Medicaid Program; External Quality Review of Medicaid Managed Care Organizations

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 433 and 438

[HCFA-2015-P]

RIN 0938-AJ06

Medicaid Program; External Quality Review of Medicaid Managed

Care Organizations

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would establish requirements and procedures

for external quality review (EQR) of Medicaid managed care

organizations (MCOs). The rule would implement section 1932(c)(2) of

the Social Security Act (the Act), which was enacted in section 4705(a)

of the Balanced Budget Act of 1997 (BBA), and section 1903(a)(3)(C)(ii)

of the Act, which was enacted in section 4705(b) of the BBA. Under

section 1932(c)(2) each contract between a State Medicaid agency (State

agency) and an MCO must provide for an annual EQR of the quality

outcomes, the timeliness of, and access to, the services for which the

MCO is responsible under the contract. Section 1903(a)(3)(C) provides

enhanced matching for these activities.

This annual external review is to be conducted by an independent

entity that meets the qualifications set forth in this rule, using

protocols also set forth in this rule.

In addition, these BBA provisions allow State agencies to exempt

certain Medicare MCOs from all EQR requirements or from particular

review activities that would duplicate review activities conducted as

part of a Medicare MCO's external review or accreditation processes.

These BBA provisions require that the results of the EQR be made

available to participating health care providers, enrollees and

potential enrollees of the MCO, and also authorize the payment of

enhanced Federal financial participation at the 75 percent rate for the

administrative costs of EQRs that are conducted by approved entities.

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

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

January 31, 2000.

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

following address: Health Care Financing Administration, Department of

Health and Human Services, Attention: HCFA-2015-P, P.O. Box 7517,

Baltimore, MD 21207-0517.

If you prefer, you may deliver your written comments (1 original

and 3 copies) to one of the following addresses:

Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,

Washington, DC, or

Room C5-16-03, 7500 Security Boulevard, Baltimore, MD.

Because of staff and resource limitations, we cannot accept comments by

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

HCFA-2015-P. Comments received timely will be available for public

inspection as they are received, generally beginning approximately 3

weeks after publication of a document, in Room 443-G of the

Department's office at 200 Independence Avenue, SW., Washington, DC, on

Monday through Friday of each week from 8:30 to 5 p.m. (phone: (202)

690-7890).

FOR FURTHER INFORMATION CONTACT: Sharon Gilles, (410) 786-1177.

SUPPLEMENTARY INFORMATION:

I. Background

In 1965, the Congress passed Title XIX of the Social Security Act

(the Act) which established the Medicaid program. Under this title, we

pay Federal financial participation (FFP) to State Medicaid agencies

(State agencies) to assist in the costs of health care for low-income

pregnant women, families, and aged, blind and disabled individuals. The

Medicaid program is administered by State agencies subject to Federal

statutory and regulatory requirements, which are implemented in

accordance with a ``State plan'' that must be approved by the Health

Care Financing Administration (HCFA).

In the early years of the Medicaid program, State agencies provided

most Medicaid coverage by paying health care providers on a fee-for-

service (FFS) basis. Beginning in the 1980s and continuing throughout

the 1990s, State agencies have increasingly provided Medicaid coverage

through managed care contracts, under which they pay a health

maintenance organization (HMO) or other similar entity a fixed monthly

capitation payment for each Medicaid beneficiary 1 enrolled

with the entity.

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\1\ The term ``beneficiary'', used throughout the preamble is

synonymous with the term ``recipient'', used in the text of the

regulation. Both refer to an individual who is eligible for and

receiving Medicaid benefits.

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As these managed care programs have grown in number and complexity,

so has Federal oversight, particularly oversight of quality of care.

Many studies conducted by health services researchers indicate that,

with few exceptions, the quality of care furnished by managed care

organizations 2 (MCO) is similar to that furnished by FFS

providers. Despite these findings, the quality of managed care has

received increased attention from the Congress, HCFA and the States.

This has been--

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\2\ Section 4701(b) of the Balanced Budget Act of 1997 (BBA)

established this term to encompass not only HMOs but also M+C

organizations, other types of organizations that may participate in

the Medicare program, and other public or private organizations that

meet specified statutory requirements.

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Prompted originally by the fact that, in the early years

of Medicaid managed care, there were highly publicized accounts of

Medicaid enrollees encountering barriers to accessing care, and other

quality-related problems;

Encouraged by developments in the private sector, such as

the use of ``continuous quality improvement'' and ``value-based

purchasing'', which can be applied in the public sector to obtain

[[Page 67224]]

high quality health care for Medicaid beneficiaries; and

Made feasible by the fact that an MCO that contracts to

furnish defined services to a defined population can be held

accountable in a way that is not possible under FFS Medicaid. For

example, under FFS Medicaid, if a child does not receive an

immunization, it is difficult to place responsibility on any of the

providers that may have treated that child for different illnesses.

As a result of the above, the number of legislative, regulatory,

and HCFA initiatives to improve health care quality have increased both

in number and in sophistication.

Federal statutes governing Medicaid managed care contracts did not

contain provisions explicitly addressing quality of care until 1986.

However, before that date, our regulations required HMOs to have an

internal quality assurance system and required State agencies to

conduct periodic medical audits to ensure the furnishing of quality

health care and access to that care. In the Omnibus Budget

Reconciliation Act of 1986 (OBRA '86), the Congress called for a new

approach that complemented an HMO's internal quality assurance program

and the periodic medical audits conducted by State agencies. OBRA '86

required that each State agency that contracted with an HMO use an

independent external organization to conduct an annual review of the

quality of services furnished to Medicaid beneficiaries served by each

HMO.

Between 1986 and 1997, we and the State agencies developed tools to

use in implementing these quality oversight responsibilities. In 1991,

we began the Quality Assurance Reform Initiative (QARI), which in 1993,

resulted in the publication of, ``A Health Care Quality Improvement

System for Medicaid Managed Care-A Guide for States.'' This document

contained: (1) A framework for quality improvement systems for Medicaid

managed care programs; (2) guidelines for internal quality assurance

programs of Medicaid HMOs and similar organizations; (3) guidelines for

clinical and health services focus areas and use of quality indicators

and clinical practice guidelines; and (4) guidelines for the conduct of

external quality reviews (EQRs) mandated in OBRA '86.

In 1995, HCFA in collaboration with the National Committee for

Quality Assurance (NCQA) and the American Public Human Services

Association (APHSA), produced a Medicaid version of the Health Plan

Employer Data and Information Set (HEDIS), a standardized quality

performance measurement system used by private sector purchasers of

managed care. We also contracted with NCQA to produce, ``Health Care

Quality Improvement Studies in Managed Care Settings--Design and

Assessment: A Guide for State Medicaid Agencies''.

II. The Balanced Budget Act of 1997

The Balanced Budget Act of 1997 (BBA) added to the Act a new

section 1932 that pertains to Medicaid managed care. Most of the

provisions of section 1932 would be implemented in accordance with a

proposed rule that was published in September, 1998 and is discussed

under part III C of this preamble.

Section 1932(c), added by section 4705 of the BBA, describes in

detail how quality measurement and performance improvement methods

should be applied to Medicaid managed care programs through two

specific approaches:

All State agencies must develop and implement a quality

assessment and improvement strategy that includes: (1) standards for

access to care; (2) examination of other aspects of care and services

related to improving quality; and (3) monitoring procedures for regular

and periodic review of the strategy. (This requirement was addressed in

the September proposal.)

State agencies that contract with Medicaid MCOs must

provide for an annual external, independent review of the access to,

timeliness of, and quality outcomes of the services included in the

contract between the State agency and the MCO. (This requirement is

addressed in this proposed rule.)

Section 1932(c) of the Act also requires the Secretary--

In consultation with the States, to establish a method for

identifying entities qualified to conduct EQR (section

1932(c)(2)(A)(ii)); and

In coordination with the National Governors' Association

(NGA), to contract with an independent quality review organization to

develop the protocols to be used in EQRs (section 1932(c)(2)(A)(iii)).

For the first requirement, we obtained the input of an expert panel

convened by the National Academy for State Health Policy (NASHP).

To meet the second requirement, on July 7, 1998, we issued a

Request for Proposal (RFP) for one or more contractors to develop a set

of review protocols for external quality review organizations (EQROs)

to use in the conduct of EQRs. Two State representatives selected by

the NGA were members of the panel which reviewed responding proposals.

As a result of this competitive procurement, a contract was awarded to

the Joint Commission on Accreditation of Healthcare Organizations

(JCAHO) to develop protocols for the activities we believed were most

frequently conducted by EQROs. Our belief was subsequently confirmed

through surveys conducted by the Department's Office of the Inspector

General (OIG) and the NASHP. The JCAHO has not completed development of

the protocols for EQR. Although the text of the protocols themselves

will not be included in regulations text, this proposed rule does

identify the areas to be covered by them and what is to be included in

such protocols.

The other section 1932 provisions that are pertinent to this

proposal are provisions that--(1) Require that the results of EQRs be

made available to participating health care providers, enrollees and

potential enrollees (section 1932(c)(2)(A)(iv)), and (2) Provide that a

State agency--

May, at its option, take steps to ensure that an EQR does

not duplicate a review conducted either by a private independent

accrediting organization or as part of an external review conducted

under the Medicare program (section 1932(c)(2)(B)); and

May exempt an MCO from EQR under certain specified

conditions (section 1932(c)(2)(C)).

Section 4705(b) of the BBA provides for increased FFP (75%) for the

costs of conducting EQR under Section 1932(c)(2)(A), providing the EQRO

meets the requirements set forth in regulations. Under the OBRA '86

provision, 75% FFP is available only if EQR is conducted by a

utilization and quality control peer review organization (PRO) or an

entity that meets the requirements to be a PRO but does not have a PRO

contract with Medicare. Accreditation organizations may also be used to

conduct EQR, but their review activities are matched at the 50 percent

rate under the current OBRA '86 rules.

III Development of the Proposed Rule

A. Major Purposes

In developing this proposed rule, we had two major purposes: (1) To

provide flexibility for State agencies; and (2) to reflect the well-

accepted advances in the technology of quality measurement and

improvement.

Flexibility is particularly important because the EQR requirement

is not new. States have been monitoring quality under the OBRA '86

requirements for which final regulations were never published.

Accordingly, this proposal would not require State

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agencies to dismantle EQR mechanisms that they have used and found to

be effective and efficient. The BBA language calling for State agencies

to develop their own Quality Assessment and Improvement Strategies,

supports our approach of recognizing the unique characteristics of

States, their managed care programs and the sophistication of the

managed care marketplace within each State.

In addition, the BBA provides greater flexibility in the types of

entities that State agencies may use to conduct EQR. Consequently, this

rule allows State agencies to coordinate EQRs with other similar

quality reviews conducted for other purposes, thereby reducing the

burden to State agencies and EQROs in complying with the requirement.

Despite the necessary flexibility, the BBA ensures comparability

among State EQR results by requiring us to develop protocols to be used

by all State agencies and EQROs in conducting the reviews.

Although the definition of EQR (shown under part IV of this

preamble) makes clear that EQR must be conducted by an EQRO, it does

not preclude State agencies from using other entities to conduct

additional activities to monitor quality. For example, State agencies

may themselves collect performance measures or encounter data, or

monitor MCOs for compliance with structural and operational quality

standards, or contract with an entity other than an EQRO to perform

these projects. This approach allows State agencies considerable

flexibility in the conduct of quality review activities and permits

them to continue current practices at the 50% administrative match

rate.

With respect to the second purpose, there is growing acceptance of

the health care industry's ability to measure and improve health care

quality, as documented in the President's Advisory Commission on

Consumer Protection and Quality in the Health Care Industry, and the

development of stronger tools to accomplish this measurement (such as

the Consumer Assessment of Health Plans Study (CAHPS)). In developing

this rule, we have incorporated best practices in the assessment and

improvement of health care quality.

B. Information Used

In order to develop this proposal we needed information on--

How States have implemented EQR requirements under OBRA

'86; and

What qualifications to require for EQROs.

State Experience Under OBRA '86

Because a final regulation for the OBRA '86 requirement was never

published, State agencies have considerable latitude in defining the

activities conducted as part of EQR. We knew that State agencies were

using the EQR requirement to implement different approaches to quality

review. For example, some State agencies use EQR to monitor HMO

compliance with QARI standards, while others use EQRs to conduct

focused studies on defined clinical topics, such as immunizations, to

determine HMO performance. We did not know how widely State practices

varied.

In order to determine the extent and the success of each variation,

we relied on information from two sources. The first was a study

conducted by the Department's Office of Inspector General (OIG)

entitled, ``Lessons Learned From Medicaid's Use of External Quality

Review Organizations'' published in September, 1998. This study

reviewed the practices of seven States (Arizona, California,

Massachusetts, Minnesota, Missouri, Ohio and Washington) that had

considerable experience with Medicaid managed care or in working with

EQROs. The study documented that focused studies of quality of care,

that is, review of medical records to obtain information on services

delivered to a group of individuals with the same health care needs,

was the most frequent activity performed by EQROs. In these States,

focused studies accounted for nearly 80 percent of their budgets for

EQRO. However, in the OIG study, States expressed an awareness of the

limitations of the use of focused studies alone, stating that they fail

to offer a broad assessment of the care delivered to all those enrolled

in a State's Medicaid managed care program. As summarized by the study:

``At best they capture a slice of care delivered to one or two sub

populations. Even if a Medicaid agency designed the perfect system to

capture prenatal care visits or child immunizations, this is only a

tiny fraction of care provided to the Medicaid population.'' For this

reason, State agencies are beginning to use EQROs to undertake other

approaches to quality review, including: (1) Validation of encounter

data or aggregate MCO-level performance measures; (2) individual case

review; (3) evaluation of quality studies conducted by MCOs; (4)

conducting beneficiary surveys; and (5) provision of technical

assistance.

The OIG study also documented that these seven States had typically

used Medicare PROs to conduct the EQRO function. This was generally

satisfactory to the States, especially because most States use EQR to

conduct focused studies. However, some State agencies expressed

reservations about using PROs for other EQR functions, such as

processing and verifying encounter data or conducting consumer surveys.

As a result, all of the State agencies in this study contracted with

entities other than their EQRO contractors to perform additional

quality review activities even though the FFP rate for these services

was 50%, rather than 75%. These entities included: universities,

consulting groups, claims or data management groups, and survey firms.

In addition, four of the seven had additional arrangements with State

agencies other than the Medicaid agency, including Departments of

Health, Departments of Mental Health, or State data entities. The two

overall conclusions expressed by the OIG, report were that Medicaid

agencies find value in using a variety of quality oversight functions

in EQR, and that they would prefer to use several different types of

contractors.

To obtain additional information, we contracted with the NASHP to

conduct a more comprehensive survey of all State agencies using EQROs.

The NASHP survey reaffirmed the OIG survey finding that focused quality

of care studies were the most common EQRO activity, with additional

activities including: data validation, random medical record review,

surveys, data audits and validation, and contract compliance reviews.

The survey also affirmed the States' desire to contract with additional

types of organizations for their EQRs, although three State agencies

explicitly recommended that new entities not be permitted. Those State

agencies wishing to contract with new entities identified State

entities other than Medicaid such as public health or insurance

departments, and other entities such as universities, consulting firms

and research foundations, as desirable organizations.

EQRO Qualifications

OBRA '86 as amended by OBRA '87 specified the types of entities

State agencies could contract with to conduct EQR. The BBA, instead of

specifying types of entities, requires the Secretary to consult with

States and establish a method for the identification of entities that

are qualified to conduct EQR. To fulfill this requirement, we

contracted with the NASHP to convene an expert panel comprised of a

majority of State representatives but also including consumer advocates

and other stakeholders, an MCO representative, a

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quality improvement expert and members of our staff. The expert panel

met for two days to discuss the following:

What is the skill set required to conduct the EQR scope of

work?

What does it mean for an EQRO to be ``independent''?

Who should be the authority to designate ``qualified''

entities to serve as EQROs?

Should these designations be made on a categorical or

case-by-case basis?

Must all EQR activities be conducted by a single entity or

may several entities conduct EQR activities, and may entities use

subcontractors?

We used the recommendations included as part of the NASHP report of

the meeting to develop the provisions of this proposed rule.

C. Relation to Other Proposed Rules

On September 29, 1998, at 63 FR 520220, we published a proposed

rule identified as HCFA-2001-P, Medicaid Managed Care Provisions

(September proposal). That rule proposed to add to the Medicaid

regulations a new part 438 that includes a subpart E--Quality

Assessment and Performance Improvement. Under subpart E, it is a

State's responsibility to arrange for an annual external independent

review of the timeliness, access, and quality of the services that each

contracting MCO furnishes to its Medicaid enrollees. The September

proposal did not include the specific EQR provisions because we had not

yet complied with the BBA's requirement to consult with States to

establish a method for identifying entities that are qualified to

conduct EQR. Now that we have complied with this requirement, we can

propose the rules for EQR.

The September proposal includes a Sec. 438.8(h) which lists those

requirements, set forth elsewhere in part 438, that also apply to

Prepaid Health Plans (PHPs). Prepaid Health Plans, like MCOs, are

organizations paid on a prepaid capitation basis for services furnished

to enrollees, but unlike MCOs, they do not always provide comprehensive

health care services nor do they always assume risk. (Examples of PHPs,

are managed dental or behavioral health plans.)

When part 438 is published in final form (following consideration

of comments received on both proposed rules), we plan to amend the

Sec. 438.8(h) list to include the EQR requirements as applicable to

PHPs, for the benefit of PHP enrollees. As in the case of PHP

requirements generally, this requirement would be promulgated under

section 1902(a)(4) of the Act which authorizes the Secretary to

establish requirements necessary ``for the proper and efficient

operation of the plan.'' We also believe that this is consistent with

Congressional intent. In the Joint Explanatory Statement of the

Committee of the Conference accompanying the BBA, the section entitled

``Current Law,'' includes the following: ``States are required to

obtain an independent assessment of the quality of services furnished

by contracting HMOs and prepaid health plans (those offering a non-

comprehensive set of services under partial capitation), using either a

utilization and quality control peer review organization (PRO) under

contract to the Secretary or another independent accrediting body.''

Although the OBRA '86 requirement did not apply to PHPs, the fact that

the Congress believed that it did and chose not to exempt PHPs, as it

did primary care case managers, we take as a sign that the Congress

perceives EQR requirements as appropriately applied to PHPs.

Currently, 42 CFR 434.53 requires States to have a system of

periodic medical audits to ensure that each HMO and PHP furnishes

quality and accessible health care to enrollees. Our September proposal

eliminates the periodic Medical Audit requirement. We intend this new

EQR requirement to replace the requirement on PHPs for periodic medical

audits.

Because PHPs do not always provide comprehensive services, we

intend that an EQR of a PHP will assess only the scope of services for

which the State has contracted. We invite comment on our decision to

apply the EQR requirement to PHPs. We will only consider comments that

pertain specifically to our proposal to include EQR requirements in

Sec. 438.8(h), and not on the broader issue of subjecting PHPs to other

MCO quality requirements. Comments on those other requirements would

have been appropriate in response to the September proposal.

In addition to proposing that these provisions apply to PHPs, we

are also proposing to apply the EQR provisions to organizations that

have comprehensive risk contracts but are exempt from 1903(m)

requirements, such as Health Insuring Organizations (HIOs) which began

operating prior to January 1, 1986, certain county-operated HIOs in

California, and entities described in section 1903(m)(2)(B). As

reflected in Sec. 438.6 of the September 29, 1998 proposed rule, only

contracts with HIOs that began operating on or after January 1, 1986

are subject to MCO requirements unless they have been specifically

exempted by statute from these requirements, as in the case of certain

county operated HIOs in California. As discussed above, pursuant to our

authority under section 1902(a)(4) to establish requirements necessary

for ``proper and efficient administration,'' we have proposed to apply

several beneficiary protections and quality-related requirements

(including the EQR requirement proposed in this rule) to PHPs, which do

not have comprehensive risk contracts.

Entities with comprehensive risk contracts that have been exempted

by statute from the MCO requirements in section 1903(m) and section

1932, however, were not included in our proposed revised definition of

PHP. As discussed above, we did not believe it was appropriate to

subject these entities, in effect, to virtually the full range of MCO

requirements (as we proposed to do in the case of PHPs) when Congress

had provided these entities with explicit statutory exemptions from

these requirements. We do not believe, however, that these entities

should be exempted entirely from any check on the quality of the

services they provide to their enrollees. We accordingly are proposing

in section Sec. 438.1 (c) to require compliance with EQR requirements

by entities with comprehensive risk contracts that are statutorily

exempt from the requirements in section 1903(m)(2)(A). We believe this

is consistent with Congressional intent to ensure quality outcomes and

timeliness of and access to services of all Medicaid beneficiaries

enrolled in capitated risk arrangements. We invite comment on our

decision to apply the EQR requirement to entities with statutory

exemptions from section 1903(m)(2)(A) requirements.

The final rule for part 438 will probably assign a separate subpart

for the rules specific to EQR.

IV. Provisions of the Proposed Rule

A. Definitions (Section 438.2)

Section 438.2 establishes ``EQR'' and ``EQRO'' as representing

``external quality review'' and ``external quality review

organization'' respectively. It also defines four terms frequently used

in the text:

``External quality review'' means the analysis and evaluation, by

an EQRO, of aggregated information on timeliness, access, and quality

of health care services furnished to Medicaid enrollees by each MCO,

and other related activities performed by an EQRO.

``External quality review organization'' means an organization

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that meets the competence and independence requirements set forth in

Sec. 438.354, and performs EQR.

``Quality'', as it pertains to EQR, means the degree to which an

MCO maintains or improves the health outcomes of its enrollees through

its structural and operational characteristics and through the

provision of services. This definition recognizes structure, process,

and outcomes as the variables that affect and constitute the delivery

of appropriate health care and that have historically been used in the

review of quality of care.

``Validation'' means the review of information, data, and

procedures to determine the extent to which they are accurate,

reliable, free from bias, and in accord with standards for data

collection and analysis.

B. State Responsibilities (Section 438.350)

Section 438.350 sets forth the State's responsibilities related to

EQR. Each State agency that contracts with MCOs under section 1903(m)

of the Act must ensure that--

Except as provided in Sec. 438.362, an annual EQR is

performed by a qualified EQRO for each contracting MCO;

The EQRO has sufficient information to use in performing

the review;

The information that the State agency provides to the EQRO

is obtained through methods consistent with protocols specified by

HCFA; and

The results of the EQR are made available, upon request,

to specified groups and to the general public.

The information that the State agency must make available to the

EQRO is specified in Sec. 438.358. The information that constitutes the

``results'' of the EQR is specified in Sec. 438.364.

Section 1932(c)(2)(A) of the Act requires that each contract with

an MCO ``provide for an annual (as appropriate) external independent

review, conducted by a qualified independent entity* * *''. We have

interpreted the parenthetical statement (for which there is no

explanation in the legislative history) to be a reference to those MCOs

that may be exempted from EQR under section 1932(c)(2)(C) of the Act on

the basis of ``deemed compliance.'' We invite comment on other possible

interpretations.

C. External Quality Review Protocols (Section 438.352)

In our RFP for the development of protocols, we defined them as

``detailed instructions to be followed by personnel performing reviews

of health care quality.'' Protocols must specify: (1) The data to be

gathered, that is, the substantive areas to be covered by the protocol;

(2) the source of the data; (3) detailed procedures to be followed in

collecting the data to promote its accuracy, validity, and reliability;

(4) the proposed methods for valid analysis and interpretation of the

data; and (5) all instructions, guidelines, worksheets and any other

documents or tools necessary for implementing the protocol.

The protocols that the JCAHO is developing under the guidance of an

expert panel are reflected in proposed section 438.358 discussed below.

They will address: (1) Monitoring for compliance with structural and

operational quality standards; (2) validating client-level data; (3)

calculating performance measures; (4) validating performance measures

produced by MCOs; (5) conducting quality-assessment and performance-

improvement projects; (6) validating MCO-conducted quality-assessment

and performance-improvement projects; (7) conducting studies on

quality, focused on a particular aspect of clinical or non-clinical

services furnished at a particular time; (8) validating consumer or

provider surveys; and (9) administering consumer or provider surveys.

We have asked the JCAHO to draw from existing protocols that have

been tested for reliability and validity and that have been used in the

public and private sectors to conduct reviews of the quality of MCO

services, consistent with current industry practice. We have also

expressed a preference for protocols that are in the public domain.

We expect that the protocols will be detailed and many pages in

length. This is one reason for not including them in our regulations.

Another reason is the fact that quality measurement is a rapidly

changing technology. Protocols developed in the private sector for

validation of performance measures and administration of consumer

surveys are revised at least annually. The delays inherent in revising

regulations would make it difficult to make such frequent changes.

All activities that provide information for EQR must use protocols

that are consistent with those that we specify. This will ensure that

the conduct of the activities enhances the quality of EQR for State

agencies and that the conduct of the activities is methodologically

sound. However, by requiring protocols that are ``consistent'', rather

than ``identical'', with those that we specify, we leave the State

agencies free to improve their protocols continuously, as the art and

science of quality measurement improve.

D. Qualifications of External Quality Review Organizations (Section

438.354)

Section 438.354 sets forth the requirements that an entity must

meet in order to qualify as an EQRO. We worked in consultation with

States, consumer advocates, and other stakeholders, under the auspices

of NASHP, to determine how to ensure that EQROs are both ``competent''

and ``independent''.

This proposed rule does not define categories of entities that are

qualified to perform EQR. Rather, it proposes that in order to qualify,

entities must meet specified competence and independence standards. To

meet the competence standards, the entity must have at least the

following:

Staff with knowledge of (1) Medicaid beneficiaries,

policies, data systems, and processes; (2) managed care delivery

systems, organizations, and financing; (3) quality assessment and

improvement technologies; and (4) research design and methodology;

Sufficient physical, technological, and financial

resources to conduct EQR; and

Other clinical and nonclinical skills to carry out the

review and to supervise the work of any subcontractors.

To meet the independence requirement, we propose two tests:

The EQRO and any subcontractors must be independent from

the State Medicaid agency and from any MCO they review.

The relationship between the MCO and the EQRO must be such

as to preclude conflict of interest.

The first test would allow State entities to qualify as EQROs, with

the following limitations:

A State entity could not qualify if it (1) Has Medicaid purchasing

or managed care licensing authority; (2) delivers any health care

services to Medicaid beneficiaries; or (3) conducts, on the State's

behalf, any other ongoing Medicaid program operations related to

oversight of the quality of MCO services. In addition, the State entity

must be governed by a Board or similar body, the majority of whose

members are not government employees.

We were concerned about the limitation on board membership. We

wondered whether it was feasible to have a State entity with an

oversight body composed predominantly of non-State employees. We found

that a number of State entities do have such boards. For example,

Vermont's Program for Quality in Health Care is an organization

authorized by the Vermont

[[Page 67228]]

legislature to oversee the quality of care for both commercial and

public consumers. It is a non-profit organization that is governed by a

board of directors, the majority of whom, are not government employees

and which includes representatives of consumers, hospitals, insurers,

MCOs, employers, physicians, and State government. The organization is

charged with improving the quality, efficiency, and cost effectiveness

of Vermont's health care system. It measures health care quality

through data collection and analysis, and works with health care

providers and others to develop standards of care and indicators of

quality.

Maryland's Health Care Access and Cost Commission (HCACC), created

in 1993, is an independent commission with nine members who are

appointed by the governor with the advice and consent of the Senate.

The majority of the nine Board members are not government employees.

Among its responsibilities, the HCACC is required to establish and

implement a system to comparatively evaluate the quality and

performance of MCOs.

The NASHP expert panel also recommended that EQROs be required to

have participation by Medicaid beneficiaries. With respect to this

recommendation, we welcome such participation, however, we do not

propose to mandate it, for two reasons:

1. EQR is only one facet of the State's quality assessment and

performance improvement strategy.

2. We believe that stakeholder input on EQR might be more effective

if provided to the State agency (rather than the EQRO), as it develops

that strategy.

The second test of independence from the MCO applies to all

entities contracting under EQR. The NASHP summary report, based on its

expert panel's input, recommended providing that an EQRO may not review

an MCO if either has an ownership interest greater than 5 percent in

the other, or if they share management or corporate board membership.

That would be consistent with our disclosure of ownership and related

information requirements under our program integrity regulations (part

420 for Medicare, and part 455 for Medicaid). However, we are proposing

a broader approach that is consistent with other HCFA regulations on

contracting and is based on the concept of ``affiliation'',3

as the term is explained in 48 CFR 19.101.4 In accordance

with that regulation, an EQRO and an MCO would be considered to be

``affiliated'' if either one controls or has the power to control the

other, or another entity controls or has the power to control both. We

believe that this concept of ``control'' can better ensure that no

actual conflicts of interest exist between the EQRO and the MCO it

reviews. We request comments on how better to identify situations that

create conflict of interest, on our proposing to allow State entities

to qualify as EQROs, and on our decision to apply the ``independence ``

requirement to subcontractors as well as contractors.

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

\3\ That is the concept we propose to use in implementing the

Medicare Integrity Program (MIP) established by the Health Insurance

Portability and Accountability Act of 1996 (Public Law 104-191). The

MIP proposed rule published in March 1998, identifies offerors or

entities as having a conflict of interest if they are

``affiliated.''

\4\ Title 48 of the CFR contains the Federal Acquisition

Regulations (FAR) system, which ``is established for the

codification and publication of uniform policies and procedures for

acquisition by all executive agencies.'' Most government acquisition

is accomplished through contracting.

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

Another NASHP summary report recommendation based on its expert

panel's input was that EQROs be selected by State agencies through RFPs

that would not require prior approval by us, but would be subject to

review later to ensure that, as a condition for FFP at the 75 percent

rate, the State agency followed all applicable procedures and criteria.

We note that this recommendation requires no changes or additions to

current law because it is current practice for State agencies to use

RFPs to select EQROs. It is also standard practice for our regional

office staff to monitor implementation of Medicaid managed care

initiatives. With respect to EQR, Regional Office staff may review the

State's most recent RFP for external review services, the EQR contract,

or the EQR reports.

E. State Contract Options (Section 438.356)

Section 438.356 sets forth requirements that State agencies must

follow, and options that they may use in selecting EQROs. On the basis

of the NASHP expert panel's recommendations, as well as the findings of

the OIG report, we propose that State agencies may contract with more

than one EQRO and each EQRO may use subcontractors. EQROs that use

subcontractors are accountable for and required to oversee all EQR

activities performed by the subcontractors. In addition, each

contractor must meet the competency requirements and each contractor

and subcontractor must meet the independence requirement.

We considered requiring only the contractor to meet the test of

independence. We determined that such an approach would permit entities

with conflicts of interest to serve as subcontractors under a ``shell''

contractor, and thus not ensure a truly independent review.

This section also requires that State agencies follow an open

competitive procurement process that is in accordance with State law

and regulation and consistent with 45 CFR part 74, as it applies to

State procurement of Medicaid services.

F. Activities Related to External Quality Review (Section 438.358)

Section 438.358 requires that the EQR use information obtained from

specified mandatory activities that must be performed by the State

agency or the EQRO; and identifies other optional activities that the

State agency may wish to perform, or have the EQRO perform, to produce

additional information for use in the EQR. The mandatory activities are

consistent with the requirements set forth in the September proposal.

The optional activities were not included in that proposal. They are,

however, activities that both the OIG and the NASHP surveys identified

as activities that States have found useful in reviewing quality.

Inclusion of these optional activities would permit States to use their

EQROs for the full range of activities they are now conducting. This

section also authorizes States to use EQROs to provide technical

assistance to MCOs.

This rule proposes that each year, information to be used by the

EQRO be obtained from the validation of performance improvement

projects performed that year and the validation of performance measures

reported that year. However, we recognize that a State, or Medicare, or

a private accreditation organization may review MCO compliance with

structural and operational quality standards less frequently than once

a year. For example, NCQA and JCAHO generally perform their

accreditation reviews once every three years. Because of this, we

propose that the information used by the EQRO on this type of review

must be from the most recent review performed within the previous three

years.

G. Non-Duplication of Mandatory Activities (Section 438.360)

Section 438.360 is based on section 1932(c)(2)(B) of the Act which

provides the option for a State agency to exempt an MCO from specified

EQR-related activities that would duplicate activities conducted as

part of Medicare reviews or independent accreditation surveys.

[[Page 67229]]

For this provision, we had to determine how a State agency could obtain

information about the quality of care found through Medicare reviews or

accreditation if there was no EQR to provide information. Moreover,

because Medicare serves the elderly and disabled, while Medicaid

predominantly serves families and children, we needed to take into

account that review activities usually differ for these populations in

terms of the types of data collected, the measures used, and the

studies conducted. These differences limit the extent to which they can

be considered to duplicate each other. Accordingly, we propose that an

MCO that is a certified M+C organization with a current Medicare

contract--

Qualifies for exemption if it has had an independent

quality review under Medicare or is fully accredited by a private

accreditation organization; but

The exemption applies only to the activities specified in

Sec. 438.358(a)(2). Those are specific to reviewing compliance with

standards for (1) availability of services; (2) continuity and

coordination of care; (3) coverage and authorization of services; (4)

establishment of provider networks; (5) enrollee information; (6)

enrollee rights; (7) confidentiality; (8) enrollment and disenrollment;

(9) grievance systems; (10) subcontractual relationships and

delegation; (11) use of practice guidelines; (12) health information

systems; and (13) mechanisms to detect both underutilization and

overutilization of services as part of the quality assessment and

performance improvement programs.

We believe that these activities are essentially the same

regardless of the population served, but the activities specified in

Sec. 438.358(a)(1) are sensitive to the type of population served. For

example, performance improvement projects that target the elderly would

not be appropriate for addressing maternal and child health issues, and

would not be considered duplicative. The rule provides one exception to

this limitation: a State agency may exempt from all mandatory

activities (listed in paragraphs (a)(1) and (a)(2) of proposed

Sec. 438.358) any MCO that serves only individuals who are eligible for

both Medicare and Medicaid. In that situation, there is no reason for

concern, since the population served is the same for both programs.

The State agency must require each MCO exempted under this section

to make available to the State agency all reports and findings and the

results of the Medicare quality review or the accreditation survey, in

order to: (1) Provide that information to the EQRO; and (2) ensure that

State agencies and Medicaid beneficiaries have access to comparative

information on MCOs and M+C organizations.

H. Exemption From External Quality Review (Section 438.362)

This section implements section 1932(c)(2)(C) of the Act which

provides that a State agency may exempt an MCO from the EQR

requirements in section 1932(c)(2)(A) if the MCO has a current Medicare

contract under Part C of title XVIII or under section 1876 of the Act;

and, for at least two years, has had in effect a Medicaid contract

under section 1903(m) of the Act.

In developing this proposed rule, we asked ourselves (1) how to

interpret the statutory requirements for having a Medicare contract,

and having had a Medicaid contract for at least two years; (2) whether

the exemption should apply to an MCO whose Medicare and Medicaid

contracts do not cover the same geographic area; (3) whether the

Congress intended that the State agency grant an exemption without

consideration of the MCO's performance during the preceding 2-year

period; and (4) what information, if any, the State agency needs to

obtain with respect to an exempted MCO. On the basis of our responses

to those questions, we added three requirements. We particularly

request comments on these requirements because they are not based on

any explicit language in the statute or the Conference Committee

Report.

The first requirement is that the two contracts cover all or part

of the same geographic area. The purpose is to prevent exemption on the

basis of a Medicare contract that covers a geographic area, for

example, another State or a different part of the same State, that is

completely different from the area covered by the MCO's Medicaid

contract. (Sec. 438.362(a)(2))

We believe that an MCO that serves different areas typically has

different provider networks in each area. Since research has clearly

shown variations in practice patterns among physicians in different

geographic areas, it is reasonable to interpret the deemed compliance

provisions as requiring some common service areas.

The second added requirement is that, during each of the two years

preceding the granting of an exemption, the MCO has had an EQR that

found it to be performing acceptably with respect to the timeliness,

access, and quality of health care services provided to Medicaid

enrollees. (Sec. 438.362(a)(3)).

We considered several possible rationales for the statutory

provision that grants exemption on the basis of two-year participation

in the Medicaid program:

After two years of dealing with the MCO as a contractor,

the State agency is sufficiently familiar with its performance

generally, thus making EQR unnecessary.

Two years of serving the Medicaid population (a different

population than Medicare's) is sufficient to exempt the MCO from EQR.

During each of the two years of the Medicaid contract, the

MCO will have been subject to the section 1932(c)(2)(A) requirements,

and will have been able to demonstrate its performance through the

annual EQR, demonstrating that the MCO's ongoing Medicare compliance is

likely to remain predictive of high quality Medicaid services.

Given the importance that the Congress has placed on quality in the

BBA provisions, we are proposing to interpret the two year rule to have

been adopted based upon the third rationale above. Accordingly, we

propose that the State agency have the option to exempt the MCO if,

during the two preceding years of Medicaid contract under section

1903(m) it has been subject to EQR and been found to be performing

acceptably with respect to the timeliness, access, and quality of care

furnished to Medicaid enrollees. The State agency could not exempt an

MCO that, during the previous two-year period had been found to have

significant problems requiring corrective action. We note that our

interpretation would effectively delay exercise of the option until at

least two years after this rule is published in final.

The third added provision is that the State agency require each

exempted MCO to provide it, annually, with copies of all Medicare

reviews performed by us, or by any of our agents or any private

accreditation organization, with respect to the timeliness, access, or

quality of its services. (Sec. 438.362(b)) The rationale for this

requirement is that the statutory provision exempts the MCO from EQR

requirements specifically, but not from continued State agency

oversight of the quality of MCO services.

I. EQR Results. (Section 438.364)

Section 438.364 requires that the EQR produce the following

information:

A detailed technical report that describes the following

for each activity conducted under accordance with Sec. 438.358: (1) The

objectives; (2) the technical methods of data collection and analysis;

(3) the data obtained; and (4) the conclusions drawn from the data. In

addition, the report must also describe

[[Page 67230]]

the manner in which the data from all activities conducted in

accordance with Sec. 438.358 were aggregated, analyzed, and the

conclusions were drawn as to the quality of the care furnished by the

MCO.

A detailed assessment of each MCO's strength and

weaknesses with respect to timeliness, access, and quality of the

health care services furnished to Medicaid enrollees.

The recommendations for improving the quality of the

services furnished by each MCO.

Comparative data about all MCOs, as determined appropriate

by the State agency.

An assessment of the degree to which each MCO addressed

effectively the recommendations for quality improvement, as made by the

EQRO during the previous year's EQR.

We considered three alternatives for the level of detail of the

information to be released to the public as EQR ``results.''

1. Do not provide a Federal definition of what constitutes

``results'' but allow each State agency to develop its own definition.

This option would provide the greatest flexibility but was not selected

because we believe that the statute intended a Federal ``definition''

to ensure that all State agencies provide sufficient information.

2. Require that all validated data and information be made

available. Although this option would provide consumers with great

detail about every aspect of MCO performance, the information would

lack the sense of context necessary to ensure appropriate

interpretation. It would impose additional burdens on State agencies

for the release of large quantities of data, and would also be

inconsistent with what experts have advised us is the best way to share

information with consumers for their decision making, for example, to

help potential enrollees choose among available MCOs.

3. Require that State agencies provide copies only of the summary

findings, conclusions, and recommendations of the EQR. This would

include the highest level conclusions drawn from a synthesis of all

available information on MCO performance.

This proposed rule requires State agencies to provide information

sufficient to enable interested parties to evaluate the conclusions of

the EQR. To promote confidence in the validity of the conclusions,

States may wish to release, in addition to the technical report, the

more detailed underlying data to researchers or others as the States

deem appropriate. However, the proposed rule does not require the

States to do so. In addition, these data may be available through

State-based authorities similar to Freedom of Information Act

requirements for individuals to request and receive as much of the

detailed information that goes into an EQR analysis and report as they

want. (Sec. 438.364(a))

This section also (1) gives examples of groups of interested

parties to which State agencies would provide copies, of the EQR

results, upon request; (2) specifies that they must also give them to

members of the general public who request them (Sec. 438.364(b)); and

(3) provides that the information released may not disclose the

identity of any patient (Sec. 438.364(c)).

J. Federal Financial Participation (FFP) (Section 438.370)

Section 438.370 provides that FFP at the 75 percent rate is

available in expenditures for EQR, including the production of EQR

information, performed by EQROs and at the 50 percent rate in

expenditures for EQR-related activities performed by any entity that

does not qualify as an EQRO. The 50 percent rate applies even if the

activities are of the same type as those performed by EQROs.

V. Effective Date of the Final Rule

When this regulation is published as a final rule, we intend to

make it effective 60 days following publication. Provisions that must

be implemented through contracts with EQROs will be effective with

contracts entered into or revised on or after 60 days following the

effective data, but no longer than 12 months from the effective date.

VI. Collection of Information Requirements

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

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

comment before a collection of information requirement report 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 PRA, 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.

We are soliciting public comment on each of these issues for

Secs. 438.360, 438.362 and 438.364 of this document that contain

information collection requirements.

Section 438.360 Nonduplication of Mandatory Activities

In order to avoid duplication, the State agency may exempt an MCO

from mandatory activities (as specified in Sec. 438.358) if the

conditions of paragraph (b) or paragraph (c) of this section are met.

To demonstrate compliance with these requirements an MCO must provide

to the State agency, all the reports, findings, and other results of

the Medicare review or the private accreditation survey.

The burden associated with these requirements is the time and

effort for an MCO to disclose all the reports, findings, and other

results of the Medicare review or the private accreditation survey to

the State agency. Our current data indicate that there are

approximately 420 MCOs and 90 PHPs providing Medicaid services. Of

these, approximately 135 are Medicaid only MCOs. We believe that there

is the potential for States to allow the remaining 285 MCOs to take

advantage of the non-duplication provision and that these MCOs will be

required to disclose the necessary information to each State agency. We

further estimate that it will take each MCO 4 hours to disclose the

necessary documentation to the State. Therefore, the total burden

associated with this requirement is 285 MCO's x 4 hours = 1140 annual

burden hours.

This section also requires that a State agency provide all the

reports, findings, and other results of the Medicare review or the

private accreditation survey to the appropriate EQRO. We estimate that

it will take, on average, 4 hours for a State to disclose the necessary

documentation to the appropriate EQRO. The total annual burden

associated with this requirement is 1140 hours.

Section 438.362 Exemption From External Quality Review

Each year, exempted MCO's must provide to the State agency the most

recent Medicare review findings reported to the MCO by HCFA or its

agent. This information must include (1) all data, correspondence,

information, and findings pertaining to the MCO's compliance with

Medicare standards for access, quality assessment and performance

improvement, health services, or delegation of these activities; (2)

all measures of the MCO's

[[Page 67231]]

performance; and (3) the findings and results of all performance

improvement projects pertaining to Medicare enrollees.

If an exempted MCO has been reviewed by a private accreditation

organization and the survey results have been used to either fulfill

certain requirements for Medicare external review under Subpart D of

part 422 of this chapter or to deem compliance with Medicare

requirements as provided in Sec. 422.156, the MCO must submit a copy of

all findings pertaining to its most recent accreditation survey to the

State agency. These findings shall include accreditation survey results

of evaluation of compliance with individual accreditation standards,

noted deficiencies, corrective action plans, and summaries of unmet

accreditation requirements.

The burden associated with these requirements is not applicable for

two years following the final publication of this regulation. After two

years, the time and effort for an exempted MCO to disclose the findings

of its most recent Medicare review or private accreditation survey to

the State agency will be the burden associated with these requirements.

We believe, of the approximately 285 MCOs that potentially may provide

Medicare services in addition to Medicaid services, State agencies will

allow for approximately 10% of the MCOs to be exempt from the EQR

requirement. We further estimate that it will take each MCO 8 hours to

prepare and submit the necessary documentation to the State agency.

Therefore, the total burden associated with this requirement is 10% of

285 MCO's x 8 hours = 228 annual burden hours.

Section 438.364 External Quality Review Results

Each EQRO is required to submit to the State agency a detailed

technical report that describes, for each EQR and each related

mandatory and optional activity undertaken by the EQRO, the objectives,

technical methods of data collection and analysis, data obtained,

conclusions drawn from the data, and the manner in which the

conclusions were drawn as to the quality of the care furnished by the

MCO. In addition, the report must include: (1) A detailed assessment of

each MCO's strengths and weaknesses with respect to the timeliness,

access, and quality of health care services furnished to Medicaid

beneficiaries; (2) recommendations for improving the quality of health

care services furnished by each MCO; (3) as the State agency determines

methodologically appropriate, comparative information about all MCOs,

and (4) an assessment of the degree to which each MCO has addressed

effectively the recommendations for quality improvement, as made by the

EQRO during the previous year's EQR.

The burden associated with this requirement is the time and effort

for a EQRO to submit to a State agency a detailed technical report for

each EQR conducted. It is estimated that it will take an EQRO 160 hours

to prepare and submit the necessary documentation to the State agency.

Therefore, the total burden associated with this requirement is, 510

technical reports (420 MCOs + 90 PHPs) x 160 hours = 81600 annual

burden hours.

This section also requires each State agency to provide copies of

technical reports, upon request, to interested parties such as

participating health care providers, enrollees and potential enrollees

of the MCO, beneficiary advocate groups, and members of the general

public.

The burden associated with this requirement is the time and effort

for a State agency to disclose copies of a given technical report to

interested parties. We estimate that on average, it will take a State

agency 4 hours to disclose the required information. Therefore, the

total burden associated with this requirement is 420 MCOs + 90 PHPs x

25 requests per MCO or PHP x 4 hours = 51000 annual burden hours.

We have submitted a copy of this proposed rule to OMB for its

review of the information collection requirements described above. We

will also submit the final EQR protocols upon their completion to OMB.

These requirements are not effective until they have been approved by

OMB. As stated in the preamble of this rule, the EQR protocols are

detailed instructions to be followed by personnel performing reviews of

health care quality. The JCAHO is developing these protocols under the

guidance of an expert panel. All activities that provide information

for EQR must use protocols that are consistent with the protocols being

developed. This will ensure that the conduct of the activities enhances

the quality of EQR for State agencies and that the conduct of the

activities is methodologically sound.

We anticipate that the protocols will be complete in the spring of

2000. Upon their completion, a Federal Register notice will be

published. To obtain a copy of the protocols when they become

available, access them on the HCFA Internet homepage at www.hcfa.gov,

or submit a request to the HCFA address below: Health Care Financing

Administration, Office of Information Services, Security and Standards

Group, Division of HCFA Enterprise Standards, Room N2-14-26, 7500

Security Boulevard, Baltimore, MD 21244-1850; Attention Julie Brown,

HCFA-2015-P.

If you comment on any of these information collection and record

keeping requirements, please mail 3 copies directly to the following:

Health Care Financing Administration, Office of Information Services,

Security and Standards Group, Division of HCFA Enterprise Standards,

Room N2-14-26, 7500 Security Boulevard, Baltimore, MD 21244-1850;

Attention Julie Brown, HCFA-2015-P and

Office of Information and Regulatory Affairs, Office of Management and

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

20503, Attn: Lori Schack, HCFA Desk Officer.

VII. 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 major comments in the preamble to that

document.

VIII. Impact Statement

A. Regulatory Impact Analysis

We have examined the impacts of this rule as required by Executive

Order 12866 and the Regulatory Flexibility Act (RFA) (Public Law 96-

354). Executive Order 12866 directs agencies to assess all costs and

benefits of available regulatory alternatives and, when regulation is

necessary, to select regulatory approaches that maximize net benefits,

including potential economic, environmental, public health and safety

effects, distributive impacts, and equity. A regulatory impact analysis

(RIA) must be prepared for major rules with economically significant

effects ($100 million or more annually). The RFA requires agencies to

analyze options for regulatory relief of small entities. For purposes

of the RFA, we prepare a regulatory flexibility analysis unless we

certify that a rule will not have a significant economic impact on a

substantial number of small entities. Small entities include small

businesses, non-profit organizations and governmental agencies. Most

hospitals and other providers and suppliers are

[[Page 67232]]

small entities, either by nonprofit status or by having revenues of $5

million or less annually. Individuals and States are not included in

the definition of a small entity.

Section 1102(b) of the Act requires us to prepare a regulatory

impact analysis for any proposed rule that 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 603

of the RFA. For purposes of section 1102(b) of the Act, we define a

small rural hospital as a hospital that is located outside a

Metropolitan Statistical Area and has fewer than 50 beds.

The Unfunded Mandates Reform Act (Public Law 104-4) requires that

agencies prepare an assessment of anticipated costs and benefits before

proposing any rule that may result in an annual expenditure by State,

local and tribal governments, in the aggregate, or by the private

sector, of $100,000,000 or more (adjusted annually for inflation). This

rule does not impose any mandates on State, local, or tribal

governments, or the private sector that will result in an annual

expenditure of $100,000,000 or more.

The rule implements Medicaid provisions as directed by the BBA;

thus, alternatives were not considered. The only alternative would be

to seek repeal of the legislation. This would be inconsistent with the

major focus of the new provisions: protection of beneficiary rights in

a health care system in which MCOs have gained broad powers.

We do not anticipate that the provisions in this proposed rule will

have a substantial economic impact on most hospitals, including small

rural hospitals. The BBA provisions include some new requirements on

State agencies and MCOs, but not directly on individual hospitals. The

impact on individual hospitals will vary according to each hospital's

current and future contractual relationships with MCOs. Furthermore,

the impact will also vary according to each hospital's current

procedures and level of compliance with existing law and regulation

pertaining to Medicaid managed care. For these reasons, this proposed

rule would not have a significant impact on the operations of a

substantial number of hospitals. The only other small entity affected

by these regulations would be the EQROs. However, this rule does not

impose additional burdens on them. Instead, the rule offers these

organizations the benefit of opportunities for additional revenues.

Thus we certify that this rule will not have a significant economic

impact on a substantial number of small entities.

We do not anticipate a significant increase in Medicaid

expenditures as a result of the publication of these regulations for

the following reasons. First, 44 States, accounting for nearly 98

percent of Medicaid administrative expenditures, are currently

obtaining 75 percent enhanced FFP for EQR activities carried out by PRO

and PRO-like organizations. Permitting these State agencies to claim 75

percent matching for EQR activities conducted by the additional types

of entities allowed by these regulations would therefore not result in

increased costs to the extent that State agencies switch from PRO or

PRO-like organizations to these additional entities. Moreover, we

believe that, by expanding the pool of organizations available to

conduct EQR, these State agencies may be able to negotiate savings

compared to current costs of dealing with PRO and PRO-like

organizations. Additional savings may be realized through opportunities

afforded by the proposed rule to coordinate EQR activities with quality

reviews conducted for other purposes, as discussed above. Additional

costs may arise where State agencies currently conduct quality review

activities at 50 percent Federal matching rate that would now qualify

for 75 percent, and from new EQR activities undertaken as a result of

the BBA requirements.

In addition, even though we are proposing to extend this

requirement to PHPs, again we do not expect this to significantly

increase Medicaid expenditures. PHP costs account for approximately 5

percent of the payments we make to capitated arrangements. Furthermore,

State agencies currently conduct quality review activities on PHPs at a

50 percent Federal matching rate. Additional costs may arise for States

quality review activities that would now qualify for 75 percent and for

new quality review activities undertaken as a results of the activities

required in this proposed rule.

Although we cannot quantify these various cost and savings effects,

we believe that their net impact would be well below the $100 million

annual threshold for a major rule, and therefore that a regulatory

impact analysis is not required. The impact of this proposed regulation

is subsumed in estimates of the aggregate impact of the BBA, which have

already been included in Medicaid baseline projections for the

President's budget.

B. Federalism

Under Executive Order 13132, we are required to adhere to certain

criteria regarding Federalism in developing regulations. We have

determined that this proposed regulation will not significantly affect

States rights, roles, and responsibilities. Section 1903(a)(30)(C) of

the Act currently requires an EQR for each contract a State has with a

section 1903(m) organization. In accordance with section 4705 of the

BBA, this proposed rule would establish requirements and procedures for

EQR of Medicaid MCOs. We propose to require States to ensure that an

annual EQR is performed by a qualified EQRO for each contracting MCO,

the EQRO has adequate information to carry out the review, and that the

results of the reviews are made available to interested parties such as

participating health care providers, enrollees, advocate groups, and

the general public. We propose that these EQR requirements apply to

PHPs and certain entities with comprehensive risk contracts that have

been exempted from section 1903(m)(2)(A) requirements. We believe this

is consistent with the intent of the Congress in enacting the quality

provisions of the BBA. This proposed rule would not require State

agencies to dismantle EQR mechanisms that they have used to meet

section 1902 (a)(30)(C) of the Act and which they have found to be

effective and efficient. Rather, this proposed rule would provide

States greater flexibility in the types of entities they may use to

conduct EQR.

We worked closely with States in developing this regulation.

Specifically, in accordance with section 1932(c)(2)(A)(ii) of the Act,

which requires the Secretary to consult with States to establish a

method for identifying entities qualified to conduct EQR, we met with

States and other stakeholders under the auspices of the National

Academy of State Health Policy to establish a criteria to identify

qualified entities. Most of the recommendations made at this meeting

have been incorporated into this proposed rule. For recommendations not

accepted, an explanation has been provided.

In addition, section 1932(c)(2)(A)(iii) requires the Secretary to

coordinate with the NGA in contracting with an independent quality

review organization to develop protocols to be used in EQR. To meet

this requirement, we issued a RFP for one or more contractors to

develop a set of review protocols for EQROs to use in the conduct of

EQRs. Two State

[[Page 67233]]

representatives selected by the NGA were members of the panel that

reviewed and rated responding proposals. Moreover, part of the

development of the EQR protocols includes convening an expert panel for

review and comment of the protocols. State representatives are included

in this process.

List of Subjects

42 CFR Part 433

Administrative practice and procedure, Child support, Claims, Grant

programs-health, Medicaid, Reporting and record keeping requirements.

42 CFR Part 438

Grant Programs--health, Managed care entities, Medicaid, Quality

assurance, Reporting and record keeping requirements.

42 CFR Chapter IV would be amended as set forth below.

A. PART 433--STATE FISCAL ADMINISTRATION

1. The authority citation for part 433 is revised to read as

follows:

Authority: Sec. 1102 of the Social Security Act (42 U.S.C.

1302).

Sec. 433.15 [Amended]

2. In Sec. 433.15, the following change is made: A new paragraph

(b)(10) is added to read as set forth below.

Sec. 433.15 Rates of FFP for administration.

* * * * *

(b) * * *

(10) Funds expended for the performance of external quality review

or the related activities described in Sec. 438.358 of this chapter

when they are performed by an external quality review organization as

defined in Sec. 438.2 of this chapter: 75 percent.

B. A new part 438 is added, to read as set forth below.

PART 438--MANAGED CARE PROVISIONS

Subpart A--General Provisions

Sec.

438.1 Basis, scope and applicability.

438.2 Definitions.

Subparts B through D [Reserved]

Subpart E--External Quality Review

Sec.

438.350 State responsibilities.

438.352 EQR protocols.

438.354 Qualifications of EQROs.

438.356 State contract options.

438.358 Activities related to external quality review.

438.360 Non-duplication of mandatory activities.

438.362 Exemption from external quality review.

438.364 External quality review results.

438.370 Federal financial participation.

Authority: Sec. 1102 of the Social Security Act (42 U.S.C.

1302).

Subpart A--General Provisions

Sec. 438.1 Basis, scope and applicability.

(a) Statutory basis. This part is based on section 1932(c)(2) of

the Act.

(b) Scope. This part sets forth requirements for annual external

quality reviews of each contracting MCO, including--

(1) Criteria that States must use in selecting entities to perform

the reviews;

(2) Specifications for the activities related to external quality

review;

(3) Circumstances under which external quality review may use the

results of Medicare quality reviews or private accreditation surveys;

and

(4) Standards for making available the results of the reviews.

(c) Applicability. The provisions of this part apply to managed

care organizations (MCOs), prepaid health plans (PHPs), and entities

with comprehensive risk contracts that have been exempted by statute

from the requirements in section 1903(m)(2)(A).

Sec. 438.2 Definitions.

As used in this subpart--

EQR stands for external quality review;

EQRO stands for external quality review organization.

External quality review means the analysis and evaluation, by an

EQRO, of aggregated information on timeliness, access, and quality of

the health care services furnished to Medicaid recipients by each MCO

and other related activities performed by an EQRO.

External quality review organization means an organization that

meets the competence and independence requirements set forth in

Sec. 438.354, and performs external quality review.

Quality, as it pertains to external quality review, means the

degree to which an MCO maintains or improves the health outcomes of its

enrollees through its structural and operational characteristics and

through the provision of services.

Validation means the review of information, data, and procedures to

determine the extent to which they are accurate, reliable, free from

bias, and in accord with standards for data collection and analysis.

Subparts B through D--[Reserved]

Subpart E--External Quality Review

Sec. 438.350 State responsibilities.

Each State that contracts with MCOs must ensure that--

(a) Except as provided in Sec. 438.362, an annual EQR is performed

by a qualified EQRO for each contracting MCO;

(b) The EQRO has information, obtained from the related activities

described in Sec. 438.358, to carry out the review;

(c) The information provided to the EQRO in accordance with

paragraph (b) of this section is obtained through methods consistent

with the protocols established under Sec. 438.352; and

(d) The results of the reviews are made available as specified in

Sec. 438.364.

Sec. 438.352 EQR protocols.

Each protocol must specify--

(a) The data to be gathered;

(b) The sources of the data;

(c) The detailed procedures to be followed in collecting the data

to promote its accuracy, validity, and reliability;

(d) The proposed method or methods for validly analyzing and

interpreting the data once obtained; and

(e) All instructions, guidelines, worksheets, and any other

documents or tools necessary for implementing the protocol.

Sec. 438.354 Qualifications of EQROs.

(a) General rule. The State must ensure that each organization it

selects to perform EQR meets the requirements of this section.

(b) Competence. The organization must have at least the following:

(1) Staff with knowledge of--

(i) Medicaid recipients, policies, data systems, and processes;

(ii) Managed care delivery systems, organizations, and financing;

(iii) Quality assessment and improvement technologies; and

(iv) Research design and methodology, including statistical

analysis.

(2) Sufficient physical, technological, and financial resources to

conduct EQR.

(3) Other clinical and nonclinical skills to carry out the review

and to supervise the work of any subcontractors.

(c) Independence. The organization and its subcontractors are

independent from the State Medicaid agency and from the MCOs they

review. In order to qualify as ``independent'' and serve as an EQRO--

[[Page 67234]]

(1) A State agency, department, university, or other State entity

may not--

(i) Have Medicaid purchasing or managed care licensing authority;

(ii) Deliver any health care services to Medicaid recipients; or

(iii) Conduct, on the State's behalf, any other ongoing Medicaid

program operations related to oversight of the quality of MCO services.

(2) A State agency, department, university, or other State entity

must be governed by a Board or similar body the majority of whose

members are not government employees.

(3) An EQRO may not review a particular MCO if either the EQRO or

the MCO exerts control over the other. (As used in this paragraph,

``control'' has the meaning given the term in 48 CFR 19.101.)

Sec. 438.356 State contract options.

(a) The State must contract with one or more EQROs.

(b) Each contractor must meet the competence requirements as

specified in Sec. 438.354(b).

(c) Each contracting EQRO is permitted to use subcontractors. The

EQRO is accountable for, and must oversee, all subcontractor functions.

(d) Each contractor and subcontractor must meet the requirements

for independence, as specified in Sec. 438.354(c)

(e) For each contract, the State must follow an open, competitive

procurement process that is in accordance with State law and

regulations and consistent with 45 CFR part 74 as it applies to State

procurement of Medicaid services.

Sec. 438.358 Activities related to external quality review.

(a) Mandatory activities. The EQR must use information obtained

from the following activities which must be performed by the State or

its agent or, if they are not so performed, must be performed by the

EQRO:

(1) Each year, for each MCO, the EQR must use information obtained

from the following:

(i) Validation of performance improvement projects that were

required by the State and were performed during the preceding 12

months.

(ii) Validation of performance measures that the State required and

that the MCO reported during the preceding 12 months.

(2) Each year, the EQR must also use information obtained from a

review, conducted within the previous 3 year period, to determine the

MCO's compliance with standards established by the State for the

following:

(i) Availability of services.

(ii) Continuity and coordination of care.

(iii) Coverage and authorization of services.

(iv) Establishment of provider networks.

(v) Enrollee information.

(vi) Enrollee rights.

(vii) Confidentiality.

(viii) Enrollment and disenrollment.

(ix) Grievance systems.

(x) Subcontractual relationships and delegation.

(xi) Use of practice guidelines.

(xii) Health information systems.

(xiii) Mechanisms to detect both underutilization and

overutilization of services as part of the quality assessment and

performance improvement programs.

(b) Optional activities. The review may also use information

derived from the following optional activities performed by the State

or its agent, or the EQRO:

(1) The validation of client level data (such as claims and

encounters) reported by the MCO.

(2) The administration or validation of consumer or provider

surveys of quality of care.

(3) The calculation of performance measures in addition to those

reported by the MCO and validated by the EQRO.

(4) The conduct of performance improvement projects in addition to

those conducted by the MCO and validated by the EQRO.

(5) The conduct of studies on quality, focused on a particular

aspect of clinical or non-clinics services at a point in time.

(c) Technical assistance. The EQRO may, at the State's direction,

provide technical guidance to groups of MCOs to assist them in

conducting activities related to the mandatory and optional activities

that provide information for the EQR.

Sec. 438.360 Nonduplication of mandatory activities.

(a) General rule In order to avoid duplication, the State may

exempt an MCO from mandatory activities (as specified in Sec. 438.358)

if the conditions of paragraph (b) or paragraph (c) of this section are

met.

(b) Certified M+C organization. The State may exempt an MCO from

the mandatory activity specified in Sec. 438.358(a)(2), if the

following conditions are met:

(1) The MCO is also a certified M+C organization with a current

Medicare contract.

(2) The MCO meets either of the following conditions:

(i) The MCO's current structure and its compliance with the

standards established by the State under Sec. 438.358(a)(2) have been

evaluated and approved by HCFA or its contractor.

(ii) The MCO is currently fully accredited by a private accrediting

organization that HCFA approves and recognizes as having standards and

review procedures at least as stringent as those established by HCFA

for the mandatory activity specified in Sec. 438.358(a)(2).

(3) The MCO provides to the State all the reports, findings, and

other results of the Medicare review or the private accreditation

survey. The State provides the information to the EQRO.

(c) MCO serves only the dually eligible. The State may exempt an

MCO from the mandatory activities specified in Sec. 438.358(a)(1) and

(a)(2) if the following conditions are met:

(1) The MCO serves only individuals who receive both Medicare and

Medicaid benefits.

(2) The Medicare review activities are substantially comparable to

the State-specified mandatory activities in Sec. 438.358(a)(1) and

(a)(2).

(3) The MCO provides to the State all the reports, findings, and

other results of the Medicare review. The State provides the

information to the EQRO.

Sec. 438.362 Exemption from external quality review.

(a) Basis for exemption. The State may exempt an MCO from EQR if

the following conditions are met:

(1) The MCO has a current Medicare contract under part C of title

XVIII or under section 1876 of the Act, and a current Medicaid contract

under section 1903(m) of the Act.

(2) The two contracts cover all or part of the same geographic

area.

(3) The Medicaid contract has been in effect for at least two

consecutive years before the effective date of the exemption and during

those two years the MCO has been subject to EQR under this part, and

found to be performing acceptably with respect to the timeliness,

access, and quality of health care services it provides to Medicaid

recipients.

(b) Information on exempted MCOs. (1) Information on Medicare

review findings. Each year, the State must obtain from each MCO that it

exempts from EQR, the most recent Medicare review findings reported to

the MCO by HCFA or its agent including--

(i) All data, correspondence, information, and findings pertaining

to the MCO's compliance with Medicare

[[Page 67235]]

standards for access, quality assessment and performance improvement,

health services, or delegation of these activities;

(ii) All measures of the MCO's performance; and

(iii) The findings and results of all performance improvement

projects pertaining to Medicare enrollees.

(2) Information on accreditation surveys. (i) If an exempted MCO

has been reviewed by a private accreditation organization, the State

must require the MCO to ensure that the State receives a copy of all

findings pertaining to its most recent survey if the accreditation

survey has been used for either of the following purposes:

(A) To fulfill certain requirements for Medicare external review

under subpart D of part 422 of this chapter,

(B) To deem compliance with Medicare requirements, as provided in

Sec. 422.156.

(ii) These findings must include, but need not be limited to,

accreditation survey results of evaluation of compliance with

individual accreditation standards, noted deficiencies, corrective

action plans, and summaries of unmet accreditation requirements.

Sec. 438.364 External quality review results.

(a) Information that must be produced. The State must ensure that

the EQR produces at least the following information:

(1) A detailed technical report that describes the manner in which

the data from all activities conducted in accordance with Sec. 438.358

were aggregated, analyzed, and the conclusions were drawn as to the

quality of the care furnished by the MCO. The report must also include

the following for each activity conducted in accordance with

Sec. 438.358:

(i) Objectives;

(ii) Technical methods of data collection and analysis;

(iii) Data obtained; and

(iv) Conclusions drawn from the data.

(2) A detailed assessment of each MCO's strengths and weaknesses

with respect to the timeliness, access, and quality of health care

services furnished to Medicaid recipients.

(3) Recommendations for improving the quality of health care

services furnished by each MCO.

(4) As the State determines methodologically appropriate,

comparative information about all MCOs.

(5) An assessment of the degree to which each MCO has addressed

effectively the recommendations for quality improvement, as made by the

EQRO during the previous year's EQR.

(b) Availability of information. The State must provide copies of

the information specified in paragraph (a) of this section, upon

request, to interested parties such as participating health care

providers, enrollees and potential enrollees of the MCO, recipient

advocate groups, and members of the general public.

(c) Safeguarding patient identity. The information released under

paragraph (b) of this section may not disclose the identity of any

patient.

Sec. 438.370 Federal financial participation.

(a) FFP at the 75 percent rate is available in expenditures for EQR

(including the production of EQR information), performed by EQROs and

their subcontractors.

(b) FFP at the 50 percent rate is available in expenditures for

EQR-related activities performed by any entity that does not qualify as

an EQRO.

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical

Assistance)

Dated: August 2, 1999.

Michael M. Hash,

Deputy Administrator, Health Care Financing Administration.

Approved: September 9, 1999.

Donna E. Shalala,

Secretary.

[FR Doc. 99-31101 Filed 11-30-99; 8:45 am]

BILLING CODE 4120-01-P