Wednesday, 

August 11, 2010 

Part III 

Department of 

Health and Human 

Services 

Centers for Medicare & Medicaid Services 

42 CFR Parts 431, 447, and 457 

Medicaid Program and Children’s Health 

Insurance Program (CHIP); Revisions to 

the Medicaid Eligibility Quality Control 

and Payment Error Rate Measurement 

Programs; Final Rule 


srobinson on DSKHWCL6B1PROD with RULES2
48816 Federal Register / Vol. 75, No. 154 / Wednesday, August 11, 2010 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 431, 447, and 457 

[CMS–6150–F] 

RIN 0938–AP69 

Medicaid Program and Children’s 

Health Insurance Program (CHIP); 

Revisions to the Medicaid Eligibility 

Quality Control and Payment Error 

Rate Measurement Programs 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This final rule implements 

provisions from the Children’s Health 

Insurance Program Reauthorization Act 

of 2009 (CHIPRA) (Pub. L. 111–3) with 

regard to the Medicaid Eligibility 

Quality Control (MEQC) and Payment 

Error Rate Measurement (PERM) 

programs. This final rule also codifies 

several procedural aspects of the 

process for estimating improper 

payments in Medicaid and the 

Children’s Health Insurance Program 

(CHIP). 

DATES: Effective Date: These regulations 

are effective on September 10, 2010. 

FOR FURTHER INFORMATION CONTACT: 

Elizabeth Lindner, (410) 786–7481. 

Jessica Woodard, (410) 786–9249. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Medicaid Eligibility Quality Control 

Program 

The Medicaid Eligibility Quality 

Control (MEQC) program is set forth in 

section 1903(u) of the Social Security 

Act (the Act) and requires States to 

report to the Secretary the ratio of 

States’ erroneous excess payments for 

medical assistance to total expenditures 

for medical assistance. Section 1903(u) 

of the Act also sets a 3-percent threshold 

for improper payments in any fiscal year 

and the Secretary may withhold 

payments to States based on the amount 

of improper payments that exceed the 

threshold. The traditional MEQC 

program is based on State reviews of 

Medicaid cases identified through a 

statistically reliable Statewide sample of 

cases selected from the State’s eligibility 

files and excludes separate CHIP 

programs. These reviews are conducted 

to determine whether the sampled cases 

meet applicable Medicaid eligibility 

requirements. 

B. The Improper Payments Information 

Act of 2002 

The Improper Payments Information 

Act of 2002 (IPIA), (Pub. L. 107–300, 

enacted on November 26, 2002) requires 

the heads of Federal agencies to 

annually review programs they oversee 

to determine if they are susceptible to 

significant erroneous payments. If any 

programs are found to be susceptible to 

significant improper payments, then the 

agency must estimate the amount of 

improper payments, report those 

estimates to the Congress, and submit a 

report on actions the agency is taking to 

reduce erroneous expenditures. The 

IPIA directed the Office of Management 

and Budget (OMB) to provide guidance 

on implementation. OMB defines 

‘‘significant erroneous payments’’ as 

annual erroneous payments in the 

program exceeding both 2.5 percent of 

program payments and $10 million 

(OMB M–06–23, Appendix C to OMB 

Circular A–123, August 10, 2006). For 

those programs found to be susceptible 

to significant erroneous payments, 

Federal agencies must provide the 

estimated amount of improper payments 

and report on what actions the agency 

is taking to reduce them, including 

setting targets for future erroneous 

payment levels and a timeline by which 

the targets will be reached. 

The Medicaid program and the 

Children’s Health Insurance Program 

(CHIP) were identified as programs at 

risk for significant erroneous payments. 

The Department of Health and Human 

Services (DHHS) reports the estimated 

error rates for the Medicaid and CHIP 

programs in its annual Agency Financial 

Report (AFR) to Congress. 

C. Regulatory History 

1. Medicaid Eligibility Quality Control 

Program 

Sections 431.800 through 431.865 set 

forth the regulatory requirements for 

States to conduct the annual MEQC 

measurement. Currently, the MEQC 

program consists of the following: 

• MEQC traditional—Operating 

MEQC under § 431.800 through 

§ 431.865 and selecting a random 

sample of all Medicaid applicants and 

enrollees and reviewing them under 

guidance in the State Medicaid Manual. 

• MEQC pilots—Operating MEQC 

under a special study or a target 

population and providing oversight to 

reduce and prevent errors and improve 

program administration. 

• MEQC waivers—Operating MEQC 

as a part of a CMS approved section 

1115 waiver and reviewing beneficiaries 

included in the research and 

demonstration project. 

2. Payment Error Rate Measurement 

(PERM) Program 

Section 1102(a) of the Act authorizes 

the Secretary to establish such rules and 

regulations as may be necessary for the 

efficient administration of the Medicaid 

and CHIP programs. The Medicaid 

statute at section 1902(a)(6) of the Act 

and the CHIP statute at section 

2107(b)(1) of the Act require States to 

provide information that the Secretary 

finds necessary for the administration, 

evaluation, and verification of the 

States’ programs. Also, section 

1902(a)(27) of the Act (and § 457.950 of 

the regulations) requires providers to 

submit information regarding payments 

and claims as requested by the 

Secretary, State agency, or both. Under 

the authority of these provisions, we 

published a proposed rule in the August 

27, 2004 Federal Register (69 FR 52620) 

to comply with the requirements of the 

IPIA and the OMB guidance. The 

proposed rule set forth provisions for all 

States to annually estimate improper 

payments in their Medicaid and CHIP 

programs and to report the State-specific 

error rates for purposes of our 

computing the national improper 

payment estimates for these programs. 

In the October 5, 2005 Federal 

Register (70 FR 58260), we published an 

interim final rule with comment period 

(IFC). The IFC responded to public 

comments on the proposed rule, and 

informed the public of our national 

contracting strategy and of our plan to 

measure improper payments in a subset 

of States. Our State selection process 

ensures that a State is measured once, 

and only once, every 3 years for each 

program. 

In response to the public comments 

from the October 5, 2005 IFC, we 

published a second IFC in the August 

28, 2006 Federal Register (71 FR 

51050). The IFC reiterated our national 

contracting strategy to estimate 

improper payments in both Medicaid 

and CHIP fee-for-service (FFS) and 

managed care, and set forth and invited 

further comments on State requirements 

for estimating improper payments due 

to errors in Medicaid and CHIP 

eligibility determinations. We also 

announced that a State’s Medicaid and 

CHIP programs would be reviewed in 

the same year. 

In the August 31, 2007 Federal 

Register (72 FR 50490), we published a 

final rule for the PERM program, which 

implements the IPIA requirements. The 

August 31, 2007 final rule responded to 

the public comments on the August 28, 

2006 IFC and finalized State 

requirements for submitting claims to 

the Federal contactors that conduct FFS 


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and managed care reviews. The August 

31, 2007 final rule also finalized State 

requirements for conducting eligibility 

reviews and estimating payment error 

rates due to errors in eligibility 

determinations. 

D. Children’s Health Insurance Program 

Reauthorization Act of 2009 

On February 4, 2009, the Children’s 

Health Insurance Program 

Reauthorization Act of 2009 (CHIPRA) 

(Pub. L. 111–3) was enacted. (Please 

note, as a result of this legislation, the 

program formerly known as the ‘‘State 

Children’s Health Insurance Program 

(SCHIP)’’ is now referred to as the 

‘‘Children’s Health Insurance Program 

(CHIP)’’). Sections 203 and 601 of the 

CHIPRA relate to the PERM and MEQC 

programs. 

Section 203 of the CHIPRA establishes 

an error rate measurement with respect 

to the enrollment of children under the 

Express Lane Eligibility option. The law 

directs States not to include children 

enrolled using the Express Lane 

Eligibility option in data or samples 

used for purposes of complying with the 

MEQC and PERM requirements. 

Provisions for States’ Express Lane 

Eligibility option will be set forth in a 

future rulemaking document. 

Section 601(a) of the CHIPRA 

provides for a 90 percent Federal match 

for CHIP expenditures related to PERM 

administration and excludes such 

expenditures from the 10 percent 

administrative cap. (Section 2105(c)(2) 

of the CHIP statute gives States the 

ability to use an amount up to 10 

percent of the CHIP benefit 

expenditures for outreach efforts, 

additional services other than the 

standard benefit package for low-income 

children, and administrative costs.) 

The CHIPRA requires a new PERM 

rule and delays any calculation of a 

PERM error rate for CHIP until 6 months 

after the new PERM rule is effective. 

Additionally, the CHIPRA provides that 

States that were scheduled for PERM 

measurement in fiscal year (FY) 2007 

may elect to accept a CHIP PERM error 

rate determined in whole or in part on 

the basis of data for FY 2007, or may 

elect instead to consider its PERM 

measurement conducted for FY 2010 as 

the first fiscal year for which PERM 

applies to the State for CHIP. Similarly, 

the CHIPRA provides that States that 

were scheduled for PERM measurement 

in FY 2008 may elect to accept a CHIP 

PERM error rate determined in whole or 

in part on the basis of data for FY 2008, 

or may elect instead to consider its 

PERM measurement conducted for FY 

2011 as the first fiscal year for which 

PERM applies to the State for CHIP. 

The CHIPRA requires that the new 

PERM rule include the following: 

• Clearly defined criteria for errors for 

both States and providers. 

• Clearly defined processes for 

appealing error determinations. 

• Clearly defined responsibilities and 

deadlines for States in implementing 

any corrective action plans. 

• A provision that the payment error 

rate for a State will not include payment 

errors based on a State’s verification of 

an applicant’s self-declaration if a 

State’s self-declaration verification 

policies meet regulations promulgated 

by the Secretary or are approved by the 

Secretary. 

• State-specific sample sizes for 

application of the PERM requirements 

to CHIP PERM. 

In addition, the CHIPRA shall 

harmonize the PERM and MEQC 

programs and provides States with the 

option to apply PERM data resulting 

from its eligibility reviews for meeting 

MEQC requirements and vice versa, 

with certain conditions. 

E. CMS Response to the CHIPRA 

As required by the CHIPRA, we 

proposed revised MEQC and PERM 

provisions in the proposed rule 

published in the July 15, 2009 Federal 

Register (74 FR 34468). 

Section 601(b) of the CHIPRA states 

that ‘‘the Secretary shall not calculate or 

publish any national or State-specific 

error rate based on the application of the 

payment error rate measurement (in this 

section referred to as ‘PERM’) 

requirements to CHIP until after the date 

that is 6 months after the date on which 

a new final rule (in this section referred 

to as the ‘new final rule’) promulgated 

after the date of the enactment of this 

Act and implementing such 

requirements in accordance with the 

requirements of subsection (c) is in 

effect for all States.’’ The CHIP error rate 

for the FY 2008 cycle was scheduled to 

be published in the FY 2009 Agency 

Financial Report (in November 2009), 

which was less than 6 months after the 

expected promulgation and effective 

date of this new final rule. Therefore, 

the publication of any CHIP error rates 

for FY 2008 (for States that elect to 

accept FY 2008 as their first CHIP 

measurement under PERM) is delayed 

until at least 6 months after the effective 

date of this final rule implementing the 

CHIPRA requirements for PERM. 

As noted previously, section 601(d) of 

the CHIPRA provides that States that 

were scheduled for PERM measurement 

in FY 2007 may elect to accept a CHIP 

PERM error rate determined in whole or 

in part on the basis of data for FY 2007, 

or may elect instead to consider its 

PERM measurement conducted for FY 

2010 as the first fiscal year for which 

PERM applies to the State for CHIP. In 

addition, the CHIPRA provides that 

States that were scheduled for PERM 

measurement in FY 2008 may elect to 

accept a CHIP PERM error rate 

determined in whole or in part on the 

basis of data for FY 2008, or may elect 

instead to consider its PERM 

measurement conducted for FY 2011 as 

the first fiscal year for which PERM 

applies to the State for CHIP. 

Accordingly, a State measured in the 

FY 2007 cycle that elects to accept the 

PERM error rate for its CHIP program 

determined in whole or in part on the 

basis of data for FY 2007 is required to 

notify us of its intentions through an 

acceptance form to be provided to all 

States in a forthcoming State Health 

Official letter. Similarly, a State 

measured in the FY 2008 cycle that 

elects to accept the PERM error rate for 

its CHIP program determined in whole 

or in part on the basis of data for FY 

2008 is required to notify us of its 

intentions through an acceptance form 

to be provided to all States in a State 

Health Official letter. If a State 

measured in the FY 2007 or FY 2008 

cycles elects to reject the CHIP PERM 

rate determined during those cycles, 

they do not need to notify CMS of this 

decision. However, information from 

those cycles will not be used to 

calculate the State-specific sample sizes 

and we will rely on the standard 

assumptions for determining sample 

size. 

It should be noted that immediately 

after the enactment of CHIPRA, we 

suspended all CHIP measurement cycles 

(FY 2008, FY 2009, and FY 2010). Due 

to the timing of the publication of this 

final rule for PERM, we decided that 

CHIP PERM will begin again with the 

FY 2011 measurement cycle and no 

retroactive reviews will be done for FYs 

2009 and 2010. For this reason, States 

measured in FY 2007 will not have FY 

2010 measured, but will be measured 

again in FY 2013 and will have the 

option to consider FY 2013 as their first 

or second measurement cycle for CHIP 

PERM as described previously. 

In order for section 601(d) of the 

CHIPRA to be read in harmony with the 

IPIA, which requires a PERM error rate 

to be calculated annually, we believe 

that the appropriate reading of section 

601(d) of the CHIPRA, construing the 

law as a whole and giving effect to all 

language of the CHIPRA, is that a State 

may only elect to reject the PERM error 

rate for the State’s CHIP program for FY 

2007 or FY 2008. A State scheduled for 

PERM measurement in FY 2008 still had 


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48818 Federal Register / Vol. 75, No. 154 / Wednesday, August 11, 2010 / Rules and Regulations 

its PERM error rate for its Medicaid 

program measured. 

Additionally, the FY 2009 and FY 

2010 Medicaid measurements are 

proceeding with no delays as a result of 

the CHIPRA. The FY 2009 Medicaid 

measurement was conducted according 

to the policies in the August 31, 2007 

final rule (72 FR 50490) because the 

measurement process was complete 

prior to the publication of this rule. The 

FY 2010 Medicaid measurement is 

currently underway; therefore, parts of 

the measurement process that have 

already taken place prior to the 

publication of this final rule (that is, 

universe submission and sample size 

determination) will not be repeated 

once the final rule is effective. However, 

for parts of the measurement that have 

yet to be completed (that is, medical and 

data processing review, error rate 

calculation, corrective action plans, etc) 

the policies of this final rule will apply. 

We do not intend to recalculate any 

Medicaid error rates already calculated 

or published prior to the effective date 

of this final rule. 

II. Provisions of the Proposed 

Regulations and Analysis of and 

Responses to Public Comments 

As a result of the CHIPRA, we 

proposed a nomenclature change to 

parts 431, 447, and 457. We revised 

current regulatory language to reflect the 

change made by the CHIPRA to refer to 

the program formerly known as the 

‘‘State Children’s Health Insurance 

Program (SCHIP)’’ as the ‘‘Children’s 

Health Insurance Program (CHIP).’’ We 

also proposed the following revisions to 

the current PERM provisions: 

A. Sample Sizes 

Section 601(f) of the CHIPRA requires 

us to establish State-specific sample 

sizes for application of the PERM 

requirements with respect to CHIP for 

fiscal years beginning with the first 

fiscal year that begins on or after the 

date on which the new final rule is in 

effect for all States, on the basis of such 

information as the Secretary determines 

appropriate. In establishing such sample 

sizes, the Secretary shall, to the greatest 

extent practicable: (1) Minimize the 

administrative cost burden on States 

under Medicaid and CHIP; and (2) 

maintain State flexibility to manage 

such programs. 

To comply with the IPIA, the PERM 

program must estimate a national 

Medicaid and a national CHIP error rate 

that covers the 50 States and District of 

Columbia. Consistent with OMB’s 

precision requirements defined in its 

IPIA guidance, the estimated national 

error rate for each program must be 

bound by a 90 percent confidence 

interval of 2.5 percentage points in 

either direction of the estimate. Since 

States administer Medicaid and CHIP 

and make payments for services 

rendered under the programs, we collect 

State-level information at a high level of 

confidence (the estimated error rate for 

a State should be bound by a 95 percent 

confidence interval of 3 percentage 

points in either direction). To estimate 

the national error rate, as well as Statespecific error rates, reviews are 

conducted in three areas for both the 

Medicaid and CHIP programs: (1) FFS; 

(2) managed care, and (3) program 

eligibility. The FFS and managed care 

reviews are referred to jointly as the 

‘‘claims review,’’ while the program 

eligibility review is referred to as the 

‘‘eligibility review.’’ 

Samples of payments made on a FFS 

and managed care basis for the claims 

review and samples of beneficiaries for 

the eligibility review are drawn each 

year in order to calculate a national 

error rate that meets the precision 

requirements described in OMB 

Guidance (OMB M–06–23, Appendix C 

to OMB Circular A–123, August 10, 

2006). The preferred method is to 

achieve the precision goal with the 

smallest sample size possible, so as to 

reduce the burden on States, the Federal 

government, beneficiaries, and 

providers. We determined that the most 

efficient method, statistically, is to draw 

a sample of States and then draw a 

sample of payments from the payments 

made by the sampled States. The 

process for drawing a sample of States 

is described in detail in the preamble to 

the August 31, 2007 final rule (72 FR 

50490). We did not propose 

modifications to the current approach, 

which samples 17 States per year for a 

PERM measurement cycle. The 

proposed rule addressed the Statespecific sample sizes for samples of 

claims and beneficiaries within a State. 

In response to the new CHIPRA 

requirements, we proposed to add new 

§ 431.972, to describe more fully the 

claims sampling procedures used for the 

claims review. In addition, we proposed 

to more fully describe the process for 

establishing State-specific sample sizes 

for PERM, although we note that the 

execution of these responsibilities 

would remain with CMS and the 

Federal contractors, not with the States. 

Under the Secretary’s authority at 

section 1102(a) of the Act and in order 

to effectively implement the IPIA, we 

also proposed that these sampling 

procedures apply to both Medicaid and 

CHIP. 

We proposed to revise § 431.978 to 

provide additional guidance on State 

Medicaid and CHIP eligibility sample 

sizes by clarifying the process for 

establishing State-specific sample sizes. 

1. Fee-for-Service (FFS) and Managed 

Care 

a. Universe Definition 

In order to implement the IPIA and 

related requirements (OMB M–06–23, 

Appendix C to OMB Circular A–123, 

August 10, 2006) that require Federal 

agencies to estimate the amount of 

improper payments in programs with 

significant erroneous payments (which 

includes Medicaid and CHIP), in the 

current § 431.970(a)(1) we require States 

to submit ‘‘[a]ll adjudicated FFS and 

managed care claims information, on a 

quarterly basis, from the review year,’’ 

so that a sample of payments can be 

reviewed and from the review findings 

we can estimate the amount of improper 

payments in each program. We 

proposed to remove the word ‘‘all’’ from 

§ 431.970(a)(1) because certain types of 

payments are excluded from PERM 

sampling and review for technical 

reasons. The methodology developed by 

us to measure improper payments in 

Medicaid and CHIP focuses on 

payments made on behalf of or for 

individual beneficiaries. Accordingly, 

PERM has excluded certain payments 

for services not provided to individual 

beneficiaries such as Disproportionate 

Share Hospital (DSH) payments to 

facilities, grants to State agencies or 

local health departments, and costbased reconciliations to non-profit 

providers and Federally-Qualified 

Health Centers (FQHCs) because the 

basis of the payment cannot be traced 

back to an individual beneficiary. This 

exclusion from PERM sampling was 

further clarified through instructions 

issued by CMS to the States at the 

beginning of each measurement cycle 

starting with FY 2006. 

For the PERM claims review 

component, the ‘‘claims universe’’ is 

defined in the new § 431.972 as 

including payments that were originally 

paid (paid claims) and for which 

payment was requested but denied 

(denied claims) during the Federal fiscal 

year, and for which there was Federal 

financial participation (FFP) (or would 

have been if the claim had not been 

denied) through Title XIX of the Act 

(Medicaid) or Title XXI of the Act 

(CHIP). Depending on the context in 

which it is used, the claims universe 

may refer to either the adjudicated FFS 

claims during the fiscal year under 

review, or the managed care capitation 

payments made during the fiscal year 

under review, for Medicaid or CHIP. We 

are reiterating our long standing 


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position that, for PERM purposes, 

managed care claims are payments 

made by the State to entities with 

comprehensive risk contracts that 

assume full or partial risk for enrolled 

beneficiaries. FFS claims are claims 

other than managed care claims. CMS 

and our contractors may assign certain 

payments to the PERM FFS or managed 

care universe in order to ensure 

consistency across States and across 

cycles. Given the wide range of payment 

methodologies employed by States for 

similar programs, as well as the fact that 

State definitions of FFS and managed 

care may not align with PERM 

definitions as described previously, 

CMS and our contractors must maintain 

some flexibility in assigning payments 

to either FFS or managed care. 

Due to the significant variation in 

State systems for processing, paying, 

and claiming reimbursement for 

medical services under Medicaid and 

CHIP, we did not propose to include a 

more specific claims universe 

description in regulation. Rather, States 

should refer to more detailed claims 

universe specifications that will be 

published by us in separate instructions 

at the beginning of each PERM 

measurement cycle. However, we 

proposed that States must establish 

controls to ensure that the FFS, 

managed care, and eligibility universes 

are complete and accurate. For example, 

this would include the comparisons 

between the PERM universes and the 

State’s Form CMS–64 and Form CMS– 

21 financial reports. We are placing this 

requirement in the regulatory text at 

§ 431.972(a)(2). 

b. Stratification 

In FY 2006, we measured only the 

error rate for the FFS component of 

Medicaid. To obtain the required 

precision levels while minimizing the 

sample size, and therefore reducing the 

burden on States, the claims universe 

for FFS payments for Medicaid was 

stratified by service category and a 

stratified random sample was drawn for 

each State. In FY 2007 and beyond, we 

measure the error rates for Medicaid 

FFS, Medicaid managed care, CHIP FFS, 

and CHIP managed care separately (to 

the extent that a State has each of these 

programs). We also stratify each 

universe by dollars rather than service 

category. 

Under this stratification and sampling 

approach, all payments in each universe 

are sorted from largest to smallest 

payment amounts. The payments are 

then divided into strata such that the 

total payments in each stratum are the 

same. For example, if five strata are 

used, the total dollars in each stratum 

would equal 20 percent of the total 

dollars in the universe. The first stratum 

would contain the highest dollar-valued 

payments, and the last stratum would 

contain the smallest dollar-valued 

payments, including all zero-paid and 

denied claims (denials have a zero 

dollar amount, and therefore, would 

appear in the stratum with the smallest 

dollar values). An equal number of FFS 

claims or managed care payments are 

then drawn from each stratum, which 

means the sample would include 

proportionately more high-dollar 

payments and proportionately fewer 

low-dollar payments and denials, 

compared to their representation in the 

universe. This overweighting of higherdollar payments (which is taken into 

account when calculating error rates) 

enables us to draw a smaller sample size 

that has a reasonable probability of 

meeting the precision requirements, 

compared to a perfectly random sample 

or a sample stratified by service type. 

Similarly, it reduces the risk that a 

single very large claim will have a 

dominant effect on the error rate. In this 

manner, we reduce burden on States, 

the Federal government, beneficiaries, 

and providers. 

c. Sample Size 

In order to establish State-specific 

sample sizes, we proposed that the 

annual sample size in a State’s first 

PERM cycle (referred to as ‘‘initial 

sample’’ or ‘‘base sample’’) would be 500 

FFS claims and 250 managed care 

payments. 

We determined this initial sample 

size based on the experience of the 

PERM pilot study, PERM measurement 

in FY 2008 and FY 2009, and our 

requirement that the estimated error rate 

for a State should be bound by a 95 

percent confidence interval of 3 

percentage points in either direction. 

Specifically, the sample size is 

calculated assuming that the universe is 

‘‘infinite’’ and the error rate for FFS is 5 

percent and the error rate for managed 

care is 3 percent. (Once the universe 

contains more than approximately 

10,000 sampling units, it can be treated 

as if it were infinite. Statistically 

speaking, beyond a universe of 

approximately 10,000 sampling units, 

universe size does not affect sample 

size.) Using these assumptions and 

historical information on payment 

variation in FFS and managed care from 

previous PERM cycles, we have 

determined that an annual sample of 

500 FFS and 250 managed care 

payments per State per program should 

meet our State-level precision 

requirements with reasonable 

probability. 

However, States with Medicaid or 

CHIP PERM universes under 10,000 line 

items or capitation payments can notify 

us in order to have an annual sample 

size smaller than the base sample size 

in the initial PERM year or future years. 

While the universe can be treated as if 

it were infinite if its size exceeds 10,000 

sampling units, if the total universe 

from which the total (full year) sample 

is drawn is less than 10,000 sampling 

units, the sample size may be reduced 

by the finite population correction 

factor. The finite population correction 

is a statistical formula utilized to 

determine sample size where the 

population is considered finite rather 

than infinite. Starting with the FY 2011 

measurement cycle, a State that 

anticipates that the total number of 

payments in the FFS or managed care 

universe for either Medicaid or CHIP 

will be less than 10,000 payments over 

the Federal fiscal year may notify us 

before the fiscal year being measured 

and include information on the 

anticipated universe size for their State. 

Our contractor will develop a modified 

sampling plan for that program in that 

State. 

The State-specific annual sample size 

in the base PERM year is based on an 

assumed error rate of 5 percent. If a 

State’s actual PERM error rate in a cycle 

reveals that precision goals can be 

achieved in future PERM cycles with 

either lower or higher sample sizes than 

indicated by the original assumptions, 

sample sizes after the first PERM cycle 

may vary among States according to 

each State’s demonstrated ability, based 

on PERM experience, to meet desired 

precision goals. 

In subsequent years, we will provide 

our contractor with information on each 

State’s error rate and payment variation 

in the previous cycle. Our contractor 

will review each State’s prior PERM 

cycle claims error rate and payment 

variation to determine if a smaller or 

larger claims sample size will be 

required to meet the precision goal 

established for that PERM cycle. Our 

contractor will develop a State-specific 

sample size for each program in each 

State. If information from a previous 

cycle is not available for a particular 

State or program within the State, the 

contractor will use the ‘‘base sample’’ 

size of 500 FFS claims and 250 managed 

care payments. For States measured in 

the FY 2007 or FY 2008 cycle that elect 

to accept their State-specific CHIP 

PERM error rate determined during 

those cycles, FY 2007 or FY 2008 would 

be considered their first PERM cycle for 

purposes of sample size calculation for 

CHIP. Therefore, these States would be 

considered for an adjusted sample size 


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48820 Federal Register / Vol. 75, No. 154 / Wednesday, August 11, 2010 / Rules and Regulations 

in their next year of measurement after 

the publication of the new final rule. 

For States measured in the FY 2007 or 

FY 2008 cycle that elect to reject their 

State-specific CHIP PERM error rate 

determined during those cycles, 

information from those cycles would 

not be used to calculate the Statespecific sample sizes, and the ‘‘base 

sample’’ size of 500 FFS claims and 250 

managed care payments would be used. 

We proposed to establish a maximum 

sample size for Medicaid or CHIP FFS 

or managed care of 1,000 claims. 

Additionally, as discussed previously, a 

State with a claims universe of less than 

10,000 sampling units in a program may 

notify us and the annual sample size 

will be reduced by the finite population 

correction factor for any PERM cycle. 

We believe that by taking into 

consideration prior cycle PERM error 

rates, as well as the finite population 

correction factor in establishing Statespecific sample sizes, the States’ 

administrative cost burden will be 

reduced and the program will be more 

manageable at the State level. 

We received the following comments 

regarding our proposed revisions to the 

FFS and managed care universe, 

stratification, and sample sizes. 

i. Universe Definition 

Comment: Some commenters raised 

concerns about the proposed definition 

of the universe for the claims review 

component (‘‘adjudicated fee-for-service 

(FFS) or managed care claims 

information or both, on a quarterly 

basis, from the review year’’), 

referencing the change that removes the 

word ‘‘all’’ from the definition used in 

prior PERM regulations. The 

commenters expressed concern that this 

change materially alters the definition of 

the universe and of a claim, while 

others stated that the change does not go 

far enough in excluding certain types of 

payments, such as non-emergency 

medical transportation payment records 

that are not maintained at the 

beneficiary level, beneficiary-specific 

payments that are neither FFS or 

managed care, and offline claims from 

payment sources other than the 

Medicaid Management Information 

System (MMIS). Other commenters 

raised concerns that allowing a more 

comprehensive universe definition to be 

included in annual program instructions 

rather than regulation will lead to 

inconsistency across cycles. 

Response: The IPIA requires 

payments matched with Title XIX or 

Title XXI funds to be included in the 

PERM universes. Because CMS designed 

the PERM methodology to sample and 

review individual, beneficiary-level 

claims and payments, we have excluded 

from PERM certain Medicaid and CHIP 

payments that States do not pay at the 

beneficiary level. For example, DSH 

payments to facilities, grants to State 

agencies or local health departments, 

and cost-based reconciliations to nonprofit providers and FQHCs are 

excluded from PERM because they 

cannot be directly tied to an individual 

beneficiary. These payments will 

continue to be excluded from PERM 

sampling and review. However, in 

addition to these payments, State 

Medicaid and CHIP programs may make 

a variety of payments for services 

provided to individual beneficiaries 

outside of typical FFS or capitated 

managed care arrangements, which CMS 

considers part of FFS or managed care 

arrangements for purposes of PERM. 

This language change is intended to give 

CMS the flexibility to provide clarifying 

guidance when working with individual 

States that have unique or complex 

payment structures for certain types of 

beneficiary services, while continuing to 

meet the requirements of IPIA. 

We have issued updated versions of 

the PERM universe and claims detail 

instructions each year in order to 

provide States with clarifying guidance 

on meeting the PERM statutory and 

regulatory requirements. We have not 

changed the fundamental definition of a 

PERM universe, and do not intend to do 

so through this rulemaking, as PERM 

must continue to comply with IPIA. 

Because State programs and payment 

structures continue to evolve, we would 

like to maintain the flexibility to 

continue to refine the data submission 

specifications to make them easier for 

the States to interpret and apply, within 

the constraint of a consistent PERM 

universe definition. 

Regarding the comment on 

measurement of aggregate payments 

such as non-emergency medical 

transportation payments, the regulations 

at § 431.958 define ‘‘payment’’ as ‘‘any 

payment to a provider, insurer, or 

managed care organization for a 

Medicaid or CHIP beneficiary for which 

there is Medicaid or CHIP Federal 

financial participation.’’ In some cases, 

it is appropriate and possible to break 

aggregate payments down to the 

beneficiary level. Additionally, because 

some States make more aggregate 

payments or payments not stored in the 

MMIS than others, excluding these 

payments would result in unequal 

measurement across States. 

Accordingly, we are not excluding these 

payments from the claims universe. 

However, we will consider developing a 

methodology for sampling and review of 

these payments that can be applied 

consistently across States, taking into 

account the many variations in State 

payment systems. 

Comment: One commenter questioned 

what the impact would be of removing 

the word ‘‘all’’ from the universe and 

raised concerns as to whether this 

change could potentially mean 

additional work for the State in 

producing the universe. 

Response: We appreciate the 

commenter’s concerns. Certain types of 

payments are excluded from PERM 

sampling and review for technical 

reasons. Therefore, the word ‘‘all’’ was 

removed from § 431.970(a)(1) to more 

accurately reflect what States are 

required to submit. States are not 

required to submit all adjudicated FFS 

and managed care payments. Rather, 

certain types of payments, such as 

adjustments, are excluded. We do not 

anticipate that this change will have an 

impact on what States are required to 

submit for the PERM universe. 

Comment: One commenter expressed 

concern over PERM regulations, 

guidelines, and communications to 

providers that use language related to 

‘‘medical services’’, ‘‘medical 

documentation’’ and ‘‘medical review’’ 

including ‘‘medical necessity’’ despite 

the fact that there are a variety of 

Medicaid and CHIP services that do not 

fit within the medical review model. 

The commenter stated that this 

discrepancy causes confusion for State 

staff and providers when identifying 

what documentation is required. The 

commenter believed this issue is also 

confusing due to the use of the word 

‘‘claim’’ throughout documentation 

pertaining to FFS samples when a 

variety of services that are included in 

the review are not generated from a 

‘‘claim’’ but rather considered a 

‘‘payment.’’ The commenter 

recommended that PERM guidance 

should reflect this consideration and the 

terminology should be changed from 

‘‘medical record review’’ to ‘‘medical and 

service record review’’, including 

revision of communication to providers 

around the use of the word ‘‘claim’’ to 

include ‘‘payment’’. 

Response: The purpose of all 

documentation that we develop and 

provide to States and providers is 

intended to clarify what is required for 

the PERM reviews. If improvements can 

be made to further provide clarification, 

we will attempt to address these issues. 

In addition, we have added the 

following clarification in section II.A.1.a 

of this final rule, ‘‘for PERM purposes, 

managed care claims are payments 

made by the State to entities with 

comprehensive risk contracts that 

assume full or partial risk for enrolled 


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beneficiaries. FFS claims are claims 

other than managed care claims. CMS 

and its contractors may assign certain 

payments to the PERM FFS or managed 

care universe in order to ensure 

consistency across States and across 

cycles.’’ Further, we will consider 

reviewing current guidance and 

communications to assess where further 

changes should be made. 

ii. Provider Fraud 

Comment: We received several 

comments regarding the current policy 

on claims from providers under fraud 

investigation. Commenters 

recommended dropping these claims 

from the sample. It was observed by the 

commenters that beneficiaries under 

fraud investigation are dropped from the 

eligibility review and dropping claims 

from providers under investigation 

would be consistent policy. 

Furthermore, commenters noted that 

certain records may no longer be 

available if they have been subpoenaed, 

and that the PERM request for 

documentation may complicate an 

investigation. 

Response: The IPIA requires Federal 

agencies to measure ‘‘improper 

payments’’ and does not distinguish 

between different types of improper 

payments (for example, unintentional 

errors versus fraud). Our current policy 

is to maintain claims that are from 

providers who are under fraud 

investigation in the universe and in the 

sample when those claims are randomly 

selected from the universe. If States opt 

to have the CMS contractor not request 

supporting documentation for the 

claims, so as not to disrupt the 

investigation, the claim is found to be 

paid in error. 

While we appreciate the commenter’s 

concern, we are not adopting the 

recommendation to drop claims from 

providers under fraud investigation 

from the sample. We do not believe that 

the PERM review will compromise or 

complicate an investigation because 

requests for medical records are an 

expected and routine part of a 

provider’s participation in the Medicaid 

and CHIP programs. In addition, when 

a provider is the subject of a fraud 

investigation, it does not necessarily 

mean that all of the claims he or she 

submits are the subject of the 

investigation. By dropping every claim 

submitted by the provider from the 

PERM review, it would mean dropping 

claims that legitimately should be 

considered in the error rate. 

iii. Universe Stratification 

Comment: Some commenters raised 

concerns about the current stratification 

process adopted by CMS, in which 

payments are stratified by dollar. One 

commenter remarked that dollar 

stratification has resulted in an 

oversampling of high dollar claims and 

an undersampling of low dollar claims. 

Another commenter raised the concern 

that stratification by dollar value will 

lead to an unbalanced sample of the 

various service categories and all 

providers will not have an equal chance 

of being selected due to variances in the 

dollar value of claims submitted by 

service providers. 

Response: In addition to meeting 

overall national IPIA precision 

requirements, we have established 

criteria for the precision of the Statelevel estimates. Because of the need to 

measure each State’s error rate 

accurately, sample sizes for the States 

will not be proportional to the State’s 

program. Statistical theory suggests that, 

for the purpose of obtaining a given 

level of precision, the sample size is 

independent of the universe size once 

the universe exceeds about 10,000 units. 

Beginning with the FY 2007 cycle, we 

changed to a dollar stratification 

approach (from a service stratification 

approach) to improve the precision of 

the error rate estimate. By intentionally 

oversampling high dollar claims and 

undersampling low dollar claims, we 

were able to reduce the FFS sample size 

from 1,000 claims to 500 claims and still 

project error rates with a level of 

precision that meets OMB requirements. 

Oversampling the high dollar claims 

also reduces the risk that a single high 

dollar claim will have a dominant effect 

on the error rate. Although claims are 

sorted by dollar and divided into strata, 

a random sample is drawn from each 

stratum so that every claim has a chance 

of being sampled. Our primary goal in 

adopting the dollar stratification 

approach was to develop an efficient 

sampling plan that would allow 

calculation of an error rate that meets 

OMB precision requirements with the 

smallest possible sample, to reduce the 

burden on States, providers, and the 

Federal government. Because PERM 

estimates an overall payment error rate 

for FFS, it is not necessary or desirable 

to design a stratification approach that 

ensures equal representation of every 

provider or service type, as long as all 

payments have some chance of being 

sampled. 

iv. State-Specific Sample Size 

Comment: Several commenters 

discussed our proposed approach to 

vary the PERM sample size by State as 

required by the CHIPRA. Some 

commenters interpreted the CHIPRA 

requirement that the Secretary establish 

State-specific sample sizes for 

application of the PERM requirements 

to mean that a fixed sample size for each 

State should be established, and stated 

that the proposed rule was in conflict 

with the CHIPRA as it did not establish 

a fixed sample size for any State. Some 

commenters questioned whether the 

maximum FFS sample size (1,000 

claims for Medicaid and CHIP 

respectively) was appropriate or 

necessary. Other commenters raised 

concerns about the administrative 

challenges of planning around uncertain 

and changing sample sizes. One 

commenter suggested that the overall 

sample sizes should be proportional to 

program size (in most cases CHIP 

programs are much smaller then 

Medicaid programs, but the same 

number of claims and eligibility cases 

are sampled for review under PERM). 

Response: As indicated previously, 

we are governed not only by the 

CHIPRA but also by the IPIA and OMB 

guidance, which does not mandate 

certain minimum or maximum sample 

sizes but does require CMS to estimate 

national error rates for Medicaid and 

CHIP that meet certain precision 

requirements. The formula for 

estimating a sample size highly likely to 

meet OMB precision requirements takes 

three factors into consideration: 

Population size; variation in payments 

in the universe; and expected error rate. 

Each of these factors can be determined 

on a State-specific basis using 

information from a prior measurement 

cycle. Therefore, we believe that the 

proposed approach of calculating a 

State-specific sample size prior to the 

beginning of each cycle, using 

information from the prior cycle, meets 

the CHIPRA goals. This approach is 

consistent with the CHIPRA provision 

that provides the Secretary with 

flexibility to determine which 

information is appropriate to use in 

determining sample sizes. 

State sample sizes will be calculated 

to result in an unbiased estimate of the 

error rate within a certain level of 

precision. The State-level rates will be 

combined to calculate a national error 

rate within the IPIA-required level of 

precision. Variation in State sample 

sizes will not affect the calculation of 

the national error rate or comparison of 

the national or State rates over time 

(both fixed and State-variable sample 

sizes are designed to result in an 

unbiased estimate of the error rate). 

Smaller sample sizes will reduce the 

precision of the estimates at the State 

level somewhat but should have less 

effect on the precision of the national 

error rates (it will be slightly lower but 

it will not be a substantial change). The 


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variance in the estimates will also be 

slightly greater at the lower sample 

sizes. 

As the State error rates are built up 

from the independent component rates, 

sample sizes would be calculated for all 

six components (for example, Medicaid 

FFS, Medicaid managed care, Medicaid 

eligibility, CHIP FFS, CHIP managed 

care, and CHIP eligibility), and the 

maximum and minimum sample sizes 

would apply to each component 

independently (there is no overall 

program maximum or minimum). 

Information specific to each program 

and component would be used to 

estimate the State-specific sample size. 

That is, information from the Medicaid 

FFS error rate measurement in the 

previous cycle would be used only to 

calculate the sample size for Medicaid 

FFS measurement in the subsequent 

cycle. Therefore, a State with a high FFS 

error rate and a low managed care error 

rate in one cycle could see a larger FFS 

sample size and a smaller managed care 

sample size in the next cycle. 

The possibility of a larger than 

‘‘standard’’ sample size (currently, 500 

for FFS and 250 for managed care) is 

necessary because these sample sizes 

are not likely to meet the precision 

requirements if a State’s rate is 

significantly higher than expected. (In 

FY 2007, 3 Medicaid programs and 8 

CHIP programs did not meet the 

precision requirement with the standard 

sample sizes.) Failure to meet the Statelevel precision goals jeopardizes the 

precision of the national error rate. 

Thus, if we are to establish Statespecific sample sizes it must evaluate all 

three determinants of sample size (that 

is, population size, variation in 

payments in the universe, and expected 

error rate) for each State and increase 

the sample size if the error rate is 

expected to be higher than average, 

based on the prior cycle findings. 

Because reviewing claims requires 

both staff and monetary resources, a 

maximum sample size puts a limit on 

expenditure. Statistical tests suggest that 

if State-level precision cannot be met 

with a sample size of 1,000 claims, it is 

unlikely to be met with any reasonable 

sample size (the slight increases in 

precision that could be achieved would 

be outweighed by the significant 

expense associated with reviewing 

thousands of additional claims). 

However, a substantial increase in the 

probability of reaching precision goals 

can be gained by increasing the sample 

size from 500 to 1,000, so we believe 

this maximum to be reasonable and 

prudent. 

Finally, while CHIP programs are 

typically much smaller than Medicaid 

programs, from a sampling perspective 

there is generally no difference between 

a small and large population (number of 

payments for claims sample, number of 

beneficiaries for eligibility sample). 

Specifically, a property of sampling is 

that, once the population size exceeds 

about 10,000, it can be treated as if it 

were an infinite population. Nearly 

every Medicaid and CHIP program has 

at least 10,000 payments or 10,000 

beneficiaries across a fiscal year, so they 

are all treated as ‘‘infinite’’ in terms of 

population size. As a result, the PERM 

sample sizes are driven primarily by the 

variation in payments in the universe 

and the expected error rate, not by 

program size. If a program does have 

fewer than 10,000 payments or 10,000 

beneficiaries across a fiscal year, the 

expected population size can be 

substituted into the calculation to 

determine an appropriate sample size 

that will probably be smaller than the 

‘‘standard’’ sample size. 

We recognize that sample sizes, 

particularly for eligibility, drive State 

resource needs. Because all of the 

information necessary to develop a 

State-specific sample size will be 

available to CMS once the State’s error 

rate for the prior cycle is calculated, 

when CMS sends a State notice of its 

error rates at the end of a cycle, it will 

include in that notice the calculation of 

the sample size for the next cycle. This 

will provide States with the greatest 

advanced notice possible. We are 

considering developing a calculator that 

States can use to estimate potential 

sample sizes under a variety of 

scenarios. 

Comment: Several commenters asked 

questions about our proposed approach 

regarding base years. Commenters stated 

that in a base year, the sample size for 

a State will be that specified in the 

regulation, not a State-specific sample 

size calculated using information from a 

prior cycle (the ‘‘base year’’ is, by 

definition, the first cycle). Some 

commenters asked if the Medicaid error 

rate from FY 2007 or FY 2008 could be 

used to determine State-specific sample 

sizes for CHIP in the next measurement 

cycle, if the State decided not to accept 

its CHIP error rate from FY 2007 or FY 

2008. 

Response: The commenters are correct 

in that the ‘‘base year’’ refers to a State’s 

first cycle, and therefore, the State 

would have sample sizes as provided in 

the regulation. 

The CHIPRA gives States that 

participated in the PERM CHIP 

measurement in FY 2007 and FY 2008 

the option of accepting the payment 

error rate from that cycle or not 

accepting that rate and treating their 

next cycle as the first fiscal year for 

which the PERM requirements apply to 

the State (in effect, a new ‘‘base year’’). 

We believe it is likely that a State with 

a low CHIP error rate would choose to 

accept that rate, and would be likely to 

have a sample size the same as or lower 

than the base sample size in the next 

cycle. We believe it is likely that a State 

with a high CHIP error rate would 

choose not to accept that rate, and 

would be allowed to use the base 

sample size (500 FFS claims and 250 

managed care payments), rather than 

risk having a larger sample size. As a 

result, for States that have previously 

participated in PERM, Medicaid and 

CHIP program sample sizes could vary 

from the ‘‘base year numbers.’’ 

The CHIPRA does not provide a 

similar option for States to accept or 

reject their Medicaid error rates from 

previous cycles. Therefore, sample sizes 

for a State’s Medicaid program will be 

based on the State’s error rate from their 

previous cycle. 

Results from FY 2007 (the only year 

for which CHIP error rates were 

calculated) indicate that State CHIP 

rates are not necessarily closely 

correlated to State Medicaid rates: that 

is, 7 of the 17 States had Medicaid and 

CHIP rates that were more than three 

percentage points apart. Because of 

differences in error rates and payment 

variation between Medicaid and CHIP 

programs, information on Medicaid 

error rates cannot be used to generate 

sample sizes for CHIP programs. 

Comment: Several commenters 

inquired as to whether CMS would 

implement a minimum sample size 

given that the proposed regulation offers 

a maximum sample size. The 

commenters recommended that CMS set 

a minimum sample size in regulation in 

order to assist States in planning for 

resource needs. 

Response: We appreciate the 

commenter’s recommendation to adopt 

a minimum sample size for PERM, but 

we are not accepting this 

recommendation at this time. To 

comply with the IPIA, the PERM 

program must estimate a national 

Medicaid and a national CHIP error rate 

that covers the 50 States and District of 

Columbia. Consistent with OMB’s 

precision requirements defined in its 

IPIA guidance, the estimated national 

error rate for each program must be 

bound by a 90 percent confidence 

interval of 2.5 percentage points in 

either direction of the estimate. By 

setting a minimum sample size, we risk 

having sample sizes that are too small 

for States that had higher error rates in 

their subsequent PERM cycles. If the 

realized variation for the State is not as 


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favorable as the earlier history, the 

State’s error rate will not meet Statelevel precision requirements and may, 

in some cases, jeopardize meeting 

national precision goals. However, the 

States will still have the potential to 

reduce their sample sizes based on prior 

years’ data. It is our intention to work 

closely with our contractor and the 

States to ensure States are informed well 

in advance of the measurement cycle of 

their sample size for planning purposes. 

Comment: Commenters expressed 

concern about the amount of work and 

time it takes to complete a comparison 

between the PERM universe and the 

Form CMS–64 and Form CMS–21 

reports. Furthermore, commenters noted 

that the differences between what States 

include in the Form CMS–64 and Form 

CMS–21 reports (for example, 

adjustments, non-beneficiary specific 

payments) and how they report the 

information differs greatly from the 

individual beneficiary-level claims and 

payment data provided in the PERM 

universes. 

Commenters also offered suggestions 

for changes that could be made to the 

comparison, such as adopting a 

threshold above which a comparison 

would be considered valid, or to use the 

same quarter of data for comparison 

(which would require a short delay in 

the PERM universe submission). 

Response: The Form CMS–64 and 

Form CMS–21 comparison is a 

component of the quality control review 

process to validate PERM universes, 

which, like other quality control 

processes, is discussed in more detail in 

the PERM universe submission 

instructions provided to States at the 

start of each cycle. 

The purpose of the comparison, along 

with the rest of the quality control 

checks States are asked to complete, is 

to ultimately provide the most accurate 

and complete universe of Medicaid and 

CHIP payments as possible to ensure an 

unbiased and accurate error rate 

calculation. The comparison is not 

expected to be a dollar for dollar match 

but rather a means for the State and 

CMS to identify if, in certain areas, there 

are significant discrepancies that could 

indicate that payments were not 

properly included or excluded. We have 

found over the previous PERM cycles 

that States often overlook Medicaid or 

CHIP programs which are processed and 

paid outside of MMIS and/or managed 

by other agencies and divisions when 

developing the PERM universes. The 

Form CMS–64 and Form CMS–21 

comparison serves as a tool for both 

States and CMS to determine if all 

payments for services provided to 

individual beneficiaries for which the 

State claims Title XIX or Title XXI 

match are included. As we have found 

that this quality control step has 

identified potential problems with the 

PERM universes, we are not adopting 

any recommendations to eliminate this 

process. However, we will work with 

States to explore options regarding how 

this process can be more effective for 

States and CMS. Additionally, we will 

consider for future cycles how to 

provide the most detailed information 

possible about this process so States can 

plan and prepare accordingly. As a 

result, we are modifying § 431.972 to 

include the requirement that States 

establish controls to ensure the FFS and 

managed care universes are accurate 

and complete and to require a 

comparison of the PERM universes to 

the Forms CMS–64 and CMS–21. 

Comment: We received a number of 

comments related to universe 

development and sampling issues 

including the following: 

• One commenter stated that CMS 

should utilize Medicaid Statistical 

Information System (MSIS) data for the 

Medicaid universe submission and if 

the data is not robust enough, make 

changes to the MSIS data so it can meet 

PERM requirements; 

• One commenter stated that CMS 

should only require a universe 

submission and review if the universe 

exceeds a pre-established minimum 

threshold in terms of number of claims 

or total dollar amount; 

• One commenter stated that CMS 

should review the current sampling 

methodology which oversamples high 

dollar claims to determine if the 

methodology is yielding the desired 

results; 

• One commenter stated that CMS 

should provide more technical guidance 

to States for the submission of the 

claims universe data to prevent differing 

interpretations of the requirements. 

Response: While the MSIS data will 

not currently fully meet the 

requirements of PERM, we understand 

that States are required to pull similar 

data for several CMS initiatives, 

resulting in redundancies with already 

limited State resources. We are 

currently beginning year two of the 

minimum data set pilot for PERM, in 

which our contractor is working with a 

small number of States, on a voluntary 

basis, to review available data fields and 

determine if it would be possible to 

create one data submission that meets 

the needs of multiple programs. 

The IPIA and OMB guidance (OMB 

M–06–23, Appendix C to OMB Circular 

A–123, August 10, 2006) requires that 

all programs that are susceptible to 

significant erroneous payments (where 

the annual erroneous payments in the 

program exceed both 2.5 percent of 

program payments and $10 million) 

must participate in the error rate 

measurement. Only those programs 

whose annual erroneous payments fall 

below this threshold may not be subject 

to the error rate measurement 

requirements. Therefore, a single State 

universe, no matter what the size in 

terms of claims and dollars, is not 

eligible for omission from the national 

error rate measurement in a given cycle. 

The current sampling methodology is 

yielding the desired results. The 

overweighting of higher dollar payments 

(which is taken into account when 

calculating error rates) enables us to 

draw a smaller sample size that has a 

reasonable probability of meeting the 

precision requirements, compared to a 

perfectly random sample or a sample 

stratified by service type. In this 

manner, we reduce burden on States, 

the Federal government, beneficiaries, 

and providers. 

Finally, we appreciate the 

recommendation to provide States with 

more technical guidance on claims 

submission. We are in the process of 

developing a PERM manual, which we 

envision will be a single resource for all 

PERM-related guidance. As we develop 

the manual and update data submission 

and eligibility instructions, we will look 

for ways in which to improve technical 

guidance. We are also considering 

adding this as a topic for discussion 

with the PERM Technical Advisory 

Group (TAG). 

2. Eligibility 

The eligibility sampling requirements 

are described in § 431.978. The universe 

for the eligibility component is casebased, not claims-based. The case as a 

sampling unit only applies to the 

eligibility component. For PERM 

eligibility, the ‘‘universe’’ is the total 

number of Medicaid or CHIP cases, 

which, as discussed in the proposed 

rule, is comprised of all beneficiaries, 

both individuals and families. The 

eligibility sampling plan and procedures 

state that the total eligibility sample size 

must be estimated to achieve within a 

3 percent precision level at a 95 percent 

confidence interval for the eligibility 

component of the program. 

For PERM eligibility, the initial 

sample size is calculated under the 

assumption that the error rate is 5 

percent and the universe is greater than 

10,000 total cases. The estimated error 

rate for a State should be at a 95 percent 

confidence interval of 3 percentage 

points in either direction. This means 

that the desired precision requirements 

will be achieved with a high probability 


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if the actual error rate is 5 percent or 

less. For this reason, an annual sample 

of 504 active cases and 204 negative 

cases should be selected in a State’s 

base PERM year to meet State-level 

precision requirements with a high 

probability. Appendix D of the PERM 

Eligibility Review Instructions 

elaborates on the theory of sample size 

at the State-level for the dollar-weighted 

active case error rates, and is on the 

CMS Web site at http://www.cms.gov/ 

perm/downloads/ 

PERM_Eligibility_Review_Guidance.pdf. 

Eligibility sampling is performed by 

the States, and States have the 

opportunity to adjust their eligibility 

sample size based on the eligibility error 

rate in the previous PERM cycle. After 

a State’s base PERM year, we will 

determine, with input from the State, a 

sample size that will meet desired 

precision goals at lower or higher 

sample sizes based on the outcome of 

the State’s previous PERM cycle. The 

sample size could either increase or 

decrease given the results of the 

previous review year. We proposed to 

establish a maximum sample size for 

eligibility at 1,000 cases. States must 

submit an eligibility sampling plan by 

August 1st before the fiscal year being 

measured and include a proposed 

sample size for their State. Our 

contractor will review and approve all 

eligibility sampling plans. The State 

must notify CMS that it will be using 

the same plan from the previous review 

year if the plan is unchanged. However, 

we will review State sampling plans 

from prior cycles in each PERM cycle to 

ensure that information is accurate and 

up-to-date. States will be asked for 

revisions when necessary. 

As in the claims universe, States with 

PERM eligibility universes under 10,000 

cases can propose a reduced eligibility 

sample size for either the base year or 

any subsequent PERM cycle. 

Additionally, section 203 of the 

CHIPRA describes the State option to 

enroll children in Medicaid or CHIP 

based on findings of an Express Lane 

agency in order to conduct simplified 

eligibility determinations. Under 

sections 203(a)(1) and (2) of the 

CHIPRA, an error rate measurement will 

be created with respect to the 

enrollment of children under the 

Express Lane Eligibility option. The law 

directs States not to include children 

enrolled using the Express Lane 

Eligibility option starting April 1, 2009, 

in data or samples used for purposes of 

complying with MEQC and PERM 

requirements. Provisions for States’ 

Express Lane option will be set forth in 

a future rulemaking document. 

We proposed to revise § 431.814 and 

§ 431.978 to reflect the changes and 

clarifications specified previously. 

We received the following comments 

regarding our proposed revisions to the 

eligibility sample sizes. 

Comment: A few commenters 

suggested that we set minimum 

eligibility sample sizes for active and 

negative cases. 

Response: We cannot adopt this 

recommendation. By setting a minimum 

eligibility sample size, we risk having 

sample sizes that are too small to meet 

the IPIA’s precision requirements for 

States that had higher error rates in their 

subsequent PERM cycles. If the realized 

variation for the State is not as favorable 

as the earlier history, the State’s error 

rate will not meet State-level precision 

requirements and may, in some cases, 

jeopardize meeting national precision 

goals. However, the States will still have 

the potential to reduce their eligibility 

sample sizes based on prior years’ data. 

Reduced State sample sizes will balance 

the results from the PERM sampling 

equations with the need to reliably 

reproduce small error rates. Sample size 

reductions will be based on a State’s 

previous eligibility error rate in PERM 

or MEQC (depending upon the method 

chosen by the State for PERM), the 

typical margin of error for that previous 

error rate, and the results from 

simulation studies on small samples. 

These studies examined the point at 

which small samples cease to reliably 

return known small error rates in the 

targeted universes. Reduced sample 

sizes must also meet the confidence and 

precision requirements. 

Comment: One commenter disagreed 

with setting a maximum sample size 

and requiring States with eligibility 

error rates above the 5 percent standard 

to increase their eligibility sample size. 

The commenter recommends the sample 

size remain constant from cycle to cycle. 

Response: We disagree with the 

commenter. We recognize that sample 

sizes, particularly for eligibility, drive 

State resource needs. The possibility of 

a larger sample size is necessary because 

the standard sample sizes are not likely 

to meet the IPIA precision requirements 

if a State’s rate is significantly higher 

than expected. We are setting a 

maximum sample size in order to keep 

the sample sizes manageable as CMS 

would find it necessary for some States 

to sample significantly more than 1,000 

cases to meet IPIA precision 

requirements. 

B. Error Criteria 

Under the PERM program, we identify 

improper payments through claims 

reviews and eligibility reviews. For the 

claims review, we perform the 

following: (1) a data processing review 

of a sample of FFS and managed care 

payments to ensure the payments were 

processed and paid in accordance with 

State and Federal policy; and (2) a 

medical review of a sample of FFS 

payments to ensure that the services 

were medically necessary, coded 

correctly, and provided and 

documented in accordance with State 

and Federal policy. For the eligibility 

review, we rely on States to review a 

sample of beneficiary cases to ensure 

that they were determined eligible for 

the program in accordance with 

documented State policies and 

procedures and for any services 

received and paid for by Medicaid or 

CHIP (as applicable). The PERM 

eligibility review also considers 

negative cases (cases where eligibility 

was denied or terminated). A negative 

case is in error if the case was 

improperly denied or incorrectly 

terminated in accordance with State 

documented policies and procedures. 

However, because there are no 

payments associated with these cases, 

only a case error rate is calculated. 

These errors are not factored into the 

PERM error rate, which is a payment 

error rate. 

Under the IPIA, to be considered an 

improper payment, the error made must 

affect payment under applicable Federal 

policy and State policy. Improper 

payments include both overpayments 

and underpayments. A payment is also 

considered improper where it cannot be 

discerned whether the payment was 

proper as a result of insufficient or lack 

of documentation. 

Consistent with the IPIA, the PERM 

error rate itself does not distinguish 

between ‘‘State’’ and ‘‘provider’’ errors; 

all dollars in error identified through 

PERM reviews contribute to the State 

error rate. In practice, the data 

processing and eligibility reviews focus 

on determinations made by State 

systems and personnel, while the 

medical review focuses on 

documentation maintained and claims 

submitted by providers. 

Section 601(c)(1)(A) of the CHIPRA 

requires us to promulgate a new final 

rule that includes clearly defined 

criteria for errors for both States and 

providers. Accordingly, we proposed to 

add § 431.960, ‘‘Types of payment 

errors,’’ to clarify that State or provider 

errors for purposes of the PERM error 

rate must affect payment under 

applicable Federal policy and State 

policy, and to generally categorize data 

processing errors and eligibility review 

errors as State errors and medical 

review errors as provider errors. The 


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data processing errors, medical review 

errors, and eligibility review errors may 

include, but are not limited to, the types 

of improper payments discussed below. 

1. Claims Review Error Criteria 

a. Data processing errors (State errors) 

i. Duplicate item 

The sampled line item/claim is an 

exact duplicate of another line item/ 

claim that was previously paid (for 

example, same patient, same provider, 

same date of service, same procedure 

code, and same modifier). 

ii. Non-covered service 

The State policy indicates that the 

service is not payable by the Medicaid 

or CHIP programs and/or the beneficiary 

is not in the coverage category for that 

service. 

iii. Fee-for-service claim for a managed 

care service 

The beneficiary is enrolled in a 

managed care organization that should 

have covered the service, but the 

sampled service was inappropriately 

paid by the Medicaid or CHIP FFS 

component. 

iv. Third-party liability 

The service should have been paid by 

a third party and was inappropriately 

paid by Medicaid or CHIP. 

v. Pricing error 

Payment for the service does not 

correspond with the pricing schedule on 

file and in effect for the date of service. 

vi. Logic edit 

A system edit was not in place based 

on policy or a system edit was in place 

but was not working correctly and the 

line item/claim was paid (for example, 

incompatibility between gender and 

procedure). 

vii. Data entry errors 

A line item/claim is in error due to 

clerical errors in the data entry of the 

claim. 

viii. Managed care rate cell error 

The beneficiary was enrolled in 

managed care and payment was made, 

but for the wrong rate cell. 

ix. Managed care payment error 

The beneficiary was enrolled in 

managed care and assigned to the 

correct rate cell, but the amount paid for 

that rate cell was incorrect. 

x. Other data processing error 

Errors not included in any of the 

above categories. 

b. Medical Review Errors (generally 

provider errors) 

i. No documentation 

The provider did not respond to the 

request for records within the required 

timeframe. 

ii. Insufficient documentation 

There is not enough documentation to 

support the service. 

iii. Procedure coding error 

The procedure was performed but 

billed using an incorrect procedure code 

and the result affected the payment 

amount. 

iv. Diagnosis coding error 

According to the medical record, the 

diagnosis was incorrect and resulted in 

a payment error—as in a Diagnosis 

Related Group (DRG) error. 

v. Unbundling 

The provider separately billed and 

was paid for the separate components of 

a procedure code when only one 

inclusive procedure code should have 

been billed and paid. 

vi. Number of unit(s) error 

The incorrect number of units was 

billed for a particular procedure/service, 

National Drug Code (NDC) units, or 

revenue code. This does not include 

claims where the provider billed for less 

than the allowable amount, as provided 

for in written State policy. 

vii. Medically unnecessary service 

The service was medically 

unnecessary based upon the 

documentation of the patient’s 

condition in the medical record in 

accordance with written State policies 

and procedures related to medical 

necessity. 

viii. Policy violation 

A policy is in place regarding the 

service or procedure performed and 

medical review indicates that the 

service or procedure is not in agreement 

with the documented policy. 

ix. Administrative/other medical review 

error 

A payment error was determined by 

the medical review but does not fit into 

one of the other medical review error 

categories, including State-specific noncovered services. 

c. Eligibility errors (State errors) 

i. Not eligible 

An individual beneficiary or family is 

receiving benefits under the program 

but does not meet the State’s categorical 

and financial criteria in the first 30 days 

of eligibility being verified using the 

State’s documented policy and 

procedures. 

ii. Eligible with ineligible services 

An individual beneficiary or family 

meets the State’s categorical and 

financial criteria for receipt of benefits 

under the Medicaid or CHIP program 

but was not eligible to receive particular 

services in accordance with the State’s 

documented policies and procedures. 

iii. Undetermined 

The case record lacks or contains 

insufficient documentation, in 

accordance with the State’s documented 

policies and procedures, to make a 

definitive review decision for eligibility 

or ineligibility. 

iv. Liability overstated 

The beneficiary overpaid toward an 

assigned liability amount or cost of 

institutional care and the State paid too 

little. 

v. Liability understated 

Beneficiary underpaid toward an 

assigned liability amount or cost of 

institutional care and the State paid too 

much. 

vi. Managed care error 1 

Ineligible for managed care—Upon 

verification of residency and program 

eligibility, the beneficiary is enrolled in 

managed care but is not eligible for 

managed care. 

vii. Managed care error 2 

Eligible for managed care but 

improperly enrolled—Beneficiary is 

eligible for both the program and for 

managed care but not enrolled in the 

correct managed care plan as of the 

month eligibility is being verified. 

viii. Improper denial 

An application for program benefits 

was denied by the State for not meeting 

a categorical and/or financial eligibility 

requirement but upon review is found to 

be eligible for the tested category or a 

different category under the program in 

accordance with the State’s documented 

policies and procedures. 

ix. Improper termination 

Based on a completed 

redetermination, the State determines 

an existing beneficiary no longer meets 

the program’s categorical and/or 

financial eligibility requirements and is 

terminated but upon review is found to 

still be eligible for the tested category or 

a different category under the program 

in accordance with the State’s 

documented policies and procedures. 


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2. Definitions 

We proposed to add the following 

definitions for ‘‘provider error’’ and 

‘‘State error’’ to § 431.958. 

Provider error includes, but is not 

limited to, an improper payment made 

due to lack of or insufficient 

documentation, incorrect coding, 

improper billing (for example, 

unbundling, incorrect number of units), 

a payment that is in error due to lack of 

medical necessity, or evidence that the 

service was not provided in compliance 

with documented State or Federal 

policy. 

State error includes, but is not limited 

to the following: 

• A payment that is in error due to 

incorrect processing (for example, 

duplicate of an earlier payment, 

payment for a non-covered service, 

payment for an ineligible beneficiary). 

• Incorrect payment amount (for 

example, incorrect fee schedule or 

capitation rate applied, incorrect thirdparty liability applied). 

• A payment error resulting from 

services being provided to an individual 

who— 

++ Was ineligible when authorized or 

when he or she received services; 

++ Was eligible for the program but 

was ineligible for certain services he or 

she received; 

++ Had not met applicable 

beneficiary liability requirements when 

authorized eligible or overpaid toward 

actual liability; or 

++ Had a lack of or insufficient 

documentation to make a definitive 

eligibility review decision for the tested 

category or a different category under 

the program in accordance with the 

State’s documented policies and 

procedures. 

To avoid any confusion that may have 

been caused by listing some types of 

provider and State errors in the 

definitions of ‘‘provider error’’ and ‘‘State 

error,’’ while at the same time listing 

overlapping errors in § 431.960, ‘‘types 

of payment errors,’’ we are revising 

§ 431.958 and § 431.960 to clarify the 

relationship between provider errors, 

State errors, and types of payment 

errors. These revisions do not modify 

the substance of our proposed rule. 

Accordingly, we are adding 

§ 431.960(b)(3) to specify that data 

processing errors include, but are not 

limited to, payment for duplicate items, 

payment for non-covered services, 

payment for FFS claims for managed 

care services, payment for services that 

should have been paid by a third party 

but were inappropriately paid by 

Medicaid or CHIP, pricing errors, logic 

edit errors, data entry errors, managed 

care rate cell errors, and managed care 

payment errors. 

We are adding § 431.960(c)(3) to 

specify that medical review errors 

include, but are not limited to, lack of 

documentation, insufficient 

documentation, procedure coding 

errors, diagnosis coding errors, 

unbundling, number of unit errors, 

medically unnecessary services, policy 

violations, and administrative errors. 

We are also revising § 431.960(d)(1), 

to specify that eligibility errors include, 

but are not limited to, benefits being 

provided to ineligible beneficiaries, 

benefits provided to eligible 

beneficiaries but for ineligible services, 

cases where the case record lacks or 

contains insufficient documentation to 

determine eligibility, cases where the 

beneficiary’s liability is understated, 

cases where the beneficiary’s liability is 

overstated, cases where the beneficiary 

received managed care benefits but is 

ineligible for managed care, cases where 

the beneficiary is eligible for managed 

care but is improperly enrolled in the 

correct managed care plan, improper 

denials of eligibility, and improper 

termination of eligibility. 

The error criteria listed under 

§ 431.960, ‘‘types of payment errors,’’ 

can be generally categorized into 

provider errors and State errors. 

Therefore, we are revising the 

definitions of ‘‘provider errors’’ and 

State errors’’ in § 431.958 to reference 

the errors as provided in § 431.960. 

We received the following comments 

regarding our proposed revisions to the 

error criteria. 

Comment: Several commenters stated 

that ‘‘no documentation’’ errors are not 

errors, that they are actually 

undetermined, and should not be 

included as errors for purposes of error 

rate calculation. In addition, the 

commenters requested that error rates 

reported by CMS include breakouts to 

show errors attributed to data 

processing versus medical review. 

Response: We disagree with the 

comments that ‘‘no documentation’’ 

errors are not errors. We consider cases 

in which no documentation is received 

to be errors based on Medicaid statute 

and OMB guidance. Providers are 

required to support their claims for 

payment, when requested, with records 

and documentation demonstrating the 

medical context and medical necessity 

of the service or good provided. It is 

only through the assessment of this 

documentation that the claim can be 

reviewed for its accuracy. In the PERM 

program, when providers fail to respond 

to a request for documentation, or the 

documentation provided is insufficient 

to support the validity of medical 

service or good provided, the claim is 

counted as an error in payment. Title 

XIX, section 1902(a)(27)(A) of the Act, 

requires providers to maintain 

documentation necessary to fully 

disclose the extent of the services 

provided to Medicaid and CHIP 

beneficiaries, and authorizes the 

individual State or the Secretary of 

Health and Human Services to request 

that that documentation from the 

provider to support the claim for 

payment: 

A State plan for medical assistance must 

* * * provide for agreements with every 

person or institution providing services 

under the State plan under which such 

person or institution agrees (A) to keep such 

records as are necessary fully to disclose the 

extent of the services provided to individuals 

receiving assistance under the State plan, and 

(B) to furnish the State agency or the 

Secretary with such information, regarding 

any payments claimed by such person or 

institution for providing services under the 

State plan, as the State agency or the 

Secretary may from time to time request. (42 

U.S.C. 1396a(a)(27)). 

Section 2107(b)(1) of the Act requires 

States to collect data, maintain records, 

and furnish reports that the Secretary 

determines necessary to monitor the 

administration, compliance and 

evaluation of the CHIP program. Section 

2107(b)(3) of the Act requires the State 

to afford the Secretary access to any 

records or information relating to the 

CHIP program for purposes of review or 

audit. 

In addition, OMB’s guidance on 

implementing the IPIA specifies that, 

‘‘* * * when an agency’s review is 

unable to discern whether a payment 

was proper as a result of insufficient or 

lack of documentation, this payment 

must also be considered an error.’’ (OMB 

M–06–23, Appendix C to OMB Circular 

A–123, August 10, 2006). For these 

reasons, we will continue to consider 

claims for which no documentation is 

received as errors for purposes of error 

rate calculation and recoveries. 

We do agree that it is important to 

provide as much information as possible 

about the different types of errors 

comprising the overall error rate. 

Therefore, we will continue to provide 

States with more detail on the number 

of errors and dollars in error by error 

type, aggregated nationally and by State 

in reports following the measurement 

cycle for corrective action purposes. In 

addition, we will continue to publish 

our error rate report on our Web site at 

http://www.cms.gov/PERM. This report 

contains detailed breakouts of the error 

rates including errors found during the 

medical review, errors found in the data 

processing review, and eligibility review 


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Federal Register / Vol. 75, No. 154 / Wednesday, August 11, 2010 / Rules and Regulations 48827 

errors. Finally, starting with the FY 

2010 cycle, we intend to perform 

additional analysis on the error rate 

data, including categorizing errors by 

service type and error type as 

recommended by the Office of Inspector 

General (OIG). We intend to publish the 

results in the annual PERM report and 

also incorporate the findings into the 

corrective action reports provided to 

States. 

Comment: Some commenters 

suggested that the proposed rule does 

not amend the administrative criteria 

into State and provider errors as 

required by the CHIPRA. Additionally, 

some commenters questioned what 

would be done with the definitions and 

requested that two State error rates be 

provided to States-the State error rate 

and the provider error rate. 

Response: The IPIA requires Federal 

agencies to measure ‘‘improper 

payments’’ and does not distinguish 

between different types of improper 

payments (for example, unintentional 

errors vs. fraud) or different types of 

errors (for example, State-caused errors 

vs. provider-caused errors). The 

CHIPRA requires CMS to define the 

criteria for State and provider errors but 

does not exclude either from the error 

rate. Therefore, for purposes of 

calculating the error rate, any error 

found (whether State-caused or 

provider-caused) must be included. 

The PERM criteria for the three types 

of errors are described in § 431.960(a) 

through (d). More specific criteria will 

be, to a certain extent, State-specific 

depending on local policies. We will 

consider publishing more details on the 

process for reviewing payments and 

determining errors in a program manual. 

We do not intend to use the definitions 

to calculate a separate State and 

provider error rate at the national level; 

we believe the overall benefit of 

classifying errors as ‘‘State’’ and 

‘‘provider’’ will be seen in the corrective 

action phase of PERM. For this reason, 

we are adopting the commenter’s 

recommendation, and will provide 

individual States with three State error 

rates for corrective action purposes—a 

State error rate, a provider error rate, 

and an overall program error rate which 

combines the State and provider error 

rates into one. The official error rates 

recognized by CMS will continue to be 

the overall error rates which take into 

account all errors found during the 

PERM review. 

Comment: Some commenters asked 

that the timeframe for providers to 

submit documentation should be 

extended from the current 60 days to 90 

days, which was allowed in earlier 

versions of the PERM regulations. 

Response: Based on an analysis of 

data from the past three PERM 

measurement cycles, providers 

generally submit documentation well in 

advance of the 60 days allowed. In FY 

2007, the average number of days 

providers took to respond to a request 

for documentation was 35; in FY 2008, 

the average was 32 days; and in FY 

2009, the average number of days has 

been 32 thus far. In addition, PERM 

accepts late documentation in certain 

instances and recommends that States 

encourage providers to submit 

documentation to the PERM contractor 

even if it is late. However, in view of the 

commenters’ concerns, as well as to be 

consistent with the Comprehensive 

Error Rate Testing (CERT) program 

which measures the Medicare FFS error 

rate, we are extending the timeframe for 

documentation submission from 60 days 

to 75 days, or the final cut-off date for 

error rate calculation purposes 

(generally July 15th of the second year 

of a measurement cycle), whichever 

occurs first. 

In cases where the PERM contractor 

receives no documentation from the 

provider once 75 days has passed since 

the initial request, the PERM contractor 

will consider the case to be a no 

documentation error. The PERM 

contractor will consider any 

documentation received after the 75th 

day ‘‘late documentation’’. If the PERM 

contractor receives late documentation 

prior to the documentation cut-off date 

for error rate calculation and reporting 

purposes (generally the second July 15 

of a measurement cycle), they will 

review the records and, if justified, 

revise the error finding. Claims that 

complete the review process are 

included in the report. Claims for which 

the PERM contractor receives no 

documentation are counted as no 

documentation errors. Additionally, in 

accordance with established PERM 

process, if we determine that the 

documentation submitted by the 

provider is insufficient to make a 

determination about whether or not the 

claim should have been paid, we will 

request additional documentation from 

the provider. Providers have 14 calendar 

days to submit the additional 

documentation to CMS. We maintain 

that this policy will allow providers 

sufficient time to submit required 

documentation. 

We revised § 431.970(b) to reflect the 

timeframes described previously. 

Comment: A commenter questioned 

the data processing error category ‘‘FFS 

claim for a managed care service’’, 

stating that the procedure followed by 

CMS with regard to this criterion should 

be to ensure that MMIS system edits 

related to the types of services to deny 

are working properly, rather than 

comparing FFS claims to encounter 

data. 

Response: Under PERM, we not only 

need to check that edits used to deny 

claims are working properly, but also 

need to ensure that all claims paid in 

the sample are paid correctly. When 

conducting a managed care review, we 

do not compare FFS claims to encounter 

data, but rather check for program, 

recipient and provider eligibility. We 

also determine if the beneficiary was 

enrolled or should have been enrolled 

in managed care. If a FFS claim was 

paid for a managed care recipient, we 

also have to determine whether the FFS 

claim was for a service carved out of the 

managed care contract or whether the 

claim was paid because the beneficiary 

was still in a FFS window prior to 

enrollment. 

Comment: One commenter stated that 

their State policy does not allow a 

provider to bill for higher codes or units 

of service than what was provided; 

however, it does not preclude the 

provider from billing for a lesser code or 

fewer units of service than was 

provided. The commenter 

recommended that a payment error not 

be automatically assessed whenever 

lesser codes or fewer units of service are 

billed. 

Response: In 2007, we established a 

policy in guidance (the Review 

Contractor’s medical review manual), 

which, for PERM purposes, allows for 

under-billing for number of units-type 

claims by providers. Under that policy, 

these cases are not automatically 

determined errors. For wrong procedure 

code errors, wrong diagnosis code 

errors, or DRG errors, we identify those 

instances where a provider billed using 

an incorrect procedure code based on 

the medical record documentation and 

we request repricing by the State. It is 

up to the State to determine (in 

accordance with their written policies 

and payment schedules) under repricing 

and/or difference resolution if the 

original payment was correct or if the 

use of the corrected procedure code/ 

diagnosis code/DRG resulted in wrong 

claim payment. States are required to 

reprice the claim by providing the 

correct payment that should have been 

made for the correct code identified 

during the medical review. 

We are clarifying that the term 

‘‘number of unit(s) error’’ excludes 

underpayment errors that occur when a 

provider bills for a lesser code or fewer 

units of service than was provided, as 

provided for in written State policy. 

Comment: We received a comment 

about situations in which payment may 


srobinson on DSKHWCL6B1PROD with RULES2
48828 Federal Register / Vol. 75, No. 154 / Wednesday, August 11, 2010 / Rules and Regulations 

not correspond with the pricing 

schedule. The commenter stated that 

their State’s policies support 

reimbursement based on the lesser of 

the provider charge amount or the fee 

schedule. The commenter stated it is 

inappropriate to assess an error if the 

payment for service does not correspond 

with the pricing schedule on file and in 

effect for the date of service and 

recommends that errors not be assessed 

based solely on payment corresponding 

to the fee schedule. 

Response: We do not assess errors 

solely based on payment/fee schedules. 

We inquire about each State’s payment 

policies at orientation meetings and in 

data processing questionnaires. We 

document each State’s policies 

regarding whether any types of claims 

are paid when the billed amount is less 

than that allowed by the State’s fee 

schedules. If it is the State’s policy to 

pay the allowed amount up to the 

amount billed by the provider then we 

would not consider the claim an error. 

Decisions about errors are based on each 

State’s policies. 

Comment: We received comments 

regarding third-party liability (TPL) 

errors determined during the data 

processing review. One commenter 

stated that the procedure followed by 

CMS with regard to this criterion should 

be to ensure that MMIS TPL system 

edits are working properly, rather than 

verifying the amount paid by the other 

insurer. Another commenter stated that 

both State policies and Federal 

regulations support methodologies to 

seek reimbursement of a claim if TPL is 

discovered after the claim was paid. The 

commenter recommends not assessing 

an error based on TPL discovered after 

the claim was paid. 

Response: We ascertain whether the 

TPL edits are working appropriately. 

However, if TPL should have been 

applied to the claim and was not, then 

we would need to know the amount 

paid by the liable third party in order to 

determine how much of the payment 

was in error. Even when edits are 

working appropriately, human 

intervention often allows a claim to pay 

even though the system suspended the 

payment. 

We make our determination based on 

what information was known or should 

have been known at the time of 

payment. For instance, if TPL was 

indicated on a paper claim but that 

information was not entered into the 

MMIS and the full claim was paid by 

Medicaid, it would be determined as an 

error. 

Comment: Regarding the process for 

determining medical necessity, one 

commenter questioned whether or not 

the PERM review is based solely on 

InterQual Criteria, as some States not 

only utilize InterQual Criteria but also a 

utilization review that includes a nurse 

and physician review in certain 

instances for determination of medical 

necessity. The commenter stated that 

through this process, the physician may 

override the nurse’s finding based on 

experience and clinical judgment. The 

commenter recommended that 

physician findings for inpatient hospital 

stays not be overridden by CMS for 

States that utilize medical experts to 

augment their determination of medical 

necessity. 

Response: The purpose of the PERM 

review is to conduct an independent 

review of the sampled claims to identify 

improper payments. During the PERM 

medical review orientation conducted 

with each State prior to the beginning of 

the medical review process, the Statespecific criteria and guidelines used to 

determine medical necessity are 

requested as States use various methods 

(for example, Milliman’s, InterQual, the 

Quality Improvement Organization 

(QIOs)). Our contractor takes into 

consideration the medical necessity 

criteria used by the individual State for 

screening purposes, and, if a medical 

necessity error is identified, the record 

is reviewed by a second level reviewer 

with greater expertise than the first 

reviewer. Where there are comorbidities or complications 

documented in the record, clinical 

review judgment is applied before any 

error is reported to the State. In no case 

does clinical review judgment override 

statutory, regulatory, ruling, or policy 

provisions. All documentation and 

policy requirements are met before 

clinical review judgment applies. 

For example, if the State uses 

InterQual Criteria to determine medical 

necessity, our contractor screens the 

medical record using InterQual Criteria 

at the first level of review. When an 

improper payment is identified, the case 

is referred to a second level review for 

verification that the InterQual Criteria 

are applied accurately and that State 

policy, rulings, statute and Federal 

statute, regulatory, ruling, and policy 

provisions are applied with accuracy. 

Clinical review judgment is applied 

only if needed after all other review is 

completed. It may be needed when the 

medical decision requires clinical 

judgment based on the patient’s 

condition, co-morbidities or 

complications documented in the 

medical record submitted. If an error is 

found and the State disagrees with the 

finding, the State has the opportunity to 

request difference resolution with the 

contractor. For errors disputed by the 

State, the difference resolution review is 

conducted by review supervisors or 

managers and if the medical necessity 

error is upheld, the record is reviewed 

by a review panel consisting of review 

managers, directors and a board 

certified physician. During the 

difference resolution process, the State 

can provide to the PERM contractor any 

relevant utilization review findings that 

will be given full consideration when 

the claim is re-reviewed and a final 

determination is made. 

Comment: Several commenters 

requested that we reconsider the 60-day 

adjustment period policy at 

§ 431.970(a)(8), which requires that, for 

claims reviews, States submit 

adjustments within 60 days of the 

adjudication dates for the original 

claims or line items with sufficient 

information to indicate the nature of the 

adjustments and to match the 

adjustments to the original claims or 

line items. Commenters stated that the 

State timeframe for allowing 

adjustments is often greater than 60 

days, in some case up to 12 months. 

Some commenters noted that this policy 

has resulted in inappropriate errors 

when States have adjusted after 60 days. 

Response: While we understand the 

commenters’ concerns and have 

carefully reconsidered this requirement, 

we are not modifying the adjustment 

rule in regulation at this time. The 

purpose of the rule is to maintain 

consistency across States in the time 

they have to submit adjustments, as well 

as to ensure that the measurement is 

completed on time. As States have 

varying timeframes in which claims are 

adjusted, we cannot extend the 

timeframe in a manner that would 

accommodate all States’ practices. The 

60-day timeframe allows for claims 

adjustments while maintaining a 

timeline that also allows for completing 

the reviews and computing and 

reporting the error rates in time for 

inclusion in the Agency Financial 

Report (AFR). If we extend the 

timeframe to a point beyond 60 days, we 

cannot be assured that the error rate 

measurement process will be completed 

in time to report the error rate. 

However, if an error is cited and it 

would not have been in error had the 

adjustment been considered, the State 

may document in writing to CMS on 

what Form CMS–64 or Form CMS–21 

report this claim’s adjustment was 

included on. In these instances, the 

State will not be required to return the 

FFP to CMS. 

Eligibility Errors 

Comment: One commenter requested 

clarification for what constitutes an 


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eligibility improper payment if an error 

must affect payment to be an improper 

payment. 

Response: An improper payment for 

eligibility is cited when the services 

received by the beneficiary in the 

sample month were improperly paid 

based on the State’s documented 

policies and procedures, in whole or in 

part, due to the ineligibility of the 

beneficiary, the beneficiary receiving 

uncovered services, the beneficiary 

being eligible for the program but 

ineligible for the services he or she 

received, an eligibility review decision 

that cannot be completed, the 

beneficiary’s liability being understated 

or overstated, or the beneficiary being 

improperly enrolled in the correct 

managed care plan. Eligibility errors 

will not result in improper payments if 

no services were received in the sample 

month or, based on State findings, 

services were not received in error. 

Accordingly, we proposed to specify in 

the new § 431.960 that the dollars paid 

in error due to the eligibility error is the 

measure of the payment error. 

Comment: A few commenters 

requested CMS clarify how Liability 

Overstated and Liability Understated 

errors should be computed. 

Response: Liability Overstated and 

Liability Understated are error 

categories addressed in the eligibility 

instructions found at http:// 

www.cms.gov/PERM. The States should 

verify that any liability, co-payment, or 

premium amounts were calculated 

correctly to determine if State and 

Federal dollars were paid correctly. The 

PERM reviews only apply State and 

Federal dollars to the amounts of 

improper payments. Beneficiary dollars 

are not inclusive to the payment error 

rate. Based on State feedback during a 

cycle, we have introduced other 

situations that could result in these 

types of errors and have added it to the 

definitions of these errors in the 

eligibility instructions. 

Comment: A commenter requested 

that we increase the tolerance level for 

cost share liability error to more than 

$25 to factor in caseload growth and 

inflation over the past 30 years. 

Response: While we understand that 

other quality control programs have 

adopted a threshold for certain 

components of the measurement, PERM 

is subject to IPIA requirements and 

there is no allowance for a minimum 

dollar in error threshold. Therefore, we 

are not implementing this 

recommendation. 

Undetermined Eligibility Errors 

Comment: A commenter requested 

clarification on the newly designated 

§ 431.980(e)(1)(vii)(A), which states the 

following: ‘‘If eligibility or ineligibility 

cannot be verified, cite a case as 

undetermined.’’ The commenter asked if 

the text applies to all eligibility 

elements or just the client’s selfdeclared or self-certified eligibility 

elements only. 

Response: The requirements are the 

same for all elements of the review. We 

have provided the information for cases 

cited as undetermined in two places: 

First, we are redesignating 

§ 431.980(e)(1)(viii) as § 431.980(vii)(A) 

to clarify that the new (e)(1)(vi) of this 

section specifically relates to review of 

self-declaration and second, paragraph 

(e)(1)(ix)(B) of this section relates to all 

elements of the eligibility review. 

Comment: Several comments received 

were in reference to cases where the 

sampled beneficiary is incarcerated, and 

therefore, cannot cooperate in the 

eligibility review conducted, often 

resulting in a finding of 

‘‘undetermined.’’ It was recommended 

that CMS add a provision to the 

regulation that in instances where a 

sampled beneficiary is incarcerated, the 

State should be allowed to drop and 

replace this case. Another commenter 

references MEQC and dropping cases in 

which the sampled beneficiary does not 

cooperate. Additional commenters also 

cited the existence of a threshold in 

other quality control programs, such as 

the measurement for the Supplemental 

Nutrition Assistance Program, to allow 

for a certain percentage of cases that 

cannot be completed and recommended 

that a threshold be developed. 

Response: The purpose of the 

‘‘undetermined’’ review findings is to 

address cases such as those described by 

the commenter where the eligibility 

review cannot be completed and/or 

eligibility cannot be verified for the 

PERM review. Therefore, we are not 

adopting this recommendation. 

Beneficiary cooperation is not 

required to complete the PERM review 

and other reasonable evidence may be 

used to verify eligibility if the 

beneficiary cannot be contacted. 

Furthermore, the charge of PERM is to 

calculate a statistically valid error rate, 

which is a different outcome than the 

goals of other quality control programs 

that might employ a threshold. 

Dropping cases that cannot be 

determined lessens the validity of the 

State error rate and introduces risk to 

not meeting IPIA precision 

requirements. Dropping cases would 

also introduce bias into the error rate 

measurement in that universe totals 

cannot be adjusted to account for what 

percentage of the universe, which is 

used to weight the sample each month, 

is comprised of undetermined cases. 

Comment: Several commenters 

recommend that ‘‘undetermined’’ cases 

be excluded from the eligibility 

payment error rate. The commenter 

states that not all ‘‘undetermined’’ cases 

represent dollars in error. 

Response: ‘‘Undetermined’’ cases must 

not be excluded as payment errors as 

they are cases in which there is 

insufficient documentation to verify 

whether, or not, payments made on 

behalf of the sampled case were 

appropriately paid. Under OMB’s IPIA 

guidance, such cases must be included 

as errors. However, as we proposed, we 

will allow States to have their Statespecific error rates calculated with 

undetermined cases included as errors, 

and with undetermined cases excluded 

as errors. We will also post this 

information with the final State-specific 

program and component error rates on 

the medical review contractor’s tracking 

Web site. 

Comment: A few commenters 

expressed concern about excluding 

undetermined cases from State-specific 

error rates, but including them in the 

national payment error rate. Although a 

positive step, the commenters would 

rather exclude undetermined cases 

completely. 

Response: Under the OMB guidance, 

undetermined cases must be included in 

the national error rate. Therefore, we 

cannot exclude those cases completely. 

After some consideration, operationally 

there is no way that we can exclude 

undetermined cases from State errors 

but include them in the national error 

rate. The number and amount of 

undetermined cases will still be 

weighted according to States’ sizes and 

may still be associated with each State. 

CMS’ official error rate for Medicaid 

and/or CHIP includes undetermined 

cases as errors, the States’ error rates for 

future operations must be the Statespecific error rate with undetermined 

cases included as errors. 

As a result, we are removing the 

proposed § 431.960(f)(2) that excludes 

undetermined cases from State specific 

error rates. 

Comment: One commenter asked 

whether or not a missing eligibility case 

record would be considered an 

improper payment as this would 

constitute insufficient or lack of 

documentation and whether or not an 

electronic case record could be used if 

a physical case record cannot be 

obtained. 

Response: For eligibility, a missing 

case record could be classified as a 

technical error and does not affect the 

eligibility of a sampled beneficiary. An 


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eligibility review must still be 

completed for this case using other 

reasonable evidence. Furthermore, we 

define case record at § 431.958 as either 

a hardcopy or electronic file that 

contains information on a beneficiary 

regarding program eligibility. 

Comment: One commenter suggests 

that we exclude undetermined cases 

from the error counts and that if CMS 

is concerned about States placing cases 

in the undetermined category to avoid 

citing them as errors it should hire a 

Federal contractor to conduct re-reviews 

to ensure the accuracy and integrity of 

States’ findings. 

Response: We appreciate the 

recommendation for procuring a 

contractor to complete re-reviews of 

States’ eligibility findings. We continue 

to consider this recommendation as a 

possibility in future operations. 

C. Self-Declaration for Eligibility 

Reviews 

Section 601(c)(2) of the CHIPRA 

requires that the payment error rate 

determined for a State shall not take 

into account payment errors resulting 

from the State’s verification of an 

applicant’s self-declaration or selfcertification of eligibility for, and the 

correct amount of, medical assistance or 

child health assistance, if the State 

process for verifying an applicant’s selfdeclaration or self-certification satisfies 

the requirements for such process. We 

have interpreted the CHIPRA to mean 

that CMS must revise its eligibility 

review procedures to be consistent with 

State self-declaration policies, to the 

extent they conform to Federal 

requirements for self-declaration. 

Currently, States are required to 

review the case record and 

independently verify eligibility criteria 

where evidence is missing, or outdated 

and likely to change, or otherwise as 

needed. We proposed that an 

applicant’s self-declaration statement 

for Medicaid or CHIP would be 

acceptable verification for eligibility 

where State policy allows for selfdeclaration, so long as the following 

requirements are met. The selfdeclaration statement must be: 

• Present in the record; 

• Not outdated (more than 12 months 

old); 

• In a valid, State approved format; 

and 

• Consistent with other facts in the 

case record. 

Additionally, we proposed that if the 

above requirements are not met, a State 

may verify eligibility through a new 

self-declaration statement if permitted 

under State law or policy, and, if a new 

self-declaration cannot be obtained, the 

State may verify eligibility using third 

party sources, for example, 

documentation listed in section 7269 of 

the State Medicaid Manual. We 

proposed that if none of these efforts to 

verify the self-declaration are 

successful, then the case should be cited 

as ‘‘Undetermined.’’ We proposed that 

these undetermined cases would not be 

included in the State-specific payment 

error rate. However, we proposed to 

specify in the new § 431.960 that these 

errors be tracked nationally by 

including these Undetermined cases in 

the national program payment error 

rates. 

We proposed to modify § 431.980 to 

provide these review requirements for 

self-declaration in accordance with 

States’ documented policies and 

procedures. We also proposed to modify 

the PERM eligibility instructions, found 

at http://www.cms.gov/perm/ 

downloads/ 

PERM_Eligibility_Review_Guidance.pdf. 

These instructions, which clarify and 

provide additional guidance in 

implementing the regulations, reflect 

the new review procedures for selfdeclaration. 

We received the following comments 

regarding our proposed revisions to the 

Self-Declaration for Eligibility Reviews. 

Comment: One commenter 

recommended that we clarify the 

regulation to say that States do not have 

to obtain a new self-declaration 

statement for the PERM review and that 

the existing statement meets the 

necessary review criteria. 

Response: The regulation will allow a 

self-declaration that is present in the 

case record to be used to verify 

eligibility for the PERM reviews if it 

meets the requirements of 

§ 431.980(e)(1)(vi). If it does not meet 

these requirements, States may obtain a 

new self-declaration statement, or verify 

the applicant’s eligibility using third 

party sources, including applicable 

caseworker notes, information obtained 

by the PERM reviewer, and 

documentation listed in section 7269 of 

the State Medicaid Manual. 

Comment: One commenter 

recommended that we clarify that 

statements obtained online or over the 

telephone as part of an initial 

application or redetermination are 

acceptable as self-declaration for the 

PERM review. 

Response: For the PERM review, these 

statements qualify as acceptable selfdeclaration if they meet the 

requirements of § 431.980(e)(1)(vi). If 

the self-declaration from the most recent 

case action in the case record does not 

meet these requirements, the eligibility 

of the applicant must be verified in 

accordance with the requirements of 

§ 431.980(e)(1)(vii) and the State’s 

documented policies and procedures. 

Comment: A commenter believes that 

verifying household composition that is 

self-declared, as required by the 

eligibility review instructions, is 

difficult to verify and many times not 

questionable. 

Response: We agree with the 

commenter that verifying household 

composition is difficult and will revise 

the eligibility review guidance to say 

that self-declaration for PERM is an 

acceptable form of verification for the 

PERM review, including household 

composition, as long as the self-declared 

information meets the criteria of 

§ 431.980(e)(1)(vi). 

Comment: Several commenters 

requested clarification for what is 

acceptable self-declaration for the PERM 

review. 

Response: After considering 

comments, we will consider revising the 

eligibility review guidance for verifying 

self-declaration statements for the PERM 

review. The guidance will include 

acceptable forms of self-declaration to 

include information taken over the 

telephone, or information obtained by 

the PERM reviewer, case worker notes, 

information accessed from other 

beneficiary records (for example, the 

Supplemental Nutrition Assistance 

Program), as well as the current 

guidance for obtaining a new selfdeclaration statement in a Stateapproved format. 

Comment: One commenter 

recommended that we reissue eligibility 

review guidance consistent with the 

provisions of the new regulation. 

Another commenter suggested that we 

clarify that the PERM eligibility reviews 

should be conducted consistent with 

State eligibility policies and procedures. 

Response: We plan to release new 

eligibility review guidance based on the 

provisions of the new regulation, as well 

as feedback received from States from 

prior cycles. The purpose of the 

eligibility review is to verify the 

eligibility of sampled cases using State 

eligibility policies and criteria in effect 

in the review month (so long as the 

policies and criteria comply with the 

State plan or if the plan is silent, 

Federal laws and regulations). 

Comment: One commenter agreed 

with our proposed change to allow 

States additional opportunities to 

reduce the number of undetermined 

cases by verifying eligibility using third 

party sources if a new self-declaration 

statement cannot be obtained. 

Response: Although some 

commenters interpret this as a new 

policy, this is not a change from current 


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policy. The eligibility review guidance 

states that other reasonable evidence 

can be used to verify eligibility. We will 

add to this regulation and will consider 

further clarifying in the eligibility 

review instructions that States may use 

other reasonable evidence to verify 

eligibility if a self-declaration statement 

in the case record does not meet the 

requirements of § 431.980(e)(1)(vi) and a 

new self-declaration statement cannot 

be obtained. 

Comment: Several commenters 

wanted to know the rationale behind 

determining two different error rates 

based on whether or not undetermined 

cases are due to self-declaration or other 

reasons. The commenters question the 

purpose of including any undetermined 

cases in the national error rate if they 

are to be excluded from the Statespecific error rates. 

Response: Although we proposed to 

exclude undetermined cases from Statespecific error rates and only include 

them in the national error rate, we have 

discovered that there is no true way to 

exclude undetermined cases and not 

associate them with each State. State 

error rates will continue to be calculated 

with and without the undetermined 

cases. Also, the self-declaration review 

procedures are being revised to reduce 

the number of undetermined cases 

based on conflicts between PERM 

review procedures and State and 

Federal policy. 

Comment: Several commenters are 

concerned that the proposed rule 

contradicts both State self-declaration 

policies and the eligibility review 

procedures from previous years and 

puts CMS at risk of not being compliant 

with the CHIPRA legislation and of 

calculating inconsistent error rates from 

year to year. 

Response: We agree with the concern 

that the proposed rule contradicts State 

self-declaration policies and are revising 

our self-declaration policy to ensure that 

it is not contradictory to States’ selfdeclaration policies and procedures. 

The self-declaration statement for the 

PERM review must be in a valid, Stateapproved format. 

Also, all changes we are making to the 

eligibility review procedures comply 

with the CHIPRA and implement 

process improvements recommended by 

States that have participated in the 

measurements. The goal of PERM is to 

have a consistent measurement process. 

We believe that the new self-declaration 

regulations provide for a consistent 

measurement process while at the same 

time providing CMS with flexibility to 

take into consideration different State’s 

self-declaration policies. We will be 

revising our eligibility review 

procedures in guidance to ensure that 

we obtain more accurate eligibility error 

findings based on current practices for 

State Medicaid and CHIP eligibility 

determinations. 

Comment: A commenter 

recommended clarification in the 

regulation that certain eligibility criteria 

are not always considered outdated if 

verified correctly, but are older than 12 

months, for example, citizenship or 

alien status, birth date, and social 

security number. 

Response: We agree that there may be 

certain eligibility criteria like those 

identified by the commenter that are not 

likely to change, and therefore, are not 

always considered outdated if verified 

correctly, but are older than 12 months. 

Section 431.980(e)(1)(iv) provides that 

States must independently verify 

information that is missing, outdated 

and likely to change, or otherwise as 

needed, to verify eligibility. We will add 

in guidance that in addition to verifying 

outdated information more than 12 

months old, information that is not 

required to be verified every 12 months 

(citizenship is never outdated if verified 

correctly) does not have to be re-verified 

for the PERM review. 

Birth date and social security number 

are examples of eligibility criteria that 

are unlikely to change and the rules on 

outdated information do not apply. We 

will consider making the necessary 

clarifications in guidance that some 

eligibility criteria are unlikely to change 

or are not required to be verified every 

12 months. We will also consider the 

commenter’s suggestion to add alien 

status as a criterion to be verified when 

we issue new eligibility review 

instructions. 

It should also be noted that for the 

PERM review, if applicable verification 

is present in the record, meets the 

State’s documented policies and 

procedures, and is current (for example, 

a paystub to verify income for the 

State’s last action on the case) no further 

verification is required. 

Comment: Several commenters 

believe that PERM’s requirement for a 

new self-declaration statement results in 

an increase of undetermined cases and 

undermines simplification efforts for 

eligibility determinations promoted by 

the CHIPRA legislation. 

Response: The CHIPRA gives the 

Secretary authority to promulgate 

regulations governing the State process 

for verifying an applicant’s selfdeclaration. In accordance with this 

authority, we have determined that a 

new self-declaration statement is only 

required if one does not exist in the case 

record, or, if one does exist in the case 

record, it is outdated; the selfdeclaration statement is not in a valid 

State approved format; or the selfdeclaration statement is inconsistent 

with other facts in the case record. 

Therefore, we do not believe that a new 

self-declaration statement from the 

sampled beneficiary, when required, 

will result in an increase of 

undetermined cases. Additionally, we 

are adding to the regulation that if the 

last case action occurred for the 

sampled case more than 12 months 

prior to the sample month, the selfdeclaration statement must either be 

verified or a new one requested. We are 

also adding to the self-declaration 

criteria in regulation that the selfdeclared information must originate 

from the last action on a case in which 

that last action was no more than 12 

months prior to the sample month. We 

are making this addition to the 

regulation because all eligibility criteria 

that are likely to change must be 

verified as of the sample month for the 

PERM review. States may use other 

reasonable evidence, including 

information from other beneficiary 

records, before contacting the 

beneficiary for verification or a new selfdeclaration statement. Further, 

conflicting information can be resolved 

by the PERM reviewer through other 

reasonable evidence, and an eligibility 

review decision can be made based on 

the most accurate information received. 

Additionally, we believe the selfdeclaration validation requirements, 

including that of a new self-declaration, 

conform to the CHIPRA and are 

reasonable methods of verifying 

eligibility based on self-declarations. 

We would also like to clarify that 

PERM reviewers do not make eligibility 

determinations, but review cases to 

verify eligibility. We will change the 

section heading at § 431.980(e) from 

Eligibility Review Determinations to 

Eligibility Review Decisions. 

Comment: A commenter suggests 

suspending counting undetermined 

cases as errors until the measurement to 

review Express Lane Eligibility is 

developed since both are products of the 

effort to simplify eligibility processes, 

that is, self-declaration and Express 

Lane Eligibility. 

Response: We are unable to suspend 

how we measure undetermined cases. 

Children enrolled in Medicaid or CHIP 

through the Express Lane Eligibility 

option are excluded from MEQC and 

PERM reviews per the CHIPRA. PERM 

will continue to review all other cases 

not enrolled via Express Lane 

Eligibility. When issuing future 

guidance, we will consider how Express 

Lane Eligibility determinations interact 

with PERM. 


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Comment: A commenter requested 

clarification on whether or not 

citizenship can be verified through selfdeclaration. 

Response: States must document 

citizenship based on the Medicaid and 

CHIP regulations and the applicable 

documentation must be present in the 

case record to be verified for PERM. Our 

intent is not to use PERM guidelines to 

change current citizenship verification 

requirements. If citizenship has been 

documented correctly, new verification 

of citizenship (due to verification being 

more than 12 months old) is not 

required because citizenship is not 

likely to change. 

Comment: A commenter requested 

clarification on prior communications 

from CMS to the State regarding 

whether or not a new self-declaration 

statement was required for States with 

continuous eligibility policies, in which 

a recipient is eligible at application or 

redetermination and is eligible for 12 

months, regardless of changes in 

income. 

Response: Previously in guidance a 

new self-declaration statement was 

always required for continuous 

eligibility cases in which a child is 

determined eligible at application or 

redetermination and remains eligible for 

the length of the continuous eligibility 

period specified by the State in its State 

plan (no longer than 12 months), 

regardless of any changes in 

circumstances, for example, income. 

States needed to verify the information 

on the self-declaration statement 

concerning applicant’s eligibility at the 

time of the last case action, which was 

either the initial application for 

eligibility or the State’s most recent 

redetermination of the applicant’s 

eligibility. 

Under the new regulations, a new 

self-declaration statement is only 

required when it does not meet the 

requirements of § 431.980(d)(1)(vi). 

Comment: A commenter suggested we 

revise the proposed § 431.960(d)(3) to 

state, ‘‘A State eligibility error does not 

result from the State’s verification of an 

applicant’s self-declaration or selfcertification of eligibility for, and 

correct amount of, medical assistance or 

child health assistance, if the State 

process for verifying an applicant’s selfdeclaration or self-certification satisfies 

the requirements in Federal law, 

Secretary guidance, or if applicable, 

Secretary approval.’’ 

Response: We agree and are revising 

§ 431.960(d)(3) accordingly. We believe 

this revision appropriately describes the 

self-declaration verification 

requirements. 

Comment: One commenter believes 

that the ability to exclude unwanted 

cases (for example, a case belongs in a 

different stratum than the one in which 

it was sampled) and to drop 

unreviewable cases, such as cases where 

the client does not respond to requests 

for information, is essential to ensuring 

that error rates reflect meaningful 

definitive conclusions. The commenter 

stated that to include sampling mistakes 

and undetermined findings in the error 

rates contaminates corrective actions 

derived from those error rates. The 

commenter also noted that CMS 

Regional Office staff in the past has 

conducted Federal re-reviews for MEQC 

and reviewed cases dropped from the 

MEQC reviews to deter and eliminate 

abuse and that this practice should be 

resumed. 

Response: States are allowed to drop 

cases that were sampled by mistake. 

These cases are not included in the error 

rate. However, undetermined cases are 

included in the error rate due to the 

inability to determine if services paid on 

behalf of a beneficiary were properly 

paid. We appreciate the commenter’s 

suggestion to re-implement Federal rereviews for MEQC, and, although the 

majority of States conduct pilot reviews 

and are under section 1115 waivers and 

therefore exempt from several of the 

‘‘traditional’’ MEQC provisions, we will 

consider this and other options for 

future operations. 

Eligibility Review Procedures 

Comment: A commenter noted that 

the proposed rule should clarify if 

States only look at information available 

at the time of client application/ 

eligibility review/last action processing 

vs. information discovered during the 

IPIA review that was being withheld by 

the client. 

Response: We disagree with this 

clarification. The eligibility review 

requirements tell the agency that it must 

review the documentation in the case 

record, and independently verify 

eligibility criteria where information is 

missing, outdated and likely to change, 

or otherwise as needed. If there is 

inconsistent information in the case 

record, the PERM reviewer is 

responsible for resolving any 

inconsistencies by using case record 

documentation or other reasonable 

evidence. 

Comment: One commenter 

recommended clarifying the timeframe 

for submitting eligibility reports as 

written in the eligibility guidelines. The 

commenter noted that the language 

indicates that 100 percent of case review 

findings must be completed within 150 

days and payment review findings 

within 210 days. However, the 

commenter stated that in practice CMS 

allowed States to submit and adjust a 

report beyond these timeframes in 

previous cycles, as long as findings were 

complete by July 1. The commenter 

recommended that the guidance should 

be revised to indicate that these 

timeframes are for ‘‘initial’’ reporting. 

Response: We appreciate the 

commenter’s concern and we will 

consider this recommendation when we 

revise our guidance. 

Comment: One commenter requested 

that we add language to the regulations 

to allow States to impose Medicaid and 

CHIP sanctions for noncompliance with 

PERM eligibility reviews. 

Response: A client’s noncompliance 

with a PERM review is not specified as 

a reason in Federal statute or regulation 

for denial or termination of Medicaid or 

CHIP participation or benefits or for 

imposition of sanctions. There is no 

authority under Federal statute or 

regulation that allows a State to treat a 

beneficiary’s cooperation or lack of 

cooperation with PERM reviews as a 

condition of eligibility for Medicaid or 

CHIP. The appropriate action for cases 

where a client does not cooperate in any 

audit process is to send the case back to 

the responsible agency for an official 

redetermination. 

D. Difference Resolution and Appeals 

Process 

Section 601(c)(1)(B) of the CHIPRA 

requires CMS to include in the new 

final rule for PERM a clearly defined 

process for appealing error 

determinations by review contractors or 

State agency and personnel responsible 

for the development, direction, 

implementation, and evaluation of 

eligibility reviews and associated 

activities. 

1. Medical and Data Processing Review 

The October 5, 2005 IFC established 

the difference resolution process, which 

is codified at § 431.998. Medical reviews 

and data processing reviews for FFS and 

managed care payments are conducted 

by an independent Federal contractor. 

States supply relevant policies but do 

not participate in the review; States are 

notified of all error findings. The 

difference resolution process is the 

mechanism by which a State may try to 

resolve with the Federal contractor 

differences in the Federal contractor’s 

error findings; the State may appeal to 

CMS if it cannot resolve the difference 

in findings with the Federal contractor. 

In accordance with the CHIPRA, we 

proposed a timeline associated with the 

difference resolution and CMS appeals 

processes. We also proposed to revise 


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the heading of § 431.998 to read, 

‘‘Difference resolution and appeal 

process,’’ which more accurately 

describes the regulation. 

We proposed to revise § 431.998 to 

explain that the State may file, in 

writing, a request with the Federal 

contractor to resolve differences in the 

Federal contractor’s findings based on 

medical or data processing reviews of 

FFS and managed care claims in 

Medicaid or CHIP within 10 business 

days after the disposition report of 

claims review findings is posted on the 

contractor’s Web site. Additionally, the 

State may appeal to CMS for a final 

resolution within 5 business days from 

the date the contractor’s finding as a 

result of the difference resolution is 

posted on its Web site. 

In addition to establishing the 

timeline for the difference resolution 

and appeal processes, we proposed to 

eliminate the dollar threshold for 

engaging in the CMS appeals process. 

Section 431.998 currently provides that 

States may apply to the Federal 

contractor to resolve differences in 

findings and may appeal to CMS for 

final resolution for any claims in which 

the State and Federal contractor cannot 

resolve the difference in findings, as 

long as the difference in findings is in 

the amount of $100 or more. We 

established the $100 threshold in order 

to prevent de minimis disputes and to 

ensure that appeals to CMS were 

substantial enough to warrant 

reconsideration. We were also 

concerned that a large volume of smalldollar appeals would prevent the States 

from receiving timely decisions on their 

appeals. 

Information from the FY 2006 and FY 

2007 PERM cycles on the number of 

total claims (including those with errors 

less than $100) submitted to the Federal 

contractor for difference resolution and 

on the number appealed to CMS for 

final resolution suggests that the volume 

of appeals will not substantially 

increase if CMS allows appeals of errors 

of less than $100. Because all errors 

regardless of their dollar amount 

ultimately contribute to a State’s error 

rate and hence the national error rate, 

we proposed to remove the $100 

threshold set forth in § 431.998(b)(1). 

2. Eligibility 

As stated in the current PERM 

regulations at § 431.974(a)(2), personnel 

responsible for PERM eligibility 

sampling and review ‘‘must be 

functionally and physically separate 

from the State agencies and personnel 

that are responsible for Medicaid and 

CHIP policy and operations, including 

eligibility determinations.’’ The intent of 

this provision was to ensure the 

independence of the review in order to 

achieve an unbiased error rate. We 

provided further clarification in the 

preamble of the August 2007 final rule, 

indicating that the agency responsible 

for PERM could be under the same 

umbrella agency that oversees policy, 

operations and determinations but the 

two agencies cannot report to the same 

supervisor. 

In the preamble to the proposed rule, 

we further clarified that qualified staff 

with knowledge of State eligibility 

policies may be used to conduct the 

eligibility reviews, but the staff that is 

chosen must be independent from the 

staff that oversees policy and 

operations. 

We would further like to clarify that 

we consider staff to be independent if 

they temporarily work on PERM 

eligibility reviews even though they 

usually work under eligibility policy 

and operations, so long as the staff does 

not discuss PERM eligibility reviews 

with the staff that oversees policy and 

operations during the time the staff is 

working on PERM eligibility reviews. 

Furthermore, the PERM eligibility 

instructions ask States to provide 

assurance that the agency or contracting 

entity responsible for the PERM 

eligibility reviews (‘‘Agency’’) is 

independent of the State Medicaid or 

CHIP agency responsible for eligibility 

determination and enrollment. The 

State is responsible for ensuring the 

integrity of the PERM eligibility 

reviews, but we do not preclude the 

agency from sharing or reporting the 

PERM eligibility review findings to the 

State Medicaid or CHIP agencies. 

Provided that agency independence 

could cause a difference in findings 

between the agency and the State 

Medicaid and CHIP agencies, we 

proposed that appeals for eligibility 

review findings should be conducted in 

accordance with the State’s appeal 

process, as eligibility reviews are 

conducted at the State level. 

In consideration of States that may 

not have a State appeals process in 

place, we proposed to make State 

findings available to each respective 

State’s Medicaid and CHIP agencies for 

the period between the final monthly 

payment findings submission and 

eligibility error rate calculation, for 

example, April 15th through June 15th 

after the fiscal year being measured or 

according to the eligibility timeline. We 

proposed facilitating documentation 

exchange between the State Medicaid or 

CHIP agency and the agency conducting 

the PERM eligibility reviews to resolve 

differences. If any eligibility appeals 

issues involve Federal policy, States can 

appeal to CMS for resolution. If our 

decision causes an erroneous payment 

finding to be made, any resulting 

recoveries will be governed by 

§ 431.1002. 

We proposed that the State Medicaid 

or CHIP agencies may document their 

differences in writing to the agency for 

consideration. If resolutions of 

differences occur during the PERM 

cycle, eligibility findings can be 

updated to reflect the resolution. If 

differences are not resolved by the 

deadline for eligibility findings to be 

submitted to CMS (July 1), the 

documentation of the difference can be 

submitted to CMS for consideration no 

sooner than 60 days and no later than 

90 days after the deadline for eligibility 

findings. 

We also solicited comments on other 

ways that we can implement an 

eligibility appeals process for which we 

can provide consistent oversight. 

We received the following comments 

regarding our proposed revisions to the 

Difference Resolution and Appeals 

Process. 

Fee-for-Service and Managed Care 

Appeals Process 

Comment: Several commenters 

requested that the timeline for a State to 

request difference resolution with the 

review contractor be extended. Many 

commenters suggested extending the 

timeframe from 10 business days to 15 

business days, while others requested 

an extension to 20 business days. In 

addition, the commenters asked that the 

timeframe to request an appeal to CMS 

be extended from 5 business days. The 

majority of commenters suggested 

allowing 10 business days to request an 

appeal, while others suggested 15 

business days. 

Response: We agree that more time to 

file a difference resolution and appeal 

would be beneficial for States, and are 

adopting the recommendation to allow 

States 20 business days to request a 

difference resolution and 10 business 

days to request an appeal to CMS. We 

are revising the language at § 431.998 

accordingly. 

Eligibility Appeals Process 

Comment: A few commenters believe 

that a new process would have to be 

developed to implement an eligibility 

review appeals process and that this 

will create a workload that will impact 

the timely submission of monthly 

findings when errors are identified. 

Response: States may develop an 

appeals process if one does not exist at 

the State level. States do not have to 

implement a new process for eligibility 

appeals if there is already a process in 


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place or no error findings are in dispute. 

The agency should submit all findings 

according to the deadlines and have 

until the designated deadline after the 

fiscal year being measured to resubmit 

findings based on the State level appeals 

process. 

Comment: One commenter endorses 

the proposed eligibility appeals process 

but cautions CMS that it must ensure 

consistency during the resolution 

process if its assistance is needed by 

States. 

Response: We appreciate the 

comment. In addition to CMS 

intervention for Federal policy issues, 

we are considering developing guidance 

for a standard process for States to 

exchange documentation to ensure 

consistency between States. As this is a 

new policy, changes to the procedure 

may need to be updated to best meet the 

needs of States. Any procedural changes 

will be communicated to States as 

necessary. 

Comment: Some commenters needed 

clarification on who renders a final 

decision on eligibility appeal findings. 

Response: If States have a functioning 

appeals process at the State level, this 

must be used to resolve eligibility issues 

of State policy. The purpose for 

allowing for an existing State level 

appeals process to be used to resolve 

differences on eligibility review findings 

is to have a third party settle disputed 

review decisions between the agency 

and the State Medicaid and CHIP 

agencies. Review findings would be 

revised or unchanged based on the 

findings of the third party and not the 

agency or State Medicaid or CHIP 

agency. States must use an appeals 

process at the State level to resolve 

State-level policy issues. If the State 

does not have a State level appeals 

process in place (for example, an 

appeals process set up to dispute MEQC 

findings could be used for PERM 

purposes) documentation exchange can 

take place between the two parties, with 

CMS as facilitator and based on new 

information or policy clarifications 

provided by the policy branch. The 

agency will make a final review 

decision. The agency’s final review 

decision may be appealed to CMS for 

consideration no sooner than 60 days 

and no later than 90 days after the final 

deadline for eligibility findings. If any 

eligibility appeals issues involve 

Federal policy, States can appeal 

directly to CMS for resolution. CMS’ 

decisions will be final. 

E. Harmonization of Medicaid Eligibility 

Quality Control (MEQC) and PERM 

Programs 

1. Options for Applying PERM and 

MEQC Data 

Section 601(e)(2) of the CHIPRA 

requires that, once this final rule is 

effective for all States, States will be 

given the option to elect, for purposes 

of determining the erroneous excess 

payments for medical assistance ratio 

applicable to the State for a fiscal year 

under section 1903(u) of the Act, to 

substitute data resulting from the 

application of the PERM requirements 

to the State for data obtained from the 

application of the MEQC requirements 

to the State with respect to a fiscal year. 

We had proposed that this substitution 

option would not be effective until 6 

months after the final rule is in effect 

based on the CHIPRA’s requirement 

under section 601(b) that there shall be 

no calculation or publication of any 

national or State specific CHIP error rate 

until 6 months after the final rule is 

effective. However, because the MEQC 

program does not measure all CHIP 

eligibility errors, we believe that a more 

accurate interpretation of the CHIPRA is 

to not require the 6-month delay. 

Nevertheless, because section 601(e)(2) 

permits the PERM data substitution for 

MEQC data only after the final rule is in 

effect, States will not have this 

substitution option until after the final 

rule is effective. 

We considered several interpretations 

of the CHIPRA requirements that would 

allow States the option to substitute 

PERM data for MEQC data for purposes 

of the MEQC reviews, but would also 

retain two separate, independent 

processes (MEQC and PERM), which are 

governed by separate statutes and 

regulations. As PERM is required to 

meet specific statistical precision 

requirements and the MEQC error rate is 

not, we do not believe it is feasible to 

incorporate the PERM error rate into a 

State’s overall MEQC error rate. 

Therefore, we proposed to interpret 

‘‘data’’ as the sample, eligibility review 

findings, and payment findings as 

measured under MEQC or PERM. We 

also proposed to calculate separate rates 

for each program. 

We proposed to amend § 431.806 and 

§ 431.812 of the MEQC regulations. 

These proposed amendments would 

provide for the State’s option in its 

PERM year to use their samples, 

eligibility findings, and payment 

findings as measured using PERM 

sampling and review requirements to 

meet their MEQC review requirement. 

After further consideration, we are 

adding the exception that PERM cases 

cited as undetermined errors may be 

dropped from the MEQC error rate 

calculation so long as the reasons for the 

dropped cases are in accordance with 

section 7230 of the State Medicaid 

Manual. The PERM data and results will 

be used to meet the statutory and 

regulatory (‘‘traditional’’) MEQC 

requirements. All provisions for 

‘‘traditional’’ MEQC will apply, 

including the 3 percent national 

standard and disallowance provisions. 

We proposed that States that choose 

to substitute PERM data for MEQC data, 

would still have two eligibility error 

rates calculated—one for MEQC using 

MEQC measurement requirements and 

one for PERM using PERM 

requirements. We proposed to revise 

§ 431.806 of the MEQC regulations to 

require that a State plan be amended for 

States opting to use PERM for MEQC in 

a State’s PERM cycle. 

We proposed to amend § 431.812 of 

the MEQC regulation to provide that 

States substituting PERM data for MEQC 

data must use a sampling plan that 

meets the requirements of § 431.978 of 

the PERM regulation and perform active 

case reviews in accordance with 

§ 431.980 of the PERM regulation. 

We proposed that States with CHIP 

stand alone programs will only have the 

option to substitute PERM Medicaid 

data to meet MEQC requirements under 

§ 431.812(a) through (e) since CHIP 

stand alone programs are not reviewed 

under MEQC. 

We also proposed that States with 

Medicaid and Title XXI Medicaid 

expansion programs may use Medicaid 

and CHIP PERM reviews to meet the 

MEQC requirements described under 

§ 431.812(a) through (e), as both 

Medicaid and Title XXI Medicaid 

expansion programs are reviewed under 

MEQC. States with Title XXI Medicaid 

expansion programs must combine their 

Medicaid and CHIP PERM findings to 

calculate one MEQC error rate. The data 

must be kept separate for purposes of 

calculating the PERM error rates. 

In addition, we proposed that States 

with combination CHIP programs, in 

which a portion of their CHIP cases are 

under a stand-alone program and a 

portion of their CHIP cases are under a 

Title XXI Medicaid expansion program, 

may use the PERM Medicaid eligibility 

reviews and the portion of the PERM 

CHIP eligibility reviews under Title XXI 

Medicaid expansion programs to meet 

their MEQC requirement. The Federal 

contractor will combine the CHIP case 

findings under the Title XXI Medicaid 

expansion program and CHIP stand 

alone findings to calculate one PERM 

CHIP error rate. The Title XXI Medicaid 

expansion portion of the PERM data 


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must be included with the Medicaid 

PERM data to calculate the MEQC error 

rate. 

Section 601(e)(3) of the CHIPRA 

provides that for purposes of satisfying 

the requirements of the PERM 

regulation relating to Medicaid 

eligibility reviews, a State may elect to 

substitute data obtained through MEQC 

reviews conducted in accordance with 

section 1903(u) of the Act for data 

required for purposes of PERM 

requirements, but only if the State 

MEQC reviews are based on a broad, 

representative sample of Medicaid 

applicants or enrollees in the States. 

The CHIPRA’s general effective date of 

April 1, 2009 applies to this provision. 

Therefore, as of April 1, 2009, States 

have the option to substitute MEQC data 

for PERM data so long as the MEQC 

reviews are based on a broad, 

representative sample of Medicaid 

applicants or enrollees in the States. 

We considered several interpretations 

of the CHIPRA requirements that would 

allow States the option to substitute 

MEQC data for PERM data for purposes 

of the PERM reviews, but would also 

retain two separate, independent 

processes (MEQC and PERM), which are 

governed by separate statutes and 

regulations. As PERM is required to 

meet specific statistical precision 

requirements and the MEQC error rate is 

not, we do not believe it is feasible to 

incorporate the MEQC error rate into a 

State’s PERM error rate. Therefore, we 

proposed to interpret ‘‘data’’ as the 

sample, eligibility review findings, and 

payment findings as measured under 

MEQC or PERM. We will calculate 

separate rates for each program. States 

operating under MEQC waivers and 

pilot programs cannot use this option 

because the CHIPRA only permits 

substitution of MEQC data for PERM 

reviews where the MEQC review is 

conducted under section 1903(u) of the 

Act, and the MEQC waivers and pilot 

programs are not conducted under the 

requirements of section 1903(u) of the 

Act. Additionally, the CHIPRA only 

permits substitution of MEQC data if the 

reviews are based on a ‘‘broad, 

representative sample’’ of Medicaid 

applicants and beneficiaries. MEQC 

section 1115 waivers and pilot programs 

are special studies or conducted on 

focused populations of Medicaid 

beneficiaries and are not considered a 

representative sample of all Medicaid 

beneficiaries. 

We proposed to interpret ‘‘broad, 

representative sample of Medicaid 

applicants or enrollees’’ to mean that 

States must develop the MEQC universe 

according to requirements at § 431.814 

in order to consider the option to use 

one program’s findings to meet the 

requirements for the other. Under 

§ 431.814, States must sample from a 

universe of all Medicaid and Title XXI 

Medicaid expansion beneficiaries 

(except for the exclusions provided in 

§ 431.814(c)(4)). States operating MEQC 

pilots or waivers will need to continue 

operating PERM separately from MEQC. 

Additionally, we proposed that the 

MEQC samples must meet the PERM 

confidence and precision requirements. 

We are clarifying here that this means 

that the MEQC sample size may need to 

be adjusted to meet the PERM 

confidence and precision requirements 

if the State elects to substitute MEQC 

data for PERM data. 

We proposed that States with CHIP 

stand alone programs only have the 

option to substitute Medicaid MEQC 

data to meet the PERM Medicaid 

eligibility review requirement, as CHIP 

stand alone is not reviewed under the 

MEQC review. 

We also proposed that States with 

Title XXI Medicaid expansion programs 

may use their MEQC reviews described 

in § 431.812(a) through (e) to meet both 

the PERM Medicaid and CHIP eligibility 

review requirements, as both Medicaid 

and Title XXI Medicaid expansion are 

reviewed under MEQC. Title XXI 

Medicaid expansion data must be 

separated from the MEQC Medicaid data 

to calculate a PERM CHIP error rate. 

We also proposed that States with 

combination programs in which a 

portion of their CHIP cases are under a 

stand-alone program and a portion of 

their CHIP cases are under a Title XXI 

Medicaid expansion program may use 

the MEQC reviews described under 

§ 431.812(a) through (e) to meet the 

PERM Medicaid eligibility review 

requirement and the portion of the 

PERM CHIP eligibility review 

requirement under Title XXI Medicaid 

expansion. However, the stand alone 

portion of the CHIP universe must 

remain separate and either stratified or 

not stratified, as described in 

§ 431.978(d)(3), as CHIP stand alone is 

not measured under the MEQC program. 

The Federal contractor, who we 

proposed will calculate State eligibility 

error rates, will combine the Title XXI 

Medicaid expansion and CHIP stand 

alone findings to calculate one PERM 

CHIP error rate. 

In addition, we proposed to amend 

§ 431.980 to allow for States in their 

PERM year the option to use their 

MEQC samples, eligibility findings, and 

payment findings to meet their PERM 

eligibility review requirement. We 

proposed that MEQC reporting 

requirements to the CMS Regional 

Offices remain the same, including 

reporting the error findings for the two 

6-month review periods, but States will 

also be required to comply with the 

PERM eligibility reporting deadlines by 

posting error findings to the PERM Error 

Rate Tracking (PERT) Web site or other 

electronic eligibility findings repository 

specified by CMS. We proposed that 

States that choose to substitute MEQC 

data for PERM data, will still have two 

eligibility error rates calculated—one for 

MEQC using MEQC measurement 

requirements and one for PERM using 

PERM requirements. 

We also proposed that States that 

choose to substitute MEQC or PERM 

data should note that although two error 

rates are calculated, only the MEQC 

error rate will be subject to 

disallowances under section 1903(u) of 

the Act. PERM does not have a 

threshold for eligibility errors and any 

improper payments identified during 

the eligibility measurement are subject 

to recovery according to § 431.1002 of 

the regulations. 

We proposed that if a State chooses to 

substitute PERM or MEQC data, the 

State may not dispute error findings or 

the eligibility error rate based on the 

possibility that findings would not have 

been in error had the other review 

methodology been used. 

We solicited comments on the 

following alternative process for the 

substitution of MEQC and PERM data: 

States would select one annual sample 

that meets MEQC minimum sample 

requirements and PERM confidence and 

precision requirements. The State 

would conduct both an MEQC review 

and a PERM review on each applicable 

case. This would ensure a clear 

distinction between an MEQC error and 

a PERM eligibility error, and would be 

the basis for the MEQC error rate and 

the PERM eligibility error rate. We also 

solicited comments on other possible 

methods for substitution of data. 

States that choose to substitute MEQC 

data may only claim the regular 

administrative matching rate for 

performing the MEQC procedures for 

Medicaid and Title XXI Medicaid 

expansion cases. The 90 percent PERM 

enhanced administrative matching rate 

will only be applicable to States 

conducting PERM reviews for CHIP 

cases. 

2. Definition of a Case 

Section 431.958 currently defines a 

case as an ‘‘individual beneficiary.’’ 

States are required to sample and 

conduct eligibility and payment reviews 

for an individual beneficiary even if the 

State grants eligibility at the family 

level. However, sampling at the 

individual beneficiary level has proven 


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to be difficult for States from a 

programming perspective. 

Many States receive, review, and 

grant eligibility based on an application 

for an entire family, which could be for 

one person or multiple people. Dividing 

the family unit for PERM eligibility 

sampling has been difficult for States to 

achieve. 

The MEQC regulation, at § 431.804, 

defines an active case, in pertinent part, 

as an ‘‘individual [beneficiary] or 

family.’’ Changing the definition of a 

case for PERM eligibility to include both 

individual beneficiaries and families 

will support the harmonization process 

and reduce redundancies in the MEQC 

and PERM programs as required by 

section 601(e)(1) of the CHIPRA, by 

making it easier for States to utilize their 

new option of substituting PERM data 

for MEQC data, and vice versa. 

Therefore, we proposed to revise the 

definition of a case in § 431.958 to mean 

an individual or family, at a State’s 

option. 

3. Error Rate Calculation: State 

Responsibility for Calculating Error 

Rates 

Section 431.988 requires, as part of 

the PERM eligibility review process, for 

States to calculate and report case and 

payment error rates for active cases and 

case error rates for negative cases. As 

originally envisioned, States retained 

responsibility for sampling cases, 

conducting eligibility reviews, 

collecting payment information for 

errors, and calculating eligibility error 

rates. States were to report final 

eligibility error rates to CMS, which will 

forward the information to the Federal 

contractor for inclusion in the overall 

State and national error rates. 

In practice, States have found it 

difficult to calculate the eligibility error 

rates. In most cases, States lack the 

necessary statistical or technical 

expertise to execute the error rate 

calculation formulas provided in the 

PERM eligibility instructions. During 

the FY 2007 cycle, the Federal 

contractor provided substantial 

technical assistance to the States to 

assist them in conducting these 

calculations including developing a 

spreadsheet that States could use to 

perform the required calculations. 

Several States requested that, rather 

than have the Federal contractor 

provide a spreadsheet that the States 

merely populate and return to CMS, the 

Federal contractor perform the required 

calculations. 

Initially, we did not consider it 

feasible for the Federal contractor to 

conduct the PERM eligibility error rate 

calculations because the States conduct 

the reviews and maintain the case and 

payment error data. However, during FY 

2007, we developed a centralized 

reporting system for monthly case and 

payment error data. The Federal 

contractor can access the centralized 

system to conduct the eligibility error 

rate calculations. 

Given the difficulties States have 

experienced in calculating the PERM 

eligibility error rates and that there are 

now mechanisms and processes for the 

Federal contractor to calculate these 

error rates, we proposed to revise 

§ 431.988(b)(1) and (b)(2) by replacing 

‘‘rates’’ with ‘‘data’’ to read as follows: 

‘‘The agency must report by July 1 

following the review year, information 

as follows: (1) Case and payment error 

data for active cases; and (2) Case error 

data for negative cases.’’ 

We maintain that this approach will 

reduce the burden on the States, reduce 

redundancies in the MEQC and PERM 

programs, and more accurately reflect 

current practice, which is that the 

Federal contractor calculates the 

eligibility error rates used in the 

generation of the PERM error rate, as 

well as the State and national-level error 

rates. We will continue to require States 

to report data, including the total 

number of cases in the universe, to the 

centralized reporting system and will 

provide States with a spreadsheet or 

similar calculator that can be used to 

estimate their own eligibility error rates, 

but will not require States to submit 

these estimates to CMS. 

We received the following comments 

regarding our proposed revisions to the 

harmonization of MEQC and PERM 

programs. 

PERM & MEQC Data Substitution 

Comment: One commenter requested 

clarification on the relationship between 

PERM and the claims processing 

assessment system (CPAS) in § 431.806. 

Response: There is no direct 

relationship between PERM and CPAS. 

The end of redesignated paragraph (c) 

was changed from referring to 

‘‘assessment that meets the requirements 

of § 431.830 through § 431.836 of this 

subpart’’ to ‘‘assessment that meets the 

requirements of § 431.836 of this 

subpart’’ by mistake and will be revised 

to show the original range ‘‘§ 431.830 

through § 431.836’’. Section 431.806 was 

revised to add paragraph (b), and 

redesignate paragraph (b) as (c). 

Paragraph (b) was added, which 

requires that a State’s ‘‘State Plan 

provide a State Plan Amendment for 

States opting to use PERM for MEQC in 

a State’s PERM cycle.’’ 

Comment: One commenter questioned 

whether the Medicaid eligibility 

sampling plan would need to be 

submitted separately from the CHIP 

plan due to the PERM for Medicaid 

MEQC substitution. 

Response: Section 431.978(a) of the 

regulation already requires States to 

submit separate Medicaid and CHIP 

sampling plans and States will need to 

continue to do so. 

Comment: One commenter believes 

that harmonization does not reduce the 

burden on States that are required to 

generate PERM and MEQC eligibility 

review data by conducting a PERM and 

an MEQC review on each sampled case. 

Response: We appreciate the 

comment regarding the proposed 

alternative substitution process. Based 

on public comments, we are finalizing 

that States would not be required to 

separately sample and review if 

substituting PERM for MEQC or vice 

versa. States substituting MEQC data for 

the PERM review will use MEQC review 

requirements. States substituting PERM 

data for the MEQC review use PERM 

review requirements. However, while 

MEQC allows cases to be dropped from 

review under certain circumstances, as 

discussed in the proposed rule, 

undetermined cases must be included in 

the PERM error rate. Accordingly, we 

are revising § 431.980(f) to clarify that 

all MEQC cases must be included in the 

PERM error rate. States must either 

apply a PERM eligibility review findings 

to dropped MEQC cases, or cite the 

cases as an undetermined errors. 

We intend to calculate two error rates. 

For the MEQC error rate measured using 

PERM data, we are using the lower limit 

of the confidence interval, that is 

typically used for MEQC and allowing 

drops for MEQC that are allowable in 

the MEQC manual. For the PERM error 

rate measured using MEQC data, we 

will use the midpoint estimate typically 

used for PERM and any MEQC drops 

will be considered part of the PERM 

error rate. 

Comment: One commenter suggested 

that PERM precision requirements be 

used when sampling for eligibility 

under both the MEQC and PERM 

programs, and that traditional MEQC 

reviews should be conducted on each 

sampled case when substituting MEQC 

data for PERM. The commenter stated 

that this would produce an MEQC error 

rate using the lower limit and a PERM 

error rate using the midpoint. The 

commenter believes that corrective 

action plans would have more 

meaningful findings using MEQC 

review methodology. Another 

commenter stated that its State conducts 

traditional MEQC reviews and 

appreciates this proposal. 


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Response: We appreciate the 

alternatives that commenters provided 

for us to consider in the future as viable 

operational changes to reduce 

redundancies between the two 

programs. As discussed previously, we 

are finalizing that when substituting 

MEQC data for PERM data, the MEQC 

sample, MEQC eligibility review 

findings, and MEQC payment review 

findings, which must include any 

dropped cases and sufficient cases to 

meet the PERM precision requirements, 

will be used in calculating the PERM 

error rate. When substituting PERM data 

for MEQC data, the PERM sample, 

PERM eligibility review findings, and 

PERM payment review findings will be 

used in calculating the MEQC error rate. 

PERM cases cited as undetermined may 

be dropped from the MEQC error rate 

calculation so long as the reasons for the 

dropped cases are in accordance with 

section 7230 of the State Medicaid 

Manual. 

Comment: One commenter believes 

that it was proposed that States with 

approved MEQC pilots have no options 

and must continue the pilots and also 

do PERM reviews. 

Response: We do not agree. States 

with approved MEQC pilots have the 

option to return to a ‘‘traditional’’ MEQC 

review and substitute the MEQC data for 

PERM, or discontinue the MEQC pilot 

and use the PERM reviews to substitute 

the data for ‘‘traditional’’ MEQC. 

Comment: Some commenters do not 

believe we are complying with the 

CHIPRA which clearly requires the 

harmonization of MEQC and PERM and 

that we should modify the rule to truly 

harmonize the two programs. Among 

the commenters’ concerns are that 

PERM and MEQC continue to have 

differences in sample size, sampling 

methodologies (including stratification), 

review procedures, error rate 

calculations and other significant 

differences. 

Response: We disagree with the 

commenter that we are not in 

compliance with the CHIPRA and the 

harmonization provisions. The 

substitution options do reduce 

redundancies as required by the 

CHIPRA in that only one sample will be 

drawn and one review process will be 

used, which is where many of the 

redundancies between PERM and 

MEQC lay. But the underlying statutory 

requirements keep us from changing 

other places where PERM and MEQC 

overlap, such as the error rate 

calculation. Two separate error rates, 

one for PERM and one for MEQC, must 

still be calculated. We appreciate the 

commenter’s concerns and may address 

them in future rulemaking. 

Comment: A few commenters do not 

believe that many States will opt to 

substitute data because substitution will 

require States to return to traditional 

MEQC reviews and leave them subject 

to disallowances that they otherwise 

would not have been subjected to, if 

they experience error rates over the 3 

percent national standard. Commenters 

stated that at the same time States 

would be subject to PERM recoveries. 

Response: We understand that States 

may not conduct traditional MEQC 

reviews for a variety of reasons. The 

intent of offering both options of 

substituting PERM or MEQC data is for 

States, at their option, to choose what is 

most beneficial for their State and to 

comply with the CHIPRA. 

Comment: Some commenters believe 

that since pilot States and traditional 

MEQC States will be allowed to 

substitute PERM negative case reviews 

to meet the negative MEQC 

requirements for Medicaid, States may 

have a semblance of savings. 

Response: The August 2007 PERM 

final rule made effective the option for 

States to use PERM negative case 

reviews to meet the negative MEQC 

requirement and some States have 

already realized these savings. 

Comment: One commenter agrees 

with the stipulation that error findings 

and error rates cannot be disputed based 

upon any realization that the error 

findings would have been different or 

error rates would have been lower had 

the other programs’ review methodology 

been used. The commenter stated that 

once an eligibility review methodology 

is selected, all rules pertinent to the 

selected eligibility review methodology 

must prevail. 

Response: We appreciate this 

comment. 

Comment: One commenter expresses 

that there are fundamental differences 

in the MEQC and PERM review 

methodology mostly centering on 

consideration of the administrative 

period. Simply substituting MEQC 

findings for PERM reporting purposes 

would yield potentially higher error 

rates for MEQC due to the exclusion of 

the administrative period under MEQC 

regulations. 

Response: We agree that there are 

fundamental differences between PERM 

and MEQC, but if States choose to 

substitute MEQC data for the PERM 

data, the MEQC administrative period 

will be applied. States are not required 

to substitute data if there are concerns 

of a potentially higher error rate for 

either program. 

Comment: One commenter stated that 

pilots are a valuable option to be able 

to focus on targeted error prone areas to 

reduce errors and improve program 

administration. Another commenter 

disagrees with not allowing pilot MEQC 

States to use the pilot findings to meet 

PERM eligibility requirements. Both 

commenters agree that in order to 

reduce the duplication of effort and take 

advantage of the harmonization effort, 

States would have to give up the pilot 

option and revert back to traditional 

MEQC with the possibility of sanction 

liability. The commenters suggested that 

we consider allowing PERM data to be 

substituted for data used in MEQC 

pilots, and allow MEQC pilot data to be 

substituted for PERM data for purposes 

of meeting the PERM requirements. 

Response: We do not agree with this 

recommendation. To comply with the 

IPIA, the PERM program must sample 

from the entire Title XIX and Title XXI 

eligibility case universe, subject to the 

enumerated regulatory exceptions. The 

universe of a MEQC pilot would not 

meet the broad PERM eligibility 

universe requirements because MEQC 

pilot programs have narrower eligibility 

universes that use focused reviews or 

special studies. 

For the same reason, MEQC pilot 

programs do not meet the CHIPRA’s 

requirement that MEQC data substituted 

for PERM data to meet the PERM 

requirements must be based on a broad, 

representative sample of all Medicaid 

beneficiaries. 

Additionally, the CHIPRA only 

permits substitution of MEQC and 

PERM data where the MEQC review is 

conducted under section 1903(u) of the 

Act. 

Definition of a Case 

Comment: Some commenters 

expressed concern regarding our 

proposal to revise the definition of a 

PERM ‘‘case’’ from an ‘‘individual 

beneficiary’’ to an ‘‘individual 

beneficiary or family.’’ Some 

commenters had concerns about the 

potential for increased workloads, 

noting that changing the PERM 

definition of ‘‘case’’ to an ‘‘individual 

beneficiary or family,’’ would require 

changes to universe development 

programs and require more time to 

review a family rather than an 

individual. Other commenters 

questioned what a payment error would 

be comprised of if one family member 

were ineligible but not the others and 

whether the definition change would 

lead to more errors and a higher State 

and national error rate. Some 

commenters supported this definition 

change, noting that in their States 

eligibility is based on a family 

application and the revised definition 


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would simplify programming and 

review. 

Response: This new definition 

parallels the definition of a case used in 

MEQC in support of PERM–MEQC 

harmonization. We are finalizing the 

definition of a case as proposed. 

However, we offer the following 

clarifications. For States where 

sampling at the individual beneficiary 

level is easier from a programming and/ 

or review perspective, no changes to a 

State’s process need to be made. States 

that opt to sample at the family level 

will need to update their sampling plans 

accordingly. Some State programs have 

both individual and family applications 

and can choose to sample either at the 

individual beneficiary level or at the 

application level (that is, with a 

combination of both individuals and 

families in the universe). 

The change in the definition of a case 

will not impact State error rates or the 

national error rate, as the case and 

payment error rates are weighted by the 

universe totals submitted by States. 

States that sample at the individual 

beneficiary level will continue to submit 

the total number of individual 

beneficiaries in the universe each 

month. States that opt to sample at the 

family level will submit the total 

number of families in the universe each 

month. States that have a mix of 

individual and family applications will 

submit the total number of applications 

in each sample month. 

For family applications, if one 

individual in the family unit is 

identified as ineligible, then the case 

will be considered not eligible. 

However, the dollars in error will be 

identified as only those dollars 

associated with the individual in the 

family who is ineligible. We understand 

that this case review finding differs from 

MEQC, which would consider this case 

‘‘eligible with an ineligible member.’’ As 

the PERM eligibility review is focused 

on the eligibility decision rather than 

the beneficiary’s eligibility at the time 

the case is sampled (for MEQC), we 

believe that it is appropriate to call a 

case ‘‘not eligible’’ for the purpose of 

calculating the case error rate. 

Eligibility Stratification 

Comment: We received numerous 

comments regarding eligibility 

stratification. Commenters identified 

multiple issues with programming and 

accuracy relating to aligning the 

eligibility universe with the appropriate 

PERM eligibility strata. Several 

commenters noted that the stratification 

process was burdensome on staff, 

financial, and IT resources. For some 

commenters, information on new 

application and redetermination 

effective dates are located in a system 

outside of the State’s eligibility system 

or, for other commenters, information 

required for stratification is not 

maintained in a manner that is 

consistent with the PERM eligibility 

strata definitions, increasing the 

programming effort required. Other 

commenters stated that stratification is 

unnecessary because all PERM 

eligibility reviews are completed as of 

the State’s last action, effectively 

meaning that all cases are reviewed as 

new applications or redeterminations. 

Commenters recommended that CMS 

give States the option to stratify and also 

the option not to stratify, since there is 

no statistical significance to 

stratification and all States are 

reviewing cases as of the last case 

action. Commenters also observed that 

current stratification requirements 

greatly decrease the accuracy of the 

sample and require States to drop and 

replace numerous cases to ensure that 

the sample for each stratum is properly 

defined. 

Response: Based on comments and a 

review of eligibility issues over the past 

several PERM cycles, we have 

reexamined the eligibility stratification 

requirements for PERM at 

§ 431.978(d)(3), and will make 

stratification optional for States. 

Therefore, based on the commenter’s 

concerns, we are modifying § 431.978 of 

the PERM regulations. 

States will have the option to either 

maintain stratification (if the 

elimination of stratification would cause 

additional State burden) as currently 

required under § 431.978(d)(3), or 

sample from an unstratified universe. 

States will be required to report, for all 

sampled cases, whether the universe 

was stratified or not, whether the last 

action was a new application or a 

redetermination. We are modifying 

§ 431.988 to reflect this requirement. 

States will continue to report the total 

number of cases in the case universe for 

each month (either the total universe 

number or the universe totals for each 

stratum, as appropriate). We have 

placed this requirement in regulatory 

text at § 431.988(a). 

Eligibility Error Rate Calculation 

Comment: One commenter questioned 

whether States that wished to continue 

calculating their own eligibility error 

rates would be given the methodology 

and means to do so. 

Response: Yes, States may still 

calculate their own eligibility error 

rates. We expect some type of calculator 

and the error rate formulas to be 

available for States to use, as well as 

assistance from the statistical contractor 

to explain State specific error rates. 

However, it should be noted that the 

PERM contractor will calculate official 

error rates for the State. 

F. Corrective Action Plans 

Section 601(c)(1)(C) of the CHIPRA 

requires CMS to provide defined 

responsibilities and deadlines for States 

in implementing corrective action plans. 

1. Corrective Action Plan Due Dates 

We proposed to revise § 431.992 to 

provide that States would be required to 

submit to CMS and implement the 

corrective action plan for the fiscal year 

it was reviewed no later than 60 

calendar days from the date the State’s 

error rate is posted to the CMS 

Contractor’s Web site. State error rates 

will be posted to the Web site no later 

than November 15 of each calendar 

year. 

2. Types of Plans 

In addition to measuring programs at 

risk for significant improper payments, 

the IPIA also requires a report on 

Federal agency actions taken to reduce 

improper payments. Since States 

administer Medicaid and CHIP and 

make payments for services rendered 

under these programs, it is necessary 

that States take corrective actions to 

reduce improper payments at the State 

level. We issued a State Health Official 

letter in October 2007 to all States 

detailing the corrective action process 

under PERM, which can be found on the 

CMS PERM Web site at http:// 

www.cms.gov/PERM/Downloads/ 

Corrective_Action_Plan.pdf. 

The corrective action process is the 

means by which States take 

administrative actions to reduce errors 

which cause misspent Medicaid and 

CHIP dollars. The corrective action 

process involves analyzing findings 

from the PERM measurement, 

identifying root causes of errors and 

developing corrective actions designed 

to reduce major error causes, and trends 

in errors or other factors for purposes of 

reducing improper payments. 

Development, implementation, and 

monitoring of the corrective action plan 

are the responsibility of the States. In 

order to develop an effective corrective 

action plan, States must perform data 

and program analysis, as well as plan, 

implement, monitor, and evaluate 

corrective actions. We proposed to 

revise § 431.992 to define States’ 

responsibilities for these activities as 

explained below. 

(1) Data Analysis—States must 

conduct data analysis such as reviewing 

clusters of errors, general error causes, 


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characteristics, and frequency of errors 

that are associated with improper 

payments. Data analysis may sort the 

predominant payment errors and 

number of errors as follows: 

• Type—general classification (for 

example, FFS, managed care, 

eligibility). 

• Element—specific type of 

classification (for example, no 

documentation or insufficient 

documentation, duplicate claims, 

ineligible cases due to excess income). 

• Nature—cause of error (for 

example, providers not submitting 

medical records, lack of systems edits, 

unreported changes in income that 

caused ineligibility). For the eligibility 

component, States must analyze both 

active and negative case errors and also 

causes for undetermined case findings. 

(2) Program Analysis—States must 

review the findings of the data analysis 

to determine the specific programmatic 

causes to which errors are attributed (for 

example, a provider’s lack of 

understanding of section 1902(a)(27) of 

the Act and § 431.107 of the regulations 

requiring providers under their provider 

agreements, to submit information 

regarding payments and claims as 

requested by the Secretary, State agency, 

or both) and to identify root error 

causes. The States may need to analyze 

the agency’s operational policies and 

procedures and identify those policies 

or procedures that contribute to errors, 

for example, policies that are unclear, or 

there is a lack of operational oversight 

at the local level. 

(3) Corrective Action Planning—States 

must determine the corrective actions to 

be implemented that address the root 

error causes. 

(4) Implementation and Monitoring— 

States must implement the corrective 

actions in accordance with an 

implementation schedule. States must 

develop an implementation schedule for 

each corrective action initiative and 

implement those actions. The 

implementation schedule must identify 

major tasks and key personnel 

responsible for each activity, and must 

include a timeline for each action 

including target implementation dates, 

milestones, and monitoring. 

(5) Evaluation—States must evaluate 

the effectiveness of the corrective action 

by assessing improvements in 

operations, efficiencies, and the 

incidence of payment errors or number 

of errors. Subsequent corrective action 

plans that are submitted as a result of 

the State’s next measurement must 

include updates on the following 

previous actions: (1) Effectiveness of 

implemented corrective actions using 

concrete data; (2) discontinued or 

ineffective actions, and actions not 

implemented and what actions were 

used as replacements; (3) findings on 

short-term corrective actions; and (4) the 

status of the long-term corrective 

actions. 

In addition, we proposed that CMS 

would review and approve the 

corrective action plans submitted by 

States, and may request regular updates 

on the approved corrective actions. We 

solicited public comments on the 

timeline and process associated with 

this review and approval. 

We received the following comments 

regarding our proposed revisions to the 

corrective action plans. 

Comment: Several commenters stated 

that to submit and implement corrective 

action plans for the fiscal year under 

review no later than 60 days from the 

date the error is posted on the CMS 

contractor’s Web site is too short of a 

timeframe for States to successfully 

review the error rate, and develop and 

submit a meaningful plan. Commenters 

recommended that States be given either 

a 90-day or 120-day submission and 

implementation deadline. 

Response: We understand the States’ 

concern regarding the need for adequate 

time to submit and implement a 

meaningful corrective action plan. 

Therefore, we will revise § 431.992 to 

require that States submit to CMS and 

implement the corrective action plan for 

the fiscal year it was reviewed no later 

than 90 calendar days from the date the 

State’s error rate is posted to the CMS 

Contractor’s Web site. Adopting the 90- 

calendar day timeframe will still allow 

CMS to utilize the States’ corrective 

action plans in the IPIA-required Error 

Rate Reduction Plan (ERRP) due to OMB 

annually. For example, if States submit 

their corrective action plan reports 90 

days from the posting of the error rate 

on November 15th, reports will be due 

to us on February 15th, leaving us 

approximately 45 days to finalize the 

ERRP for submission to the Department. 

Comment: Several comments received 

were on our proposal to review and 

approve the corrective action plans 

submitted by States as well as request 

regular updates on the approved 

corrective actions. Commenters stated 

that the States should have an equal role 

with CMS in reviewing and approving 

State corrective action plans. 

Commenters also stated that the 

proposed rule does not allow CMS 

approval time for the plan and that it is 

not clear if CMS would want States to 

implement a plan that CMS has not 

approved. Some commenters suggested 

that while the proposed rule indicates 

that States would submit and 

implement the corrective action plan at 

the same time, it would be more 

prudent for feedback to be provided by 

CMS to assure the corrective action plan 

meets CMS guidelines prior to 

implementation. Additionally, some 

commenters believed that while it may 

be prudent for CMS to review and 

approve corrective action plans, the 

commenters are concerned that the level 

of reporting would prove draining on 

State staff and border on micromanaging. The commenters also stated 

that it is not reasonable to expect States 

to report at this level when there are no 

Federal funds to support the PERM 

project. 

Response: Based on comments 

received, we are not adopting an 

approval process at this time. States 

should be able to move forward by the 

required deadline to submit and 

implement corrective actions plans 

within the specified timeframe. 

However, we will continue to provide 

guidelines and examples to aid in the 

development of the corrective action 

plan and will be available to provide 

States with technical assistance as 

needed or requested. 

During prior measurement cycles, we 

have worked closely with the States as 

they develop their corrective action 

plans and States have demonstrated that 

they have the ability to submit a 

corrective action plan and implement 

corrective actions at the same time. We 

will consider commenters’ 

recommendations concerning additional 

corrective action plan guidance when 

we publish the PERM manual. 

Finally, in response to the comment 

regarding lack of funding to support the 

PERM project, we note that States are 

reimbursed at the applicable 

administrative Federal match under 

Medicaid and CHIP for PERM related 

activities. We also provide States 

significant technical assistance 

throughout the corrective action process 

including facilitating State-specific calls 

after error rate findings are released and 

hosting State forum calls which provide 

States the opportunity to share best 

practices. 

Comment: Several commenters 

requested that a tolerance be established 

when overpayments are pennies and the 

State’s error rate is low, it is not 

productive to develop a corrective 

action plan. Another commenter noted 

that States should be required to 

document corrective action plans only if 

there are material error rates or 

significant trends in types of errors. The 

commenter stated that in such 

instances, corrective action plans are 

needed to document necessary remedial 

action and/or process improvements. 

The commenter further stated that if 


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errors are neither material, nor trendbased, corrective action plans do not 

produce meaningful results nor do they 

justify the administrative burden in 

completing them. The commenter felt 

that the corrective action plan 

documentation requirements are more 

intensive than necessary given the low 

error rate in some states. The 

commenter recommended that we 

establish an error rate threshold, 

perhaps of an error rate between 2 and 

3 percent, below which States would 

not be required to complete a corrective 

action plan. 

Response: We do not agree and, 

therefore, we will not exempt any State 

from submitting a corrective action plan 

regardless of their error rate. IPIA 

requires that we submit an ERRP to 

OMB annually and State corrective 

action plans are an integral part to this 

process. We plan to release a PERM 

manual which will provide States with 

additional information on how the 

ERRP incorporates the individual State 

corrective action plan reports such as 

trends in correction action processes 

across States. However, we expect that 

if most of the errors are from no 

documentation or undetermined cases, 

the State’s corrective action plan will 

address how to correct that problem in 

future PERM reviews, rather than how 

to correct material problems in 

eligibility determinations and claims 

payments. 

Comment: Several commenters said 

that the corrective action plan is too 

prescriptive and a burden on State 

resources. One commenter stated that it 

was onerous. 

Response: Section 601(c)(1)(C)of the 

CHIPRA requires CMS to clearly define 

responsibilities and deadlines for States 

in implementing corrective action plans. 

We have considered the States’ concern 

that the proposed rule is too 

prescriptive and a burden on State 

resources. For this reason, we have 

reevaluated the proposed regulatory text 

and made edits to condense and 

consolidate the regulatory text to only 

state the corrective action plan 

requirements. The proposed regulatory 

text contained suggestions on how to 

sort and analyze errors, and these have 

been removed. We will also consider the 

commenter’s concerns when we publish 

the forthcoming PERM manual. 

Additionally, we have taken several 

steps to assist States with the CAP 

process, including providing States with 

a corrective action plan example during 

their corrective action plan orientation 

call with CMS and conducting all-State 

calls where States can share best 

practices. 

Comment: Several commenters stated 

that in order for States to develop the 

level of analysis required in the 

proposed rules it would be necessary to 

utilize a model that can be detailed or 

abstract, complex or simple, accurate or 

misleading. The commenters stated that 

models of this type are used extensively 

in root cause analysis. The commenters 

explained that some models used are 

‘‘causation’’ and ‘‘fish bone analysis’’ 

models, which are based on 

manipulability, probability and 

counterfactual logic. The commenter 

explained that these models are 

extremely complex and no single model 

can address all possible situations. The 

commenters recommended that if CMS 

is requiring the State to perform this 

level of analysis, additional guidance 

and recommendation must be provided 

in order to achieve conformity across all 

State corrective action plans. Another 

commenter stated that thorough data 

and program analysis is time intensive 

and a drain on staff resources and that 

the main difficulty with this 

comprehensive process being added to 

the Rule is that it does not give the 

States flexibility to tailor the extent of 

the program and system analysis based 

on staffing and other resources. Another 

commenter questioned whether CMS 

will share in the development of 

automated systems to provide necessary 

support to perform meaningful data 

analysis. 

Response: We are not requiring that 

States use complex data analysis 

models. The corrective action plan 

requirement is to conduct data analysis, 

such as reviewing clusters of errors, 

general error causes, characteristics, and 

frequency of errors that are associated 

with improper payments as well as error 

causes associated with number of errors 

and States should determine the 

corrective actions to be implemented 

that address the root error causes. Using 

error prone profiles, trend analyses, 

causation, fish bone and other such 

analyses are at the State’s discretion. 

Comment: Several commenters 

expressed concern on the feasibility for 

States to measure updates of previous 

corrective actions utilizing ‘‘concrete 

data’’. Another commenter requested 

that CMS clarify the expectation for 

‘‘concrete data’’. 

Response: We believe that in order to 

determine whether a corrective action is 

successful, States may need to utilize 

additional State studies or other reports 

such as State assessment reports, 

internal audits and special studies 

which can demonstrate the progress of 

implemented corrective action 

processes. Progress can also be 

demonstrated through a State’s next 

PERM measurement. However, we 

understand that the use of the word 

‘‘concrete’’ is unclear. Therefore, we are 

revising § 431.992(d)(1) to replace the 

term ‘‘concrete’’ with the term ‘‘objective 

data sources.’’ 

Comment: One commenter 

recommended CMS consider developing 

a baseline plan that all States could 

implement and States could add to or 

individualize as needed based on their 

PERM experience from their 

measurement. 

Response: We believe that States 

should have some flexibility in 

developing their corrective action plans. 

However, we are available to assist 

States with the development of the 

corrective action plans and have already 

taken steps to provide States with 

additional information including an 

example corrective action plan and the 

all-State call on corrective action plans 

where States shared their experiences, 

challenges, and best practices. 

Comment: Several commenters 

requested clarity on whether separate 

corrective action plans needed to be 

submitted for Medicaid and CHIP. 

Response: If a State has been cited 

with errors under each of these 

programs, a corrective action plan 

would be expected for each, but could 

be substantively the same for both as 

appropriate. We are revising 

§ 431.992(a) to require separate 

Medicaid and CHIP plans. 

We received a number of comments 

on PERM-related issues that, while not 

included in regulatory text, are issues 

related to PERM policies and 

procedures. Below, we address these 

issues to provide further clarification to 

States as well as to share current 

initiatives CMS is engaging in order to 

improve the PERM measurement overall 

and ensure an accurate error rate 

measurement. 

Claims 

Comment: We received a number of 

comments and questions related to the 

work of our contractors. Some 

commenters questioned what quality 

assurance processes are in place to 

ensure that the work completed by 

PERM contractors is accurate. Other 

commenters questioned if contractors 

will be required to persistently attempt 

to secure information needed to 

complete review from providers. 

Commenters also questioned whether 

the contractor should request medical 

records on the same day for each State, 

quarter, and program to allow the States 

to more easily track provider 

compliance and monitor the due dates 

for documentation. Commenters also 

questioned if the contractor should 


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include the State claim ID on the record 

request sent to providers and on the 

status charts made available to States to 

allow States to more efficiently track 

progress and answer provider questions. 

The commenters questioned whether 

the review contractor’s Web site should 

not only provide sampling unit 

disposition repots by program (that is, 

Medicaid and CHIP) but also be FFS and 

managed care, as that is how the States 

are required to provide the universe 

data. Finally, commenters questioned 

whether CMS and our contractors will 

consider allowing providers to submit 

medical records electronically, given 

our push to move toward electronic 

health records in order to: reduce the 

amount of hard copy material for both 

providers and the contract agency; 

speed up the process for submitting 

medical records; and further the intent 

of Federal and State paper work 

reduction rules and regulations. 

Response: We appreciate the 

comments and will consider these 

operational issues. As appropriate, we 

will issue guidance to our contractors to 

make changes as necessary and 

practical. In utilizing the national 

contractor model, our goal is to operate 

a consistent measurement across States 

that minimizes State burden to the 

extent possible. We will review our 

internal quality control policies and the 

procedures of our contractors and 

communicate any changes with States 

accordingly. 

Comment: We received several 

comments requesting enhanced FFP for 

Medicaid to match the enhanced FFP 

that the CHIPRA provides for CHIP. 

Response: We are unable to adopt this 

recommendation. We do not have the 

statutory authority to provide enhanced 

FFP for Medicaid activities. 

Comment: We received several 

comments related to the current 

measurement model and meeting IPIA 

requirements. Commenters stated that 

because IPIA requires a national error 

rate and not State-specific error rates, 

PERM should be a national 

measurement model where all States are 

measured each year by selecting a 

random sample of records from each 

State, which would decrease the sample 

size, incorporate PERM as an ongoing 

program integrity activity and reduce 

State burden. 

Another commenter suggested CMS 

reconsider the multiple contractor 

model and allow States to conduct, in 

whole or in part, their own sampling, 

data processing reviews and medical 

reviews, similar to eligibility, to reduce 

the burden on the State to bring the 

Federal contractors up to speed. 

One commenter recommended that 

CMS allow States to establish their own 

protocol for eligibility and claims 

review by submitting to CMS plans that 

provide details on the State’s universe 

development, sampling plans, and 

protocol for performing medical record 

collection, data processing reviews and 

medical reviews where States could 

optionally request assistance from CMS’ 

contractors, as with the eligibility 

component of PERM. 

Another commenter stated that given 

the high cost of conducting PERM 

versus the cost recoveries and 

efficiencies identified, CMS should 

consider allowing States that achieve a 

determined payment accuracy and can 

prove that they are not susceptible to 

overpayments to receive a waiver from 

CMS to discontinue measuring PERM. 

One commenter stated that CMS 

should provide States information on 

how national error rates will be 

compared over time. Another 

commenter asked that CMS provide 

States additional information on the 

national erroneous payment level targets 

which are required by IPIA. Finally, a 

commenter recommended CMS allow 

more State engagement and involvement 

in meeting needs of IPIA and the target 

rate setting process. 

Response: We do not believe a 

national sample is the best method to 

achieve IPIA compliance. The Medicaid 

and CHIP programs are State 

administered and, as such, we think it 

is necessary for States to participate and 

have State-level error rates calculated, 

as well as the national error rate. The 

current contractor model of PERM 

minimizes the cycles in which each 

State has to participate to once every 3 

years, therefore reducing the burden on 

States to provide data each year. 

Furthermore, PERM is constructed in 

order to best achieve an unbiased 

statistically valid error rate by sampling 

each State once every 3 years for a total 

of 17 States each cycle, which, is meant 

to reduce the burden on States from 

participating each year. A statistically 

valid error rate that meets IPIA 

precision requirements is predicated on 

all 17 States in each cycle participating 

in the measurement. Allowing some 

States to ‘‘sit out’’ for a cycle would 

mean that a national error rate could not 

be calculated with the required 

precision. 

We recognize that changes in how 

States operate their Medicaid programs 

and how the PERM program evolves can 

impact the State and national error rates 

from year to year. In the FY 2008 final 

PERM report, we calculated a weighted 

2-year average based on the calculations 

in FY 2007 and FY 2008. (FY 2006 was 

not included because managed care, 

CHIP, and eligibility were not included 

in that cycle.) 

We meet IPIA reporting requirements 

through the publication of the 

Department of Health and Human 

Services’ annual Agency Financial 

Report. This report includes information 

on all IPIA required error rates for HHS 

governed programs, as well as corrective 

action plans and the required targets. 

The FY 2007, 2008, and 2009 reports are 

available at http://www.hhs.gov/afr/ 

index.html. 

Finally, we are continually looking for 

ways to engage States on improving the 

PERM process. We appreciate the offers 

of assistance and will continue to work 

with States to meet the requirements of 

IPIA. 

Comment: We received numerous 

comments inquiring as to the status of 

the FY 2009 CHIP measurement and 

requesting that we discontinue the CHIP 

measurement for this cycle. 

Commenters expressed concern over the 

difficulty that States would have if the 

measurement was restarted at this point. 

Commenters explained that if the CHIP 

measurement restarts, States will need 

to go back to cases that could have been 

acted on over a year ago, making the 

completion of the reviews more 

difficult, requiring additional State staff 

time and dollars, increasing the 

opportunity for undetermined cases and 

having a negative impact on the FY 

2009 States’ error rates compared to 

previous cycles. If we choose to 

continue with the FY 2009 Medicaid 

and CHIP measurements, commenters 

requested that we consider extending 

the original deadlines for completion 

and provide detailed guidance regarding 

how States are to proceed with the 

reviews, what the new timeline will be 

and what regulation guidance States 

should follow, particularly given that 

States have been conducting Medicaid 

and CHIP reviews up until the stopwork on CHIP based on the August 2007 

regulation. The commenters also 

suggested that CMS take time to 

convene a State workgroup to address 

the PERM regulation, guidelines, and 

standards, as well as examine overlaps 

between PERM and other oversight 

programs in order to reduce the burden 

and duplication of effort on States. 

Response: We understand State’s 

concerns related to the multitude of 

issues related to restarting the CHIP 

measurement for FY 2009 and FY 2010. 

For this reason, we will not measure 

CHIP error rates for FY 2009 or FY 2010, 

and will instead begin the PERM review 

process for CHIP starting with the first 

fiscal year that begins after the date of 

the publication of this rule. 


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Due to IPIA requirements, we are 

proceeding with the Medicaid error rate 

reviews and calculations under existing 

rules, and will begin reviews according 

to the provisions of this final rule once 

it is effective. 

We have also reconvened the PERM 

TAG and continue to hold cycle calls to 

keep States involved and updated as 

information becomes available. 

Comment: We received several 

comments about State-specific issues 

related to PERM. 

Response: We will work with these 

States directly to discuss their concerns 

and encourage States to contact us 

directly to discuss specific issues. 

III. Provisions of the Final Regulations 

With the exception of the following 

provisions, this final rule incorporates 

the provisions of the proposed rule. 

Those provisions of this final rule that 

differ from the proposed rule are as 

follows: 

In § 431.806(b), we are revising this 

paragraph to state that State plans must 

provide for operating a Medicaid 

eligibility quality control program that 

is in accordance with § 431.978 through 

§ 431.988. 

In § 431.812(a)(2)(iv), we are adding 

individuals whose eligibility was 

determined under a State’s option under 

section 1902(e)(13) of the Act to the list 

of those cases for which the agency is 

not required to conduct reviews. 

In § 431.812(f), we are revising this 

paragraph to state that the substitution 

of PERM data must be in accordance 

with § 431.980 through § 431.988 and 

that PERM undetermined cases may be 

dropped from the MEQC error rate 

calculation if the reasons for drops are 

acceptable reasons listed in the State 

Medicaid Manual. 

In § 431.958, we are revising the 

proposed definition of ‘‘Provider error’’ 

and ‘‘State error’’. In addition, we are 

revising the definitions of ‘‘Active fraud 

investigation,’’ ‘‘Agency,’’ and ‘‘Case,’’ as 

a result of issues raised by commenters. 

In § 431.960, we are adding paragraph 

(b)(3) to the proposed provisions to 

include examples of data processing 

errors. In § 431.960(c)(3), we are adding 

a list of medical review error examples 

to the proposed provisions. In 

§ 431.960(d), we are revising this 

paragraph in response to concerns 

raised by commenters. In § 431.960, we 

are removing paragraph (f)(2) from the 

proposed provisions. 

In § 431.978(d)(3), we are revising the 

regulations text to provide states with 

the option of stratifying the eligibility 

universe. 

In § 431.980(d), we are amending the 

proposed provisions by adding this 

paragraph to state that the agency must 

identify erroneous payments resulting 

from ineligibility for services or for the 

program as determined in accordance 

with the State’s documented policies 

and procedures. 

In § 431.980(e) (proposed as 

paragraph (d)), we are revising the 

heading of this paragraph from 

‘‘eligibility review determination,’’ to 

‘‘eligibility review decision.’’ 

In § 431.980(f) we are adding a 

paragraph (2) to require MEQC samples 

to meet PERM confidence and precision 

requirements. 

In § 431.980(f) we are adding a 

paragraph (3) to require States to 

include all MEQC cases in the PERM 

calculation. 

In § 431.988(a), we are revising an 

eligibility reporting requirement for 

States to report the total number of cases 

in the eligibility universe. 

In § 431.988(b)(3) for States that do 

not stratify the eligibility universe in 

accordance with § 431.978(d)(3) to 

report the last action on a case, either 

application or redetermination. 

In § 431.992(a), after reviewing the 

public comments, we are amending the 

proposed provisions to not require CMS 

approval of the corrective action plan. 

In § 431.992(b), we are amending the 

proposed provisions to remove all 

suggested steps in the corrective action 

process and only state the required 

elements for corrective action plans. 

In § 431.992(c), we are revising the 

proposed language of ‘‘no later than 60 

days’’ to read ‘‘no later than 90 days’’ as 

requested by the commenters. 

In § 431.998(b), after reviewing public 

comments, we are revising the proposed 

timeframe for States to file a difference 

resolution with the contractor from 10 

business days to 20 business days after 

the disposition report of claims review 

findings is posted on the contractor’s 

Web site. Additionally, we are revising 

the proposed language of ‘‘filing the 

appeal within 5 business days’’ to read 

‘‘filing the appeal within 10 business 

days’’ as requested by the commenters. 

In § 431.998(c), we are adding an 

appeals process for the eligibility 

component in which State agencies can 

appeal eligibility review decisions to the 

agency conducting PERM eligibility 

reviews and file appeal requests for 

Federal eligibility policy to CMS. 

IV. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 60- 

day notice in the Federal Register and 

solicit public comment before a 

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 solicited public comment on each 

of these issues for the following sections 

of this document that contain 

information collection requirements 

(ICRs): 

A. ICRs Regarding Review Procedure 

(§ 431.812) 

Section 431.812(a)(1) states that 

except as provided in paragraph (a)(2) of 

this section, the agency must review all 

active cases selected from the State 

agency’s lists of cases authorized 

eligible for the review month, to 

determine if the cases were eligible for 

services during all or part of the month 

under review, and, if appropriate, 

whether the proper amount of recipient 

liability was computed. In § 431.812, 

paragraph (f) states that a State in its 

PERM year may elect to substitute the 

random sample of selected cases, 

eligibility review findings, and payment 

review findings obtained through PERM 

reviews conducted in accordance with 

§ 431.980 through § 431.988 of the 

regulations for data required in this 

section, where the only exclusions are 

those set forth in § 431.978(d)(1) of this 

regulation. The burden associated with 

this requirement is the time and effort 

necessary to complete the review of 

active cases. The burden associated with 

this requirement is currently approved 

under OMB control number 0938–0147 

with a December 31, 2012, expiration 

date. 

States in their PERM year that elect to 

substitute PERM data to meet the 

requirements of § 431.812 would 

significantly reduce the burden 

associated with reviewing active cases 

for MEQC. The burden associated with 

the information collection requirements 

contained in § 431.812(f) is the time and 

effort necessary for a State to substitute 

the random sample of selected cases, 

eligibility review findings, and payment 

review findings obtained through PERM 

reviews conducted in accordance with 

§ 431.980 through § 431.988. Currently, 


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we believe 19 States (12 Medicaid States 

and 7 CHIP States) can elect the data 

substitution and comply with this 

requirement. We estimate that it would 

take each agency 10,055 hours to 

comply with the information collection 

requirements. In subsequent years, we 

expect that more States will elect to 

substitute data from section § 431.980 to 

meet this requirement so we are 

estimating the maximum burden for 34 

States (17 Medicaid States and 17 CHIP 

States). The total burden associated with 

the requirements in § 431.812(f) is 

341,870 hours. 

Although the review burden would be 

significantly reduced, States would still 

be required to report PERM and MEQC 

findings separately. The additional 

burden is explained in the section 

below for § 431.980. We will submit a 

revised information collection request 

for 0938–0147 to account for the 

increased burden as a result of the 

requirements in § 431.812(f). 

B. ICRs Regarding MEQC Sampling Plan 

and Procedures (§ 431.814) 

Section 431.814 states that an agency 

must submit a basic MEQC sampling 

plan (or revisions to a current plan) that 

meets the requirements of this section to 

the appropriate CMS Regional Office for 

approval at least 60 days before the 

beginning of the review period in which 

it is to be implemented. The burden 

associated with this requirement is the 

time and effort necessary to draft and 

submit a new sampling plan or to draft 

and submit a revised sampling plan to 

the appropriate CMS Regional Office. 

While this requirement is subject to the 

PRA, it is currently approved under 

OMB control number 0938–0146 with a 

December 31, 2012, expiration date. 

C. ICRs Regarding PERM Eligibility 

Sampling Plan and Procedures 

(§ 431.978) 

In § 431.978, the revisions to 

paragraph (a) discuss the requirements 

for sampling plan approval. 

Specifically, the revision to 

§ 431.978(a)(1) and (2) states that for 

each review year, the agency must 

submit a State-specific Medicaid or 

CHIP sampling plan (or revisions to a 

current plan) for both active and 

negative cases to CMS for approval by 

the August 1 before the review year and 

must receive approval of the plan before 

implementation. The revision to 

§ 431.978(b)(2) further explains that the 

agency must notify CMS that it would 

be using the same plan from the 

previous review year if the plan is 

unchanged. 

Section 431.978(c)(3) sets a maximum 

sample size of 1,000 active and negative 

cases, respectively in subsequent PERM 

review years after the base year. The 

burden associated with the 

requirements to review the maximum 

number of cases in the active and 

negative case sample sizes set forward 

in § 431.978(c) will be adjusted and 

submitted for OMB approval. 

The burden associated with the 

information collection requirements 

contained in § 431.978(a) and (b) is the 

time and effort necessary for State 

agencies to draft and submit the 

aforementioned information to CMS. 

While this requirement is subject to the 

PRA, the associated burden is approved 

under OMB control number 0938–1012 

with an April 30, 2013, expiration date. 

D. ICRs Regarding Eligibility Review 

Procedures (§ 431.980) 

Section 431.980(e) states that unless 

the State has elected to substitute MEQC 

data for PERM data under paragraph (f) 

of this section, the agency must 

complete the following. Specifically, 

§ 431.980(e)(iv) requires a State to 

examine the evidence in the case file 

that supports categorical and financial 

eligibility for the category of coverage in 

which the case is assigned, and 

independently verify information that is 

missing, older than 12 months and 

likely to change, or otherwise as needed, 

to verify eligibility. Section 

431.980(e)(vi) states that the elements of 

eligibility in which State policy allows 

for self-declaration can be verified with 

a new self-declaration statement. 

Section 431.980(e)(vi) also contains the 

requirements for a self-declaration 

statement. 

The burden associated with the 

requirements contained in § 431.980 is 

the time and effort necessary for a State 

agency to complete the aforementioned 

requirements. While this requirement is 

subject to the PRA, the associated 

burden is currently approved under 

OMB control number 0938–1012. 

Section 431.980(f)(1) allows for a 

State in its PERM year to elect to 

substitute the random sample of 

selected cases, eligibility review 

findings, and payment reviews findings 

obtained through MEQC reviews 

conducted in accordance with section 

1903(u) of the Act to meet its PERM 

eligibility review requirement. MEQC 

dropped cases will be classified as 

undetermined in order to calculate the 

PERM error rate, unless the State 

attempts to complete these cases. The 

substitution of the MEQC data is 

allowed as long as the State MEQC 

reviews are based on a broad, 

representative sample of Medicaid 

applicants or enrollees in the State. In 

addition, as stated in § 431.980(f)(2), the 

MEQC samples must also meet PERM 

confidence and precision requirements. 

The burden associated with the 

information collection requirements 

contained in § 431.980(f) is the time and 

effort necessary for a State to collect, 

review, and submit the MEQC data as 

part of meeting its PERM eligibility 

review requirement. States that elect to 

substitute MEQC data to complete the 

requirements of § 431.980 would 

significantly reduce the burden 

associated with reviewing active cases 

for PERM. Although the review burden 

would be eliminated, States would still 

be required to report PERM and MEQC 

findings separately. Currently we 

believe 19 States (12 Medicaid States 

and 7 CHIP States) can elect the data 

substitution and comply with this 

requirement. We estimate that it would 

take each agency 10,500 hours to 

comply with the information collection 

requirements. In subsequent years, we 

expect that more States will elect to 

substitute data from section § 431.812 to 

meet this requirement so we are 

estimating the maximum burden for 34 

States (17 Medicaid States and 17 CHIP 

States). The total burden associated with 

the requirements in § 431.980(f) is 

357,000 hours. 

We also propose adding additional 

burden as stated previously. States must 

report PERM and MEQC findings 

separately and will use an estimated 2 

hours per required form to reformat 

PERM or MEQC data into the 

appropriate forms. We are adding an 

additional 98 hours for each State to 

reformat MEQC data into the 

appropriate PERM eligibility forms and 

98 hours for each State to compile 

PERM eligibility data to submit on the 

appropriate MEQC forms. We will 

submit a revised information collection 

request for 0938–1012 to account for the 

increased burden as a result of the 

requirements in § 431.980(f). 

E. ICRs Regarding Corrective Action 

Plan (§ 431.992) 

The revisions to § 431.992(a) specify 

that State agencies must develop a 

corrective action plan to reduce 

improper payments in its Medicaid and 

CHIP programs based on its analysis of 

the error causes in the FFS, managed 

care, and eligibility components. In 

§ 431.992(c), we require States to submit 

to CMS and implement the corrective 

action plan for the fiscal year it was 

reviewed no later than 90 days from the 

date the State’s error rate is posted to 

the CMS Contractor’s Web site. As 

detailed in § 431.992(c), States are 

required to implement corrective 

actions in accordance with their 

corrective action plans as submitted to 


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CMS. Section 431.992(b) details the 

required components of a corrective 

action plan. 

The burden associated with the 

information collection requirements in 

revisions to § 431.992 is the time and 

effort necessary for States to develop 

corrective action plans, submit the plans 

to CMS, and implement corrective 

actions as dictated by their corrective 

plans. While these requirements are 

subject to the PRA, the burden is 

approved under the OMB control 

numbers shown in Table 1. 

TABLE 1—OMB CONTROL NUMBERS

Program component OMB 

Control No. 

Expiration 

date 

Fee-for-Service .......................................................................................................................................................... 0938–0974 02/29/2012 

Managed Care ........................................................................................................................................................... 0938–0994 11/30/2012 

Eligibility ..................................................................................................................................................................... 0938–1012 04/30/2013 

F. ICRs Regarding Difference Resolution 

and Appeal Process (§ 431.998) 

As described in § 431.998(a), a State 

may file, in writing, a request with the 

Federal contractor to resolve differences 

in the Federal contractor’s findings 

based on medical or data processing 

reviews on FFS and managed care 

claims in Medicaid and CHIP within 20 

business days after the disposition 

report of claims review findings is 

posted on the contractor’s Web site. The 

written request must include a factual 

basis for filing the difference and it must 

provide the Federal contractor with 

valid evidence directly related to the 

error finding to support the State’s 

position that the claim was properly 

paid. 

Section 431.998(b) states that for a 

claim in which the State and the Federal 

contractor cannot resolve the difference 

in findings, the State may appeal to 

CMS for final resolution within 10 

business days from the date the 

contractor’s finding as a result of the 

difference resolution is posted on its 

Web site. 

Section 431.998(c) states that for 

eligibility error determinations made by 

the agency with personnel functionally 

and physically separate from the State 

Medicaid and CHIP agencies and 

personnel that are responsible for 

Medicaid and CHIP policy and 

operations, the State may appeal error 

determinations by filing an appeal 

request with the appropriate State 

agency. If no appeals process is in place 

at the State level, differences in findings 

must be documented in writing and 

submitted directly to the agency 

responsible for the PERM eligibility 

review for their consideration, or 

differences in findings may be resolved 

through document exchange facilitated 

by CMS between the State agency 

appealing the error and the agency 

responsible for the PERM eligibility 

review. Any unresolved differences may 

be addressed by CMS between the final 

month of payment data submission and 

error rate calculation. Any changes in 

error findings must be reported to CMS 

by the deadline for submitting final 

eligibility review findings. Any appeals 

of determinations based on 

interpretations of Federal policy may be 

referred to CMS. 

The burden associated with the 

information collection requirements 

contained in § 431.998(a) through (c) is 

the time and effort necessary to draft 

and submit requests for difference 

resolution proceedings and 

determination appeals. We believe the 

burden associated with these 

requirements is exempt from the PRA 

under 5 CFR 1320.4. Information 

collected subsequent to an 

administrative action is not subject to 

the PRA. 

G. OMB Control Number(s) for 

Reporting and Recordkeeping Burden 

The burden is approved under the 

OMB control numbers stated in Table 2. 

TABLE 2—ESTIMATED ANNUAL REPORTING AND RECORDKEEPING BURDEN

Regulation section(s) OMB control 

No. Respondents Responses 

Burden per 

response 

(hours) 

Total annual 

burden 

(hours) 

§ 431.812 .............................................................................. 0938–0147 10 120 8 1960 

§ 431.814 .............................................................................. 0938–0146 10 20 24 480 

§ 431.978 .............................................................................. 0938–1012 34 1,360 393.875 535,670 

§ 431.980 .............................................................................. 0938–1012 34 1,360 393.875 1535,670 

§ 431.992 .............................................................................. 0938–0974 34 34 840 28,560 

0938–0994 36 218,000 1 23,400 

0938–1012 34 1,360 393.875 3535,670 

Total .............................................................................. ........................ ........................ ........................ ........................ 589,070 

1We are submitting a revision of the currently approved ICR for the information collection requirements in this section of the regulation. 2The currently approved number of responses is 23,400; however, the value is incorrect due to an arithmetic error. We have already submitted 

an 83–C Change Worksheet to OMB to correct the error. 3For the purpose of totaling the burden associated with the ICRs in this regulation, the annual burden associated with OMB control number 

0938–1012 is counted only once. 

V. Regulatory Impact Analysis 

A. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993, as further 

amended), the Regulatory Flexibility 

Act (RFA) (September 19, 1980, Pub. L. 

96–354), section 1102(b) of the Social 

Security Act, section 202 of the 

Unfunded Mandates Reform Act of 1995 

(Pub. L. 104–4), Executive Order 13132 

on Federalism (August 4, 1999), and the 

Congressional Review Act (5 U.S.C. 

804(2)). 

Executive Order 12866 (as amended 

by Executive Order 13258) directs 


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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). For the reasons discussed 

below, we have determined that this 

final rule is not a major rule. 

1. Federal Contracting Cost Estimate 

We have estimated that it will cost 

$14.7 million annually for engaging 

Federal contractors to review FFS and 

managed care claims and calculate error 

rates in 34 State programs (17 States for 

Medicaid and 17 States for CHIP). We 

estimated these costs as follows: 

In the August 31, 2007 final rule, we 

estimated the Federal cost for use of 

Federal contractors conducting the FFS 

and managed care measurements to be 

$19.8 million annually. Due to more 

recent data acquired through our 

experience with Federal contractors in 

the FY 2007, FY 2008, and FY 2009 

PERM cycles, we were able to produce 

a more accurate estimate by taking the 

average of Federal contracting costs for 

the three cycles and including 

anticipated future PERM cycle costs. 

The error rate measurements for 34 State 

programs (17 States for Medicaid and 17 

States for CHIP) would cost 

approximately $14,682,777 in Federal 

funds for the Federal contracting cost. 

2. State Cost Estimate for Fee-for-Service 

and Managed Care Reviews 

We estimated that total State cost for 

FFS and managed care reviews for 34 

State programs is $6.2 million 

($4,309,490 in Federal cost and 

$1,846,924 in State cost). This cost 

estimate is based on the cost for States 

to prepare and submit claims universe 

information for both FFS and managed 

care payments, prepare and submit 

claims details and provider information 

for sampled records, submit State 

program policies and updates on a 

quarterly basis, cooperate with Federal 

contractors during data processing 

review, participate in the difference 

resolution and appeals process, and 

prepare and submit a corrective action 

plan for claims errors. These costs are 

estimated as follows: 

We estimated that the annualized 

number of hours required to respond to 

requests for required claims information 

for FFS and managed care review for 34 

State programs will be 112,200 hours 

(3,300 hours per State per program). At 

the 2009 general schedule GS–12–01 

rate of pay that includes fringe and 

overhead costs ($54.87/hour), we 

calculated a cost of $6,156,414 

($4,309,490 in Federal cost and 

$1,846,924 in State cost). This cost 

estimate includes the following 

estimated annualized hours: (1) Up to 

1,800 hours required for States to 

develop and submit required claims and 

capitation payments information; (2) up 

to 500 hours for the collection and 

submission of policies; and (3) up to 

1,000 hours for States to cooperate with 

CMS and the Federal contractors on 

other aspects of the claims review and 

corrective action process. 

Therefore, the total annual estimate of 

the State cost for 34 State programs to 

submit information for FFS and 

managed care reviews and participate 

with CMS and Federal contractors is 

$6,156,414 ($4,309,490 in Federal cost 

and $1,846,924 in State cost). 

3. Cost Estimate for Eligibility Reviews 

Beginning in FY 2007, States review 

eligibility in the same year they are 

selected for FFS and managed care 

reviews in Medicaid and CHIP. We 

estimated that total cost for eligibility 

review for 34 State programs is 

$24,588,344 ($17,211,841 in Federal 

cost and $7,376,503 in State cost). This 

cost estimate is based on the cost for 

States to submit information to CMS 

and the cost for States to conduct 

eligibility reviews and report data to 

CMS. These costs are estimated as 

follows: 

We estimated in the information 

collection section, that the annualized 

number of hours required to respond to 

requests for information for the 

eligibility review (for example, sampling 

plan, monthly sample lists, the 

eligibility corrective action report) for 

34 State programs will be 108,800 hours 

(3,200 hours per State per program). At 

the 2009 general schedule GS–12–01 

rate of pay that includes fringe and 

overhead costs ($54.87/hour), we 

calculated a cost of $5,969,856 

($4,178,899 in Federal cost and 

$1,790,957 in State cost). This cost 

estimate includes the following 

estimated annualized hours: (1) Up to 

1,000 hours required for States to 

develop and submit a sampling plan; (2) 

up to 1,200 hours for States to submit 

12 monthly sample lists detailing the 

cases selected for review; and (3) up to 

1,000 hours for States to submit a 

corrective action plan for purposes of 

reducing the eligibility payment error 

rate. For the eligibility review and 

reporting of the findings, we estimated 

that each State would need to review an 

annual sample size of 504 active cases 

to achieve a 3 percent margin of error 

at a 95 percent confidence interval level 

in the State-specific error rates. We also 

estimated that States would need to 

review 204 negative cases to produce a 

case error rate that met similar 

standards for statistical significance. We 

estimated that for 34 State programs the 

annualized number of hours required to 

complete the eligibility case reviews 

and report the eligibility-based error 

data to CMS would be 339,320 hours 

(9,980 hours per State, per program). At 

the 2009 general schedule GS–12–01 

rate of pay that includes fringe and 

overhead costs ($54.87/hour), we 

calculated a cost of $18,618,488 

($13,032,942 in Federal cost and 

$5,585,547 in State cost). 

Therefore, the total annual estimate of 

the cost for 34 State programs to submit 

information and to conduct the 

eligibility reviews and report the error 

data to CMS is $24,588,344 ($17,211,841 

in Federal cost and $7,376,503 in State 

cost). However, these cost and burden 

estimates must be revised based on the 

maximum eligibility sample sizes of 

1,000 active and negative cases, 

respectively, set forth in § 431.978(c). 

The CHIPRA requires CMS to provide 

States in their PERM year the option to 

use PERM data to meet the MEQC 

requirements described in section 

1903(u) of the Act, and the option to use 

MEQC data described in § 431.812 to 

meet the PERM eligibility review 

requirement. While the intent is to 

reduce redundancies and cost burden 

between the two programs and their 

review requirements, States that 

substitute findings may incur more costs 

to implement changes to their PERM or 

MEQC sampling and review procedures. 

4. Cost Estimate for Total PERM Costs 

Based on our estimates of the costs for 

the FFS, managed care and eligibility 

reviews for both the Medicaid and CHIP 

programs at approximately $45.4 

million ($36,204,108 in Federal cost and 

$9,223,428 in State cost), this rule does 

not exceed the $100 million or more in 

any 1 year criterion for a major rule, and 

a regulatory impact analysis is not 

required. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses, if a rule has a significant 

impact on a substantial number of small 

entities. The great majority of hospitals 

and most other health care providers 

and suppliers are small entities, either 

by being nonprofit organizations or by 

meeting the SBA definition of a small 

business (having revenues of less than 

$7.0 million to $34.5 million in any 1 

year). Individuals and States are not 


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included in the definition of a small 

entity. 

Providers could be required to supply 

medical records or other similar 

documentation that verified the 

provision of Medicaid or CHIP services 

to beneficiaries as part of the PERM 

reviews, but we anticipate this action 

would not have a significant cost impact 

on providers. Providers would only 

need to provide medical records for the 

FFS component of this program. A 

request for medical documentation to 

substantiate a claim for payment would 

not be a burden to providers nor would 

it be outside the customary and usual 

business practices of Medicaid or CHIP 

providers. Not all States would be 

reviewed every year and medical 

records would only be requested for FFS 

claims, so it is unlikely for a provider 

to be selected more than once per 

program per measurement cycle to 

provide supporting documentation, 

particularly in States with a large 

Medicaid or CHIP managed care 

population. If a provider is, in fact, 

selected more than once per program to 

provide supporting documentation it 

would not be outside customary and 

usual business practices. 

In addition, the information should be 

readily available and the response 

should take minimal time and cost since 

the response would merely require 

gathering the documents and either 

copying and mailing them or sending 

them by facsimile. The request for 

medical documentation from providers 

is within the customary and usual 

business practice of a provider who 

accepts payment from an insurance 

provider, whether it is a private 

organization, Medicare, Medicaid, or 

CHIP and should not have a significant 

impact on the provider’s operations. 

Therefore, the Secretary has determined 

that this final rule will not have a 

significant economic impact on a 

substantial number of small entities. 

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 604 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. 

These entities may incur costs due to 

collecting and submitting medical 

records to the contractor to support 

medical reviews; but, like any other 

Medicaid or CHIP provider, we estimate 

these costs would not be outside the 

limit of usual and customary business 

practices. Also, since the sample is 

randomly selected and only FFS claims 

are subject to medical review, we do not 

anticipate that a great number of small 

rural hospitals would be asked for an 

unreasonable number of medical 

records. As stated before, a State will be 

reviewed only once, per program, every 

3 years and it is unlikely for a provider 

to be selected more than once per 

program to provide supporting 

documentation. Therefore, the Secretary 

has determined that this final rule 

would not have a significant impact on 

the operations of a substantial number 

of small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any 1 year of $100 

million in 1995 dollars, updated 

annually for inflation. In 2009, that 

threshold is approximately $133 

million. This final rule does not impose 

costs on States to produce the error rates 

for FFS and managed care payments, 

but requires States and providers to 

submit claims information and medical 

records and cooperate with Federal 

contractors during the review so that 

error rates can be calculated. 

Based on our estimates of State 

participation burden for both Medicaid 

and CHIP, for 34 States (17 States per 

Medicaid and 17 States for CHIP), we 

calculated that the annual burden for 

these States for the PERM program is 

approximately $9,223,428 in State costs 

for both Medicaid and CHIP. The 

combined costs of both programs total 

approximately $542,555 for each of the 

17 States. Thus, we do not anticipate 

State costs to exceed $133 million. 

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. 

This final rule requires States to prepare 

and submit claims universe information 

for both FFS and managed care 

payments, prepare and submit claims 

details and provider information for 

sampled records, submit State program 

policies and updates on a quarterly 

basis, cooperate with Federal 

contractors during data processing 

reviews, participate in the difference 

resolution and appeals process, and 

prepare and submit a corrective action 

plan for claims errors. We estimated that 

the burden to respond to requests for 

claims information for the FFS and 

managed care measurement for 

Medicaid and CHIP for 34 State 

programs (17 States for Medicaid and 17 

States for CHIP) will be $6,156,414 

($4,309,490 in Federal cost and 

$1,846,924 in State cost). 

This final rule also requires States 

selected for review to submit an 

eligibility sampling plan, monthly 

sample selection information, summary 

review findings, State error rate data, 

and other information in order for CMS 

to calculate the eligibility State-specific 

and national error rates. We estimated 

that the burden to conduct the eligibility 

measurement for Medicaid and CHIP for 

34 State programs (17 States for 

Medicaid and 17 States for CHIP) will 

be approximately $24,588,344 

($17,211,841 in Federal cost and 

$7,376,503 in State cost). As a result, we 

assert that this regulation will not have 

a substantial impact on State or local 

governments. 

B. Anticipated Effects 

This final rule is intended to measure 

improper payments in Medicaid and 

CHIP. States would implement 

corrective actions to reduce the error 

rate, thereby producing savings over 

time. These savings cannot be estimated 

until after the corrective actions have 

been monitored and determined to be 

effective, which can take several years. 

C. Alternatives Considered 

This final rule reflects changes 

required by the CHIPRA. Therefore, we 

considered only applying additional 

changes to the CHIP component of 

PERM (except in instances where the 

CHIPRA specifically requires the 

provision to apply to Medicaid and 

CHIP). However, in order to maintain a 

consistent measurement process for the 

Medicaid and CHIP programs, we did 

not choose this alternative. No other 

alternatives were considered since the 

modifications were required by Federal 

statute. 

D. Conclusion 

In accordance with the provisions of 

Executive Order 12866, this regulation 

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 447 

Accounting, Administrative practice 

and procedure, Drugs, Grant programshealth, Health facilities, Health 

professions, Medicaid, Reporting and 


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recordkeeping requirements, Rural 

areas. 

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 amends 42 CFR 

chapter IV as set forth below: 

PART 431—STATE ORGANIZATION 

AND GENERAL ADMINISTRATION 

■ 1. The authority for part 431 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

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

Subpart P—Quality Control 

■ 2. In § 431.636, amend the heading by 

removing the reference to ‘‘State 

Children’s Health Insurance Program’’ 

an by inserting ‘‘Children’s Health 

Insurance Program’’ in its place. 

■ 3. Section 431.806 is amended by— 

■ A. Redesignating paragraph (b) as 

paragraph (c). 

■ B. Adding new paragraph (b). 

The addition reads as follows: 

§ 431.806 State plan requirements. 

* * * * * 

(b) Use of PERM data. A State plan 

must provide for operating a Medicaid 

eligibility quality control program that 

is in accordance with § 431.978 through 

§ 431.988 of this part to meet the 

requirements of § 431.810 through 

§ 431.822 of this subpart when a State 

is in their PERM year. 

* * * * * 

■ 4. Section 431.812 is amended by— 

■ A. In paragraph (a)(2)(i), removing the 

‘‘;’’ and adding a ‘‘.’’ in its place and in 

paragraph(a)(2)(ii), removing the ‘‘; and’’ 

and adding a ‘‘.’’ in its place. 

■ B. Adding new paragraphs (a)(2)(iv) 

and (f). 

The additions read as follows: 

§ 431.812 Review procedures. 

(a) * * * 

(2) * * * 

(iv) Individuals whose eligibility was 

determined under a State’s option under 

section 1902(e)(13) of the Act. 

* * * * * 

(f) Substitution of PERM data. 

(1) A State in its Payment Error Rate 

Measurement (PERM) year may elect to 

substitute the random sample of 

selected cases, eligibility review 

findings, and payment review findings 

obtained through PERM reviews 

conducted in accordance with § 431.978 

through § 431.988 of this part for data 

required in this section, if the only 

exclusions are those set forth in 

§ 431.978(d)(1) of this part. 

(2) PERM cases cited as undetermined 

may be dropped when calculating 

MEQC error rates if reasons for drops 

are acceptable reasons listed in the State 

Medicaid Manual. 

■ 5. Section 431.814 is amended by 

revising paragraph (c)(4) to read as 

follows: 

§ 431.814 Sampling plan and procedures. 

* * * * * 

(c) * * * 

(4) States must exclude from the 

MEQC universe all of the following: 

(i) SSI beneficiaries whose eligibility 

determinations were made exclusively 

by the Social Security Administration 

under an agreement under section 1634 

of the Act. 

(ii) Individuals in foster care or 

receiving adoption assistance whose 

eligibility is determined under Title IV– 

E of the Act. 

(iii) Individuals receiving Medicaid 

under programs that are 100 percent 

Federally-funded. 

(iv) Individuals whose eligibility was 

determined under a State’s option for 

Express Lane Eligibility under section 

1902(e)(13) of the Act. 

* * * * * 

Subpart Q—Requirements for 

Estimating Improper Payments in 

Medicaid and CHIP 

§ 431.950 [Amended] 

■ 6. Amend § 431.950 by revising the 

reference to ‘‘State Children’s Health 

Insurance Program’’ to read ‘‘Children’s 

Health Insurance Program.’’ 

■ 7. Section § 431.954 is amended by 

revising paragraph (a) to read as follows: 

§ 431.954 Basis and scope. 

(a) Basis. The statutory bases for this 

subpart are as follows: 

(1) 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. 

(2) The Improper Payments 

Information Act of 2002 (Pub. L. 107– 

300), which requires Federal agencies to 

review and identify annually those 

programs and activities that may be 

susceptible to significant erroneous 

payments, estimate the amount of 

improper payments, report such 

estimates to the Congress, and submit a 

report on actions the agency is taking to 

reduce erroneous payments. 

(3) Section 1902(a)(27)(B) of the Act 

requires States to require providers to 

agree to furnish the State Medicaid 

agencies and the Secretary with 

information regarding payments 

claimed by Medicaid providers for 

furnishing Medicaid services. 

(4) Section 601 of the Children’s 

Health Insurance Program 

Reauthorization Act of 2009 (CHIPRA) 

(Pub. L. 111–3) which requires that the 

new PERM regulations include the 

following: Clearly defined criteria for 

errors for both States and providers; 

Clearly defined processes for appealing 

error determinations; clearly defined 

responsibilities and deadlines for States 

in implementing any corrective action 

plans; requirements for State 

verification of an applicant’s selfdeclaration or self-certification of 

eligibility for, and correct amount of, 

medical assistance under Medicaid or 

child health assistance under CHIP; and 

State-specific sample sizes for 

application of the PERM requirements. 

* * * * * 

■ 8. Section 431.958 is amended by— 

■ A. Revising the definitions of the 

terms ‘‘Active fraud investigation,’’ 

‘‘Agency,’’ and ‘‘Case.’’ 

■ B. Adding definitions of the terms 

‘‘Annual sample size,’’ ‘‘Children’s 

Health Insurance Program (CHIP)’’, 

‘‘Provider error,’’ and ‘‘State error’’ in 

alphabetical order. 

■ C. Removing the definition of ‘‘State 

Children’s Health Insurance Program 

(SCHIP)’’. 

The additions and revisions read as 

follows: 

§ 431.958 Definitions and use of terms. 

* * * * * 

Active fraud investigation means a 

beneficiary or a provider has been 

referred to the State Medicaid Fraud 

Control Unit or similar Federal or State 

investigative entity including a Federal 

oversight agency and the unit is 

currently actively pursuing an 

investigation to determine whether the 

beneficiary or the provider committed 

health care fraud. This definition 

applies to both the claims and eligibility 

review for PERM. 

Agency means, for purposes of the 

PERM eligibility reviews under this 

part, the entity that performs the 

Medicaid and CHIP eligibility reviews 

under PERM and excludes the State 

Medicaid or CHIP agency as defined in 

the regulation. 

* * * * * 

Annual sample size means the 

number of fee-for-service claims, 

managed care payments, or eligibility 


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cases necessary to meet precision 

requirements in a given PERM cycle. 

* * * * * 

Case means an individual beneficiary 

or family enrolled in Medicaid or CHIP 

or who has been denied enrollment or 

has been terminated from Medicaid or 

CHIP. The case as a sampling unit only 

applies to the eligibility component. 

* * * * * 

Children’s Health Insurance Program 

(CHIP) means the program authorized 

and funded under Title XXI of the Act. 

* * * * * 

Provider error includes, but is not 

limited to, medical review errors as 

described in § 431.960(c) of this subpart, 

as determined in accordance with 

documented State or Federal policies or 

both. 

* * * * * 

State error includes, but is not limited 

to, data processing errors and eligibility 

errors as described in § 431.960(b) and 

(d) of this subpart, as determined in 

accordance with documented State or 

Federal policies or both. 

* * * * * 

■ 9. Section 431.960 is added to read as 

follows: 

§ 431.960 Types of payment errors. 

(a) General rule. State or provider 

errors identified for the Medicaid and 

CHIP improper payments measurement 

under the Improper Payments 

Information Act of 2002 must affect 

payment under applicable Federal 

policy or State policy or both. 

(b) Data processing errors. 

(1) A data processing error is an error 

resulting in an overpayment or 

underpayment that is determined from 

a review of the claim and other 

information available in the State’s 

Medicaid Management Information 

System, related systems, or outside 

sources of provider verification. 

(2) The difference in payment 

between what the State paid (as 

adjusted within improper payment 

measurement guidelines) and what the 

State should have paid, in accordance 

with the State’s documented policies, is 

the dollar measure of the payment error. 

(3) Data processing errors include, but 

are not limited to the following: 

(i) Payment for duplicate items. 

(ii) Payment for non-covered services. 

(iii) Payment for fee-for-service claims 

for managed care services. 

(iv) Payment for services that should 

have been paid by a third party but were 

inappropriately paid by Medicaid or 

CHIP. 

(v) Pricing errors. 

(vi) Logic edit errors. 

(vii) Data entry errors. 

(viii) Managed care rate cell errors. 

(ix) Managed care payment errors. 

(c) Medical review errors. (1) A 

medical review error is an error 

resulting in an overpayment or 

underpayment that is determined from 

a review of the provider’s medical 

record or other documentation 

supporting the service(s) claimed, Code 

of Federal Regulations that are 

applicable to conditions of payment, the 

State’s written policies, and a 

comparison between the documentation 

and written policies and the information 

presented on the claim. 

(2) The difference in payment 

between what the State paid (as 

adjusted within improper payment 

measurement guidelines) and what the 

State should have paid, in accordance 

with 42 CFR 440 to 484.55 of the Code 

of Federal Regulations that are 

applicable to conditions of payment and 

the State’s documented policies, is the 

dollar measure of the payment error. 

(3) Medical review errors include, but 

are not limited to the following: 

(i) Lack of documentation. 

(ii) Insufficient documentation. 

(iii) Procedure coding errors. 

(iv) Diagnosis coding errors. 

(v) Unbundling. 

(vi) Number of unit errors. 

(vii) Medically unnecessary services. 

(viii) Policy violations. 

(ix) Administrative errors. 

(d) Eligibility errors. 

(1) An eligibility error includes, but is 

not limited to, errors determined by 

applying Federal rules and the State’s 

documented policies and procedures, 

resulting from services being provided 

to an individual who meets at least one 

of the following provisions: 

(i) Was ineligible when authorized as 

eligible or when he or she received 

services. 

(ii) Was eligible for the program but 

was ineligible for certain services he or 

she received. 

(iii) Lacked or had insufficient 

documentation in his or her case record, 

in accordance with the State’s 

documented policies and procedures, to 

make a definitive review decision of 

eligibility or ineligibility. 

(iv) Overpaid the assigned liability 

due to the individual’s liability being 

understated. 

(v) Underpaid toward assigned 

liability due to the individual’s liability 

being overstated. 

(vi) Was ineligible for managed care 

but enrolled in managed care. 

(vii) Was eligible for managed care but 

improperly enrolled in the incorrect 

managed care plan. 

(2) The dollars paid in error due to the 

eligibility error is the measure of the 

payment error. 

(3) A State eligibility error does not 

result from the State’s verification of an 

applicant’s self-declaration or selfcertification of eligibility for, and the 

correct amount of, medical assistance or 

child health assistance, if the State 

process for verifying an applicant’s selfdeclaration or self-certification satisfies 

the requirements in Federal law, 

guidance, or if applicable, Secretary 

approval. 

(4) Negative case errors are errors, 

based on the State’s documented 

policies and procedures, resulting from 

either of the following: 

(i) Applications for Medicaid or CHIP 

that are improperly denied by the State. 

(ii) Existing cases that are improperly 

terminated from Medicaid or CHIP by 

the State. 

(5) No payment errors are associated 

with negative cases. 

(e) Errors for purposes of determining 

the national error rates. The Medicaid 

and CHIP national error rates include 

but are not limited to the errors 

described in paragraphs (b) through (d) 

of this section, with the exception of 

negative case errors described in 

paragraph (d)(4) of this section. 

(f) Errors for purposes of determining 

the State error rates. The Medicaid and 

CHIP State error rates include but are 

not limited to, the errors described in 

paragraphs (b) through (d)(1)(vii) of this 

section, with the exception of negative 

case errors as described in paragraph 

(d)(4) of this section. 

(g) Error codes. CMS may define 

different types of errors within the 

above categories for analysis and 

reporting purposes. Only dollars in error 

will factor into a State’s PERM error 

rate. 

10. Section 431.970 is amended by 

revising paragraphs (a)(1) and (b) to read 

as follows: 

§ 431.970 Information submission 

requirements. 

(a) * * * 

(1) Adjudicated fee-for-service (FFS) 

or managed care claims information or 

both, on a quarterly basis, from the 

review year; 

* * * * * 

(b) Providers must submit information 

to the Secretary for, among other 

purposes estimating improper payments 

in Medicaid and CHIP, which include 

but are not limited to, Medicaid and 

CHIP beneficiary medical records 

within 75 calendar days of the date the 

request is made by CMS. If CMS 

determines that the documentation is 

insufficient, providers must respond to 

the request for additional 

documentation within 14 calendar days 

of the date the request is made by CMS. 


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Federal Register / Vol. 75, No. 154 / Wednesday, August 11, 2010 / Rules and Regulations 48849 

■ 11. Section 431.972 is added to read 

as follows: 

§ 431.972 Claims sampling procedures. 

(a) Claims universe. 

(1) The PERM claims universe 

includes payments that were originally 

paid (paid claims) and for which 

payment was requested but denied 

(denied claims) during the FFY, and for 

which there is FFP (or would have been 

if the claim had not been denied) 

through Title XIX (Medicaid) or Title 

XXI (CHIP). 

(2) The State must establish controls 

to ensure FFS and managed care 

universes are accurate and complete, 

including comparing the FFS and 

managed care universes to the Form 

CMS–64 and Form CMS–21 as 

appropriate. 

(b) Sample size. CMS estimates a 

State’s annual sample size for claims 

review at the beginning of the PERM 

cycle. 

(1) Precision and confidence levels. 

The annual sample size should be 

estimated to achieve a State-level error 

rate within a 3 percent precision level 

at 95 percent confidence interval for the 

claims component of the PERM 

program, unless the precision 

requirement is waived by CMS on its 

own initiative. 

(2) Base year sample size. The annual 

sample size in a State’s first PERM cycle 

(the ‘‘base year’’) is— 

(i) Five hundred fee-for-service claims 

and 250 managed care payments drawn 

from the claims universe; or 

(ii) If the claims universe of fee-forservice claims or managed care 

capitation payments from which the 

annual sample is drawn is less than 

10,000, the State may request to reduce 

its sample size by the finite population 

correction factor for the relevant PERM 

cycle. 

(3) Subsequent year sample size. In 

PERM cycles following the base year: 

(i) CMS considers the error rate from 

the State’s previous PERM cycle to 

determine the State’s annual sample 

size for the current PERM cycle. 

(ii) The maximum sample size is 

1,000 fee-for-service or managed care 

payments, respectively. 

(iii) If a State measured in the FY 

2007 or FY 2008 cycle elects to reject its 

State-specific CHIP PERM rate 

determined during those cycles, 

information from those cycles will not 

be used to calculate its annual sample 

size in subsequent PERM cycles and the 

State’s annual sample size in its base 

year is 500 fee-for-service and 250 

managed care payments. 

■ 12. Section 431.978 is amended by— 

■ A. Revising paragraphs (a), (b) and (c). 

■ B. Revising paragraphs (d)(1)(i), 

(d)(1)(ii), (d)(3), and (d)(4). 

The revisions read as follows: 

§ 431.978 Eligibility sampling plan and 

procedures. 

(a) Plan approval. For each review 

year, the agency must— 

(1) Submit its Medicaid or CHIP 

sampling plan (or revisions to a current 

plan) for both active and negative cases 

to CMS for approval by the August 1 

before the review year; and 

(2) Have its sampling plan approved 

by CMS before the plan is implemented. 

(b) Maintain current plan. The agency 

must do both of the following: 

(1) Keep its plan current, for example, 

by making adjustments to the plan when 

necessary due to fluctuations in the 

universe. 

(2) Review its plan each review year. 

If it is determined that the approved 

plan is— 

(i) Unchanged from the previous 

review year, the agency must notify 

CMS that it is using the plan from the 

previous review year; or 

(ii) Changed from the previous review 

year, the agency must submit a revised 

plan for CMS approval. 

(c) Sample size. 

(1) Precision and confidence levels. 

Annual sample size for eligibility 

reviews should be estimated to achieve 

within a 3 percent precision level at 95 

percent confidence interval for the 

eligibility component of the program. 

(2) Base year sample size. Annual 

sample size for each State’s base year of 

PERM is— 

(i) Five hundred four active cases and 

204 negative cases drawn from the 

active and negative universes; or 

(ii) If the active case universe or 

negative case universe of Medicaid or 

CHIP beneficiaries from which the 

annual sample is drawn is less than 

10,000, the State may request to reduce 

its sample size by the finite population 

correction factor for the relevant PERM 

cycle. 

(3) Subsequent year sample size. In 

PERM cycles following the base year the 

annual sample size may increase or 

decrease based on the State’s prior 

results of the previous cycle PERM error 

rate information. The State may provide 

information to CMS in the eligibility 

sampling plan due to CMS by the 

August 1 prior to the start of the review 

year to support the calculation of a 

reduced annual sample size for the next 

PERM cycle. 

(i) CMS considers the error rate from 

the State’s previous PERM cycle to 

determine the State’s annual sample 

size for the current PERM cycle. 

(ii) The maximum sample size is 

1,000 for the active cases and negative 

cases, respectively. 

(iii) If the active case universe or 

negative case universe of Medicaid or 

CHIP beneficiaries from which the 

annual sample is drawn is less than 

10,000, the State may request to reduce 

its sample size by the finite population 

correction factor for the relevant PERM 

cycle. 

(iv) If a State measured in the FY 2007 

or FY 2008 cycle elects to reject its 

PERM CHIP rate as determined during 

those cycles, information from those 

cycles is not used to calculate the State’s 

sample size in subsequent PERM cycles 

and the State’s sample size in its base 

year is 504 active cases and 204 negative 

cases. 

(d) * * * 

(1) * * * 

(i) Medicaid. (A) The Medicaid active 

universe consists of all active Medicaid 

cases funded through Title XIX for the 

sample month. 

(B) The following types of cases are 

excluded from the Medicaid active 

universe: 

(1) Cases for which the Social 

Security Administration, under section 

1634 of the Act agreement with a State, 

determines Medicaid eligibility for 

Supplemental Security Income 

recipients. 

(2) All foster care and adoption 

assistance cases under Title IV–E of the 

Act are excluded from the universe in 

all States. 

(3) Cases under active fraud 

investigation. 

(4) Cases in which eligibility was 

determined under section 1902(e)(13) of 

the Act for States’ Express Lane 

Eligibility option. 

(C) If the State cannot identify cases 

that meet the exclusion criteria 

specified in paragraph (d)(1)(i)(B) of this 

section before sample selection, the 

State must drop these cases from review 

if they are selected in the sample and 

are later determined to meet the 

exclusion criteria specified in paragraph 

(d)(1)(i)(B) of this section. 

(ii) CHIP. (A) The CHIP active 

universe consists of all active case CHIP 

and Title XXI Medicaid expansion cases 

that are funded through Title XXI for the 

sample month. 

(B) The following types of cases are 

excluded from the CHIP active universe: 

(1) Cases under active fraud 

investigation. 

(2) Cases in which eligibility was 

determined under section 2107(e)(1) of 

the Act for States’ Express Lane 

Eligibility option. 

(C) If the State cannot identify cases 

that meet the exclusion criteria 


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48850 Federal Register / Vol. 75, No. 154 / Wednesday, August 11, 2010 / Rules and Regulations 

specified in paragraph (d)(1)(ii)(B) of 

this section before sample selection, the 

State must drop these cases from review 

if it is later determined that the cases 

meet the exclusion criteria specified in 

paragraph (d)(1)(ii)(B) of this section. 

* * * * * 

(3) Stratifying the universe. States 

have the option to stratify the active 

case universe. 

(i) Each month, the State may stratify 

the Medicaid and CHIP active case 

universe into three strata: 

(A) Program applications completed 

by the beneficiaries in which the State 

took action in the sample month to 

approve such beneficiaries for Medicaid 

or CHIP based on the eligibility 

determination. 

(B) Redeterminations of eligibility in 

which the State took action in the 

sample month to approve the 

beneficiaries for Medicaid or CHIP 

based on information obtained through 

a completed redetermination. 

(C) All other cases. 

(ii) States that do not stratify the 

universe will sample from the entire 

active case universe each month. 

(4) Sample selection. Each month, an 

equal number of cases are selected for 

review from one of the following: 

(i) Each stratum as described in 

paragraph (d)(3)(i) of this section. 

(ii) The entire active case universe if 

opting not to stratify cases under 

paragraph (d)(2)(ii) of this section. 

(iii) Otherwise provided for in the 

State’s sampling plan approved by CMS. 

■ 13. Section 431.980 is amended by— 

■ A. Revising paragraph (d). 

■ B. Adding paragraph (f). 

The revision and addition read as 

follows: 

§ 431.980 Eligibility review procedures. 

* * * * * 

(d) Eligibility review decision. 

(1) Active cases—Medicaid. Unless 

the State has selected to substitute 

MEQC data for PERM data under 

paragraph (f) of this section, the agency 

must complete all of the following: 

(i) Review the cases specified at 

§ 431.978(d)(3)(i)(A) and 

§ 431.978(d)(3)(i)(B) of this subpart in 

accordance with the State’s categorical 

and financial eligibility criteria and 

documented policies and procedures as 

of the review month and identify 

payments made on behalf of such 

beneficiary or family for services 

received in the first 30 days of 

eligibility. 

(ii) For cases specified in 

§ 431.978(d)(3)(i)(C) of this subpart, 

review the last action as follows: 

(A) If the last action was not more 

than 12 months prior to the sample 

month, review in accordance with the 

State’s categorical and financial 

eligibility criteria and documented 

policies and procedures as of the last 

action and identify payments made on 

behalf of such beneficiary or family in 

the first 30 days of eligibility. 

(B) If the last action occurred more 

than 12 months prior to the sample 

month, review in accordance with the 

State’s categorical and financial 

eligibility criteria and documented 

policies and procedures as of the sample 

month and identify payments made on 

behalf of the beneficiary or family for 

services received in the sample month. 

(iii) For cases in States that do not 

stratify the universe, as specified in 

§ 431.978(d)(3)(ii) of this subpart, 

review the last action as follows: 

(A) If the last action was no more than 

12 months prior to the sample month, 

review in accordance with the State’s 

categorical and financial eligibility 

criteria and documented policies and 

procedures as of the last action and 

identify payments made on behalf of 

such beneficiary or family for services 

received in the sample month. 

(B) If the last action occurred more 

than 12 months prior to the sample 

month, review in accordance with the 

State’s categorical and financial 

eligibility criteria, and documented 

policies and procedures, as of the 

sample month and identify payments 

made on behalf of the beneficiary or 

family for services received in the 

sample month. 

(C) Cases that are not stratified must 

have the last action identified as either 

falling under the criteria of 

§ 431.978(d)(3)(i)(A) or 

§ 431.978(d)(3)(i)(B) of this subpart after 

the sample is selected. 

(iv) Examine the evidence in the case 

file that supports categorical and 

financial eligibility for the category of 

coverage in which the case is assigned, 

and independently verify information 

that is missing, outdated (older than 12 

months) and likely to change, or 

otherwise as needed, to verify 

eligibility. 

(v) For managed care cases, also verify 

residency and eligibility for and actual 

enrollment in the managed care plan 

during the month under review. 

(vi) Elements of eligibility in which 

State policy allows for self-declaration 

or self-certification are considered to be 

verified with a self-declaration or selfcertification statement. The selfdeclaration or self-certification must 

be— 

(A) Present in the record; 

(B) Not outdated (more than 12 

months old); 

(C) Originating from the last case 

action that was not more than 12 

months prior to the sample month; 

(D) In a valid, State-approved format; 

and 

(E) Consistent with other facts in the 

case record. 

(vii) If a self-declaration or selfcertification statement does not meet the 

provisions of paragraphs (e)(1)(vi)(A) 

through (D) of this section, eligibility 

may be verified through a new selfdeclaration or self-certification 

statement or other third party sources. 

(A) If eligibility or ineligibility cannot 

be verified, cite a case as undetermined. 

(ix) As a result of paragraphs (e)(1)(i) 

through (e)(1)(vii) of this section— 

(A) Cite the case as eligible or 

ineligible based on the review findings 

and identify with the particular 

beneficiary the payments made on 

behalf of the particular beneficiary for 

services received in the first 30 days of 

eligibility, the review month, or sample 

month, as appropriate; or 

(B) Cite the case as undetermined if 

after due diligence an eligibility 

determination could not be made and 

identify with the particular beneficiary 

the payments made on behalf of the 

particular beneficiary for services 

received in the first 30 days of 

eligibility, the review month or sample 

month, as appropriate. 

(2) Active cases—CHIP. In addition to 

the procedures for active cases as set 

forth in paragraphs (e)(1)(i) through 

(e)(1)(vii) of this section, the agency 

must verify that the case is not eligible 

for Medicaid by determining that the 

child has income above the Medicaid 

levels in accordance with the 

requirements in § 457.350 of this 

chapter. Upon verification, the agency 

must— 

* * * * * 

(f) Substitution of MEQC data. (1) A 

State in their PERM year may elect to 

substitute the random sample of 

selected cases, eligibility review 

findings, and payment review findings, 

as qualified by paragraphs (d)(2) and 

(d)(3) of this section, which are obtained 

through MEQC reviews conducted in 

accordance with section 1903(u) of the 

Act for data required in this section, as 

long as the State MEQC reviews meet 

the requirements of the MEQC Sampling 

Plan and Procedures at § 431.814 of this 

part, and if the only exclusions are those 

set forth in section 1902(e)(13) of the 

Act, § 431.814(c)(4), and § 431.978(d)(1) 

of this part. 

(2) MEQC samples must also meet 

PERM confidence and precision 

requirements. 

(3) MEQC cases that are dropped due 

to the acceptable reasons listed in the 


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Federal Register / Vol. 75, No. 154 / Wednesday, August 11, 2010 / Rules and Regulations 48851 

State Medicaid Manual are included in 

the PERM error rate calculation. 

■ 14. Section 431.988 is amended by— 

■ A. Revising paragraphs (a), (b)(1), and 

(b)(2). 

■ B. Redesignating paragraphs (b)(3) and 

(b)(4) as paragraphs (b)(4) and (b)(5), 

respectively. 

■ C. Adding new paragraph (b)(3). 

The revisions and addition read as 

follows: 

§ 431.988 Eligibility case review 

completion deadlines and submittal of 

reports. 

(a)(1) States must complete and report 

to CMS the findings, including total 

number of cases in the eligibility 

universe, the error causes for all case 

reviews listed on the monthly sample 

selection lists, including cases dropped 

from review due to active fraud 

investigations, and cases for which 

eligibility could not be determined. 

(2) States must submit a summary 

report of the active case eligibility and 

payment review findings to CMS by July 

1 following the review year. 

(b) * * * 

(1) Case and payment error data for 

active cases. 

(2) Case error data for negative cases. 

(3) Identify the last action on a case, 

either application or redetermination for 

States that do not stratify the eligibility 

sample in accordance with 

§ 431.978(d)(3)(i) of this subpart. 

* * * * * 

■ 15. Section 431.992 is revised to read 

as follows: 

§ 431.992 Corrective action plan. 

(a) The State agency must develop a 

separate corrective action plan for 

Medicaid and CHIP, which is not 

required to be approved by CMS, 

designed to reduce improper payments 

in each program based on its analysis of 

the error causes in the FFS, managed 

care, and eligibility components. 

(b) In developing a corrective action 

plan, the State must take the following 

actions: 

(1) Data analysis. States must conduct 

data analysis such as reviewing clusters 

of errors, general error causes, 

characteristics, and frequency of errors 

that are associated with improper 

payments. 

(2) Program analysis. States must 

review the findings of the data analysis 

to determine the specific programmatic 

causes to which errors are attributed (for 

example, provider lack of understanding 

of the requirement to provide 

documentation) and to identify root 

error causes. 

(3) Corrective action planning. States 

must determine the corrective actions to 

be implemented that address the root 

error causes. 

(4) Implementation and monitoring. 

(i) States must develop an 

implementation schedule for each 

corrective action initiative and 

implement those actions in accordance 

with the schedule. 

(ii) The implementation schedule 

must identify all of the following: 

(A) Major tasks. 

(B) Key personnel responsible for 

each activity. 

(C) A timeline for each action 

including target implementation dates, 

milestones, and monitoring. 

(5) Evaluation. States must evaluate 

the effectiveness of the corrective action 

by assessing all of the following: 

(i) Improvements in operations. 

(ii) Efficiencies. 

(iii) Number of errors. 

(iv) Improper payments. 

(c) The State agency must submit to 

CMS and implement the corrective 

action plan for the fiscal year it was 

reviewed no later than 90 calendar days 

after the date on which the State’s 

Medicaid or CHIP error rates are posted 

on the CMS contractor’s Web site. 

(d) The State must submit to CMS a 

new corrective action plan for each 

subsequent error rate measurement that 

contains an update on the status of a 

previous corrective action plan. Items to 

address in the new corrective action 

plan include, but are not limited to the 

following: 

(1) Effectiveness of implemented 

corrective actions, as assessed using 

objective data sources. 

(2) Discontinued or ineffective 

actions, actions not implemented, and 

those actions, if any, that were 

substituted for such discontinued, 

ineffective, or abandoned actions. 

(3) Findings on short-term corrective 

actions. 

(4) The status of the long-term 

corrective actions. 

■ 16. Section 431.998 is amended by— 

■ A. Revising the section heading. 

■ B. Revising paragraphs (a) and (b). 

■ C. Redesignating paragraph (c) as (d). 

■ D. Adding new paragraph (c). 

The revisions and addition read as 

follows: 

§ 431.998 Difference resolution and appeal 

process. 

(a) The State may file, in writing, a 

request with the Federal contractor to 

resolve differences in the Federal 

contractor’s findings based on medical 

or data processing reviews on FFS and 

managed care claims in Medicaid or 

CHIP within 20 business days after the 

disposition report of claims review 

findings is posted on the contractor’s 

Web site. The State must complete all of 

the following: 

(1) Have a factual basis for filing the 

difference. 

(2) Provide the Federal contractor 

with valid evidence directly related to 

the error finding to support the State’s 

position that the claim was properly 

paid. 

(b) For a claim in which the State and 

the Federal contractor cannot resolve 

the difference in findings, the State may 

appeal to CMS for final resolution, filing 

the appeal within 10 business days from 

the date the contractor’s finding as a 

result of the difference resolution is 

posted on the contractor’s Web site. 

There is no minimum dollar threshold 

required to appeal a difference in 

findings. 

(c) For eligibility error determinations 

made by the agency with personnel 

functionally and physically separate 

from the State Medicaid and CHIP 

agencies with personnel that are 

responsible for Medicaid and CHIP 

policy and operations, the State may 

appeal error determinations by filing an 

appeal request. 

(1) Filing an appeal request. The State 

may— 

(i) File its appeal request with the 

appropriate State agency or entity; or 

(ii) If no appeals process is in place 

at the State level, differences in 

findings— 

(A) Must be documented in writing 

and submitted directly to the agency 

responsible for the PERM eligibility 

review for its consideration; 

(B) May be resolved through 

document exchange facilitated by CMS, 

whereby CMS will act as intermediary 

by receiving the written documentation 

supporting the State’s appeal from the 

State agency and submitting that 

documentation to the agency 

responsible for the PERM eligibility 

review; or 

(C) Any unresolved differences may 

be addressed by CMS between the final 

month of payment data submission and 

error rate calculation. 

(2) After the filing of an appeals 

request. (i) Any changes in error 

findings must be reported to CMS by the 

deadline for submitting final eligibility 

review findings. 

(ii) Any appeals of determinations 

based on interpretations of Federal 

policy may be referred to CMS. 

(iii) CMS’s eligibility error resolution 

decision is final. 

(iv) If CMS’s or the State-level appeal 

board’s decision causes an erroneous 

payment finding to be made, if the final 

adjudicated claim is actually a payment 

error in accordance with documented 

State policies and procedures, any 


srobinson on DSKHWCL6B1PROD with RULES2
48852 Federal Register / Vol. 75, No. 154 / Wednesday, August 11, 2010 / Rules and Regulations 

resulting recoveries are governed by 

§ 431.1002 of this subchapter. 

* * * * * 

■ 17. In 42 CFR part 431, revise all 

references to ‘‘SCHIP’’ to read ‘‘CHIP’’. 

PART 447—PAYMENTS FOR 

SERVICES 

■ 18. The authority citation for part 447 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

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

§ 447.504 [Amended] 

■ 19. In § 447.504, amend paragraph 

(g)(15) by removing the reference ‘‘State 

Children’s Health Insurance Program 

(SCHIP)’’ and by adding the reference 

‘‘Children’s Health Insurance Program 

(CHIP)’’ in its place and amend 

paragraph (h)(23) by removing the 

reference ‘‘(SCHIP)’’ and by adding the 

reference ‘‘(CHIP)’’ in its place. 

PART 457—ALLOTMENTS AND 

GRANTS TO STATES 

■ 20. The authority citation for part 457 

continues to read as follows: 

Authority: Section 1102 of the Social 

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

■ 21. Section 457.10 is amended by— 

■ A. Adding the definition of 

‘‘Children’s Health Insurance Program 

(CHIP)’’ in alphabetical order. 

■ B. Removing the definition of ‘‘State 

Children’s Health Insurance Program 

(SCHIP)’’. 

The addition reads as follows: 

§ 457.10 Definitions and use of terms. 

* * * * * 

Children’s Health Insurance Program 

(CHIP) means a program established and 

administered by a State, jointly funded 

with the Federal government, to provide 

child health assistance to uninsured, 

low-income children through a separate 

child health program, a Medicaid 

expansion program, or a combination 

program. 

* * * * * 

■ 22. In 42 CFR part 457, revise all 

references to ‘‘SCHIP’’ to read ‘‘CHIP’’. 

§ 457.10 [Amended] 

■ 23. In § 457.10, in the definition of 

‘‘Applicant’’ remove the reference to 

‘‘State Children’s Health Insurance 

Program’’ and add the reference 

‘‘Children’s Health Insurance Program’’, 

in its place. 

§ 457.301 [Amended] 

■ 24. In § 457.301, paragraph (5) of the 

definition ‘‘Qualified entity’’ remove the 

reference to ‘‘State Children’s Health 

Insurance Program’’ and add the 

reference ‘‘Children’s Health Insurance 

Program’’, in its place. 

§ 457.606 [Amended] 

■ 25. In § 457.606 paragraph (b) remove 

the reference to ‘‘State’s Children’s 

Health Insurance Program’’ and add the 

reference ‘‘Children’s Health Insurance 

Program’’ in its place. 

§ 457.614 [Amended] 

■ 26. In § 457.614 paragraph (b)(1) 

remove the reference to ‘‘State 

Children’s Health Insurance Program’’ 

and add the reference ‘‘Children’s 

Health Insurance Program’’, in its place. 

§ 457.618 [Amended] 

■ 27. In § 457.618 in the section heading 

remove the reference to ‘‘State 

Children’s Health Insurance Program’’ 

and add the reference ‘‘Children’s 

Health Insurance Program’’, in its place. 

§ 457.622 [Amended] 

■ 28. In § 457.622 paragraph (e)(5) 

remove the reference to ‘‘State 

Children’s Health Insurance Program’’ 

and add the reference ‘‘Children’s 

Health Insurance Program’’, in its place. 

§ 457.630 [Amended] 

■ 29. In § 457.630 paragraphs (b) and 

(c)(1) remove the reference to ‘‘State 

Children’s Health Insurance Program’’ 

and add the reference ‘‘Children’s 

Health Insurance Program’’, in its place 

each time it appears. 

Authority: (Catalog of Federal Domestic 

Assistance Program No. 93.778, Medical 

Assistance Program) (Section 601 of the 

Children’s Health Insurance Program 

Reauthorization Act of 2009 (Pub. L. 111–3)) 

Dated: March 16, 2010. 

Charlene Frizzera, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: April 23, 2010. 

Kathleen Sebelius, 

Secretary. 

[FR Doc. 2010–18582 Filed 8–10–10; 8:45 am] 

BILLING CODE 4120–01–P 


srobinson on DSKHWCL6B1PROD with RULES2