DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 421

[BPOÄ083ÄF]

RIN 0938ÄAF84

Medicare Program; Revisions to Criteria and Standards for Evaluating
Intermediaries and Carriers

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Final rule.

SUMMARY: This rule issues technical amendments to Medicare regulations
intended to simplify and improve our system for evaluating the performance of
fiscal intermediaries and carriers in the administration of the Medicare
program. Currently, we evaluate intermediaries using performance criteria and
standards announced in an annual notice in the Federal Register. We are
clarifying the methodology for establishing these criteria and standards. For
consistency, we establish comparable regulation requirements for the
evaluation of carrier performance.

These revisions are published in accordance with sections 1816(f) and
1842(b)(2) of the Social Security Act which require us to develop standards,
criteria, and procedures to evaluate an intermediary's or carrier's overall
performance.

EFFECTIVE DATE: This final rule is effective February 7, 1994.

FOR FURTHER INFORMATION CONTACT: Larry Pratt, (410) 966Ä7403.

SUPPLEMENTARY INFORMATION:

I. Background

Under section 1816(a) of the Social Security Act (the Act), public or private
organizations and agencies participate in the administration of Part A
(Hospital Insurance) of the Medicare program under agreements with the
Secretary of Health and Human Services (HHS). These agencies or organizations
are known as fiscal intermediaries, and they perform bill processing and
benefit payment functions for the Medicare program. Under section 1842(a) of
the Act, the Secretary is authorized to enter into contracts with carriers to
fulfill various functions in the administration of Part B (Supplementary
Medical Insurance) of the Medicare program. Beneficiaries, physicians and
suppliers of the services submit claims to these carriers that, in turn, make
appropriate payments.

Beginning in 1980 for intermediaries and in 1981 for carriers, we have been
evaluating the effectiveness and efficiency of contractor operations through a
system of criteria and standards called the Contractor Performance Evaluation
Program (CPEP).

      We refer to the performance requirements we use to evaluate the
performance of intermediaries and carriers in meeting their contractual
obligations to HCFA in our regulations and program instructions as criteria
and standards. When we developed our regulations, criteria were expected to be
distinguished from standards; we intended to measure broad categorizations of
performance using criteria (42 CFR 421.120) and to measure statistical and
performance data using standards ( 421.122). As planned, a contractor had to
be evaluated by and pass the requirements of the criteria before we evaluated
contractor performance using statistical standards. However, in practice, the
standards have been used to measure a contractor's compliance with the
requirements of the criteria. The separate reliance on statistical standards
diminished and we have developed a CPEP under which standards are used to
measure the performance of specific activities in a defined criteria instead
of "statistical'' standards.

II. Summary of the Proposed Rule

On December 3, 1992, we published in the Federal Register (57 FR 57125) a
proposed rule describing technical revisions we proposed to make to Medicare
regulations in order to simplify and improve our system for evaluating the
performances of fiscal intermediaries and carriers in the administration of
the Medicare program. These technical revisions are necessary to bring our
regulations up to date with our actual use of criteria and standards in
performance evaluations.

In the preamble to the proposed rule we described how the reliance on
statistical standards diminished and that current "standards'' are used to
measure the performance of specific activities in a defined criterion. That
is, measurement and evaluation using criteria and standards have evolved into
a one-step process. In addition, we noted that certain functions that were
included in the original planned evaluation structure have been transferred to
more appropriate review activities. We, therefore, proposed to amend  421.3,
421.112(b), 421.118(b) and 421.122 to delete reference to statistical
standards and to replace the general standards for the areas evaluated
formerly by statistical standards with a general explanation of the areas
evaluated by performance standards.

We also mentioned in the proposed rule that our regulations do not contain
requirements relating to measurement of carrier performance that are parallel
to those for intermediaries. For consistency, we proposed to establish a new 
421.201, "Performance Criteria and Standards,'' that would measure and
evaluate carrier performance of functional responsibilities, such as, accurate
and timely processing of claims, responsiveness to beneficiaries', physicians'
and suppliers' concerns, and proper management of administrative funds.

We proposed to base performance criteria and standards on the experience of
carriers nationwide, changes in carrier operations due to fiscal constraints,
and our objectives in achieving better performance. Before the beginning of
each CPEP evaluation period, we would publish the performance criteria and
standards as a notice in the Federal Register.

We also announced that we would add a new  421.203, "Carrier's failure to
perform efficiently and effectively,'' to explain the adverse action that may
be taken by the Secretary if the carrier fails to meet criteria and standards
specified at  421.201. The content is parallel to  421.124, which applies to
intermediaries. This new  421.203 does not add or change carrier obligations.
It merely codifies in regulations a provision specific to carriers that has
been in effect since Public Law 98Ä369.

III. Analysis of and Response to Public Comments

We received 10 timely items of correspondence in response to the December 3,
1992 proposed rule. The comments were from intermediaries, carriers,
contractor advocacy groups, and provider advocacy groups. A summary of the
comments and the Department's responses follow:

Comment: Several commenters suggested that a process be developed by HCFA for
receiving comments, complaints, or problems with carrier performance by
physicians or professional organizations and that the information generated by
this process be included in the overall performance evaluation of a carrier.

Response: Beginning in Fiscal Year 1994, HCFA will review both intermediaries'
and carriers' efforts to enhance customer satisfaction through the use of
customer satisfaction surveys, including the National Physician Survey.
Results of the surveys will be used to establish performance data on customer
satisfaction and to identify areas in need of improvement. The results will be
summarized for publication in the report of contractor performance.

Comment: A number of the commenters believe that certain of our proposed
changes at  421.124 and 421.203 are unnecessary. Those changes would allow
the Secretary to take adverse action if an intermediary or carrier exceeds the
amount the Secretary finds to be reasonable and adequate to meet the costs
which must be incurred by an efficiently and economically operated
intermediary or carrier, notwithstanding whether the intermediary or carrier
meets the published criteria and standards. Both the intermediary and carrier
contracts currently have a provision to allow the Secretary to request a
committee of the contractors to assist in efforts to effect improvements in
the high cost contractor's performance. In addition, the current Contractor
Performance Evaluation Program (CPEP) contains measures on contractor costs.
If a contractor fails to meet the applicable criteria, its CPEP score is
reduced accordingly.

Response: We do not agree that the proposed changes are unnecessary. This
section of the regulation would authorize us to take adverse action for
deficient performance of a function not specifically evaluated by CPEP.
Currently, CPEP only measures contractor performance in meeting the approved
budget and the contractor's relative standing among similar contractors.
Moreover, beginning in FY 1993, CPEP eliminated the concept of passing/failing
the overall evaluation. Passing/failing now is determined on a standard by
standard basis. For example, if a contractor fails to meet the approved
budget, it will fail one standard in CPEP, not the entire CPEP. Thus, despite
CPEP, the authority to take adverse contract action against high cost
intermediaries and carriers is necessary. As the commenters note, current
contracts allow the Secretary to request a committee of the contractors to
assist in efforts to effect improvements in the high cost contractor's
performance. The proposed regulatory change allows us to take the next logical
step in the event efforts to effect improvement have failed. We will have
authority to take adverse action based on continued high cost performance.

Comment: Several commenters stressed that the proposed  421.124 and  421.203
were vague. They asked that HCFA further define "reasonable'' amount, and how
and when high cost would be calculated.

Response: We believe that the provisions at  421.124 and  421.203 are clear
and straightforward. It is our responsibility to consider the funding levels
that are reasonable and adequate to meet the costs incurred by an efficiently
and economically operated contractor. To address this responsibility, we
develop unit cost targets for each contractor prior to the start of every
fiscal year. These unit cost targets are forwarded to the HCFA regional
offices as part of the Budget and Performance Requirements (BPRs) package and
represent the benchmark for the negotiations between the regional offices and
the contractors.

We believe that the composition of a contractor's workload (for example,
number of hospital inpatient bills versus number of outpatient bills or
laboratory bills, etc.) is an important factor in the amount of costs it
incurs since some claims are inherently more problematic and difficult to
resolve. In order to give full consideration of each contractor's unique
situation, we currently apply a "complexity index'' to develop the BPRs' unit
cost targets. This methodology allows us to correlate the contractor's costs
with its individual workload composition. The use of the complexity index
allows us to identify the contractors whose unit costs appear to be out of
proportion to the type and medium (electronic versus hardcopy) of workload
they must process.

Use of the complexity index methodology allows us to evaluate each
contractor's costs with full consideration of its unique workload mix and
within the national forum of its peers. In this way, we identify our high cost
contractors. However, since the use of the complexity index methodology is an
administrative tool to identify contractors with aberrant costs and can be
changed or modified as required, we do not believe it necessary to outline
this methodology in the regulation.

Comment: Several commenters stated that the proposed  421.124(a) and
421.203(a) on high cost contractors do not specify the types of adverse action
we may take on the grounds of excessive cost. Contractors are uncertain about
how we would go about the process of applying sanctions and what these
sanctions might be.

Response: Adverse contract actions are listed in  421.124(a) and 421.203(a)
of the proposed regulation, but we are not limited to those. Adverse contract
actions are further defined in the intermediary and carrier manual issuances
released within the HCFA Program Manual Issuances System, which contain the
details of the CPEP. Adverse actions range in severity commensurate with
relative performance and include, but are not limited to, such actions as,
Regional Office Letter of Admonition; Central Office Letter of Admonition;
deletion of the automatic renewal clause from the contract without performance
goals established; deletion of the automatic renewal clause from the contract
with performance goals established; limited contract automatic-renewal clause
and provision for termination upon 90 days notice; reduction in territory or
"carve-out''; non-renewal; and termination.

Comment: A commenter was unsure whether, if HCFA does not publish the CPEP
standards during a fiscal year, there would be no performance evaluation for
that year or whether the previous year's CPEP would apply.

Response: In general, the evaluation period which the criteria and standards
measure is the Federal fiscal year. We make every effort to publish the
criteria and standards prior to the beginning of the Federal fiscal year, that
is, October 1st. If we do not publish a Federal Register notice before the new
fiscal year begins, readers may presume that, until and unless notified
otherwise, the criteria and standards which were previously in effect remain
in effect. When a new CPEP is published, it usually applies to a prospective
period, as stated in the Federal Register notice.

Comment: One commenter states that contractors participate in pilot projects
which may involve additional funding from HCFA. They assume this "additional
funding'' would not be considered as "excessively high costs''.

Response: We encourage contractors to participate in pilot projects which may
result in improved quality, service or efficiency in the administration of the
Medicare program. Where a contractor's participation in a pilot study or
program adversely affects its performance evaluation, appropriate adjustments
are made to mitigate the impact of the pilot study or program.

      Comment: One commenter recommends that HCFA not base criteria and
standards on the sliding scale of available funding but on true expectations
of performance and therefore delete "changes in fiscal operations due to
fiscal constraints'' as a basis for developing criteria and standards.

Response: Each year the specific standards are revised and developed in
concert with the specific budget and performance requirements, because that is
the fiscally responsible approach to develop uniform and fair performance
standards for the Medicare contractor community. We will continue to develop
standards in conjunction with budget and performance requirements.

Comment: One commenter notes that  421.124 and 421.203 do not include the
contract's provision for an extension of the contract, subject to cost
limitations. This would deprive high cost contractors of the formal
opportunity to choose between accepting limits on their reimbursable costs and
losing their Medicare contracts.

Response: The contract allows us to offer a high cost contractor the option of
submitting a lower budget or losing its Medicare contract. Sections 421.124
and 421.203 would give us the authority to determine the amount which is
reasonable and adequate to efficiently and economically operate as an
intermediary and carrier. If we determine that we cannot afford to contract
with high cost intermediaries or carriers, we may consider appropriate adverse
contract action.

IV. Provisions of the Final Rule

Based on our review of the comments submitted, we are making no substantive
changes to the proposed revisions to the rules affecting criteria and
standards for evaluating intermediaries and carriers as published on December
3, 1992, (57 FR 233). Only minor editorial and technical revisions have been
made to the proposed rules.

List of Subjects in 42 CFR Part 421

Administrative practice and procedure, Health facilities, Health professions,
Medicare, Reporting and recordkeeping requirements.

      42 CFR part 421 is amended as set forth below:

PART 421 INTERMEDIARIES AND CARRIERS

1. The authority citation for part 421 continues to read as follows:

Authority: Secs. 1102, 1815, 1816, 1833, 1834(a) and (h), 1842, 1861(u), 1871,
1874, and 1875 of the Social Security Act (42 U.S.C. 1302, 1395g, 1395h,
1395l, 1395m(a) and (h), 1395u, 1395x(u), 1395hh, 1395kk, and 1395ll), and 42
U.S.C. 1395b-1.

2. Section 421.3 is revised to read as follows:

 421.3 Definitions.

Intermediary means an entity that has a contract with HCFA to determine and
make Medicare payments for Part A or Part B benefits payable on a cost basis
(or under the Prospective Payment System for hospitals) and to perform other
related functions. For purposes of designating regional or alternative
regional intermediaries for home health agencies and of designating
intermediaries for hospices under  421.117 as well as for applying the
performance criteria in  421.120 and the performance standards in  421.122
and any adverse action resulting from such application, the term intermediary
also means a Blue Cross Plan which has entered into a subcontract approved by
HCFA with the Blue Cross and Blue Shield Association to perform intermediary
functions.

 421.112 [Amended]

3. In  421.112(b), "statistical standards'' is revised to read "performance
standards''.

 421.118 [Amended]

4. In  421.118(b) "statistical standards'' is revised to read "performance
standards''.

5. Section 421.122 is revised to read as follows:

 421.122 Performance standards.

(a) Development of standards. In addition to the performance criteria (
421.120), HCFA develops detailed performance standards for use in evaluating
intermediary performance which may be based on historical performance,
application of acceptable statistical measures of variation to nationwide
intermediary experience during a base period, or changing program emphases or
requirements. These standards are also developed considering intermediary
experience and evaluate the specific requirements of each functional
responsibility or criterion.

(b) Factors beyond intermediary's control. To identify measurable factors that
significantly affect an intermediary's performance, but that are not within
the intermediary's control, HCFA will

(1) Study the performance of intermediaries during the base period, and

(2) Consider the noncontrollable factors in developing performance standards.

(c) Publication of standards. The development and revision of standards for
evaluating intermediary performance is a continuing process. Therefore, before
the beginning of each evaluation period, which usually coincides with the
Federal fiscal year period of October 1ÄSeptember 30, HCFA publishes the
performance standards as part of the Federal Register notice describing the
performance criteria issued under  421.120(c). HCFA may not necessarily
publish the criteria and standards every year. HCFA interprets the statutory
phrase "before the beginning of each evaluation period'' as allowing
publication of the criteria and standards after the Federal fiscal year
begins, as long as the evaluation period of the intermediaries for the new
criteria and standards begins after the publication of the notice.

6. Section 421.124 is revised to read as follows:

 421.124 Intermediary's failure to perform efficiently and effectively.

(a) Failure by an intermediary to meet, or to demonstrate the capacity to
meet, the criteria or standards specified in  421.120 and 421.122 may be
grounds for adverse action by the Secretary or by HCFA, such as reassignment
of providers, offer of a short-term agreement, termination of a contract, or
non-renewal of a contract. If an intermediary meets all criteria and standards
in its overall performance, but does not meet them with respect to a specific
provider or class of providers, HCFA may reassign that provider or class of
providers to another intermediary in accordance with  421.114.

(b) In addition, notwithstanding whether an intermediary meets the criteria
and standards, if the cost incurred by the intermediary to meet its
contractual requirements exceeds the amount which HCFA finds to be reasonable
and adequate to meet the cost which must be incurred by an efficiently and
economically operated intermediary, those high costs may also be grounds for
adverse action.

7. In subpart C a new  421.201 is added to read as follows:

 421.201 Performance criteria and standards.

(a) Application of performance criteria and standards. As part of the carrier
evaluations mandated by section 1842(b)(2) of the Act, HCFA periodically
assesses the performance of carriers in their Medicare operations using
performance criteria and standards.

(1) The criteria measure and evaluate carrier performance of functional
responsibilities such as

(i) Accurate and timely payment determinations;

(ii) Responsiveness to beneficiary, physician, and supplier concerns; and

      (iii) Proper management of administrative funds.

(2) The standards evaluate the specific requirements of each functional
responsibility or criterion.

(b) Basis for criteria and standards. HCFA bases the performance criteria and
standards on

(1) Nationwide carrier experience;

(2) Changes in carrier operations due to fiscal constraints; and

(3) HCFA's objectives in achieving better performance.

(c) Publication of criteria and standards. Before the beginning of each
evaluation period, which usually coincides with the Federal fiscal year period
of October 1ÄSeptember 30, HCFA publishes the performance criteria and
standards as a notice in the Federal Register. HCFA may not necessarily
publish the criteria and standards every year. HCFA interprets the statutory
phrase "before the beginning of each evaluation period'' as allowing
publication of the criteria and standards after the Federal fiscal year
begins, as long as the evaluation period of the carriers for the new criteria
and standards begins after the publication of the notice.

8. A new  421.203 is added to read as follows:

 421.203 Carrier's failure to perform efficiently and effectively.

(a) Failure by a carrier to meet, or demonstrate the capacity to meet, the
criteria and standards specified in  421.201 may be grounds for adverse
action by the Secretary, such as contract termination or non-renewal.

(b) Notwithstanding whether or not a carrier meets the criteria and standards
specified in  421.201, if the cost incurred by the carrier to meet its
contractual requirements exceeds the amount that HCFA finds to be reasonable
and adequate to meet the cost which must be incurred by an efficiently and
economically operated carrier, those high costs may also be grounds for
adverse action.

(Catalog of Federal Domestic Assistance Program No. 93.773, Medicare Hospital
Insurance; and Program No. 93.774, Medicare Supplementary Medical Insurance
Program)

Dated: October 20, 1993.

Bruce C. Vladeck,

Administrator, Health Care Financing Administration.

Dated: December 2, 1993.

Donna E. Shalala,

Secretary.

[FR Doc. 94Ä63 Filed 1Ä5Ä94; 8:45 am]

BILLING CODE 4120Ä01ÄP