Medicaid Program and State Children's Health Insurance Program (SCHIP) Payment Error Rate Measurement, 58260-58277 [05-19910]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 70, Number 192 (Wednesday, October 5, 2005)]
[Rules and Regulations]
[Pages 58260-58277]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-19910]



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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 431 and 457



Medicaid Program and State Children's Health Insurance Program (SCHIP) 
Payment Error Rate Measurement; Interim Rule

Federal Register / Vol. 70, No. 192 / Wednesday, October 5, 2005 / 
Rules and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 431 and 457

[CMS-6026-IFC]
RIN 0938-AN77


Medicaid Program and State Children's Health Insurance Program 
(SCHIP) Payment Error Rate Measurement

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Interim final rule with comment period.

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SUMMARY: This interim final rule sets forth the State requirements to 
provide information to us for purposes of estimating improper payments 
in Medicaid and the State Children's Health Insurance Program (SCHIP), 
as required under the Improper Payments Information Act (IPIA) of 2002. 
The IPIA requires heads of Federal agencies to annually estimate and 
report to the Congress these estimates of improper payments for the 
programs they oversee and, submit a report on actions the agency is 
taking to reduce erroneous payments. We published a proposed rule on 
August 27, 2004 to propose that States measure improper payments in 
Medicaid and SCHIP and report the State-specific error rates to us for 
purposes of computing the improper payment estimates for these 
programs.
    After extensive analysis of the issues related to having States 
measure improper payments in Medicaid and SCHIP, including public 
comments on the provisions in the proposed rule, we are revising our 
proposed approach. Our new approach incorporates commenters' 
suggestions to engage a Federal contractor by contracting with that 
entity to complete the data processing and medical reviews and 
calculate the State-specific error rates. Based on the States' error 
rates, the contractor also will calculate the improper payment 
estimates for these programs which will be reported by the Department 
of Health and Human Services as required by the IPIA. This interim 
final rule sets out the types of information that States would need to 
submit to allow CMS to conduct medical and data processing reviews on 
claims made in the fee-for-service (FFS) setting. CMS will address 
estimating improper payments for Medicaid managed care and eligibility 
and SCHIP FFS, managed care and eligibility at a later time.
    This rule responds to the public comments on the proposed rule, 
sets forth the requirements for States to assist us and the contractor 
to produce State-specific error rates in Medicaid and SCHIP which will 
be used as the basis for a national error rate, and outlines future 
plans for measuring eligibility, which may include greater State 
involvement than the level required for the medical and data processing 
reviews.

DATES: Effective date: These regulations are effective on November 4, 
2005.
    Comment date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on November 4, 2005.

ADDRESSES: In commenting, please refer to file code CMS-6026-IFC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to https://www.cms.hhs.gov/regulations/
ecomments. (Attachments should be in Microsoft Word, WordPerfect, or 
Excel; however, we prefer Microsoft Word.)
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address ONLY: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-6026-IFC, PO Box 8012, Baltimore, MD 21244-8012.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address ONLY: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-6026-IFC, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to one of the following addresses. If you 
intend to deliver your comments to the Baltimore address, please call 
telephone number (410) 786-7195 in advance to schedule your arrival 
with one of our staff members. Room 445-G, Hubert H. Humphrey Building, 
200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by mailing your 
comments to the addresses provided at the end of the ``Collection of 
Information Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Christine Jones, (410) 786-3722; or 
Janet E. Reichert, (410) 786-4580.

SUPPLEMENTARY INFORMATION:
    Submitting Comments: We welcome comments from the public on all 
issues set forth in this rule to assist us in fully considering issues 
and developing policies. You can assist us by referencing the file code 
CMS-6026-IFC and the specific ``issue identifier'' that precedes the 
section on which you choose to comment.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all electronic 
comments received before the close of the comment period on its public 
Web site as soon as possible after they have been received. Hard copy 
comments received timely will be available for public inspection as 
they are received, generally beginning approximately 3 weeks after 
publication of a document, at the headquarters of the Centers for 
Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, 
Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 
p.m. To schedule an appointment to view public comments, phone 1-800-
743-3951.

I. Background

    [If you choose to comment on issues in this section, please include 
the caption ``BACKGROUND'' at the beginning of your comments.]
    The Improper Payments Information Act of 2002 (IPIA), Public Law 
107-300,

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enacted on November 26, 2002, requires the heads of Federal agencies to 
review annually programs they oversee that are susceptible to 
significant erroneous payments to estimate the amount of improper 
payments, to report those estimates to the Congress, and to submit a 
report on actions the agency is taking to reduce erroneous 
expenditures. The IPIA directed the Office of Management and Budget 
(OMB) to provide subsequent guidance. OMB defines significant erroneous 
payments as annual erroneous payments in the program exceeding both 2.5 
percent of program payments and $10 million (OMB M-03-13, 05/21/03). 
For those programs with significant erroneous payments, Federal 
agencies must provide the estimated amount of improper payments and 
report on what actions the agency is taking to reduce them, including 
setting targets for future erroneous payment levels and a timeline by 
which the targets will be reached.
    In the report to the Congress, Federal agencies must include: (1) 
The estimate of the annual amount of erroneous payments; (2) a 
discussion of the causes of the errors and actions taken to correct 
those causes; (3) a discussion of the amount of actual erroneous 
payments the agency expects to recover; and (4) limitations that 
prevent the agency from reducing the erroneous payment levels, that is, 
resources or legal barriers.
    The Medicaid and SCHIP programs were identified by OMB as programs 
at risk for significant erroneous payments. OMB has directed the 
Department of Health and Human Services (DHHS) to report the estimated 
error rate for the Medicaid and SCHIP programs to OMB by November 15 of 
each year.
    There currently is no systematic means of measuring payment errors 
at the State and national levels for Medicaid and SCHIP. Through the 
Payment Accuracy Measurement (PAM) and Payment Error Rate Measurement 
(PERM) pilot projects that operated in Fiscal Years (FYs) 2002 through 
2005, we determined that it is feasible to estimate improper payments 
for Medicaid and SCHIP and refined a claims-based review methodology. 
This methodology was designed to estimate State-specific payment error 
rates within +/-3 percent of the true population error rate with 95 
percent confidence. Moreover, through weighted aggregation, the State-
specific estimates can be used to make national level error rate 
estimates for Medicaid and SCHIP that meet OMB's confidence and 
precision requirements.
    Since Medicaid and SCHIP are administered by State agencies 
according to each State's unique program characteristics, State 
participation in estimating improper payments was critical during the 
pilot projects and continues to be necessary and important for the 
Secretary to comply with the requirements of the IPIA. Obtaining and 
considering State input in IPIA requirements has necessarily been time-
consuming; however, the end result is an interim final rule with 
comment period that is more responsive to our stakeholders' concerns.

II. Provisions of the Proposed Rule

    We published a proposed rule on August 27, 2004 (69 FR 52620) that 
contained provisions for all States to annually estimate total improper 
payments in Medicaid and SCHIP. Based on medical, data processing, and 
eligibility reviews on a monthly random selection of a total of 
approximately 800 to 1,200 fee-for-service (FFS) and managed care 
claims (stratified between the components) each for Medicaid and SCHIP, 
States would produce and report to us State-specific payment error 
rates in Medicaid and SCHIP. We would then calculate a national error 
rate for these programs. States would take actions to address causes of 
errors identified through the claims reviews. States also would submit 
an annual report to us detailing the causes of errors and specifying 
actions to be taken to reduce the level of improper payments. The 
process for recoveries of improper payments under Medicaid is already 
set in statute. States must return the Federal share of overpayments 
identified through the medical and data processing reviews of the 
sampled claims within 60 days in accordance with existing statutory and 
regulatory requirements governing recoveries (section 1903(d)(2) of the 
Social Security Act (Act) and 42 CFR part 433, subpart F). Recoveries 
of the Federal share of improper payments based on eligibility errors 
are subject to the provisions of section 1903(u) of the Act and related 
regulations at 42 CFR part 431, subpart P.
    The intended effect of the proposed rule was to have States measure 
improper payments, to target corrective actions in response to 
identified errors, to reduce the rate of improper payments, and to 
produce a corresponding increase in program savings at both the State 
and Federal levels. The proposed rule would have allowed us to comply 
with the IPIA requirements.
    This rule is being promulgated as interim final with comment period 
due to the significant departure in the approach to estimate improper 
payments in Medicaid and SCHIP by engaging a Federal contractor rather 
than requiring States to produce error rates. We plan to publish a 
final rule that responds to comments made on this interim final rule. 
We expect the determination of the eligibility error rate to require 
State participation and seek comments through this interim final rule 
on how such a rate could best be calculated within current Medicaid and 
SCHIP laws and regulations, and with minimal imposition on State 
resources. We anticipate producing a Medicaid FFS error rate for the FY 
2007 Performance and Accountability Report (PAR) based on reviews 
conducted in FY 2006. In FY 2007, we expect to measure improper 
payments in the FFS, managed care and eligibility components of 
Medicaid and SCHIP to be reported in the FY 2008 PAR. We are also 
seeking comments on how best to determine an error rate for managed 
care in Medicaid and SCHIP.

III. Analysis and Response to Public Comments on the Proposed Rule

    Public comments on the proposed rule expressed concerns 
predominantly with the cost and burden that States would incur and the 
potential adverse effect that error rate measurement could have on 
beneficiaries' access to care. Although many commenters supported the 
general need for program integrity, they offered alternatives that they 
believed would better achieve compliance with the IPIA requirements. 
Many commenters made the following recommendations to allow us to 
achieve compliance with IPIA by other means:
     Utilize national sampling using Medicaid Statistical 
Information System (MSIS) data.
     Pool State-specific data across the years, or accept 
larger standard errors to generate a national estimate, particularly 
for SCHIP.
     Use the Medicaid Eligibility Quality Control (MEQC) 
program as a sampling process. States could change their sampling 
methodology from case to claim, stratify the claims and sample monthly 
to determine eligibility and perform a medical review. Regulations for 
MEQC are in place and implementing the additional requirements within 
an existing structure would be easier. The MEQC error rates could also 
be used to produce a national eligibility error rate to prevent the 
redundancy of conducting PERM and MEQC, along with minimizing financial 
burdens.
     Use existing State methodologies and compare them to the 
results of other samples to determine whether they contribute to the 
goal of a national program error rate.

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     Hire a Federal contractor.
     Use gathered information to provide technical assistance 
to States to improve program integrity, rather than penalize States.
    We considered all of the recommendations and adopted several of the 
recommendations. The new approach to error rate measurement will rely 
on a Federal contractor to conduct medical and data processing reviews 
and produce State-specific and national Medicaid and SCHIP error rates. 
The contractor will sample selected States each year to estimate 
improper payments in Medicaid and SCHIP and create a national error 
rate. We have not made a final determination about how eligibility 
errors will be measured. It is likely, however, that States would be 
active participants in this process. For example, though several 
options remain under consideration, it is possible that the States 
sampled for the medical and data processing reviews would be required 
to test for eligibility errors in a manner similar to that presented in 
the proposed rule.
    We did not adopt the other recommendations, either because they 
would not achieve compliance with OMB guidance, or because we believed 
that they were not the best methods to meet the requirements of OMB 
guidance. We did not adopt the first recommendation because there is no 
national sampling frame for SCHIP claims, and the MSIS data for 
Medicaid are too old to produce meaningful data on which States could 
base effective corrective actions. Pooling State-specific data across 
the years or accepting larger standard errors to generate a national 
estimate would not generate an error rate that was based on an annual 
standardized measurement of improper payments and therefore would not 
provide a basis on which an annual national error rate that was 
compliant with OMB guidance could be calculated. Although accepting 
State samples with larger standard errors may produce a national error 
rate that was compliant with OMB guidance, those estimates would not 
provide the States with sufficient information to identify 
vulnerabilities and to implement corrective actions. We also did not 
adopt the recommendation to use MEQC as a sampling process because the 
MEQC statute does not apply to SCHIP stand-alone programs under Title 
XXI. Also, many States have their MEQC programs attached to the section 
1115 research and demonstration waivers that, while allowing them the 
flexibility to tailor their eligibility oversight efforts, have the 
effect of preventing comparability and aggregation for a national rate.
    We also did not adopt the recommendation to use existing States' 
methodologies to produce a national program error rate. Commenters 
stated that, in addition to MEQC, States use the Surveillance and 
Utilization Review System (SURS), program integrity, and checks and 
balances in the claims processing systems and suggested that the States 
submit proof of program savings that equaled a percentage of the 
program's current costs. We believe this recommendation would not 
result in a standardized approach since the information that States 
would submit would be based on varying methodologies and that 
submitting cost savings information is not a measurement of improper 
payments, as required by IPIA. Also, not all States may apply these 
systems to SCHIP. Therefore, this approach may not produce a national 
error rate that would meet the confidence and precision requirements 
contained in OMB guidance. The proposed rule did not provide for States 
to be penalized through this error rate measurement. Finally, we are 
always available to provide technical assistance to States.
    After consideration of the proposed alternatives, we are adopting 
the recommendations to hire a Federal contractor to conduct the medical 
and data processing reviews and calculate the State-specific and 
national error rates for Medicaid and SCHIP. We also are adopting the 
recommendation to sample a subset of States each year. Each State will 
have a State-specific error rate which will be the basis for a national 
error rate. Adopting these recommendations addresses commenters' 
concerns with State cost and burden.
    By FY 2008, we hope to be compliant with the IPIA requirements by 
producing error rates for both Medicaid and SCHIP FFS, managed care and 
eligibility. In FY 2006, we will use a Federal contractor to estimate 
improper payments from medical and data processing reviews in the fee-
for-service component of Medicaid and establish a workgroup to make 
recommendations on the best approach for reviewing Medicaid and SCHIP 
eligibility, within the confines of current statute and with minimal 
budgetary impact for purposes of meeting IPIA requirements to measure 
improper payments based on payments to ineligibles.
    Under the national contracting strategy, a number of States will be 
selected for review. In FY 2006, the Federal contractor will group all 
States into three equal strata of small, medium and large based on 
States' annual FFS Medicaid expenditures from the previous year, and 
select a random sample of an estimated 18 States to be reviewed. The 
error rates produced by this selection methodology will provide the 
State with a State-specific error rate estimated to be within 3 percent 
precision at the 95 percent confidence level. For subsequent years, our 
sampling methodology will ensure that each State will be selected once, 
and only once, every 3 years for each program.
    The States selected for review will submit the previous year's 
claims data and expenditure data, not otherwise already provided by 
CMS, on which the contractor will determine each State's sample size 
and the sample size for each stratum. The strata we are considering 
are: (1) Hospital services; (2) long term care services; (3) other 
independent practitioners and clinics; (4) prescription drugs; (5) home 
and community based services; (6) other services and supplies, for 
example, labs, x-rays; (7) primary care case management; and (8) denied 
claims. These States also will submit quarterly stratified claims data 
to the contractor who will pull a statistically valid random sample, 
each quarter, by strata and medical and data processing reviews will be 
performed. State-specific error rates will be based on the results of 
these reviews.
    In FY 2006, contingent on available funding, we plan to estimate 
improper payments in the FFS component of Medicaid. In FY 2007, we 
expect to measure improper payments in both the FFS and managed care 
components of Medicaid and SCHIP. We will measure the error rate in 
each component (FFS and managed care) separately due to their differing 
nature. For example, FFS has a wide variance in payments amounts, 
whereas managed care payments do not. We expect to be able to produce 
the Medicaid and SCHIP FFS, managed care and eligibility national error 
rates for reporting in the FY 2008 PAR to the Congress.
    We received a total of 121 comments: 43 from State agencies and 78 
from consumer advocacy and other groups. Overall, commenters expressed 
concern with the proposed methodology for measuring improper payments, 
although many also expressed support for the general need for program 
integrity. Areas of greatest concern were burden and cost, the 
requirement for States to construct error rates to meet a legal 
requirement imposed on Federal agencies, and the impact on 
beneficiaries. States did not believe the proposed rule's methodology 
would be

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cost-effective or realize savings. Some States and the advocacy groups 
were concerned that the proposed methodology would have an adverse 
effect on access to care as States increased or imposed new 
requirements on applicants for documented proof of eligibility to avoid 
errors. Following are the comments on the proposed rule, grouped by 
topic, and our responses.

A. Purpose and Basis

    Comment: Many commenters expressed concern with the cost and burden 
that the proposed rule would have imposed on States, particularly since 
they believe the IPIA imposes the requirement to measure improper 
payments on Federal agencies rather than the States. States are also 
concerned that:
     Critical staff would need to be diverted to perform the 
reviews;
     It would be difficult to implement corrective actions 
while measuring error rates at the same time;
     The rule places an added burden on States at a time when 
some are struggling to maintain and expand coverage to currently 
uninsured individuals; and,
     Forces States to shift funds from other programs. 
Providers need the States to invest additional resources in provider 
outreach, education, and resource material that would improve the 
entire system, not to shift funds away from activities to calculate 
error rates.
    The commenters stated that, if States must estimate improper 
payments in Medicaid and SCHIP, these activities should be fully 
federally funded.
    Response: We agree that the IPIA imposes the requirement on Federal 
agencies rather than the States to measure improper payments. Although 
Medicaid and SCHIP are jointly funded by the Federal and State 
governments, the programs are fully administered and operated by the 
States. Also, there is wide variation in States' Medicaid and SCHIP 
programs due to the flexibility States have in developing the coverage, 
benefit, and reimbursement aspects of the programs. As a result, we 
must measure improper payments on a State-specific basis in order to 
produce a national payment error rate.
    Regarding the cost and burden that the proposed rule would have 
imposed on States, our adoption of the commenters' recommendation to 
engage a Federal contractor to estimate a component of improper 
payments significantly reduces the cost and burden and addresses this 
concern. States will not pay for the national contractor. In addition, 
only those States selected for review each year will provide 
information necessary for claims sample selections and reviews, will 
provide technical assistance as needed, and will implement and report 
on the corrective actions to reduce the error rate. The States will be 
reimbursed for these activities at the applicable administrative 
Federal match under Medicaid and SCHIP. As part of the rulemaking 
process, we have evaluated the burden and impact that these 
responsibilities will have on States and determined that there was 
significantly less impact on States and providers. We plan to measure 
SCHIP FFS, managed care and eligibility in FY 2007, and we acknowledge 
that the 10-percent cap on SCHIP administrative expenditures could be a 
concern in the future, particularly depending on the nature of reviews 
necessary to produce SCHIP eligibility error rates. Though the burden 
and cost States would bear for eligibility testing in both Medicaid and 
SCHIP fee-for-service and managed care remains uncertain, the 
eligibility workgroup will make every effort to minimize both while 
establishing a useful and worthwhile methodology.
    Finally, due to the minimal additional activity required by the 
regulation, we believe that States selected for review should not need 
to divert staff from other areas of program activities.
    Comment: Some commenters stated that the proposed rule goes beyond 
the requirements of law and lacks details needed for States to 
determine requirements and resource commitments. A few commenters 
recommended that CMS postpone the proposed rule until more details 
could be given or revise the regulation to establish key principles to 
make the reviews fair and accurate based on public comment.
    Response: The Federal contractor's responsibility for medical and 
data processing reviews should lift a substantial portion of the burden 
from States. Since Medicaid and SCHIP are partnerships between the 
Federal and State governments, we will rely on States' assistance 
throughout the error measurement process. This interim final rule 
provides the opportunity for States and other interested parties to 
comment on the States' responsibilities in this revised approach.
    Additionally, we will request that some States and/or their 
representatives be part of the eligibility workgroup. We look forward 
to their input and participation as we continue through the process.
    Comment: A few commenters were highly supportive of the proposed 
rule and recommended that any modification to the rule focus on the 
measurement of monies lost to fraud and abuse. The commenters 
emphasized prevention strategies centered on education, data mining, 
prospective flags, as well as recovery of erroneous payments and 
cooperation with law enforcement to facilitate criminal prosecution.
    Response: We are not adopting this recommendation. We currently 
conduct fraud and abuse oversight activities, which include data 
analysis through the Medicare-Medicaid data match, to identify 
potential fraud and abuse. Other activities, such as education, 
prospective flags, recovery of erroneous payments, and cooperation with 
law enforcement are currently conducted at the State level. We believe 
additional actions are not necessary at this time.
    Comment: Several commenters urged CMS to reconsider its proposal 
and develop a system under which the error reporting requirements are 
clear and identical for all States. They are concerned that differing 
State rules for reviews will contribute to the administrative burden 
and potential inefficiencies in the system, especially for providers 
operating facilities in many States.
    Response: We have reconsidered our approach and believe this 
strategy will provide more standardized measures across States. The 
States' requirements for the medical and data processing reviews are 
clearly stated in this regulation text, and the public is afforded the 
opportunity through this rule to comment on them.
    Any additional State requirements will be described in a proposed 
rule with an opportunity for public comment. We invite comments on how 
a system that relies, in part, on State measurement could be 
standardized across States.
    Comment: A few commenters stated that some States should be given 
special consideration such as States that have limited or no previous 
error rate experience; and CMS should exclude States with SCHIP minimal 
allotments, similar to excluding the Territories due to minimal 
funding.
    Response: State burden and cost are significantly reduced under 
this revised strategy, so we believe the basis to consider excluding 
States with small SCHIP allotments no longer exists. Therefore, we are 
not adopting this recommendation.
    Comment: A few States inquired as to: (a) the legal obligation of 
States to institute payment error rate measurement; and (b) the 
consequences if a State could not comply with the regulatory 
requirements.

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    Response: Current law at section 1102 of the Act authorizes the 
Secretary to establish regulations as may be necessary for the 
efficient administration of the Medicaid and SCHIP programs. The 
Medicaid statute at section 1902(a)(6) of the Act, and the SCHIP 
statute at section 2107(b)(1) of the Act, require States to provide 
information necessary for the Secretary to monitor program performance. 
Section 1902(a)(27) of the Act requires providers also to submit 
information as requested by the Secretary. These statutory provisions 
provide the bases for requiring States and providers to submit 
information needed to produce Medicaid and SCHIP error rates. Regarding 
compliance, the regulations that govern State compliance with Federal 
requirements in Medicaid and SCHIP are 42 CFR 430.35 and 457.204, 
respectively. Under these regulations, the Administrator has the 
discretion to enforce the compliance regulations by withholding Federal 
matching funds in whole or in part until a State complies with Federal 
requirements.
    Comment: Some commenters stated that savings will not be realized 
since the cost of conducting error rate measurement will exceed 
savings.
    Response: The IPIA requires error rate measurement for these 
programs and does not include lack of cost savings as a reason for not 
measuring improper payments. Since we are estimating improper payments 
in a select number of States through a Federal contracting strategy, we 
believe the State cost to measure error rates has been drastically 
reduced. We will analyze the cost/savings benefits when we have 
reliable findings, but we anticipate that savings will be realized over 
time through efficiencies gained by experience in estimating error 
rates, through disseminating findings from selected States, States' 
corrective action measures, and modeling best practices.
    Comment: A few commenters recommended that payment error rate 
measurement use a claims-based sampling methodology and be administered 
electronically, since a paper-based model would prove burdensome to 
States and providers and could lead to lower provider response rates.
    Response: The proposed rule provided for a claims-based sampling 
methodology as does the interim final rule for the medical and data 
processing reviews. Since States and providers have different levels of 
systems sophistication, the contractor will work with States to 
determine the format for States to submit information.
    Comment: A number of commenters believe that working with Medicaid 
and SCHIP will be more difficult for providers because of increasing 
paperwork burdens, higher rates of denied claims, delays in payments, 
and sanctions.
    Response: The providers who would submit medical documentation to 
support the medical reviews are participating providers in Medicaid 
and/or SCHIP. We have analyzed the cost and burden on providers as part 
of this rule and determined that there will not be a significant cost 
or impact. We believe we have further minimized the burden on providers 
nationwide by reviewing only a selection of States rather than all 
States every year. Also, providers only need to submit medical records 
for FFS claims since managed care claims are not subject to medical 
reviews.
    Comment: Several commenters were concerned that the proposed rule 
would place a unique burden on providers who serve a disproportionately 
large share of Medicaid and SCHIP enrollees. The negative impact of 
additional time and practice cost that would be required of providers 
to respond to requests for medical records and error rate measurement 
efforts should be considered as the final rule is drafted.
    Response: As stated above, we have analyzed the burden on providers 
as part of this rule. We believe that utilizing a sample of States will 
reduce the burden on providers nationwide since only those Medicaid and 
SCHIP providers in States selected for review will submit medical 
records and, in each State, only providers whose FFS claims were 
selected would need to submit records, as managed care claims are not 
subject to medical review.
    Comment: A few commenters wanted to know what would be considered 
an acceptable State error rate percentage.
    Response: Unlike the statute at section 1903(u) of the Act which 
sets a 3-percent error rate tolerance for Medicaid eligibility errors 
before a disallowance of the Federal share of improper payments can be 
imposed, the IPIA and subsequent OMB guidance does not set a State-
specific error rate percentage. IPIA is merely a reporting requirement; 
it neither penalizes nor rewards States for acceptable or unacceptable 
error rates. However, States would still be required to reimburse CMS 
for the Federal portion of all improper payments identified through the 
medical and data processing reviews.
    Comment: A few commenters suggested that CMS develop an internal 
taskforce to review the progress of the States in implementing payment 
error rate measurement, including CMS regional office representatives. 
The taskforce could seek feedback from stakeholders on the process for 
improvements in moving forward.
    Response: Since we are engaging a Federal contractor rather than 
the States to produce error rates, the recommendation to convene a 
taskforce to track States' progress on medical and data processing 
reviews no longer applies. However, the eligibility workgroup may 
decide to have a taskforce track States' progress on the eligibility 
reviews, when implemented.

B. Definitions

    Comment: A few commenters recommended replacing the definition of 
``total estimated improper payments'' with a definition of ``Federal 
estimated improper payments'' that is based on the Federal share of 
improper payments, as computed using the appropriate Federal matching 
rate for Medicaid or SCHIP.
    Response: We agree with the commenter that the IPIA and OMB 
guidance refer only to Federal improper payments. We have deleted this 
definition from the interim final rule.

C. Claims Universe and Sampling

1. Exclusions From the Universe
a. Denied Claims
    Comment: Many commenters objected to the inclusion of denied claims 
in the sampling process. They believe that a denied claim is not 
included in the IPIA definition of improper payment as defined in the 
IPIA or the proposed rule. Some commenters questioned OMB's 
interpretation of an improper payment which includes denied claims. 
Some commenters stated that denied claims are not improper payments 
since payments have not actually been made.
    Response: The IPIA defines improper payment as ``any payment that 
should not have been made or that was made in an incorrect amount 
including overpayments and underpayments.'' OMB guidance M-03-13, 
published May 21, 2003, states that ``incorrect amounts are 
overpayments and underpayments including inappropriate denials or 
payment of service.'' Therefore, we must include denied claims in the 
error rate measurement process.
    Comment: Some commenters stated it may be difficult for States to 
find a standard definition of denied claim and wanted to know whether 
the amount of a denied claim should be a zero amount or the amount 
billed.

[[Page 58265]]

    Response: A denied claim is a claim or line item that was submitted 
by a provider for services furnished, was accepted by the claims 
processing or payment system, was adjudicated for payment, and was not 
approved for payment. The amount of a denied claim when part of the 
universe for sampling purposes is zero dollars. The amount of improper 
payment, if a claim was denied erroneously, would be the amount that 
should have been paid as a result of the review.
    Comment: Some commenters asked what documentation supports a denied 
claim. States may not have the authority to demand a medical record for 
a denied claim.
    Response: Documentation to support a denied claim depends on the 
reason the claim was denied. For example, if the reason for the denial 
was based on the claims processing, a processing review would be done 
to verify the denial. If the reason for the denial was medically based, 
a medical record would support whether or not the claim was correctly 
denied. If the provider does not submit the record or if the submitted 
record does not substantiate the service billed, then the denial would 
be correct. Since we are utilizing a Federal contractor, States will 
not be requesting medical records for denied claims, so this point is 
no longer applicable.
    Comment: Some commenters asked what would constitute an adjustment 
to a denied claim (similar to when a paid claim is adjusted to, for 
example, correct the billing amount or coding) and whether it would be 
possible to identify these adjustments to claims denied for payment.
    Response: Denied claims are not subject to adjustments because, 
when a claim is denied for payment, the provider will resubmit a new 
claim for payment. The claim resubmitted for payment would not be 
associated with the claim that was originally denied. Therefore, 
adjustments to denied claims are not included in this interim final 
rule.
    Comment: Some commenters stated that inclusion of denied claims 
will affect the precision levels. Denied claims have a greater chance 
of selection since a large portion will reappear in the universe as a 
paid claim. They inquired why denied claims will be used to increase 
the amount of misspent dollars.
    Response: Denied claims include claims accepted by the claims 
processing or payment system, adjudicated for payment and not approved 
for payment. This definition excludes many or most of the types of 
claims that are rejected from the claims payment system, corrected and 
resubmitted, and ultimately approved for payment. This reduces the 
chance that a claim for a single service would show up in the sample as 
both a denial and a paid claim. The inclusion of denials is consistent 
with guidance from OMB, which has stated that improper payments include 
inappropriate denials of payment or service.
    Comment: Some commenters questioned how an error rate would be 
determined for a denied claim specifically inquiring as to the nature 
of the numerator and denominator.
    Response: There are multiple approaches for including denials in 
the error rate. If denials are included as a separate stratum, the 
``difference'' version of the error rate calculation would be applied. 
Errors from denials are included in the total error rate, projected to 
the population or universe using the inverse of the sampling frequency. 
In the denominator, the non-stochastic (that is, deterministic) value 
of all line items paid over the sampling period is included, and 
denials enter the denominator as zero.
    Comment: Some commenters asked what denial explanation of benefits 
will be used to identify denied claims that will be included or 
excluded from the universe.
    Response: All denied claims are included in the universe. 
Therefore, it is not necessary to categorize denials based on the 
explanation of benefits.
    Comment: Some commenters asked if eligibility determinations will 
need to be conducted on denied claims.
    Response: If a claim is denied on the basis that the person is not 
eligible, we believe an eligibility review should be done to confirm 
the claim was correctly denied. This issue is likely to be considered 
by the eligibility workgroup.
b. Medicare Claims and Other Premium Payments
    Comment: Some commenters stated that it was not clear if Medicare 
crossover claims were included in the proposed rule methodology.
    Response: We believe the commenter defines crossover claims as 
payment authorization for Medicare coinsurance and deductible amounts. 
The proposed rule intended to include Medicare crossover claims in the 
reviews since these are considered part of the universe of claims. The 
universe includes all claims submitted by providers, insurers, and 
managed care organizations for which a decision to pay or deny was made 
by Medicaid or SCHIP. Under this interim final rule, these claims would 
be included in the universe and subject to sampling and review to the 
same extent as any other claim.
    Comment: A few commenters stated that Medicare crossover claims 
should be excluded because the buy-in claims are paid directly to a 
Federal agency and have the unintended outcome of having States 
determine the accuracy of Medicare claims, when the primary Medicare 
claims are already measured by CMS. The commenters stated these claims 
were not tested in the PAM pilots.
    Response: The commenter is correct that Medicare Parts A and B 
crossover claims were not tested in the PAM pilots. At that time, CMS 
and the participating States were still refining the methodology to 
estimate error rates. In the FY 2005 pilot (PERM pilot), both Medicare 
crossover claims and denied claims were included in the reviews. 
Medicare crossover claims are included in the universe for sampling 
because they are considered Medicaid payments made to insurers, similar 
to Medicaid payments for employee health care premiums. This 
methodology measures the accuracy of the Medicaid payment on the claim 
rather than the accuracy of the Medicare payment.
    Comment: A few commenters stated that buy-in claims should be 
excluded from sampling because these payments are made to a Federal 
agency and, furthermore, buy-in overpayments or payments made on behalf 
of ineligible participants are unrecoverable.
    Response: Although the Medicare program is administered by a 
Federal agency, it is considered an insurer, as noted above. Moreover, 
it is immaterial whether an erroneous payment is recoverable or non-
recoverable.
    Comment: A few commenters stated that Parts A and B premiums are 
not processed as claims through MMIS and stated they believe that the 
sampling was intended to test claims submitted by providers and 
processed by the States' MMIS systems. If these claims were included, 
they argued other contracts with Federal match, such as 
disproportionate payments, rent and salary should be included.
    Response: The methodology in the proposed rule would have reviewed 
only claims paid to providers, insurers and managed care organizations. 
Payments not falling within these categories would be excluded from the 
universe. Medicare crossover claims would be included because Medicare 
is considered an insurer for this purpose. We acknowledge that most 
claims are processed by the States' MMIS systems; however, the proposed 
rule did not provide for States to exclude any claims that were not 
processed through the

[[Page 58266]]

MMIS. The data processing review in the proposed rule, as well as in 
the revised approach discussed in this interim final rule, is intended 
to ensure the claim was correctly paid regardless of the system making 
the payment.
    Comment: A few commenters stated that States may not have the 
necessary understanding of Medicare payment policies.
    Response: Although we are available to provide technical assistance 
to States that do not understand Medicare payment policies, under the 
proposed rule, States would not be required to verify the accuracy of 
Medicare payments. The States would only verify that the State had paid 
its own portion correctly. However, since States are no longer 
conducting the medical or data processing reviews, this fact is no 
longer relevant.
    Comment: A few commenters stated that ``improper payment'' needed 
further definition and asked what impact uncollected, incorrect, or 
disputed (official complaint on file) premium payments would have on 
the error rate (for example, for SCHIP participants who prepay a 
monthly premium).
    Response: We believe the definition of ``improper payment'' in the 
proposed rule as well as this interim final rule is clear. The error 
rate methodology in the proposed rule would have required States to 
review claims to determine if the payment amount was correct. An 
uncollected, incorrect, or disputed premium amount in a sampled claim 
would have been determined to be an over-or underpayment in the amount 
that was either the participant's liability or the State's liability to 
pay, depending on the circumstances of the specific claim being 
reviewed.
c. Other Exclusions
    Comment: A few commenters asked if FFS or managed care components 
with less than 10 percent of program expenditures will be excluded.
    Response: For purposes of the pilot programs, we did exclude such 
FFS or managed care components from review but we did not anticipate in 
the proposed rule or in this interim final rule that components would 
be excluded on this basis.
2. Sampling Issues
    Comment: Some commenters wanted to know if CMS had adequate staff 
to approve States' sample plans in a timely manner and asked that 
``timely manner'' be defined.
    Response: At this time, States will not need to submit sampling 
plans to us for approval under the national contractor approach. Should 
the eligibility testing require States to do any sampling, those issues 
would be addressed in a subsequent issuance.
    Comment: A few commenters expressed concern with the large sample 
sizes and asked that we identify the percent of error assumed to 
develop the methodology. Commenters suggested that States be allowed to 
submit alternative sampling plans that have an equal or better 
precision than required.
    Response: Under the proposed rule, the Federal contractor would 
determine the sample sizes needed to achieve the required precision 
levels for Medicaid and for SCHIP, which is an estimate that is within 
+/-3 percentage points of the true population payment error rate with 
95 percent confidence. When we originally estimated the range of sample 
sizes to be between 800 to 1,200 for each program in each State, we did 
not assume a particular error rate; rather, we assumed a variance in 
payment size. Experience now shows that the 800-1200 sample size 
results in States achieving the precision level of +/-3 percent. It is 
important to note that the sample sizes could be larger or smaller in 
each State or in the SCHIP program. Since States will not need to 
submit sampling plans for selecting claims for medical and data 
processing reviews or review these claims under the national 
contracting strategy, we believe these concerns have been addressed.
    Comment: A few commenters suggested that as a way to reduce the 
sample size, the Medicaid and SCHIP claims be combined or suggested 
that the sample sizes should not be the same for Medicaid and SCHIP.
    Response: The Medicaid and SCHIP claims cannot be combined because 
the OMB guidance requires a statistically valid error rate that meets 
specified confidence and precision levels for each individual program. 
The sample sizes for Medicaid and SCHIP will be estimated to achieve +/
-3 percent precision within 95 percent confidence. Although we 
estimated the Medicaid and SCHIP sample size to be within the same 
range, the actual sample size may or may not be the same. Combining 
Medicaid and SCHIP claims or arbitrarily reducing the sample sizes for 
either program to calculate error rates would not meet the OMB 
requirements.
    Comment: Some commenters noted that the sample size required of the 
SCHIP program is the same required for the Medicaid program, even 
though the SCHIP programs are far smaller. They stated that imposing 
such large burdens on SCHIP programs, which have fewer administrative 
funds, would necessitate diversion of resources away from areas like 
outreach and enrollment processing. These commenters suggested relaxing 
sampling and precision estimates for smaller States or programs.
    Response: We cannot adopt this recommendation. As noted above, 
reducing the State sample sizes to achieve less than 3 percent 
precision with a 95 percent confidence level would (1) not provide the 
State with sufficient information to determine vulnerabilities and to 
initiate corrective action; and (2) not achieve a national error rate 
that meets the OMB confidence and precision requirements when rolling 
up the State error rates.
    Comment: Some commenters stated the stratified sample is a 
complicated feature and expressed concern with the cost and resource 
burden to pull a large sample for review, particularly for the SCHIP 
program, which has limited administrative funding, or for States with 
smaller populations.
    Response: Stratification of the claims is necessary to improve 
precision, reduce sample size, and identify the areas of greatest 
vulnerability. We believe it is necessary for each selected State to 
submit stratified claims data because the contractor otherwise would 
not be able to complete the statistical aspect of the measurement 
process in a timely manner. We have reevaluated the burden associated 
with States submitting adjudicated and stratified claims data for each 
current quarter and estimated the burden to be up to 200 FTE hours per 
quarter. Details regarding States' role in eligibility testing will be 
described in a subsequent issuance.
    Comment: A few commenters suggested reducing the sample size to 
minimize the burden on providers.
    Response: The sample size is determined by the number of claims 
that need to be reviewed to meet our State-specific confidence and 
precision levels and cannot be reduced to minimize the burden on 
providers. We analyzed the impact on providers as part of the proposed 
rule and determined it was not significant. It should be noted that 
only providers whose FFS claims were selected would submit medical 
records, as managed care claims are not subject to medical review.
    Comment: A few commenters stated that it was not clear if the 
sample size considers cases where eligibility cannot be verified due to 
death or non-cooperation of the client.
    Response: The sample sizes in the proposed rule would not have 
excluded these cases. Under the pilot projects, we allowed States to 
oversample to account for these cases that are dropped from the

[[Page 58267]]

eligibility review if the State could not verify eligibility due to 
these reasons. We will ask the eligibility workgroup to consider this 
issue for measuring eligibility error rates and will clarify how these 
cases will be treated in a subsequent issuance.
    Comment: A few commenters believe that monthly samples would be 
complicated and were not pulled under the PAM pilots.
    Response: Since States will not need to pull monthly samples for 
the data processing and medical reviews under the national contractor 
approach, we believe this issue is no longer applicable for these 
reviews. To the extent that the final eligibility testing methodology 
involves State sampling, as stated above, we will address this issue in 
a subsequent issuance.
    Comment: A few commenters pointed out that the proposed rule did 
not mention whether Medicaid FFS claims would be stratified into seven 
strata by service, as was done in the PAM pilots.
    Response: Under the proposed rule, the intent was to stratify the 
Medicaid FFS claims. We are considering the following strata: (1) 
Inpatient hospital, (2) long term care, (3) practitioners and clinics, 
(4) pharmacy, (5) home and community-based services, (6) other services 
and supplies, and (7) fixed payments such as Medicare Parts A and B 
premiums, and an eighth stratum for denied claims. This is the 
stratification model that is being used for the current PERM pilot. The 
methodology under the national contracting strategy described in this 
interim final rule would stratify the FFS claims in a similar manner 
with variations for SCHIP, as appropriate. However, CMS will direct the 
national contractor on all implementation issues.
    Comment: A few commenters stated that a dollar weighted sample 
would cause an over sampling of high-cost, low-error services like 
nursing home and hospital care, rather than lower-cost services that 
have historically higher error incidence.
    Response: This method improves the precision of the estimate if the 
variance of the accuracy rate across strata is proportional to the 
Medicaid payment share represented by the stratum. When calculating the 
final payment error rate, this oversampling and undersampling by 
stratum is taken into account and the sample is reweighted to calculate 
an unbiased estimate of the overall payment error rate.
    Comment: Many commenters recommended that the reviews have a more 
balanced approach between FFS and capitated payments. The concern is 
that FFS claims will have a higher level of scrutiny than managed care 
claims, which unfairly characterizes FFS as more prone to fraud and 
error. They expressed concern that higher error rates would inevitably 
be detected for fee-for-service claims than for managed care payments, 
even though undetected Medicaid payment errors may also occur under 
capitated managed care.
    Response: Under the proposed rule, the sample is drawn proportional 
to the State's spending. For example, if two-thirds of the State's 
funds are spent in FFS, then two-thirds of the dollar share of the 
Medicaid sample in the State would be FFS claims. In this manner, the 
measurement would be more representative of total Medicaid spending and 
we believed would produce a more accurate error rate. However, in this 
interim final rule, as previously stated, when we begin measuring both 
the FFS and managed care components of Medicaid and SCHIP, as we expect 
to in FY 2007, we will estimate separate error rates for FFS and 
managed care. We will also produce a combined FFS and managed care 
error rate for each State for each program in addition to providing a 
national error rate for each program.
    Comment: Some commenters suggested that CMS should require that 
data presented on error rates explain that the errors computed for FFS 
claims and capitated payments are not comparable because of measurement 
differences and that fewer errors are detected for managed care because 
the review is less intensive.
    Response: We agree with this comment. However, since States will 
not be estimating FFS error rates, the recommendation that we require 
States to provide an explanation on the measurement differences is no 
longer relevant.
3. Overpayment and Underpayment Errors
    Comment: Many commenters stated that adding overpayments and 
underpayments together will count unspent dollars as misspent dollars 
and recommended an error rate for each type of payment.
    Response: The IPIA specifically provided that OMB set 
implementation guidelines for Federal agencies. The OMB guidelines 
state that the annual estimated amount of erroneous payments is the 
gross total of both overpayments and underpayments. In order to be in 
compliance with IPIA, we must follow OMB guidelines regarding total 
gross overpayments and underpayments to derive error rate estimates. 
However, we also intend to report separately the amount of overpayment 
and underpayments.
    Comment: Some commenters believe that only overpayments are the 
appropriate gauge of misspent dollars.
    Response: We must estimate improper payments according to the IPIA 
and OMB guidelines. OMB guidelines require the inclusion of both 
overpayments and underpayments in the error rate estimate. As such, we 
must measure and report both overpayments and underpayments.
    Comment: A few commenters asked if the sum of both underpaid and 
overpaid claims exceeds 2.5 percent or more than $10 million, would 
this be considered ``significant'' or must the error rate meet just one 
or both of these conditions to be considered ``significant.''
    Response: The IPIA states that significant improper payments are 
payments that exceed $10 million. OMB guidance defines significant 
erroneous payments as annual erroneous payments exceeding both 2.5 
percent of program payments and $10 million. However, these thresholds 
refer to the national error rate for the program rather than State-
specific error rates. Neither the IPIA nor OMB guidelines set target 
State-specific error rates.
4. Adjustment to Claims
    Comment: Some commenters stated that the 60-day timeframe to allow 
for adjustments to claims is arbitrary and should be extended to 120 
calendar days to give providers and the States' payment systems more 
time to identify and correct adjudicated claims issues.
    Response: The 60-day timeframe was agreed upon by States and CMS 
during the development of the review methodology under the PAM pilot 
projects as a reasonable timeframe that allows for adjustments while 
maintaining a timeline that also allows for completion of the reviews 
and to compute and report the error rates in time for inclusion in the 
next PAR. If we extend the timeframe to a point beyond 60 days, we 
could not be assured that the error rate measurement process would be 
completed in time to report the error rate. Therefore, we are not 
adopting this recommendation.
    Comment: Other commenters stated that identification and review of 
adjustments are complicated and increase the complexity of the error 
rate measurement process.
    Response: Reviewing adjustments to claims provides a more accurate 
error rate because adjustments reflect a more accurate final amount 
paid.
    Comment: A few commenters stated that, in the current Health 
Information Portability and Accountability Act (HIPAA) claim format, 
information on the allocation of third party liability

[[Page 58268]]

(TPL) amounts is not required at the line level. There is no way to 
know if TPL calculations are correct for a specific line if the 
provider reported the information in the aggregate and asked whether 
this is what is meant by ``line items that are not individually 
priced.''
    Response: Line items that are not individually priced are generally 
bundled into a service. Under the proposed rule, the service is the 
sampling unit. States were not required to sample at the line item. 
This concept would remain the same under the national contracting 
strategy as described in this interim final rule.
5. Other Comments
    Comment: A few commenters stated that CMS should ensure that all 
payment information from CMS that States depend on to pay providers is 
given to States at least 60 days before the expected implementation 
date.
    Response: We strive to work with States on a myriad of complicated 
financial issues and respond to issues in a timely manner. To that 
extent, we also make every effort to provide policy guidance to States 
in a timely manner but, due to the complexity of issues, we would not 
commit the agency to a 60-day timeframe for providing all payment 
information.

D. Review Procedures

1. Medical Reviews
    Comment: Some commenters stated that requiring a medical review 
increases the cost and logistical complexity of the review effort due 
to the review time and follow-up necessary to obtain provider records.
    Response: Since States are no longer performing the medical reviews 
and will not incur the cost of the reviews, we believe this concern has 
been addressed.
    Comment: A few commenters stated that obtaining records for denied 
claims may prove more problematic than for paid claims.
    Response: As stated above, since States are not performing the 
medical reviews and will not need to obtain records for the reviews, we 
believe this concern has been addressed.
    Comment: A few commenters stated that providers should not have to 
submit records for denied claims since there is no incentive for them 
to copy records for services that Medicaid did not reimburse.
    Response: If providers chose not to submit medical records for 
denied claims, we would consider the State to have properly denied the 
claim.
    Comment: Some commenters recommended that States be allowed to 
contract with external quality review organizations to do the reviews.
    Response: Since States will not be conducting the medical and data 
processing reviews, they will not need to contract with external 
organizations.
    Comment: Some commenters stated that projected costs to conduct the 
reviews will exceed the $300 per review due to the type and number of 
FFS claims to be sampled.
    Response: We estimated the costs of review based on information 
given by States participating in the PAM pilot projects. However, since 
we will engage a contractor to perform the medical and data processing 
reviews and States will not incur these costs, this comment is no 
longer relevant. Once the details of eligibility testing are finalized, 
we will address cost estimates in a subsequent guidance.
    Comment: A few commenters stated that requesting, receiving and 
performing medical reviews is a time-consuming process. There is not 
enough time allocated to completing the review process prior to having 
to return the Federal share for overpayments identified within 60 days.
    Response: States are no longer being asked to conduct the medical 
reviews for purposes of this interim final rule. Therefore, we believe 
the concern with concluding the medical reviews timely in relation to 
returning recoveries is no longer relevant.
    Comment: Some commenters made recommendations that only medically 
unnecessary services and services not covered or delivered, as well as 
over and underpayments due to improper coding, should be counted as 
errors and other error types such as technical errors, such as minor 
coding and clerical errors, should be excluded.
    Response: It is not clear what the commenters believe to be a minor 
coding or clerical error. We believe that if the error has any effect 
on the payment, then it must be included in the error rate calculation.
    Comment: A few commenters acknowledged that inadequate 
documentation is a problem and agreed it should be measured but 
recommended that it be measured separately from clearly improper 
payments.
    Response: We disagree with this comment. If documentation is 
inadequate to support the correctness of the claim, we believe it would 
be unreasonable to consider these claims as correct. Otherwise, any 
claim with inadequate documentation could be deemed correct which would 
undermine the purpose and reliability of the improper payment 
measurement.
    Comment: A few commenters suggested that the method for determining 
medical necessity should be clearly stated in regulation, and 
recommended using the InterQual level of care criteria or similar 
product to reduce error rates and improve relationships with providers.
    Response: As stated above, since the State