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9232 Federal Register / Vol. 70, No.

37 / Friday, February 25, 2005 / Rules and Regulations

relationship between the Federal SUMMARY: This final rule provides a in sections 1832, 1834, and 1861 of the
Government and the Indian tribes, or on mechanism for us to expeditiously make Act and their implementing regulations,
the distribution of power and changes to the durable medical have changed significantly.
responsibilities between the Federal equipment regional carrier (DMERC) From 1986 to 1992, the number of
Government and Indian tribes.’’ This service area boundaries without notice
complaints about fraud and abuse in the
rule will not have substantial direct and comment rulemaking. Through this
DMEPOS benefit began to increase
effects on tribal governments, on the mechanism, we can change the
geographical boundaries served by the markedly, and a variety of government
relationship between the Federal
Government and Indian tribes, or on the regional contractors that process durable investigations identified specific
distribution of power and medical equipment claims through weaknesses in the program. We sought
responsibilities between the Federal issuance of a Federal Register notice solutions to known claims processing
Government and Indian tribes, as and make other minor changes in the problems, including the increasing level
specified in Executive Order 13175. contract administration of the DMERCs. of fraud and abuse in billing.
Thus, Executive Order 13175 does not The mechanism provides a method for Subsequently, the Omnibus Budget
apply to this rule. increasing or decreasing the number of Reconciliation Act of 1987 (OBRA 1987)
DMERCs, changing the boundaries of (Pub. L. 100–203), enacted on December
V. Congressional Review Act DMERCs based on criteria other than the 22, 1987, authorized the Secretary to
The Congressional Review Act, 5 boundaries of the Common Working designate, by regulation, regional
U.S.C. 801 et seq., as added by the Small File sectors, and awarding new carriers to process DMEPOS claims. (See
Business Regulatory Enforcement contractors to perform statistical sections 1834(a)(12) and 1834(h)(3) of
Fairness Act of 1996, generally provides analysis or maintain the national the Act.)
that before a rule may take effect, the supplier clearinghouse. We will publish
these changes and their justifications in Before 1993, Medicare Part B claims
agency promulgating the rule must
a Federal Register notice, rather than for DMEPOS items and services were
submit a rule report, which includes a
copy of the rule, to each House of the through notice and comment assigned to each of the more than 30
Congress and to the Comptroller General rulemaking. local Medicare carriers and represented,
of the United States. EPA will submit a Although we may change the number on average, only 5 percent of each
report containing this rule and other and configuration of regional carriers, carrier’s overall workload. After further
required information to the U.S. Senate, we are not altering the criteria and review, we concluded that this was not
the U.S. House of Representatives, and factors that we use in awarding the most effective structure for
the Comptroller General of the United contracts. administering DMEPOS claims under
States prior to publication of this final Through this final rule, we are the Medicare program. It was difficult
rule in the Federal Register. This final improving the contracting process so for carriers to devote significant
rule is not a ‘‘major rule’’ as defined by that we can swiftly meet the challenges administrative review resources to this
5 U.S.C. 804(2). of the changing healthcare industry and small percentage of claims.
address the changing needs of
List of Subjects in 40 CFR Part 180 beneficiaries, suppliers, and the In addition, DMEPOS claims were
Medicare program. generally complex and time-consuming
Environmental protection,
DATES: Effective Date: These regulations
to process. The protocol for suppliers to
Administrative practice and procedure,
are effective on March 28, 2005. obtain a Medicare billing number was
Agricultural commodities, Pesticides
and pests, Reporting and recordkeeping ill-defined and required little
FOR FURTHER INFORMATION CONTACT: Pat
requirements. Williams, (410) 786–6139. identifying information or compliance
with any particular business or
Dated: February 9, 2005. SUPPLEMENTARY INFORMATION: This
operational standards.
Lois Rossi, Federal Register document is available
from the Federal Register online Furthermore, carriers’ medical review
Director, Registration Division, Office of
Pesticide Programs. database through GPO access, a service policies varied significantly and
[FR Doc. 05–3684 Filed 2–24–05; 8:45 am] of the U.S. Government Printing Office. contributed to inconsistent claims
The Web site address is http:// processing decisions. Finally, certain
BILLING CODE 6560–50–S
www.gpoaccess.gov/fr/index.html. DMEPOS suppliers who engaged in
I. Background unethical practices were able to exploit
DEPARTMENT OF HEALTH AND our local Medicare carriers by electing
A. Legislative Overview of Durable to submit claims to carriers that
HUMAN SERVICES Medical Equipment, Prosthetics, provided more generous coverage, paid
Centers for Medicare & Medicaid Orthotics, and Supplies (DMEPOS) more than other carriers, or both. As
Services Claims Administration Covering 1966 documented in program audits and
Through 1992 congressional hearings, fraudulent
42 CFR Part 421 Medicare has covered medically suppliers manipulated our then existing
necessary items of durable medical ‘‘point of sale’’ claims jurisdiction rule;
[CMS–1219–F]
equipment, prosthetics, orthotics, and these suppliers could simply locate
RIN 0938–AL76 supplies (DMEPOS) under Part B since their business offices where conditions
the inception of the Medicare program were most favorable. The collective
Medicare Program; Durable Medical in 1966. In the original authorizing impact of these issues resulted in
Equipment Regional Carrier Service legislation for the Medicare program,
Areas and Related Matters significant abuse of the Medicare
coverage was provided under sections program by a subset of the DMEPOS
AGENCY: Centers for Medicare & 1832 and 1861(s) of the Social Security supplier community, without any
Medicaid Services (CMS), HHS. Act (the Act) (Pub. L. 89–97). Since that measurable improvement in patient care
time, the coverage and payment rules and outcomes.
ACTION: Final rule.
for DMEPOS, which may now be found

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Federal Register / Vol. 70, No. 37 / Friday, February 25, 2005 / Rules and Regulations 9233

B. Agency and Congressional Efforts To Amendments of 1994 (Pub. L. 103–432). for beneficiaries whose permanent
Reform DMEPOS Claims Among other matters, this statute residence falls within their designated
Administration, 1987 Through 1994 established section 1834(j)(1) of the Act, regional areas (as established by
To address the problem of fraud and which incorporated and augmented the paragraph (c) of this section). Paragraph
abuse in the supplier community, we supplier business and operational (e)(1) also specifies that, in processing
initiated an effort to reform the standards established in the final rule of DMEPOS claims, the DMERCs apply the
administration of the DMEPOS benefit June 18, 1992. payment rates applicable to the State of
category using several strategies. On residence of the beneficiary. In addition,
C. Provisions of the Existing DMERC
November 6, 1991, we published a the rule makes clear that the
Regulations
proposed rule (56 FR 56612) setting ‘‘beneficiary residence’’ jurisdiction rule
As noted above, there are several applies to qualified Railroad Retirement
forth a new framework for DMEPOS regulatory provisions pertaining to the
claims processing. In that rule, we beneficiaries and defines ‘‘permanent
operation of the DMERCs and related residence’’ for the purpose of the rule.
proposed to limit the number of carriers functions.
handling DMEPOS claims by Paragraph (e)(2) identifies by name
• Section 405.874 establishes a the initial DMERCs; paragraph (e)(3)
establishing regional carriers who process by which the NSC makes
would be expert processors of DMEPOS identifies by name the initial NSC and
determinations on whether to issue a SADMERC; paragraph (e)(4) commits us
claims. That rule also proposed to Medicare billing number to a supplier
change the requirement for assigning to periodically re-compete the four DME
applicant and specifies an regional carrier contracts.
DMEPOS claims to carriers (that is, the administrative appeals process if we Paragraph (f) requires the DMERCs to
DMEPOS claim jurisdiction rule) from a make an adverse determination. collect ownership and control
‘‘point of sale’’ framework to a • Section 421.212 specifies that the information, as well as supplier
framework based on ‘‘beneficiary Railroad Retirement Board will use the standard certifications, from each
residence.’’ In addition, the rule CMS-contracted DMERCs to make DMEPOS supplier that they service.
proposed to establish supplier business DMEPOS claim determinations for We discuss several changes to
standards and information disclosure Medicare-eligible railroad retirees. paragraphs (a), (c), (d), and (e) of
requirements. We expected that these • Section 424.57 provides special § 421.210 in section II of this preamble,
changes, taken together, would make payment rules for DMEPOS suppliers ‘‘Provisions of the Proposed
Medicare’s DMEPOS claim and requirements for the issuance of Regulations’’.
administration apparatus less DMEPOS supplier billing numbers,
susceptible to supplier manipulation. including a series of business and D. Establishment and Operation of the
On June 18, 1992, we published a operational standards that DMEPOS DMERCs, 1993 Through 2003
final rule with comment period (57 FR suppliers must meet in order to qualify We issued a Request for Proposal in
27290) to implement this revised for Medicare billing privileges. May 1992 for the four regional DMERC
statutory authority. Additional changes Section 421.210, which we are contracts. We also solicited offers for
were made by the final rule published amending in this regulation, could be two DMEPOS-related national contracts,
on November 18, 1993 (58 FR 60789). viewed as the cornerstone regulation for the above-mentioned NSC and the
This final rule: the DMERC carrier structure. SADMERC. In December 1992, the
• Established four regional carriers On June 18, 1992 (57 FR 27290), we contracts, designed around Common
(known as DME Regional Carriers or published and implemented the existing Working File sectors, were awarded as
DMERCS) to standardize the coverage regulations at § 421.210 under the follows:
and payment of DMEPOS. authority of sections 1842, 1834(a), and Region A: Travelers Insurance
• Designated the States and territories 1834(h) of the Act. The existing Company for 10 States in the
to be served by each DMERC. regulation at § 421.210 augments and Northeast.1
• Consolidated and focused efforts to expands on the underlying statutory Region B: AdminaStar Federal for 9
curb fraud and abuse. provisions and provides for the States in the Midwest and the District of
• Controlled the enrollment of all following: Columbia.
DMEPOS suppliers through a National Paragraph (a) identifies the statutory Region C: Palmetto Government
Supplier Clearinghouse (NSC) (a basis for the rule and indicates that the Benefits Administrators (GBA) for 14
contractor that reviews and approves purpose of the rule is to designate one States and 2 territories in the South.
supplier applications for Medicare or more carriers ‘‘by specific regions’’ to Region D: CIGNA for 17 States and 3
program billing numbers). process DMEPOS claims. territories in the West.
• Introduced the concept of a Paragraph (b) identifies the types of NSC: Palmetto GBA.
Statistical Analysis DME Regional claims for DMEPOS items and services SADMERC: Palmetto GBA.
Carrier (SADMERC) to review supplier that are processed by the DMEPOS Initially, the DMERC and SADMERC
billing patterns. carrier. contracts were 2-year contracts with two
• Established minimum business Paragraph (c) defines four specific 1-year renewal options. The NSC was
standards for all suppliers wishing to regions for the processing of DMEPOS given two 1-year contracts and two 1-
enroll in the Medicare Program. claims by naming the States and year renewal options. The contracts
• Required that regional carriers territories to be included in each region. were modeled, to a significant extent,
administer DMEPOS claims based on This section also states that the DMERC after requirements in the Federal
the location (State) of the beneficiary’s regions coincide with the ‘‘sector’’ Acquisition Regulations (FAR).
primary residence. The regulations for boundaries of our Common Working
DMERC contracts, in accordance with File System. 1 The contract was initially awarded to Travelers

these authorities are set forth at Paragraph (d) specifies criteria that we Insurance Company and the regulations use this
§ 405.874, § 421.210, § 421.212, and use in designating entities to serve as name. Through a series of corporate transactions,
United Healthcare became the successor-in-interest
§ 424.57. regional carriers for DMEPOS claims. to Travelers and served as the DMERC until
On October 31, 1994, the Congress Paragraph (e)(1) requires that the September 2000, when HealthNow was awarded the
enacted the Social Security DMERCs process DMEPOS claims only DMERC contract for Region A.

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One of the biggest challenges and We proposed a number of changes to technology have greatly diminished the
accomplishments of the transition to the § 421.210 which concern the importance of this consideration and,
DMERC processing arrangement was the designation of regional carriers to therefore, its inclusion in regulation is
consolidation of diverse carrier medical process claims for DMEPOS. Broadly unnecessary.
policies for DMEPOS. Our initiative to speaking, we are seeking greater future The existing reference to Common
configure geographical regions to flexibility to revise the number and Working File sectors in paragraph (c)(1),
process DMEPOS claims by boundaries of DMERC regional areas. as a constraint for the DMERC region
consolidating DME workloads from the We also desire greater flexibility in boundaries, illustrates the approach of
34 carriers to 4 DMERCs greatly contracting for DMERC, NSC, and the original rule. The June 18, 1992 final
improved the rigor and consistency of SADMERC functions. We have rule (57 FR 27290) acknowledged a
medical review. Formerly, each carrier examined the statutory framework technical Medicare claims processing
developed its own local medical review (section 1834(a)(12) of the Act, as set system constraint that was significant at
policies for DMEPOS claims with forth below at paragraph (a), ‘‘Basis’’) for the time. Since that time, advances in
minimal guidelines and oversight from § 421.210 and have concluded that the our claims processing system have
us. During the transition period, our existing regulation is more restrictive on greatly reduced the impact of ‘‘out of the
coverage and medical review staff the Secretary’s contracting discretion area’’ processing, and it is no longer
worked closely with the DMERC than required either by statute or the necessary to structure the DMERCs
medical directors to streamline and Medicare program’s interest. around the Common Working File
standardize medical policy within and Specifically, we proposed to make the sectors.
across the DMERC regions. following changes to § 421.210 New paragraph (c)(2) proposed a
Regionalization allowed the DMERCs to ‘‘Designations of regional carriers to mechanism for us to revise the number
have a consistent uniform interpretation process claims for durable medical and boundaries of DMERC regional
of coverage policies, local medical equipment, prosthetics, orthotics, and service areas in the future based on
review policies, and pricing for similar supplies’’: appropriate factors and criteria. Our
items and services. Today, the DMERCs • Paragraph (a), ‘‘Basis.’’ goal is to constantly strive to improve
share essentially one approach to We proposed to revise paragraph (a) beneficiary and supplier satisfaction.
coverage and medical review for all to more closely follow the actual Therefore, in our decisions, we will
DMEPOS items. language of section 1834(a)(12) of the consider the effect of any service area
Act that authorizes the Secretary to changes on beneficiaries and suppliers.
E. Requirements for Issuance of ‘‘designate, by regulation under section Examples of factors and criteria include
Regulations 1842 of the Act, one carrier for one or population shifts or natural disasters
Section 902 of the Medicare more entire regions to process all claims that require a reallocation of workload,
Prescription Drug, Improvement, and within the region for covered items and workforce conditions that may
Modernization Act of 2003 (MMA) under this section.’’ We therefore make it difficult for DMERCs in certain
amended section 1871(a) of the Act and proposed to revise paragraph (a) to state areas to recruit and retain qualified
requires the Secretary, in consultation that the Secretary is authorized to employees. We specified in paragraph
with the Director of the Office of designate carriers for ‘‘one or more (c)(2) that this change would provide a
Management and Budget, to establish entire regions’’ rather than to designate mechanism for us to identify which
and publish timelines for the carriers by ‘‘specific’’ regions. States and territories are assigned to
publication of Medicare final • Paragraph (c), ‘‘Region various DMERC regions by publication
regulations based on the previous designation.’’ of a Federal Register notice. The
publication of a Medicare proposed or We proposed to revise paragraph (c), Federal Register notice will identify the
interim final regulation. Section 902 of designate the existing paragraph (c) as nature of any changes in the DMERC
the MMA also states that the timelines (c)(1), and add a new paragraph (c)(2). service areas, as well as our rationale for
for these regulations may vary but shall In paragraph (c), we proposed to the changes.
not exceed 3 years after publication of clarify the Secretary’s authority to revise Under the current regulation, we
the preceding proposed or interim final the number or configuration of DMEPOS would have to maintain the current
regulation except under exceptional regional areas in the future, based on DMERC configuration even if our
circumstances. appropriate factors and criteria. administrative and program needs
This final rule finalizes provisions set The existing regulations in change. Currently, the only existing
forth in the March 26, 2004 proposed § 421.210(c) specify that there are four mechanism for changing the structure of
regulation (69 FR 15755). In addition, regional areas for DMEPOS claims and the DMERC regions is to undertake
this final rule has been published further specify that these areas be drawn notice and comment rulemaking for
within the 3-year time limit imposed by to coincide with the Common Working each change. We believe that it is not
section 902 of the MMA. Therefore, we File sectors. The regulations also the intent of the statute to constrain the
believe that the final rule is in specify, by name, which States and Secretary’s administrative discretion to
accordance with the Congress’ intent to territories are assigned to each region for this extent. In seeking this regulation
ensure timely publication of final DMEPOS claims. To allow greater change, we anticipate that new program
regulations. flexibility, in paragraph (c)(1), we circumstances may arise that would
proposed to add the word ‘‘initial’’ in require alterations in the number or
II. Provisions of the Proposed front of the listing of the current DMERC configuration of DMERC service areas.
Regulations service areas, to make clear that this We believe that we would have a
(This rule uses the term ‘‘carrier’’ to configuration could change in the definite need to move swiftly and make
describe the Durable Medical future. DMERC service area changes without
Equipment administrative contractor. In addition, we proposed to revise going through notice and comment
Effective October 1, 2005, according to paragraph (c)(1) to remove a specific rulemaking whenever administrative
section 911(e) of the MMA, the term reference to the Common Working File issues arise. Just as critical, we believe
‘‘carrier’’ should be read as ‘‘Medicare sector framework as a determinant for it is important to consider the effects of
Administrative Contractor.’’) the DMERC regions. Advances in these kinds of changes on beneficiaries

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and suppliers and to provide the public In paragraph (e)(1), we proposed to In addition, we proposed to delete the
with an explanation of changes when make minor revisions to conform the references to the SADMERC function in
they are made. language to the changes made in § 421.210(e)(3) and § 421.210(e)(4).
Under our March 26, 2004 proposed § 421.210(c). SADMERCS are responsible for storing
rule, we would not administer four We proposed to revise paragraph (e) national DMEPOS claims history data,
DMEPOS areas, would not determine to provide us with flexibility and for distributing to the DMERCS national
these DMEPOS areas based on the sector discretion with respect to contracting pricing files, and for conducting data
areas of the Common Working File, and for DMERC and related functions. The analysis. Although we recognize the
would not go through notice and existing regulations in § 421.210(e) importance of the activities that the
comment rulemaking to modify the name the initial DMERC-contracting SADMERC provides to us and to the
assignment of the States and territories companies and also identify the DMERCS, these activities are not
to revised DMEPOS areas. particular region each company serves. identified elsewhere in the regulations,
In our March 26, 2004 proposed rule, The existing regulations could be and we believe that little purpose is
we provided a hypothetical example of interpreted as requiring that we served by naming an entity in the
a situation that cannot be adequately constantly update our rules whenever regulations without any reference to its
addressed under the current regulation. our business partners change. functions. Therefore, we do not believe
In this example, DMERC X, which has The proposed regulatory framework it necessary to reference the SADMERC
historically performed well, is having clarified our discretion not to name a in our regulations.
difficulty serving all beneficiaries and contracting company in future By removing the existing reference to
suppliers in all of its assigned States, regulations if we re-compete a DMERC the SADMERC, including the constraint
due to problems in recruiting a contract after its conclusion or that this activity be included in a
sufficient number of qualified termination. This proposed change DMERC’s contract, we would have the
personnel. At present, the regulations would potentially reduce the agency’s flexibility to include this function in a
appear to limit our options to—(1) administrative burden when a DMERC DMERC contract or to contract for the
expecting that DMERC X will improve contract is not renewed. We proposed to SADMERC activity through some other
its performance; or (2) terminating notify affected beneficiaries and vehicle.
In summary, the March 26, 2004
DMERC X’s contract for the entire suppliers when we change contractors.
proposed rule would provide a
service area and procuring and Specifically in paragraph (e)(2), we mechanism for us to change the
installing a replacement. We do not proposed to remove the names of the geographical boundaries served by the
have the third option of removing a initial DMERCs from the regulation. regional contractors that process DME
limited number of States from DMERC This change clarified our future claims and to make other minor changes
X’s contract and attaching these service discretion to award a DMERC contract in contract administration of the
areas to another DMERC’s service area to process DMEPOS claims under the DMERCS. We would have the
(or setting up a fifth DMERC Medicare program (that is, designate a mechanism to increase or decrease the
jurisdiction). However, under the DMERC), without any obligation to number of DMERCS or change the
proposed regulation, the third contract name the new DMERC(s) in regulations boundaries of the DMERCs through a
management option could yield many or by Federal Register notice. We Federal Register notice. Further, we
benefits, in that DMERC X could focus would, however, notify affected could name new contractors to perform
its resources on its remaining workload. beneficiaries and suppliers to the the functions of the DMERC and NSC
Under the existing regulation, moving a change in contractors. Therefore, we without going through notice and
State to another area, or setting up a proposed to revise paragraph (e)(2) to comment rulemaking. Instead, we
fifth jurisdiction, would require an add that we would notify affected would notify affected beneficiaries and
extended rulemaking process unless the Medicare beneficiaries when we suppliers of contractor changes through
rules take a more general approach, as designate a regional carrier. our outreach and education initiative.
we proposed. We proposed to revise paragraphs
• Paragraph (d), ‘‘Criteria for (e)(3) and (e)(4) to provide us with a III. Analysis of and Responses to Public
designating regional carriers.’’ mechanism to contract for the Comments
Paragraph (d) under this section performance of NSC functions through We received a total of twelve timely
currently discusses our ‘‘designation’’ of either an amendment to a DMERC public comments in response to the
regional carriers in a manner that does contract or through a non-DMERC March 26, 2004 proposed rule (69 FR
not explicitly acknowledge the fact that Medicare carrier contract. In paragraph 15755). Commenters included national
these designations must be premised on (e)(4), the existing regulations for NSC trade associations, health care
the awarding of Medicare carrier functions limit our selection of NSC providers, existing CMS contractors,
contracts in accordance with applicable contractors to one of the DMERCs. and private citizens. All public
law. However, section 1834(j)(1)(E) of the Act comments were reviewed and grouped
We also proposed to revise paragraph more broadly permits any carrier with a by like or related topics. The comments
(d) under this section to make clear that contract under section 1842 of the Act and our responses are summarized
we would designate regional carriers to to perform NSC functions. We believe below.
process DMEPOS claims by awarding that our regulations should reflect this Comment: A few commenters stated
DMERC contracts in accordance with broader discretion under the statute. that the impacted business communities
applicable law. We did not propose any Therefore, in paragraph (e)(4), we must receive sufficient notification of
changes to the current criteria under proposed to remove the limitation that proposed changes and sufficient
paragraphs (d)(1) through (d)(5) of this restricts our list of contractors to only information to provide substantive
section, which we use in our four DME regional carriers. This comments.
procurement evaluation processes for proposed revision gives us greater Response: This final rule states that
this particular kind of contract. flexibility when we re-compete a we consider the impact on beneficiaries
• Paragraph (e), ‘‘Carrier DMERC contract after its conclusion or and suppliers of any modifications to
designation.’’ termination. the boundaries or number of DMERC

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jurisdictions. This analysis will include providers, suppliers, and patients have unified approach to DMERC policies, as
the question of whether providers, reasonable access to payer decision- a result of any CMS changes.
suppliers, and patients have reasonable makers. (We note, however, that we and Response: Our proposed change to
access to payer decision-makers. We our contractors can ensure this access this regulation does not directly address
will provide sufficient public through many means in addition to the these issues. Supplier and beneficiary
notification to affected Medicare specific design of the DMERC regions— customer service and continuity of high
suppliers and beneficiaries. We will for instance, through maintaining toll- quality service remain our top priority.
publish any changes to DMERC service free lines for providers and suppliers). We will consider these suggestions in
areas and their justifications in a The preamble to our proposed rule also our operational management of the
Federal Register notice, rather than outlined other possible supporting DMERCs and all contractors.
through notice and comment criteria and considerations for a Comment: One commenter noted that
rulemaking. Furthermore, open door particular change—for instance, we suppliers must make adjustments in
forums or town hall meetings will be discussed how we might adjust the order to interact with a new DMERC,
held to give the public the opportunity DMERC areas due to population shifts, such as updating their patient accounts
to comment. Customer service and or to address performance problems at and electronic billing to reflect the new
continuity of high quality service for contractors. DMERC address, or adjusting their
both beneficiaries and suppliers remain There are any number of other Medicare fee tables if the new DMERC
our top priorities and any future potential reasons that might lead us to pays claims differently. Because of these
changes will be consistent with our consider adjusting the DMERC issues, the commenter asserted that the
commitment. We will also consider the jurisdictions—for example, we are now proposed rule would have a significant
operational management and oversight considering this issue as part of our impact on small businesses and that a
structure impacts of any future changes. implementation of the Medicare Regulatory Flexibility Analysis should
Comment: A few commenters noted contracting reform provisions under the have been conducted.
that CMS must provide more Response: We agree that suppliers
MMA (section 911). We will make every
information so that the community can must make adjustments in their billing
effort to clearly identify the criteria used
comment and understand the reason for when there are changes in DMERCs, but
in any decision to modify boundaries or
any revised DMERC boundaries. we do not believe that these adjustments
numbers of participants.
Response: On December 8, 2003, the are significant enough to warrant a
Comment: Several commenters voiced Regulatory Flexibility Analysis, given
President signed the MMA into law.
concerns about the potential impact of the narrow scope of the proposed
Since we are developing our
changing DMERC contractors through changes to the existing regulations.
implementation plan and strategy, these
the competitive process, including First, all DMERCs—now and in the
changes will give us the flexibility to
ensure coordinated implementation changing the SADMERC and NSC, and future—will be required to apply the
across all benefit types, enabling us to the transition impact of this action to proper Medicare fee tables developed in
administer high quality, consistent ongoing operations. The commenter accordance with the statute, and so
service and benefit management to asked about our methods to alleviate changes in the identity of DMERCs will
suppliers and beneficiaries. This final those perceived impacts. not affect the payment allowances
rule ensures that our changes are made Response: The intent of this rule is to received by suppliers.
in a more flexible manner. Our rationale provide the government a mechanism to Suppliers will need to adjust their
for these changes was explained in the expeditiously make changes to the billing mechanisms when there is a new
March 26, 2004 proposed rule. We will DMERC service area boundaries without DMERC. These adjustments must be
publish our rationale for any specific notice and comment rulemaking. made whenever there is a change in the
DMERC area changes in a Federal Through this mechanism, we can insurance coverage for any non-
Register notice to ensure that we change the geographical boundaries Medicare patient of the supplier.
address the needs of beneficiaries and served by the regional contractors that Further, these changes could occur even
suppliers. process durable medical equipment in the absence of the proposed
Comment: Two commenters stated claims through issuance of a Federal regulation change, as existing
that our proposal to explain any Register notice. Transition impacts are regulations commit us to periodically
modifications to the boundaries or not addressed in this regulation; re-compete the DMERC contracts. There
number of the DMERC jurisdictions in however, in the event that transitions is no guarantee that incumbent
a Federal Register notice, with would occur, CMS has considerable contractors will always retain their
supporting criteria and considerations, experience in workforce transitions and existing contracts in the competitive
is not adequate. These commenters will ensure that supplier and process. Finally, section 911 of the
asserted that we should fully identify beneficiary customer service and MMA requires the application of
the criteria that would be employed in continuity of high quality service competitive procedures to all Medicare
any decision to modify the boundaries remain our top priority. Our normal claims processing contracts, including
or number of the DMERC jurisdictions practice, when transferring contractual these contracts, not less than once every
in our proposed changes to § 421.210(c). responsibility for Medicare claims 5 years.
One of the two commenters argued that processing and related functions from We note that the original proposed
giving providers and patients reasonable one contractor to another, is to transfer and final rules pertaining to DMEPOS
access to payer decision-makers should all work-in-progress as of a certain date claims processing (56 FR 56612, 57 FR
be a factor in determining the scope of to the new contractor. We will consider 27290, 58 FR 60789) did not require a
a contractor’s territory. the comments provided in our Regulatory Flexibility Analysis,
Response: This final rule states that operational management of the DMERCs although their scope was broader and
we consider the impact on beneficiaries and any future transitions. more significant than our proposed rule.
and suppliers of any modifications to Comment: Two commenters offered For instance, those rulemaking actions
the boundaries or number of DMERC constructive suggestions on having consolidated the number of entities
jurisdictions. This analysis would overall better performance and handling DMEPOS claims from more
include the question of whether consistency of output, as well as a than thirty to four, established the

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Federal Register / Vol. 70, No. 37 / Friday, February 25, 2005 / Rules and Regulations 9237

‘‘beneficiary residence’’ billing will continue to apply to our contracting to any changes in DMERC contractors,
requirement, various business standards for DMEPOS claims processing even although it is possible that, under some
for Medicare suppliers, and some new after the effective date of section 911 of circumstances, the outgoing contractor
information collection requirements. the MMA (October 1, 2005). We note could agree to finalize some appeal
Our final rule, by contrast, only gives us that the MMA did not modify or repeal cases under a subcontract with its
some additional flexibility in modifying section 1834(a)(12) of the Act, which is successor.
the DMERC jurisdictions and in one of the underlying authorities for this It should be noted that recent
structuring the DMERC contracts. Any regulation and for our changes to the statutory changes (in the Medicare,
adjustments to the DMERC jurisdictions regulation. Further, we have made the Medicaid, and SCHIP Benefits
that we might make under our final rule decision to continue to operate Improvement and Protection Act of
would have a very modest impact specialized claims processing 2000 (Pub. L. 106–554, enacted on
relative to the effects of our original contractors for DMEPOS in our December 21, 2000), as amended by the
rulemaking activities (which did not implementation plan for the MMA, at MMA) mandated significant changes to
require a full Regulatory Flexibility least for the initial round of competitive the Medicare appeals process. In the
Analysis). contracts let under the MMA authority. future, Medicare claims processing
Nonetheless, in the spirit of the The MMA will certainly affect our contractors, including the DMERCs, will
Regulatory Flexibility Act, our final rule contracting activities with respect to handle only first-level re-determination
states that we will consider the impact DMEPOS claims processing; for requests on any claim. After the DMERC
on suppliers and beneficiaries of any instance, we will be required to re- takes this action, a Qualified
future changes we make in DMERC compete each one of these contracts Independent Contractor (QIC)
jurisdictions, and we will discuss these consistent with the MMA. designated to process these DME
issues in the Federal Register notice or We are currently considering the appeals will handle the next review
notices as stated in our proposed rule. question of whether to adjust the level for any claims-related appeals.
Comment: Three commenters, DMERC regions and functions as part of Future interactions between an affiliated
including one who is a current the broader implementation of Medicare contractor and the QIC include:
contractor who performs DMERC, NSC, contracting reform. Our specific plans Consolidating the case file materials for
and SADMERC functions, expressed on these issues will be made public in the QIC and effectuating favorable
concern over the removal of the the near future. decisions (either from the QIC,
SADMERC and NSC functions from a We do not anticipate that our changes Administrative Law Judge, or the
DMERC. will affect the implementation of the Departmental Appeals Board).
Response: This regulation does not other MMA provisions relating to DME, Comment: One commenter asserted
mandate removal of the SADMERC and including the competitive bidding that if we anticipate making major
NSC functions from a DMERC contract. program established by section 302 of changes to the number or boundaries of
Removing references to the SADMERC the MMA. For instance, we would see the DMERC jurisdictions, then we
and NSC from the regulation does not the DMERCs as implementing any should use the traditional notice and
mean we will not contract out for these pricing changes for DMEPOS items comment rulemaking process so that
services. The changes to the regulation based on that provision. We have those who will be impacted by the
give us flexibility in terms of how we devoted and will continue to devote changes are given sufficient opportunity
contract out for the SADMERC and NSC significant program management and to respond. A second commenter asked
functions. We will consider these transition planning efforts to analyzing that our March 26, 2004 proposed rule
comments in any future operational and mitigating these issues to the include a description of the process by
strategies for the processing of DMEPOS greatest extent possible. which the agency will seek public
claims. Comment: A commenter offered comment through a less formal means
Comment: Two commenters asked recommendations and suggestions than rulemaking. This commenter
how the Medicare contracting reform regarding a medical approach to the believes that any formal or informal
provisions of the MMA (section 911) payment provisions for prosthetic- process should permit comments on
would affect the underlying DMERC orthotic services and supplies. proposed changes, with sufficient
regulations at § 421.210, as well as our Response: The recommendations and response time, before the changes are
proposal to modify them. One of these suggestions submitted were coverage finalized. A third commenter also
commenters also asked whether we and policy issues, which are outside the suggested that we should consult with
might adjust the DMERC regions or scope of this regulation. We are beneficiary and supplier stakeholders
functions in our implementation of the forwarding this letter to the appropriate before implementing these kinds of
Medicare contracting reform provision, staff who can review and consider these changes.
while the other queried whether our recommendations in terms of our future Response: We believe that the agency
proposal would affect the policymaking decisions. has many potential avenues outside of
implementation of the other DME- Comment: A commenter inquired as notice and comment rulemaking for
related provisions in MMA (for to how ‘‘ongoing claims disputes’’ are obtaining input on planned changes in
instance, the DME competitive bidding handled when there is a change in the the number or boundaries of the DMERC
program established by section 302 of DMERCs, and whether these issues are jurisdictions. These include, but are not
the MMA). transferred to the new DMERC. limited to, publishing the changes for
Response: Section 911(e) of the MMA Response: Our normal practice, when comment on our Web site (http://
states that any statutes and regulations transferring contractual responsibility www.cms.hhs.gov), holding industry
pertaining to Medicare intermediaries for Medicare claims processing and conferences at either a national or local
and carriers, if not modified by or related functions from one contractor to level, or holding a ‘‘town hall’’-type
contrary to the explicit provisions of the another, is to transfer all work-in- meeting.
MMA, should be read as applying to the progress, including pending claims We intend to conduct these types of
Medicare administrative contractors that appeals, as of a certain date to the new exchanges, but do not believe that we
will replace the intermediaries and contractor. We anticipate that we will have to identify these informal
carriers. Thus, our regulation change generally follow this practice in regard approaches to obtaining the views of

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9238 Federal Register / Vol. 70, No. 37 / Friday, February 25, 2005 / Rules and Regulations

affected stakeholders in this final rule. stakeholders. We do not use the Federal administrative costs of DMEPOS
Instead, we believe that our Register to notify the public when we suppliers. Therefore, we do not believe
commitment to publish planned contract with a new intermediary or that a regulatory impact analysis is
changes in a Federal Register notice, non-DMERC carrier, and there is no necessary under E.O. 12866.
and to include our assessment of the reason why this approach to notifying The RFA requires agencies to analyze
effect of any change on beneficiaries and the public should be used when a options for regulatory relief of small
suppliers in our analysis (along with DMERC is replaced. businesses. For purposes of the RFA,
other information supporting the small entities include small businesses,
change) provides a sufficient IV. Provisions of the Final Regulations
nonprofit organizations, and
commitment—from a regulatory This final rule incorporates the government agencies. Most hospitals
perspective—to advance notification provisions of the proposed rule. The and most other providers and suppliers
and fair process. provisions of this final rule do not differ are small entities, either by nonprofit
Under this regulation, if sufficient from those in the proposed rule. status or by having revenues of $6
informal commentary has not been million to $29 million in any 1 year.
received, we are not precluded from V. Collection of Information
Requirements Individuals and States are not included
requesting public comment through the in the definition of a small entity. This
required Federal Register notice. This document does not impose any final rule, as noted above, will not have
Indeed, if there should be a change of new information collection and any significant direct economic impact
such magnitude as to warrant full notice recordkeeping requirements. on DMEPOS suppliers, because it will
and comment rulemaking, we have the Consequently, it need not be reviewed not affect the scope of benefits,
option of employing that process. by the Office of Management and coverage, or payment rules for
It is our intention to advise and Budget under the authority of the DMEPOS, nor will it affect the billing
consult with affected stakeholders, Paperwork Reduction Act of 1995. requirements for these services. This
especially suppliers and beneficiaries, rule does not designate any particular
about potential changes in the number VI. Regulatory Impact
reconfiguration of the DMERC areas.
or boundaries of DMERC jurisdictions A. Overall Impact However, we agree to consider any
well in advance of implementation. For
We have examined the impacts of this effects on DMEPOS suppliers in any
instance, this will occur as a matter of
final rule as required by Executive future reconfigurations of the DMERC
course as we develop our planned
Order (E.O.) 12866 (September 1993, regions. We are not preparing an
approach to implementing Medicare
Regulatory Planning and Review), the analysis for the RFA because we have
contracting reform; any changes in
Regulatory Flexibility Act (RFA) determined that this rule will not have
contractor jurisdictions associated with
(September 19, 1980, Pub. L. 96–354), a significant economic impact on a
that initiative will be well-publicized.
section 1102(b) of the Act, the substantial number of small entities. We
Short of a public emergency, the agency
Unfunded Mandates Reform Act of 1995 hereby certify, under 5 U.S.C. 605(b),
would make these kinds of plans public
at least several months before (Pub. L. 104–4), and E.O. 13132. that the final rule will not have a
implementation. These practices, which E.O. 12866 (as amended by E.O. significant economic impact on a
we believe do not require codification in 13258, which merely reassigns substantial number of small entities,
the regulations, will ensure that responsibility of duties) directs agencies including small businesses,
beneficiaries and suppliers have to assess all costs and benefits of organizations, and local governments.
continuity in access to DMERC claims available regulatory alternatives and, if In addition, section 1102(b) of the Act
processing services. regulation is necessary, to select requires us to prepare a regulatory
Comment: One commenter stated that, regulatory approaches that maximize impact analysis if a rule may have a
when we make a change in a DMERC net benefits (including potential significant impact on the operations of
contractor, we should notify affected economic, environmental, public health a substantial number of small rural
beneficiaries and suppliers through a and safety effects, distributive impacts, hospitals. This analysis must conform to
Federal Register notice at least 90 days and equity). A regulatory impact the provisions of section 604 of the
in advance. analysis (RIA) must be prepared for RFA. For purposes of section 1102(b) of
Response: We completely agree that, major rules with economically the Act, we define a small rural hospital
when we replace any established significant effects ($100 million or more as a hospital that is located outside of
Medicare claims processing contractor in any 1 year). This final rule does not a Metropolitan Statistical Area and has
with a new contractor, the affected reach the economic threshold and thus fewer than 100 beds. This rule pertains
public, including suppliers and is not considered a major rule. This rule to our processes for configuring and
beneficiaries, must be informed. In fact, merely provides the Secretary with designating contractors to process
we always consider a potential greater contracting flexibility consistent DMEPOS claims and will not have a
replacement contractor’s plan for with the statute and will not have any significant impact on the operations of
conducting provider and beneficiary direct economic impact. Because this a substantial number of small rural
outreach during the transition period as final rule only affects our administrative hospitals. Therefore, we are not
a major element in our contract award structures and does not change in any preparing an analysis for section 1102(b)
process. Our program experience way the Medicare DMEPOS benefit (that of the Act.
indicates that this kind of outreach is, neither coverage nor payment is Section 202 of the Unfunded
effort is a critical success factor for any changed), this rule will not affect the Mandates Reform Act of 1995 also
contractor transition. However, our amount or distribution of the Medicare requires that agencies assess anticipated
program experience also indicates that benefit payment for DMEPOS. Further, costs and benefits before issuing any
using the Federal Register for this kind any possible restructuring of the rule that may result in expenditure in
of activity is slow, ineffective, and DMERC regions in the future will not any 1 year by State, local, or tribal
cumbersome. There are many other, remotely approach a net economic governments, in the aggregate, or by the
more efficient ways to introduce the impact of $100 million on either our private sector, of $110 million. This rule
new Medicare contractor to the affected administrative costs or the will not have a consequential effect on

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Federal Register / Vol. 70, No. 37 / Friday, February 25, 2005 / Rules and Regulations 9239

the governments mentioned or on the ■ A. Revise paragraph (a). consider some or all of the following
private sector. ■ B. Revise paragraph (c). criteria—
Executive Order 13132 establishes ■ C. Revise the introductory text of * * * * *
certain requirements that an agency paragraph (d). (e) Carrier designation. (1) Each
must meet when it promulgates a ■ D. Revise paragraph (e). carrier designated a regional carrier
proposed rule (and subsequent final The revisions read as follows: must process claims for items listed in
rule) that imposes substantial direct paragraph (b) of this section for
requirement costs on State and local § 421.210 Designations of regional carriers beneficiaries whose permanent
governments, preempts State law, or to process claims for durable medical
residence is within that carrier’s region
otherwise has Federalism implications. equipment, prosthetics, orthotics, and
supplies. as designated under paragraph (c) of this
Since this regulation will not impose section. When processing the claims,
any costs on local governments, the (a) Basis. This section is based on the carrier must use the payment rates
requirements of E.O. 13132 are not sections 1834(a)(12) and 1834(h) of the applicable for the State of residence of
applicable. Act, which authorize the Secretary to the beneficiary, including a qualified
designate one carrier for one or more Railroad Retirement beneficiary. A
B. Conclusion entire regions to process claims for beneficiary’s permanent residence is the
For these reasons, we are not durable medical equipment, prosthetic address at which he or she intends to
preparing analyses for either the RFA or devices, prosthetics, orthotics, and other spend 6 months or more of the calendar
section 1102(b) of the Act because we supplies (DMEPOS). This authority has year.
have determined that this rule will not been delegated to CMS. (2) CMS notifies affected Medicare
have a significant economic impact on * * * * * beneficiaries and suppliers when it
a substantial number of small entities or (c) Region designation. (1) The designates a regional carrier (in
a significant impact on the operations of boundaries of the initial four regions for accordance with paragraph (d) of this
a substantial number of small rural processing claims described in section) to process DMEPOS claims (as
hospitals. paragraph (b) of this section contain the defined in paragraph (b) of this section)
C. Alternatives Considered following States and territories: for all Medicare beneficiaries residing in
We could have chosen to continue to (i) Region A: Maine, New Hampshire, their respective regions (as designated
operate under the constraints of our Vermont, Massachusetts, Connecticut, under paragraph (c) of this section).
current regulations. This option would Rhode Island, New York, New Jersey, (3) CMS may contract for the
require that we periodically undertake Pennsylvania, and Delaware. performance of National Supplier
notice and comment rulemaking to (ii) Region B: Maryland, the District of Clearinghouse functions through a
update the regulations with the names Columbia, Virginia, West Virginia, Ohio, contract amendment to one of the DME
of new contactors. We have provided Michigan, Indiana, Illinois, Wisconsin, regional carrier contracts or through a
additional discussion in the preamble and Minnesota. contract amendment to any Medicare
describing why we believe this is not (iii) Region C: North Carolina, South carrier contract under § 421.200.
the optimal solution. We believe our Carolina, Kentucky, Tennessee, Georgia, (4) CMS periodically recompetes the
decision to make modest changes to our Florida, Alabama, Mississippi, contracts for the DME regional carriers.
regulations will offer us greater Louisiana, Texas, Arkansas, Oklahoma, CMS also periodically recompetes the
flexibility in contracting with DMERCs New Mexico, Colorado, Puerto Rico, and National Supplier Clearinghouse
and allow us to be more responsive to the Virgin Islands. function.
the needs of all key stakeholders. (iv) Region D: Alaska, Hawaii, * * * * *
In accordance with the provisions of American Samoa, Guam, the Northern Dated: December 23, 2004.
E.O. 12866, this regulation was Mariana Islands, California, Nevada, Mark B. McClellan,
reviewed by the Office of Management Arizona, Washington, Oregon, Montana,
Administrator, Centers for Medicare &
and Budget. Idaho, Utah, Wyoming, North Dakota, Medicaid Services.
South Dakota, Nebraska, Kansas, Iowa,
List of Sections in 42 CFR Part 421 Approved: February 22, 2005.
and Missouri.
Administrative practice and Michael O. Leavitt,
(2) CMS has the option to modify the
procedure, Health facilities, Health number and boundaries of the regions Secretary.
professions, Medicare, Reporting and established in paragraph (c)(1) of this [FR Doc. 05–3728 Filed 2–24–05; 8:45 am]
recordkeeping requirements. section based on appropriate criteria BILLING CODE 4120–01–P

■ For the reasons set forth in the and considerations, including the effect
preamble, the Centers for Medicare & of the change on beneficiaries and
Medicaid Services amends 42 CFR DMEPOS suppliers. To announce FEDERAL COMMUNICATIONS
chapter IV, part 421 as set forth below: changes, CMS publishes a notice in the COMMISSION
Federal Register that delineates the
PART 421—INTERMEDIARIES AND regional boundary or boundaries 47 CFR Part 64
CARRIERS changed, the States and territories [CC Docket 98–67 and CG Docket No. 03–
affected, and supporting criteria or 123; DA 05–140]
■ 1. The authority citation for part 421
considerations.
continues to read as follows: Telecommunications Relay Services
(d) Criteria for designating regional
Authority: Secs. 1102 and 1871 of the carriers. CMS designates regional and Speech-to-Speech Services for
Social Security Act (42 U.S.C. 1302 and carriers to achieve a greater degree of Individuals With Hearing and Speech
1395hh). Disabilities
effectiveness and efficiency in the
Subpart C—Carriers administration of the Medicare program. AGENCY: Federal Communications
In making this designation, CMS will Commission.
■ 2. Section 421.210 is amended as award regional carrier contracts in
ACTION: Interpretation.
follows: accordance with applicable law and will

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