Federal Employees Health Benefits Acquisition Regulation; Miscellaneous Changes

OFFICE OF PERSONNEL MANAGEMENT

48 CFR Parts 1601, 1602, 1609, 1615, 1632, 1642, 1646, 1652

RIN 3206-AE67

Federal Employees Health Benefits Acquisition Regulation;

Miscellaneous Changes

agency: Office of Personnel Management.

action: Final rulemaking.

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summary: The Office of Personnel Management (OPM) is issuing final

regulations that amend certain provisions of the Federal Employees

Health Benefits Acquisition Regulation (FEHBAR). The changes will more

precisely reflect the needs of OPM in contracting for health benefits

under the Federal Employees Health Benefits Program (FEHBP) and in the

general administration of the FEHBP contracts.

effective date: March 30, 1994.

for further information contact: Mary Ann Mercer, (202) 606-0191.

supplementary information: On June 29, 1993, OPM published proposed

regulations in the Federal Register (58 FR 34769) that would amend

certain community rating and experience rating provisions of the

FEHBAR. We received 36 comments, 28 from FEHBP community rated

carriers, two from FEHBP experience rated carriers, two from

organizations representing FEHBP health maintenance organizations

(HMOs) and similar managed care systems, two from law firms

representing a number of community rated FEHBP carriers, one from a law

firm representing an association of Federal health organizations, and

one from a Federal agency. We appreciate the observations and

suggestions offered and have taken them into consideration in these

regulations.

The majority of the comments were favorable toward OPM's efforts to

more effectively administer the FEHBP. Many of the commenters expressed

concerns, however, about the changes with respect to Similarly Sized

Subscriber Groups (SSSGs) and the quality assurance program

requirements proposed by OPM. A number of them offered suggestions as

to how OPM might further clarify the regulations to mitigate these

concerns.

The comments and recommendations received reflect the difficulty

OPM has experienced in specifying explicit standards in regulation in

these two areas. The conflicting comments and suggestions from the

carriers have prompted us to reconsider our decision to establish

explicit standards by regulation. Instead, OPM has decided to replace

the standards with guiding principles and will provide carriers with

specific criteria for SSSGs in the annual rate letters. In addition,

OPM intends to furnish specific quality assurance standards prior to

its FEHBP contract negotiations for the following contract year. This

approach will foster competitiveness and commercial practices in the

FEHBP by reflecting the latest developments in the insurance industry

and will thereby allow OPM to utilize the most recent market mechanisms

in the FEHBP.

This approach conforms to the principles of the Administration's

National Performance Review (NPR) as well. A key element of the NPR is

the simplification of government procurement regulations and processes,

a shifting from rigid rules to guiding principles, and replacement of

agency rules with policy directives and instructions, where

appropriate. An important advantage to this approach is that OPM will

no longer find its regulatory policies in these areas lagging behind

insurance industry trends because both OPM and the carriers will have

the flexibility to adjust quickly to current market conditions.

Pursuant to section 553(d)(3) of title 5 of the United States Code,

OPM is issuing these regulations with an immediate effective date. The

regulations are being made effective immediately so that they may be in

place before the rate letters for the 1995 FEHBP contract year are

mailed to the carriers.

The following will address the comments received and will clarify

OPM's intent with respect to those portions of the regulations changed

as well as those retained.

In the past, we have noted a general misunderstanding relating to

OPM's objective in using SSSGs to verify the Federal group's rate.

OPM's objective is to ensure that the Federal group's rate is

equivalent to the SSSGs' rates, thereby reflecting any market

advantages given to the SSSGs.

In the Supplementary Information section of the proposed

regulations, OPM asserted that it may examine any aspect of a carrier's

rating procedure to ensure that the carrier gives the Federal group an

equitable rate. This statement troubled a number of commenters who

expressed concern that, even where the carrier charges the Federal

group a rate that is equivalent to that charged the SSSGs, it is OPM's

practice to look beyond the SSSGs to determine whether the Federal

group is entitled to any rate adjustment. They contend that OPM's

regulations do not provide for any rate adjustment for the Federal

group based on rates charged a group that is not an SSSG. One commenter

interpreted the statement to mean that OPM will limit rates to the

lowest amounts charged by an HMO to its largest groups.

We would like to clarify that OPM's detailed examination of a

carrier's rating process is not an alternative procedure to identify

SSSGs. OPM will examine the rating methodology of the SSSGs to ensure

that it is consistent with that used for the Federal group. For

example, if the carrier uses traditional community rating (TCR) or

community rating by class (CRC) for the Federal group and the SSSGs,

OPM will verify that the carrier based on the self-and-family rates for

all three groups on the same underlying capitation rate and derived

them by the same general procedure. If the carrier uses adjusted

community rating (ACR) for all three groups, OPM will verify that the

carrier derived the self-and-family rates for all three groups by the

same general methodology.

We have revised the definition of SSSGs. The SSSGs are the two

groups closest in size to the Federal group that meet the criteria

specified in OPM's rate instructions. All groups are potentially SSSGs

except those which the carrier rates by retrospective experience

rating.

OPM does, however, reserve the right to examine the rate

development of non-SSSG groups. We want to emphasize that the sole

purpose of such analysis is to make certain that the Federal group's

rates are equivalent to the SSSGs' rates. For example, if an SSSG had a

special benefit (e.g., dental benefit) not included in the Federal

group benefit package, OPM would compare what the carrier charged the

SSSG with what it charged other groups for this benefit. The purpose

would be to verify that the SSSG received no discount. Carriers need

not be concerned that an OPM review of a commercial group makes it a

potential SSSG.

One carrier wanted to know if health insurance purchasing

cooperatives (HIPC) under state health care reform packages are

excluded from consideration as SSSGs. OPM will consider all group not

retrospectively experience rated as potential SSSGs. Assuming, then,

that the group is not retrospectively experience rated, the size of the

group in relation to the Federal group will be used to determine SSSGs.

Since a HIPC negotiates rates on behalf of a group, if this group

satisfies the size requirement, we would consider it to be an SSSG.

One carrier suggested that OPM should change the definition of the

SSSGs from one based on subscriber enrollment to one based on member

enrollment. Basing the SSSGs on member enrollment is not practicable

for the FEHBP because OPM does not have data on family members. The

only reliable data available to OPM is the subscriber headcount.

Consequently, OPM bases the SSSGs on subscriber enrollment.

One law firm stated that the carriers' evaluations should be

presumed correct in reconciling benefit differences unless inconsistent

application of such values can be demonstrated. The firm, as well as

another organization representing HMOs, is concerned that the actuaries

and auditors will determine the value of the same benefits differently.

OPM understands the concern. Nevertheless, OPM would be acting

irresponsibly if it presumed the carriers' evaluations are correct. The

fact that the Office of Actuaries accepts a rate proposal does not

guarantee that no errors in the overall rates or in a particular aspect

of the proposal will be uncovered in audit. This is precisely why the

annual rate instructions to the carriers specifically state that the

rate proposals are subject to audit.

Ten community rated carriers and one law firm voiced concern about

the requirement that the SSSGs be determined from enrollment data from

the current contract year rather than data from the year preceding the

contract year. They are concerned that the SSSGs may change as a result

of enrollment changes between the date rate proposals are submitted and

the date they are reconciled; that the HMO's target SSSGs may renew

after the reconciliation date; or that they may not renew at all. They

fear that the HMO may find itself out of compliance with the proposed

SSSG requirements. They believe that reconciliations should look only

at renewal dates already passed as of the time of reconciliation.

OPM explained in its 1993 rate instructions that, beginning with

the 1993 rate year, the enrollment for SSSGs would correspond to the

rate year. For example, for the 1993 rate year, the 1993 enrollment for

SSSGs would be used. Therefore, carriers need not be concerned that

``target'' SSSGs may renew after the reconciliation date or that they

may not renew at all. There are no longer any ``target'' SSSGs because,

beginning with the 1993 rate year, carriers do not determine the SSSGs

at the time of the proposal. A carrier now determines the SSSGs at the

time it submits the reconciliation to OPM. It is at that time (usually

around March of the rate year under consideration) that the carrier

will compare the enrollment of its other groups to that of the Federal

group.

We agree with the comment that reconciliations should look only at

renewal dates that are already passed at the time of the

reconciliation. OPM will address this question in the 1994

reconciliation instructions.

Seven community rated carriers believe OPM should retain the

benefits similarity requirement. OPM has dropped the benefits

similarity requirement because many carriers have found the phrase

``substantially the same benefit package'' vague. Future rate

instructions will further define groups excluded from SSSG

consideration. For example, we plan to exclude Medicaid groups,

Medicare groups, and groups which have only a stand-alone benefit

(e.g., dental benefits).

In the Supplementary Information section to the proposed

regulations, OPM referred to the definition of SSSG and stated that the

regulations authorize the use of Government groups as SSSGs, provided

that such groups are community rated. We stated that some carriers have

considered the provision optional and are excluding State and local

government groups even though they meet the SSG requirements and are

community rated. Four carriers and one law firm believe that HMOs

should have an option, not a mandate, to include state or local

government groups as SSSGs since state procurement laws often dictate

multiple year rate guarantees and the HMO Act does not require them to

be community rated. Another carrier commented that the regulations

concerning governmental groups are already permissive, not mandatory,

as evidenced by OPM's use of the word ``may'' in the current 1602.170-

11(c). In fact, the term ``may'' was intended as authority for OPM to

approve the use of Government groups as SSSGs if they are community

rated and was not directed at the carriers. It was OPM's lack of

clarity that caused the misunderstanding on the part of the carriers.

OPM deleted this provision in the proposed and final regulations,

because it is OPM's intention that government groups should not be

treated differently from other groups provided for under 1602.170-

11(a). Note that under the revised language of 1602.170-11, all groups

except those rated by retrospective experience rating are potential

SSSGs.

Several carriers raised questions specific to the proposed

regulations that may not be relevant to future guidance issued by the

Actuary. Consequently, we will not respond to them at this time. If

carriers have specific questions when they receive the rate letter,

then they should write or call OPM's Office of Actuaries for

clarification.

One commenter wanted to know whether a carrier could community rate

its SSSGs and use some other rating practices for some or all of its

other groups. It also wanted clarification whether, if OPM determines

the rates on the two SSSGs are comparable, the carriers could use

different rating methods or different rates with its other groups,

including a discount. If the rating method for an SSSG differs from

that used for the Federal group, OPM would review the SSSG rate to

ensure that the rating method had been properly applied and that no

discounts had been given to the group. As long as the Federal group

rates are equivalent to the SSSG rates, OPM is not concerned with the

plan's rating methods for its other groups.

Two carriers noted that the Federal HMO regulations issued by HHS

permit discounts (up to 5%) for groups which give the HMO special

administrative or marketing advantages and asked whether OPM would

recognize such discounts, or whether the discounts constitute defective

community rating. We recognize the legitimacy of banding for

administrative or marketing advantages. Any adjustments for these

reasons should be disclosed to OPM and provided to the Federal group,

if applicable.

A number of carriers were confused by OPM's statement in the

Supplementary Information section of the proposed regulations that a

carrier must give the Federal group the lowest discount given to any

SSSG. The confusion stemmed from 1615.802(b)(3), which states that a

downward price adjustment will be made if OPM determines that the rate

for one or both of the SSSGs is lower than that which would be obtained

by basing the rate on the plan's community rate and further provides

that such adjustments will be based on the lowest rate given to the

SSSG. This language was never intended to require the lowest rate.

Rather, it was meant to require the lowest rate derived using SSSG

methodology applied to the Federal group. We have revised the language

of the regulations to clarify our intent.

One carrier believes that OPM is no longer allowing experience

rating of HMOs. In fact, the reverse is true. Our regulations have

moved away from a strict interpretation of community rating over the

years. OPM is not eliminating experience rating by HMOs. On the

contrary, we allow prospective experience rating for community rated

plans in the form of Adjusted Community Rating. We also allow non-

community rated HMOs to use retrospective experience rating if they

satisfy certain reporting requirements.

Nine respondents commented that the effective date of the

regulations should be prospective. They argue that a retroactive

effective date potentially places contractors in violation of their

Certificates of Accurate Pricing for the 1993 contract year. OPM agrees

that the effective date should be prospective. These regulations will

be in effect beginning with the 1994 rate reconciliation.

In the proposed regulation, OPM adapted the FAR debarment

certification at 52.209-5 to fit the FEHBP. In this certification, the

carrier affirms that, among other things, neither it nor any of its

``principles'' is presently debarred, suspended, or declared ineligible

for the award of contracts by any Federal agency. One plan and one

association of HMOs wanted to know the equivalent of a ``principal''

(referred to in the certification) in a managed care company. The term

``principal'' is defined in the certification as ``officers; directors;

owners; partners; and persons having primary management or supervisory

responsibilities within a business entity. * * *'' We will not cite

specific positions in managed care or other facilities equivalent to

these positions because each organization's structure and

responsibilities are unique.

One respondent wanted to know if reliance solely on OPM's Inspector

General-provided information on debarred providers would satisfy the

ordinary course of business dealings standard in paragraph (e) of the

proposed certification. Carriers cannot rely solely on debarred

provider lists. Such lists include only health care providers, not non-

provider contractors, such as printing companies.

The proposed regulations added 52.209-6, ``Protecting the

Government's Interest When Subcontracting With Contractors Debarred,

Suspended, or Proposed for Debarment,'' as a mandatory clause for all

FEHBP carriers. This clause applies to all of the carrier's

subcontractors. Carriers should note that the definition of

subcontractor at 1602.170-12 excludes providers of direct medical

services or supplies pursuant to the carrier's health benefits plan. To

obtain information on whether or not a subcontractor is debarred, the

carrier should refer to FAR 9.404(d).

Under the proposed rules and pursuant to paragraph (d) of the

certification at FAR 52.209-5, the contractor is not required to set up

a system of records to determine whether each principal in the

organization is debarred or suspended. The fact that a system of

records is not required for debarred contractors and their principals

under the FAR, however, does not necessarily mean that no system of

records is needed to track debarred health care providers under 5 CFR

970. The two debarment procedures fall under different statutory

provisions and the issue under the latter is the payment of these

individuals rather than the notification of the debarment or suspension

status of the carrier's principals. Nevertheless, OPM expects that

neither the debarment procedures under the FAR nor those under 5 CFR

970 will require carriers to establish an additional system of records.

Carriers should be able to set up debarment procedures for contractors,

subcontractors, and providers within their existing systems.

The proposed regulations prescribed novation and change of name

agreements for FEHBP carriers (1642.12). Four commenters believe that

OPM's provision authorizing it to terminate the contract if the carrier

fails to submit the properly completed and signed novation agreement in

a timely manner is unduly harsh.

Transfer of Government contracts is prohibited by law (41 U.S.C.

15). However, the Government may recognize a third party as the

successor in interest to a Government contract when it is in the

Government's best interest. When it is not in the Government's best

interest to do so, the original contractor remains under contractual

obligation to the Government, and the contract may be terminated for

default should the original contractor not perform. These provisions

are set out in FAR 43.1204 (a) and (b) and are applicable to all

Government contractors. Thus, in FEHBAR subpart 1642.12, OPM is

proposing no harsher standard for FEHBP carriers than is expected of

other Government contractors. OPM simply intends to apply the

procedures required under the FAR. Thus, in order to protect the

interests of all FEHBP enrollees and to comply with the statute and

regulations prohibiting transfer of a Government contract, OPM must

obtain the novation agreement in a timely manner.

One of the commenters noted that OPM already has authority to

discipline carriers for repeated failure to comply with OPM

instructions and directives at 1609.701(c)(4), and those provisions

have a range of remedies in proportion to the seriousness of the

action, only the most stringent of which is termination of the

contract. Because Government contracts cannot be transferred, a

carrier's failure to submit a novation agreement is not on the same

level as an OPM instruction or directive. There is no less stringent

remedy than contract termination for failure to submit a Novation

Agreement.

Three carriers and one law firm requested that OPM define the

timeliness parameters in the novation and change of name agreements.

One carrier asked that OPM address transfer of payments to the new

company or under the new name. It believes that OPM's change in the

direction of premiums should follow more closely upon the carrier's

submission of the agreement to OPM.

Consistent with past OPM practice, we consider timely to be 30

calendar days. What is considered timely could vary, however, depending

on the circumstances in a particular situation. OPM will attempt to

accelerate the review process. Nevertheless, some delay may be

unavoidable. Submission of paperwork does not necessarily mean

automatic acceptance of a novation or change of name agreement, because

the agreement must be reviewed by OPM's counsel for legal sufficiency,

in accordance with FAR 42.1203(d).

Nine carriers believe that the proposed FEHBP-specific quality

assurance policies and procedures [Part 1646] would unnecessarily

burden carriers if the plan is already subject to Federal or State

quality assurance requirements. A number of the carriers recommended

that OPM accept the National Committee for Quality Assurance (NCQA)

Health Plan Employer Data and Information Set (HEDIS) standardized

performance reports as an acceptable means of meeting the FEHBP

contractual responsibility. OPM agrees with the carries in principle

and has taken a number of steps in this director. We have withdrawn the

proposed clause at 1646.246-70 relating to quality assurance/

performance standards. Thus, the audit inspection clause currently at

1652.246-70 will remain in effect. We have amended Part 1646 to provide

that OPM will issue specific performance standards for the FEHBP

contracts. Finally, we will inform the carriers which standards apply

prior to annual contract negotiations.

In the future, OPM will issue FEHBP-specific standards which we

will benchmark against the best performance standards in the insurance

industry, consistent with the NPR. All performance standards will be

evaluated against the same benchmark with the same results. We will

consider a variety of standards, including those suggested to us in the

written comments to the proposed regulations.

Pursuant to section 553(d) of title 5 of the U.S. Code, I find that

good cause exists for making these regulations effective immediately

upon publication so that they may be used during the 1995 FEHBP

contract negotiations.

E.O. 12866, Regulatory Review

This rule has been reviewed by the Office of Management and Budget

in accordance with E.O. 12866.

Regulatory Flexibility Act

I certify that these regulations will not have a significant

economic impact on a substantial number of small entities because they

primarily affect administrative procedures used by OPM and the FEHBP

carriers.

List of Subjects in 48 CFR Parts 1601, 1602, 1609, 1615, 1632,

1642, 1646, and 1652

Administrative practice and procedure, Government employees. Health

facilities, Health insurance, Health professions, Hostages, Reporting

and recordkeeping requirements, Retirement.

Office of Personnel Management.

Lorraine A. Green,

Deputy Director.

Accordingly, OPM is amending chapter 16 of Title 48, Code of

Federal Regulations, as follows:

CHAPTER 16--OFFICE OF PERSONNEL MANAGEMENT FEDERAL EMPLOYEES HEALTH

BENEFITS ACQUISITION REGULATION

PART 1601--FEDERAL ACQUISITION REGULATIONS SYSTEM

1. The authority citations for 48 CFR parts 1601, 1602, 1609, 1615,

1632, 1646, and 1652 continue to read as follows:

Authority: 5 U.S.C. 8913; 40 U.S.C. 486(c); 48 CFR 1.301.

2. In section 1601.102, the existing paragraph is designated as

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

Sec. 1601.102 Authority.

* * * * *

(b) The FEHBAR does not replace or incorporate regulations found at

5 CFR part 890, which provides the substantive policy guidance for

administration of the FEHBP under 5 U.S.C. Chapter 89. The following is

the order of precedence in interpreting a contract provision under the

FEHBP:

(1) 5 U.S.C. Chapter 89;

(2) 5 CFR part 890;

(3) 48 CFR Chapters 1 and 16;

(4) The FEHBP contract.

PART 1602--DEFINITION OF WORDS AND TERMS

3. Section 1602.170-11, is revised to read as follows:

Sec. 1602.170-11 Similarly sized subscriber groups.

Similarly sized subscriber groups (SSSGs) are a comprehensive

medical plan's two employer groups that:

(a) As of the date specified by OPM in the rate instructions, have

a subscriber enrollment closest to the FEHBP subscriber enrollment;

and,

(b) Use any rating method other than retrospective experience

rating; and,

(c) Meet the criteria specified in the rate instructions issued by

OPM.

PART 1609--CONTRACTOR QUALIFICATIONS

4. In part 1609, subpart 1609.4 is added; section 1609.701 in

subpart 1609.70 is redesignated as 1609.7001, and paragraphs (a)(7),

(b)(7), and (b)(8) are added to read as follows:

Subpart 1609.4--Debarment, Suspension, and Ineligibility

1609.470 Notification of Debarment, Suspension, and Ineligibility.

(FAR) 48 CFR, part 9, subpart 9.4 is supplemented as set out in the

certification required in 1609.471 by converting the FAR ``offeror's''

certification at (FAR) 48 CFR 52.209-5 into a carrier's certification.

This change reflects the FEHBP's statutory exemption from competitive

bidding (5 U.S.C. 8902), which obviates the issuance of solicitations.

1609.471 Contractor certification.

All FEHBP carriers and applicant carriers are required to submit

the following certification. Applicant carriers must submit the

certification prior to OPM's determination on the application for

approval to participate in the FEHBP. Current carriers must submit the

certification once, along with their benefit and rate proposals for the

1995 contract year.

Debarment, Suspension, Proposed Debarment, and Other Responsibility

Matters

The Carrier certifies, to the best of its knowledge and belief,

that--

(a) The Carrier and/or any of its Principals--

(1) Are ( ) are not ( ) presently debarred, suspended, proposed

for debarment, or declared ineligible for the award of contracts by

any Federal agency;

(2) Have ( ) have not ( ), within a 3-year period preceding this

certification, been convicted of or had a civil judgment rendered

against them for: Commission of fraud or a criminal offense in

connection with obtaining, attempting to obtain, or performing a

public (Federal, state, or local) contract or subcontract; violation

of Federal or state antitrust statutes relating to the submission of

offers; or commission of embezzlement, theft, forgery, bribery,

falsification or destruction of records, making false statements, or

receiving stolen property; and

(3) Are ( ) are not ( ) presently indicted for, or otherwise

criminally or civilly charged by a governmental entity with,

commission of any of the offenses enumerated in subdivision (a)(2)

of this clause.

(4) The Carrier has ( ) has not ( ), within a 3-year period

preceding this certification, had one or more contracts terminated

for default by any Federal agency.

(b) Principals, for the purposes of this certification, means

officers; directors; owners; partners; and persons having primary

management or supervisory responsibilities within a business entity

(e.g., general manager; plant manager; head of a subsidiary,

division, or business segment, and similar positions).

This certification concerns a matter within the jurisdiction of

an agency of the United States and the making of a false,

fictitious, or fraudulent certification may render the Carrier

subject to prosecution under section 1001, title 18, United States

Code.

(c) The Carrier shall provide immediate written notice to the

Contracting Officer if, at any time, the Carrier learns that its

certification was erroneous when submitted or has become erroneous

by reason of changed circumstances.

(d) A Carrier's certification that any of the actions mentioned

in the certification exists will not necessarily result in

termination of the contract. However, the certification, or the

Carrier's failure to provide such additional information as

requested by the Contracting Officer, will be considered in

connection with a determination of the Carrier's responsibility

under subpart 1609.70, Minimum Standards for Health Benefits

Carriers.

(e) Nothing contained in the certification shall be construed to

require establishment of a system of records in order to render, in

good faith, the certification required by this section. The

knowledge and information of the Carrier is not required to exceed

that which is normally possessed by a prudent person in the ordinary

course of business dealings.

(f) The certification in this section is a material

representation of fact upon which reliance is placed by the

Contracting Officer. If it is later determined that the Carrier

knowingly rendered an erroneous certification, in addition to other

remedies available to the Government, the Contracting Officer may

terminate the contract for default.

Carrier Name:----------------------------------------------------------

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Name of Chief Executive Officer

Date signed:-----------------------------------------------------------

(End of Certificate)

1609.7001 Minimum standards for health benefits carriers.

(a) * * *

(7) It must timely submit to OPM a properly completed and signed

novation or change-of-name agreement in accordance with subpart 1642.12

of this chapter.

(b) * * *

(7) Application of performance standards for assuring contract

quality as required by 1646.270(d).

(8) Establishment and maintenance of a system of internal control

that provides reasonable assurance that:

(i) The provision and payments of benefits and other expenses are

in compliance with legal, regulatory, and contractual guidelines;

(ii) FEHB funds, property, and other assets are safeguarded against

waste, loss, unauthorized use, or misappropriation; and,

(iii) Data are accurately and fairly disclosed in all reports

required by OPM.

* * * * *

5. In section 1615.802, paragraph (a) is redesignated as paragraph

(a)(1) and revised, paragraph (b)(3) is revised, a new paragraph (b)(4)

is added, paragraph (c) is redesignated as paragraph (a)(2) and

republished, and section 1615.804-70 is revised to read as follows:

Subpart 1615.8--Price Negotiation

1615.802 Policy.

* * * * *

(a)(1) Cost analysis shall be used for contracts where premiums and

subscription income are determined on the basis of experience rating.

(2) The application of FAR 15.802(b)(2) should not be construed to

prohibit the consideration of preceding year surpluses or deficits in

carrier-held reserves in the rate adjustments for subsequent year

renewals of contracts based on cost analysis.

(b) * * *

(3) Contracts will be subject to a downward price adjustment if OPM

determines that the Federal group was charged more than it would have

been charged using a methodology consistent with that used for the

SSSGs. Such adjustments will be based on the lowest rates determined

for the Federal group using the methodology (including discounts) for

the two SSSGs.

(4) FEHBP community rated carriers shall comply with SSSG criteria

provided annually by OPM in the rate instructions for the applicable

contract period.

1615.804-70 Certificate of accurate pricing for community rated plans.

The contracting officer shall require a carrier that rates using a

community rate as defined by FEHBAR 1602.170-2 to execute the

Certificate of Accurate Pricing for Community Rated Plans contained in

this section unless the carrier has been exempted from filing certified

cost or pricing data pursuant to 1615.802(b)(1). The carrier shall

submit the Certificate to OPM at the time it submits its rate

reconciliation.

Certificate of Accurate Pricing for Community Rated Plans

This is to certify that, to the best of my knowledge and belief:

(1) the cost or pricing data submitted (or, if not submitted,

maintained and identified by the carrier as supporting

documentation) to the Contracting Officer or the Contracting

Officer's representative or designee in support of the ______* FEHBP

rates were developed in accordance with the requirements of 48 CFR

Chapter 16 and the FEHBP contract, and are accurate, complete, and

current as of the date this certificate is executed; and (2) The

FEHBP rates were developed in a manner consistent with the

methodology used to rate the plan's similarly sized subscriber

groups and approved by OPM.

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*Insert the year for which the rates apply. Normally, this will

be the year for which the rates are being reconciled.

Firm:------------------------------------------------------------------

Name:------------------------------------------------------------------

Title:-----------------------------------------------------------------

Signature:-------------------------------------------------------------

Date of Execution:-----------------------------------------------------

(End of Certificate)

PART 1632--CONTRACT FINANCING

6. In Subpart 1632.6, section 1632.617 is revised to read as

follows:

1632.617 Contract clause.

The clause at (FAR) 48 CFR 52.232-17 will be modified in all FEHBP

contracts to exclude the words ``net of any applicable tax credit under

the Internal Revenue Code (26 U.S.C. 1481).''

Subchapter G--Contract Management

7. Add a heading for Subchapter G immediately after part 1633 to

read as follows:

Subchapter G--Contract Management

8. In Subchapter G, Part 1642 is added to read as follows:

PART 1642--CONTRACT ADMINISTRATION

Subpart 1642.12--Novation and Change-of-Name Agreements

Sec.

1642.1201 Definitions.

1642.1204 Agreement to recognize a successor in interest (novation

agreement).

1642.1205 Agreement to recognize carrier's change of name.

Subpart 1642-70--Management Agreement (in Lieu of Novation Agreement)

1642.7001 Management agreement.

Authority: 5 U.S.C. 8913; 40 U.S.C. 486(c); 48 CFR 1.301.

Subpart 1642.12--Novation and Change-of-Name Agreements

1642.1201 Definitions.

The definitions at (FAR) 48 CFR 42.1201 shall have the same meaning

for this subpart.

1642.1204 Agreement to recognize a successor in interest (novation

agreement).

(a) (FAR) 48 CFR 42.1204 shall be implemented as provided in this

section. The contracting officer shall insert the following agreement

in all FEHBP contracts for use when the contractor's assets or the

entire portion of the assets pertinent to the performance of the

contract, as determined by the Government, are transferred.

Novation Agreement

The (insert corporate name) (Transferor), a corporation duly

organized and existing under the laws of (insert State) with its

principal office in (insert city, state); the (insert corporate

name) (Transferee), (if appropriate add ``formerly known as the

______ Corporation'') a corporation duly organized and existing

under the laws of (insert State) with its principal office in

(insert city); and the UNITED STATES OF AMERICA (Government) enter

into this Agreement effective (insert date transfer of assets became

effective under applicable State law).

(a) THE PARTIES AGREE TO THE FOLLOWING FACTS:

(1) The Government, represented by various Contracting Officers

of the Office of Personnel Management (OPM), has entered into

Contract Number ______ with the Transferor. The term contracts, as

used in this Agreement, means the contract cited in this paragraph

and all other contracts and purchase orders, including any and all

amendments and modifications made between the Government and the

Transferor before the effective date of this Agreement (whether or

not performance and payment have been completed and releases

executed if the Government or the Transferor has any remaining

rights, duties, or obligations under these contracts and purchase

orders).

(2) As of ____ 19__ (insert date transfer of assets became

effective under applicable State law), the Transferor has

transferred to the Transferee all the assets of the Transferor, or

the entire portion of the Transferor's assets pertinent to

performing the contract, as determined by OPM, by virtue of a(an)

(insert term describing the legal transaction involved) between the

Transferor and the Transferee.

(3) The Transferee has acquired all the assets of the

Transferor, or the entire portion of the Transferor's assets

pertinent to performing the contract, as determined by OPM, by

virtue of the transfer in paragraph (a)(1).

(4) The Transferee has assumed all obligations and liabilities

of the Transferor pertinent to performing the contract, as

determined by OPM, by virtue of the transfer in paragraph (a)(1).

(5) The Transferee is in a position to fully perform all

obligations that may exist under the contract.

(6) It is consistent with the Government's interest to recognize

the Transferee as the successor party to the contract.

(7) Evidence of the transfer in paragraph (a)(1) has been filed

with the Government.

(8) [If applicable:] A certificate dated ____, 19__, signed by

the Secretary of State of (insert State), to the effect that the

corporate name of (insert old corporate name) was changed to (insert

new corporate name) on ____, 19__, has been filed with the

Government.

(b) IN CONSIDERATION OF THESE FACTS, THE PARTIES AGREE THAT BY

THIS AGREEMENT--

(1) The Transferor confirms the transfer to the Transferee, and

waives any claims and rights against the Government or the Federal

Employees Health Benefits Fund that it now has or may have in the

future in connection with the contract.

(2) The Transferee agrees to be bound by and to perform the

contract in accordance with the conditions contained in the

contract. The Transferee also assumes all obligations and

liabilities of, and all claims against, the Transferor pertinent to

the contract, as determined by OPM, as if the Transferee were the

original party to the contract.

(3) The Transferee ratifies all previous actions taken by the

Transferor with respect to the contract, with the same force and

effect as if the action had been taken by the Transferee.

(4) The Government recognizes the Transferee as the Transferor's

successor in interest in and to the contract. The Transferee by this

Agreement becomes entitled to all rights, titles, and interests of

the Transferor in and to the contract as if the Transferee were the

original party to the contract. Following the effective date of this

Agreement, the terms Carrier and Contractor as used in the contract,

shall refer to the Transferee.

(5) Except as expressly provided in this Agreement, nothing in

it shall be construed as a waiver of any rights of the Government

against the Transferor.

(6) All payments and reimbursements previously made by the

Government to the Transferor, and all other previous actions taken

by the Government under the contract, shall be considered to have

discharged those parts of the Government's obligations under the

contract. All payments and reimbursements made by the Government

after the date of this Agreement in the name of or to the Transferor

shall have the same force and effect as if made to the Transferee,

and shall constitute a complete discharge of the Government's

obligations under the contract, to the extent of the amounts paid or

reimbursed.

(7) The Transferor and the Transferee agree that the Government

is not obligated to pay or reimburse either of them for, or

otherwise give effect to, any costs, taxes, or other expenses, or

any related increases, directly or indirectly arising out of or

resulting from the transfer of this Agreement, other than those that

the Government in the absence of this transfer or Agreement would

have been obligated to pay or reimburse under the terms of the

contract.

(8) The Transferor guarantees payment of all liabilities and the

performance of all obligations that the Transferee (i) assumes under

this Agreement or (ii) may undertake in the future should this

contract be modified under its terms and conditions. The Transferor

waives notice of, and consents to, any such future modifications.

(9) The contract shall remain in full force and effect, except

as modified by this Agreement. Each party has executed this

Agreement effective (insert the date transfer of assets became

effective under applicable State law).

UNITED STATES OF AMERICA,

By __________ Date__________

Title __________

(Enter Transferor's name)

By __________ Date__________

Title __________

(Corporate Seal)

(Enter Transferee's name)

By __________

Title __________

(Corporate Seal)

Certificate

I, ______, certify that I am the Secretary of (insert name of

Transferor); that ______, who signed this Agreement for this

corporation, was then ______ of this corporation; and that this

Agreement was duly signed for and on behalf of this corporation by

authority of its governing body and within the scope of its

corporate powers.

Witness my hand and the seal of this corporation this ______ day

of ______, 19____.

By __________

(Corporate Seal)

Certificate

I, ______, certify that I am the Secretary of (insert name of

Transferee); that ______, who signed this Agreement for this

corporation, was then ______ of this corporation; and that this

Agreement was duly signed for and on behalf of this corporation by

authority of its governing body and within the scope of its

corporate powers.

Witness my hand and the seal of this corporation this ______ day

of ______ 19__,

By---------------------------------------------------------------------

(Corporate Seal)

(End of Agreement)

(b) Failure to submit the properly completed and signed Novation

Agreement in a timely manner shall be cause for termination of the

contract by OPM in accordance with FEHBAR 1652.249-70.

(c) The Contracting Officer shall terminate the contract if it is

determined not to be in the Government's interest to recognize a

successor in interest to the contract. The effective date will be

decided by the Contracting Officer after considering the best interests

of FEHBP enrollees.

1642.1205 Agreement to recognize carrier's change of name.

(a) (FAR) 42.1205 shall be implemented as provided in this section.

The Contracting Officer shall insert the following Agreement in all

FEHBP contracts for use when the carrier changes its name and the

Government's and contractor's rights and obligations remain unaffected.

Change-of-Name Agreement

The (insert new Carrier name), a corporation duly organized and

existing under the laws of (insert State), and the UNITED STATES OF

AMERICA (Government), enter into this Agreement effective (insert

date when the change of name became effective under applicable State

law).

(a) THE PARTIES AGREE TO THE FOLLOWING FACTS:

(1) The Government, represented by various Contracting Officers

of the Office of Personnel Management (OPM), has entered into

Contract Number ______ with the (insert old Carrier name). The term

contracts as used in this Agreement means the contract cited in this

paragraph and all other contracts and purchase orders and all

modifications thereto made by the Government and the Contractor

before the effective date of this Agreement (whether or not

performance and payment have been completed and releases executed if

the OPM or the Carrier has any remaining rights, duties, or

obligations under these contracts and purchase orders).

(2) The (insert old Carrier name), by an amendment to its

certificate of incorporation, dated ____, 19__, has changed its

corporate name to (insert new Carrier name).

(3) This amendment accomplishes a change of corporate name only

and all rights and obligations of the Government and the Carrier

under the contract are unaffected by this change.

(4) Documentary evidence of this change of corporate name has

been filed with the Government.

(b) IN CONSIDERATION OF THESE FACTS, THE PARTIES AGREE THAT:

(1) The contract is amended by substituting the name `` (insert

new Carrier name)'' for the name ``(insert old Carrier name)''

wherever it appears in the contract; and

(2) Each party has executed this Agreement effective the day and

year stated in paragraph (a)(2).

UNITED STATES OF AMERICA,

__________ Date __________---------------------------------------------

Title------------------------------------------------------------------

(Enter new Carrier name)

By __________ Date __________

Title------------------------------------------------------------------

(Corporate Seal)

Certificate

I, ______, certify that I am the Secretary of (insert new

Carrier name); that ______, who signed this Agreement for this

corporation, was then (insert position held) of this corporation;

and that this Agreement was duly signed for and on behalf of this

corporation by authority of its governing body and within the scope

of its corporate powers.

Witness my hand and the seal of this corporation this ____ day

of ____ 19__.

By---------------------------------------------------------------------

(Corporate Seal)

(End of Agreement)

(b) Failure to submit the properly completed and signed Change-of-

Name Agreement in a timely manner may be cause for termination of the

contract by OPM in accordance with FEHBAR 1652.249-70.

Subpart 1642-70--Management Agreement (in Lieu of Novation

Agreement)

1642.7001 Management agreement.

When it is in the best interest of FEHBP enrollees to continue a

contract for an interim period after the carrier discontinues its

operations and has entered into a Purchase and Sale Agreement (or other

descriptive term), but before a successor in interest has been

recognized by OPM, the carrier may submit for OPM approval a Management

Agreement that enables it to continue a contract through an agreement

with a third party to administer the day-to-day performance of the

contract. Examples of situations in which a Management Agreement may be

accepted by OPM are:

(a) When a transfer of assets does not meet the criteria for a

novation;

(b) While a request for a novation is pending;

(c) While awaiting a decision on a request for a novation;

(d) As an interim measure, when the timing of a transfer of assets

or the timing of a carrier's withdrawal make administration of the

contract inconvenient;

(e) When it is not in the interests of the Government to either

recognize a successor in interest or to immediately terminate the

existing FEHBP contract.

PART 1646--QUALITY ASSURANCE

9. In part 1646, subpart 1646.2 and the title for subpart 1646.3

are added to read as follows:

Subpart 1646.2--Contract Quality Requirements

Sec.

1646.270 General.

Subpart 1646.3--Contract Clauses

1646.301 Contractor inspection requirements.

Authority: 5 U.S.C. 8913; 40 U.S.C. 486(c); 48 CFR 1.301.

Subpart 1646.2--Contract Quality Requirements

1646.270 General.

(a) This section prescribes general policies and procedures to

ensure that services acquired under the FEHBP contract conform to the

contract's quality requirements.

(b) OPM shall periodically evaluate the contractor's system of

internal controls under the quality assurance program required by the

contract and will acknowledge in writing whether or not the system is

consistent with the requirements set forth in the contract. After the

initial review, subsequent reviews may be limited to changes in the

contractor's internal control guidelines. However, a limited review

does not diminish the contractor's obligation to apply the full

internal control system.

(c) OPM will issue specific performance standards for the FEHBP

contracts and will inform carriers of the applicable performance

standards prior to negotiations for the contract year. OPM will

benchmark its standards against standards generally accepted in the

insurance industry. The contracting officer may authorize nationally

recognized standards to be used to fulfill this requirement.

(d) FEHBP carriers shall comply with the performance standards

issued under paragraph (c) of this section.

Subpart 1646.3--Contract Clauses

1646.301 Contractor inspection requirements.

* * * * *

PART 1652--CONTRACT CLAUSES

10. In section 1652.000, FAR clauses 52.230-3, 52.230-4, 52.230-5

and clause dates are removed and the following FAR clauses are added in

numerical sequence as follows:

1652.000 Applicable clauses.

Section and Clause Title

* * * * *

52.203-7 Anti-Kickback Procedures.

52.203-9 Requirement for Certificate of Procurement Integrity--

Modification.

52.203-12 Limitation on Payments to Influence Certain Federal

Transactions.

52.209-6 Protecting the Government's Interest When Subcontracting

With Contractors Debarred, Suspended, or Proposed for Debarment.

* * * * *

52.223-6 Drug-Free Workplace.

* * * * *

52.230-2 Cost Accounting Standards.

52.230-3 Disclosure and Consistency of Cost Accounting Practices.

52.230-5 Administration of Cost Accounting Standards.

* * * * *

52.242-13 Bankruptcy.

* * * * *

52.249-2 Termination for Convenience of the Government (Fixed-

Price).

52.249-8 Default (Fixed-Price Supply and Service).

* * * * *

12. In subpart 1652.3, section 1652.370, the full entries in the

FEHBP clause matrix for FAR clauses 52.230-3, 52.230-4 and 52.230-5 are

removed and the following FAR clause references are added in numerical

sequence to read as follows:

Subpart 1652.3--FEHBP Clause Matrix

1652.370 Use of the Matrix.

* * * * *

FEHBP CLAUSE MATRIX

* * * * *

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Use with contracts based on

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

Clause No. Text reference Title Use status Cost analysis Price

analysis

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* * * * * * *

FAR 52.203-9.............. FAR 3.104-10(b)........... Requirement for Certificate of Procurement M T T

Integrity--Modification.

FAR 52.203-12............. FAR 3.808................. Limitation on Payments to Influence Certain Federal M T T

Transactions.

* * * * * * *

FAR 52.209-6.............. FAR 9.409(b).............. Protecting the Government's Interest When M T T

Subcontracting With Contractors Debarred,

Suspended, or Proposed for Debarment.

* * * * * * *

FAR 52.215-27............. FAR 15.804-8(e)........... Termination of Defined Benefit Pension Plans....... M T T

* * * * * * *

FAR 52.215-39............. FAR 15.804-8(f)........... Reversion or Adjustment of Plans for Postretirement M T T

Benefits Other Than Pensions (PRB).

* * * * * * *

FAR 52.222-1.............. FAR 22.103-5(a)........... Notice to the Government of Labor Disputes......... M T T

* * * * * * *

FAR 52.230-2.............. FAR 30.201-4(a)(1)........ Cost Accounting Standards.......................... A T T

FAR 52.230-3.............. FAR 30.201-4(b)(1)........ Disclosure and Consistency of Cost Accounting A T T

Practices.

FAR 52.230-5.............. FAR 30.201-4(d)(1)........ Administration of Cost Accounting Standards........ A T T

* * * * * * *

FAR 52.242-13............. FAR 42.903................ Bankruptcy......................................... M T T

* * * * * * *

FAR 52.249-2.............. FAR 49.502(b)(1)(i)....... Termination for Convenience of the Government M T T

(Fixed-Price).

FAR 52.249-8.............. FAR 49.504(a)(1).......... Default (Fixed-Price Supply and Service)........... M T T

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[FR Doc. 94-7468 Filed 3-29-94; 8:45 am]

BILLING CODE 6325-01-M