whereby the HMO pays for the services on a fee-for-service basis shall be the charges pursuant to the terms of the agreement for these covered services provided these charges do not exceed the reasonable charge for the service, as defined in Subpart E of this part. However, an exception to this reasonable charges limitation is permitted a physician group organized on an individual-practice basis that meets the conditions set forth in § 405.2042(g)(3).

(3) Emergency services, urgently needed services and other covered medical services for which the HMO assumes financial responsibility. The share to be borne by the health insurance program for covered physicians' services and other covered Part B services which are not furnished by a provider of services and are emergency services (as defined in § 405.2005(a) (3)(i), urgently needed services (as defined in § 405.2005(a)(3)(ii)), or other covered services for which the HMO assumes financial responsibility, except for services covered under reinsurance, the cost of which is allowable pursuant to § 405.2042(d), shall be determined in accordance with paragraph (c) (2) of this section, unless payment of a greater amount is justified to the satisfaction of HCFA. For example, payment of the charges of a physician or other Part B supplier rather than reasonable charge for the service as defined in Subpart E of this part may be justified if: The physician or other Part B supplier furnishes services to enrollees of the HMO on an infrequent basis; such charges represent an insignificant amount of total reimbursement to the HMO by the program; and such charges do not exceed the amounts charged by such physician or other Part B supplier to other patients for similar services.

(d) Weighting for services of physicians and other health care personnel. (1) Since the direct professional services of physicians and other health care personnel vary in time and complexity from patient to patient, depending on the patient's condition and other factors, the HMO may weight for time and complexity the services that are used to compute the apportionment of costs for the direct profes

sional services of physicians and other health care personnel pursuant to paragraph (c)(1) of this section provided such weighting is approved by HCFA. The HMO may use statistics or reasonable estimates that are based on adequate data acceptable to HCFA. However, services used in apportionment ratios for each department, i.e., services furnished title XVIII beneficiaries who are enrolled in the HMO, other enrollees, and nonmember patients, must be weighted on the same basis to assure an equitable apportionment of costs.

(2) Such weighting shall be permitted, subject to the payment limitation set forth in § 405.2042(g), if applicable, in making reimbursement for the covered Part B professional services of physicians and other health care personnel furnished under arrangements where apportionment is on the basis of services, pursuant to paragraph (c)(2)(i) of this section, provided such weighting is based on statistics or adequate data acceptable to HCFA and all services used in the apportionment ratio are weighted on the same basis. Where payment for such arranged-for services is on some other basis, time and complexity shall be recognized subject to the payment limitation in § 405.2042(g), if applicable, but only to the extent that they are specific and reasonable elements of the amount which the HMO, pursuant to the terms of the financial agreement with the group of physicians, has agreed to pay for such services.

(e) Example. The following example illustrates the apportionment of the cost of covered Part B services on a departmental basis. In the example, the following assumptions are made:

(1) There are no covered services furnished in the following departments: dental, optical, and social and community services;

(2) Allocable indirect costs (e.g., medical records costs) and general and administrative costs have been distributed to departments;

(3) Unallowable costs have been excluded (e.g., research costs, unallowable costs related to capital expenditures (see § 405.2042(b)(13)));

(4) Statistical data are weighted for time and complexity.

(f) Method of apportionment of administrative and general costs of the HMO plan. (1) Enrollment, marketing, membership, and other administrative and general costs of the HMO plan that benefit the total enrolled population of the HMO and which are not directly associated with providing medical care shall be apportioned on the basis of a ratio of enrollment of title XVIII beneficiaries to the total HMO enrollment.

(2) General management and other administrative and general costs of the HMO plan that bear a significant relationship to services furnished by the HMO shall be included in the overall costs of the HMO. These costs shall be apportioned on the basis of the percentage of the HMO's total costs (excluding the general management and other administrative and general costs of the HMO plan to be apportioned) that have been apportioned to the health insurance program by acceptable methods of apportionment set forth in this section.

(g) Example. The following illustrates the apportionment of the general management and other administrative and general costs of the HMO plan that bear a substantial relationship to services furnished by the HMO (described in paragraph (f)(2) of this section). These costs are apportioned on the basis of a percentage of costs (excluding the general management and other administrative and general costs of the HMO plan to be apportioned) already apportioned to the health insurance program by acceptable apportionment methods. These acceptable apportionment methods are set forth in paragraphs (a) through (d) of this section for the HMO's health services delivery components (e.g., providers of services and components furnishing physicians' services) and in paragraph (f)(1) of this section for groupings of HMO plan expense (e.g., enrollment, marketing, membership, and other admin

(h) Other methods of allocation and apportionment. (1) A method of apportionment or basis for allocation of costs, other than the methods prescribed in this subpart, may be used provided such method results in a more accurate and equitable apportionment of allowable costs and is justifiable from an administrative and cost standpoint. An HMO that desires to use such an alternate method must submit its request to do so to HCFA, in writing, at least 90 days prior to the beginning of the period to which the different method or basis of allocation is to be used. Once having obtained approval from HCFA to use a different method or basis of allocation, the HMO may not revert to another method without first obtaining the approval of HCFA.

(2) Where a developing HMO does not have the capability to collect the statistical and financial data required to apportion allowable costs pursuant to the requirements set forth in this section, it may, after first obtaining the approval of HCFA, use another method for apportioning or allocating allowable costs. However, the HMO must present a plan which satisfies HCFA that it will have the capability necessary to collect statistical and financial data to apply the methods of apportionment required by this subpart within a reasonable period of time, not to exceed two contract periods after the expiration of the period of its initial contract with HCFA.

[41 FR 49598, Nov. 9, 1976; 41 FR 53320, Dec. 6, 1976. Redesignated at 42 FR 52826, Sept. 30, 1977]

§ 405.2044 Adequate financial records, statistical data, and cost finding.

(a) HMO's must maintain sufficient financial records and statistical data for proper determination of costs payable to the HMO pursuant to this subpart by the health insurance program for the covered services furnished by the HMO to its enrollees who are title XVIII beneficiaries, whether furnished directly by the HMO or under with arrangements by the HMO others. Unless otherwise provided for

in this subpart, standardized definitions, accounting, statistics, and reporting practices which are widely accepted in the health care industry shall be followed.

(b) The HMO must provide adequate cost and statistical data, based on its financial and statistical records, which are capable of verification by qualified auditors. The cost data must be based on an approved method of cost finding and on the accrual basis of accounting. However, where governmental institutions operate on a cash basis of accounting, cost data based on such basis of accounting will be acceptable, subject to apporpriate treatment of capital expenditures.

(c) Where the services of providers of services are furnished directly by the HMO, the provider of services is subject to the cost-finding and cost-reporting requirements set forth in Subpart D of this part. An approved costfinding method described in § 405.453 must be used to determine the actual cost of covered services furnished directly by the HMO during its reporting period.

(d) Where physicians' and other Part B medical services (not furnished by a provider of services) are furnished directly by the HMO, the statistical and financial data for such services shall be reported by departments (e.g., primary care, laboratory, X-ray). Statistics shall be furnished that indicate the frequency and type of service provided, in such form and detail as prescribed by HCFA. Costs allocable to more than one department, such as medical records, shall be distributed to each such department in proportion to the benefits received by the department. Other general and administrative costs of a health services delivery components of the HMO which cannot be assigned to a specific department shall be allocated on the basis of costs already distributed or allocated to the department.

(e) Where physicians' and other Part B medical services (not furnished by a provider of services) are furnished by the HMO through arrangements, the HMO shall furnish statisti

cal, financial, and other information with respect to such services in such form and detail as prescribed by HCFA.

(f) Accurate and sufficient detail of incurred costs, enrollment, and statistical data shall be maintained in financial and other records and shall be reported in such form and detail as required by HCFA. In the case of a separate organization or department that performs administrative services, such as centralized purchasing, accounting, data processing, etc., that benefit the HMO and the HMO's major functional components, such as a hospital, skilled nursing facility, or other activity owned by the HMO, these costs shall be allocated or distributed to each such components in reasonable proportion to the benefits received by the component. Other allocable administrative service costs that cannot otherwise be distributed shall be allocated on the basis of cost already distributed or allocated to the component (see § 405.2043(f)).

§ 405.2045 Interim per capita payments.

(a) Principle of payment. Each month HCFA shall pay, in advance, to the HMO its interim per capita rate of payment for each individual enrolled in the HMO for whom the health insurance program is responsible for making such a payment pursuant to § 405.2021. Additional lump-sum payments may be made at other times during the contract period, at the discretion of HCFA, to adjust the total amounts paid during the contract period to the level of incurred costs.

(b) Determination of rate. The interim per capita rate of payment is equal to the estimated per capita cost of providing covered services to title XVIII beneficiaries enrolled in the HMO, based upon types and components of costs which are reimbursable pursuant to this subpart. The interim per capita rate shall be determined annually by HCFA on the basis of the HMC's annual operating and enrollment forecast (see paragraph (e) of this section) and may be revised during the contract period as explained in paragraph (c) of this section.

(c) Adjustments of payments. In order to maintain the interim payments at the level of current reasonable costs, HCFA shall adjust the interim per capita rate, to the extent necessary, on the basis of adequate data supplied by the HMO in its interim estimated cost and enrollment reports or such other evidence that HCFA may have that the rate based on actual costs is more or less than the current rate. Adjustments may also be made where there is:

(1) A change in the number of enrollees in the HMO who are title XVIII beneficiaries and the per capita cost rate is affected;

(2) A material variation from the costs estimated when the annual operating budget was prepared; or

(3) A significant change in the use of covered services by enrollees in the HMO who are title XVIII beneficiaries.

(d) Reduction in payment. HCFA may reduce interim payments, to the extent appropriate, in the event that reports (and other data the HMO is required to submit pursuant to this subpart in order to determine the amount of payment to be made) are not furnished timely, or may take such other action as is authorized pursuant to this subpart. An interim payment reduction shall remain in effect until such time as a reasonable estimate of per capital costs can be made.

(e) Budget and enrollment forecast. (1) The HMO shall submit an annual operating budget and enrollment forecast, in such form and detail as HCFA may require, at least 90 days prior to the beginning of each contract period. Such forecast shall be based upon information and statistical data capable of verification where a detailed review of supporting records is required by HCFA. Such information and data include, but are not limited to, all ledgers, books, records and original evidence of costs and statistical data which pertain to the determination of reasonable cost. (See also § 405.2023(b) on the enrollment forecast.)