[Federal Register Volume 63, Number 54 (Friday, March 20, 1998)]
[Proposed Rules]
[Pages 13590-13608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-7190]
[[Page 13590]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Parts 400 and 421
[HCFA-7020-P]
RIN 0938-AI09
Medicare Program; Medicare Integrity Program, Intermediary and
Carrier Functions, and Conflict of Interest Requirements
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Proposed rule.
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SUMMARY: This proposed rule would implement section 1893 of the Social
Security Act (the Act) by establishing the Medicare integrity program
(MIP) to carry out Medicare program integrity activities that are
funded from the Medicare Trust Funds. Section 1893 expands our
contracting authority to allow us to contract with ``eligible
entities'' to perform Medicare program integrity activities. These
activities include review of provider and supplier activities,
including medical, fraud, and utilization review; cost report audits;
Medicare secondary payer determinations; education of providers,
suppliers, beneficiaries, and other persons regarding payment integrity
and benefit quality assurance issues; and developing and updating a
list of durable medical equipment items that are subject to prior
authorization. This proposed rule would set forth the definition of
eligible entities, services to be procured, competitive requirements
based on Federal acquisition regulations and exceptions (guidelines for
automatic renewal), procedures for identification, evaluation, and
resolution of conflicts of interest, and limitations on contractor
liability.
In addition, this proposed rule would bring certain sections of the
Medicare regulations concerning fiscal intermediaries and carriers into
conformity with the Act. The rule would distinguish between those
functions that the statute requires be included in agreements with
intermediaries and those that may be included in the agreements. It
would also provide that some or all of the listed functions may be
included in carrier contracts. Currently all these functions are
mandatory for carrier contracts. These changes would give us the
flexibility to transfer functions from one intermediary or carrier to
another or to otherwise limit the functions an intermediary or carrier
performs if we determine that to do so would result in more effective
and efficient program administration.
DATES: Comments will be considered if we receive them at the
appropriate address, as provided below, no later than 5 p.m. on May 19,
1998.
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-7020-P, P.O. Box 26676,
Baltimore, MD 21207-0519.
If you prefer, you may deliver your written comments (1 original
and 3 copies) to one of the following addresses:
Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,
Washington, DC 20201, or
Room C5-09-26, 7500 Security Boulevard, Baltimore, MD 21244-1850.
Because of staffing and resource limitations, we cannot accept
comments by facsimile (FAX) transmission. In commenting, please refer
to file code HCFA-7020-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 309-G of
the Department's offices at 200 Independence Avenue, SW., Washington,
DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m.
(phone: (202) 690-7890).
FOR FURTHER INFORMATION CONTACT: Brenda Thew (410) 786-4889.
SUPPLEMENTARY INFORMATION:
I. Background
A. Current Medicare Contracting Environment
The current Medicare contracting authorities have been in place
since the inception of the Medicare program in 1965. At that time, the
health insurance and medical communities raised concerns that the
enactment of Medicare could result in a large Federal presence in the
provision of health care. In response, under sections 1816(a) and
1842(a) of the Social Security Act (the Act), Congress provided that
public or private entities and agencies may participate in the
administration of the Medicare program under agreements or contracts
entered into with us.
These Medicare contractors are known as intermediaries (section
1816(a) of the Act) and carriers (section 1842(a) of the Act). With
certain exceptions, intermediaries perform bill processing and benefit
payment functions for Part A of the program (Hospital Insurance) and
carriers perform claims processing and benefit payment functions for
Part B of the program (Supplementary Medical Insurance).
(For the following discussion, the terms ``provider'' and
``supplier'' are used as those terms are defined in 42 CFR 400.202.
That is, a provider is a hospital, rural care primary hospital, skilled
nursing facility, home health agency, or a hospice that has in effect
an agreement to participate in Medicare, or a clinic, a rehabilitation
agency, or a public health agency that has a similar agreement to
furnish outpatient physical therapy or speech pathology services.
Supplier is defined as a physician or other practitioner or an entity
other than a ``provider,'' that furnishes health care services under
Medicare.)
Section 1842(a) of the Act authorizes us to contract with private
entities (carriers) for the purpose of administering the Medicare Part
B program. Medicare carriers determine payment amounts and make
payments for services (including items) furnished by physicians and
other suppliers such as nonphysician practitioners, laboratories, and
durable medical equipment suppliers. In addition, carriers perform
other functions required for the efficient and effective administration
of the Part B program. Section 1842(f) of the Act provides that a
carrier must be a ``voluntary association, corporation, partnership, or
other nongovernmental entity which is lawfully engaged in providing,
paying for, or reimbursing the cost of, health services under group
insurance policies or contracts, medical or hospital service
agreements, membership or subscription contracts, or similar group
arrangements, in consideration of premiums or other periodic charges
payable to the carrier, including a health benefits plan duly sponsored
or underwritten by an employee entity.'' No entity may be considered
for carrier contracts unless it can demonstrate that it meets this
definition of carrier.
Section 1842(b) provides us with the discretion to enter into
carrier contracts without regard to any provision of the law requiring
competitive bidding. Other provisions of generally applicable Federal
contract law and regulations, as well as HHS procurement regulations,
remain in effect for carrier contracts.
Section 1816(a) of the Act authorizes us to enter into agreements
with private agencies or entities (intermediaries) for the purpose of
administering Medicare Part A. These entities are responsible for
determining the amount of payment due to providers in consideration of
services provided to beneficiaries and for making
[[Page 13591]]
these payments. We may enter into an agreement with an entity to serve
as an intermediary if the entity has first been ``nominated'' by a
group or association of providers to make Medicare payments to it.
Other portions of section 1816 of the Act provide further details
concerning the ``nomination process'' and assignment and reassignment
of providers to intermediaries.
Our regulations at Sec. 421.100 require that the agreement between
us and an intermediary specify the functions the intermediary must
perform. In addition to requiring any items specified by us in the
agreement that are unique to that intermediary, our regulations require
that all intermediaries perform activities relating to determining and
making payments for covered Medicare services, fiscal management,
provider audits, utilization patterns, resolution of cost report
disputes, and reconsideration of determinations. Finally, our
regulations require that all intermediaries furnish information and
reports, perform certain functions with respect to provider-based home
health agencies and provider-based hospices, and comply with all
applicable laws and regulations and with any other terms and conditions
included in their agreements.
Similarly, Sec. 421.200 of our regulations, requires that the
contract between us and a Part B carrier specify the functions the
carrier must perform. In addition to requiring any items specified by
us in the contract that are unique to that carrier, our regulations
require that all Part B carriers perform activities relating to
determining and making payments (on a cost or charge basis) for covered
Medicare services, fiscal management, provider audits, utilization
patterns, and Part B beneficiary hearings. In addition, Sec. 421.200
requires that all carriers furnish information and reports, maintain
and make available records, and comply with any other terms and
conditions included in their contracts.
It is within the above context that Medicare intermediary and
carrier contracts are significantly different from standard Federal
Government contracts.
Specifically, the Medicare intermediary and carrier contracts are
normally renewed automatically from year to year, in contrast to the
typical Government contract that is recompeted at the conclusion of the
contract term. Congress, in providing for the nomination process under
section 1816 of the Act, and authorizing the automatic renewal of the
carrier contracts in section 1842(b)(5) of the Act, contemplated a
contracting process that would permit us to noncompetitively renew the
Medicare contracts from year to year.
For both intermediaries and carriers, Sec. 421.5 states that we
have the authority not to renew a Part A agreement or a Part B contract
when it expires. Section 421.126 provides for termination of the
intermediary agreements in certain circumstances, and, similarly,
Sec. 421.205 provides for termination of carrier contracts.
Each year, Congress appropriates funds to support Medicare
contractor activities. These funds are distributed to the contractors
through an annual Budget Performance Requirements process, which
allocates funds by program activity to each of the current 69 Medicare
contractors. Historically, approximately one-half of the funds have
been for payment for the processing of claims; one-quarter of the funds
have been for ``payment safeguard'' activities to fund activities such
as conducting medical review of claims to determine whether services
are medically necessary and constitute an appropriate level of care,
deterring and detecting Medicare fraud, auditing provider cost reports,
and ensuring that Medicare acts as a secondary payer when a beneficiary
has primary coverage through other insurance. The remainder of the
funds have been allocated for beneficiary and provider/supplier
services and for various productivity investments.
B. The Medicare Integrity Program
The Health Insurance Portability and Accountability Act of 1996
(Public Law 104-191) was enacted on August 21, 1996. Section 202 of
Public Law 104-191 adds a new section 1893 to the Act establishing the
Medicare integrity program (MIP). This program is funded from the
Medicare Hospital Insurance Trust Fund for activities related to both
Part A and Part B of Medicare. Specifically, section 1893 of the Act
expands our contracting authority to allow us to contract with eligible
entities to perform Medicare program integrity activities performed
currently by intermediaries and carriers. These activities include
medical, fraud, and utilization review; cost report audits; Medicare
secondary payer determinations; overpayment recovery; education of
providers, suppliers, beneficiaries, and other persons regarding
payment integrity and benefit quality assurance issues; and developing
and updating a list of durable medical equipment items that, under
section 1834(a)(15) of the Act, are subject to prior authorization.
Section 1893(d) of the Act requires us to set forth, through
regulations, procedures for entering into contracts for the performance
of specific Medicare program integrity activities. These procedures are
to include the following:
(1) A process for identifying, evaluating, and resolving
organizational conflicts of interest that are generally applicable to
Federal acquisition and procurement.
(2) Competitive procedures for entering into new contracts under
section 1893 of the Act, a process for entering into contracts that may
result in the elimination of responsibilities of an individual
intermediary or carrier, and other procedures we deem appropriate.
(3) A process for renewing contracts entered into under section
1893 of the Act.
Section 1893(d) also provides that we may enter into these
contracts without publication of final rules.
In addition, section 1893(e) of the Act requires us to set forth,
through regulations, the limitation of a contractor's liability for
actions taken to carry out a contract.
Congress established section 1893 of the Act to strengthen our
ability to deter fraud and abuse in the Medicare program in a number of
ways. First, it provides a separate and stable long-term funding
mechanism for MIP activities. Historically, Medicare contractor budgets
had been subject to wide fluctuations in funding levels from year to
year. The variations in funding did not have anything to do with the
underlying requirements for program integrity activities. This
instability made it difficult for us to invest in innovative strategies
to control fraud and abuse. Our contractors also found it difficult to
attract, train, and retain qualified professional staff, including
auditors and fraud investigators. A dependable funding source allows us
the flexibility to invest in innovative strategies to combat fraud and
abuse. It will help us shift emphasis from post-payment recoveries on
fraudulent claims to prepayment strategies designed to ensure that more
claims are paid correctly the first time.
Second, to allow us to more aggressively carry out the MIP
functions and to require us to use procedures and technologies that
exceed those currently being used, section 1893 greatly expands our
contracting authority. Previously, we had a limited pool of entities
with whom to contract. This limited our ability to maximize efforts to
effectively carry out the MIP functions. Section 1893 now permits us to
attract a variety of offerors with potentially new and different skill
sets and will allow those offerors to propose
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innovative approaches to implement MIP to deter fraud and abuse. By
using competitive procedures, as established in the FAR, our ability to
manage the MIP activities is greatly enhanced, and the Government can
seek to obtain the best value for its contracted services.
Third, section 1893 requires us to address potential conflicts of
interest among potential MIP contractors before entering into any
contracting arrangements with them. By requiring offerors/contractors
to report situations that may constitute conflicts of interest, we can
minimize the number of situations where there is either an actual or an
apparent conflict of interest. This is a concern particularly when
intermediaries and carriers processing Medicare claims are also private
health insurance companies.
From the inception of the Medicare program, intermediary and
carrier contracts have contained provisions that have precluded
contractors from using their Medicare contract to benefit their private
lines of business. These conflicts of interest were rarely a problem in
the early years of Medicare because these companies did only health
insurance business within prescribed market areas. In recent years,
however, Medicare intermediaries and carriers, like most health
insuring organizations, have expanded their businesses and product
lines to become large integrated health care delivery systems. Some
organizations have diversified into corporations with many subsidiaries
and a variety of arrangements. These range from overlapping ownership
of other insurers, third party administrators, providers, and managed
care entities to the marketing of management services and software
products. This creates a conflict of interest when the contractor
reviews claims, identifies Medicare secondary payer instances, and
performs other payment safeguard activities for its own providers and
suppliers as well as for its provider's and supplier's competitors.
We have been criticized for the lack of effective mechanisms to
mitigate these conflicts of interest. Even when we are assured that
proper mechanisms are in place, the appearance of a conflict remains in
the eyes of competitors. An even more difficult problem arises with
respect to program integrity activities. Medicare contractors exercise
considerable discretion in their audit functions, the use of prepayment
screens, the conduct of fraud investigations, and referrals to law
enforcement agencies regarding incidences of fraud and abuse. These
activities depend upon the ability of the contractor to conduct
independent reviews, negotiate disputes, and to manipulate data with
great sophistication to discover situations where providers and
suppliers are engaged in fraudulent activity. These activities would be
largely ineffective if contractor-owned providers and suppliers benefit
from bias or forewarning.
When a Medicare contractor owns a provider or supplier, it
necessarily finds itself in a situation in which potential conflicts of
interest could arise. On the one hand, it has a fiduciary duty to its
stockholders to use its best efforts to capture market share and to
maximize profits. On the other hand, it has an obligation to Medicare
and to the public not to take advantage of its position as a Medicare
contractor. For example, the Medicare contractor--
Has access to information about beneficiaries, providers,
and suppliers that would be enormously useful in marketing and other
business decisions, including provider/supplier information that is
considered ``proprietary.''
As the claims administrator for an area, it has
extraordinary leverage over providers and suppliers. That leverage
could be used, implicitly or explicitly, to persuade providers and
suppliers to join a network or to agree to business arrangements that
are favorable to the Medicare contractor.
Has knowledge and experience as a Medicare claims
administrator that would give it a competitive advantage in knowing how
to submit claims to avoid payment screens and in having other
information that is not available to other providers/suppliers that
could assist in maximizing payments to its own providers/suppliers.
May also offer other health insurance coverage that is
primary or supplemental to Medicare. In this situation, there is always
the temptation to let Medicare pay first, knowing that even if the
mistaken Medicare payment is later discovered and reimbursed, the
contractor has received a temporary interest free loan from the
Government.
The MIP, however, allows us to separate payment safeguard functions
from all of the functions now being performed by current intermediaries
and carriers. This allows current contractors that are performing
important functions such as beneficiary and provider/supplier services
well to continue to do so, or possibly to review claims from providers/
suppliers with which they have no financial relationship.
Conflict of interest situations can also occur when Medicare
contractors own managed care entities, for example health maintenance
organizations (HMOs). The mere ownership of an HMO by a Medicare
contractor would seem to create no conflict of interest concerns since
the HMO would be dealing directly with the Government. However, in the
situation in which a physician both works for a contractor-owned HMO
and maintains a fee-for-service practice, the contractor could give the
physician a ``bonus'' by doing a less thorough review of his or her
claims. Additionally, the contractor-owned HMO could use its Medicare
beneficiary database to perform health screening of beneficiaries, or
its utilization data, marketing information, etc. for its commercial
benefit. It could also influence the HMO market by promoting itself as
the local intermediary or carrier.
Medicare contractors also provide management services and develop
software to facilitate the filing of claims and compliance with
Medicare requirements. Since Medicare contractors have an intimate
knowledge of Medicare claims systems and administration, they may
derive an unfair competitive advantage if they were to sell information
that is not generally available to the public. They may also shift
development and training costs to Medicare for services they market to
the public.
For all these reasons this legislation is providing us an
opportunity to increase our ability to protect the Medicare program
from instances of fraud and abuse by establishing procedures for
identifying, evaluating, and resolving organizational conflicts of
interest.
II. Provisions of the Proposed Rule
This regulation is part of our overall contracting strategy, which
is designed to build on the strengths of the marketplace. We intend to
implement the MIP incrementally in a manner that will provide a way to
test alternatives and to transition integrity activities to MIP
contractors. We are committed to conducting procurements using full and
open competition that will provide opportunities for a wide range of
contractors to participate in the program. We will continue to
encourage new and innovative approaches in the marketplace to protect
the Medicare Trust Funds.
A. The Medicare Integrity Program
1. Basis, Scope, and Applicability
In accordance with section 1893 of the Act, this proposed rule
would amend part 421 by adding a new subpart D entitled, ``Medicare
Integrity Program Contractors''. This subpart would define the types of
entities
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eligible to become MIP contractors; identify the program integrity
functions a MIP contractor may perform; describe procedures for
awarding and renewing contracts; establish procedures for identifying,
evaluating, and resolving organizational conflicts of interest;
prescribe responsibilities; and set forth limitations on MIP contractor
liability. The provisions of this subpart supplement the Federal
acquisition regulations set forth at 48 CFR chapter 1 and the
Department's acquisition regulations at 48 CFR chapter 3. Subpart D
would be applicable to entities that seek to compete for or receive
award of a contract under section 1893 of the Act including entities
that perform functions under this subpart emanating from the processing
of claims for individuals entitled to benefits as qualified railroad
retirement beneficiaries. We would set forth the basis, scope, and
applicability of subpart D in Sec. 421.300.
2. Definition of Eligible Entities
As discussed earlier, under sections 1816(a) and 1842(a) of the
Act, public or private entities and agencies (Medicare intermediaries
and carriers) participate in the administration of the Medicare program
under agreements or contracts entered into with us (on the Secretary's
behalf). Basically, the carrier must be a voluntary association,
corporation, partnership, or other nongovernmental entity lawfully
engaged in providing or paying for health services under group
insurance policies or contracts, medical or hospital service
agreements, membership or subscription contracts, or similar group
arrangements. In general, the intermediary must be an entity that has
an agreement with us and has been nominated by a provider to determine
and make Medicare Part A payments and to perform other related
functions. Current regulations at Secs. 421.110 and 421.202 specify the
eligibility requirements current Medicare contractors must meet before
entering into or renewing an agreement or contract.
In accordance with section 1893(c) of the Act, proposed
Sec. 421.302 would provide that an entity is eligible to enter into a
MIP contract if, in general, it demonstrates the capability to perform
MIP contractor functions; it agrees to cooperate with the Office of
Inspector General (OIG), the Attorney General, and other law
enforcement agencies in the investigation and deterrence of fraud and
abuse of the Medicare program, including making referrals; it complies
with the conflict of interest standards in 48 CFR Chapters 1 and 3 and
is not excluded under the conflict of interest provisions established
by this rule; and it meets other requirements that we may impose. Also,
in accordance with the undesignated paragraph following section
1893(c)(4) of the Act, we would specify that Medicare carriers are
deemed to be eligible to perform the activity of developing and
periodically updating a list of durable medical equipment items that
are subject to prior authorization.
Note that, in accordance with section 1893(d) of the Act, we may
continue to contract, for the performance of MIP activities, with
intermediaries and carriers that had a contract with us on August 21,
1996 (the effective date of enactment of Public Law 104-191). However,
in accordance with section 1816(l) or section 1842(c)(6) of the Act
(both added by Public Law 104-191), they may not duplicate activities
under both an intermediary agreement or carrier contract and a MIP
contract, with one excepted activity. The exception permits a carrier
to develop and update a list of items of durable medical equipment that
are subject to prior authorization both under the MIP contract and its
contract under section 1842 of the Act.
3. Definition of MIP Contractor
We propose to define ``Medicare integrity program contractor,'' at
Sec. 400.202 (Definitions specific to Medicare), as an entity that has
a contract with us under section 1893 of the Act to perform program
integrity activities.
4. Services to be Procured
A MIP contractor may perform some or all of the MIP activities
performed currently by intermediaries and carriers. Section 421.304
would state that the contract between HCFA and a MIP contractor
specifies the functions the contractor performs. In accordance with
section 1893(b) of the Act, proposed Sec. 421.304 identifies the
following as MIP activities.
a. Medical, utilization, and fraud review. Medical and utilization
review includes the processes necessary to ensure both the appropriate
utilization of services and that services meet the professionally
recognized standards of care. These processes include review of claims,
medical records, and medical necessity documentation and analysis of
patterns of utilization to identify inappropriate utilization of
services. This would include reviewing the activities of providers/
suppliers and other individuals and entities (including health
maintenance organizations, competitive medical plans, and health care
prepayment plans). This function results in the identification of
overpayments, prepayment denials, recommendations for changes in
national coverage policy, changes in local medical review policies and
payment screens, referrals for fraud and abuse, and the identification
of the education needs of beneficiaries, providers, and suppliers.
Fraud review includes fraud prevention initiatives, responding to
external customer complaints of alleged fraud, the development of
strategies to detect potentially fraudulent activities that may result
in improper Medicare payment, and the identification and development of
fraud cases for referral to law enforcement. Each solicitation will
specify when cases should be referred to the OIG. In general, however,
identified overpayments exceeding a threshold amount set by the OIG,
recurring acts of improper billing, and substantiated allegations of
fraudulent activity will be promptly referred to a Regional Office of
Investigation.
b. Cost report audits. Providers and managed care plans receiving
Medicare payments are subject to audit for all payments applicable to
services furnished to beneficiaries. The audit ensures that proper
payments are made for covered services, provides verified financial
information for making a final determination of allowable costs,
identifies potential instances of fraud and abuse, and ensures the
completion of special projects.
This functional area includes the receipt, processing, and
settlement of cost reports based on reasonable costs, prospective
payment, or any other basis, and the establishment or adjustment of the
interim payment rate using cost report or other information.
c. Medicare secondary payer activities. The Medicare secondary
payer function is a process developed as a payment safeguard to protect
the Medicare program against mistaken primary payments. The focus of
this process is to ensure that the Medicare program pays only to the
extent required by statute. Entities under a MIP contract that includes
Medicare secondary payer functions would be responsible for identifying
Medicare secondary payer situations and/or pursuing recovery of
mistaken payments from the appropriate entity or individual, depending
on the specifics of the contract.
This functional area includes the processes performed to identify
beneficiaries for whom there is coverage which is primary to Medicare.
Through these processes, information may be acquired for subsequent use
in
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beneficiary claims adjudication, recovery, and litigation.
d. Education. This functional area includes educating
beneficiaries, providers, suppliers, and other individuals regarding
payment integrity and benefit quality assurance issues.
e. Developing prior authorization lists. This functional area
includes developing and periodically updating a list of durable medical
equipment items that, in accordance with section 1834(a)(15) of the
Act, are subject to prior authorization. Section 1834(a)(15) requires
prior authorization to be performed on the following items of durable
medical equipment: Items identified as subject to unnecessary
utilization; items supplied by suppliers that have had a substantial
number of claims denied under section 1862(a)(1) of the Act as not
reasonable or necessary or for whom a pattern of overutilization has
been identified; or a customized item if the beneficiary or supplier
has requested an advance determination. Prior authorization is a
determination that an item of durable medical equipment is covered
prior to when the equipment is delivered to the Medicare beneficiary.
Application of MIP--It should be noted that the MIP functions are
not limited to services furnished under fee-for-service payment
methodologies. MIP functions are applicable to all types of claims.
They are also applicable to all types of payment systems including, but
not limited to, managed care and demonstration projects.
5. Competitive Requirements
We would specify, in Sec. 421.306(a), that MIP contracts will be
awarded in accordance with 48 CFR chapters 1 and 3, 42 CFR part 421
subpart D, and all other applicable laws and regulations. Further, in
accordance with section 1893(d)(2) of the Act, we would specify that
the procedures set forth in these authorities will be used: (1) When
entering into new contracts; (2) when entering into contracts that may
result in the elimination of responsibilities of an individual
intermediary or carrier; and (3) at any other time we consider
appropriate.
In proposed section 421.306(b), we would establish an exception to
competition which allows a successor in interest to an intermediary
agreement or carrier contract to be awarded a contract for MIP
functions without competition, if its predecessor performed program
integrity functions under the transferred agreement or contract and the
resources, including personnel, which were involved in performing those
functions, were transferred to the successor.
This proposal is made in anticipation that some intermediaries and
carriers may engage in transactions under which the recognition of a
successor in interest by means of a novation agreement may be
appropriate, and the resources involved in the intermediary's or
carrier's MIP activities are transferred along with its other Medicare-
related resources to the successor in interest. For example, the
intermediary or carrier may undergo a corporate reorganization under
which the corporation's Medicare business is transferred entirely to a
new subsidiary corporation. When all of a contractor's resources or the
entire portion of the resources involved in performing a contract are
transferred to a third party, HCFA may recognize the third party as the
successor in interest to the contract through approval of a novation
agreement. See 48 CFR 42.12.
If the intermediary or carrier were performing MIP activities under
its contract on August 21, 1996, the date of the enactment of the MIP
legislation, the statute permits HCFA to continue to contract with the
intermediary or carrier for the performance of those activities without
using competitive procedures. In the context of a corporate
reorganization, under which all of the resources involved in performing
the contract, including those involved in performing MIP activities,
are transferred to a successor in interest, HCFA may determine that
breaking out the MIP activities and competing them separately would not
be in the best interest of the government.
Inherent in the requirement of section 1893(d) of the Act that the
Secretary establish competitive procedures to be used when entering
into contracts for MIP functions is the authority to establish
exceptions to those procedures. See 48 CFR 6.3. Moreover, intermediary
agreements and carrier contracts have, by statute, been
noncompetitively awarded under sections 1816(a) and 1842(b)(1) of the
Act. Furthermore, those agreements and contracts have in recent years
prior to the enactment of the MIP legislation included program
integrity activities, a fact that the Congress acknowledged in section
1893(d)(2) of the Act. We believe that creating an exception to the use
of competition for cases in which the same resources, including the
same personnel, continue to be used by a third party as successor in
interest to an intermediary agreement or carrier contract is consistent
with Congress' authorization to forgo competition when the contracting
entity was carrying out the MIP functions on the date of enactment of
the MIP legislation. Section 421.306(b) would provide an interim
solution to permit continuity in the performance of the MIP functions
until such time as we are prepared to procure MIP functions on the
basis of full and open competition.
We would further specify, in Sec. 421.306(c), that an entity must
meet the eligibility requirements established in proposed Sec. 421.302
to be eligible to be awarded a MIP contract.
We would state, in Sec. 421.308(a), that we specify an initial
contract term in the MIP contract and that contracts may contain
renewal clauses. Contract renewal provides a mutual benefit to both
parties. Renewing a contract, when appropriate, results in continuity
both for us and the contractor and is in the best interest of the
Medicare program. The benefits are realized through early communication
of our intention whether to renew a contract, which permits both
parties to plan for any necessary changes in the event of nonrenewal.
Furthermore, as a prudent administrator of the Medicare program, we
must ensure that we have sufficient time to transfer the MIP functions
should a reassignment of the functions be necessary (either because the
contractor has given notice of its intent to nonrenew or because we
have determined that reassignment is in the best interest of the
Medicare program). Therefore, in Sec. 421.308(a), we would specify that
we may renew a MIP contract, as we determine appropriate, by giving the
contractor notice, within timeframes specified in the contract, of our
intention to do so. (The solicitation document that resulted in the
contract will contain further details regarding this provision.)
Based on section 1893(d)(3) of the Act, we would specify, in
paragraph (b) of Sec. 421.308, that we may renew a MIP contract without
competition if the contractor continues to meet all the requirements of
proposed subpart D of part 421, the contractor meets or exceeds all
performance standards and requirements in the contract, and it is in
the best interest of the Government.
We would provide, at Sec. 421.308(c), that, if we do not renew the
contract, the contract will end in accordance with its terms, and the
contractor does not have a right to a hearing or judicial review
regarding the nonrenewal. This is consistent with our longstanding
policy with regard to intermediary and carrier contracts.
6. Conflict of Interest Rules
This proposed rule would establish the process for identifying,
evaluating, and resolving conflicts of interest as required by section
1893(d)(1) of the Act. The process has been designed to
[[Page 13595]]
ensure that the more diversified business arrangements of potential
contractors do not inhibit competition between providers/suppliers or
in other types of businesses related to the insurance industry or have
the potential for harming Government interests.
On December 6, 1996, we held an open forum discussion with certain
organizations and groups that may, or whose members may, be directly
affected by contracts awarded to perform functions under the MIP.
During the forum, participants discussed whether certain examples were
conflicts of interest and how the conflicts, when present, could be
mitigated. In addition, the conflict of interest situations were made
available for public review on our Internet home page.
In general, some of the participants had concerns that a MIP
contractor could not perform audit or review functions on itself, its
subsidiaries, its direct competitors, or its private sector clients
without the presence of a potential conflict of interest. The conflicts
of interest described could make it impossible for contractor personnel
to be objective in performing contract work or to provide impartial
assistance or advice to the Government or could give the contractor an
unfair competitive advantage.
Some of the participants recommended that the conflict of interest
standards we establish restrict a MIP contractor from having an
ownership interest or contractual relationship with any provider it
will be auditing or reviewing. Also, the participants generally agreed
that requirements dictating disclosure of a contractor's financial
interests would help mitigate conflicts of interest and that each
contractor's situation should be considered on a case-by-case basis.
In developing the conflict of interest requirements, we had several
options. We could refuse to contract with any entity if a conflict of
interest situation either exists or is perceived to exist, or we could
choose not to contract with any health-care related entities. We could
try to develop a list of all potential situations where a conflict of
interest could possibly arise.
We rejected all of these options and adopted a ``process
approach.'' While the process described below employs a greater test
than generally prescribed in the Federal acquisition regulations for
conflict of interest situations, we believe that the sensitive nature
of the work to be performed under the contract, the need to preserve
the public trust, and the history of fraud and abuse in the Medicare
program merits these further requirements. The emphasis on process
requires--
Disclosure by the offeror or contractor via an
Organizational Conflicts of Interest Certificate;
The offeror or contractor to submit a plan to mitigate
situations that could be considered potential conflicts of interest;
The offeror to describe a program that it will establish,
if awarded the contract, to monitor its compliance with any plans
approved by us to resolve conflicts of interest; and
The offeror to describe plans to have a compliance audit
completed by an independent auditor.
Specifically, in Sec. 421.310(b), we would state the general rule
that, except as provided in Sec. 421.310(d), we do not enter into a MIP
contract with an offeror or contractor that we have determined has, or
has the potential for, an unresolved organizational conflict of
interest. Paragraph (d) of Sec. 421.310 would provide that we may
contract with an offeror or contractor that has an unresolved conflict
if we determine that it is in the best interest of the Government to do
so. We would define ``organizational conflict of interest,'' at
Sec. 421.310(a), basing our definition on the definition of that term
contained in the FAR at 48 CFR 9.501(d). That definition states that
organizational conflict of interest means ``that because of other
activities or relationships with other persons, a person is unable or
potentially unable to render impartial assistance or advice to the
Government, or the person's objectivity in performing the contract work
is or might be otherwise impaired, or a person has an unfair
competitive advantage.'' To clarify how this definition would apply to
the MIP contract, we would add that, for purposes of the MIP contract,
the activities and relationships described include those of the offeror
or contractor itself and other business related to it and those of its
officers, directors (including medical directors), managers, and
subcontractors.
In paragraph (c) of Sec. 421.310, we would state that we determine
that an offeror or contractor has an organizational conflict of
interest, or a potential for the conflict exists, if the offeror or
contractor either is, or has a present, or known future, direct or
indirect financial relationship with, an entity we describe in
Sec. 421.310(c)(3), which is discussed later in this preamble. In
paragraph (a) of Sec. 421.310, we would define ``financial
relationship'' as (1) a direct or indirect ownership or investment
interest (including an option or nonvested interest) in any entity that
exists through equity, debt, or other means and includes any indirect
ownership or investment interest no matter how many levels removed from
a direct interest, or (2) a compensation arrangement with an entity.
This definition is similar to the definition at Sec. 411.351, which is
used for purposes of the provision which generally prohibits physicians
from making referrals for Medicare services to entities with which the
physician or a member of the physician's immediate family has a
financial relationship. The definition at Sec. 411.351 was based on
section 1877(a)(2) of the Act as it read before January 1, 1995. To
reflect the current reading of section 1877(a)(2), we have added, in
our proposed definition, that an indirect interest can exist through
multiple levels.
In paragraph (c)(2) of Sec. 421.310, we would specify that a
financial relationship may exist either through an offeror's or
contractor's parent companies, subsidiaries, affiliates,
subcontractors, or current clients. We would also specify that a
financial relationship may exist from the activities and relationships
of the officers, directors (including medical directors), or managers
of the offeror or contractor and may be either direct or indirect. We
would define an indirect financial relationship as an ownership or
investment interest that is held in the name of another but provides
benefits to the officer, director, or manager.
In Sec. 421.310(c)(3), we would provide that an offeror or
contractor has a conflict of interest, or a potential conflict of
interest, if it is, or has a present or known future financial
relationship with, an entity that--
Provides, insures, or pays for health benefits, with the
exception of health plans provided as the entity's employee fringe
benefit;
Conducts audits of health benefit payments or cost
reports;
Conducts statistical analysis of health benefit
utilization;
Would review or does review, under the contract, Medicare
services furnished by a provider or supplier that is a direct
competitor of the offeror or contractor;
Prepared work or is under contract to prepare work that
would be reviewed under the MIP contract; or
Is affiliated, as that term is explained in 48 CFR 19.101,
with a provider or supplier to be reviewed under the MIP contract.
(Section 19.101 of 48 CFR states that--
* * * business concerns are affiliates of each other if, directly
or indirectly, either one controls or has the power to control the
other, or another concern controls or has the power to control
[[Page 13596]]
both. In determining whether affiliation exists, consideration is given
to all appropriate factors including common ownership, common
management, and contractual relationships; provided, that restraints
imposed by a franchise agreement are not considered in determining
whether the franchisor controls or has the power to control the
franchisee, if the franchisee has the right to profit from its effort,
commensurate with ownership, and bears the risk of loss of failure. Any
business entity may be found to be an affiliate, whether or not it is
organized for profit or located inside the United States.
Section 19.101 explains that control may exist through stock ownership,
stock options, convertible debentures, voting trusts, common
management, and contractual relationships.)
We would be interested in receiving comments as to how we might
better identify those situations that create a conflict of interest.
For example, we had originally considered including all entities that
provide, insure, or pay for health benefits. We have, however,
identified the situation in which an offeror or contractor provides
health benefits as an employee fringe benefit as being one where the
likelihood of a conflict would not exist. We would be interested in
receiving comments as to whether it would be appropriate to create
other exceptions.
In Sec. 421.310(c)(4), we would specify that we may determine that
an offeror or contractor has an organizational conflict of interest, or
the potential for one exists, based on apparent organizational
conflicts of interest or on other contracts and grants with the Federal
Government. We would provide that an apparent conflict of interest
exists if a prudent business person has cause to believe that the
offeror or contractor would have a conflict of interest in performing
the requirements of the MIP contract. We would further provide that no
inappropriate action by the offeror or contractor is necessary for an
apparent conflict to exist. We believe it is necessary to consider the
offeror's or contractor's other contracts and grants with the Federal
Government to determine whether the offeror's or contractor's financial
dependence upon the Government could influence the likelihood that it
would provide unbiased opinions, conclusions, and work products.
In paragraph (e) of Sec. 421.310, we would specify that an offeror
or contractor is responsible for determining whether an organizational
conflict of interest exists in any of its proposed or actual
subcontractors and consultants at any tier. We also would specify that
the offeror or contractor is responsible for ensuring that its
subcontractors and consultants have mitigated any conflicts or
potential conflicts.
In paragraph (f) of Sec. 421.310, we would state that we consider
that a conflict of interest has occurred if, during the term of the
contract, the contractor received any fee, compensation, gift, payment
of expenses, or any other thing of value from an entity that is
reviewed, audited, investigated, or contacted during the normal course
of performing activities under the MIP contract. We have considered
creating an exception for those compensations, fees, gifts, and other
things of value that are in an amount that would not affect a
contractor's impartiality or objectivity in carrying out its
responsibilities under the MIP contract. We would be interested in
receiving comments suggesting how we might determine an appropriate
dollar amount for such an exception.
We would also specify in paragraph (f) of Sec. 421.310 that a
conflict of interest has occurred during the term of the contract if we
determine that the contractor's activities are creating a conflict. In
addition, we would specify that, if we determine that a conflict of
interest exists, among other actions, we may, as we deem appropriate--
Not renew the contract for an additional term;
Modify the contract; or
Terminate the contract.
In Sec. 421.312(a), we would specify that offerors and MIP
contractors must submit an Organizational Conflicts of Interest
Certificate that contains the following information unless it has
otherwise been provided in the proposal, in which case it must be
referenced:
A description of all business or contractual relationships
or activities that may be viewed by a prudent business person as a
conflict of interest.
A description of the methods the offeror or contractor
will apply to mitigate any situation listed in the Certificate that
could be identified as a conflict of interest.
A description of the offeror's or contractor's program to
monitor its compliance and the compliance of its proposed and actual
subcontractors and consultants with the conflict of interest
requirements as identified in the relevant solicitation.
A description of the offeror's or contractor's plans to
contract for a compliance audit to be conducted by an independent
auditor would be required for all MIP contractor procurements.
An affirmation, using language that we may prescribe,
signed by an official authorized to bind the offeror or contractor,
that the offeror or contractor understands that we may consider any
deception or omission in the Certificate grounds for nonconsideration
for contract award in the procurement process, termination of the
contract, or other contract action.
Corporate and organizational structure.
Financial interests in other entities, including the
following:
+ Percentage of ownership in any other entity.
+ Income generated from other sources.
+ A list of current or known future contracts or arrangements,
regardless of size, with any insurance organization; subcontractor of
an insurance organization; or providers or suppliers furnishing
services for which payment may be made under the Medicare program. This
information is to include the dollar amount of the contracts or
arrangements, the type of work performed, and the period of
performance.
Information regarding potential conflicts of interest and
financial information regarding certain contracts for all of the
offeror's or contractor's officers, directors (including medical
directors), and managers who would be or are involved in the
performance of the MIP contract. We may also require officers,
directors (including medical directors) and managers to provide
financial information regarding their ownership in other entities and
their income from other sources.
We would also specify that the solicitation may require more
detailed information than identified above. Our proposed provisions do
not describe all of the information that may be required, or the level
of detail that would be required, because we wish to have the
flexibility to tailor the disclosure requirements to each specific
procurement.
With regard to ownership, we invite public comments to establish
the level of financial interest that could be considered a material
interest in different situations. While we would not establish this
level in the final rule, it may be included in solicitations for
specific contract situations.
We intend to reduce the reporting and recordkeeping requirements as
much as is feasible, while taking into consideration our need to have
assurance that a conflict of interest does not exist in the MIP
contractors.
[[Page 13597]]
By providing documentation of potential conflicts of interest and
how the offeror plans to mitigate those conflicts in the Certificate,
the offeror gives us enough information to determine on a case-by-case
basis if conflicts of interest have been adequately mitigated or should
preclude award of MIP contracts. The burden associated with providing
the requested information is justified by the large expansion of
competition the process allows.
We propose, in Sec. 421.312(b) that the Organizational Conflicts of
Interest Certificate be disclosed--
With the offeror's proposal;
When the HCFA Contracting Officer requests a revision in
the Certificate;
As part of a compliance audit by the independent auditor;
Forty-five days before any change in the information
submitted on the Certificate. In this case, only changed information
must be submitted.
We would state, in Sec. 421.312(c), that we evaluate organizational
conflicts of interest and potential conflicts using the information
provided in the Certificate.
Because potential offerors may have questions about whether
information submitted in response to a solicitation, including the
Organizational Conflicts of Interest Certificate, may be redisclosed
under the Freedom of Information Act, we provide the following
information.
To the extent that a proposal containing the Organizational
Conflicts of Interest Certificate is submitted to us as a requirement
of a competitive solicitation under 41 U.S.C. Chapter 4, Subchapter IV,
we will withhold the proposal when requested under the Freedom of
Information Act. This withholding is based upon 41 U.S.C. Sec. 253b(m).
However, there is one exception to this policy. It involves any
proposal that is set forth or incorporated by reference in the contract
awarded to the proposing bidder. Such a proposal may not receive
categorical protection. Rather, we will withhold, under 5 U.S.C.
552(b)(4), information within the proposal (and Certificate) that is
required to be submitted that constitutes trade secrets or commercial
or financial information that is privileged or confidential provided
the criteria established by National Parks & Conservation Association
v. Morton, 498 F.2d 765 (D.C. Cir 1974), as applicable, are met. For
any such proposal, we will follow pre-disclosure notification
procedures set forth at 45 CFR 5.65(d). In addition, we will protect
under 5 U.S.C. 552(b)(6) any information within the Certificate that is
of a highly sensitive personal nature.
Any proposal containing the Organizational Conflicts of Interest
Certificate submitted to us under an authority other than 41 U.S.C.
Chapter 4, Subchapter IV, and any Certificate or information submitted
independent of a proposal will be evaluated solely on the criteria
established by National Parks & Conservation Association v. Morton and
other appropriate authorities to determine if the proposal or
Certificate in whole or in part contains trade secrets or commercial or
financial information that is privileged or confidential and protected
from disclosure under 5 U.S.C. 552(b)(4). Again, for any such proposal
or Certificate, we will follow pre-disclosure notification procedures
set forth at 45 CFR 5.65(d) and will also invoke 5 U.S.C. 552(b)(6) to
protect information that is of a highly sensitive personal nature.
We already protect information we receive in the contracting
process. However, to allay any fears potential offerors might have
about disclosure, we propose to provide, at Sec. 421.312(d), that we
protect disclosed proprietary information as allowed under the Freedom
of Information Act and that we require signed statements from our
personnel with access to proprietary information that prohibit personal
use during the procurement process and term of the contract.
In proposed Sec. 421.314, we describe how conflicts of interest are
resolved. We specify that we establish a Conflicts of Interest Review
Board to resolve conflicts of interest and that we determine when the
Board is convened. We would define resolution of an organizational
conflict of interest as a determination that----
The conflict has been mitigated;
The conflict precludes award of a contract to the offeror;
The conflict requires that we modify an existing contract;
The conflict requires that we terminate an existing
contract; or
It is in the best interest of the Government to contract
with the offeror or contractor even though the conflict exists.
Examples of methods an offeror or contractor may use to mitigate
organizational conflicts of interest, including those created as a
result of the financial relationships of individuals within the
organization are shown below. These examples are not intended to be an
exhaustive list of all the possible methods to mitigate conflicts of
interest nor are we obligated to approve a mitigation method that uses
one or more of these examples. An offeror's or contractor's method of
mitigating conflicts of interest would be evaluated on a case-by-case
basis.
Divestiture of or reduction in the amount of the financial
relationship the organization has in another organization to a level
acceptable to us and appropriate for the situation.
If shared responsibilities create the conflict, a plan,
included in the Organizational Conflicts of Interest Certificate and
approved by us, to separate lines of business and management or
critical staff from work on the MIP contract.
If the conflict exists because of the amount of financial
dependence upon the Federal Government, negotiating a phasing out of
other contracts or grants that continue in effect at the start of the
MIP contract.
If the conflict exists because of the financial
relationships of individuals within the organization, divestiture of
the relationships by the individual involved.
If the conflict exists because of an individual's indirect
interest, divestiture of the interest to levels acceptable to us or
removal of the individual from the work under the MIP contract.
In the procurement process, we determine which proposals are in a
``competitive range.'' The competitive range is based on cost or price
and other factors that are stated in the solicitation and includes all
proposals that have a reasonable chance for contract award. Using the
process proposed in this regulation, offerors will not be excluded from
the competitive range based solely on conflicts of interest. If we
determine that an offeror in the competitive range has a conflict of
interest that is not adequately mitigated, we would inform the offeror
of the deficiency and give it an opportunity to submit a revised
Certificate. At any time during the procurement process, we may convene
the Conflict of Interest Review Board to evaluate and resolve conflicts
of interest.
By providing a better process for the identification, evaluation,
and resolution of conflicts of interest, we not only protect Government
interests but help ensure that contractors will not restrict
competition in their service areas by using their position as a MIP
contractor.
7. Limitation on MIP Contractor Liability and Payment of Legal Expenses
As discussed earlier, contractors who perform activities under the
MIP contract will be reviewing activities of providers and suppliers
that provide services to Medicare beneficiaries. Their contracts will
authorize them to evaluate the performance of providers,
[[Page 13598]]
suppliers, individuals, and other entities that may subsequently
challenge their decisions. To reduce or eliminate a MIP contractor's
exposure to possible legal action from those it reviews, section
1893(e) of the Act requires that we, by regulation, limit a MIP
contractor's liability for actions taken in carrying out its contract.
We must establish, to the extent we find appropriate, standards and
other substantive and procedural provisions that are the same as, or
comparable to, those contained in section 1157 of the Act.
Section 1157 of the Act limits liability and provides for the
payment of legal expenses of an Utilization and Quality Control Peer
Review Organization (PRO) that contracts to carry out functions under
section 1154(e) of the Act. Specifically, section 1157 provides that
PROs, their employees, fiduciaries, and anyone who furnishes
professional services to a PRO are protected from civil and criminal
liability in performing their duties under the Act or their contract,
provided these duties are performed with due care. Following the
mandate of section 1893(e), this proposed rule, at Sec. 421.316(a),
would protect MIP contractors from liability in the performance of
their contracts provided they carry out their contractual duties with
care.
In accordance with section 1893(e), we propose to employ the same
standards for the payment of legal expenses as are contained in section
1157(d) of the Act. Therefore, Sec. 421.316(b) will provide that we
will make payment to MIP contractors, their members, employees, and
anyone who provides them legal counsel or services for expenses
incurred in the defense of any legal action related to the performance
of a MIP contract. We propose that the payment be limited to the
reasonable amount of expenses incurred, as determined by us, provided
funds are available and that the payment is otherwise allowable under
the terms of the contract.
In drafting Sec. 421.316(2), we considered employing a standard for
the limitation of liability other than the due care standard. For
example, we considered whether it would be appropriate to provide that
a contractor would not be criminally or civilly liable by reason of the
performance of any duty, function, or activity under its contract
provided the contractor was not grossly negligent in that performance.
However, section 1893(e) requires that we employ the same or comparable
standards and provisions as are contained in section 1157 of the Act.
We do not believe that it would be appropriate to expand the scope of
immunity to a standard of gross negligence, as it would not be a
comparable standard to that set forth in section 1157(b) of the Act.
We also considered indemnifying MIP contractors employing
provisions similar to those contained in the current Medicare
intermediary agreements and carrier contracts. Generally,
intermediaries and carriers are indemnified for any liability arising
from the performance of contract functions provided the intermediary's
or carrier's conduct was not grossly negligent, fraudulent, or
criminal. However, we may indemnify a MIP contractor only to the extent
we have specific statutory authority to do so. Section 1893(e) does not
provide that authority. In addition, Sec. 421.316(a) provides for
immunity from liability in connection with the performance of a MIP
contract provided the contractor exercised due care. Indemnification is
not necessary since the MIP contractors will have immunity from
liability under Sec. 421.316(a).
B. Intermediary and Carrier Functions
Section 1816(a) of the Act, which provides that providers may
nominate an intermediary, requires only that nominated intermediaries
perform the functions of determining payment amounts and making
payment, and section 1842(a) of the Act requires only that carriers
perform ``some or all'' of the functions cited in that section. Our
requirements at Secs. 421.100 and 421.200 concerning functions to be
included in intermediary agreements and carrier contracts far exceed
those of the statute. Therefore, on February 22, 1994, we published a
proposed rule (59 FR 8446) that would distinguish between those
functions that the statute requires be included in agreements with
intermediaries and those functions, which although not required to be
performed by intermediaries, may be included in intermediary agreements
at our discretion. We also proposed that any functions included in
carrier contracts would be included at our discretion. In addition, we
proposed to add payment on a fee schedule basis as a new function that
may be performed by carriers.
In light of the expansion of our contracting authority by section
1893 of the Act to allow us to contract with eligible entities to
perform Medicare program integrity activities performed currently by
intermediaries and carriers, we have decided not to finalize the
February 1994 proposed rule. Instead, in this proposed rule we are
setting forth a new proposal to bring those sections of the regulations
that concern the functions Medicare intermediaries and carriers perform
into conformity with the provisions of sections 1816(a), 1842(a), and
1893(b) of the Act.
As noted in section I.A. of this preamble, our regulations at
Sec. 421.100 specify a list of functions that must, at a minimum, be
included in all intermediary agreements. Similarly, Sec. 421.200
specifies a list of functions that must, at a minimum, be included in
all carrier contracts. These requirements far exceed those of the
statute.
Section 1816(a) of the Act requires only that an intermediary
agreement provide for determination of the amount of payments to be
made to providers and for the making of the payments. Section 1816(a)
permits, but does not require, an intermediary agreement to include
provisions for the intermediary to provide consultative services to
providers to enable them to establish and maintain fiscal records or to
otherwise qualify as providers. It also provides that, for those
providers to which the intermediary makes payments, the intermediary
may serve as a channel of communications between us and the providers,
may make audits of the records of the providers, and may perform other
functions as are necessary.
We believe that section 1816(a) mandates only that an intermediary
make payment determinations and make payments and that, because of the
nomination provision of section 1816(a), these functions must remain
with intermediaries. We believe that section 1816(a) does not require
that the other functions set forth at Sec. 421.100 (c) through (i) be
included in all intermediary agreements. Further, section 1893 of the
Act permits the performance of functions related to Medicare program
integrity by other entities. Thus, Sec. 421.100 needs to be revised to
be consistent with section 1893 and the implementing regulation. We
also believe that mandatory inclusion of all functions in all
agreements limits our ability to efficiently and effectively administer
the Medicare program. For example, if an otherwise competent
intermediary performs a single function poorly, it would be efficient
and effective to have that function transferred to another contractor
that could carry it out in a satisfactory manner. The alternative is to
not renew or to terminate the agreement of that intermediary and to
transfer all functions to a new contractor that may not have had an
ongoing relationship with the local provider community.
[[Page 13599]]
Therefore, we would revise Sec. 421.100 to specify that an
agreement between us and an intermediary specifies the functions to be
performed by the intermediary and that these must include determining
the amount of payments to be made to providers for covered services
furnished to Medicare beneficiaries and making the payments and may
include any or all of the following functions:
Any or all of the MIP functions identified in proposed
Sec. 421.304, provided that they are continuing to be performed under
an agreement entered into under section 1816 of the Act that was in
effect on August 21, 1996, and they do not duplicate work being
performed under a MIP contract.
Undertaking to adjust overpayments and underpayments and
to recover overpayments when it has been determined that an overpayment
has been made.
Furnishing to us timely information and reports that we
request in order to carry out our responsibilities in the
administration of the Medicare program.
Establishing and maintaining procedures that we approve
for the review and reconsideration of payment determinations.
Maintaining records and making available to us the records
necessary for verification of payments and for other related purposes.
Upon inquiry, assisting individuals with respect to
matters pertaining to an intermediary contract.
Serving as a channel of communication to and from us of
information, instructions, and other material as necessary for the
effective and efficient performance of an intermediary contract.
Undertaking other functions as mutually agreed to by us
and the intermediary.
In Sec. 421.100(c), we would specify that, with respect to the
responsibility for services to a provider-based HHA or a provider-based
hospice, when different intermediaries serve the HHA or hospice and its
parent provider under Sec. 421.117, the designated regional
intermediary determines the amount of payment and makes payments to the
HHA or hospice. The intermediary and/or MIP contractor serving the
parent provider performs fiscal functions, including audits and
settlement of the Medicare cost reports and the HHA and hospice
supplement worksheets.
Section 1842(a), which pertains to carrier contracts, requires that
the contract provide for some or all of the functions listed in that
paragraph, but does not specify any functions that must be included in
a carrier contract. As in the case of intermediary agreements, our
experience has been that mandatory inclusion of a long list of
functions in all contracts restricts our ability to administer the
carrier contracts with optimum efficiency and effectiveness. We believe
that the requirements of the regulations for both intermediaries and
carriers should be brought into conformity with the statutory
requirements. Therefore, we would revise existing Sec. 421.200,
``Carrier functions,'' to make it consistent with section 1893 of the
Act and the implementing regulations. We would provide that a contract
between HCFA and a carrier specifies the functions to be performed by
the carrier, which may include the following:
Any or all of the MIP functions described in Sec. 421.304
if the following conditions are met: (1) The carrier is continuing
those functions under a contract entered into under section 1842 of the
Act that was in effect on August 21, 1996; and (2) they do not
duplicate work being performed under a MIP contract, except that the
function related to developing and maintaining a list of durable
medical equipment may be performed under both a carrier contract and a
MIP contract.
Receiving, disbursing, and accounting for funds in making
payments for services furnished to eligible individuals within the
jurisdiction of the carrier.
Determining the amount of payment for services furnished
to an eligible individual.
Undertaking to adjust incorrect payments and recover
overpayments when it has been determined that an overpayment has been
made.
Furnishing to us timely information and reports that we
request in order to carry out our responsibilities in the
administration of the Medicare program.
Maintaining records and making available to us the records
necessary for verification of payments and for other related purposes.
Establishing and maintaining procedures under which an
individual enrolled under Part B will be granted an opportunity for a
fair hearing.
Upon inquiry, assisting individuals with matters
pertaining to a carrier contract.
Serving as a channel of communication to and from us of
information, instructions, and other material as necessary for the
effective and efficient performance of a carrier contract.
Undertaking other functions as mutually agreed to by us
and the carrier.
C. Technical and Editorial Changes
Because we propose to add a new subpart D to part 421 that would
apply to MIP contractors, we propose to change the title of part 421
from ``Intermediaries and Carriers'' to ``Medicare Contracting''. We
also propose to revise Sec. 421.1, which sets forth the basis, scope,
and applicability of part 421. We would revise this section to add
section 1893 of the Act to the list of provisions upon which the part
is based. We would also make editorial and other changes (such as
reorganizing the contents of the section and providing headings) that
improve the readability of the section without affecting its substance.
In addition, numerous sections of our regulations specifically
refer to an action being taken by an intermediary or a carrier. If the
action being described may now be performed by a MIP contractor that is
not an intermediary or a carrier, we would revise those sections to
indicate that this is the case. As an example, Sec. 424.11, which sets
forth the responsibilities of a provider, specifies, in paragraph
(a)(2), that the provider must keep certification and recertification
statements on file for verification by the intermediary. A MIP
contractor now may also perform the verification. Therefore, we would
revise Sec. 424.11(a)(2) to specify that the provider must keep
certification and recertification statements on file for verification
by the intermediary or MIP contractor. Because our regulations are
continuously being revised and sections redesignated, we have not
identified all such sections that will have technical changes in this
rule, but we will do so in the final rule. If we determine that
substantive changes to our regulations are necessary, we will make
those changes through separate rulemaking.
III. Response to Comments
Because of the large number of items of correspondence we normally
receive on Federal Register documents published for comment, we are not
able to acknowledge or respond to them individually. We will consider
all comments we receive by the date and time specified in the DATES
section of this preamble, and, if we proceed with a subsequent
document, we will respond to the comments in the preamble to that
document.
IV. Collection of Information Requirements
Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a
[[Page 13600]]
collection of information requirement is submitted to the Office of
Management and Budget (OMB) for review and approval. In order to fairly
evaluate whether an information collection should be approved by OMB,
section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 requires
that we solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
We are soliciting public comment on each of the issues for sections
Secs. 421.310 and 421.312 of this document, which contain information
collection requirements.
Section 421.310 Conflict of Interest Identification
Section 421.310(e) requires offerors to determine if an
organizational conflict of interest exists in any of its proposed or
actual subcontractors at any tier and to ensure that the subcontractors
have mitigated any conflict of interest or potential conflict of
interest. As discussed below, the information collection requirements
for Sec. 421.312 also require an offeror to list in an Organizational
Conflicts of Interest Certificate situations that could be identified
as conflicts of interest and to describe methods it would apply to
mitigate those situations. Based on our best estimate, we believe that
the requirement will impose a burden of 80 hours on each offeror with
respect to information it provides for its own organization. It is
assumed that offerors will impose the same or similar disclosure
requirements on their proposed or actual subcontractors as imposed by
us on offerors, with the understanding that we would not expect them to
require that independent auditors perform compliance audits on
subcontractors. Based on this assumption, an offeror's burden with
respect to its subcontractors is estimated to be one-half the burden
imposed on an offeror with respect to its own organization.
We expect 15 offerors for each type of MIP contract. We estimate
that the requirement of this provision will impose a burden of 40 hours
per subcontractor on each offeror to identify and mitigate any
organizational conflicts of interest for its subcontractors at any
tier. We believe that, on average, each offeror will need to evaluate
three subcontractors. The total burden referenced in Sec. 421.310(e)
with respect to an offeror's subcontractors is 1,800 burden hours.
Section 421.312 Conflict of Interest Evaluation
Section 421.312 requires offerors that wish to be eligible for the
award of a contract under this subpart and MIP contractors to submit an
Organizational Conflicts of Interest Certificate for pre-and post-award
purposes.
Based on comments provided by the public on possible methods we
could use to identify, evaluate, and resolve potential conflicts of
interest, we found that only by imposing the information collection
requirements referenced in this section could competition remain open
to all interested parties regardless of their current lines of business
and, at the same time provide us with enough information to determine
on a case-by-case basis if conflicts of interest have been properly
identified and adequately mitigated. Only by imposing these information
collection requirements can we determine whether an offeror should be
awarded a MIP contract.
Below is a summary of the proposed Organizational Conflict of
Interest Certificate disclosure requirements and related burden
required with the offeror's proposal. The items of information
described below will be required for all MIP contractor procurements,
unless the information is otherwise provided in the proposal, in which
case it must be referenced. The last item identifies some information
that officers, directors, and managers will be required to provide in
all MIP procurements and some information that they may be required to
provide in a MIP procurement.
A description of all business or contractual relationships
or activities that a prudent business person may view as a conflict of
interest.
We have received comments from the insurance industry and
affiliated sources that some situations that we may not readily
identify as conflicts nonetheless appear to create conflicts of
interest. If a prudent business person could believe a conflict of
interest exists in a situation, the entity is required to report the
situation even if we have not created a ``classification'' for the
situation. We would use this information to evaluate the situation and
to determine if it is adequately mitigated or requires no mitigation.
In addition, we would use this information to adapt to changing
environments and to modify the conflict of interest requirements.
A description of the methods the offeror/contractor will
apply to mitigate any situations listed in the Certification that could
be identified as conflicts of interest.
We would use the description of the methods the offeror/contractor
will apply to mitigate any situations listed in the Certification that
could be identified as conflicts of interest to determine if conflicts
would be neutralized effectively by the methods described. Generally,
we consider a conflict of interest to exist when a contractor's ability
to make impartial decisions or perform its work under its contract
objectively has been or may be compromised. The offeror/contractor
could propose to mitigate a conflict of interest by using methods such
as divestiture or reduction of a conflicting financial interest,
reassignment of work responsibilities to exclude individuals with
conflicting interests from performing work under the contract, or
separating lines of business. We would assess the effectiveness of the
mitigation method using the information disclosed regarding an
offeror's/contractor's organizational structure, financial interests,
or other relationships as may be required in a solicitation as
discussed below.
A description of the offeror's/contractor's program to
monitor its compliance and the compliance of its proposed and actual
subcontractors with the conflict of interest requirements as identified
in the relevant solicitation.
We would evaluate the proposed compliance program to determine if
the program would enable an offeror/contractor to effectively monitor
its compliance and its subcontractors' compliance with conflict of
interest requirements specific to the contract. This requirement is
integrally connected with an entity's description of its method to
mitigate conflicts. Once conflicts are mitigated at the inception of a
contract, an entity must be vigilant to ensure that the methods are
followed and that new conflicts of interest that arise during the term
of the contract are identified and mitigated. We would use the
compliance program to ensure we award contracts only to offerors that
will follow proposed methods for mitigation of conflicts and that
offerors establish an administrative mechanism for disclosure of
changing situations that may require contract modifications.
An affirmation, using language that we may prescribe, that
the offeror/contractor understands that we may consider any deception
or omission in the Certificate grounds for nonconsideration in the
procurement
[[Page 13601]]
process, termination of the contract, or other contract action.
The affirmation places a higher degree of accountability on the
entity for the accuracy of the information disclosed than would
otherwise be afforded. By signing the affirmation, the offeror/
contractor will be put on notice of the consequences for any false
statement or omission of information regarding conflicts of interest.
The person signing the affirmation will be put on notice of the
offeror's/contractor's responsibility for ensuring the veracity of the
information disclosed. We would consider the provision of false or
deceptive information in the affirmation as possible grounds for
elimination of an offeror from consideration in the procurement process
or taking other appropriate contract or legal action.
A description of the offeror's/contractor's plans to
contract with an independent auditor to conduct a compliance audit.
We would use this information to ensure that the offeror has an
arrangement with an independent source that will verify compliance with
conflict of interest requirements.
Corporate and organizational structure.
We would require this information to determine if legal entities
are connected through partnerships, joint ventures, or other legal
arrangements. We would assess the types of relationships, evaluate an
offeror's/contractor's mitigation methods, and determine if the
conflicts of interest based on an offeror's/contractor's relationships
have been resolved as part of the procurement process. This information
would also be used during the term of the contract to evaluate the
mitigation of conflicts when structures change.
Financial interests in other entities, including the
following:
+ Percentage of ownership in any other entity.
We would use the percentage of ownership interest and the dollar
value of financial interests to evaluate reported conflicts of interest
and the adequacy of an offeror's/contractor's mitigation methods. Both
these measures were suggested by the participants in the 1996 open
forum discussion as appropriate considerations in evaluating conflicts
of interest. We would perform the evaluation on a case-by-case basis.
Income generated from other sources.
We would use this information to determine if the offeror/
contractor could be unduly influenced by other financial relationships
it may have with possible customers, competitors, or other parties
interested in influencing the performance of the MIP contractor. Income
can be generated in a variety of ways, for example, as fees, salaries,
reimbursements, or stock options. This information would enable us to
evaluate the adequacy of an offeror's/contractor's proposed mitigation
methods for conflicts of interest that arise from financial dependence
on other entities.
A list of current or known future contracts or
arrangements, regardless of size, with any insurance organization;
subcontractor of an insurance organization; or provider or supplier
furnishing services for which payment may be made under the Medicare
program. This information is to include the dollar amount of the
contracts or arrangements, the type of work performed, and the period
of performance.
We would use this information to evaluate an offeror's/contractor's
conflicts that are based on contractual arrangements and to assess the
adequacy of its mitigation method. The offeror/contractor would be
required to disclose future contracts so that we can assess whether
mitigation methods address conflicts that will develop during the
procurement process or during the term of the contract.
Information regarding potential conflicts of interest and
financial information regarding certain contracts for all of the
offeror's/contractor's officers, directors (including medical
directors), and managers who would be or are involved in the
performance of the MIP contract.
We would evaluate this information to determine if individuals who
can control the outcome of work performed under a MIP contract may be
unduly influenced by their own or their close relatives' business
relationships or contracts. We need the information to protect the
monies disbursed for both program and administrative services and to
ensure that an offeror's/contractor's mitigation methods adequately
eliminate any conflicts that exist due to relationships of an
offeror's/contractor's officers, directors, or managers.
Private sector participants at the December 6, 1996 open forum
discussion expressed the opinion that full disclosure of all of an
offeror's/contractor's relationships would ameliorate conflicts of
interest. We considered that, while this might be appropriate in some
MIP contractor procurements, it would be unduly burdensome and
unnecessary as a blanket requirement in all MIP procurements. Instead,
we identified information, described above, that we believe to be
essential to the process and require this information to be disclosed
in MIP procurements.
The amount of burden associated with these requirements will
generally decrease as the size of the offeror/contractor decreases.
Smaller offerors/contractors and those not involved in the insurance
industry may have no potential conflicts of interest to report if they
do not participate in other lines of business and/or if they do not
participate in lines of business related to the insurance, health, and
health management and consulting industries that are likely to have
potential conflicts of interest.
Therefore, based on comments provided by the public and our prior
experience, we expect the Certificate and supporting materials will
take approximately 80 hours to prepare by each offeror/contractor for
its own organization. This estimate is based on the fact that the
majority of these disclosure requirements will be compiled using
existing data, which an offeror/contractor uses to satisfy other
business needs, and the assumption that approximately one-third of the
offerors will not have any potential conflicts of interest to report.
We expect 15 offerors for each MIP contract. The total burden
referenced in this section is 1,200 burden hours.
As required by section 3504(h) of the Paperwork Reduction Act of
1995, we have submitted a copy of this document to the Office of
Management and Budget (OMB) for its review of these information
collection requirements.
If you comment on these information collection and recordkeeping
requirements, please mail copies directly to the following:
Health Care Financing Administration, Office of Financial and Human
Resources, Management Planning and Analysis Staff, Attn: John Burke,
Attn: HCFA-7020-P, Room C2-26-17, 7500 Security Boulevard, Baltimore,
MD 21244-1850
Office of Information and Regulatory Affairs, Office of Management and
Budget, Room 10235, New Executive Office Building, Washington, DC
20503, Attn: Allison Herron Eydt, HCFA Desk Officer
V. Regulatory Impact Statement
A. Introduction
We have examined the impacts of this proposed 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,
[[Page 13602]]
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).
The RFA requires agencies to analyze options for regulatory relief of
small businesses. For purposes of the RFA, small entities include small
businesses, non-profit organizations and governmental agencies. Most
hospitals and most other providers and suppliers are small entities,
either by nonprofit status or by having revenues of $5 million or less
annually. Intermediaries and carriers are not considered to be small
entities.
Section 1102(b) of the Social Security 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.
B. Summary of the Proposed Rule
As discussed in detail above, this rule implements section 1893 of
the Act, which encourages proactive measures to combat waste, fraud,
and abuse and to protect the integrity of the Medicare program. The
objective of the proposed regulation is to provide a procurement
procedure to supplement the requirements of the FAR and specifically
address contracts to perform MIP functions identified in the law.
As part of their existing contractual duties, both intermediaries
and carriers must perform certain program integrity activities or
payment safeguard activities. These activities include, but are not
limited to, conducting review of claims to determine whether services
were reasonable and necessary, deterring and detecting Medicare fraud,
auditing provider cost reports, and ensuring that Medicare pays the
appropriate amount when a beneficiary has other health insurance. This
rule provides that these functions, as specified below, will be
performed under new MIP contracts:
Review of provider activities such as medical review,
utilization review, and fraud review.
Audit of cost reports.
Medicare secondary payer review and payment recovery.
Provider and beneficiary education on payment integrity
and benefit quality assurance issues.
Developing and updating lists of durable medical equipment
items that are to be subject to prior approval provisions.
C. Discussion of Impact
We expect that this rule will have a positive impact on the
Medicare program, Medicare beneficiaries, providers, suppliers, and
entities that have not previously contracted with us. It is possible
that some providers and suppliers may experience a slight increase in
administrative costs as their claims are subjected to closer review.
Current intermediaries and carriers that seek award of MIP contracts
may incur costs in complying with new requirements set forth in the
rule, but the effect is not expected to be material. To the extent that
small entities could be affected by the rule, and because the rule
raises certain policy issues with respect to conflict of interest
standards, we provide an impact analysis for those entities we believe
will be most heavily affected by the rule.
We believe that this rule will have an impact, although not a
significant one, in five general areas. The Medicare program and Health
Insurance Trust Funds, Medicare beneficiaries and taxpayers, entities
that have not previously contracted with us, and Medicare providers and
suppliers would benefit from the rule. Current intermediaries and
carriers may experience a somewhat negative impact, although the effect
on these organization should be tempered by the benefits the new rule
will confer.
1. The Medicare Program and Health Insurance Trust Funds
In recent years, sizable cuts in intermediaries' and carriers'
budgets for program safeguards have diminished efforts to thwart
improper billing practices. The Health Insurance Portability and
Accountability Act provides for a direct apportionment from the Health
Insurance Trust Funds for carrying out the MIP. Appropriations totaled
$440 million for FY 1998 and $500 million for FY 1998. By FY 2003,
appropriations are expected to grow to $720 million.
Creating a separate and dependable long-term funding source for MIP
will allow us the flexibility to invest in innovative strategies to
combat the fraud and abuse drain on the Trust Funds. By shifting
emphasis from post-payment recoveries on incorrectly paid claims to
pre-payment strategies, most claims will be paid correctly the first
time.
Improper billing and health care fraud are difficult to quantify
because of their hidden nature. However, a General Accounting Office
(GAO) report on Medicare (GAO/HR-91-10, February 1997) suggests that by
reducing unnecessary or inappropriate payments, the Federal Government
would realize large savings and help slow the growth in Medicare costs.
In this report, the GAO states that estimates of ``the costs of fraud
and abuse ranging from 3 to 10 percent have been cited for health
expenditures nationwide, so applying this range to Medicare suggests
that such losses in fiscal year 1996 could have been from $6 billion to
as much as $20 billion.''
The savings realized from our payment safeguard activities for FYs
1988-1996 were as follows:
------------------------------------------------------------------------
Total Return on
Year Total cost savings * investment
----------------------------------------*-------------------------------
FY1988........................... $313.6 $3,654.1 12:1
FY1989........................... 376.3 3,961.6 11:1
FY1990........................... 348.7 5,234.4 15:1
FY1991........................... 360.7 5,703.4 16:1
FY1992........................... 350.7 5,153.2 15:1
FY1993........................... 406.3 6,506.6 16:1
FY1994........................... 412.4 5,412.7 13:1
FY1995........................... 428.3 6,314.9 15:1
FY1996........................... 441.1 6,190.4 14:1
------------------------------------------------------------------------
* Dollars in millions.
[[Page 13603]]
In our Justification of Estimates for Appropriations Committees for
fiscal year 1998, we projected the return on investment for various
payment safeguard activities under MIP. Overall, we expect that every
dollar expended in fiscal year 1998 to perform integrity functions will
save $12 for the Medicare program. We estimate that medical review and
utilization review performed under MIP will produce a return on
investment of 8:1 for Part A claims and 14:1 for Part B claims. Every
dollar spent on audit functions under MIP is expected to save $6 for
the Medicare program. For Medicare secondary payer functions, we
project a 50:1 return on investment for Part A claims and a 9:1 return
for Part B claims. The overall return for Medicare secondary payer
functions performed under MIP is estimated to be 26:1.
In addition to these economic advantages, the Medicare program will
benefit in a qualitative way. MIP, as this proposed rule would
implement it, gives us a tool to better administer the Medicare program
and accomplish our mission of providing access to quality health care
for Medicare beneficiaries. Under this rule, program integrity
activities will be performed under specialized contracts that are
subject to more stringent conflict of interest standards than were
previously employed. In addition, for the first time we will be able to
use competitive procedures to separately contract for the performance
of integrity functions. In general, economic theory postulates that
competition results in a better price for the consumer who, in this
instance, is HCFA on behalf of Medicare beneficiaries and taxpayers.
Competition should also encourage the use of innovative techniques to
perform integrity functions that will, in turn, result in more
efficient and effective safeguards for the Trust Funds.
2. Medicare Beneficiaries and Taxpayers
We expect that overall this rule would have a positive effect on
Medicare beneficiaries and taxpayers. Beneficiaries pay deductibles and
Part B Medicare premiums. Taxpayers, including those who are not yet
eligible for Medicare, contribute part of their earnings to the Part A
Trust Fund. Taxpayers and beneficiaries contribute indirectly to the
Part B Trust Funds because it is funded, in part, from general tax
revenues. Consistent performance of program integrity activities will
ensure that less money is wasted on inappropriate treatment or
unnecessary services. As a result, current and future beneficiaries
will obtain more value for every Medicare dollar spent.
Medicare contractors estimate that of the 130,000 calls they
receive yearly concerning potential fraud and abuse, 94,000 are from
beneficiaries, many of whom call to question the propriety of claims
made on their behalf. Beneficiary education monies, especially when
used to provide more Medicare ``scam alerts,'' will enhance a
beneficiary's attention to detail and increase savings.
Beneficiaries may experience higher denial rates due to the more
stringent claims review. It is expected, however, that most of the
potential increase in denials will result from a determination that the
services provided were not reasonable and necessary under Medicare
authorities and guidelines. There are established limitations on
beneficiary liability when claims are denied on this basis; thus the
impact on beneficiaries will be minimized.
3. Current Intermediaries and Carriers
Although intermediaries and carriers are not considered small
entities for purposes of the RFA, we are providing the following
analysis. There are currently 43 Medicare intermediaries and 27
Medicare carriers plus 4 durable medical equipment regional
contractors. All but 13 of these contractors are Blue Cross/Blue Shield
plans. Presently, all contractors perform payment safeguard activities,
and, in FY 1996, approximately 28 percent of the total contractor
budget was dedicated to program integrity.
We considered prohibiting current intermediaries and carriers from
entering into MIP contracts. We also considered entering into contracts
with new organizations to perform all functions while simultaneously
removing all payment safeguard functions from current contractors.
Neither of these options appeared viable because the effect on the
Medicare program would have been unduly disruptive. We do, however,
expect to reduce the number of contractors when we shift and
consolidate the integrity functions to MIP contractors, but the exact
number cannot be determined until we begin implementing the program.
The reduction in the number of contractors performing integrity
functions does not mean that local contractor presence will be
eliminated. Medical directors would continue to play an important role
in benefit integrity activities, and we intend to retain locally-based
medical directors to continue our relationship with local physicians by
using groups like Carrier Advisory Committees. Locally-based fraud
investigators and auditors are also likely to be used. Review policies
will be coordinated across contractors to ensure consistency, but local
practice will be incorporated where appropriate.
This rule may have a negative impact on current intermediaries and
carriers in some respects. Current contractors will lose a portion of
their Medicare business as payment safeguard functions are transferred
to MIP contractors. Although their workload will be reduced, the effect
on current contractors will be gradual because we have a long-term
strategy for the implementation of MIP. As discussed above, we believe
that it would be too disruptive to the Medicare program to make a
sudden, across-the-board change in contractors. The change will be made
over time, in an incremental fashion, as MIP contracts are awarded;
therefore, we cannot quantify the effect.
On the other hand, current contractors would benefit from this
proposed rule because, under its provisions, they are eligible to
compete for MIP contracts as long as they comply with all conflict of
interest and other requirements. (Current contractors may not receive
payment for performing the same program integrity activities under both
a MIP contract and their existing contract.) We considered proposing
rules that identified specific conflict of interest situations that
would prohibit the award of a MIP contract. We also considered
prohibiting a MIP contractor whose contract was completed or terminated
from competing for another MIP contract for a certain period. Instead,
the proposed rule would establish a process for evaluating, on a case-
by-case basis, situations that may constitute conflicts of interest. It
permits current contractors to position themselves to be eligible for a
MIP contract by mitigating any conflicts of interest they may have in
order to compete. The economic impact on intermediaries and carriers is
lessened by the proposed approach when compared to the alternatives we
considered.
The current contractors who are awarded MIP contracts will also
benefit from the consistent funding provided by the law for program
integrity activities. This stable, long-term funding mechanism will
allow Medicare contractors to attract, train, and retain qualified
professional staff to perform claims review and audit, to identify and
refer fraud cases to law enforcement agencies and to support the
ongoing development of these cases for prosecution by the Department of
Justice.
There will be an economic impact on current contractors that
propose to
[[Page 13604]]
perform MIP contracts using subcontractors. MIP contractors would be
required to determine if any of their subcontractors, at any tier, have
conflicts of interest and to ensure that any conflicts are mitigated. A
MIP contractor would apply to its subcontractors the same conflict of
interest standard to which it must adhere. It is impossible to assess
the precise economic impact of this portion of the proposed rule
because a MIP contractor is free to contract with any subcontractor. A
MIP contractor may seek out subcontractors that are conflict free,
which would reduce or eliminate the time expended monitoring conflict
of interest situations.
4. New Contracting Entities
Entities that have not previously performed Medicare payment
safeguard activities will experience a positive effect from this rule.
Integrity functions such as audit, medical review, and fraud
investigation may be consolidated in a MIP contract to allow suspect
claims to be identified and investigated from all angles. Contractors
may subcontract for these specific integrity functions, thus creating
new markets and opportunities for small, small disadvantaged, and
woman-owned businesses.
Use of full and open competition to award MIP contracts may
encourage innovation and the creation of new technology. Historically,
cutting edge technologies and analytical methodologies created for the
Medicare program have benefitted the private insurance arena.
This proposed rule, however, could also have an adverse economic
impact on newly-contracting entities. They, like existing contractors,
will be required to absorb the cost of mitigating conflicts of interest
and complying with conflict of interest requirements.
5. Providers and Suppliers
There could be some burden imposed on providers and suppliers that
are small businesses or not-for-profit organizations by the need to
deal with a new set of contractors. There are approximately 1 million
health care providers and suppliers (depending on how group practices
and multiple locations are counted) that bill independently. The
proposed rule does not necessarily impose any action on the part of
these providers and suppliers. It is possible that some of them would
have to devote more effort in responding to MIP contractors' inquiries
generated by more stringent claims review and that they could incur a
modest increase in administrative costs. In our analysis of possible
administrative costs to providers and suppliers, we assumed that a
contractor would make two follow-up inquiries to a provider or supplier
for each potential recovery of an incorrect payment. Assuming that the
response to each inquiry would require a provider or supplier to expend
30 minutes of clerical time, at $10 per hour, and 15 minutes of
professional time, at $100 per hour, we estimate that the average
response to an inquiry would cost $30. The resulting added cost to
providers and suppliers would be under $10 million annually.
Most Medicare contractors do not maintain toll-free lines for
providers or suppliers. A provider's or supplier's telephone bill could
increase if it must contact a MIP contractor that is out of its calling
area. However, it is possible that a provider's or supplier's
intermediary or carrier may also be its MIP contractor. We believe that
the centralization of certain functions would result in more consistent
policy and lessen the need for a provider or supplier to communicate
with its contractor. Since we plan to phase-in the transfer of the MIP
activities, we do not anticipate a significant annual impact on
telephone bills.
Overall, we expect that providers and suppliers will benefit
qualitatively from this proposed rule. Many providers and suppliers
perceive that their reputations are tarnished by the few dishonest
providers and suppliers that take advantage of the Medicare program.
The media often focus on the most egregious cases of Medicare fraud and
abuse, leaving the public with the perception that physicians and other
health care practitioners routinely make improper claims. This rule
would allow us to take a more effective and wider ranging approach to
identifying, stopping, and recovering from unscrupulous providers and
suppliers. As the number of dishonest providers and suppliers and
improper claims diminishes, ethical providers and suppliers will
benefit.
This proposed rule could be considered to have a negative impact on
any provider or supplier that routinely submits questionable claims and
would impact those that have been receiving inappropriate payments.
Since the objective of this proposed rule is to eliminate improper
payments, we will not analyze the effect the rule may have on
unscrupulous providers or suppliers. We do not believe that this rule
will reduce a provider's or supplier's legitimate income from Medicare.
As claims are more closely and systematically reviewed, providers and
suppliers may experience an increase in the number of claims denied.
This slight negative impact should decrease as providers become more
knowledgeable regarding what claims are appropriate.
D. Conclusion
We conclude that money would be saved and the solvency of the Trust
Funds extended as a result of this proposed rule. The dynamic nature of
fraud and abuse is illustrated by the fact that wrongdoers continue to
find ways to evade safeguards. This supports the need for constant
vigilance and increasingly sophisticated ways to protect against
``gaming'' of the system. We solicit public comments as well as data on
the extent to which any of the affected entities would be significantly
economically affected by this proposed rule. However, based on the
above analysis, we have determined, and certify, that this proposed
rule would not have a significant economic impact on a substantial
number of small entities. We also have determined, and certify, that
this proposed rule would not have a significant impact on the
operations of a substantial number of small rural hospitals. In
accordance with the provisions of Executive Order 12866, this proposed
rule was reviewed by the Office of Management and Budget.
List of Subjects
42 CFR Part 400
Grant programs--health, Health facilities, Health maintenance
organizations (HMO), Medicaid, Medicare, Reporting and recordkeeping
requirements.
42 CFR Part 421
Administrative practice and procedure, Health facilities, Health
professions, Medicare, Reporting and recordkeeping requirements.
42 CFR chapter IV would be amended as follows:
A. Part 400
PART 400--INTRODUCTION; DEFINITIONS
1. The authority citation for part 400 continues to read as
follows:
Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh) and 44 U.S.C. Chapter 35.
2. Section 400.202 is amended by adding the following definition in
alphabetical order, to read as follows:
Sec. 400.202 Definitions specific to Medicare.
* * * * *
Medicare integrity program contractor means an entity that has a
contract with
[[Page 13605]]
HCFA under section 1893 of the Act to perform program integrity
activities.
* * * * *
B. Part 421
PART 421--MEDICARE CONTRACTING
1. The part heading is revised to read as set forth above.
2. The authority citation for part 421 continues to read as
follows:
Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).
3. Section 421.1 is revised to read as follows:
Sec. 421.1 Basis, applicability, and scope.
(a) Basis. This part is based on the indicated provisions of the
following sections of the Act:
1124--Requirements for disclosure of certain information.
1816 and 1842--Use of organizations and agencies in making
Medicare payments to providers and suppliers of services.
1893--Requirements for protecting the integrity of the Medicare
program.
(b) Additional basis. Section 421.118 is also based on 42 U.S.C.
1395(b)-1(a)(1)(F), which authorizes demonstration projects involving
intermediary agreements and carrier contracts.
(c) Applicability. The provisions of this part apply to agreements
with Part A (Hospital Insurance) intermediaries, contracts with Part B
(Supplementary Medical Insurance) carriers, and contracts with Medicare
integrity program contractors that perform program integrity functions.
(d) Scope. The provisions of this part state that HCFA may perform
certain functions directly or by contract. They specify criteria and
standards HCFA uses in selecting intermediaries and evaluating their
performance, in assigning or reassigning a provider or providers to
particular intermediaries, and in designating regional or national
intermediaries for certain classes of providers. The provisions provide
the opportunity for a hearing for intermediaries and carriers affected
by certain adverse actions. They also provide adversely affected
intermediaries an opportunity for judicial review of certain hearing
decisions. They also set forth requirements related to contracts with
Medicare integrity program contractors.
4. Section 421.100 is revised to read as follows:
Sec. 421.100 Intermediary functions.
An agreement between HCFA and an intermediary specifies the
functions to be performed by the intermediary.
(a) Mandatory functions. The contract must include the following
functions:
(1) Determining the amount of payments to be made to providers for
covered services furnished to Medicare beneficiaries.
(2) Making the payments.
(b) Additional functions. The contract may include any or all of
the following functions:
(1) Any or all of the program integrity functions described in
Sec. 421.304, provided the intermediary is continuing those functions
under an agreement entered into under section 1816 of the Act that was
in effect on August 21, 1996, and they do not duplicate work being
performed under a Medicare integrity program contract.
(2) Undertaking to adjust incorrect payments and recover
overpayments when it has been determined that an overpayment has been
made.
(3) Furnishing to HCFA timely information and reports that HCFA
requests in order to carry out its responsibilities in the
administration of the Medicare program.
(4) Establishing and maintaining procedures as approved by HCFA for
the review and reconsideration of payment determinations.
(5) Maintaining records and making available to HCFA the records
necessary for verification of payments and for other related purposes.
(6) Upon inquiry, assisting individuals with respect to matters
pertaining to an intermediary contract.
(7) Serving as a channel of communication to and from HCFA of
information, instructions, and other material as necessary for the
effective and efficient performance of an intermediary agreement.
(8) Undertaking other functions as mutually agreed to by HCFA and
the intermediary.
(c) Dual intermediary responsibilities. With respect to the
responsibility for services to a provider-based HHA or a provider-based
hospice, when different intermediaries serve the HHA or hospice and its
parent provider under Sec. 421.117, the designated regional
intermediary determines the amount of payment and makes payments to the
HHA or hospice. The intermediary and/or Medicare integrity program
contractor serving the parent provider performs fiscal functions,
including audits and settlement of the Medicare cost reports and the
HHA and hospice supplement worksheets.
5. Section 421.200 is revised to read as follows:
Sec. 421.200 Carrier functions.
A contract between HCFA and a carrier specifies the functions to be
performed by the carrier. The contract may include any or all of the
following functions:
(a) Any or all of the program integrity functions described in
Sec. 421.304 provided--
(1) The carrier is continuing those functions under a contract
entered into under section 1842 of the Act that was in effect on August
21, 1996; and
(2) The functions do not duplicate work being performed under a
Medicare integrity program contract, except that the function related
to developing and maintaining a list of durable medical equipment may
be performed under both a carrier contract and a Medicare integrity
program contract.
(b) Receiving, disbursing, and accounting for funds in making
payments for services furnished to eligible individuals within the
jurisdiction of the carrier.
(c) Determining the amount of payment for services furnished to an
eligible individual.
(d) Undertaking to adjust incorrect payments and recover
overpayments when it has been determined that an overpayment has been
made.
(e) Furnishing to HCFA timely information and reports that HCFA
requests in order to carry out its responsibilities in the
administration of the Medicare program.
(f) Maintaining records and making available to HCFA the records
necessary for verification of payments and for other related purposes.
(g) Establishing and maintaining procedures under which an
individual enrolled under Part B will be granted an opportunity for a
fair hearing.
(h) Upon inquiry, assisting individuals with matters pertaining to
a carrier contract.
(i) Serving as a channel of communication to and from HCFA of
information, instructions, and other material as necessary for the
effective and efficient performance of a carrier contract.
(j) Undertaking other functions as mutually agreed to by HCFA and
the carrier.
6. A new subpart D is added to part 421 to read as follows:
Subpart D--Medicare Integrity Program Contractors
Sec.
421.300 Basis, applicability, and scope.
421.302 Eligibility requirements for Medicare integrity program
contractors.
421.304 Medicare integrity program contractor functions.
421.306 Awarding of a contract.
421.308 Renewal of a contract.
421.310 Conflict of interest identification.
421.312 Conflict of interest evaluation.
[[Page 13606]]
421.314 Conflict of interest resolution.
421.316 Limitation on Medicare integrity program contractor
liability.
Subpart D--Medicare Integrity Program Contractors
Sec. 421.300 Basis, applicability, and scope.
(a) Basis. This subpart implements section 1893 of the Act, which
requires HCFA to protect the integrity of the Medicare program by
entering into contracts with eligible entities to carry out Medicare
integrity program functions.
(b) Applicability. This subpart applies to entities that seek to
compete or receive award of a contract under section 1893 of the Act
including entities that perform functions under this subpart emanating
from the processing of claims for individuals entitled to benefits as
qualified railroad retirement beneficiaries.
(c) Scope. This subpart defines the types of entities eligible to
become Medicare integrity program contractors; identifies the program
integrity functions a Medicare integrity program contractor performs;
describes procedures for awarding and renewing contracts; establishes
procedures for identifying, evaluating, and resolving organizational
conflicts of interest; prescribes responsibilities; and sets forth
limitations on contractor liability. The provisions of this subpart are
based on the acquisition regulations set forth at 48 CFR Chapters 1 and
3.
Sec. 421.302 Eligibility requirements for Medicare integrity program
contractors.
If an entity meets the following conditions, HCFA may enter into a
contract with it to perform the functions described in Sec. 421.304:
(a) Demonstrates the ability to perform the Medicare integrity
program contractor functions described in Sec. 421.304. For purposes of
developing and periodically updating a list of DME under
Sec. 421.304(e), an entity is deemed to be eligible to enter into a
contract under the Medicare integrity program to perform the function
if the entity is a carrier with a contract in effect under section 1842
of the Act.
(b) Agrees to cooperate with the OIG, the Attorney General, and
other law enforcement agencies, as appropriate, including making
referrals, in the investigation and deterrence of fraud and abuse of
the Medicare program.
(c) Complies with conflict of interest provisions in 48 CFR
Chapters 1 and 3 and is not excluded under the conflict of interest
provision at Sec. 421.310.
(d) Meets other requirements that HCFA establishes.
Sec. 421.304 Medicare integrity program contractor functions.
The contract between HCFA and a Medicare integrity program
contractor specifies the functions the contractor performs. The
contract may include any or all of the following functions:
(a) Conducting medical reviews, utilization reviews, and fraud
reviews related to the activities of providers of services and other
individuals and entities (including entities contracting with HCFA
under part 417 of this chapter) furnishing services for Medicare
payment. These reviews include medical, utilization, and fraud reviews.
(b) Auditing cost reports of providers of services, or other
individuals or entities (including entities contracting with HCFA under
part 417 of this chapter), as necessary to ensure proper Medicare
payment.
(c) Determining appropriate Medicare payment to be made for
services, as specified in section 1862(b) of the Act, and taking action
to recover inappropriate payments.
(d) Educating providers, suppliers, beneficiaries, and other
persons regarding payment integrity and benefit quality assurance
issues.
(e) Developing, and periodically updating, a list of items of
durable medical equipment that are frequently subject to unnecessary
utilization throughout the contractor's entire service area or a
portion of the area, in accordance with section 1834(a)(15)(A) of the
Act.
Sec. 421.306 Awarding of a contract.
(a) HCFA awards Medicare integrity program contracts in accordance
with acquisition regulations set forth at 48 CFR chapters 1 and 3, this
subpart, and all other applicable laws and regulations. These
requirements for awarding Medicare integrity program contracts are
used--
(1) When entering into new contracts;
(2) When entering into contracts that may result in the elimination
of responsibilities of an individual intermediary or carrier under
section 1816(l) or section 1842(c) of the Act, respectively; and
(3) At any other time HCFA considers appropriate.
(b) HCFA may award an entity a Medicare integrity program contract
without competition if--
(1) Through approval of a novation agreement, HCFA recognizes the
entity as the successor in interest to an intermediary agreement or
carrier contract under which the intermediary or carrier was performing
activities described in section 1893(b) of the Act on August 21, 1996;
(2) The intermediary or carrier has transferred to the entity all
of the resources, including personnel, that were involved in
performance under the intermediary agreement or carrier contract and
performance of Medicare integrity program activities; and
(3) The intermediary or carrier continued to perform Medicare
integrity program activities until transferring the resources to the
entity.
(c) An entity is eligible to be awarded a Medicare integrity
program contract only if it meets the eligibility requirements
established in Sec. 421.302.
Sec. 421.308 Renewal of a contract.
(a) HCFA specifies an initial contract term in the Medicare
integrity program contract. Contracts under this subpart may contain
renewal clauses. HCFA may renew the Medicare integrity program
contract, without regard to any provision of law requiring competition,
as it determines to be appropriate, by giving the contractor notice,
within timeframes specified in the contract, of its intent to do so.
(b) HCFA may renew a Medicare integrity program contract without
competition if--
(1) The Medicare integrity program contractor continues to meet the
requirements established in this subpart;
(2) The Medicare integrity program contractor meets or exceeds all
of the performance requirements established in its current contract;
and
(3) It is in the best interest of the Government.
(c) If HCFA does not renew a contract, the contract will end in
accordance with its terms, and the contractor does not have the right
to a hearing or judicial review of the nonrenewal decision.
Sec. 421.310 Conflict of interest identification.
(a) Definitions. As used in this subpart, the following definitions
apply:
Financial relationship means--
(1) A direct or indirect ownership or investment interest
(including an option or nonvested interest) in any entity that exists
through equity, debt, or other means and includes any indirect
ownership or investment interest no matter how many levels removed from
a direct interest; or
(2) A compensation arrangement with an entity.
Organizational conflict of interest has the meaning given at 48 CFR
9.501, except that, for purposes of this subpart, the activities and
relationships described include those of the offeror or contractor
itself and other business
[[Page 13607]]
related to it and those of its officers, directors (including medical
directors), managers, and subcontractors.
(b) General. Except as provided in paragraph (d) of this section,
HCFA does not enter into a contract under this subpart with an offeror
or contractor that HCFA determines has, or has the potential for, an
unresolved organizational conflict of interest.
(c) Identification of conflict. (1) HCFA determines that an offeror
or contractor has an organizational conflict of interest, or the
potential for the conflict exists, if--
(i) The offeror or contractor is an entity described in paragraph
(c)(3) of this section; or
(ii) The offeror or contractor has a present, or known future,
direct or indirect financial relationship with an entity described in
paragraph (c)(3) of this section.
(2) A financial relationship may exist either--
(i) Through an offeror's or contractor's parent companies,
subsidiaries, affiliates, subcontractors, or current clients; or
(ii) From the activities and relationships of the officers,
directors (including medical directors), or managers of the offeror or
contractor and may be either direct or indirect. An officer, director,
or manager has an indirect financial relationship if an ownership or
investment interest is held in the name of another but provides
benefits to the officer, director, or manager. Examples of indirect
financial relationships are holdings in the name of a spouse or
dependent child of the officer, director, or manager and holdings of
other relatives who reside with the officer, director, or manager.
(3) For purposes of paragraphs (c)(1)(i) and (c)(1)(ii) of this
section, the entity is one that--
(i) Provides, insures, or pays for health benefits, with the
exception of health plans provided as the entity's employee fringe
benefit;
(ii) Conducts audits of health benefit payments or cost reports;
(iii) Conducts statistical analysis of health benefit utilization;
(iv) Would review or does review, under the contract, Medicare
services furnished by a provider or supplier that is a direct
competitor of the offeror or contractor;
(v) Prepared work or is under contract to prepare work that would
be reviewed under the Medicare program integrity contract;
(vi) Is affiliated, as that term is explained in 48 CFR 19.101,
with a provider or supplier to be reviewed under the contract.
(4) HCFA may determine that an offeror or contractor has an
organizational conflict of interest, or the potential for a conflict
exists, based on the following:
(i) Apparent organizational conflicts of interest. An apparent
organizational conflict of interest exists if a prudent business person
has cause to believe that the offeror or contractor would have a
conflict of interest in performing the requirements of a contract under
this subpart. No inappropriate action by the offeror or contractor is
necessary for an apparent organizational conflict of interest to exist.
(ii) Other contracts and grants with the Federal Government.
(d) Exception. HCFA may contract with an offeror or contractor that
has an unresolved conflict of interest if HCFA determines that it is in
the best interest of the Government to do so.
(e) Offeror's or contractor's responsibility with regard to
subcontractors. An offeror or contractor is responsible for determining
whether an organizational conflict of interest exists in any of its
proposed or actual subcontractors at any tier and is responsible for
ensuring that the subcontractors have mitigated any conflict of
interest or potential conflict of interest.
(f) Post-award conflicts of interest. (1) In addition to the
conflicts identified in paragraph (c) of this section, HCFA considers
that a conflict of interest has occurred if during the term of the
contract--
(i) The contractor receives any fee, compensation, gift, payment of
expenses, or any other thing of value from any entity that is reviewed,
audited, investigated, or contacted during the normal course of
performing activities under the Medicare integrity program contract; or
(ii) HCFA determines that the contractor's activities are creating
a conflict of interest.
(2) In the event HCFA determines that a conflict of interest exists
during the term of the contract, among other actions, it may, as it
deems appropriate--
(i) Not renew the contract for an additional term;
(ii) Modify the contract; or
(iii) Terminate the contract.
Sec. 421.312 Conflict of interest evaluation.
(a) Disclosure. Offerors that wish to be eligible for the award of
a contract under this subpart and Medicare integrity program
contractors must submit, at times specified in paragraph (b) of this
section, an Organizational Conflicts of Interest Certificate. The
Certificate must contain the information specified in paragraphs (a)(1)
through (a)(8) of this section, unless the information has otherwise
been provided in the proposal, in which case it must be referenced.
Each solicitation issued for a contract under this subpart contains the
requirements for disclosure for pre- and post-award purposes. The
solicitation may require more detailed information than identified in
this section.
(1) A description of all business or contractual relationships or
activities that may be viewed by a prudent business person as a
conflict of interest.
(2) A description of the methods the offeror or contractor will
apply to mitigate any situations listed in the Certificate that could
be identified as a conflict of interest.
(3) A description of the offeror's or contractor's program to
monitor its compliance and the compliance of its proposed and actual
subcontractors with the conflict of interest requirements as identified
in the relevant solicitation.
(4) A description of the offeror's or contractor's plans to
contract with an independent auditor to conduct a compliance audit.
(5) An affirmation, using language that HCFA may prescribe, signed
by an official authorized to bind the contractor, that the offeror or
contractor understands that HCFA may consider any deception or omission
in the Certificate grounds for nonconsideration for contract award in
the procurement process, termination of the contract, or other contract
or legal action.
(6) Corporate and organizational structure.
(7) Financial interests in other entities, including the following:
(i) Percentage of ownership in any other entity.
(ii) Income generated from other sources.
(iii) A list of current or known future contracts or arrangements,
regardless of size, with any--
(A) Insurance organization or subcontractor of an insurance
organization; or
(B) Providers or suppliers furnishing health services for which
payment may be made under the Medicare program.
(iv) In the case of contracts or arrangements identified in
accordance with paragraph (a)(7)(iii) of this section, the dollar
amount of the contracts or arrangements, the type of work performed,
and the period of performance.
(8) The following information for all of the offeror's or
contractor's officers, directors (including medical directors),
[[Page 13608]]
and managers who would be or are involved with the performance of the
Medicare integrity program contract:
(i) The information required under paragraphs (a)(1), (a)(7)(iii),
and (a)(7)(iv) of this section.
(ii) If required by the solicitation, the information specified in
paragraphs (a)(7)(i) and (a)(7)(ii) of this section.
(b) When disclosure is made. The Organizational Conflicts of
Interest Certificate is submitted--
(1) With the offeror's proposal;
(2) When the HCFA Contracting Officer requests a revision in the
Certificate;
(3) As part of a compliance audit by an independent auditor; and
(4) 45 days before any change in the information submitted in
accordance with paragraph (a) or paragraph (b) of this section. Only
changed information must be submitted.
(c) Evaluation. HCFA evaluates organizational conflicts of interest
and potential conflicts, using the information provided in the
Organizational Conflicts of Interest Certificate, in order to promote
the effective and efficient administration of the Medicare program.
(d) Protection of proprietary information disclosed. (1) HCFA
protects disclosed proprietary information as allowed under the Freedom
of Information Act (5 U.S.C. 552).
(2) HCFA requires signed statements from HCFA personnel with access
to proprietary information that prohibit personal use during the
procurement process and term of the contract.
Sec. 421.314 Conflict of interest resolution.
(a) Review Board. HCFA establishes a Conflicts of Interest Review
Board to resolve organizational conflicts of interest and determines
when the Board is convened.
(b) Resolution. Resolution of an organizational conflict of
interest is a determination that--
(1) The conflict has been mitigated;
(2) The conflict precludes award of a contract to the offeror;
(3) The conflict requires that HCFA modify an existing contract;
(4) The conflict requires that HCFA terminate an existing contract;
or
(5) It is in the best interest of the Government to contract with
the offeror or contractor even though the conflict exists.
Sec. 421.316 Limitation on Medicare integrity program contractor
liability.
(a) None of the following will be held by reason of the performance
of any duty, function, or activity required or authorized under this
subpart or under a valid contract entered into under this subpart to
have violated any criminal law or to be civilly liable under any law of
the United States or of any State (or political subdivision thereof)
provided due care was exercised in that performance:
(1) An entity having a contract with HCFA under this subpart (that
is, a contractor under this subpart).
(2) A person employed by or who has a fiduciary relationship with
or who furnishes professional services to a contractor under this
subpart.
(b) HCFA makes payment, to a contractor under this subpart, or to a
member or employee of the contractor, or to any person who furnishes
legal counsel or services to the contractor, of an amount equal to the
reasonable amount of the expenses incurred in connection with the
defense of a suit, action, or proceeding, as determined by HCFA, if--
(1) The suit, action, or proceeding was brought against the
contractor, or a member or employee of the contractor, by a third party
and relates to the performance by the contractor, member, or employee
of any duty, function, or activity under a contract entered into with
HCFA under this subpart;
(2) The funds are available; and
(3) The expenses are otherwise allowable under the terms of the
contract.
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)
Dated: March 5, 1998.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.
Approved: March 16, 1998.
Donna E. Shalala,
Secretary.
[FR Doc. 98-7190 Filed 3-16-98; 5:00 pm]
BILLING CODE 4120-01-P
