EXHIBITS

170 – EXHIBITS Exhibit 1 – Summary of UDR Issues UNIFORM DESK REVIEW (Rev. 107, Issued: 09-22-06; Effective: 10-01-06; Implementation: 10-02-06) Summary of Issues (Instructions are contained in the Financial Management Manual, Chapter 8, §20.2.F) Provider Name: Settlement without Further Review: Provider Number: Desk Review Exception Resolution: Period From: Field Audit: To: In-House Audit: No. Reference (See Instrs.) Description Audit Deferred Scoped for Audit Adjusted for Settlement Comments UDR Resolution or Audit W/P Ref. Units/$ No Further Action 1 2 3 4 5 6 7 8 9 10 Exhibit II a– Audit Confirmation Letter – Field Audit (Rev. 107, Issued: 09-22-06; Effective: 10-01-06; Implementation: 10-02-06) Date Addressee Address City, State Zip Code Provider________________________________________________________ Provider No:_____________________________________________________ F.Y.E.:__________________________________________________________ Dear _________________ This is to inform you that your facility has been selected by (contractor name) for a field audit of your YYYY cost report. The audit will commence on MM, DD, YYYY, (4 to 6 weeks from the date of the letter) with an entrance conference to be held the day we arrive on site. Please arrange for a conference room or adequate space for this meeting. We ask that at the least the chief financial officer, the person who prepared the cost report, and anyone designated as your liaison for the audit is present at the entrance conference. In addition, we ask that the information listed on the attached schedule be available on the date we arrive. This list will enable you to accumulate the necessary documentation we will need to begin the audit prior to the entrance conference. If you need to postpone the audit entrance date, please notify us 2 weeks prior to the scheduled audit and we will attempt to accommodate your request. This is necessary as our audit work plan has been set and we will need time to reschedule the audit staff. Again all documentation found on the attached list must be available at the entrance conference. This will enable us to review the information and expedite our audit process while minimizing the impact on your personnel. Be aware that this list is not all- inclusive and that we may request additional documentation necessary to conduct and complete our audit. If the information is not provided, we will make audit adjustments to disallow the costs associated with the requests. Any proposed audit adjustments will be given to you during the course of the audit. You may request the work papers that support the adjustments at any time. A pre-exit conference will be held on the last day of the audit fieldwork which is tentatively planned to be on MMDDYY. In this meeting we will go over outstanding information requests and all of the audit adjustments available at that time. You will have 4 weeks to provide any outstanding information or information to refute any previously proposed audit adjustment. (We do not need to consider any additional documentation that you furnish after the expiration of the 4-week period in the Notice of Amount of Program Reimbursement (NPR)). We will schedule an exit conference within twelve (12) weeks following the pre-exit conference. Prior to the exit conference, we will provide you with new or modified audit adjustments that we propose after the pre-exit conference and allow you two (2) weeks to comment on them. If you wish to waive a formal exit conference, please notify (name of contractor) of this decision in writing (e-mail note will suffice). The Notice of the Amount of Program Reimbursement will be issued to you within 60 days from the exit conference or within 60 days from the date that we finalize the audit adjustments if an exit conference is waived. We believe these time frames and requirements will help expedite the completion of the field audit and settlement of your cost report. These provisions will be uniformly applied to all providers. We believe that with your cooperation we will have better field audits and more accurate settlements of cost reports. If you wish to discuss this matter please contact ____________ at ____________. Sincerely, Signature, Title Enclosures cc: Exhibit II b – Audit Confirmation Letter – In-House Audit (Rev. 107, Issued: 09-22-06; Effective: 10-01-06; Implementation: 10-02-06) Date Addressee Address City, State Zip Code Provider____________________________________________________________ Provider No._________________________________________________________ F.Y.E_______________________________________________________________ Dear_________________: This is to inform you that your facility has been selected by (contractor name) for an in-house audit of your YYYY cost report. The audit will commence on MM, DD, YYYY, (4 to 6 weeks from the date of the letter) with a telephone entrance conference to be held (the date and time of the telephone conference). We ask that at the least the chief financial officer, the person who prepared the cost report and anyone designated as your liaison for the audit participates during the entrance conference. In addition, we ask that the information listed on the attached schedule be sent to the contractor’s location one week prior to (the date of the telephone entrance conference). If you need to reschedule the entrance conference, please notify us 2 weeks prior to scheduled audit, and we will attempt to accommodate your request. Again all documentation found on the attached list must be sent one week prior to the telephone conference. This will enable us to review the information and expedite our audit process while minimizing the impact on your personnel. Be aware that this list is not all- inclusive and that we may request additional documentation necessary to conduct and complete our audit. If the information is not provided, we will make audit adjustments to disallow the costs associated with the requests. Any proposed audit adjustments will be sent to you during the course of the audit. You may request the work papers that support the adjustments at any time. A pre-exit telephone conference will be tentatively planned to be on MMDDYYYY. During this telephone conference, we will go over outstanding information requests and all of the audit adjustments available at that time. You will have 4 weeks to provide any outstanding information or information to refute any previously proposed audit adjustment. (We do not need to consider any additional documentation that you furnish after the expiration of the 4-week period in the Notice of Amount of Program Reimbursement (NPR)). We will schedule a telephone exit conference within twelve (12) weeks following the pre-exit conference. Prior to the exit conference, we will provide you with new or modified audit adjustments that we propose after the pre-exit conference and allow you two (2) weeks to comment on them. If you wish to waive a formal exit conference, please notify (name of contractor) of this decision in writing (e- mail note will suffice). The Notice of the Amount of Program Reimbursement will be issued to you within 60 days from the exit conference or within 60 days from the date that we finalize the audit adjustments if an exit conference is waived. We believe these time frames and requirements will help expedite the completion of the in-house audit and settlement of your cost report. These provisions will be uniformly applied to all providers. We believe that with your cooperation we will have better in- house audits and more accurate settlements of cost reports. If you wish to discuss this matter please contact ______________at________________. Sincerely, Signature, Title Enclosures cc: Exhibit III – Entrance Conference Agenda (Rev. 27, 12-19-03) Contractor Name: Provider Name: ________________________________________________________________________ Provider No.: ___________________ FYE ___________________ Auditor: _______________________ Date: __________________ Time: ___________________ Location _____________________ Provider Representative: ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ Contractor Representative: ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ Other: ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ 1. Staff Introductions. 2. Provider designation of "Contact" or "Liaison" person for auditors to work with on daily basis. ________________________________________________________________________ 3. Establish a schedule for ongoing communication during the audit to update provider on audit progress, possible audit adjustments, documentation still required, and to share other information. ________________________________________________________________________ ________________________________________________________________________ y Establish administrative procedures for such things as: Use of copy machine__________________________ Telephone calls ______________________________ Use of fax machine ____________________________ Work hours _________________________________ Parking _____________________________________ Working space _______________________________ Other ______________________________________ y Establish procedures for obtaining documents and records and their return when the auditors have completed their review. __________________________________________________________________ __________________________________________________________________ 6. Review last year's audit adjustments as they relate to or affect the current year's cost report/audit. ________________________________________________________________________ ________________________________________________________________________ 7. Discussion of proposed adjustments, if any, to current year's cost report identified during the desk review performed by the contractor. ________________________________________________________________________ ________________________________________________________________________ 8. Discussion of areas to be audited, steps to be performed and documentation needed as requested in the audit confirmation letter. ________________________________________________________________________ ________________________________________________________________________ 9. Discuss the availability of third parties (CPAs, consultants, and other outside parties) and their records related to the cost report, for the auditors. ________________________________________________________________________ ________________________________________________________________________ 10. Arranging for tour of provider facility. ________________________________________________________________________ ________________________________________________________________________ 11. Establish a tentative date and time for the pre-exit and exit conferences and discuss the proposed agendas for these conferences. ________________________________________________________________________ ________________________________________________________________________ 12. Discuss changes in organization ownership, new sub-units, ambulatory care ambulatory care, CORF, SNF, HHA, and Swing Bed. ________________________________________________________________________ ________________________________________________________________________ 13. Discuss and update the Internal control Questionnaire, if appropriate. ________________________________________________________________________ ________________________________________________________________________ 14. Other questions asked during the entrance conference. ________________________________________________________________________ ________________________________________________________________________ 15. Agenda items from provider (if any). ________________________________________________________________________ ________________________________________________________________________ Exhibit IV – Internal Control Questionnaire (Rev. 27, 12-19-03) This questionnaire is effective for audit fieldwork started after November 30, 1990 and reflects those elements of internal control structure that are more relevant to the outcome of a Medicare audit. Answer all questions on the questionnaire "Yes," "No," or "Not Applicable," as appropriate and indicate whether the answer was obtained by inquiry, investigation, or both. Provide both name and title of the person supplying the information. Answers requiring support must include proper documentation or explanation, or be cross- referenced to the appropriate working paper in the current audit file. If a brief explanation is sufficient to adequately support the answer, it is not necessary to write an overly detailed description of the procedures. The questionnaire is not all-inclusive and may be supplemented according to the needs of the provider being audited. If some internal control procedures other than those stated or implied by the questionnaire exist and affect the Medicare audit, include a description or explanation on a supporting working paper. INTERNAL CONTROL QUESTIONNAIRE Provider Name ___________________________________________ Provider Number _________________________________________ Reporting Period: From _________________ To ________________ a. Question b. Source (a = Inquiry, b =Observation, c = Tests) c. Initials of person supplying information. (Initials must be explained and the appropriate title supplied in a supporting working paper) d. Response (Yes, No, N/A) e. W/P Reference Question Source Initials Response WP Ref I. Control Environment 1. Was an independent audit of the provider's Question Source Initials Response WP Ref financial statements for this cost reporting period performed? 2. If so, what was the audit opinion of the independent auditors? Unqualified opinion If opinion is qualified, describe the reason why. 3. Has the provider made a written representation on whether it received a SAS 60 report on reportable conditions of internal control (whether given on a written or oral basis to the provider by the financial auditors)? 4. Describe any reportable conditions in the SAS 60 report that are applicable to the Medicare audit. 5. Does the provider have a current organization chart defining lines of responsibility? If so, obtain a copy. 6. Does the provider have an established chart of accounts? If so, obtain a copy. 7. Are the Board of Directors' meeting minutes available for review? If so, obtain a copy. 8. Does the provider have a policy on bonding its employees in positions of financial trust? 9. Does the provider have a policy that Question Source Initials Response WP Ref requires employees in positions of financial trust to take mandatory vacations? 10. Does the provider have a policy regarding treatment of employees who violate control policies? 11. List the names of employees exercising the following functions: President Administrator CFO Controller Medicare Reimbursement Manager Internal Auditor Director of Nursing A. Are any of the above related to each other or others working in the organization? B. If the answer to A. is “yes,” list the positions, incumbents, etc., who are related and state the relationships: 12. Does the provider have an internal audit function? A. If so, does the internal audit function report to an executive other than the chief Question Source Initials Response WP Ref accounting officer? B. If other than the CEO, specify to whom the internal auditor reports: II. Accounting System 1. Does the provider have adequate written statements and explanations of its accounting policies and procedures? Do the policies require that: A. Accounting transactions are recorded in accordance with generally accepted accounting principles (GAAP)? B. Journal entries are approved by a designated individual at an appropriate level? Specify the individual and title: C. Journal entries require an adequate explanation and supporting documentation? D. Monthly reconciliations and timely closings are made to the accounting records. 2. Does the provider maintain a policy manual covering: A. Approval for financial transactions? B. Guidelines for controlling expenditure functions, such as purchasing and travel authorization? C. Maintenance of accounting records? 3. Are the provider's accounting and policies and procedures adequately communicated to employees? Question Source Initials Response WP Ref 4. Does the provider use a computer system in its accounting operations? 5. Does the provider have policies and procedures that govern the use and operation of the computer system? 6. Have accounting principles been consistent with those maintained in the preceding year? 7. Are periodic interim financial statements prepared and submitted to management? 8. Does the provider's accounting system have suitable account classifications? 9. Does the general ledger include accounts of related organizations? If so, identify the accounts and the related organizations. III. Control Procedures 1. Statistics – Worksheet S-3 (or equivalent worksheet): A. Does the provider have policies and procedures for accumulating the following census statistics? If so, obtain a copy. 1. Patient days (including observation bed days). 2. Patient visits 3. Number of beds by unit. Question Source Initials Response WP Ref B. Does the provider have written policies and procedures for counting its interns and residents for both indirect medical education and graduate medical education? If so, obtain a copy. 1. Expenses – Worksheet A: A. What is the source document for the expenses filed on Worksheet A of the cost report? B. Are credits and refunds from vendors properly controlled and recorded to ensure that expenses are not overstated? C. Payroll expenses: 1. Are employees required to punch a time clock or equivalent time logging system? 2. Is the payroll periodically checked against personnel records for: Continuing employment? Rate of pay? 3. Is the payroll checked for departmental allocation and time worked? 4. What documentation does the provider have to support its physicians' salary allocations to the provider component, the professional component, and the teaching component? Question Source Initials Response WP Ref 5. If an employee works in two departments, how is the time split supported? 3. Cost allocation statistics – Worksheet B-1: A. List each cost allocation statistic. 1. Obtain a written description from the provider describing how each type of statistic is accumulated and maintained. 2. If the method for accumulating any statistic is different from that of prior cost reporting periods, obtain a description and explanation of the change. This includes changing from time records to time studies. B. What are the provider's procedures for requisitioning drugs and medical supplies from inventory and allocating them to departments? 4. Patient Care Charges – Worksheet C: A. What is the source document for reporting charges on Worksheet C of the cost report? B. Obtain a copy of the written procedures describing how routine, intensive care, ancillary, outpatient, and other patient care charges are recorded and accumulated by the provider. 1. Does the provider have procedures to ensure that the same charge is recorded for all classes of payers for the same service? Question Source Initials Response WP Ref 2. Does the provider have procedures in place to ensure that all charges are properly recorded: In accordance with the provider's charge schedule? In the correct department? As inpatient or outpatient? 3. Does the provider have procedures in place to ensure that adjustments to billed charges are properly credited to the correct department? 5. Billing and Collection: A. Medicare as Secondary Payer – Does the provider have procedures in place to: 1. Obtain information on primary and secondary payers from patients on admission or at time of outpatient service? 2. Revise the billing where the primary payer is identified subsequent to the original billing? 3. Review credit balances and to remit them when they arise from subsequent identification of the correct primary and secondary payers? B. What is the provider's collection policy for unpaid patient bills? 1. Does the provider have the Question Source Initials Response WP Ref same collection policy and procedures for both Medicare and non-Medicare patients? 2. Does the provider use a collection agency? C. What is the provider's policy in writing off Medicare bad debts as uncollectible? Obtain a copy. 1. Does the provider have policies in place to determine indigence? 2. Are the amounts written off as Medicare bad debts related only to covered deductible and coinsurance amounts? D. Does the provider have procedures in place to identify recoveries of bad debts previously written off and charged to the Medicare program? 6. Capital-related costs: A. What are the provider's formal capitalization and depreciation policies? Obtain a copy. B. Does the hospital directly assign capital-related costs to departments? If so, what are the provider's policies and procedures on directly assigned capital costs? C. How does the provider record additions, transfers, and retirements? Question Source Initials Response WP Ref D. What follow-up procedures exist which ensure the proper handling of the gain or loss from the sales of assets? E. How are records maintained for equipment and facilities used by the hospital, but owned by others? F. At what level does the provider require normal authorization for new or renewed loans? G. How does the provider ensure that all investment income, profits (and losses to the extent applicable) arising from funds diverted from patient care are properly offset against interest expense? EXHIBIT V – Pre-Exit Conference Format (Rev. 27, 12-19-03) Contractor Name: ________________________________________________________________ Provider Name: ________________________________________________________________ Provider No:_________________________ FYE:_____________________ Auditor:_____________________________ Date:_____________________ Time:_______________________________ Location:____________________ Provider Representative: ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ Contractor Representative: ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ Other: ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ 1. Discussion of proposed adjustments __________________________________________________________________ __________________________________________________________________ 2. Discussion of documentation that is still needed by the auditor to complete his/her review. __________________________________________________________________ __________________________________________________________________ 3. Define responsibilities for all open items. __________________________________________________________________ __________________________________________________________________ 4. Establish timeframes for: a. Providing documentation to auditors __________________________________________________________________ __________________________________________________________________ b. Provider responding to proposed audit adjustments. __________________________________________________________________ __________________________________________________________________ c. Response by contractor to provider once documentation is received. __________________________________________________________________ __________________________________________________________________ d. Receipt of final adjustments. __________________________________________________________________ __________________________________________________________________ e. Contractor to provide adjustment work papers as requested by provider. ________________________________________________________________ __________________________________________________________________ 5. Assure all provider records are returned. ________________________________________________________________ ________________________________________________________________ Exhibit VI – Audit Adjustment Report (Rev. 27, 12-19-03) Instructions for Completion of the Audit Adjustment Report A. Heading Complete as indicated. B. Adjustment Numbers List adjustments in the order of completion of the cost report; i.e. cost report worksheet order and number them consecutively as they are recorded on the adjustment report. C. Report Reference Identify the CMS form, page number or worksheet, line number, and column number to which the adjustment applies. For example, reference to Form CMS-2552-96, Worksheet C, Part I, line 37, column 6, Operating Room (the cost center affected by the application of the adjustment), would indicate an adjustment to revise/remove total inpatient charges reported for the Operating Room. D. Explanation of Adjustment Provide a narrative description of the audit adjustment. The description should be adequate enough to identify the item being adjusted and the reason (e.g., decreasing the GME FTE count of interns and residents, removing nonallowable cost, reclassifying cost or other data). The narrative description of the audit adjustment should also include appropriate reference to law, regulations, or program policy and procedures, and the contractor’s working paper where the adjustment was first proposed. E. W/S A Line For adjustments pertaining to Wkst. A-6 and Wkst. A-8, indicate in this column the Wkst. A lines that are affected by the adjustment. For example, if vending machines expenses were included on Line 8 of Wkst. A, any Wkst. A-8 adjustments increasing or reducing the those expenses will affect Wkst. A, Line 8. Thus in the W/S A Line column insert “8”. F. CODE Indicate in this column the letters that are used to identify the Wkst. A-6 reclassification adjustments. For example, the first Wkst. A-6 reclassification adjustment should be annotated with the letter that follows the last letter used for reclassifications on the “submitted” Wkst. A-6. All the subsequent reclassification adjustments should follow the letters in the alphabet. If all the letters of the alphabet are used up and there are other reclassification adjustments to be made, double the letters starting with “A”. For example, use “AA” as the adjustment that follows “Z”. G. Basis Insert in this column the type of Wkst. A-8 adjustment. For “cost’ adjustments use “A” and for “income offsets” use “B”. H. As Reported or As Adjusted • As Reported – show the amount included in the unaudited cost report for the cost center that will be affected by the adjustment. For example, where the proposed adjustment will change the employee benefits statistical allocation of the Administrative & General (A&G) cost center as reported by the provider, the amount shown will be the statistic as reported for this cost center on Form CMS- 2552-96, Worksheet B-1, line 6, column 5. • As Adjusted – where the A&G cost center has previously been adjusted by the audit capability, the contractor shall insert in this column the amount shown "As Adjusted" for the previous adjustment. Reference should be made to this previous adjustment, e.g., (see adjustment no. 1). I. Increase (Decrease) Insert the amount of the adjustment. The adjustment amount should be indicated by brackets if it represents a (decrease) of the amount in the "As Reported or As Adjusted" column. J. As Adjusted This column is the result of adding or subtracting the adjustment amount from the previously reported amount. AUDIT ADJUSTMENT REPORT (Sample Format) These adjustments will be incorporated in our revised Statement of Reimbursable Cost for the period ended ______________. Provider # _____________________________ Provider Name _________________________ Fiscal Year __________________________ Adj. Pg or Explanation of W/S A A-6 As Reported Increase or No. Form Sch Line Col Adjustment Line # Ltr. Basis or As Adjusted (Decrease) As Adjusted 1 2552-96 S-3 1 4 Hospital Adults & Peds 34,400 125 34,525 Part I 6 ICU 812 (89) 723 7 CCU 791 24 815 To revise Title XVIII inpatient days to agree to the PS&R paid through 12/31/02. 42 CFR 413.64 & CMS 15-I, §2404. W/P 15-2 2 2552-96 A-6 1 4 Nonallowable Marketing – Salaries 99.01 Z $ – $ 252,000 $ 252,000 5 Nonallowable Marketing – Other 99.01 – 153,000 153,000 8 Nonallowable Marketing – Salaries 6 – (252,000) (252,000) 9 Nonallowable Marketing – Other 6 – (153,000) (153,000) To reclassify Marketing Expense to a nonreimbursable cost center, so That it receives its appropriate share of overhead. 42 CFR 413..9 & CMS 15-I, §2136. W/P 4-3 3 2552-96 A-8 22 2 Vending Machines 8 B $ – $ (11,690) $ (11,690) To offset income earned from vending machines. 42 CFR 413.9 & CMS 15-I, §2102..3. W/P 4-4B 4 2552-96 B-1 6 5 Administrative & General $ 5,659,255 $(252,000) $5,407,255 99.01 Nonallowable Marketing – 252,000 252,000 To reflect adjustments made to salaries for the Employee Benefits statistic as the stat is based on Gross salaries. 42 CFR 413.24 & CMS 15-I, §2306. W/P 11-6 5 2552-96 C 37 6 Operating Room $ 2,875,965 $ 342,105 $3,218,070 Part I To revise Inpatient Operating Room charges to agree to the provider's trial balance. 42 CFR 413.24 & CMS 15-I, §2304. W/P 15-2 6 2552-96 D-4 37 Operating Room $ 716,479 $ 25,452 $ 741,931 41 Radiology – Diagnostic 332,735 3,125 335,860 44 Laboratory 660,777 105,410 766,187 50 Physical Therapy 138,455 36,500 174,955 To adjust the Title XVIII Inpatient Charges to agree to the PS&R paid through 12/31/02. 42 CFR 413.53 & CMS 15-I, §2204. W/P 15-2 7 2552-96 E 21 1 Reimbursable Bad Debts $ 33,450 $ (3,200) $ 30,250 Part A To adjust Part A Bad Debts to remove those bad debts written off prior to 120 days. 42 CFR 413.80 CMS 15-I:310.2. W/P 14-1B 8 2552-96 E-1 1 2 Interim Payments Paid $ 7,121,387 $ 125,600 $7,246,987 2 Interim Payments Payable 154,955 (154,955) – To adjust Interim Payments to agree to the PS&R paid through 12/31/02. 42 CFR 413.64 & CMS 15-I,§2404. W/P 15-5 9 2552-96 E-3 3.07 1 Weighted FTE Count for Primary Care Residents 150.55 -2.34 148.21 Part IV 3.08 Weighted FTE Count for All Other Residents 95.40 -1.02 94.38 3.11 Weighted Dental & Podiatric FTE Count 11.00 -0.55 10.45 To adjust the GME FTE count to agree to the provider's rotation schedules. 42 CFR 413.86 W/P 13-8G Exhibit VII – Form of Report on Audit of Medicare Cost Report (Rev. 60, Issued: 11-26-04, Effective: 10-01-04, Implementation: 01-24-05) CONTRACTOR LETTERHEAD PROVIDER NAME ___________________________________________ PROVIDER NUMBERS ________________________________________ REPORTING PERIOD FROM__________________TO________________ We have audited the provider(s) Medicare cost report for the cost reporting period stated above. We conducted our audit in accordance with the directives in CMS Pub. 100-06, Chapter 8. They require that we plan and perform the audit to obtain reasonable assurance that the cost report settlement reflects payment amounts and financial data in accordance with Medicare laws, regulations, and instructions. A less than full scope audit was made of this cost report in accordance with CMS's audit instructions. The examination was confined to the specific areas selected for audit as indicated on the attached listing. Preparation of the cost report and compliance with Medicare laws, regulations, and instructions is the responsibility of the provider(s) management. As part of obtaining reasonable assurance about whether the cost report settlement reflects payment amounts and financial data in accordance with Medicare laws, regulations, and instructions, we performed tests of compliance with certain provisions of the Medicare laws, regulations, and instructions. In planning and performing our audit of the provider's cost report for the period, we considered its internal control structure, as it pertained to those items in the scope of our audit of the Medicare cost report, to determine auditing procedures for the purpose of expressing our opinion on the cost report and not to provide assurance on the internal control structure. (Select one of the following alternative paragraphs on the consideration of the internal control structure, if applicable.) We have concluded that it would be inefficient to evaluate the effectiveness of internal control structure policies and procedures and, in accordance with the GAS, we conducted the audit more efficiently by expanding substantive audit tests, thus placing little reliance on the internal control structure. or The objectives of this financial related audit did not require an understanding of the internal control structure. or The existing internal control structure contained so many weaknesses we had no choice but to rely on substantive testing, thus virtually ignoring the internal control structure. NOTE: This will not be included if the contractor used one of the alternative paragraph above. The provider(s) management is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control policies and procedures. The objectives of an internal control structure provide management with reasonable, but not absolute assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with generally accepted accounting principles. Because of inherent limitations in any internal control structure, errors or irregularities may occur and not be detected. Also, projections of any evaluation of the internal control structure to future periods is subject to risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. For purposes of this report, we have classified the significant internal control structure policies and procedures, as they affect the Medicare audit in the categories listed in the attached report. For the internal control structure categories listed, we obtained an understanding of the design of relevant policies and procedures and whether they have been placed in operation, and we have assessed control risk. (If reportable conditions were noted, the contractor incorporates the following statement, along with paragraphs describing the reportable conditions.) We noted certain matters involving the internal control structure and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control structure that, in our judgment, could adversely affect the entity's ability to record, process, summarize, and report financial-related data consistent with the assertions of management in the Medicare cost report. Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a reportable condition in which the design or operation of the specific internal control structure elements does not reduce to a relatively low risk that errors or irregularities in amounts that would be material in relation to the cost report being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. (If no material conditions or reportable conditions were noted, the contractor incorporates the following statement.) We noted no matters involving the internal control structure and its operation that we consider to be material weaknesses as defined above. (The following paragraph is an optional paragraph under either consideration for items that are less than reportable conditions and for general comments.) However, we noted certain matters involving the internal control structure and its operation that we have reported to the provider's management in a separate letter dated (the contractor inserts the date of the letter). The results of our tests indicate that, with respect to the items tested, the provider(s) complied in all material respects with Medicare laws, regulations, and instructions, except for the items listed in the attached adjustment report. With respect to items not tested, nothing came to our attention that caused us to believe that the provider(s) has not complied in all material respects with these provisions. The attached Medicare cost report has been adjusted for these items of noncompliance in accordance with the attached audit adjustment report. This report is intended for the information of the provider(s) and CMS. This restriction is not intended to limit the distribution of the report, which is a matter of public record, unless otherwise restricted by applicable laws. (Signature) Name and Title NPR Date Exhibit VIII – Form of Report for Medicare Cost Report That Has not Been Audited (Rev. 27, 12-19-03) CONTRACTOR LETTERHEAD PROVIDER NAME ___________________________________________ PROVIDER NUMBERS ________________________________________ REPORTING PERIOD FROM__________________TO________________ We have reviewed the provider(s) Medicare cost report for the cost reporting period stated above. Preparation of the cost report and compliance with Medicare laws, regulations, and instructions are the responsibility of the provider(s) management. We have performed a review of the cost report. The attached Medicare cost report has been adjusted, where required, for items of noncompliance discovered during our review, which are listed in the attached adjustment report. This report is intended for the information of the provider(s) and CMS. This restriction is not intended to limit distribution of this report, which is a matter of public record, unless otherwise restricted by applicable law. (Signature) Name and Title NPR Date Exhibit IX – Personal Impairments Statement (Rev. 27, 12-19-03) I certify that I am free of personal or financial impairments on this assignment/the assignments that I will be involved during the fiscal year*. These personal impairments may include, but are not limited to the following: y Official, professional, personal, or financial relationships that might cause me to limit the extent of the inquiry, to limit disclosure, or to weaken or slant audit findings in any way. y Preconceived ideas toward individuals, groups, organizations, or objectives of a particular program that could bias the audit. y Previous responsibility for decision-making or managing the entity that would affect current operations of the entity or program being audited. y Biases that result from employment in, or loyalty to, a particular group, organization, or level of government. y Subsequent performance of an audit by myself if, for example, I have previously approved invoices, payrolls, claims and other proposed payments of the entity or program being audited. y Concurrent or subsequent performance of an audit by myself, if I had previously maintained the official accounting records. y Financial interest, direct or substantial indirect, in the audited entity or program. y Job offer received during the engagement. Signature: ______________________ Date: ______________________ Approval: ______________________ Date: ______________________ * (Underline the applicable phrase depending whether the impairment statement applies to a single assignment or represents an annual impairment statement.) Exhibit X – Model Audit Subcontract Form (Rev. 27, 12-19-03) THIS CONTRACT between ____________________________, hereinafter referred to as the "Intermediary" and __________________________, hereinafter referred to as the "Audit Firm" shall begin on _________________, and shall end on _________________. ARTICLE I Auditing Services A. General 1. To the extent directed by the Intermediary, the Audit Firm shall examine the records of those providers of services designated by the Intermediary, and shall report any matters noted in the course of the examination which reflect upon the allowability of costs reported by the providers. Such costs are defined in §1861 (v) of the Social Security Act, as amended, hereinafter referred to as the "Act," and in the Principles of Reimbursement for Provider Costs (42 CFR 405.465 - 405.482 and 42 CFR 413.1 -413.178), hereinafter called "Principles." Based on Public Law 94-505, audits performed under the Act must adhere to the applicable Standards for Audits of Governmental Organizations, Programs, Activities, and Functions issued by the Comptroller General of the United States. These standards are covered in §4112 of CMS Publication 13-4. 2. The audit for each provider shall commence and be completed within the timeframes specified in Appendix B. A request for an extension of time must be in writing and will be allowed only for "good cause" as determined by the Intermediary. Any delays arising out of causes, which are beyond the control and without the fault or negligence of the audit firm, shall constitute "good cause" for an extension of time to complete an audit. 3. The Audit Firm may, with Intermediary approval, undertake preliminary work prior to the official commencement of the audit. B. The Audit Firm shall audit designated providers as indicated in Appendix B in accordance with Generally Accepted Auditing Standards applicable in the circumstances. The Intermediary will provide written instructions as to the extent of the audit, as well as the maximum number of hours allocated for the audit. For the purpose of this Article, if the Audit Firm is an independent Certified Public Accounting (CPA) Firm it must meet the criteria for independence in the Code of Professional Ethics published by the American Institute of Certified Public Accountants. Further, the Audit Firm will promptly disclose to the Intermediary, in writing, any auditing or Management Advisory Services (MAS) rendered to a provider which the Intermediary directs it to audit. C. Where the Audit Firm has conducted an examination, the Audit Firm's report must include the following: 1. Audit working papers detailing work performed which supports the audit findings. 2. Audit adjustments prepared in the format required by the Intermediary, as prescribed by the Centers for Medicare & Medicaid Services (CMS), to be discussed with provider officials. The Audit Firm will be present at these meetings. D. The Audit Firm agrees to advise the Intermediary, as soon as possible, of any matters coming to its attention during the course of the audit that, in the Audit Firm's opinion, indicate the need for additional auditing. Such advice shall be in sufficient detail so as to enable the intermediary to establish the need for additional work. As time is of the essence, the intermediary will respond orally before the end of two business days following receipt of such advice and confirm in writing. E. Final acceptance for all work called for herein will be made by the Intermediary when it determines that all technical requirements under the contract have been satisfactorily met. Any corrections or adjustments necessitated by the Audit Firm's failure to comply with the specifications will be made at no additional expense to the United States Government. F. All audit work to be performed under this Contract shall be performed directly by members or employees of the Audit Firm and no functions shall be subcontracted to any other person or firm, unless approved in advance, in writing, by the Intermediary and CMS. The Audit Firm agrees not to assist any provider of services for which it is performing the Medicare audit under this Contract in the resolution of any dispute between the provider of services and the Intermediary or CMS, arising as a result of any audit performed under this Contract. ARTICLE II Compensation for Services Performed Under This Contract A. The Intermediary shall compensate the Audit Firm for its direct and indirect audit time, travel, and incidental audit expenses. Direct audit time is defined as the time of personnel specifically spent in the conduct of an audit under the terms of this Contract. Indirect time is time spent by personnel in relation to audits under this Contract of two or more providers which cannot be specifically identified with the audit of either provider. The Audit Firm agrees to furnish the total number of hours of audit work at the rate and total dollar amount not exceeding those specified in Appendix A, and to audit those providers as directed by the Intermediary. The audit firm shall be paid an hourly rate, reasonable incurred travel costs and incidental out-of-pocket expenses, as compensation for the work performed under this contract, subject to the limitations of this Article. The Audit Firm shall not be compensated when the total amounts of its charges exceed the dollar amount specified in Appendix A. The Audit Firm shall not be compensated for any audit work performed at a provider of services after it has been directed by the Intermediary not to initiate that audit or to discontinue audit work in progress. Audit Firms shall not charge training of their staff to this Contract. B. The Intermediary shall reimburse the Audit Firm for all reasonable incurred travel costs in accordance with the guidelines for travel in the Federal Acquisition Regulations (FAR) §31.205-46, as outlined in subparagraphs 1 and 2 below. Travel costs are those expenses for transportation, lodging, subsistence, and related items incurred by any member or employee of the Audit Firm in the performance of functions under this Contract. Such costs may be charged on an actual basis, a per diem or mileage basis in lieu of actual costs incurred, or a combination of the two. The method used shall apply to an entire trip and not to selected days of the trip. 1. Costs incurred for lodging, meals and incidental expenses shall be considered to be reasonable and allowable only to the extent that they do not exceed on a daily basis the maximum per diem rates in effect at the time of travel as set forth in the Federal Travel Regulations. 2. Airfare costs in excess of the lowest customary standard coach, or equivalent airfare offered during normal business hours are unallowable except when such accommodations require circuitous routing, require travel during unreasonable hours, excessively prolong travel, result in increased cost that would offset transportation savings, are not reasonably adequate for the physical or medical needs of the traveler, or are not reasonably available to meet mission requirements. C. The Audit Firm's hourly rates for services to be performed by its members and employees under this Contract shall not exceed those specified in Appendix A. D. The Audit Firm shall submit to the Intermediary, at least monthly, billings for total services rendered, showing Hourly Rates times the Number of Hours, with separate entries for total travel and incidental out-of-pocket expenses. In addition, the Audit Firm shall attach to each monthly billing a listing of the providers to which the billing applies and the audit fees associated with each provider, including the corresponding hour(s). Included in the listing, as separate items, shall be the cost of indirect time and incidental expenses so that the total shown will agree with the total in the monthly billing. Within 30 calendar days after the completion or termination of an audit, the Audit Firm will submit a summary of the direct time for performing the audit of that provider. Within 30 days after the completion of this Contract, the Audit Firm shall submit a summary of indirect time for each provider of services audited under this Contract. The Intermediary shall make prompt payment to the Audit Firm, upon receipt of monthly billings, to the extent such compensation, travel, and incidental out-of-pocket expenses are supported under this Article; however, the Intermediary must be satisfied with the quality of the audit before final settlement. E. When the Audit Firm is delinquent in submitting any working papers as required under Article I.A., and C., of this Contract, the Intermediary shall have the right to suspend all payments to the Audit Firm until such time as the Intermediary determines that the Audit Firm is current in processing audits to completion and in submitting working papers. The Audit Firm shall be considered current when it meets the requirements of Article I.A.2 regarding the submission of working papers. F. The Audit Firm shall maintain adequate accounting records covering the funds received under this Contract. The Audit Firm agrees that the Intermediary until 3 years after final payment for the term of this Contract, shall have access to and the right to examine, upon reasonable notice, the records involving transactions related to this Contract. G. This contract does not provide for indemnification of the Audit Firm or any of its directors, officers or other employees for its wrongful acts or conduct stemming from the Medicare audit. Thus, in the event of a lawsuit or administrative proceeding the Audit Firm is totally responsible for any adverse judgments or awards rendered against it and/or related costs and legal fees. ARTICLE III Amendments Due to Increases in Charges If, during the term of this Contract, the Audit Firm determines or anticipates that its charges in carrying out the terms of this Contract will exceed the total amount stated in Appendix A, it shall request, in writing, that the Intermediary provide a funding increase and shall furnish adequate data to support such request. A. If the requested increase, by itself, does not exceed $10,000, or when added to previous Contract increases does not exceed fifteen percent of the total Contract amount, the Intermediary shall determine within seven calendar days the extent to which the increase will be made. The Contract will then be amended to reflect the appropriate amount of increase. B. If the requested amount of increase exceeds $10,000, or when added to previous increases on this Contract exceeds fifteen percent of the total Contract amount, the Intermediary shall forward the Contract amendment to CMS for approval. ARTICLE IV Amendments Due to Increase and/or Decrease in Number of Providers of Service A. The Intermediary and the Audit Firm may at any time agree to increase or decrease the number of providers to be audited under this Contract, as specified in Appendix B. B. The Intermediary shall have the right to reduce the number of Audits of providers as specified in Appendices A and B, or to direct that audit work in progress be discontinued, upon the giving of prior written notice to the Audit Firm. The reduction or direction to discontinue work shall become effective on the date specified in the notice. C. In the event of any increase or decrease in the number of providers to be audited under this contract as specified in Appendices A and B, which does not cause a complete termination of this Contract, the Audit Firm and the Intermediary agree that the total estimated maximum amount stated in Appendix A shall be appropriately adjusted. D. The Intermediary's obligation under the contract is contingent upon the availability of appropriated funds from which payment for contract purposes can be made. ARTICLE V Questions and Interpretations The Audit Firm shall refer questions of interpretation of the Act or Principles of Medicare Reimbursement to the Intermediary and the written reply of the Intermediary will be considered as conclusive. ARTICLE VI Term of the Contract The term of this Contract shall begin and end on the dates cited on page 1. If the cost report for any provider of services is received by the Audit Firm during the term of this Contract, at a time when completion of the audit by the ending date of the contract is not possible, the Audit Firm will continue to assist in performing the audit under this Contract if sufficient audit hours and money are still available. (See Article II, Paragraph A.) ARTICLE VII Termination of Contract A. The Intermediary and the Audit Firm may terminate this Contract at any time by mutual consent. B. This Contract shall automatically be terminated when the services described in Article I have been completed for all providers of services for which cost reports have been received by the Audit Firm during the term of this Contract. In the event the Intermediary reduces the number of audits specified in Appendix B to be performed under this contract, the contract shall be terminated upon the completion of all remaining audits. C. In the event of any termination under this Article or under any other provision of this Contract, the Audit Firm shall, as promptly as possible, but not later than 30 calendar days after the date of such termination, submit a summary including the direct time for provider audit work performed, travel, incidental out-of-pocket expenses, and any indirect time chargeable under this Contract. ARTICLE VIII Disputes Except as otherwise provided in this Contract, any dispute concerning a question of fact arising under this Contract, which is not disposed of by agreement, shall be decided by an official authorized to bind the Intermediary who shall mail or otherwise furnish a copy of the decision to the Audit Firm. ARTICLE IX Appendices Appendix A, Appendix B, and the "Addendum to Subcontracts Under the Health Insurance for the Aged and Disabled Act" attached hereto, are made a part of this Contract. ARTICLE X Contract and Amendment Approval The Intermediary and the Audit Firm acknowledge that this Contract, and any amendments over $10,000 or exceeding fifteen percent of the total contract amount are not to be effective until approval, in writing, by the Secretary. IN WITNESS WHEREOF, the parties hereby execute this agreement this _______ day of __________ 19 _______. ____________________________________________ (Audit Firm) ____________________________________________ ____________________________________________ (Address of Audit Firm) By: __________________________________________ (Signature) (Title) (Intermediary) By: __________________________________________ (Signature) (Title) (Blue Cross/Blue Shield Association) By: __________________________________________ (Signature) (Title) Approved: Secretary of Health and Human Services By :__________________________________ Signature APPENDIX A HOURLY RATE OF AUDIT FIRM PERSONNEL CATEGORY OF COSTS HOURLY RATE HOURS AMOUNT FLAT RATE TRAVEL COSTS INCIDENTAL COSTS TOTAL APPENDIX B List of Providers of Services to be Audited Name of Provider & Estimated Audit Completion Date City FYE Estimated Hours Estimated Amount Travel Cost Incidental Costs (Title) This____________ day of ____________20____ Exhibit XI – Addendum to Subcontract (Rev. 27, 12-19-03) Addendum to Subcontract Under the Health Insurance for the Aged and Disabled Act (42 U.S.C., Chapter 7, Supp., as Amended) The clauses of this Addendum are a part of and are applicable, as indicated, to the subcontract by and between ____________________________, hereinafter referred to as the "Contractor" and __________________________, hereinafter referred to as "Subcontractor." The term "Secretary" as used herein, means the Secretary of Health and Human Services or his delegate unless specified otherwise. TABLE OF CONTENTS Clause No. Title Page No. Section I I Facilities Nondiscrimination Clause II Disclosure of Information III Automatic Termination of Subcontract Clause IV Liquidated Damages in Subcontracts V Privacy Act VI Cost and Pricing Data Section II VII Subcontracting of Responsibilities VIII Inspection IX Rights in Data X Subcontractor as Common Subcontractor XI Modification of Subcontract XII Regulations and General Instructions XIII Prohibition Against Billing Services Section III Federal Acquisition Regulation Clauses (FAR) 52.222-26 Equal Opportunity 52.219-8 Utilization of Small Business Concerns and Small Disadvantaged Business Concerns 52.219-9 Small Business and Small Disadvantaged Business Subcontracting Plan 52.220-3 Utilization of Labor Surplus Area Concerns Section IV 52.220-4 Labor Surplus Area Subcontracting Program 52.222-21 Certification of Nonsegregated Facilities 52.222-35 Affirmative Action for Special Disabled and Vietnam Era Veterans 52.222-36 Affirmative Action for Handicapped Workers 3.502 Fees or Kick-Backs by Subcontractors 52.219-13 Utilization of Women-Owned Small Businesses 52.215-1 Examination of Records by Comptroller General NOTE: If there are any questions by the Subcontractor as to the applicability of the above clauses to this subcontract or whether the Subcontractor will be performing under this subcontract one of the Medicare "functions" or other responsibilities requiring prior approval of the Secretary as provided in the Medicare agreement between the Contractor and the Secretary, clarification should be requested from the Contractor in writing prior to execution hereof. SECTION I The clauses in §I are applicable to this subcontract (and to lower tier subcontracts hereunder) unless excluded by the virtue of the lead-in language or other provisions contained in the body of the individual clauses. Clause I FACILITIES NONDISCRIMINATION CLAUSE The following provisions are applicable if this subcontract is for the lease of real estate: "As used in this clause, the term "Facility" means stores, shops, restaurants, cafeterias, restrooms, and any other facility of a public nature in the building in which the space covered by this lease is located." "The lessor agrees that he will not discriminate by segregation or otherwise against any person or persons because of race, color, religion, sex, or national origin in furnishing or by refusing to furnish, to such person or persons, the use of any facility, including any or all services, privileges, accommodations, and activities provided thereby. Nothing herein shall require the furnishing to the general public of the use of any facility customarily furnished by the lessor solely to tenants, their employees, customers, patients, clients, guests and invitees." "It is agreed that the lessor's noncompliance with the provisions of this clause shall constitute a material breach of this lease. In the event of such noncompliance, the lessee in acquiring substitute space. Substitute space shall be obtained in as close proximity to the lessor's building as is feasible and moving costs will be limited to the actual expenses thereof as incurred." "The lessor agrees to include, or to require the inclusion of the foregoing provisions of this clause (with the terms "lessor" and "lessee" appropriately modified) in every agreement or concession pursuant to which any person other than the lessor operates or has the right to operate any facility. Nothing herein contained, however, shall be deemed to require the lessor to include or require the inclusion of the foregoing provisions of this clause in any existing agreement or concession arrangement or one in which the contracting party other than the lessor has the unilateral right to renew or extend the agreement or arrangement, until the expiration of the existing agreement or arrangement and the unilateral right to renew or extend. The lessor also agrees that it will take any and all lawful actions as expeditiously as possible with respect to any such agreement as the contracting agency may direct to enforce this clause, including but not limited to termination of the agreement or concessions and institution of court action." Clause II DISCLOSURE OF INFORMATION This clause is applicable to this subcontract and to any lower tier subcontract hereunder if it provides for the performance of any of the functions required for the administration of the Medicare agreement between the Contractor and the Secretary, and to any other subcontract where the subcontractor, its agents, officers, or employees might reasonably be expected to have access to information within the purview of §1106 of the Social Security Act, as amended, and regulations prescribed pursuant thereto. "The Subcontractor agrees to establish and maintain procedures and controls so that no information contained in its records or obtained from the Contractor and/or the Secretary or from others in carrying out the terms of this subcontract shall be used by or disclosed by it, its agents, officers, or employees except as provided in §1106 of the Social Security Act, as amended, and Regulations prescribed thereunder." Clause III AUTOMATIC TERMINATION OF SUBCONTRACT CLAUSE This clause is applicable to this subcontract if its term exceeds the term of the agreement between the Secretary and the Contractor, except where the Secretary agrees to its omission or if this subcontract is solely for the purchase of supplies and equipment. Notwithstanding the following, if the Contractor wishes to continue the subcontract relative to its own business after the contract between the Secretary and the Contractor has been terminated or nonrenewed, it may do so provided it assures the Secretary in writing that the Secretary's obligations will terminate at the time the Medicare contract terminates or is nonrenewed subject to the termination cost provisions provided for in the contract. The clause is as follows: "In the event the Medicare contract between the Secretary and the Contractor is terminated, the subcontract between the Contractor and the Subcontractor will be terminated unless the Secretary and the Contractor agree to the contrary. Such termination shall be accomplished by delivery of written notice to the Subcontractor of the date upon which said termination will become effective." Clause IV LIQUIDATED DAMAGES IN SUBCONTRACTS The following provisions are applicable to this subcontract if it contains liquidated damages provisions which relate solely to Medicare: The Secretary, after consultation with the Contractor, shall have the right to determine that the specified levels of performance have not been attained by the Subcontractor. In such event, the Secretary may direct the Contractor to notify the Subcontractor of the Secretary’s determination that liquidated damages apply and to set-off the liquidated damages against the Subcontractor. Clause V PRIVACY ACT The Privacy Act of 1974, Public Law 93-579, and the Regulations and General Instructions issued by the Secretary pursuant thereto, are applicable to this subcontract, and to all subcontracts hereunder to the extent that the design, development, operation, or maintenance of a system of records as defined in the Privacy Act is involved. Clause VI COST AND PRICING DATA This clause is applicable to this subcontract and to any modification thereof, (1) where the estimated cost to Medicare exceeds or will exceed $500,000, and (2) the estimated cost was not based on adequate price competition, established catalog or market prices of commercial items sold in substantial quantities to the general public, or prices set by law or regulation. The Subcontractor is required to submit written cost or pricing data and certify that the data submitted was accurate, complete and current at the time of entry into this subcontract or modification in accordance with Subpart 15.804 of the Federal Acquisition Regulation and to maintain full and complete accounting records to support cost or pricing data submitted. The Subcontractor must provide for full access by the Contractor, the Secretary, and the Comptroller General of the United States for the purpose of examining the accuracy of cost or pricing data submitted as aforesaid, and in accordance with Subpart 15.804 of the Federal Acquisition Regulation, agrees to a reduction in price if the cost or pricing data submitted is found to be defective. SECTION II In addition to the clauses in §I, the clauses contained in §II are also applicable to this subcontract regardless of amount if the subcontract (a) provides for the performance of any of the functions required for the administration of the Medicare agreement between the Contractor and the Secretary, or (b) involves subcontracting for automated data process systems or facilities management services which required the Secretary's prior approval. Clause VII SUBCONTRACTING OF RESPONSIBILITIES The Subcontractor agrees that it shall not enter into any lower tier subcontract with any other party to carry out the primary responsibilities of this subcontract without the prior written approval of the Secretary. In the event such approval is given, the Subcontractor further agrees that the substance of these clauses shall be inserted in each such lower tier subcontract. Clause VIII INSPECTION The Secretary shall have the right, at all reasonable times and upon reasonable notice, to inspect or to otherwise evaluate the work performed or being performed under this subcontract, and the premises in which it is being performed. If an inspection or evaluation is made, the Subcontractor shall provide all reasonable facilities and assistance for the safety and convenience of the Secretary's representatives in the performance of their duties. All inspections and evaluations by the Secretary's representatives shall be performed in such a manner as will not unduly delay the work. Clause IX RIGHTS IN DATA A. The Subcontractor 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 subcontract, 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 Subcontractor). The Subcontractor 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 Subcontractor) acquired by it in carrying out its functions under this subcontract. This does not apply to the proprietary data of subcontractors which is utilized by the Contractor for program purposes. B. As used in this clause, the term "Subject Data" means writings, sound recordings, pictorial reproductions, drawings, designs, or other graphic representations, all systems documentation, program logic, operational manuals, forms, diagrams, workflow charts, equipment descriptions, data files, data processing or computer programs, all other operational methods and procedures involved in the performance of functions under the subcontract and works of any similar nature (whether copyrighted or copyrightable) which are acquired or utilized by the Subcontractor in carrying out its functions under this subcontract, for which more than 50 percent of the cost of development has been paid out of Government funds. The term does not include financial reports, cost analyses, and similar information incidental to contract administration. C. Government rights. Subject only to provisions of (D) below, the Government may use, duplicate or disclose in any manner, and for any purpose whatsoever, and have or permit others to do so, all Subject Data. D. License to copyright data. In addition to the Government rights as provided in (C) above with respect to any Subject Data which may be copyrighted, the Subcontractor agrees to and does hereby grant to the Government a royalty-free, nonexclusive, and irrevocable license throughout the world to use, duplicate or dispose of such data in any manner and for any purpose whatsoever, and to have or permit others to do so; provided, however, that such licenses shall be only to the extent that the Subcontractor now has, or prior to completion or final settlement of this subcontract may require, the right to grant such license without becoming liable to pay compensation to others solely because of such grant. E. Relation to patents. Nothing contained in this clause shall imply a license to the Government under any patent or be construed as affecting the scope of any license or other right otherwise granted to the Government under any patent. F. Marking and identification. The Subcontractor shall not affix any restrictive markings upon any Subject Data, and if such markings are affixed, the Government shall have the right at any time to modify, remove, obliterate, or ignore any such markings. G. Deferred ordering and delivery of data. The Government shall have the right to order, at any time during the performance of this subcontract, or within two years from either acceptance of all items to be delivered under this subcontract or termination of this subcontract, whichever is later, any Subject Data, or data generated in performance of the subcontract developed with Government funds, and the Subcontractor shall promptly prepare and deliver such Subject Data or data as may be required. When Subject Data is delivered pursuant to this paragraph G, payment shall be made for converting the Subject Data or data into the prescribed form, reproducing it or preparing it for delivery. The Government's right to use data delivered pursuant to this paragraph G shall be the same as the rights in Subject Data as provided in (C) above. The Subcontractor shall be relieved of the obligation to furnish Subject Data or data upon the expiration of two years from the date it accepts such items. H. The Subcontractor shall retain such data or Subject Data subject to the time limit imposed by the Examination of Records clause of this Addendum and the right to examine such records by the Comptroller General of the United States and the Secretary including their duly authorized representatives). Clause X SUBCONTRACTOR AS COMMON SUBCONTRACTOR In the event a systems change, as designated by the Secretary, is required as the result of an act of Congress, Regulation, or General Instruction, and it applies to more than one Medicare contractor for which the Subcontractor ("Common Subcontractor") provides similar services, each contractor shall individually arrange for the common Subcontractor to implement such change to its system. If an increase in cost is sought by the Common subcontractor for the modification, the Contractor shall pay a reasonable price, based upon certified cost or pricing data submitted by the Common Subcontractor. As soon as possible thereafter, the Contractor shall submit the supporting data, along with all other pertinent documentation, to the Secretary. On a basis to be determined by the Secretary, a reasonable price shall then be established for the common systems change as implemented by all affected contractors and such price shall be divided among those contractors. The cost of any additional modifications needed to meet the specific requirements of a particular contractor shall be borne only by that contractor. Should the Secretary determine that the increase in price for the common change or other modification is not adequately supported, the Common Subcontractor agrees to refund such amount to the Contractor. In the event the Common Subcontractor refuses to refund the above amount, the Secretary may request that the contractor take action to recover from the Common Subcontractor that portion of the price which the Secretary finds to be unsupported. The Secretary shall reimburse the Contractor for all reasonable costs relating to such action. The Secretary shall from time-to-time notify the Contractor of the identity of other Medicare contractors with common subcontracts. Clause XI MODIFICATION OF SUBCONTRACT (a) Neither this subcontract nor any lower tier subcontract under this subcontract shall be modified or amended, regardless of amount, without obtaining prior written approval of the Secretary if it provides for the performance of any of the functions contained in the Medicare agreement between the Contractor and the Secretary. (b) If this subcontract does not fall within the purview of paragraph (a) of this clause, the Secretary's prior approval shall be obtained for any modification or amendment thereof where the estimated cost of such change or changes would result in an increase of the costs to Medicare in excess of fifty percent of the Contractor's threshold amount as provided in its contract. (c) Before this subcontract is renewed or any option herein is exercised, the Secretary's approval shall be obtained, unless the Secretary has previously stipulated otherwise in writing. Clause XII REGULATIONS AND GENERAL INSTRUCTIONS The Contractor is obliged under its contract with the Secretary to comply with all Regulations and General Instructions as the Secretary may from time-to-time prescribe for the administration of its contract. To the extent that such Regulations and General Instructions affects this subcontract, the Subcontractor shall also comply with such Regulations and General Instructions. Clause XIII PROHIBITION AGAINST BILLING SERVICES The provisions of this clause are applicable to this subcontract if it provides for facilities management services or any electronic data processing which contemplates performance of an integral part of the Medicare claims process. However, such provisions do not apply if this subcontract is for the lease or purchase of equipment or supplies. The Subcontractor (or a parent, subsidiary, or affiliated organization) shall not perform services for providers which involve (1) the preparation or completing of preliminary or initial cost reports, or (2) the allocation of expenses to provider cost centers and apportionment of such costs between Medicare beneficiary patients and other patients of the provider where such data may be used in the preparation of cost reports subsequently submitted to the Subcontractor for desk review and audit and which serve as the basis for determination of Medicare program payments by the Subcontractor. The Subcontractor (or a parent, subsidiary or affiliated organization) shall not perform, in any jurisdiction in which it is serving as a Subcontractor to a Medicare Contractor, billing services for a provider where billings by such providers are to be subsequently processed by the Subcontractor for Medicare payments. This does not preclude the Subcontractor from offering and operating an automated billing service (software and equipment) for a provider as long as operating such a billing service does not require the Subcontractor to describe or code the health-care services being billed. SECTION III This subcontract incorporates the following clauses by reference with the same force and effect as if they were given in full text. Upon request, the Secretary will make their full text available to the Subcontractor. The clauses are applicable to this subcontract or lower tier subcontract to Medicare is $10,000 or higher, unless specifically exempted by applicable rules, regulations, or Executive Orders. The term "Contractor" as used therein shall mean the "Subcontractor." FEDERAL ACQUISITION REGULATION (48 CFR, CHAPTER 1) CLAUSES 52.222-26 Equal Opportunity (April 1984) 52.219-8 Utilization of Small Business Concerns and Small Disadvantaged Business Concerns (April 1984) 52.220-3 Utilization of Labor Surplus Area Concerns (April 1984) 52.220-4 Labor Surplus Area Subcontracting Program (April 1984) 52.222-21 Certification of Nonsegregated Facilities (April 1984) 52.222-35 Affirmative Action for Special Disabled and Vietnam Era Veterans (April 1984) 52.222-36 Affirmative Action for Handicapped Workers (April 1984) 3.502 Fees or Kick-Backs By Subcontractors (Anti-Kickback Act) (41 U.S.C. 51- 54) (April 1984) 52.219-13 Utilization of Women-Owned Small Businesses (April 1984) 52.215-1 Examination of Records by Comptroller General (April 1984)