42 C.F.R. Subpart P—Quality Control
Title 42 - Public Health
Source: Sections 431.800 through 431.808 appear at 55 FR 22166, May 31, 1990, unless otherwise noted.
This subpart— (a) Establishes State plan requirements for a Medicaid eligibility quality control (MEQC) program designed to reduce erroneous expenditures by monitoring eligibility determinations and a claims processing assessment system that monitors claims processing operations. (b) Establishes rules and procedures for disallowing Federal financial participation (FFP) in erroneous Medicaid payments due to eligibility and recipient liability errors as detected through the MEQC program. This subpart implements the following sections of the Act, which establish requirements for State plans and for payment of Federal financial participation (FFP) to States:
1902(a)(4) Administrative methods for proper and efficient operation of the State plan. 1903(u) Limitation of FFP for erroneous medical assistance expenditures. As used in this subpart— Active case means an individual or family determined to be currently authorized as eligible for Medicaid by the agency. Administrative period means the period of time recognized by the MEQC program for State agencies to reflect changes in case circumstances, i.e., a change in a common program area, during which no case error based on the circumstance change would be cited. This period consists of the review month and the month prior to the review month. Claims processing error means FFP has been claimed for a Medicaid payment that was made— (1) For a service not authorized under the State plan; (2) To a provider not certified for participation in the Medicaid program; (3) For a service already paid for by Medicaid; or (4) In an amount above the allowable reimbursement level for that service. Eligibility error means that Medicaid coverage has been authorized or payment has been made for a recipient or family under review who— (1) Was ineligible when authorized or when he received services; or (2) Was eligible for Medicaid but was ineligible for certain services he received; or (3) Had not met recipient liability requirements when authorized eligible for Medicaid; that is, he had not incurred medical expenses equal to the amount of his excess income over the State's financial eligibility level or he had incurred medical expenses that exceeded the amount of excess income over the State's financial eligibility level, or was making an incorrect amount of payment toward the cost of services. Negative case action means an action that was taken to deny or otherwise dispose of a Medicaid application without a determination of eligibility (for instance, because the application was withdrawn or abandoned) or an action to deny, suspend, or terminate an individual or family. State agency means either the State Medicaid agency or a State agency that is responsible for determining eligibility for Medicaid. (a) MEQC program. A State plan must provide for operating a Medicaid eligibility quality control program that meets the requirements of §§431.810 through 431.822 of this subpart. (b) Claims processing assessment system. Except in a State that has an approved Medicaid Management Information System (MMIS) under subpart C of part 433 of this subchapter, a State plan must provide for operating a Medicaid quality control claims processing assessment system that meets the requirements of §§431.830 through 431.836 of this subpart. Any individual performing activities under the MEQC program or the claims processing assessment system specified in this subpart must do so in a manner that is consistent with the provisions of §§435.902 and 436.901 of this subchapter concerning the rights of recipients.
Title 42: Public Health
PART 431—STATE ORGANIZATION AND GENERAL ADMINISTRATION
Subpart P—Quality Control
General Provisions
§ 431.800 Scope of subpart.
§ 431.802 Basis.
§ 431.804 Definitions.
§ 431.806 State plan requirements.
§ 431.808 Protection of recipient rights.
Medicaid Eligibility Quality Control (MEQC) Program
Source: Sections 431.810 through 431.822 appear at 55 FR 22167, May 31, 1990, unless otherwise noted.
§ 431.810 Basic elements of the Medicaid eligibility quality control (MEQC) program.
(a) General requirements. The agency must operate the MEQC program in accordance with this section and §§431.812 through 431.822 and other instructions established by CMS.
(b) Review requirements. The agency must conduct MEQC reviews in accordance with the requirements specified in §431.812 and other instructions established by CMS.
(c) Sampling requirements. The agency must conduct MEQC sampling in accordance with the requirements specified in §431.814 and other instructions established by CMS.
§ 431.812 Review procedures.
(a) Active case reviews. (1) Except as provided in paragraph (a)(2) of this section, the agency must review all active cases selected from the State agency's lists of cases authorized eligible for the review month, to determine if the cases were eligible for services during all or part of the month under review, and, if appropriate, whether the proper amount of recipient liability was computed.
(2) The agency is not required to conduct reviews of the following cases:
(i) Supplemental Security Income (SSI) recipient cases in States with contracts under section 1634 of the Act for determining Medicaid eligibility;
(ii) Foster care and adoption assistance cases under title IV-E of the Act found eligible for Medicaid; and
(iii) Cases under programs that are 100 percent federally funded.
(b) Negative case reviews. Except as provided in paragraph (c) of this section, the agency must review those negative cases selected from the State agency's lists of cases that are denied, suspended, or terminated in the review month to determine if the reason for the denial, suspension, or termination was correct and if requirements for timely notice of negative action were met. A State's negative case sample size is determined on the basis of the number of negative case actions in the universe.
(c) Alternate systems of negative case reviews—(1) Basic provision. A State may be exempt from the negative case review requirements specified in paragraphs (b) and (e)(2) of this section and in §431.814(d) upon CMS's approval of a plan for the use of a superior system.
(2) Submittal of plan for alternate system. An agency must submit its plan for the use of a superior system to CMS for approval at least 60 days before the beginning of the review period in which it is to be implemented. If a plan is unchanged from a previous period, the agency is not required to resubmit it.
The agency must receive approval for a plan before it can be implemented.
(3) Requirement for alternate system. To be approved, the State's plan must—
(i) Clearly define the purpose of the system and demonstrate how the system is superior to the current negative case review requirements.
(ii) Contain a methodology for identifying significant problem areas that could result in erroneous denials, suspensions, and terminations of applicants and recipients. Problem areas selected for review must contain at least as many applicants and recipients as were included in the negative case sample size previously required for the State.
(iii) Provide a detailed methodology describing how the extent of the problem area will be measured through sampling and review procedures, the findings expected from the review, and planned corrective actions to resolve the problem.
(iv) Include documentation supporting the use of the system methodology. Documentation must include the timeframes under which the system will be operated.
(v) Provide a superior means of monitoring denials, terminations, and suspensions than that required under paragraph (b) of this section.
(vi) Provide a statistically valid error rate that can be projected to the universe that is being studied.
(d) Reviews for erroneous payments. The agency must review all claims for services furnished during the review month and paid within 4 months of the review month to all members of each active case related in the sample to identify erroneous payments resulting from—
(1) Ineligibility for Medicaid;
(2) Ineligibility for certain Medicaid services; and
(3) Recipient understated or overstated liability.
(e) Reviews for verification of eligibility status. The agency must collect and verify all information necessary to determine the eligibility status of each individual included in an active case selected in the sample as of the review month and whether Medicaid payments were for services which the individual was eligible to receive.
The agency must apply the administrative period described in §431.804 when considering the case circumstances and the case correctness. In order to verify eligibility information, the agency must—
(1) Examine and analyze each case record for all cases under review to establish what information is available for use in determining eligibility in the review month;
(2) Conduct field investigations including in-person recipient interviews for each case in the active case sample, and conduct in-person interviews only when the correctness of the agency action cannot be determined by review of the case record with recipients for cases in the negative case action sample (unless this is otherwise addressed in a superior system provided for in paragraph (c)(1) of this section);
(3) Verify all appropriate elements of eligibility for active cases through at least one primary source of evidence or two secondary sources of evidence as defined by CMS by documentation or by collateral contacts as required, or both, and fully record the information on the appropriate forms;
(4) Determine the basis on which eligibility was established and the eligibility status of the active case and each case member;
(5) Collect copies of State paid claims or recipient profiles for services delivered during the review month and, if indicated, any months prior to the review month in the agency's selected spenddown period, for all members of the active case under review;
(6) Associate dollar values with eligibility status for each active case under review; and
(7) Complete the payment, case, and review information for all individuals in the active case under review on the appropriate forms.
§ 431.814 Sampling plan and procedures.
(a) Plan approval. The agency must submit a basic MEQC sampling plan (or revisions to a current plan) that meets the requirements of this section to the appropriate CMS regional office for approval at least 60 days before the beginning of the review period in which it is to be implemented. If a plan is unchanged from a previous period, the agency is not required to resubmit the entire plan. Universe estimates and sampling intervals are required 2 weeks before the first monthly sample selection for each review period. The agency must receive approval for a plan before it can be implemented.
(b) Plan requirements. The agency must have an approved sampling plan in effect for the full 6-month sampling period that includes the following:
(1) The population to be sampled;
(2) The list(s) from which the sample is selected and the following characteristics of the list(s):
(i) Sources;
(ii) All types of cases in the selection lists;
(iii) Accuracy and completeness of sample lists in reference to the population(s) of interest;
(iv) Whether or not the selection list was constructed by combining more than one list;
(v) The form of the selection list (whether the list or part of the list is automated);
(vi) Frequency and length of delays in updating the selection lists or their sources;
(vii) Number of items on the lists and proportion of listed-in-error items:
(viii) Methods of deleting unwanted items from the selection lists; and
(ix) Structure of the selection lists.
(3) The sample size, including the minimum number of reviews to be completed and the expected number of cases to be selected. Minimum sample sizes are based on the State's relative level of Medicaid annual expenditures for services for active cases, and on the total number of negative case actions in the universe for negative cases. When the sample is substratified, there can be no fewer than 75 cases in each substratum, except as provided in paragraph (c) of this section or as provided in an exception documented in an approved sampling plan which contains a statement accepting the precision and reliability of the reduced sample.
(4) The sample selection procedure. Systematic random sampling is recommended. Alternative procedures must provide a representative sample, conform to principles of probability sampling, and yield estimates with the same or better precision than achieved in systematic random sampling.
(5) Procedures used to identify amounts paid for services received in the review month.
(6) Specification as to whether the agency chooses to—
(i) Use billed amounts to offset recipient liability toward cost of care (No indication will be interpreted to mean that the agency will use paid claims); and
(ii) Use denied claims to offset recipient liability toward cost of care in the payment review. (No indication will be interpreted to mean denied claims will not be used.)
(7) Indication of whether the agency opts to drop or complete cases selected more than once in a sample period. (No indication will be interpreted to mean that the agency will complete cases selected more than once.)
(c) Eligibility universe—active cases. The MEQC universe for active cases must be divided into two strata, the Aid to Families with Dependent Children (AFDC) stratum and the Medical Assistance Only (MAO) stratum.
(1) All States must use the AFDC quality control sample for the AFDC stratum.
(2) States must include in the MAO stratum all cases certified as eligible for Medicaid that are not in the AFDC stratum, excluding individuals specified in paragraph (c)(4) of this section.
(3) States that do not have an agreement with the Social Security Administration under section 1634 of the Act and do not have more restrictive eligibility criteria under section 1902(f) of the Act but require a separate Medicaid application for recipients of SSI and determine Medicaid eligibility using SSI criteria must divide the MAO stratum into two substrata: MAO cases and SSI cash cases for the first review period beginning after July 1, 1990 and for review periods thereafter. The SSI substratum sample size must be 75 cases or one-half of the total MAO sample, whichever is smaller. The non-SSI MAO substratum sample will be the remainder of the MAO stratum cases.
States may be exempt from this requirement when implementing an approved sampling option that does not accommodate this stratification method.
(4) States must exclude from the MEQC universe SSI beneficiaries whose eligibility determinations were made exclusively by the Social Security Administration under an agreement under section 1634 of the Act, individuals in foster care or receiving adoption assistance whose eligibility is determined under title IV-E of the Act, and individuals receiving Medicaid under programs that are 100 percent federally funded.
(d) Eligibility universe—negative cases. Unless the agency has an approved superior system under §431.812(c) that provides otherwise, the universe for negative Medicaid eligibility cases must consist of all denied applications, suspensions, and terminations occurring during the review month except transfers between counties without any break in eligibility, cases in which eligibility is exclusively determined by SSA under a section 1634 contract, cases determined eligible for foster care and adoption assistance under title IV-E of the Act, and cases under programs that are 100 percent federally funded.
(e) Sampling procedures. The agency must document all sampling procedures used by the State agency, including 98 percent accuracy of program identifier codes used in the sampling frame to separate listed-in-error cases from those in the population of interest, must make them available for review by CMS, and must be able to demonstrate the integrity of its sampling procedures in accordance with this section.
(f) Sampling periods. The agency must use 6-month sampling periods, from April through September and from October through March.
(g) Statistical samples. The agency must select statistically valid samples of both active and negative case actions.
(h) Sample selection lists. The agency must submit to CMS monthly a list of cases selected in the sample to be reviewed, after the State's sample selection and before commencing MEQC reviews on the cases in the sample.
(i) Universe estimates and sampling intervals. The agency must submit detailed universe estimates and sampling intervals to CMS for approval at least 2 weeks before the first sample selection of the review period if the estimates differ from the previous period. The sampling intervals must be used continuously throughout the sampling period unless otherwise specified in an approved sampling plan. Final universe counts based on the actual sampling universe must be determined and reported to CMS for each stratum/substratum designated in the sampling plan.
The agency also must submit universe counts for cases eligible for foster care and adoption assistance under title IV-E of the Act, and, for States with an agreement under section 1634 of the Act, for cases found eligible by the Social Security Administration.
(j) Sample size and methodology options. The agency may select a sample size in accordance with the minimum established under paragraph (b)(3) of this section or use one of the methodologies specified in paragraph (j)(1) or (2) of this section.
(1) Increase in size. The agency may, at its option, increase its sample size for a sampling period above the federally prescribed minimum sample size provided for under paragraph (b)(3) of this section, and receive FFP for any increased administrative costs the agency incurs by exercising this option.
(2) Retrospective sampling. The agency may, at its option, implement retrospective sampling in which cases are stratified by dollar value of claims paid. If the agency selects retrospective sampling, it must—
(i) Draw an initial case sample size each month that is no less than 5 times the required sample size. The sample will be selected from the universe of cases that were certified eligible in the fourth month prior to the month of case selection;
(ii) Identify claims paid for services furnished to all individuals during the review month (and, if indicated, any months prior to the review month in the agency's selected spenddown period) for these cases;
(iii) Stratify the cases by dollar value of the claims into three strata; and
(iv) Select a second statistically valid sample within each group subject to the sample size requirements specified in paragraph (b)(3) or (j)(1) of this section.
§ 431.816 Case review completion deadlines and submittal of reports.
(a) The agency must complete case reviews and submit reports of findings to CMS as specified in paragraph (b) of this section in the form and at the time specified by CMS.
(b) In addition to the reporting requirements specified in §431.814 relating to sampling, the agency must complete case reviews and submit reports of findings to CMS in accordance with paragraphs (b)(1) through (6) of this section for review periods beginning after July 1, 1990.The agency must not combine or otherwise integrate case findings from the MAO and AFDC strata to meet the case percentage deadlines as specified in paragraphs (b)(1) through (6) of this section.
(1) Active case eligibility reviews—MAO stratum. (i) The agency must complete case eligibility reviews and report the findings electronically through the system prescribed by CMS for 90 percent of all active MAO cases within 105 days of the end of the review month for which those cases were reviewed, within 125 days for 95 percent of all active MAO cases, and within 150 days for 100 percent of all MAO active cases.
(ii) The agency must submit a report on cases selected for the review month.
(2) Active case eligibility reviews—AFDC stratum. (i) The agency must complete case eligibility reviews for AFDC ineligible and overpaid error cases caused by ineligible individuals and report the findings electronically through the system prescribed by CMS within 105 days of the end of the review month for which those cases were reviewed for 90 percent of the total reviews; within 125 days of the end of the review month for which those cases were reviewed for 95 percent of the total reviews; and within 150 days of the end of the review month for which those cases were reviewed for 100 percent of the total reviews.
(ii) The agency must report findings electronically through the system prescribed by CMS for 100 percent of the State agency-reported eligible individuals within 30 days after the final timeframe required by the AFDC program as specified in program regulations at 45 CFR 205.40(b)(2)(ii).
(3) Negative case eligibility reviews. The agency must submit a monthly progress report on negative case reviews completed during the month unless the agency has an approved superior system in effect. The agency must submit a report on its findings by June 30 of each year for the previous April-September sampling period and by December 31, for the October-March sampling period.
(4) Payment reviews. (i) The agency must submit payment review findings electronically through the system prescribed by CMS.
(ii) The agency must complete payment review findings for 100 percent of the active case reviews in its sample and report the findings within 60 days after the first day of the month in which the claims collection process begins. The agency must wait 5 months after the end of each review month before associating the amount of claims paid for each case for services furnished during the review month unless retrospective sampling is elected.
(iii) The agency must make any necessary corrections to claims payments during the month the claim is paid and the following month. CMS will take necessary action to reject any State adjustment adversely affecting the error rate, for example, by not paying claims on error cases.
(5) Summary of reviews and findings. The agency must submit summary reports of the findings for all active cases in the 6-month sample by July 31 of each year for the previous April-September sampling period and by January 31 for the October-March sampling period. These summary reports must include findings changed in the Federal re-review process.
(6) Other data and reports. The agency must report other requested data and reports in a manner prescribed by CMS.
§ 431.818 Access to records: MEQC program.
(a) The agency, upon written request, must mail to the HHS staff all records, including complete local agency eligibility case files or legible copies and all other documents pertaining to its MEQC reviews to which the State has access, including information available under part 435, subpart I, of this chapter.
(b) The agency must mail requested records within 10 working days of receipt of a request, unless the State has an alternate method of submitting these records that is approved by CMS or has received, on an as-needed basis, approval from CMS to extend this timeframe by 3 additional working days to allow for exceptional circumstances.
§ 431.820 Corrective action under the MEQC program.
The agency must—
(a) Take action to correct any active or negative case action errors found in the sample cases;
(b) Take administrative action to prevent or reduce the incidence of those errors; and
(c) By September 15 each year, submit to CMS a report on its error rate analysis and a corrective action plan based on that analysis. The agency must submit revisions to the plan within 60 days of identification of additional error-prone areas, other significant changes in the error rate (that is, changes that the State experiences that increase or decrease its error rate and necessitate immediate corrective action or discontinuance of corrective actions that effectively control the cause of the error rate change), or changes in planned corrective action.
§ 431.822 Resolution of differences in State and Federal case eligibility or payment findings.
(a) When a difference exists between State and Federal case eligibility or payment findings, the Regional Office will notify the agency by a difference letter.
(b) The agency must return the difference letter to the Regional Office within 28 calendar days of the date of the letter indicating either agreement with the Federal finding or reasons for disagreement and if the agency desires a conference to resolve the difference. This period may be shortened if the Regional Office finds that it is necessary to do so in order to meet a case completion deadline, and the State still has a reasonable period of time in which to respond to the letter. If the agency fails to submit the difference letter indicating its agreement or disagreement with the Federal findings within the 28 calendar days (or the shorter period designated as described above), the Federal findings will be sustained.
(c) If the Regional Office disagrees with the agency's response, a difference conference will be scheduled within 20 days of the request of the agency. If a difference cannot be resolved, the State may request a direct presentation of its position to the Regional Administrator. The Regional Administrator has final authority for resolving the difference.
Medicaid Quality Control (MQC) Claims Processing Assessment System
Source: Sections 431.830 through 431.836 appear at 55 FR 22170, May 31, 1990, unless otherwise noted.
§ 431.830 Basic elements of the Medicaid quality control (MQC) claims processing assessment system.
An agency must—
(a) Operate the MQC claims processing assessment system in accordance with the policies, sampling methodology, review procedures, reporting forms, requirements, and other instructions established by CMS.
(b) Identify deficiencies in the claims processing operations.
(c) Measure cost of deficiencies;
(d) Provide data to determine appropriate corrective action;
(e) Provide an assessment of the State's claims processing or that of its fiscal agent;
(f) Provide for a claim-by-claim review where justifiable by data; and
(g) Produce an audit trail that can be reviewed by CMS or an outside auditor.
§ 431.832 Reporting requirements for claims processing assessment systems.
(a) The agency must submit reports and data specified in paragraph (b) of this section to CMS, in the form and at the time specified by CMS.
(b) Except when CMS authorizes less stringent reporting, States must submit:
(1) A monthly report on claims processing reviews sampled and or claims processing reviews completed during the month;
(2) A summary report on findings for all reviews in the 6-month sample to be submitted by the end of the 3rd month following the scheduled completion of reviews for that 6 month period; and
(3) Other data and reports as required by CMS.
§ 431.834 Access to records: Claims processing assessment systems.
The agency, upon written request, must provide HHS staff with access to all records pertaining to its MQC claims processing assessment system reviews to which the State has access, including information available under part 435, subpart J, of this chapter.
§ 431.836 Corrective action under the MQC claims processing assessment system.
The agency must—
(a) Take action to correct those errors identified through the claims processing assessment system review and, if cost effective, to recover those funds erroneously spent;
(b) Take administrative action to prevent and reduce the incidence of those errors; and
(c) By August 31 of each year, submit to CMS a report of its error analysis and a corrective action plan on the reviews conducted since the cut-off-date of the previous corrective action plan.
Federal Financial Participation
§§ 431.861-431.864 [Reserved]
§ 431.865 Disallowance of Federal financial participation for erroneous State payments (for annual assessment periods ending after July 1, 1990).
(a) Purpose and applicability—
(1) Purpose. This section establishes rules and procedures for disallowing Federal financial participation (FFP) in erroneous medical assistance payments due to eligibility and beneficiary liability errors, as detected through the Medicaid eligibility quality control (MEQC) program required under §431.806 in effect on and after July 1, 1990.
(2) Applicability. This section applies to all States except Puerto Rico, Guam, the Virgin Islands, the Northern Mariana Islands, and American Samoa beginning July 1, 1990.
(b) Definitions. For purposes of this section—
Administrator means the Administrator, Centers for Medicare & Medicaid Services or his or her designee.
Annual assessment period means the 12-month period October 1 through September 30 and includes two 6-month sample periods (October-March and April-September).
Beneficiary liability means—
(1) The amount of excess income that must be offset with incurred medical expenses to gain eligibility; or
(2) The amount of payment a recipient must make toward the cost of services.
Erroneous payments means the Medicaid payment that was made for an individual or family under review who—
(1) Was ineligible for the review month or, if full month coverage is not provided, at the time services were received;
(2) Was ineligible to receive a service provided during the review month; or
(3) Had not properly met enrollee liability requirements prior to receiving Medicaid services.
(4) The term does not include payments made for care and services covered under the State plan and furnished to children during a presumptive eligibility period as described in §435.1102 of this chapter.
National mean error rate means the payment weighted average of the eligibility payment error rates for all States.
National standard means a 3-percent eligibility payment error rate.
State payment error rate means the ratio of erroneous payments for medical assistance to total expenditures for medical assistance (less payments to Supplemental Security Income beneficiaries in section 1634 contract States and payments for children eligible for foster care and adoption assistance under title IV-E of the Act) for cases under review under the MEQC system for each assessment period.
Technical error means an error in an eligibility condition that, if corrected, would not result in a difference in the amount of medical assistance paid. These errors include work incentive program requirements, assignment of social security numbers, the requirement for a separate Medicaid application, monthly reporting requirements, assignment of rights to third party benefits, and failure to apply for benefits for which the family or individual is not eligible. Errors other than those listed in this definition, identified by CMS in subsequent instructions, or approved by CMS are not technical errors.
(c) Setting of State's payment error rate. (1) Each State must, for each annual assessment period, have a payment error rate no greater than 3 percent or be subject to a disallowance of FFP.
(2) A payment error rate for each State is determined by CMS for each annual assessment period by computing the statistical estimate of the ratio of erroneous payments for medical assistance made on behalf of individuals or cases in the sample for services received during the review month to total expenditures for medical assistance for that State made on behalf of individuals or cases in the sample for services received during the review month. This ratio incorporates the findings of a federally re-reviewed subsample of the State's review findings and is projected to the universe of total medical assistance payments for calculating the amount of disallowance under paragraph (d)6) of this section.
(3) The State's payment error rate does not include payments made on behalf of individuals whose eligibility determinations were made exclusively by the Social Security Administration under an agreement under section 1634 of the Act or children found eligible for foster care and adoption assistance under title IV-E of the Act.
(4) The amount of erroneous payments is determined as follows:
(i) For ineligible cases resulting from excess resources, the amount of error is the lesser of—
(A) The amount of the payment made on behalf of the family or individual for the review month; or
(B) The difference between the actual amount of countable resources of the family or individual for the review month and the State's applicable resources standard.
(ii) For ineligible cases resulting from other than excess resources, the amount of error is the total amount of medical assistance payments made for the individual or family under review for the review month.
(iii) For erroneous payments resulting from failure to properly meet beneficiary liability, the amount of error is the lesser of—
(A) The amount of payments made on behalf of the family or individual for the review month; or
(B) The difference between the correct amount of beneficiary liability and the amount of beneficiary liability met by the individual or family for the review month.
(iv) The amount of payments made for services provided during the review month for which the individual or family was not eligible.
(5) In determining the amount of erroneous payments, errors caused by technical errors are not included.
(6) If a State fails to cooperate in completing a valid MEQC sample or individual reviews in a timely and appropriate fashion as required, CMS will establish the State's payment error rate based on either—
(i) A special sample or audit;
(ii) The Federal subsample; or
(iii) Other arrangements as the Administrator may prescribe.
(7) When it is necessary for CMS to exercise the authority in paragraph (c)(6) of this section, the amount that would otherwise be payable to the State under title XIX of the Act is reduced by the full costs incurred by CMS in making these determinations. CMS may make these determinations either directly or under contractual or other arrangements.
(d) Computation of anticipated error rate. (1) Before the beginning of each quarter, CMS will project the anticipated medical assistance payment error rate for each State for that quarter. The anticipated error rate is the lower of the weighted average error rate of the two most recent 6-month review periods or the error rate of the most recent 6-month review period. In either case, cases in the review periods must have been completed by the State and CMS. If a State fails to provide CMS with information needed to project anticipated excess erroneous expenditures, CMS will assign the State an error rate as prescribed in paragraph (c)(6) of this section.
(2) If the State believes that the anticipated error rate established in accordance with paragraph (d)(1) of this section is based on erroneous data, the State may submit evidence that demonstrates the data were erroneous. If the State satisfactorily demonstrates that CMS's data were erroneous, the State's anticipated error rate will be adjusted accordingly. Submittal of evidence is subject to the following conditions:
(i) The State must inform CMS of its intent to submit evidence at least 70 days prior to the beginning of the quarter.
(ii) The State may request copies of data that CMS used to compute its anticipated error rate within 7 days of receiving notification of its projected error rate.
(iii) The State has up to 40 days before the quarter begins to present the evidence.
(iv) The evidence is restricted to documentation of suspected CMS data entry errors, processing errors, and resolutions of Federal subsample difference cases subsequent to calculation of the error rate projection as contained in the original notice to the State.
(v) The State may not submit other evidence, such as that consisting of revisions to State errors as a result of changes to the original State review findings submitted to CMS.
(vi) The State may not submit evidence challenging the error rate computational methodology.
(3) Based on the anticipated error rate established in paragraph (d)(1) or (d)(2) of this section, CMS reduces its estimate of the State's requirements for FFP for medical assistance for the quarter by the percentage by which the anticipated payment error rate exceeds the 3-percent national standard. This reduction is applied against CMS's total estimate of FFP for medical assistance expenditures (less payments to Supplemental Security Income beneficiaries in 1634 contract States and payments to children found eligible for foster care and adoption assistance under title IV-E of the Act) prior to any other required reductions. The reduction is noted on the State's grant award for the quarter and does not constitute a disallowance, and, therefore, is not appealable.
(4) After the end of each quarter, an adjustment to the reduction will be made based on the State's actual expenditures.
(5) After the actual payment error rate has been established for each annual assessment period, CMS will compute the actual amount of the disallowance and adjust the FFP payable to each State based on the difference between the amounts previously withheld for each of the quarters during the appropriate assessment period and the amount that should have been withheld based on the State's actual final error rate. If CMS determines that the amount withheld for the period exceeds the amount of the actual disallowance, the excess amount withheld will be returned to the States through the normal grant awards process within 30 days of the date the actual disallowance is calculated.
(6) CMS will compute the amount to be withheld or disallowed as follows:
(i) Subtract the 3-percent national standard from the State's anticipated or actual payment error rate percentage.
(ii) If the difference is greater than zero, the Federal medical assistance funds for the period, excluding payments for those individuals whose eligibility for Medicaid was determined exclusively by the Social Security Administration under a section 1634 agreement and children found eligible for foster care and adoption assistance under title IV-E of the Act, are multiplied by that percentage. This product is the amount of the disallowance or withholding.
(7) A State's payment error rate for an annual assessment period is the weighted average of the payment error rates in the two 6-month review periods comprising the annual assessment period.
(8) The weights are established as the percent of the total annual payments, excluding payments for those individuals whose eligibility for Medicaid was determined exclusively by the Social Security Administration under a section 1634 agreement and children found eligible for foster care and adoption assistance under title IV-E of the Act, that occur in each of the 6-month periods.
(e) Notice to States and showing of good faith. (1) When the actual payment error rate data are finalized for each annual assessment period ending after July 1, 1990, CMS will establish each State's error rate and the amount of any disallowance. States that have error rates above the national standard will be notified by letter of their error rates and the amount of the disallowance.
(i) The State has 65 days from the date of receipt of this notification to show that this disallowance should not be made because it failed to meet the national standard despite a good faith effort to do so.
(ii) If CMS is satisfied that the State did not meet the national standard despite a good faith effort, CMS may reduce the funds being disallowed in whole or in part as it finds appropriate under the circumstances shown by the State.
(iii) A finding that a State did not meet the national standard despite a good faith effort will be limited to extraordinary circumstances.
(iv) The burden of establishing that a good faith effort was made rests entirely with the State.
(2) Some examples of circumstances under which CMS may find that a State did not meet the national standard despite a good faith effort are—
(i) Disasters such as fire, flood, or civil disorders that—
(A) Require the diversion of significant personnel normally assigned to Medicaid eligibility administration; or
(B) Destroyed or delayed access to significant records needed to make or maintain accurate eligibility determinations;
(ii) Strikes of State staff or other government or private personnel necessary to the determination of eligibility or processing of case changes;
(iii) Sudden and unanticipated workload changes that result from changes in Federal law and regulation, or rapid, unpredictable caseload growth in excess of, for example, 15 percent for a 6-month period;
(iv) State actions resulting from incorrect written policy interpretations to the State by a Federal official reasonably assumed to be in a position to provide that interpretation; and
(v) The State has taken the action it believed was needed to meet the national standard, but the national standard was not met. CMS will consider request for a waiver under this criterion only if a State has achieved an error rate for the sample period that (after reducing the error rate by taking into account the cases determined by CMS to be in error as a result of conditions listed in paragraphs (e)(2) (i) through (iv) of this section) is less than its error rate for the preceding sample year and does not exceed the national mean error rate for the sample period under review (unless that national mean error rate is at or below the 3-percent national standard). If the agency has met this error reduction requirement or had error rates of 3 percent or below for the prior two review periods, and its error rate for the review period under consideration is less than one-third above the national standard, CMS will evaluate a request for a good faith waiver based on the following factors:
(A) The State has fully met the performance standards in the operation of a quality control system in accordance with Federal regulations and CMS guidelines (e.g., adherence to Federal case completion timeliness requirements and verification standards).
(B) The State has achieved substantial performance in the formulation of error reduction initiatives based on the following processes:
(1) Performance of an accurate and thorough statistical and program analysis for error reduction which utilized quality control and other data:
(2) The translation of such analysis into specific and appropriate error reduction practices for major error elements; and
(3) The use of monitoring systems to verify that the error reduction initiatives were implemented at the local office level.
(C) The State has achieved substantial performance in the operation of the following systems supported by evidence of the timely utilization of their outputs in the determination of case eligibility:
(1) The operation of the Income and Eligibility Verification System in accordance with the requirements of parts 431 and 435 of this chapter, and
(2) The operation of systems that interface with Social Security data and, where State laws do not restrict agency access, records from agencies responsible for motor vehicles, vital statistics, and State or local income and property taxes (where these taxes exist).
(D) The State has achieved substantial performance in the use of the following accountability mechanisms to ensure that agency staff adhere to error reduction initiatives. The following are minimum requirements:
(1) Accuracy of eligibility and liability determinations and timely processing of case actions are used as quantitative measures of employee performance and reflected in performance standards and appraisal forms:
(2) Selective second-party case reviews are conducted. The second-party review results are periodically reported to higher level management, as well as supervisors and workers and are used in performance standards and appraisal forms; and
(3) Regular operational reviews of local offices are performed by the State to evaluate the offices' effectiveness in meeting error reduction goals with periodic monitoring to ensure that review recommendations have been implemented.
(vi) A State that meets the performance standards specified in paragraphs (e)(2)(v) (A) through (D) of this section will be considered for a full or partial waiver of its disallowance amount. The State must submit only specific documentation that verifies that the necessary actions were accomplished. For example, a State could submit worker performance standards reflecting timeliness and case accuracy as quantitative measures of performance.
(3) The failure of a State to act upon necessary legislative changes or to obtain budget authorization for needed resources is not a basis for finding that a State failed to meet the national standard despite a good faith effort.
(f) Disallowance subject to appeal. (1) If a State does not agree with a disallowance imposed under paragraph (e) of this section, it may appeal to the Departmental Appeals Board within 30 days from the date of the final disallowance notice from CMS. The regular procedures for an appeal of a disallowance will apply, including review by the Appeals Board under 45 CFR part 16.
(2) This appeal provision, as it applies to MEQC disallowances, is not applicable to the Administrator's decision on a State's waiver request provided for under paragraph (e) of this section.
[55 FR 22171, May 31, 1990, as amended at 61 FR 38398, July 24, 1996; 66 FR 2666, Jan. 11, 2001]
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