to the contractor for the processing reviews. However, the data
processing reviews will most likely be performed on-site, which will
allow the State to work directly with the contractor when questions or
issues arise. We believe this assistance provided to the contractor
will not result in additional costs and estimate that the burden will
be minimal.
3. Corrective Action Plans
Comment: Several commenters stated that the October 5, 2005 interim
final rule contains little detail on the required corrective action
plans, such as what is required in the plans and how they will be
monitored and evaluated. One commenter stated that CMS should clarify
the reporting requirements for corrective action, including the source
and the consequences of the corrective action components. Another
commenter stated that CMS should be required to enter into a dialogue
with States to identify the components of model corrective action plans
so that these can be refined and agreed upon before the PERM
information collection process begins.
Response: States will submit a report to CMS. The corrective action
plan format should include the following:
Data analysis--an analysis of the findings to identify
where and why errors are occurring.
Program analysis--an analysis of the findings to determine
the causes of errors in program operations.
Corrective action planning--steps taken to determine cost-
effective actions that can be implemented to correct error causes.
Implementation--plans to operationalize the corrective
actions, including milestones and a timeframe for achieving error
reduction.
Monitoring and evaluation--to assess whether the
corrective actions are in place and are effective at reducing or
eliminating error causes.
States will monitor implemented corrective actions to determine
whether the actions are effective and whether milestones are being
reached.
Comment: Several commenters stated that it would be impossible to
determine the costs and resources that would be needed to comply
without clarifying the corrective action requirements. They stated that
if States prepare and implement corrective action plans, these plans
could constitute a significant workload beyond the 500 hours identified
in the supporting statements for the information collection notices
published July 22, 2005 (70 FR 42324) and August 26, 2005 (70 FR
50357). For example, the development and implementation of a provider
outreach program could entail considerable staff time.
Response: The corrective action requirements are to evaluate the
findings from the PERM reviews, plan and implement actions to be taken
to address the major causes of identified payment errors, and monitor
those actions to evaluate their effectiveness on error rate reduction.
The State may have to discontinue corrective actions that are
determined to be ineffective and implement new actions. All of this
information will be contained in the State's corrective action plan.
CMS intends such plans to be carried out within the restrictions of the
ongoing program.
Comment: One commenter believes that the rule did not describe how
the corrective action plans would improve the national error rate over
time. The commenter believes that by the time the States were re-
sampled, their corrective action plans for the initial errors found
would be stale. The commenter argued that CMS should allow States
flexibility in developing corrective action plans in order for these
plans to be of maximum use to the States.
Response: We agree. We believe that it will take time for the
implementation of corrective actions to impact States' error rates. We
also agree that States should have flexibility in developing their
corrective action plans.
Comment: One commenter asked what would be the appropriate
corrective action if a provider miscoded a claim or failed to
adequately document a service in his or her medical records. The
comment asked what would be expected by CMS beyond education of that
provider's staff.
Response: We believe that determining the appropriate corrective
actions to correct error causes is a State action. If, in this
instance, provider education is working to reduce the incidence of
errors, the State may determine that actions beyond this are not
needed. However, if the education is not effective, we would expect the
State to develop new corrective actions to address the problem.
Comment: A commenter asked whether corrective actions would be
required for all errors, or whether CMS planned to set a percentage
point or dollar threshold at which corrective actions would be
required. Another commenter asked at what point States that had low
error rate estimates would be exempt from submitting a corrective
action plan or participating in PERM.
Response: Corrective actions will be required from each State being
measured, as will PERM participation. States should target corrective
actions to the major causes of errors identified by PERM in order to
improve payment accuracy. ``Major causes'' are not necessarily tied to
a percentage point or dollar threshold and, therefore, we are not
promulgating such thresholds. In planning corrective actions, States
can estimate the cost-effectiveness in evaluating what actions to
implement.
Comment: The commenter believed that States with low error rates
should be given the same consideration offered through MEQC--to develop
and operate pilot projects that identify and resolve payment and
eligibility issues that have improved program performance and
administration. The commenter argued
[[Page 51072]]
that Medicaid pilot projects allow States to concentrate on identified
problems and are a much better use of limited resources.
Response: We are required to report Medicaid and SCHIP error rates
by the IPIA and must use a standard measurement process to ensure the
reliability of those rates. Furthermore, the improper payments for
medical and processing reviews in FFS and managed care will be measured
by the Federal contractor, so States do not need to conduct pilot
programs.
4. Recoveries
Comment: Some commenters were concerned about recoveries of
overpayments. Their comments and suggestions are as follows:
Claims with only ``technical errors'' that do not affect
payment should not be disallowed;
The date of discovery of overpayments should be the date
that the State agency confirms that an error had occurred;
The Federal share of the overpayments should be offset by
the amount of underpayments identified by the review, and overpayments
should be returned to CMS within 60 days after the actual recovery of
the overpayments and not 60 days after the overpayment is identified;
CMS should not be permitted to offset any alleged
overpayments until a State's appeal has been resolved;
Any offset amount should be further reduced by an agreed-
upon factor to represent the actual claims adjustments that were made
but were not included in the payment error rate methodology that would
inflate or exaggerate the amount of overpayments made;
Identified overpayments should not be subject to the 60
day rule until such time that the State agreed that an overpayment had
occurred or administrative remedies available to the State had been
exhausted; and
It is problematic that States would be required to return
Federal funds even when recoupment on claims proved impossible (for
example, when a provider was terminated or could not be located).
Response: In the regulation text at the conclusion of this
preamble, we have cross-referenced the recoveries provisions in
existing Federal regulations for the convenience of the reader. As
previously stated, recoveries of overpayments are governed by the
existing statutory and regulatory requirements (section 1903(d)(2) of
the Act; 42 CFR part 433, subpart F; and 42 CFR part 457, subparts B
and F). We are not proposing to amend these regulations and, therefore,
are not accepting recommendations for revisions or exceptions to its
provisions.
Comment: Some commenters discussed possible alternatives to
recoveries in the PERM measurement. Their comments included:
CMS should not require States to repay the Federal share
of erroneous payments identified via PERM reviews;
It would pose significant problems to States' budgets and
accounting systems if CMS applied States' error rates to the total
expenditure of the States' Medicaid programs and sought recoupment at
the universe level, rather than on specific claims found to have been
paid inaccurately;
The corrective action plan to reduce the error rate is the
intended output of this study, not recoveries;
If CMS pursues an alternative payment recovery from the
States, States should be provided an opportunity to review, comment,
and if necessary, appeal CMS findings in accordance with existing
Federal regulations; and
CMS could adopt an error threshold similar to existing
standards for the Single Audit, which requires a dollar threshold of
$10,000 for a reportable condition to be found.
Response: As previously stated, recoveries of Federal funds are
governed under current law and regulation. This interim final rule with
comment does not seek to make revisions, so we are not accepting these
recommendations.
Comment: One commenter has found strict adherence to the wrong date
of service policy results in recoupment of funds for which the provider
cannot rebill because the timeframe had ended for filing a new claim
for the service. The State has allowed a discrepancy in dates in past
audits if the service or procedure is only a day off and is not
duplicated in the claims history for that timeframe.
Response: We will follow the State payment policies to determine
how the State deals with incorrect dates of services. However, any
special payment conditions, such as special treatment of dates of
service, should be stated in the State policies submitted to the
Federal contractor.
F. Regulatory Impact Statement
Comment: One commenter stated that the cost estimates for the
reviews, in their entirety, seem exorbitant. They argued that it would
use resources that would be better spent on the provision of services
for recipients rather than for a review that will recoup possibly
significant funds from the State and will ultimately lead to smaller
budgets for the administration of services.
Response: The cost estimate in the October 5, 2005 interim final
rule is for the Federal contractor to review FFS claims in Medicaid and
SCHIP. There, we estimated the FFS review cost to be $11.16 million per
program, per year. These costs are the Federal costs to fund the
contractor; the States would not pay for the Federal contractor. In the
October 5th rule, we estimated the State's cost to be $1,524,506 total
computable ($42,348 per State per program) to submit information needed
to review Medicaid or SCHIP FFS claims.
We believe that we have reduced the burden on States from the
proposed rule by engaging Federal contractors to conduct the medical
and data processing components of PERM review and by reviewing these
components in a State once every 3 years. Regarding the recoupment of
funds from States, this regulation does not supersede current law and
regulations governing the recovery of misspent funds.
Comment: Several commenters stated that the amounts of State time
and resources required for the reviews have been underestimated. Their
comments included:
Many States that participated in the PERM pilot process
strongly believed that the burden and cost estimates should be higher;
CMS underestimated the time and cost required to obtain
medical records from providers;
The CMS rule associated with formulating cost estimates
was based on incomplete data; CMS utilized these rules to exclude time
and effort estimates for both eligibility and managed care claims
reviews; and
CMS' impact estimate on States ignored the resources that
would be needed to develop, submit, monitor, and evaluate the required
corrective action plans.
Response: We based the cost estimates on the information provided
by the States participating in the PAM Year 2 pilot, and believe that
our estimates for States to provide requested information and technical
assistance to the Federal contractor are reasonable. The October 5,
2005 interim final rule did not estimate the costs for measuring
improper payments in managed care and eligibility because we postponed
issuing a final methodology on the measurement of these components and
invited further public comments. We have included the estimate for the
costs of providing information for managed care, conducting eligibility
reviews, and developing a corrective action plan in
[[Page 51073]]
this interim final rule. Estimates of this burden and these costs are
indicated in section VI of this interim final rule. However, we believe
that the costs of monitoring and evaluating the corrective plan are
part of the States' overall operating procedures and, therefore, we did
not include these costs in our estimates.
Comment: One commenter argued that States would incur additional
undocumented costs to meet PERM requirements. At a minimum, CMS should
require all 17 initial FFS States to track all attendant costs for
staff time and effort in FY 2006. They argued that final PERM
regulations should not be issued until a more realistic cost baseline
can be ascertained and a revised regulatory impact assessment
performed.
Response: We have revised the estimated program costs, including
State costs, based on a rate of pay that incorporates fringe and
overhead costs. The revised estimates have been included in section V
of this preamble. Based on our experience in the past PAM and PERM
pilot projects, we believe our estimates are accurate and we do not
anticipate that the State burden will be more than what is specified in
this rule. We will not adopt the recommendation to require States to
track costs for staff time and effort because we limited the
information collection requirements to the minimal information needed
to measure improper payments. Collection of more information would
place an additional burden on States.
Comment: One commenter stated that although CMS indicated in its
response to comments in the October 5, 2005 interim final rule that it
has analyzed the cost and burden on providers as part of this rule and
determined that there would not be a significant impact, no such
analysis appears anywhere in the October 5, 2005 interim final rule.
Response: We described our reasoning for determining that there
would not be a significant cost or impact on providers on pages 58274
and 58275 of the October 5, 2005 interim final rule. As we stated in
the October 5, interim final rule's regulatory impact statement, a
request for medical documentation to substantiate a claim for payment
is not a burden on individual providers nor is the request outside the
customary and usual business practice of Medicaid and SCHIP providers.
Since not all States will be reviewed every year, it is highly unlikely
that a provider selected to provide supporting documentation will find
it burdensome or incur significant additional cost.
Also, such information should be readily available and the response
should take minimal time and cost since the response requires gathering
the documents and either copying and mailing them or sending them by
facsimile. States are free to reimburse their providers for the cost of
submitting this information. Thus, the request for medical
documentation from providers is within the usual practice of a provider
who accepts payment from an insurance provider, whether it is a private
organization, Medicare, Medicaid or SCHIP, and should not have a
significant impact on the provider's operations.
Comment: One commenter stated that whether or not the RFA requires
CMS to conduct an impact analysis, States that have never participated
in the PAM or PERM pilots should have an opportunity to review the
analysis to which CMS referred so that these States could make their
own determinations of potential response burden on providers.
Response: We stated in the October 5, 2005 interim final rule that
we believe that the impact on providers will be minimal. States are
free to make their own determinations by conducting their own impact
study.
G. Anticipated Effects
Comment: The commenter agreed that the anticipated effects of the
rule would not be evident for several years. The PERM process is a
large and labor-intensive activity that will have high costs in paying
contractors and in the use of States' staff for information-sharing and
liaison activities. These costs may ultimately have a very large,
negative impact on the State should the review show a high error rate.
Response: In meeting the requirements of the IPIA, the purpose of
PERM is to measure improper payments and identify vulnerabilities in
State programs, which States can address in their corrective action
plans. We believe that this effort will improve the States' program
performance. Insofar as the process discloses overpayments, both the
Federal and State shares can be recouped from providers.
IV. Provisions of This Interim Final Regulation
We published an interim final rule on October 5, 2005 because we
significantly revised the approach we originally proposed to implement
the IPIA. Based on recommendations received in response to the August
27, 2004 proposed rule, we adopted the recommendation to engage a
Federal contractor to estimate improper payments in Medicaid and SCHIP
for reviews of adjudicated FFS and managed care claims. We also adopted
the recommendation to review a subset of States each year rather than
measuring every State every year. However, we continued to propose that
the States selected for review in any given year would measure improper
payments based on eligibility reviews rather than delegating this
responsibility to a Federal contractor. The national contracting
strategy significantly deviated from the provision in the proposed rule
so the October 5, 2005 interim final rule provided the opportunity for
further public comment. We also specifically invited comments on
methods for estimating improper payments for managed care and program
eligibility.
In the preamble, we describe the national contracting strategy for
review of FFS and managed care claims and list the States selected for
Medicaid review in FY 2006 through FY 2008. We also describe the State
eligibility review requirements. Additionally, this interim final rule
with comment period--
Retains the State requirements for information submission
laid out in the October 5, 2005 interim final rule;
Adds a new information collection from States in order to
measure improper payments in managed care; and
Adds a new section on the State requirements for measuring
payment errors through eligibility reviews and providing this
information to CMS.
Descriptions of the measurement process for managed care and
eligibility improper payments are set forth below.
1. Managed Care
In commenting on the proposed rule, States objected to conducting
the reviews, including managed care reviews. We invited further
comments in the October 5, 2005 interim final rule on methods for
measuring managed care claims in Medicaid and SCHIP. Commenters
recommended that we measure: (1) Whether the individual was eligible
when payment was made; and (2) whether the State's payment to the
managed care organization was made according to State policy and in the
proper amount. An additional consideration would be whether any
applicable cost-shares were correctly assessed.
For this interim final rule, we determined that the Federal
contractor will measure improper payments in Medicaid and SCHIP managed
care by:
Measuring managed care improper payments in the same
States that are selected in any given year for FFS and eligibility
reviews; and
[[Page 51074]]
Using a claims-based sample to determine whether the
beneficiary was enrolled in the Medicaid or SCHIP program and whether
that State's capitation payment to the managed care organization was
made correctly according to the State's policies.
We are limiting the review of managed care enrollment to program
enrollment since other factors such as eligibility for the plan will be
determined as part of the program eligibility reviews. We are not
adopting the recommendation to review whether cost-shares were
correctly assessed since these payments do not offset or otherwise
affect the State's payment to the plan.
The Federal contractor will measure managed care in the same year
that a State is selected for FFS reviews in Medicaid and SCHIP.
Beginning in FY 2007 each State will be measured for managed care
payment errors Medicaid and SCHIP, once and only once every 3 years. We
will calculate a separate managed care error rate for each State under
review and will merge the State's managed care and FFS error rates
together with the State's eligibility error rate to produce State-
specific error rates for Medicaid and SCHIP. The following is an
overview of the managed care measurement process.
a. Claims Universe
For each program, the universe will consist of all capitation
payments made on behalf of beneficiaries in Medicaid or SCHIP.
Capitation payments are payments made by the State to a managed care
plan for a set fee that is based on a pre-determined agreement rather
than on the actual cost of care and services delivered. Excluded from
the universe are FFS payments to the managed care plan on behalf of
managed care beneficiaries (for example, services such as childbirth);
these payments instead will be subject to sampling in the FFS review.
b. Sample Size
For the managed care error rate measurement, we estimate an annual
sample size of 500 claims per State per program will be reviewed. This
estimate is based on the experience in the past PAM and PERM pilots.
Since the variances for capitation payments are low, we believe that
this estimated sample size will allow us to produce a State-level error
rate that meets 3 percent precision level at a 95 percent confidence
interval level.
c. Managed Care Review Process
The review of managed care payments will be similar to the managed
care data processing reviews under the past PAM and PERM pilots. The
review will determine whether the capitation payments are correctly
paid based on the information available from the claims processing
system or the system that processes vouchers for payment to a managed
care organization. We anticipate the managed care data processing
reviews will be conducted on-site, along with the FFS claims data
processing reviews. Managed care claims are not subject to medical
reviews.
The purpose of the managed care review is to verify that:
The beneficiary was enrolled in the Medicaid or SCHIP
program;
The capitation payment was made in accordance with State
policies; and
The capitation payment was made in the correct dollar
amount.
The review contractor will identify and report on errors found
through these reviews and the statistical contractor will calculate and
report to CMS State-specific error rates, which will be used to
determine a national managed care error rate for Medicaid and SCHIP.
2. Eligibility
States objected to conducting eligibility reviews primarily because
these reviews substantially duplicate the eligibility reviews required
by the Medicaid Eligibility Quality Control (MEQC) program as well as
the cost to operate a separate eligibility measurement program. We
invited further comment in the October 5, 2005 interim final rule on
methods for measuring eligibility in Medicaid and SCHIP. We stated in
the October 5 interim final rule that it could be possible that States
sampled for Medicaid and SCHIP FFS and managed care reviews may be
required to conduct eligibility reviews in a manner similar to the
provisions set forth in the proposed rule. We have responded to
specific comments in this second interim final rule, and have set out
the requirements for eligibility reviews in the regulation text
following.
As we stated in the October 5, 2005 interim final rule, we
assembled an eligibility workgroup comprised of CMS and OIG (which
acted in an advisory capacity) within the DHHS, OMB, and two State
representatives to review public comments and recommend a method for
measuring program eligibility. The eligibility workgroup reviewed
Federal Medicaid and SCHIP laws, regulations, and policies and public
comments from the proposed rule and October 5, 2005 interim final rule.
Considering the workgroup's recommendations and public comments, we
have determined that:
States will administer the Medicaid and SCHIP eligibility
reviews.
In response to comments regarding the relationship of the
FFS and managed care reviews to eligibility, we have provided that
States will measure eligibility improper payments in the same fiscal
year that they are selected for FFS and managed care reviews in
Medicaid and SCHIP;
In response to comments regarding the barriers to
reviewing eligibility at the time of service, States will sample
individual beneficiaries, rather than claims or capitation payments.
In response to comments regarding duplication of effort
and costs, we have stated that we will consider recommendations.
In response to comments regarding measuring progress in
serving eligible people, the eligibility measurement will review two
eligibility samples. One sample will include beneficiaries enrolled in
Medicaid or SCHIP (that is, active cases) to ensure that the person was
eligible. The other sample will include denied and terminated cases
(that is, negative cases) to ensure that eligible persons are not
erroneously denied or terminated from Medicaid or SCHIP.
In response to comments regarding application of the
administrative period to account for a time period in which States
react to case changes, we have provided that States will review
eligibility as of the latest action taken by the State to determine
eligibility. States will review Medicaid and SCHIP eligibility in the
month of (1) application, (2) redetermination, or (3) as of the last
action taken by the State for all other cases (providing the last
action was taken within 12 months of the month the case is sampled;
otherwise States review eligibility as of the month the case is
sampled). Since the review will focus on the month in which the State
took an action on a case, application of the administrative period is
not necessary.
Based on public comments regarding dropping cases when
eligibility cannot be determined, we have provided that States can
designate these cases as ``undetermined.'' Though a payment error rate
will not be associated with these cases, the State will report and CMS
will track the percentage of ``undetermined'' cases.
In response to comments regarding potential conflicts of
interest, we have provided that the eligibility reviews must be
conducted by a State agency independent of the State agency responsible
for Medicaid and SCHIP
[[Page 51075]]
policy and operations (that is, is functionally and physically
separate) including making the program eligibility determinations.
The State must, at a minimum, produce an error rate within
a 3 percent precision level at a 95 percent confidence interval level.
The procedures for eligibility review in this interim final rule
differ from those in the August 2004 proposed rule in the following
ways:
Under proposed Sec. 431.982(a) and Sec. 431.986(a), the
proposed rule would have required an eligibility review on all sampled
claims. This interim final rule at Sec. 431.980(a) and (b) revises the
review process to sample individual beneficiary cases rather than
claims or capitation payments made by the State.
Section 431.982(a)(2)(i) and (ii) of the proposed rule
would have required the reviewer to verify eligibility as of the day or
month the claimed service was provided.
Under this interim final rule at Sec. 431.980(d)(i) and (ii),
States will review eligibility as of the State's most recent action to
grant eligibility based on an eligibility determination at application
or at redetermination, and, for all other cases, the most recent action
providing that action is within 12 months of the month the case is
sampled; otherwise States will review eligibility as of the sample
month.
Under Sec. 431.982(a)(2)(iii), the proposed rule stated
that the eligibility review would have followed the MEQC procedures
established by sections Sec. 431.812(e)(1) through (e)(4), except that
the States would not apply the administrative period. This interim
final rule changes the focus of the reviews to eliminate the need for
the administrative period and does not otherwise rely on MEQC
procedures.
Section 431.982(a)(2)(iv) of the proposed rule had
included reviews of Medicaid recipients who receive Supplemental
Security Income (SSI) in certain States where the Social Security
Administration (SSA) determines Medicaid eligibility. Based on comments
to the proposed rule and the October 5, 2005 interim final rule, this
interim final rule at Sec. 431.978(d)(1)(i) excludes these cases from
review in these States. In addition, we are excluding Title IV--E
adoption assistance and foster care cases that receive Medicaid from
review in all States.
Under Sec. 431.982(a)(2)(v), the proposed rule would have
required States to take appropriate action on individual error cases
that could affect eligibility. This interim final rule deletes this
provision, since Sec. 435.916(c)(1) of our rules already requires a
prompt redetermination of eligibility when the agency learns of changes
that may affect eligibility.
a. Eligibility Universe
The Medicaid and SCHIP universes will consist of both active cases
(individuals enrolled in the program) and negative cases (individuals
denied or terminated from the program). For purposes of the PERM
reviews, we define ``case'' as an individual; not as families or groups
of more than one person. For Medicaid active cases, the universe will
include all individuals enrolled in the program in the sample month.
The universe will exclude SSI recipients in States with an agreement
with the SSA whereby, under section 1634 of the Act, SSA determines
Medicaid eligibility for SSI cases. The universe also will exclude, in
all States, Title IV-E foster care and adoption assistance cases that
receive Medicaid, due to the complexities of obtaining information for
verifying eligibility, which is often subject to strict parameters of
confidentiality (for example, sealed adoption records). Finally, States
shall exclude Medicaid cases that are under active fraud investigation
from the universe; if these cases cannot be identified before sampling,
States can drop these cases from review.
For the Medicaid negative cases, the universe will include all
individuals denied or terminated in the sample month. Individuals
denied due to incomplete applications or terminated because they did
not complete the eligibility redetermination process according to State
policy will be excluded.
The SCHIP universe also will consist of both active and negative
cases. For SCHIP active cases, the universe will consist of all
individuals enrolled in the program for the sample month. States shall
exclude SCHIP cases that are under active fraud investigation from the
universe; if these cases cannot be identified before sampling, States
can drop these cases from review. There are no other SCHIP cases
excluded from the SCHIP active universe, because SCHIP eligibility is
not determined by a Federal agency, such as Medicaid eligibility for
SSI cases in certain States.
For SCHIP negative cases, the universe will consist of all
individuals denied or terminated in the sample month and will exclude
individuals denied due to incomplete applications or terminated because
they did not complete the eligibility redetermination process according
to State policy.
b. Sample Selection and Sample Size
Medicaid and SCHIP cases in the active universe will be stratified
into three strata:
Stratum 1--Applications approved in the sample month;
Stratum 2--Cases where eligibility was redetermined in the
sample month; and
Stratum 3--All other cases.
Each month, an equal number of cases will be selected from each
stratum. Negative case action samples will not be stratified in either
program.
For active case reviews, we estimate an annual sample size of 501
cases will be reviewed per State per program. We believe this estimated
sample size will produce error rates within a 3 percent precision level
at a 95 percent confidence interval level for the State. However, the
annual sample size may vary and a State may have a sample that contains
more than 501 active cases in order to meet this statistical
requirement. The sample will be selected each month. We estimate that a
State will select and review approximately 42 cases each month.
If not excluded from the universe, States shall drop a case from
review when the case is currently under an active fraud investigation.
``Active fraud investigation'' means a beneficiary's name has been
referred to the State Medicaid (or SCHIP) Fraud and Abuse Control Unit
or similar investigation unit and the unit is currently and actively
pursuing an investigation to determine whether fraud was committed by
the beneficiary. States must drop these cases from the eligibility
reviews because we believe that, in most cases, payments are not being
made directly to the beneficiary.
The State will classify any case in which eligibility cannot be
conclusively verified as ``undetermined.'' These cases will not be
considered eligible or ineligible when calculating the error rate but
the number and rate of undetermined cases will be noted in our
reporting of the error rates.
For negative case reviews, we estimate the annual sample size will
be 200 cases per program. As above, we believe this should produce an
estimate that is within a 3 percent precision level at a 95 percent
confidence interval level. However, the sample size may vary and a
State may have a sample that contains more than 200 negative cases in
order to meet this statistical requirement. The sample will be selected
each month. We estimate that a State will select and review
approximately 17 cases each month.
[[Page 51076]]
c. Eligibility Review Process
We determined that a State will review program eligibility in the
year it is scheduled for review for FFS and managed care improper
payments. Based on recommendations from public comments and the
eligibility workgroup, we developed a review process that is less
burdensome than the review requirements under the proposed rule and
that follow State procedures. We have designed the review process to
minimize the effect on States regarding cost and burden.
Finally, to provide objective review findings and error rate
calculations, we adopted the recommendation that the eligibility
reviews be conducted by a State agency which is independent of the
State agency making the program eligibility determinations.
In preparation for the PERM measurement, we will provide the
selected States with advance implementation guidelines attached to a
State Health Official letter to all States being measured in FY 2007.
Essentially, States will conduct eligibility reviews on a sample of
active cases that are stratified as follows: (1) Current applications;
(2) current redeterminations; and (3) other cases. States will measure
eligibility as of the latest action taken by the State to determine
eligibility for Medicaid and SCHIP (providing the action for all
``other cases'' is within 12 months of the sample month; otherwise,
States will review eligibility as of the sample month). We expect
eligibility can be established primarily through desk reviews of the
case records, although there are instances when States would be
required to verify information (for example, information missing from
the file, outdated, or likely to change).
The review process will apply to both Medicaid and SCHIP cases.
However, for all SCHIP cases, the reviewer will further verify that the
case is not eligible for Medicaid by following the SCHIP requirements
at 42 CFR 457.350 to screen SCHIP applicants for potential Medicaid
eligibility.
d. Eligibility Error Rate Calculation
The State will determine:
State-specific case and payment error rates for active
cases;
State-specific case error rates for negative cases; and
The number of undetermined cases in each sample (with
associated paid claims for each case) and the total amount of payments
for all undetermined cases in the active case sample.
These rates will be computed using the following general
calculations:
[GRAPHIC] [TIFF OMITTED] TR28AU06.000
Once the State reports the State-specific eligibility rates, the
national contractor will combine the State specific eligibility error
rates to produce national eligibility error rates for each program.
e. Reporting
For purposes of eligibility information collection and reporting,
States will submit to CMS and its contractors:
A sampling plan for approval 60 days prior to the
beginning of the fiscal year selected for review. States selected for
the measurement for FY 2008 and beyond will submit a sampling plan by
August 1. States selected for the FY 2007 measurement will submit the
sampling plan by November 15, 2006;
A monthly sample selection list that identifies the cases
selected for review, to be submitted each month and before commencing
the reviews;
Summary eligibility findings on all case reviews to be
submitted by July 1 following the fiscal year under review; and
State-specific case and payment error rates for active
cases, case error rates for negative cases, the number and amount of
undetermined cases in the samples, and the total amount of payment from
all undetermined cases in the active case sample to be submitted by
July 1 after the end of the fiscal year under review.
3. Difference Resolution Process
We received many comments on the October 5, 2005 interim final rule
regarding State opportunity to review the contractor's findings on FFS
and managed care claims. In response to these comments, we developed a
difference-resolution process to provide States with the opportunity to
review the RC's reconsideration of its error determinations (on its
medical and data processing reviews) and to resolve the differences in
findings.
On at least a monthly basis, the RC will provide each State under
review with a disposition report. This report includes the review
findings of the medical and data processing reviews for each FFS claim,
and the findings of the data processing reviews for each managed care
claim completed that month. Towards the end of the review period, the
RC will provide these disposition reports on a bi-weekly basis to the
State. Information on which the RC based its findings will be made
available to the State so that the State can determine whether it
agrees with the findings.
A State can notify the RC in writing that it has a difference in
finding on a claim in error. To support the State's position that the
claim was properly paid, the State: (1) Must have a factual basis for
filing the difference on any claim; and (2) must present valid evidence
to support its position that the claim was correctly paid. If the RC
agrees with the State, the error will be adjusted or backed out of the
error rate calculation. The difference resolution process is the only
means by which the State and the Federal contractor can consider
differences in findings and reverse the RC's error findings.
For cases in which the State and the RC cannot resolve the
differences in findings, the State may file a written appeal to CMS for
final resolution. However, for CMS to review the claim, the difference
in findings must be in the amount of $100 or greater. The State must
provide CMS with the specific reasons and necessary documentation to
support its determination that the claim was correctly paid as well as
the review contractor's justification for upholding its initial error
finding. CMS will make the final determination on the sampled claim.
Claims with ``no documentation'' errors or ``insufficient
documentation''
[[Page 51077]]
errors due to the provider not submitting the requested information
will not be considered in the difference resolution process because all
medical documentation must be provided within the 90-day timeframe. We
have provided an opportunity for the States to participate in ensuring
that the provider submits the necessary documentation within the 90-day
timeframe; and the difference resolution process is not intended to
extend this timeframe for the collection of medical documentation.
Additionally, we allow for adjustments to claims to be made pending
completion of the reviews; the difference resolution process is not
intended to extend the timeframe for adjustments. Therefore, subsequent
adjustments to claims will not be considered as a valid reason to
reverse findings on claims. All differences in findings between the
State and the RC on any claim not resolved in time to be included in
the error rate calculation will be considered as errors for meeting the
reporting requirements of the IPIA. However, at State request, we will
calculate a subsequent State-specific rate that reflects any reversed
disposition of the unresolved claims.
V. Collection of Information Requirements
Under the Paperwork Reduction Act of 1995, we are required to
provide 30-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act
of 1995 requires that we solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
This interim final rule with comment sets forth requirements for
States to provide information for purposes of estimating improper
payments through FFS, managed care and eligibility reviews in Medicaid
and SCHIP. Therefore, we solicited public comment on each of the issues
listed above for the following sections of the rule that contain
information collection requirements.
It is important to note that subsequent to the information
collection notices, which estimated cost and burden for 34 States, we
have determined that SCHIP will be measured in the same year that
States are measured for Medicaid. Thus, the estimate for ``34 States''
should be interpreted to mean ``34 State programs'' in 17 States.
Section 431.970(a) Information Submission Requirements
Section 431.970(a)(1)-(11) sets forth requirements for States to
provide information to the Secretary for purposes of estimating
improper payments in FFS and managed care based on medical and data
processing reviews in Medicaid and SCHIP. Those States selected for
review in any given year will be required to provide, at a minimum, the
following information for Medicaid and SCHIP:
(a)(1) All adjudicated fee-for-service (FFS) and managed care
claims information, on a quarterly basis, from the review year with FFS
claims stratified by type of service;
(a)(2) Upon request from CMS, provider contact information that has
been verified by the State as current;
(a)(3) All medical and other related policies in effect and any
quarterly policy updates;
(a)(4) Current managed care contracts, rate information, and any
quarterly updates to both for the review year for SCHIP and, as
requested, for Medicaid;
(a)(5) Data processing systems manuals;
(a)(6) Repricing information for claims that are determined to have
been improperly paid;
(a)(7) Information on claims that were selected as part of the
sample, but changed in substance after selection, for example,
successful provider appeals;
(a)(8) Adjustments made within 60 days of the adjudication date for
the original claim or line item with sufficient information to indicate
the nature of the adjustments and to match the adjustments to the
original claim or line items;
(a)(9) For the eligibility improper payment measurement,
information as set forth in Sec. 431.978 through Sec. 431.988;
(a)(10) A corrective action plan for purposes of reducing erroneous
payments in FFS, managed care, and eligibility; and
(a)(11) Other information that the Secretary determines is
necessary for, among other purposes, estimating improper payments and
determining error rates in Medicaid and SCHIP.
The burden described at Sec. 431.970(a) represents the total State
information collection burden for PERM. Based on our estimates of State
participation burden for both Medicaid and SCHIP, for 34 States (17
States per Medicaid and 17 States for SCHIP), for the FFS reviews
(55,420 hours), the managed care reviews (22,100 hours), and
eligibility (448,120 hours), we calculated that the annual State burden
for the PERM program is 525,640 hours (262,820 hours per program). The
burden associated with these requirements is the time and effort
necessary for States to collect this information and provide it to CMS
or the Federal contractor. We estimated these costs through three
information collection notices based on the information needed for the
FFS, managed care, and eligibility review as follows:
Estimate for FFS reviews. A notice of the FFS proposed collection
was previously published in the Federal Register for public comment on
July 22, 2005 (70 FR 42324). That document was available for public
inspection at the Office of the Federal Register beginning on July 15,
2005 and comments were requested by August 15, 2005 (30 days from date
of display). We republished the notice of the FFS proposed collection
on August 26, 2005 (70 FR 50357), which was available for public
inspection for an additional comment period ending September 26, 2005
(30 days from date of publication). The shortened timeframe for public
comment was essential so that CMS could proceed with the FFS data
collection from States and providers by October 2005 to initiate
reviews for timely reporting of a FY 2006 Medicaid FFS error rate to
OMB. We received OMB approval of this information collection on October
3, 2005. The OMB approval number is 0938-0974 with an expiration date
of October 31, 2008.
Initially, in the information collection notice for the FFS
reviews, we estimated that the annualized number of hours that would be
required for up to 36 States (18 States for Medicaid and 18 States for
SCHIP) to respond to the requests for information would be 58,680 hours
(1,630 hours per State per program). Subsequent to the notice, we
revised our estimates of the burden to reflect that 17 States would be
selected for each program (rather than ``up to 18 States'' per
program). The revised annualized number of hours that would be required
for 34 States (17 States for Medicaid and 17 States for SCHIP) to
respond to the requests for information for the FFS measurement is
55,420 hours (1,630 hours per State per program).
It is important to note that subsequent to the notice and
initiation of the FY
[[Page 51078]]
2006 FFS measurement in Medicaid, we determined that each State's FFS
sample sizes for Medicaid and SCHIP could be determined by the annual
expenditure data that States already report to CMS. Therefore, States
do not need to resubmit the annual expenditure data to CMS for the
purposes of PERM.
Estimate for managed care reviews. A notice of the proposed
collection of managed care information was previously published in the
Federal Register for public comment on February 3, 2006 (71 FR 5851).
Comments were requested by April 4, 2006 (60 days from date of
display). We republished the notice of proposed collection on April 14,
2006 (71 FR 19521), which was available for public inspection for an
additional comment period ending May 17, 2006 (30 days from date of
publication).
Initially, in the information collection notice for the managed
care reviews, we estimated that the annualized number of hours that
would be required for up to 36 States (18 States for Medicaid and 18
States for SCHIP) to respond to the requests for information would be
23,400 hours (650 hours per State, per program). Subsequent to the
notice, we revised our estimates of the burden to reflect the 17 States
selected for each program (rather than ``up to 18 States'' per
program). The revised annualized number of hours that would be required
for 34 States to respond to the requests for information for the
managed care reviews is 22,100 hours (650 hours per State per program).
Estimate for eligibility reviews. A notice of this proposed
collection was previously published in the Federal Register for public
comment on May 26, 2006 (71 FR 30409). Comments were requested by July
26, 2006 (60 days from date of display). We expect to republish the
notice of proposed collection on August 25, 2006, which will be
available for public inspection for an additional comment period ending
30 days from date of publication.
In the information collection notice for the eligibility reviews,
we estimated: (1) The annualized number of hours needed to respond to
the information request for the purpose of Medicaid and SCHIP
eligibility reviews; and (2) the number of respondents, 34 States (17
States for Medicaid and 17 States for SCHIP). Based on these estimates,
we determined that the total annualized number of hours required for
the eligibility reviews for 34 States would be 448,120 hours (13,180
hours per State per program).
For the specific information requests in Sec. 431.978 (referenced
at Sec. 431.970(a)(9)) and Sec. 431.992 (as referenced at Sec.
431.970(a)(10)), the burden includes the following estimated annualized
hours: (1) Up to 1,000 hours required for a State to develop and submit
a sampling plan; (2) up to 1,200 hours for a State to submit 12 monthly
sample lists detailing the cases selected for review; and (3) up to
1,000 hours for a State to develop a corrective action report for
purposes of reducing the eligibility payment error rate.
For the requirements for eligibility reviews in Sec. 431.980 and
the reporting of findings in Sec. 431.988, as referenced at Sec.
431.970(a)(9), we estimated that each State would need to review an
annual sample size of 501 active cases to achieve within 3 percent
precision at a 95 percent confidence interval level in the State-
specific error rates. We also estimated that States would need to
review 200 negative cases to produce a case error rate that meet
similar standards for statistical significance. We therefore estimate
that the annualized number of hours required for 34 States to complete
the eligibility case reviews and report the eligibility-based error
rates to CMS will be 339,320 hours (9,980 hours per State per program).
Section 431.970(b) Information Submission Requirements
Section 431.970(b) requires providers to submit medical record
information to the Secretary for estimating improper payments in
Medicaid and SCHIP. In the ``Anticipated Effects'' section of the
impact statement in the August 27, 2004 proposed rule, we stated that
providers could be required to supply medical records or other similar
documentation that verified the provision of medical services to
beneficiaries as part of reviewing paid and denied claims under PERM.
We believed this action would not have a significant cost impact on
providers. We continue, as stated in the regulatory impact section, to
estimate this burden to be part of a provider's usual and customary
business practices.
Section 431.978 Eligibility Sampling Plan and Procedures
This section requires that the selected States submit a Medicaid
and a SCHIP sampling plan (or revisions to the current plans) for both
active and negative cases to CMS for approval at least 60 days before
the beginning of the review year (for the FY 2008 measurement and
beyond). (States will submit the sampling plans by November 15, 2006
for the FY 2007 review year.) The State must receive approval of the
plans before implementation.
As stated above, the burden associated with this requirement will
be the time and effort it will take for the States to prepare and
submit a sampling plan to CMS for approval. We estimate that the annual
burden associated with this requirement for 34 States (17 States for
Medicaid and 17 States for SCHIP) will be 34,000 hours (1,000 hours per
State per program).
Section 431.988 Eligibility Case Review Completion and Submittal of
Reports
Sections 431.988(a) and (b) require the selected States to submit
reports of findings and error rates in accordance with paragraphs
(b)(1) through (b)(2) beginning with the FY 2007 measurement.
As stated above, the burden associated with this requirement is the
time and effort it would take for the States to produce the required
material and submit a report to CMS. We estimate that the annual burden
associated with this requirement for 34 States (17 States for Medicaid
and 17 States for SCHIP) will be 339,320 hours (9,980 hours per State
per program).
Section 431.992 Corrective Action Plan
This section requires the selected States to submit to CMS a
corrective action plan to reduce improper payments in Medicaid and
SCHIP based on the major causes of the errors in the FFS, managed care,
and eligibility components.
The burden associated with this requirement is the time and effort
put forth by the selected States to develop and submit a corrective
action plan to CMS. In the information collection notices, we estimated
that it would take each selected State up to 500 hours for the FFS
component, up to 500 hours for the managed care component, and up to
1,000 hours for the eligibility component of the corrective action plan
for each program. Therefore, we estimate that the total annual burden
associated with this requirement for 34 States (17 States for Medicaid
and 17 States for SCHIP) will be 68,000 hours (2,000 hours per State
per program).
Section 431.998 Difference Resolution Process
Section 431.998(b)(2) provides the selected States the option to
enter the difference resolution process. States wishing to do so must
notify the Federal contractor and submit documentation to support its
determination that the claim was incorrectly paid.
We have included this State option in this interim final rule in
response to public comments on both the proposed rule and the October
5, 2005 interim final rule. The burden associated with
[[Page 51079]]
this requirement would be the time and effort it would take for a State
to gather the facts and valid documentation and submit it to the
Federal contractor or, upon appeal, to CMS. We anticipate that 34
States will request a difference resolution for each fiscal year and
that it will take up to 5 hours per claim to request a difference
resolution and present evidence to support the State's disagreement
with the Federal contractor's determination.
If you comment on these information collection and recordkeeping
requirements, please mail copies directly to the following: Centers for
Medicare & Medicaid Services, Office of Strategic Operations and
Regulatory Affairs, Regulations Development Group, Attn: Melissa
Musotto (Attn: CMS-6026-IFC2), Room C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850; and Office of Information and Regulatory
Affairs, Office of Management and Budget, Room 10235, New Executive
Office Building, Washington, DC 20503, Attn: Katherine Astrich, CMS
Desk Officer, CMS-6026-IFC2, or Katherine_T._Astrich@omb.eop.gov. Fax
(202) 395-6947.
VI. Regulatory Impact Statement
A. Overall Impact
We have examined the impact of this rule as required by Executive
Order 12866 (September 1993, Regulatory Planning and Review), the
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354),
section 1102(b) of the Social Security Act, the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
Executive Order 12866 (as amended by Executive Order 13258, which
merely reassigns responsibility of duties) directs agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). A
regulatory impact analysis (RIA) must be prepared for major rules with
economically significant effects ($100 million or more in any 1 year).
1. Cost Estimate for FFS Reviews
We have estimated that it will cost approximately $23.3 million
annually ($22,367,088 in Federal cost and $951,326 in State cost) to
review FFS claims and estimate error rates in 34 States (17 States for
Medicaid and 17 States for SCHIP). This estimate is based on the
Federal cost of engaging the Federal contractors to conduct the reviews
and calculate the error rates, and the State cost to submit requested
information to support the reviews. We estimated these costs as
follows:
Through the use of Federal contractors, we estimated that for the
FFS measurement it would cost approximately $21,080,000 in Federal
funds ($10,540,000 per program). This estimate is based on the cost per
State of $383.80 per claim multiplied by an average of 1,000 claims;
$66,147 for travel and administrative expenses; $133,488 for overhead
and other expenses; and $36,565 for systems hardware and software.
Based on $620,000 per State to estimate FFS error rates in Medicaid and
$620,000 per State to estimate FFS error rates in SCHIP, the FFS error
rate estimates for 34 States would cost approximately $21,080,000 in
Federal funds for the Federal contracting cost.
Under the national contracting strategy, we anticipate State cost
to be the cost associated with submitting information. As we indicated
in the information collection section of this rule, we estimated the
cost to respond to requests for information for the Medicaid and SCHIP
FFS reviews is $2,238,414 ($1,287,088 in Federal cost and $951,326 in
State cost). Therefore, the estimated total Federal cost is
approximately $22,367,088 and total State cost is $951,300 for FFS
measurement.
2. Cost Estimate for Managed Care Reviews
We have estimated that it will cost approximately $7.5 million
annually ($7,153,256 in Federal cost and $379,363 in State cost) to
estimate managed care error rates for 34 States (17 States for Medicaid
and 17 States for SCHIP). This is based on the Federal cost of engaging
the Federal contractors to conduct the reviews and calculate the error
rates, and the State cost to submit requested information to support
the reviews. We estimated these costs as follows:
We estimated that it will cost $6,640,000 in Federal funds annually
for a Federal contractor to estimate the error rates for 34 States.
This is based on FY 2006 FFS estimates that were used as baseline
assumptions for the managed care reviews. We assumed that we will use
the same statistical contractor and the same review contractor for
managed care and FFS reviews in each program to gain cost efficiencies
in administration, overhead and systems. Based an average of 500 claims
reviewed plus travel and other administrative expenses, we estimate
that it would cost $6,640,000 in Federal funds for the Federal
contracting cost.
Under the national contracting strategy, we anticipate State cost
to be the cost associated with submitting information, similar to the
cost for FFS reviews. As we indicated in the information collection
section of this rule, we estimated the cost to respond to requests for
information for the managed care reviews would be $892,619 ($513,256 in
Federal cost and $379,363 in State cost). Therefore, the estimated
total Federal cost is approximately $7,153,256 and total State cost is
$379,363 for managed care measurement.
3. Cost Estimate for Eligibility Reviews
Beginning in FY 2007, States will review eligibility in the same
year they are selected for FFS and managed care reviews in Medicaid and
SCHIP. We estimated that total cost for eligibility review for 34
States is approximately $18.1 million ($10,407,251 in Federal cost and
$7,692,316 in State cost). This cost estimate is based on the cost for
States to submit information to CMS and the cost for States to conduct
eligibility reviews and report rates to CMS. These costs are estimated
as follows:
We estimated in the information collection section, that the
annualized number of hours required to respond to requests for
information for the eligibility review (for example, sampling plan,
monthly sample lists, the eligibility corrective action report) for 34
States will be 108,800 hours (3,200 hours per State per program). At
the 2006 general schedule GS-12-01 rate of pay that includes fringe and
overhead costs ($40.39/hour), we calculated a cost of $4,394,432
($2,526,798 in Federal cost and $1,867,634 in State cost). This cost
estimate includes the following estimated annualized hours: (1) Up to
1,000 hours required for States to develop and submit a sampling plan;
(2) up to 1,200 hours for States to submit 12 monthly sample lists
detailing the cases selected for review; and (3) up to 1,000 hours for
States to submit a corrective action plan for purposes of reducing the
eligibility payment error rate.
For the eligibility review and reporting of the findings, we
estimated that each State would need to review an annual sample size of
501 active cases to achieve a 3 percent margin of error at a 95 percent
confidence interval level in the State-specific error rates. We also
estimated that States would need to review 200 negative cases to
produce a case error rate that met similar standards for statistical
significance. We
[[Page 51080]]
estimated that for 34 States the annualized number of hours required to
complete the eligibility case reviews and report the eligibility-based
error rates to CMS would be 339,320 hours (9,980 hours per State, per
program). At the 2006 general schedule GS-12-01 costs that include
fringe and overhead ($40.39/hour), we calculated a cost of $13,705,135
($7,880,453 in Federal cost and $5,824,682 in State cost).
Therefore, the total annual estimate of the cost for 34 States to
submit information and to conduct the eligibility reviews and report
the error rate to CMS is approximately $18,099,567 ($10,407,251 in
Federal cost and $7,692,316 in State cost).
4. Cost Estimate for Total PERM Costs
Based on our estimates of the costs for the FFS, managed care and
eligibility reviews for both the Medicaid and SCHIP programs at
approximately $49 million ($39,927,595 in Federal cost and $9,023,005
in State cost), this rule does not exceed the $100 million or more in
any 1 year criterion for a major rule, and a regulatory impact analysis
is not required.
The RFA requires agencies to analyze options for regulatory relief
of small businesses. For purposes of the RFA, small entities include
small businesses, nonprofit organizations, and small governmental
jurisdictions. Most hospitals and most other providers and suppliers
are small entities, either by nonprofit status or by having revenues of
$6 million to $29 million in any 1 year.
We stated in the August 27, 2004 proposed rule that providers could
be required to supply medical records or other similar documentation
that verified the provision of Medicaid or SCHIP services to
beneficiaries as part of the PERM reviews, but we anticipated this
action would not have a significant cost impact on providers. Providers
would only need to provide medical records for the FFS component of
this program. A request for medical documentation to substantiate a
claim for payment would not be a burden to providers nor would it be
outside the customary and usual business practices of Medicaid or SCHIP
providers. Not all States would be reviewed every year and medical
records would only be requested for FFS claims, so it would be unlikely
for a provider to be selected more than once per program to provide
supporting documentation, particularly in States with a large Medicaid
or SCHIP managed care population.
In addition, the information should be readily available and the
response should take minimal time and cost since the response would
merely require gathering the documents and either copying and mailing
them or sending them by facsimile. Therefore, we have concluded in this
interim final rule with comment that the provision of medical
documentation by providers is within the customary and usual business
practice of a provider who accepts payment from an insurance provider,
whether it is a private organization, Medicare, Medicaid, or SCHIP and
should not have a significant impact on the provider's operations.
Individuals and States are not included in the definition of a small
entity. Therefore, an impact analysis is not required under the RFA.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule may have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 604 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a Metropolitan
Statistical Area and has fewer than 100 beds.
These entities may incur costs due to collecting and submitting
medical records to the contractor to support medical reviews; but, like
any other Medicaid or SCHIP provider, we estimate these costs would not
be outside the limit of usual and customary business practices. Also,
since the sample is randomly selected and only FFS claims are subject
to medical review, we do not anticipate that a great number of small
rural hospitals would be asked for an unreasonable number of medical
records. As stated before, a State will be reviewed only once, per
program, every 3 years and it is highly unlikely for a provider to be
selected more than once per program to provide supporting
documentation. Therefore, we believe that an impact analysis is not
required under section 1102(b) of the Social Security Act.
Section 202 of the Unfunded Mandates Reform Act of 1995 also
requires that agencies assess anticipated costs and benefits before
issuing any rule that may result in expenditure in any 1 year by State,
local, or tribal governments, in the aggregate, or by the private
sector, of $120 million or more. This interim final rule does not
impose costs on States to produce the error rates for FFS and managed
care payments, but only requires States and providers to submit
information already on hand to the contractor so that the error rates
can be calculated. The costs associated with submitting information for
copying and mailing the information or for sending the information by
facsimile are minimal.
Based on our estimates of State participation burden for both
Medicaid and SCHIP, for 34 States (17 States per Medicaid and 17 States
for SCHIP), for the FFS reviews ($951,326), the managed care reviews
($379,363), and eligibility ($7,692,316), we calculated that the annual
State burden for the PERM program is approximately $9,023,005 in State
cost for both programs. Thus, we do not anticipate State costs to
exceed $120 million.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a rule that imposes substantial
direct requirements on State and local governments, preempts State law,
or otherwise has Federalism implications. The proposed rule, which
would have imposed significantly more cost burden on States to measure
improper payments, had estimated costs of $1 million to $2 million per
State. This interim final rule significantly reduces these costs by
requiring States only to submit information to support the medical and
data processing reviews. The cost and burden associated with submitting
this information is the time and cost to copy and mail the information
or, at State option, submit the information electronically.
This interim final rule does require States selected for review to
submit an eligibility sampling plan, monthly sample selection
information, summary review findings, State error rate calculations,
and other information in order for CMS to calculate the eligibility
national error rate. We estimated that the burden to conduct the
eligibility measurement for Medicaid and SCHIP for 34 States will be
approximately $18,099,567 ($10,407,251 in Federal cost and $7,692,316
in State cost). As a result, we assert that this regulation will not
have a substantial impact on State or local governments.
B. Anticipated Effects
The interim final rule is intended to measure improper payments in
Medicaid and SCHIP. States would implement corrective actions to reduce
the error rate, thereby producing savings over time. These savings
cannot be estimated until after the corrective actions have been
monitored and determined to be effective, which can take several years.
C. Alternatives Considered
We considered the alternatives recommended by the public commenting
on the October 5, 2005 interim final rule with comment and
[[Page 51081]]
adopted the recommendation to include a difference-resolution process
through which States can express and resolve a difference of opinion
with the error determinations made by the review contractor through its
medical and data processing reviews.
We considered the other alternatives, which were recommended in the
proposed rule and reiterated in the October 5, 2005 interim final rule,
and determined that these recommendations were not viable or were not
the best approach to meet the requirements of the law. We received
comments on the October 5, 2005 interim final rule regarding the
national contracting strategy that recommended allowing States to have
input on CMS operational issues and evaluation of the Federal
contractors. We did not adopt these recommendations because we believe
that these are operational issues that are outside the scope of the
rulemaking process. Comments considered and not adopted include:
States should administer the Medicaid and SCHIP FFS and
managed care measurement at an enhanced match rate;
CMS should abandon State-level error rates in favor of
national sampling, pooling State data across years or accepting larger
standard errors;
States should receive 100 percent Federal match for any
State technical assistance on this effort; and
CMS should provide more transparency on its methodologies
by promulgating rules for the Federal contractor and CMS' procedures or
by establishing an advisory committee.
We believe the national contracting strategy is superior to these
proposals because it provides a standardized review methodology that is
applied objectively and consistently to the States under review. Under
the contracting strategy, each State is measured against its own
standards, which we believe provides better information for States to
reduce erroneous payments than using a national sample, pooling State
data across years or accepting larger standard errors. We have the
statutory authority to collect the claims data and policy information.
The technical assistance that States provide to the contractors should
be limited primarily to the claims processing reviews and will help
ensure the accuracy of these reviews and the error rates. We do not
believe 100 percent Federal match should be provided for technical
assistance to the contractors since the PERM reviews are similar to
other Federal audits for which States do not receive enhanced match.
Finally, we believe the national contracting strategy provides
transparencies such as our review methodologies, cost and burden
estimates, when States will be reviewed, and State responsibilities as
we have stated in the October 5, 2005 interim final rule and this
interim final rule. We do not believe an advisory committee is needed
since we have provided States ample opportunities to comment through
the rulemaking process.
D. Conclusion
In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.
List of Subjects
42 CFR Part 431
Grant programs--health, Health facilities, Medicaid, Privacy,
Reporting and recordkeeping requirements.
42 CFR Part 457
Administrative practice and procedure, Grant programs--health,
Health insurance, Reporting and recordkeeping requirements.
0
For the reasons set forth in the preamble, the Centers for Medicare &
Medicaid Services amends 42 CFR chapter IV as set forth below:
PART 431--STATE ORGANIZATION AND GENERAL ADMINISTRATION
0
1. The authority citation for part 431 continues to read as follows:
Authority: Sec. 1102 of the Social Security Act (42 U.S.C.
1302).
0
2. Part 431 is amended by revising subpart Q to read as follows:
Subpart Q--Requirements for Estimating Improper Payments in Medicaid
and SCHIP
Sec.
431.950 Purpose.
431.954 Basis and scope.
431.958 Definitions and use of terms.
431.970 Information submission requirements.
431.974 Basic elements of Medicaid and SCHIP eligibility reviews.
431.978 Eligibility sampling plan and procedures.
431.980 Eligibility review procedures.
431.988 Eligibility case review completion deadlines and submittal
of reports.
431.992 Corrective action plan.
431.998 Difference resolution process.
431.1002 Recoveries.
Subpart Q--Requirements for Estimating Improper Payments in
Medicaid and SCHIP
Sec. 431.950 Purpose.
This subpart requires States and providers to submit information
necessary to enable the Secretary to produce national improper payment
estimates for Medicaid and the State Children's Health Insurance
Program (SCHIP).
Sec. 431.954 Basis and scope.
(a) Basis. The statutory bases for this subpart are sections 1102,
1902(a)(6), and 2107(b)(1) of the Act, which contain the Secretary's
general rulemaking authority and obligate States to provide
information, as the Secretary may require, to monitor program
performance. In addition, this rule supports the Improper Payments
Information Act of 2002 (Pub. L. 107-300), which requires Federal
agencies to review and identify annually those programs and activities
that may be susceptible to significant erroneous payments, estimate the
amount of improper payments, report such estimates to the Congress, and
submit a report on actions the agency is taking to reduce erroneous
payments. Section 1902(a)(27)(B) of the Act requires States to require
providers to agree to furnish the State Medicaid agencies and the
Secretary with information regarding payments claimed by Medicaid
providers for furnishing Medicaid services.
(b) Scope. (1) This subpart requires States under the statutory
provisions cited in paragraph (a) of this section to submit information
as set forth in Sec. 431.970 for, among other purposes, estimating
improper payments in the fee-for-service (FFS) and managed care
components of the Medicaid and SCHIP programs and to determine whether
eligibility was correctly determined. This subpart also requires
providers to submit to the Secretary any medical records and other
information necessary to disclose the extent of services provided to
individuals receiving assistance, and to furnish information regarding
any payments claimed by the provider for furnishing such services, as
requested by the Secretary.
(2) All information must be furnished in accordance with section
1902(a)(7)(A) of the Act, regarding confidentiality.
(3) This subpart does not apply with respect to Puerto Rico, Guam,
the Virgin Islands, the Northern Mariana Islands or American Samoa.
Sec. 431.958 Definitions and use of terms.
Active case means a case containing information on a beneficiary
who is enrolled in the Medicaid or SCHIP program in the month that
eligibility is reviewed.
Active fraud investigation means a beneficiary's name has been
referred to the State Fraud and Abuse Control or
[[Page 51082]]
similar investigation unit and the unit is currently actively pursuing
an investigation to determine whether the beneficiary committed fraud.
Adjudication date means either the date on which money was
obligated to pay a claim or the date the decision was made to deny a
claim.
Agency means, for purposes of the PERM eligibility reviews and this
regulation, the agency that performs the Medicaid and SCHIP eligibility
determinations under PERM and excludes the State agency as defined in
the regulation.
Application means an application form for Medicaid or SCHIP
benefits deemed complete by the State, with respect to which such State
approved or denied eligibility.
Beneficiary means an applicant for, or recipient of, Medicaid or
SCHIP program benefits.
Case means an individual beneficiary.
Case error rate means an error rate that reflects the number of
cases in error in the eligibility sample for the active cases plus the
number of cases in error in the eligibility sample for the negative
cases expressed as a percentage of the total number of cases examined
in the sample.
Case record means either a hardcopy or electronic file that
contains information on a beneficiary regarding program eligibility.
Eligibility means meeting the State's categorical and financial
criteria for receipt of benefits under the Medicaid or SCHIP programs.
Improper payment means any payment that should not have been made
or that was made in an incorrect amount (including overpayments and
underpayments) under statutory, contractual, administrative, or other
legally applicable requirements; and includes any payment to an
ineligible recipient, any duplicate payment, any payment for services
not received, any payment incorrectly denied, and any payment that does
not account for credits or applicable discounts.
Last action means the most recent date on which the State agency
took action to grant, deny, or terminate program benefits based on the
State agency's eligibility determination; and is the point in time for
the PERM eligibility reviews unless the last action occurred outside of
12 months prior to the sample month.
Medicaid means the joint Federal and State program, authorized and
funded under Title XIX of the Act, that provides medical care to people
with low incomes and limited resources.
Negative case means a case containing information on a beneficiary
who applied for benefits and was denied or whose program benefits were
terminated, based on the State agency's eligibility determination or on
a completed redetermination.
Payment means any payment to a provider, insurer, or managed care
organization for a Medicaid or SCHIP beneficiary for which there is
Medicaid or SCHIP Federal financial participation. It may also mean a
direct payment to a Medicaid or SCHIP beneficiary in limited
circumstances permitted by CMS regulation or policy.
Payment error rate means an annual estimate of improper payments
made under Medicaid and SCHIP equal to the sum of the overpayments and
underpayments in the sample, that is, the absolute value of such
payments, expressed as a percentage of total payments made in the
sample.
Payment review means the process by which payments for services are
associated with cases reviewed for eligibility. Payments are collected
for services received in the review month or in the sample month,
depending on the case reviewed.
PERM means the Payment Error Rate Measurement process to measure
improper payment in Medicaid and SCHIP.
Provider means any qualified provider recognized under Medicaid and
SCHIP statute and regulations.
Review cycle means the complete timeframe to complete the improper
payments measurement including the fiscal year being measured;
generally this timeframe begins in October of the fiscal year reviewed
and ends in August of the following fiscal year.
Review month means the month in which eligibility is reviewed and
is usually when the State took its last action to grant or redetermine
eligibility. If the State's last action was taken beyond 12 months
prior to the sample month, the review month shall be the sample month.
Review year means the Federal fiscal year being analyzed for errors
by Federal contractors or the State.
Sample month means the month the State selects a case from the
sample for an eligibility review.
State agency means the State agency that is responsible for
determining program eligibility for Medicaid and SCHIP, as applicable,
based on applications and redeterminations.
State Children's Health Insurance Program (SCHIP) means the program
authorized and funded under Title XXI of the Act.
States means the 50 States and the District of Columbia.
Undetermined means a beneficiary case subject to a Medicaid or
SCHIP eligibility determination under this regulation about which a
definitive determination of eligibility could not be made.
Sec. 431.970 Information submission requirements.
(a) States must submit information to the Secretary for, among
other purposes, estimating improper payments in Medicaid and SCHIP,
that include but are not limited to--
(1) All adjudicated fee-for-service (FFS) and managed care claims
information, on a quarterly basis, from the review year with FFS claims
stratified by service;
(2) Upon request from CMS, provider contact information that has
been verified by the State as current;
(3) All medical and other related policies in effect and any
quarterly policy updates;
(4) Current managed care contracts, rate information, and any
quarterly updates applicable to the review year for SCHIP and, as
requested, for Medicaid;
(5) Data processing systems manuals;
(6) Repricing information for claims that are determined during the
review to have been improperly paid;
(7) Information on claims that were selected as part of the sample,
but changed in substance after selection, for example, successful
provider appeals;
(8) 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;
(9) For the eligibility improper payment measurement, information
as set forth in Sec. 431.978 through Sec. 431.988;
(10) A corrective action plan for purposes of reducing erroneous
payments in FFS, managed care, and eligibility; and
(11) Other information that the Secretary determines is necessary
for, among other purposes, estimating improper payments and determining
error rates in Medicaid and SCHIP.
(b) Providers must submit information to the Secretary for, among
other purposes, estimating improper payments in Medicaid and SCHIP,
which include but are not limited to, Medicaid and SCHIP beneficiary
medical records.
Sec. 431.974 Basic elements of Medicaid and SCHIP eligibility
reviews.
(a) General requirements. (1) States selected in any given year for
Medicaid
[[Page 51083]]
and SCHIP improper payments measurement under the Improper Payments
Information Act of 2002 must conduct reviews of a statistically valid
random sample of beneficiary cases for such programs to determine if
improper payments were made based on errors in the State agency's
eligibility determinations.
(2) The agency and personnel responsible for the development,
direction, implementation, and evaluation of the eligibility reviews
and associated activities, including calculation of the error rates
under this section, must be functionally and physically separate from
the State agencies and personnel that are responsible for Medicaid and
SCHIP policy and operations, including eligibility determinations.
(3) Any individual performing activities under this section must do
so in a manner that is consistent with the provisions of Sec. 435.901,
concerning the rights of recipients.
(b) Sampling requirements. The State must have in effect a CMS-
approved sampling plan for the review year in accordance with the
requirements specified in Sec. 431.978.
(c) Review requirements. The State must conduct eligibility reviews
in accordance with the requirements specified in Sec. 431.980.
Sec. 431.978 Eligibility sampling plan and procedures.
(a) Plan approval. For the review year beginning October 1, 2006,
the agency must submit a Medicaid and a SCHIP sampling plan for both
active and negative cases to CMS for approval by November 15, 2006. For
review years beginning October 1, 2007 and beyond, the agency must
submit a Medicaid or SCHIP sampling plan (or revisions to a current
plan) for both active and negative cases to CMS for approval by the
August 1 before the review year and must receive approval of the plan
before implementation. The agency must notify CMS that it will be using
the same plan from the previous review year if the plan is unchanged.
(b) Maintain current plan. States must keep the plan current, for
example, by making adjustments to the plan when necessary due to
fluctuations in the universe. The State must review and determine that
the approved plan is unchanged from the previous review year and submit
a revised plan for CMS approval if changes have occurred.
(c) Sample size. Total sample size must be estimated to achieve
within a 3 percent precision level at 95 percent confidence interval
for the eligibility component of the program.
(d) Sample selection. The sample must be stratified in accordance
with Sec. 431.978(d)(3). Cases must be selected each month throughout
the fiscal year under review. Each month throughout the year and before
commencing the eligibility reviews, States must submit to CMS a monthly
sample selection list that identifies the cases selected in that month.
(1) Eligibility universe-active cases--(i) Medicaid. The Medicaid
active universe consists of all active Medicaid cases funded through
Title XIX for the sample month. Cases for which the Social Security
Administration, under a section 1634 agreement with a State, determines
Medicaid eligibility for Supplemental Security Income recipients are
excluded from the universe. All foster care and adoption assistance
cases under Title IV-E of the Act are excluded from the universe in all
States. Cases under active fraud investigations shall be excluded from
the universe. If the State cannot identify cases under active fraud
investigations for exclusion from the universe previous to the sample
selection, the State shall drop these cases from review if they are
selected in the sample and are later determined to be under active
fraud investigation at the time of selection.
(ii) SCHIP. The SCHIP active universe consists of all active SCHIP
and Medicaid expansion cases that are funded through Title XXI for the
sample month. Cases under active fraud investigations shall be excluded
from the SCHIP active universe. If the State cannot identify cases
under active fraud investigations for exclusion from the universe
previous to sample selection, the State shall drop these cases from
review if they are selected in the sample and are later determined to
be under active fraud investigation at the time of selection.
(2) Eligibility universe-negative cases. The Medicaid and SCHIP
negative universe consists of all negative cases for the sample month.
Cases denied or terminated based upon incomplete applications or cases
where beneficiaries who do not complete the redetermination process are
excluded. The negative case universe is not stratified.
(3) Stratifying the universe. Each month, the State stratifies the
Medicaid and SCHIP active case universe into three strata:
(i) Program applications completed by the beneficiaries in which
the State took action in the sample month to approve such beneficiaries
for Medicaid or SCHIP based on the eligibility determination.
(ii) Redeterminations of eligibility in which the State took action
in the sample month to approve the beneficiaries for Medicaid or SCHIP
based on information obtained through the completed redetermination.
(iii) All other cases.
(4) Sample selection. Each month, an equal number of cases are
selected from each stratum for review, unless otherwise provided for in
the plan approved by CMS.
Sec. 431.980 Eligibility review procedures.
(a) Active case reviews. The agency must verify eligibility for all
selected active cases for Medicaid and SCHIP for the review month for
compliance with the State's eligibility criteria.
(b) Negative case reviews. The agency must review all selected
negative cases for Medicaid and SCHIP for the review month to determine
whether the cases were properly denied or terminated.
(c) Payment review. The agency must identify all Medicaid and SCHIP
payments made for services furnished, either in the first 30 days of
eligibility or in the review month for applications under Sec.
431.978(d)(3)(i) and redeterminations under Sec. 431.978(d)(3)(ii) in
accordance to State policy or from the sample month for all other cases
under Sec. 431.978(d)(3)(iii), to identify erroneous payments
resulting from ineligibility for services or for the program.
(d) Eligibility determination. The agency must verify program
eligibility for all active cases in the sample based on acceptable
documentation contained in the case file or obtained independently
through the review process.
(1) Active cases--Medicaid. The agency must--
(i) Review the cases specified at Sec. 431.978(d)(3)(i) and Sec.
431.978(d)(3)(ii) in accordance with the State's categorical and
financial eligibility criteria as of the review month and identify with
a specific beneficiary payments made on behalf of such beneficiary for
services received in the first 30 days of eligibility or in the review
month;
(ii) For cases specified in Sec. 431.978(d)(3)(iii), if the last
action was 12 months prior to the sample month, review in accordance
with the State's categorical and financial eligibility criteria as of
the last action and identify with a specific beneficiary payments made
on behalf of such beneficiary for services received in the sample
month. If the last action occurred more than 12 months prior to the
sample month, review in accordance with the State's categorical and
financial eligibility
[[Page 51084]]
criteria as of the sample month and identify payments made on behalf of
the specific beneficiary for services received in the sample month;
(iii) Examine the evidence in the case file that supports
categorical and financial eligibility for the category of coverage in
which the case is assigned, and independently verify information that
is missing, older than 12 months, likely to change, based on self
declaration, or otherwise as needed, to verify eligibility; and
(iv) For managed care cases, also verify residency and eligibility
for and actual enrollment in the managed care plan during the month
under review.
(v) If the case is ineligible under paragraphs (d)(1)(i) through
(d)(1)(iv) of this section, review the case to determine whether the
case is eligible under any coverage category within the program.
(vi) As a result of paragraphs (d)(1)(i) through (d)(1)(v) of this
section--
(A) Cite the case as eligible or ineligible based on the review
findings and identify with the particular beneficiary the payments made
on behalf of the particular beneficiary for services received in the
first 30 days of eligibility, the review month or sample month, as
appropriate; or
(B) Cite the case as undetermined if after due diligence an
eligibility determination could not be made and identify with the
particular beneficiary the payments made on behalf of the particular
beneficiary for services received in the first 30 days of eligibility,
the review month or sample month, as appropriate.
(2) Active cases--SCHIP. In addition to the procedures for active
cases as set forth in paragraphs (d)(1)(i) through (d)(1)(v) of this
section, once the agency establishes SCHIP eligibility, the agency must
verify that the case is not eligible for Medicaid by determining that
the child has income above the Medicaid levels in accordance with the
requirements in Sec. 457.350 of this chapter. Upon verification, the
agency must--
(i) Cite the case as eligible or ineligible based on the review
findings and identify with the particular beneficiary the payments made
on behalf of the particular beneficiary for services received in the
review month or sample month, as appropriate; or
(ii) Cite the case as undetermined if after due diligence an
eligibility determination could not be made and identify with the
particular beneficiary the payments made on behalf of the particular
beneficiary for services received in the review month or sample month,
as appropriate.
(e) Negative cases--Medicaid and SCHIP. The agency must--
(1) Identify the reason the State agency determined ineligibility;
(2) Examine the evidence in the case file to determine whether the
State agency's denial or termination was correct or whether there is
any reason the case should have been denied or terminated; and
(i) Record the State agency's finding as correct if the case record
review substantiates that the individual was not eligible; or
(ii) Record the case as an error if there is no valid reason for
the denial or termination.
Sec. 431.988 Eligibility case review completion deadlines and
submittal of reports.
(a) States must complete and report to CMS the findings, including
the error causes if known, for all active case reviews listed on the
monthly sample selection lists, including cases dropped from review due
to active fraud investigations and cases for which eligibility could
not be determined. States must submit a summary report of the active
case eligibility and payment review findings to CMS by July 1 following
the review year.
(b) The agency must report by July 1 following the review year,
information as follows:
(1) Case and payment error rates for active cases.
(2) Case error rates for negative cases.
(3) The number and amounts of undetermined cases in the sample and
the total amount of payments from all undetermined cases.
(4) The number of cases dropped from review due to active fraud
investigations.
Sec. 431.992 Corrective action plan.
The State agency must submit to CMS a corrective action plan to
reduce improper payments in its Medicaid and SCHIP programs based on
its analysis of the error causes in the FFS, managed care, and
eligibility components.
Sec. 431.998 Difference resolution process.
(a) The State may file, in writing, a request with the Federal
contractor to resolve differences in the Federal contractor's findings
based on medical or data processing reviews on FFS and managed care
claims in Medicaid and SCHIP. The State must have a factual basis for
filing the difference and must provide the Federal contractor with
valid evidence directly related to the error finding to support the
State's position that the claim was properly paid.
(b) For a claim in which the State and the Federal contractor
cannot resolve the difference in findings, the State may appeal to CMS
for final resolution.
(1) The difference in findings must be in the amount of $100 or
greater; and
(2) The agency must provide CMS with the facts and valid
documentation to support its determination that the claim was correctly
paid, as well as the Federal contractor's justification for upholding
its initial error finding.
(3) CMS will make the final decision on the claim. There will be no
further judicial or administrative review of CMS' decision.
(c) All differences, including those pending in CMS for final
decision that are not resolved in time to be included in the error rate
calculation, will be considered as errors for meeting the reporting
requirements of the IPIA. Upon State request, CMS will calculate a
subsequent State-specific error rate that reflects any reversed
disposition of the unresolved claims.
Sec. 431.1002 Recoveries.
(a) Medicaid. States must return to CMS the Federal share of
overpayments based on medical and processing errors in accordance with
section 1903(d)(2) of the Act and related regulations at part 433,
subpart F of this chapter. Payments based on erroneous Medicaid
eligibility determinations are addressed under section 1903(u) of the
Act and related regulations at part 431, subpart P of this chapter.
(b) SCHIP. Quarterly Federal payments to the States under Title XXI
of the Act must be reduced in accordance with section 2105(e) of the
Act and related regulations at part 457, subpart B of this chapter.
SUBCHAPTER D--STATE CHILDREN'S HEALTH INSURANCE PROGRAM
PART 457--ALLOTMENTS AND GRANTS TO STATES
Subpart G--Strategic Planning, Reporting, and Evaluation
0
4. The authority citation for part 457 continues to read as follows:
Authority: Section 1102 of the Social Security Act (42 U.S.C.
1302).
0
5. Section 457.720 is revised to read as follows:
Sec. 457.720 State plan requirement: State assurance regarding data
collection, records, and reports.
A State plan must include an assurance that the State collects
data, maintains records, and furnishes reports to the Secretary, at the
times and in the standardized format the Secretary may
[[Page 51085]]
require to enable the Secretary to monitor State program administration
and compliance and to evaluate and compare the effectiveness of State
plans under Title XXI of the Act. This includes collection of data and
reporting as required under Sec. 431.970 of this chapter.
(Catalog of Federal Domestic Assistance Program No. 93.778, Medical
Assistance Program)
(Catalog of Federal Domestic Assistance Program No. 93.767, State
Children's Health Insurance Program)
Dated: April 17, 2006.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
Approved: May 25, 2006.
Michael O. Leavitt,
Secretary.
[FR Doc. 06-7133 Filed 8-25-06; 8:45 am]
BILLING CODE 4120-01-P