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Conferees Reach Agreement on Medicare Contractor Reform Legislation


The Medicare contractor reform legislation was merged into the "Prescription Drug and Medicare Improvement Act of 2003," i.e., H.R. 1 and S.1. Both of these bills were passed last month in their respective bodies but with some major differences on the drug coverage pieces. Those differences have been widely reported in the press and are to be worked out in conference within the next few months.

The conferees met on Thursday, July 24th, and reached agreement on reconciling the regulatory non-controversial pieces of the legislation, including the contractor reform piece. It is important to know about the key points that the conferees agreed to because the legislation allows CMS to take interim steps it believes are necessary to implement the new authorities as soon as the legislation is enacted. This might have relevance to the renewal of existing Medicare intermediary and carrier contracts even though the new contracting requirements generally do not go into effect until October 1, 2005 at the earliest:

  • The competitive bidding deadline for the completion of all initial competitions will be October 1, 2011.
  • The effective date for most provisions of the contractor reform package is October 1, 2005. This is the earliest the provisions of the new contracting authorities will be effective.
  • The conferees agreed to specifically authorize CMS to enter into new intermediary and carrier contracts under the existing contracting authority until the October 1, 2005 effective date.
  • One of the functions that the new contractors will be required to perform is the development of local coverage determinations. With regard to local coverage determinations, the Senate bill contains a provision that would require the new contracts to mandate, for contractors that have multi-State responsibilities, a separate medical director in each of the States with a separate contractor advisory committee for each State. The House Ways and Means Committee's summary of the reconciliation reports that the conferees agreed that local coverage determinations must be a mandatory contractual function so our guess is that this more detailed provision that somehow was inserted into the Senate bill at the last minute was not adopted.
  • New contractors will be expressly permitted to perform Medicare Integrity Program (MIP) fraud and abuse functions to the extent they don't duplicate the performance of those same functions by MIP contractors. This is actually the practice under the current contracting authority.

The remainder of the contractor reform provisions, that as stated above generally do not go into effect until October 1, 2005, appear to be pretty much what was contained in the original House bill, H.R. 810. Thus, under the new Medicare Administrative Contracting authority:

  • Contractor liability for erroneous payments to providers will have a "reckless disregard" threshold. What that means is that while contractors will, for the first time, have exposure for making erroneous payments to providers, simple negligence or failure to exercise due care will not be a sufficient basis to impose liability on a contractor if such overpayments cannot be recovered from the provider, even though this is the standard that CMS tried to impose. Contractor liability will only come into play only if the contractor acts with reckless disregard or with intent to defraud the United States.
  • The authority for CMS to indemnify a contractor when a dissatisfied provider files suit against it is expressly permitted in the new legislation. Under the current law, there is no specific authority for CMS to indemnify its contractors in this sort of situation and the case law requires an express grant of authority from Congress before the Government can indemnify a contractor.
  • Because competitive bidding will follow the rules of the Federal Acquisition Regulation (FAR) when selecting the new Medicare Administrative Contractors, the universe of prospective contractors will now be open to entities that heretofore have not been eligible to qualify as an intermediary or carrier.
  • There is one provision that will go into effect immediately. The legislation permits CMS to waive the provider nomination process upon enactment. Therefore, Blue Cross Plans serving as fiscal intermediaries will now be permitted to enter into contracts directly with CMS upon enactment of the legislation. Thus, local Plans will no longer need to be subcontractors under the Blue Cross and Blue Shield Association's prime contract.
  • Because the FAR will apply to the new Medicare Administrative Contracts, contractors will be permitted to earn a profit and will no longer be restricted to the pure cost-reimbursement form of contract that CMS has generally imposed on the intermediaries and carriers since the inception of the Medicare program.

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