Federal Employees Health Benefits Acquisition Regulation: Large Provider Agreements, Subcontracts, and Miscellaneous Changes, 31374-31389 [05-10643]

Agencies

• Office of Personnel Management
• Personnel Management Office

[Federal Register Volume 70, Number 104 (Wednesday, June 1, 2005)]
[Rules and Regulations]
[Pages 31374-31389]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-10643]


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OFFICE OF PERSONNEL MANAGEMENT

48 CFR Parts 1601, 1602, 1604, 1615, 1631, 1632, 1644, 1646, and 
1652

RIN 3206-AJ20


Federal Employees Health Benefits Acquisition Regulation: Large 
Provider Agreements, Subcontracts, and Miscellaneous Changes

AGENCY: Office of Personnel Management.

ACTION: Final rule.

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SUMMARY: The Office of Personnel Management (OPM) is issuing this final 
regulation to amend the Federal Employees Health Benefits Acquisition 
Regulation (FEHBAR). It establishes requirements, including audit, for 
Federal Employees Health Benefits Program (FEHB) experience-rated 
carriers' Large Provider Agreements. It also modifies the dollar 
threshold for review of carriers' subcontract agreements; revises the 
definitions of Cost or Pricing Data and Experience-rate to reflect 
mental health parity requirements; updates the contract records 
retention requirement; updates the FEHB Clause Matrix; and conforms 
subpart and paragraph references to Federal Acquisition Regulation 
(FAR) revisions made since we last updated the FEHBAR.

DATES: Effective July 1, 2005.

ADDRESSES: This document is available for viewing at the U.S. Office of 
Personnel Management, 1900 E Street, NW., Washington, DC 20415.

[[Page 31375]]


FOR FURTHER INFORMATION CONTACT: Anne Easton, Manager, at 202-606-0770 
or e-mail aseaston@opm.gov.

SUPPLEMENTARY INFORMATION: The primary purpose of this rulemaking is to 
provide for additional OPM oversight of the FEHB Program carriers' 
contract costs that are charged to the Government. Since the beginning 
of the Program, we have maintained oversight of FEHB carriers' costs, 
including subcontractor costs. We have specified standard contracting 
requirements for review and audit of costs and have routinely updated 
our requirements as necessary. Historically, we have not considered 
providers of healthcare services or supplies to be subcontractors, as 
the term is defined in the Federal Acquisition Regulation (FAR), 
because hundreds of thousands of such agreements between carriers and 
providers are in place, and until recently, the dollar value of each 
agreement was relatively small. However, the healthcare delivery system 
has changed and new large healthcare delivery entities now play a 
significant role in the industry. FEHB carriers now contract with these 
entities for services that represent a significant portion of 
individual carriers' total costs charged to the FEHB Program, and in 
the aggregate represent a sizeable portion of overall Program costs. 
Because of the impact of these costs on the FEHB Program, we are 
expanding our oversight in this area. Even though Large Providers of 
healthcare services or supplies are not defined as subcontractors under 
the FEHB Program, these regulatory changes would bring them under the 
umbrella of the FEHBAR and subject them to audit requirements currently 
applicable to carriers and their subcontractors. Some, but not all, 
FEHB carriers' Large Provider Agreements already provide for a limited 
right to audit. We believe this provision should be in regulation 
rather than in individual contracts to make the context clear and 
consistent for all experience-rated carriers by mirroring the 
regulatory requirements for oversight of FEHB subcontracting 
arrangements. As with audit findings in subcontract arrangements, any 
audit findings regarding Large Providers would be referred to the FEHB 
carrier holding the Large Provider Agreement.
    For FAR audit purposes, we define a ``Large Provider Agreement'' as 
an agreement between (1) an FEHB carrier, at least 25 percent of whose 
total enrollee contracts are comprised of FEHB enrollee contracts, and 
(2) a provider of services, where the total costs charged to the FEHB 
carrier for a contract term for FEHB members, including benefits and 
services, are reasonably expected to exceed five percent of the 
carrier's total FEHB benefits costs, or five percent of the carrier's 
total FEHB administrative costs (where the provider is not responsible 
for benefits costs under the agreement). We will use the FEHB Program 
Annual Accounting Statement for the prior contract year to determine 
the five percent threshold.
    Large Provider Agreements include mail order pharmacy services, 
pharmacy benefit management services, mental (behavioral) health and/or 
substance abuse management services, preferred provider organizations 
(including organizations that own and/or contract with direct providers 
of medical services and supplies), utilization review services, and/or 
large case or disease management services. Large Provider Agreements do 
not include carriers' contracts with hospitals.
    This regulation requires experience-rated carriers to meet minimum 
notification and information requirements with respect to any new 
procurement, renewal, significant modification, or option relating to a 
Large Provider Agreement. Information to be provided includes: a 
description of the supplies or services required, basis for 
reimbursement, reason the proposed provider was selected, method of 
contracting and competition obtained, methodology used to compute 
profit, and provider risk provisions. This new oversight reflects OPM's 
need to be informed of the types of carriers' Large Provider Agreements 
and their terms and conditions because of the value and cost of such 
agreements to the FEHB Program. The clause describing the Large 
Provider Agreement review requirement is applicable to Large Provider 
Agreements and significant modifications effective January 1, 2004. 
However, to allow for an appropriate transition period, OPM will apply 
this requirement only to those Agreements and modifications that take 
effect on or after 90 days following the effective date of this final 
regulation.
    This regulation authorizes the contracting officer to request 
additional information after he or she receives the carrier's 
notification and required information prior to the award of a Large 
Provider Agreement, as well as any time during the performance of the 
agreement. The contracting officer will give the carrier either written 
comments on the agreement, or written notice that there will be no 
comments. If the contracting officer provides comments, the carrier 
must inform the contracting officer how it intends to address those 
comments.
    Under the regulation, Large Providers must retain and make 
available for Government inspection all records applicable to the 
carrier's Large Provider contractual agreement. The Government will 
have audit rights with respect to Large Provider Agreements that are 
the same for all carriers. The contract clauses at 1652.204-74, Large 
Provider Agreements, and 1652.246-70, FEHB Inspection, contain 
provisions that require carriers to insert the applicable clauses in 
their Large Provider Agreements.
    This regulation also updates our policy on FEHB Program 
subcontracting consent which previously required advance approval of 
carriers' subcontracts or modifications when the amount charged to the 
FEHB Program was at least $100,000 and at least 25 percent of the total 
subcontract costs. Consistent with FAR changes, we are increasing the 
threshold to require advance approval if the amount charged to the FEHB 
Program equals or exceeds $550,000 and is at least 25 percent of the 
total subcontract costs. The regulation also clarifies the cost 
components the carrier must consider in determining the $550,000 
threshold. 1644.170, Policy for FEHB Program subcontracting, has been 
clarified to reflect that (a) General Policy and (b) Consent work 
together, along with the FEHB Program Clause Matrix.
    We have added a new section to Part 1631, Contract Cost Principles 
and Procedures, concerning the inferred reasonableness of a 
subcontract's costs. If the carrier follows the notification and 
consent requirements of 1652.244-70, Subcontracts, and later obtains 
the contracting officer's consent or ratification of the subcontract's 
costs, then the reasonableness of the subcontract's costs will be 
inferred.
    We have modified the definitions of Cost or Pricing Data and 
Experience-rate to incorporate mental (behavioral) health benefits 
capitation rates, thereby reflecting the implementation of mental 
(behavioral) health parity in the FEHB Program as of the 2001 contract 
year. Mental (behavioral) health capitation rates are considered to be 
cost or pricing data and are included as actual paid claims and 
administrative expenses in experience rating.
    We have updated the contractor records retention requirement for 
carrier rate submissions, patient claims, Large Provider Agreements, 
and subcontracts to six years. Earlier in the history of the Program 
when virtually all records were maintained in paper format, we 
established a requirement for carriers to

[[Page 31376]]

retain claims records for three years and financial records for five 
years. Since electronic data storage significantly reduces the 
maintenance burden and the Program can benefit from having records 
available for a slightly longer period, we have modified and 
standardized the records retention requirement. Carriers' records are 
subject to the Health Insurance Portability and Accountability Act 
(HIPAA) standards for privacy of individually identifiable health 
information.
    To conform to current FAR sections, we have re-designated and/or 
re-titled certain sections and references in FEHBAR Parts 1615, 1632, 
and 1652. No material changes were made to these three Parts. Old 
FEHBAR 1615.1, General Requirements for Negotiation, is retitled 
``Source Selection Processes and Techniques.'' Old FEHBAR 1615.170, 
Negotiation authority, is now Section 1615.070. Old FEHBAR 1615.4, 
Solicitations and Receipt of Proposals and Quotations, is now 1615.2, 
Solicitations and Receipt of Proposals and Information. Old 1615.401, 
Applicability, is now 1615.270. Old FEHBAR 1615.6, Source Selection, is 
now 1615.3. Old FEHBAR 1615.602, Applicability, is now 1615.370. We 
moved the provisions in old FEHBAR Subparts 1615.8, Price Negotiation, 
and 1615.9, Profit, to Subpart 1615.4, Contract Pricing, to correspond 
with the FAR. We removed and reserved sections 1615.8 and 1615.9 
because there are no longer corresponding references in the FAR. Old 
Section 1615.802, Policy, is now 1615.402, Pricing policy. Old 
paragraph 1615.804-70, Certificate of accurate cost or pricing data for 
community-rated carriers, is now 1615.406-2, Certificate of accurate 
cost or pricing data for community-rated carriers. Old paragraph 
1615.804-72, Rate reduction for defective pricing or defective cost or 
pricing data, is now 1615.407-1. Old paragraph 1615.805-70, Carrier 
investment of FEHB funds, is now 1615.470. Old paragraph 1615.805-71, 
Investment income clause, is now 1615.470-1. Old Section 1615.902, 
Policy, is now 1615.404-4, Profit, and old Section 1615.905, Profit 
analysis factors, is now 1615.404-70.
    In 1632.170, Recurring premium payments to carriers, we removed 
paragraph (c) relating to the 3-Year Department of Defense (DoD) 
Demonstration Project (10 U.S.C. 1108) because the term of the 
demonstration project expired December 31, 2002.
    In 1632.771, Non-commingling of FEHB Program funds, and 1632.772, 
Contract clause, we removed the incorrect reference to paragraph 
1652.232-70 and replaced it with the reference to 1652.232-72.
    We removed the reference to ``1615.804-72'' in the introductory 
text of ``1652.215-70, Rate reduction for defective pricing or 
defective cost or pricing data,'' and replaced it with ``1615.407-1.'' 
In the same section, we removed the reference to ``15.804-2(a)(1)'' and 
replaced it with ``15.403-4(a)(1).'' We also replaced the clause date 
with ``2003.'' In paragraph (a) of the clause, we replaced ``1615.804-
70'' with ``1615.406-2.'' We also removed paragraph (d) relating to the 
3-Year DoD Demonstration Project (10 U.S.C. 1108) because the term of 
the demonstration project expired December 31, 2002.
    In the introductory text of 1652.215-71, Investment income, we 
replaced ``1615.805-71'' with ``1615.470-1.''
    In 1652.216-70, Accounting and price adjustment, we changed the 
clause date to ``2003'' and removed paragraph (c) because the term of 
the 3-Year DoD Demonstration Project (10 U.S.C. 1108) expired December 
31, 2002.
    In 1652.216-71, Accounting and allowable cost, we changed the 
clause date to ``2003'' and removed paragraph (d) because the term of 
the 3-Year DoD Demonstration Project (10 U.S.C. 1108) expired December 
31, 2002.
    In 1652.222-70, Notice of significant events, we revised paragraph 
(d) of the clause to increase the threshold for inserting the clause in 
the carrier's subcontracts and subcontract modifications.
    In 1652.232-70, Payments--Community-rated contracts, we changed the 
clause date to ``2003'' and removed paragraph (f) because the term of 
the 3-Year DoD Demonstration Project (10 U.S.C. 1108) expired December 
31, 2002.
    In 1652.232-71, Payments--Experience-rated contracts, we changed 
the clause date to ``2003'' and removed paragraph (f) because the term 
of the 3-Year DoD Demonstration Project (10 U.S.C. 1108) expired 
December 31, 2002.
    We updated the FEHB Program Clause Matrix by removing three clauses 
that relate to the Cost Accounting Standards (FAR 52.230-2, FAR 52.230-
3, and FAR 52.230-6) that are waived and no longer apply.
    On August 15, 2003, OPM published a proposed rule in the Federal 
Register (68 FR 48851). OPM received comments from an association 
representing fee-for-service health plans participating in the FEHB 
Program, three individual FEHB fee-for-service health plans, and one 
Federal employee union. The fee-for-service association recommended 
that we change the term ``Large Provider Agreements'' to ``Managed Care 
Agreements'' because certain preferred provider organization 
contractors and utilization review contractors do not want to be 
referred to as health providers because of liability concerns. The 
association also recommended that we clarify the organizations that 
would be considered Large Providers. We believe the Large Provider 
definition adequately reflects our intent but for clarification, we 
have added a representative sample of providers to the definition of 
Large Provider Agreement in FEHBAR 1602.170-15.
    The association also commented that most ``Managed Care 
Agreements'' are price analysis based contracts, not cost reimbursement 
contracts, are not subject to the inclusion of FARSec.  52.215-2, 
``Audit and Records--Negotiation'' clause, and the flow down provision 
to Large Provider Agreements would not apply. They stated that the 
FEHBAR already contains FEHB Inspection clauses at 48 CFR 1646.301, 
1652.246-70, for underwriting and administrative services and 
recommended that we revise these clauses to include review of ``Managed 
Care Agreements''. This would permit audit of cost analysis contracts 
under the Audit and Records--Negotiation clause, and price analysis 
contracts under the FEHB Inspection clause. We agree with the 
association's comment and have revised the regulation accordingly. This 
same principle applies to both Large Provider and subcontract 
arrangements.
    The association commented that Large Provider audit findings should 
be treated pursuant to the overpayments clause of the fee-for-service 
contract (Sec.  2.3(g)) because they are not defective pricing 
situations under the Truth in Negotiations Act (TINA) which calls for 
liability to be placed initially on the prime contractor. We agree 
these audit findings are not defective pricing situations under TINA. 
However we do not agree that findings are overpayments. Rather, we will 
consider findings to be unallowable costs to the contract. The 
association stated that they select many vendors using price-analysis/
price reasonableness, including competitive bidding, which by 
definition do not include evaluation of the underlying costs and 
profit. They recommended we revise the subcontract notification 
requirement on describing the vendor's profit to ``only when 
applicable''. We believe that this is not necessary because if there 
are no costs or profit to be described, the carrier can so state.
    The association commented that the additional notice requirements 
for subcontracts should be defined more

[[Page 31377]]

narrowly (e.g., when the price change in the subcontract is above the 
threshold, not when the price change plus the initial price exceeds the 
threshold). We believe it is appropriate to review a subcontract 
modification that causes the total outlay for the subcontract to equal 
or exceed the $550,000 threshold.
    The association stated that the 60-day advanced notice for 
subcontract consent is commercially unworkable. We have revised the 
notice period to 30 days for subcontracts. The association recommended 
that the $550,000 threshold be adjusted by the same amount and at the 
same time as any change to the threshold for application of the ``Truth 
in Negotiations Act'' (TINA). We agree and have made the appropriate 
change to the regulation. The association commented that it did not 
think the $550,000 threshold should apply to evergreen contracts, e.g., 
contracts that renew automatically unless terminated by one of the 
parties and recommended we clarify that evergreen contracts not be 
considered option contracts. We expect advance notification of any 
subcontract (initial, option or evergreen) where the total price equals 
or exceeds the $550,000 threshold. Evergreen contracts and contracts 
that include an initial contract term with options for renewal would 
meet the requirement for advance approval when the $550,000 threshold 
is expected to be met. For example, if an initial contract is for 
$547,000, and a subsequent year's option is for $5,000, OPM would 
expect to receive a request for advance approval upon receipt of the 
$5,000 option. OPM would need to obtain copies of both the initial and 
option components of the contract to conduct its review.
    The association commented that OPM eliminated the threshold that 
the subcontract amount charged to the FEHB must be no less that 25 
percent of the subcontract's cost. We have restored the 25 percent 
threshold to the final regulation. The association commented that 
Federal procurement law does not require TINA's certified cost or 
pricing data to be submitted to the contracting officer when the 
subcontract's cost is based on adequate price competition or 
subcontracts whose price is set by law or regulation, as well as those 
for commercial items. We agree and have revised the regulation 
accordingly.
    The association commented that our proposed regulation appears to 
require carriers to comply with the FAR in conducting subcontracting 
activities. The association stated that the FAR's contract formation 
rules are directly applicable only to the Federal Government. We 
disagree and have not made revisions to the regulation. The association 
objected to increasing the records retention period from three to six 
years for patient records and from five to six years for operations 
records, but recommended that any change to the retention period be 
made prospectively. We have maintained the uniform six year retention 
period consistent with existing FAR requirements, but agree to apply 
the requirement prospectively. Further, any carrier that believes this 
additional requirement may increase costs may ask the contracting 
officer for consideration during negotiations on the annual 
administrative cost ceiling.
    We also received comments from a large FEHB fee-for-service plan 
which agreed with the fee-for-service association's comments and made 
additional comments of its own. The plan recommended that we clarify 
the definition of Large Provider Agreement to ensure the requirements 
applied only to the plan's parent association and not to its individual 
servicing entities. The plan further indicated that none of its 
servicing entities constitutes 25 percent of the plan's enrollment. The 
Large Provider Agreement requirement is intended to apply to carriers' 
contracts, not local plans that serve under an umbrella arrangement 
with a carrier. Therefore, we have clarified the definition. Further, 
since the definition of Large Provider Agreement contains a 25 percent 
of FEHB enrollment threshold, none of the individual servicing entities 
in the FEHB would be impacted by our new notice and audit requirements. 
This means the Large Provider Agreement requirement would apply to such 
entities as the Blue Cross and Blue Shield Association's Federal 
Employee Program.
    The plan also commented that we should include the 25 percent 
threshold to the flow-down provision at 1652.222-70, Notice of 
Significant Events, because without this clause the plan would be 
required to insert the clause into many subcontracts with minor impact 
on the Federal contract. We agree and have added the 25 percent 
threshold.
    We received comments from two of the fee-for-service plan's 
servicing entities that stated if the Large Provider contract auditing 
requirement was applied to them individually, it would be so 
administratively onerous as to potentially prohibit their continued 
participation in the program. As noted above, we have clarified the 
definition.
    We also received comments from a Federal employee union that stated 
the definition of Large Provider Agreement could result in inequitable 
results. The union stated that a relatively small provider could be 
subject to the definition merely because its subscriber base is 
disproportionately comprised of FEHB members and a very large insurer 
could be excluded because its FEHB subscribers do not comprise 25 
percent of the plan's enrollees. The union recommended that no provider 
be considered a Large Provider unless it has a minimum of $25 million 
in FEHB subscriber income and any provider with $50 million or more of 
FEHB subscriber income be considered a Large Provider. We believe it is 
reasonable that we should have input on any Large Provider contract 
that affects a large number of Federal enrollees relative to the health 
plan's commercial business, regardless of the actual dollar amount of 
the contract. On the other hand, we do not believe that it is 
reasonable for us to try and influence a Large Provider contract where 
FEHB enrollment comprises a minor proportion of the contract's 
enrollees, compared to the health plan's other commercial business. The 
union disagreed with our newly proposed section 1631.205-81, Inferred 
Reasonableness and stated the clause weakened existing procurement law. 
We believe it is in the best interest of the FEHB Program to provide an 
incentive to carriers to obtain advanced notification of subcontracts. 
The union also disagreed with the removal of the three Cost Accounting 
Standards clauses from the FEHB Program Clause Matrix. The Federal 
Acquisition Regulation 30.201-5(b)(2) permits the head of an agency to 
waive the Cost Accounting Standards (CAS) for a particular contract or 
subcontract under exceptional circumstances when necessary to meet the 
needs of the agency. We determined that there are sufficient reasons 
and granted waivers for certain health plans under the FEHB Program. In 
October 2002, OPM determined that it was appropriate to grant CAS 
waivers for certain health plans under the FEHB Program for the reasons 
outlined below. First, OPM determined that the Program has adequate 
cost accounting requirements in its Federal Employees Health Benefits 
Acquisition Regulations (FEHBAR), which supplement the Federal 
Acquisition Regulation. The FEHBAR requires carriers to file annual 
financial statements. The carriers, and their third party servicing 
agents, must also adhere to financial and other related standards, 
comply with an FEHB Program audit guide, and submit to audits by 
Independent Public Accountants. Second, because OPM has contracted with 
carriers for twenty to forty years,

[[Page 31378]]

it has been able to collect extensive data on each carrier, thus making 
disclosure statements superfluous. Their existing systems are and have 
been their benchmarks. Third, the OPM Office of the Inspector General 
audits health carriers on a regular basis; contract rates, which are 
negotiated annually, are subject to adjustment for audit findings. 
Fourth, insurance carriers are subject to State regulatory authorities 
and must meet State statutory reserve requirements in order to conduct 
business; in addition, many carriers are required to submit to State 
rate setting procedures. Accordingly, OPM's statutory oversight and 
regulatory requirements already in place are sufficient to meet the 
Government's interests in a much less burdensome way than applying CAS. 
This new regulation will enhance the financial integrity of the Program 
and demonstrate to the public and any other interested parties that 
accounting methods and related financial disclosures by carriers are 
consistent with sound business practices.

Collection of Information Requirement

    This rulemaking imposes additional oversight and audit requirements 
on individual Federal contractors. The requirements do not represent 
routine information collection. Carriers are required to provide the 
information on an individual case-by-case basis only when they are 
initiating a new Large Provider contract or renewing an existing 
contract. It does not impose information collection and recordkeeping 
requirements that meet the definition of the Paperwork Reduction Act of 
1995's term ``collection of information'' which means obtaining, 
causing to be obtained, soliciting, or requiring the disclosure to 
third parties or the public, of facts or opinions by or for an agency, 
regardless of form or format, calling for either answers to identical 
questions posed to, or identical reporting or recordkeeping 
requirements imposed on ten or more persons, other than agencies, 
instrumentalities, or employees of the United States; or answers to 
questions posed to agencies, instrumentalities, or employees of the 
United States which are to be used for general statistical purposes. 
Consequently, it need not be reviewed by the Office of Management and 
Budget under the authority of the Paperwork Reduction Act of 1995 (44 
U.S.C. 3501 et seq.).

Regulatory Flexibility Act

    The Regulatory Flexibility Act (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 with revenues of $11.5 million or less in any 
one year. This rulemaking affects FEHB Program experience-rated 
carriers and their Large Provider contractual arrangements which exceed 
that dollar threshold. Therefore, I certify that this regulation will 
not have a significant economic impact on a substantial number of small 
entities.

Regulatory Impact Analysis

    We have examined the impact of this final rule as required by 
Executive Order 12866 (September 1993, Regulatory Planning and Review), 
the RFA (September 16, 1980, Pub. L. 96-354), section 1102(b) of the 
Social Security Act, the Unfunded Mandates Reform Act of 1995, (Pub. L. 
104-4), and Executive Order 13132. Executive Order 12866 (as amended by 
Executive Order 13258, which merely assigns 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 one year). This rule is not considered a major 
rule, as defined in title 5, United States Code, Section 804(2), 
because we estimate its impact will only affect FEHB carriers and their 
Large Provider Agreements and mirrors current FEHB Program practice 
with regard to carriers' subcontract arrangements. Any economic impact 
resulting from oversight or audit efforts would not be expected to 
exceed the dollar threshold.

Executive Order 12866, Regulatory Review

    This rule has been reviewed by the Office of Management and Budget 
in accordance with Executive Order 12866.

List of Subjects in 48 CFR Parts 1601, 1602, 1604, 1615, 1631, 
1632, 1644, 1646, and 1652

    Government employees, Government procurement, Health insurance, 
Reporting and recordkeeping requirements.

U.S. Office of Personnel Management.
Dan G. Blair,
Acting Director.

0
Accordingly, OPM is amending chapter 16 of title 48 CFR, as follows:

CHAPTER 16--OFFICE OF PERSONNEL MANAGEMENT FEDERAL EMPLOYEES HEALTH 
BENEFITS ACQUISITION REGULATION

0
1. The authority citation for 48 CFR parts 1601, 1602, 1604, 1615, 
1631, 1632, 1644, 1646, and 1652 continues to read as follows:

    Authority: 5 U.S.C. 8913; 40 U.S.C. 486(c); 48 CFR 1.301.

SUBCHAPTER A--GENERAL

PART 1601--FEDERAL ACQUISITION REGULATIONS SYSTEM

Subpart 1601.1--Purpose, Authority, Issuance


1601.105  [Redesignated]

0
2. Section 1601.105 is redesignated as 1601.106.

PART 1602--DEFINITIONS OF WORDS AND TERMS

Subpart 1602.1--Definitions of FEHB Program Terms

0
3. In 1602.170-5, paragraph (a) is revised to read as follows:


1602.170-5  Cost or pricing data.

    (a) Experience-rated carriers. Cost or pricing data for experience-
rated carriers includes:
    (1) Information such as claims data;
    (2) Actual or negotiated benefits payments made to providers of 
medical services for the provision of healthcare, such as capitation 
not adjusted for specific groups, including mental health benefits 
capitation rates, per diems, and Diagnostic Related Group (DRG) 
payments;
    (3) Cost data;
    (4) Utilization data; and
    (5) Administrative expenses and retentions, including capitated 
administrative expenses and retentions.
* * * * *

0
4. Section 1602.170-7 is revised to read as follows:


1602.170-7  Experience-rate.

    Experience-rate means a rate for a given group that is the result 
of that group's actual paid claims, administrative expenses (including 
capitated administrative expenses), retentions, and estimated claims 
incurred but not reported, adjusted for benefit modifications, 
utilization trends, and economic trends. Actual paid claims include any 
actual or negotiated benefits payments made to providers of services 
for the provision of healthcare such as capitation not adjusted for 
specific groups, including mental health benefits capitation rates, per 
diems, and DRG payments.

[[Page 31379]]


0
5. Section 1602.170-15 is added to read as follows:


1602.170-15  Large Provider Agreement.

    (a) Large Provider Agreement means an agreement between --
    (1) An FEHB carrier, at least 25 percent of which total contracts 
are FEHB enrollee contracts, and
    (2) A vendor of services or supplies such as mail order pharmacy 
services, pharmacy benefit management services, mental health and/or 
substance abuse management services, preferred provider organization 
services, utilization review services, and/or large case or disease 
management services. This representative list includes organizations 
that own or contract with direct providers of healthcare or supplies, 
or organizations that process claims or manage patient care. A hospital 
is not considered to be a vendor for purposes of this chapter.
    (i) Where the total costs charged to the FEHB carrier for a 
contract term for FEHB members, including benefits and services, are 
reasonably expected to exceed 5 percent of the carrier's total FEHB 
benefits costs, or
    (ii) Where the total administrative costs charged to the FEHB 
carrier for the contract term for FEHB members are reasonably expected 
to exceed 5 percent of the carrier's total FEHB administrative costs 
(applicable to agreements where the provider is not responsible for 
FEHB benefits costs).
    (3) As used in this section, the term ``carrier'' does not include 
local health plans that serve under an umbrella arrangement with an 
FEHB carrier.
    (b) The FEHB Program Annual Accounting Statement for the FEHB Plan 
for the prior contract year will be used to determine the 5 percent 
threshold under Large Provider Agreements.
    (c) Large Provider Agreements based on cost analysis are subject to 
the provisions of FAR 52.215-2, ``Audit and Records-Negotiation.''
    (d) Large Provider Agreements based on price analysis are subject 
to the provisions of 48 CFR 1646.301 and 1652.246-70.

PART 1604--ADMINISTRATIVE MATTERS

0
6. Subpart 1604.72 is added to read as follows:

Subpart 1604.72--Large Provider Agreements

Sec.
1604.7201 FEHB Program Large Provider Agreements.
1604.7202 Large Provider Agreement clause.

    Authority: 5 U.S.C. 8913; 40 U.S.C. 486(c); 48 CFR 1.301.


1604.7201  FEHB Program Large Provider Agreements.

    The following provisions apply to all experience-rated carriers 
participating in the FEHB Program:
    (a) Notification and information requirements. (1) All experience-
rated carriers must provide notice to the contracting officer of their 
intent to enter into or to make a significant modification to a Large 
Provider Agreement. Significant modification means a 20% increase or 
more in the amount of the Large Provider Agreement:
    (i) Not less than 60 days before entering into any Large Provider 
Agreement; and
    (ii) Not less than 60 days before exercising renewals or other 
options, or making a significant modification.
    (2) The carrier's notification to the contracting officer must be 
in writing and must, at a minimum:
    (i) Describe the supplies and/or services the proposed provider 
agreement will require;
    (ii) Identify the proposed basis for reimbursement;
    (iii) Identify the proposed provider agreement, explain why the 
carrier selected the proposed provider, and, where applicable, what 
contracting method it used, including the kind of competition obtained;
    (iv) Describe the methodology the carrier used to compute the 
provider's profit; and, (v) Describe the provider risk provisions.
    (3) The contracting officer may request from the carrier any 
additional information on a proposed provider agreement and its terms 
and conditions prior to a Large Provider award and during the 
performance of the agreement.
    (4) Within 30 days of receiving the carrier's notification, the 
contracting officer will either give the carrier written comments or 
written notice that there will be no comments. If the contracting 
officer comments, the carrier must respond in writing within 10 
calendar days and explain how it intends to address any concerns.
    (5) When computing the carrier's annual service charge, the 
contracting officer will consider how well the carrier complies with 
the provisions of this section, including the advance notification 
requirements, as an aspect of the carrier's performance factor.
    (6) The contracting officer's review of any Large Provider 
agreement, option, renewal, or modification will not constitute a 
determination of the acceptability of terms or conditions of any 
provider agreement or the allowability of any costs under the carrier's 
contract, nor will it relieve the carrier of any responsibility for 
performing the contract.
    (b) Records and inspection. The carrier must insert in all Large 
Provider Agreements the requirement that the provider will retain and 
make available to the Government all records relating to the agreement 
as follows:
    (1) Records that support the annual statement of operations--Retain 
for 6 years after the agreement term ends.
    (2) Enrollee records, if applicable--Retain for 6 years after the 
agreement term ends.
    (c) Large Provider Agreements based on cost analysis are subject to 
the provisions of FAR 52.215-2, ``Audit and Records-Negotiation.''
    (d) Large Provider Agreements based on price analysis are subject 
to the provisions of 48 CFR 1646.301 and 1652.246-70.


1604.7202  Large Provider Agreement clause.

    The contracting officer will insert the clause set forth at section 
1652.204-74 in all experience-rated FEHB Program contracts.

SUBCHAPTER C--CONTRACTING METHODS AND CONTRACT TYPES

PART 1615--CONTRACTING BY NEGOTIATION

0
7. A new Sec.  1615.070 is added immediately before Subpart 1615.1 to 
read as follows:


1615.070  Negotiation authority.

    The authority to negotiate FEHB contracts is conferred by 5 U.S.C. 
8902.

0
8. Subpart 1615.1 is revised to read as follows:

Subpart 1615.1--Source Selection Processes and Techniques.


1615.170  Applicability.

    FAR Subpart 15.1 has no practical application to the FEHB Program 
because prospective contractors (carriers) are considered for inclusion 
in the FEHB Program according to criteria in 5 U.S.C. chapter 89 and 5 
CFR part 890 rather than by competition between prospective carriers.

0
9. Subpart 1615.2 is added to read as follows:

Subpart 1615.2--Solicitations and Receipt of Proposals and 
Information


1615.270  Applicability.

    FAR subpart 15.2 has no practical application to the FEHB Program

[[Page 31380]]

because OPM does not issue formal procurement solicitations to health 
benefits carriers. Eligible contractors (i.e., qualified health 
benefits carriers) are identified in accordance with 5 U.S.C. 8903. 
Offerors voluntarily come forth in accordance with procedures provided 
in 5 CFR part 890.

Subpart 1615.6 [Redesignated]

0
10. Subpart 1615.6 is redesignated as Subpart 1615.3.


1615.202  [Redesignated and amended]

0
10a. Section 1615.602 is redesignated as 1615.370 and amended by 
removing ``15.6'' and adding in its place ``15.3''.

0
11. Subpart 1615.4 is revised to read as follows:

Subpart 1615.4--Contract Pricing

Sec.
1615.402 Pricing policy.
1615.404-4 Profit.
1615.404-70 Profit analysis factors.
1615.406-2 Certificate of accurate cost or pricing data for 
community-rated carriers.
1615.407-1 Rate reduction for defective pricing or defective cost or 
pricing data.
1615.470 Carrier investment of FEHB funds.
1615.470-1 Investment income clause.

    Authority: 5 U.S.C. 8913; 40 U.S.C. 486(c); 48 CFR 1.301.


1615.402  Pricing policy.

    Pricing of FEHB contracts is governed by 5 U.S.C. 8902(i), 5 U.S.C. 
8906, and other applicable law. FAR subpart 15.4 will be implemented by 
applying its policies and procedures--to the extent practicable--as 
follows:
    (a) For both experience-rated and community-rated contracts for 
which the FEHB Program premiums for the contract term will be less than 
the threshold at FAR 15.403-4(a)(1), OPM will not require the carrier 
to provide cost or pricing data in the rate proposal for the following 
contract term.
    (b) Cost analysis will be used for contracts where premiums and 
subscription income are determined on the basis of experience rating.
    (c)(1) A combination of cost and price analysis will be used for 
contracts where premiums and subscription income are based on 
community-rates. For contracts for which the FEHB Program premiums for 
the contract term will be less than the threshold at FAR 15.403-
4(a)(1), OPM will not require the carrier to provide cost or pricing 
data. The carrier is required to submit only a rate proposal and 
abbreviated utilization data for the applicable contract year. OPM will 
evaluate the proposed rates by performing a basic reasonableness test 
on the information submitted. Rates failing this test will be subject 
to further review.
    (2) For contracts with fewer than 1,500 enrollee contracts for 
which the FEHB Program premiums for the contract term will be at or 
above the threshold at FAR 15.403-4(a)(1), OPM will require the carrier 
to submit its rate proposal, utilization data, and the certificate of 
accurate cost or pricing data required in 1615.406-2. In addition, OPM 
will require the carrier to complete the proposed rates form containing 
cost and pricing data, and the Community-Rate Questionnaire, but will 
not require the carrier to send these documents to OPM. The carrier 
will keep the documents on file for periodic auditor and actuarial 
review in accordance with 1652.204-70. OPM will perform a basic 
reasonableness test on the data submitted. Rates that do not pass this 
test will be subject to further OPM review.
    (3) For contracts with 1,500 or more enrollee contracts for which 
the FEHB Program premiums for the contract term will be at or above the 
threshold at FAR 15.403-4(a)(1), OPM will require the carrier to 
provide the data and methodology used to determine the FEHB Program 
rates. OPM will also require the data and methodology used to determine 
the rates for the carrier's similarly sized subscriber groups. The 
carrier will provide cost or pricing data required by OPM in its rate 
instructions for the applicable contract period. OPM will evaluate the 
data to ensure that the rate is reasonable and consistent with the 
requirements in this chapter. If necessary, OPM may require the carrier 
to provide additional documentation.
    (4) Contracts will be subject to a downward price adjustment if OPM 
determines that the Federal group was charged more than it would have 
been charged using a methodology consistent with that used for the 
similarly-sized subscriber groups (SSSGs). Such adjustments will be 
based on the lower of the two rates determined by using the methodology 
(including discounts) the carrier used for the two SSSGs.
    (5) FEHB Program community-rated carriers will comply with SSSG 
criteria provided by OPM in the rate instructions for the applicable 
contract period.
    (d) The application of FAR 15.402(b)(2) should not be construed to 
prohibit the consideration of preceding year surpluses or deficits in 
carrier-held reserves in the rate adjustments for subsequent year 
renewals of contracts based, in whole or in part, on cost analysis.


1615.404-4  Profit.

    (a) When the pricing of FEHB Program contracts is determined by 
cost analysis, OPM will determine the profit or fee prenegotiation 
objective (service charge) portion of the contracts by use of a 
weighted guidelines structured approach. The service charge so 
determined will be the total service charge that may be negotiated for 
the contract and will encompass any service charge (whether entitled 
service charge, profit, fee, contribution to reserves or surpluses, or 
any other title) that may have been negotiated by the prime contractor 
with any subcontractor or underwriter.
    (b) OPM will not guarantee a minimum service charge.


1615.404-70  Profit analysis factors.

    (a) OPM contracting officers will apply a weighted guidelines 
method in developing the service charge prenegotiation objective for 
FEHB Program contracts. The following factors, as defined in FAR 
15.404-4(d), will be applied to projected incurred claims and allowable 
administrative expenses:
    (1) Contractor performance. OPM will consider such elements as the 
accurate and timely processing of benefit claims and the volume and 
validity of disputed claims as measures of economical and efficient 
contract performance. This factor will be judged apart from the 
contractor's basic responsibility for contract performance and will be 
a measure of the extent and nature of the contractor's contribution to 
the FEHB Program through the application of managerial expertise and 
effort. Evidence of effective contract performance will receive a plus 
weight, and poor performance or failure to comply with contract terms 
and conditions a negative weight. Innovations of benefit to the FEHB 
Program will generally result in a positive weight; documented 
inattention or indifference to cost control will generally result in a 
negative weight.
    (2) Contract cost risk. In assessing the degree of cost 
responsibility and associated risk assumed by the contractor as a 
factor to be considered in negotiating profit, OPM will consider such 
underwriting elements as the availability of margins, group size, 
enrollment demographics and fluctuation, and the probability of 
conversion and adverse selection, as well as the extent of financial 
assistance the carrier renders to the contract. However, the ``loss 
carry forward basis'' of experience-rated group insurance practices, 
which mitigates contract risk, will likely serve to diminish this 
profit

[[Page 31381]]

analysis factor in an overall determination of profit. This factor is 
intended to provide profit opportunities commensurate with the 
contractor's share of cost risks only, taking into account elements 
such as the adequacy and reliability of data for estimating costs.
    (3) Federal socioeconomic programs. OPM will consider documented 
evidence of successful, contractor-initiated efforts to support Federal 
socioeconomic programs such as drug and substance abuse deterrents and 
concerns of the type enumerated in FAR 15.404-4(d)(iii), as a factor in 
negotiating profit. This factor will be assessed by considering the 
quality of the contractor's policies and procedures and the extent of 
unusual effort or achievement demonstrated. Evidence of effective 
support of Federal socioeconomic programs will receive a positive 
weight; poor support will receive a negative weight.
    (4) Capital investments. This factor is generally not applicable to 
FEHB Program contracts because facilities capital cost of money may be 
an allowable administrative expense. Generally, this factor will be 
given a weight of zero. However, special purpose facilities or 
investment costs of direct benefit to the FEHB Program that are not 
recoverable as allowable or allocable administrative expenses may be 
taken into account in assigning a positive weight.
    (5) Cost control. OPM will consider contractor-initiated efforts 
such as improved benefit design, cost-sharing features, innovative peer 
review, or other professional cost containment efforts as a factor in 
negotiating profit. OPM will use this factor to reward contractors with 
additional profit opportunities for self-initiated efforts to control 
contract costs.
    (6) Independent development. OPM will consider any profit 
opportunities that may be directly related to relevant independent 
efforts such as the development of a unique and enhanced customer 
support system that is of demonstrated value to the FEHB Program and 
for which developmental costs have not been recovered directly or 
indirectly through allowable administrative expenses. OPM will use this 
factor to provide additional profit opportunities based upon an 
assessment of the contractor's investment and risk in developing 
techniques, methods, and practices having viability to the program at 
large. OPM will not consider improvements and innovations recognized 
and rewarded under any of the other profit factors.
    (b) The following weight ranges for each factor are used in the 
weighted guidelines approach:

------------------------------------------------------------------------
              Profit factor                   Weight ranges  (percent)
------------------------------------------------------------------------
1. Contractor performance................  -.2 to + .45
2. Contract cost risk *..................  +.02 to + .2
3. Federal socioeconomic programs........  -.05 to + .05
4. Capital investments...................  0 to + .02
5. Cost control..........................  0 to + .35
6. Independent development...............  0 to + .03
------------------------------------------------------------------------

    *The contract cost risk factor is subdivided into two parts: 
group size (.02 to .10) and other risk elements (0 to .10). With 
respect to the group size element, subweights should be assigned as 
follows:

------------------------------------------------------------------------
                Enrollment                       Weight  (percent)
------------------------------------------------------------------------
10,000 or less...........................  .06 to .10
10,001-50,000............................  .05 to .09
50,001-200,000...........................  .04 to .07
200,001-500,000..........................  .03 to .06
500,001 and over.........................  .02 to .04
------------------------------------------------------------------------

1615.406-2  Certificate of accurate cost or pricing data for community-
rated carriers.

    The contracting officer will require a carrier with a contract 
meeting the requirements in 1615.402(c)(2) or 1615.402(c)(3) to execute 
the Certificate of Accurate Cost or Pricing Data contained in this 
section. A carrier with a contract meeting the requirements in 
1615.402(c)(2) will complete the Certificate and keep it on file at the 
carrier's place of business in accordance with 1652.204-70. A carrier 
with a contract meeting the requirements in 1615.402(c)(3) will submit 
the Certificate to OPM along with its rate reconciliation, which is 
submitted during the first quarter of the applicable contract year.

Certificate of Accurate Cost or Pricing Data for Community-Rated 
Carriers

    This is to certify that, to the best of my knowledge and belief: 
(1) The cost or pricing data submitted (or, if not submitted, 
maintained and identified by the carrier as supporting 
documentation) to the Contracting officer or the Contracting 
officer's representative or designee, in support of the --------
*FEHB Program rates were developed in accordance with the 
requirements of 48 CFR Chapter 16 and the FEHB Program contract and 
are accurate, complete, and current as of the date this certificate 
is executed; and (2) the methodology used to determine the FEHB 
Program rates is consistent with the methodology used to determine 
the rates for the carrier's Similarly Sized Subscriber Groups.
 Firm:-----------------------------------------------------------------
 Name:-----------------------------------------------------------------
 Signature:------------------------------------------------------------
 Date of Execution:----------------------------------------------------

    *Insert the year for which the rates apply. Normally, this will 
be the year for which the rates are being reconciled.
    (End of Certificate)


1615.407-1  Rate reduction for defective pricing or defective cost or 
pricing data.

    The clause set forth in section 1652.215-70 will be inserted in 
FEHB Program contracts, at or above the threshold in FAR 15.403-
4(a)(1), that are based on a combination of cost and price analysis 
(community-rated).


1615.470  Carrier investment of FEHB funds.

    (a) Except for contracts based on a combination of cost and price 
analysis (community-rated), the carrier is required to invest and 
reinvest all funds on hand, including any attributable to the special 
reserve or the reserve for incurred but unpaid claims, exceeding the 
funds needed to discharge promptly the obligations incurred under the 
contract.
    (b) The carrier is required to credit income earned from its 
investment of FEHB funds to the special reserve on behalf of the FEHB 
Program. If a carrier, for any reason, fails to invest excess FEHB 
funds or to credit any income due to the contract, it will return or 
credit any investment income lost to OPM or the special reserve.
    (c) Investment income. Investment income is the net amount earned 
by the carrier after deducting investment expenses.


1615.470-1  Investment income clause.

    The clause set forth in 1652.215-71 will be inserted in all FEHB 
contracts based on cost analysis.

Subpart 1615.8 [Removed and Reserved]

0
12. Subpart 1615.8 is removed and reserved.

Subpart 1615.9 [Removed and Reserved]

0
13. Subpart 1615.9 is removed and reserved.

0
14. Subpart 1615.70 is added to read as follows:

Subpart 1615.70--Audit and Records--Negotiation


1615.7001  Audit and records.

    The Contracting officer will modify 52.215-2 in all FEHB Program 
experience-rated contracts by amending paragraph (g) of that section to 
replace the words ``exceed the simplified acquisition threshold'' with 
``equals or exceeds $550,000.'' This amount shall be adjusted by the 
same amount and at

[[Page 31382]]

the same time as any change to the threshold for application of the 
Truth in Negotiations Act pursuant to 41 U.S.C. 254b(a)(7).

SUBCHAPTER E--GENERAL CONTRACTING REQUIREMENTS

PART 1631--CONTRACT COST PRINCIPLES AND PROCEDURES

Subpart 1631.2--Contracts With Commercial Organizations

0
15. A new 1631.205-81 is added to Subpart 1631.2 to read as follows:


1631.205-81  Inferred reasonableness.

    If the carrier follows the notification and consent requirements of 
paragraphs (a), (b) and (c) of 1652.244-70, and subsequently obtains 
the Contracting officer's consent or ratification, then the 
reasonableness of the subcontract's costs shall be inferred.

PART 1632--CONTRACT FINANCING

Subpart 1632.1--General


1632.170  [Amended]

0
16. In 1632.170, remove paragraph (c).

Subpart 1632.7--Contract Funding


1632.771  [Amended]

0
17. In 1632.771 paragraph (d), remove ``1652.232-70'' and add in its 
place ``1652.232-72.''


1632.772  [Amended]

0
18. In 1632.772, remove ``1652.232-70'' and add in its place 
``1652.232-72.''

SUBCHAPTER G--CONTRACT MANAGEMENT

PART 1644--SUBCONTRACTING POLICIES AND PROCEDURES

Subpart 1644.1--General

0
19. Section 1644.170 is revised to read as follows:


1644.170  Policy for FEHB Program subcontracting.

    (a) General policy. Carriers shall follow appropriate procurement 
procedures that comply with the FAR policies and procedures relating to 
competition and contract pricing for the acquisition of both commercial 
and non-commercial items.
    (b) Consent. For all experience-rated contracts, carriers will 
notify the Contracting officer in writing at least 30 days in advance 
of entering into any subcontract or subcontract modification, or as 
otherwise specified by the contract, if: the amount of the subcontract 
or the amount of the subcontract and modification charged to the FEHB 
Program equals or exceeds $550,000 and is at least 25 percent of the 
total subcontract's costs. The amount of the dollar charge to the FEHB 
Program shall be adjusted by the same amount and at the same time as 
any change to the threshold for application of the Truth in 
Negotiations Act pursuant to 41 U.S.C. 254b(a)(7). Failure to provide 
advance notice may result in a Contracting officer's disallowance of 
subcontract costs or a penalty when considering the performance aspect 
of the carriers' service charge.
    (1) All subcontracts or subcontract modifications that equal or 
exceed the threshold are subject to audit under FAR 52.215-2 ``Audit 
and Records-Negotiations'' if based on cost analysis, and subject to 
the provisions of 48 CFR 1646.301 and 1652.246-70 ``FEHB Inspection'' 
if based on price analysis.
    (2) In determining whether the amount chargeable to the FEHB 
Program contract for a given subcontract or modification equals or 
exceeds the $550,000 threshold, the following rules apply:
    (i) For initial advance notification, the carrier shall provide the 
total cost/price for the base year.
    (ii) The carrier shall provide advance notification of any 
modifications, options, including quantity or service options and 
option periods, and renewals of ``evergreen contracts'' that cause the 
total price to equal or exceed the threshold. OPM's review will be of 
the modification(s), itself, but documentation for the original 
subcontract will be required to perform the review.
    (iii) The $550,000 threshold will be adjusted by the same amount 
and at the same time as any change to the threshold for application of 
the Truth in Negotiations Act.

PART 1646--QUALITY ASSURANCE

Subpart 1646.2--Contract Quality Requirements

0
20. Subpart 1646.2--Contract Quality Requirements is revised as 
follows:

Subpart 1646.2--Contract Quality Requirements


1646.201  Contract Quality Policy.

    (a) This section prescribes general policies and procedures to 
ensure that services acquired under the FEHB contract conform to the 
contract's quality and audit requirements.
    (b) OPM will periodically evaluate the contractor's system of 
internal controls under the quality assurance program required by the 
contract and will acknowledge in writing whether or not the system is 
consistent with the requirements set forth in the contract. After the 
initial review, subsequent reviews may be limited to changes in the 
contractor's internal control guidelines. However, a limited review 
does not diminish the contractor's obligation to apply the full 
internal control system.
    (c) OPM will issue specific quality performance standards for the 
FEHB contracts and will inform carriers of the applicable standards 
prior to negotiations for the contract year. OPM will benchmark its 
standards against standards generally accepted in the insurance 
industry. The contracting officer may authorize nationally recognized 
standards to be used to fulfill this requirement. FEHB carriers will 
comply with the performance standards issued by OPM.
    (d) In addition to reviewing carriers' quality assurance programs, 
OPM will periodically audit contractors, subcontractors and Large 
Providers' books and records to assure compliance with FEHB law, 
regulations, and the contract.

SUBCHAPTER H--CLAUSES AND FORMS

PART 1652--CONTRACT CLAUSES

Subpart 1652.2--Texts of FEHB Clauses

0
21. Section Sec.  1652.204-70 is revised to read as follows:


1652.204-70  Contractor records retention.

    As prescribed in 1604.705 the following clause will be inserted in 
all FEHB Program contracts.

Contractor Records Retention (Jan 2004)

    Notwithstanding the provisions of Section 5.7 (FAR 52.215-2(f)) 
``Audit and Records--Negotiation'' the carrier will retain and make 
available all records applicable to a contract term that support the 
annual statement of operations and, for contracts that equal or 
exceed the threshold at FAR 15.403-4(a)(1), the rate submission for 
that contract term for a period of six years after the end of the 
contract term to which the records relate. This includes all records 
of Large Provider Agreements and subcontracts that equal or exceed 
the threshold requirements. In addition, individual enrollee and/or 
patient claim records will be maintained for six years after the end 
of the contract term to which the claim records relate. This clause 
is effective prospectively as of the 2004 contract year.

    (End of Clause)


0
22. Section 1652.204-74 is added to read as follows:

[[Page 31383]]

1652.204-74  Large provider agreements.

    As prescribed by 1604.7202, the contracting officer will insert the 
following clause in all FEHB Program contracts based on cost analysis 
(experience-rated):

Large Provider Agreements (Jan 2004)

    (a) Notification and Information Requirements. (1) The 
experience-rated Carrier must provide notice to the contracting 
officer of its intent to enter into or to make a significant 
modification of a Large Provider Agreement:
    (i) Not less than 60 days before entering into any Large 
Provider Agreement; and
    (ii) Not less than 60 days before exercising a renewal or other 
option, or significant modification to a Large Provider Agreement, 
when such action would result in total costs to the FEHB Program of 
an additional 20 percent or more above the existing contract. This 
amount shall be adjusted by the same amount and at the same time as 
any change to the threshold for application of the Truth in 
Negotiations Act pursuant to 41 U.S.C. 254b(a)(7). However, if a 
carrier is exercising a simple renewal or other option contemplated 
by a Large Provider Agreement that OPM previously reviewed, and 
there are no significant changes, then a statement to the effect 
that the renewal or other option is being exercised along with the 
dollar amount is sufficient notice.
    (2) The carrier's notification to the contracting officer must 
be in writing and must, at a minimum:
    (i) Describe the supplies and/or services the proposed provider 
agreement will require;
    (ii) Identify the proposed basis for reimbursement;
    (iii) Identify the proposed provider agreement, explain why the 
carrier selected the proposed provider, and what contracting method 
it used, where applicable, including the kind of competition 
obtained;
    (iv) Describe the methodology the carrier used to compute the 
provider's profit; and,
    (v) Describe provider risk provisions.
    (3) The Contracting officer may request from the carrier any 
additional information on a proposed provider agreement and its 
terms and conditions prior to a provider award and during the 
performance of the agreement.
    (4) Within 30 days of receiving the carrier's notification, the 
Contracting officer will give the carrier either written comments or 
written notice that there will be no comments. If the Contracting 
officer comments, the carrier must respond in writing within 10 
calendar days, and explain how it intends to address any concerns.
    (5) When computing the carrier's service charge, the Contracting 
officer will consider how well the carrier complies with the 
provisions of this section, including the advance notification 
requirements, as an aspect of the carrier's performance factor.
    (6) The Contracting officer's review of any Large Provider 
Agreement, option, renewal, or modification will not constitute a 
determination of the acceptability of the terms and conditions of 
any provider agreement or of the allowability of any costs under the 
carrier's contract, nor will it relieve the carrier of any 
responsibility for performing the contract.
    (b) Records and Inspection. The carrier must insert in all Large 
Provider Agreements the requirement that the provider will retain 
and make available to the Government all records relating to the 
agreement that support the annual statement of operations and 
enrollee records--Retain for 6 years after the agreement term ends.
    (c) Audit and Records--Negotiation. The provisions of FAR 
52.215-2, ``Audit and Records--Negotiation,'' when required, or 
FEHBAR 1652.246-70, ``FEHB Inspection'' apply to all experience-
rated Carriers' Large Provider Agreements. The Carrier will insert 
the clauses at FAR 52.215-2, when applicable, or FEHBAR 1652.246-70 
in all Large Provider Agreements. In FAR 52.215-2 the carrier will 
substitute:
    (1) The term ``Large Provider'' for the term ``Contractor'' 
throughout the clause, and
    (2) The term ``Large Provider Agreement'' for the term 
``Subcontracts'' in paragraph (g) of FAR 52.215-2. The term 
``Contracting officer'' will mean the FEHB Program Contracting 
officer at OPM. The carrier will be responsible for ensuring the 
Large Provider complies with the provisions set forth in the clause.
    (d) Prohibited Agreements. No provider agreement made under this 
contract will provide for payment on a cost-plus-a-percentage-of-
cost basis.
    (e) The carrier will insert this clause, 1652.204-74, in all 
Large Provider Agreements.
    (End of Clause)


1652.215-70  (Amended)

0
23. Amend Section 1652.215-70 as follows:
0
A. In the introductory text of section 1652.215-70, remove ``1615.804-
72'' and add in its place ``1615.407-1'' and remove ``15.804-2(a)(1)'' 
and add in its place ``15.403-4(a)(1)''.
0
B. In the clause title, remove ``JAN 2000'' and add in its place ``JAN 
2004''.
0
C. In paragraph (a)(1) of the clause remove ``1615.804-70'' and add in 
its place ``1615.406-2'' and
0
D. Remove paragraph (d).


1652.215-71  [Amended]

0
24. In the introductory text of section 1652.215-71, remove ``1615.805-
71'' and add in its place ``1615.470-1''.


1652.216-70  [Amended]

0
25. In Section 1652.216-70,
0
A. Remove ``JAN 2000'' in the clause title and add in its place ``JAN 
2003'' and
0
B. Remove paragraph (c) of the clause.


1652.216-71  [Amended]

0
26. In 1652.216-71:
0
A. Remove ``JAN 2000'' in the clause title and add in its place ``JAN 
2003'' and
0
B. Remove paragraph (d) of the clause.

0
27. In the clause in section 1652.222-70, the clause heading and 
paragraph (d) are revised to read as follows:


1652.222-70  Notice of Significant Events.

* * * * *

Notice of Significant Events (Jan 2001)

* * * * *
    (d) The carrier will insert this clause in any subcontract or 
subcontract modification if the amount of the