Medicaid/CHIP Program; Medicaid Program and Children's Health Insurance Program (CHIP); Changes to the Medicaid Eligibility Quality Control and Payment Error Rate Measurement Programs in Response to the Affordable Care Act, 40596-40617 [2016-14536]

Agencies

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

[Federal Register Volume 81, Number 120 (Wednesday, June 22, 2016)]
[Proposed Rules]
[Pages 40596-40617]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-14536]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 431 and 457

[CMS-6068-P]
RIN 0938-AS74


Medicaid/CHIP Program; Medicaid Program and Children's Health 
Insurance Program (CHIP); Changes to the Medicaid Eligibility Quality 
Control and Payment Error Rate Measurement Programs in Response to the 
Affordable Care Act

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would update the Medicaid Eligibility 
Quality Control (MEQC) and Payment Error Rate Measurement (PERM) 
programs based on the changes to Medicaid and the Children's Health 
Insurance Program (CHIP) eligibility under the Patient Protection and 
Affordable Care Act. This proposed rule would also implement various 
other improvements to the PERM program.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on August 22, 2016.

ADDRESSES: In commenting, please refer to file code CMS-6068-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to https://www.regulations.gov. Follow the instructions under 
the ``More Search Options'' tab.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-6068-P, P.O. Box 8016, 
Baltimore, MD 21244-8016.
    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 to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-6068-P, 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 before the close of the comment period 
to either of the following addresses:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 
20201.
    (Because access to the interior of the Hubert H. Humphrey 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.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call (410) 786-7195 in advance to schedule your arrival with one 
of our staff members.
    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:  Bridgett Rider, (410) 786-2602.

SUPPLEMENTARY INFORMATION: 
    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 comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: https://www.regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will also 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. EST. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

[[Page 40597]]

Acronyms

AFR Agency Financial Report
AT Account Transfer file
CFR Code of Federal Regulations
CHIP Children's Health Insurance Program
CHIPRA Children's Health Insurance Program Reauthorization Act of 
2009
CMS Centers for Medicare and Medicaid Services
DAB Departmental Appeals Board
DHHS Department of Health and Human Services
DP Data Processing
ELA Express Lane Agency
ELE Express Lane Eligibility
EOB Explanation of Benefits
ERC Eligibility Review Contractor
FFM Federally Facilitated Marketplace
FFM-A Federally Facilitated Marketplace-Assessment
FFM-D Federally Facilitated Marketplace-Determination
FFP Federal Financial Participation
FFS Fee-For-Service
FFY Federal Fiscal Year
FMAP Federal Medical Assistance Percentages
FY Fiscal Year
HHS Health and Human Services
HIPP Health Insurance Premium Payments
IFC Interim Final Rule with Comment period
IPERA Improper Payments Elimination and Recovery Act
IPERIA Improper Payments Elimination and Recovery Improvement Act
IPIA Improper Payments Information Act
IRFA Initial Regulatory Flexibility Analysis
MAGI Modified Adjusted Gross Income
MEQC Medicaid Eligibility Quality Control
MSO Medicaid State Operations
OMB Office of Management and Budget
PCCM Primary Care Case Management
PERM Payment Error Rate Measurement
RC Review Contractor
RFA Regulatory Flexibility Act
RIA Regulatory Impact Analysis
SC Statistical Contractor
SHO State Health Official
the Act Social Security Act
UMRA Unfunded Mandates Reform Act

I. Background

A. Introduction

    The Medicaid Eligibility Quality Control (MEQC) program at Sec.  
431.810 through Sec.  431.822 implements section 1903(u) of the Social 
Security Act (the Act) and requires states to report to the Secretary 
the ratio of states' erroneous excess payments for medical assistance 
under the state plan to total expenditures for medical assistance. 
Section 1903(u) of the Act sets a 3 percent threshold for eligibility-
related improper payments in any fiscal year (FY) and generally 
requires the Secretary to withhold payments to states with respect to 
the amount of improper payments that exceed the threshold. The Act 
requires states to provide information, as specified by the Secretary, 
to determine whether they have exceeded this threshold.
    The Payment Error Rate Measurement (PERM) program was developed to 
implement the requirements of the Improper Payments Information Act 
(IPIA) of 2002 (Pub. L. 107-300), which requires the heads of federal 
agencies to review all programs and activities that they administer to 
determine and identify any programs that are susceptible to significant 
erroneous payments. If programs are found to be susceptible to 
significant improper payments, then the agency must estimate the annual 
amount of erroneous payments, report those estimates to the Congress, 
and submit a report on actions the agency is taking to reduce improper 
payments. IPIA was amended by Improper Payments Elimination and 
Recovery Act of 2010 (IPERA) (Pub. L. 111-204) and the Improper 
Payments Elimination and Recovery Improvement Act of 2012 (IPERIA) 
(Pub. L. 112-248).
    The IPIA directed OMB to provide guidance on implementation; OMB 
provides such guidance for IPIA, IPERA, and IPERIA in OMB circular A-
123 App. C. OMB defines ``significant improper payments'' as annual 
erroneous payments in the program exceeding (1) both $10 million and 
1.5 percent of program payments, or (2) $100 million regardless of 
percentage (OMB M-15-02, OMB Circular A-123, App. C October 20, 2014). 
Erroneous payments and improper payments have the same meaning under 
OMB guidance. For those programs found to be susceptible to significant 
erroneous payments, federal agencies must provide the estimated amount 
of improper payments and report on what actions the agency is taking to 
reduce those improper payments, including setting targets for future 
erroneous payment levels and a timeline by which the targets will be 
reached. Section 2(b)(1) of IPERA clarified that, when meeting IPIA and 
IPERA requirements, agencies must produce a statistically valid 
estimate, or an estimate that is otherwise appropriate using a 
methodology approved by the Director of the Office of Management and 
Budget (OMB). IPERIA further clarified requirements for agency 
reporting on actions to reduce improper payments and recover improper 
payments.
    The Medicaid program and the Children's Health Insurance Program 
(CHIP) were identified as at risk for significant erroneous payments. 
As set forth in OMB Circular A-136, Financial Reporting Requirements, 
for IPIA reporting, the Department of Health and Human Services (DHHS) 
reports the estimated improper payment rates (and other required 
information) for both programs in its annual Agency Financial Report 
(AFR).
    The Children's Health Insurance Program Reauthorization Act of 2009 
(CHIPRA) (Pub. L. 111-3) was enacted on February 4, 2009. Sections 203 
and 601 of the CHIPRA relate to the PERM program. Section 203 of the 
CHIPRA amended sections 1902(e)(13) and 2107(e)(1) of the Act to 
establish a state option for an express lane eligibility (ELE) process 
for determining eligibility for children and an error rate measurement 
for the enrollment of children under the ELE option. ELE provides 
states with important new avenues to expeditiously facilitate 
children's Medicaid or CHIP enrollment through a fast and simplified 
eligibility determination or renewal process by which states may rely 
on findings made by another program designated as an express lane 
agency (ELA) for eligibility factors including, but not limited to, 
income or household size. Section 1902(e)(13)(E) of the Act, as amended 
by the CHIPRA, specifically addresses error rates for ELE. States are 
required to conduct a separate analysis of ELE error rates, applying a 
3 percent error rate threshold, and are directed not to include those 
children who are enrolled in the State Medicaid plan or the State CHIP 
plan through reliance on a finding made by an ELA in any data or 
samples used for purposes of complying with a MEQC review or as part of 
the PERM measurement. Section 203(b) of the CHIPRA directed the 
Secretary to conduct an independent evaluation of children who enrolled 
in Medicaid or CHIP plans through the ELE option to determine the 
percentage of children who were erroneously enrolled in such plans, the 
effectiveness of the option, and possible legislative or administrative 
recommendations to more effectively enroll children through reliance on 
such findings.
    Section 601(a)(1) of the CHIPRA amended section 2015(c) of the Act, 
and provided a 90 percent federal match for CHIP spending related to 
PERM administration and excluded such spending from the CHIP 10 percent 
administrative cap. (Section 2105(c)(2) of the Act generally limits 
states to using no more than 10 percent of the CHIP benefit 
expenditures for administrative costs, outreach efforts, additional 
services other than the standard benefit package for low-income 
children, and administrative costs.)
    Section 601(b) of the CHIPRA required that the Secretary issue a 
new PERM rule and delay any calculations of a PERM improper payment 
rate for CHIP

[[Page 40598]]

until 6 months after the new PERM final rule was effective. Section 
601(c) of the CHIPRA established certain standards for such a rule, and 
section 601(d) of the CHIPRA provided that states that were scheduled 
for PERM measurement in FY 2007 could elect to accept a CHIP PERM 
improper payment rate determined in whole or in part on the basis of 
data for FY 2007, or could elect instead to consider its PERM 
measurement conducted for FY 2010 as the first fiscal year for which 
PERM applies to the state for CHIP. This same section provided that 
states that were scheduled for PERM measurement in FY 2008 could elect 
to accept a CHIP PERM improper payment rate determined in whole or in 
part on the basis of data for FY 2008, or could elect instead to 
consider its PERM measurement conducted for FY 2010 or FY 2011 as the 
first fiscal year for which PERM applies to the state for CHIP. The new 
PERM rule required by the CHIPRA was to include the following:
     Clearly defined criteria for errors for both states and 
providers.
     Clearly defined processes for appealing error 
determinations.
     Clearly defined responsibilities and deadlines for states 
in implementing any corrective action plans (CAPs).
     Requirements for state verification of an applicant's 
self-declaration or self-certification of eligibility for, and correct 
amount of, medical assistance under Medicaid or child health assistance 
under CHIP.
     State-specific sample sizes for application of the PERM 
requirements.
    The Patient Protection and Affordable Care Act (Pub. L. 111-148), 
as amended by the Health Care and Education Reconciliation Act of 2010 
(Pub. L. 111-152) (collectively referred to as the Affordable Care Act) 
was enacted in March 2010. The Affordable Care Act mandated changes to 
the Medicaid and CHIP eligibility processes and policies to simplify 
enrollment and increase the share of eligible persons that are enrolled 
and covered. Some of the key changes applicable to all states, 
regardless of a state decision to expand Medicaid coverage, include:
     Use of Modified Adjusted Gross Income (MAGI) methodologies 
for income determinations and household compositions for most 
applicants.
     Use of the single streamlined application (or approved 
alternative) for intake of applicant information.
     Availability of multiple application channels for 
consumers to submit application information, such as mail, fax, phone, 
or on-line.
     Use of a HHS-managed data services hub for access to 
federal verification sources.
     Need for account transfers and data sharing between the 
state- or federal-Marketplace, Medicaid, and CHIP to avoid additional 
work or confusion by consumers.
     Reliance on data-driven processes for 12 month renewals.
     Use of applicant self-attestation of most eligibility 
elements as of January 1, 2014, with reliance on electronic third-party 
data sources for verification, if available.
     Enhanced 90 percent federal financial participation (FFP) 
match for the design, development, installation, or enhancement of the 
state's eligibility system.
    In light of the implementation of the Affordable Care Act's major 
changes to the Medicaid and CHIP eligibility and enrollment provisions, 
and our continued efforts to comply with IPERIA and the CHIPRA, an 
interim change in methodology was implemented for conducting Medicaid 
and CHIP eligibility reviews under PERM. As described in the August 15, 
2013 State Health Official (SHO) letter (SHO# 13-005), instead of the 
PERM and MEQC eligibility review requirements, we required states to 
participate in the Medicaid and CHIP Eligibility Review Pilots from FY 
2014 to FY 2016 to support the development of a revised PERM 
methodology that provides informative, actionable information to states 
and allows CMS to monitor program administration. A subsequent SHO 
letter dated October 7, 2015 (SHO# 15-004) extended the Medicaid and 
CHIP Eligibility Review Pilots for one additional year.

B. Regulatory History

1. Medicaid Eligibility Quality Control (MEQC) Program
    The MEQC program implements section 1903(u) of the Act, which 
defines erroneous excess payments as payments for ineligible persons 
and overpayments for eligible persons. Section 1903(u) of the Act 
instructs the Secretary not to make payment to a state with respect to 
the portion of its erroneous payments that exceed a 3 percent error 
rate, though the statute also permits the Secretary to waive all or 
part of that payment restriction if a state demonstrates that it cannot 
reach the 3 percent allowable error rate despite a good faith effort.
    Regulations implementing the MEQC program are at 42 CFR subpart P--
Quality Control. The regulations specify the sample and review 
procedures for the MEQC program and standards for good faith efforts to 
keep improper payments below the error rate threshold. From its 
implementation in 1978 until 1994, states were required to follow the 
as-promulgated MEQC regulations in what was known as the traditional 
MEQC program. Every month, states reviewed a random sample of Medicaid 
cases and verified the categorical and financial eligibility of the 
case members. Sample sizes had to meet minimum standards, but otherwise 
were at state option.
    For cases in the sample found ineligible, the claims for services 
received in the review month were collected, and error rates were 
calculated by comparing the amount of such claims to the total claims 
for the universe of sampled claims. The state's calculated error rate 
was adjusted based on a federal validation subsample to arrive at a 
final state error rate. This final state error rate was calculated as a 
point estimate, without adjustment for the confidence interval 
resulting from the sampling methodology. States with error rates over 3 
percent are subject under those regulations to a disallowance of FFP in 
all or part of the amount of FFP over the 3 percent error rate.
    States prevailed in challenges to disallowances based on the MEQC 
system, at HHS's Departmental Appeals Board (DAB), HHS's final level of 
administrative review. The DAB concluded that the MEQC sampling 
protocol and the resulting error rate calculation were not sufficiently 
accurate to provide reliable evidence to support a disallowance based 
on an actual error rate that exceeded the 3 percent threshold.
    Although the MEQC system remained in place, we provided states with 
an alternative to the MEQC program that was focused on prospective 
improvements in eligibility determinations rather than disallowances. 
These changes, outlined in Medicaid State Operations (MSO) Letter #93-
58 dated July 23, 1993, provided states with the option to continue 
operating a traditional MEQC program or to conduct what we termed 
``MEQC pilots'' that did not lead to the calculation of error rates. 
These pilots continue today. States choosing the latter pilot option 
have generally operated, on a year-over-year basis, year-long pilots 
focused on state-specific areas of interest, such as high-cost or high-
risk eligibility categories and problematic eligibility determination 
processes. These pilots review specific program areas to determine 
whether problems exist and produce findings the state agency can 
address through corrective actions, such as policy changes or 
additional training.

[[Page 40599]]

Over time, most states have elected to participate in the pilots; 39 
states now operate MEQC pilots, while just 12 maintain traditional MEQC 
programs.
2. Payment Error Rate Measurement (PERM) Program
    Promulgated as a result of the IPIA and OMB guidance, a proposed 
rule published in the August 27, 2004 Federal Register (69 FR 52620) 
set forth proposed provisions establishing the PERM program by which 
states would annually be required to estimate and report improper 
payments in the Medicaid program and CHIP. The state-reported, state-
specific improper payment rates were to be used to compute the national 
improper payment estimates for these programs.
    In the October 5, 2005 Federal Register (70 FR 58260), we published 
a PERM interim final rule with comment period (IFC) that responded to 
public comments on the proposed rule and informed the public of both 
our national contracting strategy and plan to measure improper payments 
in a subset of states. That IFC described that a state's Medicaid 
program and CHIP would be subject to PERM measurement just once every 3 
years; the 3 year period is referred to as a cycle, and the year in 
which a state is measured is known as its PERM year. In response to the 
public comments from that IFC, we published a second IFC in the August 
28, 2006 Federal Register (71 FR 51050) that reiterated our national 
contracting strategy to estimate improper payments in both Medicaid and 
CHIP fee-for-service (FFS) and managed care. We set forth, and invited 
comments on, state requirements for estimating improper payments due to 
Medicaid and CHIP eligibility determination errors. We also announced 
that a state's Medicaid program and CHIP would be reviewed during the 
same cycle.
    In the August 31, 2007 Federal Register (72 FR 50490), we published 
a PERM final rule that finalized state requirements for: (1) Submitting 
claims to the federal contractors that conduct FFS and managed care 
reviews; (2) conducting eligibility reviews; and (3) estimating payment 
error rates due to errors in eligibility determinations.
3. 2010 Final Rule: Revisions to MEQC and PERM To Meet the CHIPRA 
Requirements
    In the July 15, 2009 Federal Register (74 FR 34468), we published a 
proposed rule proposing revisions, as required by the CHIPRA, to the 
MEQC and PERM programs, including changes to the PERM review process. 
In the August 11, 2010 Federal Register (75 FR 48816), we published a 
final rule, which became effective on September 10, 2010, for the MEQC 
and PERM programs that codified several procedural aspects of the 
process for estimating improper payments in Medicaid and CHIP, 
including: Changes to state-specific sample sizes to reduce state 
burden, the stratification of universes to obtain required precision 
levels, eligibility sampling requirements, the modification of review 
requirements for self-declaration or self-certification of eligibility, 
the exclusion of children enrolled through the ELE from the PERM 
measurement, clearly defined ``types of payment errors'' to clarify 
that errors must affect payments for the purpose of the PERM program, a 
clearly defined difference resolution and appeals process, and state 
requirements for implementation of CAPs.
    Section 601(e) of the CHIPRA required harmonizing the MEQC and PERM 
programs' eligibility review requirements to improve coordination of 
the two programs, decrease duplicate efforts, and minimize state 
burden. To comply with the CHIPRA, the final rule granted states the 
flexibility, in their PERM year, to apply PERM data to satisfy the 
annual MEQC requirements, or to apply ``traditional'' MEQC data to 
satisfy the PERM eligibility component requirements.
    The final rule permitted a state to use the same data, such as the 
same sample, eligibility review findings, and payment review findings, 
for each program. However, the CHIPRA permits substituting PERM and 
MEQC data only where the MEQC review is conducted under section 1903(u) 
of the Act, so only states using the ``traditional'' MEQC methodology 
may employ this substitution option. Also, each state, with respect to 
each program (MEQC and PERM) is still required to develop separate 
error/improper payment rate calculations.

II. Provisions of the Proposed Regulation

    We are proposing the following changes to part 431 to address the 
eligibility provisions of the Affordable Care Act, as well as to make 
improvements to the PERM eligibility reviews.

A. MEQC Program Revision

    Section 1903(u) of the Act requires the review of Medicaid 
eligibility to identify erroneous payments, but it does not specify the 
manner by which such reviews must occur. The MEQC program was 
originally created to implement the requirements of section 1903(u) of 
the Act, but the PERM program, implemented subsequent to MEQC and under 
other legal authority, likewise reviews Medicaid eligibility to 
identify erroneous payments. As noted previously, the CHIPRA required 
harmonizing the MEQC and PERM programs and allowed for certain data 
substitution options between the two programs, to coordinate consistent 
state implementation to meet both sets of requirements and reduce 
redundancies. Because states are subject to PERM reviews only once 
every 3 years, we propose to meet the requirements in section 1903(u) 
of the Act through a combination of the PERM program and a revised MEQC 
program that resembles the current MEQC pilots, by which the revised 
MEQC program would provide measures of a state's erroneous eligibility 
determinations in the 2 off-years between its PERM cycle.
    As previously noted, states currently may satisfy our requirements 
by conducting either a traditional MEQC program or MEQC pilots, with 
the majority of states (39) electing the latter due to the pilots' 
flexibility to target specific problematic or high-interest areas. The 
revised MEQC program we propose here would eliminate the traditional 
MEQC program and, instead, formalize, and make mandatory, the pilot 
approach. During the 2 off-years between each state's PERM years, when 
a state is not reviewed under the PERM program, we propose that it 
conduct one MEQC pilot spanning that 2 year period. The revised 
regulations we propose here would conform the MEQC program to how the 
majority of states have applied the MEQC pilots through the 
administrative flexibility we granted states decades ago to meet the 
requirements of section 1903(u) of the Act. Assuming this rule is 
finalized as proposed, we believe such MEQC pilots will provide states 
with the necessary flexibility to target specific problem or high-
interest areas as necessary. As a matter of semantics, note that in 
this proposed rule we continue to use the term ``pilots,'' which 
sometimes connote short-term studies or projects, because they are not 
fixed or defined projects, but, rather, as just described, states will 
have flexibility to adapt pilots to target particular areas.
    We further propose to take a similar approach here to ``freezing'' 
error rates as we took when we initially introduced MEQC pilots 2 
decades ago. In 1994, when we introduced MEQC pilots we offered states 
the ability to ``freeze'' their error rates until they resumed 
traditional MEQC activities. In a similar vein, we now propose to 
freeze a state's most recent PERM eligibility improper payment rate 
during the 2 off-years

[[Page 40600]]

between a state's PERM cycles, when the state will be conducting an 
MEQC pilot. As noted previously, section 1903(u) of the Act sets a 3 
percent threshold for improper payments in any period or fiscal year 
and generally requires the Secretary to withhold payments to states 
with respect to the amount of improper payments that exceed the 
threshold. Therefore, we propose freezing the PERM eligibility improper 
payment rate as it allows each state a chance to test the efficacy of 
its corrective actions as related to the eligibility errors identified 
during its PERM year. Our proposal also allows states a chance to 
implement prospective improvements in eligibility determinations before 
having their next PERM eligibility improper payment measurement 
performed, where identified improper payments would be subject to 
potential payment reductions and disallowances under 1903(u) of the 
Act.
    We propose to revise Sec.  431.800 to revise and clarify the MEQC 
program basis and scope.
    We propose to delete Sec.  431.802 as federal financial 
participation, state plan requirements, and the requirement for the 
MEQC program to meet section 1903(u) of the Act would no longer be 
applicable to the revised MEQC program.
    We propose to revise Sec.  431.804 by adding definitions for 
``corrective action,'' ``deficiency,'' ``eligibility,'' ``Medicaid 
Eligibility Quality Control (MEQC),'' ``MEQC Pilot,'' ``MEQC review 
period,'' ``negative case,'' ``off years,'' ``Payment Error Rate 
Measurement (PERM),'' and ``PERM year.''
    We propose to revise the definitions for ``active case,'' and 
``eligibility error,'' and remove ``administrative period,'' ``claims 
processing error,'' ``negative case action,'' and ``state agency.'' We 
are adding, revising, or removing definitions to provide additional 
clarification for the proposed MEQC program revisions.
    We propose to revise Sec.  431.806 to reflect the state 
requirements for the MEQC pilot program. Section 431.806 clarifies that 
following the end of a state's PERM year, it would have up to November 
1 to submit its MEQC pilot planning document for our review and 
approval.
    We propose to revise Sec.  431.810 to clarify the basic elements 
and requirements of the MEQC program.
    We propose to revise Sec.  431.812 to clarify the review procedures 
for the MEQC program. As described earlier, the CHIPRA required 
harmonizing the PERM and MEQC programs and authorized us to permit 
states to use PERM to fulfill the requirements of section 1903(u) of 
the Act; the existing regulation at Sec.  431.812(f), permitting states 
to substitute PERM-generated eligibility data to meet MEQC program 
requirements, was promulgated under the CHIPRA authority. Given that 
the Congress, in the CHIPRA, directed the Secretary to harmonize the 
PERM and MEQC programs and expressly permitted states to substitute 
PERM for MEQC data, we believe that the PERM program, with the proposed 
revisions discussed in subpart Q, meets the requirements of section 
1903(u) of the Act.
    Our proposed approach would continue to harmonize the PERM and MEQC 
programs. It would reduce the redundancies associated with meeting the 
requirements of two distinct programs. As noted earlier, the CHIPRA, 
with certain limitations, allows for substitution of MEQC data for PERM 
eligibility data. Through our proposed approach, in their PERM year, 
states would participate in the PERM program, while during the 2 off-
years between a state's PERM cycles they would conduct a MEQC pilot, 
markedly reducing states' burden. Moreover, we are proposing to revise 
the methodology for PERM eligibility reviews, as discussed below in 
Sec. Sec.  431.960 through 431.1010. The MEQC pilots would focus on 
areas not addressed through PERM reviews, such as negative cases and 
understated/overstated liability, as well as permit states to conduct 
focused reviews on areas identified as error-prone through the PERM 
program, so the proposed new cyclical PERM/MEQC rotation would yield a 
complementary approach to ensuring accurate eligibility determinations.
    By conducting eligibility reviews of a sample of individuals who 
have received services matched with Title XIX or XXI funds, the PERM 
program would, under our proposal, continue to focus on identifying 
individuals receiving medical assistance under the Medicaid or CHIP 
programs who are, in fact, ineligible. Such PERM eligibility reviews 
conform with section 1903(u) of the Act's requirement that states 
measure erroneous payments due to ineligibility. Likewise, these 
eligibility reviews would continue under the MEQC pilots during states' 
off-years and include a review of Medicaid spend-down as a condition of 
eligibility, conforming with other state measurement requirements of 
section 1903(u) of the Act. We would calculate a state's eligibility 
improper payment rate during its PERM year, which would remain frozen 
at that level during its 2 off-years when it conducts its MEQC pilot. 
Again, freezing states' eligibility improper payment rates between PERM 
cycles would allow states time to work on effective and efficacious 
corrective actions which would improve their eligibility 
determinations. This approach also encourages states to pursue 
prospective improvements to their eligibility determination systems, 
policies, and procedures before their next PERM cycle, in which an 
eligibility improper payment rate would be calculated with the 
potential for payment reductions and disallowances to be invoked, in 
the event that a state's eligibility improper payment rate is above the 
3 percent threshold.
1. Revised MEQC Review Procedures
    For more than 2 decades, the majority of states have used the 
flexibility of MEQC pilots to review state-specific areas of interest, 
such as high-cost or high-risk eligibility categories and problematic 
eligibility determination processes. This flexibility has been 
beneficial to states because it made MEQC more useful from a corrective 
action standpoint.
    We propose that MEQC pilots focus on cases that may not be fully 
addressed through the PERM review, including, but not limited to, 
negative cases and payment reviews of understated and overstated 
liability. Still, under our proposal, states would retain much of their 
current flexibility. In Sec.  431.812, we propose that states must use 
the MEQC pilots to perform both active and negative case reviews, but 
states would have flexibility surrounding their active case review 
pilot. In the event that a state's eligibility improper payment rate is 
above the 3 percent threshold for two consecutive PERM cycles, we 
propose this flexibility would decrease as states would be required to 
comply with CMS guidance to tailor the active case reviews to a more 
appropriate MEQC pilot which would be based upon a state's PERM 
eligibility findings. In order to ensure states with consecutive PERM 
eligibility improper payment rates over the threshold, are identifying 
and conducting MEQC active case reviews which are appropriate during 
their off-years, CMS would provide direction for conducting a MEQC 
pilot that would suitably address the error-prone areas identified 
through the state's PERM review. Both the PERM and MEQC pilot programs 
are operationally complementary, and should be treated in a manner that 
allows for states to review identified issues, develop corrective 
actions, and effectively implement prospective

[[Page 40601]]

improvements to their eligibility determinations.
    Active and negative cases represent the eligibility determinations 
made for individuals which either approve or deny an individual's 
eligibility to receive benefits and/or services under Medicaid or CHIP. 
Individuals who are found to be eligible and authorized to receive 
benefits/services are termed active cases, whereas individuals who are 
found to be ineligible for benefits are known as negative cases. As 
proposed at Sec.  431.812(b)(3) a state may focus its active case 
reviews on three defined areas, unless otherwise directed by us or, as 
proposed at Sec.  431.812(b)(3)(i), it may perform a comprehensive 
review that does not limit its review of active cases. Additionally, we 
propose that the MEQC pilots must include negative cases because we 
also propose to eliminate PERM's negative case reviews; our proposal 
would ensure continuing oversight over negative cases to ensure the 
accuracy of state determinations to deny or terminate eligibility.
    Under the new MEQC pilot program, we propose that states review, a 
minimum total of 400 Medicaid and CHIP active cases. We propose that at 
least 200 of those reviews must be Medicaid cases and expect that 
states will include some CHIP cases, but, beyond that, we propose that 
states would have the flexibility to determine the precise distribution 
of active cases. For example, a state could sample 300 Medicaid and 100 
CHIP active cases; it would describe its active sample distribution in 
its MEQC pilot planning document that it would submit to us for 
approval. Under the new MEQC pilot program, we also propose that states 
review, at a minimum, 200 Medicaid and 200 CHIP negative cases. 
Currently, under the PERM program, states are required to conduct 
approximately 200 negative case reviews for each the Medicaid program 
and CHIP (204 is the base sample size, which may be adjusted up or down 
from cycle to cycle depending on a state's performance). We propose a 
minimum total negative sample size of 400 (200 for each program) for 
the proposed MEQC pilots because, as mentioned above and discussed 
further below, we propose to eliminate PERM's negative case reviews.
    Historically, MEQC's case reviews (both active and negative) 
focused solely on Medicaid eligibility determinations. Here, we propose 
that the new MEQC pilots would now include both Medicaid and CHIP 
eligibility case reviews. Because we propose to eliminate PERM's 
negative case reviews, it is important that we concomitantly expand the 
MEQC pilots to include the review of no less than 200 CHIP negative 
cases to ensure that CHIP applicants are not inappropriately denied or 
terminated from a state's program. In the event that CHIP funding 
should end, then states would be required to review only Medicaid 
active and negative cases, as there would no longer be any cases 
associated with CHIP funding.
    We will provide states with guidelines for conducting these MEQC 
pilots, and we propose that states must submit MEQC pilot planning 
documents for CMS's approval. This approach will ensure that states are 
planning to conduct pilots that are suitable and in accordance with our 
guidance.
    This proposed rule would require states to conduct one MEQC pilot 
during their 2 off-years between PERM cycles. We propose that the MEQC 
pilot review period span 12 months, beginning on January 1, following 
the end of the state's PERM review period. For instance, if a state's 
PERM review period is July 1, 2018 to June 30, 2019, the next proposed 
MEQC pilot review period would be January 1-December 31, 2020. We 
propose at Sec.  431.806 that a state would have up to November 1 
following the end of its PERM review period to submit its MEQC pilot 
planning document for CMS review and approval. Following a state's MEQC 
pilot review period, we propose it would have up to August 1 to submit 
a CAP based on its MEQC pilot findings.
    Following publication of the final rule, states will not all be at 
the same point in the MEQC pilot program/PERM timeline. The impact of 
the proposed MEQC timeline for each cycle of states is clarified below 
to assist each cycle of states in understanding when the proposed MEQC 
requirements would apply.
     Cycle 1 States: First PERM review period under new rule: 
July 2017-June 2018; First MEQC pilot planning document due by November 
1, 2018; MEQC review period would be January 1-December 31, 2019; MEQC 
pilot program findings and CAP reported to CMS by August 1, 2020.
     Cycle 2 States: Further CMS guidance will be provided 
regarding the implementation of a modified MEQC pilot program that will 
occur prior to the beginning of your first PERM cycle under the new 
rule. First PERM review period under new rule: July 2018-June 2019; 
Second MEQC pilot planning document due by November 1, 2019.
     Cycle 3 States: First MEQC pilot planning document due by 
November 1, 2017; MEQC review period would be January 1-December 31, 
2018; MEQC pilot program findings and CAP reported to CMS by August 1, 
2019; First PERM review period under new rule: July 2019-June 2020.
2. MEQC Pilot Planning Document
    We propose to revise Sec.  431.814 to clarify the revised sampling 
plan and procedures for the MEQC pilot program. We propose that states 
be required to submit, for our approval, a MEQC Pilot Planning Document 
that would detail how it would propose to perform its active and 
negative case reviews. This process is consistent with that used 
historically with MEQC pilots and also with the FY 2014-2017 Medicaid 
and CHIP Eligibility Review Pilots. Prior to the first proposed 
submission cycle, we would provide states with guidance containing 
further details informing them of what information would need to be 
included in the MEQC Pilot Planning Document.
3. Timeline and Reporting for MEQC Pilot Program
    We propose to revise Sec.  431.816 to clarify the case review 
completion report submission deadlines. We propose that states be 
required to report, through a CMS-approved Web site and in a CMS-
specified format, on all sampled cases by August 1 following the end of 
the MEQC review period, which we believe will streamline the reporting 
process and ensure that all findings are contained in a central 
location.
    We propose to revise Sec.  431.818 to remove the mailing 
requirements and the time requirement.
4. MEQC Corrective Actions
    We propose to revise Sec.  431.820 to clarify the corrective action 
requirements under the proposed MEQC pilot program. Corrective actions 
are critical to ensuring that states continually improve and refine 
their eligibility processes. Under the existing MEQC program, states 
must conduct corrective actions on all identified case errors, 
including technical deficiencies, and we propose here that states 
continue to be required to conduct corrective actions on all errors and 
deficiencies identified through the proposed MEQC pilot program.
    We propose that states report their corrective actions to CMS by 
August 1 following completion of the MEQC pilot review period, and that 
such reports also include updates on the life cycles of previous 
corrective actions, from implementation through evaluation of 
effectiveness.
    We propose to delete Sec.  431.822, as we would no longer be 
performing a federal

[[Page 40602]]

case eligibility review of the revised MEQC program.
5. MEQC Disallowances
    Section I.B.1, above, provides a detailed regulatory history of 
CMS's implementation of the MEQC program, and, in conformity with CMS's 
policy since 1993, we propose not using the revised MEQC pilot program 
to reduce payments or to institute disallowances. Instead, we propose 
to formalize the MEQC pilot process to align all states in one cohesive 
pilot approach to support and encourage states during their 2 off-years 
between PERM cycles to address, test, and implement corrective actions 
that would assist in the improvement of their eligibility 
determinations. This approach also better harmonizes and synchronizes 
the MEQC pilot and PERM programs, leaving them operationally 
complementary. Additionally, our proposal would be advantageous to all 
states as they each would be exempt from potential payment reductions 
and disallowances while conducting their MEQC pilot, therefore placing 
the main focus of the pilots solely on the refinement and improvement 
of their eligibility determinations. Based on this approach, we propose 
that each state's eligibility improper payment rate would be calculated 
in its PERM year, and that its rate would be frozen at that level 
during its off-years when it would conduct an MEQC pilot and implement 
corrective actions.
    As previously discussed, the CHIPRA authorized certain PERM and 
MEQC data substitution, and we believe that the PERM eligibility 
improper payment rate determination methodology satisfies the 
requirements of section 1903(u) of the Act to be used for that 
provision's payment reduction (and potential disallowance) requirement. 
Section 1903(u)(1)(B) of the Act permits the Secretary to waive, in 
whole or part, section 1903(u)(1)(a)'s required payment reductions if a 
state is unable to reach an allowable improper payment rate for a 
period or a fiscal year despite the state's good faith effort. What 
constitutes a state's good faith effort is outlined at the proposed 
Sec.  431.1010(b). As part of the proposed good faith effort, we 
propose that a state's participation in the proposed MEQC pilot program 
in conformity with Sec. Sec.  431.800 through 431.820 of this proposed 
regulation, and its implementation of PERM CAPs in accordance with 
Sec.  431.992 would be essential elements to the showing of a state's 
good faith effort. Conversely, should a state's eligibility improper 
payment rate exceed 3 percent, and should that state fail to comply 
with all elements of Sec.  431.1010(b) in demonstrating a good faith 
effort, we propose, in accordance with section 1903(u)(1)(a) of the 
Act, to reduce its FFP for medical assistance by the percentage by 
which the lower limit of its eligibility improper payment rate exceeds 
three percent. We define a state's failure to comply with all elements 
of the proposed Sec.  431.1010(b), as a lack of a good faith effort to 
reach the allowable error rate. We propose to use the lower limit of 
the eligibility improper payment rate per guidance issued by us prior 
to the implementation of the present MEQC pilots. Therefore, we propose 
to require states to use PERM to meet section 1903(u) of the Act 
requirements in their PERM years, and that potential payment reductions 
or disallowances only be invoked under the PERM program. Therefore, we 
propose to delete Sec.  431.865.
6. Payment Error Rate Measurement (PERM) Program
    We are proposing the revisions described below to the PERM program. 
Our proposed PERM eligibility component revisions have been tested and 
validated through multiple rounds of PERM model pilots with 15 states 
and through discussion with state and non-state stakeholders. The PERM 
model pilots were distinct from the separate FY 2014-2017 Medicaid and 
CHIP Eligibility Review Pilots, and were used to assess, test, and 
recommend changes to PERM's eligibility component review process based 
on the changes implemented by the Affordable Care Act. Specifically, we 
tested, and asked for stakeholder feedback on, options in the following 
areas (below, there is more detail on each):

 Universe definition
 Sample unit definition
 Eligibility Case review approach
 Feasibility of using a federal contractor to conduct the 
eligibility case reviews
 Difference resolution and appeals process

    Through the PERM model pilots, we have determined that each of the 
proposed changes support the goals of the PERM program and will produce 
a valid, reliable eligibility improper payment rate. We also 
interviewed participating states, as well as a select group of other 
states, to receive feedback on the majority of the proposed changes, 
and, to the extent possible, we have addressed state concerns in this 
proposed rule.
7. Payment Error Rate Measurement (PERM) Measurement Review Period
    Since PERM began in 2006, the measurement has been structured 
around the federal fiscal year, (FFY) with states submitting FFS claims 
and managed care payments with paid dates that fall in the FFY under 
review. But, a data collection centered around the FFY has made it 
perennially challenging to finalize the improper payment rate 
measurement and conduct all the related reporting to support an 
improper payment rate calculation by November of each year. Therefore, 
to provide states and CMS additional time to complete the work related 
to each PERM cycle prior to the annual improper payment rate 
publication in the AFR, to better align PERM with many state fiscal 
year timeframes, and to mirror the review period currently utilized in 
the Medicare FFS improper payment measurement program, we propose to 
change the PERM review period from a FFY to a July through June period. 
We propose to begin this change with the Cycle 1 states, whose PERM 
cycle would have started on October 1, 2017, so that Cycle 1 states 
would submit their 1st and 4th quarters of FFS claims and managed care 
payments with paid dates between, respectively, July 1-September 30, 
2017 and April 1-June 30, 2018. Subsequent cycles would follow a 
similar review period.
    We propose to revise Sec.  431.950 to clarify the requirement for 
states and providers to submit information and provide support to 
federal contractors to produce national improper payment estimates for 
Medicaid and CHIP.
    We propose various revisions to Sec.  431.958 to add, revise, or 
remove definitions to provide greater clarity for the proposed PERM 
program changes. Proposed additions and revisions include definitions 
for ``appeals,'' ``corrective action,'' ``deficiency,'' ``difference 
resolution,'' ``disallowance,'' ``Eligibility Review Contractor 
(ERC),'' ``error,'' ``federal contractor,'' ``Federally facilitated 
marketplace-determination (FFM-D),'' ``Federal financial 
participation,'' ``finding,'' ``Improper payment rate,'' ``Lower 
limit,'' ``PERM review period,'' ``recoveries,'' ``Review Contractor 
(RC),'' ``Review year,'' ``State-specific sample size,'' ``State 
eligibility system,'' ``State error,'' ``State payment system,'' 
``Statistical Contractor (SC),'' and removing the definitions of 
``active case,'' ``active fraud investigation,'' ``agency,'' ``case,'' 
``case error rate,'' ``case record,'' ``last action,'' ``negative 
case,'' ``payment error rate,'' ``payment review,'' ``review cycle,'' 
``sample

[[Page 40603]]

month,'' ``state agency,'' and ``undetermined.''
    We propose to revise Sec.  431.960 to remove references to negative 
case reviews and improper payments because a separate negative case 
review will no longer be a part of the PERM review process, as well as 
to provide greater clarity for the proposed PERM program changes. Note 
that while a separate negative case review would not be conducted as 
part of the proposed PERM review process, it could be possible for a 
negative case to be reviewed, because the claims universe includes 
claims that have been denied. If a sampled denied claim was denied 
because the beneficiary was not eligible for Medicaid/CHIP benefits on 
the date of service, PERM would review the state's decision to deny 
eligibility.
    We propose to revise Sec.  431.972(a) to specify that states would 
be required to submit FFS claims and managed care payments for the new 
PERM Review Period.
8. Eligibility Federal Review Contractor and State Responsibilities
    Under the existing Sec.  431.974, states conduct PERM eligibility 
reviews. Since the first PERM eligibility cycle in FY 2007, we have 
found that conducting PERM eligibility reviews significantly burdens 
state resources, and because the reviews require substantial staff 
resources, many states have struggled to meet review timelines. 
Moreover, we have found that having states conduct PERM eligibility 
reviews has created significant opportunity for the PERM eligibility 
review guidance to be misinterpreted and inconsistently applied across 
states, with, for example, states having difficulty interpreting the 
universe definitions and case review guidelines.
    To confront these challenges, we propose to utilize a federal 
contractor (known as the ERC) to conduct the eligibility reviews on 
behalf of states. This proposal would concomitantly reduce states' PERM 
program burden and ensure more consistent guidance interpretation, 
thereby reducing case review inconsistencies across states and 
improving eligibility processes related to case reviews and reporting. 
A federal contractor would be able to apply consistent standards and 
quality control processes for the reviews and improve CMS's ability to 
oversee the process, so improper payments would be reported 
consistently across states. Moreover, the ERC would allow us to gain a 
better national view of improper payments to better support the 
corrective action process and ensure accurate and timely eligibility 
determinations, while a third-party review team would be more 
consistent with standard auditing practices and our other improper 
payment measurement programs.
    Our PERM model pilot testing has confirmed that having a federal 
contractor conduct eligibility reviews is feasible and improves our 
oversight of the process, as an experienced federal contractor can 
apply PERM guidance consistently across states while continuing to 
recognize unique state eligibility policies, processes, and systems. 
Further, through the pilots, we have developed processes to ensure that 
the federal contractor works collaboratively with state staff to ensure 
that the reviews are consistent with state eligibility policies and 
procedures.
    While states would not, under our proposal, continue to conduct 
PERM eligibility reviews, we envision that they would still play a 
role, as needed, in supporting the federal contractor. We therefore 
propose to add state supporting role requirements by proposing to 
revise Sec.  431.970 to outline data submission and state systems 
access requirements to support the PERM eligibility reviews and the 
ERC.
    Under Sec.  431.10(c)(1)(i)(A)(3), state Medicaid agencies may 
delegate authority to determine eligibility for all or a defined subset 
of individuals to the Exchange, including Exchanges operated by a state 
or by HHS. Those states that have delegated the authority to make 
Medicaid/CHIP eligibility determinations to an Exchange operated by 
HHS, known as the Federally Facilitated Marketplace (FFM), are 
described as determination states, or FFM-D states. By contrast, those 
states that receive information from the FFM, which makes assessments 
of Medicaid/CHIP eligibility, but where the applicant's account is 
transferred to the state for the final eligibility determination, are 
known as assessment states, or FFM-A states.
    We propose that states would be responsible for providing the ERC 
with eligibility determination policies and procedures, and any case 
documentation requested by the ERC, which could include the account 
transfer (AT) file for any claims where the individual was determined 
eligible by the FFM in a determination state (FFM-D), or was passed on 
to the state by the FFM for final determination in assessment states 
(FFM-A).
    Further, under this proposal, if the ERC finds that it cannot 
complete a review due to insufficient supporting documentation, it 
would expect the state to provide it. States would determine how to 
obtain the requested documentation (we do not propose to charge the ERC 
with conducting additional outreach, such as client contact) and, if 
unable to do so to enable to ERC to complete the review, the ERC would 
cite the case as an improper payment due to insufficient documentation. 
We also propose that states would be responsible for providing the ERC 
with direct access to their eligibility system(s). A state's 
eligibility system(s) (including any electronic document management 
system(s)) contains data the ERC must review, including application 
information, third party data verification results, and copies of 
required documentation (for example, pay stubs), and we believe that 
allowing the ERC direct access would best enable it to timely and 
accurately complete its reviews and reduce state burden that would 
otherwise be required to inform the ERC's reviews.
    To ensure that states continue to have a measure of oversight, 
however, we propose allowing states the opportunity to review the ERC's 
case findings prior to their being finalized and used to calculate the 
national and state improper payment rate. Through a difference 
resolution and appeals process, states would have the opportunity to 
resolve disagreements with the ERC. Based on our pilot testing, we 
believe that open communication between the state and the ERC would 
best foster states' understanding of the review process and the basis 
for any findings.
9. Eligibility Review Procedures
    As just discussed, we are proposing that a federal contractor would 
conduct the eligibility case reviews, and states' responsibilities 
would therefore be limited. Because we propose state responsibilities 
at Sec.  431.970, we propose to delete Sec.  431.974.
10. Eligibility Sampling Plan
    We propose to delete Sec.  431.978; because the proposed ERC would 
conduct the eligibility reviews, states would no longer be required to 
submit a sampling plan. In place of the sampling plan, the ERC would 
draft state-specific eligibility case review planning documents 
outlining how it would conduct the eligibility review, including the 
relevant state-specific eligibility policy and system information.
11. Eligibility Review Procedures
    We propose to delete Sec.  431.980; this section presently 
specifies the review procedures required for states to follow while 
performing the PERM eligibility component reviews. States would no

[[Page 40604]]

longer be required to conduct the PERM eligibility component reviews, 
because the proposed ERC would conduct the eligibility reviews.
12. Eligibility Case Review Completion Deadlines and Submittal of 
Reports
    We propose to delete Sec.  431.988; this section presently 
specifies states' requirements and deadlines for reporting PERM 
eligibility review data, which functions we propose to transition to an 
ERC.
13. Payment System Access Requirements
    The Claims Review Contractor (RC) currently conducts PERM reviews 
on FFS and managed care claims for the Medicaid program and CHIP, and 
is required to conduct Data Processing (DP) reviews on each sampled 
claim to validate that the claim was processed correctly based on 
information found in the state's claim processing system and other 
supporting documentation maintained by the state. We believe that in 
order for the RC to review claims during the review cycle, reviewers 
would need remote or on-site access to appropriate state systems. If 
the RC is unable to review pertinent claims information, and the state 
is not able to comply with all information submission and systems 
access requirements as specified in the proposed rule, the payment 
under review may be cited as an error due to insufficient 
documentation.
    To facilitate the RC's reviews, we propose that states grant it 
access to systems that authorize payments, including: FFS claims 
payments; Health Insurance Premium Payment (HIPP) payments; Medicare 
buy-in payments; aggregate payments for providers; capitation payments 
to health plans; and per member per month payments for Primary Care 
Case Management (PCCM) or non-emergency transportation programs. We 
propose that states also grant the RC access to systems that contain 
beneficiary demographics and provider enrollment information to the 
extent such information is not included in the payment system(s), and 
to any imaging systems that contain images of paper claims and 
explanation of benefits (EOBs) from third party payers or Medicare.
    Experience has demonstrated that some states have allowed the RC 
only partial and/or untimely systems access, which we believe has led 
to a slower review process. Based on our discussions with the states, 
we believe their sometimes permitting just limited systems access is 
due to a lack of processes to grant access (for example, requiring 
contractors to complete access forms and training) rather than state 
bans on providing outside contractors with access due to privacy or 
cost concerns. Therefore, we propose adding paragraphs (c) and (d) to 
Sec.  431.970, which would require states to provide access to 
appropriate and necessary systems.
14. Universe Definition
    To meet IPERIA requirements, the samples used for PERM eligibility 
reviews must be taken from separate universes: One that includes Title 
XIX Medicaid dollars and one that includes Title XXI CHIP dollars. 
Section 431.978(d)(1) currently defines the Medicaid and CHIP active 
universes as all active Medicaid or CHIP cases funded through Title XIX 
or Title XXI for the sample month, with certain exclusions. Developing 
an accurate and complete universe is essential to developing a valid, 
accurate improper payment rate.
    In previous PERM cycles, sampling universe development has been one 
of the most difficult steps of the eligibility review. Varying data 
availability and system constraints have made it challenging to 
maintain consistency in state-developed eligibility universes; 
developing the eligibility universe may require substantial staff 
resources, and the process may take several data pulls that are often 
conducted by IT staff or outside contractors not closely involved in 
the PERM eligibility review process.
    During the PERM model pilots, we tested three PERM eligibility 
review universe definition options, including defining the universe by: 
(1) Eligibility determinations and redeterminations (that is, a 
universe of eligibility decisions); (2) actual beneficiaries or 
recipients (that is, a universe of eligible individuals); and (3) 
claims/payments (that is, a universe of payments made). We found that 
the third approach, defining the universe by the claims/payments, was 
best; PERM was designed to meet the IPERIA requirements of calculating 
a national Medicaid and CHIP improper payment rate, so having the 
eligibility reviews tied directly to a paid claim ensures that PERM 
only reviews those beneficiaries or recipients who have had services 
paid for by the state Medicaid or CHIP agency. Accordingly, for the 
PERM eligibility review active universe we propose using the definition 
at Sec.  431.972(a), and deleting the current PERM eligibility review 
universe requirements in Sec.  431.974 and Sec.  431.978. The PERM 
claims component requires state submission of Medicaid and CHIP FFS 
claims and managed care payments on a quarterly basis; state submission 
responsibilities are defined under Sec.  431.970. These claims and 
payments are rigorously reviewed by the federal statistical contractor, 
and the process has extensive, thorough quality control procedures that 
have been used for several PERM cycles and have been well-tested.
    We believe that this universe definition leverages the claims 
component of PERM and supports efficient use of resources, as the 
universe would already be developed on a consistent basis for the PERM 
claims component. By this proposed change, eligibility reviews using a 
claims universe would be tied to payments and be more consistent with 
IPERIA, state burden would be minimized by harmonizing PERM claims and 
eligibility universe development, and federal and state resources would 
no longer be spent on eligibility reviews that potentially could not be 
tied to payments (for example, eligibility reviews conducted on 
beneficiaries that did not receive any services).
    Through our pilot testing, we have also determined that the claims 
universe does not result in a substantially different rate of case 
error. However, sampling from this universe did result in a higher 
proportion of non-MAGI cases because enrollees in such eligibility 
categories are likely to have higher health care service utilization, 
and, therefore, have more associated FFS claims. Because PERM is 
designed to focus on improper payments, we believe it is appropriate to 
use a sample that focuses on individuals who are linked to the bulk of 
Medicaid and CHIP payments. However, because eligibility will be 
reviewed for both FFS claims and managed care capitation payments, MAGI 
cases will be subject to a PERM eligibility review, primarily through 
the review of eligibility for individuals who have managed care 
capitations payments on their behalf, as many states have chosen to 
enroll individuals in MAGI eligibility categories in managed care. 
Further, states can choose to focus on further Medicaid and CHIP 
reviews of MAGI cases in the proposed MEQC pilot reviews they would 
conduct during their off-year pilots.
    While it is possible for a claim to be associated with a negative 
case, as mentioned previously, the claims universe does not support a 
negative PERM eligibility case rate. Because IPERIA focuses on 
payments, the statute does not require determining a negative case 
rate. The proposed MEQC pilot reviews that states would conduct on

[[Page 40605]]

off-years would be used to review Medicaid and CHIP negative cases.
15. Inclusion of FFM-D Cases in the PERM Review
    As previously noted, Sec.  431.10(c)(1)(i)(A)(3) permits state 
Medicaid agencies to delegate authority to determine eligibility for 
all or a defined subset of individuals to the Exchange, including 
Exchanges operated by a state or by HHS. We propose that, in FFM-D 
states, cases determined by the FFM (referred to as FFM-D cases) could 
be reviewed if a FFS claim or managed care payment for an individual 
determined eligible by the FFM is sampled. Although FFM-D states are 
required to maintain oversight of their Medicaid/CHIP programs per 
Sec.  435.1200(c)(3), they also enter into an agreement per Sec.  
435.1205(b)(2)(i)(A) by which they must accept the determinations of 
Medicaid/CHIP eligibility based on MAGI made by another insurance 
affordability program (in this case, the FFM).
    Federal regulations permit states to delegate authority for MAGI-
based Medicaid and CHIP eligibility determinations to the FFM and 
require them to accept those determinations. States have an overall 
responsibility for oversight of all Medicaid and CHIP eligibility 
determinations, but, with respect to the FFM delegation, they are 
required to accept FFM determinations without further review or 
discussion on a case-level basis, making it difficult for states to 
address improper payments on a case-level basis. Therefore, we propose 
that case-level errors resulting solely from an FFM determination of 
MAGI-based eligibility that the state was required to accept be 
included only in the national improper payment rate, not the state 
rate. Conversely, we propose that errors resulting from incorrect state 
action taken on cases determined and transferred from the FFM, or from 
the state's annual redetermination of cases that were initially 
determined by the FFM, be included in both state and national improper 
payment rates. Examples of errors that we propose would be included in 
both state and national improper payment rates include, but are not 
limited to: (1) Where a case is initially determined and transferred 
from the FFM, but the state then fails to enroll an individual in the 
appropriate eligibility category; and (2) errors resulting from initial 
determinations made by a state-based Exchange.
    We propose revisions to Sec.  431.960(e) and Sec.  431.960(f) to 
clarify that we would distinguish between cases that are included in a 
state's, and the national, improper payment rate. Although we are 
proposing this distinction for improper payment measurement program 
purposes, this distinction does not preclude the single state agency 
from exercising appropriate oversight over eligibility determinations 
to ensure compliance with all federal and state laws, regulations and 
policies. We also propose revisions to Sec.  431.992(b) to make clear 
that states would be required to submit PERM corrective actions only 
for errors included in state improper payment rates.
16. Sample Size
    Establishing adequate sample sizes is critical to ensuring that the 
PERM improper payment rate measurement meets IPERIA statistical 
requirements. In accordance with IPERIA, PERM is focused on 
establishing a national improper payment rate and the national improper 
payment rate must meet the precision level established in OMB Circular 
A-123, which is a 2.5 percent precision level at a 90 percent 
confidence interval. As an additional goal, although not required by 
IPERIA, we have always strived to achieve state level improper payment 
rates within a 3 percent precision level at a 95 percent confidence 
interval. However, as discussed in the Regulatory Impact Analysis, we 
recognize achieving this level of precision in all states poses some 
challenges and is not always possible.
    Previously, state-specific sample sizes were calculated prior to 
each cycle and the national annual sample size was the aggregate of the 
state-specific sample sizes. State-specific sample sizes were based on 
past state PERM improper payment rates. We propose establishing a 
national annual sample size that would meet IPERIA's precision 
requirements at the national level, and then distributing the sample 
across states to maximize precision at the state level, where possible. 
We also propose that the state-specific sample sizes would be chosen to 
maximize precision based on state characteristics, including a history 
of high expenditures and/or past state PERM improper payment rates. We 
recognize that the precision of past estimates of state-specific 
improper payment rates has varied. We request public comment on this 
proposed approach, its benefits, limitations, and any potential 
alternatives. We believe that, relative to our prior approach, the 
proposed approach would more effectively measure and reduce national 
improper payments and would also provide more stable state-specific 
sample sizes, as the sample size would be less responsive to changes in 
improper payment rates from cycle to cycle. A more stable state-
specific sample size may assist with state level planning. Further, it 
will allow us to exercise more control over the PERM program's budget 
by establishing a national sample size. On the other hand, like its 
predecessor, the proposed approach may not yield improper payment 
estimates at the state level within a 3 percent precision level at a 95 
percent confidence interval for all states (due to underpowered sample 
size). We will develop specific sampling plans for PERM cycles that 
occur after publication of the final rule. We will continue to 
calculate a national improper payment rate within a 2.5 percent 
precision level at a 90 percent confidence interval as required by 
IPERIA. Likewise, we will continue to strive to achieve state improper 
payment rates within a 3 percent precision level at a 95 percent 
confidence interval precision. In the future, as information improves 
or new priorities are identified, we may identify additional factors 
that should be taken into account in developing state-specific sample 
sizes.
    In practice, we anticipate having the ability to vary the number of 
data processing, medical, and eligibility reviews performed on each of 
the sampled claims. Under this approach, each sampled claim may not 
undergo all three types of reviews, which would allow us to more 
efficiently allocate the types of reviews performed. Conducting more 
reviews on payments that are likely to have problems gives us better 
information to implement effective corrective actions, which could 
assist in reducing improper payments. For example, after eligibility 
reviews resume, we may determine that there are few eligibility 
improper payments for clients associated with managed care claims; 
there thus might be a limited benefit to conducting eligibility reviews 
on all sampled managed care claims, and we might reduce the number of 
those reviews. This approach would allow us to optimize PERM program 
expenditures so we do not waste resources conducting reviews unlikely 
to provide valuable insight on the causes of improper payments.
    We note above that conducting reviews on areas more likely to have 
problems results in more information to inform corrective actions 
versus conducting more reviews on areas that are likely to be correct. 
It is important to note that state corrective actions are not impacted 
by varying levels of state-specific improper payment rate precision. As 
we describe later in this proposed rule, states are required to

[[Page 40606]]

submit corrective action plans that address all improper payments and 
deficiencies identified.
17. Data Processing, Medical, and Eligibility Improper Payment 
Definitions
    We propose clarifying in Sec.  431.960(b)(1), Sec.  431.960(c)(1), 
and Sec.  431.960(d)(1) that improper payments are defined as both 
federal and state improper payments. We believe this change would allow 
us to cite federal improper payments in circumstances where states make 
an incorrect eligibility category assignment that would result in the 
incorrect federal medical assistance percentage (FMAP) being claimed by 
the state. Previously, improper payments were only cited if the total 
computable amount--the federal share plus the state share--was 
incorrect. Under the Affordable Care Act, beneficiaries in the newly 
eligible adult group receive a higher FMAP rate than other eligibility 
categories. As a result, incorrect enrollment of an individual in the 
newly eligible adult category may result in improper federal payments 
even though the total computable amount may be correct. Although there 
were eligibility categories that could receive higher FMAP rates 
previously, the size of the newly eligible adult category makes it 
critical for us to have the ability to cite federal improper payments 
to achieve an accurate PERM improper payment rate.
18. Difference Resolution and Appeals Process
    Because we propose to use an ERC to conduct the eligibility case 
reviews, we likewise propose that the ERC conduct the eligibility 
difference resolution and appeals process, which would mirror how that 
process is conducted with respect to FFS claims and managed care 
payments. The difference resolution and appeals process used for the 
FFS and managed care components of the PERM program is well developed 
and has allowed us to adequately resolve disagreements between the RC 
and states. We have revised Sec.  431.998 to include the proposed 
eligibility changes for the difference resolution and appeals process.
    Additionally, in the text currently at Sec.  431.998(d), we propose 
deleting the statement about CMS recalculating state-specific improper 
payment rates, upon state request, in the event of any reversed 
disposition of unresolved claims. We propose that the recalculation be 
performed whenever there is a reversed disposition; no state request is 
needed.
19. Corrective Action Plans
    Under Sec.  431.992, states are required to submit CAPs to address 
all improper payments and deficiencies found through the PERM review. 
We propose that states would continue to submit CAPs that address 
eligibility improper payments, along with improper payments found 
through the FFS and managed care components. We propose to revise Sec.  
431.992(a) to clarify that states would be required to address all 
errors included in the state improper payment rate at Sec.  
431.960(f)(1).
    We propose to revise Sec.  431.992 to provide additional 
clarification for the PERM CAP process. We propose minor revisions to 
the regulatory text to reflect the current corrective action process 
and provide additional state requirements, consistent with the CHIPRA. 
Proposed revisions include replacing ``major tasks'' at Sec.  
431.992(b)(3)(ii)(A) with ``corrective action,'' to improve clarity. 
Other proposed clarifications would also be provided at Sec.  
431.992(b)(3)(ii)(A) through Sec.  431.992(b)(3)(ii)(E).
    We also propose adding language to clarify the state responsibility 
to evaluate corrective actions from the previous PERM cycle at Sec.  
431.992(b)(4), and a requirement for states, annually and when 
requested by CMS, to update us on the status of corrective actions. We 
propose requesting updates on state corrective action implementation 
progress on an annual basis, a frequency that would enable us fully 
monitor corrective actions and ensure that states are continually 
evaluating the effectiveness of their corrective actions.
    Additionally, we propose to add language in Sec.  431.992 to 
specify further CAP requirements should a state's PERM eligibility 
improper payment rate exceed the allowable threshold of 3 percent per 
section 1903(u) of the Act for consecutive PERM years. This proposal 
only pertains to a state's additional CAP requirements related to the 
PERM eligibility improper payment rate, and does not extend to the FFS 
and managed care components. As the allowable threshold for eligibility 
is set by section 1903(u) of the Act, this will not change from year to 
year. The improper payment rate targets for FFS and managed care are 
not constant, therefore, it is not judicious to hold states accountable 
to meet a target that is variable.
    We propose to require states whose eligibility improper payment 
rates exceed the 3 percent threshold for consecutive PERM years to 
provide status updates on all corrective actions on a more frequent 
basis, as well as include more details surrounding the state's 
implementation and evaluation of all corrective actions, than would be 
required for those states which did not have eligibility improper 
payment rates over the 3 percent threshold for consecutive PERM years. 
As noted above, we anticipate typically requesting updates on 
corrective actions on an annual basis, however, for those states with 
consecutive PERM eligibility improper payment rates above the allowable 
threshold, we propose to require updates every other month. Such states 
would also be required to submit information about any setbacks and 
provide alternate corrective actions or manual workarounds, in the 
event that their original corrective actions are unattainable or no 
longer feasible. This would ensure states have additional plans in 
place, if the original corrective action cannot be implemented as 
planned. Also, states would be required to submit actual examples 
demonstrating that the corrective actions have led to improvements in 
operations, and explanations for how these improvements are efficacious 
and will assist the state to reduce both the number of errors cited and 
the state's next PERM eligibility improper payment rate. Moreover, we 
propose that states be required to submit an overall summary that 
clearly demonstrates how the corrective actions planned and implemented 
would provide the state with the ability to meet the 3 percent 
threshold upon their next PERM eligibility improper payment rate 
measurement.
20. PERM Disallowances
    As previously stated regarding MEQC Disallowances, we are proposing 
to require states to use PERM to meet section 1903(u) of the Act 
requirements in their PERM years, and to no longer require the proposed 
MEQC pilot program to satisfy the requirements of section 1903(u) of 
the Act. We propose to require states to use PERM to meet section 
1903(u) of the Act requirements, as this approach has been supported by 
the CHIPRA through its data substitution authorization between the PERM 
and MEQC programs. Moreover, requiring the PERM program to satisfy 
IPERIA requirements and requiring a separate program to satisfy the 
erroneous excess payment measurement and payment reduction/disallowance 
requirements of section 1903(u) of the Act, when PERM is capable of 
meeting the requirements of both, would be contrary to the CHIPRA's 
requirement to harmonize PERM and MEQC. Therefore, based on the ability 
of the PERM program to meet both the requirements

[[Page 40607]]

of section 1903(u) of the Act and IPERIA, we propose that in a state's 
PERM year, a state's PERM eligibility improper payment rate be used to 
satisfy both IPERIA's improper payment requirements and 1903(u) the 
Act's erroneous excess payments and payment reduction/disallowance 
requirements.
    If a state's PERM eligibility improper payment rate is above the 3 
percent allowable threshold per section 1903(u) of the Act, it would be 
subjected to potential payment reductions and disallowances. However, 
if the state has taken the action it believed was needed to meet the 
threshold, failed to achieve that level, the state may be eligible for 
a good faith waiver as outlined in Sec.  431.1010. Essential elements 
of a state's showing of a good faith effort include the state's 
participation in the MEQC pilot program in accordance with subpart P 
(Sec.  431.800 through Sec.  431.820) and implementation of PERM CAPs 
in accordance with Sec.  431.992.
    Absent CMS's approval, a state's failure to comply with both the 
MEQC pilot program requirements and PERM CAP requirements, would be 
considered a state's failure to demonstrate a good faith effort to 
reduce its eligibility improper payment rate. Again, absent our 
approval, we would not grant a good faith waiver for any state that 
either does not comply with the MEQC pilot program requirements or does 
not implement a PERM corrective action plan. We also propose that the 
requirements under section 1903(u) of the Act would not become 
effective until a state's second PERM eligibility improper payment rate 
measurement has occurred, as an earlier effective date would not give 
states a chance to demonstrate, if needed, a good faith effort.
    Under this proposed regulation, we would reduce a state's FFP for 
medical assistance by the percentage by which the lower limit of the 
state's eligibility improper payment rate exceeds the 3 percent 
threshold should a state fail to demonstrate a good faith effort. We 
propose to use the lower limit of the improper payment rate per 
previous MEQC guidance issued by us prior to the implementation of MEQC 
pilots in 1993. We believe that utilizing the lower limit of the error 
rate for disallowance purposes will assist in ensuring there is 
reliable evidence that a state's error rate exceeds the 3 percent 
threshold. This approach addresses the varying levels of state-specific 
improper payment rate precision as discussed in the sample size section 
above. Therefore, we propose to add Sec.  431.1010, which establishes 
rules and procedures for payment reductions and disallowances of 
federal financial participation (FFP) in erroneous medical assistance 
payments due to eligibility improper payments, as detected through the 
PERM program. Federal medical assistance funds include all service-
based fee-for-service, managed care, and aggregate payments which are 
included in the PERM universe. Exclusions from the federal medical 
assistance funds for disallowance purposes include non-service related 
costs (for example, administrative, staffing, contractors, systems) as 
well as certain payments for services not provided to individual 
beneficiaries such as Disproportionate Share Hospital (DSH) payments to 
facilities, grants to State agencies or local health departments, and 
cost-based reconciliations to non-profit providers and Federally-
Qualified Health Centers (FQHCs). We may adjust this definition if 
expenditures included in the PERM universe are adjusted, as needed, to 
meet program needs.

III. Collection of Information

    Under the Paperwork Reduction Act of 1995 (PRA), we are required to 
publish a 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.
    To fairly evaluate whether an information collection should be 
approved by OMB, PRA section 3506(c)(2)(A) 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 burden estimates.
     The quality, utility, and clarity of the information to be 
collected.
     Our effort to minimize the information collection burden 
on the affected public, including the use of automated collection 
techniques.
    The estimates in this collection of information were derived from 
feedback received from states during the PERM cycle. We are soliciting 
public comment on each of the section 3506(c)(2)(A)-required issues for 
the following information collection requirements (ICRs).

Wages

    To derive average costs, we used data from the U.S. Bureau of Labor 
Statistics' May 2014 National Industry-Specific Occupational Employment 
and Wage Estimates for State Government (NAICS 999200) (https://www.bls.gov/oes/current/naics4_999200.htm#13-0000). In this regard, 
Table 1 presents the mean hourly wage, the cost of fringe benefits 
(calculated at 100 percent of salary), and the adjusted hourly wage.

                          Table 1--Summary of 2014 BLS State Government Wage Estimates
----------------------------------------------------------------------------------------------------------------
                                                                                                     Adjusted
                Occupation title                    Occupation      Mean hourly   Fringe benefit  hourly wage ($/
                                                       code         wage ($/hr)       ($/hr)            hr)
----------------------------------------------------------------------------------------------------------------
Claims Adjusters, Appraisers, Examiners, and             13-1031          $27.60          $27.60          $55.20
 Investigators..................................
Medical Secretaries.............................         43-6013           16.50           16.50           33.00
----------------------------------------------------------------------------------------------------------------

    As indicated, we are adjusting our employee hourly wage estimates 
by a factor of 100 percent. This is necessarily a rough adjustment, 
both because fringe benefits and overhead costs vary significantly from 
employer to employer, and because methods of estimating these costs 
vary widely from study to study. Nonetheless, there is no practical 
alternative and we believe that doubling the hourly wage to estimate 
total cost is a reasonably accurate estimation method.

A. ICRs Regarding Review Procedures (Sec.  431.812)

    Section 431.812 would require states to conduct one MEQC pilot 
during the 2 years between their designated PERM years. Revisions to 
Sec.  431.812, propose that states must use the MEQC pilots to perform 
both active and negative case reviews, while providing states with some 
flexibility surrounding their active case review pilot. States would 
review a minimum total of 400 Medicaid and CHIP active cases, with at 
least 200 of the active cases being Medicaid cases. States would have 
the flexibility to determine the precise distribution of

[[Page 40608]]

active cases (for example, states could sample 300 Medicaid cases and 
100 CHIP cases), and states would describe the active sample 
distribution in the MEQC pilot planning document at Sec.  431.814. 
States would also, at a minimum, be required to review 200 Medicaid and 
200 CHIP negative cases. Currently, under the PERM program, states are 
required to conduct approximately 200 negative case reviews for each 
the Medicaid program and CHIP. Therefore, a total minimum negative 
sample size of 400 (200 for each program) would be reviewed under the 
MEQC pilots.
    Section 431.812 aligns with Sec.  431.816 and outlines the case 
review completion deadlines and submittal of reports. Additionally, 
Sec.  431.820 is also considered to be a part of a state's MEQC pilot 
reporting. Therefore, burden estimates are combined for the case 
reviews, the reporting of findings, including corrective actions. The 
time, effort and costs listed in this section will be identical to the 
sections where Sec.  431.816 and Sec.  431.820 are described, but 
should not be considered additional or separate costs.
    The ongoing burden associated with the requirements under Sec.  
431.812 is the time and effort it would take each of the 34 state 
programs (17 Medicaid and 17 CHIP agencies for 17 states equates to a 
maximum of 34 total respondents each PERM off-year) to perform the 
required number of eligibility case reviews as mentioned above, and 
report on their findings and corrective actions.
    We estimate that it will take 1,200 hours annually per state 
program to report on all case review findings (900 hours) and 
corrective actions (300 hours). This estimate assumes that states spend 
approximately 100 hours a month on the related activities (100 hours x 
12 months = 1,200 hours) during the State's MEQC reporting year. The 
total estimated annual burden is 40,800 hours (1,200 hours x 34 
respondents), at a total estimated cost per respondent of $66,240 
(1,200 hours x ($55.20/hour)) and a total estimated cost of $2,252,160 
(($66,240 per respondent) x 34 respondents) for all respondents. The 
preceding requirements and burden estimates will be submitted to OMB as 
a revision to the information collection request currently approved 
under control number 0938-0147.

B. ICRs Regarding Pilot Planning Document (Sec.  431.814)

    Revised Sec.  431.814 requires states to submit a MEQC Pilot 
Planning Document. The Pilot Planning Document must be approved by us 
as outlined in Sec.  431.814 of this proposed rule and is critical to 
ensuring that the state will conduct a MEQC pilot that complies with 
our guidance. The Pilot Planning Document submitted by the state would 
include details surrounding how the state will perform both its active 
and negative case reviews.
    The ongoing burden associated with the requirements under Sec.  
431.814 is the time and effort it would take each of the 34 state 
programs (17 Medicaid and 17 CHIP programs for 17 states equates to a 
maximum of 34 total respondents each PERM off-year) to develop, submit 
and gain CMS approval of its MEQC Pilot Planning Document.
    We estimate that it will take 48 hours per MEQC pilot per state 
program to submit its Pilot Planning Document and gain approval under 
Sec.  431.814. We have based the estimated 48 hours off of the pilot 
proposal process currently utilized in the FY2014-2017 Eligibility 
Review pilots, and have estimated the burden associated accordingly. 
The total estimated annual burden across all respondents is 1,632 hours 
((48 hours/respondent) x 34 respondents). The total estimated cost per 
respondent is $2,649.60 (48 hours x ($55.20/hour)) and the total 
estimated annual cost across all respondents is $90,086.40 (($2,649.60/
respondent) x 34 respondents). As the MEQC program is currently 
suspended, and will be operationally different under this proposed 
rule, this estimate is not based on real time data. Once real time data 
is available, we will solicit information from the states and update 
our burden estimates accordingly.
    The preceding requirements and burden estimates will be submitted 
to OMB as a revision to the information collection currently approved 
under control number 0938-0146.

C. ICRs Regarding Case Review Completion Deadlines and Submittal of 
Reports (Sec.  431.816)

    Revised Sec.  431.816 provides clarification surrounding the case 
review completion deadlines and submittal of reports. States would be 
required to report on all sampled cases in a CMS-specified format by 
August 1 following the end of the MEQC review period.
    As mentioned above, Sec.  431.816 aligns with sections Sec.  
431.812 and Sec.  431.820, thus, the burden estimates are identical for 
these sections and should not be thought of as separate estimates or a 
duplication of effort. The ongoing burden associated with the 
requirements under Sec.  431.816 is the time and effort it would take 
each of the 34 state programs (17 Medicaid and 17 CHIP agencies for 17 
states equates to maximum 34 total respondents each PERM off-year) to 
complete the required number of eligibility case reviews, and report on 
their findings. Refer back to section A. ICRs Regarding Review 
Procedures (Sec.  431.812), for the expanded burden estimate.
    The preceding requirements and burden estimates will be submitted 
to OMB as a revision to the information collection currently approved 
under control number 0938-0147.

D. ICRs Regarding Corrective Action Under the MEQC Program (Sec.  
431.820)

    Under the current MEQC program, states are required to conduct 
corrective actions on all case errors, including technical 
deficiencies, found through the review. Corrective actions are critical 
to ensuring that states continually improve and refine their 
eligibility processes. Therefore, revisions to Sec.  431.820 require 
states to implement corrective actions on any errors or deficiencies 
identified through the revised MEQC program as outlined under Sec.  
431.820.
    We propose that states report their corrective actions to us by 
August 1 following completion of the MEQC review period. The report 
would also include updates on previous corrective actions, including 
information regarding the status of corrective action implementation 
and an evaluation of those corrective actions.
    The ongoing burden associated with the requirements under Sec.  
431.820 is the time and effort it would take each of the 34 state 
programs (17 Medicaid and 17 CHIP agencies for 17 states equates to 
maximum 34 total respondents each PERM off-year) to develop and report 
its corrective actions in response to its MEQC pilot program findings. 
Refer back to section A. ICRs Regarding Review Procedures (Sec.  
431.812), for the expanded burden estimate.
    The preceding requirements and burden estimates will be submitted 
to OMB as a revision to the information collection currently approved 
under control number 0938-0147.

E. ICRs Regarding Information Submission and Systems Access 
Requirements (Sec.  431.970)

    Currently, the PERM claims component requires state submission of 
Medicaid and CHIP FFS claims and managed care payments on a quarterly 
basis; and provider submission of medical records; state and provider 
submission responsibilities are defined under Sec.  431.970. These 
claims and payments are rigorously reviewed by the federal statistical 
contractor. We are proposing to utilize this same claims

[[Page 40609]]

universe to complete the PERM eligibility component. Previously, states 
had to pull a separate case universe for the PERM eligibility 
component. With this proposed change, states would only be required to 
submit one universe to satisfy all components of PERM.
    Additionally, states are required to collect and submit (with an 
estimate of 4 submissions) state policies. With this proposed change, 
states will still be required to collect and submit state policies 
surrounding FFS and managed care, but would now also have to submit all 
state eligibility policies. There would be an initial submission and 
quarterly updates. There are no proposed changes for the provider 
submission of medical records.
    The ongoing burden associated with the requirements under Sec.  
431.970 is the time and effort it would take each of the 34 state 
programs (17 Medicaid and 17 CHIP agencies for 17 states equates to 
maximum 34 total respondents each PERM year) to submit its claims 
universe, and collect and submit state policies, and the time and 
effort it would take providers to furnish medical record documentation.
    We estimate that it will take 1,350 hours annually per state 
program to develop and submit its claims universe and state policies. 
The total estimated hours is broken down between the FFS, managed care, 
and eligibility components and is estimated at 900 hours for universe 
development and submission, and 450 hours for policy collection and 
submission. Per component it is estimated at 1,150 FFS hours, 100 
managed care hours, 100 eligibility hours for a total of 45,900 annual 
hours (1,350 hours x 34 respondents). The total estimated annual cost 
per respondent is $74,520 (1,350 hours x ($55.20/hour), and the total 
estimated annual cost across all respondents is $2,533,680 (($74,520/
respondent) x 34 respondents).
    However, as a federal contractor has not previously conducted the 
eligibility component of PERM, the hours assessed related to the state 
burden associated with the revised eligibility component are not based 
on real time data, but rather based off information solicited from the 
states. The information received was from those states who participated 
in the PERM model eligibility pilots which were conducted by a federal 
contractor, but on a much smaller scale than that of PERM.
    The preceding requirements and burden estimates will be submitted 
to OMB as a revision to the information collection currently approved 
under control numbers 0938-0974, 0938-0994, and 0938-1012.
    We estimate that it will take 2,824 hours annually per program for 
providers to furnish medical record documentation to substantiate claim 
submission. These estimates are based on the average number of medical 
reviews conducted per PERM cycle and the average amount of time it 
takes for providers to comply with the medical record request. These 
estimates are for FFS claims only, as medical review is only completed 
on sampled FFS claims. The total estimated cost for annual submission 
is $93,192 (2,824 hours/program) x ($16.50/hour).

F. ICRs Regarding Corrective Action Plan Under the PERM Program (Sec.  
431.992)

    Currently, under Sec.  431.992, states are required to submit 
corrective action plans to address all improper payments and 
deficiencies found through the PERM review. Proposed revisions to Sec.  
431.992(a) clarify that states would be required to address all 
improper payments and deficiencies included in the state improper 
payment rate as defined at Sec.  431.960(f)(1). Additional language was 
also added to Sec.  431.992 to clarify the state responsibility to 
evaluate corrective actions from the previous PERM cycle at Sec.  
431.992(b)(4).
    The ongoing burden associated with the requirements under Sec.  
431.992 is the time and effort it would take each of the 34 state 
programs (17 Medicaid and 17 CHIP agencies for 17 states equates to 
maximum 34 total respondents per PERM cycle) to submit its corrective 
action plan.
    We estimate that it will take 750 hours (250 hours for FFS, 250 
hours for managed care and an additional 250 hours for eligibility), 
per PERM cycle per state program to submit its corrective action plan 
for a total estimated annual burden of 25,500 hours ((750 hours/
respondent) x 34 respondents). We estimate the total cost per 
respondent to be $41,400 (750 hours x ($55.20/hour)). The total 
estimated cost for all respondents is $1,407,600 (($41,400/respondent) 
x 34 respondents).
    However, as a federal contractor has not previously conducted the 
eligibility component of PERM, the hours assessed related to the state 
burden associated with the revised eligibility component are not based 
on real time data, but rather based off information solicited from the 
states. The information received was from those states who participated 
in the PERM model eligibility pilots which were conducted by a federal 
contractor, but on a much smaller scale than that of PERM.
    The preceding requirements and burden estimates will be submitted 
to OMB as part of revisions to the information collections currently 
approved under control numbers 0938-0974, 0938-0994 and 0938-1012. Not 
to be confused with the burden set outlined above, the revised PERM PRA 
packages' total burden would amount to: 34 annual respondents, 34 
annual responses, and 750 hours per corrective action plan.

G. ICRs Regarding Difference Resolution and Appeal Process (Sec.  
431.998)

    Currently, the difference resolution and appeals process used for 
the FFS and managed care components of the PERM program is well 
developed and has allowed us to adequately resolve disagreements 
between the RC and states. Revisions to Sec.  431.998 now include the 
proposed eligibility changes for the difference resolution and appeals 
process. Because we propose to use an ERC to conduct the eligibility 
case reviews, we likewise propose that the ERC conduct the eligibility 
difference resolution and appeals process, which would mirror how that 
process is conducted with respect to FFS claims and managed care 
payments.
    The ongoing burden associated with the requirements under Sec.  
431.998 is the time and effort it would take each of the 34 state 
programs (17 Medicaid and 17 CHIP agencies for 17 states equates to 
maximum 34 total respondents per PERM cycle) to review PERM findings 
and inform the federal contractor(s) of any additional information and/
or dispute requests.
    We estimate that it will take 1625 hours (500 hours for FFS, 475 
hours for managed care and an additional 650 hours for eligibility) per 
PERM cycle per state program to review PERM findings and inform federal 
contractor(s) of any additional information or dispute requests for 
FFS, managed care, and eligibility components total estimated annual 
burden of 55,250 hours ((1,625 hours/respondent) x 34 respondents). We 
estimate the total cost per respondent to be $89,700 (1,625 hours x 
($55.20/hour)). The total estimated cost for all respondents is 
$3,049,800 (($89,700/respondent) x 34 respondents).
    The preceding requirements and burden estimates will be submitted 
to OMB as revisions to the information collections currently approved 
under control numbers 0938-0974, 0938-0994, and 0938-1012. Not to be 
confused with the burden set outlined above, the revised PERM PRA 
packages' total burden would amount to: 34 Annual

[[Page 40610]]

respondents, 34 annual responses, and 1,625 hours per PERM cycle.

                                           Table 2--Summary of Annual Information Collection Burden Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Burden per
      Regulation section(s)               OCN            Respondents      Responses       response      Total annual    Labor cost of    Total cost ($)
                                                                                           (hours)     burden (hours)   reporting ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   431.812..................  0938-0147..........              34              34           1,200          40,800      $66,240.00      $2,252,160.00
Sec.   431.814..................  0938-0146..........              34              34              48           1,632        2,649.60          90,086.40
Sec.   431.816..................  0938-0147..........              34            * 34         * 1,200        * 40,800     * 66,240.00     * 2,252,160.00
Sec.   431.820..................  0938-0147..........              34            * 34         * 1,200        * 40,800     * 66,240.00     * 2,252,160.00
Sec.   431.970..................  0938-0974; 0938-                 34              34           1,350       ** 51,548   ** 167,712.00    ** 2,626,872.00
                                   0994; 0938-1012.
Sec.   431.992..................  0938-0974; 0938-                 34              34             750          25,500       41,400.00       1,407,600.00
                                   0994; 0938-1012.
Sec.   431.998..................  0938-0974; 0938-                 34              34           1,625          55,250       89,700.00       3,049,800.00
                                   0994; 0938-1012.
                                                      --------------------------------------------------------------------------------------------------
    Total.......................  ...................              34             170  ..............         174,330      367,701.60       9,426,518.40
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Not included in totals, as these represent the combined estimated hours/cost for 3 sections as mentioned above. These numbers should only be counted
  once.
** The total annual hours and cost for provider submissions are included in these numbers. Due to the variability in the number of providers providing
  responses these numbers were not included in the total hours.

Submission of PRA-Related Comments
    We have submitted a copy of this proposed rule to OMB for its 
review of the rule's information collection and recordkeeping 
requirements. These requirements are not effective until they have been 
approved by the OMB.
    To obtain copies of the supporting statement and any related forms 
for the proposed collections discussed above, please visit CMS' Web 
site at www.cms.hhs.gov/PaperworkReductionActof1995, or call the 
Reports Clearance Office at 410-786-1326.
    We invite public comments on these potential information collection 
requirements. If you wish to comment, please submit your comments 
electronically as specified in the ADDRESSES section of this proposed 
rule and identify the rule (CMS-6068-P) the ICR's CFR citation, CMS ID 
number, and OMB control number.
    ICR-related comments are due August 22, 2016.

IV. 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 will 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 will respond to the 
comments in the preamble to that document.

V. Regulatory Impact Statement

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96 354), section 1102(b) of the Act, section 202 of the 
Unfunded Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4), 
Executive Order 13132 on Federalism (August 4, 1999) and the 
Congressional Review Act (5 U.S.C. 804(2).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year). 
This proposed rule would make small changes to the administration of 
the existing MEQC and PERM programs. It would therefore have a 
relatively small economic impact; as a result, this proposed rule does 
not reach the $100 million threshold and thus is neither an 
``economically significant'' rule under E.O. 12866, nor a ``major 
rule'' under the Congressional Review Act.
    The Regulatory Flexibility Act requires agencies to analyze options 
for regulatory relief of small entities, and to prepare an Initial 
Regulatory Flexibility Analysis (IRFA), for proposed rules that would 
have a ``significant economic impact on a substantial number of small 
entities.'' For purposes of the RFA, small entities include small 
businesses, nonprofit organizations, and small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
less than $7.5 million to $38.5 million in any 1 year. Individuals and 
states are not included in the definition of a small entity. These 
entities may incur costs due to collecting and submitting medical 
records to support medical reviews, but we estimate that these costs 
would not be significantly changed under the proposed rule. Therefore, 
we are not preparing an IRFA because we have determined that this 
proposed rule would not have a significant economic impact on a 
substantial number of small entities.
    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. For the preceding

[[Page 40611]]

reasons, we are not preparing an analysis for section 1102(b) of the 
Act because we have determined that this proposed rule would not have a 
direct economic impact on the operations of a substantial number of 
small rural hospitals.
    Please note, a state will be reviewed only once, per program, every 
3 years and it is unlikely for a provider to be selected more than once 
per program to provide supporting documentation.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2016, that 
threshold is approximately $146 million. For the preceding reasons, we 
have determined that this proposed rule does not mandate any spending 
that would approach the $146 million threshold for state, local, or 
tribal governments, or on the private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it issues 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. This proposed rule would shift minor costs and burden for 
conducting PERM eligibility reviews from states to the federal 
government and its contractors. However, these reductions would be 
largely offset by federal government savings in reduced payments to 
states in matching funds. The net effect of this proposed regulation on 
state or local governments is minor.
    PERM calculates national level improper payment estimates as 
required by IPERIA as well as state level improper payment estimates. 
The impacts of this rule are based on the proposed approach to continue 
meeting national level precision requirements and striving to obtain a 
state level precision goal. In the most recent PERM cycle, 13,392 
Medicaid FFS claims; 9,416 CHIP FFS claims; 3,360 Medicaid managed care 
payments; and 2,880 CHIP managed care payments are being sampled for 
review. If we were to alternatively set state sample sizes to guarantee 
increased state level improper payment rate precision, we would need to 
review a much higher number of claims in a cycle.
    For example, to guarantee state level improper payment rate 
precision within 3 percentage points we estimate, based on previous 
cycle sample data, that we would need to review nearly 100,000 Medicaid 
FFS claims for the cycle (in comparison to the currently reviewed 
13,392). Under alternative state level precision goals, for example, 3 
percentage points for the top three expenditure states and 5 percentage 
points in the remaining 14 states in a PERM cycle, we estimate, based 
on previous sampling data, that PERM would need to review close to 
40,000 Medicaid FFS claims for the cycle (in comparison to the 
currently reviewed 13,392). While such approaches would ensure state 
level improper payment rate precision, they would also yield 
operational, budgetary, feasibility, and state burden concerns.
    Although we do not expect in the final rulemaking to commit to a 
particular sample size in future years, we welcome public comments that 
may inform the general approach we take to sampling and factors that we 
should consider in establishing state sample sizes.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the OMB.

List of Subjects

42 CFR Part 431

    Grant programs--health, Health facilities, Medicaid, Privacy, 
Reporting and recordkeeping requirements.

42 CFR Part 457

    Grant programs--health, Health insurance, 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 set forth 
below:

PART 431--STATE ORGANIZATION AND GENERAL ADMINISTRATION

0
1. The authority citation for part 431 continues to read as follows:

    Authority: Sec. 1102 of the Social Security Act, (42 U.S.C. 
1302).

0
2. Sections 431.800 and the undesignated center heading preceding Sec.  
431.800 are revised to read as follows:

Medicaid Eligibility Quality Control (MEQC) Program


Sec.  431.800  Basis and scope.

    This subpart establishes State requirements for the Medicaid 
Eligibility Quality Control (MEQC) Program designed to reduce erroneous 
expenditures by monitoring eligibility determinations and a claims 
processing assessment that monitors claims processing operations. MEQC 
will work in conjunction with the Payment Error Rate Measurement (PERM) 
Program established in subpart Q of this part. In years in which the 
State is required to participate in PERM, as stated as in subpart Q, 
States will only participate in the PERM program and will not be 
required to conduct a MEQC pilot. In the 2 years between PERM cycles, 
states are required to conduct a MEQC pilot, as set forth in this 
subpart.
0
3. Section 431.804 is revised to read as follows:


Sec.  431.804  Definitions.

    As used in this subpart--
    Active case means an individual determined to be currently 
authorized as eligible for Medicaid or CHIP by the State.
    Corrective action means action(s) to be taken by the State to 
reduce major error causes, trends in errors or other vulnerabilities 
for the purpose of reducing improper payments in Medicaid and CHIP.
    Deficiency means a finding in which a claim or payment had a 
medical, data processing, and/or eligibility error that did not result 
in Federal and/or State improper payment.
    Eligibility means meeting the State's categorical and financial 
criteria for receipt of benefits under the Medicaid or CHIP programs.
    Eligibility error is an error resulting from the States' improper 
application of Federal rules and the State's documented policies and 
procedures that causes a beneficiary to be determined eligible when he 
or she is ineligible for Medicaid or CHIP, causes a beneficiary to be 
determined eligible for the incorrect type of assistance, causes 
applications for Medicaid or CHIP to be improperly denied by the State, 
or causes existing cases to be improperly terminated from Medicaid or 
CHIP by the State. An eligibility error may also be caused when a 
redetermination did not occur timely or a required element of the 
eligibility determination process (for example income) cannot be 
verified as being performed/completed by the state.
    Medicaid Eligibility Quality Control (MEQC) means a program 
designed to reduce erroneous expenditures by monitoring eligibility 
determinations and work in conjunction with the PERM program 
established in subpart Q of this part.
    MEQC Pilot refers to the process used to implement the MEQC 
Program.
    MEQC review period is the 12-month timespan from which the State 
will sample and review cases.
    Negative case means an individual denied or terminated eligibility 
for Medicaid or CHIP by the State.

[[Page 40612]]

    Off-years are the scheduled 2-year period of time between a States' 
designated PERM years.
    Payment Error Rate Measurement (PERM) program means the program set 
forth at subpart Q utilized to calculate a national improper payment 
rate.
    PERM year is the scheduled and designated year for a State to 
participate in and be measured by the PERM program set forth at subpart 
Q of this part.
0
4. Section 431.806 is revised to read as follows:


Sec.  431.806  State requirements.

    (a) General requirements. (1) In a State's PERM year, the PERM 
measurement will meet the requirements of section 1903(u) of the Act.
    (2) In the 2 years between each State's PERM year, States are 
required to conduct one MEQC pilot, which will span parts of both off 
years.
    (i) The MEQC pilot review period will span 12-months of a calendar 
year, beginning the January 1 following the end of the State's PERM 
year through December 31.
    (ii) The MEQC pilot planning document described in Sec.  431.814 is 
due no later than the first November 1 following the end of the State's 
PERM year.
    (iii) States must submit their MEQC pilot findings and their plan 
for corrective action(s) by the August 1 following the end of their 
MEQC pilot review period.
    (b) PERM measurement. Requirements for the State PERM review 
process are set forth in subpart Q.
    (c) MEQC pilots. MEQC pilot requirements are specified in 
Sec. Sec.  431.812 through 431.820.
    (d) Claims processing assessment system. Except in a State that has 
an approved Medicaid Management Information System (MMIS) under subpart 
C of part 433 of this subchapter, a State plan must provide for 
operating a Medicaid quality control claims processing assessment 
system that meets the requirements of Sec. Sec.  431.830 through 
431.836.
0
5. The undesignated center heading preceding Sec.  431.810 is removed 
and Sec.  431.810 is revised to read as follows:


Sec.  431.810  Basic elements of the Medicaid Eligibility Quality 
Control (MEQC) Program.

    (a) General requirements. The State must operate the MEQC pilot in 
accordance with this section and Sec. Sec.  431.812 through 431.820 as 
well as other instructions established by CMS.
    (b) Review requirements. The State must conduct reviews for the 
MEQC pilot in accordance with the requirements specified in Sec.  
431.812 and other instructions established by CMS.
    (c) Pilot planning requirements. The State must develop a MEQC 
pilot planning proposal in accordance with requirements specified in 
Sec.  431.814 and other instructions established by CMS.
    (d) Reporting requirements. The State must report the finding of 
the MEQC pilots in accordance with the requirements specified in Sec.  
431.816 and other instructions established by CMS.
    (e) Corrective action requirements. The State must conduct 
corrective actions based on the findings of the MEQC pilots in 
accordance with the requirements specified in Sec.  431.820 and other 
instructions established by CMS.
0
6. Section 431.812 is revised to read as follows:


Sec.  431.812  Review procedures.

    (a) General requirements. Each state is required to conduct a MEQC 
pilot during the 2 years between required PERM cycles in accordance 
with the approved pilot planning document specified in Sec.  431.814, 
as well as other instructions established by CMS. The agency and 
personnel responsible for the development, direction, implementation, 
and evaluation of the MEQC reviews and associated activities, must be 
functionally and physically separate from the State agencies and 
personnel that are responsible for Medicaid and CHIP policy and 
operations, including eligibility determinations.
    (b) Active case reviews. (1) The State must review all active cases 
selected from the universe of cases, as established in the state's 
approved MEQC pilot planning document, under Sec.  431.814 to determine 
if the cases were eligible for services, as well as to identify 
deficiencies in processing subject to corrective actions.
    (2) The State must select and review, at a minimum, 400 active 
cases in total from the Medicaid and CHIP universe.
    (i) The State must review at least 200 Medicaid cases.
    (ii) The State will identify in the pilot planning document at 
Sec.  431.814 the sample size per program.
    (iii) A State may sample more than 400 cases.
    (3) The State may propose to focus the active case reviews on 
recent changes to eligibility policies and processes, areas where the 
state suspects vulnerabilities, or proven error prone areas.
    (i) The State must propose its active case review approach, unless 
otherwise directed by CMS, in the pilot planning document described at 
Sec.  431.814 or perform a comprehensive review.
    (ii) The State must follow CMS direction for its active case 
reviews, when the State has a PERM eligibility improper payment rate 
that exceeds the 3 percent national standard for two consecutive PERM 
cycles. CMS guidance will be provided to any state meeting this 
criteria.
    (c) Negative case reviews. (1) The State must review negative cases 
selected from the State's universe of cases, as established in the 
State's approved MEQC pilot planning document under Sec.  431.814, that 
are denied or terminated in the review month to determine if the 
denial, or termination was correct as well as to identify deficiencies 
in processing subject to corrective actions.
    (2) The State must review, at a minimum, 200 negative cases from 
Medicaid and 200 negative cases from CHIP.
    (i) A states may sample more than 200 cases from Medicaid and/or 
more than 200 cases from CHIP.
    (ii) [Reserved]
    (d) Error definition. (1) An active case error is an error 
resulting from the State's improper application of Federal rules and 
the State's documented policies and procedures that causes a 
beneficiary to be determined eligible when he or she is ineligible for 
Medicaid or CHIP, causes a beneficiary to be determined eligible for 
the incorrect type of assistance, or when a determination did not occur 
timely or cannot be verified.
    (2) Negative case errors are errors, based on the State's 
documented policies and procedures, resulting from either of the 
following:
    (i) Applications for Medicaid or CHIP that are improperly denied by 
the State.
    (ii) Existing cases that are improperly terminated from Medicaid or 
CHIP by the State.
    (e) Active case payment reviews. In accordance with instructions 
established by CMS, States must also conduct payment reviews to 
identify payments for active case errors, as well as identify the 
individual's understated or overstated liability, and report payment 
findings as specified in Sec.  431.816.
0
7. Section 431.814 is revised to read as follows:


Sec.  431.814  Pilot planning document.

    (a) Plan approval. For each MEQC pilot, the state must submit a 
MEQC pilot planning document that meets the requirements of this 
section to CMS for approval by the first November 1 following the end 
of the State's PERM year. The State must receive approval

[[Page 40613]]

for a plan before the plan can be implemented.
    (b) Plan requirements. The State must have an approved pilot 
planning document in effect for each MEQC pilot that must be in 
accordance with instructions established by CMS and that includes, at a 
minimum, the following for--
    (1) Active case reviews.
    (i) Focus of the active case reviews in accordance with Sec.  
431.812(b)(3).
    (ii) Universe development process.
    (iii) Sample size per program.
    (iv) Sample selection procedure.
    (v) Case review process.
    (2) Negative case reviews.
    (i) Universe development process.
    (ii) Sample size per program.
    (iii) Sample selection procedure.
    (iv) Case review process.
0
8. Section 431.816 is revised to read as follows:


Sec.  431.816  Case review completion deadlines and submittal of 
reports.

    (a) The State must complete case reviews and submit reports of 
findings to CMS as specified in paragraph (b) of this section in the 
form and at the time specified by CMS.
    (b) In addition to the reporting requirements specified in Sec.  
431.814 relating to the MEQC pilot planning document, the State must 
complete case reviews and submit reports of findings to CMS in 
accordance with paragraphs (b)(1) and (2) of this section.
    (1) For all active and negative cases reviewed, the State must 
submit a detailed case-level report in a format provided by CMS.
    (2) All case-level findings will be due by August 1 following the 
end of the MEQC review period.
0
9. Section 431.818 is revised to read as follows:


Sec.  431.818  Access to records.

    The State, upon written request, must submit to the HHS staff, or 
other designated entity, all records, including complete local agency 
eligibility case files or legible copies and all other documents 
pertaining to its MEQC reviews to which the State has access, including 
information available under part 435, subpart I of this chapter.
0
10. Section 431.820 is revised to read as follows:


Sec.  431.820  Corrective action under the MEQC program.

    The state must--
    (a) Take action to correct any active or negative case errors, 
including deficiencies, found in the MEQC pilot sampled cases in 
accordance with instructions established by CMS;
    (b) By the August 1 following the MEQC review period, submit to CMS 
a report that--
    (1) Identifies the root cause and any trends found in the case 
review findings.
    (2) Offers corrective actions for each unique error and deficiency 
finding based on the analysis provided in paragraph (b)(1) of this 
section.
    (c) In the corrective action report, the state must provide updates 
on corrective actions reported for the previous MEQC pilot.


Sec.  431.822  [Removed]

0
11. Section 431.822 is removed.


Sec. Sec.  431.861-431.865  [Removed]

0
12. The undesignated center heading ``Federal Financial Participation'' 
and Sec. Sec.  431.861 through 431.865 are removed.
0
13. Section 431.950 is revised to read as follows:


Sec.  431.950  Purpose.

    This subpart requires States and providers to submit information 
and provide support to Federal contractors as necessary to enable the 
Secretary to produce national improper payment estimates for Medicaid 
and the Children's Health Insurance Program (CHIP).
0
14. Section 431.958 is amended by--
0
a. Removing the definitions of ``Active case'', ``Active fraud 
investigation'', and ``Agency''.
0
b. Revising the definition of ``Annual sample size''.
0
c. Adding a definition in alphabetical order for ``Appeals'',
0
d. Removing the definitions of ``Application'', ``Case'', ``Case error 
rate'', and ``Case record''.
0
e. Adding definitions in alphabetical order for ``Corrective action'', 
``Deficiency'', ``Difference resolution'', ``Disallowance'', 
``Eligibility Review Contractor (ERC)'', ``Error'', ``Federal 
Contractor'', ``Federally Facilitated Marketplace (FFM)'', ``Federally 
Facilitated Marketplace-Determination (FFM-D)'', ``Federal financial 
participation'', ``Finding'', and ``Improper payment rate''.
0
f. Removing the definition of ``Last action''.
0
g. Adding a definition in alphabetical order for ``Lower limit''.
0
h. Removing the definitions of ``Negative case'', ``Payment error 
rate'', and ``Payment review''.
0
i. Adding definitions in alphabetical order for ``PERM Review Period'' 
and ``Recoveries'',
0
j. Adding a definition in alphabetical order for ``Review Contractor 
(RC)''.
0
k. Removing the definitions of ``Review cycle'' and ``Review month''.
0
l. Revising the definition of ``Review year''.
0
m. Removing the definitions of ``Sample month'' and ``State agency''.
0
n. Adding a definition in alphabetical order for ``State eligibility 
system''.
0
o. Revising the definition of ``State error''.
0
p. Adding definitions in alphabetical order for ``State payment 
system'', ``State-specific sample size'', and ``Statistical Contractor 
(SC).''
0
q. Removing the definition of ``Undetermined''.
    The additions and revisions read as follows:


Sec.  431.958  Definitions and use of terms.

* * * * *
    Annual sample size means the number of fee-for-service claims, 
managed care payments, or eligibility cases that will be sampled for 
review in a given PERM cycle
    Appeals means a process that allows states to dispute the PERM 
Review Contractor and Eligibility Review Contractor error findings with 
CMS after the difference resolution process has been exhausted.
* * * * *
    Corrective action means actions to be taken by the state to reduce 
major error causes, trends in errors, or other vulnerabilities for the 
purpose of reducing improper payments in Medicaid and CHIP.
* * * * *
    Deficiency means a finding in which a claim or payment had a 
medical, data processing, and/or eligibility error that did not result 
in federal and/or state improper payment.
    Difference resolution means a process that allows states to dispute 
the PERM Review Contractor and Eligibility Review Contractor error 
findings directly with the contractor.
    Disallowance means the percentage of Federal Medicaid funds States 
are required to return to CMS in accordance with section 1903(u) of the 
Act.
* * * * *
    Eligibility Review Contractor (ERC) means the CMS contractor 
responsible for conducting state eligibility reviews for PERM.
    Error means any claim or payment where federal and/or state dollars 
were paid improperly based on medical, data processing, and/or 
eligibility reviews.
* * * * *
    Federal Contractor means the ERC, RC, or SC which support CMS in 
executing the requirements of the PERM program.

[[Page 40614]]

    Federally Facilitated Marketplace (FFM) means the health insurance 
exchange established by the Federal government with responsibilities 
that include making Medicaid and CHIP determinations for states that 
delegate authority to the FFM.
    Federally Facilitated Marketplace--Determination (FFM-D) means 
cases determined by the FFM in states that have delegated the authority 
to make Medicaid/CHIP eligibility determinations to the FFM.
    Federal financial participation means the Federal Government's 
share of a State's expenditures under the Medicaid program and CHIP.
    Finding means errors and/or deficiencies identified through the 
medical, data processing, and eligibility reviews.
    Improper payment rate means an annual estimate of improper payments 
made under Medicaid and CHIP equal to the sum of the overpayments and 
underpayments in the sample, that is, the absolute value of such 
payments, expressed as a percentage of total payments made in the 
sample.
    Lower limit means the lower bound of the 95-percent confidence 
interval for a state's eligibility improper payment rate.
* * * * *
    PERM review period means the timeframe in which claims and 
eligibility are reviewed for national annual improper payment rate 
calculation purposes, July through June.
* * * * *
    Recoveries mean those monies that states are responsible for 
payment back to CMS based on the identification of Federal improper 
payments.
    Review Contractor (RC) means the CMS contractor responsible for 
conducting state data processing and medical record reviews for PERM.
    Review year means the year being analyzed for improper payments 
under PERM.
* * * * *
    State eligibility system means any system, within the state or with 
a state-delegated contractor, that is used by the state to determine 
Medicaid and/or CHIP eligibility and/or that maintains documentation 
related to Medicaid and/or CHIP eligibility determinations.
    State error includes, but is not limited to, data processing errors 
and eligibility errors as described in Sec.  431.960(b) and (d), as 
determined in accordance with documented State and Federal policies 
State errors do not include the errors described in paragraph Sec.  
431.960(e)(2).
    State payment system means any system within the state or with a 
state-delegated contractor that is used to adjudicate and pay Medicaid 
and/or CHIP FFS claims and/or managed care payments.
    State-specific sample size means the sample size determined by CMS 
that is required from each individual States to support national 
improper payment rate precision requirements.
    Statistical Contractor (SC) means the contractor responsible for 
collecting and sampling fee-for-service claims and managed care 
capitation payment data as well as calculating state and national 
improper payment rates.
* * * * *
0
15. Section 431.960 is revised to read as follows:


Sec.  431.960  Types of payment errors.

    (a) General rule. Errors identified for the Medicaid and CHIP 
improper payments measurement under the Improper Payments Information 
Act of 2002 must affect payment under
    applicable Federal policy or State policy or both.
    (b) Data processing errors. (1) A data processing error is an error 
resulting in an overpayment or underpayment that is determined from a 
review of the claim and other information available in the State's 
Medicaid Management Information System, related systems, or outside 
sources of provider verification resulting in Federal and/or State 
improper payments.
    (2) The difference in payment between what the State paid (as 
adjusted within improper payment measurement guidelines) and what the 
State should have paid, in accordance with federal and state documented 
policies, is the dollar measure of the payment error.
    (3) Data processing errors include, but are not limited to the 
following:
    (i) Payment for duplicate items.
    (ii) Payment for non-covered services.
    (iii) Payment for fee-for-service claims for managed care services.
    (iv) Payment for services that should have been paid by a third 
party but were inappropriately paid by Medicaid or CHIP.
    (v) Pricing errors.
    (vi) Logic edit errors.
    (vii) Data entry errors.
    (viii) Managed care rate cell errors.
    (ix) Managed care payment errors.
    (c) Medical review errors. (1) A medical review error is an error 
resulting in an overpayment or underpayment that is determined from a 
review of the provider's medical record or other documentation 
supporting the service(s) claimed, Code of Federal Regulations that are 
applicable to conditions of payment, the State's written policies, and 
a comparison between the documentation and written policies and the 
information presented on the claim resulting in Federal and/or State 
improper payments.
    (2) The difference in payment between what the State paid (as 
adjusted within improper payment measurement guidelines) and what the 
State should have paid, in accordance with 42 CFR parts 440 through 484 
in accordance with the applicable conditions of payment in this chapter 
and the State's documented policies is the dollar measure of the 
payment error.
    (3) Medical review errors include, but are not limited to the 
following:
    (i) Lack of documentation.
    (ii) Insufficient documentation.
    (iii) Procedure coding errors.
    (iv) Diagnosis coding errors.
    (v) Unbundling.
    (vi) Number of unit errors.
    (vii) Medically unnecessary services.
    (viii) Policy violations.
    (ix) Administrative errors.
    (d) Eligibility errors. (1) An eligibility error is an error 
resulting in an overpayment or underpayment that is determined from a 
review of a beneficiary's eligibility determination, in comparison to 
the documentation used to establish a beneficiary's eligibility and 
applicable federal and state regulations and policies, resulting in 
Federal and/or State improper payments.
    (2) Eligibility errors include, but are not limited to the 
following:
    (i) Ineligible individual, but authorized as eligible when he or 
she received services.
    (ii) Eligible individual for the program, but was ineligible for 
certain services he or she received.
    (iii) Lacked or had insufficient documentation in his or her case 
record, in accordance with the State's documented policies and 
procedures, to make a definitive review decision of eligibility or 
ineligibility.
    (iv) Was ineligible for managed care but enrolled in managed care.
    (3) The dollars paid in error due to the eligibility error is the 
measure of the payment error.
    (4) A State eligibility error does not result from the State's 
verification of an applicant's self-declaration or self-certification 
of eligibility for, and the correct amount of, medical assistance or 
child health assistance, if the State process for verifying an 
applicant's self-declaration or self-certification satisfies the 
requirements in Federal law, guidance, or if applicable, Secretary 
approval.
    (e) Errors for purposes of determining the national improper 
payment rates. (1)

[[Page 40615]]

The Medicaid and CHIP national improper payment rates include but are 
not limited to the errors described in paragraphs (b) through (d) of 
this section.
    (2) Eligibility errors resulting solely from determinations of 
Medicaid or CHIP eligibility delegated to and made by the Federally 
Facilitated Marketplace will be included in the national improper 
payment rate.
    (f) Errors for purposes of determining the State improper payment 
rates. (1) The Medicaid and CHIP State improper payment rates include 
but are not limited to, the errors described in paragraphs (b) through 
(d) of this section, and do not include the errors described in 
paragraph (e)(2) of this section.
    (g) Error codes. CMS will define different types of errors within 
the above categories for analysis and reporting purposes. Only Federal 
and/or State dollars in error will factor into a State's PERM improper 
payment rate.
0
16. Section 431.970 is revised to read as follows:


Sec.  431.970  Information submission and systems access requirements.

    (a) States must submit information to the Secretary for, among 
other purposes, estimating improper payments in Medicaid and CHIP, that 
include but are not limited to--
    (1) Adjudicated fee-for-service or managed care claims information 
or both, on a quarterly basis, from the review year;
    (2) Upon request from CMS, provider contact information that has 
been verified by the State as current;
    (3) All medical, eligibility, and other related policies in effect 
and any quarterly policy updates;
    (4) Current managed care contracts, rate information, and any 
quarterly updates applicable to the review year;
    (5) Data processing systems manuals;
    (6) Repricing information for claims that are determined during the 
review to have been improperly paid;
    (7) Information on claims that were selected as part of the sample, 
but changed in substance after selection, for example, successful 
provider appeals;
    (8) Adjustments made within 60 days of the adjudication dates for 
the original claims or line items with sufficient information to 
indicate the nature of the adjustments and to match the adjustments to 
the original claims or line items;
    (9) Case documentation to support the eligibility review, as 
requested by CMS;
    (10) A corrective action plan for purposes of reducing erroneous 
payments in FFS, managed care, and eligibility; and
    (11) Other information that the Secretary determines is necessary 
for, among other purposes, estimating improper payments and determining 
improper payment rates in Medicaid and CHIP.
    (b) Providers must submit information to the Secretary for, among 
other purposes estimating improper payments in Medicaid and CHIP, which 
include but are not limited to Medicaid and CHIP beneficiary medical 
records, within 75 calendar days of the date the request is made by 
CMS. If CMS determines that the documentation is insufficient, 
providers must respond to the request for additional documentation 
within 14 calendar days of the date the request is made by CMS.
    (c) The State must provide the Federal contractor(s) with access to 
all payment system(s) necessary to conduct the medical and data 
processing review, including the Medicaid Management Information System 
(MMIS), any systems that include beneficiary demographic and/or 
provider enrollment information, and any document imaging systems that 
store paper claims.
    (d) The State must provide the Federal contractor(s) with access to 
all eligibility system(s) necessary to conduct the eligibility review, 
including any eligibility systems of record, any electronic document 
management system(s) that house case file information, and systems that 
house the results of third party data matches.
0
17. Section 431.972 is revised to read as follows:


Sec.  431.972  Claims sampling procedures.

    (a) General requirements. States will submit quarterly FFS claims 
and managed care payments, as identified in Sec.  431.970(a), to allow 
federal contractors to conduct data processing, medical record, and 
eligibility reviews to meet the requirements of the PERM measurement.
    (b) Claims universe. (1) The PERM claims universe includes payments 
that were originally paid (paid claims) and for which payment was 
requested but denied (denied claims) during the PERM review period, and 
for which there is FFP (or would have been if the claim had not been 
denied) through Title XIX (Medicaid) or Title XXI (CHIP).
    (2) The State must establish controls to ensure FFS and managed 
care universes are accurate and complete, including comparing the FFS 
and managed care universes to the Form CMS-64 and Form CMS-21 as 
appropriate.
    (c) Sample size. CMS estimates a State's annual sample size for the 
PERM review at the beginning of the PERM cycle.
    (1) Precision and confidence levels. The national annual sample 
size will be estimated to achieve at least a minimum National-level 
improper payment rate with a 90 percent confidence interval of plus or 
minus 2.5 percent of the total amount of all payments for Medicaid and 
CHIP.
    (2) State-specific sample sizes. CMS will develop State-specific 
sample sizes for each state. CMS may take into consideration the 
following factors in determining a State's annual state-specific sample 
size for the current PERM cycle: State-level precision goals for the 
current PERM cycle; the improper payment rate and precision of that 
improper payment rate from the State's previous PERM cycle; the State's 
overall Medicaid and CHIP expenditures; and other relevant factors as 
determined by CMS.


Sec.  431.974  [Removed]

0
18. Section 431.974 is removed.


Sec.  431.978  [Removed]

0
19. Section 431.978 is removed.


Sec.  431.980  [Removed]

0
20. Section 431.980 is removed.


Sec.  431.988  [Removed]

0
21. Section 431.988 is removed.
0
22. Section 431.992 is revised to read as follows:


Sec.  431.992  Corrective action plan.

    (a) The State must develop a separate corrective action plan for 
Medicaid and CHIP for each improper payment rate measurement, designed 
to reduce improper payments in each program based on its analysis of 
the improper payment causes in the FFS, managed care, and eligibility 
components.
    (1) The corrective action plan must address all errors that are 
included in the state improper payment rate defined at Sec.  
431.960(f)(1) and all deficiencies.
    (2) [Reserved]
    (b) In developing a corrective action plan, the State must take the 
following actions:
    (1) Error analysis. States must conduct analysis such as reviewing 
causes, characteristics, and frequency of errors that are associated 
with improper payments. States must review the findings of the analysis 
to determine specific programmatic causes to which errors are 
attributed (for example, provider lack of understanding of the 
requirement to provide documentation), if any, and to identify root 
improper payment causes.

[[Page 40616]]

    (2) Corrective action planning. States must determine the 
corrective actions to be implemented that address the root improper 
payment causes and prevent that same improper payment from occurring 
again.
    (3) Implementation and monitoring. (i) States must develop an 
implementation schedule for each corrective action and implement those 
actions in accordance with the schedule.
    (ii) The implementation schedule must identify all of the following 
for each action:
    (A) The specific corrective action.
    (B) Status.
    (C) Scheduled or actual implementation date.
    (D) Key personnel responsible for each activity.
    (E) A monitoring plan for monitoring the effectiveness of the 
action.
    (4) Evaluation. The State must submit an evaluation of the 
corrective action plan from the previous measurement. States must 
evaluate the effectiveness of the corrective action(s) by assessing all 
of the following:
    (i) Improvements in operations.
    (ii) Efficiencies.
    (iii) Number of errors.
    (iv) Improper payments.
    (v) Ability to meet the PERM improper payment rate targets assigned 
by CMS.
    (c) The State must submit to CMS and implement the corrective 
action plan for the fiscal year it was reviewed no later than 90 
calendar days after the date on which the State's Medicaid or CHIP 
improper payment rates are posted on the CMS contractor's Web site.
    (d) The State must provide updates on corrective action plan 
implementation progress annually and upon request by CMS.
    (e) In addition to paragraphs (a) through (d) of this section, 
States that have eligibility improper payment rates over the allowable 
threshold of 3 percent for consecutive PERM years, must submit updates 
on the status of corrective action implementation to CMS every other 
month. Status updates must include, but are not limited to the 
following:
    (1) Details on any setbacks along with an alternate corrective 
action or workaround.
    (2) Actual examples of how the corrective actions have led to 
improvements in operations, and explanations for how the improvements 
will lead to a reduction in the number of errors, as well as the 
state's next PERM eligibility improper payment rate.
    (3) An overall summary on the status of corrective actions, 
planning, and implementation, which demonstrates how the corrective 
actions will provide the state with the ability to meet the 3 percent 
threshold.
0
23. Section 431.998 is revised to read as follows:


Sec.  431.998  Difference resolution and appeal process.

    (a) The State may file, in writing, a request with the relevant 
Federal contractor to resolve differences in the Federal contractor's 
findings based on medical, data processing, or eligibility reviews in 
Medicaid or CHIP.
    (b) The State must file requests to resolve differences based on 
the medical, data processing, or eligibility reviews within 20 business 
days after the report of review findings is shared with the state.
    (c) To file a difference resolution request, the State must be able 
to demonstrate all of the following:
    (1) Have a factual basis for filing the request.
    (2) Provide the appropriate Federal contractor with valid evidence 
directly related to the finding(s) to support the State's position.
    (d) For a finding in which the State and the Federal contractor 
cannot resolve the difference in findings, the State may appeal to CMS 
for final resolution by filing an appeal within 10 business days from 
the date the relevant Federal contractor's finding as a result of the 
difference resolution is shared with the State. There is no minimum 
dollar threshold required to appeal a difference in findings.
    (e) To file an appeal request, the State must be able to 
demonstrate all of the following:
    (1) Have a factual basis for filing the request.
    (2) Provide CMS with valid evidence directly related to the 
finding(s) to support the State's position.
    (f) All differences, including those pending in CMS for final 
decision that are not overturned in time for improper payment rate 
calculation, will be considered as errors in the improper payment rate 
calculation in order to meet the reporting requirements of the IPIA.
0
24. Section 431.1010 is added to read as follows:


Sec.  431.1010  Disallowance of Federal financial participation for 
erroneous State payments (for PERM review years ending after July 1, 
2020).

    (a) Purpose. This section establishes rules and procedures for 
disallowing Federal financial participation (FFP) in erroneous medical 
assistance payments due to eligibility improper payment errors, as 
detected through the PERM program required under this subpart, in 
effect on and after July 1, 2020.
    (2) After the State's eligibility improper rate has been 
established for each PERM review period, CMS will compute the amount of 
the disallowance and adjust the FFP payable to each State.
    (3) CMS will compute the amount to be withheld or disallowed as 
follows:
    (i) Subtract the 3 percent allowable threshold from the lower limit 
of the State's eligibility improper payment rate percentage.
    (ii) If the difference is greater than zero, the Federal medical 
assistance funds for the period, are multiplied by that percentage. 
This product is the amount of the disallowance or withholding.
    (b) Notice to States and showing of good faith. (1) If CMS is 
satisfied that the State did not meet the 3 percent allowable threshold 
despite a good faith effort, CMS will reduce the funds being disallowed 
in whole.
    (2) CMS may find that a State did not meet the 3 percent allowable 
threshold despite a good faith effort if the State has taken the action 
it believed was needed to meet the threshold, but the threshold was not 
met. CMS will grant a good faith waiver only if a state both:
    (i) Participates in the MEQC pilot program in accordance with 
subpart P (Sec.  431.800 through Sec.  431.820), and
    (ii) Implements PERM CAPs in accordance with Sec.  431.992.
    (3) States that have improper payment rates above the allowable 
threshold will be notified by CMS of the amount of the disallowance.
    (c) Disallowance subject to appeal. If a State does not agree with 
a disallowance imposed under paragraph (e) of this section, it may 
appeal to the Departmental Appeals Board within 30 days from the date 
of the final disallowance notice from CMS. The regular procedures for 
an appeal of a disallowance will apply, including review by the Appeals 
Board under 45 CFR part 16.

PART 457--ALLOTMENTS AND GRANTS TO STATES

0
25. The authority citation for part 431 continues to read as follows:

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

0
26. Section 457.628(a) is revised to read as follows:


Sec.  457.628  Other applicable Federal regulations.

* * * * *
    (a) HHS regulations in Sec. Sec.  431.800 through 431.1010 of this 
chapter

[[Page 40617]]

(related to the PERM and MEQC programs); Sec. Sec.  433.312 through 
433.322 of this chapter (related to Overpayments); Sec.  433.38 of this 
chapter (Interest charge on disallowed claims of FFP); Sec. Sec.  
430.40 through 430.42 of this chapter (Deferral of claims for FFP and 
Disallowance of claims for FFP); Sec.  430.48 of this chapter 
(Repayment of Federal funds by installments); Sec. Sec.  433.50 through 
433.74 of this chapter (sources of non-Federal share and Health Care-
Related Taxes and Provider Related Donations); and Sec.  447.207 of 
this chapter (Retention of Payments) apply to State's CHIP programs in 
the same manner as they apply to State's Medicaid programs.
* * * * *

    Dated: April 7, 2016.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: June 3, 2016.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2016-14536 Filed 6-20-16; 11:15 am]
 BILLING CODE 4120-01-P