Medicare Program; Termination of Non-Random Prepayment Review, 58649-58654 [05-19925]

Agencies

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

[Federal Register Volume 70, Number 194 (Friday, October 7, 2005)]
[Proposed Rules]
[Pages 58649-58654]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-19925]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 421

[CMS-6022-P]
RIN 0938-AN31


Medicare Program; Termination of Non-Random Prepayment Review

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would implement the statutory requirements 
regarding the termination of non-random prepayment review under the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003. 
This proposed rule provides the criteria for terminating a provider or 
supplier from non-random prepayment review.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on December 6, 2005.

ADDRESSES: In commenting, please refer to file code CMS-6022-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of three 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 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-6022-
P, 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 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) 786-9994 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.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Lieutenant Commander Marie Casey, 
(410) 786-7861 or Daniel Schwartz, (410) 786-4197.

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-6022-P.
    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. CMS posts all electronic 
comments received before the close of the comment period on its public 
website as soon as possible after they have been received. 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. General and Legislative History

    Medicare contracting authority has been in place since the 
inception of the Medicare program in 1965. Section 1874 of the Social 
Security Act (the Act) authorizes the Secretary to perform Medicare 
program functions directly or by contract.
    On August 21, 1995, the Congress enacted the Health Insurance 
Portability and Accountability Act of 1996 (Pub. L. 104-191) (HIPAA). 
Section 202 of HIPAA added section 1893 to the Act that establishes the 
Medicare Integrity Program and allows us to contract with eligible 
entities to perform program integrity activities. Specifically, we 
contract with intermediaries as specified in section 1816(a) of the 
Act; and carriers as specified in section 1842(a) of the Act; and 
program safeguard contractors (PSCs) to perform medical, fraud, and 
utilization reviews, and cost report audits of Medicare claims. 
(Hereinafter, intermediaries, carriers, and PSCs that perform medical 
review functions are referred to as contractors). This program is 
funded by the Medicare Hospital Insurance Trust Fund for activities 
related to Medicare Part A and Part B.

[[Page 58650]]

    On December 8, 2003, the Congress enacted the Medicare Prescription 
Drug, Improvement, and Modernization Act of 2003 (MMA). Section 934 of 
the MMA amended section 1874A of the Act by adding a new subsection 
regarding random prepayment reviews and non-random prepayment reviews 
including the termination date of non-random prepayment reviews.
    Although section 934 of the MMA specifies requirements regarding 
random prepayment review, contractors do not perform random prepayment 
review. However, contractors do perform non-random prepayment review.
    For purposes of this regulation, we are proposing the following 
definitions related to medical review activities:
    Allowable charges means the dollar amount (including co-pay and 
deductibles) that the Medicare program will pay for a particular item 
or service.
    Complex Medical Review means review of claim information and 
medical documentation by a licensed medical professional, for a billed 
item or service identified by data analysis techniques or probe review 
to have a likelihood of sustained or high level of payment error.
    Error rate means the dollar amount of allowable charges for a 
particular item or service billed in error as determined by complex 
medical review, divided by the dollar amount of allowable charges for 
that medically reviewed item or service.
    Initial error rate means the calculation of an error rate based on 
the results of a probe review prior to the initiation of non-random 
prepayment complex medical review.
    Medical review means the process performed by Medicare contractors 
to ensure that billed items or services are covered and are reasonable 
and necessary as specified under section 1862(a)(1)(A) of the Act.
    Non-clinician medical review staff means specially trained medical 
review staff that do not possess the knowledge, skills, training, or 
medical expertise of a licensed medical professional.
    Non-random prepayment complex medical review means the prepayment 
medical review of claim information and medical documentation by a 
licensed medical professional, for a billed item or service identified 
by data analysis techniques or probe review to have a likelihood of 
sustained or high level of payment error.
    Non-random prepayment medical review means the prepayment medical 
review of claims for a billed item or service identified by data 
analysis techniques or probe review to have a likelihood of a sustained 
or high level of payment error.
    Provider-specific probe review means the complex medical review of 
a small sample of claims, generally 20 to 40 claims, from a specific 
provider or supplier for a specific billing code to confirm that the 
provider or supplier is billing the program in error.
    Quarterly error rate means the calculation of an error rate based 
on the results of non-random prepayment complex medical review for a 
specific billing code for a specific quarter.
    Service-specific probe review means the complex medical review of a 
sample of claims, generally 100 claims, across the providers or 
suppliers that bill a particular item or service to confirm that the 
item or service is billed in error.
    Termination of non-random prepayment complex medical review means 
the cessation of non-random prepayment complex medical review.

II. General Overview of the Medical Review Process

A. Medical Review

    We enter into contractual agreements with contractors to perform 
medical review functions. One of the functions of a contractor is to 
ensure the fiscal integrity of the Medicare program by conducting 
medical review of claims to determine whether items or services are 
covered and are reasonable and necessary. When a claim is submitted for 
payment, it may be subject to medical review before payment is made.
    There are three types of non-random prepayment medical review: 
Automated, routine, and complex. A non-random prepayment automated 
medical review is when decisions are made at the system level, using 
available electronic information, without the intervention of 
contractor personnel. A non-random prepayment routine medical review is 
limited to rule-based determinations performed by specially trained 
non-clinical medical review staff. Automated and routine non-random 
prepayment medical review does not create an administrative burden on 
the provider or supplier since additional medical documentation does 
not need to be submitted for these types of medical reviews and 
payments for covered, reasonable and necessary items or services are 
not delayed. Therefore, these types of reviews pose no discernable 
administrative burden on the provider or supplier because there is no 
interaction between the contractor and the provider or supplier during 
the medical review process. As indicated above, non-random prepayment 
complex medical review is the evaluation of medical records or any 
other documentation by a licensed medical professional prior to 
Medicare payment. Complex medical review determinations require the 
reviewer to make a clinical judgment about whether an item or service 
is covered, and is reasonable and necessary. In order for this 
determination to be made the provider or supplier would submit a copy 
of the medical records that indicate that the items or services billed 
are covered, and are reasonable and necessary for the condition of the 
patient. This type of review delays payment until the contractor is 
able to make a determination that the items or services billed are 
covered and are reasonable and necessary. This proposed rule only 
applies to terminating a provider or supplier from non-random 
prepayment complex medical review. (A detailed description of the 
concepts for performing the different types of non-random prepayment 
medical review functions are located in our manual instructions at 
https://www.cms.hhs.gov/manuals/108_pim/pim83toc.asp).
    The contractor employs data analysis procedures to identify claims 
that may be billed inappropriately. These procedures may be based on 
claims data (national and local) beneficiary complaints, and alerts 
from other organizations (for example, Office of Inspector General and 
Government Accountability Office). When a contractor identifies a 
likelihood of sustained or high level of payment error, the contractor 
may request supporting medical record documentation. Examples of a high 
level of payment error include unusual patterns such as prescribing the 
same items or services for a high number of patients, consistently 
prescribing inappropriate treatments, unexplained increases in volume 
when compared to historical or peer trends, or any other reasons as 
determined by the Secretary or his designees.
    Before a contractor places a provider or supplier on non-random 
prepayment complex medical review, the contractor would perform a probe 
review (that is, complex medical review of a small sample of claims for 
a specific billing code, generally 20 to 40 claims to confirm that the 
provider or supplier is billing the program in error). In the case of a 
widespread ``item or service-specific'' problem, a larger sample of 
claims (generally 100 claims of the item or service in question) would 
be subjected to complex medical review. Performing medical review on a 
sample of claims for a specific billing code before placing the 
provider or supplier

[[Page 58651]]

on non-random prepayment complex medical review allows for a 
determination as to whether a problem exists and ensures that 
contractor medical review resources are targeted appropriately and that 
providers and suppliers are not unnecessarily burdened.
    When a probe confirms that a provider or supplier is billing the 
program in error, and those billing errors present a likelihood of 
sustained or high level of payment error (for example, a high billing 
error rate or errors on claims representing high dollar value) this may 
result in the provider or supplier being placed on non-random 
prepayment complex medical review. Contractors target medical review 
activities at providers, items or services that place the greatest risk 
of making improper payments from the Medicare trust funds.
    This activity may involve complex medical review. Complex medical 
review involves the application of clinical judgment by a licensed 
medical professional in order to evaluate medical records to determine 
whether an item or service is covered, and is reasonable and necessary.
    Medical records include any medical documentation, other than what 
is included on the face of the claim that supports the item or service 
that is billed. For Medicare to consider coverage and payment for any 
item or service, the information submitted by the supplier or provider 
(that is, claims) must be supported by the documentation in the 
patient's medical records. The patient's medical records include--(1) 
physician's office records; (2) hospital records; (3) nursing home 
records; (4) home health agency records; (5) records from other 
healthcare professionals; and (6) diagnostic reports and other 
supporting documentation. The contractor specifies which pieces of 
documentation they want. Providers and suppliers may supply additional 
documentation not explicitly listed by the contractor. This supporting 
information may be requested by CMS and its agents on a routine basis 
in instances where diagnoses on the claims do not clearly indicate 
medical necessity. For example, documentation supporting the medical 
necessity of a power wheelchair would not be requested in the vast 
majority of cases where patients have definite medical conditions such 
as neurological spinal cord injury, cerebral palsy, multiple sclerosis 
or stroke with residual myoplegia (not all inclusive). On the other 
hand, it is more likely that documentation would be requested for 
patients whose diagnoses are limited to non-neurological conditions 
such as chronic obstructive pulmonary disease, congestive heart 
failure, coronary artery disease, arthritis or obesity (not all 
inclusive).
    Any determination must be documented and include the rationale for 
the decision. While medical review staff must follow National Coverage 
Determinations and Local Coverage Determinations, they are expected to 
use their expertise to make clinical judgments when making medical 
review determinations. They must take into consideration the clinical 
condition of the beneficiary as indicated by the beneficiary's 
diagnosis and medical history when making these determinations. At any 
time during the medical review process the contractor detects possible 
fraud, the contractor would refer the issue to the Benefit Integrity 
Program Safeguard Contractor.
    Before the enactment of the MMA, we continued to perform non-random 
prepayment complex medical review until the provider or supplier 
demonstrated compliance with Medicare billing requirements as evidenced 
by an acceptable error rate. The contractor made the determination of 
``acceptable error rate.'' As a result, some providers and suppliers 
have remained on medical review for a considerable period of time.

B. Termination of Non-Random Prepayment Complex Medical Review

    In accordance with section 934 of the MMA, we are proposing to 
terminate in most cases a provider or supplier from non-random 
prepayment complex medical review no later than 1 year from the 
initiation of the review or when the provider's or supplier's error 
rate decreases by 70 percent from the initial error rate. The 
initiation of review begins on the date the contractor sends a letter 
to the provider or supplier. The letter would notify the provider or 
supplier of the results of the probe review and would inform them that 
they would be subjected to non-random prepayment complex review. In 
addition, we are proposing terminating a provider or supplier from non-
random prepayment complex medical review when medical review error rate 
findings indicate that the provider or supplier has corrected its 
billing errors resulting in at least a 70 percent decrease from its 
initial error rate. The initial error rate would be calculated based on 
the probe review prior to the initiation of non-random complex 
prepayment medical review. We initially considered whether a 90 to 95 
percent decrease in a provider's or supplier's error rate was 
appropriate but determined that a 90 to 95 percent reduction in a 
provider's or supplier's error rate would be impracticable. Therefore, 
we believe an error rate reduction of 70 percent from the error rate 
calculated during probe review, the ``initial error rate,'' would 
protect the financial integrity of the Medicare program and allow the 
provider or supplier a realistic opportunity to be terminated from non-
random prepayment complex medical review.
    When a provider or supplier is terminated from non-random 
prepayment complex medical review after 1 year of review and the 
contractor determines that the provider or supplier continues to have a 
high error rate despite educational interventions, the contractor must 
consider referring the provider or supplier to the Benefit Integrity 
Program Safeguard Contractor. Contractors must also consider continuing 
educational interventions without performing medical review or consider 
performing postpayment medical review.
    We are also proposing that a contractor could extend a non-random 
prepayment complex medical review beyond the 1-year limit in certain 
situations. The contractor could extend non-random prepayment complex 
medical review if a provider or supplier stops billing the code under 
review or shifts billing to another inappropriate code to avoid the 
contractor's proper calculation of the error rate. If the reduction in 
the error rate is attributed to a 25 percent or greater reduction in 
the number of claims submitted for the specific billing code under 
review, non-random prepayment complex medical review for that provider 
or supplier could be extended. However, if the number of claims 
submitted for a specific code was reduced because the provider or 
supplier began billing claims using a new appropriate code, or there is 
another legitimate explanation for the reduced number of claims billed, 
at the contractor's discretion, the provider or supplier may not be 
required to undergo extended non-random prepayment complex medical 
review. If extended medical review is necessary, contractors would 
notify providers and suppliers in writing the reason for the need to 
perform additional prepayment complex medical review.
    The contractor would evaluate the results of non-random complex 
prepayment medical review, and the length of time a provider or 
supplier remains on review, at least every quarter following the 
initiation of non-random prepayment complex medical review. Quarterly 
error-rate evaluations would

[[Page 58652]]

be for the discrete quarter; a rolling error rate average over more 
than one quarter would not be appropriate. After the contractor 
determines that the provider or supplier should be terminated from non-
random prepayment complex medical review, the contractor would update 
the claims processing system within 2 business days to ensure that the 
provider's and supplier's claims are no longer suspended for that 
specific billing error.
    Once a provider or supplier is terminated from non-random 
prepayment complex medical review contractors would periodically re-
evaluate the provider or supplier's data. If necessary the contractor 
could place a provider or supplier that appears to have resumed a high 
level of payment error on complex medical review. This review would 
only be initiated if a probe review confirms that there continues to be 
a high level of payment error.

III. Provisions of the Proposed Regulations

    To comply with section 934 of the MMA, we are proposing to amend 42 
CFR part 421 by adding and reserving subpart D and adding a new subpart 
E entitled, ``Medicare Payment Review.'' This subpart would establish 
the general criteria for terminating a provider or supplier from non-
random prepayment complex medical review.
    In Sec.  421.401, we are proposing to define the following terms 
for purposes of this new subpart:
     Error rate.
     Initial error rate.
     Medical review.
     Non-random complex prepayment medical review.
     Non-random prepayment medical review.
     Provider specific probe review.
     Quarterly error rate.
     Service specific probe review
     Termination of non-random prepayment complex medical 
review.
    In addition, we are proposing in Sec.  421.405 to specify the 
termination criteria for non-random prepayment complex medical review.

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each issue for Sec.  421.405 as 
summarized and discussed below that contain information collection 
requirements.

Section 421.405 Termination and Extension of Non-Random Prepayment 
Complex Medical Review

    In summary, Sec.  421.405 outlines the proposed requirements and 
process for the termination and extension of non-random prepayment 
complex medical review, a form of complex medical review. Contractors 
conduct complex medical review to determine whether items or services 
billed are covered, correctly coded, and are reasonable and necessary 
for the condition of the patient. Under complex medical review the 
provider or supplier must submit a copy of the medical records that 
support the items or services billed.
    The burden associated with this section is the time and effort 
necessary for the provider or supplier of services to locate and obtain 
the supporting documentation for the claim to Medicare and to forward 
the materials for submission to Medicare contractors for review. We 
expect that this information would generally be maintained by suppliers 
and/or providers as a normal course of business and that this 
information will be readily available.
    The burden associated with this requirement is estimated to be 10 
minutes per provider or supplier, to locate, photocopy and transmit 
this information to the contractor upon request.
    Over the past 3 years, Medicare contractors have performed complex 
medical review on an average of 2.9 million claims.
    The total annual burden associated with this requirement is 
estimated to be 483,333 hours (2.9 million requests for medical records 
x 10 minutes).
    If you comment on these information collection and recordkeeping 
requirements, please mail copies directly to the following: Centers for 
Medicare & Medicaid Services, Office of Strategic Operations and 
Regulatory Affairs, Regulations Development Group, Attn: William N. 
Parham, III, CMS-6022-P, Room C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850; and
    Office of Information and Regulatory Affairs, Office of Management 
and Budget, Room 10235, New Executive Office Building, Washington, DC 
20503, Attn: Christopher Martin, CMS Desk Officer, CMS-6022-P, 
Christopher--Martin@omb.eop.gov. Fax (202) 395-6974.

V. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We would consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we would respond to 
the comments in the preamble to that document.

VI. Regulatory Impact

    We have examined the impact of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Act, the Unfunded Mandates Reform Act of 1995 
(Pub. L. 104-4), and Executive Order 13132.
    Executive Order 12866 (as amended by Executive Order 13258, which 
merely reassigns responsibility of duties) directs agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). A 
regulatory impact analysis (RIA) be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year). 
This rule does not reach the economic threshold and thus is not 
considered a major rule.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and government agencies. 
Most hospitals and most other providers and suppliers are small 
entities, either by nonprofit status or by having revenues of $6 
million to $29 million in any 1 year. Individuals and States are not 
included in the definition of a small entity. We are not preparing an 
analysis for the RFA because we have determined that this rule would 
not have a significant

[[Page 58653]]

economic impact on a substantial number of small entities. We believe 
that this rule would decrease the costs for providers and suppliers 
because it establishes guidelines for terminating a provider or 
supplier from non-random prepayment complex medical review. We believe 
this rule would eliminate inappropriate reviews and would ensure that 
Medicare payments would not be withheld for extended time periods.
    Because a contractor would no longer be maintaining providers or 
suppliers on non-random prepayment complex medical review for extended 
periods, administrative expenses (for example, copying, mailing, and 
the retention of medical documentation) would be reduced.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. We are not preparing an 
analysis for section 1102(b) of the Act because we have determined that 
this rule would not have a significant impact on the operations of a 
substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in expenditure in any 1 year by State, 
local, or tribal governments, in the aggregate, or by the private 
sector, of $100 million. This rule would have no consequential effect 
on the governments mentioned or on the private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. Since this regulation would not impose any costs on State 
or local governments, the requirements of E.O. 13132 are not 
applicable.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 421

    Administrative practice and procedure, Health facilities, Health 
professions, Medicare, Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR chapter IV as follows:

PART 421--INTERMEDIARIES, CARRIERS, AND PROGRAM SAFEGUARD 
CONTRACTORS

    1. The authority citation for part 421 continues to read as 
follows:

    Authority: Sec. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

    2. The heading for Part 421 is revised to read as set forth above.
    3. Add and reserve a new subpart D.
    4. Add new subpart E, consisting of Sec.  421.400 through Sec.  
421.405, to read as follows:
Subpart E--Medical Review
Sec.
421.400 Medicare review functions.
421.401 Definitions.
421.405 Termination and extension of non-random prepayment complex 
medical review.

Subpart E--Medical Review


Sec.  421.400  Medicare review functions.

    CMS enters into contractual agreements with intermediaries, 
carriers, and program safeguard contractors (PSCs) (hereinafter, 
intermediaries, carriers, and PSCs that perform medical review 
functions are referred to as contractors) to perform medical review 
functions to ensure that items or services are covered and are 
reasonable and necessary in accordance with Medicare coverage policies 
and program instructions.


Sec.  421.401.  Definitions.

    As used in this subpart--
    Allowable charges means the dollar amount (including co-pay and 
deductibles) that the Medicare program will pay for a particular item 
or service.
    Complex Medical Review means all medical review of claim 
information and medical documentation by a licensed medical 
professional, for a billed item or service identified by data analysis 
techniques or probe review to have a likelihood of sustained or high 
level of payment error.
    Error rate means the dollar amount of allowable charges for a 
particular item or service billed in error as determined by complex 
medical review, divided by the dollar amount of allowable charges for 
that medically reviewed item or service.
    Initial error rate means the calculation of an error rate based on 
the results of a probe review prior to the initiation of non-random 
prepayment complex medical review.
    Medical review means the process performed by a contractor to 
ensure that billed items or services are covered and are reasonable and 
necessary as specified under section 1862(a)(1)(A) of the Act.
    Non-clinician medical review staff means specially trained medical 
review staff that do not possess the knowledge, skills, training, or 
medical expertise of a licensed health care professional.
    Non-random prepayment complex medical review means the prepayment 
medical review of claim information and medical documentation by a 
licensed medical professional, for a billed item or service identified 
by data analysis techniques or probe review to have a likelihood of 
sustained or high level of payment error.
    Non-random prepayment medical review means the prepayment medical 
review of claims for a billed item or service identified by data 
analysis techniques or probe review to have a likelihood of a sustained 
or high level of payment error.
    Provider-specific probe review means the complex medical review of 
a small sample of claims, generally 20 to 40 claims, from a specific 
provider or supplier for a specific billing code to confirm that the 
provider or supplier is billing the program in error.
    Quarterly error rate means the calculation of an error rate based 
on the results of non-random prepayment complex medical review for a 
specific billing code for a specific quarter.
    Service-specific probe review means the complex medical review of a 
sample of claims, generally 100 claims, across the providers or 
suppliers that bill a particular item or service to confirm that the 
item or service is billed in error.
    Termination of non-random prepayment complex medical review means 
the cessation of non-random prepayment complex medical review.


Sec.  421.405  Termination and extension of non-random prepayment 
complex medical review.

    (a) Except for cases described in paragraph (b) of this section, a 
contractor may terminate a provider or supplier from non-random 
prepayment complex medical review--
    (1) No later than 1 year following the initiation of non-random 
prepayment complex medical review; or
    (2) If calculation of the error rate indicates that the provider or 
supplier has reduced its initial error rate by 70 percent or more. A 
contractor must review claims for a specific billing code aberrancy for 
the quarter and calculate

[[Page 58654]]

the quarterly error rate for those claims medically reviewed in that 
quarter. In order for this determination to be made, the provider or 
supplier must submit a copy of the medical records that indicate that 
the items or services billed are covered, correctly coded, and are 
reasonable and necessary for the condition of the patient. When a 
provider or supplier is terminated from non-random prepayment complex 
medical review after 1 year of review and the contractor determines 
that the provider or supplier continues to have a high error rate 
despite educational interventions the contractor must consider 
referring the provider or supplier to the Benefit Integrity PSC. 
Contractors must also consider continuing educational interventions 
without performing medical review or must consider performing 
postpayment medical review.
    (b) Extension of non-random prepayment complex medical review. (1) 
A contractors must extend non-random prepayment complex medical review 
beyond the 1 year timeframe if a provider or supplier stops billing the 
code under review or shifts billing to another inappropriate code to 
avoid proper calculation of the error rate. If the reduction in the 
error rate is attributed to a 25 percent or greater reduction in the 
number of claims submitted for the specific billing code under review, 
non-random prepayment complex medical review for that provider or 
supplier must be extended. However, if the number of claims submitted 
for a specific code were reduced because the provider or supplier began 
billing claims using a new appropriate code, or there is another 
legitimate explanation for the reduced number of claims billed, at 
contractor discretion, the provider or supplier may not be required to 
undergo extended non-random prepayment complex medical review.
    (2) If extended medical review is necessary, contractors must 
notify providers and suppliers in writing the reasons for the need to 
perform additional prepayment complex review.
    (c) Quarterly termination evaluation--(1) Contractors, at a 
minimum, must evaluate the length of time a provider or supplier has 
been on non-random prepayment complex medical review on a quarterly 
basis. A determination as to whether the provider's or supplier's 
initial probe review error rate for a specific billing code has been 
reduced by 70 percent must also be evaluated quarterly.
    (2) Quarterly error rate evaluations must be for the discrete 
quarter; a rolling error rate average over more than one quarter is not 
permitted. After the contractor determines that the provider or 
supplier should be terminated from non-random prepayment complex 
medical review, the claims processing system must be updated within 2 
business days to ensure that a provider's or supplier's claims for a 
specific billing error is no longer suspended for non-random prepayment 
complex medical review.
    (d) Periodic re-evaluation. Once a provider or supplier is 
terminated from non-random prepayment complex medical review, 
contractors must periodically re-evaluate the provider or supplier's 
data and if necessary must place a provider or supplier that appears to 
have resumed a high level of payment error on complex medical review. 
This review would only be initiated if a probe review confirms that 
there continues to be a high level of payment error.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: October 26, 2004.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: March 10, 2005.
Michael O. Leavitt,
Secretary.

    Editorial Note: This document was received at the Office of the 
Federal Register on September 30, 2005.
[FR Doc. 05-19925 Filed 9-30-05; 2:47 pm]
BILLING CODE 4120-01-P