[Federal Register: August 31, 2007 (Volume 72, Number 169)]
[Rules and Regulations]
[Page 50489-50513]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31au07-12]
[[Page 50489]]
-----------------------------------------------------------------------
Part III
Department of Health and Human Services
-----------------------------------------------------------------------
Centers for Medicare & Medicaid Services
-----------------------------------------------------------------------
42 CFR Parts 431 and 457
Medicaid Program and State Children's Health Insurance Program
(SCHIP); Payment Error Rate Measurement; Final Rule
[[Page 50490]]
-----------------------------------------------------------------------
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 431 and 457
[CMS-6026-F]
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: Final rule.
-----------------------------------------------------------------------
SUMMARY: This final rule 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 final rule responds to the public comments on the August 28,
2006 interim final rule (71 FR 51050) and sets forth State requirements
for submitting claims and policies to the CMS Federal contractors for
purposes of conducting fee-for-service and managed care reviews. This
final rule also sets forth the State requirements for conducting
eligibility reviews and estimating case and payment error rates due to
errors in eligibility determinations.
DATES: Effective Date: These regulations are effective on October 1,
2007.
FOR FURTHER INFORMATION CONTACT: Janet E. Reichert, (410) 786-4580.
SUPPLEMENTARY INFORMATION:
I. Background
A. The Improper Payments Information Act of 2002
The Improper Payments Information Act of 2002 (IPIA), Pub. L. 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, 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 and OMB M-06-23, August 10, 2006). 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 the OMB directive, Federal agencies must include in
the report to the President and Congress: (1) The estimate of the
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 program and the State Children's Health Insurance
Program (SCHIP) 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
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.
The Medicaid statute at section 1902(a)(6) of the Act and the 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 States' 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, 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 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 fee-for-service
(FFS) and managed care claims (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 at the State level that the
proposed rule would have imposed on States.
Since our revised approach departed 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 5, 2005 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
[[Page 50491]]
of States. Our State selection will ensure that a State will be
measured once, and only once, every 3 years for each program. For each
fiscal year, we stated that we expected to measure up to 18 States. We
also stated that we would use a rotational approach to review the
States' Medicaid programs. The rotation allows States to plan for the
reviews because States know in advance in which year they will be
measured. At the end of the first 3-year cycle, the rotation will
repeat so that the FY 2006 States will be reviewed again in FY 2009;
the FY 2007 States will be reviewed again in FY 2010; and the FY 2008
States will be reviewed again in FY 2011. The rotation will continue in
this manner for future years.
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 the first cycle of FY 2006 through FY 2008.
We announced the Medicaid State selection rotation in the October 5,
2005 interim final rule and also through a State Health Official Letter
released to all States on November 18, 2005.
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 the proposed rule. We also
announced 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 and developed an eligibility
measurement methodology based on the workgroup's consideration of
public comments, the examination of various approaches proposed in such
comments, and the suggestions of the panel members.
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 and
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 and recommendations from the
eligibility workgroup, we published a second interim final rule on
August 28, 2006 (71 FR 51050), which set forth the methodology for
measuring improper payments in Medicaid and SCHIP FFS, managed care,
and eligibility in 17 States and invited further public comments on the
eligibility measurement.
C. IPIA Compliance
We expect to be fully compliant with IPIA requirements by the year
2008. We measured 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 for reporting in the FY 2008 Performance
and Accountability Report (PAR).
These measurements in 17 States each year will produce State-
specific component error rates 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 programs.
We expect State corrective actions to address the causes of error
in each of the program components. As a result, we expect States will
reduce their program error rates over the course of each measurement
cycle which, in turn, should reduce the national error rates.
II. Provisions of the August 28, 2006 (Second) Interim Final Rule
We published a second interim final rule with comment period on
August 28, 2006 that responded to comments on the October 5, 2005
initial interim final rule with comment period. In the August 28, 2006
interim final rule, we reiterated our national contracting strategy to
estimate improper payments in both Medicaid and SCHIP fee-for-service
and managed care claims and set forth the State requirements for
estimating improper payments due to errors in Medicaid and SCHIP
eligibility determinations. We also announced that a State's Medicaid
and SCHIP programs would be reviewed in the same year.
A. Selecting SCHIP States for Review
After the October 2005 Medicaid State selection, we decided on the
SCHIP State selection for the PERM measurement beginning with FY 2007.
We determined that SCHIP could be measured in the same States selected
for Medicaid review each fiscal year with a high probability that the
SCHIP error rate would meet OMB requirements for confidence and
precision levels.
We believe that paralleling the SCHIP and Medicaid measurements
will minimize administrative complexities for both CMS and the States.
Measuring both programs at the same time may further 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.
We announced in the August 28, 2006 interim final rule our decision
to measure Medicaid and SCHIP in a State at the same time. We also sent
a State Health Official Letter to all States regarding the SCHIP State
selection on August 30, 2006. As with Medicaid, we stated that we
expected to measure improper payments in all components of SCHIP in FY
2007 and beyond. The selection of States for the first PERM cycle of FY
2006 through FY 2008 is listed below. Note that, for States measured
for Medicaid FFS in FY 2006, all three components of Medicaid and SCHIP
will be measured in FY 2009.
Medicaid and SCHIP 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.
------------------------------------------------------------------------
[[Page 50492]]
B. PERM Measurement Cycle
We stated in the August 28, 2006 interim final rule that the
process for measuring improper payments, called the ``production
cycle,'' under the national contracting strategy would take
approximately 23 months per cycle. Using FY 2006 as an example, we
provided the following table as 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 illustrates 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.
------------------------------------------------------------------------
C. Use of Federal Contractors to Review FFS and Managed Care Claims
In the August 28, 2006 interim final rule, we reiterated that,
under the national contracting strategy, we would use Federal
contractors to measure Medicaid and SCHIP FFS and managed care improper
payments. We believe the use of more than one CMS Federal contractor
allows for the award of contracts in areas of specialization and
expertise, minimizes potential problems with the error rate measurement
process if one contractor experiences operational difficulties, and
provides us with optimum oversight. However, we may revise our use of
multiple contractors in the future if warranted by our experience as
the program matures, for example, if we can gain efficiencies. For FYs
2006 and 2007, we awarded three contracts: (1) A statistical analysis
contract; (2) a documentation/database contract; and (3) a review
contract.
The statistical contractor (SC) collects adjudicated claims data,
determines the sample size, draws the sample, and calculates the State
and national error rates. The documentation/database contractor (DDC)
standardizes State data, collects and stores State medical and other
related policies, and requests the medical records from providers for
the FFS medical reviews. The review contractor (RC) conducts the
medical and data processing reviews on the States' FFS and managed care
claims.
In the August 28, 2006 interim final rule, we indicated that the
States' responsibilities to support the improper payments measurement
for both Medicaid and SCHIP would include submission of information on
managed care. We stated that the States selected for review would
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 after 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.
We required States to provide stratified FFS claims data because we
believed that stratifying the claims by service type would improve 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 would
have information that could be helpful to target causes of errors.
Based on the annual expenditure data, the SC would 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. States had already
grouped their claims similarly in their Medicaid Management Information
System (MMIS); therefore, we believed that the stratification of claims
for submission would not be burdensome to States.
We established the following 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, durable medical
equipment, clinical lab tests, and x-rays); (7) primary care case
management; and (8) denied claims.
From the State's quarterly adjudicated claims data, the SC would
randomly select a sample of FFS and managed care claims each quarter.
Each selected FFS claim would be subjected to a medical and data
processing review. Managed care claims would not be stratified or
subjected to medical reviews because the payments 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. We
expected that the sample size would be 1,000 FFS claims and 500 managed
care claims per State per 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).
For review of the sampled claims, States would 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
[[Page 50493]]
Upon request from the contractor, provider contact
information that has been verified by the State as current.
States selected for review also would 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 would then identify the data
processing policies so the RC could access them through the DDC.)
Repricing information, as requested by the RC, for claims
that the RC determined to be improperly paid. The RC would request that
States submit the price that should have been paid so that, for claims
that were found to be in error, the RC would be able to determine the
amount of the improper payment.
The August 28, 2006 interim final rule also set forth a difference
resolution process whereby States would be provided disposition reports
listing the contractor's review finding on each claim. Based on these
reports, States would be able to dispute error findings.
When the reviews were completed, the SC would estimate the State-
specific error rates for the FFS and managed care components of the
Medicaid and SCHIP programs. States (using the eligibility methodology
set forth in the August 28, 2006 interim final rule to conduct
eligibility reviews beginning in FY 2007) would calculate and report
the State-specific eligibility error rates to us. These measurements
also will produce component 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 programs.
Once the State-specific and national error rates were estimated,
the States would develop and send to us corrective action reports
describing corrective actions that the States would implement to
address the major causes of improper payments. The States would review
their error rates, determine root causes of error-prone areas, and
develop corrective actions to address the major error causes for
purposes of reducing the payment error rates. States selected for
review would 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
Other information that the Secretary determined necessary
for, among other purposes, estimating improper payments and determining
error rates in Medicaid and SCHIP.
We stated that we would request information we found 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, we stated
that, if we determined that we were collecting specific information
that did not add value to the error rate measurement or was not
productive to collect, we would discontinue that collection.
D. Eligibility Measurement
In the August 28, 2006 interim final rule, we set forth the
eligibility measurement methodology developed through the eligibility
workgroup and through our consideration of public comments submitted in
response to the October 5, 2005 initial interim final rule. The
eligibility measurement methodology is summarized below:
A State would review program eligibility in the year it
was scheduled for review for FFS and managed care improper payments.
The eligibility reviews would be conducted by a State agency that was
functionally and physically independent of the State agency making the
program policy and eligibility determinations.
The Medicaid and SCHIP eligibility sample universes would
consist of both active cases (individuals enrolled in the program) and
negative cases (individuals denied or terminated from the program).
Medicaid and SCHIP cases in the active universe would be
stratified into three strata: (1) Applications, (2) redeterminations,
and (3) all other cases. Negative case action samples would not be
stratified in either program.
A State would calculate its eligibility error rates for
active cases (including undetermined cases) and negative cases.
States would submit the following to CMS:
--A sampling plan for approval (which would be submitted 60 days before
the beginning of the fiscal year selected for review);
--A monthly sample selection list that identified the cases selected
for review (to be submitted each month and before commencing the
reviews);
--Detailed findings on the cases reviewed;
--Summary findings on the cases reviewed; and
--State-specific case and payment error rates for active cases, case
error rates for negative cases, the number and amount of undetermined
cases, 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.
We invited further comment on this methodology for measuring
improper payments due to errors in eligibility determinations.
III. Analysis of and Responses to the Public Comments on the August 28,
2006 Interim Final Rule
We received a total of 33 comments: 28 from State agencies, 3 from
consumer advocacy and other groups and 2 from individuals. These
commenters reiterated some of the comments from the proposed rule to
which we responded in the October 5, 2005 and August 28, 2006 interim
final rules. Although we are not required to respond to these comments
again, we are summarizing the comments in this final rule and providing
our responses for the convenience of the reader. Below are the comments
on the August 28, 2006 interim final rule and our responses.
Most comments responded to our invitation for further comment on
the PERM eligibility measurement process. Commenters also indicated
that, although the August 28, 2006 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 August 28, 2006 interim final rule still placed an
undue technical and financial burden on the States to assist the
Federal contractors.
A. Purpose, Basis, and Scope
1. Payment Error Rates
Comment: Several commenters asserted that a State error rate is not
required by IPIA and funds are wasted in establishing a payment error
rate. The commenters also maintained that State audits could identify
improper payments. The commenters stated that a national sampling
framework should be used to measure a national error rate, and that CMS
should abandon the proposed State-level error rate in favor of a
national error rate and sampling plan.
Response: As we observed in the October 5, 2005 and August 28, 2006
interim final rules, the IPIA requires the Secretary to estimate the
amount of improper payments in programs and activities that are
susceptible to significant improper payments and report those estimates
to the Congress. OMB has identified Medicaid and SCHIP as programs at
risk for significant
[[Page 50494]]
improper payments. Because States administer these programs and because
there is wide variation in States' coverage, eligibility, benefit, and
reimbursement policies for these programs, we must rely on State-
specific information to develop State-level estimates as the basis for
a national program error rate.
In addition, even though State audits may identify improper
payments, we could not be confident that States' audit procedures would
be similar and would be consistently applied nationwide or would
produce statistically reliable information on which a national rate
could be based. Finally, we have stated that the PERM program is
intended to fulfill the requirements of the IPIA; it is not intended to
supplant, enhance, or change other program integrity activities in
which the States are currently engaged.
Comment: One commenter suggested that the national error rate be
computed using State error rates that are weighted against dollar
volume in other States to ensure that each State's contribution to the
error rate is clear, balanced, and consistently calculated at all
levels of data analysis.
Response: The national error rate is calculated as the outcome of a
two-stage sampling process. States were placed into one of three
strata. These strata consist of the large, medium, and small States as
measured by Medicaid expenditures. For each of the three rotations, 17
States were randomly selected from three strata. Beginning in FY 2007,
for the States sampled in each year, claims and payments are sampled
for Medicaid and SCHIP fee-for-service and managed care. Sufficient
numbers of claims and payments are sampled to estimate an error rate
for the State at a precision level of plus or minus 3 percentage points
with 95 percent confidence. Then, within each of the three strata, an
error rate is calculated to represent the error rate of that stratum.
Finally, a national error rate is calculated by computing the error
rates across the three strata, where each stratum's rate is weighted by
the share of expenditures for that program represented by its strata.
The variance in this estimate is calculated by taking into account: (1)
The variance of the error rate of the individual States in the sample,
and (2) the variance in the original sample of States from the three
strata. The error rate is based on the total error, not the State or
Federal share.
Comment: One commenter suggested that States should be allowed to
calculate error rates based on either the difference method or ratio
method.
Response: Our statistical contractor will calculate the State-
specific error rates for FFS and managed care. In general, the ratio
method of estimating the error rate is formed using data from the
sample. From the sample, the dollar value of claims or payments in
error enters the numerator, while the dollar value of payments (both
those made in error and those that are valid) enters into the
denominator. This ratio is the error rate.
In general, the ``difference'' estimator is calculated as follows.
The dollar value of each error (the difference between what should have
been paid and what was paid) in the sample is added, with weights equal
to the inverse of the sampling frequency for the respective claim or
line item. This provides an estimate of the total dollars in error for
the universe or population for which the inference is made. This
becomes the numerator of the error rate. The denominator of the error
rate is actual payments made for the universe or population. The
denominator is non-stochastic, that is, non-random. This ratio, then,
provides an estimate of the error rate.
Because the actual payments made by the State for the universe or
population may not be available when we calculate the error rate, we
plan to use the ratio estimator.
Comment: A commenter observed that, in the August 28, 2006 interim
final rule, we responded to a comment regarding the likelihood of
achieving a national error rate by aggregating error rates from all the
States' programs with their inherent variations. We stated that, ``(b)y
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.'' The
commenter asserted this logic is circular and stated that more
information is needed to explain how this process would work.
Response: The process is based on sampling. By sampling, one can
obtain an estimate of a population parameter, such as the mean dollar
value of a Medicaid claim for a State, without having to examine every
claim in that State's universe. The larger the sample size, the more
precise the estimate of the mean value will be. For most populations,
one can typically obtain a very precise estimate of the population
parameters, such as the mean, by sampling far fewer than the entire
population or universe. Based on the outcome of the sample, one can
make an inference regarding the values of the true population mean, for
example, and a statement of the probability or likelihood that a small
range around the sample estimate captures the population's true mean.
The national error rate is calculated as the outcome of a two-stage
sampling process. First, States are sampled. Then, claims are sampled
within the State.
States were placed into one of three strata. These strata consist
of the large, medium, and small States as measured by Medicaid
expenditures. For each year, a total of 17 States were randomly
selected from the three strata. For States sampled in each strata,
claims and payments are sampled for Medicaid and SCHIP fee-for-service
and managed care. A sufficient number of claims and payments are
sampled to estimate an error rate at a precision level of plus or minus
3 percentage points with 95 percent confidence for that State. Then,
within each of the three strata, an error rate is calculated based on
the States sampled in that stratum. Finally, a national error rate is
calculated by estimating the error rate for the population of all
States as a weighted average of the error rates within each stratum.
The variance in this estimate is calculated by taking into account the
variance of the error rate of the individual States in the sample and
the variance in the original sample of States from the three strata.
Comment: A commenter would like to know the operational benefit of
a national error rate to the States if they will be measured against
their individual rates rather than a national average.
Response: The Improper Payments Information Act of 2002 (IPIA)
requires CMS to estimate and report to the Congress annual estimates of
improper payments. The national error rate for SCHIP and Medicaid will
be reported to the Congress as required by law. States will use their
State-specific error rates to implement corrective action plans. We
believe that these plans will ultimately reduce the national error
rate.
Comment: A commenter asked what assurance States would have that
comparisons among States would not be made when the error rates were
reported. Because of the wide variation in States' Medicaid and SCHIP
programs, this assurance is needed in order to reassure States that
unwarranted comparisons are not being made.
[[Page 50495]]
Response: We agree that care should be taken in comparing the State
error rates due to variation in State programs.
Comment: A commenter requested that CMS develop methods to
communicate with States regarding their responsibilities, timelines,
and completion expectations.
Response: We have communicated with States through kick-off calls
and one-on-one calls with each State involved in each year's
measurement. In addition, we post all instructions, letters and
questions and answers on our CMS PERM Web site at http://
www.cms.hhs.gov/PERM for all States to review.
Comment: A commenter stated that, since PERM is measured in a 3-
year cycle, the ``national average'' error rate cannot be compared
year-to-year.
Response: We believe there are several approaches to assess the
improvement in the reduction of improper payments year-to-year and over
the years.
Comment: Two commenters believed that State program integrity
efforts are in jeopardy because claims from providers under active
fraud investigation are included in the universe. The commenters
believed that (1) The error rate will be inflated because fraudulent
and abusive providers are not likely to respond to requests for medical
records; (2) providers can create, alter, or destroy documentation and
evidence when they are alerted that their claims are investigated; and
(3) false, fraudulent, and abusive claims can only be identified by
interviewing recipients and reviewing medical records.
Response: We do not intend to jeopardize States' provider fraud
investigations based on our review of FFS and managed care claims.
Therefore, if a FFS or managed care claim sampled under PERM is part of
a fraud investigation and the State notifies the statistical contractor
of this fact, the claim will not be subject to review under PERM.
However, we will cite the claim as an error. We believe the State, in
this instance, also believes the claim is in error since the State is
investigating the provider for fraud. For purposes of the eligibility
review, which is conducted on individual beneficiary cases rather than
claims, cases under beneficiary fraud investigation are excluded from
review.
Comment: A commenter asked for clarification on whether the IPIA is
intended to root out provider fraud or challenge program enrollment
decisions. The commenter stated that those functions are under the
purview of other Federal and State initiatives.
Response: We agree that the IPIA is not intended to root out these
problems. The IPIA is intended to identify improper payments, and
provider fraud may be discovered during the course of the measurement.
In addition, erroneous Medicaid and SCHIP program enrollment decisions
may be discovered during the eligibility reviews. The discovery of
these problems would be addressed by the State through corrective
actions.
Comment: A commenter indicated that the rule does not explain if
extrapolations will be conducted and if error rates will be reported
based on claims, dollar amount, or both.
Response: The method for estimating error rates is based on
sampling from the population or universe. From the sample, inferences
(or extrapolations) are drawn regarding specific population or universe
values, such as the error rate for the population. The active case
eligibility error rates will be dollar-weighted error rates. The
dollars assigned to the case will be those associated with the claims
that are collected for the recipient. The sample sizes for the active
cases were constructed to achieve an estimate of the State's dollar-
weighted error at a precision level of plus or minus 3 percentage
points with 95 percent confidence. The State level active case
eligibility error rates will be a component of a national active case
eligibility error rate. A simple binomial error rate (valid/invalid)
will be calculated for the active case error rate, and a binomial
(valid/invalid) error rate will be calculated for negative cases.
The Medicaid and SCHIP error rates for both fee-for-service and
managed care will be calculated and reported based on the dollar value
of the line items or payments sampled. The sample sizes were
constructed to achieve a precision level for each of the programs
(Medicaid and SCHIP fee-for-service and managed care) of plus or minus
3 percentage points with 95 percent confidence. The State level error
rates will also be used to estimate national error rates for these
programs, which are expected to achieve a precision level of plus or
minus 2.5 percentage points with 90 percent confidence.
To summarize, the methodology is to sample from the population or
universe, and then use the sample results to infer or extrapolate the
error rate for the population.
2. State Selection
Comment: A commenter stated that States were led to believe that
each program would be measured on an alternating or rotational basis.
By measuring Medicaid and SCHIP in the same year, the commenter
believes that CMS has unilaterally increased the State's cost and
burden by 100 percent. According to the commenter, this decision is
contrary to the supporting statement issued with the initial request to
gain OMB approval (71 FR 30409) published May 26, 2006.
Response: We believe that State cost and burden could actually be
reduced by measuring both programs in the same year. States would have
to measure errors in both programs at some point. By evaluating them
simultaneously, we believe efficiencies will be gained that may lower
costs and burden. We stated in both published interim final rules that
we would rotate the States, not the programs. We reiterate, in this
final rule, that each State will be measured on a rotational basis.
Comment: A commenter stated that the proposed random selection of
States to be reviewed under the PERM program makes it difficult to
predict the resources needed for PERM-related activities. If not
forthcoming, States could be held responsible for time delays in the
program.
Response: In the August 28, 2006 interim final rule, we stated that
we will use a rotational approach to review the States in Medicaid and
SCHIP. We released instructions explaining the selection of the States
to be reviewed under the PERM program through an October 10, 2006 State
Health Official letter. This information was also posted on the CMS
PERM Web site at http://www.cms.hhs.gov/PERM. Further, we stated that
we believe that the rotation will allow States to plan for the reviews
because States will know in advance in which year they will be
measured.
3. Use of National Contractor
Comment: A commenter stated that Generally Accepted Government
Auditing Standards (GAGAS) require States to review and comment on
contractor-generated PERM working papers and findings for quality
control purposes. The commenter asserted that the contractor's findings
should not be deemed final or actionable until this review is complete.
In addition, the commenter stated that the cost of this review must be
included in the rules, which, according to the commenter, does not
appear to be the case.
Response: The PERM program does not require States to use GAGAS.
GAGAS is issued by the Comptroller of the United States as auditing
standards for governmental audits. The PERM program is not an audit and
as such, GAGAS would not be applicable. However, under PERM, States
have the
[[Page 50496]]
opportunity through the difference resolution process to review error
findings. States also have the opportunity to further dispute error
findings by appealing to CMS.
Comment: A commenter applauded the use of national contractors but
did not believe the contractors have the required knowledge to complete
the reviews under CMS' current schedule. The commenter believed
additional time is needed for the transfer of knowledge from State to
contractor.
Response: The contractors will work closely with the States during
the measurement process to ensure that program knowledge is
transferred. We believe this will help mitigate delays in the process
that might be encountered otherwise.
Comment: A commenter asked how many days after the quarter ends
would State information have to be submitted to the statistical
contractor. The commenter stated that no details were provided on page
51053 of the Federal Register publication of the August 28, 2006
interim final rule.
Response: Our statistical contractor's instructions request that
State information be submitted to the statistical contractor no later
than 15 days after the quarter ends.
Comment: A commenter asked CMS to further clarify the format in
which States will be required to submit data for PERM compliance
purposes and whether the data would need to be coded.
Response: The operational details are contained in the instructions
that the statistical contractor sends to the States being measured at
the beginning of each quarter.
Comment: A commenter stated that the delay in collecting provider
documentation does not allow enough time for a State to respond to any
findings or perceived errors. The commenter does not believe that
hiring three contractors is effective in measuring error rates.
Response: We believe that having three contractors is effective
because the program is not jeopardized or substantially delayed if one
contractor experiences problems; the other contractors could continue
their respective aspects of the measurement. We agree that the 90-day
timeframe to collect medical records from providers may not allow
States adequate time to resolve errors with the RC through the
difference resolution process. In order to expedite the difference
resolution process within the overall timeframe for calculating annual
error rates under PERM, and provide States with adequate time to
respond to our contractor's proposed findings, we will issue guidance
instructing our national contractors to request that providers, in
compliance with our regulations at 42 CFR 431.107(b)(2), 431.970, and
457.720, submit medical records no later than 60 days after issuance of
the contractor's letter requesting such records. This will provide
additional time for the State and contractor to analyze and resolve
discrepancies.
4. State Input into the Program
Comment: One commenter disagreed with CMS' statement that States
have been active participants in the PERM regulatory process. The
commenter stated that CMS has not provided an acceptable forum for
State participation in the development of PERM regulation, and that
only two States were involved in meetings with CMS during the
development of the regulation. In addition, the commenter indicated
that CMS has not been present on three all-State calls regarding PERM
regulation, and that when CMS is present on calls, CMS does not provide
substantive responses to questions and points of clarification from the
States. The commenter concluded that States cannot make reasonable
comments and suggestions when CMS does not provide States with
sufficient information.
Response: The two States participated in the eligibility workgroup;
they did not participate in developing the entire PERM regulation.
Consistent with the rulemaking process, we have provided a vehicle by
which we review all timely public comments submitted to us. Through
this process, we have received valuable assistance in developing an
error rate measurement procedure that we believe is both sensitive to
the burdens that States must bear in meeting their responsibilities, as
well as one that allows us to uphold the duties that we must carry out
to be in compliance with the IPIA.
B. Methodology
Comment: Commenters stated that CMS should provide a detailed
timeline for the PERM sampling year for claim and eligibility reviews,
so that States would understand the schedule and deadlines. They
indicated that this timeline should identify all three contractor
activities and expected State responsibilities (for example, claim
delivery and sampling schedule dates and required State documentation
due dates needed by contractors to comply with CMS contract deadlines).
In addition, the commenters noted that States have suggested that, for
each PERM State being reviewed, the contractors should prepare monthly
project planning documents to CMS and the States that would explain
delays, barriers, or other issues that have arisen and the contractor's
plans to resolve any problem areas.
Response: We provided an overall timeline of the measurement
process in the August 28, 2006 interim final rule (using the FY 2006
Medicaid FFS measurement as an example) to identify when States should
submit needed information. We have included the timeline again in this
final rule (see ``Example of the PERM Production Cycle: FY 2006''
illustration) for the reader's convenience. In addition, we have held
kick-off calls, State-specific calls, component review calls, and
provided instructions to States selected for the FY 2006 and FY 2007
measurements, so States would understand the schedule and deadlines for
the FFS and managed care claims data submission. We intend to provide
the same guidance to States selected for the FY 2008 and FY 2009
measurements. The timeline for the eligibility measurement is attached
to the eligibility instructions, which can be found along with the
claims submission instructions, on the CMS PERM Web site at http://
www.cms.hhs.gov/PERM.
Sampling
1. Exclusions From the Claims Universe
Denied Claims
Comment: Two commenters suggested that CMS remove denied claims as
a review stratum. The commenters stated that there is an increased
burden on States to produce a list of adjudicated denied claims and
track re-billings of denied claims. The commenters also noted that
there is difficulty in determining the sample size based on dollar
value when the value of the denied claim is zero. The commenters
recommended convening a workgroup to determine a methodology to measure
errors in denied claims.
Response: Denied claims could be underpayments, and IPIA requires
the inclusion of underpayments in our measurement. We believe it is as
important to know when claims and eligibility have been wrongfully
denied as when they have been wrongfully paid and approved.
Furthermore, the sample size is determined by our statistical
contractor, not the States. Finally, the methodology to measure errors
in denied claims was developed by CMS and States during PAM/PERM
pilots. Therefore, we are not adopting the suggestion to convene a
workgroup to revisit this matter.
[[Page 50497]]
2. Sampling Issues
Comment: A commenter noted that the PERM stratification
requirements are complex and would likely pose a challenge for its
systems.
Response: We agree that stratifying Medicaid FFS claims has posed
challenges for States. Many States measured in FY 2006 had difficulties
stratifying the claims. Therefore, we are revising the requirement at
Sec. 431.970(a)(1) to remove the stratification of Medicaid and SCHIP
FFS claims by service requirement. This approach will further reduce
State burden since States would need only to submit the universe data.
We believe we can achieve greater sampling efficiency by stratifying
the FFS claims by dollar value rather than by service. The Federal
contractor will stratify the claims by dollar value.
Comment: A commenter stated that CMS did not provide a rationale
for the following statement in the August 28, 2006 interim final rule:
``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 * * *'' The commenter maintained
that the absence of a national sample framework for SCHIP does not mean
that one could not or should not exist.
Response: We do not believe a national sample is the best method to
achieve IPIA compliance. The Medicaid and SCHIP programs are State-
administered, and as such, we think it is necessary for States to
participate in part of the measurement process. We considered the
suggestions made by commenters on the past interim final rules and
determined that we would not adopt this recommendation.
Comment: A commenter asked whether the universe of claims includes
pharmacy, mental health, and substance abuse claims.
Response: Yes, pharmacy, mental health, and substance abuse claims
are included in the universe of claims.
Comment: Since the annual sample size is 1,000 FFS claims per State
per program, a commenter stated that the State's SCHIP program will
likely be disproportionately oversampled, since its State represents
only approximately 10 percent of the total United States population.
Response: From a sampling perspective, there is generally no
difference between a small and large population. Specifically, a
property of sampling is that, once the population size exceeds about
10,000, the population can be treated as if it were an infinite
population. In other words, statistically speaking, beyond a universe
of about 10,000, population differences do not have a significant
effect on sample size.
Comment: A commenter asked CMS to clarify each sample size and
methodology for each area of the PERM project. The commenter stated
that in all correspondence released by CMS to the States, the sample
sizes and methodologies have varied, which has made it difficult for
States to determine what is expected from them.
Response: PERM measures three components in Medicaid and three
components in SCHIP: FFS, managed care, and eligibility. For FY 2006,
the FFS sample size is 1,000 claims annually per program. These claims
are subject to data processing and medical reviews by our contractor.
For FY 2006, the managed care sample is 500 claims annually per
program. These claims are subject to data processing review only by our
contractor. For FY 2006, the eligibility sample size is 504 active
cases and 204 negative cases (not claims). Reviews to verify
eligibility are done by the States. Future sample sizes are subject to
change as necessary depending on such factors as lessons learned or
other situations impacting the timely and accurate error rate
measurement.
Comment: Commenters asked when FY 2007 States could expect to
receive additional information regarding the data elements that would
be required for data submission.
Response: The statistical contractor sends instructions out to each
State 45 days before the beginning of each fiscal year.
3. Medical Records Collection
Comment: A commenter asked if it was the State's responsibility to
pursue information identifying which providers have not submitted
requested medical records and whether the documentation/database
contractor would provide this information to the State.
Response: The documentation/database contractor will request the
medical records directly from providers for the FFS medical reviews.
The contractor will follow-up with providers who have not submitted
medical records. The contractor will notify the State of providers who
have not submitted medical records. The State can opt to follow-up with
these providers.
Comment: A commenter stated that, when the documentation/database
contractor receives the medical records from the provider, it is
imperative that the contractor immediately review the records for
completeness and appropriateness of documentation. The commenter stated
that the review should not be delayed until the medical review occurs
because such delay increases the likelihood of a claim found in error.
Response: The DDC is responsible only for the collection of medical
records and does not have the clinical expertise to determine the
completeness of these records. However, the review contractor (who
conducts the medical reviews) will notify the DDC if additional
information is needed during the medical review, and the DDC will
follow-up with the provider to obtain the specific information needed.
Insufficient documentation errors are cited when the provider does not
respond to the request for additional information or does not provide
the additional information within 14 days of the request.
Comment: A commenter stated that our assurances related to the
receipt of documentation before considering an error for lack of
documentation were insufficient. According to the commenter, it is
unreasonable to suggest that providers will respond timely to three
written and oral requests during a 90-day time period. The commenter
believed the documentation/database contractor should be required to
obtain documentation throughout the entire review year.
Response: Our experience has shown that our provider response rate
to requests for medical records is excellent, and that most providers
submit records within 30 days of the original request. Therefore, we do
not believe that the timeframe should be extended to include the entire
review year and are not adopting this recommendation. In fact, given
that the provider response rate is good and considering States'
concerns with the 90-day timeframe impeding on the difference
resolution process, we are considering reducing the timeframe, for
example, to no later than 60 days from the date of the letter sent by
the contractor requesting the medical records. If we decide this is
worthwhile, we will issue a policy instruction to that effect.
Comment: A commenter stated that, since the documentation/database
contractor will request medical records for the PERM program from a
provider, CMS should consider methods to minimize the duplication of
efforts since the State will have already received documentation from
the provider.
[[Page 50498]]
Response: We agree that duplication of effort should be minimized
wherever possible as long as the documentation is complete,
comprehensive, and timely.
4. Adjustments to Claims
Comment: A commenter requested clarification regarding whether the
60-day adjustment timeframe pertains to managed care claims or whether
it only applies to FFS claims.
Response: The 60-day adjustment timeframe pertains to both FFS and
managed care claims. Adjustments made within 60 days of the original
paid date will be included in the review process, which will consider
the net amount paid (original paid amount with additions and
subtractions due to adjustments that occurred within 60 days) in
calculating the error rate.
States will submit adjustments for managed care payments selected
in the random sample each quarter. These may include retroactive rate
changes, rate cell assignment corrections, and takebacks for
beneficiaries who lost eligibility.
Note that, while States may have policies that allow adjustments to
be made more than 60 days after the original paid date, only the
adjustments made within 60 days are considered for PERM purposes.
Comment: Several commenters expressed concern that Sec.
431.970(a)(8) requires States to make adjustments to managed care
capitation claims within 60 days of the adjudication date. The
commenters maintained that States needed a longer timeframe to
reconcile and adjust payments before the payments were classified as
errors. One commenter observed that its SCHIP program has a
reconciliation process in place that makes positive and negative
adjustments to capitation payments to health plans on a retroactive
basis; this process takes longer than 60 days. Some other commenters
asserted that adopting a 60-day window for adjustments is contrary to
the time periods now allowed in many States. One of the commenters
recommended that CMS extend the adjustment timeframe to a minimum of 4
months.
Response: We responded to this comment in the August 28, 2006
interim final rule (70 FR 58260). We understand the commenter's
concern; however, States have varying timeframes in which claims are
adjusted, and we cannot extend the timeframe in a manner that would
accommodate all States' practices. We noted in the August 28, 2006
interim final rule that the 60-day timeframe was agreed upon by States
and CMS during the development of the review methodology under the PAM
pilot projects as a reasonable timeframe. The 60-day timeframe allows
for claims adjustments while maintaining a timeline that also allows
for completing the reviews and computing and reporting the error rates
in time for inclusion in the PAR.
If we extend the timeframe to a point beyond 60 days, we cannot be
assured that the error rate measurement process will be completed in
time to report the error rate. Accordingly, we are not adopting this
recommendation.
Comment: A commenter stated that a bottom-line error rate must net
overpayments and underpayments as already required by the HHS Office of
Inspector General Corporate Integrity Agreements (http://oig.hhs.gov/
fraud/cia/docs/ciafaq1.html).
Response: OMB guidance M-06-23, published on August 10, 2006,
states that ``incorrect amounts are overpayments and underpayments
(including inappropriate denials or payment of services).'' OMB
guidance further directs that the estimate of improper payments is a
gross total of both over and under payments. The OIG guidance that the
commenter refers to is for a different purpose and does not apply to
PERM.
Comment: If a claim is sampled that is a reversal of a prior claim,
a commenter asked whether States would need to provide the original
claim, which may have been outside the timeframe.
Response: The State will sample original claims only because no
stand alone adjustments to claims are included in the universe. In
other words, the State will sample original claims only and make any
necessary adjustments within 60 days of the paid date for the claims
after the sample is selected. These consolidated and adjusted claims
would then be reviewed to determine if they were correctly paid.
Comment: A commenter asked whether adjustments to claims made
within 60 days from the adjudication dates for the original claims or
line items should be provided for the universe, or just for the
selected sample.
Response: Adjustments should be provided for the selected sample
only.
5. Medical and Data Processing Reviews
a. Methodology
Comment: A commenter recommended separating out claims for
residential care services within the overall estimate of the State
payment error rate, and suggested that CMS perform a quantitative and
qualitative analysis to determine the underlying reasons for the
payment errors in this category through surveys. CMS could then utilize
the data to correct the errors by giving States and providers
additional training where needed.
Response: Although we appreciate the commenter's recommendation, we
are not adopting it. States are responsible for performing error rate
analyses and for taking appropriate corrective action(s). The
requirements for the PERM program do not preclude a State from
independently evaluating any area within its Medicaid or SCHIP program
that may trigger a concern or may be vulnerable to payment errors. In
addition, it does not prevent a State from taking appropriate
corrective action.
b. Medical Reviews
Comment: A commenter suggested that CMS should allow findings of
``undetermined'' for the medical claims reviews as is permitted for the
eligibility reviews. The commenter believed that failure to recognize
an ``undetermined'' result due to missing or insufficient documentation
to support the medical reviews of FFS claims could produce artificially
inflated payment error rates.
Response: Requirements to document eligibility can vary by State.
However, all medical records should contain documentation to support
services rendered. We believe that claims should not be considered
correctly paid when documentation is missing to support the payment or
does not justify the payment. Therefore, we are not adopting this
recommendation.
Even though the total payment error rate will include documentation
errors, as we stated in the August 28, 2006 interim final rule, the
findings by our Federal contractors will distinguish errors due to
missing documentation and insufficient documentation from other types
of errors. As a result, States will be able to target corrective
actions appropriately.
Comment: A commenter asked why claims will be counted in error if
medical records cannot be provided.
Response: The FFS claims subject to medical review and lacking
documentation to support the payments are considered errors because
there is no evidence available to determine the appropriateness and
medical necessity of the payments.
Comment: The August 28, 2006 interim final rule stated that
``[e]ach selected FFS claim will be subjected to a medical and data
processing review.'' According to a commenter, this statement
contradicts previous Federal Register information and PAM/PERM guidance
on medical review of cross-
[[Page 50499]]
over claims. The commenter asks CMS to clarify the reported
contradiction.
Response: The statement in the August 28, 2006 interim final rule
was intended to provide a broad description of the PERM measurement
process. In response to this comment, we are clarifying that cross-over
claims (claims that are paid by both Medicare and Medicaid for services
provided to Medicaid beneficiaries) are not subject to medical review.
c. Data Processing Reviews
Comment: A commenter asked how data processing reviews would be
conducted if a SCHIP program did not process its own claims but instead
processed claims through a contracted insurance company. The commenter
asked whether the on-site data processing reviews would be performed at
the insurance company. If not, the commenter asked how the reviews
would be conducted.
Response: In instances when the SCHIP claims are processed through
an insurance company, the review contractor most likely will conduct
the reviews on-site at the insurance company.
d. Difference Resolution
Comment: A commenter recommended that the review contractor be
required to provide the State with all documentation it received for
each claim rather than partial documentation. This will allow the State
to adequately evaluate the review contractor's decision.
Response: We believe the determination of the level of information
needed should be made on a case-by-case basis. The RC or the DDC, or
both, will provide the State with sufficient information on which it
can decide if it disagrees with the error finding. We believe that it
is inefficient for the RC to provide the State with all documentation
on every claim and, therefore, we are not adopting this recommendation.
Comment: Several commenters noted that the difference resolution
process needs more specific information to be adequately evaluated.
They said that it could be rendered ineffective if it excluded review
differences under an arbitrary amount (for example, $100) and did not
include all the information received by the review contractor. One
commenter recommended eliminating the $100 dollar threshold in the
dispute resolution process.
Response: We have restricted when States can appeal an error
finding in order to prevent de minimis disputes and to ensure that
appeals to CMS address only those claims that are substantial enough to
warrant re-consideration. Therefore, we are not adopting this
recommendation. The $100 threshold for appeals at the CMS level also
ensures that States receive timely decisions on their appeals, which
could be jeopardized if the CMS appeals process was inundated with
appeals by every State on error findings with a dollar value of less
than $100. This threshold is similar to Medicare's Comprehensive Error
Rate Testing program's threshold, which allows contractors to dispute
one error finding per quarter.
As always, if a State is aggrieved by the contractor's adjudication
or CMS' reconsideration, or wants to address errors with dollar values
of less than $100, it can appeal to the Departmental Appeals Board.
Comment: A commenter noted that no time limits or restrictions were
placed on the difference resolution process. A State may find it
difficult to adequately review cases without sufficient time,
especially if the review contractor is behind in its review process.
Response: We plan to release guidance to States on the difference
resolution process through our review contractor, which will include
timeframes to respond to and resolve differences.
Comment: A commenter stated that the difference resolution process
is cited as a means to resolve disputes between States and the review
contractor. However, according to the commenter, it is unclear whether
all differences can be addressed in this process. The commenter also
stated that the difference resolution process does not outline a
process that addresses what happens if there are still unresolved
differences between States and the review contractor in the final
report.
Response: All differences in the review contractor's error findings
other than errors due to no documentation are addressed in the
difference resolution process. We also stated that errors due to
insufficient documentation will be excluded from consideration because
the difference resolution process is not intended to provide an
extended timeframe for submitting additional documentation. However, we
believe there are instances when States should be allowed to dispute
errors attributed to insufficient documentation. Therefore, at a
minimum, States will be able to dispute ``insufficient documentation''
errors when the State contends that: (1) There was documentation in the
case record at the time of the medical review which was overlooked or
misinterpreted by the reviewer; or (2) the State's written policy in
effect at the time the service was rendered did not require the
specific documentation that was the basis for the initial error
finding. (This provision excludes policies developed after the fiscal
year under review and made effective retroactive to the date of
service.) Operational details regarding the difference resolution
process will be issued via CMS guidelines.
Comment: Assuming that the number of unresolved differences between
the State and the review contractor will be very small, a commenter
suggested that the unresolved differences be considered
``undetermined'' and not be included in error rate calculations.
Response: The contractor's reviews findings will stand for purposes
of the error rate calculations in cases where the differences remain
unresolved after the conclusion of the difference resolution process.
After the State's error rate has been calculated for purposes of PAR
reporting, a State may request a new error rate calculation from the
statistical contractor based on resolution of outstanding differences
when the expected impact of the change in the error rate is at least
0.25 percentage points. The state can use this recalculated error rate
for its own purposes (for example, corrective action, analysis,
budgetary and resource planning).
Comment: A commenter noted that formal procedures for resolving
differences have not been published. The commenter observed that States
should be given the opportunity to review and comment on the procedures
before implementation to ensure that concerns raised by States in
previous public comments are addressed.
Response: We will release formal guidance for resolving differences
in the difference resolution process through the review contractor. We
will take the concerns expressed by the States into consideration as we
implement the difference resolution process.
Comment: A commenter stated that an error of less than $100 on a
claim should not be considered an error, since these findings cannot be
considered in the difference resolution process.
Response: The $100 threshold applies only to appeals to CMS. Error
findings with a dollar value of less than $100 could be considered in
the difference resolution process.
6. Payment Error Rate and Reporting
Comment: A commenter noted that OMB guidance M-03-13 stated that
OMB defines ``significant erroneous payments'' as ``annual erroneous
payments in the program exceeding
[[Page 50500]]
both 2.5 percent of program payments and $10 million.'' The commenter
asked whether erroneous payments in PERM that fail to meet either
threshold at the State level would not be reported and not be repayable
to the Federal government.
Response: The above noted definition of ``significant erroneous
payments'' was provided by OMB to help agencies identify programs that
are susceptible to significant erroneous or improper payments for
purposes of measurement under the IPIA (in this case the Medicaid and
SCHIP programs). The criteria set forth in the definition of
``significant erroneous payments'' is not relevant to computation of
the error rate or recoveries. They are only applicable to the Federal
agencies.
Comment: A commenter asked CMS to define the term ``agency'' as
that term is used in Sec. 431.974(a)(2) of the August 28, 2006 interim
final rule. The commenter indicated that some States have divisions and
departments rather than agencies.
Response: The term ``agency'' is defined in Sec. 431.958 of the
August 28, 2006 interim final rule. Under that provision, the term is
defined as follows: ``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 also defined in the regulation.'' Under this
definition, the term ``agency'' could mean a State's division or
department as well. We use the word ``agency'' as a general term
recognizing that States have various words. Therefore, States should
apply the term ``agency'' appropriately to mean division or department.
C. Expanded FY 2007 Error Rate Measurement
1. Eligibility
a. Cost and Burden
Comment: A commenter stated that the August 28, 2006 interim final
rule is a complete reversal of the policy that was established in the
October 5, 2005 interim final rule, in that the cost and burden of the
PERM eligibility reviews is placed back on the States instead of having
the reviews administered by a national contractor.
Response: The October 5, 2005 interim final rule stated that, based
on comments and recommendations on the August 27, 2004 proposed rule,
we adopted the recommendation to use a CMS Federal contractor to
estimate medical and data processing error rates for Medicaid and SCHIP
based on reviews of adjudicated FFS and managed care claims. In that
same interim final rule, we also noted that we would convene a
workgroup that would consider the best approach to measure improper
payments based on eligibility errors within the confines of current law
and with minimal budgetary impact. In addition, we pointed out that
States could be required to conduct at least part of the eligibility
reviews, and that any additional requirements placed on States would be
detailed in a subsequent issuance. Therefore, the requirements in the
August 28, 2006 interim final rule obligating States to conduct the
eligibility reviews is consistent with the stated intent in the October
5, 2005 interim final rule and with the August 27, 2004 proposed rule
that required States to conduct the eligibility reviews. Both of those
rules alerted States that they would likely have to conduct at least
part of the eligibility reviews. As a result, we disagree that there
has been a policy reversal on this matter.
Comment: Several commenters stated that the eligibility review
requirement placed a significant staffing and financial burden on
States. The commenters believed that since they did not have the
funding available for additional personnel, they would have to shift
staff away from other programs to comply with this requirement.
Response: Based on our plan to rotate States for the PERM
measurement, States can plan for the eligibility reviews. Each State
also has the option of contracting out the eligibility reviews to an
entity that is not directly participating in the State's eligibility
and enrollment processes for either program, which may lessen State
burden. In addition, it should be noted that, depending on a State's
most recent error rate established under PERM, the sample size for
subsequent eligibility reviews needed to produce a reliable error rate
could be reduced in future years, thus further reducing cost and
burden. We are also considering other means to minimize cost and burden
related to the eligibility reviews. To that extent, we are providing in
this final rule a provision to eliminate duplication of the negative
case action reviews under both the PERM and Medicaid Eligibility
Quality Control (MEQC) programs. We will provide in this final rule
that, in a year a State conducts the negative case action reviews under
PERM, these PERM reviews will be considered to meet the negative case
action requirements under MEQC.
Comment: A commenter believed that the rule would require
experienced caseworkers to move into reviewer positions and deplete
field offices of eligibility determination resources and thereby impact
error rates in all programs (that is, Medicaid, Food Stamps, and
Temporary Assistance for Needy Families) and place States at high risk
of future Federal Food and Nutrition Service sanctions.
Response: The rule does not require experienced case workers to
conduct the reviews. Furthermore, the annual active case sample size in
a State's initial year under PERM is 504 cases per program. This annual
sample size results in a State reviewing 42 cases per month per
program. The annual sample size could be reduced in subsequent years
based on the State's most recently calculated eligibility error rate
under PERM. Therefore, we do not believe States will need to commit
significant resources to the reviews, particularly to the extent that
other programs would be negatively impacted.
Comment: Some commenters believe that the time and expense to
conduct the eligibility reviews for approximately 1,000 cases (500 per
program) is underestimated. Commenters stated that, even at the
underestimated 108,800 hours for collection activities and 19,960 hours
to complete the Medicaid and SCHIP reviews, this burden will have a
substantial impact on States, especially smaller States.
Response: We believe the amounts which we provided in the August
28, 2006 interim final rule accurately estimated the impact on States.
However, these amounts are estimates and we agree that States may
experience higher or lower costs during actual implementation. It
should be noted that States are reimbursed at the Federal
Administrative Match Rate for these activities. We are considering ways
to reduce costs through minimizing duplication of effort in the PERM
and MEQC reviews or through other means.
Comment: Based on its experience with MEQC and the PERM pilot, a
commenter stated that the estimates of the August 28, 2006 interim
final rule are understated; according to the commenter, the estimates
do not take the expanded scope of PERM into consideration.
Response: We considered estimates for the FFS, managed care and
eligibility measurements for both Medicaid and SCHIP in the August 28,
2006 interim final rule as well as in this final rule. Insofar as this
can be deemed to be an expansion of PERM, we did take that into
account. However, we would not necessarily agree with the commenter
that the interim final rule represents an expanded scope. Indeed, our
decision to use national contractors for much of the
[[Page 50501]]
PERM measurement represents a narrowing of our scope. We believe that
our estimates are accurate.
Comment: A commenter stated that CMS should further revise
eligibility cost and burden estimates to reflect the need to hire and
train staff, travel allotments, and the complexity of certain reviews
that will require additional time to complete.
Response: We included an additional 2,135 hours in our estimates
for supporting functions like training, supervision, quality assurance
and creation of review tools, etc. The total 10,055 hour estimate
represents the burden to complete review findings to show the
disposition of each case and includes all of the review supporting
functions.
Comment: A commenter believed that the burden estimates that CMS
provided in the August 28, 2006 interim final rule do not adequately
reflect the burden that States must assume in the PERM review process.
The commenter stated that CMS should consider that, although the PERM
cycle is 23 months, different staff will be required to complete
different phases of each process. The commenter noted that the same
staff will not be used for the FFS component, managed care component,
and eligibility component.
Response: We estimated cost and burden for each function of the
PERM program as outlined in the interim final rule. We refer to section
V., Collection of Information Requirements of the August 28, 2006
interim final rule (71 FR 51077). We considered the cost of the staff
in each individual function. We do not believe that additional costs
necessarily will result from different staff working on different
functions. We believe this will vary from state to state. We continue
to believe our estimates are correct.
Comment: A commenter suggested that if PERM reviews cannot be used
to satisfy MEQC requirements, then States should be reimbursed in full
for the eligibility functions.
Response: In the August 28, 2006 interim final rule, we noted that
States selected to conduct eligibility reviews will be reimbursed for
those activities at the applicable administrative Federal match under
Medicaid and SCHIP.
Comment: A commenter maintained that States that are preparing for
or in the process of implementing a new Medicaid Management Information
System (MMIS) or eligibility system should be exempt from selection
until the implementation of the system has been finalized. Otherwise,
the commenter stated that resources will be stretched to the maximum.
Response: We notified States of their selection in the rotation
through a State Health Official letter released to all States on
November 18, 2005. Therefore, we believe that States are able to
adequately plan for the PERM measurement process and are not adopting
this recommendation.
Comment: A commenter believed that there will be an increased cost
to and burden on States if they choose to hire a consultant to perform
eligibility reviews (for example, States would have to coordinate
efforts to provide documentation to the consultant and manage the
consultant).
Response: Contracting out the eligibility reviews to an outside
vendor is an optional decision for States. If a State believes this
option would have a detrimental effect, it is not required to select
it.
Comment: A commenter stated that States should be allowed to
conduct reviews in accordance with their eligibility policies, to
reduce time and expense. According to the commenter and to further
illustrate this point, the commenter indicates that States should not
be required to document verification of income and age if the State's
eligibility policy accepts self-declaration.
Response: The PERM eligibility reviews provide for a State to
verify eligibility according to the State's policies to determine if
the case meets the eligibility criteria set by the State. These
instructions were developed to allow States to use their own policies
to the maximum extent possible while ensuring a consistent methodology
nationwide. We released instructions for conducting eligibility reviews
through an October 10, 2006 State Health Official letter. These
instructions provide for the acceptance of self-declaration under
certain circumstances. These instructions are posted on our CMS PERM
Web site at http://www.cms.hhs.gov/perm/downloads/
2007EligibilityGuidance.pdf. The accompanying State Health Official
Letter is posted on our CMS PERM Web site at http://www.cms.hhs.gov/
perm/downloads/2007ParticipationLetter.pdf.
Comment: A commenter asked if reviewers would be required to accept
a State's standards and processes and not verify information using
other sources not used by the State.
Response: The eligibility instructions address sufficient evidence
of documentation and also refer to section 7269 of the State Medicaid
Manual for listings of acceptable documentation to verify eligibility
for PERM purposes. We would expect reviewers to verify eligibility
under the PERM reviews using these sources in cases where documentation
is missing from the case record or is outdated and likely to change
regardless of whether a State uses these sources to verify eligibility
for the Medicaid and SCHIP program. However, since these documents
(birth certificate, driver's license, etc.) are commonly used as
evidence of eligibility, we would expect a State would already be using
these sources.
Comment: A commenter stated that staff time devoted to developing a
corrective action plan and reporting error rates must be considered in
the review costs.
Response: We have considered these factors in our estimates. In the
August 28, 2006 interim final rule, we estimated the cost and burden on
States to be up to 1,000 hours per State per program to develop a
corrective action plan and 9,980 hours per State per program to conduct
the eligibility reviews and report error rates.
Comment: A commenter stated that PERM places a disproportionate and
excessive burden on SCHIP by applying the same requirements to both
Medicaid and SCHIP. The commenter stated that SCHIP is a significantly
smaller program covering far fewer individuals than Medicaid and with a
fraction of the expenditures of Medicaid. However, the smallest SCHIP
programs will be required to sample the same number of cases at an
estimated cost of $532,000 per program, which represents a significant
amount of money for many SCHIP programs.
Response: From a sampling perspective, there is generally no
difference between a small and large population. Specifically, a
property of sampling is that, once the population size exceeds about
10,000, the population can be treated as if it were an infinite
population. In other words, statistically speaking, beyond a universe
of about 10,000, population differences do not have a significant
effect on sample size. We have provided in our eligibility instructions
that, based on the finite population correction factor, States with a
SCHIP or Medicaid population of 10,000 or less can use a smaller sample
size. After a State establishes its baseline eligibility error rate, it
can use that rate to determine the sample size for the next measurement
year, which could be smaller. Therefore, we expect that the State would
experience a savings in cost and burden due to the smaller sample size.
Comment: Several commenters expressed concern that the eligibility
reviews will significantly impact the SCHIP program's 10 percent cap on
[[Page 50502]]
administrative expenditures. Their comments include:
PERM costs should be separate, as it was not part of the
consideration when the cap was created. The costs will exceed the
estimated costs of $400,000 under the regulatory impact statement.
However, references to the SCHIP program in the analysis and response
to public comments stated that there will be no consideration of
exempting PERM activities from this cap.
The estimated cost of $532,000 per program will have a
particularly significant impact on smaller States, States which are
close to reaching the 10 percent cap on administrative expenses, and
which may exhaust their SCHIP allotments in the year that they must
conduct PERM reviews. A number of States could be forced to serve fewer
children and cut back on other important administrative functions, such
as outreach, application processing, and quality improvement because of
the new PERM requirements.
States may exceed their 10 percent administrative cap and
violate Social Security Act Title XXI since CMS noted, in the August
28, 2006 interim rule, ``We are not considering exempting the costs of
PERM-related activities from the 10 percent cap on SCHIP administrative
expenditures.''
Response: Although we respect the commenters' concerns that the
eligibility reviews will significantly impact the SCHIP program's 10
percent cap on administrative expenditures, as we stated in the August
28, 2006 interim final rule, we view PERM as part of the cost of
administering the SCHIP program.
Comment: Several commenters stated that they must obtain additional
funds for additional budgetary issues (that is, hire and train staff,
purchase materials, and modify and develop systems) through their
biennial legislature. However, without specific guidance and
particulars on PERM eligibility reviews, the requests for additional
funds cannot be developed. CMS should finalize the PERM regulations and
give States time to develop internal procedures and structure or
consider deferring implementation or stagger the measurement of the
programs.
Response: Our guidance for the eligibility measurement was released
on October 10, 2006 and is posted on our CMS PERM Web site. We agree
that the States selected for the FY 2007 measurement needed additional
time to prepare for the reviews, and we provided these States with a 3-
month implementation period. We believe the States being measured in FY
2008 and FY 2009 will have ample time to prepare for the reviews.
b. Eligibility Workgroup
Comment: A commenter stated that CMS should not implement the PERM
eligibility reviews for SCHIP in FY 2007 as proposed in the August 28,
2006 interim final rule. Instead, the commenter recommends that CMS
should convene a workgroup composed of all stakeholders--including
Federal officials, State SCHIP directors and children's advocates--in
order to develop an alternative methodology tailored more appropriately
to the SCHIP program.
Response: The eligibility workgroup, which included both a State
and a Federal SCHIP representative, carefully considered the impact the
eligibility reviews would have on the SCHIP program when it developed
its review methodology. During the process, the workgroup tailored its
methodology to the SCHIP program (to the extent possible) while it took
steps to maintain the consistency and integrity of the review
measurement. As a result, we have implemented the PERM eligibility
reviews for SCHIP in FY 2007 as proposed in the August 28, 2006 interim
final rule. We also felt it was important to maintain consistency
between Medicaid and SCHIP reviews to the extent possible to reduce
burden on States whose SCHIP programs are Medicaid-expansion.
Comment: A commenter asked why no SCHIP representatives were
invited to participate on the eligibility workgroup to comment on the
eligibility sample size.
Response: We had one State and one Federal SCHIP representative on
the workgroup. The sample size was determined by statistical measures
that assumed a 5 percent error rate, since there are no reliable
Medicaid eligibility error rates for the majority of States and no
SCHIP eligibility error rates exist on which we could use as a basis to
determine sample size. We have provided for a modest population
correction, which could potentially reduce the sample size necessary
for States with small Medicaid or SCHIP populations.
Comment: A commenter indicated that there were many States that
participated in the PAM and PERM pilot projects. The commenter asked
how the two States that participated in the eligibility workgroup were
selected, and whether these States participated in the pilot projects.
In addition, the commenter asked CMS to provide a schedule and meeting
minutes that were held in developing the eligibility review
methodology.
Response: 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 New York and
New Jersey, as selected by the American Public Health Services
Association. We did not believe that their previous participation in
the PAM/PERM pilots was necessary since the purpose of the workgroup
was to establish a methodology for eligibility reviews based on a case
sample. The eligibility reviews conducted in the PAM/PERM pilots were
based on a claims sample. We also developed the methodology based on
the workgroup's consideration of public comments and the examination of
various approaches proposed in these comments.
c. Duplication of Effort
Comment: Many commenters noted that the interim final rule requires
States to conduct two eligibility reviews--once for the MEQC program
and once for the PERM program. Commenters responded as follows:
One State noted that the August 28, 2006 interim final
rule prohibiting PERM reviews from being substituted for MEQC reviews
conflicts with the information collection request and supporting
statement that indicated this substitution would be possible. States
need a final decision in order to plan for adequate staffing.
Another commenter wanted to know whether the PERM review
could substitute as a MEQC pilot program. A number of commenters urged
us to reconsider allowing the option of substituting PERM eligibility
reviews for MEQC eligibility reviews since the requirements for States
to conduct both MEQC and PERM eligibility reviews is duplicative,
administratively burdensome, and, a poor use of resources. If States
use PERM reviews to substitute for MEQC reviews, the commenters asked
whether the PERM review would preclude imposition of financial
penalties that would otherwise apply to the standard MEQC program.
Response: The notice of information collection requirements,
published in the Federal Register for public comment on July 22, 2005
(70 FR 42324), was in draft form for comment. We republished the final
notice in the Federal Register on September 1, 2006 (71 FR 52079). We
have determined that the PERM program is not intended to supplant other
programs, such as the MEQC program. However, in an attempt to reduce
duplication of effort, we have
[[Page 50503]]
decided that the negative cases reviews under PERM can be used to
fulfill the negative case review requirements under MEQC at Sec.
431.812 for the fiscal year a State is being measured under PERM. We
will amend the MEQC regulations accordingly. Finally, any recoveries
due to Medicaid eligibility errors that fall within the scope of the
MEQC program would be recouped through the MEQC program at section
1903(u) of the Act and would be subject to the 3 percent disallowance.
SCHIP improper payments identified through the PERM eligibility reviews
are subject to recovery under section 2105(e) of the Social Security
Act.
Comment: A commenter asked if States are allowed to substitute PERM
reviews for MEQC reviews, whether MEQC staff could conduct SCHIP
eligibility reviews in lieu of MEQC reviews, or whether States with
SCHIP programs that are not Medicaid expansion programs would be
required to hire separate staff for the SCHIP reviews.
Response: As noted above, States cannot substitute PERM reviews for
the MEQC active case reviews. Furthermore, we wish to clarify that
under PERM, SCHIP eligibility reviews include all cases where benefits
are paid by title XXI funds, which would include Medicaid expansion
cases. We are not requiring SCHIP programs to hire separate staff to
conduct eligibility reviews under PERM; certain commenters have made
this decision on their own. As previously stated, each State must
determine and ensure that the agency and personnel that develop,
direct, implement, and evaluate the PERM eligibility reviews and
associated activities are functionally and physically separate from the
State agencies and personnel that are responsible for Medicaid and
SCHIP policy and operations.
Comment: A commenter asserted that the regulations conflict on
whether MEQC reviews can be substituted for PERM reviews. The commenter
noted that CMS presently mandates MEQC reviews. According to the
commenter, States would experience a duplication of effort since these
reviews would not be eliminated or replaced through the proposed
regulation. The commenter stated that there are distinct and notable
differences between the PERM and MEQC reviews.
Response: We cannot waive the MEQC statutory requirements and have
determined that the PERM eligibility reviews will not be used to meet
the MEQC requirements. We agree there are distinct and notable
differences between the PERM and MEQC reviews. However, the PERM
reviews were developed in response to the IPIA and were never intended
to mirror MEQC reviews. Therefore, we do not believe the regulations
conflict.
Comment: A commenter stated that consideration has not been given
to waive PERM review requirements for States that have efforts underway
to measure improper payments.
Response: PERM enables us to comply with the reporting requirements
under IPIA. It is not intended to replace existing efforts by States
independently to measure improper payments.
Comment: Several commenters recommended that regulatory changes be
made to allow PERM reviews to substitute for MEQC reviews in years when
States are selected for the PERM program and revert back to MEQC
reviews in non-PERM years. The commenters stated that CMS has the
authority to change the PERM methodology.
Response: We have previously stated that the PERM eligibility
reviews were developed to comply with the IPIA and are not intended to
substitute for other program initiatives. Therefore, we are not
adopting this recommendation.
Comment: Instead of conducting simultaneous reviews for PERM and
MEQC, one commenter made the following recommendations: (1) Waive the
MEQC requirements for the PERM year; (2) during PERM measurement years,
allow States to use the PERM quarterly samples for eligibility reviews;
and (3) eliminate the stratification for eligibility and reduce the
number of months data are collected to manage the aggregate sample size
at the State level.
Response: As indicated earlier, we cannot waive MEQC since the
program is a statutory mandate. In addition, the PERM quarterly FFS and
managed care samples, which during the PAM/PERM pilots were the basis
for the eligibility reviews, are claims-based. We determined through
the PAM/PERM pilots that a claims-based sample was not conducive to
eligibility reviews because the time lag between when the claim is paid
and when the service was received (when eligibility is verified) could
be up to two years. This time lag not only would make verifying
eligibility expensive and difficult but also would not produce current
information on which to base corrective actions. Finally, stratifying
active cases ensures that the number of recently determined cases
(applications and redeterminations) will be large. If the active cases
were drawn randomly without stratification, most of the determinations
would be months old, which would make verifying eligibility as of the
State's last action difficult and expensive. The data are collected
evenly over the entire year, rather than being concentrated in one or
two months, to reduce the potential for biasing the eligibility error
rate if there is seasonality in the errors.
Comment: A commenter pointed out that CMS has stated that it is
``considering'' methods to minimize duplication of efforts in
eligibility reviews. However, States speculate this will not be
addressed.
Response: We have identified one area in which we can reduce
duplication of effort. In this final rule, we will amend the MEQC
regulations at Sec. 431.812 to provide that a State can use the PERM
negative case action reviews to meet the MEQC requirements for negative
case action reviews in the Fiscal Year a State is being measured under
PERM.
d. SCHIP Concerns
Comment: A commenter stated that SCHIP programs are charged with
examining the quality of services rendered through their programs and
clearly demonstrating their ability to provide preventive services to
the child population. The commenter indicated that the majority of
SCHIP programs report this information in their annual reports to CMS.
The commenter asked whether ``the model and leading edge'' for which
SCHIP has become known will be curtailed or stopped as a result the
PERM regulations. The commenter stated that, in 2007, it could spend
15.9 percent of its entire administrative budget on PERM-related
activities. The commenter asked what would be lost if these activities
forced States to exceed their financial cap on administrative federal
funds.
Response: The PERM activities are not intended to curtail or impede
other activities for SCHIP. Since States know when they will be
selected to participate in PERM, we expect that States would be able to
budget for the reviews in a manner that would not impede these other
activities.
e. Administration of Eligibility Reviews
Comment: A commenter asked whether a SCHIP stand-alone State office
would be excluded from performing eligibility reviews, even though it
does not determine eligibility but does develop policies and
procedures.
Response: We believe that an office that develops program policies
and procedures and also conducts the PERM eligibility reviews most
likely would not provide independence to the reviews and should be
excluded. However, we
[[Page 50504]]
also believe that the States should have the flexibility to determine
which agency performs the reviews based on our clarification of the
requirement for a separate and independent agency (as provided on the
CMS PERM Web site in the Q & A Section at http://www.cms.hhs.gov/PERM/
Downloads/PERMQ&A072507.pdf).
Comment: Several commenters asked whether a State could contract
with an appropriate vendor to conduct eligibility reviews or whether
only another State agency could conduct the reviews.
Response: Yes, the State can contract with a vendor, as long as the
contracting entity did not participate in the State's eligibility
determinations and enrollment activities and does not report to and is
not overseen by the State agency responsible for eligibility, policies
and operations.
Comment: Several commenters did not support the requirement that
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. They
recommended that we remove the ``separate and independent''
requirement. One commenter believed it was administratively cumbersome
and unnecessary to place the PERM reviews outside of its Department of
Health and Human Services particularly because shifting responsibility
to conduct eligibility reviews to agencies that do not have expertise
in Medicaid and SCHIP will result in incorrect findings and
misapplication of Federal policy. According to the commenters, the
``separate and independent'' requirement could also limit State
flexibility and unnecessarily increase the complexity and cost of PERM
administration. The commenters also believed that States would have
difficulty securing contracts without sufficient time.
Response: We agree that the States selected for the FY 2007
measurement might not have adequate time to secure contracts, and we
apologize for the short notice of this option. However, all States have
adequate time to secure contracts for future years if they wish to
elect this option.
The intent of the requirement to have the agency responsible for
the PERM eligibility reviews be physically and functionally separate
from the State agency responsible for program policies, operations, and
eligibility determinations is to ensure a level of independence and
integrity in the review process. We do not believe that having these
staff commingled or having one supervisor immediately responsible for
both functions provides this assurance. Therefore, we are not adopting
this recommendation. However, we are clarifying in this response that
this requirement does not preclude the State from placing the agency
responsible for the PERM eligibility reviews within the same single
State agency or umbrella agency as the State agency responsible for
program eligibility policies and determinations, provided that both
agencies do not report to the same immediate supervisor--for example,
first-line manager, Unit, Branch or Division Director. Our standard is
that the agency responsible for the PERM eligibility measurement report
to upper management that does not have direct responsibility for
program policies, operations and eligibility determinations. We also
strongly recommend that this agency also have a direct reporting line
to the head of the single State agency or other top management--that
is, the State Medicaid Director, State SCHIP Director, and Commissioner
or equivalent thereof. States should arrange the placement of the PERM
eligibility measurement to achieve this standard to the extent
possible.
Comment: Several commenters believed that State employees who were
not physically and functionally separate from the State agency
responsible for eligibility policy and operations were currently
performing MEQC activities. The commenters stated that there was no
evidence to support that the current organizational structure presented
a conflict of interest for MEQC. In addition, they maintained that
there was no indication that the program integrity process could be
compromised by the location of employees conducting the reviews. The
commenters believed that placing restrictions on State resources used
to comply with PERM eligibility requirements would increase the
complexity and cost of administration.
Response: It is important to note that the MEQC program and the
PERM eligibility measurement are separate and distinct requirements and
should not be compared. However, regarding the placement of MEQC staff,
the State Medicaid Manual, Part 7, section 7005 provides guidance on
administering the MEQC program and specifically states that MEQC staff
should report to top management, and that the State should ``separate
staff physically and functionally from operating units and policy
units.'' The Manual states that any other organizational structure
requires CMS regional office concurrence. In addition, section 7218 of
the Manual further discusses the independence of the MEQC review. The
similar requirement for the PERM eligibility reviews was adopted from a
recommendation made through public comment on the October 5, 2005
interim final rule because we believe it helps to ensure the integrity
of the reviews. Therefore, we believe the PERM requirement is
appropriate and, for those comparing the programs, is consistent with
the requirement for the independence of the MEQC reviews as expressly
stated in the State Medicaid Manual.
Comment: A commenter stated that it contacted CMS on whether its
structure would meet the regulatory requirement to have the agency
conducting the PERM eligibility reviews be functionally and physically
separate from the State agency responsible for Medicaid and SCHIP
eligibility policy, operations, and determinations. This commenter
explained that its Program Integrity division, which conducts QC
reviews, is within the Medicaid Agency and is separate and independent
of its Eligibility Division that is responsible for setting policy and
determining eligibility. The commenter requested a clear and definitive
answer of whether or not its Program Integrity Unit can conduct the
eligibility review.
Response: Section 431.974 in the August 28, 2006 interim final rule
outlines the basic elements of Medicaid and SCHIP eligibility reviews,
including the parameters for determining which agency can perform the
reviews. We provided further interpretation of these provisions in
eligibility instructions through an October 10, 2006 State Health
Official Letter and the CMS PERM Web site at http://www.cms.hhs.gov/
PERM.
We are also clarifying this specific requirement in this final
rule. As a result, we believe that States should have sufficient
guidance on which to determine which agency within the State's
organization should appropriately conduct the reviews. We are not
approving each State's determination, as the commenter urges us to do
in this case, that the agency assigned to perform the reviews or that
the State's organizational structure meets the regulatory requirement
in Sec. 431.974(2) of the August 28, 2006 interim final rule. That
determination is reserved for each State to make. In this particular
situation presented by the commenter, although we do not know the
State's organizational structure, based on the description we believe
that, as long as the Program Integrity Unit does not report to the same
[[Page 50505]]
immediate supervisor as the Eligibility Division, and reports to upper
management and, preferably, has direct reporting to the State Medicaid
or SCHIP Director or other top management, the placement of the PERM
eligibility reviews within the Program Integrity Unit appears
reasonable.
Comment: Two commenters stated that the regulation needs further
clarification so that States can determine which unit or agency can
perform the PERM reviews.
Response: To assist States to determine which agency can perform
the PERM eligibility reviews, States should determine:
Whether the PERM review (eligibility and payment) staff
would be physically separate from the program eligibility review staff,
for example, located on a separate floor in a building or located in a
separate building and not commingled in any way.
Whether the eligibility review agency would be
functionally separate and independent from the agency responsible for
eligibility determinations, policy and operations. The PERM unit should
not report to the same agency head, first line supervisor, Division
Director or other immediate supervisor. There should be at least one
level of supervision between the agencies and upper management. For
example, each agency would report to its own immediate supervisor; both
supervisors would then report to upper management. We recommend that
the PERM agency also have a direct reporting line to top management,
for example, State Medicaid Director or Deputy Commissioner.
Comment: A commenter was concerned with the agency conducting the
PERM reviews being a part of the same Medicaid office or division, not
the same State agency.
Response: We have clarified in this final rule that the agency
conducting the PERM reviews can be housed within the same State agency
containing the program office or division. However, this agency should
not be housed in the same office or division as the State agency
responsible for eligibility to the extent that both agencies are
commingled and report to the same immediate supervisor, for example, a
first-line manager or Division Director, because we do not believe this
placement would support the independence of the reviews and the
findings.
Comment: A commenter noted that the requirement that the agency
conducting the PERM eligibility reviews be functionally and physically
separate from the State agency responsible for Medicaid and SCHIP
policy operations poses a considerable hardship on the State and
requires creating a completely new entity or organizational structure
within the State. CMS should allow States to use the agency that is
most familiar with eligibility requirements to conduct the PERM
eligibility reviews.
Response: We are not requiring States to create a new entity or
organizational structure. Rather, we expect States to place the PERM
eligibility reviews within the States' organizational structures in a
manner that provides integrity and independence to the reviews and in
accordance with our clarifications provided above.
Comment: A commenter stated that the functional and physical
separation requirement contradicts CMS' assertion that having the State
conduct the eligibility review will reduce or eliminate the demand that
would otherwise be placed on State staff to educate a contractor about
eligibility issues. The current staff will have to take time to provide
technical assistance to the PERM audit staff that the State would need
to establish under this requirement, thus increasing the cost of
conducting these reviews.
Response: Providing technical assistance to State staff rather than
the Federal contractor would not necessarily increase the cost of
conducting the reviews. State policies by which reviews are conducted
are already in-house. In addition, States can determine the appropriate
agency to conduct the reviews or contract out this function, either of
which may not require extensive technical assistance.
Comment: A commenter asked whether it is CMS' intent that States
hire staff dedicated solely to PERM.
Response: No States should decide which staff are appropriate to
implement the eligibility methodology under PERM within the parameters
required by this regulation.
Comment: A commenter asked if States choose to hire staff for the
PERM project in years they are measured, what functions would this
staff have during the off years when the State is not being measured.
Response: It is not our intent to require States to hire staff
dedicated solely to PERM. However, States have the discretion to hire
such staff if they wish to do so.
Comment: A commenter stated that the requirement seems to
contradict a response to a comment made at a conference regarding the
difficulty of staffing for PERM when staff is only needed every three
years. The CMS oral response suggested using eligibility reviewers on
an interim basis between PERM selection years to enhance Medicaid or
SCHIP program integrity activities, which suggests that CMS would want
States to use these employees to staff ongoing operations in the
agency.
Response: We responded to a similar comment in the August 28, 2006
interim final rule in which we stated that, with respect to eligibility
reviews, staff for PERM would be needed longer than one year because
the process to measure one fiscal year takes approximately 23 months.
In the time period before a State's next PERM measurement activities
(approximately 13 months), we suggested, in response to the oral
comment, that a State could use the staff for other quality assurance
initiatives, such as enhancing its MEQC and SCHIP program integrity
activities. We were not suggesting that PERM employees staff ongoing
agency operations. This response, as well as the oral response at the
conference, was intended to clarify that staffing is not necessarily
needed for only 1 year, there are other areas where staff could be used
when not needed for PERM activities. However, we do not necessarily
expect States to hire staff devoted to PERM. We have provided States
the option to contract these reviews out to an entity not actively
involved with the State's eligibility and enrollment activities.
Comment: A commenter asked if CMS will allow MEQC staff to perform
the PERM review to satisfy the requirement for the MEQC program.
Response: No. States that would use the MEQC staff to perform the
PERM review would necessarily need to reduce MEQC activities or scope
of reviews to divert MEQC staff to conduct the PERM reviews.
Comment: A commenter recommended allowing States the option to use
MEQC staff to perform PERM eligibility reviews.
Response: We are not adopting this recommendation because we do not
agree that the current level of effort committed to the MEQC program
should be reduced to accommodate the PERM eligibility reviews.
Comment: A commenter asserted that this provision would require
States to contract out the eligibility reviews, because no other State
agency would have the expertise to perform the reviews. Contracting out
eligibility reviews would result in duplication of organization and add
significantly more costs.
Response: We have given States the discretion to organize their
eligibility review staff as they see fit within specific parameters.
Our clarification of
[[Page 50506]]
this provision provides States flexibility to place the PERM reviews in
the appropriate agency as well as contracting with an external
organization.
Comment: Several commenters asked if it was CMS' intent for the
State agency to contract with an outside vendor to conduct the PERM
eligibility reviews. If so, then the eligibility component of PERM
should be delayed to allow time for the States to develop and implement
contractual arrangements.
Response: It was not our intent to require a State agency to
contract with an outside vendor to conduct the PERM eligibilities
reviews. However, this approach is an option a State may wish to
pursue.
f. Review Methodology
Comment: A commenter stated that the interim final rule provided
little specific guidance as to the processes and methodologies that
should be employed for conducting the eligibility reviews, thereby
making it difficult to develop a sampling plan and determine complete
staffing and financial needs to conduct the reviews.
Response: We released detailed eligibility review instructions to
the States being measured in FY 2007 through an October 10, 2006 State
Health Official Letter. These instructions are posted on our CMS PERM
Web site at http://www.cms.hhs.gov/perm/downloads/
2007EligibilityGuidance.pdf. The State Health Official Letter is posted
on our CMS PERM Web site at http://www.cms.hhs.gov/perm/downloads/
2007ParticipationLetter.pdf. States may access these Web sites to
obtain this information.
Comment: Several commenters stated that the regulations do not
contain any specifics on conducting the eligibility reviews. Their
comments include:
CMS is preparing more detailed instruction about PERM
without public comment or input. CMS should make the policy for
eligibility reviews available to all States, not just States selected
for the FY 2007 reviews, as soon as it is available to allow sufficient
time to set up procedures and train staff accordingly.
CMS should clarify in its instructions that PERM reviewers
are not required to consult information sources other than those that
the State itself had to consult in making the underlying determination.
Therefore, if a State's verification and other procedural requirements
comply with Federal law and the eligibility caseworker complied with
State procedures, PERM reviewers should not be required to
independently verify information upon which the State's determination
was made. Otherwise, the estimated errors will be overstated, which may
compel States to implement more restrictive procedural requirements and
thereby resurrect barriers to the enrollment of eligible individuals.
Response: We 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 both States and on additional discretionary funding. We convened an
eligibility workgroup, which included representatives from two States,
and we considered public comments. In the August 28, 2006 interim final
rule, we published our eligibility review methodology and invited
further public comment. In addition, as noted, we have made our
eligibility review instructions available to all States, not just to
States that were selected for FY 2007 reviews, on our CMS PERM Web site
at http://www.cms.hhs.gov/PERM.
Finally, we do not agree with the commenter's statement that, if a
State's verification and other procedural requirements comply with
Federal law and the eligibility caseworker complied with State
procedures, PERM reviewers should not be required independently to
verify information upon which the State's determination was made. The
purpose of the eligibility review is to verify that the individual is
actually eligible for the program, not to verify that the State's
policies comply with Federal law or to determine that the caseworker
conducted the review appropriately. Therefore, in some instances, the
PERM review may necessarily go beyond the State's procedures and
caseworker's actions to verify eligibility.
Comment: Some commenters recommended postponing the commencement of
the eligibility review component. The comments included:
States cannot develop sampling plans that meet CMS
expectations due to the uncertainty of expectations.
States must follow budgetary processes to get necessary
State agency or contract staff and may not have adequate time to
arrange funding.
States need additional guidance as to the sampling
processes and methodologies for reviewing cases, as well as time to
arrange the necessary infrastructure and funding needed to support the
eligibility review.
Response: In the October 5, 2005 interim final rule, we announced
the States selected for Medicaid FFS, managed care, and eligibility
reviews in FY 2006, FY 2007 and FY 2008, so that the States would know
in advance in which year they will be measured under PERM. We also
stated in that rule we expected the determination of the eligibility
error rate would require State participation, and that we planned to
have the eligibility reviews commence in FY 2007. Finally, we notified
all States in an August 30, 2006 State Health Official Letter that
States will conduct the eligibility reviews, and we met with States at
two conferences held in September 2006 to provide additional
information. Therefore, we believe States had preliminary information
to help prepare for conducting the required eligibility reviews, which
were followed up with detailed written eligibility review instructions
released on October 10, 2006. Finally, the FY 2007 States, which had
less advance notice than the remaining States, are already working
successfully with our contractors in developing their sampling plans.
Therefore, we are not adopting the recommendation to delay implementing
the eligibility reviews.
Comment: A commenter suggested that CMS clarify that PERM reviews
will not immediately encompass State compliance with significant
changes in Federal rules or policies until States have had a reasonable
opportunity to implement the new rules.
Response: The PERM reviews will follow State policies and
procedures so long as they comply with Federal requirements, using the
effective dates of the Federal requirements and CMS policies regarding
State implementation. The PERM reviews are not intended to hold States
harmless in matters of non-compliance. Therefore, we are not adopting
this recommendation.
Comment: A commenter recommended that the FY 2007 PERM reviews
should not encompass the Medicaid citizenship documentation
requirements, which went into effect July 1, 2006 under the Deficit
Reduction Act of 2005. The commenter believed that since CMS policy in
implementing the new documentation requirements has not been completely
settled in a final rule, the uncertain nature of the new rules will
make it difficult for States to be in full compliance in FY 2007.
Response: The PERM review of citizenship for Medicaid will follow
CMS policy set out in a final regulation with comment published on July
12, 2006 (71 FR 39214) and any subsequent re