52620 Federal Register / Vol. 69, No. 166 / Friday, August 27, 2004 / Proposed Rules 

site within 30 minutes to operate the 

bridge. 

(6) During closing of the span, the 

channel traffic lights would change from 

flashing green to flashing red, the horn 

will sound twice, and an audio voice 

warning device will announce bridge 

movement, then two repeat blasts of the 

horn until the bridge is seated and 

locked down. When the bridge is seated 

and locked down to vessels, the channel 

traffic lights will flash red. 

(7) During the open span movement, 

the channel traffic lights would flash 

red, the horn will sound twice, followed 

by a pause, and then five repeat blasts 

of the horn until the bridge is in the full 

open position to vessels. In the full open 

position to vessels, the bridge channel 

traffic lights will turn from flashing red 

to flashing green then an audio warning 

device will announce bridge movement 

by stating ‘‘Security, security, security, 

the Norfolk Southern #7 Railroad Bridge 

at mile 5.8 is open for river traffic’’. 

(8) Operational information will be 

provided 24 hours a day on marine 

channel 13 and via telephone (757) 924–

5320.

* * * * *

Dated: August 18, 2004, 

Ben R. Thomason, III, 

Captain, U. S. Coast Guard, Acting 

Commander, Fifth Coast Guard District.

[FR Doc. 04–19564 Filed 8–26–04; 8:45 am] 

BILLING CODE 4910–15–P

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 402 

[CMS–6146–CN] 

RIN 0938–AL53 

Medicare Program; Revised Civil 

Money Penalties, Assessments, 

Exclusions, and Related Appeals 

Procedures

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS.

ACTION: Correction of proposed rule.

SUMMARY: This document corrects a 

technical error that appeared in the 

proposed rule published in the Federal 

Register on July 23, 2004 entitled 

‘‘Medicare Program; Revised Civil 

Money Penalties, Assessments, 

Exclusions, and Related Appeals 

Procedures.’’

FOR FURTHER INFORMATION CONTACT: Joel 

Cohen, (410) 786–3349.

SUPPLEMENTARY INFORMATION: 

I. Background 

In FR Doc. 04–16791 of July 23, 2004 

(69 FR 43956), there was a technical 

error that is identified and corrected in 

the Correction of Errors section below. 

We inadvertently omitted the correct 

ADDRESSES section, which included the 

e-mail address for electronic comments. 

We are correcting this error by 

republishing the ADDRESSES section of 

the proposed rule. 

II. Correction of Errors 

In FR Doc. 04–16791 of July 23, 2004 

(69 FR 43956), make the following 

correction: 

1. On page 43956, in the third 

column; in the second paragraph, 

replace the ADDRESSES section with the 

following:

ADDRESSES: In commenting, please refer 

to file code CMS–6146–P. 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 on specific issues 

in this regulation 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, Department of Health and 

Human Services, Attention: CMS–

6146–P, P.O. Box 8013, Baltimore, 

MD 21244–8013. 

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 (410) 786–

7197 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. 

III. Waiver of Proposed Rulemaking 

We ordinarily publish a notice of 

proposed rulemaking in the Federal 

Register to provide a period for public 

comment before the provisions of a 

notice take effect. We can waive this 

procedure, however, if we find good 

cause that notice and comment 

procedure is impracticable, 

unnecessary, or contrary to the public 

interest and incorporate a statement of 

the finding and the reasons for it into 

the notice issued. 

We find it unnecessary to undertake 

notice and comment rulemaking 

because this notice merely provides a 

technical correction to the regulation. 

Therefore, we find good cause to waive 

notice and comment procedures.

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program)

Dated: August 16, 2004. 

Ann C. Agnew, 

Executive Secretary to the Department.

[FR Doc. 04–19257 Filed 8–26–04; 8:45 am] 

BILLING CODE 4120–01–P

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 431 and 457 

[CMS–6026–P] 

RIN 0938–AM86 

Medicaid Program and State Children’s 

Health Insurance Program (SCHIP): 

Payment Error Rate Measurement

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS.

ACTION: Proposed rule.

SUMMARY: This proposed rule would 

require State agencies to estimate 

improper payments in the Medicaid 

program and SCHIP program. The 

Improper Payments Information Act of 

2002 requires Federal agencies to 

annually review and identify those 

programs and activities that may be 

susceptible to significant erroneous

Federal Register / Vol. 69, No. 166 / Friday, August 27, 2004 / Proposed Rules 52621

payments, estimate the amount of 

improper payments and report those 

estimates to the Congress and, if 

necessary, submit a report on actions 

the agency is taking to reduce erroneous 

payments. 

The intended effect and expected 

results of this proposed rule would be 

for States to produce improper payment 

estimates for their Medicaid and SCHIP 

programs and to identify existing and 

emerging vulnerabilities that can be 

addressed by the States through actions 

taken to reduce the rate of improper 

payments and produce a corresponding 

increase in program savings at both the 

State and Federal levels.

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on September 27, 2004.

ADDRESSES: In commenting, please refer 

to file code CMS–6026–P. 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 on specific issues 

in this regulation 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, Department of Health and 

Human Services, Attention: CMS–6026–

P, P.O. Box 8017, Baltimore, MD 21244–

8017. 

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 (410) 786–

7195 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.

Submission of comments on 

paperwork requirements. You may 

submit comments on this document’s 

paperwork requirements by mailing 

your comments to the addresses 

provided at the end of the ‘‘Collection 

of Information Requirements’’ section in 

this document. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: 

Christine Saxonis, (410) 786–3722. 

Janet E. Reichert, (410) 786–4580.

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. You can assist us by 

referencing the file code CMS–6026–P 

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 Web site. 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 (410) 

786–7195. 

I. Background 

[If you choose to comment on issues in 

this section, please include the caption 

‘‘Background’’ at the beginning of your 

comments.] 

A. Legislative History 

The Improper Payments Information 

Act of 2002 (Pub. L. 107–300, enacted 

on November 26, 2002) requires Federal 

agencies to annually review and identify 

those programs and activities that may 

be susceptible to significant erroneous 

payments, estimate the amount of 

improper payments, and report those 

estimates to the Congress and, if 

necessary, submit a report on actions 

the agency is taking to reduce erroneous 

payments. Under the Improper 

Payments Information Act, ‘‘improper 

payment’’ is defined as (a) any payment 

made that should not have been made 

or that was made in an incorrect amount 

(including overpayments and 

underpayments) under statutory, 

contractual, administrative, or other 

legally applicable requirements; and (b) 

includes any payment to an ineligible 

recipient; any payment for an ineligible 

service; any duplicate payment; 

payments for services not received; and 

any payment that does not account for 

credit for applicable discounts. Under 

the statute, the term ‘‘payment’’ means 

any payment (including a commitment 

for future payment, such as a loan 

guarantee) that is (a) made by a Federal 

agency, a Federal contractor, or a 

governmental or other organization 

administering a Federal program or 

activity; and (b) derived from Federal 

funds or other Federal resources or that 

will be reimbursed from Federal funds 

or other Federal resources. 

The law applies with respect to 

improper payments made in fiscal years 

after fiscal year (FY) 2002 and requires 

inclusion of improper payment 

estimates for fiscal years after FY 2003. 

To comply with the Improper 

Payments Information Act, the Secretary 

must estimate improper payments made 

under Medicare, Medicaid, and the 

State Children’s Health Insurance 

Program (SCHIP). We have been 

estimating improper payments in the 

Medicare program since 1996 as part of 

the annual Chief Financial Officer’s 

audit conducted by the Office of 

Inspector General. However, no 

systematic means of measuring overall 

program payment errors at the State and 

national levels currently exists for 

Medicaid and SCHIP. Since the 

Medicaid and SCHIP programs are 

administered by State agencies 

according to each State’s unique 

program characteristics, State 

involvement in estimating improper 

payments is necessary for the Secretary 

to comply with the provisions of the 

Improper Payments Information Act.

The Improper Payments Information 

Act directed the Office of Management 

and Budget (OMB) to provide 

subsequent guidance. OMB defines 

significant erroneous payments as 

annual erroneous payments in the 

program exceeding both 2.5 percent of 

program payments and $10 million. For 

all programs and activities susceptible

52622 Federal Register / Vol. 69, No. 166 / Friday, August 27, 2004 / Proposed Rules 

to significant erroneous payments, 

Federal agencies shall determine an 

annual estimated amount of erroneous 

payments and, for those programs with 

erroneous payments exceeding $10 

million, identify the reasons the 

programs are at risk and put in place a 

plan to reduce them, including setting 

targets for future erroneous payment 

levels and a timeline by which the 

targets will be reached. In the report to 

the Congress, Federal agencies shall 

include the following: 

• The estimate of the annual amount 

of erroneous payments. 

• A discussion of the causes and 

actions taken to correct the causes. 

• A discussion of the amount of 

actual erroneous payments the agency 

expects to recover. 

• Limitations that prevent the agency 

from reducing the erroneous payment 

levels, that is, resources, or legal 

barriers. 

1. The Medicaid Program 

Title XIX of the Social Security Act 

(the Act) authorizes States to provide 

health care services to low-income 

individuals and families through the 

Medicaid program. The Medicaid 

program is funded through Federal/

State partnership whereby the State sets 

its own eligibility standards, benefit 

packages, and payment rates within 

broad Federal guidelines. In FY 2002, 

Medicaid program expenditures for 

health care services alone were $246 

billion (not including administrative 

expenditures). 

2. State Children’s Health Insurance 

Program (SCHIP) 

Title XXI of the Act authorizes States 

to initiate and expand the provision of 

child health assistance to uninsured, 

low-income children. Under title XXI, 

States may provide child health 

assistance primarily for obtaining health 

benefits coverage through the following: 

• A separate child health program 

that meets the requirements specified 

under section 2103 of the Act; or 

• Expansion of eligibility for benefits 

under the State’s Medicaid plan under 

title XIX of the Act; or 

• A combination of the two 

approaches. 

SCHIP is jointly financed by the 

Federal and State governments and is 

administered by the States. Each State 

determines the design of its program, 

eligibility groups, benefit packages, 

payment levels for coverage, and 

administrative and operating 

procedures. SCHIP provides a capped 

amount of funds to States on a matching 

basis for Federal FYs 1998 through 

2007. In 1997, the Congress 

appropriated nearly $40 billion over 10 

years to help States expand health care 

coverage to uninsured children. Over 

5.3 million children were enrolled in 

SCHIP nationwide in FY 2002. 

B. Measuring Payment Accuracy in 

Medicaid and SCHIP 

1. The Payment Accuracy Measurement 

(PAM) Project 

In FY 2000, we developed the PAM 

project to explore the feasibility of 

developing a method to estimate 

improper payments for the Medicaid 

program in response to the Government 

Performance and Results Act of 1993 

(GPRA), Public Law No. 103–62, (1993). 

We will refer to the method to estimate 

improper payments as Payment Error 

Rate Measurement (PERM) in this 

proposed rule. We will use the term 

PAM in this discussion to describe the 

research and development project that 

was the precursor to PERM.

The PAM model uses a claims-based 

sample and review methodology and 

has been designed to estimate a Statespecific payment error rate that is 

within +/¥3 percent of the true 

population error rate with 95 percent 

confidence. Moreover, through weighted 

aggregation, the State-specific estimates 

can be used to make national level 

improper payment estimates for the 

Medicaid and SCHIP programs. 

In the first year of the PAM Project, 

nine States voluntarily tested 

methodologies intended to produce 

State-specific improper payment 

estimates. From these tested 

methodologies and best practices, from 

the nine States, we developed the PAM 

model both to produce a State-specific 

payment accuracy rate that is within

+/¥3 percent of the true population 

accuracy rate with 95 percent 

confidence and to provide us with both 

the uniformity and precision to estimate 

improper payments at the national level 

while maintaining sufficient flexibility 

to enable States to produce Statespecific estimates. In the second year, 

the PAM model was modified to 

conform to the Improper Payments 

Information Act of 2002 by including 

improper payments attributable to 

underpayments, overpayments, and 

improper payments attributable to 

ineligible beneficiaries. Twelve States 

tested the PAM model in their Medicaid 

fee-for-service and managed care 

programs. The second year test 

identified problem areas that needed 

resolution, produced project time 

savers, administrative tips, and realistic 

cost estimates that helped us to refine 

the PAM model for the third year. In the 

third year, 27 States are testing the PAM 

model; 11 States in Medicaid, 3 States 

in SCHIP, and 13 States in both 

programs. Each State will identify 

improper payments due to 

overpayments, underpayments, and 

payments made to ineligible persons in 

fee-for-service and/or managed care 

settings for both programs. 

2. The Payment Error Rate Measurement 

Program (PERM) 

Since each State’s Medicaid and 

SCHIP programs are unique in their 

program characteristics, it is critical that 

States provide us with State-specific 

improper payment estimates under the 

PERM program so we can estimate 

improper payments at the national level 

for these programs. With the challenges 

States are facing due to budget 

constraints and staffing shortages, it is 

unlikely that all States would 

voluntarily implement the current PAM 

model even though Federal and State 

program savings would be realized as a 

result of actions taken by the States to 

address problem areas identified 

through the process of estimating 

improper payments. However, the 

Secretary is required by the Improper 

Payments Information Act of 2002 to 

annually review all programs and 

activities (including Medicaid and 

SCHIP) to determine whether these 

programs are susceptible to significant 

improper payments and, because of the 

differences in the Medicaid and SCHIP 

programs nationwide, we must rely on 

State-specific information in order to 

make this determination. 

Current law at section 1102 of the Act 

authorizes the Secretary to establish 

regulations as may be necessary to the 

efficient administration of the Medicaid 

and SCHIP programs. Medicaid law at 

section 1902(a)(6) of the Act and SCHIP 

law at section 2107(b)(1) of the Act 

require States to provide information 

necessary for the Secretary to monitor 

program performance. Through these 

statutory provisions, this proposed rule 

would require States to provide the 

Secretary with the information needed 

to monitor program performance by: 

• Measuring improper payments in 

the Medicaid and SCHIP programs; and 

• Providing State level improper 

payment estimates to the Secretary for 

calculating a national level improper 

payment estimate. 

We believe the basic PAM model 

being pilot tested by many States can be 

implemented nationwide under the 

PERM program. The PAM model would 

effectively provide all States with the 

method needed to produce Statespecific improper payment estimates on 

which we can base the national 

improper payment estimates needed to 

Federal Register / Vol. 69, No. 166 / Friday, August 27, 2004 / Proposed Rules 52623

comply with the provisions of the 

Improper Payments Information Act of 

2002. 

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 proposed rule would enable the 

Secretary to comply with the 

requirements under the Improper 

Payments Information Act by producing 

a national improper payment estimate 

for the Medicaid and SCHIP programs 

using the State-specific estimates 

reported by the States. This proposed 

rule would allow the Secretary to 

monitor State performance in 

administering the Medicaid and SCHIP 

programs and maintain an overview of 

Medicaid and SCHIP improper program 

expenditures in an efficient manner. 

This proposed rule builds upon the 

PAM model and proposes requirements 

that States must meet to produce Statespecific improper payment estimates 

and report those estimates to the 

Secretary for the purpose of computing 

a national improper payment estimate. 

We plan to release guidance addressing 

any immediate questions States may 

have after reviewing the provisions of 

the final regulations within 60 days of 

the effective date of the regulation 

followed by detailed instructions 

describing the methods and procedures 

for estimating the payment error rate as 

necessary. However, we formally invite 

States to comment on the specific 

information they will need to 

implement the PERM program before 

the final regulation is published. We 

also will be seeking ways to solicit State 

input regarding the guidance so that 

States will know how to prepare for 

program implementation. The 

provisions of this proposed rule would 

be set forth in a new 42 CFR (Code of 

Federal Regulations) part 431, subpart Q 

and in part 457, subpart G as follows: 

Part 431—State Organization and 

General Administration 

Subpart Q—Requirements for 

Estimating Improper Payments in 

Medicaid and SCHIP 

Section 431.950 Purpose 

This proposed rule would require 

States to estimate, on the annual 

October through September Federal 

fiscal year basis, annually total 

improper payments and produce 

payment error rates in Medicaid and 

SCHIP using the PERM methodology. 

This proposed rule also would require 

States to provide these estimates to CMS 

by June 1 of the following year for the 

purpose of CMS reporting a national 

estimate of improper payments in those 

programs to OMB by November 15. This 

timeline will allow OMB to compile the 

information in the Department’s 

Performance and Accountability Report 

to the Congress. In conducting medical 

records reviews and eligibility reviews, 

States must adhere to the requirements 

of protection of recipient rights 

including those in § 435.901 and 

§ 435.902. 

We propose a process for estimating 

improper payments in both Medicaid 

and SCHIP in each State and the District 

of Columbia annually. From these Statelevel estimates, a national estimate of 

improper payments in each program 

will also be estimated. We propose to 

exclude the Territories from these 

regulatory requirements because the 

funding for the Medicaid and SCHIP 

programs is minimal, is subject to 

specific limits on Federal financial 

participation for each Territory, and 

inclusion of improper payment 

estimates for the Territories’ Medicaid 

and SCHIP programs in the PERM 

program would not have an impact on 

the national error rate estimates for 

these programs. 

Following the initial estimation of the 

error rate and improper payments, the 

States would take actions to address 

problem areas that result in improper 

payments. Improvement will be tracked 

over time through the States’ annual 

payment error estimates. 

States must also submit an Annual 

PERM Report to CMS by June 1 

following the previously completed 

sampling period. The report must list 

the errors which the State identified in 

its review (and identify which amounts 

were overpayments, underpayments, 

and payments for ineligible individuals/

services), explain the causes of the 

errors and explain the actions it will 

take to address those errors and to 

reduce the level of improper payments. 

State Plan Requirements: Review and 

Sample Procedures for Estimating 

Improper Payments in Medicaid and 

SCHIP 

Section 431.954 Basis and Scope 

The statutory bases for this subpart 

are sections 1102, 1902(a)(6), and 

2107(b)(1) of the Act, which authorize 

the Secretary to make rules and 

regulations necessary to the efficient 

administration of the Medicaid and 

SCHIP programs and require States to 

provide information, as the Secretary 

may need, to monitor program 

performance. 

In addition, this rule would support 

the Improper Payments Information Act 

of 2002 which requires Federal agencies 

to—

• Review annually and identify those 

programs and activities that may be 

susceptible to significant erroneous 

payments; 

• Estimate the amount of improper 

payments; and 

• Report those estimates to the 

Congress and, if necessary, submit a 

report on actions the agency is taking to 

reduce erroneous payments.

This proposed rule would require 

States under the current statutory 

provisions as stated in paragraph (a) of 

this section and in support of the 

Improper Payments Information Act to 

estimate improper payments using the 

PERM methodology for the Medicaid 

and SCHIP programs on an annual basis. 

The States are further required to submit 

payment error rates to CMS for the 

purpose of calculating a national level 

payment error rate. 

This provision in the proposed rule 

would ensure the consistency of State 

estimates of improper payments through 

the monthly sample and review of 

Medicaid and SCHIP claims in which 

Federal funds were paid for services 

furnished in both the fee-for-service and 

managed care settings. The PERM 

methodology requires sampling from the 

Medicaid universe and SCHIP universe, 

reviewing sampled claims, and 

reporting results. Using specified 

formulas, the improper payment 

estimate for each program is based on 

the gross total of overpayments and 

underpayments (that is, the absolute 

value rather than the net value) and 

payments to ineligibles. The estimate is 

also within +/¥3 percent of the true 

population error rate with 95 percent 

confidence. 

Section 431.958 Definitions and Use of 

Terms 

In § 431.958, we propose the 

following definitions and use of terms 

for part 431, subpart Q: 

Adjustments to claims means that 

adjustments to claims are not included 

in the universe from which the sampled 

claims/line items are drawn. However, 

all adjustments to a sampled claim that 

occur within 60 calendar days after the 

payment adjudication date would be 

included in the review of the sampled 

claim. 

Improper payment means any 

payment that should not have been 

made or that was made in an incorrect 

amount (including overpayments and 

underpayments) under statutory, 

contractual, administrative, or other 

legally applicable requirements; and 

includes any payment to an ineligible 

recipient, any payment for an ineligible 

52624 Federal Register / Vol. 69, No. 166 / Friday, August 27, 2004 / Proposed Rules 

service, any duplicate payment, 

payments for services not received, and 

any payment that does not account for 

credit for applicable discounts. 

Payment means any payment to a 

provider, insurer or managed care 

organization for a Medicaid or SCHIP 

recipient for which there is Medicaid or 

SCHIP Federal financial participation. 

Payment error rate means an annual 

estimate of improper payments made 

under Medicaid and SCHIP equal to the 

sum of the overpayments (including 

payments to ineligible recipients) and 

underpayments, expressed as a 

percentage of total payments made over 

the sampling period. 

Payment error rate change means the 

percentage point change in the payment 

error rate from one year to the next year. 

PERM stands for Payment Error Rate 

Measurement. 

Precision level means an estimate that 

is within +/¥3 percentage points of the 

true population payment error rate with 

95 percent confidence for the Medicaid 

program and for the SCHIP program, 

and within +/¥4 percentage points of 

the true population payment error rate 

with 90 percent confidence for each feefor-service component and managed 

care component in the Medicaid 

program and the SCHIP program. 

Sample sizes for each component 

should be sufficient to achieve the 

required precision level for Medicaid 

and SCHIP when the components are 

combined into a program estimate. If the 

State’s Medicaid or SCHIP program 

consists of only one component, the 

precision level as defined for the 

Medicaid and SCHIP programs applies. 

Sampling period means the sampling 

period is October 1 through September 

30. 

Sampling unit means the individually 

priced service line item drawn from the 

universe, whether paid or denied. On 

claims with multiple line items that are 

not individually priced, the claim is the 

sampling unit. Capitation payments or 

premium payments are considered line 

items for the purpose of sampling, 

reviewing, and calculating an error rate. 

Total estimated improper payments

means the estimate of the combined 

total amount of Federal and State 

improper payments as projected to the 

universe. 

Universe—means the entirety of all 

paid and denied claims/line items 

submitted by providers, insurers, or 

managed care organizations that were 

received and processed for Medicaid or 

SCHIP payment during the sampling 

period. The Medicaid universe consists 

of all claims/line items, including 

capitated payments or premium 

payments, for which the State claimed 

title XIX Federal funds or would have 

claimed title XIX Federal funds if the 

claim had not been denied. The SCHIP 

universe consists of all claims/line 

items, including capitated payments or 

premium payments, whether made 

under a Medicaid expansion or separate 

child health program, for which the 

State claimed title XXI Federal funds or 

would have claimed title XXI Federal 

funds if the claim had not been denied. 

Provider, insurer, or managed care 

organization claims that were 

adjudicated but for which no payment 

was made are included in the 

appropriate universe (Medicaid or 

SCHIP). Claims that cannot be processed 

and adjudicated for payment are not 

included in the universe.

Section 431.962 State Plan 

Requirements 

In § 431.962, we propose that the 

State plan would implement the PERM 

program for estimating the payment 

error rate in both Medicaid and SCHIP 

annually; the State would submit those 

estimates to the Secretary by June 1 

following the most recently completed 

annual error rate estimation for the 

purpose of CMS calculating and 

reporting a national payment error rate 

for these programs to OMB by 

November 15. This timeline is necessary 

for OMB to compile the information in 

the Department’s Performance and 

Accountability Report to the Congress. 

Section 431.966 Protection of 

Recipient Rights 

In § 431.966, we propose that State 

collection and review of documentation 

for the purpose of conducting payment 

error rate measurement must be done in 

a manner that is consistent with the 

rights of recipients including those 

required under § 435.901 and § 435.902. 

Section 431.970 Payment Error Rate 

In § 431.970, we propose that States 

must submit to the Secretary payment 

error rates for both Medicaid and SCHIP 

annually. Payment error rates would be 

estimated based upon the 

documentation review of a random 

sample of paid and denied claims/line 

items drawn from the universe of claims 

from each program. The payment error 

rate estimate must meet the required 

precision level in each program. 

The goal of PERM is to produce a 

State-level estimate of the Medicaid 

error rate and the SCHIP error rate that 

meets or exceeds required precision 

levels and that also can be aggregated to 

a national level error rate for each 

program. Within both the Medicaid and 

the SCHIP program, separate monthly 

samples should be drawn for fee-forservice claims or line items and 

managed care or insurance premium 

payments, if applicable to the State. 

Separate estimates of a fee-for-service 

error rate and managed care error rate 

will be estimated from these samples for 

each program, as applicable to the State. 

The precision level at either the fee-forservice or managed care level can be 

lower than the precision requirements at 

the State’s program level for Medicaid 

and for SCHIP. However, when the 

separate estimates for the State’s fee-forservice and managed care samples are 

combined into an overall error rate at 

the State’s program level, the estimate 

should meet or exceed the precision 

requirements specified for the program 

level estimate. 

Section 431.974 Basic Elements of 

PERM 

States would estimate improper 

Medicaid and SCHIP payments using 

the PERM methodology and report error 

rates to the Secretary annually. We 

would use the State level estimates to 

produce estimates of improper 

payments for both Medicaid and SCHIP 

at the national level. All States would 

use the State findings to address error 

causes that result in improper payments 

in their Medicaid and SCHIP programs 

in order to reduce the rate of improper 

payments in those programs. 

Section 431.978 Sampling Procedures 

1. Universe of Medicaid Claims 

The Medicaid claims universe will 

consist of all Medicaid fee-for-service 

(FFS) adjudicated claims/line items 

paid to providers, insurers, and 

managed care organizations and that 

were denied for payment to providers, 

insurers, and managed care 

organizations in which the State 

claimed title XIX matching Federal 

funds. The universe includes all 

monthly managed care capitation 

payments made to health care 

organizations under a Medicaid 

managed care plan or a premium 

payment made to an insurer on behalf 

of a Medicaid beneficiary. Because we 

are reviewing only claims submitted by 

providers, insurers, and managed care 

organizations for which a decision to 

pay or deny was made by Medicaid or 

SCHIP, the universe would not include 

any non-claims-based payments or 

claims returned to providers because of 

submission errors. Examples of nonclaims-based payments to providers are 

disproportionate share payments and 

aggregate cost settlement payments. 

Federal Register / Vol. 69, No. 166 / Friday, August 27, 2004 / Proposed Rules 52625

2. Universe of SCHIP Claims 

The SCHIP claims universe consists of 

all fee-for-service SCHIP adjudicated 

claims/line items paid to providers and 

that were denied for payment for which 

the State claimed SCHIP enhanced 

Federal funding under title XXI, along 

with all capitation payments made to 

health care organizations, or premium 

payments to insurers on behalf of SCHIP 

recipients. 

For fee-for-service SCHIP programs 

that are Medicaid Expansion programs, 

the SCHIP claims for which enhanced 

Federal funds were either paid or 

denied under title XXI must be 

separated from those Medicaid claims 

either paid or denied with title XIX 

Medicaid matching funds. These claims 

would be added to claims or payments 

from other fee-for-service SCHIP 

programs the State may offer, with the 

total constituting the universe for feefor-service SCHIP. 

If the State has both a separate fee-forservice SCHIP program and a Medicaid 

expansion that is fee-for-service, the 

claims from both would be pooled for 

sampling purposes. 

3. Treatment of Medicaid and SCHIP 

Managed Care Claims

Medicaid capitated payments would 

consist of capitated premium payments 

for managed care enrollees paid to 

health care maintenance organizations 

(HMOs) or providers for which Federal 

funds were claimed. These payments 

would be considered as if they were 

‘‘claims,’’ similar to fee-for-service 

claims, for the purpose of forming the 

sampling universe for Medicaid. 

SCHIP capitated payments and 

premium payments to insurers for both 

Medicaid expansions and separate child 

health programs are also considered as 

if they were ‘‘claims,’’ similar to fee-forservice claims, for the purpose of 

forming the sampling universe for 

SCHIP. 

We do not consider monthly 

management fees paid to primary care 

physicians under a primary care case 

management program as capitation 

payments. Those payments, however, 

should be considered as fee-for-service 

claims for the purpose of estimating 

improper payments. 

4. Time Period for Sampling 

The sample must be drawn from a 

universe of all claims paid in the annual 

period October 1 through September 30. 

The monthly sample must be drawn 

from paid and denied claims/line items 

made through the 12-month sampling 

period as estimated to result in 

approximately the same number of 

claims to be reviewed each month. We 

anticipate each State will have an 

annual sample size ranging from 800–

1200 claims for each program. The 

State-specific estimates of improper 

payments would be used to calculate 

the national estimate for the Federal 

fiscal year. States must submit a 

sampling plan to CMS for approval 30 

days before the beginning of the sample 

period. CMS will respond to the States’

sampling plan submittals in a timely 

manner. The State must receive 

approval for a plan before it can be 

implemented. If an approved plan is 

unchanged from a previous sampling 

period, the State is not required to 

resubmit the plan for approval. 

However, once the basic structure of the 

sample process is approved and 

implemented, all States are required at 

the beginning of each sample period to 

make the necessary updates and/or 

adjustments due to fluctuations in the 

universe as enrollment numbers change 

that result in the appropriate sample 

size. States are not required to submit 

these minor plan updates/adjustments 

to CMS for approval before 

implementation. 

5. Sample Sizes 

For the Medicaid and SCHIP program, 

the sample size would be drawn to 

obtain an estimate of the payment error 

rate that is within +/¥3 percentage 

points of the true population payment 

error rate, with 95 percent confidence 

for each of the two programs. However, 

if the State has both a fee-for-service and 

a managed care component to its 

Medicaid or SCHIP programs, a sample 

stratified between the fee-for-service 

and managed care components must be 

drawn for each program. To contain 

costs, however, the required minimum 

precision levels for the samples at the 

component level are reduced. If both a 

fee-for-service and a managed care 

sample are drawn for Medicaid or for 

SCHIP, the fee-for-service estimate and 

the managed care estimate may, 

individually, satisfy a lower precision 

requirement. Specifically, if both a feefor-service and a managed care sample 

are drawn for Medicaid or for SCHIP, 

the sample size of each component 

individually should be sufficient to 

achieve a precision level of +/¥4 

percentage points of the true error rate 

for the fee-for-service or managed care 

population, at a confidence level of 90 

percent. The separate component level 

estimates will then be combined to 

produce a single program level estimate 

for Medicaid and for SCHIP. Regardless 

of the required minimum precision 

requirements at the component level, 

samples’ sizes must be sufficient at the 

fee-for-service and/or managed care 

component level when combined to 

meet Medicaid and SCHIP program 

level precision requirements. The State 

will report estimates for both the 

Medicaid and SCHIP program levels and 

the FFS and managed care component 

levels. 

Section 431.982 Review Procedures for 

Fee-for-Service Claims 

States sometimes make a correction or 

‘‘adjustment’’ to a claim to correct an 

inaccuracy in the original claim 

payment. These adjustments could be 

made to correct the billing amount, 

coding, or other items. In reviewing 

claims, an adjustment to any claim that 

affects the payment amount would be 

reviewed if the adjustment occurred 

within 60 calendar days after the 

payment adjudication date. Adjustments 

to claims before to 60 days of the 

payment adjudication date would not be 

reviewed nor would claims adjustments 

be sampled as a separate sample unit. 

In § 431.982, we propose that the 

review for FFS claims would differ 

slightly from those of capitated claims 

or premium payments. The following 

describes the review procedures for feefor-service claims. The review would 

consist of processing validation, 

eligibility, and medical review. 

1. Processing Validation 

Each line item would be reviewed to 

validate that it was processed correctly, 

based on the information that is on the 

claim. At the minimum, review the 

claim to determine if it is: 

• A duplicate item (claim); 

• A non-covered service; 

• A service covered by an HMO (that 

is, beneficiary is enrolled in a managed 

care organization that should have 

covered the service);

• Subject to third party liability 

payment; 

• An invalid price; 

• A logic edit (for example, 

incompatibility between gender and 

procedure); or 

• Data entry (clerical) errors. 

2. Eligibility Reviews 

The eligibility review documents that 

the beneficiary was eligible for 

Medicaid or SCHIP at the time the 

service was received through case 

record review and field investigation. 

During the case record review, specific 

facts are collected about the 

circumstances of the beneficiary. The 

field investigation is required to verify 

the information. The determination of 

beneficiary eligibility is accomplished 

by applying the State’s Medicaid or 

SCHIP eligibility policies in effect as of 

52626 Federal Register / Vol. 69, No. 166 / Friday, August 27, 2004 / Proposed Rules 

the month the service was received (or 

the date of service in States that do not 

provide full month coverage). To 

determine if the beneficiary was eligible 

at the time of service, the reviewer 

would verify categorical (for example, 

aged, blind, disabled, minor child) and 

financial eligibility (for example, 

income, resources) through a desk 

review of the case record that 

documents eligibility at the time of 

service and would verify appropriate, 

outdated, or missing elements of 

eligibility through documentation, data 

matches such as the Income and 

Eligibility Verification System, and 

third party sources, for example, bank 

records, employer’s wage verification, 

landlords. A face-to-face interview with 

the beneficiary is optional but must be 

conducted for any claim where 

eligibility at the date of service could 

not be verified through the desk review 

and field investigation. 

The eligibility verification review 

would generally follow the procedures 

established by Medicaid Eligibility 

Quality Control (MEQC) [§ 431.812 

(e)(1) through (e)(4)] except that States 

must not apply the administrative 

period. The administrative period is a 

timeframe under the MEQC program 

that provides a reasonable period of 

time for States to reflect changes in the 

beneficiary’s circumstances without an 

error being cited. The administrative 

period is the sample month and month 

before the sample month. When an 

eligibility error occurs during this time 

because the beneficiary’s circumstances 

changed (for example, income 

increased), no eligibility error exists (as 

long as the case would otherwise be 

eligible except for this error) because the 

agency did not have enough time to 

react to the change and correct the case. 

We propose to exclude the 

administrative period in the PERM 

regulation because it is resourceintensive to review eligibility for both 

months to determine if the error 

occurred during that time and that the 

change in circumstances is the sole 

reason for the error. We also believe that 

the intent of the PERM program is to 

focus on eligibility only at the time the 

service was received. Therefore, under 

the PERM rule, the month the service 

was received is the only month that 

States would review beneficiary 

eligibility and the administrative period 

would not apply. 

Medicaid law at section 

1902(a)(10)(A)(i)(I) of the Act requires 

States to make medical assistance 

available to individuals receiving aid or 

assistance under title XVI. Under 

section 1634 of the Act, the Social 

Security Administration (SSA) may 

enter into an agreement with any State 

under which the SSA will determine the 

Medicaid eligibility of Supplemental 

Security Income (SSI) cash recipient 

cases. In a State with such an agreement 

with the SSA, the State must verify 

Medicaid eligibility by confirming, 

through the State Data Exchange, that 

the beneficiary was an SSI recipient for 

the month the Medicaid service was 

provided. 

Eligibility reviews would determine 

that the beneficiary was eligible for 

Medicaid in the month the sampled 

service was provided (or on the date of 

service in States that do not provide 

full-month coverage). Eligibility reviews 

would also be conducted for the SCHIP 

sample in the same manner the reviews 

are conducted for the Medicaid sample. 

Individual cases found with an error 

that could affect eligibility should be 

reported to the appropriate unit for 

action. 

3. Medical Review 

We propose that medical record 

requests to providers via mail are 

sufficient. At the minimum, the medical 

review would include review of—

• The guidelines and policy related to 

the claim; 

• Medical record documentation; 

• Medical necessity; and 

• Coding accuracy.

Section 431.986 Review for Capitated 

Payments and Premium Payments 

1. Data Processing 

Each capitation payment and 

premium payment would be Reviewed 

to validate that it was processed 

correctly. The review would include the 

following: 

• Data entry error. 

• Invalid pricing. 

• Duplicate item (claim). 

Moreover, if the plan includes a 

capitation payment or premium that 

varies depending upon the 

characteristics of the recipient (riskadjusted payments, for example) the 

review must determine that the precise 

capitated payment or premium payment 

was accurate for that recipient. In some 

cases, this may require some clinical 

expertise. 

2. Eligibility Review 

In § 431.986, we propose that the 

eligibility review of recipients on whose 

behalf a capitated payment or premium 

was paid is the same as that for 

recipients for fee-for-service claims. 

That is, the State would verify that the 

beneficiary was eligible for Medicaid or 

SCHIP, as appropriate, in the month the 

service was received (or the date of 

service in States that do not provide full 

month coverage) by verifying that the 

beneficiary met the categorical and 

financial eligibility requirements 

according to the State’s eligibility 

policies in effect in the month in which 

the service was received. In addition, 

however, the review must determine if 

the recipient was eligible and actually 

enrolled for the particular health care 

plan for which the premium was made. 

3. Medical Review 

Unlike fee-for-service claims, there is 

no explicit medical review of a 

particular service. 

Reporting and Recordkeeping 

Requirements and Recoveries 

Section 483.990 Reporting 

Requirements and Recordkeeping 

In § 483.990, we propose that States 

must report, annually, improper 

payment estimates to the Secretary by 

June 1, 9 months after the previous 

October 1 through September 30 

sampling period. States must also 

submit an Annual PERM Report to CMS 

by June 1 following the previously 

completed sampling period. The report 

must list the errors which the State 

identified in its review (and identify 

which amounts were overpayments, 

underpayments, and payments for 

ineligible individuals/services), explain 

the causes of the errors and explain the 

actions it will take to address those 

errors and to reduce the level of 

improper payments. 

We also propose that, for purposes of 

this regulation, States retain 

documentation to support the testing 

and statistical calculation of the 

Medicaid and SCHIP PERM error rate 

estimates, particularly statistical, fiscal, 

and other records necessary for 

reporting and accountability as required 

by the Secretary. For those records that 

pertain to the PERM program, we 

propose that States maintain and permit 

ready access and use of those records, 

including but not limited to the 

eligibility case records, review 

materials, working papers, reports, 

sampling plans, and statistical data and 

all other documentation needed to 

support the State’s Medicaid and SCHIP 

error rates. These records may be used 

for Federal re-review or audits by the 

Department of Health and Human 

Services (DHHS), HHS Office of the 

Inspector General and the Government 

Accountability Office. Similarly, for 

purposes of this regulation, we propose 

that States retain these records for 3 

years from the date of submission of a 

final expenditure report or beyond 3 

Federal Register / Vol. 69, No. 166 / Friday, August 27, 2004 / Proposed Rules 52627

years if audit findings have not been 

resolved. 

Section 431.1002 Recoveries 

OMB guidance for implementing the 

Improper Payments Information Act 

requires us to include in our report to 

the Congress a discussion regarding 

recovery of misspent funds. We propose 

to include a provision that States would 

return to us within 60 days the Federal 

share identified as overpayments 

actually identified in the sampled 

claims reviewed for data processing and 

medical necessity in accordance with 42 

CFR part 433, subpart F. Payments 

based on erroneous eligibility 

determinations are exempt from this 

provision because these payments are 

addressed under section 1903(u) of Act. 

Subchapter D—State Children’s Health 

Insurance Programs (SCHIP) 

Part 457—Allotments and Grants to 

States 

Subpart G—Strategic Planning, 

Reporting, and Evaluation 

Section 457.720 State Plan 

Requirements: State Assurance 

Regarding Data Collection, Records, and 

Reports 

We propose to revise § 457.720 to 

make a conforming change to crossreference § 431.950 through § 431.1002 

in order to make it easy for States to find 

the rules governing the PERM program. 

III. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 60-

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

3506(c)(2)(A) of the Paperwork 

Reduction Act of 1995 requires that we 

solicit comment on the following issues:

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

We are soliciting public comment on 

each of these issues for the following 

sections of this document that contain 

information collection requirements: 

Section 431.962 State Plan 

Requirements 

In summary, § 431.962 requires State 

plans to provide for the submission of 

payment error rate estimates for both 

Medicaid and SCHIP to the Secretary. 

The burden associated with this 

requirement would be 51 (the number of 

States and the District of Columbia that 

need to amend their State Plan to 

include this requirement) × 1 (the hours 

it would take for them to amend the 

plan), or 51 hours annually. 

The information collection for 

amending State Plans is currently 

approved under OMB number 0938–

0193. 

This assumes that all States would 

conduct PERM as required by the 

regulation. Therefore, the State plan 

would be amended in all 50 States plus 

the District of Columbia. Amending the 

State plan requires 1 hour in order for 

the State to sign and submit an 

additional form with their plan that 

outlines what the State is required to do 

under the PERM regulation; the form 

does not require preparation by State. 

Section 431.970 Payment Error Rate 

Section 431.970(a) requires States to 

submit payment error rates for both 

Medicaid and SCHIP annually. 

The burden associated with this 

requirement would be the time it would 

take each State to gather and calculate 

the data using the PERM methodology, 

for both Medicaid and SCHIP, and then 

report their payment error rates findings 

to the Secretary. 

It is estimated that it would take 

24,000 hours per State to comply with 

this requirement, or a total of 1,224,000 

hours (# of States × hours/State). This 

assumes that during any given Federal 

fiscal year beginning with FY 2006, a 

maximum of 50 States plus the District 

of Columbia will be conducting PERM 

as required by this proposed rule. This 

further assumes that each of the 51 

participating States will be conducting 

PERM on a sample of approximately 

2,000 paid/denied claims/line items. 

Each sampled claim reviewed under 

PERM generally requires 12 hours as 

follows: 10 hours for eligibility 

verification case review, 1 hour for 

medical records review and processing 

validation, and 1 hour of 

administrative/professional time. 

Therefore, 2,000 claims (×) 12 hours per 

claim equals 24,000 hours per State (×) 

51 States per year equals 1,224,000 total 

hours per year. 

Section 431.978 Sampling Procedure 

Section 431.978 requires States to 

submit initial sampling plans for CMS 

for approval 30 days before 

implementation. The burden associated 

with this requirement is the time it takes 

each State to develop a sampling plan. 

Based on the cost efficiency study from 

the second year of the PAM research 

and demonstration project, we estimate 

that it will take approximately 84 hours 

to develop a sampling plan for sampling 

a total average of 1,000 to 2,000 claims. 

The total burden is 84 hours per 

program = 168 per State (×) 51 States = 

8,568 hours. If a plan is unchanged from 

a previous period, the State is not 

required to resubmit the plan for 

approval. Once States have established 

an approved sampling plan, they may 

need to make minor adjustments to 

maintain the proper sample size but do 

not need to obtain CMS approval for 

these minor changes. 

Section 431.990 Reporting 

Requirements and Recordkeeping 

Section 431.990(a) requires States to 

annually report the total estimated 

improper payments and payment error 

rates to the Secretary. 

The burden associated with this 

requirement is the time it takes each 

State to annually gather the total 

estimated improper payments and 

payment error rates and report this to 

the Secretary by June 1. The burden 

associated with this requirement is 

included in the burden under the 

payment error rate requirements in 

§ 431.970. 

Section 431.990(b) requires States to 

submit an Annual PERM Report to CMS. 

The burden associated with this is the 

time it will take for the States to prepare 

the report that addresses actions to be 

taken to address error causes and that 

are designed to reduce payment error 

and submit this report to CMS. It is 

estimated that it will take a State 40 

hours to prepare and submit the report 

to CMS. The burden associated with this 

requirement would be 51 (the number of 

States and the District of Columbia) × 40 

hours (the hours it would take for each 

State to prepare the report) or 2040 

hours. The cost associated with 

preparing the Annual PERM Report for 

each State is $1040. That amount is 

based on a State employee hourly wage 

figure computed at 80 percent of a GS 

12/Step 1 salary plus 10 percent 

retirement/insurance as follows: 

$60,638 (GS 12) + $6063 (10 percent 

retirement/insurance) × 80 percent = 

$53,360/2080 hours per year = $26 per 

hour (rounded). $26 per hour × 40 hours 

= $1040 51 States × $1040 = $53,040 

total annual State cost (applicable 

Federal match is available).

For purposes of maintenance of 

records, we propose that States retain

52628 Federal Register / Vol. 69, No. 166 / Friday, August 27, 2004 / Proposed Rules 

documentation to support the testing 

and statistical calculation of the 

Medicaid and SCHIP error rate 

estimates, particularly statistical, fiscal, 

and other records that pertain to the 

PERM program as are necessary for 

reporting and accountability as required 

by the Secretary. For those records that 

pertain to the PERM program, we 

propose that States maintain and permit 

ready access and use of all official 

records, including but not limited to the 

eligibility case records, review 

materials, working papers, reports, 

sampling plans, and statistical data and 

all other documentation needed to 

support the State’s Medicaid and SCHIP 

error rates. These records may be used 

for Federal re-review or audits by the 

DHHS, HHS Office of the Inspector 

General and the Government 

Accountability Office. Since these 

regulatory requirements are similar to 

longstanding record retention 

requirements in Medicaid (refer to 44 

FR 17931, March 23, 1979, as amended 

at 51 FR 7210, February 28, 1986) and 

the records and working papers that 

States will use already exist to a large 

extent, e.g., Medicaid and SCHIP 

eligibility case records used for 

eligibility reviews and working papers 

already available through the MEQC 

program, and that States’ systems of 

recordkeeping have become 

technologically sophisticated through 

computer programming, we estimate 

that this recordkeeping requirement 

under the PERM program does not 

present any additional burden on States. 

Also, this requirement is similar to 

current SCHIP regulations at § 457.226 

that require States to maintain an 

accounting system and supporting fiscal 

records to ensure that claims for Federal 

funds are in accord with applicable 

Federal requirements and to retain 

records for 3 years from the date of 

submission of a final expenditure report 

or beyond 3 years if audit findings have 

not been resolved. Since States are 

already required to maintain records 

under SCHIP, we estimate that this 

requirement for the PERM program does 

not present an additional burden to 

States. 

If you comment on these information 

collection and recordkeeping 

requirements, please mail copies 

directly to the following: 

Centers for Medicare & Medicaid 

Services, Office of Strategic Operations 

and Regulatory Affairs, Regulations 

Development and Issuances Group, 

Attn: Melissa Musotto, Room C5–14–03, 

7500 Security Boulevard, Baltimore, MD 

21244–1850; and 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Room 10235, New Executive 

Office Building, Washington, DC 20503, 

Attn: Christopher Martin, CMS Desk 

Officer. 

Comments submitted to OMB may 

also be e-mailed to the following 

address: e-mail: 

Christopher_Martin@omb.eop.gov; or 

faxed to OMB at (202) 395–6974.

IV. 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, when we proceed 

with a subsequent document, we will 

respond to the major comments in the 

preamble to that document. 

V. Regulatory Impact Statement 

[If you choose to comment on issues in 

this section, please include the caption 

‘‘Regulatory Impact Statement’’ at the 

beginning of your comments.] 

A. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 (September 1993, Regulatory 

Planning and Review), the Regulatory 

Flexibility Act (RFA) (September 19, 

1980, Pub. L. 96–354), section 1102(b) of 

the Social Security Act, the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), and Executive Order 13132. 

Executive Order 12866 (as amended 

by Executive Order 13258, which 

merely reassigns responsibility of 

duties) directs agencies to assess all 

costs and benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

($100 million or more in any 1 year). 

Based upon the cost efficiency study 

from States participating in the second 

year of the PAM research and 

demonstration project from which the 

PERM methodology was developed and 

pilot tested, we estimate that the average 

cost, based on an average of 1,000 

claims, would be as follows: $570 per 

eligibility review, $300 per claims 

review (data processing and medical 

review), and $155 standard 

administrative cost. Based on these 

figures, we estimate that the total annual 

State and Federal costs to conduct 

PERM would range from $1 to $2 

million. Therefore, we have determined 

that the proposed rule would not exceed 

the annual $100 million threshold 

impact criterion. Therefore, an impact 

analysis is not required under E.O. 

12866. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses. For purposes of the RFA, 

small entities include small businesses, 

nonprofit organizations, and 

government agencies. Most hospitals 

and most other providers and suppliers 

are small entities, either by nonprofit 

status or by having revenues of $6 

million to $29 million in any 1 year. 

Individuals and States are not included 

in the definition of a small entity. The 

proposed rule would require State 

governments to estimate payment error 

in Medicaid and SCHIP using the PERM 

methodology. State governments are not 

defined as small entities in the RFA. 

Therefore, an impact analysis is not 

required under the RFA. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule 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 of 

a Metropolitan Statistical Area and has 

fewer than 100 beds. 

The proposed rule applies to State 

governments and does not apply to 

small rural hospitals. Therefore, an 

impact analysis is not required under 

section 1102(b) of the Social Security 

Act. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule that may result in expenditure in 

any 1 year by State, local, or tribal 

governments, in the aggregate, or by the 

private sector, of $110 million.

As discussed previously, based upon 

preliminary cost estimates from State 

participation in the second year of the 

PAM research and demonstration 

project from which the PERM 

methodology was developed and pilot 

tested, we have estimated that the total 

computable (State and Federal) cost will 

range from $1 to $2 million to operate 

PERM annually. Therefore, we have 

determined that the proposed rule 

would not result in expenditures by 

State, local, or tribal governments, in the 

aggregate, or by the private sector that 

exceed the annual $110 million 

threshold impact criterion. Therefore, 

an impact analysis is not required under 

Federal Register / Vol. 69, No. 166 / Friday, August 27, 2004 / Proposed Rules 52629

section 202 of the Unfunded Mandates 

Reform Act of 1995. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

The proposed rule would require 

States to produce payment error rate 

estimates using the PERM methodology. 

The two major cost factors for each State 

implementing the PERM methodology 

are the medical review of the sampled 

claims and the eligibility verification of 

the beneficiaries associated with the 

sampled claims. States must conduct 

medical review of the sampled claims 

with participation from nurse level staff. 

States must also conduct field visits to 

obtain documentation and interview 

beneficiaries, if necessary, in order to 

verify eligibility. The labor costs and 

travel costs associated with these staff 

would vary by State. These costs are 

also driven by the size of the claims 

sample that would vary by State, which 

we estimate to be 800 to 1,200 per 

program. Other less significant expenses 

incurred by States include both the cost 

of program administration and the cost 

of professional staff to draw the sample, 

estimate the payment error rate, and 

produce reports. We estimate the total 

computable (State and Federal) cost, 

based on an average of 1,000 claims, 

will be an average of $870,000 to 

conduct the reviews and $155,000 in 

administrative expenses for a total range 

of $1 to $2 million. 

Preliminary cost estimates were based 

on a cost analysis of States’ participating 

in the research and demonstration 

project from which the PERM 

methodology was developed and pilot 

tested. From this analysis, we estimate 

that States should be able to conduct 

PERM annually for between $1 to $2 

million, with most States at the lower 

end of that range, which includes the 

applicable Medicaid and SCHIP Federal 

match. 

This proposed rule is intended to 

produce savings for the States. These 

savings would result from actions taken 

by the States to address error causes 

identified in the claims processing 

system and other program areas, as 

appropriate. These savings cannot be 

estimated until after each State has 

conducted PERM for successive years in 

order that reductions in payment error 

rates can be reported and potential 

savings to the State can be estimated. 

B. Anticipated Effects 

The State may request that medical 

providers supply medical records or 

other similar documentation that verify 

the provision of medical services to a 

beneficiary, for a paid or denied 

Medicaid or SCHIP claim that was 

sampled and reviewed for payment 

error as part of PERM. This action 

would not have a significant cost impact 

on medical providers. 

C. Alternatives Considered 

The PERM methodology has been 

designed to promote savings for the 

Medicaid and SCHIP programs by 

reducing payment error. We would like 

to solicit comments on how to 

implement the PERM methodology at 

the State level in a manner that ensures 

independence and minimizes conflicts 

of interest.

The PERM methodology has been 

developed and pilot tested with 

extensive collaboration from 

participating States during a 3-year 

research and demonstration project. 

Alternatives were considered and pilot 

tested during the research and 

demonstration project period. We 

considered having CMS or a contractor 

use the PERM methodology to construct 

national improper payment estimates 

annually for Medicaid and SCHIP. We 

rejected this approach because no single 

Federal entity or contractor is expert in 

the unique eligibility, service, coverage, 

and reimbursement policies of every 

State. Also, in State-administered 

programs like Medicaid and SCHIP, the 

State itself must identify error causes, 

based on PERM reviews, and take 

actions to reduce the level of improper 

payments. 

We considered a process for 

estimating improper payments in both 

Medicaid and SCHIP through a rotation 

process whereby each State would 

participate in a sample and review of 

claims for each program once every 3 

years. This was rejected because of 

concern that excluding some States from 

the sampling frame in a given year may 

bias the national estimate. 

Randomly sampling States each year 

to produce a national estimate was also 

considered. It was rejected because it 

would not provide an estimate for each 

State on a systematic basis. 

Consequently, CMS would not be able 

to routinely monitor individual State 

progress and provide technical 

assistance to achieve error reduction. 

The draft final specifications of the 

methodology have been developed in 

collaboration with the participating 

States. The methodology has also been 

designed to minimize costs to the States 

and to be in compliance with the 

requirements of the Improper Payments 

Information Act of 2002 and the related 

guidance from the Office of 

Management and Budget. 

In accordance with E.O. 12866, this 

proposed rule was reviewed by the 

Office of Management and Budget.

List of Subjects 

42 CFR Part 431 

Grant programs—health, Health 

facilities, Medicaid, Privacy, Reporting 

and recordkeeping requirements. 

42 CFR Part 457 

Administrative practice and 

procedure, Grant programs—health, 

Health insurance, Reporting and 

recordkeeping requirements.

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services proposes to amend 

42 CFR chapter IV as set forth below:

PART 431—STATE ORGANIZATION 

AND GENERAL ADMINISTRATION 

1. The authority citation for part 431 

continues to read as follows:

Authority: Sec. 1102 of the Social Security 

Act (42 U.S.C. 1302).

2. Part 431 is amended by adding new 

subpart Q to read as set forth below:

Subpart Q—Requirements for Estimating 

Improper Payments in Medicaid and SCHIP 

Sec. 

431.950 Purpose. 

Review and Sample Procedures for 

Estimating Improper Payments in Medicaid 

and SCHIP 

431.954 Basis and scope. 

431.958 Definitions. 

431.962 State plan requirements. 

431.966 Protection of recipient rights. 

431.970 Payment error rate. 

431.974 Basic elements of PERM. 

431.978 Sampling procedures. 

431.982 Review procedures. 

431.986 Review for capitated payments and 

premium payments. 

Reporting and Recordkeeping Requirements 

and Recoveries 

431.990 Reporting requirements and 

recordkeeping. 

431.1002 Recoveries.

Subpart Q—Requirements for Estimating 

Improper Payments in Medicaid and SCHIP

§ 431.950 Purpose. 

This subpart requires States to 

annually estimate total improper 

payments and produce payment error 

rates in Medicaid and SCHIP using the 

Payment Error Rate Measurement 

(PERM) methodology and to provide 

these estimates to the Secretary by June 

1 for the purpose of HHS developing a 

52630 Federal Register / Vol. 69, No. 166 / Friday, August 27, 2004 / Proposed Rules 

national estimate of improper payments 

in those programs. In conducting 

medical records reviews and eligibility 

reviews, States must adhere to the 

requirements of protection of recipients’

rights including those in § 435.901 and 

§ 435.902 of this chapter. 

Review and Sample Procedures for 

Estimating Improper Payments in 

Medicaid and SCHIP

§ 431.954 Basis and scope. 

(a) Basis. The statutory bases for this 

subpart are sections 1102, 1902(a)(6), 

and 2107(b)(1) of the Act, which contain 

the Secretary’s general rulemaking 

authority and obligate States to provide 

information, as the Secretary may 

require, to monitor program 

performance. In addition, this rule 

supports the Improper Payments 

Information Act of 2002, which requires 

Federal agencies to annually review and 

identify those programs and activities 

that may be susceptible to significant 

erroneous payments, estimate the 

amount of improper payments, and 

report those estimates to the Congress 

and, if necessary, submit a report on 

actions the agency is taking to reduce 

erroneous payments. 

(b) Scope. This subpart requires States 

under the statutory provisions in 

paragraph (a) of this section to estimate 

improper payments using the PERM 

methodology annually in the Medicaid 

and SCHIP programs. The States are 

further required to submit payment 

error rates annually to the Secretary for 

the purpose of calculating a national 

level payment error rate.

§ 431.958 Definitions and use of terms. 

Adjustments to claims means that 

adjustments to claims are not included 

in the universe from which sampled 

claims/line items are drawn. However, 

all adjustments to a sampled claim that 

occur within 60 calendar days after the 

payment adjudication date would be 

included in the review of the sampled 

claim. 

Improper payment means any 

payment that should not have been 

made or that was made in an incorrect 

amount (including overpayments and 

underpayments) under statutory, 

contractual, administrative, or other 

legally applicable requirements; and 

includes any payment to an ineligible 

recipient, any payment for an ineligible 

service, any duplicate payment, any 

payment for services not received, and 

any payment that does not account for 

credits or applicable discounts.

Payment means any payment to a 

provider, insurer, or managed care 

organization for a Medicaid or SCHIP 

recipient for which there is Medicaid or 

SCHIP Federal financial participation. 

Payment error rate means an annual 

estimate of improper payments made 

under Medicaid and SCHIP equal to the 

sum of the overpayments (including 

payments to ineligible recipients) and 

underpayments, that is, the absolute 

value, expressed as a percentage of total 

payments made over the sampling 

period. 

Payment error rate change means the 

percentage point change in the payment 

error rate from 1 year to the next year. 

PERM stands for Payment Error Rate 

Measurement. 

Precision level means an estimate that 

is within +/¥3 percentage points of the 

true population payment error rate with 

95 percent confidence for the Medicaid 

program and for the SCHIP program, 

and within +/¥4 percentage points of 

the true population payment error rate 

with 90 percent confidence for each feefor-service component and managed 

care component in the Medicaid 

program and the SCHIP program. 

Sample sizes for each component 

should be sufficient to achieve the 

required precision level for Medicaid 

and SCHIP when the components are 

combined into a program estimate. If the 

State’s Medicaid or SCHIP program 

consists of only one component, the 

precision level as defined for the 

Medicaid and SCHIP programs applies. 

Sampling period means the sampling 

period is October 1 through September 

30. 

Sampling unit means the individually 

priced service line item drawn from the 

universe, whether paid or denied. On 

claims with multiple line items that are 

not individually priced, the claim is the 

sampling unit. Capitation payments or 

premium payments are considered line 

items for the purpose of sampling, 

reviewing, and calculating an error rate. 

Total estimated improper payments

means the estimate of the combined 

total amount of Federal and State 

improper payments as projected to the 

universe. 

Universe means the entirety of all 

paid and denied claims/line items 

submitted by providers, insurers, and 

managed care organizations that were 

received and processed for Medicaid or 

SCHIP payment during the sampling 

period. The Medicaid universe consists 

of all claims/line items, including 

capitated payments or premium 

payments, for which the State claimed 

title XIX Federal funds or would have 

claimed title XIX Federal funds if the 

claim had not been denied. The SCHIP 

universe consists of all claims/line 

items, including capitated payments or 

premium payments, whether made 

under a Medicaid expansion or separate 

child health program for which the State 

claimed title XXI Federal funds or 

would have claimed title XXI Federal 

funds if the claim had not been denied. 

Provider, insurer, and managed care 

organization claims that were 

adjudicated but for which no payment 

was made are included in the 

appropriate universe (Medicaid or 

SCHIP). Claims that cannot be processed 

and adjudicated for payment are not 

included in the universe. Within 

Medicaid and within SCHIP, fee-forservice payments and managed care 

payments will be considered separately 

for the purpose of sampling.

§ 431.962 State plan requirements. 

The State plan must—

(a) Provide for estimating the payment 

error rate in both Medicaid and SCHIP 

and the respective fee-for-service and 

managed care components, as 

applicable; and 

(b) Submit payment error rate 

estimates in both Medicaid and SCHIP 

to the Secretary by June 1 annually for 

the purpose of HHS reporting a national 

payment error rate for these programs.

§ 431.966 Protection of recipient rights. 

State collection and review of 

documentation for the purpose of 

conducting payment error rate 

measurement must be done in a manner 

that is consistent with the rights of 

recipients including those required 

under § 435.901 and § 435.902.

§ 431.970 Payment error rate. 

(a) States must submit to the Secretary 

payment error rates for both Medicaid 

and SCHIP annually. 

(b) Payment error rates are estimated 

based upon the documentation review 

of a random monthly sample of paid 

and denied claims/line items drawn 

from the universe of claims from each 

program. 

(c) The payment error rate estimate 

must meet the required precision level, 

as defined in § 431.958, in each program 

and component.

§ 431.974 Basic elements of PERM. 

(a) States must estimate improper 

Medicaid and SCHIP payments through 

a review of randomly selected claims.

(b) States must take actions in their 

Medicaid and SCHIP programs to 

address causes of errors identified 

through the claims reviews. 

(c) States must submit an Annual 

PERM Report to CMS by June 1 

following the sample year. The Annual 

PERM Report must detail the causes of 

error (identified through the PERM 

claims reviews) that result in improper 

Federal Register / Vol. 69, No. 166 / Friday, August 27, 2004 / Proposed Rules 52631

payments and specify actions to be 

taken to address the error causes and to 

reduce the level of improper payments.

§ 431.978 Sampling procedures. 

(a) States must draw a statistically 

valid random sample from the Medicaid 

universe and the SCHIP universe, as 

defined in § 431.958, that is of sufficient 

size to ensure that it meets the required 

precision level for each program and 

component as defined in 431.958. 

(b) The sample must be drawn 

monthly throughout the annual 

sampling period. 

(c) For a State with both a fee-forservice and managed care component to 

its Medicaid and/or SCHIP program, a 

sample stratified between these 

components must be drawn for each 

program. Component sample sizes must 

be sufficient, when combined, to meet 

the Medicaid and SCHIP program level 

precision requirements. 

(d) States must submit a sampling 

plan to CMS for approval 30 days before 

the beginning of the sample period and 

must receive approval of the plan before 

implementation. If a plan is unchanged 

from a previous period, the State is not 

required to resubmit the plan for 

approval. 

(e) States must make minor updates 

and adjustments to the plan due to 

fluctuations in the universe as 

enrollment numbers change that results 

in appropriate sample sizes. States are 

not required to obtain CMS approval for 

these minor changes.

§ 431.982 Review procedures. 

(a) Fee-for-service line items. The 

review of fee-for-service line items, 

including adjustments to claims that 

occur within 60 calendar days after the 

payment adjudication date, must consist 

of three parts: 

(1) Processing Validation. At 

minimum, review the claim to 

determine if it is—

(i) A duplicate item (claim); 

(ii) A non-covered service; 

(iii) A service covered by an HMO 

(that is, the beneficiary is enrolled in a 

managed care organization that should 

have covered the service); 

(iv) Subject to third party liability 

payment; 

(v) An invalid price; 

(vi) A logic edit (for example, 

incompatibility between gender and 

procedure); or 

(vii) A data entry (clerical) error. 

(2) Eligibility reviews. The eligibility 

reviews for States are as follows: 

(i) In a State that confers Medicaid or 

SCHIP eligibility on a month-to-month 

basis, the review must verify that the 

beneficiary was eligible for the 

Medicaid or SCHIP program during the 

month the service was received by 

applying the State’s policies and 

procedures in effect during that month. 

(ii) In a State with day-specific 

Medicaid or SCHIP eligibility, the 

review must verify that the beneficiary 

was eligible for the Medicaid or SCHIP 

program on the date the service was 

received by applying the State’s policies 

and procedures in effect on that date. 

(iii) The eligibility verification review 

must follow the procedures established 

by Medicaid Eligibility Quality Control, 

as set forth in § 431.812(e)(1) through 

(e)(4), except that States must not apply 

the administrative period. In-person 

interviews are optional unless 

verification of eligibility cannot be made 

based on the case record review and 

appropriate documentation or collateral 

contacts. 

(iv) In States with agreements with 

the Social Security Administration 

under section 1634 of the Act, the State 

must verify Medicaid eligibility by 

confirming, through the State Data 

Exchange, that the beneficiary was a 

Supplemental Security Income (SSI) 

cash recipient for the month or the date 

the Medicaid service was received. 

(v) States must take appropriate action 

on individual error cases that could 

affect eligibility. 

(3) Medical review. States may request 

medical records by mail. The medical 

review must, at a minimum, include 

review of—

(i) The guidelines and policy related 

to the claim; 

(ii) Medical record documentation; 

(iii) Medical necessity; and 

(iv) Coding accuracy. 

(b) [Reserved]

§ 431.986 Review for capitated payments 

and premium payments. 

(a) The eligibility review of recipients 

on whose behalf a capitated payment or 

premium was paid is the same as that 

for recipients for fee-for-service claims. 

(b) The review must verify that the 

recipient was eligible for and actually 

enrolled in the particular health care 

plan for which the premium or 

capitation payment was made. If the 

plan includes a capitation payment or 

premium that varies depending upon 

the characteristics of the recipient, the 

review must verify that the precise 

capitated payment or premium payment 

was accurate for that recipient.

(c) Processing validation. Each line 

item would be reviewed to validate that 

it was processed correctly, based on the 

information that is on the claim. At a 

minimum, the claim is reviewed to 

determine if it is—

(1) A duplicate item (claim); 

(2) A non-covered service; 

(3) A service covered by an HMO (that 

is, the beneficiary is enrolled in a 

managed care organization that should 

have covered the service); 

(4) Subject to third party liability 

payment; 

(5) An invalid price; 

(6) A logic edit (for example, 

incompatibility between gender and 

procedure); or 

(7) A data entry (clerical error). 

(d) Medical records review is not 

required as part of the review of 

capitated payments. 

(e) The claims review includes 

adjustments to claims that occur within 

60 calendar days after the payment 

adjudication date. 

Reporting and Recordkeeping 

Requirements and Recoveries

§ 431.990 Reporting requirements and 

recordkeeping. 

(a) States must annually report total 

estimated improper payments and 

payment error rates to the Secretary by 

June 1 following the close of the 

sampling period. 

(b) States must submit an Annual 

PERM Report to CMS by June 1 

following the close of the sample 

period. The report must list the errors 

which the State identified in its review 

(and identify which amounts were 

overpayments, underpayments, and 

payments for ineligible individuals/

services), explain the causes of the 

errors and explain the actions it will 

take to address those errors and to 

reduce the level of improper payments. 

(c) States must retain documentation 

to support the testing and statistical 

calculation of the Medicaid and SCHIP 

error rate estimates, particularly 

statistical, fiscal, and other records 

necessary for reporting and 

accountability as required by the 

Secretary. 

(d) States must maintain and permit 

ready access and use of all official 

records used for purposes of the PERM 

Report, including but not limited to the 

eligibility case records, review 

materials, working papers, reports, 

sampling plans, and statistical data and 

all other documentation needed to 

support the State’s Medicaid and SCHIP 

error rates. These records may be used 

for Federal re-review or audits by the 

Department of Health and Human 

Services, HHS Office of the Inspector 

General and the Government 

Accountability Office. 

(e) States must retain these records for 

3 years from the date of submission of 

a final expenditure report or beyond 3 

years if audit findings have not been 

resolved.

52632 Federal Register / Vol. 69, No. 166 / Friday, August 27, 2004 / Proposed Rules 

§ 431.1002 Recoveries. 

States must return to CMS the Federal 

share of overpayments identified in the 

sampled claims reviewed for data 

processing and medical necessity within 

60 days in accordance with section 

1903(d)(2) of the Act and related 

regulations at part 433, subpart F of this 

chapter. Payments based on erroneous 

eligibility determinations are exempt 

from this provision because they are 

addressed under section 1903(u) of the 

Act and related regulations at part 431, 

subpart P of this chapter.

SUBCHAPTER D—STATE CHILDREN’S 

HEALTH INSURANCE PROGRAM

PART 457—ALLOTMENTS AND 

GRANTS TO STATES

Subpart G—Strategic Planning, 

Reporting, and Evaluation 

3. The authority citation for part 457 

continues to read as follows:

Authority: Section 1102 of the Social 

Security Act (42 U.S.C. 1302).

2. Section 457.720 is revised to read 

as follows:

§ 457.720 State plan requirement: State 

assurance regarding data collection, 

records, and report. 

A State plan must include an 

assurance that the State collects data, 

maintains records, and furnishes reports 

to the Secretary, at the times and in the 

standardized format the Secretary may 

require to enable the Secretary to 

monitor State program administration 

and compliance and to evaluate and 

compare the effectiveness of State plans 

under title XXI. This includes collection 

of data and reporting as required under 

§ 431.950 through § 431.1002 of this 

chapter.

(Catalog of Federal Domestic Assistance 

Program No. 93.767, State Children’s 

Insurance Program)

Dated: January 8, 2004. 

Dennis G. Smith, 

Acting Administrator, Centers for Medicare 

& Medicaid Services.

Approved: May 20, 2004. 

Tommy G. Thompson, 

Secretary.

[FR Doc. 04–19603 Filed 8–26–04; 8:45 am] 

BILLING CODE 4120–01–P

FEDERAL COMMUNICATIONS 

COMMISSION 

47 CFR Parts 0, 2 and 101 

[FCC 04–78; ET Docket No. 95–183; RM–

8553; PP Docket No. 93–253] 

37.0–38.6 GHz and 38.6–40.0 GHz 

Bands—Competitive Bidding

AGENCY: Federal Communications 

Commission.

ACTION: Proposed rule.

SUMMARY: In this document, the 

Commission proposes to amend the 

rules for fixed, point-to-point 

microwave service in the 38.6–40.0 GHz 

(‘‘39 GHz’’) band, and to adopt a 

conforming set of new rules for the 

virtually unused 37.0–38.6 GHz (‘‘37 

GHz’’) band in order to allow for the 

expansion of 39 GHz type service. In 

this Third Notice of Propose Rule 

Making, (Third NPRM), we propose 

service rules for the 37 GHz and also for 

the 42.0–42.5 GHz (‘‘42 GHz’’) (‘‘37/42 

GHz’’) bands that would substantially 

conform to the rules adopted for the 39 

GHz band in the Report and Order and 

Second Notice of Proposed Rule Making

and the Second Report and Order in this 

proceeding. Our goal is to establish a 

flexible regulatory and licensing 

framework that would promote seamless 

deployment of a host of services and 

technologies in the 37 GHz and 42 GHz 

bands. We seek to enhance 

opportunities for deployment of 

broadband wireless services, foster 

effective competition, promote 

innovation and further our efforts for 

consistent rule application regarding 

broadband wireless services.

DATES: Comments are due on or before 

October 26, 2004, and reply comments 

are due to be filed by November 26, 

2004. Written comments on the 

Paperwork Reduction Act proposed 

information collection requirements 

must be submitted by the public, Office 

of Management and Budget (OMB), and 

other interested parties on or before 

October 26, 2004.

ADDRESSES: In addition to filing 

comments with the Secretary, a copy of 

any comments on the Paperwork 

Reduction Act information collection 

requirements contained herein should 

be submitted to Judith B. Herman, 

Federal Communications Commission, 

Room 1–C804, 445 12th Street, SW., 

Washington, DC 20554, or via the 

Internet to Judith-B.Herman@fcc.gov, 

and to Kristy L. LaLonde, OMB Desk 

Officer, Room 10234 NEOB, 725 17th 

Street, NW., Washington, DC 20503, via 

the Internet to Kristy_L. 

LaLonde@omb.eop.gov, or via fax at 

(202) 395–5167.

FOR FURTHER INFORMATION CONTACT:

Charles Oliver (legal) or Michael Pollak 

(engineering), Wireless 

Telecommunications Bureau, (202) 418–

2487. For additional information 

concerning the Paperwork Reduction 

Act information collection requirements 

contained in this document, contact 

Judith B. Herman at (202) 418–0214, or 

via the Internet at JudithB.Herman@fcc.gov.

SUPPLEMENTARY INFORMATION: This is a 

summary of the Commission’s Third 

NPRM, released on May 5, 2004, (FCC 

04–78). The full text of the Third NPRM 

is available for inspection and copying 

during normal business hours in the 

FCC Reference Center, Room CY–A257, 

445 12th St., SW., Washington DC 

20554. The complete text may also be 

purchased from the Commission’s 

duplicating contractor, Best Copy and 

Printing Inc., (BCPI), Portals II, 445 12th 

St., SW., Room CY–B402, Washington 

DC. Additionally, the complete item is 

available on the Commission’s Web site 

at http://www.fcc.gov/wtb. 

I. Summary of Notice of Proposed 

Rulemaking 

1. In the Notice of Proposed Rule 

Making and Order that initiated the 

above-captioned proceeding in 1995, we 

proposed to amend the rules for fixed, 

point-to-point microwave service in the 

38.6–40.0 GHz (‘‘39 GHz’’) band, and to 

adopt a conforming set of new rules for 

the virtually unused 37.0–38.6 GHz (‘‘37 

GHz’’) band in order to allow for the 

expansion of 39 GHz-type service. In 

this Third NPRM, we propose service 

rules for the 37 GHz and also for the 

42.0–42.5 GHz (‘‘42 GHz’’) (‘‘37/42 

GHz’’) bands that would substantially 

conform to the rules adopted for the 39 

GHz band in the Report and Order and 

Second Notice of Proposed Rule Making

and the Second Report and Order in this 

proceeding. We recognize, however, that 

conditions have changed considerably 

over the past few years, and we are 

willing to consider alternatives if 

commenters demonstrate that a different 

regulatory framework would be more 

appropriate for the 37/42 GHz bands. 

Our goal is to establish a flexible 

regulatory and licensing framework that 

would promote seamless deployment of 

a host of services and technologies in 

the 37 GHz and 42 GHz bands. We seek 

to enhance opportunities for 

deployment of broadband wireless 

services, foster effective competition, 

promote innovation and further our 

efforts for consistent rule application 

regarding broadband wireless services.