Medicare Program; Part B Advance Payments to Suppliers Furnishing Items or Services under Medicare Part B

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 421

[BPO-105-P]

RIN 0938

Medicare Program; Part B Advance Payments to Suppliers Furnishing

Items or Services under Medicare Part B

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

ACTION: Proposed rule.

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SUMMARY: This rule would establish requirements and procedures for

advance payments to suppliers of Medicare Part B services. An advance

payment would be made only if the carrier is unable to process a claim

timely, the supplier requests advance payment, and we determine that

payment of interest is insufficient to compensate the supplier for loss

of the use of the funds and approve the advance payment.

These rules are necessary to correct deficiencies noted by the

General Accounting Office in its report of a review of current

procedures for making advance payments.

The intent of this proposal is to ensure more efficient and

effective administration of this aspect of the Medicare program.

DATES: Written comments will be considered if we receive them at the

appropriate address, as provided below, no later than 5:00 p.m. on

September 16, 1994.

ADDRESSES: Mail written comments to the following address: Health Care

Financing Administration, Department of Health and Human Services,

Attention: BPO-105-P, P.O. Box 26688, Baltimore, MD 21207.

If you prefer, you may deliver your written comments to one of the

following addresses: Room 309-G, Hubert H. Humphrey Building, 200

Independence Ave., SW., Washington, DC 20201, or, Room 132, East High

Rise Building, 6325 Security Boulevard, Baltimore, MD 21207.

Because of staffing and resource limitations, we cannot accept

comments by facsimile (FAX) transmission. In commenting, please refer

to file code BPO-105-P. Comments received timely will be available for

public inspection as they are received, generally beginning

approximately 3 weeks after publication of a document, in Room 309-G of

the Department's offices at 200 Independence Ave., SW., Washington, DC,

on Monday through Friday of each week from 8:30 a.m. to 5:00 p.m.

(phone: 202-690-7890).

For comments that relate to information collection requirements,

mail a copy of comments to: Allison Herron Eydt, HCFA Desk Officer,

Office of Information and Regulatory Affairs, Room 10235, New Executive

Office Building, Washington, DC 20503.

FOR FURTHER INFORMATION CONTACT: Jim O'Shea, (410) 966-7521.

SUPPLEMENTARY INFORMATION:

I. Background

A. General

The Medicare Supplementary Medical Insurance (SMI or Part B)

program is a voluntary program that pays all or part of the costs for

physicians' services; outpatient hospital services; certain home health

services; services furnished by rural health clinics, ambulatory

surgical centers and comprehensive outpatient rehabilitation

facilities; and certain other items or medical and hospital health

services not covered by the Medicare Hospital Insurance program.

B. Use of Carriers

Statutory Basis--Under section 1842(a) of the Social Security Act

(the Act), public and private organizations and agencies may

participate in the administration of the Medicare program under

contracts entered into with the Secretary. These Medicare contractors,

known as ``carriers,'' process and pay Part B claims.

Usually, these payments are made on a claim-by-claim basis.

Regulations at 42 CFR Part 421, Subpart C--Carriers, set forth the

functions performed by Medicare carriers, which include:

Determining the eligibility status of a beneficiary.

Determining whether the services for which payment is

claimed is covered under Medicare, and if so, the correct payment

amounts.

Making correct payment to the beneficiary or the supplier

of the items or services, as appropriate.

Carriers must also observe the ``prompt payment'' requirements set

forth in section 1842(c) of the Act. As amended by section 13568 of the

Omnibus Budget Reconciliation Act of 1993, Public Law 103-66, enacted

on August 10, 1993, this provision currently requires interest to be

paid on all ``clean'' claims for which payment is not issued within 30

calendar days.

Advance Payments to Suppliers--Under Part B, a carrier makes an

advance partial payment to a supplier if the carrier is not able to

process a claim. (For purposes of the Medicare program, Sec. 400.202 of

the HCFA rules defines ``supplier'' as a physician or other

practitioner, or an entity other than a provider, that furnishes health

care services under Medicare, and ``services'' as medical care or

services and items, such as medical diagnosis and treatment, drugs and

biologicals, supplies, appliances, and equipment, medical social

services, and use of hospital or SNF facilities.) An advance payment is

made to a supplier eligible to receive Medicare payments.

In rare instances, such as when major administrative changes are

made in processing Part B claims, a backlog of pending claims may

occur. To avoid or reduce payment of interest on claims that are not

processed timely, we sometimes authorize advance payments for pending

backlogged claims, subject to later recoupment, once the claims are

processed. However, since generally, Medicare Part B payments are made

after a claim is processed, there are no regulations or guidelines for

making advance payments.

II. General Accounting Office Report Finding--''HCFA Should Improve

Internal Controls Over Part B Advance Payments''

As a result of administrative changes made in processing Part B

claims at two carriers in two States during 1988, a large backlog of

pending claims occurred. In order to minimize the effects of these

disruptions on suppliers, in 1989 we authorized the two carriers to

make advance payments for pending backlogged claims, subject to later

recoupment, once the claims were actually processed. The difficulties

experienced by the suppliers resulted in the General Accounting Office

(GAO) investigating these two carriers and their claims processing

systems. This investigation led the GAO to question whether we had

sufficient guidelines and safeguards in place to ensure that advance

payments were promptly recouped.

The GAO found that inconsistencies in handling occurred and

administrative problems resulted from the lack of specific regulations

and guidelines. The criteria for approving advance payments by these

two carriers differed, as did progress in recouping these payments. One

carrier made advance payments only to medical equipment suppliers. It

based these advances on the level of payments the suppliers had

received in the previous year. Another carrier, in contrast, made

advance payments to all suppliers. It based the advance payment on the

value of claims that had been on hand at the carrier for more than 14

days.

In August 1989, one carrier began to recoup advance payments either

through repayments from suppliers or by withholding a portion of

subsequent payments to them. By February 1990, the carrier had recouped

about 94 percent of the $1.3 million it had advanced to the suppliers;

by September 1990, $17,071 was outstanding, including $14,592 owed by

one supplier that the carrier was unable to contact.

The second carrier recouped advance payments by withholding 25

percent of subsequent payments to medical equipment suppliers and 50

percent of payments to other suppliers. In February 1990, when the

carrier began more aggressive efforts to recoup advance payments, about

$34 million of the $80 million it had advanced to the suppliers was

still outstanding. By September 1990, $14 million (about 18 percent of

the amount advanced) had not yet been recouped. Suppliers who had not

repaid their advances had, in effect, received an interest-free loan

from the Medicare Trust Fund.

The carrier encountered particular difficulty in recouping advances

made to suppliers that used more than one Medicare billing number. Some

of these suppliers had obtained an advance under one number and later

billed Medicare exclusively under the other number, frustrating efforts

to offset new payments to collect the advance payment. The carrier

noted this problem in January 1990 and began to identify suppliers who

had used multiple billing numbers to obtain payments. The carrier then

identified other related numbers the suppliers used for billing

Medicare and withheld payments from these claims.

As a result of its review of these cases, the GAO recommended that

we determine whether it is appropriate for carriers to make advance

payments to suppliers and that we be in compliance with the Federal

Manager's Financial Integrity Act (31 U.S.C. 3512) when making these

determinations.

The Federal Managers' Financial Integrity Act requires Federal

agencies to establish internal control systems that provide reasonable

assurance that agency expenditures are consistent with laws and

regulations. The Comptroller General, in implementing this Act, has

prescribed internal control standards for agency use. These standards

require that significant transactions must be ``authorized and executed

only by persons acting within the scope of their authority.'' In

applying this standard to Part B advance payments, the GAO expressed

the opinion that HCFA, rather than the carriers, should authorize

advance payments, to be executed by the carriers. In addition, the GAO

asserted that we should clearly communicate our approval to make

advance payments to carriers and include the terms under which these

payments must be made. Therefore, the GAO recommended that we develop

regulations and instructions for carriers regarding Part B advance

payments to suppliers. (GAO report, GAO/HRD-91-81 (April 1991),

entitled: ``Medicare: HCFA Should Improve Internal Controls Over Part B

Advance Payments'')

III. Provisions of the Proposed Regulations

In response to the GAO report and recommendation, we are adding

Sec. 421.214 (``Advance payments to suppliers of Part B services'') to

part 421, subpart C of this chapter.

New Sec. 421.214 would ensure the smooth and uniform issuance and

recoupment of Part B advance payments that may be authorized from time

to time to counter the negative consequences of disruptions in Medicare

Part B claims processing. The regulation would be entirely self-

contained. Advance payments would be made when a carrier is unable to

process a claim timely, not when delay is the result of late or

incomplete submittal of a claim by a supplier. Processing delays would

be highlighted to us to ensure that payment disruptions and risks to

the Medicare Trust Fund would be minimized.

There are some entities with provider agreements under section 1866

of the Act that are paid for certain Part B services from the Part B

Trust Fund through intermediaries (performing as a carrier when making

Part B payments). These providers generally have access to the existing

accelerated payment provisions under Sec. 413.64(g). The purpose of

this proposed regulation is to create a Part B advance payment

procedure for suppliers, not to supplant the existing Part A advance

payment procedure for some providers. Therefore, this section does not

apply to claims for Part B items or services that are furnished by

entities with provider agreements under section 1866 of the Act that

receive payments from intermediaries.

In new Sec. 421.214(b), we would define the term ``advance

payment'' to mean a carrier's conditional partial payment to a supplier

on a Part B claim that the carrier is unable to process within the

prescribed time limits.

Section 421.214(c) would specify that an advance payment may be

made if the carrier is unable to process claims timely, we determine

that the prompt payment interest provision in section 1842(c) of the

Act is insufficient to make claimants whole, and if expressly approved

by us in writing. The prompt payment interest provision currently

requires us to pay interest on clean claims when the carrier is unable

to make payment within 30 calendar days. The determination to issue

advance payments must take into consideration elements that are, or may

be, subject to changes such as legislation related to prompt payment;

system enhancements; severity of system malfunctions; regulatory

changes; change in contractors; and any number of other factors that

may necessitate the issuance of advance payments. Our ability to

respond appropriately and timely would be restricted if we were

required to publish criteria regarding a threshold through the

rulemaking procedure. Therefore, we would implement the threshold

criterion or criteria through manual instructions to the carriers. This

would give us the flexibility to respond promptly to providers without

going through the rulemaking process each time a unique situation

occurs. We specifically request public comments on this approach. In

making changes, we would ensure that advance payments would be made in

a way that would ensure budget neutrality.

Section 421.214(d) would specify that no advance payment may be

made to any supplier delinquent in repaying a Medicare overpayment, has

been advised of being under active medical review or program integrity

investigation, has not submitted any claims, or has not accepted

claims' assignments within the most recent 180-day period preceding the

system malfunction.

In Sec. 421.214, paragraph (e)(1) would specify that a supplier

must request, in writing, an advance payment for providing Part B items

or services. Paragraph (e)(2) would specify that a supplier must accept

an advance payment as a conditional payment subject to adjustment,

recoupment, or both based on an eventual determination of the actual

amount due on the claim, and subject to the other rules found in

Sec. 421.214.

In Sec. 421.214, paragraph (f)(1) would state that a carrier will

calculate an advance payment at no more than 80 percent of historical

assigned claims payment data paid a supplier. Historical data is

defined as a representative 90-day assigned claims payment trend within

the most recent 180-day experience before the system malfunction. Based

on this amount and the number of claims pending for the supplier, the

carrier will determine and issue advance payments not to exceed 80

percent of the average per claim amount paid during the 90-day trend

period, times the number of assigned claims pending. If historical data

are not available or if backlogged claims cannot be identified, the

carrier will determine and issue advance payments based on some other

methodology approved by us. Advance payments would be made no more

frequently than once every 2 weeks to a supplier.

In Sec. 421.214, paragraph (f)(2) would specify that generally, a

supplier will not receive advance payments for more assigned claims

than were paid, on a daily average, for the 90 days before the system

malfunction. This is to prevent and discourage suppliers from

submitting assigned claims that may lack merit in order to maximize the

receipt of advance payments. However, an example of a permissible

exception would be when a supplier does not receive payments from a

carrier for services during the early months of the year when

beneficiary deductibles are being met. In this case, the carrier would

use more representative payment months for the suppliers' daily

average.

In Sec. 421.214, paragraph (f)(3) would specify that a carrier

recovers an advance payment by applying it against the amount due on

the claim on which the advance was made. If the advance payment exceeds

the Medicare Payment amount, the carrier applies the unadjusted balance

of the advance payment against further Medicare payments due the

supplier.

It is not our intent to permit repayment of an advance payment by

an option that could delay the recovery process or that would create a

duplicate payment or an overpayment. A supplier, of Part B services,

could not elect to receive full payment for a claim and repay the

advance payment separately at some other time.

In Sec. 421.214, paragraph (f)(4) would specify that in accordance

with our instructions, a carrier must maintain financial records in

accordance with the Statement of Federal Financial Accounting Standards

to track advance payments and to recoup them expeditiously.

In Sec. 421.214, paragraph (g)(1) would permit us to waive the

requirements of paragraph (e)(1) if we determine it is appropriate to

make advance payments to all affected suppliers. Paragraph (g)(2) would

specify that if adjusting Medicare payments fails to recover an advance

payment, we may authorize the use of any other recoupment method

available (for example, lump sum repayment or an extended repayment

schedule). Paragraph (g)(2) also allows an unpaid balance from a past

advance payment to be converted into an overpayment. In the unlikely

event that after the adjustment process is completed more money has

been advanced to the supplier than was due, we would consider that

amount to be an overpayment. We would attempt to recover the

overpayment under the Medicare recovery procedures in part 401, subpart

F and part 405, subpart C.

In Sec. 421.214, paragraph (h) would clarify that the advance

payment is to be considered a payment that would satisfy the ``prompt

payment'' requirements of section 1842(c) of the Act for the amount of

the advance. Therefore, if an advance payment is made before the

``prompt payment'' time limit and the actual amount of payment for the

claim is determined after the time limit, interest would be paid only

on the balance due the supplier after the carrier deducts the amount of

the advance. (Of course, no interest would accrue if the amount of the

advance exceeds the actual payment amount to be made on the claim. If

the advance payment is issued after the time limit, interest would

accrue on the advance (or on the amount of the claim, which ever is

smaller) up to the date that the advance payment is issued, and on the

balance due the supplier, if any, up to the date of payment.

In Sec. 421.214, paragraph (i) would explain that the decision to

advance payments and the determination of the amount to be advanced on

any given claim are committed to agency discretion and are not subject

to review or appeal. However, the carrier would notify the supplier

receiving the advance payment about the amounts advanced and recouped,

and how any Medicare payment amounts have been adjusted. If the

supplier believes the carrier's reconciliation of the amounts advanced

and recouped is incorrectly computed, it may request an administrative

review from the carrier. If a review is requested, the carrier would

provide a written explanation of the adjustments. This review and

explanation is separate from a supplier's right to appeal the amount

and computation of benefits paid on the claim, as provided at 42 CFR

part 405, subpart H. The carrier's reconciliation of amounts advanced

and recouped is not an initial determination as defined at

Sec. 405.803, and any written explanation of such reconciliation is not

subject to further administrative review. We expect that this review

process will help to eliminate unnecessary appeals that might result

from errors in computation.

IV. Regulatory Impact Statement

We generally prepare an initial regulatory flexibility analysis

that is consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C.

601 through 612), unless the Secretary certifies that a rule would not

have a significant economic impact on a substantial number of small

entities. For purposes of the RFA, we consider all suppliers that

provide services under Medicare Part B to be small entities. We do not

consider carriers to be small entities.

Also, section 1102(b) of the Act requires the Secretary to prepare

a regulatory impact analysis for any rule that 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 603

of the RFA. For purposes of section 1102(b) of the Act, we define a

small rural hospital as a hospital that is located outside of a

Metropolitan Statistical Area and has fewer than 50 beds.

This proposed rule would amend Medicare regulations to ensure that

when carriers make advance payments to suppliers and those payments are

greater than the amounts actually due after the claim is processed, the

excess payments are recovered promptly. We expect this proposed rule

would result in marginal administrative savings to carriers and

suppliers. In addition, we do not believe this regulation would have a

negative effect on the economy. Therefore, the overall benefits are

positive and indeed provide stability during potentially disruptive

claims processing delays.

We have determined, and the Secretary certifies, that this proposed

rule would not have a significant economic impact on a substantial

number of small entities or a significant impact on the operations of a

substantial number of small rural hospitals. Therefore, we have not

prepared analyses for either the RFA or small rural hospitals.

In accordance with the provisions of Executive Order 12866, this

regulation was reviewed by the Office of Management and Budget.

V. Collection of Information

Section 421.214(f)(4), (g)(2), and (i)(3) of this document contain

information collection and recordkeeping requirements that are subject

to review by the Office of Management and Budget (OMB) under the

Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.). These

reporting and recordkeeping requirements are not effective until a

notice of OMB's approval is published in the Federal Register. The

information collection requirements in Sec. 421.214(f)(4) require that

a carrier maintain a financial system of data in accordance with the

Statement of Federal Financial Accounting Standards for tracking each

advance payment and its recoupment. We estimate that it would take a

carrier 4 minutes for entry of an advance payment into the tracking

system and 2 minutes for any update (including recoupment).

The reporting requirements in Sec. 421.214(g)(2) may require a

carrier to send a written notice to the supplier converting any unpaid

balances of advance payments to overpayments if adjusting Medicare

payments fails to recover an advance payment. We estimate that it would

take a carrier 5 minutes to issue a computer-generated letter with an

attached worksheet detailing adjustments to the advance payment and any

resulting overpayment.

Section 421.214(i)(3) would require a carrier to provide a written

explanation of the adjustments if the supplier requests an

administrative review because it believes the carrier's reconciliation

of the amounts advanced and recouped is incorrectly computed. We

estimate this written explanation would require 5 minutes using a

computer-generated letter.

Organizations and individuals desiring to submit comments on the

information collection and recordkeeping requirements should direct

them to the OMB official whose name appears in the ADDRESSES section of

this preamble.

VI. Response to Public Comments

Because of the large number of items of correspondence we normally

receive on a proposed rule, we are unable to acknowledge or respond to

them individually. However, we will consider all comments that we

receive by the date and time specified in the ``Dates'' section of this

preamble, and we will respond to comments in the preamble to the final

rule.

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 would be amended as follows:

PART 421--INTERMEDIARIES AND CARRIERS

1. The authority citation for Part 421, Subpart C 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, 1395(g), 1395h, 1395l, 1395m(a) and (h), 1395u, 1395x(u),

1395hh, 1395kk, and 1395ll), and 42 U.S.C. 1395b-1.

Subpart C--Carriers

2. A new Sec. 421.214 is added to Subpart C to read as follows:

Sec. 421.214 Advance payments to suppliers furnishing items or

services under Part B.

(a) Scope and applicability. This section provides for the

following:

(1) Sets forth requirements and procedures for the issuance and

recovery of advance payments to suppliers of Part B services and the

rights and responsibilities of suppliers under the payment and recovery

process.

(2) Does not limit HCFA's right to recover unadjusted advance

payment balances.

(3) Does not affect suppliers' rights under part 405, subpart H of

this chapter relating to substantive determinations on suppliers'

claims.

(4) Does not apply to claims for Part B services furnished by

suppliers that have in effect provider agreements under section 1866 of

the Act and part 489 of this chapter, and are paid by intermediaries.

(b) Definition. As used in this section, advance payment means a

conditional partial payment made by the carrier in response to a claim

that it is unable to process within established time limits.

(c) When advance payments may be made. An advance payment may be

made if all of the following conditions are met:

(1) The carrier is unable to process the claim timely.

(2) HCFA determines that the prompt payment interest provision

specified in section 1842(c) of the Act is insufficient to make a

claimant whole.

(3) HCFA approves, in writing to the carrier, the making of an

advance payment by the carrier.

(d) When advance payments are not made. Advance payments are not

made to any supplier that meets any of the following conditions:

(1) Is delinquent in repaying a Medicare overpayment.

(2) Has been advised of being under active medical review or

program integrity investigation.

(3) Has not submitted any claims.

(4) Has not accepted claims' assignments within the most recent

180-day period preceding the system malfunction.

(e) Requirements for suppliers. (1) Except as provided for in

paragraph (g)(1) of this section, a supplier must request, in writing

to the carrier, an advance payment for providing Part B items or

services.

(2) A supplier must accept an advance payment as a conditional

payment subject to adjustment, recoupment, or both based on an eventual

determination of the actual amount due on the claim, and subject to the

other rules found in this section.

(f) Requirements for carriers. (1) A carrier must calculate an

advance payment at no more than 80 percent of historical assigned

claims payment data paid a supplier. Historical data is defined as a

representative 90-day assigned claims payment trend within the most

recent 180-day experience before the system malfunction. Based on this

amount and the number of claims pending for the supplier, the carrier

must determine and issue advance payments not to exceed 80 percent of

the average per claim amount paid during the 90-day trend period times

the number of assigned claims pending. If historical data are not

available or if backlogged claims cannot be identified, the carrier

must determine and issue advance payments based on some other

methodology approved by HCFA. Advance payments can be made no more

frequently than once every 2 weeks to a supplier.

(2) Generally, a supplier will not receive advance payments for

more assigned claims than were paid, on a daily average, for the 90

days before the system malfunction.

(3) A carrier must recover an advance payment by applying it

against the amount due on the claim on which the advance was made. If

the advance payment exceeds the Medicare payment amount, the carrier

must apply the unadjusted balance of the advance payment against future

Medicare payments due the supplier.

(4) In accordance with HCFA instructions, a carrier must maintain a

financial system of data in accordance with the Statement of Federal

Financial Accounting Standards for tracking each advance payment and

its recoupment.

(g) Requirements for HCFA. (1) HCFA may determine that

circumstances warrant the issuance of advance payments to all affected

suppliers furnishing Part B items or services except that no advance

payments may be made to any supplier furnishing Part B items or

services that meets any of the conditions in paragraph (d) of this

section. HCFA may waive the requirement in paragraph (e)(1) of this

section as part of that determination.

(2) If adjusting Medicare payments fails to recover an advance

payment, HCFA may authorize the use of any other recoupment method

available (for example, lump sum repayment or an extended repayment

schedule) including, upon written notice from the carrier to the

supplier, converting any unpaid balances of advance payments to

overpayments. Overpayments are resolved in accordance with part 401,

subpart F of this chapter concerning claims collection and compromise

and part 405, subpart C of this chapter concerning recovery of

overpayments.

(h) Prompt payment interest. An advance payment is a ``payment''

under section 1842(c)(2)(C) of the Act for purposes of meeting the time

limit for the payment of clean claims, to the extent of the advance

payment.

(i) Notice, review, and appeal rights. (1) The decision to advance

payments and the determination of the amount of any advance payment are

committed to agency discretion and are not subject to review or appeal.

(2) The carrier must notify the supplier receiving an advance

payment, about the amounts advanced and recouped, and how any Medicare

payment amounts have been adjusted.

(3) The supplier may request an administrative review from the

carrier if it believes the carrier's reconciliation of the amounts

advanced and recouped is incorrectly computed. If a review is

requested, the carrier must provide a written explanation of the

adjustments.

(4) The review and explanation described in paragraph (i)(3) of

this section is separate from a supplier's right to appeal the amount

and computation of benefits paid on the claim, as provided at part 405,

subpart H of this chapter. The carrier's reconciliation of amounts

advanced and recouped is not an initial determination as defined at

Sec. 405.803 of this chapter, and any written explanation of a

reconciliation is not subject to further administrative review.

Catalog of Federal Domestic Assistance Program No. 93.773,

Medicare--Hospital Insurance and No. 93.774 Supplementary Medical

Insurance Program)

Dated: October 19, 1993.

Bruce C. Vladeck,

Administrator, Health Care Financing Administration.

Approved: April 7, 1994.

Donna Shalala,

Secretary.

[FR Doc. 94-17219 Filed 7-15-94; 8:45 am]

BILLING CODE 4120-01-P