Medicare Program; Data, Standards, and Methodology Used to Establish Fiscal Year 1995 Budgets for Fiscal Intermediaries and Carriers

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

[BPO-124-PN]

Medicare Program; Data, Standards, and Methodology Used to

Establish Fiscal Year 1995 Budgets for Fiscal Intermediaries and

Carriers

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

ACTION: Proposed notice.

-----------------------------------------------------------------------

SUMMARY: This notice describes the data, standards, and methodology

that will be used to establish fiscal intermediary and carrier budgets

for fiscal year 1995, which begins October 1, 1994. Fiscal

intermediaries and carriers are public or private entities that

participate in the administration of the Medicare program by performing

claims processing and benefit payment functions. This notice is

published in accordance with sections 1816(c)(1) and 1842(c)(1) of the

Social Security Act, which require us to publish for public comment the

data, standards, and methodology we intend to use to establish budgets

for Medicare fiscal intermediaries and carriers.

DATES: Comments will be considered if we receive them at the

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

December 20, 1994.

ADDRESSES: Mail written comments (1 original and 3 copies) to the

following address:

Health Care Financing Administration, Department of Health and Human

Services, Attention: BPO-124-PN, P.O. Box 26676, Baltimore, Maryland

21207.

If you prefer, you may deliver your comments (1 original and 3

copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,

Washington, DC 20201, or

Room 132, East High Rise Building, 6325 Security Boulevard, Baltimore,

Maryland 21207.

Because of staffing and resource limitations, we cannot accept

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

to file code BPO-124-PN. 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 Avenue, SW., Washington,

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

(phone: (202)-690-7890).

FOR FURTHER INFORMATION CONTACT: Phyllis Mosmiller, (410) 966-7528

SUPPLEMENTARY INFORMATION:

I. Background

Under sections 1816(a) and 1842(a) of the Social Security Act (the

Act), public or private organizations and agencies may participate in

the administration of the Medicare program under agreements or

contracts entered into with the Secretary. These Medicare contractors

are known as fiscal intermediaries (section 1816(a) of the Act) and

carriers (section 1842(a) of the Act). Fiscal intermediaries perform

bill processing and benefit payment functions for Part A of the program

(Hospital Insurance) and carriers perform claim processing and benefit

payment functions for Part B of the program (Supplementary Medical

Insurance). When bills are submitted by providers, and claims by

beneficiaries, physicians, and suppliers of services, fiscal

intermediaries and carriers are responsible for:

Determining the eligibility status of a beneficiary;

Determining whether the services on the submitted claims

or bills are covered under Medicare and, if so, what are the correct

payment amounts; and

Making appropriate payments to the provider, beneficiary,

physician, and/or supplier of services.

Fiscal intermediary and carrier performance is monitored by HCFA at

the central office and regional office (RO) levels. In general, issues

that affect policies on a national level are addressed by the central

office, and issues dealing with regional and local policies, as well as

those of an operational nature, are addressed by the ROs. Continuous

communication between HCFA and the fiscal intermediaries and carriers

is established through consultation workgroups that meet on a regular

basis and are comprised of representatives from the central office,

ROs, and Medicare contractors.

II. Fiscal Intermediary and Carrier Budget Process

HCFA's central office is responsible for developing a national

contractor budget for Parts A and B of the Medicare program. The budget

is formulated over an 18-month period, beginning in March of the

calendar year preceding the fiscal year (FY) to which it applies. Input

from the contractor community, HCFA, the Department of Health and Human

Services, and the Office of Management and Budget (OMB) is received and

included before submission to the President for approval and forwarding

to the Congress. Once the national contractor budget has been approved,

HCFA issues Budget and Performance Requirements (BPRs). BPRs specify

the level of effort required for contractor functions and serve as the

statement of work for contractor use in preparing their individual

budgets for submission to HCFA.

The budgets submitted by contractors are reviewed by the ROs during

a budget level determination process that is based on current claims

processing trends, legislative mandates, administrative initiatives,

current year performance standards and criteria, and the availability

of funds appropriated by the Congress. We subsequently allocate funding

within these constraints.

This notice contains the proposed data, standards, and methodology

that we intend to use to establish a national contractor budget for

fiscal intermediaries and carriers for FY 1995. As in prior years, we

have had, and will continue to seek, extensive input from the involved

parties, particularly contractors, when establishing the national

contractor budget. The national contractor budget (the FY 1995

President's budget) has already been presented to the Congress.

Nevertheless, to the extent that we receive comments during this

comment period, which warrant revisions to the data, standards, and

methodology we used, we will make the necessary changes before

publishing the final notice.

In accordance with Executive Order 12866, this final notice was not

reviewed by the Office of Management and Budget.

III. Overview of FY 1995 National Medicare Contractor Budget

A. Data, Standards, and Methodology

The FY 1995 national Medicare contractor budget request was

submitted to the Congress in February 1994. The workload for the FY

1995 request is expressed in terms of work processed. For Part A, the

FY 1995 estimated workload (129.2 million bills) is 9.2 percent more

than the FY 1994 estimate. For Part B, the estimated workload (655.6

million claims) results in a 4.2 percent increase over the FY 1994

estimate.

Our estimates involved the use of a regression model that uses the

last 36 months of actual contractor workload data. For the FY 1995

projections, we used November 1993 data, which were the latest

available to us at the time. The resulting projections will be updated

monthly to assure that the most timely data are available for budgeting

purposes.

The FY 1995 unit costs for processing bills and claims were

calculated based on the FY 1994 level adjusted for savings achieved due

to productivity, Electronic Media Claims, and reduced funding for

incremental workload. This calculation resulted in a new unit cost,

which, when multiplied by the Part A or Part B workloads, determines

the total amount required for bill and claim processing in FY 1995.

Feedback received from contractors and ROs during the past several

years has led us to believe that contractors can make major

improvements in performance if given the authority to manage their

budgets. The FY 1994 BPRs gave the ROs the authority to set a budget

and the contractors the authority to manage their budgets on a bottom-

line basis. Once funding was issued, each contractor had the

flexibility to optimally manage the budget consistent with the

statement of work contained in the BPRs. Prior to FY 1993, contractors

were not allowed to ``shift'' more than 5 percent of funds from one

line item to another in their budget, as determined by the lesser of

the two line items. This restriction was intended to give contractors

some latitude with regard to reporting their costs, yet still allow

HCFA to maintain control over the national budget. With the exception

of the ``Payment Safeguards,'' ``Productivity Investments,'' and

``Other'' line items, contractors now have total flexibility in the use

of funds. There is a 5 percent limitation on the amount of funds that

may be shifted out of individual ``Payment Safeguards,'' with unlimited

shifting into ``Payment Safeguards.'' Shifting into or out of

``Productivity Investments'' and ``Other'' line item funding, not

governed by contract modifications, may not exceed 5 percent. Each

``Other'' line item is treated separately. The ``Productivity

Investment'' line item is treated as a whole and not by a separate

project. Funding that is governed by contract modifications may not be

shifted to other functions or line items.

B. Medicare Contractor Functional Areas

The Medicare contractor budget consists of functional areas of

responsibility that are performed by the fiscal intermediaries for Part

A and the carriers for Part B. The eight functional areas of

responsibility for fiscal intermediaries under Part A are:

Bill Payment;

Reconsideration and Hearing;

Medicare Secondary Payer;

Medical Review and Utilization Review;

Provider Audit (Desk Review, Field Audit, and Provider

Settlement);

Provider Reimbursement;

Productivity Investments; and

Benefits Integrity.

The nine functional areas of responsibility for carriers under Part B

are:

Claim Payment;

Review and Hearing;

Beneficiary or Physician Inquiry;

Provider (physician/supplier) Education and Training;

Medical Review and Utilization Review;

Medicare Secondary Payer;

Participating Physicians;

Productivity Investments; and

Benefits Integrity.

These functions are funded from the Hospital Insurance and

Supplementary Medical Insurance trust funds. The data, standards, and

methodology used in these functional areas are discussed in section IV.

of this notice. In the following national budget summary, we have

combined the discussion of functional areas that are common to fiscal

intermediaries and carriers. However, data specific to Part A or Part B

are provided under each heading. Workload estimates are provided for

all functional areas where the development of the budget is

predominantly workload driven. Workload estimates are not provided for

functional areas that are not predominantly workload driven, or for

which a workload is uncertain until final negotiations with the

Medicare contractors are complete.

1. Bill and Claim Payment (Part A and Part B)

We currently estimate the Part A processed workload to be 129.2

million bills in FY 1995. The Part B processed workload is currently

projected at 655.6 million claims and is based on the current funding

available.

2. Reconsideration (Review Under Part B) and Hearing (Part A and Part

B)

This function includes all activities related to guaranteeing due

process of law as a result of contractor action, for example,

disallowances on bills and claims. The estimated workload volume is

expected to total approximately 10.9 million for FY 1995.

In FY 1995, we expect to maintain efficiencies achieved in prior

years through the use of shorter decision letters and the experimental

use of the telephone to conduct reviews and reconsiderations.

3. Medicare Secondary Payer (Part A and Part B)

The Medicare Secondary Payer (MSP) function is the first of four

initiatives (Medicare Secondary Payer, Medical Review and Utilization

Review, Benefits Integrity, and Provider Audit) we developed as

``Payment Safeguards'' to safeguard the Medicare program against

improper payments. The focus of the MSP initiative is to ensure that

the Medicare program pays for covered care only to the extent required

after payment by the primary insurer.

Medicare contractors are responsible for identifying MSP situations

and aggressively pursuing the recovery of improper payments from the

appropriate party. The standard for determining the amount of MSP

funding a contractor will receive in FY 1995 is based on workload

volumes, required systems changes, and any special projects that may be

assigned to contractors.

Based on actuarial analysis, we develop specific savings goals for

each contractor. The goals are developed on estimates of savings to be

achieved by contractors for the MSP categories of working aged,

disabled, workers' compensation, end-stage renal disease, and liability

or no-fault insurance. After assigning goals to contractors, funds are

allocated based on the various MSP activities a contractor must perform

such as processing prepayment claims, postpayment claims, inquiries,

outreach, and hospital reviews.

In FY 1995, the Initial Enrollment Questionnaire (IEQ) will be

operational. The IEQ eliminates the need for first claim development on

approximately 85 percent of the new enrollees. This initiative will

improve service to beneficiaries on a national basis by providing

detailed information on the MSP program at the time a beneficiary

enrolls in Medicare.

We have also included funding to process the workloads based on the

Internal Revenue Service (IRS)/Social Security Administration (SSA)/

HCFA data match project created by section 6202 of the Omnibus Budget

Reconciliation Act of 1989 (OBRA '89), Public Law 101-239. The funds

are allocated on the basis of the number of report identification

numbers a contractor will process.

In addition to the IRS/SSA/HCFA data match, we will continue to

pursue other data matches with State Motor Vehicle Administrations,

Workers' Compensation, and Medicaid Agencies, and the Departments of

Defense, Labor, and Veterans Affairs.

4. Medical Review and Utilization Review (Parts A and B)

In addition to processing and paying claims from providers of

services and Medicare beneficiaries, contractors perform medical and

utilization reviews of claims to determine whether services are covered

under the program and are medically necessary. The distribution of

Medicare contractor funding is based on each contractor's proportion of

the workload and individual contractor medical review/utilization

review projects.

Fiscal intermediaries are responsible for medical and utilization

review of home health agencies, skilled nursing facilities, outpatient

hospital services (excluding surgery), and other outpatient services

such as those provided by rehabilitation facilities, rural health

clinics, and similar entities. This review assures that medical care

received is necessary and appropriate, and that quality medical

services are delivered to Medicare beneficiaries.

Carriers are responsible for medical and utilization review of Part

B providers and suppliers. All carriers will utilize data analysis

capabilities to target on focused medical review in FY 1995. Through

focused medical review, carriers will identify aberrancies from

national or local carrier data and further investigate aberrancies to

determine which require appropriate corrective actions to eliminate

overutilization. These actions will include provider education

(individual or group), development and revision of local medical review

policies or screens, identification/recoupment of overpayments, and

referral of cases to HCFA's Benefit Integrity staff.

Additionally in FY 1995, HCFA will support the Medical Review

activities of the four Durable Medical Equipment Regional Carriers

(Regional Carriers). The Regional Carriers will conduct prepayment and

postpayment review of durable medical equipment, prosthetic, orthotic,

and supply claims to identify areas of potential abuse and

overutilization and prevent payment for non-covered items and services.

Through focused medical review and analysis of data, the Regional

Carriers will initiate corrective action for the recoupment of

overpayments and the targeting of suppliers with aberrant billing

patterns. They will also continue to revise regional medical review

policies and screens and make referrals where appropriate to the HHS

Office of Inspector General.

5. Provider Audit (Part A Only)

For FY 1995, we have planned a modest increase in the number of

onsite reviews/audits for all types of providers to help in the

identification and prevention of improper payments. This increase is

made possible by reducing the amount of resources needed to perform

desk reviews, and by applying these resources to onsite reviews,

focused reviews, and field audits. In addition, we will encourage all

contractors to retain a knowledgeable audit staff and provide training

in accordance with Government Auditing Standards. All contractors are

expected to respond to provider appeals and file position papers with

the Provider Reimbursement Review Board.

A large percentage of the hospitals paid under the Prospective

Payment System (PPS) are expected to appeal their capital cost

reimbursement because of adjustments made for the purpose of setting

their capital PPS rate. Also, there is an expected increase in the

number of appeals to be filed for payments made for graduate medical

education based upon per-resident amounts.

6. Provider Payment (Part A Only)

In FY 1995, Medicare contractors are expected to provide payment

services to approximately 34,300 health care providers. This represents

an increase of approximately 7.5 percent over the number of providers

requiring payment services in FY 1994. These payment services include

establishing and adjusting interim rates, recouping provider

overpayments, and providing consultative services to providers for

maintaining and adjusting their accounting systems to ensure accurate

data for preparing claims and cost reports.

We will distribute funds in proportion to workload by provider

type.

7. Productivity Investments (Part A and Part B)

The costs of implementing new initiatives that are designed to

improve the effectiveness of Medicare program administration are

referred to as productivity investments (PIs). PIs generally provide

start-up funds for new or revised contractor activities. Once these

projects are operational, their funding becomes part of the

contractor's ongoing costs. The criteria for selecting PIs to be

implemented are varied. For example, some PIs are required by statute

or regulation. We also fund projects that will improve administrative

cost efficiency, such as Contractor Resource Sharing.

There is no single distribution methodology for the allocation of

PI funds. After we determine the national cost of a PI, funds are

distributed among the contractors. These funds are based on the

contractors' cost estimates or through formulas that we derive, which

are based on project specifications. Other PI initiatives require equal

effort by all contractors regardless of size and, therefore, funds are

distributed equally among contractors. Finally, some PIs, such as the

Common Working File and Contractor Resource Sharing, are given only to

contractors that are involved in the specific projects.

8. Beneficiary or Physician Inquiry (Part B Only)

The Medicare contractors are the direct link between beneficiaries,

providers, physicians, other suppliers, and the Medicare program. It is

the responsibility of HCFA and the contractors to provide the most

effective and efficient service to beneficiaries, providers,

physicians, and other suppliers, and to continue to expand their

awareness and understanding of the Medicare program. Funding will

continue to be provided to contractors so they may continue to provide

toll-free telephone lines for beneficiaries and expand the use of Audio

Response Units.

In FY 1995, carriers will receive an estimated 40.4 million

inquiries by telephone, in writing, or through direct contact. This is

an increase of 3.2 percent over FY 1994.

9. Participating Physicians/Suppliers (Part B Only)

Participating physicians and suppliers are those who agree to

accept assignment on all Medicare claims in return for certain

incentives or benefits. All physicians must be given an opportunity to

enroll or disenroll in the participation program annually.

For FY 1995, the FY 1994 funding was used as the base and was

adjusted in proportion to the workload within the limits of the funding

available to HCFA.

10. Provider (Physician/Supplier) Education and Training (Part B Only)

The success of the Medicare program depends upon the continuing

cooperation of individuals and institutions providing health care

services. The funding provided in FY 1995 will allow carriers to

perform the activities outlined in the BPRs.

11. Benefit Integrity (Part A and B)

In FY 1995, HCFA will provide funding to continue its efforts in

deterring and detecting emerging Medicare fraud and abuse. The carriers

will improve the quality of referrals to the Office of Inspector

General by expanding data analysis capability. The Medicare fraud focus

will include a full range of Medicare fraud detection activities

through our fiscal intermediaries and carriers. The fiscal

intermediaries will concentrate on home health agencies and skilled

nursing facilities and Medicare carriers will focus their detection

activities on medical laboratory, radiology, anesthesia, and ambulance

claims. Also, in FY 1995, Medicare carriers will standardize the method

of how fraud units treat billing and assignment violations.

12. Printing Claim Forms (Part A and Part B)

Although this activity is not among the seven Part A and nine Part

B contractor functional areas, it is a part of the national Medicare

contractor budget. In the interest of maintaining standard formats and

quality of Medicare entitlement and report forms, fiscal intermediaries

and carriers supply beneficiary enrollment and provider cost reporting

forms. The use of these forms is essential to beneficiary notification,

effective and efficient contractor operations, and other program

objectives.

C. Contractor Unit Cost Calculations

A key step in the contractor budget process is the development of

contractor unit costs for processing Part A bills and Part B claims.

These bottom-line unit costs encompass all of the budget's line items

except ``Provider Audit,'' ``Productivity Investments,'' ``Other,''

and, in FY 1995, ``Provider Reimbursement.''

As first implemented in FY 1992, the complexity index (CI) was

designed to improve efficiency and reduce contractor-by-contractor cost

inequities, and was based on the application of the Industrial

Engineering (IE) study commissioned by HCFA. The IE study provided HCFA

with an actual weighted unit cost for each claim type; that is,

inpatient or outpatient, and method of submission (electronically

submitted or hardcopy) of a bill or a claim. After adjustment for

changes in program emphasis, these unit costs were applied to each

contractor's individual workload mix to develop a weighted unit cost

that reflects the complexity of its workload mix. We published an

explanation of the CI in our FY 1992 Federal Register notice on January

2, 1992 (57 FR 57). Each contractor had a percentage goal in FY 1992

for increasing the submission of claims electronically.

We adjusted the unit costs to reflect achievement of the goals.

After adjusting for various savings and increases associated with

initiatives, such as the Unique Physician Identifier Number and

sections 6111(b), Clinical Diagnostic Laboratory Tests (Annual

Monitoring and Certification) and 6204, Physician Ownership of, and

Referral to, Health Care Entities (Annual Monitoring Cost) of OBRA '89,

we then arrayed the contractors' unit costs and identified the

contractor at the 60th percentile. Each contractor with a unit cost

higher than the 60th percentile was held to the 60th percentile unit

cost, multiplied by the contractor's CI. Each contractor at or below

the 60th percentile retained its own unit cost, multiplied by its CI.

We believe that the use of the CI over the last three FYs has

enabled us to successfully achieve the goals of improving efficiency in

contractor operations and reducing contractor-by-contractor cost

inequities. Since we have achieved these goals, and believe that costs

can be controlled, we will base each contractor's FY 1995 unit cost on

the FY 1994 level, adjusted for savings achieved due to increased

productivity, Electronic Media Claims, and reduced funding for

incremental workload.

D. Overall Budget Considerations

It should be noted that limitations on the FY 1995 budget could

require across-the-board cost cutting measures. In that case, each RO

will determine the amount of budget reduction for its contractors.

IV. FY 1995 National Medicare Contractor Budget: Data, Standards, and

Methodology

Since the submission of the President's FY 1995 Medicare contractor

budget request to the Congress in February 1994, we have been

developing BPRs to be issued to the contractors. These requirements

outline the statement of work and level of effort that fiscal

intermediaries and carriers are expected to perform during the upcoming

FY in each of the functional areas for which they are responsible.

The draft BPRs were released to the ROs in May, and the final BPRs

scheduled for release in June 1994. Each fiscal intermediary and

carrier will have been given its individual requirements to be used in

preparing its FY 1995 budget request in June 1994. The ROs will send

any additional information that is pertinent to the fiscal

intermediaries and carriers within their region. Fiscal intermediaries

and carriers are to submit their budget requests to HCFA no later than

6 weeks after the issuance of the BPRs.

After the fiscal intermediaries and carriers review the BPRs, they

prepare their budget requests. The central office and RO staff review

the fiscal intermediary and carrier budget requests as they are

submitted. The RO staff negotiates a final and mutually acceptable

budget, within the limits of the funding available to HCFA, with each

fiscal intermediary and carrier. The central office prepares a

financial operating plan for each RO that provides total regional

funding authority for each functional area. The ROs, in turn, prepare a

Notice of Budget Approval (NOBA) for each fiscal intermediary and

carrier that provides a full year budget plan subject to quarterly cash

draw limitations.

A. Standards

The basic statement of work, along with new and special activities

that fiscal intermediaries and carriers are expected to perform, is

described in the BPR package. Fiscal intermediaries and carriers are

expected to perform the work as described in the BPR package and in

accordance with the standards included in the Contractor Performance

Evaluation Program (CPEP) for FY 1995. For consideration in developing

their initial budget requests, a copy of the draft CPEP standards will

be sent to contractors. Final FY 1995 CPEP standards are published in

the Federal Register.

B. Data

The following sources of data that contain various workload

volumes, functional costs, and manpower information are used in

developing the individual fiscal intermediary and carrier budgets for

FY 1995:

Forms HCFA-1523/1524 (a multipurpose form that serves as

the Budget Request, Notice of Budget Approval, and Interim Expenditure

Report);

Forms HCFA-1523A/1524A (Schedule of Productivity

Investments and Other);

Forms HCFA-1523B/1524B (Schedule of Credits, EDP, and

Overhead);

Forms HCFA-1523C/1524C (Schedule of Appeals);

Forms HCFA-1523D/1524D (Schedule of MSP Costs);

Forms HCFA-1523E/1524E (Schedule of MR Costs);

Forms HCFA-1523G/1524G (Schedule of Fraud and Abuse);

Form HCFA-1525A (Contractor Auditing and Settlement Report

(CASR));

Schedules A, B, & C;

Provider Reimbursement Profile;

Schedule of Providers Serviced;

MSP Savings Report;

Medical Review/Utilization Review Savings Report;

Form HCFA-2580 (Cost Classification Report);

Form HCFA-3529 (Facilities and Occupancy Schedule);

Forms HCFA-1565/1566 (Carrier Performance Report/

Intermediary Monthly Workload Report);

HCFA Actuary's Workload Estimates;

OMB's Economic Assumptions of 2.6 Percent;

Savings from Prior Productivity Investments;

New Legislation Costs;

Regional Office Recommendations; and

Contract Provisions.

C. Methodology

The Medicare contractor budget is organized around the previously

listed functional areas that are performed by the fiscal intermediaries

for Part A and the carriers for Part B. FY 1992 was the first year in

which we developed a bottom-line unit cost for each individual

contractor. The following narrative describes the methodology used to

calculate individual line-item costs. This methodology will be

considered as general reference for contractors as they develop their

FY 1995 budgets, and also to provide additional explanation in

determining how certain costs and savings were determined.

1. Bill and Claim Payment

The individual fiscal intermediary and carrier workload levels for

FY 1995 are determined by using a statistical forecasting model. Using

the same data, we are also projecting the number of bills or claims a

fiscal intermediary and carrier may expect to have pending at the end

of the FY 1994. We then combine the FY 1995 receipt estimate with the

anticipated end of FY 1994 pending level, and subtract the estimated FY

1995 pending for each fiscal intermediary and carrier to establish a

processed workload; that is, Estimated FY 1995 receipts + Estimated end

of FY 1994 pending - Estimated end of FY 1995 pending = Estimated FY

1995 Processed Workload.

In order to price individual contractor bill and claim workload, we

develop a unit cost that is the cost of processing a single bill or

claim. The individual fiscal intermediary and carrier unit costs for FY

1995 are calculated from the unit costs in the FY 1994 Notices of

Budget Approval. The calculations include increases to recognize the

cost of new legislation. Savings achieved from operating efficiencies

also are part of the formula employed in computing FY 1995 target unit

costs. The ROs will negotiate with the fiscal intermediaries and

carriers to resolve any differences within the limits of the funding

available to HCFA.

2. Reconsideration (Reviews Under Part B) and Hearing

We will allocate funding based on the amount of dollars spent (line

2 of Forms HCFA-1523/1524) in the prior years, adjusted for inflation

and changes in volume. Specifically, we will adjust the previous year's

costs for reconsiderations and hearings by the estimated percentage

change in workload.

The individual fiscal intermediary and carrier budget allocations

for reconsiderations, reviews, and hearings are estimated by

multiplying forecast workloads by the adjusted unit costs.

The ROs will negotiate with the fiscal intermediaries and carriers

to resolve any differences between HCFA's allocations and the

contractors' requests within the limits of the funding available to

HCFA.

3. Beneficiary and Provider Inquiries (Part B Only)

To establish a budgeted amount for beneficiary and provider

inquiries, the prior year's cost is increased by the projected workload

change. We also consider special conditions unique to specific carriers

in negotiating the budget. We will use the data to develop a budgeted

cost for beneficiary and provider inquiries by multiplying forecasted

processed volume times unit cost. The ROs will negotiate with the

carriers to resolve any differences between HCFA's allocations and the

carriers' requests within the limits of the funding available to HCFA.

4. Provider Reimbursement (Part A Only)

In determining individual fiscal intermediary budgets for

reimbursement activities, we first calculated a FY 1993 unit cost by

using the funding included on the latest FY 1993 NOBA (Form HCFA 1523)

and dividing that amount by the workload reported on the Schedule of

Providers Serviced (SPS) for the same period. The SPS is a listing of

all the facilities serviced by the fiscal intermediary. The SPS is

submitted with each initial budget request so that a part of the

analysis is the comparison of the composition of the provider community

serviced by the fiscal intermediary and any change reported between

fiscal years.

The ROs will negotiate with the fiscal intermediaries to resolve

any differences between HCFA's allocations and the fiscal

intermediaries' requests within the limits of the funding available to

HCFA.

5. Provider Audit (Part A Only)

For FY 1995, the provider audit function is divided into three

major activities: field audits, desk reviews, and settlements. The

Contractor Auditing and Settlement Report (CASR) (Form HCFA-1525A)

provides a breakout of audit activities and costs by type of provider,

and documents the savings incurred as a result of audit activity. Using

this as a base, the desk review costs are developed by projecting the

number of providers serviced by the unit cost per desk review

(developed for the latest CASR for FY 1993) to determine the cost of

handling the FY 1995 workload at the FY 1993 unit cost.

Settlement costs are based on the workload projected in the fiscal

intermediary's budget request, multiplied by the unit cost for

settlements found in the most recent CASR for FY 1993.

The first priority of all audit efforts is the completion of any

special activities required by legislation. The second priority is that

all cost reports be reviewed and, to the extent possible, settled.

The ROs will negotiate with the fiscal intermediaries to resolve

any differences between HCFA's allocations and the fiscal

intermediaries' requests within the limits of the funding available to

HCFA.

6. Medicare Secondary Payer

We will review the estimated workload data, reported backlog data,

and any other items, for example, proposed MSP systems enhancements, to

determine MSP funding allocations. Each contractor's case mix is

analyzed to adjust for specialized workloads such as home health claims

or durable medical equipment (DME).

In FY 1995, the budget will be allocated based on the above

considerations, adjustments created by shifts in the DME workload from

all carriers to the four specialty carriers, and other shifts in

workload that may require adjustments.

The ROs will negotiate with the fiscal intermediaries and carriers

to resolve any differences between HCFA's allocations and their

requests within the limits of the funding available to HCFA.

7. Medical Review/Utilization Review (MR/UR)

The individual fiscal intermediary and carrier MR/UR budgets for FY

1995 will be calculated in three segments: (1) Prepayment medical

review, (2) postpayment medical review activities, and (3) data

analysis and screen development. The BPR describes the activities and

workload requirements that the fiscal intermediaries and carriers are

expected to meet. As part of the BPRs, we will ask the fiscal

intermediaries and carriers to estimate the required funding to meet

their requirements. We will allocate prepayment and postpayment medical

review funding to contractors based upon the workload that a fiscal

intermediary or carrier projects for FY 1995.

The ROs will negotiate with the fiscal intermediaries and carriers

to resolve any differences between HCFA's allocations and the

contractors' requests within the limits of the funding available to

HCFA.

8. Participating Physicians/Suppliers (Part B Only)

In determining the individual carrier funding levels for the

participating physician/supplier program for FY 1995, we considered the

following factors:

The number of physicians/suppliers in the carrier's

service area;

The carrier's current participation rate;

The carrier's recent performance in increasing its

participation rate;

The statement of work to be performed as outlined in the

BPRs; and

Last year's cost experience.

Since participating physicians/suppliers are eligible for toll-free

telephone lines for electronic billing, allowance has been made for

these expenses. Carriers with lower participation rates will receive

greater funding for the limiting charge violation monitoring. We have

discontinued carrier monitoring of the elective surgery disclosure

requirement. We now require carriers to investigate beneficiary

complaints on a case-by-case basis.

Carrier monitoring funds are allocated based on the national

percentage of nonparticipating physicians/suppliers. All carriers will

receive the same funding amount for reporting participation statistics.

In FY 1995 the participating physician incentive payment will be

discontinued due to the implementation of the Resource-Based Relative

Value Scale fee schedules that have contributed largely to the increase

in the number of physicians participating in the Medicare program. Non-

participation is discouraged by the ``limiting charges'' imposed under

Physician Payment Reform.

The ROs will negotiate with the carriers to resolve any differences

between HCFA's allocations and the carriers' requests within the limits

of the funding available to HCFA.

9. Productivity Investments (PIs)

The costs of implementing legislation and new initiatives that are

designed to improve the effectiveness and efficiency of Medicare

program administration are referred to as PIs. Several allocation

methodologies will be employed in calculating the PI budgets for

individual fiscal intermediaries and carriers. For those projects

involving only single contractors or small groups of contractors, we

will allocate funds based upon the specifications of the particular

project. For those projects involving all fiscal intermediaries or

carriers, where the costs are driven by bill or claim volume, we will

distribute the funding based upon our workload projections for each

contractor. Finally, for those projects involving all fiscal

intermediaries or carriers that require equal effort, regardless of the

contractor's size, we derived a standard allocation to be given to all

contractors.

The ROs will negotiate with the fiscal intermediaries and carriers

to resolve any differences between HCFA's allocations and the

contractors' requests within the limits of the funding available to

HCFA.

10. Provider (Physician/Supplier) Education and Training (Part B Only)

Distribution of funds made available to HCFA for provider

(physician/supplier) education and training is based upon the ratio of

physicians and suppliers in each carrier's service area to the national

total of physicians and suppliers.

11. Benefit Integrity (BI)

In allocating the FY 1995 BI budget to individual fiscal

intermediaries and carriers, HCFA will consider:

The prior year's effectiveness in initiating fraud

referrals to the Office of Inspector General;

Initiating overpayment recoveries when appropriate;

Prioritizing workload to concentrate on high dollar and

multi-state fraud;

The extracted workload and cost data from the Schedule of

Fraud and Abuse (forms HCFA 1523G/1524G);

The Medicare Fraud Unit Workload Report;

The fraud unit's level of sophistication to determine BI

funding allocations;

The completion of any special activity required by

legislation will be an overriding priority; and

The networking costs, which will be determined by the

personnel cost to support the Medicare Fraud and Abuse Information

Coordinator, travel costs, and the other expenses needed to conduct

networking for the area assigned.

The ROs will negotiate with the contractors to resolve any differences

between HCFA's allocation and the contractors' requests within the

limits of the funding available to HCFA.

V. Response to Comments

Because of the large number of items of correspondence we normally

receive on documents published for comment, we are not able to

acknowledge or respond to them individually. We will consider all

comments we receive by the date specified in the ``DATES'' section of

this notice, and, we will respond to the comments in our final notice.

In accordance with Executive Order 12866, this notice was not

reviewed by the Office of Management and Budget.

Authority: Sections 1816(c)(1) and 1842(c)(1) of the Social

Security Act (42 U.S.C. 1395h(c)(1) and 1395u(c)(1)).

(Catalog of Federal Domestic Assistance Program No. 93.773,

Medicare--Hospital Insurance; and Program No. 93.774, Medicare--

Supplementary Medical Insurance Program)

Dated: August 16, 1994.

Bruce C. Vladeck,

Administrator, Health Care Financing Administration.

[FR Doc. 94-26161 Filed 10-20-94; 8:45 am]

BILLING CODE 4120-03-P