(1) Maintain an adequate system for the control of all bills;

(2) Process admission and Start-ofCare notices so that accurate and timely Reports of Eligibility are released to the provider;

(3) Review provider bills and make correct coverage determinations, providing the beneficiary with accurate and timely notice where required;

(4) Assist providers in developing and maintaining procedures to guard against unnecessary utilization of services;

(5) Accurately and promptly determine provider requests for waiver of liability and accurately apply these determinations to bills;

(6) Transmit accurate and timely bill information to HCFA; and

(7) Furnish the Administrator with timely and accurate reports of the bill processing function.

To

(e) Provider reimbursement. insure that Medicare payments are made properly, in accordance with Part 405, Subpart D, of this chapter, the intermediary must:

(1) Accurately and promptly establish, review and, where appropriate, adjust interim rates for providers;

(2) Establish and manage a provider cost report settlement program to receive cost reports from providers and arrange for the review, audit, and settlement of cost reports;

(3) Accurately apply the principles of reimbursement to insure that only reasonable and allowable costs incurred in furnishing covered services to Medicare beneficiaries are reimbursed by the Medicare program based on cost reports received from providers;

(4) Promptly and in accord with program instructions, identify, control, and recover or otherwise dispose of, overpayments to providers;

(5) Promptly notify providers of their rights to appeal cost report settlements, explain the procedures involved, and process appeals; and

(6) Furnish the Administrator with provider reimbursement, cost report, and overpayment data as required in program instructions or when requested.

(b) These standards will be derived from application of acceptable statistical measures of variation to nationwide intermediary experience during a base period. Any standards derived from base period experience and dealing with administrative cost will be adjusted to reflect the estimated effect of inflation and increased productivity.

(c) The performance of intermediaries during the base period will also be studied, using multiple regression analysis, to determine measurable factors that are not within the intermediary's control, but significantly affect selected performance standards. The Administrator will determine which noncontrollable factors will be used in adjusting performance standards.

(d) The development and revision of standards for evaluating intermediary performance will be a continuing process. Before the beginning of each evaluation period, the Administrator will publish a list of standards as a notice in the FEDERAL REGISTER.

[45 FR 42182, Jun. 23, 1980; 45 FR 64912, Oct. 1, 1980]

§ 421.124 Intermediary's failure to meet criteria or standards.

Failure by an intermediary to meet, or demonstrate the capacity to meet, the criteria or standards specified in §§ 421.120 and 421.122 may be grounds for adverse action by the Secretary or by the Administrator, such as reassigning providers, offering a shortterm agreement, or termination. If an intermediary meets all criteria and standards in its overall performance, but does not meet them with respect to a specific provider or class of providers, the Administrator may reassign that provider or class of providers to another intermediary in accordance with § 421.114.

60-131 0-81--31

§ 421.126 Termination of agreements. (a) Termination by intermediary. An intermediary may terminate its agreement at any time by:

(1) Giving written notice of its intention to the Administrator and to the providers it services at least 180 days before its intended termination date; and

(2) Giving public notice of its intention by publishing a statement of the effective date of termination at least 60 days before that date. Publication must be in a newspaper of general circulation in each community served by the intermediary.

(b) Termination by the Secretary, and right of appeal. (1) The Secretary may terminate an agreement if:

(i) The intermediary fails to comply with the requirements of this subpart;

(ii) The intermediary fails to meet the criteria or standards specified in §§ 421.120 and 421.122; or

(iii) The Administrator has reassigned, under §§ 421.114 or 421.116, all of the providers assigned to the intermediary.

(2) If the Secretary decides to terminate an agreement, he or she will offer the intermediary an opportunity for a hearing, in accordance with § 421.128.

(3) If the intermediary does not request a hearing, or if the hearing decision affirms the Secretary's decision, the Secretary will provide reasonable notice of the effective date of termination to:

(i) The intermediary;

(ii) The providers served by the intermediary; and

(iii) The general public.

(4) The providers served by the intermediary will be given the opportunity to nominate another intermediary, in accordance with § 421.104.

§ 421.128 Intermediary's opportunity for hearing and right to judicial review. (a) Basis for appeal. An intermediary adversely affected by any of the following actions shall be granted an opportunity for a hearing:

(1) Assignment or reassignment of providers to another intermediary.

(2) Designation of a national or regional intermediary to serve a class of providers.

(3) Termination of the agreement.
(b) Request for hearing. The inter-

mediary shall file the request with the Administrator within 20 days from the date on the notice of intended action.

(c) Hearing procedures. The hearing officer shall be a representative of the secretary and not otherwise a party to the initial administrative decision. The intermediary may be represented by counsel and may present evidence and examine witnesses. A complete recording of the proceedings at the hearing will be made and transcribed.

(d) Judicial review. An adverse hearing decision concerning action under paragraph (a)(1) or (a)(2) of this section is subject to judicial review in accordance with chapter 7 of Title 5, United States Code.

(e) As specified in § 421.118, contracts awarded under the experimental authority of the Administrator are not subject to the provisions of this section.

Subpart C-Carriers

§ 421.200 Carrier functions.

A contract between the Administrator and a carrier shall provide for the performance of the following functions:

(a) Coverage. (1) The carrier must assure that payment is made only for services that are:

(i) Rendered to Medicare beneficiaries;

(ii) Covered under Medicare Part B; and

(iii) Medically necessary. When a Professional Standards Review Organization (PSRO) has assumed review responsibility in accordance with the applicable provisions of Part 463 of this chapter, the PSRO shall make final determinations of medical necessity which are binding for purposes of payment.

(2) If it determines that the services were not medically necessary or the claim does not properly reflect the kind and amount of services furnished, the carrier must take appropriate action to reject or adjust the claim.

(b) Payment on a cost basis. If payment is on a cost basis, the carrier must assure that payments are based on reasonable costs, as determined under Part 405, Subpart D, of this chapter.

(c) Payment on a charge basis. If payment is on a charge basis, under Part 405, Subpart E of this chapter, the carrier must assure that:

(1) Charges are reasonable and not higher than the charge for a comparable service furnished under comparable circumstances to the carrier's policyholders and subscribers; and

(2) Payment is based on: (i) An itemized bill; or

(ii) An assignment under the terms of which the reasonable charge is the full charge for the service (see § 405.251(b) of this chapter); or

(iii) If the beneficiary has died before the bill is paid, an agreement by the person or persons who furnished the services, to accept the reasonable charge as the full charge for those services.

(d) Fiscal management. The carrier must receive, disburse, and account for funds in making payments under Medicare.

(e) Provider audits. The carrier must audit the records of providers to whom it makes Medicare Part B payments, to assure that payments are made properly.

(f) Utilization patterns. (1) The carrier must have methods and procedures for identifying utilization patterns that deviate from professionally established norms and bring the deviant patterns to the attention of appropriate professional groups.

(2) The carrier must assist providers and other persons who furnish Medicare Part B services to:

(i) Develop procedures relating to utilization practices;

(ii) Make studies of the effectiveness of those procedures and devise methods to improve them;

(iii) Apply safeguards against unnecessary utilization of services; and

(iv) Develop procedures for utilization review, and establish groups to perform such reviews of providers to whom it makes Medicare Part B payments.

(g) Information and reports. The carrier must furnish to the Administrator any information and reports that the Administrator requests in order to carry out his or her responsibilities in the administration of the Medicare program. The carrier must

be responsive to requests for information from the public.

(h) Maintenance and availability of records. The carrier must maintain and make available to the Administrator the records necessary for verification of payments and for other related purposes.

(i) Hearings to Part B beneficiaries. (1) The carrier must provide an opportunity for a fair hearing if it denies the beneficiary's request for payment, does not act upon the request with reasonable promptness, or pays less than the amount claimed.

(2) The hearing procedures must be in accordance with Part 405, Subpart H, of this chapter (Review and Hearing Under the Supplementary Medical Insurance Program).

(j) Other terms and conditions. The carrier must comply with any other terms and conditions included in its contract.

[45 FR 42183, Jun. 23, 1980; 45 FR 64913, Oct. 1, 1980]

§ 421.202 Requirements and conditions.

Before entering into or renewing a carrier contract, the Administrator will determine that the carrier:

(a) Has the capacity to perform its contractual responsibilities effectively and efficiently;

(b) Has the financial responsibility and legal authority necessary to carry out its responsibilities; and

(c) Will be able to meet any other requirements the Administrator considers pertinent.

§ 421.204 Provision for automatic renewal of contracts.

Contracts under this subpart may contain an automatic renewal provision, continuing the contract from term to term unless either party gives at least 90 days notice of its intention to terminate it at the end of the current term.

§ 421.205 Termination by the Secretary.

(a) Cause for termination. The Secretary may terminate a contract with a carrier at any time if he or she determines that the carrier has failed substantially to carry out any material terms of the contract or has performed its function in a manner incon

sistent with the effective and efficient administration of the Medicare Part B program.

(b) Notice and opportunity for hearing. Upon notification of the Secretary's intent to terminate the contract,

the carrier may request a hearing within 20 days after the date on the notice of intent to terminate.

(c) Hearing procedures. The hearing procedures will be those specified in § 421.128(c).

§ 430.0 Introduction to Subchapter C.

(a) Program description. Title XIX of the Social Security Act, enacted in 1965, authorizes Federal grants to States for medical assistance to lowincome persons who are age 65 or over, blind, disabled, or members of families with dependent children. The program is jointly financed by the Federal and State governments and administered by States. Within broad Federal rules, each State decides eligible groups, types and range of services, payment levels for services, and administrative and operating procedures. Payments for services are made directly by the State to the individuals or entities that furnish the services.

(b) Federal regulations. (1) The regulations in Subchapter C set forth State plan requirements, standards, procedures, and conditions for obtaining Federal matching. Each part (or subpart or section) in the subchapter describes the specific statutory basis for the regulation. However, where the basis is the Secretary's general authority to issue regulations for any program under the Act (section 1102 of the Act), or his general authority to prescribe State plan requirements needed for proper and efficient administration of the plan (section 1902(a)(4)), those statutory provisions are simply cited without further description.

(2) Other regulations applicable to State Medicaid programs include:

(i) 5 CFR Part 900, Subpart F, Administration of the Standards for a Merit System of Personnel Administration; and

(ii) The following HHS Regulations in 45 CFR Subtitle A:

Part 16-Department Grant Appeals Process.

Part 19-Limitations on Payment or Reimbursement for Drugs.

Part 74-Administration of Grants. 80-Nondiscrimination

Part

grams

Under ProReceiving Federal Assistance Through the Department of Health and Human Services: Effectuation of Title VI of the Civil Rights Act of 1964. Part 81-Practice and Procedure for Hearings Under 45 CFR Part 80. Part 84-Nondiscrimination on the Basis of Handicap in Programs and Activities Receiving or Benefiting From Federal Financial Assistance.

(3) Regulations in 45 CFR Parts 201 and 213 also apply to the Medicaid program, to the extent specified.

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

[43 FR 45187, Sept. 29, 1978, as amended at 44 FR 17929, Mar. 23, 1979; 45 FR 24882, Apr. 11, 1980]

In this subchapter, unless the context indicates otherwise

"Act" means the Social Security Act, and titles referred to are titles of that Act;

"Administrator" means the Administrator, Health Care Financing Administration;

"Applicant❞ means an individual whose written application for Medicaid has been submitted to the agency determining Medicaid eligibility, but has not received final action. This inIcludes an individual (who need not be alive at the time of application) whose application is submitted through a representative or a person acting responsibly for the individual;

"Bureau Director" means the Director of the Federal Medicaid program with HCFA;

"Central office" means the headquarters office of HCFA;

"Federal financial participation" (FFP) means the Federal Government's share of a State's expenditures under the Medicaid program;