35204 Federal Register / Vol. 70, No. 116 / Friday, June 17, 2005 / Proposed Rules 

Dated: May 23, 2005. 

James M. Taitt, 

Acting Regional Director, Appalachian 

Regional Coordinating Center.

[FR Doc. 05–11979 Filed 6–16–05; 8:45 am] 

BILLING CODE 4310–05–U

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 300 

[FRL–7924–4] 

National Oil and Hazardous Substance 

Pollution Contingency Plan National 

Priorities List

AGENCY: Environmental Protection 

Agency.

ACTION: Notice of intent to delete the 

Metropolitan Mirror and Glass (MM&G) 

Superfund Site from the National 

Priorities List. 

SUMMARY: The Environmental Protection 

Agency (EPA) Region 3 is issuing a 

notice of intent to delete MM&G 

Superfund Site (Site) located in 

Frackville, Schuylkill County, 

Commonwealth of Pennsylvania, from 

the National Priorities List (NPL) and 

requests public comments on this notice 

of intent. The NPL, promulgated 

pursuant to section 105 of the 

Comprehensive Environmental 

Response, Compensation, and Liability 

Act (CERCLA) of 1980, as amended, is 

found at appendix B of 40 CFR part 300 

which is the National Oil and 

Hazardous Substances Pollution 

Contingency Plan (NCP). The EPA and 

the State of Pennsylvania, through the 

Pennsylvania Department of 

Environmental Protection (PADEP), 

have determined that all appropriate 

response actions under CERCLA have 

been completed. However, this deletion 

does not preclude future actions under 

Superfund. 

In the ‘‘Rules and Regulations’’

section of today’s Federal Register, EPA 

is publishing a direct final notice of 

deletion of MM&G Superfund Site 

without prior notice of intent to delete 

because EPA views this as a 

noncontroversial revision and anticipate 

no adverse comment. EPA has 

explained its reasons for this deletion in 

the preamble to the direct final notice of 

deletion. If no adverse comment(s) are 

received on this notice of intent to 

delete or the direct final notice of 

deletion, EPA will not take further 

action on this notice of intent to delete. 

If adverse comment(s) are received, EPA 

will withdraw the direct final notice of 

deletion and it will not take effect. EPA 

will, as appropriate, address all public 

comments in a subsequent final deletion 

notice based on this notice of intent to 

delete. EPA will not institute a second 

comment period on this notice of intent 

to delete. Any parties interested in 

commenting must do so at this time. For 

additional information, see the direct 

final notice of deletion which is located 

in the Rules section of this Federal 

Register.

DATES: Comments concerning this Site 

must be received by July 18, 2005.

ADDRESSES: Written comments should 

be addressed to: David Polish, 

Community Involvement Coordinator, 

U.S. EPA (3HS43), 1650 Arch Street, 

Philadelphia, PA 19103–2029, 

polish.david@epa.gov, (215) 814–3327 

or (800) 553–2509.

FOR FURTHER INFORMATION CONTACT:

Eugene Dennis, Remedial Project 

Manager, U.S. EPA (3HS21), 1650 Arch 

Street, Philadelphia, PA 19103–2029, 

(215) 814–3202 or (800) 553–2509.

SUPPLEMENTARY INFORMATION: For 

additional information, see the Direct 

Final Notice of Deletion which is 

located in the Rules section of this 

Federal Register. 

Information Repositories: Repositories 

have been established to provide 

detailed information concerning this 

decision at the following address: U.S. 

EPA Region 3 Regional Center for 

Environmental Information, 1650 Arch 

Street, Philadelphia, Pennsylvania, 

19103, (215) 814–5254 or (800) 553–

2509, Monday through Friday 8 a.m. to 

4:30 p.m.; West Mahanoy Township 

Building, 190 Pennsylvania Avenue, 

Shenandoah, Pennsylvania 17976, (570) 

462–2958.

List of Subjects in 40 CFR Part 300 

Environmental protection, Air 

pollution control, Chemicals, Hazardous 

substances, Hazardous waste, 

Intergovernmental relations, Penalties, 

Reporting and recordkeeping 

requirements, Superfund, Water 

pollution control, Water supply.

Authority: 33 U.S.C. 1321(c)(2); 42 U.S.C. 

9601–9657; E.O 12777, 56 FR 54757, 3 CFR, 

1991 Comp., p.351; E.O. 12580, 52 FR 2923; 

3 CFR, 1987 Comp., p193.

Dated: May 31, 2005. 

Richard J. Kampf, 

Acting Regional Administrator, Region 3.

[FR Doc. 05–11828 Filed 6–16–05; 8:45 am] 

BILLING CODE 6560–50–P

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare and Medicaid 

Services 

42 CFR Parts 400 and 421 

[CMS–6030–P2] 

RIN 0938–AN72 

Medicare Program; Medicare Integrity 

Program, Fiscal Intermediary and 

Carrier Functions, and Conflict of 

Interest Requirements

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS.

ACTION: Proposed rule.

SUMMARY: This proposed rule would 

establish the Medicare Integrity Program 

(MIP) and implement program integrity 

activities that are funded from the 

Federal Hospital Insurance Trust Fund. 

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. 

This proposed rule would bring 

certain sections of the Medicare 

regulations concerning fiscal 

intermediaries and carriers into 

conformity with the Social Security Act 

(the Act). The rule would distinguish 

between those functions that the statute 

requires to be included in agreements 

with fiscal intermediaries and those that 

may be included in the agreements. It 

would also provide that some or all of 

the functions may be included in carrier 

contracts. Currently all these functions 

are mandatory for carrier contracts.

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. e.d.t on August 16, 2005.

ADDRESSES: In commenting, please refer 

to file code CMS–6030–P2. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

three ways (no duplicates, please): 

1. Electronically. You may submit 

electronic comments to http://

www.cms.hhs.gov/regulations/

ecomments, (attachments should be in 

Microsoft Word, WordPerfect, or Excel; 

however, we prefer Microsoft Word). 

2. By mail. You may mail written 

comments (one original and two copies) 

to the following address ONLY: Centers 

for Medicare & Medicaid Services, 

Federal Register / Vol. 70, No. 116 / Friday, June 17, 2005 / Proposed Rules 35205

Department of Health and Human 

Services, Attention: CMS–6030–P2, P.O. 

Box 8014, Baltimore, MD 21244–8014. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments (one original 

and two copies) before the close of the 

comment period to one of the following 

addresses. If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number 1–800–

743–3951 in advance to schedule your 

arrival with one of our staff members. 

Room 445–G, Hubert H. Humphrey 

Building, 200 Independence Avenue, 

SW., Washington, DC 20201; or 7500 

Security Boulevard, Baltimore, MD 

21244–1850. 

(Because access to the interior of the 

HHH Building is not readily available to 

persons without Federal Government 

identification, commenters are 

encouraged to leave their comments in 

the CMS drop slots located in the main 

lobby of the building. A stamp-in clock 

is available for persons wishing to retain 

a proof of filing by stamping in and 

retaining an extra copy of the comments 

being filed.) 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:

Brenda Thew, (410) 786–4889.

SUPPLEMENTARY INFORMATION: 

Submitting Comments: We welcome 

comments from the public on all issues 

set forth in this rule to assist us in fully 

considering issues and developing 

policies. Comments will be most useful 

if they are organized by the section of 

the proposed rule to which they apply. 

You can assist us by referencing the file 

code [CMS–6030–P2] and the specific 

‘‘issue identifier’’ that precedes the 

section on which you choose to 

comment. 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. After the close of the 

comment period, CMS posts all 

electronic comments received before the 

close of the comment period on its 

public website. Comments received 

timely will be available for public 

inspection as they are received, 

generally beginning approximately 3 

weeks after publication of a document, 

at the headquarters of the Centers for 

Medicare & Medicaid Services, 7500 

Security Boulevard, Baltimore, 

Maryland 21244, Monday through 

Friday of each week from 8:30 a.m. to 

4 p.m. To schedule an appointment to 

view public comments, phone 1–800–

743–3951. 

I. Background 

[If you choose to comment on issues in 

this section, please include the caption 

‘‘Background’’ at the beginning of your 

comments.] 

A. Current Medicare Contracting 

Environment 

Since the inception of the Medicare 

program, the Medicare contracting 

authorities have been in place and 

largely unchanged until the last few 

years. At the inception of the Medicare 

program, 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), the 

Congress provided that public agencies 

or private organizations may participate 

in the administration of the Medicare 

program under agreements or contracts 

entered into with CMS.

These Medicare contractors are 

known as fiscal intermediaries (section 

1816(a) of the Act) and carriers (section 

1842(a) of the Act). With certain 

exceptions, fiscal 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 

§ 400.202. That is, a provider is a 

hospital, rural care primary hospital, 

skilled nursing facility (SNF), home 

health agency (HHA), 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 (NPP), 

laboratories, and durable medical 

equipment (DME) 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 organization 

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 organization.’’ No entity may 

be considered for a carrier contract 

unless it can demonstrate that it meets 

this definition of carrier. 

Section 1842(b) of the Act provides us 

with the discretion to enter into carrier 

contracts without regard to any 

provision of the statute requiring 

competitive bidding. Many other 

provisions of generally applicable 

Federal contract law and regulations, as 

well as the Department of Health and 

Human Services (HHS) procurement 

regulations, remain in effect for carrier 

contracts. 

Section 1816(a) of the Act authorizes 

us to enter into agreements with public 

agencies or private organizations (fiscal 

intermediaries) for the purpose of 

administering Part A of the Medicare 

program. These entities are responsible 

for determining the amount of payment 

due to providers in consideration of 

services provided to beneficiaries, and 

for making these payments. We may 

enter into an agreement with an entity 

to serve as a fiscal intermediary if the 

entity was first ‘‘nominated’’ by a group 

or association of providers to make 

Medicare payments to it. Effective 

October 1, 2005, section 911 of the 

Medicare Prescription Drug, 

Improvement and Modernization Act of 

2003 (MMA) (Pub. L. 108–173) 

eliminates the requirement that fiscal 

intermediaries be nominated, and 

establishes the requirement that 

Medicare contracts awarded to Medicare 

Administrative Contractors (MACs) be 

competitively bid. 

Section 421.100 requires that the 

agreement between us and a fiscal 

intermediary specify the functions the 

fiscal intermediary must perform. In 

addition to requiring any items 

35206 Federal Register / Vol. 70, No. 116 / Friday, June 17, 2005 / Proposed Rules 

specified by us in the agreement that are 

unique to that fiscal intermediary, our 

regulations require that all fiscal 

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 fiscal intermediaries 

furnish information and reports, 

perform certain functions for providerbased HHAs and provider-based 

hospices, and comply with all 

applicable laws and regulations and 

with any other terms and conditions 

included in their agreements. 

Similarly, § 421.200 requires that the 

contract between CMS and a Part B 

carrier specify the functions the carrier 

must perform. In addition to requiring 

any items specified by CMS in the 

contract that are unique to that carrier, 

we 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, 

§ 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 this context that Medicare 

fiscal intermediary and carrier contracts 

are significantly different from standard 

Federal Government contracts.

Specifically, the Medicare fiscal 

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. 

The 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 fiscal intermediaries and 

carriers, § 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 fiscal intermediary 

agreements in certain circumstances, 

and, similarly, § 421.205 provides for 

termination of carrier contracts. 

Each year, the Congress appropriates 

funds to support Medicare contractor 

activities. These funds are distributed to 

the contractors based on annual budget 

and performance negotiations, which 

allocate funds by program activity to 

each of the current Medicare 

contractors. Historically, approximately 

one-half of the funds were for payment 

for the processing of claims; an 

additional one-quarter of the funds were 

for program integrity 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 potential 

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 

was allocated for beneficiary and 

provider or supplier services and for 

various productivity investments. 

B. Discussion About Medicare 

Administrative Contractors (MACs) 

The MMA was enacted on December 

8, 2003. Section 911 of the MMA adds 

new section 1874A to the Act, 

establishing the Medicare Fee-forService (FFS) Contracting Reform (MCR) 

initiative that will be implemented over 

the next several years. Under this 

provision, effective October 1, 2005, we 

have the authority to replace the current 

Medicare fiscal intermediary and carrier 

contracts with new MACs using 

competitive procedures. 

Between 2005 and 2011, we will 

conduct full and open competitions to 

replace the current contracts with 

MACs. These MACs will handle many 

of the same basic functions that are now 

performed by fiscal intermediaries and 

carriers. Additionally, MACs may be 

charged with performing functions 

under the Medicare Integrity Program 

under section 1893 of the Act. The 

statute does not preclude the current 

fiscal intermediaries and carriers from 

competing for the MAC contracts. 

Among other provisions, section 

1874A of the Act establishes eligibility 

requirements for the MACs, describes 

the functions these new contractors may 

perform (which may include functions 

of section 1893 of the Act so long as 

these responsibilities do not duplicate 

activities that are being carried out 

under a Medicare Integrity Program 

contract), and specifies various 

requirements for the structure, terms 

and conditions of these new MAC 

contracts. In particular, section 1874A 

of the Act specifies that the Federal 

Acquisition Regulation (FAR) will apply 

to the MAC contracts, except to the 

extent inconsistent with a specific 

requirement of section 1874A of the Act. 

Unlike the contracting authority of 

section 1893 of the Act, the new 

authority of section 1874A of the Act 

does not mandate that the Secretary 

publish either a proposed or final 

regulation prior to entering into MAC 

contracts. Instead, the Congress when 

enacting the authority of section 1874A 

of the Act, placed a clear reliance on the 

existing well-defined regulatory 

framework of the FAR.

We considered whether we should 

propose regulations for the MAC 

authority in conjunction with this 

proposed rule to implement the 

authority of section 1893 of the Act. 

Since we are still analyzing whether any 

of the specific requirements of section 

1874A of the Act need elaboration in the 

regulations, we are not prepared to do 

so at this time. As section 1874A of the 

Act places reliance on the FAR for MAC 

contracts and since section 1874A of the 

Act does not impose any requirement to 

issue additional rules in order to initiate 

procurements under the MAC authority, 

we do not believe such rules are 

required to initiate the implementation 

of section 1874A of the Act. We will, 

however, continue to analyze issues 

posed by the new contracting authority 

and the transition to that framework, 

and will propose rules for the authority 

of new section 1874A of the Act if and 

when we identify issues that need to be 

addressed through rulemaking. 

However, because the history and 

structure of the Medicare program 

dictate that claims processing, customer 

service, and program integrity functions 

are highly interdependent, and since 

sections 1816, 1842, 1893 and 1874A of 

the Act are part of the same legislative 

development relating to Medicare 

administration, we will from time-totime discuss the section 1874A of the 

Act authority and its potential impact 

on fiscal intermediaries, carriers, and 

the MIP contractors in this preamble. 

Further, this proposed rule was 

modified from our earlier proposal on 

this topic to make clear that section 

1874A of the Act authorizes MAC 

contractors to perform functions of 

section 1893 of the Act. We also make 

clear that we may impose certain MIP 

requirements (for example, those 

proposed for § 421.302(a)) on the MACs 

when we elect to include functions of 

section 1893 of the Act in their 

contracts. Finally, it is our intention that 

the proposed rule changes at § 421.100 

and § 421.200 discussed below would 

remain in effect only until all the 

Medicare fiscal intermediary and carrier 

contracts are replaced by MAC contracts 

in accordance with the MMA. 

The MMA establishes a phase-in 

process for the transition of the current 

contractors to MACs. We are currently 

in the process of developing the 

Statement of Work (SOW) and 

Federal Register / Vol. 70, No. 116 / Friday, June 17, 2005 / Proposed Rules 35207

performance requirements for MACs, 

and further regulatory and 

administrative guidance will be 

published as these details are 

developed. More information about our 

plans to implement Medicare 

contracting reform, including our Report 

to the Congress on this subject, can be 

obtained by accessing the Internet at 

http://www.cms.hhs.gov/

medicarereform/contractingreform/. 

C. The Medicare Integrity Program 

The Health Insurance Portability and 

Accountability Act of 1996 (HIPAA) 

(Pub. L. 104–191) was enacted on 

August 21, 1996. Section 202 of HIPAA 

added new section 1893 to the Act 

establishing the Medicare Integrity 

Program (MIP). This program is funded 

from the Medicare Hospital Insurance 

Trust Fund for program integrity 

activities. Specifically, section 1893 of 

the Act expands our contracting 

authority to allow us to contract with 

eligible entities to perform Medicare 

program integrity activities. These 

activities include: Medical, potential 

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 DME 

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:

• Procedures for identifying, 

evaluating, and resolving organizational 

conflicts of interest that are consistent 

with rules generally applicable to 

Federal acquisition and procurement. 

• Competitive procedures for entering 

into new contracts under section 1893 

of the Act and for entering into contracts 

that may result in the elimination of 

responsibilities of an individual fiscal 

intermediary or carrier, and other 

procedures we deem appropriate. 

• A process for renewing contracts 

entered into under section 1893 of the 

Act. 

Section 1893(d) of the Act also 

specifies the process for contracting 

with eligible entities to perform program 

integrity activities. 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. 

The Congress established section 1893 

of the Act to strengthen our ability to 

deter potential 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 were 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 potential 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 potential fraud and 

abuse. The funding mechanism will 

help us shift emphasis from postpayment recoveries on potentially 

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 generally 

in use in 1996, section 1893 of the Act 

greatly expands our contracting 

authority relative to the contracting 

authority of original sections 1816 and 

1842 of the Act. 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 of the 

Act allows us to attract a variety of 

offerors with potentially new and 

different skill sets and permits those 

offerors to propose innovative 

approaches to implement MIP to deter 

potential fraud and abuse. By using 

competitive procedures, as established 

in the FAR and supplemented by the 

Department of Health and Human 

Services Acquisition Regulation 

(HHSAR), our ability to manage the MIP 

activities is greatly enhanced, and we 

can seek to obtain the best value for our 

contracted services. 

Third, section 1893 of the Act 

requires us to address potential conflicts 

of interest among prospective MIP 

contractors before entering into any 

contracting arrangements with them. 

Section 1893 of the Act instructs the 

Secretary to establish procedures for 

identifying, evaluating, and resolving 

organizational conflicts of interest that 

are generally applicable to FAR 

contracts. 

D. Experience With MIP Contractors 

The MIP authority, established by 

HIPAA, gave CMS specific contracting 

authority, consistent with the FAR, to 

enter into contracts with entities to 

promote the integrity of the Medicare 

program. 

On March 20, 1998, we issued a 

proposed rule to implement provisions 

of section 1893 of the Act to which we 

received comments (63 FR 13590). We 

reviewed and considered all the 

comments received concerning the MIP 

regulation. Comments received 

addressed a variety of issues, such as 

conflict of interest issues, coordination 

among Medicare contractors, contractor 

functions, and eligibility requirements. 

Overall, we found that few changes 

were needed to the regulatory text. Due 

to time constraints, however, a final rule 

was never published. Notwithstanding, 

section 1893 of the Act granted us the 

authority to contract with eligible 

entities to perform program integrity 

activities prior to publication of the 

final rule. 

Section 902 of the MMA mandated 

that final rules relating to the Medicare 

program based on a previous 

publication of a proposed regulation or 

an interim final regulation be published 

within three years except under 

exceptional circumstances. Given that it 

has been greater than three years since 

the publication of the initial proposed 

MIP regulations, we are reissuing these 

regulations in proposed form at this 

time. 

The publication of the 1998 proposed 

rule (63 FR 13590) enabled us to 

contract with entities to perform 

Medicare program integrity functions to 

promote the integrity of the Medicare 

program prior to the publication of a 

final rule. 

Since the publication of the 1998 

proposed rule and in accordance with 

this MIP authority, we currently 

maintain the following MIP contracts: 

12 Indefinite Delivery-Indefinite 

Quantity (IDIQ) contracts for the 

Program Safeguard Contractor (PSC) 

effort; one Coordination of Benefits 

(COB) contract, and 8 IDIQ contracts for 

the Medicare Managed Care (MMC) 

Program Integrity Contractors effort. 

(IDIQ contracts are explained in detail 

in FAR 48 CFR subpart 16.5.) After 

being awarded an IDIQ contract, 

organizations can competitively bid on 

task orders released by CMS to 

specifically address program integrity 

issues within the scope of the IDIQ 

contract. These MIP contractors are 

discussed below.

35208 Federal Register / Vol. 70, No. 116 / Friday, June 17, 2005 / Proposed Rules 

1. Program Safeguard Contractors (PSCs) 

Since 1999, we have awarded more 

than 40 individual task orders under the 

PSC IDIQ contract, including 17 Benefit 

Integrity (BI) Model PSCs. These BI 

PSCs are tasked with performing fraud 

and abuse detection and prevention 

activities for their respective 

jurisdictions. Specific activities include 

fraud case development, local and 

national data analysis to identify 

potentially fraudulent billing schemes 

or patterns, law enforcement support, 

medical review for a BI purpose, and 

identification and development of 

appropriate administrative actions. Four 

of the 17 BI PSCs have additional 

medical review functions. The 

remaining task orders issued under the 

PSC IDIQ contract have focused on 

specific program vulnerabilities and 

problem areas (for example, 

Comprehensive Error Rate Testing 

(CERT), Correct Coding Initiative (CCI), 

and Data Assessment & Verification 

(DAVe)). More information on PSCs can 

be accessed on the Internet at http://

www.cms.hhs.gov/PROVIDERS/PSC/

pscwebp2.asp.

Overall, we have seen success in the 

implementation of the PSC program. 

Since 2002, 12 of the 17 BI Model PSCs 

were awarded and transitioned. 

Typically, a 3 to 6 month period was 

allowed for the PSCs to transition the BI 

workload from the Fiscal Intermediary 

and Carrier that had previously been 

performing this workload. 

2. Coordination of Benefits Contractor 

(COB) 

In November 1999, we awarded one 

COB contract to consolidate activities 

that support the collection, 

management, and reporting of other 

health insurance coverage for Medicare 

beneficiaries. The purposes of the COB 

program are to identify the health 

benefits available to a Medicare 

beneficiary and to coordinate the 

payment process to prevent mistaken 

payment of Medicare benefits. In 

January 2001, the COB contractor 

assumed all Medicare Secondary Payer 

(MSP) claims investigations. 

Implementing this single-source 

development approach greatly reduced 

the amount of duplicate MSP 

investigations. It also offered a 

centralized, one-stop customer service 

approach for all MSP-related inquiries, 

including those seeking general MSP 

information, except for those related to 

specific claims or recoveries that serve 

to protect the Medicare Trust Funds. 

3. Medicare Managed Care Program 

Integrity Contractors (MMC–PICs) 

MMC–PICs supplement our regional 

office integrity responsibilities related to 

Medicare Advantage (MA), formerly 

known as Medicare+Choice (M+C). 

Similar to the PSC, MMC–PIC was 

designed specifically to identify, stop, 

and prevent fraud, waste, and abuse. 

Services performed under MMC–PIC 

include—

• Complete monthly analysis of plan 

discrepancies and report to MA 

Organizations; 

• Review and analyze State regulatory 

practices; 

• Evaluate marketing operations; 

• Audit financial and medical records 

including claims, payments, and benefit 

packages; 

• Evaluate enrollment and encounter 

data; 

• Collect information and review 

matters that may contain evidence of 

fraud, waste, and abuse and make 

referrals to the appropriate government 

authority;

• Compliance testing of internal 

controls of Health Care Prepayment Plan 

(HCPP) contracting organizations; 

• Complete all Retroactive Payment 

Adjustments and Retroactive 

Enrollments or Disenrollments 

submitted by MA Organizations; 

• Complete final reconciliation of 

payment for non-renewals of MA 

contracts; and, 

• Make reconsideration 

determinations with plans that request 

decisions regarding payments. 

II. Provisions of the Proposed Rule 

[If you choose to comment on issues in 

this section, please include the caption 

‘‘Provisions of the Proposed Rule’’ at the 

beginning of your comments.] 

This regulation is part of our overall 

contracting strategy, which is designed 

to build on the strengths of the 

marketplace. 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. 

As discussed earlier in the 

background section, the implementation 

of section 1874A of the Act is also a 

major element of our contracting 

strategy. We are not including extensive 

rules relating to that authority in this 

proposal, for the reasons discussed 

earlier, but interested parties can gain 

information about our plans for 

implementing section 1874A of the Act 

by accessing the Internet at http://

www.cms.hhs.gov/medicarereform/

contractingreform. In addition, the 

public can also send us informal 

questions about the Medicare 

administrative contractor (MAC) 

implementation through this site; any 

official comments on this proposed rule 

should be submitted in accordance with 

the instructions contained in the 

‘‘Addresses’’ section of this preamble. 

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 will: 

• Define the types of entities eligible 

to become MIP contractors. We also 

clarify that, in accordance with section 

1874A of the Act, a MAC may perform 

MIP functions under certain conditions; 

• Identify 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 

consistent with the FAR; 

• Prescribe responsibilities; and, 

• Set forth limitations on MIP 

contractor liability. 

Subpart D will apply 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 § 421.300. 

2. Definition of Eligible Entities 

(§ 421.302) 

In accordance with section 1893(c) of 

the Act, proposed § 421.302(a) would 

provide that an entity is eligible to enter 

into a MIP contract if it: 

• Demonstrates the capability to 

perform MIP contractor functions; 

• Agrees to cooperate with the Office 

of Inspector General (OIG), the 

Department of Justice (DOJ), and other 

law enforcement agencies in the 

investigation and deterrence of potential 

fraud and abuse in the Medicare 

program, including making referrals; 

• 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; 

• Maintains an appropriate written 

code of conduct and compliance 

Federal Register / Vol. 70, No. 116 / Friday, June 17, 2005 / Proposed Rules 35209

policies that include, without 

limitation, an enforced policy on 

employee conflicts of interest; 

• Meets financial and business 

integrity requirements to reflect 

adequate solvency and satisfactory legal 

history; and, 

• 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 DME items that are 

subject to prior authorization. 

It is not possible to identify in this 

rule each and every possible contractor 

eligibility requirement that may appear 

in a future solicitation. In order to 

permit us maximum flexibility to tailor 

our contractor eligibility requirements 

to specific solicitations while satisfying 

the intent of section 1893 of the Act, any 

contractor eligibility requirements in 

addition to those specified in proposed 

§ 421.302(a)(1) through (a)(4) will be 

contained in the applicable solicitation. 

At § 421.302(b)(1), we propose to 

make clear that a MAC under section 

1874A of the Act may perform any or all 

of the MIP functions as are listed and 

described in § 421.304. However, in 

performing such functions, the MAC 

may not duplicate work being 

performed under a MIP contract. We 

believe this proposed provision is 

consistent with sections 1874A(a)(4)(G) 

and 1874A(a)(5) of the Act, as added by 

the MMA. 

At § 421.302(b)(2), we also make clear 

our discretion to require a MAC 

performing any of the MIP functions 

under § 421.304 to abide by the 

eligibility requirements applicable to 

MIP contracts, that is, the four elements 

listed at § 421.302(a). The first 

requirement at § 421.302(a) relating to 

demonstrated capability and the third 

requirement relating to addressing 

conflicts of interest are consistent with 

provisions in the authorizing statute for 

MAC contracts (section 1874A(a)(2)of 

the Act). While the second requirement, 

which pertains to cooperation with the 

OIG and other forms of law 

enforcement, is not reiterated in section 

1874A of the Act, we believe this 

requirement is not inconsistent with 

section 1874A of the Act or the FAR. 

This requirement is, in fact, compatible 

with our general practices, multiple 

statutes and regulations governing HHS 

operations and contracts, and finally 

also with provisions within title XI of 

the Act. Once again, the fourth 

requirement makes clear our authority 

to impose additional reasonable 

requirements through contract and it 

makes sense to apply this element to 

MAC contractors. Our specific approach 

to all these issues, of course, will be 

made clear in any solicitation for MAC 

contracts. 

Note that, in accordance with section 

1893(d) of the Act, we may continue to 

contract, for the performance of MIP 

activities, with fiscal intermediaries and 

carriers that had a contract with us on 

August 21, 1996 (the effective date of 

enactment of Pub. L. 104–191). 

However, in accordance with sections 

1816(l) or 1842(c)(6) of the Act (both 

added by Pub. L. 104–191), and section 

1874A(a)(5)(A) of the Act (added by the 

MMA), these contractors as well as 

MACs may not duplicate activities 

under a fiscal intermediary agreement or 

carrier contract and a MIP contract, with 

one excepted activity. The exception 

permits a carrier or a MAC to develop 

and update a list of items of DME that 

are subject to prior authorization both 

under the MIP contract and its contract 

under section 1842 of the Act. This 

discretion to continue the performance 

of MIP activities through the fiscal 

intermediary and carrier contracts until 

they are phased out in accordance to 

section 911(d) of the MMA, is provided 

for in proposed changes to § 421.100 

and § 421.200 discussed later in this 

preamble.

3. Definition of MIP Contractor 

(§ 400.202) 

We propose to define ‘‘Medicare 

integrity program contractor,’’ at 

§ 400.202 (Definitions specific to 

Medicare), as an entity that has a 

contract with us under section 1893 of 

the Act to perform exclusively one or 

more of the program integrity activities 

specified in that section. The inclusion 

of the word ‘‘exclusively’’ in this 

definition is intended to conform with 

section 1874A(a)(5)(B) of the Act as 

added by the MMA. 

4. Services to be Procured (§ 421.304) 

A MIP contractor may perform some 

or all of the MIP activities listed in 

§ 421.304. Section 421.304 would state 

that the contract between CMS and a 

MIP contractor specifies the functions 

the contractor performs. In accordance 

with section 1893(b) of the Act, 

proposed § 421.304 identifies the 

following as MIP activities. 

(a) Medical, utilization, and potential 

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 or suppliers and other 

individuals and entities (including 

health maintenance organizations, 

competitive medical plans, health care 

prepayment plans, and MA plans). This 

function results in the identification of 

overpayments, prepayment denials, 

recommendations for changes in 

national coverage policy, changes in 

local coverage determinations (LCD) 

policies and payment screens, referrals 

for potential fraud and abuse, and the 

identification of the education needs of 

beneficiaries, providers, and suppliers. 

Potential 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 potential fraud cases for 

referral to law enforcement. Each 

solicitation will specify when cases 

should be referred to the OIG or other 

law enforcement agency. In general, 

however, identified overpayments, 

recurring acts of improper billing, and 

substantiated allegations of potentially 

fraudulent activity will be promptly 

referred to a Regional OIG. 

(b) Cost report audits. Providers and 

managed care plans receiving Medicare 

payments are subject to audits 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 

recommended settlement terms for 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 making 

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 pursuing recovery of mistaken 

35210 Federal Register / Vol. 70, No. 116 / Friday, June 17, 2005 / Proposed Rules 

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 

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 DME items that, in accordance 

with section 1834(a)(15) of the Act, are 

subject to prior authorization. Prior 

authorization is a determination that an 

item of DME is covered prior to when 

the equipment is delivered to the 

Medicare beneficiary. Section 

1834(a)(15) of the Act requires prior 

authorization to be performed on the 

following items of DME: 

• 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. 

We note that the MIP functions are 

not limited to services furnished under 

fee-for-service payment methodologies. 

MIP functions apply to all types of 

claims. They also apply to all types of 

payment systems including, but not 

limited to, managed care and 

demonstration projects. MIP functions 

will also apply to payments made under 

the Medicare Part D prescription drug 

benefit that will be implemented on 

January 1, 2006. 

5. Competitive Requirements (§ 421.306) 

We would specify, in § 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. 

Furthermore, in accordance with section 

1893(d)(2) of the Act, we would specify 

that the procedures set forth in these 

authorities will be used: (a) When 

entering into new contracts; (b) when 

entering into contracts that may result 

in the elimination of responsibilities of 

an individual fiscal intermediary or 

carrier; and (c) at any other time we 

consider appropriate. 

In proposed § 421.306(b), we will 

establish an exception to competition 

that allows a successor in interest to a 

fiscal 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 

provision will remain in effect until all 

fiscal intermediary agreements and 

carrier contracts are transitioned to 

MACs in accordance with section 911(d) 

of the MMA. 

This proposal is made in anticipation 

that some fiscal intermediaries and 

carriers, prior to the competition of their 

contracts in accordance with the MMA, 

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 fiscal intermediary’s or 

carrier’s MIP activities are transferred 

along with its other Medicare-related 

resources to the successor in interest. 

For example, the fiscal 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, 

we 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 fiscal intermediary or carrier 

was performing program integrity 

activities under its contract on August 

21, 1996, the date of the enactment of 

the MIP legislation, the statute permits 

us to continue to contract with the fiscal 

intermediary or carrier for the 

performance of those activities without 

using competitive procedures (but only 

through and, no later than, September 

30, 2011). 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, we 

may determine that breaking out the 

MIP activities and competing them 

separately (prior to the MAC contract 

competitions) 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, 

the statute states that fiscal intermediary 

agreements and carrier contracts will be 

noncompetitively awarded under 

sections 1816(a) and 1842(b)(1) of the 

Act. Furthermore, those agreements and 

contracts have, in recent years prior and 

subsequent 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. 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 a 

fiscal intermediary agreement or carrier 

contract is consistent with the Congress’

authorization to forego competition 

when the contracting entity was 

carrying out the MIP functions on the 

date of enactment of the MIP legislation. 

Section 421.306(b) permits continuity in 

the performance of the MIP functions 

until such time as we determine a need 

to procure MIP functions on the basis of 

full and open competition. 

The exception to competition will 

operate only where a fiscal intermediary 

or carrier that performed program 

integrity functions under an agreement 

or a contract in place on August 21, 

1996, transfers its functions by means of 

a valid novation agreement in 

accordance with the requirements of the 

FAR. This exception is intended to be 

applied only until we are prepared to 

award MIP contracts on the basis of FAR 

competitive procedures, or until we 

compete the full fiscal intermediary and 

carrier workloads (both MIP and nonMIP functions) in accordance with the 

MMA. The exception is not intended, 

and will not be used, to circumvent the 

competitive process when we make 

competitive awards of MIP and MAC 

contracts. This provision is intended to 

provide us with flexibility in handling 

Medicare functions in the face of bona 

fide changes in corporate structure that 

often have little, if anything, to do with 

the Medicare program.

We further specify, in § 421.306(c), 

that an entity must meet the eligibility 

requirements established in proposed 

§ 421.302 to be eligible to be awarded a 

MIP contract. 

6. Renewal of MIP Contracts (§ 421.308) 

Proposed § 421.308(a) specifies that 

an initial contract term will be defined 

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 

Federal Register / Vol. 70, No. 116 / Friday, June 17, 2005 / Proposed Rules 35211

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 if a 

reassignment of the functions becomes 

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 

§ 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 results in the contract 

will contain further details regarding 

this provision.) 

The renewal clause referred to in this 

section is not an ‘‘option’’ as defined in 

the FAR at 48 CFR 2.101. Section 1893 

of the Act allows for the renewal of MIP 

contracts without regard to any 

provision of the law requiring 

competition if the contractor has met or 

exceeded performance requirements. As 

stated in FAR 48 CFR 2.101, ‘‘ ‘Option’

means a unilateral right in a contract by 

which, for a specified time, the 

Government may elect to purchase 

additional supplies or services called for 

by the contract, or may elect to extend 

the term of the contract.’’

As described in the FAR, 48 CFR 

subpart 17.2, an option is different than 

a renewal clause in several respects. The 

length of time of an option is 

established in a contract. In contrast, the 

length of a renewal period in a MIP 

contract may not be defined. 

Furthermore, an option must be 

exercised during the life of the contract. 

A MIP renewal clause can be invoked 

only after the exhaustion of the initial 

contract period of performance, 

including any option provisions. 

Finally, an option allows us to extend 

the term of a contract only up to 60 

months, the maximum term allowed by 

the FAR (excluding GSA awards). A 

MIP contract renewal clause allows the 

term of a MIP contract to surpass that 

limit, as long as the contractor meets the 

conditions in the regulation and the 

contract (including performance 

standards established in its contract) 

and we have a continuing need for the 

supplies or services under contract. 

Based on section 1893(d)(3) of the 

Act, we would specify, in § 421.308(b), 

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 the 

performance standards and 

requirements in the contract, and it is in 

the best interest of the Government. 

We would provide, at § 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 non-renewal. This is 

consistent with our longstanding policy 

for fiscal intermediary and carrier 

contracts. 

7. 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 was designed to ensure 

that the more diversified business 

arrangements of potential contractors do 

not inhibit competition between 

providers, suppliers, or other types of 

businesses related to the insurance 

industry, or have the potential for 

harming Government interests. 

When soliciting for MIP contracts, we 

will adhere to the requirements of the 

FAR organizational conflict of interest 

guidance, found at 48 CFR subpart 9.5. 

Given 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, we will maintain the 

rebuttable presumption that each 

prospective contract involves a 

significant potential organizational 

conflict of interest. In light of this 

presumption, we will apply the general 

rules in FAR 905.5 and such 

requirements as may be applicable to an 

individual procurement.

Prior to awarding a MIP contract, our 

contracting officer will fashion an 

organizational conflict of interest clause 

specific to the contractor for inclusion 

in the contract. In general, we will 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. 

In § 421.310(a), we will specify that 

an offeror for MIP contracts is, and MIP 

contractors are, subject to the conflict of 

interest standards and requirements of 

the FAR organizational conflict of 

interest guidance, found at 48 CFR 

subpart 9.5, and the requirements and 

standards as are contained in each 

individual contract awarded to perform 

functions found at section 1893 of the 

Act. 

In § 421.310(b), we state that we 

consider that a conflict of interest has 

occurred if, during the term of the 

contract, the contractor or its employee, 

agent or subcontractor has received, 

solicited, or arranged to receive any fee, 

compensation, gift, payment of 

expenses, offer of employment, 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 MIP 

contract. We incorporate the definition 

of ‘‘gift’’ from 5 CFR 2635.203(b) of the 

Standards of Ethical Conduct for 

Employees of the Executive Branch, 

which excludes from the definition 

items such as greeting cards, soft drinks, 

and coffee. 

We also specify in § 421.310(b), if we 

determine that the contractor’s activities 

are creating a conflict, then a conflict of 

interest has occurred during the term of 

the contract. 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 for default. 

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.

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. 

Because potential offerors may have 

questions about whether information 

submitted in response to a solicitation, 

including information regarding 

potential conflicts of interest, may be 

redisclosed under the Freedom of 

Information Act (FOIA), we provide the 

following information. 

To the extent that a proposal 

containing information 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 

FOIA. This withholding is based upon 

41 U.S.C. 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 that is 

required to be submitted that constitutes 

35212 Federal Register / Vol. 70, No. 116 / Friday, June 17, 2005 / Proposed Rules 

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). 

Any proposal containing the 

information submitted to us under an 

authority other than 41 U.S.C. Chapter 

4, Subchapter IV, and any 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 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, 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. It should be noted that the 

protection of proposals under FOIA 

does not preclude CMS from releasing 

contractor proposals when necessitated 

by law, such as in the case of a lawful 

subpoena. 

We already protect information we 

receive in the contracting process. 

However, to allay any fears potential 

offerors might have about disclosure, at 

§ 421.312(d) we propose to provide, that 

we protect disclosed proprietary 

information as allowed under the FOIA 

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 § 421.312, we describe 

how conflicts of interest are resolved. 

We specify that we may establish a 

Conflicts of Interest Review Board to 

assist the contracting officer in resolving 

conflicts of interest and we determine 

when or if 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 for 

default; or, 

• It is in the best interest of the 

Government to contract with the offeror 

or contractor even though the conflict 

exists. 

The following are 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. 

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, subject to our approval, 

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 the most highly rated 

proposals that have a reasonable chance 

for contract award unless the range is 

further reduced for purposes of 

efficiency in accordance with FAR 

15.306. 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 mitigation plan. At any 

time during the procurement process, 

we may convene the Conflict of Interest 

Review Board to evaluate and assist the 

contracting officer in resolving 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 

hinder competition in their service areas 

by misusing their position as a MIP 

contractor. 

8. Limitation on MIP Contractor 

Liability and Payment of Legal Expenses 

Contractors which 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, 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 a Quality Improvement 

Organization (QIO) (formerly Peer 

Review Organization (PRO)) that 

contracts to carry out functions under 

section 1154(e) of the Act. Specifically, 

section 1157 of the Act provides that 

QIOs, their employees, fiduciaries, and 

anyone who furnishes professional 

services to a QIO, 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) of the Act, 

this proposed rule, at § 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) of 

the Act, we propose to employ the same 

standards for the payment of legal 

expenses as are contained in section 

1157(d) of the Act. Therefore, 

§ 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. 

Federal Register / Vol. 70, No. 116 / Friday, June 17, 2005 / Proposed Rules 35213

In drafting § 421.316(a), 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) of the Act 

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 fiscal intermediary agreements 

and carrier contracts. Generally, fiscal 

intermediaries and carriers are 

indemnified for any liability arising 

from the performance of contract 

functions provided the fiscal 

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) of the Act does not 

provide that authority. Note however, 

that section 1874A of the Act as added 

by the MMA would provide us with 

some discretion to indemnify MAC 

contractors. In addition, proposed 

§ 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 § 421.316(a). 

B. Intermediary and Carrier Functions 

Section 1816(a) of the Act, which 

provides that providers may nominate a 

fiscal intermediary, requires only that 

nominated fiscal 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. Section 

911 of the MMA eliminates the 

requirement that fiscal intermediaries be 

nominated, and effective October 1, 

2005, establishes the requirement that 

Medicare contracts awarded to MACs be 

competitively bid by September 30, 

2011. 

Our existing requirements at 

§ 421.100 and § 421.200 concerning 

functions to be included in fiscal 

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 fiscal 

intermediaries and those functions, 

which although not required to be 

performed by fiscal intermediaries, may 

be included in fiscal 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. 

The February 1994 proposed rule was 

never finalized, but its content was reproposed in our initial 1998 proposed 

rule for the MIP program (63 FR 13590). 

This second proposed rule sets forth a 

new proposal to bring those sections of 

the regulations that concern the 

functions Medicare fiscal intermediaries 

and carriers perform into conformity 

with the provisions of sections 1816(a), 

1842(a), and 1893(b) of the Act, for so 

long as the fiscal intermediary and 

carrier contracts exist until they are all 

replaced by MAC contracts.

As noted in section I.A. of this 

preamble, our current regulations at 

§ 421.100 specify a list of functions that 

must, at a minimum, be included in all 

fiscal intermediary agreements. 

Similarly, § 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. 

Until October 1, 2005, section 1816(a) 

of the Act, in its present form, requires 

only that a fiscal intermediary 

agreement provide for determination of 

the amount of payments to be made to 

providers and for the making of the 

payments. Pending the effective date of 

changes made by the MMA, section 

1816(a) permits, but does not require, a 

fiscal intermediary agreement to include 

provisions for the fiscal 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 fiscal intermediary makes 

payments, the fiscal 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. 

Section 1816(a) of the Act, in its 

present form until October 1, 2005, 

mandates only that a fiscal intermediary 

make payment determinations and make 

payments and, because of the 

nomination provision of section 1816(a) 

of the Act, these functions must remain 

with fiscal intermediaries. We believe 

that, pending the effective date of 

changes made by the MMA, section 

1816(a) of the Act does not require that 

the other functions set forth at 

§ 421.100(c) through (i) be included in 

all fiscal intermediary agreements. 

Furthermore, section 1893 of the Act 

permits the performance of functions 

related to Medicare program integrity by 

other entities. Thus, § 421.100 would be 

revised to be consistent with section 

1893 of the Act and the implementing 

regulation. The 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 

fiscal 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 

fiscal intermediary and to transfer all 

functions to a new contractor, which 

may not have had an ongoing 

relationship with the local provider 

community. 

Therefore, we will revise § 421.100 to 

state that an agreement between CMS 

and a fiscal intermediary specifies the 

functions to be performed by the fiscal 

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 § 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 is 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 with other 

related purposes. 

35214 Federal Register / Vol. 70, No. 116 / Friday, June 17, 2005 / Proposed Rules 

• Upon inquiry, assisting individuals 

with matters pertaining to a fiscal 

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 a fiscal 

intermediary contract. 

• Undertaking other functions as 

mutually agreed to by us and the fiscal 

intermediary. 

In § 421.100(c), we specify that, for 

the responsibility for services to a 

provider-based HHA or a provider-based 

hospice, when different fiscal 

intermediaries serve the HHA or 

hospice and its parent provider under 

§ 421.117, the designated regional fiscal 

intermediary determines the amount of 

payment and makes payments to the 

HHA or hospice. The fiscal intermediary 

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. 

Pending the effective date of changes 

made by the MMA, section 1842(a) of 

the Act, which pertains to carrier 

contracts, requires that the contracts 

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 fiscal 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 fiscal intermediaries 

and carriers should be brought into 

conformity with the statutory 

requirements. Therefore, we would 

revise existing § 421.200, ‘‘Carrier 

functions,’’ to make it consistent with 

section 1893 of the Act and the 

implementing regulations. We state that 

a contract between CMS 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 § 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 

DME 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, and because we may 

eventually propose regulations 

pertaining to MAC contracts, we 

propose to change the title of part 421 

from ‘‘Intermediaries and Carriers’’ to 

‘‘Medicare Contracting.’’ We also 

propose to revise § 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 a fiscal 

intermediary or a carrier. If the action 

being described may now be performed 

by a MIP contractor that is not a fiscal 

intermediary or a carrier, we would 

revise those sections to indicate that this 

is the case. For example, § 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 fiscal intermediary. A 

MIP contractor now may also perform 

the verification. Therefore, we will 

revise § 424.11(a)(2) to specify that the 

provider must keep certification and 

recertification statements on file for 

verification by the fiscal intermediary or 

MIP contractor. Because our regulations 

are continuously being revised and 

sections redesignated, we have not 

identified all sections that will have 

technical changes in this proposed rule, 

but we may 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 

This document does not impose new 

information collection and 

recordkeeping requirements subject to 

the Paperwork Reduction Act of 1995 

(PRA). Consequently, it need not be 

reviewed by the Office of Management 

and Budget under the authority of the 

PRA of 1995. 

V. Regulatory Impact Statement 

A. Introduction

[If you chose to comment on issues in 

this section, please include the caption 

‘‘Regulatory Impact Statement’’ at the 

beginning of your comments.] 

We have examined the impacts of this 

proposed rule as required by Executive 

Order 12866 and the Regulatory 

Flexibility Act (RFA) (Pub. L. 96–354). 

Executive Order 12866 directs agencies 

to assess all costs and benefits of 

available regulatory alternatives and, 

when regulation is necessary, to select 

regulatory approaches that maximize 

net benefits (including potential 

economic, environmental, public health 

and safety effects, distributive impacts, 

and equity). 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. Fiscal 

Federal Register / Vol. 70, No. 116 / Friday, June 17, 2005 / Proposed Rules 35215

intermediaries and carriers are not 

considered to be small entities. 

Section 1102(b) of the Act requires us 

to prepare a regulatory impact analysis 

for any proposed rule that may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 603 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside a 

Metropolitan Statistical Area and has 

fewer than 50 beds. 

B. Summary of the Proposed Rule 

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. On March 20, 1998, 

we issued a proposed rule to implement 

provisions of section 1893 of the Act (63 

FR 13590). Section 1893 of the Act 

grants us the authority to contract with 

eligible entities to perform program 

integrity activities prior to a final rule 

being published. Since the publication 

of the 1998 proposed rule, this authority 

has allowed us to enter into contracts, 

consistent with FAR, with new specialty 

contractors to promote the integrity of 

the Medicare program, despite a final 

rule never being published. 

Section 902 of the MMA mandates 

that final rules based on a previous 

publication of a proposed regulation or 

an interim final regulation must be 

published within three years except 

under exceptional circumstances. Given 

that it has been greater than three years 

since the publication of the initial 

proposed Medicare Integrity Program 

regulations, we are publishing this new 

proposed rule in order to maintain our 

authority to enter into contracts with 

contractors to promote the integrity of 

the Medicare program. However, our 

experience in contracting with entities 

to perform MIP functions allows us to 

discuss some of the successes we have 

had with MIP. 

The objective of this proposed 

regulation is to maintain our authority 

to contract with entities to perform 

program integrity functions, and to 

provide a procurement procedure to 

supplement the requirements of the 

FAR and specifically address contracts 

to perform MIP functions identified in 

the law. 

According to the previously 

published proposed rule and mirrored 

in this current proposed rule, the 

following functions, as specified below, 

may be performed under MIP contracts: 

• Review of provider activities such 

as medical review, utilization review, 

and potential 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 

DME items that are to be subject to prior 

approval provisions.

C. Discussion of Impact 

Our MIP experience since 1999 

suggests that this rule will continue to 

have a positive impact on the Medicare 

program, Medicare beneficiaries, 

providers, suppliers, and entities that 

have not previously contracted with us. 

Existing MIP contractors that seek 

renewal of MIP contracts should not 

expect any additional costs in 

complying with the requirements set 

forth in the rule, as these requirements 

are similar yet more streamlined than 

those set forth in the 1998 proposed rule 

and are currently applied by MIP 

contractors. To the extent that small 

entities could be affected by the rule, 

and because the rule raises certain 

policy issues for conflict of interest 

standards, we provide an impact 

analysis for those entities that 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: (1) The Medicare 

program and Health Insurance Trust 

Fund; (2) Medicare beneficiaries and 

taxpayers; (3) current fiscal 

intermediaries and carriers; (4) entities 

that have not previously contracted with 

us; and (5) Medicare providers and 

suppliers. 

1. The Medicare Program and Health 

Insurance Trust Fund 

HIPAA provides for a direct 

apportionment from the Health 

Insurance Trust Fund for program 

integrity activities to thwart improper 

billing practices. Appropriations totaled 

$700 million for 2002, and $720 million 

for FY 2003 and all subsequent years. 

A separate and dependable long-term 

funding source for MIP allows us the 

flexibility to invest in innovative 

strategies to combat the fraud and abuse 

drain of the Medicare 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, estimates 

suggest that the percentage of improper 

Medicare fee for service payments as 

compared to total fee for service 

payments have declined since the 

implementation of MIP contractors:

Year 

Improper 

payment

(in billions) 

Percentage 

of FFS total

(percent) 

Total FFS 

payments

(in billions) 

1998 ......................................................................................................................................................... $12.6 7.1 $176.1 

1999 ......................................................................................................................................................... 13.5 7.97 169.5 

2000 ......................................................................................................................................................... 11.9 6.8 173.6 

2001 ......................................................................................................................................................... 12.1 6.3 191.8 

2002 ......................................................................................................................................................... 13.3 6.3 212.7 

2003 ......................................................................................................................................................... 11.6 5.8 200 

2004 ......................................................................................................................................................... 19.9 9.3 1 213.5 

1Since 1996, HHS has annually determined the rate of improper payments for fee-for-service claims paid by Medicare contractors. The survey 

measures claims found to be medically unnecessary, inadequately documented, or improperly coded. From 1996 until 2002, the survey was conducted by the OIG based on a survey of some 6,000 claims. In 2003, CMS launched an expanded effort, reviewing approximately 128,000 Medicare claims to learn more precisely where errors are being made. The 2003 figures used in the above table reflect the adjusted error rate figures. 

The unadjusted figures, calculated using CMS’ expanded effort, were $19.6 billion for improper payment and an error rate of 9.8. The numbers 

reported for 2004 are unadjusted and reflect CMS’’ findings since employing its expanded effort. 

We should note that the positive error 

rate trend also relates to other initiatives 

including fiscal intermediary and carrier 

education efforts, partnering with the 

American Medical Association (AMA), 

and anti-fraud and abuse efforts such as 

Operation Restore Trust. 

In 2004, we announced new steps to 

measure error rates in Medicare 

payments more accurately and 

comprehensively at the contractor level, 

35216 Federal Register / Vol. 70, No. 116 / Friday, June 17, 2005 / Proposed Rules 

2This 2003 figure reflects the adjusted error rate 

figures. The unadjusted figures, calculated using 

CMS’ expanded effort, were $19.6 billion for 

improper payment and an error rate of 9.8%. See 

note 1 for more detail.

3From 1996 until 2002, the HHS OIG used a 

sample size of about 6,000 claims to conduct the 

process used to measure Medicare payment error 

rates. The measured error rate declined from 13.8 

percent in 1996 to 6.3 percent in 2002. In fiscal year 

2003, and as part of the agency’s enhanced efforts 

to improve payment accuracy, CMS began 

calculating the Medicare FFS error rate and 

estimate of improper claim payments using a new 

methodology approved by the OIG. Under the new 

measurement process for the Medicare error rate, 

the net national rate for fiscal year 2004 was 9.3 

percent.

and to further reduce improper 

payments through targeted error 

improvement initiatives. Under the new 

measurement process for the Medicare 

error rate, the net national rate for fiscal 

year 2004 was 9.3 percent. This error 

rate is not comparable to the rates 

determined by the previous method 

used by CMS. We hope to reduce the 

error rate by more than half to 4.7 

percent in four years, by building on 

recent reforms in payment oversight and 

new authorities in the Medicare law.

In addition to economic advantages, 

MIP funding and contracting 

improvements will allow us to better 

serve Medicare beneficiaries in a 

qualitative way. MIP gives us a tool to 

better administer the Medicare program 

and accomplish our mission of 

providing access to quality health care 

for Medicare beneficiaries. We will 

continue to use competitive procedures 

to contract separately for the 

performance of integrity functions. In 

general, economic theory postulates that 

competition results in a better price for 

the consumer which, in this instance, is 

CMS 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 

MIP contracts have had, and we 

expect will continue to have, an overall 

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 Fund 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 

evidence, MIP funds have contributed to 

a reduction in the total percentage of 

improper payments made for fee-forservice (FFS) claims paid in 2003 to 

5.8 2 percent of all FFS claims, down 

from 7.1 percent of FFS claims in 1998.3

As a result, current and future 

beneficiaries will obtain more value for 

every Medicare dollar spent.

3. Current Fiscal Intermediaries and 

Carriers 

Although fiscal intermediaries and 

carriers are not considered small entities 

for purposes of the RFA, and effective 

October 1, 2005, we have the authority 

to replace the current Medicare fiscal 

intermediary and carrier contracts with 

new MAC contracts, we are providing 

the following analysis. 

There are currently 25 Medicare fiscal 

intermediaries and 18 Medicare carriers 

plus 4 DME regional contractors which 

are also carriers. Presently, all these 

contractors perform general program 

integrity activities addressed in this 

proposed rule apart from, but not 

duplicative of, MIP contractors. In FY 

2004, approximately 29 percent of the 

total contractor budget was dedicated to 

program integrity. 

Current fiscal intermediaries and 

carriers are not prohibited from entering 

into MIP contracts when we compete 

contracts for section 1893 of the Act 

activities. Medical directors continue to 

play an important role in medical 

review activities, and locally-based 

medical directors improve our 

relationship with local physicians by 

using groups like Carrier Advisory 

Committees. Locally-based fraud 

investigators and auditors are being 

used as necessary. Upon the publication 

of this proposed regulation, we 

anticipate that review policies will 

continue to be coordinated across 

contractors to ensure consistency, while 

local practice will continue to be 

incorporated where appropriate. 

This rule may have had a negative 

impact on current fiscal intermediaries 

and carriers in some respects. Many 

current fiscal intermediaries and 

carriers may have lost a portion of their 

Medicare business since 1998 as fraud 

review functions were transferred to 

MIP contractors. These contractors may 

have some additional functions 

transferred to MIP contractors in the 

next few years. Nevertheless, the effects 

of section 911 of the MMA will be more 

significant on the current fiscal 

intermediary and carrier.

However, current contractors have 

benefited from the MIP program and 

will benefit from this proposed rule. 

Under the provisions of this proposal, 

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 but not 

renewed 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 at the time of 

contracting, situations that may 

constitute conflicts of interest in 

accordance with the FAR, subpart 9.5. 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 fiscal 

intermediaries and carriers is lessened 

by the proposed approach when 

compared to the alternatives we 

considered. 

The current contractors that are 

awarded MIP contracts, or that continue 

to perform MIP functions under their 

fiscal intermediary or carrier contracts, 

will also benefit from more consistent 

funding provided by the law for 

program integrity activities. This more 

stable, long-term funding mechanism 

enables Medicare contractors to attract, 

train, and retain qualified professional 

staff to assist these contractors to fulfill 

their program integrity functions. 

There will be an economic impact on 

current contractors that propose to 

perform MIP contracts using 

subcontractors. 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. However, 

our requirements rely heavily on FAR 

subpart 9.5, which normally apply to 

both prime contractors and 

subcontractors. Thus, we do not believe 

this provision imposes any additional 

negative burden on current fiscal 

intermediaries or carriers. 

4. New Contracting Entities 

Entities that have not previously 

performed Medicare program integrity 

activities will experience a positive 

Federal Register / Vol. 70, No. 116 / Friday, June 17, 2005 / Proposed Rules 35217

effect from this rule. Integrity functions 

such as audit, medical review, and 

potential 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 womanowned businesses. 

Since the publication of the 1998 

proposed rule and in accordance to this 

MIP authority, we have awarded 12 

Indefinite Delivery-Indefinite Quantity 

(IDIQ) contracts for the Program 

Safeguard Contractor (PSC) effort, one 

Coordination of Benefits (COB) contract, 

and 8 IDIQ contracts for the Medicare 

Managed Care Program Integrity 

Contractors (MMC–PICs) effort. With the 

forthcoming implementation of the Part 

D prescription drug benefit included in 

the MMA, there will be further 

opportunities for new entities to 

compete for MIP contracts to perform 

program oversight activities for this new 

benefit.

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 benefited the private 

insurance arena. 

5. Providers and Suppliers 

Because MIP contractors have been in 

place since 1998, we anticipate no 

additional 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 1.1 

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. 

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. 

D. Conclusion 

Since the publication of the 1998 

proposed rule, we have awarded MIP 

contracts to contractors in order to 

perform program integrity activities and 

there has been a decrease in the 

percentage of improper claims paid. In 

anticipation of our continued authority 

to award contracts to entities to 

continue these activities, we have 

announced initiatives to measure error 

rates in Medicare payments more 

accurately and comprehensively, and to 

further reduce improper payments. 

We conclude that our continued 

authority would save the Medicare 

program additional money and extend 

the solvency of the Trust Funds 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.

For reasons set forth in the preamble 

in this proposed regulation, the Centers 

for Medicare & Medicaid Services 

propose to amend 42 CFR chapter IV as 

follows:

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:

§ 400.202 Definitions specific to Medicare.

* * * * *

Medicare integrity program contractor

means an entity that has a contract with 

CMS under section 1893 of the Act to 

perform exclusively one or more of the 

program integrity activities specified in 

that section.

* * * * *

PART 421—MEDICARE CONTRACTING 

3. The part heading is revised to read 

as set forth above. 

4. 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).

5. Section 421.1 is revised to read as 

follows:

§ 421.1 Basis, applicability, and scope. 

(a) Basis. This part is based on the 

provisions of the following sections of 

the Act: 

Section 1124—Requirements for 

disclosure of certain information. 

Sections 1816 and 1842—Use of 

organizations and agencies in making 

Medicare payments to providers and 

suppliers of services. 

Section 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 fiscal 

intermediary agreements and carrier 

contracts. 

(c) Applicability. The provisions of 

this part apply to agreements with Part 

A (Hospital Insurance) fiscal 

intermediaries, contracts with Part B 

(Supplementary Medical Insurance) 

carriers, and contracts with Medicare 

integrity program contractors that 

perform program integrity functions. 

(d) Scope. The scope of this part is as 

follows: 

(1) Specifies that CMS may perform 

certain functions directly or by contract. 

(2) Specifies criteria and standards 

CMS uses in selecting fiscal 

intermediaries and evaluating their 

performance, in assigning or reassigning 

35218 Federal Register / Vol. 70, No. 116 / Friday, June 17, 2005 / Proposed Rules 

a provider or providers to particular 

fiscal intermediaries, and in designating 

regional or national fiscal intermediaries 

for certain classes of providers. 

(3) Provides the opportunity for a 

hearing for fiscal intermediaries and 

carriers affected by certain adverse 

actions. 

(4) Provides adversely affected fiscal 

intermediaries an opportunity for 

judicial review of certain hearing 

decisions. 

(5) Sets forth requirements related to 

contracts with Medicare integrity 

program contractors. 

6. Section 421.100 is revised to read 

as follows:

§ 421.100 Intermediary functions. 

An agreement between CMS 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 § 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 is determined that an 

overpayment was made. 

(3) Furnishing to CMS timely 

information and reports that CMS 

requests in order to carry out its 

responsibilities in the administration of 

the Medicare program. 

(4) Establishing and maintaining 

procedures as approved by CMS for the 

review and reconsideration of payment 

determinations. 

(5) Maintaining records and making 

available to CMS the records necessary 

for verification of payments and for 

other related purposes. 

(6) Upon inquiry, assisting 

individuals for matters pertaining to an 

intermediary agreement. 

(7) Serving as a channel of 

communication to and from CMS 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 CMS and the 

intermediary. 

(c) Dual intermediary responsibilities.

For 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 § 421.117, the 

designated regional intermediary 

determines the amount of payment and 

makes payments to the HHA or hospice. 

The intermediary 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. 

7. Section 421.200 is revised to read 

as follows:

§ 421.200 Carrier functions. 

A contract between CMS 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 § 421.304 

provided 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. 

(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 DME 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 is determined that an 

overpayment was made. 

(e) Furnishing to CMS timely 

information and reports that CMS 

requests in order to carry out its 

responsibilities in the administration of 

the Medicare program. 

(f) Maintaining records and making 

available to CMS 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 is granted an 

opportunity for a fair hearing so long as 

these functions are not being performed 

by a Qualified Independent Contractor 

under section 1869 of the Act. 

(h) Upon inquiry, assisting 

individuals with matters pertaining to a 

carrier contract. 

(i) Serving as a channel of 

communication to and from CMS 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 CMS and the 

carrier. 

8. 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 requirements. 

421.312 Conflict of interest resolution. 

421.316 Limitation on Medicare integrity 

program contractor liability.

Subpart D—Medicare Integrity Program 

Contractors

§ 421.300 Basis, applicability, and scope.

(a) Basis. This subpart implements 

section 1893 of the Act, which requires 

CMS to protect the integrity of the 

Medicare program by entering into 

contracts with eligible entities to carry 

out Medicare integrity program 

functions. The provisions of this subpart 

are based on section 1893 of the Act 

(and, where applicable, section 1874A 

of the Act) and the acquisition 

regulations set forth at 48 CFR Chapters 

1 and 3. 

(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. The scope of this subpart 

follows: 

(1) Defines the types of entities 

eligible to become Medicare integrity 

program contractors. 

(2) Identifies the program integrity 

functions a Medicare integrity program 

contractor performs. 

(3) Describes procedures for awarding 

and renewing contracts.

(4) Establishes procedures for 

identifying, evaluating, and resolving 

organizational conflicts of interest. 

(5) Prescribes responsibilities. 

(6) Sets forth limitations on contractor 

liability.

Federal Register / Vol. 70, No. 116 / Friday, June 17, 2005 / Proposed Rules 35219

§ 421.302 Eligibility requirements for 

Medicare integrity program contractors. 

(a) CMS may enter into a contract 

with an entity to perform the functions 

described in § 421.304 if the entity 

meets the following conditions: 

(1) Demonstrates the ability to 

perform the Medicare integrity program 

contractor functions described in 

§ 421.304. For purposes of developing 

and periodically updating a list of DME 

under § 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. 

(2) Agrees to cooperate with the OIG, 

the DOJ, and other law enforcement 

agencies, as appropriate, including 

making referrals, in the investigation 

and deterrence of potential fraud and 

abuse of the Medicare program. 

(3) Complies with conflict of interest 

provisions in 48 CFR Chapters 1 and 3 

and is not excluded under the conflict 

of interest provision at § 421.310. 

(4) Maintains an appropriate written 

code of conduct and compliance 

policies that include, without 

limitation, an enforced policy on 

employee conflicts of interest. 

(5) Meets financial and business 

integrity requirements to reflect 

adequate solvency and satisfactory legal 

history. 

(6) Meets other requirements that 

CMS establishes. 

(b) A MAC as described in section 

1874A of the Act may perform any or all 

of the functions described in § 421.304, 

except that the functions may not 

duplicate work being performed under a 

Medicare integrity program contract. 

(c) If a MAC performs any or all 

functions described in § 421.304, CMS 

may require the MAC to comply with 

any or all of the requirements of 

paragraph (a) of this section as a 

condition of its contract.

§ 421.304 Medicare integrity program 

contractor functions. 

The contract between CMS 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 reviews of 

potential fraud related to the activities 

of providers of services and other 

individuals and entities (including 

entities contracting with CMS under 

parts 417 and 422 of this chapter) 

furnishing services for which Medicare 

payment may be made either directly or 

indirectly. 

(b) Auditing cost reports of providers 

of services, or other individuals or 

entities (including entities contracting 

with CMS under parts 417 and 422 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 DME 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.

§ 421.306 Awarding of a contract. 

(a) CMS awards and administers 

Medicare integrity program contracts in 

accordance with acquisition regulations 

set forth at 48 CFR chapters 1 and 3, this 

subpart, all other applicable laws, and 

all applicable regulations. These 

requirements for awarding Medicare 

integrity program contracts are used as 

follows: 

(1) When entering into new contracts. 

(2) When entering into contracts that 

may result in the elimination of 

responsibilities of an individual fiscal 

intermediary or carrier under section 

1816(l) or section 1842(c) of the Act, 

respectively. 

(3) At any other time CMS considers 

appropriate. 

(b) CMS may award an entity a 

Medicare integrity program contract 

without competition if all of the 

following conditions apply: 

(1) Through approval of a novation 

agreement in accordance with the 

requirements of the Federal Acquisition 

Regulation (FAR), CMS recognizes the 

entity as the successor in interest to a 

fiscal intermediary agreement or carrier 

contract under which the fiscal 

intermediary or carrier was performing 

activities described in section 1893(b) of 

the Act on August 21, 1996. 

(2) The fiscal 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 § 421.302, 

48 CFR chapters 1 and 3, and other 

applicable laws and regulations.

§ 421.308 Renewal of a contract. 

(a) CMS specifies an initial contract 

term in the Medicare integrity program 

contract. Contracts under this subpart 

may contain renewal clauses. CMS may, 

but is not required to, 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) CMS may renew a Medicare 

integrity program contract without 

competition if all of the following 

conditions are met: 

(1) The Medicare integrity program 

contractor continues to meet the 

requirements established in this 

subpart. 

(2) The Medicare integrity program 

contractor meets or exceeds the 

performance requirements established 

in its current contract. 

(3) It is in the best interest of the 

government. 

(c) If CMS does not renew a contract, 

the contract ends in accordance with its 

terms.

§ 421.310 Conflict of interest 

requirements. 

(a) Offerors for MIP contracts and MIP 

contractors are subject to the following: 

(1) The conflict of interest standards 

and requirements of the Federal 

Acquisition Regulation (FAR) 

organizational conflict of interest 

guidance, found under 48 CFR subpart 

9.5. 

(2) The standards and requirements as 

are contained in each individual 

contract awarded to perform section 

1893 of the Act functions. 

(b) Post-award conflicts of interest. (1) 

CMS considers that a conflict of interest 

has developed if, during the term of the 

contract, if either of the following 

occurs: 

(i) The contractor or its employee, 

agent, or subcontractor receives, solicits, 

or arranges to receive any fee, 

compensation, gift (as defined at 5 CFR 

2635.203(b)), payment of expenses, offer 

of employment, 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. 

(ii) CMS determines that the 

contractor’s activities are creating a 

conflict of interest. 

(2) In the event CMS 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. 

(iii) Terminate the contract for 

default.

35220 Federal Register / Vol. 70, No. 116 / Friday, June 17, 2005 / Proposed Rules 

§ 421.312 Conflict of interest resolution. 

(a) Review Board. CMS may establish 

a Conflicts of Interest Review Board to 

assist the contracting officer in resolving 

organizational conflicts of interest and 

determine when the Board is convened. 

(b) Resolution. Resolution of an 

organizational conflict of interest is a 

determination by the contracting officer 

that: 

(1) The conflict is mitigated. 

(2) The conflict precludes award of a 

contract to the offeror. 

(3) The conflict requires that CMS 

modify an existing contract. 

(4) The conflict requires that CMS 

terminate an existing contract for 

default. 

(5) It is in the best interest of the 

Government to contract with the offeror 

or contractor even though the conflict 

exists.

§ 421.316 Limitation on Medicare integrity 

program contractor liability. 

(a) A MIP contractor, a person or an 

entity employed by, or having a 

fiduciary relationship with, or who 

furnishes professional services to a MIP 

contractor is not in violation of any 

criminal law or civilly liable under any 

law of the United States or of any State 

(or political subdivision thereof) 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, provided due care was 

exercised in that performance and the 

contractor has a contract with CMS 

under this subpart. 

(b) CMS will pay a contractor, a 

person or an entity described in 

paragraph (a) of this section, or anyone 

who furnishes legal counsel or services 

to a contractor or person, a sum equal 

to the reasonable amount of the 

expenses, as determined by CMS, 

incurred in connection with the defense 

of a suit, action, or proceeding, if: 

(1) The suit, action, or proceeding was 

brought against the contractor, such 

person or entity by a third party and 

relates to the contractor’s, person’s or 

entity’s performance of any duty, 

function, or activity under a contract 

entered into with CMS 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 20, 2005. 

Mark B. McClellan, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: May 20, 2005. 

Michael O. Leavitt, 

Secretary.

[FR Doc. 05–11775 Filed 6–10–05; 4:00 pm] 

BILLING CODE 4120–01–P