Medicare Program; Health Maintenance Organization and Competitive Medical Plan National Coverage Decisions

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 417

[BPD-732-P]

RIN 0938-AF76

Medicare Program; Health Maintenance Organization and Competitive

Medical Plan National Coverage Decisions

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would affect health maintenance

organizations (HMOs) and competitive medical plans (CMPs) that contract

with HCFA to furnish health care services to Medicare beneficiaries and

to receive payment on a risk basis. These HMOs and CMPs would no longer

be required to absorb the expense of furnishing a new or additional

benefit if all the following conditions apply:

The benefit was established by a national coverage decision (NCD);

The cost of furnishing the service would be significant and was not

taken into account in calculating the per capita rate to be paid by

HCFA during the current calendar year;

The NCD was not published until on or after the date of the

announcement of the current calendar year's per capita rate of payment.

This rule is necessary to implement section 4204(c) of the Omnibus

Budget Reconciliation Act of 1990, commonly referred to as ``OBRA

'90,'' which is effective for calendar years beginning on or after

January 1, 1991.

The purpose of the amendment is to encourage HMOs and CMPs to

contract on a risk basis by ensuring that the actual scope of services

covered under the contract would not change significantly during the

year.

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 (1 original and 3 copies) to the

following address: Health Care Financing Administration, Department of

Health and Human Services, Attention: BPD-732-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 Avenue, SW.,

Washington, DC 20201, or

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

MD 21207.

Due to staffing and resource limitations, we cannot accept comments

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

code BPD-732-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:

(202) 690-7890).

FOR FURTHER INFORMATION CONTACT: Joanne Sinsheimer, (410) 966-4620.

SUPPLEMENTARY INFORMATION:

I. Background

A. National Coverage Decisions

The intention of the Congress, at the time the Medicare law was

enacted in 1965, was that Medicare would provide health insurance to

protect the elderly (and later, the disabled) from the substantial

costs of acute health care services, principally hospital care. The law

was designed generally to cover services ordinarily furnished by

hospitals, skilled nursing facilities (SNFs), and physicians licensed

to practice medicine. The Congress understood that questions as to

coverage of specific services would invariably arise and would require

a specific decision by those administering the program. Thus, it vested

in the Secretary the authority to make those decisions (section

1862(a)(1)(A) of the Act). Section 1862(a)(1)(A) of the Act authorizes

Medicare payment for items or services that are determined to be

reasonable and necessary for the diagnosis or treatment of illness or

injury or to improve the functioning of a malformed body member. While

the Congress provided for the coverage of services such as inpatient

hospital care and physicians' services, coverage for these services is

prohibited unless they are ``reasonable'' and ``necessary.''

We have interpreted section 1862(a)(1)(A) of the Act to exclude

from Medicare coverage those medical and health care services that are

not demonstrated to be safe and effective. Medicare contractors (that

is, fiscal intermediaries, carriers, and Utilization and Quality

Control Peer Review Organizations (PROs)) are charged with the

responsibility of ensuring that payments are made only for services

that are covered under Medicare Part A or Part B. Therefore, in

adjudicating a Medicare claim or conducting utilization and quality

review, they must determine whether a service that has been furnished

to a Medicare beneficiary is included in the scope of Medicare benefits

and, if it is, whether it is ``reasonable'' and ``necessary'' for the

particular medical condition of this particular patient.

The term ``national coverage decision'' (NCD) refers to a coverage

decision that we make and issue as national policy under section

1862(a)(1)(A) of the Act. We have issued over 200 NCDs on specific

services. We publish NCDs in the Medicare Coverage Issues Manual (HCFA-

Pub. 6), and in other HCFA program manuals or as notices or HCFA

Rulings in the Federal Register. Under section 1871(a)(2) of the Act,

NCDs are exempt from the general requirement that no rule, requirement,

or other statement of policy that establishes or changes a substantive

legal standard governing the scope of benefits, the payment for

services, or the eligibility of individuals, entities, or organizations

to furnish or receive benefits under title XVIII will take effect

unless it is promulgated by the Secretary through regulations.

B. HMOs and CMPs

HMOs and CMPs enter into contracts with HCFA to furnish Medicare

covered services to Medicare beneficiaries who enroll in them in

accordance with section 1876 of the Act. The contracts provide for

payment to the HMOs and CMPs on either a risk or a reasonable cost

basis. The provisions in this proposed rule apply only to HMOs and CMPs

that contract on a risk basis.

Risk HMOs and CMPs are paid a predetermined, per capita rate for

each enrolled Medicare beneficiary. Under section 1876(a)(1)(A) of the

Act, we annually determine and announce by September 7 for the

following calendar year, a per capita rate of payment for each class of

Medicare beneficiaries enrolled in a risk HMO or CMP. The per capita

rate is set at 95 percent of the adjusted average per capita cost

(AAPCC). (The AAPCC is an actuarial estimate that we make in advance of

an HMO's or CMP's contract period and that represents an estimate of

what the average per capita cost would be to the Medicare program for

each class of Medicare enrollees if the enrollees had received covered

services in the same geographic area or a similar area, from sources

other than the HMO or CMP.)

We define the classes on the basis of county of residence (State of

residence, for end-stage renal disease beneficiaries), age, sex,

disability, institutional status, and welfare status. Within each

class, we establish two rates, one for beneficiaries entitled to

Medicare Part A and Part B, and one for those entitled only to Medicare

Part B.

C. Statutory Provisions

Under section 1876(c)(2)(A) of the Act, an HMO or CMP is required

to furnish to Medicare enrollees the Medicare covered services to which

they are entitled, but only to the extent that those services are

available to beneficiaries who reside in the geographic area served by

the HMO or CMP but are not enrolled in the organization. The only

exceptions to this general rule are: (1) That risk contracting HMOs and

CMPs are not required to provide hospice care services, or to assume

financial responsibility for inpatient care furnished to an enrollee

who, on the effective date of enrollment, was an inpatient in a

hospital paid under the prospective payment system; and (2) risk

contractors are not required to enroll Medicare beneficiaries who have

end-stage renal disease (whether aged, disabled, or entitled to

Medicare solely because of having end-stage renal disease).

In summary, before enactment of the Omnibus Budget Reconciliation

Act of 1990 (OBRA '90), under sections 1876(c)(2)(A), 1876(a)(6),

1876(a)(1)(D), and 1876(a)(3) of the Act, respectively--

Risk HMOs and CMPs were responsible for furnishing NCD

services of significant cost even though that cost had not been taken

into account in determining the per capita rate that HCFA paid the HMO

or CMP during that year;

Payment for services furnished to Medicare enrollees of a

risk HMO or CMP could be made only to the HMO or CMP, and only in the

form of advance monthly per capita payments; and

Those per capita payments were made instead of the amounts

that would have been made on a fee-for-service basis.

II. Changes Made by OBRA '90

Section 4204(c)(1) of OBRA '90 added section 1876(c)(2)(B) of the

Act, applicable to contract periods beginning on or after January 1,

1991. Under section 1876(c)(2)(B), if HCFA projects that the cost of

furnishing the NCD service will be significant, and the cost of the

service was not taken into account in calculating the most recently

announced per capita payment rates, then, unless otherwise required by

law--

The risk HMO or CMP is not required to furnish the new or

expanded benefit established by the NCD until the first contract year

that begins after the next payment rate announcement (that takes into

account the cost of the NCD service); and

If the risk HMO or CMP does furnish the new or expanded

benefit during the current contract period, the prohibition of section

1876(a)(3) does not apply, and HCFA's intermediary or carrier would pay

the risk HMO or CMP for the NCD service (under the usual Medicare

payment rules and methods) in addition to the monthly capitation

payment. (Usual Medicare payment methods require that payment for

services furnished by a participating provider such as a hospital be

made only to the provider.)

Section 4204(c) of OBRA '90 also amended section 1876(a)(6) of the

Act (the general prohibition against paying any entity other than the

risk HMO or CMP for services furnished to a Medicare enrollee) by

providing an exception for NCD services in section 1876(c)(2)(B)(ii) of

the Act. Under that exception, if a Medicare enrollee chooses to obtain

an NCD service from a source other than the risk HMO or CMP, HCFA may

make payment under the usual Medicare payment methods and rules to the

beneficiary, or to the qualified provider, physician, or supplier, as

appropriate.

III. Provisions of the Proposed Rule

To implement the provisions of section 4204(c) of OBRA '90, we

propose to make the following revisions to 42 CFR part 417 (``Health

Maintenance Organizations, Competitive Medical Plans, and Health Care

Prepayment Plans''). We also plan to make various technical changes.

A. Definitions

In Sec. 417.401 we would add definitions of ``National coverage

decision'' and ``significant cost.''

National coverage decision (NCD) means--a statement of national

policy regarding the Medicare coverage status of a service that we make

under section 1862(a)(1) of the Act and publish in the Federal Register

as a notice or HCFA Ruling, issue as a manual instruction, or announce

by other formal notice. The term does not include coverage changes

mandated by statute.

Significant cost, as it relates to a particular NCD, means either

of the following:

(1) The average cost of furnishing a single service exceeds a cost

threshold that--

(i) For calendar years 1991 and 1992, is $100,000; and

(ii) For 1993 and subsequent calendar years, is the preceding

year's dollar threshold, adjusted to reflect the increase or decrease

in the United States per capita cost (USPCC) for the preceding year.

(2) The cost of all of the services furnished nationwide as a

result of the particular NCD represents at least 0.1 percent of the

USPCC multiplied by the total number of Medicare beneficiaries

nationwide for the applicable calendar year.

(We would actuarially determine the significant cost of an NCD and

include that information in the formal notice of the decison). In

section IV, below, we discuss our reasoning for proposing these

thresholds for significant cost.

B. Range of Services Furnished by HMOs and CMPs

In Sec. 417.414 Qualifying condition: Range of services, we would

redesignate paragraph (b)(4), concerning selection of practitioners, as

paragraph (b)(3) of Sec. 417.416 (which deals with furnishing of

services and is thus a more appropriate location than ``Range of

services''), and add to Sec. 417.414 a new paragraph (b)(4) to specify

that a risk HMO or CMP is not required to furnish an NCD service until

the contract year beginning after the next per capita rate announcement

if all of the following conditions apply:

HCFA has determined and announced that the NCD service

meets the definition of ``significant cost.''

The cost of that service was not included in the

determination of the per capita rate of payment that HCFA pays the HMO

or CMP.

The NCD that established coverage of the service was

issued on or after the date of the announcement of the per capita rate

of payment for that contract year.

Starting with the beginning of the next contract year, the HMO or

CMP would be responsible for furnishing or paying for the NCD service.

We considered that these proposed revisions could have an adverse

effect on the ability of the risk HMO or CMP to manage the enrollee's

health care, but believe the changes are required by the wording of the

statute.

C. Deductible and Coinsurance Amounts

We would amend Sec. 417.452, which deals with Medicare enrollees'

liability for Medicare deductible and coinsurance amounts--

To clarify that the HMO or CMP may reduce these charges

under the ``additional benefits'' provision in Sec. 417.440(b)(4)(i);

and

To provide exemption from deductibles for ``significant

cost'' NCD services that the risk HMO or CMP is not required to

furnish, regardless of whether the service is furnished by the HMO or

CMP or obtained by the enrollee from another source.

We considered also waiving coinsurance for these services because

we believe that beneficiaries enroll in an HMO or CMP, in part, to

protect themselves from significant unanticipated costs. (In HMOs and

CMPs, the actuarial equivalent of deductible and coinsurance amounts is

spread among all enrollees and enrollees know in advance what the

charge will be for particular services.) We believe that imposition of

such costs for enrollees who need a significant cost NCD service could

discourage beneficiaries from enrolling or remaining enrolled in an HMO

or CMP.

We would prefer to encourage beneficiaries to enroll and remain

enrolled in Medicare risk contracting HMOs and CMPs, by relieving

beneficiaries' liability for coinsurance amount. However, we believe

the law requires that beneficiaries be liable for coinsurance amounts

because, unlike deductibles, these amounts are attributable to

particular services received. We are especially interested in comments

on this issue, including other legal interpretations of beneficiary

liability for coinsurance amounts.

D. Payment for NCD Services

We would remove current Sec. 417.586 because it provides an option

(electing to have Medicare intermediaries process and pay hospital and

nursing facility bills for services furnished to Medicare enrollees of

a risk HMO or CMP) that was repealed by section 4012(b) of the Omnibus

Budget Reconciliation Act of 1987 (OBRA '87).

We would add a new Sec. 417.586 (Special rules: Payment for

significant cost national coverage decision (NCD) services). Under this

new section, for significant cost NCD services whose cost was not

included in calculating the per capita payment rate for a risk HMO or

CMP, payment would be made under the usual Medicare payment rules and

methods. Usual Medicare payment methods require that payments for

services furnished by a participating provider, for example, a

hospital, be made only to that provider. The carrier may make payment

for Part B services of physicians and other suppliers such as other

practitioners and entities that are not providers, under usual carrier

procedures, directly to any of the following:

The beneficiary who obtained the service from a qualified

source other than the risk HMO or CMP.

The qualified provider, physician, or supplier that

furnished the service.

The risk HMO or CMP that chose to furnish the service even

though not required to do so.

We would specify, in Sec. 417.586(c), that HCFA does not make an

additional payment for a significant cost NCD service furnished by the

HMO or CMP (even though it is excepted during the current calendar

year) if the HMO or CMP furnishes the NCD service as an optional or

required supplemental service under Sec. 417.440(b)(2), or as an

additional benefit under Sec. 417.592. The reason for the exclusion is

that the costs of both of these types of services are already provided

for under the contract, and the statute specifies that the NCD ``shall

not apply'' to the contract. Optional or required supplemental services

are paid for by the enrollees. The HMO or CMP may provide ``additional

benefits'' as one way to compensate the beneficiary if the per capita

payments it receives from HCFA are higher than the HMO's or CMP's

adjusted community rate (ACR), which is what the HMO or CMP would

charge its non-Medicare enrollees for a package of benefits limited to

Medicare-covered services. We note that, if the NCD services are

already provided under the contract as additional benefits or

supplemental services, the beneficiary would not be required to pay any

additional Medicare coinsurance due to the NCD.

E. Other Clarifying Changes

1. Throughout the affected sections, we would use the more precise

term ``HMO'' or ``CMP'' in preference to the generic term

``organization''.

2. In Sec. 417.440, we would amend paragraph (a) to update a cross-

reference, and paragraph (b)(1) to break down a too-long sentence.

IV. Significant Cost

For 1991 and 1992, we propose that the cost of an NCD service be

considered ``significant'' if the average cost of furnishing that

service exceeds $100,000 or represents a change of at least 0.1 percent

in the United States per capita cost (USPCC) determined for the nation

as a whole. The USPCC is defined in Sec. 417.582 as the average per

capita cost, including intermediary or carrier administrative costs,

incurred by Medicare, as determined on an accrual basis, for services

furnished to Medicare beneficiaries nationwide during the most recent

period for which HCFA has complete data. AAPCCs derived from the USPCC

are the basis for Medicare payments to HMOs and CMPs. We also propose

that beginning with calendar year 1993 the preceding year's threshold

be adjusted to reflect any increase or decrease in the USPCC. The

purpose of the annual adjustment is to keep pace with inflation. The

average annual increase or decrease in the USPCC represents the change

in the average per capita cost of furnishing services to Medicare

beneficiaries.

We would actuarially determine the average cost of an individual

NCD service and include it at the time the NCD is issued in manuals,

published in the Federal Register, or announced by other formal notice.

The $100,000 threshold is proposed because it approximates the 1991

Medicare Part A cost of a liver transplant, a recent and important

national coverage decision that was included in the adjusted average

per capita cost (AAPCC) for 1991. The AAPCC is defined in Sec. 417.401

as an actuarial estimate made by HCFA in advance of an organization's

contract period that represents what the average per capita cost to the

Medicare program would be for each class (that is, Medicare beneficiary

designated by age, sex, disability, institutional, and welfare status)

of the organization's Medicare enrollees if they had received covered

services other than through the organization in the same geographic

area or in a similar area. We are especially interested in receiving

public comments concerning the thresholds we are proposing.

A 0.1 percent annual change in the 1993 USPCC would represent an

annual increase of approximately $4.30 or about $156 million in

additional annual outlays for the Medicare program as a whole. We

believe these figures represent the minimum threshold of significant

financial outlay for the average risk contracting HMO or CMP that has a

mean enrollment of nearly 15,800 Medicare beneficiaries and an average

monthly payment from Medicare of approximately $339 per Medicare

beneficiary or $5.37 million. We also believe it would protect small

organizations from unanticipated financial outlays sufficiently to

induce their continued participation in the Medicare program under

section 1876 of the Act.

The section that follows describes the NCDs announced in calendar

years 1991 and 1992. During that period, HCFA announced the addition of

six new services and the removal of one service. By combining Medicare

payment data for physician services with facility costs data, we were

able to estimate the relative costs associated with providing these

services. The coverage of liver transplantation for adults was

estimated to cost over $100,000 per procedure, which meets the

threshold to be considered ``of significant cost'' under this proposed

rule. Adult liver transplantation is covered for specific conditions

when performed in a facility approved by HCFA as meeting certain

institutional coverage criteria.

The remaining services were estimated to have average costs that

are well below the $100,000 threshold. These services are described

below.

Extracorporeal Immunoadsorption (ECI)

This procedure, which uses Protein A columns, is covered only for

the treatment of patients with Idiopathic Thrombocytopenia Purpura

(ITP) failing other treatments.

Implantation of Automatic Defibrillators

Patient selection criteria were changed to remove requirements that

patients had to have inducible tachyrhythmia before implantation or

that this technology be used as a treatment of last resort. Although

additional patients may be covered, we believe that the savings in

diagnostic costs offset additional costs.

Percutaneous Transluminal Angioplasty (PTA)

This procedure is used in the treatment of obstructive lesions of

arteriovenous dialysis fistulas.

Laparoscopic Cholecystectomy

This surgical procedure is covered for the removal of the gall

bladder.

Apheresis (Therapeutic Pheresis)

This autologous medical procedure is covered for specific

conditions. Medicare coverage criteria have been updated to include

coverage for procedures performed in a hospital setting (inpatient or

outpatient) or in a nonhospital setting if the patient is under the

care of a physician and a physician is also present to direct and

supervise the nonphysician services.

Extracranial-intracranial (EC-IC) Arterial Bypass

In 1991 this surgical procedure was removed from the list of

Medicare covered procedures.

The only ``significant cost'' NCD service among those listed above

is the liver transplant for adults. That NCD was published in the

Federal Register as a final notice on April 12, 1991, at 56 FR 15006.

The decision to cover liver transplants for adults was based on our

determination that liver transplants are medically reasonable and

necessary services if furnished to adult patients with certain

conditions and if furnished by participating facilities that meet

specific criteria including patient selection criteria. Under certain

circumstances, coverage of these liver transplants could be effective

as early as March 8, 1990, which was the publication date of the

proposed notice in the Federal Register. However, Medicare payment for

liver transplants for beneficiaries enrolled in risk HMOs and CMPs was

not included in the per capita rates of payment until January 1991.

Consequently, risk HMOs and CMPs were forced to absorb any liver

transplant costs (approximately $100,000 per transplant) from March 8,

1990, through December 31, 1990.

Items and services necessary to diagnose a condition for which the

recommended therapy is a noncovered service, and most services

furnished as followup care to the noncovered service, are not

considered part of that service and are not included in the payment for

that service. Medicare already covers certain diagnostic services,

which may lead to a recommendation that a beneficiary receive therapy

that is not covered. In addition, Medicare covers certain medically

necessary services that relate to follow-up care to a noncovered

service. For example, for patients who received liver transplants

before March 8, 1990, outpatient diagnostic services preceding the

transplant procedure were covered, as was medically necessary follow-up

care after discharge from the hospital for the noncovered transplant

procedure.

The hospitalization for the transplant procedure would not have

been covered, nor would other services received directly related to the

noncovered procedure, such as the surgeon's fee for the transplant

surgery itself. We consider services that would not have been covered

as part of the NCD occurrence. An occurrence includes the actual

provision of a discrete item or service that is the subject of an NCD.

Any item or service that is already covered, such as diagnostic

services followed by a noncovered therapy, as discussed above, would

not be considered as part of the NCD service and thus would not be

eligible for payment outside the HMO's or CMP's monthly rate. An item

or service that would not have been covered if furnished as part of a

noncovered procedure, such as the surgeon's fee for a noncovered liver

transplant, would qualify for payment outside the HMO's or CMP's

monthly rate, even though it is not itself the subject of the NCD.

Section 1861(s)(2)(J) of the Act provides for coverage of

prescription drugs used in immunosuppressive therapy for 1 year

following a transplant, only if the organ transplant procedure is a

covered service. Therefore, if future NCDs provide for coverage of

transplantation of organs other than the presently covered kidney,

liver, and heart, and are announced after publication of AAPCC rates

for the contract period, immunosuppressive therapy following those

organ transplants would also qualify for payment outside the HMO's or

CMP's monthly rates.

V. Collection of Information Requirements

This rule contains no information collection requirements subject

to review by the Office of Management and Budget under the Paperwork

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

VI. 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 if we proceed with the final rule, we will respond to the

comments in the preamble to the final rule.

VII. Regulatory Impact Statement

A. Introduction

This proposed rule would affect those HMOs and CMPs (90 as of

January 1993) that contract with HCFA to furnish health care services

to Medicare enrollees that are paid on a risk basis. Four demonstration

projects are also subject to the risk contract rules. As of January

1993, there were 21,908 Medicare enrollees in the four demonstration

projects. As a result of the OBRA '90 amendments discussed under

section II of this preamble, for NCD services that the risk HMO or CMP

is not required to furnish (because the cost of furnishing the service

is significant and was not taken into account in determining the per

capita rate that HCFA pays the HMO or CMP), additional payments may be

made as explained in section III.D. of the preamble.

It is clear that these additional payments constitute additional

program expenditures. However, estimation of the amount is difficult

because we cannot accurately predict--

How many of the services added or expanded through NCDs in

any year will be of ``significant cost''; and

How many of the Medicare enrollees of risk HMOs and CMPs

(approximately 1.5 million as of January 1993) will need a

``significant cost'' NCD service.

We do know that only six NCD services were added by HCFA during

1991 and 1992, and that only one of those six services (liver

transplants for adults) would have met a ``significant cost'' criterion

(average cost in excess of $100,000). We do not anticipate a

significant increase in the number of liver transplants performed on

Medicare beneficiaries because livers for transplantation purposes are

not readily available. We believe this surgery will continue to be

performed relatively infrequently.

In accordance with the provisions of Executive Order 12866, this

proposed rule was reviewed by the Office of Management and Budget.

B. Regulatory Flexibility Analysis

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, all HMOs and CMPs that have entered

into risk contracts with HCFA are considered to be small entities.

In addition, section 1102(b) of the Act requires the Secretary to

prepare a regulatory impact analysis if a proposed rule would 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.

As noted earlier in this preamble, we believe that, by ensuring

that the cost of furnishing required Medicare services would not

increase substantially during a contract period, the new rules might

encourage HMOs and CMPs to contract on a risk basis. We anticipate an

increase in the number of risk-contracting organizations, but recognize

that this proposed rule would not constitute a significant economic

impact on a substantial number of HMOs and CMPs. These rules would not

affect the operations of small rural hospitals.

We are not preparing analyses under either the RFA or section

1102(b) of the Act because we have determined, and the Secretary

certifies, that this proposed rule would not result in 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.

List of Subjects in 42 CFR Part 417

Administrative practice and procedure, Grant programs--health,

Health care, Health facilities, Health insurance, Health maintenance

organizations (HMO), Loan programs--health, Medicare, Reporting and

recordkeeping requirements.

42 CFR part 417 would be amended as set forth below:

PART 417--HEALTH MAINTENANCE ORGANIZATIONS, COMPETITIVE MEDICAL

PLANS, AND HEALTH CARE PREPAYMENT PLANS

1. The authority citation continues to read as follows:

Authority: Secs. 1102, 1833(a)(1)(A), 1861(s)(2)(H), 1866(a),

1871, 1874, and 1876 of the Social Security Act (42 U.S.C. 1302,

1395l(a)(1)(A), 1395x(s)(2)(H), 1395cc(a), 1395hh, 1395kk, and

1395mm); sec. 114(c) of Pub. L. 97-248 (42 U.S.C. 1395mm note); 31

U.S.C. 9701; and secs. 215 and 1301 through 1318 of the Public

Health Service Act (42 U.S.C. 216 and 300e through 300e-17), unless

otherwise noted.

2. In Sec. 417.401, the introductory text is republished, and the

following definitions are added in alphabetical order:

Sec. 417.401 Definitions.

As used in this subpart, and in subparts K through R of this part,

unless the context indicates otherwise--

* * * * *

National coverage decision (NCD) means a national policy statement

regarding the coverage status of a specified service, that HCFA makes

under section 1862(a)(1) of the Act, publishes in the Federal Register

as a notice or HCFA Ruling, or announces by other formal notice. (The

term does not include coverage changes mandated by statute.)

Significant cost, as it relates to a particular NCD, means either

of the following:

(1) The average cost of furnishing a single service exceeds a cost

threshold that--

(i) For calendar years 1991 and 1992, is $100,000; and

(ii) For 1993 and subsequent calendar years, is the preceding

year's dollar threshold, adjusted to reflect the increase or decrease

in the United States per capita cost (USPCC) for the preceding year.

(2) The cost of all of the services furnished nationwide as a

result of the particular NCD represents at least 0.1 percent of the

USPCC multiplied by the total number of Medicare beneficiaries

nationwide for the applicable calendar year.

* * * * *

3. In Sec. 417.414, the section heading and paragraphs (a) and (b)

are revised to read as follows:

Sec. 417.414 Qualifying condition: Range of services furnished by an

HMO or CMP.

(a) Condition. The HMO or CMP must demonstrate that it is capable

of delivering to Medicare enrollees the range of services required in

accordance with this section.

(b) Standard: Range of services--(1) Basic requirement. Except as

specified in paragraphs (b)(3) and (b)(4) of this section, an HMO or

CMP must furnish to its Medicare enrollees (directly or through

arrangements with others) all Medicare services to which those

enrollees are entitled, to the extent that those services are available

to Medicare beneficiaries who reside in the HMO's or CMP's geographic

area but are not enrolled in the HMO or CMP.

(2) Availability. The services are considered available if either

of the following criteria is met:

(i) The sources are located within the geographic area of the HMO

or CMP.

(ii) It is common practice to refer patients to sources outside

that geographic area.

(3) Exception and requirement for hospice care. An HMO or CMP is

not required to furnish hospice care as described under part 418 of

this chapter. However, HMOs and CMPs must inform their Medicare

enrollees concerning the availability of hospice care if either of the

following criteria is met:

(i) A hospice that participates in Medicare is located within the

geographic area of the HMO or CMP.

(ii) It is common practice to refer patients to hospices outside

that geographic area.

(4) Exception for national coverage decision (NCD) services: Risk

HMOs and CMPs. A risk HMO or CMP is not required to furnish or pay for

an NCD service until the contract year beginning after the next per

capita rate announcement if all of the following conditions are met:

(i) HCFA has determined and announced that the NCD service meets

the definition of ``significant cost'' in Sec. 417.401.

(ii) The cost of that service was not included in the determination

of the per capita rate of payment that HCFA pays the HMO or CMP.

(iii) The NCD that established coverage of the service was issued

on or after the date of the announcement of the per capita rate of

payment for that contract year.

(5) Examples. The following examples apply to NCD services of

significant cost and show how the NCD announcement date (which

determines whether the cost of that service is taken into account in

calculating the per capita rate of payment) in turn determines when the

HMO or CMP becomes responsible for furnishing or paying for the NCD

service.

Example A: An NCD is announced on September 1, 1993, effective

on the date of announcement. Because this NCD was announced before

September 7, 1993, the announcement date of the per capita rate of

payment for calendar year 1994, a risk HMO or CMP is responsible for

furnishing or paying for the NCD service beginning with calendar

year 1994.

Example B: An NCD is announced on December 1, 1993, effective on

date of announcement. Because this NCD was announced after September

7, 1993, the announcement date of the per capita rate of payment for

calendar year 1994, the risk HMO or CMP is not responsible for

furnishing or paying for the NCD service until the beginning of

calendar year 1995.

* * * * *

4. In Sec. 417.416, a new paragraph (b)(3) is added to read as

follows:

Sec. 417.416 Qualifying condition: Furnishing of services.

* * * * *

(b) * * *

(3) If more than one type of practitioner is qualified to furnish a

particular service, the organization may select the type of

practitioner to be used.

* * * * *

5. In Sec. 417.440, the section heading and paragraphs (a) and

(b)(1) are revised to read as follows:

Sec. 417.440 Entitlement to health care services from an HMO or CMP.

(a) Basic rules. (1) Subject to the conditions and limitations set

forth in this part, a Medicare enrollee of an HMO or CMP is entitled to

receive health care services directly from, or through arrangements

made by, the HMO or CMP, as specified in this section and

Sec. Sec. 417.442 and 417.444.

(2) A Medicare enrollee is also entitled to receive timely and

reasonable payment directly (or have payment made on his or her behalf)

for services he or she obtained from a provider or supplier outside the

HMO or CMP if those services meet either of the following conditions:

(i) They are emergency services or urgently needed unforeseen

services as defined in Sec. 417.401.

(ii) They are services denied by the HMO or CMP and found (upon

appeal under subpart Q of this part) to be services the enrollee was

entitled to have furnished by the HMO or CMP.

(b) Scope of services. (1) Part A and Part B services. Except as

specified in paragraphs (c) through (e) of this section, a Medicare

enrollee is entitled to receive from the HMO or CMP all the Medicare-

covered services that are available to individuals residing in the

HMO's or CMP's geographic area, as follows:

(i) Medicare Part A and Part B services if the enrollee is entitled

to benefits under both programs.

(ii) Medicare Part B services if the enrollee is entitled only

under that program.

* * * * *

6. In Sec. 417.452, paragraph (a) is revised to read as follows:

Sec. 417.452 Liability of Medicare enrollees.

(a) Deductibles and coinsurance--(1) General rules.

(i) A Medicare enrollee of an HMO or CMP is responsible for HMO or

CMP charges that represent applicable Medicare deductible and

coinsurance amounts.

(ii) The amounts that the HMO or CMP charges its Medicare enrollees

under paragraph (a)(1)(i) of this section may not exceed, on the

average, the actuarial value of the deductibles and coinsurance for

which the Medicare enrollees would be responsible if they were not

enrolled in an HMO or CMP.

(2) Special rules: Medicare enrollees of risk HMOs and CMPs. (i) If

a risk HMO or CMP reduces the deductible and coinsurance charges in

accordance with the ``additional benefits'' option provided in

Sec. 417.440(b)(4)(i), the enrollee pays less than would otherwise be

required under paragraph (a)(1) of this section.

(ii) A Medicare enrollee of a risk HMO or CMP is not responsible

for deductibles applicable to national coverage decision (NCD) services

that the HMO or CMP is not required to furnish because they are

excepted under Sec. 417.414(b)(4). The exemption applies regardless of

whether the HMO or CMP furnishes the services or the enrollee obtains

them from other sources.

(3) Type of charge and source of payment. (i) The deductible and

coinsurance charges imposed by an HMO or CMP may be in the form of

premiums, membership fees, or per-unit or similar charges.

(ii) The deductible and coinsurance charges may be paid by the

enrollee or on his or her behalf by another individual, organization,

or entity.

* * * * *

7. Section 417.586 is revised to read as follows:

Sec. 417.586 Special rules: Payment for significant cost national

coverage decision (NCD) services.

(a) Applicability. This section applies to NCD services that a risk

HMO or CMP is not required to furnish because they are excepted under

Sec. 417.414(b)(4).

(b) Method of payment. If a Medicare enrollee of a risk HMO or CMP

receives an NCD service specified in paragraph (a) of this section,

payment for that service--

(1) Is in addition to the per capita payments to the HMO or CMP;

and

(2) Is made by the fiscal intermediary or carrier under the usual

Medicare rules and methods set forth in part 405; part 410, subpart E;

part 412, 413, or 415, as appropriate; and subject to the requirements

of part 424 of this chapter.

(c) Exceptions. HCFA does not make additional payments under

paragraph (b) of this section if the HMO or CMP--

(1) Is obligated to furnish the NCD service as an ``additional

benefit'' under Sec. 417.592; or

(2) Furnishes the NCD service as an optional or required

supplemental service paid for by the Medicare enrollee under

Sec. 417.440 (b)(2) or (b)(3).

(Catalog of Federal Domestic Assistance Program No. 93.773,

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

Supplementary Medical Insurance Program)

Dated: July 28, 1993.

Bruce C. Vladeck,

Administrator, Health Care Financing Administration.

Dated: November 3, 1993.

Donna E. Shalala,

Secretary.

[FR Doc. 94-3609 Filed 2-18-94; 8:45 am]

BILLING CODE 4120-01-P