Productivity Investments (PI) Function (Summary Level Code

100.6 - Productivity Investments (PI) Function (Summary Level Code 17000) (Rev. 26, 12-08-03) A1-1213.6 The contractor shall include the cost of activities related to the development and implementation of approved PIs and administrative enhancements as directed by CMS. A. Activity Codes for Pis Activity codes for PIs will be assigned to approved projects. A list of approved PIs will be available in CAFM II. The contractor shall use only approved PI codes. The miscellaneous PI activity code may be used only on the initial BR and the SBR for projects that have not been approved and do not have an assigned PI activity code. It shall not use the miscellaneous PI Activity Code on an IER or FACP. 1. PIs include administrative enhancements and legislative mandates directed by CMS that are considered essential for maintenance of effective program operations. They do not necessarily generate program savings. 2. PIs may include activities that affect more than one Medicare function and are administered as a PI. 3. PIs also include systems conversions and transitions. See D below. B. PI Funding The PI funding is generally for first year start up costs only. Funding for subsequent years is generally treated as an ongoing cost, not a PI, and should be included as an ongoing operational cost in the contractor's BR. If PI funding after the first year is requested, a schedule with funding for each FY should be included in the initial request for funding. If CMS determines that PI funding for subsequent FYs is authorized, the contractor should include the PI funding authorized in its BR every year it is authorized. C. PI Costs The contractor shall report incremental direct costs and incremental overhead and general and administrative costs. If some of the non-incremental direct costs are incurred due to reallocation of staff time, document it but do not request funding. Incremental direct costs and incremental overhead and general and administrative costs may include: • Incremental personal service costs of staff and management directly involved in the project (including programmers). • Materials and supplies used for the project • Subcontract services, such as feasibility studies done under contract. • EDP costs including data conversion, computer time and EDP support services that are incurred only if the project is done. These costs should be spread to the appropriate cost categories on the Activity Form. See Section 90.9. Include special charges under a facilities management contract for programming changes. Depreciation on equipment purchased in conjunction with the project should be shown in the EDP equipment cost category; and • Incremental overhead and general and administrative costs caused by any increase: ■ in the cost incurred for overhead or general and administrative functions (described in 90.9.H and 90.9.I) as a result of the PI project implementation , or ■ in the Medicare allocation from the corporate overhead or general and administrative pool due to an increase in the cost allocation base D. System Conversions and Transitions The following costs are included in systems conversions and transitions and may also apply to other projects: • Project Management Costs - Costs of essential staff/management project support; • Software Installation Costs - Costs for installing and testing the software; • File Conversion Costs - Costs for converting to the new system including the costs of mapping, software development and testing; • Interface Development and Implementation Costs - Costs to interface with external programs e.g., for electronic data interchange, check writing, 1099 preparation, other reports and forms; • Training Costs - Costs of staff training including train the trainer, technical staff and user staff training costs; and • Other Costs - Costs of provider education, outreach, and post- implementation problem resolution. E. Cost-Benefit Documentation for PI Projects 1. General Before funding will be approved for a project that is proposed by a contractor, it must be demonstrated to be cost-beneficial. A project will generally only be approved if the net present value (NPV) for the project is equal to or greater than zero. The present value of the savings is at least equal to the costs of implementation when both are discounted to the same start date. As a general rule, CMS will consider only projects having a positive NPV over 2 years. However, the contractor shall provide probable costs and savings taken over all years of the project. This documentation does not supplant the existing prior approval process or the threshold amounts specified in the Medicare contract/agreement for system enhancements and subcontracts. 2. Applicability The contractor shall include cost-benefit documentation with all requests for PI funds. The amount of the documentation required depends on the estimated cost and complexity of the project. Administrative enhancements and systems transitions directed by CMS are not subject to this cost-benefit test unless specifically required by CMS. 3. Documentation The contractor shall document cost-benefit analysis using NPV calculations of costs and savings discounted to the start date. A narrative explanation of cost-benefit analysis should identify the assumptions for the analysis such as the start date, discount rate, and costs and savings in each fiscal year. The contractor shall include the following items in documentation: • Estimated Cost - The contractor shall show cost items in categories reported for activities. See §90.9 for cost categories. It shall provide underlying cost details and the assumptions on which they are based for each material cost item. It shall include personnel, machine time, materials and outside services in the estimate of costs. It shall also include EDP charges and overhead. For capital expenditures in excess of $500, it shall use standard procedures for establishing the asset's useful life and for the depreciation schedule. CMS pays expenses when incurred; the contractor shall include the proper depreciation and return on investment for the period before implementation in its analysis. • Administrative Cost Savings - The contractor shall outline any savings in staff time, postage, and computer time. It shall include only cost reductions, not cost avoidance. It shall reduce these savings by increases in administrative costs attributable to the project (e.g., temporary productivity losses due to learning curve, "downtime" for problem resolution, and depreciation for equipment purchased). • Benefit Savings - The contractor shall estimate the amount of benefit savings, if any, which result from preventing or recovering erroneous payments, based on policy in effect at the time of the analysis. • Discount Rate - The contractor shall use the interest rate applicable under the Prompt Payment Act to discount both the savings and costs to the start date. The interest rate is published in the "Federal Register." • Start Date - This is the point in time where the project first incurs costs and is the date in time used to determine the Net Present Value of the project. F. PI Workload The contractor shall report no workload unless directed by CMS.