Medicare Program; Establishment of an Expedited Review Process for Medicare Beneficiaries Enrolled in Health Maintenance Organizations, Competitive Medical Plans, and Health Care Prepayment Plans

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 417

[OMC-025-FC]

RIN 0938-AH62

Medicare Program; Establishment of an Expedited Review Process

for Medicare Beneficiaries Enrolled in Health Maintenance

Organizations, Competitive Medical Plans, and Health Care Prepayment

Plans

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

ACTION: Final rule with comment period.

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SUMMARY: This final rule with comment period establishes a new

administrative review requirement for Medicare beneficiaries enrolled

in health maintenance organizations (HMOs), competitive medical plans

(CMPs), and health care prepayment plans (HCPPs). This rule implements

section 1876(c)(5) of the Social Security Act, which specifies the

appeal and grievance rights for Medicare enrollees in HMOs and CMPs.

This rule requires that an HMO, CMP, or HCPP establish and maintain, as

part of the health plan's appeals procedures, an expedited process for

making organization determinations and reconsidered determinations when

an adverse determination could seriously jeopardize the life or health

of the enrollee or the enrollee's ability to regain maximum function.

This rule also revises the definition of appealable determinations to

clarify that it includes a decision to discontinue services.

DATES: Effective date: These regulations are effective June 30, 1997.

Compliance date: HMOs, CMPs, and HCPPs must comply with the

requirements of this final rule beginning August 28, 1997.

Comment date: Comments will be considered if we receive them at the

appropriate address, as provided under ADDRESSES, no later than 5 p.m.

on June 30, 1997.

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

following address:

Health Care Financing Administration, Department of Health and Human

Services, Attention: OMC-025-FC, P.O. Box 26688, Baltimore, MD 21207-

0488.

If you prefer, you may deliver your written 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.

Comments may also be submitted electronically to the following e-

mail address: [email protected] E-mail comments must include the full

name and address of the sender and must be submitted to the referenced

address to be considered. All comments must be incorporated in the e-

mail message because we may not be able to access attachments.

Electronically submitted comments will be available for public

inspection at the Independence Avenue address below.

Because of staffing and resource limitations, we cannot accept

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

to file code OMC-025-FC. Comments received timely will be available for

public inspection as they are received, generally beginning

approximately 3 weeks after publication of a document, in Room 309-G of

the Department's offices at 200 Independence Avenue, SW., Washington,

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

(phone: (202) 690-7890).

Copies: To order copies of the Federal Register containing this

document, send your request to: New Orders, Superintendent of

Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date

of the issue requested and enclose a check or money order payable to

the Superintendent of Documents, or enclose your Visa or Master Card

number and expiration date. Credit card orders can also be placed by

calling the order desk at (202) 512-1800 or by faxing to (202) 512-

2250. The cost for each copy is $8. As an alternative, you can view and

photocopy the Federal Register document at most libraries designated as

Federal Depository Libraries and at many other public and academic

libraries throughout the country that receive the Federal Register.

This Federal Register document is also available from the Federal

Register online database through GPO Access, a service of the U.S.

Government Printing Office. Free public access is available on a Wide

Area Information Server (WAIS) through the Internet and via

asynchronous dial-in. Internet users can access the database by using

the World Wide Web; the Superintendent of Documents home page address

is http://www.access.gpo.gov/su__docs/, by using local WAIS client

software, or by telnet to swais.access.gpo.gov, then login as guest (no

password required). Dial-in users should use communications software

and modem to call (202) 512-1661; type swais, then login as guest (no

password required).

FOR FURTHER INFORMATION CONTACT: Maureen Miller, (410) 786-1097.

SUPPLEMENTARY INFORMATION:

I. General Background

A. Program Background

Under title XVIII of the Social Security Act (the Act), Medicare

beneficiaries have a choice of whether to obtain Medicare-covered

services through the traditional fee-for-service program or through a

managed care entity or ``prepaid health care organization.'' This final

rule with comment period concerns appeal rights for Medicare

beneficiaries who choose a prepaid health care organization. Under the

prepayment method, health maintenance organizations (HMOs), competitive

medical plans (CMPs), and health care prepayment plans (HCPPs) enter

into contracts or agreements with us to provide a range of services to

Medicare beneficiaries who voluntarily enroll in these health plans.

Section 1876 of the Act provides the authority for us to enter into

contracts with HMOs and CMPs to furnish

[[Page 23369]]

Medicare-covered services to beneficiaries on either a ``risk'' or a

``cost payment'' basis. Section 1833 of the Act provides the basis for

regulations under which we enter into written agreements with HCPPs to

furnish covered Medicare Part B services on a cost payment basis.

Section 1876 specifies the requirements that eligible health plans

must meet in order to enter into and maintain a Medicare contract,

including the provision of appeal and grievance rights to Medicare

enrollees, as set forth under section 1876(c)(5) of the Act.

Regulations implementing the beneficiary appeals requirements are found

at 42 CFR, subpart Q, Secs. 417.600 through 417.638. These regulations

were most recently amended on November 21, 1994 with the publication of

the final rule entitled ``Medicare Program: Appeal Rights and

Procedures for Beneficiaries Enrolled in Prepaid Health Care Plans''

(59 FR 59933). That final rule (1) codified a program standard that

HMOs and CMPs complete reconsiderations requested by a Medicare

enrollee, referenced in this final rule as an ``enrollee,'' for denied

services or claims, within 60 days from the date of receipt of the

reconsideration request; (2) extended to HMO and CMP enrollees the

right to request immediate review by a Utilization and Quality Control

Peer Review Organization (PRO) of an HMO's, CMP's, or hospital's

determination that an inpatient hospital stay is no longer necessary;

and (3) required HCPPs to establish administrative review procedures

for their Medicare beneficiaries who are dissatisfied with decisions to

deny a service or a claim. In this final rule, we refer to HMOs, CMPs,

and HCPPs as ``health plans.''

B. Current Requirements

Medicare-contracting health plans are required to maintain

procedures for making ``organization determinations'' (decisions

concerning whether to provide a service or pay a claim) and for

reconsidering the organization determination. That is, if the

organization determination is adverse to the beneficiary, the health

plan also must provide a second level of review called a

``reconsideration'' upon request by the Medicare enrollee.

Current regulations, drafted in the early 1980's, permit health

plans up to 60 days to issue a formal notice of an adverse organization

determination if an enrollee's request for a service or payment is

denied. This notice informs the beneficiaries of the reason for the

determination and their right to file a request for reconsideration.

The health plan has an additional 60 days to conduct the

reconsideration and issue a reconsidered determination. These 60-day

time frames stem from the fee-for-service appeals process, a process

the Congress referenced in drafting section 1876 of the Act.

At the reconsideration stage, the health plan may uphold the

decision to deny a service or payment of a claim, or it may overturn

the decision and issue a reconsidered determination in favor of the

enrollee. If, upon reconsideration, a health plan upholds its decision

to deny, the appeal is automatically sent to an independent reviewer

under contract with and acting for HCFA. No written request from the

enrollee is necessary for this external review. The reconsideration

contractor, on our behalf, is responsible for issuing the reconsidered

determination. The reconsidered determination may uphold or overturn

the plan's determination. If the contractor's determination upholds the

plan's decision (in whole or in part) and if the amount in controversy

is $100 or more, the enrollee may request an Administrative Law Judge

hearing. At this point, the enrollee may pursue the same administrative

and judicial review processes that are available to beneficiaries in

fee-for-service. Thus, beneficiaries enrolled in HMOs, CMPs, and HCPPs

have appeal rights equivalent to those available in the fee-for-service

program.

II. Additional Background

A. Expedited Organization Determinations and Reconsiderations

The regulations pertaining to Medicare managed care appeals

requirements do not include a specific provision requiring expedited

organization determinations or reconsiderations in time-sensitive

situations. However, increased program experience resulting from the

growth and penetration of HMOs in the private insurance and Medicare

markets has prompted us, along with other groups, to recognize the

desirability of an expedited decision-making process for certain

services in certain situations. In fact, the National Association of

Insurance Commissioners (NAIC) has developed and recently adopted a

model Grievance Act setting forth standards for grievance procedures

that include provision for expedited appeals. (Although our regulations

make a distinction between appealable organization determinations and

``grievances,'' which are not appealable, the model ``Grievance'' Act

prepared by NAIC encompasses determinations of the type addressed in

this rule.)

The need for an expedited process to address certain preservice

denials, as well as reductions and discontinuations of service in

certain time-sensitive circumstances, is further supported by reports

and studies of the General Accounting Office (1995), the Physician

Payment Review Commission (1996), and the Institute of Medicine (1996).

Organizations that advocate for beneficiaries also have reported to us

the urgent need for expedited decision-making, particularly when

certain services are being discontinued. Therefore, we are amending

part 417, subpart Q to establish and incorporate provisions for

expediting organization determinations and reconsiderations in certain

time-sensitive situations.

In developing the provisions for this final rule, we looked for

guidance to the NAIC's model Grievance Act. This model act is the

result of more than 2 years of deliberation among State regulators, in

open consultation with consumer groups (including Medicare beneficiary

advocacy groups), provider and physician associations, insurance and

managed care representatives, HCFA staff, and others. We anticipate

that many States will adopt this model act or amend existing

regulations to conform with these new, state-of-the-art standards.

Because of the inclusive and exhaustive efforts invested in the

development of the NAIC's model Grievance Act as well as the importance

of acting rapidly to institute expedited appeals for the Medicare

population, we have drawn on the NAIC's time lines and definition in

developing the new Medicare requirement. In addition to the important

precedent of NAIC's accountability standards, we believe that

beneficiaries (particularly those enrolled in prepaid plans before

Medicare eligibility) would benefit from consistent standards regarding

appeal rights. We believe, too, that similar thresholds for expediting

a review process and similar time lines will lessen the margin for

error among health plan staff handling commercial as well as Medicare

enrollee appeals, and strengthen the ability of enrollees to exercise

appeal rights when making the transition to the Medicare managed care

plan.

Under the provisions of this rule, health plans are required to

incorporate into their appeals process a procedure for reviewing and

issuing certain organization determinations and reconsiderations within

a short time frame. Expedited reviews will be conducted for situations

in which the standard (60-day) time frame for issuing determinations

could jeopardize the life

[[Page 23370]]

or health of the enrollee or the enrollee's ability to regain maximum

function. Also, requests for reconsideration of noncoverage

determinations for inpatient stays, other than hospital discharges for

which immediate Peer Review Organization (PRO) review is available,

will be expedited, as well as requests for reconsiderations of

determinations to discontinue a service (such as physical therapy) in

the home or outpatient setting where a longer review time could

jeopardize the enrollee's life, health, or ability to regain his or her

maximum function. Health plans will be required to conduct the review

within a time period appropriate to the condition or situation of the

enrollee, but no more than 72 hours from the time of the request. Thus,

expedited reviews could occur in 24 hours, 48 hours, or other

appropriate time period. Similarly, an expedited organization

determination to deny a service could be issued in 48 hours, but the

expedited reconsideration could take the full 72 hours allotted for

making a determination.

Because of the time-sensitive nature of these situations, certain

requirements and conditions applicable to standard appeals are altered.

For instance, the Medicare enrollee, or his or her representative, will

be able to request an expedited review orally, such as by telephone. In

a similar manner, the health plan's determination will be given to the

enrollee or the representative, and to the appropriate physician or

provider as necessary, in an expeditious manner. When the determination

is given orally, a written follow-up version must be issued within 2

working days. Further, any physician will be permitted to request an

expedited review on behalf of the enrollee, and the health plan must

accept the physician's decision that the situation meets the criterion

for expedited review, that is, that a longer review period could place

the enrollee in jeopardy.

The health plan must receive the request for an expedited

determination or reconsideration, make the procedural decision whether

the determination will be made through the expedited process (or

redirect it to the standard process), conduct the review, and issue its

determination within the 72-hour time frame set forth in the

regulation. In limited circumstances, health plans will be allowed to

take more than 72 hours to issue a determination. Health plans will be

permitted up to 10 additional working days beyond the 72-hour standard

if the ``extension'' of time benefits the beneficiary, such as allowing

for additional diagnostic testing or consultations with medical

specialists, or if the beneficiary requests the extension in order to

provide the plan with additional information for making its decision.

Delays in meeting the 72-hour standard will also be permitted if an

expedited organization determination or reconsideration is requested by

a physician not affiliated with the health plan. In this case, the 72-

hour time standard will begin only when the medical information

necessary for making the determination has been communicated (orally or

in writing by the out-of-plan physician) to the health plan. If the

physician fails to provide necessary information, the health plan must

notify the enrollee (or attempt to notify the enrollee who is out of

the service area) in a timely manner, and no later than 72 hours after

the request, that the information has not been provided. When a small

amount of additional time is needed to make a determination and,

overall, is in favor of the beneficiary, the beneficiary must be kept

informed and written documentation made to the case file. However,

delays in the communication of medical record information between

affiliated physicians or providers and the health plan will not be

accepted as reason for extending the time standard.

In those instances in which the health plan determines that the

enrollee's request does not meet the criterion for expedited review,

the HMO or CMP must notify the enrollee as soon as possible and follow

up any oral communication with a written explanation. This is a

procedural decision, and because the enrollee has requested an

organization determination--or a reconsideration--the health plan must

handle the request through standard appeals procedures. We anticipate

that questions will arise on matters such as enrollee recourse and plan

procedures if a request is not granted, and we plan to consult

beneficiary advocacy groups and the managed care industry on needed

action and operational guidance in areas such as notification of

grievance rights, filing quality of care complaints with the local PRO,

and modifying procedures to carry out the standard review process.

If a decision is made by the health plan not to expedite an

organization determination, and at the completion of the standard

review process there is a determination adverse to the enrollee, the

enrollee could request an expedited reconsideration if he or she again

believes that a longer (standard) time frame could jeopardize life,

health, or functioning. On the other hand, a health plan may have a

protocol that any reconsideration will be expedited if the organization

determination was expedited.

If a health plan expedites a reconsideration, and upholds its

decision that is adverse to the enrollee in whole or in part, it must

forward the case to our reconsideration contractor in as expeditious

manner as possible and within 24 hours of its decision. Our contractor

will then conduct an expedited reconsideration. Currently, our

contractor has an expedited process for time-sensitive situations

involving preservice denials and terminations of coverage. As part of

this rulemaking, we will review this process for possible improvement

and assess the need for contract modification.

The expedited appeals process established by this rule, generally,

will not affect the handling of hospital discharge disputes because, as

noted earlier in this preamble, an ``expedited'' process is already in

place for these appeals, that is, the right to immediate PRO review.

The right to immediate PRO review for possible premature discharge

would extend, also, to instances in which an enrollee is preauthorized

for an inpatient procedure and only 1 or 2 days of hospital care. The

HMO or CMP must assure that it (or its delegated hospital) has

procedures in place that would allow an enrollee who is admitted for a

very short stay to exercise this right to immediate PRO review. This

independent review protection would not preclude a health plan from

establishing a procedure for appealing before hospitalization, although

this process could not replace the right to PRO review once

hospitalized. If the enrollee does not request PRO review, an

alternative appeals protection exists: The enrollee may remain in the

hospital for extra days of care then submit a request for the health

plan to pay the hospital charges.

Options Considered

In developing this rule, we consulted beneficiary advocacy groups

and the managed care industry concerning several policy options. In

particular, we considered several options before deciding to adopt a

72-hour time standard for expedited appeals. The beneficiary advocacy

groups we consulted indicated that the expedited review process should

take less, but no more, than 72 hours. Representatives of the HMO

industry estimated a need for 5 days. We chose the 72-hour time

standard because (1) it is consistent with the model standard recently

adopted by the NAIC, (2) agency staff estimate that a majority of these

cases could be reasonably resolved in this

[[Page 23371]]

time frame, and (3) the 72-hour time frame is similar to that

established by the Congress for completion of immediate PRO review of

fee-for-service and HMO hospital discharge decisions.

We also considered options regarding the procedural issue of

deciding whether to expedite a review. Beneficiary advocacy groups

recommended that the beneficiary decide whether determinations and

reconsiderations are expedited, not the health plan, in order to ensure

that these special appeal requests are granted. Representatives of the

HMO industry believe that health plans should make these decisions

because the criterion for expeditious treatment of a review requires

the judgment of trained persons and health professionals. HMOs are also

concerned that beneficiaries will overuse and misuse this process. In

this final rule, we are modifying the NAIC language from ``would

jeopardize * * *'' to ``could jeopardize'' the life, health, or

functioning of the beneficiary, and are adding the mandatory granting

of physician requests. We believe this language strikes the proper

balance and provides beneficiaries with an expedited appeal in most

cases, but allows HMOs some flexibility to refuse expedition in cases

in which the beneficiary is misusing the new right.

The beneficiary groups and the HMO industry both recommended that

our reconsideration contractor be held to similar expedited review

requirements. The current contractor already expedites its review of

preservice denial cases with a self-imposed time standard of 3 to 10

days. It is our intent to hold the contractor to a time limit of no

more than 10 days to complete time-sensitive reconsiderations.

After publication of this rule, we will issue implementation

instructions to all contracting health plans, including directives

concerning notification of enrollees on the new appeals right and

revising member documents. Furthermore, we will incorporate information

about this new appeal right in various materials, including the

Medicare Handbook.

We believe that the addition of regulations pertaining to an

expedited process to part 417, subpart Q will provide a needed

protection for beneficiaries while allowing health plans to manage

effectively the resources that must be available for expediting urgent

cases.

B. Clarification of Organization Determination Definition

In making payments to affiliated providers and physicians, prepaid

health plans (including Medicare-contracting HMOs, CMPs, and HCPPs)

commonly use financial arrangements that incorporate an incentive to

utilize health resources efficiently. Some believe these incentives,

which are designed to achieve quality outcomes without overutilizing

the health care system, could have the untoward result of

underutilization or failure to furnish medically necessary covered

services in some situations. Thus, an important protection for

beneficiaries enrolled in HMOs, CMPs, or HCPPs is the right to appeal

denials of care (also known as preservice denials) and to seek

reimbursement for the costs of services received out of plan following

a preservice denial.

Regulations set forth at Sec. 417.606 (``Organization

determinations'') define those actions that are organization

determinations and therefore subject to reconsideration and the

Medicare appeals process, as well as those actions that are not

organization determinations. These regulations do not expressly

identify as organization determinations those situations in which an

enrollee has been receiving services but the care is being

discontinued, although the intent is that enrollees have the right to

appeal decisions for which Medicare coverage is in dispute. These

disputes are not limited to preservice denials or postservice claims

for payment but must include situations in which services have been

furnished, but the enrollee disagrees with his or her health plan's

decision that continued care or the skilled level of care is no longer

medically necessary, appropriate, or covered.

We have received information that some enrollees do not fully

understand their appeal rights and that health plan administrators

themselves are confused about appeal rights in these situations. Most

recently, the Office of Inspector General of the Department of Health

and Human Services found that, while enrollees ``were knowledgeable

about their general right'' to register formal complaints, they were

less aware of specifically when to exercise appeal rights. (Medicare

HMO Appeal and Grievance Processes: Beneficiaries' Understanding,

December 1996, OEI-07-96-11281.) Therefore, we are revising

Sec. 417.606(a) to clarify that the definition of organization

determination includes discontinuations of covered services, when an

enrollee believes there is a continuing need for the service, or level

of service, that would be covered by Medicare. Examples of these

situations are discharges from skilled nursing facilities, decisions to

move an enrollee from a skilled level to custodial care in the nursing

facility, and exhaustion of skilled nursing facility benefits.

Options Considered

We believe that the current definition of organization

determination extends to reductions in services, such as changes in the

intensity and mix of home health services furnished to an enrollee.

However, because the definition in the regulations does not expressly

identify reductions in services furnished to an enrollee, we considered

including a clarification in this final rule. In assessing the

ramifications of this clarification, we became aware of the potential

scope and the complexity of addressing reductions in various medical

services, as well as the interaction of such a provision with other

improvements under consideration for improving appeals protections (see

section III. of this regulation). Therefore, we have decided to include

this provision in a subsequent rulemaking document. This will allow not

only beneficiary and managed care representatives to comment, but also

medical, other professional, and provider organizations. Commenters to

this final rule, however, are invited to submit their initial comments,

concerns, and ideas on establishing effective and efficient parameters

for giving notice and providing appeal rights when services are being

reduced (for example, in home health care, outpatient clinics, and

physician offices), when reconsiderations of a reduction should be

expedited, and when enrollees are participating in case management

programs or other innovative treatment modalities for which there are

pre-agreements regarding the services to be furnished.

C. Grijalva et al. and Balistreri et al. v. Shalala

Civ. 93-711 (D. Arizona) concerns the service denial appeal rights

of members of Medicare health maintenance organizations. The District

Court's October 17, 1996 decision and March 3, 1997 judgment are

subject to appeal on or before May 2, 1997.

III. Additional Pending Revisions to the Regulations

We have undertaken a broad review of the overall appeals program

and have identified a number of improvements that we believe are

warranted. Therefore, in addition to the two changes being made in this

rule, we intend to publish soon a separate proposed rule making a

variety of other

[[Page 23372]]

improvements in Medicare managed care appeals processes.

IV. Provisions of This Final Rule

The provisions of this final rule with comment period follow:

In Sec. 417.600 (``Basis and scope''), paragraph (b)(3)(ii) is

modified to require that the HMO or CMP must ensure that Medicare

enrollees have a complete written explanation of the availability of

expedited reviews.

In Sec. 417.604 (``General provisions''), paragraph (b)(4) is

modified to allow physicians and other health professionals to act on

behalf of an enrollee in time-sensitive situations when an organization

determination or reconsideration is being requested.

The definition of ``organization determination'' set forth at

Sec. 417.606 (``Organization determinations''), paragraph (a), is

revised to include discontinuations of services being furnished by an

HMO or CMP.

In Sec. 417.608 (``Notice of adverse organization determination''),

paragraph (a) is modified to incorporate expedited organization

determinations, and paragraphs (b)(2) and (c) are revised to require

that the HMO or CMP must inform the enrollee of his or her right to and

conditions for obtaining an expedited reconsidered determination and

that failure to provide the enrollee with timely notification (72 hours

in the case of certain expedited organization determinations)

constitutes an adverse organization determination and may be appealed.

A new Sec. 417.609 (``Expediting certain organization

determinations'') is added to provide that an enrollee may request that

certain organization determinations be expedited if the standard time

frames could jeopardize the life or health of the enrollee or the

enrollee's ability to regain maximum function. This new section also

sets forth the procedures for expediting certain organization

determinations. An extension of up to 10 working days is permitted if

requested by the enrollee or if the HMO or CMP finds that additional

information is necessary and the delay is in the interest of the

enrollee.

In Sec. 417.614 (``Right to reconsideration''), a modification is

made to extend the right to reconsideration to include expedited

reconsiderations in time-sensitive situations.

In Sec. 417.616 (``Request for reconsideration''), paragraph (a)

(``Method and place for filing a request'') is modified to provide for

an exception for expedited reconsiderations to the place for filing a

request for a reconsideration.

A new Sec. 417.617 (``Expediting certain reconsiderations'') is

added to require that an enrollee may request expedition of a

reconsideration of certain organization determinations when the longer

time frames in Sec. 417.620(c) could seriously jeopardize the life or

health of the enrollee or the enrollee's ability to regain maximum

function. This section also sets forth the procedures for health plans

to expedite reconsiderations. An extension of up to 10 working days is

permitted if requested by the enrollee or if the HMO or CMP finds that

additional information is necessary and the delay is in the interest of

the enrollee.

A modification is made to Sec. 417.618 (``Opportunity to submit

evidence'') to recognize and clarify the procedural limitation for

providing evidence by enrollees, their representatives, or a health

professional on the enrollee's behalf.

Section 417.620 (``Responsibility for reconsiderations; time

limits'') paragraphs (c) and (e) are revised to incorporate the time

limit for expediting certain reconsiderations. Paragraph (d) is revised

to correct typographical errors.

V. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995, we are required to

provide 60-day notice in the Federal Register and solicit public

comment before a collection of information requirement is submitted to

the Office of Management and Budget (OMB) for review and approval. In

order to fairly evaluate whether an information collection should be

approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act

of 1995 requires that we solicit comment on the following issues:

The need for the information collection and its usefulness

in carrying out the proper functions of our agency.

The accuracy of our estimate of the information collection

burden.

The quality, utility, and clarity of the information to be

collected.

Recommendations to minimize the information collection

burden on the affected public, including automated collection

techniques.

However, we believe that the information collection requirements

referenced in this rule, as summarized below, are exempt from the

Paperwork Reduction Act of 1995 for the following reasons:

Sections 417.608, 417.609, 417.616, 417.617, 417.618, and 417.620

of this rule, as well as the retention and possible audit of health

plan records related to expedited requests, are exempt because they are

performed in the conduct of an administrative action, investigation, or

audit involving an agency against specific individuals or

organizations, as outlined in 5 CFR 1320.4(a)(2).

Below is a summary of information collection requirements

referenced in this rule, which we believe are exempt from the Paperwork

Reduction Act of 1995:

Section 417.608 requires that the HMO or CMP must inform the

enrollee of his or her right to and conditions for obtaining an

expedited reconsidered determination and that failure to provide the

enrollee with timely notification (72 hours in the case of certain

expedited organization determinations) constitutes an adverse

organization determination and may be appealed.

Section 417.609 requires an HMO or CMP to establish and maintain

procedures for expediting certain organization determinations. This

section also requires an HMO or CMP to notify an enrollee of an

expedited organization determination as expeditiously as the enrollee's

health condition requires, but within 72 hours of the request. Finally,

the section requires an HMO or CMP to accept the request of a

physician, regardless of whether the physician is affiliated with the

organization or not, to expedite the process for making an organization

determination. Section 417.616 requires that an enrollee may request a

reconsideration of an organization determination and specifies the

method and place for filing a request, which, in the case of a request

for an expedited reconsideration, as provided for in Sec. 417.617

(concerning certain expedited reconsiderations), is the HMO or CMP.

Section 417.617 requires that an enrollee may request a

reconsideration of certain organization determinations. It also

requires an HMO or CMP to have and maintain procedures for expediting

reconsiderations when the longer time frames permitted in

Sec. 417.620(c) could seriously jeopardize the life or health of the

enrollee or the enrollee's ability to regain maximum function. This

section also requires an HMO or CMP to accept the request of a

physician, regardless of whether the physician is affiliated with the

organization or not, to expedite the reconsideration. Finally, this

section requires that, if the HMO or CMP defaults on its obligation to

provide an expedited reconsideration, it must forward the file to us.

Section 417.618 requires an HMO or CMP to provide the parties to

the reconsideration reasonable opportunity to present evidence and

allegations of fact or law, related to the issue in

[[Page 23373]]

dispute, in person as well as in writing. In the case of expedited

reconsiderations, the opportunity to present the evidence is more

limited, and the organization must inform the enrollee, or authorized

representative of the enrollee, of the conditions for submitting

evidence.

Section 417.620 requires an HMO or CMP to issue the reconsidered

determination to the enrollee, or submit the explanation and file to us

within the time frames specified. Failure by the HMO or CMP to provide

the enrollee with a reconsidered determination within the time limits

described constitutes an adverse determination, and the HMO or CMP must

submit the file to us.

Although we believe the information collection requirements

referenced in this document are exempt under 5 CFR 1320.4(a)(2), as

required by section 3504(h) of the Paperwork Reduction Act of 1995, we

have submitted a copy of this document to OMB for its review.

Organizations and individuals desiring to submit comments should send

to both of the following addresses:

Health Care Financing Administration, Office of Financial and Human

Resources, Management Planning and Analysis Staff, Room C2-26-17, 7500

Security Boulevard, Baltimore, MD 21244-1850.

Office of Information and Regulatory Affairs, Office of Management and

Budget, Room 10235, New Executive Office Building, Washington, DC

20503, Attn: Allison Herron Eydt, HCFA Desk Officer.

VI. Response to Comments

Because of the large number of items of correspondence we normally

receive on Federal Register 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 and time specified in the DATES

section of this preamble, and, if we proceed with a subsequent

document, we will respond to the comments in the preamble to that

document.

VII. Waiver of Proposed Rulemaking

We ordinarily publish a notice of proposed rulemaking in the

Federal Register and invite prior public comment on proposed rules. The

notice of proposed rulemaking includes a reference to the legal

authority under which the rule is proposed, and the terms and substance

of the proposed rule or a description of the subjects and issues

involved. This procedure can be waived, however, if an agency finds

good cause that a notice-and-comment procedure is impracticable,

unnecessary, or contrary to the public interest and incorporates a

statement of the finding and its reasons in the rule issued.

For the reasons that follow, we believe that it would be contrary

to the public interest to delay the revisions made in this rule until

after a public notice and comment process has been completed. The first

provision concerns an expedited appeals process for certain preservice

denials. This expedited decision-making would occur if the

determination that services are not needed or no longer needed could

seriously jeopardize the life or health of the enrollee or could

jeopardize the enrollee's ability to regain maximum function. While a

number of Medicare-contracting plans have an expedited review process

in place for Medicare enrollees, not all do, and the opportunity to

obtain the reviews may not be consistently applied. For this reason,

the growing number of enrollees who could be adversely affected by a

slow process, and the fact that the situations addressed by this

provision are of such a serious nature, we find that there is good

cause to waive proposed rulemaking.

We have reached the same conclusion about the provision in this

rule that merely clarifies the original intent of the definition of an

organizational decision. This clarification, however, could help ensure

that a beneficiary has the appeal rights that the Congress intended

when services the beneficiary believes the HMO should provide are

terminated.

Clearly, the intent of section 1876(c)(5)(B) of the Act and

regulations set forth in part 417, subpart Q is that enrollees have the

opportunity to seek administrative review when they believe the health

plan is not furnishing any health service to which they are entitled.

The Medicare Health Maintenance Organization/Competitive Medical Plan

Manual indicates this intent in the ``Benefits'' chapter with a

requirement that health plans notify enrollees of their appeal rights

at discharge from a skilled nursing facility (see section 2112.1).

However, growing reports from beneficiaries and beneficiary advocacy

groups indicate that many enrollees are not being informed, or

appropriately informed, of appeal rights when services are being

discontinued and the enrollee disagrees that services are no longer

covered. When this occurs, the critical protection against

underutilization provided by the appeals process is not available to

enrollees.

We believe that it would be contrary to the public interest to

leave HMO enrollees at risk of being denied this critical protection in

cases in which health care service is being terminated while a notice

and comment process is being conducted.

Although we find that it is in the public interest to waive

proposed rulemaking in these two areas, there are a number of other

improvements to part 417, subpart Q that we are developing. While these

revisions are important, we did not believe that the standard for

waiving notice of proposed rulemaking was met or we found that public

comment is needed for the policy changes under consideration. We

anticipate that a second rule addressing improvements to the appeals

protections of Medicare enrollees will be issued as a proposed

regulation for comment in the near future.

VIII. Regulatory Impact Analysis

Consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601

through 612), we prepare a regulatory flexibility analysis unless the

Secretary certifies that a rule will not have a significant economic

impact on a substantial number of small entities. For purposes of the

RFA, many Medicare-contracting HMOs, CMPs, and HCPPs are considered to

be small entities.

In addition, section 1102(b) requires the Secretary to prepare a

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

the operations of a substantial number of small rural hospitals. This

analysis must conform to the provisions of section 604 of the RFA. For

purposes of section 1102(b), we define a small rural hospital as a

hospital that is located outside of a Metropolitan Statistical Area and

has fewer than 50 beds.

We require all Medicare-contracting HMOs, CMPs, and HCPPs to

maintain systems for making initial organization determinations and

conducting reconsiderations. Systems must also be in place so that

hospitalized beneficiaries who disagree with an HMO's or CMP's

discharge determination are given a written notice of noncoverage with

instructions for requesting immediate review by a PRO. In addition, the

Medicare Health Maintenance Organization/Competitive Medical Plan

Manual requires that beneficiaries being discharged from a nursing home

be given advance written notice of noncoverage and procedures for

requesting an appeal.

The clarification in the regulations that organization

determinations include discontinuations of care, and are thus

appealable, could increase the number of written notices issued and the

number of reconsiderations that a

[[Page 23374]]

health plan must conduct. However, because the majority of services

provided by any health plan are ambulatory care and hospital care--

where it is already required by statute, as mentioned above, that

notices be given any time a beneficiary disagrees that the

hospitalization can be ``discontinued''--this regulation will primarily

affect discontinuations involving skilled nursing facility,

rehabilitation, and home health care. In addition, not all changes in

level of care or terminations of coverage are disputed by the

beneficiary. Having considered the limited applicability of this

important clarification, we believe the increased volume of notices and

reconsiderations, and the associated increase in expenses, will not

have a significant impact on contracting health plans and HCPPs.

The new process for making expedited determinations and

reconsiderations in certain circumstances requires a modification of

existing appeals processes. In particular, contracting health plans

that do not currently have the process must develop procedures, train

staff, and maintain a daily availability of health professionals

necessary to handle an anticipated but unpredictable volume of cases

and the diverse, complex coverage issues usually associated with

serious, time-sensitive situations. We anticipate a net increase in the

number of determinations and reconsiderations due to an increase in

standard cases as well as a new, but smaller volume of expedited

reviews. This will occur because of the public attention being given to

appeal and expedited review rights, and, to a lesser degree, because of

fewer disenrollments. The volume increase is anticipated despite the

substitution of expedited reviews for a number of standard

determinations and reconsiderations. We do not believe, however, that

the net increase in the cost of the appeals system resulting from this

modification will have a significant impact on HMOs, CMPs, and HCPPs as

set forth in the RFA.

We estimate, based on 450 health plans, that the clarification

regarding discontinuations will cost approximately $30 million across

all plans (100,000 new reconsiderations x $300 per notice). Our

estimates for the expedited review requirements for the same number of

plans are the following: $9 million for development and training

($20,000 per plan); $20 million for expedited organization

determinations (50,000 determinations x $400 per expedited

determination); and $10 million for expedited reconsiderations (12,500

reconsiderations x $800 per reconsideration). The total estimated

economic impact is $69 million in the first year and $60 million

annually thereafter.

There is no direct impact on the Medicare trust funds from these

costs to the plans because there is no payment adjustment to Medicare

managed care plans associated with this rulemaking.

We anticipate that, while this final rule will affect our

administrative costs associated with the Medicare reconsideration

contract, these costs will be negligible. The availability of expedited

reviews and the clarification regarding discontinuations of care may

have a significant impact on the reconsideration contractor's volume of

reviews. However, although it is difficult to estimate, we believe the

additional cost of this contract will not exceed $1 million per year.

The number of Medicare enrollees in health plans that also have

commercial (and often Medicaid) enrollments, varies greatly. Thus, it

is very difficult to estimate the average net costs to contracting

health plans. Given the degree of variability, we estimate average net

costs to entities to implement the provisions of this regulation to

range between $20,000 and $200,000 annually. Entities with revenues of

$5 million or less annually or nonprofit organizations are considered

small entities for purposes of this regulation. Although 99 of 353

current contracting health plans are nonprofit and considered small

entities for the purpose of preparing an RFA, we do not believe the

annual cost to prepaid plans of implementing these provisions will be

significant since net cost to these entities will not constitute a

substantial portion of their annual revenues.

Therefore, we are not preparing analyses of this final rule for

either the RFA or section 1102(b) of the Act because we have

determined, and the Secretary certifies, that this rule will not have a

significant economic impact on a substantial number of small entities

or a significant economic impact on the operations of a substantial

number of small rural hospitals.

In accordance with the provisions of Executive Order 12866, this

regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 417

Administrative practice and procedure, Grant programs-health,

Health care, Health facilities, Health insurance, Health maintenance

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

recordkeeping requirements.

42 CFR chapter IV is amended as set forth below:

PART 417--HEALTH MAINTENANCE ORGANIZATIONS, COMPETITIVE MEDICAL

PLANS, AND HEALTH CARE PREPAYMENT PLANS

Part 417 is amended as set forth below:

1. The authority citation for part 417 continues to read as

follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42

U.S.C. 1302 and 1395hh), secs. 1301, 1306, and 1310 of the Public

Health Service Act (42 U.S.C. 300e, 300e-5, and 300e-9); and 31

U.S.C. 9701.

2. In Sec. 417.600, the introductory text of paragraphs (b) and

(b)(3) is republished, and paragraph (b)(3)(ii) is revised to read as

follows:

Sec. 417.600 Basis and scope.

* * * * *

(b) Scope. This subpart sets forth--

* * * * *

(3) The responsibility of the HMO or CMP--

* * * * *

(ii) To ensure all Medicare enrollees have a complete written

explanation of their grievance and appeal rights, the availability of

expedited reviews, the steps to follow, and the time limits for each

procedure; and

* * * * *

3. In Sec. 417.604, paragraph (b)(4) is revised to read as follows:

Sec. 417.604 General provisions.

* * * * *

(b) Limits on applicability of this subpart.

* * * * *

(4) Physicians and other individuals who furnish services under

arrangement with an HMO or CMP have no right of appeal under this

subpart, except as provided in Secs. 417.609(c)(4) and 417.617(c)(4),

which allow physicians and other health professionals to act on behalf

of an enrollee in time-sensitive situations when an organization

determination or reconsideration is being requested.

* * * * *

4. In Sec. 417.606, the introductory text to paragraph (a) is

republished, and new paragraph (a)(4) is added to read as follows:

Sec. 417.606 Organization determinations.

(a) Actions that are organization determinations. An organization

determination is any determination made by an HMO or CMP with respect

to any of the following:

* * * * *

[[Page 23375]]

(4) Discontinuation of a service (such as a skilled nursing

facility discharge), if the enrollee disagrees with the determination

that the service is no longer medically necessary.

* * * * *

5. In Sec. 417.608, the introductory text of paragraph (b) is

republished, and paragraphs (a), (b)(2), and (c) are revised to read as

follows:

Sec. 417.608 Notice of adverse organization determination.

(a) If an HMO or CMP makes an organization determination that is

partially or fully adverse to the enrollee, it must notify the enrollee

of the determination--

(1) Within 60 days of receiving the enrollee's request for payment

for services; or

(2) As specified in Sec. 417.609(c)(3) for expedited organization

determinations.

(b) The notice must--

* * * * *

(2) Inform the enrollee of his or her right to a reconsideration,

including the right to and conditions for obtaining an expedited

reconsidered determination.

(c) The failure to provide the enrollee with timely notification of

an adverse organization determination as specified in paragraph (a) of

this section or in Sec. 417.609(b) (concerning time frames for

expediting certain organization determinations) constitutes an adverse

organization determination and may be appealed.

6. A new Sec. 417.609 is added to read as follows:

Sec. 417.609 Expediting certain organization determinations.

(a) An enrollee, or an authorized representative of the enrollee,

may request that an organization determination as defined in

Secs. 417.606(a)(3) and (a)(4) be expedited. The request may be made

orally to the HMO or CMP.

(b) The HMO or CMP must maintain procedures for expediting

organization determinations when, upon request from an enrollee or

authorized representative of the enrollee, the organization decides

that making the determination according to the procedures and time

frames set forth in Sec. 417.608(a)(1) could seriously jeopardize the

life or health of the enrollee or the enrollee's ability to regain

maximum function.

(c) The procedures must include the following:

(1) Receipt of oral requests, followed by written documentation of

the oral requests.

(2) Prompt decision-making regarding whether the request will be

expedited, or handled within the standard time frame set forth at

Sec. 417.608(a)(1), including notification of the enrollee if the

request is not expedited.

(3) Notification of the enrollee, and the physician as appropriate,

as expeditiously as the enrollee's health condition requires, but

within 72 hours of the request. An extension of up to 10 working days

is permitted if requested by the enrollee or if the HMO or CMP finds

that additional information is necessary and the delay is in the

interest of the enrollee.

(i) Notification must comply with Sec. 417.608(b), concerning the

content of a notice of adverse organization determination.

(ii) If the initial notification is not in writing, written

confirmation must be mailed to the enrollee within 2 working days.

(iii) In cases for which the HMO or CMP must receive medical

information from a physician or provider not affiliated with the HMO or

CMP, the time standard begins with receipt of the information.

(4) Granting the request of a physician, regardless of whether the

physician is affiliated with the organization or not, to expedite the

enrollee's request.

7. Section 417.614 is revised to read as follows:

Sec. 417.614 Right to reconsideration.

Any party who is dissatisfied with an organization determination or

with one that has been reopened and revised may request reconsideration

of the determination in accordance with the procedures of Sec. 417.616,

concerning a request for reconsideration, or Sec. 417.617, concerning

certain expedited reconsiderations.

8. In Sec. 417.616, the introductory text to paragraph (a) is

republished, and a new paragraph (a)(4) is added to read as follows:

Sec. 417.616 Request for reconsideration.

(a) Method and place for filing a request. A request for

reconsideration must be made in writing and filed with--

* * * * *

(4) In the case of a request for an expedited reconsideration, as

provided for in Sec. 417.617 (concerning certain expedited

reconsiderations), the HMO or CMP.

* * * * *

9. A new Sec. 417.617 is added to read as follows:

Sec. 417.617 Expediting certain reconsiderations.

(a) An enrollee, or an authorized representative of the enrollee,

may request that a reconsideration be expedited. The request may be

made orally to the HMO or CMP.

(b) The HMO or CMP must maintain procedures for expediting

reconsiderations when, upon request from an enrollee or an authorized

representative of the enrollee, the organization decides that the

longer time frames permitted in Sec. 417.620(c) could seriously

jeopardize the life or health of the enrollee or the enrollee's ability

to regain maximum function.

(c) The procedures must comply with the requirements for

reconsidered determinations set forth in Secs. 417.614 through 417.626

and include the following items:

(1) Receipt of oral requests, followed by written documentation of

the oral requests.

(2) Prompt decision-making regarding whether the request will be

expedited or handled within the standard time frame of Sec. 417.620(c),

including notification of the enrollee if the request is not expedited.

(3) Notification of the enrollee, and the physician as appropriate,

as expeditiously as the enrollee's health condition requires, but

within 72 hours of the request. An extension of up to 10 working days

is permitted if requested by the enrollee or if the HMO or CMP finds

that additional information is necessary and the delay is in the

interest of the enrollee.

(i) Notification must comply with Sec. 417.624(b), concerning the

content of a notice of a reconsidered determination.

(ii) If the initial notification is not in writing, written

confirmation must be mailed to the enrollee within 2 working days.

(iii) In cases for which the HMO or CMP must receive medical

information from a physician or provider not affiliated with the HMO or

CMP, the time standard begins with receipt of the information.

(4) Granting the request of a physician, regardless of whether the

physician is affiliated with the organization or not, to expedite the

request.

8. Section 417.618 is revised to read as follows:

Sec. 417.618 Opportunity to submit evidence.

The HMO or CMP must provide the parties to the reconsideration

reasonable opportunity to present evidence and allegations of fact or

law, related to the issue in dispute, in person as well as in writing.

In the case of an expedited reconsideration, the opportunity to present

evidence is limited by the short time frames for making decisions, and

[[Page 23376]]

the organization must inform the enrollee, or the authorized

representative of the enrollee, of the conditions for submitting the

evidence.

9. In Sec. 417.620, paragraphs (c), (d), and (e) are revised to

read as follows:

Sec. 417.620 Responsibility for reconsideration; time limits.

* * * * *

(c) The HMO or CMP must issue the reconsidered determination to the

enrollee, or submit the explanation and file to HCFA within 60 calendar

days from the date of receipt of the request for reconsideration. In

the case of an expedited reconsideration, the HMO or CMP must issue the

reconsidered determination as specified in Sec. 417.617(c)(3) or submit

the explanation and file to HCFA within 24 hours of its determination,

the expiration of the 72-hour review period, or the expiration of the

extension.

(d) For good cause shown, HCFA may allow extensions to the time

limit set forth in paragraph (c) of this section.

(e) Failure by the HMO or CMP to provide the enrollee with a

reconsidered determination within the time limits described in

paragraph (c) of this section or to obtain a good cause extension

described in paragraph (d) of this section constitutes an adverse

determination, and the HMO or CMP must submit the file to HCFA.

* * * * *

(Catalog of Federal Domestic Assistance Program No. 93.773,

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

Supplementary Medical Insurance)

Dated: March 19, 1997.

Bruce C. Vladeck,

Administrator, Health Care Financing Administration.

Dated: April 11, 1997.

Donna E. Shalala,

Secretary.

[FR Doc. 97-11182 Filed 4-29-97; 8:45 am]

BILLING CODE 4120-01-P