allow for such modification. On the basis of such estimates as the Secretary shall approve, a quarterly allotment of funds will be determined by the Secretary for the Plan for such fiscal year. The Intermediary or its authorized bank shall draw funds on the letter of credit, as specified in paragraph B of Article V, of the Intermediary's agreement with the Secretary, for the purpose of meeting the administrative expenses of the Plan in connections with this agreement. The total of such withdrawals shall not exceed in any quarter the quarterly allotment for the Plan determined by the Secretary. Funds will be drawn by the Intermediary as needed to meet the Plan's incurred direct and indirect costs, determined and estimated currently and submitted to the Intermediary by the Plan. The Plan shall establish such accounting and fiscal controls as may be necessary in order to comply with the provisions of this Article.

C. The Plan shall have no obligation under this agreement to incur any costs (1) beyond its budgeted amount, as it may be revised from time to time, or (2) in the event the Secretary fails to approve a requested increase in the quarterly allotment of funds, beyond the cumulative amount previously determined by the Secretary for such quarter; provided, however, that if costs in excess of the indicated amount are in fact incurred by the Plan, its right to claim such costs under paragraph F will not be prejudiced thereby.

D. If variances in excess of 5% in the amounts budgeted for any quarter for any component of administrative expenses for the Plan are reported in the quarterly report filed pursuant to paragraph G of this Article, the Secretary may require from the Intermediary or the Plan explanations of such variances from the budget approved in accordance with paragraph B of this Article for the purpose of avoiding budget cost overruns in each component. For purposes of this agreement the components of administrative expenses are those Groups of budget items set forth in section 1304 of the Part A Intermediary Manual as in effect on July 1, 1975. If the Secretary, the Intermediary, or the Plan determines that such variances from the budget require an adjustment in the budget, such adjustment shall be accomplished by such ways and means as may be agreed to by the parties, or, if the parties are unable to agree, by abatement of any activity or activities performed or to be performed by the Plan, by adjustment in the budget, or by a combination of both budget adjustment and abatement of activities as the Secretary may direct; provided, however, that the allowability of any costs incurred by the Plan in the implementation of any abatement directed by the Secretary shall be governed by the provisions of paragraph B of Article XIII of this agreement applicable to termination costs. The principles set forth in section 1139 of Appendix B to this agreement governing termination costs, shall be applicable as appropriate to costs related to the abatement under this paragraph.

E. If at any time it appears to the Plan, the Intermediary or the Secretary that the budgeted amounts will not be sufficient to cover administrative costs incurred and estimated to be incurred in the fiscal year, such party shall so notify the others promptly, but in no event less than 75 days prior to the date on which it is estimated that budgeted funds will be exhausted unless it can be demonstrated that such notice could not have been given 75 days in advance of such estimated date. Such notification may be by telephone or telegraph with later confirmation by letter and shall contain proposals as to how costs expected to be incurred may be reduced. The Secretary, the Intermediary and the Plan shall promptly negotiate ways and means of resolving the matter for the purpose of assuring that the Intermediary and the Plan will not suffer a loss in the performance of their contractual obligations. Such resolution may include an increase in the budgets, a reduction of functions to be performed by the Plan, a combination of both, or such other ways and means as may be agreeable to the parties. If, after negotiating in good faith, the parties are unable to find a satisfactory solution to the matter, the Secretary shall give the Intermediary and the Plan written notice as to what measures to take in order to avoid the incurrence of costs in excess of the budgeted amount. If the Secretary notifies the Intermediary or the Plan to abate the performance of a function, the obligation of the United States, if any, shall not extend

beyond the effective date of such notice to abate, or the date such notice is received, whichever is later, provided, however, that the allowability of any costs incurred by the Intermediary and the Plan in the implementation of any abatement directed by the Secretary shall be governed by the provisions of paragraph B of Article XIII of this agreement applicable to termination costs. The principles set forth in section 1139 of Appendix B to this agreement governing termination costs, shall be applicable as appropriate to costs related to the abatement under this paragraph. Any time period specified in this section may be waived by mutual agreement of the parties.

F. If the amount of costs incurred by the Plan which are determined to be allowable upon final settlement exceeds the budgeted amount, the Secretary shall pay such costs provided that the requirements of paragraphs D and E, as applicable, have been met by the Plan.

G. Within 30 days after the end of each quarter, the Plan will prepare and submit to the Secretary and the Intermediary a quarterly report of administrative expenses, including actual costs where available and estimated expenses for other operations. In addition the Plan will submit a monthly report of administrative expenses, including actual cost where available and estimated expense where actual costs are not available, showing in the aggregate for the preceding months: (1) net productive manhours; (2) personal service costs; (3) other costs; (4) the total of (2) and (3); and (5) the total provider audit and reimbursement cost.

H. The Plan shall, not later than 75 days after the expiration of its fiscal year, submit to the Secretary and the Intermediary a cost statement for its operation. Negotiations on final determination of the administrative costs of the Plan shall be undertaken by the Secretary and the Intermediary as rapidly as possible after the Secretary's receipt of the Plan's final statement. A closing agreement with respect to the administrative costs which they agree are allowable shall constitute a final determination that such costs are payable to the Plan for that fiscal year. To the extent unpaid, such amounts shall be paid promptly to the Intermediary by the Secretary through the letter of credit or otherwise. Any excess of funds withdrawn through the letter of credit in excess of the amount determined under the closing agreement shall be returned promptly to the Intermediary.

I. If the Secretary and the Intermediary are unable to agree upon a final determination of administrative costs for the fiscal year, the Secretary shall determine such administrative costs and inform the Intermediary of such costs, with a full explanation of the exceptions he has taken to the Intermediary's report of the allowable costs. If such exceptions involve or affect the Plan's administrative costs, the Intermediary will promptly inform the Plan thereof and provide the Plan with the Secretary's explanation of the exceptions taken. The determination of the Secretary on a question of fact shall be final and conclusive unless, within 30 days from the date of the written notice to the Intermediary of such exceptions, the Intermediary files a written appeal with the Secretary. The decision of the Secretary upon such appeal shall be final and conclusive upon the Intermediary and the Plan, unless a court of competent jurisdiction finds such decision to have been fraudulent, or capricious, or arbitrary, or so grossly erroneous as necessarily to imply bad faith, or not supported by substantial evidence. In connection with any appeal proceeding under this Article, the Intermediary and the Plan shall be afforded an opportunity to be heard and to offer evidence in support of the appeal. The representative of the Secretary who hears the appeal and makes the decision shall be different from the representative who determined the exceptions. Pending the decision of the Secretary, the Intermediary and the Plan shall proceed diligently with the performance of this agreement and in accordance with the exceptions taken. The previous provisions of this paragraph do not preclude consideration of any questions of law in connection with decisions provided therein, except that nothing in this agreement shall be construed as making final such decisions on a question of law.

J. If a difference arises regarding the Plan's cost statement, submitted under paragraph H hereof, the Plan's representatives may participate in discussions with the Secretary for the purpose of resolving such differences; and if such difference cannot be resolved by agreement the Intermediary will, if requested by the Plan, appeal the Secretary's determination, as provided in paragraph I hereof, and associate the Plan in the prosecution of such appeal with the right to present evidence and be heard.

Article VII

COMPLIANCE WITH REGULATIONS AND GENERAL INSTRUCTIONS

A. The Plan shall comply with such Regulations and General Instructions as the Secretary may from time to time prescribe for the administration of this agreement.

B. In the course of the development of such Regulations and General Instructions for the administration of this agreement, and prior to the issuance thereof, the Secretary shall provide adequate prior notice and afford prior consultation to the Intermediary, with respect to the content of such Regulations or General Instructions and their effect upon the administration of this agreement; provided, however, the Regulations or General Instructions may be issued without prior consultation if deemed necessary by the Secretary.

C. The Plan shall not be deemed to be in default of its obligations under this agreement, if, for a reasonable length of time, but in no event less than 90 days, it fails to implement any such Regulation or General Instruction due primarily to the lack of then available funds, personnel, or equipment necessary to perform the activities required under the Regulations or General Instructions.

Article VIII

FURNISHING INFORMATION TO THE SECRETARY

A. The Plan agrees that the Secretary shall at such times and in such manner as he may prescribe, have access to any data acquired or utilized by it in the development and processing of claims or in carrying out its other functions under this agreement, and, further, shall have use of such data (other than discrete data such as trade secrets, commercial or financial data obtained solely from private business of the Plan and Information described in paragraph B of this Article). The Plan shall also, at such times and in such manner as the Secretary may prescribe, furnish to other organizations for use in administering health care or health care financing programs under the Act, data acquired or utilized by it in the development and processing of claims or other data (other than discrete data such as trade secrets, commercial or financial data obtained solely from private business of the Plan and Information described in paragraph B of this Article) acquired by it in carrying out its functions under this agreement.

B. For purposes of this Article, the term "Information" shall mean all systems documentation, program logic, operating manuals, and all other operating methods and procedures involved in the performance of functions and duties under this agreement. The Plan agrees that the Secretary shall, at such times and in such manner as he may prescribe, have access to such Information, and, further, if more than 50 percent of the cost of development thereof has been paid out of Government funds, shall have use of such Information for health care or health financing programs under the Act.

C. The Plan shall retain such information or data subject to the time limit imposed by Article XX on the retention of the Plan's records and to the right to examine such records as specified in such Article.

Article IX
AUDIT

The Plan shall in accordance with Regulations or General Instructions make such audits of records of providers of services and emergency hospitals as is necessary for the purpose of determining that such providers of services and such emergency hospitals are being reimbursed in accordance with the provisions of the Act and the Regulations promulgated pursuant thereto. Such audit shall be performed by the Plan through such mechanisms as may be mutually agreed upon by the Secretary, the Intermediary, and the Plan.

Article X

CERTIFICATION AND DISBURSEMENT

The Plan shall establish and maintain adequate procedures and controls to insure that any payments pursuant to this agreement are made only upon proper certification and/or authorization. In establishing and maintaining such procedures, the Plan shall provide for separation of the functions of certification and disbursement. The Plan shall give a fidelity bond to the United States in such manner and in such amount as the Secretary may deem appropriate.

Article XI
INDEMNIFICATION

In the event the Plan or any of its directors, officers, employees or persons who are engaged or retained by the Plan to participate directly in the claims administration process are made parties to any judicial or administrative proceeding arising, in whole or in part, out of any function of the Plan under this agreement in connection with any claim for benefits by any individual or his assignee, then the Secretary and the Intermediary shall hold the Plan harmless for all judgments, settlements, and costs, in favor of such individual or his assignee, incurred by the Plan or any of its directors, officers, employees or persons who are engaged or retained by the Plan to participate directly in the claims administration process in connection therewith. The Plan shall reimburse the United States for the amount of any valid judgment or award paid by the United States in the discharge of the Secretary's obligations under this Article if the liability underlying the judgment or award was the direct consequence of conduct on the part of the Plan, determined by judicial proceedings or the agency making the award to be criminal in nature, fraudulent, or grossly negligent.

Article XII

CONFIDENTIAL NATURE AND LIMITATION ON USE OF INFORMATION AND RECORDS

A. The Plan shall establish and maintain procedures and controls for the purpose of assuring that information contained in its records and obtained from the Secretary, the Intermediary, or from others in carrying out its functions and duties under this agreement will be used by it and disclosed solely as provided in section 1106 of the Act and the Regulations of the Secretary prescribed thereunder.

B. The Plan shall not use its position as a Medicare contractor for the purpose of furthering its private business interest or for profit or gain nor shall the Plan use any materials or information it obtains

from the Secretary or Intermediary or develops in performing its functions and duties under this agreement to promote its private business interests.

C. The Plan shall establish and maintain procedures and controls (including the completion of an appropriate "conflict of interest questionnaire") for the purpose of preventing any of its directors, trustees, officers or responsible employees from using their positions with the Plan for purposes of furthering their private business interests, to the detriment of the Medicare program, and from using any material or information, not otherwise in the public domain, obtained by the Plan from the Secretary or developed by the Plan in performing its functions and duties under this agreement to promote their private business interests.

D. The Plan shall establish and maintain procedures and controls for the purpose of preventing any of its directors, trustees, officers or responsible employees, directly or indirectly from accepting payment from any person of any fee, commission, compensation, gift, or gratuity as an inducement or acknowledgement for the award of a subcontract.

Article XIII

TYPES OF COSTS ALLOWABLE FOR ADMINISTRATION OF THIS AGREEMENT

A. It is the intent of this agreement that the Plan, in performing its functions and duties under this agreement, shall be paid its costs of administration under the principle of neither profit nor loss to the Plan.

B. The Intermediary shall pay to the Plan the total amount of allowable costs of the Plan incurred in the performance of this agreement subject to the provisions of Article VI. The cost allowable under this agreement shall be determined in accordance with the provisions of Part 1-15.2 of the Federal Procurement Regulations, as interpreted and modified by Appendix B to this agreement, provided, however, that the Intermediary may appeal, in accordance with paragraph I of Article VI of this agreement, any cost determination by the Secretary. The Plan's established method of allocating indirect costs to the cost of performing this agreement, if equitable, reasonable, and in accord with generally accepted accounting principles and in accordance with section 160 of Appendix B, shall be accepted by the Secretary.

C. In connection with the allowability of any particular item of cost, the Plan may from time to time submit to the Intermediary for submission to the Secretary a request as to whether such item of cost is allowable. A written communication from the Secretary to the Intermediary and Plan that such item of cost is allowable shall constitute a determination of allowability for purposes of this agreement.

D. In the event the Plan or any of its directors, officers, employees or persons who are engaged or retained by the Plan to participate directly in the claims administration process, are made parties to any judicial or administrative proceeding arising, in whole or in part, out of any functions of the Plan under this agreement, except any proceeding of type to which reference is made in Article XI, the amounts of any judgment, settlement, costs, expenses, or other expenditures directly or indirectly incurred by the Plan or any of its directors, officers, employees or persons who are engaged or retained by the Plan to participate directly in the claims administration process in connection with such proceeding shall be reimbursable.