[Federal Register Volume 60, Number 128 (Wednesday, July 5, 1995)]
[Rules and Regulations]
[Pages 34885-34888]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16411]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Part 417
[OMC-022-F]
Full Reporting by Health Maintenance Organizations (HMOs) and
Competitive Medical Plans (CMPs) Paid on a Cost Basis
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Final rule.
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SUMMARY: This rule affects HMOs and CMPs that contract with HCFA to
furnish services to Medicare beneficiaries and be paid on a cost basis.
It requires a cost HMO or CMP to include in its cost report the costs
of hospital and skilled nursing facility (SNF) services even if it has
elected (under Sec. 417.532(c) of the HCFA regulations) to have HCFA's
intermediary process those claims and pay the hospital or SNF directly.
This change is necessary so that HCFA can determine and compare the
cost of all services furnished by HMOs and CMPs with the cost of
equivalent services paid for under the fee-for-service system.
This rule also adds a definition and makes technical changes to
clarify and update certain related provisions of subparts O and U of
part 417 of the HCFA rules.
DATES: Effective Date: This rule is effective August 4, 1995.
FOR FURTHER INFORMATION CONTACT: Alfred D'Alberto, (410) 966-7610.
SUPPLEMENTARY INFORMATION:
I. Notice of Proposed Rulemaking
On February 22, 1994, we published a proposed rule (at 59 FR 8435)
that would establish--
Presumptive limits on Medicare payments to cost HMOs and
CMPs and to health care prepayment plans (HCPPs) that furnish inpatient
hospital services;
An exception process under which an affected HMO, CMP or
HCPP could demonstrate that payment above the presumptive limit is
justified as ``reasonable'' because of the special needs of its
Medicare enrollees, or because of extraordinary circumstances beyond
its control; and
Criteria for the ``reasonableness'' of the costs of HCPPs
that do not furnish inpatient hospital services.
The rule also proposed to require cost HMOs and CMPs to include in
their cost reports the costs of hospital and SNF services that the HMO
or CMP elects to have paid by the Medicare intermediary, and to make a
number of technical changes.
Under this election, although HCFA intermediaries process and pay
claims, the HMO or CMP authorizes the services and retains
responsibility for coordinating those services with other services it
furnishes to Medicare enrollees.
[[Page 34886]]
Although section 1876(b)(4)(A) of the Act requires that the HMO or
CMP report its ``per capita incurred cost'', HMOs and CMPs currently
report only the deductibles and coinsurance they incur for the hospital
and SNF services and not the full costs paid directly by the Medicare
intermediary.
II. Public Comments
We received 60 letters of comment on the February 22 proposals.
Seven of those letters commented on the full reporting and one on the
technical changes. Careful consideration of the bulk of the comments
and of the very complex exception process will delay publication of a
final rule on payment limits. We have, therefore, separated those
portions of the proposal that pertain to full reporting and technical
changes, which need not be subjected to that delay. Those comments are
discussed under part III of this preamble.
III. Discussion of Comments
A. Full Reporting
This new requirement applies only to HMOs and CMPs, because HCFA
contracts with HCPPs cover only Part B services, not provider services.
Comment: All seven commenters recommended that full reporting not
be required or that implementation be delayed. They expressed concern
about--
Obtaining from HCFA and its intermediaries complete and
adequate information on a timely basis;
The additional time, staff, and systems enhancement that
would be required;
The need to reimburse the HMO or CMP for these additional
administrative costs.
They noted specifically the need to--
Relate HCFA data to plan data so as to match beneficiary
number, date of service, place of service and deductible and
coinsurance;
Summarize deductible and coinsurance amounts;
Identify beneficiary status in terms of institutionalized,
Medicaid-eligible, or ESRD;
Estimate the value of incurred but not reported claims.
One commenter specifically objected to having intermediary-paid
part A costs included because administrative and general (A & G) costs
attributed to those services are not reimbursable to cost HMOs and
CMPs.
One commenter asked whether we would expect them to include items
that are not considered in the DRG computations, and if so, where they
would get the data.
Response: We are providing lead time before the full reporting
requirement goes into effect. During that time, we will be working to
achieve the most efficient, least burdensome procedures for handling
the data. Comments and recommendations from HMOs and CMPs can be useful
for improving HCFA reports and minimizing systems problems. The
additional administrative costs incurred because of full reporting are
allowable.
We recognize that, under full reporting, there may be some
reduction in payments to HMOs and CMPs. This reduction would involve
service-related A & G costs only, and only a small percentage of these
costs. Service-related A & G costs are generally allocated on the basis
of direct identification, functional allocation, or pooling. To the
extent service-related A & G costs cannot be allocated to a specific
service, they are allocated to services based upon a given service's
percentage of the total service costs included on the HMO's or CMP's
cost report. It is this small portion of A & G costs that could be
affected by full cost reporting. The inclusion of hospital and SNF
services in the cost report would result in a larger portion of this
category of pool A & G costs being allocated to those services. This,
in turn, would result in lower payment, because the amount already paid
directly to a hospital or SNF for the services they provide would
constitute payment in full for those services, and any pool A & G costs
allocated to those services would be disallowed. Because the portion of
service-related A & G costs that could be affected in this manner is
small, however, we do not anticipate that there would be a significant
reduction in payments to the HMO or CMP.
With respect to the last question noted above, we would expect the
report to reflect the full cost incurred by the hospital or SNF,
including such things as day and cost outliers, pass throughs, graduate
medical education, etc. Part of our effort during the lead time will be
to ensure that we can provide accurate information on these as well as
other pertinent costs.
The fact is that, without full reporting, there is no way to
determine the full actual cost of services furnished by cost HMOs and
CMPs and how that cost compares with the cost of the same services
furnished under the fee-for-service system.
Comment: Two commenters contended that full reporting is in
conflict with generally accepted accounting principles (GAAP) and with
certain statements of the Financial Accounting Standards Board (the
Board).
Noted as an Example: When the intermediary pays a provider, for
the HMO or CMP there is no inflow or outflow of assets.
Accordingly, the transaction does not meet the Board's definition
of revenue and expense.
Response: The basic rule is that HCFA pays the HMO or CMP all the
allowable costs it incurs to furnish covered services to its Medicare
enrollees. By law and under the contract, the HMO or CMP is required to
provide or arrange for all Medicare-covered services that are generally
available in the area it serves. The fact that the HMO or the CMP
elects to have HCFA process and pay provider claims does not--
Relieve it of the responsibility for furnishing provider
services when necessary and appropriate; or
Change the fact that the sums paid by the intermediary are
part of the cost of providing Medicare services through an HMO or CMP.
Comment: One commenter argued that full reporting was not supported
by current laws and regulations, and others contended that the amounts
referred to in section 1876(b)(2) (A) and (B) of the Act and the
implementing regulations (Sec. 417.532(g) of the HCFA rules) are in
fact an actuarial projection of the average cost of Medicare covered
services, and an actuarial value of the intermediary's payments.
Response: We find support for the requirement in the following
provisions of the statute and regulations:
a. Section 1876(h)(4) of the Act provides that under a cost
contract, the Secretary must require the HMO or CMP to report ``* * *
its per capita incurred cost * * * for providing services described in
subsection (a)(1) * * *'' (The services referred to in (a)(1) are all
the covered services available to Medicare beneficiaries in the area
served by the HMO or CMP.)
b. Section 1876(h)(2)(A) allows the HMO or CMP to elect to have
HCFA pay for provider services. Section 1876(h)(2)(B) provides that the
amounts paid under the election shall be deducted from the payment that
would otherwise be made to the HMO or CMP * * * for the allowable costs
of all Medicare-covered services.
These statutory provisions are reflected in Sec. 417.532 of the
regulations. The distinction between actuarial values and actual
payment amounts is clear from a comparison between Sec. 417.532(c)(3)
and Sec. 417.532(g). The first provides for deducting, from the
reasonable cost actually incurred by the HMO or CMP, ``an amount equal
to the
[[Page 34887]]
actuarial value * * * of deductible and coinsurance amounts that would
have applied * * * if these enrollees had not enrolled in this or
another HMO or CMP.''
Section 417.532(g) states, in part, that ``HCFA will deduct these
payments * * * in computing the payments to the HMO or CMP''.
Over the years there have been discussions about how to handle
these payments within the Medicare program budgeting. There has never
been any doubt that these are actual payment amounts and not actuarial
representations.
Comment: Two commenters considered that the current cost report
form is not adequate for full reporting.
Response: As noted above, we want to ensure the most efficient and
least burdensome procedures for full reporting. This will probably
require changes in the form, to be worked out during the lead time.
Comment: One commenter thought that including intermediary payments
in the cost report might require the auditor that certifies the report
to extend its testing procedures to include the intermediaries.
Response: This will not be necessary. The auditor will certify that
the amounts reported as paid by the intermediary are part of the HMO's
or CMP's incurred costs.
B. Technical Amendments
1. Comment: Three commenters inferred, from our proposed revision
of Sec. 417.800(c), that we intended to change our current policy of
paying 100 percent of reasonable costs for services for which
beneficiaries are not liable for coinsurance.
Response: That was not our intent. We have revised paragraph
(c)(2)(ii) to clearly state that coinsurance is deducted only for
services that are subject to coinsurance.
2. Other changes. We have incorporated the proposed definition of
``furnished'', and removed obsolete provisions that applied only to
contract periods that began before January 1986.
C. Changes in the Regulations
1. Definitions. In Sec. 417.1, we added a definition of
``furnished'' to make clear that, in part 417, the term means made a
available by the HMO, CMP, or HCPP either directly or under
arrangements it makes with other entities.
2. Full reporting. We have amended Sec. 417.576 to make clear that
the incurred per capita costs in the cost report must include the costs
paid by the Medicare intermediary.
3. Deductions from HCPP reasonable costs. In Sec. 417.800, we have
revised paragraph (c)(2) to make clear that the 20 percent deduction
from the reasonable costs incurred by the HCPP applies only to services
that are subject to coinsurance.
4. Obsolete provisions. We have removed the following paragraphs
and sections that applied to contract periods that began before January
1986:
Paragraph (b) of Sec. 417.546 (Physician services and
other Part B services furnished under arrangements), and the Editorial
note at the end of the section.
Paragraph (d)(2) of Sec. 417.560 (Apportionment: Part B
physician and supplier services).
All of Sec. 417.562 (Weighting of direct services
furnished by physicians and other practitioners).
D. Other Required Information
1. Information Collection Requirements
Section 417.576 requires ``full reporting'' as discussed under part
D of this preamble. This requirement is subject to review by the Office
of Management and Budget under the Paperwork Reduction Act of 1980, and
has been submitted for their review. The time required for compiling
and processing the information and completing the report with the
additional costs is estimated to be 180 hours per year.
2. Regulatory Impact Statement
Consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601
through 612), we prepare a regulatory flexibility analysis unless the
Secretary certifies that a rule will not have a significant economic
impact on a substantial number of small entities. We consider all HMOs
and CMPs that contract with us to furnish services to Medicare
beneficiaries on a cost basis to be small entities.
In addition, under section 1102(b) of the Act, the Secretary is
required to prepare a regulatory impact analysis if a rule may have a
significant impact on the operation of a substantial number of small
rural hospitals. This analysis must conform to the provisions of
section 604 of the RFA. For purposes of section 1102(b) of the Act, we
define small rural hospital as a hospital that has fewer than 50 beds
and is not located in a Metropolitan Statistical Area.
This final rule requires HMOs and CMPs paid on a cost basis to
include in their cost reports the costs of hospital and SNF services
even if a Medicare intermediary processes those claims and makes
payments directly to the hospital or SNF. There are approximately 25
HMOs and CMPs that have elected to have the Medicare intermediaries pay
for these services. As noted earlier in this preamble, we believe that
payments to these HMOs and CMPs will not be reduced significantly
because of the statutory limits on the A & G costs related to inpatient
hospital and SNF care paid by Medicare intermediaries.
The lead time before implementation of the full reporting
requirement will enable HCFA and the affected HMOs and CMPs to work out
the most efficient, least burdensome, procedures for handling these
additional data. The additional costs incurred by the HMOs and CMPs for
full reporting are allowable costs.
We have not prepared a regulatory flexibility analysis because we
have determined, and the Secretary certifies that this final rule will
not have a significant economic impact on a substantial number of small
entities or a significant impact on the operations of a substantial
number of small rural hospitals.
In accordance with the provisions of Executive Order 12866, this
regulation was not reviewed by the Office of Management and Budget.
List of Subjects in 42 CFR Part 417
Administrative practice and procedure, Grant programs--health,
Health care, Health facilities, Health insurance, Health maintenance
organizations (HMO), Loan programs--health, Medicare, Reporting and
recordkeeping requirements.
42 CFR part 417 is amended as set forth below.
1. The authority citation for part 417 continues to read as
follows:
Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh), secs. 1301, 1306, and 1310 of the Public
Health Service Act (42 U.S.C. 300e, 300e-5, and 300e-9) and 31
U.S.C. 9701.
2. In Sec. 417.1, the following definition is added, in
alphabetical order:
* * * * *
Furnished, when used in connection with prepaid health care
services, means services that are made available to an enrollee either
directly by, or under arrangements made by, the HMO, CMP, or HCPP.
* * * * *
Sec. 417.546 [Amended]
3. In Sec. 417.546, the following changes are made:
a. Paragraph (b) and the Editorial note are removed.
b. In paragraph (a), the ``(a)'' designation is removed, and the
``(1)''
[[Page 34888]]
and (``2'') designations are changed to ``(a)'' and ``(b)'',
respectively.
Sec. 417.560 [Amended]
4. In Sec. 417.560, the following changes are made:
a. Paragraph (d)(2) is removed.
b. In paragraph (d)(1), the designation ``(1)'', and the clause
``Except as provided in paragraph (d)(2) of this section,'' are
removed, and the word ``the'', preceding ``Medicare share'' is revised
to read ``The''.
Sec. 417.562 [Removed]
5. Sec. 417.562 is removed.
6. In Sec. 417.576, paragraph (b)(2)(i) is revised to read as
follows:
Sec. 417.576 Final settlement.
* * * * *
(b) * * *
(2) Content of cost report. The cost report and supporting
documents must include the following:
(i) The per capita costs incurred in furnishing covered services to
its Medicare enrollees, determined in accordance with subpart O of this
part and including--
(A) The costs incurred by entities related to the HMO or CMP by
common ownership or control; and
(B) For reports for cost-reporting periods that begin on or after
January 1, 1996, the costs of hospital and SNF services paid by
Medicare's intermediaries under the option provided by Sec. 417.532(d).
* * * * *
7. Sec. 417.800 is amended to revise the heading and paragraph
(c)(2) to read as follows:
Sec. 417.800 Payment to HCPPs: Definitions and basic rules.
* * * * *
(c) Payment of reasonable cost. * * *
(2) Payment for Part B services: Basic rules--(i) Cost basis
payment. Except as provided in paragraph (d) of this section, HCFA pays
an HCPP on the basis of the reasonable costs it incurs, as specified in
subpart O of this part, for the covered Part B services furnished to
its Medicare enrollees.
(ii) Deductions. In determining the amount due an HCPP for covered
Part B services furnished to its Medicare enrollees, HCFA deducts, from
the reasonable cost actually incurred by the HCPP, the following:
(A) The actuarial value of the Part B deductible.
(B) An amount equal to 20 percent of the cost incurred for any
service that is subject to the Medicare coinsurance.
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)
Dated: April 20, 1995.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
Dated: June 19, 1995.
Donna E. Shalala,
Secretary.
[FR Doc. 95-16411 Filed 7-3-95; 8:45 am]
BILLING CODE 4120-01-P
