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

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 421

[BPO-083-F]

RIN 0938-AF84

Medicare Program; Revisions to Criteria and Standards for

Evaluating Intermediaries and Carriers

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

ACTION: Final rule.

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SUMMARY: This rule issues technical amendments to Medicare regulations

intended to simplify and improve our system for evaluating the

performance of fiscal intermediaries and carriers in the administration

of the Medicare program. Currently, we evaluate intermediaries using

performance criteria and standards announced in an annual notice in the

Federal Register. We are clarifying the methodology for establishing

these criteria and standards. For consistency, we establish comparable

regulation requirements for the evaluation of carrier performance.

These revisions are published in accordance with sections 1816(f)

and 1842(b)(2) of the Social Security Act which require us to develop

standards, criteria, and procedures to evaluate an intermediary's or

carrier's overall performance.

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

FOR FURTHER INFORMATION CONTACT: Larry Pratt, (410) 966-7403.

SUPPLEMENTARY INFORMATION:

I. Background

Under section 1816(a) of the Social Security Act (the Act), public

or private organizations and agencies participate in the administration

of Part A (Hospital Insurance) of the Medicare program under agreements

with the Secretary of Health and Human Services (HHS). These agencies

or organizations are known as fiscal intermediaries, and they perform

bill processing and benefit payment functions for the Medicare program.

Under section 1842(a) of the Act, the Secretary is authorized to enter

into contracts with carriers to fulfill various functions in the

administration of Part B (Supplementary Medical Insurance) of the

Medicare program. Beneficiaries, physicians and suppliers of the

services submit claims to these carriers that, in turn, make

appropriate payments.

Beginning in 1980 for intermediaries and in 1981 for carriers, we

have been evaluating the effectiveness and efficiency of contractor

operations through a system of criteria and standards called the

Contractor Performance Evaluation Program (CPEP).

We refer to the performance requirements we use to evaluate the

performance of intermediaries and carriers in meeting their contractual

obligations to HCFA in our regulations and program instructions as

criteria and standards. When we developed our regulations, criteria

were expected to be distinguished from standards; we intended to

measure broad categorizations of performance using criteria (42 CFR

421.120) and to measure statistical and performance data using

standards (Sec. 421.122). As planned, a contractor had to be evaluated

by and pass the requirements of the criteria before we evaluated

contractor performance using statistical standards. However, in

practice, the standards have been used to measure a contractor's

compliance with the requirements of the criteria. The separate reliance

on statistical standards diminished and we have developed a CPEP under

which standards are used to measure the performance of specific

activities in a defined criteria instead of ``statistical'' standards.

II. Summary of the Proposed Rule

On December 3, 1992, we published in the Federal Register (57 FR

57125) a proposed rule describing technical revisions we proposed to

make to Medicare regulations in order to simplify and improve our

system for evaluating the performances of fiscal intermediaries and

carriers in the administration of the Medicare program. These technical

revisions are necessary to bring our regulations up to date with our

actual use of criteria and standards in performance evaluations.

In the preamble to the proposed rule we described how the reliance

on statistical standards diminished and that current ``standards'' are

used to measure the performance of specific activities in a defined

criterion. That is, measurement and evaluation using criteria and

standards have evolved into a one-step process. In addition, we noted

that certain functions that were included in the original planned

evaluation structure have been transferred to more appropriate review

activities. We, therefore, proposed to amend Secs. 421.3, 421.112(b),

421.118(b) and 421.122 to delete reference to statistical standards and

to replace the general standards for the areas evaluated formerly by

statistical standards with a general explanation of the areas evaluated

by performance standards.

We also mentioned in the proposed rule that our regulations do not

contain requirements relating to measurement of carrier performance

that are parallel to those for intermediaries. For consistency, we

proposed to establish a new Sec. 421.201, ``Performance Criteria and

Standards,'' that would measure and evaluate carrier performance of

functional responsibilities, such as, accurate and timely processing of

claims, responsiveness to beneficiaries', physicians' and suppliers'

concerns, and proper management of administrative funds.

We proposed to base performance criteria and standards on the

experience of carriers nationwide, changes in carrier operations due to

fiscal constraints, and our objectives in achieving better performance.

Before the beginning of each CPEP evaluation period, we would publish

the performance criteria and standards as a notice in the Federal

Register.

We also announced that we would add a new Sec. 421.203, ``Carrier's

failure to perform efficiently and effectively,'' to explain the

adverse action that may be taken by the Secretary if the carrier fails

to meet criteria and standards specified at Sec. 421.201. The content

is parallel to Sec. 421.124, which applies to intermediaries. This new

Sec. 421.203 does not add or change carrier obligations. It merely

codifies in regulations a provision specific to carriers that has been

in effect since Public Law 98-369.

III. Analysis of and Response to Public Comments

We received 10 timely items of correspondence in response to the

December 3, 1992 proposed rule. The comments were from intermediaries,

carriers, contractor advocacy groups, and provider advocacy groups. A

summary of the comments and the Department's responses follow:

Comment: Several commenters suggested that a process be developed

by HCFA for receiving comments, complaints, or problems with carrier

performance by physicians or professional organizations and that the

information generated by this process be included in the overall

performance evaluation of a carrier.

Response: Beginning in Fiscal Year 1994, HCFA will review both

intermediaries' and carriers' efforts to enhance customer satisfaction

through the use of customer satisfaction surveys, including the

National Physician Survey. Results of the surveys will be used to

establish performance data on customer satisfaction and to identify

areas in need of improvement. The results will be summarized for

publication in the report of contractor performance.

Comment: A number of the commenters believe that certain of our

proposed changes at Secs. 421.124 and 421.203 are unnecessary. Those

changes would allow the Secretary to take adverse action if an

intermediary or carrier exceeds the amount the Secretary finds to be

reasonable and adequate to meet the costs which must be incurred by an

efficiently and economically operated intermediary or carrier,

notwithstanding whether the intermediary or carrier meets the published

criteria and standards. Both the intermediary and carrier contracts

currently have a provision to allow the Secretary to request a

committee of the contractors to assist in efforts to effect

improvements in the high cost contractor's performance. In addition,

the current Contractor Performance Evaluation Program (CPEP) contains

measures on contractor costs. If a contractor fails to meet the

applicable criteria, its CPEP score is reduced accordingly.

Response: We do not agree that the proposed changes are

unnecessary. This section of the regulation would authorize us to take

adverse action for deficient performance of a function not specifically

evaluated by CPEP. Currently, CPEP only measures contractor performance

in meeting the approved budget and the contractor's relative standing

among similar contractors. Moreover, beginning in FY 1993, CPEP

eliminated the concept of passing/failing the overall evaluation.

Passing/failing now is determined on a standard by standard basis. For

example, if a contractor fails to meet the approved budget, it will

fail one standard in CPEP, not the entire CPEP. Thus, despite CPEP, the

authority to take adverse contract action against high cost

intermediaries and carriers is necessary. As the commenters note,

current contracts allow the Secretary to request a committee of the

contractors to assist in efforts to effect improvements in the high

cost contractor's performance. The proposed regulatory change allows us

to take the next logical step in the event efforts to effect

improvement have failed. We will have authority to take adverse action

based on continued high cost performance.

Comment: Several commenters stressed that the proposed Sec. 421.124

and Sec. 421.203 were vague. They asked that HCFA further define

``reasonable'' amount, and how and when high cost would be calculated.

Response: We believe that the provisions at Sec. 421.124 and

Sec. 421.203 are clear and straightforward. It is our responsibility to

consider the funding levels that are reasonable and adequate to meet

the costs incurred by an efficiently and economically operated

contractor. To address this responsibility, we develop unit cost

targets for each contractor prior to the start of every fiscal year.

These unit cost targets are forwarded to the HCFA regional offices as

part of the Budget and Performance Requirements (BPRs) package and

represent the benchmark for the negotiations between the regional

offices and the contractors.

We believe that the composition of a contractor's workload (for

example, number of hospital inpatient bills versus number of outpatient

bills or laboratory bills, etc.) is an important factor in the amount

of costs it incurs since some claims are inherently more problematic

and difficult to resolve. In order to give full consideration of each

contractor's unique situation, we currently apply a ``complexity

index'' to develop the BPRs' unit cost targets. This methodology allows

us to correlate the contractor's costs with its individual workload

composition. The use of the complexity index allows us to identify the

contractors whose unit costs appear to be out of proportion to the type

and medium (electronic versus hardcopy) of workload they must process.

Use of the complexity index methodology allows us to evaluate each

contractor's costs with full consideration of its unique workload mix

and within the national forum of its peers. In this way, we identify

our high cost contractors. However, since the use of the complexity

index methodology is an administrative tool to identify contractors

with aberrant costs and can be changed or modified as required, we do

not believe it necessary to outline this methodology in the regulation.

Comment: Several commenters stated that the proposed

Secs. 421.124(a) and 421.203(a) on high cost contractors do not specify

the types of adverse action we may take on the grounds of excessive

cost. Contractors are uncertain about how we would go about the process

of applying sanctions and what these sanctions might be.

Response: Adverse contract actions are listed in Secs. 421.124(a)

and 421.203(a) of the proposed regulation, but we are not limited to

those. Adverse contract actions are further defined in the intermediary

and carrier manual issuances released within the HCFA Program Manual

Issuances System, which contain the details of the CPEP. Adverse

actions range in severity commensurate with relative performance and

include, but are not limited to, such actions as, Regional Office

Letter of Admonition; Central Office Letter of Admonition; deletion of

the automatic renewal clause from the contract without performance

goals established; deletion of the automatic renewal clause from the

contract with performance goals established; limited contract

automatic-renewal clause and provision for termination upon 90 days

notice; reduction in territory or ``carve-out''; non-renewal; and

termination.

Comment: A commenter was unsure whether, if HCFA does not publish

the CPEP standards during a fiscal year, there would be no performance

evaluation for that year or whether the previous year's CPEP would

apply.

Response: In general, the evaluation period which the criteria and

standards measure is the Federal fiscal year. We make every effort to

publish the criteria and standards prior to the beginning of the

Federal fiscal year, that is, October 1st. If we do not publish a

Federal Register notice before the new fiscal year begins, readers may

presume that, until and unless notified otherwise, the criteria and

standards which were previously in effect remain in effect. When a new

CPEP is published, it usually applies to a prospective period, as

stated in the Federal Register notice.

Comment: One commenter states that contractors participate in pilot

projects which may involve additional funding from HCFA. They assume

this ``additional funding'' would not be considered as ``excessively

high costs''.

Response: We encourage contractors to participate in pilot projects

which may result in improved quality, service or efficiency in the

administration of the Medicare program. Where a contractor's

participation in a pilot study or program adversely affects its

performance evaluation, appropriate adjustments are made to mitigate

the impact of the pilot study or program.

Comment: One commenter recommends that HCFA not base criteria and

standards on the sliding scale of available funding but on true

expectations of performance and therefore delete ``changes in fiscal

operations due to fiscal constraints'' as a basis for developing

criteria and standards.

Response: Each year the specific standards are revised and

developed in concert with the specific budget and performance

requirements, because that is the fiscally responsible approach to

develop uniform and fair performance standards for the Medicare

contractor community. We will continue to develop standards in

conjunction with budget and performance requirements.

Comment: One commenter notes that Secs. 421.124 and 421.203 do not

include the contract's provision for an extension of the contract,

subject to cost limitations. This would deprive high cost contractors

of the formal opportunity to choose between accepting limits on their

reimbursable costs and losing their Medicare contracts.

Response: The contract allows us to offer a high cost contractor

the option of submitting a lower budget or losing its Medicare

contract. Sections 421.124 and 421.203 would give us the authority to

determine the amount which is reasonable and adequate to efficiently

and economically operate as an intermediary and carrier. If we

determine that we cannot afford to contract with high cost

intermediaries or carriers, we may consider appropriate adverse

contract action.

IV. Provisions of the Final Rule

Based on our review of the comments submitted, we are making no

substantive changes to the proposed revisions to the rules affecting

criteria and standards for evaluating intermediaries and carriers as

published on December 3, 1992, (57 FR 233). Only minor editorial and

technical revisions have been made to the proposed rules.

List of Subjects in 42 CFR Part 421

Administrative practice and procedure, Health facilities, Health

professions, Medicare, Reporting and recordkeeping requirements.

42 CFR part 421 is amended as set forth below:

PART 421--INTERMEDIARIES AND CARRIERS

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

follows:

Authority: Secs. 1102, 1815, 1816, 1833, 1834(a) and (h), 1842,

1861(u), 1871, 1874, and 1875 of the Social Security Act (42 U.S.C.

1302, 1395g, 1395h, 1395l, 1395m(a) and (h), 1395u, 1395x(u),

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

2. Section 421.3 is revised to read as follows:

Sec. 421.3 Definitions.

Intermediary means an entity that has a contract with HCFA to

determine and make Medicare payments for Part A or Part B benefits

payable on a cost basis (or under the Prospective Payment System for

hospitals) and to perform other related functions. For purposes of

designating regional or alternative regional intermediaries for home

health agencies and of designating intermediaries for hospices under

Sec. 421.117 as well as for applying the performance criteria in

Sec. 421.120 and the performance standards in Sec. 421.122 and any

adverse action resulting from such application, the term intermediary

also means a Blue Cross Plan which has entered into a subcontract

approved by HCFA with the Blue Cross and Blue Shield Association to

perform intermediary functions.

Sec. 421.112 [Amended]

3. In Sec. 421.112(b), ``statistical standards'' is revised to read

``performance standards''.

Sec. 421.118 [Amended]

4. In Sec. 421.118(b) ``statistical standards'' is revised to read

``performance standards''.

5. Section 421.122 is revised to read as follows:

Sec. 421.122 Performance standards.

(a) Development of standards. In addition to the performance

criteria (Sec. 421.120), HCFA develops detailed performance standards

for use in evaluating intermediary performance which may be based on

historical performance, application of acceptable statistical measures

of variation to nationwide intermediary experience during a base

period, or changing program emphases or requirements. These standards

are also developed considering intermediary experience and evaluate the

specific requirements of each functional responsibility or criterion.

(b) Factors beyond intermediary's control. To identify measurable

factors that significantly affect an intermediary's performance, but

that are not within the intermediary's control, HCFA will--

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

and

(2) Consider the noncontrollable factors in developing performance

standards.

(c) Publication of standards. The development and revision of

standards for evaluating intermediary performance is a continuing

process. Therefore, before the beginning of each evaluation period,

which usually coincides with the Federal fiscal year period of October

1-September 30, HCFA publishes the performance standards as part of the

Federal Register notice describing the performance criteria issued

under Sec. 421.120(c). HCFA may not necessarily publish the criteria

and standards every year. HCFA interprets the statutory phrase ``before

the beginning of each evaluation period'' as allowing publication of

the criteria and standards after the Federal fiscal year begins, as

long as the evaluation period of the intermediaries for the new

criteria and standards begins after the publication of the notice.

6. Section 421.124 is revised to read as follows:

Sec. 421.124 Intermediary's failure to perform efficiently and

effectively.

(a) Failure by an intermediary to meet, or to demonstrate the

capacity to meet, the criteria or standards specified in Secs. 421.120

and 421.122 may be grounds for adverse action by the Secretary or by

HCFA, such as reassignment of providers, offer of a short-term

agreement, termination of a contract, or non-renewal of a contract. If

an intermediary meets all criteria and standards in its overall

performance, but does not meet them with respect to a specific provider

or class of providers, HCFA may reassign that provider or class of

providers to another intermediary in accordance with Sec. 421.114.

(b) In addition, notwithstanding whether an intermediary meets the

criteria and standards, if the cost incurred by the intermediary to

meet its contractual requirements exceeds the amount which HCFA finds

to be reasonable and adequate to meet the cost which must be incurred

by an efficiently and economically operated intermediary, those high

costs may also be grounds for adverse action.

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

Sec. 421.201 Performance criteria and standards.

(a) Application of performance criteria and standards. As part of

the carrier evaluations mandated by section 1842(b)(2) of the Act, HCFA

periodically assesses the performance of carriers in their Medicare

operations using performance criteria and standards.

(1) The criteria measure and evaluate carrier performance of

functional responsibilities such as--

(i) Accurate and timely payment determinations;

(ii) Responsiveness to beneficiary, physician, and supplier

concerns; and

(iii) Proper management of administrative funds.

(2) The standards evaluate the specific requirements of each

functional responsibility or criterion.

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

criteria and standards on--

(1) Nationwide carrier experience;

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

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

(c) Publication of criteria and standards. Before the beginning of

each evaluation period, which usually coincides with the Federal fiscal

year period of October 1-September 30, HCFA publishes the performance

criteria and standards as a notice in the Federal Register. HCFA may

not necessarily publish the criteria and standards every year. HCFA

interprets the statutory phrase ``before the beginning of each

evaluation period'' as allowing publication of the criteria and

standards after the Federal fiscal year begins, as long as the

evaluation period of the carriers for the new criteria and standards

begins after the publication of the notice.

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

Sec. 421.203 Carrier's failure to perform efficiently and effectively.

(a) Failure by a carrier to meet, or demonstrate the capacity to

meet, the criteria and standards specified in Sec. 421.201 may be

grounds for adverse action by the Secretary, such as contract

termination or non-renewal.

(b) Notwithstanding whether or not a carrier meets the criteria and

standards specified in Sec. 421.201, if the cost incurred by the

carrier to meet its contractual requirements exceeds the amount that

HCFA finds to be reasonable and adequate to meet the cost which must be

incurred by an efficiently and economically operated carrier, those

high costs may also be grounds for adverse action.

(Catalog of Federal Domestic Assistance Program No. 93.773,

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

Supplementary Medical Insurance Program)

Dated: October 20, 1993.

Bruce C. Vladeck,

Administrator, Health Care Financing Administration.

Dated: December 2, 1993.

Donna E. Shalala,

Secretary.

[FR Doc. 94-63 Filed 1-5-94; 8:45 am]

BILLING CODE 4120-01-P