[Federal Register: February 25, 2005 (Volume 70, Number 37)]
[Rules and Regulations]
[Page 9232-9239]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25fe05-15]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 421
[CMS-1219-F]
RIN 0938-AL76
Medicare Program; Durable Medical Equipment Regional Carrier
Service Areas and Related Matters
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule.
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SUMMARY: This final rule provides a mechanism for us to expeditiously
make changes to the durable medical equipment regional carrier (DMERC)
service area boundaries without notice and comment rulemaking. Through
this mechanism, we can change the geographical boundaries served by the
regional contractors that process durable medical equipment claims
through issuance of a Federal Register notice and make other minor
changes in the contract administration of the DMERCs. The mechanism
provides a method for increasing or decreasing the number of DMERCs,
changing the boundaries of DMERCs based on criteria other than the
boundaries of the Common Working File sectors, and awarding new
contractors to perform statistical analysis or maintain the national
supplier clearinghouse. We will publish these changes and their
justifications in a Federal Register notice, rather than through notice
and comment rulemaking.
Although we may change the number and configuration of regional
carriers, we are not altering the criteria and factors that we use in
awarding contracts.
Through this final rule, we are improving the contracting process
so that we can swiftly meet the challenges of the changing healthcare
industry and address the changing needs of beneficiaries, suppliers,
and the Medicare program.
DATES: Effective Date: These regulations are effective on March 28,
2005.
FOR FURTHER INFORMATION CONTACT: Pat Williams, (410) 786-6139.
SUPPLEMENTARY INFORMATION: This Federal Register document is available
from the Federal Register online database through GPO access, a service
of the U.S. Government Printing Office. The Web site address is http://www.gpoaccess.gov/fr/index.html
.
I. Background
A. Legislative Overview of Durable Medical Equipment, Prosthetics,
Orthotics, and Supplies (DMEPOS) Claims Administration Covering 1966
Through 1992
Medicare has covered medically necessary items of durable medical
equipment, prosthetics, orthotics, and supplies (DMEPOS) under Part B
since the inception of the Medicare program in 1966. In the original
authorizing legislation for the Medicare program, coverage was provided
under sections 1832 and 1861(s) of the Social Security Act (the Act)
(Pub. L. 89-97). Since that time, the coverage and payment rules for
DMEPOS, which may now be found in sections 1832, 1834, and 1861 of the
Act and their implementing regulations, have changed significantly.
From 1986 to 1992, the number of complaints about fraud and abuse
in the DMEPOS benefit began to increase markedly, and a variety of
government investigations identified specific weaknesses in the
program. We sought solutions to known claims processing problems,
including the increasing level of fraud and abuse in billing.
Subsequently, the Omnibus Budget Reconciliation Act of 1987 (OBRA 1987)
(Pub. L. 100-203), enacted on December 22, 1987, authorized the
Secretary to designate, by regulation, regional carriers to process
DMEPOS claims. (See sections 1834(a)(12) and 1834(h)(3) of the Act.)
Before 1993, Medicare Part B claims for DMEPOS items and services
were assigned to each of the more than 30 local Medicare carriers and
represented, on average, only 5 percent of each carrier's overall
workload. After further review, we concluded that this was not the most
effective structure for administering DMEPOS claims under the Medicare
program. It was difficult for carriers to devote significant
administrative review resources to this small percentage of claims.
In addition, DMEPOS claims were generally complex and time-
consuming to process. The protocol for suppliers to obtain a Medicare
billing number was ill-defined and required little identifying
information or compliance with any particular business or operational
standards.
Furthermore, carriers' medical review policies varied significantly
and contributed to inconsistent claims processing decisions. Finally,
certain DMEPOS suppliers who engaged in unethical practices were able
to exploit our local Medicare carriers by electing to submit claims to
carriers that provided more generous coverage, paid more than other
carriers, or both. As documented in program audits and congressional
hearings, fraudulent suppliers manipulated our then existing ``point of
sale'' claims jurisdiction rule; these suppliers could simply locate
their business offices where conditions were most favorable. The
collective impact of these issues resulted in significant abuse of the
Medicare program by a subset of the DMEPOS supplier community, without
any measurable improvement in patient care and outcomes.
[[Page 9233]]
B. Agency and Congressional Efforts To Reform DMEPOS Claims
Administration, 1987 Through 1994
To address the problem of fraud and abuse in the supplier
community, we initiated an effort to reform the administration of the
DMEPOS benefit category using several strategies. On November 6, 1991,
we published a proposed rule (56 FR 56612) setting forth a new
framework for DMEPOS claims processing. In that rule, we proposed to
limit the number of carriers handling DMEPOS claims by establishing
regional carriers who would be expert processors of DMEPOS claims. That
rule also proposed to change the requirement for assigning DMEPOS
claims to carriers (that is, the DMEPOS claim jurisdiction rule) from a
``point of sale'' framework to a framework based on ``beneficiary
residence.'' In addition, the rule proposed to establish supplier
business standards and information disclosure requirements. We expected
that these changes, taken together, would make Medicare's DMEPOS claim
administration apparatus less susceptible to supplier manipulation.
On June 18, 1992, we published a final rule with comment period (57
FR 27290) to implement this revised statutory authority. Additional
changes were made by the final rule published on November 18, 1993 (58
FR 60789). This final rule:
Established four regional carriers (known as DME Regional
Carriers or DMERCS) to standardize the coverage and payment of DMEPOS.
Designated the States and territories to be served by each
DMERC.
Consolidated and focused efforts to curb fraud and abuse.
Controlled the enrollment of all DMEPOS suppliers through
a National Supplier Clearinghouse (NSC) (a contractor that reviews and
approves supplier applications for Medicare program billing numbers).
Introduced the concept of a Statistical Analysis DME
Regional Carrier (SADMERC) to review supplier billing patterns.
Established minimum business standards for all suppliers
wishing to enroll in the Medicare Program.
Required that regional carriers administer DMEPOS claims
based on the location (State) of the beneficiary's primary residence.
The regulations for DMERC contracts, in accordance with these
authorities are set forth at Sec. 405.874, Sec. 421.210, Sec.
421.212, and Sec. 424.57.
On October 31, 1994, the Congress enacted the Social Security
Amendments of 1994 (Pub. L. 103-432). Among other matters, this statute
established section 1834(j)(1) of the Act, which incorporated and
augmented the supplier business and operational standards established
in the final rule of June 18, 1992.
C. Provisions of the Existing DMERC Regulations
As noted above, there are several regulatory provisions pertaining
to the operation of the DMERCs and related functions.
Section 405.874 establishes a process by which the NSC
makes determinations on whether to issue a Medicare billing number to a
supplier applicant and specifies an administrative appeals process if
we make an adverse determination.
Section 421.212 specifies that the Railroad Retirement
Board will use the CMS-contracted DMERCs to make DMEPOS claim
determinations for Medicare-eligible railroad retirees.
Section 424.57 provides special payment rules for DMEPOS
suppliers and requirements for the issuance of DMEPOS supplier billing
numbers, including a series of business and operational standards that
DMEPOS suppliers must meet in order to qualify for Medicare billing
privileges.
Section 421.210, which we are amending in this regulation, could be
viewed as the cornerstone regulation for the DMERC carrier structure.
On June 18, 1992 (57 FR 27290), we published and implemented the
existing regulations at Sec. 421.210 under the authority of sections
1842, 1834(a), and 1834(h) of the Act. The existing regulation at Sec.
421.210 augments and expands on the underlying statutory provisions and
provides for the following:
Paragraph (a) identifies the statutory basis for the rule and
indicates that the purpose of the rule is to designate one or more
carriers ``by specific regions'' to process DMEPOS claims.
Paragraph (b) identifies the types of claims for DMEPOS items and
services that are processed by the DMEPOS carrier.
Paragraph (c) defines four specific regions for the processing of
DMEPOS claims by naming the States and territories to be included in
each region. This section also states that the DMERC regions coincide
with the ``sector'' boundaries of our Common Working File System.
Paragraph (d) specifies criteria that we use in designating
entities to serve as regional carriers for DMEPOS claims.
Paragraph (e)(1) requires that the DMERCs process DMEPOS claims
only for beneficiaries whose permanent residence falls within their
designated regional areas (as established by paragraph (c) of this
section). Paragraph (e)(1) also specifies that, in processing DMEPOS
claims, the DMERCs apply the payment rates applicable to the State of
residence of the beneficiary. In addition, the rule makes clear that
the ``beneficiary residence'' jurisdiction rule applies to qualified
Railroad Retirement beneficiaries and defines ``permanent residence''
for the purpose of the rule.
Paragraph (e)(2) identifies by name the initial DMERCs; paragraph
(e)(3) identifies by name the initial NSC and SADMERC; paragraph (e)(4)
commits us to periodically re-compete the four DME regional carrier
contracts.
Paragraph (f) requires the DMERCs to collect ownership and control
information, as well as supplier standard certifications, from each
DMEPOS supplier that they service.
We discuss several changes to paragraphs (a), (c), (d), and (e) of
Sec. 421.210 in section II of this preamble, ``Provisions of the
Proposed Regulations''.
D. Establishment and Operation of the DMERCs, 1993 Through 2003
We issued a Request for Proposal in May 1992 for the four regional
DMERC contracts. We also solicited offers for two DMEPOS-related
national contracts, the above-mentioned NSC and the SADMERC. In
December 1992, the contracts, designed around Common Working File
sectors, were awarded as follows:
Region A: Travelers Insurance Company for 10 States in the
Northeast.\1\
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\1\ The contract was initially awarded to Travelers Insurance
Company and the regulations use this name. Through a series of
corporate transactions, United Healthcare became the successor-in-
interest to Travelers and served as the DMERC until September 2000,
when HealthNow was awarded the DMERC contract for Region A.
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Region B: AdminaStar Federal for 9 States in the Midwest and the
District of Columbia.
Region C: Palmetto Government Benefits Administrators (GBA) for 14
States and 2 territories in the South.
Region D: CIGNA for 17 States and 3 territories in the West.
NSC: Palmetto GBA.
SADMERC: Palmetto GBA.
Initially, the DMERC and SADMERC contracts were 2-year contracts
with two 1-year renewal options. The NSC was given two 1-year contracts
and two 1-year renewal options. The contracts were modeled, to a
significant extent, after requirements in the Federal Acquisition
Regulations (FAR).
[[Page 9234]]
One of the biggest challenges and accomplishments of the transition
to the DMERC processing arrangement was the consolidation of diverse
carrier medical policies for DMEPOS. Our initiative to configure
geographical regions to process DMEPOS claims by consolidating DME
workloads from the 34 carriers to 4 DMERCs greatly improved the rigor
and consistency of medical review. Formerly, each carrier developed its
own local medical review policies for DMEPOS claims with minimal
guidelines and oversight from us. During the transition period, our
coverage and medical review staff worked closely with the DMERC medical
directors to streamline and standardize medical policy within and
across the DMERC regions. Regionalization allowed the DMERCs to have a
consistent uniform interpretation of coverage policies, local medical
review policies, and pricing for similar items and services. Today, the
DMERCs share essentially one approach to coverage and medical review
for all DMEPOS items.
E. Requirements for Issuance of Regulations
Section 902 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) amended section 1871(a) of the Act and
requires the Secretary, in consultation with the Director of the Office
of Management and Budget, to establish and publish timelines for the
publication of Medicare final regulations based on the previous
publication of a Medicare proposed or interim final regulation. Section
902 of the MMA also states that the timelines for these regulations may
vary but shall not exceed 3 years after publication of the preceding
proposed or interim final regulation except under exceptional
circumstances.
This final rule finalizes provisions set forth in the March 26,
2004 proposed regulation (69 FR 15755). In addition, this final rule
has been published within the 3-year time limit imposed by section 902
of the MMA. Therefore, we believe that the final rule is in accordance
with the Congress' intent to ensure timely publication of final
regulations.
II. Provisions of the Proposed Regulations
(This rule uses the term ``carrier'' to describe the Durable
Medical Equipment administrative contractor. Effective October 1, 2005,
according to section 911(e) of the MMA, the term ``carrier'' should be
read as ``Medicare Administrative Contractor.'')
We proposed a number of changes to Sec. 421.210 which concern the
designation of regional carriers to process claims for DMEPOS. Broadly
speaking, we are seeking greater future flexibility to revise the
number and boundaries of DMERC regional areas. We also desire greater
flexibility in contracting for DMERC, NSC, and SADMERC functions. We
have examined the statutory framework (section 1834(a)(12) of the Act,
as set forth below at paragraph (a), ``Basis'') for Sec. 421.210 and
have concluded that the existing regulation is more restrictive on the
Secretary's contracting discretion than required either by statute or
the Medicare program's interest.
Specifically, we proposed to make the following changes to Sec.
421.210 ``Designations of regional carriers to process claims for
durable medical equipment, prosthetics, orthotics, and supplies'':
Paragraph (a), ``Basis.''
We proposed to revise paragraph (a) to more closely follow the
actual language of section 1834(a)(12) of the Act that authorizes the
Secretary to ``designate, by regulation under section 1842 of the Act,
one carrier for one or more entire regions to process all claims within
the region for covered items under this section.'' We therefore
proposed to revise paragraph (a) to state that the Secretary is
authorized to designate carriers for ``one or more entire regions''
rather than to designate carriers by ``specific'' regions.
Paragraph (c), ``Region designation.''
We proposed to revise paragraph (c), designate the existing
paragraph (c) as (c)(1), and add a new paragraph (c)(2).
In paragraph (c), we proposed to clarify the Secretary's authority
to revise the number or configuration of DMEPOS regional areas in the
future, based on appropriate factors and criteria.
The existing regulations in Sec. 421.210(c) specify that there are
four regional areas for DMEPOS claims and further specify that these
areas be drawn to coincide with the Common Working File sectors. The
regulations also specify, by name, which States and territories are
assigned to each region for DMEPOS claims. To allow greater
flexibility, in paragraph (c)(1), we proposed to add the word
``initial'' in front of the listing of the current DMERC service areas,
to make clear that this configuration could change in the future.
In addition, we proposed to revise paragraph (c)(1) to remove a
specific reference to the Common Working File sector framework as a
determinant for the DMERC regions. Advances in technology have greatly
diminished the importance of this consideration and, therefore, its
inclusion in regulation is unnecessary.
The existing reference to Common Working File sectors in paragraph
(c)(1), as a constraint for the DMERC region boundaries, illustrates
the approach of the original rule. The June 18, 1992 final rule (57 FR
27290) acknowledged a technical Medicare claims processing system
constraint that was significant at the time. Since that time, advances
in our claims processing system have greatly reduced the impact of
``out of the area'' processing, and it is no longer necessary to
structure the DMERCs around the Common Working File sectors.
New paragraph (c)(2) proposed a mechanism for us to revise the
number and boundaries of DMERC regional service areas in the future
based on appropriate factors and criteria. Our goal is to constantly
strive to improve beneficiary and supplier satisfaction. Therefore, in
our decisions, we will consider the effect of any service area changes
on beneficiaries and suppliers. Examples of factors and criteria
include population shifts or natural disasters that require a
reallocation of workload, and workforce conditions that may make it
difficult for DMERCs in certain areas to recruit and retain qualified
employees. We specified in paragraph (c)(2) that this change would
provide a mechanism for us to identify which States and territories are
assigned to various DMERC regions by publication of a Federal Register
notice. The Federal Register notice will identify the nature of any
changes in the DMERC service areas, as well as our rationale for the
changes.
Under the current regulation, we would have to maintain the current
DMERC configuration even if our administrative and program needs
change. Currently, the only existing mechanism for changing the
structure of the DMERC regions is to undertake notice and comment
rulemaking for each change. We believe that it is not the intent of the
statute to constrain the Secretary's administrative discretion to this
extent. In seeking this regulation change, we anticipate that new
program circumstances may arise that would require alterations in the
number or configuration of DMERC service areas. We believe that we
would have a definite need to move swiftly and make DMERC service area
changes without going through notice and comment rulemaking whenever
administrative issues arise. Just as critical, we believe it is
important to consider the effects of these kinds of changes on
beneficiaries
[[Page 9235]]
and suppliers and to provide the public with an explanation of changes
when they are made.
Under our March 26, 2004 proposed rule, we would not administer
four DMEPOS areas, would not determine these DMEPOS areas based on the
sector areas of the Common Working File, and would not go through
notice and comment rulemaking to modify the assignment of the States
and territories to revised DMEPOS areas.
In our March 26, 2004 proposed rule, we provided a hypothetical
example of a situation that cannot be adequately addressed under the
current regulation. In this example, DMERC X, which has historically
performed well, is having difficulty serving all beneficiaries and
suppliers in all of its assigned States, due to problems in recruiting
a sufficient number of qualified personnel. At present, the regulations
appear to limit our options to--(1) expecting that DMERC X will improve
its performance; or (2) terminating DMERC X's contract for the entire
service area and procuring and installing a replacement. We do not have
the third option of removing a limited number of States from DMERC X's
contract and attaching these service areas to another DMERC's service
area (or setting up a fifth DMERC jurisdiction). However, under the
proposed regulation, the third contract management option could yield
many benefits, in that DMERC X could focus its resources on its
remaining workload. Under the existing regulation, moving a State to
another area, or setting up a fifth jurisdiction, would require an
extended rulemaking process unless the rules take a more general
approach, as we proposed.
Paragraph (d), ``Criteria for designating regional
carriers.''
Paragraph (d) under this section currently discusses our
``designation'' of regional carriers in a manner that does not
explicitly acknowledge the fact that these designations must be
premised on the awarding of Medicare carrier contracts in accordance
with applicable law.
We also proposed to revise paragraph (d) under this section to make
clear that we would designate regional carriers to process DMEPOS
claims by awarding DMERC contracts in accordance with applicable law.
We did not propose any changes to the current criteria under paragraphs
(d)(1) through (d)(5) of this section, which we use in our procurement
evaluation processes for this particular kind of contract.
Paragraph (e), ``Carrier designation.''
In paragraph (e)(1), we proposed to make minor revisions to conform
the language to the changes made in Sec. 421.210(c).
We proposed to revise paragraph (e) to provide us with flexibility
and discretion with respect to contracting for DMERC and related
functions. The existing regulations in Sec. 421.210(e) name the
initial DMERC-contracting companies and also identify the particular
region each company serves. The existing regulations could be
interpreted as requiring that we constantly update our rules whenever
our business partners change.
The proposed regulatory framework clarified our discretion not to
name a contracting company in future regulations if we re-compete a
DMERC contract after its conclusion or termination. This proposed
change would potentially reduce the agency's administrative burden when
a DMERC contract is not renewed. We proposed to notify affected
beneficiaries and suppliers when we change contractors.
Specifically in paragraph (e)(2), we proposed to remove the names
of the initial DMERCs from the regulation. This change clarified our
future discretion to award a DMERC contract to process DMEPOS claims
under the Medicare program (that is, designate a DMERC), without any
obligation to name the new DMERC(s) in regulations or by Federal
Register notice. We would, however, notify affected beneficiaries and
suppliers to the change in contractors. Therefore, we proposed to
revise paragraph (e)(2) to add that we would notify affected Medicare
beneficiaries when we designate a regional carrier.
We proposed to revise paragraphs (e)(3) and (e)(4) to provide us
with a mechanism to contract for the performance of NSC functions
through either an amendment to a DMERC contract or through a non-DMERC
Medicare carrier contract. In paragraph (e)(4), the existing
regulations for NSC functions limit our selection of NSC contractors to
one of the DMERCs. However, section 1834(j)(1)(E) of the Act more
broadly permits any carrier with a contract under section 1842 of the
Act to perform NSC functions. We believe that our regulations should
reflect this broader discretion under the statute. Therefore, in
paragraph (e)(4), we proposed to remove the limitation that restricts
our list of contractors to only four DME regional carriers. This
proposed revision gives us greater flexibility when we re-compete a
DMERC contract after its conclusion or termination.
In addition, we proposed to delete the references to the SADMERC
function in Sec. 421.210(e)(3) and Sec. 421.210(e)(4). SADMERCS are
responsible for storing national DMEPOS claims history data, for
distributing to the DMERCS national pricing files, and for conducting
data analysis. Although we recognize the importance of the activities
that the SADMERC provides to us and to the DMERCS, these activities are
not identified elsewhere in the regulations, and we believe that little
purpose is served by naming an entity in the regulations without any
reference to its functions. Therefore, we do not believe it necessary
to reference the SADMERC in our regulations.
By removing the existing reference to the SADMERC, including the
constraint that this activity be included in a DMERC's contract, we
would have the flexibility to include this function in a DMERC contract
or to contract for the SADMERC activity through some other vehicle.
In summary, the March 26, 2004 proposed rule would provide a
mechanism for us to change the geographical boundaries served by the
regional contractors that process DME claims and to make other minor
changes in contract administration of the DMERCS. We would have the
mechanism to increase or decrease the number of DMERCS or change the
boundaries of the DMERCs through a Federal Register notice. Further, we
could name new contractors to perform the functions of the DMERC and
NSC without going through notice and comment rulemaking. Instead, we
would notify affected beneficiaries and suppliers of contractor changes
through our outreach and education initiative.
III. Analysis of and Responses to Public Comments
We received a total of twelve timely public comments in response to
the March 26, 2004 proposed rule (69 FR 15755). Commenters included
national trade associations, health care providers, existing CMS
contractors, and private citizens. All public comments were reviewed
and grouped by like or related topics. The comments and our responses
are summarized below.
Comment: A few commenters stated that the impacted business
communities must receive sufficient notification of proposed changes
and sufficient information to provide substantive comments.
Response: This final rule states that we consider the impact on
beneficiaries and suppliers of any modifications to the boundaries or
number of DMERC
[[Page 9236]]
jurisdictions. This analysis will include the question of whether
providers, suppliers, and patients have reasonable access to payer
decision-makers. We will provide sufficient public notification to
affected Medicare suppliers and beneficiaries. We will publish any
changes to DMERC service areas and their justifications in a Federal
Register notice, rather than through notice and comment rulemaking.
Furthermore, open door forums or town hall meetings will be held to
give the public the opportunity to comment. Customer service and
continuity of high quality service for both beneficiaries and suppliers
remain our top priorities and any future changes will be consistent
with our commitment. We will also consider the operational management
and oversight structure impacts of any future changes.
Comment: A few commenters noted that CMS must provide more
information so that the community can comment and understand the reason
for any revised DMERC boundaries.
Response: On December 8, 2003, the President signed the MMA into
law. Since we are developing our implementation plan and strategy,
these changes will give us the flexibility to ensure coordinated
implementation across all benefit types, enabling us to administer high
quality, consistent service and benefit management to suppliers and
beneficiaries. This final rule ensures that our changes are made in a
more flexible manner. Our rationale for these changes was explained in
the March 26, 2004 proposed rule. We will publish our rationale for any
specific DMERC area changes in a Federal Register notice to ensure that
we address the needs of beneficiaries and suppliers.
Comment: Two commenters stated that our proposal to explain any
modifications to the boundaries or number of the DMERC jurisdictions in
a Federal Register notice, with supporting criteria and considerations,
is not adequate. These commenters asserted that we should fully
identify the criteria that would be employed in any decision to modify
the boundaries or number of the DMERC jurisdictions in our proposed
changes to Sec. 421.210(c). One of the two commenters argued that
giving providers and patients reasonable access to payer decision-
makers should be a factor in determining the scope of a contractor's
territory.
Response: This final rule states that we consider the impact on
beneficiaries and suppliers of any modifications to the boundaries or
number of DMERC jurisdictions. This analysis would include the question
of whether providers, suppliers, and patients have reasonable access to
payer decision-makers. (We note, however, that we and our contractors
can ensure this access through many means in addition to the specific
design of the DMERC regions--for instance, through maintaining toll-
free lines for providers and suppliers). The preamble to our proposed
rule also outlined other possible supporting criteria and
considerations for a particular change--for instance, we discussed how
we might adjust the DMERC areas due to population shifts, or to address
performance problems at contractors.
There are any number of other potential reasons that might lead us
to consider adjusting the DMERC jurisdictions--for example, we are now
considering this issue as part of our implementation of the Medicare
contracting reform provisions under the MMA (section 911). We will make
every effort to clearly identify the criteria used in any decision to
modify boundaries or numbers of participants.
Comment: Several commenters voiced concerns about the potential
impact of changing DMERC contractors through the competitive process,
including changing the SADMERC and NSC, and the transition impact of
this action to ongoing operations. The commenter asked about our
methods to alleviate those perceived impacts.
Response: The intent of this rule is to provide the government a
mechanism to expeditiously make changes to the DMERC service area
boundaries without notice and comment rulemaking. Through this
mechanism, we can change the geographical boundaries served by the
regional contractors that process durable medical equipment claims
through issuance of a Federal Register notice. Transition impacts are
not addressed in this regulation; however, in the event that
transitions would occur, CMS has considerable experience in workforce
transitions and will ensure that supplier and beneficiary customer
service and continuity of high quality service remain our top priority.
Our normal practice, when transferring contractual responsibility for
Medicare claims processing and related functions from one contractor to
another, is to transfer all work-in-progress as of a certain date to
the new contractor. We will consider the comments provided in our
operational management of the DMERCs and any future transitions.
Comment: Two commenters offered constructive suggestions on having
overall better performance and consistency of output, as well as a
unified approach to DMERC policies, as a result of any CMS changes.
Response: Our proposed change to this regulation does not directly
address these issues. Supplier and beneficiary customer service and
continuity of high quality service remain our top priority. We will
consider these suggestions in our operational management of the DMERCs
and all contractors.
Comment: One commenter noted that suppliers must make adjustments
in order to interact with a new DMERC, such as updating their patient
accounts and electronic billing to reflect the new DMERC address, or
adjusting their Medicare fee tables if the new DMERC pays claims
differently. Because of these issues, the commenter asserted that the
proposed rule would have a significant impact on small businesses and
that a Regulatory Flexibility Analysis should have been conducted.
Response: We agree that suppliers must make adjustments in their
billing when there are changes in DMERCs, but we do not believe that
these adjustments are significant enough to warrant a Regulatory
Flexibility Analysis, given the narrow scope of the proposed changes to
the existing regulations.
First, all DMERCs--now and in the future--will be required to apply
the proper Medicare fee tables developed in accordance with the
statute, and so changes in the identity of DMERCs will not affect the
payment allowances received by suppliers.
Suppliers will need to adjust their billing mechanisms when there
is a new DMERC. These adjustments must be made whenever there is a
change in the insurance coverage for any non-Medicare patient of the
supplier. Further, these changes could occur even in the absence of the
proposed regulation change, as existing regulations commit us to
periodically re-compete the DMERC contracts. There is no guarantee that
incumbent contractors will always retain their existing contracts in
the competitive process. Finally, section 911 of the MMA requires the
application of competitive procedures to all Medicare claims processing
contracts, including these contracts, not less than once every 5 years.
We note that the original proposed and final rules pertaining to
DMEPOS claims processing (56 FR 56612, 57 FR 27290, 58 FR 60789) did
not require a Regulatory Flexibility Analysis, although their scope was
broader and more significant than our proposed rule. For instance,
those rulemaking actions consolidated the number of entities handling
DMEPOS claims from more than thirty to four, established the
[[Page 9237]]
``beneficiary residence'' billing requirement, various business
standards for Medicare suppliers, and some new information collection
requirements. Our final rule, by contrast, only gives us some
additional flexibility in modifying the DMERC jurisdictions and in
structuring the DMERC contracts. Any adjustments to the DMERC
jurisdictions that we might make under our final rule would have a very
modest impact relative to the effects of our original rulemaking
activities (which did not require a full Regulatory Flexibility
Analysis).
Nonetheless, in the spirit of the Regulatory Flexibility Act, our
final rule states that we will consider the impact on suppliers and
beneficiaries of any future changes we make in DMERC jurisdictions, and
we will discuss these issues in the Federal Register notice or notices
as stated in our proposed rule.
Comment: Three commenters, including one who is a current
contractor who performs DMERC, NSC, and SADMERC functions, expressed
concern over the removal of the SADMERC and NSC functions from a DMERC.
Response: This regulation does not mandate removal of the SADMERC
and NSC functions from a DMERC contract. Removing references to the
SADMERC and NSC from the regulation does not mean we will not contract
out for these services. The changes to the regulation give us
flexibility in terms of how we contract out for the SADMERC and NSC
functions. We will consider these comments in any future operational
strategies for the processing of DMEPOS claims.
Comment: Two commenters asked how the Medicare contracting reform
provisions of the MMA (section 911) would affect the underlying DMERC
regulations at Sec. 421.210, as well as our proposal to modify them.
One of these commenters also asked whether we might adjust the DMERC
regions or functions in our implementation of the Medicare contracting
reform provision, while the other queried whether our proposal would
affect the implementation of the other DME-related provisions in MMA
(for instance, the DME competitive bidding program established by
section 302 of the MMA).
Response: Section 911(e) of the MMA states that any statutes and
regulations pertaining to Medicare intermediaries and carriers, if not
modified by or contrary to the explicit provisions of the MMA, should
be read as applying to the Medicare administrative contractors that
will replace the intermediaries and carriers. Thus, our regulation
change will continue to apply to our contracting for DMEPOS claims
processing even after the effective date of section 911 of the MMA
(October 1, 2005). We note that the MMA did not modify or repeal
section 1834(a)(12) of the Act, which is one of the underlying
authorities for this regulation and for our changes to the regulation.
Further, we have made the decision to continue to operate specialized
claims processing contractors for DMEPOS in our implementation plan for
the MMA, at least for the initial round of competitive contracts let
under the MMA authority.
The MMA will certainly affect our contracting activities with
respect to DMEPOS claims processing; for instance, we will be required
to re-compete each one of these contracts consistent with the MMA.
We are currently considering the question of whether to adjust the
DMERC regions and functions as part of the broader implementation of
Medicare contracting reform. Our specific plans on these issues will be
made public in the near future.
We do not anticipate that our changes will affect the
implementation of the other MMA provisions relating to DME, including
the competitive bidding program established by section 302 of the MMA.
For instance, we would see the DMERCs as implementing any pricing
changes for DMEPOS items based on that provision. We have devoted and
will continue to devote significant program management and transition
planning efforts to analyzing and mitigating these issues to the
greatest extent possible.
Comment: A commenter offered recommendations and suggestions
regarding a medical approach to the payment provisions for prosthetic-
orthotic services and supplies.
Response: The recommendations and suggestions submitted were
coverage and policy issues, which are outside the scope of this
regulation. We are forwarding this letter to the appropriate staff who
can review and consider these recommendations in terms of our future
policymaking decisions.
Comment: A commenter inquired as to how ``ongoing claims disputes''
are handled when there is a change in the DMERCs, and whether these
issues are transferred to the new DMERC.
Response: Our normal practice, when transferring contractual
responsibility for Medicare claims processing and related functions
from one contractor to another, is to transfer all work-in-progress,
including pending claims appeals, as of a certain date to the new
contractor. We anticipate that we will generally follow this practice
in regard to any changes in DMERC contractors, although it is possible
that, under some circumstances, the outgoing contractor could agree to
finalize some appeal cases under a subcontract with its successor.
It should be noted that recent statutory changes (in the Medicare,
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000
(Pub. L. 106-554, enacted on December 21, 2000), as amended by the MMA)
mandated significant changes to the Medicare appeals process. In the
future, Medicare claims processing contractors, including the DMERCs,
will handle only first-level re-determination requests on any claim.
After the DMERC takes this action, a Qualified Independent Contractor
(QIC) designated to process these DME appeals will handle the next
review level for any claims-related appeals. Future interactions
between an affiliated contractor and the QIC include: Consolidating the
case file materials for the QIC and effectuating favorable decisions
(either from the QIC, Administrative Law Judge, or the Departmental
Appeals Board).
Comment: One commenter asserted that if we anticipate making major
changes to the number or boundaries of the DMERC jurisdictions, then we
should use the traditional notice and comment rulemaking process so
that those who will be impacted by the changes are given sufficient
opportunity to respond. A second commenter asked that our March 26,
2004 proposed rule include a description of the process by which the
agency will seek public comment through a less formal means than
rulemaking. This commenter believes that any formal or informal process
should permit comments on proposed changes, with sufficient response
time, before the changes are finalized. A third commenter also
suggested that we should consult with beneficiary and supplier
stakeholders before implementing these kinds of changes.
Response: We believe that the agency has many potential avenues
outside of notice and comment rulemaking for obtaining input on planned
changes in the number or boundaries of the DMERC jurisdictions. These
include, but are not limited to, publishing the changes for comment on
our Web site (http://www.cms.hhs.gov), holding industry conferences at
either a national or local level, or holding a ``town hall''-type
meeting.
We intend to conduct these types of exchanges, but do not believe
that we have to identify these informal approaches to obtaining the
views of
[[Page 9238]]
affected stakeholders in this final rule. Instead, we believe that our
commitment to publish planned changes in a Federal Register notice, and
to include our assessment of the effect of any change on beneficiaries
and suppliers in our analysis (along with other information supporting
the change) provides a sufficient commitment--from a regulatory
perspective--to advance notification and fair process.
Under this regulation, if sufficient informal commentary has not
been received, we are not precluded from requesting public comment
through the required Federal Register notice. Indeed, if there should
be a change of such magnitude as to warrant full notice and comment
rulemaking, we have the option of employing that process.
It is our intention to advise and consult with affected
stakeholders, especially suppliers and beneficiaries, about potential
changes in the number or boundaries of DMERC jurisdictions well in
advance of implementation. For instance, this will occur as a matter of
course as we develop our planned approach to implementing Medicare
contracting reform; any changes in contractor jurisdictions associated
with that initiative will be well-publicized. Short of a public
emergency, the agency would make these kinds of plans public at least
several months before implementation. These practices, which we believe
do not require codification in the regulations, will ensure that
beneficiaries and suppliers have continuity in access to DMERC claims
processing services.
Comment: One commenter stated that, when we make a change in a
DMERC contractor, we should notify affected beneficiaries and suppliers
through a Federal Register notice at least 90 days in advance.
Response: We completely agree that, when we replace any established
Medicare claims processing contractor with a new contractor, the
affected public, including suppliers and beneficiaries, must be
informed. In fact, we always consider a potential replacement
contractor's plan for conducting provider and beneficiary outreach
during the transition period as a major element in our contract award
process. Our program experience indicates that this kind of outreach
effort is a critical success factor for any contractor transition.
However, our program experience also indicates that using the Federal
Register for this kind of activity is slow, ineffective, and
cumbersome. There are many other, more efficient ways to introduce the
new Medicare contractor to the affected stakeholders. We do not use the
Federal Register to notify the public when we contract with a new
intermediary or non-DMERC carrier, and there is no reason why this
approach to notifying the public should be used when a DMERC is
replaced.
IV. Provisions of the Final Regulations
This final rule incorporates the provisions of the proposed rule.
The provisions of this final rule do not differ from those in the
proposed rule.
V. Collection of Information Requirements
This document does not impose any new information collection and
recordkeeping requirements. Consequently, it need not be reviewed by
the Office of Management and Budget under the authority of the
Paperwork Reduction Act of 1995.
VI. Regulatory Impact
A. Overall Impact
We have examined the impacts of this final rule as required by
Executive Order (E.O.) 12866 (September 1993, Regulatory Planning and
Review), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub.
L. 96-354), section 1102(b) of the Act, the Unfunded Mandates Reform
Act of 1995 (Pub. L. 104-4), and E.O. 13132.
E.O. 12866 (as amended by E.O. 13258, which merely reassigns
responsibility of duties) directs agencies to assess all costs and
benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). A regulatory impact
analysis (RIA) must be prepared for major rules with economically
significant effects ($100 million or more in any 1 year). This final
rule does not reach the economic threshold and thus is not considered a
major rule. This rule merely provides the Secretary with greater
contracting flexibility consistent with the statute and will not have
any direct economic impact. Because this final rule only affects our
administrative structures and does not change in any way the Medicare
DMEPOS benefit (that is, neither coverage nor payment is changed), this
rule will not affect the amount or distribution of the Medicare benefit
payment for DMEPOS. Further, any possible restructuring of the DMERC
regions in the future will not remotely approach a net economic impact
of $100 million on either our administrative costs or the
administrative costs of DMEPOS suppliers. Therefore, we do not believe
that a regulatory impact analysis is necessary under E.O. 12866.
The RFA requires agencies to analyze options for regulatory relief
of small businesses. For purposes of the RFA, small entities include
small businesses, nonprofit organizations, and government agencies.
Most hospitals and most other providers and suppliers are small
entities, either by nonprofit status or by having revenues of $6
million to $29 million in any 1 year. Individuals and States are not
included in the definition of a small entity. This final rule, as noted
above, will not have any significant direct economic impact on DMEPOS
suppliers, because it will not affect the scope of benefits, coverage,
or payment rules for DMEPOS, nor will it affect the billing
requirements for these services. This rule does not designate any
particular reconfiguration of the DMERC areas. However, we agree to
consider any effects on DMEPOS suppliers in any future reconfigurations
of the DMERC regions. We are not preparing an analysis for the RFA
because we have determined that this rule will not have a significant
economic impact on a substantial number of small entities. We hereby
certify, under 5 U.S.C. 605(b), that the final rule will not have a
significant economic impact on a substantial number of small entities,
including small businesses, organizations, and local governments.
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. This rule pertains to our
processes for configuring and designating contractors to process DMEPOS
claims and will not have a significant impact on the operations of a
substantial number of small rural hospitals. Therefore, we are not
preparing an analysis for section 1102(b) of the Act.
Section 202 of the Unfunded Mandates Reform Act of 1995 also
requires that agencies assess anticipated costs and benefits before
issuing any rule that may result in expenditure in any 1 year by State,
local, or tribal governments, in the aggregate, or by the private
sector, of $110 million. This rule will not have a consequential effect
on
[[Page 9239]]
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 will not impose any costs on local
governments, the requirements of E.O. 13132 are not applicable.
B. Conclusion
For these reasons, we are not preparing analyses for either the RFA
or section 1102(b) of the Act because we have determined that this rule
will not have a significant economic impact on a substantial number of
small entities or a significant impact on the operations of a
substantial number of small rural hospitals.
C. Alternatives Considered
We could have chosen to continue to operate under the constraints
of our current regulations. This option would require that we
periodically undertake notice and comment rulemaking to update the
regulations with the names of new contactors. We have provided
additional discussion in the preamble describing why we believe this is
not the optimal solution. We believe our decision to make modest
changes to our regulations will offer us greater flexibility in
contracting with DMERCs and allow us to be more responsive to the needs
of all key stakeholders.
In accordance with the provisions of E.O. 12866, this regulation
was reviewed by the Office of Management and Budget.
List of Sections in 42 CFR Part 421
Administrative practice and procedure, Health facilities, Health
professions, Medicare, Reporting and recordkeeping requirements.
0
For the reasons set forth in the preamble, the Centers for Medicare &
Medicaid Services amends 42 CFR chapter IV, part 421 as set forth
below:
PART 421--INTERMEDIARIES AND CARRIERS
0
1. The authority citation for part 421 continues to read as follows:
Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).
Subpart C--Carriers
0
2. Section 421.210 is amended as follows:
0
A. Revise paragraph (a).
0
B. Revise paragraph (c).
0
C. Revise the introductory text of paragraph (d).
0
D. Revise paragraph (e).
The revisions read as follows:
Sec. 421.210 Designations of regional carriers to process claims for
durable medical equipment, prosthetics, orthotics, and supplies.
(a) Basis. This section is based on sections 1834(a)(12) and
1834(h) of the Act, which authorize the Secretary to designate one
carrier for one or more entire regions to process claims for durable
medical equipment, prosthetic devices, prosthetics, orthotics, and
other supplies (DMEPOS). This authority has been delegated to CMS.
* * * * *
(c) Region designation. (1) The boundaries of the initial four
regions for processing claims described in paragraph (b) of this
section contain the following States and territories:
(i) Region A: Maine, New Hampshire, Vermont, Massachusetts,
Connecticut, Rhode Island, New York, New Jersey, Pennsylvania, and
Delaware.
(ii) Region B: Maryland, the District of Columbia, Virginia, West
Virginia, Ohio, Michigan, Indiana, Illinois, Wisconsin, and Minnesota.
(iii) Region C: North Carolina, South Carolina, Kentucky,
Tennessee, Georgia, Florida, Alabama, Mississippi, Louisiana, Texas,
Arkansas, Oklahoma, New Mexico, Colorado, Puerto Rico, and the Virgin
Islands.
(iv) Region D: Alaska, Hawaii, American Samoa, Guam, the Northern
Mariana Islands, California, Nevada, Arizona, Washington, Oregon,
Montana, Idaho, Utah, Wyoming, North Dakota, South Dakota, Nebraska,
Kansas, Iowa, and Missouri.
(2) CMS has the option to modify the number and boundaries of the
regions established in paragraph (c)(1) of this section based on
appropriate criteria and considerations, including the effect of the
change on beneficiaries and DMEPOS suppliers. To announce changes, CMS
publishes a notice in the Federal Register that delineates the regional
boundary or boundaries changed, the States and territories affected,
and supporting criteria or considerations.
(d) Criteria for designating regional carriers. CMS designates
regional carriers to achieve a greater degree of effectiveness and
efficiency in the administration of the Medicare program. In making
this designation, CMS will award regional carrier contracts in
accordance with applicable law and will consider some or all of the
following criteria--
* * * * *
(e) Carrier designation. (1) Each carrier designated a regional
carrier must process claims for items listed in paragraph (b) of this
section for beneficiaries whose permanent residence is within that
carrier's region as designated under paragraph (c) of this section.
When processing the claims, the carrier must use the payment rates
applicable for the State of residence of the beneficiary, including a
qualified Railroad Retirement beneficiary. A beneficiary's permanent
residence is the address at which he or she intends to spend 6 months
or more of the calendar year.
(2) CMS notifies affected Medicare beneficiaries and suppliers when
it designates a regional carrier (in accordance with paragraph (d) of
this section) to process DMEPOS claims (as defined in paragraph (b) of
this section) for all Medicare beneficiaries residing in their
respective regions (as designated under paragraph (c) of this section).
(3) CMS may contract for the performance of National Supplier
Clearinghouse functions through a contract amendment to one of the DME
regional carrier contracts or through a contract amendment to any
Medicare carrier contract under Sec. 421.200.
(4) CMS periodically recompetes the contracts for the DME regional
carriers. CMS also periodically recompetes the National Supplier
Clearinghouse function.
* * * * *
Dated: December 23, 2004.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
Approved: February 22, 2005.
Michael O. Leavitt,
Secretary.
[FR Doc. 05-3728 Filed 2-24-05; 8:45 am]
BILLING CODE 4120-01-P