Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 55753 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 421 

[CMS–6022–F] 

RIN 0938–AN31 

Medicare Program; Termination of 

Non-Random Prepayment Complex 

Medical Review 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This final rule implements 

requirements regarding the termination 

of non-random prepayment complex 

medical review as required under the 

Medicare Prescription Drug, 

Improvement and Modernization Act of 

2003. This final rule sets forth the 

criteria CMS contractors will use for 

terminating a provider or supplier from 

non-random prepayment complex 

medical review. 

DATES: Effective Date: These regulations 

are effective on January 1, 2009. 

FOR FURTHER INFORMATION CONTACT: 

Debbie Skinner, (410) 786–7480; or 

Daniel Schwartz, (410) 786–4197. 

SUPPLEMENTARY INFORMATION: 

I. Background 

CMS’s Medicare contracting authority 

has been in place since the inception of 

the Medicare program in 1965. Section 

1874 of the Social Security Act (the Act) 

authorizes the Secretary to perform 

Medicare program functions directly or 

by contract. 

On August 21, 1996, the Congress 

enacted the Health Insurance Portability 

and Accountability Act of 1996 (HIPAA) 

(Pub. L. 104–191). Section 202 of 

HIPAA added section 1893 to the Act to 

establish the Medicare Integrity Program 

and to allow CMS to contract with 

eligible entities to perform program 

integrity activities. Specifically, we 

contract with the following entities: 

Intermediaries as specified in section 

1816(a) of the Act; carriers as specified 

in section 1842(a) of the Act; and 

program safeguard contractors (PSCs) to 

perform medical, fraud, and utilization 

reviews, and cost report audits of 

Medicare claims. (Hereinafter, 

intermediaries, carriers, and PSCs that 

perform medical review functions are 

referred to as ‘‘contractors.’’) The 

Medicare Integrity Program is funded by 

the Medicare Hospital Insurance Trust 

Fund for activities related to Medicare 

Part A and Part B. 

On December 8, 2003, the Congress 

enacted the Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA) (Pub. L. 108–173). Section 

934 of the MMA amended section 

1874A of the Act by adding a new 

subsection regarding random 

prepayment reviews and non-random 

prepayment complex medical reviews, 

and requiring CMS to establish 

termination date(s) for non-random 

prepayment complex medical reviews 

performed by Medicare Administrative 

Contractors (MACs) (or intermediaries 

and carriers until MACs are in place). 

While section 1874A of the Act does not 

require CMS to establish termination 

dates for non-random prepayment 

complex medical reviews performed by 

PSCs, we have authority to apply these 

termination dates to medical review 

performed by PSCs under section 

1893(b) of the Act. Applying this final 

rule to all contractors who perform nonrandom prepayment complex medical 

review not for benefit integrity purposes 

ensures that the same criteria for 

terminating non-random prepayment 

complex medical review apply to all 

providers and suppliers, whether they 

are under review by a MAC or a PSC. 

Although section 934 of the MMA sets 

forth requirements for random 

prepayment review, our contractors 

currently do not perform random 

prepayment review. However, our 

contractors do perform non-random 

prepayment complex medical review. 

We are cognizant of the need for 

additional rulemaking should we wish 

our contractors to perform random 

review. 

In the October 7, 2005 Federal 

Register (70 FR 58649), we published a 

proposed rule specifying the criteria 

contractors would use for the 

termination of providers and suppliers 

from non-random prepayment complex 

medical review as required under the 

MMA (hereinafter referred to as the 

proposed rule). 

For purposes of this regulation, we are 

defining the following terms related to 

medical review activities: 

Allowable charge means the dollar 

amount (including co-payment and 

deductibles) that the Medicare program 

will pay for a particular item or service. 

Benefit integrity review means 

medical review of claim information 

and medical documentation focusing on 

addressing situations of potential fraud, 

waste and abuse. 

Complex medical review means 

review of claim information and 

medical documentation, by a licensed 

medical professional, for a billed item or 

service identified by data analysis 

techniques or probe review to have a 

likelihood of sustained or high level of 

payment error. 

Contractor means intermediaries, 

carriers, Medicare Administrative 

Contractors (MACs), and program 

safeguard contractors (PSCs). 

Error rate means the dollar amount of 

allowable charges for a particular item 

or service billed in error as determined 

by complex medical review, divided by 

the dollar amount of allowable charges 

for that medically reviewed item or 

service. 

Initial error rate means the calculation 

of an error rate based on the results of 

a probe review prior to the initiation of 

non-random prepayment complex 

medical review. 

Medical review means the process 

performed by Medicare contractors to 

ensure that billed items or services are 

covered and are reasonable and 

necessary as specified under section 

1862(a)(1)(A) of the Act. 

Nonclinician medical review staff 

means specially trained medical review 

staff that does not possess the 

knowledge, skills, training, or medical 

expertise of a licensed medical 

professional. 

Non-random prepayment complex 

medical review means the prepayment 

medical review of claim information 

and medical documentation, by a 

licensed medical professional, for a 

billed item or service identified by data 

analysis techniques or probe review to 

have a likelihood of sustained or high 

level of payment error. 

Non-random prepayment medical 

review means the prepayment medical 

review of claims, by nonclinical or 

clinical medical review staff, for a billed 

item or service identified by data 

analysis techniques or probe review to 

have a likelihood of a sustained or high 

level of payment error. 

Postpayment medical review means 

medical review of claims, by nonclinical 

or clinical medical review staff, for a 

billed item or service after a claim has 

been paid. 

Provider-specific probe review means 

the complex medical review of a small 

sample of claims, generally 20 to 40 

claims, from a specific provider or 

supplier for a specific billing code to 

confirm that or determine whether the 

provider or supplier is billing the 

program in error. 

Quarterly error rate means the 

calculation of an error rate based on the 

results of non-random prepayment 

complex medical review for a specific 

billing code for a specific quarter. 

Random prepayment medical review 

means the prepayment medical review 

of claims, by nonclinical or clinical 

medical review staff, for a billed item or 


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service that has not been identified by 

data analysis techniques or probe 

review to have a likelihood of a 

sustained or high level of payment error. 

Service-specific probe review means 

the complex medical review of a sample 

of claims, generally 100 claims, across 

the providers or suppliers that bill a 

particular item or service to confirm that 

or determine whether the item or 

service is billed in error. 

Termination of non-random 

prepayment complex medical review 

means the cessation of non-random 

prepayment complex medical review. 

II. General Overview of the Medical 

Review Process and Provisions of the 

Proposed Rule 

A. Medical Review 

We enter into contractual agreements 

with contractors to perform medical 

review functions. One of the functions 

of a contractor is to ensure the fiscal 

integrity of the Medicare program by 

conducting medical review of claims to 

determine whether items or services are 

covered and are reasonable and 

necessary. When a claim is submitted 

for payment, it may be subject to 

medical review before payment is made. 

There are three types of non-random 

prepayment medical review: 

Automated, routine, and complex. Nonrandom prepayment medical review is 

one form of targeted medical review. An 

automated non-random prepayment 

medical review is when decisions are 

made at the system level, using 

available electronic information, 

without the intervention of contractor 

personnel. A routine non-random 

prepayment medical review is limited to 

rule-based determinations performed by 

specially trained nonclinical medical 

review staff. Automated and routine 

non-random prepayment medical 

reviews do not create an administrative 

burden on the provider or supplier since 

additional medical documentation does 

not need to be submitted for these types 

of medical reviews and payments for 

covered, reasonable and necessary items 

or services are not delayed. Therefore, 

these types of reviews pose no 

discernable administrative burden on 

the provider or supplier because there is 

no interaction between the contractor 

and the provider or supplier during the 

medical review process. 

Non-random prepayment complex 

medical review is the evaluation of 

medical records or any other 

documentation by a licensed medical 

professional prior to Medicare payment. 

Complex medical review determinations 

require the reviewer to make a clinical 

judgment about whether an item or 

service is covered, and is reasonable and 

necessary. In order for this 

determination to be made, the provider 

or supplier must submit a copy of the 

medical records that indicate that the 

items or services billed are covered, and 

are reasonable and necessary for the 

condition of the patient. This type of 

review delays payment until the 

contractor is able to make a 

determination that the items or services 

billed are covered and are reasonable 

and necessary. This final rule only 

applies to terminating a provider or 

supplier from non-random prepayment 

complex medical review. (A detailed 

description of the concepts for 

performing the different types of nonrandom prepayment medical review 

functions are located in our manual 

instructions at: http:// 

www.cms.hhs.gov/manuals/IOM/list.asp 

and then click on ‘‘Publication 100– 

08.’’) 

Generally, with non-random 

prepayment complex medical review, 

the contractor employs data analysis 

procedures to identify claims that may 

be billed inappropriately. These 

procedures may be based on claims data 

(national and local), beneficiary 

complaints, and alerts from other 

organizations (for example, the U.S. 

Department of Health and Human 

Services Office of Inspector General and 

the Government Accountability Office). 

When a contractor identifies a 

likelihood of sustained or high level of 

payment error, the contractor may 

request supporting medical record 

documentation. Examples of a high 

level of payment error include unusual 

patterns such as prescribing the same 

items or services for a high number of 

patients, consistently prescribing 

inappropriate treatments, unexplained 

increases in volume when compared to 

historical or peer trends, or any other 

reasons as determined by the Secretary 

or his designees. 

Before a contractor places a provider 

or supplier on non-random prepayment 

complex medical review, the contractor 

performs a probe review (that is, 

complex medical review of a small 

sample of claims for a specific billing 

code, generally 20 to 40 claims to 

confirm that the provider or supplier is 

billing the program in error). In the case 

of a widespread ‘‘item or servicespecific’’ problem, a larger sample of 

claims (generally, 100 claims of the item 

or service in question) would be 

subjected to complex medical review. 

Performing medical review on a sample 

of claims for a specific billing code 

before placing the provider or supplier 

on non-random prepayment complex 

medical review allows for a 

determination as to whether a problem 

exists, ensures that contractor medical 

review resources are targeted 

appropriately, and ensures that 

providers and suppliers are not 

unnecessarily burdened. 

When a probe confirms or determines 

whether a provider or supplier is billing 

the program in error, and those billing 

errors present a likelihood of sustained 

or high level of payment error (for 

example, a high billing error rate or 

errors on claims representing high 

dollar value) this may result in the 

provider or supplier being placed by the 

contractor on non-random prepayment 

complex medical review. Contractors 

target their medical review activities at 

those providers, suppliers, items, or 

services that pose the greatest risk of 

improper payments from the Medicare 

Trust Funds. 

Complex medical review as defined in 

§ 421.501 (proposed § 421.401), involves 

the application of clinical judgment by 

a licensed medical professional in order 

to evaluate medical records to 

determine whether an item or service 

billed is covered, correctly coded, and 

reasonable and necessary for the 

condition of the patient under Medicare 

rules. 

Medical records, defined at § 421.501 

(proposed § 421.401), include any 

medical documentation, other than 

what is included on the face of the 

claim that supports the item or service 

that is billed. For Medicare to consider 

coverage and payment for any item or 

service, the claims submitted by the 

supplier or provider must be supported 

by the documentation in the patient’s 

medical records. The patient’s medical 

records may include the following: (1) 

Physician’s office records; (2) hospital 

records; (3) nursing home records; (4) 

home health agency records; (5) records 

from other healthcare professionals; and 

(6) diagnostic testing reports and other 

supporting documentation. The 

contractor specifies what 

documentation it needs to conduct 

medical review. Providers and suppliers 

may be required to supply additional 

documentation not explicitly listed by 

the contractor. This supporting 

information may be requested by CMS 

and our contractors on a routine basis in 

instances where information on the 

claims (for example, diagnosis, 

frequency, site of service) or in claims 

history does not clearly indicate 

medical necessity. 

Any determination must be 

documented by the contractor and 

include the rationale for the decision. 

While medical review staff must follow 

National Coverage Determinations and 

Local Coverage Determinations, they are 


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expected to use their expertise to make 

clinical judgments when making 

medical review determinations. They 

must take into consideration the clinical 

condition of the beneficiary as indicated 

by the beneficiary’s diagnosis and 

medical history when making these 

determinations. At any time during the 

medical review process where the 

contractor detects possible fraud, the 

contractor would refer the issue to the 

contractor responsible for benefit 

integrity review. 

Before the enactment of the MMA, we 

continued to perform non-random 

prepayment complex medical review 

until the provider or supplier met all 

Medicare billing requirements as 

evidenced by an acceptable error rate. 

The contractor made the determination 

of ‘‘acceptable error rate.’’ As a result, 

some providers and suppliers have 

remained on non-random prepayment 

complex medical review for a 

considerable period of time. 

B. Termination of Non-Random 

Prepayment Complex Medical Review 

In accordance with section 934 of the 

MMA, we proposed to terminate, in 

most cases, a provider or supplier from 

non-random prepayment complex 

medical review no later than 1 year from 

the initiation of the review, or when the 

provider’s or supplier’s error rate 

decreases by 70 percent from the initial 

error rate (70 FR 58651, October 7, 

2005). The initiation of review begins on 

the date of notification by the contractor 

to the provider or supplier. This letter 

notification would inform the provider 

or supplier of the results of the probe 

review and inform the provider or 

supplier that they are being placed on 

non-random prepayment complex 

medical review. 

In the proposed rule, we proposed 

that a provider or supplier be 

terminated from non-random 

prepayment complex medical review if 

error rate findings indicate that the 

provider or supplier has corrected its 

billing errors, resulting in at least a 70 

percent decrease from its initial error 

rate (70 FR 58651, October 7, 2005). For 

a discussion of our rationale for setting 

this percentage for purposes of this 

regulation, see the proposed rule (70 FR 

58651, October 7, 2005). 

We did not explicitly propose 

whether there is a minimum timeframe 

that a provider or supplier must be on 

non-random prepayment complex 

medical review. We proposed that the 

initial error rate would be calculated 

based on the probe review prior to the 

initiation of non-random complex 

prepayment medical review. 

We proposed when a provider or 

supplier is terminated from non-random 

prepayment complex medical review 

and the contractor determines that the 

provider or supplier continues to have 

a high error rate despite educational 

interventions, the contractor must 

consider referring the provider or 

supplier to the contractor responsible 

for Benefit Integrity review. Contractors 

must also consider continuing 

educational interventions (without 

performing further medical review) or 

consider the need for post-payment 

medical review. 

We also proposed that a contractor 

must extend a non-random prepayment 

complex medical review beyond the 1- 

year limit in certain situations where 

the provider or supplier may have 

altered its billing practices in such a 

way to avoid or minimize contractor 

review. We proposed if the reduction in 

the error rate is attributed to a 25 

percent or greater reduction in the 

number of claims submitted for the 

specific billing code under review, non– 

random prepayment complex medical 

review for that provider or supplier 

must be extended. 

We also proposed if the number of 

claims submitted for a specific code was 

reduced because the provider or 

supplier began billing claims using a 

new appropriate code, or there is 

another legitimate explanation for the 

reduced number of claims billed, at the 

contractor’s discretion, the provider or 

supplier may not be required to undergo 

extended non-random prepayment 

complex medical review. If extended 

medical review is necessary, contractors 

would notify providers and suppliers in 

writing of the reason for the need to 

perform additional prepayment complex 

medical review. 

We proposed that the contractor 

would evaluate the results of nonrandom complex prepayment medical 

review, and the length of time a 

provider or supplier remains on review, 

at least every quarter following the 

initiation of non-random prepayment 

complex medical review. Quarterly 

error-rate evaluations would be for the 

discrete quarter; a rolling error rate 

average over more than one quarter 

would not be appropriate. We also 

proposed that after the contractor 

determines that the provider or supplier 

must be terminated from non-random 

prepayment complex medical review, 

the contractor must update the claims 

processing system within 2 business 

days to ensure that the provider’s and 

supplier’s claims are no longer 

suspended for that specific billing error. 

We proposed that once a provider or 

supplier is terminated from non-random 

prepayment complex medical review 

contractors must periodically reevaluate 

the provider or supplier’s data and 

retain the discretion to place a provider 

or supplier that appears to have 

resumed a high level of payment error 

on complex prepayment medical 

review. The proposed rule stated that 

before placing a provider or supplier 

back on non-random prepayment 

complex medical review, the contractor 

must conduct a probe review to confirm 

that there continues to be a high level 

of payment error (70 FR 58652, October 

7, 2005). If such review finds a high 

level of payment error, the contractor 

may place the provider or supplier back 

on non-random prepayment complex 

medical review. 

III. Analysis of and Response to Public 

Comments 

We received 18 timely public 

comments on the proposed rule. The 

following is a summary of the comments 

received and our responses. 

A. Comments Regarding the Proposed 

70 Percent Decrease in Error Rate 

Comment: We received several 

comments concerning whether the 70 

percent decrease in error rate was an 

appropriate number in order for a 

provider or supplier to be terminated 

from non-random prepayment complex 

review. Some commenters generally 

agreed with this percentage and others 

believed it should be lower. 

Response: The commenters requested 

many different error rates, many of 

which were lower than what we 

proposed, but we did not find 

consensus among the commenters for 

any one particular error rate. Since there 

was no consensus on an alternate 

percentage, we are leaving the 

percentage as originally proposed. We 

believe it strikes a fair balance between 

safeguarding the Medicare Trust Funds 

and providing a rational and predictable 

process for providers and suppliers to 

be removed from non-random 

prepayment complex medical review. 

Comment: One commenter believed 

that the proposed 70 percent decrease in 

error rate should only apply to 

nonclinical aspects of error 

determination. Instead, the commenter 

proposed a 51 percent decrease as a 

threshold for reviewing clinical decision 

making outcomes, asserting this would 

improve the mathematic probability of 

termination in such cases because 

reviewers may form subjective clinical 

judgments from reviewing mostly 

documentation and being unable to 

clinically verify diagnoses. Also, the 

commenter believed a 51 percent 

reduction would provide small to 


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medium-sized providers a fair 

opportunity for successful termination. 

Response: We believe that regardless 

of whether the denial is based on a 

nonclinical or clinical error, it is still a 

denial for improper payment. We 

continue to believe a 70 percent 

reduction in error rate is a reasonable 

percentage to use to determine whether 

non-random prepayment complex 

medical review must continue. The 

statute does not require us to 

distinguish between provider size in 

establishing termination dates. We 

believe all providers and suppliers will 

have a fair opportunity for successful 

termination, regardless of size. 

Comment: One commenter believes 

that extensions of non-random 

prepayment complex medical review 

should be rare, and that contractors 

should be prohibited from using the 

extension authority because it 

contravenes our efforts to provide 

reliability and predictability to the 

termination process. 

Response: In addition to the criteria 

set forth in § 421.505(b) (proposed 

§ 421.405(b)) for extending non-random 

prepayment complex medical review, 

we will provide specific manual 

instructions to our contractors in IOM 

Manual 100–08 (Program Integrity 

Manual) to address this concern after 

the release of this final rule. 

B. Comments Regarding the Proposed 1 

Year Timeframe for Termination From 

Non-Random Prepayment Review 

Comment: We received several 

comments concerning whether 1 year is 

the appropriate timeframe to terminate 

a provider from non-random 

prepayment complex medical review. 

The concern of the commenters was 

whether or not CMS should keep 

providers on review for longer than 365 

days in order to obtain 4 complete 

quarters of data; whether the contractor 

will stop reviewing claims on day 365 

and start to calculate the error rate on 

day 366; or terminate review completely 

on day 365 before the error rate had 

been calculated. 

Response: We proposed that the 1- 

year timeframe would begin on the date 

provided in the letter notifying the 

provider or supplier of initiation of nonrandom prepayment complex medical 

review. We believe that 1 year is a 

sufficient amount of time for a provider 

or supplier to reduce its initial error rate 

or for the contractor to determine 

whether a referral to Benefit Integrity or 

extended medical review under 

§ 421.505(b) (proposed § 421.405(b)) is 

necessary. Unless an exception applies 

under § 421.505(b) (proposed 

§ 421.405(b)), the contractor must 

remove a provider or supplier from nonrandom prepayment complex medical 

review after 1 calendar year (365 days) 

from the date of notification of nonrandom prepayment complex medical 

review regardless of whether an error 

rate for the fourth quarter has been 

calculated. Thus, they would be 

removed from review on day 366. 

Comment: One commenter asked if a 

provider continues to incur a sustained 

or high level of payment error following 

termination, whether the appropriate 

procedure should be to place the 

provider back on non-random 

prepayment complex review. The 

commenter also noted that at that point, 

the burden of proof should shift to the 

contractor. 

Response: We have revised proposed 

§ 421.505(d) (proposed § 421.405(d)) to 

indicate that if after the 1-year 

termination date the provider continues 

to have a sustained or high level of 

payment error, the contractor may 

reinitiate non-random prepayment 

complex review after 6 months, but only 

after a probe confirms that there 

continues to be a high level of payment 

error. When a provider or supplier is 

terminated from non-random 

prepayment complex medical review 

after 1 year of review and the contractor 

determines that the provider or supplier 

continues to have a high error rate 

despite educational interventions, the 

contractor must consider referring the 

provider or supplier to the contractor 

responsible for benefit integrity review. 

Contractors must also consider 

continuing educational interventions 

without performing further medical 

review or consider the need for postpayment medical review. 

Comment: One commenter questioned 

how the 1-year timeframe would be 

calculated if the contractor selects only 

20 to 40 claims for the initial probe 

review and then terminates the edit. 

Response: By ‘‘terminates the edit,’’ 

we believe the commenter means that 

after the initial 20 to 40 claims are 

selected, the contractor does not initiate 

non-random prepayment complex 

medical review. As previously stated, 

the 1-year timeframe is calculated from 

the date the provider or supplier is 

notified by letter that they are being 

subject to non-random prepayment 

complex manual review after the initial 

probe review is completed. A small 

sample (for example, 20 to 40 claims) 

enables the contractor to make an error 

rate determination in a short time 

period, so there is not an extended 

period of time when claims are paid 

without review. If a provider does not 

submit an adequate number of new 

claims for the probe review, the 

contractor has the option to complete 

the sample selection from paid claims. 

If a significant number of claims are 

billed and paid during the review 

process, the contractor has an option to 

complete a post-pay review process to 

collect the overpayment. 

Comment: One commenter asked if it 

is acceptable to have a provider on an 

intermittent non-random prepayment 

review for longer than 1 year if quarterly 

evaluation of the sample of claims 

shows that provider specific education 

has not resulted in significant 

improvement. 

Response: In the circumstance 

described above and assuming that 

review could not be extended under 

§ 421.505(b) (proposed § 421.405(b)), 

once a provider is removed from 

targeted non-random prepayment 

review, the contractor would need to 

conduct a new probe before it would be 

able to place that provider back on 

review and start the clock over again. 

C. Comments Regarding the Proposed 

Provider Appeal Process 

Comment: Two commenters indicated 

that providers and suppliers should 

have some ability to appeal a probe 

review determination which places the 

provider or supplier on medical review. 

Response: Neither the statute nor the 

regulations provide the provider or 

supplier a right to appeal a probe review 

determination, which we assume the 

commenter means a finding by the 

contractor that there is a likelihood of 

sustained or high level of payment error. 

Nor does it require an expedited appeal 

if a provider remains on review for a 

given period of time. However, we note 

that a provider or supplier always has 

the ability to appeal the results of a 

contractor’s determination on an 

individual claim. 

Comment: Several commenters 

suggested that the contractors should 

recompute the error rate to include 

reversals in each appeal level. 

Response: If during the 1-year 

timeframe a provider or supplier is 

successful on appeal in overturning the 

initial medical review determination, 

we have instructed contractors through 

manual instructions located at http:// 

www.cms.hhs.gov/manuals/IOM/list.asp 

and then click on ‘‘Publication 100–08’’) 

to consider such appeals results when 

making decisions to continue medical 

review activities. However, after such 

consideration there may still be valid 

reasons for the contractor to elect not to 

remove providers or suppliers from 

review. Therefore, we are giving the 

contractor discretion to remove the 

provider or supplier from review based 

on appeals information. Please note that 


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the timeframe allowed for appeal 

through all levels of appeal is not 

always accomplished within the 1-year 

timeframe made final in this rule. 

Therefore, it is not practical to require 

contractors to modify the error rate 

based on appeals results, as the appeals 

information may change through the 

levels of appeal. 

D. Comments Regarding the Proposed 

Computation of Error Rate 

Comment: One commenter suggested 

that the computation of the quarterly 

error rate should account for the 

supplier’s accreditation and past 

compliance. 

Response: We believe accreditation 

and past compliance are extremely 

important but in order to safeguard the 

Medicare Trust Fund we need to ensure 

that the error rate computation is based 

on current claims submitted. 

Comment: Several commenters 

indicated that we do not explain the 

process contractors use to determine 

what error rate is determined to be a 

‘‘high level,’’ what mathematical 

probability or range constitute a 

‘‘likelihood,’’ or what time period and 

intensity of billing errors meet the 

definition of ‘‘sustained.’’ 

Response: We do not further define 

the terms ‘‘high level, likelihood, or 

sustained’’ in the definition of ‘‘complex 

medical review’’ under § 421.501 

(proposed § 421.401) because we believe 

contractors need the administrative 

flexibility to determine whether an error 

rate is ‘‘high level, likely, or sustained.’’ 

A variety of factors influence our 

determinations of such payment error 

such as the scope of the problem, 

potential risk to the Trust Fund, the risk 

relative to other risks identified by 

contractor data analysis, and past 

history of the provider or supplier. 

Comment: One commenter stated that 

unless and until statistically meaningful 

verification of billing error is performed 

by a licensed medical professional 

through a complex review probe, a 

provider should not be placed on nonrandom prepayment complex medical 

review status. 

Response: We believe the probe 

sample is an appropriate tool to 

determine the nature and extent of the 

problem. A ‘‘provider-specific probe 

review’’ may only be performed by a 

clinician based on problems identified 

by contractor data analysis. We believe 

that requiring a physician to review 

every claim in a probe would be cost 

prohibitive to the contractor. In 

addition, we note that each contractor is 

required to employ a physician to 

provide their clinical expertise. 

Statistically valid verification would 

require a much larger sample than 20 to 

40 claims, thus increasing the burden 

and cost to the provider or supplier. 

Comment: One commenter indicated 

that the 1-year mark for termination is 

not necessarily a true calendar year for 

all cases under such review. The 

commenter stated that we proposed to 

allow contractors to make code-specific 

error rate determinations on a quarterly 

basis. Contractors are not required to 

calculate error rates at the 1-year 

anniversary mark after the provider is 

sent notice of non-random prepayment 

complex medical review. That means 

that a provider whose anniversary falls 

at the beginning of a quarter can remain 

on review almost 3 months longer than 

a calendar year. Another commenter 

asked if a quarter was any 3-month 

period that the contractor chooses or if 

it must be a financial quarter. 

Response: Unless an exception 

applies under § 421.505(b) (proposed 

§ 421.405(b)), the contractor must 

remove a provider or supplier from nonrandom prepayment complex medical 

review after 1 calendar year (365 days) 

from the date of notification of nonrandom prepayment complex medical 

review regardless of whether an error 

rate for the fourth quarter has been 

calculated. We will defer to the 

contractor as to how to calculate when 

the quarter begins. Depending on the 

timing of the initiation of non-random 

prepayment complex medical review, 

contractors may or may not have an 

opportunity to calculate a fourth quarter 

error rate for a particular provider or 

supplier. 

Comment: Two commenters requested 

a tiered system that depends upon the 

degree of improvement in a provider’s 

error rate, or an option that would 

remove a provider from review when 

they meet a threshold of 10 percent or 

less of the overall error rate. 

Response: We initially considered 

whether a 90 to 95 percent decrease in 

a provider’s or supplier’s error rate was 

appropriate, but determined that, for 

purposes of this regulation, a 90 to 95 

percent reduction in error rate would be 

impracticable. We continue to believe 

that an error rate reduction of 70 percent 

from the initial error rate calculated 

during probe review would protect the 

financial integrity of the Medicare 

program, and allow the provider or 

supplier a realistic opportunity to be 

terminated from non-random 

prepayment complex medical review. 

Our contractors will continue to retain 

the discretion to terminate providers 

and suppliers at an earlier date. 

Comment: One commenter was 

concerned about the lack of specific 

quantitative measures for triggering 

placement of providers on non-random 

prepayment complex medical review. 

The commenter recommended that we 

establish 30 percent as the national 

probe denial rate for triggering nonrandom prepayment complex medical 

review. 

Response: In order for the contractors 

to have sufficient flexibility to guard the 

integrity of the Medicare Trust Fund, we 

leave the criteria for triggering review to 

the contractor’s discretion. This allows 

the contractors to provide the specific 

level of review that best enables them to 

work with the provider or supplier to 

lower their error rate. 

Comment: One commenter indicated 

that although we recommend limiting 

agency probe edits to 20 to 40 claims, 

and limiting service specific probe edits 

to 100 claims, we do not provide 

direction as to a minimum number of 

claims to be reviewed when 

determining whether a provider or 

supplier is likely to have a sustained or 

high level of payment error rate. The 

commenter recommended that we create 

criteria for a minimum number of 

records to be reviewed before 

determining that a provider or supplier 

has a likelihood of sustained or high 

level of payment error. The commenter 

stated that this should be no fewer than 

10 claims on a particular probe for a 

quarter. Another commenter asked if 

provider-specific probe reviews should 

only include claims for the particular 

item or service that may be billed in 

error. 

Response: The minimum number of 

claims to be reviewed in a probe will 

vary across provider and supplier type, 

volume, and service. Quarterly 

termination evaluation does not entail a 

probe. The contractor evaluates claims 

reviewed under the non-random 

prepayment complex medical review in 

a quarter and determines the error rate 

for selected claims during the quarter. 

The probe is used to establish the initial 

error rate only. The contractor does 

attempt to focus provider-specific probe 

review on those claims with items or 

services that may be billed in error. In 

the case of service specific review, the 

70 percent reduction will be determined 

against the service-wide error rate. In 

some cases, service-specific review 

becomes a catalyst for provider-specific 

review of a subset of providers. In this 

instance, that subset would be measured 

against their own individual error rates. 

This is consistent with our InternetOnly Manual 100–08, Chapter 3, section 

3.11.1.2. 

Comment: One commenter requested 

notice and comment rulemaking on the 

definition of ‘‘complex medical review.’’ 


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Response: The definition and 

description of ‘‘complex medical 

review’’ were provided in the proposed 

rule (70 FR 58653, October 7, 2005), and 

as such, were subjected to notice and 

comment rulemaking. 

Comment: Two commenters urged us 

to revise the proposed provisions that 

require contractors terminate a 

provider’s or supplier’s non-random 

prepayment complex medical review 

and remove any language establishing a 

minimum timeframe that providers or 

suppliers are subject to review. 

Response: We agree with the 

commenters and have clarified in 

§ 421.505(b) (proposed § 421.405(b)) that 

contractors may extend non-random 

prepayment complex medical review in 

certain cases and have clarified in 

§ 421.505(a) (proposed § 421.405(a)) that 

there is no minimum timeframe that a 

provider or supplier must be on review. 

Unless an exception applies under 

§ 421.505(b) (proposed § 421.405(b)) a 

provider or supplier must be removed 

from review if it meets either the 1 year 

or 70 percent criteria set forth in 

§ 421.505(a) (proposed § 421.405(a)), 

and may be removed at any time at the 

discretion of the contractor. 

Comment: One commenter stated that 

updated error rate reports from the 

contractor to the provider need to be 

timely and specific, demonstrate 

individual claims decisions (paid or 

unpaid), and show a detailed 

accounting of how the quarterly error 

rate was calculated or updated. 

Response: We agree that the error rate 

reports should be given to providers 

with a narrative explanation. We will 

provide specific manual instructions in 

IOM Manual 100–08 (Program Integrity 

Manual) to our contractors in this regard 

after the release of this final rule. 

Comment: One commenter questioned 

how the error rate percentage is 

determined. Specifically the commenter 

asked if it is based on dollar amount, 

days of coverage, or if it depends on the 

type of service billed. 

Response: The error rate percentage is 

based on dollars. 

E. Comments Regarding the Proposed 

Documentation Requirements 

Comment: We received several 

comments stating that the 10-minute 

estimated time for obtaining medical 

records discussed in the proposed rule 

(70 FR 58652, October 7, 2005) is not 

the correct estimate of needed time. 

Response: In response to these 

comments, we have updated our 

estimate in the Collection of Information 

Requirements section of this final rule 

to 20 minutes to account for variations 

across providers or suppliers. 

Comment: Several commenters 

expressed concern that medical records 

and chart notes should not be relied 

upon to determine Medicare eligibility. 

The commenters believe that the 

medical records a supplier must collect 

and submit are inherently ambiguous, 

subjective, and not suited for uniform 

review. The commenters also believe 

that physicians do not typically 

document specific Medicare coverage 

criteria in their medical records, and the 

records are not created with an 

intention that they will be reviewed by 

third parties who are not familiar with 

the patients and their medical 

condition. The commenters are 

concerned that requiring physicians to 

document the medical records in this 

fashion will place a substantial burden 

on the physicians, cause nonclinicians 

to interfere with the prescribing 

physicians, and will create a new and 

relatively unfamiliar documentation 

scheme. 

Response: This final rule does not 

change existing documentation 

requirements. We believe that current 

documentation requirements for 

providers and suppliers are designed to 

provide a comprehensive picture of a 

patient’s history and condition. CMS 

and our contractors have implemented 

extensive educational outreach to both 

suppliers and the medical community 

pertaining to documentation 

requirements. 

We require under § 421.505(a)(2) 

(proposed § 421.405(a)(2)) that providers 

and suppliers submit supporting 

medical documentation for claims 

under review in order for our 

contractors to be able to compute an 

error rate based on current claims. If the 

contractor is unable to calculate an error 

rate due to the failure or refusal by a 

provider or supplier to submit requested 

medical documentation, we have 

clarified in § 421.505(b)(1) (proposed 

§ 421.405(b)(1)) that the contractor may 

extend non-random prepayment 

complex medical review for such a 

provider or supplier. Without sufficient 

medical records to calculate the 

quarterly error rate the contractor is 

unable to apply the regulation’s criteria 

to a provider or supplier in determining 

whether to remove it from review. We 

believe it is a prerequisite for these rules 

to apply that providers and suppliers 

submit the required medical 

documentation for claims while they are 

on non-random prepayment complex 

medical review. 

Comment: One commenter estimated 

that the burden for a supplier to locate 

and obtain the supporting 

documentation for a claim and forward 

the materials to the Medicare contractor 

for review will take 4.71 hours per 

claim. 

Response: We do not believe that this 

time is typical across provider types. In 

any event, we did not propose to change 

documentation requirements. 

F. General Comments 

Comment: One commenter indicated 

that medical review findings are critical 

to performing focused education. The 

commenter stated that without the 

identified errors, local provider 

education and training would be less 

effective. The commenter believes that 

education would be general, based on 

global findings, and not specific to the 

provider’s issue. 

Response: We agree that there are 

different interventions, including 

education, available to our contractors. 

This regulation does not limit those 

interventions. 

Comment: One commenter indicated 

that it would be difficult to determine 

if shifts to other codes not subject to 

review are inappropriate if claims for 

those services are not reviewed with 

records. 

Response: Nothing in this regulation 

precludes the contractor from 

performing record review to determine 

if an inappropriate shift in billing codes 

occurred. However, we are not requiring 

such additional review since in some 

cases shifts may be readily explained 

from data analysis alone. 

Comment: One commenter inquired if 

the referral to benefit integrity could be 

delayed while additional provider 

education and validation are performed. 

Response: Referral to benefit integrity 

may be delayed if additional provider 

education is needed and/or further 

validation is needed to evaluate a 

provider or supplier’s error rate. A 

contractor may need to extend review of 

a provider or supplier beyond the 1-year 

timeframe or even if the initial error rate 

has been reduced by 70 percent or more 

if the contractor needs to further 

validate whether the provider or 

supplier has properly reduced its error 

rate. In some cases, a provider or 

supplier may use improper billing 

practices to reduce its error rate to 

minimize or avoid review. We proposed 

at § 421.405(b)(1) to extend review 

beyond 1 year if a provider or supplier 

engaged in two specific types of 

improper billing practices: The provider 

or supplier stopped billing the code 

under review or shifted billing to 

another inappropriate code to avoid 

proper calculation of the error rate. 

In the final rule, we have added two 

more bases for the contractor to extend 

review at § 421.505(b)(1) (proposed 

§ 421.405(b)(1)) and have clarified that 


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review may be extended even if the 

provider or supplier has been on review 

for 1 year or has reduced its initial error 

rate by 70 percent or more. In addition 

to the proposed bases to extend review, 

the contractor may also extend review 

where the provider or supplier fails to 

respond to requests for medical records 

or the contractor determines the 

provider or supplier is engaging in 

improper claims or billing-related 

activities. 

Because we cannot anticipate all 

types of improper claims or billingrelated practices that providers and 

suppliers may engage in, we believe it 

is important that contractors have 

discretion to extend non-random 

prepayment complex medical review in 

any instance where the contractor 

determines the provider or supplier is 

engaging in improper claims or billing 

activities to avoid review. For example, 

a contractor may extend review if the 

provider or supplier starts billing under 

a different provider identification 

number with apparent intent to avoid 

proper calculation of the error rate. We 

believe the proposed bases for a 

contractor extending review may have 

fallen short of addressing all situations 

where the contractor may need to 

extend non-random prepayment 

complex medical review to evaluate 

whether the initial error rate has been 

appropriately reduced, and therefore, 

we are revising § 421.505(b)(1) 

(proposed § 421.405(b)(1)) to encompass 

these additional types of situations. 

If there is potential fraud, we believe 

it is vital for the reviewing contractor to 

quickly make the referral to Benefit 

Integrity. The contractor responsible for 

performing the benefit integrity review 

can validate if potential fraud has 

occurred or is ongoing. If the contractor 

does not find any evidence of fraud, 

then the benefit integrity contractor can 

still provide education to the provider. 

If the contractor detects possible fraud 

at any time during the medical review 

process, the contractor would refer the 

issue to the contractor responsible for 

benefit integrity review. 

Comment: Two commenters 

recommended that the proposed 

timeframe to update the claims 

processing system should be changed 

from 2 to 5 business days once a 

provider or supplier is taken off of 

prepayment complex medical review. 

The commenters also stated that the 

system security regulations will prevent 

most contractors from discontinuing an 

edit in 2 business days. 

Response: Although we are not aware 

of what system security regulations the 

commenter is speaking of, we are 

revising § 421.505(c)(2) (proposed 

§ 421.405(c)(2)) to state that the 

contractors’ claims processing system 

must be updated within 5 business days 

after the contractor determines that the 

provider or supplier should be 

terminated from non-random 

prepayment complex medical review. 

Comment: A number of commenters 

indicated that we have not issued 

instructions that indicate that 

documentation requirements for power 

mobility devices (PMDs) vary by patient 

diagnosis. 

Response: We agree that we have not 

issued instructions that indicate that 

document requirements for power 

mobility devices vary by patient 

diagnosis. In addition, we believe that 

the example included in the proposed 

rule (70 FR 58651) was an inappropriate 

example, and therefore, we are not 

including that example as part of this 

final rule. 

Comment: One commenter stated that, 

when a provider or supplier is 

terminated from non-random 

prepayment complex medical review 

and a new probe review must be 

performed to determine if there is a high 

level of payment error, the probe review 

cost per claim is significantly higher 

than provider-specific prepayment 

review. 

Response: We realize that it may be 

more costly to complete a new probe 

review; however, we believe requiring a 

new probe provides assurance to the 

public that non-random prepayment 

complex review is data driven and its 

impact on providers and suppliers is not 

to be taken lightly. Contractors need to 

allocate resources as efficiently as 

possible to protect the Medicare Trust 

Fund. 

Comment: One commenter asked that 

we distinguish between the medical role 

of the physician and the collaborative 

role of the supplier. The commenter 

believes it is not the role of the supplier 

to review, analyze, and interpret 

medical records to fill the treating 

physician’s prescription, and that it is 

not in the best interest of the beneficiary 

for the supplier to overturn the 

judgment of the patient’s treating 

physician. 

Response: This final rule does not add 

any new documentation requirements. 

We note that it is the supplier’s 

responsibility to provide a legible copy 

of the written prescription and any 

other required information. We believe 

that a party engaged in healthcarerelated business should ensure that their 

staff has adequate expertise to carry out 

its responsibilities, and should obtain 

the training necessary to achieve and 

maintain that level of expertise. 

The supplier should obtain as much 

documentation from the patient’s 

medical record as it needs to determine 

if the Medicare coverage criteria for 

payment have been met. If the 

information in the patient’s medical 

record does not adequately support the 

medical necessity for the item, then the 

supplier is liable for the dollar amount 

of the assigned claims involved unless 

a properly executed advance beneficiary 

notice (ABN) of possible denial has been 

obtained. 

Comment: One commenter 

recommended that we develop an 

expanded version of the current 

Certificate of Medical Necessity (CMN), 

or a template that employs several openended questions that could easily be 

used by physicians, suppliers, and 

beneficiaries to determine if medical 

necessity exists and to document that 

need. 

Response: This comment is outside 

the scope of this regulation. We do not 

address CMNs in this regulation. 

Comment: One commenter asked if 

we expect all non-random prepayment 

complex medical review edits to be 

selecting 100 percent of a provider’s 

claims for at least 1 year. 

Response: No, contractors continue to 

have the flexibility to do less than 100 

percent prepayment review. 

Comment: One commenter asked if 

the 1-year timeframe is for each 

provider or supplier in a progressive 

corrective action case, or for the 

progressive corrective action case itself. 

Response: The 1-year timeframe is for 

each provider placed on non-random 

prepayment complex medical review. 

Comment: One commenter asked if 

the probe review finds that a provider 

is submitting claims to Medicare for a 

service that is not a Medicare benefit, 

would a 100 percent non-random 

prepayment review be appropriate until 

the situation is corrected. 

Response: If the probe review finds 

that a provider is submitting claims to 

Medicare for a service that is not a 

Medicare benefit, a 100 percent nonrandom prepayment review is an option 

open to the contractor to correct the 

situation. This regulation applies to 

these types of claims, as well as other 

inappropriate claims. If the provider or 

supplier is billing non-covered services 

under covered codes, the contractor may 

wish to refer to the contractor 

responsible for benefit integrity review 

for fraud or abuse investigation. The 

contractor responsible for benefit 

integrity review has the option of 

continuing prepayment review during 

their investigative process. 

Although we did not receive 

comments on what entities are 


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considered CMS contractors, we want to 

clarify that a new type of contractor (as 

mandated by the MMA), the Medicare 

Administrative Contractors (MACs), are 

also contractors for purposes of this 

regulation. In the proposed rule, we 

stated that we enter into contractual 

agreements with contractors (for 

example, intermediaries, carriers, and 

program safeguard contractors (PSCs)) to 

perform medical review functions to 

ensure that items or services are covered 

and are reasonable and necessary in 

accordance with Medicare coverage 

policies and program instructions. For 

clarity, we are adding MACs to the types 

of contractors subject to these 

regulations and clarifying that this rule 

only applies to medical review not for 

benefit integrity purposes. 

Section 421.500 (proposed § 421.400) 

is revised to read as follows: ‘‘CMS 

enters into contractual agreements with 

intermediaries, carriers, program 

safeguard contractors (PSCs), and 

Medicare Administrative Contractors 

(MACs) to perform medical review 

functions to ensure that items or 

services are covered and are reasonable 

and necessary in accordance with 

Medicare coverage policies and program 

instructions. 

IV. Provisions of the Final Rule 

After the publication of the October 7, 

2005 proposed rule, we published a 

final rule adding regulations to Part 421, 

subpart E. Therefore, the regulations in 

this final rule are finalized in Part 421, 

subpart F and the sections are 

renumbered as indicated throughout 

this final rule. We are also adopting the 

provisions as set forth in the proposed 

rule with the following changes. 

In § 421.500 (proposed § 421.400), 

although we did not receive comments 

on what entities are considered CMS 

contractors, we are clarifying that the 

Medicare Administrative Contractors 

(MACs), are also contractors subject to 

this regulation. In the proposed rule, we 

stated that we enter into contractual 

agreements with contractors (for 

example, intermediaries, carriers, and 

program safeguard contractors (PSCs)) to 

perform medical review functions to 

ensure that items or services are covered 

and are reasonable and necessary in 

accordance with Medicare coverage 

policies and program instructions. 

When the proposed rule was published 

in 2005, the MACs were not yet 

established and only intermediaries, 

carriers, and PSCs were conducting 

medical review. Now that MACs are in 

operation, we are clarifying that MACs, 

as required by the statute, are also 

subject to this regulation. We are also 

clarifying in § 421.500 (proposed 

§ 421.400) that this rule only applies to 

medical review not for benefit integrity 

purposes. Section 421.500 (proposed 

§ 421.400) is revised to read as follows: 

‘‘CMS enters into contractual 

agreements with intermediaries, 

carriers, program safeguard contractors 

(PSCs), and Medicare Administrative 

Contractors (MACs) to perform medical 

review functions not for benefit integrity 

purposes to ensure that items or services 

are covered and are reasonable and 

necessary in accordance with Medicare 

coverage policies and program 

instructions. 

In § 421.501 (proposed § 421.401), we 

are adding the definition of ‘‘contractor’’ 

as used in this subpart. 

We are clarifying in § 421.505(a) 

(proposed § 421.405(a)) that there is no 

minimum timeframe that a provider or 

supplier must be on review. We are also 

correcting a technical error from the 

proposed rule where we stated ‘‘a 

contractor may terminate a provider or 

supplier’’ to read ‘‘a contractor must 

terminate a provider or supplier’’ (70 FR 

58653). Unless an exception applies 

under § 421.505(b) (proposed 

§ 421.405(b)), providers and suppliers 

must be removed if they meet either the 

70 percent reduction in error rate 

criterion or have been on review for 1 

year from the initiation of such review. 

Providers and suppliers may also be 

removed at any time at the discretion of 

the contractor. 

We are revising § 421.505(b)(1) 

(proposed § 421.405(b)(1)) to state that 

contractors have the discretion to 

extend non-random prepayment 

complex medical review if a provider or 

supplier fails to respond to requests for 

medical records, stops billing the code 

under review, shifts billing to another 

inappropriate code to avoid proper 

calculation of the error rate, or engages 

in any other improper claims or billingrelated activity to avoid non-random 

prepayment complex medical review. 

We are revising § 421.505(c)(2) 

(proposed § 421.405(c)(2)) to state that 

the contractors’ claims processing 

system must be updated within 5 

business days after the contractor 

determines that the provider or supplier 

should be terminated from non-random 

prepayment complex medical review. 

In § 421.405(d) of the proposed rule, 

we stated that contractors must 

periodically reevaluate the provider or 

supplier’s data and, if necessary, must 

place a provider or supplier that appears 

to have resumed a high level of payment 

error on complex medical review. Due 

to contractor resources, we are revising 

the language at § 421.505(d)(1) 

(proposed § 421.405(d)(1)) to state that 

contractors may periodically reevaluate 

the provider or supplier’s data and, if 

necessary, may place a provider or 

supplier that appears to have resumed a 

high level of payment error on complex 

medical review. 

In § 421.505(d)(1) (proposed 

§ 421.405(d)(1)), we are correcting a 

technical error from the proposed rule at 

§ 421.405(d) to state that a provider or 

supplier found to have resumed a high 

level of payment error is placed back on 

‘‘non-random prepayment complex 

medical review.’’ In § 421.505(d)(2) 

(proposed § 421.405(d)(2)), we have also 

clarified that a provider or supplier is 

not placed back on such review earlier 

than 6 months after termination of a 

previous non-random prepayment 

complex medical review. 

V. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 30- 

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. 

In summary, § 421.505 (proposed 

§ 421.405) outlines the requirements 

and process for the termination and 

extension of non-random prepayment 

complex medical review, a form of 

complex medical review. Contractors 

conduct complex medical review to 

determine whether items or services 

billed are covered, correctly coded, and 

are reasonable and necessary for the 

condition of the patient. Under complex 

medical review the provider or supplier 

must submit a copy of the medical 

records that support the items or 

services billed. 

The burden associated with this 

section is the time and effort necessary 

for the provider or supplier of services 

to locate and obtain the supporting 

documentation for the claim to 

Medicare and to forward the materials 

for submission to Medicare contractors 

for review. We expect that this 


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information would generally be 

maintained by suppliers and or 

providers as a normal course of business 

and that this information will be readily 

available. 

Based on public comments, we 

revised the burden estimate associated 

with this requirement. We increased the 

allotted time from 10 to 20 minutes per 

provider or supplier to locate, 

photocopy, and transmit this 

information to the contractor upon 

request. 

The total annual burden for all of the 

Medicare providers and suppliers 

associated with this requirement is 

estimated to be 966,667 hours (2.9 

million requests for medical records × 

20 minutes per provider or supplier). 

The burden associated with this 

information collection requirement is 

currently approved under OMB control 

number 0938–0969 with a January 31, 

2010 expiration date. 

TABLE 1—ESTIMATED ANNUAL REPORTING AND RECORDKEEPING BURDEN

OMB control No. Respondents Responses 

Burden per 

response 

(minutes) 

Total annual 

burden 

(hours) 

0938–0969 ....................................................................................................... 1,160,000 2,900,000 20 966,667 

Total .......................................................................................................... ........................ ........................ ........................ 966,667 

VI. Regulatory 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 

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). This rule does not reach 

the economic threshold and thus is not 

considered a major rule. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses. For purposes of the RFA, 

small entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. Most 

hospitals and most other providers and 

suppliers are small entities, either by 

nonprofit status or by having revenues 

of $6.5 million to $31.5 million in any 

1 year. Individuals and States are not 

included in the definition of a small 

entity. We are not preparing an analysis 

for the RFA because we have 

determined that this rule would not 

have a significant economic impact on 

a substantial number of small entities. 

We believe that this rule would decrease 

the costs for providers and suppliers 

because it establishes guidelines for 

terminating a provider or supplier from 

non-random prepayment complex 

medical review. We believe this rule 

would decrease the time and amount of 

resources spent on inappropriate 

reviews and would ensure that 

Medicare payments would not be 

withheld for extended time periods. 

Because a contractor would no longer be 

maintaining providers or suppliers on 

non-random prepayment complex 

medical review for extended periods, 

administrative expenses (for example, 

copying, mailing, and the retention of 

medical documentation) would be 

reduced. 

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. We are not 

preparing an analysis for section 1102(b) 

of the Act because we have determined 

that this 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 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. 

The threshold level is currently 

approximately $130 million. This rule 

would have no consequential effect on 

the governments mentioned or on the 

private sector. 

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. 

Since this regulation would not impose 

any costs on State or local governments, 

the requirements of E.O. 13132 are not 

applicable. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

List of Subjects in 42 CFR Part 421 

Administrative practice and 

procedure, Health facilities, Health 

professions, Medicare, Reporting and 

recordkeeping requirements. 

■ For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 42 CFR 

chapter IV as follows: 

PART 421—MEDICARE CONTRACTING 

■ 1. The authority citation for part 421 

continues to read as follows: 

Authority: Sec. 1102 and 1871 of the Social 

Security Act (42 U.S.C. 1302 and 1395hh). 

■ 2. Subpart F is added consisting of 

§ 421.500 through § 421.505 to read as 

follows: 

Subpart F—Medical Review 

Sec. 

421.500 Medicare review functions. 

421.501 Definitions. 

421.505 Termination and extension of nonrandom prepayment complex medical 

review. 

Subpart F—Medical Review 

§ 421.500 Medicare review function. 

CMS enters into contractual 

agreements with intermediaries, 

carriers, Medicare Administrative 

Contractors (MACs), and program 

safeguard contractors (PSCs) to perform 


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55762 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

medical review functions not for benefit 

integrity purposes to ensure that items 

or services are covered and are 

reasonable and necessary in accordance 

with Medicare coverage policies and 

program instructions. 

§ 421.501 Definitions. 

As used in this subpart— 

Allowable charge means the dollar 

amount (including co-payment and 

deductibles) that the Medicare program 

will pay for a particular item or service. 

Benefit integrity review means 

medical review of claim information 

and medical documentation focusing on 

addressing situations of potential fraud, 

waste and abuse. 

Complex medical review means all 

medical review of claim information 

and medical documentation by a 

licensed medical professional, for a 

billed item or service identified by data 

analysis techniques or probe review to 

have a likelihood of sustained or high 

level of payment error. 

Contractor, as used in this subpart, 

means intermediaries, carriers, 

Medicare Administrative Contractors 

(MACs), and program safeguard 

contractors (PSCs). 

Error rate means the dollar amount of 

allowable charges for a particular item 

or service billed in error as determined 

by complex medical review, divided by 

the dollar amount of allowable charges 

for that medically reviewed item or 

service. 

Initial error rate means the calculation 

of an error rate based on the results of 

a probe review prior to the initiation of 

complex medical review. 

Medical review means the process 

performed by a contractor to ensure that 

billed items or services are covered and 

are reasonable and necessary as 

specified under section 1862(a)(1)(A) of 

the Act. 

Nonclinician medical review staff 

means specially trained medical review 

staff not possessing the knowledge, 

skills, training, or medical expertise of 

a licensed health care professional. 

Non-random prepayment complex 

medical review means the prepayment 

medical review of claim information 

and medical documentation, by a 

licensed medical professional, for a 

billed item or service identified by data 

analysis techniques or probe review to 

have a likelihood of sustained or high 

level of payment error. 

Non-random prepayment medical 

review means the prepayment medical 

review of claims, by nonclinical or 

clinical medical review staff, for a billed 

item or service identified by data 

analysis techniques or probe review to 

have a likelihood of a sustained or high 

level of payment error. 

Postpayment medical review means 

medical review of claims, by nonclinical 

or clinical medical review staff, for a 

billed item or service after a claim has 

been paid. 

Provider-specific probe review means 

the complex medical review of a small 

sample of claims, generally 20 to 40 

claims, from a specific provider or 

supplier for a specific billing code to 

confirm that or determine whether the 

provider or supplier is billing the 

program in error. 

Random prepayment medical review 

means the prepayment medical review 

of claims, by nonclinical or clinical 

medical review staff, for a billed item or 

service that has not been identified by 

data analysis techniques or probe 

review to have a likelihood of a 

sustained or high level of payment error. 

Quarterly error rate means the 

calculation of an error rate based on the 

results of non-random prepayment 

complex medical review for a specific 

billing code for a specific quarter. 

Service-specific probe review means 

the complex medical review of a sample 

of claims, generally 100 claims, across 

the providers or suppliers that bill a 

particular item or service to confirm that 

or determine whether the item or 

service is billed in error. 

Termination of non-random 

prepayment complex medical review 

means the cessation of non-random 

prepayment complex medical review. 

§ 421.505 Termination and extension of 

non-random prepayment complex medical 

review. 

(a) Timeframe that a provider or 

supplier must be on non-random 

prepayment complex medical review. 

There is no minimum timeframe that a 

provider or supplier must be on review. 

Except for cases described in paragraph 

(b) of this section, a contractor must 

terminate a provider or supplier from 

non-random prepayment complex 

medical review— 

(1) No later than 1 year following the 

initiation of non-random prepayment 

complex medical review; or 

(2) When calculation of the error rate 

indicates that the provider or supplier 

has reduced its initial error rate by 70 

percent or more. A contractor must 

review claims for a specific billing code 

aberrancy for the quarter and calculate 

the quarterly error rate for those claims 

medically reviewed in that quarter. In 

order for this determination to be made, 

the provider or supplier must submit a 

copy of the medical records that 

indicate that the items or services billed 

are covered, correctly coded, and are 

reasonable and necessary for the 

condition of the patient. 

(3) When a provider or supplier is 

terminated from non-random 

prepayment complex medical review 

after 1 year of review and the contractor 

determines that the provider or supplier 

continues to have a high error rate 

despite educational interventions, the 

contractor must consider referring the 

provider or supplier to the contractor 

responsible for benefit integrity review. 

Contractors must also consider 

continuing educational interventions 

without performing further medical 

review or consider the need for postpayment medical review. 

(b) Extension of non-random 

prepayment complex medical review. 

(1) A contractor has the discretion to 

extend non-random prepayment 

complex medical review if a provider or 

supplier stops billing the code under 

review, shifts billing to another 

inappropriate code to avoid proper 

calculation of the error rate, fails to 

respond to requests for medical records, 

or engages in any other improper claims 

or billing-related activity to avoid nonrandom prepayment complex medical 

review. If the reduction in the error rate 

is attributed to a 25 percent or greater 

reduction in the number of claims 

submitted for the specific billing code 

under review, non–random prepayment 

complex medical review for that 

provider or supplier may be extended. 

However, if the number of claims 

submitted for a specific code was 

reduced because the provider or 

supplier began billing claims using a 

new appropriate code, or there is 

another legitimate explanation for the 

reduced number of claims billed, the 

contractor retains discretion to 

terminate from or extend a provider or 

supplier on non–random prepayment 

complex medical review. 

(2) If extended medical review is 

necessary, contractors must notify 

providers and suppliers in writing the 

reasons for the need to perform 

additional prepayment complex review. 

(c) Quarterly termination evaluation. 

(1) Contractors, at a minimum, must 

evaluate the length of time a provider or 

supplier has been on non-random 

prepayment complex medical review on 

a quarterly basis. 

(2) A determination as to whether the 

provider’s or supplier’s initial probe 

review error rate for a specific billing 

code has been reduced by 70 percent 

must also be evaluated quarterly. There 

is no minimum timeframe that a 

provider or supplier must be on review. 

(3) The contractor’s quarterly error 

rate evaluations must be for the discrete 


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Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 55763 

quarter; a rolling error rate average over 

more than 1 quarter is not permitted. 

(4) After the contractor determines 

that the provider or supplier must be 

terminated from non-random 

prepayment complex medical review, 

the claims processing system must be 

updated within 5 business days to 

ensure that a provider’s or supplier’s 

claims for a specific billing error are no 

longer suspended for non-random 

prepayment complex medical review. 

(d) Periodic re-evaluation. (1) Once a 

provider or supplier is terminated from 

non-random prepayment complex 

medical review, contractors may 

periodically re-evaluate the provider or 

supplier’s data and may place a 

provider or supplier that appears to 

have resumed a high level of payment 

error on non-random prepayment 

complex medical review. 

(2) This review would only be 

initiated if a probe review confirms that 

there continues to be a high level of 

payment error. 

(3) If there is a high level of payment 

error, a provider or supplier may be 

placed on non-random prepayment 

complex medical review no earlier than 

6 months after termination of a previous 

non-random prepayment complex 

medical review. As set forth in 

§ 421.505(a)(3) contractors may also 

refer the provider or supplier to the 

contractor responsible for benefit 

integrity review or place the provider or 

supplier on postpayment medical 

review. 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: March 21, 2008. 

Kerry Weems, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: June 3, 2008. 

Michael O. Leavitt, 

Secretary. 

[FR Doc. E8–22307 Filed 9–25–08; 8:45 am] 

BILLING CODE 4120–01–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 422 and 423 

[CMS–4124–F2] 

RIN–0938–AO78 

Medicare Program; Revisions to the 

Medicare Advantage and Part D 

Prescription Drug Contract 

Determinations, Appeals, and 

Intermediate Sanctions Processes; 

Correcting Amendment 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule; correcting 

amendment. 

SUMMARY: In the December 5, 2007 issue 

of the Federal Register, we published a 

final rule finalizing the Medicare 

program provisions relating to contract 

determinations involving Medicare 

Advantage (MA) organizations and 

Medicare Part D prescription drug plan 

sponsors, including eliminating the 

reconsideration process for review of 

contract determinations, revising the 

provisions related to appeals of contract 

determinations, and clarifying the 

process for MA organizations and Part D 

sponsors to complete corrective action 

plans. In that final rule, we also clarified 

the intermediate sanction and civil 

money penalty provisions that apply to 

MA organizations and Part D sponsors, 

modified elements of MA organizations 

and Part D sponsors’ compliance plans, 

retained voluntary self-reporting for Part 

D sponsors, implemented voluntary selfreporting for MA organizations, and 

revised provisions to ensure HHS has 

access to the books and records of MA 

organizations and Part D sponsors’ first 

tier, downstream, and related entities. 

This correcting amendment corrects a 

limited number of technical and 

typographical errors identified in the 

December 5, 2007 final rule. 

DATES: These correcting amendments 

are effective September 26, 2008, except 

for the amendment to § 423.505, which 

is effective on January 1, 2009. The 

correcting amendments for § 422.756(d) 

and § 423.756(d) are applicable 

beginning January 4, 2008. 

FOR FURTHER INFORMATION CONTACT: 

Christine Reinhard (410) 786–2987. 

Stephanie Blaydes Kaisler (410) 786– 

0957. 

SUPPLEMENTARY INFORMATION: 

I. Background 

In FR Doc. 07–5946 (72 FR 68700 

through 68741), the final rule entitled, 

‘‘Revisions to the Medicare Advantage 

and Part D Prescription Drug Contract 

Determinations, Appeals, and 

Intermediate Sanctions Processes,’’ 

there were technical errors that have 

been identified and corrected in the 

regulations text of this correcting 

amendment. We note that correcting 

two of these technical errors, found at 

§ 422.756(d) and § 423.756(d), ensure 

that certain existing provisions which 

were never intended to be the subject of 

notice and comment rulemaking, remain 

in place for the benefit of all affected 

parties, including MA organizations and 

Part D sponsors. The provisions in this 

correcting amendment for § 422.756(d) 

and § 423.756(d) are effective as if they 

were included in the final rule 

published December 5, 2007. 

Accordingly, the corrections are 

effective retroactive to January 4, 2008, 

the effective date of most of the 

provisions of the final rule. However, 

the provisions in this correcting 

amendment for § 423.505 are effective 

January 1, 2009 since these particular 

provisions in § 423.505 were not set to 

take effect until January 1, 2009. 

II. Summary of Errors in the 

Regulations Text 

On pages 68726 and 68735 of the 

December 5, 2007 final rule, there were 

technical errors made in the regulation 

text of § 422.756(d) and § 423.756(d). 

Specifically, a typographical error in our 

amendatory instructions caused us to 

inadvertently omit from the Code of 

Federal Regulations (CFR) existing 

paragraphs § 422.756(d)(3) and 

§ 423.756(d)(3) regarding the duration of 

an MA and Part D intermediate 

sanction, respectively. We note that 

these existing provisions were not 

intended to be revised in the December 

5, 2007 final rule (72 FR 68700 through 

68741). 

On page 68732 of the December 5, 

2007 final rule, our amendatory 

instruction indicated that we were 

revising § 423.505(i)(2)(i). However, 

when we set out the changed 

regulations text, we inadvertently 

revised paragraph (i)(2)(ii) instead of 

paragraph (i)(2)(i). This typographical 

error, if not corrected, would have 

inadvertently deleted from the CFR the 

current paragraph at § 423.505(i)(2)(ii) 

regarding the 10-year record retention 

requirement as of January 1, 2009, the 

effective date of this provision as 

specified in the final rule. The correct 

§ 423.505(i)(2)(i) should read ‘‘HHS, the 

Comptroller General, or their designees 


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