Medicare Program; Intermediary and Carrier Functions

DEPARTMENT OF HEALTH AND HUMAN SERVICES

42 CFR Part 421

[BPO-111-P]

RIN 0938-AG06

Medicare Program; Intermediary and Carrier Functions

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

ACTION: Notice of proposed rulemaking.

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SUMMARY: This proposed rule would bring certain sections of the

regulations concerning Medicare fiscal intermediaries and carriers into

conformity with the appropriate sections of Title XVIII of the Social

Security Act. The rule would distinguish between those functions which

applicable statutory authorities require to be included in agreements

with fiscal intermediaries and those functions that, while not required

to be performed by organizations that have entered into intermediary

agreements with the Secretary pursuant to section 1816 of the Social

Security Act, may be included in such agreements at our discretion.

We would require that the intermediary agreements include, as

functions, requirements that intermediaries determine proper payment

amounts and pay bills. All other functions would be optional. We

propose that all functions for carriers are optional. These changes

would provide us with the flexibility to transfer functions from one

intermediary or carrier to another or to otherwise limit the functions

an intermediary or carrier performs when we determine to do so would

result in more effective and efficient program administration.

In addition, we propose a number of technical or clarifying

revisions concerning carrier payment on a fee schedule basis and the

distinction between nonrenewal and termination of intermediary

agreements and carrier contracts.

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

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

25, 1994.

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

Financing Administration, Department of Health and Human Services,

Attention: BPO-111-P, P.O. Box 26676, Baltimore, MD 21207.

If you prefer, you may deliver your comments 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.

Due to staffing and resource limitations, we cannot accept

facsimile (FAX) transmissions. In commenting, please refer to file code

BPO-111-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 Avenue, SW., Washington, DC,

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

(410) 966-7411).

FOR FURTHER INFORMATION CONTACT: Alan Bromberg, (410) 966-7441

SUPPLEMENTARY INFORMATION:

I. Background

Intermediary Agreements and Carrier Contracts--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 us (on the Secretary's behalf). These Medicare

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

Act) and carriers (section 1842(a) of the Act). With certain

exceptions, intermediaries perform bill processing and benefit payment

functions for part A of the program (Hospital Insurance) and carriers

perform claims processing and benefit payment functions for part B of

the program (Supplementary Medical Insurance).

Our regulations at 42 CFR 421.100, Intermediary functions, require

that the agreement between us and a fiscal intermediary specify the

functions the intermediary is to perform. In addition to any items

specified by us unique to that intermediary, the regulations require

that all intermediaries perform activities relating to Medicare

coverage, fiscal management, provider audits, utilization patterns,

resolution of cost report disputes, and reconsideration of

determinations. In addition, the regulations require that all

intermediaries furnish information and reports, undertake dual

intermediary responsibilities for service to provider-based Home Health

Agencies (HHAs) and provider-based hospices, and comply with all

applicable laws and regulations and with any other terms and conditions

included in their agreements.

Similarly, our regulations at 42 CFR 421.200, Carrier functions,

require that the contract between HCFA and a part B carrier specify the

functions the carrier is to perform. In addition to any items specified

by us unique to that carrier, the regulations require that all part B

carriers perform activities relating to Medicare coverage, payment on a

cost basis, payment on a charge basis, fiscal management, provider

audits, utilization patterns and hearings to part B beneficiaries. In

addition, the regulations require that all carriers furnish information

and reports, maintain and make available records, and comply with any

other terms and conditions included in their contracts.

For both intermediaries and carriers, our regulations at 42 CFR

421.5, General provisions, state that HCFA has the authority not to

renew a part A agreement or a part B Contract when it expires. Our

regulations at 42 CFR 421.126, Termination of agreements, provide the

Secretary with the authority to terminate fiscal intermediary

agreements in certain circumstances, while the regulations at 42 CFR

421.205, Termination by the Secretary, give the Secretary similar

authority to terminate carrier contracts.

II. Proposed Changes to the Regulations

As noted earlier, our regulations at Sec. 421.100 for

intermediaries and Sec. 421.200 for carriers specify a list of

functions that must, at a minimum, be included in all intermediary

agreements and carrier contracts. These requirements far exceed those

of the statute. Section 1816(a) of the Social Security Act requires

only that an intermediary agreement provide for determination of the

amount of payments to be made to providers and for the making of such

payments. Section 1816(a) permits, but does not require, an

intermediary agreement to include provisions for the intermediary to

provide consultative services to providers to enable them to establish

and maintain fiscal records or to otherwise qualify as providers and,

for those providers to which it makes payments, to serve as a channel

of communications between us and the providers, to make audits of the

records of the providers, and to perform such other functions as are

necessary.

We believe that section 1816(a) mandates only that an intermediary

agreement include the functions currently required by Sec. 421.100

paragraph (a) (Coverage) and paragraph (b) (Fiscal management) of the

regulations. We believe that the other functions (Sec. 421.100

paragraphs (c) through (i)) that the regulations currently require to

be included in all intermediary agreements are not required by statute

and the mandatory inclusion of them in all agreements limits our

ability to efficiently and effectively administer the Medicare program.

Paragraph (a) of section 1842 of the Act, which pertains to carrier

contracts, requires that the contracts must provide for some or all of

the functions listed in that paragraph, but does not specify any

functions which must be included in a carrier contract. As in the case

of intermediary agreements, our experience has been that mandatory

inclusion of a long list of functions in all contracts restricts our

ability to administer the carrier contracts with optimum efficiency and

effectiveness. We believe that the requirements of the regulations for

both intermediaries and carriers should be brought into conformity with

the statutory requirements. Moreover, we believe that such action would

substantially enhance the efficient and effective administration of the

Medicare program by giving both HCFA and the contractor community more

flexibility in their approaches to the performance of intermediary and

carrier functions.

We further believe that intermediaries and carriers would benefit

from the ability to enter voluntarily into regional arrangements for

the performance of some functions. Intermediaries and carriers have

shown interest in entering into agreements with other contractors in

their regions to shift the performance of a given function to a single

intermediary or carrier that is able to perform the function with the

greatest efficiency or at the least cost, while another function might

in turn be shifted to a second contractor. For example, one

intermediary in a region might perform medical review for the entire

region, while another would assume the audit function. Under the

existing requirement that all intermediaries and carriers perform all

functions, such arrangements are not permitted, except through

subcontracts, which must be awarded through the competitive procurement

process and which leave the final responsibility for the performance of

the function with the original contractor. The proposed change in the

regulations would provide the intermediaries and carriers with the

ability to enter into arrangements to transfer formally the entire

responsibility for performance of a function to other intermediaries

and carriers, subject to our approval.

The change would also simplify the process of our paying the

intermediary or carrier actually performing the function. Under a

subcontracting arrangement, we pay the contractor that subcontracts out

the function and that entity, in turn, pays the subcontractor which is

actually doing the work. Under the proposed change, we would make

direct payment to the intermediary or carrier performing the function.

Our conclusion is that the existing regulations, which state that

intermediary agreements and carrier contracts must include all of the

functions cited, are not only inconsistent with applicable statutory

authority, but also are too restrictive. They deny us the flexibility

to improve the administration of the Medicare program by removing some

of the functions from an intermediary's agreement or a carrier's

contract and transferring them to another intermediary or carrier where

either we or the contractors themselves determine that such action

would be more efficient than having every intermediary and carrier

perform all functions specified in the regulations.

We are proposing to redesignate Sec. 421.100, Intermediary

functions, as Sec. 421.101, Optional intermediary functions. In a new

Sec. 421.100, Required intermediary functions, we would specify that

all agreements must include the functions of coverage (current content

of Sec. 421.100(a)) and fiscal management (current Sec. 421.100(b)). We

believe these functions are required to be included in all agreements

by section 1816(a) of the Act. In the redesignated Sec. 421.101,

Optional intermediary functions, we would indicate that the

intermediary agreement may include the functions currently contained in

Sec. 421.100(c) through 421.100(i). That is, the cumulative effect of

the change would be to separate the two required functions that must be

in all intermediary agreements from the remaining functions that may or

may not be included.

In Sec. 421.200, Carrier functions, we would change the word

``must'' to ``may'' in the first sentence, making all the functions

listed for inclusion in carrier contracts optional. This change would

reflect section 1842(a) of the Act, which does not list specific

functions that must be included.

Our use of the term ``optional'' does not mean that some functions

might not be performed in some jurisdictions. All functions will

continue to be performed in all intermediary and carrier jurisdictions.

``Optional'' in this case means only that HCFA will have the option of

determining whether a given function should be performed in a specific

jurisdiction by the intermediary or carrier which normally serves that

jurisdiction and therefore included in that intermediary's agreement or

carrier's contract, or should be performed by some other intermediary

or carrier.

In Sec. 421.200, we propose to add payment on a fee schedule basis

as a new function which may be performed by carriers. While the

original carrier functions included payment on a cost basis and on a

charge basis, recent statutory changes and corresponding changes in the

regulations have shifted some classes of physician and Medicare

suppliers to payment according to fee schedules. However, Sec. 421.200

has never been updated to recognize these changes. Accordingly, the

addition of payment on a fee schedule basis as a function which may be

included in carrier contracts will bring this section of the

regulations into conformity with current statutory provisions for

Medicare part B payment.

In addition, 42 CFR 421.5(d) states that, notwithstanding any of

the provisions of part 421, HCFA has the authority not to renew an

agreement or contract when its term expires. Section 421.126(b) allows

the Secretary to terminate intermediary agreements under certain

circumstances, while Sec. 421.205 gives the Secretary the authority to

terminate carrier contracts at any time for cause. The distinction

between the termination and nonrenewal of an agreement or contract is

important because the right of an intermediary or carrier to a hearing

applicable to terminations does not apply to nonrenewals. Consequently,

we are proposing to revise Secs. 421.5, 421.126, and 421.205 to make

certain that the distinction between nonrenewals and terminations is

clear. The proposed changes are not substantive. They are meant to

reflect existing statutory and regulatory requirements, as well as

HCFA's longstanding policy and practice, as expressed in the standard

intermediary agreements and carrier contracts.

The objective of these proposed changes is to make the regulations

fully consistent with the relevant statutory authority and to provide,

as necessary, clarification of the distinction between contract

nonrenewals and terminations. In addition, the change to the

regulations concerning mandatory and optional functions will provide us

with the flexibility to shift non-mandatory functions among

intermediaries and carriers so that the Medicare program may be

administered in the most efficient and effective manner possible. We

anticipate using the authority granted us by this change sparingly. Any

transfer or consolidation of functions will be determined on a case-by-

case basis, and, prior to taking action in any specific case, we will

closely study the situation to determine whether the benefits to the

effective administration of the Medicare program warrant the action. It

is not our intent at this time to shift functions from intermediaries

and carriers to any entities except other intermediaries and carriers.

III. Response to Comments

Because of the large number of items of correspondence we normally

receive on a proposed rule, we are not able 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 them in the preamble to the final

rule.

IV. Collection of Information Requirement

This rule contains no information collection requirements.

Consequently, this rule need not be reviewed by the Office of

Management and Budget under the authority of the Paperwork Reduction

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

V. Regulatory Impact Statement

We generally prepare a 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 proposed rule would

not have a significant economic impact on a substantial number of small

entities. For purposes of the RFA, intermediaries and carriers are not

considered to be small entities that will be affected as a result of

these regulations. Individuals and States are not included in the

definition of a small entity.

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

a regulatory impact analysis if a proposed rule may have a significant

impact on the operations of a substantial number of small rural

hospitals. This analysis must conform to the provisions of section 603

of the RFA. For purposes of section 1102(b) of the Act, we consider 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 potentially affect the 47 Medicare part A

intermediaries and 33 part B carriers with agreements or contracts with

HCFA to make payments to Medicare providers and beneficiaries for

covered services and to perform certain other functions currently

described in Sec. 421.100 for intermediaries and Sec. 421.200 for

carriers. Under this proposed rule, we would have authority to redefine

intermediary agreement and carrier contract requirements and remove

functions from some contractors and transfer them to other contractors.

We would also be able to consolidate some tasks under one contractor in

regions where several contractors are all performing the same functions

simultaneously.

The proposed rule would also add payment on a fee schedule basis as

a function which may be included in carrier contracts and distinguishes

between contract nonrenewals and terminations. This proposed rule would

make the regulations more consistent with the relevant statutory

authority and promote the more effective and efficient administration

of the Medicare program. Service to beneficiaries and Medicare

providers would not be disrupted in the affected regions.

Implementing this proposed rule would not create any additional

expenses but should enable the Medicare program to realize savings in

administrative costs. At present, we are unable to estimate the

potential dollar amount of these savings.

We evaluated the potential impact of these regulations changes on

intermediaries and carriers for purposes of determining whether a

regulatory flexibility analysis is required. We believe that the

effects or the changes will be minimal. Almost all of the present

contractors have been performing the functions for a number of years

and have developed efficiencies that would argue against our needlessly

altering their functions. Therefore, it is not our intention to use the

flexibility of this regulation to make wholesale changes.

Consequently, we have determined, and the Secretary certifies, that

this proposed rule would not result in a significant impact on a

substantial number of small entities. Similarly, the Secretary

certifies that it would not have a significant effect on the operations

of a substantial number of small rural hospitals. Therefore, we are not

preparing analyses for either the RFA or section 1102(b) of the Act.

In accordance with the provisions of Executive Order 12866 this

regulation was reviewed by the Office of Management and Budget.

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 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 421.5(d) is revised to read as follows:

Sec. 421.5 General provisions.

* * * * *

(d) Nonrenewal of agreement or contract. Notwithstanding any of the

provisions of this part, HCFA has the authority to nonrenew an

agreement or contract when its term expires. An intermediary or carrier

has the authority to nonrenew an agreement or contract when its term

expires. The notice and hearing requirements for the termination of an

agreement or contract set forth in Secs. 421.126, 421.128, and 421.205

do not apply to such nonrenewal of an agreement or contract. An

intermediary or carrier also has the authority to nonrenew an agreement

or contract when its term expires.

* * * * *

3. Section 421.100 is redesignated as Sec. 421.101 and revised to

read as follows:

Sec. 421.101 Optional intermediary functions.

An agreement between HCFA and an intermediary may specify the

optional functions to be performed by the intermediary, which may

include, but are not necessarily limited to, the following:

(a) Provider audits. The intermediary must audit the records of

providers of services as necessary to assure proper payments.

(b) Utilization patterns. The intermediary must assist providers

to--

(1) Develop procedures relating to utilization practices;

(2) Make studies of the effectiveness of those procedures and

recommend methods to improve them;

(3) Evaluate the results of utilization review activity; and

(4) Assist in the application of safeguards against unnecessary

utilization of services.

(c) Resolution of cost report disputes. The intermediary must

establish and maintain procedures approved by HCFA to consider and

resolve any disputes that may result from provider dissatisfaction with

an intermediary's determinations concerning provider cost reports.

(d) Reconsideration of determinations. The intermediary must

establish and maintain procedures approved by HCFA for the

reconsideration of its determinations to deny payments to an individual

or to the provider that furnished services to the individual. The PRO

performs reconsideration of cases in which it made a determination

subject to reconsideration.

(e) Information and reports. The intermediary must furnish to HCFA

any information and reports that HCFA requests in order to carry out

its responsibilities in the administration of the Medicare program.

(f) Other terms and conditions. The intermediary must comply with

all applicable laws and regulations and with any other terms and

conditions included in its agreement.

(g) Dual intermediary responsibilities. With respect to the

responsibility for service to provider-based HHAs and provider-based

hospices, where the HHA or hospice and its parent provider will be

served by different intermediaries under Sec. 421.117 of this part, the

designated regional intermediary will process bills, make coverage

determinations and make payments to the HHAs and hospices. The

intermediary serving the parent provider will perform all fiscal

functions, including audits and settlement of the Medicare cost reports

and the HHA and hospice supplement worksheets.

4. A new Sec. 421.100 is added to subpart B to read as follows:

Sec. 421.100 Required intermediary functions.

An agreement between HCFA and an intermediary specifies the

functions to be performed by the intermediary, which must include the

following required functions and may include optional functions listed

in Sec. 421.101 of this part and any others agreed to by HCFA. The

required functions are:

(a) Coverage. (1) The intermediary ensures that it makes payments

only for services that are:

(i) Furnished to Medicare beneficiaries;

(ii) Covered under Medicare; and

(iii) In accordance with PRO determinations when they are services

for which the PRO has assumed review responsibility under its contract

with HCFA.

(2) The intermediary takes appropriate action to reject or adjust

the claim if--

(i) The intermediary or the PRO determines that the services

furnished were not reasonable, not medically necessary, or not

furnished in the most appropriate setting; or

(ii) The intermediary determines that the claim does not properly

reflect the kind and amount of services furnished.

(b) Fiscal management.

The intermediary must receive, disburse, and account for funds in

making Medicare payments.

5. Section 421.126 is amended by revising the heading and by adding

a new paragraph (c) to read as follows:

Sec. 421.126 Termination or nonrenewal or agreements.

* * * * *

(c) Nonrenewal by the intermediary or Secretary. (1) An

intermediary may nonrenew an agreement with the Secretary by giving the

Secretary written notice of the intermediary's intention to nonrenew

the agreement at least 90 days before the end of the current period of

the agreement.

(2) The Secretary may nonrenew an agreement with an intermediary by

giving the intermediary written notice of the Secretary's intention to

nonrenew the agreement at least 90 days before the end of the current

period of the agreement.

(3) In the event that either the Secretary or intermediary gives

notice of intention to nonrenew an agreement, the Secretary may extend

the agreement for such time and under such conditions as may be

specified in the agreement.

(4) The providers served by an intermediary whose contract is not

being renewed have the opportunity to nominate another intermediary, in

accordance with Sec. 421.104.

(5) The provisions for notice and the opportunity for a hearing in

connection with the termination of an intermediary agreement, set forth

in paragraph (b)(2) of this section and Sec. 421.128, do not apply to

any nonrenewal of an intermediary agreement.

6. Section 421.200 is amended by redesignating paragraphs (d)

through (j) as (e) through (k), respectively. The introductory text is

revised and a new paragraph (d) is added to read as follows:

Sec. 421.200 Carrier functions.

A contract between HCFA and a carrier, other than a regional DMEPOS

carrier, specifies the functions to be performed by the carrier, which

may include, but are not necessarily limited to the following:

* * * * *

(d) Payment on a fee schedule basis. If payment is on a fee

schedule basis, the carrier must assure that payments are made in

accordance with the applicable provisions of parts 414 and 415 of this

chapter.

* * * * *

7. Section 421.205 is revised to read as follows:

Sec. 421.205 Termination or nonrenewal of contracts.

(a) Termination by the carrier. A carrier may terminate its

contract at any time upon written notice to the Secretary of its

intention to terminate. Upon notice to terminate, the contract

continues for 180 days after such notice unless the Secretary decides

to terminate at an earlier date.

(b) Termination by the Secretary. (1) The Secretary may terminate a

contract with a carrier at any time if he or she determines that the

carrier has failed substantially to carry out any material terms of the

contract or has performed its functions in a manner inconsistent with

the effective and efficient administration of the Medicare Part B

program.

(2) Upon notification of the Secretary's intent to terminate the

contract, the carrier may request a hearing within 20 days after the

date of the notice of intent to terminate.

(3) The hearing procedures will be those specified in

Sec. 421.128(c).

(c) Nonrenewal by the Secretary or carrier. (1) A carrier may

nonrenew a contract with the Secretary by giving the Secretary written

notice of its intention to nonrenew the contract at least 90 days

before the end of the current period of the contract.

(2) The Secretary may nonrenew a contract with a carrier by giving

the carrier written notice of the Secretary's intention to nonrenew the

contract at least 90 days before the end of the current period of the

contract.

(3) In the event that either the Secretary or the carrier gives

notice of intention to nonrenew a contract for an additional period,

the Secretary may extend the contract for such time and under such

conditions as may be specified in the contract.

(4) The provisions for notice and the opportunity for a hearing in

connection with the termination of a carrier contract, set forth in

paragraph (b) of this section and Sec. 421.128, do not apply to the

nonrenewal of a carrier contract.

(Catalog of Federal Domestic Assistance Program No. 13.714, Medicare

Assistance Program; 13.773, Medicare--Hospital Insurance Program;

No. 93.774, Medicare-Supplemental Medical Insurance)

Dated: August 5, 1993.

Bruce C. Vladeck,

Administrator, Health Care Financing Administration.

Dated: December 10, 1993.

Donna E. Shalala,

Secretary.

[FR Doc. 94-3608 Filed 02-18-94; 8:45 am]

BILLING CODE 4120-01-P