[Federal Register: August 24, 2007 (Volume 72, Number 164)]
[Rules and Regulations]
[Page 48869-48888]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24au07-14]
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Part VII
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Parts 400 and 421
Medicare Program; Medicare Integrity Program, Fiscal Intermediary and
Carrier Functions, and Conflict of Interest Requirements; Final Rule
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare and Medicaid Services (CMS)
42 CFR Parts 400 and 421
[CMS-6030-F]
RIN 0938-AN72
Medicare Program; Medicare Integrity Program, Fiscal Intermediary
and Carrier Functions, and Conflict of Interest Requirements
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule.
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SUMMARY: This final rule establishes the Medicare Integrity Program
(MIP) and implements program integrity activities that are funded from
the Federal Hospital Insurance Trust Fund. This final rule sets forth
the definitions related to eligible entities; services to be procured;
competitive requirements based on Federal acquisition regulations and
exceptions (guidelines for automatic renewal); procedures for
identification, evaluation, and resolution of conflicts of interest;
and limitations on contractor liability.
This final rule brings certain sections of the Medicare regulations
concerning fiscal intermediaries (FIs) and carriers into conformity
with the Social Security Act (the Act). The rule distinguishes between
those functions that the statute requires to be included in agreements
with FIs and those that may be included in the agreements. It also
provides that some or all of the functions may be included in carrier
contracts.
DATES: Effective Dates: These regulations are effective on October 23,
2007.
FOR FURTHER INFORMATION CONTACT: Brenda Thew, (410) 786-4889.
SUPPLEMENTARY INFORMATION:
I. Background
A. Current Medicare Contracting Environment
Since the inception of the Medicare program, the Medicare
contracting authorities have been in place and largely unchanged until
the last few years. At the inception of the Medicare program, the
health insurance and medical communities raised concerns that enacting
Medicare could result in a large Federal presence in the provision of
health care. In response, under sections 1816(a) and 1842(a) of the
Social Security Act (the Act), as those sections existed prior to the
October 1, 2005 effective date of amendments made by section 911(b) and
(c) of the Medicare Prescription Drug, Improvement, and Modernization
Act of 2003 (Pub. L. 108-173) (MMA), the Congress provided that public
agencies or private organizations may participate administering the
Medicare program under agreements or contracts entered into with CMS.
These Medicare contractors (which are, for the purposes of this
preamble, contractors that received awards under sections 1816 and 1842
of the Act prior to October 1, 2005) are known as fiscal intermediaries
(FIs) and carriers. With certain exceptions, FIs perform bill
processing and benefit payment functions for Part A of the program
(Hospital Insurance) and carriers perform claims processing and benefit
payment functions for Part B of the program (Supplementary Medical
Insurance).
(For the following discussion, the terms ``provider'' and
``supplier'' are used as those terms are defined in Sec. 400.202.
``Provider'' means a hospital, a critical access hospital (CAH), a
skilled nursing facility, a comprehensive outpatient rehabilitation
facility, a home health agency, or a hospice that has in effect an
agreement to participate in Medicare; or a clinic, a rehabilitation
agency, or a public health agency that has in effect a similar
agreement but only to furnish outpatient physical therapy or speech
pathology services; or a community mental health center that has in
effect a similar agreement but only to furnish partial hospitalization
services. ``Supplier'' is defined as a physician or other practitioner,
or an entity other than a provider that furnishes health care services
under Medicare.)
The former section 1842(a) of the Act authorized us to contract
with private entities (carriers) for the purpose of administering the
Medicare Part B program. Medicare carriers determine payment amounts
and make payments for services (including items) furnished by
physicians and other suppliers such as nonphysician practitioners
(NPP), laboratories, and durable medical equipment (DME) suppliers. In
addition, carriers perform other functions required for the efficient
and effective administration of the Part B program. The former section
1842(f) of the Act provided that a carrier must be a ``voluntary
association, corporation, partnership, or other nongovernmental
organization which is lawfully engaged in providing, paying for, or
reimbursing the cost of, health services under group insurance policies
or contracts, medical or hospital service agreements, membership or
subscription contracts, or similar group arrangements, in consideration
of premiums or other periodic charges payable to the carrier, including
a health benefits plan duly sponsored or underwritten by an employee
organization.'' No entity was eligible for consideration for a carrier
contract unless it could demonstrate that it met this definition of
carrier.
Section 1842(b) of the Act provided us with the discretion to enter
into carrier contracts without regard to any provision of the statute
requiring competitive bidding. Many other provisions of generally
applicable Federal contract law and regulations, as well as the
Department of Health and Human Services (HHS) procurement regulations,
remained in effect for carrier contracts.
The former section 1816(a) of the Act authorized us to enter into
agreements with public agencies or private organizations (that is, FIs)
for the purpose of administering Part A of the Medicare program. These
entities are responsible for determining the amount of payment due to
providers in consideration of services provided to beneficiaries and
for making these payments. Section 1816(a) gave us the authority to
enter into an agreement with an entity to serve as a FI if the entity
was first ``nominated'' by a group or association of providers to make
Medicare payments to it. Effective October 1, 2005, section 911 of the
MMA eliminated the requirement that FIs be nominated and establishes
the requirement that Medicare contracts awarded to Medicare
Administrative Contractors (MACs) be competitively bid.
Section 421.100 requires that the agreement between CMS and a FI
specify the functions the FI must perform. In addition to requiring any
items specified by CMS in the agreement that are unique to that FI, our
regulations require that all FIs perform activities relating to
determining and making payments for covered Medicare services, fiscal
management, provider audits, utilization patterns, resolution of cost
report disputes, and reconsideration of determinations. Finally, our
regulations require that all FIs furnish information and reports,
perform certain functions for provider-based HHAs and provider-based
hospices, and comply with all applicable laws and regulations and with
any other terms and conditions included in their agreements.
Similarly, Sec. 421.200 requires that the contract between CMS and
a Part B carrier specify the functions the carrier must perform. In
addition to requiring
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any items specified by CMS in the contract that are unique to that
carrier, we require that all Part B carriers perform activities
relating to determining and making payments (on a cost or charge basis)
for covered Medicare services, fiscal management, utilization patterns,
and Part B redeterminations. In addition, Sec. 421.200 requires that
all carriers furnish information and reports, maintain and make
available records, and comply with any other terms and conditions
included in their contracts. It is within this context that Medicare FI
and carrier contracts are significantly different from standard Federal
government contracts.
The Medicare FI and carrier contracts are normally renewed
automatically from year to year, in contrast to the typical government
contract that is recompeted at the conclusion of the contract term. The
Congress, in providing for the nomination process under section 1816 of
the Act, and authorizing the automatic renewal of the carrier contracts
in then-existing section 1842(b)(5) of the Act, contemplated a
contracting process that would permit us to noncompetitively renew the
Medicare contracts from year to year.
For both FIs and carriers, Sec. 421.5 states that we have the
authority not to renew a Part A agreement or a Part B contract when it
expires. Section 421.126 provides for terminating FI agreements in
certain circumstances, and, similarly, Sec. 421.205 provides for
terminating carrier contracts.
Each year, the Congress appropriates funds to support Medicare
contractor activities. In addition, the Medicare Integrity Program
(MIP) authorized by the Health Insurance Portability and Accountability
Act of 1996 (Pub. L. 104-191) (HIPAA) provides funding for program
integrity efforts. These funds are distributed to the contractors based
on annual budget and performance negotiations, where funds are provided
by program activity to each of the current Medicare contractors.
Historically, approximately 33 percent of these funds were for payment
for the processing of claims; an additional 25 percent of the funds
were for program integrity activities. These include conducting medical
review of claims to determine whether services are medically necessary
and constitute an appropriate level of care, deterring and detecting
potential Medicare fraud, auditing or settling provider cost reports,
and ensuring that Medicare acts as a secondary payer when a beneficiary
has primary coverage through other insurance. The remainder of the
funds was allocated for beneficiary and provider or supplier services
and for operational functions.
B. Discussion About Medicare Administrative Contractors (MACs)
Section 911 of the MMA added new section 1874A to the Act,
establishing the Medicare Fee-for-Service (FFS) Contracting Reform
(MCR) initiative that will be implemented over the next several years.
Under this provision, effective October 1, 2005, we have the authority
to replace the current Medicare FI and carrier contractors with new
MACs using competitive procedures.
In 2005, we began the process to conduct full and open competitions
to replace the current contracts with MACs. (This process is required
to be completed by 2011.) These MACs will handle many of the same basic
functions that are now performed by FIs and carriers. Additionally,
MACs may be charged with performing functions under the MIP under
section 1893 of the Act. The statute does not preclude the current FIs
and carriers from competing for the MAC contracts.
Among other provisions, section 1874A of the Act establishes
eligibility requirements for the MACs; describes the functions these
new contractors may perform (which may include functions of section
1893 of the Act so long as these responsibilities do not duplicate
activities that are being carried out under a MIP contract); and
specifies various requirements for the structure, terms, and conditions
of these new MAC contracts. In particular, section 1874A(a)(6) of the
Act specifies that the Federal Acquisition Regulation (FAR) (48 CFR
Chapter 1) will apply to the MAC contracts, except to the extent
inconsistent with a specific requirement of section 1874A of the Act.
Unlike the contracting authority of section 1893 of the Act, the
new authority of section 1874A of the Act does not mandate that the
Secretary publish either a proposed or final regulation prior to
entering into MAC contracts. Instead, the Congress, when enacting
section 1874A of the Act, directed CMS in section 1874A(a)(6) of the
Act to utilize the existing well-defined regulatory framework of the
FAR.
As one element of our implementation of section 1874A of the Act,
we published the Medicare Hospital Outpatient Prospective Payment
System and CY 2007 Payment Rates final rule (71 FR 68228 through 68230)
which made certain changes to 42 CFR 421 Subparts A and B, and
established a new Subpart E, to make clear how Medicare providers and
suppliers will be assigned to FIs, carriers, and MACs during the
implementation period for section 1874A.
The first of the full and open MAC competitions was for the DME
claims workloads. We decided to start the Medicare contractor reform
initiative with the DME MAC contracts because the workload of the then-
existing four durable medical equipment regional carriers (DMERCs) was
stable and the risk of any significant program disruption to the
provider and beneficiary communities would have been minimal. We
awarded the contracts for the four specialty MACs that will handle
administration of Medicare claims for DME during 2006, and we
anticipate that the last of these workloads will be fully implemented
by the summer of 2007.
During the initial implementation phase (2005 through 2011), we
plan to compete and award contracts for 15 Part A and Part B MACs
servicing the majority of all types of providers (both Part A and Part
B). We designed the new MAC jurisdictions to balance the allocation of
workloads, promote competition, account for the integration of claims
processing activities, and mitigate the risk to the Medicare program
during the transition to the new contractors. The new jurisdictions
reasonably balance the number of FFS beneficiaries and providers. These
jurisdictions will be substantially more alike in size than the
existing FI and carrier jurisdictions, and they will promote much
greater efficiency in processing Medicare's billion claims a year. On
July 31, 2006, we announced that we had awarded the first of the Part
A/B MAC contracts (Jurisdiction 3).
More information about our plans to implement Medicare contracting
reform, including our Report to the Congress on this subject, can be
obtained by accessing the Internet at http://www.cms.hhs.gov/medicarereform/contractingreform/
.
C. The Medicare Integrity Program
Section 202 of HIPAA added new section 1893 to the Act establishing
the MIP. This program is funded from the Medicare Hospital Insurance
Trust Fund to perform program integrity activities with respect to all
parts of the Medicare program. Specifically, section 1893 of the Act
expanded our contracting authority to allow us to contract with
eligible entities to perform Medicare program integrity activities.
These activities include: Medical, potential fraud, and utilization
review; cost report audits; Medicare secondary payer determinations;
overpayment recovery;
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educating providers, suppliers, beneficiaries, and other persons
regarding payment integrity and benefit quality assurance issues; and
developing and updating a list of DME items that, under section
1834(a)(15) of the Act, are subject to prior authorization.
Section 1893(d) of the Act requires us to set forth, through
regulations, procedures for entering into contracts for performing
specific Medicare program integrity activities, which include the
following:
Procedures for identifying, evaluating, and resolving
organizational conflicts of interest that are consistent with rules
generally applicable to Federal acquisition and procurement.
Competitive procedures for entering into new contracts
under section 1893 of the Act and for entering into contracts that may
result in eliminating responsibilities of an individual FI or carrier,
and other procedures we deem appropriate.
A process for renewing contracts entered into under
section 1893 of the Act.
Section 1893(d) of the Act also specifies the process for
contracting with eligible entities to perform program integrity
activities. In addition, section 1893(e) of the Act requires us to set
forth, through regulations, the limitation of a contractor's liability
for actions taken to carry out a contract.
The Congress established section 1893 of the Act to strengthen our
ability to deter potential fraud and abuse in the Medicare program in a
number of ways. First, it provides a separate and stable long-term
funding mechanism for MIP activities. Historically, Medicare contractor
budgets were subject to wide fluctuations in funding levels from year
to year. The variations in funding did not have any relationship with
the underlying requirements for program integrity activities. This
instability made it difficult for us to invest in innovative strategies
to control potential fraud and abuse. Our contractors also found it
difficult to attract, train, and retain qualified professional staff,
including auditors and fraud investigators. A stable funding source
allows us the flexibility to invest in innovative strategies to combat
potential fraud and abuse. The funding mechanism has helped us shift
our emphasis from postpayment recoveries on potentially fraudulent
claims to prepayment strategies designed to ensure that more claims are
paid correctly the first time.
Second, to allow us to more aggressively carry out the MIP
functions and to require us to use procedures and technologies that
exceed those generally in use in 1996, section 1893 of the Act greatly
expands our contracting authority relative to the contracting authority
of original sections 1816 and 1842 of the Act. Previously, we had a
limited pool of entities with whom to contract. This limited our
ability to maximize efforts to effectively carry out the MIP functions.
The flexibility made possible by section 1893 of the Act allows us to
attract a variety of offerors with potentially new and different skill
sets and permits those offerors to propose innovative approaches to
implement MIP to deter potential fraud and abuse. By using competitive
procedures, as established in the FAR and supplemented by the
Department of Health and Human Services Acquisition Regulation (HHSAR),
our ability to manage the MIP activities is greatly enhanced, and we
can seek to obtain the best value for our contracted services.
Third, section 1893 of the Act requires us to address potential
conflicts of interest among prospective MIP contractors before entering
into any contracting arrangements with them. Section 1893 of the Act
instructs the Secretary to establish procedures for identifying,
evaluating, and resolving organizational conflicts of interest that are
generally applicable to FAR contracts.
D. Experience With MIP Contractors
The MIP authority, established by HIPAA, gave us specific
contracting authority, consistent with the FAR, to enter into contracts
with entities to promote the integrity of the Medicare program.
In the March 20, 1998 Federal Register (63 FR 13590), we published
a proposed rule that would implement provisions of section 1893 of the
Act. We reviewed and considered all the timely comments received
concerning the proposed MIP regulatory provisions. Comments received
addressed a variety of issues, such as conflict of interest issues,
coordination among Medicare contractors, contractor functions, and
eligibility requirements. Overall, we found that few changes were
needed to the regulatory text. However, a final rule was never
published. Notwithstanding, section 1893 of the Act granted us the
authority to contract with eligible entities to perform program
integrity activities prior to publishing the final rule.
Section 1871(a), added by section 902 of the MMA, mandated that
final rules relating to the Medicare program based on a previous
publication of a proposed regulation or an interim final regulation be
published within 3 years except under exceptional circumstances. Given
that it had been greater than 3 years since the publication of the
initial proposed MIP regulations, we issued a second proposed rule in
the Federal Register on June 17, 2005 (70 FR 35204 through 35220).
In the March 20, 1998 proposed rule (63 FR 13590), we outlined our
authority to contract with entities to perform Medicare program
integrity functions to promote the integrity of the Medicare program
prior to publishing a final rule. In accordance with this MIP
authority, we currently maintain the following MIP contracts: 12
Indefinite Delivery-Indefinite Quantity (IDIQ) contracts for the
Program Safeguard Contractor (PSC) effort; 1 Coordination of Benefits
(COB) contract, 8 IDIQ contracts for the Medicare Managed Care (MMC)
Program Integrity Contractors effort, 8 IDIQ contracts for the Medicare
Drug Integrity Contractor (MEDIC) effort, and other contracts. (IDIQ
contracts are explained in detail in FAR 48 CFR subpart 16.5.) After
being awarded an IDIQ contract, organizations are given a fair
opportunity to be considered for award of task orders released by CMS
to specifically address program integrity issues within the scope of
the IDIQ contract. These MIP contractors, which are discussed in the
following section, must comply with the CMS Business Partners Systems
Security Manual (BPSSM) and its operational appendices (A, B, C, and
D); the CMS Policy for IT Security; and the CMS Information Security
``Virtual Handbook.'' CMS' Core Security Requirements, as defined in
the CMS BPSSM, include, but are not limited to, security standards
adopted under the Health Insurance Reform regulations published under
the HIPAA and Title X, section 1002 of the Homeland Security Act of
2002, the Federal Information Security Management Act of 2002 (FISMA)
(Pub. L. 107-296). The CMS requirements are applicable to MIP contracts
and to all subcontracts to MIP contractors. The BPSSM can be found at
http://www.cms.hhs.gov/informationsecurity/. The security requirements
include the following:
Contractor appointment of a dedicated systems security
officer.
Contractor certification for compliance with CMS Systems
Security Requirements.
Contractor administration of a systems security program.
Contractor correction of any security deficiencies,
conditions, weaknesses, findings, or gaps identified by all audits,
reviews, evaluations, tests, and assessments.
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Contractor compliance with CMS' security certification and
accreditation.
CMS security requirements are fully defined at http://www.cms.hhs.gov/informationsecurity/
and will be described in detail in
the MIP-related statement of work and task orders.
1. Program Safeguard Contractors (PSCs)
Since 1999, we have awarded more than 65 individual task orders
under the PSC IDIQ contract, including 17 Benefit Integrity (BI) Model
PSCs. These BI PSCs are tasked with performing fraud and abuse
detection and prevention activities for their respective jurisdictions.
Specific activities include fraud case development, local and national
data analysis to identify potentially fraudulent billing schemes or
patterns, law enforcement support, medical review for a BI purpose, and
identifying and developing appropriate administrative actions. Four of
the 17 BI PSCs have additional medical review functions. The remaining
task orders issued under the PSC IDIQ contract have focused on specific
program vulnerabilities and problem areas (for example, Comprehensive
Error Rate Testing (CERT), Correct Coding Initiative (CCI), and Data
Assessment & Verification (DAVe)).
Overall, we have been successful in implementing the PSC program.
Since 2002, 12 of the 17 BI Model PSC contracts were awarded and
transitioned. Typically, a 3 to 6 month period was allowed for the PSCs
to transition the BI workload from the FI and Carrier that had
previously been performing this workload.
2. Coordination of Benefits Contractor (COB)
In November 1999, we awarded one COB contract to consolidate
activities that support the collection, management, and reporting of
other health insurance coverage for Medicare beneficiaries. The
purposes of the COB program are to identify the health benefits
available to a Medicare beneficiary and to coordinate the payment
process to prevent the mistaken payment of Medicare benefits. In
January 2001, the COB contractor assumed all Medicare Secondary Payer
(MSP) claims investigations. Implementing this single-source
development approach greatly reduced the amount of duplicate MSP
investigations. It also offered a centralized, one-stop customer
service approach for most MSP-related inquiries, including those
seeking general MSP information.
Another task that the COB contractor is responsible for is
coordinating benefits with entities (including insurers and other
benefit programs) that pay after Medicare. These entities sign a
standard COB agreement for this purpose. Under a signed COB agreement,
the COB contractor collects information about beneficiaries who have
supplemental insurance. This information is used under Parts A and B of
Medicare to cross Medicare processed claims data over to insurers or
benefit programs for calculating their supplemental or tertiary
payments, as applicable. This coordination of benefits is consolidated
at the COB contractor. The COB contractor also has a role under Part D
to collect supplemental payer information. This information is then
shared and used by pharmacies to send secondary claims to supplemental
payers.
3. Medicare Managed Care Program Integrity Contractors (MMC-PICs)
MMC-PICs supplement our regional office integrity responsibilities
related to Medicare Advantage (MA) (formerly known as Medicare+Choice
(M+C)). Similar to the PSC, the MMC-PIC was designed specifically to
identify, stop, and prevent fraud, waste, and abuse.
Services performed by a MMC-PIC include--
Complete monthly analysis of plan discrepancies and report
to MA Organizations;
Review and analyze State regulatory practices;
Evaluate marketing operations;
Audit financial and medical records, including claims,
payments, and benefit packages;
Evaluate enrollment and encounter data;
Collect information and review matters that may contain
evidence of fraud, waste, and abuse and make referrals to the
appropriate government authority;
Compliance testing of internal controls of Health Care
Prepayment Plan (HCPP) contracting organizations;
Complete all Retroactive Payment Adjustments and
Retroactive Enrollments or Disenrollments submitted by MA
Organizations;
Complete final reconciliation of payment for non-renewals
of MA contracts; and
Make reconsideration determinations with plans that
request decisions regarding payments.
II. Provisions of the Proposed Rule
In the June 17, 2005 Federal Register (70 FR 35204), we published a
proposed rule as part of our overall contracting strategy, which is
designed to build on the strengths of the marketplace. We will continue
to encourage new and innovative approaches in the marketplace to
protect the Medicare Trust Funds.
As discussed in the section I.B. of this preamble, implementing
section 1874A of the Act is also a major element of our contracting
strategy. We are not including extensive rules relating to that
authority in this final rule, but interested parties can gain
information about our plans for implementing section 1874A of the Act
by accessing the Internet at http://www.cms.hhs.gov/medicarereform/contractingreform.
In addition, the public can also send us informal
questions about MAC implementation through this site.
A. The Medicare Integrity Program
1. Basis, Scope, and Applicability
In accordance with section 1893 of the Act, we proposed to amend
part 421 by adding a new subpart D entitled, ``Medicare Integrity
Program Contractors.'' This subpart would--
Define the types of entities eligible to become MIP
contractors. We also clarify that, in accordance with section 1874A of
the Act, a MAC may perform MIP functions under certain conditions;
Identify program integrity functions a MIP contractor may
perform;
Describe procedures for awarding and renewing contracts;
Establish procedures for identifying, evaluating, and
resolving organizational conflicts of interest consistent with the FAR;
Prescribe responsibilities; and
Set forth limitations on MIP contractor liability.
Subpart D would apply to entities that seek to compete for, or
receive award of, a contract under section 1893 of the Act, including
entities that perform functions under this subpart emanating from the
processing of claims for individuals entitled to benefits as qualified
railroad retirement beneficiaries. We would set forth the basis, scope,
and applicability of subpart D in Sec. 421.300.
2. Definition of Eligible Entities (Sec. 421.302)
In accordance with section 1893(c) of the Act, we proposed to add
Sec. 421.302(a) to provide that an entity is eligible to enter into a
MIP contract if it--
Demonstrates the capability to perform MIP contractor
functions;
Agrees to cooperate with the Office of Inspector General
(OIG), the Department of Justice (DOJ), and other law enforcement
agencies in investigating and deterring potential
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fraud and abuse in the Medicare program, including making referrals;
Complies with the conflict of interest standards in 48 CFR
Chapters 1 and 3, and is not excluded under the conflict of interest
provisions established by this rule;
Maintains an appropriate written code of conduct and
compliance policies that include, without limitation, an enforced
policy on employee conflicts of interest;
Meets financial and business integrity requirements to
reflect adequate solvency and satisfactory legal history; and
Meets other requirements that we may impose.
Also, in accordance with the undesignated paragraph following
section 1893(c)(4) of the Act, we proposed to specify that Medicare
carriers are deemed to be eligible to perform the activity of
developing and periodically updating a list of DME items that are
subject to prior authorization.
In the June 17, 2005 proposed rule (70 FR 35204), we stated that it
is not possible to identify each and every possible contractor
eligibility requirement that may appear in a future solicitation.
Therefore, we proposed that in order to permit us maximum flexibility
to tailor our contractor eligibility requirements to specific
solicitations while satisfying the intent of section 1893 of the Act,
any contractor eligibility requirements in addition to those specified
in Sec. 421.302(a)(1) through (a)(4) would be contained in the
applicable solicitation.
At Sec. 421.302(a)(1), we proposed to clarify that a MAC under
section 1874A of the Act may perform any or all of the MIP functions
listed and described in Sec. 421.304. However, in performing these
functions, the MAC may not duplicate work being performed under a MIP
contract. We believe the proposed provision is consistent with sections
1874A(a)(4)(G) and 1874A(a)(5) of the Act, as added by the MMA.
At proposed Sec. 421.302(b), we also clarified our discretion to
require a MAC performing any of the MIP functions under Sec. 421.304
to abide by the eligibility requirements applicable to MIP contracts,
that is, the four elements listed at Sec. 421.302(a). The first
requirement at Sec. 421.302(a) related to demonstrated capability and
the third requirement related to addressing conflicts of interest were
consistent with provisions in the authorizing statute for MAC contracts
(section 1874A(a)(2)of the Act). While the second requirement, which
pertained to cooperation with the OIG and other forms of law
enforcement, was not stated in section 1874A of the Act, we believed
that this requirement is not inconsistent with section 1874A of the Act
or the FAR. This requirement is, in fact, compatible with our general
practices, multiple statutes, and regulations governing HHS operations
and contracts, and finally with provisions within Title XI of the Act.
The fourth requirement clarified our authority to impose additional
reasonable requirements through contract, and therefore, it made sense
to apply this element to MAC contractors. Our specific approach to all
these issues would be clarified in any solicitation for MAC contracts.
In accordance with section 1893(d) of the Act, we may continue to
contract, for the performance of MIP activities, with FIs and carriers
that had a contract with us on August 21, 1996 (the effective date of
enactment of HIPAA). However, in accordance with sections 1816(l) or
1842(c)(6) of the Act (both added by HIPAA and both now repealed by the
MMA), and section 1874A(a)(5)(A) of the Act (added by the MMA), these
contractors and MACs (which may also perform MIP activities) may not
duplicate activities under a FI agreement or carrier contract and a MIP
contract, with one excepted activity. The exception permits a carrier
or a MAC to develop and update a list of items of DME that are subject
to prior authorization both under the MIP contract and its contract
under section 1842 of the Act. This discretion to continue the
performance of MIP activities through the FI and carrier contracts
until they are phased out in accordance to section 911(d) of the MMA
was provided for in proposed changes to Sec. 421.100 and Sec.
421.200.
3. Definition of MIP Contractor (Sec. 400.202)
We proposed to define ``Medicare integrity program contractor,'' at
Sec. 400.202 (Definitions specific to Medicare), as an entity that has
a contract with us under section 1893 of the Act to perform exclusively
one or more of the program integrity activities specified in that
section. The inclusion of the word ``exclusively'' in this definition
is intended to conform with section 1874A(a)(5)(B) of the Act as added
by the MMA.
4. Services To Be Procured (Sec. 421.304)
A MIP contractor may perform some or all of the MIP activities
listed in Sec. 421.304. Section 421.304 would state that the contract
between CMS and a MIP contractor specifies the functions the contractor
performs. In accordance with section 1893(b) of the Act, proposed Sec.
421.304 identified the following as MIP activities:
(a) Medical, Utilization, and Potential Fraud Review. Medical and
utilization review includes the processes necessary to ensure both the
appropriate utilization of services and that services meet the
professionally recognized standards of care. These processes include
review of claims, medical records, and medical necessity documentation
and analysis of patterns of utilization to identify inappropriate
utilization of services. This would include reviewing the activities of
providers or suppliers and other individuals and entities (including
health maintenance organizations, competitive medical plans, health
care prepayment plans, and MA plans). This function results in
identifying overpayments, prepayment denials, recommendations for
changes in national coverage policy, changes in local coverage
determinations (LCD) policies and payment screens, referrals for
potential fraud and abuse, and identifying the education needs of
beneficiaries, providers, and suppliers.
Potential fraud review includes fraud prevention initiatives,
responding to external customer complaints of alleged fraud, developing
strategies to detect potentially fraudulent activities that may result
in improper Medicare payment, and identifying and developing potential
fraud cases to refer to law enforcement.
(b) Cost Report Audits. Providers and managed care plans receiving
Medicare payments are subject to audits for all payments. The audits
help ensure that proper payments are made in accordance with Medicare
payment policy, verify financial information for making a final
determination of allowable costs, identify potential instances of fraud
and abuse, and ensure the completion of special projects. This
functional area includes the receipt, processing, and settlement of
cost reports based on reasonable costs, prospective payment, or any
other basis; and the establishment or adjustment of the interim payment
rate using cost report or other information.
(c) Medicare Secondary Payer Activities. The Medicare secondary
payer function is a process developed as a payment safeguard to protect
the Medicare program against making mistaken primary payments. The
focus of this process is to ensure that the Medicare program pays only
to the extent required by statute. Contractors performing Medicare
secondary payer functions would be responsible for identifying Medicare
secondary payer situations and pursuing the recovery of
[[Page 48875]]
mistaken payments from the appropriate entity or individual, depending
on the specifics of the contract. This functional area includes the
processes performed to identify beneficiaries for whom there is
coverage which is primary to Medicare. Through these processes,
information may be acquired for subsequent use in beneficiary claims
adjudication, recovery, and litigation.
(d) Education. This functional area includes educating
beneficiaries, providers, suppliers, and other individuals regarding
payment integrity and benefit quality assurance issues.
(e) Developing Prior Authorization Lists. This functional area
includes developing and periodically updating a list of DME items that,
in accordance with section 1834(a)(15) of the Act, are subject to prior
authorization. Prior authorization is a determination that an item of
DME is covered prior to when the equipment is delivered to the Medicare
beneficiary. Section 1834(a)(15) of the Act requires prior
authorization to be performed on the following items of DME:
Items identified as subject to unnecessary utilization;
Items supplied by suppliers that have had a substantial
number of claims denied under section 1862(a)(1) of the Act as not
reasonable or necessary or for whom a pattern of overutilization has
been identified; or
A customized item if the beneficiary or supplier has
requested an advance determination.
We note that the MIP functions were not limited to services
furnished under FFS payment methodologies. MIP functions apply to all
types of claims. They also apply to all types of payment systems
including, but not limited to, managed care and demonstration projects.
MIP functions also apply to payments made under the Medicare Part D
prescription drug benefit that was implemented on January 1, 2006.
5. Competitive Requirements (Sec. 421.306)
We specified, in Sec. 421.306(a), that MIP contracts would be
awarded in accordance with 48 CFR chapters 1 and 3, 42 CFR part 421
subpart D, and all other applicable laws and regulations. Furthermore,
in accordance with section 1893(d)(2) of the Act, we specified that the
procedures set forth in these authorities would be used: (1) When
entering into new contracts; (2) when entering into contracts that may
result in the elimination of responsibilities of an individual FI or
carrier; and (3) at any other time we consider appropriate.
In Sec. 421.306(b), we proposed to establish an exception to
competition that allows a successor in interest to a FI agreement or
carrier contract to be awarded a contract for MIP functions without
competition if its predecessor performed program integrity functions
under the transferred agreement or contract and the resources,
including personnel, which were involved in performing those functions,
were transferred to the successor. This provision would remain in
effect until all FI agreements and carrier contracts were transitioned
to MACs in accordance with section 1874A of the Act.
The proposal was made in anticipation that some FIs and carriers,
prior to the competition of their contracts in accordance with the MMA,
may engage in transactions under which the recognition of a successor
in interest by means of a novation agreement may be appropriate, and
the resources involved in the FI's or carrier's MIP activities were
transferred along with its other Medicare-related resources to the
successor in interest. For example, the FI or carrier may undergo a
corporate reorganization under which the corporation's Medicare
business is transferred entirely to a new subsidiary corporation. When
all of a contractor's resources or the entire portion of the resources
involved in performing a contract are transferred to a third party, we
may recognize the third party as the successor in interest to the
contract through approval of a novation agreement as specified in the
FAR at 48 CFR 42.1200.
If the FI or carrier was performing program integrity activities
under its contract on August 21, 1996, the date of the enactment of the
MIP legislation, section 1893(d) of the Act permits us to continue to
contract with the FI or carrier for the performance of those activities
without using competitive procedures (but only through and, no later
than, September 30, 2011). In the context of a corporate reorganization
under which all of the resources involved in performing the contract,
including those involved in performing MIP activities, are transferred
to a successor in interest, we may determine that breaking out the MIP
activities and competing them separately (prior to the MAC contract
competitions) would not be in the best interest of the government.
Inherent in the requirement of section 1893(d) of the Act that the
Secretary establish competitive procedures to be used when entering
into contracts for MIP functions was the authority to establish
exceptions to those procedures. (See 48 CFR 6.3) Moreover, the statute
stated that FI agreements and carrier contracts would be
noncompetitively awarded under sections 1816(a) and 1842(b)(1) of the
Act. Furthermore, those agreements and contracts have, in recent years
prior and subsequent to the enactment of the MIP legislation, included
program integrity activities, a fact that the Congress acknowledged in
section 1893(d)(2) of the Act. Creating an exception to the use of
competition for cases in which the same resources, including the same
personnel, continue to be used by a third party as successor in
interest to a FI agreement or carrier contract is consistent with the
Congress' authorization to forego competition when the contracting
entity was carrying out the MIP functions on the date of enactment of
the MIP legislation. Section 421.306(b) permits continuity in the
performance of the MIP functions until the time we determine a need to
procure MIP functions on the basis of full and open competition.
The exception to competition will operate only where a FI or
carrier that performed program integrity functions under an agreement
or a contract in place on August 21, 1996, transfers its functions by
means of a valid novation agreement in accordance with the requirements
of the FAR. This exception is intended to be applied only until we are
prepared to award MIP contracts on the basis of FAR competitive
procedures, or until we compete the full FI and carrier workloads (both
MIP and non-MIP functions) in accordance with section 1874A(b) of the
Act. The exception is not intended, and will not be used, to circumvent
the competitive process when we make competitive awards of MIP and MAC
contracts. This provision is intended to provide us with flexibility in
handling Medicare functions in the face of bona fide changes in
corporate structure that often have little, if anything, to do with the
Medicare program.
In Sec. 421.306(c), we further specified that an entity must meet
the eligibility requirements established in proposed Sec. 421.302 to
be eligible to be awarded a MIP contract.
6. Renewal of MIP Contracts (Sec. 421.308)
Proposed Sec. 421.308(a) specified that an initial contract term
will be defined in the MIP contract and that contracts may contain
renewal clauses. Contract renewal provides a mutual benefit to both
parties. Renewing a contract, when appropriate, results in continuity
both for us and the contractor and can be in the best interest of the
Medicare program. The benefits are realized through early communication
of our intention whether to renew a contract, which permits both
parties to plan for
[[Page 48876]]
any necessary changes in the event of nonrenewal. Furthermore, as a
prudent administrator of the Medicare program, we must ensure that we
have sufficient time and resources to transfer the MIP functions if a
reassignment of the functions becomes necessary (either because the
contractor has given notice of its intent to nonrenew or because we
have determined that reassignment is in the best interest of the
Medicare program). Therefore, in Sec. 421.308(a), we proposed to
specify that we may renew a MIP contract, as we determine appropriate,
by giving the contractor notice, within timeframes specified in the
contract, of our intention to do so. (The solicitation document that
results in the contract would contain further details regarding this
provision.)
The renewal clause referred to in this section is not an ``option''
as defined in the FAR at 48 CFR subpart 2.101. Section 1893 of the Act
allows for the renewal of MIP contracts without regard to any provision
of the law requiring competition if the contractor has met or exceeded
performance requirements. As stated in the FAR at 48 CFR 2.101, ``
`Option' means a unilateral right in a contract by which, for a
specified time, the government may elect to purchase additional
supplies or services called for by the contract, or may elect to extend
the term of the contract.''
As described in the FAR, 48 CFR subpart 17.2, an option is
different than a renewal clause in several respects. The length of time
of an option is established in a contract. In contrast, the length of a
renewal period in a MIP contract may not be defined. Furthermore, an
option must be exercised during the life of the contract. A MIP renewal
clause can go into effect only after exhausting the initial contract
period of performance, including any option provisions. Finally, an
option allows us to extend the term of a contract only up to 60 months,
the maximum term allowed by the FAR (excluding GSA awards). A MIP
contract renewal clause allows the term of a MIP contract to surpass
that limit, as long as the contractor meets the conditions in the
regulation and the contract (including performance standards
established in its contract) and we have a continuing need for the
supplies or services under contract.
Based on section 1893(d)(3) of the Act, we specified, in Sec.
421.308(b), that we may renew a MIP contract without competition if the
contractor continues to meet all the requirements of proposed subpart D
of part 421, the contractor meets or exceeds the performance standards
and requirements in the contract, and it is in the best interest of the
government.
At Sec. 421.308(c), we provided that, if we do not renew the
contract, the contract will end in accordance with its terms, and the
contractor does not have a right to a hearing or judicial review
regarding the nonrenewal. This is consistent with our longstanding
policy for FI and carrier contracts.
7. Conflict of Interest Rules
The proposed rule established the process for identifying,
evaluating, and resolving conflicts of interest as required by section
1893(d)(1) of the Act. The process was designed to ensure that the more
diversified business arrangements of potential contractors do not
inhibit competition between providers, suppliers, or other types of
businesses related to the insurance industry, or have the potential for
harming government interests.
Given the sensitive nature of the work to be performed under the
MIP contract(s), the need to preserve the public trust, and the history
of fraud and abuse in the Medicare program, our contracting officers
may include an organizational conflict of interest provision in the
solicitation and subsequent contract award document, which may be
tailored to each procurement. The contract provision will be consistent
with the guidelines found at FAR 9.5, Organizational and consultant
conflicts of interest, as well as address specific concerns for
identifying, mitigating and resolving actual, apparent or perceived
conflict(s) of interest. In general, the contracting officer will not
enter into a MIP contract with an offeror that has been determined to
have, or has the potential for, an unresolved organizational conflict
of interest.
In Sec. 421.310(a), we specified that an offeror for MIP contracts
is, and MIP contractors are, subject to the organizational conflict of
interest standards and requirements of the FAR organizational conflict
of interest guidance, found at 48 CFR subpart 9.5, and the requirements
and standards as are contained in each individual contract awarded to
perform functions found at section 1893 of the Act.
In Sec. 421.310(b), we stated that we consider that a conflict of
interest has occurred if, during the term of the contract, the
contractor or its employee, agent or subcontractor has received,
solicited, or arranged to receive any fee, compensation, gift, payment
of expenses, offer of employment, or any other thing of value from any
entity that is reviewed, audited, investigated, or contacted during the
normal course of performing activities under the MIP contract. We
incorporated the definition of ``gift'' from 5 CFR 2635.203(b) of the
Standards of Ethical Conduct for Employees of the Executive Branch,
which excludes from the definition items such as greeting cards, soft
drinks, and coffee.
We also specified in Sec. 421.310(b) that if we determine that the
contractor's activities are creating a conflict, then a conflict of
interest has occurred during the term of the contract. In addition, we
specified that, if we determine that a conflict of interest exists, we
may, as we deem appropriate--
Not renew the contract for an additional term;
Modify the contract; or
Terminate the contract for default.
We also specified that the solicitation may require more detailed
information than identified above. Our proposed provisions did not
describe all of the information that may be required, or the level of
detail that would be required, because we wish to have the flexibility
to tailor the disclosure requirements to each specific procurement.
We intended to minimize the reporting and recordkeeping
requirements as much as is feasible, while taking into consideration
our need to have assurance that MIP contractors do not have, and will
not develop during the time of performance, a conflict of interest.
Because potential offerors may have questions about whether
information submitted in response to a solicitation, including
information regarding potential conflicts of interest, may be disclosed
under a request submitted under the Freedom of Information Act (FOIA),
we provided the following information.
To the extent that a proposal containing information is submitted
to us as a requirement of a competitive solicitation under 41 U.S.C.
Chapter 4, Subchapter IV, and a FOIA request is made for a copy of that
proposal, we will withhold the proposal to the extent authorized by
law. This withholding is based upon 41 U.S.C. 253b(m). However, there
is one exception to this requirement that involves any proposal that is
set forth or incorporated by reference in the contract awarded to an
offeror or bidder. In such cases, the FOIA does not offer presumptive
categorical protection. Rather, we would withhold, under 5 U.S.C.
552(b)(4), information within the proposal that constitutes trade
secrets or commercial or financial information that is privileged or
confidential, provided the criteria established by National Parks &
Conservation Association v. Morton, 498
[[Page 48877]]
F.2d 765 (D.C. Cir. 1974), as applicable, are met. In such cases, we
will follow the predisclosure notification procedures set forth at 45
CFR 5.65(d).
Any proposal containing the information submitted to us under an
authority other than 41 U.S.C. Chapter 4, Subchapter IV, and any
information submitted independent of a proposal will be evaluated
solely on the criteria established by National Parks & Conservation
Association v. Morton and other appropriate authorities to determine if
the proposal in whole or in part contains trade secrets or commercial
or financial information that is privileged or confidential and
protected from disclosure under 5 U.S.C. 552(b)(4). Again, for
proposals such as this, we will follow the predisclosure notification
procedures set forth at 45 CFR 5.65(d) and will also invoke 5 U.S.C.
552(b)(6) to protect information that would cause a clearly unwarranted
invasion of personal privacy if disclosed. It should be noted that the
protection of proposals under FOIA does not preclude CMS from releasing
contractor proposals when necessitated by law, such as in the case of a
lawful subpoena.
We already protect information we receive in the contracting
process. However, to allay any fears potential offerors might have
about disclosure of commercial information, at Sec. 421.312(d) we
proposed protection of disclosed submitted proprietary information as
allowed under the FOIA and to require signed statements from our
personnel with access to proprietary information that prohibit
unauthorized use during the procurement process and term of the
contract.
In Sec. 421.312, we described our proposal to resolve conflicts of
interest. We specified that we may establish a Conflicts of Interest
Review Board to assist the contracting officer in resolving conflicts
of interest and determine when or if the Board is convened. We would
define resolution of an organizational conflict of interest as a
determination of the following:
The conflict was mitigated.
The conflict precludes award of a contract to the offeror.
The conflict requires that we modify an existing contract.
The conflict requires that we terminate an existing
contract for default.
It is in the best interest of the government to contract
with the offeror or contractor even though the conflict exists.
The following are examples of methods an offeror or contractor may
use to mitigate organizational conflicts of interest, including those
created as a result of the financial relationships of individuals
within the organization. These examples are not intended to be an
exhaustive list of all the possible methods to mitigate conflicts of
interest nor are we obligated to approve a mitigation method that uses
one or more of these examples. An offeror's or contractor's method of
mitigating conflicts of interest will be evaluated on a case-by-case
basis.
Divestiture of, or reduction in the amount of, the
financial relationship the organization has in another organization to
a level acceptable to us and appropriate for the situation.
If shared responsibilities create the conflict, a plan,
subject to our approval, to separate lines of business and management
or critical staff from work on the MIP contract.
If the conflict exists because of the amount of financial
dependence upon the Federal government, negotiating a phasing out of
other contracts or grants that continue in effect at the start of the
MIP contract.
If the conflict exists because of the financial
relationships of individuals within the organization, divestiture of
the relationships by the individual involved.
If the conflict exists because of an individual's indirect
interest, divestiture of the interest to levels acceptable to us or
removal of the individual from the work under the MIP contract.
In the procurement process, we determine which proposals are in a
``competitive range.'' The competitive range is based on cost or price
and other factors that are stated in the solicitation and includes the
most highly rated proposals unless the range is further reduced for
purposes of efficiency in accordance with FAR 15.306. Using the process
in the proposed regulation, offerors would not be excluded from the
competitive range based solely on conflicts of interest. If we
determined that an offeror in the competitive range has a conflict of
interest that is not adequately mitigated, we would inform the offeror
of the deficiency and give it an opportunity to submit a revised
mitigation plan. At any time during the procurement process, we may
convene the Conflicts of Interest Review Board to evaluate and assist
the contracting officer in resolving conflicts of interest.
By providing a better process for the identification, evaluation,
and resolution of conflicts of interest, we not only protect government
interests but also help ensure that contractors will not hinder
competition in their service areas by misusing their position as a MIP
contractor.
8. Limitation on MIP Contractor Liability and Payment of Legal Expenses
Contractors that perform activities under the MIP contract would be
reviewing activities of providers and suppliers that provide services
to Medicare beneficiaries. Their contracts would authorize them to
evaluate the performance of providers, suppliers, individuals, and
other entities that may subsequently challenge their decisions. To
reduce or eliminate a MIP contractor's exposure to possible legal
action from those it reviews, section 1893(e) of the Act requires that
we, by regulation, limit a MIP contractor's liability for actions taken
in carrying out its contract. We must establish, to the extent we find
appropriate, standards and other substantive and procedural provisions
that are the same as, or comparable to, those contained in section 1157
of the Act.
Section 1157 of the Act limits liability and provides for the
payment of legal expenses of a Quality Improvement Organization (QIO)
(formerly Peer Review Organization (PRO)) that contracts to carry out
functions under section 1154 of the Act. Specifically, section 1157 of
the Act provides that QIOs, their employees, fiduciaries, and anyone
who furnishes professional services to a QIO, are protected from civil
and criminal liability in performing their duties under the Act or
their contract, provided these duties are performed with due care.
Following the mandate of section 1893(e) of the Act, as specified in
Sec. 421.316(a), we proposed to protect MIP contractors from liability
in the performance of their contracts provided they carry out their
contractual duties with due care.
In accordance with section 1893(e) of the Act, we proposed to
employ the same standards for the payment of legal expenses as are
contained in section 1157(d) of the Act. Therefore, Sec. 421.316(b)
would provide that we make payment to MIP contractors, their members,
employees, and anyone who provides them legal counsel or services for
expenses incurred in the defense of any legal action related to the
performance of a MIP contract. We proposed that the payment be limited
to the reasonable amount of expenses incurred, as determined by us,
provided funds are available and that the payment is otherwise
allowable under the terms of the contract.
In drafting Sec. 421.316(a), we considered employing a standard
for the limitation of liability other than the due care standard. For
example, we considered whether it would be appropriate to provide that
a contractor
[[Page 48878]]
would not be criminally or civilly liable by reason of the performance
of any duty, function, or activity under its contract provided the
contractor was not grossly negligent in that performance. However,
section 1893(e) of the Act requires that we employ the same or
comparable standards and provisions as are contained in section 1157 of
the Act. We do not believe that it would be appropriate to expand the
scope of immunity to a standard of gross negligence, as it would not be
a comparable standard to that set forth in section 1157(b) of the Act.
We also considered indemnifying MIP contractors employing
provisions similar to those contained in the current Medicare FI
agreements and carrier contracts. However, we may indemnify a MIP
contractor only to the extent we have specific statutory authority to
do so, and section 1893(e) of the Act does not provide that authority.
Note however, that section 1874A of the Act as added by the MMA would
provide us with some discretion to indemnify MAC contractors. In
addition, we proposed at Sec. 421.316(a) to provide for immunity from
liability in connection with the performance of a MIP contract provided
the contractor exercised due care. Indemnification is not necessary
since the MIP contractors would have immunity from liability as
specified in Sec. 421.316(a).
B. Intermediary and Carrier Functions
The former section 1816(a) of the Act, which provided that
providers could nominate a FI, required only that nominated FIs perform
the functions of determining payment amounts and making payment, and
the former section 1842(a) of the Act required only that carriers
perform some or all of the functions cited in that section. Section 911
of the MMA eliminated the requirement that FIs be nominated, and
effective October 1, 2005, established the requirement that Medicare
contracts awarded to MACs be competitively bid by September 30, 2011.
Our existing requirements at Sec. 421.100 and Sec. 421.200
concerning functions to be included in FI agreements and carrier
contracts far exceeded those of the statute. Therefore, in the February
22, 1994 Federal Register (59 FR 8446), we published a proposed rule
that would distinguish between those functions that the statute
previously required to be included in agreements with FIs and those
functions that, while not required to be performed by FIs, could have
been included in FI agreements at our discretion. We also proposed that
any functions included in carrier contracts may be included at our
discretion. In addition, we proposed to add payment on a fee schedule
basis as a new function that may be performed by carriers.
The February 22, 1994 proposed rule was never finalized, but its
content was reproposed in our initial March 20, 1998 proposed rule for
the MIP program (63 FR 13590). The second proposed rule, published on
June 17, 2005, set forth a new proposal to bring those sections of the
regulations that concern the functions Medicare FIs and carriers
perform into conformity with the provisions of sections 1816(a),
1842(a), and 1893(b) of the Act, for so long as the FI and carrier
contracts exist until they are all replaced by MAC contracts.
As noted in section I.A. of this preamble, our current regulations
at Sec. 421.100 specify a list of functions that must, at a minimum,
be included in all FI agreements. Similarly, Sec. 421.200 specifies a
list of functions that must, at a minimum, be included in all carrier
contracts. These requirements far exceed those of the statute.
Until October 1, 2005, section 1816(a) of the Act required only
that a FI agreement provide for determination of the amount of payments
to be made to providers and for the making of the payments. Pending the
effective date of changes made by the MMA, section 1816(a) permitted,
but did not require, a FI agreement to include provisions for the FI to
provide consultative services to providers to enable them to establish
and maintain fiscal records or to otherwise qualify as providers. It
also provided that, for those providers to which the FI makes payments,
the FI may serve as a channel of communications between us and the
providers, may audit the records of the providers, and may perform
other functions as were necessary.
Until October 1, 2005, section 1816(a) of the Act mandated only
that a FI make payment determinations and make payments and, because of
the nomination provision of section 1816(a) of the Act, these functions
must remain with FIs. We believed that, pending the effective date of
changes made by the MMA, section 1816(a) of the Act would not require
that the other functions set forth at Sec. 421.100(c) through (i) be
included in all FI agreements. Furthermore, section 1893 of the Act
permits the performance of functions related to Medicare program
integrity by other entities. Thus, we proposed to revise Sec. 421.100
to be consistent with section 1893 of the Act and the implementing
regulations. The mandatory inclusion of all functions in all agreements
limits our ability to efficiently and effectively administer the
Medicare program. For example, if an otherwise competent FI performs a
single function poorly, it would be efficient and effective to have
that function transferred to another contractor that could carry it out
in a satisfactory manner. The alternative is to not renew or to
terminate the agreement of that FI and to transfer all functions to a
new contractor, which may not have had an ongoing relationship with the
local provider community.
Therefore, we proposed to revise Sec. 421.100 to state that an
agreement between CMS and a FI specifies the functions to be performed
by the FI and that these must include determining the amount of
payments to be made to providers for covered services furnished to
Medicare beneficiaries and making the payments and may include any or
all of the following functions:
Any or all of the MIP functions identified in proposed
Sec. 421.304, provided that they are continuing to be performed under
an agreement entered into under section 1816 of the Act that was in
effect on August 21, 1996, and they do not duplicate work being
performed under a MIP contract.
Undertaking to adjust overpayments and underpayments and
to recover overpayments when an overpayment determination has been
made.
Furnishing to us timely information and reports that we
request in order to carry out our responsibilities in administering the
Medicare program.
Establishing and maintaining procedures that we approve
for the redetermination of payment determinations.
Maintaining records and making available to us the records
necessary for verification of payments and with other related purposes.
Upon inquiry, assisting individuals with matters
pertaining to a FI contract.
Serving as a channel of communication to and from us of
information, instructions, and other material as necessary for the
effective and efficient performance of a FI contract.
Undertaking other functions as mutually agreed to by us
and the FI.
In Sec. 421.100(c), we specified that, for the responsibility for
services to a provider-based HHA or a provider-based hospice, when
different FIs serve the HHA or hospice and its parent provider, the
designated regional FI determines the amount of payment and makes
payments to the HHA or hospice. The FI or MIP contractor serving the
parent provider performs fiscal functions, including audits and
settlement of the
[[Page 48879]]
Medicare cost reports and the HHA and hospice supplement worksheets.
Pending the effective date of changes made by the MMA, section
1842(a) of the Act, which pertains to carrier contracts, requires that
the contracts provide for some or all of the functions listed in that
paragraph but does not specify any functions that must be included in a
carrier contract. As in the case of FI agreements, our experience has
been that mandatory inclusion of a long list of functions in all
contracts restricts our ability to administer the carrier contracts
with optimum efficiency and effectiveness. We believe that the
requirements of the regulations for both FIs and carriers should be
brought into conformity with the former statutory requirements for so
long as the FI and carrier contracts exist until they are all replaced
by MAC contracts. Therefore, we proposed to revise existing Sec.
421.200, ``Carrier functions,'' to make it consistent with section 1893
of the Act and the implementing regulations. We stated that a contract
between CMS and a carrier specifies the functions to be performed by
the carrier, which may include the following:
Any or all of the MIP functions described in Sec. 421.304
if the following conditions are met: (1) The carrier is continuing
those functions under a contract entered into under section 1842 of the
Act that was in effect on August 21, 1996; and (2) it does not
duplicate work being performed under a MIP contract, except that the
function related to developing and maintaining a list of DME may be
performed under both a carrier contract and a MIP contract.
Receiving, disbursing, and accounting for funds in making
payments for services furnished to eligible individuals within the
jurisdiction of the carrier.
Determining the amount of payment for services furnished
to an eligible individual.
Undertaking to adjust incorrect payments and recover
overpayments when an overpayment determination has been made.
Furnishing to us timely information and reports that we
request in order to carry out our responsibilities in administering the
Medicare program.
Maintaining records and making available to us the records
necessary for verification of payments and for other related purposes.
Establishing and maintaining procedures under which an
individual enrolled under Part B will be granted an opportunity for a
redetermination.
Upon inquiry, assisting individuals with matters
pertaining to a carrier contract.
Serving as a channel of communication to and from us of
information, instructions, and other material as necessary for the
effective and efficient performance of a carrier contract.
Undertaking other functions as mutually agreed to by us
and the carrier.
C. Technical and Editorial Changes
A new subpart D was added and reserved to part 421 by the Revisions
to Hospital Outpatient Prospective Payment System and Calendar Year
2007 Payment Rates final rule published in the November 24, 2006
Federal Register (71 FR 67960). The new subpart D will apply to MIP
contractors. In addition, because we have published regulations that
pertain to MAC contracts in the November 24, 2006 final rule, the title
of part 421 was revised from ``Intermediaries and Carriers'' to read
``Medicare Contracting.''
Furthermore, in the June 17, 2005 proposed rule, we proposed to
revise Sec. 421.1, which sets forth the basis, scope, and
applicability of part 421. We proposed to revise this section to add
section 1893 of the Act to the list of provisions upon which the part
is based. We also proposed to make editorial and other changes (such as
reorganizing the contents of the section and providing headings) that
improve the readability of the section without affecting its substance.
In addition, numerous sections of our regulations specifically
refer to an action being taken by a FI or a carrier. (As previously
noted in this preamble, FIs and carriers refer to contractors that
received awards under sections 1816 and 1842 of the Act prior to
October 1, 2005.) If the action being described may now be performed by
a MIP contractor that is not a FI or a carrier, we proposed to revise
those sections to indicate that this is the case. For example, Sec.
424.11, which sets forth the responsibilities of a provider, specifies,
in paragraph (a)(2), that the provider must keep certification and
recertification statements on file for verification by the FI. A MIP
contractor now may also perform the verification. Therefore, we
proposed to revise Sec. 424.11(a)(2) to specify that the provider must
keep certification and recertification statements on file for
verification by the FI or MIP contractor. Because our regulations are
continuously being revised and sections redesignated, we did not
identify all sections that would have technical changes in the June 17,
2005 proposed rule. If we determine that substantive changes to our
regulations are necessary, we will make those changes through separate
rulemaking.
III. Analysis and Responses to Public Comments
We received three timely public comments on the June 17, 2005
proposed rule (70 FR 35204 through 35220). The following is a summary
of the issues raised by those comments and our responses.
Comment: Several commenters stated that due care is not the
appropriate standard for MIP functions and recommended that we hold MIP
contractors to a higher standard of care because the potential for
abuse by MIP contractors is significant. One commenter maintained that
contractors will conduct their activities in strict compliance with MIP
principles if immunity is not readily available. Another commenter
specifically advocated adopting a gross negligence or reckless
disregard standard, stating that section 1893 of the Act gives CMS the
authority to deviate from the due care standard ``to the extent the
Secretary finds appropriate.'' This commenter asserted that MIP
contractors should receive the same protection that intermediaries and
carriers receive through their agreements and contracts (that is,
immunity as long as they are not grossly negligent). The commenter
explained that the nature of the functions that MIP contractors perform
(for example, fraud investigations, cost report audits, and recovering
overpayments) expose them to substantially greater risk of liability
than Quality Improvement Organizations (QIOs), and QIOs enjoy immunity
from criminal or civil liability in performance of their duties if they
act with due care.
Response: As we explained in the June 17, 2005 proposed rule, we
believe that the due care standard specified in Sec. 421.316(a) is the
only standard consistent with the statutory mandate of the Act. Section
1893(e) of the Act requires us to limit a contractor's liability by
employing the same or comparable standards that are set forth in
section 1157 of the Act. Section 1157 of the Act limits a contractor's
liability under a due care standard. We believe that applying this
standard to MIP contractors strikes a reasonable balance between the
concerns of the contractors and those subject to the contractors'
review. We believe MIP contractors operate with due care to avoid
liability, and those being reviewed have the assurance that they have
legal recourse if a contractor acts negligently.
Comment: One commenter stated that, to the extent that a MAC,
carrier, or fiscal intermediary enters into a contract to perform MIP
functions, they should
[[Page 48880]]
be afforded the same immunity and indemnification that exists under
their MAC, carrier, or fiscal intermediary contract. In addition, the
commenter urged us to add language to Sec. 421.316(b) to clarify the
continued applicability of the immunity/indemnification standards in FI
and carrier contracts, as well as any standards ultimately included in
MAC contracts to MIP functions.
Response: Generally, FIs and carriers are indemnified for any
liability arising from the performance of contract functions provided
that the FI's and the carrier's conduct was not grossly negligent,
fraudulent, or criminal. However, we do not believe we have statutory
authority under section 1893(e) of the Act to indemnify MIP contractors
based on this same standard. As we explained in the June 17, 2005
proposed rule, section 1893(e) of the Act requires us to limit a
contractor's liability by employing the same or comparable standards
that are set forth in section 1157 of the Act. Section 1157 of the Act
limits a contractor's liability under a due care standard. In addition,
Sec. 421.316(a) provides MIP contractors immunity from liability in
connection with the performance of a MIP contract as long as the
contractors exercise due care. Therefore, indemnification is not
necessary since the MIP contractors will have immunity from liability
as specified in Sec. 421.316(a). Note, however, that section
1874A(d)(4) of the Act, as added by the MMA, provides that we have some
discretion to indemnify MAC contractors that perform MIP functions
under section 1874A(a)(4)(G) of the Act and other functions, as long as
their conduct was not grossly negligent, fraudulent, or criminal in
nature. Indemnification may include payment of judgments, settlements,
awards, and costs (including reasonable legal expenses) as specified in
section 1874A(d)(4) of the Act.
Comment: Section Sec. 421.316(b) limits payment of expenses
incurred by MIP contractors and others in defense of a legal action
related to the performance of a MIP to reasonable expenses, as
determined by CMS. In addition, section 421.316(b)(2) limits
reimbursement to ``funds available'' in order to comply with the Anti-
Deficiency Act, which applies to all government expenditures. A
commenter objected to what it describes as a ``discretionary
reasonableness standard'' and the ``funds available'' condition. The
commenter stated that both provisions have the potential to
substantially undermine the intent of the Social Security Act, which
seeks to reimburse MIP contractors for their legal expenses. The
commenter also called the ``funds available'' provision unprecedented,
noting that neither current FI or carrier contracts nor the MMA
provisions that pertain to MAC contractors impose this condition.
Response: Under Sec. 421.316(b), we proposed to pay expenses
incurred by MIP contractors and others in defense of a legal action
related to the performance of a MIP as long as certain conditions are
satisfied. However, we believe that this payment should be limited to
reasonable expenses, as determined by us. For clarity, in making the
determination of what is a ``reasonable'' cost, Sec. 421.316(b), we
adopt the description contained in the FAR at 48 CFR 31.201-3. In terms
of reimbursement for legal expenses, we note that Sec. 421.316 is more
generous than FAR 31.205-47, which addresses costs related to legal and
other proceedings. Under the FAR, at 48 CFR 31.205-47, for example,
reimbursement is limited to 80 percent of the costs allowed. This
limitation does not apply under the final rule.
As previously noted, section 421.316(b)(2) limits reimbursement to
``funds available'' in order to comply with the Anti-Deficiency Act.
The Anti-Deficiency Act applies to all government expenditures and
provides, among other things, that a government agency ``may not
authorize an expenditure or obligation exceeding an amount available in
an appropriation or fund'' as specified in 31 U.S.C. 1341. A contractor
that incurs legal fees that may be reimbursable under Sec. 421.316(b)
would be expected to notify its contracting officer, under general FAR
requirements, if it anticipates a cost overrun due to legal fees and
expenses. Then, if the resources are available, the funding for the
contract could be adjusted. We do not believe it is appropriate or
necessary for CMS, in this final rule, to obligate itself to seek
additional funds or to limit its actions if funds are not available for
reimbursement.
Comment: A commenter noted that the preamble to the proposed rule
stated that a transfer of resources, including personnel, must occur to
qualify for the successor-in-interest exception. The commenter asked
that we clarify whether a potential successor-in-interest may, assuming
all other requirements of Sec. 421.306(b) are met, qualify for the
exception if the predecessor does not technically transfer personnel to
the successor-in-interest but instead provides such personnel through
an administrative services agreement.
Response: We would determine whether a particular contractor
qualifies for the exception on a case-by-case basis.
Comment: A commenter asserted that medical and utilization reviews
should be conducted only by physicians with the same State licensure,
from the same geographic area, and within the same specialty as the
physician who provided the service under review.
Response: Statements of Work for MIP contractors contain guidelines
that address activities such as medical review and utilization.
However, we decline to require by regulation medical or utilization
review to be performed by physicians with the same State licensure,
from the same geographic area, and within the same specialty as the
physician who provided the service under review because we have found
that nurse clinicians have the appropriate clinical experience to make
objective clinical decisions. However, we recognize the value that a
provider meeting these requirements may offer, and our contractors
utilize (as they deem appropriate) physician consultants on a case-by-
case basis to provide this specialized knowledge.
Comment: One commenter recommended that we revise Sec.
421.312(b)(5) to state that it is in the best interest of the
government to contract with the offeror or contractor even though the
conflict exists (and the conflict has been mitigated to the extent
possible).
Response: We appreciate the commenter's recommendation. We believe
that our contracting officer must have the flexibility to enter into a
contract with an offeror or contractor even if a conflict of interest
exists without the additional requirement of mitigating the conflict to
the extent possible. This flexibility ensures that the officer has the
ability to enter into these types of contracts when doing so is in the
best interest of the government. We are committed to minimizing and,
where possible, eliminating all potential conflict of interests as
outlined in Sec. 421.312.
Comment: A commenter urged that, if CMS convenes a Conflicts of
Interest Review Board as specified in Sec. 421.321(a), the board's
membership should include practicing physicians who regularly treat
Medicare beneficiaries. According to the commenter, the board should
also include representatives from the type of entity that is
experiencing the conflict, CMS representatives, and other provider
representatives as appropriate.
Response: The Conflicts of Interest Review Board is an internal
process for CMS, which is convened only when CMS deems necessary. To
maintain the
[[Page 48881]]
integrity of the procurement process and the confidentiality of
proprietary information submitted in proposals, opening the procurement
process to the public is not a viable option.
Comment: One commenter expressed concerned about a MIP contractor
auditing a hospital's cost reports and a FI, a different contractor,
processing the hospital's claims. Specifically, the commenter
questioned whether the two contractors could effectively communicate
with each other. The commenter expressed concern about access to
updated claims information in cases where one contractor audited cost
reports and another contractor processed claims, and urged CMS to
discuss this issue with specific providers to ensure that existing
roadblocks are cleared before any potential expansion of separate
contractors across the country.
Response: We understand the comments related to the coordination of
activities between PSCs and the claims processing contractors,
especially as they relate to audit activities. We are concerned about
the interaction between PSCs and other CMS contractors. We continually
promote positive interaction and effective communication between all
our various contractors. If significant issues arise, we will intervene
to address these issues.
IV. Provisions of the Final Rule
This final rule accomplishes two primary goals. First, it
implements, with certain exceptions indicated below, the provisions of
the June 17, 2005 proposed rule as issued. Second, it describes two new
MIP contracts that were awarded between the publication of the March
20, 1998 proposed rule and before the publication of this final rule.
A. Implementation, With Certain Exceptions, of the Provisions of the
June 17, 2005 Proposed Rule
With the exception of the following, we are implementing the
provisions of the June 17, 2005 proposed rule as issued.
In Sec. 421.1, Basis, Applicability, and Scope, we are revising
this section to omit the language in proposed paragraph (b) that states
that ``Sec. 421.118 is also based on 42 U.S.C. 1395(b)-1(a)(1)(F),
which authorizes demonstration projects involving FI agreements and
carrier contracts.'' This language was omitted because Sec. 421.118
was removed from the CFR by the Medicare Hospital Outpatient
Prospective Payment System and CY 2007 Payment Rates final rule (71 FR
67960).
In Sec. 421.1(a), we are revising the description of sections 1816
and 1842 of the Act. The previous description (``Use of organizations
and agencies in making Medicare payments to providers and suppliers of
services'') was replaced with the following description: ``Provisions
relating to the administration of Parts A and B.''
In Sec. 421.1(b), we are revising this section to clarify that FIs
and carriers refer to contractors that received awards under sections
1816 and 1842 of the Act prior to October 1, 2005 to distinguish these
contractors from MACs. Therefore, Sec. 421.1(b) is revised to read,
``The provisions of this part apply to agreements with Part A (Hospital
Insurance) FIs that received awards under sections 1816 and 1842 of the
Act prior to October 1, 2005, contracts with Part B (Supplementary
Medical Insurance) carriers that received awards under sections 1816
and 1842 of the Act prior to October 1, 2005, and contracts with
Medicare integrity program contractors that perform program integrity
functions.''
In Sec. 421.1(c)(2), we are revising this paragraph to omit
language indicating that CMS specifies criteria and standards to select
FIs and designate regional or national FIs for certain classes of
providers. We no longer perform these functions. In addition, language
was added to clarify that CMS specifies criteria and standards to
evaluate the performance of successor-in-interest entities to FIs.
Therefore, Sec. 421.1(c)(2) is revised to read, ``Specifies criteria
and standards CMS uses in evaluating the performance of fiscal
intermediaries' successor entities and in assigning or reassigning a
provider or providers to particular fiscal intermediaries.''
In Sec. 421.302(a)(4), Definition of Eligible Entities, we are
revising this section to replace the phrase ``without limitation'' with
``but are not limited to.'' This change was made to clarify that an
appropriate written code of conduct and compliance policies consist of
more than an enforced policy on employee conflicts of interest.
Therefore, Sec. 421.304(a)(4) is revised to read, ``Maintains an
appropriate written code of conduct and compliance policies that
include, but are not limited to, an enforced policy on employee
conflicts of interest.''
In Sec. 421.302, Definition of Eligible Entities, we are revising
this section to omit the requirement in proposed paragraph (a)(5) that
states that an entity is eligible to enter into a MIP contract if it
``meets financial and business integrity requirements to reflect
adequate solvency and satisfactory legal history'' because we believe
that this requirement may create an ambiguity with the 48 FAR at 9.103.
In Sec. 421.304, Medicare integrity program contractor functions,
we list the activities that a MIP contractor may perform. Section
421.304 states that the contract between CMS and a MIP contractor
specifies the functions the contractor performs. Specifically in the
area of medical and utilization review, we include the processes
necessary to ensure both the appropriate utilization of services and
that services meet the professionally recognized standards of care. We
state that these processes include review of claims, medical records,
and medical necessity documentation and analysis of patterns of
utilization to identify inappropriate utilization of services. We
proposed that this would include reviewing the activities of providers
or suppliers and other individuals and entities (including health
maintenance organizations, competitive medical plans, health care
prepayment plans, and MA plans). We are adding Part D Prescription Drug
Plans to the list of entities.
We are revising Sec. 421.304(b) to include reconciling and issuing
cost report payments for providers and suppliers. Therefore, Sec.
421.304(b) is revised to read, ``Auditing, settling, and determining
cost report payments for providers of services, or other individuals or
entities (including entities contracting with CMS under parts 417 and
422 of this chapter), as necessary to help ensure proper Medicare
payment.''
In Sec. 421.304(c), we are revising this paragraph to specify that
we will recover mistaken and conditional payments. Therefore, Sec.
421.304(c) is revised to read, ``Determining whether a payment is
authorized under title XVIII, as specified in section 1862(b) of the
Act, and recovering mistaken and conditional payments under section
1862(b) of the Act.''
In Sec. 421.306(b), we are revising this paragraph to clarify that
CMS may award an entity a Medicare integrity program contract by
transfer--as opposed to ``without competition''--if certain conditions
apply. The phrase ``without competition'' implies there is new work not
contemplated in the original contact award. However, work transferred
by novation was competed at some prior date, and a successor-in-
interest would take on that work. Therefore, Sec. 421.306(b) is
revised to read, ``CMS may award an entity a Medicare integrity program
contract by transfer if all of the following conditions apply * * *.''
[[Page 48882]]
In Sec. 421.308(b), we are revising this paragraph to omit the
phrase ``without competition'' because that term implies there is new
work not contemplated in the original contact award. Therefore, Sec.
421.308(b) is revised to read, ``CMS may renew a Medicare integrity
program contract if all of the following conditions apply are met * *
*.''
In Sec. 421.310, we are revising the section to omit Sec.
421.310(b)(1) in its entirety because, in Sec. 421.310, we state that
conflict of interest standards and requirements are contained in each
contract awarded to perform section 1893 of the Act functions. To
eliminate redundancy and possible ambiguities when read with the
contract, we believe it is necessary to remove this section of the
regulation as similar language is contained in the contract. In
addition, we eliminated Sec. 421.310(b)(1) because conflict of
interest standards and requirements could vary among MIP contracts (for
example, PSC and COB) and differ from those that are stated in this
regulation. Finally, we removed Sec. 421.310(b)(2)addressing the
resolution of conflicts of interest in its entirety. For clarity, the
language in this provision was slightly revised and moved to Sec.
421.312(b)(2) for organizational purposes.
In Sec. 421.312(a), we are revising the paragraph to clarify that
CMS determines when to convene a Conflicts of Interest Review Board.
Therefore, Sec. 421.312(a)is revised to read, ``CMS may establish and
convene a Conflicts of Interest Review Board to assist the contracting
officer in resolving organizational conflicts of interest.''
In Sec. 421.312(b), we are revising the section to separately
identify resolution of pre-award and post-award conflicts to increase
clarity and for organizational purposes. For resolution of post-award
conflicts, we added language that clarifies that we could continue a
contract even though a conflict of interest exists. Note that we did
not state in Sec. 421.312(b)(2)(iv) that the waiver of a conflict of
interest must be in accordance with 48 CFR subpart 9.503 in the
resolution of post-award conflicts of interest because that subpart
applies only to pre-award conflicts.
In Sec. 421.312(b)(2)(iii), which was proposed as Sec.
421.312(b)(4) in the June 17, 2005 proposed rule before Sec.
421.312(b) was reorganized in this final rule, we are revising this
section to clarify that a contracting officer may resolve an
organizational conflict of interest by not renewing an existing
contract. In addition, this section is revised to omit the phrase ``for
default.'' Under the FAR, a contract may be terminated for default, and
it may be terminated for the convenience of the government. Therefore,
Sec. 421.312(b)(2)(iii) is revised to read, ``The conflict requires
that CMS terminate or not renew an existing contract * * *.''
B. Description of Two New MIP Contractors
As explained in the preamble to this final rule, since the March
20, 1998 proposed rule was published, we had the authority to contract
with entities to perform Medicare program integrity functions to
promote the integrity of the Medicare program before publishing a final
rule. We also noted in the preamble to this final rule that, in
accordance with this MIP authority, we maintain various MIP contracts,
which include, but are not limited to, the following: 12 IDIQ contracts
for the PSC effort; 1 COB contract, 8 IDIQ contracts for the MMC
Program Integrity Contractors effort, 8 IDIQ contracts for the MEDIC
effort, and other contracts.
Between publishing the March 20, 1998 proposed rule and before
publishing this final rule, we awarded two other types of MIP
contracts: Workers' Compensation Review Contractors (WCRC) and Medicare
Secondary Payer Recovery Contractors (MSPRC). Although these MIP
contracts were not specifically identified in the March 20, 1998
proposed rule or the June 17, 2005 proposed rule, the preamble to both
respective proposed rules did not provide an exhaustive list of MIP
contracts; instead, it provided examples of MIP contracts and indicated
that there were ``other [MIP] contracts.''
As MIP contractors, the WCRC and the MSPRC must satisfy the same
requirements (for example, eligibility requirements under section
421.302) that other MIP contractors must satisfy. Their duties are
briefly described as follows:
Workers' Compensation Review Contractor. In September
2003, we awarded a contract to the WCRC to review and evaluate proposed
Workers' Compensation Medicare Set-aside Arrangements (WCMSAs) in
workers' compensation (WC) cases to help ensure that Medicare's
interests are properly considered when determining the future case-
related medical needs of the claimant. The purpose of the contract is
to procure an independent entity with qualified medical staff to
determine WCMSA amounts for future medical expenses related to the WC
injury to protect Medicare's interest. This function confirms the
adequacy of WCMSAs and, as a result, prevents the Medicare program from
incurring costs that should be paid by a WC carrier. This initiative
creates a streamlined process for review of WCMSAs and reduces the time
associated with such reviews and evaluations, ultimately enhancing the
level of customer service to the WC industry. More information about
the WCRC can be obtained by accessing the Internet at http://www.cms.hhs.gov/WorkersCompAgencyServices/06_wcmsasreviewprocess.asp
.
Medicare Secondary Payer Recovery Contractor. In August
2006, we consolidated all of the functions related to recovering MSP
Group Health Plan (GHP) and ``non-GHP'' (Workers' Compensation (WC),
no-fault, and liability) debts from the Medicare claims processing
contractors into one MSP Recovery Contractor (MSPRC). The MSPRC was
implemented in October 2006. The MSPRC only took over cases where the
debtors are employers, insurers/Third Party Administrators, WC
carriers, no-fault insurers, liability insurers, or beneficiaries.
Cases where debtors are providers, physicians, or suppliers remained at
the FFS contractors. Furthermore, those contractors using the
Healthcare Integrated General Ledger Accounting System (HIGLAS) kept
cases already on that system to see through to completion. Using one
contractor to perform MSP recoveries is achieving administrative and
operational efficiencies, standardizing the recovery process,
maximizing recoveries, and enhancing customer service. The MSPRC is
already introducing innovations into the process, including
establishing a virtual case system to replace paper files and using a
dedicated call center with a toll-free number for more expedient
customer service. More information about the MSPRC can be obtained by
accessing the Internet at http://www.cms.hhs.gov/MSPRGenInfo/.
V. Collection of Information Requirements
This document does not impose new information collection and
recordkeeping requirements subject to the Paperwork Reduction Act of
1995 (PRA) (44 U.S.C. 35). Consequently, it need not be reviewed by the
Office of Management and Budget under the authority of the PRA of 1995.
VI. Regulatory Impact Analysis
A. Introduction
We have examined the impact of this final rule as required by
Executive Order 12866 (September 1993, Regulatory Planning and Review),
the
[[Page 48883]]
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354),
section 1102(b) of the Social Security Act, the Unfunded Mandates
Reform Act of 1995 (UMRA) (Pub. L. 104-4), and Executive Order 13132.
Executive Order 12866 (as amended by Executive Order 13258, which
merely reassigns responsibility of duties) directs agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). A
regulatory impact analysis (RIA) must be prepared for major rules with
economically significant effects ($100 million or more in any 1 year).
Although Table 1 shows a significant decline in improper Medicare FFS
payments based on the implementation of MIP contractors and other
initiatives, such as FI and carrier education efforts, the decline is a
function of our efforts to prevent and recoup improper payments, which
represent savings to the Medicare program. As a result, we have
determined that this final rule is not a major rule, and that it would
not have economically significant effects.
The RFA requires agencies to analyze options for regulatory relief
of small entities. For purposes of the RFA, small entities include
small businesses, nonprofit organizations, and small governmental
jurisdictions. Most hospitals and most other providers and suppliers
are small entities, either by nonprofit status or by having revenues of
$6.5 million to $31.5 million in any 1 year. By the North American
Industrial Classification (NAIC) Codes which are set by the Department
of Commerce and the Business Size Standard of each of the NAIC codes
which are set by the Small Business Administration, FIs and carriers
(which are for the purposes of this final rule contractors that
received awards under sections 1816 and 1842 of the Act prior to
October 1, 2005) are not small businesses based on the NAIC code used
for this type of work.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule may have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 604 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside a Metropolitan
Statistical Area and has fewer than 100 beds. We have determined, and
certify, that this final rule would not have a significant economic
impact on a substantial number of small entities. We also have
determined, and certify, that this final rule would not have a
significant impact on the operations of a substantial number of small
rural hospitals.
Section 202 of the UMRA also requires that agencies assess
anticipated costs and benefits before issuing any rule whose mandates
require spending in any 1 year of $100 million in 1995 dollars, updated
annually for inflation. That threshold level is currently approximately
$120 million. We have determined that this final rule would not cause
the private sector or State, local, or tribal governments in the
aggregate to expend $120 million or more in any given year.
Executive Order 13132 establishes certain requirements that an
agency must meet when it issues a proposed rule (and subsequent final
rule) that imposes substantial direct requirement costs on State and
local governments, preempts State law, or otherwise has Federalism
implications. Under section I of Executive Order 13132, `` `[p]olicies
that have federalism implications' refers to regulations, legislative
comments or proposed legislation, and other policy statements or
actions that have substantial direct effects on the States, on the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government.'' We have determined, and certify, that this final rule
would not impose substantial direct requirement costs on State and
local governments, preempt State law, or otherwise have Federalism
implications.
B. Discussion of Impact
Our MIP experience since 1999 suggests that this rule will continue
to have a positive impact on the Medicare program, Medicare
beneficiaries, providers, suppliers, and entities that have not
previously contracted with us. Existing MIP contractors that seek
renewal of MIP contracts should not expect any additional costs in
complying with the requirements set forth in the rule, as these
requirements are similar yet more streamlined than those set forth in
the 1998 proposed rule and are currently applied by MIP contractors. To
the extent that small entities could be affected by the rule, and
because the rule raises certain policy issues for conflict of interest
standards, we provide an impact analysis for those entities that we
believe will be most heavily affected by the rule.
We believe that this rule will have an impact, although not a
significant one, in five general areas: (1) The Medicare program and
Health Insurance Trust Fund; (2) Medicare beneficiaries and taxpayers;
(3) current FIs and carriers; (4) entities that have not previously
contracted with us; and (5) Medicare providers and suppliers. These
five general areas are examined below.
1. The Medicare Program and Health Insurance Trust Fund
HIPAA provides for a direct apportionment from the Health Insurance
Trust Fund for program integrity activities to thwart improper billing
practices. Appropriations totaled $700 million for 2002 and $720
million for fiscal year (FY) 2003 and all subsequent years. The Deficit
Reduction Act of 2005 (DRA) increased unrestricted general MIP funding
by $100 million for FY 2006 only and provided another $12 million in
MIP funds in FY 2006 for the Medicare-Medicaid (Medi-Medi) Data Match
Project, bringing total MIP funding in FY 2006 to $832 million. For FY
2007, general MIP funding returns to $720 million, while the DRA
provides $24 million in MIP funds for the Medi-Medi Data Match Project,
for a MIP total of $744 million.
A separate and dependable long-term funding source for MIP allows
us the flexibility to invest in innovative strategies to combat the
fraud and abuse drain of the Medicare Trust Funds. By shifting emphasis
from post-payment recoveries on incorrectly paid claims to pre-payment
strategies, most claims will be paid correctly the first time.
Improper billing and health care fraud are difficult to quantify
because of their hidden nature. However, estimates suggest that the
percentage of improper Medicare FFS payments as compared to total FFS
payments has declined since the implementation of MIP contractors as
shown in Table 1.
[[Page 48884]]
Table 1\*\
----------------------------------------------------------------------------------------------------------------
Improper payment Percentage of FFS Total FFS payment (in
Year (in billions) total billions)
----------------------------------------------------------------------------------------------------------------
1998........................................ $14.9 billion 8.4 $177.0 billion
1999........................................ 14.5 8.6 168.9.
2000........................................ 16.4 9.4 174.6.
2001........................................ 16.8 8.8 191.3.
2002........................................ 17.1 8.0 212.8.
2003\**\.................................... 12.7 6.4 199.1.
2004........................................ 21.7 10.1 213.5.
2005........................................ 12.1 5.2 234.1.
2006........................................ 10.8 4.4 246.8.
----------------------------------------------------------------------------------------------------------------
\*\The Improper Payments Information Act of 2002 (Pub. L. 107-300) mandates that federal agencies use gross
figures when reporting improper payment amounts and rates. A gross figure is calculated by adding
underpayments to overpayments. All amounts and rates in this table have been converted to gross figures.
\**\Since 1996, HHS has annually determined the rate of improper payments for FFS claims paid by Medicare
contractors. The survey measures claims found to be medically unnecessary, inadequately documented, or
improperly coded. From 1996 until 2002, the survey was conducted by the OIG based on a survey of some 6,000
claims. In 2003, CMS launched an expanded effort, reviewing approximately 128,000 Medicare claims to learn
more precisely where errors are being made. Because this was a new initiative, there was a high non-response
rate. The 2003 figures used in the above table reflect the adjusted error rate figures, which account for this
high non-response rate. If this adjustment had not been made, the improper payment would have been $21.5
billion and the national error rate would have been 10.8 percent. The numbers reported for 2004 are unadjusted
and reflect CMS' findings since employing its expanded effort.
As we referred to previously, the positive error rate trend also
relates to other initiatives, including FI and carrier education
efforts, partnering with the provider community, and our anti-fraud and
abuse efforts.
In 2004, we announced new steps to measure error rates in Medicare
payments more accurately and comprehensively at the contractor level
and to further reduce improper payments through targeted error
improvement initiatives. Under the new measurement process for the
Medicare error rate, the gross national rate for FY 2004 was 10.1
percent and decreased to 5.2 percent in 2005.
In addition to economic advantages, MIP funding and contracting
improvements will allow us to better serve Medicare beneficiaries in a
qualitative way. MIP gives us a tool to better administer the Medicare
program and accomplish our mission of providing access to quality
health care for Medicare beneficiaries. We will continue to use
competitive procedures under the FAR to contract separately for the
performance of integrity functions. In general, economic theory
postulates that competition results in a better price for the consumer
which, in this instance, is CMS on behalf of Medicare beneficiaries and
taxpayers. Competition should also encourage the use of innovative
techniques to perform integrity functions that will, in turn, result in
more efficient and effective safeguards for the Trust Funds.
2. Medicare Beneficiaries and Taxpayers
MIP contracts have had, and we expect will continue to have, an
overall positive effect on Medicare beneficiaries and taxpayers.
Beneficiaries pay deductibles and Part B Medicare premiums. Taxpayers,
including those who are not yet eligible for Medicare, contribute part
of their earnings to the Part A Trust Fund. Taxpayers and beneficiaries
contribute indirectly to the Part B Trust Fund because it is funded, in
part, from general tax revenues. Consistent performance of program
integrity activities will ensure that less money is wasted on
inappropriate treatment or unnecessary services. As evidence, MIP funds
have contributed to reducing the total percentage of improper payments
made for FFS claims paid in 2006 to 4.4 percent of all FFS claims, down
from 8.4 percent of FFS claims in 1998. As a result, current and future
beneficiaries will obtain more value for every Medicare dollar spent.
In addition, under the Medicare Secondary Payer program in FY 2005, CMS
achieved $5.8 billion dollars in pre-payment and post payment savings.
3. Current Fiscal Intermediaries and Carriers
Although FIs and carriers are not considered small entities for
purposes of the RFA, and effective October 1, 2005, we have the
authority to replace the current Medicare FI and carrier contracts with
new MAC contracts, we are providing the following analysis.
There are currently 18 Medicare FIs, 15 Medicare carriers, 1 DME
regional contractor (which is also a carrier), and 1 Medicare A/B MAC.
Presently, these contractors perform general program integrity
activities addressed in this final rule apart from, but not duplicative
of, MIP contractors. In FY 2004, approximately 29 percent of the total
contractor budget was dedicated to program integrity. Current FIs,
carriers, and MACs are not prohibited from entering into MIP contracts
when we compete contracts for (MIP) activities under section 1893 of
the Act. (However, these contractors would have to meet conflict of
interests requirements in the MIP contracts and the FAR.)
We believe that this rule will have a minimum impact in several
areas. Medical directors continue to play an important role in medical
review activities, and locally-based medical directors improve our
relationship with local physicians by using groups like Carrier
Advisory Committees. Locally-based fraud investigators and auditors are
being used as necessary. Upon publishing this final regulation, we
anticipate that review policies will continue to be coordinated across
contractors to ensure consistency, while local practice will continue
to be incorporated where appropriate.
This rule may have had a negative impact on current FIs and
carriers in some respects. Many current FIs and carriers may have lost
a portion of their Medicare business since 1998 as fraud review and
other functions were transferred to MIP contractors.
However, current contractors have benefited from the MIP program
and will benefit from this final rule. Under the provisions of this
rule, they are eligible to compete for MIP contracts as long as they
comply with all conflict of interest and other requirements. (Current
contractors may not receive payment for performing the same program
integrity activities under both a MIP contract and their existing
contract.) We considered proposing rules that identified specific
conflict of interest situations that would prohibit
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the award of a MIP contract. We also considered prohibiting a MIP
contractor whose contract was completed but not renewed or terminated
from competing for another MIP contract for a certain period. Instead,
the final rule would establish a process for evaluating, on a case-by-
case basis at the time of contracting, situations that may constitute
conflicts of interest in accordance with the FAR, subpart 9.5. It
permits current contractors to position themselves to be eligible for a
MIP contract by mitigating any conflicts of interest they may have in
order to compete. The economic impact on FIs and carriers is lessened
by this approach when compared to the alternatives we considered.
The current contractors that are awarded MIP contracts, or that
continue to perform MIP functions under their FI or carrier contracts,
will also benefit from more consistent funding provided by the law for
program integrity activities. This more stable, long-term funding
mechanism enables Medicare contractors to attract, train, and retain
qualified professional staff to help them fulfill their program
integrity functions.
There will be an economic impact on current contractors that
propose to perform MIP contracts using subcontractors. A MIP contractor
would apply to its subcontractors the same conflict of interest
standard to which it must adhere. It is impossible to assess the
precise economic impact of this portion of the final rule because a MIP
contractor is generally free to contract with any subcontractor. A MIP
contractor may seek out subcontractors that are conflict free, which
would reduce or eliminate the time expended monitoring conflict of
interest situations. However, our requirements rely heavily on FAR
subpart 9.5, which normally apply to both prime contractors and
subcontractors. Thus, we do not believe this provision imposes any
additional negative burden on current FIs or carriers.
4. New Contracting Entities
Entities that have not previously performed Medicare program
integrity activities will experience a positive effect from this rule.
Integrity functions such as audit, medical review, and potential fraud
investigation may be consolidated in a MIP contract to allow suspect
claims to be identified and investigated from all angles. This final
rule may create new markets and opportunities for small, small
disadvantaged, and woman-owned businesses.
Since publishing the 1998 proposed rule and in accordance to this
MIP authority, we have awarded 12 Indefinite Delivery-Indefinite
Quantity (IDIQ) contracts for the Program Safeguard Contractor (PSC)
effort, one Coordination of Benefits (COB) contract, 8 IDIQ contracts
for the Medicare Managed Care Program Integrity Contractors (MMC-PICs)
effort, 8 IDIQ contracts for the MEDIC effort, and other miscellaneous
contracts. With the addition of the Medicare Part D prescription drug
benefit included in the MMA, there will be further opportunities for
entities to compete for MIP contracts to perform additional program
oversight activities.
Use of full and open competition to award MIP contracts may
encourage innovation and the creation of new technology. Historically,
cutting edge technologies and analytical methodologies created for the
Medicare program have benefited the private insurance arena.
5. Providers and Suppliers
Because MIP contractors have been in place since 1998, we
anticipate no additional burden imposed on providers and suppliers that
are small businesses or not-for-profit organizations by the need to
deal with a new set of contractors. There are approximately 1.1 million
health care providers and suppliers (depending on how group practices
and multiple locations are counted) that bill independently. The final
rule does not necessarily impose any action on the part of these
providers and suppliers.
Overall, we expect that providers and suppliers will benefit
qualitatively from this final rule. Many providers and suppliers
perceive that their reputations are tarnished by the few dishonest
providers and suppliers that take advantage of the Medicare program.
The media often focus on the most egregious cases of Medicare fraud and
abuse, leaving the public with the perception that physicians and other
health care practitioners routinely make improper claims. This rule
would allow us to take a more effective and wider ranging approach to
identifying, stopping, and recovering from unscrupulous providers and
suppliers. As the number of dishonest providers and suppliers and
improper claims diminishes, ethical providers and suppliers will
benefit.
C. Conclusion
Since publishing the March 20, 1998 proposed rule, we have awarded
MIP contracts to contractors in order to perform program integrity
activities, and there has been a decrease in the percentage of improper
claims paid. In anticipation of our continued authority to award
contracts to entities to continue these activities, we have announced
initiatives to measure error rates in Medicare payments more accurately
and comprehensively and to further reduce improper payments.
We conclude that our continued authority would save the Medicare
program additional money and would extend the solvency of the Trust
Funds as a result of this final rule. The dynamic nature of fraud and
abuse is illustrated by the fact that wrongdoers continue to find ways
to evade safeguards. This supports the need for constant vigilance and
increasingly sophisticated ways to protect against ``gaming'' the
system. We solicited public comments as well as data on the extent to
which any of the affected entities would be significantly economically
affected by this final rule.
In accordance with the provisions of Executive Order 12866, this
proposed notice was reviewed by the Office of Management and Budget.
List of Subjects
42 CFR Part 400
Grant programs--health, Health facilities, Health maintenance
organizations (HMO), Medicaid, Medicare, Reporting and recordkeeping
requirements.
42 CFR Part 421
Administrative practice and procedure, Health facilities, Health
professions, Medicare, Reporting and recordkeeping requirements.
0
For reasons set forth in the preamble, the Centers for Medicare &
Medicaid Services amends 42 CFR chapter IV as follows:
PART 400--INTRODUCTION; DEFINITIONS
0
1. The authority citation for part 400 continues to read as follows:
Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh) and 44 U.S.C. Chapter 35.
0
2. Section 400.202 is amended by adding the following definition in
alphabetical order to read as follows:
Sec. 400.202 Definitions specific to Medicare.
* * * * *
Medicare integrity program contractor means an entity that has a
contract with CMS under section 1893 of the Act to perform exclusively
one or more of the program integrity activities specified in that
section.
* * * * *
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PART 421--MEDICARE CONTRACTING
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3. The authority citation for part 421 continues to read as follows:
Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).
0
4. Section 421.1 is revised to read as follows:
Sec. 421.1 Basis, applicability, and scope.
(a) Basis. This part is based on the provisions of the following
sections of the Act:
Section 1124--Requirements for disclosure of certain information.
Sections 1816 and 1842--Provisions relating to the administration
of Parts A and B.
Section 1893--Requirements for protecting the integrity of the
Medicare program.
(b) Applicability. The provisions of this part apply to agreements
with Part A (Hospital Insurance) fiscal intermediaries that received
awards under sections 1816 or 1842 of the Act prior to October 1, 2005,
contracts with Part B (Supplementary Medical Insurance) carriers that
received awards under sections 1816 or 1842 of the Act prior to October
1, 2005, and contracts with Medicare integrity program contractors that
perform program integrity functions.
(c) Scope. The scope of this part--
(1) Specifies that CMS may perform certain functions directly or by
contract.
(2) Specifies criteria and standards CMS uses in evaluating the
performance of fiscal intermediaries' successor entities and in
assigning or reassigning a provider or providers to particular fiscal
intermediaries.
(3) Provides the opportunity for a hearing for fiscal
intermediaries and carriers affected by certain adverse actions.
(4) Provides adversely affected fiscal intermediaries an
opportunity for judicial review of certain hearing decisions.
(5) Sets forth requirements related to contracts with Medicare
integrity program contractors.
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5. Section 421.100 is revised to read as follows:
Sec. 421.100 Intermediary functions.
An agreement between CMS and an intermediary specifies the
functions to be performed by the intermediary.
(a) Mandatory functions. The contract must include the following
functions:
(1) Determining the amount of payments to be made to providers for
covered services furnished to Medicare beneficiaries.
(2) Making the payments.
(b) Additional functions. The contract may include any or all of
the following functions:
(1) Any or all of the program integrity functions described in
Sec. 421.304, provided the intermediary is continuing those functions
under an agreement entered into under section 1816 of the Act that was
in effect on August 21, 1996, and they do not duplicate work being
performed under a Medicare integrity program contract.
(2) Undertaking to adjust incorrect payments and recover
overpayments when it is determined that an overpayment was made.
(3) Furnishing to CMS timely information and reports that CMS
requests in order to carry out its responsibilities in the
administration of the Medicare program.
(4) Establishing and maintaining procedures as approved by CMS for
the redetermination of payment determinations.
(5) Maintaining records and making available to CMS the records
necessary for verification of payments and for other related purposes.
(6) Upon inquiry, assisting individuals for matters pertaining to
an intermediary agreement.
(7) Serving as a channel of communication to and from CMS of
information, instructions, and other material as necessary for the
effective and efficient performance of an intermediary agreement.
(8) Undertaking other functions as mutually agreed to by CMS and
the intermediary.
(c) Dual intermediary responsibilities. Regarding the
responsibility for service to provider-based HHAs and provider-based
hospices, where the HHA or the hospice and its parent provider will be
served by different intermediaries, the designated regional
intermediary will process bills, make coverage determinations, and make
payments to the HHAs and the hospices. The intermediary or Medicare
integrity program contractor serving the parent provider will perform
all fiscal functions, including audits and settlement of the Medicare
cost reports and the HHA and hospice supplement worksheets.
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6. Section 421.200 is revised to read as follows:
Sec. 421.200 Carrier functions.
A contract between CMS and a carrier specifies the functions to be
performed by the carrier. The contract may include any or all of the
following functions:
(a) Any or all of the program integrity functions described in
Sec. 421.304 provided the following conditions are met:
(1) The carrier is continuing those functions under a contract
entered into under section 1842 of the Act that was in effect on August
21, 1996.
(2) The functions do not duplicate work being performed under a
Medicare integrity program contract, except that the function related
to developing and maintaining a list of DME may be performed under both
a carrier contract and a Medicare integrity program contract.
(b) Receiving, disbursing, and accounting for funds in making
payments for services furnished to eligible individuals within the
jurisdiction of the carrier.
(c) Determining the amount of payment for services furnished to an
eligible individual.
(d) Undertaking to adjust incorrect payments and recover
overpayments when it is determined that an overpayment was made.
(e) Furnishing to CMS timely information and reports that CMS
requests in order to carry out its responsibilities in the
administration of the Medicare program.
(f) Maintaining records and making available to CMS the records
necessary for verification of payments and for other related purposes.
(g) Establishing and maintaining procedures under which an
individual enrolled under Part B is granted an opportunity for a
redetermination.
(h) Upon inquiry, assisting individuals with matters pertaining to
a carrier contract.
(i) Serving as a channel of communication to and from CMS of
information, instructions, and other material as necessary for the
effective and efficient performance of a carrier contract.
(j) Undertaking other functions as mutually agreed to by CMS and
the carrier.
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7. A new subpart D is added to part 421 to read as follows:
Subpart D--Medicare Integrity Program Contractors
Sec.
421.300 Basis, applicability, and scope.
421.302 Eligibility requirements for Medicare integrity program
contractors.
421.304 Medicare integrity program contractor functions.
421.306 Awarding of a contract.
421.308 Renewal of a contract.
421.310 Conflict of interest requirements.
421.312 Conflict of interest resolution.
421.316 Limitation on Medicare