[Federal Register Volume 59, Number 55 (Tuesday, March 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-6655]
[[Page Unknown]]
[Federal Register: March 22, 1994]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
[BPO-106-FN]
Medicare Program: Data, Standards and Methodology Used to
Establish Fiscal Year 1993 Budgets for Fiscal Intermediaries and
Carriers
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Final Notice.
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SUMMARY: This notice is published in accordance with sections
1816(c)(1) and 1842(c)(1) of the Social Security Act which requires us
to publish the final data, standards and methodology used to establish
budgets for Medicare intermediaries and carriers.
It announces that we are adopting as final, and responds to
comments about, the data, standards, and methodology we proposed to use
to establish Medicare fiscal intermediary and carrier budgets for the
fiscal year (FY) 1993, beginning October 1, 1992.
Effective Date: The data, standards, and methodology are effective for
the fiscal year beginning October 1, 1992.
For Further Information Contact: Tom Hessenauer, (410) 966-7542.
SUPPLEMENTARY INFORMATION:
I. Background
On November 16, 1992, we published in the Federal Register (57 FR
54083) a proposed notice describing the data, standards, and
methodology we intended to use to establish budgets for Medicare
program fiscal intermediaries and carriers for the Federal fiscal year
beginning October 1, 1992. The notice was published in accordance with
sections 1816(c)(1) and 1842(c)(1) of the Social Security Act, (the
Act) which require us to publish for public comments the data,
standards, and methodology we propose to use to establish budgets for
Medicare intermediaries and carriers. Following the same format we have
used in prior years' notices, the notice described the budget
development process in general; gave an overview of how we intend to
use the contractor budget data, standards, and methodology to establish
the FY 1993 budgets; and identified the FY 1993 national Medicare
contractor budget, standards and methodology.
In the proposed notice, we indicated that the Medicare contractor
budget would be structured to coincide with the seven functional areas
of responsibilities performed by intermediaries for Part A and nine
functional areas of responsibilities performed by carriers for Part B.
The functional areas of responsibilities for Part A are: (1) Bills
Payment; (2) Reconsiderations and Hearings; (3) Medicare Secondary
Payer; (4) Medical Review and Utilization Review; (5) Provider Audit
(Desk Reviews, Field Audits, and Provider Settlements); (6) Provider
Reimbursement; and (7) Productivity Investments. The functional area
responsibilities for Part B are: (1) Claims Payment; (2) Reviews and
Hearings; (3) Beneficiary/Physician Inquiries; (4) Medical Review and
Utilization Review; (5) Fraud and Abuse; (6) Participating Physicians;
(7) Provider Education and Training; (8) Medicare Secondary Payer; and
(9) Productivity Investments. These functions are funded from the
Hospital Insurance (HI) and Supplementary Medical Insurance (SMI) trust
funds.
We proposed that final funding would be allocated based on current
claims processing trends, legislative mandates, administrative
initiatives, current year performance standards and criteria, and the
availability of funds appropriated by the Congress.
The FY 1993 Budget Performance Requirements (BPRs) gave the
contractors the authority to manage their budgets on a bottom line
basis. Once funding is issued, each contractor has the flexibility to
optimally manage the budget consistent with the scope of work contained
in the BPRs. In past years, contractors were not allowed to shift more
than 5 percent of funds from one line item to another in their budget,
as determined by the lesser of the two line items. This restriction was
intended to give contractors some latitude with regard to reporting
their costs, yet still allow HCFA to maintain control over the national
budget. With the exception of Payment Safeguards, Productivity
Investments, and ``Other'' line items, contractors have total
flexibility in the use of funds subject to certain constraints. The
constraints for Payment Safeguards require that no more than 5 percent
of total funding for each Payment Safeguard function can be shifted out
of that functions and used elsewhere. Unlimited shifting into Payment
Safeguard, a change from previous policies, is permitted. The
constraints for Productivity Investments (PI) and ``Other'' lines,
require that no more than 5 percent may be shifted into or out of these
lines and used elsewhere. Each ``Other'' line is treated separately;
the PI line is treated as a whole, not by separate projects.
Contractors can use the PI funds provided to complete any authorized PI
project. Funding governed by contract modifications may not be shifted
to other functions or lines.
We announced that final BPRs were sent to all contractors in May
1992 to assist them in preparing their FY 1993 budget requests.
Intermediaries and carriers are expected to perform the work as
described in the BPR package and in accordance with the standards
included in the Contractor Performance Evaluation Program (CPEP) for FY
1993 which was published in the Federal Register on September 18, 1992
(57 FR 43230). While the contractors were preparing their budget
requests, we developed preliminary budget allocations for the 16
functional areas based on historical patterns, workload growth,
inflation assumptions, statistical forecasting reports, and any other
available information.
A key step in the budget process is the development of contractor
unit costs for processing Part A bills and Part B claims. As was
started in FY 1992, the FY 1993 budget process incorporates a bottom
line unit cost approach that encompasses all budget line items except
Provider Audit, Productivity Investments, and Other. For funding the
bills/claims processing function, the Complexity Index, also new in FY
1992, was continued in FY 1993. The only difference in calculation in
FY 1993 from FY 1992 was the use of the 60th percentile instead of the
70th percentile.
It was also noted that limitations on the FY 1993 budget could
require across-the-board cost cutting measures. Should this occur, each
HCFA Regional Office (RO) would determine the amount of budget
reduction for its contractors.
II. Analysis of and Responses to Public Comments
In response to our request for comments, we received four timely
items of correspondence. Comments were received from: one national
specialty association, one beneficiary advocacy association, one
national health insurance association, and one concerned citizen.
Several issues raised by the commenters are outside the scope of
the notice and are not addressed in these responses. Where appropriate
they were referred to the components within HCFA for review and
analysis to determine if operational adjustments are required or
warranted.
Comment: Three commenters, noting that the proposed notice was
published after the beginning of FY 1993, expressed concern that the
timing denied interested parties the opportunity to comment before
implementation of the budget.
Response: We appreciate the need to publish all proposed notices as
timely as possible. Although, we did not publish the proposed notice
before the beginning of the fiscal year, due to considerations in
reviewing data and developing a budget, we did however provide adequate
opportunity for all intermediaries and carriers to comment on the data,
standards and methodology, and were fully prepared to issue revised
Budget and Performance Requirements (BPRs) to intermediaries and
carriers based on the comments received. If necessary, we were prepared
to renegotiate any affected areas of intermediary and carrier budgets
within the levels of funding made available by the Congress.
Comment: One commenter expressed the opinion that the notice lacks
the specificity about the development of the contractor budgets that
the Omnibus Budget Reconciliation Act of 1987 (OBRA '87) was intended
to elicit. The commenter also stated that most of the methodology
described in the notice is general and could apply to any contractor
budget year.
Response: We believe the congressional intent was for us to provide
sufficient description of the data, standards, and methodology used in
determining the annual budgets. We believe the notice complies with the
intent of the Congress. The commenter is correct that some
methodologies are retained from year to year. However, we always apply
the most recent data. Additionally, legislative changes and budget
priorities or constraints affect the standards.
This notice is intended to include only the data, standards, and
methodology to be used to establish budgets for fiscal intermediaries
and carriers for a given fiscal year. Specific instructions on how to
implement and monitor certain initiatives (e.g. beneficiary inquiries,
participating physician, physician payment reform, etc.) are presented
through other means such as program memoranda, manual instructions,
BPRs, etc.
Comment: One commenter expressed concern whether the budget
provided funding for continuation of toll-free beneficiary information
lines.
Response: Funding for this important service was restored in the FY
1992 budget. In the absence of language to the contrary, funding is
included to continue this service in FY 1993.
Comment: Commenters addressed several issues related to
calculations of the unit cost targets (e.g., complexity index,
electronic media claims goals, etc.) suggesting that a more complete
explanation be given.
Response: The national Medicare contractor administrative budget
has been severely constrained over the last several years as a result
of the Federal budget deficit. These budget restraints have presented a
challenge to both the contractor community and us. It is our
responsibility to ensure that available funding is distributed in a
responsible and appropriate manner. In order to do this, we have
provided unit cost targets for the Medicare contractors for the past
several years.
For FYs 1990-1992, we used each individual contractor's most recent
full-year's actual unit cost as the baseline unit cost for the upcoming
fiscal year. In order to recognize the inherent differences in the
costs that each contractor realizes by participating in the Medicare
program, the basis for each contractor's FY 1993 unit cost target was
its actual unit cost as reported on the FY 1991 Final Administrative
Cost Proposal. This calculation confirms that our methodologies do
consider the actual costs incurred by contractors in delivering
required services.
In accordance with sections 1816 and 1842 of the Act, all of our
methodologies were developed to provide each contractor with the
incentive and direction needed to conduct its Medicare business in an
efficient and economical manner. It is true that the majority of our
contractors are in a cost contract arrangement with HCFA. However, it
is our role to encourage the Medicare contractors to identify and
institute more efficient (and less costly) ways of doing business. The
unit cost targets do not supplant the cost contract arrangement, but
rather provide direction to ensure that our own administrative
initiatives will be fully considered by the contractors. We would be
negligent in our responsibilities if we failed to encourage contractors
to reduce administrative costs.
We believe we are acting within the authority of Title XVIII of the
Act, the Federal Acquisitions Regulations (FAR), and the Medicare
contracts with intermediaries and carriers. For example, in
establishing intermediaries' administrative costs, section 1816(c)(1)
of the Act explicitly provides that the Secretary ``* * * shall provide
for payment of so much of the cost of administration of the agency or
organization as is determined by the Secretary to be necessary and
proper for carrying out the functions covered by the agreement.''
(Emphasis added.) Parallel language regarding carriers' administrative
costs is set out in section 1842(c)(1).
The commenters inferred that the imposed ``target costs'' for
contractors, in effect, are intended to convert the contracts from a
cost to a fixed-price basis. Again, referring to the FAR, we note that
our actions are well within the definition of a cost-reimbursement type
contract. Section 16.301-1 of the FAR states that ``Cost-reimbursement
types of contracts provide for payment of allowable incurred costs, to
the extent prescribed in the contract. These contracts establish an
estimate of total costs for the purpose of obligating funds and
establishing a ceiling that the contractor may not exceed (except at
its own risk) without the approval of the contracting officer.'' We
believe that the use of the Complexity Index (CI) is in compliance with
this section of the FAR.
The CI was developed because of a perception (both within and
outside of HCFA) that too much variation exists among contractors' unit
costs. There is also a perception that some contractors are realizing
costs that are out of proportion to the difficulty of the workload they
process.
Use of the CI has allowed us to grant contractors an extra degree
of budget flexibility. We have been able to replace the
``micromanagement'' of functional unit costs with the bottom-line
concept. As previously mentioned, we believe that a contractor's costs
are driven by its overall bill/claims workload mix. This workload mix
also impacts other contractor functions such as Medicare Secondary
Payer and Inquiries. We believe that it is appropriate, given the level
of budget flexibility granted to the contractors, to provide a bottom-
line budget with which contractors can finance their operations as they
deem appropriate. It should also be noted the application of the CI
allows us to identify high cost contractors within the context of the
entire Medicare contractor community. If a contractor is experiencing
an inordinately high level of inquiries, we want to provide an
incentive for it to investigate the reason for the excessive volume.
Based on the results of the 1989 Industrial Engineering Study,
conducted by the Technology Management Corporation, we believe that the
savings per bill/claim that we apply for increases in electronic media
claims (EMC) volume are conservative. We do not believe that we have
overstated the potential savings associated with EMC. Also, the
discussion concerning the elimination of the toll-free telephone lines
for beneficiary inquiries is now moot since the release of the FY 1992
contingency funds negated the need to eliminate this service. Full
funding was reinstated to the contractor budgets.
Since the CI includes a full consideration of each individual
contractor's workload mix and its actual costs as reported on the FY
1991 Final Administrative Cost Proposals, we believe that this
methodology is an equitable and efficient method of formulating
contractor unit cost targets.
The use of unit cost targets does not preclude the negotiation
process between the ROs and the contractors. As always, contractors
should submit budget requests in keeping with their estimated
administrative expenses. However, they also need to consider all of
HCFA's administrative initiatives, including cost reduction
initiatives, in formulating their budgets. Furthermore, the contractors
identified as high cost should be investigating the reasons for their
status and actively seeking to remedy these conditions.
III. Provisions of the Final Notice
Based on our review of the comments submitted, we are making no
changes to the data, standards, and methodology as published on
November 16, 1992 (57 FR 54083). Therefore, we are adopting as final,
the notice as proposed.
This final notice was reviewed by the Office of Management and
Budget.
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)
Dated: December 14, 1993.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
[FR Doc. 94-6655 Filed 3-21-94; 8:45 am]
BILLING CODE 4120-01-P
