Medicare Managed Care Manual 
Chapter 18 Subchapter C 
Cost Apportionment for HCPPs 
 
Table of Contents 
10 - Cost Apportionment for HCPPs 
10.1 - Objectives of Apportionment 
20 - HCPP Services Furnished Nonenrolled Medicare Patients 
30 - Apportionment of Physician and Other Part B Services 
40 - Apportionment of Medical Services Furnished Directly and Under Arrangements 
40.1 - Services Furnished Directly 
40.2 - Services Furnished Under Arrangements 
50 - Emergency and Urgently Needed Medical Services and Other Covered Medical 
Services for which the HCPP Assumes Financial Responsibility 
60 - Apportionment of Administrative and General Costs Not Directly Associated With 
Providing Medical Care 
70 - Allocation and Distribution of Other Administrative and General Costs 
80 - Alternate Allocation and Apportionment Methods 
 
10 - Cost Apportionment for HCPPs 
(Rev. 30 09-05-03) 
The term apportionment, as used here, refers to the process of distributing allowable costs 
among various groups of cost-based HCPP patients.  This chapter sets forth instructions 
for apportionment of the total allowable direct and indirect costs of the HCPP among 
Medicare beneficiaries enrolled in the HCPPs, other enrollees, and any nonenrolled 
patients.  Certain costs incurred by HCPPs for the purpose of meeting special Medicare 
program requirements are separately identified and paid in full by Medicare.  These are 
discussed in Chapter 18, Subchapter B.  10.1 - Objectives of Apportionment 
(Rev. 30, 09-05-03) 
The objectives of the apportionment process are to assure that: 
  Costs of covered care to Medicare enrollees will not be borne by non-Medicare 
enrollees and nonenrolled patients of the HCPP; and 
  Costs of services to non-Medicare enrollees and nonenrolled patients will not be 
borne by Medicare enrollees. 
20 - HCPP Services Furnished Nonenrolled Medicare Patients  
(Rev. 30, 09-05-03) 
The HCPP may furnish services to Medicare beneficiaries who are not enrolled in the 
HCPP's prepayment plan.  Since the agreement with CMS is limited to Medicare 
beneficiaries actually enrolled in the HCPP, the cost apportionment process distinguishes 
between Medicare enrollees of the HCPP and nonenrolled Medicare patients.  For 
services furnished Medicare patients not enrolled in the HCPP, Medicare payment is 
made through the Part A intermediary or Part B carrier, outside the scope of the cost-
based HCPP agreement with CMS. 
30 - Apportionment of Physician and Other Part B Services 
(Rev. 30, 09-05-03) 
The following sections set forth the requirements for apportionment of the allowable 
costs of physician services and other Part B services.  In general, medical services are 
furnished through the HCPP's medical service facility or through arrangements with a 
medical group or IPA. 
40 - Apportionment of Medical Services Furnished Directly and Under 
Arrangements 
(Rev. 30, 09-05-03) 
The apportionment rules contained in this section shall apply to HCPPs. 
40.1 - Services Furnished Directly 
(Rev. 30, 09-05-03) 
The total allowable cost of Part B physician and supplier services (see Chapter 18, 
Subpart B, 20) furnished directly shall be apportioned to Medicare on the basis of the  ratio of covered Part B services furnished to Medicare enrollees to total services 
furnished to all the organizations' enrollees and nonenrolled patients. 
The HCPP must use a method for reporting costs and statistics that is approved by CMS.  
The CMS will base its approval on findings that the method: 
  Results in an accurate and equitable allocation of allowable costs; and 
  Is justifiable from an administrative and cost efficiency standpoint.   
For example, if the HCPP elects to use a relative value system to apportion costs, the 
HCPP must use the entire system as described by the designer of the system, and obtain 
CMS approval before implementation. 
40.2 - Services Furnished Under Arrangements 
(Rev. 30, 09-05-03) 
The Part B physician and supplier services that the HCPP furnishes under arrangement 
are grouped into two categories for apportionment purposes.  The basis the HCPP uses to 
pay for a service determines in which category the service is grouped.  The two 
categories are: 
  Services furnished under an arrangement that provides for the HCPP to pay for 
the service on a fee-for-service basis; and 
  Services furnished under an arrangement that provides for the HCPP to pay for 
the service on some basis other than fee-for-service. 
If the arrangement provides for the HCPP to pay for these services on a FFS basis, the 
total cost for the services furnished under such arrangement shall be apportioned between 
Medicare enrollees and others based on the ratio of charges for Medicare-covered 
services furnished to Medicare enrollees to total charges for services furnished to all 
enrollees and nonenrolled patients.  (See payment limitations contained in Chapter 18, 
Subchapter B, 30.)  If apportionment on this basis would result in Medicare bearing the 
cost of furnishing services to individuals who are not Medicare enrollees, the Medicare 
share must be determined on another basis (approved by CMS) to ensure that Medicare 
pays only for services furnished to Medicare enrollees. 
If the arrangement provides for the HCPP to pay for these services on some basis other 
than FFS, the reasonable cost the HCPP pays, under the financial arrangement for the 
services furnished, shall be apportioned between Medicare enrollees and others based on 
the ratio of Medicare-covered services furnished to Medicare enrollees to total services 
furnished to all enrollees and nonenrolled patients.  If apportionment on this basis would 
result in Medicare bearing the cost of furnishing services to individuals who are not 
Medicare enrollees, the Medicare share must be determined on another basis (approved 
by CMS) to ensure that Medicare pays only for services furnished to Medicare enrollees.  50 - Emergency and Urgently Needed Medical Services and Other 
Covered Medical Services for which the HCPP Assumes Financial 
Responsibility 
(Rev. 30, 09-05-03) 
Payments for services to nonplan physicians and suppliers for purchased services, such as 
emergency or urgently needed care outside the HCPP or unusual specialty services not 
available within the HCPP, are apportioned to Medicare enrollees in accordance with the 
principles set forth in 40 of this chapter.  In most cases, this will limit CMS' payment to 
the HCPP to what the FFS system would have paid for the service in that area. 
60 - Apportionment of Administrative and General Costs Not Directly 
Associated With Providing Medical Care 
(Rev. 30, 09-05-03) 
Enrollment and marketing costs (as defined in Chapter 18, Subchapter B, 50), 
membership costs (as defined in Chapter 18, Subchapter B, 70), as well as other 
administrative and general costs of the HCPP that benefit the total enrolled population of 
the HCPP which are not directly associated with providing medical care, are apportioned 
on the basis of a ratio of Medicare enrollment to total HCPP enrollment.  These costs are 
classified as Plan Administration costs.  Examples of such costs are: 
  Directors' salaries and fees; 
  Executive and staff administrative salaries; 
  Organizational costs; and 
  Other costs of administering the plan. 
70 - Allocation and Distribution of Other Administrative and General 
Costs 
(Rev. 30, 09-05-03) 
Administrative and General (A&G) costs other than those described in 60 of this chapter 
which bear a significant relationship to the services rendered are not apportioned to 
Medicare directly.  Instead, these costs are allocated or distributed to the components of 
the  HCPP which, in turn, are then apportioned to Medicare in accordance with the rules 
contained in this chapter.  The allocation or distribution process occurs in two steps: 
1.  The total allowable costs of a separate entity or department that performs 
administrative services (e.g., centralized purchasing, accounting, data processing) 
that can be quantitatively measured, should be allocated or distributed to each  component of the HCPP in reasonable proportion to the benefits received by that 
component. 
2.  Those remaining service-related administrative costs that cannot otherwise be 
distributed or allocated in reasonable proportion to the benefits received by the 
components, must be allocated to the components on the basis of a ratio of total 
incurred and distributed cost of the component to total incurred and distributed 
cost to all components. 
80 - Alternate Allocation and Apportionment Methods 
(Rev. 30, 09-05-03) 
A method of apportionment or basis for allocation of costs other than the methods 
prescribed in this chapter may be used, provided the desired change results in a more 
accurate and equitable apportionment or allocation of costs and is justifiable from an 
administrative cost standpoint.  An HCPP that desires to use an alternative method of 
apportionment or basis for allocation of costs which represents a departure from the 
method used in the previous cost reporting period, must submit its request to CMS in 
writing at least 90 days prior to the beginning of the period in which the different method 
or basis of allocation is to be used.  The HCPP's request would state the specific change it 
desires and explain how this will result in a more accurate and equitable apportionment or 
allocation. 
The CMS' approval of a request to change methods will be given to the HCPP in writing 
and is binding as of the approval date.  Once approval is given, the HCPP is bound to this 
method for the cost reporting period to which the request applies and all subsequent 
periods, unless CMS approves a subsequent request to change methods.