Medicare Program; Data, Standards, and Methodology Used to Establish Fiscal Year 1996 Budgets for Fiscal Intermediaries and Carriers

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

[BPO-133-PN]

Medicare Program; Data, Standards, and Methodology Used to

Establish Fiscal Year 1996 Budgets for Fiscal Intermediaries and

Carriers

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

ACTION: Proposed notice.

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

that would be used to establish fiscal intermediary and carrier budgets

for the Federal fiscal year (FY) 1996, that begins October 1, 1995.

Fiscal intermediaries and carriers are public or private entities that

participate in the administration of the Medicare program by performing

claims processing and benefit payment functions. This notice is

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

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

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

for Medicare fiscal intermediaries and carriers.

In addition, we respond to the single public comment we received in

response to our proposed notice of October 21, 1994, and we announce

the data, standards, and methodology we proposed to use to establish

the Medicare fiscal intermediary and carrier budgets for FY 1995,

beginning October 1, 1994, as final.

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

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

November 6, 1995.

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

following address: Health Care Financing Administration, Department of

Health and Human Services, Attention: BPO-133-PN, P.O. Box 26676,

Baltimore, MD 21207.

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

copies) to one of the following addresses:

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

Washington, DC 20201, or

Room C5-09-26, 7500 Security Boulevard, Baltimore, MD 21244-1850.

Because of staffing and resource limitations, we cannot accept

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

to file code BPO-133-PN. Comments received timely will be available for

public inspection as they are received, generally beginning

approximately 3 weeks after publication of a document,

[[Page 46289]]

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: Leslie Trazzi, (410) 786-7544

SUPPLEMENTAL INFORMATION:

I. Background

Preparation of Contractor Budgets--Under sections 1816(a) and

1842(a) of the Social Security Act (the Act), public or private

organizations and agencies may participate in the administration of the

Medicare program under agreements or contracts entered into with the

Secretary. These Medicare contractors are known as fiscal

intermediaries (section 1816(a) of the Act) and carriers (section

1842(a) of the Act). Fiscal intermediaries perform bill processing and

benefit payment functions for Part A of the program (Hospital

Insurance), and carriers perform claim processing and benefit payment

functions for Part B of the program (Supplementary Medical Insurance).

When bills are submitted by providers, and claims by beneficiaries,

physicians, and suppliers of services, fiscal intermediaries and

carriers are responsible for--

Determining the eligibility status of a beneficiary;

Determining whether the services on the submitted claims

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

amounts; and

Making appropriate payments to the provider, beneficiary,

physician, and/or other supplier of services.

Fiscal intermediary and carrier performance is monitored by us at

the central office staff and regional office levels. In general, the

central office staff address issues that affect policies on a national

level, and the regional office staff address issues dealing with

regional and local policies, as well as those of an operational nature.

Continuous communication between us and the fiscal intermediaries and

carriers is maintained through consultation workgroups that meet on a

regular basis and are comprised of representatives from the central

office, regional offices, and Medicare contractors.

HCFA's central office is responsible for developing a national

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

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

calendar year preceding the fiscal year to which it applies. The

central office receives input from the contractor community, our

regional offices, the Department of Health and Human Services, and the

Office of Management and Budget (OMB) before the budget is submitted to

the President for approval and forwarding to the Congress. Once the

national contractor budget has been approved, we issue Budget and

Performance Requirements (BPRs). BPRs specify the level of effort

required for contractor functions and serve as the statement of work

for contractor use in preparing their individual budgets for submission

to us.

The regional offices review the budgets submitted by contractors

during a budget level determination process that is based on current

claims processing trends, legislative mandates, administrative

initiatives, current year performance standards and criteria, and the

availability of funds appropriated by the Congress. Subsequently, we

allocate funding within these constraints.

Requirements to Publish Contractor Budget Information--Sections

1816(c)(1) and 1842(c)(1)(A) of the Act require us to publish for

public comment the data, standards, and methodology we intend to use to

establish budgets for Medicare fiscal intermediaries and carriers at

least 90 days before September 1. The statute further requires that we

publish the final data, standards, and methodology no later than

September 1. In the past, when preparing the Medicare contractor budget

for each fiscal year, every attempt was made to publish the proposed

and final notices as timely as possible. However, because of the time

involved in developing the budget and the lengthy review and clearance

process, we have been unable to publish both proposed and final notices

before the beginning of the fiscal year. (See, for example, the notices

for FYs 1993 and 1994 published in the Federal Register at 59 FR 13491

and 35933.) However, because of our continuous communications with

contractors, we do not believe that the publication date of the Federal

Register document has any negative effect on the fiscal intermediaries

or carriers. The BPRs issued to all intermediaries and carriers discuss

in detail the work, level of effort, and activities we expect them to

perform in the coming fiscal year. Further, we provide a discussion and

explanation of the bottom-line unit cost target established for each

intermediary and carrier at the time the BPRs are issued.

Sections II and III of this notice contain proposed data,

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

Medicare fiscal intermediaries and carriers for FY 1996. If comments

are received during the comment period, we will address those comments

in a final notice and, if necessary, make revisions to the FY 1996

data, standards, and methodology. If no comments are received, the

data, standards, and methodology proposed for FY 1996 will become

final, effective October 1, 1995.

FY 1995 Budget Information--A proposed notice describing the data,

standards, and methodology we proposed to use to establish contractor

budgets for FY 1995 was published in the Federal Register (59 53187) on

October 21, 1994. In response to our request for public comment in the

proposed notice, we received one timely item of correspondence. Based

on our review of the comment submitted, we are making no changes to the

data, standards, and methodology we proposed to use. As noted earlier,

it has been our practice to issue separate notices dealing with

proposed and final budget data. Because no changes are being made to

the proposed budget data included in the October 21 notice, we believe

it appropriate to combine in this document the final notice announcing

the contractor budget for FY 1995, and the proposed contractor budget

elements for FY 1996. Therefore, through this notice, we announce that

the data, standards, and methodology we proposed to use to establish

the contractor budget for FY 1995 are final.

A discussion of the October 21, 1994, proposed notice and our

response to the public comment received appears in section IV. of this

document.

II. Overview of FY 1996 National Medicare Contractor Budget

A. Data, Standards, and Methodology

We submitted the FY 1996 national Medicare contractor budget

proposal to the Congress in February 1995. The workload for the FY 1996

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

1996 estimated workload (140.6 million bills) is 8.8 percent more than

the FY 1995 estimate. For Part B, the FY 1996 estimated workload (681.4

million claims) is a 3.9 percent increase over the FY 1995 estimate.

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

last 36 months of actual contractor workload data. For the FY 1996

projections, we used November 1994 data, which were the latest

available to us at the time. We will continue to update the resulting

projections monthly to ensure that the most timely data are available

for budgeting purposes.

The FY 1996 unit costs for processing bills and claims were

calculated based

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on the FY 1995 level adjusted for savings achieved due to productivity,

electronic media claims, and reduced funding for incremental workload.

This calculation resulted in a new unit cost, which, when multiplied by

the Part A or Part B workloads, determines the total amount required

for bill or claim processing in FY 1996.

Feedback received from contractors and regional offices during the

past several years has led us to believe that contractors can make

major improvements in performance if given the authority to manage

their budgets. The FY 1994 BPRs gave the regional offices the authority

to set a budget and the contractors the authority to manage their

budgets on a bottom-line basis. Once funding was issued, each

contractor had the flexibility to optimally manage the budget

consistent with the statement of work contained in the BPRs. Before FY

1993, contractors were not allowed to ``shift'' more than 5 percent of

funds from one line item to another in their budget, as determined by

the lesser of the two line items. That restriction was intended to

allow us to maintain control over the national budget, but still give

contractors some latitude with regard to reporting their costs. With

the exception of the ``Payment Safeguards,'' ``Productivity

Investments,'' and ``Other'' line items, contractors now have total

flexibility in the use of funds. There is a 5 percent limitation on the

amount of funds that may be shifted out of individual ``Payment

Safeguards,'' with unlimited shifting into ``Payment Safeguards.''

Shifting into or out of ``Productivity Investments'' and ``Other'' line

item funding, not governed by contract modifications, may not exceed 5

percent. Each ``Other'' line item is treated separately. The

``Productivity Investment'' line item is treated as a whole and not as

separate projects. Funding that is governed by contract modifications

may not be shifted to other functions or line items.

B. Medicare Contractor Functional Areas

The Medicare contractor budget consists of functional areas of

responsibility that are performed by the fiscal intermediaries for Part

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

responsibility for fiscal intermediaries under Part A are--

Bill Payment;

Reconsideration and Hearing;

Medicare Secondary Payer;

Medical Review and Utilization Review;

Provider Audit (Desk Review, Field Audit, and Provider

Settlement);

Provider Payment;

Productivity Investments; and

Benefits Integrity.

The nine functional areas of responsibility for carriers under Part

B are--

Claim Payment;

Review and Hearing;

Beneficiary or Physician Inquiry;

Provider (physician/supplier) Education and Training;

Medicare Review and Utilization Review;

Medicare Secondary Payer;

Participating Physicians;

Productivity Investments; and

Benefits Integrity.

The Hospital Insurance and Supplementary Medical Insurance Trust

Funds and appropriations provide funding for these functions.

Discussions concerning the data, standards, and methodology for these

functional areas are in section III of this notice. In the following

national budget summary, we combine the discussion of functional areas

that are common to fiscal intermediaries and carriers. However, we list

specific data for Part A or Part B under each heading. In developing

the budget, we provide workload estimates for all functional areas that

are predominantly workload driven. We do not provide workload estimates

for those functional areas that are not predominantly workload driven

or for an uncertain workload until final negotiations with the Medicare

contractors are complete.

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

We currently estimate the Part A processed workload to be 140.6

million bills in FY 1996. The Part B processed workload is currently

projected at 681.4 million claims.

2. Reconsideration (Part A), Review (Part B), and Hearing (Parts A and

B)

Beneficiaries, providers, physicians, and other suppliers are

entitled by law to appeal, through reconsiderations, formal reviews, or

hearings, as appropriate, the various payment determinations made by

Medicare contractors. We project that Part B reviews and hearings

workloads for FY 1996 will not exceed FY 1995 levels, while workload

for Part A reconsiderations and hearings will have a moderate increase.

We expect contractors to control and respond to requests for appeal and

to control receipt of Administrative Law Judge hearing requests.

We continue to maintain efficiencies achieved in prior years

through the use of shorter decision letters and the experimental use of

the telephone to conduct reviews and reconsiderations.

3. Medicare Secondary Payer (Parts A and B)

The Medicare secondary payer function is the first of four

initiatives (Medicare secondary payer, medical review and utilization

review, benefits integrity, and provider audit) we developed as

``payment safeguards'' for the Medicare program. Our continuing

Medicare secondary payer program is designed to identify situations in

which other insurers are the primary payers, to pay all claims

correctly the first time, and to recover Medicare dollars in instances

in which mistaken conditional payments have occurred.

We aggressively pursue the identification of secondary payer

situations through the collection and matching of beneficiary-specific

health care data through the Internal Revenue Service/Social Security

Administration/HCFA (IRS/SSA/HCFA) data match authorized by section

1862(b)(5) of the Act. The FY 1996 budget includes funding to process

the workloads based on the IRS/SSA/HCFA data match project. We allocate

the funds based on the number of report identification numbers we

expect a contractor to process.

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

other data matches with State Motor Vehicle Administrations, Workers'

Compensation, Medicaid Agencies, and the Departments of Defense, Labor,

and Veterans Affairs. Further, our use of the initial enrollment

questionnaire is an important part of our commitment to capturing vital

health care coverage data on beneficiaries and their spouses at the

time of Medicare enrollment and before any claims are filed.

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

In addition to processing and paying claims from providers of

services and Medicare beneficiaries, contractors perform medical and

utilization reviews of claims to determine whether services are covered

under the program and are medically necessary. The distribution of

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

the workload and individual contractor medical review/utilization

review projects.

Specifically, our contractors are required to work with the medical

community to develop clear medical review policies and communicate

those policies to the providers of services. Moreover, we also

emphasize the need for systematic and ongoing analysis of

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claims data to focus prepayment and postpayment medical review. To meet

this requirement, intermediaries and carriers currently analyze local

and national data to identify practice patterns, trends, and

aberrancies that may reflect areas of potential abuse, inappropriate

care, and overutilization. This data-driven approach allows us to

target and direct our efforts to our greatest risk of inappropriate

program payment.

Part A medical reviews by fiscal intermediaries focus on preventing

inappropriate billing through provider education and on targeting

reviews of providers who fail to change inappropriate behavior. Through

analysis of national and local data, areas of abuse and overutilization

are identified and payment is denied for services that are not covered

under the Medicare program. Reviews are targeted where they will be

most effective in protecting the program.

Part B medical reviews by carriers identify areas of abuse and

overutilization and focus on preventing Medicare payment for medically

unnecessary or noncovered services. Carriers use computerized methods

of analyzing utilization, epidemiologic, and demographic data to detect

trends in physician and other supplier activities and the delivery of

health care. This is accomplished through prepayment and postpayment

analysis of Medicare Part B claims.

In FY 1996, we will continue to support the medical review

activities of the four Durable Medical Equipment Regional Carriers

(DMERCs). The DMERCs will conduct prepayment and postpayment review of

durable medical equipment, prosthetics, orthotics, and supplies

(DMEPOS) claims to identify areas of potential abuse and

overutilization and prevent payment for noncovered items and services.

The DMERCs will identify aberrancies from an analysis of national

and local databases. The DMERCs will initiate corrective action for

overpayment recoupment, target supplier claims for services most

frequently billed, and continue to revise regional medical review

policies and screens for referral to the Office of the Inspector

General (OIG). This targeting principle will assist in developing

regional medical review policies to address identified problem areas or

trends in new technologies. In addition to educating suppliers, DMERCs

need to educate the referring/ordering physicians responsible for

prescribing DMEPOS items and include them in the medical policy

development process.

5. Provider Audit (Part A only)

The audit of provider cost reports is our primary instrument to

help ensure the integrity of Part A Medicare payments. Funding

priorities are directed toward the use of limited desk reviews where

low cost/low utilization providers are involved and toward the use of

onsite focused reviews to expand the overall examination of high cost/

high payment issues. Program savings remain relatively flat, while the

FY 1996 funding level remains constant.

In FY 1996, budget estimates allow for a relatively consistent

level of reviews and audits for all types of providers, although an

increasing number of providers require both desk review and settlement.

Full desk reviews and field audits are directed toward high cost/high

utilization providers and past poor performers. Contractors will retain

a knowledgeable audit staff and provide training in accordance with

government auditing standards.

Contractors will also respond to provider appeals by conducting

intermediary hearings and by filing position papers and attending

hearings at the Provider Reimbursement Review Board (PRRB). Contractors

will also reopen and revise prior period settlements based on provider

requests, as well as PRRB and HCFA directives and resolve problems

identified on provider cost reports.

6. Provider Payment (Part A only)

In FY 1996, Medicare contractors will provide payment services to

approximately 31,500 health care providers. These payment services

include establishing and adjusting interim rates, recouping provider

overpayments, and providing consultative services to providers for

maintaining and adjusting their accounting systems to ensure accurate

data for preparing Part A bills and cost reports.

We will distribute funds in proportion to workload by provider

type.

7. Productivity Investments (Parts A and B)

We refer to the costs of implementing legislation and new

initiatives that are designed to improve the effectiveness of Medicare

program administration as productivity investments. Productivity

investments generally provide start-up funds for new or revised

contractor activities. Once these projects are operational, their

funding becomes part of the contractor's ongoing costs. The criteria

for selecting productivity investments vary. For example, the statute

or regulations require some productivity investments. We also fund

projects that will improve administrative cost efficiency, such as

administrative simplification.

There is no single distribution methodology for the allocation of

productivity investment funds. After we determine the national cost of

a productivity investment, we distribute funds among the contractors.

These funds are based on the contractors' cost estimates or through

formulas that we derive based on project specifications. Other

productivity investment initiatives require equal effort by all

contractors regardless of size and, therefore, funds are distributed

equally among contractors. Finally, some productivity investments, such

as administrative simplification and the Medicare Transaction System,

are given only to contractors that are involved in the specific

projects.

8. Beneficiary or Physician Inquiry (Part B only)

The Medicare contractors are the direct link between beneficiaries,

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

is the responsibility of HCFA and the contractors to provide the most

effective and efficient service to beneficiaries, providers,

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

awareness and understanding of the Medicare program.

We are currently revising all benefit notices into a single, easy

to read summary format. Carriers will begin using the new notice format

in FY 1996. Beneficiary and provider feedback is used to modify the

format, as necessary, to ensure maximum beneficiary comprehension. We

and our contractors will conduct extensive outreach to ensure a smooth

transition to the new format.

Our Carrier Customer Service Plan initiative is expanded to

include--

Tone/clarity self-assessment;

Initiatives to improve service to blind, deaf, and

disabled beneficiaries;

An automated inquiries analysis program;

Improvements to the internal review process;

Partnerships with local beneficiary counseling and

assistance organizations;

The expansion of beneficiary advisory committees; and

Initiatives designed to improve service to Spanish

speaking individuals.

Also, carriers use Audio Response Units as the initial contact for

providers, and a beneficiary Audio Response Unit script is offered to

all carriers. In FY 1996, carriers will expand the use of Audio

Response Units. The Audio

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Response Units will provide improved service, accuracy, and consistency

through the use of expanded standardized scripts and equipment

enhancements.

In FY 1996, carriers will receive an estimated 40.1 million

inquiries by telephone, in writing, or through direct contact, an

increase of 1 percent over the current FY 1995 projection of 39.6

million inquiries.

9. Participating Physicians/Suppliers (Part B only)

Participating physicians and suppliers are those who agree to

accept assignment on all Medicare claims in return for certain

incentives or benefits. All physicians are given an opportunity to

enroll or disenroll in the program annually.

Carriers must perform several activities including: (1) Conducting

annual participation enrollment; (2) Distributing the Medicare

Participating Physician/Supplier Directories; (3) Upgrading and

maintaining direct electronic media claim lines for participants; and

(4) Monitoring and enforcing the program requirements for participants

and nonparticipants, which includes the comprehensive limiting charge

compliance program.

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

Increasing numbers of physicians, nonphysician practitioners, and

other suppliers who furnish health care services rely on information

gained through communications with carriers about Medicare program

provisions. To respond to this need, we have fostered interaction

between suppliers of health care services and carriers to promote

efficient, economic claims activities. For example, these activities

include: (1) Communicating with suppliers of health care services; (2)

Educating suppliers to eliminate the submission of erroneous or

underdocumented claims; (3) Distributing newsletters to all suppliers

of services detailing changes in coverage, payment, or billing policy;

and (4) Educating carrier staff members, on a regularly scheduled

basis, to ensure compliance with legislative and policy changes

affecting the coding and submission of claims.

11. Benefits Integrity (Parts A and B)

We will continue to deter and detect Medicare fraud and abuse

activities through concerted efforts with the OIG, the Federal Bureau

of Investigation, Medicaid Fraud Control Units, the Department of

Justice, and other HCFA partners. As in FY 1995, we will continue to

improve the quality of referrals to the OIG by increasing our fraud

detection capabilities through expanded data analysis and improvements

in fraud detection by the carriers and intermediaries.

In addition, the National Claims History Database continues to be

available to focus postpayment review on practitioners and suppliers

that appear to be billing fraudulently or that are misrepresenting to

Medicare the services or items they are furnishing.

In FY 1996, Medicare carriers will focus their detection activities

on medical laboratory, radiology, anesthesia, physician services, and

ambulance claims. Also, in FY 1996, Medicare carriers will upgrade

their fraud detection capabilities by making better use of available

databases and expanded relationships with other fraud detection

organizations.

12. Printing Claim Forms (Parts A and B)

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

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

contractor budget. In the interest of maintaining standard formats and

quality of Medicare entitlement and report forms, we supply beneficiary

enrollment and provider cost reporting forms. The use of these forms is

essential for beneficiary notification and for effective and efficient

contractor operations. We will print 50 million copies of these forms

for FY 1996.

C. Contractor Unit Cost Calculations

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

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

These bottom-line unit costs encompass all budget line items except

``Provider Audit,'' ``Provider Reimbursement,'' ``Productivity

Investments,'' and, ``Other.''

As first implemented in FY 1992, the complexity index was designed

to improve efficiency and reduce contractor-by-contractor cost

inequities and was based on the application of the Industrial

Engineering study commissioned by us. The Industrial Engineering study

provided us with an actual weighted unit cost for each claim type; that

is, inpatient or outpatient, and method of submission of a bill or a

claim. After adjustment for changes in program emphasis, these unit

costs were applied to each contractor's individual workload mix to

develop a weighted unit cost that reflects the complexity of its

workload mix. We published an explanation of the complexity index in a

Federal Register notice published on January 2, 1992 (57 FR 57). After

adjusting for various savings and increases associated with

initiatives, we then arrayed the contractors' unit costs and identified

the high cost contractors.

We believe that the use of the complexity index has enabled us to

successfully achieve the goals of improving efficiency in contractor

operations and reducing contractor-by-contractor cost inequities. Since

we have achieved these goals, and believe that costs can be controlled,

we will base each contractor's FY 1996 unit cost on the FY 1995 level,

adjusted for inflation and for savings achieved as a result of

increased productivity, and on reduced funding for incremental

workload.

D. Overall Budget Considerations

We note that limitations on the FY 1996 budget could require

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

office will determine the amount of budget reduction for its

contractors.

III. FY 1996 National Medicare Contractor Budget: Data, Standards,

and Methodology

Since the submission of the President's FY 1996 Medicare contractor

budget request to the Congress in February 1995, we have developed and

issued BPRs to the contractors. These requirements outline the

statement of work and level of effort that fiscal intermediaries and

carriers are expected to perform during the upcoming fiscal year in

each of the functional areas for which they are responsible.

Our schedule is that draft BPRs are released to the regional

offices in April, and the final BPRs are released in June 1995. At the

time of release, each fiscal intermediary and carrier is given the

individual requirements to be used in preparing their FY 1996 budget

request. The regional offices will send any additional information that

is pertinent to the fiscal intermediaries and carriers within their

region. Fiscal intermediaries and carriers must submit their budget

requests to us no later than 6 weeks after the issuance of the BPRs.

After the fiscal intermediaries and carriers review the BPRs, they

prepare their budget requests. The central office and regional office

staff review the fiscal intermediary and carrier budget requests as

they are submitted. The regional office staff negotiates a final and

mutually-acceptable budget, within the limits of the funding available

to us, with each fiscal intermediary and carrier. The central office

prepares a financial operating plan for each regional office that

provides total regional funding authority for each

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functional area. The regional offices, in turn, prepare a Notice of

Budget Approval for each fiscal intermediary and carrier that provides

a full year budget plan subject to quarterly cash draw limitations.

A. Standards

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

that fiscal intermediaries and carriers are expected to perform, is

described in the BPR package. Fiscal intermediaries and carriers are

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

accordance with the standards included in the Contractor Performance

Evaluation for FY 1996. For consideration in developing their initial

budget requests, a copy of the draft Contractor Performance Evaluation

standards will be sent to contractors. Final FY 1996 Contractor

Performance Evaluation standards will be published in the Federal

Register.

B. Data

The following data contain various workload volumes, functional

costs, and manpower information that are used in developing the

individual fiscal intermediary and carrier budgets for FY 1996:

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

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

Report).

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

Investments and Other).

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

Data Processing, and Overhead).

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

Forms HCFA-1523D/1524D (Schedule of Medicare Secondary

Payer Costs).

Forms HCFA-1523E/1524E (Schedule of Medical Review Costs).

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

Form HCFA-1525A/1525A (Contractor Audit Settlement

Report).

Schedules A, B, & C.

Provider Payment Profile.

Schedule of Providers Serviced.

Medicare Secondary Payer Savings Report.

Medical Review/Utilization Review Savings Report.

Form HCFA-2580 (Cost Classification Report).

Forms HCFA-1565/1566 (Carrier Performance Report/

Intermediary Monthly Workload Report).

OMB's economic assumptions of 3.2 Percent.

Savings from prior productivity investments.

New legislation costs.

Regional Office recommendations.

Contract provisions.

C. Methodology

The Medicare contractor budget is organized around the previously

listed functional areas that are performed by the fiscal intermediaries

for Part A and the carriers for Part B. In 1992, we developed a bottom-

line unit cost for each individual contractor. The following narrative

describes the methodology used to calculate individual line-item costs.

This methodology will be considered as general reference for

contractors as they develop their FY 1996 budgets and also provides

additional explanation in determining how certain costs and savings

were determined. The regional offices will negotiate with the fiscal

intermediaries and carriers to resolve any differences within the

limits of the funding available to us.

1. Bill and Claim Payment

A statistical forecasting model determines the individual fiscal

intermediary and carrier workload levels for FY 1996. Using the same

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

intermediary and carrier may expect to have pending at the end of FY

1995. We will then combine the FY 1996 receipt estimate with the

anticipated end of FY 1995 pending level, and subtract the estimated FY

1996 pending for each fiscal intermediary and carrier to establish a

processed workload; that is, Estimated FY 1996 receipts + Estimated end

of FY 1995 pending - Estimated end of FY 1996 pending = Estimated FY

1996 Processed Workload.

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

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

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

1996 are calculated from the unit costs in the FY 1995 Notice of Budget

Approvals. Savings achieved from operating efficiencies also are part

of the formula employed in computing FY 1996 target unit costs.

2. Reconsiderations (Part A), Reviews (Part B), and Hearings (Parts A

and B)

We will allocate funding based on the dollar amount spent (line 2

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

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

costs for reconsiderations and hearings by the estimated percentage

change in workload.

We estimate the individual fiscal intermediary and carrier budget

allocations for reconsiderations, reviews, and hearings by multiplying

forecast workloads by the adjusted unit costs.

3. Beneficiary and Provider Inquiries (Part B only)

To establish a budgeted amount for beneficiary and provider

inquiries, we increase the prior year's cost by the projected workload

change. We also consider special conditions unique to specific carriers

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

cost for beneficiary and provider inquiries by multiplying forecasted

processed volume by the unit cost.

4. Provider Payment (Part A only)

In determining individual fiscal intermediary budgets for

reimbursement activities, we took into consideration the FY 1995

budgeted figures, the projected funding for FY 1996, and the projected

workload based on the workload reported on the Schedule of Providers

Serviced. The Schedule of Providers Serviced is a listing of all the

facilities serviced by the fiscal intermediary. The Schedule of

Providers Serviced is submitted with each initial budget request so

that a part of the analysis is the comparison of the composition of the

provider community serviced by the fiscal intermediary and any change

reported between fiscal years.

5. Provider Audit (Part A only)

For FY 1996, the provider audit function is divided into three

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

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

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

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

this as a base, we develop the desk review costs by projecting the

number of providers serviced by the unit cost per desk review

(developed for the latest Contractor Auditing and Settlement Report for

FY 1994) to determine the cost of handling the FY 1996 workload at the

FY 1994 unit cost. We base the settlement costs on the workload

projected in the fiscal intermediary's budget request, multiplied by

the unit cost for settlements found in the most recent Contractor

Auditing and Settlement Report for FY 1994.

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

special activities required by legislation. The second priority is that

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

6. Medicare Secondary Payer

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

and any other items, for example, proposed Medicare secondary payer

systems enhancements, to determine Medicare secondary payer funding

allocations. Each contractor's case mix will be analyzed to adjust for

specialized workloads such as home health claims or durable medical

equipment (DME). In FY 1996, we will allocate the budget based on the

above considerations, adjustments created by shifts in the DME workload

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

workload that may require adjustments.

7. Medical Review/Utilization Review

The individual fiscal intermediary and carrier medical review/

utilization review budgets for FY 1996 will be calculated in three

segments: (1) Prepayment medical review; (2) Postpayment medical review

activities; and (3) Data analysis and screen development. The BPR

describes the activities and workload requirements that the fiscal

intermediaries and carriers are expected to meet. As part of the BPRs,

we will ask the fiscal intermediaries and carriers to estimate the

level of funding that will be necessary to meet such requirements. We

will allocate prepayment and postpayment medical review funding to

contractors based upon the workload that a fiscal intermediary or

carrier projects for FY 1996.

8. Participating Physicians/Suppliers (Part B only)

In determining the individual carrier funding levels for the

participating physician/supplier program for FY 1996, we considered the

following factors:

The number of physicians/suppliers in the carrier's

service area.

The carrier's current participation rate.

The carrier's recent performance in increasing its

participation rate.

The statement of work to be performed as outlined in the

BPRs.

FY 1995 cost experience.

Since participating physicians/suppliers are eligible for toll-free

telephone lines for electronic billing, allowance will be made for

these expenses. Carriers with lower participation rates will receive

greater funding for the limiting charge violation monitoring. We have

discontinued carrier monitoring of the elective surgery disclosure

requirement. We now require carriers to investigate beneficiary

complaints on a case-by-case basis.

We allocate carrier monitoring funds based on the national

percentage of nonparticipating physicians/suppliers. All carriers will

receive the same funding amount for reporting participation statistics.

9. Productivity Investments

We refer to the costs of implementing legislation and new

initiatives that are designed to improve the effectiveness of Medicare

program administration as productivity investments. Several allocation

methodologies will be employed in calculating the productivity

investment budgets for individual fiscal intermediaries and carriers.

For those projects involving only single contractors or small groups of

contractors, we will allocate funds based upon the specifications of

the particular project. For those projects involving all fiscal

intermediaries or carriers, if the costs are driven by bill or claim

volume, we will distribute the funding based upon our workload

projections for each contractor. Finally, for those projects involving

all fiscal intermediaries or carriers that require equal effort,

regardless of the contractor's size, we derive a standard allocation to

be given to all contractors.

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

Distribution of funds made available to HCFA for physician/supplier

education and training is based upon the ratio of physicians and

suppliers in each carrier's service area to the national total of

physicians and suppliers.

11. Benefits Integrity

In allocating the FY 1996 benefits integrity budget to individual

fiscal intermediaries and carriers, we will consider the following:

The prior year's effectiveness in initiating fraud

referrals to the OIG.

Initiating overpayment recoveries when appropriate.

Prioritizing workload to concentrate on high dollar and

multi-state fraud.

The extracted workload and cost data from the Schedule of

Fraud and Abuse (Forms HCFA-1523G/1524G).

The Medicare Fraud Unit Workload Report.

The fraud unit's level of sophistication to determine

benefits integrity funding allocations.

The completion of any special activity required by

legislation which will be an overriding priority.

The networking costs, which will be determined by the

personnel cost to support the Medicare Fraud and Abuse Information

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

networking for the area assigned.

IV. Data, Standards, and Methodology Used to Establish the Medicare

Contractor Budgets for FY 1995

The October 21, 1994, notice described the budget development

process in general and gave an overview of how we intended to use the

contractor budget data, standards, and methodology to establish the FY

1995 budgets.

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

changes to the proposed data, standards, and methodology as published

on October 21, 1994. Therefore, we announce provisions of the proposed

notice as final.

Provisions of the Proposed Notice

We indicated in the proposed notice that the contractor budget

would be structured to coincide with the eight functional areas of

responsibilities performed by fiscal intermediaries for Part A and nine

functional areas of responsibilities performed by carriers for Part B

of the Medicare program. We proposed that final funding for the

contractor functions would be allocated in accordance with the current

claims processing trends, legislative mandates, administrative

initiatives, current year performance standards and criteria, and the

availability of funds appropriated by the Congress. While the

contractors were preparing their budget requests, we developed

preliminary budget allocations for the 17 functional areas that were

based on historical patterns, workload growth, inflation assumptions,

statistical forecasting reports, and any other available information.

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

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

in FY 1994, the FY 1995 budget process used a bottom line unit cost

approach. All budget line items except Provider Audit, Productivity

Investments, Other, and in FY 1995, Provider Payment, are part of the

bottom line unit cost calculation. In FY 1995, the complexity index was

not used as it was in prior years. We believe that the use of the

complexity index

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over the last 3 fiscal years has enabled us to successfully achieve the

goals of improving efficiency in contractor operations and reducing

contractor-by-contractor cost inequities. Since we have achieved these

goals, and believe that costs can be controlled, we based each

contractor's unit cost on their FY 1994 level, adjusted for savings

achieved due to increased productivity, electronic media claims, and

reduced funding for incremental workload. Because of reduced funding in

FY 1995 inflation was not given.

The Medicare secondary payer function is the first of four

initiatives we developed as ``Payment Safeguards'' for the Medicare

program. The focus of the Medicare secondary payer initiative is to

ensure that the Medicare program pays for covered care only to the

extent required after payment by the primary insurer. We proposed that

the standard for determining the amount of Medicare secondary payer

funding a contractor would receive in FY 1995 would be based on

workload volumes, required systems changes, and any special projects

that may be assigned to contractors.

Based on actuarial analysis, we developed specific savings goals

for each contractor. The goals were developed on estimates of savings

to be achieved by contractors for the Medicare secondary payer

categories of working aged, disabled, workers' compensation, end-stage

renal disease, and liability or no-fault insurance. After assigning

goals to contractors, funds were allocated based on the various

Medicare secondary payer activities a contractor must perform such as

processing prepayment claims, postpayment claims, inquiries, outreach,

and hospital reviews.

We proposed that in FY 1995, the Initial Enrollment Questionnaire

would be operational. The Initial Enrollment Questionnaire eliminates

the need for first claim development on approximately 85 percent of new

enrollees. This initiative improves service to beneficiaries on a

national basis by providing detailed information on the Medicare

secondary payer program at the time a beneficiary enrolls in Medicare.

We proposed to include funding to process the workloads based on

the IRS/SSA/HCFA data match project. The funds would be allocated on

the basis of the number of report identification numbers a contractor

will process. We would review the estimated workload data, reported

backlog data, and proposed Medicare secondary payer systems

enhancements to determine Medicare secondary payer funding allocations.

Each contractor's case mix would be analyzed to adjust for specialized

workloads such as home health claims or DME.

In FY 1995, we proposed the budget be allocated based on

adjustments created by shifts in the DME workload from all carriers to

the four specialty carriers and by other shifts in workload that may

require adjustments. The regional offices would negotiate with the

fiscal intermediaries and carriers to resolve any differences between

our allocations and their requests within the limits of the funding

available to us.

Analysis of and Response to Public Comment

In response to our request for public comment in the October 21,

1994 notice, we received one timely item of correspondence from a

health insurance company. Several issues that were raised by the

commenter are outside the scope of the proposed notice and are not

addressed in this notice. The proposed notices are intended to address

only the data, standards, and methodology to be used to establish

budgets for fiscal intermediaries and carriers for a particular fiscal

year. Specific instructions on how to implement and monitor certain

initiatives (for example, beneficiary inquiries, participating

physician and benefits integrity) are presented through program

memoranda, manual instructions, BPR, and other means.

Comment: The commenter was concerned that the proposed notice was

published after the beginning of FY 1995. The commenter believed that

untimely publication of the proposed notice denied interested parties

the opportunity to comment before implementation of the budget.

Response: In the preparation of the Medicare contractor budget each

fiscal year, we attempt to publish the proposed and final notices

timely. However, because of the time involved in reviewing data and

developing the budget and the lengthy review and clearance process, we

were not able to publish the proposed and final notices before the

beginning of the 1995 fiscal year. We regret that we were unable to

publish the proposed notice timely, but we do not believe that our

actions substantively penalized or prejudiced the fiscal intermediaries

or carriers. The BPRs issued to all intermediaries and carriers discuss

in detail the work, level of effort, and activities we expect them to

perform in the coming fiscal year. Further, we provide a discussion and

explanation of the bottom-line unit cost target established for each

intermediary and carrier at the time the BPRs are issued. The

intermediaries and carriers have ample time to identify and resolve any

problems before they finalize their budget requests for the fiscal

year.

Comment: The commenter indicated that the use of the complexity

index in prior years provided a methodologically flawed basis for

calculating the contractor unit costs in FY 1995.

Response: We do not agree. As stated in the proposed notice, we

believe that the complexity index is useful in helping to control

contractor costs by providing funding on the basis of workload

complexity. The use of the complexity index over the last 3 fiscal

years has enabled us to successfully achieve the goals of improving

efficiency in contractor operations and reducing contractor-by-

contractor cost inequities. Since we have achieved the above goals, we

believe it is reasonable for FY 1995 contractor unit costs to be based

on each contractor's FY 1994 level.

Comment: The commenter expressed concern about the process used to

develop specific Medicare secondary payer savings goals for each

contractor for FY 1995 as well as how funding was determined for each

contractor for Medicare secondary payer activities. The commenter

believed that Medicare secondary payer funds are allocated after

assigning Medicare secondary payer savings goals.

Response: The President's budget estimate that was published in

February 1994 covers the entire Medicare contractor budget. Although

the budget estimate mentions Medicare secondary payer savings, it does

not define specific savings per contractor. Further, we have not

assigned savings goals to intermediaries and carriers since FY 1993.

Therefore, Medicare secondary payer funds are not allocated after

assigning Medicare secondary payer savings goals to contractors.

The factors that affect Medicare secondary payer funding for

individual contractors are: the national Medicare secondary payer

budget; the priority of the Medicare secondary payer activities;

individual contractor Medicare secondary payer budget requests and

workload estimates (a contractor's estimated Medicare secondary payer

workload and budget request is compared to its previous workload and

expenditures for Medicare secondary payer activities); an analysis of a

contractor's Medicare secondary payer budget request and that of

similar contractors with similar workloads (intermediaries and carriers

are compared separately); the ability of a contractor to justify and

document its request for additional funding, or for

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funding we believe is out of its peer grouping; and negotiations

between the regional offices and the individual contractors.

V. Response to Comments

Because of the large number of items of correspondence we normally

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

acknowledge or respond to them individually. We will consider all

comments we receive by the date specified in the DATES section of this

notice, and we will respond to the comments in a subsequent published

notice. To the extent that we receive comments during the comment

period, we will address those comments in a final notice and, if

necessary, make revisions to the proposed data, standards, and

methodology for FY 1996. If no comments are received, we will simply

adopt the proposed data, standards, and methodology for FY 1996 as

final, effective October 1, 1995.

In accordance with the provisions of Executive Order 12866, this

proposed rule was not reviewed by the Office of Management and Budget.

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

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

(Catalog of Federal Domestic Assistance Program No. 93.773,

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

Supplementary Medical Insurance Program.)

Dated: August 16, 1995.

Bruce C. Vladeck,

Administrator, Health Care Financing Administration.

[FR Doc. 95-22029 Filed 9-5-95; 8:45 am]

BILLING CODE 4120-01-P